UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended March 31, 2008
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Transition Period From _______________ To _________________.
Commission File Number 000-51950
CORNERSTONE BANCORP
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
South Carolina 57-1077978
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
1670 East Main Street, Easley, South Carolina 29640
(Address of principal executive offices)
(864) 306-1444
(Registrant's telephone number, including Area Code)
Not Applicable
(Former name, former address, and former fiscal year,
if changed since last report)
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. [X] Yes [ ] No
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company . See
definition of "large accelerated filer," "accelerated filer," and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do not check is a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). [ ]
Yes [X] No
Indicate the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date:
Common Stock - No Par Value, 1,991,565 shares outstanding on May 8, 2008
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
CORNERSTONE BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2008 2007
---- ----
Assets (Unaudited)
Cash and due from banks ........................................................................ $ 2,900,772 $ 4,266,777
Federal funds sold ............................................................................. 3,915,000 967,000
------------ ------------
Cash and cash equivalents ............................................................... 6,815,772 5,233,777
Investment securities
Available-for-sale .......................................................................... 23,355,046 18,054,409
Other investments ........................................................................... 890,400 816,500
Loans, net ..................................................................................... 113,929,106 107,350,202
Property and equipment, net .................................................................... 5,751,235 5,808,568
Cash surrender value of life insurance policies ................................................ 1,715,195 1,697,429
Other real estate owned ........................................................................ 305,644 69,000
Other assets ................................................................................... 1,419,024 1,468,187
------------ ------------
Total assets ..................................................................... $154,181,422 $140,498,072
============ ============
Liabilities And Shareholders' Equity
Liabilities
Deposits
Noninterest bearing ....................................................................... $ 11,987,055 $ 13,645,852
Interest bearing .......................................................................... 106,268,927 97,288,616
------------ ------------
Total deposits ............................................................................ 118,255,982 110,934,468
Customer repurchase agreements .............................................................. 5,027,124 5,802,935
Borrowings from Federal Home Loan Bank of Atlanta ........................................... 5,507,130 3,544,838
Broker repurchase agreements ................................................................ 5,000,000 -
Other liabilities ........................................................................... 591,946 635,001
------------ ------------
Total liabilities ......................................................................... 134,382,182 120,917,242
Commitments and contingencies
Shareholders' equity
Preferred stock, 10,000 shares authorized, no shares issued ................................. - -
Common stock, no par value, 20,000,000 shares authorized, 1,991,565 and 1,983,169
shares issued at March 31, 2008 and December 31, 2007, respectively ..................... 18,281,616 18,185,328
Retained earnings ........................................................................... 1,357,955 1,177,450
Accumulated other comprehensive income ...................................................... 159,669 218,052
------------ ------------
Total shareholders' equity ................................................................ 19,799,240 19,580,830
------------ ------------
Total liabilities and shareholders' equity ................................................ $154,181,422 $140,498,072
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
2
CORNERSTONE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the three months ended
March 31,
---------
2008 2007
---- ----
Interest and Dividend Income
Interest and fees on loans ......................................................... $2,067,113 $2,172,568
Investment securities .............................................................. 302,707 220,770
Federal funds sold and interest bearing balances ................................... 24,821 33,878
---------- ----------
Total interest income .......................................................... 2,394,641 2,427,216
---------- ----------
Interest Expense
Deposits ........................................................................... 924,235 880,003
Borrowings and customer repurchase agreements ...................................... 144,436 88,594
---------- ----------
Total interest expense .......................................................... 1,068,971 968,597
---------- ----------
Net Interest Income .................................................................. 1,325,670 1,458,619
Provision for Loan Losses ............................................................ 120,000 60,000
---------- ----------
Net interest income after provision for loan losses ............................. 1,205,670 1,398,619
---------- ----------
Noninterest Income
Service charges on deposit accounts ................................................ 141,946 118,874
Mortgage loan origination fees ..................................................... 72,813 119,302
Other .............................................................................. 29,935 29,088
---------- ----------
Total noninterest income ........................................................ 244,694 267,264
---------- ----------
Noninterest Expense
Salaries and employee benefits ..................................................... 659,810 609,147
Premises and equipment ............................................................. 153,282 132,183
Data processing .................................................................... 49,871 54,850
Professional and regulatory fees ................................................... 74,761 66,007
Supplies ........................................................................... 20,742 22,384
Advertising ........................................................................ 16,492 15,876
Other .............................................................................. 150,361 118,760
---------- ----------
Total noninterest expense ....................................................... 1,125,319 1,019,207
---------- ----------
Net income before taxes ......................................................... 325,345 646,676
Provision for income taxes ........................................................... 105,451 211,373
---------- ----------
Net income ...................................................................... $ 219,894 $ 435,303
========== ==========
Earnings Per Share
Basic .............................................................................. $ .11 $ .22
Diluted ............................................................................ $ .11 $ .22
Weighted Average Shares Outstanding
Basic .............................................................................. 1,984,830 1,960,099
Diluted ............................................................................ 2,027,309 2,009,775
The accompanying notes are an integral part of these consolidated financial
statements.
