SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report under Section 13 or 15(d) of the Securities Exchange
- --- Act of 1934 For the quarterly period ended June 30, 2001.
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or
- --- Transition Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the transition period from _______________ to ________________.
Commission File No. 0-23980
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Georgia Bank Financial Corporation
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(Exact name of registrant as specified in its charter)
Georgia 58-2005097
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(State of Incorporation) (I.R.S. Employer Identification No.)
3530 Wheeler Road, Augusta, Georgia 30909
-----------------------------------------
(Address of principal executive offices)
(706) 738-6990
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(Issuer's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:
2,385,538 shares of common stock, $3.00 par value per share, outstanding as
of June 30, 2001.
GEORGIA BANK FINANCIAL CORPORATION
FORM 10-Q
INDEX
Page
Part I Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of June 30, 2001 and
December 31, 2000 3
Consolidated Statements of Income for the three months
ended June 30, 2001 and June 30, 2000 and the
six months ended June 30, 2001 and June 30, 2000 4
Consolidated Statements of Cash Flows for the
six months ended June 30, 2001 and June 30, 2000 5
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk 17
Part II Other Information
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security-Holders 18
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
Signature 20
* No information submitted under this caption
1
PART I
FINANCIAL INFORMATION
2
GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
(Unaudited)
ASSETS
June 30, December 31,
2001 2000
-----------------------------------------------
Cash and due from banks $ 15,738,961 $ 14,674,253
Federal funds sold 20,321,000 10,820,000
Interest bearing deposits in other banks 516,665 500,000
------------ ------------
Cash and cash equivalents 36,576,626 25,994,253
Investment Securities
Available-for-sale 83,939,943 73,660,371
Held-to-maturity, at cost (fair values of
$8,237,159 and $8,662,286, respectively) 8,068,896 8,613,741
Loans 314,500,248 283,573,028
Less allowance for loan losses (4,538,505) (4,142,841)
------------ ------------
Loans, net 309,961,743 279,430,187
Premises and equipment, net 12,450,903 10,710,745
Accrued interest receivable 3,562,759 3,537,384
Intangible assets, net 308,178 369,721
Other assets 3,955,570 3,474,611
------------ ------------
$458,824,618 $405,791,013
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Non-interest bearing $ 52,056,599 $ 50,138,476
Interest bearing
NOW accounts 46,235,014 40,319,547
Savings 115,610,024 96,880,744
Money management accounts 18,094,239 15,246,131
Time deposits over $100,000 61,931,031 54,325,411
Other time deposits 63,452,135 54,017,455
------------ ------------
357,379,042 310,927,764
Federal funds purchased and securities sold
under repurchase agreements 24,381,702 32,095,552
Advances from Federal Home Loan Bank 35,000,000 24,000,000
Other borrowed funds 1,000,000 950,000
Accrued interest and other liabilities 3,942,260 3,434,153
------------ ------------
Total liabilities 421,703,004 371,407,469
------------ ------------
Stockholders' equity
Common Stock, $3.00 par value; authorized 10,000,000
shares; issued 2,407,125 in 2001 and 2,093,152 in 2000;
outstanding 2,385,538 in 2001 and 2,074,381 in 2000 7,221,375 6,279,456
Additional paid-in capital 30,586,217 21,259,955
Retained earnings 9,169,927 7,168,491
Stock dividend declared (10,268,181) -
Accumulated other comprehensive income 919,636 183,002
Treasury Stock, at cost, 18,771 shares (507,360) (507,360)
------------ ------------
Total stockholders' equity 37,121,614 34,383,544
------------ ------------
$458,824,618 $405,791,013
============ ============
See accompanying notes to consolidated financial statements.
