-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QqzwUGhodicU7BLVofVtZ/vPt8CVI5CHg25gR/4LU8grU0FYjx+5mIW4ldl7qA3Z Ms6r69IU69xquw/eqArKWA== 0000931763-97-000417.txt : 19970329 0000931763-97-000417.hdr.sgml : 19970329 ACCESSION NUMBER: 0000931763-97-000417 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 SROS: NASD 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-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-16181 FILM NUMBER: 97566246 BUSINESS ADDRESS: STREET 1: 310 FIRST ST NE 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-K405 1 ANNUAL REPORT 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, 1996 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 310 FIRST STREET, S.E., MOULTRIE, GEORGIA 31768 TELEPHONE NUMBER: (912) 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 there is no 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, 1997, registrant had outstanding 5,396,561 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 $82,402,000. 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 SUBSIDIARY BANKS ABC Bancorp ("ABC" or the "Company") 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. The Company provides, through its commercial bank subsidiaries described below (hereinafter referred to as the ("Subsidiary Banks" or the "Banks"), banking services to individuals and businesses in southwestern and southcentral Georgia and southeastern Alabama. The Company's executive office is located at 310 First Street, S.E., Moultrie, Georgia 31768, and its telephone number is (912) 890-1111. As a registered bank holding company, the Company is subject to the applicable provisions of the BHCA and the Georgia Bank Holding Company Act, as well as to supervision by the Board of Governors of the Federal Reserve System and the State of Georgia Department of Banking and Finance. The Company'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; through a correspondent bank, discount brokerage services; IRA's; safe deposit box rentals; bank money orders; and electronic funds transfer services, including wire transfers and automated teller machines. The Company maintains a diversified loan portfolio and makes no foreign or energy-related loans. While the Company 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 the Board of Directors of the Company, 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 Company'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. The Company's objective is to establish itself as a major financial institution in southern Georgia. 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 its nine wholly-owned bank subsidiaries, which are sometimes hereinafter collectively referred to as the "Banks." 1 American Banking Company American Banking Company ("American Bank") was incorporated on August 3, 1971 and operates a full- service banking business in Moultrie, Colquitt County, Georgia, providing such banking services as checking and savings accounts, various other types of time deposits and money transfers. As of December 31, 1996, American Bank ranked, on the basis of total deposits, as the second of three banks in Colquitt County. American Bank finances various commercial, agricultural and consumer transactions and makes and services both secured and unsecured loans to individuals, firms and corporations. American Bank offers several credit card products to its customers. American Bank makes a variety of residential, industrial, commercial and agricultural loans secured by real estate, including interim construction financing. American Bank also offers individual trust services. At December 31, 1996, American Bank had correspondent relationships with twelve other commercial banks in Georgia. American Bank's principal correspondent bank is SunTrust Bank, Atlanta, Georgia. These correspondent banks provide certain services to American Bank 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, American Bank maintains certain balances with its correspondents in noninterest-bearing accounts. The Bank of Quitman The Bank of Quitman ("Quitman Bank") was founded on December 26, 1888, and operates a full-service banking business in Quitman and Brooks County, Georgia. On December 31, 1996, Quitman Bank ranked, on the basis of total deposits, as the largest of four banks in Brooks County. Among the services provided by Quitman Bank are checking accounts and savings accounts, certificates of deposit and money transfers. Quitman Bank finances a variety of agricultural, commercial and consumer transactions and also makes secured and unsecured loans, including loans secured by real estate, to individuals, firms and corporations and purchases installment obligations from retailers without recourse. Quitman Bank also offers several credit card products to its customers. Quitman Bank does not conduct trust activities. As of December 31, 1996, Quitman Bank had correspondent relationships with seven other commercial banks. Quitman Bank's principal correspondent bank is SunTrust Bank, Atlanta, Georgia. These correspondent banks provide certain services to Quitman Bank 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, Quitman Bank maintains certain balances with its correspondents in noninterest-bearing accounts. 2 Bank of Thomas County The Bank of Thomas County ("Thomas Bank") was incorporated in 1911 and operates a full service banking business in Coolidge, Thomasville and Thomas County, Georgia, providing such banking services as checking and savings accounts, other types of time deposits and money transfers. As of December 31, 1996, Thomas Bank ranked, on the basis of total deposits, as the sixth largest of eight banks in Thomas County. Thomas Bank finances commercial, agricultural and consumer transactions and makes and services both secured and unsecured loans to individuals, firms and corporations. Thomas Bank also offers several credit card products to its customers. Thomas Bank makes a variety of residential, industrial, commercial and agricultural loans secured by real estate, including interim construction financing. Thomas Bank does not conduct trust activities. At December 31, 1996, Thomas Bank had a correspondent relationship with three other commercial banks. Thomas Bank's principal correspondent bank is SunTrust Bank, Atlanta, Georgia. These correspondent banks provide certain services to Thomas Bank, 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, Thomas Bank maintains certain balances with its correspondents in noninterest-bearing accounts. The Citizens Bank of Tifton The Citizens Bank of Tifton ("Tifton Bank") was incorporated in 1945 and operates a full service banking business in Tifton and Tift County, Georgia, providing such banking services as checking and savings accounts, other types of time deposits and money transfers. As of December 31, 1996, Tifton Bank ranked, on the basis of total deposits, as the third largest of six banks in Tift County. Tifton Bank finances commercial, agricultural and consumer transactions and makes and services both secured and unsecured loans to individuals, firms and corporations. Tifton Bank also offers several credit card products to its customers. Tifton Bank makes a variety of residential, industrial, commercial and agricultural loans secured by real estate, including interim construction financing. Tifton Bank does not conduct trust activities. At December 31, 1996, Tifton Bank had correspondent relationships with seven other commercial banks. Tifton Bank's principal correspondent bank is SunTrust Bank, Atlanta, Georgia. These correspondent banks provide certain services to Tifton Bank, 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, Tifton Bank maintains certain balances with its correspondents in noninterest-bearing accounts. 3 Cairo Banking Company Cairo Banking Company ("Cairo Bank") was incorporated in 1900 and operates a full-service banking business in Cairo and Grady County and Thomas County, Georgia, providing such banking services as checking and savings accounts, other types of time deposits and money transfers. As of December 31, 1996, Cairo Bank ranked as the second largest of five banks in Grady County. Cairo Bank also finances commercial, agricultural and consumer transactions and makes and services both secured and unsecured loans to individuals, firms and corporations. Cairo Bank offers several credit card products to its customers. Cairo Bank makes a variety of residential, industrial, commercial and agricultural loans secured by real estate, including interim construction financing. Cairo Bank does not conduct trust activities. At December 31, 1996, Cairo Bank had correspondent relationships with five other commercial banks. Cairo Bank's principal correspondent is The Bankers Bank, Atlanta, Georgia. These correspondent banks provide certain services to Cairo Bank, such as processing checks and other items, buying and selling Federal funds, providing security and safekeeping of funds or other valuable items and furnishing limited management information and advice. As compensation for these services, Cairo Bank maintains certain balances with its correspondents in noninterest-bearing accounts. Southland Bank Southland Bank opened in 1887 through its predecessor. The Abbeville location was opened in 1983, followed by the Headland branch in 1984. The main office is located in Dothan, Alabama. Southland Bank's branches are located in the Alabama cities of Abbeville, Clayton, Eufaula and Headland. All Southland Bank locations offer full service banking to include checking and savings accounts, various types of time deposits and money transfers. Southland Bank offers agricultural, commercial, consumer and real estate lending on both secured and unsecured basis to individuals, businesses and corporations. Southland Bank also provides mortgage loan production, full brokerage capabilities through PFIC Securities, and is a Certified SBA Lender. As of December 31, 1996, Southland Bank had correspondent relationships with Federal Home Loan Bank of Atlanta (FHLB), SunTrust Bank of Atlanta, and Compass Bank, with the principal correspondent being the FHLB. These corespondent banks provide certain services to Southland Bank 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, Southland Bank maintains certain balances with its correspondents in noninterest-bearing accounts. 4 Central Bank & Trust Central Bank & Trust ("Central Bank") was incorporated in 1986 and operates a full-service banking business in Cordele and Crisp County, Georgia, providing such banking services as checking and savings accounts, other types of time deposit and money transfers. As of December 31, 1996, Central Bank was ranked, on the basis of total deposits, as the smallest of the three banks in Crisp County. Central Bank also finances commercial, agricultural, consumer and mortgage transactions and makes and services both secured and unsecured loans to individuals, firms and corporations. Central Bank makes a variety of residential, industrial, commercial and agricultural loans secured by real estate, including interim construction financing. Central Bank does not conduct trust activities. At December 31, 1996, Central Bank had correspondent relationships with four other commercial banks. Central Bank's principal correspondent is The Bankers Bank, Atlanta, Georgia. These correspondent banks provide certain services to Central Bank, such as processing checks and other items, buying and selling Federal funds, providing security and safekeeping of funds or other valuable items and furnishing limited management information and advice. As compensation for these services, Central Bank maintains certain balances with its correspondents in noninterest-bearing accounts. First National Bank of South Georgia First National Bank of South Georgia ("First National Bank") commenced operations on May 29, 1991 in an 8,750 square foot facility located on a 1.73 acre tract of land located at the corner of Dawson Road and Westover Boulevard in Albany, Georgia. First National Bank is a full service commercial bank without trust powers. First National Bank offers a full range of deposit accounts including interest-bearing and noninterest-bearing checking for commercial and retail customers, regular savings accounts, money market accounts, certificates of deposit and individual retirement accounts. First National Bank originates a variety of loans such as commercial, real estate, home equity and consumer/instalment loans. In addition, First National Bank provides such consumer services as travelers checks, official checks, U.S. Savings bonds, safe deposit boxes, direct deposit services and automated teller services. At December 31,1996, First National Bank maintained correspondent relationships with six commercial banks. First National Bank's principal correspondent bank is The Bankers Bank, Atlanta, Georgia. These correspondent banks provide certain services to First National Bank such as clearing 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. As compensation for these services, First National Bank maintains certain balances with its correspondents in noninterest-bearing accounts. 5 Merchants & Farmers Bank Merchants & Farmers Bank ("M & F Bank") was incorporated on September 24, 1925, and operates a full service banking business in Donalsonville and Seminole County, Georgia, providing such banking services as checking and savings accounts, other types of time deposits and money transfers. As of December 31, 1996, M & F Bank was the larger of the two commercial banks in Seminole County. M & F Bank finances commercial, agricultural and consumer transactions and makes and services both secured and unsecured loans to individuals, firms and corporations. M & F Bank also offers several credit card products to its customers. M & F Bank makes a variety of residential, industrial, commercial and agricultural loans secured by real estate, including interim construction financing. M & F Bank does not conduct trust activities. At December 31, 1996, M & F Bank had corresponding relationships with five other banks. M & F Bank's primary correspondent bank is The Bankers Bank, Atlanta, Georgia. These correspondent banks provide certain services to M & F Bank, such as processing checks and other items, buying and selling Federal funds, handling money transfers and exchanges, shipping coins and currency, providing security and safekeeping of funds or other valuable items and furnishing limited management information and advice. As compensation for these services, M & F Bank pays analysis charges based on services rendered. Market Area and Competition The Company' s market area is the Southwestern quadrant of Georgia and the Southeastern quadrant of Alabama. The Banks' main offices are located in the southern Georgia cities of Moultrie, Quitman, Thomasville, Tifton, Cairo, Cordele, Albany and Donalsonville, and the southern Alabama city of Dothan. The Banks have a total of 24 offices located in either the cities or counties in which the main offices are located, or in smaller cities nearby. 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 the Company'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 shares in money market funds. Interest rates, convenience of office locations and marketing are all significant factors in the Banks' competition for deposits. 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. 6 Lending Policy The Company 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 the Company'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. The Company'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 the Company's 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 the Company's ongoing loan review program, each loan is assigned to a lending officer other than the originating lending officer for review and analysis. The Company actively markets it services to qualified lending customers in both the commercial and consumer sectors. The Company'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, the Company has been successful in attracting new commercial lending customers. At the same time, the Company actively advertising 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. The Company 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. In addition, each of the Banks has loan officers who specialize in originating and servicing agricultrual-related loans. Agricultural-Related Loans. A significant portion of the Company's consolidated loan portfolio is comprised of agricultural loans, described below, and real estate mortgage loans secured by farmland. In addition, due to the predominance of the agricultural industry in the Company's market area, management believes that a significant portion of the Company's commercial and industrial loans are agricultural-related. The Company has not attempted to quantify the amount of its commercial and industrial loans which should be considered agricultural-related loans because virtually all such loans are agricultrual-related to some extent. 7 Lending Activities (Continued) Agricultural Loans. The Company classified loans as agricultural loans if such loans are made for crop production expenses or to finance the purchase of farm-related equipment. Agricultural loans typically involve significant seasonal fluctuations in principal amounts. Although the Company 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 the Company's agricultural loans are guaranteed by the FmHA Guaranteed Loan Program, described below. Agricultural loans are made with the Company's loan documentation in accordance with the Company's lending policies and are serviced by the Company's loan officers who visit the borrowers at least three times during the growing season to re-evaluate the loan in light of the borrowers' updated cash flows projections. See "Lending Policy." The Company maintains average crop production yield statistics on its agricultural borrowers which allows the Company to more accurately evaluate the borrowers' cash flow projections. In order to minimize the risk of fluctuating commodity prices, the Company encourages its agricultural borrowers to forward contract for the sale of their crops. All of the Banks participate in the FmHA Guaranteed Loan Program. The FmHA guarantees 90% of the principal of and interest on loans made for the purpose of buying or improving farms; purchasing items necessary for farm operations; and developing or conserving land and water resources. The Company has generally been able to obtain FmHA approval of loans within 10 days after submitting an application. 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 the Company 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 the Company 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. Real Estate Loans. The Company'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. Consumer Lending. The Company'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. Trust Services. The Company provides personal trust services to its customers through American Bank. 8 Lending Activities (Continued) 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. 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 The Company'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 Moody's or BAA by 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 Company'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 the Company'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. The Company's investment officers implement the investment policy, monitor the portfolio and, reporting to each Bank's investment committee, recommend portfolio strategies. Reports on all purchases, sales, net profits or losses and market appreciation or depreciation of the bond portfolio are reviewed by the Company's Board of Directors each month. Once a year, the written investment policy is reviewed by the Company's Board of Directors. Each Bank's securities are kept in safekeeping accounts at correspondent banks. 