3
CORNERSTONE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
For the three months ended March 31, 2008 and 2007
(Unaudited)
Accumulated
Common stock other Total
------------ Retained comprehensive shareholders'
Shares Amount earnings loss equity
------ ------ -------- ---- ------
Balance, December 31, 2006 ...................... 1,777,313 $ 15,972,666 $ 1,499,803 $ 66,258 $ 17,538,727
Net income ...................................... - - 435,303 - 435,303
Other comprehensive income, net
of income taxes
Unrealized gain on investment
securities, net .............................. - - - 15,088 15,088
------------
Comprehensive income ............................ - - - - 450,391
Stock based compensation ........................ - 9,210 - - 9,210
Options exercised ............................... 9,491 70,600 - - 70,600
Stock dividend payable (10%) .................... 178,680 1,935,106 (1,935,106) - -
--------- ------------ ------------ ------------ ------------
Balance, March 31, 2007 ......................... 1,965,484 $ 17,987,582 $- $ 81,346 $ 18,068,928
========= ============ ============ ============ ============
Balance, December 31, 2007 ...................... 1,983,169 $ 18,185,328 $ 1,177,450 $ 218,052 $ 19,580,830
Net income ...................................... - - 219,894 - 219,894
Other comprehensive income, net
of income taxes
Unrealized loss on investment
securities, net .............................. - - - (58,383) (58,383)
------------
Comprehensive income ............................ 161,511
Cumulative effect of accounting change .......... - - (39,389) (39,389)
Stock based compensation ........................ 14,455 - - 14,455
Options exercised ............................... 8,396 81,833 - - 81,833
--------- ------------ ------------ ------------ ------------
Balance, March 31, 2008 ......................... 1,991,565 $ 18,281,616 $ 1,357,955 $ 159,669 $ 19,799,240
========= ============ ============ ============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
4
CORNERSTONE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the three months ended
March 31,
---------
2008 2007
---- ----
Operating Activities
Net income .......................................................................... $ 219,894 $ 435,303
Adjustments to reconcile net income to net cash provided by operating
activities
Depreciation and amortization .................................................... 77,445 66,125
Provision for loan losses ........................................................ 120,000 60,000
Non-cash option expense .......................................................... 14,455 9,210
Changes in operating assets and liabilities
Change in interest receivable .................................................... 103,670 (158,719)
Change in other assets ........................................................... (72,273) (55,028)
Change in other liabilities ...................................................... (52,368) 76,576
------------ ------------
Net cash provided by operating activities ..................................... 410,823 433,467
------------ ------------
Investing Activities
Proceeds from maturities and principal repayments of
available for sale securities .................................................... 693,721 1,636,518
Purchase of FHLB and Federal Reserve stock .......................................... (73,900) (2,900)
Purchase of property and equipment .................................................. (17,415) (158,068)
Purchase of investment securities available for sale ................................ (6,085,514) -
Net increase in loans to customers .................................................. (6,935,548) (6,261,428)
------------ ------------
Net cash used for investing activities ........................................ (12,418,656) (4,785,878)
------------ ------------
Financing Activities
Net increase in demand, savings and time deposits ................................... 7,321,514 8,310,935
Net increase (decrease) in customer repurchase agreements ........................... (775,811) 107,151
Repayment of FHLB advances .......................................................... (337,708) (37,708)
Borrowings from FHLB ................................................................ 2,300,000 -
Increase in broker repurchase agreements ............................................ 5,000,000 -
Proceeds from exercise of stock options ............................................. 81,833 70,600
------------ ------------
Net cash provided by financing activities ..................................... 13,589,828 8,450,978
------------ ------------
Net increase in cash and cash equivalents ..................................... 1,581,995 4,098,567
Cash and Cash Equivalents, Beginning of Period ........................................... 5,233,777 5,911,623
------------ ------------
Cash and Cash Equivalents, End of Period ................................................. $ 6,815,772 $ 10,010,190
============ ============
Supplemental Information
Cash paid for interest ............................................................... $ 1,019,693 $ 930,699
Cash paid for income taxes ........................................................... $ - $ 33,279
The accompanying notes are an integral part of these consolidated financial
statements.
5
CORNERSTONE BANCORP AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Summary of Significant Accounting Principles
A summary of significant accounting policies is included in the Cornerstone
Bancorp (the "Company") 2007 Annual Report to Shareholders, which also contains
the Company's audited financial statements for 2007 and is also included in the
Form 10-KSB for the year ended December 31, 2007.
Principles of Consolidation
The consolidated financial statements include the accounts of Cornerstone
Bancorp, the parent company, and Cornerstone National Bank (the "Bank"), its
wholly owned subsidiary, and Crescent Financial Services, Inc., a wholly owned
subsidiary of the Bank. All significant intercompany items have been eliminated
in the consolidated statements. Certain amounts have been reclassified to
conform to current year presentation.
Management Opinion
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions for Form 10-Q. Accordingly they do not contain all the
information and footnotes required by accounting principles generally accepted
in the United States of America for complete financial statements. The
statements in this report are unaudited. In the opinion of management, all the
adjustments necessary to present a fair statement of the results for the interim
period have been made. Such adjustments are of a normal and recurring nature.
The results of operations for any interim period are not necessarily indicative
of the results to be expected for an entire year. These interim financial
statements should be read in conjunction with the annual financial statements
and notes thereto contained in the 2007 Annual Report on Form 10-KSB.
Earnings per Share
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share" requires that the Company present basic and diluted net income per common
share. The assumed conversion of stock options creates the difference between
basic and diluted net income per share. Income per share is calculated by
dividing net income by the weighted average number of common shares outstanding
for each period presented. The weighted average number of common shares
outstanding for basic net income per common share for the three month period
ended March 31, 2008 was 1,984,830 shares. The weighted average number of common
shares outstanding for diluted net income per share for the quarter ended March
31, 2008 was 2,027,309 shares. There were 35,280 outstanding options that were
anti-dilutive as of March 31, 2008.
Stock Based Compensation
As described in Notes 1 and 16 to the financial statements in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 2007, the Company
has a stock-based employee and director compensation plan, which was approved by
shareholders in 2003 (the "2003 Plan").
The Company accounts for stock-based compensation under the provisions of SFAS
No. 123(R). On January 2, 2008 and January 2, 2007 the Board of Directors
awarded options to purchase 19,200 and 18,000 shares, respectively, to executive
officers and directors under the 2003 Plan. The options vest over five years and
expire ten years from the date of grant. The exercise price for the 2008 grant
was $12.50 per share. In accordance with the terms of the 2003 Plan, the 2007
grant has been adjusted as a result of the 10% stock dividend declared in April
2007. Refer to the notes to the financial statements in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 2007 for further
information.
