UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
Commission file number: 0-31847
Lawrence Financial Holdings, Inc.
---------------------------------
(Exact name of small business issuer as specified in its charter)
Maryland 31-1724442
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
311 South Fifth Street, Ironton, Ohio 45638
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(Address of principal executive offices)
(740) 532-0263
--------------
(Issuer's telephone number, including area code)
Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Class: Outstanding at October 31 , 2002
Common Stock, $.01 par value 705,110 Common Shares
Transitional Small Business Disclosure Format (Check One) : Yes |_| No |X|
Lawrence Financial Holdings, Inc.
FORM 10-QSB
Quarter Ended September 30, 2002
Part I - Financial Information
Page
----
ITEM 1 - Financial Statements
Consolidated Balance Sheets .......................................... 3
Consolidated Statements of Income .................................... 4
Consolidated Statements of Comprehensive Income ..................... 5
Consolidated Statements of Changes in Shareholders' Equity ........... 6
Consolidated Statements of Cash Flows ................................ 7
Notes to the Consolidated Financial Statements ....................... 8
ITEM 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations .................... 11
ITEM 3 - Controls and Procedures .......................................... 21
Part II - Other Information
Other Information ......................................................... 22
Signatures ................................................................ 23
Exhibits .................................................................. 26
CONSOLIDATED BALANCE SHEETS
September 30, 2002 and December 31, 2001
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(Unaudited)
September 30, December 31,
2002 2001
------------- -------------
ASSETS
Cash and due from banks $ 16,809,410 $ 11,984,642
Money market fund 533,478 213,124
------------- -------------
Total cash and cash equivalents 17,342,888 12,197,766
Securities available for sale, at fair value 11,619,908 11,045,872
Loans receivable, net 100,269,799 105,017,604
Federal Home Loan Bank stock 607,600 587,000
Premises and equipment, net 3,357,353 3,315,192
Accrued interest receivable 713,873 797,483
Cash surrender value of life insurance 2,093,381 1,975,177
Other assets 632,302 340,858
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$ 136,637,104 $ 135,276,952
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Noninterest-bearing deposits $ 2,090,866 $ 1,465,129
Interest-bearing deposits 117,194,051 115,330,755
------------- -------------
Total deposits 119,284,917 116,795,884
Federal Home Loan Bank borrowings 2,000,000 2,000,000
Other liabilities 737,268 702,770
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Total liabilities 122,022,185 119,498,654
Shareholders' Equity
Common stock; par value $0.01 per share; shares
authorized: 4,000,000; shares issued: 799,110 7,991 7,991
Additional paid-in capital 7,455,281 7,426,239
Retained earnings 9,379,734 9,076,779
Treasury stock, at cost (94,000 shares) (1,683,600) --
Unearned ESOP shares (450,050) (496,660)
Unearned restricted stock awards (269,059) (269,059)
Accumulated other comprehensive income,
net of tax of $89,957 at 2002 and $17,004 at 2001 174,622 33,008
------------- -------------
Total shareholders' equity 14,614,919 15,778,298
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Total liabilities and shareholders' equity $ 136,637,104 $ 135,276,952
============= =============
The accompanying notes are an integral part of
these consolidated financial statements.
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3
CONSOLIDATED STATEMENTS OF INCOMES
Three Months and Nine Months Ended September 30, 2002 and 2001
(Unaudited)
- --------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ -------------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
Interest income
Loans, including fees $1,983,305 $2,251,457 $6,109,553 $6,736,282
Taxable securities 167,252 128,268 493,692 340,555
Overnight deposits 28,928 47,604 90,078 152,236
---------- ---------- ---------- ----------
2,179,485 2,427,329 6,693,323 7,229,073
---------- ---------- ---------- ----------
Interest expense
Deposits 867,798 1,281,691 2,812,019 3,966,181
Federal Home Loan Bank borrowings 29,793 29,793 88,407 93,205
---------- ---------- ---------- ----------
897,591 1,311,484 2,900,426 4,059,386
---------- ---------- ---------- ----------
Net interest income 1,281,894 1,115,845 3,792,897 3,169,687
Provision for loan losses 372,000 72,000 702,000 180,000
---------- ---------- ---------- ----------
Net interest income
after provision for loan losses 909,894 1,043,845 3,090,897 2,989,687
Noninterest income
Net securities gains (losses) 5,888 13,090 14,102 13,090
Service charges 113,707 113,177 330,799 314,449
Other 69,465 40,361 183,055 126,859
---------- ---------- ---------- ----------
189,060 166,628 527,956 454,398
Noninterest expense
Salaries and benefits 431,506 430,610 1,298,328 1,176,317
Deposit insurance premiums 14,828 13,541 72,468 23,322
Occupancy and equipment 117,963 83,089 285,208 249,072
Data processing 134,651 125,001 400,534 363,144
Franchise tax 29,163 22,875 94,413 73,125
Advertising expense 24,432 21,545 79,624 63,930
Other 252,533 222,218 736,217 615,002
---------- ---------- ---------- ----------
1,005,076 918,879 2,966,792 2,563,912
---------- ---------- ---------- ----------
Income before income tax 93,878 291,594 652,061 880,173
Provision for income tax 33,810 93,260 199,903 281,913
---------- ---------- ---------- ----------
Net income $ 60,068 $ 198,334 $ 452,158 $ 598,260
========== ========== ========== ==========
Basic earnings per common share $ 0.09 $ 0.27 $ 0.67 $ 0.83
========== ========== ========== ==========
Diluted earnings per common share $ 0.09 $ 0.27 $ 0.65 $ 0.83
========== ========== ========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
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4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three Months and Nine Months Ended September 30, 2002 and 2001
(Unaudited)
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Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- ------------------------
2002 2001 2002 2001
--------- --------- --------- ---------
Net income $ 60,068 $ 198,334 $ 452,158 $ 598,260
Other comprehensive income:
Unrealized gains
arising during period 100,196 206,581 228,990 340,681
Reclassification adjustment for (gains)
losses included in net income (5,888) (13,090) (14,423) (13,090)
--------- --------- --------- ---------
Total other comprehensive income 94,308 193,491 214,567 327,591
Income tax expense (32,065) (65,787) (72,953) (111,381)
--------- --------- --------- ---------
Other comprehensive income, net of tax 62,243 127,704 141,614 216,210
--------- --------- --------- ---------
Comprehensive income $ 122,311 $ 326,038 $ 593,772 $ 814,470
