-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, L/wmy3/ZfWkCfRqNhhIMcJWe0JUgy1CpeDA4PbEbl4vHDeLAfCAG4rw/xbFMuETq jWYmwOXvBgBNWpht7yDH0Q== 0000931763-01-502095.txt : 20020410 0000931763-01-502095.hdr.sgml : 20020410 ACCESSION NUMBER: 0000931763-01-502095 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AUBURN NATIONAL BANCORPORATION INC CENTRAL INDEX KEY: 0000750574 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 630885779 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-26486 FILM NUMBER: 1784492 BUSINESS ADDRESS: STREET 1: 100 N GAY ST STREET 2: P O DRAWER 3110 CITY: AUBURN STATE: AL ZIP: 36831-3110 BUSINESS PHONE: 3348219200 MAIL ADDRESS: STREET 1: 100 NORTH GAY STREET STREET 2: P O DRAWER 3110 CITY: AUBURN STATE: AL ZIP: 36831 10-Q 1 d10q.txt FORM 10-Q PERIOD ENDING 09/30/2001 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934. For the quarterly period ended September 30, 2001 [_] Transition report under Section 13 or 15(d) of the Exchange Act For the transition period __________ to __________ Commission file number 0-26486 Auburn National Bancorporation, Inc. (Exact Name of Registrant as Specified in Its Charter) Delaware 63-0885779 (State or Other Jurisdiction of (I.R.S.Employer Incorporation or Organization) Identification No.) 165 East Magnolia Avenue, Suite 203, Auburn, Alabama 36830 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (334) 821-9200 - -------------------------------------------------------------------------------- (Issuer's Telephone Number, Including Area Code) (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuer's classes of common equity, as of October 30, 2001: 3,901,423 shares of common stock, $.01 par value per share AUBURN NATIONAL BANCORPORATION, INC. AND SUBSIDIARY INDEX
PART I. FINANCIAL INFORMATION PAGE - -------------------------------------------------------------------------------------------------- Item 1 Financial Information Consolidated Balance Sheets as of September 30, 2001 and December 31, 2000............................... 3 Consolidated Statements of Earnings for the Three and Nine Months Ended September 30, 2001 and 2000 ............... 4 Consolidated Statements of Stockholders' Equity and Comprehensive Income for the Nine Months Ended September 30, 2001 .............................................. 5 Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2001 and 2000 ................. 6 Notes to Consolidated Financial Statements ............................ 7 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations ...................................................... 8 Item 3 Quantitative and Qualitative Disclosures About Market Risk ..................... 15 PART II. OTHER INFORMATION - --------------------------- Item 5 Other Events ................................................................... 15
AUBURN NATIONAL BANCORPORATION, INC. AND SUBSIDIARY Consolidated Balance Sheets September 30, 2001 and December 31, 2000 (Unaudited)
Assets 9/30/2001 12/31/2000 ------------- ------------- Cash and due from banks $ 16,242,568 8,709,097 Federal funds sold 27,955,000 9,210,000 ------------- ------------- Cash and cash equivalents 44,197,568 17,919,097 ------------- ------------- Interest-earning deposits with other banks 1,821,604 446,144 Investment securities held to maturity (fair value of $18,371,555 and $27,208,911 at September 30, 2001 and December 31, 2000, respectively) 17,687,109 26,899,565 Investment securities available for sale 112,107,799 84,830,843 Loans 261,087,128 262,529,057 Less allowance for loan losses (4,720,023) (3,634,442) ------------- ------------- Loans, net 256,367,105 258,894,615 ------------- ------------- Premises and equipment, net 3,251,657 3,126,145 Rental property, net 1,590,448 1,594,168 Other assets 17,946,481 10,978,676 ------------- ------------- Total assets $ 454,969,771 404,689,253 ============= ============= Liabilities and Stockholders' Equity Deposits: Noninterest-bearing $ 47,344,618 43,292,446 Interest-bearing 310,607,230 272,348,748 ------------- ------------- Total deposits 357,951,848 315,641,194 Securities sold under agreements to repurchase 2,317,050 4,388,561 Other borrowed funds 53,614,601 48,720,540 Accrued expenses and other liabilities 5,175,550 4,133,901 ------------- ------------- Total liabilities 419,059,049 372,884,196 ------------- ------------- Stockholders' equity: Preferred stock of $.01 par value; authorized 200,000 shares; issued shares - none -- -- Common stock of $.01 par value; authorized 8,500,000 shares; issued 3,957,135 shares 39,571 39,571 Additional paid-in capital 3,707,472 3,707,472 Retained earnings 30,997,632 28,187,466 Accumulated other comprehensive income 1,634,209 85,147 Less treasury stock, 55,712 and 32,562 shares at September 30, 2001 and December 31, 2000, respectively, at cost (468,162) (214,599) ------------- ------------- Total stockholders' equity 35,910,722 31,805,057 ------------- ------------- Total liabilities and stockholders' equity $ 454,969,771 404,689,253 ============= =============
See accompanying notes to consolidated financial statements. 3 AUBURN NATIONAL BANCORPORATION, INC. AND SUBSIDIARY Consolidated Statements of Earnings For the Three Months and Nine Months Ended September 30, 2001 and 2000 (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, 2001 2000 2001 2000 ---------- ----------- ---------- ---------- Interest and dividend income: Loans, including fees $5,284,416 5,705,495 16,614,648 16,917,822 Investment securities: Taxable 1,912,816 1,794,903 5,630,561 4,874,960 Tax-exempt 30,308 14,068 57,118 42,236 Federal funds sold 190,195 119,777 393,983 463,033 Interest-earning deposits with other banks 30,390 36,859 81,272 126,947 ---------- ---------- ---------- ---------- Total interest and dividend income 7,448,125 7,671,102 22,777,582 22,424,998 ---------- ---------- ---------- ---------- Interest expense: Deposits 3,231,770 3,829,358 10,198,498 10,948,516 Securities sold under agreements to repurchase 19,571 57,492 99,134 204,668 Other borrowings 710,555 615,045 2,060,440 1,837,387 ---------- ---------- ---------- ---------- Total interest expense 3,961,896 4,501,895 12,358,072 12,990,571 ---------- ---------- ---------- ---------- Net interest income 3,486,229 3,169,207 10,419,510 9,434,427 Provision for loan losses 425,000 1,353,000 2,035,000 2,163,000 ---------- ---------- ---------- ---------- Net interest income after provision for loan losses 3,061,229 1,816,207 8,384,510 7,271,427 ---------- ---------- ---------- ---------- Noninterest income: Service charges on deposit accounts 334,196 358,644 1,102,066 1,002,026 Investment securities (losses) gains, net (4,170) 