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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, 2005

OR

Commission File Number: 001-13901

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 11,854,122 shares of Common Stock outstanding as of May 3, 2005.

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ABC BANCORP

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2005

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PART I - FINANCIAL INFORMATION

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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, 2005 AND 2004

(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, 2005 AND 2004

(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 (together with its subsidiaries, the “Company” or “ABC”) 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 registered independent public accounting firm included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004. The results of operations for the three months ended March 31, 2005 are not necessarily indicative of the results to be expected for the full year.

Accounting Standards

In December 2003 the American Institute of Certified Public Accountants issued Statement of Position (“SOP”) 03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer. This SOP addresses accounting for differences between contractual cash flows and cash flows expected to be collected from an investor’s initial investment in loans or debt securities (loans) acquired in a transfer if those differences are attributable, at least in part, to credit quality. It includes such loans acquired in purchase business combinations and applies to all nongovernmental entities, including not-for-profit organizations. This SOP does not apply to loans originated by the entity. This SOP limits the yield that may be accreted (accretable yield) to the excess of the investor’s estimate of undiscounted expected principal, interest, and other cash flows (cash flows expected at acquisition to be collected) over the investor’s initial investment in the loan. This SOP requires that the excess of contractual cash flows over cash flows expected to be collected (nonaccretable difference) not be recognized as an adjustment of yield, loss accrual, or valuation allowance. This SOP prohibits investors from displaying accretable yield and nonaccretable difference in the balance sheet. Subsequent increases in cash flows expected to be collected generally should be recognized prospectively through adjustment of the loan’s yield over its remaining life. Decreases in cash flows expected to be collected should be recognized as impairment.

This SOP prohibits “carrying over” or creation of valuation allowances in the initial accounting of all loans acquired in a transfer that are within the scope of this SOP. The prohibition of the valuation allowance carryover applies to the purchase of an individual loan, a pool of loans, a group of loans, and loans acquired in a purchase business combination.

This SOP is effective for loans acquired in fiscal years beginning after December 15, 2004. The changes required by this SOP are not expected to have a material impact on results of operations, financial position, or liquidity of the Company.

In the first quarter of 2005, the Financial Accounting Standards Board delayed the effective date of Statement No. 123R, Share-Based Payment, a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation, until the beginning of the first interim or annual reporting period that begins after December 15, 2005. This Statement applies to all awards granted or vesting after the required effective date and to awards modified, repurchased or cancelled after that date.

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Note 2. Investment Securities

Our investment policy blends the needs of the Company’s liquidity and interest rate risk with its desire to improve income and provide funds for expected growth in loans. Under this policy, we generally invest in obligations of the United States Treasury or other governmental or quasi-governmental agencies. Our portfolio and investing philosophy concentrate activities in obligations where the credit risk is limited. For a small portion of our portfolio where we have determined there to be credit risk, the Company has reviewed the investments and financial performance of the obligors and believe the credit risks to be acceptable.

The amortized cost and estimated fair value of investment securities available for sale at March 31, 2005 and December 31, 2004 are presented below:

Note 3. Loans

The Company engages in a full complement of lending activities, including real estate-related loans, agriculture-related loans, commercial and financial loans and consumer installment loans. As of March 31, 2005, ABC’s loan portfolio consisted of 75.11% real estate-related loans, 3.59% agriculture related, 12.99% commercial and financial loans, and 6.49% consumer installment loans. ABC concentrates the majority of its lending activities on real estate loans where the historical loss percentages have been low. While risk of loss in the Company’s portfolio is primarily tied to the credit

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quality of the various borrowers, risk of loss may also increase due to factors beyond ABC’s control, such as local, regional and/or national economic downturns. General conditions in the real estate market may also impact the relative risk in the real estate portfolio. Of the target areas of lending activities, commercial and financial loans are generally considered to have a greater risk of loss than real estate loans or consumer installment loans.

ABC evaluates loans for impairment when a loan is risk rated as substandard or doubtful. The Company measures impairment based upon the present value of the loan’s expected future cash flows discounted at the loan’s effective interest rate, except where foreclosure or liquidation is probable or when the primary source of repayment is provided by real estate collateral. In these circumstances, impairment is measured based upon the estimated fair value of the collateral. In addition, in certain circumstances, impairment may be based on the loan’s observable estimated fair value. Impairment with regard to substantially all of ABC’s impaired loans has been measured based on the estimated fair value of the underlying collateral. The Company’s policy for recognizing interest income on impaired loans is consistent with its nonaccrual policy. At the time the contractual payments on a loan are deemed to be uncollectible, ABC’s policy is to record a charge-off against the Allowance for Loan Losses.

