U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
[ ] TRANSITION REPORT PURSUANT 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 33-94050
VOLUNTEER BANCORP, INC.
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(Exact name of small business issuer as specified in its charter)
Tennessee 62-1271025
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(State of other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
210 East Main Street, Rogersville, Tennessee 37879
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(Address of principal executive offices)
(423) 272-2200
(Issuer's telephone number)
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(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 12, 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.Yes X No
-- --
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 539,027 as of May 9, 2003.
Transitional Small Business Disclosure Format (check one); Yes No X
-- --
VOLUNTEER BANCORP, INC.
INDEX
Page No.
Item 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets March
31, 2003 and 2002 (Unaudited) 3
Condensed Consolidated Statements of Earnings
For The Three Months Ended March 31, 2003
and 2002 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows
For The Three Months Ended March 31, 2003 and
2002 (Unaudited) 5
Condensed Consolidated Statements of Comprehensive
Income For the Three Months Ended March 31, 2003
and 2002 (Unaudited) 6
Notes to Unaudited Condensed Consolidated Financial
Statements Three Months Ended March 31, 2003 and 2002 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
Item 3. Controls and Procedures 20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 2. Changes in Securities 20
Item 3. Defaults upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Securities Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 21
CERTIFICATIONS 22
1
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
INDEPENDENT AUDITOR'S REVIEW REPORT
To the Board of Directors
Volunteer Bancorp, Inc.
Rogersville, Tennessee
We have reviewed the accompanying condensed consolidated balance sheets of
Volunteer Bancorp, Inc. and subsidiary as of March 31, 2003 and 2002, and the
related condensed consolidated statements of earnings, condensed consolidated
statements of cash flows, and condensed consolidated statements of comprehensive
income for the three months then ended, in accordance with Statements on
Standards for Accounting and Review Services issued by the American Institute of
Certified Public Accountants. All information included in these condensed
consolidated financial statements is the representation of the management of
Volunteer Bancorp, Inc.
A review of interim financial statements consists primarily of inquiries of
company personnel and analytical procedures applied to financial data. It is
substantially less in scope than an audit in accordance with generally accepted
accounting standards, the objective of which is the expression of an opinion
regarding the condensed consolidated financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements in order
for them to be in conformity with generally accepted accounting principles.
/s/ Welch & Associates, Ltd.
Welch & Associates, Ltd.
Nashville, Tennessee
April 17, 2003
2
VOLUNTEER BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Balance Sheets
March 31, 2003 and 2002
(Unaudited- See Accountants' Review Report)
- --------------------------------------------------------------------------------
ASSETS 2003 2002
------ ----------- -----------
Cash and due from banks $ 3,971,679 $ 2,932,724
Federal fund sold 4,325,000 5,850,000
-------------------- --------------------
Total cash and cash equivalents 8,296,679 8,782,724
Investment securities available for sale (amortized cost of
$27,322,624 and $28,038,407, respectively) 27,717,705 27,737,118
Investment securities held to maturity (estimated market
value of $954,833 and $617,255) 941,428 622,683
Loans, less allowances for loan losses of $1,088,528 and
$915,601, respectively 68,756,048 69,732,825
Accrued interest receivable 831,477 890,562
Premises and equipment, net 3,761,385 3,815,994
Deferred income taxes 79,047 223,518
Other real estate 1,156,485 1,177,589
Cash value of life insurance 2,009,159 -
Goodwill 131,259 131,259
Other assets 223,620 280,714
-------------------- --------------------
Total assets $ 113,904,292 $ 113,394,986
==================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Deposits:
Non-interest bearing $ 13,381,870 $ 12,023,699
Interest bearing 89,676,886 91,517,672
-------------------- --------------------
Total deposits 103,058,756 103,541,371
Note payable (note 3) 1,415,000 1,810,000
Interest payable 383,830 574,066
Securities sold under repurchase agreements 1,990,690 1,210,822
Other accrued taxes, expenses and liabilities 170,452 200,164
-------------------- --------------------
Total liabilities 107,018,728 107,336,423
-------------------- --------------------
Stockholders' equity:
Common stock, $0.01 par value, 1,000,000 shares
authorized, 539,027 shares issued and outstanding 5,390 5,390
Additional paid-in capital 1,916,500 1,916,500
Retained earnings 4,718,724 4,323,472
Accumulated other comprehensive income 244,950 (186,799)
-------------------- --------------------
Total stockholders' equity 6,885,564 6,058,563
-------------------- --------------------
Total liabilities and stockholders' equity $ 113,904,292 $ 113,394,986
==================== ====================
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
VOLUNTEER BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Earnings
For The Three Months Ended March 31, 2003 and 2002
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(Unaudited - See Accountants' Review Report)
2003 2002
---------- ----------
Interest Income:
Interest and fees on loans $ 1,241,197 $ 1,485,562
Interest on federal funds 11,659 22,102
Interest on investment securities:
Taxable 232,550 278,311
Exempt from Federal income taxes 71,585 43,537
-------------------- --------------------
Total interest income 1,556,991 1,829,512
-------------------- --------------------
Interest Expense:
Interest on deposits 444,243 690,024
Other borrowed funds 25,779 31,594
-------------------- --------------------
Total interest expense 470,022 721,618
-------------------- --------------------
Net interest income 1,086,969 1,107,894
Provision for possible loan losses 100,000 90,000
-------------------- --------------------
Net interest income after provision for possible loan losses 986,969 1,017,894
-------------------- --------------------
Non-interest income:
Service charges on deposits 107,447 38,985
Other service charges and fees 2,703 7,476
Securities gains 106,466 34,242
Other non-interest income 36,368 24,775
-------------------- --------------------
Total non-interest income 252,984 105,478