========= ========= ========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
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5
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Year Ended December 31, 2001 and the Nine Months Ended September 30, 2002
(Unaudited)
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Unearned Accumulated
Additional Unearned Restricted Other
Common Paid-In Retained Treasury ESOP Stock Comprehensive
Stock Capital Earnings Stock Shares Awards Income
----- ------- -------- ----- ------ ------ ------
Balance - January 1, 2001 $7,696 $6,994,305 $ 8,555,006 $ -- $(558,660) $ -- $ (58,402)
Net income -- -- 576,081 -- -- -- --
Net unrealized appreciation on
securities available for sale,
net of tax of $47,089 -- -- -- -- -- -- 91,410
Cash dividend - $0.07 per share -- -- (54,308) -- -- -- --
Stock-based compensation 295 431,934 -- -- 62,000 (269,059) --
------ ---------- ----------- ----------- --------- --------- ---------
Balance, December 31, 2001 7,991 7,426,239 9,076,779 -- (496,660) (269,059) 33,008
Net income -- -- 452,158 -- -- -- --
Net unrealized depreciation on
securities available for sale,
net of tax of $72,953 -- -- -- -- -- -- 141,614
Treasury Stock acquired - 94,000 shares -- -- -- (1,683,600) -- -- --
Cash dividend - $0.21 per share -- -- (149,203) -- -- -- --
Stock-based compensation -- 29,042 -- -- 46,610 -- --
------ ---------- ----------- ----------- --------- --------- ---------
Balance, September 30, 2002 $7,991 $7,455,281 $ 9,379,734 $(1,683,600) $(450,050) $(269,059) $ 174,622
====== ========== =========== =========== ========= ========= =========
Total
-----
Balance - January 1, 2001 $ 14,939,945
Net income 576,081
Net unrealized appreciation on
securities available for sale,
net of tax of $47,089 91,410
Cash dividend - $0.07 per share (54,308)
Stock-based compensation 225,170
------------
Balance, December 31, 2001 15,778,298
Net income 452,158
Net unrealized depreciation on
securities available for sale,
net of tax of $72,953 141,614
Treasury Stock acquired - 94,000 shares (1,683,600)
Cash dividend - $0.21 per share (149,203)
Stock-based compensation 75,652
------------
Balance, September 30, 2002 $ 14,614,919
============
The accompanying notes are an integral part of these
consolidated financial statements.
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6
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2002 and 2001
(Unaudited)
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Nine Months Ended
September 30,
----------------------------
2002 2001
------------ ------------
Cash flows from operating activities
Net income $ 452,158 $ 598,260
Adjustments to reconcile net income to net cash from
operating activities
Depreciation 161,654 134,103
Provision for loan losses 702,000 180,000
Stock dividend on Federal Home Loan Bank stock (20,600) (29,900)
Net premium amortization 1,261 5,266
Net securities (gains) losses (14,102) (13,090)
ESOP expense 75,652 64,000
Restricted stock award expense 50,010 42,700
Change in other assets and liabilities (293,356) 631,879
------------ ------------
Net cash from operating activities 1,114,677 1,613,218
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Cash flows from investing activities
Purchase of:
Securities available for sale (8,355,970) (9,000,000)
Premises and equipment (203,922) (39,205)
Proceeds from:
Sale of securities available for sale 6,373,041 2,284,828
Calls, maturities and principal repayments of securities
available for sale 1,636,301 3,250,000
Net change in loans 3,924,765 (2,816,413)
------------ ------------
Net cash from investing activities 3,374,215 (6,320,790)
------------ ------------
Cash flows from financing activities
Net change in:
Deposits 2,489,033 12,365,196
Federal Home Loan Bank advances -- (3,000,000)
Cash dividend paid (149,203) --
Purchase of treasury stock (1,683,600) --
------------ ------------
Net cash from financing activities 656,230 9,365,196
------------ ------------
Net change in cash and cash equivalents 5,145,122 4,657,624
Cash and cash equivalents at beginning of the year 12,197,766 4,885,079
------------ ------------
Cash and cash equivalents at end of the period $ 17,342,888 $ 9,542,703
============ ============
Supplemental disclosures:
Cash paid during the period for:
Interest $ 2,907,041 $ 4,083,950
Income taxes 610,383 248,000
Non-cash transactions
Transfer of loans to real estate owned 121,040 31,036
The accompanying notes are an integral part of these
consolidated financial statements.
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7
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements include
Lawrence Financial Holdings, Inc. and its wholly-owned subsidiary, Lawrence
Federal Savings Bank (the "Bank") and the Bank's wholly-owned subsidiary,
Lawrence Financial Services Corporation (together, the "Company"). Intercompany
transactions and balances are eliminated in consolidation.
Nature of Operations: The Company provides financial services through its
offices in Lawrence and Scioto Counties, Ohio. Its primary deposit products are
checking, savings, and term certificate accounts, and its primary lending
products are real estate mortgage and installment loans. Substantially all loans
are secured by specific items of collateral including consumer assets and real
estate. Lawrence Financial Services Corporation holds real property for
investment purposes. Management considers the Company to operate in one segment,
banking.
Earnings Per Common Share: Basic earnings per common share is net income divided
by the weighted average number of common shares outstanding during the period.
Diluted earnings per common share includes the dilutive effect of additional
potential common shares issuable. ESOP shares are considered to be outstanding
for this calculation unless they are unearned. The weighted average number of
common shares outstanding for basic and diluted earnings per share computations
were as follows:
Nine Month Period Three Month Period
Ended September 30 Ended September 30
------------------ ------------------
2002 2001 2002 2001
------- ------- ------- -------
Net weighted average shares outstanding - Basic 669,952 722,519 643,186 723,865
Effect of stock options 6,369 -- 4,532 --
Effect of non-vested stock awards 16,875 -- 16,874 --
------- ------- ------- -------
Net effect of stock options and non-vested
stock awards 23,244 -- 21,406 --
Weighted average shares outstanding - Diluted 693,196 722,519 664,592 723,865
======= ======= ======= =======
Management's Opinion: In the opinion of management, the accounting and reporting
policies followed by Lawrence Financial Holdings, Inc. conform to accounting
principles generally accepted in the United States of America (US GAAP) and to
general practices within the financial services industry. The preparation of
financial statements in conformity with US GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements. Actual results could differ from those estimates. The
allowance for credit losses is particularly subject to change.
