UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1997
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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.)
310 FIRST STREET, SE MOULTRIE, GA 31768
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(Address of principal executive offices)
(912) 890-1111
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(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No_____
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THERE WERE 6,745,331 SHARES OF COMMON STOCK OUTSTANDING AS OF MARCH 31, 1997.
1
ABC BANCORP
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1997
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item Page
- ----- ----
1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II - OTHER INFORMATION
3. Submission of Matters to a Vote of
Securities Holders
6. Exhibits and Reports on Form 8-K
SIGNATURE 15
2
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
Mar 31 Dec 31
1997 1996
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ASSETS
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Cash and due from banks $ 30,679 $ 40,894
Federal funds sold 1,887 5,120
Securities available for sale, at fair value 87,700 86,148
Securities held to maturity, at cost 32,199 31,990
Loans 446,201 438,390
Less allowance for loan losses 7,118 6,873
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Loans, net 439,083 431,517
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Premises and equipment, net 16,533 15,640
Other assets 23,632 23,723
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$631,713 $635,032
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Deposits
Noninterest-bearing demand $ 71,804 $ 81,448
Interest-bearing demand 109,459 116,777
Savings 43,497 43,332
Time, $100,000 and over 75,593 78,998
Other time 231,448 225,183
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Total deposits 531,801 545,738
Federal funds purchased & securities sold
under repurchase agreements 6,983 997
Other borrowings 24,750 24,200
Other liabilities 9,733 6,423
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Total liabilities 573,267 577,358
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STOCKHOLDERS' EQUITY
Common stock,par value $1; 15,000,000
shares authorized 7,017,684 and 7,017,684
shares issued, respectively 7,018 7,018
Surplus 28,067 28,067
Retained earnings 25,396 24,203
Unrealized gains (losses) on securities
available for sale, net of taxes (480) (59)
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60,001 59,229
Less cost of 272,353 shares acquired for
the treasury (1,555) (1,555)
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Total stockholders' equity 58,446 57,674
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$631,713 $635,032
========= ========
See Notes to Consolidated Financial Statements.
3
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Dollars in Thousands)
(Unaudited)
1997 1996
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INTEREST INCOME
Interest and fees on loans $ 11,623 $ 8,283
Interest on taxable securities 1,509 1,144
Interest on nontaxable securities 272 188
Interest on deposits in other banks 47 3
Interest on Federal funds sold 45 479
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13,496 10,097
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INTEREST EXPENSE
Interest on deposits 5,489 4,378
Interest on securities sold under repurchase
agreements and other borrowings 376 96
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5,865 4,474
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Net interest income 7,631 5,623
PROVISION FOR LOAN LOSSES 584 248
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Net interest income after provision for
loan losses 7,047 5,375
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OTHER INCOME
Service charges on deposit accounts 1,225 967
Other service charges, commisions and fees 477 316
Other 34 50
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1,736 1,333
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OTHER EXPENSE
Salaries and employee benefits 3,403 2,280
Equipment expense 531 321
Occupancy expense 387 305
Amortization of intangible assets 168 79
Data processing fees 92 148
Directors fees 145 90
FDIC premiums 62 28
Other operating expenses 1,384 947
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6,172 4,198
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Income before income taxes 2,611 2,510
Applicable income taxes 879 835
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NET INCOME $ 1,732 $ 1,675
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Income per common share $ 0.26 $ 0.27
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Average shares outstanding 6,745,331 6,242,491
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See Notes to Consolidated Financial Statements.
4
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Dollars in Thousands)
(Unaudited)
1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,732 $ 1,675
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Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 101 308
Provision for loan losses 584 248
Amortization of intangible assets 168 89
Other prepaids, deferrals and accruals, net 3,447 1,374
-------- --------
Total adjustments 4,300 2,019
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Net cash provided by operating activities 6,032 3,694
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CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investment securities 16,531 7,242
Purchase of investment securities (24,890) (15,904)
Proceeds from sales of securities available for sale 5,964 661
(Increase)decrease in Federal funds sold 3,233 25,130
(Increase) decrease in loans (8,150) (12,404)
Purchase of premises and equipment (994) (498)
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Net cash provided by (used in) investing
activities (8,306) 4,227
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CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits (13,937) (10,343)
Net increase (decrease) in repurchase agreements 5,986 (2,958)
Increase (decrease) in short-term borrowings 550 (1,000)
Proceeds from sale of stock of pooled subsidiary -- 13
Dividends paid (540) (338)
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Net cash used in financing activities (7,941) (14,626)
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Net decrease in cash and due from banks $(10,215) $ (6,705)
Cash and due from banks at beginning of period 40,894 29,841
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Cash and due from banks at end of period $ 30,679 $ 23,136
======== ========
See Notes to Consolidated Financial Statements.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of ABC Bancorp and subsidiaries ("the
Company") conform to generally accepted accounting principles and to general
practices within the banking industry. The interim consolidated financial
statements included herein are unaudited, but reflect all adjustments which, in
the opinion of management, are necessary for a fair presentation of the
consolidated financial position and results of operations for the interim
periods presented. All adjustments reflected in the interim financial
statements are of a normal, recurring nature. All per share amounts have been
adjusted to reflect the 5-for-4 stock split reflected in the form of a 25% stock
dividend effective April 15, 1997. 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, 1996. The results of operations for the three months
ended March 31, 1997 are not necessarily indicative of the results to be
expected for the full year.
