UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ 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
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 000-50362
RAINIER PACIFIC FINANCIAL GROUP, INC.
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(Exact name of registrant as specified in its charter)
Washington 87-0700148
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3700 Pacific Highway East, Suite 200, Fife, Washington 98424
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(Address of principal executive offices and zip code)
(253) 926-4000
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
(1) Yes . No X .*
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(2) Yes . No X .*
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Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes . No X .*
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APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Title of class: As of June 30, 2003
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Common stock, no par value No shares*
* The registrant's Registration Statement on Form S-1 was declared effective
on August 12, 2003. The registrant has conducted no business except the
offering of shares in connection with its subsidiary financial
institution's, Rainier Pacific Savings Bank, conversion from mutual to
stock form. As of September 26, 2003, the registrant had no outstanding
shares of common stock.
RAINIER PACIFIC FINANCIAL GROUP, INC.
Table of Contents
PART 1 - FINANCIAL INFORMATION Page
ITEM 1 - Financial Statements.
Rainier Pacific Financial Group, Inc. (the "Company") was formed to
serve as the stock holding company for Rainier Pacific Savings Bank
(the "Bank") pursuant to the Bank's mutual-to-stock conversion. As
of the date hereof, the Bank has not completed its conversion, and
accordingly, the Company has not yet issued any stock, has no
assets or liabilities, and has not conducted any business other
than that of an organizational nature. For a further discussion of
the Company's formation and operations, see the Company's
Registration Statement on Form S-1, as amended, initially filed on
June 20, 2003 and declared effective on August 12, 2003. Based
upon the foregoing, the Unaudited Interim Consolidated Financial
Statements (File Number 333-106349) filed as a part of this
quarterly report are those of Rainier Pacific Savings Bank and its
wholly-owned subsidiary, Support Systems, Inc., as follows:
Consolidated Statements of Financial Condition as
of June 30, 2003 and December 31, 2002 ................... 1
Consolidated Statements of Income
for the three- and six-month periods ended June 30,
2003 and 2002 ............................................ 2
Consolidated Statements of Cash Flows
for the six-month period ended June 30, 2003 and 2002 .... 3
Selected Notes to Unaudited Interim Consolidated
Financial Statements ..................................... 5
ITEM 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations:
Forward-Looking Statements ................................. 7
Comparison of Financial Condition at June 30, 2003 and
December 31, 2002 ........................................ 7
Comparison of Operating Results
For the three-month periods ended June 30, 2003
and 2002 ................................................ 8
Comparison of Operating Results
For the six-month periods ended June 30, 2003 and 2002 ... 10
Liquidity and Capital Resources ............................ 11
ITEM 3 - Quantitative and Qualitative Disclosures about
Market Risk ............................................... 12
ITEM 4 - Controls and Procedures .................................... 13
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings .......................................... 13
ITEM 2 - Changes in Securities and Use of Proceeds .................. 13
ITEM 3 - Defaults upon Senior Securities ............................ 13
ITEM 4 - Submission of Matters to a Vote of Security Holders ........ 13
ITEM 5 - Other Information .......................................... 13
ITEM 6 - Exhibits and Reports on Form 8-K ........................... 13
SIGNATURES ............................................................ 14
RAINIER PACIFIC SAVINGS BANK AND SUBSIDIARY
Consolidated Statements of Financial Condition
(Unaudited)
Dollars In Thousands
June 30, December 31,
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2003 2002
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ASSETS
ASSETS:
Cash and cash equivalents $ 39,978 $ 8,564
Interest bearing deposits with banks 78,299 49
Securities available-for-sale 105,396 52,502
Securities held-to-maturity (fair value at
June 30, 2003: $56,212; 54,831 49,495
at December 31, 2002: $51,219)
Federal Home Loan Bank stock 8,657 8,006
Loans 409,961 366,420
Less allowance for loan losses (6,856) (6,084)
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Loans, net 403,105 360,336
Premises and equipment, net 13,412 13,221
Accrued interest receivable 3,214 2,647
Other assets 6,445 4,637
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TOTAL ASSETS $ 713,337 $ 499,457
========= =========
LIABILITIES AND EQUITY
LIABILITIES
Deposits
Non-interest bearing $ 44,522 $ 24,700
Interest bearing 448,888 264,760
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TOTAL DEPOSITS 493,410 289,460
Borrowed funds 167,000 156,793
Corporate drafts payable 3,172 2,837
Deferred gain on sale and leaseback transaction 1,119 1,219
Accrued compensation and benefits 2,073 3,133
Other liabilities 3,070 3,803
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TOTAL LIABILITIES 669,844 457,245
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EQUITY
Accumulated other comprehensive income,
net of tax 893 828
Retained earnings 42,600 41,384
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TOTAL EQUITY 43,493 42,212
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TOTAL LIABILITIES AND EQUITY $ 713,337 $ 499,457
========= =========
The accompanying notes are an integral part of these financial statements.
