UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
----------------- -----------------
Commission File Number:
001-13949
LOCAL FINANCIAL CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 65-0424192
---------------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3601 N.W. 63RD, OKLAHOMA CITY, OK 73116
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (405) 841-2298
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).
Yes [X] No [ ]
Number of shares outstanding of the registrant's $0.01 par value common stock as
of April 24, 2003 were as follows:
NUMBER OF SHARES
----------------
17,292,623
LOCAL FINANCIAL CORPORATION
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition-
March 31, 2003 (unaudited) and December 31, 2002.................. 1
Consolidated Statements of Operations-
For the Three Months Ended March 31, 2003 and 2002 (unaudited).... 2
Consolidated Statements of Cash Flows-
For the Three Months Ended March 31, 2003 and 2002 (unaudited).... 3
Notes to Consolidated Financial Statements........................ 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................. 10
Item 3. Quantitative and Qualitative Disclosures about Market Risk........ 16
Item 4. Controls and Procedures........................................... 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................. 18
Item 6. Exhibits and Reports on Form 8-K.................................. 18
Signatures..................................................................... 19
Certifications................................................................. 20
Index to Exhibits.............................................................. 22
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LOCAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(dollars in thousands, except share data)
MARCH 31, 2003 DECEMBER 31, 2002
-------------- -----------------
(unaudited)
ASSETS
Cash and due from banks $ 54,985 $ 51,166
Interest bearing deposits with other banks 6,200 7,200
Securities:
Available for sale 151,088 163,473
Held to maturity 311,372 364,832
-------------- -----------------
Total securities 462,460 528,305
Loans receivable, net of allowance for loan losses of $30,316 at
March 31, 2003 and $29,532 at December 31, 2002 2,140,561 2,084,144
Federal Home Loan Bank of Topeka and Federal Reserve Bank stock, at cost 39,548 38,187
Premises and equipment, net 42,743 42,415
Assets acquired through foreclosure and repossession, net 2,058 1,693
Intangible assets, net 19,543 19,695
Current and deferred taxes, net 9,785 9,428
Other assets 70,732 57,625
-------------- -----------------
Total assets $ 2,848,615 $ 2,839,858
============== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand $ 754,993 $ 756,476
Savings 89,210 82,983
Time 973,844 989,980
-------------- -----------------
Total deposits 1,818,047 1,829,439
Advances from the Federal Home Loan Bank of Topeka 711,409 684,193
Securities sold under agreements to repurchase 41,035 59,696
Senior Notes 21,295 21,295
Other liabilities 26,586 17,105
Mandatorily redeemable trust preferred securities 60,250 60,250
Commitments and contingencies
Stockholders' equity:
Common stock, $0.01 par value, 25,000,000 shares authorized; 20,972,967
shares issued and 17,457,923 shares outstanding at March 31, 2003 and
20,863,967 shares issued and 17,785,323
shares outstanding at December 31, 2002 210 209
Preferred stock, $0.01 par value, 5,000,000 shares authorized;
none outstanding -- --
Additional paid-in capital 209,841 208,599
Retained earnings 158,565 151,495
Treasury stock, 3,515,044 shares at March 31, 2003 and 3,078,644
shares at December 31, 2002, at cost (200,338) (193,783)
Accumulated other comprehensive income, net of tax 1,715 1,360
-------------- -----------------
Total stockholders' equity 169,993 167,880
-------------- -----------------
Total liabilities and stockholders' equity $ 2,848,615 $ 2,839,858
============== =================
The accompanying notes are an integral part of these consolidated financial
statements.
1
LOCAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except share data)
THREE MONTHS ENDED
MARCH 31,
------------------------------
2003 2002
------------ ------------
(unaudited)
Interest income:
Loans $ 33,049 $ 34,471
Securities available for sale 2,108 3,621
Securities held to maturity 4,154 6,299
Federal Home Loan Bank of Topeka and Federal Reserve Bank stock 361 518
Other investments 22 107
------------ ------------
Total interest income 39,694 45,016
Interest expense:
Deposit accounts 8,960 13,652
Advances from the Federal Home Loan Bank of Topeka 6,479 6,482
Securities sold under agreements to repurchase 107 127
Senior Notes 629 636
Trust preferred securities 1,178 922
------------ ------------
Total interest expense 17,353 21,819
Net interest income 22,341 23,197
Provision for loan losses (1,800) (1,800)
------------ ------------
Net interest income after provision for loan losses 20,541 21,397
Noninterest income:
Deposit related income 5,476 4,293
Loan fees and loan service charges 653 526
Net gains on sale of assets 136 70
Other 1,560 1,603
------------ ------------
Total noninterest income 7,825 6,492
------------ ------------
Noninterest expense:
Compensation and employee benefits 10,566 10,373
Equipment and data processing 1,700 1,867
Occupancy 1,338 1,187
Advertising 127 139
Professional fees 263 264
Other 3,741 3,474
------------ ------------
Total noninterest expense 17,735 17,304
------------ ------------
Income before provision for income taxes 10,631 10,585
Provision for income taxes 3,561 3,506
------------ ------------
Net income $ 7,070 $ 7,079
============ ============
Earnings per share:
Net income:
Basic $ 0.40 $ 0.37
============ ============
Diluted $ 0.38 $ 0.36
============ ============
Average shares outstanding:
Basic 17,797,691 19,174,092
============ ============
Diluted 18,408,968 19,887,590
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
2
LOCAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
THREE MONTHS ENDED
MARCH 31,
--------------------------
2003 2002
---------- ----------
(unaudited)
Cash provided (absorbed) by operating activities:
Net income $ 7,070 $ 7,079
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses 1,800 1,800
Deferred income tax benefit (607) (344)
Accretion of discounts and amortization of deferred fees on
loans acquired and securities, net 200 (1,458)
Depreciation and amortization 1,381 987
