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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
---------------
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-16181
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ABC BANCORP
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
GEORGIA 58-1456434
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(State of incorporation) (IRS Employer ID No.)
310 FIRST STREET, SE MOULTRIE, GA 31768
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(Address of principal executive offices)
(912) 890-1111
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(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
There were 8,586,067 shares of Common Stock outstanding as of March 31, 2000.
1
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ABC BANCORP
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item Page
- ----- ----
1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Income
& Comprehensive Income 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
3. Quantitative and Qualitative Disclosures about
Market Risk 13
PART II - OTHER INFORMATION
4. Submission of Matters to a Vote of
Securities Holders 14
6. Exhibits and Reports on Form 8-K 14
Signature 15
2
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ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Mar 31 Dec 31
2000 1999
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<S> <C> <C>
Assets
- ------
Cash and due from banks $ 38,684 $ 80,130
Securities available for sale, at fair value 148,790 143,538
Securities held to maturity, at cost 0 0
Loans 553,235 530,225
Less allowance for loan losses 10,214 9,895
-------- --------
Loans, net 543,021 520,330
-------- --------
Premises and equipment, net 19,819 19,540
Other assets 21,839 25,922
-------- --------
$772,153 $789,460
======== ========
Liabilities and Stockholders' Equity
- ------------------------------------
Deposits
Noninterest-bearing demand $ 90,452 $103,279
Interest-bearing demand 150,274 147,561
Savings 53,810 52,659
Time, $100,000 and over 108,672 95,282
Other time 249,670 241,877
-------- --------
Total deposits 652,878 640,658
Federal funds purchased & securities sold under
repurchase agreements 487 397
Other borrowings 36,917 66,150
Other liabilities 6,356 6,239
-------- --------
Total liabilities 696,638 713,444
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Stockholders' equity
- --------------------
Common stock, par value $1; 15,000,000 shares authorized
9,134,090 and 9,098,690 shares issued 9,134 9,099
Surplus 29,202 28,854
Retained earnings 43,733 42,188
Accumulated other comprehensive income (1,895) (1,507)
Unearned Comp-Grants (849) (560)
-------- --------
79,325 78,074
Less cost of shares acquired for the treasury, 548,023
and 374,823 shares (3,810) (2,058)
-------- --------
Total stockholders' equity 75,515 76,016
-------- --------
$772,153 $789,460
======== ========
See Notes to Consolidated Financial Statements.
</TABLE>
3
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ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
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2000 1999
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<S> <C> <C>
Interest income
Interest and fees on loans $ 13,650 $ 12,095
Interest on taxable securities 2,029 1,974
Interest on nontaxable securities 241 271
Interest on deposits in other banks 243 191
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16,163 14,531
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Interest expense
Interest on deposits 5,892 5,700
Interest on other borrowings 683 211
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6,575 5,911
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Net interest income 9,588 8,620
Provision for loan losses 378 532
---------- ----------
Net interest income after provision
for loans losses 9,210 8,088
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Other income
Service charges on deposit accounts 1,446 1,281
Other service charges, commissions and fees 522 654
Other 48 56
Loss on sale of securities - -
---------- ----------
2,016 1,991
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Other expense
Salaries and employee benefits 4,183 3,790
Equipment and occupancy expense 1,025 1,109
Other operating expenses 2,476 1,980
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7,684 6,879
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Income before income taxes 3,542 3,200
Applicable income taxes 1,137 1,066
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Net income $ 2,405 $ 2,134
========== ==========
Other comprehensive income, net of tax:
Unrealized holding gains (losses) arising during period,
net of tax $ (388) $ (205)
---------- ----------
Comprehensive income $ 2,017 $ 1,929
========== ==========
Income per common share-Basic $ 0.28 $ 0.25
========== ==========
Income per common share-Diluted $ 0.28 $ 0.25
========== ==========
Average shares outstanding 8,552,854 8,686,769
========== ==========
See Notes to Consolidated Financial Statements.
