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 June 30, 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
(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 Rule 12b-2 of the Exchange Act).
Yes |X| No | |
Number of shares outstanding of the registrant's $0.01 par value common stock as
of July 24, 2003 were as follows: 16,915,223
LOCAL FINANCIAL CORPORATION
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition-
June 30, 2003 (unaudited) and December 31, 2002................................... 1
Consolidated Statements of Operations-
For the Three Months and Six Months Ended June 30, 2003 and 2002 (unaudited)...... 2
Consolidated Statements of Cash Flows-
For the Six Months Ended June 30, 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 4. Submission of Matters to a Vote of Security Holders............................... 18
Item 6. Exhibits and Reports on Form 8-K.................................................. 19
Signatures ..................................................................................... 20
Index to Exhibits .............................................................................. 21
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LOCAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(dollars in thousands, except share data)
JUNE 30, 2003 DECEMBER 31, 2002
------------- -----------------
(unaudited)
ASSETS
Cash and due from banks $ 52,722 $ 51,166
Interest bearing deposits with other banks 4,500 7,200
Securities:
Available for sale 113,683 163,473
Held to maturity 317,693 364,832
----------- -----------
Total securities 431,376 528,305
Loans receivable, net of allowance for loan losses of $30,087 at June 30, 2003
and $29,532 at December 31, 2002 2,174,124 2,084,144
Federal Home Loan Bank of Topeka and Federal Reserve Bank stock, at cost 39,612 38,187
Premises and equipment, net 43,709 42,415
Assets acquired through foreclosure and repossession, net 1,625 1,693
Intangible assets, net 19,478 19,695
Current and deferred taxes, net 10,711 9,428
Other assets 70,066 57,625
----------- -----------
Total assets $ 2,847,923 $ 2,839,858
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand $ 785,837 $ 756,476
Savings 92,569 82,983
Time 961,172 989,980
----------- -----------
Total deposits 1,839,578 1,829,439
Advances from the Federal Home Loan Bank of Topeka 712,685 684,193
Securities sold under agreements to repurchase 28,125 59,696
Senior Notes 21,295 21,295
Other liabilities 18,007 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 16,915,223 shares outstanding at
June 30, 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 165,656 151,495
Treasury stock, 4,057,744 shares at June 30, 2003 and 3,078,644 shares
at December 31, 2002, at cost (208,411) (193,783)
Accumulated other comprehensive income, net of tax 687 1,360
----------- -----------
Total stockholders' equity 167,983 167,880
----------- -----------
Total liabilities and stockholders' equity $ 2,847,923 $ 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 Six Months Ended
June 30, June 30,
------------------------------ ------------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
(unaudited)
Interest income:
Loans $ 32,979 $ 35,008 $ 66,028 $ 69,479
Securities available for sale 1,548 1,664 3,656 5,285
Securities held to maturity 2,399 6,685 6,553 12,984
Federal Home Loan Bank of Topeka and
Federal Reserve Bank stock 370 448 731 966
Other investments 17 342 39 449
------------ ------------ ------------ ------------
Total interest income 37,313 44,147 77,007 89,163
Interest expense:
Deposit accounts 8,370 13,272 17,330 26,924
Advances from the Federal Home Loan Bank of Topeka 6,422 6,302 12,901 12,784
Securities sold under agreements to repurchase 76 121 183 248
Senior Notes 629 637 1,258 1,273
Trust preferred securities 1,171 921 2,349 1,843
------------ ------------ ------------ ------------
Total interest expense 16,668 21,253 34,021 43,072
Net interest income 20,645 22,894 42,986 46,091
Provision for loan losses (1,800) (1,800) (3,600) (3,600)
------------ ------------ ------------ ------------