3
GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Income
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------------------------------------------
2001 2000 2001 2000
---------- ---------- ----------- -----------
Interest Income:
Loans, including fees $6,823,476 $5,921,055 $13,395,608 $11,503,838
Investment securities 1,389,808 1,200,956 2,676,745 2,354,445
Federal funds sold 81,505 212,054 245,176 309,660
Interest bearing deposits in other banks 7,478 14,344 15,177 14,344
---------- ---------- ----------- -----------
Total interest income 8,302,267 7,348,409 16,332,706 14,182,287
---------- ---------- ----------- -----------
Interest Expense:
Deposits 3,455,852 3,131,088 6,899,771 6,026,744
Federal funds purchased and securities sold
under repurchase agreements 169,554 174,908 454,197 304,835
Other borrowings 443,920 265,429 808,624 498,623
---------- ---------- ----------- -----------
Total interest expense 4,069,326 3,571,425 8,162,592 6,830,202
---------- ---------- ----------- -----------
Net Interest Income 4,232,941 3,776,984 8,170,114 7,352,085
Provision for loan losses 405,000 240,000 795,000 498,000
---------- ---------- ----------- -----------
Net interest income after provision for loan losses 3,827,941 3,536,984 7,375,114 6,854,085
---------- ---------- ----------- -----------
Non-interest Income:
Service charges and fees on deposits 677,406 591,938 1,335,479 1,141,377
Gain on sale of loans 902,487 119,669 1,459,400 238,513
Investment securities gains (losses), net 10,265 - 14,984 (28,517)
Miscellaneous income 193,231 195,182 380,012 362,117
---------- ---------- ----------- -----------
Total non-interest income 1,783,389 906,789 3,189,875 1,713,490
---------- ---------- ----------- -----------
Non-interest Expense:
Salaries 1,995,216 1,321,709 3,656,949 2,533,641
Employee benefits 574,383 392,803 1,066,932 753,370
Occupancy expenses 516,378 432,816 975,628 865,076
Other operating expenses 988,253 785,745 1,902,320 1,515,853
---------- ---------- ----------- -----------
Total non-interest expense 4,074,230 2,933,073 7,601,829 5,667,940
---------- ---------- ----------- -----------
Income before income taxes 1,537,100 1,510,700 2,963,160 2,899,635
Income tax expense 521,000 535,500 961,724 1,014,700
---------- ---------- ----------- -----------
Net Income $1,016,100 $ 975,200 $ 2,001,436 $ 1,884,935
========== ========== =========== ===========
Basic income per share $ 0.43 $ 0.41 $0.84 $ 0.78
Diluted net income per share $ 0.43 $ 0.41 $0.84 $ 0.78
Weighted average common shares outstanding 2,385,538 2,402,056 2,385,538 2,404,590
Weighted average number of common and common
equivalent shares outstanding 2,389,798 2,402,056 2,389,187 2,404,590
See accompanying notes to consolidated financial statements.
4
GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended June 30,
--------------------------------------------
2001 2000
------------ -----------
Cash flows from operating activities
Net income $ 2,001,436 $ 1,884,935
Adjustments to reconcile net income to net cash (used in)
provided by operating activities
Depreciation and amortization 581,102 561,062
Provision for loan losses 795,000 498,000
Net investment securities (gains) losses (14,984) 28,517
Net accretion of discount on investment securities (24,584) (21,031)
Loss (gain) on disposal of premises and equipment 47,569 (53,883)
Gain on the sale of other real estate (132) -
Gain on sale of loans (1,459,400) (238,513)
Real estate loans originated for sale (80,571,524) (13,932,295)
Proceeds from sales of real estate loans 77,191,585 14,343,095
Net increase in accrued interest receivable (25,375) (395,092)
Net increase in other assets (808,564) (547,107)
Net increase in accrued interest and other liabilities 508,107 2,321,173
------------ -----------
Net cash (used in) provided by operating activities (1,779,764) 4,448,861
------------ -----------
Cash flows from investing activities
Proceeds from sales of available-for-sale securities 5,288,420 2,927,861
Proceeds from maturities of available-for-sale securities 18,680,555 2,179,146
Proceeds from maturities of held-to-maturity securities 540,808 132,772
Purchase of held-to-maturity securities - (1,357,570)
Purchase of available-for-sale securities (32,540,725) (14,364,704)
Purchase of FHLB stock (550,000) (171,600)
Net increase in loans (26,633,453) (18,648,555)
Net purchase of premises and equipment (2,341,267) (596,823)
Proceeds from the sale of other real estate 96,390 -
Proceeds from the sale of premises and equipment 33,981 575,668
------------ -----------
Net cash used in investing activities (37,425,291) (29,323,805)
------------ -----------
Cash flows from financing activities
Net increase in deposits 46,451,278 19,571,385
Net (decrease) increase in federal funds purchased and
securities sold under repurchase agreements (7,713,850) 6,534,643
Proceeds from notes and bonds payable 50,000 -
Payments on notes and bonds payable - (100,000)
Advances from Federal Home Loan Bank 11,000,000 17,000,000
Payments of Federal Home Loan Bank advances - (15,000,000)
Purchase of treasury stock - (258,392)
------------ -----------
Net cash provided by financing activities 49,787,428 27,747,636
------------ -----------
5
GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended June 30,
--------------------------------------------
2001 2000
------------ -----------
Net increase in cash and cash equivalents 10,582,373 2,872,692
Cash and cash equivalents at beginning of period 25,994,253 23,472,007
------------ -----------
Cash and cash equivalents at end of period $ 36,576,626 $26,344,699
============ ===========
Supplemental disclosures of cash paid during the period for:
Interest $ 7,524,221 $ 6,178,535
============ ===========
Income taxes $ 997,000 $ 12,000
============ ===========
Supplemental disclosures of noncash investing activities -
Loan foreclosures transferred to other real estate $ 146,236 $ -
============ ===========
See accompanying notes to consolidated financial statements.
