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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended March 31, 2004

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 9,765,180 shares of Common Stock outstanding as of March 31, 2004.

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ABC BANCORP

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2004

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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, 2004 AND 2003

(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, 2004 AND 2003

(Dollars in Thousands)

(Unaudited)

See Notes to Consolidated Financial statements.

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NOTE 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, 2003. The results of operations for the three months ended March 31, 2004 are not necessarily indicative of the results to be expected for the full year.

Stock Compensation Plans

At March 31, 2004, 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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Accounting Standards

In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities, an interpretation of ARB No. 51” and, on December 24, 2003, the FASB issued FASB Interpretation No. 46 (Revised December 2003), “Consolidation of Variable Interest Entities” which replaced FIN 46. The interpretation addresses consolidation by business enterprises of variable interest entities. A variable interest entity is defined as an entity subject to consolidation according to the provisions of the interpretation. The revised interpretation provided for special effective dates for entities that had fully or partially applied the original interpretation as of December 24, 2003. Otherwise, application of the interpretation is required in financial statements of public entities that have interests in special-purpose entities, or SPEs, for periods ending after December 15, 2003. Application by public entities, other than small business issuers, for all other types of variable interest entities (i.e., non-SPEs) is required in financial statements for periods ending after March 15, 2004. Application by small business issuers to variable interest entities other than SPEs and by nonpublic entities to all types of variable interest entities is required at various dates in 2004 and 2005. The Company adopted the provisions of FIN 46 as of January 1, 2004. As required by the provisions of the Interpretation, the Company deconsolidated its investment in its subsidiary trust which issued subordinated debentures. The adoption of FIN 46 and related provisions had the effect of increasing assets by $1,067,000 and liabilities by the same amount. The adoption of the provisions had no effect on net income. The Company has retroactively restated its financial statements for prior periods to reflect the adoption of FIN 46.

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

Cautionary Statement Regarding Forward-Looking Statements

ABC’s Quarterly Report contains forward-looking statements in addition to historical information. ABC cautions that there are various important factors that could cause actual results to differ materially from those indicated in the forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995; accordingly, there can be no assurance that such indicated results will be realized.

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order to comply with the terms of the safe harbor, ABC is required to note the variety of factors that could cause ABC’s actual results and experience to differ materially from the anticipated results or other expectations expressed in ABC’s forward-looking statements. These factors include legislative and regulatory initiatives regarding deregulation and restructuring of the banking industry; the extent and timing of the entry of additional competition in ABC’s markets; potential business strategies, including acquisitions or dispositions of assets or internal restructuring, that may be pursued by ABC, state and federal banking regulations; changes in or application of environmental and other laws and regulations to which ABC is subject; political, legal and economic conditions and developments; financial market conditions and the results of financing efforts; changes in commodity prices and interest rates; weather, natural disasters and other catastrophic events; and other factors discussed in ABC’s filings with the Securities and Exchange Commission, including its Quarterly Report on Form 10-Q. The words “believe”, “expect”, “anticipate”, “project”, and similar expressions signify such forward-looking statements.

Readers are cautioned not to place undue reliance on any forward-looking statements made by or on behalf of ABC. Any such statement speaks only as of the date the statement was made. ABC undertakes no obligation to update or revise any forward-looking statements. Additional information with respect to factors that may cause results to differ materially from those contemplated by such forward-looking statements is included in the ABC’s current and subsequent filings with the Securities and Exchange Commission.

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, 2004 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, 2004, total capital increased $2,264,000 to $115,877,000. Of this change, $1,819,000 resulted from the retention of earnings (net of $1,367,000 dividends declared to shareholders), plus $59,000 for the accrual for grants of restricted shares as incentive to certain employees, plus $7,000 related to the exercise of stock options, plus an increase of $714,000 in other comprehensive income, net of taxes less $335,000 for the purchase of treasury stock.

At March 31, 2004, ABC had $665,000 binding commitments for capital expenditures. The Company anticipates that approximately $2,015,000 will be required for capital expenditures during the remainder of 2004. 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, Federal Home Loan Bank advances, and subordinated deferrable interest debentures. A portion of interest income is earned on tax-exempt investments, such as state and municipal bonds, and on loans to states and municipalities. This tax-exempt income and its resultant yields are stated on a taxable-equivalent basis in order to be comparable to taxable investments and loans.

Comparison of Statements of Income

The net interest margin on a taxable-equivalent basis was 4.13% and 3.86% during the three months ended March 31, 2004 and 2003, respectively, an increase of 27 basis points.