Nonperforming assets include loans classified as nonaccrual or renegotiated and foreclosed real estate. It is the general policy of the Company to stop accruing interest income and place the recognition of interest on a cash basis when any commercial, industrial or commercial real estate loan is 90 days or more past due as to principal or interest and/or the ultimate collection of either is in doubt, unless collection of both principal and interest is assured by way of collateralization, guarantees or other security. Accrual of interest income on consumer loans, including residential real estate loans, is suspended when any payment of principal or interest, or both, is more than 120 days delinquent. When a loan is placed on nonaccrual status, any interest previously accrued but not collected is reversed against current income unless the collateral for the loan is sufficient to cover the accrued interest or a guarantor assures payment of interest.

Loans are stated at unpaid balances, net of unearned income and deferred loan fees. Balances within the major loans receivable categories are represented in the following table:

Major classifications of loans are as follows:

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Note 4. Allowance for Loan Losses

The allowance for loan losses represents a reserve for potential losses in the loan portfolio. The adequacy of the allowance for loan losses is evaluated periodically based on a review of all significant loans, with a particular emphasis on nonaccruing, past due and other loans that management believes require attention. We segregate our loan portfolio by type of loan and utilize this segregation in evaluating exposure to risks within the portfolio. In addition, based on internal reviews and external reviews performed by independent auditors and regulatory authorities, we further segregate our loan portfolio by loan classifications within each type of loan based on an assessment of risk for a particular loan or group of loans. Certain reviewed loans require specific allowances. Allowances are provided for other types and classifications of loans based on anticipated loss rates. Allowances are also provided for loans that are reviewed by management and considered creditworthy and loans for which management determines no review is required. In establishing allowances, management considers historical loan loss experience with an emphasis on current loan quality trends, current economic conditions and other factors in the markets where the subsidiary banks operate. Factors considered include, among others, unemployment rates, the effects of weather on agriculture and significant local economic events, such as major plant closings.

We have developed a methodology for determining the adequacy of the loan loss reserve which is followed by all our subsidiary banks and monitored by ABC’s senior credit officer and internal audit staff. Procedures provide for the assignment of a risk rating for every loan included in our total loan portfolio. The risk rating schedule provides seven ratings of which three ratings are classified as pass ratings and four ratings are classified as criticized ratings. Each risk rating is assigned a percent factor to be applied to the loan balance to determine the adequate amount of reserve. Many of the larger 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 ratings based on the number of days past due. In management’s opinion, the reserve for loan losses at March 31, 2005 was adequate to absorb potential losses in the portfolio.

The provision for loan losses is a charge or credit to earnings in the current period to maintain a level of reserve management determines to be adequate. The provision for loan losses charged to earnings amounted to $152,000 in the first quarter of 2005 compared to $311,000 in the first quarter of 2004. Factors affecting the level of the provision in the current quarter are discussed further in the Management’s Discussion and Analysis portion of this report.

Activity in the allowance for loan losses for the three months ended March 31, 2005 and March 31, 2004 is as follows:

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Note 5. Earnings Per Share and Common Stock

Presented below is a summary of the components used to calculate basic and diluted earnings per share:

Note 6. Stock-Based Compensation

At March 31, 2005, the Company has a stock-based employee compensation plan. The Company accounts for this plan 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 (except for compensation cost associated with restricted shares), as all options granted under this plan 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

Cautionary Statement Regarding Forward-Looking Statements

This Quarterly Report of ABC Bancorp (together with its subsidiaries, the “Company” or “ABC”) 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.

Critical Accounting Policies

The Company has not changed any of its critical accounting policies since changing those policies as disclosed in its annual report on Form 10-K for the year ended December 31, 2004.

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 to manage those requirements. The Company strives to maintain an adequate liquidity position by managing the balances and maturities of

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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 of ABC Bancorp (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, 2005 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, 2005, total capital increased $940,000 to $121,879,000. Of this change, $1,940,000 resulted from the retention of earnings (net of $1,660,000 dividends declared to stockholders), plus $68,000 for the accrual for grants of restricted shares as incentive to certain employees, plus $851,000 related to the exercise of stock options, and a decrease of $1,919,000 in other comprehensive income net of taxes.

At March 31, 2005, ABC had no material binding commitments for capital expenditures. The Company anticipates normal capital expenditures will be required during the remainder of 2005, but does not believe these amounts will be significant.

Results of Operations

The Company’s results of operations are determined by its ability to effectively manage interest income and expense, minimize loan and investment losses, generate noninterest income and 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 net interest margin or net yield, which is taxable-equivalent net interest income divided by average earning assets.

