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, 2000
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
24 2nd AVENUE, S.E., MOULTRIE, GEORGIA 31768
TELEPHONE NUMBER: (229) 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, 2001, registrant had outstanding 8,409,208 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 $88.7 million.
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.
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 24 2nd Avenue, S.E.,
Moultrie, Georgia 31768, and its telephone number is (229) 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; brokerage services
through PFIC Securities Corporation; fixed rate annuities through PFIC
Corporation; 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.
1
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.
Estimated Relative Size
Subsidiary Bank Principal Market Area Among Competitors
- ---------------------------- ------------------------------------------ ----------------------------------------
American Banking Company Moultrie and Colquitt County, Georgia Second largest of three banks in
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 County, Fifth largest of eight banks in Thomas
Georgia County, Georgia
Citizens Security Bank Tifton and Tift County, Ocilla and Irwin Third largest of seven banks in Tift
County, Douglas and Coffee County, Georgia County, Georgia
Cairo Banking Company Cairo and Grady County, Meigs and Thomas Second largest of six banks in Grady
County, Georgia County, Georgia
Southland Bank Dothan, Abbeville, Clayton, Eufaula and Fifth largest of eleven banks in Houston
Headland, Alabama County, Alabama
Central Bank & Trust Company Cordele and Crisp County, Georgia Third largest of six banks in Crisp
County, Georgia
First National Bank of South Albany and Dougherty County, Georgia and Fifth largest of eight banks in
Georgia Lee County, Georgia Dougherty County, Georgia
Merchants & Farmers Bank Donalsonville and Seminole County, Georgia Second largest of three banks in
Seminole County, Georgia
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.
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, Donalsonville, Douglas, Moultrie, Ocilla,
Quitman, Thomasville, Tifton and Valdosta, and the southern Alabama cities of
Abbeville, Clayton, Dothan, Eufaula and Headland. The Banks have a total of 28
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.
2
Market Area and Competition (Continued)
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.
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.
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. Real estate related loans represent a significant
portion of the loan portfolio.
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.
3
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 and employee benefit services to its customers
through a contractual arrangement with Reliance Trust Company.
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.
4
Investment Activities (Continued)
ABC's investment committee implements the investment policy and portfolio
strategies, monitors the portfolio and reports to each Bank's board and ALCO
committees. 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.
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.
Approximate
Square
Offices Used By Footage
- --------------------------------------------- --------------------- -----------
310 First Street, S.E., Moultrie, GA ABC 7,000
317 S. Main Street, Moultrie, GA ABC 2,200
308-314 First Street, S.E., Moultrie, GA ABC 4,000
24 Second Avenue, S. E., Moultrie, GA ABC 15,500
305 South Main Street, Moultrie, GA ABC and American Bank 7,048
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
2513 South Main Street, Moultrie, GA American Bank 3,973
1000 West Screven Street, Quitman, GA Heritage Bank 11,530
Eastern Brooks County, GA Heritage Bank 1,100
3140 Inner Primeter Road, Valdosta, GA Heritage Bank 3,462
1011 South Pine Street, Coolidge, GA Thomas Bank 4,000
111 E. Eighth Street, Tifton, GA Citizens Security Bank 11,700
804 W. Second Street, Tifton, GA Citizens Security Bank 2,000
301 South Irwin Avenue, Ocilla, GA Citizens Security Bank 10,000
100 South Pearle Avenue, Douglas, GA Citizens 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
1970 Reeves Street, Dothan, AL Southland Bank 2,500
204 Kirkland St., Abbeville, AL Southland Bank 5,300
33 Eufaula St., Clayton, AL Southland Bank 4,500
1140 S. Eufaula Ave., Eufaula, AL Southland Bank 2,650
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
5
Employees
At December 31, 2000, ABC and its subsidiaries employed 375 full-time
employees and 50 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 2000. 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.
The GLB Act
On November 12, 1999, then-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."
6
The GLB Act (Continued)
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.
Effective March 11, 2000, a bank holding company whose banking
subsidiaries are all well-capitalized and well-managed could apply to become a
financial holding company. Financial holding companies have the authority to
engage in activities that are "financial in nature" that are not permitted for
other bank holding companies. Some of the activities that the G-L-B Act provides
are financial in nature are:
(a) lending, exchanging, transferring, investing for others or
safeguarding money or securities;
(b) insuring, guaranteeing, or indemnifying against loss, harm, damage,
illness, disability or death, or providing and issuing annuities and
acting as principal, agent or broker with respect thereto;
(c) providing financial, investment or economic advisory services,
including advising an investment company;
(d) issuing or selling instruments representing interests in pools of
assets permissible for a bank to hold directly; and
(e) underwriting, dealing in or making a market in securities.
A bank holding company that qualifies as a financial holding company may
engage in activities that are financial in nature or incident to activities
which are financial in nature. A bank holding company may qualify to become a
financial holding company if:
(a) each of its depository institution subsidiaries is "well
capitalized";
(b) each of its depository institution subsidiaries is "well managed";
(c) each of its depository institution subsidiaries has at least a
"satisfactory" Community Reinvestment Act rating at its most recent
examination; and
(d) it has filed a certification with the FRB that it elects to become a
financial holding company.
As of December 31, 2000, ABC has registered as a financial holding company
with the FRB.
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 applicable
regulatory authorities, as the case may be, is required if the total dividends
declared by any subsidiary bank 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 or 50% of the Bank's net profits
for the previous year in the case of Georgia banks. 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.
7
Payment of Dividends and Other Restrictions (Continued)
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 $9.5 million as of December 31, 2000.
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.
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.
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.
8
Capital Adequacy (Continued)
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.
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.
9
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.
FDIC Insurance Assessments
The Banks are subject to FDIC deposit insurance assessments for the Bank
Insurance Fund (the "BIF"), which as of December 31, 2000, 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, then-President Clinton 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-assessable 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, 2000, 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, 2000, all of the
Banks had a CRA rating of satisfactory or better.
10
Community Reinvestment Act (Continued)
In 1995, the four federal bank regulatory agencies adopted revised
regulations rendered to the CRA intended to set distinct assessment standards
for financial institutions. The regulations contain 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. 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.
In 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, the Reigle Community Development and Regulatory
Improvement Act of 1994 (the "Regulatory Improvement Act") was passed. 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.
The GLB Act makes various changes to the CRA. Among other changes, CRA
agreements with private parties must be disclosed and annual CRA reports must be
made to the Banks' primary federal regulators. Also, ABC cannot remain a
financial holding company and no new activities authorized under the GLB Act may
be thereafter commenced by ABC or its subsidiaries if any of the Banks receive
less than a "satisfactory" CRA rating in its latest CRA examination.
Other Regulatory Action
On September 29, 1994, then-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 had 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
which prohibit any out-of-state bank from using the interstate branching
authority primarily for the purpose of deposit production and 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.
11
Other Regulatory Action (Continued)
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.
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.
Title 6 of the GLB Act, entitled the Federal Home Loan Bank System
Modernization Act of 1999 ("FHLB Modernization Act"), has amended the Federal
Home Loan Bank Act by allowing for voluntary membership and modernizing the
capital structure and governance of the FHLBs. The new capital structure
established under the FHLB Modernization Act sets forth new leverage and
risk-based capital requirements based on permanence of capital. It also requires
some minimum investment in the stock of the FHLBs of all member entities.
Capital will include retained earnings and two forms of stock: Class A stock
redeemable within six months, written notice and Class B stock redeemable within
five years written notice. The FHLB Modernization Act provides a transition
period to the new capital regime, which will not be effective until the FHLBs
enact implementing regulations. The FHLB Modernization Act also reduces the
period of time in which a member exiting the FHLB system must stay out of the
system.
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.
12
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.
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 2000.
ITEM 4.5 EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
executive officers of ABC.
Name, Age and Position with the Principal Occupation for the Last
Term as Officer Registrant Five Years and Other Directorships
- ------------------------------- ----------------------------- -----------------------------------
Kenneth J. Hunnicutt; 64; President, Chief Executive Chief Executive Officer of ABC
Officer since 1981 Officer and Director Bancorp since 1994 and President
since 1981. Mr. Hunnicutt served as
Senior 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; 47; Executive Vice President, Executive Vice President and Chief
Officer since July 20, 1999 Chief Operating Officer Operating Officer of ABC Bancorp
and Director since July 20, 1999 and a director
thereof 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; 46: Executive Vice President Executive Vice President and Chief
Officer since January 1, 1995 and Chief Financial Financial Officer of ABC Bancorp
Officer since January 1, 1995. Mr. Lane
served as 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.
Officers serve at the discretion of the Board of Directors.
13
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 2000 and 1999; and (b) the
amount of quarterly dividends declared on the common stock during the
periods indicated.
Calendar Period Bid Prices Cash
--------------- ------------------ Dividends
2000 High Low Declared
--------------- -------- -------- --------
First quarter $ 11.125 $ 9.625 $ .10
Second quarter 11.000 9.500 .12
Third quarter 10.750 9.000 .12
Fourth quarter 10.500 8.000 .12
Cash
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
(b) As of March 1, 2001, there were approximately 1,530 holders of record of
the Common Stock, excluding individuals in security position listings.
(c) ABC paid an annual dividend on its common stock of $.46 and $.35 per share
for fiscal years 2000 and 1999, respectively.
14
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.