Net interest income was $10.96 million as compared to $10.40 million during the three months ended March 31, 2004 and 2003, respectively, representing an increase of 5.42 % .

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 $311,000 and $731,000 during the three months ended March 31, 2004 and 2003, respectively. Charge offs, net of recoveries, for the first three months of 2004 amounted to $63,000 as compared to $241,000 for the first three months of 2003.

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 ongoing reviews of all loans. A particular emphasis is placed on non-accruing, past due and other loans in which management has identified possible weaknesses, and that require special attention and/or action. Other factors used in determining the adequacy of the reserve are management’s judgment about factors affecting loan quality and assumptions about the local and national economy. All of these factors are considered and then grades are assigned to each loan. A calculation is then performed that adds a weighted percentage of the balance in each loan grade to additional specific reserves for certain loans based on management’s judgment. The result of this standard calculation determines the amount of reserve to be recorded. Management considers the amount of reserve determined by this process adequate to cover potential losses in the portfolio.

The allowance for loan losses totaled $15.21 million and $14.96 million as of March 31, 2004 and December 31, 2003, respectively. The allowance for loan losses as a percentage of total loans was 1.81% and 1.78% as of March 31, 2004 and December 31, 2003, respectively.

Nonperforming assets were $7.6 million and $7.9 million as of March 31, 2004 and December 31, 2003, respectively. The ratio of nonperforming assets as a percentage of the loan loss reserve was 49.97% and 52.81% as of March 31, 2004 and December 31, 2003, respectively.

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Following is a comparison of noninterest income for the three months ended March 31, 2004 and 2003 (dollars in thousands).

Total noninterest income for the three months ended March 31, 2004 was $277,000 lower than during the same period in 2003. Service charges on deposit accounts decreased by $41,000, which is due to a decrease in total deposits of $20.5 million from the same period in 2003. Other service charges, commissions and fees decreased by $21,000. Other income decreased by $195,000, which is primarily attributable to a Harland rebate posted during the first quarter of 2003.

Following is an analysis of noninterest expense for the three months ended March 31, 2004 and 2003 (dollars in thousands).

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Total noninterest expense for the three months ended March 31, 2004 was $49,000 higher than during the same period in 2003.

Salaries and employee benefits for the three months ended March 31, 2004 were $79,000, or 1.54% higher than during the same period in 2003. Amortization of intangible assets was $59,000 lower for the three months ended March 31, 2004 as compared to March 31, 2003. Equipment and occupancy expense was reduced by $37,000, which resulted mainly from controllable cost efficiencies initiated by the Company. The remaining increase of $66,000 in non-interest expense relates to normal changes from period to period.

Following is a condensed summary of net income during the three months ended March 31, 2004 and 2003 (dollars in thousands).

Net income increased $417,000, or 15.06%, to $3,186,000 for the three months ended March 31, 2004 as compared to $2,769,000 for the three months ended March 31, 2003. Net interest income of ABC and its subsidiaries increased $564,000, the provision for loan losses decreased by $420,000 and all other noninterest expense increased by $49,000.

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Comparison of Balance Sheets

Total assets decreased by $1 million, or .09%, to $1,168 million at March 31, 2004 from $1,169 million at December 31, 2003.

Total earning assets increased by $9 million, or .84%, to $1,083 million at March 31, 2004 from $1,074 million at December 31, 2003.

Loans, net of the allowance for loan losses, remained the same at $825 million at March 31, 2004 as compared to December 31, 2003.

Total deposits decreased by $16 million, or 1.76%, to $891 million at March 31, 2004 from $907 million at December 31, 2003. Approximately 14.81% and 15.66% of deposits were noninterest-bearing as of March 31, 2004 and December 31, 2003, respectively.

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 11.01% if rates rise gradually over the next year. On the other hand, the model projects net interest income to decrease 8.38% if rates decline over the next year.

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ITEM 4. 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.

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.

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, 2004.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

Exhibit 31.1 Section 302 Certification

Exhibit 31.2 Section 302 Certification

Exhibit 32.1 Section 906 Certification

Exhibit 32.2 Section 906 Certification

The Company has filed a Current Report on Form 8-K, dated January 13, 2004, concerning the issuance of a press release with respect to the Company’s results of operations and financial condition for the fourth quarter and fiscal year 2003. The Current Report on Form 8-K was filed under Item 12 of Form 8-K.

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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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EXHIBIT INDEX

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