0000931763-01-501907.txt : 20011106 0000931763-01-501907.hdr.sgml : 20011106 ACCESSION NUMBER: 0000931763-01-501907 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011101 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ABC BANCORP CENTRAL INDEX KEY: 0000351569 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 581456434 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-13901 FILM NUMBER: 1773368 BUSINESS ADDRESS: STREET 1: 24 2/ND/ AVENUE CITY: MOULTRIE STATE: GA ZIP: 31768 BUSINESS PHONE: 9128901111 MAIL ADDRESS: STREET 1: PO BOX 1500 CITY: MOULTRIE STATE: GA ZIP: 31776 FORMER COMPANY: FORMER CONFORMED NAME: ABC HOLDING CO DATE OF NAME CHANGE: 19870119 10-Q/A 1 d10qa.txt FORM 10-Q/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q/A (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2001 ------------------ OR [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 0-16181 ------- ABC BANCORP ------------------------------------------------------ (Exact name of registrant as specified in its charter) GEORGIA 58-1456434 ------------------------ --------------------- (State of incorporation) (IRS Employer ID No.) 24 SECOND AVE., SE MOULTRIE, GA 31768 ---------------------------------------- (Address of principal executive offices) (229) 890-1111 -------------- (Registrant's telephone number) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- There were 9,999,387 shares of Common Stock outstanding as of September 30, 2001. 1 ABC BANCORP QUARTERLY REPORT ON FORM 10-Q/A FOR THE QUARTER ENDED SEPTEMBER 30, 2001 TABLE OF CONTENTS PART I - FINANCIAL INFORMATION Item Page ---- ---- 1. Financial Statements Consolidated Balance Sheets 3 Consolidated Statements of Income and Comprehensive Income 4 Consolidated Statements of Cash Flows 6 Notes to Consolidated Financial Statements 7 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 3. Quantitative and Qualitative Disclosures about Market Risk 13 PART II - OTHER INFORMATION 4. Submission of Matters to a Vote of Securities Holders 14 6. Exhibits and Reports on Form 8-K 14 Signature 15 2
ABC BANCORP AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in Thousands) (Unaudited) ----------------------------------------------------------------------------------------------------------------- 30-Sep Dec 31 2001 2000 ---------- -------- Assets ------ Cash and due from banks $ 80,925 $ 43,363 Federal funds sold 802 - Securities available for sale, at fair value 169,384 162,105 Loans 791,433 587,381 Less allowance for loan losses 14,139 9,832 ---------- -------- Loans, net 777,294 577,549 ---------- -------- Premises and equipment, net 24,138 19,703 Other assets 38,628 23,477 ---------- -------- $1,091,171 $826,197 ========== ======== Liabilities and Stockholders' Equity ------------------------------------ Deposits Noninterest-bearing demand $ 106,796 94,917 Interest-bearing demand 197,059 157,086 Savings 57,903 44,169 Time, $100,000 and over 140,966 120,670 Other time 368,837 263,043 ---------- -------- Total deposits 871,561 679,885 Federal funds purchased & securities sold under repurchase agreements 4,544 2,653 Other borrowings 101,281 55,350 Other liabilities 8,903 7,653 ---------- -------- Total liabilities 986,289 745,541 ---------- -------- Stockholders' equity -------------------- Common stock, par value $1; 30,000,000 shares authorized 10,790,369 and 9,137,990 shares issued 10,790 9,138 Surplus 45,389 29,237 Retained earnings 52,275 48,411 Accumulated other comprehensive income 3,468 685 Unearned compensation (820) (595) ---------- -------- 111,102 86,876 Less cost of shares acquired for the treasury, 790,982 (6,220) (6,220) ---------- -------- Total stockholders' equity 104,882 80,656 ---------- -------- $1,091,171 $826,197 ========== ======== See Notes to Consolidated Financial Statements.
