10-K405 1 0001.txt FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 2000 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to Commission file number: 0-16181 ABC BANCORP (A GEORGIA CORPORATION) I.R.S. EMPLOYER IDENTIFICATION NUMBER 58-1456434 24 2nd AVENUE, S.E., MOULTRIE, GEORGIA 31768 TELEPHONE NUMBER: (229) 890-1111 Securities registered pursuant to Section 12(b) of the Act None Securities registered pursuant to Section 12(g) of the Act Common Stock, Par Value $1 Per Share Check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| Check if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |X| As of March 1, 2001, registrant had outstanding 8,409,208 shares of common stock, $1 par value per share, which is registrant's only class of common stock. The aggregate market value of the voting stock held by nonaffiliates of the registrant was approximately $88.7 million. DOCUMENTS INCORPORATED BY REFERENCE The information required by Part III of this Annual Report is incorporated by reference from the Registrant's definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Annual Report. PART I ITEM 1. BUSINESS OF THE COMPANY AND THE SUBSIDIARY BANKS ABC Bancorp ("ABC") was organized as a bank holding company under the Federal Bank Holding Company Act of 1956, as amended in 1981 (the "BHCA"), and the bank holding company laws of Georgia. ABC provides, through its commercial bank subsidiaries described below (sometimes hereinafter referred to as the "Banks"), banking services to individuals and businesses in southwestern and southcentral Georgia and southeastern Alabama. ABC's executive office is located at 24 2nd Avenue, S.E., Moultrie, Georgia 31768, and its telephone number is (229) 890-1111. As a registered bank holding company, ABC is subject to the applicable provisions of the Federal Bank Holding Company Act and the Georgia Bank Holding Company Act, as well as to supervision by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation and the State of Georgia Department of Banking and Finance. ABC's primary business as a bank holding company is to manage the business and affairs of the Banks. The Banks provide a broad range of retail and commercial banking services to its customers, including checking, savings, NOW and money market accounts and time deposits of various types; loans for business, agriculture, real estate, personal uses, home improvement and automobiles, credit cards; letters of credit; trust services; brokerage services through PFIC Securities Corporation; fixed rate annuities through PFIC Corporation; IRA's; safe deposit box rentals; bank money orders; and electronic funds transfer services, including wire transfers and automated teller machines. ABC maintains a diversified loan portfolio and makes no foreign or energy-related loans. While ABC has decentralized certain of its management responsibilities, it maintains efficient centralized operating systems. As a result, corporate policy, strategy and certain administrative policies are established by ABC's board of directors, while lending and community-specific marketing decisions are made primarily by each bank to allow it to respond to differing needs and demands of its own market. Data processing functions are centralized in the ABC's data processing division located in Moultrie, Georgia. Within this framework, the Banks focus on providing personalized services and quality products to their customers to meet the needs of the communities they serve. ABC's objective is to establish itself as a major financial institution in south Georgia and southeast Alabama. Management has pursued this objective through an acquisition-oriented growth strategy and a prudent operating strategy. As a bank holding company, ABC performs central data processing functions, purchasing functions and other common functions and provides certain management services for its subsidiaries. Normal banking services are conducted by the Banks. 1 Subsidiary Banks Following is a list of the Banks, the market areas served by the Banks and the estimated relative size of the Banks as compared with their major competitors.
Estimated Relative Size Subsidiary Bank Principal Market Area Among Competitors ---------------------------- ------------------------------------------ ---------------------------------------- American Banking Company Moultrie and Colquitt County, Georgia Second largest of three banks in Colquitt County, Georgia Heritage Community Bank Quitman and Brooks County, Georgia Second largest of four banks in Brooks County, Georgia Bank of Thomas County Coolidge, Thomasville and Thomas County, Fifth largest of eight banks in Thomas Georgia County, Georgia Citizens Security Bank Tifton and Tift County, Ocilla and Irwin Third largest of seven banks in Tift County, Douglas and Coffee County, Georgia County, Georgia Cairo Banking Company Cairo and Grady County, Meigs and Thomas Second largest of six banks in Grady County, Georgia County, Georgia Southland Bank Dothan, Abbeville, Clayton, Eufaula and Fifth largest of eleven banks in Houston Headland, Alabama County, Alabama Central Bank & Trust Company Cordele and Crisp County, Georgia Third largest of six banks in Crisp County, Georgia First National Bank of South Albany and Dougherty County, Georgia and Fifth largest of eight banks in Georgia Lee County, Georgia Dougherty County, Georgia Merchants & Farmers Bank Donalsonville and Seminole County, Georgia Second largest of three banks in Seminole County, Georgia
All of the Banks offer traditional loan and deposit services discussed elsewhere in this Annual Report on Form 10-K. Only American Banking Company provides trust services directly to its customers and to the customers of the other subsidiary banks. All of the Banks maintain correspondent relationships with other commercial banks and the Federal Home Loan Bank of Atlanta. As compensation for services provided by the correspondent banks, the Banks maintain certain balances in noninterest-bearing accounts with those banks. The principal correspondent bank for all of the Banks is SunTrust Bank in Atlanta, Georgia. Market Area and Competition ABC's market area is located in South Georgia and Southeastern Alabama. The Banks' main offices and larger branches are located in the southern Georgia cities of Albany, Cairo, Cordele, Donalsonville, Douglas, Moultrie, Ocilla, Quitman, Thomasville, Tifton and Valdosta, and the southern Alabama cities of Abbeville, Clayton, Dothan, Eufaula and Headland. The Banks have a total of 28 offices located in either the cities or counties in which the main offices are located or in nearby cities. ABC's banking facilities are located in communities whose economies are based primarily on agriculture, manufacturing and light industry. Textiles, meat processing and aluminum processing are among the leading manufacturing industries in ABC's market area. The banking industry in Georgia and Alabama is highly competitive. In recent years, intense market demands, economic pressures, fluctuating interest rates and increased customer awareness of product and service differences among financial institutions have forced banks to diversify their services and become more cost effective. Each of the Banks faces strong competition in attracting deposits and making loans. Their most direct competition for deposits comes from other commercial banks, thrift institutions, credit unions and issuers of securities such as brokerage firms. Interest rates, convenience of office locations and marketing are all significant factors in the Banks' competition for deposits. 2 Market Area and Competition (Continued) Competition for loans comes from other commercial banks, thrift institutions, savings banks, insurance companies, consumer finance companies, credit unions and other institutional lenders. The Banks compete for loan originations through the interest rates and loan fees they charge and the efficiency and quality of services they provide. Competition is affected by the general availability of lendable funds, general and local economic conditions, current interest rate levels and other factors that are not readily predictable. Management expects that competition will become more intense in the future due to changes in state and federal laws and regulations and the entry of additional bank and nonbank competitors. See "Supervision and Regulation". Lending Policy ABC has sought to maintain a comprehensive lending policy that meets the credit needs of each of the communities served by the Banks, including low- and moderate-income customers, and to employ lending procedures and policies consistent with this approach. All loans are subject to ABC's written loan policy, which is updated annually and which provides that lending officers have sole authority to approve loans of various maximum amounts depending upon their seniority and experience. Each bank's president has sole discretion to approve loans in varying principal amounts up to specified limits for each president. Each bank's board of directors reviews and approves loans that exceed management's lending authority and, in certain instances, other types of loans. New credit extensions are reviewed daily by each bank's senior management and at least monthly by its board of directors. The lending officers at each bank have authority to make loans only in the county in which the Bank is located and its contiguous counties. ABC's lending policy requires analysis of the borrower's projected cash flow and ability to service the debt. For agricultural loans, which constitute a significant portion of ABC's consolidated loan portfolio, the lending officer visits the borrower regularly during the growing season and re-evaluates the loan in light of the borrower's updated cash flow projections. Under ABC's ongoing loan review program, all loans are subject to sampling and objective review by an assigned loan reviewer who is independent of the originating loan officer. ABC actively markets its services to qualified lending customers in both the commercial and consumer sectors. ABC's commercial lending officers actively solicit the business of new companies entering the market as well as longstanding members of that market's business community. Through personalized professional service and competitive pricing, ABC has been successful in attracting new commercial lending customers. At the same time, ABC actively advertises its consumer loan products and continually seeks to make its lending officers more accessible. Each bank continually monitors its loan portfolio to identify areas of concern and to enable management to take corrective action when necessary. Each bank's lending officers and board of directors meet periodically to review all past due loans, the status of large loans and certain other matters. Individual lending officers are responsible for reviewing collection of past due amounts and monitoring any changes in the financial status of the borrowers. Lending Activities General. ABC provides a broad range of commercial and retail lending services to corporations, partnerships and individuals, including agricultural, commercial business loans, commercial and residential real estate construction and mortgage loans, loan participations, consumer loans, revolving lines of credit and letters of credit. The loan department of each bank makes direct and indirect loans to consumers and originates and services residential mortgages. Real Estate Loans. ABC's real estate loans are for a term of years, although rarely more than ten, over which period the principal thereof is amortized, and are generally secured by residential real estate, farmland or commercial real estate. Real estate related loans represent a significant portion of the loan portfolio. Agricultural Loans. ABC's agricultural loans are made for crop production expenses or to finance the purchase of farm-related equipment. Agricultural loans typically involve seasonal fluctuations in amounts. Although ABC typically looks to an agricultural borrower's cash flow as the principal source of repayment, agricultural loans are also generally secured by a security interest in the crops or the farm-related equipment and, in some cases, an assignment of crop insurance or a mortgage on real estate. In addition, a portion of ABC's agricultural loans are guaranteed by the FmHA Guaranteed Loan Program. 3 Lending Activities (Continued) Commercial and Industrial Loans. General commercial and industrial loans consist of loans made primarily to manufacturers, wholesalers and retailers of goods, service companies and other industries. Management believes that a significant portion of these loans are, to varying degrees, agricultural-related. See "--Agricultural-Related Loans." The Banks have also generated loans which are guaranteed by the U. S. Small Business Administration. Management believes that making such loans helps the local community and also provides ABC with a source of income and solid future lending relationships as such businesses grow and prosper. The primary repayment risk for commercial loans is the failure of the business due to economic or financial factors. Although ABC typically looks to a commercial borrower's cash flow as the principal source of repayment for such loans, many commercial loans are secured by inventory, equipment, accounts receivable and other assets. Consumer Lending. ABC's consumer loans include motor vehicle, home improvement, home equity, student and signature loans and small personal credit lines. Many of the Banks also offer credit cards to their customers. Compliance with Community Reinvestment Act. Each of the Banks has a Community Reinvestment Act Officer who develops and oversees that Bank's Community Reinvestment Act program and makes monthly reports to that Bank's board of directors. The Banks regularly sponsor or participate in community programs designed to ascertain and meet the credit needs of each of the communities they serve, including low and moderate income neighborhoods. Some of these activities include sponsoring minority festivals during Black History Month, participating in community meetings to explain the availability of Small Business Administration, Farmers' Home Loan Administration and Regional Development Center loans, and sponsoring educational seminars for area farmers. In addition, each of the Banks participate in the Georgia Residential Finance Authority program which makes low interest rate loans to rehabilitate low income rental housing. Trust Services ABC provides personal trust and employee benefit services to its customers through a contractual arrangement with Reliance Trust Company. Deposits Checking, savings and money market accounts and other time accounts are the primary sources of the Banks' funds for loans and investments. The Banks obtain most of their deposits from individuals and from businesses in their respective market areas. The Banks have not had to attract new or retain old deposits by paying depositors rates of interest on certificates of deposit, money market and other interest-bearing accounts significantly above rates paid by other banks in the Banks' respective market areas. In the future, increasing competition among banks in the Banks' market areas may cause the Banks' interest margins to shrink. The Banks have never accepted deposits for which a broker's commission was paid. Investment Activities ABC's investment policy is designed to maximize income from funds not needed to meet loan demand in a manner consistent with appropriate liquidity and risk objectives. Under this policy, the Banks may invest in federal, state and municipal obligations, public housing authority bonds, industrial development revenue bonds and Government National Mortgage Association ("GNMA") securities. The Banks' investments must satisfy certain investment quality criteria. The Bank's investments must be rated at least "BAA" by either Moody's or Standard and Poor's. Securities rated below "A" are periodically reviewed for creditworthiness. The Banks may purchase non-rated municipal bonds only if the issuer of such bonds is located in a Bank's general market area and such bonds are determined by the purchasing Bank to have a credit risk no greater than the minimum ratings referred to above. Industrial development authority bonds, which normally are not rated, are purchased only if the issuer is located in the purchasing Bank's market area and if the bonds are considered to possess a high degree of credit soundness. The Banks typically have not purchased a significant amount of GNMA securities, which normally have higher yields than the Banks' other investments. While ABC's investment policy permits the Banks to trade securities to improve the quality of yields or marketability or to realign the composition of the portfolio, the Banks historically have not done so to any significant extent. 4 Investment Activities (Continued) ABC's investment committee implements the investment policy and portfolio strategies, monitors the portfolio and reports to each Bank's board and ALCO committees. Reports on all purchases, sales, net profits or losses and market appreciation or depreciation of the bond portfolio are reviewed by ABC's board of directors each month. Once a year, the written investment policy is reviewed by ABC's board of directors. The Banks' securities are kept in safekeeping accounts at correspondent banks. Asset/Liability Management It is the objective of ABC to manage its assets and liabilities to provide a satisfactory, consistent level of profitability within the framework of established cash, loan, investment, borrowing and capital policies. It is the overall philosophy of ABC's management to support asset growth primarily through growth of core deposits, which include deposits of all categories made by individuals, partnerships, corporations and other entities. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Properties The table below sets forth the location, size and other information with respect to ABC's real properties. All properties are owned by ABC or the Banks and are unencumbered. Approximate Square Offices Used By Footage --------------------------------------------- --------------------- ----------- 310 First Street, S.E., Moultrie, GA ABC 7,000 317 S. Main Street, Moultrie, GA ABC 2,200 308-314 First Street, S.E., Moultrie, GA ABC 4,000 24 Second Avenue, S. E., Moultrie, GA ABC 15,500 305 South Main Street, Moultrie, GA ABC and American Bank 7,048 225 South Main Street, Moultrie, GA American Bank 9,000 1707 First Avenue, S.E., Moultrie, GA American Bank 5,500 137 Broad Street, Doerun, GA American Bank 3,860 2513 South Main Street, Moultrie, GA American Bank 3,973 1000 West Screven Street, Quitman, GA Heritage Bank 11,530 Eastern Brooks County, GA Heritage Bank 1,100 3140 Inner Primeter Road, Valdosta, GA Heritage Bank 3,462 1011 South Pine Street, Coolidge, GA Thomas Bank 4,000 111 E. Eighth Street, Tifton, GA Citizens Security Bank 11,700 804 W. Second Street, Tifton, GA Citizens Security Bank 2,000 301 South Irwin Avenue, Ocilla, GA Citizens Security Bank 10,000 100 South Pearle Avenue, Douglas, GA Citizens Security Bank 3,100 201 South Broad Street, Cairo, GA Cairo Bank 10,000 Hwy. 84 Drive-in, Cairo, GA Cairo Bank 1,000 12 East Depot Street, Meigs, GA Cairo Bank 2,700 2484 East Pinetree Boulevard, Thomasville, GA Thomas Bank 4,800 3299 Ross Clark Circle, Dothan, AL Southland Bank 21,918 1817 S. Oates St., Dothan, AL Southland Bank 2,500 1970 Reeves Street, Dothan, AL Southland Bank 2,500 204 Kirkland St., Abbeville, AL Southland Bank 5,300 33 Eufaula St., Clayton, AL Southland Bank 4,500 1140 S. Eufaula Ave., Eufaula, AL Southland Bank 2,650 208 Main St., Headland, AL Southland Bank 2,037 502 Second Street South, Cordele, GA Central Bank 5,800 1302 Sixteenth Avenue East, Cordele, GA Central Bank 300 2627 Dawson Road, Albany, GA First National Bank 8,750 1607 U. S. Highway 19 South, Leesburg, GA First National Bank 7,000 109 W. Third St., Donalsonville, GA M & F Bank 8,800 Hwy 374 and 253, Donalsonville, GA M & F Bank 840 5 Employees At December 31, 2000, ABC and its subsidiaries employed 375 full-time employees and 50 part-time employees. ABC considers its relationship with its employees to be excellent. ABC has adopted two retirement plans for its employees, the ABC Bancorp 401(k) Profit Sharing Plan and the ABC Bancorp Money Purchase Pension Plan. These plans provide both deferral of compensation by the employees and matching contributions by the Company. ABC and the Banks made contributions for all eligible employees in 2000. ABC also maintains a comprehensive employee benefits program providing, among other benefits, hospitalization and major medical insurance and life insurance. Management considers these benefits to be competitive with those offered by other financial institutions in south Georgia and southeast Alabama. ABC's employees are not represented by any collective bargaining group. SUPERVISION AND REGULATION General As a bank holding company, the Company is subject to the regulation and supervision of the Federal Reserve Board (the "FRB") and the Georgia Department of Banking and Finance (the "DBF"). The Banks are subject to supervision and examination by applicable state and federal banking agencies, including the FRB, the Office of the Comptroller of the Currency (the "OCC"), the Federal Deposit Insurance Corporation (the "FDIC"), the DBF and the State of Alabama Department of Banking. The Banks are also subject to various requirements and restrictions under federal and state law, including requirements to maintain reserves against deposits, restrictions on the types and amounts of loans that may be granted and the interest that may be charged thereon, and limitations on the types of investments that may be made and the types of services that may be offered. Various consumer laws and regulations also affect the operations of the Banks. In addition to the impact of regulation, commercial banks are affected significantly by the actions of the FRB as it attempts to control the money supply and credit availability in order to influence the economy. The Federal Bank Holding Company Act requires every bank holding company to obtain the prior approval of the FRB before (i) it may acquire direct or indirect ownership or control of more than 5% of the voting shares of any bank that it does not already control; (ii) it or any of its subsidiaries, other than a bank, may acquire all or substantially all of the assets of a bank; and (iii) it may merge or consolidate with any other bank holding company. In addition, until recently, a bank holding company has generally been prohibited from engaging in, or acquiring, direct or indirect control of the voting shares of any company engaged in non-banking activities. In addition, the DBF requires information with respect to the financial condition, operations, management and intercompany relationships of ABC and the Banks and related matters. The DBF may also require such other information as is necessary to keep itself informed as to whether the provisions of Georgia law and the regulations and orders issued thereunder by the DBF have been complied with, and the DBF may examine ABC. ABC is an "affiliate" of the Banks under the federal Reserve Act, which imposes certain restrictions on (i) loans by the Banks to ABC; (ii) investments in the stock or securities of ABC by the Banks; (iii) the Bank's taking the stock or securities of an "affiliate" as collateral for loans by the Banks to a borrower; and (iv) the purchase of assets from ABC by the Banks. Further, a bank holding company and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit, lease or sale of property or furnishing of services. The GLB Act On November 12, 1999, then-President Clinton signed into law the Gramm-Leach-Bliley Act (the "GLB Act"), which significantly changed the regulatory structure and oversight of ABC and its subsidiaries. The GLB Act revises the Bank Holding Company Act and repeals the affiliation provisions of the Glass-Steagall Act of 1933, permitting a qualifying holding company, called a "financial holding company", to engage in a full range of financial activities, including banking, insurance and securities activities, as well as merchant banking and additional activities that are "financial in nature" or "incidental" to such financial activities. The GLB Act thus provides expanded financial affiliation opportunities for existing bank holding companies by allowing bank holding companies to engage in activities such as securities underwriting and the underwriting and brokering of insurance products. The GLB Act also expands passive investments by financial holding companies in any type of company, financial or nonfinancial, through merchant banking and insurance company investments. In order for a bank holding company to qualify as a financial holding company, its subsidiary depository institutions must be "well-capitalized" and "well-managed" and have at least a "satisfactory" rating under the CRA. See "--Community Reinvestment Act." 6 The GLB Act (Continued) The GLB Act also reforms the regulatory framework of the financial services industry. Under the GLB Act, financial holding companies are subject to primary supervision by the FRB, while current federal and state regulators of financial holding company regulated subsidiaries such as insurers, broker-dealers, investment companies and banks generally retain their jurisdiction and authority. In order to implement its underlying purposes, the GLB Act preempts state laws that restrict the establishment of financial affiliations authorized or permitted under the GLB Act, subject to specified exceptions for state insurance regulators. The GLB Act also removes the current blanket exemption for banks from the broker-dealer registration requirements under the Securities Exchange Act of 1934, as amended, amends the Investment Company Act of 1940, as amended, with respect to bank common trust fund and mutual fund activities, and amends the Investment Advisers Act of 1940, as amended, to require registration of banks that act as investment advisers to mutual funds. Effective March 11, 2000, a bank holding company whose banking subsidiaries are all well-capitalized and well-managed could apply to become a financial holding company. Financial holding companies have the authority to engage in activities that are "financial in nature" that are not permitted for other bank holding companies. Some of the activities that the G-L-B Act provides are financial in nature are: (a) lending, exchanging, transferring, investing for others or safeguarding money or securities; (b) insuring, guaranteeing, or indemnifying against loss, harm, damage, illness, disability or death, or providing and issuing annuities and acting as principal, agent or broker with respect thereto; (c) providing financial, investment or economic advisory services, including advising an investment company; (d) issuing or selling instruments representing interests in pools of assets permissible for a bank to hold directly; and (e) underwriting, dealing in or making a market in securities. A bank holding company that qualifies as a financial holding company may engage in activities that are financial in nature or incident to activities which are financial in nature. A bank holding company may qualify to become a financial holding company if: (a) each of its depository institution subsidiaries is "well capitalized"; (b) each of its depository institution subsidiaries is "well managed"; (c) each of its depository institution subsidiaries has at least a "satisfactory" Community Reinvestment Act rating at its most recent examination; and (d) it has filed a certification with the FRB that it elects to become a financial holding company. As of December 31, 2000, ABC has registered as a financial holding company with the FRB. Payment of Dividends and Other Restrictions ABC is a legal entity separate and distinct from its subsidiaries. There are various legal and regulatory limitations under federal and state law on the extent to which ABC's subsidiaries can pay dividends or otherwise supply funds to ABC. The principal source of ABC's cash revenues is dividends from its subsidiaries and there are certain limitations under federal and state laws on the payment of dividends by such subsidiaries. The prior approval of applicable regulatory authorities, as the case may be, is required if the total dividends declared by any subsidiary bank in any calendar year exceeds the Bank's net profits (as defined) for that year combined with its retained net profits for the preceding two calendar years, less any required transfers to surplus or a fund for the retirement of any preferred stock or 50% of the Bank's net profits for the previous year in the case of Georgia banks. The relevant federal and state regulatory agencies also have authority to prohibit a state member bank or bank holding company, which would include ABC and the Banks, from engaging in what, in the opinion of such regulatory body, constitutes an unsafe or unsound practice in conducting its business. The payment of dividends could, depending upon the financial condition of the subsidiary, be deemed to constitute such an unsafe or unsound practice. 