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 September 30, 2004.
------------------
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
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(Address of principal executive offices)
(706) 738-6990
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(Issuer's telephone number, including area code)
Not Applicable
---------------
(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
--- ---
Check whether the issuer is an accelerated filer (as defined in Rule 12b-2
of the Exchange Act). Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
5,247,604 shares of common stock, $3.00 par value per share, outstanding as
of September 30, 2004.
GEORGIA BANK FINANCIAL CORPORATION
FORM 10-Q
INDEX
Part I Page
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of September 30, 2004 and
December 31, 2003 3
Consolidated Statements of Income for the Three and Nine
Months ended September 30, 2004 and 2003 4
Consolidated Statements of Cash Flows for the
Nine Months ended September 30, 2004 and 2003
6
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk 24
Item 4. Controls and Procedures 24
Part II Other Information
Item 1. Legal Proceedings *
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 25
Item 3. Defaults Upon Senior Securities *
Item 4. Submission of Matters to a Vote of Security Holders *
Item 5. Other Information *
Item 6. Exhibits and Reports on Form 8-K 26
Signature 27
<FN>
* No information submitted under this caption
1
PART I
FINANCIAL INFORMATION
2
GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
(Unaudited)
ASSETS
September 30, December 31,
2004 2003
-------------------------------
Cash and due from banks $ 16,320,275 $ 15,704,566
Interest-bearing deposits in other banks 511,797 17,318
--------------- --------------
Cash and cash equivalents 16,832,072 15,721,884
Investment securities
Available-for-sale 166,371,791 151,394,463
Held-to-maturity, at cost (fair values of
$4,011,982 and $5,750,099, respectively) 3,776,525 5,437,519
Loans held for sale 13,816,174 14,047,080
Loans 458,446,919 418,632,111
Less allowance for loan losses (7,586,030) (7,277,589)
--------------- --------------
Loans, net 450,860,889 411,354,522
Premises and equipment, net 18,308,807 14,250,543
Accrued interest receivable 3,480,150 3,784,888
Intangible assets, net 139,883 139,883
Bank-owned life insurance 11,342,420 10,971,633
Other assets 3,747,276 3,530,542
--------------- --------------
$ 688,675,987 $ 630,632,957
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing $ 80,614,105 $ 68,033,102
Interest-bearing:
NOW accounts 76,457,049 72,386,405
Savings 215,883,334 194,366,425
Money management accounts 24,769,895 22,137,192
Time deposits over $100,000 106,864,387 97,631,749
Other time deposits 39,040,176 29,396,929
--------------- --------------
543,628,946 483,951,802
Federal funds purchased and securities sold
under repurchase agreements 40,908,605 56,968,754
Advances from Federal Home Loan Bank 40,000,000 30,000,000
Other borrowed funds 1,000,000 800,000
Accrued interest and other liabilities 5,441,441 5,223,354
--------------- --------------
Total liabilities 630,978,992 576,943,910
--------------- --------------
Stockholders' equity
Common stock, $3.00 par value; 10,000,000
shares authorized; 5,283,346 and 5,284,746 shares issued in
2004 and 2003, respectively; 5,247,604 and 5,247,204 shares
outstanding in 2004 and 2003, respectively 15,850,038 15,854,238
Additional paid-in capital 34,235,517 34,337,584
Retained earnings 7,439,820 3,001,079
Treasury stock, at cost; 35,742 and 37,542 shares in
2004 and 2003, respectively (462,745) (507,360)
Accumulated other comprehensive income 634,365 1,003,506
--------------- --------------
Total stockholders' equity 57,696,995 53,689,047
--------------- --------------
$ 688,675,987 $ 630,632,957
=============== ==============
3
GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Income
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
---------- ----------- ------------ ------------
2004 2003 2004 2003
---------- ----------- ------------ ------------
Interest income:
Loans, including fees $7,073,443 $6,630,320 $20,504,835 $19,375,530
Investment securities 1,844,988 1,487,377 5,264,296 4,669,042
Federal funds sold 28,770 10,345 46,000 70,215
Interest-bearing deposits in other banks 497 (84) 540 3,496
---------- ----------- ------------ ------------
Total interest income 8,947,698 8,127,958 25,815,671 24,118,283
---------- ----------- ------------ ------------
Interest expense:
Deposits 1,784,792 1,715,861 5,098,812 5,635,878
Federal funds purchased and securities sold
under repurchase agreements 142,662 154,025 454,471 486,524
Other borrowings 470,573 447,923 1,348,610 1,338,929
---------- ----------- ------------ ------------
Total interest expense 2,398,027 2,317,809 6,901,893 7,461,331
---------- ----------- ------------ ------------
Net interest income 6,549,671 5,810,149 18,913,778 16,656,952
Provision for loan losses 493,103 218,833 1,013,023 1,125,388
---------- ----------- ------------ ------------
Net interest income after provision
for loan losses 6,056,568 5,591,316 17,900,755 15,531,564
---------- ----------- ------------ ------------
Noninterest income:
Service charges and fees on deposits 1,342,105 1,149,044 3,628,474 3,371,463
Gain on sales of loans 1,461,997 2,862,538 4,367,103 7,181,770
Investment securities gains (losses), net 1,833 (73,460) (2,709) (44,688)
Retail investment income 140,281 47,954 344,819 221,343
Trust service fees 147,239 97,451 405,309 247,086
Increase in cash surrender value of
bank-owned life insurance 118,701 129,166 370,787 202,090
Miscellaneous income 108,354 94,061 320,298 285,365
---------- ----------- ------------ ------------