1
RAINIER PACIFIC SAVINGS BANK AND SUBSIDIARY
Consolidated Statements of Income
(Unaudited)
Dollars In Thousands, Except Earnings Per Share
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
2003 2002 2003 2002
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INTEREST INCOME
Loans $ 7,433 $ 7,016 $ 14,691 $ 13,742
Securities available-for-sale 832 837 1,588 1,706
Securities held-to-maturity 634 747 1,228 1,463
Interest bearing deposits 10 2 11 10
Federal Home Loan Bank stock
dividends 111 102 245 194
------ ------- -------- --------
Total interest income 9,020 8,704 17,763 17,115
------ ------- -------- --------
INTEREST EXPENSE
Deposits 1,088 1,616 2,234 3,522
Borrowed funds 1,719 1,482 3,382 2,815
------ ------- -------- --------
Total interest expense 2,807 3,098 5,616 6,337
------ ------- -------- --------
Net interest income 6,213 5,606 12,147 10,778
PROVISION FOR LOAN LOSSES 1,050 825 2,100 1,500
------ ------- -------- --------
Net interest income after
provision for loan losses 5,163 4,781 10,047 9,278
------ ------- -------- --------
NON-INTEREST INCOME
Deposit service fees 888 885 1,751 1,733
Loan service fees 253 274 489 478
Insurance service fees 144 146 315 317
Investment service fees 182 229 313 367
Gain (loss) on sales of
securities, net 1 11 (1) 146
Gain on sale of loans, net 407 105 882 158
Gain on sale of premise and
equipment, net 50 44 92 92
Other operating income 19 8 33 14
------ ------- -------- --------
Total non-interest income 1,944 1,702 3,874 3,305
------ ------- -------- --------
NON-INTEREST EXPENSE
Compensation and benefits 3,259 2,725 6,317 5,271
Office operations 817 719 1,609 1,371
Occupancy, net 292 281 564 543
Loan servicing 63 65 122 115
Outside and professional
services 1,281 520 1,941 953
Marketing 181 204 586 426
Other operating expenses 559 380 958 792
------ ------- -------- --------
Total non-interest expense 6,452 4,894 12,097 9,471
------ ------- -------- --------
INCOME BEFORE INCOME TAX 655 1,589 1,824 3,112
INCOME TAX EXPENSE 225 544 609 1,063
------ ------- -------- --------
NET INCOME $ 430 $ 1,045 $ 1,215 $ 2,049
====== ======= ======== ========
EARNINGS PER SHARE
Basic n/a n/a n/a n/a
Diluted n/a n/a n/a n/a
The accompanying notes are an integral part of these financial statements.
2
RAINIER PACIFIC SAVINGS BANK AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
Dollars In Thousands
Six Months Ended
June 30
--------------------
2003 2002
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,215 $ 2,049
Adjustments to reconcile net income to net cash
from operating activities
Depreciation 736 591
Provisions for loan losses 2,100 1,500
Federal Home Loan Bank stock dividends (245) (194)
Deferred income tax expense (credit) - (86)
(Gain) loss on sale of securities, net 1 (146)
Gain on sale of premises and equipment (92) (92)
Gain on sales of loans, net (882) (158)
Change in operating assets and liabilities:
Accrued interest receivable (567) 100
Other assets (1,808) (1,426)
Corporate drafts payable 335 486
Other liabilities and deferred credits (1,793) (1,035)
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Net cash from operating activities (1,000) 1,589
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CASH FLOWS FROM INVESTING ACTIVITIES
Activity in securities available-for-sale:
Sales, maturities, prepayments, and calls 19,531 48,618
Purchases (72,357) (46,091)
Activity in securities held-to-maturity:
Maturities, prepayments, and calls 13,086 2,831
Purchases (18,390) -
Purchases of Federal Home Loan Bank stock (406) (1,403)
Increase in loans, net (68,750) (61,190)
Proceeds from sales of loans 24,763 28,368
Purchases of premises and equipment (970) (1,139)
Increase (decrease) in interest bearing
deposits with banks (78,250) (191)
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Net cash from investing activities (181,743) (30,197)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits 203,950 (11,823)
Net increase in borrowed funds 10,207 41,208
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Net cash from financing activities 214,157 29,385
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NET CHANGE IN CASH AND CASH EQUIVALENTS 31,414 777
CASH AND CASH EQUIVALENTS, beginning of year 8,564 7,085
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CASH AND CASH EQUIVALENTS, at end of period $ 39,978 $ 7,862
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The accompanying notes are an integral part of these financial statements.
3
RAINIER PACIFIC SAVINGS BANK AND SUBSIDIARY
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
Dollars In Thousands
Six Months Ended
June 30,
--------------------
2003 2002
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash payments for:
Interest $ 5,648 $ 6,275
======= =======
Income taxes $ 1,691 $ 1,345
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SUPPLEMENTAL DISCLOSURES OF NONCASH
INVESTING ACTIVITIES
Unrealized gains on securities
available for sale, net of tax $ 66 $ 188
======= =======
The accompanying notes are an integral part of these financial statements.
4
RAINIER PACIFIC SAVINGS BANK AND SUBSIDIARY
SELECTED NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2003
Note 1 - Basis of Presentation
The consolidated financial statements presented in this quarterly report
include the accounts of Rainier Pacific Savings Bank and its wholly-owned
subsidiary, Support Systems, Inc. The financial statements of Rainier
Pacific Savings Bank and Subsidiary (the "Bank") have been prepared in
conformity with accounting principles generally accepted in the United States
of America for interim financial information and predominant practices
followed by the financial services industry, and are unaudited. All
significant intercompany transactions and balances have been eliminated. In
the opinion of the Bank's management, all adjustments consisting of normal
recurring accruals necessary for a fair presentation of the financial
condition and results of operations for the interim periods included herein
have been made. The consolidated balance sheet of the Bank as of December 31,
2002 has been derived from the audited consolidated balance sheet of the Bank
as of that date.
