Ameris Bancorp
Annual Report 2001

Plain-text annual report

2 0 0 1 A n n u a l R e p o r t Table of Contents Management’s Report to Shareholders. . . . . . . . . . . . . . . . . . . . . . . . . . Page 3 Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 4 Comparative Charts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 5 Office Location Map . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 6-7 Board of Directors, Senior Management and Bank Presidents . . . . . . . . Page 8 John G. Briggs Memorium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 9 Management’s Discussion and Analysis of Financial Conditions and Results of Operations . . . . . . . . . . . . . . . . Page 10-15 Independent Auditor’s Report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 16 Consolidated Balance Sheets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 17 Consolidated Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . . . Page 18 Consolidated Statements of Comprehensive Income . . . . . . . . . . . . . . Page 19 Consolidated Statements of Stockholders’ Equity . . . . . . . . . . . . . . Page 20-21 Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . Page 22-23 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . Page 24-46 Executive Officers, Directors and Senior Management . . . . . . . . . . . . . Page 47 Presidents and Directors – Subsidiary Banks. . . . . . . . . . . . . . . . . . . Page 48-49 Market for the Company’s Common Stock and Dividends . . . . . . . . . . Page 50 A B C B a n c o r p a n d S u b s i d i a r i e s 1 2 0 0 1 A n n u a l R e p o r t Ke n n e t h J . H u n n i c u t t ( l e f t ) C h a i r m a n o f t h e B o a r d a n d C h i e f E x e c u t i v e O f f i c e r M a r k D . T h o m a s ( r i g h t ) P r e s i d e n t a n d C h i e f O p e r a t i n g O f f i c e r 2 A B C B a n c o r p a n d S u b s i d i a r i e s 2 0 0 1 A n n u a l R e p o r t Management’s Report to Shareholders Since September 11, 2001, words like security and stability have taken on deeper meaning for all of us – in our national conscience and our Company as the impact of those events reverberated throughout the economy. Now more than ever, ABC Bancorp is proud to be engaged in an industry where stability and security are not just core values but professional mandates. It is our commitment to these mandates that enables us to report stability in an unstable market and advances in an economy in which others fared less well. The market reacted positively to our progress in diversifying our revenue sources, adopting a disciplined sales culture and controlling expenses. Our future ability to react quickly to changing market conditions was enhanced by our rapid integration of all ABC Bancorp banks into common loan, deposit, accounting and sales systems. As the synergies of these achievements take hold, our income potential for 2002 is bright. Our expansion strategy kicked into high gear this year. We completed our mergers with The First Bank of Brunswick in coastal Georgia and Tri-County Bank in north Florida. Both markets add to our diversity and offer opportunities to expand. We quickly built upon the Tri-County charter with the acquisition of a $20 million branch in Newberry, Florida. Merchants and Farmers Bank increased in size with the acquisition of a $32 million branch in Colquitt, Georgia. This external expansion coupled with strong growth from our existing banking franchise resulted in ABC Bancorp surpassing $1 billion in assets. We also completed a very successful trust preferred stock offering (BHC.Pr on the AMEX). Originally targeted to raise $25 million in capital, the offering quickly sold out and reaped $34.5 million in capital. The success of the trust preferred stock offering is another signal that our expansion strategy is on the right track. When an unprecedented 11 reductions in key interest rates threatened the net interest margin of all financial institutions, our concerted effort to aggressive balance sheet pricing succeeded in greatly lessening the impact of the interest rate cuts. Expense control and growth in non-interest income added to the diversification of our income sources. These efforts continue to be wrapped in a dedication to quality loan growth. 2001 was a year of achieving objectives, surmounting hurdles, maintaining assets, integrating new banks and entering new markets – a solid showing by industry standards. As ABC Bancorp advances into 2002, the groundwork laid in 2001 continues to bear fruit. We strive for even greater achievements. You, the ABC Bancorp stockholder, deserve nothing less. Kenneth J. Hunnicutt Chairman of the Board and Chief Executive Officer Mark D. Thomas President and Chief Operating Officer A B C B a n c o r p a n d S u b s i d i a r i e s 3 2 0 0 1 A n n u a l R e p o r t Selected Financial Data ABC Bancorp and Subsidiaries (Dollars in thousands except per share data) EARNINGS SUMMARY Net interest income Provision for loan losses Non-interest income Non-interest expense Income taxes Net income PER SHARE SUMMARY Common shares outstanding Weighted average shares Income per weighted average share - basic Dividends declared per share ASSET QUALITY Non-performing assets Net loan charge-offs (recoveries) Reserve for loan loss to loans Net loan charge-offs (recoveries) to average loans Non-performing assets to reserve for loan loss Non-performing assets to total assets OTHER KEY DATA Net interest rate spread (a) Net interest margin (a) Return on average assets Return on average equity Efficiency ratio Book value per share Tangible book value per share Stockholders’ equity to total assets 2001 2000 1999 41,186 4,566 11,725 34,020 4,692 9,633 $ 38,171 $ 1,712 8,215 30,233 4,343 $ 10,098 $ 35,591 2,154 7,752 27,942 4,291 8,956 9,999,387 9,214,276 1.05 0.48 11,958 4,378 1.86 % 0.63 % 80.02 % 1.02 % 4.03 % 4.68 % 1.00 % 10.30 % 64.30 % 10.42 7.88 8.85 % $ $ $ $ $ $ 8,347,008 8,460,230 1.19 $ 0.46 $ 8,723,867 8,701,615 1.03 0.35 $ 5,606 1,775 1.67 % 0.31 % 57.02 % 0.68 % 4.43 % 5.20 % 1.27 % 13.19 % 65.18 % 9.66 8.84 9.76 % 6086 2,451 1.87 % 0.48 % 61.51 % 0.77 % 4.69 % 5.40 % 1.23 % 11.93 % 64.47 % 8.71 7.84 9.63 % $ $ $ $ $ $ $ $ (a) Computed using fully taxable-equivalent net income. 4 A B C B a n c o r p a n d S u b s i d i a r i e s 2 0 0 1 A n n u a l R e p o r t Comparative Charts $1,176,886 $826,197 $789,460 $724,946 1998 1999 2000 2001 Total Assets $1.19 $1.05 $1.03 $0.79 1998 1999 2000 2001 Net Income Per Average Share $10,098 $9,633 $8,956 $6,913 1998 1999 2000 2001 Net Income A B C B a n c o r p a n d S u b s i d i a r i e s 5 “You Work Hard for Your Money... We Work Hard for You.” AMERICAN BANKING COMPANY Doerun Moultrie BANK OF THOMAS COUNTY Coolidge Thomasville CAIRO BANKING COMPANY Cairo Meigs CENTRAL BANK & TRUST Cordele CITIZENS SECURITY BANK Douglas Ocilla Tifton FIRST BANK OF BRUNSWICK Brunswick Jekyll Island St. Simons Island FIRST NATIONAL BANK OF SOUTH GEORGIA Albany Leesburg HERITAGE COMMUNITY BANK Quitman Troupeville Valdosta MERCHANTS & FARMERS BANK Colquitt Donalsonville Lake Seminole SOUTHLAND BANK Abbeville Clayton Dothan Eufaula Headland TRI-COUNTY BANK Newberry Trenton ABC Bancorp Board of Directors 2 0 0 1 A n n u a l R e p o r t Front Row: Doyle Weltzbarker; Mark D. Thomas; Kenneth J. Hunnicutt, Chairman; Eugene M. Vereen, Jr. Back Row: Robert P. Lynch; Henry C. Wortman; J. Thomas Whelchel; Johnny W. Floyd; J. Raymond Fulp; Daniel B. Jeter Senior Management & Subsidiary Bank Presidents Front Row: Tim S. Jones; Charles A. Robinson; Harris O. Pittman, III; Kenneth J. Hunnicutt; Mark D.Thomas; W. Edwin Lane, Jr., CPA; Michael D. Hodges; Marc E. DeMott Second Row: C. Larry Young; John C. Mosely; Ronnie F. Marchant; Cindi H. Lewis; Don Monk; John H. Ferguson; David B. Batchelor Third Row: Ervin E. Brock; Richard W. Little, Jr.; Michael F. McDonald; Jon S. Edwards; Edgar B. Smith, III; Robert L. Evans; Edwin W. Hortman, Jr. 8 A B C B a n c o r p a n d S u b s i d i a r i e s 2 0 0 1 A n n u a l R e p o r t In Memory of John G. Briggs 1941-2001 No year can be called a success when you experience the loss of one of your family. This year marked the passing of John G. Briggs. For over 30 years, John has been an honored member of the ABC Bancorp family. Since 1971, John committed his actions to the successful growth of our company. He played a prominent role in the foundation and growth of both American Banking Company and ABC Bancorp. He served as a founding director of American Banking Company and as a member of the Board of Directors of ABC Bancorp. His passion for business was honed as a partner of Briggs Auto Parts. But the joy of his life was his wife Robbie, his four children (Mike, Mark, Aimee, and Shana) and his nine grand- children. John touched the lives of many people through his business, church and community life by simply lending a helping hand or an encouraging word. John was looked upon by both his colleagues and his community for his insight, leadership and enthusiasm. His unselfish actions were usually guided by his overall desire to make ABC Bancorp, its employees, customers, and communities better. What John gave to all of us will be missed. But most of all, we will miss our friend, John G. Briggs. A B C B a n c o r p a n d S u b s i d i a r i e s 9 2 0 0 1 A n n u a l R e p o r t Management’s Discussion and Analysis of Financial Condition and Results of Operations Cautionary Statement Regarding Forward-Looking General Statements Our principal asset is the ownership of our Banks. ABC’s 2001 Annual Report contains forward-looking Accordingly, our results of operations are primarily statements in addition to historical information. ABC dependent upon the results of operations of our Banks. cautions that there are various important factors that Our Banks conduct a commercial banking business could cause actual results to differ materially from those which consists of attracting deposits from the general indicated in the forward-looking statements within the public and applying those funds to the origination of meaning of the Private Securities Litigation Reform Act commercial, consumer and real estate loans (including of 1995; accordingly, there can be no assurance that such commercial loans collateralized by real estate). The indicated results will be realized. Banks’ profitability depends primarily on net interest The Private Securities Litigation Reform Act of 1995 pro- vides a safe harbor for forward-looking statements. In order to comply with the terms of the safe harbor, ABC is required to note the variety of factors that could cause ABC’s actual results and experience to differ materially from the anticipated results or other expectations expressed in ABC’s forward-looking statements. These factors include legislative and regulatory initiatives regarding deregulation and restructuring of the banking industry; the extent and timing of the entry of additional competition in ABC’s markets; potential business strate- gies, including acquisitions or dispositions of assets or internal restructuring, that may be pursued by ABC, state and federal banking regulations; changes in or application of environmental and other laws and regula- tions to which ABC is subject; political, legal and eco- nomic conditions and developments; financial market conditions and the results of financing efforts; changes in commodity prices and interest rates; weather, natural disasters and other catastrophic events; and other factors discussed in ABC’s filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K. The words “believe”, “expect”, “anticipate”, “project”, and similar expressions signify such forward- income, which is the difference between interest income generated from interest-earning assets (i.e., loans and investments) less the interest expense incurred on inter- est-bearing liabilities (i.e., customer deposits and bor- rowed funds). Net interest income is affected by the rel- ative amounts of interest-earning assets and interest- bearing liabilities, and the interest rate paid and earned on these balances. Net interest income is dependent upon the Banks’ interest rate spread, which is the differ- ence between the average yield earned on its interest- earning assets and the average rate paid on its interest- bearing liabilities. When interest-earning assets approxi- mates or exceeds interest-bearing liabilities, any positive interest rate spread will generate interest income. The interest rate spread is impacted by interest rates, deposit flows and loan demand. Additionally, and to a lesser extent, the profitability of the Banks is affected by such factors as the level of noninterest income and expenses, the provision for loan losses and the effective tax rate. Noninterest income consists primarily of service charges on deposit accounts and other fees and income from the sale of loans and investment securities. Noninterest expenses consist of compensation and benefits, occupan- cy-related expenses and other operating expenses. looking statements. Results of Operations for Years Ended December 31, Readers are cautioned not to place undue reliance on 2001, 2000 and 1999 any forward-looking statements made by or on behalf of Our results of operations are determined by our ability ABC. Any such statement speaks only as of the date the to effectively manage interest income and expense, to statement was made. ABC undertakes no obligation to minimize loan and investment losses, to generate nonin- update or revise any forward-looking statements. terest income and to control noninterest expense. Since Additional information with respect to factors that may interest rates are determined by market forces and eco- cause results to differ materially from those contemplat- nomic conditions beyond our control, the ability to gen- ed by such forward-looking statements is included in erate net interest income is dependent upon the ability the ABC’s current and subsequent filings with the of the Banks to obtain an adequate spread between the Securities and Exchange Commission. rate earned on interest-earning assets and the rate paid 1 0 A B C B