UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 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 0-24532
FLAG FINANCIAL CORPORATION
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(Exact name of registrant as specified in its charter)
Georgia 58-2094179
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(State of incorporation) (I.R.S. Employer Identification No.)
3475 Piedmont Road N.E. Suite 550
Atlanta, Georgia 30305
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(Address of principal executive offices) (Zip Code)
(404) 760-7700
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(Telephone Number)
Indicate by check mark whether the registrant has (1) filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES XX NO
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
YES XX NO
Common stock, par value $1 per share: 8,489,472 shares
Outstanding as of August 5, 2003
FLAG FINANCIAL CORPORATION AND SUBSIDIARY
TABLE OF CONTENTS
Page
PART I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 2003 and
December 31, 2002 and June 30, 2002 . . . . . . . . . . 3
Consolidated Statements of Operations for the Six Months
and Quarters Ended June 30, 2003 and 2002 . . . . . . . 4
Consolidated Statements of Comprehensive Income for the
Six Months and Quarters Ended June 30, 2003 and 2002. . 5
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 2003 and 2002. . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements. . . . . . . . 7
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations. . . . . . . . . . . . . . . . . 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk. 15
Item 4. Controls and Procedures . . . . . . . . . . . . . . . . . . 15
PART II Other Information
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . 16
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . 16
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . 16
Item 4. Submission of Matters to a Vote of Security Holders . . . . 16
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . 16
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . 17
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FLAG FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
------------------------------------------------------------------------------------------------------------
JUNE 30, DECEMBER 31, JUNE 30,
2003 2002 2002
------------------------------------------
ASSETS (UNAUDITED) (AUDITED) (UNAUDITED)
------
Cash and due from banks. . . . . . . . . . . . . . . . . . . . . $ 20,054,559 14,006,428 13,991,856
Interest-bearing deposits in banks . . . . . . . . . . . . . . . 9,286,538 6,000,000 -
Federal funds sold . . . . . . . . . . . . . . . . . . . . . . . 16,128,000 18,304,000 479,000
------------------------------------------
Total cash and cash equivalents. . . . . . . . . . . . . . . 45,469,097 38,310,428 14,470,856
------------------------------------------
Interest-bearing deposits .. . . . . . . . . . . 8,051,000 12,411,492 -
Investment securities available-for-sale . . . . . . . . . . . . 108,870,890 138,853,580 124,513,166
Other investments. . . . . . . . . . . . . . . . . . . . . . . . 14,345,257 6,795,257 6,148,798
Mortgage loans held-for-sale . . . . . . . . . . . . . . . . . . 14,023,673 12,606,080 5,491,417
Loans, net . . . . . . . . . . . . . . . . . . . . . . . . . . . 387,073,682 374,783,897 348,863,329
Premises and equipment, net. . . . . . . . . . . . . . . . . . . 17,026,974 21,063,278 13,760,004
Other assets . . . . . . . . . . . . . . . . . . . 28,565,803 31,306,554 24,413,528
------------------------------------------
Total assets. . . . . . . . . . . . . . . . . . . $623,426,376 636,130,566 537,661,098
==========================================
LIABILITIES
-----------
Non interest-bearing deposits. . . . . . . . . . . . . . . . . . $ 40,905,413 40,039,052 37,785,842
Interest-bearing demand deposits . . . . . . . . . . . . . . . . 216,271,641 170,856,638 126,466,847
Savings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,322,188 24,500,243 25,576,785
Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214,223,166 274,334,991 223,469,329
------------------------------------------
Total deposits. . . . . . . . . . . . . . . . . . . . . . . . 496,722,408 509,730,924 413,298,803
------------------------------------------
Advances from Federal Home Loan Bank . . . . . . . . . . . . . . 53,000,000 58,000,000 47,000,000
Federal funds purchased and other borrowings . . . . . . . . . . 3,775,656 1,334,386 8,558,670
Accrued interest payable and other liabilities . . . . . . . . . 6,273,201 6,316,303 9,474,746
------------------------------------------
Total liabilities. . . . . . . . . . . . . . . . 559,771,265 575,381,613 478,332,219
------------------------------------------
STOCKHOLDERS' EQUITY
--------------------
Preferred stock (10,000,000 shares authorized, none
issued and outstanding) . . . . . . . . . . . . . . . . . . - - -
Common stock ($1 par value, 20,000,000 shares authorized,
9,736,433, 9,638,501 and 9,629,406 shares issued at
June 30, 2003, December 31, 2002 and
June 30, 2002, respectively .. . . . . . . . . . 9,736,433 9,638,501 9,629,406
Additional paid-in capital . . . . . . . . . . . . . . . . . . . 24,315,698 23,463,132 23,417,860
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . 37,240,056 35,224,936 33,495,864
Accumulated other comprehensive income . . . . . . . . . . . . . 1,939,634 1,999,094 2,253,259
Less: Treasury stock at cost; 1,246,961 shares at June 30,2003,
1,246,961 shares at December 31, 2002 and 1,236,961 shares
at June 30, 2002, respectively . . . . . . . . . . . . . . . (9,576,710) (9,576,710) (9,467,510)
------------------------------------------
Total stockholders' equity .. . . . 63,655,111 60,748,953 59,328,879
------------------------------------------
Total liabilities and stockholders' equity . . $623,426,376 636,130,566 537,661,098
==========================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
CONSOLIDATED STATEMENTS OF OPERATIONS
---------------------------------------------------------------------------------------------------------------
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------------------------
