SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number: 0-16181
ABC BANCORP (A GEORGIA CORPORATION)
I.R.S. EMPLOYER IDENTIFICATION NUMBER 58-1456434
310 FIRST STREET, S.E., MOULTRIE, GEORGIA 31768
TELEPHONE NUMBER: (912) 890-1111
Securities registered pursuant to Section 12(b) of the Act
None
Securities registered pursuant to Section 12(g) of the Act
Common Stock, Par Value $1 Per Share
Check 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 [ ]
Check if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
is not contained herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
As of March 1, 2000, registrant had outstanding 8,588,867 shares of common
stock, $1 par value per share, which is registrant's only class of common stock.
The aggregate market value of the voting stock held by nonaffiliates of the
registrant was approximately $75,446,000.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of this Annual Report is incorporated by
reference from the Registrant's definitive proxy statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A not later than 120
days after the end of the fiscal year covered by this Annual Report.
<PAGE>
PART I
ITEM 1. BUSINESS OF THE COMPANY AND THE SUBSIDIARY BANKS
ABC Bancorp ("ABC") was organized as a bank holding company
under the Federal Bank Holding Company Act of 1956, as amended in 1981
(the"BHCA"), and the bank holding company laws of Georgia.
ABC provides, through its commercial bank subsidiaries
described below (sometimes hereinafter referred to as the "Banks"), banking
services to individuals and businesses in southwestern and southcentral Georgia
and southeastern Alabama. ABC's executive office is located at 310 First Street,
S.E., Moultrie, Georgia 31768, and its telephone number is (912) 890-1111. As a
registered bank holding company, ABC is subject to the applicable provisions of
the Federal Bank Holding Company Act and the Georgia Bank Holding Company Act,
as well as to supervision by the Board of Governors of the Federal Reserve
System, the Federal Deposit Insurance Corporation and the State of Georgia
Department of Banking and Finance.
ABC's primary business as a bank holding company is to
manage the business and affairs of the Banks. The Banks provide a broad range of
retail and commercial banking services to its customers, including checking,
savings, NOW and money market accounts and time deposits of various types; loans
for business, agriculture, real estate, personal uses, home improvement and
automobiles, credit cards; letters of credit; trust services; discount brokerage
services through a correspondent bank; IRA's; safe deposit box rentals; bank
money orders; and electronic funds transfer services, including wire transfers
and automated teller machines. ABC maintains a diversified loan portfolio and
makes no foreign or energy-related loans.
While ABC has decentralized certain of its management
responsibilities, it maintains efficient centralized operating systems. As a
result, corporate policy, strategy and certain administrative policies are
established by ABC's board of directors, while lending and community-specific
marketing decisions are made primarily by each bank to allow it to respond to
differing needs and demands of its own market. Data processing functions are
centralized in the ABC's data processing division located in Moultrie, Georgia.
Within this framework, the Banks focus on providing personalized services and
quality products to their customers to meet the needs of the communities they
serve. ABC's objective is to establish itself as a major financial institution
in south Georgia and southeast Alabama. Management has pursued this objective
through an acquisition-oriented growth strategy and a prudent operating
strategy.
As a bank holding company, ABC performs central data
processing functions, purchasing functions and other common functions and
provides certain management services for its subsidiaries. Normal banking
services are conducted by the Banks.
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SUBSIDIARY BANKS
Following is a list of the Banks, the market areas served by
the Banks and the estimated relative size of the Banks as compared with their
major competitors.
<TABLE>
<CAPTION>
ESTIMATED RELATIVE SIZE
SUBSIDIARY BANK PRINCIPAL MARKET AREA AMONG COMPETITORS
- ------------------------------------------- ------------------------------------ ------------------------------------
<S> <C> <C>
American Banking Company Moultrie and Colquitt County, Second largest of three banks in
Georgia Colquitt County, Georgia
Heritage Community Bank Quitman and Brooks County, Georgia Second largest of four banks in
Brooks County, Georgia
Bank of Thomas County Coolidge, Thomasville and Thomas Fifth largest of eight banks in
County, Georgia Thomas County, Georgia
Citizens Security Bank Tifton and Tift County, Ocilla and Third largest of six banks in Tift
Irwin County, Douglas and Coffee County, Georgia
County, Georgia
Cairo Banking Company Cairo and Grady County, Meigs and Second largest of five banks in
Thomas County, Georgia Grady County, Georgia
Southland Bank Dothan, Abbeville, Clayton, Fifth largest of eleven banks in
Eufaula and Headland, Alabama Houston County, Alabama
Central Bank & Trust Cordele and Crisp County, Georgia Third largest of six banks in
Crisp County, Georgia
First National Bank of South Georgia Albany and Dougherty County, Fifth largest of eight banks in
Georgia and Lee County, Georgia Dougherty County, Georgia
Merchants & Farmers Bank Donalsonville and Seminole County, Smallest of three banks in
Georgia Seminole County, Georgia
</TABLE>
All of the Banks offer traditional loan and deposit services
discussed elsewhere in this Annual Report on Form 10-K. Only American Banking
Company provides trust services directly to its customers and to the customers
of the other subsidiary banks. All of the Banks maintain correspondent
relationships with other commercial banks and the Federal Home Loan Bank of
Atlanta. As compensation for services provided by the correspondent banks, the
Banks maintain certain balances in noninterest-bearing accounts with those
banks. The principal correspondent bank for all of the Banks is SunTrust Bank in
Atlanta, Georgia.
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MARKET AREA AND COMPETITION
ABC's market area is located in South Georgia and
Southeastern Alabama. The Banks' main offices and larger branches are located in
the southern Georgia cities of Albany, Cairo, Cordele, Douglas, Donalsonville,
Moultrie, Ocilla, Quitman, Thomasville and Tifton, and the southern Alabama
cities of Abbeville, Clayton, Dothan, Eufaula and Headland. The Banks have a
total of 27 offices located in either the cities or counties in which the main
offices are located or in nearby cities.
ABC's banking facilities are located in communities whose
economies are based primarily on agriculture, manufacturing and light industry.
Textiles, meat processing and aluminum processing are among the leading
manufacturing industries in ABC's market area.
The banking industry in Georgia and Alabama is highly
competitive. In recent years, intense market demands, economic pressures,
fluctuating interest rates and increased customer awareness of product and
service differences among financial institutions have forced banks to diversify
their services and become more cost effective. Each of the Banks faces strong
competition in attracting deposits and making loans. Their most direct
competition for deposits comes from other commercial banks, thrift institutions,
credit unions and issuers of securities such as brokerage firms. Interest rates,
convenience of office locations and marketing are all significant factors in the
Banks' competition for deposits.
Competition for loans comes from other commercial banks,
thrift institutions, savings banks, insurance companies, consumer finance
companies, credit unions and other institutional lenders. The Banks compete for
loan originations through the interest rates and loan fees they charge and the
efficiency and quality of services they provide. Competition is affected by the
general availability of lendable funds, general and local economic conditions,
current interest rate levels and other factors that are not readily predictable.
Management expects that competition will become more intense
in the future due to changes in state and Federal laws and regulations and the
entry of additional bank and nonbank competitors. See "Supervision and
Regulation".
LENDING POLICY
ABC has sought to maintain a comprehensive lending policy
that meets the credit needs of each of the communities served by the Banks,
including low- and moderate-income customers, and to employ lending procedures
and policies consistent with this approach. All loans are subject to ABC's
written loan policy, which is updated annually and which provides that lending
officers have sole authority to approve loans of various maximum amounts
depending upon their seniority and experience. Each bank's president has sole
discretion to approve loans in varying principal amounts up to specified limits
for each president. Each bank's board of directors reviews and approves loans
that exceed management's lending authority and, in certain instances, other
types of loans. New credit extensions are reviewed daily by each bank's senior
management and at least monthly by its board of directors.
The lending officers at each bank have authority to make
loans only in the county in which the Bank is located and its contiguous
counties. ABC's lending policy requires analysis of the borrower's projected
cash flow and ability to service the debt. For agricultural loans, which
constitute a significant portion of ABC's consolidated loan portfolio, the
lending officer visits the borrower regularly during the growing season and
re-evaluates the loan in light of the borrower's updated cash flow projections.
Under ABC's ongoing loan review program, all loans are subject to sampling and
objective review by an assigned loan reviewer who is independent of the
originating loan officer.
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LENDING POLICY (CONTINUED)
ABC actively markets its services to qualified lending
customers in both the commercial and consumer sectors. ABC's commercial lending
officers actively solicit the business of new companies entering the market as
well as longstanding members of that market's business community. Through
personalized professional service and competitive pricing, ABC has been
successful in attracting new commercial lending customers. At the same time, ABC
actively advertises its consumer loan products and continually seeks to make its
lending officers more accessible.
Each bank continually monitors its loan portfolio to
identify areas of concern and to enable management to take corrective action
when necessary. Each bank's lending officers and board of directors meet
periodically to review all past due loans, the status of large loans and certain
other matters. Individual lending officers are responsible for reviewing
collection of past due amounts and monitoring any changes in the financial
status of the borrowers.
LENDING ACTIVITIES
GENERAL. ABC provides a broad range of commercial and retail
lending services to corporations, partnerships and individuals, including
agricultural, commercial business loans, commercial and residential real estate
construction and mortgage loans, loan participations, consumer loans, revolving
lines of credit and letters of credit. The loan department of each bank makes
direct and indirect loans to consumers and originates and services residential
mortgages. In addition, each bank has loan officers who specialize in
originating and servicing agricultrual-related loans.
REAL ESTATE LOANS. ABC's real estate loans are for a term of
years, although rarely more than ten, over which period the principal thereof is
amortized, and are generally secured by residential real estate, farmland or
commercial real estate.
AGRICULTURAL LOANS. ABC's agricultural loans are made for
crop production expenses or to finance the purchase of farm-related equipment.
Agricultural loans typically involve seasonal fluctuations in amounts. Although
ABC typically looks to an agricultural borrower's cash flow as the principal
source of repayment, agricultural loans are also generally secured by a security
interest in the crops or the farm-related equipment and, in some cases, an
assignment of crop insurance or a mortgage on real estate. In addition, a
portion of ABC's agricultural loans are guaranteed by the FmHA Guaranteed Loan
Program.
4
<PAGE>
LENDING ACTIVITIES (CONTINUED)
COMMERCIAL AND INDUSTRIAL LOANS. General commercial and
industrial loans consist of loans made primarily to manufacturers, wholesalers
and retailers of goods, service companies and other industries. Management
believes that a significant portion of these loans are, to varying degrees,
agricultural-related. See "--Agricultural-Related Loans." The Banks have also
generated loans which are guaranteed by the U. S. Small Business Administration.
Management believes that making such loans helps the local community and also
provides ABC with a source of income and solid future lending relationships as
such businesses grow and prosper. The primary repayment risk for commercial
loans is the failure of the business due to economic or financial factors.
Although ABC typically looks to a commercial borrower's cash flow as the
principal source of repayment for such loans, many commercial loans are secured
by inventory, equipment, accounts receivable and other assets.
CONSUMER LENDING. ABC's consumer loans include motor
vehicle, home improvement, home equity, student and signature loans and small
personal credit lines. Many of the Banks also offer credit cards to their
customers.
COMPLIANCE WITH COMMUNITY REINVESTMENT ACT. Each of the
Banks has a Community Reinvestment Act Officer who develops and oversees that
Bank's Community Reinvestment Act program and makes monthly reports to that
Bank's board of directors. The Banks regularly sponsor or participate in
community programs designed to ascertain and meet the credit needs of each of
the communities they serve, including low and moderate income neighborhoods.
Some of these activities include sponsoring minority festivals during Black
History Month, participating in community meetings to explain the availability
of Small Business Administration, Farmers' Home Loan Administration and Regional
Development Center loans, and sponsoring educational seminars for area farmers.
In addition, each of the Banks participate in the Georgia Residential Finance
Authority program which makes low interest rate loans to rehabilitate low income
rental housing.
TRUST SERVICES
ABC provides personal trust services to its customers
through American Bank.
5
<PAGE>
DEPOSITS
Checking, savings and money market accounts and other time
accounts are the primary sources of the Banks' funds for loans and investments.
The Banks obtain most of their deposits from individuals and from businesses in
their respective market areas.
The Banks have not had to attract new or retain old deposits
by paying depositors rates of interest on certificates of deposit, money market
and other interest-bearing accounts significantly above rates paid by other
banks in the Banks' respective market areas. In the future, increasing
competition among banks in the Banks' market areas may cause the Banks' interest
margins to shrink. The Banks have never accepted deposits for which a broker's
commission was paid.
INVESTMENT ACTIVITIES
ABC's investment policy is designed to maximize income from
funds not needed to meet loan demand in a manner consistent with appropriate
liquidity and risk objectives. Under this policy, the Banks may invest in
federal, state and municipal obligations, public housing authority bonds,
industrial development revenue bonds and Government National Mortgage
Association ("GNMA") securities. The Banks' investments must satisfy certain
investment quality criteria. The Bank's investments must be rated at least "BAA"
by either Moody's or Standard and Poor's. Securities rated below "A" are
periodically reviewed for creditworthiness. The Banks may purchase non-rated
municipal bonds only if the issuer of such bonds is located in a Bank's general
market area and such bonds are determined by the purchasing Bank to have a
credit risk no greater than the minimum ratings referred to above. Industrial
development authority bonds, which normally are not rated, are purchased only if
the issuer is located in the purchasing Bank's market area and if the bonds are
considered to possess a high degree of credit soundness. The Banks typically
have not purchased a significant amount of GNMA securities, which normally have
higher yields than the Banks' other investments.
While ABC's investment policy permits the Banks to trade
securities to improve the quality of yields or marketability or to realign the
composition of the portfolio, the Banks historically have not done so to any
significant extent.
ABC's investment officers implement the investment policy,
monitor the portfolio and, reporting to each Bank's investment committee,
recommend portfolio strategies. Reports on all purchases, sales, net profits or
losses and market appreciation or depreciation of the bond portfolio are
reviewed by ABC's board of directors each month. Once a year, the written
investment policy is reviewed by ABC's board of directors.
The Banks' securities are kept in safekeeping accounts at
correspondent banks.
6
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ASSET/LIABILITY MANAGEMENT
It is the objective of ABC to manage its assets and
liabilities to provide a satisfactory, consistent level of profitability within
the framework of established cash, loan, investment, borrowing and capital
policies. It is the overall philosophy of ABC's management to support asset
growth primarily through growth of core deposits, which include deposits of all
categories made by individuals, partnerships, corporations and other entities.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
PROPERTIES
The table below sets forth the location, size and other
information with respect to ABC's real properties. All properties are owned by
ABC or the Banks and are unencumbered.
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE
OFFICES USED BY FOOTAGE
- ------------------------------------------------ ----------------------- -----------------
<S> <C> <C>
310 First Street, S.E., Moultrie, GA ABC 7,000
24 Second Avenue, S. E., Moultrie, GA ABC and American Bank 15,500
225 South Main Street, Moultrie, GA American Bank 9,000
1707 First Avenue, S.E., Moultrie, GA American Bank 5,500
137 Broad Street, Doerun, GA American Bank 3,860
1000 West Screven Street, Quitman, GA Heritage Bank 11,530
Eastern Brooks County, GA Heritage Bank 1,100
529 Pine Avenue, Coolidge, GA Thomas Bank 4,000
111 E. Eighth Street, Tifton, GA Security Bank 11,700
804 W. Second Street, Tifton, GA Security Bank 2,000
301 South Irwin Avenue, Ocilla, GA Security Bank 10,000
100 South Pearle Avenue, Douglas, GA Security Bank 3,100
201 South Broad Street, Cairo, GA Cairo Bank 10,000
Hwy. 84 Drive-in, Cairo, GA Cairo Bank 1,000
12 East Depot Street, Meigs, GA Cairo Bank 2,700
2484 East Pinetree Boulevard, Thomasville, GA Thomas Bank 4,800
3299 Ross Clark Circle, Dothan, AL Southland Bank 21,918
1817 S. Oates St., Dothan, AL Southland Bank 2,500
204 Kirkland St., Abbeville, AL Southland Bank 5,300
33 Eufaula St., Clayton, AL Southland Bank 4,500
1094 S. Eufaula Ave., Eufaula, AL Southland Bank 2,240
208 Main St., Headland, AL Southland Bank 2,037
502 Second Street South, Cordele, GA Central Bank 5,800
1302 Sixteenth Avenue East, Cordele, GA Central Bank 300
2627 Dawson Road, Albany, GA First National Bank 8,750
1607 U. S. Highway 19 South, Leesburg, GA First National Bank 7,000
109 W. Third St., Donalsonville, GA M & F Bank 8,800
Hwy 374 and 253, Donalsonville, GA M & F Bank 840
</TABLE>
7
<PAGE>
EMPLOYEES
At December 31, 1999, ABC and its subsidiaries employed 376
full-time employees and 42 part-time employees. ABC considers its relationship
with its employees to be excellent.
ABC has adopted two retirement plans for its employees, the
ABC Bancorp 401(k) Profit Sharing Plan and the ABC Bancorp Money Purchase
Pension Plan. These plans provide both deferral of compensation by the employees
and matching contributions by the Company. ABC and the banks made contributions
for all eligible employees in 1999. ABC also maintains a comprehensive employee
benefits program providing, among other benefits, hospitalization and major
medical insurance and life insurance. Management considers these benefits to be
competitive with those offered by other financial institutions in south Georgia
and southeast Alabama. ABC's employees are not represented by any collective
bargaining group.
SUPERVISION AND REGULATION
GENERAL
As a bank holding company, the Company is subject to the
regulation and supervision of the Federal Reserve Board (the "FRB") and the
Georgia Department of Banking and Finance (the "DBF"). The Banks are subject to
supervision and examination by applicable state and Federal banking agencies,
including the FRB, the Office of the Comptroller of the Currency (the "OCC"),
the Federal Deposit Insurance Corporation (the "FDIC"), the DBF and the State of
Alabama Department of Banking. The Banks are also subject to various
requirements and restrictions under Federal and state law, including
requirements to maintain reserves against deposits, restrictions on the types
and amounts of loans that may be granted and the interest that may be charged
thereon, and limitations on the types of investments that may be made and the
types of services that may be offered. Various consumer laws and regulations
also affect the operations of the Banks. In addition to the impact of
regulation, commercial banks are affected significantly by the actions of the
FRB as it attempts to control the money supply and credit availability in order
to influence the economy.
The Federal Bank Holding Company Act requires every bank
holding company to obtain the prior approval of the FRB before (i) it may
acquire direct or indirect ownership or control of more than 5% of the voting
shares of any bank that it does not already control; (ii) it or any of its
subsidiaries, other than a bank, may acquire all or substantially all of the
assets of a bank; and (iii) it may merge or consolidate with any other bank
holding company. In addition, until recently, a bank holding company has
generally been prohibited from engaging in, or acquiring, direct or indirect
control of the voting shares of any company engaged in non-banking activities.
In addition, the DBF requires information with respect to
the financial condition, operations, management and intercompany relationships
of ABC and the Banks and related matters. The DBF may also require such other
information as is necessary to keep itself informed as to whether the provisions
of Georgia law and the regulations and orders issued thereunder by the DBF have
been complied with, and the DBF may examine ABC. ABC is an "affiliate" of the
Banks under the Federal Reserve Act, which imposes certain restrictions on (i)
loans by the Banks to ABC; (ii) investments in the stock or securities of ABC by
the Banks; (iii) the Bank's taking the stock or securities of an "affiliate" as
collateral for loans by the Banks to a borrower; and (iv) the purchase of assets
from ABC by the Banks. Further, a bank holding company and its subsidiaries are
prohibited from engaging in certain tie-in arrangements in connection with any
extension of credit, lease or sale of property or furnishing of services.
8
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THE GLB ACT
On November 12, 1999, President Clinton signed into law the
Gramm-Leach-Bliley Act (the "GLB Act"), which significantly changed the
regulatory structure and oversight of ABC and its subsidiaries. The GLB Act
revises the Bank Holding Company Act and repeals the affiliation provisions of
the Glass-Steagall Act of 1933, permitting a qualifying holding company, called
a "financial holding company", to engage in a full range of financial
activities, including banking, insurance and securities activities, as well as
merchant banking and additional activities that are "financial in nature" or
"incidental" to such financial activities. The GLB Act thus provides expanded
financial affiliation opportunities for existing bank holding companies by
allowing bank holding companies to engage in activities such as securities
underwriting and the underwriting and brokering of insurance products. The GLB
Act also expands passive investments by financial holding companies in any type
of company, financial or nonfinancial, through merchant banking and insurance
company investments. In order for a bank holding company to qualify as a
financial holding company, its subsidiary depository institutions must be
"well-capitalized" and "well-managed" and have at least a "satisfactory" rating
under the CRA. See "--Community Reinvestment Act."
The GLB Act also reforms the regulatory framework of the
financial services industry. Under the GLB Act, financial holding companies are
subject to primary supervision by the FRB, while current federal and state
regulators of financial holding company regulated subsidiaries such as insurers,
broker-dealers, investment companies and banks generally retain their
jurisdiction and authority. In order to implement its underlying purposes, the
GLB Act preempts state laws that restrict the establishment of financial
affiliations authorized or permitted under the GLB Act, subject to specified
exceptions for state insurance regulators. The GLB Act also removes the current
blanket exemption for banks from the broker-dealer registration requirements
under the Securities Exchange Act of 1934, as amended, amends the Investment
Company Act of 1940, as amended, with respect to bank common trust fund and
mutual fund activities, and amends the Investment Advisers Act of 1940, as
amended, to require registration of banks that act as investment advisers to
mutual funds.
The provisions of the GLB Act relating to financial holding
companies will become effective 120 days after its enactment, or about March 15,
2000, excluding the federal preemption provisions, which became effective on the
date of enactment. In January 2000, the FRB and the OCC each issued interim and
proposed rules governing the application process for becoming a financial
holding company or subsidiary of a financial holding company. Additional
regulations are expected from the FRB and the OCC during the year 2000 for the
implementation of the GLB Act.
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<PAGE>
PAYMENT OF DIVIDENDS AND OTHER RESTRICTIONS
ABC is a legal entity separate and distinct from its
subsidiaries. There are various legal and regulatory limitations under federal
and state law on the extent to which ABC's subsidiaries can pay dividends or
otherwise supply funds to ABC.
The principal source of ABC's cash revenues is dividends
from its subsidiaries and there are certain limitations under federal and state
laws on the payment of dividends by such subsidiaries. The prior approval of the
FRB or the applicable state commissioner, as the case may be, is required if the
total of all dividends declared by any state member bank of the Federal Reserve
System in any calendar year exceeds the Bank's net profits (as defined) for that
year combined with its retained net profits for the preceding two calendar
years, less any required transfers to surplus or a fund for the retirement of
any preferred stock. The relevant federal and state regulatory agencies also
have authority to prohibit a state member bank or bank holding company, which
would include ABC and the Banks, from engaging in what, in the opinion of such
regulatory body, constitutes an unsafe or unsound practice in conducting its
business. The payment of dividends could, depending upon the financial condition
of the subsidiary, be deemed to constitute such an unsafe or unsound practice.
Under Georgia law (which would apply to any payment of
dividends by the Georgia Banks to ABC), the prior approval of the DBF is
required before any cash dividends may be paid by a state bank if: (i) total
classified assets at the most recent examination of such bank exceed 80% of the
equity capital (as defined, which includes the reserve for loan losses) of such
bank; (ii) the aggregate amount of dividends declared or anticipated to be
declared in the calendar year exceeds 50% of the net profits (as defined) for
the previous calendar year; or (iii) the ratio of equity capital to adjusted
total assets is less than 6%.
Retained earnings of the Banks available for payment of cash
dividends under all applicable regulations without obtaining governmental
approval were approximately $7 million as of December 31, 1999.
In addition, the Banks are subject to limitations under
Section 23A of the Federal Reserve Act with respect to extensions of credit to,
investments in, and certain other transactions with, ABC. Furthermore, loans and
extensions of credit are also subject to various collateral requirements.
