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 March 31, 2003
Commission file number: 0-31847
Lawrence Financial Holdings, Inc.
---------------------------------
(Exact name of small business issuer as specified in its charter)
Maryland 31-1724442
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
311 South Fifth Street, Ironton, Ohio 45638
-------------------------------------------
(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 April 30, 2003
Common Stock, $.01 par value 650,110 Common Shares
Transitional Small Business Disclosure Format (Check One) : Yes |_| No |X|
Lawrence Financial Holdings, Inc.
FORM 10-QSB
Quarter Ended March 31, 2003
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
- --------------------------------------------------------------------------------
2
CONSOLIDATED BALANCE SHEETS
March 31, 2003 and December 31, 2002
- --------------------------------------------------------------------------------
(Unaudited)
March 31, December 31,
2003 2002
---- ----
ASSETS
Cash and due from banks $ 14,652,477 $ 16,140,900
Merrill Lynch money market fund 339,260 179,600
------------- -------------
Total cash and cash equivalents 14,991,737 16,320,500
Securities available for sale, at fair value 17,978,939 14,192,370
Loans receivable, net 95,370,138 96,457,033
Federal Home Loan Bank stock 620,400 614,400
Premises and equipment, net 3,426,808 3,340,888
Accrued interest receivable 666,522 685,755
Cash surrender value of life insurance 2,170,825 2,131,685
Other assets 855,950 645,916
------------- -------------
$ 136,081,319 $ 134,388,547
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Noninterest-bearing deposits $ 2,769,988 $ 1,995,918
Interest-bearing deposits 118,368,936 116,930,237
------------- -------------
Total deposits 121,138,924 118,926,155
Other liabilities 690,317 673,601
------------- -------------
Total liabilities 121,829,241 119,599,756
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 7,484,681 7,467,042
Retained earnings 9,566,346 9,485,971
Treasury stock, at cost; shares: 121,500 in
2003 and 94,000 in 2002 (2,176,180) (1,683,600)
Unearned ESOP shares (419,062) (434,580)
Unearned restricted stock awards (201,794) (201,794)
Accumulated other comprehensive income,
net of tax of $(5,102) at 2003 and $76,119 in 2002 (9,904) 147,761
------------- -------------
Total shareholders' equity 14,252,078 14,788,791
------------- -------------
Total liabilities and shareholders' equity $ 136,081,319 $ 134,388,547
============= =============
The accompanying notes are an integral part
of these consolidated financial statements.
- --------------------------------------------------------------------------------
3
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended March 31, 2003 and 2002
(Unaudited)
- --------------------------------------------------------------------------------
Three Months Ended
March 31,
----------------------------
2003 2002
---- ----
Interest income
Loans, including fees $ 1,741,084 $ 2,077,877
Taxable securities 192,020 165,436
Tax exempt securities 22,336 --
Overnight deposits 22,484 31,538
----------- -----------
1,977,924 2,274,851
----------- -----------
Interest expense
Deposits 680,711 1,019,140
Federal Home Loan Bank borrowings -- 29,145
----------- -----------
680,711 1,048,285
----------- -----------
Net interest income 1,297,213 1,226,566
Provision for loan losses 300,000 150,000
----------- -----------
Net interest income
after provision for loan losses 997,213 1,076,566
Noninterest income
Net securities gains (losses) 153,122 (4,889)
Service charges 106,498 107,588
Other 40,317 62,922
----------- -----------
299,937 165,621
----------- -----------
Noninterest expense
Salaries and benefits 488,550 435,803
Deposit insurance premiums 15,272 28,748
Occupancy and equipment 92,164 84,292
Data processing 196,383 134,163
Franchise tax 33,000 33,000
Advertising expense 30,642 31,324
Professional fees 88,831 70,642
Other 181,699 142,661
----------- -----------
1,126,541 960,633
----------- -----------
Income before income tax 170,609 281,554
Provision for income tax 43,779 89,199
----------- -----------
Net income $ 126,830 $ 192,355
=========== ===========
Basic earnings per common share$ 0.20 $ 0.27
=========== ===========
Diluted earnings per common share $ 0.20 $ 0.26
=========== ===========
The accompanying notes are an integral part
of these consolidated financial statements.