Total noninterest income 3,320,510 4,306,754 9,434,081 11,464,429
---------- ----------- ------------ ------------
Noninterest expense:
Salaries 2,991,389 3,838,190 8,625,169 9,830,618
Employee benefits 693,087 727,505 2,190,042 2,037,439
Occupancy expenses 671,950 619,152 1,933,309 1,797,155
Other operating expenses 1,559,252 1,556,800 4,913,877 4,300,359
---------- ----------- ------------ ------------
Total noninterest expense 5,915,678 6,741,647 17,662,397 17,965,571
---------- ----------- ------------ ------------
Income before income taxes 3,461,400 3,156,423 9,672,439 9,030,422
Income tax expense 1,139,062 1,059,793 3,187,288 3,104,631
---------- ----------- ------------ ------------
Net income $2,322,338 $2,096,630 $ 6,485,151 $ 5,925,791
========== =========== ============ ============
4
GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Income
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
Basic net income per share $ 0.44 $ 0.40 $ 1.24 $ 1.13
========== ========== ========== ==========
Diluted net income per share $ 0.44 $ 0.39 $ 1.22 $ 1.11
========== ========== ========== ==========
Weighted average common shares outstanding 5,248,034 5,247,204 5,247,483 5,247,204
========== ========== ========== ==========
Weighted average number of common and
common equivalent shares outstanding 5,322,623 5,362,008 5,324,065 5,358,078
========== ========== ========== ==========
5
GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended September 30,
2004 2003
---------------- -------------------
Cash flows from operating activities
Net income $ 6,485,151 $ 5,925,791
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 981,038 966,699
Provision for loan losses 1,013,023 1,125,388
Net investment securities losses 2,709 44,688
Net amortization of premium on investment securities 299,815 606,323
Increase in CSV of bank owned life insurance (370,787) (202,090)
(Gain) loss on disposal of premises and equipment (1,385) 3,048
Loss on the sale of other real estate 8,272 -
Gain on sales of loans (4,367,103) (7,181,770)
Real estate loans originated for sale (211,143,576) (306,272,107)
Proceeds from sales of real estate loans 215,741,585 314,106,182
Decrease in accrued interest receivable 304,738 172,403
Decrease (increase) in other assets 26,858 (513,265)
Increase in accrued interest and other liabilities 218,087 379,028
---------------- -------------------
Net cash provided by operating activities 9,198,425 9,160,318
---------------- -------------------
Cash flows from investing activities
Proceeds from sales of available-for-sale securities 24,315,495 33,318,794
Proceeds from sales of held to maturity securities 550,000 -
Proceeds from maturities of available-for-sale securities 36,910,681 50,931,903
Proceeds from maturities of held to maturity securities 1,168,000 700,000
Purchase of available-for-sale securities (76,872,338) (90,280,661)
Purchase of Federal Home Loan Bank stock (250,000) -
Net increase in loans (40,831,295) (22,962,832)
Purchase of Bank-owned life insurance - (8,000,000)
Purchases of premises and equipment (5,088,112) (1,321,234)
Proceeds from sale of other real estate 250,204 116,793
Proceeds from sale of premises and equipment 50,195 11,686
---------------- -------------------
Net cash used in investing activities (59,797,170) (37,485,551)
---------------- -------------------
Cash flows from financing activities
Net increase in deposits 59,677,144 40,971,957
Net (decrease) increase in federal funds purchased and
securities sold under repurchase agreements (16,060,149) 4,688,922
Advances from Federal Home Loan Bank 10,000,000 -
Proceeds from other borrowed funds 200,000 -
Principal payments on other borrowed funds - (600,000)
Purchase of treasury stock (62,042) -
Payment of cash dividends (2,046,410) -
Proceeds from stock options exercised 390 -
Cash paid for fractional shares - (10,712)
---------------- -------------------
Net cash provided by financing activities 51,708,933 45,050,167
---------------- -------------------
6
GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended September 30,
2004 2003
---------------- -----------------
Net increase in cash and cash equivalents $ 1,110,188 $ 16,724,934
Cash and cash equivalents at beginning of period 15,721,884 17,150,691
---------------- -----------------
Cash and cash equivalents at end of period $ 16,832,072 $ 33,875,625
================ =================
Supplemental disclosures of cash paid during the period for:
Interest $ 7,191,021 $ 7,926,597
================ =================
Income taxes $ 3,091,000 $ 3,133,000
================ =================
Supplemental information on noncash investing activities:
Loans transferred to other real estate $ 311,905 $ 116,793
================ =================
<FN>
See accompanying notes to consolidated financial statements.
7
GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 2004
Note 1 - Basis of Presentation
The accompanying consolidated financial statements include the accounts of
Georgia Bank Financial Corporation and its wholly-owned subsidiary, Georgia Bank
& Trust Company (the "Company" or the "Bank"). Significant intercompany
transactions and accounts are eliminated in consolidation.
The financial statements for the three and nine months ended September 30, 2004
and 2003 are unaudited and have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States of
America have been condensed or omitted pursuant to such rules and regulations.
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, 2003.
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 nine months ended September 30, 2004
are not necessarily indicative of the results of operations which the Company
may achieve for the entire year.