6
GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2001
Note 1 - Basis of Presentation
The accompanying financial statements include the accounts of Georgia Bank
Financial Corporation and its wholly-owned subsidiary, Georgia Bank & Trust
Company. Significant intercompany transactions and accounts are eliminated in
the consolidation.
The financial statements for the three months and six months ended June 30, 2001
and 2000 are unaudited and have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X promulgated by the
Securities and Exchange Commission. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. These consolidated financial statements
should be read in conjunction with the audited consolidated financial statements
and footnotes included in the Company's annual report on Form 10-K for the year
ended December 31, 2000.
In the opinion of management, all adjustments necessary to present fairly the
financial position and the results of operations and cash flows for the interim
periods have been made. All such adjustments are of a normal recurring nature.
The results of operations for the three and six months ended June 30, 2001 are
not necessarily indicative of the results of operations which the Company may
achieve for the entire year.
Note 2 - Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS) No. 133. SFAS No. 133 is effective
for financial statements for all fiscal quarters of fiscal years beginning
after June 15, 1999. In June 1999, the FASB issued SFAS No. 137, "Accounting
for Derivative Instruments and Hedging Activities - Deferral of the effective
date of FASB Statement No. 133." SFAS No. 133, as amended, is now effective for
all fiscal quarters of all fiscal years beginning after June 15, 2000. The
Company adopted SFAS No. 133, as amended, effective January 1, 2001. The
adoption of SFAS No. 133, as amended, did not have a material impact on the
consolidated financial statements.
In July 2001, FASB issued SFAS No. 141, Business Combinations, and SFAS No. 142,
Goodwill and Other Intangible Assets. SFAS No. 141 requires that the purchase
method of accounting be used for all business combinations initiated after June
30, 2001 as well as all purchase method business combinations completed after
June 30, 2001. SFAS No. 141 also specifies criteria intangible assets acquired
in a purchase method business combination must meet to be recognized and
reported apart from goodwill. SFAS No. 142 will require that goodwill and
intangible assets with indefinite useful lives no longer be amortized, but
instead tested for impairment at least annually in accordance with the
provisions of SFAS No. 142. SFAS No. 142 will also require that intangible
assets with definite useful lives be amortized over their respective estimated
useful lives to their estimated residual values, and reviewed for impairment in
accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of.
The Company is required to adopt the provisions of SFAS No. 141 immediately and
SFAS No. 142 effective January 1, 2002. Furthermore, any goodwill and any
intangible asset determined to have an indefinite useful life that are acquired
in a purchase business combination completed after June 30, 2001 will not be
amortized, but will continue to be evaluated for impairment in accordance with
the appropriate pre-SFAS No. 142 accounting literature. Goodwill and intangible
assets acquired in business combinations completed before July 1, 2001 will
continue to be amortized prior to the adoption of SFAS No. 142.