2003 2002 2003 2002
INTEREST INCOME
Interest and fees on loans. . . . . . . . . . . . . . . . . . $7,220,313 7,303,073 14,440,051 14,304,005
Interest on securities. . . . . . . . . . . . . . . . . . . . 1,325,109 1,780,966 2,988,172 3,568,376
Interest on federal funds sold and interest-bearing deposits. 180,229 31,913 378,766 73,870
----------------------------------------------
Total interest income . . . . . . . . . . . . . . . . . 8,725,651 9,115,952 17,806,989 17,946,251
----------------------------------------------
INTEREST EXPENSE
Interest on deposits:
Demand 781,263 461,320 1,524,762 1,001,528
Savings. . . . . . . . . . . . . . . . . . . . . . . . . . 36,198 55,513 74,596 109,666
Time . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,586,812 2,152,776 3,434,699 4,830,436
Interest on other borrowings. . . . . . . . . . . . . . . . . 202,115 211,941 415,511 585,763
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Total interest expense . . . . . . . . . . . . . . . . 2,606,388 2,881,550 5,449,568 6,527,393
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Net interest income before provision for loan losses. . 6,119,263 6,234,402 12,357,421 11,418,858
PROVISION FOR LOAN LOSSES . . . . . . . . . . . . . . . . . . . 315,000 150,000 571,000 4,204,000
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Net interest income after provision for loan losses . . 5,804,263 6,084,402 11,786,421 7,214,858
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OTHER INCOME
Fees and service charges on deposit accounts. . . . . . . . . 817,552 795,260 1,721,196 1,681,342
Mortgage banking activities . . . . . . . . . . . . . . . . . 1,482,622 767,704 2,343,154 1,054,000
Insurance commissions and brokerage fees .. . . . . . . 163,381 118,675 375,355 246,732
Other income. . . . . . . . . . . . . . . . . . . . . . . . . 1,073,140 151,727 1,550,162 752,656
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Total other income. . . . . . . . . . . . . . . . . . . 3,536,695 1,833,366 5,989,867 3,734,730
----------------------------------------------
OTHER EXPENSES
Salaries and employee benefits. . . . . . . . . . . . . . . . 4,266,781 3,740,347 8,079,273 10,778,109
Occupancy.. . . . . . . . . . . . . . . . . . . . . . . . . . 914,944 817,520 1,696,964 1,891,124
Professional fees . . . . . . . . . . . . . . . . . . . . . . 164,101 315,069 440,754 1,409,007
Postage, printing and supplies. . . . . . . . . . . . . . . . 275,909 235,962 528,871 542,266
Amortization of intangibles . . . . . . . . . . . . . . . . . 22,500 - 37,500 -
Communications and data . . . . . . . . . . . . . . . . . . . 692,267 512,128 1,205,855 1,126,900
Other operating . . . . . . . . . . . . . . . . . . . . . . . 746,656 618,326 1,382,739 2,820,228
----------------------------------------------
Total other expenses. . . . . . . . . . . . . . . . . . 7,083,158 6,239,352 13,371,956 18,567,634
----------------------------------------------
Earnings (loss) before provision for
income taxes and extraordinary item. . . . . . . . . 2,257,800 1,678,416 4,404,332 (7,618,046)
Provision for income taxes (benefit). . . . . . . . . . . . . 735,972 376,055 1,375,226 (3,050,082)
----------------------------------------------
Earnings (loss) before extraordinary item . . . . . . . 1,521,828 1,302,361 3,029,106 (4,567,964)
Extraordinary item - loss on redemption of debt, net of
income tax benefit of $101,377 in 2002 . . . . . . . . - - - 165,404
----------------------------------------------
Net earnings (loss). . . . . . . . . . . . . . . . . . $1,521,828 1,302,361 3,029,106 (4,733,368)
==============================================
Basic earnings (loss) per share before extraordinary item . . $ 0.18 0.16 0.36 (0.57)
Extraordinary item. . . . . . . . . . . . . . . . . . . . . . - - - (0.02)
----------------------------------------------
Basic earnings (loss) per share . . . . . . . . . . . . . . . 0.18 0.16 0.36 (0.59)
==============================================
Diluted earnings (loss) per share before extraordinary item.. $ 0.17 0.15 0.34 (0.57)
Extraordinary item. . . . . . . . . . . . . . . . . . . . . . - - - (0.02)
----------------------------------------------
Diluted earnings (loss) per share . . . . . . . . . . . . . . $ 0.17 0.15 0.34 (0.59)
==============================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
---------------------------------------------------------------------------------------------------------------
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2003 2002 2003 2002
------------------------------------------------
Net earnings (loss) . . . . . . . . . . . . . . . . . . . . . . . $1,521,828 1,302,361 3,029,106 (4,733,368)
Other comprehensive income, net of tax:
Unrealized (losses) gains on investment
securities available-for-sale:
Unrealized gains arising during the period,
net of tax of $75,830, $611,067, $12,173 and
$480,166, respectively . . . . . . . . . . . . . . . . . (123,722) 997,004 19,862 783,428
Plus: Reclassification adjustment for losses (gains)
included in net earnings(loss) net of tax of $30,281,
$6,819, $2,777 and $4,240, respectively .. . . . . . . 49,406 11,126 (4,531) 6,917
Unrealized gain on cash flow hedges, net of tax of $45,837,
$45,840 and $91,674 respectively. . . . . . . . . . . . - (74,787) (74,791) (149,574)
------------------------------------------------
Other comprehensive (loss) income . . . . . . . . . . . . . . . (74,316) 933,343 (59,460) 640,771
------------------------------------------------
Comprehensive income (loss) . . . . . . . . . . . . . . . . . . . $1,447,512 2,235,704 2,969,646 (4,092,597)
================================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30,
---------------------------
2003 2002
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss). . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,029,106 (4,733,368)
Adjustment to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:
Depreciation, amortization and accretion . . . . . . . . . . . 1,732,947 1,011,166
Provision for loan losses. . . . . . . . . . . . . . . . . . . 571,000 4,204,000
(Gain) loss on sale of available-for-sale securities . . . . . (7,308) 11,157