9 Asset/Liability Management It is the objective of the Company 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 the Company'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 the Company's real properties. All properties are owned by the Company or its subsidiaries and are unencumbered. Approximate Square Offices Used By Footage - -------------------------------------- ---------------- -------- 310 First Street, S.E., Moultrie, GA ABC Bancorp 7,000 225 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 1000 West Screven Street, Quitman, GA Quitman Bank 11,530 Eastern Brooks County, GA Quitman Bank 1,100 529 Pine Avenue, Coolidge, GA Thomas Bank 4,000 111 E. Eighth Street, Tifton, GA Tifton Bank 11,700 804 W. Second Street, Tifton, GA Tifton Bank 2,000 201 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 3090 Ross Clark Circle, Dothan, AL Southland Bank 419 1817 S. Oates St., Dothan, AL Southland Bank 2,500 204 Kirkland St., Abbeville, AL Southland Bank 5,300 33 Eufaula St., Clayton, AL Southland Bank 4,500 1094 S. Eufaula Ave., Eufaula, AL Southland Bank 2,240 208 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 8,750 109 W. Third St., Donalsonville, GA M & F Bank 8,800 Hwy 374 and 253, Donalsonville, GA M & F Bank 840 10 Employees At December 31, 1996, ABC and its subsidiaries employed 310 full-time employees and 19 part-time employees. ABC considers its relationship with its employees to be excellent. ABC has adopted a simplified employee pension plan covering substantially all employees. The Company and the Banks made contributions for all eligible employees in 1996. 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 south Alabama. The Company's employees are not represented by any collective bargaining group. SUPERVISION AND REGULATION General As a bank holding company, ABC 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 Subsidiary Banks are subject to supervision and examination by applicable state and Federal banking agencies, including the FRB, the DBF, the Federal Deposit Insurance Corporation (the "FDIC"), the Comptroller of the Currency (the "CC") and the State of Alabama Department of Banking. The Subsidiary 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 Subsidiary 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 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, a bank holding company is generally prohibited from engaging in, or acquiring, direct or indirect control of the voting shares of any company engaged in non- banking activities. This prohibition does not apply to activities found by the FRB, by order or regulation, to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. Some of the activities that the FRB has determined by regulation or order to be closely related to banking are: (i) making or servicing loans and certain types of leases; (ii) performing certain data processing services; (iii) acting as fiduciary or investment or financial advisor; (iv) providing discount brokerage services; (v) underwriting bank eligible securities; (vi) underwriting debt and equity securities on a limited basis through separately capitalized subsidiaries; and making investments in corporations or projects designed primarily to promote community welfare. 11 In addition, the DBF requires information with respect to the financial condition, operations, management and intercompany relationships of ABC and the Subsidiary 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 Subsidiary Banks under the Federal Reserve Act, which imposes certain restrictions on (i) loans by the Subsidiary Banks to ABC; (ii) investments in the stock or securities of ABC by the Subsidiary Banks; (iii) the Subsidiary Bank's taking the stock or securities of an "affiliate" as collateral for loans by the Subsidiary Banks to a borrower; and (iv) the purchase of assets from ABC by the Subsidiary 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. 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 the FRB or the applicable state commissioner, as the case may be, is required if the total of all dividends declared by any state member bank of the Federal Reserve System 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. 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 Subsidiary 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. Under Georgia law (which would apply to any payment of dividends by the Georgia Subsidiary 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%. Under Alabama law, a state bank may not declare or pay a dividend in excess of 90% of the net earnings of such bank until the surplus of the bank is equal to at least 20% of its capital, and thereafter the prior written approval of the Superintendent of Banks is required if the total of all dividends declared by the bank in any calendar year exceeds the total of its net earnings for that year combined with its retained net earnings for the preceding two years. No dividends, withdrawals or transfers may be made from the bank's surplus without prior written approval of the Superintendent of Banks. First National Bank is subject to rules and regulations of the CC which also restricts the amounts of dividends that can be paid by a national bank. Retained earnings under all applicable regulations without obtaining governmental approval were approximately $5.59 million as of December 31, 1996. 12 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. Capital Adequacy The FRB has adopted risk-based capital guidelines for bank holding companies. The minimum ratio of total capital ("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 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. Effective December 19, 1992, a new Section 38 to the Federal Deposit Insurance Act implemented the prompt corrective action provisions that Congress enacted as a part of the Federal Deposit Insurance Corporation Improvement Act of 1991 (the "1991 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. The FDIC has adopted regulations implementing the prompt corrective action provisions of the 1991 Act, which place financial institutions 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. 13 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 Federal Deposit Insurance Corporation Improvement Act of 1991 (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 Subsidiary Banks are "well capitalized" institutions. 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 Subsidiary 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. As a result of the enactment of Section 206 of the Financial Institutions Reform, Recovery and Enforcement Act ("FIRREA") on August 9, 1989, 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 after August 9, 1989 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" is defined generally as the existence of certain conditions indicating that a default is likely to occur in the absence of regulator assistance. FDIC Insurance Assessments The Subsidiary Banks are subject to FDIC deposit insurance assessments for the Bank Insurance Fund (the "BIF"). Since 1989, the annual FDIC deposit insurance assessments increased from $.083 per $100 of deposits to a minimum level of $.23 per $100, an increase of 177 percent. The FDIC implemented a risk- based assessment system whereby banks are assessed on a sliding scale depending on their placement in nine separate supervisory categories, from $.23 per $100 of deposits for the healthiest banks (those with the highest capital, best management and best overall condition) to as much as $.31 per $100 of deposits for the less-healthy institutions, for an average $.259 per $100 of deposits. 14 On August 8, 1995, the FDIC lowered the BIF premium for "healthy" banks 83% from $.23 per $100 in deposits to $.04 per $100 in deposits, while retaining the $.31 level for the riskiest banks. The average assessment rate was therefore reduced from $.232 to $.044 per $100 of deposits. The new rate took effect on September 29, 1995. On November 14, 1995, the FDIC again lowered the BIF premium for "healthy" banks from $.04 per $100 of deposits to zero for the highest rated institutions (92% of the industry). All of the Subsidiary Banks, with the exception of Central Bank, are insured under the BIF fund and it is expected that they will be required to pay only the legally required annual minimum payments during 1997. On October 8, 1996, the FDIC implemented a 65.7 basis point special assessment in order to bring the Savings Association Insurance Fund ("SAIF") to the legally mandated 1.25% reserve ratio. The Subsidiary Banks' aggregate SAIF assessment (on a pre-tax basis), paid on November 27, 1996, was $263,000. Based on the assessment for the first six months of 1997, it is expected that Central Bank will be assessed approximately $36,000 for 1997. Recent Legislative and Regulatory Action On April 19,1995, the four Federal bank regulatory agencies adopted revisions to the regulations promulgated pursuant to the Community Reinvestment Act (the "CRA"), which are intended to set distinct assessment standards for financial institutions. The revised regulations contains 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. The rule became effective on January 1, 1996, at which time evaluation under streamlined procedures were schedule to begin for institutions with assets of less than $250 million $1 billion. interpret the rules, it is unclear what effect, if any, these regulations will have on ABC and the Subsidiary Banks. Congress and various Federal agencies (including, in 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. Most, if not all, of these suits have been settled (some for substantial sums) without a full adjudication on the merits. 15 On March 8, 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, President Clinton signed the Reigle Community Development and Regulatory Improvement Act of 1994 (the "Regulatory Improvement Act"). 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. On September 29, 1994, President Clinton signed the Reigle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Federal Interstate Bill") 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 have 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 Bill. In February 1996, the Georgia legislature adopted the "Georgia Interstate Branching Act," which when signed by the Governor, will permit 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 on a limited basis beginning July 1, 1996. Beginning July 1, 1998, the number of de novo bank branches which may be established will no longer be limited. 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 Federal Reserve Bank 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. 16 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 Subsidiary Banks may be affected by such statute or regulation. ITEM 2. PROPERTIES The principal properties of the Company consist of the properties of the Banks. For a description of the properties of the Banks, see "Item 1 -Business of the Company and Subsidiary Banks - Properties" included elsewhere in this Annual Report. ITEM 3. LEGAL PROCEEDINGS Neither the Company nor any of its subsidiary 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 the Company are any such proceedings contemplated or threatened against it or its subsidiaries. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS No matters were submitted to a vote of the Company's shareholders during the fourth quarter of 1996. 17 ITEM 4.5 EXECUTIVE OFFICERS The following table sets forth certain information with respect to the executive officers of the Company.
Name, Age and Position with the Principal Occupation for the Last Five Years Term as Officer Registrant and Other Directorships - ------------------------ -------------------------- --------------------------------------------------------------- Kenneth J. Hunnicutt; 60; President, Chief Executive Chief Executive Officer of ABC Bancorp since 1994 and President Officer since 1981 Officer and Director 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 Company's subsidiary banks. Mr. Hunnicutt is the Chairman of the Board of Thomas Bank and Cairo Bank. W. Edwin Lane, Jr; 43: Executive Vice President and Executive Vice President and Chief Financial Officer of ABC Officer since Chief Financial Officer Bancorp since January 1, 1995. Mr. Lane served as Controller of January 1, 1995 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. Sidney J. Wooten, III; 43: Executive Vice President and Executive Vice President and Chief Operating Officer of ABC Officer since Chief Operating Officer Bancorp from August 1996 to present. From June 1991 until August 1996 and Director December 31, 1995, Mr. Wooten served as the President and Chief Executive Officer of First National Bank of White County, Georgia. From December 1995 until August 1996, Mr. Wooten served as Senior Vice President of First National Bancorp. Officers serve at the discretion of the Board of Directors.
18 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 1995 and 1996; and (b) the amount of quarterly dividends declared on the common stock during the periods indicated.
Calendar Period Bid Prices Cash --------------- ---------------------------- Dividends 1996 Low High Declared --------------- ------- -------- --------- First quarter $ 14 $ 14-1/4 $ .10 Second quarter 14 18-1/4 .10 Third quarter 17-1/2 19-1/4 .10 Fourth quarter 16-3/4 19-5/8 .10 Calendar Period Bid Prices Cash --------------- ---------------------------- Dividends 1995 Low High Declared --------------- ------- -------- --------- First quarter $ 9 $ 10-1/8 $ .07-1/2 Second quarter 9-1/2 11-5/8 .07-1/2 Third quarter 11-3/8 14-1/2 .10 Fourth quarter 13-1/2 14-3/4 .10
(b) As of March 1, 1997, there were approximately 1,350 holders of record of the Common Stock. (c) The Company paid an annual dividend on its Common Stock of $.40 and $.35 per share for fiscal years 1996 and 1995, respectively. 19 ITEM 6. SELECTED CONSOLIDATED FINANCIAL INFORMATION The following table presents selected consolidated financial information for the Company. The data set forth below are derived from the audited consolidated financial statements of the Company. 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, ---------------------------------------------------------------- 1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- (Dollars in Thousands, Except Per Share Data) ---------------------------------------------------------------- Selected Balance Sheet Data: Total assets $635,032 $491,139 $424,179 $389,874 $365,780 Total loans 438,390 305,242 270,990 232,209 214,410 Total deposits 545,738 432,181 375,129 346,897 328,737 Investment securities 118,138 84,505 80,401 77,045 60,647 Shareholders' equity 57,674 46,771 41,082 30,070 28,963 Selected Income Statement Data: Interest income $ 47,776 $ 38,231 $ 30,548 $ 27,882 $ 23,446 Interest expense 21,135 16,225 11,782 11,267 10,482 -------- -------- -------- -------- -------- Net interest income 26,641 22,006 18,766 16,615 12,964 Provision for loan losses 1,894 1,231 955 1,560 1,596 Other income 6,284 4,674 4,273 4,011 3,094 Other expenses 21,663 16,921 15,930 14,734 11,885 -------- -------- -------- -------- -------- Income before tax 9,368 8,528 6,154 4,332 2,577 Income tax expense 2,667 2,611 1,837 1,107 650 -------- -------- -------- -------- -------- Net income before minority interest and cumulative effect 6,701 5,917 4,317 3,225 1,927 Minority interest - - - 76 64 -------- -------- -------- -------- -------- Net income before cumulative effect 6,701 5,917 4,317 3,149 1,863 Cumulative effect - - - 346 -------- -------- -------- -------- -------- Net income $ 6,701 $ 5,917 $ 4,317 $ 3,495 $ 1,863 ======== ======== ======== ======== ======== Per Share Data: Net income before cumulative effect $ 1.29 $ 1.22 $ 0.98 $ 0.79 $ 0.46 Net income 1.29 1.22 0.98 0.87 0.46 Book value 10.69 9.64 8.55 7.88 7.22 Tangible book value 9.35 9.15 7.98 7.09 6.41 Dividends 0.40 0.35 0.29 0.29 0.29 Profitability Ratios: Net income to average total assets 1.21% 1.34% 1.10% 0.95% 0.64% Net income to average stockholders' equity 12.53 13.44 13.28 12.00 6.66 Net interest margin 5.29 5.50 5.20 4.99 5.05
20 ITEM 6. SELECTED CONSOLIDATED FINANCIAL INFORMATION (Continued)
Year Ended December 31, ---------------------------------------------------------------- 1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- (Dollars in Thousands, Except Per Share Data) ---------------------------------------------------------------- Loan Quality Ratios: Net charge-offs to total loans 0.39% 0.17% 0.26% 0.77% 0.66% Reserve for loan losses to total loans and OREO 1.57 1.79 1.76 1.94 2.20 Nonperforming assets to total loans and OREO 1.43 1.13 1.58 2.03 3.77 Reserve for loan losses to nonperforming loans 127.92 201.03 115.06 119.64 67.49 Reserve for loan losses to total nonperforming assets 109.25 158.91 111.77 95.55 58.26 Liquidity Ratios: Loans to total deposits 80.33 70.63 72.24 66.94 65.22 Loans to average earnings assets 87.10 76.25 75.12 69.68 83.45 Noninterest-bearing deposits to total deposits 14.92 17.28 16.81 14.47 14.46 Capital Adequacy Ratios: Common stockholders' equity to total assets 9.08 9.52 9.69 7.71 7.92 Total stockholders' equity to total assets 9.08 9.52 9.69 7.71 7.92 Dividend payout ratio 31.01 28.69 29.59 33.33 63.04
21 ITEM 6. SELECTED CONSOLIDATED FINANCIAL INFORMATION (Continued) SELECTED QUARTERLY FINANCIAL DATA:
Quarters Ended December 31, 1996 ----------------------------------------------------------- 4 3 2 1 -------- -------- ------- -------- (Dollars in Thousands, Except Per Share Data) ----------------------------------------------------------- Selected Income Statement Data: Interest income $13,509 $13,308 $10,861 $10,098 Net interest income 7,468 7,268 6,279 5,626 Net income 1,483 1,701 1,851 1,666 Per Share Data: Net income 0.27 0.32 0.37 0.33 Dividends 0.10 0.10 0.10 0.10 Quarters Ended December 31, 1995 ----------------------------------------------------------- 4 3 2 1 -------- -------- ------- -------- (Dollars in Thousands, Except Per Share Data) ----------------------------------------------------------- Selected Income Statement Data: Interest income $10,187 $ 9,790 $ 9,448 $ 8,806 Net interest income 5,822 5,449 5,455 5,280 Net income 1,593 1,508 1,429 1,387 Per Share Data: Net income 0.33 0.31 0.29 0.29 Dividends 0.10 0.10 0.075 0.075
22 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General The Company's principal asset is its ownership of the Subsidiary Banks. Accordingly, its results of operations are primarily dependent upon the results of operations of the Subsidiary Banks. The Subsidiary 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 Subsidiary Banks' profitablity 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 Subsidiary 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 Subsidiary 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, deposit insurance premiums paid to the FDIC and other operating expenses. The results of operations for the years ended December 31, 1996, 1995 and 1994 include the which were acquired in 1996 and accounted for as poolings of interest. The results of operations for the year ended December 31, 1996 also include the operations of Southland Bank since June 21, 1996, the date of its acquisition, which transaction was accounted for as a purchase. Because the acquisition of Southland Bank was accounted for as a purchase transaction, significant amounts of increases in average balances and income and expense data are attributable to the inclusion of the operations of Southland Bank from June 21, 1996, whereas no operations of Southland Bank have been included in the consolidated financial data for 1995 and 1994. Results of Operations for Years Ended December 31, 1996, 1995 and 1994 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 Subsidiary 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. 23 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 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, 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 or 3.58% to 5.39% in 1996 as compared to 5.59% in 1995. This decrease in net interest margin resulted from a decrease of 5 basis points in average yield earned on interest-earning assets accompanied by an increase of 8 basis points in average rate paid on interest-bearing liabilities. Interest earned on loans decreased 19 basis points and interest earned on Federal funds sold decreased 90 basis points, while interest paid on interest-bearing deposits increased 9 basis points. Net interest income on a taxable-equivalent basis was $27,109,000 in 1996 as compared to $22,379,000 in 1995, representing an increase of $4,730,000 or 21.14%. Taxable-equivalent net interest income of Southland Bank accounted for $2,782,000 or approximately 59% of the total increase. Net interest income on a taxable-equivalent basis was $22,379,000 in 1995 as compared to $19,172,000 in 1994, representing an increase of $3,207,000 or 16.73%. Net interest margin increased 5.27% to 5.59% in 1995 from 5.31% in 1994 on an increase of 10.97% in average interest-earning assets and an increase of 9.37% in average interest-bearing liabilities. Although interest earned on earning assets increased 106 basis points to 9.64% in 1995 as compared to 8.58% in 1994, interest paid on interest-bearing liabilities increased 99 basis points to 4.83% in 1995 compared to 3.84% in 1994. Interest rates were very aggressive in 1995 as compared to 1994. Average interest-earning $503,295,000 in 1996 from $400,325,000 in 1995. Average interest-earning assets of Southland Bank accounted for $58,454,000 or approximately 57% of the total increase. Average loans increased $87,312,000; average investments increased $21,314,000; and average Federal funds sold decreased $5,656,000. The increase in average interest-earning assets was funded by an increase in average deposits of $87,824,000 or 22.96% to $470,369,000 in 1996 from $382,545,000 in 1995. Average deposits of Southland Bank accounted for $49,406,000 or approximately 56% of the total increase in average deposits. By comparison, average interest-earning assets increased by $39,560,000 or 10.97% to $400,325,000 in 1995 from $360,765,000 in 1994. During 1995, average deposits increased $31,589,000 or 9.00%, to $382,545,000 from $350,956,000 in 1994. Approximately 14% of the average deposits were noninterest-bearing deposits in 1996. In 1995, approximately 15% of the total 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. 