-------------------- --------------------
Non-interest expense:
Salaries and employee benefits 504,624 439,087
Occupancy expense 70,597 69,963
Furniture and equipment expense 96,626 101,854
Other non-interest expense 341,495 283,271
-------------------- --------------------
Total non-interest expense 1,013,342 894,175
-------------------- --------------------
Income before income taxes 226,611 229,197
Income tax expense 65,079 76,340
-------------------- --------------------
Net income $ 161,532 $ 152,857
==================== ====================
Income per common share $ 0.30 $ 0.28
==================== ====================
Common shares outstanding 539,027 539,027
==================== ====================
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
VOLUNTEER BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows
For The Three Months Ended March 31, 2003 and 2002
(Unaudited - See Accountants' Review Report)
- --------------------------------------------------------------------------------
2003 2002
---------- ----------
Cash Flows from Operating Activities:
Net income $ 161,532 $ 152,857
Adjustments to reconcile net income
to net cash provided by operating activities:
Deferred income taxes 23,463 (3,127)
Provision for possible loan losses 100,000 90,000
Provision for depreciation 48,563 54,679
FHLB stock dividends (3,600) (3,900)
(Gain) on securities (106,466) (34,242)
Decrease in interest receivable 104,139 175,917
Decrease (increase) other assets 103,008 (44,711)
Increase (decrease) in other liabilities 73,050 (152,583)
--------------------- ---------------------
Net cash provided (used) by operating activities 503,689 234,890
--------------------- ---------------------
Cash Flows from Investing Activities:
Purchase life insurance policies (2,000,000) -
Proceeds from calls and maturity of held to maturity securities 111,563 4,176
Purchase of investment securities available for sale (10,232,562) (5,969,841)
Proceeds from calls and maturity of investments available for
sale 4,308,838 1,000,000
Proceeds from sale of investments available for sale 5,904,082 2,960,272
Net (increase) decrease in loans (1,841,066) 2,335,331
Capital expenditures (21,277) (4,315)
--------------------- ---------------------
Net cash provided (used) in investing activities (3,770,422) 325,623
--------------------- ---------------------
Cash Flows from Financing Activities:
Net increase in demand deposits, NOW accounts, IRA and
savings accounts 3,636,886 3,557,616
Net (decrease) in certificates of deposit (535,887) (3,925,900)
Repayment of note payable (395,000) (360,000)
Net (decrease) increase in securities sold under repurchase
agreements (298,094) 101,219
Dividends paid - (53,903)
--------------------- ---------------------
Net cash (used) provided by financing activities 2,407,905 (680,968)
--------------------- ---------------------
(Decrease) in cash and cash equivalents (858,828) (120,455)
Cash and cash equivalents beginning of period 9,155,507 8,903,179
--------------------- ---------------------
Cash and cash equivalents end of period $ 8,296,679 $ 8,782,724
===================== =====================
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $ 497,514 $ 1,041,899
===================== =====================
Income taxes $ 21,454 $ 31,776
===================== =====================
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
VOLUNTEER BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Comprehensive Income
For The Three Months Ended March 31, 2003 and 2002
(Unaudited - See Accountants' Review Report)
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2003 2002
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Net income $ 161,532 $ 152,857
-------------------- -------------------
Other comprehensive income (loss), before tax:
Unrealized (loss) on securities available for sale:
Unrealized holding (losses) arising during the period (71,292) (311,757)
Less: reclassification adjustment for (gains)
included in net income (106,466) (34,242)
-------------------- -------------------
Other comprehensive (loss) income (177,758) (345,999)
Income taxes related to other comprehensive (loss) income (67,548) (105,456)
-------------------- -------------------
Other comprehensive (loss), net of tax (110,210) (240,543)
-------------------- -------------------
Total comprehensive (loss) income $ 51,322 $ (87,686)
==================== ===================
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
VOLUNTEER BANCORP, INC. AND SUBSIDIARY
Notes to Unaudited Condensed Consolidated Financial Statements
Three Months Ended March, 2003 and 2002
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1. Management Opinion
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements of Volunteer Bancorp, Inc. (the
"Company") contain all adjustments, consisting of only normal, recurring
adjustments, necessary to fairly present the financial results for the
interim periods presented. The results of operations for any interim period
is not necessarily indicative of the results to be expected for an entire
year. These interim financial statements should be read in conjunction with
the annual financial statements and notes thereto.
2. Adoption of Recently Issued Statements of Financial Accounting Standards
(SFAS)
SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishment of Liabilities", is effective for transfers and
servicing of financial assets and extinguishment of liabilities occurring
after March 31, 2001. This Statement is effective for recognition and
reclassification of collateral and for disclosures relating to
securitization transactions and collateral for fiscal years ending after
December 15, 2000. This statement replaces SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguisments of
Liabilities". It revises the standards for accounting for securitizations
and other transfers of financial assets and collateral and requires certain
disclosures, but it carries over most of SFAS No. 125's provisions without
reconsideration. This Statement provides accounting and reporting standards
for transfers and servicing of financial assets and extinguishment of
liabilities. Those standards are based on consistent application of a
financial-components approach that focuses on control. Under the approach,
after a transfer of financial assets, an entity recognizes the financial
and servicing assets it controls and the liabilities it has incurred,
derecognizes financial assets when control has been surrendered, and
derecognizes liabilities when extinguished. This Statement provides
consistent standards for distinguishing transfers of financial assets that
are sales from transfers that are secured borrowings. The adoption of the
provisions of this Statement did not have any material impact upon the
financial position or results of operation of the Company.