(Gain) loss on sale of fixed assets. . . . . . . . . . . . . . (922,182) 365,866
Gain on sale of other real estate . . . . . . . (84,643) (43,535)
Change in:
Mortgage loans held-for-sale. . . . . . . . . . . . . . (1,417,593) 962,710
Other . . . . . . . . . . . . . . . . . . . . . . . . . 1,208,090 (6,355,411)
---------------------------
Net cash provided by (used in) operating activities. 4,109,417 (4,577,415)
---------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net change in interest-bearing deposits. . . . . . . . . . . . . . . . 4,360,492 160,093
Proceeds from sales and maturities of investment
securities available-for-sale. . . . . . . . . . . . . . . . . . . 52,930,130 45,784,353
Purchases of investment securities available-for-sale. . . . . . . . . (23,517,335) (37,855,680)
Purchases of other investments . . . . . . . . . . . . . . . . . . . . (7,550,000) (363,700)
Net change in loans. . . . . . . . . . . . . . . . . . . . . . . . . . (12,860,785) 15,899,760
Proceeds from sale of other real estate. . . . . . . . . . . . . . . . 1,538,317 1,133,824
Proceeds from sale of premises and equipment .. . . . . . . . 4,323,544 166,090
Purchases of premises and equipment. . . . . . . . . . . . . . . . . . (458,576) (1,122,814)
Purchases of cash surrender value life insurance . . . . . . . . . . . (85,801) (55,998)
---------------------------
Net cash provided by investing activities. . . . . . . 18,679,986 23,745,928
---------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposits . . . . . . . . . . . . . . . . . . . . . . . . (13,008,516) (27,282,522)
Change in federal funds purchased and repurchase agreements. . . . . . 691,270 (9,442,330)
Change in other borrowed funds . . . . . . . . . . . . . . . . . . . . 1,750,000 (5,000,000)
Proceeds from FHLB advances. . . . . . . . . . . . . . . . . . . . . . - 35,000,000
Payments of FHLB advances. . . . . . . . . . . . . . . . . . . . . . . (5,000,000) (27,448,435)
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . - (3,022,871)
Proceeds from issuance of stock. . . . . . . . . . . . . . . . . . . . 138,000 11,707,740
Proceeds from exercise of stock options. . . . . . . . . . . . . . . . 800,498 471,020
Proceeds from issuance of warrants . . . . . . . . . . . . . . . . . . 12,000 1,236,000
Cash dividends paid. . . . . . . . . . . . . . . . . . . . . . . . . . (1,013,986) (993,900)
---------------------------
Net cash used in financing activities .. . . (15,630,734) (24,775,298)
---------------------------
Net change in cash and cash equivalents . . . . . . . 7,158,669 (5,606,785)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD .. . . . . . . 38,310,428 20,077,641
---------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD. . . . . . . . . . . . . . . $ 45,469,097 14,470,856
===========================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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The accompanying consolidated financial statements have not been audited. The
results of operations are not necessarily indicative of the results of
operations for the full year or any other interim periods.
NOTE 1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Flag and its
wholly owned subsidiary, Flag Bank (Atlanta, Georgia). All significant
inter-company accounts and transactions have been eliminated in consolidation.
The consolidated financial information furnished herein represents all
adjustments that are, in the opinion of management, necessary to present a fair
statement of the results of operations, and financial position for the periods
covered herein and are normal and recurring in nature. For further information,
refer to the consolidated financial statements and footnotes included in Flag's
annual report on Form 10-K for the year ended December 31, 2002.
NOTE 2. EARNINGS PER SHARE
Net earnings (loss) per common share are based on the weighted average number of
common shares outstanding during each period. The calculation of basic and
diluted earnings (loss) per share is as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------------------------
2003 2002 2003 2002
---------------------------------------------
Basic earnings (loss) per share:
Net earnings (loss) $1,521,828 1,302,361 3,029,106 (4,733,368)
Weighted average common shares outstanding 8,470,308 8,260,185 8,433,462 8,006,625
Per share amount $ 0.18 0.16 0.36 (0.59)
Diluted earnings (loss) per share:
Net earnings (loss) $1,521,828 1,302,361 3,029,106 (4,733,368)
Effect of stock options and warrants 659,958 283,508 560,805 -
Diluted earnings (loss) per share $ 0.17 0.15 0.34 (0.59)
NOTE 3. STOCK-BASED COMPENSATION
Flag sponsors stock-based compensation plans. Flag accounts for these plans
under the recognition and measurement principles of 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
options granted under those 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 earnings (loss) and earnings (loss) per share if
Flag had applied the fair value recognition provisions of Statement of Financing
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation," to stock-based employee compensation.
Three months ended Six months ended
June 30, June 30,
2003 2002 2003 2002
----------- ---------- ---------- -----------
Net earnings (loss) as reported $1,521,828 1,302,361 3,029,106 (4,733,368)
Compensation expense determined by fair value method (76,546) (459,648) (153,092) (919,295)
----------- ---------- ---------- -----------
Pro forma net earnings (loss) $1,445,282 842,713 2,876,014 (5,652,663)
=========== ========== ========== ===========
Basic earnings (loss) per share:
As reported $ .18 .16 .36 (.59)
=========== ========== ========== ===========
Pro forma $ .17 .10 .34 (.71)
=========== ========== ========== ===========
Diluted earnings (loss) per share:
As reported $ .17 .15 .34 (.59)
=========== ========== ========== ===========
Pro forma $ .16 .10 .32 (.71)
=========== ========== ========== ===========
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 4. LOANS
Flag engages in a full complement of lending activities, including real
estate-related, commercial and financial loans and consumer installment loans.
