UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2003
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 333-83851
Greenville First Bancshares, Inc.
---------------------------------
(Exact name of registrant as specified in its charter)
South Carolina 58-2459561
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(State of Incorporation) (I.R.S. Employer Identification No.)
112 Haywood Road
Greenville, S.C. 29607
---------------- -----
(Address of principal executive offices) (Zip Code)
864-679-9000
------------
(Telephone Number)
Not Applicable
--------------
(Former name, former address
and former fiscal year,
if changed since last report)
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:
1,150,000 shares of common stock, $.01 par value per share, issued and
outstanding as of May 9, 2003.
Transitional Small Business Disclosure Format (check one): YES NO X
--- --
GREENVILLE FIRST BANCSHARES, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The financial statements of Greenville First Bancshares, Inc. and
Subsidiary are set forth in the following pages.
2
GREENVILLE FIRST BANCSHARES, INC. & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
--------------- -----------------
2003 2002
--------------- -----------------
(Unaudited) (Audited)
Assets
Cash and due from banks $ 4,315,961 $ 4,429,290
Federal funds sold 8,237,469 41,736
Investment securities available for sale 5,440,101 14,592,190
Other investments, at cost 1,705,000 905,000
Loans, net 157,753,883 148,079,012
Accrued interest 565,367 730,028
Property and equipment 773,667 785,942
Other real estate owned 625,316 524,625
Other assets 587,111 269,840
------------- -------------
Total assets $ 180,003,875 $ 170,357,663
============= =============
Liabilities and Shareholders' Equity
Liabilities
Deposits $137,097,154 $133,563,270
Official checks outstanding 1,265,670 889,270
Federal funds purchased and repurchase agreements 1,953,000 9,107,000
Federal Home Loan Bank advances 25,500,000 13,000,000
Note payable 3,000,000 2,500,000
Accrued interest payable 608,124 606,072
Accounts payable and accrued expenses 188,984 460,262
------------- -------------
Total liabilities 169,612,932 160,125,874
------------- -------------
Commitments and contingencies
Shareholders' equity
Preferred stock, par value $.01 per share, 10,000,000 shares
authorized, no shares issued - -
Common stock, par value $.01 per share, 10,000,000 shares
authorized, 1,150,000 issued 11,500 11,500
Additional paid-in capital 10,635,200 10,635,200
Accumulated other comprehensive income 139,960 147,733
Retained deficit (395,717) (562,644)
------------- -------------
Total shareholders' equity 10,390,943 10,231,789
------------- -------------
Total liabilities and shareholders' equity $ 180,003,875 $ 170,357,663
============= =============
See notes to consolidated financial statements that are an integral part
of these consolidated statements.
3
GREENVILLE FIRST BANCSHARES, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOMES
(Unaudited)
For the Three Months Ended
March 31,
-----------------------------------
2003 2002
-------------- ----------------
Interest income
Loans $ 2,087,996 $ 1,586,655
Investment securities 136,544 181,153
Federal funds sold 6,489 22,550
----------- -----------
Total interest income 2,231,029 1,790,358
Interest expense
Deposits 729,480 769,597
Borrowings 162,470 76,583
----------- -----------
Total interest expense 891,950 846,180
----------- -----------
Net interest income before provision for loan losses 1,339,079 944,178
Provision for loan losses 300,000 200,000
----------- -----------
Net interest income after provision for loan losses 1,039,079 744,178
----------- -----------
Noninterest income
Loan fee income 44,354 27,233
Service fees on deposit accounts 59,729 35,613
Other income 43,070 40,104
----------- -----------
Total noninterest income 147,153 102,950
----------- -----------
Noninterest expenses
Salaries and benefits 479,278 431,523
Professional fees 33,601 40,059
Marketing 35,349 24,398
Insurance 26,685 21,243
Occupancy 161,397 146,025
Data processing and related costs 133,057 93,899
Telephone 5,470 5,176
Other 42,161 41,992
----------- -----------
Total noninterest expenses 916,998 804,315
----------- -----------
Income before income taxes 269,234 42,813
Income tax expense 102,307 -
----------- -----------
Net income $ 166,927 $ 42,813
=========== ===========
Income per common share:
Basic $ .15 $ .04
=========== ===========
Diluted $ .14 $ .04
=========== ===========
Weighted average common shares outstanding:
Basic 1,150,000 1,150,000
=========== ===========
Diluted 1,222,702 1,150,000
=========== ===========
See notes to consolidated financial statements that are an integral part
of these consolidated statements.
4
GREENVILLE FIRST BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
Accumu-
lated
Additional other Total
Common stock Additional compre- share-
--------------------------- paid-in hensive Retained holders'
Shares Amount capital income deficit equity
----------- -------------- -------------- --------------- --------------- -------------
December 31, 2001 1,150,000 $ 11,500 $10,635,200 $ 127,779 $ (1,315,060) $ 9,459,419
Net income - - - - 42,813 42,813
Comprehensive income
(loss), net of tax
Unrealized holding gain
on securities available
for sale - - - (81,892) - (81,892)
------------
Comprehensive income - - - - - (39,079)
---------- ----------- ----------- -------------- --------------- ------------
March 31, 2002 1,150,000 $ 11,500 $10,635,200 $ 45,887 $ (1,272,247) $ 9,420,340
========== =========== =========== ============== =============== ============
December 31, 2002 1,150,000 $ 11,500 $10,635,200 $ 147,333 $ (562,644) $ 10,231,789
Net income - - - - 166,927 166,927
Comprehensive income, net
of tax
Change in unrealized
holding gain on securities
available for sale - - - (7,773) - (7,773)
------------
Comprehensive income - - - - - 159,154
---------- ----------- ----------- -------------- --------------- ------------
March 31, 2003 1,150,000 $ 11,500 $10,635,200 $ 139,960 $ (395,717) $ 10,390,943
========== =========== =========== ============== =============== ============
See notes to consolidated financial statements that are an integral part
of these consolidated statements.