Year Ended December 31,
--------------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
(Dollars in Thousands, Except Per Share Data)
--------------------------------------------------------
Selected Balance Sheet Data:
Total assets $826,197 $789,460 $724,946 $691,886 $673,162
Total loans 587,381 530,225 477,194 490,244 452,844
Total deposits 679,885 640,658 633,325 600,711 577,905
Investment securities 162,105 146,990 158,869 123,219 135,266
Shareholders' equity 80,656 76,016 71,834 68,153 62,970
Selected Income Statement Data:
Interest income $ 68,976 $ 59,991 $ 60,217 $ 58,649 $ 50,586
Interest expense 30,805 24,400 26,444 25,950 22,324
-------- -------- -------- -------- --------
Net interest income 38,171 35,591 33,773 32,699 28,262
Provision for loan losses 1,712 2,154 5,505 2,731 1,919
Other income 8,215 7,752 9,376 7,736 6,532
Other expenses 30,233 27,942 27,996 27,139 22,878
-------- -------- -------- -------- --------
Income before tax 14,441 13,247 9,648 10,565 9,997
Income tax expense 4,343 4,291 2,735 3,119 2,839
-------- -------- -------- -------- --------
Net income $ 10,098 $ 8,956 $ 6,913 $ 7,446 $ 7,158
======== ======== ======== ======== ========
Per Share Data:
Net income - basic $ 1.19 $ 1.03 $ 0.79 $ 0.86 $ 0.84
Net income - diluted 1.19 1.03 0.79 0.85 0.84
Book value 9.66 8.71 8.29 7.83 7.24
Tangible book value 8.84 7.84 7.32 6.77 6.41
Dividends .46 0.35 0.33 0.32 0.27
Profitability Ratios:
Net income to average total assets 1.27% 1.23% 0.99% 1.10% 1.21%
Net income to average
stockholders' equity 13.19 11.93 10.07 11.35 12.19
Net interest margin 5.14 5.31 5.26 5.36 5.24
15
SELECTED CONSOLIDATED FINANCIAL INFORMATION (Continued)
Year Ended December 31,
----------------------------------------------
2000 1999 1998 1997 1996
------ ------ ------ ----- ------
(Dollars in Thousands, Except Per Share Data)
----------------------------------------------
Loan Quality Ratios:
Net charge-offs to total loans .30% 0.46% 0.62% 0.48% 0.39%
Reserve for loan losses to
total loans and OREO 1.67 1.86 2.13 1.55 1.60
Nonperforming assets to
total loans and OREO .95 1.15 1.99 2.41 1.39
Reserve for loan losses to
nonperforming loans 202.18 178.26 116.25 75.86 135.34
Reserve for loan losses to
total nonperforming assets 175.38 162.59 107.25 64.38 115.59
Liquidity Ratios:
Loans to total deposits 86.39% 82.76% 75.35% 81.61% 78.36%
Loans to average earnings assets 79.05 78.77 74.35 80.45 84.04
Noninterest-bearing deposits to
total deposits 13.96 16.12 15.78 15.00 15.06
Capital Adequacy Ratios:
Common stockholders' equity to
total assets 9.76% 9.63% 9.91% 9.85% 9.35%
Total stockholders' equity to
total assets 9.59 9.63 9.91 9.85 9.35
Dividend payout ratio 38.66 33.98 42.11 36.89 31.68
16
SELECTED CONSOLIDATED FINANCIAL INFORMATION (Continued)
SELECTED QUARTERLY FINANCIAL DATA:
Quarters Ended December 31, 2000
---------------------------------------------
4 3 2 1
--------- --------- --------- ---------
(Dollars in Thousands, Except Per Share Data)
---------------------------------------------
Selected Income Statement Data:
Interest income $17,988 $18,069 $16,756 $16,163
Net interest income 9,637 9,491 9,455 9,588
Net income 2,917 2,338 2,438 2,405
Per Share Data:
Net income - basic .35 .28 .29 .28
Net income - diluted .35 .28 .29 .28
Dividends .12 .12 .12 .10
Quarters Ended December 31, 1999
---------------------------------------------
4 3 2 1
--------- --------- --------- ---------
(Dollars in Thousands, Except Per Share Data)
---------------------------------------------
Selected Income Statement Data:
Interest income $15,709 $15,157 $14,594 $14,531
Net interest income 9,158 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
17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Cautionary Statement Regarding Forward-Looking Statements
ABC's 2000 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 results 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' profitability 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 and other operating expenses.
18
Results of Operations for Years Ended December 31, 2000, 1999 and 1998
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 decreased 20 basis points to 5.20% in 2000 as
compared to 5.40% in 1999. This decrease in net interest margin resulted from an
increase of 31 basis points in average yield earned on interest-earning assets
accompanied by a greater increase of 57 basis points in average rate paid on
interest-bearing liabilities. The increase in average rate paid on
interest-bearing liabilities resulted from an increase of $37,450,000 or 11.24%
on time deposits to $370,707,000 in 2000 as compared to $333,257,000 in 1999.
Because the Company was more aggressive in obtaining time deposits, the average
rate paid on time deposits increased 58 basis points to 5.84% in 2000 as
compared to 5.26% in 1999. The Company also increased its other borrowings,
primarily Federal Home Loan Bank advances, $22,978,000 or 71.04% to $55,322,000
in 2000 from $32,344,000 in 1999, with an increase of 117 basis points in
average interest paid to 6.55% in 2000 as compared to 5.38% in 1999. Average
interest-earning assets increased $73,259,000 or 10.94% to $743,011,000 in 2000
as compared to $669,752,000 in 1999. Average yield earned on interest-earning
assets increased 31 basis points to 9.35% in 2000 as compared to 9.04% in 1999.
Average loans increased $64,585,000 or 12.77% to $570,526,000 in 2000 from
$505,941,000 in 1999. Average yield earned on loans increased 22 basis points to
10.22% as compared to 10.00% in 1999. Average investments increased $10,197,000
to $159,168,000 in 2000 from $148,971,000 in 1999. Average yield earned on
investments increased 28 basis points to 6.41% in 2000 as compared to 6.13% in
1999. The change in average interest-bearing deposits in banks and the related
yield on those assets did not have a material effect on interest income. Because
increasing interest rates had a greater impact on interest paid on
interest-bearing liabilities than they had on yield earned on interest-earning
assets, ABC's interest rate spread decreased 26 basis points to 4.43% in 2000
from 4.69% in 1999. Net interest income on a taxable-equivalent basis was
$38,665,000 in 2000 as compared to $36,150,000 in 1998, representing an increase
of $2,515,000 or 6.96%. The increase in average interest-earning assets was
funded by an increase in average deposits of $40,665,000 or 6.63% and an
increased in average borrowings of $24,091,000. In 2000, approximately 14% of
the average deposits were noninterest-bearing deposits as compared to
approximately 15% in 1999.
The net interest margin increased four basis points to 5.40% in 1999 as
compared to 5.36% in 1998. This increase in net interest margin resulted from a
decrease of 44 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
favorable impact on interest paid on interest-bearing liabilities than they had
on yield earned on interest-earning assets, ABC actually increased its interest
rate spread ten basis points to 4.69% in 1999 from 4.59% in 1998. Net interest
income on a taxable-equivalent basis was $36,150,000 in 1999 as compared to
$34,386,000 in 1998, representing an increase of $1,764,000 or 5.13%. Average
interest-earning assets increased $27,951,000 or 4.35% to $669,752,000 in 1999
from $641,801,000 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. In
1999 and 1998, approximately 15% and 14%, respectively, of the average deposits
were noninterest-bearing deposits.
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
19
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 $1,712,000 in 2000, $2,154,000 in 1999 and $5,505,000 in 1998. 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 that 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. During 2000 net loan charge-offs decreased
$676,000 or 27.58% to $1,775,000 as compared to $2,451,000 in 1999. Due to the
improvement in the quality of the loan portfolio, which resulted from
management's efforts to resolve problem loan situations, management determined
that the provision for loan losses in 2000 and 1999 could be significantly
reduced from the provision recorded in 1998. During 2000, average loans
increased $64,585,000 or 12.12% over 1999 as compared to an increase in average
loans of $10,520,000 or 2.12% in 1999 as compared to 1998. The allowance for
loan losses decreased $63,000 or .64% to $9,832,000 at December 31, 2000 from
$9,895,000 at December 31, 1999. Net charge-offs represented 103.68% of the
provision for loan losses in 2000 as compared to 113.79% in 1999. Net loan
charge-offs for 2000 represented .31% of average loans outstanding during the
year as compared to .48% for 1999 and .59% for 1998. At December 31, 2000, the
allowance for loan losses was 1.67% of total loans outstanding as compared to an
allowance for loan losses of 1.87% of total loans outstanding at December 31,
1999 and 2.14% of total loans outstanding at December 31, 1998. 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.
Average total assets increased $68,258,000 or 9.35% to $798,221,000 in
2000 as compared to $729,963,000 in 1999. The increase in average total assets
was accompanied by an increase in average deposits of $40,665,000 or 6.63% and
an increase of average borrowings of $24,091,000. 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 total deposits of $6,288,000 or 5.39% to $613,327,000 in 1999 from
$607,039,000 in 1998 and an increase in average borrowings of $19,678,000.
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 increase 0.66% if
rates rise gradually over the next year. On the other hand, the model projects
net interest income to decrease 0.96% if rates decline over the next year.
20
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.
Year Ended December 31,
-----------------------------------------------------------------------------------------------------
2000 1999 1998
-------------------------------- -------------------------------- ---------------------------------
Interest Average Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Paid Balance Expense Rate Paid Balance Expense Rate Paid
--------- --------- --------- --------- --------- --------- --------- --------- ----------
(Dollars in Thousands)
-----------------------------------------------------------------------------------------------------
ASSETS
Interest-earning assets:
Loans, net of unearned
interest $ 570,526 $ 58,328 10.22% $ 505,941 $ 50,603 10% $ 495,421 $ 51,584 10.41%
Investment securities:
Taxable 139,928 8,750 6.25 127,515 7,488 5.87 102,047 6,313 6.19
Nontaxable 19,240 1,453 7.55 21,456 1,645 7.67 22,946 1,803 7.86
Interest-bearing deposits
in banks 13,317 939 7.05 14,840 814 5.49 20,382 1,077 5.28
Federal funds sold -- -- -- -- -- 1,005 53 5.27
--------- --------- --------- --------- --------- ---------
Total interest-earning
assets 743,011 69,470 9.35 669,752 60,550 9.04 641,801 60,830 9.48
--------- --------- --------- --------- --------- ---------
Noninterest-earning assets:
Cash 23,963 26,391 23,802
Allowance for loan losses (10,144) (10,124) (9,933)
Unrealized gain (loss) on
available for sale
securities (2,007) 252 406
Other assets 43,398 43,692 44,018
--------- --------- ---------
Total noninterest-
earning assets 55,210 60,211 58,293
--------- --------- ---------
Total assets $ 798,221 $ 729,963 $ 700,094
========= ========= =========
21
Average Balances and Net Income Analysis (Continued)
Year Ended December 31,
----------------------------------------------------------------------------------------------
2000 1999 1998
------------------------------ ------------------------------ ------------------------------
Interest Average Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Paid Balance Expense Rate Paid Balance Expense Rate Paid
-------- -------- --------- -------- -------- --------- -------- -------- ---------
(Dollars in Thousands)
----------------------------------------------------------------------------------------------
LIABILITIES AND
STOCKHOLDERS'
EQUITY
Interest-bearing liabilities:
Savings and interest-bearing
demand deposits $194,895 $ 5,087 2.61% $190,745 $ 4,904 2.57% $174,443 $ 5,439 3.12%
Time deposits 370,707 21,666 5.84 333,257 17,520 5.26 348,826 19,971 5.73
Other short-term borrowings 5,776 428 7.41 4,663 237 5.08 835 41 4.91
Other borrowings 55,322 3,624 6.55 32,344 1,739 5.38 16,494 993 6.02
-------- -------- -------- -------- -------- --------
Total interest-bearing
liabilities 626,700 30,805 4.92 561,009 24,400 4.35 540,598 26,444 4.89
-------- -------- -------- -------- -------- --------
Noninterest-bearing liabilities
and stockholders' equity:
Demand deposits 88,390 89,325 83,770
Other liabilities 6,573 4,540 7,068
Stockholders' equity 76,558 75,089 68,658
-------- -------- --------
Total noninterest-bearing
liabilities and
stockholders' equity 171,521 168,954 159,496
-------- -------- --------
Total liabilities and
stockholders' equity $798,221 $729,963 $700,094
======== ======== ========
Interest rate spread 4.43% 4.69% 4.59%
===== ===== =====
Net interest income $ 38,665 $ 36,150 $ 34,386
======== ======== ========
Net interest margin 5.20% 5.40% 5.36%
===== ===== =====
22
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.