Flag generally concentrates lending efforts on real estate related loans. As of
June 30, 2003, Flag's loan portfolio consisted of 82.2% real estate-related
loans, 14.3% commercial and financial loans, and 3.4% consumer installment
loans. While risk of loss is primarily tied to the credit quality of the
various borrowers, risk of loss may also increase due to factors beyond the
Flag's control, such as local, regional and/or national economic downturns.
General conditions in the real estate market may also impact the relative risk
in the real estate portfolio. Of the target areas of lending activities,
commercial and financial loans are generally considered to have a greater risk
of loss than real estate loans or consumer installment loans.
Loans are stated at unpaid balances, net of unearned income and deferred loan
fees. Balances within the major loans receivable categories are represented in
the following table:
JUNE 30, DECEMBER 31, JUNE 30,
2003 2002 2002
--------- ------------ --------
Commercial/financial/agricultural $ 56,347 57,473 46,032
Real estate - Construction 77,927 68,169 75,380
Real estate - mortgage 55,203 57,560 51,062
Real estate - other 190,449 182,622 165,597
Installment loans to individuals 13,589 15,848 18,455
--------- ------------ --------
Total loans 393,515 381,672 356,526
Less: Allowance for loan losses 6,441 6,888 7,662
--------- ------------ --------
Total net loans $ 387,074 374,784 348,864
========= ============ ========
NOTE 5. GOODWILL AND INTANGIBLE ASSETS
The majority of the goodwill recorded as of January 1, 2002, resulted from
Flag's adoption of SFAS No. 147 and this amount resulted from previously
recognized unidentified intangible assets reclassified as goodwill. Flag tests
its goodwill for impairment on an annual basis using the expected present value
of future cash flows. Flag initially applied SFAS No. 141 and 142 on January 1,
2002. Flag restated its financial statements in 2002 for the adoption of SFAS
No. 141 and 142 resulting in an after-tax increase in net income of $80,106 for
the quarter ended June 30, 2002 and of $160,917 for the six months ended June30,
2002.
8
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
FORWARD-LOOKING STATEMENTS
The following discussion and comments contain "forward-looking statements"
relating to, without limitation, future economic performance, plans and
objectives of management for future operations, and projections of revenues and
other financial items that are based on the beliefs of our management, as well
as assumptions made by and information currently available to our management.
The words "expect", "estimate", "anticipate", and "believe", as well as similar
expressions, are intended to identify forward-looking statements. Our actual
results may differ materially from the results discussed in the forward-looking
statements, and our operating performance each quarter is subject to various
risks and uncertainties. Factors that could cause actual results to differ
from those discussed in the forward-looking statements include, but are not
limited to, (i) the strength of the U.S. economy as well as the strength of the
local economies in which operations are conducted; (ii) the effects of changing
interest rates which could lower margins; (iii) inflation, interest rate, market
and monetary fluctuations; (iv) unanticipated regulatory proceedings or legal
actions, or changes in accounting policies and practices as adopted by the
Financial Accounting Standards Board; (v) issues involved in the integration of
acquisitions; and (vi) the timely development of products and services that
position Flag to succeed in an increasingly competitive industry. If we are
unsuccessful in managing the risks relating to these factors, together with
other risks incident to the operation of our business, our financial condition,
results of operations and cash flows could be adversely affected.
Forward-looking statements speak only as of the date on which they are made. We
undertake no obligation to update any forward-looking statement to reflect
events or circumstances after the date on which the statement is made to reflect
the occurrence of unanticipated events.
CRITICAL ACCOUNTING POLICIES
The accounting and reporting policies of Flag Financial Corporation and its
subsidiary are in accordance with accounting principles generally accepted in
the United States and conform to general practices and policies within the
banking industry. Flag's financial position and results of operations are
affected by management's application of accounting policies, including judgments
made to arrive at the carrying value of assets and liabilities and amounts
reported for revenues, expenses and related disclosures. Different assumptions
in the application of these policies could result in material changes in Flag's
consolidated financial position and/or consolidated results of operations. The
more critical accounting and reporting policies include the accounting for
securities, loans and leases, the allowance for loan and lease losses and income
taxes. The most critical and meaningful accounting policies are those involved
with the allowance for loan and lease losses. These specific accounting
policies involve the use of estimates and require significant judgments to be
made by management. Different assumptions in the application of these policies
could result in material changes in Flag's consolidated financial position or
consolidated results of operations.
In the case of the allowance for loan and lease losses, Flag maintains an
allowance appropriate for the quality of the loan portfolio and sufficient to
meet anticipated future loan losses. This allowance is charged as an expense
against Flag's earnings and, therefore, directly affects its results of
operations. Flag also utilizes a comprehensive loan review and risk
identification process and analyzes financial trends to determine the adequacy
of the allowance. Many factors are considered when evaluating the allowance. The
analysis is based on historical loss trends; trends in criticized and classified
loans in the portfolio; trends in past due and non-accrual loans; trends in
portfolio volume, composition, maturity, and concentrations; changes in local
and regional economic market conditions; the accuracy of the loan review and
risk identification system, and the experience, ability, and depth of lending
personnel and management.