The fair value of an option is estimated on the date of grant using the
Black-Scholes option pricing model. The risk free interest rate used in the
calculation was 3.91% for the 2008 grant and 4.68% for the 2007 grant (equal to
the U.S. Treasury 10 year constant maturity on the date of grant) and the
assumed dividend rate was zero in each case. The expected option life in each
case was 10 years. Volatility was estimated at 27.5 % for the 2008 options and
11.7% for the 2007 options based on a review of stock trades known to management
or quoted on the over-the-counter bulletin board during the preceding period.
Management is aware of only limited trades, which may not represent market value
as the stock is not traded on an exchange, though it is quoted on the
6
Over-the-Counter Bulletin Board. For the three months ended March 31, 2008, the
Company expensed $3,926 related to options granted in 2008, net of forfeitures,
$5,913 related to options granted in 2007, and $4,616, related to the options
granted in 2006. The expense is included in Salaries and employee benefits in
the accompanying consolidated statements of income.
Prior to adopting the provisions of SFAS No. 123(R) the Company accounted for
stock option awards under Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees," and related interpretations. These awards are
fully vested, and no compensation expense has been recognized related to these
option awards. Options were granted under the 2003 Plan in 2004 and 2005, and
have been adjusted to reflect the stock dividends declared since the grant date.
As of March 31, 2008, there are 36,884 of these options outstanding under the
2003 Plan, exercisable at a weighted average exercise price of $9.13 per share.
The Company awarded options to its Organizers in 1999 (the "Organizers'
Options"). Each of the organizing directors was awarded options to purchase
4,000 shares of the Company's common stock at $10.00 per share. The options
expire 10 years from the date of grant. Since 1999, 12,000 of the original
options have been exercised (20,614 after stock dividends) and 4,000 have been
forfeited. As of March 31, 2008, after the effect of stock dividends and
exercises, there are 42,514 Organizers' Options outstanding. Each option is
exercisable at a price of $5.64. These options vested in 2002 and were accounted
for under the provisions of APB No. 25.
Estimates
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
interest and noninterest income and expenses during the reporting period. Actual
results could differ from those estimates. The primary significant estimate in
the accompanying consolidated financial statements is the allowance for loan
losses. A discussion of the significant factors involved in estimating the
allowance for loan losses is included in this Form 10-Q in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
section titled "Results of Operations" and in the Company's 2007 Form 10-KSB.
The provision for income taxes is also considered a significant estimate.
Concentrations of credit risk
The Bank makes loans to individuals and small businesses located primarily in
upstate South Carolina for various personal and commercial purposes. The Bank
has a diversified loan portfolio and borrowers' ability to repay loans is not
dependent upon any specific economic sector. The Bank monitors the portfolio for
concentrations of credit on a quarterly basis using North American Industry
Codes ("NAIC"). The Bank has loans in two NAIC categories that each represents
more than 10% of the portfolio. The NAIC concentrations are 37.3% in Residential
Building Construction and 13.7% in Real Estate and Rental and Leasing. The
portfolio also has loans representing 21other NAIC categories. The Bank does not
make long term (more than 15 years) mortgage loans, does not offer loans with
negative amortization features, long-term interest only features, or loans with
loan to collateral value ratios in excess of 100%. The Bank does offer loan
products with features that can increase credit risk during periods of declining
economic conditions such as adjustable rate loans, short-term interest-only
loans, and loans with amortization periods that differ from the maturity date
(i.e., balloon payment loans). However, the Bank evaluates each customer's
creditworthiness based on current and expected economic conditions and
underwrites and monitors each loan for associated risks. Loans made with
exceptions to internal loan guidelines and those with loan-to-value ratios in
excess of regulatory loan-to-value guidelines are monitored and reported to the
Board of Directors on a monthly basis. The regulatory loan-to-value guidelines
permit exceptions to the guidelines up to a maximum of 30% of total capital for
commercial loans and exceptions for all types of real estate loans up to a
maximum of 100% of total capital. As of March 31, 2008, the Bank has $54,747 of
loans which exceed the regulatory loan to value guidelines. This amount is
within the maximum allowable exceptions to the guidelines.
7
Recently issued accounting standards
The following is a summary of recent authoritative pronouncements that may
affect accounting, reporting, and disclosure of financial information by the
Company:
Effective January 1, 2008, the Company adopted SFAS No. 157, "Fair Value
Measurements." SFAS 157 defines fair value, establishes a framework for
measuring fair value under generally accepted accounting principles, and
expands disclosures about fair value measurements. This standard does not
require any new fair value measurements, but rather eliminates
inconsistencies found in various prior pronouncements. SFAS 157 defines
fair value as the exchange price that would be received for an asset or
paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction
between market participants on the measurement date. SFAS 157 also
establishes a fair value hierarchy which requires an entity to maximize the
use of observable inputs and minimize the use of unobservable inputs when
measuring fair value. The standard describes three levels of inputs that
may be used to measure fair value:
Level 1
Quoted prices in active markets for identical assets or liabilities.
Level 1 assets and liabilities include debt and equity securities and
derivative contracts that are traded in an active exchange market, as
well as U.S. Treasury, other U.S. Government and agency mortgage-backed
debt securities that are highly liquid and are actively traded in
over-the-counter markets.
Level 2
Observable inputs other than Level 1 prices such as quoted prices for
similar assets or liabilities; quoted prices in markets that are not
active; or other inputs that are observable or can be corroborated by
observable market data for substantially the full term of the assets or
liabilities. Level 2 assets and liabilities include debt securities
with quoted prices that are traded less frequently than exchange-traded
instruments and derivative contracts whose value is determined using a
pricing model with inputs that are observable in the market or can be
derived principally from or corroborated by observable market data.
This category generally includes certain derivative contracts and
impaired loans.
Level 3
Unobservable inputs that are supported by little or no market activity
and that are significant to the fair value of the assets or
liabilities. Level 3 assets and liabilities include financial
instruments whose value is determined using pricing models, discounted
cash flow methodologies, or similar techniques, as well as instruments
for which the determination of fair value requires significant
management judgment or estimation. For example, this category generally
includes certain private equity investments, retained residual
interests in securitizations, residential mortgage servicing rights,
and highly-structured or long-term derivative contracts.