7
SFAS No. 141 will require upon adoption of SFAS No. 142, that the Company
evaluate its existing intangible assets and goodwill that were acquired in a
prior purchase business combination, and to make any necessary reclassifications
in order to conform with the new criteria in SFAS No. 141 for recognition apart
from goodwill. Upon adoption of SFAS No. 142, the Company will be required to
reassess the useful lives and residual values of all intangible assets acquired
in purchase business combinations, and make any necessary amortization period
adjustments by the end of the first interim period after adoption. In addition,
to the extent an intangible asset is identified as having an indefinite useful
life, the Company will be required to test the intangible asset for impairment
in accordance with the provisions of SFAS No. 142 within the first interim
period. Any impairment loss will be measured as of the date of adoption and
recognized as the cumulative effect of a change in accounting principle in the
first interim period.
At June 30, 2001, the Company had net intangible assets of approximately
$308,000. Because of the extensive effort needed to comply with adopting SFAS
No. 141 and SFAS No. 142, it is not practicable to reasonably estimate the
impact of adopting these statements on the Company's financial statements at the
date of this report, including whether any transitional impairment losses will
be required to be recognized as the cumulative effect of a change in accounting
principle.
Note 3 - Comprehensive Income
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income". SFAS No. 130 establishes
standards for reporting and displaying comprehensive income and its components
in a full set of general purpose financial statements. The primary component of
the differences between net income and comprehensive income for the Company is
net unrealized gains and losses on investment securities. Total comprehensive
income for the six months ended June 30, 2001 was $2,738,070 compared to
$2,000,729 for the six months ended June 30, 2000. Total comprehensive income
for the three months ended June 30, 2001 was $1,164,735 compared to $718,358 for
the three months ended June 30, 2000.
Note 4 - Stock Dividend Declared
On July 18, 2001, the board of directors of the Company declared a 15% stock
dividend for shareholders of record on August 10, 2001 which is payable on
August 31, 2001. Stockholders' equity, including shares, at June 30, 2001, has
been retroactively restated to reflect the stock dividend. All per share
amounts and weighted average shares outstanding have been restated to reflect
the stock dividend.
8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-Looking Statements
- --------------------------
Georgia Bank Financial Corporation (the "Company") may, from time-to-time, make
written or oral forward-looking statements, including statements contained in
the Company's filings with the Securities and Exchange Commission (the
"Commission") and its reports to shareholders. Statements made in such
documents, other than those concerning historical information, should be
considered forward-looking and subject to various risks and uncertainties. Such
forward-looking statements are made based upon management's belief as well as
assumptions made by, and information currently available to, management pursuant
to "safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. The Company's actual results may differ materially from the results
anticipated in forward-looking statements due to a variety of factors, including
governmental monetary and fiscal policies, deposit levels, loan demand, loan
collateral values, securities portfolio values, and interest rate risk
management; the effects of competition in the banking business from other
commercial banks, savings and loan associations, mortgage banking firms,
consumer finance companies, credit unions, securities brokerage firms, insurance
companies, money market mutual funds and other financial institutions operating
in the Company's market area and elsewhere, including institutions operating
through the Internet; changes in governmental regulation relating to the banking
industry, including regulations relating to branching and acquisitions; failure
of assumptions underlying the establishment of reserves for loan losses,
including the value of collateral underlying delinquent loans, and other
factors. The Company cautions that such factors are not exclusive. The Company
does not undertake to update any forward-looking statement that may be made from
time to time by, or on behalf of, the Company.
Performance Overview
- ---------------------
The Company's net income for the second quarter of 2001 was $1,016,000, which
was an increase of $41,000 (4.2%) compared to net income of $975,000 for the
second quarter of 2000. Earnings per share were $0.43 for the second quarter of
2001 compared to $0.41 for the second quarter of 2000. Earnings per share for
both periods have been adjusted to reflect the 15% stock dividend declared which
is discussed above. Net income for the first six months of 2001 was $2,001,000,
an increase of $116,000 (6.2%) compared with net income of $1,885,000 for the
first six months of 2000. Increases in loan and investment volumes in both the
three months and the six months ended June 30, 2001 produced increases in loan
income and fees and investment income, despite lower rates. The mortgage
operations expansion and the increased refinancings accounted for a $5.0 million
increase in mortgage loans held for sale for the twelve months ended June 30,
2001 and a $3.3 million increase since December 31, 2000. Increases in deposits
and other borrowing interest expense are due to deposit growth as well as
increases in Federal Home Loan Bank borrowings. The ratio of allowance for loan
losses to total loans has remained fairly consistent, resulting in a higher loan
loss provision to support increased loan volumes for both the three and six
months ended June 30, 2001 compared to the same periods in 2000. Increases in
non-interest income for the three months and six months ended June 30, 2001 is
primarily
9
attributable to increased gains on sale of mortgage loans in the secondary
market which was driven by the lower interest rate environment during 2001.