In determining the appropriate level of the allowance for Flag, management
relies primarily on analysis of the major components of the loan portfolio such
as commercial loans, commercial real estate loans, consumer loans, construction
loans, residential real estate loans, and all other loans and unfunded
commitments. Flag has established a minimum loss factor for certain problem
loan grade categories and for general categories of all other loans. All
significant problem loans are reviewed individually to establish either the
minimum loss factor (formula) or a specific reserve higher than the formula.
All significant non-problem loans are reserved at the greater of the minimum
loss rate for the category of loans or the weighted average historical loss rate
over a defined loss horizon. Other homogenous loan pools such as the consumer
loans, construction loans, and residential mortgage loans are reserved at the
greater of the minimum loss rate or the weighted average historical loss rate as
computed in the histoical analysis.
Management evaluates the allowance on a quarterly basis. Through this
evaluation, the appropriate provision for loan losses is determined by
considering the current allowance level, actual loan losses and loan recoveries.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
OVERVIEW OF FINANCIAL CONDITION
Total assets were $623.4 million at June 30, 2003, a decrease of $12.7 million
or 2.0% from December 31, 2002. Earning assets totaled $564.2 million or 90.5%
of total assets at June 30, 2003 compared to $576.6 million or 90.6% of total
assets at December 31, 2002. Stockholders' equity increased $4.3 million or
7.3% to $63.7 million at June 30, 2003.
LOANS
Gross loans outstanding at June 30, 2003 totaled $393.5 million, an increase of
$11.8million over December 31, 2002 balances. Mortgage loans held-for-sale
increased from $12.6 million at December 31, 2002 to $14.0 million at June 30,
2003. Flag's construction and mortgage lending business has improved solidly
due in part to the lower interest rate environment. Construction loans
increased 14.3% to $77.9 million at June 30, 2003, and mortgage loans
held-for-sale increased 11.1% or $1.4 million to $14.0 million at June 30, 2003.
Loans outstanding including mortgage loans held-for-sale comprised 72.2% of
earning assets at June 30, 2003, compared to 68.4% at December 31, 2002.
INVESTMENT SECURITIES
Investment securities at June 30, 2003 totaled $123.2 million, a decrease of
$22.4 million or 15.4% from December 31, 2002. Yield and price levels on bonds
during the first half of 2003 allowed Flag to sell $24.1 million of lower
yielding investments with an after tax loss of approximately $1,300. The low
rate environment has also contributed to faster prepayments on the mortgage
backed securities within Flag's investment portfolio. Flag has been unwilling
to reinvest most of the proceeds in the current market and has carried most of
these proceeds in federal funds sold or interest bearing deposits in other
banks. Investment securities comprised 21.8% and 25.3% of earning assets at
June 30, 2003 and December 31, 2002, respectively.
FEDERAL FUNDS SOLD AND INTEREST BEARING DEPOSITS
Short term investments (federal funds sold and interest bearing deposits)
totaled $33.5 million at June 30, 2003, a decrease of $3.2 million from December
31, 2002. Historically, Flag has maintained lower levels of short term
investments, choosing instead to invest more heavily in loans and investment
securities. Our level of short term investments has remained high during the
first half of 2003 as we have been unwilling to invest at current market
interest rates. Short term investments amounted to 6.0% of earning assets at
June 30, 2003 and 6.3% of earning assets at December 31, 2002.
PREMISES AND EQUIPMENT
Premises and equipment at June 30, 2003 totaled $17.0 million compared to $21.1
million at December 31, 2002. This decrease in premises and equipment related
to the sale of one of Flag's banking centers for $4.5 million during the second
quarter of 2003. Flag maintained a branch location in the center under a lease
negotiated with the buyer.
DEPOSITS AND OTHER FUNDING
Total deposits at June 30, 2003 were $496.7 million, a decrease of $13.0 million
or 2.6% over December 31, 2002 balances. Interest-bearing demand deposits
(money market and NOW accounts) have increased 26.6% or $45.4 million over this
period, due largely to sales efforts focused in the Atlanta deposit market that
Flag entered in November of 2002. Flag's focus and success on growing demand
deposits has allowed Flag to reduce rates on time deposits that historically
have carried higher rates. Time deposits have decreased $60.1 million or 21.9%
to $214.2 million at June 30, 2003.
ADVANCES FROM THE FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank (FHLB) amounted to $53 million at June
30, 2003 compared to $58 million at December 31, 2002. This decrease related to
one advance totaling $5 million that matured in the second quarter of 2003.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
LIQUIDITY AND MARKET RISK SENSITIVITY
Liquidity management involves Flag's ability to maintain adequate short-term
assets to meet the cash flow expectations of depositors and other lending
institutions, and to provide funds for the growth in earning assets. Liquidity
is managed daily by understanding the cash flow expectations of depositors and
other lending institutions and maintaining enough liquid assets to meet these
expectations. As of June 30, 2003, Flag had $282.5 million of deposits due on
demand and $216.0 million of time deposits and other borrowings due within one
year. Potential liquidity needs of these liabilities are met with liquid assets
(assets that can be easily converted to cash). Liquid assets at June 30, 2003
totaled $190.8 million and included cash and due from banks, federal funds sold
and interest bearing deposits with other banks, investment securities
available-for-sale, other investments and mortgage loans held-for-sale. In
addition to using liquid assets to meet potential liquidity needs, Flag
maintains available lines of credit with other financial institutions. These
include federal funds and other lines of credit totaling $46 million and a line
of credit with the Federal Home Loan Bank totaling $95 million. At June 30,
2003, $55 million of the available $141 million in total lines was advanced to
Flag.