5
GREENVILLE FIRST BANCSHARES, INC.AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended
March 31,
--------------------------------------------
2003 2002
-------------------- ---------------------
Operating activities
Net income $ 166,927 $ 42,813
Adjustments to reconcile net income to cash
provided by (used for) operating activities:
Provision for loan losses 300,000 200,000
Depreciation and other amortization 34,982 50,169
Accretion and amortization of securities
discounts and premium, net 26,192 11,637
Decrease (increase) in other assets, net (253,301) 110,682
Increase (decrease) in other liabilities, net 111,180 384,436
------------ ------------
Net cash provided by operating activities 385,980 799,737
------------ ------------
Investing activities
Increase (decrease) in cash realized from:
Origination of loans, net (9,974,871) (13,582,804)
Purchase of property and equipment (22,707) (22,926)
Purchase of securities available for sale (800,000) (6,000,000)
Payments and maturity of securities'
available for sale 9,114,118 9,297,207
------------ ------------
Net cash used for investing activities (1,683,460) (10,308,523)
------------ ------------
Financing activities
Increase in deposits, net 3,533,884 26,366,032
Decrease in short-term borrowings (7,154,000) (8,482,600)
Increase in other borrowings 500,000 -
Increase (decrease) in Federal Home Loan Bank advances 12,500,000 (3,000,000)
------------ ------------
Net cash provided by financing activities 9,379,884 14,883,432
------------ ------------
Net increase in cash and cash equivalents 8,082,404 5,374,646
Cash and cash equivalents at beginning of the year 4,471,026 2,982,956
------------ ------------
Cash and cash equivalents at end of the year $ 12,553,430 $ 8,357,602
============ ============
Supplemental information
Cash paid for
Interest $ 889,898 $ 1,105,396
============ ============
Income taxes $ 382,302 -
============ ============
Supplemental schedule of non-cash transaction
Foreclosure of real estate $ - $ 362,987
============ ============
Unrealized gain on securities, net of income taxes $ (7,773) $ (81,892)
============ ============
See notes to consolidated financial statements that are an integral part of
these consolidated statements.
6
GREENVILLE FIRST BANCSHARES AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Nature of Business and Basis of Presentation
Business activity and organization
Greenville First Bancshares, Inc. (the "company") is a South Carolina
corporation organized for the purpose of owning and controlling all of the
capital stock of Greenville First Bank, N.A (the "bank"). The bank is a national
bank organized under the laws of the United States located in Greenville County,
South Carolina. The bank began operations on January 10, 2000.
The bank is primarily engaged in the business of accepting demand
deposits and savings deposits insured by the Federal Deposit Insurance
Corporation, and providing commercial, consumer and mortgage loans to the
general public.
Basis of Presentation
The accompanying financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-QSB. Accordingly, they do not include all
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three-month
period ended March 31, 2003 are not necessarily indicative of the results that
may be expected for the year ending December 31, 2003. For further information,
refer to the consolidated financial statements and footnotes thereto included in
the company's Form 10-KSB (Registration Number 333-83851) as filed with the
Securities and Exchange Commission.
Cash and Cash Equivalents
For purposes of the Consolidated Statement of Cash Flows, cash and
federal funds sold are included in "cash and cash equivalents." These assets
have contractual maturities of less than three months.
Note 2 - Note Payable
At March 31, 2003, the company had a $3.5 million revolving line of
credit with another bank with a maturity of March 20, 2004. At March 31, 2003,
the company had outstanding $3.0 million. The company used $2.5 million to repay
a similar line of credit and $500,000 to increase its investment in the bank.
The line of credit bears interest at a rate of three-month libor plus 2.00%,
which at March 31, 2003 was 3.30%. The company has pledged the stock of the bank
as collateral for this line of credit. The line of credit agreement contains
various covenants related to earnings and asset quality. As of March 31, 2003,
the company was in compliance with all covenants.
Note 3 - Stock Based Compensation
The company has a stock-based employee compensation plan that is
further described in Note 17. The company accounts for the plan under the
recognition and measurement principles of Accounting Principles Board ("APB")
Opinion No. 25, Accounting for Stock Issued to Employees, and related
Interpretations. No stock-based employee compensation cost is reflected in net
income, as all stock options granted under these plans had an exercise price
equal to the market value of the underlying common stock on the date of grant.
The following table illustrates the effect on net income and earnings per share
if the company had applied the fair value recognition provisions of Financial
Accounting Standards Board ("FASB"), SFAS No. 123, Accounting for Stock-Based
Compensation, to stock-based employee compensation.
7
For the Three Months ended March 31,
--------------------------------------------
2003 2002
--------------- -------------
Net income, as reported $ 166,927 $ 42,813
Deduct: Total stock-based employee
compensation expense determined
under fair value based method
for all awards, net of related tax effects
(19,613) (17,613)
------------- -------------
Pro forma net income $ 141,927 $ 25,200
============== ==============
Earnings per common share:
Basic - as reported $ .15 $ .04
============= =============
Basic - pro forma $ .12 $ .02
============= =============
Diluted - as reported $ .14 $ .04
============= =============
Diluted - pro-forma $ .11 $ .04
============= =============
The fair value of the option grant is estimated on the date of grant
using the Black-Scholes option-pricing model. The following assumptions were
used for grants: expected volatility of 10% for 2002 and 2001, risk-free
interest rate of 3.00% for 2002 and 2001, respectively, and expected lives of
the options 10 years and the assumed dividend rate was zero.
Note 4 - Earnings per Share
The following schedule reconciles the numerators and denominators of
the basic and diluted earnings per share computations for the three months ended
March 31, 2003 and 2002. Dilutive common shares arise from the potentially
dilutive effect of Greenville First Bancshares, Inc.'s stock options and
warrants that are outstanding. The assumed conversion of stock options and
warrants can create a difference between basic and dilutive net income per
common share.
Three Months Three Months
Ended Ended
March 31, 2003 March 31, 2002
-------------- --------------
Basic Earnings Per Share
Average common shares 1,150,000 1,150,000
Net income $ 166,927 $ 42,813
Earnings per share $ .15 $ .04
Diluted Earnings Per Share
Average common shares outstanding 1,150,000 1,150,000
Average dilutive common shares 72,702 -
---------- ----------
Adjusted average common shares 1,222,702 1,150,000
Net income $ 166,927 $ 42,813
Earnings per share $ .14 $ .04
8
Item 2. Management's Discussion and Analysis or Plan of Operation.
-------------------------------------------------------------------
DISCUSSION OF FORWARD-LOOKING STATEMENTS
This Report contains statements which constitute forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and the
Securities Exchange Act of 1934. These statements are based on many assumptions
and estimates and are not guarantees of future performance. Our actual results
may differ materially from those projected in any forward-looking statements, as
they will depend on many factors about which we are unsure, including many
factors which are beyond our control. The words "may," "would," "could," "will,"
"expect," "anticipate," "believe," "intend," "plan," and "estimate," as well as
similar expressions, are meant to identify such forward-looking statements.