Note 2 - Recent Accounting Pronouncements
The Emerging Issues Task Force on November 13, 2003 issued EITF Issue No. 03-1,
The Meaning of Other-Than-Temporary Impairment and Its Application of Certain
Investments. This new guidance is to be applied in other-than-temporary
impairment evaluations performed in reporting periods beginning after June 15,
2004. Disclosures are effective in annual financial statements for fiscal years
ending after December 15, 2003, for investments accounted for under FASB
Statements No. 115, Accounting for Certain Investments in Debt and Equity
Securities, and No. 124, Accounting for Certain Investments Held by
Not-for-Profit Organizations. The disclosure requirements for all other
investments are effective in annual financial statements for fiscal years ending
after June 15, 2004. The Company does not expect the adoption of EITF 03-1 to
have a significant impact on its consolidated financial statements.
On March 31, 2004, the FASB issued an Exposure Draft titled Share-Based
Payments, an amendment of FASB Statements No. 123 and 95, that addresses
accounting for equity based compensation arrangements. The proposed statement
would eliminate the ability
8
to account for share-based compensation transactions using APB No. 25,
Accounting for Stock Issued to Employees and replace some of the existing
requirements under FASB Statement No. 123, Accounting for Stock-Based
Compensation". The proposed statement would require that such arrangements are
accounted for using the fair-value-based method of accounting and the related
cost expensed over the corresponding service period. It is anticipated that the
final statement will be issued in the fourth quarter of 2004 and may be
effective for the first quarter of 2005. The Company provides proforma
disclosures related to stock-based compensation in Note 4.
Note 3 - Comprehensive Income
Other comprehensive income for the Company consists of net unrealized gains and
losses on investment securities. Total comprehensive income for the three months
ended September 30, 2004 was $4,579,465 compared to $389,130 for the three
months ended September 30, 2003. Total comprehensive income for the nine months
ended September 30, 2004 was $6,116,010 compared to $4,886,731 for the nine
months ended September 30, 2003.
Note 4 - Stock-based Compensation
The Company applies Accounting Principles Board (APB) Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations in accounting for its
stock option plans. Accordingly compensation cost is measured as the excess, if
any, of the quoted market price of the Company's stock at the date of grant over
the amount an employee must pay to acquire the stock. Had compensation cost
been determined based upon the fair value of the options at the grant dates
consistent with the method recommended by SFAS No. 123, on a pro forma basis,
the Company's net income and income per share, on a pro forma basis, for the
three and nine months ended September 30, 2004 and 2003 is indicated below.
Three Months Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
---------------------- ----------------------
Net income $2,322,338 $2,096,629 $6,485,151 $5,925,791
Deduct: Total stock-based
Compensation expense determined
Under fair value based method,
net of related tax effect 51,969 36,534 155,907 106,164
---------- ---------- ---------- ----------
Pro Forma, net income $2,270,369 $2,060,096 $6,329,244 $5,819,627
========== ========== ========== ==========
Basic net income per share:
As reported $ 0.44 $ 0.40 $ 1.24 $ 1.13
Pro forma $ 0.43 $ 0.39 $ 1.21 $ 1.11
Diluted net income per share:
As reported $ 0.44 $ 0.39 $ 1.22 $ 1.11
Pro forma $ 0.43 $ 0.38 $ 1.19 $ 1.09
9
Note 5 - Cash Dividend Declared
On July 22, 2004, the Company declared a quarterly cash dividend of $0.13 per
share on outstanding shares. The dividend was paid on August 11, 2004 to
shareholders of record as of July 28, 2004.
On October 20, 2004, the Company declared a quarterly cash dividend of $0.13 per
share on outstanding shares. The dividend is payable on November 10, 2004 to
shareholders of record as of October 27, 2004.
Note 6 - Sale of Held-to-Maturity Investment
During the third quarter of 2004, the Bank sold a held-to maturity investment
upon realization that the investment was not bank qualified. The amortized cost
of this security was $496,207 and the realized gain was $53,793.
10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
- --------
The Bank was organized by a group of local citizens and commenced business on
August 28, 1989. It began operations with one branch. Today, the Bank operates
seven full service branches and one drive through branch in Richmond and
Columbia counties in Augusta, Martinez, and Evans, Georgia. The seventh full
service branch opened in September 2004, at the Cotton Exchange, listed on the
national register of historic buildings, in downtown Augusta, GA. The Bank
operates three mortgage origination offices in Augusta, Georgia, Savannah,
Georgia, and Nashville, Tennessee. The Savannah, Georgia office also offers
construction lending services. Bank and mortgage operations are located in
Augusta, Georgia in two operations campuses located in close proximity to the
main office in Augusta, Georgia. Trust and retail investment services are
located in the main office. The Bank is Augusta's largest community banking
company.
Richmond and Columbia counties have a diversified economy based primarily on
government, transportation, public utilities, health care, manufacturing, and
wholesale and retail trade. Augusta is one of the leading medical centers in the
Southeast. The 2002 population of the Augusta-Richmond County, GA-SC
metropolitan area was 337,032, the second largest in Georgia.
The Bank's services include lending, residential and commercial real estate
loans, construction and development loans, and commercial and consumer loans.
The Bank also offers a variety of deposit programs, including
noninterest-bearing demand, interest checking, money management, savings, and
time deposits. On a combined basis in Richmond and Columbia counties, the Bank
had 16.8% of all deposits and was the second largest depository institution at
June 30, 2004, as cited from the Federal Deposit Insurance Corporation's
website. Securities sold under repurchase agreements are also offered.