Market rate sensitivity is the tendency for changes in the interest rate
environment to be reflected in Flag's net interest income and results of
operations. Flag seeks to balance maturities and rates on earning assets and
the corresponding funding such that interest rate fluctuations have a minimal
impact on earnings and the value of Flag's equity.
Historically, the average term to maturity or repricing (rate changes) of
assets (primarily loans and investment securities) has exceeded the average
repricing period of liabilities (primarily deposits and borrowings). Flag's
liabilities over the past year have shifted from mostly time deposits with
longer maturities to demand deposits which reprice daily. This shift in funding
results from sales and pricing disciplines that in the long run will prove
profitable, but currently shows Flag with more liabilities repricing in the
early months of a rate change than do earning assets. This would indicate that
Flag's net interest income would be negatively impacted by rising rates. Flag
believes, however, that the growing demand deposit base will not reprice upwards
to the same degree and intensity as Flag's assets and that there is opportunity
for improvement in net interest income should rates begin to rise.
Management carefully measures and monitors market rate sensitivity and believes
that its operating strategies offer protection against interest rate risk. As
required by various regulatory authorities, Flag's Board of Directors
established an interest rate risk policy, which sets specific limits on
interest rate risk exposure. Adherence to this policy is reviewed by Flag's
executive committee and presented at least annually to the Board of Directors.
CAPITAL
At June 30, 2003, the capital ratios of Flag and Flag Bank (the "Bank") were
adequate compared to the minimum regulatory capital requirements. Minimum
regulatory capital levels for banks and holding companies require Tier one
capital (core capital accounts less intangible assets) to risk-weighted assets
of at least 4%, total capital (tier one capital plus a portion of the allowance
for loan losses) to risk-weighted assets of 8%, and tier one capital to average
assets of at least 4%. The following table reflects Flag's capital position
with respect to the regulatory minimums as of June 30, 2003:
ACTUAL REQUIRED EXCESS
AMOUNT % AMOUNT % AMOUNT %
--------------------------------------------------------------------------------------------
Total Capital (to Risk Weighted Assets). $54,910 11.53% $50,886 8.00% $ 4,024 3.53%
Tier 1 Capital (to Risk Weighted Assets) $48,923 10.28% $25,443 4.00% $23,480 6.28%
Tier 1 Capital (to Average Assets) . . . $48,923 7.94% $19,044 4.00% $29,879 3.94%
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
PROVISION AND ALLOWANCE FOR POSSIBLE LOAN AND LEASE LOSSES
The following table presents an analysis of the allowance for loan losses for
the six month periods ended June 30, 2003 and 2002:
2003 2002
------ -----
Balance of allowance for loan losses at beginning of period $6,888 7,348
Provision charged to operating expense 571 4,204
Charge offs:
Commercial 155 574
Real estate - mortgage 32 338
Real estate - other 945 3,116
Consumer 121 273
------ -----
Total charge-offs 1,253 4,301
Recoveries:
Commercial 57 77
Construction - 1
Real estate - mortgage 12 11
Real estate - other 82 269
Consumer 84 53
------ -----
Total recoveries 235 411
------ -----
Net charge-offs 1,018 3,890
------ -----
Balance of allowance for loan losses at end of period $6,441 7,662
====== =====
See "Critical Accounting Policies" for an explanation of our methodology for
determining the appropriate level for the allowance and its effect on our
results of operations.
NON-PERFORMING ASSETS
Non-performing assets (nonaccrual loans, real estate owned and repossessions)
totaled approximately $9.4 million at June 30, 2003, compared to $11.1 million
at December 31, 2002. These levels as a percentage of total assets represented
1.51% and 1.74% respectively.
Flag has a loan review function that continually monitors selected accruing
loans for which general economic conditions or changes within a particular
industry could cause the borrowers financial difficulties. The loan review
function also identifies loans with high degrees of credit or other risks. The
focus of loan review is to maintain a low level of non-performing assets and to
return current non-performing assets to earning status.
Non-performing assets JUNE 30, DECEMBER 31, JUNE 30,
2003 2002 2002
---------- ------------- ---------
Loans on nonaccrual . . . . . . . . . . . . . . . $ 6,808 9,243 10,470
Loans past due 90 days and still accruing . 197 122 46
Other real estate owned and repossessions. . . . 2,407 1,718 1,018
---------- ------------- ---------
Total non-performing assets .. . . . . $ 9,412 11,083 11,534
========== ============= =========
Total non-performing assets as a percentage of
total assets. . . . . . . . . . . . . . . . . . 1.51% 1.74% 2.14%
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
RESULTS OF OPERATIONS FOR THE SIX MONTH PERIODS ENDED JUNE 30, 2003 AND 2002
NET INCOME - Net income for the six month period ended June 30, 2003 was $3.0
million or $0.34 per diluted share compared to a net loss of $4.7 million or
$0.59 per diluted share for the same period in 2002.
NET INTEREST INCOME - Net interest income for the six month period ended June
30, 2003 totaled $12.4 million, an increase of 8.2% over the same period in
2002. Total interest income decreased only slightly, by 0.7% to $17.8 million;
however, interest expense decreased substantially. Total interest expense for
the six month period ended June 30, 2003 was $5.4 million, a decrease of 16.5%
or $1.1 million. This improvement in interest expense is attributed largely to
the shift towards demand deposits and aggressive repricing of time deposits.
PROVISION FOR LOAN LOSSES - Flag's provision for loan losses in the first six
months of 2003 amounted to $571,000, compared to $4.2 million for the same
period in 2002. The unusually large provision in 2002 related to a special
provision of $4.0 million which reflected both the results of an in-depth study
of the loan portfolio at the subsidiary bank where recent management changes had
occurred and a revision of the estimation process used by the Company. See
"Critical Accounting Policies" and "Allowance for Possible Loan and Lease
Losses."