25,032 1,524,468 45,941 Other 724,296 656,974 2,236,288 1,746,230 ---------- ---------- ---------- ---------- Total noninterest income 1,054,322 1,040,650 4,862,822 2,794,197 ---------- ---------- ---------- ---------- Noninterest expense: Salaries and benefits 1,080,085 929,215 3,166,230 2,954,144 Net occupancy expense 263,661 279,909 804,955 833,839 Other 1,230,798 1,147,562 3,566,348 3,029,146 ---------- ---------- ---------- ---------- Total noninterest expense 2,574,544 2,356,686 7,537,533 6,817,129 ---------- ---------- ---------- ---------- Earnings before income taxes 1,541,007 500,171 5,709,799 3,248,495 Income tax expense 480,505 154,500 1,867,953 1,100,224 ---------- ---------- ---------- ---------- Earnings before cumulative effect of a change in accounting principle 1,060,502 345,671 3,841,846 2,148,271 Cumulative effect of a change in accounting principle, net of tax -- -- 141,677 -- ---------- ---------- ---------- ---------- Net earnings $1,060,502 345,671 3,983,523 2,148,271 ========== ========== ========== ========== Basic and diluted earnings per share: Earnings before cumulative effect of a change in accounting principle $ 0.27 0.09 0.98 0.55 Cumulative effect of a change in accounting principle, net of tax -- -- 0.04 -- ---------- ---------- ---------- ---------- Net earnings $ 0.27 0.09 1.02 0.55 ========== ========== ========== ========== Weighted-average shares outstanding 3,904,498 3,924,573 3,911,443 3,924,573 ========== ========== ========== ==========
See accompanying notes to consolidated financial statements. 4 AUBURN NATIONAL BANCORPORATION, INC. AND SUBSIDIARY Consolidated Statements of Stockholders' Equity and Comprehensive Income For the Nine Months Ended September 30, 2001 (Unaudited)
Accumulated Common stock Additional other ---------------------- Comprehensive paid-in Retained comprehensive income Shares Amount capital earnings income (loss) ----------- ----------- ---------- ---------- ------------ ------------- Balances at December 31, 2000 3,957,135 $ 39,571 3,707,472 28,187,466 85,147 Comprehensive income: Net earnings $ 3,983,523 -- -- -- 3,983,523 -- Other comprehensive income due to unrealized gain on investment securities available for sale, net 1,549,062 -- -- -- 1,549,062 ----------- Total comprehensive income $ 5,532,585 =========== Cash dividends paid ($0.30 per share) -- -- -- (1,173,357) -- Purchase of Treasury stock (23,150 shares) -- -- -- -- -- ---------- --------- ---------- ----------- ----------- Balances at September 30, 2001 3,957,135 $ 39,571 3,707,472 30,997,632 1,634,209 ========== ========= ========== =========== =========== Treasury stock Total --------- ----------- Balances at December 31, 2000 (214,599) 31,805,057 Comprehensive income: Net earnings -- 3,983,523 Other comprehensive income due to unrealized gain on investment securities available for sale, net -- 1,549,062 Total comprehensive income Cash dividends paid ($0.30 per share) -- (1,173,357) Purchase of Treasury stock (23,150 shares) (253,563) (253,563) --------- ------------ Balances at September 30, 2001 (468,162) 35,910,722 ========= ============
See accompanying notes to consolidated financial statements. 5 AUBURN NATIONAL BANCORPORATION, INC. AND SUBSIDIARY Consolidated Statements of Cash Flows For the Nine Months Ended September 30, 2001 and 2000 (Unaudited)
2001 2000 ------------ ------------ Cash flows from operating activities: Net earnings $ 3,983,523 2,148,271 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 408,068 449,617 Net accretion of discounts/premiums on investment securities (187,193) (465,905) Provision for loan losses 2,035,000 2,163,000 Loss on disposal of premises and equipment 12,084 11,466 Loss on sale of other real estate 43,657 10,994 Investment securities gains (1,524,468) (45,941) Decrease (increase) in interest receivable 868,051 (496,591) Decrease (increase) in other assets 752,785 (1,514,943) (Decrease) increase in interest payable (472,971) 409,917 Increase in accrued expenses and other liabilities 296,809 545,437 ------------ ------------ Net cash provided by operating activities 6,215,345 3,215,322 ------------ ------------ Cash flows from investing activities: Proceeds from sales of investment securities available for sale 42,727,538 2,979,308 Proceeds from maturities/calls/paydowns of investment securities held to maturity 9,405,214 4,708,455 Purchases of investment securities held to maturity -- (22,251,496) Proceeds from maturities/calls/paydowns of investment securities available for sale 15,895,364 6,978,502 Purchases of investment securities available for sale (81,738,117) (26,189,957) Investment in bank owned life insurance (8,500,000) -- Net decrease in loans 492,510 630,850 Purchases of premises and equipment (550,207) (97,293) Additions to rental property -- (22,306) Net (increase)/decrease in interest-earning deposits with other banks (1,375,460) 1,062,712 ------------ ------------ Net cash used in investing activities (23,643,158) (32,201,225) ------------ ------------ Cash flows from financing activities: Net increase in noninterest-bearing deposits 4,052,172 5,080,675 Net increase in interest-bearing deposits 38,258,482 18,932,751 Net decrease in securities sold under agreements to repurchase (2,071,511) (1,373,901) Net increase/(decrease) in borrowings from FHLB 4,911,313 (3,088,687) Repayments of other borrowed funds (17,252) (17,041) Purchase of treasury stock (253,563) -- Dividends paid (1,173,357) (1,177,372) ------------ ------------ Net cash provided by financing activities 43,706,284 18,356,425 Net increase (decrease) in cash and cash equivalents 26,278,471 (10,629,478) Cash and cash equivalents at beginning of period 17,919,097 27,372,397 ------------ ------------ Cash and cash equivalents at end of period $ 44,197,568 16,742,919 ============ ============ Supplemental information on cash payments: Interest paid $ 12,831,043 12,580,654 ============ ============ Income taxes paid $ 882,087 770,411 ============ ============