7 Payment of Dividends and Other Restrictions (Continued) Under Georgia law (which would apply to any payment of dividends by the Georgia Banks to ABC), the prior approval of the DBF is required before any cash dividends may be paid by a state bank if: (i) total classified assets at the most recent examination of such bank exceed 80% of the equity capital (as defined, which includes the reserve for loan losses) of such bank; (ii) the aggregate amount of dividends declared or anticipated to be declared in the calendar year exceeds 50% of the net profits (as defined) for the previous calendar year; or (iii) the ratio of equity capital to adjusted total assets is less than 6%. Retained earnings of the Banks available for payment of cash dividends under all applicable regulations without obtaining governmental approval were approximately $9.5 million as of December 31, 2000. In addition, the Banks are subject to limitations under Section 23A of the Federal Reserve Act with respect to extensions of credit to, investments in, and certain other transactions with, ABC. Furthermore, loans and extensions of credit are also subject to various collateral requirements. The FRB has issued a policy statement on the payment of cash dividends by bank holding companies, which expresses the FRB's view that a bank holding company should pay cash dividends only to the extent that the holding company's net income for the past year is sufficient to cover both the cash dividends and a rate of earning retention that is consistent with the holding company's capital needs, asset quality and overall financial condition. The FRB also indicated that it would be inappropriate for a holding company experiencing serious financial problems to borrow funds to pay dividends. Furthermore, under the prompt corrective action regulations adopted by the FRB, the FRB may prohibit a bank holding company from paying any dividends if one or more of the holding company's bank subsidiaries are classified as undercapitalized. Bank holding companies are required to give the FRB prior written notice of any purchase or redemption of its outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of their consolidated net worth. The FRB may disapprove such a purchase or redemption if it determines that the proposal would continue an unsafe or unsound practice or would violate any law, regulation, FRB order, or any condition imposed by, or written agreement with, the FRB. This notification requirement does not apply to any company that meets the well-capitalized standard for commercial banks, has a safety and soundness examination rating of at least a "2" and is not subject to any unresolved supervisory issues. Capital Adequacy The FRB has adopted risk-based capital guidelines for bank holding companies. The minimum ratio of total capital to risk-weighted assets (including certain off-balance sheet items, such as standby letters of credit) is 8%. At least half of the total capital is to be composed of common stock, minority interests in the equity accounts of consolidated subsidiaries, noncumulative perpetual preferred stock and a limited amount of perpetual preferred stock, less goodwill ("Tier I capital"). The remainder may consist of subordinated debt, other preferred stock and a limited amount of loan loss reserves. In addition, the FRB has established minimum leverage ratio guidelines for bank holding companies. These guidelines provide for a minimum ratio of Tier I capital to total assets, less goodwill (the leverage ratio) of 3% for bank holding companies that meet certain specified criteria, including those having the highest regulatory rating. All other bank holding companies generally are required to maintain a leverage ratio of at least 3% plus an additional cushion of 100 to 200 basis points. The guidelines also provide that bank holding companies experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets. Furthermore, the FRB has indicated that it will consider a tangible Tier I capital leverage ratio (deducting all intangibles) and other indications of capital strength in evaluating proposals for expansion or new activities. Section 38 to the Federal Deposit Insurance Act, as revised in December 1992, implements the prompt corrective action provisions that Congress enacted as a part of the Federal Deposit Insurance Corporation Improvement Act of 1991 (the "FDIC Act"). The "prompt corrective action" provisions set forth five regulatory zones in which all banks are placed largely based on their capital positions. Regulators are permitted to take increasingly harsh action as a bank's financial condition declines. Regulators are also empowered to place in receivership or require the sale of a bank to another depository institution when a bank's capital leverage ratio reaches two percent. Better capitalized institutions are generally subject to less onerous regulation and supervision than banks with less amounts of capital. 8 Capital Adequacy (Continued) Under the regulations of the FDIC implementing the prompt corrective action provisions of the FDIC Act, financial institutions are placed in the following five categories based upon capitalization ratios: (i) a "well capitalized" institution has a total risk-based capital ratio of at least 10%, a Tier I risk-based ratio of at least 6% and a leverage ratio of at least 5%; (ii) an "adequately capitalized" institution has a total risk-based capital ratio of at least 8%, a Tier I risk-based ratio of at least 4% and a leverage ratio of at least 4%; (iii) an "undercapitalized" institution has a total risk-based capital ratio of under 8%, a Tier I risk-based ratio of under 4% or a leverage ratio of under 4%; (iv) a "significantly undercapitalized" institution has a total risk-based capital ratio of under 6%, a Tier I risk-based ratio of under 3% or a leverage ratio of under 3%; and (v) a "critically undercapitalized" institution has a leverage ratio of 2% or less. Institutions in any of the three undercapitalized categories would be prohibited from declaring dividends or making capital distributions. The FDIC regulations also establish procedures for "downgrading" an institution to a lower capital category based on supervisory factors other than capital. The downgrading of an institution's category is automatic in two situations: (i) whenever an otherwise well-capitalized institution is subject to any written capital order or directive; and (ii) where an undercapitalized institution fails to submit or implement a capital restoration plan or has its plan disapproved. The federal banking agencies may treat institutions in the well-capitalized, adequately capitalized and undercapitalized categories as if they were in the next lower level based on safety and soundness considerations relating to factors other than capital levels. All insured institutions regardless of their level of capitalization are prohibited by the FDIC Act from paying any dividend or making any other kind of capital distribution or paying any management fee to any controlling person if following the payment or distribution the institution would be undercapitalized. While the prompt corrective action provisions of the FDIC Act contain no requirements or restrictions aimed specifically at adequately capitalized institutions, other provisions of the FDIC Act and the agencies' regulations relating to deposit insurance assessments, brokered deposits and interbank liabilities treat adequately capitalized institutions less favorably than those that are well-capitalized. Under the FDIC's regulations, all of the Banks are "well capitalized" institutions. The OCC's regulations establish two capital standards for national banks: a leverage requirement and a risk-based capital requirement. In addition, the OCC may, on a case-by-case basis, establish individual minimum capital requirements for a national bank that vary from the requirements which would otherwise apply under OCC regulations. A national bank that fails to satisfy the capital requirements established under the OCC's regulations will be subject to such administrative action or sanctions as the OCC deems appropriate. The leverage ratio adopted by the OCC requires a minimum leverage ratio of 3% for national banks rated composite 1 under the CAMEL rating system for banks. National banks not rated composite 1 under the CAMEL rating system for banks are required to maintain a minimum leverage ratio of 4% to 5%, depending upon the level and nature of risks of their operations. For purposes of the OCC's leverage requirement, Tier I capital generally consists of common stockholders' equity and retained income and certain non-cumulative perpetual preferred stock and related income, except that no intangibles and certain purchased mortgage servicing rights and purchased credit card relationships may be included in capital. The risk-based capital requirements established by the OCC's regulations require national banks to maintain total capital equal to at least 8% of total risk-weighted assets. For purposes of the risk-based capital requirement, total capital means Tier 1 capital plus Tier 2 capital, provided that the amount of Tier 2 capital may not exceed the amount of Tier 1 capital, less certain assets. The components of Tier 2 capital include certain permanent and maturing capital instruments that do not qualify as core capital and general valuation loan and lease loss allowances up to a maximum of 1.25% of risk-weighted assets. The OCC has revised its risk-based capital requirements to permit the OCC to require higher levels of capital for an institution in light of its interest rate risk. In addition, the OCC has proposed that a bank's interest rate risk exposure would be qualified using either the measurement system set forth in the proposal or the institution's internal model for measuring such exposure, if such model is determined to be adequate by the institution's examiner. Small institutions that are highly capitalized and have minimum interest rate risk would be exempt from the rule unless otherwise determined by the OCC. ABC has not determined what effect, if any, the OCC's proposed interest rate risk component would have on ABC's national bank subsidiary's capital if adopted as proposed. 9 Support of Subsidiary Banks Under the FRB policy, ABC is expected to act as a source of financial strength to, and to commit resources to support, each of the Banks. This support may be required at times when, absent such FRB policy, ABC may not be inclined to provide it. In the event of a bank holding company's bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to a priority of payment. Under the Financial Institutions Reform, Recovery and Enforcement Act, a depository institution insured by the FDIC can be held liable for any loss incurred by, or reasonably expected to be incurred by, the FDIC in connection with (i) the default of a commonly controlled FDIC-insured depository institution or (ii) any assistance provided by the FDIC to any commonly controlled FDIC-insured depository institution in danger of default. "Default" is defined generally as the appointment of a conservator or receiver, and "in danger of default" is defined generally as the existence of certain conditions indicating that a default is likely to occur in the absence of regulator assistance. The FDIC's claim for damages is superior to claims of depositors, secured creditors and holders of subordinated debt (other than affiliates) of the commonly controlled insured depository institution. FDIC Insurance Assessments The Banks are subject to FDIC deposit insurance assessments for the Bank Insurance Fund (the "BIF"), which as of December 31, 2000, ranged from 0 to 27 basis points per $100 of insured deposits, based on the risk a particular institution poses to its deposit insurance fund. The risk classification is based on an institution's capital group and supervisory subgroup assignment. On September 30, 1996, then-President Clinton signed the Deposit Insurance Fund Act of 1996 ("DIFA") which was part of the omnibus spending bill enacted by Congress at the end of its 1996 session. DIFA provides that the FDIC may not set semi-annual assessments with respect to the BIF in excess of the amount needed to maintain the 1.25% designated reserve ratio or, if the reserve ratio is less than the designated reserve ratio, to increase the reserve ratio to the designated reserve ratio. In addition, DIFA mandates the merger of BIF and the Savings Association Insurance Fund (the "SAIF"), effective January 1, 1999, only if no insured depository institution is a savings association on that date. The combined deposit insurance fund would be called the "deposit insurance fund" or "DIF". DIFA also imposes assessments against both SAIF and BIF deposits to avoid predicted default on the bonds issued by the Financing Corporation ("FICO") as deposits in savings institutions continue to decline. DIFA amends the Federal Home Loan Bank Act to impose the FICO assessment against both SAIF and BIF deposits beginning after December 31, 1996. The assessment imposed on insured depository institutions with respect to any BIF-assessable deposit will be assessed at a range equal to one-fifth of the rate (approximately 1.3 basis points) of the assessments imposed on insured depository institutions with respect to any SAIF-assessable deposit (approximately 6.7 basis points). The FICO assessment for 1996 was paid entirely by SAIF-insured institutions, but BIF-insured banks will pay the same FICO assessment as SAIF-insured institutions beginning as of the earlier of December 31, 2000, or the date as of which the last savings association ceases to exist. Community Reinvestment Act The Banks are subject to certain fair lending requirements and reporting obligations involving home mortgage lending operations and Community Reinvestment Act ("CRA") activities. The CRA generally requires the Federal banking agencies to evaluate the record of a financial institution in meeting the credit needs of its local communities, including low and moderate income neighborhoods. In addition to substantial penalties and corrective measures that may be required for a violation of certain fair lending laws, the Federal banking agencies may take compliance with such laws and CRA into account when regulating and supervising other activities. A bank's compliance with its CRA obligations is based on a performance-based evaluation system which bases CRA ratings on an institution's lending service and investment performance. When a bank holding company applies for approval to acquire a bank or other bank holding company, the FRB will review the assessment of each subsidiary bank of the applicant bank holding company, and such records may be the basis for denying the application. In connection with its assessment of CRA performance, the appropriate bank regulatory agency assigns a rating of "outstanding", "satisfactory", "needs to improve" or "substantial noncompliance". As of December 31, 2000, all of the Banks had a CRA rating of satisfactory or better. 10 Community Reinvestment Act (Continued) In 1995, the four federal bank regulatory agencies adopted revised regulations rendered to the CRA intended to set distinct assessment standards for financial institutions. The regulations contain three evaluation tests: (i) a lending test, which will compare the institution's market share of loans in low- and moderate-income areas to its market share of loans in its entire service area and the percentage of a bank's outstanding loans to low- and moderate-income areas or individuals; (ii) a services test, which will evaluate the provisions of services that promote the availability of credit to low- and moderate-income areas; and (iii) an investment test, which will evaluate an institution's record of investments in organizations designed to foster community development, small- and minority-owned businesses and affordable housing lending, including state and local government housing or revenue bonds. The regulation is designed to reduce some paperwork requirements of the current regulations and provide regulators, institutions and community groups with a more objective and predictable manner with which to evaluate the CRA performance of financial institutions. Congress and various federal agencies (including, in addition to the bank regulatory agencies, the Department of Housing and Urban Development, the Federal Trade Commission and the Department of Justice) (collectively, the "Federal Agencies") responsible for implementing the nation's fair lending laws have been increasingly concerned that prospective home buyers and other borrowers are experiencing discrimination in their efforts to obtain loans. In recent years, the Department of Justice has filed suit against financial institutions, which it determined had discriminated, seeking fines and restitution for borrowers who allegedly suffered from discriminatory practices. Nearly all of these suits have been settled (some for substantial sums) without a full adjudication on the merits. In 1994, the Federal Agencies, in an effort to clarify what constitutes lending discrimination and specify the factors the agencies will consider in determining if lending discrimination exists, announced a joint policy statement detailing specific discriminatory practices prohibited under the Equal Opportunity Act and the Fair Housing Act. In the policy statement, three methods of proving lending discrimination were identified: (i) over evidence of discrimination, when a lender blatantly discriminates on a prohibited basis; (ii) evidence of disparate treatment, when a lender treats applicants differently based on a prohibited factor even where there is no showing that the treatment was motivated by prejudice or a conscious intention to discriminate against a person; and (iii) evidence of disparate impact, when a lender applies a practice uniformly to all applicants, but the practice has a discriminatory effect, even where such practices are neutral on their face and are applied equally, unless the practice can be justified on the basis of business necessity. On September 23, 1994, the Reigle Community Development and Regulatory Improvement Act of 1994 (the "Regulatory Improvement Act") was passed. The Regulatory Improvement Act contains funding for community development projects through banks and community development financial institutions and also numerous regulatory relief provisions designed to eliminate certain duplicative regulations and paperwork requirements. The GLB Act makes various changes to the CRA. Among other changes, CRA agreements with private parties must be disclosed and annual CRA reports must be made to the Banks' primary federal regulators. Also, ABC cannot remain a financial holding company and no new activities authorized under the GLB Act may be thereafter commenced by ABC or its subsidiaries if any of the Banks receive less than a "satisfactory" CRA rating in its latest CRA examination. Other Regulatory Action On September 29, 1994, then-President Clinton signed the Reigle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Federal Interstate Act"), which amended federal law to permit bank holding companies to acquire existing banks in any state effective September 29, 1995, and to permit any interstate bank holding company to merge its various bank subsidiaries into a single bank with interstate branches after May 31, 1997. States had the authority to authorize interstate branching prior to June 1, 1997, or, alternatively, to opt out of interstate branching prior to that date. The Georgia Financial Institutions Code was amended in 1994 to permit the acquisition of a Georgia bank or bank holding company by out-of-state bank holding companies beginning July 1, 1995. On September 29, 1995, the interstate banking provisions of the Georgia Financial Institutions Code were superseded by the Federal Interstate Act. The Federal Interstate Act authorizes the OCC and FDIC to approve interstate branching de novo by national and state banks, respectively, only in states which specifically allow for such branching. The Federal Interstate Act also requires the appropriate federal banking agencies to prescribe regulations which prohibit any out-of-state bank from using the interstate branching authority primarily for the purpose of deposit production and include guidelines to ensure that interstate branches operated by an out-of-state bank in a host state are reasonably helping to meet the credit needs of the communities which they serve. 11 Other Regulatory Action (Continued) In February 1996, Georgia adopted the "Georgia Interstate Branching Act," which permits Georgia-based banks and bank holding companies owning or acquiring banks outside of Georgia and all non-Georgia banks and bank holding companies owning or acquiring banks in Georgia the right to merge any lawfully acquired bank into an interstate branch network. The Georgia Interstate Branching Act also allows banks to establish de novo branch banks. Monetary Policy The earnings of ABC are affected by domestic and foreign economic conditions, particularly by the monetary and fiscal policies of the United States government and its agencies. The FRB has had, and will continue to have, an important impact on the operating results of commercial banks through its power to implement national monetary policy in order, among other things, to mitigate recessionary and inflationary pressures by regulating the national money supply. The techniques used by the FRB include setting the reserve requirements of member banks and establishing the discount rate on member bank borrowings. The FRB also conducts open market transactions in United States government securities. Federal Home Loan Bank System All of the Banks have correspondent relationships with the Federal Home Loan Bank of Atlanta ("FHLB Atlanta"), which is one of 12 regional Federal Home Loan Banks ("FHLBs") that administer the home financing credit function of savings companies. Each FHLB serves as a reserve or central bank for its members within its assigned region. FHLBs are funded primarily from proceeds derived from the sale of consolidated obligations of the FHLB System and make loans to members (i.e., advances) in accordance with policies and procedures, established by the Board of Directors of the FHLB which are subject to the oversight of the Federal Housing Finance Board. All advances from the FHLB are required to be fully secured by sufficient collateral as determined by the FHLB. In addition, all long-term advances are required to provide funds for residential home financing. FHLB Atlanta provides certain services to certain of the Banks such as processing checks and other items, buying and selling Federal funds, handling money transfers and exchanges, shipping coin and currency, providing security and safekeeping of funds or other valuable items, and furnishing limited management information and advice. As compensation for these services, the Banks maintain certain balances with FHLB Atlanta in noninterest-bearing accounts. Under federal law, the FHLBs are required to provide funds for the resolution of troubled savings companies and to contribute to low- and moderately-priced housing programs through direct loans or interest subsidies on advances targeted for community investment and low- and moderate-income housing projects. Title 6 of the GLB Act, entitled the Federal Home Loan Bank System Modernization Act of 1999 ("FHLB Modernization Act"), has amended the Federal Home Loan Bank Act by allowing for voluntary membership and modernizing the capital structure and governance of the FHLBs. The new capital structure established under the FHLB Modernization Act sets forth new leverage and risk-based capital requirements based on permanence of capital. It also requires some minimum investment in the stock of the FHLBs of all member entities. Capital will include retained earnings and two forms of stock: Class A stock redeemable within six months, written notice and Class B stock redeemable within five years written notice. The FHLB Modernization Act provides a transition period to the new capital regime, which will not be effective until the FHLBs enact implementing regulations. The FHLB Modernization Act also reduces the period of time in which a member exiting the FHLB system must stay out of the system. Future Requirements Statutes and regulations are regularly introduced which contain wide-ranging proposals for altering the structure, regulations and competitive relationships of the nation's financial institutions. It cannot be predicted whether or in what form any proposed statute or regulation will be adopted or the extent to which the business of ABC or any of the Banks may be affected by such statute or regulation. 12 ITEM 2. PROPERTIES The principal properties of ABC consist of the properties of the Banks. For a description of the properties of the Banks, see "Item 1 - Business of ABC and the Banks - Properties" included elsewhere in this Annual Report. ITEM 3. LEGAL PROCEEDINGS Neither ABC nor any of the Banks is a party to, nor is any of their property the subject of, any material pending legal proceedings, other than ordinary routine proceedings incidental to the business of the Banks, nor to the knowledge of the management of ABC are any such proceedings contemplated or threatened against it or the Banks. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS No matters were submitted to a vote of ABC's shareholders during the fourth quarter of 2000. ITEM 4.5 EXECUTIVE OFFICERS The following table sets forth certain information with respect to the executive officers of ABC.
Name, Age and Position with the Principal Occupation for the Last Term as Officer Registrant Five Years and Other Directorships ------------------------------- ----------------------------- ----------------------------------- Kenneth J. Hunnicutt; 64; President, Chief Executive Chief Executive Officer of ABC Officer since 1981 Officer and Director Bancorp since 1994 and President since 1981. Mr. Hunnicutt served as Senior President of American Bank from 1989 to 1991 and as President of American Bank from 1975 to 1989 and currently serves as a director of each of the banks. Mark D. Thomas; 47; Executive Vice President, Executive Vice President and Chief Officer since July 20, 1999 Chief Operating Officer Operating Officer of ABC Bancorp and Director since July 20, 1999 and a director thereof since July 20, 1999. Mr. Thomas served in various capacities, including Senior Vice President and State Consumer Banking Executive for Tennessee for First Union National Bank from September 1977 through July 1999. W. Edwin Lane, Jr; 46: Executive Vice President Executive Vice President and Chief Officer since January 1, 1995 and Chief Financial Financial Officer of ABC Bancorp Officer since January 1, 1995. Mr. Lane served as Controller of First Liberty Bank, Macon, Georgia from August 1992 to December 1994. Mr. Lane was associated with Mauldin & Jenkins, Certified Public Accountants, from 1985 to 1992, where he served as an audit manager from 1989 to 1992.