10
<PAGE>
The FRB has issued a policy statement on the payment of cash
dividends by bank holding companies, which expresses the FRB's view that a bank
holding company should pay cash dividends only to the extent that the holding
company's net income for the past year is sufficient to cover both the cash
dividends and a rate of earning retention that is consistent with the holding
company's capital needs, asset quality and overall financial condition. The FRB
also indicated that it would be inappropriate for a holding company experiencing
serious financial problems to borrow funds to pay dividends. Furthermore, under
the prompt corrective action regulations adopted by the FRB, the FRB may
prohibit a bank holding company from paying any dividends if one or more of the
holding company's bank subsidiaries are classified as undercapitalized.
Bank holding companies are required to give the FRB prior
written notice of any purchase or redemption of its outstanding equity
securities if the gross consideration for the purchase or redemption, when
combined with the net consideration paid for all such purchases or redemptions
during the preceding 12 months, is equal to 10% or more of their consolidated
net worth. The FRB may disapprove such a purchase or redemption if it determines
that the proposal would continue an unsafe or unsound practice or would violate
any law, regulation, FRB order, or any condition imposed by, or written
agreement with, the FRB. This notification requirement does not apply to any
company that meets the well-capitalized standard for commercial banks, has a
safety and soundness examination rating of at least a "2" and is not subject to
any unresolved supervisory issues.
CAPITAL ADEQUACY
The FRB has adopted risk-based capital guidelines for bank
holding companies. The minimum ratio of total capital to risk-weighted assets
(including certain off-balance sheet items, such as standby letters of credit)
is 8%. At least half of the total capital is to be composed of common stock,
minority interests in the equity accounts of consolidated subsidiaries,
noncumulative perpetual preferred stock and a limited amount of perpetual
preferred stock, less goodwill ("Tier I capital"). The remainder may consist of
subordinated debt, other preferred stock and a limited amount of loan loss
reserves.
In addition, the FRB has established minimum leverage ratio
guidelines for bank holding companies. These guidelines provide for a minimum
ratio of Tier I capital to total assets, less goodwill (the leverage ratio) of
3% for bank holding companies that meet certain specified criteria, including
those having the highest regulatory rating. All other bank holding companies
generally are required to maintain a leverage ratio of at least 3% plus an
additional cushion of 100 to 200 basis points. The guidelines also provide that
bank holding companies experiencing internal growth or making acquisitions will
be expected to maintain strong capital positions substantially above the minimum
supervisory levels without significant reliance on intangible assets.
Furthermore, the FRB has indicated that it will consider a tangible Tier I
capital leverage ratio (deducting all intangibles) and other indications of
capital strength in evaluating proposals for expansion or new activities.
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<PAGE>
Section 38 to the Federal Deposit Insurance Act, as revised
in December 1992, implements the prompt corrective action provisions that
Congress enacted as a part of the Federal Deposit Insurance Corporation
Improvement Act of 1991 (the "FDIC Act"). The "prompt corrective action"
provisions set forth five regulatory zones in which all banks are placed largely
based on their capital positions. Regulators are permitted to take increasingly
harsh action as a bank's financial condition declines. Regulators are also
empowered to place in receivership or require the sale of a bank to another
depository institution when a bank's capital leverage ratio reaches two percent.
Better capitalized institutions are generally subject to less onerous regulation
and supervision than banks with less amounts of capital.
Under the regulations of the FDIC implementing the prompt
corrective action provisions of the FDIC Act, financial institutions are placed
in the following five categories based upon capitalization ratios: (i) a "well
capitalized" institution has a total risk-based capital ratio of at least 10%, a
Tier I risk-based ratio of at least 6% and a leverage ratio of at least 5%; (ii)
an "adequately capitalized" institution has a total risk-based capital ratio of
at least 8%, a Tier I risk-based ratio of at least 4% and a leverage ratio of at
least 4%; (iii) an "undercapitalized" institution has a total risk-based capital
ratio of under 8%, a Tier I risk-based ratio of under 4% or a leverage ratio of
under 4%; (iv) a "significantly undercapitalized" institution has a total
risk-based capital ratio of under 6%, a Tier I risk-based ratio of under 3% or a
leverage ratio of under 3%; and (v) a "critically undercapitalized" institution
has a leverage ratio of 2% or less. Institutions in any of the three
undercapitalized categories would be prohibited from declaring dividends or
making capital distributions. The FDIC regulations also establish procedures for
"downgrading" an institution to a lower capital category based on supervisory
factors other than capital.
The downgrading of an institution's category is automatic in
two situations: (i) whenever an otherwise well-capitalized institution is
subject to any written capital order or directive; and (ii) where an
undercapitalized institution fails to submit or implement a capital restoration
plan or has its plan disapproved. The Federal banking agencies may treat
institutions in the well-capitalized, adequately capitalized and
undercapitalized categories as if they were in the next lower level based on
safety and soundness considerations relating to factors other than capital
levels.
All insured institutions regardless of their level of
capitalization are prohibited by the FDIC Act from paying any dividend or making
any other kind of capital distribution or paying any management fee to any
controlling person if following the payment or distribution the institution
would be undercapitalized. While the prompt corrective action provisions of the
FDIC Act contain no requirements or restrictions aimed specifically at
adequately capitalized institutions, other provisions of the FDIC Act and the
agencies' regulations relating to deposit insurance assessments, brokered
deposits and interbank liabilities treat adequately capitalized institutions
less favorably than those that are well-capitalized.
Under the FDIC's regulations, all of the Banks are "well
capitalized" institutions.
The OCC's regulations establish two capital standards for
national banks: a leverage requirement and a risk-based capital requirement. In
addition, the OCC may, on a case-by-case basis, establish individual minimum
capital requirements for a national bank that vary from the requirements which
would otherwise apply under OCC regulations. A national bank that fails to
satisfy the capital requirements established under the OCC's regulations will be
subject to such administrative action or sanctions as the OCC deems appropriate.
12
<PAGE>
The leverage ratio adopted by the OCC requires a minimum
leverage ratio of 3% for national banks rated composite 1 under the CAMEL rating
system for banks. National banks not rated composite 1 under the CAMEL rating
system for banks are required to maintain a minimum leverage ratio of 4% to 5%,
depending upon the level and nature of risks of their operations. For purposes
of the OCC's leverage requirement, Tier I capital generally consists of common
stockholders' equity and retained income and certain non-cumulative perpetual
preferred stock and related income, except that no intangibles and certain
purchased mortgage servicing rights and purchased credit card relationships may
be included in capital.
The risk-based capital requirements established by the OCC's
regulations require national banks to maintain total capital equal to at least
8% of total risk-weighted assets. For purposes of the risk-based capital
requirement, total capital means Tier 1 capital plus Tier 2 capital, provided
that the amount of Tier 2 capital may not exceed the amount of Tier 1 capital,
less certain assets. The components of Tier 2 capital include certain permanent
and maturing capital instruments that do not qualify as core capital and general
valuation loan and lease loss allowances up to a maximum of 1.25% of
risk-weighted assets.
The OCC has revised its risk-based capital requirements to
permit the OCC to require higher levels of capital for an institution in light
of its interest rate risk. In addition, the OCC has proposed that a bank's
interest rate risk exposure would be qualified using either the measurement
system set forth in the proposal or the institution's internal model for
measuring such exposure, if such model is determined to be adequate by the
institution's examiner. Small institutions that are highly capitalized and have
minimum interest rate risk would be exempt from the rule unless otherwise
determined by the OCC. ABC has not determined what effect, if any, the OCC's
proposed interest rate risk component would have on ABC's national bank
subsidiary's capital if adopted as proposed.
SUPPORT OF SUBSIDIARY BANKS
Under the FRB policy, ABC is expected to act as a source of
financial strength to, and to commit resources to support, each of the Banks.
This support may be required at times when, absent such FRB policy, ABC may not
be inclined to provide it. In the event of a bank holding company's bankruptcy,
any commitment by the bank holding company to a federal bank regulatory agency
to maintain the capital of a subsidiary bank will be assumed by the bankruptcy
trustee and entitled to a priority of payment.
Under the Financial Institutions Reform, Recovery and
Enforcement Act, a depository institution insured by the FDIC can be held liable
for any loss incurred by, or reasonably expected to be incurred by, the FDIC in
connection with (i) the default of a commonly controlled FDIC-insured depository
institution or (ii) any assistance provided by the FDIC to any commonly
controlled FDIC-insured depository institution in danger of default. "Default"
is defined generally as the appointment of a conservator or receiver, and "in
danger of default" is defined generally as the existence of certain conditions
indicating that a default is likely to occur in the absence of regulator
assistance. The FDIC's claim for damages is superior to claims of depositors,
secured creditors and holders of subordinated debt (other than affiliates) of
the commonly controlled insured depository institution.
13
<PAGE>
FDIC INSURANCE ASSESSMENTS
The Banks are subject to FDIC deposit insurance assessments
for the Bank Insurance Fund (the "BIF"), which as of December 31, 1999, ranged
from 0 to 27 basis points per $100 of insured deposits, based on the risk a
particular institution poses to its deposit insurance fund. The risk
classification is based on an institution's capital group and supervisory
subgroup assignment.
On September 30, 1996, the President signed the Deposit
Insurance Fund Act of 1996 ("DIFA") which was part of the omnibus spending bill
enacted by Congress at the end of its 1996 session. DIFA provides that the FDIC
may not set semi-annual assessments with respect to the BIF in excess of the
amount needed to maintain the 1.25% designated reserve ratio or, if the reserve
ratio is less than the designated reserve ratio, to increase the reserve ratio
to the designated reserve ratio. In addition, DIFA mandates the merger of BIF
and the Savings Association Insurance Fund (the "SAIF"), effective January 1,
1999, only if no insured depository institution is a savings association on that
date. The combined deposit insurance fund would be called the "deposit insurance
fund" or "DIF".
DIFA also imposes assessments against both SAIF and BIF
deposits to avoid predicted default on the bonds issued by the Financing
Corporation ("FICO") as deposits in savings institutions continue to decline.
DIFA amends the Federal Home Loan Bank Act to impose the FICO assessment against
both SAIF and BIF deposits beginning after December 31, 1996. The assessment
imposed on insured depository institutions with respect to any BIF-assessable
deposit will be assessed at a range equal to one-fifth of the rate
(approximately 1.3 basis points) of the assessments imposed on insured
depository institutions with respect to any SAIF-asssessable deposit
(approximately 6.7 basis points). The FICO assessment for 1996 was paid entirely
by SAIF-insured institutions, but BIF-insured banks will pay the same FICO
assessment as SAIF-insured institutions beginning as of the earlier of December
31, 1999, or the date as of which the last savings association ceases to exist.
COMMUNITY REINVESTMENT ACT
The Banks are subject to certain fair lending requirements
and reporting obligations involving home mortgage lending operations and
Community Reinvestment Act ("CRA") activities. The CRA generally requires the
Federal banking agencies to evaluate the record of a financial institution in
meeting the credit needs of its local communities, including low and moderate
income neighborhoods. In addition to substantial penalties and corrective
measures that may be required for a violation of certain fair lending laws, the
Federal banking agencies may take compliance with such laws and CRA into account
when regulating and supervising other activities.
A bank's compliance with its CRA obligations is based on a
performance-based evaluation system which bases CRA ratings on an institution's
lending service and investment performance. When a bank holding company applies
for approval to acquire a bank or other bank holding company, the FRB will
review the assessment of each subsidiary bank of the applicant bank holding
company, and such records may be the basis for denying the application. In
connection with its assessment of CRA performance, the appropriate bank
regulatory agency assigns a rating of "outstanding", "satisfactory", "needs to
improve" or "substantial noncompliance". As of December 31, 1999, all of the
Banks had a CRA rating of satisfactory or better.
14
<PAGE>
COMMUNITY REINVESTMENT ACT (CONTINUED)
On April 19, 1995, the four Federal bank regulatory agencies
adopted revisions to the regulations promulgated pursuant to the CRA, which are
intended to set distinct assessment standards for financial institutions. The
revised regulations contains three evaluation tests: (i) a lending test, which
will compare the institution's market share of loans in low- and moderate-income
areas to its market share of loans in its entire service area and the percentage
of a bank's outstanding loans to low- and moderate-income areas or individuals;
(ii) a services test, which will evaluate the provisions of services that
promote the availability of credit to low- and moderate-income areas; and (iii)
an investment test, which will evaluate an institution's record of investments
in organizations designed to foster community development, small- and
minority-owned businesses and affordable housing lending, including state and
local government housing or revenue bonds. The regulation is designed to reduce
some paperwork requirements of the current regulations and provide regulators,
institutions and community groups with a more objective and predictable manner
with which to evaluate the CRA performance of financial institutions. The rule
became effective on January 1, 1996, at which time evaluation under streamlined
procedures were scheduled to begin for institutions with assets of less than
$250 million that are owned by a holding company with total assets of less than
$1 billion. Congress and various Federal agencies (including, in addition to the
bank regulatory agencies, the Department of Housing and Urban Development, the
Federal Trade Commission and the Department of Justice) (collectively, the
"Federal Agencies") responsible for implementing the nation's fair lending laws
have been increasingly concerned that prospective home buyers and other
borrowers are experiencing discrimination in their efforts to obtain loans. In
recent years, the Department of Justice has filed suit against financial
institutions, which it determined had discriminated, seeking fines and
restitution for borrowers who allegedly suffered from discriminatory practices.
Nearly all of these suits have been settled (some for substantial sums) without
a full adjudication on the merits.
On March 8, 1994, the Federal Agencies, in an effort to
clarify what constitutes lending discrimination and specify the factors the
agencies will consider in determining if lending discrimination exists,
announced a joint policy statement detailing specific discriminatory practices
prohibited under the Equal Opportunity Act and the Fair Housing Act. In the
policy statement, three methods of proving lending discrimination were
identified: (i) over evidence of discrimination, when a lender blatantly
discriminates on a prohibited basis; (ii) evidence of disparate treatment, when
a lender treats applicants differently based on a prohibited factor even where
there is no showing that the treatment was motivated by prejudice or a conscious
intention to discriminate against a person; and (iii) evidence of disparate
impact, when a lender applies a practice uniformly to all applicants, but the
practice has a discriminatory effect, even where such practices are neutral on
their face and are applied equally, unless the practice can be justified on the
basis of business necessity.
On September 23, 1994, President Clinton signed the Reigle
Community Development and Regulatory Improvement Act of 1994 (the "Regulatory
Improvement Act"). The Regulatory Improvement Act contains funding for community
development projects through banks and community development financial
institutions and also numerous regulatory relief provisions designed to
eliminate certain duplicative regulations and paperwork requirements.
15
<PAGE>
OTHER REGULATORY ACTION
On September 29, 1994, President Clinton signed the
Reigle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Federal Interstate Act"), which amended Federal law to permit bank holding
companies to acquire existing banks in any state effective September 29, 1995,
and to permit any interstate bank holding company to merge its various bank
subsidiaries into a single bank with interstate branches after May 31, 1997.
States have the authority to authorize interstate branching prior to June 1,
1997, or, alternatively, to opt out of interstate branching prior to that date.
The Georgia Financial Institutions Code was amended in 1994 to permit the
acquisition of a Georgia bank or bank holding company by out-of-state bank
holding companies beginning July 1, 1995. On September 29, 1995, the interstate
banking provisions of the Georgia Financial Institutions Code were superseded by
the Federal Interstate Act.
The Federal Interstate Act authorizes the OCC and FDIC to
approve interstate branching de novo by national and state banks, respectively,
only in states which specifically allow for such branching. The Federal
Interstate Act also requires the appropriate Federal banking agencies to
prescribe regulations by June 1, 1997 which prohibit any out-of-state bank from
using the interstate branching authority primarily for the purpose of deposit
production. These regulations must include guidelines to ensure that interstate
branches operated by an out-of-state bank in a host state are reasonably helping
to meet the credit needs of the communities which they serve.
In February 1996, Georgia adopted the "Georgia Interstate
Branching Act," which permits Georgia-based banks and bank holding companies
owning or acquiring banks outside of Georgia and all non-Georgia banks and bank
holding companies owning or acquiring banks in Georgia the right to merge any
lawfully acquired bank into an interstate branch network. The Georgia Interstate
Branching Act also allows banks to establish de novo branch banks.
MONETARY POLICY
The earnings of ABC are affected by domestic and foreign
economic conditions, particularly by the monetary and fiscal policies of the
United States government and its agencies.
The FRB has had, and will continue to have, an important
impact on the operating results of commercial banks through its power to
implement national monetary policy in order, among other things, to mitigate
recessionary and inflationary pressures by regulating the national money supply.
The techniques used by the FRB include setting the reserve requirements of
member banks and establishing the discount rate on member bank borrowings. The
FRB also conducts open market transactions in United States government
securities.
16
<PAGE>
FEDERAL HOME LOAN BANK SYSTEM
All of the Banks have correspondent relationships with the
Federal Home Loan Bank of Atlanta ("FHLB Atlanta"), which is one of 12 regional
Federal Home Loan Banks ("FHLBs") that administer the home financing credit
function of savings companies. Each FHLB serves as a reserve or central bank for
its members within its assigned region. FHLBs are funded primarily from proceeds
derived from the sale of consolidated obligations of the FHLB System and make
loans to members (i.e., advances) in accordance with policies and procedures,
established by the Board of Directors of the FHLB which are subject to the
oversight of the Federal Housing Finance Board. All advances from the FHLB are
required to be fully secured by sufficient collateral as determined by the FHLB.
In addition, all long-term advances are required to provide funds for
residential home financing.
FHLB Atlanta provides certain services to certain of the
Banks such as processing checks and other items, buying and selling Federal
funds, handling money transfers and exchanges, shipping coin and currency,
providing security and safekeeping of funds or other valuable items, and
furnishing limited management information and advice. As compensation for these
services, the Banks maintain certain balances with FHLB Atlanta in
noninterest-bearing accounts.
Under Federal law, the FHLBs are required to provide funds
for the resolution of troubled savings companies and to contribute to low- and
moderately-priced housing programs through direct loans or interest subsidies on
advances targeted for community investment and low- and moderate-income housing
projects.
FUTURE REQUIREMENTS
Statutes and regulations are regularly introduced which
contain wide-ranging proposals for altering the structure, regulations and
competitive relationships of the nation's financial institutions. It cannot be
predicted whether or in what form any proposed statute or regulation will be
adopted or the extent to which the business of ABC or any of the Banks may be
affected by such statute or regulation.
ITEM 2. PROPERTIES
The principal properties of ABC consist of the properties of
the Banks. For a description of the properties of the Banks, see "Item 1 -
Business of ABC and the Banks - Properties" included elsewhere in this Annual
Report.
ITEM 3. LEGAL PROCEEDINGS
Neither ABC nor any of the Banks is a party to, nor is any
of their property the subject of, any material pending legal proceedings, other
than ordinary routine proceedings incidental to the business of the Banks, nor
to the knowledge of the management of ABC are any such proceedings contemplated
or threatened against it or the Banks.
17
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
No matters were submitted to a vote of ABC's shareholders
during the fourth quarter of 1999.
ITEM 4.5 EXECUTIVE OFFICERS
The following table sets forth certain information with
respect to the executive officers of ABC.
<TABLE>
<CAPTION>
NAME, AGE AND POSITION WITH THE PRINCIPAL OCCUPATION FOR THE LAST FIVE YEARS
TERM AS OFFICER REGISTRANT AND OTHER DIRECTORSHIPS
- ---------------------------------- -------------------------- -----------------------------------------------------------
<S> <C> <C>
Kenneth J. Hunnicutt; 63; President, Chief Chief Executive Officer of ABC Bancorp since 1994 and
Officer since 1981 Executive Officer and President since 1981. Mr. Hunnicutt served as Senior
Director President of American Bank from 1989 to 1991 and as President
of American Bank from 1975 to 1989 and currently serves as a
director of each of the banks.
Mark D. Thomas; 46: Executive Vice President, Executive Vice President and Chief Operating Officer of
Officer since July 20, 1999 Chief Operating Officer ABC Bancorp since July 20, 1999 and a director thereof
and Director since July 20, 1999. Mr. Thomas served in various
capacities, including Senior Vice President and State
Consumer Banking Executive for Tennessee, for First Union
National Bank from September 1977 through July 1999.
W. Edwin Lane, Jr; 45: Executive Vice President Executive Vice President and Chief Financial Officer of
Officer since January 1, 1995 and Chief Financial ABC Bancorp since January 1, 1995. Mr. Lane served as
Officer Controller of First Liberty Bank, Macon, Georgia from
August 1992 to December 1994. Mr. Lane was associated
with Mauldin & Jenkins, Certified Public Accountants,
from 1985 to 1992, where he served as an audit manager
from 1989 to 1992.
</TABLE>
Officers serve at the discretion of the Board of Directors.
18
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS
(a) The following table sets forth: (a) the high and low bid prices for
the common stock as quoted on Nasdaq-NMS during 1999 and 1998; and
(b) the amount of quarterly dividends declared on the common stock
during the periods indicated.
CALENDAR PERIOD BID PRICES CASH
----------------------- --------------------- DIVIDENDS
1999 HIGH LOW DECLARED
----------------------- --------- --------- ---------
FIRST QUARTER $ 10.828 $ 9.797 $ .083
SECOND QUARTER 12.500 10.109 .083
THIRD QUARTER 11.766 10.672 .083
FOURTH QUARTER 12.125 10.250 .10
CALENDAR PERIOD BID PRICES CASH
----------------------- --------------------- DIVIDENDS
1998 HIGH LOW DECLARED
----------------------- --------- --------- ---------
First quarter $ 16.978 $13.750 $ .083
Second quarter 15.104 13.125 .083
Third quarter 13.645 9.583 .083
Fourth quarter 11.041 10.000 .083
(b) As of March 1, 2000, there were approximately 1,525 holders of record
of the Common Stock, excluding individuals in security position
listings.
(c) ABC paid an annual dividend on its common stock of $.35 and $.33
per share for fiscal years 1999 and 1998, respectively.