a n c o r p a n d S u b s i d i a r i e s 2 0 0 1 A n n u a l R e p o r t Management’s Discussion and Analysis of Financial Condition and Results of Operations on interest-bearing liabilities. Thus, the key perform- the average yield on deposits in and federal funds sold ance measure for net interest income is the interest mar- to other banks decreased 394 basis points, the reduction gin or net yield, which is taxable-equivalent net interest in yield did not significantly affect the average yield on income divided by average earning assets. earning assets due to the relatively small volume of 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 bor- rowings. A portion of interest income is earned on tax- exempt investments such as state and municipal bonds. investments represented by such funds. The increase in average interest-earning assets was funded by an increase in average deposits of $126,872,000 or 19.40% to $780,864,000 in 2001 from $653,992,000 in 2000 and an increase in average other borrowings of $$17,662,000 or 28.91% to $78,760,000 in 2001 from $61,098,000 in 2000. Average interest paid on total average deposits decreased 28 basis points or 5.92% to 4.45% in 2001 as compared to 4.73% in 2000. Approximately 13% of the total average deposits were noninterest-bearing deposits in 2001 as compared to approximately 14% in 2000. In an effort to state this tax-exempt income and its During 2001, we acquired two new subsidiary Banks resultant yields on a basis comparable to all other tax- and two branches of other banks which have now been able investments, an adjustment is made to analyze this merged with two of our Banks. These new bank and income on a taxable-equivalent basis. branch acquisitions were accounted for as purchases. The net interest margin decrease 52 basis points to 4.68% in 2001 as compared to 5.20% in 2000. This decrease resulted primarily from the monetary policy pursued by the Federal Reserve during 2001. During 2001 the Federal Reserve reduced the discount rate on 11 separate occasions resulting in a reduction in the prime interest rate a total of 475 basis points from 9.50% on January 1, Following is a summary of assets and liabilities related to the acquisitions of the two new subsidiary Banks and one branch. The acquisition of one branch was not con- summated until December 24, 2001; consequently, the balances related to that branch have not been included because the results would not be materially different had the balances been included. 2001 to 4.75% on December 31, 2001. The prime interest Interest-earning assets: rate on December 31, 2001 was one-half of the effective Loans . . . . . . . . . . . . . . . . . . . . . . . . $ 71,233,000 rate on January 1, 2001. As a result of these rate reduc- tions, ABC’s average yield on interest-earning assets Investment securities. . . . . . . . . . . . . . . 15,163,000 decreased 74 basis points to 8.61% in 2001 from 9.35% in Deposit in and federal funds sold to banks . . 1,772,000 2000. The average interest rate paid on interest-bearing liabilities decreased 34 basis points to 4.58% in 2001 from 4.92% in 2000. Average interest-earning assets increased $146,017 or 19.65% to $889,028,000 in 2001 from $743,011,000 in 2000. Average loans increased $127,766,000 or 22.39% to $698,292 in 2001 from $570,526,000 in 2000. Average yield on loans decreased 89 basis points to 9.33% in 2001 as compared to 10.22% in 2000. Average investments decreased $314,000 or .20% to $158,854,000 in 2001 from $159,168,000 in 2000. Average yield on investments increased 13 basis points or 3.12% to 6.54% in 2001 as compared to 6.41% in 2000. Average interest-bearing deposits in and federal funds sold to other banks increased $18,565,000 or 39.41% to $31,882,000 in 2001 from $13,317,000 in 2000. Although Total interest-earning assets . . . . . $ 88,168,000 Interest-bearing liabilities: Deposits . . . . . . . . . . . . . . . . . . . . . . $ 83,528,000 Other borrowings . . . . . . . . . . . . . . . . . 4,263,000 Total interest-bearing liabilities . . . $ 87,791,000 Noninterest-bearing deposits . . . . . . . . . $ 10,326,000 Total deposits . . . . . . . . . . . . . . . . . . . . . $ 93,854,000 A B C B a n c o r p a n d S u b s i d i a r i e s 1 1 2 0 0 1 A n n u a l R e p o r t Management’s Discussion and Analysis of Financial Condition and Results of Operations The net interest margin decreased 20 basis points to The allowance for loan losses represents a reserve for 5.20% in 2000 as compared to 5.40% in 1999. This potential losses in the loan portfolio. The adequacy of decrease in net interest margin resulted from an increase the allowance for loan losses is evaluated periodically of 31 basis points in average yield earned on interest- based on a review of all significant loans, with a particu- earning assets accompanied by a greater increase of 57 lar emphasis on nonaccruing, past due and other loans basis points in average rate paid on interest-bearing lia- that management believes require attention. We segre- bilities. The increase in average rate paid on interest- gate our loan portfolio by type of loan and utilize this bearing liabilities resulted from an increase of segregation in evaluating exposure to risks within the $37,450,000 or 11.24% on time deposits to $370,707,000 in portfolio. In addition, based on internal reviews and 2000 as compared to $333,257,000 in 1999. Because we external reviews performed by independent auditors were more aggressive in obtaining time deposits, the and regulatory authorities, we further segregates our average rate paid on time deposits increased 58 basis loan portfolio by loan classifications within each type of points to 5.84% in 2000 as compared to 5.26% in 1999. loan based on an assessment of risk for a particular loan We also increased our other borrowings, primarily or group of loans. Certain reviewed loans require spe- Federal Home Loan Bank advances, $22,978,000 or cific allowances. Allowances are provided for other 71.04% to $55,322,000 in 2000 from $32,344,000 in 1999, types and classifications of loans based on anticipated with an increase of 117 basis points in average interest loss rates. Allowances are also provided for loans that paid to 6.55% in 2000 as compared to 5.38% in 1999. are reviewed by management and considered creditwor- Average interest-earning assets increased $73,259,000 or thy and loans for which management determines no 10.94% to $743,011,000 in 2000 as compared to review is required. In establishing allowances, manage- $669,752,000 in 1999. Average yield earned on interest- ment considers historical loan loss experience with an earning assets increased 31 basis points to 9.35% in 2000 emphasis on current loan quality trends, current eco- as compared to 9.04% in 1999. Average loans increased nomic conditions and other factors in the markets where $64,585,000 or 12.77% to $570,526,000 in 2000 from the subsidiary banks operate. Factors considered $505,941,000 in 1999. Average yield earned on loans include among others, unemployment rates, effect of increased 22 basis points to 10.22% as compared to weather on agriculture and significant local economic 10.00% in 1999. Average investments increased events, such as major plant closings. $10,197,000 to $159,168,000 in 2000 from $148,971,000 in 1999. Average yield earned on investments increased 28 basis points to 6.41% in 2000 as compared to 6.13% in 1999. The change in average interest-bearing deposits in banks and the related yield on those assets did not have a material effect on interest income. Because increasing interest rates had a greater impact on interest paid on interest-bearing liabilities than they had on yield earned on interest-earning assets, our interest rate spread decreased 26 basis points to 4.43% in 2000 from 4.69% in 1999. Net interest income on a taxable-equivalent basis was $38,665,000 in 2000 as compared to $36,150,000 in 1998, representing an increase of $2,515,000 or 6.96%. The increase in average interest-earning assets was fund- ed by an increase in average deposits of $40,665,000 or 6.63% and an increased in average borrowings of $24,091,000. In 2000, approximately 14% of the average deposits were noninterest-bearing deposits as compared to approximately 15% in 1999. We have developed a methodology for determining the adequacy of the loan loss reserve which is followed by all our Banks and monitored by ABC’s senior credit offi- cer and internal audit staff. Procedures provide for the assignment of a risk rating for every loan included in our total loan portfolio, with the exception of credit card receivables and overdraft protection loans which are treated as pools for risk rating purposes. The risk rating schedule provides seven ratings of which three ratings are classified as pass ratings and four ratings are classi- fied as criticized ratings. Each risk rating is assigned a percent factor to be applied to the loan balance to deter- mine the adequate amount of reserve. Many of the larg- er loans require an annual review by an independent loan officer. As a result of loan reviews certain loans may be assigned specific reserve allocations. Other loans that surface as problem loans may also be assigned specific reserves. Past due loans are assigned risk rat- ings based on the number of days past due. 1 2 A B C B a n c o r p a n d S u b s i d i a r i e s 2 0 0 1 A n n u a l R e p o r t Management’s Discussion and Analysis of Financial Condition and Results of Operations The provision for loan losses is a charge to earnings in nied by an increase in average deposits of $126,872,000 the current period to replenish the allowance and main- or 19.40% to $780,864,000 in 2001 from $653,992,000 in tain it at a level management has determined to be ade- 2000 and an increase of average borrowings of quate. The provision for loan losses charged to earnings $17,662,000. Average total assets increased $68,258,000 amounted to $4,566,000 in 2001, $1,712,000 in 2000 and or 9.35% to $798,221,000 in 2000 as compared to $2,154,000 in 1999. The increase in the provision for loan $729,963,000 in 1999. The increase in average total assets losses of $2,854,000 in 2001 over the provision in 2000 was accompanied by an increase in average total was required to replenish the reserve for greater net deposits of $40,665,000 or 6.63% to $653,992,000 in 2000 charge-offs. Net charge-offs in 2001 increased $2,603,000 from $613,327,000 in 1999 and an increase in average to $4,378,000 in 2001 as compared to $1,775,000 in 2000. borrowings of $24,091,000. The charge-off of $2,200,000 on one line of credit in 2001 accounted for 77% of the increase. The remaining por- Noninterest Income tion of the increase in net charge-offs in 2001 was related Service charges on deposit accounts increased $1,328,000 to the increase in average loans during 2001. During or 20.77% to $7,721,000 in 2001 as compared to 2000 net loan charge-offs decreased $676,000 or 27.58% $6,393,000 in 2000 or an increase in average deposits of to $1,775,000 as compared to $2,451,000 in 1999. Due to $126,872,000 or 19.58% to $780,864,000 in 2001 from the improvement in the quality of the loan portfolio, $653,992,000 in 2000. $549,000 or 41.34% of the increase which resulted from management’s efforts to resolve in service charges and $93,854,000 or 73.98% of the problem loan situations, management determined that increase in average deposits were attributable to the the provision for loan losses in 2000 could be signifi- 2001 bank acquisitions. Service charges on deposit cantly reduced from the provision recorded in 1999. accounts increased $697,000 or 12.24% to $6,393,000 in During 2001, average loans increased $127,766,000 or 2000 as compared to $5,696,000 in 1999 on an increase in 22.39% over 2000 as compared to an increase in average average deposits of $40,665,000 or 6.63% to $653,992,000 loans of $64,585,000 or 12.12% in 2000 as compared to in 2000 from $613,327,000 in 1999. The increase in serv- 1999. The allowance for loan losses increased $5,112,000 ice charges on deposit accounts was attributable prima- to $14,944,000 at December 31, 2001 from $9,832,000 at rily to the increase in average deposits. Other service December 31, 2000. Approximately $4,924,000 or 96% of charges, commissions and fees increased $201,000 or the increase represented loan reserves acquired in bank 32.32% to $823,000 in 2001 from $622,000 in 2000. acquisitions in 2001. Net charge-offs represented 95.88% Approximately $15,000 or 7.46% of the increase was of the provision for loan losses in 2001 as compared to attributable to the 2001 bank acquisitions. The remain- 103.68% in 2000. Net loan charge-offs for 2001 repre- ing increase in other service charges, commissions and sented .63% of average loans outstanding during the fees relate to increased activity in the sale of annuities year as compared to .31% for 2000 and .48% for 1999. and other financial instruments and increased emphasis At December 31, 2001, the allowance for loan losses was on credit life insurance that generated additional fee 1.86% of total loans outstanding as compared to an income. Origination fees on mortgage loans increased allowance for loan losses of 1.67% of total loans out- $491,000 or 121.23% to $896,000 in 2001 from $405,000 in standing at December 31, 2000 and 1.87% of total loans 2000. The significant increase in mortgage fee income outstanding at December 31, 1999. The determination of resulted from the volume of mortgage refinancing gen- the allowance rests upon management’s judgment about erated by the decrease in mortgage rates. factors affecting loan quality and assumptions about the Approximately $134,000 or 27.29% of the increase was local and national economy. Management considers the attributable to First Bank of Brunswick acquired in 2001. year-end allowance for loan losses adequate to cover Origination fees on mortgage loans decreased $383,000 potential losses in the consolidated loan portfolio. or 48.64% to $405,000 in 2000 as compared to $788,000 in Average total assets increased $161,810,000 or 20.27% to $960,031,000 in 2001 as