3 ABC BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 (Dollars in Thousands) (Unaudited) -------------------------------------------------------------------------------
2001 2000 ---------------- -------------- Interest income Interest and fees on loans 17,509 $ 15,038 Interest on taxable securities $ 2,373 1,807 Interest on nontaxable securities 215 779 Interest on deposits in other banks 197 445 Interest on fed funds sold 16 - ---------------- -------------- 20,310 18,069 ---------------- -------------- Interest expense Interest on deposits 8,244 7,247 Interest on fed funds purchased and securities sold under agreements to repurchase 32 146 Interest on other borrowings 994 1,185 ---------------- -------------- 9,270 8,578 ---------------- -------------- Net interest income 11,040 9,491 Provision for loan losses 1,281 303 ---------------- -------------- Net interest income after provision for loan losses 9,759 9,188 ---------------- -------------- Other income Service charges on deposit accounts 1,945 1,564 Other service charges, commissions and fees 710 488 Other 170 (57) Gain on sale of securities 12 - ---------------- -------------- 2,837 1,995 ---------------- -------------- Other expense Salaries and employee benefits 4,779 4,211 Equipment and occupancy expense 1,394 1,185 Other operating expenses 2,488 2,331 ---------------- -------------- 8,661 7,727 ---------------- -------------- Income before income taxes 3,935 3,456 Applicable income taxes 1,328 1,118 Net income $ 2,607 $ 2,338 ---------------- -------------- Other comprehensive income, net of tax: Unrealized holding gains (losses) arising during period, net of tax $ 1,126 $ 1,197 Reclassification adjustment for (gains) losses included in net income, net of tax $ (8) - ---------------- -------------- Comprehensive income $ 3,725 $ 3,535 ================ ============== Income per common share-Basic $ 0.27 $ 0.28 ================ ============== Income per common share-Diluted $ 0.27 $ 0.28 ================ ============== Average shares outstanding 9,729,237 8,364,468 ================ ==============
See Notes to Consolidated Financial Statements. 4 ABC BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 (Dollars in Thousands) (Unaudited) --------------------------------------------------------------------------------------------------------------- 2001 2000 ---------- ---------- Interest income Interest and fees on loans $ 48,258 $ 42,937 Interest on taxable securities 6,780 5,954 Interest on nontaxable securities 675 1,260 Interest on deposits in other banks 550 837 Interest on fed funds sold 44 - ---------- ---------- 56,307 50,988 ---------- ---------- Interest expense Interest on deposits 23,149 19,555 Interest on fed funds purchased and securities sold under agreements to repurchase 120 208 Interest on other borrowings 2,570 2,691 ---------- ---------- 25,839 22,454 ---------- ---------- Net interest income 30,468 28,534 Provision for loan losses 2,497 952 ---------- ---------- Net interest income after provision for loan losses 27,971 27,582 ---------- ---------- Other income Service charges on deposit accounts 5,192 4,546 Other service charges, commissions and fees 1,849 1,503 Other 316 63 Gain on sale of securities 11 - ---------- ---------- 7,368 6,112 ---------- ---------- Other expense Salaries and employee benefits 13,746 12,659 Equipment and occupancy expense 3,660 3,268 Other operating expenses 7,379 7,146 ---------- ---------- 24,785 23,073 ---------- ---------- Income before income taxes 10,554 10,621 Applicable income taxes 3,459 3,440 ---------- ---------- Net income $ 7,095 $ 7,181 ---------- ---------- Other comprehensive income, net of tax: Unrealized holding gains (losses) arising during period, net of tax $ 2,790 869 Reclassification adjustment for (gains) losses included in net income, net of tax $ (7) - ---------- ---------- Comprehensive income $ 9,878 $ 8,050 ========== ========== Income per common share-Basic $ 0.79 $ 0.85 ========== ========== Income per common share-Diluted $ 0.79 $ 0.84 ========== ========== Average shares outstanding 8,949,696 8,498,246 ========== ========== See Notes to Consolidated Financial Statements.
5 ABC BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 (Dollars in Thousands) (Unaudited) -----------------------------------------------------------------------------
2001 2000 ------------ --------------- OPERATING ACTIVITIES Net Income $ 7,095 $ 7,181 ------------ --------------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 1,885 1,575 Provision for loan losses 2,497 952 Amortization of intangible assets 785 244 Other prepaids, deferrals and accruals, net 2,926 (1,353) ------------ --------------- Total adjustments 8,093 1,418 ------------ --------------- Net cash provided by operating activities 15,188 8,599 ------------ --------------- INVESTING ACTIVITIES Proceeds from maturities of investment securities 74,610 10,922 Purchase of investment securities (41,812) (27,191) Proceeds from sales of securities available for sale 40 - Increase in loans (66,221) (58,726) Net cash received from acquisitions 12,421 - Decrease in federal funds 7,940 - Purchase of premises and equipment (1,177) (2,095) ------------ --------------- Net cash used in investing activities (14,199) (77,090) ------------ --------------- FINANCING ACTIVITIES Net increase (decrease) in deposits 1,474 10,216 Net increase in repurchase agreements 1,891 13,687 Increase (decrease) in long-term borrowings 39,719 11,950 Increase (decrease) in other borrowings (2,819) (11,634) Dividends paid (3,260) (2,873) Acquisition stock issue cost (432) Purchase treasury stock - (4,162) ------------ --------------- Net cash provided by (used in) financing activities 36,573 17,184 ------------ --------------- Net increase (decrease) in cash and due from banks $ 37,562 $(51,307) Cash and due from banks at beginning of period 43,363 80,130 ------------ --------------- Cash and due from banks at end of period $ 80,925 $ 28,823 ============ =============== See Notes to Consolidated Financial statements.