Certain information and note disclosures normally included in the Bank's
annual financial statements have been condensed or omitted. Therefore, these
consolidated financial statements and notes thereto should be read in
conjunction with a reading of the financial statements and notes included in
the Registration Statement on Form S-1 filed by the Company with the
Securities and Exchange Commission (File Number 333-106349) , as amended,
initially filed on June 20, 2003, and declared effective on August 12, 2003
("Registration Statement"). Certain amounts in the 2002 financial statements
have been reclassified to conform to the 2003 presentation.
Note 2 - Summary of Significant Accounting Policies
The preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect amounts reported in
the consolidated financial statements. Changes in these estimates and
assumptions are considered reasonably possible and may have a material impact
on the consolidated financial statements and thus actual results could differ
from the amounts reported and disclosed herein. The Bank considers the
allowance for loan losses to be a critical accounting estimate.
Material estimates that are particularly susceptible to significant changes
relate to the determination of the allowance for loan losses, deferred income
taxes, and the valuation of real estate acquired in connection with
foreclosures or in satisfaction of loans. In connection with the determination
of the allowance for loan losses and the valuation of foreclosed assets
held-for-sale, management obtains independent appraisals for significant
properties. At June 30, 2003, there were no material changes in the Company's
significant accounting policies or critical accounting estimates from those
disclosed in the Company's Registration Statement.
Note 3 - Adoption of Plan of Conversion
On March 22, 2003, and amended on August 6, 2003, the Board of Directors of
the Bank approved a Plan of Conversion (the "Plan") which provides for the
conversion of the Bank from a Washington State chartered mutual savings bank
to a Washington State chartered stock savings bank pursuant to the rules and
regulations of the Washington State Department of Financial Institutions and
the Federal Deposit Insurance Corporation. As part of the conversion, the
Plan provides for the concurrent formation of Rainier Pacific Financial Group,
Inc. (the "Company") that will own 100% of the common stock of the Bank.
Following receipt of all required regulatory approvals, the approval of the
depositors of the Bank eligible to vote on the Plan and the satisfaction of
all other conditions precedent to the conversion, the Bank will consummate the
conversion.
Upon the consummation of the conversion, the legal existence of the Bank shall
not terminate but the stock bank shall be a continuation of the mutual bank.
The stock bank shall have, hold, and enjoy the same in its own right as fully
and to the same extent as the same was possessed, held, and enjoyed by the
mutual bank. The stock bank at the time and the taking effect of the
conversion shall continue to have and succeed to all the rights, obligations,
and relations of the mutual bank.
5
At the time of conversion, the Bank will establish a liquidation account in an
amount equal to its total net worth as of the latest statement of financial
condition appearing in the final prospectus. The liquidation account will be
maintained for the benefit of eligible depositors who continue to maintain
their accounts at the Bank after the conversion. The liquidation account will
be reduced annually to the extent that eligible depositors have reduced their
qualifying deposits. Subsequent increases will not restore an eligible account
holder's interest in the liquidation account. In the event of a complete
liquidation, each eligible depositor will be entitled to receive a
distribution from the liquidation account in an amount proportionate to the
current adjusted qualifying balances for accounts then held. The liquidation
account balance is not available for payment of dividends.
In connection with the Bank's commitment to its community, the plan of
conversion provides for the establishment of a charitable foundation as part
of the conversion. The Company intends to donate to the Foundation cash and a
number of authorized but unissued shares of common stock in an aggregate
amount up to 8% of the value of the shares of common stock sold in the
conversion. The Company will recognize an expense equal to the cash and fair
value of the stock in the quarter in which the contribution occurs, which is
expected to be the fourth quarter of 2003. This expense will reduce earnings
and could have a material impact on the Company's earnings for the fourth
quarter of 2003.
Conversion costs will be deferred and deducted from the proceeds of the shares
sold in the offering. If the conversion transaction is not completed, all
costs will be charged to expense. As of June 30, 2003, there was $183,000 in
conversion costs which had been deferred.
6
ITEM 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-Looking Statements
This report contains certain "forward-looking statements" that may be
identified by the use of words such as "believe," "expect," "anticipate,"
"should," "planned," "estimated," and "potential." Examples of
forward-looking statements include, but are not limited to, estimates with
respect to our financial condition, results of operations and business that
are subject to various factors which could cause actual results to differ
materially from these estimates, and most other statements that are not
historical in nature. These factors include, but are not limited to: general
and local economic conditions; changes in interest rates; deposit flows;
demand for mortgage, commercial, and other loans; real estate values;
competition; changes in accounting principles, policies or guidelines; changes
in legislation or regulation; and other economic, competitive, governmental
regulatory and technological factors affecting our operations, pricing
products and services.
Comparison of Financial Condition at June 30, 2003 and December 31, 2002
General. Deposits increased $203.9 million to $493.4 million at June 30,
2003 from $289.5 million at December 31, 2002. A significant amount of this
deposit growth was related to out of state depositor activity as a result of
Rainier Pacific Bank filing an application to convert from mutual to stock
form. Out of state depositors opened or added $184.5 million of deposits from
January 1, 2003 to June 30, 2003. In response to this growth in deposits and
growth in our underlying core business, assets increased $213.8 million, or
42.8%, to $713.3 million at June 30, 2003 from $499.5 million at December 31,
2002. Asset growth was comprised of $42.8 million in our net loan portfolio,
$58.2 million of investment securities (including mortgage-backed securities),
and cash and interest bearing deposits of $109.7 million. The increase in
total assets was funded by a $203.9 million increase in deposits and a $10.2
million increase in Federal Home Loan Bank of Seattle advances.