compared to $798,221,000 in 2000. The increase in average total assets was accompa- 1999. This decrease was attributable to the decrease in mortgage lending activities, particularly the refinancing of mortgage loans, resulting from the stabilization of interest rates during 2000. In 2001, we realized A B C B a n c o r p a n d S u b s i d i a r i e s 1 3 2 0 0 1 A n n u a l R e p o r t Management’s Discussion and Analysis of Financial Condition and Results of Operations $1,253,000 in gain on sale of securities. There were no sales of securities in 2000. In 1999, we incurred a loss of $91,000 on sale of securities. All other noninterest income increased $237,000 or 29.81% to $1,032,000 in 2001 from $795,000 in 2002, of which $215,000 or 90.72% was attributable to the 2001 bank acquisitions. Following is a comparison of noninterest income for 2001, 2000 and 1999. Year Ended December 31, 2001 2000 1999 (Dollars in Thousands) Service charges on deposit accounts $ 7,721 $ 6,393 $ 5,696 Mortgage origination fees Other service charges, commissions and fees Gain (loss) on sale of securities Other income 896 823 1,253 1,032 405 622 - 795 788 423 (91) 936 $ 11,725 $ 8,215 $ 7,752 Noninterest Expense Salaries and employee benefits increased $1,746,000 or 10.63% to $18,166,000 in 2001 from $16,420,000 in 2000. Approximately $1,627,000 or 93.18% of the increase was attributable to the 2001 bank acquisitions. Salaries and employee benefits increased $1,534,000 or 10.30% to $16,420,000 in 2000 from $14,886,000 in 1999. Salaries increased $547,000 (4.98%); bonuses increased $468,000 (47.76%); retirement expense increased $242,000 (34.23%); and all other employee benefits, including stock options and other grants, insurance and payroll taxes, increased $277,000 (12.44%). Stock options and other grants increased $192,000. Equipment and occupancy expense remained fairly constant during 2001, 2000 and 1999. Equipment and occupancy increased $430,000 or 9.91% to $4,768,000 in 2001 from $4,338,000 in 2000. Approximately $407,000 or 94.65% of the increase was attributable to the 2001 acquisitions. Equipment and occupancy expense increased $147,000 or 3.51% to $4,338,000 in 2000 as compared to $4,191,000 in 1999. The increase in 2000 was attributable to an increase in deprecia- tion expense of $201,000 over depreciation expense for 1999. Amortization of intangible assets increased $381,000 to $1,185,000 in 2001 from $804,000 in 2000. The entire amount of the increase resulted from the amortization of intangible assets arising from the 2001 acquisitions. Amortization of intangible assets remained the same in 2000 as the amount charged to expense in 1999. Data processing fees increased $103,000 to $1,250,000 in 2001 from $804,000 in 2000. Approximately $35,000, represent- ing one-third of the increase related to the 2001 acquisitions. The remaining increase was attributable to increased vol- ume of financial data processed in 2001 as compared with 2000. Data processing fees increased $456,000 to $1,147,000 in 2000 as compared to $691,000 in 1999. Approximately $200,000 of the increase was attributable to management’s decision in 2000 to classify certain charges as data processing fees that were charged to other expense in 1999. The reclassification of these charges in 1999 to data processing fees was not considered necessary. In addition, we installed voice response units in all the Banks that accounted for an increase of approximately $84,000 in 2000. Also, a billing error in 1999 resulted in the payment of an additional $100,000 in 2000 that related to data processing in 1999. 1 4 A B C B a n c o r p a n d S u b s i d i a r i e s 2 0 0 1 A n n u a l R e p o r t Management’s Discussion and Analysis of Financial Condition and Results of Operations Following is a comparison of noninterest expense for 2001, 2000 and 1999. Salaries and employee benefits Equipment and occupancy Amortization of intangible assets Data processing fees Other expense Liquidity and Capital Resources Year Ended December 31, 2001 2000 1999 (Dollars in Thousands) $ 18,166 $ 16,420 $ 14,886 4,768 1,185 1,250 8,651 4,338 804 1,147 7,524 4,191 804 691 7,370 $ 34,020 $ 30,233 $ 27,942 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 our Banks to meet those needs. ABC and our Banks seek to meet liquidity requirements primarily through management of short-term investments (principally interest-bearing deposits in banks) and monthly amortizing loans. Another source of liquidity is the repayment of maturing single payment loans. In addition, our 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 our Banks are monitored on a periodic basis by state and federal regulato- ry authorities. At December 31, 2001, the Banks’ short-term investments were adequate to cover any reasonable anticipat- ed immediate need for funds. During 2001, we increased our capital by retaining net earnings of $5,173,000 after payment of dividends. We also increased our capital resources by adding $17,356,000 from the issuance of our common stock in connection with business acquisitions consummated in 2001. After recording an increase in capital of $349,000 for unreal- ized gains on securities available for sale, net of taxes, an increase of $602,000 for restricted stock transactions, and an increase of $12,000 for the exercise of stock options, total capital increased $23,492,000 during 2001. At December 31, 2001, total capital of ABC amounted to $104,148,000. We are aware of no events or trends likely to result in a material change in our liquidity. At December 31, 2001, we had binding commitments for capital expenditures of approximately $750,000. In accordance with risk capital guidelines issued by the Federal Reserve Board, we are required to maintain a minimum standard of total capital to risk-weighted assets of 8%. Additionally, all member banks must maintain “core” or “Tier 1” capital of at least 4% of total assets (“leverage ratio”). Member banks operating at or near the 4% capital level are expected to have well-diversified risks, including no undue interest rate risk exposure, excellent control systems, good earnings, high asset quality, and well managed on- and off-balance sheet activities; and, in general, be considered strong banking organizations with a composite 1 rating under the CAMEL rating system of banks. For all but the most highly rated banks meeting the above conditions, the minimum leverage ratio is to be 4% plus an additional 100 to 200 basis points. The following table summarizes the regulatory capital levels of our Company at December 31, 2001. Leverage capital Risk-based capital: Core capital Total capital Actual Required Excess Amount Percent Percent Amount (Dollars in Thousands) Amount Percent $ 103,506 9.26 % $ 43,874 4.00 % $ 59,632 5.26 % 103,506 122,372 12.70 15.02 32,633 65,266 4.00 8.00 70,943 57,466 8.70 7.02 Each Bank also met its individual regulatory capital requirements at December 31, 2001. A B C B a n c o r p a n d S u b s i d i a r i e s 1 5 2 0 0 1 A n n u a l R e p o r t 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, 2001 and 2000, and the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of ABC Bancorp and Subsidiaries as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. Albany, Georgia February 7, 2002 1 6 A B C B a n c o r p a n d S u b s i d i a r i e s 2 0 0 1 A n n u a l R e p o r t Consolidated Balance Sheets December 31, 2001 and 2000 (Dollars in Thousands) Assets Cash and due from banks Interest-bearing deposits in banks Securities available for sale, at fair value Federal funds sold Loans Less allowance for loan losses Loans, net Premises and equipment, net Intangible assets Goodwill Other assets Liabilities and Stockholders' Equity Deposits Noninterest-bearing Interest-bearing Total deposits Federal funds purchased and securities sold under agreements to repurchase Other borrowings Other liabilities Trust preferred securities Total liabilities Commitments and contingencies Stockholders’ equity Common stock, par value $1; 30,000,000 shares authorized; 10,790,369 and 9,137,990 shares issued Capital surplus Retained earnings Accumulated other comprehensive income Unearned compensation Less cost of 790,982 shares acquired for the treasury Total stockholders’ equity See Notes to Consolidated Financial Statements. 2001 2000 $ 51,303 $ 106,172 156,835 44 805,076 14,944 790,132 26,821 6,074 19,240 20,265 $ 38,411 4,952 162,105 - 587,381 9,832 577,549 19,703 355 6,477 16,645 $ 1,176,886 $ 826,197 $ 125,522 $ 94,917 805,634 931,156 3,792 95,293 7,997 34,500 584,968 679,885 2,653 55,350 7,653 - 1,072,738 745,541 10,790 45,616 53,584 1,034 (656) 110,368 (6,220) 104,148 9,138 29,237 48,411 685 (595) 86,876 (6,220) 80,656 $ 1,176,886 $ 826,197 A B C B a n c o r p a n d S u b s i d i a r i e s 1 7 2 0 0 1 A n n u a l R e p o r t Consolidated Statements Of Income Years Ended December 31, 2001, 2000 and 1999 (Dollars in Thousands) Interest income Interest and fees on loans Interest on taxable securities Interest on nontaxable securities Interest on deposits in other banks Interest on federal funds sold Interest expense Interest on deposits Interest on other borrowings Net interest income Provision for loan losses Net interest income after provision for loan losses Other income Service charges on deposit accounts Other service charges, commissions and fees Mortgage origination fees Gain (loss) on sale of securities Other Other expenses Salaries and employee benefits Equipment expense Occupancy expense Amortization of intangible assets Data processing fees Other operating expenses Income before income taxes 2001 2000 1999 $ 65,157 $ 58,328 $ 50,603 9,072 869 943 49 8,750 959 939 - 76,090 68,976 30,480 4,424 34,904 41,186 4,566 36,620 7,721 823 896 1,253 1,032 11,725 26,753 4,052 30,805 38,171 1,712 36,459 6,393 622 405 - 795 8,215 18,166 16,420 2,817 1,951 1,185 1,250 8,651 34,020 14,325 2,484 1,854 804 1,147 7,524 30,233 14,441 7,488 1,086 814 - 59,991 22,424 1,976 24,400 35,591 2,154 33,437 5,696 423 788 (91) 936 7,752 14,886 2,348 1,843 804 691 7,370 27,942 13,247 4,291 8,956 1.03 1.03 Applicable income taxes 4,692 4,343 Net income Basic earnings per common share Diluted earnings per common share See Notes to Consolidated Financial Statements. $ $ $ 9,633 1.05 1.04 $ $ $ 10,098 1.19 1.19 $ $ $ 1 8 A B C B a n c o r p a n d S u b s i d i a r i e s 2 0 0 1 A n n u a l R e p o r t Consolidated Statements of Comprehensive Income Years Ended December 31, 2001, 2000 and 1999 (Dollars in Thousands) 2001 2000 1999 Net income $ 9,633 $ 10,098 $ 8,956 Other comprehensive income (loss): Net unrealized holding gains (losses) arising during period, net of tax (benefits) of $606, $1,129 and $(973) 1,176 2,192 (1,889) Reclassification adjustment for (gains) losses included in net income, net of (tax) benefit of $(426 ), $ - - and $31 Total other comprehensive income (loss) (827) 349 - 2,192 60 (1,829) Comprehensive income $ 9,982 $ 12,290 $ 7,127 See Notes to Consolidated Financial Statements. A B C B a n c o r p a n d S u b s i d i a r i e s 1 9 2 0 0 1 A n n u a l R e p o r t Consolidated Statements of Stockholders' Equity Years Ended December 31, 2001, 2000 and 1999 (Dollars in Thousands) Common Stock Shares Par Value Capital Surplus Retained Earnings Balance, December 31, 1998 7,524,718 $ 7,525 $ 29,677 $ 36,280 Net income Cash dividends declared, $.35 per share - - - - - - 8,956 (3,048) Six-for-five stock split 1,516,142 1,516 (1,516) Issuance of restricted shares of common stock under employee incentive plan 57,830 58 693 Amortization of unearned compensation, net of forfeitures Repurchase of shares for treasury Other comprehensive loss - - - - - - - - - Balance, December 31, 1999 9,098,690 9,099 28,854 Net income Cash dividends declared, $.46 per share Issuance of restricted shares of common stock - - under employee incentive plan 39,300 Amortization of unearned compensation, net of forfeitures Repurchase of shares for treasury Other comprehensive income - - - - - 39 - - - - - 383 - - - Balance, December 31, 2000 9,137,990 9,138 29,237 Net income Cash dividends declared, $.48 per share Adjustments to record acquisition of - - - - - - purchased subsidiaries 1,588,347 1,588 15,768 Issuance of restricted shares of common stock under employee incentive plan Amortization of unearned compensation, net of forfeitures Proceeds from exercise of stock options Other comprehensive income 62,800 - 1,232 - 63 - 1 - 600 - 11 - - - - - - 42,188 10,098 (3,875) - - - - 48,411 9,633 (4,460) - - - - - Balance, December 31, 2001 10,790,369 $ 10,790 $ 45,616 $ 53,584 See Notes to Consolidated Financial Statements. 