SFAS 157 did not have a significant impact on the Company's financial
position, results of operations, or cash flows.
In September, 2006, The FASB ratified the consensuses reached by the FASB's
Emerging Issues Task Force ("EITF") relating to EITF 06-4 "Accounting for
the Deferred Compensation and Postretirement Benefit Aspects of Endorsement
Split-Dollar Life Insurance Arrangements." EITF 06-4 addresses employer
accounting for endorsement split-dollar life insurance arrangements that
provide a benefit to an employee that extends to postretirement periods.
Employers should recognize a liability for future benefits in accordance
with SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions," or Accounting Principles Board ("APB") Opinion No. 12,
"Omnibus Opinion--1967." EITF 06-4 was effective January 1, 2008. The
Company recorded a liability of $39,389 in the accompanying consolidated
financial statements for the cumulative effect of the change.
In September 2006, the FASB ratified the consensus reached on EITF 06-5,
"Accounting for Purchases of Life Insurance--Determining the Amount That
Could Be Realized in Accordance with FASB Technical Bulletin No. 85-4,
Accounting for Purchases of Life Insurance" ("EITF 06-5"). EITF 06-5 states
that a policyholder should consider any additional amounts included in the
contractual terms of the insurance policy other than the cash surrender
value in determining the amount that could be realized under the insurance
8
contract. EITF 06-5 also states that a policyholder should determine the
amount that could be realized under the life insurance contract assuming
the surrender of an individual-life by individual-life policy (or
certificate by certificate in a group policy). EITF 06-5 was effective for
the Company on January 1, 2008. There was no material effect on the
Company's financial position, results of operations or cash flows.
In March 2007, the FASB ratified the consensus reached on EITF 06-10,
"Accounting for Collateral Assignment Split-Dollar Life Insurance
Arrangements" ("EITF 06-10"). The postretirement aspect of this EITF is
substantially similar to EITF 06-4 discussed above and requires that an
employer recognize a liability for the postretirement benefit related to a
collateral assignment split-dollar life insurance arrangement in accordance
with either FASB Statement No. 106 or APB Opinion No. 12, as appropriate,
if the employer has agreed to maintain a life insurance policy during the
employee's retirement or provide the employee with a death benefit based on
the substantive agreement with the employee. In addition, a consensus was
reached that an employer should recognize and measure an asset based on the
nature and substance of the collateral assignment split-dollar life
insurance arrangement. EITF 06-10 was effective for the Company on January
1, 2008. Adoption of EITF 06-10 had no impact on the Company's financial
position, results of operations or cash flows.
CAUTIONARY NOTICE WITH RESPECT TO FORWARD LOOKING STATEMENTS
Statements included in this report which are not historical in nature are
intended to be, and are hereby identified as "forward looking statements" for
purposes of the safe harbor provided by Section 21E of the Securities Exchange
Act of 1934, as amended. Words such as "estimate", "project", "intend",
"expect", "believe", "anticipate", "plan", "may", "will", "should", "could",
"would", `assume", "indicate", "contemplate", "seek", "target", "potential", and
similar expressions identify forward-looking statements. The Company cautions
readers that forward looking statements including without limitation, those
relating to the Company's new offices, future business prospects, revenues,
working capital, adequacy of the allowance for loan losses, liquidity, capital
needs, interest costs, and income, are subject to certain risks and
uncertainties that could cause actual results to differ from those indicated in
the forward looking statements, due to several important factors identified in
this report, among others, and other risks and factors identified from time to
time in the Company's other reports filed with the Securities and Exchange
Commission.
These forward-looking statements are based on our current expectations,
estimates and projections about our industry, management's beliefs, and
assumptions made by management. Such information includes, without limitation,
discussions as to estimates, expectations, beliefs, plans, strategies, and
objectives concerning the Company's future financial and operating performance.
These statements are not guarantees of future performance and are subject to
risks, uncertainties and assumptions that are difficult to predict, particularly
in light of the fact that the Company is a relatively new company with limited
operating history. Therefore, actual results may differ materially from those
expressed or forecasted in such forward-looking statements. The risks and
uncertainties include, but are not limited to:
o the Company's growth and ability to maintain growth;
o governmental monetary and fiscal policies,
o legislative and regulatory changes;
o the effect of interest rate changes on our level and composition of
deposits, loan demand and the value of our loan collateral and
securities;
o the indirect effects on demand for the Company's mortgage loan
products arising from effects on the overall market of the subprime
mortgage loan situation;
o the effects of competition from a wide variety of local, regional,
national and other providers of financial, investment and insurance
services, as well as competitors that offer banking products and
services by mail, telephone, computer, and/or the Internet;
o failure of our customers to repay loans;
o failure of assumptions underlying the establishment of the allowance
for loan losses, including the value of collateral securing loans;
9
o the risks of opening new offices, including, without limitation, the
related costs and time of building customer relationships and
integrating operations, and the risk of failure to achieve expected
gains, revenue growth and/or expense savings;
o changes in accounting policies, rules, and practices;
o cost and difficulty of implementing changes in technology or products;
and
o loss of consumer confidence and economic disruptions resulting from
terrorist activities.
All forward-looking statements are expressly qualified in their entirety by this
cautionary notice. The Company undertakes no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise. In light of these risks, uncertainties, and
assumptions, the forward-looking events discussed in this report might not
occur.
Website References
References to the Bank's website included in, or incorporated by reference into,
this report are for information purposes only, and are not intended to
incorporate the website by reference into this report.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
General
Cornerstone Bancorp, (the "Company") is a bank holding company and has no
operations other than those carried on by its wholly owned subsidiary,
Cornerstone National Bank (the "Bank"). The Bank commenced business in 1999, and
conducts a general banking business from three offices in the Easley area of
Pickens County, in the Berea area of Greenville County, and in the Powdersville
area of Anderson County, South Carolina. In 2004, the Bank established a wholly
owned subsidiary, Crescent Financial Services, Inc. ("Crescent"), which is an
insurance agency that has not yet engaged in any significant operations.
