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, 1996 -------------- OR [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 0-16181 ------- ABC BANCORP - ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) GEORGIA 58-1456434 ------------------------------- ------------------- (State of incorporation) (IRS Employer ID No.) 310 FIRST STREET, SE MOULTRIE, GA 31768 ----------------------------------------- (Address of principal executive offices) (912)890-1111 ------------- (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 3,379,192 shares of Common Stock outstanding as of March 31, 1996. 1 ABC BANCORP QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1996 TABLE OF CONTENTS PART I - FINANCIAL INFORMATION Item Page - ----- ---- 1. Financial Statements Consolidated Statements of Financial Condition 3 Consolidated Statements of Income 4 Consolidated Statements of Cash Flows 5 - 6 Notes to Consolidated Financial Statements 7 2. Management's Discussion and Analysis of Financial 8 - 12 Condition and Results of Operations PART II - OTHER INFORMATION 3. Submission of Matters to a Vote of Securities Holders 13 6. Exhibits and Reports on Form 8-K 13 Signatures 14 2 ABC BANCORP AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in Thousands) (Unaudited) Assets Mar 31 Dec 31 ------ 1996 1995 -------- -------- Cash and due from banks $16,855 $23,612 Securities available for sale, at fair value 46,618 39,991 Securities held to maturity, at cost 10,298 10,269 (fair value $10,479 and $10,462, respectively) Federal funds sold 21,535 41,025 Loans 223,305 214,251 Less allowance for loan losses 4,428 4,272 -------- -------- Loans, net 218,877 209,979 -------- -------- Premises and equipment, net 7,222 6,942 Other assets 14,184 9,687 -------- -------- $335,589 $341,505 ======== ======== Liabilities and Stockholders' Equity ------------------------------------ Deposits Noninterest-bearing demand $ 45,125 $ 58,430 Interest-bearing demand 74,410 71,833 Savings 24,075 22,318 Time, $100,000 and over 38,653 37,773 Other time 111,122 110,634 -------- -------- Total deposits 293,385 300,988 Securities sold under repurchase agreements and other borrowing 529 3,487 Other liabilities 7,100 3,095 -------- -------- Total liabilities 301,014 307,570 -------- -------- Stockholders' equity Common stock,par value $1; 10,000,000 shares authorized, 3,597,074 shares issued 3,597 3,597 Capital surplus 16,826 16,826 Retained earnings 15,815 14,918 Unrealized gains (losses) on securities available for sale, net of taxes (108) 149 -------- -------- 36,130 35,490 Less cost of 217,882 shares acquired for the treasury (1,555) (1,555) -------- -------- Total stockholders' equity 34,575 33,935 -------- -------- $335,589 $341,505 ======== ======== See Note to Consolidated Financial Statements. -3- ABC BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (Dollars in Thousands) (Unaudited) 1996 1995 ------ ------ Interest income Interest and fees on loans $5,872 $5,176 Interest on taxable securities 668 516 Interest on nontaxable securities 134 133 Interest on deposits in other banks 0 18 Interest on Federal funds sold 377 314 ------ ------ 7,051 6,157 ------ ------ Interest expense Interest on deposits 2,910 2,291 Interest on securities sold under repurchase agreements and other borrowings 31 57 ------ ------ 2,941 2,348 ------ ------ Net interest income 4,110 3,809 Provision for loan losses 180 180 ------ ------ Net interest income after provision for loan losses 3,930 3,629 ------ ------ Other income Service charges on deposit accounts 668 602 Other service charges, commisions and fees 233 229 Other 26 55 ------ ------ 927 886 ------ ------ Other expense Salaries and employee benefits 1,670 1,519 Equipment expense 270 278 Occupancy expense 207 231 Amortization of intangible assets 79 79 Data processing fees 346 337 Directors fees 49 47 FDIC premiums 3 145 Other operating expenses 393 364 ------ ------ 3,017 3,000 ------ ------ Income before income taxes 1,840 1,515 Applicable income taxes 605 487 ------ ------ Net income $1,235 $1,028 ====== ====== Income per common share $0.37 $0.31 ====== ====== Average shares outstanding 3,379,192 3,352,525 ========= ========= See Note to Consolidated Financial Statements. -4- ABC BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (Dollars in Thousands) (Unaudited) 1996 1995 ------ ------ CASH FLOWS FROM OPERATING ACTIVITIES Net income $1,235 $1,028 ------- ------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 227 199 Provision for loan losses 180 180 Amortization of intangible assets 79 67 Other prepaids, deferrals and accruals, net (547) (941) ------- ------- Total adjustments (61) (495) ------- ------- Net cash provided by (used in) operating