2 0 A B C B a n c o r p a n d S u b s i d i a r i e s 2 0 0 1 A n n u a l R e p o r t Consolidated Statements of Stockholders' Equity Years Ended December 31, 2001, 2000 and 1999 (Dollars in Thousands) Accumulated Other Comprehensive Income (Loss) Unearned Compensation Treasury Stock Shares Cost Total $ 322 $ - - - - - - (1,829) (1,507) - - - - - 2,192 685 - - - - - - 349 1,034 $ - - - - 191 - - (560) - - (422) 387 - - (595) - - - (663) 602 - - 305,153 $ (1,970) $ 71,834 - - 62,470 (751) - 7,200 - - - - - - (88) - 374,823 (2,058) - - - - - - - - 416,159 (4,162) - - 790,982 (6,220) - - - - - - - - - - - - - - 8,956 (3,048) - - 191 (88) (1,829) 76,016 10,098 (3,875) - 387 (4,162) 2,192 80,656 9,633 (4,460) 17,356 - 602 12 349 $ (656) 790,982 $ (6,220) $ 104,148 A B C B a n c o r p a n d S u b s i d i a r i e s 2 1 2 0 0 1 A n n u a l R e p o r t Consolidated Statements of Cash Flows Years Ended December 31, 2001, 2000 and 1999 (Dollars in Thousands) OPERATING ACTIVITIES Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Amortization of intangible assets Amortization of unearned compensation Net (gains) losses on sale of securities available for sale Net (gains) losses on sale or disposal of premises and equipment Provision for loan losses Provision for deferred taxes (Increase) decrease in interest receivable Increase (decrease) in interest payable Decrease in taxes receivable Increase (decrease) in taxes payable Net other operating activities Total adjustments 2001 9,633 $ 2000 $ 10,098 1999 8,956 $ 2,438 1,185 602 (1,253) (13) 4,566 (726) 2,233 (672) - 167 (900) 7,627 2,189 804 387 - 7 1,712 (634) (1,970) 578 - (1) 371 3,443 1,988 804 191 91 36 2,154 (87) (75) 57 526 328 (378) 5,635 Net cash provided by operating activities 17,260 13,541 14,591 INVESTING ACTIVITIES (Increase) decrease in interest-bearing deposits in banks Purchases of securities available for sale Proceeds from maturities of securities available for sale Proceeds from sale of securities available for sale Proceeds from maturities of securities held to maturity Decrease in federal funds sold Increase in loans, net Purchase of premises and equipment Proceeds from sale of premises and equipment Net cash received from acquisitions (97,267) (87,800) 82,511 42,996 - 13,942 (53,244) (1,896) 28 11,609 27,779 (26,961) 15,167 - - - (58,931) (2,359) - - (18,314) (70,410) 58,994 17,149 3,283 - (55,482) (2,631) - - Net cash used in investing activities (89,121) (45,305) (67,411) FINANCING ACTIVITIES Increase in deposits Increase (decrease) in federal funds purchased and securities sold under agreements to repurchase Proceeds from other borrowings Repayment of other borrowings Dividends paid Proceeds from exercise of stock options Proceeds from issuance of trust preferred securities Payment for debt issue costs Purchase of treasury shares 24,591 39,227 7,333 1,139 69,738 (39,515) (4,262) 12 34,500 (1,450) - 2,256 109,800 (120,600) (3,745) - - - (4,162) (486) 338,950 (284,650) (2,898) - - - (88) Net cash provided by financing activities 84,753 22,776 58,161 Net increase (decrease) in cash and due from banks 12,892 (8,988) 5,341 Cash and due from banks at beginning of year 38,411 47,399 42,058 Cash and due from banks at end of year $ 51,303 $ 38,411 $ 47,399 2 2 A B C B a n c o r p a n d S u b s i d i a r i e s 2 0 0 1 A n n u a l R e p o r t Consolidated Statements Of Cash Flows Years Ended December 31, 2001, 2000 and 1999 (Dollars in Thousands) SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the year for: Interest Income taxes NONCASH TRANSACTIONS Transfer of securities held to maturity to securities available for sale $ $ $ Common stock issued in connection with business acquisitions $ 17,590 $ See Notes to Consolidated Financial Statements. 2001 2000 1999 35,576 5,251 $ $ 30,227 4,978 $ $ 24,343 3,524 - $ - - $ 15,330 $ - A B C B a n c o r p a n d S u b s i d i a r i e s 2 3 2 0 0 1 A n n u a l R e p o r t ABC Bancorp and Subsidiaries Notes to Consolidated Financial Statements NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Business Securities ABC Bancorp, (the "Company") is a multi-bank holding Debt securities that management has the positive intent company whose business is presently conducted by its and ability to hold to maturity are classified as held-to- subsidiary banks (the "Banks"). Through the Banks, the maturity and recorded at amortized cost. Securities not Company operates a full service banking business and classified as held-to-maturity, including equity securities offers a broad range of retail and commercial banking with readily determinable fair values, are classified as services to its customers located in a market area which includes south and southeast Georgia, north Florida 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 regula- tory agencies. Basis of Presentation The preparation of financial statements in conformity with accounting principles generally accepted in the available-for-sale and recorded at fair value with unreal- ized gains and losses excluded from earnings and reported in other comprehensive income. Equity securi- ties, including restricted stock, without a readily deter- minable fair value are classified as available-for-sale and recorded at cost. Interest and dividends, including amortization of premi- ums and accretion of discounts, are included in interest income. Gains and losses on the sale of securities are United States of America requires management to make determined using the specific identification method. estimates and assumptions that affect the reported Declines in the fair value of any security below its cost amounts of assets and liabilities as of the balance sheet that is deemed to be other than temporary is reflected in date and the reported amounts of revenues and expens- earnings as realized losses. es during the reporting period. Actual results could dif- fer from those estimates. Material estimates that are par- Loans ticularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the valuation of foreclosed real estate and Loans are reported at their outstanding unpaid principal balances less unearned income and the allowance for loan losses. Interest income is accrued on the unpaid deferred taxes. principal balance. The Company's consolidated financial statements include the accounts of the Company and its sub- sidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. Cash, Due from Banks and Cash Flows For purposes of reporting cash flows, cash and due from banks includes cash on hand, cash items in process of collection and amounts due from banks. Cash flows Loan origination fees and direct origination costs of loans are recognized at the time the loan is placed on the books. Because the loan origination fee approximates the cost of most loans and the majority of loans have maturities of one year or less, the effect on operations is immaterial. The accrual of interest on loans is discontinued when, in management's opinion, the borrower may be unable to from loans, federal funds sold, deposits, interest-bearing meet payments as they become due, unless the loan is deposits in banks and federal funds purchased and well-secured. All interest accrued but not collected for securities sold under agreements to repurchase are loans that are placed on nonaccrual or charged off is 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. reversed against interest income. Interest income on nonaccrual loans is subsequently recognized only to the extent cash payments are received until the loans are returned to accrual status. 2 4 A B C B a n c o r p a n d S u b s i d i a r i e s 2 0 0 1 A n n u a l R e p o r t ABC Bancorp and Subsidiaries Notes to Consolidated Financial Statements NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Other Real Estate Owned The allowance for loan losses is established through a Other real estate owned (OREO) represents properties provision for loan losses charged to expense. Loan loss- acquired through foreclosure or other proceedings. es are charged against the allowance when management OREO is held for sale and is carried at the lower of the believes the collectibility of the principal is unlikely. recorded amount of the loan or fair value of the proper- Subsequent recoveries are credited to the allowance. ties less estimated costs of disposal. Any write-down to The allowance is an amount that management believes will be adequate to absorb estimated losses in the loan portfolio. The allowance for loan losses is evaluated on a regular basis by management and is based upon man- agement’s periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic con- ditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revi- sion as more information becomes available. In addi- tion, regulatory agencies, as an integral part of their fair value at the time of transfer to OREO is charged to the allowance for loan losses. Property is evaluated reg- ularly 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 included in other assets and is reported net of allowance for losses in the Company's consolidated balance sheets. The car- rying amount of other real estate owned at December 31, 2001 and 2000 was $1,249,500 and $620,000, respectively. examination process, periodically review the Banks’ Transfers of Financial Assets allowance for loan losses, and may require the Bank to make additions to the allowance based on their judg- ment about information available to them at the time of their examinations. Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surren- dered when (1) the assets have been isolated from the A loan is considered impaired when it is probable the Company, (2) the transferee obtains the right (free of Banks will be unable to collect all principal and interest conditions that constrain it from taking advantage of payments due in accordance with the contractual terms that right) to pledge or exchange the transferred assets, of the loan agreement. Impaired loans are measured by and (3) the Company does not maintain effective control either the present value of expected future cash flows over the transferred assets through an agreement to discounted at the loan’s effective interest rate, the loan’s repurchase them before their maturity. obtainable market price, or the fair value of the collateral if the loan is collateral dependent. The amount of Intangible Assets and Goodwill impairment, if any, and any subsequent changes are Intangible assets, arising from excess of purchase price included in the allowance for loan losses. Premises and Equipment over the fair value of net assets acquired in purchase transactions, represent identified intangible assets and goodwill. Identified intangible assets are being amor- Land is carried at cost. Premises and equipment are car- tized on a straight-line basis over their useful lives. ried at cost less accumulated depreciation computed Goodwill arising from purchase transactions consum- principally on the straight-line method over the estimat- mated prior to June 30, 2001 has been amortized over a ed useful lives: Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Furniture and equipment . . . . . . . . . . . . . . . . . . . . . 5-7 Years period ranging from 15 to 25 years. In June 2001, the Financial Accounting Standards Board (the FASB) issued two new accounting standards that will significantly affect the accounting for goodwill arising from purchase A B C B a n c o r p a n d S u b s i d i a r i e s 2 5 2 0 0 1 A n n u a l R e p o r t ABC Bancorp and Subsidiaries Notes to Consolidated Financial Statements NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continu e d ) Company’s stock option plan have no intrinsic value at the grant date, and under Opinion No. 25 no compensa- tion cost is recognized for them. The Company has transactions. See “Delayed Adoption of FASB elected to continue with the accounting methodology in Statement” included below in this note. Opinion No. 25 and, as a result, has provided pro forma Income Taxes disclosures of net income and earnings per share and other disclosures, as if the fair value based method of Income tax expense consists of current and deferred accounting had been applied. taxes. Current income tax provisions approximate taxes to be paid or refunded for the applicable year. Deferred Treasury Stock tax assets and liabilities are recognized on the temporary The Company’s repurchases of shares of its common differences between the bases of assets and liabilities as stock are recorded at cost as “Treasury stock” and result measured by tax laws and their bases as reported in the in a reduction of “Stockholders’ equity.” When treasury financial statements. Deferred tax expense or benefit is shares are reissued, the Company uses a first-in, first-out then recognized for the change in deferred tax assets or method and any difference in repurchase cost and reis- liabilities between periods. suance price is recorded as an increase or reduction in 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 tempo- rary 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. Stock Compensation Plans “Capital surplus.” Earnings Per Share Basic earnings per common share are computed by dividing net income by the weighted-average number of shares of common stock outstanding. Diluted earnings per common share are computed by dividing net income by the effect of the issuance of potential common shares that are dilutive by the sum of the weighted-average number of shares of common stock outstanding and potential common shares. Potential common shares con- sist of only stock options for the years ended December 31, 2001, 2000 and 1999. The weighted-average number of shares outstanding for the years ended at December Statement of Financial Accounting Standards (“SFAS”) 31, 2001, 2000, and 1999 was 9,214,276; 8,460,230; and No. 123, Accounting for Stock-Based Compensation, encour- 8,701,615, respectively. The weighted-average number ages all entities to adopt a fair value based method of of shares outstanding and potential shares for the years accounting for employee stock compensation plans, ended December 31, 2001, 2000 and 1999 was 9,250,040; whereby compensation cost is measured at the grant 8,465,669; and 8,710,685, respectively. date based on the value of the award and is recognized over the service period, which is usually the vesting period. However, it also allows an entity to continue to measure compensation cost for those plans using the intrinsic value based method of accounting prescribed Potential common shares not included due to the fact that they would be anti-dilutive at December 31, 2001, 2000 and 1999 were 30,696; 159,052; and 33,325, respectively. by Accounting Principles Board Opinion No. 25, Comprehensive Income Accounting for Stock Issued to Employees, whereby com- pensation cost is the excess, if any, of the quoted market price of the stock at the grant date (or other measure- ment date) over the amount an employee must pay to acquire the stock. Stock options issued under the Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabili- ties, such as unrealized gains and losses on available-for- sale securities, are reported as a separate component of 2 6 A B C B a n c o r p a n d S u b s i d i a r i e s 2 0 0 1 A n n u a l R e p o r t ABC Bancorp and Subsidiaries Notes to Consolidated Financial Statements the equity section of the balance sheet, such items, NOTE 2. BUSINESS COMBINATIONS along with net income, are components of comprehensive income. Delayed Adoption of FASB Statement In June 2001, the FASB issued SFAS No. 141, “Business