Great Pee Dee Bancorp (PEDE) 10QSB 2005 Q3 Quarterly report (small business)

U. S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-QSB

x Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2005

¨ Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period ended            

Commission File Number 0-23521

GREAT PEE DEE BANCORP, INC.

(Exact name of small business issuer as specified in its charter)

DELAWARE	56-2050592
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification Number)

901 CHESTERFIELD HIGHWAY, CHERAW, SC 29520

(Address of principal executive office)

(843) 537-7656

(Issuer’s telephone number)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the past 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  ¨

As of April 28, 2005, 1,797,813 shares of the issuer’s common stock, $.01 par value, were outstanding. The registrant has no other classes of securities outstanding.

		Page No.
Part l.	FINANCIAL INFORMATION
Item 1 -	Financial Statements (Unaudited)
	Consolidated Statements of Financial Condition March 31, 2005 and June 30, 2004	3
	Consolidated Statements of Operations Three Months and Nine Months Ended March 31, 2005 and 2004	4
	Consolidated Statement of Stockholders’ Equity Nine Months Ended March 31, 2005	5
	Consolidated Statements of Cash Flows Nine Months Ended March 31, 2005 and 2004	6
	Notes to Consolidated Financial Statements	7
Item 2 -	Management’s Discussion and Analysis of Financial Condition and Results of Operations	9
Item 3 -	Controls and Procedures	14
Part II.	OTHER INFORMATION
Item 2 -	Unregistered Sales of Equity Securities and Use of Proceeds	15
Item 6 -	Exhibits	15

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Part l. Financial Information

Item 1 - Financial Statements

Great Pee Dee Bancorp, Inc. and Subsidiary

Consolidated Statements of Financial Condition

	March 31, 2005 (Unaudited)			June 30, 2004*
	(In thousands, except share and per share data)
ASSETS
Cash on hand and in banks	$	2,584		$	1,217
Interest-earning balances in other banks		648			657
Federal funds sold		9,902			2,005
Investment securities available for sale, at fair value		27,302			27,847
Loans receivable		143,432			115,824
Allowance for loan losses		(1,472	)		(1,532	)
Loans receivable, net		141,960			114,292
Loans held for sale		151			1,311
Accrued interest receivable		806			578
Restricted stock, at cost		1,652			1,124
Premises and equipment, net		4,140			4,276
Real estate acquired in settlement of loans		188			510
Intangible asset		910			1,048
Other assets		1,789			1,490
TOTAL ASSETS	$	192,032		$	156,355
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Deposit accounts	$	136,731		$	108,945
Advances from Federal Home Loan Bank		28,000			21,000
Accrued interest payable		166			91
Advance payments by borrowers for property taxes and insurance		102			117
Accrued expenses and other liabilities		992			151
TOTAL LIABILITIES		165,991			130,304
STOCKHOLDERS’ EQUITY
Preferred stock, no par value, 400,000 shares authorized, no shares issued and outstanding		—			—
Common stock, $.01 par value, 3,600,000 shares authorized; 2,224,617 shares issued		22			22
Additional paid in capital		21,948			21,982
Unearned compensation		(917	)		(1,058	)
Retained earnings, substantially restricted		11,252			11,162
Accumulated other comprehensive loss		(495	)		(723	)
		31,810			31,385
Common stock in treasury, at cost (426,804 and 412,833 shares, respectively)		(5,769	)		(5,334	)
TOTAL STOCKHOLDERS’ EQUITY		26,041			26,051
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	192,032		$	156,355

* Derived from audited consolidated financial statements

See accompanying notes.

