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, 1998
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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 7,252,365 SHARES OF COMMON STOCK OUTSTANDING AS OF MARCH 31, 1998.
1
ABC BANCORP
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1998
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item Page
- ----- ----
1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Income
& Comprehensive Income 4
Consolidated Statements of Cash Flows 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 14
6. Exhibits and Reports on Form 8-K 14
SIGNATURE 15
2
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
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MAR 31 DEC 31
1998 1997
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ASSETS
Cash and due from banks $ 38,538 $ 36,261
Federal funds sold 2,465 890
Securities available for sale, at fair value 103,023 93,199
Securities held to maturity, at cost 27,717 30,020
Loans 498,036 490,244
Less allowance for loan losses 10,207 7,627
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Loans, net 487,829 482,617
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Premises and equipment, net 19,204 19,054
Other assets 28,422 29,845
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$707,198 $691,886
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LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing demand 83,674 $90,109
Interest-bearing demand 124,842 128,294
Savings 49,754 46,715
Time, $100,000 and over 88,051 85,937
Other time 260,477 249,656
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Total deposits 606,798 600,711
Federal funds purchased & securities sold under
repurchase agreements 343 660
Other borrowings 21,022 15,400
Other liabilities 11,377 6,962
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Total liabilities 639,540 623,733
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STOCKHOLDERS' EQUITY
Common stock,par value $1; 15,000,000 shares authorized
7,524,718 shares issued 7,525 7,525
Surplus 29,677 29,677
Retained earnings 31,773 32,264
Accumulated other comprehensive income 238 242
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69,213 69,708
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Less cost of 272,353 shares acquired for the treasury (1,555) (1,555)
-------- --------
Total stockholders' equity 67,658 68,153
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$707,198 $691,886
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SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Dollars in Thousands)
(Unaudited)
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1998 1997
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INTEREST INCOME
Interest and fees on loans $12,638 $12,016
Interest on taxable securities 1,648 1,739
Interest on nontaxable securities 302 298
Interest on deposits in other banks 114 48
Interest on Federal funds sold 20 89
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14,722 14,190
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INTEREST EXPENSE
Interest on deposits 6,253 5,780
Interest on securities sold under repurchase
agreements and other borrowings 318 373
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6,571 6,153
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Net interest income 8,151 8,037
PROVISION FOR LOAN LOSSES 2,628 599
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Net interest income after provision for loan losses 5,523 7,438
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OTHER INCOME
Service charges on deposit accounts 1,335 1,265
Other service charges, commissions and fees 585 502
Other 51 39
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1,971 1,806
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OTHER EXPENSE
Salaries and employee benefits 3,978 3,568
Equipment expense 579 554
Occupancy expense 426 397
Amortization of intangible assets 229 168
Data processing fees 89 116
Directors fees 161 145
FDIC premiums 62 65
Other operating expenses 1,616 1,444
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7,140 6,457
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Income before income taxes 354 2,787
Applicable income taxes 120 923
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NET INCOME $ 234 $ 1,864
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OTHER COMPREHENSIVE INCOME, NET OF TAX:
Unrealized holding losses arising during period $ (4) $ (423)
COMPREHENSIVE INCOME $ 230 $ 1,441
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Income per common share-Basic $ 0.03 $ 0.26
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Income per common share-Diluted $ 0.03 $ 0.26
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Average shares outstanding 7,252,365 7,252,365
========= =========
See Notes to Consolidated Financial Statements.
4
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Dollars in Thousands)
(Unaudited)
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1998 1997
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 234 $ 1,864
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Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation $ 483 $ 424
Provision for loan losses 2,628 599
Amortization of intangible assets 229 168
Other prepaids, deferrals and accruals, net 5,638 2,706
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Total adjustments 8,978 3,897
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Net cash provided by operating activities 9,212 5,761
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CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investment securities 18,196 17,165
Purchase of investment securities (25,750) (24,890)
Proceeds from sales of securities available for sale 0 5,964
(Increase) decrease in Federal funds sold (1,575) 2,833
(Increase) decrease in loans (7,840) (9,461)
Purchase of premises and equipment (633) (1,195)
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Net cash used in investing activities (17,602) (9,584)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits 6,087 (13,307)
Net increase (decrease) in repurchase agreements (317) 5,986
Increase (decrease) in other borrowings 5,622 873
Dividends paid (725) (540)
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Net cash provided by (used in) financing activities 10,667 (6,988)
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Net increase (decrease) in cash and due from banks $ 2,277 $(10,811)
Cash and due from banks at beginning of period 36,261 42,901
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Cash and due from banks at end of period $ 38,538 $ 32,090
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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 effected in the form of a 25% stock dividend on
shares outstanding as of 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, 1997. The results of operations for the three
months ended March 31, 1998 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, 1998 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, 1998, 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, 1998, total
capital decreased $495,000 to $67,658,000. This decrease in capital resulted
from the payment of dividends to shareholders of $725,000, which was $491,000
in excess of net earnings for the period, and an increase of approximately
$4,000 in unrealized losses on securities available for sale, net of taxes.
At March 31, 1998, ABC had no binding commitments for capital expenditures.
The Company anticipates that approximately $1,000,000 will be required for
capital expenditures during the remainder of 1998. 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
On July 17, 1997, the Company purchased the assets and assumed the liabilities
of the Douglas, Georgia banking center of NationsBank. Total assets of $29.3
million were included in the transaction, with loans totaling $7.3 million.