Net interest income after provision for loan losses 18,845 21,094 39,386 42,491
Noninterest income:
Deposit related income 6,182 4,825 11,658 9,118
Loan fees and loan service charges 609 630 1,262 1,156
Net gains on sale of assets 252 604 388 674
Other 1,775 1,722 3,335 3,325
------------ ------------ ------------ ------------
Total noninterest income 8,818 7,781 16,643 14,273
------------ ------------ ------------ ------------
Noninterest expense:
Compensation and employee benefits 9,847 10,875 20,413 21,248
Equipment and data processing 1,575 1,351 3,275 3,218
Occupancy 1,124 1,077 2,462 2,264
Advertising 152 182 279 321
Professional fees 415 309 678 573
Other 3,818 3,910 7,559 7,384
------------ ------------ ------------ ------------
Total noninterest expense 16,931 17,704 34,666 35,008
------------ ------------ ------------ ------------
Income before provision for income taxes 10,732 11,171 21,363 21,756
Provision for income taxes 3,641 3,706 7,202 7,212
------------ ------------ ------------ ------------
Net income $ 7,091 $ 7,465 $ 14,161 $ 14,544
============ ============ ============ ============
Earnings per share:
Net income:
Basic $ 0.41 $ 0.39 $ 0.81 $ 0.76
============ ============ ============ ============
Diluted $ 0.40 $ 0.37 $ 0.78 $ 0.73
============ ============ ============ ============
Average shares outstanding:
Basic 17,143,219 19,170,425 17,468,647 19,172,248
============ ============ ============ ============
Diluted 17,724,125 19,993,691 18,064,616 19,949,596
============ ============ ============ ============
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)
SIX MONTHS ENDED
JUNE 30,
----------------------------
2003 2002
--------- -----------
(unaudited)
Cash provided (absorbed) by operating activities:
Net income $ 14,161 $ 14,544
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 3,600 3,600
Deferred income tax benefit (980) (361)
Accretion of discounts and amortization of deferred fees on loans acquired and
securities, net 1,084 (1,442)
Depreciation and amortization 2,641 2,041
Net change in loans held for sale 5,441 4,533
Net gains on sale of assets (388) (674)
Change in other assets (2,315) (2,361)
Change in other liabilities 1,115 10,288
--------- -----------
Net cash provided by operating activities 24,359 30,168
--------- -----------
Cash provided (absorbed) by investing activities:
Proceeds from sales of securities available for sale -- 54,239
Proceeds from principal collections on securities 270,715 143,110
Purchases of securities (176,091) (166,007)
Purchases of Federal Home Loan Bank and Federal Reserve Bank stock (1,425) (933)
Proceeds from the sale of Federal Home Loan Bank stock -- 7,429
Purchases of bank owned life insurance (10,000) --
Change in loans receivable, net (99,658) (17,560)
Proceeds from disposal of assets acquired through foreclosure and repossession 1,296 1,824
Purchases of premises and equipment (4,141) (3,860)
Proceeds from sales of premises and equipment 279 63
--------- -----------
Net cash provided (absorbed) by investing activities (19,025) 18,305
--------- -----------
Cash provided (absorbed) by financing activities:
Change in transaction accounts 38,947 48,595
Change in time deposits (28,808) 25,684
Change in securities sold under agreements to repurchase (31,571) (4,996)
Proceeds from advances from the Federal Home Loan Bank 924,034 880,075
Repayments of advances from the Federal Home Loan Bank (895,542) (1,005,256)
Proceeds from the issuance of common stock 1,090 1,190
Purchase of treasury stock (14,628) (2,309)
--------- -----------
Net cash absorbed by financing activities (6,478) (57,017)
--------- -----------
Net change in cash and cash equivalents (1,144) (8,544)
Cash and cash equivalents at beginning of period 58,366 60,491
--------- -----------
Cash and cash equivalents at end of period $ 57,222 $ 51,947
========= ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 34,684 $ 41,778
========= ===========
Income taxes $ 6,600 $ 1,500
========= ===========
Supplemental schedule of noncash investing and financing activities:
Transfer of loans to assets acquired through foreclosure and repossession $ 1,228 $ 864
========= ===========
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 SFAS No. 123, the Company's net
income for the three and six months ended June 30, 2003 and 2002 would
have been decreased to the pro forma amounts below (dollars in thousands,
except share data):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
Net income as reported $ 7,091 $ 7,465 $ 14,161 $ 14,544
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for awards, net
of related tax effects (106) (116) (211) (224)
---------- ---------- ---------- ----------
Pro forma net income $ 6,985 $ 7,349 $ 13,950 $ 14,320
========== ========== ========== ==========
Earnings per share:
Basic-as reported $ 0.41 $ 0.39 $ 0.81 $ 0.76
========== ========== ========== ==========
Basic-pro forma $ 0.41 $ 0.38 $ 0.80 $ 0.75
========== ========== ========== ==========
Diluted-as reported $ 0.40 $ 0.37 $ 0.78 $ 0.73
========== ========== ========== ==========
Diluted-pro forma $ 0.39 $ 0.37 $ 0.77 $ 0.72
========== ========== ========== ==========
4
(3) LOANS RECEIVABLE
Loans receivable are summarized below at amortized cost (dollars in
thousands):
JUNE 30, 2003 DECEMBER 31, 2002
------------- -----------------
Residential real estate(1) $ 335,804 $ 276,883
Commercial 1,741,484 1,695,293
Held for sale 3,135 8,576
Consumer(1) 123,788 132,924
----------- -----------
Total loans 2,204,211 2,113,676
Less:
Allowance for loan losses (30,087) (29,532)
----------- -----------
Loans receivable, net $ 2,174,124 $ 2,084,144
=========== ===========
(1) Beginning in June 2003, the Company began including home equity first
mortgages as residential real estate loans. Consequently, loans receivable
as of December 31, 2002 include a $64.0 million reclassification from
consumer loans to residential real estate loans.
(4) ADVANCES FROM THE FEDERAL HOME LOAN BANK OF TOPEKA ("FHLB")
Advances from the FHLB are summarized as follows (dollars in thousands):
JUNE 30, 2003 DECEMBER 31, 2002
------------------------------- -------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
BALANCE CONTRACTUAL RATE BALANCE CONTRACTUAL RATE
------- ---------------- ------- ----------------
Fixed rate $625,022 4.04% $600,022 4.14%
Variable rate 87,663 1.48 84,171 1.51
-------- --------
$712,685 3.73% $684,193 3.82%
======== ==== ======== ====
Additionally, the Company had outstanding letters of credit with the FHLB
of approximately $137.4 million and $93.9 million at June 30, 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 June 30, 2003, the
Company had approximately $879.9 million in eligible assets pledged
against FHLB advances.
At June 30, 2003, the Company had additional borrowing capacity of
approximately $210.1 million under the FHLB credit policy.
5
Scheduled principal repayments of advances from the FHLB at June 30, 2003
were as follows (dollars in thousands):
WEIGHTED
AVERAGE
YEARS ENDING DECEMBER 31, AMOUNT CONTRACTUAL RATE
------------ ----------------
2003 $ 77,663 1.53%
2004 -- --
2005 35,000 1.71
2006 100,000 3.35
2007 and thereafter 500,022 4.30
------------
$ 712,685 3.73%
============ ====
(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 June 30, 2003 and December 31, 2002 and are summarized as follows
(dollars in thousands):
JUNE 30, DECEMBER 31,
2003 2002
-------- ------------
Average outstanding balance $40,171 $43,425
Weighted average interest rate during the period 0.92% 1.22%
Maximum month-end balance $48,955 $64,701
Outstanding balance at end of period 28,125 59,696
Weighted average interest rate at end of period 0.65% 0.94%
Mortgage-backed securities securing the agreements
at period-end:
Carrying value $37,408 $66,931
Estimated market value 37,578 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 979,100 shares
of its common stock at a cost of approximately $14.6 million. The increase
in common stock and additional paid-in capital during the six months ended
June 30, 2003 of approximately $1.2 million included the exercise of
109,000 options to purchase the Company's stock.