activities 1,174 533 ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from maturities of securities held for investment 6,145 3,928 Purchase of securities available for sale (12,561) (3,607) Purchase of securities held for investment (500) -- (Increase)decrease in Federal funds sold 19,490 (1,663) (Increase) decrease in loans (9,153) (3,510) Purchase of premises and equipment (483) (217) ------- ------- Net cash provided by (used in) investing activities 2,938 (5,069) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES Net increase (decrease) in deposits (8,613) (20) Net increase (decrease) in repurchase agreements (2,694) (1,198) Increase (decrease) of long-term debt -- 2,000 Dividends paid (338) (239) ------- ------- Net cash provided by (used in) finan (11,645) 543 ------- ------- -5- ABC BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED MARCH 31 1996 AND 1995 (Dollars in Thousands) (Unaudited) 1996 1995 -------- -------- Net increase (decrease) in cash and due from ($7,533) ($3,993) Cash and due from banks at beginning of year 24,388 20,495 ------- -------- Cash and due from banks at end of quarter $16,855 $16,502 ======= ======= See Note 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 generally accepted accounting principles and to general practices within the banking industry. The interim consolidated financial statements included herein are unaudited, but reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of the consolidated financial position and results of operations for the interim periods presented. All adjustments reflected in the interim financial statements are of a normal, recurring nature. Such financial statements should be read in conjunction with the financial statements and notes thereto and the report of independent auditors included in the Company's Form 10-K Annual Report for the year ended December 31, 1995. The results of operations for the three months ended March 31, 1996 are not necessarily indicative of the results to be expected for the full year. NOTE 2. STOCKHOLDERS' EQUITY As of July 17, 1995, a 4-for-3 stock split in the form of a Common Stock dividend on the outstanding shares of the Company's Common Stock became effective. Fractional shares were paid in cash. All per share information reflects retroactively this stock split. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Liquidity management involves the matching of the cash flow requirements of customers, who may be either depositors desiring to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs, and the ability of ABC Bancorp and its subsidiaries (the "Company") to meet those needs. The Company strives to maintain an adequate liquidity position by managing the balances and maturities of interest- earning assets and interest-bearing liabilities so that the balance it has in short-term investments (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, 1996 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, 1996, the Company's and the Banks' capital asset ratios were considered adequate based on guidelines established by regulatory authorities. Total capital increased during the first quarter of 1996 by $639,720, including a decrease of $257,000 attributable to unrealized losses on available-for-sale securities, net of taxes. At March 31, 1996, total capital of the Company amounted to $34,575,053. At March 31, 1996, there were no binding outstanding commitments for capital expenditures. However, the Company anticipates that expenditures of approximately $1,500,000 will be required for the expansion or relocation of properties which it plans to complete during 1996 in order to serve its customers and meet the needs of the citizens in the communities served by the Banks. In addition, the Company has entered into definitive merger agreements for the acquisition of three bank holding companies. These acquisitions are expected to be consummated during the second and third quarters of 1996. The cash required to consummate these transactions is expected to be approximately $6,000,000. 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. COMPARISON OF STATEMENTS OF INCOME: THREE MONTHS ENDED MARCH 31, 1996 AND 1995 The net interest margin was 5.35% and 5.68% during the three months ended March 31, 1996 and 1995, respectively, a decrease of 5.8%. This decrease in net interest margin was the result of an increase of 43 basis points in average rate paid on interest-bearing liabilities. Net interest income on a taxable-equivalent basis was $4,179,000 as compared to $3,877,000 during the three months ended March 31, 1996 and 1995, respectively, representing an increase of 7.9%. The provision for loan losses is a charge to earnings in the current period to replenish the allowance for loan losses and maintain it at the level management determines is adequate. The provision for loan losses charged to earnings amounted to $180,000 during the three months ended March 31, 1996 and 1995. 