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Great Pee Dee Bancorp, Inc. and Subsidiary

Consolidated Statements of Operations (Unaudited)

	Three Months Ended March 31,				Nine Months Ended March 31,
	2005		2004		2005		2004
	(In thousands except per share data)
INTEREST INCOME
Loans	$	2,235	$	1,797	$	6,102	$	5,468
Investments		274		294		801		797
Deposits in other banks and federal funds sold		22		6		50		18
TOTAL INTEREST INCOME		2,531		2,097		6,953		6,283
INTEREST EXPENSE
Deposit accounts		820		608		2,169		1,922
Borrowed funds		247		170		550		430
TOTAL INTEREST EXPENSE		1,067		778		2,719		2,352
NET INTEREST INCOME		1,464		1,319		4,234		3,931
PROVISION FOR LOAN LOSSES		32		75		56		375
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		1,432		1,244		4,178		3,556
NON-INTEREST INCOME		220		355		782		840
NON-INTEREST EXPENSES
Personnel costs		684		598		1,867		1,522
Occupancy		103		116		411		287
Other		417		387		1,275		1,086
TOTAL NON-INTEREST EXPENSES		1,204		1,101		3,553		2,895
INCOME BEFORE INCOME TAXES		448		498		1,407		1,501
PROVISION FOR INCOME TAXES		161		173		506		545
NET INCOME	$	287	$	325	$	901	$	956
NET INCOME PER SHARE
Basic	$	.17	$	.19	$	.53	$	.57
Diluted		.17		.19		.52		.56
CASH DIVIDEND PER SHARE	$	.16	$	.155	$	.48	$	.450
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic		1,716		1,682		1,715		1,665
Effect of outstanding stock options		16		31		18		40
Assuming dilution		1,732		1,713		1,733		1,705

See accompanying notes.

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Great Pee Dee Bancorp, Inc. and Subsidiary

Consolidated Statement of Stockholders’ Equity (Unaudited)

	Shares of common stock			Par value of of common stock		Additional paid-in capital			Unearned compensation			Retained earnings			Accumulated Other comprehensive loss			Treasury stock			Total stockholders’ equity
	Issued	In treasury
	(In thousands, except share and per share data)
Balance at June 30, 2004	2,224,617	412,833		$	22	$	21,982		$	(1,058	)	$	11,162		$	(723	)	$	(5,334	)	$	26,051
Comprehensive income:
Net income	—	—			—		—			—			901			—			—			901
Unrealized gain on securities available for sale, net of income taxes	—	—			—		—			—			—			228			—			228
Total comprehensive income																						1,129
Purchase of treasury shares	—	37,064			—		—			—			—			—			(574	)		(574	)
Exercise of stock options	—	(23,093	)		—		(106	)		—			—			—			139			33
RRP shares earned	—	—			—		—			47			—			—			—			47
Release of ESOP shares	—	—			—		72			94			—			—			—			166
Cash dividends declared ($.48 per share)		—			—		—			—			(811	)		—			—			(811	)
Balance at March 31, 2005	2,224,617	(426,804	)	$	22	$	21,948		$	(917	)	$	11,252		$	(495	)	$	(5,769	)	$	26,041

See accompanying notes.

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Great Pee Dee Bancorp, Inc. and Subsidiary

Consolidated Statements of Cash Flows (Unaudited)

	Nine Months Ended March 31,
	2005			2004
	(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	901		$	956
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		452			391
Gain on sale of securities		—			(163	)
Gain on sale of foreclosed real estate		(89	)		(22	)
Provision for loan losses		56			375
Release of ESOP shares		166			129
Amortization of stock awards under recognition and retention plan		47			12
Treasury stock issued as compensation		—			41
Decrease in loans held for sale		1,160			264
Change in assets and liabilities:
(Increase) decrease in accrued interest receivable		(228	)		190
Increase (decrease) in accrued interest payable		75			(6	)
Increase in other assets		(443	)		(15	)
Increase in other liabilities		841			58
NET CASH PROVIDED BY OPERATING ACTIVITIES		2,938			2,210
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of available-for-sale investments		(4,000	)		(25,737	)
Proceeds from maturities of held-to-maturity investments		—			17,007
Proceeds from maturities of available-for-sale investments		4,844			—
Net increase in loans		(27,944	)		(7,779	)
Purchase of restricted stock		(528	)		(558	)
Purchases of property and equipment		(105	)		(1,920	)
Proceeds from sale of foreclosed real estate		631			132
NET CASH USED BY INVESTING ACTIVITIES		(27,102	)		(18,855	)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposit accounts		27,786			155
Proceeds from FHLB advances		7,000			13,000
Decrease in advances from borrowers		(15	)		(29	)
Purchase of treasury stock		(574	)		—
Cash dividends paid		(811	)		(764	)
Exercise of stock options		33			15
NET CASH PROVIDED BY FINANCING ACTIVITIES		33,419			12,377
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		9,255			(4,268	)
CASH AND CASH EQUIVALENTS, BEGINNING		3,879			8,912
CASH AND CASH EQUIVALENTS, ENDING	$	13,134		$	4,644

