UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
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OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-16181
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ABC BANCORP
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(Exact name of registrant as specified in its charter)
GEORGIA 58-1456434
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(State of incorporation) (IRS Employer ID No.)
24 SECOND AVE, SE MOULTRIE, GA 31768
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(Address of principal executive offices)
(912) 890-1111
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(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
There were 8,422,408 shares of Common Stock outstanding as of
June 30, 2000.
1
ABC BANCORP
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2000
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item Page
- ---- ----
1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Income
& Comprehensive Income 4
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
3. Quantitative and Qualitative Disclosures about
Market Risk 14
PART II - OTHER INFORMATION
4. Submission of Matters to a Vote of
Securities Holders 15
6. Exhibits and Reports on Form 8-K 15
Signature 16
2
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
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Jun 30 Dec 31
2000 1999
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Assets
- ------
Cash and due from banks $ 31,122 $ 80,130
Securities available for sale, at fair value 161,341 143,538
Loans 576,737 530,225
Less allowance for loan losses 10,241 9,895
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Loans, net 566,496 520,330
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Premises and equipment, net 20,232 19,540
Other assets 23,688 25,922
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$802,879 $789,460
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Liabilities and Stockholders' Equity
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Deposits
Noninterest-bearing demand $ 90,439 $103,279
Interest-bearing demand 146,879 147,561
Savings 49,421 52,659
Time, $100,000 and over 121,189 95,282
Other time 248,836 241,877
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Total deposits 656,764 640,658
Federal funds purchased & securities sold under
repurchase agreements 4,646 397
Other borrowings 59,779 66,150
Other liabilities 6,269 6,239
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Total liabilities 727,458 713,444
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Stockholders' equity
- --------------------
Common stock, par value $1; 15,000,000 shares authorized
9,137,990 and 9,098,690 shares issued 9,138 9,099
Surplus 29,237 28,854
Retained earnings 45,161 42,188
Accumulated other comprehensive income (1,835) (1,507)
Unearned Comp-Grants (792) (560)
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80,909 78,074
Less cost of shares acquired for the treasury, 715,582
and 374,823 shares (5,488) (2,058)
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Total stockholders' equity 75,421 76,016
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$802,879 $789,460
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See Notes to Consolidated Financial Statements.
3
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
THREE MONTHS ENDED JUNE 30, 2000 AND 1999
(Dollars in Thousands)
(Unaudited)
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2000 1999
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Interest income
Interest and fees on loans $ 14,249 $ 12,434
Interest on taxable securities 2,118 1,766
Interest on nontaxable securities 240 272
Interest on deposits in other banks 149 122
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16,756 14,594
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Interest expense
Interest on deposits 6,416 5,507
Interest on fed funds purchased and securities
sold under agreements to repurchase 62 -
Interest on other borrowings 823 281
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7,301 5,788
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Net interest income 9,455 8,806
Provision for loan losses 271 477
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Net interest income after provision for loan losses 9,184 8,329
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Other income
Service charges on deposit accounts 1,536 1,363
Other service charges, commissions and fees 493 589
Other 72 152
Loss on sale of securities - (37)
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2,101 2,067
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Other expense
Salaries and employee benefits 4,265 3,893
Equipment and occupancy expense 1,058 1,025
Other operating expenses 2,339 2,205
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7,662 7,123
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Income before income taxes 3,623 3,273
Applicable income taxes 1,185 1,154
Net income $ 2,438 $ 2,119
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Other comprehensive income, net of tax:
Unrealized holding gains (losses) arising during period, net of tax $ 60 $ (853)
Reclassification adjustment for losses included in net income,
net of tax $ - $ 24
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Comprehensive income $ 2,498 $ 1,290
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Income per common share-Basic $ 0.29 $ 0.24
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Income per common share-Diluted $ 0.29 $ 0.24
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Average shares outstanding 8,484,423 8,697,558
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See Notes to Consolidated Financial Statements.