Year Ended December 31,
--------------------------------------------------------------------------------
2000 vs. 1999 1999 vs. 1998
-------------------------------------- --------------------------------------
Changes Due To Changes Due To
Increase ------------------------ Increase ------------------------
(Decrease) Rate Volume (Decrease) Rate Volume
---------- ---------- ---------- ---------- ---------- ----------
(Dollars in Thousands)
--------------------------------------------------------------------------------
Increase (decrease) in:
Income from earning assets:
Interest and fees on loans $ 7,725 $ 1,265 $ 6,460 $ (981) $ (2,076) $ 1,095
Interest on securities:
Taxable 1,262 533 729 1,175 (401) 1,576
Nontaxable (192) (22) (170) (158) (41) (117)
Interest-bearing deposits in banks 125 209 (84) (263) 30 (293)
Interest on Federal funds -- -- -- (53) -- (53)
---------- ---------- ---------- ---------- ---------- ----------
Total interest income 8,920 1,985 6,935 (280) (2,488) 2,208
---------- ---------- ---------- ---------- ---------- ----------
Expense from interest-bearing liabilities:
Interest on savings and interest-
bearing demand deposits 183 76 107 (535) (1,043) 508
Interest on time deposits 4,146 2,177 1,969 (2,451) (1,560) (891)
Interest on short-term borrowings 191 134 57 196 8 188
Interest on other borrowings 1,885 650 1,235 746 (208) 954
---------- ---------- ---------- ---------- ---------- ----------
Total interest expense 6,405 3,037 3,368 (2,044) (2,803) 759
---------- ---------- ---------- ---------- ---------- ----------
Net interest income $ 2,515 $ (1,052) $ 3,567 $ 1,764 $ 315 $ 1,449
========== ========== ========== ========== ========== ==========
23
Noninterest Income
Service charges on deposit accounts increased $697,000 or 12.24% to
$6,393,000 in 2000 as compared to $5,696,000 in 1999 on an increase in average
deposits of $40,665,000 or 6.63% to $653,992,000 in 2000 from $613,327,000 in
1999. The increase in service charges on deposit accounts was attributable
primarily to the increase in average deposits. 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 to
$613,327,000 in 1999 from $607.039,000 in 1998. The decrease in service charges
on deposit accounts was 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. Origination fees on mortgage loans
decreased $383,000 or 48.64% to $405,000 in 2000 as compared to $788,000 in
1999. This decrease is attributable to the decrease in mortgage lending
activities, particularly the refinancing of mortgage loans, resulting from the
stabilization of interest rates during 2000. In comparison, origination fees on
mortgage loans decreased $95,000 or 10.76% in 1999 as compared with 1998 due to
the increase in interest rates on mortgage loans during 1999. 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 increased $58,000
or 4.27% to $1,417,000 in 2000 as compared to $1,359,000 in 1999. All other
noninterest income increased $214,000 or 13.60% to $1,359,000 in 1999 as
compared to $1,573,000 in 1998. The decrease in other noninterest income was
attributable to a decrease of $143,000 in net gains and losses on sale of fixed
assets and other real estate and a decrease of $68,000 in gain on sale of loans.
Following is a comparison of noninterest income for 2000, 1999 and 1998.
Year Ended December 31,
------------------------
2000 1999 1998
------ ------ ------
(Dollars in Thousands)
------------------------
Service charges on deposit accounts $6,393 $5,696 $5,720
Mortgage origination fees 405 788 883
Other service charges, commissions and fees 622 423 506
Nontaxable life insurance benefits -- -- 1,200
Other income 795 936 1,067
------ ------ ------
$8,215 $7,843 $9,376
====== ====== ======
Noninterest Expense
Salaries and employee benefits increased $1,534,000 or 10.30% to
$16,420,000 in 2000 from $14,886,000 in 1999. Salaries increased $547,000
(4.98%); bonuses increased $468,000 (47.76%); retirement expense increased
$242,000 (34.23%); and all other employee benefits, including stock options and
other grants, insurance and payroll taxes, increased $277,000 (12.44%). Stock
options and other grants increased $192,000.
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.
Equipment and occupancy expense remained fairly constant during 2000, 1999
and 1998. Equipment and occupancy expense increased $147,000 or 3.51% to
$4,338,000 in 2000 as compared to $4,191,000 in 1999. The increase in 2000 was
attributable to an increase in depreciation expense of $201,000 over
depreciation expense for 1999. 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.
Amortization of intangible assets remained the same in 2000 as the amount
charged to expense in 1999. 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.
24
Noninterest Expense (Continued)
Data processing fees increased $456,000 to $1,147,000 in 2000 as compared
to $691,000 in 1999. Approximately $200,000 of the increase was attributable to
management's decision in 2000 to classify certain charges as data processing
fees that were charged to other expense in 1999 and 1998. The reclassification
of these charges in 1999 and 1998 to data processing fees was not considered
necessary. In addition, ABC installed voice response units in all the Banks that
accounted for an increase of approximately $84,000 in 2000. Also, a billing
error in 1999 resulted in the payment of an additional $100,000 in 2000 that
related to data processing in 1999. There were no significant change in data
processing fees charged to expense in 1999 as compared to 1998.
Following is an analysis of noninterest expense for 2000, 1999 and 1998.
Year Ended December 31,
---------------------------
2000 1999 1998
------- ------- -------
(Dollars in Thousands)
---------------------------
Salaries and employee benefits $16,420 $14,886 $14,025
Equipment and occupancy 4,338 4,191 4,320
Amortization of intangible assets 804 804 851
Data processing fees 1,147 691 774
Other expense 7,524 7,370 8,026
------- ------- -------
$30,233 $27,942 $27,996
======= ======= =======
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.
25
The following table sets forth the distribution of the repricing of ABC's
earning assets and interest-bearing liabilities as of December 31, 2000, 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.
At December 31, 2000
----------------------------------------------------------
Maturing or Repricing Within
----------------------------------------------------------
Zero to Three One to Over
Three Months to Three Three
Months One Year Years Years Total
--------- --------- --------- --------- ---------
(Dollars in Thousands)
----------------------------------------------------------
Earning assets:
Interest-bearing deposits in banks $ 4,952 $ -- $ -- $ -- $ 4,952
Investment securities 32,406 29,457 58,294 41,948 162,105
Loans 226,766 131,503 178,813 50,299 587,381
--------- --------- --------- --------- ---------
264,124 160,960 237,107 92,247 754,438
--------- --------- --------- --------- ---------
Interest-bearing liabilities:
Interest-bearing demand deposits (1) -- 49,510 107,576 -- 157,086
Savings (1) -- 15,383 28,786 -- 44,169
Certificates less than $100,000 87,448 147,479 22,924 5,192 263,043
Certificates, $100,000 and over 38,735 73,126 7,482 1,327 120,670
Other short-term borrowings 2,653 -- -- -- 2,653
Other borrowings 5,000 24,100 1,000 25,250 55,350
--------- --------- --------- --------- ---------
133,836 309,598 167,768 31,769 642,971
--------- --------- --------- --------- ---------
Interest rate sensitivity gap $ 130,288 $(148,638) $ 69,339 $ 60,478 $ 111,467
========= ========= ========= ========= =========
Cumulative interest rate sensitivity gap $ 130,288 $ (18,350) $ 50,989 $ 111,467
========= ========== ========= =========
Interest rate sensitivity gap ratio 1.97 .52 1.41 2.90
========= ========== ========= =========
Cumulative interest rate sensitivity gap ratio 1.97 .96 1.08 1.17
========= ========== ========= =========
(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.
26
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:
December 31,
------------------------------
2000 1999 1998
-------- -------- --------
(Dollars in Thousands)
------------------------------
U. S. Government and agency securities $ 61,186 $ 48,811 $ 66,407
State and municipal securities 19,468 20,134 22,322
Corporate debt securities 6,130 4,344 --
Mortgage-backed securities 71,221 69,477 65,357
Marketable equity securities 614 772 460
Restricted equity securities 3,486 3,452 4,323
-------- -------- --------
$162,105 $146,990 $158,869
======== ======== ========
Maturities
The amounts of investments in securities in each category as of December
31, 2000 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.
U. S. Treasury
and Other U. S. State and
Government Agencies Political
and Corporations Subdivisions
Yield Yield
Amount (1) Amount (1) (2)
--------- ----- -------- -------
(Dollars in Thousands)
----------------------------------------
Maturity:
One year or less $ 27,071 5.59% $ 2,505 6.85%
After one year through five years 76,816 6.16 8,663 7.45
After five years through ten years 37,814 7.35 6,820 7.06
After ten years 936 7.02 1,480 7.42
-------- ---- -------- ----
$142,637 6.39% $ 19,468 7.23%
======== ==== ======== ====
(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%.
27
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, 2000. The
amount of loans outstanding at the indicated dates is shown in the following
table according to type of loans.
December 31,
----------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
(Dollars in Thousands)
----------------------------------------------------
Commercial and financial $109,647 $ 83,385 $ 70,282 $ 72,171 $ 69,772
Agricultural 34,840 29,694 36,567 41,882 35,525
Real estate - construction 14,046 13,228 8,439 13,117 13,612
Real estate - mortgage, farmland 57,253 59,018 56,595 55,245 52,978
Real estate - mortgage, commercial 160,456 150,075 123,854 108,339 89,708
Real estate - mortgage, residential 128,614 117,936 114,930 127,767 121,448
Consumer installment loans 76,076 59,529 65,307 68,959 67,572
Other 6,449 17,360 1,220 2,764 2,229
-------- -------- -------- -------- --------
587,381 530,225 477,194 490,244 452,844
Less reserve for possible loan losses 9,832 9,895 10,192 7,627 7,273
-------- -------- -------- -------- --------
Loans, net $577,549 $520,330 $467,002 $482,617 $445,571
======== ======== ======== ======== ========
Maturities and Sensitivity to Changes in Interest Rates
Total loans as of December 31, 2000 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 $358,269
After one year through three years 178,813
After three years 50,299
--------
$587,381
========
The following table summarizes loans at December 31, 2000 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 $227,489
Floating or adjustable interest rates 1,623
--------
$229,112
========
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.
28
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.
December 31,
-----------------------------------------------
2000 1999 1998 1997 1996
------- ------- ------- ------- -------
(Dollars in Thousands)
-----------------------------------------------
Loans accounted for on a nonaccrual basis $ 4,863 $ 5,551 $ 8,767 $10,101 $ 4,977
Installment loans and term loans contractually 81 48 94 59 397
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
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.
29
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 $9,832,000 at December 31,
2000, representing 1.67% of year end total loans outstanding, compared with
$9,895,000 at December 31, 1999, which represented 1.87% 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.