Increases in non-interest expense are primarily related to personnel expense due
to the mortgage operations expansion, establishment of a trust department in
March 2000, and overall company growth.
The Company opened a full service branch in Evans, GA in May 2001. In addition,
during the first six months of 2001, the Company converted it's core software
and hardware computer systems to an enhanced system.
On July 18, 2001, the Board of Directors declared a 15% stock dividend. The
dividend is payable August 31, 2001 to shareholders of record on August 10,
2001.
Total assets increased $53.0 million (13.1%) from December 31, 2000 and $84.7
million (22.6%) from June 30, 2000. For the six months ended June 30, 2001, the
$53.0 million of growth was attributable to growth in loans of $30.9 million,
investments of $9.7 million, and federal funds sold of $9.5 million. Deposits
increased $46.5 million, Federal Home Loan Bank advances increased $11.0 million
and securities sold under repurchase agreements decreased $7.7 million during
the six months ended June 30, 2001. For the twelve months ended June 30, 2000,
loans increased $57.1 million, investments increased $13.8 million, and federal
funds sold increased $8.0 million. Premises and equipment increased $2.4
million, due to the new branch which opened in late May 2001 as well as the
purchase of new core software and hardware computer systems. During the past
twelve months, deposits increased $54.7 million, Federal Home Loan Bank advances
increased $18.0 million, and securities sold under repurchase agreements
increased $6.5 million.
The return on average assets for the Company was .95% for the six months ended
June 30, 2001, compared to 1.03% for the same period last year. The return on
average stockholders' equity was 11.27% for the six months ended June 30, 2001,
versus 12.10% for the comparable period in 2000. The decrease in the return on
average assets and return on average stockholders' equity is due to the
Company's growth.
Net Interest Income
- -------------------
Net interest income increased $455,957 (12.1%) over the second quarter of 2000
and $818,029 (11.1%) during the first six months of 2001 over the comparable
period in 2000, primarily due to increases in loans outstanding. Despite lower
interest rates during 2001, the Company experienced increases in loan interest
income, including fees, of $902,000 (15.2%) for the three months ended June 30,
2001 compared to the three months ended June 30, 2000 and $1.9 million (16.4%)
for the six months ended June 30, 2001 over the comparable six month period in
2000. Increases in investment volumes resulted in increased investment interest
income of $189,000 and $322,000 for the three months and six months ended June
30, 2001, respectively, over the three months and six months ended June 30,
2000, respectively. Decreases in volume of federal funds sold and interest rates
during 2001 resulted in decreases in interest income from federal funds sold
during the three months and six months ended June 30, 2001. Interest earning
assets were $427.3 million at June 30, 2001, an increase of $78.9 million over
June 30, 2000 and $50.2
10
million over year-end 2000. Increases in deposit volumes resulted in increases
in deposit interest expense of $325,000 (10.4%) for the second quarter of 2001
over the second quarter of 2000 and $873,000 (14.5%) for the six months ended
June 30, 2001 over the comparable six month period ended June 30, 2000.
Increases in advances from the Federal Home Loan Bank accounted for increases in
other borrowings interest expense of $178,000 for the three-month period ended
June 30, 2001 over the three months ended June 30, 2000 and $310,000 for the six
months ended June 30, 2001 over the six months ended June 30, 2000. Although the
volume of securities sold under repurchase agreements increased in the second
quarter 2001 as compared to the second quarter of 2000, the decrease in the
prime rate resulted in a decrease in interest expense for the three months ended
June 30, 2001 compared to the three months ended June 30, 2000. For the six-
month period ended June 30, 2001, the volume increase in securities sold under
repurchase agreements coupled with the decrease in the prime rate resulted in a
$149,000 increase in expense when compared to the six months ended June 30,
2000.
The Company's net interest margin for the three months and six months ended June
30, 2001 was 4.27% and 4.14%, respectively, compared to 4.35% and 4.24% for the
three and six months ended June 30, 2000, respectively.