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following table presents selected consolidated financial
information for ABC. The data set forth below are derived from the audited
consolidated financial statements of ABC. The selected financial data should be
read in conjunction with, and are qualified in their entirety by, the
Consolidated Financial Statements and the Notes thereto and Management's
Discussion and Analysis of Financial Condition and Results of Operations
included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------------- ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Total assets $ 789,460 $ 724,946 $ 691,886 $ 673,162 $ 531,243
Total loans 530,225 477,194 490,244 452,844 319,471
Total deposits 640,658 633,325 600,711 577,905 466,317
Investment securities 143,538 154,546 123,219 135,266 101,695
Shareholders' equity 76,016 71,834 68,153 62,970 51,955
SELECTED INCOME STATEMENT DATA:
Interest income $ 59,781 $ 59,894 $ 58,649 $ 50,586 $ 40,951
Interest expense 24,400 26,444 25,950 22,324 17,367
----------------- -------------- -------------- -------------- -------------
Net interest income 35,381 33,450 32,699 28,262 23,584
Provision for loan losses 2,154 5,505 2,731 1,919 1,241
Other income 7,962 9,699 7,736 6,532 4,904
Other expenses 27,942 27,996 27,139 22,878 18,127
----------------- -------------- -------------- -------------- -------------
Income before tax 13,247 9,648 10,565 9,997 9,120
Income tax expense 4,291 2,735 3,119 2,839 2,752
----------------- -------------- -------------- -------------- -------------
Net income $ 8,956 $ 6,913 $ 7,446 $ 7,158 $ 6,368
================= ============== ============== ============== =============
PER SHARE DATA:
Net income - basic $ 1.03 $ 0.79 $ 0.86 $ 0.84 $ 0.79
Net income - diluted 1.03 0.79 0.85 0.84 0.79
Book value 8.71 8.29 7.83 7.24 6.47
Tangible book value 7.84 7.32 6.77 6.41 6.17
Dividends 0.35 0.33 0.32 0.27 0.23
PROFITABILITY RATIOS:
Net income to average total assets 1.23 % 0.99 % 1.10 % 1.21 % 1.34 %
Net income to average stockholders' 11.93 10.07 11.35 12.19 13.01
equity
Net interest margin 5.39 5.25 5.36 5.24 5.43
</TABLE>
20
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
LOAN QUALITY RATIOS:
Net charge-offs to total loans 0.46 % 0.62 % 0.48 % 0.39 % 0.16 %
Reserve for loan losses to total loans
and OREO 1.86 2.13 1.55 1.60 1.84
Nonperforming assets to total loans
and OREO 1.15 1.99 2.41 1.39 1.08
Reserve for loan losses to
nonperforming loans 178.26 116.25 75.86 135.34 215.91
Reserve for loan losses to total
nonperforming assets 162.59 107.25 64.38 115.59 170.68
LIQUIDITY RATIOS:
Loans to total deposits 82.76 % 75.35 % 81.61 % 78.36 % 68.51 %
Loans to average earnings assets 79.57 74.85 80.45 84.04 73.53
Noninterest-bearing deposits to
total deposits 16.12 15.78 15.00 15.06 17.56
CAPITAL ADEQUACY RATIOS:
Common stockholders' equity to
total assets 9.63 % 9.91 % 9.85 % 9.35 % 9.78 %
Total stockholders' equity to total assets 9.63 9.91 9.85 9.35 9.78
Dividend payout ratio 33.98 42.11 36.89 31.68 29.47
</TABLE>
21
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION (CONTINUED)
SELECTED QUARTERLY FINANCIAL DATA:
<TABLE>
<CAPTION>
QUARTERS ENDED DECEMBER 31, 1999
----------------------------------------------------------
<S> <C> <C> <C> <C>
4 3 2 1
------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
----------------------------------------------------------
SELECTED INCOME STATEMENT DATA:
Interest income $ 15,499 $ 15,157 $ 14,594 $ 14,531
Net interest income 8,948 9,007 8,806 8,620
Net income 2,561 2,142 2,119 2,134
PER SHARE DATA:
Net income - basic 0.29 0.25 0.24 0.25
Net income - diluted 0.29 0.25 0.24 0.25
Dividends 0.10 0.083 0.083 0.083
QUARTERS ENDED DECEMBER 31, 1998
----------------------------------------------------------
4 3 2 1
------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
----------------------------------------------------------
SELECTED INCOME STATEMENT DATA:
Interest income $ 15,024 $ 15,268 $ 14,880 $ 14,722
Net interest income 8,528 8,517 8,254 8,151
Net income 3,558 1,502 1,619 234
PER SHARE DATA:
Net income - basic 0.41 0.17 0.19 0.02
Net income - diluted 0.41 0.17 0.19 0.02
Dividends 0.083 0.083 0.083 0.083
</TABLE>
22
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
ABC's 1999 Annual Report contains forward-looking statements
in addition to historical information. ABC cautions that there are various
important factors that could cause actual results to differ materially from
those indicated in the forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995; accordingly, there can be no
assurance that such indicated result will be realized.
The Private Securities Litigation Reform Act of 1995
provides a safe harbor for forward-looking statements. In order to comply with
the terms of the safe harbor, ABC is required to note the variety of factors
that could cause ABC's actual results and experience to differ materially from
the anticipated results or other expectations expressed in ABC's forward-looking
statements. These factors include legislative and regulatory initiatives
regarding deregulation and restructuring of the banking industry; the extent and
timing of the entry of additional competition in ABC's markets; potential
business strategies, including acquisitions or dispositions of assets or
internal restructuring, that may be pursued by ABC, state and federal banking
regulations; changes in or application of environmental and other laws and
regulations to which ABC is subject; political, legal and economic conditions
and developments; financial market conditions and the results of financing
efforts; changes in commodity prices and interest rates; weather, natural
disasters and other catastrophic events; and other factors discussed in ABC's
filings with the Securities and Exchange Commission, including its Annual Report
on Form 10-K. The words "believe", "expect", "anticipate", "project", and
similar expressions signify such forward-looking statements.
Readers are cautioned not to place undue reliance on any
forward-looking statements made by or on behalf of ABC. Any such statement
speaks only as of the date the statement was made. ABC undertakes no obligation
to update or revise any forward-looking statements. Additional information with
respect to factors that may cause results to differ materially from those
contemplated by such forward-looking statements is included in the ABC's current
and subsequent filings with the Securities and Exchange Commission.
GENERAL
ABC's principal asset is its ownership of the Banks.
Accordingly, its results of operations are primarily dependent upon the results
of operations of the Banks. The Banks conduct a commercial banking business
which consists of attracting deposits from the general public and applying those
funds to the origination of commercial, consumer and real estate loans
(including commercial loans collateralized by real estate). The Banks'
profitablity depends primarily on net interest income, which is the difference
between interest income generated from interest-earning assets (i.e., loans and
investments) less the interest expense incurred on interest-bearing liabilities
(i.e., customer deposits and borrowed funds). Net interest income is affected by
the relative amounts of interest-earning assets and interest-bearing
liabilities, and the interest rate paid and earned on these balances. Net
interest income is dependent upon the Banks' interest rate spread, which is the
difference between the average yield earned on its interest-earning assets and
the average rate paid on its interest-bearing liabilities. When interest-earning
assets approximates or exceeds interest-bearing liabilities, any positive
interest rate spread will generate interest income. The interest rate spread is
impacted by interest rates, deposit flows and loan demand. Additionally, and to
a lesser extent, the profitability of the Banks is affected by such factors as
the level of noninterest income and expenses, the provision for loan losses and
the effective tax rate. Noninterest income consists primarily of service charges
on deposit accounts and other fees and income from the sale of loans and
investment securities. Noninterest expenses consist of compensation and
benefits, occupancy-related expenses, deposit insurance premiums paid to the
FDIC and other operating expenses.
23
<PAGE>
RESULTS OF OPERATIONS FOR YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
ABC'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 ABC, the ability to generate net interest income is dependent
upon the ability of the Banks 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, Federal Home Loan Bank borrowings and other short-term borrowings. 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.
The net interest margin increased five basis points to 5.39%
in 1999 as compared to 5.34% in 1998. This increase in net interest margin
resulted from a decrease of 43 basis points in average yield earned on
interest-earning assets accompanied by a decrease of 54 basis points in average
rate paid on interest-bearing liabilities. Because declining interest rates had
a greater impact on interest paid on interest-bearing liabilities than they had
on yield on interest-earning assets, ABC actually increased its interest rate
spread by eleven basis points to 4.71% in 1999 as compared to 4.60% in 1998. Net
interest income on a taxable-equivalent basis was $35,940,000 in 1999 as
compared to $34,063,000 in 1998, representing an increase of $1,877,000 or
5.51%. Net interest income on a taxable-equivalent basis was $34,063,000 in 1998
as compared to $33,320,000 in 1997, representing an increase of $743,000 or
2.23%. Net interest margin decreased 13 basis points or 2.38% to 5.34% in 1998
from 5.47% in 1997 on an increase of 4.59% in average interest-earning assets
and an increase of 2.90% in average interest-bearing liabilities. Interest
earned on average interest-earning assets decreased 23 basis points to 9.49% in
1998 as compared to 9.72% in 1997, while interest paid on interest-bearing
liabilities decreased six basis points to 4.89% in 1998 as compared to 4.94% in
1997.
Average interest-earning assets increased $28,876,000 or
4.53% to $666,377,000 in 1999 from $637,501,000 in 1998. Average loans increased
$10,520,000; average investments, including interest-bearing deposits in banks,
increased $19,361,000; and average federal funds sold decreased $1,005,000. The
increase in average interest-earning assets was funded by an increase in average
deposits of $6,288,000 or 1.04% to $613,327,000 in 1999 from $607,039,000 in
1998. By comparison, average interest-earning assets increased $28,001,000 or
4.59% to $637,501,000 in 1998 from $609,500,000 in 1997. The increase in average
interest-earning assets in 1998 was funded by an increase in average deposits of
$31,060,000, or 5.39%. In 1999 and 1998, approximately 15% and 14%,
respectively, of the average deposits were noninterest-bearing deposits.
24
<PAGE>
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 periodically based on a review of all significant loans,
with a particular emphasis on nonaccruing, past due and other loans that
management believes require attention. ABC segregates its loan portfolio by type
of loan and utilizes this segregation in evaluating exposure to risks within the
portfolio. In addition, based on internal reviews and external reviews performed
by independent auditors and regulatory authorities, ABC further segregates its
loan portfolio by loan classifications within each type of loan based on an
assessment of risk for a particular loan or group of loans. Certain reviewed
loans require specific allowances. Allowances are provided for other types and
classifications of loans based on anticipated loss rates. Allowances are also
provided for loans that are reviewed by management and considered creditworthy
and loans for which management determines no review is required. In establishing
allowances, management considers historical loan loss experience with an
emphasis on current loan quality trends, current economic conditions and other
factors in the markets where the subsidiary banks operate. Factors considered
include among others, unemployment rates, effect of weather on agriculture and
significant local economic events, such as major plant closings.
The provision for loan losses is a charge to earnings in the
current period to replenish the allowance and maintain it at a level management
has determined to be adequate. The provision for loan losses charged to earnings
amounted to $2,154,000 in 1999, $5,505,000 in 1998 and $2,731,000 in 1997. The
increase in the provision for loan losses of $2,774,000, or 101.57%, in 1998 as
compared to 1997 was required to replenish the allowance for loan losses for
approximately $3,000,000 of net charge-offs in 1998 and to cover potential
losses in the loan portfolio resulting from the deterioration in the financial
condition of certain borrowers. Due to adverse economic conditions in early
1998, it became apparent that several agriculturally related loans and
commercial business loans were not performing according to the loan agreements.
Management intensified its efforts to identify those nonperforming loans, to
charge off loans which were considered in the loss category and to adequately
reserve for other loans determined to be at risk. During 1999 net loan
charge-offs decreased $489,000, or 16.63%, to $2,451,000 as compared to
$2,940,000 in 1998. Due to the improvement in the quality of the loan portfolio,
which resulted from management's efforts at resolving problem loan situations,
management determined that the provision for loan losses in 1999 could be
significantly reduced from the provision recorded in 1998. During 1999, average
loans increased $10,520,000, or 2.12%, over 1998 as compared to an increase in
average loans of $20,374,000, or 4.29%, in 1998 as compared to 1997. The
allowance for loan losses decreased $297,000, or 2.91%, to $9,895,000 at
December 31, 1999 from $10,192,000 at December 31, 1998. Net charge-offs
represented 113.79% of the provision for loan losses in 1999 as compared to
53.41% in 1998. Net loan charge-offs for 1999 represented .48% of average loans
outstanding during the year as compared to .59% for 1998 and .50% for 1997. At
December 31, 1999, the allowance for loan losses was 1.87% of total loans
outstanding as compared to an allowance for loan losses of 2.14% of total loans
outstanding at December 31, 1998 and 1.56% of total loans outstanding at
December 31, 1997. The determination of the allowance rests upon management's
judgment about factors affecting loan quality and assumptions about the local
and national economy. Management considers the year-end allowance for loan
losses adequate to cover potential losses in the consolidated loan portfolio.
25
<PAGE>
Average total assets increased $29,869,000 or 4.27% to
$729,963,000 in 1999 as compared to $700,094,000 in 1998. The increase in
average total assets was accompanied by an increase in average deposits of
$6,288,000 or 1.04% and an increase of average borrowings of $19,678,000.
Average total assets increased $23,513,000 or 3.48% to $700,094,000 in 1998 as
compared to $676,581,000 in 1997. The increase in average total assets was
accompanied by an increase in average total deposits of $31,060,000 or 5.39% to
$607,039,000 in 1998 from $575,979,000 in 1997.
ITEM 7A. 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. As indicated by the Gap analysis included in this annual report,
the Company is somewhat liability sensitive in relation to changes in market
interest rates. Being liability sensitive would result in net interest income
decreasing in a rising rate environment and increasing in a declining rate
environment. See "Asset/Liability Management" included in SELECTED STATISTICAL
INFORMATION OF ABC BANCORP.
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 allow 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 1.93%
if rates rise gradually over the next year. On the other hand, the model
projects net interest income to increase .58% if rates decline over the next
year.
26
<PAGE>
SELECTED STATISTICAL INFORMATION OF ABC BANCORP
The following statistical information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operation" and the financial statements and related notes
included elsewhere in this Annual Report and in the documents incorporated
herein by reference.
AVERAGE BALANCES AND NET INCOME ANALYSIS
The following tables set forth the amount of the ABC's
interest income or interest expense for each category of interest-earning assets
and interest-bearing liabilities and the average interest rate for total
interest-earning assets and total interest-bearing liabilities, net interest
spread and net yield on average interest-earning assets. Federally tax-exempt
income is presented on a taxable-equivalent basis assuming a 34% Federal tax
rate.
<TABLE>
<CAPTION>
<S> <C>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------------------
1999 1998 1997
------------------------------ -------------------------------- -------------------------------
INTEREST AVERAGE INTEREST AVERAGE INTEREST AVERAGE
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
PAID PAID PAID
---------- ---------- -------- ------------ --------- --------- ---------- ---------- --------
(DOLLARS IN THOUSANDS)
------------------------------------------------------------------------------------------------
ASSETS
Interest-earning assets:
Loans, net of unearned
interest $ 505,941 $ 50,603 10.00 % $ 495,421 $ 51,584 10.41 % $ 475,047 $ 50,502 10.63 %
Investment securities:
Taxable 124,140 7,278 5.86 97,747 5,990 6.13 104,161 6,511 6.25
Nontaxable 21,456 1,645 7.67 22,946 1,803 7.86 22,872 1,826 7.98
Interest-bearing deposits
in banks 14,840 814 5.49 20,382 1,077 5.28 3,964 232 5.85
Federal funds sold - - - 1,005 53 5.27 3,456 199 5.76
---------- ---------- ------------ --------- ---------- ----------
Total
interest-earning
assets 666,377 60,340 9.06 637,501 60,507 9.49 609,500 59,270 9.72
---------- ---------- ------------ --------- ---------- ----------
Noninterest-earning assets:
Cash 26,391 23,802 28,620
Allowance for loan losses (10,124) (9,933) (7,458)
Unrealized gain (loss) on
available for sale
securities 252 406 (121)
Other assets 47,067 48,318 46,040
---------- ------------ ----------
Total
noninterest-earning
assets 63,586 62,593 67,081
---------- ------------ ----------
Total assets $ 729,963 $ 700,094 $ 676,581
========== ============ ==========
</TABLE>
27
<PAGE>
AVERAGE BALANCES AND NET INCOME ANALYSIS (CONTINUED)
<TABLE>
<CAPTION>
<S> <C>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------------
1999 1998 1997
----------------------------- -------------------------------- -------------------------------
INTEREST AVERAGE INTEREST AVERAGE INTEREST AVERAGE
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
PAID PAID PAID
---------- --------- -------- ---------- ----------- --------- ---------- ---------- ---------
(DOLLARS IN THOUSANDS)
-----------------------------------------------------------------------------------------------
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing
liabilities:
Savings and
interest-bearing
demand deposits $ 190,745 $ 4,904 2.57 % $ 174,443 $ 5,439 3.12 % $ 166,877 $ 5,089 3.05 %
Time deposits 333,257 17,520 5.26 348,826 19,971 5.73 330,621 19,139 5.79
Other short-term borrowings 4,663 237 5.08 835 41 4.91 2,804 154 5.49
Other borrowings 32,344 1,739 5.38 16,494 993 6.02 25,080 1,568 6.25
---------- --------- ---------- ----------- ---------- ----------
Total interest-bearing
liabilities 561,009 24,400 4.35 540,598 26,444 4.89 525,382 25,950 4.94
---------- --------- ---------- ----------- ---------- ----------
Noninterest-bearing
liabilities and
stockholders' equity:
Demand deposits 89,325 83,770 78,481
Other liabilities 4,540 7,068 7,118
Stockholders' equity 75,089 68,658 65,600
---------- ---------- ----------
Total
noninterest-bearing
liabilities and
stockholders' equity 168,954 159,496 151,199
---------- ---------- ----------
Total liabilities and
stockholders' equity $ 729,963 $ 700,094 $ 676,581
========== ========== ==========
Interest rate spread 4.71 % 4.60 % 4.78 %
======== ========= =========
Net interest income $ 35,940 $ 34,063 $ 33,320
========= =========== ==========
Net interest margin 5.39 % 5.34 % 5.47 %
======== ========= =========
</TABLE>
28
<PAGE>
RATE AND VOLUME ANALYSIS
The following table reflects the changes in net interest
income resulting from changes in interest rates and from asset and liability
volume. Federally tax-exempt interest is presented on a taxable-equivalent basis
assuming a 34% Federal tax rate. The change in interest attributable to rate has
been determined by applying the change in rate between years to average balances
outstanding in the later year. The change in interest due to volume has been
determined by applying the rate from the earlier year to the change in average
balances outstanding between years. Thus, changes that are not solely due to
volume have been consistently attributed to rate.
<TABLE>
<CAPTION>
<S> <C>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------
1999 VS. 1998 1998 VS. 1997
---------------------------------------- -----------------------------------------
INCREASE CHANGES DUE TO INCREASE CHANGES DUE TO
-------------------------- ---------------------------
(DECREASE) RATE VOLUME (DECREASE) RATE VOLUME
------------ ------------ ------------ ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
----------------------------------------------------------------------------------
Increase (decrease) in:
Income from earning assets:
Interest and fees on loans $ (981) $ (2,076) $ 1,095 $ 1,082 $ (1,084) $ 2,166
Interest on securities:
Taxable 1,288 (329) 1,617 (521) (120) (401)
Nontaxable (158) (41) (117) (23) (29) 6
Interest-bearing deposits in banks (263) 30 (293) 845 (116) 961
Interest on Federal funds (53) - (53) (146) (5) (141)
------------ ------------ ------------ ------------- ------------- -------------
Total interest income (167) (2,416) 2,249 1,237 (1,354) 2,591
------------ ------------ ------------ ------------- ------------- -------------
Expense from interest-bearing liabilities:
Interest on savings and interest-
bearing demand deposits (535) (1,043) 508 350 119 231
Interest on time deposits (2,451) (1,560) (891) 832 (222) 1,054
Interest on short-term borrowings 196 8 188 (113) (5) (108)
Interest on other borrowings 746 (208) 954 (575) (38) (537)
------------ ------------ ------------ ------------- ------------- -------------
Total interest expense (2,044) (2,803) 759 494 (146) 640
------------ ------------ ------------ ------------- ------------- -------------
Net interest income $ 1,877 $ 387 $ 1,490 $ 743 $ (1,208) $ 1,951
============ ============ ============ ============= ============= =============
</TABLE>
29
<PAGE>
NONINTEREST INCOME
Service charges on deposit accounts decreased $24,000 or .42%
to $5,696,000 in 1999 as compared to $5,720,000 in 1998 on an increase in
average deposits of $6,288,000 or 1.04% to $613,327,000 in 1999 from
$607,039,000 in 1998. The decrease in service charges on deposit accounts is
attributable to the introduction of new products to meet increased competition
in the Company's market areas. Certain of these products reduced service charge
income. For example, overdraft protection extended to customers reduces the
amount of income generated from insufficient check charges or overdraft charges.
A portion of this decrease in other income is offset by increase in interest and
fees on loans. Service charges on deposit accounts increased $211,000 or 3.83%
to $5,720,000 in 1998 as compared to $5,509,000 in 1997 on an increase in
average deposits of $31,060,000 or 5.39% to $607,039,000 in 1998 as compared to
$575,979,000 in 1997. Origination fees on mortgage loans decreased $95,000 or
10.76% to $788,000 in 1999 as compared to $883,000 in 1998. This decrease is
attributable to the decrease in mortgage lending activities resulting from an
increase in interest rates on mortgage loans during 1999. In comparison,
origination fees on mortgage loans increased significantly in 1998 over 1997 due
to the increase in mortgage lending activities. During 1998, origination fees on
mortgages loans increased $438,000 or 98.43% to $883,000 as compared to $445,000
in 1997. In 1998, ABC recognized nontaxable income of $1,200,000 in life
insurance benefits upon the death of a former officer and director of a
subsidiary bank. This nonrecurring transaction represented 12.37% of total
noninterest income in 1998 and 17.36% of consolidated net income for 1998. All
other noninterest income decreased $418,000 to $1,478,000 in 1999 as compared to
$1,896,000 in 1998. The principal items contributing to the decrease in other
income were: decrease of $112,000 in dividend income from the Federal Home Loan
Bank, decrease of $143,000 in net gains and losses on sale of fixed assets and
other real estate, and decrease of $68,000 in gain on sale of loans.
Following is a comparison of noninterest income for 1999, 1998
and 1997.
<TABLE>
<CAPTION>
<S> <C>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1999 1998 1997
--------------- --------------- ---------------
(DOLLARS IN THOUSANDS)
---------------------------------------------------
Service charges on deposit accounts $ 5,696 $ 5,720 $ 5,509
Mortgage origination fees 788 883 445
Other service charges, commissions and fees 423 506 474
Nontaxable life insurance benefits - 1,200 -
Other income 1,055 1,390 1,308
--------------- --------------- ---------------
$ 7,962 $ 9,699 $ 7,736
=============== =============== ===============
</TABLE>
30
<PAGE>
NONINTEREST EXPENSE
Salaries and employee benefits increased $861,000, or 6.14%,
to $14,886,000 in 1999 from $14,025,000 in 1998. This increase was attributable
to an increase of 14 full-time employees and five part-time employees during
1999 and to normal increases in salaries and employee benefits. Salaries and
employee benefits increased $283,000, or 2.06, to $14,025,000 in 1998 from
$13,742,000 in 1997. Although individual salaries and employee benefits
increased during 1998, the moderate increase in total salaries and employee
benefits was achieved by a reduction of total personnel employed during the year
of approximately 3%.
Equipment and occupancy expense decreased $129,000, or 2.99%,
to $4,191,000 in 1999 as compared to $4,320,000 in 1998. This decrease in
expense was attributable primarily to a decrease of $155,000 in depreciation
expense. Equipment and occupancy expense increased $362,000, or 9.15%, in 1998
as compared to 1997. Approximately 40% of that increase was attributable to an
increase of $143,000 in depreciation expense in 1998 as compared to 1997. The
remainder of the increase was attributable to increased rentals of office space
and equipment, and general increases in utilities, property taxes and
maintenance expense.
Amortization of intangible assets decreased $47,000 in 1999
as compared to 1998 as a result of the completion of amortization of core
deposits acquired in an earlier bank acquisition. Amortization of intangible
assets increased $107,000 in 1998 over 1997. This increase represented the
additional amount of cost amortized in 1998 over 1997 for the purchase of the
Douglas branch of Security Bank.
Following is an analysis of noninterest expense for 1999, 1998 and
1997.
<TABLE>
<CAPTION>
<S> <C>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1999 1998 1997
--------------- --------------- ---------------
(DOLLARS IN THOUSANDS)
----------------------------------------------------
Salaries and employee benefits $ 14,886 $ 14,025 $ 13,742
Equipment and occupancy 4,191 4,320 3,958
Amortization of intangible assets 804 851 744
Data processing fees 691 774 528
Other expense 7,370 8,026 8,167
--------------- --------------- ---------------
$ 27,942 $ 27,996 $ 27,139
=============== =============== ===============
</TABLE>
31
<PAGE>
ASSET/LIABILITY MANAGEMENT
A principal objective of ABC's asset/liability management
strategy is to minimize its exposure to changes in interest rates by matching
the maturity and repricing horizons of interest-earning assets and
interest-bearing liabilities. This strategy is overseen in part through the
direction of ABC's Asset and Liability Committee (the "ALCO Committee") which
establishes policies and monitors results to control interest rate sensitivity.
As part of ABC's interest rate risk management policy, the
ALCO Committee examines the extent to which its assets and liabilities are
"interest rate-sensitive" and monitors its interest rate-sensitivity "gap". An
asset or liability is considered to be interest rate sensitive if it will
reprice or mature within the time period analyzed, usually one year or less. The
interest rate-sensitivity gap is the difference between the interest-earning
assets and interest-bearing liabilities scheduled to mature or reprice within
such time period. A gap is considered positive when the amount of interest
rate-sensitive assets exceeds the amount of interest rate-sensitive liabilities.