24 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) 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 $1,894,000 in 1996, $1,231,000 in 1995 and $955,000 in 1994. The increase in the provision for loan losses in 1996 of $663,000, or 53.86%, as compared with 1995 was accompanied by an increase of 43.62% in total loans in 1996 and an increase in the allowance for loan losses of 25.33%. The allowance for loan losses increased $1,389,000 to $6,873,000 at December 31, 1996 from $5,484,000 at December 31, 1995. The addition of $1,211,000 to the allowance for loan losses upon acquisition of Southland Bank accounted for the major portion of the increase in the allowance. Net charge-offs represented 90.60% of the provision for loan losses in 1996 as compared to 42.49% in 1995. The loan charge-offs for 1996 represented .45% of average loans outstanding during the year as compared to .18% for 1995 and .27% for 1994. At December 31, 1996, the allowance for loan losses was 1.57% of total loans outstanding as compared to an allowance for loan losses of 1.80% of total loans outstanding at December 31, 1995 and 1.76% of total loans outstanding at December 31, 1994. 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 loan portfolio. Average total assets increased $112,035,000 or 25.46% to $552,023,000 in 1996 as compared to $439,988,000 in 1995. Average total assets of Southland Bank accounted for $66,295,000 or approximately 59% of the increase in average total assets. The increase in average total assets was accompanied by an increase in average deposits of $87,824,000 or 22.96%, of which $49,406,000 was attributable to average deposits of Southland Bank. Average total assets increased $47,186,000 or 12.01% to $439,988,000 in 1995 as compared to $392,802,000 in 1994 and was accompanied by an increase in average total deposits of $31,589,000 or 9.00% to $382,545,000 in 1995 from $350,956,000 in 1994. 25 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, 1996 ----------------------------------------------------------------------------------------------------- 1996 1995 1994 ----------------------------------------------------------------------------------------------------- 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 $380,527 $40,711 10.70% $293,215 $31,929 10.89% $256,970 $25,239 9.82% Investment securities: Taxable 84,454 5,197 6.15 69,230 4,113 5.94 67,190 3,618 5.38 Nontaxable 18,996 1,377 7.25 12,906 1,098 8.51 14,093 1,194 8.47 Federal funds sold 19,318 959 4.96 24,974 1,464 5.86 22,512 903 4.01 -------- ------- -------- ------- -------- ------- Total interest-earning assets 503,295 48,244 9.59 400,325 38,604 9.64 360,765 30,954 8.58 -------- ------- -------- ------- -------- ------- Noninterest-earning assets: Cash 23,945 20,066 20,290 Allowance for loan losses (6,358) (5,217) (4,986) Unrealized loss on avail- able for sale securities (348) (175) (387) Other assets 31,489 24,989 17,120 -------- -------- -------- Total noninterest- earning assets 48,728 39,663 32,037 -------- -------- -------- Total assets $552,023 $439,988 $392,802 ======== ======== ========
26 Average Balances and Net Income Analysis (Continued)
Year Ended December 31, ------------------------------------------------------------------------------------------------- 1996 1995 1994 ------------------------------------------------------------------------------------------------- Interest Average Interest Average Interest Average Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/ Balance Expense Rate Paid Balance Expensse Rate Paid Balance Expense Rate Paid ------------------------------------------------------------------------------------------------- (Dollars in Thousands) -------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing liabilities: Savings and interest-bearing demand deposits $138,749 $ 4,246 3.06% $114,574 $ 3,534 3.08% $123,301 $3,491 2.83% Time deposits 267,269 15,500 5.80 211,206 12,079 5.72 177,097 7,943 4.49 Other short-term borrowings 5,713 221 3.87 5,560 301 5.41 3,477 111 3.19 Other borrowings 19,113 1,168 6.11 4,332 311 7.18 3,052 237 7.77 -------- ------- -------- ------- -------- ------ Total interest-bearing liabilities 430,844 21,135 4.91 335,672 16,225 4.83 306,927 11,782 3.84 -------- ------- -------- ------- -------- ------ Noninterest-bearing liabilities and stockholders' equity: Demand deposits 64,351 56,765 50,558 Other liabilities 3,328 3,538 2,803 Stockholders' equity 53,500 44,013 32,514 -------- -------- -------- Total noninterest-bearing liabilities and stockholders' equity 121,179 104,316 85,875 -------- -------- -------- Total liabilities and stockholders' equity $552,023 $439,988 $392,802 ======== ======== ======== Interest rate spread 4.68% 4.81% 4.74% ===== ==== ==== Net interest income $27,109 $22,379 $19,172 ======= ======= ====== Net interest margin 5.39% 5.59% 5.31% ===== ==== ====
27 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, --------------------------------------------------------------------------- 1996 vs. 1995 1995 vs. 1994 ----------------------------------- -------------------------------------- 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 $ 8,782 $ (726) $ 9,508 $ 6,690 $ 3,130 $ 3,560 Interest on securities: Taxable 1,084 180 904 495 385 110 Nontaxable 279 (239) 518 (96) 5 (101) Interest on Federal funds sold (505) (173) (332) 561 462 99 -------- -------- -------- ------- ------ -------- Total interest income 9,640 (958) 10,598 7,650 3,982 3,668 -------- -------- -------- ------- ------ -------- Expense from interest-bearing liabilities: Interest on savings and interest- bearing demand deposits 712 (34) 746 43 290 (247) Interest on time deposits 3,421 215 3,206 4,136 2,606 1,530 Interest on short-term borrowings (80) (88) 8 190 124 66 Interest on other borrowings 857 (204) 1,061 74 (25) 99 -------- -------- -------- ------- ------ -------- Total interest expense 4,910 (111) 5,021 4,443 2,995 1,448 -------- -------- -------- ------- ------ -------- Net interest income $ 4,730 $ (847) $ 5,577 $ 3,207 $ 987 $ 2,220 ======== ======== ======== ======= ====== ========
Noninterest Income The most significant increase in noninterest income were increases in service charges on deposit accounts and other income. The increase in service charges on deposit accounts resulted from on increase in average deposits of $87,824,000 of which $49,406,000 was attributable to the average deposits of Southland Bank. The increase in service charges on deposit accounts of $250,000 (7.32%), in 1995 over 1994 resulted from an increase in average deposits of $31,589,000 (9.00%). Total other income increased $644,000 in 1996 over 1995 of which $505,000 was attributable to other income of Southland Bank. 28 Noninterest Income (Continued) Following is a comparison of noninterest income for 1996, 1995 and 1994.
Year Ended December 31, ---------------------------- 1996 1995 1994 ------ ------- ------- (Dollars in Thousands) ---------------------------- Service charges on deposit accounts $4,554 $3,666 $3,416 Other service charges, commissions and fees 500 422 336 Other income 1,230 586 521 ------ ------ ------ $6,284 $4,674 $4,273 ====== ====== ======
Noninterest Expense Salaries and employee benefits increased $2,147,000 or 25.09% in 1996 over 1995, of which $1,202,000 was attributable to Southland Bank. The remaining increase in salaries and employee benefits resulted from normal increases in salaries and bonuses and the addition of several employees by the parent company, including three senior executives. Equipment and occupancy expense increased $497,000 or 19.56% in 1996 over 1995, of which $366,000 was attributable to Southland Bank. Amortization of intangible assets increased $177,000 in 1996 over 1995. The entire amount of the increase resulted from the amortization of the excess of purchase price over net book value of assets acquired upon the acquisition of Southland Bank which was accounted for as a purchase transaction. Merger and acquisition expense of $708,000 in 1996 resulted from the acquisition of four financial institutions during 1996. Stationery and supplies expense increased $227,000 in 1996 over 1995, of which $81,000 was attributable to Southland. Also contributing to the increase in stationery and supplies expense was the implementation of an innovative system for rendering customer account statements known as an "image item processing system". All other noninterest expense increased $986,000 in 1996 over 1995, of which $526,000 was attributable to Southland Bank. Following is an analysis of noninterest expense for 1996, 1995 and 1994.
Year Ended December 31, ------------------------------------ 1996 1995 1994 ------- ------- -------- (Dollars in Thousands) ------------------------------------ Salaries and employee benefits $10,705 $8,558 $7,816 Equipment and occupancy 3,038 2,541 2,454 Merger and acquisition expense 708 - - Amortization of intangible assets 487 310 310 Data processing fees 500 486 566 Directors fees 462 424 395 FDIC premiums 367 481 801 Stationery and supplies expense 592 365 338 Other expense 4,804 3,756 3,250 ------- ------- ------- $21,663 $16,921 $15,930 ======= ======= =======
29 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. 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. The following table sets forth the distribution of the repricing of ABC's earning assets and interest-bearing liabilities as of December 31, 1996, 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. 30
At December 31, 1996 ------------------------------------------------------------- Maturing or Repricing Within ------------------------------------------------------------- Zero to Three One Three Months to Year to Over Months One Year Five Years Five Years Total ------------------------------------------------------------- (Dollars in Thousands) Earning assets: Federal funds sold $ 5,120 $ - $ - $ - $ 5,120 Investment securities 14,182 19,390 55,461 29,105 118,138 Loans 185,495 55,328 163,300 34,267 438,390 -------- --------- --------- --------- -------- 204,797 74,718 218,761 63,372 561,648 -------- --------- --------- --------- -------- Interest-bearing liabilities: Interest-bearing demand deposits (1) - 37,229 79,548 - 116,777 Savings (1) - - 43,332 - 43,332 Certificates less than $100,000 77,590 110,451 37,142 - 225,183 Certificates, $100,000 and over 26,909 42,412 9,677 - 78,998 Other short-term borrowings 997 - - - 997 Other borrowings 15,000 8,750 - 450 24,200 -------- --------- --------- --------- -------- 120,496 198,842 169,699 450 489,487 -------- --------- --------- --------- -------- Interest rate sensitivity gap $ 84,301 $(124,124) $ 49,062 $ 62,922 $ 72,161 ======== ========= ========= ========= ======== Cumulative interest rate sensitivity gap $ 84,301 $ (39,823) $ 9,239 $ 72,161 ======== ========= ========= ========= Interest rate sensitivity gap ratio 1.70 0.38 1.29 140.83 ======== ========= ========= ========= Cumulative interest rate sensitivity gap ratio 1.70 0.88 1.02 1.15 ======== ========= ========= =========
(1) The Company has found that NOW checking accounts and savings deposits are generally not sensitive to changes in interest rates and, therefore, it has placed such liabilities in the "One to Five Years" category. It has also found that the money-market checking deposits reprice between three months to one year, on the average. 31 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, 25% of the investment portfolio matures within one year. TYPES OF INVESTMENTS The amortized cost and fair value of investments in securities at December 31, 1996 and 1995 were as follows:
Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- ---------- ---------- -------- (Dollars in Thousands) ------------------------------------------------ Securities Available for Sale December 31, 1996: U. S. Government and agency securities $69,618 $232 $(429) $69,421 Mortgage-backed securities 12,391 134 (52) 12,473 State and municipal securities 3,918 58 - 3,976 Other securities 300 - (22) 278 ------- ---- ----- ------- $86,227 $424 $(503) $86,148 ======= ==== ===== ======= December 31, 1995: U.S. Government and agency securities $53,363 $430 $ (183) $53,610 Mortgage-backed securities 11,264 173 (15) 11,422 Other securities 300 - (18) 282 ------- ---- ------ ------- $64,927 $603 $ (216) $65,314 ======= ==== ====== ======= Securities Held to Maturity December 31, 1996: U. S. Government and agency securities $11,238 $ - $ (200) $11,038 Mortgage-backed securities 4,326 27 (44) 4,309 State and municipal securities 16,426 493 (28) 16,891 ------- ---- ------ ------- $31,990 $520 $ (272) $32,238 ======= ==== ====== ======= December 31, 1995: U. S. Government and agency securities $ 59 $ 1 $ - $ 60 Mortgage-backed securities 4,704 10 (25) 4,689 State and municipal securities 14,428 337 (106) 14,659 ------- ---- ------ ------- $19,191 $348 $ (131) $19,408 ======= ==== ====== =======
32 Maturities The amounts of investments in securities in each category as of December 31, 1996 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. GOVERNMENT AGENCIES STATE AND AND CORPORATIONS POLITICAL SUBDIVISIONS YIELD YIELD AMOUNT (1) AMOUNT (1) (2) ------- ------ ------- ------- (DOLLARS IN THOUSANDS) ---------------------------------------------------- MATURITY: One year or less $21,572 5.98% $ 255 9.77% After one year through five years 62,331 6.20 6,917 7.28 After five years through ten years 13,116 6.35 8,231 7.55 After ten years 717 6.16 4,999 7.31 ------- ---- ------- ---- $97,736 6.17% $20,402 7.44% ======= ==== ======= ====
(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%. 33 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 real estate mortgages, which constituted approximately 27% of the Company's loan portfolio as of December 31, 1996. The amount of loans outstanding at the indicated dates is shown in the following table according to type of loans.
December 31, --------------------------------------------------------------------------- 1996 1995 1994 1993 1992 -------- --------- --------- --------- --------- (Dollars in Thousands) Commercial and financial $ 68,283 $ 45,892 $ 38,133 $ 30,886 $ 27,578 Agricultural 34,232 21,704 23,063 14,760 15,622 Real estate - construction 13,542 3,589 3,688 5,787 3,247 Real estate - mortgage, farmland 49,807 46,255 40,290 34,563 26,322 Real estate - mortgage, commercial 88,854 59,053 47,884 37,469 30,361 Real estate - mortgage, residential 117,022 71,345 65,598 62,101 62,140 Consumer instalment loans 64,433 56,004 50,691 44,324 47,312 Other 2,217 1,400 1,643 2,319 1,828 --------- --------- --------- --------- --------- 438,390 305,242 270,990 232,209 214,410 Less reserve for possible loan losses 6,873 5,484 4,775 4,514 4,735 --------- --------- --------- --------- --------- Loans, net $ 431,517 $ 299,758 $ 266,215 $ 227,695 $ 209,675 ========= ========= ========= ========= =========
Maturities and Sensitivity to Changes in Interest Rates Total loans as of December 31, 1996 are shown in the following table according to maturity or repricing opportunities (1) one year or less, (2) after one year through five years, and (3) after five years.
(Dollars in Thousands) ----------- Maturity or Repricing Within: One year or less $ 240,823 After one year through five years 163,300 After five years 34,267 --------- $ 438,390 =========
34 The following table summarizes loans at December 31, 1996 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 $ 197,367 Floating or adjustable interest rates 200 --------- $ 197,567 =========
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. 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, --------------------------------------------------------------------------- 1996 1995 1994 1993 1992 --------------------------------------------------------------------------- (Dollars in Thousands) ---------------------------------------------------------------------------- Loans accounted for on a nonaccrual basis $4,977 $2,271 $3,518 $3,260 $6,396 Instalment loans and term loans contractually 396 457 274 513 620 past due ninety days or more as to interest or principal payments and still accruing Loans, the terms of which have been renegotiated - - 358 - - 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 items
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. 35 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 $6,873,000 at December 31, 1996, representing 1.57% of year end total loans outstanding, compared with $5,484,000 at December 31, 1995, which represented 1.80% 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, -------------------------------------------------------------------------- 1996 1995 1994 ------------------------ ---------------------- -------------------- Percent of Percent of Percent of Category Category Category to Total to Total to Total Amount Loans Amount Loans Amount Loans ------- ---------- --------- ---------- -------- --------- (Dollars in Thousands) ------------------------------------------------------------------------- Commercial, financial, industrial and agricultural $ 1,569 23% $ 1,271 22% $ 1,219 23% Real estate 2,848 62 1,951 59 1,796 58 Consumer 1,298 15 1,056 19 1,041 19 Unallocated 1,158 - 1,206 - 719 - ------- ---- ------- ---- ------- ---- $ 6,873 100% $ 5,484 100% $ 4,775 100% ======= ==== ======= ==== ======= ====
36 The following table presents an analysis of the Company's loan loss experience for the periods indicated:
DECEMBER 31, ------------------------------------------------------------ 1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS) ------------------------------------------------------------ Average amount of loans outstanding $380,527 $293,215 $256,970 $228,607 $180,067 ======== ======== ======== ======== ======== Balance of reserve for possible loan losses at beginning of period $ 5,484 $ 4,776 $ 4,514 $ 4,735 $ 1,859 -------- -------- -------- -------- -------- Charge-offs: Commercial, financial and agricultural (739) (301) (479) (573) (454) Real estate (1,242) (103) (338) (1,883) (1,057) Consumer (275) (562) (450) (472) (346) Recoveries: Commercial, financial and agricultural 89 96 100 336 27 Real estate 275 126 265 556 282 Consumer 176 221 209 254 127 -------- -------- -------- -------- -------- Net charge-offs (1,716) (523) (693) (1,782) (1,421) -------- -------- -------- -------- -------- Additions to reserve charged to operating expenses 1,894 1,231 955 1,561 1,597 -------- -------- -------- -------- -------- Allowance for loan losses of acquired subsidiary 1,211 - - - 2,700 -------- -------- -------- -------- -------- Balance of reserve for possible loan losses $ 6,873 $ 5,484 $ 4,776 $ 4,514 $ 4,735 ======== ======== ======== ======== ======== Ratio of net loan charge-offs to average loans .45% .18% .27% .78% .79% ======== ======== ======== ======== ========
37 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, ------------------------------------------------------ 1996 1995 ------------------------------------------------------ Amount Rate Amount Rate -------- ------- --------- -------- (Dollars in Thousands) ------------------------------------------------------- Noninterest-bearing demand deposits $ 64,351 - % $ 56,765 - % Interest-bearing demand and savings deposits 138,749 3.06 114,574 3.08 Time deposits 267,269 5.80 211,206 5.72 -------- -------- Total deposits $470,369 $382,545 ======== ========
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, 1996, 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 $26,909 Over three through twelve months 42,412 Over twelve months 9,677 ------- Total $78,998 =======
38 RETURN ON ASSETS AND SHAREHOLDERS' EQUITY The following rate of return information for the periods indicated is presented below.