SFAS No. 142, "Goodwill and Other Intangible Assets", is effective for
fiscal years beginning after December 15, 2001. This statement addresses
financial accounting and reporting for acquired goodwill and other
intangible assets and supercedes APB Opinion No. 17, "Intangible Assets".
It addresses how intangible assets that are acquired individually or with a
group of other assets (but not those acquired in a business combination)
should be accounted for in financial statements upon their acquisition.
This Statement also addresses how goodwill and other intangible assets
should be accounted for after they have been initially recognized in the
financial statements. Under this Statement, goodwill and intangible assets
that have indefinite useful lives will not be amortized but rather will be
tested at least annually for impairment. Intangible assets that have finite
useful lives will continue to be amortized over their useful lives, but
without the constraint of an arbitrary ceiling. This Statement provides
specific guidance for testing goodwill for impairment. The adoption of the
provisions of this Statement did have any material impact upon the
financial position or results of operation of the Company.
7
VOLUNTEER BANCORP, INC. AND SUBSIDIARY
Notes to Unaudited Condensed Consolidated Financial Statements
Three Months Ended March, 2003 and 2002
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SFAS No. 147, "Acquisitions of Certain Financial Institutions - an
Amendment of SFAS No. 72 and No. 144 and FASB Interpretation No. 9." SFAS
No. 72, "Accounting for Certain Acquisitions of Banking or Thrift
Institutions, and FASB Interpretation No. 9, "Applying APB Opinions No. 16
and 17 When a Savings and Loan Association or a Similar Institution is
Acquired in a Business Combination Accounted for by the Purchase Method",
provided interpretive guidance on the application of the purchase method to
acquisitions of financial institutions. Except for transactions between two
or more mutual enterprises, this Statement removes acquisitions of
financial institutions from the scope of both Statement No. 72 and
Interpretation No. 9 and requires that those transactions be accounted for
in accordance with SFAS Statements No. 141, "Business Combinations", and
No. 142, "Goodwill and Other Intangible Assets". Thus, the requirement in
paragraph 5 of Statement No. 72 to recognize (and subsequently amortize)
any excess of the fair value liabilities assumed over the fair value of
tangible and identifiable intangible assets acquired as an unidentifiable
intangible asset no longer applies to the acquisitions within the scope of
this Statement. In addition, this statement amends SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets", to
include in its scope long-term customer-relationship intangible assets of a
financial institutions such as depositor-and borrower-relationship
intangible assets and credit card holder intangible assets. Consequently,
those intangible assets are subject to the same undiscounted cash flow
recoverability test and impairment loss recognition and measurement
provisions that Statement No. 144 requires for other long-lived assets that
are held and used. Paragraph 5 of this Statement, which relates to the
application of the purchase method of accounting, is effective for
acquisitions for which the date of acquisition is on or after October 1,
2002. The provisions in paragraph 6 related to accounting for the
impairment or disposal of certain long-term customer-relationship
intangible assets are effective on October 1, 2002. Transition provisions
for previously recognized unidentifiable intangible assets in paragraphs 8
- 14 are effective on October 1, 2002, with earlier application permitted.
The adoption of the provisions of this Statement did have any material
impact upon the financial position or results of operation of the Company.
SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure - an Amendment of SFAS No. 123". This Statement amends SFAS No.
123, "Accounting for Stock-Based Compensation", to provide for alternative
methods of transition for a voluntary change of the fair value based method
of accounting for sock-based employee compensation. In addition, this
Statement amends the disclosure requirements of Statement No. 123 to
require prominent disclosures in both annual and interim financial
statements about the method of accounting for stack-based employee
compensation and the effect of the method use on the reported results. This
Statement permits tow additional transition methods for entities that adopt
the preferable method of accounting for stock-based employee compensation.
Both of those methods avoid the ramp-up effect arising from prospective
application of the fair value based method. In addition, to address
concerns raised by some constituents about the lack of comparability caused
by multiple transition methods, this Statement does not permit the use of
the original Statement No. 123 prospective method of transition for changes
to the fair value based method made in fiscal years beginning after
December 15, 2003. The adoption of the provisions of this Statement did
have any material impact upon the financial position or results of
operation of the Company.