At December 31,
-----------------------------------------------------------------------------------------------------
2000 1999 1998 1997
---------------------- ---------------------- ---------------------- ----------------------
Percent of Percent of Percent of Percent of
Loans in Loans in Loans in Loans in
Category Category Category Category
to Total to Total to Total to Total
Amount Loans Amount Loans Amount Loans Amount Loans
-------- ---------- -------- ---------- -------- ---------- -------- ----------
(Dollars in Thousands)
-----------------------------------------------------------------------------------------------------
Commercial, financial,
industrial and
agricultural $ 2,981 25% $ 2,904 22% $ 3,047 22% $ 1,792 23%
Real estate 2,925 61 3,213 64 3,404 64 3,274 62
Consumer 2,156 14 1,997 14 1,906 14 1,112 15
Unallocated 1,770 -- 1,781 -- 1,835 -- 1,449 --
-------- ---------- -------- ---------- -------- ---------- -------- ----------
$ 9,832 100% $ 9,895 100% $ 10,192 100% $ 7,627 100%
======== ========== ======== ========== ======== ========== ======== ==========
At December 31,
----------------------
1996
----------------------
Percent of
Loans in
Category
to Total
Amount Loans
-------- ----------
----------------------
Commercial, financial,
industrial and
agricultural $ 1,661 23%
Real estate 2,928 62
Consumer 1,446 15
Unallocated 1,238 --
-------- ----------
$ 7,273 100%
======== ==========
30
The following table presents an analysis of the Company's loan loss
experience for the periods indicated:
December 31,
-----------------------------------------------------------------
2000 1999 1998 1997 1996
--------- --------- --------- --------- ---------
(Dollars in Thousands)
-----------------------------------------------------------------
Average amount of loans outstanding $ 570,526 $ 505,941 $ 495,421 $ 475,047 $ 395,822
========= ========= ========= ========= =========
Balance of reserve for possible loan
losses at beginning of period $ 9,895 $ 10,192 $ 7,627 $ 7,273 $ 5,890
--------- --------- --------- --------- ---------
Charge-offs:
Commercial, financial and
agricultural (1,077) (1,383) (1,456) (759) (768)
Real estate (249) (933) (1,252) (1,981) (1,242)
Consumer (1,268) (1,417) (1,322) (383) (279)
Recoveries:
Commercial, financial and
agricultural 302 434 276 168 89
Real estate 146 263 365 512 275
Consumer 371 585 449 66 178
--------- --------- --------- --------- ---------
Net charge-offs (1,775) (2,451) (2,940) (2,377) (1,747)
--------- --------- --------- --------- ---------
Additions to reserve charged to
operating expenses 1,712 2,154 5,505 2,731 1,919
--------- --------- --------- --------- ---------
Allowance for loan losses of
acquired subsidiary -- -- -- -- 1,211
--------- --------- --------- --------- ---------
Balance of reserve for possible
loan losses at end of period $ 9,832 $ 9,895 $ 10,192 $ 7,627 $ 7,273
========= ========= ========= ========= =========
Ratio of net loan charge-offs
to average loans .31% .48% .59% .50% .44%
========= ========= ========= ========= =========
31
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.
Year Ended December 31,
------------------------------------
2000 1999
---------------- ----------------
Amount Rate Amount Rate
------- ---- ------- ----
(Dollars in Thousands)
------------------------------------
Noninterest-bearing demand deposits $ 88,390 --% $ 89,325 --%
Interest-bearing demand and savings deposits 194,895 2.61 190,745 2.57
Time deposits 370,707 5.84 333,257 5.26
-------- ---------
Total deposits $653,992 $ 613,327
======== =========
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, 2000, 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 $ 38,735
Over three through twelve months 73,126
Over twelve months 8,809
--------
Total $120,670
========
32
RETURN ON ASSETS AND SHAREHOLDERS' EQUITY
The following rate of return information for the periods indicated is
presented below.
Year Ended December 31,
---------------------------
2000 1999 1998
----- ----- -----
Return on assets (1) 1.27% 1.23% 0.99%
Return on equity (2) 13.19 11.93 10.07
Dividends payout ratio (3) 38.66 33.98 42.11
Equity to assets ratio (4) 9.59 10.29 9.81
(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 Banks to meet those needs.
ABC and the 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 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 Banks are monitored on
a periodic basis by state and federal regulatory authorities. At December 31,
2000, the Banks' short-term investments were adequate to cover any reasonable
anticipated immediate need for funds. During 2000, ABC increased its capital by
retaining net earnings of $6,223,000 after payment of dividends. After recording
an increase in capital of $2,192,000 for unrealized gains on securities
available for sale, net of taxes, an increase of $387,000 for restricted stock
transactions, and a decrease in capital of $4,162,000 for repurchase of treasury
shares, total capital increased $4,640,000 during 2000. At December 31, 2000,
total capital of ABC amounted to $80,656,000. ABC and the Subsidiary Banks are
aware of no events or trends likely to result in a material change in their
liquidity.
At December 31, 2000, ABC had binding commitments for capital expenditures
of approximately $2,150,000.
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, 2000.
Actual Required Excess
-------------------- --------------------- ---------------------
Amount Percent Amount Percent Amount Percent
-------- ------- -------- ------- -------- -------
(Dollars in Thousands)
-------------------------------------------------------------------
Leverage capital $ 79,954 9.86% $ 32,422 4.00% $ 47,532 5.86%
Risk-based capital:
Core capital 79,954 13.34 23,967 4.00 55,987 9.34
Total capital 87,544 14.61 47,935 8.00 39,609 6.61
Each Bank also met its individual regulatory capital requirements at
December 31, 2000.
33
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, 2000
and 1999.
2000 1999
------- -------
(Dollars in Thousands)
----------------------
Commitments to extend credit $75,007 $84,150
Credit card commitments 10,471 9,162
Standby letters of credit 5,179 3,415
------- -------
$90,657 $96,727
======= =======
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.
34
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-33 of this Annual Report on
Form 10-K:
Consolidated Balance Sheets - December 31, 2000 and 1999
Consolidated Statements of Income - Years ended December 31, 2000, 1999
and 1998
Consolidated Statements of Comprehensive Income - Years ended December 31,
2000, 1999 and 1998
Consolidated Statements of Stockholders' Equity - Years ended December 31,
2000, 1999 and 1998
Consolidated Statements of Cash Flows - Years ended December 31, 2000,
1999 and 1998
Notes to Consolidated Financial Statements.
ITEM 9. DISAGREEMENT ON ACCOUNTING AND FINANCIAL DISCLOSURE
During 2000 and 1999, 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.
35
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.
36
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, 2000
and 1999
(ii) Consolidated Statements of Income - Years ended
December 31, 2000, 1999 and 1998
(iii) Consolidated Statements of Comprehensive Income -
Years ended December 31, 2000, 1999 and 1998
(iv) Consolidated Statements of Stockholders' Equity -
Years ended December 31, 2000, 1999 and 1998
(v) Consolidated Statements of Cash Flows - Years
ended December 31, 2000, 1999 and 1998
(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.
3. Exhibits required by Item 601 of Regulation S-K:
(b) No reports on Form 8-K were filed during the last quarter of the
period covered by this report.
37
Exhibit No. Description
- ----------- --------------------------------------------------------------------
2.1 Agreement and Plan of Merger by and among ABC, Tri-County Bank and
Tri-County Merger Sub, Inc. dated as of November 28, 2000, Amendment
No. 1 thereto dated as of January 26, 2001, and Amendment No. 2
thereto dated as of February 20, 2001.
2.2 Agreement and Plan of Merger by and between ABC and Golden Isles
Financial Holdings, Inc. dated as of February 20, 2001 (filed as
Exhibit 2.1 to ABC's Current Report on Form 8-K filed with the
Commission on February 23, 2001 and incorporated herein by
reference).
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).
38
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).
39
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).
10.14 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).
10.15 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).
10.16 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).
10.17 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).
10.18 ABC Bancorp 2000 Officer/Director Stock Bonus Plan (incorporated by
reference to Exhibit 10.19 to ABC's Annual Report on Form 10K (File
No. 001-13901), filed with the Commission on March 29, 2000).
10.19 Executive Employment Agreement with Mark D. Thomas dated as of July
12, 1999.
10.20 Severance Protection Agreement with W. Edwin Lane, Jr. dated as of
November 1, 1998.
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.
40
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.
ABC BANCORP
Date: March 3, 2001 By: /s/ Kenneth J. Hunnicutt
----------------- ---------------------------------------------------
Kenneth J. Hunnicutt, President,
Chief Executive Officer and Director
Date: March 3, 2001 By: /s/ Mark D. Thomas
----------------- ---------------------------------------------------
Mark D. Thomas, Executive Vice President,
Chief Operating Officer and Director
Date: March 3, 2001 By: /s/ W. Edwin Lane, Jr.
----------------- ---------------------------------------------------
W. Edwin Lane, Jr., Executive Vice President and
Chief Financial Officer
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.
Date: March 3, 2001 /s/ Kenneth J. Hunnicutt
----------------- -------------------------------------------------------
Kenneth J. Hunnicutt, President,
Chief Executive Officer and Director
Date: March 3, 2001 /s/ Mark D. Thomas
----------------- -------------------------------------------------------
Mark D. Thomas, Executive Vice President,
Chief Operating Officer and Director
Date: March 3, 2001 /s/ W. Edwin Lane, Jr.
----------------- -------------------------------------------------------
W. Edwin Lane, Jr., Executive Vice President and
Chief Financial Officer
Date: March 3, 2001 /s/ John G. Briggs
----------------- -------------------------------------------------------
John G. Briggs, Director
Date:
----------------- -------------------------------------------------------
Johnny W. Floyd, Director
Date: March 3, 2001 /s/ J. Raymond Fulp
----------------- -------------------------------------------------------
J. Raymond Fulp, Director
41
Date: March 3, 2001 /s/ Wycliff R. Griffin
----------------- -------------------------------------------------------
Wycliff R. Griffin, Director
Date: March 3, 2001 /s/ Daniel B. Jeter
----------------- -------------------------------------------------------
Daniel B. Jeter, Director
Date: March 3, 2001 /s/ Robert P. Lynch
----------------- -------------------------------------------------------
Robert P. Lynch, Director
Date: March 3, 2001 /s/ Eugene M. Vereen, Jr.
----------------- -------------------------------------------------------
Eugene M. Vereen, Jr., Director
Date: March 3, 2001 /s/ Doyle Weltzbarker
----------------- -------------------------------------------------------
Doyle Weltzbarker, Director and Chairman of the Board
Date: March 3, 2001 /s/ Henry Wortman
----------------- -------------------------------------------------------
Henry Wortman, Director
42
ABC BANCORP
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Consolidated financial statements:
Independent Auditor's Report
Consolidated Balance Sheets - December 31, 2000 and 1999
Consolidated Statements of Income - Years ended December 31, 2000, 1999
and 1998
Consolidated Statements of Comprehensive Income - Years ended December 31,
2000, 1999 and 1998
Consolidated Statements of Stockholders' Equity - Years ended December 31,
2000, 1999 and 1998
Consolidated Statements of Cash Flows - Years ended December 31, 2000,
1999 and 1998
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
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, 2000 and 1999, 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,
2000. 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, 2000 and 1999, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2000, in conformity with generally accepted accounting
principles.
/s/ Mauldin & Jenkins, LLC
--------------------------------
Albany, Georgia
January 23, 2001, except for Note 17 as to
which the date is February 23, 2001
F-2
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
(Dollars in Thousands)
Assets 2000 1999
--------- ---------
Cash and due from banks $ 38,411 $ 47,399
Interest-bearing deposits in banks 4,952 32,731
Securities available for sale, at fair value 162,105 146,990
Loans 587,381 530,225
Less allowance for loan losses 9,832 9,895
--------- ---------
Loans, net 577,549 520,330
--------- ---------
Premises and equipment, net 19,703 19,540
Excess of cost over net assets of banks acquired 6,832 7,636
Other assets 16,645 14,834
--------- ---------
$ 826,197 $ 789,460
========= =========
Liabilities and Stockholders' Equity
Deposits
Noninterest-bearing $ 94,917 $ 103,279
Interest-bearing 584,968 537,379
--------- ---------
Total deposits 679,885 640,658
Federal funds purchased and securities sold
under agreements to repurchase 2,653 397
Other borrowings 55,350 66,150
Other liabilities 7,653 6,239
--------- ---------
Total liabilities 745,541 713,444
--------- ---------
Commitments and contingencies
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
Capital surplus 29,237 28,854
Retained earnings 48,411 42,188
Accumulated other comprehensive income (loss) 685 (1,507)
Unearned compensation (595) (560)
--------- ---------
86,876 78,074
Less cost of shares acquired for the treasury,
790,982 and 374,823 shares (6,220) (2,058)
--------- ---------
Total stockholders' equity 80,656 76,016
--------- ---------
$ 826,197 $ 789,460
========= =========
See Notes to Consolidated Financial Statements.