Assets. With interest rates remaining at historically low levels,
borrowers continue to refinance their real estate related loans to take
advantage of the low rate environment. Our net loan portfolio increased $42.8
million, or 11.9%, to $403.1 million at June 30, 2003 from $360.3 million at
December 31, 2002, primarily attributable to increases in the real estate loan
portfolio. The largest contributors were one- to four-family residential
loans which increased $21.7 million, or 24.7%, to $109.5 million from $87.8
million and the nonresidential commercial real estate loans which increased
$10.6 million, or 17.5%, to $70.7 million from $60.1 million. Multi-family
real estate loans also increased to $82.9 million from $75.1 million, and real
estate construction loans increased $6.7 million to $7.5 million from
$792,000. These increases in the portfolio were partially offset by a decline
in the consumer loan portfolio, including home equity loans, of $3.7 million
or 2.7%, to $137.7 million from $141.4 million at December 31, 2002.
Our investment securities portfolio (including mortgage-backed
securities) increased $58.2 million, or 57.1%, to $160.2 million at June 30,
2003 from $102.0 million at December 31, 2002. The increase is primarily
attributable to a $20.1 million increase in mortgage-backed securities to
$72.5 million from $52.4 million, an $18.1 million increase in corporate bonds
to $21.4 million from $3.3 million, and an increase in bank trust preferred
securities of $9.0 million to $19.0 million from $10.0 million. Rainier
Pacific Bank also purchased municipal obligations, and we had $11.5 million of
these securities as of June 30, 2003. U.S. Government agency securities
decreased $516,000, or 1.4%, to $35.8 million at June 30, 2003 from $36.4
million at December 31, 2002
Fixed assets did not increase substantially from December 31, 2002 to
June 30, 2003. However, work on our downtown Tacoma building project and our
technology initiative are progressing. As of June 30, 2003, the costs that
have been capitalized rather than expensed that are associated with the
building project and the technology initiative were $2.2 million and $5.0
million respectively, reflecting an increase of $400,000 for the building
project and $1.5 million for the technology initiative from December 31, 2002.
Deposits. Total deposits increased $203.9 million, or 70.5%, to $493.4
million at June 30, 2003 from $289.5 million at December 31, 2002. Rainier
Pacific Bank's deposit growth primarily resulted from increased deposits from
out of state depositors during June 2003. These deposits led to an increase
in interest-bearing deposits of $184.1 million to $448.9 million from $264.8
million, and in non-interest-bearing deposits of $19.8 million, to $44.5
million from $24.7 million at year end. Out of state deposits during the
month ended June 30, 2003 increased by $155.4 million. After the completion
of our proposed stock conversion, and consistent with the experience of other
mutual to stock conversions, we anticipate the withdrawal of almost all of
these out of state deposits.
7
In addition to segregating deposits between interest-bearing and
non-interest-bearing, we measure deposits in two other categories: core and
non-core. Core deposits are defined by us as savings, interest-bearing, and
non-interest-bearing checking, individual retirement accounts, and money
market accounts. Non-core deposits are defined as certificates of deposit.
We consider core deposits to be essential to maintaining a favorable cost of
funds and overall profitability. Core deposits increased $172.2 million, or
117.2%, to $319.1 million at June 30, 2003 from $146.9 million at December 31,
2002. Out of state deposits related to the proposed stock conversion
accounted for the growth in product types considered to be core deposits, and
we anticipate that almost all of the out of state deposits will be withdrawn
after the stock conversion is completed. We experienced increases in money
market deposits of $80.6 million, or 145.2%, savings deposits of $70.4
million, or 196.5%, and checking accounts of $21.0 million, or 45.4%.
Non-core deposits increased $31.8 million, or 22.3% to $174.3 million at June
30, 2003 from $142.5 million at December 31, 2002. We consider non-core
deposits to be an acceptable funding source, but we generally will not pursue
them if the overall cost is substantially higher than our borrowing costs from
the Federal Home Loan Bank of Seattle. As a result of this approach, our
balance of non-core deposits tends to fluctuate more than our balance of core
deposits.
Borrowed Funds. Federal Home Loan Bank of Seattle advances increased
$10.2 million to $167.0 million at June 30, 2003 from $156.8 million at
December 31, 2002. We used the borrowings for both short- and long-term
funding of loans and investment securities, and as part of our leverage and
interest rate risk management strategies. We borrow funds from the Federal
Home Loan Bank of Seattle to fund attractive loan and investment opportunities
thereby increasing interest-earning assets and enhancing our net interest
income.
Equity. Total equity increased $1.3 million, or 3.0%, to $43.5 million
at June 30, 2003 from $42.2 million at December 31, 2002. Our
equity-to-assets ratio under generally accepted accounting principles in the
United States of America was 6.10% at June 30, 2003 compared to 8.45% at
December 31, 2002. The decrease in our equity-to-assets ratio was a result of
the out of state depositor activity that significantly increased customer
deposits and concurrently total assets. Total equity for the six months ended
June 30, 2003 increased as a result of $1.2 million in net income combined
with a tax effected unrealized gain on investment securities of $66,000.
Comparison of Operating Results for the three months ended June 30, 2003 and
June 30, 2002.
General. Our net income decreased $615,000, or 58.9%, for the three
months ended June 30, 2003 to $430,000 from $1.0 million for the three months
ended June 30, 2002. Lower comparative net income in the three months ended
June 30, 2003 resulted from higher provision for loan losses and higher
non-interest expense.