See accompanying notes.

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Great Pee Dee Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

NOTE A - BASIS OF PRESENTATION

In management’s opinion, the unaudited financial information presented in this document reflects all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of the financial information as of and for the three and nine month periods ended March 31, 2005 and 2004, in conformity with accounting principles generally accepted in the United States of America.

The consolidated financial statements include the accounts of Great Pee Dee Bancorp, Inc. (the “Company”) and its wholly-owned subsidiary, Sentry Bank & Trust (“Sentry” or the “Bank”). Operating results for the three and nine- month periods ended March 31, 2005, are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2005.

The organization and business of the Company, accounting policies followed by the Company and other information are contained in the notes to the consolidated financial statements filed as part of the Company’s 2004 Annual Report on Form 10-KSB for the year ended June 30, 2004. This quarterly report should be read in conjunction with such annual report.

NOTE B - SIGNIFICANT ACCOUNTING POLICIES

Statement of Financial Accounting Standards (“SFAS”) No. 123,Accounting for Stock-Based Compensation, encourages all entities to adopt a fair value based method of accounting for employee stock compensation plans, whereby compensation cost is measured at the grant 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 by Accounting Principles Board Opinion No. 25 (“Opinion No. 25”),Accounting for Stock Issued to Employees,whereby compensation cost is the excess, if any, of the quoted market price of the stock at the grant date (or other measurement date) over the amount an employee must pay to acquire the stock. Stock options issued under the Company’s stock option plan have no intrinsic value at the grant date, and, under Opinion No. 25, no compensation cost is recognized for them. The Company has elected to continue with the accounting methodology in Opinion No. 25 and, as a result, has provided pro forma disclosures of net income and earnings per share and other disclosures, as if the fair value based method of accounting had been applied.

	Three Months Ended March 31,						Nine Months Ended March 31,
	2005			2004			2005			2004
	(Amounts in thousands, except per share data)
Net income:
As reported	$	287		$	325		$	901		$	956
Deduct: Total stock-based employee compensation expense determined under fair value method for all awards, net of related tax effects		(22	)		(2	)		(22	)		(28	)
Pro forma	$	265		$	323		$	879		$	928
Basic net income per share:
As reported	$	.17		$	.19		$	.53		$	.57
Pro forma		.15			.19			.51			.56
Diluted net income per share:
As reported	$	.17		$	.19		$	.52		$	.56
Pro forma		.15			.19			.51			.54

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Great Pee Dee Bancorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements

NOTE C - NET INCOME PER SHARE

Basic income per share has been computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. In accordance with accounting principles generally accepted in the United States of America, Employee Stock Ownership Plan (“ESOP”) shares are only considered outstanding for earnings per share calculations when they are earned or committed to be released. Diluted net income per share reflects the dilutive effects of outstanding common stock options.