4
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(Dollars in Thousands)
(Unaudited)
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2000 1999
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Interest income
Interest and fees on loans $ 27,899 $ 24,529
Interest on taxable securities 4,147 3,740
Interest on nontaxable securities 481 543
Interest on deposits in other banks 392 313
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32,919 29,125
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Interest expense
Interest on deposits 12,308 11,207
Interest on fed funds purchased and securities
sold under agreements to repurchase 62 -
Interest on other borrowings 1,506 492
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13,876 11,699
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Net interest income 19,043 17,426
Provision for loan losses 649 1,009
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Net interest income after provision for loan losses 18,394 16,417
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Other income
Service charges on deposit accounts 2,982 2,644
Other service charges, commissions and fees 1,015 1,243
Other 120 208
Loss on sale of securities - (37)
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4,117 4,058
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Other expense
Salaries and employee benefits 8,448 7,683
Equipment and occupancy expense 2,083 2,134
Other operating expenses 4,815 4,185
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15,346 14,002
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Income before income taxes 7,165 6,473
Applicable income taxes 2,322 2,220
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Net income $ 4,843 $ 4,253
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Other comprehensive income, net of tax:
Unrealized holding gains (losses) arising during period, net of tax $ (328) $ (1,058)
Reclassification adjustment for losses included in net income,
net of tax $ - $ 24
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Comprehensive income $ 4,515 $ 3,219
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Income per common share-Basic $ 0.57 $ 0.49
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Income per common share-Diluted $ 0.56 $ 0.49
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Average shares outstanding 8,565,870 8,692,193
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See Notes to Consolidated Financial Statements.
5
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(Dollars in Thousands)
(Unaudited)
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2000 1999
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OPERATING ACTIVITIES
Net Income $ 4,843 $ 4,253
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Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,019 994
Provision for loan losses 649 1,009
Amortization of intangible assets 402 426
Net loss on securities available for sale - (37)
Other prepaids, deferrals and accruals, net 2,221 4,260
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Total adjustments 4,291 6,652
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Net cash provided by operating activities 9,134 10,905
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INVESTING ACTIVITIES
Proceeds from maturities of investment securities 4,150 48,848
Purchase of investment securities (22,450) (45,220)
Proceeds from sales of securities available for sale - 9,839
Increase in loans (46,815) (33,408)
Purchase of premises and equipment (1,711) (1,396)
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Net cash used in investing activities (66,826) (21,337)
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FINANCING ACTIVITIES
Net increase (decrease) in deposits 16,106 (23,121)
Net increase in repurchase agreements 4,249 144
Increase (decrease) in long-term borrowings 11,950 (2,052)
Increase (decrease) in other borrowings (18,321) 21,371
Dividends paid (1,870) (1,449)
Purchase treasury stock (3,430) (88)
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Net cash provided by (used in) financing activities 8,684 (5,195)
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Net decrease in cash and due from banks $(49,008) $(15,627)
Cash and due from banks at beginning of period 80,130 56,475
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Cash and due from banks at end of period $ 31,122 $ 40,848
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See Notes to Consolidated Financial statements.
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of ABC Bancorp and subsidiaries ("the
Company") conform to generally accepted accounting principles and to general
practices within the banking industry. The interim consolidated financial
statements included herein are unaudited, but reflect all adjustments which, in
the opinion of management, are necessary for a fair presentation of the
consolidated financial position and results of operations for the interim
periods presented. All adjustments reflected in the interim financial
statements are of a normal, recurring nature. Such financial statements should
be read in conjunction with the financial statements and notes thereto and the
report of independent auditors included in the Company's Form 10-K Annual Report
for the year ended December 31, 1999. The results of operations for the six
months ended June 30, 2000 are not necessarily indicative of the results to be
expected for the full year.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Liquidity management involves the matching of the cash flow requirements of
customers, who may be either depositors desiring to withdraw funds or borrowers
needing assurance that sufficient funds will be available to meet their credit
needs, and the ability of ABC Bancorp and its subsidiaries (the "Company") to
meet those needs. The Company strives to maintain an adequate liquidity
position by managing the balances and maturities of interest-earning assets and
interest-bearing liabilities so that the balance it has in short-term
investments at any given time will adequately cover any reasonably anticipated
immediate need for funds. Additionally, the subsidiary banks (the "Banks")
maintain relationships with correspondent banks which could provide funds to
them on short notice, if needed.
The liquidity and capital resources of the Company is monitored on a
periodic basis by state and Federal regulatory authorities. As determined under
guidelines established by these regulatory authorities, the Company's and the
Banks' liquidity ratios at June 30, 2000 were considered satisfactory. At that
date, the Banks' short term investments were adequate to cover any reasonably
anticipated immediate need for funds. The Company is aware of no events or
trends likely to result in a material change in liquidity. During the six months
ended June 30, 2000, total capital decreased $595,000 to $75,421,000. This
decrease in capital resulted from the retention of net earnings of $2,973,000
(after deducting dividends to shareholders of $1,870,000), less $3,430,000 for
the purchase of 340,759 shares acquired for the treasury, plus $190,000 accrual
for award grants, and an increase of approximately $328,000 in unrealized losses
on securities available for sale, net of taxes.
At June 30, 2000, ABC had no binding commitments for capital expenditures.