Effect of Economic Trends
Since September 15, 2007 and through March 31, 2008, the Federal Reserve has
decreased its target short-term interest rates by approximately 275 basis
points. These decreases have been in response to turmoil in the overall market
for mortgages and housing in the United States. As a result of the decreases in
interest rates by the Federal Reserve, interest rates applicable to many of the
Bank's loans, which are tied to the prime rate, have also decreased quickly in a
short period of time. However, due to competitive pressures for funds, interest
rates on the Bank's interest bearing liabilities have not decreased as quickly,
tightening the Bank's net interest margin. In addition, the turmoil in the
national mortgage market has impacted our ability to broker mortgage loans for
our customers. Many third party lenders have changed their programs frequently,
discontinued programs, and tightened credit standards. The result has been a
decrease in income earned from mortgage brokerage fees in the first quarter of
2008 as compared with the first quarter of 2007. Both of these trends have
negatively impacted the Company's profitability in the first quarter of 2008.
The current outlook for the national economy in the United States is uncertain,
and the possibility of recession in the general economy exists. However, the
local economy in the Bank's market areas and the regional economy in South
Carolina have not been as deeply impacted by recent events as the economy on the
national level. The Bank and the Company continuously monitor the local economy
in an effort to minimize the effect of negative economic trends on the Company
and the Bank.
Results of Operations
Results of Operations for the Three Months Ended March 31, 2008 and 2007
Summary
The Company earned $219,894 during the first quarter or $.11 per basic and
diluted share. The Company earned $435,303 during the first quarter of 2007 or
$.22 per basic and diluted share. The decrease is related to a decrease in the
net interest margin, an increase in the provision for loan losses, a decrease in
mortgage fees, and an increase in general and administrative expenses. The
decrease in the net interest margin is due to changes in market interest rates
as described above. The decrease in mortgage fees is also related to trends in
the national market for mortgage loan products. Operating expenses increased in
10
part due to the opening of our operations center in the third quarter of 2007.
In addition, costs associated with property in foreclosure increased $20,819
during 2008 over 2007.
Net Interest Income
Net interest income is the primary driver of net income for the Company. Net
interest income is equal to the difference between interest income earned on the
Company's interest earning assets and the interest paid on its interest bearing
liabilities. The current interest rate environment is one of decreasing interest
rates. Just over 54% of the Bank's loans are tied to the Prime Rate, which
responds immediately to changes in market interest rates. However, some of the
Bank's interest bearing liabilities do not respond immediately, or to the same
extent, to changes in market interest rates as our loans do. As a result, during
the first quarter of 2008, we experienced a decrease in our interest rate
margin. While the average balance of loans outstanding grew $9.5 million during
the first quarter of 2008 as compared to 2007, decreases in rates earned on the
portfolio had a greater impact on interest income. Average rates paid on
interest bearing liabilities decreased only 8 basis points year over year, while
interest rates earned on average interest earning assets decreased 105 basis
points from 2007 to 2008.
The table below illustrates the average balances of interest earning assets and
interest bearing liabilities and the resulting annualized yields and costs for
the three month periods ended March 31, 2008 and 2007.
March 31, 2008 March 31, 2007
------------------------------------- -------------------------------------------
Average Average Average Average
Balance Interest Yield/ Cost Balance Interest Yield/ Cost
------- -------- ----------- ------- -------- -----------
Investments ............................ $ 23,155,707 $ 302,707 5.30% $ 17,265,424 $ 220,770 5.19%
Fed Funds Sold ......................... 3,355,424 24,821 3.00% 2,648,776 33,878 5.19%
Loans .................................. 110,492,096 2,067,113 7.59% 100,956,364 2,172,568 8.73%
------------ ---------- ------------ -----------
Total interest earning assets ....... 137,003,227 2,394,641 7.09% 120,870,564 2,427,216 8.14%
============ ============
Interest bearing transaction accounts .. 13,367,584 36,931 1.12% 14,427,591 40,089 1.13%
Savings and money market ............... 10,862,065 53,722 2.01% 9,420,874 43,155 1.86%
Time deposits .......................... 77,113,830 833,582 4.38% 67,637,086 796,759 4.78%
------------ ---------- -----------
Total interest bearing deposits ..... 101,343,479 924,235 3.70% 91,485,551 880,003 3.90%
------------
Customer repurchase agreements and
Fed Funds purchased ................ 5,827,419 57,690 4.01% 5,467,123 61,554 4.57%
Borrowings from FHLB Atlanta ........... 5,203,892 48,575 3.79% 2,678,558 27,040 4.09%
Broker repurchase agreements ........... 4,340,659 38,171 3.57% - - -%
------------ ---------- ------------ -----------
Total interest bearing liabilities .. $116,715,449 1,068,671 3.71% $ 99,631,232 968,597 3.94%
============ ---------- ============ -----------
Net interest income .................... $1,325,970 $ 1,458,619
========== ===========
Interest rate spread ................... 3.38% 4.20%
Interest margin ........................ 3.93% 4.89%
The Bank, which accounts for all of the Company's sensitivity to changes in
interest rates, measures interest sensitivity using various measures. Using a
static GAP measurement, which compares the amount of interest sensitive assets
repricing within a one year time period as compared to the amount of interest
sensitive liabilities repricing within the same time frame, the Bank's
sensitivity to changes in interest rates can be analyzed. This method does not
take into account loan prepayments and other non-contractual changes in balances
and the applicable interest rates, but it does give some information as to
possible changes in net interest income that could be expected simply as a
result of changes in interest rates. As of March 31, 2008, the Bank's cumulative
Gap ratio was .84 through 12 months. This indicates a slightly
liability-sensitive position as of March 31, 2008. Based on a static GAP
measurement, in a period of rising interest rates, asset-sensitive balance
sheets would be normally expected to experience a widening of the net interest
margin, while liability-sensitive balance sheets would normally be expected to
experience pressure on the net interest margin. In a period of decreasing
interest rates, liability-sensitive balance sheets would normally be expected to
experience a widening of the net interest margin and asset-sensitive balance
sheets would normally be expected to experience the opposite effect. Various
market factors can, however, affect the net interest margin and cause it to
react differently to changes in interest rates than would normally be expected
under the static GAP model. For example, although the Bank has the contractual
11
right to decrease rates on its liabilities as the Federal Reserve lowers rates,
in the past few months, the Bank has experienced increased difficulty in
lowering rates on its liabilities because it has been competing for funds with
much larger entities that have been facing liquidity needs. This competition for
funds has resulted in an increase in rates by many of the sources the Bank
ordinarily uses for funding. This illustrates the difficulty in predicting
changes in interest income using various analytical tools such as the static GAP
measurement.