</TABLE>
4
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ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
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2000 1999
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<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 2,405 $ 2,134
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Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 509 556
Provision for loan losses 378 532
Amortization of intangible assets 210 213
Other prepaids, deferrals and accruals, net 4,284 4,833
---------- ----------
Total adjustments 5,381 6,134
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Net cash provided by operating activities 7,786 8,268
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INVESTING ACTIVITIES
Proceeds from maturities of investment securities 1,288 40,139
Purchase of investment securities (7,127) (35,750)
Increase in loans (23,069) (9,259)
Purchase of premises and equipment (788) (648)
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Net cash used in investing activities (29,696) (5,518)
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FINANCING ACTIVITIES
Net increase (decrease) in deposits 12,220 (19,897)
Net increase (decrease) in repurchase agreements 90 (597)
Increase (decrease) in long-term borrowings 15,000 (2,000)
Increase (decrease) in other borrowings (44,233) 4,120
Dividends paid (861) (725)
Purchase treasury stock (1,752) (88)
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Net cash used in financing activities (19,536) (19,187)
---------- ----------
Net increase (decrease) in cash and due from banks (41,446) (16,437)
Cash and due from banks at beginning of period 80,130 56,475
---------- ----------
Cash and due from banks at end of period $ 38,684 $ 40,038
========== ==========
See Notes to Consolidated Financial Statements.
</TABLE>
5
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of ABC Bancorp and subsidiaries ("the
Company") conform to generally accepted accounting principles and to general
practices within the banking industry. The interim consolidated financial
statements included herein are unaudited, but reflect all adjustments which, in
the opinion of management, are necessary for a fair presentation of the
consolidated financial position and results of operations for the interim
periods presented. All adjustments reflected in the interim financial
statements are of a normal, recurring nature. Such financial statements should
be read in conjunction with the financial statements and notes thereto and the
report of independent auditors included in the Company's Form 10-K Annual Report
for the year ended December 31, 1999. The results of operations for the three
months ended March 31, 2000 are not necessarily indicative of the results to be
expected for the full year.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Liquidity management involves the matching of the cash flow requirements of
customers, who may be either depositors desiring to withdraw funds or borrowers
needing assurance that sufficient funds will be available to meet their credit
needs, and the ability of ABC Bancorp and its subsidiaries (the "Company") to
meet those needs. The Company strives to maintain an adequate liquidity
position by managing the balances and maturities of interest-earning assets and
interest-bearing liabilities so that the balance it has in short-term
investments at any given time will adequately cover any reasonably anticipated
immediate need for funds. Additionally, the subsidiary banks (the "Banks")
maintain relationships with correspondent banks which could provide funds to
them on short notice, if needed.
The liquidity and capital resources of the Company is monitored on a periodic
basis by state and Federal regulatory authorities. As determined under
guidelines established by these regulatory authorities, the Company's and the
Banks' liquidity ratios at March 31, 2000 were considered satisfactory. At that
date, the Banks' short term investments were adequate to cover any reasonably
anticipated immediate need for funds. The Company is aware of no events or
trends likely to result in a material change in liquidity. During the three
months ended March 31, 2000, total capital decreased $501,000 to $75,515,000.
This decrease in capital resulted from the retention of net earnings of
$1,545,000 (after deducting dividends to shareholders of $860,000), less
$1,752,000 for the purchase of 173,200 shares acquired for the treasury, plus
$94,000 accrual for award grants, and an increase of approximately $388,000 in
unrealized losses on securities available for sale, net of taxes.
At March 31, 2000, ABC had no binding commitments for capital expenditures.
The Company anticipates that approximately $1,255,000 will be required for
capital expenditures during the remainder of 2000. Additional expenditures may
be required for other mergers and acquisitions. No additional mergers or
acquisitions requiring cash are being negotiated at present.
7
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Results of Operations
The Company's results of operations are determined by its ability to
effectively manage interest income and expense, to minimize loan and investment
losses, to generate noninterest income and to control noninterest expense.
Since interest rates are determined by market forces and economic conditions
beyond the control of the Company, the ability to generate net interest income
is dependent upon the Banks' ability to obtain an adequate spread between the
rate earned on interest-earning assets and the rate paid on interest-bearing
liabilities. Thus, the key performance measure for net interest income is the
interest margin or net yield, which is taxable-equivalent net interest income
divided by average earning assets.
The primary component of consolidated earnings is net interest income, or the
difference between interest income on interest-earning assets and interest paid
on interest-bearing liabilities. The net interest margin is net interest income
expressed as a percentage of average interest-earning assets. Interest-earning
assets consist of loans, investment securities and Federal funds sold.