The Company anticipates that approximately $500,000 will be required for capital
expenditures during the remainder of 2000. Additional expenditures may be
required for other mergers and acquisitions. No additional mergers or
acquisitions requiring cash are being negotiated at present.
8
Results of Operations
The Company's results of operations are determined by its ability to
effectively manage interest income and expense, to minimize loan and investment
losses, to generate noninterest income and to control noninterest expense. Since
interest rates are determined by market forces and economic conditions beyond
the control of the Company, the ability to generate net interest income is
dependent upon the Banks' ability to obtain an adequate spread between the rate
earned on interest-earning assets and the rate paid on interest-bearing
liabilities. Thus, the key performance measure for net interest income is the
interest margin or net yield, which is taxable-equivalent net interest income
divided by average earning assets.
The primary component of consolidated earnings is net interest income, or
the difference between interest income on interest-earning assets and interest
paid on interest-bearing liabilities. The net interest margin is net interest
income expressed as a percentage of average interest-earning assets. Interest-
earning assets consist of loans, investment securities and Federal funds sold.
Interest-bearing liabilities consist of deposits and borrowings such as Federal
funds purchased, securities sold under repurchase agreements and Federal Home
Loan Bank advances. A portion of interest income is earned on tax-exempt
investments, such as state and municipal bonds. In an effort to state this tax-
exempt income and its resultant yields on a basis comparable to all other
taxable investments, an adjustment is made to analyze this income on a taxable-
equivalent basis.
9
Comparison of Statements of Income
The net interest margin was 5.43% and 5.44% during the six months ended
June 30, 2000 and 1999, respectively, a decrease of 1 basis point. These
variances are primarily attributable to fluctuations in the average rates
charged and fees earned on loans.
Net interest income on a taxable-equivalent basis was $19.4 million as
compared to $17.8 million during the six months ended June 30, 2000 and 1999,
respectively, representing an increase of 8.9%.
The provision for loan losses is a charge to earnings in the current period
to replenish the allowance for loan losses and maintain it at the level
management determines is adequate. The provision for loan losses charged to
earnings amounted to $649,000 and $1,009,000 during the six months ended June
30, 2000 and 1999, respectively, a decrease of $360,000, or 35.6%.
The allowance for loan losses represents a reserve for potential losses in
the loan portfolio. The adequacy of the allowance for loan losses is evaluated
quarterly based on a review of all significant loans, with a particular emphasis
on non-accruing, past due and other loans that management believes require
attention. Another factor used in determining the adequacy of the reserve is
management's judgment about factors affecting loan quality and assumptions about
the local and national economy.
The allowance for loan losses was 1.78% and 1.87% of total loans
outstanding at June 30, 2000 and December 31, 1999. As of June 30, 2000,
nonperforming assets were $6,977,000 compared to $6,086,000 in nonperforming
assets as of December 31, 1999. Management considers the allowance for loan
losses as of June 30, 2000 adequate to cover potential losses in the loan
portfolio.
10
Following is a comparison of noninterest income for the six months ended
June 30, 2000 and 1999 (dollars in thousands).
Six Months Ended
-------------------------------
June 30, 2000 June 30,1999
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Service charges on deposits $2,982 $2,644
Other service charges,
commissions & fees 1,015 1,243
Other income 120 171
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Total noninterest income $4,117 $4,058
====== ======
Total noninterest income for the six months ended June 30, 2000 was $59,000
higher than during the same period in 1999.
Following is an analysis of noninterest expense for the six months ended
June 30, 2000 and 1999 (dollars in thousands).
Six Months Ended
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June 30, 2000 June 30, 1999
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Salaries and employee benefits $ 8,448 $ 7,683
Occupancy and equipment expense 2,083 2,134
Other expense 4,815 4,185
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Total noninterest expense $15,346 $14,002
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Total noninterest expense for the six months ended June 30, 2000 was
$1,344,000 higher than during the same period in 1999.
Salaries and employee benefits for the six months ended June 30, 2000 were
$765,000 or 9.96% higher than during the same period in 1999. Approximately
$107,000 or 27.2% of this increase was the result of incentive compensation to
employees under the ABC Bancorp 2000 Officer/Director Stock Bonus Plan. The
Company does not anticipate that this cost will be repeated in the foreseeable
future. The balance of the increase is due to additional bonus accruals under
the Company's incentive compensation plan due to improved performance of the
Company and normal increases in salaries and benefits.
11
Other expense for the six months ended June 30, 2000 increased $630,000 or
15.1% as compared to the same period in 1999. Approximately $107,000 or 21.6% of
this increase was the result of incentive compensation to directors of the
Company and its subsidiaries under the ABC Bancorp 2000 Officer/Director Stock
Bonus Plan. The Company does not anticipate that this cost will be repeated in
the foreseeable future. Data processing costs were approximately $115,000 higher
during the first quarter due to the implementation of several projects. The
balance of the increase is due to normal increases in costs between periods.