Officers serve at the discretion of the Board of Directors. 13 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS (a) The following table sets forth: (a) the high and low bid prices for the common stock as quoted on Nasdaq-NMS during 2000 and 1999; and (b) the amount of quarterly dividends declared on the common stock during the periods indicated. Calendar Period Bid Prices Cash --------------- ------------------ Dividends 2000 High Low Declared --------------- -------- -------- -------- First quarter $ 11.125 $ 9.625 $ .10 Second quarter 11.000 9.500 .12 Third quarter 10.750 9.000 .12 Fourth quarter 10.500 8.000 .12 Cash Calendar Period Bid Prices Cash --------------- ------------------ Dividends 1999 High Low Declared --------------- -------- -------- -------- First quarter $ 10.828 $ 9.797 $ .083 Second quarter 12.500 10.109 .083 Third quarter 11.766 10.672 .083 Fourth quarter 12.125 10.250 .10 (b) As of March 1, 2001, there were approximately 1,530 holders of record of the Common Stock, excluding individuals in security position listings. (c) ABC paid an annual dividend on its common stock of $.46 and $.35 per share for fiscal years 2000 and 1999, respectively. 14 SELECTED CONSOLIDATED FINANCIAL INFORMATION The following table presents selected consolidated financial information for ABC. The data set forth below are derived from the audited consolidated financial statements of ABC. The selected financial data should be read in conjunction with, and are qualified in their entirety by, the Consolidated Financial Statements and the Notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations included elsewhere herein.
Year Ended December 31, -------------------------------------------------------- 2000 1999 1998 1997 1996 -------- -------- -------- -------- -------- (Dollars in Thousands, Except Per Share Data) -------------------------------------------------------- Selected Balance Sheet Data: Total assets $826,197 $789,460 $724,946 $691,886 $673,162 Total loans 587,381 530,225 477,194 490,244 452,844 Total deposits 679,885 640,658 633,325 600,711 577,905 Investment securities 162,105 146,990 158,869 123,219 135,266 Shareholders' equity 80,656 76,016 71,834 68,153 62,970 Selected Income Statement Data: Interest income $ 68,976 $ 59,991 $ 60,217 $ 58,649 $ 50,586 Interest expense 30,805 24,400 26,444 25,950 22,324 -------- -------- -------- -------- -------- Net interest income 38,171 35,591 33,773 32,699 28,262 Provision for loan losses 1,712 2,154 5,505 2,731 1,919 Other income 8,215 7,752 9,376 7,736 6,532 Other expenses 30,233 27,942 27,996 27,139 22,878 -------- -------- -------- -------- -------- Income before tax 14,441 13,247 9,648 10,565 9,997 Income tax expense 4,343 4,291 2,735 3,119 2,839 -------- -------- -------- -------- -------- Net income $ 10,098 $ 8,956 $ 6,913 $ 7,446 $ 7,158 ======== ======== ======== ======== ======== Per Share Data: Net income - basic $ 1.19 $ 1.03 $ 0.79 $ 0.86 $ 0.84 Net income - diluted 1.19 1.03 0.79 0.85 0.84 Book value 9.66 8.71 8.29 7.83 7.24 Tangible book value 8.84 7.84 7.32 6.77 6.41 Dividends .46 0.35 0.33 0.32 0.27 Profitability Ratios: Net income to average total assets 1.27% 1.23% 0.99% 1.10% 1.21% Net income to average stockholders' equity 13.19 11.93 10.07 11.35 12.19 Net interest margin 5.14 5.31 5.26 5.36 5.24
15 SELECTED CONSOLIDATED FINANCIAL INFORMATION (Continued)
Year Ended December 31, ---------------------------------------------- 2000 1999 1998 1997 1996 ------ ------ ------ ----- ------ (Dollars in Thousands, Except Per Share Data) ---------------------------------------------- Loan Quality Ratios: Net charge-offs to total loans .30% 0.46% 0.62% 0.48% 0.39% Reserve for loan losses to total loans and OREO 1.67 1.86 2.13 1.55 1.60 Nonperforming assets to total loans and OREO .95 1.15 1.99 2.41 1.39 Reserve for loan losses to nonperforming loans 202.18 178.26 116.25 75.86 135.34 Reserve for loan losses to total nonperforming assets 175.38 162.59 107.25 64.38 115.59 Liquidity Ratios: Loans to total deposits 86.39% 82.76% 75.35% 81.61% 78.36% Loans to average earnings assets 79.05 78.77 74.35 80.45 84.04 Noninterest-bearing deposits to total deposits 13.96 16.12 15.78 15.00 15.06 Capital Adequacy Ratios: Common stockholders' equity to total assets 9.76% 9.63% 9.91% 9.85% 9.35% Total stockholders' equity to total assets 9.59 9.63 9.91 9.85 9.35 Dividend payout ratio 38.66 33.98 42.11 36.89 31.68
16 SELECTED CONSOLIDATED FINANCIAL INFORMATION (Continued) SELECTED QUARTERLY FINANCIAL DATA: Quarters Ended December 31, 2000 --------------------------------------------- 4 3 2 1 --------- --------- --------- --------- (Dollars in Thousands, Except Per Share Data) --------------------------------------------- Selected Income Statement Data: Interest income $17,988 $18,069 $16,756 $16,163 Net interest income 9,637 9,491 9,455 9,588 Net income 2,917 2,338 2,438 2,405 Per Share Data: Net income - basic .35 .28 .29 .28 Net income - diluted .35 .28 .29 .28 Dividends .12 .12 .12 .10 Quarters Ended December 31, 1999 --------------------------------------------- 4 3 2 1 --------- --------- --------- --------- (Dollars in Thousands, Except Per Share Data) --------------------------------------------- Selected Income Statement Data: Interest income $15,709 $15,157 $14,594 $14,531 Net interest income 9,158 9,007 8,806 8,620 Net income 2,561 2,142 2,119 2,134 Per Share Data: Net income - basic 0.29 0.25 0.24 0.25 Net income - diluted 0.29 0.25 0.24 0.25 Dividends 0.10 0.083 0.083 0.083 17 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Cautionary Statement Regarding Forward-Looking Statements ABC's 2000 Annual Report contains forward-looking statements in addition to historical information. ABC cautions that there are various important factors that could cause actual results to differ materially from those indicated in the forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995; accordingly, there can be no assurance that such indicated results will be realized. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order to comply with the terms of the safe harbor, ABC is required to note the variety of factors that could cause ABC's actual results and experience to differ materially from the anticipated results or other expectations expressed in ABC's forward-looking statements. These factors include legislative and regulatory initiatives regarding deregulation and restructuring of the banking industry; the extent and timing of the entry of additional competition in ABC's markets; potential business strategies, including acquisitions or dispositions of assets or internal restructuring, that may be pursued by ABC, state and federal banking regulations; changes in or application of environmental and other laws and regulations to which ABC is subject; political, legal and economic conditions and developments; financial market conditions and the results of financing efforts; changes in commodity prices and interest rates; weather, natural disasters and other catastrophic events; and other factors discussed in ABC's filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K. The words "believe", "expect", "anticipate", "project", and similar expressions signify such forward-looking statements. Readers are cautioned not to place undue reliance on any forward-looking statements made by or on behalf of ABC. Any such statement speaks only as of the date the statement was made. ABC undertakes no obligation to update or revise any forward-looking statements. Additional information with respect to factors that may cause results to differ materially from those contemplated by such forward-looking statements is included in the ABC's current and subsequent filings with the Securities and Exchange Commission. General ABC's principal asset is its ownership of the Banks. Accordingly, its results of operations are primarily dependent upon the results of operations of the Banks. The Banks conduct a commercial banking business which consists of attracting deposits from the general public and applying those funds to the origination of commercial, consumer and real estate loans (including commercial loans collateralized by real estate). The Banks' profitability depends primarily on net interest income, which is the difference between interest income generated from interest-earning assets (i.e., loans and investments) less the interest expense incurred on interest-bearing liabilities (i.e., customer deposits and borrowed funds). Net interest income is affected by the relative amounts of interest-earning assets and interest-bearing liabilities, and the interest rate paid and earned on these balances. Net interest income is dependent upon the Banks' interest rate spread, which is the difference between the average yield earned on its interest-earning assets and the average rate paid on its interest-bearing liabilities. When interest-earning assets approximates or exceeds interest-bearing liabilities, any positive interest rate spread will generate interest income. The interest rate spread is impacted by interest rates, deposit flows and loan demand. Additionally, and to a lesser extent, the profitability of the Banks is affected by such factors as the level of noninterest income and expenses, the provision for loan losses and the effective tax rate. Noninterest income consists primarily of service charges on deposit accounts and other fees and income from the sale of loans and investment securities. Noninterest expenses consist of compensation and benefits, occupancy-related expenses and other operating expenses. 18 Results of Operations for Years Ended December 31, 2000, 1999 and 1998 ABC's results of operations are determined by its ability to effectively manage interest income and expense, to minimize loan and investment losses, to generate noninterest income and to control noninterest expense. Since interest rates are determined by market forces and economic conditions beyond the control of ABC, the ability to generate net interest income is dependent upon the ability of the Banks to obtain an adequate spread between the rate earned on interest-earning assets and the rate paid on interest-bearing liabilities. Thus, the key performance measure for net interest income is the interest margin or net yield, which is taxable-equivalent net interest income divided by average earning assets. The primary component of consolidated earnings is net interest income, or the difference between interest income on interest-earning assets and interest paid on interest-bearing liabilities. The net interest margin is net interest income expressed as a percentage of average interest-earning assets. Interest-earning assets consist of loans, investment securities and federal funds sold. Interest-bearing liabilities consist of deposits, Federal Home Loan Bank borrowings and other short-term borrowings. A portion of interest income is earned on tax-exempt investments such as state and municipal bonds. In an effort to state this tax-exempt income and its resultant yields on a basis comparable to all other taxable investments, an adjustment is made to analyze this income on a taxable-equivalent basis. The net interest margin decreased 20 basis points to 5.20% in 2000 as compared to 5.40% in 1999. This decrease in net interest margin resulted from an increase of 31 basis points in average yield earned on interest-earning assets accompanied by a greater increase of 57 basis points in average rate paid on interest-bearing liabilities. The increase in average rate paid on interest-bearing liabilities resulted from an increase of $37,450,000 or 11.24% on time deposits to $370,707,000 in 2000 as compared to $333,257,000 in 1999. Because the Company was more aggressive in obtaining time deposits, the average rate paid on time deposits increased 58 basis points to 5.84% in 2000 as compared to 5.26% in 1999. The Company also increased its other borrowings, primarily Federal Home Loan Bank advances, $22,978,000 or 71.04% to $55,322,000 in 2000 from $32,344,000 in 1999, with an increase of 117 basis points in average interest paid to 6.55% in 2000 as compared to 5.38% in 1999. Average interest-earning assets increased $73,259,000 or 10.94% to $743,011,000 in 2000 as compared to $669,752,000 in 1999. Average yield earned on interest-earning assets increased 31 basis points to 9.35% in 2000 as compared to 9.04% in 1999. Average loans increased $64,585,000 or 12.77% to $570,526,000 in 2000 from $505,941,000 in 1999. Average yield earned on loans increased 22 basis points to 10.22% as compared to 10.00% in 1999. Average investments increased $10,197,000 to $159,168,000 in 2000 from $148,971,000 in 1999. Average yield earned on investments increased 28 basis points to 6.41% in 2000 as compared to 6.13% in 1999. The change in average interest-bearing deposits in banks and the related yield on those assets did not have a material effect on interest income. Because increasing interest rates had a greater impact on interest paid on interest-bearing liabilities than they had on yield earned on interest-earning assets, ABC's interest rate spread decreased 26 basis points to 4.43% in 2000 from 4.69% in 1999. Net interest income on a taxable-equivalent basis was $38,665,000 in 2000 as compared to $36,150,000 in 1998, representing an increase of $2,515,000 or 6.96%. The increase in average interest-earning assets was funded by an increase in average deposits of $40,665,000 or 6.63% and an increased in average borrowings of $24,091,000. In 2000, approximately 14% of the average deposits were noninterest-bearing deposits as compared to approximately 15% in 1999. The net interest margin increased four basis points to 5.40% in 1999 as compared to 5.36% in 1998. This increase in net interest margin resulted from a decrease of 44 basis points in average yield earned on interest-earning assets accompanied by a decrease of 54 basis points in average rate paid on interest-bearing liabilities. Because declining interest rates had a greater favorable impact on interest paid on interest-bearing liabilities than they had on yield earned on interest-earning assets, ABC actually increased its interest rate spread ten basis points to 4.69% in 1999 from 4.59% in 1998. Net interest income on a taxable-equivalent basis was $36,150,000 in 1999 as compared to $34,386,000 in 1998, representing an increase of $1,764,000 or 5.13%. Average interest-earning assets increased $27,951,000 or 4.35% to $669,752,000 in 1999 from $641,801,000 in 1998. Average loans increased $10,520,000; average investments, including interest-bearing deposits in banks, increased $19,361,000; and average federal funds sold decreased $1,005,000. The increase in average interest-earning assets was funded by an increase in average deposits of $6,288,000 or 1.04% to $613,327,000 in 1999 from $607,039,000 in 1998. In 1999 and 1998, approximately 15% and 14%, respectively, of the average deposits were noninterest-bearing deposits. The allowance for loan losses represents a reserve for potential losses in the loan portfolio. The adequacy of the allowance for loan losses is evaluated periodically based on a review of all significant loans, with a particular emphasis on nonaccruing, past due and other loans that management believes require attention. ABC segregates its loan portfolio by type of loan and utilizes this segregation in evaluating exposure to risks within the portfolio. In addition, based on internal reviews and external reviews performed by independent auditors and regulatory authorities, ABC further segregates its loan portfolio by loan classifications within each type of loan based on an assessment of risk for a particular loan or group of loans. Certain reviewed loans require specific allowances. Allowances are provided for other types and classifications of loans based on 19 anticipated loss rates. Allowances are also provided for loans that are reviewed by management and considered creditworthy and loans for which management determines no review is required. In establishing allowances, management considers historical loan loss experience with an emphasis on current loan quality trends, current economic conditions and other factors in the markets where the subsidiary banks operate. Factors considered include among others, unemployment rates, effect of weather on agriculture and significant local economic events, such as major plant closings. The provision for loan losses is a charge to earnings in the current period to replenish the allowance and maintain it at a level management has determined to be adequate. The provision for loan losses charged to earnings amounted to $1,712,000 in 2000, $2,154,000 in 1999 and $5,505,000 in 1998. Due to adverse economic conditions in early 1998, it became apparent that several agriculturally related loans and commercial business loans were not performing according to the loan agreements. Management intensified its efforts to identify those nonperforming loans, to charge off loans that were considered in the loss category and to adequately reserve for other loans determined to be at risk. During 1999 net loan charge-offs decreased $489,000 or 16.63% to $2,451,000 as compared to $2,940,000 in 1998. During 2000 net loan charge-offs decreased $676,000 or 27.58% to $1,775,000 as compared to $2,451,000 in 1999. Due to the improvement in the quality of the loan portfolio, which resulted from management's efforts to resolve problem loan situations, management determined that the provision for loan losses in 2000 and 1999 could be significantly reduced from the provision recorded in 1998. During 2000, average loans increased $64,585,000 or 12.12% over 1999 as compared to an increase in average loans of $10,520,000 or 2.12% in 1999 as compared to 1998. The allowance for loan losses decreased $63,000 or .64% to $9,832,000 at December 31, 2000 from $9,895,000 at December 31, 1999. Net charge-offs represented 103.68% of the provision for loan losses in 2000 as compared to 113.79% in 1999. Net loan charge-offs for 2000 represented .31% of average loans outstanding during the year as compared to .48% for 1999 and .59% for 1998. At December 31, 2000, the allowance for loan losses was 1.67% of total loans outstanding as compared to an allowance for loan losses of 1.87% of total loans outstanding at December 31, 1999 and 2.14% of total loans outstanding at December 31, 1998. The determination of the allowance rests upon management's judgment about factors affecting loan quality and assumptions about the local and national economy. Management considers the year-end allowance for loan losses adequate to cover potential losses in the consolidated loan portfolio. Average total assets increased $68,258,000 or 9.35% to $798,221,000 in 2000 as compared to $729,963,000 in 1999. The increase in average total assets was accompanied by an increase in average deposits of $40,665,000 or 6.63% and an increase of average borrowings of $24,091,000. Average total assets increased $29,869,000 or 4.27% to $729,963,000 in 1999 as compared to $700,094,000 in 1998. The increase in average total assets was accompanied by an increase in average total deposits of $6,288,000 or 5.39% to $613,327,000 in 1999 from $607,039,000 in 1998 and an increase in average borrowings of $19,678,000. ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed only to U. S. Dollar interest rate changes and, accordingly, the Company manages exposure by considering the possible changes in the net interest margin. The Company does not have any trading instruments nor does it classify any portion of the investment portfolio as held for trading. The Company does not engage in any hedging activities or enter into any derivative instruments with a higher degree of risk than mortgage-backed securities, which are commonly, pass through securities. Finally, the Company has no exposure to foreign currency exchange rate risk, commodity price risk, and other market risks. Interest rates play a major part in the net interest income of a financial institution. The sensitivity to rate changes is known as "interest rate risk." The repricing of interest earning assets and interest-bearing liabilities can influence the changes in net interest income. As part of the Company's asset/liability management program, the timing of repriced assets and liabilities is referred to as Gap management. It is the policy of the Company to maintain a Gap ratio in the one-year time horizon of .80 to 1.20. As indicated by the Gap analysis included in this annual report, the Company is somewhat liability sensitive in relation to changes in market interest rates. Being liability sensitive would result in net interest income decreasing in a rising rate environment and increasing in a declining rate environment. See "Asset/Liability Management" included in SELECTED STATISTICAL INFORMATION OF ABC BANCORP. The Company uses simulation analysis to monitor changes in net interest income due to changes in market interest rates. The simulation of rising, declining and flat interest rate scenarios allow management to monitor and adjust interest rate sensitivity to minimize the impact of market interest rate swings. The analysis of the impact on net interest income over a twelve-month period is subjected to a gradual 200 basis point increase or decrease in market rates on net interest income and is monitored on a quarterly basis. The most recent simulation model projects net interest income would increase 0.66% if rates rise gradually over the next year. On the other hand, the model projects net interest income to decrease 0.96% if rates decline over the next year. 20 SELECTED STATISTICAL INFORMATION OF ABC BANCORP The following statistical information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operation" and the financial statements and related notes included elsewhere in this Annual Report and in the documents incorporated herein by reference. Average Balances and Net Income Analysis The following tables set forth the amount of the ABC's interest income or interest expense for each category of interest-earning assets and interest-bearing liabilities and the average interest rate for total interest-earning assets and total interest-bearing liabilities, net interest spread and net yield on average interest-earning assets. Federally tax-exempt income is presented on a taxable-equivalent basis assuming a 34% federal tax rate.
Year Ended December 31, ----------------------------------------------------------------------------------------------------- 2000 1999 1998 -------------------------------- -------------------------------- --------------------------------- Interest Average Interest Average Interest Average Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/ Balance Expense Rate Paid Balance Expense Rate Paid Balance Expense Rate Paid --------- --------- --------- --------- --------- --------- --------- --------- ---------- (Dollars in Thousands) ----------------------------------------------------------------------------------------------------- ASSETS Interest-earning assets: Loans, net of unearned interest $ 570,526 $ 58,328 10.22% $ 505,941 $ 50,603 10% $ 495,421 $ 51,584 10.41% Investment securities: Taxable 139,928 8,750 6.25 127,515 7,488 5.87 102,047 6,313 6.19 Nontaxable 19,240 1,453 7.55 21,456 1,645 7.67 22,946 1,803 7.86 Interest-bearing deposits in banks 13,317 939 7.05 14,840 814 5.49 20,382 1,077 5.28 Federal funds sold -- -- -- -- -- 1,005 53 5.27 --------- --------- --------- --------- --------- --------- Total interest-earning assets 743,011 69,470 9.35 669,752 60,550 9.04 641,801 60,830 9.48 --------- --------- --------- --------- --------- --------- Noninterest-earning assets: Cash 23,963 26,391 23,802 Allowance for loan losses (10,144) (10,124) (9,933) Unrealized gain (loss) on available for sale securities (2,007) 252 406 Other assets 43,398 43,692 44,018 --------- --------- --------- Total noninterest- earning assets 55,210 60,211 58,293 --------- --------- --------- Total assets $ 798,221 $ 729,963 $ 700,094 ========= ========= =========
21 Average Balances and Net Income Analysis (Continued)
Year Ended December 31, ---------------------------------------------------------------------------------------------- 2000 1999 1998 ------------------------------ ------------------------------ ------------------------------ Interest Average Interest Average Interest Average Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/ Balance Expense Rate Paid Balance Expense Rate Paid Balance Expense Rate Paid -------- -------- --------- -------- -------- --------- -------- -------- --------- (Dollars in Thousands) ---------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing liabilities: Savings and interest-bearing demand deposits $194,895 $ 5,087 2.61% $190,745 $ 4,904 2.57% $174,443 $ 5,439 3.12% Time deposits 370,707 21,666 5.84 333,257 17,520 5.26 348,826 19,971 5.73 Other short-term borrowings 5,776 428 7.41 4,663 237 5.08 835 41 4.91 Other borrowings 55,322 3,624 6.55 32,344 1,739 5.38 16,494 993 6.02 -------- -------- -------- -------- -------- -------- Total interest-bearing liabilities 626,700 30,805 4.92 561,009 24,400 4.35 540,598 26,444 4.89 -------- -------- -------- -------- -------- -------- Noninterest-bearing liabilities and stockholders' equity: Demand deposits 88,390 89,325 83,770 Other liabilities 6,573 4,540 7,068 Stockholders' equity 76,558 75,089 68,658 -------- -------- -------- Total noninterest-bearing liabilities and stockholders' equity 171,521 168,954 159,496 -------- -------- -------- Total liabilities and stockholders' equity $798,221 $729,963 $700,094 ======== ======== ======== Interest rate spread 4.43% 4.69% 4.59% ===== ===== ===== Net interest income $ 38,665 $ 36,150 $ 34,386 ======== ======== ======== Net interest margin 5.20% 5.40% 5.36% ===== ===== =====
22 Rate and Volume Analysis The following table reflects the changes in net interest income resulting from changes in interest rates and from asset and liability volume. Federally tax-exempt interest is presented on a taxable-equivalent basis assuming a 34% federal tax rate. The change in interest attributable to rate has been determined by applying the change in rate between years to average balances outstanding in the later year. The change in interest due to volume has been determined by applying the rate from the earlier year to the change in average balances outstanding between years. Thus, changes that are not solely due to volume have been consistently attributed to rate.