Potential risks and uncertainties include, but are not limited to:
o significant increases in competitive pressure in the banking and
financial services industries;
o changes in the interest rate environment which could reduce anticipated
or actual margins;
o changes in political conditions or the legislative or regulatory
environment;
o the level of allowance for loan loss;
o the rate of delinquencies and amounts of charge-offs;
o the rates of loan growth;
o adverse changes in asset quality and resulting credit risk-related
losses and expenses;
o general economic conditions, either nationally or regionally and
especially in primary service area, becoming less favorable than
expected resulting in, among other things, a deterioration in credit
quality;
o changes occurring in business conditions and inflation;
o changes in technology;
o changes in monetary and tax policies;
o changes in the securities markets; and
o other risks and uncertainties detailed from time to time in our filings
with the Securities and Exchange Commission.
CRITICAL ACCOUNTING POLICIES
We have adopted various accounting policies that govern the application
of accounting principles generally accepted in the United States in the
preparation of our financial statements. Our significant accounting policies are
described in the footnotes to the consolidated financial statements at December
31, 2002 as filed on our annual report on Form 10-KSB.
Certain accounting policies involve significant judgments and
assumptions by us that have a material impact on the carrying value of certain
assets and liabilities. We consider these accounting policies to be critical
accounting policies. The judgment and assumptions we use are based on historical
experience and other factors, which we believe to be reasonable under the
circumstances. Because of the nature of the
9
judgment and assumptions we make, actual results could differ from these
judgments and estimates that could have a material impact on our carrying values
of assets and liabilities and our results of operations.
We believe the allowance for loan losses is a critical accounting
policy that requires the most significant judgment and estimates used in
preparation of our consolidated financial statements. Refer to the portion of
this discussion that addresses our allowance for loan losses for a description
of our processes and methodology for determining our allowance for loan losses.
GENERAL
The following is a discussion of our financial condition as of March
31, 2003 and the results of operations for the three months ended March 31,
2003. These comments should be read in conjunction with our consolidated
financial statements and accompanying consolidated footnotes appearing in this
report. The significant accounting policies are described throughout the
management's discussion section of this document.
NATIONAL AND ECONOMIC EVENTS
Nationally, the first quarter of 2003 and during most of 2002 and 2001,
the United States experienced a slowing economy following ten years of
expansion. During this period, the economy was also affected by lower returns
and expectations of the stock markets. Economic data led the Federal Reserve to
begin an aggressive program of rate cutting, which moved the Federal Funds rate
down 11 times during 2001 for a total reduction of 475 basis points, bringing
the Federal Funds rate to its lowest level in 40 years. During the fourth
quarter of 2002, the Federal Reserve adjusted the Federal Funds rate down an
additional 50 basis points. During the first quarter of 2003, the Federal
Reserve left Federal Funds rates unchanged.
Despite sharply lower short-term rates, stimulus to the economy has
been muted because the yield curve has steepened and consumer demand and
business investment activity has been weak. The financial markets are operating
now under very low historical interest rates. Under these unusual conditions,
many observers expect Congress to pass an economic stimulus plan. Many
economists believe the Federal Reserve will begin increasing interest rates in
2004. No assurance can be given that the Federal Reserve will take such action.
We continue to believe that the markets we serve generally perform better than
national markets, even in times of recession.
INCOME STATEMENT REVIEW
Comparison of the three months ended March 31, 2003 and the three months ended
March 31, 2002.
Net Interest Income
Net interest income, the largest component of our income, was
$1,339,079 for the three months ended March 31, 2003 compared to $944,178 for
the same period in 2002, or an increase of 41.8%. The level of net interest
income is determined by the balances of earning assets and interest-bearing
liabilities combined with the bank's management of the net interest margin. The
following events affect the changes in net interest income: interest rates
earned on assets and paid on liabilities, the rate of growth of the asset and
liability base, the ratio of interest-earning assets to interest-bearing
liabilities, and the management of the balance sheet's interest rate
sensitivity.
Interest income for the first quarter of 2003 was $2,231,029 and
consisted of $2,087,996 on loans, $136,544 in investments and $6,489 on federal
funds sold. Interest income for the same period in 2002 was $1,790,358 and
included $1,586,655 on loans, $181,153 on investments and $22,550 on federal
funds sold.
10
Interest expense for the first quarter of 2003 was $891,950 and
consisted of $729,480 related to deposits and $162,470 related to borrowings.
Our interest expense of $846,180 during the first quarter of 2002 consisted of
$769,597 related to deposits and $76,583 related to borrowings. Our interest
expense increased $45,770, or 5.4%, while our average deposits and borrowings
increased from $115.0 million for the quarter ended March 31, 2002 to $163.9
million for the quarter ended March 31, 2003, an increase of 42.5%. The increase
in our interest expense was proportionately less than the increase in our
deposits and borrowings because of the declining interest rate environment.
The following table sets forth, for the three months ended March 31,
2003 and 2002, information related to our average balance sheet and average
yields on assets and average costs of liabilities. We derived these yields by
dividing annualized income or expense by the average balance of the
corresponding assets or liabilities. We derived average balances from the daily
balances throughout the periods indicated.