These interim financial statements are prepared without audit and reflect all
adjustments of a normal recurring nature which, in the opinion of management,
are necessary to present fairly the consolidated financial position of Lawrence
Financial Holdings, Inc. at September 30, 2002, and its results of operations
and cash flows for the periods presented. Certain amounts in prior financial
statements have been reclassified to conform to the current presentation. The
accompanying consolidated financial statements do not contain all financial
disclosures required by US GAAP. Lawrence Financial Holdings, Inc.'s Annual
Report for the year ended December 31, 2001, contains consolidated financial
statements and related notes which should be read in conjunction with the
accompanying consolidated financial statements.
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8
NOTE 2 - REGULATORY CAPITAL REQUIREMENTS
The Bank is subject to various regulatory capital requirements administered
by federal regulatory agencies. Failure to meet minimum capital requirements can
initiate certain mandatory actions that, if undertaken, could have a direct
material effect on the Bank's financial statements. Under capital adequacy
guidelines and regulatory framework for prompt-corrective action, the Bank must
meet specific capital guidelines involving quantitative measures of the Bank's
assets, liabilities and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Bank's capital amounts and classifications
are also subject to qualitative judgments by regulators about the Bank's
components, risk weightings and other factors. At September 30, 2002 and
December 31, 2001, management believes the Bank complied with all regulatory
capital requirements. Based on the Bank's computed regulatory capital ratios,
the Bank was considered well capitalized under Section 38 of the Federal Deposit
Insurance Act as of its last regulatory exam. Management is unaware of any
events or circumstances that would change the Bank's classification since that
time.
The Bank's actual capital levels and minimum required levels were as
follows:
Minimum
Required to be
Minimum Required Well Capitalized Under
for Capital Prompt Corrective
Actual Adequacy Purposes Action Regulations
---------------- ----------------- -----------------------
(dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
----------------------------------------------------------------
September 30, 2002:
Total capital (to risk-
weighted assets) $14,316 15.03% $7,619 8.0% $9,524 10.0%
Tier 1 (core) capital (to
risk-weighted assets) $13,500 14.18% $3,810 4.0% $5,714 6.0%
Tier 1 (core) capital (to
adjusted total assets) $13,500 9.86% $5,476 4.0% $6,845 5.0%
December 31, 2001:
Total capital (to risk-
weighted assets) $14,467 14.58% $7,936 8.0% $9,921 10.0%
Tier 1 (core) capital (to
risk-weighted assets) $13,212 13.32% $3,968 4.0% $5,952 6.0%
Tier 1 (core) capital (to
adjusted total assets) $13,212 9.82% $5,381 4.0% $6,726 5.0%
Regulations of the Office of Thrift Supervision (OTS) limit the amount of
capital distributions that may be made by the Bank without prior approval of the
OTS. The regulatory restriction provides that the Bank may make a capital
distribution without notifying the OTS or applying to the OTS for approval
provided that (1) the total amount of all capital at the institution (including
the proposed capital distribution) for the applicable calendar year does not
exceed the institution's net income for that year to date plus the institution's
retained net income for the preceding two years; (2) the institution will be
well capitalized following the proposed capital distributions; and, (3) certain
other conditions are met.
In addition to the restriction described above, the Bank may not make any
capital distributions if the effect thereof would reduce the Bank's capital
level below the aggregate balance required for the liquidation account
established in connection with the Bank's mutual-to-stock conversion.
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9
NOTE 3 - ALLOWANCE FOR LOAN LOSSES AND NON-PERFORMING LOANS
Activity in the allowance for loan losses is as follows:
Nine Months Ended September 30
2002 2001
------- -----
(Dollars in Thousands)
Beginning Balance .............................. $ 1,232 $ 775
Provision for Loan Losses ...................... 702 180
Charge Offs .................................... (857) (124)
Recoveries ..................................... 34 9
------- -----
Ending Balance ................................. $ 1,111 $ 840
======= =====
The following table shows the components of non-performing assets at:
09/30/02 12/31/01
-------- ---------
(Dollars in Thousands)
Non-Accrual Loans ................................. $ 670 $ 160
Loans 90 days or more past due .................... 930 1,110
------ ---------
and still accruing interest
Total Non-Performing Loans ...................... 1,600 1,270
------ ---------
Other Real Estate Owned ........................... 75 --
Total Non-Performing Assets ....................... $1,675 $ 1,270
====== =========
Non-performing loans to total loans ............... 1.58% 1.20%
Non-performing assets to total loans plus ......... 1.65% 1.20%
other real estate owned
Allowance for loan losses to total ................ 69.44% 97.01%
non-performing loans
Loans 90 days or more past due and ................ .92% 1.04%
not on non-accrual to total loans
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10
ITEM 2
Management's Discussion and Analysis of Financial Condition
And Results of Operations
Selected Financial Data
- --------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- ------------------------
2002 2001 2002 2001
-------- -------- -------- --------
Significant Ratios:
Net income to
Average total assets 0.18% 0.60% 0.45% 0.62%
Average stockholders' equity 1.62 5.01 4.04 5.17
Net Interest Margin 4.10 3.66 4.06 3.53
Average net loans to average deposits 87.86 95.64 89.49 97.25
Average stockholders' equity to
average total assets 10.89 11.88 11.20 11.95
Capital ratios
Tier I capital 9.86 10.08 9.86 10.08
Risk-based capital 15.03 15.05 15.03 15.05
- ------------------------------------------------------------------------------------------------
Per Share Data:
Earnings per weighted average share
Basic $ 0.09 $ 0.27 $ 0.67 $ 0.83
Diluted 0.09 0.27 0.65 0.83
Weighted average shares outstanding
Basic 643,186 723,865 669,952 722,519
Diluted 664,592 723,865 693,196 722,519
Total shares outstanding 705,110 775,827 705,110 775,827
Cash dividends per share -- -- -- --
Book value per share at end of period $ 20.73 $ 20.48 $ 20.73 $ 20.48
Last sale at end of period
Source: NASDAQ.com 14.30 13.75 14.30 13.75
Introduction
This report contains certain "forward-looking statements" within the
meaning of the federal securities laws. These statements are not historical
facts, rather they are statements based on Lawrence Financial Holdings, Inc.'s
("Lawrence Financial") current expectations regarding its business strategies,
intended results and future performance. Forward-looking statements are preceded
by terms such as "expects," "believes," "anticipates," "intends" and similar
expressions.