See accompanying notes to consolidated financial statements. 6 AUBURN NATIONAL BANCORPORATION, INC. AND SUBSIDIARY Notes to the Consolidated Financial Statements September 30, 2001 Note 1- General The consolidated financial statements in this report have not been audited. In the opinion of management, all adjustments necessary to present fairly the financial position and the results of operations for the interim periods have been made. All such adjustments are of a normal recurring nature. The results of operations are not necessarily indicative of the results of operations which the Company may achieve for future interim periods or the entire year. For further information, refer to the consolidated financial statements and footnotes included in the Company's annual report on Form 10-K for the year ended December 31, 2000. Note 2- Comprehensive Income In September 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income" (Statement 130). Statement 130 establishes standards for reporting and displaying comprehensive income and its components in a full set of general purpose statements. The Company adopted Statement 130 effective January 1, 1998. The primary component of the differences between net income and comprehensive income for the Company is unrealized gains/losses on available for sale securities. Total comprehensive income for the three months ended September 30, 2001 was $1,630,000 compared to $1,086,000 for the three months ended September 30, 2000. Total comprehensive income for the nine months ended September 30, 2001 was $5,533,000 compared to $2,626,000 for the nine months ended September 30, 2000. Note 3 - Derivatives Disclosure As part of its overall interest rate risk management activities, the Company utilizes off-balance sheet derivatives to modify the repricing characteristics of on-balance sheet assets and liabilities. The primary instruments utilized by the Company are interest rate swaps and interest rate floor and cap arrangements. The fair value of these off-balance sheet derivative financial instruments are based on dealer quotes and third party financial models. In September 1999, the FASB issued Statement of Financial Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities - - Deferral of the Effective Date of FASB Statement No. 133 - an amendment of FASB Statement No. 133" (Statement 137). Statement 133 is now effective for financial statements for the first fiscal quarters of the fiscal years beginning after June 15, 2000. The Company adopted Statement 133 on January 1, 2001. The adoption of Statement 133 resulted in a $142,000 cumulative effect of a change in accounting principle, net of tax. As of September 30, 2001, the Company had the following derivative instrument: Interest Rate Swap (In Thousands) Notional Estimated Amount fair value Pay Rate Receive Rate ------ ---------- -------- ------------ $5,000 104 Variable 5.68% At September 30, 2001, the $5 million interest rate swap was used as a fair value hedge to convert the interest rate on a like amount of certificates of deposit with similar terms from fixed to variable. In September 2001, the Bank sold a $10 million interest rate swap for a gain of $34,000. This swap was not specifically designated as a hedging instrument and was entered into to provide some protection against falling interest rates on the Company's loans. The Company realized in other income a $24,000 loss and a $238,000 gain due to change in fair value of derivative instruments during the three and nine months ended September 30, 2001, respectively. These amounts primarily related to the previously held $10 million interest rate swap. The effect on net income of other derivative instruments that existed at January 1, 2001 but terminated during the three months ended March 31, 2001 was not material. 7 Note 4 - Recent Accounting Pronouncements In September 2000, SFAS No. 140 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities", was issued. SFAS No. 140 is effective for all transfers and servicing of financial assets and extinguishments of liabilities after March 31, 2001. The Statement is effective for recognition and reclassification of collateral and disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. Due to the nature of its activities, the Company did not experience a material change to its results of operations as a result of adopting SFAS No. 140. In July 2001, SFAS No. 141, "Business Combinations" was issued and is effective for all business combinations initiated after June 30, 2001. SFAS No. 141 requires companies to account for all business combinations using the purchase method of accounting, recognize intangible assets if certain criteria are met, as well as provide additional disclosures regarding business combinations and allocation of purchase price. SFAS No. 141 is effective immediately. In July 2001, SFAS No. 142, "Goodwill and Other Intangible Assets" was issued. SFAS No. 142 requires nonamortization of goodwill and intangible assets that have indefinite useful lives and annual tests of impairment of those assets. The statement also provides specific guidance about how to determine and measure goodwill and intangible asset impairments, and requires additional disclosure of information about goodwill and other intangible assets. The provisions of this statement are required to be applied starting with fiscal years beginning after December 15, 2001 and applied to all goodwill and other intangible assets recognized in financial statements at the date of adoption. Goodwill and intangible assets with indefinite lives acquired after June 30, 2001 will be subject to the nonamortization provisions of the statement. Since the Company does not have any goodwill or significant intangible assets, the Company does not expect a material change to its results of operations as a result of adopting SFAS No. 142. In July 2001, SFAS No. 143, "Accounting for Asset Retirement Obligations" was issued. SFAS No. 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. Due to the nature of its activities, the Company did not experience a material change to its results of operations as a result of adopting SFAS No. 143. In October 2001, FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" which supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" and APB Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions". SFAS No. 144 amends accounting and reporting standards for the disposal of segments of a business and addresses various issues related to the accounting for impairments and disposals of long- lived assets. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. The Company is currently evaluating the impact of the adoption of this standard and has not yet determined the effect of adoption on its results of operations and financial position. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis is designed to provide a better understanding of various factors related to the Company's results of operations and financial condition. This discussion is intended to supplement and highlight information contained in the accompanying unaudited consolidated financial statements for the three and nine months ended September 30, 2001 and 2000. Certain of the statements discussed are forward-looking statements for purposes of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21A of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and as such may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements include statements using the words such as "may," "will," "anticipate," "should," "would," "believe," "evaluate," "assessment," "contemplate," "expect," "estimate," "continue," "intend" or similar words and expressions of the future. Our actual results may differ significantly from the results we discuss in these forward-looking statements. These forward-looking statements involve risks and uncertainties and may not be realized due to a variety of factors, including, without limitation: the effects of future economic conditions; governmental monetary and fiscal policies, as well as legislative and regulatory changes; the risks of changes in interest rates on the level and composition of deposits, loan demand, and the values of loan collateral, securities, and other interest-sensitive assets and liabilities; interest rate risks; the effects of competition from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money market and other mutual funds and other financial institutions operating in the Company's market area and elsewhere, including institutions operating, regionally, nationally, and internationally, together with such competitors offering banking products and services by mail, telephone, computer and Internet; and the failure of assumptions underlying the establishment of reserves for loan losses. All written or oral forward- 8 looking statements attributable to the Company are expressly qualified in their entirety by these cautionary statements. Summary Net income of $1,061,000 for the quarter ended September 30, 2001 represented an increase of $715,000 (206.7%) from the Company's net income of $346,000 for the same period of 2000. Basic net earnings per share increased $0.18 (200.0%) to $0.27 during the third quarter of 2001 from $0.09 for the third quarter of 2000. Net income increased $1,836,000 (85.5%) to $3,984,000 for the three and nine month period ended September 30, 2001 compared to $2,148,000 for the same period of 2000. During the nine month period ended September 30, 2001 compared to the same period of 2000, the Company experienced increases in net interest income, noninterest income and noninterest expense due to the continued growth of the Company. Net income for first quarter 2001 was significantly impacted by a $1,548,000 gain recorded upon the sale of the Star Systems, Inc. ATM network in which the Company received ownership in a publicly traded entity whose shares were issued to the Company in exchange for its ownership interest in Star Systems, Inc. network. The net yield on total interest-earning assets increased to 3.51% for the nine months ended September 30, 2001 from 3.42% for the nine months ended September 30, 2000. The increase in the net yield on interest-earning assets is due to a decrease in the cost of interest-bearing liabilities. See the "Consolidated Average Balances, Interest Income/Expense and Yields/Rates" Table. Total assets of $454,970,000 at September 30, 2001 represent an increase of $50,281,000 (12.4%) over total assets of $404,689,000, at December 31, 2000. This increase resulted primarily from increases in cash and cash equivalents, investment securities available for sale and other assets offset by a decrease in investment securities held to maturity. Financial Condition Investment Securities and Federal Funds Sold Investment securities held to maturity were $17,687,000 and $26,900,000 at September 30, 2001 and December 31, 2000, respectively. This decrease of $9,213,000 (34.3%) was primarily the result of $9,405,000 of scheduled paydowns, maturities and calls of principal amounts. Investment securities available for sale increased $27,277,000 (32.2%) to $112,108,000 at September 30, 2001 from $84,831,000 at December 31, 2000. This increase is a result of purchases of $33,250,000 in U.S. agency securities, $32,276,000 in mortgage backed securities, $13,019,000 in CMOs, $1,292,000 in asset-backed securities and $1,901,000 in state and political subdivision securities. This increase is offset by $15,895,000 of scheduled paydowns, maturities and calls of principal amounts. In addition, $34,311,000 of U.S. agency securities, $6,777,000 of CMOs and $1,640,000 of mortgage backed securities were sold in the first three quarters of 2001. Federal funds sold increased to $27,955,000 at September 30, 2001 from $9,210,000 at December 31, 2000. This increase is primarily due to the investment in federal funds sold from the increase in deposits. In addition, this reflects normal activity in the Bank's funds management efforts. Loans Total loans of $261,087,000 at September 30, 2001 reflected a decrease of $1,442,000 (0.6%) compared to the total loans of $262,529,000, at December 31, 2000. Overall, most of the loan categories decreased slightly; however, the Bank did experience growth in commercial real estate loans during the first nine months of 2001. Commercial, financial and agricultural, residential real estate and commercial real estate loans represented the majority of the loan portfolio with approximately 26.77%, 21.63% and 40.08% of the Bank's total loans at September 30, 2001, respectively. The net yield on loans was 8.34% for the nine months ended September 30, 2001 compared to 8.60% for the nine months ended September 30, 2000. See the "Consolidated Average Balances, Interest Income/Expense and Yields/Rates" Table. Allowance for Loan Losses and Risk Elements The allowance for loan losses reflects management's assessment and estimates of the risks associated with extending credit and its evaluation of the quality of the loan portfolio. Management reviews the components of the loan portfolio in order to estimate the appropriate provision required to maintain the allowance at a level believed adequate in 9 relation to anticipated future loan losses. In assessing the allowance, management reviews the size, quality and risk of loans in the portfolio. Management also considers such factors as the Bank's loan loss experience, the amount of past due and nonperforming loans, specific known risks, the status, amounts, and values of nonperforming assets (including loans), underlying collateral values securing loans, current and anticipated economic conditions, and other factors, including developments anticipated by management with respect to various credits which management believes affects the allowance for loan losses. The table below summarizes the changes in the allowance for loan losses for the nine months ended September 30, 2001 and the year ended December 31, 2000.
