Ameris Bancorp - 10-Q quarterly report FY

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

OR

Commission File Number: 0-16181

ABC BANCORP

(Exact name of registrant as specified in its charter)

24 SECOND AVE., SE MOULTRIE, GA 31768

(Address of principal executive offices)

(229) 890-1111

(Registrant’s telephone number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x  No  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2) of the Exchange Act).  Yes  x  No  ¨

There were 9,759,034 shares of Common Stock outstanding as of May 12, 2003.

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ABC BANCORP

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2003

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ABC BANCORP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands)

(Unaudited)

See Notes to Consolidated Financial Statements.

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ABC BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

THREE MONTHS ENDED MARCH 31, 2003 AND 2002

(Dollars in Thousands)

(Unaudited)

See Notes to Consolidated Financial Statements.

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ABC BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED MARCH 31, 2003 AND 2002

(Dollars in Thousands)

(Unaudited)

See Notes to Consolidated Financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting and reporting policies of ABC Bancorp and subsidiaries (the “Company”) conform to accounting principles generally accepted in the United States of America and to general practices within the banking industry. The interim consolidated financial statements included herein are unaudited, but reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of the consolidated financial position and results of operations for the interim periods presented. All adjustments reflected in the interim financial statements are of a normal, recurring nature. Such financial statements should be read in conjunction with the financial statements and notes thereto and the report of independent auditors included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002. The results of operations for the three months ended March 31, 2003 are not necessarily indicative of the results to be expected for the full year.

Stock Compensation Plans

At March 31, 2003, the Company has two stock-based employee compensation plans. The Company accounts for those plans under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying stock on the date of grant. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.

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ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Liquidity and Capital Resources

Liquidity management involves the matching of the cash flow requirements of customers, who may be either depositors desiring to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs, and the ability of ABC Bancorp and its subsidiaries (the “Company”) to meet those needs. The Company strives to maintain an adequate liquidity position by managing the balances and maturities of interest-earning assets and interest-bearing liabilities so that the balance it has in short-term investments at any given time will adequately cover any reasonably anticipated immediate need for funds. Additionally, the subsidiary Banks (the “Banks”) maintain relationships with correspondent banks which could provide funds to them on short notice, if needed.

The liquidity and capital resources of the Company are monitored continuously by the Company’s Board-authorized Asset and Liability Management Committee, and on a periodic basis by state and federal regulatory authorities. As determined under guidelines established by these regulatory authorities, the Company’s and the Banks’ liquidity ratios at March 31, 2003 were considered satisfactory. At that date, the Banks’ short-term investments were adequate to cover any reasonably anticipated immediate need for funds. The Company is aware of no events or trends likely to result in a material change in liquidity. During the three months ended March 31, 2003, total capital increased $1,092,000 to $108,576,000. Of this change, $1,605,000 resulted from the retention of earnings (net of $1,164,000 dividends declared to shareholders), plus $79,000 for the accrual for grants of restricted shares as incentive to certain employees, less a decrease of $434,000 in other comprehensive income, net of taxes and $158,000 for the purchase of treasury stock.

At March 31, 2003, ABC had binding commitments for capital expenditures of approximately $100,000. The Company anticipates that approximately $1,500,000 will be required for capital expenditures during the remainder of 2003. Additional expenditures may be required for other mergers and acquisitions.

Results of Operations

The Company’s results of operations are determined by its ability to effectively manage interest income and expense, to minimize loan and investment losses, to generate noninterest income and to control noninterest expense. Since interest rates are determined by market forces and economic conditions beyond the control of the Company, the ability to generate net interest income is dependent upon the Banks’ ability to obtain an adequate spread between the rate earned on interest-earning assets and the rate paid on interest-bearing liabilities. Thus, the key performance measure for net interest income is the interest margin or net yield, which is taxable-equivalent net interest income divided by average earning assets.

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The primary component of consolidated earnings is net interest income, or the difference between interest income on interest-earning assets and interest paid on interest-bearing liabilities. The net interest margin is net interest income expressed as a percentage of average interest-earning assets. Interest-earning assets consist of loans, investment securities and Federal funds sold. Interest-bearing liabilities consist of deposits and borrowings, such as Federal funds purchased, securities sold under repurchase agreements and Federal Home Loan Bank advances. A portion of interest income is earned on tax-exempt investments, such as state and municipal bonds, and on loans to states and municipalities. This tax-exempt income and its resultant yields are stated on a taxable-equivalent basis in order to be comparable to taxable investments and loans.

Comparison of Statements of Income

The net interest margin on a taxable-equivalent basis was 3.87% and 4.28% during the three months ended March 31, 2003 and 2002, respectively, a decrease of 41 basis points. These variances are attributable to fluctuations in the average rates charged and fees earned on loans and the average rates paid on deposit accounts and the resulting decrease is primarily attributable to the interest rate cuts initiated by the Federal Reserve.

Net interest income was $10.4 million during the three months ended March 31, 2003 and 2002, respectively.

The provision for loan losses is a charge to earnings in the current period to replenish the allowance for loan losses and maintain it at the level management determines is adequate. The provision for loan losses charged to earnings amounted to $731,000 and $959,000 during the three months ended March 31, 2003 and 2002. Charge offs, net of recoveries, for the first three months of 2003 amounted to $241,000.

The allowance for loan losses represents a reserve for potential losses in the loan portfolio. The adequacy of the allowance for loan losses is evaluated quarterly based on a review of all significant loans, with a particular emphasis on non-accruing, past due and other loans that management believes require attention. Another factor used in determining the adequacy of the reserve is management’s judgment about factors affecting loan quality and assumptions about the local and national economy.