Management's ability to predict results or the effect of future plans or
strategies is inherently uncertain. Factors which could affect actual results
include interest rate trends, the general economic climate in the market area in
which Lawrence Financial operates, as well as nationwide, Lawrence Financial's
ability to control costs and expenses, competitive products and pricing, loan
delinquency rates and changes in federal and state legislation and regulation.
These factors should be considered in evaluating the forward-looking statements
and undue reliance should not be placed on such statements. Lawrence Financial
assumes no obligation to update any forward-looking statements.
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11
Operating Strategy
Lawrence Financial, through its wholly owned subsidiary Lawrence Federal
Savings Bank (the "Bank" or "Lawrence Federal"), operates as a
community-oriented financial institution focused on meeting the financial
service needs of consumers in its market area. To accomplish this objective,
Lawrence Federal offers a variety of mortgage and consumer loans and retail
deposit products. Lawrence Federal has extended its lending activities outside
of its market area through programs for originating mobile home and automobile
loans through a network of dealers. In the second quarter of 2002 Lawrence
Federal suspended the origination of indirect mobile home loans and slowed the
origination of indirect automobile loans. The consumer loans originated through
these indirect lending programs typically have shorter terms and higher yields
than mortgage loans. In addition, the origination of shorter term consumer loans
will help Lawrence Federal in managing its interest rate risk. However, these
indirect lending programs represent a higher risk of credit loss than real
estate loans, since the collateral securing these loans may decline in value
quickly.
Lawrence Federal's results of operations depend primarily on net interest
income, which is the difference between the interest income earned on Lawrence
Federal's interest-earning assets, such as loans and securities, and the
interest expense on its interest-bearing liabilities, such as deposits and
borrowings. Lawrence Federal also generates noninterest income primarily from
loan fees and service charges. Lawrence Federal's noninterest expenses primarily
consist of employee compensation and benefits, occupancy expense, data
processing costs, and other operating expenses. Lawrence Federal's results of
operations are also affected by general economic and competitive conditions,
notably changes in market interest rates, government policies and regulations.
As we have discussed in prior disclosures, the Company has experienced an
increase in delinquent loans and non-performing assets. Much of the increase has
been related to growing delinquency within the indirect mobile home loan
portfolio. In response to this trend, the Company halted the origination of new
mobile home loans in the second quarter of 2002, internalized the majority of
the collection process involving indirect mobile homes and increased the monthly
provision for loan losses. We are also developing multiple outlets for the
re-sale of repossessed units.
The Bank continued to observe deterioration in portions of the loan
portfolio, and expensed $150,000 of provision in the first quarter of 2002,
$180,000 was expensed in the second quarter of 2002, and $372,000 was expensed
in the third quarter of 2002. For the first nine months of 2002 we have expensed
total provision for loan losses of $702,000 compared to $180,000 in the first
nine months of 2001.
During the nine month period ended September 30, 2002, the Company had net
charge-offs of approximately $823,000, of which $319,000 occurred in the third
quarter. To date, we have made progress in clearing out several of the more
difficult delinquent loans. At September 30, 2002, the Company had a ratio of
Allowance for Loan Loss to gross loans of 1.10% compared to 1.01% at the end of
the prior quarter and 0.77% on the same date in 2001.
On the positive side of the ledger, the Company continues to experience
increased net interest income in 2002. We have improved net interest income by
$623,000, or 20% during the first nine months of 2002, when compared to the same
period in 2001.
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12
Comparison of Financial Condition at September 30, 2002 and December 31, 2001
Total assets increased $1.4 million, or 1%, to $136.6 million at September
30, 2002 when compared to the balances at December 31, 2001. At September 30,
2002, net loans receivable had decreased $4.7 million, or 5%, when compared to
the balances at December 31, 2001. Direct and indirect consumer loans decreased
$4.4 million, or 9%, real estate loans decreased by $4.8 million, or 9%,
indirect mobile home loans decreased $1.2 million, or 6%, and commercial loans
increased $3.8 million, or 355% at September 30, 2002. The allowance for loan
losses at September 30, 2002 was $1.1 million. The growth in the commercial loan
portfolio was due primarily to the origination of several commercial loan
participations with other, local commercial banks. Lawrence Federal's long term
investments, held in the form of securities, increased by $574,000, or 5%, when
comparing September 30, 2002 balances to December 31, 2001. During the first
nine months of 2002 Lawrence Financial's available cash and cash equivalents
grew to $17.3 million, an increase of $5.2 million, or 42%. This growth was
primarily due to increases in interest bearing deposits.
Compared to December 31, 2001, total deposits and borrowings increased $2.5
million, or 2%, to $119.3 million and the volume of Federal Home Loan Bank
Advances was unchanged at $2 million at September 30, 2002.
Equity decreased $1.2 million, or 7%, to $14.6 million at September 30,
2002 when compared to December 31, 2001. During the period ended September 30,
2002, treasury stock purchased totaled $1,683,600, retained earnings increased
$452,000 as a result of net income for the period, the net unrealized
appreciation on securities available-for-sale grew from an unrealized gain of
$33,000 to an unrealized gain of $175,000 and $149,000 of cash dividends were
paid to shareholders.