- --------------------------------------------------------------------------------
4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three Months Ended March 31, 2003 and 2002
(Unaudited)
- --------------------------------------------------------------------------------
Three Months Ended
March 31,
------------------------
2003 2002
---- ----
Net income $ 126,830 $ 192,355
Other comprehensive income:
Unrealized gains (losses)
arising during period (85,764) (171,003)
Reclassification adjustment for (gains)
losses included in net income (153,122) 4,889
--------- ---------
Total other comprehensive income (loss) (238,886) (166,114)
Income tax expense (benefit) 81,221 56,479
--------- ---------
Other comprehensive income (loss),
net of tax (157,665) (109,635)
--------- ---------
Comprehensive income (loss) $ (30,835) $ 82,720
========= =========
The accompanying notes are an integral part
of these consolidated financial statements.
- --------------------------------------------------------------------------------
5
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Year Ended December 31, 2002 and the Three Months Ended March 31, 2003
(Unaudited)
- --------------------------------------------------------------------------------
Additional
Common Paid-In Retained Treasury
Stock Capital Earnings Stock
----- ------- -------- -----
Balance - January 1, 2002 $ 7,991 $ 7,426,239 $ 9,076,779 $ --
Net income -- -- 606,449 --
Net unrealized appreciation on
securities available for sale,
net of tax of $59,115 -- -- -- --
Treasury Stock acquired - 94,000 shares -- -- -- (1,683,600)
Cash dividend - $0.28 per share -- -- (197,257) --
Stock-based compensation -- 40,803 -- --
----------- ----------- ----------- -----------
Balance, December 31, 2002 7,991 7,467,042 9,485,971 (1,683,600)
Net income -- -- 126,830 --
Net unrealized depreciation on
securities available for sale,
net of tax benefit of $(81,221) -- -- -- --
Treasury Stock acquired - 27,500 shares -- -- -- (492,580)
Cash dividend - $0.07 per share -- -- (46,455) --
Stock-based compensation -- 17,639 -- --
----------- ----------- ----------- -----------
Balance, March 31, 2003 $ 7,991 $ 7,484,681 $ 9,566,346 $(2,176,180)
=========== =========== =========== ===========
Unearned Accumulated
Unearned Restricted Other
ESOP Stock Comprehensive
Shares Awards Income Total
------ ------ ------ -----
Balance - January 1, 2002 $ (496,660) $ (269,059) $ 33,008 $15,778,298
Net income -- -- -- 606,449
Net unrealized appreciation on
securities available for sale,
net of tax of $59,115 -- -- 114,753 114,753
Treasury Stock acquired - 94,000 shares -- -- -- (1,683,600)
Cash dividend - $0.28 per share -- -- -- (197,257)
Stock-based compensation 62,080 67,265 -- 170,148
----------- ----------- ----------- -----------
Balance, December 31, 2002 (434,580) (201,794) 147,761 14,788,791
Net income -- -- -- 126,830
Net unrealized depreciation on
securities available for sale,
net of tax benefit of $(81,221) -- -- (157,665) (157,665)
Treasury Stock acquired - 27,500 shares -- -- -- (492,580)
Cash dividend - $0.07 per share -- -- -- (46,455)
Stock-based compensation 15,518 -- -- 33,157
----------- ----------- ----------- -----------
Balance, March 31, 2003 $ (419,062) $ (201,794) $ (9,904) $14,252,078
=========== =========== =========== ===========
The accompanying notes are an integral part
of these consolidated financial statements.