Combinations,” and SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 141 requires that all busi- ness combinations consummated after June 30, 2001 be accounted for by the purchase method unless the combi- nation was initiated on or prior to that date and it meets the conditions to be accounted for by the pooling-of- interests method in accordance with AFB Opinion No. 16, “Business Combinations.” SFAS No. 142 is required to be applied in years beginning after December 15, 2001. Under SFAS No. 142, goodwill and intangible assets that management concludes has indefinite useful lives will no longer be amortized, but will be subject to impairment tests performed at least annually. Also, upon initial application, the Company is required to perform a transitional impairment test of all previously recognized goodwill and to assign all recognized assets and liabili- ties to reporting units. Other intangible assets will con- tinue to be amortized over their useful lives as deter- mined at the date of initial application. The Company will adopt SFAS No. 142 beginning in the first quarter of 2002. Application of the nonamortization provisions of SFAS No. 142 is expected to result in an increase in net income of $602,000 ($.07 per basic and diluted share) per year. During 2002, the Company will perform the first of the required impairment tests of goodwill and indefinite lived intangible assets, but has not yet determined what effect those tests will have on the earnings and financial position of the Company. Reclassification of Certain Items On July 23, 2001, the Company acquired all of the out- standing common shares of Golden Isles Financial Holdings (Golden Isles) in exchange for cash and the Company’s common stock, accounted for as a purchase transaction. The results of Golden Isles’ operations have been included in the consolidated financial statements since that date. Upon completion of the acquisition, Golden Isles was liquidated and all its assets were transferred to The First Bank of Brunswick, its wholly- owned subsidiary, or to the Company. The First Bank of Brunswick is a full service commercial bank with headquarters in Brunswick, Georgia and branches in Jekyll Island, St. Simons Island and Brunswick. As a result of the acquisition, the Company expanded its marketing area for banking services to include a substantial market in southeast Georgia. The aggregate purchase price was $24,901,000 including cash of $10,478,000 and the Company’s common stock valued at $14,423,000. The value of the 1,240,843 common shares was determined based on the closing price of the Company’s common stock on February 20, 2001, the day immediately preceding the date of the announcement of the merger. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition. Current Assets . . . . . . . . . . . . . . . . . . $146,741,000 Bank premises and equipment . . . . . . . . . 5,842,000 Intangible assets . . . . . . . . . . . . . . . . . . . 3,021,000 Goodwill . . . . . . . . . . . . . . . . . . . . . . . . 10,037,000 Total assets acquired . . . . . . . . . . . . 165,641,000 Current liabilities . . . . . . . . . . . . . . . . . 131,020,000 Other borrowings . . . . . . . . . . . . . . . . . . 9,720,000 Total liabilities assumed. . . . . . . . . . 140,740,000 Certain items in the consolidated financial statements as Net assets acquired. . . . . . . . . . . . . $24,901,000 of and for the years ended December 31, 2000 and 1999 have been reclassified, with no effect on total assets or net income, to be consistent with the classifications adopted for the year ended December 31, 2001. Acquired intangible assets represent core deposit intangibles and are being amortized over the estimated life of the base deposits ranging from six to eight years. These intangible assets were assigned to The First Bank of Brunswick operating unit. Goodwill of $10,037,000 was assigned to The First Bank of Brunswick operating unit. None of the goodwill is expected to be deductible for income tax purposes. A B C B a n c o r p a n d S u b s i d i a r i e s 2 7 2 0 0 1 A n n u a l R e p o r t ABC Bancorp and Subsidiaries Notes to Consolidated Financial Statements 2001 2000 Net interst income . . . . . . . $ 44,107 . . . . $ 44,879 Net income . . . . . . . . . . . . . . . 7,000 . . . . . 10,730 Basic earnings per share . . . . . . 0.70. . . . . . . . 1.07 Diluted earnings per share. . . . . 0.70. . . . . . . . 1.07 The above amounts reflect adjustments for amortization of acquired intangible assets, additional depreciation on revalued purchased assets and imputed interest on bor- rowed funds. During 2001, the Company acquired certain assets and assumed certain liabilities of two bank branches located in Colquitt, Georgia and Newberry, Florida. The acqui- sitions were settled with cash. The fair value of assets acquired amounted to $51,438,000. Intangible assets of $2,262,000, representing core deposit intangibles, were assigned to the Merchants & Farmers Bank and the Tri-County Bank operating units and are being amortized over the estimated life of the base deposits of ten years. Fair values of assets acquired and liabilities assumed in the Colquitt acquisition have been estimated and are subject to adjustment. Goodwill of $205,000 resulting from the Newberry acquisition was assigned to the Tri-County Bank operating unit and is being amor- tized over the estimated life of the base deposits. Preliminary goodwill of $2,419,000 resulting from the Colquitt acquisition was assigned to the Merchants & Farmers Bank operating unit and is being amortized over the estimated life of the base deposits. The good- will related to these branch acquisitions is expected to be deductible for income tax purposes. Financial records were not available to present unaudit- ed pro forma consolidated results of operations for the years ended December 31, 2001 and 2000 as though the branches had been acquired as of January 1, 2000. NOTE 2. BUSINESS COMBINATIONS (Continued) On April 5, 2001, the Company acquired all of the out- standing common shares of Tri-County Bank in exchange for cash and the Company’s common stock, accounted for as a purchase transaction. The results of Tri-County Bank’s operations have been included in the consolidated financial statements since that date. Tri- County Bank is a full service commercial bank with headquarters in Trenton, Florida and a subsequently acquired branch in Newberry, Florida. As a result of the acquisition, the Company was able to expand its market- ing area for banking services to include north Florida. The aggregate purchase price was $6,453,000 including cash of $3,286,000 and the Company’s common stock valued at $3,167,000. The value of the 347,504 common shares was determined based on the closing price of the Company’s common stock on November 27, 2000, the date the definitive merger agreement was signed. The following table summarizes the estimated fair val- ues of the assets acquired and liabilities assumed at the date of acquisition. Current Assets . . . . . . . . . . . . . . . . . . . $48,612,000 Bank premises and equipment . . . . . . . . . . 519,000 Intangible assets . . . . . . . . . . . . . . . . . . . . . 953,000 Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . 769,000 Total assets acquired . . . . . . . . . . . . . 50,853,000 Current liabilities . . . . . . . . . . . . . . . . . . 44,400,000 Total liabilities assumed. . . . . . . . . . . 44,400,000 Net assets acquired. . . . . . . . . . . . . . $6,453,000 Acquired intangible assets represent core deposit intan- gibles and are being amortized over the estimated life of the base deposits of ten years. These intangible assets and goodwill were assigned to the Tri-County Bank operating unit. None of the goodwill is expected to be deductible for income tax purposes. Unaudited pro forma consolidated results of operations for the years ended December 31, 2001 and 2000 as though The First Bank of Brunswick and Tri-County Bank had been acquired as of January 1, 2000 follow: 2 8 A B C B a n c o r p a n d S u b s i d i a r i e s 2 0 0 1 A n n u a l R e p o r t ABC Bancorp and Subsidiaries Notes to Consolidated Financial Statements NOTE 3. INVESTMENTS IN SECURITIES The amortized cost and fair value of securities are summarized as follows: Amortized Cost Gross Gross Unrealized Unrealized Losses Gains (Dollars in Thousands) Fair Value Securities Available for Sale December 31, 2001: U. S. Government and agency securities $ 49,509 $ 1,034 $ State and municipal securities Corporate debt securities Mortgage-backed securities Equity securities Restricted equity securities 5,239 7,171 88,128 521 4,701 119 2 1,242 - - (70) (19) (458) (259) (25) - $ 50,473 5,339 6,715 89,111 496 4,701 $ 155,269 $ 2,397 $ (831) $ 156,835 December 31, 2000: U. S. Government and agency securities $ 60,467 $ State and municipal securities Corporate debt securities Mortgage-backed securities Equity securities Restricted equity securities 19,206 6,101 71,160 647 3,486 892 330 114 563 - - $ (173) $ 61,186 (68) (85) (502) (33) - 19,468 6,130 71,221 614 3,486 $ 161,067 $ 1,899 $ (861) $ 162,105 The amortized cost and fair value of debt securities as of December 31, 2001 by contractual maturity are shown below. Maturities may differ from contractual maturities in mortgage-backed securities because the mortgages underlying the securities may be called or repaid without penalty. Therefore, these securities are not included in the maturity cate- gories in the following maturity summary. Due in one year or less Due from one year to five years Due from five years to ten years Due after ten years Mortgage-backed securities Equity securities Restricted equity securities Amortized Cost Fair Value (Dollars in Thousands) $ 3,961 $ 4,006 36,081 18,291 3,586 88,128 521 4,701 36,252 18,966 3,303 89,111 496 4,701 $ 155,269 $ 156,835 A B C B a n c o r p a n d S u b s i d i a r i e s 2 9 2 0 0 1 A n n u a l R e p o r t ABC Bancorp and Subsidiaries Notes to Consolidated Financial Statements NOTE 3. INVESTMENTS IN SECURITIES (Continued) Securities with a carrying value of $86,541,872 and $82,568,979 at December 31, 2001 and 2000, respectively, were pledged to secure public deposits and for other purposes required or permitted by law. Gains and losses on sales of securities available for sale consist of the following: Gross gains on sales of securities Gross losses on sales of securities Net realized (losses) on sales of securities available for sale December 31, 2001 2000 1999 (Dollars in Thousands) $ $ 1,253 - 1,253 $ $ - - - $ $ 4 (95) (91) NOTE 4. LOANS AND ALLOWANCES FOR LOAN LOSSES The composition of loans is summarized as follows: Commercial and financial Agricultural Real estate - construction Real estate - mortgage, farmland Real estate - mortgage, commercial Real estate - mortgage, residential Consumer installment loans Other Allowance for loan losses The following is a summary of information pertaining to impaired loans: December 31, 2001 2000 (Dollars in Thousands) $ 152,097 $ 109,647 39,878 24,650 63,533 225,470 202,447 91,557 5,444 805,076 14,944 34,840 14,046 57,253 160,456 128,614 76,076 6,449 587,381 9,832 $ 790,132 $ 577,549 As of and For the Years Ended December 31, 2001 2000 1999 $ - 11,958 $ 11,958 $ $ $ $ 1,984 8,249 6 666 $ $ $ $ $ $ - 4,863 4,863 1,020 5,603 51 541 $ $ $ $ $ $ - 5,551 5,551 953 6,447 21 593 Impaired loans without a valuation allowance Impaired loans with a valuation allowance Total impaired loans Valuation allowance related to impaired loans Average investment in impaired loans Interest income recognized on impaired loans Foregone interest income on impaired loans 3 0 A B C B a n c o r p a n d S u b s i d i a r i e s 2 0 0 1 A n n u a l R e p o r t ABC Bancorp and Subsidiaries Notes to Consolidated Financial Statements NOTE 4. LOANS AND ALLOWANCES FOR LOAN LOSSES (Continued) Changes in the allowance for loan losses for the years ended December 31, 2001, 2000, and 1999 are as follows: Balance, beginning of year Provision for loan losses Loans charged off Recoveries of loans previously charged off Acquired loan loss reserve Balance, end of year December 31, 2001 2000 1999 (Dollars in Thousands) $ 9,832 $ 9,895 $ 10,192 4,566 (5,488) 1,110 4,924 1,712 (2,594) 819 - 2,154 (3,733) 1,282 - $ 14,944 $ 9,832 $ 9,895 In the ordinary course of business, the Company has granted loans to certain directors, executive officers, and their affiliates. The interest rates on these loans were substantially the same as rates prevailing at the time of the transaction and repayment terms are customary for the type of loan. Changes in related party loans for the years ended December 31, 2001 and 2000 are as follows: Balance, beginning of year Advances Repayments Transactions due to change(s) in related parties Balance, end of year NOTE 5. PREMISES AND EQUIPMENT, NET Premises and equipment are summarized as follows: Land Buildings Furniture and equipment Construction in progress; estimated cost to complete, $435 Accumulated depreciation December 31, 2001 2000 (Dollars in Thousands) $ 36,321 $ 27,457 9,890 (10,771) (952) 28,802 (23,082) 3,144 $ 34,488 $ 36,321 December 31, 2001 2000 (Dollars in Thousands) $ 6,200 $ 4,857 22,260 19,643 1,697 49,800 (22,979) 16,604 17,419 471 39,351 19,648 $ 26,821 $ 19,703 A B C B a n c o r p a n d S u b s i d i a r i e s 3 1 2 0 0 1 A n n u a l R e p o r t ABC Bancorp and Subsidiaries Notes to Consolidated Financial Statements NOTE 6. DEPOSITS The aggregate amount of time deposits in denomina- The rate of contribution is established by the tions of $100,000 or more at December 31, 2001 and 2000 Compensation Committee of ABC Bancorp’s Board of was $156,562,000 and $120,670,000, respectively. The Directors. The Plan must be amended to change the scheduled maturities of time deposits at December 31, fixed rate of 5% established by the Compensation 2001 are as follows: (Dollars in Thousands) Committee in December 1997. All full-time and part- time employees are eligible to participate in both plans provided they have met the eligibility requirements. 