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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 September 30, 2000
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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
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(Exact name of registrant as specified in its charter)
GEORGIA 58-1456434
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(State of incorporation) (IRS Employer ID No.)
24 SECOND AVE, 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 8,347,008 shares of Common Stock outstanding as of September 30,
2000.
1
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ABC BANCORP
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 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 6
Notes to Consolidated Financial Statements 7
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
3. Quantitative and Qualitative Disclosures about
Market Risk 14
PART II - OTHER INFORMATION
4. Submission of Matters to a Vote of
Securities Holders 15
6. Exhibits and Reports on Form 8-K 15
Signature 16
2
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ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
===================================================================================================================
Sept 30 Dec 31
2000 1999
-------- -------
<S> <C> <C>
Assets
------
Cash and due from banks $ 28,823 $ 80,130
Securities available for sale, at fair value 161,124 143,538
Loans 588,335 530,225
Less allowance for loan losses 10,231 9,895
-------- --------
Loans, net 578,104 520,330
-------- --------
Premises and equipment, net 20,060 19,540
Other assets 24,605 25,922
-------- --------
$812,716 $789,460
======== ========
Liabilities and Stockholders' Equity
------------------------------------
Deposits
Noninterest-bearing demand $ 85,427 $103,279
Interest-bearing demand 143,089 147,561
Savings 46,833 52,659
Time, $100,000 and over 112,954 95,282
Other time 262,571 241,877
-------- --------
Total deposits 650,874 640,658
Federal funds purchased & securities sold under
repurchase agreements 14,084 397
Other borrowings 66,466 66,150
Other liabilities 3,973 6,239
-------- --------
Total liabilities 735,397 713,444
-------- --------
Stockholders' equity
--------------------
Common stock, par value $1; 15,000,000 shares authorized
9,137,990 and 9,098,690 shares issued 9,138 9,099
Surplus 29,237 28,854
Retained earnings 46,496 42,188
Accumulated other comprehensive income (638) (1,507)
Unearned Comp-Grants (694) (560)
-------- --------
83,539 78,074
Less cost of shares acquired for the treasury, 790,982
and 374,823 shares (6,220) (2,058)
-------- --------
Total stockholders' equity 77,319 76,016
-------- --------
$812,716 $789,460
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
3
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ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
===================================================================================================================
2000 1999
---------- ----------
<S> <C> <C>
Interest income
Interest and fees on loans $ 15,038 $ 12,877
Interest on taxable securities 1,807 1,853
Interest on nontaxable securities 779 272
Interest on deposits in other banks 445 155
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18,069 15,157
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Interest expense
Interest on deposits 7,247 5,519
Interest on fed funds purchased and securities
sold under agreements to repurchase 146 145
Interest on other borrowings 1,185 486
---------- ----------
8,578 6,150
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Net interest income 9,491 9,007
Provision for loan losses 303 554
---------- ----------
Net interest income after provision for loan losses 9,188 8,453
---------- ----------
Other income
Service charges on deposit accounts 1,564 1,405
Other service charges, commissions and fees 488 440
Other (57) (25)
Loss on sale of securities - (44)
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1,995 1,776
---------- ----------
Other expense
Salaries and employee benefits 4,211 3,942
Equipment and occupancy expense 1,185 1,014
Other operating expenses 2,331 2,066
---------- ----------
7,727 7,022
---------- ----------
Income before income taxes 3,456 3,207
Applicable income taxes 1,118 1,065
Net income $ 2,338 $ 2,142
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Other comprehensive income, net of tax:
Unrealized holding gains (losses) arising during
period, net of tax $ 1,197 $ (280)
Reclassification adjustment for losses included
in net income, net of tax $ - $ 29
---------- ----------
Comprehensive income $ 3,535 $ 1,891
========== ==========
Income per common share-Basic $ 0.28 $ 0.25
========== ==========
Income per common share-Diluted $ 0.28 $ 0.24
========== ==========
Average shares outstanding 8,364,468 8,697,845
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
4
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ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
===================================================================================================================
2000 1999
---------- ----------
<S> <C> <C>
Interest income
Interest and fees on loans $ 42,937 $ 37,406
Interest on taxable securities 5,954 5,593