Year Ended December 31, -------------------------------------------------------------------------------- 2000 vs. 1999 1999 vs. 1998 -------------------------------------- -------------------------------------- Changes Due To Changes Due To Increase ------------------------ Increase ------------------------ (Decrease) Rate Volume (Decrease) Rate Volume ---------- ---------- ---------- ---------- ---------- ---------- (Dollars in Thousands) -------------------------------------------------------------------------------- Increase (decrease) in: Income from earning assets: Interest and fees on loans $ 7,725 $ 1,265 $ 6,460 $ (981) $ (2,076) $ 1,095 Interest on securities: Taxable 1,262 533 729 1,175 (401) 1,576 Nontaxable (192) (22) (170) (158) (41) (117) Interest-bearing deposits in banks 125 209 (84) (263) 30 (293) Interest on Federal funds -- -- -- (53) -- (53) ---------- ---------- ---------- ---------- ---------- ---------- Total interest income 8,920 1,985 6,935 (280) (2,488) 2,208 ---------- ---------- ---------- ---------- ---------- ---------- Expense from interest-bearing liabilities: Interest on savings and interest- bearing demand deposits 183 76 107 (535) (1,043) 508 Interest on time deposits 4,146 2,177 1,969 (2,451) (1,560) (891) Interest on short-term borrowings 191 134 57 196 8 188 Interest on other borrowings 1,885 650 1,235 746 (208) 954 ---------- ---------- ---------- ---------- ---------- ---------- Total interest expense 6,405 3,037 3,368 (2,044) (2,803) 759 ---------- ---------- ---------- ---------- ---------- ---------- Net interest income $ 2,515 $ (1,052) $ 3,567 $ 1,764 $ 315 $ 1,449 ========== ========== ========== ========== ========== ==========
23 Noninterest Income Service charges on deposit accounts increased $697,000 or 12.24% to $6,393,000 in 2000 as compared to $5,696,000 in 1999 on an increase in average deposits of $40,665,000 or 6.63% to $653,992,000 in 2000 from $613,327,000 in 1999. The increase in service charges on deposit accounts was attributable primarily to the increase in average deposits. Service charges on deposit accounts decreased $24,000 or .42% to $5,696,000 in 1999 as compared to $5,720,000 in 1998 on an increase in average deposits of $6,288,000 to $613,327,000 in 1999 from $607.039,000 in 1998. The decrease in service charges on deposit accounts was attributable to the introduction of new products to meet increased competition in the Company's market areas. Certain of these products reduced service charge income. For example, overdraft protection extended to customers reduces the amount of income generated from insufficient check charges or overdraft charges. A portion of this decrease in other income is offset by increase in interest and fees on loans. Origination fees on mortgage loans decreased $383,000 or 48.64% to $405,000 in 2000 as compared to $788,000 in 1999. This decrease is attributable to the decrease in mortgage lending activities, particularly the refinancing of mortgage loans, resulting from the stabilization of interest rates during 2000. In comparison, origination fees on mortgage loans decreased $95,000 or 10.76% in 1999 as compared with 1998 due to the increase in interest rates on mortgage loans during 1999. In 1998, ABC recognized nontaxable income of $1,200,000 in life insurance benefits upon the death of a former officer and director of a subsidiary bank. This nonrecurring transaction represented 12.37% of total noninterest income in 1998 and 17.36% of consolidated net income for 1998. All other noninterest income increased $58,000 or 4.27% to $1,417,000 in 2000 as compared to $1,359,000 in 1999. All other noninterest income increased $214,000 or 13.60% to $1,359,000 in 1999 as compared to $1,573,000 in 1998. The decrease in other noninterest income was attributable to a decrease of $143,000 in net gains and losses on sale of fixed assets and other real estate and a decrease of $68,000 in gain on sale of loans. Following is a comparison of noninterest income for 2000, 1999 and 1998. Year Ended December 31, ------------------------ 2000 1999 1998 ------ ------ ------ (Dollars in Thousands) ------------------------ Service charges on deposit accounts $6,393 $5,696 $5,720 Mortgage origination fees 405 788 883 Other service charges, commissions and fees 622 423 506 Nontaxable life insurance benefits -- -- 1,200 Other income 795 936 1,067 ------ ------ ------ $8,215 $7,843 $9,376 ====== ====== ====== Noninterest Expense Salaries and employee benefits increased $1,534,000 or 10.30% to $16,420,000 in 2000 from $14,886,000 in 1999. Salaries increased $547,000 (4.98%); bonuses increased $468,000 (47.76%); retirement expense increased $242,000 (34.23%); and all other employee benefits, including stock options and other grants, insurance and payroll taxes, increased $277,000 (12.44%). Stock options and other grants increased $192,000. Salaries and employee benefits increased $861,000 or 6.14% to $14,886,000 in 1999 from $14,025,000 in 1998. This increase was attributable to an increase of 14 full-time employees and five part-time employees during 1999 and to normal increases in salaries and employee benefits. Equipment and occupancy expense remained fairly constant during 2000, 1999 and 1998. Equipment and occupancy expense increased $147,000 or 3.51% to $4,338,000 in 2000 as compared to $4,191,000 in 1999. The increase in 2000 was attributable to an increase in depreciation expense of $201,000 over depreciation expense for 1999. Equipment and occupancy expense decreased $129,000, or 2.99%, to $4,191,000 in 1999 as compared to $4,320,000 in 1998. This decrease in expense was attributable primarily to a decrease of $155,000 in depreciation expense. Amortization of intangible assets remained the same in 2000 as the amount charged to expense in 1999. Amortization of intangible assets decreased $47,000 in 1999 as compared to 1998 as a result of the completion of amortization of core deposits acquired in an earlier bank acquisition. 24 Noninterest Expense (Continued) Data processing fees increased $456,000 to $1,147,000 in 2000 as compared to $691,000 in 1999. Approximately $200,000 of the increase was attributable to management's decision in 2000 to classify certain charges as data processing fees that were charged to other expense in 1999 and 1998. The reclassification of these charges in 1999 and 1998 to data processing fees was not considered necessary. In addition, ABC installed voice response units in all the Banks that accounted for an increase of approximately $84,000 in 2000. Also, a billing error in 1999 resulted in the payment of an additional $100,000 in 2000 that related to data processing in 1999. There were no significant change in data processing fees charged to expense in 1999 as compared to 1998. Following is an analysis of noninterest expense for 2000, 1999 and 1998. Year Ended December 31, --------------------------- 2000 1999 1998 ------- ------- ------- (Dollars in Thousands) --------------------------- Salaries and employee benefits $16,420 $14,886 $14,025 Equipment and occupancy 4,338 4,191 4,320 Amortization of intangible assets 804 804 851 Data processing fees 1,147 691 774 Other expense 7,524 7,370 8,026 ------- ------- ------- $30,233 $27,942 $27,996 ======= ======= ======= Asset/Liability Management A principal objective of ABC's asset/liability management strategy is to minimize its exposure to changes in interest rates by matching the maturity and repricing horizons of interest-earning assets and interest-bearing liabilities. This strategy is overseen in part through the direction of ABC's Asset and Liability Committee (the "ALCO Committee") which establishes policies and monitors results to control interest rate sensitivity. As part of ABC's interest rate risk management policy, the ALCO Committee examines the extent to which its assets and liabilities are "interest rate-sensitive" and monitors its interest rate-sensitivity "gap". An asset or liability is considered to be interest rate sensitive if it will reprice or mature within the time period analyzed, usually one year or less. The interest rate-sensitivity gap is the difference between the interest-earning assets and interest-bearing liabilities scheduled to mature or reprice within such time period. A gap is considered positive when the amount of interest rate-sensitive assets exceeds the amount of interest rate-sensitive liabilities. A gap is considered negative when the amount of interest rate-sensitive liabilities exceeds the interest rate-sensitive assets. During a period of rising interest rates, a negative gap would tend to adversely affect net interest income, while a positive gap would tend to result in an increase in net interest income. During a period of falling interest rates, a negative gap would tend to result in an increase in net interest income, while a positive gap would tend to adversely affect net interest income. If ABC's assets and liabilities were equally flexible and moved concurrently, the impact of any increase or decrease in interest rates on net interest income would be minimal. A simple interest rate "gap" analysis by itself may not be an accurate indicator of how net interest income will be affected by changes in interest rates. Accordingly, the ALCO Committee also evaluates how the repayment of particular assets and liabilities is impacted by changes in interest rates. Income associated with interest-earning assets and costs associated with interest-bearing liabilities may not be affected uniformly by changes in interest rates. In addition, the magnitude and duration of changes in interest rates may have a significant impact on net interest income. For example, although certain assets and liabilities may have similar maturities or periods of repricing, they may not react identically to changes in market interest rates. Interest rates on certain types of assets and liabilities fluctuate in advance of changes in general market interest rates, while interest rates on other types may lag behind changes in general market rates. In addition, certain assets, such as adjustable rate mortgage loans, have features (generally referred to as "interest rate caps") which limit changes in interest rates on a short-term basis and over the life of the asset. In the event of a change in interest rates, prepayment and early withdrawal levels also could deviate significantly from those assumed in calculating the interest-rate gap. The ability of many borrowers to service their debts also may decrease in the event of an interest-rate increase. 25 The following table sets forth the distribution of the repricing of ABC's earning assets and interest-bearing liabilities as of December 31, 2000, the interest rate sensitivity gap (i.e., interest rate sensitive assets divided by interest rate sensitivity liabilities), the cumulative interest rate sensitivity gap ratio (i.e., interest rate sensitive assets divided by interest rate sensitive liabilities) and the cumulative sensitivity gap ratio. The table also sets forth the time periods in which earning assets and liabilities will mature or may reprice in accordance with their contractual terms. However, the table does not necessarily indicate the impact of general interest rate movements on the net interest margin since the repricing of various categories of assets and liabilities is subject to competitive pressures and the needs of ABC's customers. In addition, various assets and liabilities indicated as repricing within the same period may in fact reprice at different times within such period and at different rates.
At December 31, 2000 ---------------------------------------------------------- Maturing or Repricing Within ---------------------------------------------------------- Zero to Three One to Over Three Months to Three Three Months One Year Years Years Total --------- --------- --------- --------- --------- (Dollars in Thousands) ---------------------------------------------------------- Earning assets: Interest-bearing deposits in banks $ 4,952 $ -- $ -- $ -- $ 4,952 Investment securities 32,406 29,457 58,294 41,948 162,105 Loans 226,766 131,503 178,813 50,299 587,381 --------- --------- --------- --------- --------- 264,124 160,960 237,107 92,247 754,438 --------- --------- --------- --------- --------- Interest-bearing liabilities: Interest-bearing demand deposits (1) -- 49,510 107,576 -- 157,086 Savings (1) -- 15,383 28,786 -- 44,169 Certificates less than $100,000 87,448 147,479 22,924 5,192 263,043 Certificates, $100,000 and over 38,735 73,126 7,482 1,327 120,670 Other short-term borrowings 2,653 -- -- -- 2,653 Other borrowings 5,000 24,100 1,000 25,250 55,350 --------- --------- --------- --------- --------- 133,836 309,598 167,768 31,769 642,971 --------- --------- --------- --------- --------- Interest rate sensitivity gap $ 130,288 $(148,638) $ 69,339 $ 60,478 $ 111,467 ========= ========= ========= ========= ========= Cumulative interest rate sensitivity gap $ 130,288 $ (18,350) $ 50,989 $ 111,467 ========= ========== ========= ========= Interest rate sensitivity gap ratio 1.97 .52 1.41 2.90 ========= ========== ========= ========= Cumulative interest rate sensitivity gap ratio 1.97 .96 1.08 1.17 ========= ========== ========= =========
(1) The Company has found that NOW and money-market checking deposits and savings deposits reprice between three months and one year or between one to three years depending on the competition in the market areas where the deposits are located. Therefore, it has placed portions of these deposits in the three months to one year horizon and the one to three years horizon based on estimated amounts repricing in each horizon. 26 INVESTMENT PORTFOLIO The Company manages the mix of asset and liability maturities in an effort to control the effects of changes in the general level of interest rates on net interest income. See "--Asset/Liability Management." Except for its effect on the general level of interest rates, inflation does not have a material impact on the Company due to the rate variability and short-term maturities of its earning assets. In particular, approximately 55% of the loan portfolio is comprised of loans which mature or reprice within one year or less. Mortgage loans, primarily with five to fifteen year maturities, are also made on a variable rate basis with rates being adjusted every one to five years. Additionally, 17% of the investment portfolio matures or reprices within one year or less. Types of Investments Securities Following is a summary of the carrying value of investments as of the end of each reported period: December 31, ------------------------------ 2000 1999 1998 -------- -------- -------- (Dollars in Thousands) ------------------------------ U. S. Government and agency securities $ 61,186 $ 48,811 $ 66,407 State and municipal securities 19,468 20,134 22,322 Corporate debt securities 6,130 4,344 -- Mortgage-backed securities 71,221 69,477 65,357 Marketable equity securities 614 772 460 Restricted equity securities 3,486 3,452 4,323 -------- -------- -------- $162,105 $146,990 $158,869 ======== ======== ======== Maturities The amounts of investments in securities in each category as of December 31, 2000 are shown in the following table according to contractual maturity classifications (1) one year or less, (2) after one year through five years, (3) after five years through ten years, and (4) after ten years.
U. S. Treasury and Other U. S. State and Government Agencies Political and Corporations Subdivisions Yield Yield Amount (1) Amount (1) (2) --------- ----- -------- ------- (Dollars in Thousands) ---------------------------------------- Maturity: One year or less $ 27,071 5.59% $ 2,505 6.85% After one year through five years 76,816 6.16 8,663 7.45 After five years through ten years 37,814 7.35 6,820 7.06 After ten years 936 7.02 1,480 7.42 -------- ---- -------- ---- $142,637 6.39% $ 19,468 7.23% ======== ==== ======== ====
(1) Yields were computed using coupon interest, adding discount accretion or subtracting premium amortization, as appropriate, on a ratable basis over the life of each security. The weighted average yield for each maturity range was computed using the acquisition price of each security in that range. (2) Yields on securities of state and political subdivisions are stated on a taxable-equivalent basis, using a tax rate of 34%. 27 LOAN PORTFOLIO Types of Loans Management believes that the Company's loan portfolio is adequately diversified. The loan portfolio contains no foreign or energy-related loans or significant concentrations in any one industry, with the exception of residential and commercial real estate mortgages, which constituted approximately 50% of the Company's loan portfolio as of December 31, 2000. The amount of loans outstanding at the indicated dates is shown in the following table according to type of loans.
December 31, ---------------------------------------------------- 2000 1999 1998 1997 1996 -------- -------- -------- -------- -------- (Dollars in Thousands) ---------------------------------------------------- Commercial and financial $109,647 $ 83,385 $ 70,282 $ 72,171 $ 69,772 Agricultural 34,840 29,694 36,567 41,882 35,525 Real estate - construction 14,046 13,228 8,439 13,117 13,612 Real estate - mortgage, farmland 57,253 59,018 56,595 55,245 52,978 Real estate - mortgage, commercial 160,456 150,075 123,854 108,339 89,708 Real estate - mortgage, residential 128,614 117,936 114,930 127,767 121,448 Consumer installment loans 76,076 59,529 65,307 68,959 67,572 Other 6,449 17,360 1,220 2,764 2,229 -------- -------- -------- -------- -------- 587,381 530,225 477,194 490,244 452,844 Less reserve for possible loan losses 9,832 9,895 10,192 7,627 7,273 -------- -------- -------- -------- -------- Loans, net $577,549 $520,330 $467,002 $482,617 $445,571 ======== ======== ======== ======== ========
Maturities and Sensitivity to Changes in Interest Rates Total loans as of December 31, 2000 are shown in the following table according to maturity or repricing opportunities (1) one year or less, (2) after one year through three years, and (3) after three years. (Dollars in Thousands) ----------- Maturity or Repricing Within: One year or less $358,269 After one year through three years 178,813 After three years 50,299 -------- $587,381 ======== The following table summarizes loans at December 31, 2000 with the due dates after one year which (1) have predetermined interest rates and (2) have floating or adjustable interest rates. (Dollars in Thousands) ----------- Predetermined interest rates $227,489 Floating or adjustable interest rates 1,623 -------- $229,112 ======== Records were not available to present the above information in each category listed in the first paragraph above and could not be reconstructed without undue burden. 28 Nonperforming Loans A loan is placed on nonaccrual status when, in management's judgment, the collection of the interest income appears doubtful. Interest receivable that has been accrued in prior years and is subsequently determined to have doubtful collectibility is charged to the allowance for possible loan losses. Interest on loans that are classified as nonaccrual is recognized when received. Past due loans are loans whose principal or interest is past due 90 days or more. In some cases, where borrowers are experiencing financial difficulties, loans may be restructured to provide terms significantly different from the original contractual terms.
December 31, ----------------------------------------------- 2000 1999 1998 1997 1996 ------- ------- ------- ------- ------- (Dollars in Thousands) ----------------------------------------------- Loans accounted for on a nonaccrual basis $ 4,863 $ 5,551 $ 8,767 $10,101 $ 4,977 Installment loans and term loans contractually 81 48 94 59 397 past due ninety days or more as to interest or principal payments and still accruing Loans, the terms of which have been renegotiated -- -- -- -- -- to provide a reduction or deferral of interest or principal because of deterioration in the financial position of the borrower Loans now current about which there are serious -- -- -- -- -- doubts as to the ability of the borrower to comply with present loan repayment terms
In the opinion of management, any loans classified by regulatory authorities as doubtful, substandard or special mention that have not been disclosed above do not (i) represent or result from trends or uncertainties which management reasonably expects will materially impact future operating results, liquidity or capital resources, or (ii) represent material credits about which management is aware of any information which causes management to have serious doubts as to the ability of such borrowers to comply with the loan repayment terms. Any loans classified by regulatory authorities as loss have been charged off. 29 SUMMARY OF LOAN LOSS EXPERIENCE The provision for possible loan losses is created by direct charges to operations. Losses on loans are charged against the allowance in the period in which such loans, in management's opinion, become uncollectible. Recoveries during the period are credited to this allowance. The factors that influence management's judgment in determining the amount charged to operating expense are past loan experience, composition of the loan portfolio, evaluation of possible future losses, current economic conditions and other relevant factors. The Company's allowance for loan losses was approximately $9,832,000 at December 31, 2000, representing 1.67% of year end total loans outstanding, compared with $9,895,000 at December 31, 1999, which represented 1.87% of year end total loans outstanding. The allowance for loan losses is reviewed quarterly based on management's evaluation of current risk characteristics of the loan portfolio, as well as the impact of prevailing and expected economic business conditions. Management considers the allowance for loan losses adequate to cover possible loan losses on the loans outstanding. Allocation of the Allowance for Loan Losses The following table sets forth the breakdown of the allowance for loan losses by loan category for the periods indicated. Management believes the allowance can be allocated only on an approximate basis. The allocation of the allowance to each category is not necessarily indicative of future losses and does not restrict the use of the allowance to absorb losses in any other category.