The allowance for loan losses totaled $15.4 million and $14.9 million as of March 31, 2003 and December 31, 2002, respectively. The allowance for loan losses as a percentage of total loans was 1.85% and 1.78% as of March 31, 2003 and December 31, 2002 respectively.

Non-performing assets were $10.3 million and $9.1 million as of March 31, 2003 and December 31, 2002, respectively. The ratio of non-performing assets as a percentage of the loan loss reserve was 67.13% and 61.04% as of March 31, 2003 and December 31, 2002, respectively.

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Management considers the allowance for loan losses as of March 31, 2003 adequate to cover potential losses in the loan portfolio.

Following is a comparison of non-interest income for the three months ended March 31, 2003 and 2002 (dollars in thousands).

Total non-interest income for the three months ended March 31, 2003 was $341,000 higher than during the same period in 2002. Of this increase $276,000 relates to an increase in service charges on deposit accounts which is primarily attributable to an increase in the per item charge for overdrawn accounts. The remaining $65,000 increase in non-interest income relates to normal changes from period to period.

Following is an analysis of non-interest expense for the three months ended March 31, 2003 and 2002 (dollars in thousands).

Total non-interest expense for the three months ended March 31, 2003 was $243,000 lower than during the same period in 2002.

Salaries and employee benefits for the three months ended March 31, 2003 were $346,000 or 7.21% higher than during the same period in 2002. Amortization of intangible assets was $252,000 lower for the three months ended March 31, 2003 as compared to March 31, 2002. This decrease resulted primarily from the adoption of SFAS #147 during the fourth quarter of 2002. Other expense for the three months ended March 31, 2003 decreased $296,000 as compared to March 31, 2002. This decrease resulted primarily from conversion expense associated with the data processing conversion of

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the First Bank of Brunswick in the first quarter of 2002 of $185,000 and the remaining $111,000 resulted from cost efficiencies initiated by the Company.

Following is a condensed summary of net income during the three months ended March 31, 2003 and 2002 (dollars in thousands).

Net income increased $597,000 or 27.49% to $2,769,000 for the three months ended March 31, 2003 as compared to $2,172,000 for the three months ended March 31, 2002. Net interest income of ABC and its subsidiaries increased $46,000, the provision for loan losses decreased by $228,000 and all other noninterest expense decreased by $ 243,000.

Comparison of Balance Sheets

Total assets decreased by $18 million, or 1.51% to $1,174 million at March 31, 2003 from $1,192 million at December 31, 2002.

Total earning assets increased by $21 million, or 1.98%, to $1,079 million at March 31, 2003 from $1,058 million at December 31, 2002.

Loans, net of the allowance for loan losses, decreased by $3 million, or .37% to $816 million at March 31, 2003 from $819 million at December 31, 2002.

Total deposits decreased by $4 million, or .44% to $912 million at March 31, 2003 from $916 million at December 31, 2002. Approximately 13.82% and 14.41% of deposits were noninterest-bearing as of March 31, 2003 and December 31, 2002, respectively.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed only to U. S. dollar interest rate changes and, accordingly, the Company manages exposure by considering the possible changes in the net interest margin. The Company does not have any trading instruments nor does it classify any portion of the investment portfolio as held for trading. The Company does not engage in any hedging activities or enter into any derivative instruments with a higher degree of risk than mortgage backed securities which are commonly pass through securities. Finally, the Company has no exposure to foreign currency exchange rate risk, commodity price risk, and other market risks.

Interest rates play a major part in the net interest income of a financial institution. The sensitivity to rate changes is known as “interest rate risk.”. The repricing of interest earning assets and interest-bearing liabilities can influence the changes in net interest income. As part of the Company’s asset/liability management program, the timing of repriced assets and liabilities is referred to as Gap management. It is the policy of the Company to maintain a Gap ratio in the one-year time horizon of .80 to 1.20.

The Company uses simulation analysis to monitor changes in net interest income due to changes in market interest rates. The simulation of rising, declining and flat interest rate scenarios allows management to monitor and adjust interest rate sensitivity to minimize the impact of market interest rate swings. The analysis of the impact on net interest income over a twelve month period is subjected to a gradual 200 basis point increase or decrease in market rates on net interest income and is monitored on a quarterly basis. The most recent simulation model projects net interest income would increase 9.40% if rates rise gradually over the next year. On the other hand, the model projects net interest income to decrease 13.97% if rates decline over the next year.

ITEM 4. CONTROLS AND PROCEDURES

(a)    Evaluation of Disclosure Controls and Procedures.

The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”). Based on such evaluation, such officers have concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures are effective in alerting them on a timely basis to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s periodic filings under the Exchange Act.

(b)    Changes in Internal Controls.

Since the Evaluation Date, there have not been any significant changes in the Company’s internal controls or in other factors that could significantly affect such controls.

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Part II. Other Information

Item 4. Submission of Matters to a Vote of Securities Holders

There were no matters submitted to a vote of securities holders during the quarter ended March 31, 2003.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

Exhibit 99.1 Section 906 Certification

Exhibit 99.2 Section 906 Certification

(b) Reports on Form 8-K

      None

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the Undersigned thereunto duly authorized:

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I, Kenneth J. Hunnicutt, certify that:

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I, W. Edwin Lane, Jr., certify that:

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EXHIBIT INDEX

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