NOTE D - COMPREHENSIVE INCOME

A summary of comprehensive income is as follows:

	Three Months Ended March 31,						Nine Months Ended March 31,
	2005			2004			2005		2004
	(In thousands)
Net income	$	287		$	325		$	901	$	956
Other comprehensive income:
Reclassification adjustment, net of tax		—			(104	)		—		(104	)
Net increase (decrease) in the fair value of investment securities available for sale, net of tax		(261	)		107			228		129
Total comprehensive income	$	26		$	328		$	1,129	$	981

NOTE E - NEW ACCOUNTING PRONOUNCEMENTS

In December 2004, the Financial Accounting Standards Board issued SFAS No. 123(R),Accounting for Stock-Based Compensation (SFAS No. 123R). SFAS No. 123R establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. This Statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. SFAS No. 123(R) requires that the fair value of such equity instruments be recognized as an expense in the historical financial statements as services are performed. Prior to SFAS No. 123(R), only certain pro forma disclosures of fair value were required. The provisions of the Statement are effective for the Company for fiscal years beginning after December 15, 2005. Accordingly, we will adopt SFAS No. 123 (R) commencing with the fiscal year beginning July 1, 2006. At this time we do not expect the adoption of SFAS No. 123(R) to have a material effect on our consolidated financial statements.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-QSB may contain certain forward-looking statements consisting of estimates with respect to the financial condition, results of operations and business of the Company that are subject to various factors which could cause actual results to differ materially from these estimates. These factors include, but are not limited to, general economic conditions, changes in interest rates, deposit flows, loan demand, real estate values, and competition; changes in accounting principles, policies, or guidelines; changes in legislation or regulation; and other economic, competitive, governmental, regulatory, and technological factors affecting the Company’s operations, pricing, products and services.

Comparison of Financial Condition at

March 31, 2005 and June 30, 2004

Total assets increased by $35.6 million during the nine months ended March 31, 2005, from $156.4 million at June 30, 2004, to $192.0 million at March 31, 2005. The Company’s increase in assets was largely attributable to loan growth.

The Company’s interest-earning liquid assets, including interest-earning balances in other banks, federal funds sold and investment securities increased by $8.7 million, to $40.4 million, during the nine months ended March 31, 2005, representing 21.1% of total assets at that date as compared with $31.7 million or 20.3% of total assets at June 30, 2004.

Net loans receivable grew by $27.7 million from $114.3 million at June 30, 2004, to $142.0 million at March 31, 2005, primarily due to the growth in commercial real estate loans. Of this growth in loans, $14 million was the result of entering into participation agreements with other financial institutions. Funding for this loan growth was provided by deposit growth and additional FHLB advances.

The total balance of customer deposits grew by $27.8 million during the nine-month period ended March 31, 2005. This growth resulted from our additional office location, an expanded marketing program, and brokered CD transactions. Brokered CD transactions amounted to $15.9 million during this period.

Total stockholders’ equity was $26.1 million at June 30, 2004, as compared with $26.0 million at March 31, 2005, a decrease of $100,000. Net income and gains in the market value of available for sale securities were offset by a stock repurchase as well as cash dividends paid. At March 31, 2005, the Bank continued to significantly exceed all applicable regulatory capital requirements.

Comparison of Results of Operations for the

Three Months Ended March 31, 2005 and 2004

Net Income. Net income for the quarter ended March 31, 2005 was $287,000, a decrease of $38,000 from net income of $325,000 for the quarter ended March 31, 2004. On a per share basis, net income for the current quarter was $.17 per diluted share as compared with $.19 per diluted share for the third quarter of the last fiscal year. The decrease in net income was a result of an increase in non-interest expense and a decrease in non-interest income that were partially offset by the increase in net interest income and decrease in the provision for loan losses.

Net Interest Income.Net interest income for the quarter ended March 31, 2005, was $1.5 million as compared with $1.3 million during the quarter ended March 31, 2004. Both interest income and interest expense increased primarily due to the increase in average loans and deposits over the same period last year. The change in market interest rates had a minimal impact on our net interest spread and net interest income.