- --------------------------------------------------------------------------------
6
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2003 and 2002
(Unaudited)
- --------------------------------------------------------------------------------
Three Months Ended
March 31,
----------------------------
2003 2002
---- ----
Cash flows from operating activities
Net income $ 126,830 $ 192,355
Adjustments to reconcile net income to net cash from
operating activities
Depreciation 53,352 43,885
Provision for loan losses 300,000 150,000
Stock dividend on Federal Home Loan Bank stock (6,000) (6,500)
Net premium amortization 32,807 (7,370)
Net securities (gains) losses (153,122) 4,889
Gain on disposal of fixed assets (2,800) --
ESOP expense 33,157 26,100
Restricted stock award expense 16,816 19,600
Change in other assets and liabilities (102,532) (364,624)
------------ ------------
Net cash from operating activities 298,508 58,335
------------ ------------
Cash flows from investing activities
Purchase of:
Securities available for sale (17,351,736) (1,365,000)
Premises and equipment (139,271) (25,417)
Proceeds from:
Sale of securities available for sale 12,823,839 1,000,000
Calls, maturities and principal repayments of securities
available for sale 619,703 --
Sale of fixed assets 2,800 --
Net change in loans 743,660 2,316,044
------------ ------------
Net cash from investing activities (3,301,005) 1,925,624
------------ ------------
Cash flows from financing activities
Net change in:
Deposits 2,212,769 (3,085,253)
Cash dividend paid (46,455) (54,634)
Purchase of treasury stock (492,580) (651,900)
------------ ------------
Net cash from financing activities 1,673,734 3,791,787
------------ ------------
Net change in cash and cash equivalents (1,328,762) 1,807,825
Cash and cash equivalents at beginning of the year 16,320,500 13,349,261
------------ ------------
Cash and cash equivalents at end of the period $ 14,991,737 $ 11,541,436
============ ============
Supplemental disclosures:
Cash paid during the period for:
Interest $ 683,206 $ 1,043,605
Income taxes 100,000 273,000
Non-cash transactions
Transfer of loans to real estate owned 43,235 --
The accompanying notes are an integral part
of these consolidated financial statements.
- --------------------------------------------------------------------------------
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 only holds liquid assets in the
form of cash. The operations from Lawrence Financial Services Corporation are
not considered to be significant. 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:
Three Month Period
Ended March 31
-------------------
2003 2002
------- -------
Net weighted average shares outstanding - Basic 633,122 715,669
Effect of stock options 9,745 5,932
Effect of non-vested stock awards 1,668 18,037
------- -------
Net effect of stock options and non-vested
stock awards 11,413 23,969
Weighted average shares outstanding - Diluted 644,535 739,638
======= =======
Stock-Based Compensation: Employee compensation under the stock option plan is
reported if options are granted below market price at grant date. Pro forma
disclosures of compensation cost of stock-based awards have been determined
using the fair value method that considers the time value of the option
considering the volatility of the Company's stock, expected dividend yield, and
the risk-free interest rate over the expected life of the option using a
Black-Scholes valuation model.
The options granted on December 31, 2001 have an exercise price of $14.45 and
expire in December 2011. One-fifth of the options vested on the date of grant;
the remaining options vest over four years. The fair value of options granted in
2001 was estimated using the following assumptions: Risk-free interest rate of
4.49%, expected life of 5 years, expected volatility of stock price of 27% and
expected dividend yield of 1.94%. Based on these assumptions, the estimated fair
value of options granted in 2001 was $3.77 per option.
- --------------------------------------------------------------------------------
8
The following pro forma information presents net income and earnings per common
share had the fair value of the options been used to measure compensation cost
for the stock option plan.
Three Months Ended
March 31,
---------------------
2003 2002
---- ----
Reported net income $126,830 $192,355
Pro forma impact (9,725) (9,725)
-------- --------
Pro forma net income $117,105 $182,630
======== ========
Reported basic earnings per common share $ 0.20 $ 0.27
Pro forma impact (0.02) (0.01)
-------- --------
Pro forma basic earnings per common share $ 0.18 $ 0.26
======== ========
Reported diluted earnings per common share $ 0.20 $ 0.26
Pro forma impact (0.02) (0.01)
-------- --------
Pro forma diluted earnings per common share $ 0.18 $ 0.25
======== ========
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). 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 March 31, 2003, 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, 2002, contains consolidated financial
statements and related notes which should be read in conjunction with the
accompanying consolidated financial statements.
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 March 31, 2003 and
December 31, 2002, management believes the Bank complied with all regulatory
capital requirements. At March 31, 2003, Lawrence Federal exceeded all of its
regulatory capital requirements. Lawrence Federal is considered "well
capitalized" under regulatory guidelines. Management is unaware of any events or
circumstances that would change the Bank's classification since this time.