Noninterest income
The primary drivers of noninterest income for the Company and the Bank are
service charges on deposit accounts and mortgage loan origination fees. For the
three months ended March 31, 2008 the Company earned $141,946 in service charges
on deposit accounts compared to $118,874 for the same period in 2007. This
increase is attributable to an increase in the number of accounts and the number
of services used by our customers. Mortgage loan origination fees have decreased
by $46,489 or 39.0% since the first quarter of 2007. The decrease is directly
related to turmoil in the national market for mortgages as third party lenders
have changed programs and tightened credit standards, notwithstanding any
reductions in interest rates.
Noninterest expense
Noninterest expense totaled $1.1 million for the first three months of 2008
compared to $1.0 million for the first three months of 2007, an increase of
10.4%. Salaries and employee benefits increased by 8.3%, primarily as a result
of annual increases. Premises and equipment increased 16.0% as a result of the
addition of our operations center, which opened in August 2007. This facility
allowed us to move our back office and mortgage operations out of our main
office building and utilize the available space in the main office for
additional customer service personnel. Professional and regulatory fees
increased 13.3% primarily as a result of increases in FDIC insurance premiums
and in professional fees associated with the implementation of additional
provisions of the Sarbanes-Oxley Act and regulations there under and audit fees.
Other expense increased $31,601 in 2008 over 2007 levels, or 26.6%. Other
expense in 2008 includes $20,819 of costs associated with the acquisition of
properties in foreclosure. ATM processing fees increased $4,785 or 26.4% in 2008
over 2007 due to an increase in card usage.
Balance Sheet Review
Investments
At March 31, 2008, the Bank held available for sale securities with a fair value
$23.4 million (amortized cost of $23.1 million) and other investments with an
amortized cost of $890,400. Available for sale securities include government
sponsored enterprise bonds, mortgage-backed securities, municipal bonds, and
preferred stock issued by the Federal National Mortgage Association ("FNMA"), a
government sponsored enterprise. The fair values of the Company's available for
sale investments, other than municipal bonds, are measured on a recurring basis
using quoted market prices in active markets for identical assets and
liabilities ("Level 1 inputs" under SFAS 157). Due to the lower level of trading
activity in municipal bonds, the fair market values of these investments are
measured based on other inputs such as inputs that are observable or can be
corroborated by observable market data for similar assets with substantially the
same terms ("Level 2 inputs" under SFAS 157).
Other investments include stock in the Federal Home Loan Bank of Atlanta and the
Federal Reserve Bank. These stocks are held at amortized cost because they have
no quoted market value and have historically been redeemed at par value.
As of March 31, 2008, investments available for sale had a net unrealized gain
of $241,923. However, 11 of our investments were in an unrealized loss position
as of March 31, 2008. Of those 11, only one had been in an unrealized loss
position for more than 12 months. The amount of the total unrealized loss in the
portfolio is $378,397, with $4,856 related to the one security in an unrealized
loss position for 12 months or more. The Bank has historically had the intent
and ability to hold investments until maturity, and expects to be able to
continue to do so. Two of the investments with unrealized losses at March 31,
2008 are issued by FNMA, and the remaining 9 are issued by various municipal
governments. We do not currently expect that these losses are other than
temporary.
12
Loans
The following table summarizes the composition of our loan portfolio.
March 31, 2008 December 31, 2007
-------------- -----------------
% of % of
Amount Loans Amount Loans
------ ----- ------ -----
Commercial and industrial ...................... $ 18,748,902 16.3% $ 18,753,358 17.3%
Real Estate - construction ..................... 48,773,907 42.3 43,332,737 39.9
Real Estate - mortgage
1-4 family residential .................. 20,290,520 17.6 18,947,690 17.4
Nonfarm, nonresidential ................. 23,468,989 20.4 24,248,479 22.3
Multifamily residential ................. 1,598,772 1.4 1,621,110 1.5
Consumer installment ........................... 2,277,153 2.0 1,739,958 1.6
------------- ----- ------------- -----
Total Loans ......................... 115,158,243 100.0% 108,643,332 100.0%
===== =====
Less allowance for loan losses ......... (1,229,137) (1,293,130)
------------- -------------
Net Loans ........................... $ 113,929,106 $ 107,350,202
============= =============
Activity in the allowance for loan losses for the first three months of 2008 and
2007 is presented below.
Three months Three months
ended March 31, ended March 31,
2008 2007
---- ----
Allowance for loan losses, beginning of year .............. $1,293,130 $ 1,200,000
Provision for losses ...................................... 120,000 60,000
Charge-offs ............................................... (183,993) -
Recoveries ................................................ - -
---------- -----------
- -
Allowance for loan losses, end of period ............ $1,229,137 $ 1,260,000
========== ===========
Ratios
Nonperforming loans to loans at end of period ........ .61% .26%
Net charge-offs to average loans outstanding ......... .17% -
Net charge-offs to loans at end of period ............ .16% -
Allowance for loan losses to average loans ........... 1.11% 1.25%
Allowance for loan losses to loans at end of period .. 1.07% 1.21%
Net charge-offs to allowance for loan losses ......... 14.97% -
Net charge-offs to provision for loan losses ......... 153.3% -
Loans which management identifies as impaired generally will be nonperforming
loans. Nonperforming loans include nonaccrual loans or loans which are 90 days
or more delinquent as to principal or interest payments. As of March 31, 2008,
the Bank had nonaccrual loans of $706,038, representing three loans and one line
of credit. Each of these loans is secured (three are secured by real estate).