At December 31, ----------------------------------------------------------------------------------------------------- 2000 1999 1998 1997 ---------------------- ---------------------- ---------------------- ---------------------- Percent of Percent of Percent of Percent of Loans in Loans in Loans in Loans in Category Category Category Category to Total to Total to Total to Total Amount Loans Amount Loans Amount Loans Amount Loans -------- ---------- -------- ---------- -------- ---------- -------- ---------- (Dollars in Thousands) ----------------------------------------------------------------------------------------------------- Commercial, financial, industrial and agricultural $ 2,981 25% $ 2,904 22% $ 3,047 22% $ 1,792 23% Real estate 2,925 61 3,213 64 3,404 64 3,274 62 Consumer 2,156 14 1,997 14 1,906 14 1,112 15 Unallocated 1,770 -- 1,781 -- 1,835 -- 1,449 -- -------- ---------- -------- ---------- -------- ---------- -------- ---------- $ 9,832 100% $ 9,895 100% $ 10,192 100% $ 7,627 100% ======== ========== ======== ========== ======== ========== ======== ========== At December 31, ---------------------- 1996 ---------------------- Percent of Loans in Category to Total Amount Loans -------- ---------- ---------------------- Commercial, financial, industrial and agricultural $ 1,661 23% Real estate 2,928 62 Consumer 1,446 15 Unallocated 1,238 -- -------- ---------- $ 7,273 100% ======== ==========
30 The following table presents an analysis of the Company's loan loss experience for the periods indicated:
December 31, ----------------------------------------------------------------- 2000 1999 1998 1997 1996 --------- --------- --------- --------- --------- (Dollars in Thousands) ----------------------------------------------------------------- Average amount of loans outstanding $ 570,526 $ 505,941 $ 495,421 $ 475,047 $ 395,822 ========= ========= ========= ========= ========= Balance of reserve for possible loan losses at beginning of period $ 9,895 $ 10,192 $ 7,627 $ 7,273 $ 5,890 --------- --------- --------- --------- --------- Charge-offs: Commercial, financial and agricultural (1,077) (1,383) (1,456) (759) (768) Real estate (249) (933) (1,252) (1,981) (1,242) Consumer (1,268) (1,417) (1,322) (383) (279) Recoveries: Commercial, financial and agricultural 302 434 276 168 89 Real estate 146 263 365 512 275 Consumer 371 585 449 66 178 --------- --------- --------- --------- --------- Net charge-offs (1,775) (2,451) (2,940) (2,377) (1,747) --------- --------- --------- --------- --------- Additions to reserve charged to operating expenses 1,712 2,154 5,505 2,731 1,919 --------- --------- --------- --------- --------- Allowance for loan losses of acquired subsidiary -- -- -- -- 1,211 --------- --------- --------- --------- --------- Balance of reserve for possible loan losses at end of period $ 9,832 $ 9,895 $ 10,192 $ 7,627 $ 7,273 ========= ========= ========= ========= ========= Ratio of net loan charge-offs to average loans .31% .48% .59% .50% .44% ========= ========= ========= ========= =========
31 DEPOSITS Average amount of deposits and average rate paid thereon, classified as to noninterest-bearing demand deposits, interest-bearing demand and savings deposits and time deposits, for the periods indicated are presented below.
Year Ended December 31, ------------------------------------ 2000 1999 ---------------- ---------------- Amount Rate Amount Rate ------- ---- ------- ---- (Dollars in Thousands) ------------------------------------ Noninterest-bearing demand deposits $ 88,390 --% $ 89,325 --% Interest-bearing demand and savings deposits 194,895 2.61 190,745 2.57 Time deposits 370,707 5.84 333,257 5.26 -------- --------- Total deposits $653,992 $ 613,327 ======== =========
ABC has a large, stable base of time deposits with little or no dependence on volatile deposits of $100,000 or more. The time deposits are principally certificates of deposit and individual retirement accounts obtained for individual customers. The amounts of time certificates of deposit issued in amounts of $100,000 or more as of December 31, 2000, are shown below by category, which is based on time remaining until maturity of (1) three months or less, (2) over three through twelve months and (3) over twelve months. (Dollars in Thousands) ----------- Three months or less $ 38,735 Over three through twelve months 73,126 Over twelve months 8,809 -------- Total $120,670 ======== 32 RETURN ON ASSETS AND SHAREHOLDERS' EQUITY The following rate of return information for the periods indicated is presented below. Year Ended December 31, --------------------------- 2000 1999 1998 ----- ----- ----- Return on assets (1) 1.27% 1.23% 0.99% Return on equity (2) 13.19 11.93 10.07 Dividends payout ratio (3) 38.66 33.98 42.11 Equity to assets ratio (4) 9.59 10.29 9.81 (1) Net income divided by average total assets. (2) Net income divided by average equity. (3) Dividends declared per share divided by net income per share. (4) Average equity divided by average total assets. Liquidity and Capital Resources Liquidity management involves the matching of the cash flow requirements of customers, who may be either depositors desiring to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs, and the ability of ABC and the Banks to meet those needs. ABC and the Banks seek to meet liquidity requirements primarily through management of short-term investments (principally interest-bearing deposits in banks) and monthly amortizing loans. Another source of liquidity is the repayment of maturing single payment loans. In addition, the Banks maintain relationships with correspondent banks which could provide funds to them on short notice, if needed. The liquidity and capital resources of ABC and the Banks are monitored on a periodic basis by state and federal regulatory authorities. At December 31, 2000, the Banks' short-term investments were adequate to cover any reasonable anticipated immediate need for funds. During 2000, ABC increased its capital by retaining net earnings of $6,223,000 after payment of dividends. After recording an increase in capital of $2,192,000 for unrealized gains on securities available for sale, net of taxes, an increase of $387,000 for restricted stock transactions, and a decrease in capital of $4,162,000 for repurchase of treasury shares, total capital increased $4,640,000 during 2000. At December 31, 2000, total capital of ABC amounted to $80,656,000. ABC and the Subsidiary Banks are aware of no events or trends likely to result in a material change in their liquidity. At December 31, 2000, ABC had binding commitments for capital expenditures of approximately $2,150,000. In accordance with risk capital guidelines issued by the Federal Reserve Board, ABC is required to maintain a minimum standard of total capital to risk-weighted assets of 8%. Additionally, all member banks must maintain "core" or "Tier 1" capital of at least 4% of total assets ("leverage ratio"). Member banks operating at or near the 4% capital level are expected to have well-diversified risks, including no undue interest rate risk exposure, excellent control systems, good earnings, high asset quality, and well managed on- and off-balance sheet activities; and, in general, be considered strong banking organizations with a composite 1 rating under the CAMEL rating system of banks. For all but the most highly rated banks meeting the above conditions, the minimum leverage ratio is to be 4% plus an additional 100 to 200 basis points. The following table summarizes the regulatory capital levels of the Company at December 31, 2000.
Actual Required Excess -------------------- --------------------- --------------------- Amount Percent Amount Percent Amount Percent -------- ------- -------- ------- -------- ------- (Dollars in Thousands) ------------------------------------------------------------------- Leverage capital $ 79,954 9.86% $ 32,422 4.00% $ 47,532 5.86% Risk-based capital: Core capital 79,954 13.34 23,967 4.00 55,987 9.34 Total capital 87,544 14.61 47,935 8.00 39,609 6.61
Each Bank also met its individual regulatory capital requirements at December 31, 2000. 33 Commitments and Lines of Credit In the ordinary course of business, the Banks have granted commitments to extend credit to approved customers. Generally, these commitments to extend credit have been granted on a temporary basis for seasonal or inventory requirements and have been approved by the Banks' Board of Directors. The Banks have also granted commitments to approved customers for standby letters of credit. These commitments are recorded in the financial statements when funds are disbursed or the financial instruments become payable. The Banks use the same credit policies for these off balance sheet commitments as they do for financial instruments that are recorded in the consolidated financial statements. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitment amounts expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Following is a summary of the commitments outstanding at December 31, 2000 and 1999. 2000 1999 ------- ------- (Dollars in Thousands) ---------------------- Commitments to extend credit $75,007 $84,150 Credit card commitments 10,471 9,162 Standby letters of credit 5,179 3,415 ------- ------- $90,657 $96,727 ======= ======= Impact of Inflation The consolidated financial statements and related consolidated financial data presented herein have been prepared in accordance with generally accepted accounting principles and practices within the banking industry which require the measurement of financial position and operating results in terms of historical dollars without considering the changes in the relative purchasing power of money over time due to inflation. Unlike most industrial companies, virtually all the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates have a more significant impact on a financial institution's performance than the effects of general levels of inflation. 34 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following consolidated financial statements of the Company and its subsidiaries are included on pages F-1 through F-33 of this Annual Report on Form 10-K: Consolidated Balance Sheets - December 31, 2000 and 1999 Consolidated Statements of Income - Years ended December 31, 2000, 1999 and 1998 Consolidated Statements of Comprehensive Income - Years ended December 31, 2000, 1999 and 1998 Consolidated Statements of Stockholders' Equity - Years ended December 31, 2000, 1999 and 1998 Consolidated Statements of Cash Flows - Years ended December 31, 2000, 1999 and 1998 Notes to Consolidated Financial Statements. ITEM 9. DISAGREEMENT ON ACCOUNTING AND FINANCIAL DISCLOSURE During 2000 and 1999, the Company did not change its accountants and there was no disagreement on any matter of accounting principles or practices for financial statement disclosure that would have required the filing of a current report on Form 8-K. 35 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS, COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT The information required by this Item is incorporated by reference to the Company's definitive Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this Annual Report ("ABC's Proxy Statement"). Information concerning the Company's executive officers is included in Item 4.5 of Part I of this Annual Report. ITEM 11. EXECUTIVE COMPENSATION The information required by this Item is incorporated by reference to ABC's Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is incorporated by reference to ABC's Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item is incorporated by reference to ABC's Proxy Statement. 36 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K Item 13(a) 1., 2. and 3. (a) The following documents are filed as part of this report: 1. Financial statements: (a) ABC Bancorp and Subsidiaries: (i) Consolidated Balance Sheets - December 31, 2000 and 1999 (ii) Consolidated Statements of Income - Years ended December 31, 2000, 1999 and 1998 (iii) Consolidated Statements of Comprehensive Income - Years ended December 31, 2000, 1999 and 1998 (iv) Consolidated Statements of Stockholders' Equity - Years ended December 31, 2000, 1999 and 1998 (v) Consolidated Statements of Cash Flows - Years ended December 31, 2000, 1999 and 1998 (vi) Notes to Consolidated Financial Statements (b) ABC Bancorp (Parent Company Only): Parent Company only financial information has been included in Note 16 of Notes to Consolidated financial statements. 2. Financial statement schedules: All schedules are omitted as the required information is inapplicable or the information is presented in the financial statements or related notes. 3. Exhibits required by Item 601 of Regulation S-K: (b) No reports on Form 8-K were filed during the last quarter of the period covered by this report. 37 Exhibit No. Description ----------- -------------------------------------------------------------------- 2.1 Agreement and Plan of Merger by and among ABC, Tri-County Bank and Tri-County Merger Sub, Inc. dated as of November 28, 2000, Amendment No. 1 thereto dated as of January 26, 2001, and Amendment No. 2 thereto dated as of February 20, 2001. 2.2 Agreement and Plan of Merger by and between ABC and Golden Isles Financial Holdings, Inc. dated as of February 20, 2001 (filed as Exhibit 2.1 to ABC's Current Report on Form 8-K filed with the Commission on February 23, 2001 and incorporated herein by reference). 3.1 Articles of Incorporation of ABC, as amended (incorporated by reference to Exhibit 2.1 to ABC's Regulation A Offering Statement on Form 1-A (File No. 24A-2630) filed August 14, 1987). 3.2 Amendment to Amended Articles of Incorporation dated May 26, 1995 (incorporated by reference to Exhibit 3.1.1 to ABC's Form 10-K filed March 28, 1996). 3.3 Amendment to Amended Articles of Incorporation (filed as Exhibit 4.3 to ABC's Registration on Form S-4 (Registration No. 333-08301), filed with the Commission on July 17, 1996 and incorporated herein by reference). 3.4 Bylaws of ABC, as amended (incorporated by reference to Exhibit 2.2 to ABC's Regulation A Offering Statement on Form 1-A (File No. 24A-2630) filed August 14, 1987. 3.5 Form of Articles of Amendment to the Articles of Incorporation (incorporated by reference to Exhibit 3.5 to ABC's Annual Report on Form 10-K (File No. 001-13901), filed with the Commission on March 25, 1998). 3.6 Form of Amendment to Bylaws (incorporated by reference to Exhibit 3.6 to ABC's Annual Report on Form 10-K (File No. 001-13901), filed with the Commission on March 25, 1998). 3.7 Form of Articles of Amendment to the Articles of Incorporation (incorporated by reference to Exhibit 3.7 to ABC's Annual Report on Form 10-K (File No. 001-13901), filed with the Commission on March 26, 1999). 3.8 Form of Amendment to Bylaws (incorporated by reference to Exhibit 3.8 to ABC's Annual Report on Form 10-K (File No. 001-13901), filed with the Commission on March 26, 1999). 10.1 1985 Incentive Stock Option Plan (filed as Exhibit 5.1 to ABC's Regulation A Offering Statement on Form 1-A (File No. 24A-2630), filed with the Commission on August 14, 1987 and incorporated herein by reference). 10.2 Incentive Stock Option Agreement with Kenneth J. Hunnicutt dated October 17, 1985 (filed as Exhibit 5.2 to ABC's Regulation A Offering Statement on Form 1-A (File No. 24A-2630), filed with the Commission on August 14, 1987 and incorporated herein by reference). 10.3 Deferred Compensation Agreement for Kenneth J. Hunnicutt dated December 16, 1986 (filed as Exhibit 5.3 to ABC's Regulation A Offering Statement on Form 1-A (File No. 24A-2630), filed with the Commission on August 14, 1987 and incorporated herein by reference). 38 Exhibit No. Description ----------- -------------------------------------------------------------------- 10.4 Security Deed in favor of M.I.A., Co. dated December 31, 1984 (filed as Exhibit 5.4 to ABC's Regulation A Offering Statement on Form 1-A (File No. 24A-2630), filed with the Commission on August 14, 1987 and incorporated herein by reference). 10.5 Loan Agreement and Master Term Note dated December 30, 1986 (filed as Exhibit 5.5 to ABC's Regulation A Offering Statement on Form 1-A (File No. 24A-2630), filed with the Commission on August 14, 1987 and incorporated herein by reference). 10.6 Executive Salary Continuation Agreement dated February 14, 1984 (filed as Exhibit 10.6 to ABC's Annual Report on Form 10-KSB (File Number 2-71257), filed herewith with the Commission on March 27, 1989 and incorporated herein by reference. 10.7 1992 Incentive Stock Option Plan and Option Agreement for K. J. Hunnicutt (filed as Exhibit 10.7 to ABC's Annual Report on Form 10-KSB (File Number 0-16181), filed with the Commission on March 30, 1993 and incorporated herein by reference). 10.8 Executive Employment Agreement with Kenneth J. Hunnicutt dated September 20, 1994 (filed as Exhibit 10.8 to ABC's Annual Report on Form 10-KSB (File Number 0-016181), filed with the Commission on March 30, 1995 and incorporated herein by reference). 10.9 Executive Consulting Agreement with Eugene M. Vereen dated September 20, 1994 (filed as Exhibit 10.9 to ABC's Annual Report on Form 10-KSB (File Number 0-016181), filed with the Commission on March 30, 1995 and incorporated herein by reference). 10.10 Agreement and Plan of Merger by and between ABC and Southland Bancorporation dated as of December 18, 1995 (filed as Exhibit 10.10 to ABC's Annual Report on Form 10-K (File No. 0-16181), filed with the Commission on March 28, 1996 and incorporated herein by reference), and Amendment No. 1 thereto dated as of April 16,1996 (filed as part of Appendix A to Amendment No. 1 to ABC's Registration on Form S-4 (Registration No. 333-2387), filed with the Commission on May 21, 1996 and incorporated herein by reference). 10.11 Agreement and Plan of Merger by and between ABC and Central Bankshares, Inc., dated as of December 29, 1995 (filed as Exhibit 10.11 to ABC's Annual Report on Form 10-K (File No. 0-16181), filed with the Commission on March 28, 1996 and incorporated herein by reference), and Amendment No. 1 thereto dated as April 26, 1996 (filed as part of Appendix A to ABC's Registration on Form S-4 (Registration No. 333-05861), filed with the Commission on June 12, 1996 and incorporated herein by reference). 39 Exhibit No. Description ----------- -------------------------------------------------------------------- 10.12 Agreement and Plan of Merger by and between ABC and First National Financial Corporation dated as of April 15, 1996 (filed as Exhibit 10.12 to Amendment No. 1 to ABC's Registration on Form S-4 (Registration No. 333-2387), filed with the Commission on May 21, 1996 and incorporated herein by reference). 10.13 Agreement and Plan of Merger by and between ABC and M & F Financial Corporation dated as of September 12, 1996 (filed as Appendix A to ABC's Registration on Form S-4 (Registration No. 333-14649), filed with the Commission on October 23, 1996 and incorporated herein by reference). 10.14 Form of Purchase and Assumption Agreement by and between NationsBank, N.A. (South) and ABC Bancorp dated as of February 26, 1997 (incorporated by reference to Exhibit 10.15 to ABC's Annual Report on Form 10-K (File No. 001-13981), filed with the Commission on March 25, 1998). 10.15 Form of Agreement and Plan of Merger by and between ABC Bancorp and Irwin Bankcorp, Inc. dated as of May 15, 1997 (incorporated by reference to Exhibit 10.16 to ABC's Annual Report on Form 10-K (File No. 001-13901) filed with the Commission on March 25, 1998). 10.16 Form of Omnibus Stock Ownership and Long-Term Incentive Plan (incorporated by reference to Exhibit 10.17 to ABC's Annual Report on Form 10-K (File No. 001-13901), filed with the Commission on March 25, 1998). 10.17 Form of Rights Agreement between ABC Bancorp and SunTrust Bank dated as of February 17, 1998 (incorporated by reference to Exhibit 10.18 to ABC's Annual Report on Form 10-K (File No. 001-13901), filed with the Commission on March 25, 1998). 10.18 ABC Bancorp 2000 Officer/Director Stock Bonus Plan (incorporated by reference to Exhibit 10.19 to ABC's Annual Report on Form 10K (File No. 001-13901), filed with the Commission on March 29, 2000). 10.19 Executive Employment Agreement with Mark D. Thomas dated as of July 12, 1999. 10.20 Severance Protection Agreement with W. Edwin Lane, Jr. dated as of November 1, 1998. 21.1 Schedule of subsidiaries of ABC Bancorp. 24.1 Power of Attorney relating to this Form 10-K is set forth on the signature pages of this Form 10-K. 40 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ABC BANCORP Date: March 3, 2001 By: /s/ Kenneth J. Hunnicutt ----------------- --------------------------------------------------- Kenneth J. Hunnicutt, President, Chief Executive Officer and Director Date: March 3, 2001 By: /s/ Mark D. Thomas ----------------- --------------------------------------------------- Mark D. Thomas, Executive Vice President, Chief Operating Officer and Director Date: March 3, 2001 By: /s/ W. Edwin Lane, Jr. ----------------- --------------------------------------------------- W. Edwin Lane, Jr., Executive Vice President and Chief Financial Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Kenneth J. Hunnicutt as his attorney-in-fact, acting with full power of substitution for him in his name, place and stead, in any and all capacities, to sign any amendments to this Form 10-K and to file the same, with exhibits thereto, and any other documents in connection therewith, with the Securities and Exchange Commission and hereby ratifies and confirms all that said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue thereof. Pursuant to the requirements of the Exchange Act, this Form 10-K has been signed by the following persons in the capacities and on the dates indicated. Date: March 3, 2001 /s/ Kenneth J. Hunnicutt ----------------- ------------------------------------------------------- Kenneth J. Hunnicutt, President, Chief Executive Officer and Director Date: March 3, 2001 /s/ Mark D. Thomas ----------------- ------------------------------------------------------- Mark D. Thomas, Executive Vice President, Chief Operating Officer and Director Date: March 3, 2001 /s/ W. Edwin Lane, Jr. ----------------- ------------------------------------------------------- W. Edwin Lane, Jr., Executive Vice President and Chief Financial Officer Date: March 3, 2001 /s/ John G. Briggs ----------------- ------------------------------------------------------- John G. Briggs, Director Date: ----------------- ------------------------------------------------------- Johnny W. Floyd, Director Date: March 3, 2001 /s/ J. Raymond Fulp ----------------- ------------------------------------------------------- J. Raymond Fulp, Director 41 Date: March 3, 2001 /s/ Wycliff R. Griffin ----------------- ------------------------------------------------------- Wycliff R. Griffin, Director Date: March 3, 2001 /s/ Daniel B. Jeter ----------------- ------------------------------------------------------- Daniel B. Jeter, Director Date: March 3, 2001 /s/ Robert P. Lynch ----------------- ------------------------------------------------------- Robert P. Lynch, Director Date: March 3, 2001 /s/ Eugene M. Vereen, Jr. ----------------- ------------------------------------------------------- Eugene M. Vereen, Jr., Director Date: March 3, 2001 /s/ Doyle Weltzbarker ----------------- ------------------------------------------------------- Doyle Weltzbarker, Director and Chairman of the Board Date: March 3, 2001 /s/ Henry Wortman ----------------- ------------------------------------------------------- Henry Wortman, Director 42 ABC BANCORP INDEX TO FINANCIAL STATEMENTS AND SCHEDULES Consolidated financial statements: Independent Auditor's Report Consolidated Balance Sheets - December 31, 2000 and 1999 Consolidated Statements of Income - Years ended December 31, 2000, 1999 and 1998 Consolidated Statements of Comprehensive Income - Years ended December 31, 2000, 1999 and 1998 Consolidated Statements of Stockholders' Equity - Years ended December 31, 2000, 1999 and 1998 Consolidated Statements of Cash Flows - Years ended December 31, 2000, 1999 and 1998 Notes to Consolidated Financial Statements All schedules are omitted as the required information is inapplicable or the information is presented in the financial statements