Net change in loans held for sale (2,385) (2,187)
Net gains on sale of assets (136) (70)
Change in other assets (2,981) (1,362)
Change in other liabilities 4,488 5,597
---------- ----------
Net cash provided by operating activities 8,830 10,042
---------- ----------
Cash provided (absorbed) by investing activities:
Proceeds from principal collections on securities 111,929 102,572
Purchases of securities (45,869) (35,020)
Purchases of Federal Home Loan Bank and Federal Reserve Bank stock (1,361) --
Proceeds from the sale of Federal Home Loan Bank stock -- 2,297
Purchases of bank owned life insurance (10,000) --
Change in loans receivable, net (56,710) 7,430
Proceeds from disposal of assets acquired through foreclosure and
repossession 792 586
Purchases of premises and equipment (1,975) (3,012)
Proceeds from sales of premises and equipment 279 39
---------- ----------
Net cash provided (absorbed) by investing activities (2,915) 74,892
---------- ----------
Cash provided (absorbed) by financing activities:
Change in transaction accounts 4,744 50,055
Change in time deposits (16,136) 30,055
Change in securities sold under agreements to repurchase (18,661) 7,322
Proceeds from advances from the Federal Home Loan Bank 437,920 802,053
Repayments of advances from the Federal Home Loan Bank (410,704) (930,234)
Proceeds from the issuance of common stock 1,090 1,075
Purchase of treasury stock (1,349) (2,309)
---------- ----------
Net cash absorbed by financing activities (3,096) (41,983)
---------- ----------
Net change in cash and cash equivalents 2,819 42,951
Cash and cash equivalents at beginning of period 58,366 60,491
---------- ----------
Cash and cash equivalents at end of period $ 61,185 $ 103,442
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 18,310 $ 20,972
========== ==========
Income taxes $ -- $ --
========== ==========
Supplemental schedule of noncash investing and financing activities:
Transfer of loans to assets acquired through foreclosure and repossession $ 1,157 $ 456
========== ==========
Payable on treasury stock purchase $ 5,206 $ --
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
3
LOCAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements were
prepared in accordance with the instructions for Form 10-Q and,
therefore, do not include all disclosures necessary for a complete
presentation of financial condition, results of operations, and cash
flows in conformity with accounting principles generally accepted in
the United States of America. All adjustments (consisting of only
normal recurring adjustments) that are necessary, in the opinion of
management, for a fair presentation of the interim financial statements
have been included. The interim financial information should be read in
conjunction with the audited Consolidated Financial Statements and
Notes included in the Local Financial Corporation (the "Company") Form
10-K for the year ended December 31, 2002 as filed with the Securities
and Exchange Commission (the "SEC").
(2) STOCK COMPENSATION
The Company applies the intrinsic-value based method of accounting
prescribed by APB Opinion No. 25 and related interpretations in
accounting for its stock option plan. Under this method, compensation
expense is recorded on the date of grant only if the current market
price of the underlying stock exceeds the exercise price. Accordingly,
no compensation cost has been recognized for its stock option rights.
Had the Company determined compensation cost based on the fair value at
the grant date for its stock options under Statement of Financial
Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based
Compensation, and as provided for under SFAS No. 148, Accounting for
Stock-Based Compensation - Transition and Disclosure, an amendment of
FASB Statement No. 123, the Company's net income for the three months
ended March 31, 2003 and 2002 would have been decreased to the pro
forma amounts below (dollars in thousands, except share data).
MARCH 31,
-------------------------
2003 2002
---------- ----------
Net income as reported $ 7,070 $ 7,079
Deduct: Total stock-based employee compensation
expense determined under fair value-based method
for awards, net of related tax effects (104) (109)
---------- ----------
Pro forma net income $ 6,966 $ 6,970
========== ==========
Earnings per share:
Basic - as reported $ 0.40 $ 0.37
========== ==========
Basic - pro forma $ 0.39 $ 0.36
========== ==========
Diluted - as reported $ 0.38 $ 0.36
========== ==========
Diluted - pro forma $ 0.38 $ 0.35
========== ==========
4
(3) LOANS RECEIVABLE
Loans receivable are summarized below at amortized cost (dollars in
thousands):
MARCH 31, 2003 DECEMBER 31, 2002
-------------- -----------------
Residential real estate $ 224,396 $ 212,862
Commercial 1,724,475 1,695,293
Held for sale 10,961 8,576
Consumer 211,045 196,945
-------------- -----------------
Total loans 2,170,877 2,113,676
Less:
Allowance for loan losses (30,316) (29,532)
-------------- -----------------
Loans receivable, net $ 2,140,561 $ 2,084,144
============== =================
(4) ADVANCES FROM THE FEDERAL HOME LOAN BANK OF TOPEKA ("FHLB")
Advances from the FHLB are summarized as follows (dollars in
thousands):
MARCH 31, 2003 DECEMBER 31, 2002
--------------------------------- ---------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
BALANCE CONTRACTUAL RATE BALANCE CONTRACTUAL RATE
----------- ---------------- ----------- ----------------
Fixed rate $ 675,021 3.83% $ 600,022 4.14%
Variable rate 36,388 1.65 84,171 1.51
----------- -----------
$ 711,409 3.72% $ 684,193 3.82%
=========== ================ =========== ================
Additionally, the Company had outstanding letters of credit with the
FHLB of approximately $83.2 million and $93.9 million at March 31, 2003
and December 31, 2002, respectively. The letters of credit have
one-year terms or less and were pledged to secure certain deposits.
The FHLB requires the Company to hold eligible assets with a lending
value, as defined, at least equal to FHLB advances and letters of
credit issued. Eligible assets can include such items as first and
second mortgage loans, multifamily mortgage loans, commercial and
construction real estate loans, small business loans and investment
securities, which are not already pledged or otherwise encumbered. At
March 31, 2003, the Company had approximately $801.6 million in
eligible assets pledged against FHLB advances.