Non-interest Income
- -------------------
Non-interest income increased $877,000 (96.7%) during the three-month period
ended June 30, 2001 compared to the three-month period ended June 30, 2000 and
$1.5 million (86.2%) during the six-month period ended June 30, 2001 compared to
the six-month period ended June 30, 2000. Fee income from origination and sale
of mortgages in the secondary market increased $783,000 (654.2%) during the
three-month period June 30, 2001 compared to the three-month period ended June
30, 2000 and $1.2 million (511.9%) during the six-month period ended June 30,
2001 compared to the six-month period ended June 30, 2000. These increases are
directly related to the expansion of the mortgage operations in Augusta, GA in
June 2000, the acquisition of an additional mortgage office in Savannah, GA in
September 2000, and the addition of the Nashville, TN mortgage office in March
2001 coupled with the increases in refinancings during 2001 due to the decrease
in the prime rate. Management expects that refinancings will slow as the year
continues. Increases in deposit account balances resulted in increases in
service charges and fees on deposits of $85,000 (14.4%) and $194,000 (17.0%)
during the three and six months ended June 30, 2001, respectively, compared to
the three and six months ended June 30, 2000.
Non-interest Expense
- --------------------
Non-interest expense totaled $4.1 million for the second quarter of 2001, an
increase of $1.1 million (38.9%) over the second quarter of 2000. Non-interest
expense totaled $7.6 million for the six months ended June 30, 2001 an increase
of $1.9 million (34.1%), over the comparable period in 2000. Salary and benefits
expense of $2.0 million and $3.7 million for the three and six months ended June
30, 2001, respectively, increased $855,000 (49.9%) over the second quarter of
2000 and $1.4 million (43.7%) over the six months ended June 30, 2000. Increases
in trust personnel in March 2000, continued increases in mortgage personnel, and
overall company growth accounted for these increases. Occupancy expense
increased $84,000 (19.3%) during the
11
three months ended June 30, 2001 when compared to the second quarter of 2000 and
$111,000 (12.8%) during the six months ended June 30, 2001 when compared to the
six-month period in 2000. Increases in depreciation expense due to the new
computer system, automobile maintenance, rent expense and electricity due to
additional mortgage offices in Savannah, GA and Nashville, TN, account for the
increase in occupancy expense. Other operating expenses increased $203,000
(25.8%) during the three months ended June 30, 2001 when compared to the second
quarter of 2000 and $386,000 (25.5%) during the six months ended June 30, 2001
when compared to the six months ended June 30, 2000. These increases resulted
primarily from the loss on the disposal of the previous core computer system in
2001, increased marketing expenditures, increased processing expenses, primarily
ATM Processing and Internet Banking expense due to the increased number of
customers using these products, increased postage due primarily to mortgage
mailings to investors, increased office and computer supplies due to the
mortgage expansion and the computer conversion, increases in data processing
expense due to the computer conversion and new software and hardware maintenance
agreements, increases in communications expense due to the mortgage expansion
and computer lines to mortgage offices and increases in professional fees for
computer conversion consulting.
Income Taxes
- ------------
Income tax expense for the second quarter of 2001 totaled $521,000, a decrease
of $15,000 from the second quarter of 2000. Income tax expense for the six
months ended June 30, 2001 totaled $962,000 for an effective tax rate of 32.46%
compared to 34.99% for the six months ended June 30, 2000. The decrease in the
effective tax rate for the six months ended June 30, 2001 is due to increased
tax-exempt income. Income taxes are estimated on a quarterly basis.
Asset Quality
- -------------
Table 1 which follows shows the current and prior period amounts of non-
performing assets. Non-performing assets were $1.6 million at June 30, 2001,
compared to $2.0 million at December 31, 2000 and $1.1 million at June 30, 2000.
The ratio of non-performing assets to total loans and other real estate was
0.50% at June 30, 2001, compared to 0.72% at December 31, 2000 and .43% at June
30, 2000. The control and monitoring of non-performing assets continues to be
management's priority.
Loans past due 90 days or more and still accruing were $182,000 at June 30, 2001
compared to $0 at December 31, 2000 and $280,000 at June 30, 2000. Of the
$182,000 of loans past due 90 days or more, $154,000 were put on nonaccrual
status and $28,000 were paid off in July 2001.