Net Interest Income. Our net interest income increased $607,000, or
10.8%, for the three months ended June 30, 2003 to $6.2 million from $5.6
million for the three months ended June 30, 2002. The change in net interest
income resulted from an increase in interest income of $316,000, or 3.6%, and
a decrease in interest expense of $291,000, or 9.4%. For the three months
ended June 30, 2003, average interest-earning assets increased to $531.9
million from $458.6 million for the same period a year ago. Offsetting this
increase in average interest-earning assets was a 21 basis point decline in
our net yield on interest-earning assets to 4.69% for the second quarter of
2003 from 4.90% for the second quarter of 2002.
Interest Income. Interest income for the three months ended June 30,
2003 compared to the same period in 2002 increased $316,000, or 3.6%, to $9.0
million from $8.7 million. The increase was the result of a $73.3 million
increase in the average balance of our interest-earning assets as a result of
strong loan originations, partially offset by lower interest rates and
prepayments of higher rate loans in our portfolio. Interest earned on total
loans for the three months ended June 30, 2003 was $7.4 million compared to
$7.0 million for the three months ended June 30, 2002. The average yield on
total loans was 7.55% for the three months ended June 30, 2003 as compared to
8.30% for the three months ended June 30, 2002.
Interest income on investment securities (including mortgage-backed
securities) decreased $118,000, or 7.4%, for the three months ended June 30,
2003 to $1.5 million from $1.6 million for the three months ended June 30,
2002. The change was a result of a decrease in the average yield on
investments to 4.66% for the three months ended June 30, 2003 from 5.60% for
the three months ended June 30, 2002. The average balance of investment
securities was $125.9 million for the three months ended June 30, 2003 as
compared to $113.2 million for the three months ended June 30, 2002.
Interest Expense. Our interest expense decreased $291,000, or 9.4%, for
the three months ended June 30, 2003 to $2.8 million as compared to $3.1
million for the three months ended June 30, 2002. The change is primarily
attributable to the average cost of interest-bearing liabilities decreasing
from 3.03% in the second quarter of 2002 to
8
2.32% in the second quarter of 2003, or 71 basis points. The average balance
of interest-bearing deposits increased $27.8 million, or 10.0%, to $306.7
million for the three months ended June 30, 2003 from $278.9 million for the
three months ended June 30, 2002
Interest expense on Federal Home Loan Bank of Seattle advances increased
$237,000, or 16.0%, for the three months ended June 30, 2003 to $1.7 million
from $1.5 million for the three months ended June 30, 2002. The increase is
attributable to the larger average balance of the Federal Home Loan Bank of
Seattle advances of $176.5 million for the three months ended June 30, 2003
compared to $130.4 million for the three months ended June 30, 2002. Prior to
the growth in deposits experienced during the three months ended June 30,
2003, additional borrowings were used to fund our growth in loans and
investments.
Provision for Loan Losses. Our asset liability committee assesses the
allowance for loan losses on a quarterly basis. The Committee analyzes
several different factors, including delinquency, charge-off rates, and the
changing risk profile of our loan portfolio, as well as local economic
conditions including unemployment rates, bankruptcies and vacancy rates of
business and residential properties.
Our methodology for analyzing the allowance for loan losses consists of
three components: formula, specific, and general allowances. The formula
allowance is determined by applying an estimated loss percentage to various
groups of loans. The loss percentages are based on various historical
measures such as the amount and type of classified loans, past due ratios and
loss experience, which could affect the collectibility of the respective loan
types. The specific allowance component is created when management believes
that the collectibility of a specific large loan, such as a real estate,
multi-family or commercial real estate loan, has been impaired and a loss is
probable. The general allowance component is established to ensure the
adequacy of the allowance for loan losses in situations where the asset
liability committee believes that there are risk factors associated with the
collectibility of the portfolio that may not be adequately addressed in the
formula or specific allowance components. Information considered for the
general allowance component includes local economic and employment data. The
allowance for loan losses as a percent of total loans was 1.67% at June 30,
2003 as compared to 1.48% at June 30, 2002.
During the three months ended June 30, 2003, we adopted the practice of
immediately charging off all problem loans classified as loss in the month
that they are identified as such, rather than in the month following their
classification as loss. This change in practice did not have a material
effect on the amount of charge offs during the three months ended June 30,
2003.
Our provision for loan losses increased $225,000, or 27.3%, to $1.1
million for the three months ended June 30, 2003 compared to $825,000 for the
three months ended June 30, 2002. We increased the provision and allowance in
connection with the continued strong loan growth, the unseasoned nature of the
loan growth, high unemployment, and the relatively weak regional and local
economy. Washington State had the second highest unemployment rate in the
nation at 7.3% in May 2003. Unemployment in Pierce County, our primary
market, was 8.1% in June 2003. The asset liability committee decided to
increase the provision primarily as a result of continued weaknesses in the
regional economy, and strong growth in multi-family, commercial real estate,
and residential construction lending. A total of $96.4 million, or 59.9%, of
our loans in multi-family, commercial real estate and residential construction
lending were originated within the past eighteen months. We have not
experienced losses on these loans but anticipate that over time we will incur
losses if economic conditions deteriorate in our market area. Total net loans
increased $56.6 million to $403.1 million, or 16.3%, at June 30, 2003 from
$346.5 million at June 30, 2002.
Non-interest Income. Our non-interest income increased $242,000, or
14.2%, for the three months ended June 30, 2003 to $1.9 million from $1.7
million for the same period a year ago. The increase was primarily
attributable to gains on the sale of loans of $407,000 in the second quarter
of 2003 compared to $105,000 in the second quarter of 2002. We continue to
sell some of our single-family real estate mortgages to reduce interest rate
and early repayment risks.