At March 31, 2003, the Company had additional borrowing capacity of
approximately $237.4 million under the FHLB credit policy.
5
Scheduled principal repayments of advances from the FHLB at March 31,
2003 were as follows (dollars in thousands):
WEIGHTED
AVERAGE
YEARS ENDING DECEMBER 31, AMOUNT CONTRACTUAL RATE
---------- ----------------
2003 $ 101,387 1.41%
2004 -- --
2005 10,000 1.81
2006 100,000 3.35
2007 and thereafter 500,022 4.30
----------
$ 711,409 3.72%
========== ================
(5) SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Periodically, the Company provides securities sold under agreements to
repurchase to customers as a part of the commercial banking operations.
The securities underlying the agreements were under the Company's
control at March 31, 2003 and December 31, 2002 and are summarized as
follows (dollars in thousands):
MARCH 31, DECEMBER 31,
2003 2002
------------ ------------
Average outstanding balance $ 46,531 $ 43,425
Weighted average interest rate during the period 0.93% 1.22%
Maximum month-end balance $ 48,955 $ 64,701
Outstanding balance at end of period 41,035 59,696
Weighted average interest rate at end of period 0.92% 0.94%
Mortgage-backed securities securing the agreements
at period-end:
Carrying value $ 48,896 $ 66,931
Estimated market value 49,719 68,501
Accrued interest payable at the end of the period -- --
(6) STOCKHOLDERS' EQUITY
The Company increased its shares of treasury stock during 2003 as part
of a stock repurchase program in which the Company purchased 436,400
shares of its common stock at a cost of approximately $6.6 million.
Subsequent to the quarter ended March 31, 2003, the Company purchased
an additional 165,300 shares at a cost of approximately $2.5 million.
The increase in additional paid-in capital during the first quarter of
2003 of approximately $1.2 million resulted from the exercise of
109,000 options to purchase the Company's stock and tax benefits on
employee stock options.
6
(7) COMPREHENSIVE INCOME
Comprehensive income for the three months ended March 31, 2003 and 2002
consists of (dollars in thousands):
THREE MONTHS ENDED
MARCH 31,
-------------------------
2003 2002
---------- ----------
Net income $ 7,070 $ 7,079
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities, net of
reclassification adjustment 355 (1,949)
---------- ----------
Comprehensive income $ 7,425 $ 5,130
========== ==========
(8) EARNINGS PER SHARE
Basic net income per share is based upon the weighted average number of
shares outstanding during the period. Stock options and warrants to
purchase common stock are considered in diluted income per share
calculations, if dilutive, and are computed using the treasury stock
method.
The following table reconciles the net income and weighted average
shares outstanding used in the calculation of basic and diluted net
income per share for the three months ended March 31, 2003 and 2002.
MARCH 31, 2003
----------------------------------------------
WEIGHTED
AVERAGE
SHARES PER SHARE
NET INCOME OUTSTANDING AMOUNT
------------ ------------ ------------
Basic net income per share $ 7,070,000 17,797,691 $ 0.40
============
Effect of dilutive securities:
Options -- 611,277
------------ ------------
Diluted net income per share $ 7,070,000 18,408,968 $ 0.38
============ ============ ============
MARCH 31, 2002
----------------------------------------------
WEIGHTED
AVERAGE
SHARES PER SHARE
NET INCOME OUTSTANDING AMOUNT
------------ ------------ ------------
Basic net income per share $ 7,079,000 19,174,092 $ 0.37
============
Effect of dilutive securities:
Warrants -- 70,841
Options -- 642,657
------------ ------------
Diluted net income per share $ 7,079,000 19,887,590 $ 0.36
============ ============ ============
Stock options to purchase 1,786,640 shares of common stock were
outstanding as of March 31, 2003 and were included in the computation
of diluted net income per share for 2003. Stock
7
options and warrants to purchase 2,228,238 shares of common stock were
outstanding as of March 31, 2002 and were included in the computation
of diluted net income per share for 2002.
(9) SEGMENTS
The Company operates as one segment. The operating information used by
the Company's chief operating decision-maker for purposes of assessing
performance and making operating decisions about the Company is the
consolidated financial statements presented herein. The Company has one
active operating subsidiary, namely, Local Oklahoma Bank, National
Association, (the "Bank") a national banking association. The Bank, in
turn, has one active operating subsidiary, Local Securities Corporation
("Local Securities"), which is a registered broker-dealer under the
Securities Exchange Act of 1934 and provides retail investment products
to customers of the Bank. While Local Securities qualifies as a
separate operating segment, it is not considered material to the
consolidated financial statements for the purposes of making operating
decisions and does not meet the 10% threshold for disclosure under SFAS
No. 131, Disclosure About Segments of an Enterprise and Related
Information.
The Company also has three wholly-owned finance subsidiaries, namely,
Local Financial Capital Trust I, Local Financial Capital Trust II and
Local Financial Capital Trust III. These finance subsidiaries do not
qualify as operating segments under SFAS No. 131 and have no
independent operations and no other function other than the issuance of
their securities and the related purchase of junior subordinated
debentures from the Company and to distribute payments received thereon
to the holders of their securities.
(10) RECLASSIFICATIONS
Certain reclassifications were made to the 2002 consolidated financial
statements to conform to the 2003 presentation.
(11) NEW ACCOUNTING PRONOUNCEMENTS
In November 2002, the FASB issued Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness to Others, an interpretation of
FASB Statements No. 5, 57 and 107 and a rescission of FASB
Interpretation No. 34. This Interpretation elaborates on the
disclosures to be made by a guarantor in its interim and annual
financial statements about its obligations under guarantees issued. The
Interpretation also clarifies that a guarantor is required to
recognize, at inception of a guarantee, a liability for the fair value
of the obligation undertaken. The initial recognition and measurement
provisions of the Interpretation are applicable to guarantees issued or
modified after December 31, 2002 and are not expected to have a
material effect on our consolidated financial statements. The
disclosure requirements are effective for financial statements of
interim and annual periods ending after December 15, 2002.