Provision for Loan Losses.The provision for loan losses totaled $32,000 in the current quarter, compared with $75,000 in the quarter ended March 31, 2004. Growth in loans receivable during the quarter ended March 31, 2005 of $11.4 million along with the decrease in non-performing loans from March 31, 2004 to 2005, reduced the necessary amount of allowance for loan losses when the changes were analyzed in our allowance for loan loss model (see Quantitative Analysis of Allowance for Loan Losses and Qualitative Analysis of Allowance for Loan Losses). The decline of non-performing loans supports an increase in our credit quality. The table under “Nonperforming Assets” outlines the decline of our nonperforming loans. The net recoveries in the quarter ended March 31, 2005 of $10,000 compared to the net charge-offs for the quarter ended March 31, 2004 of $39,000 also reduced the need for additional provision for loan losses. The following table provides an analysis for loan losses for the quarters ended March 31, 2005 and 2004, respectively.

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Quantitative Analysis of Allowance for Loan Losses (dollars in thousands)

	For the three months ended March 31,
	2005			2004
Balance at the beginning of the period	$	1,430		$	1,514
Charge-offs:
Real estate mortgage		—			(53	)
Installment loans to individuals		(16	)		(14	)
		(16	)		(67	)
Recoveries:
Real estate mortgage		13			28
Installment loans to individuals		13			—
		26			28
Net (charge-offs) recoveries		10			(39	)
Provision for loan losses		32			75
Balance at end of period	$	1,472		$	1,550
Ratio of net charge-offs during the period to average loans outstanding during the period		—			.03	%

Non-Interest Income. Non-interest income decreased by $135,000, from $355,000 for the three months ended March 31, 2004 to $220,000 for the three months ended March 31, 2005. In the quarter ended March 31, 2004, gains of $163,000 were recognized from sales of investment securities. No gains or losses on sales of investment securities were recognized for the quarter ended March 31, 2005. When the non-recurring gain on sale of investment securities is removed from non-interest income for the quarter ended March 31, 2004, recurring non-interest income increased by $28,000. This increase is due primarily to a decrease in income from sale of loans in the secondary market offset by an increase in fee income earned from providing investment services.

Non-Interest Expenses. Non-interest expenses increased to $1.2 million for the three-months period ended March 31, 2005 from $1.1 million for the three months ended March 31, 2004, a change of $100,000. This increase resulted primarily from increased personnel costs associated with opening an additional office in February of 2004, as well as increases in other growth-related expenses such as maintenance agreements, office supplies and other expenses associated with servicing an increased volume of loan and deposit accounts.

Provision for Income Taxes. The provision for income taxes, as a percentage of income before income taxes, was 35.9% and 34.7% for the quarters ended March 31, 2005 and 2004, respectively.

Comparison of Results of Operations for the

Nine Months Ended March 31, 2005 and 2004

Net Income. Net income for the nine months ended March 31, 2005 was $901,000, a decrease of $55,000 from net income of $956,000 for the nine months ended March 31, 2004. On a per share basis, net income for the current nine months was $.52 per diluted share as compared with $.56 per diluted share for the same period of the last fiscal year. The decrease in net income was a result of the increase in non-interest expense and a decrease in non-interest income offset by an increase in net interest income and decrease in the provision for loan losses.

Net Interest Income.Net interest income was $4.2 million for the nine months ended March 31, 2005 and $3.9 million for the nine-months ended March 31, 2004, respectively. Both interest income and interest expense increased primarily due to the increase in average loans and deposits over the same period last year. The change in market interest rates had a minimal impact on our net interest spread and net interest income.

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Provision for Loan Losses.The provision for loan losses in the current nine months was $56,000, compared with $375,000 for the nine months ended March 31, 2004. Growth in loans receivable during the nine-months ended March 31, 2005 of $27.7 million along with the decrease in non-performing loans from March 31, 2004 to 2005 of $1.3 million, reduced the necessary amount of allowance for loan losses when the changes were analyzed in our allowance for loan loss model (See Quantitative Analysis of Allowance for Loan Losses and Qualitative Analysis of Allowance for Loan Losses). The decline of non-performing loans supports an increase in our credit quality. The table under “NonperformingAssets” outlines the decline of our nonperforming loans. The net charge-offs for the nine-months ended March 31, 2005 were $116,000 compared to the net charge-offs for the quarter ended March 31, 2004 of $286,000. The following table provides an analysis for loan losses for the nine-months ended March 31, 2005 and 2004, respectively.