Additional services include trust, retail investment, and mortgage. As a matter
of practice, most mortgage loans are sold in the secondary market; however, some
mortgage loans are placed in the portfolio based on marketing and balance sheet
considerations. The Bank continues to concentrate on increasing its market
share through various new deposit and loan products and other financial services
and by focusing on the customer relationship management philosophy. The Bank is
committed to building life-long relationships with its customers, employees,
shareholders, and the communities it serves.
The Bank's primary source of income is from its lending activities. In 2003,
the Bank's second largest source of income was from gain on sale of loans in the
secondary market. As mortgage interest rates began to rise during the first
quarter of 2004, this source of income has decreased, while loan income
increased due to higher loan volume. The Bank also generates income from its
investment activities and service charges and fees on deposits. The Bank
continues to concentrate on increasing trust service fees. Other
11
significant contributors to income include retail investment income and
increases in cash surrender value of bank-owned life insurance.
The Bank has experienced steady growth. Over the past five years, assets grew
from $342.1 million at December 31, 1999 to $630.6 million at December 31, 2003.
At September 30, 2004, assets were $688.7 million. From year end 1999 to year
end 2003, loans increased $193.6 million, and deposits increased $200.8 million.
From December 31, 2003 to September 30, 2004, loans increased $39.6 million and
deposits increased $59.7 million. Also, from 1999 to 2003, return on average
equity increased from 13.48% to 15.62% and return on average assets increased
from 1.21% to 1.31%. At September 30, 2004, return on average assets was 1.30%
and return on average equity was 15.61%. Net income for the year ended 1999 was
$4.0 million compared to net income of $7.9 million at year end 2003. Net
income for the nine months ended September 30, 2004 was $6.5 million. The
Company has reached a level of maturity evidenced by long-term financial
performance and stability that resulted in the January 23, 2004 declaration of
its first quarterly cash dividend of $0.13 per share. Subsequently, on April
15, 2004, July 21, 2004, and October 20, 2004 the Company declared cash
dividends of $0.13 per share.
The Bank meets its liquidity needs by managing cash and due from banks, federal
funds purchased and sold, maturity of investment securities, paydowns from
mortgage-backed securities, and draws on lines of credit. Additionally,
liquidity can be managed through structuring deposit and loan maturities. The
Bank funds loan and investment growth with core deposits, securities sold under
repurchase agreements and wholesale borrowings. During inflationary periods,
interest rates generally increase. When interest rates rise, variable rate
loans and investments produce higher earnings, however, deposit and other
borrowings interest expense and operating expenses also rise. The Bank monitors
its interest rate risk in a 200 basis points (2%) annual ramp up and down
scenario and a 200 (2%) basis points shock up and down scenario. The Bank
monitors operating expenses through responsibility center budgeting.
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
12
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.
Critical Accounting Policies
- ------------------------------
The accounting and financial reporting policies of the Company conform to
accounting principles generally accepted in the United States of America and to
general practices within the banking industry. Of these policies, management
has identified the allowance for loan losses as a critical accounting policy
that requires difficult subjective judgment and is important to the presentation
of the financial condition and results of operations of the Company.
The allowance for loan losses is established through a provision for loan losses
charged to expense, which affects the Company's earnings directly. Loans are
charged against the allowance for loan losses when management believes that the
collectibility of the principal is unlikely. Subsequent recoveries are added to
the allowance. The allowance is an amount that management believes will be
adequate to absorb losses on existing loans that become uncollectible, based on
evaluations of the collectibility of loans. The evaluations take into
consideration such factors as changes in the nature and volume of the loan
portfolio, historical loss rates, overall portfolio quality, review of specific
problem loans, and current economic conditions and trends that may affect a
borrower's ability to repay.
The Company segments its allowance for loan losses into the following four major
categories: 1) identified losses for impaired loans; 2) general reserves for
Classified/Watch loans; 3) general reserves for loans with satisfactory ratings;
4) general reserves based on economic and market risk qualitative factors. Risk
ratings are initially assigned in accordance with the Bank's loan and collection
policy. An organizationally independent department reviews grade assignments on
an ongoing basis. Management reviews current information and events regarding a
borrower's financial condition and strengths, cash flows available for debt
repayment, the related collateral supporting the loan and the effects of known
and expected economic conditions. When the evaluation reflects a greater than
normal risk associated with the individual loan, management classifies the loan
accordingly. If the loan is determined to be impaired, management allocates a
portion of the allowance for loan losses for that loan based upon the present
value of future cash flows discounted at the loan's effective interest rate or
the fair value of the collateral as the measure for the amount of the
impairment. Cash receipts for accruing loans are applied to principal and
interest under the contractual terms of the loan agreement, where cash receipts
on impaired and nonaccrual loans for which the accrual of interest has been
discontinued are applied first to principal and then to interest income.
Impaired and Classified/Watch loans are aggressively monitored. The reserves
for loans
13
rated satisfactory are further subdivided into various types of loans as defined
by call report codes. Qualitative factors are based upon economic, market and
industry conditions that are specific to the Company's local two county markets.
These qualitative factors include, but are not limited to, national and local
economic conditions, bankruptcy trends, unemployment trends, loan
concentrations, dependency upon government installations and facilities, and
competitive factors in the local market. These allocations for the qualitative
factors are included in the various individual components of the allowance for
loan losses. The qualitative factors are subjective in nature and require
considerable judgment on the part of the Company's management. However, it is
the Company's opinion that these factors represent uncertainties in the Bank's
business environment that must be factored into the Company's analysis of the
allowance for loan losses. The Company is committed to developing more
historical data in the future to reduce the dependence on these qualitative
factors.