Year Ended December 31, ----------------------------------- 1996 1995 1994 ------- ------- ------- Return on assets (1) 1.21% 1.34% 1.10% Return on equity (2) 12.53 13.44 13.28 Dividends payout ratio (3) 31.01 28.69 29.59 Equity to assets ratio (4) 9.69 10.00 8.28
(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 Subsidiary Banks to meet those needs. ABC and the Subsidiary Banks seek to meet liquidity requirements primarily through management of short-term investments (principally Federal funds sold) and monthly amortizing loans. Another source of liquidity is the repayment of maturing single payment loans. In addition, the Subsidiary 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 Subsidiary Banks are monitored on a periodic basis by state and Federal regulatory authorities. At December 31, 1995, the Subsidiary Banks' short-term investments were adequate to cover any reasonable anticipated immediate need for funds. During 1996, ABC increased its capital $5,996,000 by the issuance of common stock in connection with business combinations completed during the year and the exercise of options by shareholders of pooled subsidiaries prior to merger. It also increased its capital by retaining net earnings of $5,019,000 after payment of dividends. After recording a decrease in capital of $112,000 for unrealized losses on securities available for sale, net of taxes, total capital increased $10,903,000 during 1996. At December 31, 1996, total capital of ABC amounted to $57,674,000. ABC and the Subsidiary Banks are aware of no events or trends likely to result in a material change in their liquidity. 39 Liquidity and Capital Resources (Continued) At December 31, 1996, ABC had binding commitments for capital expenditures of $250,000. The Company anticipates that approximately $4,500,000 will be required for capital expenditures during 1997. As of March 1, 1997, the Company anticipates that approximately $4,000,000 in cash will be required to complete purchase of a banking center located in a surrounding area. Additional expenditures may be required for other mergers and acquisitions. No additional mergers or acquisitions are being negotiated at present. In accordance with risk capital guidelines issued by the Federal Reserve Board, ABC is required to maintain a minimum standard of total capital to weighted risk 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, 1996.
Actual Required Excess ----------------------- ----------------------- ----------------------- Amount Percent Amount Percent Amount Percent ------ ------- ------ ------- ------ ------- (Dollars in Thousands) ------------------------------------------------------------------------------------------- Leverage capital $ 52,028 9.11% $ 22,844 4.00% $ 29,184 5.11% Risk-based capital: Core capital 52,028 11.96 17,401 4.00 34,627 7.96 Total capital 57,484 13.21 34,812 8.00 22,672 5.21
Each Bank also met its individual regulatory capital requirements at December 31, 1996. 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. 40 Commitments and Lines of Credit (Continued) Following is a summary of the commitments outstanding at December 31, 1996 and 1995. 1996 1995 -------- -------- (Dollars in Thousands) -------------------------- Commitments to extend credit $ 58,693 $ 45,370 Credit card commitments 3,077 2,883 Standby letters of credit 1,331 1,444 -------- -------- $ 63,101 $ 49,697 ======== ======== 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. 41 41 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-36 of this Annual Report on Form 10-K: Consolidated Balance Sheets - December 31, 1996 and 1995 Consolidated Statements of Income - Years ended December 31, 1996, 1995 and 1994 Consolidated Statements of Stockholders' Equity - Years ended December 31, 1996, 1995 and 1994 Consolidated Statements of Cash Flows - Years ended December 31, 1996, 1995 and 1994 Notes to Consolidated Financial Statements. ITEM 9. DISAGREEMENT ON ACCOUNTING AND FINANCIAL DISCLOSURE During 1996, 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. 42 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. 43 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, 1996 and 1995 (ii) Consolidated Statements of Income - Years ended December 31, 1996, 1995 and 1994 (iii) Consolidated Statements of Stockholders' Equity - Years ended December 31, 1996, 1995 and 1994 (iv) Consolidated Statements of Cash Flows - Years ended December 31, 1996, 1995 and 1994 (v) Notes to Consolidated Financial Statements (b) ABC Bancorp (Parent Company Only): Parent Company only financial information has been included in Note 14 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. 44 3. Exhibits required by Item 601 of Regulation S-K: Exhibit No. Description 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. 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). 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). 45 Exhibit No Description 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). 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 Executive Employment Agreement with Sidney J. Wooten, III dated August 26, 1996. 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. 27 Financial Data Schedule. 46 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 18, 1997 By: /s/ Kenneth J. Hunnicutt ---------------- ---------------------------------------------- Kenneth J. Hunnicutt, President, Chief Executive Officer and Director Date: March 18, 1997 By: /s/ W. Edwin Lane, Jr. ---------------- ---------------------------------------------- W. Edwin Lane, Jr., Executive Vice President and Chief Financial Officer Date: March 18, 1997 By: /s/ Sidney J. Wooten, III ---------------- ---------------------------------------------- Sidney J. Wooten, III, Executive Vice President, Chief Operating Officer and Director 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 18, 1997 By: /s/ Kenneth J. Hunnicutt ---------------- ---------------------------------------------- Kenneth J. Hunnicutt, President, Chief Executive Officer and Director Date: March 18, 1997 By: /s/ W. Edwin Lane, Jr. ---------------- ---------------------------------------------- W. Edwin Lane, Jr., Executive Vice President and Chief Financial Officer Date: March 18, 1997 By: /s/ Sidney J. Wooten, III ---------------- ---------------------------------------------- Sidney J. Wooten, III, Executive Vice President, Chief Operating Officer and Director Date: March 18, 1997 By: /s/ Johnny W. Floyd ---------------- ---------------------------------------------- Johnny W. Floyd, Director Date: March 18, 1997 By: /s/ J. Raymond Fulp ---------------- ---------------------------------------------- J. Raymond Fulp, Director Date: March 18, 1997 By: /s/ Willard E. Lasseter ---------------- ---------------------------------------------- Willard E. Lasseter, Director and Chairman of the Board 47 Date: March 18, 1997 By: /s/ Bobby B. Lindsey ---------------- ---------------------------------------------- Bobby B. Lindsey, Director Date: March 18, 1997 By: /s/ Hal L. Lynch ---------------- ---------------------------------------------- Hal L. Lynch, Director Date: March 18, 1997 By: /s/ Joseph C. Parker ---------------- ---------------------------------------------- Joseph C. Parker, Director Date: March 18, 1997 By: /s/ Eugene M. Vereen, Jr. ---------------- ---------------------------------------------- Eugene M. Vereen, Jr., Director Date: March 18, 1997 By: /s/ Doyle Weltzbarker ---------------- ---------------------------------------------- Doyle Weltzbarker, Director and Vice Chairman of the Board Date: March 18, 1997 By: /s/ Henry Wortman ---------------- ---------------------------------------------- Henry Wortman, Director 48 EXHIBIT INDEX Exhibit No. Description ----------- ----------- 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. 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). 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). 49 Exhibit No Description ---------- ----------- 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). 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 Executive Employment Agreement with Sidney J. Wooten, III dated August 26, 1996. 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. 27 Financial Data Schedule. 50 ABC BANCORP INDEX TO FINANCIAL STATEMENTS AND SCHEDULES Consolidated financial statements: Independent Auditor's Report Consolidated Balance Sheets - December 31, 1996 and 1995 Consolidated Statements of Income - Years ended December 31, 1996, 1995 and 1994 Consolidated Statements of Stockholders' Equity - Years ended December 31, 1996, 1995 and 1994 Consolidated Statements of Cash Flows - Years ended December 31, 1996, 1995 and 1994 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, 1996 and 1995, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1996. 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 did not audit the financial statements of First National Financial Corporation, which statements reflect total assets of $53.7 million as of December 31, 1995 and total revenue of $4.6 million and $3.5 million for the years ended December 31, 1995 and 1994, respectively. These statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to data included for First National Financial Corporation as of December 31, 1995 and for the years ended December 31, 1995 and 1994, is based solely on the report of the other auditors. 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, based upon our audits and the report of other auditors, 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, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. /s/ Mauldin & Jenkins, LLC Albany, Georgia January 31, 1997, except for Note 15 as to which the date is February 27, 1997 F-2 ABC BANCORP AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1996 AND 1995 (Dollars in Thousands) - --------------------------------------------------------------------------------
1996 1995 -------- -------- ASSETS - ------ Cash and due from banks $ 40,894 $ 29,841 Federal funds sold 5,120 51,855 Securities available for sale, at fair value (Note 3) 86,148 65,314 Securities held to maturity, at cost (fair value $32,238 and $19,408) (Note 3) 31,990 19,191 Loans (Note 4) 438,390 305,242 Less allowance for loan losses 6,873 5,484 -------- -------- Loans, net 431,517 299,758 -------- -------- Premises and equipment, net (Note 5) 15,640 10,524 Excess of cost over net assets of banks acquired 7,239 2,415 Other assets 16,484 12,241 -------- -------- $635,032 $491,139 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Deposits Noninterest-bearing demand $ 81,448 $ 74,687 Interest-bearing demand 116,777 100,512 Savings 43,332 29,614 Time, $100,000 and over 78,998 60,226 Other time 225,183 167,142 -------- -------- Total deposits 545,738 432,181 Federal funds purchased and securities sold under agreements to repurchase 997 1,887 Other borrowings (Note 8) 24,200 5,800 Other liabilities 6,423 4,500 -------- -------- Total liabilities 577,358 444,368 -------- -------- COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 10) STOCKHOLDERS' EQUITY Common stock, par value $1; 15,000,000 shares authorized, 5,614,443 and 5,067,209 shares issued, respectively 5,614 5,067 Capital surplus 29,471 23,826 Retained earnings 24,203 19,184 Unrealized gains (losses) on securities available for sale, net of taxes (59) 249 -------- -------- 59,229 48,326 Less cost of 217,882 shares acquired for the treasury (1,555) (1,555) -------- -------- Total stockholders' equity 57,674 46,771 -------- -------- $635,032 $491,139 ======== ========
See Notes to Consolidated Financial Statements. F-3 ABC BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Dollars in Thousands) - -------------------------------------------------------------------------------- 1996 1995 1994 ------- ------- -------- Interest income Interest and fees on loans $ 40,711 $ 31,929 $25,239 Interest on taxable securities 5,192 4,093 3,543 Interest on nontaxable securities 909 725 788 Interest on deposits in other banks 5 20 75 Interest on Federal funds sold 959 1,464 903 -------- -------- ------- 47,776 38,231 30,548 -------- -------- ------- Interest expense Interest on deposits 19,746 15,613 11,434 Interest on other borrowings 1,389 612 348 -------- -------- ------- 21,135 16,225 11,782 -------- -------- ------- Net interest income 26,641 22,006 18,766 Provision for loan losses (Note 4) 1,894 1,231 955 -------- -------- ------- Net interest income after provisions for loan losses 24,747 20,775 17,811 -------- -------- ------- Other income Service charges on deposit accounts 4,554 3,666 3,416 Other service charges, commissions and fees 500 422 336 Gain (loss) on sale of securities (5) (3) 7 Other 1,235 589 514 -------- -------- ------- 6,284 4,674 4,273 -------- -------- ------- Other expenses Salaries and employee benefits (Note 6) 10,705 8,558 7,816 Equipment expense 1,701 1,489 1,515 Occupancy expense 1,337 1,052 939 Merger and acquisition expense 708 - - Amortization of intangible assets 487 310 310 Data processing fees 500 486 566 Directors fees 462 424 395 FDIC premiums 367 481 801 Stationary and supplies expense 592 365 338 Other operating expenses 4,804 3,756 3,250 -------- -------- ------- 21,663 16,921 15,930 -------- -------- ------- See Notes to Consolidated Financial Statements. F-4 ABC BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Dollars in Thousands) - --------------------------------------------------------------------------------
1996 1995 1994 -------- -------- -------- Income before income taxes $ 9,368 $ 8,528 $ 6,154 Applicable income taxes (Note 9) 2,667 2,611 1,837 -------- -------- -------- Net income $ 6,701 $ 5,917 $ 4,317 ======== ======== ======== Income per common share $ 1.29 $ 1.22 $ 0.98 ======== ======== ========
See Notes to Consolidated Financial Statements. F-5
ABC BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Dollars in Thousands) - ----------------------------------------------------------------------------------------------------------------------------------- Unrealized Gains (Losses) on Securities Common Stock Available Treasury Stock -------------------- Capital Retained for Sale, ----------------- Shares Par Value Surplus Earnings Net of Taxes Shares Cost Total --------- --------- ------- -------- ------------- ------- ------- ------- BALANCE, DECEMBER 31, 1993 3,414,751 $3,415 $17,134 $11,201 $ - 183,412 $(1,680) $30,070 Net income - - - 4,317 - - - 4,317 Cash dividends declared, $.29 per share - - - (884) - - - (884) Purchase and simultaneous retirement of the common stock of pooled subsidiary (4,167) (4) (24) - - - - (28) Purchase of minority interest in pooled subsidiary - - (34) (82) - - - (116) Proceeds from sale of stock, net of stock offering expense 747,500 747 7,577 - - - - 8,324 Net change in unrealized losses on securities available for sale, net of taxes - - - - (601) - - (601) --------- ------ ------- ------- ------- ------- ------- ------- BALANCE, DECEMBER 31, 1994 4,158,084 4,158 24,653 14,552 (601) 183,412 (1,680) 41,082 Net income - - - 5,917 - - - 5,917 Cash dividends declared, $.35 per share - - - (1,176) - - - (1,176) Cash dividends paid by pooled subsidiary - - - (109) - - - (109) Exercise of options by shareholders of pooled subsidiary 10,038 10 75 - - - - 85 Four-for-three common stock split 899,087 899 (899) - - 61,137 - - Purchase of fractional shares - - (3) - - - - (3) Stock issued under stock option purchase plan - - - - - (26,667) 125 125 Net change in unrealized gains on securities available for sale, net of taxes - - - - 850 - - 850 --------- ------ ------- ------- ------- ------- ------- ------- BALANCE, DECEMBER 31, 1995 5,067,209 5,067 23,826 19,184 249 217,882 (1,555) 46,771 Net income - - - 6,701 - - - 6,701 Cash dividends declared, $.40 per share - - - (1,682) - - - (1,682) Adjustments to record acquisition of a purchased subsidiary 402,271 402 5,543 - (196) - - 5,749 Exercise of options and capital contributions by shareholders of pooled subsidiaries prior to merger 144,963 145 109 - - - - 254 Purchase of fractional shares - - (7) - - - - (7) Net change in unrealized gains (losses) on securities available for sale, net of taxes - - - - (112) - - (112) --------- ------ ------- ------- ------- ------- ------- ------- BALANCE, DECEMBER 31, 1996 5,614,443 $5,614 $29,741 $24,203 $ (59) 217,882 $(1,555) $57,674 ========= ====== ======= ======= ======== ======= ======= ======= See Notes to Consolidated Financial Statements. F-6
ABC BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Dollars in Thousands) - -------------------------------------------------------------------------------- 1996 1995 1994 -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 6,701 $ 5,917 $ 4,317 -------- -------- -------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,515 1,356 1,293 Amortization of intangible assets 487 310 310 Net (gains) losses on securities available for sale 5 3 (7) Provision for loan losses 1,894 1,231 955 Provision for deferred taxes (431) (223) 26 Write-downs of other real estate owned - - 53 Increase in interest receivable (577) (1,066) (1,061) Increase (decrease) in interest payable (90) 440 211 Increase (decrease) in taxes payable (531) 98 60 Other prepaids, deferrals and accruals, net 1,444 (700) (920) -------- -------- -------- Total adjustments 3,716 1,449 920 -------- -------- -------- Net cash provided by operating activities 10,417 7,366 5,237 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Decrease in interest-bearing deposits in banks - 298 1,459 Purchases of securities available for sale (35,986) (32,756) (11,196) Purchases of securities held to maturity (2,871) (2,653) (12,191) Proceeds from maturities of securities available for sale 22,052 7,741 1,250 Proceeds from sale of securities available for sale 4,638 7,444 4,308 Proceeds from maturities of securities held to maturity 1,894 17,146 13,195 (Increase) decrease in Federal funds sold 46,735 (23,863) 13,625 Increase in loans, net (53,712) (34,774) (39,474) Net cash paid for purchased subsidiary (3,947) - - Purchase of minority interest by pooled subsidiary - - (575) Purchase of premises and equipment (3,715) (886) (2,525) Proceeds from the sale of premises and equipment 48 24 22 -------- -------- -------- Net cash used in investing activities (24,864) (62,279) (32,102) -------- ------- -------- F-7 ABC BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Dollars in Thousands) - -------------------------------------------------------------------------------- 1996 1995 1994 ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES Increase in deposits $22,061 $57,052 $28,232 Decrease in Federal funds purchased and securities sold under agreements to repurchase (2,690) (451) (842) Proceeds from other borrowings 12,600 4,600 1,500 Repayment of other borrowings (5,200) (150) (5,782) Dividends paid (1,518) (1,186) (645) Dividends paid to minority interest of pooled subsidiary - - (24) Proceeds from stock offering, net - - 8,324 Proceeds from sale of stock of pooled subsidiary 254 85 - Proceeds from exercise of stock options - 125 - Purchase of fractional shares (7) (3) - Purchase of treasury shares of pooled subsidiary - - (28) ------- ------- ------- Net cash provided by financing activities 25,500 60,072 30,735 ------- ------- ------- Net increase in cash and due from banks 11,053 5,159 3,870 Cash and due from banks at beginning of year 29,841 24,682 20,812 ------- ------- ------- Cash and due from banks at end of year $40,894 $29,841 $24,682 ======= ======= ======= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the year for: Interest $21,225 $15,785 $11,571 Income taxes $ 3,629 $ 2,736 $ 1,751 NONCASH TRANSACTION Net change in unrealized gains (losses) on securities available for sale $ (154) $ 812 $ (579) 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 accounting and reporting policies of the Company conform to generally accepted accounting principles and general practices within the financial services industry. