UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001
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OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-16181
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ABC BANCORP
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(Exact name of registrant as specified in its charter)
GEORGIA 58-1456434
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(State of incorporation) (IRS Employer ID No.)
24 SECOND AVE., SE MOULTRIE, GA 31768
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(Address of principal executive offices)
(229) 890-1111
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(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
There were 9,999,387 shares of Common Stock outstanding as of September 30,
2001.
1
ABC BANCORP
QUARTERLY REPORT ON FORM 10-Q/A
FOR THE QUARTER ENDED SEPTEMBER 30, 2001
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item Page
---- ----
1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Income and Comprehensive Income 4
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
3. Quantitative and Qualitative Disclosures about Market Risk 13
PART II - OTHER INFORMATION
4. Submission of Matters to a Vote of Securities Holders 14
6. Exhibits and Reports on Form 8-K 14
Signature 15
2
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
-----------------------------------------------------------------------------------------------------------------
30-Sep Dec 31
2001 2000
---------- --------
Assets
------
Cash and due from banks $ 80,925 $ 43,363
Federal funds sold 802 -
Securities available for sale, at fair value 169,384 162,105
Loans 791,433 587,381
Less allowance for loan losses 14,139 9,832
---------- --------
Loans, net 777,294 577,549
---------- --------
Premises and equipment, net 24,138 19,703
Other assets 38,628 23,477
---------- --------
$1,091,171 $826,197
========== ========
Liabilities and Stockholders' Equity
------------------------------------
Deposits
Noninterest-bearing demand $ 106,796 94,917
Interest-bearing demand 197,059 157,086
Savings 57,903 44,169
Time, $100,000 and over 140,966 120,670
Other time 368,837 263,043
---------- --------
Total deposits 871,561 679,885
Federal funds purchased & securities sold under
repurchase agreements 4,544 2,653
Other borrowings 101,281 55,350
Other liabilities 8,903 7,653
---------- --------
Total liabilities 986,289 745,541
---------- --------
Stockholders' equity
--------------------
Common stock, par value $1; 30,000,000 shares authorized
10,790,369 and 9,137,990 shares issued 10,790 9,138
Surplus 45,389 29,237
Retained earnings 52,275 48,411
Accumulated other comprehensive income 3,468 685
Unearned compensation (820) (595)
---------- --------
111,102 86,876
Less cost of shares acquired for the treasury, 790,982 (6,220) (6,220)
---------- --------
Total stockholders' equity 104,882 80,656
---------- --------
$1,091,171 $826,197
========== ========
See Notes to Consolidated Financial Statements.
3
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(Dollars in Thousands)
(Unaudited)
-------------------------------------------------------------------------------
2001 2000
---------------- --------------
Interest income
Interest and fees on loans 17,509 $ 15,038
Interest on taxable securities $ 2,373 1,807
Interest on nontaxable securities 215 779
Interest on deposits in other banks 197 445
Interest on fed funds sold 16 -
---------------- --------------
20,310 18,069
---------------- --------------
Interest expense
Interest on deposits 8,244 7,247
Interest on fed funds purchased and securities
sold under agreements to repurchase 32 146
Interest on other borrowings 994 1,185
---------------- --------------
9,270 8,578
---------------- --------------
Net interest income 11,040 9,491
Provision for loan losses 1,281 303
---------------- --------------
Net interest income after provision for loan losses 9,759 9,188
---------------- --------------
Other income
Service charges on deposit accounts 1,945 1,564
Other service charges, commissions and fees 710 488
Other 170 (57)
Gain on sale of securities 12 -
---------------- --------------
2,837 1,995
---------------- --------------
Other expense
Salaries and employee benefits 4,779 4,211
Equipment and occupancy expense 1,394 1,185
Other operating expenses 2,488 2,331
---------------- --------------
8,661 7,727
---------------- --------------
Income before income taxes 3,935 3,456
Applicable income taxes 1,328 1,118
Net income $ 2,607 $ 2,338
---------------- --------------
Other comprehensive income, net of tax:
Unrealized holding gains (losses) arising during period, net of tax $ 1,126 $ 1,197
Reclassification adjustment for (gains) losses included
in net income, net of tax $ (8) -
---------------- --------------
Comprehensive income $ 3,725 $ 3,535
================ ==============
Income per common share-Basic $ 0.27 $ 0.28
================ ==============
Income per common share-Diluted $ 0.27 $ 0.28
================ ==============
Average shares outstanding 9,729,237 8,364,468
================ ==============
See Notes to Consolidated Financial Statements.