6
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
(Federal funds sold) at any given time will adequately cover any reasonably
anticipated immediate need for funds. Additionally, the subsidiary banks (the
"Banks") maintain relationships with correspondent banks which could provide
funds to them on short notice, if needed.
The liquidity and capital resources of the Company is monitored on a
periodic basis by state and Federal regulatory authorities. As determined under
guidelines established by these regulatory authorities, the Banks' liquidity
ratios at March 31, 1997 were considered satisfactory. At that date, the Banks'
Federal funds sold 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. At March 31, 1997, the Company's and the Banks'
capital asset ratios were considered adequate based on guidelines established by
regulatory authorities. During the three months ended March 31, 1997, total
capital increased $ .8 million to $ 58.4 million. This increase in capital
resulted from the retention of net earnings of $ 1.2 million (after deducting
dividends to shareholders of $ .5 million) and an increase of $.4 million in
unrealized losses on securities available for sale, net of taxes.
At March 31, 1997, ABC had binding commitments for capital expenditures of
approximately $250,000. The Company anticipates that approximately $4,500,000
will be required for capital expenditures during the remainder of 1997. As of
March 1, 1997, the Company anticipates that approximately $3,500,000 in cash
will be required to complete the purchase of a banking center located in a
surrounding area (see "Mergers and Acquisitions"). Additional expenditures may
be required for other mergers and acquisitions. No additional mergers or
acquisitions requiring cash are being negotiated at present.
7
MERGERS AND ACQUISITIONS
The results of operations for the three months ended March 31, 1997 and
1996 include the operations of the five wholly-owned subsidiary banks held prior
to 1996 and the operations of Central Bankshares, Inc., First National Financial
Corporation, and M & F Financial Corporation, which were acquired in 1996 in
transactions that were accounted for as poolings of interests. The results of
operations for the three months ended March 31,1997 also include the operations
of Southland Bancorporation ("SLB"), acquired June 21, 1996, which transaction
was accounted for as a purchase.
The Company has entered into an agreement with NationsBank Corporation to
purchase the assets and assume the liabilities of the Douglas, Georgia banking
center of NationsBank. Total assets of approximately $32 million will be
included in the transaction, with loans totaling approximately $10 million.
Total deposits of approximately $32 million will be assumed by ABC. The office
will be operated as an extension of The Citizens Bank of Tifton, the Company's
wholly-owned subsidiary in Tifton, Georgia ("CBT"). The premium to be paid upon
consummation of this transaction is approximately $3.5 million, and will be
recorded as an intangible asset on the books of CBT.
8
RESULTS OF OPERATIONS
The Company's results of operations are determined by its ability to
effectively manage interest income and expense, to minimize loan and investment
losses, to generate noninterest income and to control noninterest expense. Since
interest rates are determined by market forces and economic conditions beyond
the control of the Company, the ability to generate net interest income is
dependent upon the Banks' ability to obtain an adequate spread between the rate
earned on interest-earning assets and the rate paid on interest-bearing
liabilities. Thus, the key performance measure for net interest income is the
interest margin or net yield, which is taxable-equivalent net interest income
divided by average earning assets.
The primary component of consolidated earnings is net interest income, or
the difference between interest income on interest-earning assets and interest
paid on interest-bearing liabilities. The net interest margin is net interest
income expressed as a percentage of average interest-earning assets. Interest-
earning assets consist of loans, investment securities and Federal funds sold.
Interest-bearing liabilities consist of deposits and borrowings such as Federal
funds purchased, securities sold under repurchase agreements and Federal Home
Loan Bank advances. A portion of interest income is earned on tax-exempt
investments, such as state and municipal bonds. In an effort to state this tax-
exempt income and its resultant yields on a basis comparable to all other
taxable investments, an adjustment is made to analyze this income on a taxable-
equivalent basis.
9
COMPARISON OF STATEMENTS OF INCOME
The net interest margin was 5.50% and 5.39% during the three months ended
March 31, 1997 and 1996, respectively, an increase of 11 basis points. This
variance is primarily attributable to fluctuations in the average rates charged
and fees earned on loans.
Net interest income on a taxable-equivalent basis was $7.8 million as
compared to $ 6.0 million during the three months ended March 31, 1997 and 1996,
respectively, representing an increase of 29.9%. SLB contributed $1.5 million in
taxable-equivalent net interest income for the quarter ended 03/31/97.
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 $584,000 and $248,000 during the three months ended March
31, 1997 and 1996, respectively. SLB's provision for loan losses was $135,000
for the quarter ended March 31, 1997.