Average Balances, Income and Expenses, and Rates (in $000's)
For the Three Months Ended March 31,
2003 2002
---- ----
Average Income Yield/ Average Income Yield/
Balance Expense Rate Balance Expense Rate
------- ------- ---- ------- ------- ----
Federal funds sold $ 2,351 $ 7 1.21% $ 5,000 $ 22 1.78%
Investment securities 13,773 136 4.00% 13,353 181 5.50%
Loans 154,242 2,088 5.49% 104,620 1,587 6.15%
-------- ------- ---- -------- ------- ----
Total earning-assets 170,366 2,231 5.31% 122,973 1,790 5.90%
------- -------
Non-interest earning assets 6,206 5,825
-------- --------
Total assets $176,572 $128,798
======== ========
NOW accounts $ 27,584 $ 32 .47% $ 19,870 $ 48 .98%
Savings & money market 20,500 33 .65% 22,299 94 1.71%
Time deposits 84,764 664 3.18% 62,534 628 4.07%
-------- ------- ---- -------- ------- ----
Total interest-bearing deposits 132,848 729 2.23% 104,703 770 2.98%
FHLB advances 21,167 118 2.26% 5,867 49 3.39%
Other borrowings 9,704 45 1.88% 4,465 27 2.45%
-------- ------- ---- -------- ------- ----
Total interest-bearing liabilities 163,719 892 2.21% 115,035 846 2.98%
------- -------
Non-interest bearing liabilities 2,354 4,311
Shareholders'equity 10,499 9,452
-------- --------
Total liabilities and shareholders'equity $176,572 $128,798
======== ========
Net interest spread 3.10% 2.92%
Net interest income/margin $ 1,339 3.19% $ 944 3.11%
======= =======
Our net interest spread was 3.10% for the three months ended March 31,
2003 as compared to 2.92% for the three months ended March 31, 2002. The net
interest spread is the difference between the yield we earn on our
interest-earning assets and the rate we pay on our interest-bearing liabilities.
Our net interest margin for the quarter ended March 31, 2003 was 3.19%
as compared to 3.11% for the three months ended March 31, 2002. The net interest
margin is calculated as the annualized net interest income divided by quarterly
average earning assets.
In pricing deposits, we considered our liquidity needs, the direction
and levels of interest rates and local market conditions.
11
Rate/Volume Analysis
Net interest income can be analyzed in terms of the impact of changing
rates and changing volume. The following table sets forth the effect which the
varying levels of earning assets and interest-bearing liabilities and the
applicable rates have had on changes in net interest income for the periods
presented.
Three months ended March 31,
------------------------------------------------------------------------------------
2003 vs 2002 2002 vs 2001
------------------------------------------------------------------------------------
Increase (Decrease) Due to Increase (Decrease) Due to
------------------------------------------------------------------------------------
Rate/ Rate/
Volume Rate Volume Total Volume Rate Volume Total
------------------------------------------------------------------------------------
Interest income
Loans $ 753 (171) (81) 501 1,193 (359) (379) 455
Investment securities 6 (49) (2) (45) 10 (46) (2) (38)
Federal funds sold (12) (7) 4 (15) 6 (42) (4) (40)
------------------------------------------------------------------------------------
Total interest income 747 (227) (79) 441 1,209 (447) (385) 377
------------------------------------------------------------------------------------
Interest expense
Deposits 207 (195) (53) (41) 604 (361) (273) (30)
FHLB advances 128 (16) (43) 69 49 - - 49
Other borrowings 32 (6) (8) 18 27 - - 27
------------------------------------------------------------------------------------
Total interest expense 367 (217) (104) 46 680 (361) (273) 46
------------------------------------------------------------------------------------
Net interest income $ 380 (10) 25 395 529 (86) (112) 331
====================================================================================
As the above table demonstrates, the change in our net interest income
is primarily due to the increase in our assets and liabilities, reflecting the
continued growth of the bank. This increase is partially offset by the decrease
in the rates as a result of the significant reduction in market rates over the
last two years.
Provision for Loan Losses
Included in the results of operations for the quarters ended March 31,
2003 and 2002 is a non-cash expense of $300,000 and $200,000, respectively,
related to the provision for loan losses. The loan loss reserve was $2,119,180
at March 31, 2003 and $1,824,149 at December 31, 2002. The allowance for loan
losses as a percentage of gross loans was 1.33% at March 31, 2003 and 1.22% at
December 31, 2002. The loan portfolio is periodically reviewed to evaluate the
outstanding loans and to measure both the performance of the portfolio and the
adequacy of the allowance for loan losses. For information about how we
determine the provision for loan losses, please see our discussion under
"Provision and Allowance for Loan Losses." For the three months ended March 31,
2003 and 2002, we reported net charge-offs of $4,969 and $4,121, respectively.
These net charge-offs relate to consumer loans and credit lines associated with
customer checking accounts.
Noninterest Income and Expenses
Noninterest income in the first quarter of 2003 was $147,153, an
increase of 42.9% over noninterest income of $102,950 in the first quarter of
2002. This increase was primarily due to the increases in the volume of service
charges on deposits, increases in the volume of fees charged on ATM
transactions, and additional loan fees received on the origination of mortgage
loans that were sold.
12
We incurred general and administrative expenses of $916,998 for the
three months ended March 31, 2003 compared to $804,315 for the same period in
2002. The $112,683 increase in general and administrative expenses resulted
primarily from additional data processing costs and the additional staff hired
to handle the increases in both loans and deposits. Salaries and benefits in
first quarter 2003 were $479,278, or an increase of $47,755. Salaries and
benefits represented 52.3% of the total noninterest expense. Salaries and
benefits in first quarter 2002 were $431,523. All other expenses increased only
$64,928. This increase relates primarily to $39,158 additional data processing
and related costs, $10,951 increase in marketing cost and $15,372 of additional
occupancy expenses.
BALANCE SHEET REVIEW
General
At March 31, 2003, we had total assets of $180.0 million, consisting
principally of $157.8 million in loans, $15.4 million in investments and $4.3
million in cash and due from banks. Liabilities at March 31, 2003 totaled $169.6
million, consisting principally of $137.1 million in deposits, $25.5 million in
FHLB advances and $5.0 million in other borrowings. At March 31, 2003,
shareholders' equity was $10.4 million.
Investments
At March 31, 2003, the $5.4 million of investment securities portfolio
available for sale represented approximately 3.0% of our total assets. We
invested in U.S. Government agency securities and mortgage-backed securities
with a fair value of $5.4 million and an amortized cost of $15.2 for an
unrealized gain of $212,060.
Contractual maturities and yields on our investments (all available for
sale) at March 31, 2003 are shown in the following table (dollars in thousands).
Expected maturities may differ from contractual maturities because issuers may
have the right to call or prepay obligations with or without call or prepayment
penalties.
After one but
Within Within five Over
one year Yield Years Yield Five years Yield Total Yield
-------- ----- ----- ----- ---------- ----- ----- -----
U.S.Government
agencies $ - - $ 1,126 5.29% $ - - $ 1,126 5.29%
Mortgage-backed
securities - - - - 4,314 4.71% 4,314 4.71%
------- ---- ---------- ---- --------- ---- ------- ----
Total - - $ 1,126 5.29% $ 4,314 4.71% $ 5,440 4.83%
================= =================== ================== ===============
At March 31, 2003, the $8.2 million of short-term investments in
federal funds sold on an overnight basis comprised 4.58% of total assets at
March 31, 2003, as compared to $41,736, or .02%, of total assets at December 31,
2002. As a result of a $6.0 million investment security being called at the end
of March 2003, the bank had a lower than normal level of investment securities
at March 31, 2003 and a higher than normal level of federal funds sold.