Quantitative Analysis of Allowance for Loan Losses (dollars in thousands)

	For the nine months ended March 31,
	2005			2004
Balance at the beginning of the period	$	1,532		$	1,416
Charge-offs:
Real estate mortgage		(44	)		(205	)
Installment loans to individuals		(109	)		(64	)
		(153	)		(269	)
Recoveries:
Real estate mortgage		22			28
Installment loans to individuals		15			—
		37			28
Net (charge-offs) recoveries		(116	)		(286	)
Provision for loan losses		56			375
Balance at end of period	$	1,472		$	1,550
Ratio of net charge-offs during the period to average loans outstanding during the period		.09	%		.25	%

Non-Interest Income. Non-interest income decreased by $58,000 from $840,000 for the nine months ended March 31, 2004 to $782,000 for the nine months ended March 31, 2005. In the nine-months ended March 31, 2004, gains of $163,000 were recognized from sales of investment securities. No gains or losses on sales of investment securities were recognized for the nine-months ended March 31, 2005. When the non-recurring gain on sale of investment securities is removed from non-interest income for the nine-months ended March 31, 2004, recurring non-interest income increased by $105,000. This increase is due primarily to a decrease in income from sale of loans in the secondary market offset by an increase in fee income earned from providing investment services.

Non-Interest Expenses. Non-interest expenses increased from $2.9 million for the nine months ended March 31, 2004 to $3.5 million for the current nine months, an increase of $569,000. This increase resulted primarily from increased personnel costs and occupancy costs associated with opening an additional office in February of 2004, as well as increases in other growth-related expenses such as maintenance agreements, office supplies and other expenses associated with servicing an increased volume of loan and deposit accounts.

Provision for Income Taxes. The provision for income taxes, as a percentage of income before income taxes, was 36.0% and 36.3% for the nine months ended March 31, 2005 and 2004, respectively.

Asset Quality

The Company considers asset quality to be of primary importance, and employs a formal internal loan review process to ensure adherence to the Lending Policy as approved by the Board of Directors. An ongoing systematic evaluation process fundamentally drives the function of determining the allowance for loan losses. This ongoing evaluation process serves as the basis for determining, on a monthly basis, the allowance for loan losses and any resulting

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provision to be charged against earnings. Consideration is given to historical loan loss experience, the value and adequacy of collateral, economic conditions in the Company’s market area and other factors. For loans determined to be impaired, the allowance is based on discounted cash flows using the loan’s initial effective interest rate or the fair value of the collateral for certain collateral dependent loans. This evaluation is inherently subjective as it requires material estimates, including the amounts and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change. The allowance for loan losses represents Management’s estimate of an amount adequate to provide for known and inherent losses in the loan portfolio in the normal course of business.

The Company’s policy regarding past due loans normally requires a prompt charge-off to the allowance for loan losses following timely collection efforts and a thorough review. Further efforts are then pursued through various means available. Loans carried in a non-accrual status are generally collateralized by real estate.

Nonperforming Assets

The following table sets forth, at the dates indicated, information with respect to the Company’s nonaccrual loans, restructured loans, total nonperforming loans (nonaccrual loans plus restructured loans), and total nonperforming assets.