or related notes. F-1 INDEPENDENT AUDITOR'S REPORT To the Board of Directors ABC Bancorp Moultrie, Georgia We have audited the accompanying consolidated balance sheets of ABC Bancorp and Subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of income, comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of ABC Bancorp and Subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with generally accepted accounting principles. /s/ Mauldin & Jenkins, LLC -------------------------------- Albany, Georgia January 23, 2001, except for Note 17 as to which the date is February 23, 2001 F-2 ABC BANCORP AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2000 AND 1999 (Dollars in Thousands) Assets 2000 1999 --------- --------- Cash and due from banks $ 38,411 $ 47,399 Interest-bearing deposits in banks 4,952 32,731 Securities available for sale, at fair value 162,105 146,990 Loans 587,381 530,225 Less allowance for loan losses 9,832 9,895 --------- --------- Loans, net 577,549 520,330 --------- --------- Premises and equipment, net 19,703 19,540 Excess of cost over net assets of banks acquired 6,832 7,636 Other assets 16,645 14,834 --------- --------- $ 826,197 $ 789,460 ========= ========= Liabilities and Stockholders' Equity Deposits Noninterest-bearing $ 94,917 $ 103,279 Interest-bearing 584,968 537,379 --------- --------- Total deposits 679,885 640,658 Federal funds purchased and securities sold under agreements to repurchase 2,653 397 Other borrowings 55,350 66,150 Other liabilities 7,653 6,239 --------- --------- Total liabilities 745,541 713,444 --------- --------- Commitments and contingencies Stockholders' equity Common stock, par value $1; 15,000,000 shares authorized; 9,137,990 and 9,098,690 shares issued 9,138 9,099 Capital surplus 29,237 28,854 Retained earnings 48,411 42,188 Accumulated other comprehensive income (loss) 685 (1,507) Unearned compensation (595) (560) --------- --------- 86,876 78,074 Less cost of shares acquired for the treasury, 790,982 and 374,823 shares (6,220) (2,058) --------- --------- Total stockholders' equity 80,656 76,016 --------- --------- $ 826,197 $ 789,460 ========= ========= See Notes to Consolidated Financial Statements. F-3 ABC BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (Dollars in Thousands) 2000 1999 1998 -------- -------- -------- Interest income Interest and fees on loans $ 58,328 $ 50,603 $ 51,584 Interest on taxable securities 8,750 7,488 6,313 Interest on nontaxable securities 959 1,086 1,190 Interest on deposits in other banks 939 814 1,077 Interest on federal funds sold -- -- 53 -------- -------- -------- 68,976 59,991 60,217 -------- -------- -------- Interest expense Interest on deposits 26,753 22,424 25,411 Interest on other borrowings 4,052 1,976 1,033 -------- -------- -------- 30,805 24,400 26,444 -------- -------- -------- Net interest income 38,171 35,591 33,773 Provision for loan losses 1,712 2,154 5,505 -------- -------- -------- Net interest income after provision for loan losses 36,459 33,437 28,268 -------- -------- -------- Other income Service charges on deposit accounts 6,393 5,696 5,720 Other service charges, commissions and fees 622 423 506 Mortgage origination fees 405 788 883 Non-taxable life insurance benefits -- -- 1,200 Loss on sale of securities -- (91) -- Other 795 936 1,067 -------- -------- -------- 8,215 7,752 9,376 -------- -------- -------- Other expenses Salaries and employee benefits 16,420 14,886 14,025 Equipment expense 2,484 2,348 2,442 Occupancy expense 1,854 1,843 1,878 Amortization of intangible assets 804 804 851 Data processing fees 1,147 691 774 Other operating expenses 7,524 7,370 8,026 -------- -------- -------- 30,233 27,942 27,996 -------- -------- -------- Income before income taxes 14,441 13,247 9,648 Applicable income taxes 4,343 4,291 2,735 -------- -------- -------- Net income $ 10,098 $ 8,956 $ 6,913 ======== ======== ======== Income per common share - Basic $ 1.19 $ 1.03 $ 0.79 ======== ======== ======== Income per common share - Diluted $ 1.19 $ 1.03 $ 0.79 ======== ======== ======== See Notes to Consolidated Financial Statements. F-4 ABC BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (Dollars in Thousands)
2000 1999 1998 ------- ------- ------- Net income $10,098 $ 8,956 $ 6,913 ------- ------- ------- Other comprehensive income (loss): Net unrealized holding gains (losses) arising during period, net of tax (benefits) of $1,129, ($973) and $32 2,192 (1,889) 80 Reclassification adjustment for losses included in net income, net of tax of $31 -- 60 -- ------- ------- ------- Total other comprehensive income (loss) 2,192 (1,829) 80 ------- ------- ------- Comprehensive income $12,290 $ 7,127 $ 6,993 ======= ======= =======
See Notes to Consolidated Financial Statements. F-5 ABC BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (Dollars in Thousands) Common Stock ----------------------- Shares Par Value --------- --------- Balance, December 31, 1997 7,524,718 $ 7,525 Net income -- -- Cash dividends declared, $.33 per share -- -- Net treasury stock transactions -- -- Other comprehensive income -- -- --------- --------- Balance, December 31, 1998 7,524,718 7,525 Net income -- -- Cash dividends declared, $.35 per share -- -- Six-for-five stock split 1,516,142 1,516 Issuance of restricted shares of common stock under employee incentive plan 57,830 58 Amortization of unearned compensation, net of forfeitures -- -- Net treasury stock transactions -- -- Other comprehensive loss -- -- --------- --------- Balance, December 31, 1999 9,098,690 9,099 Net income -- -- Cash dividends declared, $.46 per share -- -- Issuance of restricted shares of common stock under employee incentive plan 39,300 39 Amortization of unearned compensation, net of forfeitures -- -- Net treasury stock transactions -- -- Other comprehensive income -- -- --------- --------- Balance, December 31, 2000 9,137,990 $ 9,138 ========= ========= See Notes to Consolidated Financial Statements. F-6(a) ABC BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (Dollars in Thousands)
Accumulated Other Comprehensive Treasury Stock Capital Retained Income Unearned ------------------- Surplus Earnings (Loss) Compensation Shares Cost Total -------- -------- ------------- ------------ -------- -------- -------- Balance, December 31, 1997 $ 29,677 $ 32,264 $ 242 $ -- 272,353 $ (1,555) $ 68,153 Net income -- 6,913 -- -- -- -- 6,913 Cash dividends declared, $.33 per share -- (2,897) -- -- -- -- (2,897) Net treasury stock transactions -- -- -- -- 32,800 (415) (415) Other comprehensive income -- -- 80 -- -- -- 80 -------- -------- -------- -------- -------- -------- -------- Balance, December 31, 1998 29,677 36,280 322 -- 305,153 (1,970) 71,834 Net income -- 8,956 -- -- -- -- 8,956 Cash dividends declared, $.35 per share -- (3,048) -- -- -- -- (3,048) Six-for-five stock split (1,516) -- -- -- 62,470 -- -- Issuance of restricted shares of common stock under employee incentive plan 693 -- -- (751) -- -- -- Amortization of unearned compensation, net of forfeitures -- -- -- 191 -- -- 191 Net treasury stock transactions -- -- -- -- 7,200 (88) (88) Other comprehensive loss -- -- (1,829) -- -- -- (1,829) -------- -------- -------- -------- -------- -------- -------- Balance, December 31, 1999 28,854 42,188 (1,507) (560) 374,823 (2,058) 76,016 Net income -- 10,098 -- -- -- -- 10,098 Cash dividends declared, $.46 per share -- (3,875) -- -- -- -- (3,875) Issuance of restricted shares of common stock under employee incentive plan 383 -- -- (422) -- -- -- Amortization of unearned compensation, net of forfeitures -- -- -- 387 -- -- 387 Net treasury stock transactions -- -- -- -- 416,159 (4,162) (4,162) Other comprehensive income -- -- 2,192 -- -- -- 2,192 -------- -------- -------- -------- -------- -------- -------- Balance, December 31, 2000 $ 29,237 $ 48,411 $ 685 $ (595) 790,982 $ (6,220) $ 80,656 ======== ======== ======== ======== ======== ======== ========
F-6(b) ABC BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (Dollars in Thousands)
2000 1999 1998 --------- --------- --------- OPERATING ACTIVITIES Net income $ 10,098 $ 8,956 $ 6,913 --------- --------- --------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,189 1,988 2,143 Amortization of intangible assets 804 804 851 Amortization of unearned compensation 387 191 -- Net losses on sale of securities available for sale -- 91 -- Net (gains) losses on sale or disposal of premises and equipment 7 36 (188) Gain from life insurance benefits -- -- (1,200) Provision for loan losses 1,712 2,154 5,505 Provision for deferred taxes (634) (87) (1,170) (Increase) decrease in interest receivable (1,970) (75) 1,271 Increase (decrease) in interest payable 578 57 (38) Decrease in taxes receivable -- 526 -- Increase (decrease) in taxes payable (1) 328 (485) Other prepaids, deferrals and accruals, net 371 (378) 663 --------- --------- --------- Total adjustments 3,443 5,635 7,352 --------- --------- --------- Net cash provided by operating activities 13,541 14,591 14,265 --------- --------- --------- INVESTING ACTIVITIES (Increase) decrease in interest-bearing deposits in banks 27,779 (18,314) (12,129) Purchases of securities available for sale (26,961) (70,410) (110,362) Purchases of securities held to maturity -- -- (400) Proceeds from maturities of securities available for sale 15,167 58,994 67,936 Proceeds from sale of securities available for sale -- 17,149 -- Proceeds from maturities of securities held to maturity -- 3,283 11,807 Decrease in federal funds sold -- -- 890 (Increase) decrease in loans, net (58,931) (55,482) 10,110 Purchase of premises and equipment (2,359) (2,631) (2,383) Proceeds from sale of premises and equipment -- -- 708 Proceeds from life insurance benefits -- -- 1,671 --------- --------- --------- Net cash used in investing activities (45,305) (67,411) (32,152) --------- --------- --------- FINANCING ACTIVITIES Increase in deposits 39,227 7,333 32,614 Increase (decrease) in federal funds purchased and securities sold under agreements to repurchase 2,256 (486) 223 Proceeds from other borrowings 109,800 338,950 5,500 Repayment of other borrowings (120,600) (284,650) (9,050) Dividends paid (3,745) (2,898) (2,900) Purchase of treasury shares (4,162) (88) (415) --------- --------- --------- Net cash provided by financing activities 22,776 58,161 25,972 --------- --------- --------- Net increase (decrease) in cash and due from banks (8,988) 5,341 8,085 Cash and due from banks at beginning of year 47,399 42,058 33,973 --------- --------- --------- Cash and due from banks at end of year $ 38,411 $ 47,399 $ 42,058 ========= ========= =========
F-7 ABC BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (Dollars in Thousands) 2000 1999 1998 ------- ------- ------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the year for: Interest $30,227 $24,343 $26,482 Income taxes $ 4,978 $ 3,524 $ 4,390 NONCASH TRANSACTION Transfer of securities held to maturity to securities available for sale $ -- $15,330 $ -- See Notes to Consolidated Financial Statements. F-8 ABC BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Business ABC Bancorp, (the "Company") is a multi-bank holding company whose business is presently conducted by its subsidiary banks (the "Banks"). Through the Banks, the Company operates a full service banking business and offers a broad range of retail and commercial banking services to its customers located in a market area which includes South Georgia and Southeast Alabama. The Company and the Banks are subject to the regulations of certain federal and state agencies and are periodically examined by those regulatory agencies. Basis of Presentation The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the balance sheet date and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the valuation of foreclosed real estate and deferred taxes. The Company's consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany transactions and accounts have been eliminated in consolidation. Cash, Due from Banks and Cash Flows For purposes of reporting cash flows, cash and due from banks includes cash on hand, cash items in process of collection and amounts due from banks. Cash flows from loans, federal funds sold, deposits, interest-bearing deposits and federal funds purchased are reported net. The Company maintains amounts due from banks which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts. Securities Debt securities that management has the positive intent and ability to hold to maturity are classified as held-to-maturity and recorded at amortized cost. Securities not classified as held-to-maturity, including equity securities with readily determinable fair values, are classified as available-for-sale and recorded at fair value with unrealized gains and losses excluded from earnings and reported in other comprehensive income. Equity securities, including restricted stock, without a readily determinable fair value are classified as available-for-sale and recorded at cost. As of December 31, 1999, the Company transferred all debt securities classified as securities held to maturity to securities available for sale. Interest and dividends, including amortization of premiums and accretion of discounts, are included in interest income. Gains and losses on the sale of securities are determined using the specific identification method. Declines in the fair value of any security below its cost that is deemed to be other than temporary is reflected in earnings as realized losses. F-9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Loans Loans are reported at their outstanding unpaid principal balances less unearned income, deferred fees or costs on originated loans, and the allowance for loan losses. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs of consumer and instalment loans are recognized at the time the loan is placed on the books. Because these loan fees are not significant and the majority of loans have maturities of one year or less, the results of operations are not materially different than the results which would be obtained by accounting for loan fees and costs in accordance with generally accepted accounting principles. Loan origination fees net of certain direct loan origination costs for all other loans are deferred and recognized as an adjustment of the yield over the life of the loan. The accrual of interest on loans is discontinued when, in management's opinion, the borrower may be unable to meet payments as they become due, unless the loan is well-secured. All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. Interest income on nonaccrual loans is subsequently recognized only to the extent cash payments are received until the loans are returned to accrual status. The allowance for loan losses is established through a provision for loan losses charged to expense. Loans are charged against the allowance when management believes the collectibility of the principal is unlikely. Subsequent recoveries are credited to the allowance. The allowance is an amount that management believes will be adequate to absorb estimated losses in the loan portfolio. The allowance for loan losses is evaluated on a regular basis by management and is based upon management's periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower's ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Bank's allowance for loan losses, and may require the Bank to make additions to the allowance based on their judgment about information available to them at the time of their examinations. A loan is considered impaired when it is probable the Bank will be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreement. Impaired loans are measured based on the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's observable market price, or the fair value of the collateral if the loan is collateral dependent. The amount of impairment, if any, and any subsequent changes are included in the allowance for loan losses. Premises and Equipment Land is carried at cost. Premises and equipment are carried at cost less accumulated depreciation computed principally on the straight-line method over the estimated useful lives of the assets. F-10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Other Real Estate Owned Other real estate owned (OREO) represents properties acquired through foreclosure or other proceedings. OREO is held for sale and is carried at the lower of the recorded amount of the loan or fair value of the properties less estimated costs of disposal. Any write-down to fair value at the time of transfer to OREO is charged to the allowance for loan losses. Property is evaluated regularly to ensure the recorded amount is supported by its current fair value and valuation allowances to reduce the carrying amount to fair value less estimated costs to dispose are recorded as necessary. Subsequent decreases in fair value and increases in fair value, up to the value established at foreclosure, are recognized as charges or credits to noninterest expense. OREO is reported net of allowance for losses in the Company's financial statements. The carrying amount of other real estate owned at December 31, 2000 and 1999 was $620,000 and $461,000, respectively. Transfers of Financial Assets Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Bank, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Bank does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. Intangible Assets Intangible assets, arising from excess of purchase price over net assets acquired of purchased banks, are being amortized on the straight-line method over various periods not exceeding 25 years for banks acquired prior to 1996. Excess acquisition cost of Southland Bank acquired in 1996 and the Douglas branch of Citizens Security Bank acquired in 1997 are being amortized on the straight-line method over 15 years. Income Taxes Income tax expense consists of current and deferred taxes. Current income tax provisions approximate taxes to be paid or refunded for the applicable year. Deferred tax assets and liabilities are recognized on the temporary differences between the bases of assets and liabilities as measured by tax laws and their bases as reported in the financial statements. Deferred tax expense or benefit is then recognized for the change in deferred tax assets or liabilities between periods. Recognition of deferred tax balance sheet amounts is based on management's belief that it is more likely than not that the tax benefit associated with certain temporary differences, tax operating loss carryforwards, and tax credits will be realized. A valuation allowance is recorded for those deferred tax items for which it is more likely than not that realization will not occur. The Company and its subsidiaries file a consolidated income tax return. Each subsidiary provides for income taxes based on its contribution to income taxes (benefits) of the consolidated group. F-11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Stock Compensation Plans Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based Compensation, encourages all entities to adopt a fair value based method of accounting for employee stock compensation plans, whereby compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. However, it also allows an entity to continue to measure compensation cost for those plans using the intrinsic value based method of accounting prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, whereby compensation cost is the excess, if any, of the quoted market price of the stock at the grant date (or other measurement date) over the amount an employee must pay to acquire the stock. Stock options issued under the Company's stock option plan have no intrinsic value at the grant date, and under Opinion No. 25 no compensation cost is recognized for them. The Company has elected to continue with the accounting methodology in Opinion No. 25 and, as a result, has provided pro forma disclosures of net income and earnings per share and other disclosures, as if the fair value based method of accounting had been applied. Earnings Per Share Basic earnings per common share are computed by dividing net income by the weighted-average number of shares of common stock outstanding. Diluted earnings per common share are computed by dividing net income after adjustments for the after-tax income effect of the issuance of potential common shares that are dilutive by the sum of the weighted-average number of shares of common stock outstanding and potential common shares. The weighted-average number of shares outstanding for the years ended at December 31, 2000, 1999, and 1998 was 8,460,230; 8,701,615; and 8,698,860, respectively. The weighted-average number of shares outstanding and potential shares for the years ended December 31, 2000, 1999 and 1998 was 8,465,669; 8,710,685; and 8,713,177, respectively. The weighted average shares and potential common shares for 1998 have been adjusted to reflect the six-for-five split effected in the form of a 20% stock dividend to shareholders of record as of December 15, 1999. Comprehensive Income Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the equity section of the balance sheet, such items, along with net income, are components of comprehensive income. Recent Developments In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, effective for fiscal years beginning after June 15, 2000. This Statement establishes accounting and reporting standards for derivative instruments and hedging activities, including certain derivative instruments embedded in other contracts, and requires that an entity recognize all derivatives as assets or liabilities in the balance sheet and measure them at fair value. If certain conditions are met, an entity may elect to designate a derivative as follows: (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows of a forecasted transaction, or (c) a hedge of the foreign currency exposure of an unrecognized firm commitment, an available-for-sale security, a foreign currency denominated forecasted transaction, or a net investment in a foreign corporation. The Statement generally provides for matching the timing of the recognition of the gain or loss on derivatives designated as hedging instruments with the recognition of the changes in the fair value of the item being hedged. Depending on the type of hedge, such recognition will be in either net income or other comprehensive income. For a derivative not designated as a hedging instrument, changes in fair value will be recognized in net income in the period of change. Management is currently evaluating the impact of adopting this Statement on the financial statements, but does not anticipate that it will have a material impact. F-12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Reclassification of Certain Items Certain items in the consolidated financial statements as of and for the years ended December 31, 1999 and 1998 have been reclassified, with no effect on net income, to be consistent with the classifications adopted for the year ended December 31, 2000. NOTE 2. INVESTMENTS IN SECURITIES As permitted by Financial Accounting Standards Board Statement No. 115, "Accounting for Certain Investments in Debt and Equity Securities", the Company elected on December 31, 1999, to transfer all debt securities classified as securities held to maturity to securities available for sale. Upon election, the Company transferred debt securities with a market value of $15,420,000 to securities available for sale. These securities were marked to fair value resulting in a net unrealized gain of $90,000 which was included in stockholders' equity at $59,000, net of related taxes of $31,000. The amortized cost and fair value of securities are summarized as follows:
Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- ---------- ---------- --------- (Dollars in Thousands) ----------------------------------------------- Securities Available for Sale December 31, 2000: U. S. Government and agency securities $ 60,467 $ 892 $ (173) $ 61,186 State and municipal securities 19,206 330 (68) 19,468 Corporate debt securities 6,101 114 (85) 6,130 Mortgage-backed securities 71,160 563 (502) 71,221 Equity securities 647 -- (33) 614 Restricted equity securities 3,486 -- -- 3,486 --------- --------- --------- --------- $ 161,067 $ 1,899 $ (861) $ 162,105 ========= ========= ========= ========= December 31, 1999: U. S. Government and agency securities $ 49,741 $ 9 $ (939) $ 48,811 State and municipal securities 20,059 209 (134) 20,134 Corporate debt securities 4,449 -- (105) 4,344 Mortgage-backed securities 70,700 122 (1,345) 69,477 Marketable equity securities 872 -- (100) 772 Restricted equity securities 3,452 -- -- 3,452 --------- --------- --------- --------- $ 149,273 $ 340 $ (2.623) $ 146,990 ========= ========= ========= =========