F-3
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(Dollars in Thousands)
2000 1999 1998
-------- -------- --------
Interest income
Interest and fees on loans $ 58,328 $ 50,603 $ 51,584
Interest on taxable securities 8,750 7,488 6,313
Interest on nontaxable securities 959 1,086 1,190
Interest on deposits in other banks 939 814 1,077
Interest on federal funds sold -- -- 53
-------- -------- --------
68,976 59,991 60,217
-------- -------- --------
Interest expense
Interest on deposits 26,753 22,424 25,411
Interest on other borrowings 4,052 1,976 1,033
-------- -------- --------
30,805 24,400 26,444
-------- -------- --------
Net interest income 38,171 35,591 33,773
Provision for loan losses 1,712 2,154 5,505
-------- -------- --------
Net interest income after
provision for loan losses 36,459 33,437 28,268
-------- -------- --------
Other income
Service charges on deposit accounts 6,393 5,696 5,720
Other service charges, commissions and fees 622 423 506
Mortgage origination fees 405 788 883
Non-taxable life insurance benefits -- -- 1,200
Loss on sale of securities -- (91) --
Other 795 936 1,067
-------- -------- --------
8,215 7,752 9,376
-------- -------- --------
Other expenses
Salaries and employee benefits 16,420 14,886 14,025
Equipment expense 2,484 2,348 2,442
Occupancy expense 1,854 1,843 1,878
Amortization of intangible assets 804 804 851
Data processing fees 1,147 691 774
Other operating expenses 7,524 7,370 8,026
-------- -------- --------
30,233 27,942 27,996
-------- -------- --------
Income before income taxes 14,441 13,247 9,648
Applicable income taxes 4,343 4,291 2,735
-------- -------- --------
Net income $ 10,098 $ 8,956 $ 6,913
======== ======== ========
Income per common share - Basic $ 1.19 $ 1.03 $ 0.79
======== ======== ========
Income per common share - Diluted $ 1.19 $ 1.03 $ 0.79
======== ======== ========
See Notes to Consolidated Financial Statements.
F-4
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(Dollars in Thousands)
2000 1999 1998
------- ------- -------
Net income $10,098 $ 8,956 $ 6,913
------- ------- -------
Other comprehensive income (loss):
Net unrealized holding gains (losses) arising during period,
net of tax (benefits) of $1,129, ($973) and $32 2,192 (1,889) 80
Reclassification adjustment for losses included in net
income, net of tax of $31 -- 60 --
------- ------- -------
Total other comprehensive income (loss) 2,192 (1,829) 80
------- ------- -------
Comprehensive income $12,290 $ 7,127 $ 6,993
======= ======= =======
See Notes to Consolidated Financial Statements.
F-5
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(Dollars in Thousands)
Common Stock
-----------------------
Shares Par Value
--------- ---------
Balance, December 31, 1997 7,524,718 $ 7,525
Net income -- --
Cash dividends declared, $.33 per share -- --
Net treasury stock transactions -- --
Other comprehensive income -- --
--------- ---------
Balance, December 31, 1998 7,524,718 7,525
Net income -- --
Cash dividends declared, $.35 per share -- --
Six-for-five stock split 1,516,142 1,516
Issuance of restricted shares of common
stock under employee incentive plan 57,830 58
Amortization of unearned compensation,
net of forfeitures -- --
Net treasury stock transactions -- --
Other comprehensive loss -- --
--------- ---------
Balance, December 31, 1999 9,098,690 9,099
Net income -- --
Cash dividends declared, $.46 per share -- --
Issuance of restricted shares of common
stock under employee incentive plan 39,300 39
Amortization of unearned compensation,
net of forfeitures -- --
Net treasury stock transactions -- --
Other comprehensive income -- --
--------- ---------
Balance, December 31, 2000 9,137,990 $ 9,138
========= =========
See Notes to Consolidated Financial Statements.
F-6(a)
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(Dollars in Thousands)
Accumulated
Other
Comprehensive Treasury Stock
Capital Retained Income Unearned -------------------
Surplus Earnings (Loss) Compensation Shares Cost Total
-------- -------- ------------- ------------ -------- -------- --------
Balance, December 31, 1997 $ 29,677 $ 32,264 $ 242 $ -- 272,353 $ (1,555) $ 68,153
Net income -- 6,913 -- -- -- -- 6,913
Cash dividends declared, $.33 per share -- (2,897) -- -- -- -- (2,897)
Net treasury stock transactions -- -- -- -- 32,800 (415) (415)
Other comprehensive income -- -- 80 -- -- -- 80
-------- -------- -------- -------- -------- -------- --------
Balance, December 31, 1998 29,677 36,280 322 -- 305,153 (1,970) 71,834
Net income -- 8,956 -- -- -- -- 8,956
Cash dividends declared, $.35 per share -- (3,048) -- -- -- -- (3,048)
Six-for-five stock split (1,516) -- -- -- 62,470 -- --
Issuance of restricted shares of common
stock under employee incentive plan 693 -- -- (751) -- -- --
Amortization of unearned compensation,
net of forfeitures -- -- -- 191 -- -- 191
Net treasury stock transactions -- -- -- -- 7,200 (88) (88)
Other comprehensive loss -- -- (1,829) -- -- -- (1,829)
-------- -------- -------- -------- -------- -------- --------
Balance, December 31, 1999 28,854 42,188 (1,507) (560) 374,823 (2,058) 76,016
Net income -- 10,098 -- -- -- -- 10,098
Cash dividends declared, $.46 per share -- (3,875) -- -- -- -- (3,875)
Issuance of restricted shares of common
stock under employee incentive plan 383 -- -- (422) -- -- --
Amortization of unearned compensation,
net of forfeitures -- -- -- 387 -- -- 387
Net treasury stock transactions -- -- -- -- 416,159 (4,162) (4,162)
Other comprehensive income -- -- 2,192 -- -- -- 2,192
-------- -------- -------- -------- -------- -------- --------
Balance, December 31, 2000 $ 29,237 $ 48,411 $ 685 $ (595) 790,982 $ (6,220) $ 80,656
======== ======== ======== ======== ======== ======== ========
F-6(b)
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(Dollars in Thousands)
2000 1999 1998
--------- --------- ---------
OPERATING ACTIVITIES
Net income $ 10,098 $ 8,956 $ 6,913
--------- --------- ---------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,189 1,988 2,143
Amortization of intangible assets 804 804 851
Amortization of unearned compensation 387 191 --
Net losses on sale of securities available for sale -- 91 --
Net (gains) losses on sale or disposal of premises and equipment 7 36 (188)
Gain from life insurance benefits -- -- (1,200)
Provision for loan losses 1,712 2,154 5,505
Provision for deferred taxes (634) (87) (1,170)
(Increase) decrease in interest receivable (1,970) (75) 1,271
Increase (decrease) in interest payable 578 57 (38)
Decrease in taxes receivable -- 526 --
Increase (decrease) in taxes payable (1) 328 (485)
Other prepaids, deferrals and accruals, net 371 (378) 663
--------- --------- ---------
Total adjustments 3,443 5,635 7,352
--------- --------- ---------
Net cash provided by operating activities 13,541 14,591 14,265
--------- --------- ---------
INVESTING ACTIVITIES
(Increase) decrease in interest-bearing deposits in banks 27,779 (18,314) (12,129)
Purchases of securities available for sale (26,961) (70,410) (110,362)
Purchases of securities held to maturity -- -- (400)
Proceeds from maturities of securities
available for sale 15,167 58,994 67,936
Proceeds from sale of securities available for sale -- 17,149 --
Proceeds from maturities of securities held to maturity -- 3,283 11,807
Decrease in federal funds sold -- -- 890
(Increase) decrease in loans, net (58,931) (55,482) 10,110
Purchase of premises and equipment (2,359) (2,631) (2,383)
Proceeds from sale of premises and equipment -- -- 708
Proceeds from life insurance benefits -- -- 1,671
--------- --------- ---------
Net cash used in investing activities (45,305) (67,411) (32,152)
--------- --------- ---------
FINANCING ACTIVITIES
Increase in deposits 39,227 7,333 32,614
Increase (decrease) in federal funds purchased
and securities sold under agreements to repurchase 2,256 (486) 223
Proceeds from other borrowings 109,800 338,950 5,500
Repayment of other borrowings (120,600) (284,650) (9,050)
Dividends paid (3,745) (2,898) (2,900)
Purchase of treasury shares (4,162) (88) (415)
--------- --------- ---------
Net cash provided by financing activities 22,776 58,161 25,972
--------- --------- ---------
Net increase (decrease) in cash and due from banks (8,988) 5,341 8,085
Cash and due from banks at beginning of year 47,399 42,058 33,973
--------- --------- ---------
Cash and due from banks at end of year $ 38,411 $ 47,399 $ 42,058
========= ========= =========
F-7
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(Dollars in Thousands)
2000 1999 1998
------- ------- -------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the year for:
Interest $30,227 $24,343 $26,482
Income taxes $ 4,978 $ 3,524 $ 4,390
NONCASH TRANSACTION
Transfer of securities held to maturity to
securities available for sale $ -- $15,330 $ --
See Notes to Consolidated Financial Statements.
F-8
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 preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities as of the balance sheet date and the reported amounts of
revenues and expenses during the reporting 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 taxes.
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.
Cash, Due from Banks and Cash Flows
For purposes of reporting cash flows, cash and due from banks
includes cash on hand, cash items in process of collection and
amounts due from banks. Cash flows from loans, federal funds sold,
deposits, interest-bearing deposits and federal funds purchased 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.
Securities
Debt securities that management has the positive intent and ability
to hold to maturity are classified as held-to-maturity and recorded
at amortized cost. Securities not classified as held-to-maturity,
including equity securities with readily determinable fair values,
are classified as available-for-sale and recorded at fair value with
unrealized gains and losses excluded from earnings and reported in
other comprehensive income. Equity securities, including restricted
stock, without a readily determinable fair value are classified as
available-for-sale and recorded 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, including amortization of premiums and
accretion of discounts, are included in interest income. Gains and
losses on the sale of securities are determined using the specific
identification method. Declines in the fair value of any security
below its cost that is deemed to be other than temporary is
reflected in earnings as realized losses.
F-9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Loans
Loans are reported at their outstanding unpaid principal balances
less unearned income, deferred fees or costs on originated loans,
and the allowance for loan losses. Interest income is accrued on the
unpaid principal balance.
Loan origination fees, net of certain direct origination costs of
consumer and instalment loans are recognized at the time the loan is
placed on the books. Because these loan fees are not significant and
the majority of loans have maturities of one year or less, 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. Loan
origination fees net of certain direct loan origination costs for
all other loans are deferred and recognized as an adjustment of the
yield over the life of the loan.