Interest-bearing liabilities consist of deposits and borrowings such as Federal
funds purchased, securities sold under repurchase agreements and Federal Home
Loan Bank advances. A portion of interest income is earned on tax-exempt
investments, such as state and municipal bonds. In an effort to state this tax-
exempt income and its resultant yields on a basis comparable to all other
taxable investments, an adjustment is made to analyze this income on a taxable-
equivalent basis.
8
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Comparison of Statements of Income
The net interest margin was 5.55% and 5.39% during the three months ended
March 31, 2000 and 1999, respectively, an increase of 16 basis points. These
variances are primarily attributable to fluctuations in the average rates
charged and fees earned on loans.
Net interest income on a taxable-equivalent basis was $9.8 million as
compared to $8.8 million during the three months ended March 31, 2000 and 1999,
respectively, representing an increase of 11.4%.
The provision for loan losses is a charge to earnings in the current period to
replenish the allowance for loan losses and maintain it at the level management
determines is adequate. The provision for loan losses charged to earnings
amounted to $378,000 and $532,000 during the three months ended March 31, 2000
and 1999, respectively, a decrease of $154,000, or 28.9%.
The allowance for loan losses represents a reserve for potential losses in the
loan portfolio. The adequacy of the allowance for loan losses is evaluated
quarterly based on a review of all significant loans, with a particular emphasis
on non-accruing, past due and other loans that management believes require
attention. Another factor used in determining the adequacy of the reserve is
management's judgment about factors affecting loan quality and assumptions about
the local and national economy.
The allowance for loan losses was 1.85% and 1.87% of total loans outstanding
at March 31, 2000 and December 31, 1999. As of March 31, 2000, nonperforming
assets were $6,155,000 compared to $6,086,000 in nonperforming assets as of
December 31, 1999. Management considers the allowance for loan losses as of
March 31, 2000 adequate to cover potential losses in the loan portfolio.
9
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Following is a comparison of noninterest income for the three months ended
March 31, 2000 and 1999 (dollars in thousands).
Three Months Ended
---------------------------------
March 31, 2000 March 31,1999
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Service charges on deposits $1,446 $1,281
Other service charges,
commissions & fees 522 654
Other income 48 56
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Total noninterest income $2,016 $1,991
====== ======
Total noninterest income for the three months ended March 31, 2000 was $25,000
higher than during the same period in 1999.
Following is an analysis of noninterest expense for the three months ended
March 31, 2000 and 1999 (dollars in thousands).
Three Months Ended
---------------------------------
March 31, 2000 March 31,1999
-------------- -------------
Salaries and employee benefits $4,183 $3,790
Occupancy and equipment expense 1,025 1,109
Other expense 2,476 1,980
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Total noninterest expense $7,684 $6,879
====== ======
Total noninterest expense for the three months ended March 31, 2000 was
$805,000 higher than during the same period in 1999.
Salaries and employee benefits for the three months ended March 31, 2000 were
$393,000 or 10.4% higher than during the same period in 1999. Approximately
$107,000 or 27.2% of this increase was the result of incentive compensation to
employees under the ABC Bancorp 2000 Officer/Director Stock Bonus Plan. The
Company does not anticipate that this cost will be repeated in the foreseeable
future. The balance of the increase is due to additional bonus accruals under
the Company's incentive compensation plan due to improved performance of the
Company and normal increases in salaries and benefits.
10
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Other expense for the three months ended March 31, 2000 increased $496,000
or 25.1% as compared to the same period in 1999. Approximately $107,000 or 21.6%
of this increase was the result of incentive compensation to directors of the
Company and its subsidiaries under the ABC Bancorp 2000 Officer/Director Stock
Bonus Plan. The Company does not anticipate that this cost will be repeated in
the foreseeable future. Data processing costs were approximately $115,000 higher
during the quarter due to the implementation of several projects. The balance of
the increase is due to normal increases in costs between periods.
Following is a condensed summary of net income during the three months ended
March 31, 2000 and 1999 (dollars in thousands).
Three Months Ended
---------------------------------
March 31, 2000 March 31,1999
-------------- -------------
Net interest income $9,588 $8,620
Provision for loan losses 378 532
Other income 2,016 1,991
Other expense 7,684 6,879
Income before income taxes 3,542 3,200
Applicable income taxes 1,137 1,066
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Net income $2,405 $2,134
====== ======
Net income increased $271,000 or 12.7% to $2,405,000 for the three months
ended March 31, 2000 as compared to $2,134,000 for the three months ended March
31, 1999. Net interest income of ABC and its subsidiaries increased $968,000,
the provision for loan losses decreased by $154,000 and all other noninterest
expense increased by $805,000.