Performance Overview -- Net Income
- --------------------------------------
The Company's net income for the third quarter of 2004 was $2,322,000 which was
an increase of $225,000 (10.8%) compared to net income of $2,097,000 for the
third quarter of 2003. Diluted net income per share for the three months ended
September 30, 2004 was $0.44 compared to $0.39 for the three months ended
September 30, 2003. Net income for the first nine months of 2004 was $6,485,000,
an increase of $559,000 (9.4%) when compared to net income of $5,926,000 for the
first nine months of 2003. The increase in net income for both the three and
nine months ended September 30, 2004 compared to the same periods in 2003 was
primarily a result of increases in net interest income and decreases in
noninterest expense, somewhat offset by a decrease in gain on sales of loans in
the secondary market. The provision for loan losses increased for the three
months ended September 30, 2004 as compared to the three months ended September
30, 2003 due to a decrease in substandard loans in the three months ended
September 30, 2003. For the nine months ended September 30, 2004 as compared to
the nine months ended September 30, 2003, there is a decrease in the provision,
primarily due to the improvement in the levels of Classified Watch rated debt
during the second quarter of 2004. Despite a lower interest rate environment in
2004, loan interest income increased due to loan volume. Additionally, the
lower rates, coupled with a decrease in the prime savings account rate, resulted
in lower interest expense on deposits, despite the increase in deposit volume
for the nine month period ended September 30, 2004. During the third quarter of
2004, the increase in the volume and the interest rates resulted in an increase
in deposit expense. Gain on sale of mortgage loans in the secondary market
decreased due to higher mortgage rates in 2004 as compared to 2003 which
resulted in a decrease in refinancing activity in 2004. This also resulted in
lower mortgage commissions. The increase in employee benefit expense is
primarily due to increases in deferred compensation expense, state unemployment
taxes, and medical and dental insurance, somewhat offset by decreases in 401K
contributions. Other operating expenses increased primarily due to loan costs,
due to an anticipated $150,000 loss on a fraudulent mortgage loan sold in the
secondary market, increased cash item losses, increased processing fees due to
new retail checking accounts, software maintenance agreements, external audit
expense, and ATM processing fees offset by increases in ATM
14
income included in miscellaneous income, somewhat offset by a decrease in
overdraft protection expense and contributions.
Total assets of $688.7 million at September 30, 2004 reflects an increase of
$54.0 million (9.4%) from year-end 2003. This increase is primarily attributable
to higher loan and investment balances since December 2003. Total loans at
September 30, 2004 were $472.3 million which represented an increase of $39.6
million (9.1%) from December 31, 2003. Since December 31, 2003, investment
securities increased $13.3 million (8.5%), and premises and equipment increased
$4.1 million (28.5%). These increases were funded by increases in total
deposits of $59.7 million (12.3%), increases in Federal Home Loan Bank advances
of $10.0 million (33.3%), and net income of $6.5 million less dividends paid of
$2.0 million, somewhat offset by decreases in securities sold under repurchase
agreements of $16.1 million (28.2%).
The annualized return on average assets for the Company was 1.30% for the nine
months ended September 30, 2004, compared to 1.33% for the same period last
year. While total assets have increased $68.5 million since third quarter 2003,
net income has only increased $559,000. The $2.3 million increase in net
interest income was more than offset by the $2.8 million decrease in gain on
sale of mortgage loans. However, other increases in noninterest income coupled
with a decrease in noninterest expense resulted in the $559,000 increase to net
income. The annualized return on average stockholders' equity was 15.61% for
the nine months ended September 30, 2004 compared to 15.81% for the comparable
period in 2003. The decrease is primarily attributable to the continued
increase in stockholders' equity.
Net Interest Income
- ---------------------
Net interest income increased $740,000 (12.7%) in the third quarter of 2004
compared to the third quarter of 2003 and $2.3 million (13.6%) during the first
nine months of 2004 compared to the same period in 2003. Despite the lower
interest rates, interest income on loans increased $443,000 (6.7%) for the
three-month period and $1.1 million (5.8%) for the nine-month period due to the
additional volume. Interest income on investment securities increased $358,000
(24.0%) and $595,000 (12.8%) for the three and nine-month periods ended
September 30, 2004, respectively, compared to the same periods in 2003 due to
increased volume. Due to increased volume, interest expense on deposits
increased $69,000 (4.0%) for the three month period ended September 30, 2004 as
compared with the three month period ended September 30, 2003. Despite increases
in deposit volumes, interest expense on deposits decreased $537,000 (9.5%)
during the nine-month period ended September 30, 2004 compared to the same
period in 2003 due to lower interest rates during 2004.
The Company's net interest margin for the three months and nine months ended
September 30, 2004 was 4.03% and 4.01%, respectively, compared to 3.93% and
3.89% for the three and nine months ended September 30, 2003, respectively.