Nine months ended Year ended September 30, December 31, 2001 2000 ------------- ------------- (In thousands) Balance at beginning of period, January 1, $ 3,634 $ 3,775 Charge-offs 1,019 3,115 Recoveries 70 352 ------------- ------------- Net charge-offs 949 2,763 Provision for loan losses 2,035 2,622 ------------- ------------- Ending balance $ 4,720 $ 3,634 ============= =============
The allowance for loan losses was $4,720,000 at September 30, 2001 compared to $3,634,000 at December 31, 2000. Management believes that the current level of allowance (1.81% of total outstanding loans, net of unearned income, at September 30, 2001) is adequate to absorb anticipated risks identified in the portfolio at that time. Starting in 2001, the Bank's new loan review services provider has assisted in implementing new policies and procedures for the loan process. Consistent with its methodology for calculating the adequacy of the allowance for loan losses, management believes the provisions made during the third quarter will place the allowance at a level sufficient to absorb identified potential loan losses in the portfolio as of September 30, 2001. No assurance can be given, however, that adverse economic circumstances or other events, including additional loan review or examination findings or changes in borrowers' financial conditions, will not result in increased losses in the Bank's loan portfolio or in additional provision to the allowance for loan losses. During the first nine months of 2001, the Bank made $2,035,000 in provisions to the allowance for loan losses based on management's assessment of the credit quality of the loan portfolio. The increase in the provision is due to results and estimates of deterioration in certain loans determined by recent analyses. For the nine months ended September 30, 2001, the Bank had charge-offs of $1,019,000 and recoveries of $70,000. Nonperforming assets, comprised of nonaccrual loans, renegotiated loans, other nonperforming assets, and accruing loans 90 days or more past due were $10,112,000 at September 30, 2001 an increase of 16.3% from the $8,695,000 of non-performing assets at December 31, 2000. This increase is primarily due to an increase in nonaccrual loans. If nonaccrual loans had performed in accordance with their original contractual terms, interest income would have increased approximately $378,000 for the nine months ended September 30, 2001. 10 The table below provides information concerning nonperforming assets and certain asset quality ratios at September 30, 2001 and December 31, 2000.
September 30, December 31, 2001 2000 ------------- ------------ (In thousands) Nonaccrual loans $ 8,984 7,793 Renegotiated loans -- -- Other nonperforming assets (primarily other real estate) 704 874 Accruing loans 90 days or more past due 424 28 ------------- ------------ Total nonperforming assets $ 10,112 8,695 ============= ============ Ratio of allowance for loan losses as a percent of 1.81% 1.38% total loans outstanding Ratio of allowance for loan losses as a percent of nonaccrual loans, renegotiated loans and other 48.72% 41.93% nonperforming assets
Potential problem loans consist of those loans where management has serious doubts as to the borrower's ability to comply with the present loan repayment terms. At September 30, 2001, 143 loans totaling $9,416,000, or 3.6% of total loans outstanding, net of unearned income, were considered potential problem loans compared to 120 loans totaling $8,826,000, or 3.4% of total loans outstanding, net of unearned income, at December 31, 2000. At September 30, 2001, the amount of impaired loans were $9,508,000, which included 23 loans to 10 borrowers with a total valuation allowance of approximately $1,243,000. In comparison, at December 31, 2000, the Company had approximately $8,356,000 of impaired loans, which included 35 loans to 10 borrowers with a total valuation allowance of approximately $529,000. Deposits Total deposits increased $42,311,000 (13.4%) to $357,952,000 at September 30, 2001, as compared to $315,641,000 at December 31, 2000. Noninterest-bearing deposits increased $4,052,000 (9.4%) during the first nine months of 2001, while total interest-bearing deposits increased $38,258,000 (14.1%) to $310,607,000 at September 30, 2001 from $272,349,000 at December 31, 2000. The increase in noninterest-bearing deposits is due primarily to an increase in regular demand deposit accounts. During the first nine months of 2001, the Bank primarily experienced increases in NOW accounts of $13,265,000 (36.0%) and certificates of deposits greater than $100,000 of $15,211,000 (19.0%). The Company considers the shifts in the deposit mix to be within the normal course of business and in line with the management of the Bank's overall cost of funds. The average rate paid on interest-bearing deposits was 4.78% for the nine months ended September 30, 2001 compared to 5.37% for the same period of 2000. See the "Consolidated Average Balances, Interest Income/Expense and Yields/Rates" table Capital Resources and Liquidity The Company's consolidated stockholders' equity was $35,911,000 at September 30, 2001, compared to $31,805,000 at December 31, 2000. This represents an increase of $4,106,000 (12.9%) during the first nine months of 2001. Net earnings for the first nine months of 2001 were $3,984,000 compared to $2,148,000 for the same period of 2000. In addition, the Company's accumulated other comprehensive income was $1,634,000 at September 30, 2001 compared to $85,000 at December 31, 2000. This increase was due to an increase in the fair value of investment securities available for sale. During the first nine months of 2001 and 2000, cash dividends of $1,173,000, or $0.30 per share, were declared on Common Stock. Certain financial ratios for the Company as of September 30, 2001 and December 31, 2000 are presented in the following table:
September 30, 2001 December 31, 2000 Return on average assets - annualized 1.27% 0.77% Return on average equity - annualized 15.88% 10.30%