8
VOLUNTEER BANCORP, INC. AND SUBSIDIARY
Notes to Unaudited Condensed Consolidated Financial Statements
Three Months Ended March, 2003 and 2002
- --------------------------------------------------------------------------------
SFAS No. 149, "Accounting for Certain Financial Instruments with
Characteristics of Liabilities and Equity" is expected to be issued in the
first quarter of 2003. This Statement establishes standards for issuers'
classification as liabilities in the statement of financial position of the
following financial instruments that have characteristics of both
liabilities and equity: (a) Financial instruments that are mandatorily
redeemable on a fixed or determinable date or upon an event certain to
occur even if the instrument is in the form of equity shares. (b) Financial
instruments embodying, or indexed to, an obligation to repurchase an
issuers' equity shares that requires or could require settlement by
transfer of assets shall be classified as a liability (or in some
circumstances as an asset). Examples include written put options or forward
purchase contracts that are physically settled or net cash settled. (C))
Financial instruments embodying an obligation that the issuer must or could
settle by issuing a variable number of its equity shares shall be
classified as a liability if the monetary value of the obligation is based
solely or predominately on (a) a fixed monetary amount known at inception,
(b) variations in something other than the fair value of the issuers'
equity shares, or (C)) variations in the fair value of the issuers' equity
shares, but in the direction opposite to those variations. Examples
include, but are not limited to, a payable settleable with a variable
number of issuer shares, a financial instrument indexed to the S&P 500 and
settleable with a variable number of issuer shares, and a written put
option that could be net share settled. This Statement will be effective
for all contracts created or modified after the date the Statement is
issued and otherwise effective at the beginning of the first interim period
beginning after June 15, 2003. It will be effected by reporting the
cumulative effect of a change in accounting principle for contracts created
before the issuance date and still existing at the beginning of that
interim period. For nonpublic companies, mandatory redeemable financial
instruments have special presentation requirements and are subject to the
provisions of this Statement for the first fiscal period beginning after
December 15, 2003. The adoption of the provisions of this Statement is not
anticipated to have any material impact upon the financial position or
results of operation of the Company.
3. Note payable
The Company's long-term debt consists of a single note payable in the
amount of $1,415,000 and $1,810,000 at March 31. 2003 and 2002,
respectively, due an unaffiliated national bank. Currently, the interest
rate on the note adjusts quarterly and is equal to the three-months London
Interbank Offered Rate (Three Month LIBOR) plus 1.95% per annum or at the
option of the Company, the rate on the note is equal to the lender's index
rate as such rate changes from time to time. The Company may change
interest rate options at any time with prior notice to the lender. Interest
is payable quarterly. At March 31. 2003 the rate on the note was 3.3% per
annum. Principal, unless accelerated, is payable annually on January 31, as
follows:
January 31, Principal Due
----------- -------------
2004 435,000
2005 470,000
2006 (Final Maturity) 510,000
----------------------
$ 1,415,000
======================
9
VOLUNTEER BANCORP, INC. AND SUBSIDIARY
Notes to Unaudited Condensed Consolidated Financial Statements
Three Months Ended March, 2003 and 2002
- --------------------------------------------------------------------------------
The Company owns 100% of the stock of Citizens Bank of East Tennessee all
of which has been pledged to the lender to secure the note payable.
The Company is in violation of certain loan covenants with respect to this
loan in that annualized earnings to tangible assets are less than the 0.75%
required and the ratio of nonperforming assets is greater than 2.5%. These
violations have not been waived by the lender.
Because of these violations, the lender may, at its option, by notice to
the Company declare the note in default. In such an event the Company would
have ten days to remedy compliance with all loan covenants. If the Company
did not or could not comply with all loan covenants within such ten day
period the note would be in default. In such a case the lender may declare
the note immediately due and payable and among other things proceed to
foreclose upon 100% of the stock of Citizens Bank of East Tennessee which
is pledged as security for the note.
The lender has been notified by the Company of its non-compliance with
certain covenants of the note that could lead to the lender declaring the
note in default. However, the lender has not notified the Company that it
is in default under the terms of the loan agreement.
The Company has previously notified the lender of the Company's violation
of the loan covenants set forth above. The lender has not yet notified the
Company that the loan is in default. If notified, the Company anticipates
the lender to first pursue remedies other than foreclosure. Accordingly,
the Company expects that the note will be restructured resulting in, among
other things, increasing the interest rate on the note and substantially
reducing the final maturity date on the note. In such a case, there can be
no assurance that the Company could satisfy the restructured debt without
obtaining new financing from other lenders or funds from a stock offering.
Further, there can be no assurance that a stock offering by the Company
would be successful or that new lenders would provide funds to the Company.
4. Contingencies
During the course of business, the Company makes various commitments and
incurs certain contingent liabilities that are not presented in the
accompanying balance sheet. The commitments and contingent liabilities may
include various guarantees, commitments to extend credit, standby letters
of credit, and litigation. In the opinion of management, no material
adverse effect on the financial position, liquidity or operating results of
the Company and its subsidiary is anticipated as a result of these items.
5. Certain Regulatory Matters
As a result of certain findings in the Tennessee Department of Financial
Institution's Report of Examination dated June 4, 2001, the Board of
Directors of the Bank entered into a Memorandum of Understanding
(Memorandum), dated August 16, 2001, with the Commissioner of the Tennessee
Department of Financial Institutions and the Memphis Regional Director of
the Federal Deposit Insurance Corporation. A Memorandum of Understanding is
an informal administrative tool for institutions that have some weaknesses
that if not properly addressed and corrected could lead to supervisory
concern requiring formal administrative action. The areas addressed in the
Memorandum cover capital adequacy, laws and regulations, data processing
audit and review, investment policy maturity strategies, adequate
documentation of each of the foregoing but primarily credit administration.
As a result, the Board has reviewed a number of the Bank's policies and
procedures including its loan policy and has incorporated recommendations
designed to strengthen credit quality and the Bank's review procedures
regarding loan loss reserve adequacy. Management of the Company and the
Bank believe that the Bank is in substantial compliance with the provisions
of the Memorandum.