Standby letters of credit and financial guarantees written of
approximately $11,473,000 and $9,488,000 at March 31, 2003 and December
31, 2002, respectively, are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party.
Those guarantees are primarily issued to support public and private
borrowing arrangements, including commercial paper, bond financing and
similar transactions. The Company holds marketable securities as
collateral supporting those commitments for which collateral is deemed
necessary.
8
In January 2003, the FASB issued Interpretation No. 46, Consolidation
of Variable Interest Entities, an Interpretation of Accounting Research
Bulletin No. 51. Interpretation No. 46 requires a company to
consolidate a variable interest entity if the company has a variable
interest (or combination of variable interests) that will absorb a
majority of the entity's expected losses if they occur, receive a
majority of the entity's expected residual returns if they occur, or
both. A direct or indirect ability to make decisions that significantly
affect the results of the activities of a variable interest entity is a
strong indication that a company has one or both of the characteristics
that would require consolidation of the variable interest entity.
Interpretation No. 46 also requires additional disclosures regarding
variable interest entities. The new interpretation is effective
immediately for variable interest entities created after January 31,
2003, and is effective in the first interim or annual period beginning
after June 15, 2003, for variable interest entities in which a company
holds a variable interest that it acquired before February 1, 2003. The
application of FIN 46 is not expected to have a material effect on the
Company's consolidated financial statements and no consolidation or
disclosure is anticipated.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
A number of the presentations and disclosures in this Form 10-Q,
including, without limitation, statements regarding the level of allowance for
loan losses, the rate of delinquencies and amounts of charge-offs, and the rates
of loan growth, and any statements preceded by, followed by or which include the
words "may," "could," "should," "will," "would," "hope," "might," "believe,"
"expect," "anticipate," "estimate," "intend," "plan," "assume" or similar
expressions constitute forward-looking statements.
These forward-looking statements, implicitly and explicitly, include
the assumptions underlying the statements and other information with respect to
our beliefs, plans, objectives, goals, expectations, anticipations, estimates,
intentions, financial condition, results of operations, future performance and
business, including our expectations and estimates with respect to our revenues,
expenses, earnings, return on equity, return on assets, efficiency ratio, asset
quality and other financial data and capital and performance ratios.
Although we believe that the expectations reflected in our
forward-looking statements are reasonable, these statements involve risks and
uncertainties that are subject to change based on various important factors
(some of which are beyond our control). The following factors, among others,
could cause our financial performance to differ materially from our goals,
plans, objectives, intentions, expectations and other forward-looking
statements:
o the strength of the United States economy in general and the
strength of the regional and local economies within Oklahoma;
o adverse changes in the local real estate market, as most of
the Company's loans are concentrated in Oklahoma and a
substantial portion of these loans have real estate as
collateral;
o the effects of, and changes in, trade, monetary and fiscal
policies and laws, including interest rate policies of the
Board of Governors of the Federal Reserve System;
o inflation, interest rate, market and monetary fluctuations;
o adverse changes in asset quality and the resulting credit
risk-related losses and expenses;
o our timely development of new products and services in a
changing environment, including the features, pricing and
quality of our products and services compared to the products
and services of our competitors;
o the willingness of users to substitute competitors' products
and services for our products and services;
o the impact of changes in financial services policies, laws and
regulations, including laws, regulations and policies
concerning taxes, banking, securities and insurance, and the
application thereof by regulatory bodies;
o technological changes;
10
o changes in consumer spending and savings habits; and
o regulatory or judicial proceedings.
If one or more of the factors affecting our forward-looking information
and statements proves incorrect, then our actual results, performance or
achievements could differ materially from those expressed in, or implied by,
forward-looking information and statements contained in this Form 10-Q.
Therefore, we caution you not to place undue reliance on our forward-looking
information and statements.
We do not intend to update our forward-looking information and
statements, whether written or oral, to reflect change. All forward-looking
statements attributable to us are expressly qualified by these cautionary
statements.
A reader should not place unjustified or excessive reliance on any
forward-looking statements. They speak only as of the date made and are not
guarantees, promises or assurances of what will happen in the future. Various
factors, including those described above and those described in the Company's
Form 10-K for the year ended December 31, 2002, could affect the Company's
financial performance and could cause the Company's actual results or
circumstances for future periods to be materially different from what has been
anticipated or projected.
CHANGES IN FINANCIAL CONDITION FROM DECEMBER 31, 2002 TO MARCH 31, 2003
During the three months ended March 31, 2003, total assets increased
slightly by $8.8 million or 0.3%. The Company's loans receivable, net of
allowance, experienced growth, increasing $56.4 million or 2.7% primarily as a
result of increased commercial loan volume, which rose by $29.2 million. The
residential and consumer loan portfolios also increased $11.5 million or 5.4%
and $16.5 million or 8.0%, respectively. Additionally, the rise in other assets
reflected the purchase during the quarter ended March 31, 2003 of an additional
$10.0 million of bank-owned life insurance. These increases were offset in part
by a decline in the Company's security portfolio of $65.8 million or 12.5%
resulting from paydowns and maturities.
Total deposits and securities under agreement to repurchase decreased
during the three months ended March 31, 2003 by $11.4 million or 0.6% and $18.7
million or 31.3%, respectively. Advances from the FHLB of Topeka rose $27.2
million or 4.0% as the Company increased its short-term borrowings to meet
funding needs.