11 The Company's Tier 1 leverage ratio was 7.55%, Tier I risk-based capital ratio was 11.68% and Total risk-based capital ratio was 12.93% at September 30, 2001. These ratios exceed the minimum regulatory capital percentages of 4.0% for Tier 1 leverage ratio, 4.0% for Tier I risk-based capital ratio and 8.0% for Total risk-based capital ratio. Based on current regulatory standards, the Company believes it is a "well capitalized" bank. The primary source of liquidity during the first nine months of 2001 was deposit growth. The Company used these funds primarily in the purchase of investment securities. Under the advance program with Federal Home Loan Bank of Atlanta ("FHLB-Atlanta"), the Bank had outstanding advances totaling approximately $53,433,000 at September 30, 2001. Net cash provided by operating activities of $6,215,000 for the nine months ended September 30, 2001, consisted primarily of net earnings and provision for loan losses offset by investment securities gains. Net cash used in investing activities of $23,643,000 principally resulted from investment securities purchases of $81,738,000, offset by proceeds from maturities, calls and paydowns of investment securities and proceeds from sale of investment securities available for sale of $25,301,000 and $42,728,000, respectively. In addition, the Bank invested $8,500,000 in bank owned life insurance. The $43,706,000 in net cash provided by financing activities resulted primarily from an increase of $4,052,000 in non-interest bearing deposits and an increase in interest bearing deposits of $38,258,000. In addition, securities sold under agreements to repurchase decreased by $2,072,000, borrowings from FHLB increased $4,911,000 and the Company paid dividends of $1,173,000. Interest Rate Sensitivity Management At September 30, 2001, interest sensitive assets that repriced or matured within the next 12 months were $193,617,000, compared to interest sensitive liabilities that reprice or mature within the same time frame totaling $298,649,000. The cumulative GAP position (the difference between interest sensitive assets and interest sensitive liabilities) of a negative $105,032,000, resulted in a GAP ratio (calculated as interest sensitive assets divided by interest sensitive liabilities) of 65%. This compares to a twelve month cumulative GAP position at December 31, 2000, of a negative $68,729,000 and a GAP ratio of 68%. A negative GAP position indicates that the Company has more interest-bearing liabilities than interest-earning assets that reprice within the GAP period, and that net interest income may be adversely affected in a rising rate environment as rates earned on interest-earning assets rise more slowly than rates paid on interest-bearing liabilities. A positive GAP position indicates that the Company has more interest-earning assets than interest-bearing liabilities that reprice within the GAP period. The Bank's Asset/Liability Management Committee ("ALCO") is charged with the responsibility of managing, to the degree prudently possible, its exposure to "interest rate risk," while attempting to provide earnings enhancement opportunities. Based on ALCO's alternative interest rate scenarios used by the Company in modeling for asset/liability planning purposes and the GAP position at September 30, 2001 and various assumptions and estimates, the Company's asset/liability model predicts that the changes in the Company's net interest income would be less than 5.0% over 12 months. Such estimates and predictions are forecasts which may or may not be realized. See "ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK". Results of Operations Net Income Net income increased $715,000 (206.7%) to $1,061,000 for the three month period ended September 30, 2001 compared to $346,000 for the same period of 2000. Basic net earnings per share was $0.27 and $0.09 for the third quarters of 2001 and 2000, respectively. Net income increased $1,836,000 (85.5%) to $3,984,000 for the nine month period ended September 30, 2001 compared to $2,148,000 for the same period of 2000. Net income for first quarter 2001 was significantly impacted by a $1,548,000 gain recorded upon the sale of the Star Systems, Inc. ATM network in which the Company received ownership in a publicly traded entity whose shares were issued to the Company in exchange for its ownership interest in Star Systems, Inc. network. During the nine month period ended September 30, 2001 compared to the same period of 2000, the Company also experienced increases in net interest income, noninterest income, and noninterest expense due to the continued growth of the Company. Net Interest Income Net interest income was $3,486,000 for the third quarter of 2001, an increase of $317,000 (10.0%) from $3,169,000 for the same period of 2000. Net interest income increased $986,000 (10.5%) to $10,420,000 for the nine months ended September 30, 2001, compared to $9,434,000 for the nine months ended September 30, 2000. These 12 increases resulted primarily from the increase in interest and dividends from investment securities and a decrease in interest on deposits. Such increases resulted from overall growth in the Company's average interest-earning assets and an increase in net taxable yield on the Company's interest-earning assets during the first nine months of 2001 compared to the same period of 2000. Through the third quarter of 2001, the Company's GAP position remained more liability sensitive to changes in interest rates. The Company continues to regularly review and manage its asset/liability position in an effort to manage the negative effects of changing rates. See "Financial Condition - Interest Rate Sensitivity Management" and the "Consolidated Average Balances, Interest Income/Expense and Yields/Rates" table. Interest and Dividend Income Interest income is a function of the volume of interest earning assets and their related yields. Interest and dividend income was $7,448,000 and $7,671,000 for the three months ended September 30, 2001 and 2000, respectively. This represents a decrease of $223,000 (2.9%) for the third quarter of 2001 compared to 2000. For the nine months ended September 30, 2001 interest and dividend income was $22,778,000, an increase of $353,000 (1.6%) compared to $22,425,000 for the same period of 2000. This change for the first nine months of 2001 resulted as the average volume of interest earning assets outstanding increased $28,192,000 (7.7%) over the same period of 2000 but the Company's yield on interest-earning assets decreased 43 basis points. See the "Consolidated Average Balances, Interest Income/Expense and Yields/Rates" table. Loans are the main component of the Bank's earning assets. Interest and fees on loans were $5,284,000 and $5,705,000 for the third quarters of 2001 and 2000, respectively. This reflects a decrease of $421,000 (7.4%) during the three months ended September 30, 2001 from the same period of 2000. For the nine month period ended September 30, 2001, interest and fees on loans decreased $303,000 (1.8%) to $16,615,000 from $16,918,000 for the same period of 2000. The average volume of loans increased $4,172,000 (1.6%) for the nine months ended September 30, 2001 compared to the same period for 2000, while the Company's yield on loans decreased by 26 basis points comparing these same periods. For the three month period ended September 30, 2001, interest income on investment securities increased $134,000 (7.4%) to $1,943,000 from $1,809,000 for the same period of 2000. Interest income on investment securities for the nine month period ended September 30, 2001, increased $771,000 (15.7%) to $5,688,000 from $4,917,000 for