A gap is considered negative when the amount of interest rate-sensitive
liabilities exceeds the interest rate-sensitive assets. During a period of
rising interest rates, a negative gap would tend to adversely affect net
interest income, while a positive gap would tend to result in an increase in net
interest income. During a period of falling interest rates, a negative gap would
tend to result in an increase in net interest income, while a positive gap would
tend to adversely affect net interest income. If ABC's assets and liabilities
were equally flexible and moved concurrently, the impact of any increase or
decrease in interest rates on net interest income would be minimal.
A simple interest rate "gap" analysis by itself may not be an
accurate indicator of how net interest income will be affected by changes in
interest rates. Accordingly, the ALCO Committee also evaluates how the repayment
of particular assets and liabilities is impacted by changes in interest rates.
Income associated with interest-earning assets and costs associated with
interest-bearing liabilities may not be affected uniformly by changes in
interest rates. In addition, the magnitude and duration of changes in interest
rates may have a significant impact on net interest income. For example,
although certain assets and liabilities may have similar maturities or periods
of repricing, they may not react identically to changes in market interest
rates. Interest rates on certain types of assets and liabilities fluctuate in
advance of changes in general market interest rates, while interest rates on
other types may lag behind changes in general market rates. In addition, certain
assets, such as adjustable rate mortgage loans, have features (generally
referred to as "interest rate caps") which limit changes in interest rates on a
short-term basis and over the life of the asset. In the event of a change in
interest rates, prepayment and early withdrawal levels also could deviate
significantly from those assumed in calculating the interest-rate gap. The
ability of many borrowers to service their debts also may decrease in the event
of an interest-rate increase.
The following table sets forth the distribution of the
repricing of ABC's earning assets and interest-bearing liabilities as of
December 31, 1999, the interest rate sensitivity gap (i.e., interest rate
sensitive assets divided by interest rate sensitivity liabilities), the
cumulative interest rate sensitivity gap ratio (i.e., interest rate sensitive
assets divided by interest rate sensitive liabilities) and the cumulative
sensitivity gap ratio. The table also sets forth the time periods in which
earning assets and liabilities will mature or may reprice in accordance with
their contractual terms. However, the table does not necessarily indicate the
impact of general interest rate movements on the net interest margin since the
repricing of various categories of assets and liabilities is subject to
competitive pressures and the needs of ABC's customers. In addition, various
assets and liabilities indicated as repricing within the same period may in fact
reprice at different times within such period and at different rates.
32
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
AT DECEMBER 31, 1999
--------------------------------------------------------------------------
MATURING OR REPRICING WITHIN
--------------------------------------------------------------------------
ZERO TO THREE
THREE MONTHS TO ONE TO OVER
MONTHS ONE YEAR THREE YEARS THREE YEARS TOTAL
------------ ------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
--------------------------------------------------------------------------
EARNING ASSETS:
Interest-bearing deposits in banks $ 31,831 $ 900 $ - $ - $ 32,731
Investment securities 10,943 14,073 49,385 69,137 143,538
Loans 186,698 102,438 135,213 105,876 530,225
------------ ------------- ------------- ------------- -------------
229,472 117,411 184,598 175,013 706,494
------------ ------------- ------------- ------------- -------------
INTEREST-BEARING LIABILITIES:
Interest-bearing demand deposits (1) - 45,771 101,790 - 147,561
Savings (1) - 18,913 33,746 - 52,659
Certificates less than $100,000 77,733 127,627 28,695 7,822 241,877
Certificates, $100,000 and over 30,458 52,195 10,513 2,116 95,282
Other short-term borrowings 397 - - - 397
Other borrowings 61,150 5,000 - - 66,150
------------ ------------- ------------- ------------- -------------
169,738 249,506 174,744 9,938 603,926
------------ ------------- ------------- ------------- -------------
INTEREST RATE SENSITIVITY GAP $ 59,734 $ (132,095) $ 9,854 $ 165,075 $ 102,568
============ ============= ============= ============= =============
CUMULATIVE INTEREST RATE SENSITIVITY GAP $ 59,734 $ (72,361) $ (62,507) $ 102,568
============ ============= ============= =============
INTEREST RATE SENSITIVITY GAP RATIO 1.35 0.47 1.06 17.61
============ ============= ============= =============
CUMULATIVE INTEREST RATE SENSITIVITY GAP RATIO 1.35 0.83 0.89 1.17
============ ============= ============= =============
</TABLE>
(1) The Company has found that NOW and money-market checking deposits and
savings deposits reprice between three months and one year or between
one to three years depending on the competition in the market areas
where the deposits are located. Therefore, it has placed portions of
these deposits in the three months to one year horizon and the one to
three years horizon based on estimated amounts repricing in each
horizon.
33
<PAGE>
INVESTMENT PORTFOLIO
The Company manages the mix of asset and liability maturities
in an effort to control the effects of changes in the general level of interest
rates on net interest income. See "--Asset/Liability Management." Except for its
effect on the general level of interest rates, inflation does not have a
material impact on the Company due to the rate variability and short-term
maturities of its earning assets. In particular, approximately 55% of the loan
portfolio is comprised of loans which mature or reprice within one year or less.
Mortgage loans, primarily with five to fifteen year maturities, are also made on
a variable rate basis with rates being adjusted every one to five years.
Additionally, 17% of the investment portfolio matures or reprices within one
year or less.
TYPES OF INVESTMENTS
SECURITIES
Following is a summary of the carrying value of investments as
of the end of each reported period:
<TABLE>
<CAPTION>
<S> <C>
DECEMBER 31,
-----------------------------------------------------------
1999 1998 1997
----------------------- --------------- -------------------
(DOLLARS IN THOUSANDS)
-----------------------------------------------------------
U. S. Government and agency securities $ 48,811 $ 66,407 $ 88,817
State and municipal securities 20,134 22,322 23,908
Corporate debt securities 4,344 - -
Mortgage-backed securities 69,477 65,357 10,036
Marketable equity securities 772 460 458
------------------------ ---------------- ---------------
$ 143,538 $ 154,546 $ 123,219
======================== ================ ===============
</TABLE>
MATURITIES
The amounts of investments in securities in each category as
of December 31, 1999 are shown in the following table according to contractual
maturity classifications (1) one year or less, (2) after one year through five
years, (3) after five years through ten years, and (4) after ten years.
<TABLE>
<CAPTION>
U. S. TREASURY
AND OTHER U. S.
GOVERNMENT AGENCIES STATE AND
AND CORPORATIONS POLITICAL SUBDIVISIONS
YIELD YIELD
AMOUNT (1) AMOUNT (1) (2)
--------------- ------------ -------------- ------------
(DOLLARS IN THOUSANDS)
-------------------------------------------------------------
MATURITY:
<S> <C> <C> <C> <C>
One year or less $ 2,527 6.67 % $ 1,020 6.77 %
After one year through five years 101,038 5.76 9,199 7.23
After five years through ten years 19,248 7.00 7,482 7.18
After ten years 591 7.00 2,433 7.45
--------------- ------------ -------------- ------------
$ 123,404 5.98 % $ 20,134 7.21 %
=============== ============ ============== ============
</TABLE>
(1) Yields were computed using coupon interest, adding discount accretion
or subtracting premium amortization, as appropriate, on a ratable basis
over the life of each security. The weighted average yield for each
maturity range was computed using the acquisition price of each
security in that range.
(2) Yields on securities of state and political subdivisions are stated on
a taxable-equivalent basis, using a tax rate of 34%.
34
<PAGE>
LOAN PORTFOLIO
TYPES OF LOANS
Management believes that the Company's loan portfolio is
adequately diversified. The loan portfolio contains no foreign or energy-related
loans or significant concentrations in any one industry, with the exception of
residential and commercial real estate mortgages, which constituted
approximately 50% of the Company's loan portfolio as of December 31, 1999. The
amount of loans outstanding at the indicated dates is shown in the following
table according to type of loans.
<TABLE>
<CAPTION>
<S> <C>
DECEMBER 31,
-------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- ---------------
(DOLLARS IN THOUSANDS)
-------------------------------------------------------------------------------
Commercial and financial $ 83,385 $ 70,282 $ 72,171 $ 69,772 $ 48,031
Agricultural 29,694 36,567 41,882 35,525 22,716
Real estate - construction 13,228 8,439 13,117 13,612 3,756
Real estate - mortgage, farmland 59,018 56,595 55,245 52,978 48,411
Real estate - mortgage, commercial 150,075 123,854 108,339 89,708 61,806
Real estate - mortgage, residential 117,936 114,930 127,767 121,448 74,671
Consumer instalment loans 59,529 65,307 68,959 67,572 58,615
Other 17,360 1,220 2,764 2,229 1,465
-------------- -------------- ------------- --------------- ---------------
530,225 477,194 490,244 452,844 319,471
Less reserve for possible loan losses 9,895 10,192 7,627 7,273 5,890
-------------- -------------- ------------- --------------- ---------------
Loans, net $ 520,330 $ 467,002 $ 482,617 $ 445,571 $ 313,581
============== ============== ============= =============== ===============
</TABLE>
MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES
Total loans as of December 31, 1999 are shown in the following
table according to maturity or repricing opportunities (1) one year or less, (2)
after one year through three years, and (3) after three years.
(DOLLARS IN
THOUSANDS)
---------------
MATURITY OR REPRICING WITHIN:
One year or less $ 289,136
After one year through three years 135,213
After three years 105,876
---------------
$ 530,225
===============
35
<PAGE>
The following table summarizes loans at December 31, 1999 with
the due dates after one year which (1) have predetermined interest rates and (2)
have floating or adjustable interest rates.
(DOLLARS IN
THOUSANDS)
---------------
Predetermined interest rates $ 239,364
Floating or adjustable interest rates 1,725
---------------
$ 241,089
===============
Records were not available to present the above information in
each category listed in the first paragraph above and could not be reconstructed
without undue burden.
NONPERFORMING LOANS
A loan is placed on nonaccrual status when, in management's
judgment, the collection of the interest income appears doubtful. Interest
receivable that has been accrued in prior years and is subsequently determined
to have doubtful collectibility is charged to the allowance for possible loan
losses. Interest on loans that are classified as nonaccrual is recognized when
received. Past due loans are loans whose principal or interest is past due 90
days or more. In some cases, where borrowers are experiencing financial
difficulties, loans may be restructured to provide terms significantly different
from the original contractual terms.
<TABLE>
<CAPTION>
<S> <C>
DECEMBER 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
------------------------------------------------------------------
Loans accounted for on a nonaccrual basis $ 5,551 $ 8,767 $ 10,101 $ 4,977 $ 2,271
Instalment loans and term loans contractually 48 94 59 397 457
past due ninety days or more as to interest
or principal payments and still accruing
Loans, the terms of which have been renegotiated - - - - -
to provide a reduction or deferral of interest
or principal because of deterioration in the
financial position of the borrower
Loans now current about which there are serious - - - - -
doubts as to the ability of the borrower to
comply with present loan repayment terms
</TABLE>
In the opinion of management, any loans classified by
regulatory authorities as doubtful, substandard or special mention that have not
been disclosed above do not (i) represent or result from trends or uncertainties
which management reasonably expects will materially impact future operating
results, liquidity or capital resources, or (ii) represent material credits
about which management is aware of any information which causes management to
have serious doubts as to the ability of such borrowers to comply with the loan
repayment terms. Any loans classified by regulatory authorities as loss have
been charged off.
36
<PAGE>
SUMMARY OF LOAN LOSS EXPERIENCE
The provision for possible loan losses is created by direct
charges to operations. Losses on loans are charged against the allowance in the
period in which such loans, in management's opinion, become uncollectible.
Recoveries during the period are credited to this allowance. The factors that
influence management's judgment in determining the amount charged to operating
expense are past loan experience, composition of the loan portfolio, evaluation
of possible future losses, current economic conditions and other relevant
factors. The Company's allowance for loan losses was approximately $9,895,000 at
December 31, 1999, representing 1.87% of year end total loans outstanding,
compared with $10,192,000 at December 31, 1998, which represented 2.14% of year
end total loans outstanding. The allowance for loan losses is reviewed quarterly
based on management's evaluation of current risk characteristics of the loan
portfolio, as well as the impact of prevailing and expected economic business
conditions. Management considers the allowance for loan losses adequate to cover
possible loan losses on the loans outstanding.
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
The following table sets forth the breakdown of the allowance
for loan losses by loan category for the periods indicated. Management believes
the allowance can be allocated only on an approximate basis. The allocation of
the allowance to each category is not necessarily indicative of future losses
and does not restrict the use of the allowance to absorb losses in any other
category.
<TABLE>
<CAPTION>
<S> <C>
AT DECEMBER 31,
-------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
-------------------- ------------------ -------------------- ------------------ -------------------
PERCENT PERCENT PERCENT PERCENT PERCENT
OF OF OF OF OF
LOANS LOANS LOANS IN LOANS LOANS
IN IN CATEGORY IN IN
AMOUNT CATEGORY AMOUNT CATEGORY AMOUNT TO TOTAL AMOUNT CATEGORY AMOUNT CATEGORY
TO TOTAL TO LOANS TO TO
LOANS TOTAL TOTAL TOTAL
LOANS LOANS LOANS
---------- --------- -------- -------- --------- ---------- -------- -------- --------- --------
(DOLLARS IN THOUSANDS)
-------------------------------------------------------------------------------------------------------
Commercial,
financial,
industrial
and
agricultural $ 2,904 22 % $ 3,047 22 % $ 1,792 23 % $ 1,661 23 % $ 1,364 22 %
Real estate 3,213 64 3,404 64 3,274 62 2,928 62 2,032 59
Consumer 1,997 14 1,906 14 1,112 15 1,446 15 1,206 19
Unallocated 1,781 - 1,835 - 1,449 - 1,238 - 1,288 -
---------- --------- --------- -------- --------- ---------- -------- -------- --------- --------
$ 9,895 100 % $ 10,192 100 % $ 7,627 100 % $ 7,273 100% $ 5,890 100 %
========== ========= ========= ======== ========= ========== ======== ======== ========= ========
</TABLE>
37
<PAGE>
The following table presents an analysis of the Company's loan
loss experience for the periods indicated:
<TABLE>
<CAPTION>
<S> <C>
DECEMBER 31,
------------------------------------------------------------------------------
1999 1998 1997 1996 1995
-------------- ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
------------------------------------------------------------------------------
Average amount of loans outstanding $ 505,941 $ 495,421 $ 475,047 $ 395,822 $ 308,405
=============== ============= ============== ============== =============
Balance of reserve for possible loan
losses at beginning of period $ 10,192 $ 7,627 $ 7,273 $ 5,890 $ 5,169
--------------- ------------- -------------- -------------- -------------
Charge-offs:
Commercial, financial and
agricultural (1,383) (1,456) (759) (768) (309)
Real estate (933) (1,252) (1,981) (1,242) (108)
Consumer (1,417) (1,322) (383) (279) (573)
Recoveries:
Commercial, financial and
agricultural 434 276 168 89 116
Real estate 263 365 512 275 128
Consumer 585 449 66 178 226
--------------- ------------- -------------- -------------- -------------
Net charge-offs (2,451) (2,940) (2,377) (1,747) (520)
--------------- ------------- -------------- -------------- -------------
Additions to reserve charged to
operating expenses 2,154 5,505 2,731 1,919 1,241
--------------- ------------- -------------- -------------- -------------
Allowance for loan losses of
acquired subsidiary - - - 1,211 -
--------------- ------------- -------------- -------------- -------------
Balance of reserve for possible
loan losses at end of period $ 9,895 $ 10,192 $ 7,627 $ 7,273 $ 5,890
=============== ============= ============== ============== =============
Ratio of net loan charge-offs
to average loans .48% .59% .50% .44% .17%
=============== ============= ============== ============== =============
</TABLE>
38
<PAGE>
DEPOSITS
Average amount of deposits and average rate paid thereon,
classified as to noninterest-bearing demand deposits, interest-bearing demand
and savings deposits and time deposits, for the periods indicated are presented
below.
<TABLE>
<CAPTION>
<S> <C>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1999 1998
----------------------------- -----------------------------
AMOUNT RATE AMOUNT RATE
--------------- ------------ --------------- ------------
(DOLLARS IN THOUSANDS)
------------------------------------------------------------
Noninterest-bearing demand deposits $ 89,325 - % $ 83,770 - %
Interest-bearing demand and savings deposits 190,745 2.57 174,443 3.12
Time deposits 333,257 5.26 348,826 5.73
--------------- ---------------
Total deposits $ 613,327 $ 607,039
=============== ===============
</TABLE>
ABC has a large, stable base of time deposits with little or
no dependence on volatile deposits of $100,000 or more. The time deposits are
principally certificates of deposit and individual retirement accounts obtained
for individual customers.
The amounts of time certificates of deposit issued in amounts
of $100,000 or more as of December 31, 1999, are shown below by category, which
is based on time remaining until maturity of (1) three months or less, (2) over
three through twelve months and (3) over twelve months.
(DOLLARS IN
THOUSANDS)
---------------
Three months or less $ 30,458
Over three through twelve months 52,195
Over twelve months 12,629
---------------
Total $ 95,282
===============
39
<PAGE>
RETURN ON ASSETS AND SHAREHOLDERS' EQUITY
The following rate of return information for the periods
indicated is presented below.
<TABLE>
<CAPTION>
<S> <C>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1999 1998 1997
---------------- ---------------- ----------------
Return on assets (1) 1.23 % 0.99 % 1.10 %
Return on equity (2) 11.93 10.07 11.35
Dividends payout ratio (3) 33.98 42.11 36.89
Equity to assets ratio (4) 10.29 9.81 9.70
</TABLE>
(1) Net income divided by average total assets.
(2) Net income divided by average equity.
(3) Dividends declared per share divided by net income per share.
(4) Average equity divided by average total assets.
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 and the Subsidiary Banks to meet
those needs. ABC and the Subsidiary Banks seek to meet liquidity requirements
primarily through management of short-term investments (principally
interest-bearing deposits in banks) and monthly amortizing loans. Another source
of liquidity is the repayment of maturing single payment loans. In addition, the
Subsidiary Banks maintain relationships with correspondent banks which could
provide funds to them on short notice, if needed.
The liquidity and capital resources of ABC and the Subsidiary
Banks are monitored on a periodic basis by state and Federal regulatory
authorities. At December 31, 1999, the Subsidiary Banks' short-term investments
were adequate to cover any reasonable anticipated immediate need for funds.
During 1999, ABC increased its capital by retaining net earnings of $5,908,000
after payment of dividends. After recording a decrease in capital of $1,829,000
for unrealized losses on securities available for sale, net of taxes, an
increase of $191,000 for restricted stock transactions, and a decrease in
capital of $88,000 for repurchase of treasury shares, total capital increased
$4,182,000 during 1999. At December 31, 1999, total capital of ABC amounted to
$76,016,000. ABC and the Subsidiary Banks are aware of no events or trends
likely to result in a material change in their liquidity.
40
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
At December 31, 1999, ABC had binding commitments for capital
expenditures of approximately $238,000. In addition, management estimates that
approximately $1,250,000 will be required for completion of banking facilities
in 1999.
In accordance with risk capital guidelines issued by the
Federal Reserve Board, ABC is required to maintain a minimum standard of total
capital to risk-weighted assets of 8%. Additionally, all member banks must
maintain "core" or "Tier 1" capital of at least 4% of total assets ("leverage
ratio"). Member banks operating at or near the 4% capital level are expected to
have well-diversified risks, including no undue interest rate risk exposure,
excellent control systems, good earnings, high asset quality, and well managed
on- and off-balance sheet activities; and, in general, be considered strong
banking organizations with a composite 1 rating under the CAMEL rating system of
banks. For all but the most highly rated banks meeting the above conditions, the
minimum leverage ratio is to be 4% plus an additional 100 to 200 basis points.
The following table summarizes the regulatory capital levels
of the Company at December 31, 1999.
<TABLE>
<CAPTION>
ACTUAL REQUIRED EXCESS
------------------------- -------------------------- ------------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
----------- ------------ ------------ ------------- -------------------------
(DOLLARS IN THOUSANDS)
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Leverage capital $ 69,501 9.16 % $ 30,350 4.00 % $ 39,151 5.16 %
Risk-based capital:
Core capital 69,501 13.11 21,201 4.00 48,300 9.11
Total capital 76,167 14.37 42,402 8.00 33,765 6.37
</TABLE>
Each Bank also met its individual regulatory capital
requirements at December 31, 1999.
41
<PAGE>
COMMITMENTS AND LINES OF CREDIT
In the ordinary course of business, the Banks have granted
commitments to extend credit to approved customers. Generally, these commitments
to extend credit have been granted on a temporary basis for seasonal or
inventory requirements and have been approved by the Banks' Board of Directors.
The Banks have also granted commitments to approved customers for standby
letters of credit. These commitments are recorded in the financial statements
when funds are disbursed or the financial instruments become payable. The Banks
use the same credit policies for these off balance sheet commitments as they do
for financial instruments that are recorded in the consolidated financial
statements. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of the
commitment amounts expire without being drawn upon, the total commitment amounts
do not necessarily represent future cash requirements.
Following is a summary of the commitments outstanding at
December 31, 1999 and 1998.
1999 1998
--------------- ---------------
(DOLLARS IN THOUSANDS)
---------------------------------
Commitments to extend credit $ 84,150 $ 80,861
Credit card commitments 9,162 7,866
Standby letters of credit 3,415 2,761
--------------- ---------------
$ 96,727 $ 91,488
=============== ===============
IMPACT OF INFLATION
The consolidated financial statements and related consolidated
financial data presented herein have been prepared in accordance with generally
accepted accounting principles and practices within the banking industry which
require the measurement of financial position and operating results in terms of
historical dollars without considering the changes in the relative purchasing
power of money over time due to inflation. Unlike most industrial companies,
virtually all the assets and liabilities of a financial institution are monetary
in nature. As a result, interest rates have a more significant impact on a
financial institution's performance than the effects of general levels of
inflation.
42
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of the Company
and its subsidiaries are included on pages F-1 through F-40 of this Annual
Report on Form 10-K:
Consolidated Balance Sheets - December 31, 1999 and 1998
Consolidated Statements of Income - Years ended December 31, 1999, 1998
and 1997
Consolidated Statements of Comprehensive Income - Years ended December
31, 1999, 1998 and 1997
Consolidated Statements of Stockholders' Equity - Years ended December
31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows - Years ended December 31, 1999,
1998 and 1997
Notes to Consolidated Financial Statements.
ITEM 9. DISAGREEMENT ON ACCOUNTING AND FINANCIAL DISCLOSURE
During 1999 and 1998, the Company did not change its
accountants and there was no disagreement on any matter of accounting principles
or practices for financial statement disclosure that would have required the
filing of a current report on Form 8-K.
43
<PAGE>
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The information required by this Item is incorporated by
reference to the Company's definitive Proxy Statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A within 120 days
after the end of the fiscal year covered by this Annual Report ("ABC's Proxy
Statement").
Information concerning the Company's executive officers is
included in Item 4.5 of Part I of this Annual Report.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by
reference to ABC's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this Item is incorporated by
reference to ABC's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by
reference to ABC's Proxy Statement.
44
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Item 13(a) 1., 2. and 3.
(a) The following documents are filed as part of this report:
1. Financial statements:
(a) ABC Bancorp and Subsidiaries:
(i) Consolidated Balance Sheets - December
31, 1999 and 1998
(ii) Consolidated Statements of Income -
Years ended December 31, 1999, 1998
and 1997
(iii) Consolidated Statements of
Comprehensive Income - Years ended
December 31, 1999, 1998 and 1997
(iv) Consolidated Statements of
Stockholders' Equity - Years ended
December 31, 1999, 1998 and 1997
(v) Consolidated Statements of Cash Flows
- Years ended December 31, 1999, 1998
and 1997
(vi) Notes to Consolidated Financial
Statements
(b) ABC Bancorp (Parent Company Only):
Parent Company only financial information
has been included in Note 16 of Notes
to Consolidated financial statements.
2. Financial statement schedules:
All schedules are omitted as the required information
is inapplicable or the information is presented in
the financial statements or related notes.
45
<PAGE>
3. Exhibits required by Item 601 of Regulation S-K:
EXHIBIT NO. DESCRIPTION
3.1 Articles of Incorporation of ABC, as amended (incorporated by
reference to Exhibit 2.1 to ABC's Regulation A Offering
Statement on Form 1-A (File No. 24A-2630) filed August 14,
1987).