15
Noninterest Income
- -------------------
Noninterest income decreased $986,000 (22.9%) for the three month period ended
September 30, 2004 as compared to the three-month period ended September 30,
2003 and $2.0 million (17.7%) for the nine month period ended September 30, 2004
as compared to the nine-month period ended September 30, 2003. The decrease for
both periods in noninterest income was primarily attributable to decreases in
gain on sales of mortgage loans in the secondary market of $1.4 million (48.9%)
for the third quarter 2004 as compared with the third quarter 2004 and $2.8
million (39.2%) for the nine months ended September 30, 2004 as compared with
the nine months ended September 2003. These decreases are attributable to the
increase in the interest rates resulting in lower levels of home purchases and
refinancings. Service charges and fees on deposits increased $193,000 (16.8%)
from the third quarter 2003 and $257,000 (7.6%) over the nine months ended
September 30, 2003, primarily due to increases in NSF fees and ATM income,
somewhat offset by decreases in service charges, all a result of the new retail
checking accounts. Also, lower commercial cash processing fees resulted in an
additional reduction to service charges. Retail investment income increased
$92,000 (192.5%) over the third quarter 2003 and $123,000 (55.8%) over the nine
months ended September 30, 2003, due to increased volume. Trust service fees
increased $50,000 (51.1%) over the third quarter 2003 and $158,000 (64.0%) over
the nine months ended September 30, 2004, also due to increased volume. Cash
surrender value of bank owned life insurance increased $169,000 (83.5%) over the
nine months ended September 30, 2003, due to additional insurance purchases in
June and July of 2003. The decrease in the cash surrender value of life
insurance of $10,000 (8.1%) for the third quarter of 2004 as compared with the
third quarter of 2003, is due to lower interest rates.
Noninterest Expense
- --------------------
Noninterest expense for the three months ended September 30, 2004 decreased
$826,000 (12.3%) as compared with the three months ended September 30, 2003 and
$303,000 (1.7%) for the nine months ended September 30, 2004 as compared with
the nine months ended September 30, 2003. Salary expense decreased $847,000
(22.1%) in the third quarter of 2004 compared to the third quarter of 2003 and
decreased $1.2 million (12.3%) for the nine month period ended September 30,
2004 when compared to the nine months ended September 30, 2003. The decreases
in salary expense for both the quarter and nine-month period are primarily the
result of decreased mortgage commissions directly related to the reduction of
secondary mortgage market volume. Employee benefits expense decreased $34,000
(4.72%) over the third quarter of 2003 and increased $153,000 (7.5%) over the
first nine months of 2003. The decrease in the third quarter comparisons is
primarily due to decreases in 401(K) expense, somewhat offset by increases in
long term compensation expense and medical and dental insurance. The increase in
the nine month comparisons is primarily due to increases in long term
compensation expense, state unemployment tax, and medical and dental insurance,
somewhat offset by reductions in 401(K) expense. The increase in occupancy
expense of $53,000 (8.5%) over the third quarter of 2003 and $136,000 (7.6%)
over the nine month
16
ended September 30, 2003, is primarily due to operation of the Walton Way
Operations Campus opened in February 2004, maintenance expenses related to the
Cotton Exchange branch which opened in September 2004, and property taxes
related to these operations and additional real estate purchases. The increase
in other operating expenses of $614,000 (14.3%) over the nine months ended
September 30, 2003 is primarily due to increases due to the new retail checking
account program, an anticipated loss on a fraudulent mortgage loan, ATM
processing fees due to higher volume levels, software maintenance agreements,
external audit expenses, and cash item losses, somewhat offset by decreases in
overdraft protection expense and contributions.
Income Taxes
- -------------
Income tax expense in the third quarter of 2004 totaled $1,139,000, an increase
of $79,000 over the third quarter of 2003. Income tax expense of $3.2 million
for the first nine months of 2004 reflects an increase of $83,000 over the
comparable nine month period in 2003. The effective tax rate for the nine
months ended September 30, 2004 and 2003 was 32.9% and 34.4%, respectively. The
decrease in the effective tax rate is primarily due to an increase in tax-exempt
income.
Asset Quality
- --------------
Table 1 shows the current and prior period amounts of non-performing assets.
Non-performing assets were $2.7 million at September 30, 2004, compared to $3.1
million at December 31, 2003 and $2.6 million at September 30, 2003. The ratio
of non-performing assets to total loans and other real estate was 0.57% at
September 30, 2004, compared to 0.70% at December 31, 2003 and 0.63% at
September 30, 2003. The control and monitoring of non-performing assets
continues to be a priority of management.
There were $8,000 of loans past due and still accruing at September 30, 2004.
There were no loans past due 90 days or more and still accruing at December 31,
2003 and September 30, 2003.
Allowance for Loan Losses
- ----------------------------
The allowance for loan losses represents a reserve for probable loan losses in
the loan portfolio. The adequacy of the allowance for loan losses is evaluated
periodically based on a review of all significant loans, with particular
emphasis on impaired, non-accruing, past due, and other loans that management
believes require special attention. The determination of the allowance for loan
losses is considered a critical accounting policy of the Company. See "Critical
Accounting Policies."
When reviewing the allowance for loan losses, it is important to understand to
whom the Company lends. At September 30, 2004, the loan portfolio is comprised
of 78.28% real estate loans, of which 23.25% constitutes construction and
acquisition and development loans. Commercial, financial and agricultural loans
comprise 12.51%, and consumer loans comprise 9.21% of the portfolio.