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 434,008 Generally, a participant must have completed twelve 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,479 months of employment with a minimum of 1,000 hours. 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,304 Aggregate expense under the two plans charged to oper- 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,403 ations during 2001, 2000 and 1999 amounted to $655,000, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,430 $949,000 and $707,000, respectively. Later years . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173 $ 488,797 NOTE 7. SECURITIES SOLD UNDER REPURCHASE AGREEMENTS NOTE 9. DEFERRED COMPENSATION PLANS The Company and two subsidiary banks have entered Securities sold under repurchase agreements, which are into separate deferred compensation arrangements with secured borrowings, generally mature within one to four certain executive officers and directors. The plans call days from the transaction date. Securities sold under for certain amounts payable at retirement, death or dis- repurchase agreements are reflected at the amount of ability. The estimated present value of the deferred cash received in connection with the transactions. compensation is being accrued over the remaining The Company may be required to provide additional expected term of active employment. The Company and collateral based on the fair value of the underlying Banks have purchased life insurance policies which they securities. The Company monitors the fair value of the intend to use to finance this liability. Cash surrender underlying securities on a daily basis. Securities sold value of life insurance of $965,000 and $892,000 at under repurchase agreements at December 31, 2001 December 31, 2001 and 2000 is included in other assets. and 2000 were $3,792,000 and $2,653,000, respectively. Accrued deferred compensation of $618,000 and $576,000 at December 31, 2001 and 2000 is included in other liabilities. Aggregate compensation expense under NOTE 8. EMPLOYEE BENEFIT PLANS the plans were $43,000, $75,000 and $70,000 for 2001, 2000 and 1999, respectively, and is included in other operating expenses. The Company has established two retirement plans for eligible employees. The ABC Bancorp 401(k) Profit Sharing Plan allows a participant to defer a portion of his compensation and provides that the Company will match a portion of the deferred compensation. The plan also provides for nonelective and discretionary contribu- tions to be made at the sole discretion of the Company. The ABC Bancorp Money Purchase Pension Plan was established to supplement a participant’s income upon retirement. The Plan is fully funded by the Company. The Plan provides for a fixed rate of contribution, cur- rently 5%, of the participant’s eligible compensation. 3 2 A B C B a n c o r p a n d S u b s i d i a r i e s 2 0 0 1 A n n u a l R e p o r t ABC Bancorp and Subsidiaries Notes to Consolidated Financial Statements NOTE 10. OTHER BORROWINGS Other borrowings consist of the following: December 31, 2001 2000 (Dollars in Thousands) Advances under revolving credit agreement with SunTrust Bank with $ 100 $ 2,000 interest at sixty-day LIBOR rate plus .9% (3.02% at December 31, 2001) due on May 31, 2002; secured by subsidiary bank stock. Advances from SunTrust Bank of $10,238,000 with 28 quarterly 9,507 - principal payments of $366,000 at LIBOR plus 1.15% (3.06% at December 31, 2001), maturing July 23, 2008. Advances from Federal Home Loan Bank with interest at adjustable 27,000 53,100 rates (ranging from 2.02% to 5.68% at December 31, 2001) due at various dates from March 21, 2002 to September 8, 2009. Advances from Federal Home Loan Bank with interest at a fixed rate 498 250 (ranging from 6.46% to 7.23%) due in annual installments at various dates from April 8, 2002 through November 1, 2006. Advances from Federal Home Loan Bank with interest at a fixed rate 58,188 - (ranging from 4.39% to 6.41%), convertible to a variable rate at option of Federal Home Loan Bank, due at various dates from March 17, 2003 to September 26, 2011. $ 95,293 $ 55,350 The advances from Federal Home Loan Bank are collateralized by the pledging of first mortgage loans and other specific loans. Other borrowings at December 31, 2001 have maturities in future years as follows: 2002 2003 2004 2005 2006 Later years (Dollars in Thousands) $ 2,758 4,599 2,534 16,534 1,484 67,384 $ 95,293 NOTE 11. INCOME TAXES The income tax expense in the consolidated statements of income consists of the following: Current Deferred 2001 Year Ended December 31, 2000 (Dollars in Thousands) 1999 $ 5,418 $ 4,977 (726) (634) $ 4,692 $ 4,343 $ $ 4,378 (87) 4,291 A B C B a n c o r p a n d S u b s i d i a r i e s 3 3 2 0 0 1 A n n u a l R e p o r t ABC Bancorp and Subsidiaries Notes to Consolidated Financial Statements NOTE 11. INCOME TAXES (Continued) The Company's income tax expense differs from the amounts computed by applying the federal income tax statutory rates to income before income taxes. A reconciliation of the differences is as follows: Years Ended December 31, 2001 2000 1999 (Dollars in Thousands) Tax at federal income tax rate $ 4,871 $ 4,910 $ 4,504 Increase (decrease) resulting from: Tax-exempt interest Amortization of intangible assets Other (476) 274 23 (497) 162 (232) (392) 167 12 Provision for income taxes $ 4,692 $ 4,343 $ 4,291 Net deferred income tax assets of $3,877,000 and $3,486,000 at December 31, 2001 and 2000, respectively, are included in other assets. The components of deferred income taxes are as follows: Deferred tax assets: Loan loss reserves Deferred compensation Unearned compensation related to restricted stock Nonaccrual interest Net operating loss tax carryforward Other Deferred tax liabilities: Deprecation and amortization Unrealized gain on securities available for sale Intangible assets December 31, 2001 2000 (Dollars in Thousands) $ 4,945 $ 3,343 313 401 429 140 75 196 196 216 164 - 6,303 4,115 233 533 1,660 2,426 276 353 - 629 Net deferred tax assets $ 3,877 $ 3,486 NOTE 12. TRUST PREFERRED SECURITIES In 2001, the Company formed a wholly-owned grantor the Company on or after September 30, 2006. The sole assets of the guarantor trust are the Junior Subordinated Deferrable Interest Debentures of the Company (the trust to issue cumulative trust preferred securities to the Debentures) held by the grantor trust. The Debentures public. The grantor trust has invested the proceeds of have the same interest rate (9%) as the trust preferred the trust preferred securities in junior subordinated securities. The Company has the right to defer interest debentures of the Company. The trust preferred securi- payments on the Debentures at any time or from time to ties can be redeemed prior to maturity at the option of time for a period not exceeding 20 consecutive quarters 3 4 A B C B a n c o r p a n d S u b s i d i a r i e s 2 0 0 1 A n n u a l R e p o r t ABC Bancorp and Subsidiaries Notes to Consolidated Financial Statements NOTE 12. TRUST PREFERRED SECURITIES (Continued) provided that no extension period may extend beyond the stated maturity of the related Debentures. During any such extension period, distributions on the trust pre- ferred certificates would also be deferred. The trust preferred securities are subject to mandatory redemption upon repayment of the related Debentures at their stated maturity date or their earlier redemption at a redemption price equal to their stated maturity date Distributions on the trust preferred securities are paid quarterly on March 31, June 30, September 30 and December 31 of each year, beginning December 31, 2001. Interest on the Debentures is paid on the corresponding dates. The aggregate principal amount of trust preferred certificates outstanding at December 31, 2001 was $34,500,000. The aggregate principal amount of Debentures outstanding at December 31, 2001 was $35,567,000. NOTE 13. STOCK OPTION PLANS The Company has two fixed stock option plans under or their earlier redemption at a redemption price equal which it has granted options to its Chief Executive to their liquidation amount plus accrued distributions to Officer to purchase common stock at the fair market the date fixed for the redemption upon concurrent price on the date of grant. All of the options are intend- repayment of the related Debentures. The trust preferred ed to be incentive stock options qualifying under Section securities may be redeemed in whole or part at any time 422 of the Internal Revenue Code for favorable tax treat- on or after September 30, 2006. Payment of periodic cash distributions and payment upon liquidation or redemption with respect to the trust preferred securities are guaranteed by the Company to the extent of funds held by the grantor trust (the Preferred Securities Guarantee). The Preferred Securities Guarantee, when taken together with the Company’s other obligations under the Debentures, con- stitute a full and unconditional guarantee, on a subordi- nated basis, by the Company of payments due on the trust preferred securities. The Company is required by the Federal Reserve Board to maintain certain levels of capital for bank regulatory purposes. The Federal Reserve Board has determined that certain cumulative preferred securities having the characteristics of trust preferred securities qualify as ment. Under the 1992 Plan, options to purchase 10,001 shares were granted. None of these options have been exercised, however, all of the options were exercisable as of December 31, 2001. Options under the 1992 Plan expire in 2002. Under the 1997 Plan, options to purchase 67,500 shares were granted. Options under the 1997 Plan are fully vested and are exercisable over a period of ten years subject to certain limitations as to aggregate fair market value (determined as of the date of the grant) of all options exercisable for the first time by the optionee during any calendar year (the “$100,000 Per- Year Limitation”). Under the 1997 Plan, options to pur- chase 42,750 shares were exercisable as of December 31, 2001. At the annual meeting on April 15, 1997, the sharehold- ers approved the ABC Bancorp Omnibus Stock Ownership and Long-Term Incentive Plan (the minority interest, which is included in Tier 1 capital for “Omnibus Plan”). Awards granted under the Omnibus bank and financial holding companies. In calculating Plan may be in the form of Qualified or Nonqualified the amount of Tier l qualifying capital, the trust pre- Stock Options, Restricted Stock, Stock Appreciation ferred securities can only be included up to the amount Rights (“SARS”), Long-Term Incentive Compensation constituting 25% of total Tier 1 capital elements (includ- Units consisting of a combination of cash and Common ing trust preferred securities). Such Tier 1 capital treat- Stock, or any combination thereof within the limitations ment provides the Company with a more cost-effective set forth in the Omnibus Plan. The Omnibus Plan pro- means of obtaining capital for bank regulatory purposed vides that the aggregate number of shares of the than if the Company were to issue preferred stock. Company’s Common Stock which may be subject to The trust preferred securities and the related Debentures were issued on November 8, 2001. Both financial instru- ments bear an identical annual rate of interest of 9%. award may not exceed 637,500 subject to adjustment in certain circumstances to prevent dilution. As of December 31, 2001, the Company has issued a total of 171,496 restricted shares under the Omnibus Plan as A B C B a n c o r p a n d S u b s i d i a r i e s 3 5 2 0 0 1 A n n u a l R e p o r t ABC Bancorp and Subsidiaries Notes to Consolidated Financial Statements NOTE 13. STOCK OPTION PLANS (Continued) compensation for certain key salaried employees. These shares carry dividend and voting rights. Sale of these shares is restricted prior to the date of vesting, which is three years from the date of the grant. Shares issued under this plan were recorded at their fair market value on the date of their grant with a corresponding charge to equity. The unearned portion is being amortized as compensation expense on a straight-line basis over the related vesting period. Compensation expense related to these grants was $602,000, $387,000 and $191,000 for 2001, 2000 and 1999, respectively. In addition to the granting of restricted shares, options to purchase 208,442 shares of the Company’s common stock have been granted under the Omnibus Plan as of December 31, 2001. A summary of the status of the three fixed plans at December 31, 2001, 2000 and 1999 and changes during the years ended on those dates is as follows: December 31, 2001 2000 1999 Weighted- Average Exercise Price Number Weighted- Average Exercise Price Number Weighted- Average Exercise Price Number 239,553 $ 11.00 159,151 $ 11.40 115,966 $ 12.18 71,550 (1,232) (23,928) 285,943 10.60 10.09 10.47 10.95 86,000 10.30 51,280 - (5,598) 239,553 - 11.79 11.00 - (8,095) 159,151 10.02 - 13.74 11.40 Under option, beginning of the year Granted Exercised Forfeited Under option, end of year Exercisable at end of year 99,625 65,781 41,260 Weighted-average fair value per option of options granted during year $ 1.84 $ 1.78 $ 2.97 3 6 A B C B a n c o r p a n d S u b s i d i a r i e s 2 0 0 1 A n n u a l R e p o r t ABC Bancorp and Subsidiaries Notes to Consolidated Financial Statements NOTE 13. STOCK OPTION PLANS (Continued) A further summary about options outstanding at December 31, 2001 is as follows: Options Outstanding Options Exercisable Range of Exercise Prices $ 4.50 11.33 15.94 14.17 10.39 9.90 10.11 10.83 10.38 9.94 8.75 10.50 11.20 Number Outstanding Weighted- Average Contractual Life in Years 10,001 67,500 24,696 6,000 600 24,696 6,000 2,400 70,000 3,000 3,000 58,050 10,000 1.0 5.3 6.0 6.3 7.1 7.1 7.3 7.9 8.1 8.5 8.9 9.1 9.5 285,943 7.13 Weighted- Average Exercise Price $ 4.50 11.33 15.94 14.17 10.39 9.90 10.11 10.83 10.38 9.94 8.75 10.50 11.20 10.95 Number Outstanding 10,001 42,750 14,596 3,600 240 9,878 2,400 960 14,000 600 600 - - Weighted- Average Exercise Price $ 4.50 11.33 15.94 14.17 10.39 9.90 10.11 10.83 