Net charge-offs for the six month period ending June 30, 2001 were $400,000 or
0.13% of average loans as compared to the net charge-offs of $184,000 or 0.08%
for the same period in 2000.
Additions to the allowance for loan losses are made periodically to maintain the
allowance at an appropriate level based upon management's analysis of potential
risk in the loan portfolio. The amount of the loan loss provision is determined
by an evaluation of the level of loans
12
outstanding, the level of non-performing loans, historical loan loss experience,
delinquency trends, the amount of actual losses charged to the allowance in a
given period, and an assessment of economic conditions. A provision for losses
in the amount of $405,000 was charged to expense for the quarter ended June 30,
2001. At June 30, 2001, the ratio of allowance for loan losses to total loans
was 1.44%, as compared to 1.46% at December 31, 2000 and 1.54% at June 30, 2000.
Management considers the current allowance for loan losses appropriate based
upon its analysis of the potential risk in the portfolio, although there can be
no assurance that the assumptions underlying such analysis will continue to be
correct.
Liquidity and Capital Resources
- -------------------------------
The Company's liquidity remains adequate to meet operating and loan funding
requirements. The loan to deposit ratio at June 30, 2001 was 88.00% compared to
91.20% at December 31, 2000 and 85.03% at June 30, 2000. Loans increased $57.1
million from June 30, 2000 and $30.9 million during the first six months of 2001
while deposits increased $54.7 million from June 30, 2000 and increased $46.5
million during the first six months of 2001. The Company also uses Federal
Home Loan Bank borrowings and securities sold under repurchase agreements to
fund loan growth. FHLB borrowings increased $18.0 million from June 30, 2000
and $11.0 million from December 31, 2000. Securities sold under repurchase
agreements increased $6.5 million from June 30, 2000 and decreased $7.7 million
from December 31, 2000. The Company has an additional $5.0 million credit line
available at the Federal Home Loan Bank at June 30, 2001.
Shareholders' equity to total assets was 8.09% at June 30, 2001 compared to
8.44% at June 30, 2000 and 8.47% at December 31, 2000. This decrease is
reflective of the growth experienced by the Company. The capital of the Company
and the Bank exceeded all required regulatory guidelines at June 30, 2001. The
Company's Tier 1 risk-based, total risk-based and the leverage capital ratios
were 10.31%, 11.56%, and 8.13%, respectively, at June 30, 2001. Table 2 which
follows reflects the current regulatory capital levels in more detail, including
comparisons to the regulatory minimums.
Management is not aware of any events or uncertainties that are reasonably
likely to have a material effect on the Company's liquidity, capital resources
or operations.
Effects of Inflation and Changing Prices
- ----------------------------------------
Inflation generally increases the cost of funds and operating overhead and to
the extent loans and other assets bear variable rates, the yields on such
assets. Unlike most industrial companies, virtually all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates generally have a more significant impact on the performance of a
financial institution than the effects of general levels of inflation. Although
interest rates do not necessarily move in the same direction and to the same
extent as the prices of goods and services, increases in inflation generally
have resulted in increased interest rates. In addition, inflation can increase
a financial institution's cost of goods and services purchased, the cost of
salaries and benefits, occupancy expense and similar items. Inflation and
related increases in interest rates
13
generally decrease the market value of investments and loans held and may
adversely affect liquidity, earnings, and stockholders' equity. Mortgage
originations and refinancings tend to slow as interest rates increase, and can
reduce the Company's earnings from such activities and the income from the sale
of residential mortgage loans in the secondary market.