F-13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2. INVESTMENTS IN SECURITIES (Continued) The amortized cost and fair value of debt securities as of December 31, 2000 by contractual maturity are shown below. Maturities may differ from contractual maturities in mortgage-backed securities because the mortgages underlying the securities may be called or repaid without penalty. Therefore, these securities are not included in the maturity categories in the following maturity summary. Securities Available for Sale ----------------------------- Amortized Fair Cost Value --------- -------- (Dollars in Thousands) ----------------------------- Due in one year or less $ 19,747 $ 19,701 Due from one year to five years 28,205 28,400 Due from five to ten years 36,394 37,204 Due after ten years 1,428 1,479 Mortgage-backed securities 71,160 71,221 Equity securities 647 614 Restricted equity securities 3,486 3,486 -------- -------- $161,067 $162,105 ======== ======== Securities with a carrying value of $82,568,979 and $78,388,000 at December 31, 2000 and 1999, respectively, were pledged to secure public deposits and for other purposes required or permitted by law. Gains and losses on sales of securities available for sale consist of the following: December 31, ------------------------- 2000 1999 1998 ------ ------ ------ (Dollars in Thousands) ------------------------- Gross gains on sales of securities $ -- $ 4 $ -- Gross losses on sales of securities -- (95) -- ------ ------ ------ Net realized (losses) on sales of securities available for sale $ -- $ (91) $ -- ====== ====== ====== F-14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES The composition of loans is summarized as follows: December 31, ---------------------- 2000 1999 -------- --------- (Dollars in Thousands) ---------------------- Commercial and financial $109,647 $ 83,385 Agricultural 34,840 29,694 Real estate - construction 14,046 13,228 Real estate - mortgage, farmland 57,253 59,018 Real estate - mortgage, commercial 160,456 150,075 Real estate - mortgage, residential 128,614 117,936 Consumer installment loans 76,076 59,529 Other 6,449 17,360 -------- -------- 587,381 530,225 Allowance for loan losses 9,832 9,895 -------- -------- $577,549 $520,330 ======== ======== The following is a summary of information pertaining to impaired loans:
As of and For the Years Ended December 31, ----------------------------- 2000 1999 1998 ------- ------- ------- Impaired loans without a valuation allowance $ -- $ -- $ -- Impaired loans with a valuation allowance 4,863 5,551 8,767 ------- ------- ------- Total impaired loans $ 4,863 $ 5,551 $ 8,767 ======= ======= ======= Valuation allowance related to impaired loans $ 1,020 $ 953 $ 1,846 ======= ======= ======= Average investment in impaired loans $ 5,603 $ 6,447 $12,730 ======= ======= ======= Interest income recognized on impaired loans $ 51 $ 21 $ 160 ======= ======= ======= Foregone interest income on impaired loans $ 541 $ 593 $ 1,160 ======= ======= =======
In the ordinary course of business, the Company has granted loans to certain directors, executive officers, and their affiliates. The interest rates on these loans were substantially the same as rates prevailing at the time of the transaction and repayment terms are customary for the type of loan. Changes in related party loans for the years ended December 31, 2000 and 1999 are as follows: December 31, ---------------------- 2000 1999 --------- --------- (Dollars in Thousands) ---------------------- Balance, beginning of year $ 27,457 $ 19,356 Advances 28,802 21,527 Repayments (23,082) (13,031) Transactions due to change(s) in related parties 3,144 (395) -------- -------- Balance, end of year $ 36,321 $ 27,457 ======== ======== F-15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued) Changes in the allowance for loan losses for the years ended December 31, 2000, 1999, and 1998 are as follows:
December 31, -------------------------------- 2000 1999 1998 -------- -------- -------- (Dollars in Thousands) -------------------------------- Balance, beginning of year $ 9,895 $ 10,192 $ 7,627 Provision for loan losses 1,712 2,154 5,505 Loans charged off (2,594) (3,733) (4,030) Recoveries of loans previously charged off 819 1,282 1,090 -------- -------- -------- Balance, end of year $ 9,832 $ 9,895 $ 10,192 ======== ======== ========
NOTE 4. PREMISES AND EQUIPMENT, NET Premises and equipment are summarized as follows: December 31, --------------------- 2000 1999 ------- ------- (Dollars in Thousands) --------------------- Land $ 4,857 $ 4,903 Buildings 16,604 14,776 Equipment 17,419 15,977 Construction in progress; estimated cost to complete, $2,150 471 1,502 ------- ------- 39,351 37,158 Accumulated depreciation 19,648 17,618 ------- ------- $19,703 $19,540 ======= ======= NOTE 5. DEPOSITS The aggregate amount of time deposits in denominations of $100,000 or more at December 31, 2000 and 1999 was $120,670,000 and $95,282,000, respectively. The scheduled maturities of time deposits at December 31, 2000 are as follows: (Dollars in Thousands) ----------- 2001 $345,864 2002 22,319 2003 9,012 2004 3,574 2005 2,927 Later years 17 -------- $383,713 ======== F-16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6. EMPLOYEE BENEFIT PLANS Prior to 1998, the Company and its subsidiaries maintained simplified employee pension plans for substantially all employees. These plans were SEP-IRA defined contribution plans. Effective January 1, 1998, the Company established two retirement plans to replace the simplified employee pension plans. The ABC Bancorp 401(k) Profit Sharing Plan allows a participant to defer a portion of his compensation and provides that the Company will match a portion of the deferred compensation. The plan also provides for nonelective and discretionary contributions to be made at the sole discretion of the Company. The ABC Bancorp Money Purchase Pension Plan was established to supplement a participant's income upon retirement. The Plan is fully funded by the Company. The Plan provides for a fixed rate of contribution, currently 5%, of the participant's eligible compensation. The rate of contribution is established by the Compensation Committee of ABC Bancorp's Board of Directors. The Plan must be amended to change the fixed rate of 5% established by the Compensation Committee in December 1997. All full-time and part-time employees are eligible to participate in both plans provided they have met the eligibility requirements. Generally, a participant must have completed twelve months of employment with a minimum of 1,000 hours. Aggregate expense under the two plans charged to operations during 2000, 1999 and 1998 amounted to $949,000, $707,000 and $644,000, respectively. NOTE 7. DEFERRED COMPENSATION PLANS The Company and two subsidiary banks have entered into separate deferred compensation arrangements with certain executive officers and directors. The plans call for certain amounts payable at retirement, death or disability. The estimated present value of the deferred compensation is being accrued over the remaining expected term of active employment. The Company and Banks have purchased life insurance policies which they intend to use to finance this liability. Aggregate compensation expense under the plans were $75,000, $70,000 and $78,000 for 2000, 1999 and 1998, respectively, and is included in other operating expenses. NOTE 8. OTHER BORROWINGS Other borrowings consist of the following: December 31, ---------------------- 2000 1999 ---------- --------- (Dollars in Thousands) ---------------------- Advances under revolving credit agreement $ 2,000 $ 2,500 with SunTrust Bank with interest at sixty-day LIBOR rate plus .9% (7.46% at December 31, 2000) due on May 31, 2001; unsecured Advances from Federal Home Loan Bank with 53,100 25,350 interest at adjustable rates (ranging from 6.48% to 6.93% at December 31, 2000) due at various dates from January 31, 2001 to September 8, 2009 Advance from Federal Home Loan Bank with 250 300 interest at a fixed rate (6.48% at December 31, 2000) due in annual installments of $50,000 through June 6, 2005 Advances from Federal Home Loan Bank with -- 15,000 interest at a fixed rate (ranging from 5.63% to 5.98%) due at various dates from January 31, 2000 to June 15, 2000 Advances from Federal Home Loan Bank with -- 23,000 interest at a fixed rate (ranging from 5.07% to 5.52%), convertible to a variable rate at option of Federal Home Loan Bank in 2000, due at various dates from April 2, 2003 to October 29, 2009 ------- ------- $55,350 $66,150 ======= ======= F-17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 8. OTHER BORROWINGS (Continued) The advances from Federal Home Loan Bank are collateralized by the pledging of first mortgage loans and other specific loans. Other borrowings at December 31, 2000 have maturities in future years as follows: (Dollars in Thousands) ----------- 2001 $ 29,150 2002 1,050 2003 50 2004 50 2005 15,050 Later years 10,000 ----------- $ 55,350 =========== NOTE 9. INCOME TAXES The income tax expense in the consolidated statements of income consists of the following: Years Ended December 31, ------------------------------------- 2000 1999 1998 ------- ------- ------- (Dollars in Thousands) ------------------------------------- Current $ 4,977 $ 4,378 $ 3,905 Deferred (634) (87) (1,170) ------- ------- ------- $ 4,343 $ 4,291 $ 2,735 ======= ======= ======= The Company's income tax expense differs from the amounts computed by applying the federal income tax statutory rates to income before income taxes. A reconciliation of the differences is as follows: Years Ended December 31, ----------------------------- 2000 1999 1998 ------- ------- ------- (Dollars in Thousands) ----------------------------- Tax at federal income tax rate $ 4,910 $ 4,504 $ 3,280 Increase (decrease) resulting from: Tax-exempt interest (497) (392) (407) Amortization of excess cost over assets acquired 162 167 167 Tax-exempt life insurance proceeds -- -- (408) Other (232) 12 103 ------- ------- ------- Provision for income taxes $ 4,343 $ 4,291 $ 2,735 ======= ======= ======= F-18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 9. INCOME TAXES (Continued) Net deferred income tax assets of $2,710,000 and $3,981,000 at December 31, 2000 and 1999, respectively, are included in other assets. The components of deferred income taxes are as follows: December 31, --------------------- 2000 1999 ------ ------ (Dollars in Thousands) --------------------- Deferred tax assets: Loan loss reserves $3,343 $3,040 Deferred compensation 196 171 Unearned compensation related to restricted stock 196 66 Nonaccrual interest 216 193 Net operating loss tax carryforward 164 188 Unrealized loss on securities available for sale -- 776 ------ ------ 4,115 4,434 ------ ------ Deferred tax liabilities: Deprecation and amortization 276 453 Unrealized gain on securities available for sale 1,129 -- ------ ------ 1,405 453 ------ ------ Net deferred tax assets $2,710 $3,981 ====== ====== NOTE 10. STOCK OPTION PLANS The Company has two fixed stock option plans under which it has granted options to its Chief Executive Officer to purchase common stock at the fair market price on the date of grant. All of the options are intended to be incentive stock options qualifying under Section 422 of the Internal Revenue Code for favorable tax treatment. Under the 1992 Plan, options to purchase 10,001 shares were granted. None of these options have been exercised, however, all of the options were exercisable as of December 31, 2000. Options under the 1992 Plan expire in 2002. Under the 1997 Plan, options to purchase 67,500 shares were granted. Options under the 1997 Plan are fully vested and are exercisable over a period of ten years subject to certain limitations as to aggregate fair market value (determined as of the date of the grant) of all options exercisable for the first time by the optionee during any calendar year (the "$100,000 Per-Year Limitation"). Under the 1997 Plan, options to purchase 34,050 shares were exercisable as of December 31, 2000. F-19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 10. STOCK OPTION PLANS (Continued) At the annual meeting on April 15, 1997, the shareholders approved the ABC Bancorp Omnibus Stock Ownership and Long-Term Incentive Plan (the "Omnibus Plan"). Awards granted under the Omnibus Plan may be in the form of Qualified or Nonqualified Stock Options, Restricted Stock, Stock Appreciation Rights ("SARS"), Long-Term Incentive Compensation Units consisting of a combination of cash and Common Stock, or any combination thereof within the limitations set forth in the Omnibus Plan. The Omnibus Plan provides that the aggregate number of shares of the Company's Common Stock which may be subject to award may not exceed 637,500 subject to adjustment in certain circumstances to prevent dilution. As of December 31, 2000, the Company has issued a total of 108,696 restricted shares under the Omnibus Plan as compensation for certain key salaried employees. These shares carry dividend and voting rights. Sale of these shares is restricted prior to the date of vesting, which is three years from the date of the grant. Shares issued under this plan were recorded at their fair market value on the date of their grant with a corresponding charge to equity. The unearned portion is being amortized as compensation expense on a straight-line basis over the related vesting period. Compensation expense related to these grants was $387,000 and $191,000 for 2000 and 1999, respectively. In addition to the granting of restricted shares, options to purchase 162,052 shares of the Company's common stock have been granted under the Omnibus Plan as of December 31,2000. A summary of the status of the three fixed plans at December 31, 2000, 1999 and 1998 and changes during the years ended on those dates is as follows:
December 31, ---------------------------------------------------------------------------------- 2000 1999 1998 ------------------------ ------------------------ ------------------------ Weighted- Weighted- Weighted- Average Average Average Exercise Exercise Exercise Number Price Number Price Number Price --------- --------- --------- --------- --------- --------- Under option, beginning of the year 159,151 $ 11.40 115,966 $ 12.18 77,501 $ 10.45 Granted 86,000 10.30 51,280 10.02 42,274 15.66 Exercised -- -- -- -- -- -- Forfeited (5,598) 11.79 (8,095) 13.74 (3,809) 15.66 --------- --------- --------- Under option, end of year 239,553 11.00 159,151 11.40 115,966 12.18 ========= ========= ========= Exercisable at end of year 65,781 41,260 26,651 ========= ========= ========= Weighted-average fair value per option of options granted during year $ 1.78 $ 2.97 $ 3.41 ========= ========= =========
F-20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 10. STOCK OPTION PLANS (Continued) A further summary about options outstanding at December 31, 2000 is as follows:
Options Outstanding Options Exercisable ------------------------------------------- --------------------------- Weighted- Weighted- Weighted- Range of Average Average Average Exercise Number Contractual Exercise Number Exercise Prices Outstanding Life in Years Price Outstanding Price ----------- ----------- ------------- ----------- ----------- ----------- $ 4.50 10,001 2.0 $ 4.50 10,001 $ 4.50 11.33 67,500 6.3 11.33 34,050 11.33 15.94 25,775 7.0 15.94 9,975 15.94 14.17 6,000 7.3 14.17 2,400 14.17 10.39 600 8.1 10.39 120 10.39 9.90 25,777 8.1 9.90 5,155 9.90 10.11 18,000 8.3 10.11 3,600 10.11 10.83 2,400 8.9 10.83 480 10.83 10.38 75,500 9.1 10.38 -- -- 10.00 2,000 9.4 10.00 -- -- 9.94 3,000 9.5 9.94 -- -- 8.75 3,000 9.9 8.75 -- -- ----------- ----------- 239,553 7.59 11.00 65,781 10.91 =========== ===========
As permitted by Statement of Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123), the Company recognizes compensation cost for stock-based employee compensation awards in accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees". The Company recognized no compensation cost under the fixed stock option plan for the years ended December 31, 2000, 1999 and 1998. If the Company had recognized compensation cost in accordance with SFAS No. 123, net income and net income per share would have been reduced as follows:
December 31, ------------------------------------------------------------------------------ 2000 1999 1998 ------------------------ ------------------------ ------------------------ Basic Basic Basic Net Net Income Net Net Income Net Net Income Income Per Share Income Per Share Income Per Share ---------- ---------- ---------- ---------- ---------- ---------- As reported $ 10,098 $ 1.19 $ 8,956 $ 1.03 $ 6,913 $ 0.79 Stock based compensation, net of related tax effect (33) -- (13) -- (18) -- ---------- ---------- ---------- ---------- ---------- ---------- As adjusted $ 10,065 $ 1.19 $ 8,943 $ 1.03 $ 6,895 $ 0.79 ========== ========== ========== ========== ========== ==========
December 31, ------------------------------------------------------------------------------ 2000 1999 1998 ------------------------ ------------------------ ------------------------ Diluted Diluted Diluted Net Net Income Net Net Income Net Net Income Income Per Share Income Per Share Income Per Share ---------- ---------- ---------- ---------- ---------- ---------- As reported $ 10,098 $ 1.19 $ 8,956 $ 1.03 $ 6,913 $ 0.79 Stock based compensation, net of related tax effect (33) -- (13) -- (18) -- ---------- ---------- ---------- ---------- ---------- ---------- As adjusted $ 10,065 $ 1.19 $ 8,943 $ 1.03 $ 6,895 $ 0.79 ========== ========== ========== ========== ========== ==========
F-21 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 10. STOCK OPTION PLANS (Continued) The fair value of the options granted in 2000 was based upon the discounted value of future cash flows of the options using the following assumptions: Risk-free interest rate 5.76% Expected life of the options 10 years Expected dividends (as a percent of the fair value of the stock) 4.57% Expected volatility 17.34% NOTE 11. EARNINGS PER COMMON SHARE The following is a reconciliation of net income (the numerator) and the weighted average shares outstanding (the denominator) used in determining basic and diluted earnings per share. All amounts are presented in thousands, except per share amounts. Year Ended December 31, 2000 --------------------------------------------- Income Shares Per Share (Numerator) (Denominator) Amount ------------- ------------- ------------- Basic earnings per share Net income $ 10,098 8,460 $ 1.19 ============= Effect of Dilutive Securities Stock options -- 5 ------------- ------------- Dilutive earnings per share Net income $ 10,098 8,465 $ 1.19 ============= ============= ============= Year Ended December 31, 1999 --------------------------------------------- Income Shares Per Share (Numerator) (Denominator) Amount ------------- ------------- ------------- Basic earnings per share Net income $ 8,956 8,702 $ 1.03 ============= Effect of Dilutive Securities Stock options -- 9 ------------- ------------- Dilutive earnings per share Net income $ 8,956 8,711 $ 1.03 ============= ============= ============= F-22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 11. EARNINGS PER COMMON SHARE (Continued) Year Ended December 31, 1998 --------------------------------------------- Income Shares Per Share (Numerator) (Denominator) Amount ------------- ------------- ------------- Basic earnings per share Net income $ 6,913 8,699 $ 0.79 ============= Effect of Dilutive Securities Stock options -- 14 ------------- ------------- Dilutive earnings per share Net income $ 6,913 8,713 $ 0.79 ============= ============= ============= NOTE 12. COMMITMENTS AND CONTINGENT LIABILITIES The Company is party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. They involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amount recognized in the balance sheets. The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. A summary of the Company's commitments is as follows: December 31, ---------------------- 2000 1999 ------- -------- (Dollars in Thousands) ---------------------- Commitments to extend credit $75,007 $84,150 Credit card commitments 10,471 9,162 Standby letters of credit 5,179 3,415 ------- ------- $90,657 $96,727 ======= ======= Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management's credit evaluation of the customer. Credit card commitments are unsecured. F-23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 12. COMMITMENTS AND CONTINGENT LIABILITIES (Continued) Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. Collateral is required in instances which the Company deems necessary. In the normal course of business, the Company is involved in various legal proceedings. In the opinion of management, any liability resulting from such proceedings would not have a material effect on the Company's financial statements. NOTE 13. CONCENTRATIONS OF CREDIT The Banks make agricultural, agribusiness, commercial, residential and consumer loans to customers primarily in counties in south Georgia and southeast Alabama. A substantial portion of the Company's customers' abilities to honor their contracts is dependent on the business economy in the geographical area served by the Banks. Although the Company's loan portfolio is diversified, there is a relationship in this region between the agricultural economy and the economic performance of loans made to nonagricultural customers. The Company's lending policies for agricultural and nonagricultural customers require loans to be well-collateralized and supported by cash flows. Collateral for agricultural loans include equipment, crops, livestock and land. Credit losses from loans related to the agricultural economy is taken into consideration by management in determining the allowance for loan losses. A substantial portion of the Company's loans are secured by real estate in the Company's primary market area. In addition, a substantial portion of the real estate owned is located in those same markets. Accordingly, the ultimate collectibility of a substantial portion of the Company's loan portfolio and the recovery of a substantial portion of the carrying amount of real estate owned are susceptible to changes in market conditions in the Company's primary market area. The Company has a concentration of funds on deposit at its primary correspondent bank at December 31, 2000, as follows: Noninterest-bearing accounts $ 28,937 ======== F-24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 14. REGULATORY MATTERS The Banks are subject to certain restrictions on the amount of dividends that may be declared without prior regulatory approval. At December 31, 2000, approximately $9,500,000 of retained earnings were available for dividend declaration without regulatory approval. The Banks are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Banks must meet specific capital guidelines that involve quantitative measures of the assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Banks capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Prompt corrective action provisions are not applicable to bank holding companies. Quantitative measures established by regulation to ensure capital adequacy require the Banks to maintain minimum amounts and ratios of total and Tier I capital to risk-weighted assets and of Tier I capital to average assets. Management believes, as of December 31, 2000, the Banks meet all capital adequacy requirements to which they are subject. As of December 31, 2000, the most recent notification from the regulatory authorities categorized the Banks as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Banks must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the Banks' category. The Banks' actual capital amounts and ratios are presented in the following table.