10
VOLUNTEER BANCORP, INC. AND SUBSIDIARY
FINANCIAL HIGHLIGHTS
As of And For The Three Months Ended
March 31, 2003 and 2002
(Unaudited)
2003 2002
------------ ------------
Net earnings $ 161,532 $ 152,857
Per common share data:
Net earnings per common share $ 0.30 $ 0.28
Book value $ 12.77 $ 11.24
Ratio:
Return on average assets 0.58% 0.54%
Return on average common equity 9.42% 10.03%
Net interest margin (taxable equivalent basis) 4.37% 4.31%
Expense ratio 3.61% 3.14%
Allowance for loan losses/loans 1.56% 1.29%
Non-performing loans/loans 3.03% 3.72%
Non-performing assets/loans and foreclosed properties 4.61% 5.30%
Shareholders' equity/total assets 6.05% 5.34%
Leverage ratio (tangible capital/tangible assets) 5.80% 5.38%
11
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
As Of and for the Three Months Ended March 31, 2003 and 2002
- ------------------------------------------------------------
The following provides a narrative discussion and analysis of significant
changes in the results of operations and financial condition of Volunteer
Bancorp, Inc. (the "Company"). This discussion should be read in conjunction
with the consolidated financial statements and related financial analysis set
forth in the Company's 2002 Annual Report, the interim unaudited consolidated
financial statements and notes for the three months ended March 31, 2003,
included elsewhere herein, and the supplemental financial data included herein.
CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING INFORMATION
This discussion contains certain forward-looking statements (as defined in the
Private Securities Litigation Reform Act of 1995). Such statements are based on
management's expectations as well as certain assumptions made by, and
information available to, management. Specifically, this discussion contains
forward-looking statements with respect to the following items:
- effects of projected changes in interest rates,
- effects of changes in the securities markets,
- effects of changes in general economic conditions,
- the adequacy of the allowance for losses on loans and
the level of future provisions for losses on loans, and
- business plans for the year 2003 and beyond including
underwriting criteria.
When used in this discussion, the words "anticipate," "project," "expect,"
"believe," "should" and similar expressions are intended to identify
forward-looking statements.
These forward-looking statements involve significant risks and uncertainties
including changes in general economic and financial market conditions, changes
in banking laws and regulations, and the Company's ability to execute its
business plans. Although the Company believes that the expectations reflected in
the forward-looking statements are reasonable, actual results could differ
materially.
SUMMARY
The Company reported net income for the first quarter of 2003 of $161,532, or
$0.30 per common share, compared to net income of $152,857, or $0.28 for the
same period a year ago. Our returns on average assets and average common equity
were 0.58% and 9.42%, respectively, for the quarter compared to 0.54% and 10.03%
for the same period last year.
FINANCIAL CONDITION
Earning Assets.
Average earning assets for the three months ended March 31, 2003 totaled
$103,712,000 which represents 92.35% of average total assets. Earning assets
totaled $103,749,000 at March 31, 2003. Average earning assets for the three
months ended March 31, 2002 totaled $104,920,000, which represents 92.23% of
average total assets. Earning assets totaled $103,943,000 at March 31, 2002.
Loan Portfolio.
The Company's average loans for the three months ended March 31, 2003 were
$68,705,000 and for the three months ended March 31, 2002 were $71,626,000. The
balance in total loans at March 31, 2003 was $69,845,000 and at March 31, 2002
was $70,648,000.
Investment Portfolio.
The Company's investment securities portfolio averaged $30,152,000 for the three
months ended March 31, 2003 and $27,469,000 for the three month ended March 31,
2002. The portfolio totaled $28,659,000 at March 31, 2003 and $28,360,000 at
March 31, 2002.
12
The Company maintains an investment strategy of seeking portfolio yields within
acceptable risk levels, as well as providing liquidity. The Company maintains
two classifications of investment securities: "Available for Sale" and "Held to
Maturity." The Available for Sale securities are carried at fair market value,
whereas the Held to Maturity securities are carried at amortized cost. At March
31, 2003 there was a net unrealized gain in the Available for Sale securities of
$395,081 and there was a net unrealized loss of $301,289 at March 31, 2002.
Cash Value of Life Insurance.
During the first quarter of 2003, the Company invested in Bank owned life
insurance. The average balance of the cash surrender value of the life insurance
polices was $711,000 for the three months ended March 31, 2003. The cash
surrender value totaled $2,009,000 at March 31, 2003.
Deposits.
The Company's average deposits were $103,539,000 for the three months ended
March 31, 2003. This included average non-interest bearing deposits of
$12,596,000, average certificates of deposit of $60,317,000, average savings
deposits of $7,365,000 and average interest bearing transaction accounts of
$23,261,000.
The Company's average deposits for the three months ended March 31, 2002 were
$103,589,000. This included average non-interest bearing deposits of
$11,807,000, average certificates of deposit of $65,876,000, average savings
deposits of $6,725,000 and average interest bearing transaction accounts of
$19,181,000.
Deposits at March 31, 2003 totaled $103,059,000 and totaled $103,541,000 at
March 31, 2002.
Securities Sold Under Repurchase Agreements.
The Company's average balance of securities sold under repurchase agreements for
the three months ended March 31, 2003 was $2,132,000 and the average was
$1,161,000 for the three months ended March 31, 2002. The total outstanding
under these agreements at March 31, 2003 was $1,991,000 and the total
outstanding at March 31, 2002 was $1,211,000.
Note Payable.