4
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(Dollars in Thousands)
(Unaudited)
---------------------------------------------------------------------------------------------------------------
2001 2000
---------- ----------
Interest income
Interest and fees on loans $ 48,258 $ 42,937
Interest on taxable securities 6,780 5,954
Interest on nontaxable securities 675 1,260
Interest on deposits in other banks 550 837
Interest on fed funds sold 44 -
---------- ----------
56,307 50,988
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Interest expense
Interest on deposits 23,149 19,555
Interest on fed funds purchased and securities
sold under agreements to repurchase 120 208
Interest on other borrowings 2,570 2,691
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25,839 22,454
---------- ----------
Net interest income 30,468 28,534
Provision for loan losses 2,497 952
---------- ----------
Net interest income after provision for loan losses 27,971 27,582
---------- ----------
Other income
Service charges on deposit accounts 5,192 4,546
Other service charges, commissions and fees 1,849 1,503
Other 316 63
Gain on sale of securities 11 -
---------- ----------
7,368 6,112
---------- ----------
Other expense
Salaries and employee benefits 13,746 12,659
Equipment and occupancy expense 3,660 3,268
Other operating expenses 7,379 7,146
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24,785 23,073
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Income before income taxes 10,554 10,621
Applicable income taxes 3,459 3,440
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Net income $ 7,095 $ 7,181
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Other comprehensive income, net of tax:
Unrealized holding gains (losses) arising during period, net of tax $ 2,790 869
Reclassification adjustment for (gains) losses included
in net income, net of tax $ (7) -
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Comprehensive income $ 9,878 $ 8,050
========== ==========
Income per common share-Basic $ 0.79 $ 0.85
========== ==========
Income per common share-Diluted $ 0.79 $ 0.84
========== ==========
Average shares outstanding 8,949,696 8,498,246
========== ==========
See Notes to Consolidated Financial Statements.
5
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(Dollars in Thousands)
(Unaudited)
-----------------------------------------------------------------------------
2001 2000
------------ ---------------
OPERATING ACTIVITIES
Net Income $ 7,095 $ 7,181
------------ ---------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,885 1,575
Provision for loan losses 2,497 952
Amortization of intangible assets 785 244
Other prepaids, deferrals and accruals, net 2,926 (1,353)
------------ ---------------
Total adjustments 8,093 1,418
------------ ---------------
Net cash provided by operating activities 15,188 8,599
------------ ---------------
INVESTING ACTIVITIES
Proceeds from maturities of investment securities 74,610 10,922
Purchase of investment securities (41,812) (27,191)
Proceeds from sales of securities available for sale 40 -
Increase in loans (66,221) (58,726)
Net cash received from acquisitions 12,421 -
Decrease in federal funds 7,940 -
Purchase of premises and equipment (1,177) (2,095)
------------ ---------------
Net cash used in investing activities (14,199) (77,090)
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FINANCING ACTIVITIES
Net increase (decrease) in deposits 1,474 10,216
Net increase in repurchase agreements 1,891 13,687
Increase (decrease) in long-term borrowings 39,719 11,950
Increase (decrease) in other borrowings (2,819) (11,634)
Dividends paid (3,260) (2,873)
Acquisition stock issue cost (432)
Purchase treasury stock - (4,162)
------------ ---------------
Net cash provided by (used in) financing activities 36,573 17,184
------------ ---------------
Net increase (decrease) in cash and due from banks $ 37,562 $(51,307)
Cash and due from banks at beginning of period 43,363 80,130
------------ ---------------
Cash and due from banks at end of period $ 80,925 $ 28,823
============ ===============
See Notes to Consolidated Financial statements.
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of ABC Bancorp and subsidiaries ("the
Company") conform to accounting principles generally accepted in the United
States of America and to general practices within the banking industry. The
interim consolidated financial statements included herein are unaudited, but
reflect all adjustments which, in the opinion of management, are necessary for a
fair presentation of the consolidated financial position and results of
operations for the interim periods presented. All adjustments reflected in the
interim financial statements are of a normal, recurring nature. Such financial
statements should be read in conjunction with the financial statements and notes
thereto and the report of independent auditors included in the Company's
Form 10-K Annual Report for the year ended December 31, 2000. The results of
operations for the nine months ended September 30, 2001 are not necessarily
indicative of the results to be expected for the full year.