Stockholders' equity increased from $167.9 million at December 31, 2002
to $170.0 million at March 31, 2003. The increase in stockholders' equity came
primarily as a result of earnings during the period, offset by an increase in
treasury shares. The Company increased its shares of treasury stock during 2003
as part of a stock repurchase program in which the Company purchased 436,400
shares of its common stock at a cost of $6.6 million. Subsequent to the quarter
ended March 31, 2003, the Company purchased an additional 165,300 shares at a
cost of $2.5 million. The increase in additional paid-in capital during the
first quarter of 2003 of $1.2 million resulted from the exercise of 109,000
options to purchase the Company's stock and tax benefits on employee stock
options. Accumulated other comprehensive income increased $355,000 during the
quarter ended March 31, 2003. At March 31, 2003, the Company and the Bank
exceeded all regulatory requirements for capital adequacy. See "--Liquidity and
Capital Resources".
11
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002
Net Income. Net income for the three months ended March 31, 2003 was
$7.1 million, basically the same as the first quarter in the prior year. Diluted
earnings per share for the first quarter 2003 were $0.38, up 5.6% from the first
quarter 2002. Diluted earnings per share include the effect of the Company's
share repurchase program, which resulted in 1.5 million fewer shares outstanding
on average during the current quarter compared to the first quarter of 2002.
Net Interest Income. The Company's net interest income declined
$856,000 or 3.7% to $22.3 million for the quarter ended March 31, 2003 from
$23.2 million for the comparable 2002 period. Net interest margin also declined
to 3.34% at March 31, 2003 from 3.50% at March 31, 2002. The decrease in net
interest income was largely due to the current low level of interest rates and
the resulting asset repricings. In a continued low rate environment, the Company
anticipates the probability of a continued decline in spreads and further margin
compression, which could in turn adversely impact profitability.
Interest Income. Total interest income declined 11.8% during the three
months ended March 31, 2003 from $45.0 million at March 31, 2002 to $39.7
million. The decline was primarily due to an 85 basis point decrease in yield on
interest-earning assets in the current declining rate environment to 6.0%. The
decrease in yield was partially offset by a $19.5 million or 0.7% increase in
average earning assets driven primarily by growth in the commercial loan
portfolio.
Interest Expense. Total interest expense decreased $4.5 million or
20.5% in the three months ended March 31, 2003 as compared to the same period in
the prior year. This decrease came primarily as a result of the declining cost
of deposits, which fell 110 basis points to 2.22% for the period ended March 31,
2003 compared to the same period in the prior year, coupled with the decline in
average balance of deposits of $27.8 million or 1.7%. This decrease was
partially offset by a $256,000 or 27.8% increase in interest expense on trust
preferred securities as the Company recognized interest on the additional trust
preferred securities issued in July and October 2002.
Provision for Loan Losses. The Company's provision for loan losses
remained stable at $1.8 million for the three months ended March 31, 2003 and
2002. Charge-offs (net of recoveries) in the three-month periods ended March 31,
2003 and 2002 were $1.0 million and $1.8 million, respectively.
The provision for loan losses is charged to earnings to bring the total
allowance for loan losses to a level considered appropriate by management based
on (i) an estimate by management of loan losses that occurred during the current
period and (ii) an ongoing adjustment of prior estimates of losses occurring in
prior periods. To serve as a basis for making this provision each quarter, the
Company maintains an extensive credit risk monitoring process that considers
several factors, including among other things, current economic conditions
affecting the Company's customers, the payment performance of individual large
loans and pools of homogeneous small loans, portfolio seasoning, changes in
collateral values, and detailed reviews of specific large loan relationships.
Noninterest Income. The components of noninterest income are deposit
related income, loan fees and loan service charges, net gains on sale of assets,
and other income. Total noninterest income increased $1.3 million or 20.5%
during the three months ended March 31, 2003 compared to the same period in the
prior year. The increase was primarily due to an increase in deposit related
income of $1.2 million or 27.6% as the Company was successful with its
commercial customers in providing cash management services and with marketing
programs focused on increasing the number of consumer accounts and services.
12
Noninterest expense. Noninterest expense increased to $17.7 million
during the three months ended March 31, 2003 as compared to $17.3 million in the
same period of the prior year, a total increase of 2.5%. Compensation and
employee benefits expense remained relatively stable at $10.6 million for the
three months ended March 31, 2003 compared to $10.4 million during the same
period of the prior year. Occupancy and other noninterest expense rose $151,000
or 12.7% and $267,000 or 7.7%, respectively during the period. Offsetting these
increases were declines in equipment and data processing and advertising
expense.
AVERAGE BALANCES, NET INTEREST INCOME, YIELDS EARNED AND RATES PAID
The following table sets forth, for the periods indicated, information
regarding (i) the total dollar amount of interest income of the Company from
interest-earning assets and the resultant average yields, (ii) the total dollar
amount of interest expense on interest-bearing liabilities and the resultant
average rates, (iii) net interest income, (iv) interest rate spread, and (v) net
interest margin. Information is based on average daily balances during the
indicated periods (dollars in thousands):
THREE MONTHS ENDED MARCH 31,
----------------------------------------------------------------------------
2003 2002
------------------------------------ ------------------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
---------- ---------- ---------- ---------- ---------- ----------
ASSETS
Loans receivable(1) $2,130,782 $ 33,049 6.28% $2,006,484 $ 34,471 6.96%
Securities:
Available for sale(2) 163,885 2,108 5.15 163,660 3,621 8.85
Held to maturity 330,556 4,154 5.03 411,029 6,299 6.13
---------- ---------- ---------- ----------
Total securities 494,441 6,262 5.07 574,689 9,920 6.90
Other earning assets(3) 46,492 383 3.30 71,026 625 3.52
---------- ---------- ---------- ----------
Total interest-earning assets 2,671,715 39,694 6.00% 2,652,199 45,016 6.85%
---------- ---------- ---------- ----------
Noninterest-earning assets 145,133 126,591
---------- ----------
Total assets $2,816,848 $2,778,790
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Transaction accounts(4) $ 656,524 1,856 1.15% $ 560,768 2,572 1.86%
Term certificates of deposit 982,598 7,104 2.93 1,106,136 11,080 4.06
---------- ---------- ---------- ----------
Total deposits 1,639,122 8,960 2.22 1,666,904 13,652 3.32
FHLB advances 676,331 6,479 3.83 659,747 6,482 3.93
Securities sold under agreements to repurchase 46,531 107 0.93 39,516 127 1.30
Senior Notes 21,295 629 11.81 21,545 636 11.81
Mandatorily redeemable trust preferred securities 60,250 1,178 7.82 40,250 922 9.16
---------- ---------- ---------- ----------
Total interest-bearing 2,443,529 17,353 2.88% 2,427,962 21,819 3.64%
---------- ---------- ---------- ----------
Noninterest-bearing liabilities 202,609 185,856
Stockholders' equity 170,710 164,972
---------- ----------
Total liabilities and stockholders' equity $2,816,848 $2,778,790
========== ==========
Net interest-earning assets $ 228,186 $ 224,237
========== ==========
Net interest income/interest rate spread $ 22,341 3.12% $ 23,197 3.21%
========== ---------- ========== ----------
Net interest margin 3.34% 3.50%
========== ==========
Ratio of average interest-earning to average
interest-bearing 109.34% 109.24%
========== ==========
----------
(1) The average balance of loans receivable includes nonperforming loans,
interest on which is recognized on a cash basis, and excludes the allowance
for loan losses which is included in noninterest-earning assets.