	March 31, 2005			June 30, 2004			March 31, 2004
	(Dollars in thousands)
Nonaccrual loans	$	1,062		$	2,155		$	2,397
Restructured loans		—			—			—
Total nonperforming loans		1,062			2,155			2,397
Real estate and other assets owned		188			510			189
Total nonperforming assets	$	1,250		$	2,665		$	2,586
Accruing loans past due 90 days or more	$	—		$	—		$	—
Allowance for loan losses		1,472			1,532			1,550
Nonperforming loans to period-end loans		.74	%		1.86	%		2.06	%
Allowance for loan losses to period-end loans		1.03	%		1.32	%		1.33	%
Allowance for loan losses to nonperforming loans		138.61	%		71.09	%		64.66	%
Nonperforming assets to total assets		.65	%		1.70	%		1.65	%

The Company’s consolidated financial statements are prepared on the accrual basis of accounting, including the recognition of interest income on loans, except for loans accounted for on a nonaccrual basis. Loans are placed on a nonaccrual basis when there are serious doubts about the collectibility of principal or interest. Generally, the Company’s policy is to place a loan on nonaccrual status when the loan becomes past due 90 days. Loans are also placed on nonaccrual status in cases where it is uncertain as to whether the borrower can satisfy the contractual terms of the loan agreement. Amounts received on nonaccrual loans generally are applied first to principal and then to interest only after all past due principal has been collected. Restructured loans are those for which concessions, including the reduction of interest rates below a rate otherwise available to that borrower or the deferral of interest or principal have been granted due to the borrower’s weakened financial condition. Interest is accrued on restructured loans at the restructured rates when it is anticipated that no loss of original principal will occur. Real estate owned consists of foreclosed, repossessed and idled properties.

Qualitative Analysis of Allowance for Loan Losses

Due to the estimation process and the potential materiality of the amounts involved, the Company has identified the accounting for the allowance for loan losses and the related provision for loan losses as an accounting policy critical to the Company’s consolidated financial statements. The provision for loan losses charged to operations is an amount sufficient to bring the allowance for loan losses to an estimated balance considered adequate to absorb losses inherent in the portfolio.

Management’s determination of the adequacy of the allowance is based primarily on a mathematical model that estimates the appropriate allowance for loan losses. This model has two components. The first component involves the estimation of losses on loans defined as “impaired loans.” A loan is considered to be impaired when, based on

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current information and events, it is probable the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. The estimated valuation allowance is the difference, if any, between the loan balance outstanding and the value of the impaired loan as determined by either 1) an estimate of the cash flows that the Company expects to receive from the borrower discounted at the loan’s effective rate, or 2) in the case of a collateral-dependent loan, the fair value of the collateral.

The second component of the allowance model is to estimate losses for all loans not considered to be impaired loans. First, loans that have been risk graded by the Company as having more than “standard” risk but are not considered to be impaired are assigned estimated loss percentages generally accepted in the banking industry. Loans that are classified by the Company as having normal credit risk are segregated by loan type, and estimated loss percentages are assigned to each loan type, based on the historical losses, current economic conditions, and operational conditions specific to each loan type. Non-performing loans typically have a higher risk grade and therefore are assigned a higher percentage of allowance for loan loss.

The reserve estimated for impaired loans is then added to the reserve estimated for all other loans. This becomes the Company’s “allocated allowance.” In addition to the allocated allowance derived from the model, management also evaluates other data such as the ratio of the allowance for loan losses to total loans, net loan growth information, nonperforming asset levels and trends in such data. Based on this additional analysis, the Company may determine that an additional amount of allowance for loan losses is necessary to reserve for probable loan losses. This additional amount, if any, is the Company’s “unallocated allowance.” The sum of the allocated allowance and the unallocated allowance is compared to the actual allowance for loan losses recorded on the books of the Company and any adjustment necessary for the recorded allowance to equal the computed allowance is recorded as a provision for loan losses. The provision for loan losses is a direct charge to earnings in the period recorded.

Although management uses the best information available to make evaluations, future adjustments may be necessary if economic, operational, or other conditions change. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance based on the examiners’ judgment about information available to them at the time of their examinations.

As part of its ongoing review of the asset quality, the Company revised its allowance for loan loss model in August of 2004 to better reflect the Company’s charge-off experience and the nature of its loan portfolio. This change resulted in a larger percentage of the allowance for loan loss reserve being included in the portion allocated to specific loan types and a smaller percentage in the unallocated portion. Also, it was determined that a smaller percentage of unallocated allowance for loan losses was necessary due to an improvement in the process assigning risks to specific loans and loan types.