6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting and reporting policies of ABC Bancorp and subsidiaries ("the Company") conform to accounting principles generally accepted in the United States of America and to general practices within the banking industry. The interim consolidated financial statements included herein are unaudited, but reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of the consolidated financial position and results of operations for the interim periods presented. All adjustments reflected in the interim financial statements are of a normal, recurring nature. Such financial statements should be read in conjunction with the financial statements and notes thereto and the report of independent auditors included in the Company's Form 10-K Annual Report for the year ended December 31, 2000. The results of operations for the nine months ended September 30, 2001 are not necessarily indicative of the results to be expected for the full year. NOTE 2. MERGERS AND ACQUISITIONS On April 13, 2001, ABC Bancorp issued 347,504 common shares and $3,229 million in cash to acquire Tri-County Bank. Tri-County Bank had approximately $49 million in assets at the date of acquisition and is headquartered in Trenton, Florida. The acquisition has been accounted for as a purchase and results of operations of Tri-County Bank since the date of acquisition are included in the consolidated financial statements. The total amount of excess cost recorded on the books was $1.6 million. The allocation of excess cost between intangible assets and goodwill has not been finalized because appropriate documentation of fair values has not been obtained. On June 29, 2001, Tri-County Bank purchased the Newberry, Florida branch of Republic Security Bank. The transaction included all consumer and business deposit accounts (approximately $20 million currently) and associated lines of credit, along with real property and certain fixed assets. The total amount of excess cost recorded on the books amounted to $1.2 million. The allocation of excess costs between intangible assets and goodwill has not been finalized because appropriate documentation of fair values has not been obtained. On July 23, 2001, ABC Bancorp acquired Golden Isles Financial Holdings, Inc. and its wholly-owned Subsidiary, The First Bank of Brunswick, by issuing 1,241,204 common shares and $10.2 million in cash. Golden Isles Financial Holdings had approximately $150 million in assets at the date of acquisition and is headquartered in Brunswick, Georgia. The acquisition has been accounted for as a purchase and the results of operations of Golden Isles Financial Holdings since the date of acquisition are included in the consolidated financial statements. For the three months ended September 30, 2001, other operating expense included $70,000 for amortization of other intangible assets related to this acquisition. These amortization charges are subject to adjustment pending the completion of the allocation among amortizable intangible assets and non- amortizable goodwill arising from this acquisition. In connection with the Golden Isles acquisition, net assets acquired amounted to $12.1 million for which a total consideration of $24.7 million was paid. The amount of excess cost recorded on the books amounted to $12.6 million. The allocation of excess costs between intangible assets and goodwill has not been finalized because appropriate documentation of fair values has not been obtained. For purposes of the pro forma consolidated results of operations presented below, it has been assumed that 50% of the excess cost will be allocated to intangible assets to be amortized on a straight-line basis over a 7 period of 15 years and that 50% will be allocated to goodwill. The pro forma results of operations for all periods presented do not reflect any impairment of goodwill. Unaudited pro forma consolidated results of operations for the three months and the nine months ended September 30, 2001 and 2000 as though Golden Isles had been acquired as of January 1, 2000 follow:
Three Nine Three Nine Months Months Months Months Ended Ended Ended Ended -------------- ------------- ------------- ------------- September 30, 2001 September 30, 2000 ------------------------------- ------------------------------ (Dollars in Thousands, Except Per Share Data) ----------------------------------------------------------------- Net interest income $ 11,180 $ 32,913 $ 10,696 $ 32,190 Net income $ 324 $ 4,646 $ 2,418 $ 7,481 Earnings per share: Basic $ .03 $ .47 $ .25 $ .77 Diluted $ .03 $ .47 $ .25 $ .77