(2) Includes the market valuation accounts.
(3) Includes interest-bearing deposits, Federal Home Loan Bank of Topeka stock
and Federal Reserve Bank stock.
(4) Includes passbook, NOW and money market accounts.
13
LIQUIDITY AND CAPITAL RESOURCES
Liquidity. Liquidity refers to the Company's ability to generate
sufficient cash to meet the funding needs of current loan demand, savings
deposit withdrawals, principal and interest payments with respect to outstanding
borrowings and to pay operating expenses. It is management's policy to maintain
greater liquidity than required in order to be in a position to fund loan
originations, to meet withdrawals from deposit accounts, to make principal and
interest payments with respect to outstanding borrowings and to make investments
that take advantage of interest rate spreads. The Company monitors its liquidity
in accordance with guidelines established by the Company and applicable
regulatory requirements. The Company's need for liquidity is affected by loan
demand, net changes in deposit levels and the scheduled maturities of its
borrowings. The Company can minimize the cash required during the times of heavy
loan demand by modifying its credit policies or reducing its marketing effort.
Liquidity demand caused by net reductions in deposits is usually caused by
factors over which the Company has limited control. The Company derives its
liquidity from both its assets and liabilities. Liquidity is derived from assets
by receipt of interest and principal payments and prepayments, by the ability to
sell assets at market prices and by utilizing unpledged assets as collateral for
borrowings. Liquidity is derived from liabilities by maintaining a variety of
funding sources, including deposits, advances from the FHLB, securities sold
under agreements to repurchase and other short and long-term borrowings.
The Company's liquidity management is both a daily and long-term
function of funds management. Liquid assets are generally placed in short-term
investments such as overnight money funds and short-term government agency
securities. If the Company requires funds beyond its ability to generate them
internally, various forms of both short and long-term borrowings provide an
additional source of funds. At March 31, 2003, the Company had $237.4 million in
available borrowing capacity with the FHLB.
At March 31, 2003, the Company had outstanding loan commitments
(including unused lines of credit) for home equity, commercial real estate and
commercial business loans of approximately $361.5 million and an additional
$11.5 million in performance standby letters of credit. Certificates of deposit,
which are scheduled to mature within one year, totaled $699.7 million at March
31, 2003, and borrowings, including trust preferred securities, which are
scheduled to mature within the same period, totaled $142.4 million. The Company
anticipates that sufficient funds will be available to meet its current loan
commitments and that, based upon past experience and current pricing policies,
it can adjust the rates of certificates of deposit to retain a substantial
portion of its maturing certificates and also, to the extent deemed necessary,
refinance the maturing borrowings.
In September 1997, in connection with the Company's recapitalization,
the Company issued $80.0 million of Senior Notes. As of March 31, 2003, the
Company has purchased and retired $58.7 million of those outstanding Senior
Notes. These transactions reduced future interest costs associated with those
notes. The remaining $21.3 million of Senior Notes mature in September 2004 and
have an annual debt service requirement of $2.3 million (or $1.15 million for
each semi-annual period) in 2003.
Capital Resources. Bank holding companies are required to maintain
capital ratios in accordance with guidelines adopted by the Federal Reserve
Bank. The guidelines are commonly known as Risk-Based Capital Guidelines. On
March 31, 2003, the Company exceeded all applicable capital requirements
pursuant to the Risk-Based Capital Guidelines and was considered "well
capitalized" by having a total risk-based capital ratio of 11.25%, a Tier 1
risk-based capital ratio of 9.49% and a leverage ratio of 7.09%. The Company's
subsidiary, Local Oklahoma Bank, N.A., has filed an application with the
Oklahoma State Banking Commission to become a state-chartered member bank of the
Federal Reserve System. This action will have no effect on either the Company's
or the Bank's capital requirements.
14
INFLATION AND CHANGING PRICES
The consolidated financial statements and related data presented herein
have been prepared in accordance with 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 (except with
respect to available for sale securities which are carried at market value),
without considering changes in the relative purchasing power of money over time
due to inflation. Unlike most industrial companies, substantially all of the
assets and liabilities of the Company are monetary in nature. As a result,
interest rates have a more significant impact on the Company's performance than
the effects of general levels of inflation. Interest rates do not necessarily
move in the same direction or in the same magnitude as the prices of goods and
services.