NOTE 2. MERGERS AND ACQUISITIONS
On April 13, 2001, ABC Bancorp issued 347,504 common shares and
$3,229 million in cash to acquire Tri-County Bank. Tri-County Bank had
approximately $49 million in assets at the date of acquisition and is
headquartered in Trenton, Florida. The acquisition has been accounted for as a
purchase and results of operations of Tri-County Bank since the date of
acquisition are included in the consolidated financial statements. The total
amount of excess cost recorded on the books was $1.6 million. The allocation of
excess cost between intangible assets and goodwill has not been finalized
because appropriate documentation of fair values has not been obtained.
On June 29, 2001, Tri-County Bank purchased the Newberry, Florida branch of
Republic Security Bank. The transaction included all consumer and business
deposit accounts (approximately $20 million currently) and associated lines of
credit, along with real property and certain fixed assets. The total amount of
excess cost recorded on the books amounted to $1.2 million. The allocation of
excess costs between intangible assets and goodwill has not been finalized
because appropriate documentation of fair values has not been obtained.
On July 23, 2001, ABC Bancorp acquired Golden Isles Financial Holdings,
Inc. and its wholly-owned Subsidiary, The First Bank of Brunswick, by issuing
1,241,204 common shares and $10.2 million in cash. Golden Isles Financial
Holdings had approximately $150 million in assets at the date of acquisition and
is headquartered in Brunswick, Georgia. The acquisition has been accounted for
as a purchase and the results of operations of Golden Isles Financial Holdings
since the date of acquisition are included in the consolidated financial
statements. For the three months ended September 30, 2001, other operating
expense included $70,000 for amortization of other intangible assets related to
this acquisition. These amortization charges are subject to adjustment pending
the completion of the allocation among amortizable intangible assets and non-
amortizable goodwill arising from this acquisition.
In connection with the Golden Isles acquisition, net assets acquired
amounted to $12.1 million for which a total consideration of $24.7 million was
paid. The amount of excess cost recorded on the books amounted to $12.6 million.
The allocation of excess costs between intangible assets and goodwill has not
been finalized because appropriate documentation of fair values has not been
obtained. For purposes of the pro forma consolidated results of operations
presented below, it has been assumed that 50% of the excess cost will be
allocated to intangible assets to be amortized on a straight-line basis over a
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period of 15 years and that 50% will be allocated to goodwill. The pro forma
results of operations for all periods presented do not reflect any impairment of
goodwill.
Unaudited pro forma consolidated results of operations for the three months
and the nine months ended September 30, 2001 and 2000 as though Golden Isles had
been acquired as of January 1, 2000 follow:
Three Nine Three Nine
Months Months Months Months
Ended Ended Ended Ended
-------------- ------------- ------------- -------------
September 30, 2001 September 30, 2000
------------------------------- ------------------------------
(Dollars in Thousands, Except Per Share Data)
-----------------------------------------------------------------
Net interest income $ 11,180 $ 32,913 $ 10,696 $ 32,190
Net income $ 324 $ 4,646 $ 2,418 $ 7,481
Earnings per share:
Basic $ .03 $ .47 $ .25 $ .77
Diluted $ .03 $ .47 $ .25 $ .77
NOTE 3. PRONOUNCEMENTS ISSUED NOT YET ADOPTED
In July, 2001, the Financial Accounting Standards Board issued two
statements - Statement 141, Business Combinations, and Statement 142, Goodwill
and Other Intangible Assets, which will potentially impact the Company's
accounting for its reported goodwill and other intangible assets.
Statement 141:
. Eliminates the pooling method for accounting for business combinations.
. Requires that intangible assets that meet certain criteria be reported
separately from goodwill.
. Requires negative goodwill arising from a business combination to be
recorded as an extraordinary gain.
Statement 142:
. Eliminates the amortization of goodwill and other intangibles that are
determined to have an indefinite life.
. Requires, at a minimum, annual impairment tests for goodwill and other
intangible assets that are determined to have an indefinite life.