The Bank's actual capital levels and minimum required levels were as
follows:
- --------------------------------------------------------------------------------
9
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
------ ----- ------ ----- ------ -----
March 31, 2003:
Total capital (to risk-
weighted assets) $13,383 14.75% $ 7,259 8.0% $ 9,073 10.0%
Tier 1 (core) capital (to
risk-weighted assets) 12,559 13.85 3,627 4.0 5,441 6.0
Tier 1 (core) capital (to
adjusted total assets) 12,559 9.25 5,431 4.0 6,789 5.0
December 31, 2002:
Total capital (to risk-
weighted assets) $13,806 15.19% $ 7,271 8.0% $ 9,089 10.0%
Tier 1 (core) capital (to
risk-weighted assets) 12,976 14.28 3,635 4.0 5,452 6.0
Tier 1 (core) capital (to
adjusted total assets) 13,212 9.67 5,368 4.0 6,709 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 distributions 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.
- --------------------------------------------------------------------------------
10
NOTE 3 - ALLOWANCE FOR LOAN LOSSES AND NON-PERFORMING LOANS
Activity in the allowance for loan losses is as follows:
Three Months Ended March 31
2003 2002
------- -------
(Dollars in Thousands)
Beginning Balance .............................. $ 1,111 $ 1,232
Provision for Loan Losses ...................... 300 150
Charge Offs .................................... (227) (146)
Recoveries ..................................... 17 3
------- -------
Ending Balance ................................. $ 1,201 $ 1,239
======= =======
The following table shows the components of non-performing assets at:
3/31/03 12/31/02
------- --------
(Dollars in Thousands)
Non-Accrual Loans .................................. $ 602 $ 531
Loans 90 days or more past due
and still accruing interest ..................... 956 1,411
------ ------
Total Non-Performing Loans ...................... 1,558 1,942
------ ------
Other Real Estate Owned ............................ 111 151
Total Non-Performing Assets ........................ $1,669 $2,093
====== ======
Non-performing loans to total loans ................ 1.61% 1.99%
Non-performing assets to total loans plus
other real estate owned ......................... 1.73% 2.14%
Allowance for loan losses to total
non-performing loans ............................ 77.09% 57.20%
Loans 90 days or more past due and
not on non-accrual to total loans ............... .99% 1.45%
- --------------------------------------------------------------------------------
11
ITEM 2
Management's Discussion and Analysis of Financial Condition
And Results of Operations
Selected Financial Data
- --------------------------------------------------------------------------------
Three Months Ended
March 31,
----------------------
2003 2002
-------- --------
Significant Ratios (Annualized):
Net income to
Average total assets 0.38% 0.58%
Average stockholders' equity 3.52 4.98
Net Interest Margin 4.11 3.94
Average net loans to average deposits 80.11 90.61
Average stockholders' equity to
average total assets 10.68 11.64
Capital ratios
Tier I capital 9.25 10.16
Risk-based capital 14.75 15.03
- --------------------------------------------------------------------------------
Per Share Data:
Earnings per weighted average share
Basic $ 0.20 $ 0.27
Diluted 0.20 0.26
Weighted average shares outstanding
Basic 633,122 715,669
Diluted 644,535 739,638
Total shares outstanding 677,610 762,110
Cash dividends per share .07 .07
Book value per share at end of period $ 21.03 $ 19.92
Last sale at end of period
Source: NASDAQ.com 18.70 16.85
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.
- --------------------------------------------------------------------------------
12
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 extends its lending activities outside of its
market area through programs for originating automobile loans through a network
of dealers. 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 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.
The Bank continued to experience credit quality issues in portions of the
loan portfolio, and expensed $300,000 of provision in the first quarter of 2003,
compared to $150,000 in the first quarter of 2002.
During the three month period ended March 31, 2003, the Company had net
charge-offs of approximately $210,000. At March 31, 2003, the Company had a
ratio of Allowance for Loan Loss to gross loans of 1.24% compared to 1.19% on
the same date in 2002.