These loans are currently being carried at management's best estimate of net
realizable value, although no assurance can be given that no further losses will
be incurred on these loans until the collateral has been acquired and
liquidated. Management's estimates of net realizable, or fair value, are
obtained (on a nonrecurring basis) using independent appraisals, less estimated
selling costs, which the Company considers to be level 2 inputs as defined by
SFAS No. 157.
Management identifies and maintains a list of potential problem loans. These are
loans that are not included in nonaccrual status or loans that are past due 90
days or more and still accruing interest. A loan is added to the potential
13
problem list when management becomes aware of information about possible credit
problems of borrowers that causes serious doubts as to the ability of such
borrowers to comply with the current loan repayment terms. These loans are
designated as such in order to be monitored more closely than other credits in
the Bank's portfolio. There were loans in the amount of $1.8 million that have
been determined by management to be potential problem loans at March 31, 2008.
Subsequent to March 31, 2008, management of the Bank negotiated successfully
with the estate of a former customer to recover amounts charged-off in 2006. In
the second quarter of 2008, the Bank expects to record a recovery of
approximately $275,000 in the allowance for loan losses.
Deposits
The following table shows the average balance amounts and the average rates paid
on deposits held by us for the quarter ended March 31, 2008 and 2007.
Average Deposits
----------------
Quarter ended Quarter ended
March 31, 2008 March 31, 2007
-------------- --------------
Amount Rate Amount Rate
------ ---- ------ ----
Noninterest bearing demand .................................... $ 10,829,693 -% $ 11,842,495 -%
Interest bearing transaction accounts ......................... 13,367,584 1.12% 14,427,591 1.13%
Savings and money market ...................................... 10,862,065 2.01% 9,420,874 1.86%
Time deposits ................................................. 77,113,830 4.38% 67,637,086 4.78%
------------- -------------
Total average deposits .................................. $ 112,173,172 $ 103,328,046
============= =============
Borrowings
The Bank's outstanding borrowings are described in the following table. The
amounts listed as Securities sold under agreement to repurchase are
collateralized borrowings from other institutions. Retail repurchase agreements
with the Bank's customers are not included in the table below.
Borrowings at or for the quarter ended March 31, 2008
Maximum Weighted
Ending Period- Month-end Average
Balance End Rate Balance Average Balance Rate Paid
------- -------- ------- --------------- ---------
Federal Home Loan Bank advances ......... $ 5,507,130 3.62% $ 5,532,269 $ 5,203,892 3.79%
Federal funds purchased ................. $ - -% $ 1,000,000 $ 636,242 4.27%
Securities sold under agreement to
repurchase ............................. $ 5,000,000 3.48% $ 5,000,000 $ 4,340,659 3.57%
Liquidity
Liquidity is the ability to meet current and future obligations through
liquidation or maturity of existing assets or the acquisition of liabilities.
The Company manages both assets and liabilities to achieve appropriate levels of
liquidity. Cash and short-term investments are the Company's primary sources of
asset liquidity. These funds provide a cushion against short-term fluctuations
in cash flow from both deposits and loans. The investment portfolio is the
Company's principal source of secondary asset liquidity. However, the
availability of this source of funds is influenced by market conditions.
Individual and commercial deposits and borrowings are the Company's primary
source of funding for credit activities. The Company has lines of credit with
unrelated banks and with the FHLB of Atlanta. The bank lines total $6.8 million
and are available on a one to fourteen day basis for general corporate purposes
of the Bank. The FHLB line is based on the availability of eligible collateral
with a maximum borrowing capacity of 10% of Bank assets. The Bank currently has
$5.5 million borrowed under the FHLB line. Approximately $9.9 million is
available under the FHLB line, assuming adequate collateral is available for
pledging. Management believes that the Company's liquidity sources are adequate
to meet its operating needs.
Off Balance Sheet Risk
Through the operations of the Bank, the Company has contractual commitments to
extend credit in the ordinary course of its business activities. These
14
commitments are legally binding agreements to lend money to the Bank's customers
at predetermined interest rates for a specified period of time. Commitments are
subject to various conditions which are expected to reduce the credit risk to
the Company. At March 31, 2008, the Bank had issued commitments to extend credit
of $23.2 million through various types of lending arrangements and overdraft
protection arrangements. Of that amount, approximately $15.9 million was
undisbursed amounts of closed-end loans, $1.2 million related to unused
overdraft protection, and approximately $6.1 million was related to lines of
credit. The Bank's management evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary by
management upon extension of credit, is based on a credit evaluation of the
borrower. Collateral varies but may include accounts receivable, inventory,
property, plant and equipment, and commercial or residential real estate.
Management manages the credit risk on these commitments by subjecting them to
normal underwriting and risk management processes. The Bank also had standby
letters of credit outstanding of approximately $1.2 million at March 31, 2008.
An immaterial amount of fees were collected related to these commitments and
letters of credit during the quarter ended March 31, 2008. Historically many of
these commitments and letters of credit expire unused, and the total amount
committed as of March 31, 2008 is not necessarily expected to be funded. The
Bank offers an automatic overdraft protection product to checking account
customers. Each qualified account with the automatic overdraft protection
feature can have up to $500 of paid overdrafts. Unused overdraft protection was
$1.2 million as of March 31, 2008, the majority of which is not expected to be
utilized. As of March 31, 2008, accounts in overdraft status totaled $25,822.