Net interest income is the primary component of consolidated earnings. 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.

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Comparison of Statements of Income

Following is a condensed summary of net income during the three months ended March 31, 2005 and 2004 (dollars in thousands).

Our net income of $3.60 million, or $.30 per diluted share, for the first quarter of 2005 increased $414,000, or 12.99%, compared to $3.19 million, or $.27 per diluted share, for the same period last year. ABC Bancorp’s annualized return on average assets was 1.14% and 1.09% for the first quarter of 2005 and 2004, respectively, while the annualized return on average stockholders’ equity was 11.80% and 11.06%, respectively, for those same periods.

Net interest income increased $1.16 million or 10.60%, to $12.12 million in the three months ended March 31, 2005 as compared to the same period last year.

The provision for loan losses is a charge to income necessary to adjust the allowance for loan losses to an amount that represents management’s assessment of the estimated probable credit losses inherent in the loan portfolio. The provision for loan losses charged to earnings amounted to $152,000 and $311,000 during the three months ended March 31, 2005 and March 31, 2004, respectively. Net charge offs (recoveries) for the first three months of 2005 amounted to ($331,000) as compared to $63,000 for the first three months of 2004. The lower provision for loan losses in 2005 was attributable to a decrease in the loans charged off and an increase in the recoveries of the loans previously charged off. Management will continue to monitor the credit quality of the loan portfolio and will recognize additional provisions in the future as necessary, in the opinion of management, to maintain the allowance for loan losses at an appropriate level.

Following is a comparison of non-interest income for the three months ended March 31, 2005 and 2004 (dollars in thousands).

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Total non-interest income for the three months ended March 31, 2005 totaled $3.60 million, an increase of $270,000 over the same period of 2004. ABC’s other service charges, commissions and fees increased by $93,000, which includes an increase in mortgage fee income of $23,000 and in brokerage and annuities commissions of $70,000. Decreases in service charges on deposit accounts of $58,000 were completely offset by increases in miscellaneous income of $174,000.

Following is an analysis of non-interest expense for the three months ended March 31, 2005 and 2004 (dollars in thousands).

Total non-interest expense for the three months ended March 31, 2005 was $920,000 higher than in the same period in 2004

Much of the increase in non-interest expense was in salaries and benefits, which increased 13.69%. Salaries and employee benefits for the three months ended March 31, 2005 were $715,000 higher than during the same period in 2004. Of this increase, $289,000 is related to the acquisition of Citizens Bank-Wakulla and the remaining $426,000 is due to normal increases in salaries and employee benefits. Amortization of intangible assets was $14,000 higher for the three months ended March 31, 2005 as compared to the quarter ended March 31, 2004, which is due to additional expense related to the purchase of Citizens Bank-Wakulla. Occupancy and equipment expense increased $75,000 to $1.2 million for the first quarter of 2005 as compared to the first quarter of 2004.

Comparison of Balance Sheets

Total assets were $1.260 billion at March 31, 2005, a slight decrease from $1.268 billion at December 31, 2004. Earning assets totaled $1.160 billion, or 92.04% of total assets, at March 31, 2005, compared to $1.168 billion, or 92.11% of total assets, at December 31, 2004.

Total loans outstanding were $888.4 million at March 31, 2005, compared to $877.1 million at December 31, 2004. Loans comprised 76.58% and 75.09% of earning assets at March 31, 2005 and December 31, 2004, respectively.

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 monthly 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 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

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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 $15.98 million and $15.49 million as of March 31, 2005 and December 31, 2004, respectively. The allowance for loan losses as a percentage of total loans was 1.80% and 1.77% as of March 31, 2005 and December 31, 2004, respectively.

Total deposits increased by $6 million, or .61%, to $992 million at March 31, 2005 from $986 million at December 31, 2004. Approximately 14.82% and 15.21% of deposits were non-interest-bearing as of March 31, 2005 and December 31, 2004, respectively.

Non-performing assets include nonaccrual loans, accruing loans contractually past due 90 days or more, repossessed personal property, and other real estate. Loans are placed on nonaccrual status when management has concerns relating to the ability to collect the principal and interest and generally when such loans are 90 days or more past due. A loan is considered impaired when it is probable that not all principal and interest amounts will be collected according to the loan contract.

Non-performing assets were as follows:

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.

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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 11.82% if rates rise gradually over the next year. On the other hand, the model projects net interest income to decrease 15.69% if rates decline over the next year.

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-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, such officers have concluded that, as of such 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 end of the period covered by this report, 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

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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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