Loans
Since loans typically provide higher interest yields than do other
types of interest earning assets, it is our intent to channel a substantial
percentage of our earning assets into the loan portfolio. Average loans for the
three months ended March 31, 2003 and 2002 were $154.2 million and $104.6
million, respectively. Total loans outstanding at March 31, 2003 and December
31, 2002 were $159.9 million and $149.9 million, respectively, before allowance
for loan losses.
13
The following table summarizes the composition of the loan portfolio:
March 31, 2003 December 31, 2002
Amount Percentage Amount Percentage
Real estate:
Commercial
Owner occupied $ 30,885,899 19.32% $ 22,653,311 15.11%
Non-owner occupied 42,344,576 26.49% 43,076,993 28.74%
Construction 3,352,359 2.09% 4,007,650 2.67%
------------- ------ ------------- ------
76,584,834 47.90% 69,737,954 46.52%
------------- ------ ------------- ------
Consumer
Residential 24,113,906 15.08% 25,499,625 17.01%
Home Equity 19,548,679 12.23% 18,069,407 12.05%
Construction 4,044,378 2.53% 4,199,848 2.80%
------------- ------- ------------- ------
47,706,963 29.84% 47,768,880 31.86%
------------- ------ ------------- ------
Total real-estate 124,291,797 77.74% 117,506,834 78.39%
Commercial business 31,035,880 19.41% 28,192,407 18.81%
Consumer-other 4,949,566 3.10% 4,590,552 3.06%
Deferred origination fees, net (404,180) (.25%) (386,632) (.26%)
------------- ------ ------------- ------
159,883,063 100.00% 149,903,161 100.00%
====== ======
Less allowance for loan
Losses (2,119,180) (1,824,149)
------------- -------------
Total loans, net $ 157,753,883 $ 148,079,012
============= =============
The principal component of our loan portfolio at March 31, 2003 and at
December 31, 2002 was loans secured by real estate mortgages. Due to the short
time the portfolio has existed, the current mix of loans may not be indicative
of the ongoing portfolio mix. Management will attempt to maintain a relatively
diversified loan portfolio to help reduce the risk inherent in concentration of
collateral.
Provision and Allowance for Loan Losses
We have developed policies and procedures for evaluating the overall
quality of our credit portfolio and the timely identification of potential
credit problems.
We have established an allowance for loan losses by expensing a
provision for loan losses on our statement of operations. The allowance
represents an amount which we believe will be adequate to absorb probable losses
on existing loans that may become uncollectible. Our judgment in determining the
adequacy of the allowance is based on evaluations of the collectibility of
loans, including consideration of factors such as the balance of impaired loans;
the quality, mix and size of our overall loan portfolio; economic conditions
that may affect the borrower's ability to repay; the amount and quality of
collateral securing the loans; our historical loan loss experience and a review
of specific problem loans. We increase the allowance periodically by additional
provisions for loan losses. We charge recognized losses to the allowance and add
subsequent recoveries back to the allowance.
Our evaluation is inherently subjective as it requires estimates that
are susceptible to significant change. In addition, regulatory agencies
periodically review our allowance for loan losses as part of their examination
process, and they may require us to record additions to the allowance based on
their judgment about information available to them at the time of their
examinations. Our losses will undoubtedly vary from our estimates, and there is
a possibility that charge-offs in future periods will exceed the allowance for
loan losses as estimated at any point in time.
14
We do not allocate the allowance for loan losses to specific categories
of loans but evaluate the adequacy on an overall portfolio basis utilizing our
credit grading system which we apply to each loan. We have engaged an
independent consultant to review the loan files on a test basis to verify that
the lenders have properly graded each loan. Due to our limited operating
history, the provision for loan losses has been made primarily as a result of
management's assessment of general loan loss risk as compared to banks of
similar size and maturity.
At March 31, 2003 and at December 31, 2002, the allowance for loan
losses was $2.1 million and $1.8 million, respectively, or 1.33% of outstanding
loans at March 31, 2003 and 1.22% at December 31, 2002, respectively. During the
three months ended March 31, 2003 and 2002, we charged off loans of $4,969 and
$4,121, respectively.
At March 31, 2003, nonaccrual loans totaled $284,078, which represented
..18% of total loans. Included in the $284,078 are nonaccrual commercial loans of
$268,814 and consumer loans of $15,264. During the first quarter of 2002, the
bank obtained ownership through foreclosure procedures on the residential
construction loan that was on nonaccrual status at December 31, 2001. At March
31, 2003, the bank carried this asset as real estate owned with a carrying value
of approximately $625,316. The bank is in the process of completing the
construction of this home. The bank carries all real estate acquired through
foreclosure at the lower of cost or market value.
Generally, a loan is placed on nonaccrual status when it becomes 90
days past due as to principal or interest, or when management believes, after
considering economic and business conditions and collection efforts, that the
borrower's financial condition is such that collection of the loan is doubtful.
Maturities and Sensitivity of Loans to Changes in Interest Rates
The information in the following table is based on the contractual
maturities of individual loans, including loans which may be subject to renewal
at their contractual maturity. Renewal of such loans is subject to review and
credit approval, as well as modification of terms upon their maturity. Actual
repayments of loans may differ from maturities reflected below because borrowers
have the right to prepay obligations with or without prepayment penalties.
The following table summarizes the loan maturity distribution, by type,
and related interest rate characteristics at March 31, 2003 (dollars in
thousands):
After one but
One year Within five After
or less Years five years Total
Commercial $ 16,955 $ 14,004 $ 55 $ 31,014
Real estate - construction 3,842 2,367 1,188 7,397
Real estate- mortgage 15,789 98,036 2,683 116,508
Consumer and other 2,319 2,326 309 4,954
--------- ----------- -------- ----------
Total loans $ 38,905 $ 116,733 $ 4,235 $ 159,873
========= =========== ======== ==========
Loans maturing after one year with:
Fixed interest rates $ 29,032
Floating interest rates $ 91,936
15
Deposits and Other Interest-Bearing Liabilities
Our primary sources of funds for loans and investments are our
deposits, advances from the FHLB, and short-term repurchase agreements. We
believe that conditions in 2003 were favorable for deposit growth and that
factors such as the low returns on investments and mutual funds may have
increased traditional deposit inflows during 2003.