14
TABLE 1
- -------
GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED FINANCIAL DATA
(Dollars in Thousands)
(Unaudited)
Six Months Ended June 30,
---------------------------------
PROFITABILITY 2001 2000
- ------------- ------ ------
Return on average assets * .95% 1.03%
Return on average equity * 11.27% 12.10%
ALLOWANCE FOR LOAN LOSSES
- -------------------------
Beginning balance, January 1, $4,143 $3,592
Provision charged to expense 795 498
Recoveries 72 55
Loans charged off 471 179
Ending balance, June 30, $4,539 $3,966
NON-PERFORMING ASSETS June 30, 2001 December 31, 2000 June 30, 2000
- ---------------------
Non-accrual loans $1,429 $1,950 $1,093
Other real estate owned 131 80 17
------ ------ ------
Total non-performing assets $1,560 $2,030 $1,110
====== ====== ======
LOANS PAST DUE 90 DAYS OR
MORE AND STILL ACCRUING $ 182 $ 0 $ 280
====== ====== ======
* Annualized
15
TABLE 2
- -------
Georgia Bank Financial Corporation
and
Georgia Bank & Trust Company
Regulatory Capital Requirements
June 30, 2001
(Dollars in Thousands)
Actual Required Excess
Amount Percent Amount Percent Amount Percent
---------------- ----------------- ----------------
Georgia Bank Financial Corporation
Risk-based capital:
Tier 1 capital $35,894 10.31% 13,933 4.00% 21,961 6.31%
Total capital 40,250 11.56% 27,865 8.00% 12,385 3.56%
Tier 1 leverage ratio 35,894 8.13% 17,654 4.00% 18,240 4.13%
Georgia Bank & Trust Company
Risk-based capital:
Tier 1 capital $34,105 9.84% 13,863 4.00% 20,242 5.84%
Total capital 38,440 11.09% 27,726 8.00% 10,714 3.09%
Tier 1 leverage ratio 34,105 7.76% 17,588 4.00% 16,517 3.76%
16
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As of June 30, 2001, there were no substantial changes in the interest rate
sensitivity analysis or the sensitivity of market value of portfolio equity for
various changes in interest rates calculated as of December 31, 2000. The
foregoing disclosures related to the market risk of the Company should be read
in conjunction with the Company's audited consolidated financial statements,
related notes and management's discussion and analysis of financial condition
and results of operations for the year ended December 31, 2000 included in the
Company's 2000 Annual Report on Form 10-K.
17
Part II
OTHER INFORMATION
Item 1. Legal Proceedings
There are no material pending legal proceedings to which the Company or
any of its subsidiaries is a party or of which any of their property is
subject.
Item 2. Changes in Securities
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security-Holders.
(a) The Annual Meeting of Shareholders was held on April 25, 2001 at the
Company's office located at 3530 Wheeler Road, Augusta, Georgia.
(b) The following directors were elected for a term of one year and until
a successor is duly qualified and elected:
William J. Badger
R. Daniel Blanton
William P. Copenhaver
Warren Daniel
Edward G. Meybohm
Travers W. Paine III
Robert W. Pollard, Jr.
Randolph R. Smith
Ronald L. Thigpen
John W. Trulock, Jr.
18
(c) The following matters were voted on at the meeting as was previously
identified in the Proxy materials forwarded to each shareholder:
1. Proposal to elect the ten individuals nominated by management as
Directors.
Votes were cast as follows:
Director For Against Abstain
-------- --- ------- -------
William J. Badger 1,835,308 0 0
R. Daniel Blanton 1,835,308 0 0
William P. Copenhaver 1,835,308 0 0
Warren Daniel 1,835,308 0 0
Edward G. Meybohm 1,835,308 0 0
Travers W. Paine, III 1,835,308 0 0
Robert W. Pollard, Jr. 1,835,308 0 0
Randolph R. Smith, M.D. 1,835,308 0 0
Ronald L. Thigpen 1,835,308 0 0
John W. Trulock, Jr. 1,835,308 0 0
2. Proposal to approve the Georgia Bank Financial Corporation 2000
Long-Term Incentive Plan.
Votes were cast as follows: For Against Abstain
--- ------- -------
1,827,409 2,792 5,107
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
3.1 Articles of Incorporation of the Company (Incorporated by reference
from the Company's registration statement on Form SB-2 filed August 20,
1997 (Registration No. 333-34037)).
3.2 Bylaws of the Company (Incorporated by reference to the Company's
Form 10-KSB, dated April 29, 1994).
(b) Reports on Form 8-K
None
19
GEORGIA BANK FINANCIAL CORPORATION
Form 10-Q Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
GEORGIA BANK FINANCIAL CORPORATION
Date: August 13, 2001 By: /s/ Ronald L. Thigpen
------------------------------------
Ronald L. Thigpen
Executive Vice President, Chief
Operating Officer (Duly Authorized
Officer of Registrant and
Principal Financial Officer)
20