NON-INTEREST INCOME - Non-interest income totaled $6.0 million for the six month
period ending June 30, 2003. This increase of $2.3 million or 60% relates
primarily to an increase in income from Flag's mortgage banking line of
business. Mortgage banking revenues, buoyed by the low interest rate
environment and refinancing trends, increased dramatically from $1.1 million in
the first six months of 2002 to $2.3 million in the first six months of 2003.
Service charges on deposit accounts remained mostly constant, improving slightly
to $1.7 million in the first six months of 2003, an increase of 2.4%. Other
non-interest income improved by $798,000 to $1.6 million, due mostly to the
non-recurring gain on the sale of fixed assets in the first six months of 2003
totaling $922,000.
NON-INTEREST EXPENSE - Non-interest expense for the six month period ending June
30, 2003 totaled $13.4 million, a decrease of $5.2 million from the same period
in 2002. Flag recorded approximately $5.4 million of pre-tax charges in the
first half of 2002 related to a management restructuring. These charges
included legal and professional fees, contract terminations and severance
payments related to Flag's twenty percent reduction in employee work force.
PROVISION FOR INCOME TAXES - Flag's provision for income taxes during the first
six months of 2003 amounted to $1.4 million for an effective tax rate of 31.2%.
During the first six months of 2002, Flag recorded an income tax benefit of
approximately $3.1 million for an effective rate of 40.0%.
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
RESULTS OF OPERATIONS FOR THE THREE MONTH PERIODS ENDED JUNE 30, 2003 AND 2002
NET INCOME - Net income for the quarter ended June 30, 2003 was $1.5 million or
$.17 per diluted share, compared to $1.3 million or $.15 per diluted share for
the quarter ended June 30, 2002. Flag's return on average assets was .97% and
..95% for the second quarter of 2003 and 2002, respectively, while return on
equity was 9.65% and 9.03% on average equity of $63.7 and $57.7 for the same
quarters.
INTEREST INCOME - Interest income for the quarter ended June 30, 2003 was $8.7
million, a decrease of $390,000 compared to levels for the same quarter in 2002.
Interest income and fees on loans in the current quarter decreased $83,000, or
1.1%, to $7.2 million compared to the same quarter in 2002. Although loans
outstanding increased during the quarter, yields on loans declined from 8.4% in
the second quarter of 2002 to 7.5% in the second quarter of 2003. Interest on
investment securities also declined during the quarter from $1.8 million in the
second quarter of 2002 to $1.3 million in the second quarter of 2003, due in
part to the lower interest rate environment and lower average balances of
investment securities. Interest on federal funds sold and interest bearing
deposits in other banks increased during the second quarter of 2003 as Flag
maintained higher levels of liquidity than in the past. Interest on federal
funds sold and interest bearing deposits in other banks increased $148,000 to
$180,000 when comparing the second quarters of 2002 and 2003, respectively.
Yields on earning assets decreased during the quarter ended June 30, 2003 when
compared to the second quarter of 2002. Yields on earning assets for the
current quarter were 6.23% compared to the quarter ended June 30, 2002 when
earning assets yielded 7.53%.
INTEREST EXPENSE - Interest expense for the second quarter of 2003 was $2.6
million, a decrease of $275,000 over the same quarter in 2002. This decrease in
interest expense came despite an 18.9% increase in total funding, from $468.9
million to $553.5 million at June 30, 2003 and 2002, respectively. Demand
deposits (interest-bearing and non-interest bearing) comprised 46.5% of total
funding at June 30, 2003 compared to 35.0% at June 30, 2002. This improvement
in funding along with lower renewal rates on time deposits helped reduce Flag's
cost of funds to 1.89% for the second quarter of 2003 compared to 2.47% in the
second quarter of 2002.
NET INTEREST INCOME - Net interest income for the quarter ended June 30, 2003
was $6.1 million, a decrease of 1.8% from the quarter ended June 30, 2002.
Flag's net interest margin (net interest income divided by average earning
assets) decreased from 5.15% to 4.52% on average earning assets of $485.7
million and $562.5 million for the quarters ended June 30, 2002 and June 30,
2003, respectively.
NON-INTEREST INCOME - Non-interest income for the quarter ended June 30, 2003
totaled $3.5 million, an increase of 92.9% compared to the quarter ended June
30, 2002. Flag's income from mortgage banking activities continued to benefit
from the low interest rate environment, increasing income from $768,000 to $1.5
million during the second quarter of 2002 and 2003, respectively. Gains on the
sale of real estate also contributed to strong non-interest income as Flag sold
or divested several pieces of real estate that produced a non-recurring gain of
$922,000 for the second quarter of 2003. Non-interest income comprised 28.8 %
of total revenue during the second quarter of 2003 compared to 16.7% in the
second quarter of 2002.
NON-INTEREST EXPENSE - Non-interest expense for the second quarter of 2003
totaled $7.1 million compared to $6.2 million in the same quarter of 2002.
Salaries and benefits increased from $3.7 million in 2002 to $4.3 million in
2003, an increase of 16.2%. This increase was due largely to increased mortgage
commissions related to Flag's significantly improved mortgage operation.
Occupancy expense increased 11.9% to $915,000 for the second quarter of 2003 as
compared to the second quarter of 2002. Included in occupancy expense for the
second quarter of 2003 was a non-recurring charge of $115,000 related to Flag's
decision to exit its operation center in south Atlanta which was under lease
until December 31, 2004. Decreases in professional fees of $151,000 offset
increases in communications and data expense of $180,000 when comparing the
quarters ended June 30, 2002 to June 30, 2003.