The following is a table of deposits by category (dollars in
thousands):
March 31, 2003 December 31, 2002
-------------- -----------------
Demand deposit accounts $ 15,126 11.03% $ 13,809 10.34%
NOW accounts 15,063 10.99% 15,378 11.51%
Money market accounts 18,296 13.35% 19,727 14.77%
Savings accounts 2,139 1.56% 1,774 1.33%
Time deposits less than $100,000 32,165 25.70% 32,024 23.98%
Time deposits of $100,000 or more 54,308 37.37% 50,851 38.07%
--------- ------ --------- ------
Total deposits $ 137,097 100.00% $ 133,563 100.00%
========= ====== ========= ======
Core deposits, which traditionally exclude time deposits of $100,000 or
more, provide a relatively stable funding source for our loan portfolio and
other earning assets. Our core deposits were $85.9 million and $82.7 million at
March 31, 2003 and December 31, 2002, respectively. Our loan-to-deposit ratio
was 115.07% and 110.87% at March 31, 2003 and December 31, 2002, respectively.
A significant portion of the time deposits over $100,000 relate to
deposits that were obtained outside of our local market. The maturites on these
deposits range from three months to five years. These deposits were obtained at
rates that were either comparable or lower than rates paid in the local market.
The long term CDs were obtained to "lock in" long term funding at low interest
rates. The short-term deposits were used to fund a significant increase in loan
demand. Generally, we do not plan to renew these short-term deposits.
The maturity distribution of our time deposits of $100,000 or more is
as follows:
March 31, 2003 December 31, 2002
-------------- -----------------
(Dollars in thousands)
--------------------
Three months or less $ 8,448 $ 13,226
Over three through six months 13,304 9,155
Over six through twelve months 15,101 10,391
Over twelve months 17,455 18,079
-------- --------
Total $ 54,308 $ 50,851
======== ========
Borrowings
At March 31, 2003, the bank had $1,953,000 sales of securities under an
agreement to repurchase with brokers with a weighted rate of 1.33% that mature
in less than 30 days. This agreement is secured with approximately $2,000,000 of
investment securities.
16
At March 31, 2003, the bank had two unused f federal funds purchased
line of credit totaling $6,700,000. These lines of credit are unsecured and
bears interest at the daily rate of federal funds plus 25 basis points (1.50% at
March 31, 2003).
At March 31, 2003, the bank had $25,500,000 of advances from the FHLB.
These advances are secured with approximately $37,000,000 of first mortgage
loans and the bank's stock in the FHLB. The bank had collateral available to
borrow an additional $11,500,000 advances at March 31, 2003. Listed below is a
summary of the term and maturities of the advances:
o The maturity on $5,000,000 of the advances with a weighted rate of 1.63% is
July 16, 2004. The FHLB has the option to re-price this advance as of April
16, 2003.
o The maturity on $7,500,000 of the advances with a weighted rate of 1.21% is
March 10, 2006. The FHLB has the option to re-price this advance as of
March 10, 2004.
o The maturity on $5,000,000 of the advances with a weighted rate of 1.56% is
October 15, 2007. The FHLB has the option to re-price this advance as of
October 15, 2003.
o The maturity on $3,000,000 of the advances with a weighted rate of 4.86% is
August 24, 2011. The FHLB has the option to re-price this advance as of
August 24, 2006.
o The maturity on $5,000,000 of the advances with a weighted rate of 3.36% is
January 30, 2013. The FHLB has the option to re-price this advance as of
January 30, 2008.
At March 31, 2003, the company had a $3,500,000 revolving line of
credit with another bank with a maturity of June 20, 2004. At March 31, 2003,
the company had $3,000,000 outstanding on this line of credit. The company used
$2,500,000 of the proceeds to repay a line of credit with another bank and
$500,000 to increase its investment in the bank. The line of credit bears
interest at a rate of the three-month libor rate plus 200 basis points, which at
March 31, 2003 was 3.30%. The company has pledged all of the stock of the bank
as collateral for this line of credit. The line of credit agreement contains
various covenants related to net income and asset quality. As of March 31, 2003,
the company believes it is in compliance with all covenants.
CAPITAL RESOURCES
Total shareholders' equity amounted to $10.4 million at March 31, 2003
and $10.2 million at December 31, 2002. The increase during the three months
ended March 31, 2003 resulted from $166,927 of net income partly offset by
$7,773 decrease in the unrealized gains on investment securities.
The following table shows the annualized return on average assets
(annualized net income divided by average total assets), return on average
equity (annualized net income divided by average equity), and equity to assets
ratio (average equity divided by average total assets). Since our inception, we
have not paid any cash dividends.
March 31, December 31,
--------- ------------
2003 2002
---- ----
Return on average assets .38% .5%
Return on average equity 6.45% 7.7%
Equity to assets ratio 5.85% 8.0%
17
The Federal Reserve Board and bank regulatory agencies require bank
holding companies and financial institutions to maintain capital at adequate
levels based on a percentage of assets and off-balance sheet exposures, adjusted
for risk weights ranging from 0% to 100%.
Under the capital adequacy guidelines, capital is classified into two
tiers. These guidelines require an institution to maintain a certain level of
Tier 1 and Tier 2 capital to risk-weighted assets. Tier 1 capital consists of
common stockholders' equity, excluding the unrealized gain or loss on securities
available for sale, minus certain intangible assets. In determining the amount
of risk-weighted assets, all assets, including certain off-balance sheet assets,
are multiplied by a risk-weight factor of 0% to 100% based on the risks believed
inherent in the type of asset. Tier 2 capital consists of Tier 1 capital plus
the general reserve for loan losses subject to certain limitations. The bank is
also required to maintain capital at a minimum level based on total average
assets, which is known as the Tier 1 leverage ratio.
The bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Under these capital guidelines, we
must maintain a minimum total risk-based capital of 8%, with at least 4% being
Tier 1 capital. In addition, we must maintain a minimum Tier 1 leverage ratio of
at least 4%. To be considered "well-capitalized", we must maintain total
risk-based capital of at least 10%, Tier 1 capital of at least 6%, and a
leverage ratio of at least 5%.