- --------------------------------------------------------------------------------
13
Comparison of Financial Condition at March 31, 2003 and December 31, 2002
Total assets increased $1.7 million, or 1%, to $136.1 million at March 31,
2003 when compared to the balances at December 31, 2002. At March 31, 2003, net
loans receivable had decreased $1.1 million, or 1%, when compared to the
balances at December 31, 2002. Direct and indirect consumer loans decreased $1.7
million, or 4%, real estate loans decreased by $1.8 million, or 4%, indirect
mobile home loans decreased $774,000, or 5%, and commercial loans increased $1.8
million, or 34% at March 31, 2003. The allowance for loan losses at March 31,
2003 was $1.2 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 $3.8 million or 27%, when comparing March
31, 2003 balances to December 31, 2002. The reason for the growth in long term
investments was due to the fact the bank had excess liquidity in the form of
cash in the form of overnight deposits, which were earning only minimal
interest. During the first three months of 2003 Lawrence Financial's available
cash and cash equivalents decreased to $14.9 million, a decrease of $1.3
million, or 8%. This decrease was primarily due to the purchase of long term
investments.
Compared to December 31, 2002, total deposits increased $2.2 million, or
2%, to $121.1 million at March 31, 2003.
Equity decreased $537,000, or 3.6%, to $14.3 million at March 31, 2003
when compared to December 31, 2002. During the period ended March 31, 2003,
treasury stock purchased totaled $493,000, retained earnings increased $80,000
as a result of net income for the period and the payment of $46,000 in cash
dividends to the shareholders.
Comparison of Operating Results for the Three Month Period Ending March 31, 2003
and 2002
General. For the three months ended March 31, Lawrence Financial's net
income decreased 34% to $127,000 for 2003 from $192,000 for 2002. Return on
average assets was 0.38% for the first quarter of 2003, compared to 0.58% for
the same period in 2002. Return on average equity was 3.52% for the first
quarter of 2003, compared to 4.98% for the same period in 2002. Net interest
income increased $71,000, or 6%, during the first quarter ending March 31, 2003
compared to the same period in 2002. Noninterest income increased $134,000, or
81%, during the first quarter ending March 31, 2003 compared to the same period
in 2002. Offsetting the increase in net interest income was a $150,000, or 100%,
increase in the provision for loan losses for the quarter ended March 31, 2003.
Also offsetting the increase in net interest and noninterest income was a
$166,000, or 17%, increase in noninterest expense for the quarter ended March
31. There are several causes for the increase in non-interest expense. The
Company has expensed $299,000 year to date for salaries and wages compared to
$260,000 during the same period in 2002. The Company has also experienced:
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 $297,000, or 13%, for the
quarter compared to the same quarter in 2002. Interest income on loans decreased
$337,000, or 16% for the quarter. These decreases were primarily a result of a
decline in the balance of the loan portfolio and a decrease in the yield on the
portfolio. Interest income on long-term investments increased $49,000, or 30%
for the quarter, primarily as a result of a larger average balance being carried
by the Company during 2003. The average yield on interest-earning assets
declined to 6.27% for the quarter ended March 31, 2003, from 7.37% for the same
period in 2002, as lower yielding long term investments became a higher
percentage of interest-earning assets.
Interest Expense. Interest expense decreased $368,000, or 35%, for the
quarter compared to the same quarter in 2002. The decrease in interest expense
for the quarter ending March 31, 2003, was a direct result of a decline in the
rates paid on deposits. In the first quarter of 2003, there was no interest paid
on Federal Home Loan Bank advances compared to $29,000 for the same period in
2002. The average cost of interest-bearing liabilities was 2.30% for the quarter
ended March 31, 2003 compared to 3.65% for the same period in 2002, 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.
- --------------------------------------------------------------------------------
14
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 first quarter of 2003, to
the fourth quarter 2002 and the first quarter of 2002.
The provision for loan losses was $300,000 for the first quarter of 2003
which represents an increase of $150,000, or 100%, over the provision of
$150,000 recorded for the same period in 2002. The increase in provision was
driven, in part, by a shift in the loan portfolio's mix toward more consumer and
commercial 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
twelve months, showing a deterioration in asset quality.