Total deposits of $29.3 million were assumed by ABC. The Douglas branch is now
an extension of Citizens Security Bank (formerly The Citizens Bank of Tifton),
the Company's wholly-owned subsidiary in Tifton, Georgia ("CSB"). The premium
paid upon consummation of this transaction was $3.5 million, and was recorded as
an intangible asset on the books of CSB. The Company injected $4.2 million
additional capital into CSB in connection with this transaction.
On August 31, 1997, CSB acquired 100% of the equity of Irwin Bankcorp, Inc.,
Ocilla, Georgia. The acquisition was accounted for as a pooling of interests.
Irwin had total assets of approximately $38 million, loans of approximately $17
million, deposits of approximately $31 million and equity of approximately $6
million. Irwin's wholly-owned subsidiary, The Bank of Ocilla, also became a
branch of CSB.
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 5.27% and 5.44% during the three months ended
March 31, 1998 and 1997, respectively, a decrease of 17 basis points. These
variances are primarily attributable to fluctuations in the average rates
charged and fees earned on loans.
Net interest income on a taxable-equivalent basis was $8.2 million as compared
to $ 8.0 million during the three months ended March 31, 1998 and 1997,
respectively, representing an increase of 2.5%.
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 $2,628,000 and $599,000 during the three months ended March 31, 1998
and 1997, respectively. Adverse weather conditions during the previous several
months in most of the Company's market areas had an adverse impact on some large
loans in the Company's portfolio. Management is carefully monitoring the
economic conditions, the collateral associated with selected loans and the
ability of the customers to repay specific loans in accordance with the
negotiated loan agreements.
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 2.05% and 1.56% of total loans outstanding
at March 31, 1998 and December 31, 1997. Management considers the allowance for
loan losses as of March 31, 1998 adequate to cover potential losses in the loan
portfolio.
10
Following is a comparison of noninterest income for the three months ended
March 31, 1998 and 1997 (dollars in thousands).
Three Months Ended
---------------------------------
March 1998 March 1997
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Service charges on deposits $1,335 $1,265
Other service charges,
commissions & fees 585 502
Other income 51 39
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TOTAL NONINTEREST INCOME $1,971 $1,806
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Total noninterest income for the three months ended March 31, 1998 was
$165,000 higher than during the same period in 1997.
Following is an analysis of noninterest expense for the three months ended
March, 1998 and 1997 (dollars in thousands).
Three Months Ended
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March 31, 1998 March 31, 1997
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Salaries and employee benefits $3,978 $3,568
Occupancy and equipment expense 1,005 951
Deposit Insurance Premium 62 65
Data processing fees 89 116
Other expense 2,006 1,757
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TOTAL NONINTEREST EXPENSE $7,140 $6,457
====== ======
Total noninterest expense for the three months ended March 31, 1998 was
$683,000 higher than during the same period in 1997.
Salaries and employee benefits for the three months ended March 31, 1998, were
$410,000 higher than during the same period in 1997. The increase in salaries
and employee benefits resulted from normal increases in salaries and bonuses and
salaries and benefits for the employees of the Douglas branch of Citizens
Security Bank, which expenses are not included in the operation for the three
months ended March 31, 1997.
11
Deposit insurance premiums for the three months ended March 31, 1998 was
$3,000 lower than during the same period in 1997.
Data processing fees for the three months ended March 31, 1998 were $27,000
lower than during the same period in 1997. Other operating expense for the
three months ended March 31, 1998 increased $249,000 as compared to the same
period in 1997.
Following is a condensed summary of net income during the three months ended
March 31, 1998 and 1997 (dollars in thousands).
Three Months Ended
------------------------------------
March 31, 1998 March 31, 1997
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Net interest income $8,151 $8,037
Provision for loan losses 2,628 599
Other income 1,971 1,806
Other expense 7,140 6,457
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Income before income
taxes 354 2,787
Applicable income taxes 120 923
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NET INCOME $ 234 $1,864
====== ======
Net income decreased $1,630,000 or 87.45% to $234,000 for the three months
ended March 31, 1998 as compared to $1,864,000 for the three months ended
March 31, 1997. Net interest income of ABC and its subsidiaries increased
$114,000, offset by an increase in provision for loan losses of $2,029,000 and
an increase in all other noninterest expense of $683,000. Net income for the
three months ended March 31, 1998 was severely impacted by the increases in the
provision for loan losses in the amount of $2,029,000 as compared with the
amount provided for the same period in 1997.
12
COMPARISON OF BALANCE SHEETS
Total assets increased by $15.3 million, or 2.21%, to $707.2 million at March
31, 1998 from $691.9 million at December 31, 1997.
Total earning assets increased by $26.7 million, or 4.33%, to $643.3 million
at March 31, 1998 from $616.6 million at December 31, 1997.
Total loans, net of the allowance for loan losses, increased by $5.2 million,
or 1.08%, to $487.8 million at March 31, 1998 from $482.6 million at December
31, 1997.
Total deposits increased by $6.1 million, or 1.01%, to $606.8 million at March
31, 1998 from $600.7 million at December 31, 1997. Approximately 14% and 15% of
deposits were noninterest-bearing as of March 31, 1998 and December 31, 1997,
respectively.
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, 1998.
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, 1998.
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
5/7/98 /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