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, unless the loan is well-secured. All interest
accrued but not collected for loans that are placed on nonaccrual or
charged off is reversed against interest income. Interest income on
nonaccrual loans is subsequently recognized only to the extent cash
payments are received until the loans are returned to accrual
status.
The allowance for loan losses is established through a provision for
loan losses charged to expense. Loans are charged against the
allowance when management believes the collectibility of the
principal is unlikely. Subsequent recoveries are credited to the
allowance.
The allowance is an amount that management believes will be adequate
to absorb estimated losses in the loan portfolio. The allowance for
loan losses is evaluated on a regular basis by management and is
based upon management's periodic review of the collectibility of the
loans in light of historical experience, the nature and volume of
the loan portfolio, adverse situations that may affect the
borrower's ability to repay, estimated value of any underlying
collateral and prevailing economic conditions. This evaluation is
inherently subjective as it requires estimates that are susceptible
to significant revision as more information becomes available. 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 make 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.
Impaired loans are measured based on the present value of expected
future cash flows discounted at the loan's effective interest rate,
the loan's observable market price, or the fair value of the
collateral if the loan is collateral dependent. The amount of
impairment, if any, and any subsequent changes are included in the
allowance for loan losses.
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.
F-10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Other Real Estate Owned
Other real estate owned (OREO) represents properties acquired
through foreclosure or other proceedings. OREO is held for sale and
is carried 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, 2000 and 1999 was
$620,000 and $461,000, respectively.
Transfers of Financial Assets
Transfers of financial assets are accounted for as sales, when
control over the assets has been surrendered. Control over
transferred assets is deemed to be surrendered when (1) the assets
have been isolated from the Bank, (2) the transferee obtains the
right (free of conditions that constrain it from taking advantage of
that right) to pledge or exchange the transferred assets, and (3)
the Bank does not maintain effective control over the transferred
assets through an agreement to repurchase them before their
maturity.
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.
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.
F-11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Stock Compensation Plans
Statement of Financial Accounting Standards ("SFAS") No. 123,
Accounting for Stock-Based Compensation, encourages all entities to
adopt a fair value based method of accounting for employee stock
compensation plans, whereby compensation cost is measured at the
grant date based on the value of the award and is recognized over
the service period, which is usually the vesting period. However, it
also allows an entity to continue to measure compensation cost for
those plans using the intrinsic value based method of accounting
prescribed by Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, whereby compensation cost is the
excess, if any, of the quoted market price of the stock at the grant
date (or other measurement date) over the amount an employee must
pay to acquire the stock. Stock options issued under the Company's
stock option plan have no intrinsic value at the grant date, and
under Opinion No. 25 no compensation cost is recognized for them.
The Company has elected to continue with the accounting methodology
in Opinion No. 25 and, as a result, has provided pro forma
disclosures of net income and earnings per share and other
disclosures, as if the fair value based method of accounting had
been applied.
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 after adjustments for the after-tax income
effect of the issuance 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. The weighted-average number
of shares outstanding for the years ended at December 31, 2000,
1999, and 1998 was 8,460,230; 8,701,615; and 8,698,860,
respectively. The weighted-average number of shares outstanding and
potential shares for the years ended December 31, 2000, 1999 and
1998 was 8,465,669; 8,710,685; and 8,713,177, respectively. The
weighted average shares and potential common shares for 1998 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
Accounting principles generally require that recognized revenue,
expenses, gains and losses be included in net income. Although
certain changes in assets and liabilities, such as unrealized gains
and losses on available-for-sale securities, are reported as a
separate component of the equity section of the balance sheet, such
items, along with net income, are components of comprehensive
income.
Recent Developments
In June 1998, the FASB issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, effective for fiscal
years beginning after June 15, 2000. This Statement establishes
accounting and reporting standards for derivative instruments and
hedging activities, including certain derivative instruments
embedded in other contracts, and requires that an entity recognize
all derivatives as assets or liabilities in the balance sheet and
measure them at fair value. If certain conditions are met, an entity
may elect to designate a derivative as follows: (a) a hedge of the
exposure to changes in the fair value of a recognized asset or
liability or an unrecognized firm commitment, (b) a hedge of the
exposure to variable cash flows of a forecasted transaction, or (c)
a hedge of the foreign currency exposure of an unrecognized firm
commitment, an available-for-sale security, a foreign currency
denominated forecasted transaction, or a net investment in a foreign
corporation. The Statement generally provides for matching the
timing of the recognition of the gain or loss on derivatives
designated as hedging instruments with the recognition of the
changes in the fair value of the item being hedged. Depending on the
type of hedge, such recognition will be in either net income or
other comprehensive income. For a derivative not designated as a
hedging instrument, changes in fair value will be recognized in net
income in the period of change. Management is currently evaluating
the impact of adopting this Statement on the financial statements,
but does not anticipate that it will have a material impact.
F-12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Reclassification of Certain Items
Certain items in the consolidated financial statements as of and for
the years ended December 31, 1999 and 1998 have been reclassified,
with no effect on net income, to be consistent with the
classifications adopted for the year ended December 31, 2000.
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 fair value of securities are summarized as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
(Dollars in Thousands)
-----------------------------------------------
Securities Available for Sale
December 31, 2000:
U. S. Government and agency securities $ 60,467 $ 892 $ (173) $ 61,186
State and municipal securities 19,206 330 (68) 19,468
Corporate debt securities 6,101 114 (85) 6,130
Mortgage-backed securities 71,160 563 (502) 71,221
Equity securities 647 -- (33) 614
Restricted equity securities 3,486 -- -- 3,486
--------- --------- --------- ---------
$ 161,067 $ 1,899 $ (861) $ 162,105
========= ========= ========= =========
December 31, 1999:
U. S. Government and agency securities $ 49,741 $ 9 $ (939) $ 48,811
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
Restricted equity securities 3,452 -- -- 3,452
--------- --------- --------- ---------
$ 149,273 $ 340 $ (2.623) $ 146,990
========= ========= ========= =========
F-13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. INVESTMENTS IN SECURITIES (Continued)
The amortized cost and fair value of debt securities as of December 31,
2000 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 penalty.
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 $ 19,747 $ 19,701
Due from one year to five years 28,205 28,400
Due from five to ten years 36,394 37,204
Due after ten years 1,428 1,479
Mortgage-backed securities 71,160 71,221
Equity securities 647 614
Restricted equity securities 3,486 3,486
-------- --------
$161,067 $162,105
======== ========
Securities with a carrying value of $82,568,979 and $78,388,000 at
December 31, 2000 and 1999, respectively, were pledged to secure public
deposits and for other purposes required or permitted by law.
Gains and losses on sales of securities available for sale consist of the
following:
December 31,
-------------------------
2000 1999 1998
------ ------ ------
(Dollars in Thousands)
-------------------------
Gross gains on sales of securities $ -- $ 4 $ --
Gross losses on sales of securities -- (95) --
------ ------ ------
Net realized (losses) on sales of
securities available for sale $ -- $ (91) $ --
====== ====== ======
F-14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES
The composition of loans is summarized as follows:
December 31,
----------------------
2000 1999
-------- ---------
(Dollars in Thousands)
----------------------
Commercial and financial $109,647 $ 83,385
Agricultural 34,840 29,694
Real estate - construction 14,046 13,228
Real estate - mortgage, farmland 57,253 59,018
Real estate - mortgage, commercial 160,456 150,075
Real estate - mortgage, residential 128,614 117,936
Consumer installment loans 76,076 59,529
Other 6,449 17,360
-------- --------
587,381 530,225
Allowance for loan losses 9,832 9,895
-------- --------
$577,549 $520,330
======== ========
The following is a summary of information pertaining to impaired loans:
As of and For the Years Ended
December 31,
-----------------------------
2000 1999 1998
------- ------- -------
Impaired loans without a valuation allowance $ -- $ -- $ --
Impaired loans with a valuation allowance 4,863 5,551 8,767
------- ------- -------
Total impaired loans $ 4,863 $ 5,551 $ 8,767
======= ======= =======
Valuation allowance related to impaired loans $ 1,020 $ 953 $ 1,846
======= ======= =======
Average investment in impaired loans $ 5,603 $ 6,447 $12,730
======= ======= =======
Interest income recognized on impaired loans $ 51 $ 21 $ 160
======= ======= =======
Foregone interest income on impaired loans $ 541 $ 593 $ 1,160
======= ======= =======
In the ordinary course of business, the Company has granted loans to
certain directors, executive officers, and their affiliates. 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. Changes in related party loans for the years ended December 31,
2000 and 1999 are as follows:
December 31,
----------------------
2000 1999
--------- ---------
(Dollars in Thousands)
----------------------
Balance, beginning of year $ 27,457 $ 19,356
Advances 28,802 21,527
Repayments (23,082) (13,031)
Transactions due to change(s) in related parties 3,144 (395)
-------- --------
Balance, end of year $ 36,321 $ 27,457
======== ========
F-15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
Changes in the allowance for loan losses for the years ended December 31,
2000, 1999, and 1998 are as follows:
December 31,
--------------------------------
2000 1999 1998
-------- -------- --------
(Dollars in Thousands)
--------------------------------
Balance, beginning of year $ 9,895 $ 10,192 $ 7,627
Provision for loan losses 1,712 2,154 5,505
Loans charged off (2,594) (3,733) (4,030)
Recoveries of loans previously charged off 819 1,282 1,090
-------- -------- --------
Balance, end of year $ 9,832 $ 9,895 $ 10,192
======== ======== ========
NOTE 4. PREMISES AND EQUIPMENT, NET
Premises and equipment are summarized as follows:
December 31,
---------------------
2000 1999
------- -------
(Dollars in Thousands)
---------------------
Land $ 4,857 $ 4,903
Buildings 16,604 14,776
Equipment 17,419 15,977
Construction in progress; estimated
cost to complete, $2,150 471 1,502
------- -------
39,351 37,158
Accumulated depreciation 19,648 17,618
------- -------
$19,703 $19,540
======= =======
NOTE 5. DEPOSITS
The aggregate amount of time deposits in denominations of $100,000 or more
at December 31, 2000 and 1999 was $120,670,000 and $95,282,000,
respectively. The scheduled maturities of time deposits at December 31,
2000 are as follows:
(Dollars in
Thousands)
-----------
2001 $345,864
2002 22,319
2003 9,012
2004 3,574
2005 2,927
Later years 17
--------
$383,713
========
F-16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. 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.
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 2000, 1999 and 1998 amounted to $949,000, $707,000 and
$644,000, respectively.
NOTE 7. 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 $75,000, $70,000 and $78,000 for 2000, 1999 and 1998,
respectively, and is included in other operating expenses.