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
The following tables present contractual cash obligations and
commercial commitments of the Company as of March 31, 2003. See Notes 4 and 5 of
the Notes to the Consolidated Financial Statements and "--Liquidity and Capital
Resources" (dollars in thousands):
Payments due by Period
----------------------------------------------------------------------
More Than
Less than One to Three to Over
Contractual Cash Obligations Total One Year Three Years Five Years Five Years
---------------------------------------------- ---------- ---------- ----------- ---------- ----------
FHLB advances $ 711,409 $ 101,387 $ 10,000 $ 100,000 $ 500,022
Securities sold under agreements to repurchase 41,035 41,035 -- -- --
Senior Notes 21,295 -- 21,295 -- --
Mandatorily redeemable trust preferred
securities 60,250 -- -- -- 60,250
Operating leases 7,197 932 1,359 648 4,258
Data processing maintenance obligation 796 265 531 -- --
---------- ---------- ---------- ---------- ----------
Total contractual cash obligations $ 841,982 $ 143,619 $ 33,185 $ 100,648 $ 564,530
========== ========== ========== ========== ==========
Amount of Commitment Expiration Per Period
-----------------------------------------------------------------------
More Than
Unfunded Less than One to Three to Over
Commitments Commitments One Year Three Years Five Years Five Years
---------------------------------------------- ----------- ---------- ----------- ---------- ----------
Lines of credit $ 258,523 $ 119,512 $ 123,939 $ 14,781 $ 291
Standby letters of credit 11,473 9,907 1,566 -- --
Other commitments 103,004 11,503 16,232 23,935 51,334
---------- ---------- ---------- ---------- ----------
Total commitments $ 373,000 $ 140,922 $ 141,737 $ 38,716 $ 51,625
=========== ========== ========== ========== ==========
RECENT LEGISLATION
On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act
of 2002 (the "SOA"). The stated goals of the SOA are to increase corporate
responsibility, to provide for enhanced penalties for accounting and auditing
improprieties at publicly traded companies and to protect investors by improving
the accuracy and reliability of corporate disclosures pursuant to the securities
laws.
The SOA is the most far-reaching U.S. securities legislation enacted in
some time. The SOA generally applies to all companies, both U.S. and non-U.S.,
that file or are required to file periodic reports with the SEC under the
Securities Exchange Act of 1934 (the "Exchange Act"). Given the extensive SEC
role in implementing rules relating to many of the SOA's new requirements, the
final scope of these requirements remains to be determined.
15
The SOA includes very specific additional disclosure requirements and
new corporate governance rules, requires the SEC and securities exchanges to
adopt extensive additional disclosure, corporate governance and other related
rules and mandates further studies of certain issues by the SEC and the
Comptroller General. The SOA represents significant federal involvement in
matters traditionally left to state regulatory systems, such as the regulation
of the accounting profession, and to state corporate law, such as the
relationship between a board of directors and management and between a board of
directors and its committees.
The SOA addresses, among other matters: audit committees; certification
of financial statements by the chief executive office and the chief financial
officer; the forfeiture of bonuses and profits made by directors and senior
officers in the twelve month period covered by restated financial statements; a
prohibition on insider trading during pension plan black out periods; disclosure
of off-balance sheet transactions; a prohibition on personal loans to directors
and officers (excluding Federally insured financial institutions); expedited
filing requirements for stock transaction reports by officers and directors;
disclosure of a code of ethics and filing a Form 8-K for a change or waiver of
such code; "real time" filing of periodic reports; the formation of a public
accounting oversight board; auditor independence; and various increased criminal
penalties for violations of securities laws.
The SOA contains provisions that became effective upon enactment on
July 30, 2002 and provisions that will become effective from within 30 days to
one year from enactment. The SEC has been delegated the task of enacting rules
to implement various of the provisions with respect to, among other matters,
disclosure in periodic filings pursuant to the Exchange Act.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ASSET AND LIABILITY MANAGEMENT
Asset and liability management is concerned with the timing and
magnitude of the repricing of assets and liabilities. It is the objective of the
Company to attempt to control risks associated with interest rate movements. In
general, management's strategy is to evaluate asset and liability balances
within maturity categories to control the Company's exposure to earnings
variations and variations in the value of assets and liabilities as interest
rates change over time.
Management's methods for evaluating interest rate risk include an
analysis of the Company's interest rate sensitivity "gap", which is defined as
the difference between interest-earning assets and interest-bearing liabilities
maturing or repricing within a given time period. A gap is considered positive
when the amount of interest-rate sensitive assets exceeds the amount of
interest-rate sensitive liabilities. A gap is considered negative when the
amount of interest-rate sensitive liabilities exceeds interest-rate sensitive
assets. During a period of falling interest rates, a negative gap would tend to
result in an increase in net interest income, while a positive gap would tend to
affect net interest income adversely. Because different types of assets and
liabilities with the same or similar maturities may react differently to changes
in overall market rates or conditions, changes in interest rates may affect net
interest income positively or negatively even if an institution were perfectly
matched in each maturity category.