Comparison of Operating Results for the Three Month and Nine Month Periods
Ending September 30, 2002 and 2001
General. For the three months ended September 30, Lawrence Financial's net
income decreased 70% to $60,000 for 2002 from $198,000 for 2001. For the nine
month period ended September 30, Lawrence Financial's net income decreased 24%
to $452,000 for 2002 from $598,000 for 2001. Return on average assets was 0.18%
and 0.45% for the third quarter and first nine months of 2002, respectively,
compared to 0.60% and 0.62% for the same two periods in 2001. Return on average
equity was 1.62% and 4.04% for the third quarter and first nine months of 2002,
respectively, compared to 5.01% and 5.17% for the same two periods in 2001. Net
interest income increased $166,000, or 15%, during the third quarter and
$623,000, or 20%, for the nine month period ending September 30. Noninterest
income increased $22,000, or 13%, during the third quarter and $74,000, or 16%,
for the nine month period ending September 30. Offsetting the increase in net
interest was a $300,000 or 417% increase in the provision for loan losses for
the quarter ended September 30, and a $522,000 or 290% increase in the provision
for loan losses for the nine months ended September 30. Also offsetting the
increase in net interest and noninterest income was a $86,000, or 9%, increase
in noninterest expense for the quarter ended September 30 and a $403,000, or
16%, increase in noninterest expense for the nine months ended September 30.
There are several causes for the increase in non-interest expense. The Company
has expensed $126,000 year to date for the Employee Stock Ownership Plan (ESOP)
and for restricted stock awards compared to $107,000 during the same period in
2001. The Company has also experienced: increases in salaries and wages paid;
the addition of an employee in the loan collection department; increased costs
of employee benefits; increased data processing fees; increased costs related to
the collection of delinquent mobile home loans; and other non-interest expenses
which are related to the growth of the Company's customer base.
Interest Income. Interest income decreased $248,000, or 10%, for the
quarter compared to the same quarter in 2001 and decreased $536,000, or 7%, for
the first nine months of 2002 compared to the first nine months of 2001.
Interest income on loans decreased $268,000, or 12%, and decreased $627,000, or
9%, for the quarter and nine months ended September 30 respectively. These
decreases were primarily a result of a decline in the balance of the loan
portfolio and as a result of a decrease in the yield on the portfolio. Interest
income on long-term investments increased $33,000, or 26%, for the quarter and
increased $153,000, or 45%, for the nine months ended September 30 primarily as
a result of a larger average balance being carried by the Company during 2002.
The average yield on interest-earning assets declined to 6.95% for the quarter
and 7.16% for the nine months ended September 30, 2002, from 7.92% and
- --------------------------------------------------------------------------------
13
8.06% for the same two periods in 2001, as short term, liquid deposits became a
higher percentage of interest-earning assets and the yield on overnight
investments declined.
Interest Expense. Interest expense decreased $414,000, or 32%, for the
quarter compared to the same quarter in 2001 and decreased $1.2 million, or 29%,
for the first nine months of 2002 compared to the first nine months in 2001. The
decrease in interest expense for the quarter and nine months ending September
30, 2002, was a direct result of a decline in the rates paid on deposits.
Interest paid on Federal Home Loan Bank advances was $30,000 for the quarter and
$89,000 through the first nine months of 2002 compared to $30,000 and $93,000
for the same periods in 2001. The average cost of interest-bearing liabilities
was 3.01% for the quarter and 3.31% in the first nine months of 2002 compared to
4.56% and 4.83% for the same periods in 2001, primarily as a result of lower
market rates on certificates of deposits and a change in the mix of deposits
with a higher percentage of deposit dollars being made up from lower cost
funding sources.
Provision for Loan Losses. Activity in the allowance for loan losses (the
"Allowance") consists of increases due to monthly provisions for loan losses and
decreases for monthly charge offs, net of recoveries. Management analyzes the
adequacy of the allowance balance at least quarterly by determining its estimate
of probable losses in the loan portfolio and comparing that estimate to the
allowance's balance. Management calculates its estimate of probable losses
primarily by applying expected loss percentages to classified loans and
homogeneous loan categories. The impact of these events are described in more
detail below as part of the discussion comparing the second and third quarters
of 2002, to the fourth quarter 2001 and to the second quarter 2001 provisions
for loan losses.
The provision for loan losses was $372,000 for the third quarter of 2002
which represents an increase of $300,000, or 417%, over the $72,000 of provision
recorded for the same period in 2001. The provision for loan losses was $702,000
for the nine months ended September 30, 2002 compared to $180,000 for the same
period in 2001. Through the nine month periods ended September 30, provision
increased $522,000, or 290% when comparing 2002 to 2001. The increase in
provision was driven, in part, by a shift in the loan portfolio's mix toward
more consumer loan balances which, historically, contain more risk of loss to
the Bank than loans secured by mortgages. In addition to the change in the mix
of the loan portfolio, the Bank has experienced a trend, particularly over the
last nine months, showing a deterioration in asset quality evidenced by an
increase in total non-performing assets.
Non-performing assets totaled $1.68 million at September 30, 2002, or 1.23%
of assets. Of the $1.68 million in non-performing assets, $930,000 were loans
which are 90 days or more past due and still accruing interest and $670,000 were
loans in a non-accrual status. Non-performing indirect mobile home loans made up
$559,000 of the loans that were 90 days or more past due and still accruing
interest and $197,000 of the loans that are carried in a non-accrual status. At
June 30, 2002, non-performing assets totaled $1.61 million or 1.20% of assets.
Of the $1.61 million $820,000 were loans which are 90 days or more past due and
still accruing interest and $726,000 were loans in a non-accrual status. At June
30, 2002, non-performing indirect mobile home loans made up $392,000 of the
loans that were 90 days or more past due and still accruing interest and
$463,000 of the loans that are carried in a non-accrual status. To facilitate
long-term improvement to the quality of the Bank's loan portfolios, the Bank's
loan review and collection processes have been enhanced by: the addition of an
experienced collection officer in October, 2001; the reorganization of the
collection area of the Bank in the first quarter of 2002; and the addition of a
Loan Review Officer in the second quarter of 2002. In addition to these
improvements the Bank has hired an experienced Certified Public Accountant to
implement a full time internal audit department within the Company. The
individual charged with this responsibility started with the Bank late in the
second quarter of 2002. Management believes that these changes have already
served to improve the quality of the information used to analyze the credit risk
contained on the balance sheet and the adequacy of the Bank's allowance for loan
losses. The bank also believes that these recent investments in personnel will
better position the Company for future growth.