Non-performing assets totaled $1.67 million at March 31, 2003, or 1.23% of
assets. Of the $1.67 million in non-performing assets, $956,000 were loans which
are 90 days or more past due and still accruing interest and $602,000 were loans
in a non-accrual status. Non-performing indirect mobile home loans made up
$601,000 of the loans that were 90 days or more past due and still accruing
interest and $183,000 of the loans that are carried in a non-accrual status. At
December 31, 2002, non-performing assets totaled $2.09 million or 1.56% of
assets. Of the $2.09 million $1.41 million were loans which are 90 days or more
past due and still accruing interest and $531,000 were loans in a non-accrual
status. At December 31, 2002, non-performing indirect mobile home loans made up
$975,000 of the loans that were 90 days or more past due and still accruing
interest and $180,000 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 in 2002 by
the addition of experienced employees. In addition to these improvements the
Bank hired an experienced Certified Public Accountant to implement a full time
internal audit department within the Company during the second quarter of 2002.
Management believes that these changes have 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.
Allowance for loan losses totaled $1.2 million at March 31, 2003 and 2002.
At March 31, 2003, Lawrence Federal's allowance for loan losses represented
1.24% of total gross loans and 77% 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 allowance to be adequate at March 31,
2003.
- --------------------------------------------------------------------------------
15
Noninterest Income. The following table shows the components of noninterest
income and the dollar and percentage change from the three months ended March
31, 2003 to the same period in 2002.
Quarters Ended
Dollar Percentage
3/31/03 3/31/02 Change Change
------- ------- ------ ------
(Dollars in Thousands)
Net securities gains (losses) ....... $ 153 $ (5) $ 158 N/M
Service charges ..................... 106 108 (2) 2%
Other ............................... 41 63 (22) 35%
----- ----- -----
Total ......................... $ 300 $ 166 $ 134 81%
===== ===== =====
Net securities gains recognized for the quarter ended March 31, 2003 were
not duplicated in the same period of 2002. Securities were sold in the first
quarter of 2003 to reduce the bank's exposure to unrealized losses in an upward
rate environment. During the first quarter of 2003, management determined that
there were investments being held that should be sold due to market conditions.
The gains recognized are not expected to be repeated during the remainder of
2003. The decrease in "Other" was primarily due to the loss of $18,000 recorded
from the sale of real estate owned, in addition to fluctuations in various items
including a decrease in income earned on the cash surrender value of bank owned
life insurance.
- --------------------------------------------------------------------------------
16
Non-Interest Expense. The following tables show the components of noninterest
expense and the dollar and percentage change from the three months ended March
31, 2003 to the same period in 2002.
Quarters Ended
Dollar Percentage
3/31/03 3/31/02 Change Change
------- ------- ------ ------
(Dollars in Thousands)
Salaries and benefits .......... $ 489 $ 436 $ 53 12%
Deposit insurance premiums ..... 15 29 (14) (48)%
Occupancy and equipment ........ 92 84 8 10%
Data processing ................ 196 134 62 46%
Franchise tax .................. 33 33 -- --
Advertising expense ............ 31 31 -- --
Other .......................... 271 214 57 27%
------ ------ ------
Total .................... $1,127 $ 961 $ 166 17%
====== ====== ======
Non-interest expense increased $166,000, or 17%, for the three months
ended March 31, 2003, as compared to the same period in 2002. The increase in
salaries and benefits for the three months ended March 31, 2003 compared to the
same period in 2002 reflects the addition of employees in the loan collection,
loan review, internal audit and operations departments within the Company's
banking subsidiary. The Company increased 2003 salaries and wages by an average
of 3% and the cost of employee health benefits has increased by 30% when
compared to the same three month period in 2002. The increase in data processing
expense is the result of an increase of $10,000 in regular data processing fees
and a $50,000 expense related to the conversion process (discussed in following
paragraph). The Company has also experienced increases in: 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.
In July 2003 the Company plans to replace its existing data processing
system. This conversion to a new processing system will better position the bank
to offer additional products, manage existing products, enhance customer service
value, and as an ultimate result, enhance shareholder value. While the final
costs for the deconversion process are unknown until the conversion process is
completed, the final savings for the post conversion process from the current
processor will more than offset these costs within the first year of processing.
Management is actively monitoring the pre-conversion activities and working with
outside parties to provide for a successful conversion.