The following table sets forth the company's and the bank's various
capital ratios at March 31, 2003 and December 31, 2002. At March 31, 2003 and
December 31, 2002, both the company and the bank were in compliance with each of
the applicable regulatory capital requirements and the bank was considered to be
"well capitalized."
March 31, 2003 December 31, 2002
-------------- -----------------
Company Bank Company Bank
------- ---- ------- ----
Total risk-based capital 8.3% 10.3% 8.6% 10.3%
Tier 1 risk-based capital 7.0% 9.0% 7.4% 9.1%
Leverage capital 6.8% 7.4% 6.1% 7.5%
Our objective is to maintain the capital levels such that the bank will
continue to be considered well capitalized. Depending on the timing of when
additional capital is obtained, we may be required to limit the level of the
bank's growth that has been experienced in the past three years. In April of
2003, we committed to participate in a pooled trust preferred debt offering. We
anticipate receiving $6.0 million in additional capital for the bank in June of
2003 if the offering is successful. We anticipate that the significant portion
of the $6.0 million will qualify as regulatory capital. We can give no assurance
that the offering will be completed, nor that the capital will qualify as
regulatory capital.
EFFECT OF INFLATION AND CHANGING PRICES
The effect of relative purchasing power over time due to inflation has
not been taken into effect in our financial statements. Rather, the statements
have been prepared on an historical cost basis in accordance with generally
accepted accounting principles in the United States of America.
Unlike most industrial companies, the assets and liabilities of
financial institutions such as our company and bank are primarily monetary in
nature. Therefore, the effect of changes in interest rates will have a more
significant impact on our performance than will the effect of changing prices
and inflation in general. In addition, interest rates may generally increase as
the rate of inflation increases, although not necessarily in the same magnitude.
As discussed previously, we seek to manage the
18
relationships between interest sensitive assets and liabilities in order to
protect against wide rate fluctuations, including those resulting from
inflation.
OFF-BALANCE SHEET RISK
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any material condition established in the
contract. Commitments generally have fixed expiration dates or other termination
clauses and may require the payment of a fee. At March 31, 2003, unfunded
commitments to extend credit were $36.2 million, of which approximately $9.0
million is at fixed rates and $27.2 million is at variable rates. The
significant portion of the unfunded commitments relates to consumer equity lines
of credit. The bank anticipates, based on historical experience, that the
significant portion of these lines of credit will not be funded. The bank
evaluates each customer's credit worthiness on a case-by-case basis. The amount
of collateral obtained, if deemed necessary by the bank upon extension of
credit, is based on management's credit evaluation of the borrower. Collateral
varies but may include accounts receivable, inventory, property, plant and
equipment, and commercial and residential real estate.
At March 31, 2003, there was a $757,000 commitment under a letter of
credit. The credit risk involved in issuing letters of credit is essentially the
same as that involved in extending loan facilities to customers. Collateral
varies but may include accounts receivable, inventory, equipment, marketable
securities and property. Since most of the letters of credit are expected to
expire without being drawn upon, they do not necessarily represent future cash
requirements.
Except as disclosed in this report, we are not involved in off-balance
sheet contractual relationships, unconsolidated related entities that have
off-balance sheet arrangements, or transactions that result in liquidity needs
or other commitments that we believe are likely to significantly impact
earnings.
MARKET RISK
Market risk is the risk of loss from adverse changes in market prices
and rates, which principally arises from interest rate risk inherent in our
lending, investing, deposit gathering and borrowing activities. Other types of
market risks, such as foreign currency exchange rate risk and commodity price
risk, do not normally arise in the normal course of our business. We actively
monitor and manage our interest rate risk exposure.
The principal interest rate risk monitoring technique we employ is the
measurement of our interest sensitivity "gap", which is the positive or negative
dollar difference between assets and liabilities that are subject to interest
rate repricing within a given period of time. Interest rate sensitivity can be
managed by repricing assets or liabilities, selling securities
available-for-sale, replacing an asset or liability at maturity, or adjusting
the interest rate during the life of an asset or liability. Managing the amount
of assets and liabilities repricing in this same time interval helps to hedge
the risk and minimize the impact on net interest income of rising or falling
interest rates. We generally would benefit from increasing market rates of
interest when we have an asset-sensitive gap position and generally would
benefit from decreasing market rates of interest when we are
liability-sensitive.
Because approximately 76% of our loans are variable rate loans at March
31, 2003, we are currently asset sensitive over the one-year time frame.
However, our gap analysis is not a precise indicator of our interest sensitivity
position. The analysis presents only a static view of the timing of maturities
and repricing opportunities, without taking into consideration that changes in
interest rates do not affect all assets and liabilities equally. For example,
rates paid on a substantial portion of core deposits may change contractually
within a relatively short time frame, but those rates are viewed by management
as significantly less interest-sensitive than market-based rates such as those
paid on non-core deposits. Net interest income may be impacted by other
significant factors in a given interest rate environment, including changes in
the volume and mix of earning assets and interest-bearing liabilities.
19
LIQUIDITY & INTEREST RATE SENSITIVITY
Liquidity management involves monitoring our sources and uses of funds
in order to meet our day-to-day cash flow requirements while maximizing profits.
Liquidity represents the ability of a company to convert assets into cash or
cash equivalents without significant loss and to raise additional funds by
increasing liabilities. Liquidity management is made more complicated because
different balance sheet components are subject to varying degrees of management
control. For example, the timing of maturities of the investment portfolio is
fairly predictable and subject to a high degree of control at the time the
investment decisions are made. However, net deposit inflows and outflows are far
less predictable and are not subject to nearly the same degree of control.
At March 31, 2003 and December 31, 2002, our liquid assets, consisting
of cash, due from banks and federal funds sold, amounted to $12.6 million and
$4.5 million, representing 7.0% and 2.6% of total assets, respectively.
Investment securities at March 31, 2003 and December 31, 2002 amounted to $7.1
million and $15.5 million, representing 4.0% and 9.1% of total assets,
respectively; these securities provide a secondary source of liquidity since
they can be converted into cash in a timely manner. Our ability to maintain and
expand our deposit base and borrowing capabilities also serves as a source of
liquidity.