Interest on nontaxable securities 1,260 815
Interest on deposits in other banks 837 468
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50,988 44,282
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Interest expense
Interest on deposits 19,555 16,726
Interest on fed funds purchased and securities
sold under agreements to repurchase 208 383
Interest on other borrowings 2,691 740
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22,454 17,849
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Net interest income 28,534 26,433
Provision for loan losses 952 1,563
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Net interest income after provision for loan losses 27,582 24,870
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Other income
Service charges on deposit accounts 4,546 4,049
Other service charges, commissions and fees 1,503 1,683
Other 63 183
Loss on sale of securities - (81)
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6,112 5,834
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Other expense
Salaries and employee benefits 12,659 11,625
Equipment and occupancy expense 3,268 3,148
Other operating expenses 7,146 6,251
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23,073 21,024
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Income before income taxes 10,621 9,680
Applicable income taxes 3,440 3,285
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Net income $ 7,181 $ 6,395
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Other comprehensive income, net of tax:
Unrealized holding gains (losses) arising during
period, net of tax $ 869 $ (1,338)
Reclassification adjustment for losses included
in net income, net of tax $ - $ 53
---------- ----------
Comprehensive income $ 8,050 $ 5,110
========== ==========
Income per common share-Basic $ 0.85 $ 0.73
========== ==========
Income per common share-Diluted $ 0.84 $ 0.73
========== ==========
Average shares outstanding 8,498,246 8,694,098
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
5
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ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
===================================================================================================================
2000 1999
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 7,181 $ 6,395
-------- --------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,575 1,460
Provision for loan losses 952 1,563
Amortization of intangible assets 244 603
Net loss on securities available for sale (81)
Other prepaids, deferrals and accruals, net (1,353) 4,101
-------- --------
Total adjustments 1,418 7,646
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Net cash provided by operating activities 8,599 14,041
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INVESTING ACTIVITIES
Proceeds from maturities of investment securities 10,922 51,564
Purchase of investment securities (27,191) (67,560)
Proceeds from sales of securities available for sale - 20,240
Increase in loans (58,726) (48,892)
Purchase of premises and equipment (2,095) (1,712)
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Net cash used in investing activities (77,090) (46,360)
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FINANCING ACTIVITIES
Net increase (decrease) in deposits 10,216 (25,132)
Net increase in repurchase agreements 13,687 10,880
Increase (decrease) in long-term borrowings 11,950 (2,053)
Increase (decrease) in other borrowings (11,634) 40,571
Dividends paid (2,873) (2,174)
Purchase treasury stock (4,162) (88)
-------- --------
Net cash provided by (used in) financing activities 17,184 22,004
-------- --------
Net decrease in cash and due from banks $(51,307) $(10,315)
Cash and due from banks at beginning of period 80,130 56,475
-------- --------
Cash and due from banks at end of period $ 28,823 $ 46,160
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
6
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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 nine
months ended September 30, 2000 are not necessarily indicative of the results to
be expected for the full year.
7
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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 September 30, 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
nine months ended September 30, 2000, total capital increased $1,303,000 to
$77,319,000. This increase in capital resulted from the retention of net
earnings of $4,308,000 (after deducting dividends to shareholders of
$2,873,000), less $4,162,000 for the purchase of 416,159 shares acquired for the
treasury, plus $288,000 accrual for award grants, and an increase of
approximately $869,000 in unrealized gains on securities available for sale, net
of taxes.
At September 30, 2000, ABC had no binding commitments for capital
expenditures. The Company anticipates that approximately $210,000 will be
required for capital expenditures during the remainder of 2000. Additional
expenditures may be required for other mergers and acquisitions. At present, ABC
has not signed a letter of intent, nor has it entered into a definitive
agreement to merge into or acquire another bank or company.
8
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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.