The following table outlines the allocation of the allowance for loan losses for each reported period and reflects the result of the change in the allowance for loan loss model as discussed above.

Allocation of the Allowance for Loan Losses (dollars in thousands)

	As of March 31, 2005				As of June 30, 2004
	Amount		Percent of loans in each category to total loans		Amount		Percent of loans in each category to total loans
Commercial, Financial & Agricultural	$	125	8.5	%	$	19	1.2	%
Real Estate - construction		44	3.0	%		73	4.8	%
Real Estate - mortgage		916	62.3	%		932	60.8	%
Installment loans to individuals		150	10.2	%		176	11.5	%
Other		29	1.9	%		—	—
Unallocated		208	14.1	%		332	21.7	%
	$	1,472	100.0	%	$	1,532	100.0	%

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Liquidity and Capital Resources

During the quarter ended March 31, 2005, the Company paid cash dividends of $0.16 per share. Although the Company anticipates that it will continue to declare cash dividends on a regular basis, the Board of Directors will review its policy on the payment of dividends on an ongoing basis, and such payment will be subject to future earnings, cash flows, capital needs, and regulatory restrictions.

Maintaining adequate liquidity while managing interest rate risk is the primary goal of Great Pee Dee Bancorp’s asset and liability management strategy. Liquidity is the ability to fund the needs of the Bank’s borrowers and depositors, pay operating expenses, and meet regulatory liquidity requirements. Maturing investments, loan and mortgage-backed security principal repayments, deposits and income from operations are the main sources of liquidity. The Bank’s primary uses of liquidity are to fund loans and to make investments.

As of March 31, 2005 liquid assets (cash, interest-earning deposits, federal funds sold and investment securities) were approximately $40.4 million, which represents 29.6% of deposits. At that date, outstanding loan commitments were $5.6 million. The undisbursed portion of construction loans was $10.4 million and undrawn lines of credit totaled $4.4 million. The brokered CD’s are not scheduled to mature within the next year. Funding for these commitments is expected to be provided from deposits, loan principal repayments, maturing investments, income generated from operations and, to the extent necessary, from borrowings.

Under federal capital regulations, Sentry must satisfy certain minimum leverage ratio requirements and risk-based capital requirements. Failure to meet such requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. At March 31, 2005, Sentry exceeded all such requirements and is considered “well capitalized” under current regulatory capital guidelines.

The Bank is restricted in its ability to pay dividends and to make distributions. Significant sources of the Company’s funds are dividends received from the Bank. In fiscal 2005, the amount of dividends that can be paid by the Bank without prior approval from regulators is an amount that should be adequate to cover the Company’s cash requirements.

Item 3. CONTROLS AND PROCEDURES

As of the end of the period covered by this report, the Company carried out an evaluation under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-15(e). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company required to be included in the Company’s periodic SEC Filings. There have been no significant changes in internal control over financial reporting during the period covered by this quarterly report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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Part II. OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Repurchases of registered common stock by the Company:

Period	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
February 1st through February 28th, 2005	37,064	$	15.50	—	74,739

(1) The repurchases of common stock for the quarter were not part of the publicly announced share repurchase program. The repurchases were a result of a specifically negotiated transaction.

(2) The existing stock repurchase plan was announced on August 15, 2000 and approved the repurchase of up to 10% of shares of outstanding common stock at that time (168,600 shares of common stock). Subsequently, this plan was adjusted by the 10% stock dividend in November 2001. The program does not contain an expiration date. The Company does not intend to discontinue stock repurchases under this plan.

Item 6. Exhibits

Exhibit #	Description
31.1	Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)
31.2	Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)
32	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	GREAT PEE DEE BANCORP, INC.
Date: May 13, 2005	By:	/s/ Herbert W. Watts
		Herbert W. Watts
		Chief Executive Officer
Date: May 13, 2005	By:	/s/ John M. Digby
		John M. Digby
		Chief Financial Officer

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