3.2 Amendment to Amended Articles of Incorporation dated May 26,
1995 (incorporated by reference to Exhibit 3.1.1 to ABC's Form
10-K filed March 28, 1996).
3.3 Amendment to Amended Articles of Incorporation (filed as
Exhibit 4.3 to ABC's Registration on Form S-4 (Registration
No. 333-08301), filed with the Commission on July 17, 1996 and
incorporated herein by reference).
3.4 Bylaws of ABC, as amended (incorporated by reference to
Exhibit 2.2 to ABC's Regulation A Offering Statement on Form
1-A (File No. 24A-2630) filed August 14, 1987.
3.5 Form of Articles of Amendment to the Articles of Incorporation
(incorporated by reference to Exhibit 3.5 to ABC's Annual
Report on Form 10-K (File No. 001-13901), filed with the
Commission on March 25, 1998).
3.6 Form of Amendment to Bylaws (incorporated by reference to
Exhibit 3.6 to ABC's Annual Report on Form 10-K (File No.
001-13901), filed with the Commission on March 25, 1998).
3.7 Form of Articles of Amendment to the Articles of Incorporation
(incorporated by reference to Exhibit 3.7 to ABC'S Annual
Report on Form 10-K (File No. 001-13901), filed with the
Commission on March 26, 1999).
3.8 Form of Amendment to Bylaws (incorporated by reference to
Exhibit 3.8 to ABC'S Annual Report on Form 10-K (File No.
001-13901), filed with the Commission on March 26, 1999).
10.1 1985 Incentive Stock Option Plan (filed as Exhibit 5.1 to
ABC's Regulation A Offering Statement on Form 1-A (File No.
24A-2630), filed with the Commission on August 14, 1987 and
incorporated herein by reference).
10.2 Incentive Stock Option Agreement with Kenneth J. Hunnicutt
dated October 17, 1985 (filed as Exhibit 5.2 to ABC's
Regulation A Offering Statement on Form 1-A (File No.
24A-2630), filed with the Commission on August 14, 1987 and
incorporated herein by reference).
10.3 Deferred Compensation Agreement for Kenneth J. Hunnicutt dated
December 16, 1986 (filed as Exhibit 5.3 to ABC's Regulation A
Offering Statement on Form 1-A (File No. 24A-2630), filed with
the Commission on August 14, 1987 and incorporated herein by
reference).
46
<PAGE>
EXHIBIT NO. DESCRIPTION
10.4 Security Deed in favor of M.I.A., Co. dated December 31, 1984
(filed as Exhibit 5.4 to ABC's Regulation A Offering Statement
on Form 1-A (File No. 24A-2630), filed with the Commission on
August 14, 1987 and incorporated herein by reference).
10.5 Loan Agreement and Master Term Note dated December 30, 1986
(filed as Exhibit 5.5 to ABC's Regulation A Offering Statement
on Form 1-A (File No. 24A-2630), filed with the Commission on
August 14, 1987 and incorporated herein by reference).
10.6 Executive Salary Continuation Agreement dated February 14,
1984 (filed as Exhibit 10.6 to ABC's Annual Report on Form
10-KSB (File Number 2-71257), filed herewith with the
Commission on March 27, 1989 and incorporated herein by
reference.
10.7 1992 Incentive Stock Option Plan and Option Agreement for K.
J. Hunnicutt (filed as Exhibit 10.7 to ABC's Annual Report on
Form 10-KSB (File Number 0-16181), filed with the Commission
on March 30, 1993 and incorporated herein by reference).
10.8 Executive Employment Agreement with Kenneth J. Hunnicutt dated
September 20, 1994 (filed as Exhibit 10.8 to ABC's Annual
Report on Form 10-KSB (File Number 0-016181), filed with the
Commission on March 30, 1995 and incorporated herein by
reference).
10.9 Executive Consulting Agreement with Eugene M. Vereen dated
September 20, 1994 (filed as Exhibit 10.9 to ABC's Annual
Report on Form 10-KSB (File Number 0-016181), filed with the
Commission on March 30, 1995 and incorporated herein by
reference).
10.10 Agreement and Plan of Merger by and between ABC and Southland
Bancorporation dated as of December 18, 1995 (filed as Exhibit
10.10 to ABC's Annual Report on Form 10-K (File No. 0-16181),
filed with the Commission on March 28, 1996 and incorporated
herein by reference), and Amendment No. 1 thereto dated as of
April 16,1996 (filed as part of Appendix A to Amendment No. 1
to ABC's Registration on Form S-4 (Registration No. 333-2387),
filed with the Commission on May 21, 1996 and incorporated
herein by reference).
10.11 Agreement and Plan of Merger by and between ABC and Central
Bankshares, Inc., dated as of December 29, 1995 (filed as
Exhibit 10.11 to ABC's Annual Report on Form 10-K (File No.
0-16181), filed with the Commission on March 28, 1996 and
incorporated herein by reference), and Amendment No. 1 thereto
dated as April 26, 1996 (filed as part of Appendix A to ABC's
Registration on Form S-4 (Registration No. 333-05861), filed
with the Commission on June 12, 1996 and incorporated herein
by reference).
47
<PAGE>
EXHIBIT NO. DESCRIPTION
10.12 Agreement and Plan of Merger by and between ABC and First
National Financial Corporation dated as of April 15, 1996
(filed as Exhibit 10.12 to Amendment No. 1 to ABC's
Registration on Form S-4 (Registration No. 333-2387), filed
with the Commission on May 21, 1996 and incorporated herein by
reference).
10.13 Agreement and Plan of Merger by and between ABC and M & F
Financial Corporation dated as of September 12, 1996 (filed as
Appendix A to ABC's Registration on Form S-4 (Registration No.
333-14649), filed with the Commission on October 23, 1996 and
incorporated herein by reference).
10.15 Form of Purchase and Assumption Agreement by and between
NationsBank, N.A. (South) and ABC Bancorp dated as of February
26, 1997 (incorporated by reference to Exhibit 10.15 to ABC's
Annual Report on Form 10-K (File No. 001-13981), filed with
the Commission on March 25, 1998).
10.16 Form of Agreement and Plan of Merger by and between ABC
Bancorp and Irwin Bankcorp, Inc. dated as of May 15, 1997
(incorporated by reference to Exhibit 10.16 to ABC's Annual
Report on Form 10-K (File No. 001-13901) filed with the
Commission on March 25, 1998).
10.17 Form of Omnibus Stock Ownership and Long-Term Incentive Plan
(incorporated by reference to Exhibit 10.17 to ABC's Annual
Report on Form 10-K (File No. 001-13901), filed with the
Commission on March 25, 1998).
10.18 Form of Rights Agreement between ABC Bancorp and SunTrust Bank
dated as of February 17, 1998 (incorporated by reference to
Exhibit 10.18 to ABC's Annual Report on Form 10-K (File No.
001-13901), filed with the Commission on March 25, 1998).
10.19 ABC Bancorp 2000 Officer/Director Stock Bonus Plan.
21.1 Schedule of subsidiaries of ABC Bancorp.
24.1 Power of Attorney relating to this Form 10-K is set forth on
the signature pages of this Form 10-K.
27 Financial Data Schedule.
48
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
<TABLE>
<CAPTION>
<S> <C>
ABC BANCORP
Date: March 21, 2000 By: /s/ Kenneth J. Hunnicutt
------------------------- ----------------------------------------------------------------------------------
Kenneth J. Hunnicutt, President, Chief Executive Officer and Director
Date: March 21, 2000 By: /s/ Mark D. Thomas
------------------------- ----------------------------------------------------------------------------------
Mark D. Thomas, Executive Vice President, Chief Operating Officer and Director
Date: March 21, 2000 By: /s/ W. Edwin Lane, Jr.
------------------------- ----------------------------------------------------------------------------------
W. Edwin Lane, Jr., Executive Vice President and Chief Financial Officer
</TABLE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Kenneth J. Hunnicutt as his
attorney-in-fact, acting with full power of substitution for him in his name,
place and stead, in any and all capacities, to sign any amendments to this Form
10-K and to file the same, with exhibits thereto, and any other documents in
connection therewith, with the Securities and Exchange Commission and hereby
ratifies and confirms all that said attorney-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue thereof.
Pursuant to the requirements of the Exchange Act, this Form
10-K has been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
<S> <C>
Date: March 21, 2000 /s/ Kenneth J. Hunnicutt
------------------------- --------------------------------------------------------------------------------------
Kenneth J. Hunnicutt, President, Chief Executive Officer and Director
Date: March 21, 2000 /s/ Mark D. Thomas
------------------------- --------------------------------------------------------------------------------------
Mark D. Thomas, Executive Vice President, Chief Operating Officer and Director
Date: March 21, 2000 /s/ W. Edwin Lane, Jr.
------------------------- --------------------------------------------------------------------------------------
W. Edwin Lane, Jr., Executive Vice President and Chief Financial Officer
Date: March 21, 2000 /s/ Johnny W. Floyd
------------------------- --------------------------------------------------------------------------------------
Johnny W. Floyd, Director
Date: March 21, 2000 /s/ J. Raymond Fulp
------------------------- --------------------------------------------------------------------------------------
J. Raymond Fulp, Director
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Date: March 21, 2000 /s/ Wycliff R. Griffin
------------------------- --------------------------------------------------------------------------------------
Wycliff R. Griffin, Director
Date: March 21, 2000 /s/ Daniel B. Jeter
------------------------- --------------------------------------------------------------------------------------
Daniel B. Jeter, Director
Date: March 21, 2000 /s/ Bobby B. Lindsey
------------------------- --------------------------------------------------------------------------------------
Bobby B. Lindsey, Director
Date: March 21, 2000 /s/ Hal L. Lynch
------------------------- --------------------------------------------------------------------------------------
Hal L. Lynch, Director
Date: March 21, 2000 /s/ Eugene M. Vereen, Jr.
------------------------- --------------------------------------------------------------------------------------
Eugene M. Vereen, Jr., Director
Date: March 21, 2000 /s/ Doyle Weltzbarker
------------------------- --------------------------------------------------------------------------------------
Doyle Weltzbarker, Director and Chairman of the Board
Date: March 21, 2000 /s/ Henry Wortman
------------------------- --------------------------------------------------------------------------------------
Henry Wortman, Director
</TABLE>
49
<PAGE>
50
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
3.1 Articles of Incorporation of ABC, as amended (incorporated by
reference to Exhibit 2.1 to ABC's Regulation A Offering
Statement on Form 1-A (File No. 24A-2630) filed August 14,
1987).
3.2 Amendment to Amended Articles of Incorporation dated May 26,
1995 (incorporated by reference to Exhibit 3.1.1 to ABC's Form
10-K filed March 28, 1996).
3.3 Amendment to Amended Articles of Incorporation (filed as
Exhibit 4.3 to ABC's Registration on Form S-4 (Registration
No. 333-08301), filed with the Commission on July 17, 1996 and
incorporated herein by reference).
3.4 Bylaws of ABC, as amended (incorporated by reference to
Exhibit 2.2 to ABC's Regulation A Offering Statement on Form
1-A (File No. 24A-2630) filed August 14, 1987.
3.5 Form of Articles of Amendment to the Articles of Incorporation
(incorporated by reference to Exhibit 3.5 to ABC's Annual
Report on Form 10-K (File No. 001-13901), filed with the
Commission on March 25, 1998).
3.6 Form of Amendment to Bylaws (incorporated by reference to
Exhibit 3.6 to ABC's Annual Report on Form 10-K (File No.
001-13901), filed with the Commission on March 25, 1998).
3.7 Form of Articles of Amendment to the Articles of Incorporation
(incorporated by reference to Exhibit 3.7 to ABC'S Annual
Report on Form 10-K (File No. 001-13901), filed with the
Commission on March 26, 1999).
3.8 Form of Amendment to Bylaws (incorporated by reference to
Exhibit 3.8 to ABC'S Annual Report on Form 10-K (File No.
001-13901), filed with the Commission on March 26, 1999).
10.1 1985 Incentive Stock Option Plan (filed as Exhibit 5.1 to
ABC's Regulation A Offering Statement on Form 1-A (File No.
24A-2630), filed with the Commission on August 14, 1987 and
incorporated herein by reference).
10.2 Incentive Stock Option Agreement with Kenneth J. Hunnicutt
dated October 17, 1985 (filed as Exhibit 5.2 to ABC's
Regulation A Offering Statement on Form 1-A (File No.
24A-2630), filed with the Commission on August 14, 1987 and
incorporated herein by reference).
10.3 Deferred Compensation Agreement for Kenneth J. Hunnicutt dated
December 16, 1986 (filed as Exhibit 5.3 to ABC's Regulation A
Offering Statement on Form 1-A (File No. 24A-2630), filed with
the Commission on August 14, 1987 and incorporated herein by
reference).
51
<PAGE>
EXHIBIT NO. DESCRIPTION
10.4 Security Deed in favor of M.I.A., Co. dated December 31, 1984
(filed as Exhibit 5.4 to ABC's Regulation A Offering Statement
on Form 1-A (File No. 24A-2630), filed with the Commission on
August 14, 1987 and incorporated herein by reference).
10.5 Loan Agreement and Master Term Note dated December 30, 1986
(filed as Exhibit 5.5 to ABC's Regulation A Offering Statement
on Form 1-A (File No. 24A-2630), filed with the Commission on
August 14, 1987 and incorporated herein by reference).
10.6 Executive Salary Continuation Agreement dated February 14,
1984 (filed as Exhibit 10.6 to ABC's Annual Report on Form
10-KSB (File Number 2-71257), filed herewith with the
Commission on March 27, 1989 and incorporated herein by
reference.
10.7 1992 Incentive Stock Option Plan and Option Agreement for K.
J. Hunnicutt (filed as Exhibit 10.7 to ABC's Annual Report on
Form 10-KSB (File Number 0-16181), filed with the Commission
on March 30, 1993 and incorporated herein by reference).
10.8 Executive Employment Agreement with Kenneth J. Hunnicutt dated
September 20, 1994 (filed as Exhibit 10.8 to ABC's Annual
Report on Form 10-KSB (File Number 0-016181), filed with the
Commission on March 30, 1995 and incorporated herein by
reference).
10.9 Executive Consulting Agreement with Eugene M. Vereen dated
September 20, 1994 (filed as Exhibit 10.9 to ABC's Annual
Report on Form 10-KSB (File Number 0-016181), filed with the
Commission on March 30, 1995 and incorporated herein by
reference).
10.10 Agreement and Plan of Merger by and between ABC and Southland
Bancorporation dated as of December 18, 1995 (filed as Exhibit
10.10 to ABC's Annual Report on Form 10-K (File No. 0-16181),
filed with the Commission on March 28, 1996 and incorporated
herein by reference), and Amendment No. 1 thereto dated as of
April 16,1996 (filed as part of Appendix A to Amendment No. 1
to ABC's Registration on Form S-4 (Registration No. 333-2387),
filed with the Commission on May 21, 1996 and incorporated
herein by reference).
10.11 Agreement and Plan of Merger by and between ABC and Central
Bankshares, Inc., dated as of December 29, 1995 (filed as
Exhibit 10.11 to ABC's Annual Report on Form 10-K (File No.
0-16181), filed with the Commission on March 28, 1996 and
incorporated herein by reference), and Amendment No. 1 thereto
dated as April 26, 1996 (filed as part of Appendix A to ABC's
Registration on Form S-4 (Registration No. 333-05861), filed
with the Commission on June 12, 1996 and incorporated herein
by reference).
52
<PAGE>
EXHIBIT NO. DESCRIPTION
10.12 Agreement and Plan of Merger by and between ABC and First
National Financial Corporation dated as of April 15, 1996
(filed as Exhibit 10.12 to Amendment No. 1 to ABC's
Registration on Form S-4 (Registration No. 333-2387), filed
with the Commission on May 21, 1996 and incorporated herein by
reference).
10.13 Agreement and Plan of Merger by and between ABC and M & F
Financial Corporation dated as of September 12, 1996 (filed as
Appendix A to ABC's Registration on Form S-4 (Registration No.
333-14649), filed with the Commission on October 23, 1996 and
incorporated herein by reference).
10.15 Form of Purchase and Assumption Agreement by and between
NationsBank, N.A. (South) and ABC Bancorp dated as of February
26, 1997 (incorporated by reference to Exhibit 10.15 to ABC's
Annual Report on Form 10-K (File No. 001-13981), filed with
the Commission on March 25, 1998).
10.16 Form of Agreement and Plan of Merger by and between ABC
Bancorp and Irwin Bankcorp, Inc. dated as of May 15, 1997
(incorporated by reference to Exhibit 10.16 to ABC's Annual
Report on Form 10-K (File No. 001-13901) filed with the
Commission on March 25, 1998).
10.17 Form of Omnibus Stock Ownership and Long-Term Incentive Plan
(incorporated by reference to Exhibit 10.17 to ABC's Annual
Report on Form 10-K (File No. 001-13901), filed with the
Commission on March 25, 1998).
10.18 Form of Rights Agreement between ABC Bancorp and SunTrust Bank
dated as of February 17, 1998 (incorporated by reference to
Exhibit 10.18 to ABC's Annual Report on Form 10-K (File No.
001-13901), filed with the Commission on March 25, 1998).
10.19 ABC Bancorp Officer/Director Stock Bonus Plan.
21.1 Schedule of subsidiaries of ABC Bancorp.
24.1 Power of Attorney relating to this Form 10-K is set forth on
the signature pages of this Form 10-K.
27 Financial Data Schedule.
53
<PAGE>
ABC BANCORP
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Consolidated financial statements:
Independent Auditor's Report
Consolidated Balance Sheets - December 31, 1999 and 1998
Consolidated Statements of Income - Years ended December 31, 1999, 1998 and
1997
Consolidated Statements of Comprehensive Income - Years ended December 31,
1999, 1998 and 1997
Consolidated Statements of Stockholders' Equity - Years ended December 31,
1999, 1998 and 1997
Consolidated Statements of Cash Flows - Years ended December 31, 1999, 1998
and 1997
Notes to Consolidated Financial Statements
All schedules are omitted as the required information is inapplicable or the
information is presented in the financial statements or related notes.
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
- --------------------------------------------------------------------------------
TO THE BOARD OF DIRECTORS
ABC BANCORP
MOULTRIE, GEORGIA
We have audited the accompanying consolidated balance sheets of ABC
BANCORP AND SUBSIDIARIES as of December 31, 1999 and 1998, and the related
consolidated statements of income, comprehensive income, stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ABC Bancorp
and Subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with generally accepted accounting principles.
/s/ Mauldin & Jenkins, LLC
Albany, Georgia
January 21, 2000
F-2
<PAGE>
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
(Dollars in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS 1999 1998
--------- ---------
Cash and due from banks $ 47,399 $ 42,058
Interest-bearing deposits in banks 32,731 14,417
Securities available for sale, at fair value 143,538 135,933
Securities held to maturity, at cost -- 18,613
Loans 530,225 477,194
Less allowance for loan losses 9,895 10,192
--------- ---------
Loans, net 520,330 467,002
--------- ---------
Premises and equipment, net 19,540 19,088
Excess of cost over net assets of banks acquired 7,636 8,440
Other assets 18,286 19,395
--------- ---------
$ 789,460 $ 724,946
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing demand $ 103,279 $ 99,957
Interest-bearing demand 147,561 132,527
Savings 52,659 59,719
Time, $100,000 and over 95,282 93,381
Other time 241,877 247,741
--------- ---------
Total deposits 640,658 633,325
Federal funds purchased and securities sold under agreements to repurchase 397 883
Other borrowings 66,150 11,850
Other liabilities 6,239 7,054
--------- ---------
Total liabilities 713,444 653,112
--------- ---------
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY
Common stock, par value $1; 15,000,000 shares authorized,
9,098,690 and 7,524,718 shares issued 9,099 7,525
Capital surplus 28,854 29,677
Retained earnings 42,188 36,280
Accumulated other comprehensive income (loss) (1,507) 322
Unearned compensation (560) --
--------- ---------
78,074 73,804
Less cost of shares acquired for the treasury, 374823 and 305,153 shares (2,058) (1,970)
--------- ---------
Total stockholders' equity 76,016 71,834
--------- ---------
$ 789,460 $ 724,946
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(Dollars in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1999 1998 1997
-------- -------- --------
Interest income
Interest and fees on loans $ 50,603 $ 51,584 $ 50,502
Interest on taxable securities 7,278 5,990 6,511
Interest on nontaxable securities 1,086 1,190 1,205
Interest on deposits in other banks 814 1,077 232
Interest on Federal funds sold -- 53 199
-------- -------- --------
59,781 59,894 58,649
-------- -------- --------
Interest expense
Interest on deposits 22,424 25,411 24,229
Interest on other borrowings 1,976 1,033 1,721
-------- -------- --------
24,400 26,444 25,950
-------- -------- --------
Net interest income 35,381 33,450 32,699
Provision for loan losses 2,154 5,505 2,731
-------- -------- --------
Net interest income after provision for
loan losses 33,227 27,945 29,968
-------- -------- --------
Other income
Service charges on deposit accounts 5,696 5,720 5,509
Other service charges, commissions and fees 423 506 474
Mortgage origination fees 788 883 445
Non-taxable life insurance benefits -- 1,200 --
(Loss) on sale of securities (91) -- (22)
Other 1,146 1,390 1,330
-------- -------- --------
7,962 9,699 7,736
-------- -------- --------
Other expenses
Salaries and employee benefits 14,886 14,025 13,742
Equipment expense 2,348 2,442 2,305
Occupancy expense 1,843 1,878 1,653
Amortization of intangible assets 804 851 744
Data processing fees 691 774 528
Other operating expenses 7,370 8,026 8,167
-------- -------- --------
27,942 27,996 27,139
-------- -------- --------
Income before income taxes 13,247 9,648 10,565
Applicable income taxes 4,291 2,735 3,119
-------- -------- --------
Net income $ 8,956 $ 6,913 $ 7,446
======== ======== ========
Income per common share - Basic $ 1.03 $ 0.79 $ 0.86
======== ======== ========
Income per common share - Diluted $ 1.03 $ 0.79 $ 0.85
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1999 1998 1997
------- ------- -------
Net income $ 8,956 $ 6,913 $ 7,446
------- ------- -------
Other comprehensive income (loss):
Net unrealized holding gains (losses) arising
during period, net of tax (benefits) of ($973), $32 and
$ 152 (1,889) 80 284
Reclassification adjustment for losses
included in net income, net of
tax of $31, $ - - and $7 60 -- 15
------- ------- -------
Total other comprehensive income (loss) (1,829) 80 299
------- ------- -------
Comprehensive income $ 7,127 $ 6,993 $ 7,745
======= ======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
Accumulated
Other
Common Stock Comprehensive
------------------- Capital Retained Income
Shares Par Value Surplus Earnings (Loss)
------ --------- ------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 6,114,443 $ 6,114 $ 30,985 $ 27,483 $ (57)
Net income -- -- -- 7,446 --
Cash dividends declared, $.32 per share -- -- -- (2,665) --
Five-for-four common stock split 1,403,241 1,403 (1,403) -- --
Exercise of options by shareholders of pooled subsidiaries 7,034 8 102 -- --
Purchase of fractional shares -- -- (7) -- --
Other comprehensive income -- -- -- -- 299
--------- --------- --------- --------- ---------
Balance, December 31, 1997 7,524,718 7,525 29,677 32,264 242
Net income -- -- -- 6,913 --
Cash dividends declared, $.33 per share -- -- -- (2,897) --
Net treasury stock transactions -- -- -- -- --
Other comprehensive income -- -- -- -- 80
--------- --------- --------- --------- ---------
Balance, December 31, 1998 7,524,718 7,525 29,677 36,280 322
Net income -- -- -- 8,956 --
Cash dividends declared, $.35 per share -- -- -- (3,048) --
Six-for-five stock split 1,516,142 1,516 (1,516) -- --
Issuance of restricted shares of common stock
under employee incentive plan 57,830 58 693 -- --
Amortization of unearned compensation,
net of forfeitures -- -- -- -- --
Net treasury stock transactions -- -- -- -- --
Other comprehensive loss -- -- -- -- (1,829)
--------- --------- --------- --------- ---------
Balance, December 31, 1999 9,098,690 $ 9,099 $ 28,854 $ 42,188 $ (1,507)
========= ========= ========= ========= =========
Treasury Stock
Unearned -----------------
Compensation Shares Cost Total
------------ ------ ---- -----
Balance, December 31, 1996 $ -- 217,882 $ (1,555) $ 62,970
Net income -- -- -- 7,446
Cash dividends declared, $.32 per share -- -- -- (2,665)
Five-for-four common stock split -- 54,471 -- --
Exercise of options by shareholders of pooled subsidiaries -- -- -- 110
Purchase of fractional shares -- -- -- (7)
Other comprehensive income -- -- -- 299
--------- ------- --------- ---------
Balance, December 31, 1997 -- 272,353 (1,555) 68,153
Net income -- -- -- 6,913
Cash dividends declared, $.33 per share -- -- -- (2,897)
Net treasury stock transactions -- 32,800 (415) (415)
Other comprehensive income -- -- -- 80
--------- ------- --------- ---------
Balance, December 31, 1998 -- 305,153 (1,970) 71,834
Net income -- -- -- 8,956
Cash dividends declared, $.35 per share -- -- -- (3,048)
Six-for-five stock split -- 62,470 -- --
Issuance of restricted shares of common stock
under employee incentive plan (751) -- -- --
Amortization of unearned compensation,
net of forfeitures 191 -- -- 191
Net treasury stock transactions -- 7,200 (88) (88)
Other comprehensive loss -- -- -- (1,829)
--------- ------- --------- ---------
Balance, December 31, 1999 $ (560) 374,823 $ (2,058) $ 76,016
========= ======= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(Dollars in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1999 1998 1997
--------- --------- ---------
OPERATING ACTIVITIES
Net income $ 8,956 $ 6,913 $ 7,446
--------- --------- ---------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,988 2,143 2,000
Amortization of intangible assets 804 851 744
Amortization of unearned compensation 191 -- --
Net losses on securities available for sale 91 -- 22
Net (gains) losses on sale of premises
and equipment 36 (188) --
Gain from life insurance benefits -- (1,200) --
Provision for loan losses 2,154 5,505 2,731
Provision for deferred taxes (87) (1,170) (449)
(Increase) decrease in interest receivable (75) 1,271 (1,435)
Increase (decrease) in interest payable 57 (38) 56
Decrease in taxes receivable 526 -- --
Increase (decrease) in taxes payable 328 (485) 463
Other prepaids, deferrals and accruals, net 492 891 (2,048)
--------- --------- ---------
Total adjustments 6,505 7,580 2,084
--------- --------- ---------
Net cash provided by operativities 15,461 14,493 9,530
--------- --------- ---------
INVESTING ACTIVITIES
Increase in interest-bearing deposit in banks (18,314) (12,129) (2,288)
Purchases of securities available for sale (70,410) (110,362) (48,972)
Purchases of securities held to maturity -- (400) (6,102)
Proceeds from maturities of securities
available for sale 58,994 67,708 48,633
Proceeds from sale of securities available for sale 16,279 -- 10,851
Proceeds from maturities of securities held
to maturity 3,283 11,807 8,072
Decrease in Federal funds sold -- 890 7,730
(Increase) decrease in loans, net (55,482) 10,110 (32,550)
Net cash received from acquisition of deposits -- -- 16,398
Purchase of premises and equipment (2,631) (2,383) (4,598)
Proceeds from the sale of premises and equipment -- 708 --
Proceeds from life insurance benefit -- 1,671 --
--------- --------- ---------
Net cash used in investing activities (68,281) (32,380) (2,826)
--------- --------- ---------
</TABLE>
F-7
<PAGE>
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(Dollars in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1999 1998 1997
--------- --------- ---------
FINANCING ACTIVITIES
Increase (decrease) in deposits $ 7,333 $ 32,614 $ (3,965)
Increase (decrease) in Federal funds purchased
and securities sold under agreements to repurchase (486) 223 (337)
Proceeds from other borrowings 338,950 5,500 34,678
Repayment of other borrowings (284,650) (9,050) (43,478)
Dividends paid (2,898) (2,900) (2,633)
Proceeds from sale of stock of poole subsidiary -- -- 110
Purchase of fractional shares -- -- (7)
Purchase of treasury shares (88) (415) --
--------- --------- ---------
Net cash provided by (used in)
financing activities 58,161 25,972 (15,632)
--------- --------- ---------
Net increase (decrease) in cash and due from banks 5,341 8,085 (8,928)
Cash and due from banks at beginning of year 42,058 33,973 42,901
--------- --------- ---------
Cash and due from banks at end of year $ 47,399 $ 42,058 $ 33,973
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the year for:
Interest $ 24,343 $ 26,482 $ 25,894
Income taxes $ 3,524 $ 4,390 $ 3,105
NONCASH TRANSACTIONS
Net change in unrealized gains (losses)
on securities available for sale $ (2,771) $ 94 $ 471
Transfer of securities held to maturity to
securities available for sale $ 15,330 $ -- $ --
</TABLE>
See Notes to Consolidated Financial Statements.