Upon adoption of these Statements, the Company is required to:
. Re-evaluate goodwill and other intangible assets that arose from
business combinations entered into before July 1, 2001. If the recorded
other intangible assets do not meet the criteria for recognition, they
should be reclassified to goodwill. Similarly, if there are other
intangible assets that meet the criteria for recognition but were not
separately recorded from goodwill, they should be reclassified from
goodwill.
. Reassess the useful lives of intangible assets and adjust the remaining
amortization periods accordingly.
. Write-off any remaining negative goodwill.
The Company has not yet completed its full assessment of the effects of
these new pronouncements on its financial statements and so is uncertain as to
the impact. The standards generally are required to be implemented by the
Company in its 2002 financial statements.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Liquidity management involves the matching of the cash flow requirements of
customers, who may be either depositors desiring to withdraw funds or borrowers
needing assurance that sufficient funds will be available to meet their credit
needs, and the ability of ABC Bancorp and its subsidiaries (the "Company") to
meet those needs. The Company strives to maintain an adequate liquidity
position by managing the balances and maturities of interest-earning assets and
interest-bearing liabilities so that the balance it has in short-term
investments at any given time will adequately cover any reasonably anticipated
immediate need for funds. Additionally, the subsidiary Banks (the "Banks")
maintain relationships with correspondent banks which could provide funds to
them on short notice, if needed.
The liquidity and capital resources of the Company are monitored
continuously by the Company's Board-authorized Asset and Liability Management
Committee, and on a periodic basis by state and federal regulatory authorities.
As determined under guidelines established by these regulatory authorities, the
Company's and the Banks' liquidity ratios at September 30, 2001 were considered
satisfactory. At that date, the Banks' short-term investments were adequate to
cover any reasonably anticipated immediate need for funds. The Company is aware
of no events or trends likely to result in a material change in liquidity.
During the nine months ended September 30, 2001, total capital increased
$24,226,000 to $104,852,000. Of this increase, $3,958,000 resulted from the
purchase of Tri-County Bank, $13,199,000 resulted from the purchase of Golden
Isles Financial Holdings, Inc., $3,835,000 from the retention of earnings (net
of $3,260,000 dividends paid to shareholders), $451,000 for the accrual for
grants of restricted shares as incentive to certain employees, and $2,783,000 in
other comprehensive income, net of taxes.
At September 30, 2001, ABC had binding commitments for capital expenditures
of approximately $350,000. The Company anticipates that approximately $350,000
will be required for capital expenditures during the remainder of 2001.
Additional expenditures may be required for other mergers and acquisitions.
Results of Operations
The Company's results of operations are determined by its ability to
effectively manage interest income and expense, to minimize loan and investment
losses, to generate noninterest income and to control noninterest expense.
Since interest rates are determined by market forces and economic conditions
beyond the control of the Company, the ability to generate net interest income
is dependent upon the Banks' ability to obtain an adequate spread between the
rate earned on interest-earning assets and the rate paid on interest-bearing
liabilities. Thus, the key performance measure for net interest income is the
interest margin or net yield, which is taxable-equivalent net interest income
divided by average earning assets.
9
Results of Operations (Continued)
The primary component of consolidated earnings is net interest income, or
the difference between interest income on interest-earning assets and interest
paid on interest-bearing liabilities. The net interest margin is net interest
income expressed as a percentage of average interest-earning assets. Interest-
earning assets consist of loans, investment securities and Federal funds sold.
Interest-bearing liabilities consist of deposits and borrowings, such as Federal
funds purchased, securities sold under repurchase agreements and Federal Home
Loan Bank advances. A portion of interest income is earned on tax-exempt
investments, such as state and municipal bonds, and on loans to states and
municipalities. This tax-exempt income and its resultant yields are stated on a
taxable-equivalent basis in order to be comparable to taxable investments and
loans.
Comparison of Statements of Income
The net interest margin on a taxable-equivalent basis was 4.91% and 5.40%
during the nine months ended September 30, 2001 and 2000, respectively, a
decrease of 49 basis points. These variances are attributable to fluctuations in
the average rates charged and fees earned on loans and the average rates paid on
deposit accounts. Several decreases in key interest rates by the Federal
Reserve Bank during the nine-month period also attributed to the decrease in net
interest margin, because the rate of yield on certain variable-rate assets
decreased immediately, whereas most interest-bearing liabilities are fixed-rate,
and thus rates could not be decreased until maturity.