Non-interest Expense. Our non-interest expense increased $1.6 million,
or 31.8%, for the three months ended June 30, 2003 to $6.5 million from $4.9
million for the three months ended June 30, 2002. The increase was primarily
the result of increased expenditures associated with our technology
initiative, for which the most significant systems conversions will be fully
implemented in late 2003 and early 2004. The increases were a result of
additional staffing, overtime costs, occupancy cost, and outside professional
services, and include $534,000 in compensation and benefits, $98,000 in office
operations, $761,000 in outside professional services and $179,000 in other
operating expenses.
9
Compensation and benefits increased $534,000, or 19.6%, for the three
months ended June 30, 2003 to $3.3 million compared to $2.7 million for the
three months ended June 30, 2002. Compensation and benefits costs represented
50.5% and 55.7% of total non-interest expense for the three months ended June
30, 2003 and 2002, respectively. In preparation for our information systems
conversion, we increased the number of permanent and temporary staff. As of
June 30, 2003, we employed 215 full-time equivalent employees as compared to
179 at June 30, 2002. Approximately twenty of our existing positions are
temporary. We anticipate that these positions will eventually be absorbed
within Rainier Pacific Bank through growth or gradual attrition upon
completion of our systems conversion. The remaining growth in new positions is
due to growth of the business.
Our office operations increased $98,000, or 13.6%, for the three months
ended June 30, 2003 compared to the three months ended June 30, 2002. This
increase was primarily attributable to increased costs related to data
processing maintenance and depreciation associated with the implementation of
initial components of our technology initiative in August 2002. The
technology initiative involves substantial information systems conversions to
replace our core processing system and related applications. Our existing
technology systems are in most cases fully depreciated, and we are no longer
incurring any material depreciation expenses associated with these systems.
Outside professional services increased $761,000, or 146.3%, for the
three months ended June 30, 2003 compared to the three months ended June 30,
2002. This was attributable to increased costs for system development project
management, testing, and training activities related to the technology
initiative.
Our other operating expenses increased $179,000, or 47.1%, for the three
months ended June 30, 2003 compared to the three months ended June 30, 2002.
This was primarily a result of the costs associated with converting customer
accounts from our former brokerage services provider to PrimeVest Financial
Services, Inc. beginning in January 2003, higher employee travel and
educational expenses, and an increase in recurring losses from check deposits
and overdrafts due to insufficient funds and bad checks.
Income Tax Expense. Our income tax expense decreased $319,000, or 58.6%,
for the three months ended June 30, 2003 to $225,000 from $544,000 for the
three months ended June 30, 2002. Income before tax was $655,000 at June 30,
2003 and $1.6 million at June 30, 2002 with effective tax rates of 34.4% and
34.2%, respectively.
Comparison of Operating Results for the six months ended June 30, 2003 and
June 30, 2002.
General. Our net income decreased $834,000, or 40.7%, to $1.2 million
for the six months ended June 30, 2003 from $2.0 million for the same period a
year ago. The decrease in net income resulted from increased non-interest
expense and the provision for loan losses, exceeding the increases in our net
interest income and total non-interest income.
Net Interest Income. Our net interest income increased $1.4 million, or
12.7%, to $12.1 million for the six months ended June 30, 2003 from $10.8
million for the six months ended June 30, 2002. The change in net interest
income resulted from increased interest income of $648,000, or 3.8%, and a
decrease in interest expense of $721,000, or 11.4%. Between these two
periods, our net interest rate margin remained nearly the same, at 4.77% for
the six months ended June 30, 2003 compared with 4.81% for the same period a
year ago. Offsetting this slight decline was increased balances of
interest-earning assets and lower interest expense primarily as a result of
our lower cost of funds.
Interest Income. Our interest income increased $648,000, or 3.8%, to
$17.8 million for the six months ended June 30, 2003 from $17.1 million for
the same period a year ago. The increase was primarily attributable to a
higher average of interest-earning assets of $513.8 million at June 30, 2003
from $452.2 million at June 30, 2002. Interest earned on total loans for the
six months ended June 30, 2003 and 2002 was $14.7 million and $13.7 million,
respectively. The average yield on total loans was 7.65% for the six months
ended June 30, 2003 compared to 8.32% for the same period in 2002, reflecting
lower market rates of interest in 2003.
Interest income on investment securities (including mortgage-backed
securities) decreased $353,000, or 11.1%, to $2.8 million for the six months
ended June 30, 2003 from $3.2 million he same period in 2002. The average
yield on investments declined to 4.74% for the six months ended June 30, 2003
compared to 5.60% for the same period a year ago. The average balances of
investment securities for the six months ended June 30, 2003 and 2002 were
$118.8 million and $113.3 million, respectively.
10
Interest Expense. Our interest expense decreased $721,000, or 11.4%, to
$5.6 million for the six months ended June 30, 2003 from $6.3 million for the
six months ended June 30, 2002. This decrease is primarily attributable to
lower interest rates on deposit accounts. Rates on interest-bearing
liabilities decreased to 2.42%, or 73 basis points, for the six months ended
June 30, 2003 from 3.15% for the same period a year ago, reflecting the
general decline of interest rates from June 30, 2002. Average
interest-bearing deposits increased $8.3 million, to $289.4 million for the
six months ended June 30, 2003 from $281.1 million for the same period a year
ago. Our core deposits were the largest contributors to the increase and were
partially offset by a decrease in non-core certificates of deposit.