Capital Resources
The capital base for the Company increased by approximately $218,000 for the
first three months of 2008, due to net income and stock option activity, net of
decreases in accumulated other comprehensive income and the cumulative effect of
an accounting change for split dollar life insurance plan agreements. Stock
option activity includes the impact of stock options exercised in the first
quarter as well as unexercised stock options. The Company's equity to asset
ratio was 12.8% as of March 31, 2008 and 13.9% as of December 31, 2007. The
Company expects to continue to leverage its capital as the Bank grows.
The following table details return on average assets (net income divided by
average total assets, annualized if necessary), return on average equity (net
income divided by average total equity, annualized if necessary) and the ratio
of average equity to average assets ratio for the first quarter of 2008 and for
the year ended December 31, 2007. Return on Assets and Return on Equity for the
first quarter of 2008 have decreased significantly since 2007 due to pressure on
our net interest margin and the effect of an increased provision for loan
losses. See Results of Operations for more information. Since our inception
through March 31, 2008 we have not paid any cash dividends. However, on April 8,
2008 our Board of Directors declared a cash dividend of $.30 per share payable
to shareholders of record on May 13, 2008.
Quarter ended Year ended
March 31, 2008 December 31, 2007
-------------- -----------------
(annualized)
Return on average assets .................... .60% 1.18%
Return on average equity .................... 4.47% 8.73%
Ratio of average equity to average assets ... 13.36% 13.56%
Dividend payout ratio ....................... -% -%
15
The FDIC has established guidelines for capital requirements for banks. As of
March 31, 2008, the Bank is considered well capitalized based on the capital
levels that are required to be maintained according to FDIC guidelines as shown
in the following table.
Capital Ratios
Adequately
Well Capitalized Capitalized
Actual Requirement Requirement
------ ----------- -----------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
Total capital to risk weighted assets ........... $ 19,772 15.5% $12,788 10.0% $10,231 8.0%
Tier 1 capital to risk weighted assets .......... $ 18,543 14.5% $ 7,673 6.0% $ 5,115 4.0%
Tier 1 capital to average assets ................ $ 18,543 12.5% $ 7,395 5.0% $ 5,916 4.0%
The Federal Reserve has also established guidelines for capital requirements for
bank holding companies that are similar to the FDIC's guidelines for banks. At
March 31, 2008, the Company exceeded all of the minimum requirements of the
Federal Reserve guidelines.
The Company has two stock-based compensation plans. See "Stock based
Compensation" in the Notes to Unaudited Consolidated Financial Statements above
for more information.
Impact of Inflation
Unlike most industrial companies, the assets and liabilities of financial
institutions such as the Company are primarily monetary in nature. Therefore,
interest rates have a more significant impact on the Company's performance than
do the effects of changes in the general rate of inflation and changes in
prices. In addition, interest rates do not necessarily move in the same
magnitude as the prices of goods and services. As discussed previously,
management seeks to manage the relationships between interest sensitive assets
and liabilities in order to protect against wide rate fluctuations, including
those resulting from inflation.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market risk is the risk of loss from adverse changes in market prices and rates
which principally arises from liquidity risk and interest rate risk inherent in
the Bank's lending, deposit gathering, and borrowing activities. Other types of
market risks such as foreign currency exchange risk and commodity price risk do
not normally arise in the ordinary course of our business. The Funds Management
Committee of our Board of Directors, which meets quarterly, monitors and
considers methods of managing exposure to liquidity and interest rate risk. Our
Management monitors liquidity and interest rate risk on an on-going basis.
Management is responsible for maintaining the level of interest rate sensitivity
of our interest sensitive assets and liabilities and managing our liquidity
within board-approved limits.
Interest rate sensitivity "gap" analysis measures the timing and magnitude of
the repricing of assets compared with the repricing of liabilities and is an
important part of asset/liability management. The objective of interest rate
sensitivity management is to generate stable growth in net interest income, and
to control the risks associated with interest rate movements. Management
constantly reviews interest rate risk exposure and the expected interest rate
environment so that adjustments in interest rate sensitivity can be made in a
timely manner.
16
ITEM 4 (T). Controls and Procedures.
Based on the evaluation required by 17 C.F.R. Section 240.13a-15(b) or
240.15d-15(b) of the Company's disclosure controls and procedures (as defined in
17 C.F.R. Sections 240.13a-15(e) and 240.15d-15(e)), the Company's chief
executive officer and chief financial officer concluded that such controls and
procedures, as of the end of the period covered by this report, were effective.
There has been no change in the Company's internal control over
financial reporting during the most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.
Part II - Other Information
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.
During the quarter ended March 31, 2008, the Company issued shares of
common stock to a director/employee upon the exercise of options as follows:
Date of Issuance Number of Shares Issued Aggregate Exercise Price
---------------- ----------------------- ------------------------
March 14, 2008 8,396 $ 81,833
Issuance of such shares was not registered under the Securities Act of
1933 in reliance upon the exemption provided by Section 4(2) thereunder based on
the fact that no public offering was involved.
ITEM 6. Exhibits
Exhibits:
31-1 Rule13a-14(a)/ 15d-14(a) Certifications of Chief
Executive Officer
31-2 Rule13a-14(a)/Rule 15d-14(a) Certifications of
Chief Financial Officer
32 18 U.S.C. Section 1350 Certifications
17
SIGNATURES
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.
Cornerstone Bancorp
(Registrant)
By: s/J. Rodger Anthony Date: May 9, 2008
-------------------------------------------------------
J. Rodger Anthony
Chief Executive Officer
By: s/Jennifer M. Champagne Date: May 9, 2008
-------------------------------------------------------
Jennifer M. Champagne
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
18
EXHIBIT INDEX
31-1 Rule13a-14(a)/ 15d-14(a) Certifications of Chief
Executive Officer
31-2 Rule13a-14(a)/Rule 15d-14(a) Certifications of
Chief Financial Officer
32 18 U.S.C. Section 1350 Certifications
19