In the June 30, 2002 filing of the Company's Form 10-QSB the Company
discussed a commercial real estate loan of approximately $560,000 to a group of
local borrowers which was, at that time, 29 days delinquent and, by policy, was
not part of the non-performing loan total. During the third quarter of 2002 the
Bank refinanced this commercial real estate loan without advancing any
additional funds. As part of the transaction, the Bank obtained additional
collateral, in
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14
the form of real estate, to improve the Bank's secured position. The Bank will
continue to monitor the loan as prescribed by the Bank's Loan Review and
Classification Policy
Allowance for loan losses totaled $1.1 million at September 30, 2002, an
increase of $271,000, or 32%, compared to the same date in 2001. At September
30, 2002, Lawrence Federal's allowance for loan losses represented 1.10% of
total gross loans and 69% of nonperforming loans. Although management believes
that it uses the best information available to establish the allowance for loan
losses, future adjustments to the allowance for loan losses may be necessary and
results of operations could be adversely affected. Furthermore, while Lawrence
Federal believes it has established its existing allowance for loan losses in
conformity with generally accepted accounting principles, there can be no
assurance that regulators, in reviewing Lawrence Federal's loan portfolio, will
not request Lawrence Federal to increase its future provisions for loan losses.
In addition, because future events affecting borrowers and collateral cannot be
predicted with certainty, there can be no assurance that the existing allowance
for loan losses is adequate or that increases will not be necessary should the
quality of any loans deteriorate as a result of the factors discussed above. Any
material increase in the allowance for loan losses may adversely affect Lawrence
Federal's financial condition and results of operations.
Management continues to monitor closely the risk characteristics of the
loan portfolio, local economic conditions and, as stated earlier, will consider
these factors when evaluating the appropriate amount of provision and allowance
for loan losses. Management believes the company to be adequately reserved at
September 30, 2002.
15
Noninterest Income. The following table shows the components of noninterest
income and the dollar and percentage change from the nine months ended September
30, 2002 to the same period in 2001 and the nine months ending September 30,
2002 to the same period in 2001.
Quarters Ended
Dollar Percentage
09/30/02 09/30/01 Change Change
-------- -------- ------ ------
(Dollars in Thousands)
Net securities gains (losses) ...... $ 6 $ 13 $ (7) 54%
Service charges .................... 114 $113 1 1%
Other .............................. 69 41 28 68%
---- ---- ---- --
Total ........................ $189 $167 $ 22 13%
==== ==== ==== ==
Net securities gains recognized for the quarter ended September 30, 2001
were not duplicated in the same period of 2002. The increase in "Other" was
primarily due to the increase in various items including an increase in income
earned on the cash surrender value of bank owned life insurance.
Nine Months Ended
Dollar Percentage
09/30/02 09/30/01 Change Change
-------- -------- ------ ------
(Dollars in Thousands)
Net securities gains (losses) ........ $ 14 $ 13 $ 1 8%
Service charges ...................... 331 $314 17 5%
Other ................................ 183 127 56 44%
---- ---- --- --
Total .......................... $528 $454 $74 16%
==== ==== === ==
Service charges increased during the period as a result of growth in the
number of deposit accounts. The increase in "Other" was primarily due to the
increase in various items including an increase in income earned on the cash
surrender value of bank owned life insurance.
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16
Non-Interest Expense. The following tables show the components of noninterest
expense and the dollar and percentage change from the nine months ended
September 30, 2002 to the same period in 2001 and the nine months ending
September 30, 2002 to the same period in 2001.
Quarters Ended
Dollar Percentage
09/30/02 09/30/01 Change Change
-------- -------- ------ ------
(Dollars in Thousands)
Salaries and benefits .............. $ 432 $431 $ 1 1%
Deposit insurance premiums ......... 15 13 2 15%
Occupancy and equipment ............ 118 83 35 42%
Data processing .................... 135 125 10 8%
Franchise tax ...................... 29 23 6 26%
Advertising expense ................ 24 22 2 9%
Other .............................. 252 222 30 14%
------ ---- --- --
Total ........................ $1,005 $919 $86 9%
====== ==== === ==
Non-interest expense increased $86,000, or 9%, for quarter ended September
30, 2002, as compared to the same period in 2001. The Company has also
experienced increases in: data processing; printing and supplies; and other
non-interest expenses which are related to the growth of the Company's customer
base and the daily operation of the Company.
Nine Months Ended
Dollar Percentage
09/30/02 09/30/01 Change Change
-------- -------- ------ ------
(Dollars in Thousands)
Salaries and benefits .......... $1,298 $1,176 $122 10%
Deposit insurance premiums ..... 72 23 49 213%
Occupancy and equipment ........ 285 249 36 14%
Data processing ................ 401 363 38 10%
Franchise tax .................. 94 73 21 29%
Advertising expense ............ 80 64 16 25%
Other .......................... 737 616 121 20%
------ ------ ---- ---
Total .................... $2,967 $2,564 $403 16%
====== ====== ==== ===
Non-interest expense increased $403,000, or 16%, for the nine months ended
September 30, 2002, as compared to the same period in 2001. The increase in
salaries and benefits for the nine months ended September 30, 2002 compared to
the same period in 2001 reflects the following increases: an increase of $96,000
in salary and wage expense; an increase of $19,000 in expense for the Employee
Stock Ownership Program (ESOP) and for restricted stock awards; as well as other
changes to components of the "Salaries and benefits" line item. The increase in
the deposit insurance premiums was due to the increase in the average balance of
the Bank's deposit base. The Company has also experienced increases in: data
processing; printing and supplies; and other non-interest expenses which are
related to the growth of the Company's customer base and the daily operation of
the Company.
Income Tax Expense. The provision for income tax was $34,000 for the three
months ended September 30, 2002, compared to $200,000 in the same period for
2001 and $200,000 for the nine months ended September 30, 2002, compared to
$282,000 in the same period for 2001. The provision decreased as a result of
lower taxable income. The effective tax rate for the quarter ended September 30,
2002 was 36.0% compared with 32.0% for the same period in 2001 and for the nine
months ended September 30, 2002 was 30.7% compared with 32.0% for the same
period in 2001.
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17
Average Balances, Interest and Average Yields/Cost
The following table presents certain information regarding average balances
of assets and liabilities, as well as the total dollar amounts of interest
income from average interest-earning assets and interest expense on average
interest-bearing liabilities and the resulting average yields and costs. The
yields and costs for the periods indicated are derived by dividing income or
expense by the average balances of assets or liabilities, respectively, for the
periods presented. Average balances were derived from daily balances.