16
The following table summarizes the anticipated maturities or repricing
of the Company's interest-earning assets and interest-bearing liabilities as of
March 31, 2003, based on the information and assumptions set forth in the notes
below (dollars in thousands):
MORE THAN
THREE TO MORE THAN THREE YEARS
WITHIN THREE TWELVE ONE YEAR TO TO FIVE OVER FIVE
MONTHS MONTHS THREE YEARS YEARS YEARS TOTAL
------------ ------------ ------------ ------------ ----------- -----------
Interest-earning assets(1):
Loans receivable(2) $ 1,019,021 $ 404,152 $ 384,363 $ 226,839 $ 127,053 $ 2,161,428
Securities:
Available for sale(3) 33,356 51,822 54,721 5,070 3,481 148,450
Held to maturity 117,371 107,173 60,612 14,309 11,907 311,372
Other interest-earning assets(4) 96,756 3,977 -- -- -- 100,733
------------ ------------ ------------ ------------ ----------- -----------
Total $ 1,266,504 $ 567,124 $ 499,696 $ 246,218 $ 142,441 $ 2,721,983
============ ============ ============ ============ =========== ===========
Interest-bearing liabilities:
Deposits(5):
Money market and NOW
accounts $ 237,417 $ 30,530 $ 64,136 $ 47,682 $ 180,981 $ 560,746
Passbook accounts 3,667 11,000 22,495 15,707 36,341 89,210
Certificates of deposit 288,421 412,308 185,641 84,118 3,356 973,844
FHLB advances(6) 111,387 -- -- 100,000 500,022 711,409
Securities sold under
agreements to repurchase 41,035 -- -- -- -- 41,035
Senior Notes -- -- 21,295 -- -- 21,295
Mandatorily redeemable trust
preferred securities(6) 10,000 10,000 -- -- 40,250 60,250
------------ ------------ ------------ ------------ ----------- -----------
Total $ 691,927 $ 463,838 $ 293,567 $ 247,507 $ 760,950 $ 2,457,789
============ ============ ============ ============ =========== ===========
Excess (deficiency) of
interest-earning assets over
interest-bearing liabilities $ 574,577 $ 103,286 $ 206,129 $ (1,289) $ (618,509) $ 264,194
============ ============ ============ ============ =========== ===========
Cumulative excess of
interest-earnings assets over
interest-bearing liabilities $ 574,577 $ 677,863 $ 883,992 $ 882,703 $ 264,194 $ 264,194
============ ============ ============ ============ =========== ===========
Cumulative excess of
interest-earning assets over
interest-bearing liabilities
as a percentage of total assets 20.17% 23.80% 31.03% 30.99% 9.27% 9.27%
============ ============ ============ ============ =========== ===========
----------
(1) Adjustable-rate loans and securities are included in the period in which
interest rates are next scheduled to adjust rather than in the period in
which they mature and fixed-rate loans and securities are included in the
periods in which they are scheduled to be repaid, based on scheduled
amortization, in each case as adjusted to take into account estimated
prepayments based on, among other things, historical performance.
(2) Balances have been reduced for nonaccrual loans.
(3) Does not include unrealized gain on securities classified as available for
sale.
(4) Comprised of cash and due from banks, deposits with other banks, Federal
Home Loan Bank stock and Federal Reserve Bank stock.
(5) Adjusted to take into account assumed annual decay rates, which were
applied against money market, NOW and passbook accounts.
(6) Adjustable-rate FHLB advances and trust preferred securities are included
in the period in which interest rates are next scheduled to adjust rather
than in the period in which they mature, while fixed rate FHLB advances and
trust preferred securities are included in the period in which they are
scheduled to mature.
17
ITEM 4. CONTROLS AND PROCEDURES
Within the 90 days prior to the date of this report, the Company
carried out an evaluation, under the supervision and with the participation of
the Company's management, including the Company's Chief Executive Officer along
with the Company's Chief Financial Officer, of the effectiveness of the design
and operation of the Company's disclosure controls and procedures pursuant to
the Exchange Act Rule 13a-14. Based upon that evaluation, the Company's Chief
Executive Officer along with the Company's Chief Financial Officer concluded
that the Company's disclosure controls and procedures are effective in timely
alerting them to material information relating to the Company (including its
consolidated subsidiaries) required to be included in the Company's periodic SEC
filings. There have been no significant changes in the Company's internal
controls or in other factors, which could significantly affect these controls
subsequent to the date the Company carried out its evaluation.
Disclosure controls and procedures are the Company's controls and other
procedures that are designed to ensure that information required to be disclosed
by the Company in the reports that the Company files or submits under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SEC's rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by the Company in the reports
that the Company files under the Exchange Act is accumulated and communicated to
the Company's management, including the Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in routine legal proceedings occurring in the
ordinary course of business, which, in the aggregate, are believed by management
to be immaterial to the consolidated financial position and results of
operations of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
99 906 Certification by Chief Executive Officer and Chief
Financial Officer
b. Reports on Form 8-K
The Company filed the following Form 8-Ks during the quarter ended
March 31, 2003:
1. On March 21, 2003, Local Financial Corporation filed its Annual
Report on Form 10-K for the period ended December 31, 2002 (the "Report").
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the chief executive
officer and chief financial officer of the Company have each signed a
certification with respect to the Report.
18
SIGNATURES
Pursuant to the requirement 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.
LOCAL FINANCIAL CORPORATION
Date: May 14, 2003 By /s/ Edward A. Townsend
---------------------------
Edward A. Townsend
Chairman of the Board
Chief Executive Officer
LOCAL FINANCIAL CORPORATION
Date: May 14, 2003 By /s/ Richard L. Park
---------------------------
Richard L. Park
Chief Financial Officer
19
CERTIFICATION
I, EDWARD A. TOWNSEND, CERTIFY THAT:
1. I have reviewed this quarterly report on Form 10-Q of Local Financial
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary in order 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
we have:
(a) Designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
(c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date.
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of the registrant's board of directors (or other
persons performing the equivalent functions):
(a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in the registrant's 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.
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
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Dated this 14th day of May 2003.
/s/ Edward A. Townsend
-----------------------------------------
Edward A. Townsend
Chief Executive Officer
20
CERTIFICATION
I, RICHARD L. PARK, CERTIFY THAT:
1. I have reviewed this quarterly report on Form 10-Q of Local Financial
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary in order 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
we have:
(a) Designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
(c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date.
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of the registrant's board of directors (or other
persons performing the equivalent functions):
(a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in the registrant's 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.
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
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Dated this 14th day of May 2003.
/s/ Richard L. Park
-----------------------------------------
Richard L. Park
Chief Financial Officer
21
FORM 10-Q
INDEX TO EXHIBITS
EXHIBIT DESCRIPTION
99 Certification Pursuant to 18 U.S.C. Section 1350
As Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
22