To Be Well For Capital Capitalized Under Adequacy Prompt Corrective Actual Purposes Action Provisions ------------------- ------------------- ------------------- Amount Ratio Amount Ratio Amount Ratio -------- -------- -------- -------- -------- -------- As of December 31, 2000 (Dollars in Thousands) ----------------------------------------------------------------- Total Capital to Risk Weighted Assets: Consolidated $ 87,544 14.61% $ 47,935 8.00% - - - N/A - - - American Banking Company $ 14,877 12.43% $ 9,574 8.00% $ 11,967 10.00% Heritage Community Bank $ 5,195 10.88% $ 3,819 8.00% $ 4,774 10.00% Bank of Thomas County $ 3,282 11.65% $ 2,253 8.00% $ 2,816 10.00% Citizens Security Bank $ 12,486 13.75% $ 7,263 8.00% $ 9,079 10.00% Cairo Banking Company $ 7,147 13.49% $ 4,237 8.00% $ 5,297 10.00% Southland Bank $ 17,024 13.36% $ 10,194 8.00% $ 12,742 10.00% Central Bank and Trust $ 5,122 12.26% $ 3,342 8.00% $ 4,178 10.00% First National Bank of South Georgia $ 6,443 10.44% $ 4,936 8.00% $ 6,170 10.00% Merchants and Farmers Bank $ 4,766 14.56% $ 2,618 8.00% $ 3,273 10.00%
F-25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 14. REGULATORY MATTERS (Continued)
To Be Well For Capital Capitalized Under Adequacy Prompt Corrective Actual Purposes Action Provisions ------------------- ------------------- ------------------- Amount Ratio Amount Ratio Amount Ratio -------- -------- -------- -------- -------- -------- As of December 31, 2000 (Dollars in Thousands) ----------------------------------------------------------------- (Continued) Tier I Capital to Risk Weighted Assets: Consolidated $ 79,954 13.34% $ 23,967 4.00% - - - N/A - - - American Banking Company $ 13,378 11.18% $ 4,787 4.00% $ 7,180 6.00% Heritage Community Bank $ 4,624 9.69% $ 1,910 4.00% $ 2,864 6.00% Bank of Thomas County $ 2,929 10.40% $ 1,126 4.00% $ 1,690 6.00% Citizens Security Bank $ 11,319 12.47% $ 3,631 4.00% $ 5,447 6.00% Cairo Banking Company $ 6,477 12.23% $ 2,119 4.00% $ 3,178 6.00% Southland Bank $ 15,381 12.07% $ 5,097 4.00% $ 7,645 6.00% Central Bank and Trust $ 4,596 11.00% $ 1,671 4.00% $ 2,507 6.00% First National Bank of South Georgia $ 5,672 9.19% $ 2,468 4.00% $ 3,702 6.00% Merchants and Farmers Bank $ 4,355 13.31% $ 1,309 4.00% $ 1,964 6.00% Tier I Capital to Average Assets: Consolidated $ 79,954 9.86% $ 32,422 4.00% - - - N/A - - - American Banking Company $ 13,378 8.79% $ 6,091 4.00% $ 7,614 5.00% Heritage Community Bank $ 4,624 8.03% $ 2,302 4.00% $ 2,877 5.00% Bank of Thomas County $ 2,929 7.64% $ 1,534 4.00% $ 1,917 5.00% Citizens Security Bank $ 11,319 7.98% $ 5,672 4.00% $ 7,091 5.00% Cairo Banking Company $ 6,477 8.41% $ 3,079 4.00% $ 3,849 5.00% Southland Bank $ 15,381 8.37% $ 7,350 4.00% $ 9,187 5.00% Central Bank and Trust $ 4,596 7.48% $ 2,456 4.00% $ 3,070 5.00% First National Bank of South Georgia $ 5,672 8.04% $ 2,822 4.00% $ 3,527 5.00% Merchants and Farmers Bank $ 4,355 8.92% $ 1,954 4.00% $ 2,442 5.00%
F-26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 14. REGULATORY MATTERS (Continued)
To Be Well For Capital Capitalized Under Adequacy Prompt Corrective Actual Purposes Action Provisions ------------------- ------------------- ------------------- Amount Ratio Amount Ratio Amount Ratio -------- -------- -------- -------- -------- -------- As of December 31, 1999 (Dollars in Thousands) ----------------------------------------------------------------- Total Capital to Risk Weighted Assets: Consolidated $ 76,167 14.37% $ 42,402 8.00% - - - N/A - - - American Banking Company $ 13,533 13.45% $ 8,049 8.00% $ 10,062 10.00% Heritage Community Bank $ 4,443 12.07% $ 2,945 8.00% $ 3,682 10.00% Bank of Thomas County $ 3,232 13.52% $ 1,912 8.00% $ 2,390 10.00% Citizens Security Bank $ 12,771 15.14% $ 6,747 8.00% $ 8,433 10.00% Cairo Banking Company $ 6,829 15.61% $ 3,501 8.00% $ 4,376 10.00% Southland Bank $ 14,398 12.11% $ 9,511 8.00% $ 11,889 10.00% Central Bank and Trust $ 5,429 14.72% $ 2,950 8.00% $ 3,687 10.00% First National Bank of South Georgia $ 5,681 11.20% $ 4,058 8.00% $ 5,073 10.00% Merchants and Farmers Bank $ 4,110 12.27% $ 2,680 8.00% $ 3,350 10.00% Tier I Capital to Risk Weighted Assets: Consolidated $ 69,501 13.11% $ 21,201 4.00% - - - N/A - - - American Banking Company $ 12,269 12.19% $ 4,025 4.00% $ 6,037 6.00% Heritage Community Bank $ 3,982 10.82% $ 1,473 4.00% $ 2,209 6.00% Bank of Thomas County $ 2,932 12.27% $ 956 4.00% $ 1,434 6.00% Citizens Security Bank $ 11,709 13.88% $ 3,373 4.00% $ 5,060 6.00% Cairo Banking Company $ 6,272 14.33% $ 1,750 4.00% $ 2,625 6.00% Southland Bank $ 13,389 10.85% $ 4,935 4.00% $ 7,402 6.00% Central Bank and Trust $ 4,963 13.46% $ 1,475 4.00% $ 2,212 6.00% First National Bank of South Georgia $ 5,047 9.95% $ 2,029 4.00% $ 3,044 6.00% Merchants and Farmers Bank $ 3,690 11.02% $ 1,340 4.00% $ 2,010 6.00%
F-27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 14. REGULATORY MATTERS (Continued)
To Be Well For Capital Capitalized Under Adequacy Prompt Corrective Actual Purposes Action Provisions ------------------- ------------------- ------------------- Amount Ratio Amount Ratio Amount Ratio -------- -------- -------- -------- -------- -------- (Dollars in Thousands) ----------------------------------------------------------------- As of December 31, 1999 (Continued) Tier I Capital to Average Assets: Consolidated $ 69,501 9.16% $ 30,350 4.00% - - - N/A - - - American Banking Company $ 12,269 8.66% $ 5,667 4.00% $ 7,084 5.00% Heritage Community Bank $ 3,982 7.62% $ 2,090 4.00% $ 2,613 5.00% Bank of Thomas County $ 2,932 8.20% $ 1,430 4.00% $ 1,788 5.00% Citizens Security Bank $ 11,709 8.30% $ 5,643 4.00% $ 7,054 5.00% Cairo Banking Company $ 6,272 8.30% $ 3,023 4.00% $ 3,778 5.00% Southland Bank $ 13,389 7.52% $ 7,122 4.00% $ 8,902 5.00% Central Bank and Trust $ 4,963 8.70% $ 2,282 4.00% $ 2,853 5.00% First National Bank of South Georgia $ 5,047 8.49% $ 2,378 4.00% $ 2,972 5.00% Merchants and Farmers Bank $ 3,690 7.76% $ 1,902 4.00% $ 2,378 5.00%
NOTE 15. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company's various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. SFAS 107 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company. The following methods and assumptions were used by the Company in estimating fair value disclosures for financial instruments. Cash, Due From Banks, Interest-Bearing Deposits in Banks, and Federal Funds Sold: The carrying amounts of cash, due from banks, interest-bearing deposits in banks, and federal funds sold/purchased approximate fair values. F-28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 15. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued) Securities: Fair values for securities are based on available quoted market prices. The carrying values of equity securities with no readily determinable fair value approximate fair values. Loans: For variable-rate loans that reprice frequently and have no significant change in credit risk, fair values are based on carrying values. For other loans, the fair values are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers with similar credit quality. Fair values for impaired loans are estimated using discounted cash flow analyses or underlying collateral values. Deposits: The carrying amounts of demand deposits, savings deposits, and variable-rate certificates of deposit approximate their fair values. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits. Accrued Interest: The carrying amounts of accrued interest approximate their fair values. Off-Balance-Sheet Instruments: Fair values of the Company's off-balance-sheet financial instruments are based on fees currently charged to enter into similar agreements. Since the majority of the Company's off-balance-sheet instruments consist of nonfee-producing, variable-rate commitments, the Company has determined they do not have a distinguishable fair value. The carrying value and estimated fair value of the Company's financial instruments were as follows:
December 31, 2000 December 31, 1999 --------------------- ---------------------- Carrying Fair Carrying Fair Amount Value Amount Value --------- --------- --------- --------- (Dollars in Thousands) ---------------------------------------------- Financial assets: Cash and short-term investments $ 43,363 $ 43,363 $ 80,130 $ 80,130 ========= ========= ========= ========= Investments in securities $ 162,105 $ 162,105 $ 146,990 $ 146,990 ========= ========= ========= ========= Loans $ 587,381 $ 576,607 $ 530,225 $ 529,093 Allowance for loan losses 9,832 -- (9,895) -- --------- --------- --------- --------- Loans, net $ 577,549 $ 576,607 $ 520,330 $ 529,093 ========= ========= ========= ========= Accrued interest receivable $ 11,091 $ 11,091 $ 9,121 $ 9,121 ========= ========= ========= =========
F-29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 15. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued) Off-Balance-Sheet Instruments: (Continued) December 31, 2000 December 31, 1999 -------------------- -------------------- Carrying Fair Carrying Fair Amount Value Amount Value --------- --------- --------- --------- (Dollars in Thousands) ------------------------------------------ Financial liabilities: Deposits $679,885 $680,844 $640,658 $640,216 ======== ======== ======== ======== Federal funds purchased and securities sold under agreements to repurchase $ 2,653 $ 2,653 $ 397 $ 397 ======== ======== ======== ======== Other borrowings $ 55,350 $ 55,432 $ 66,150 $ 64,625 ======== ======== ======== ======== Accrued interest payable $ 3,265 $ 3,265 $ 2,687 $ 2,687 ======== ======== ======== ======== NOTE 16. CONDENSED FINANCIAL INFORMATION OF ABC BANCORP (PARENT COMPANY ONLY) CONDENSED BALANCE SHEETS DECEMBER 31, 2000 AND 1999 (Dollars in Thousands) 2000 1999 ------- ------- Assets Cash $ 1,912 $ 2,102 Interest bearing deposits in banks -- 1,200 Investment in subsidiaries 75,290 69,162 Other assets 7,761 7,672 ------- ------- Total assets $84,963 $80,136 ======= ======= Liabilities Other borrowings $ 2,000 $ 2,500 Other liabilities 2,307 1,620 ------- ------- Total liabilities 4,307 4,120 ------- ------- Stockholders' equity 80,656 76,016 ------- ------- Total liabilities and stockholders' equity $84,963 $80,136 ======= ======= F-30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 16. CONDENSED FINANCIAL INFORMATION OF ABC BANCORP (PARENT COMPANY ONLY) (Continued) CONDENSED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (Dollars in Thousands) 2000 1999 1998 -------- -------- -------- Income Dividends from subsidiaries $ 7,645 $ 5,582 $ 8,942 Interest 52 94 69 Fee income 8,424 6,804 6,702 Other income 645 967 962 -------- -------- -------- Total income 16,766 13,447 16,675 -------- -------- -------- Expense Interest 174 170 223 Amortization and depreciation 935 721 636 Other expense 9,716 7,990 7,597 -------- -------- -------- Total expense 10,825 8,881 8,456 -------- -------- -------- Income before income tax benefits and equity in undistributed earnings (distributions in excess of earnings) of subsidiaries 5,941 4,566 8,219 Income tax benefits 621 200 77 -------- -------- -------- Income before equity in undistributed earnings (distributions in excess of earnings) of subsidiaries 6,562 4,766 8,296 Equity in undistributed earnings (distributions in excess of earnings) of subsidiaries 3,536 4,190 (1,383) -------- -------- -------- Net income $ 10,098 $ 8,956 $ 6,913 ======== ======== ======== F-31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 16. CONDENSED FINANCIAL INFORMATION OF ABC BANCORP (PARENT COMPANY ONLY) (Continued) CONDENSED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (Dollars in Thousands)
2000 1999 1998 -------- -------- -------- OPERATING ACTIVITIES Net income $ 10,098 $ 8,956 $ 6,913 -------- -------- -------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 636 408 276 Amortization of intangible assets 299 313 360 Amortization of compensation expense 387 191 -- Distributions in excess of earnings (undistributed earnings) of subsidiaries (3,536) (4,190) 1,383 (Increase) decrease in interest receivable 2 (2) -- Decrease in interest payable -- (1) (82) Increase (decrease) in taxes payable 91 866 (812) Provision for deferred taxes (203) (104) 47 (Increase) decrease in due from subsidiaries (117) 29 (79) Other prepaids, deferrals and accruals, net 302 (312) 102 -------- -------- -------- Total adjustments (2,139) (2,802) 1,195 -------- -------- -------- Net cash provided by operating activities 7,959 6,154 8,108 -------- -------- -------- INVESTING ACTIVITIES (Increase) decrease in interest-bearing deposits in banks 1,200 (1,200) -- Purchases of premises and equipment (1,521) (1,792) (1,458) Contribution of capital to subsidiary bank (400) (600) (350) Purchase of securities available for sale -- (221) -- Proceeds from sale of premises and equipment 979 -- -- -------- -------- -------- Net cash provided by (used) in investing activities 258 (3,813) (1,808) -------- -------- -------- FINANCING ACTIVITIES Repayment of other borrowings $ (500) $ -- $ (2,500) Treasury stock transactions, net (4,162) (88) (415) Dividends paid (3,745) (2,898) (2,900) -------- -------- -------- Net cash used in financing activities (8,407) (2,986) (5,815) -------- -------- -------- Net increase (decrease) in cash (190) (645) 485 Cash at beginning of year 2,102 2,747 2,262 -------- -------- -------- Cash at end of year $ 1,912 $ 2,102 $ 2,747 ======== ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year for interest $ 174 $ 171 $ 305
F-32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 17. PENDING ACQUISITIONS The Company has entered into a definitive merger agreement with Golden Isles Financial Holdings, Inc., Brunswick, Georgia whereby it would acquire all of the outstanding stock of Golden Isles Financial Holdings, Inc. in exchange for a combination of cash and the Company's stock. The total merger consideration will approximate $23.3 million. Total assets of Golden Isles Financial Holdings, Inc. at December 31, 2000 were approximately $146.8 million. The merger is subject to approval by Golden Isles Financial Holdings, Inc. shareholders and certain regulatory authorities and the registration of the Company's common stock to be issued in connection with the merger. As a result of the merger, The First Bank of Brunswick, a wholly-owned subsidiary of Golden Isles Financial Holdings, Inc., will become a wholly-owned subsidiary of the Company. The merger will be accounted for as a purchase transaction. The Company has also entered into a definitive merger agreement with Tri-County Bank, Trenton, Florida whereby it would acquire all of the outstanding stock of Tri-County Bank in exchange for a combination of cash and the Company's common stock. The total merger consideration will approximate $7.2 million. Total assets of Tri-County Bank at December 31, 2000 were approximately $47.5 million. The merger is subject to approval by Tri-County Bank shareholders and certain regulatory authorities. As a result of the merger, Tri-County Bank will become a wholly-owned subsidiary of the Company. The merger will be accounted for as a purchase transaction. F-33 EXHIBIT INDEX Exhibit No. Description ----------- -------------------------------------------------------------------- 2.1 Agreement and Plan of Merger by and among ABC, Tri-County Bank and Tri-County Merger Sub, Inc. dated as of November 28, 2000, Amendment No. 1 thereto dated as of January 26, 2001, and Amendment No. 2 thereto dated as of February 20, 2001. 2.2 Agreement and Plan of Merger by and between ABC and Golden Isles Financial Holdings, Inc. dated as of February 20, 2001 (filed as Exhibit 2.1 to ABC's Current Report on Form 8-K filed with the Commission on February 23, 2001 and incorporated herein by reference). 3.1 Articles of Incorporation of ABC, as amended (incorporated by reference to Exhibit 2.1 to ABC's Regulation A Offering Statement on Form 1-A (File No. 24A-2630) filed August 14, 1987). 3.2 Amendment to Amended Articles of Incorporation dated May 26, 1995 (incorporated by reference to Exhibit 3.1.1 to ABC's Form 10-K filed March 28, 1996). 3.3 Amendment to Amended Articles of Incorporation (filed as Exhibit 4.3 to ABC's Registration on Form S-4 (Registration No. 333-08301), filed with the Commission on July 17, 1996 and incorporated herein by reference). 3.4 Bylaws of ABC, as amended (incorporated by reference to Exhibit 2.2 to ABC's Regulation A Offering Statement on Form 1-A (File No. 24A-2630) filed August 14, 1987. 3.5 Form of Articles of Amendment to the Articles of Incorporation (incorporated by reference to Exhibit 3.5 to ABC's Annual Report on Form 10-K (File No. 001-13901), filed with the Commission on March 25, 1998). 3.6 Form of Amendment to Bylaws (incorporated by reference to Exhibit 3.6 to ABC's Annual Report on Form 10-K (File No. 001-13901), filed with the Commission on March 25, 1998). 3.7 Form of Articles of Amendment to the Articles of Incorporation (incorporated by reference to Exhibit 3.7 to ABC's Annual Report on Form 10-K (File No. 001-13901), filed with the Commission on March 26, 1999). 3.8 Form of Amendment to Bylaws (incorporated by reference to Exhibit 3.8 to ABC's Annual Report on Form 10-K (File No. 001-13901), filed with the Commission on March 26, 1999). 10.1 1985 Incentive Stock Option Plan (filed as Exhibit 5.1 to ABC's Regulation A Offering Statement on Form 1-A (File No. 24A-2630), filed with the Commission on August 14, 1987 and incorporated herein by reference). 10.2 Incentive Stock Option Agreement with Kenneth J. Hunnicutt dated October 17, 1985 (filed as Exhibit 5.2 to ABC's Regulation A Offering Statement on Form 1-A (File No. 24A-2630), filed with the Commission on August 14, 1987 and incorporated herein by reference). 10.3 Deferred Compensation Agreement for Kenneth J. Hunnicutt dated December 16, 1986 (filed as Exhibit 5.3 to ABC's Regulation A Offering Statement on Form 1-A (File No. 24A-2630), filed with the Commission on August 14, 1987 and incorporated herein by reference). 43 Exhibit No. Description ----------- -------------------------------------------------------------------- 10.4 Security Deed in favor of M.I.A., Co. dated December 31, 1984 (filed as Exhibit 5.4 to ABC's Regulation A Offering Statement on Form 1-A (File No. 24A-2630), filed with the Commission on August 14, 1987 and incorporated herein by reference). 10.5 Loan Agreement and Master Term Note dated December 30, 1986 (filed as Exhibit 5.5 to ABC's Regulation A Offering Statement on Form 1-A (File No. 24A-2630), filed with the Commission on August 14, 1987 and incorporated herein by reference). 10.6 Executive Salary Continuation Agreement dated February 14, 1984 (filed as Exhibit 10.6 to ABC's Annual Report on Form 10-KSB (File Number 2-71257), filed herewith with the Commission on March 27, 1989 and incorporated herein by reference. 10.7 1992 Incentive Stock Option Plan and Option Agreement for K. J. Hunnicutt (filed as Exhibit 10.7 to ABC's Annual Report on Form 10-KSB (File Number 0-16181), filed with the Commission on March 30, 1993 and incorporated herein by reference). 10.8 Executive Employment Agreement with Kenneth J. Hunnicutt dated September 20, 1994 (filed as Exhibit 10.8 to ABC's Annual Report on Form 10-KSB (File Number 0-016181), filed with the Commission on March 30, 1995 and incorporated herein by reference). 10.9 Executive Consulting Agreement with Eugene M. Vereen dated September 20, 1994 (filed as Exhibit 10.9 to ABC's Annual Report on Form 10-KSB (File Number 0-016181), filed with the Commission on March 30, 1995 and incorporated herein by reference). 10.10 Agreement and Plan of Merger by and between ABC and Southland Bancorporation dated as of December 18, 1995 (filed as Exhibit 10.10 to ABC's Annual Report on Form 10-K (File No. 0-16181), filed with the Commission on March 28, 1996 and incorporated herein by reference), and Amendment No. 1 thereto dated as of April 16,1996 (filed as part of Appendix A to Amendment No. 1 to ABC's Registration on Form S-4 (Registration No. 333-2387), filed with the Commission on May 21, 1996 and incorporated herein by reference). 10.11 Agreement and Plan of Merger by and between ABC and Central Bankshares, Inc., dated as of December 29, 1995 (filed as Exhibit 10.11 to ABC's Annual Report on Form 10-K (File No. 0-16181), filed with the Commission on March 28, 1996 and incorporated herein by reference), and Amendment No. 1 thereto dated as April 26, 1996 (filed as part of Appendix A to ABC's Registration on Form S-4 (Registration No. 333-05861), filed with the Commission on June 12, 1996 and incorporated herein by reference). 44 Exhibit No. Description ----------- -------------------------------------------------------------------- 10.12 Agreement and Plan of Merger by and between ABC and First National Financial Corporation dated as of April 15, 1996 (filed as Exhibit 10.12 to Amendment No. 1 to ABC's Registration on Form S-4 (Registration No. 333-2387), filed with the Commission on May 21, 1996 and incorporated herein by reference). 10.13 Agreement and Plan of Merger by and between ABC and M & F Financial Corporation dated as of September 12, 1996 (filed as Appendix A to ABC's Registration on Form S-4 (Registration No. 333-14649), filed with the Commission on October 23, 1996 and incorporated herein by reference). 10.14 Form of Purchase and Assumption Agreement by and between NationsBank, N.A. (South) and ABC Bancorp dated as of February 26, 1997 (incorporated by reference to Exhibit 10.15 to ABC's Annual Report on Form 10-K (File No. 001-13981), filed with the Commission on March 25, 1998). 10.15 Form of Agreement and Plan of Merger by and between ABC Bancorp and Irwin Bankcorp, Inc. dated as of May 15, 1997 (incorporated by reference to Exhibit 10.16 to ABC's Annual Report on Form 10-K (File No. 001-13901) filed with the Commission on March 25, 1998). 10.16 Form of Omnibus Stock Ownership and Long-Term Incentive Plan (incorporated by reference to Exhibit 10.17 to ABC's Annual Report on Form 10-K (File No. 001-13901), filed with the Commission on March 25, 1998). 10.17 Form of Rights Agreement between ABC Bancorp and SunTrust Bank dated as of February 17, 1998 (incorporated by reference to Exhibit 10.18 to ABC's Annual Report on Form 10-K (File No. 001-13901), filed with the Commission on March 25, 1998). 10.18 ABC Bancorp 2000 Officer/Director Stock Bonus Plan (incorporated by reference to Exhibit 10.19 to ABC's Annual Report on Form 10K (File No. 001-13901), filed with the Commission on March 29, 2000). 10.19 Executive Employment Agreement with Mark D. Thomas dated as of July 12, 1999. 10.20 Severance Protection Agreement with W. Edwin Lane, Jr. dated as of November 1, 1998. 21.1 Schedule of subsidiaries of ABC Bancorp. 24.1 Power of Attorney relating to this Form 10-K is set forth on the signature pages of this Form 10-K. 45