-----------------------------------------------------------------------------------------
Nine months ended September 30,
-----------------------------------------------------------------------------------------
2002 2001
--------------------------------------- ----------------------------------------
(Dollars in Thousands) Average Average
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
----------- ------------ ---------- ----------- ----------- -----------
Interest-earning assets:
Loans (1) .......................... 103,125 6,109 7.89% 107,382 6,736 8.37%
Securities (2) ..................... 12,062 494 5.46% 7,211 341 6.30%
Short term investments ............. 9,403 90 1.28% 5,151 152 3.95%
------- ----- ------- -----
Total interest-earning assets ...... 124,590 6,693 7.16% 119,744 7,229 8.06%
Non-interest-earning assets ........... 9,228 9,674
------- -------
Total assets ................. 133,818 129,418
======= =======
Interest-bearing liabilities:
Deposits:
Passbook accounts ............... 27,586 443 2.14% 19,971 429 2.87%
Money market accounts ........... 992 19 2.56% 811 18 2.93%
NOW accounts .................... 15,448 151 1.30% 13,174 217 2.20%
Certificates of deposit ......... 71,214 2,199 4.12% 76,467 3,302 5.77%
------- ----- ------- -----
Total deposits ............... 115,240 2,812 3.26% 110,423 3,966 4.81%
FHLB advances ...................... 2,000 88 5.91% 2,086 93 5.97%
------- ----- ------- -----
Total interest-bearing
liabilities ............... 117,240 2,900 3.31% 112,509 4,059 4.83%
Non-interest-bearing liabilities ...... 1,595 1,450
------- -------
Total liabilities ............ 118,835 113,959
Total retained earnings ............... 14,983 15,459
------- -------
Total liabilities and retained
earnings .................. 133,818 129,418
======= =======
Net interest-earning assets ........ 14,983 7,415
======= =======
Net interest income/interest
rate spread (3) .................. 3,793 3.85% 3,170 3.23%
===== =====
Net interest margin (4) ............ 4.06% 3.53%
Ratio of interest-earning assets
to interest-bearing liabilities .. 106.27% 106.60%
- ----------
(1) Balances are net of deferred loan origination costs, allowance for loan
losses, undisbursed proceeds of construction loans in process, and include
non-accrual loans.
(2) Includes investment securities available-for-sale, stock in the Federal
Home Loan Bank of Cincinnati and mutual funds.
(3) Net interest rate spread represents the difference between the weighted
average yield on interest-earning assets and the weighted average cost of
interest-bearing liabilities.
(4) Net interest margin represents net interest income as a percentage of
average interest-earning assets.
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18
Management of Interest Rate Risk and Market Risk Analysis
Qualitative Aspects of Market Risk. Lawrence Federal's most significant
form of market risk is interest rate risk. The principal objectives of Lawrence
Federal's interest rate risk management are to evaluate the interest rate risk
inherent in certain balance sheet accounts, determine the level of risk
appropriate given Lawrence Federal's business strategy, operating environment,
capital, liquidity requirements and performance objectives, and manage the risk
consistent with the Board of Director's approved guidelines. Lawrence Federal
has an Asset/Liability Committee (ALCO), responsible for reviewing its
asset/liability policies and interest rate risk position, which meets monthly
and reports trends and interest rate risk position to the Board of Directors
quarterly. The ALCO is actively involved in reviewing the mix, volume and
pricing strategies associated with managing the Bank's balance sheet and
interest rate risk. During the first nine months of 2002 management has utilized
several internal reports to better analyze the current financial position of the
Bank, and the Company, and to identify historic trends in both entities.
However, management is aware that the movement of interest rates is an
uncertainty which could have a negative impact on the earnings of Lawrence
Federal.
At this time, Lawrence Federal is liability sensitive which makes the Bank
subject to increased interest expense during periods of rising interest rates.
Lawrence Federal has placed an emphasis on adjustable-rate loans and the
origination of fixed-rate mortgage loans through a third party which, over the
long-term, will serve to make the balance sheet less liability sensitive.
Lawrence Federal currently does not participate in hedging programs, interest
rate swaps or other activities involving the use of off-balance sheet derivative
financial instruments.
Quantitative Aspects of Market Risk. When evaluating interest rate risk
Lawrence Federal utilizes an interest sensitivity analysis prepared by the
Office of Thrift Supervision (the "OTS"), which is supplemented by an internally
generated monthly "Rate-Volume-Variance Report". The following table, which is
based on information provided to Lawrence Federal by the Office of Thrift
Supervision, presents the change in Lawrence Federal's net portfolio value at
June 30, 2002 (the most recent data available), that would occur upon an
immediate change in interest rates based on Office of Thrift Supervision
assumptions, but without giving effect to any steps that management might take
to counteract that change.
NPV as % of Portfolio
Change in Net Portfolio Value Value of Assets
Interest Rates ------------------------------------- -----------------------
In Basis Points (Dollars in thousands) NPV
(Rate Shock) $ Amount $ Change % Change Ratio Change (1)
- --------------- ---------- ----------- ----------- ---------- -----------
300 13,602 -4,368 -24% 10.17% -265
200 15,260 -2,709 -15% 11.21% -161
100 16,697 -1,272 -7% 12.08% -74
Static 17,969 -- -- 12.82% --
-100 18,705 736 4% 13.21% 39
(1) Expressed in basis points.
The preceding table shows that in the event of a sudden and sustained
increase in market interest rates of 200 basis points or more, the net portfolio
value of Lawrence Federal would suffer a moderate decrease.
The Office of Thrift Supervision uses certain assumptions in assessing the
interest rate risk of savings associations. These assumptions relate to interest
rates, loan prepayment rates, deposit decay rates, and the market values of
certain assets under differing interest rate scenarios, among others.