Following is a comparison of noninterest income for the three months ended
March 31, 1997 and 1996 (dollars in thousands).
Three Months Ended
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Mar 1997 Mar 1996
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Service charges on deposits $ 1,225 $ 967
Other service charges,
commissions & fees 477 316
Other income 34 50
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TOTAL NONINTEREST INCOME $ 1,736 $ 1,333
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Total noninterest income for the three months ended March 31, 1997 was
$403,000 higher than during the same period in 1996. Service charges on
deposits, other service charges and other income recorded by SLB during the
three months ended March 31, 1997 was $184,000, $106,000 and $5,000,
respectively.
10
Following is an analysis of noninterest expense for the three months ended
March 31, 1997 and 1996 (dollars in thousands).
Three Months Ended
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March 31,1997 March 31, 1996
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Salaries and employee benefits $3,403 $2,280
Occupancy and equipment expense 918 626
Deposit insurance premium 62 28
Data processing fees 92 148
Other expense 1,697 1,116
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TOTAL NONINTEREST EXPENSE $6,172 $4,198
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Total noninterest expense for the three months ended March 31, 1997 was
$1,974,000 higher than during the same period in 1996. SLB's portion of
noninterest expense was $1,061,000.
Salaries and employee benefits for the three months ended March 31, 1997,
was $1,123,000 higher than during the same period in 1996. Salaries and employee
benefits recorded by SLB during the three months ended March 31, 1997 amounted
to $557,000. The remaining increase in salaries and employee benefits resulted
from normal increases in salaries and bonuses and the addition of several
employees by the parent company, including three senior executives.
Deposit insurance premiums for the three months ended March 31, 1997 was
$34,000 higher than during the same period in 1996. SLB's deposit insurance
premium for the three months ended March 31, 1997 amounted to $14,000.
Data processing fees for the three months ended March 31, 1997 were
$56,000 lower than during the same period in 1996. Other operating expense for
the three months ended March 31, 1997 increased $581,000 as compared to the
same period in 1996. SLB incurred $490,000 in other operating expense.
11
Following is a condensed summary of net income during the three months
ended March 31, 1997 and 1996 (dollars in thousands).
Three Months Ended
---------------------------------------
March 31, 1997 March 31,1996
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Net interest income $7,631 $5,623
Provision for loan losses 584 248
Other income 1,736 1,333
Other expense 6,172 4,198
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Income before income taxes 2,611 2,510
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Applicable income taxes 879 835
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NET INCOME $1,732 $1,675
====== ======
Net income increased $57,000 or 3.40% to $1,732,000 for the three
months ended March 31, 1997 as compared to $1,675,000 for the three months
ended March 31, 1996. $344,000 of this increase represents net income
contributed by SLB. Net interest income of ABC and its subsidiaries excluding
SLB increased $532,000 offset by an increase in provision for loan losses of
$201,000 and an increase in all other net noninterest expense of $913,000.
12
COMPARISON OF BALANCE SHEETS
Total assets decreased by $3.3 million, or .5%, to $631.7 million at March
31, 1997 from $635.0 million at December 31, 1996.
Total earning assets increased by $6.2 million, or 1.1%, to $569.1 million
at March 31, 1997 from $562.9 million at December 31, 1996.
Total loans, net of the allowance for loan losses, increased by $7.6
million, or 1.76%, to $439.1 million at March 31, 1997 from $431.5 million at
December 31, 1996.
Total deposits decreased by $13.9 million, or 2.5%, to $531.8 million at
March 31, 1997 from $545.7 million at December 31, 1996. Approximately 13.5% and
14.9% of deposits were noninterest-bearing as of March 31, 1997 and December 31,
1996, respectively.
The allowance for loan losses represents a reserve for potential losses in
the loan portfolio. The adequacy of the allowance for loan losses is evaluated
quarterly based on a review of all significant loans, with a particular emphasis
on non-accruing, past due and other loans that management believes require
attention. Another factor used in determining the adequacy of the reserve is
management's judgment about factors affecting loan quality and assumptions about
the local and national economy.
The allowance for loan losses was 1.6% of total loans outstanding at March
31, 1997 and December 31, 1996. Management considers the allowance for loan
losses as of March 31, 1997 adequate to cover potential losses in the loan
portfolio.
13
PART II. OTHER INFORMATION
ITEM 3. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
There were no matters submitted to a vote of securities holders during
the quarter ended March 31, 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
There were no exhibits and reports filed on Form 8-K during the
quarter ended March 31, 1997.
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
5/9/97 /s/ W. EDWIN LANE, JR.
______________________ _____________________________________
DATE W. EDWIN LANE, JR.
EXECUTIVE VICE PRESIDENT &
CHIEF FINANCIAL OFFICER
(DULY AUTHORIZED OFFICER AND PRINCIPAL
FINANCIAL/ACCOUNTING OFFICER)
15