The Company's note payable consists of a single note payable in the amount of
$1,415,000 due an unaffiliated national bank. The interest rate on the note
adjusts quarterly and is equal to the three-months London Interbank Offered Rate
(Three Month LIBOR) plus 1.95% per annum or at the option of the Company the
rate on the note is equal to the lender's index rate as such rate changes from
time to time. The Company may change interest rate options at any time with
prior notice to the lender. Interest is payable quarterly. At March 31, 2003 the
rate on the note was 3.3% per annum. Principal is payable annually commencing
January 31, 1996 and each January 31 thereafter. Interest expense for the three
months ended March 31, 2003 totaled $14,000. The loan is secured by all of the
stock of Citizens Bank of East Tennessee owned by the Company. The Company is in
violation of certain loan covenants with respect to this loan in that annualized
earnings to tangible assets are less than required and the ratio of
nonperforming assets is greater than 2.5%. These violations have not been waived
by the lender.
Because of these violations, the lender may, at its option, by notice to the
Company declare the note in default. In such an event the Company would have ten
days to remedy compliance with all loan covenants. If the Company did not or
could not comply with all loan covenants within such ten day period the note
would be in default. In such a case the lender may declare the note immediately
due and payable and among other things proceed to foreclose upon 100% of the
stock of Citizens Bank of East Tennessee which is pledged as security for the
note.
13
The Company has previously notified the lender of the Company's violation of the
loan covenants set forth above that could lead to the lender declaring the note
in default. The lender has not yet notified the Company that the loan is in
default under the terms of the loan agreement. If notified, the Company
anticipates the lender to first pursue remedies other than foreclosure.
Accordingly, the Company expects that the note will be restructured resulting
in, among other things, increasing the interest rate on the note and
substantially reducing the final maturity date on the note. In such a case,
there can be no assurance that the Company could satisfy the restructured debt
without obtaining new financing from other lenders or funds from a stock
offering. Further, there can be no assurance that a stock offering by the
Company would be successful or that new lenders would provide funds to the
Company.
Capital Resources.
Shareholder's equity totaled $6,885,564 as of March 31, 2003. This included
$5,390 of common stock, $1,916,500 of additional paid-in capital, $4,718,724 of
retained earnings and accumulated other comprehensive income consisting of an
unrealized gain on Securities Available for Sale, net of deferred taxes, of
$244,950.
BALANCE SHEET MANAGEMENT
Liquidity Management.
Liquidity is the ability of a company to convert assets into cash without
significant loss and to raise funds by increasing liabilities. Liquidity
management involves having the ability to meet day-to-day cash flow requirements
of its customers, whether they are depositors wishing to withdraw funds or
borrowers requiring funds to meet their credit needs.
The primary function of asset/liability management is not only to assure
adequate liquidity in order for the Company to meet the needs of its customer
base, but to maintain an appropriate balance between interest-sensitive assets
and interest-sensitive liabilities so that the Company can profitably deploy its
assets. Both assets and liabilities are considered sources of liquidity funding
and both are, therefore, monitored on a daily basis.
The asset portion of the balance sheet provides liquidity primarily through
investments in federal funds and maturities of investment securities. Additional
sources of liquidity are loan repayments and possible prepayments from the
mortgage backed securities in the investment portfolio. At March 31, 2003 and
2002, the Company had investments in federal funds of $4,325,000 and $5,850,000,
respectively.
The liability portion of the balance sheet provides liquidity through various
interest bearing and non-interest bearing deposit accounts. Additional sources
of liquidity are Federal Home Loan Bank Advances, federal funds purchased, and
securities sold under repurchase agreements.
The Company has an agreement with the Federal Home Loan Bank whereby the Company
may borrower up to an amount, $6,000,000 at March 31, 2003, established by the
Federal Home Loan Bank.
14
The Company is required to maintain eligible collateral, consisting of first
mortgages on one-to-four family residential properties, representing 150 percent
of the current outstanding balance of all advances. There were no advances
outstanding at March 31, 2003 and 2002. At March 31, 2003, the Company had
$2,500,000 of federal funds purchase lines available at three correspondent
banks. There were no federal funds purchased at March 31, 2003 and 2002. The
Company has agreements with customers, who must meet certain criteria
established by the Company, whereby the Company sells the customer investment
securities under agreements to repurchase the securities. The securities
underlying the agreements are maintained under the Company's control. The
outstanding balance under these agreements was $1,991,000 and $1,211,000 at
March 31, 2003 and 2002, respectively.
Additional capital funds or long-term debt are anticipated to be necessary
during the next twelve to eighteen months. There is no assurance that additional
capital funds or other long-term debt can be obtained under current market
conditions. The additional funds required are approximately $1,415,000 or the
amount necessary to replace the Company's current note payable if earnings are
not sufficient to permit the Bank to pay dividends in an amount to allow the
Company to service its debt. The Bank must also consider its overall capital
position in determining the amount of dividends that can be paid to the Company.
Thus after any dividend payment, the Bank must still satisfy all regulatory
capital requirements which may otherwise limit the amount of dividends the Bank
can pay. If the Company is able to obtain new debt funding, the Company
anticipates that the terms would be less favorable than exist under the
Company's current note payable.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002
Net Interest Income.
Net interest income is the principal component of a financial institution's
income stream and represents the spread between interest and fee income
generated from earning assets and the interest expense incurred on interest
bearing deposits and other borrowed funds. The following discussion is based on
a fully taxable equivalent basis.
Net interest income for the three months ended March 31, 2003 totaled
$1,087,000. This was a result of interest income of $1,557,000 and interest
expense of $470,000. Interest and fee income on loans totaled $1,241,000,
interest income on the investment portfolio totaled $304,000, and interest
income on federal funds sold totaled $12,000. Interest expense included $388,000
on certificates of deposit, $47,000 on interest bearing transaction accounts,
$9,000 on savings accounts, $12,000 on securities sold under repurchase
agreements, and $14,000 on the note payable.