NOTE 8. OTHER BORROWINGS
Other borrowings consist of the following:
December 31,
----------------------
2000 1999
---------- ---------
(Dollars in Thousands)
----------------------
Advances under revolving credit agreement $ 2,000 $ 2,500
with SunTrust Bank with interest at
sixty-day LIBOR rate plus .9% (7.46%
at December 31, 2000) due on May 31,
2001; unsecured
Advances from Federal Home Loan Bank with 53,100 25,350
interest at adjustable rates (ranging
from 6.48% to 6.93% at December 31, 2000)
due at various dates from January 31,
2001 to September 8, 2009
Advance from Federal Home Loan Bank with 250 300
interest at a fixed rate (6.48% at December
31, 2000) due in annual installments of
$50,000 through June 6, 2005
Advances from Federal Home Loan Bank with -- 15,000
interest at a fixed rate (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 -- 23,000
interest at a fixed rate (ranging from
5.07% to 5.52%), convertible to a variable
rate at option of Federal Home Loan Bank in
2000, due at various dates from April 2,
2003 to October 29, 2009
------- -------
$55,350 $66,150
======= =======
F-17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. OTHER BORROWINGS (Continued)
The advances from Federal Home Loan Bank are collateralized by the
pledging of first mortgage loans and other specific loans.
Other borrowings at December 31, 2000 have maturities in future years as
follows:
(Dollars in
Thousands)
-----------
2001 $ 29,150
2002 1,050
2003 50
2004 50
2005 15,050
Later years 10,000
-----------
$ 55,350
===========
NOTE 9. INCOME TAXES
The income tax expense in the consolidated statements of income consists
of the following:
Years Ended December 31,
-------------------------------------
2000 1999 1998
------- ------- -------
(Dollars in Thousands)
-------------------------------------
Current $ 4,977 $ 4,378 $ 3,905
Deferred (634) (87) (1,170)
------- ------- -------
$ 4,343 $ 4,291 $ 2,735
======= ======= =======
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:
Years Ended December 31,
-----------------------------
2000 1999 1998
------- ------- -------
(Dollars in Thousands)
-----------------------------
Tax at federal income tax rate $ 4,910 $ 4,504 $ 3,280
Increase (decrease) resulting from:
Tax-exempt interest (497) (392) (407)
Amortization of excess
cost over assets acquired 162 167 167
Tax-exempt life insurance proceeds -- -- (408)
Other (232) 12 103
------- ------- -------
Provision for income taxes $ 4,343 $ 4,291 $ 2,735
======= ======= =======
F-18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. INCOME TAXES (Continued)
Net deferred income tax assets of $2,710,000 and $3,981,000 at December
31, 2000 and 1999, respectively, are included in other assets. The
components of deferred income taxes are as follows:
December 31,
---------------------
2000 1999
------ ------
(Dollars in Thousands)
---------------------
Deferred tax assets:
Loan loss reserves $3,343 $3,040
Deferred compensation 196 171
Unearned compensation related to restricted stock 196 66
Nonaccrual interest 216 193
Net operating loss tax carryforward 164 188
Unrealized loss on securities available for sale -- 776
------ ------
4,115 4,434
------ ------
Deferred tax liabilities:
Deprecation and amortization 276 453
Unrealized gain on securities available for sale 1,129 --
------ ------
1,405 453
------ ------
Net deferred tax assets $2,710 $3,981
====== ======
NOTE 10. 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,
2000. 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 34,050
shares were exercisable as of December 31, 2000.
F-19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. STOCK OPTION PLANS (Continued)
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, 2000, the Company has issued a total of 108,696 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 these grants was $387,000 and $191,000 for 2000 and
1999, respectively. In addition to the granting of restricted shares,
options to purchase 162,052 shares of the Company's common stock have been
granted under the Omnibus Plan as of December 31,2000.
A summary of the status of the three fixed plans at December 31, 2000,
1999 and 1998 and changes during the years ended on those dates is as
follows:
December 31,
----------------------------------------------------------------------------------
2000 1999 1998
------------------------ ------------------------ ------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Number Price Number Price Number Price
--------- --------- --------- --------- --------- ---------
Under option, beginning
of the year 159,151 $ 11.40 115,966 $ 12.18 77,501 $ 10.45
Granted 86,000 10.30 51,280 10.02 42,274 15.66
Exercised -- -- -- -- -- --
Forfeited (5,598) 11.79 (8,095) 13.74 (3,809) 15.66
--------- --------- ---------
Under option, end of year 239,553 11.00 159,151 11.40 115,966 12.18
========= ========= =========
Exercisable at end of year 65,781 41,260 26,651
========= ========= =========
Weighted-average fair value
per option of options
granted during year $ 1.78 $ 2.97 $ 3.41
========= ========= =========
F-20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. STOCK OPTION PLANS (Continued)
A further summary about options outstanding at December 31, 2000 is as
follows:
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
- ----------- ----------- ------------- ----------- ----------- -----------
$ 4.50 10,001 2.0 $ 4.50 10,001 $ 4.50
11.33 67,500 6.3 11.33 34,050 11.33
15.94 25,775 7.0 15.94 9,975 15.94
14.17 6,000 7.3 14.17 2,400 14.17
10.39 600 8.1 10.39 120 10.39
9.90 25,777 8.1 9.90 5,155 9.90
10.11 18,000 8.3 10.11 3,600 10.11
10.83 2,400 8.9 10.83 480 10.83
10.38 75,500 9.1 10.38 -- --
10.00 2,000 9.4 10.00 -- --
9.94 3,000 9.5 9.94 -- --
8.75 3,000 9.9 8.75 -- --
----------- -----------
239,553 7.59 11.00 65,781 10.91
=========== ===========
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, 2000, 1999 and 1998. 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:
December 31,
------------------------------------------------------------------------------
2000 1999 1998
------------------------ ------------------------ ------------------------
Basic Basic Basic
Net Net Income Net Net Income Net Net Income
Income Per Share Income Per Share Income Per Share
---------- ---------- ---------- ---------- ---------- ----------
As reported $ 10,098 $ 1.19 $ 8,956 $ 1.03 $ 6,913 $ 0.79
Stock based compensation,
net of related tax effect (33) -- (13) -- (18) --
---------- ---------- ---------- ---------- ---------- ----------
As adjusted $ 10,065 $ 1.19 $ 8,943 $ 1.03 $ 6,895 $ 0.79
========== ========== ========== ========== ========== ==========
December 31,
------------------------------------------------------------------------------
2000 1999 1998
------------------------ ------------------------ ------------------------
Diluted Diluted Diluted
Net Net Income Net Net Income Net Net Income
Income Per Share Income Per Share Income Per Share
---------- ---------- ---------- ---------- ---------- ----------
As reported $ 10,098 $ 1.19 $ 8,956 $ 1.03 $ 6,913 $ 0.79
Stock based compensation,
net of related tax effect (33) -- (13) -- (18) --
---------- ---------- ---------- ---------- ---------- ----------
As adjusted $ 10,065 $ 1.19 $ 8,943 $ 1.03 $ 6,895 $ 0.79
========== ========== ========== ========== ========== ==========
F-21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. STOCK OPTION PLANS (Continued)
The fair value of the options granted in 2000 was based upon the
discounted value of future cash flows of the options using the following
assumptions:
Risk-free interest rate 5.76%
Expected life of the options 10 years
Expected dividends (as a percent of the fair value of the stock) 4.57%
Expected volatility 17.34%
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.
Year Ended December 31, 2000
---------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------- ------------- -------------
Basic earnings per share
Net income $ 10,098 8,460 $ 1.19
=============
Effect of Dilutive Securities
Stock options -- 5
------------- -------------
Dilutive earnings per share
Net income $ 10,098 8,465 $ 1.19
============= ============= =============
Year Ended December 31, 1999
---------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------- ------------- -------------
Basic earnings per share
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
============= ============= =============
F-22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. EARNINGS PER COMMON SHARE (Continued)
Year Ended December 31, 1998
---------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------- ------------- -------------
Basic earnings per share
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
============= ============= =============
NOTE 12. COMMITMENTS AND CONTINGENT LIABILITIES
The Company is party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend
credit and standby letters of credit. They involve, to varying degrees,
elements of credit risk and interest rate risk in excess of the amount
recognized in the balance sheets.
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 policies in
making commitments and conditional obligations as it does for
on-balance-sheet instruments. A summary of the Company's commitments is as
follows:
December 31,
----------------------
2000 1999
------- --------
(Dollars in Thousands)
----------------------
Commitments to extend credit $75,007 $84,150
Credit card commitments 10,471 9,162
Standby letters of credit 5,179 3,415
------- -------
$90,657 $96,727
======= =======
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
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 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.
Credit card commitments are unsecured.
F-23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
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 loans to customers.
Collateral 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, any liability resulting from
such proceedings would not have a material effect on the Company's
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 bank at December 31, 2000, as follows:
Noninterest-bearing accounts $ 28,937
========
F-24
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,
2000, approximately $9,500,000 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, 2000, the Banks meet all capital
adequacy requirements to which they are subject.
As of December 31, 2000, 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.
The Banks' actual capital amounts and ratios are presented in the
following table.
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
------------------- ------------------- -------------------
Amount Ratio Amount Ratio Amount Ratio
-------- -------- -------- -------- -------- --------
As of December 31, 2000 (Dollars in Thousands)
-----------------------------------------------------------------
Total Capital
to Risk Weighted Assets:
Consolidated $ 87,544 14.61% $ 47,935 8.00% - - - N/A - - -
American Banking Company $ 14,877 12.43% $ 9,574 8.00% $ 11,967 10.00%
Heritage Community Bank $ 5,195 10.88% $ 3,819 8.00% $ 4,774 10.00%
Bank of Thomas County $ 3,282 11.65% $ 2,253 8.00% $ 2,816 10.00%
Citizens Security Bank $ 12,486 13.75% $ 7,263 8.00% $ 9,079 10.00%
Cairo Banking Company $ 7,147 13.49% $ 4,237 8.00% $ 5,297 10.00%
Southland Bank $ 17,024 13.36% $ 10,194 8.00% $ 12,742 10.00%
Central Bank and Trust $ 5,122 12.26% $ 3,342 8.00% $ 4,178 10.00%
First National Bank of
South Georgia $ 6,443 10.44% $ 4,936 8.00% $ 6,170 10.00%
Merchants and Farmers Bank $ 4,766 14.56% $ 2,618 8.00% $ 3,273 10.00%
F-25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. REGULATORY MATTERS (Continued)
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
------------------- ------------------- -------------------
Amount Ratio Amount Ratio Amount Ratio
-------- -------- -------- -------- -------- --------
As of December 31, 2000 (Dollars in Thousands)
-----------------------------------------------------------------
(Continued)
Tier I Capital
to Risk Weighted Assets:
Consolidated $ 79,954 13.34% $ 23,967 4.00% - - - N/A - - -
American Banking Company $ 13,378 11.18% $ 4,787 4.00% $ 7,180 6.00%
Heritage Community Bank $ 4,624 9.69% $ 1,910 4.00% $ 2,864 6.00%
Bank of Thomas County $ 2,929 10.40% $ 1,126 4.00% $ 1,690 6.00%
Citizens Security Bank $ 11,319 12.47% $ 3,631 4.00% $ 5,447 6.00%
Cairo Banking Company $ 6,477 12.23% $ 2,119 4.00% $ 3,178 6.00%
Southland Bank $ 15,381 12.07% $ 5,097 4.00% $ 7,645 6.00%
Central Bank and Trust $ 4,596 11.00% $ 1,671 4.00% $ 2,507 6.00%
First National Bank of
South Georgia $ 5,672 9.19% $ 2,468 4.00% $ 3,702 6.00%
Merchants and Farmers Bank $ 4,355 13.31% $ 1,309 4.00% $ 1,964 6.00%
Tier I Capital
to Average Assets:
Consolidated $ 79,954 9.86% $ 32,422 4.00% - - - N/A - - -
American Banking Company $ 13,378 8.79% $ 6,091 4.00% $ 7,614 5.00%
Heritage Community Bank $ 4,624 8.03% $ 2,302 4.00% $ 2,877 5.00%
Bank of Thomas County $ 2,929 7.64% $ 1,534 4.00% $ 1,917 5.00%
Citizens Security Bank $ 11,319 7.98% $ 5,672 4.00% $ 7,091 5.00%
Cairo Banking Company $ 6,477 8.41% $ 3,079 4.00% $ 3,849 5.00%
Southland Bank $ 15,381 8.37% $ 7,350 4.00% $ 9,187 5.00%
Central Bank and Trust $ 4,596 7.48% $ 2,456 4.00% $ 3,070 5.00%
First National Bank of
South Georgia $ 5,672 8.04% $ 2,822 4.00% $ 3,527 5.00%
Merchants and Farmers Bank $ 4,355 8.92% $ 1,954 4.00% $ 2,442 5.00%
F-26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. REGULATORY MATTERS (Continued)
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
------------------- ------------------- -------------------
Amount Ratio Amount Ratio Amount Ratio
-------- -------- -------- -------- -------- --------
As of December 31, 1999 (Dollars in Thousands)
-----------------------------------------------------------------
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%
F-27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. REGULATORY MATTERS (Continued)
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
------------------- ------------------- -------------------
Amount Ratio Amount Ratio Amount Ratio
-------- -------- -------- -------- -------- --------
(Dollars in Thousands)
-----------------------------------------------------------------
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%
NOTE 15. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument is the current amount that
would be exchanged between willing parties, other than in a forced
liquidation. Fair value is best determined based upon quoted market
prices. However, in many instances, there are no quoted market prices
for the Company's various financial instruments. In cases where quoted
market prices are not available, fair values are based on estimates
using present value or other valuation techniques. Those techniques are
significantly affected by the assumptions used, including the discount
rate and estimates of future cash flows. Accordingly, the fair value
estimates may not be realized in an immediate settlement of the
instrument. SFAS 107 excludes certain financial instruments and all
nonfinancial instruments from its disclosure requirements. Accordingly,
the aggregate fair value amounts presented may not necessarily
represent the underlying fair value of the Company. The following
methods and assumptions were used by the Company in estimating fair
value disclosures for financial instruments.