Net interest income was $30.47 million as compared to $28.53 million during
the nine months ended September 30, 2001 and 2000, respectively, representing an
increase of 6.80%. Of this increase, 41.70% related to the acquisition of Tri-
County Bank, and 51.55% related to the acquisition of Golden Isles.
The provision for loan losses is a charge to earnings in the current period
to replenish the allowance for loan losses and maintain it at the level
management determines is adequate. The provision for loan losses charged to
earnings amounted to $2,497,000 and $952,000 during the nine months ended
September 30, 2001 and 2000. Additional provision for loan losses was recorded
during the second and third quarters of 2001 to reserve against possible losses
in loans that were identified by the Company as having deteriorated in quality.
Such loans were also reclassified as non-performing assets.
The allowance for loan losses represents a reserve for potential losses in
the loan portfolio. The adequacy of the allowance for loan losses is evaluated
quarterly based on a review of all significant loans, with a particular emphasis
on non-accruing, past due and other loans that management believes require
attention. Another factor used in determining the adequacy of the reserve is
management's judgment about factors affecting loan quality and assumptions about
the local and national economy.
The allowance for loan losses totaled $14.1 million and $9.8 million as of
September 30, 2001 and December 31, 2000, respectively, with $3.5 million of the
increase attributable to acquisitions. The allowance for loan losses as a
percentage of total loans was 1.79% and 1.67% as of September 30, 2001 and
December 31, 2000, respectively.
Non-performing assets were $13.8 million and $6.1 as of September 30, 2001
and December 31, 2000, respectively, with $3.1 million of the increase
attributable to acquisitions. The ratio of non-performing assets as a percentage
of the loan loss reserve was 98% and 62% as of September 30, 2001 and
December 31, 2000, respectively.
Management considers the allowance for loan losses as of September 30, 2001
adequate to cover potential losses in the loan portfolio.
10
Following is a comparison of noninterest income for the nine months ended
September 30, 2001 and 2000 (dollars in thousands).
Nine Months Ended
September 30,
-----------------
2001 2000
------ ------
Service charges on deposits $5,192 $4,546
Other service charges, commissions and fees 1,849 1,503
Other income 316 63
Gain on sale of securities 11 -
------ ------
Total noninterest income $7,368 $6,112
====== ======
Total noninterest income for the nine months ended September 30, 2001 was
$1,256,000 higher than during the same period in 2000. Service charges on
deposit accounts accounted for the majority of the increase at $646,000 of which
$142,000 related to the acquisition of Tri-County Bank, and $105,000 related to
the acquisition of Golden Isles. Other service charges, commissions and fees
increased because of enhanced income from the Company's retail division,
particularly mortgage financing. Other income was higher due to several
nonrecurring property disposal gains being recognized during 2001.
Following is an analysis of noninterest expense for the nine months ended
September 30, 2001 and 2000 (dollars in thousands).
Nine Months Ended
September 30,
------------------
2001 2000
------- -------
Salaries and employee benefits $13,746 $12,659
Occupancy and equipment expense 3,660 3,268
Other expense 7,379 7,146
------- -------
Total noninterest expense $24,785 $23,073
======= =======
Comparison of Statements of Income (Continued)
Total noninterest expense for the nine months ended September 30, 2001 was
$1,712,000 higher than during the same period in 2000, of which $567,000
related to the acquisition of Tri-County Bank, and $800,000 related to the
acquisition of Golden Isles.
Salaries and employee benefits for the nine months ended September 30, 2001
were $1,087,000 or 8.58% higher than during the same period in 2000. The
acquisition of Tri-County Bank accounted for $335,000, the acquisition of Golden
Isles accounted for $445,000 of the increase and the remaining $307,000 related
to normal increases in salaries and employee benefits.
11
Following is a condensed summary of net income during the nine months ended
September 30, 2001 and 2000 (dollars in thousands).