15
Net interest income for the three months ended March 31, 2002 totaled
$1,108,000. This was a result of interest income of $1,830,000 and interest
expense of $722,000. Interest and fee income on loans totaled $1,486,000,
interest income on the investment portfolio totaled $322,000, and interest
income on federal funds sold totaled $22,000. Interest expense included $598,000
on certificates of deposit, $64,000 on interest bearing transaction accounts,
$29,000 on savings accounts, $12,000 on securities sold under repurchase
agreements, and $19,000 on the note payable.
The trend in net interest income is commonly evaluated in terms of average rates
using the net interest margin and the interest rate spread. The net interest
margin, or the net yield on earning assets, is computed by dividing fully
taxable equivalent net interest income by average earning assets. This ratio
represents the difference between the average yield on average earning assets
and the average rate incurred for all funds used to support those earning
assets.
The net interest margin for the three months ended March 31, 2003 was 4.37%. The
net cost of funds, defined as interest expense divided by average earning assets
was 1.81% and the yield on earning assets was 6.18% for the three months ended
March 31, 2003. The net interest margin for the three months ended March 31,
2002 was 4.31%. The net cost of funds for the three months ended March 31, 2002
was 2.75% and the yield on earning assets was 7.06%.
The interest rate spread measures the difference between the average yield on
earning assets and the average rate incurred on interest bearing sources of
funds. The interest rate spread eliminates the impact of non-interest bearing
funds and gives a direct perspective on the effect of market interest rate
movements. During recent years, the net interest rate margins and interest rate
spreads have been under intense pressure to maintain historical levels, due in
part to tax laws that discourage investment in tax-exempt securities and intense
competition for funds with non-bank institutions. The interest rate spread for
the three months ended March 31, 2003 was 4.15% and it was 4.02% for the three
months ended March 31, 2002.
Allowance for Possible Loan Losses.
Lending officers are responsible for the ongoing review and administration of
each loan. They make the initial identification of loans that present some
difficulty in collection or where there is an indication that the probability of
loss exists. Lending officers are responsible for the collection effort on a
delinquent loan. Senior management is informed of the status of delinquent and
problem loans on a weekly basis.
16
Senior management makes recommendations monthly to the board of directors as to
charge-offs. Senior management reviews the allowance for possible loan losses on
a monthly basis.
The Company's policy is to discontinue interest accrual when payment of
principal and interest is 90 days or more in arrears, unless there is sufficient
collateral to justify continued accrual.
The allowance for possible losses represents management's assessment of the
risks associated with extending credit and its evaluation of the quality of the
loan portfolio. Management analyzes the loan portfolio to determine the adequacy
of the allowance for possible loan losses and the appropriate provisions
required to maintain a level considered adequate to absorb anticipated loan
losses. The provision for possible loan losses was $100,000 for the three months
ended March 31, 2003. In assessing the adequacy of the allowance, management
reviews the size, quality and risk of loans in the portfolio. Management also
considers such factors as loan loss experience, the amount of past due and
non-performing loans, specific known risk, the status and amount of
non-performing assets, underlying collateral values securing loans, current and
anticipated economic conditions and other factors which affect the allowance for
possible loan losses.
While it is the Company's policy to charge off in the current period the loans
in which a loss is considered probable, there are additional risks of future
losses that cannot be quantified precisely or attributed to particular loans or
classes of loans. Because these risks include the state of the economy,
management's judgement as to the adequacy of the allowance is necessarily
approximate and imprecise.
The allowance for loan losses at March 31, 2003 was 1.56% of loans and
approximately 33% of non-performing assets. Management believes that the
$1,089,000 at March 31, 2003 in the allowance for possible loan losses is
adequate to absorb known risks in the portfolio. No assurance can be given,
however, that adverse economic circumstances will not result in increased losses
in the loan portfolio, and require greater provisions for possible loan losses
in the future.
Non-Performing Assets.
Non-performing assets include non-performing loans and foreclosed real estate
held for sale. Non-performing loans include loans classified as non-accrual and
loans past due more than 90 days and still accruing interest. Non-performing
assets at March 31, 2003 were $3,276,000, or 4.61% of loans and foreclosed
properties. Non-performing assets at March 31, 2003 consisted of non-accrual
loans of $1,591,000, loans past due 90 days and still accruing interest of
$529,000 and foreclosed real estate of $1,156,000.
Non-performing assets at March 31, 2002 were $3,804,000, or 5.30% of loans and
foreclosed
17
assets. Non-performing assets at March 31, 2002 consisted of non-accrual loans
of $622,000 loans past due 90 days and still accruing interest of $2,005,000 and
foreclosed real estate of $1,177,000.
The balance in non-performing assets is primarily attributable to commercial
real estate and real estate construction loans in which management does not
anticipate incurring material losses. Senior management has strengthened the
underwriting criteria for real estate construction and commercial real estate
lending in order to decrease the risk associated with these types of loans. In
addition, in February, 2002, the Company hired an experienced senior credit
officer to oversee credit administration, including policies and procedures,
underwriting, and credit analysis.
Non-Interest Income.
Non-interest income consists of revenues generated from a broad range of
financial services and activities including fee-based services and securities
gains and losses. Total non-interest income was $253,000 for the three months
ended March 31, 2003. This included $107,000 from service charges on deposit
accounts, $3,000 from other service charges and fees, $106,000 of securities
gains, and $37,000 of other non-interest income.