Following is a condensed summary of net income during the six months ended
June 30, 2000 and 1999 (dollars in thousands).
Six Months Ended
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June 30, 2000 June 30, 1999
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Net interest income $19,043 $17,426
Provision for loan losses 649 1,009
Other income 4,117 4,058
Other expense 15,346 14,002
Income before income
taxes 7,165 6,473
Applicable income taxes 2,322 2,220
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Net income $ 4,843 $ 4,253
======= =======
Net income increased $590,000 or 13.9% to $4,843,000 for the six months
ended June 30, 2000 as compared to $4,253,000 for the six months ended June 30,
1999. Net interest income of ABC and its subsidiaries increased $1,617,000, the
provision for loan losses decreased by $360,000 and all other noninterest
expense increased by $1,344,000.
12
Comparison of Balance Sheets
Total assets increased by $13.4 million, or 1.7% to $802.9 million at June
30, 2000 from $789.5 million at December 31, 1999.
Total earning assets increased by $34.8 million, or 4.9%, to $743.2 million
at June 30, 2000 from $708.5 million at December 31, 1999.
Total loans, net of the allowance for loan losses, increased by $46.2
million, or 8.9% to $566 million at June 30, 2000 from $520 million at December
31, 1999.
Total deposits increased by $16.1 million, or 2.5%, to $657 million at June
30, 2000 from $641 million at December 31, 1999. Approximately 13.8% and 16.1%
of deposits were noninterest-bearing as of June 30, 2000 and December 31, 1999,
respectively.
13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
The company is exposed only to U. S. Dollar interest rate changes and,
accordingly, the Company manages exposure by considering the possible changes in
the net interest margin. The Company does not have any trading instruments nor
does it classify any portion of the investment portfolio as held for trading.
The Company does not engage in any hedging activities or enter into any
derivative instruments with a higher degree of risk than mortgage backed
securities which are commonly pass through securities. Finally, the Company has
no exposure to foreign currency exchange rate risk, commodity price risk, and
other market risks.
Interest rates play a major part in the net interest income of a financial
institution. The sensitivity to rate changes is known as "interest rate risk."
The repricing of interest earning assets and interest-bearing liabilities can
influence the changes in net interest income. As part of the Company's
asset/liability management program, the timing of repriced assets and
liabilities is referred to as Gap management. It is the policy of the Company
to maintain a Gap ratio in the one-year time horizon of .80 to 1.20
The Company uses simulation analysis to monitor changes in net interest
income due to changes in market interest rates. The simulation of rising,
declining and flat interest rate scenarios allows management to monitor and
adjust interest rate sensitivity to minimize the impact of market interest rate
swings. The analysis of the impact on net interest income over a twelve month
period is subjected to a gradual 200 basis point increase or decrease in market
rates on net interest income and is monitored on a quarterly basis. The most
recent simulation model projects net interest income would decrease 1.17% if
rates rise gradually over the next year. On the other hand, the model projects
net interest income to increase .47% if rates decline over the next year.
14
Part II. Other Information
Item 4. Submission of Matters to a Vote of Securities Holders
The Annual Meeting of the Shareholders of the Company was held on May 9,
2000. At this meeting proxies were solicited under Regulation 14a of the
Securities and Exchange Act of 1934. Total shares outstanding, net of 524,823
shares held for the treasury amounted to 8,609,267. A total of 7,435,203 shares
were represented by shareholders in attendance or by proxy. Director nominees
were elected by a vote of 6,581,652 shares for, and 853,551 withholding
authority, representing 76% in favor of the following directors elected to serve
as Class III directors, until the annual meeting to be held in 2003.
Kenneth J. Hunnicutt
Eugene M. Vereen, Jr.
Doyle Weltzbarker
Ratification of the appointment of Mauldin & Jenkins, LLC as the Company's
independent accountants for the fiscal year ended December 31, 1999, by a vote
of 6,666,343 for, 8,302 against, 30,557 abstaining representing 77% in favor.
Item 6. Exhibits and Reports on Form 8-K
There were no exhibits and reports filed on Form 8-K during the quarter
ended June 30, 2000.
15
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
Undersigned thereunto duly authorized:
ABC BANCORP
8/9/00 /s/ W. EDWIN LANE, JR.
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DATE W. EDWIN LANE, JR.
EXECUTIVE VICE PRESIDENT &
CHIEF FINANCIAL OFFICER
(Duly authorized officer and principal
financial/accounting officer)
16