F-8
<PAGE>
ABC BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
ABC Bancorp, (the "Company") is a multi-bank holding
company whose business is presently conducted by its
subsidiary banks (the "Banks"). Through the Banks, the
Company operates a full service banking business and
offers a broad range of retail and commercial banking
services to its customers located in a market area which
includes South Georgia and Southeast Alabama. The Company
and the Banks are subject to the regulations of certain
Federal and state agencies and are periodically examined
by those regulatory agencies.
BASIS OF PRESENTATION
The accounting and reporting policies of the Company
conform to generally accepted accounting principles and
general practices within the financial services industry.
In preparing the financial statements, management is
required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date
of the balance sheet and revenues and expenses for the
period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to
significant change in the near term relate to the
determination of the allowance for loan losses, the
valuation of foreclosed real estate and deferred tax
assets.
The Company's consolidated financial statements include
the accounts of the Company and its subsidiaries. All
significant intercompany transactions and accounts have
been eliminated in consolidation.
The principles which significantly affect the
determination of financial position, results of operations
and cash flows are summarized below.
CASH AND DUE FROM BANKS
For purposes of reporting cash flows, cash and due from
banks includes cash on hand and amounts due from banks
(including cash items in process of clearing). Cash flows
from loans originated by the Banks, deposits,
interest-bearing deposits and Federal funds purchased and
sold are reported net.
The Company maintains amounts due from banks which, at
times, may exceed Federally insured limits. The Company has
not experienced any losses in such accounts.
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SECURITIES
Securities are classified based on management's intention
on the date of purchase. Securities which management has
the intent and ability to hold to maturity are classified
as held to maturity and reported at amortized cost. All
other debt securities are classified as available for sale
and carried at fair value with net unrealized gains and
losses included in stockholders' equity, net of tax.
Marketable equity securities are carried at fair value with
net unrealized gains and losses included in stockholders'
equity. Other equity securities without a readily
determinable fair value are carried at cost.
As of December 31, 1999, the Company transferred all debt
securities classified as securities held to maturity to
securities available for sale.
Interest and dividends on securities, including
amortization of premiums and accretion of discounts, are
included in interest income. Realized gains and losses from
the sales of securities are determined using the specific
identification method.
A decline in the fair value below cost of any security that
is deemed other than temporary is charged to earnings
resulting in the establishment of a new cost basis for the
security.
LOANS HELD FOR SALE
Loans held for sale include mortgage and other loans and
are carried at the lower of aggregate cost or fair value.
LOANS
Loans are reported at their outstanding principal balances
less unearned income and the allowance for loan losses.
Interest income is accrued based on the principal balance
outstanding.
Loan origination fees and certain direct costs of most
loans are recognized at the time the loan is recorded. Loan
origination fees and costs incurred for other loans are
deferred and recognized as income over the life of the
loan. Because net origination loan fees and costs are not
material, the results of operations are not materially
different than the results which would be obtained by
accounting for loan fees and costs in accordance with
generally accepted accounting principles.
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOANS (CONTINUED)
The accrual of interest on loans is discontinued when, in
management's opinion, the borrower may be unable to meet
payments as they become due. All interest accrued but not
collected for loans that are placed on nonaccrual or
charged off is reversed against interest income. Interest
income is subsequently recognized only to the extent cash
payments are received.
The allowance for loan losses is maintained at a level that
management believes to be adequate to absorb potential
losses in the loan portfolio. Loan losses are charged
against the allowance when management believes the
uncollectibility of a loan is confirmed. Subsequent
recoveries are credited to the allowance. Management's
determination of the adequacy of the allowance is based on
an evaluation of the portfolio, past loan loss experience,
current economic conditions, volume, growth, composition of
the loan portfolio, and other risks inherent in the
portfolio. This evaluation is inherently subjective as it
requires material estimates that are susceptible to
significant change including the amounts and timing of
future cash flows expected to be received on impaired
loans. In addition, regulatory agencies, as an integral
part of their examination process, periodically review the
Bank's allowance for loan losses, and may require the Bank
to record additions to the allowance based on their
judgment about information available to them at the time of
their examinations.
A loan is considered impaired when it is probable the Bank
will be unable to collect all principal and interest
payments due in accordance with the contractual terms of
the loan agreement. Individually identified impaired loans
are measured based on the present value of expected
payments using the contractual loan rate as the discount
rate, the loan's observable market price, or the fair value
of the collateral if the loan is collateral dependent. If
the recorded investment in the impaired loan exceeds the
measure of fair value, a valuation allowance is established
as a component of the allowance for loan losses. Changes to
the valuation allowance are recorded as a component of the
provision for loan losses.
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PREMISES AND EQUIPMENT
Land is carried at cost. Premises and equipment are carried
at cost less accumulated depreciation computed principally
on the straight-line method over the estimated useful lives
of the assets.
OTHER REAL ESTATE OWNED
Other real estate owned (OREO) represents properties
acquired through foreclosure or other proceedings. OREO is
held for sale and is recorded at the lower of the recorded
amount of the loan or fair value of the properties less
estimated costs of disposal. Any write-down to fair value
at the time of transfer to OREO is charged to the allowance
for loan losses. Property is evaluated regularly to ensure
the recorded amount is supported by its current fair value
and valuation allowances to reduce the carrying amount to
fair value less estimated costs to dispose are recorded as
necessary. Subsequent decreases in fair value and increases
in fair value, up to the value established at foreclosure,
are recognized as charges or credits to noninterest
expense. OREO is reported net of allowance for losses in
the Company's financial statements. The carrying amount of
other real estate owned at December 31, 1999 and 1998 was
$461,000 and $615,000, respectively.
INTANGIBLE ASSETS
Intangible assets, arising from excess of purchase price
over net assets acquired of purchased banks, are being
amortized on the straight-line method over various periods
not exceeding 25 years for banks acquired prior to 1996.
Excess acquisition cost of Southland Bank acquired in 1996
and the Douglas branch of Citizens Security Bank acquired
in 1997 are being amortized on the straight-line method
over 15 years.
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Income tax expense consists of current and deferred taxes.
Current income tax provisions approximate taxes to be paid
or refunded for the applicable year. Deferred tax assets
and liabilities are recognized on the temporary differences
between the bases of assets and liabilities as measured by
tax laws and their bases as reported in the financial
statements. Deferred tax expense or benefit is then
recognized for the change in deferred tax assets or
liabilities between periods.
Recognition of deferred tax balance sheet amounts is based
on management's belief that it is more likely than not that
the tax benefit associated with certain temporary
differences, tax operating loss carryforwards, and tax
credits will be realized. A valuation allowance is recorded
for those deferred tax items for which it is more likely
than not that realization will not occur.
The Company and its subsidiaries file a consolidated income
tax return. Each subsidiary provides for income taxes based
on its contribution to income taxes (benefits) of the
consolidated group.
EARNINGS PER SHARE
Basic earnings per common share are computed by dividing
net income by the weighted-average number of shares of
common stock outstanding. Diluted earnings per common share
are computed by dividing net income minus the income effect
of potential common shares that are dilutive by the sum of
the weighted-average number of shares of common stock
outstanding and potential common shares. All per share data
for prior years have been adjusted to reflect the
six-for-five split effected in the form of a 20% stock
dividend to shareholders of record as of December 15, 1999.
COMPREHENSIVE INCOME
Statement of Financial Standards ("SFAS") 130 describes
comprehensive income as the total of all components of
comprehensive income including net income. Other
comprehensive income refers to revenues, expenses, gains
and losses that, under generally accepted accounting
principles, are included in comprehensive income but
excluded from net income. Currently, the Company's other
comprehensive income consists of unrealized gains and
losses on available for sale securities.
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENT DEVELOPMENTS
In June 1998, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 133
("SFAS No., 133"), "Accounting for Derivative Instruments
and Hedging Activities". This statement is required to be
adopted for fiscal years beginning after June 2000.
However, the statement permits early adoption as of the
beginning of any fiscal quarter after its issuance. The
Company expects to adopt this statement effective January
1, 2001. SFAS 133 requires the Company to recognize all
derivatives as either assets or liabilities in the balance
sheet at fair value. For derivatives that are not
designated as hedges, the gain or loss must be recognized
in earnings in the period of change. For derivatives that
are designated as hedges, changes in the fair value of the
hedged assets, liabilities, or firm commitments must be
recognized in earnings or recognized in other comprehensive
income until the hedged item is recognized in earnings,
depending on the nature of the hedge. The ineffective
portion of a derivative's change in fair value must be
recognized in earnings immediately. Management has not yet
determined what effect the adoption of SFAS 133 will have
on the Company's earnings or financial position.
There are no other recent accounting pronouncements that
have had, or are expected to have, a material effect on the
Company's financial statements.
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2. INVESTMENTS IN SECURITIES
As permitted by Financial Accounting Standards Board Statement
No. 115, "Accounting for Certain Investments in Debt and
Equity Securities", the Company elected on December 31, 1999,
to transfer all debt securities classified as securities held
to maturity to securities available for sale. Upon election,
the Company transferred debt securities with a market value of
$15,420,000 to securities available for sale. These securities
were marked to fair value resulting in a net unrealized gain
of $90,000 which was included in stockholders' equity at
$59,000, net of related taxes of $31,000.
The amortized cost and approximate fair values of investments
in securities at December 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------------- ------------- ------------ -------------
(DOLLARS IN THOUSANDS)
------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE
DECEMBER 31, 1999:
<S> <C> <C> <C> <C>
U. S. GOVERNMENT AND AGENCY $ 49,741 $ 9 $ (939) $ 48,811
SECURITIES
STATE AND MUNICIPAL SECURITIES 20,059 209 (134) 20,134
CORPORATE DEBT SECURITIES 4,449 - (105) 4,344
MORTGAGE-BACKED SECURITIES 70,700 122 (1,345) 69,477
MARKETABLE EQUITY SECURITIES 872 - (100) 772
------------------- ------------- ------------ -------------
$ 145,821 $ 340 $ (2,623) $ 143,538
=================== ============= ============ =============
December 31, 1998:
U. S. Government and agency $ 65,146 $ 278 $ (16) $ 65,408
securities
State and municipal securities 6,097 273 - 6,370
Corporate debt securities - - - -
Mortgage-backed securities 63,677 198 (180) 63,695
Marketable equity securities 525 - (65) 460
------------------- ------------- ------------ -------------
$ 135,445 $ 749 $ (261) $ 135,933
=================== ============= ============ =============
Securities Held to Maturity
December 31, 1998:
U. S. Government and agency $ 999 $ 2 $ - $ 1,001
securities
Mortgage-backed securities 1,662 25 - 1,687
State and municipal securities 15,952 686 (1) 16,637
------------------- ------------- ------------ -------------
$ 18,613 $ 713 $ (1) $ 19,325
=================== ============= ============ =============
</TABLE>
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2. INVESTMENTS IN SECURITIES (CONTINUED)
The amortized cost and fair value of debt securities as of
December 31, 1999 by contractual maturity are shown below.
Maturities may differ from contractual maturities in
mortgage-backed securities because the mortgages underlying
the securities may be called or repaid without any penalties.
Therefore, these securities are not included in the maturity
categories in the following maturity summary.
SECURITIES AVAILABLE FOR SALE
-------------------------------
AMORTIZED FAIR
COST VALUE
-------------- --------------
(DOLLARS IN THOUSANDS)
-------------------------------
Due in one year or less $ 2,267 $ 2,271
Due from one year to five years 42,914 42,405
Due from five to ten years 26,004 25,589
Due after ten years 3,064 3,024
Mortgage-backed securities 70,700 69,477
Marketable equity securities 872 772
-------------- --------------
$ 145,821 $ 143,538
============== ==============
Securities with a carrying value of $ 78,388,000 and
$59,332,000 at December 31, 1999 and 1998, respectively, were
pledged to secure public deposits and for other purposes.
Gains and losses on sales of securities available for sale
consist of the following:
<TABLE>
<CAPTION>
<S> <C>
DECEMBER 31,
---------------------------------------------
1999 1998 1997
------------ ------------- ------------
(DOLLARS IN THOUSANDS)
---------------------------------------------
Gross gains on sales of securities $ 4 $ - $ 26
Gross losses on sales of securities (95) - (48)
------------ ------------- ------------
Net realized (losses) on sales of
securities available for sale $ (91) $ - $ (22)
============ ============= ============
</TABLE>
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES
The composition of loans is summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
DECEMBER 31,
-----------------------------------
1999 1998
--------------- ---------------
(DOLLARS IN THOUSANDS)
-----------------------------------
Commercial and financial $ 83,385 $ 70,282
Agricultural 29,694 36,567
Real estate - construction 13,228 8,439
Real estate - mortgage, farmland 59,018 56,595
Real estate - mortgage, commercial 150,075 123,854
Real estate - mortgage, residential 117,936 114,930
Consumer installment loans 59,529 65,307
Other 17,360 1,220
--------------- ---------------
530,225 477,194
Allowance for loan loss 9,895 10,192
--------------- ---------------
$ 520,330 $ 467,002
=============== ===============
The following is a summary of information pertaining to impaired loans:
DECEMBER 31,
---------------------------------------------------
1999 1998 1997
--------------- --------------- ---------------
(DOLLARS IN THOUSANDS)
---------------------------------------------------
Impaired loans without a valuation allowance $ - $ - $ 4,374
Impaired loans with a valuation allowance 5,551 8,767 5,680
--------------- --------------- ---------------
Total impaired loans $ 5,551 $ 8,767 $ 10,054
=============== =============== ===============
Valuation allowance related to impaired loans $ 953 $ 1,846 $ 1,060
=============== =============== ===============
YEARS ENDED DECEMBER 31,
--------------------------------------------------
1999 1998 1997
--------------------------------- ---------------
(DOLLARS IN THOUSANDS)
--------------------------------------------------
Average investment in impaired loans $ 6,447 $ 12,730 $ 7,686
=============== =============== ===============
Interest income recognized on a cash
basis on impaired loans $ 21 $ 160 $ 383
=============== =============== ===============
Forgone interest income on impaired loans $ 593 $ 1,160 $ 610
=============== =============== ===============
</TABLE>
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
The Company has granted loans to certain directors, executive
officers, and related entities of the Company and the Banks.
The interest rates on these loans were substantially the same
as rates prevailing at the time of the transaction and
repayment terms are customary for the type of loan involved.
Changes in related party loans for the years ended December
31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
<S> <C>
DECEMBER 31,
--------------------------------
1999 1998
-------------- ---------------
(DOLLARS IN THOUSANDS)
--------------------------------
BALANCE, BEGINNING OF YEAR $ 19,356 $ 23,642
Advances 21,527 15,742
Repayments (13,031) (17,935)
Transactions due to change(s) in related parties (395) (2,093)
-------------- ---------------
BALANCE, END OF YEAR $ 27,457 $ 19,356
============== ===============
Changes in the allowance for loan losses for the years ended
December 31, 1999 , 1998, and 1997 are as follows:
DECEMBER 31,
-----------------------------------------
1999 1998 1997
------------ ------------ ------------
(DOLLARS IN THOUSANDS)
-----------------------------------------
BALANCE, BEGINNING OF YEAR $ 10,192 $ 7,627 $ 7,273
Provision charged to operations 2,154 5,505 2,731
Loans charged off (3,733) (4,030) (3,338)
Recoveries 1,282 1,090 961
------------ ------------ ------------
BALANCE, END OF YEAR $ 9,895 $ 10,192 $ 7,627
============ ============ ============
</TABLE>
F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 4. PREMISES AND EQUIPMENT, NET
Major classifications of these assets are summarized as
follows:
DECEMBER 31,
-----------------------------
1999 1998
------------ ------------
(DOLLARS IN THOUSANDS)
-----------------------------
Land $ 4,903 $ 4,454
Buildings 14,776 14,644
Equipment 15,977 15,182
Construction in progress 1,502 910
------------ ------------
37,158 35,190
Accumulated depreciation 17,618 16,102
------------ ------------
$ 19,540 $ 19,088
============ ============
NOTE 5. EMPLOYEE BENEFIT PLANS
Prior to 1998, the Company and its subsidiaries maintained
simplified employee pension plans for substantially all
employees. These plans were SEP-IRA defined contribution
plans. Contributions to these plans charged to expense during
1997 amounted to $1,093,000.
Effective January 1, 1998, the Company established two
retirement plans to replace the simplified employee pension
plans. The ABC Bancorp 401(k) Profit Sharing Plan allows a
participant to defer a portion of his compensation and
provides that the Company will match a portion of the deferred
compensation. The plan also provides for nonelective and
discretionary contributions to be made at the sole discretion
of the Company. The ABC Bancorp Money Purchase Pension Plan
was established to supplement a participant's income upon
retirement. The Plan is fully funded by the Company. The Plan
provides for a fixed rate of contribution, currently 5%, of
the participant's eligible compensation. The rate of
contribution is established by the Compensation Committee of
ABC Bancorp's Board of Directors. The Plan must be amended to
change the fixed rate of 5% established by the Compensation
Committee in December 1997. All full-time and part-time
employees are eligible to participate in both plans provided
they have met the eligibility requirements. Generally, a
participant must have completed twelve months of employment
with a minimum of 1,000 hours. Aggregate expense under the two
plans charged to operations during 1999 and 1998 amounted to
$707,000 and $644,000, respectively.
F-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 6. DEFERRED COMPENSATION PLANS
The Company and two subsidiary banks have entered into
separate deferred compensation arrangements with certain
executive officers and directors. The plans call for certain
amounts payable at retirement, death or disability. The
estimated present value of the deferred compensation is being
accrued over the remaining expected term of active employment.
The Company and Banks have purchased life insurance policies
which they intend to use to finance this liability. Aggregate
compensation expense under the plans were $70,000, $78,000 and
$70,000 for 1999, 1998 and 1997, respectively, and is included
in other operating expenses.
NOTE 7. STOCK OPTION PLANS
the Company has two fixed stock option plans under which it
has granted options to its Chief Executive Officer to purchase
common stock at the fair market price on the date of grant.
All of the options are intended to be incentive stock options
qualifying under Section 422 of the Internal Revenue Code for
favorable tax treatment. Under the 1992 Plan, options to
purchase 10,001 shares were granted. None of these options
have been exercised, however, all of the options were
exercisable as of December 31, 1999. Options under the 1992
Plan expire in 2002. Under the 1997 Plan, options to purchase
67,500 shares were granted. Options under the 1997 Plan are
fully vested and are exercisable over a period of ten years
subject to certain limitations as to aggregate fair market
value (determined as of the date of the grant) of all options
exercisable for the first time by the optionee during any
calendar year (the "$100,000 Per-Year Limitation"). Under the
1997 Plan, options to purchase 25,350 shares were exercisable
as of December 31, 1999.
At the annual meeting on April 15, 1997, the shareholders
approved the ABC Bancorp Omnibus Stock Ownership and Long-Term
Incentive Plan (the "Omnibus Plan"). Awards granted under the
Omnibus Plan may be in the form of Qualified or Nonqualified
Stock Options, Restricted Stock, Stock Appreciation Rights
("SARS"), Long-Term Incentive Compensation Units consisting of
a combination of cash and Common Stock, or any combination
thereof within the limitations set forth in the Omnibus Plan.