NOTE 3. PRONOUNCEMENTS ISSUED NOT YET ADOPTED In July, 2001, the Financial Accounting Standards Board issued two statements - Statement 141, Business Combinations, and Statement 142, Goodwill and Other Intangible Assets, which will potentially impact the Company's accounting for its reported goodwill and other intangible assets. Statement 141: . Eliminates the pooling method for accounting for business combinations. . Requires that intangible assets that meet certain criteria be reported separately from goodwill. . Requires negative goodwill arising from a business combination to be recorded as an extraordinary gain. Statement 142: . Eliminates the amortization of goodwill and other intangibles that are determined to have an indefinite life. . Requires, at a minimum, annual impairment tests for goodwill and other intangible assets that are determined to have an indefinite life. Upon adoption of these Statements, the Company is required to: . Re-evaluate goodwill and other intangible assets that arose from business combinations entered into before July 1, 2001. If the recorded other intangible assets do not meet the criteria for recognition, they should be reclassified to goodwill. Similarly, if there are other intangible assets that meet the criteria for recognition but were not separately recorded from goodwill, they should be reclassified from goodwill. . Reassess the useful lives of intangible assets and adjust the remaining amortization periods accordingly. . Write-off any remaining negative goodwill. The Company has not yet completed its full assessment of the effects of these new pronouncements on its financial statements and so is uncertain as to the impact. The standards generally are required to be implemented by the Company in its 2002 financial statements. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources Liquidity management involves the matching of the cash flow requirements of customers, who may be either depositors desiring to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs, and the ability of ABC Bancorp and its subsidiaries (the "Company") to meet those needs. The Company strives to maintain an adequate liquidity position by managing the balances and maturities of interest-earning assets and interest-bearing liabilities so that the balance it has in short-term investments at any given time will adequately cover any reasonably anticipated immediate need for funds. Additionally, the subsidiary Banks (the "Banks") maintain relationships with correspondent banks which could provide funds to them on short notice, if needed. The liquidity and capital resources of the Company are monitored continuously by the Company's Board-authorized Asset and Liability Management Committee, and on a periodic basis by state and federal regulatory authorities. As determined under guidelines established by these regulatory authorities, the Company's and the Banks' liquidity ratios at September 30, 2001 were considered satisfactory. At that date, the Banks' short-term investments were adequate to cover any reasonably anticipated immediate need for funds. The Company is aware of no events or trends likely to result in a material change in liquidity. During the nine months ended September 30, 2001, total capital increased $24,226,000 to $104,852,000. Of this increase, $3,958,000 resulted from the purchase of Tri-County Bank, $13,199,000 resulted from the purchase of Golden Isles Financial Holdings, Inc., $3,835,000 from the retention of earnings (net of $3,260,000 dividends paid to shareholders), $451,000 for the accrual for grants of restricted shares as incentive to certain employees, and $2,783,000 in other comprehensive income, net of taxes. At September 30, 2001, ABC had binding commitments for capital expenditures of approximately $350,000. The Company anticipates that approximately $350,000 will be required for capital expenditures during the remainder of 2001. Additional expenditures may be required for other mergers and acquisitions. Results of Operations The Company's results of operations are determined by its ability to effectively manage interest income and expense, to minimize loan and investment losses, to generate noninterest income and to control noninterest expense. Since interest rates are determined by market forces and economic conditions beyond the control of the Company, the ability to generate net interest income is dependent upon the Banks' ability to obtain an adequate spread between the rate earned on interest-earning assets and the rate paid on interest-bearing liabilities. Thus, the key performance measure for net interest income is the interest margin or net yield, which is taxable-equivalent net interest income divided by average earning assets. 9 Results of Operations (Continued) The primary component of consolidated earnings is net interest income, or the difference between interest income on interest-earning assets and interest paid on interest-bearing liabilities. The net interest margin is net interest income expressed as a percentage of average interest-earning assets. Interest- earning assets consist of loans, investment securities and Federal funds sold. Interest-bearing liabilities consist of deposits and borrowings, such as Federal funds purchased, securities sold under repurchase agreements and Federal Home Loan Bank advances. A portion of interest income is earned on tax-exempt investments, such as state and municipal bonds, and on loans to states and municipalities. This tax-exempt income and its resultant yields are stated on a taxable-equivalent basis in order to be comparable to taxable investments and loans. Comparison of Statements of