Interest expense on borrowed funds increased $567,000, or 20.1%, to $3.4
million for the six months ended June 30, 2003 from $2.8 million for the six
months ended June 30, 2002. This increased interest expense was primarily the
result of higher average balances of Federal Home Loan Bank of Seattle
advances, which were $173.8 million and $121.2 million for the six months
ended June 30, 2003 and 2002, respectively.
Provision for Loan Losses. Our provision for loan losses increased
$600,000, or 40.0%, to $2.1 million for the six months ended June 30, 2003
from $1.5 million for the same period a year ago. The increase in the
provision was primarily a result of strong loan growth, weak economic
conditions, high unemployment, an unseasoned loan portfolio, and an increase
in consumer loan charge-offs. Net charge-offs increased $280,000 to $1.3
million for the six months ended June 30, 2003 from $1.0 million for the same
period a year ago. The allowance for loan losses as a percent of total loans
increased to 1.67% at June 30, 2003 from 1.48% at June 30, 2002. At June 30,
2003, the allowance for loan losses totaled $6.9 million as compared to $5.2
million at June 30, 2002. For additional information on how we calculate our
provision for loan losses, please see "Provision for Loan Losses" in the
comparison of operating results for the three months ended June 30, 2003 and
June 30, 2002.
Non-interest Income. Our non-interest income increased $569,000, or
17.2%, to $3.9 million for the six months ended June 30, 2003 from $3.3
million for the six months ended June 30, 2002. The increase is primarily a
result of an increase in gains on the sale of loans of $724,000, partially
offset by $54,000 in lower investment service fees from our subsidiary company
operations, and a $147,000 decrease in gains on the sale of investments.
Non-interest Expense. Non-interest expense increased $2.6 million, or
27.7%, to $12.1 million for the six months ended June 30, 2003 from $9.5
million for the six months ended June 30, 2002. These increases are a result
of investing in our technology initiative, which includes a new core
processing system. Increases in expenses for the six months ended June 30,
2003 compared to the same period last year include $1.0 million in
compensation and benefits, $238,000 in office operations, $988,000 of outside
professional services, $160,000 in marketing, and $166,000 in other operating
expenses.
Our compensation and benefits represented 52.2% and 55.7% of total
non-interest expense for the six months ended June 30, 2003 and 2002. Total
compensation and benefits increased $1.0 million, or 19.8%, to $6.3 million
for the six months ended June 30, 2003 from $5.3 million for the same period
in 2002 primarily as the result of additional staff associated with the
technology initiative.
Office operations increased $238,000, or 17.4%, to $1.6 million, for the
six months ended June 30, 2003 from $1.4 million for the same period a year
ago. This was primarily a result of costs related to our technology
initiative including data processing maintenance.
Outside professional services increased $988,000, or 103.7%, for the six
months ended June 30, 2003 from $953,000 for the six months ended June 30,
2002. This was also attributable to professional services and consulting
costs related to our technology initiative, as well as higher occupancy costs.
Income Tax Expense. Our income tax expense decreased $454,000, or 42.7%,
to $609,000 for the six months ended June 30, 2003 compared to $1.1 million
for the same period a year ago. Income before income tax was $1.8 million for
the first six months of 2003 and $3.1 million for the six months ended June
30, 2002 with effective tax rates of 33.4% and 34.2%, respectively.
Liquidity and Capital Resources
Liquidity. We actively analyze and manage the Banks liquidity with the
objectives of maintaining an adequate level of liquidity and to ensure the
availability of sufficient cash flows to support loan growth, fund deposit
withdrawals, fund operations and satisfy other financial commitments. See
"Consolidated Statements of Cash Flows" contained in the Consolidated
Financial Statements included in this document.
11
Our primary sources of funds are from customer deposits, loan repayments,
loan sales, maturing investment securities and borrowed funds from the Federal
Home Loan Bank of Seattle. These sources of funds, together with retained
earnings and equity, are used to make loans, acquire investment securities and
other assets, and fund continuing operations. While maturities and the
scheduled amortization of loans are a predictable source of funds, deposit
flows and mortgage prepayments are greatly influenced by the level of interest
rates, economic conditions and competition. We believe that our current
liquidity position and our forecasted operating results are sufficient to fund
all of our existing commitments.
At June 30, 2003 we maintained a line of credit with the Federal Home
Loan Bank of Seattle equal to 45% of total assets, with an unused portion of
the line of credit amounting to 21.6% of total assets. This line of credit is
dependent on us having sufficient collateral to pledge to the Federal Home
Loan Bank of Seattle. At June 30, 2003, we were in compliance with our
collateral requirements, and 48.0% of our line of credit with the Federal Home
Loan Bank of Seattle was available. In addition, we held interest-bearing
deposits, available-for-sale investments, and readily saleable loans available
for liquidity purposes.
At June 30, 2003, certificates of deposits amounted to $174.3 million, or
35.3% of total deposits, including $173.4 million which are scheduled to
mature by June 30, 2004. Historically, we have been able to retain a
significant amount of our deposits as they mature. At times, we have also
elected to borrow from the Federal Home Loan Bank of Seattle and price
certificates of deposit at below market rates to let these non-core deposits
decline in order to manage the overall cost of the deposit portfolio. Once
the repricing objective has been met, we return our deposit pricing to market
rates and recover the lost deposit volume. Management believes that we have
adequate resources to fund all loan commitments through deposits, borrowings
from the Federal Home Loan Bank of Seattle, and the sale of mortgage loans or
investments. Management also believes that we can adjust the offering rates
of savings certificates to retain or decrease deposits in changing interest
rate environments.