The Omnibus Plan provides that the aggregate number of shares
of the Company's Common Stock which may be subject to award
may not exceed 637,500 subject to adjustment in certain
circumstances to prevent dilution. As of December 31, 1999,
the Company has issued 69,396
F-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 7. STOCK OPTION PLANS (CONTINUED)
restricted shares under the Omnibus Plan as compensation for
certain key salaried employees. These shares carry dividend
and voting rights. Sale of these shares is restricted prior to
the date of vesting, which is three years from the date of the
grant. Shares issued under this plan were recorded at their
fair market value on the date of their grant with a
corresponding charge to equity. The unearned portion is being
amortized as compensation expense on a straight-line basis
over the related vesting period. Compensation expense related
to this grant was $191,000 in 1999. In addition to the
granting of restricted shares, options to purchase 81,650
shares of the Company's common stock have been granted under
the Omnibus Plan as of December 31,1999.
A summary of the status of the three fixed plans at December
31, 1999, 1998 and 1997 and changes during the years ended on
those dates is as follows:
<TABLE>
<CAPTION>
---------------------------- ------------------------- --------------------------
<S> <C> <C> <C>
1999 1998 1997
---------------------------- ------------------------- --------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
NUMBER PRICE NUMBER PRICE NUMBER PRICE
------------- -------------- ------------ ------------ ----------- -------------
Under option, beginning
of the year 115,966 $ 12.18 77,501 $ 10.45 10,001 $ 4.50
Granted 51,280 10.02 42,274 15.66 67,500 11.33
Exercised - - - - - -
Forfeited (8,095) 13.74 (3,809) 15.66 - -
------------- ---------- ---------
Under option, end of year 159,151 11.40 115,966 12.18 77,501 10.45
============= ========== ==========
Exercisable at end of year 41,260 26,651 17,951
============= ========== ==========
Weighted-average fair
value
per option of options
granted during year $ 2.97 $ 3.41 $ 3.42
============= ========== ==========
</TABLE>
F-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 7. STOCK OPTION PLANS (CONTINUED)
A further summary about options outstanding at December 31,
1999 is as follows:
<TABLE>
<CAPTION>
-------------------------------------------------- --------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------- --------------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
RANGE OF AVERAGE AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE IN YEARS PRICE OUTSTANDING PRICE
--------------- -------------- --------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
$ 4.50 10,001 3.0 $ 4.50 10,001 $ 4.50
11.33 67,500 7.3 11.33 25,350 11.33
15.94 27,325 8.0 15.94 4,709 15.94
14.17 6,000 8.3 14.17 1,200 14.17
10.39 600 9.9 10.39 - -
9.90 27,325 9.9 9.90 - -
10.11 18,000 9.7 10.11 - -
10.83 2,400 9.1 10.83 - -
-------------- --------------
159,151 7.94 11.40 41,260 10.42
============== ==============
</TABLE>
As permitted by Statement of Financial Accounting Standard No.
123, "Accounting for Stock-Based Compensation" (SFAS No. 123),
the Company recognizes compensation cost for stock-based
employee compensation awards in accordance with APB Opinion
No. 25, "Accounting for Stock Issued to Employees". The
Company recognized no compensation cost under the fixed stock
option plan for the years ended December 31, 1999, 1998 and
1997. If the Company had recognized compensation cost in
accordance with SFAS No. 123, net income and net income per
share would have been reduced as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
DECEMBER 31,
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
1999 1998 1997
--------------------------- --------------------------- ---------------------------
BASIC BASIC BASIC
NET NET INCOME NET NET INCOME NET NET INCOME
INCOME PER SHARE INCOME PER SHARE INCOME PER SHARE
----------- -------------- ------------ -------------- ------------ -------------
As reported $ 8,956 $ 1.03 $ 6,913 $ 0.79 $ 7,446 $ 0.86
Stock based
compensation,
net of related
tax effect (13) - (18) - (153) (0.02)
----------- -------------- ------------ -------------- ------------ -------------
As adjusted $ 8,943 $ 1.03 $ 6,895 $ 0.79 $ 7,293 $ 0.84
=========== ============== ============ ============== ============ =============
</TABLE>
F-22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 7. STOCK OPTION PLANS (CONTINUED)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
DECEMBER 31,
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
1999 1998 1997
--------------------------- --------------------------- ---------------------------
DILUTED DILUTED DILUTED
NET NET INCOME NET NET INCOME NET NET INCOME
INCOME PER SHARE INCOME PER SHARE INCOME PER SHARE
------------ ------------- ------------ -------------- ------------ --------------
As reported $ 8,956 $ 1.03 $ 6,913 $ 0.79 $ 7,446 $ 0.85
Stock based
compensation,
net of related
tax effect (13) - (18) - (153) (0.02)
------------ ------------- ------------ -------------- ------------ --------------
As adjusted $ 8,943 $ 1.03 $ 6,895 $ 0.79 $ 7,293 $ 0.83
============ ============= ============ ============== ============ ==============
The fair value of the options granted in 1999 was based upon
the discounted value of future cash flows of the options using
the following assumptions:
Risk-free interest rate 6.72%
Expected life of the options 10 years
Expected dividends (as a percent of the fair value of the stock) 3.18%
Expected volatility 22.49%
</TABLE>
NOTE 8. DEPOSITS
At December 31, 1999, the scheduled maturities of time
deposits are as follows:
(DOLLARS IN
THOUSANDS)
------------
2000 $ 288,013
2001 30,035
2002 9,173
2003 6,957
2004 2,915
Later years 66
------------
$ 337,159
============
F-23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 9. OTHER BORROWINGS
Other borrowings consist of the following:
<TABLE>
<CAPTION>
<S> <C>
DECEMBER 31,
---------------------------
1999 1998
------------ ------------
(DOLLARS IN THOUSANDS)
---------------------------
Advances under revolving credit agreement with SunTrust Bank with $ 2,500 $ 2,500
interest at the three month LIBOR rate plus .9% (6.90%
at December 31, 1999) due on March 31, 2000; unsecured.
Advances from Federal Home Loan Bank with interest at adjustable 25,350 6,000
rates (ranging from 4.55% to 6.71% at December 31, 1999) due
at various dates from January 27, 2000 to March 21, 2002.
Advance from Federal Home Loan Bank with interest at a fixed rate 300 350
(6.48% at December 31, 1998) due in annual installments of
$50,000 through June 5, 2005.
Advances from Federal Home Loan Bank with interest at a fixed rate 15,000 3,000
(ranging from 5.63% to 5.98%) due at various dates from
January 31, 2000 to June 15, 2000.
Advances from Federal Home Loan Bank with interest at a fixed rate 23,000 -
(ranging from 5.07% to 5.52%), convertible to a variable rate at option
ofcallable by the Federal Home Loan Bank
of Federal Home Loan Bank in 2000, due at various dates
from April 2, 2003 to October 29, 2009.
------------ ------------
$ 66,150 $ 11,850
============ ============
</TABLE>
The advances from the Federal Home Loan Bank are
collateralized by the pledging of first mortgage loans and
other specific loans. One subsidiary bank had pledged
mortgage-backed securities having an aggregate market value of
approximately $1,513,000, at December 31, 1998. There were no
securities pledged in 1999 for advances from the Federal Home
Loan Bank.
Other borrowings at December 31, 1999 have maturities in
future years as follows:
(DOLLARS IN
THOUSANDS)
-------------
2000 $ 41,900
2001 50
2002 1,050
2003 3,050
2004 50
Later years 20,050
-------------
$ 66,150
=============
F-24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10. INCOME TAXES
The income tax expense in the consolidated statements of
income consists of the following:
YEARS ENDED DECEMBER 31,
-------------------------------------------
1999 1998 1997
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
-------------------------------------------
Current $ 4,378 $ 3,905 $ 3,568
Deferred (87) (1,170) (449)
----------- ----------- -----------
$ 4,291 $ 2,735 $ 3,119
=========== =========== ===========
The Company's income tax expense differs from the amounts
computed by applying the Federal income tax statutory rates to
income before income taxes. A reconciliation of the
differences is as follows:
<TABLE>
<CAPTION>
<S> <C>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------
1999 1998 1997
-------------------- -------------------- ---------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
---------- -------- ---------- -------- ---------- ---------
(DOLLARS IN THOUSANDS)
--------------------------------------------------------------------
Tax provision at statutory rate $ 4,504 34 % $ 3,280 34 % $ 3,592 34 %
Increase (decrease) resulting from:
Tax-exempt interest (392) (3) (407) (4) (439) (4)
Amortization of excess
cost over assets acquired 167 1 167 1 167 2
Tax-exempt life insurance proceeds - - (408) (4) - -
Changes in valuation
allowance for deferred taxes - - - - (94) (1)
Other 12 - 103 1 (107) (1)
---------- -------- ---------- -------- ---------- ---------
Provision for income taxes $ 4,291 32 % $ 2,735 28 % $ 3,119 30 %
========== ======== ========== ======== ========== =========
</TABLE>
F-25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10. INCOME TAXES (CONTINUED)
Net deferred income tax assets of $3,981,000 and $2,952,000 at
December 31, 1999 and 1998, respectively, are included in
other assets. The components of deferred income taxes are as
follows:
<TABLE>
<CAPTION>
<S> <C>
DECEMBER 31,
----------------------------
1999 1998
------------ ------------
(DOLLARS IN THOUSANDS)
----------------------------
DEFERRED TAX ASSETS:
Loan loss reserves $ 3,040 $ 2,902
Deferred compensation 171 196
Unearned compensation related to restricted stock 66 -
Nonaccrual interest 193 337
Other - 2
Net operating loss tax carryforward 188 213
Unrealized loss on securities available for sale 776 -
------------ ------------
4,434 3,650
------------ ------------
DEFERRED TAX LIABILITIES:
Deprecation and amortization 453 532
Unrealized gain on securities available for sale - 166
------------ ------------
453 698
------------ ------------
NET DEFERRED TAX ASSETS $ 3,981 $ 2,952
============ ============
</TABLE>
NOTE 11. EARNINGS PER COMMON SHARE
The following is a reconciliation of net income (the
numerator) and the weighted average shares outstanding (the
denominator) used in determining basic and diluted earnings
per share. All amounts are presented in thousands, except per
share amounts.
<TABLE>
<CAPTION>
-------------------------------------------------------
YEAR ENDED DECEMBER 31, 1999
-------------------------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------------- ---------------- -----------------
BASIC EARNINGS PER SHARE
<S> <C> <C> <C>
Net income $ 8,956 8,702 $ 1.03
=================
EFFECT OF DILUTIVE SECURITIES
Stock options - 9
----------------- ----------------
DILUTIVE EARNINGS PER SHARE
Net income $ 8,956 8,711 $ 1.03
================= ================ =================
</TABLE>
F-26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 11. EARNINGS PER COMMON SHARE (CONTINUED)
<TABLE>
<CAPTION>
-------------------------------------------------------
YEAR ENDED DECEMBER 31, 1998
-------------------------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------------- ---------------- -----------------
Basic earnings per share
<S> <C> <C> <C>
Net income $ 6,913 8,699 $ 0.79
=================
Effect of Dilutive Securities
Stock options - 14
----------------- ----------------
Dilutive earnings per share
Net income $ 6,913 8,713 $ 0.79
================= ================ =================
-------------------------------------------------------
YEAR ENDED DECEMBER 31, 1997
-------------------------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------------- ---------------- -----------------
Basic earnings per share
Net income $ 7,446 8,702 $ 0.86
=================
Effect of Dilutive Securities
Stock options - 15
----------------- ----------------
Dilutive earnings per share
Net income $ 7,446 8,717 $ 0.85
================= ================ =================
</TABLE>
NOTE 12. COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, the Company has entered into
off-balance-sheet financial instruments which are not
reflected in the financial statements. These financial
instruments include commitments to extend credit and standby
letters of credit. Such financial instruments are included in
the financial statements when funds are disbursed or the
instruments become payable. These instruments involve, to
varying degrees, elements of credit risk in excess of the
amount recognized in the balance sheet.
F-27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
The Company's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument
for commitments to extend credit and standby letters of credit
is represented by the contractual amount of those instruments.
The Company uses the same credit and collateral policies for
these off-balance-sheet financial instruments as it does for
on-balance-sheet financial instruments. A summary of the
Company's commitments is as follows:
DECEMBER 31,
------------------------------
1999 1998
------------- -------------
(DOLLARS IN THOUSANDS)
------------------------------
Commitments to extend credit $ 84,150 $ 80,861
Credit card commitments 9,162 7,866
Standby letters of credit 3,415 2,761
------------- -------------
$ 96,727 $ 91,488
============= =============
Commitments to extend credit generally have fixed expiration
dates or other termination clauses and may require payment of
a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The credit
risk involved in issuing these financial instruments is
essentially the same as that involved in extending loans to
customers. The Company evaluates each customer's
creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Company upon
extension of credit, is based on management's credit
evaluation of the customer. Collateral held varies but may
include real estate and improvements, marketable securities,
accounts receivable, crops, livestock, inventory, equipment
and personal property.
Credit card commitments are unsecured.
Standby letters of credit are conditional commitments issued
by the Company to guarantee the performance of a customer to a
third party. Those guarantees are primarily issued to support
public and private borrowing arrangements. The credit risk
involved in issuing letters of credit is essentially the same
as that involved in extending loan facilities to customers.
Collateral held varies as specified above and is required in
instances which the Company deems necessary.
In the normal course of business, the Company is involved in
various legal proceedings. In the opinion of management for
the Company, any liability resulting from such proceedings
would not have a material adverse effect on the Company's
financial statements.
F-28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 13. CONCENTRATIONS OF CREDIT
The Banks make agricultural, agribusiness, commercial,
residential and consumer loans to customers primarily in
counties in south Georgia and southeast Alabama. A substantial
portion of the Company's customers' abilities to honor their
contracts is dependent on the business economy in the
geographical area served by the Banks.
Although the Company's loan portfolio is diversified, there is
a relationship in this region between the agricultural economy
and the economic performance of loans made to nonagricultural
customers. The Company's lending policies for agricultural and
nonagricultural customers require loans to be
well-collateralized and supported by cash flows. Collateral
for agricultural loans include equipment, crops, livestock and
land. Credit losses from loans related to the agricultural
economy is taken into consideration by management in
determining the allowance for loan losses.
A substantial portion of the Company's loans are secured by
real estate in the Company's primary market area. In addition,
a substantial portion of the real estate owned is located in
those same markets. Accordingly, the ultimate collectibility
of a substantial portion of the Company's loan portfolio and
the recovery of a substantial portion of the carrying amount
of real estate owned are susceptible to changes in market
conditions in the Company's primary market area.
The Company has a concentration of funds on deposit at its
primary correspondent banks at December 31, 1999, as follows:
Noninterest-bearing accounts $ 26,443,000
Interest-bearing accounts 29,702,000
-------------------
$ 56,145,000
===================
F-29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 14. REGULATORY MATTERS
The Banks are subject to certain restrictions on the amount of
dividends that may be declared without prior regulatory
approval. At December 31, 1999, approximately $6,880,000 of
retained earnings were available for dividend declaration
without regulatory approval.
The Banks are subject to various regulatory capital
requirements administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate
certain mandatory, and possibly additional discretionary,
actions by regulators that, if undertaken, could have a direct
material effect on the financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt
corrective action, the Banks must meet specific capital
guidelines that involve quantitative measures of the assets,
liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Banks capital
amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings,
and other factors. Prompt corrective action provisions are not
applicable to bank holding companies.
Quantitative measures established by regulation to ensure
capital adequacy require the Banks to maintain minimum amounts
and ratios of total and Tier I capital to risk-weighted assets
and of Tier I capital to average assets. Management believes,
as of December 31, 1999, the Banks meet all capital adequacy
requirements to which it is subject.
As of December 31, 1999, the most recent notification from the
regulatory authorities categorized the Banks as well
capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, the
Banks must maintain minimum total risk-based, Tier I
risk-based, and Tier I leverage ratios as set forth in the
table. There are no conditions or events since that
notification that management believes have changed the Banks'
category.
F-30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 14. REGULATORY MATTERS (CONTINUED)
The Banks' actual capital amounts and ratios are presented in
the following table.
<TABLE>
<CAPTION>
TO BE WELL
FOR CAPITAL CAPITALIZED UNDER
ADEQUACY PROMPT CORRECTIVE
ACTUAL PURPOSES ACTION PROVISIONS
------------------------- ------------------------- ------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------------ ----------- ------------ ----------- ------------ ----------
(DOLLARS IN THOUSANDS)
-----------------------------------------------------------------------------
<S> <C> <C>
AS OF DECEMBER 31, 1999
TOTAL CAPITAL
TO RISK WEIGHTED ASSETS:
CONSOLIDATED $ 76,167 14.37% $ 42,402 8.00% - - -N/A - - -
AMERICAN BANKING COMPANY $ 13,533 13.45% $ 8,049 8.00% $ 10,062 10.00%
HERITAGE COMMUNITY BANK $ 4,443 12.07% $ 2,945 8.00% $ 3,682 10.00%
BANK OF THOMAS COUNTY $ 3,232 13.52% $ 1,912 8.00% $ 2,390 10.00%
CITIZENS SECURITY BANK $ 12,771 15.14% $ 6,747 8.00% $ 8,433 10.00%
CAIRO BANKING COMPANY $ 6,829 15.61% $ 3,501 8.00% $ 4,376 10.00%
SOUTHLAND BANK $ 14,398 12.11% $ 9,511 8.00% $ 11,889 10.00%
CENTRAL BANK AND TRUST $ 5,429 14.72% $ 2,950 8.00% $ 3,687 10.00%
FIRST NATIONAL BANK OF
SOUTH GEORGIA $ 5,681 11.20% $ 4,058 8.00% $ 5,073 10.00%
MERCHANTS AND FARMERS BANK $ 4,110 12.27% $ 2,680 8.00% $ 3,350 10.00%
TIER I CAPITAL
TO RISK WEIGHTED ASSETS:
CONSOLIDATED $ 69,501 13.11% $ 21,201 4.00% - - -N/A - - -
AMERICAN BANKING COMPANY $ 12,269 12.19% $ 4,025 4.00% $ 6,037 6.00%
HERITAGE COMMUNITY BANK $ 3,982 10.82% $ 1,473 4.00% $ 2,209 6.00%
BANK OF THOMAS COUNTY $ 2,932 12.27% $ 956 4.00% $ 1,434 6.00%
CITIZENS SECURITY BANK $ 11,709 13.88% $ 3,373 4.00% $ 5,060 6.00%
CAIRO BANKING COMPANY $ 6,272 14.33% $ 1,750 4.00% $ 2,625 6.00%
SOUTHLAND BANK $ 13,389 10.85% $ 4,935 4.00% $ 7,402 6.00%
CENTRAL BANK AND TRUST $ 4,963 13.46% $ 1,475 4.00% $ 2,212 6.00%
FIRST NATIONAL BANK OF
SOUTH GEORGIA $ 5,047 9.95% $ 2,029 4.00% $ 3,044 6.00%
MERCHANTS AND FARMERS BANK $ 3,690 11.02% $ 1,340 4.00% $ 2,010 6.00%
</TABLE>
F-31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 14. REGULATORY MATTERS (CONTINUED)
<TABLE>
<CAPTION>
TO BE WELL
FOR CAPITAL CAPITALIZED UNDER
ADEQUACY PROMPT CORRECTIVE
ACTUAL PURPOSES ACTION PROVISIONS
------------------------ ------------------------- -------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
----------- ----------- ------------- ----------- ------------- ----------
(DOLLARS IN THOUSANDS)
-----------------------------------------------------------------------------
<S> <C> <C>
AS OF DECEMBER 31, 1999
(CONTINUED)
TIER I CAPITAL
TO AVERAGE ASSETS:
CONSOLIDATED $ 69,501 9.16% $ 30,350 4.00% - - - N/A - - -
AMERICAN BANKING COMPANY $ 12,269 8.66% $ 5,667 4.00% $ 7,084 5.00%
HERITAGE COMMUNITY BANK $ 3,982 7.62% $ 2,090 4.00% $ 2,613 5.00%
BANK OF THOMAS COUNTY $ 2,932 8.20% $ 1,430 4.00% $ 1,788 5.00%
CITIZENS SECURITY BANK $ 11,709 8.30% $ 5,643 4.00% $ 7,054 5.00%
CAIRO BANKING COMPANY $ 6,272 8.30% $ 3,023 4.00% $ 3,778 5.00%
SOUTHLAND BANK $ 13,389 7.52% $ 7,122 4.00% $ 8,902 5.00%
CENTRAL BANK AND TRUST $ 4,963 8.70% $ 2,282 4.00% $ 2,853 5.00%
FIRST NATIONAL BANK OF
SOUTH GEORGIA $ 5,047 8.49% $ 2,378 4.00% $ 2,972 5.00%
MERCHANTS AND FARMERS BANK $ 3,690 7.76% $ 1,902 4.00% $ 2,378 5.00%
</TABLE>
F-32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 14. REGULATORY MATTERS (CONTINUED)
<TABLE>
<CAPTION>
TO BE WELL
FOR CAPITAL CAPITALIZED UNDER
ADEQUACY PROMPT CORRECTIVE
ACTUAL PURPOSES ACTION PROVISIONS
------------------------- ------------------------- -------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------------ ----------- ------------ ----------- ------------- ----------
(DOLLARS IN THOUSANDS)
------------------------------------------------------------------------------
<S> <C> <C>
As of December 31, 1998
Total Capital
to Risk Weighted Assets:
Consolidated $ 68,529 14.67% $ 37,361 8.00% - - - N/A - - -
American Banking Company $ 12,453 13.64% $ 7,306 8.00% $ 9,132 10.00%
Heritage Community Bank $ 4,092 13.92% $ 2,353 8.00% $ 2,941 10.00%
Bank of Thomas County $ 2,956 12.03% $ 1,966 8.00% $ 2,457 10.00%
Citizens Security Bank $ 11,150 16.08% $ 5,547 8.00% $ 6,934 10.00%
Cairo Banking Company $ 8,029 18.73% $ 3,429 8.00% $ 4,287 10.00%
Southland Bank $ 12,797 12.61% $ 8,118 8.00% $ 10,147 10.00%
Central Bank and Trust $ 4,891 13.29% $ 2,945 8.00% $ 3,681 10.00%
First National Bank of
South Georgia $ 4,688 11.20% $ 3,347 8.00% $ 4,184 10.00%
Merchants and Farmers Bank $ 3,745 13.27% $ 2,258 8.00% $ 2,823 10.00%
Tier I Capital
to Risk Weighted Assets:
Consolidated $ 62,637 13.41% $ 18,681 4.00% - - - N/A - - -
American Banking Company $ 11,304 12.38% $ 3,653 4.00% $ 5,479 6.00%
Heritage Community Bank $ 3,723 12.66% $ 1,176 4.00% $ 1,764 6.00%
Bank of Thomas County $ 2,644 10.76% $ 983 4.00% $ 1,474 6.00%
Citizens Security Bank $ 10,276 14.82% $ 2,773 4.00% $ 4,160 6.00%
Cairo Banking Company $ 7,483 17.46% $ 1,715 4.00% $ 2,572 6.00%
Southland Bank $ 11,520 11.35% $ 4,059 4.00% $ 6,088 6.00%
Central Bank and Trust $ 4,420 12.01% $ 1,472 4.00% $ 2,209 6.00%
First National Bank of
South Georgia $ 4,164 9.95% $ 1,674 4.00% $ 2,510 6.00%
Merchants and Farmers Bank $ 3,391 12.01% $ 1,129 4.00% $ 1,694 6.00%
</TABLE>
F-33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 14. REGULATORY MATTERS (CONTINUED)
<TABLE>
<CAPTION>
TO BE WELL
FOR CAPITAL CAPITALIZED UNDER
ADEQUACY PROMPT CORRECTIVE
ACTUAL PURPOSES ACTION PROVISIONS
------------------------ ------------------------- -------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
----------- ----------- ------------- ----------- ------------- ----------
(DOLLARS IN THOUSANDS)
-----------------------------------------------------------------------------
<S> <C> <C>
As of December 31, 1998
(Continued)
Tier I Capital
to Average Assets:
Consolidated $ 62,637 8.95% $ 27,994 4.00% - - -N/A - - -
American Banking Company $ 11,304 8.58% $ 5,270 4.00% $ 6,587 5.00%
Heritage Community Bank $ 3,723 8.62% $ 1,728 4.00% $ 2,160 5.00%
Bank of Thomas County $ 2,644 7.16% $ 1,477 4.00% $ 1,846 5.00%
Citizens Security Bank $ 10,276 8.02% $ 5,125 4.00% $ 6,407 5.00%
Cairo Banking Company $ 7,483 10.19% $ 2,937 4.00% $ 3,672 5.00%
Southland Bank $ 11,520 6.95% $ 6,630 4.00% $ 8,288 5.00%
Central Bank and Trust $ 4,420 7.50% $ 2,357 4.00% $ 2,947 5.00%
First National Bank of
South Georgia $ 4,164 7.60% $ 2,192 4.00% $ 2,739 5.00%
Merchants and Farmers Bank $ 3,391 7.75% $ 1,750 4.00% $ 2,188 5.00%
</TABLE>
NOTE 15. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company
in estimating its fair value disclosures for financial
instruments. In cases where quoted market prices are not
available, fair values are based on estimates using discounted
cash flow models. Those models are significantly affected by
the assumptions used, including the discount rates and
estimates of future cash flows. In that regard, the derived
fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized
in immediate settlement of the instrument. The use of
different methodologies may have a material effect on the
estimated fair value amounts. Also, the fair value estimates
presented herein are based on pertinent information available
to management as of December 31, 1999 and 1998. Such amounts
have not been revalued for purposes of these financial
statements since those dates and, therefore, current estimates
of fair value may differ significantly from the amounts
presented herein.