11
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Comparison of Balance Sheets
Total assets decreased by $17.3 million, or 2.2% to $772.2 million at March
31, 2000 from $789.5 million at December 31, 1999.
Total earning assets increased by $8.7 million, or 1.2%, to $717.2 million at
March 31, 2000 from $708.5 million at December 31, 1999.
Total loans, net of the allowance for loan losses, increased by $22.7 million,
or 4.4% to $543 million at March 31, 2000 from $520 million at December 31,
1999.
Total deposits increased by $12.2 million, or 1.9%, to $653 million at March
31, 2000 from $641 million at December 31, 1999. Approximately 13.9% and 16.1%
of deposits were noninterest-bearing as of March 31, 2000 and December 31, 1999,
respectively.
12
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
The company is exposed only to U. S. Dollar interest rate changes and,
accordingly, the Company manages exposure by considering the possible changes in
the net interest margin. The Company does not have any trading instruments nor
does it classify any portion of the investment portfolio as held for trading.
The Company does not engage in any hedging activities or enter into any
derivative instruments with a higher degree of risk than mortgage backed
securities which are commonly pass through securities. Finally, the Company has
no exposure to foreign currency exchange rate risk, commodity price risk, and
other market risks.
Interest rates play a major part in the net interest income of a financial
institution. The sensitivity to rate changes is known as "interest rate risk."
The repricing of interest earning assets and interest-bearing liabilities can
influence the changes in net interest income. As part of the Company's
asset/liability management program, the timing of repriced assets and
liabilities is referred to as Gap management. It is the policy of the Company
to maintain a Gap ratio in the one-year time horizon of .80 to 1.20
The Company uses simulation analysis to monitor changes in net interest income
due to changes in market interest rates. The simulation of rising, declining
and flat interest rate scenarios allows management to monitor and adjust
interest rate sensitivity to minimize the impact of market interest rate swings.
The analysis of the impact on net interest income over a twelve month period is
subjected to a gradual 200 basis point increase or decrease in market rates on
net interest income and is monitored on a quarterly basis. The most recent
simulation model projects net interest income would decrease 1.2% if rates rise
gradually over the next year. On the other hand, the model projects net
interest income to increase .4% if rates decline over the next year.
13
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Part II. Other Information
Item 4. Submission of Matters to a Vote of Securities Holders
There were no matters submitted to a vote of securities holders during
the quarter ended March 31, 2000.
Item 6. Exhibits and Reports on Form 8-K
There were no exhibits and reports filed on Form 8-K during the
quarter ended March 31, 2000.
14
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
Undersigned thereunto duly authorized:
ABC BANCORP
5/11/00 /s/ W. EDWIN LANE, JR.
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DATE W. EDWIN LANE, JR.
EXECUTIVE VICE PRESIDENT &
CHIEF FINANCIAL OFFICER
(Duly authorized officer and principal
financial/accounting officer)
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 38,684
<INT-BEARING-DEPOSITS> 562,426
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 148,790
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 553,235
<ALLOWANCE> 10,214
<TOTAL-ASSETS> 772,153
<DEPOSITS> 652,878
<SHORT-TERM> 17,617
<LIABILITIES-OTHER> 6,843
<LONG-TERM> 19,300
0
0
<COMMON> 9,134
<OTHER-SE> 66,381
<TOTAL-LIABILITIES-AND-EQUITY> 772,153
<INTEREST-LOAN> 13,651
<INTEREST-INVEST> 2,270
<INTEREST-OTHER> 343
<INTEREST-TOTAL> 16,163
<INTEREST-DEPOSIT> 5,892
<INTEREST-EXPENSE> 6,575
<INTEREST-INCOME-NET> 9,588
<LOAN-LOSSES> 378
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 7,684
<INCOME-PRETAX> 3,542
<INCOME-PRE-EXTRAORDINARY> 3,542
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,405
<EPS-BASIC> .28
<EPS-DILUTED> .28
<YIELD-ACTUAL> 5.55
<LOANS-NON> 5,675
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 5,675
<ALLOWANCE-OPEN> 9,895
<CHARGE-OFFS> 332
<RECOVERIES> 273
<ALLOWANCE-CLOSE> 10,214
<ALLOWANCE-DOMESTIC> 10,214
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 10,214
</TABLE>