9 RESULTS OF OPERATIONS (CONTINUED) Following is a comparison of noninterest income for the three months ended March 31, 1996 and 1995. (dollars in thousands) Three Months Ended ------------------ % Inc Mar 1996 Mar 1995 (Dec) -------- -------- -------- Service charges on deposits $668 $602 10.96 % Other service charges, commissions & fees 233 229 1.74 % Other income 26 55 (52.72)% Total noninterest income ---- ---- ------- $927 $886 4.63 % ==== ==== ======= The increase in service charges on deposits for the three months ended March 31, 1996 as compared to March 31, 1995 is attributable to an increase in average deposits. The increase in other service charges and fees is attributable to an increase in the volume of loans. Following is an analysis of noninterest expense for the three months ended March 31, 1996 and 1995. (dollars in thousands) Three Months Ended ------------------ % Inc Mar 1996 Mar 1995 (Dec) -------- -------- -------- Salaries and employee benefits $1,670 $1,519 9.94 % Occupancy and equipment expense 477 510 (6.47)% Deposit insurance premium 3 145 (97.93)% Data processing fees 346 337 2.67 % Other expense 521 489 6.54 % Total noninterest expense ------ ------ ------- $3,017 $3,000 0.57% ====== ====== ======= Salaries and employee benefits for the three months ended March 31, 1996 were $151,000 higher than during the same period in 1995. Salaries increased $55,000; bonuses increased $62,000; and employee benefits increased $34,000. 10 RESULTS OF OPERATIONS (CONTINUED) Following is a condensed summary of net income during the three months ended March 31, 1996 and 1995. (dollars in thousands) Three Months Ended ---------------------- Inc Mar 1996 Mar 1995 (Dec) --------- -------- -------- Net interest income $4,110 $3,810 $300 Provision for loan losses 180 180 0 Other income 927 885 42 Other expense 3,017 3,000 17 ------ ------ ---- Income before income taxes 1,840 1,515 325 Applicable income taxes 605 487 118 ------ ------ ---- Net income $1,235 $1,028 $207 ====== ====== ==== COMPARISON OF BALANCE SHEETS: MARCH 31, 1996 AND DECEMBER 31, 1995 Total assets decreased by $6.1 million or 1.81% to $335.6 million at March 31, 1996 from $341.8 million at December 31, 1995. Average total assets increased by $7.6 million or 2.35% to $330.3 million for the quarter ended March 31, 1996 from $322.7 million for the quarter ended December 31, 1995. Total earning assets increased by $13.0 million or 4.32% to $314.1 million at March 31, 1996 from $301.1 million at December 31, 1995. Average earning assets increased by $25.1 million or 8.73% to $312.7 million for the quarter ended March 31, 1996 from $287.6 million for the quarter ended December 31, 1995. Total loans, net of the allowance for loan losses, increased by $9.0 million or 4.27% to $218.9 million at March 31, 1996 from $210.0 million at December 31, 1995. Average net loans increased by $4.4 million or 2.10% to $212.8 million for the quarter ended March 31, 1996 from $208.5 million for the quarter ended December 31, 1995. Total deposits decreased by $8.6 million or 2.85% to $293.4 million at March 31, 1996 from $302.0 million at December 31, 1995. Average deposits increased by $10.6 million or 3.75% to $293.7 million for the quarter ended March 31, 1996 from $283.1 million for the quarter ended December 31, 1995. Approximately 17% of average deposits were noninterest-bearing during the three months ended March 31, 1996 and December 31, 1995. 11 RESULTS OF OPERATION (CONTINUED) 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 nonaccruing, 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 1.98% and 2.03% of total loans outstanding at March 31, 1996 and December 31, 1995, respectively. Loan charge-offs and charge-off recoveries amounted to $33,000 net recoveries and $146,000 net charge-offs during the three months ended March 31, 1996 and December 31, 1995, respectively. Management considers the quarter-end allowance for loan losses adequate to cover potential losses in the loan portfolio. 12 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, 1996. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K A. Exhibits - None. B. There have been no reports filed on Form 8-K for the quarter ended March 31, 1996. 13 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 - ----------------------- ------------------------------------ DATE W. EDWIN LANE, JR. EXECUTIVE VICE PRESIDENT & CHIEF FINANCIAL OFFICER (Duly authorized officer and principal financial/accounting officer) 14