Cash, Due From Banks,
Interest-Bearing Deposits in Banks, and Federal Funds Sold:
The carrying amounts of cash, due from banks, interest-bearing
deposits in banks, and federal funds sold/purchased approximate fair
values.
F-28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
Securities:
Fair values for securities are based on available 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 analyses, using interest rates currently being
offered for loans with similar terms to borrowers with similar
credit quality. Fair values for impaired loans are estimated using
discounted cash flow analyses 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 a discounted cash flow calculation that applies interest rates
currently being offered on certificates to a schedule of aggregated
expected monthly maturities on time deposits.
Accrued Interest:
The carrying amounts of accrued interest approximate their fair
values.
Off-Balance-Sheet Instruments:
Fair values of the Company's off-balance-sheet financial instruments
are based on fees currently charged to enter into similar
agreements. Since the majority of the Company's off-balance-sheet
instruments consist of nonfee-producing, variable-rate commitments,
the Company has determined they do not have a distinguishable fair
value.
The carrying value and estimated fair value of the Company's
financial instruments were as follows:
December 31, 2000 December 31, 1999
--------------------- ----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
--------- --------- --------- ---------
(Dollars in Thousands)
----------------------------------------------
Financial assets:
Cash and short-term investments $ 43,363 $ 43,363 $ 80,130 $ 80,130
========= ========= ========= =========
Investments in securities $ 162,105 $ 162,105 $ 146,990 $ 146,990
========= ========= ========= =========
Loans $ 587,381 $ 576,607 $ 530,225 $ 529,093
Allowance for loan losses 9,832 -- (9,895) --
--------- --------- --------- ---------
Loans, net $ 577,549 $ 576,607 $ 520,330 $ 529,093
========= ========= ========= =========
Accrued interest receivable $ 11,091 $ 11,091 $ 9,121 $ 9,121
========= ========= ========= =========
F-29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
Off-Balance-Sheet Instruments: (Continued)
December 31, 2000 December 31, 1999
-------------------- --------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
--------- --------- --------- ---------
(Dollars in Thousands)
------------------------------------------
Financial liabilities:
Deposits $679,885 $680,844 $640,658 $640,216
======== ======== ======== ========
Federal funds purchased
and securities sold
under agreements to
repurchase $ 2,653 $ 2,653 $ 397 $ 397
======== ======== ======== ========
Other borrowings $ 55,350 $ 55,432 $ 66,150 $ 64,625
======== ======== ======== ========
Accrued interest payable $ 3,265 $ 3,265 $ 2,687 $ 2,687
======== ======== ======== ========
NOTE 16. CONDENSED FINANCIAL INFORMATION OF ABC BANCORP (PARENT COMPANY ONLY)
CONDENSED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
(Dollars in Thousands)
2000 1999
------- -------
Assets
Cash $ 1,912 $ 2,102
Interest bearing deposits in banks -- 1,200
Investment in subsidiaries 75,290 69,162
Other assets 7,761 7,672
------- -------
Total assets $84,963 $80,136
======= =======
Liabilities
Other borrowings $ 2,000 $ 2,500
Other liabilities 2,307 1,620
------- -------
Total liabilities 4,307 4,120
------- -------
Stockholders' equity 80,656 76,016
------- -------
Total liabilities and stockholders' equity $84,963 $80,136
======= =======
F-30
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, 2000, 1999 AND 1998
(Dollars in Thousands)
2000 1999 1998
-------- -------- --------
Income
Dividends from subsidiaries $ 7,645 $ 5,582 $ 8,942
Interest 52 94 69
Fee income 8,424 6,804 6,702
Other income 645 967 962
-------- -------- --------
Total income 16,766 13,447 16,675
-------- -------- --------
Expense
Interest 174 170 223
Amortization and depreciation 935 721 636
Other expense 9,716 7,990 7,597
-------- -------- --------
Total expense 10,825 8,881 8,456
-------- -------- --------
Income before income tax benefits
and equity in undistributed earnings
(distributions in excess of earnings)
of subsidiaries 5,941 4,566 8,219
Income tax benefits 621 200 77
-------- -------- --------
Income before equity in undistributed
earnings (distributions in excess
of earnings) of subsidiaries 6,562 4,766 8,296
Equity in undistributed earnings
(distributions in excess
of earnings) of subsidiaries 3,536 4,190 (1,383)
-------- -------- --------
Net income $ 10,098 $ 8,956 $ 6,913
======== ======== ========
F-31
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, 2000, 1999 AND 1998
(Dollars in Thousands)
2000 1999 1998
-------- -------- --------
OPERATING ACTIVITIES
Net income $ 10,098 $ 8,956 $ 6,913
-------- -------- --------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 636 408 276
Amortization of intangible assets 299 313 360
Amortization of compensation expense 387 191 --
Distributions in excess of earnings
(undistributed earnings) of subsidiaries (3,536) (4,190) 1,383
(Increase) decrease in interest receivable 2 (2) --
Decrease in interest payable -- (1) (82)
Increase (decrease) in taxes payable 91 866 (812)
Provision for deferred taxes (203) (104) 47
(Increase) decrease in due from subsidiaries (117) 29 (79)
Other prepaids, deferrals and accruals, net 302 (312) 102
-------- -------- --------
Total adjustments (2,139) (2,802) 1,195
-------- -------- --------
Net cash provided by operating activities 7,959 6,154 8,108
-------- -------- --------
INVESTING ACTIVITIES
(Increase) decrease in interest-bearing deposits in banks 1,200 (1,200) --
Purchases of premises and equipment (1,521) (1,792) (1,458)
Contribution of capital to subsidiary bank (400) (600) (350)
Purchase of securities available for sale -- (221) --
Proceeds from sale of premises and equipment 979 -- --
-------- -------- --------
Net cash provided by (used) in investing activities 258 (3,813) (1,808)
-------- -------- --------
FINANCING ACTIVITIES
Repayment of other borrowings $ (500) $ -- $ (2,500)
Treasury stock transactions, net (4,162) (88) (415)
Dividends paid (3,745) (2,898) (2,900)
-------- -------- --------
Net cash used in financing activities (8,407) (2,986) (5,815)
-------- -------- --------
Net increase (decrease) in cash (190) (645) 485
Cash at beginning of year 2,102 2,747 2,262
-------- -------- --------
Cash at end of year $ 1,912 $ 2,102 $ 2,747
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Cash paid during the year for interest $ 174 $ 171 $ 305
F-32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17. PENDING ACQUISITIONS
The Company has entered into a definitive merger agreement with Golden
Isles Financial Holdings, Inc., Brunswick, Georgia whereby it would
acquire all of the outstanding stock of Golden Isles Financial Holdings,
Inc. in exchange for a combination of cash and the Company's stock. The
total merger consideration will approximate $23.3 million. Total assets of
Golden Isles Financial Holdings, Inc. at December 31, 2000 were
approximately $146.8 million. The merger is subject to approval by Golden
Isles Financial Holdings, Inc. shareholders and certain regulatory
authorities and the registration of the Company's common stock to be
issued in connection with the merger. As a result of the merger, The First
Bank of Brunswick, a wholly-owned subsidiary of Golden Isles Financial
Holdings, Inc., will become a wholly-owned subsidiary of the Company. The
merger will be accounted for as a purchase transaction.
The Company has also entered into a definitive merger agreement with
Tri-County Bank, Trenton, Florida whereby it would acquire all of the
outstanding stock of Tri-County Bank in exchange for a combination of cash
and the Company's common stock. The total merger consideration will
approximate $7.2 million. Total assets of Tri-County Bank at December 31,
2000 were approximately $47.5 million. The merger is subject to approval
by Tri-County Bank shareholders and certain regulatory authorities. As a
result of the merger, Tri-County Bank will become a wholly-owned
subsidiary of the Company. The merger will be accounted for as a purchase
transaction.
F-33
EXHIBIT INDEX
Exhibit No. Description
- ----------- --------------------------------------------------------------------
2.1 Agreement and Plan of Merger by and among ABC, Tri-County Bank and
Tri-County Merger Sub, Inc. dated as of November 28, 2000, Amendment
No. 1 thereto dated as of January 26, 2001, and Amendment No. 2
thereto dated as of February 20, 2001.
2.2 Agreement and Plan of Merger by and between ABC and Golden Isles
Financial Holdings, Inc. dated as of February 20, 2001 (filed as
Exhibit 2.1 to ABC's Current Report on Form 8-K filed with the
Commission on February 23, 2001 and incorporated herein by
reference).
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).
43
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).
44
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).
10.14 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).
10.15 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).
10.16 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).
10.17 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).
10.18 ABC Bancorp 2000 Officer/Director Stock Bonus Plan (incorporated by
reference to Exhibit 10.19 to ABC's Annual Report on Form 10K (File
No. 001-13901), filed with the Commission on March 29, 2000).
10.19 Executive Employment Agreement with Mark D. Thomas dated as of July
12, 1999.
10.20 Severance Protection Agreement with W. Edwin Lane, Jr. dated as of
November 1, 1998.
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.
45