17
While the Company has 78.28% of its loan portfolio secured by real estate loans,
this percentage is not significantly higher than in previous years. Commercial
real estate comprises 31.94% of the loan portfolio and is primarily owner
occupied properties where the operations of the commercial entity provide the
necessary cash flow to service the debt. For this portion of real estate loans,
repayment is not dependent upon liquidation of the real estate. Construction
and development (23.25%) has been an increasingly important portion of the real
estate loan portfolio. The Company carefully monitors the loans in this
category since the repayment of these loans is generally dependent upon the
liquidation of the real estate and is impacted by national and local economic
conditions. The residential category, 20.16% of the portfolio, represents those
loans that the Company chooses to maintain in its portfolio rather than selling
into the secondary market for marketing and competitive reasons. The
residential held for sale category, 2.93% of the portfolio, comprises loans that
are in the process of being sold into the secondary market. The credit has been
approved by the investor and the interest rate locked so the Company takes no
credit or interest rate risk with respect to these loans.
The Company has no large loan concentrations to individual borrowers or
industries. Unsecured loans at September 30, 2004 were $9.1 million. While
management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Company's allowance for loan
losses. Such agencies may require the Company to recognize additions to the
allowance based on their judgments about information available to them at the
time of their examination.
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. Loans determined to be uncollectible are charged to
the allowance for loan losses and subsequent recoveries are added to the
allowance. A provision for losses in the amount of $493,000 was charged to
expense for the quarter ended September 30, 2004 compared to $219,000 for the
quarter ended September 30, 2003, and $1,013,000 for the nine months ended
September 30, 2004 compared to $1,125,000 for the nine months ended June 30,
2003. The provision was higher for the three month ended September 30, 2004 as
compared with the three months ended September 30, 2003, due to reversals of
loan loss provision in September 2003 to reflect lower levels of substandard
loans and lower charge-offs. Despite the increase in loan volume, the loan loss
provision decreased for the nine months ended September 30, 2004 as compared
with the nine months ended September 30, 2003, due to improvement in the levels
of Classified Watch rated debt.
At September 30, 2004 the ratio of allowance for loan losses to total loans was
1.61% compared to 1.69% at December 31, 2003 and 1.67% at September 30, 2003.
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.
18
Liquidity and Capital Resources
- ----------------------------------
The Company's liquidity remains adequate to meet operating and loan funding
requirements. The loan to deposit ratio at September 30, 2004 was 86.6%
compared to 89.4% at December 31, 2003 and 87.0% at September 30, 2003. The
decrease in the loan to deposit ratio from December 31, 2003 and September 30,
2003 reflects the significant increase in deposits during the first nine months
of 2004. Deposits at September 30, 2004 and December 31, 2003 include $35.0
million of brokered certificates of deposit. The Company has also utilized
borrowings from the Federal Home Loan Bank. The Company maintains a line of
credit with the Federal Home Loan Bank approximating 10% of the Bank's total
assets. Federal Home Loan Bank advances are collateralized by eligible first
mortgage loans, and commercial real estate loans. These borrowings totaled
$40.0 million at September 30, 2004. The Company maintains repurchase lines of
credit with SunTrust Robinson Humphrey, Atlanta, Georgia, for advances up to
$20.0 million and with The Bankers Bank, Atlanta, Georgia, for advances up to
$10.0 million of which no amounts were outstanding at September 30, 2004. The
Company has a federal funds purchased accommodation with The Bankers Bank,
Atlanta, Georgia, for advances up to $16.3 million and with SunTrust Bank,
Atlanta, Georgia for advances up to $10.0 million. Additionally, liquidity
needs can be satisfied by the structuring of the maturities of investment
securities and the pricing and maturities on loans and deposits offered to
customers. The Company also uses customer securities sold under repurchase
agreements to fund growth. Securities sold under repurchase agreements were
$40.9 million at September 30, 2004.
Shareholders' equity to total assets was 8.0% at September 30, 2004 compared to
8.3% at September 30, 2003 and 8.5% at December 31, 2003. The capital of the
Company and the Bank exceeded all required regulatory guidelines at September
30, 2004. The Company's Tier 1 risk-based, total risk-based and leverage
capital ratios were 10.44%, 11.69%, and 8.29%, respectively, at September 30,
2004. 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.
Commitments and Contractual Obligations
- ------------------------------------------
The Bank is a party to lines of credit with off-balance sheet risk in the normal
course of business to meet the financing needs of its customers. Lines of
credit are unfunded commitments to extend credit. These instruments involve, in
varying degrees, exposure to credit and interest rate risk in excess of the
amounts recognized in the financial statements. The Bank's exposure to credit
loss in the event of nonperformance by the other party to the financial
instrument for unfunded commitments to extend credit and letters of credit is
represented by the contractual amount of those instruments. The Bank evaluates
construction and acquisition and development loans for the percentage completed
before extending additional credit. The Bank follows the same credit policies
19
in making commitments and contractual obligations as it does for on-balance
sheet instruments.
Unfunded commitments to extend credit where contract amounts represent potential
credit risk totaled $122.7 million at September 30, 2004. These commitments are
primarily at variable interest rates.
The Company's commitments are funded through internal funding sources of
scheduled repayments of loans and sales and maturities of investment securities
available for sale or external funding sources through acceptance of deposits
from customers or borrowings from other financial institutions.
The following table is a summary of the Company's commitments to extend credit,
commitments under contractual leases as well as the Company' contractual
obligations, consisting of deposits, FHLB advances, which are subject to early
termination options, and borrowed funds by contractual maturity date for the
next five years.