9
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Comparison of Statements of Income
The net interest margin on a taxable-equivalent basis was 5.40% and 5.44%
during the nine months ended September 30, 2000 and 1999, respectively, a
decrease of 4 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 $29.2 million as
compared to $26.9 million during the nine months ended September 30, 2000 and
1999, respectively, representing an increase of 8.55%.
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 $952,000 and $1,563,000 during the nine months ended
September 30, 2000 and 1999, respectively, a decrease of $611,000, or 39.1%.
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 1.74% and 1.87% of total loans
outstanding at September 30, 2000 and December 31, 1999. As of September 30,
2000, nonperforming assets were $5,871,000 compared to $6,086,000 in
nonperforming assets as of December 31, 1999. Management considers the allowance
for loan losses as of September 30, 2000 adequate to cover potential losses in
the loan portfolio.
10
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Following is a comparison of noninterest income for the nine months ended
September 30, 2000 and 1999 (dollars in thousands).
Nine Months Ended
-----------------
September 30, 2000 September 30, 1999
------------------ ------------------
Service charges on deposits $4,546 $4,049
Other service charges,
commissions & fees 1,503 1,683
Other income 63 102
------ ------
Total noninterest income $6,112 $5,834
====== ======
Total noninterest income for the nine months ended September 30, 2000 was
$278,000 higher than during the same period in 1999.
Following is an analysis of noninterest expense for the nine months ended
September 30, 2000 and 1999 (dollars in thousands).
Nine Months Ended
-----------------
September 30, 2000 September 30, 1999
------------------ ------------------
Salaries and employee benefits $12,659 $11,625
Occupancy and equipment expense 3,268 3,148
Other expense 7,146 6,251
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Total noninterest expense $23,073 $21,024
======= =======
Total noninterest expense for the nine months ended September 30, 2000 was
$2,049,000 higher than during the same period in 1999.
Salaries and employee benefits for the nine months ended September 30, 2000
were $1,034,000 or 8.9% higher than during the same period in 1999.
Approximately $107,000 or 10.3% 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.
11
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Other expense for the nine months ended September 30, 2000 increased
$895,000 or 14.3% as compared to the same period in 1999. Approximately $107,000
or 12% 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 first 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 nine months ended
September 30, 2000 and 1999 (dollars in thousands).
Nine Months Ended
-----------------
September 30, 2000 September 30, 1999
------------------ ------------------
Net interest income $28,534 $26,433
Provision for loan losses 952 1,563
Other income 6,112 5,834
Other expense 23,073 21,024
Income before income
taxes 10,621 9,680
Applicable income taxes 3,440 3,285
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Net income $ 7,181 $ 6,395
======= =======
Net income increased $786,000 or 12.3% to $7,181,000 for the nine months
ended September 30, 2000 as compared to $6,395,000 for the nine months ended
September 30, 1999. Net interest income of ABC and its subsidiaries increased
$2,101,000, the provision for loan losses decreased by $611,000 and all other
noninterest expense increased by $2,049,000.
12
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Comparison of Balance Sheets
Total assets increased by $23.2 million, or 2.94% to $812.7 million at
September 30, 2000 from $789.5 million at December 31, 1999.
Total earning assets increased by $41.0 million, or 5.79%, to $749.5
million at September 30, 2000 from $708.5 million at December 31, 1999.
Total loans, net of the allowance for loan losses, increased by $58
million, or 11.2% to $578 million at September 30, 2000 from $520 million at
December 31, 1999.
Total deposits increased by $10 million, or 1.56%, to $651 million at
September 30, 2000 from $641 million at December 31, 1999. Approximately 13.12%
and 16.12% of deposits were noninterest-bearing as of September 30, 2000 and
December 31, 1999, respectively.
13
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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 1.17% if
rates rise gradually over the next year. On the other hand, the model projects
net interest income to increase .47% if rates decline over the next year.
14
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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 September 30, 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 September 30, 2000.
15
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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
11/8/00 /s/ W. EDWIN LANE, JR.
------------------- --------------------------------------
DATE W. EDWIN LANE, JR.
EXECUTIVE VICE PRESIDENT &
CHIEF FINANCIAL OFFICER
(Duly authorized officer and principal
financial/accounting officer)
16