10.38 9.94 8.75 - - 99,625 11.09 As permitted by Statement of Financial Accounting Standard No. 123, “Accounting for Stock-Based Compensation” (SFAS No. 123), the Company recognizes compensation cost for stock-based employee compensation awards in accor- dance with APB Opinion No. 25, “Accounting for Stock Issued to Employees”. The Company recognized no compen- sation cost under the fixed stock option plan for the years ended December 31, 2001, 2000 and 1999. If the Company had recognized compensation cost in accordance with SFAS No. 123, net income and net income per share would have been reduced as follows: December 31, 2001 2000 1999 Net Income Basic Earnings Per Share Net Income Basic Earnings Per Share Net Income Basic Earnings Per Share As reported $ 9,633 $ 1.05 $ 10,098 $ 1.19 $ 8,956 $ 1.03 Stock based compensation, net of related tax effect (39) (.01) (33) - (13) - As adjusted $ 9,594 $ 1.04 $ 10,065 $ 1.19 $ 8,943 $ 1.03 December 31, 2001 2000 1999 Net Income Diluted Earnings Per Share Net Income Diluted Earnings Per Share Net Income Diluted Earnings Per Share As reported $ 9,633 $ 1.04 $ 10,098 $ 1.19 $ 8,956 $ 1.03 Stock based compensation, net of related tax effect (39) - (33) - (13) - As adjusted $ 9,594 $ 1.04 $ 10,065 $ 1.19 $ 8,943 $ 1.03 A B C B a n c o r p a n d S u b s i d i a r i e s 3 7 2 0 0 1 A n n u a l R e p o r t ABC Bancorp and Subsidiaries Notes to Consolidated Financial Statements NOTE 13. STOCK OPTION PLANS (Continued) The fair value of the options granted in 2001 was based upon the discounted value of future cash flows of the options using the following assumptions: Risk-free interest rate Expected life of the options Expected dividends (as a percent of the fair value of the stock) Expected volatility NOTE 14. EARNINGS PER COMMON SHARE 5.05% 10 years 3.60% 15.04% The following is a reconciliation of net income (the numerator) and the weighted average shares outstanding (the denominator) used in determining basic and diluted earnings per share. All amounts are presented in thousands, except per share amounts. Year Ended December 31, 2001 Income (Numerator) Shares (Denominator) Per Share Amount $ 9,633 9,214 $ 1.05 - 36 $ 9,633 9,250 $ 1.04 Year Ended December 31, 2000 Income (Numerator) Shares (Denominator) Per Share Amount $ 10,098 8,460 $ 1.19 - 5 $ 10,098 8,465 $ 1.19 Basic earnings per share Net income Effect of Dilutive Securities Stock options Diluted earnings per share Net income Basic earnings per share Net income Effect of Dilutive Securities Stock options Diluted earnings per share Net income 3 8 A B C B a n c o r p a n d S u b s i d i a r i e s 2 0 0 1 A n n u a l R e p o r t ABC Bancorp and Subsidiaries Notes to Consolidated Financial Statements NOTE 15. COMMITMENTS AND CONTINGENT LIABILITIES a customer to a third party. Those letters of credit are primarily issued to support public and private borrow- ing arrangements. The credit risk involved in issuing The Company is a party to financial instruments with letters of credit is essentially the same as that involved off-balance-sheet risk in the normal course of business to in extending loans to customers. Collateral is required meet the financing needs of its customers. These finan- in instances which the Company deems necessary. cial instruments include commitments to extend credit and standby letters of credit. Such commitments involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amount recognized in the balance sheets. The Company's exposure to credit loss in the event of nonperformance by the other party to the financial In the normal course of business, the Company is involved in various legal proceedings. In the opinion of management, any liability resulting from such proceed- ings would not have a material effect on the Company's financial statements. NOTE 16. CONCENTRATIONS OF CREDIT instrument for commitments to extend credit and stand- The Banks make agricultural, agribusiness, commercial, by letters of credit is represented by the contractual residential and consumer loans to customers primarily amount of those instruments. The Company uses the in counties in south and southeast Georgia, north same credit policies in making commitments and condi- Florida and southeast Alabama. A substantial portion tional obligations as it does for on-balance-sheet instru- of the Company's customers' abilities to honor their ments. A summary of the Company's commitments is as contracts is dependent on the business economy in the follows: Commitments to extend credit December 31, 2001 2000 (Dollars in Thousands) $ 114,631 $ 75,007 Credit card commitments 13,775 10,471 Standby letters of credit 3,405 5,179 $ 131,811 $ 90,657 Commitments to extend credit are agreements to lend to geographical area served by the Banks. Although the Company's loan portfolio is diversified, there is a relationship in this region between the agricul- tural economy and the economic performance of loans made to nonagricultural customers. The Company's lending policies for agricultural and nonagricultural cus- tomers require loans to be well-collateralized and sup- ported 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 customer as long as there is no violation of any condi- A substantial portion of the Company's loans are tion established in the contract. Since many of the com- secured by real estate in the Company's primary market mitments are expected to expire without being drawn area. In addition, a substantial portion of the real estate upon, the total commitment amounts do not necessarily owned is located in those same markets. Accordingly, represent future cash requirements. The Company the ultimate collectibility of a substantial portion of the evaluates each customer's creditworthiness on a case- by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management's credit evaluation of the customer. Credit card commitments are unsecured. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of Company's loan portfolio and the recovery of a substan- tial 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 two primary correspondent banks at December 31, 2001 as follows: Noninterest-bearing accounts Interest-bearing accounts $ 35,376 $ 104,334 A B C B a n c o r p a n d S u b s i d i a r i e s 3 9 2 0 0 1 A n n u a l R e p o r t ABC Bancorp and Subsidiaries Notes to Consolidated Financial Statements NOTE 17. REGULATORY MATTERS The Banks are subject to certain restrictions on the Quantitative measures established by regulation to ensure capital adequacy require the Company and the amount of dividends that may be declared without prior regulatory approval. At December 31, 2001 approxi- mately $8,493,000 of retained earnings were available for dividend declaration without regulatory approval. 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, 2001 and 2000, the Company and the Banks meet all capital adequacy requirements to which The Company and the Banks are subject to various regu- they are subject. latory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possi- bly 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 the Banks must meet specific capital guidelines that involve quantitative measures of the assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Banks capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Prompt corrective action provisions are not applicable to bank holding companies. As of December 31, 2001 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 capi- talized, the Banks must maintain minimum total risk- based, Tier I risk-based, and Tier I leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the Banks' category. The Banks' actual capital amounts and ratios are pre- sented in the following table. Actual For Capital Adequacy Purposes Amount Ratio Amount Ratio (Dollars in Thousands) To Be Well Capitalized Under Prompt Corrective Action Provisions Amount Ratio As of December 31, 2001 Total Capital to Risk Weighted Assets: Consolidated $ 122,372 American Banking Company Heritage Community Bank Bank of Thomas County Citizens Security Bank Cairo Banking Company Southland Bank Central Bank and Trust First National Bank of South Georgia Merchants and Farmers Bank Tri-County Bank First Bank of Brunswick $ $ $ $ $ $ $ $ $ $ $ 14,311 6,496 3,937 13,269 7,247 19,199 5,806 6,659 6,782 5,599 12,307 15.02% 11.19% 12.28% 10.99% 11.94% 14.80% 13.33% 12.02% 10.97% 11.32% 15.52% 12.01% $ $ $ $ $ $ $ $ $ $ $ $ 65,266 10,228 4,230 2,865 8,888 3,917 11,522 3,865 4,858 4,794 2,886 8,196 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% $ $ $ $ $ $ $ $ $ $ $ 12,785 5,288 3,582 11,110 4,897 14,403 4,831 6,072 5,992 3,607 10,245 - - -N/A - - - 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 4 0 A B C B a n c o r p a n d S u b s i d i a r i e s 2 0 0 1 A n n u a l R e p o r t ABC Bancorp and Subsidiaries Notes to Consolidated Financial Statements NOTE 17. REGULATORY MATTERS (Continued) Actual For Capital Adequacy Purposes Amount Ratio Amount Ratio (Dollars in Thousands) To Be Well Capitalized Under Prompt Corrective Action Provisions Amount Ratio As of December 31, 2001 (Continued) Tier I Capital to Risk Weighted Assets: Consolidated $ 103,506 12.70% American Banking Company Heritage Community Bank Bank of Thomas County Citizens Security Bank Cairo Banking Company Southland Bank Central Bank and Trust First National Bank of South Georgia Merchants and Farmers Bank Tri-County Bank First Bank of Brunswick $ $ $ $ $ $ $ $ $ $ $ 12,710 5,834 3,487 11,876 6,627 17,393 5,200 5,899 6,017 5,148 11,010 Tier I Capital to Average Assets: Consolidated American Banking Company Heritage Community Bank Bank of Thomas County Citizens Security Bank Cairo Banking Company Southland Bank Central Bank and Trust First National Bank of South Georgia Merchants and Farmers Bank Tri-County Bank First Bank of Brunswick $ 103,506 $ $ $ $ $ $ $ $ $ $ $ 12,710 5,834 3,487 11,876 6,627 17,393 5,200 5,899 6,017 5,148 11,010 9.94% 11.03% 9.74% 10.69% 13.53% 12.08% 10.76% 9.71% 10.04% 14.27% 10.75% 9.26% 7.18% 8.48% 7.53% 8.03% 8.44% 6.99% 8.66% 7.88% 11.09% 8.42% 7.56% $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 32,633 5,114 2,115 1,433 4,444 1,959 5,761 1,933 2,429 2,397 1,443 4,098 43,874 7,067 2,753 1,852 5,989 3,129 10,081 2,400 2,991 2,344 2,557 6,300 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 7,671 3,173 2,149 6,666 2,938 8,642 2,899 3,643 3,595 2,164 6,147 8,834 3,442 2,314 7,486 3,912 12,602 2,999 3,738 2,931 3,196 7,875 - - -N/A - - - 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 5.00% 5.00% - - - N/A - - - 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% A B C B a n c o r p a n d S u b s i d i a r i e s 4 1 2 0 0 1 A n n u a l R e p o r t ABC Bancorp and Subsidiaries Notes to Consolidated Financial Statements NOTE 17. REGULATORY MATTERS (Continued) Actual For Capital Adequacy Purposes Amount Ratio Amount Ratio (Dollars in Thousands) To Be Well Capitalized Under Prompt Corrective Action Provisions Amount Ratio $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 87,544 14,877 5,195 3,282 12,486 7,147 17,024 5,122 14.61% 12.43% 10.88% 11.65% 13.75% 13.49% 13.36% 12.26% 6,443 4,766 10.44% 14.56% 79,954 13,378 4,624 2,929 11,319 6,477 15,381 4,596 13.34% 11.18% 9.69% 10.40% 12.47% 12.23% 12.07% 11.00% 5,672 4,355 9.19% 13.31% 79,954 13,378 4,624 2,929 11,319 6,477 15,381 4,596 5,672 4,355 9.86% 8.79% 8.03% 7.64% 7.98% 8.41% 8.37% 7.48% 8.04% 8.92% $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 47,935 9,574 3,819 2,253 7,263 4,237 10,194 3,342 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 4,936 2,618 8.00% 8.00% 23,967 4,787 1,910 1,126 3,631 2,119 5,097 1,671 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 2,468 1,309 4.00% 4.00% 32,422 6,091 2,302 1,534 5,672 3,079 7,350 2,456 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 2,822 1,954 4.00% 4.00% - - -N/A - - - 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 11,967 4,774 2,816 9,079 5,297 12,742 4,178 6,170 3,273 10.00% 10.00% - - -N/A - - - 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% - - - N/A - - - 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 7,180 2,864 1,690 5,447 3,178 7,645 2,507 3,702 1,964 7,614 2,877 1,917 7,091 3,849 9,187 3,070 3,527 2,442 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ As of December 31, 2000 Total Capital to Risk Weighted Assets: Consolidated American Banking Company Heritage Community Bank Bank of Thomas County Citizens Security Bank Cairo Banking Company Southland Bank Central Bank and Trust First National Bank of South Georgia Merchants and Farmers Bank Tier I Capital to Risk Weighted Assets: Consolidated American Banking Company Heritage Community Bank Bank of Thomas County Citizens Security Bank Cairo Banking Company Southland Bank Central Bank and Trust First National Bank of South Georgia Merchants and Farmers Bank Tier I Capital to Average Assets: Consolidated American Banking Company Heritage Community Bank Bank of Thomas County Citizens Security Bank Cairo Banking Company Southland Bank Central Bank and Trust First National Bank of South Georgia Merchants and Farmers Bank 4 2 A B C B a n c o r p a n d S u b s i d i a r i e s 2 0 0 1 A n n u a l R e p o r t ABC Bancorp and Subsidiaries Notes to Consolidated Financial Statements NOTE 18. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of a financial instrument is the current Deposits: The carrying amounts of demand deposits, savings deposits, and variable-rate certificates of deposit approx- amount that would be exchanged between willing par- ties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. imate their fair values. Fair values for fixed-rate certifi- cates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently However, in many instances, there are no quoted market being offered on certificates to a schedule of aggregated prices for the Company’s various financial instruments. expected monthly maturities on time deposits. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are signif- icantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. SFAS 107 excludes certain financial instruments and all nonfinan- cial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company. The following methods and assumptions were used by the Company in estimating fair value disclosures for financial instruments. Cash, Due From Banks, Interest-Bearing Deposits in Banks and Federal Funds Sold: Federal Fund Purchased, Repurchase Agreements and Other Borrowings: The fair values of the Company’s fixed rate other borrowings are estimated using discounted cash flow models based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements. The carrying amounts of all other variable rate borrowings, federal funds purchased, and securities sold under agreements to repurchase approximate their fair values. Trust Preferred Securities: The fair value of the Company’s fixed rate trust preferred securities are based on available quoted market prices. Accrued Interest: The carrying amounts of cash, due from banks, interest- The carrying amounts of accrued interest approximate bearing deposits in banks and federal funds sold/pur- their fair values. Off-Balance-Sheet Instruments: Fair values of the Company's off-balance-sheet financial instruments are based on fees currently charged to enter into similar agreements. Since the majority of the Company’s off-balance-sheet instruments consist of nonfee-producing, variable-rate commitments, the Company has determined they do not have a distinguishable fair value. chased approximate fair values. Securities: Fair values for securities are based on available quoted market prices. The carrying values of equity securities with no readily determinable fair value approximate fair values. Loans: For variable-rate loans that reprice frequently and have no significant change in credit risk, fair values are based on carrying values. For other loans, the fair values are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with simi- lar terms to borrowers with similar credit quality. Fair values for impaired loans are estimated using discount- ed cash flow analyses or underlying collateral values, where applicable. A B C B a n c o r p a n d S u b s i d i a r i e s 4 3 2 0 0 1 A n n u a l R e p o r t ABC Bancorp and Subsidiaries Notes to Consolidated Financial Statements The carrying value and estimated fair value of the Company's financial instruments were as follows: NOTE 18. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued) December 31, 2001 December 31, 2000 Carrying Amount Fair Value (Dollars in Thousands) Carrying Amount Fair Value Financial assets: Cash and short-term investments $ 157,475 $ 157,475 Federal funds sold Investments in securities $ 44 $ 44 $ $ 43,363 - $ $ 43,363 - $ 156,835 $ 156,835 $ 162,105 $ 162,105 Loans $ 805,076 $ 819,616 $ 587,381 $ 576,607 Allowance for loan losses 14,944 - 9,832 - Loans, net $ 790,132 $ 819,616 $ 577,549 $ 576,607 Accrued interest receivable $ 10,767 $ 10,767 $ 11,091 $ 11,091 December 31, 2001 December 31, 2000 Carrying Amount Fair Value (Dollars in Thousands) Carrying Amount Fair Value Financial liabilities: Deposits $ 931,156 $ 935,729 $ 679,885 $ 680,844 Federal funds purchased and securities sold under agreements to repurchase $ 3,792 Other borrowings $ 95,293 Accrued interest payable $ 3,611 Trust preferred securities $ 34,500 $ $ $ $ 3,792 94,067 3,611 37,088 $ $ $ $ 2,653 55,350 3,265 - $ $ $ $ 2,653 55,432 3,265 - 4 4 A B C B a n c o r p a n d S u b s i d i a r i e s 2 0 0 1 A n n u a l R e p o r t ABC Bancorp and Subsidiaries Notes to Consolidated Financial Statements NOTE 19. CONDENSED FINANCIAL INFORMATION OF ABC BANCORP (PARENT COMPANY ONLY) CONDENSED BALANCE SHEETS DECEMBER 31, 2001 AND 2000 (Dollars in Thousands) Assets Cash Interest bearing deposits in banks Investment in subsidiaries Other assets Total assets Liabilities Other borrowings Other liabilities Trust preferred securities Total liabilities Stockholders' equity 2001 2000 $ 22,187 3,557 116,993 8,026 $ 150,763 $ 9,607 2,508 34,500 46,615 $ $ $ 1,912 - 75,290 7,761 84,963 2,000 2,307 - 4,307 104,148 80,656 Total liabilities and stockholders' equity $ 150,763 $ 84,963 CONDENSED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Dollars in Thousands) Income Dividends from subsidiaries Interest Fee income Other income Total income Expense Interest Amortization and depreciation Other expense Total expense Income before income tax benefits and equity in undistributed earnings Income tax benefits $ 2001 7,386 212 9,252 1,002 17,852 911 1,599 10,116 12,626 5,226 590 Income before equity in undistributed earnings 5,816 Equity in undistributed earnings of subsidiaries 3,817 $ 2000 7,645 52 8,424 645 16,766 174 935 9,716 10,825 5,941 621 6,562 3,536 $ 1999 5,582 94 6,804 967 13,447 170 721 7,990 8,881 4,566 200 4,766 4,190 Net income $ 9,633 $ 10,098 $ 8,956 A B C B a n c o r p a n d S u b s i d i a r i e s 4 5 2 0 0 1 A n n u a l R e p o r t ABC Bancorp and Subsidiaries Notes to Consolidated Financial Statements NOTE 19. CONDENSED FINANCIAL INFORMATION OF ABC BANCORP (PARENT COMPANY ONLY) (Continued) CONDENSED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Dollars in Thousands) 2001 2000 1999 $ 9,633 $ 10,098 $ 8,956 OPERATING ACTIVITIES Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Amortization of intangible assets Amortization of compensation expense Undistributed earnings of subsidiaries (Increase) decrease in interest receivable Increase (decrease) in interest payable Increase (decrease) in taxes payable Provision for deferred taxes (Increase) decrease in due from subsidiaries Other operating activities Total adjustments 698 299 602 (3,817) (2) 58 (552) (284) (61) (729) (3,788) Net cash provided by operating activities 5,845 INVESTING ACTIVITIES (Increase) decrease in interest-bearing deposits in banks Purchases of premises and equipment Contribution of capital to subsidiary bank Purchase of securities available for sale Proceeds from sale of premises and equipment Net cash paid for purchased subsidiaries (3,557) (111) (8,500) - 422 (11,681) Net cash provided by (used in) investing activities (23,427) FINANCING ACTIVITIES Repayment of other borrowings Purchase of treasury shares Dividends paid Proceeds from other borrowings Proceeds from issuance of trust preferred Proceeds from exercise of stock options Net cash provided by (used in) financing activities Net increase (decrease) in cash Cash at beginning of year Cash at end of year SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year for interest (7,131) - (4,262) 14,738 34,500 12 37,857 20,275 1,912 $ 22,187 $ 853 $ $ 4 6 A B C B a n c o r p a n d S u b s i d i a r i e s 636 299 387 (3,536) 2 - 91 (203) (117) 302 (2,139) 7,959 1,200 (1,521) (400) - 979 - 258 (500) (4,162) (3,745) - - - 408 313 191 (4,190) (2) (1) 866 (104) 29 (312) (2,802) 6,154 (1,200) (1,792) (600) (221) - - (3,813) - (88) (2,898) - - - (8,407) (2,986) (190) 2,102 1,912 174 (645) 2,747 2,102 171 $ $ 2 0 0 1 A n n u a l R e p o r t ABC Bancorp Executive Officers and Directors Executive Officers Chairman of the Board & Chief Executive Officer Kenneth J. Hunnicutt President & Chief Operating Officer Mark D. Thomas Executive Vice President & Chief Financial Officer W. Edwin Lane, Jr., CPA Directors Kenneth J. Hunnicutt, Chairman Occupation: Banker Main Employer: ABC Bancorp Daniel B. Jeter Occupation: Consumer Finance Main Employer: Standard Discount Henry C. Wortman Occupation: Dairyman Main Employer: Jackson & Wortman Doyle Weltzbarker, Vice Chairman Occupation: Farm Products Main Employer: West End Milling Robert P. Lynch Occupation: Automobile Dealer Main Employer: Motor Finance Co. Johnny W. Floyd Occupation: Timber and Realty Main Employer: Floyd Timber Company & Cordele Realty, Inc. J. Raymond Fulp Occupation: Pharmacist Main Employer: CVS Pharmacy Mark D. Thomas Occupation: Banker Main Employer: ABC Bancorp J. Thomas Whelchel Occupation: Attorney Main Employer: Whelchel, Brown, Readdick & Bumgartner Chairman Emeritus Eugene M. Vereen, Jr. Occupation: Real Estate & Investing Main Employer: M.I.A., Co. ABC Bancorp Senior Management Chairman of the Board & Chief Executive Officer Kenneth J. Hunnicutt President & Chief Operating Officer Mark D. Thomas Executive Vice President & Chief Financial Officer W. Edwin Lane, Jr., CPA Senior Vice President & Director of Credit Administration Jon S. Edwards Senior Vice President & Director of Human Resources Cindi H. Lewis Senior Vice President & Director of Internal Audit Charles A. Robinson Senior Vice President & Director of Automation & Operations Marc E. DeMott Senior Vice President & Director of Retail Banking Michael F. McDonald A B C B a n c o r p a n d S u b s i d i a r i e s 4 7 2 0 0 1 A n n u a l R e p o r t Presidents and Directors – Subsidiary Banks AMERICAN BANKING COMPANY Moultrie, GA CAIRO BANKING COMPANY Cairo, GA CITIZENS SECURITY BANK Tifton, GA President & Chief Executive Officer President & Chief Executive Officer President & Chief Executive Officer Ronnie F. Marchant Edgar B. Smith, III Edwin W. Hortman, Jr. Directors Directors Directors Lynn L. Jones, Chairman Jeffrey F. (Jet) Cox, Chairman J. Raymond Fulp, Chairman John G. Briggs, deceased Robert M. Brown, MD Jack C. Chastain C. Wayne Cooper Thomas L. Estes, MD Robert A. Faircloth Kenneth J. Hunnicutt Ronnie F. Marchant J. Mark Mobley, Jr. Thomas W. Rowell Joan V. Stallings Mark D. Thomas President Emeritus Eugene M. Vereen, Jr. BANK OF THOMAS COUNTY Thomasville, GA Nancy C. Clark Ronnie L. Gainous Cuy Harrell, III Kenneth J. Hunnicutt Winburn Knight William J. Morton, MD G. Ashley Register, MD Edgar B. Smith, III Mark D. Thomas CENTRAL BANK & TRUST Cordele, GA Austin L. Coarsey Stewart D. Gilbert, MD Edwin W. Hortman, Jr. Kenneth J. Hunnicutt John Alan Lindsey Loran A. Pate Mark D. Thomas Clifford A. Walker, Sr., DMD CITIZENS SECURITY BANK Douglas, GA City President President & Chief Executive Officer David B. Batchelor Robert L. Evans City Directors Directors Robert R. Fender, Chairman Johnny W. Floyd, Chairman David B. Batchelor Robert E. Barr, MD Earl Brice President & Chief Executive Officer Charles W. Clark William (Bill) H. Elliott Ervin E. Brock Directors Robert L. Evans William T. Greene William H. Griffin, III L. Maurice Chastain, Chairman Kenneth J. Hunnicutt David N. Rainwater Mark D. Thomas Director Emeritus Henry M. Turton, Jr. Dale E. Aldridge S. Mark Brewer, MD Ervin E. Brock Gene Hickey Kenneth J. Hunnicutt Zeke Johnson Dr. Terrel M. Solana Mark D. Thomas F. Keith Wortman J. Anthony Deal Sherman Dudley Faye Hennesy Edwin W. Hortman, Jr. Kenneth J. Hunnicutt Carlyle Ragans Donnie H. Smith Ronnie Spivey Oscar Street Mark D. Thomas 4 8 A B C B a n c o r p a n d S u b s i d i a r i e s 2 0 0 1 A n n u a l R e p o r t Presidents and Directors – Subsidiary Banks CITIZENS SECURITY BANK Ocilla, GA HERITAGE COMMUNITY BANK Quitman, GA SOUTHLAND BANK Dothan, AL City President C. Larry Young President & Chief Executive Officer President & Chief Executive Officer Tim S. Jones Harris O. Pittman, III City Directors Directors Loran A. Pate, Chairman Doyle Weltzbarker, Chairman Directors Robert Dale Ezzell, Chairman Wycliffe R. Griffin, retired Edwin W. Hortman, Jr. Kenneth J. Hunnicutt Howard C. McMahan, MD Daniel M. Paulk Gary H. Paulk Mark D. Thomas C. Larry Young FIRST NATIONAL BANK OF SOUTH GEORGIA Albany, GA William P. Cooper, Jr. Kenneth J. Hunnicutt Tim S. Jones Ronald B. Miller Mark D. Thomas Henry C. Wortman MERCHANTS & FARMERS BANK Donalsonville, GA President & Chief Executive Officer John C. Mosely President & Chief Executive Officer Directors Don Monk Directors Glen A. Kirbo, Chairman Willie Adams, Jr., MD Robert V. Barkley Waddell M. Hagins, Jr. Kenneth J. Hunnicutt Russell E. Martin Reid E. Mills W. Thomas Mitcham, MD Don Monk R. Douglas Oliver Mark D. Thomas W. Paul Wallace, Jr. Jerry G. Mitchell, Chairman Lewis M. Carter, Jr. Joseph S. Hall Rufus G. Heard Kenneth J. Hunnicutt Newton E. King, Jr. Willard Mims John C. Mosely Dan E. Ponder, Jr. Mark D. Thomas Directors Emeritus Charles R. Burke, Sr. H. Wayne Carr John B. Clarke, Sr. Newton E. King, Sr. Robert Crowder Gerald B. Crowley Joe M. Davis, retired Ronald E. Dean John D. DeLoach Kenneth J. Hunnicutt Harris O. Pittman, III Mark D. Thomas THE FIRST BANK OF BRUNSWICK Brunswick, GA President & Chief Executive Officer Michael D. Hodges Directors J. Thomas Whelchel, Chairman C. Ray Acosta James M. Fiveash L. McRee (Mac) Harden Michael D. Hodges Kenneth J. Hunnicutt Mark D. Thomas Jimmy D. Veal TRI-COUNTY BANK Trenton, FL President & Chief Executive Officer John H. Ferguson Directors Wilbur Bush, Chairman John H. Ferguson Donna Graham Michael Hayes Kenneth J. Hunnicutt Norman Scoggins Mark D. Thomas A B C B a n c o r p a n d S u b s i d i a r i e s 4 9 2 0 0 1 A n n u a l R e p o r t Market for the Company’s Common Stock and Dividends ABC Bancorp Common Stock is quoted through the National Market System of the National Association of Securities Dealers (NASDAQ) under the symbol “ABCB”. The following table sets forth the low and high sales prices for the common stock as quoted on the NASDAQ during 2001. Calendar Period Sales Price 2001 Low High First Quarter $ 9.125 $ 12.00 Second Quarter $ 11.00 $ 12.62 Third Quarter $ 11.06 $ 13.50 Fourth Quarter $ 12.15 $ 13.95 Quarterly dividends of $0.12 per share were declared for the first, second, third and fourth quarters of 2001. AVAILABILTY OF INFORMATION Upon written request, ABC Bancorp will provide, without charge, a copy of the Annual Report on Form 10-K, including the financial statements and the financial statement schedules, required to be filed with the Securities and Exchange Commission for fiscal year 2001. Please direct requests to: ABC Bancorp, Attention: W. Edwin Lane, Jr., P.O. Box 3668, Moultrie, GA 31776-3668. ANNUAL MEETING OF SHAREHOLDERS The 2002 Annual Meeting of Shareholders of ABC Bancorp will be held at 4:15 p.m. EST, Tuesday, May 14, 2002 at Sunset Country Club, South Main Street, Moultrie, Georgia. 24 Second Avenue S.E. • Moultrie, Georgia 31768 (229) 890-1111 • www.ABCBancorp.com 5 0 A B C B a n c o r p a n d S u b s i d i a r i e s 

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