Commitments and Due in Due in Due in Due in Due in
Contractual Obligations 1 Year 2 Years 3 Years 4 Years 5 Years
- --------------------------- -------- -------- -------- -------- --------
Lines of credit $122,691 - - - -
Lease agreements 138 122 113 5 -
Deposits 234,524 117,058 77,794 33,607 31,515
Securities sold under
repurchase agreements 40,909 - - - -
FHLB advances - 5,000 5,000 - -
Other borrowings 1,000 - - - -
-------- -------- -------- -------- --------
Total commitments and
contractual obligations $399,262 $122,180 $ 82,907 $ 33,612 $ 31,515
======== ======== ======== ======== ========
Although management regularly monitors the balance of outstanding commitments to
fund loans to ensure funding availability should the need arise, management
believes that the risk of all customers fully drawing on all these lines of
credit at the same time is remote.
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 generally decrease the market value of
investments and loans held and may adversely affect liquidity, earnings,
20
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.
21
TABLE 1
- -------
GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED FINANCIAL DATA
(Dollars in Thousands)
(Unaudited)
Nine Months Ended September 30
------------------------------
PROFITABILITY 2004 2003
- ------------- ---- ----
Return on average assets * 1.30% 1.33%
Return on average equity * 15.61% 15.81%
ALLOWANCE FOR LOAN LOSSES
- -------------------------
Beginning balance, January 1 $ 7,278 $ 6,534
Provision charged to expense 1,013 1,125
Recoveries 543 462
Loans charged off (1,248) (1,147)
----------- ----------
Ending balance, September 30 $ 7,586 $ 6,974
=========== =========-
NON-PERFORMING ASSETS September 30, 2004 December 31, 2003 September 30, 2003
- ---------------------
Non-accrual loans $ 2,623 $ 3,045 $ 2,631
Other real estate owned 58 5 0
---------- --------- ----------
Total non-performing assets $ 2,681 $ 3,050 $ 2,631
========== ========= ==========
LOANS PAST DUE 90 DAYS OR
MORE AND STILL ACCRUING $ 8 $ 0 $ 0
========== ========= ==========
* Annualized
22
TABLE 2
- --------
Georgia Bank Financial Corporation
and
Georgia Bank & Trust Company
Regulatory Capital Requirements
September 30, 2004
(Dollars in Thousands)
Actual Required Excess
Amount Percent Amount Percent Amount Percent
---------------- --------------- ---------------
Georgia Bank Financial Corporation
Risk-based capital:
Tier 1 capital $56,923 10.44% 21,820 4.00% 35,103 6.44%
Total capital 63,751 11.69% 43,639 8.00% 20,112 3.69%
Tier 1 leverage ratio 56,923 8.29% 27,482 4.00% 29,441 4.29%
Georgia Bank & Trust Company
Risk-based capital:
Tier 1 capital $53,854 9.90% 21,757 4.00% 32,097 5.90%
Total capital 60,663 11.15% 43,514 8.00% 17,149 3.15%
Tier 1 leverage ratio 53,854 7.86% 27,424 4.00% 26,430 3.86%
23
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As of September 30, 2004, 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, 2003. 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, 2003 included in the
Company's 2003 Annual Report on Form 10-K.
Item 4. Controls and Procedures
As of the end of the period covered by this report, the Company carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's President and Chief Executive Officer
(principal executive officer) and its Executive Vice President and Chief
Operating Officer (principal financial officer), of the effectiveness of the
design and operation of the Company's disclosure controls and procedures
pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, such officers
concluded that the Company's disclosure controls and procedures are effective in
timely alerting them to material information relating to the Company (including
its consolidated subsidiaries) that is required to be included in the Company's
periodic filings with the Securities and Exchange Commission. There have been
no significant changes in the Company's internal controls or, to the Company's
knowledge, in other factors that could significantly affect those internal
controls subsequent to the date the Company carried out its evaluation, and
there have been no corrective actions with respect to significant deficiencies
or material weaknesses.
24
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. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
The following table sets forth information regarding the Company's
purchases of its common stock on a monthly basis during the third
quarter of 2004.
- -----------------------------------------------------------------------------------------
Total Number of Maximum Number (or
Shares (or Units Appropriate Dollar Value)
Total Average Purchased as Part of Shares (or Units) that
Number of Price of Publicly May Yet Be Purchased
Shares Paid Per Announced Plans or Under the Plans or
Period Purchased Share Programs 1 Programs
- ------------------- --------- --------- ------------------ --------------------------
July 1 through July
31, 2004 200 $ 28.25 200 99,800
- ------------------- --------- --------- ------------------ --------------------------
August 1 through
August 31, 2004 - - - -
- ------------------- --------- --------- ------------------ --------------------------
September 1
through September
30, 2004 2,000 28.20 2,000 97,800
- ------------------- --------- --------- ------------------ --------------------------
Total 2,200 28.20 2,200 97,800
=================== ========= ========= ================== ==========================
On April 15, 2004, the Company announced the commencement of a stock
repurchase program, pursuant to which it will, from time to time,
repurchase up to 100,000 shares of its outstanding stock. The program
does not have a stated expiration date. No stock repurchase programs
were terminated during the third quarter of 2004.
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
None
25
Item 5. Other Information
None
Item 6. Exhibits
31.1 Certification of Chief Executive Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
26
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: November 3, 2004 By: /s/ Ronald L. Thigpen
---------------- -----------------------------------
Ronald L. Thigpen
Executive Vice President, Chief
Operating Officer (Duly Authorized
Officer of Registrant and Principal
Financial Officer)
27