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ from those estimates. The Company's consolidated finanical statements include the accounts of the Company and its subsidiaries. All significant intercompany transactions and accounts have been eliminated in consolidation. Results of operations of purchased banks are included from the dates of acquisition. Following the purchase method of accounting, the assets and liabilities of purchased banks are stated at estimated fair values at the date of acquisition. The principles which significantly affect the determination of financial position, results of operations and cash flows are summarized below. Cash and Cash Equivalents For purposes of reporting cash flows, cash and due from banks includes cash on hand and amounts due from banks (including cash items in process of clearing). Cash flows from loans originated by the Banks, deposits, interest-bearing deposits and Federal funds purchased and sold 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. F-9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Securities Securities are classified based on management's intention on the date of purchase. Securities which management has the intent and ability to hold to maturity are classified as held to maturity and reported at amortized cost. All other debt securities are classified as available for sale and carried at fair value with net unrealized gains and losses included in stockholders' equity net of tax. Marketable equity securities are carried at fair value with net unrealized gains and losses included in stockholders' equity. Other equity securities without a readily determinable fair value are carried at cost. Interest and dividends on securities, including amortization of premiums and accretion of discounts, are included in interest income. Realized gains and losses from the sales of securities are determined using the specific identification method. A decline in the fair value below cost of any security that is deemed other than temporary is charged to earnings resulting in the establishment of a new cost basis for the security. Loans Held for Sale Loans held for sale include mortgage and other loans and are carried at the lower of aggregate cost or fair value. Loans Loans are carried at their principal amounts outstanding less unearned income and the allowance for loan losses. Interest income on loans is credited to income based on the principal amount outstanding. Loan origination fees and certain direct costs of most loans are recognized at the time the loan is recorded. Loan origination fees and costs incurred for other loans are deferred and recognized as income over the life of the loan. Because net origination loan fees and costs are not material, 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. F-10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Loans (Continued) The allowance for loan losses is maintained at a level that management believes to be adequate to absorb potential losses in the loan portfolio. Management's determination of the adequacy of the allowance is based on an evaluation of the portfolio, past loan loss experience, current economic conditions, volume, growth, composition of the loan portfolio, and other risks inherent in the portfolio. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for loan losses, and may require the Company to record additions to the allowance based on their judgment about information available to them at the time of their examinations. The accrual of interest on impaired loans is discontinued when, in management's opinion, the borrower may be unable to meet payments as they become due. When accrual of interest is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received. A loan is impaired when it is probable the Company will be unable to collect all principal and interest payments due in accordance with the terms of the loan agreement. Individually identified impaired loans are measured based on the present value of payments expected to be received, using the contractual loan rate as the discount rate. Alternatively, measurement may be based on observable market prices or, for loans that are solely dependent on the collateral for repayment, measurement may be based on the fair value of the collateral. If the recorded investment in the impaired loan exceeds the measure of fair value, a valuation allowance is established as a component of the allowance for loan losses. Changes to the valuation allowance are recorded as a component of the provision for loan losses. Premises and Equipment Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed principally by the straight-line method over the following estimated useful lives: Years ----- Buildings and improvements 15-40 Furniture and equipment 5-7 F-11 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 recorded 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. 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 is 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-12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Earnings Per Share Earnings per share are calculated on the basis of the weighted average number of shares outstanding. All per share data for prior years have been adjusted to reflect the four-for-three stock split effected in the form of a stock dividend to shareholders of record as of July 17, 1995. NOTE 2. ACQUISITIONS On June 21, 1996, the Company acquired all of the outstanding common stock of Southland Bancorporation ("Southland") in exchange for 402,271 shares of the Company's common stock and $5,880,000 in cash. The excess of purchase price over net book value of assets acquired amounted to $5,310,000. The fair value of assets acquired was deemed to approximate their recorded value; therefore, the excess cost has been accounted for as goodwill and is being amortized over a period of 15 years. Immediately following the merger, Southland was liquidated and its wholly-owned subsidiary, Southland Bank, became a wholly-owned subsidiary of the Company. The acquisition has been accounted for as a purchase transaction and, accordingly, the operations of Southland Bank have been included in the consolidated financial statements of the Company only from June 21, 1996, the date of acquisition. Had the acquisition of Southland Bank occurred on January 1, 1995, pro forma unaudited consolidated results of operations (after restatement for the poolings of interest described below) for the years ended December 31, 1996 and 1995 would have been as follows: Year Ended December 31, -------------------------------- 1996 1995 --------- -------- (Dollars in Thousands) -------------------------------- Net interest income $ 28,970 $ 25,941 Other income 6,851 6,256 Net income 6,891 6,352 Net income per share 1.28 1.21 F-13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 2. ACQUISITIONS (Continued) On July 31, 1996, the Company acquired all of the outstanding common stock of Central Bankshares, Inc. ("Central") in exchange for 524,300 shares of the Company's common stock and a nominal amount of cash in lieu of fractional shares. Immediately following the merger, Central was liquidated and its wholly-owned subsidiary, Central Bank & Trust, became a wholly-owned subsidiary of the Company. On August 31, 1996, the Company acquired all of the outstanding common stock of First National Financial Corporation ("First National") in exchange for 725,772 shares of the Company's common stock and a nominal amount of cash in lieu of fractional shares. Immediately following the merger, First National was liquidated and its wholly-owned subsidiary, First National Bank of South Georgia, became a wholly-owned subsidiary of the Company. On December 31, 1996, the Company acquired all of the outstanding common stock of M & F Financial Corporation ("M & F") in exchange for 365,026 shares of the Company's common stock and a nominal amount of cash in lieu of fractional shares. Immediately following the merger, M & F was liquidated and its wholly-owned subsidiary, Merchants & Farmers Bank, became a wholly-owned subsidiary of the Company. The acquisitions of Central, First National and M & F have been accounted for as poolings of interests and, accordingly, all prior financial statements have been restated to include the accounts and operations of the pooled companies. Net interest income and net income of the separate companies for periods preceding the mergers are summarized as follows: Year Ended December 31, -------------------------------- 1995 1994 --------- -------- (Dollars in Thousands) -------------------------------- Net interest income: ABC $ 16,030 $ 13,500 Central 2,182 2,005 First National 2,152 1,724 M & F 1,642 1,537 -------- -------- Combined $ 22,006 $ 18,766 ======== ======== Net income: ABC $ 4,341 $ 3,100 Central 499 457 First National 612 316 M & F 465 444 -------- -------- Combined $ 5,917 $ 4,317 ======== ======== F-14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 3. INVESTMENTS IN SECURITIES Under special provisions adopted by the Financial Accounting Standards Board in October 1995, the Company transferred $21,181,000 from securities held to maturity to securities available for sale on December 31, 1995, resulting in a net unrealized gain of $131,000 which was included in stockholders' equity at $87,000 net of related taxes of $44,000. The amortized cost and approximate fair values of investments in securities at December 31, 1996 and 1995 were as follows:
Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- ---------- ---------- -------- (Dollars in Thousands) ----------------------------------------------------------- Securities Available for Sale December 31, 1996: U. S. Government and agency securities $ 69,618 $ 232 $ (429) $ 69,421 Mortgage-backed securities 12,391 134 (52) 12,473 State and municipal securities 3,918 58 - 3,976 Other securities 300 - (22) 278 -------- ----- ------- -------- $ 86,227 $ 424 $ (503) $ 86,148 ======== ===== ======= ======== December 31, 1995: U. S. Government and agency securities $ 53,363 $ 430 $ (183) $ 53,610 Mortgage-backed securities 11,264 173 (15) 11,422 Other securities 300 - (18) 282 -------- ----- ------- -------- $ 64,927 $ 603 $ (216) $ 65,314 ======== ===== ======= ======== Securities Held to Maturity December 31, 1996: U. S. Government and agency securities $ 11,238 $ - $ (200) $ 11,038 Mortgage-backed securities 4,326 27 (44) 4,309 State and municipal securities 16,426 493 (28) 16,891 -------- ----- ------- -------- $ 31,990 $ 520 $ (272) $ 32,238 ======== ===== ======= ======== December 31, 1995: U. S. Government and agency securities $ 59 $ 1 $ - $ 60 Mortgage-backed securities 4,704 10 (25) 4,689 State and municipal securities 14,428 337 (106) 14,659 -------- ----- ------- -------- $ 19,191 $ 348 $ (131) $ 19,408 ======== ===== ======= ========
F-15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 3. INVESTMENTS IN SECURITIES (Continued) The amortized cost and fair value of securities as of December 31, 1996 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 any penalties. Therefore, these securities are not included in the maturity categories in the following maturity summary.
Securities Available for Sale Securities Held to Maturity ----------------------------- --------------------------- Amortized Fair Amortized Fair Cost Value Cost Value --------- -------- ---------- --------- (Dollars in Thousands) ---------------------------------------------------------------- Due in one year or less $ 21,031 $ 21,053 $ 496 $ 499 Due from one year to five years 40,634 40,588 11,861 11,850 Due from five to ten years 7,717 7,600 13,748 13,953 Due after ten years 4,154 4,156 1,559 1,627 Mortgage-backed securities 12,391 12,473 4,326 4,309 Marketable equity securities 300 278 - - -------- -------- -------- -------- $ 86,227 $ 86,148 $ 31,990 $ 32,238 ======== ======== ======== ========
Securities with a carrying value of $76,885,000 and $47,126,000 a December 31, 1996 and 1995, respectively, were pledged to secure public deposits and for other purposes. Gains and losses on sales of securities available for sale consist of the following:
December 31, ----------------------------- 1996 1995 1994 ------ ----- ---- Dollars in Thousands ----------------------------- Gross gains on sales of securities $ 13 $ 24 $ 7 Gross losses on sales of securities (18) (27) - ------ ----- ---- Net realized gains (losses) on sales of securities available for sale $ (5) $ (3) $ 7 ====== ===== ====
F-16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 4. LOANS AND ALLOWANCE FOR LOAN LOSSES The composition of loans is summarized as follows:
December 31, ---------------------- 1996 1995 -------- -------- (Dollars in Thousands) Commercial and financial $ 68,283 $ 45,892 Agricultural 34,232 21,704 Real estate - construction 13,542 3,589 Real estate - mortgage, farmland 49,807 46,255 Real estate - mortgage, commercial 88,854 59,053 Real estate - mortgage, residential 117,022 71,345 Consumer instalment loans 64,433 56,004 Other 2,217 1,400 -------- -------- 438,390 305,242 Allowance for loan losses 6,873 5,484 -------- -------- $431,517 $299,758 ======== ========
The total recorded investment in impaired loans was $5,130,000 and $2,259,000 at December 31, 1996 and 1995, respectively. Included in these loans were $2,408,000 and $1,006,000 that had related allowances for loan losses of $609,000 and $163,000 at December 31, 1996 and 1995, respectively. The average recorded investment in impaired loans for 1996 and 1995 was $4,024,000 and $3,089,000, respectively. Interest income on impaired loans of $159,000 and $161,000 was recognized for cash payments received for the years ended 1996 and 1995, respectively. F-17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 4. LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued) The Company has granted loans to certain directors, executive officers, and related entities of the Company and the Banks. 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 involved. Changes in related party loans for the years ended December 31, 1996 and 1995 are as follows:
December 31, ------------------------ 1996 1995 ------- ------- (Dollars in Thousands) Balance, beginning of year $12,815 $11,116 Advances 19,595 10,321 Repayments (8,212) (8,865) Transactions due to change(s) in related parties 381 243 ------- ------- Balance, end of year $24,579 $12,815 ======= =======
Changes in the allowance for loan losses are as follows:
December 31, ------------------------------------------ 1996 1995 1994 ------- ------ ------- (Dollars in Thousands) Balance, beginning of year $ 5,484 $4,776 $ 4,514 Allowance for loan losses of acquired subsidiary 1,211 - - Provision charged to operations 1,894 1,231 955 Loans charged off (2,256) (966) (1,267) Recoveries 540 443 574 ------- ------ ------- Balance, end of year $ 6,873 $5,484 $ 4,776 ======= ====== =======
F-18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 5. PREMISES AND EQUIPMENT, NET Major classifications of these assets are summarized as follows: December 31, ----------------------- 1996 1995 -------- -------- (Dollars in Thousands) ----------------------- Land $ 3,673 $ 2,247 Buildings 11,210 8,028 Equipment 13,084 8,698 Construction in progress 732 182 -------- -------- 28,699 19,155 Accumulated depreciation 13,059 8,631 -------- -------- $ 15,640 $ 10,524 ======== ======== Depreciation expense for the years ended December 31, 1996, 1995 and 1994 was $1,404,000, $1,230,000 and $1,096,000, respectively. NOTE 6. EMPLOYEE BENEFIT PLANS The Company and its subsidiaries have adopted simplified employee pension plans for substantially all employees. These plans are SEP-IRA defined contribution plans. Contributions to these plans charged to expense during 1996, 1995 and 1994 amounted to $879,000, $588,000 and $537,000, respectively. F-19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 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 $12,000, $55,000 and $81,000 for 1996, 1995 and 1994, respectively, and is included in other operating expenses. NOTE 8. OTHER BORROWINGS Other borrowings consist of the following:
December 31, ------------------------------ 1996 1995 -------- ------- (Dollars in Thousands) ------------------------------ Advances under revolving credit agreement with $ 5,000 $ - SunTrust Bank with interest at the three month LIBOR rate plus .9% (6.40% at December 31, 1996) due on March 30, 1997; unsecured. Advances from Federal Home Loan Bank with 10,000 2,600 interest at adjustable rates (ranging from 5.54% to 5.91% at December 31, 1996) due at various dates from April 1, 1997 to March 21, 2002. Advances from Federal Home Loan Bank with 9,200 2,000 interest at fixed rates (ranging from 5.70% to 6.48% at December 31, 1996) due at various dates from January 21, 1997 to March 6, 2005. Note payable by pooled subsidiary with interest at - 1,200 prime rate less 50 basis points, paid in full in 1996. --------- ------- $ 24,200 $ 5,800 ========= =======
F-20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 8. OTHER BORROWINGS (Continued) The advances from the Federal Home Loan Bank are collateralized by the pledging of first mortgage loans and other specific loans. One subsidiary bank has also pledged mortgage-backed securities having an aggregate market value of approximately $2,466,000 at December 31, 1996. Other borrowings at December 31, 1996 have maturities in future years as follows: (Dollars in Thousands) ----------- 1997 $ 15,750 1998 4,000 1999 3,000 2002 1,000 2005 450 -------- $ 24,200 ======== NOTE 9. INCOME TAXES The total income taxes in the consolidated statements of income are as follows:
December 31, ------------------------------------------- 1996 1995 1994 ------- ------- ------- (Dollars in Thousands) ------------------------------------------- Current $ 3,098 $ 2,834 $ 1,811 Deferred (431) (223) 26 ------- ------- ------- $ 2,667 $ 2,611 $ 1,837 ======= ======= =======
F-21 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 9. INCOME TAXES (Continued) The Company's provision for income taxes 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:
December 31, ------------------------------------------------------------------------- 1996 1995 1994 --------------------- --------------------- --------------------- Amount Percent Amount Percent Amount Percent ---------- --------- ---------- --------- ---------- --------- (Dollars in Thousands) ------------------------------------------------------------------------- Tax provision at statutory rate $ 3,185 34% $ 2,899 34% $ 2,092 34% Increase (decrease) resulting from: Tax-exempt interest (323) (4) (273) (3) (307) (5) Amortization of excess cost over assets acquired 82 1 30 1 33 1 Changes in valuation allowance for deferred taxes (228) (2) (72) (1) (50) (1) Other (49) (1) 27 - 69 1 -------- -------- -------- ------- ------- -------- Provision for income taxes $ 2,667 28% $ 2,611 31% $ 1,837 30% ======== ======== ======== ======= ======= ========
Net deferred income tax assets of $1,365,000 and $489,000 at December 31, 1996 and 1995, respectively, are included in other assets. The components of deferred income taxes are as follows:
December 31, --------------------------- 1996 1995 ------------ ------------ (Dollars in Thousands) Deferred tax assets: Loan loss reserves $ 1,542 $ 1,003 Deferred compensation 197 173 Unrealized loss on securities available for sale 19 - Other real estate - 5 Other - 34 Net operating loss tax carryforward 261 285 Less valuation allowance - (228) -------- -------- 2,019 1,272 -------- -------- Deferred tax liabilities: Deprecation and amortization 435 366 Amortization of intangible assets 219 250 Other - 30 Unrealized gain on securities available for sale - 137 -------- -------- 654 783 -------- -------- Net deferred tax assets $ 1,365 $ 489 ======== ========