Income The net interest margin on a taxable-equivalent basis was 4.91% and 5.40% during the nine months ended September 30, 2001 and 2000, respectively, a decrease of 49 basis points. These variances are attributable to fluctuations in the average rates charged and fees earned on loans and the average rates paid on deposit accounts. Several decreases in key interest rates by the Federal Reserve Bank during the nine-month period also attributed to the decrease in net interest margin, because the rate of yield on certain variable-rate assets decreased immediately, whereas most interest-bearing liabilities are fixed-rate, and thus rates could not be decreased until maturity. Net interest income was $30.47 million as compared to $28.53 million during the nine months ended September 30, 2001 and 2000, respectively, representing an increase of 6.80%. Of this increase, 41.70% related to the acquisition of Tri- County Bank, and 51.55% related to the acquisition of Golden Isles. The provision for loan losses is a charge to earnings in the current period to replenish the allowance for loan losses and maintain it at the level management determines is adequate. The provision for loan losses charged to earnings amounted to $2,497,000 and $952,000 during the nine months ended September 30, 2001 and 2000. Additional provision for loan losses was recorded during the second and third quarters of 2001 to reserve against possible losses in loans that were identified by the Company as having deteriorated in quality. Such loans were also reclassified as non-performing assets. The allowance for loan losses represents a reserve for potential losses in the loan portfolio. The adequacy of the allowance for loan losses is evaluated quarterly based on a review of all significant loans, with a particular emphasis on non-accruing, past due and other loans that management believes require attention. Another factor used in determining the adequacy of the reserve is management's judgment about factors affecting loan quality and assumptions about the local and national economy. The allowance for loan losses totaled $14.1 million and $9.8 million as of September 30, 2001 and December 31, 2000, respectively, with $3.5 million of the increase attributable to acquisitions. The allowance for loan losses as a percentage of total loans was 1.79% and 1.67% as of September 30, 2001 and December 31, 2000, respectively. Non-performing assets were $13.8 million and $6.1 as of September 30, 2001 and December 31, 2000, respectively, with $3.1 million of the increase attributable to acquisitions. The ratio of non-performing assets as a percentage of the loan loss reserve was 98% and 62% as of September 30, 2001 and December 31, 2000, respectively. Management considers the allowance for loan losses as of September 30, 2001 adequate to cover potential losses in the loan portfolio. 10 Following is a comparison of noninterest income for the nine months ended September 30, 2001 and 2000 (dollars in thousands). Nine Months Ended September 30, ----------------- 2001 2000 ------ ------ Service charges on deposits $5,192 $4,546 Other service charges, commissions and fees 1,849 1,503 Other income 316 63 Gain on sale of securities 11 - ------ ------ Total noninterest income $7,368 $6,112 ====== ====== Total noninterest income for the nine months ended September 30, 2001 was $1,256,000 higher than during the same period in 2000. Service charges on deposit accounts accounted for the majority of the increase at $646,000 of which $142,000 related to the acquisition of Tri-County Bank, and $105,000 related to the acquisition of Golden Isles. Other service charges, commissions and fees increased because of enhanced income from the Company's retail division, particularly mortgage financing. Other income was higher due to several nonrecurring property disposal gains being recognized during 2001. Following is an analysis of noninterest expense for the nine months ended September 30, 2001 and 2000 (dollars in thousands). Nine Months Ended September 30, ------------------ 2001 2000 ------- ------- Salaries and employee benefits $13,746 $12,659 Occupancy and equipment expense 3,660 3,268 Other expense 7,379 7,146 ------- ------- Total noninterest expense $24,785 $23,073 ======= ======= Comparison of Statements of Income (Continued) Total noninterest expense for the nine months ended September 30, 2001 was $1,712,000 higher than during the same period in 2000, of which $567,000 related to the acquisition of Tri-County Bank, and $800,000 related to the acquisition of Golden Isles. Salaries and employee benefits for the nine months ended September 30, 2001 were $1,087,000 or 8.58% higher than during the same period in 2000. The acquisition of Tri-County Bank accounted for $335,000, the acquisition of Golden Isles accounted for $445,000 of the increase and the remaining $307,000 related to normal increases in salaries and employee benefits. 