the same period of 2000. The Company's average volume of investment securities increased by $21,087,000 (22.5%) for the first nine months of 2001, compared to the same period of 2000, while the net yield on these average balances decreased by 36 basis points. See the "Consolidated Average Balances, Interest Income/Expense and Yields/Rates" table. Interest Expense Total interest expense decreased $540,000 (12.0%) to $3,962,000 for the third quarter of 2001 compared to $4,502,000 for the same period of 2000. Total interest expense decreased $633,000 (4.9%) to $12,358,000 from $12,991,000 for the nine months ended September 30, 2001 and 2000, respectively. This change resulted as the Company's average interest-bearing liabilities increased 5.4% but the rates paid on these liabilities decreased 51 basis points during the first nine months of 2001 compared to the same period of 2000. See the "Consolidated Average Balances, Interest Income/Expense and Yields/Rates" table. Interest on deposits, the primary component of total interest expense, decreased $597,000 (15.6%) to $3,232,000 for the third quarter of 2001 compared to $3,829,000 for the same period of 2000. Interest on deposits were $10,198,000 and $10,949,000 for the nine months ended September 30, 2001 and 2000, respectively. The decrease for the nine month period ended September 30, 2001 is due to a 59 basis point decrease in the rate paid on interest-bearing deposits offset by a 5.1% increase in the average volume. Interest expense on other borrowings, was $711,000 and $615,000 for the third quarters of 2001 and 2000, respectively. This represents an increase of $96,000 or 15.6%. For the nine months ended September 30, 2001, interest expense on borrowed funds increased $223,000 (12.1%) to $2,060,000 from $1,837,000 for the same period of 2000. This increase for the nine month period ended September 30, 2001 is due to a 12.1% increase in the average volume and a 2 basis point increase in the rate paid on other borrowed funds. The increase in the average volume is primarily from the increase in FHLB-Atlanta advances. 13 Provision for Loan Losses The provision for loan losses is based on management's assessments and estimates of the risks associated with extending credit and its evaluation of the quality of the loan portfolio. The provision for loan losses was $425,000 for the three months ended September 30, 2001 compared to $1,353,000 for the three months ended September 30, 2000. The provision for loan losses was $2,035,000 for the nine months ended September 30, 2001 compared to $2,163,000 for the nine months ended September 30, 2000. The decrease in the provision for the third quarter of 2001 compared to 2000 is due less loan growth. Also, the third quarter of 2000 provision reflects deterioration in certain loans determined by analyses in that quarter. See "---Allowance for Loan Loss and Risk Elements." Noninterest Income Noninterest income increased $13,000 (1.3%) to $1,054,000 for the third quarter of 2001 from $1,041,000 for the same period of 2000. Noninterest income was $4,863,000 and $2,794,000 for the nine months ended September 30, 2001 and 2000, respectively. This increase for the nine months ended September 30, 2001 is due to increases in service charges on deposit accounts, investment securities gains, net and other noninterest income. Service charges on deposit accounts for the third quarter of 2001 decreased $25,000 (7.0%) to $334,000 from $359,000 for the third quarter of 2000. Service charges on deposit accounts were $1,102,000 and $1,002,000 for the nine months ended September 30, 2001 and 2000, respectively. This increase is primarily due to increases in nonsufficient funds and overdraft charges due to an increase in nonsufficient fund items. Investment securities losses, net were $4,000 in the third quarter of 2001 compared to $25,000 of investment securities gains, net in the third quarter of 2000. Investment securities gains, net were $1,524,000 and $46,000 for the nine months ended September 30, 2001 and 2000, respectively. This increase is primarily due to a gain of $1,548,000 in the first quarter 2001 resulting from the purchase of the Company's investment in Star Systems, Inc.'s common stock by Concord EFS, Inc. In this transaction, the Company received common shares of Concord EFS, Inc., which is publicly traded, in exchange for its ownership in Star Systems, Inc. Other noninterest income increased $67,000 (10.2%) to $724,000 for the third quarter of 2001 from $657,000 for the same period of 2000. Other noninterest income was $2,236,000 and $1,746,000 for the nine months ended September 30, 2001 and 2000, respectively. This increase primarily resulted from an increase in the fair value of derivatives since the implementation of Statement 133, an increase in MasterCard/VISA discounts and fees due to Auburn University's acceptance of MasterCard/VISA for tuition, and an increase in the gain on the sale of mortgage loans. Noninterest Expense Total noninterest expense was $2,575,000 and $2,357,000 for the third quarters of 2001 and 2000, respectively, representing an increase of $218,000 or 9.3%. For the nine months ended September 30 2001 and 2000, total noninterest expense increased $721,000 (10.6%) to $7,538,000 from $6,817,000 for the same period of 2000. This increase was mainly due to an increase in salaries and benefits expense and other noninterest expense. Salaries and benefits expense was $1,080,000 and $929,000 for the three months ended September 30, 2001 and 2000, respectively. This represents an increase of $151,000 (16.3%) in the third quarter of 2001 compared to the third quarter of 2000. For the nine months ended September 30, 2001, total salaries and benefits expense increased $212,000 (7.2%) to $3,166,000 from $2,954,000 for the same period of 2000. This increase is primarily due to the increase in overall employee levels from the same period of 2000. For the third quarter of 2001, other noninterest expense increased $83,000 (7.2%) to $1,231,000 from $1,148,000 for the third quarter of 2000. Other noninterest expense was $3,566,000 and $3,029,000 for the nine months ended September 30, 2001 and 2000, respectively. This increase is mainly due to the expenses associated with Auburn University's acceptance of MasterCard/VISA for tuition mentioned above, an increase in marketing expenses and losses from demand accounts. Income taxes Income tax expense was $481,000 and $155,000 for the third quarters of 2001 and 2000, respectively. For the nine months ended September 30, 2001, income tax expense increased $768,000 (69.8%) to $1,868,000 from $1,100,000 for the 14 nine months ended September 30, 2000. These levels represent an effective tax rate on pre-tax earnings of 32.7% for the nine months ended September 30, 2001 which is consistent with the Company's expected annual effective rate. Impact of Inflation and changing prices Virtually all of the assets and liabilities of the Company are monetary in nature. As a result, interest rates have a more significant effect on the Company's performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or with the same magnitude as the price of goods and services because such prices are affected by inflation. In the current interest rate environment, liquidity and the maturity structure of the Company's assets and liabilities are critical to the maintenance of desired performance levels. However, relatively low levels of inflation in recent years have resulted in a rather insignificant effect on the Company's operations. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's market risk has decreased during the third quarter of 2001. The Company models economic value of equity as a measure of market risk. In June 2001, economic value of equity would increase 11.34% if rates decrease 200 basis points and decrease 17.75% if rates increase 200 basis points. As of September 2001, economic value of equity had become less volatile a rising rate environment. If rates decrease 200 basis points, economic value of equity would increase 13.79% and, if rates increase 200 basis points, economic value of equity would decrease 12.68%. Due to the amount of interest rate cuts, the Company is preparing for the greater risk of rising interest rates. The Company continues to become more asset-sensitive by restructuring the investment portfolio through "swap" transactions when possible. Agency securities with call risk or unattractive yields are sold with the proceeds invested in mortgage backed securities. The deposit growth continues to be strong allowing the Company to invest in mortgage backed securities that repay principal on a monthly basis. The Company measures its exposure to interest risk by modeling a 200 (+ and -) basis point change in interest rates. Given these conditions, the Bank's modeling projects that net interest income could decrease by 0.60% given an increase in interest rates of 200 basis points. For a decrease in interest rates of 200 basis points, the modeling projects the company's net interest income could increase by 2.03%. The Company believes that it needs to prepare for the risk of rising interest rates. The Company has been liablity-sensitive and the project decrease of income in either a rising and falling interest rate environment can be attributed to our transition to becoming asset-sensitive. As the Company does not consider this change in market sensitivity to be significant, the market rate table, as shown in the Company's 2000 Form 10-K, has not been updated in this filing. PART II OTHER INFORMATION ITEM 5. OTHER EVENTS The proxy statement solicited by the Company's Board of Directors with respect to the Company's 2001 Annual Meeting of Shareholders will confer discretionary authority to vote on any proposals of shareholders intended to be presented for consideration at such Annual Meeting that are submitted to the Company after February 27, 2002. 15 AUBURN NATIONAL BANCORPORATION, INC. & SUBSIDIARIES Consolidated Average Balances, Interest Income/Expense and Yields/Rates Taxable Equivalent Basis
Nine Months Ended September 30, ----------------------------------------------------------------------- 2001 2000 -------------------------------------- ------------------------------- Average Yield/ Average Yield/ ASSETS Balance Interest Rate Balance Interest Rate ============================= ======= ======== ==== ======= ======== ==== (Dollars in thousands) Interest-earning assets: Loans, net of unearned income (1) $ 266,302 16,615 8.34% 262,130 16,918 8.60% Investment securities: Taxable 113,205 5,630 6.65% 92,556 4,875 7.02% Tax-exempt (2) 1,598 86 7.20% 1,160 64 7.35% ---------------------- -------------------- Total investment securities 114,803 5,716 6.66% 93,716 4,939 7.02% Federal funds sold 13,311 394 3.96% 10,131 463 6.09% Interest-earning deposits with other banks 1,937 81 5.59% 2,184 127 7.75% ---------------------- -------------------- Total interest-earning assets 396,353 22,806 7.69% 368,161 22,447 8.12% Alwance for loan losses (4,354) (3,945) Cash and due from banks 11,461 10,784 Premises and equipment 3,238 3,264 Rental property, net 1,563 1,628 Other assets 9,649 10,002 --------- -------- Total assets $ 417,910 389,894 ========= ======== LIABILITIES & STOCKHOLDERS' EQUITY ================================== Interest-bearing liabilities: Deposits: Demand $ 41,544 886 2.85% 34,958 853 3.25% Savings and money market 78,308 2,231 3.81% 80,042 2,967 4.94% Certificates of deposits less than $100,000 83,704 3,933 6.28% 77,294 3,756 6.47% Certificates of deposits and other time deposits of $100,000 or more 81,848 3,149 5.14% 79,357 3,373 5.66% ---------------------- -------------------- Total interest-bearing deposits 285,404 10,199 4.78% 271,651 10,949 5.37% Federal funds purchased and securities sold under agreements to repurchase 3,025 99 4.38% 4,813 205 5.67% Other borrowed funds 49,361 2,060 5.58% 44,047 1,837 5.56% ---------------------- -------------------- Total interest-bearing liabilities 337,790 12,358 4.89% 320,511 12,991 5.40% Noninterest-bearing deposits 41,233 37,541 Accrued expenses and other liabilities 5,445 2,982 Stockholders' equity 33,442 28,860 --------- -------- Total liabilities and stockholders' equity $ 417,910 389,894 ========= ======== Net interest income $ 10,448 9,456 ======== ======== Net yield on total interest-earning assets 3.51% 3.42% ===== ======
____________ (1) Loans on nonaccrual status have been included in the computation of average balances. (2) Yields on tax-exempt securities have been computed on a tax-equivalent basis using an income tax rate of 34%. 16 AUBURN NATIONAL BANCORPORATION, INC. Item 6(a) EXHIBIT INDEX Exhibit Number Description - ------ ----------- 3.A Certificate of Incorporation of Auburn National Bancorporation, Inc. * 3.B Bylaws of Auburn National Bancorporation, Inc. * 10.A Auburn National Bancorporation, Inc. 1994 Long-term Incentive Plan. * 10.B Lease and Equipment Purchase Agreement, Dated September 15, 1987. * * Incorporated by reference from Registrant's Registration Statement on Form SB-2. (b) Reports filed on Form 8-K for the quarter ended September 30, 2001: none 17 SIGNATURES In accordance with 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. AUBURN NATIONAL BANCORPORATION, INC. (Registrant) Date: November 13, 2001 By: /s/ E. L. Spencer, Jr. --------------------------- ------------------------------------- E. L. Spencer, Jr. President, Chief Executive Officer and Director Date: November 13, 2001 By: /s/ C. Wayne Alderman --------------------------- ------------------------------------- C. Wayne Alderman Director of Financial Operations 18 -----END PRIVACY-ENHANCED MESSAGE-----