Nine Months Ended
September 30,
----------------------------
2001 2000
------- -------
Net interest income $30,468 $28,534
Provision for loan losses 2,497 952
Other income 7,368 6,112
Other expense 24,785 23,073
------- -------
Income before income taxes 10,554 10,621
Applicable income taxes 3,459 3,440
------- -------
Net income $ 7,095 $ 7,181
======= =======
Net income decreased $86,000 or 1.20% to $7,095,000 for the nine months
ended September 30, 2001 as compared to $7,181,000 for the nine months ended
September 30, 2000. Net interest income of ABC and its subsidiaries increased
$1,934,000, the provision for loan losses increased by $1,545,000 and all other
noninterest expense increased by $1,712,000.
Comparison of Balance Sheets
Total assets increased by $265 million, or 32.07% to $1,091 million at
September 30, 2001 from $826 million at December 31, 2000. Approximately $66
million of this increase related to the acquisition of the Tri-County Bank and
the Newberry branch, and approximately $150 million of this increase related to
the acquisition of Golden Isles.
Total earning assets increased by $255 million, or 33.77%, to $1,010
million at September 30, 2001 from $755 million at December 31, 2000. Of this
increase, approximately $66 million related to the acquisition of the Tri-County
Bank and the Newberry branch, and approximately $141 million related to the
acquisition of Golden Isles.
Total loans, net of the allowance for loan losses, increased by $199
million, or 34.43% to $777 million at September 30, 2001 from $578 million at
December 31, 2000. Approximately $33 million of this increase related to the
acquisition of the Tri-County Bank and the Newberry branch, and approximately
$109 related to the acquisition of Golden Isles.
Total deposits increased by $192 million, or 28.24% to $872 million at
September 30, 2001 from $680 million at December 31, 2000. Approximately 12.25%
and 13.96% of deposits were noninterest-bearing as of September 30, 2001 and
December 31, 2000, respectively. Approximately $63 million of
12
this increase related to the acquisition of the Tri-County Bank and the Newberry
branch, and approximately $129 million related to the acquisition of Golden
Isles.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed only to U. S. dollar interest rate changes and,
accordingly, the Company manages exposure by considering the possible changes in
the net interest margin. The Company does not have any trading instruments nor
does it classify any portion of the investment portfolio as held for trading.
The Company does not engage in any hedging activities or enter into any
derivative instruments with a higher degree of risk than mortgage backed
securities which are commonly pass through securities. Finally, the Company has
no exposure to foreign currency exchange rate risk, commodity price risk, and
other market risks.
Interest rates play a major part in the net interest income of a financial
institution. The sensitivity to rate changes is known as "interest rate risk."
The repricing of interest earning assets and interest-bearing liabilities can
influence the changes in net interest income. As part of the Company's
asset/liability management program, the timing of repriced assets and
liabilities is referred to as Gap management. It is the policy of the Company
to maintain a Gap ratio in the one-year time horizon of .80 to 1.20
The Company uses simulation analysis to monitor changes in net interest
income due to changes in market interest rates. The simulation of rising,
declining and flat interest rate scenarios allows management to monitor and
adjust interest rate sensitivity to minimize the impact of market interest rate
swings. The analysis of the impact on net interest income over a twelve month
period is subjected to a gradual 200 basis point increase or decrease in market
rates on net interest income and is monitored on a quarterly basis. The most
recent simulation model projects net interest income would increase 4.52% if
rates rise gradually over the next year. On the other hand, the model projects
net interest income to decrease 6.81% if rates decline over the next year.
13
Part II. Other Information
Item 4. Submission of Matters to a Vote of Securities Holders
There were no matters submitted to a vote of securities holders during the
quarter ended September 30, 2001.
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits --
Exhibit 10.1 Executive Employment Agreement with
W. Edwin Lane, Jr. dated as of August 21, 2001.
B. ABC has filed a Current Report on Form 8-K, dated July 23, 2001, concerning
its acquisition by merger of Golden Isles Financial Holdings, Inc. ("Golden
Isles"). The Current Report on Form 8-K was filed under Item 2 of Form 8-K,
and no financial information concerning ABC or Golden Isles was required to
be filed therewith.
14
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
Undersigned thereunto duly authorized:
ABC BANCORP
11/01/01 /s/ W. EDWIN LANE, JR.
--------------------------- ---------------------------------------
Date W. EDWIN LANE, JR.
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
(Duly authorized officer and principal
financial/accounting officer)
15