INCOME TAXES - Income tax expense for the quarter ended June 30, 2003 totaled
$736,000 compared to $376,000 for the same quarter of 2002. Flag's effective tax
rate was 32.6% and 22.4% for the second quarters of 2003 and 2002, respectively.
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of June 30, 2003, there were no substantial changes in the composition of
Flag's market-sensitive assets and liabilities or their related market values
from that reported as of December 31, 2002. The foregoing disclosures related
to the market risk of Flag should be read in conjunction with Flag'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, 2002 included in Flag's 2002 Annual Report on Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, Flag carried out an
evaluation, under the supervision and with the participation of Flag's
management, including Flag's Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation o f Flag's disclosure
controls and procedures pursuant to Exchange Act Rule 13a-15. Based upon that
evaluation, Flag's Chief Executive Officer and Chief Financial Officer concluded
that Flag's disclosure controls and procedures are effective in timely alerting
them to material information relating to Flag (including its consolidated
subsidiary) that is required to be included in Flag's periodic filings with the
Securities and Exchange Commission. There have been no significant changes in
Flag's internal controls or, to Flag's knowledge, in other factors that could
significantly affect those internal controls subsequent to the date Flag carried
out its evaluation, and there have been no corrective actions with respect to
significant deficiencies or material weaknesses.
15
PART 2. OTHER INFORMATION
FLAG FINANCIAL CORPORATION AND SUBSIDIARY
--------------------------------------------------------------------------------
PART II. Other Information
Item 1. Legal Proceedings -
On April 8, 2003, in the Superior Court of Upson County, Flag Bank initiated
legal action against a group of defendants including, but not limited to, Adam
Runsdorf and Westek Georgia LLC for purposes of collection on certain loans and
guarantees totaling approximately $245,000. Adam Runsdorf and Westek Georgia LLC
filed a counterclaim on July 30, 2003 alleging claims and damages in excess of
$4 million. While the counterclaim presents no substantive basis, it is
purportedly based on the failure of the Bank to provide additional financing
allegedly promised to these and other defendants in exchange for their
guarantees. The counterclaim is viewed as a defensive move by these defendants,
does not appear to present any real substantive claims, and is not anticipated
to result in any significant financial loss or expense to the Bank.
Item 2. Changes in Securities
Flag issued the following numbers of shares of common stock and warrants at the
prices and on the dates indicated to members of its senior management team in a
private placement under Rule 506 of the Securities Act of 1933, as amended. The
warrants were purchased at a price of $1.00 per warrant, are immediately
exercisable in full and have a ten-year term.
Stock Purchase Price/
Date Issued No. of Shares No. of Warrants Warrant Exercise Price
----------- ------------- --------------- ----------------------
05/12/03 12,000 12,000 11.50
Item 3. Defaults upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders
(a) The 2003 Annual Meeting of Shareholders was held on April 15, 2003
(b) Election of Directors
The following are the results of the votes cast by shareholders
present at the 2003 annual meeting of Shareholders, by proxy or in
person, for the following directors to serve until the 2006 Annual
Meeting of Shareholders:
For Withhold
--------- --------
William H. Anderson, II 6,588,875 22,807
H. Speer Burdette, III 6,582,766 28,916
J. Thomas Wiley, Jr. 6,588,102 23,580
(c) Ratifying the appointment of Porter Keadle Moore LLP, as independent
accountants of the Company for the fiscal year ending December 31,
2003. The shareholders voted 6,551,357 shares in the affirmative,
28,218 shares in the negative, with 32,113 shares abstaining for the
ratification and appointment of Porter Keadle Moore LLP as independent
accountants for the Company for the fiscal year ending December 31,
2003.
Item 5. Other Information
Pursuant to Rule 14a-14(c)(1) promulgated under the Securities Exchange Act of
1934, as amended, shareholders desiring to present a proposal for consideration
at the Company's 2004 Annual Meeting of Shareholders must notify the Company in
writing to the Secretary of the Company, at 3475 Piedmont Road, N.E., Suite 550,
Atlanta, Georgia, 30305, of the contents of such proposal no later than December
15, 2003 to be included in the 2004 Proxy Materials. A shareholder must notify
the Company before January 15, 2004 of a proposal for the 2004 Annual Meeting
that the shareholder intends to present other than by inclusion in the Company's
proxy material. If the Company does not receive such notice prior to January
15, 2004, proxies solicited by the management of the Company will confer
discretionary authority upon the management of the Company to vote upon any such
matter.
16
OTHER INFORMATION
FLAG FINANCIAL CORPORATION AND SUBSIDIARY
--------------------------------------------------------------------------------
Item 6. Exhibits and Report on Form 8-K
(a) Exhibits
31.1 Section 302 Certification by Chief Executive Officer
31.2 Section 302 Certification by Chief Financial Officer
32.1 Section 906 Certification by Chief Executive Officer and Chief
Financial Officer
(b) Reports on Form 8-K
Reports on Form 8-K filed during the Second Quarter of 2003:
April 17, 2003: Report on Form 8-K containing Flag's first quarter
2003 earnings press release pursuant to Item 9 (Regulation FD
disclosure).
17
FLAG FINANCIAL CORPORATION AND SUBSIDIARY
--------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
Flag Financial Corporation
By: /s/ Joseph W Evans
--------------------------
Joseph W. Evans
(Chief Executive Officer)
Date: 8/12/03
--------------------------
By: /s/ J. Daniel Speight, Jr.
--------------------------
J. Daniel Speight, Jr.
(Chief Financial Officer)
Date: 8/12/03
--------------------------
18