As with any method of measuring interest rate risk, certain shortcomings
are inherent in the method of analysis presented in the foregoing table. For
example, although certain assets and liabilities may have similar maturities or
periods to repricing, they may react in different degrees to changes in market
interest rates. Also, the interest rates on
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19
certain types of assets and liabilities may fluctuate in advance of changes in
market interest rates, while interest rates on other types may lag behind
changes in market rates. Additionally, certain assets, such as adjustable rate
mortgage loans, have features which restrict changes in interest rates on a
short-term basis and over the life of the asset. Further, if interest rates
change, expected rates of prepayments on loans and early withdrawals from
certificates of deposit could deviate significantly from those assumed in
calculating the table.
Liquidity and Capital Resources
Liquidity is the ability to meet current and future financial obligations
of a short-term nature. Lawrence Federal further defines liquidity as the
ability to respond to the needs of depositors and borrowers as well as
maintaining the flexibility to take advantage of investment opportunities.
Lawrence Federal's primary sources of funds consist of deposit inflows, loan
repayments, maturities and sales of investment securities and borrowings from
the Federal Home Loan Bank. While maturities and scheduled amortization of loans
and securities are predictable sources of funds, deposit flows and mortgage
prepayments are greatly influenced by general interest rates, economic
conditions and competition.
Lawrence Federal's most liquid assets are cash and short-term investments
(securities maturing in one year or less). The levels of these assets are
dependent on Lawrence Federal's operating, financing, lending and investing
activities during any given period. At September 30, 2002, cash and short-term
investments totaled $17.3 million. Securities classified as available-for-sale
totaled $11.6 million at September 30, 2002.
Funding is obtained primarily from activity involving deposit accounts and
Federal Home Loan Bank advances. In the first nine months of 2002 Lawrence
Federal experienced a net increase in total deposits of $2.5 million compared to
an increase of $12.4 million for the same period in 2001. In addition, at
September 30, 2002, Lawrence Federal had the ability to borrow a total of
approximately $15.0 million from the Federal Home Loan Bank of Cincinnati
through the use of an existing Cash Management Advance agreement. On that date,
Lawrence Federal had long term advances outstanding of $2 million. On the same
date in 2001, Federal Home Loan Bank advances were at $2 million. Deposit flows
are affected by the overall level of interest rates, the interest rates and
products offered by Lawrence Federal and its local competitors and other
factors. Lawrence Federal generally manages the pricing of its deposits to be
competitive and to increase core deposit relationships. Occasionally, Lawrence
Federal offers promotional rates on certain deposit products in order to attract
deposits.
Lawrence Federal is subject to various regulatory capital requirements
administered by the Office of Thrift Supervision including a risk-based capital
measure. The risk-based capital guidelines include both a definition of capital
and a framework for calculating risk-weighted assets by assigning balance sheet
assets and off-balance sheet items to broad risk categories. At September 30,
2002, Lawrence Federal exceeded all of its regulatory capital requirements.
Lawrence Federal is considered "well capitalized" under regulatory guidelines.
See the table on page nine (9) of this filing for more detail regarding the
Bank's capital position.
Effect of Inflation and Changing Prices
The consolidated financial statements and related financial data presented
in this interim report have been prepared following accounting principles
generally accepted in the United States of America, which require the
measurement of financial position and operating results in terms of historical
dollars without considering the change in the relative purchasing power of money
over time due to inflation. The primary impact of inflation is reflected in the
increased cost of Lawrence Federal's operations. 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 a financial institution's performance than do general
levels of inflation. Interest rates do not necessarily move in the same
direction or to the same extent as the prices of goods and services.
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20
ITEM 3
Controls and Procedures
(a) Evaluation of disclosure controls and procedures. The Company maintains
controls and procedures designed to ensure that information required to be
disclosed in the reports that the Company files or submits under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the
time periods specified in the rules and forms of the Securities and Exchange
Commission. Based upon their evaluation of those controls and procedures
performed within 90 days of the filing date of this report, the chief executive
and chief financial officers of the Company concluded that the Company's
disclosure controls and procedures were adequate.
(b) Changes in internal controls. The Company made no significant changes in its
internal controls or in other factors that could significantly affect these
controls subsequent to the date of the evaluation of those controls by the Chief
Executive and Chief Financial officers.
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21
Lawrence Financial Holdings, Inc.
Form 10-QSB
Quarter ended September 30, 2002
PART II - Other Information
Item 1- Legal Proceedings:
There are no matters required to be reported under this item.
Item 2- Changes in Securities:
There are no matters required to be reported under this item.
Item 3- Defaults Upon Senior Securities:
There are no matters required to be reported under this item.
Item 4- Submission of Matters to a Vote of Security Holders:
There are no matters required to be reported under this item.
Item 5- Other Information:
There are no items to be reported under this item.
Item 6- Exhibits and Reports on Form 8-K:
(a) Exhibits -
99.1 - Certification pursuant to 18 U.S.C. Section 1350,as
adopted pursuant to Section 906 of the Sarbanes-Oxley act of 2002
- RobRoy Walters -- Chief Financial Officer
99.2 - Certification pursuant to 18 U.S.C. Section 1350,as
adopted pursuant to Section 906 of the Sarbanes-Oxley act of 2002
- Jack L. Blair -- Chief Executive Officer
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the
quarter ended September 30, 2002.
- --------------------------------------------------------------------------------
22
Signatures
In accordance with 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.
Lawrence Financial Holdings, Inc.
Date: November 13, 2002 /s/ Jack L. Blair
------------------------------ ---------------------------------------
Jack L. Blair
President and Chief Executive Officer
Date: November 13, 2002 /s/ RobRoy Walters
------------------------------ ---------------------------------------
RobRoy Walters
Senior Vice President and
Chief Financial Officer
- --------------------------------------------------------------------------------
23
CERTIFICATIONS
I, RobRoy Walters, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Lawrence Financial
Holdings, Inc;
2. Based on my knowledge, the quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of and for the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and 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 officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of the
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect the internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 13, 2002 /s/ RobRoy Walters
------------------------------ ---------------------------------------
RobRoy Walters
Chief Financial Officer
- --------------------------------------------------------------------------------
24
I, Jack Blair, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Lawrence Financial
Holdings, Inc;
2. Based on my knowledge, the quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of and for the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and 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 officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of the
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material weaknesses
in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
the internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 13, 2002 /s/ Jack Blair
------------------------------ --------------------------------------
Jack Blair
Chief Executive Officer
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25