11 Following is a condensed summary of net income during the nine months ended September 30, 2001 and 2000 (dollars in thousands). Nine Months Ended September 30, ---------------------------- 2001 2000 ------- ------- Net interest income $30,468 $28,534 Provision for loan losses 2,497 952 Other income 7,368 6,112 Other expense 24,785 23,073 ------- ------- Income before income taxes 10,554 10,621 Applicable income taxes 3,459 3,440 ------- ------- Net income $ 7,095 $ 7,181 ======= ======= Net income decreased $86,000 or 1.20% to $7,095,000 for the nine months ended September 30, 2001 as compared to $7,181,000 for the nine months ended September 30, 2000. Net interest income of ABC and its subsidiaries increased $1,934,000, the provision for loan losses increased by $1,545,000 and all other noninterest expense increased by $1,712,000. Comparison of Balance Sheets Total assets increased by $265 million, or 32.07% to $1,091 million at September 30, 2001 from $826 million at December 31, 2000. Approximately $66 million of this increase related to the acquisition of the Tri-County Bank and the Newberry branch, and approximately $150 million of this increase related to the acquisition of Golden Isles. Total earning assets increased by $255 million, or 33.77%, to $1,010 million at September 30, 2001 from $755 million at December 31, 2000. Of this increase, approximately $66 million related to the acquisition of the Tri-County Bank and the Newberry branch, and approximately $141 million related to the acquisition of Golden Isles. Total loans, net of the allowance for loan losses, increased by $199 million, or 34.43% to $777 million at September 30, 2001 from $578 million at December 31, 2000. Approximately $33 million of this increase related to the acquisition of the Tri-County Bank and the Newberry branch, and approximately $109 related to the acquisition of Golden Isles. Total deposits increased by $192 million, or 28.24% to $872 million at September 30, 2001 from $680 million at December 31, 2000. Approximately 12.25% and 13.96% of deposits were noninterest-bearing as of September 30, 2001 and December 31, 2000, respectively. Approximately $63 million of 12 this increase related to the acquisition of the Tri-County Bank and the Newberry branch, and approximately $129 million related to the acquisition of Golden Isles. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed only to U. S. dollar interest rate changes and, accordingly, the Company manages exposure by considering the possible changes in the net interest margin. The Company does not have any trading instruments nor does it classify any portion of the investment portfolio as held for trading. The Company does not engage in any hedging activities or enter into any derivative instruments with a higher degree of risk than mortgage backed securities which are commonly pass through securities. Finally, the Company has no exposure to foreign currency exchange rate risk, commodity price risk, and other market risks. Interest rates play a major part in the net interest income of a financial institution. The sensitivity to rate changes is known as "interest rate risk." The repricing of interest earning assets and interest-bearing liabilities can influence the changes in net interest income. As part of the Company's asset/liability management program, the timing of repriced assets and liabilities is referred to as Gap management. It is the policy of the Company to maintain a Gap ratio in the one-year time horizon of .80 to 1.20 The Company uses simulation analysis to monitor changes in net interest income due to changes in market interest rates. The simulation of rising, declining and flat interest rate scenarios allows management to monitor and adjust interest rate sensitivity to minimize the impact of market interest rate swings. The analysis of the impact on net interest income over a twelve month period is subjected to a gradual 200 basis point increase or decrease in market rates on net interest income and is monitored on a quarterly basis. The most recent simulation model projects net interest income would increase 4.52% if rates rise gradually over the next year. On the other hand, the model projects net interest income to decrease 6.81% if rates decline over the next year. 13 Part II. Other Information Item 4. Submission of Matters to a Vote of Securities Holders There were no matters submitted to a vote of securities holders during the quarter ended September 30, 2001. Item 6. Exhibits and Reports on Form 8-K A. Exhibits -- Exhibit 10.1 Executive Employment Agreement with W. Edwin Lane, Jr. dated as of August 21, 2001. B. ABC has filed a Current Report on Form 8-K, dated July 23, 2001, concerning its acquisition by merger of Golden Isles Financial Holdings, Inc. ("Golden Isles"). The Current Report on Form 8-K was filed under Item 2 of Form 8-K, and no financial information concerning ABC or Golden Isles was required to be filed therewith. 14 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the Undersigned thereunto duly authorized: ABC BANCORP 11/01/01 /s/ W. EDWIN LANE, JR. --------------------------- --------------------------------------- Date W. EDWIN LANE, JR. EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER (Duly authorized officer and principal financial/accounting officer) 15