F-22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 10. COMMITMENTS AND CONTINGENT LIABILITIES In the normal course of business, the Company has entered into off-balance-sheet financial instruments which are not reflected in the financial statements. These financial instruments include commitments to extend credit and standby letters of credit. Such financial instruments are included in the financial statements when funds are disbursed or the instruments become payable. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheet. 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 and collateral policies for these off-balance-sheet financial instruments as it does for on-balance-sheet financial instruments. A summary of the Company's commitments is as follows: December 31, ---------------------- 1996 1995 ---------- --------- (Dollars in Thousands) ---------------------- Commitments to extend credit $58,693 $45,370 Credit card commitments 3,077 2,883 Standby letters of credit 1,331 1,444 ------- ------- $63,101 $49,697 ======= ======= Commitments to extend credit generally have fixed expiration dates or other termination clauses and may require payment of a fee. 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 credit risk involved in issuing these financial instruments is essentially the same as that involved in extending loans to customers. 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. Collateral held varies but may include real estate and improvements, marketable securities, accounts receivable, crops, livestock, inventory, equipment and personal property. Credit card commitments are unsecured. F-23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 10. 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 loan facilities to customers. Collateral held varies as specified above and 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 for the Company, any liability resulting from such proceedings would not have a material adverse effect on the Company's financial statements. NOTE 11. CONCENTRATIONS OF CREDIT The Banks make agricultural, agribusiness, commercial, residential and consumer loans to customers primarily in the counties of southwest 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, 1996, as follows: Noninterest-bearing accounts $ 17,458 ,000 ============== F-24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 12. 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, 1996, approximately $5,589,000 of retained earnings were available for dividend declaration without regulatory approval. The Company and 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 Company and 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 Company and Banks capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Company and 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, 1996, the Company and the Banks meet all capital adequacy requirements to which it is subject. As of December 31, 1996, 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. F-25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 12. REGULATORY MATTERS (Continued) The Company and 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, 1996 Total Capital (to Risk Weighted Assets): Consolidated $57,484 13.21% $34,812 8.00% $43,516 10.00% American Banking Company $10,851 11.74% $ 7,394 8.00% $ 9,243 10.00% The Bank of Quitman $ 3,778 13.15% $ 2,298 8.00% $ 2,873 10.00% Bank of Thomas County $ 3,071 10.69% $ 2,298 8.00% $ 2,873 10.00% The Citizens Bank of Tifton $ 6,468 13.53% $ 3,824 8.00% $ 4,780 10.00% Cairo Banking Company $ 7,317 15.31% $ 3,823 8.00% $ 4,779 10.00% Southland Bank $10,125 11.11% $ 7,291 8.00% $ 9,113 10.00% Central Bank and Trust $ 5,254 13.11% $ 3,206 8.00% $ 4,008 10.00% First National Bank of South Georgia $ 5,625 18.74% $ 2,401 8.00% $ 3,002 10.00% Merchants and Farmers Bank $ 4,503 15.59% $ 2,311 8.00% $ 2,889 10.00% Tier I Capital (to Risk Weighted Assets): Consolidated $52,028 11.96% $17,401 4.00% $26,101 6.00% American Banking Company $ 9,767 10.56% $ 3,700 4.00% $ 5,549 6.00% The Bank of Quitman $ 3,418 11.90% $ 1,149 4.00% $ 1,723 6.00% Bank of Thomas County $ 2,757 9.60% $ 1,149 4.00% $ 1,723 6.00% The Citizens Bank of Tifton $ 5,868 12.27% $ 1,913 4.00% $ 2,869 6.00% Cairo Banking Company $ 6,707 14.03% $ 1,912 4.00% $ 2,868 6.00% Southland Bank $ 8,985 9.86% $ 3,645 4.00% $ 5,468 6.00% Central Bank and Trust $ 4,753 11.86% $ 1,603 4.00% $ 2,405 6.00% First National Bank of South Georgia $ 5,249 17.49% $ 1,201 4.00% $ 1,801 6.00% Merchants and Farmers Bank $ 4,195 14.52% $ 1,156 4.00% $ 1,733 6.00%
F-26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 12. 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, 1996 (Continued) Tier I Capital (to Average Assets): Consolidated $ 52,028 9.11% $ 22,844 4.00% $ 28,555 5.00% American Banking Company $ 9,767 8.30% $ 4,707 4.00% $ 5,884 5.00% The Bank of Quitman $ 3,418 8.72% $ 1,568 4.00% $ 1,960 5.00% Bank of Thomas County $ 2,757 7.62% $ 1,447 4.00% $ 1,809 5.00% The Citizens Bank of Tifton $ 5,868 7.63% $ 3,076 4.00% $ 3,845 5.00% Cairo Banking Company $ 6,707 8.95% $ 2,998 4.00% $ 3,747 5.00% Southland Bank $ 8,985 7.16% $ 5,020 4.00% $ 6,274 5.00% Central Bank and Trust $ 4,753 8.54% $ 2,226 4.00% $ 2,783 5.00% First National Bank of South Georgia $ 5,249 9.46% $ 2,219 4.00% $ 2,774 5.00% Merchants and Farmers Bank $ 4,195 10.13% $ 1,656 4.00% $ 2,071 5.00%
F-27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 12. 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, 1995 Total Capital (to Risk Weighted Assets): Consolidated $ 49,557 15.73% $ 25,198 8.00% $ 31,498 10.00% American Banking Company $ 9,670 12.21% $ 6,336 8.00% $ 7,920 10.00% The Bank of Quitman $ 3,430 13.22% $ 2,076 8.00% $ 2,595 10.00% Bank of Thomas County $ 3,109 14.38% $ 1,730 8.00% $ 2,162 10.00% The Citizens Bank of Tifton $ 6,497 14.23% $ 3,653 8.00% $ 4,566 10.00% Cairo Banking Company $ 7,471 16.61% $ 3,598 8.00% $ 4,498 10.00% Central Bank and Trust $ 4,510 13.12% $ 2,750 8.00% $ 3,438 10.00% First National Bank of South Georgia $ 4,901 13.90% $ 2,821 8.00% $ 3,526 10.00% Merchants and Farmers Bank $ 4,101 15.18% $ 2,161 8.00% $ 2,702 10.00% Tier I Capital (to Risk Weighted Assets): Consolidated $ 45,644 14.49% $ 12,599 4.00% $ 18,899 6.00% American Banking Company $ 8,679 10.96% $ 3,167 4.00% $ 4,751 6.00% The Bank of Quitman $ 3,105 11.97% $ 1,038 4.00% $ 1,556 6.00% Bank of Thomas County $ 2,838 13.13% $ 865 4.00% $ 1,297 6.00% The Citizens Bank of Tifton $ 5,924 12.98% $ 1,826 4.00% $ 2,738 6.00% Cairo Banking Company $ 6,893 15.33% $ 1,799 4.00% $ 2,698 6.00% Central Bank and Trust $ 4,079 11.86% $ 1,375 4.00% $ 2,064 6.00% First National Bank of South Georgia $ 4,467 12.66% $ 1,411 4.00% $ 2,117 6.00% Merchants and Farmers Bank $ 3,801 14.07% $ 1,081 4.00% $ 1,621 6.00%
F-28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 12. 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, 1995 (Continued) Tier I Capital (to Average Assets): Consolidated $ 45,644 9.87% $ 18,490 4.00% $ 23,112 5.00% American Banking Company $ 8,679 8.51% $ 4,079 4.00% $ 5,099 5.00% The Bank of Quitman $ 3,105 8.33% $ 1,491 4.00% $ 1,864 5.00% Bank of Thomas County $ 2,838 9.17% $ 1,238 4.00% $ 1,547 5.00% The Citizens Bank of Tifton $ 5,924 8.46% $ 2,801 4.00% $ 3,501 5.00% Cairo Banking Company $ 6,893 9.41% $ 2,930 4.00% $ 3,663 5.00% Central Bank and Trust $ 4,079 8.35% $ 1,954 4.00% $ 2,443 5.00% First National Bank of South Georgia $ 4,467 8.67% $ 2,061 4.00% $ 2,576 5.00% Merchants and Farmers Bank $ 3,801 9.01% $ 1,687 4.00% $ 2,109 5.00%
NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using discounted cash flow methods. Those methods are significantly affected by the assumptions used, including the discount rates and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. The use of different methodologies may have a material effect on the estimated fair value amounts. Also, the fair value estimates presented herein are based on pertinent information available to management as of December 31, 1996 and 1995. Such amounts have not been revalued for purposes of these financial statements since those dates and, therefore, current estimates of fair value may differ significantly from the amounts presented herein. F-29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued) The following methods and assumptions were used by the Company in estimating fair values of financial instruments as disclosed herein: Cash, Due From Banks, and Federal Funds Sold: The carrying amounts of cash, due from banks, and Federal funds sold approximate their fair value. Available For Sale and Held To Maturity Securities: Fair values for securities are based on 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 methods, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Fair values for impaired loans are estimated using discounted cash flow methods 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 discounted cash flow methods, using interest rates currently being offered on certificates. Other Borrowings: The carrying amounts of the Company's other borrowings approximate their fair value. F-30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued) Off-Balance Sheet Instruments: Fair values of the Company's off-balance sheet financial instruments are based on fees charged to enter into similar agreements. However, commitments to extend credit and standby letters of credit do not represent a significant value to the Company until such commitments are funded. The Company has determined that these instruments do not have a distinguishable fair value and no fair value has been assigned. The carrying value and estimated fair value of the Company's financial instruments were as follows:
December 31, 1996 December 31, 1995 ----------------------------- ------------------------- Carrying Fair Carrying Fair Amount Value Amount Value --------- ---------- --------- --------- (Dollars in Thousands) --------------------------------------------------------------- Financial assets: Cash and short-term investments $ 46,014 $ 46,014 $ 81,696 $ 81,696 ========= ========= ========= ========= Investments in securities $ 118,138 $ 118,386 $ 84,505 $ 84,722 ========= ========= ========= ========= Loans $ 438,390 $ 424,241 $ 305,242 $ 295,888 Allowance for loan losses (6,873) - (5,484) - --------- --------- --------- --------- Loans, net $ 431,517 $ 424,241 $ 299,758 $ 295,888 ========= ========= ========= ========= Financial liabilities: Noninterest-bearing demand $ 81,448 $ 81,448 $ 74,687 $ 74,687 Interest-bearing demand 116,777 116,777 100,512 100,512 Savings 43,332 43,332 29,614 29,614 Time deposits 304,181 306,346 227,368 230,061 --------- --------- --------- --------- Total deposits $ 545,738 $ 547,903 $ 432,181 $ 434,874 ========= ========= ========= ========= Federal funds purchased and securities sold under agreements to repurchase $ 997 $ 997 $ 1,887 $ 1,887 ========= ========= ========= ========= Other borrowings $ 24,200 $ 24,200 $ 5,800 $ 5,800 ========= ========= ========= =========
F-31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 14. CONDENSED FINANCIAL INFORMATION OF ABC BANCORP (PARENT COMPANY ONLY)
CONDENSED BALANCE SHEETS DECEMBER 31, 1996 AND 1995 (Dollars in Thousands) 1996 1995 -------- -------- Assets Cash $ 1,866 $ 1,978 Interest-bearing deposits in banks - 2,060 Investment in subsidiaries 56,772 40,083 Other assets 5,160 4,484 --------- -------- Total assets $ 63,798 $ 48,605 ========= ======== Liabilities Other borrowings $ 5,000 $ 1,200 Other liabilities 1,124 634 --------- -------- Total liabilities 6,124 1,834 --------- -------- Stockholders' equity 57,674 46,771 --------- -------- Total liabilities and stockholders' equity $ 63,798 $ 48,605 ========= ========
F-32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 14. CONDENSED FINANCIAL INFORMATION OF ABC BANCORP (PARENT COMPANY ONLY) (Continued)
CONDENSED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Dollars in Thousands) 1996 1995 1994 -------- -------- -------- Income Dividends from subsidiaries $ 5,115 $ 2,172 $ 1,445 Interest 44 145 115 Fee income 2,953 2,772 2,442 Other income 111 25 94 --------- -------- -------- Total income 8,223 5,114 4,096 --------- -------- -------- Expense Interest 230 114 191 Amortization and depreciation 477 485 499 Merger and acquisition expense 708 - - Other expense 4,406 2,995 2,704 -------- -------- -------- Total expense 5,821 3,594 3,394 -------- -------- -------- Income before income tax benefits and equity in undistributed earnings of subsidiaries 2,402 1,520 702 Income tax benefits 889 117 109 -------- -------- -------- Income before equity in undistributed earnings of subsidiaries 3,291 1,637 811 Equity in undistributed earnings of subsidiaries 3,410 4,280 3,506 -------- -------- -------- Net income $ 6,701 $ 5,917 $ 4,317 ======== ======== ========
F-33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 14. CONDENSED FINANCIAL INFORMATION OF ABC BANCORP (PARENT COMPANY ONLY) (Continued)
CONDENSED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Dollars in Thousands) 1996 1995 1994 -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 6,701 $ 5,917 $ 4,317 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 117 175 189 Amortization of intangible assets 360 310 310 Undistributed earnings of subsidiaries (3,410) (4,280) (3,506) (Increase) decrease in interest receivable 10 (9) (6) Decrease in interest payable (11) - (5) Increase (decrease) in taxes payable (169) (148) 5 Provision for deferred taxes (38) 14 5 (Increase) decrease in due from subsidiaries (333) (56) 47 Other prepaids, deferrals and accruals, net (240) (87) 59 -------- -------- -------- Total adjustments (3,714) (4,081) (2,902) -------- -------- -------- Net cash provided by operating activities 2,987 1,836 1,415 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES (Increase) decrease in interest-bearing deposits in banks 2,060 (560) (1,500) Purchases of premises and equipment (482) (281) (243) Proceeds from sale of premises 10 17 - Contribution of capital to subsidiary bank - - (1,500) Cash paid for purchased subsidiary (6,216) - - Purchases of stock in pooled subsidiary - - (575) -------- -------- -------- Net cash used in investing activities (4,628) (824) (3,818) -------- -------- --------
F-34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 14. CONDENSED FINANCIAL INFORMATION OF ABC BANCORP (PARENT COMPANY ONLY) (Continued)
CONDENSED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Dollars in Thousands) 1996 1995 1994 --------- ------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from other borrowings $ 5,000 $ - $ 1,500 Repayment of other borrowings (2,200) (150) (5,782) Proceeds from sale of stock, net of stock offering expense - - 8,324 Proceeds from exercise of stock options - 125 - Proceeds from exercise of stock options of pooled subsidiaries 254 85 - Purchase of treasury stock - - (29) Purchase of fractional shares (7) (3) - Dividends paid (1,518) (1,186) (645) --------- ------- -------- Net cash provided by (used in) financing activities 1,529 (1,129) 3,368 --------- ------- -------- Net increase (decrease) in cash (112) (117) 965 Cash at beginning of year 1,978 2,095 1,130 --------- ------- -------- Cash at end of year $ 1,866 $ 1,978 $ 2,095 ========= ======= ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year for interest $ 241 $ 114 $ 196
F-35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 15. PENDING ACQUISITION On February 27, 1997, the Company entered into an agreement with NationsBank Corporation to purchase the assets and assume the liabilities of the Douglas, Georgia banking center of NationsBank. Total assets of approximately $33 million will be included in the transaction including loans totaling approximately $11 million. Total deposits of approximately $33 million will be assumed by the Company. The Company anticipates that approximately $4,000,000 in cash will be required to complete the acquisition. The acquisition is subject to approval by the Company's Board of Directors and certain regulatory authorities. F-36 EX-10.14 2 EXECUTIVE EMPLOYMENT AGREEMENT Exhibit 10.14 EXECUTIVE EMPLOYMENT AGREEMENT ------------------------------ THIS EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement"), is entered into as of the 26th day of August, 1996, by and between ABC BANCORP, a Georgia corporation ("Employer" or the "Company"), and SIDNEY J. WOOTEN III, an individual resident of Cleveland, Georgia ("Executive"). W I T N E S S E T H : - - - - - - - - - - WHEREAS, Employer wishes to employ Executive as its Executive Vice President and Chief Operating Officer, and Executive wishes to serve in such position, on the terms and conditions set forth herein; WHEREAS, Executive desires to be assured of a secure minimum compensation from Employer for his services over a defined term; WHEREAS, Employer desires to assure the continued services of Executive on behalf of Employer on an objective and impartial basis and without distraction or conflict of interest in the event of an attempt by any person to obtain control of Employer; WHEREAS, the Company recognizes that when faced with a proposal for a change of control of the Company, Executive will have a significant role in helping the Company's Board of Directors (the "Board") assess the options and advising the Board on what is in the best interests of the Company and its shareholders, and it is necessary for Executive to be able to provide this advice and counsel without being influenced by the uncertainties of his own situation; WHEREAS, Employer desires to provide fair and reasonable benefits to Executive on the terms and subject to the conditions set forth in this Agreement; and WHEREAS, Employer desires reasonable protection of its confidential business and customer information which it has developed over the years at substantial expense and assurance that Executive will not compete with Employer for a reasonable period of time after termination of his employment with Employer, except as otherwise provided herein. NOW, THEREFORE, in consideration of these premises, the mutual covenants and undertakings herein contained, Employer and Employee, each intending to be legally bound, covenant and agree as follows: 1. EMPLOYMENT. Upon the terms and subject to the conditions set forth in ---------- this Agreement, Employer employs Executive as its Executive Vice President and Chief Operating Officer, and Executive accepts such employment. 2. POSITION AND DUTIES. Executive agrees to serve as the Executive Vice ------------------- President and Chief Operating Officer of Employer and to perform such duties in that office as may reasonably be assigned to him by the Board or the Company's Chief Executive Officer; provided, however, that such duties shall be performed -------- ------- in or from the offices of Employer currently located at Moultrie, Georgia, and shall be of the same character as those generally associated with the office held by Executive. Employer shall not, without the written consent of Executive, relocate or transfer Executive to a location more than fifty (50) miles from the Company's principal executive offices. During the term of this Agreement, Executive agrees that he will serve the Company faithfully and to the best of his ability and that he will devote his full business time, attention and skills to the Company's business; provided, however, that the foregoing shall not be -------- ------- deemed to restrict Executive from devoting a reasonable amount of time and attention to the management of his personal affairs and investments, so long as such activities do not interfere with the responsible performance or Executive's duties hereunder. The Company shall nominate Employee as a director of the Company during the term hereof consistent with the Company's Bylaws. In the event of a voluntary termination pursuant to Subsection 10(C) hereof, Executive shall, unless otherwise requested by the Company, immediately resign as a director of the Company. 