We plan to meet our future cash needs through the liquidation of
temporary investments, maturities and sale of loans, maturity of investment
securities, and generation of deposits. During 2003, we have utilized proceeds
from the short-term advances from the FHLB and short-term repurchase agreements
from brokerage firms, proceeds from sales of participations in loans originated,
and an increase in deposits to fund the significant portion of the 2003 loan
production. By utilizing the various short-term sources of funding, we have been
able to reduce the bank's level of interest sensitivity while obtaining low cost
funds. The bank is a member of the Federal Home Loan Bank of Atlanta from which
applications for borrowings can be made for leverage purposes, if so desired.
The FHLB requires securities, qualifying single family and commercial mortgage
loans, and stock of the FHLB owned by the bank is pledged to secure any advances
from the FHLB. The unused borrowing capacity at March 31, 2003 that is currently
available from the FHLB based on the amount of collateral pledged is
approximately $11.5 million. In addition, the bank maintains two federal funds
purchased line of credit with a correspondent bank, totaling $6.7 million. At
March 31, 2003, the unused portion of the lines was $6.7 million. We have also
obtained a $10.0 million line of credit that is available from a brokerage firm
based on the amount of collateral held by the firm. At March 31, 2003, the firm
held $4.0 million of investment securities as collateral. As of March 31, 2003,
the bank had utilized approximately $2.0 million of the brokerage firm's line of
credit.
We believe that our existing stable base of core deposits, borrowings
from the FHLB, and short-term repurchase agreements will enable us to
successfully meet our liquidity needs for the foreseeable future.
Asset/liability management is the process by which we monitor and
control the mix and maturities of our assets and liabilities. The essential
purposes of asset/liability management are to ensure adequate liquidity and to
maintain an appropriate balance between interest sensitive assets and
liabilities to minimize potentially adverse impacts on earnings from changes in
market interest rates. The bank's asset/liability management committee ("ALCO")
monitors and considers methods of managing exposure to interest rate risk. The
ALCO consists of members of the board of directors and senior management of the
bank and meets at least quarterly. The ALCO is charged with the responsibility
to maintain the level of interest rate sensitivity of the bank's interest
sensitive assets and liabilities within board-approved limits.
20
The following table presents our rate sensitivity at each of the time
intervals indicated as of March 31, 2003. The table may not be indicative of our
rate sensitivity position at other points in time. In addition, the table's
maturity distribution may differ from the contractual maturities of the earning
assets and interest bearing liabilities presented due to consideration of
prepayment speeds under various interest rate change scenarios in the
application of the interest rate sensitivity methods described above.
Within After three but After one but After
three within twelve within five five
months months years years Total
------ ------ ----- ----- -----
(Dollars in thousands)
Interest-earning assets:
Federal funds sold $ 8,237 $ - $ - $ - $ 8,237
Investment securities 450 1,340 2,856 794 5,440
Loans 121,596 6,363 31,556 358 159,873
--------- ----------- ----------- --------- --------
Total earning assets $ 130,283 $ 7,703 $ 34,412 $ 1,152 $ 173,550
--------- ----------- ----------- --------- ---------
Interest-bearing liabilities:
Money market and NOW $ 33,859 $ - $ - $ - $ 33,859
Regular savings 2,139 - - - 2,139
Time deposit 16,325 41,634 28,015 - 85,974
Other borrowings 3,000 - - - 3,000
Repurchase Agreements 1,953 - - - 1,953
FHLB advances 5,000 12,500 8,000 - 25,500
--------- ----------- ----------- --------- ---------
Total interest-bearing
liabilities $ 62,276 $ 54,134 $ 36,015 $ - $ 152,425
--------- ----------- ----------- --------- ---------
Period gap $ 68,007 $ (46,431) $ (1,603) $ 1,152 $ 21,125
Cumulative gap $ 68,007 $ 21,576 $ 19,973 $ 21,125 $ 21,125
Ratio of cumulative gap to
total earning assets 39.2% 12.4% 11.5% 12.2%
ACCOUNTING, REPORTING AND REGULATORY MATTERS
Accounting standards have been issued or proposed by the Financial
Accounting Standards Board and are not required to be adopted until a future
date and are not expected to have a material impact on the consolidated
financial statements upon adoption.
Item 3. Controls and Procedures
Within 90 days prior to the date of this report, we carried out an evaluation,
under the supervision and with the participation of our principal executive
officer and principal financial officer, of the effectiveness of the design and
operation of our disclosure controls and procedures. Based on this evaluation,
our principal executive officer and principal financial officer concluded that
our disclosure controls and procedures are effective in timely alerting them to
material information required to be included in our periodic SEC reports. The
design of any system of controls is based in part upon certain assumptions about
the likelihood of future events, and there can be no assurance that any design
will succeed in achieving its stated goals under all potential future
conditions, regardless of how remote.
21
In addition, we reviewed our internal controls, and there have been no
significant changes in our internal controls or in other factors that could
significantly affect those controls subsequent to the date of their last
evaluation.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There are no material pending legal proceedings to which the company
is a party or of which any of its property is the subject.
Item 2. Changes in Securities
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: See Exhibit Index attached hereto.
Exhibit Description
------- -----------
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
(b) Reports on Form 8-K
The following reports were filed on Form 8-K during the first quarter
ended March 31, 2003.
The company filed a Form 8-K on March 28, 2003 to disclose that the
Chief Executive Officer, R. Arthur Seaver, Jr. and the Chief
Financial Officer, James M. Austin, III, each furnished to the SEC
the certification required pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
22
SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GREENVILLE FIRST BANCSHARES, INC.
Date: May 12, 2003 /s/ R. Arther Seaver, Jr.
--------------------------------------
R. Arthur Seaver, Jr.
Chief Executive Officer
/s/ James M. Austin, III
-------------------------------------
James M. Austin, III
Chief Financial Officer
23
CEO Certification
I, R. Arthur Seaver, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Greenville First
Bancshares, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiary, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 12, 2003 By: /s/ R. Arthur Seaver, Jr.
-----------------------------------
R. Arthur Seaver, Jr. President and
Chief Executive Officer
24
CFO Certification
I, James M. Austin, III, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Greenville First
Bancshares, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiary, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 12, 2003 By: /s/ James M. Austin, III
-----------------------------------
James M. Austin, III
Chief Financial Officer
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INDEX TO EXHIBITS
Exhibit
Number Description
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
26