Total non-interest income for the three months ended March 31, 2002 was
$105,000. This included $39,000 from service charges on deposit accounts, $7,000
from other service charges and fees, $34,000 of securities gains, and $25,000 of
other non-interest income.
The increase in total non-interest income is mainly attributable to an increase
in service charges on deposits and securities gains.
Non-Interest Expense.
Non-interest expense for the three months ended March 31, 2003 was $1,013,000.
This consisted of $505,000 of salaries and employee benefits, $71,000 of
occupancy expenses, $97,000 of furniture and equipment expense, and $341,000 of
other non-interest expenses. Other non-interest expenses include advertising,
supplies and printing, telephone, postage, and legal and accounting fees.
Non-interest expenses for the first quarter of 2003 increased $118,000 compared
to the first quarter of 2003 primarily for costs associated with increased
staffing.
Non-interest expense for the three months ended March 31, 2002 was $894,000.
This consisted of $439,000 of salaries and employee benefits, $70,000 of
occupancy expenses, $102,000 of furniture and equipment expense, and $283,000 of
other non-interest expenses.
Income Taxes.
For the three months ended March 31, 2003, the Company incurred income tax
expense of $65,000. For the three months ended March 31, 2002, the Company
incurred income tax expense of $76,000. Approximately $72,000 of income earned
for the three months
18
ended March 31, 2003 is exempt from federal income taxes. Approximately $44,000
of the income earned during the three months ended March 31, 2002 is exempt from
federal income taxes.
RETURN ON ASSETS AND EQUITY
Return on assets (annualized net income divided by average total assets) for the
three months ended March 31, 2003 was 0.58%. Return on assets for the three
months ended March 31, 2002 was 0.54%.
Return on equity (annualized net income divided by average equity) for the three
months ended March 31, 2003 was 9.42% and it was 10.03% for the three months
ended March 31, 2002.
Equity to assets (average equity divided by average total assets) was 6.05% for
the three months ended March 31, 2003 and it was 5.36% for the three months
ended March 31, 2002.
The dividend payout ratio (dividends declared divided by net income) for the
three months ended March 31, 2002 was 70.61%. There were no dividends declared
for the three months ended March 31, 2003.
EFFECTS OF INFLATION AND CHANGING PRICES
Inflation generally increases the cost of funds and operating overhead and to
the extent loans and other assets bear variable rates, the yields on such
assets. Unlike most industrial companies, virtually all the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates generally have a more significant impact on the performance of a
financial institution than the effects of general levels of inflation. Although
interest rates do not necessarily move in the same direction or to the same
extent as the prices of goods and services, increases in inflation generally
have resulted in increased interest rates. In addition, inflation affects
financial institutions' cost of goods and services purchased, the cost of
salaries and benefits, occupancy expenses and similar items. Inflation and
related increases in interest rates generally decrease the market value of
investments and loans held and may adversely affect liquidity, earnings and
stockholders' equity. Mortgage originations and refinancing tend to slow as
interest rates increase and can reduce the Company's earnings from such
activities and the income from the sale of residential mortgage loans on the
secondary market.
19
Item 3. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures.
------------------------------------------------
The Company's President and its Vice President and Cashier have
evaluated the effectiveness of the design and operation of the
Company's disclosure controls and procedures (as defined in Exchange
Act Rule 13a-14(c)) as of a date within 90 days of the filing date of
this quarterly report. Based on that evaluation, the President and the
Vice President and Cashier have concluded that the Company's
disclosure controls and procedures are effective to ensure that
material information relating to the Company and the Company's
consolidated subsidiaries is made known to such officers by others
within these entities, particularly during the period this quarterly
report was prepared, in order to allow timely decisions regarding
required disclosure.
(b) Changes in Internal Controls.
There have not been any significant changes in the Company's internal
controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 23.1 Consent of Welch & Associates
Exhibit 99.1* Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, signed by Reed D. Matney, the President
of Volunteer Bancorp, Inc. on May 12, 2003.
Exhibit 99.2* Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, signed by Greg Oliver, Vice President
and Cashier of Volunteer Bancorp, Inc. on May 12, 2003.
- ------------------
* A signed original of this written statement required by Section 906
has been provided to the Company and will be retained by the Company
and furnished to the Securities and Exchange Commission or its staff
upon request.
(b) There have been no Current Reports on Form 8-K filed during the
quarter ended March 31, 2003.
20
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
VOLUNTEER BANCORP, INC.
(Registrant)
Date: May 12, 2003 /s/ Reed D. Matney
-----------------------------------------
Reed D. Matney, President
(principal executive officer)
Date: May 12, 2003 /s/ Greg Oliver
-----------------------------------------
Greg Oliver, Vice President and Cashier
21
Certification of President
Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
I, Reed D. Matney, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Volunteer Bancorp,
Inc. ("Volunteer");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of Volunteer as of, and for, the periods presented in this quarterly
report.
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evalauation Date"); and
c) presented in this quartelry report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not mateiral, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 12, 2003 /s/ Reed D. Matney
------------------------------
Reed D. Matney
President
22
Cerfication of Vice President and Cashier
Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
I, Greg Oliver, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Volunteer Bancorp,
Inc. ("Volunteer");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of Volunteer as of, and for, the periods presented in this quarterly
report.
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 12, 2003 /s/ Greg Oliver
---------------------------
Greg Oliver
Vice President and Cashier
23