3. TERM. The term of this Agreement shall begin on the date hereof (the ---- "Effective Date") and, unless otherwise earlier terminated pursuant to Section 10 hereof, shall end on the date which is three (3) years following the Effective Date (hereinafter referred to as the "Initial Term"). The Initial Term shall be extended automatically for an additional year (each an "Additional Term") on the last day of the Initial Term or each Additional Term hereof unless either party hereto gives written notice to the other party not to so extend within ninety (90) days prior to the expiration of the Initial Term or any subsequent Additional Term, as the case may be, in which case no further extension shall occur and the term of this Agreement shall end two (2) years subsequent to the anniversary as of which the notice not to extend is given; provided, however, that, notwithstanding any notice by Employer not to extend, - -------- ------- the term of this Agreement shall not expire prior to the expiration of twenty-four (24) months after the occurrence of a Change of Control (as hereinafter defined). Notwithstanding the foregoing, this Agreement shall automatically terminate (and the Initial Term or any Additional Term shall thereupon end) without notice when Executive attains 65 years of age. 2 4. COMPENSATION. ------------ (A) Executive shall receive an annual salary of ONE HUNDRED SEVENTY FIVE THOUSAND DOLLARS ($175,000) ("Base Compensation") payable at regular intervals in accordance with Employer's normal payroll practices now or hereafter in effect. Employer may consider and declare from time to time increases in the salary it pays Executive and thereby increase the Base Compensation. Prior to (but not after) a Change of Control, Employer may also declare decreases in the salary it pays Executive if the operating results of Employer are significantly less favorable than those for its fiscal year ended December 31, 1996, and Employer makes similar decreases in the salary it pays to other executive officers of Employer; provided, however, that Employer shall not be permitted to decrease Executive's annual salary below $175,000 during the Initial Term hereof. After a Change of Control, Employer shall consider and declare salary increases based upon the following standards: a. Inflation; b. Adjustments to the salaries of other senior management personnel; and c. Past performance of Executive and the contribution which Executive makes to the business and profits of Employer. Any and all increases or decreases in Executive's salary pursuant to this Section 4(A) shall cause the level of Base Compensation to be increased or decreased by the amount of each such increase or decrease for purposes of this Agreement. The increased or decreased level of Base Compensation as provided in this Section 4(A) shall become the level of Base Compensation for the remainder of the Initial Term or any Additional Term until there is a further increase of decrease in Base Compensation as provided herein. (B) In addition to his Base Compensation, Executive shall be awarded, on a pro-rata basis for Executive's employment during calendar year 1996 and for each calendar year thereafter during the Initial Term or any Additional Term hereunder, an annual bonus (an "Annual Bonus") either pursuant to a bonus or incentive plan of Employer or otherwise on terms no less favorable than those awarded to other executive officers of Employer. 5. OTHER BENEFITS. -------------- (A) So long as Executive is employed by Employer pursuant to this Agreement, he shall be included as a participant in all present and future employee benefit, retirement and compensation plans generally available to employees of Employer, consistent with 3 his Base Compensation and his position as Executive Vice President and Chief Operating Officer, including, without limitation, Employer's Simplified Employee Pension Plan, and Executive and his dependents shall be included in Employer's hospitalization, major medical, disability and group life insurance plans. Employer agrees to continue each of the above benefits in effect on terms no less favorable than those for the other executive officers in effect as of the date hereof (as permitted by law) during the Initial Term or any Additional Term hereof (i) unless prior to a Change of Control, the operating results of Employer are significantly less favorable than those for its fiscal year ended December 31, 1996, or (ii) unless (either before or after a Change of Control) (a) changes in the accounting or tax treatment of such plans would materially adversely affect Employer's operating results or financial condition, and (b) the Board concludes that modifications to such plans need to be made to avoid such adverse effects. If, during the term of this Agreement, by virtue of the terms and conditions of Employer's employee benefit or retirement plans which may then be in effect, including, without limitation, Employer's Simplified Employee Pension Plan, Executive cannot participate in such plans on a fully funded and vested basis, Employer shall pay to Executive an amount, in cash, to be calculated on a pre-tax basis, that is equal to the amount, if any, that Executive would be entitled to receive under such plans had Executive been entitled to participate in such plans, calculated using identical formulas and time frames. (B) If, during the Initial Term or any Additional Term, Executive is denied coverage with respect to a "pre-existing condition" under Employer's hospitalization, major medical or disability plans (the "Plans") solely by reason of such condition, Employer shall pay such costs and expenses incurred by Executive with respect to the diagnosis and treatment of such condition as Executive would have been paid had such condition been covered under such Plans; provided, however, that any such obligation of Employer to pay such costs and - -------- ------- expenses shall terminate as soon as such "pre-existing conditions" are so covered. Employer shall not be obligated to pay for any of Executive's costs and expenses hereunder, if Executive is denied coverage under Employer's hospitalization, major medical or disability plan for any reason other than by virtue of a pre-existing condition, and any payments made by Employer to Executive hereunder shall be calculated and paid in accordance with the terms and conditions of such plans as the same are in effect as of the Effective Date. For purposes of this Agreement, the term "pre-existing condition" shall mean each of the physical conditions of Executive listed on Exhibit A attached hereto and incorporated herein by this reference. Notwithstanding anything to the contrary herein, if Employee elects to continue coverage for himself and his dependents pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985 (Public Law 99-272), then Employer shall pay the cost of such continuation coverage if and to the extent it exceeds the cost that Employee 4 would have paid for coverage for himself and his dependents under the Plans had Employee and his dependents been covered thereunder. 6. EXPENSES. So long as Executive is employed by Employer pursuant -------- to this Agreement, Executive shall receive reimbursement from Employer for all reasonable business expenses incurred in the course of his employment by Employer, upon proper submission to Employer of written vouchers and statements for reimbursement. 7. VACATION. Executive shall be entitled to one (1) week paid -------- vacation during the remainder of calendar year 1996 and shall thereafter, during the Initial Term or any Additional Term hereof, be entitled to two (2) weeks paid vacation during each calendar year of Executive's employment. 8. USE OF AN AUTOMOBILE. Employer shall provide to Executive a full-size -------------------- automobile during the Initial Term and any Additional Term hereof and shall reimburse Executive for all mileage driven by Executive in connection with his duties hereunder in accordance with the Employer's mileage reimbursement policy as in effect from time to time. 9. MISCELLANEOUS EXPENSES. Employer (i) shall reimburse Executive ---------------------- for all reasonable packing and moving costs incurred by Executive in connection with Executive's relocation to Moultrie, Georgia pursuant hereto, provided Executive receives three (3) competitive bids for such packing and moving costs and accepts the lowest of such bids, and (ii) shall also pay to Executive the sum of $10,000 upon Executive's purchase of a residence in Moultrie, Georgia, to cover certain costs incurred by Executive in connection with such relocation. In addition, if Executive is unable to locate a buyer who is ready, willing and able to purchase Executive's residence located in Cleveland, Georgia by the date which is six (6) months after the Effective Date hereof, Employer shall pay to Executive a "carrying fee" for each month thereafter that Executive is unable to locate such a buyer; PROVIDED, HOWEVER, that Employer shall not be obligated -------- ------- to pay Executive the carrying fee after the date which is twenty-four (24) months after the commencement of the carrying fee payments by Employer to Executive hereunder. For purposes of this Agreement, the term "carrying fee" shall mean an amount, in cash, equal to the sum reached by multiplying eighty percent (80%) of the appraised value of Executive's residence in Cleveland, Georgia by an annualized rate of 7.50% calculated on a monthly basis. In connection with Executive's purchase of a residence in Moultrie, Employer agrees to pay to Executive all closing costs and points associated with obtaining a fifteen (15) year, fixed rate mortgage with respect thereto at an annual percentage rate of 7.50% in an amount equal to not more than 80% of the purchase price thereof (but in no event in excess of $150,000). Employer shall use its best efforts to provide to Executive a country club membership for business and personal use and shall pay for all initiation fees and monthly dues 5 related thereto; provided, however, that such membership shall be and remain the -------- ------- sole property of Employer. 10. TERMINATION. Subject to the respective continuing obligations of the ----------- parties, including, but not limited to, those set forth in Subsections 12(A), 12(B), 12(c) and 12(D) hereof, Executive's employment by Employer hereunder may be terminated prior to the expiration of the Initial Term or any Additional Term hereof as follows: (A) Employer, by action of the Board and upon written notice to Executive, may terminate Executive's employment with Employer immediately for cause. For purposes of this Subsection 10(A), "cause" for termination of Executive's employment shall exist (a) if Executive is convicted of (from which no appeal may be taken), or pleads guilty to, any act of fraud, misappropriation or embezzlement, or any felony, (b) if, in the determination of the Board, Executive has engaged in gross or willful misconduct materially damaging to the business of Employer (it being understood, however, that neither conduct pursuant to Executive's exercise of his good faith business judgment nor unintentional physical damage to any property of Employer by Executive shall be a ground for such a determination by the Board), or (c) if Executive has failed, without reasonable cause, to follow reasonable written instructions of the Board consistent with Executive's position as Executive Vice President and Chief Operating officer of Employer and, after written notice from Employer of such failure, Executive at any time thereafter again so fails. (B) Executive, by written notice to Employer, may terminate his employment with Employer immediately for good reason. For purposes of this Subsection 10(B), "good reason" shall mean a good faith determination by Executive, in Executive's sole and absolute judgment, that any one or more of the following events has occurred, without Executive's express written consent, after a Change of Control: (1) a change in Executive's reporting responsibilities, titles or offices as in effect immediately prior to the Change of Control, or any removal of the Executive from, or any failure to re-elect the Executive to, any of Executive's positions that Executive held immediately prior to the Change of Control, which has the effect of diminishing Executive's responsibility or authority; (2) a reduction by Employer in Executive's Base Compensation as in effect immediately prior to the Change 6 of Control or as the same may be increased from time to time or a change in the eligibility requirements or performance criteria under any bonus, incentive or compensation plan, program or arrangement under which Executive is covered immediately prior to the Change of Control which adversely affects Executive; (3) Employer requires Executive to be based anywhere other than within fifty (50) miles of Executive's job location at the time of the Change of Control, provided that if Executive's job location at such time is not within fifty (50) miles of Employer's principal executive offices, then Employer may thereafter require Executive to be based within such fifty (50) mile radius without such event constituting good reason hereunder; (4) without replacement by a plan providing benefits to Executive equal to or greater than those discontinued, the failure by Employer to continue in effect, within its maximum stated term, any pension, bonus, incentive, stock ownership, purchase, option, life insurance, health, accident disability, or any other employee benefit plan, program or arrangement in which Executive is participating at the time of the Change of Control, or the taking of any action by Employer that would adversely affect Executive's participation or materially reduce Executive's benefits under any of such plans; (5) the taking of any action by Employer that would materially adversely affect the physical conditions existing at the time of the Change of Control in or under which Executive performs his employment duties, provided that Employer may take action with respect to such conditions after a Change of Control so long as such conditions are at least commensurate with the conditions in or under which an officer of Executive's status would customarily perform his employment duties; or (6) a material change in the fundamental business philosophy, direction, and precepts of Employer and its subsidiaries, considered as a whole, as the same existed prior to the Change of Control. Any event described in this Subsection 10(B)(1) through (6) which occurs prior to a Change of Control but which Executive reasonably demonstrates (A) was at the request of a third party who has indicated an intention, or taken steps reasonably calculated, to effect a Change of Control or (B) otherwise arose in connection with, or in anticipation of, a Change of Control which actually occurs, shall constitute good reason for purposes hereof, notwithstanding that it occurred prior to a Change of Control. (C) Executive, upon ninety (90) days written notice to Employer, may terminate his employment with Employer without good reason. (D) Executive's employment with Employer shall terminate in the event of Executive's death or disability. For purposes of this Agreement, "disability" shall be defined as Executive's inability by reason of illness or other physical or mental incapacity to perform the duties required by his employment for any consecutive one hundred eighty (180) day period. (E) A "Change of Control" of Employer shall mean any of the following events: (i) Unless approved by the affirmative vote of at least two-thirds (2/3) of those members of the Board who are in office immediately prior to the event(s) and who are not employees of Employer: a. the merger or consolidation of Employer with, or the sale of all or substantially all of the assets of, Employer to any person or entity or group of associated persons or entities; or b. the direct or indirect beneficial ownership, in the aggregate, of securities of Employer representing twenty percent (20%) or more of the total combined voting power of Employer's then issued and outstanding securities by any person or entity, or group of associated persons or entities acting in concert, not affiliated (within the meaning of the Securities Act of 1993, as amended) with Employer as of the date hereof; provided, however, that the Board -------- ------- may, at any time and in its sole discretion, increase the ownership percentage threshold of this item b. to an amount not exceeding forty percent (40%); or c. the shareholders of Employer approve any plan or proposal for the liquidation or dissolution of Employer. (ii) A change in the composition of the Board at any time during any consecutive twenty-four (24) month period such that the "Continuity Directors" cease for any reason to constitute at least a seventy percent (70%) majority of the Board. For purposes of this Agreement, 8 "Continuity Directors" means those members of the Board who either: a. were directors at the beginning of such consecutive twenty-four (24) month period; or b. were elected by, or on the nomination or recommendation of, at least a two-thirds (2/3) majority of the Board 11. Compensation Upon Termination. In the event of termination of ----------------------------- Executive's employment with Employer pursuant to Section 10 hereof, compensation shall continue to be paid by Employer to Executive as follows: (A) In the event of termination pursuant to Subsection 10 (A), compensation provided for herein (including Base Compensation and an Annual Bonus) shall continue to be paid, and Executive shall continue to participate in the employee benefit, retirement, compensation plans and other perquisites as provided in Sections 5 and 6 hereof, through and including the Date of Termination (as hereinafter defined) specified in the Notice of Termination (as hereinafter defined). Any benefits payable under insurance, health, retirement and bonus plans as a result of Executive's participation in such plans through such date shall be paid when due under such plans. (B) In the event of termination pursuant to Subsection 10 (C), compensation provided for herein (including Base Compensation and an Annual Bonus) shall continue to be paid, and Executive shall continue to participate in the employee benefit, retirement, compensation plans and other perquisites as provided in Sections 5 and 6 hereof, for the remainder of the Initial Term or any Additional Term hereof, as the case may be, during which the Notice of Termination was given. In addition, any benefits payable under insurance, health, retirement and bonus plans as a result of Executive's participation in such plans shall be paid when due under such plans for the remainder of such Initial Term or Additional Term. (C) In the event of termination pursuant to Subsection 10 (B), compensation provided for herein (including Base Compensation and an Annual Bonus) shall continue to be paid, and Executive shall continue to participate in the employee benefit, retirement, compensation plans and other perquisites as provided in Section 5 hereof, through the Date of Termination specified in the Notice of Termination, and any benefits payable under insurance, health, retirement and bonus plans as a result of Executive's participation in such plans through such date shall be paid when due under those plans. In addition, if the event of termination pursuant to Subsection 10(B) occurs within twenty-four (24) months after the date of a Change of Control, then (a) Executive shall be entitled to continue to receive from Employer for two (2) additional 12-month periods his Base Compensation at the rates in effect at the time of termination plus an Annual Bonus in an amount equal to at least forty percent (40%) of such Base Compensation as of the date of the event of termination, payable in accordance with Employer's standard payment practices then existing; (b) for two (2) additional 12-month periods, Employer shall maintain in full force and effect for the continued benefit of Executive each employee welfare benefit plan (as such term is defined in the Employment Retirement Income Security Act of 1974, as amended) in which Executive was entitled to participate immediately prior to the date of his termination, unless an essentially equivalent and no less favorable benefit is provided by a subsequent employer of Executive, provided that if the terms of any employee welfare benefit plan of Employer or applicable laws do not permit continued participation by Executive, Employer will arrange to provide to Executive a benefit substantially similar to, and no less favorable than, the benefit he was entitled to receive under such plan at the end of the period of coverage; (c) Employer shall also contribute the maximum contributions allowable under Employer's Simplified Employee Pension Plan, or any successor plan thereto, for the benefit of Executive; and (d) Executive shall also be entitled to receive payment from Employer for reasonable relocation expenses if Executive relocates within five hundred (500) miles of Moultrie, Georgia if such relocation occurs within one hundred eighty (180) days after the Date of Termination specified in the Notice of Termination. (D) In the event of termination pursuant to Subsection 10(D), compensation provided for herein (including Base Compensation and an Annual Bonus) shall continue to be paid, and Executive shall continue to participate in the employee benefit, retirement, and compensation plans and other perquisites as provided in Sections 5 and 6 hereof, (i) in the event of Executive's death, through the date of death, or (ii) in the event of Executive's disability, through the Date of Termination specified in the Notice of Termination. Any benefits payable under insurance, health, retirement and bonus plans as a result of Executive's participation in such plans through such date shall be paid when due