Capital. Consistent with our objective to operate a sound and profitable
financial institution, we have maintained and will continue to focus on
maintaining a "well capitalized" rating from regulatory authorities. In
addition, we are subject to certain capital requirements set by our regulatory
agencies. As of June 30, 2003, we were classified as a "well capitalized"
institution under the criteria established by the Federal Deposit Insurance
Corporation and exceeded all capital requirements. Total equity was $43.5
million June 30, 2003, or 6.10% of total assets on that date. Our regulatory
capital ratios at June 30, 2003, were as follows: Tier I leverage of 7.62%;
Tier I risk-based capital of 9.94%; and total risk-based capital of 11.20%.
ITEM 3 - Quantitative and Qualitative Disclosures about Market Risk
One of our primary financial objectives is to generate ongoing
profitability. The Bank's profitability depends primarily on its net interest
income, which is the difference between the income it receives on its loan and
investment portfolio and its cost of funds, which consists of interest paid on
deposits and borrowings. Net interest income is further affected by the
relative amount of interest-earning assets and interest-bearing liabilities.
When interest-earning assets increase, any positive interest rate spread will
increase net interest income. Net income is further affected by gains and
losses on loans held-for-sale and is also affected by the level of
non-interest income and expenses. Non-interest income includes items such as
service charges and fees on deposit account, loan service fees and gains on
sale of investments and loans.
The Bank continues to be exposed to interest rate risk and continues to
actively manage the impact of interest rate changes on net interest income and
capital. Management employs various strategies to manage our interest rate
sensitivity including: (1) selling long-term fixed-rate mortgage loans; (2)
borrowing intermediate- to long-term funds at fixed rates; (3) originating
consumer and income property loans with shorter maturities or at variable
rates; (4) purchasing securities with shorter maturities; (5) appropriately
modifying loan and deposit pricing to capitalize on the then current market
opportunities; and (6) increasing core deposits, such as savings, checking and
money-market accounts, in order to reduce our reliance on the traditionally
higher cost, more rate sensitive certificates of deposit. At June 30, 2003,
there were no material changes in the Bank's market risk from the information
provided in the Company's Registration Statement.
At June 30, 2003, the Bank had no off-balance sheet derivative financial
instruments, and the Bank did not maintain a trading account for any class of
financial instruments nor engage in hedging activities or purchase high risk
derivative instruments. Furthermore, the Bank is not subject to foreign
currency exchange rate risk or commodity price risk.
12
ITEM 4 - Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures.
An evaluation of the Company's disclosure controls and procedures (as
defined in Section 13(a)-14(c) of the Securities Exchange Act of 1934 (the
"Act")) was carried out under the supervision and with the participation of
the Company's Chief Executive Officer, Chief Financial Officer, and other
members of the Company's management team as of the end of the period covered
by this quarterly report. The Company's Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure controls and
procedures as currently in effect are effective in ensuring that the
information required to be disclosed by the Company in the reports it files or
submits under the Act is (i) accumulated and communicated to the Company's
management (including the Chief Executive Officer and Chief Financial Officer)
in a timely manner, and (ii) recorded, processed, summarized, and reported
within the time periods specified in the SEC's rules and forms.
(b) Changes in Internal Controls.
In the quarter ended June 30, 2003, the Company did not make any
significant changes in, nor take any corrective actions regarding its internal
controls or other factors, that could significantly affect these controls.
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings
From time to time, the Corporation or its subsidiaries are engaged in legal
proceedings in the ordinary course of business, none of which are currently
considered to have a material impact on the Corporation's financial position
or results of operations.
Item 2. Changes in Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits :
3.1 Articles of Incorporation of Rainier Pacific Financial Group,
Inc. (1)
3.2 Bylaws of Rainier Pacific Financial Group, Inc. (1)
31.1 Certification of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act.
31.2 Certification of Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act.
32 Certification of Chief Executive Officer and Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act.
--------------
(1) Filed as an exhibit to the Registrant's Registration Statement on
Form S-1 (Registration No. 333-106349), and incorporated herein
by reference.
(b) Reports on Form 8-K:
Not applicable.
13
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.
Rainier Pacific Financial Group, Inc.
September 25, 2003 /s/ John A. Hall
----------------------------------
John A. Hall
President and Chief Executive Officer
(Principal Executive Officer)
September 25, 2003 /s/ Joel G. Edwards
-----------------------------------
Joel G. Edwards
Chief Financial Officer
(Principal Financial and Accounting Officer)
14
EXHIBIT 31.1
Certification of Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, John A. Hall, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Rainier Pacific
Financial Group, Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
(a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information
relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this
report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the
registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect
the registrant's ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: September 25, 2003 /s/ John A. Hall
-----------------------------------
John A. Hall
President and Chief Executive Officer
EXHIBIT 31.2
Certification of Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, Joel G. Edwards, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Rainier Pacific
Financial Group, Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
(a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information
relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this
report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the
registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect
the registrant's ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: September 25, 2003 /s/ Joel G. Edwards
-----------------------------------
Joel G. Edwards
Chief Financial Officer
EXHIBIT 32
Certification of Chief Executive Officer and Chief Financial Officer
of Rainier Pacific Financial Group, Inc.
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
The undersigned hereby certify, pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 and in connection with this Quarterly Report on Form 10-Q, that:
1. the Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934, as amended; and
2. the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
/s/ John A. Hall /s/ Joel G. Edwards
- -------------------------- ------------------------------
John A. Hall Joel G. Edwards
President and Chief Executive Officer Chief Financial Officer
Dated: September 25, 2003