F-34
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 15. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The following methods and assumptions were used by the Company
in estimating fair values of financial instruments as
disclosed herein:
CASH, DUE FROM BANKS, INTEREST BEARING DEPOSITS, AND FEDERAL
FUNDS SOLD:
The carrying amounts of cash, due from banks, interest
bearing deposits, and Federal funds sold approximate their
fair value.
AVAILABLE FOR SALE AND HELD TO MATURITY SECURITIES:
Fair values for securities are based on quoted market
prices. The carrying values of equity securities with no
readily determinable fair value approximate fair values.
LOANS:
For variable-rate loans that reprice frequently and have no
significant change in credit risk, fair values are based on
carrying values. For other loans, the fair values are
estimated using discounted cash flow methods, using
interest rates currently being offered for loans with
similar terms to borrowers of similar credit quality. Fair
values for impaired loans are estimated using discounted
cash flow models or underlying collateral values.
DEPOSITS:
The carrying amounts of demand deposits, savings deposits,
and variable-rate certificates of deposit approximate their
fair values. Fair values for fixed-rate certificates of
deposit are estimated using discounted cash flow models,
using interest rates currently being offered on
certificates.
OTHER BORROWINGS:
For variable-rate borrowings that reprice frequently, fair
values are based on carrying values. For fixed-rate
borrowings, the fair values are estimated using discounted
cash flow models, using interest rates currently being
offered for borrowings with similar terms.
F-35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 15. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
OFF-BALANCE SHEET INSTRUMENTS:
Fair values of the Company's off-balance sheet financial
instruments are based on fees charged to enter into similar
agreements. However, commitments to extend credit and
standby letters of credit do not represent a significant
value to the Company until such commitments are funded. The
Company has determined that these instruments do not have a
distinguishable fair value and no fair value has been
assigned.
The carrying value and estimated fair value of the
Company's financial instruments were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
DECEMBER 31, 1999 DECEMBER 31, 1998
--------------------------- ---------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
----------------------------------------------------------
Financial assets:
Cash and short-term investments $ 80,130 $ 80,130 $ 56,475 $ 56,475
============== ============== ============= =============
Investments in securities $ 143,538 $ 143,538 $ 154,546 $ 155,258
============== ============== ============= =============
Loans $ 530,225 $ 529,093 $ 477,194 $ 474,259
Allowance for loan losses (9,895) - (10,192) -
-------------- -------------- ------------- -------------
Loans, net $ 520,330 $ 529,093 $ 467,002 $ 474,259
============== ============== ============= =============
Financial liabilities:
Noninterest-bearing demand $ 103,279 $ 103,279 $ 99,957 $ 99,957
Interest-bearing demand 147,561 147,561 132,527 132,527
Savings 52,659 52,659 59,719 59,719
Time deposits 337,159 336,717 341,122 343,893
-------------- -------------- ------------- -------------
Total deposits $ 640,658 $ 640,216 $ 633,325 $ 636,096
============== ============== ============= =============
Federal funds purchased and securities
sold under agreements to repurchase $ 397 $ 397 $ 883 $ 883
============== ============== ============= =============
Other borrowings $ 66,150 $ 64,625 $ 11,850 $ 11,958
============== ============== ============= =============
</TABLE>
F-36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 16. CONDENSED FINANCIAL INFORMATION OF ABC BANCORP
(PARENT COMPANY ONLY)
CONDENSED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
------------ ------------
ASSETS
Cash $ 2,102 $ 2,747
Interest bearing deposits in banks 1,200 -
Investment in subsidiaries 69,162 66,201
Other assets 7,672 6,544
------------ ------------
Total assets $ 80,136 $ 75,492
============ ============
LIABILITIES
Other borrowings $ 2,500 $ 2,500
Other liabilities 1,620 1,158
------------ ------------
Total liabilities 4,120 3,658
------------ ------------
STOCKHOLDERS' EQUITY 76,016 71,834
------------ ------------
Total liabilities and stockholders' equity $ 80,136 $ 75,492
============ ============
</TABLE>
F-37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 16. CONDENSED FINANCIAL INFORMATION OF ABC BANCORP
(PARENT COMPANY ONLY) (CONTINUED)
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1999 1998 1997
------------ ------------ ------------
INCOME
Dividends from subsidiaries $ 5,582 $ 8,942 $ 7,911
Interest 94 69 63
Fee income 6,804 6,702 5,392
Other income 967 962 446
------------ ------------ ------------
Total income 13,447 16,675 13,812
------------ ------------ ------------
EXPENSE
Interest 170 223 353
Amortization and depreciation 721 636 567
Other expense 7,990 7,597 6,771
------------ ------------ ------------
Total expense 8,881 8,456 7,691
------------ ------------ ------------
Income before income tax benefits
and equity in undistributed earnings
(distributions in excess of earnings)
of subsidiaries 4,566 8,219 6,121
INCOME TAX BENEFITS 200 77 828
------------ ------------ ------------
Income before equity in undistributed earnings
(distributions in excess of earnings)
of subsidiaries 4,766 8,296 6,949
EQUITY IN UNDISTRIBUTED EARNINGS (DISTRIBUTIONS IN EXCESS
OF EARNINGS) OF SUBSIDIARIES 4,190 (1,383) 497
------------ ------------ ------------
Net income $ 8,956 $ 6,913 $ 7,446
============ ============ ============
</TABLE>
F-38
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 16. CONDENSED FINANCIAL INFORMATION OF ABC BANCORP
(PARENT COMPANY ONLY) (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1999 1998 1997
------------- ------------- -------------
OPERATING ACTIVITIES
Net income $ 8,956 $ 6,913 $ 7,446
------------- ------------- -------------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 408 276 208
Amortization of intangible assets 313 360 359
Amortization of compensation expense 191 - -
Distributions in excess of earnings
(undistributed earnings) of subsidiaries (4,190) 1,383 (497)
(Increase) decrease in interest receivable (2) - 6
Increase (decrease) in interest payable (1) (82) 79
Increase (decrease) in taxes payable 866 (812) 199
Provision for deferred taxes (104) 47 (231)
(Increase) decrease in due from subsidiaries 29 (79) 136
Other prepaids, deferrals and accruals, net (312) 102 51
------------- ------------- -------------
Total adjustments (2,802) 1,195 310
------------- ------------- -------------
Net cash provided by operating activities 6,154 8,108 7,756
------------- ------------- -------------
INVESTING ACTIVITIES
Increase in interest-bearing deposits in banks (1,200) - -
Purchases of premises and equipment (1,792) (1,458) (935)
Contribution of capital to subsidiary bank (600) (350) (4,200)
Purchase of securities available for sale (221) - -
Proceeds from maturities of securities held to maturity - - 200
------------- ------------- -------------
Net cash used in investing activities (3,813) (1,808) (4,935)
------------- ------------- -------------
</TABLE>
F-39
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 16. CONDENSED FINANCIAL INFORMATION OF ABC BANCORP
(PARENT COMPANY ONLY) (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1999 1998 1997
------------ ------------ ------------
FINANCING ACTIVITIES
Repayment of other borrowings $ - $ (2,500) $ -
Treasury stock transactions, net (88) (415) -
Purchase of fractional shares - - (7)
Dividends paid (2,898) (2,900) (2,633)
------------ ------------ ------------
Net cash used in financing activities (2,986) (5,815) (2,640)
------------ ------------ ------------
Net increase (decrease) in cash (645) 485 181
Cash at beginning of year 2,747 2,262 2,081
------------ ------------ ------------
Cash at end of year $ 2,102 $ 2,747 $ 2,262
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Cash paid during the year for interest $ 171 $ 305 $ 274
</TABLE>
F-40
EXHIBIT 10.19
ABC BANCORP 2000 OFFICER/DIRECTOR STOCK BONUS PLAN
1. PURPOSE. This ABC BANCORP 2000 OFFICER/DIRECTOR STOCK BONUS PLAN
(the "Plan") is hereby adopted by ABC BANCORP ("ABC" and together with its
direct and indirect subsidiaries, referred to herein collectively as the
"Company") for the purpose of furthering the interests of the Company by
providing incentives to certain officers and directors of the Company. ABC
believes that the issuance of awards under this Plan will align the interests of
Participants (as defined in Section 4 hereof) with the interests of the Company
in achieving growth and maximizing values, and will encourage Participants to
remain with the Company by providing them with a participation interest in the
Company's profitability.
2. ADMINISTRATION. The Plan shall be administered by the Board of
Directors or the Compensation Committee of the Board of Directors of ABC (in
either case, referred to herein as the "Committee"). The Committee shall at all
times consist of at least two (2) directors of the Company. All members of the
Committee shall be "disinterested directors" as defined in Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act").
3. INTERPRETATION. Subject to the provisions of the Plan and applicable
law, the Committee is authorized to interpret the Plan and to prescribe, amend
and rescind rules and regulations relating to the Plan and to any awards made
thereunder, and to make all other determinations necessary or advisable for the
administration of the Plan.
4. PARTICIPANTS. No one other than officers and directors of the
Company shall be eligible to participate in the Plan (any officer or director
who is selected to participate in the Plan is hereinafter referred to as a
"Participant"). The Committee shall make an award ("Award") to each Participant
of one share of preferred stock, par value $100.00 per share (each, a "Share"
and collectively, the "Shares"), of each of Cairo Real Estate Holdings, Inc.,
Central Real Estate Holdings, Inc., Citizens Real Estate Holdings, Inc., First
National Real Estate Holdings, Inc., M&F Real Estate Holdings, Inc., Moultrie
Real Estate Holdings, Inc., Quitman Real Estate Holdings, Inc., Southland Real
Estate Holdings, Inc. and Thomas Real Estate Holdings, Inc. (collectively, the
"REITs"), each an indirect wholly-owned subsidiary of ABC. The Shares have been
previously contributed to ABC by its direct and indirect subsidiaries. The
Awards shall be made to not less than one hundred (100) nor more than two
hundred (200) Participants (the "Participation Limit"). Participation in the
Plan shall not confer any right of continuation of service as an officer,
director or employee of the Company.
5. CRITERIA FOR AWARD. The Committee shall make Awards under the Plan
based on one or more of the following bases:
(a) the Committee may establish certain goals or minimum
targets which, if met or achieved, will enable the Participants to receive
Awards under the Plan; or
(b) the Committee may identify those officers and directors
who have made contributions to the Company and who are deserving of special
rewards for their efforts and make Awards to them; or
(c) a combination of (a) and (b) above.
<PAGE>
6. SHARES AVAILABLE. All of the Shares beneficially owned by
ABC are available to be awarded under the Plan. In the event that ABC
repurchases any of the Shares issued pursuant to the Plan, ABC shall be
permitted to subject these Shares to other Awards under the Plan. In addition,
to the extent that all of the Shares of a Participant are repurchased, that
individual shall no longer be included as a shareholder for purposes of
calculating the Participation Limit.
7. AWARDS. The granting of an Award shall take place only when an Award
Certificate substantially in the form of Exhibit A attached hereto is executed
by or on behalf of the Committee and delivered to the Participant and all
conditions for the effectiveness of the Award have been satisfied. The terms of
any Award shall be as set forth in the Award Certificate. The Award shall be
subject to all terms and conditions contained in the Award Certificate, and the
Award shall be effective at such times and upon such other terms as stated in
the Award Certificate. The issuance of an Award Certificate to a Participant and
the satisfaction of all terms and conditions thereof shall, upon the effective
date thereof, entitle such Participant to receive the number of Shares specified
in the Award Certificate as a bonus under the Plan without any consideration for
such Shares.
8. PRESENTMENT OF AWARD CERTIFICATES. To receive Shares upon the
effectiveness of an Award, a Participant shall present and surrender the Award
Certificate to the Secretary of ABC at ABC's principal executive offices within
thirty (30) days after effective the date of the Award. Certificates
representing the Shares generally will be issued to the Participant within
thirty (30) days after proper presentment of the Award Certificate. If the Award
Certificate is not presented within the proper time, the Award shall be deemed
to have lapsed, unless the Committee extends the time for presentment, and the
Shares issuable thereunder shall thereafter become available for future Awards.
9. RESTRICTIONS ON TRANSFER, PERMITTED TRANSFERS. Shares issued
pursuant to the Plan shall not be transferred except in the case of a "permitted
transfer." A permitted transfer is a transfer or assignment made (i) in
accordance with the Certificates of Incorporation of the REITs; (ii) by or to
ABC pursuant to the Plan and in accordance with the Certificates of
Incorporation of the REITs; (iii) by bequest or the laws of descent or
distribution in accordance with the Certificates of Incorporation of the REITs;
(iv) by a trust to the trust's beneficiaries in accordance with the Certificates
of Incorporation of the REITs; or (v) pursuant to an effective registration
statement under the Securities Act of 1933, as amended, simultaneously with the
registration of the preferred stock of all of the REITs under Section 12 of the
Exchange Act. Transfers under clauses (iii), (iv) and (v) of this Section 9
shall be subject to the transferee agreeing to be bound by the restrictions on
transfer set forth in the Plan.
10. TERMINATION OF EMPLOYMENT. Upon the termination of a Participant's
employment with the Company or services to the Company as a director for any
reason (including the death of a Participant), ABC shall have the option to
purchase, and in such event, the Participant shall sell to ABC, all or any
portion of the Shares owned by the Participant. The purchase price for such
Shares shall be equal to the aggregate par value of the Shares plus any
previously declared but unpaid dividends thereon. The closing of the purchase of
such Shares shall take place at the time and place and in accordance with the
procedures set forth in, and the purchase price shall be paid in accordance
with, Section 12 hereof. All purchases and sales pursuant to this Section 10
shall be subject to the terms and conditions of the Certificates of
Incorporation of the REITs.
<PAGE>
11. RIGHT OF FIRST REFUSAL. Except as provided in Section 10 hereof, a
Participant may not sell or transfer any part or all of his Shares except upon
compliance with all of the terms and provisions of this Section 11.
(a) If a Participant desires to sell any part or all of his
Shares (referred to herein as the "Sale Shares"), then the Participant shall
give prompt written notice (the "Selling Notice") to ABC of such Participant's
desire to sell such Sale Shares.
(b) Upon receipt of such Selling Notice, ABC shall have the
option to purchase all or any portion of the Sale Shares for a purchase price
per Share equal to the par value of each Sale Share plus any previously declared
but unpaid dividends thereon. ABC's option will be exercisable by written notice
(the "Exercise Notice") from ABC to the selling Participant given within thirty
(30) days following the date the Selling Notice was received, stating ABC's
intention to exercise its option hereunder.
(c) The closing of the purchase of such Sale Shares shall take
place at the time and place and in accordance with the procedures set forth in,
and the purchase price shall be paid in accordance with, Section 12 hereof. All
purchases and sales pursuant to this Section 11 shall be subject to the terms
and conditions of the Certificates of Incorporation of the REITs.
(d) In the event that all of the Sale Shares are not purchased
by ABC in accordance with this Section 11, then the selling Participant may,
after the date that ABC's option expires, sell all of the Sale Shares set forth
in the Selling Notice in accordance with the terms of the Plan and the
Certificates of Incorporation of the REITs. If the Participant does not sell the
Sale Shares in accordance with the terms of the Selling Notice, then the selling
Participant must again offer the Sale Shares first to ABC in accordance with
this Section 11.
(e) If the exercise of the right of first refusal set forth in
this Section 11 by any Participant causes any of the REITs to violate the
"100-shareholder" requirements of Section 856(a)(5) of the Internal Revenue Code
of 1986, as amended (the "Code"), or causes any of the REITs to be deemed to be
"closely held" within the meaning of Section 856(h) of the Code, then ABC shall,
within thirty (30) days after the closing of such purchases under this Section
11, transfer the Shares to that number of Participants not already owning or
holding the capital stock of the REITs necessary for the REITs to continue to
comply with the "100-shareholder" requirements of Section 856(a)(5) of the Code
or to not be deemed to be "closely held" within the meaning of Section 856(h) of
the Code.
12. CLOSING OF PURCHASES AND SALES. The closing of the purchase of the
Shares pursuant to Sections 10 or 11 hereof shall occur at the offices of ABC on
(a) the 60th day after the date of the Participant's termination of employment
with the Company or services to the Company as a director, or (b) the 30th day
after the date that the Participant receives the Exercise Notice pursuant to
Section 11 hereof, as the case may be. At the closing, ABC shall pay to the
Participant or his heirs, successors or personal representatives, as the case
may be, by check an amount equal to the purchase price for the Shares being
repurchased, and the Participant or his heirs, successors or personal
representatives, as the case may be, shall deliver to ABC a certificate or
certificates representing the Shares being repurchased, duly endorsed or
accompanied by an assignment separate from certificate duly endorsed. Title to
such Shares will pass concurrently with their delivery. Such delivery shall
constitute a representation and warranty on the part of the Participant or his
heirs, successors or personal representatives, as the case may be, that he has,
and thereby conveys, good and marketable title to the Shares, free and clear of
all claims, liens and other encumbrances.
<PAGE>
13. SUPPLEMENTAL RIGHT OF REDEMPTION. In addition to any transfer
rights set forth in the Plan or the Certificates of Incorporation of the REITs,
if a Participant exercises such Participant's right to require the REITs to
redeem such Participant's Shares in accordance with the terms of the
Certificates of Incorporation of the REITs, and the REITs are unable or
unwilling for any reason to redeem such Shares, then such Participant shall have
the right to sell to ABC or to any entity then controlling ABC, either directly
or indirectly, and ABC and such other entity shall have the obligation to
purchase from such Participant, his or her Shares in the same manner and upon
the same terms and conditions as the REITs are obligated to redeem such Shares
pursuant to their respective Certificates of Incorporation. If any of the
purchases required by this Section 13 causes any of the REITs to violate the
"100-shareholder" requirements of Section 856(a)(5) of the Code, or cause any of
the REITs to be deemed to be "closely held" within the meaning of Section 856(h)
of the Code, then ABC shall, within thirty (30) days after the closing of such
purchases under this Section 13, transfer the Shares to that number of
Participants not already owning or holding the capital stock of the REITs
necessary for the REITs to continue to comply with the "100-shareholder"
requirements of Section 856(a)(5) of the Code or to not be deemed to be "closely
held" within the meaning of Section 856(h) of the Code.
14. RIGHTS AS A SHAREHOLDER. A Participant shall have no rights as a
shareholder until the date of the issuance to him of a certificate representing
such Shares. No adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property) or distributions
or other rights for which the record date is prior to the date such Award is
properly presented in the manner set forth herein.
15. DISCLOSURE STATEMENT. Upon the grant of an Award to a Participant,
the Participant will be provided with a Disclosure Statement describing each of
the REITs, its business, operations and financial condition. A Participant will
also be provided, within ninety (90) days after the end of each fiscal year,
with financial statements with respect to each of the REITs.
16. AMENDMENTS AND TERMINATION. The Board of Directors of ABC may
amend, suspend, discontinue or terminate the Plan, but no such action may,
without the consent of the holder of any Award granted hereunder, alter or
impair such Award.
17. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, successors and
personal representatives, as the case may be.
18. CONSTRUCTION. The captions and headings provided in this Plan are
for convenience only and shall not be deemed to be a part of this Plan. As used
herein, pronouns in the masculine shall be deemed to refer to the feminine and
the neuter.
<PAGE>
EXHIBIT A
ABC BANCORP 2000 OFFICER/DIRECTOR STOCK BONUS PLAN
AWARD CERTIFICATE
WHEREAS, ________________________________________________ (the
"Participant") has demonstrated unusual effort and ability in his/her service to
ABC BANCORP ("ABC") and/or its subsidiaries (collectively, the "Company"), and
has met the goals and achieved the standards established for him/her by the
Company; and
WHEREAS, the Board of Directors of ABC considers it desirable and in
ABC's best interests to reward the Participant by awarding to the Participant a
bonus in shares of preferred stock, par value $100.00 per share, of [LIST REITs]
(the "REITs"), each an indirect wholly-owned subsidiary of ABC, pursuant to the
terms and conditions of the ABC Bancorp 2000 Officer/Director Stock Bonus Plan
(the "Plan");
NOW THEREFORE, ABC hereby awards to the Participant the right to
receive from ABC one (1) share of the preferred stock of each of the REITs, each
with a par value of $100.00 (collectively, the "Shares"), upon presentation of
this Award Certificate to the Secretary of ABC at the principal executive
offices of ABC within thirty (30) days of the date hereof.
THIS AWARD CERTIFICATE is subject to all terms, conditions and
provisions of the Plan.
IN WITNESS WHEREOF, this Award Certificate has been executed on behalf
of ABC as of the _______ day of ______________________, ______________.
ATTEST: ABC BANCORP
By
- ------------- ------------------------------------
Name and Title
EXHIBIT 21.1
REGISTRANT'S SUBSIDIARIES
Following is a list of the Registrant's subsidiaries and the state of
incorporation or other jurisdiction.
STATE OF INCORPORATION OR
NAME OF SUBSIDIARY OTHER JURISDICTION
- ------------------------------------------ --------------------------------
American Banking Company State of Georgia
Moultrie Holding Company, Inc. State of Delaware
Moultrie Real Estate Holdings, Inc. State of Delaware
Heritage Community Bank State of Georgia
Quitman Holding Company, Inc. State of Delaware
Quitman Real Estate Holdings, Inc. State of Delaware
Bank of Thomas County State of Georgia
Thomas Holding Company, Inc. State of Delaware
Thomas Real Estate Holdings, Inc. State of Delaware
Citizens Security Bank State of Georgia
Citizens Holding Company, Inc. State of Delaware
Citizens Real Estate Holdings, Inc. State of Delaware
Cairo Banking Company State of Georgia
Cairo Holding Company, Inc. State of Delaware
Cairo Real Estate Holdings, Inc. State of Delaware
Southland Bank State of Alabama
Southland Real Estate Holdings, Inc. State of Alabama
Central Bank & Trust State of Georgia
Cordele Holding Company, Inc. State of Delaware
Cordele Real Estate Holdings, Inc. State of Delaware
First National Bank of South Georgia The Comptroller of the Currency
First National Holding Company, Inc. State of Delaware
First National Real Estate Holdings, Inc. State of Delaware
Merchants & Farmers Bank State of Georgia
M&F Holding Company, Inc. State of Delaware
M&F Real Estate Holdings, Inc. State of Delaware
Each subsidiary conducts business under the name listed above.
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