Income Tax Expense. The provision for income tax was $44,000 for the three
months ended March 31, 2003, compared to $89,000 in the same period for 2002.
The provision decreased as a result of lower taxable income. The effective tax
rate for the quarter ended March 31, 2003 was 26.0% compared with 32.0% for the
same period in 2002.
- --------------------------------------------------------------------------------
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, which have been annualized, 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.
--------------------------------------------------------------
Three months ended March 31,
--------------------------------------------------------------
2003 2002
------------------------------ -----------------------------
Average Average
Average Yield/ Average Yield/
(Dollars in Thousands) Balance Interest Rate Balance Interest Rate
------- -------- ------- ------- -------- -------
Interest-earning assets:
Loans (1) ............................. 96,252 1,741 7.28% 103,759 2,078 8.06%
Securities (2) ........................ 20,261 214 4.44% 11,632 165 5.69%
Short term investments ................ 11,145 23 0.83% 8,870 32 1.46%
------- ------- ------- -------
Total interest-earning assets ...... 127,658 1,978 6.27% 124,261 2,275 7.36%
Non-interest-earning assets .............. 8,986 10,426
------- -------
Total assets ....................... 136,644 134,687
======= =======
Interest-bearing liabilities:
Deposits:
Passbook accounts .................. 33,414 81 0.98% 25,484 144 2.29%
Money market accounts .............. 1,041 3 1.17% 1,003 8 3.40%
NOW accounts ....................... 15,957 32 0.81% 14,264 50 1.39%
Certificates of deposit ............ 69,736 565 3.29% 73,757 817 4.49%
------- ------- ------- -------
Total deposits .................. 120,148 681 2.30% 114,508 1,019 3.61%
FHLB advances ......................... -- -- -- 2,000 29 5.90%
------- ------- ------- -------
Total interest-bearing
liabilities .................. 120,148 681 2.30% 116,508 1,048 3.65%
Non-interest-bearing liabilities ......... 1,899 2,503
------- -------
Total liabilities ............... 122,047 119,011
Total retained earnings .................. 14,597 15,676
------- -------
Total liabilities and retained
earnings ..................... 136,644 134,687
======= =======
Net interest-earning assets ........... 7,510 7,753
======= =======
Net interest income/interest
rate spread (3) .................... 1,297 3.97% 1,227 3.71%
======= ======= ======= =======
Net interest margin (4) ............... 4.11% 3.94%
Ratio of interest-earning assets
to interest-bearing liabilities .... 106.25% 106.65%
- -----------------------------------
(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.
- --------------------------------------------------------------------------------
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 three months of 2003 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
December 31, 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 $14,790 $(2,685) (15) 10.99% (153)
200 16,062 (1,413) (8) 11.76% (76)
100 16,976 (499) (3) 12.28% (24)
Static 17,475 -- -- 12.52% --
-100 17,728 253 1 12.61% 8
(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 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
- --------------------------------------------------------------------------------
19
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 March 31, 2003, cash and short-term
investments totaled $15.0 million. Securities classified as available-for-sale
totaled $17.9 million at March 31, 2003.
Funding is obtained primarily from activity involving deposit accounts and
Federal Home Loan Bank advances. In the first three months of 2003 Lawrence
Federal experienced a net increase in total deposits of $2.2 million compared to
a decrease of $3.1 million for the same period in 2002. In addition, at March
31, 2003, 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 no long term advances outstanding. On the same date in 2002, Federal Home
Loan Bank advances were $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 March 31, 2003,
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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
21
Lawrence Financial Holdings, Inc.
Form 10-QSB
Quarter ended March 31, 2003
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.
A report on form 8-K was filed on January 15, 2003. Under Item
5, Other Events, Lawrence Financial Holdings, Inc. reported
that it issued a press release to announce the date of its
annual meeting of shareholders.
- --------------------------------------------------------------------------------
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: May 09, 2003 /s/ Jack L. Blair
------------------- --------------------------------------------------
Jack L. Blair
President and Chief Executive Officer
Date: May 09, 2003 /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: May 09, 2003
------------------------
/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: May 09, 2003
------------------------
/s/ Jack L. Blair
----------------------------------
Jack Blair
Chief Executive Officer
- --------------------------------------------------------------------------------
25