under those plans. (E) Employer will permit Executive or his personal representative(s) or heirs, during a period of ninety (90) days following the Date of Termination (as set forth in the Notice of Termination) of Executive's employment by Employer for the reasons set forth in Subsection 10 (B), to purchase all of the stock of Employer that would be issuable under the outstanding stock options, if any, previously granted by Employer to Executive under any Employer stock option plan then in effect, whether or not such options are then exercisable, at a cash purchase price equal to the purchase price as set forth in such outstanding stock options. (12). RESTRICTIVE COVENANTS. --------------------- (A) Executive acknowledges that (i) the Company has separately bargained and paid additional consideration for the restrictive covenants herein; and (ii) the Company will provide certain benefits to Executive hereunder in reliance on such covenants in view of the unique and essential nature of the services Executive will perform on behalf of the Company and the irreparable injury that would befall the Company should Executive breach such covenants. (B) Executive further acknowledges that his services are of a special, unique and extraordinary character and that his position with the Company will place him in a position of confidence and trust with employees of the Company and its subsidiaries and with the Company's other constituencies and will allow him access to confidential information concerning the Company and its subsidiaries. (C) Executive further acknowledges that the type and periods of restrictions imposed by the covenants in this Section 12 are fair and reasonable and that such restrictions will not prevent Executive from earning a livelihood. (D) Having acknowledged the foregoing, Executive covenants and agrees with the Company as follows: (1) While Executive is employed by Employer and for a period of two (2) years after termination of such employment for reasons other than those set forth in Subsection 10 (B) of this Agreement, Executive shall not divulge or furnish any trade secrets (as defined in (S)16-8- 13 of the Official Code of Georgia Annotated) of Employer or any confidential information acquired by him while employed by Employer concerning the policies, plans, procedures or customers of Employer or any of its subsidiaries to any person, firm or corporation, other than Employer or upon its written request, or use any such trade secret or confidential information (which shall at all times remain 11 the property of Employer) directly or indirectly for Executive's own benefit or for the benefit of any person, firm or corporation other than Employer. (2) For a period of two (2) years after termination of Executive's employment by Employer for reasons other than those set forth in Subsection 10(B) of this Agreement, Executive shall not directly or indirectly provide banking or bank-related services to, or solicit the banking or bank-related business of, any customer of Employer or any of its subsidiaries at the time of such provision of services or solicitation which Executive served either alone or with others while employed by Employer in any city, town, borough, township, village or other place in which Executive performed services for Employer while employed by it, or assist any actual or potential competitor of Employer or any of its subsidiaries to provide banking or bank-related services to or solicit any such customer's banking or bank-related business in any such place. (3) While Executive is employed by Employer and for a period of two (2) years after termination of Executive's employment by Employer for reasons other than those set forth in Subsection(B) of this Agreement, Executive shall not, directly or indirectly, as principal, agent, or trustee, or through the agency of any corporation, partnership, trade association, agent or agency, engage in any banking or bank-related business or venture which competes with the business of Employer or any of its subsidiaries as conducted during Executive's employment by Employer within a radius of fifty (50) miles of Employer's main office or the main office or any of its subsidiaries; provided, however, that this Subsection 12(C) shall not prohibit or otherwise restrict Executive from accepting employment with a bank holding company that has a banking subsidiary within any such 50-mile radius so long as the principal offices of such holding company are outside any such 50- mile radius and Executive's place of employment is also outside any such 50-mile radius. (4) If Executive's employment by Employer is terminated for reasons other than those set forth in Subsection 10(B) of this Agreement, Executive will turn over immediately thereafter to Employer all business correspondence, letters, papers, reports, customers' lists, financial statements, credit reports or other confidential information or documents of Employer or its affiliates in the possession or control of Executive, all of which writings are and will continue to be the sole and 12 exclusive property of Employer or its affiliates, as the case may be. If Executive's employment by Employer is terminated for reasons set forth in Subsection 10(B) of this Agreement, Executive shall have no obligations to Employer with respect to trade secrets, confidential information or non- competition under this Section 12. Executive acknowledges that irreparable loss and injury would result to Employer upon the breach of any of the covenants contained in this Section 12 and that damages arising out of such breach would be difficult to ascertain. Executive hereby agrees that, in addition to all other remedies provided at law or at equity, Employer may petition and obtain from a court of law or equity, without the necessity of proving actual damages and without posting bond or other security, both temporary and permanent injunctive relief to prevent a breach by Executive of any covenant contained in this Section 12, and shall be entitled to an equitable accounting of all earnings, profits and other benefits arising out of any such breach. In the event that the provisions of this Section 12 should ever be deemed to exceed the time, geographic or any other limitations permitted by applicable law, then such provisions shall be deemed reformed to the maximum extent permitted thereby. 13. NOTICE OF TERMINATION AND DATE OF TERMINATION. Any termination of --------------------------------------------- Executive's employment with Employer as contemplated by Section 10 hereof, except in the circumstances of Executive's death, shall be communicated by written "Notice of Termination" by the terminating party to the other party hereto. Any "Notice of Termination" pursuant to Subsections 10(A), 10(B) or 10(D) shall indicate the specific provisions of this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for such termination. For purposes of this Agreement, "Date of Termination" shall mean: (i) if Executive's employment is terminated because of disability, thirty (30) days after Notice of Termination is given (unless Executive shall have returned to the performance of Executive's duties on a full-time basis during such thirty (30) day period; or (ii) if Executive's employment is terminated for cause, retirement, good reason or pursuant to Subsection 10(C) hereof, the date specified in the Notice of Termination; provided, however, that if within thirty (30) days after any such Notice of - -------- ------- Termination is given, the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally resolved, either by mutual agreement of the parties or by a final judgment, order or decree of a court of competent jurisdiction (the time for the appeal therefrom having expired and no appeal having been perfected). 13 14. EXCESS PARACHUTE PAYMENTS AND ONE MILLION DOLLAR DEDUCTION LIMIT. ---------------------------------------------------------------- (A) Notwithstanding anything contained herein to the contrary, if any portion of the payments and benefits provided hereunder and benefits provided to, or for the benefit of, Executive under any other plan or agreement of Employer (such payments or benefits are collectively referred to as the "Payments") would be subject to the excise tax (the "Excise Tax") imposed under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or would be nondeductible by Employer pursuant to Section 280G of the Code, the Payments shall be reduced (but not below zero) if and to the extent necessary so that no portion of any Payment to be made or benefit to be provided to Executive shall be subject to the Excise Tax or shall be nondeductible by Employer pursuant to Section 280G of the Code (such reduced amount is hereinafter referred to as the "Limited Payment Amount"). Unless Executive shall have given prior written notice specifying a different order to Employer to effectuate the Limited Payment Amount, Employer shall reduce or eliminate the Payments, by first reducing or eliminating those payments or benefits which are not payable in cash and then by reducing or eliminating cash payments, in each case in reverse order beginning with payments or benefits which are to be paid the farthest in time from the Determination (as hereinafter defined). Any notice given by Executive pursuant to the preceding sentence shall take precedence over the provisions of any other plan, arrangement or agreement governing Executive's rights and entitlements to any benefits or compensation. (B) An initial determination as to whether the Payments shall be reduced to the Limited Payment Amount pursuant to the Code and the amount of such Limited Payment Amount shall be made by an accounting firm at Employer's expense selected by Employer which is designated as one of the six largest accounting firms in the United States (the "Accounting Firm"). The Accounting Firm shall provide its determination (the "Determination"), together with detailed supporting calculations and documentation to Employer and Executive within thirty (30) days of the Termination Date, if applicable, and if the Accounting Firm determines that no Excise Tax is payable by Executive with respect to a Payment or Payments, it shall furnish Executive with an opinion reasonably acceptable to Executive that no Excise Tax will be imposed with respect to any such Payment or Payments. Within ten (10) days of the delivery of the Determination to Executive, Executive shall have the right to dispute the Determination to Executive, (the "Dispute"). If there is no Dispute, the Determination shall be binding, final and conclusive upon Employer and Executive subject to the application of Subsection 14(C) below. (C) As a result of the uncertainty in the application of Sections 4999 and 280G of the Code, it is possible that the 14 Payments to be made to, or provided for the benefit of, Executive either have been made or will not be made by Employer which, in either case, will be inconsistent with the limitations provided in Section 14(A) (hereinafter referred to as an "Excess Payment" or "Underpayment, respectively). If it is established pursuant to a final determination of a court or an Internal Revenue Service (the "IRS") proceeding which has been finally and conclusively resolved that an Excess Payment has been made, such Excess Payment shall be deemed for all purposed to be a loan to Executive made on the date Executive received the Excess Payment, and Executive shall repay the Excess Payment to Employer on demand (but not less than ten (10) days after written notice is received by Executive), together with interest on the Excess Payment at the "Applicable Federal Rate" (as defined in Section 1274(d) of the Code) from the date of Executive's receipt of such Excess Payment until the date of such repayment. In the event that it is determined by (i) the Accounting Firm, Employer (which shall include the position taken by Employer, or together with its consolidated group, on its federal income tax return) or the IRS, (ii) pursuant to a determination by a court, or (iii) upon the resolution of the Dispute to Executive's satisfaction, that an Underpayment has occurred, Employer shall pay an amount equal to the Underpayment to Executive within ten (10) days of such determination or resolution, together with interest on such amount at the Applicable Federal Rate from the date such amount would have been paid to Executive until the date of payment. (D) Notwithstanding anything contained herein to the contrary, if any portion of the Payments would be nondeductible by Employer pursuant to Section 162(m) of the Code, the Payments to be made to Executive in any taxable year of Employer shall be reduced (but not below zero) if and to the extent necessary so that no portion of any Payment to be made or benefit to be provided to Executive in such taxable year of Employer shall be nondeductible by Employer pursuant to Section 162(m) of the Code. The amount by which any Payment is reduced pursuant to the immediately preceding sentence, together with interest thereon at the Applicable Federal Rate, shall be paid by Employer to Executive on or before the fifth business day of the immediately succeeding taxable year of Employer, subject to the application of the limitations of the immediately preceding sentence and this Section 14. Unless Executive shall have given prior written notice specifying a different order to Employer to effectuate this Section 14, Employer shall reduce or eliminate the Payments in any one taxable year of Employer by first reducing or eliminating those payments or benefits which are not payable in cash and then by reducing or eliminating cash payments, in each case in reverse order beginning with payments or benefits which are to be paid the farthest in time from the Section 162(m) Determination (as hereinafter defined). Any notice given by Executive pursuant to the immediately preceding sentence shall take precedence over the provisions of any other 15 plan, arrangement or agreement governing Executive's rights and entitlements to any benefits or compensation. (E) The determination as to whether the Payments shall be reduced pursuant to Section 14(D) hereof and the amount of the Payments to be made in each taxable year after the application of Section 14(D) hereof shall be made by the Accounting Firm at Employer's expense. The Accounting Firm shall provide its determination (the "Section 162(m) Determination"), together with detailed supporting calculations and documentation to Employer and Executive within thirty (30) days of the termination date specified in the Notice of Termination. The Section 162(m) Determination shall be binding, final and conclusive upon Employer and Executive. 15. PAYMENTS AFTER DEATH. Should Executive die after termination of -------------------- his employment with Employer while any amounts are payable to him hereunder, this Agreement shall inure to the benefit of and be enforceable by Executive's executors, administrators, heirs, distributees, devisees and legatees, and all amounts payable hereunder shall be paid in accordance with the terms of this Agreement to Executive's devisee, legatee or other designee or, if there is no such designee, to his estate. 16. NOTICES. For purposes of this Agreement, notices and all other ------- communications provided for herein shall be in writing and shall be deemed to have been given when delivered or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to Executive: Sidney J. Wooten III 130 Lower Meigs Road Moultrie, Georgia 31768 If to Employer: ABC Bancorp 310 First Street, S.E. Moultrie, Georgia 31768 or to such address as either party hereto may have furnished to the other party in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 17. GOVERNING LAW. The validity, interpretation, and performance of ------------- this Agreement shall be governed by the laws of the State of Georgia without giving effect to the conflicts of laws principles thereof. 18. SUCCESSORS. Employer shall require any successor (whether direct ---------- or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of Employer, by agreement in form and substance reasonably satisfactory to Executive, to expressly assume and agree to perform 16 this Agreement in the same manner and same extent that Employer would be required to perform it if no such succession had taken place. Failure of Employer to obtain such agreement prior to the effectiveness of any such succession shall be a material intentional breach of this Agreement and shall entitle Executive to terminate his employment with Employer for good reason pursuant to Subsection 10(B) hereof. As used in this Agreement, "Employer" shall mean Employer as hereinbefore defined and any successor to its business or assets as aforesaid. 19. MODIFICATION. No provision of this Agreement may be modified, ------------ waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by Executive and Employer. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of dissimilar provisions or conditions at the same or any prior subsequent time. No agreements or representation, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in the Agreement. 20. SEVERABILITY. The invalidity or unenforceability of any provisions ------------ of this Agreement shall not affect the validity or enforceability of any other provisions of this Agreement which shall remain in full force and effect. 21. COUNTERPARTS. This Agreement may be executed in one or more ------------ counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same agreement. 22. ASSIGNMENT. This Agreement is personal in nature and neither party ---------- hereto shall, without consent of the other, assign or transfer this Agreement or any rights or obligations hereunder except as provided in Sections 16 and 19 above. Without limiting the foregoing, Executive's right to receive compensation hereunder shall not be assignable or transferable, whether by pledge, creation of a security interest or otherwise, other than a transfer by his will or by the laws of descent or distribution as set forth in Section 16 hereof, and in the event of any attempted assignment or transfer contrary to this Section 23, Employer shall have no liability to pay any amounts so attempted to be assigned or transferred. 23. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement ---------------- between the parties hereto and supersedes all prior agreements, if any, understandings and arrangements, oral or written, between the parties hereto with respect to the subject matter hereof. 17 IN WITNESS WHEREOF, Executive has executed, sealed and delivered this Agreement, and Employer has caused this Agreement to be executed, sealed and delivered, all as of the day and year first above set forth. ABC BANCORP [CORPORATE SEAL] By: /s/ Kenneth J.Hunnicutt ------------------------------- Attest: Its: President and CEO -------------------------- /s/ Cindi Lewis, VP/OPS - ------------------------------------ Assistant Secretary /s/ Sidney J. Wooten III (SEAL) -------------------------------- SIDNEY J. WOOTEN III Executive Vice President and Chief Operating Officer and Director 18 EXHIBIT A PRE-EXISTING CONDITIONS Menieres Disease - Sidney J. Wooten Allergies - Matthew T. Wooten (dependent) 19 EX-21.1 3 REGISTRANT'S SUBSIDIARIES Exhibit 21.1 REGISTRANT'S SUBSIDIARIES Following is a list of the Registrant's subsidiaries and the state of incorporation or other jurisdiction. Name of Subsidiary State of Incorporation or Other Jurisdiction - ------------------------- --------------------------------------------- American Banking Company State of Georgia The Bank of Quitman State of Georgia Bank of Thomas County State of Georgia The Citizens Bank of Tifton State of Georgia Cairo Banking Company State of Georgia Southland Bank State of Alabama Central Bank & Trust State of Georgia First National Bank of South Georgia The Comptroller of the Currency Merchants & Farmers Bank State of Georgia Each subsidiary conducts business under the name listed above. EX-27 4 FINANCIAL DATA SCHEDULE
9 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 40,894 0 5,120 0 86,148 118,138 118,386 438,390 6,873 635,032 545,738 25,197 6,423 0 0 0 5,614 52,060 635,032 40,711 6,101 964 47,776 19,746 21,135 26,641 1,894 0 21,663 9,368 9,368 0 0 6,701 1.29 1.29 5.46 5,131 0 0 5,131 5,484 2,256 540 6,873 6,873 0 6,873 Includes $1,211 reserve increase due to acquisition.
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