6
(7) COMPREHENSIVE INCOME
Comprehensive income for the three and six months ended June 30, 2003 and
2002 consisted of (dollars in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ------------------------
2003 2002 2003 2002
-------- -------- -------- --------
Net income $ 7,091 $ 7,465 $ 14,161 $ 14,544
Other comprehensive income (loss),
net of tax:
Unrealized gains (losses) on securities,
net of reclassification adjustment (1,028) 97 (673) (1,852)
-------- -------- -------- --------
Comprehensive income $ 6,063 $ 7,562 $ 13,488 $ 12,692
======== ======== ======== ========
(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 and six months ended June 30, 2003 and 2002:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 2003 JUNE 30, 2003
------------------------------------------- ---------------------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
SHARES PER SHARE SHARES PER SHARE
NET INCOME OUTSTANDING AMOUNT NET INCOME OUTSTANDING AMOUNT
---------- ----------- --------- ----------- ----------- -----------
Basic net income per share $ 7,091,000 17,143,219 $ 0.41 $14,161,000 17,468,647 $ 0.81
========= ===========
Effect of dilutive securities:
Options -- 580,906 -- 595,969
----------- ---------- ----------- ----------
Diluted net income per share $ 7,091,000 17,724,125 $ 0.40 $14,161,000 18,064,616 $ 0.78
=========== ========== ========= =========== ========== ===========
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 2002 JUNE 30, 2002
------------------------------------------- ---------------------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
SHARES PER SHARE SHARES PER SHARE
NET INCOME OUTSTANDING AMOUNT NET INCOME OUTSTANDING AMOUNT
---------- ----------- --------- ----------- ---------- -----------
Basic net income per share $ 7,465,000 19,170,425 $ 0.39 $14,544,000 19,172,248 $ 0.76
========= ===========
Effect of dilutive securities:
Warrants -- 55,841 -- 64,912
Options -- 767,425 -- 712,436
----------- ---------- ----------- ----------
Diluted net income per share $ 7,465,000 19,993,691 $ 0.37 $14,544,000 19,949,596 $ 0.73
=========== ========== ========= =========== ========== ===========
7
Stock options to purchase 1,786,240 shares of common stock were
outstanding as of June 30, 2003 and were included in the computation of
diluted net income per share for 2003. Stock options and warrants to
purchase 2,196,671 shares of common stock were outstanding as of June 30,
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 (the "Bank"). 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
Statement No. 131, Disclosure About Segments of an Enterprise and Related
Information.
(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 Financial Accounting Standards Board ("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 ("Interpretation No. 45"). Interpretation No.
45 elaborates on the disclosures to be made by a guarantor in its interim
and annual financial statements about its obligations under guarantees
issued. Interpretation No. 45 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 Interpretation No. 45 are applicable to guarantees issued or
modified after December 31, 2002 and did not have a material effect on the
Company's 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 $11.4 million and $9.5 million at June
30, 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.
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"). 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
8
if they occur, or both. The application of Interpretation No. 46 had no
impact on the Company's consolidated financial statements.
In May 2003, the FASB issued Statement No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity
("Statement No. 150"). Statement No. 150 requires issuers to classify as
liabilities (or assets in some circumstance) three classes of freestanding
financial instruments that embody obligations for the issuer. Generally,
Statement No. 150 is effective for financial instruments entered into or
modified after May 31, 2003 and is otherwise effective at the beginning of
the first interim period beginning after June 15, 2003. The Company
adopted the provisions of Statement No. 150 on July 1, 2003. The Company
did not enter into any financial instruments within the scope of Statement
No. 150 during June 2003. The adoption of Statement No. 150 did not have a
material effect on the Company's consolidated financial statements.
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:
- the strength of the United States economy in general and the
strength of the regional and local economies within Oklahoma;
- 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;
- 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;
- inflation, interest rate, market and monetary fluctuations;
- adverse changes in asset quality and the resulting credit
risk-related losses and expenses;
- 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;
- the willingness of users to substitute competitors' products and
services for our products and services;
- 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;
- technological changes;
10
- changes in consumer spending and savings habits; and
- 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 JUNE 30, 2003
During the six months ended June 30, 2003, total assets increased slightly
by $8.1 million or 0.3%. The Company's loan portfolio, net of allowance,
increased $90.0 million or 4.3% during the six months ended June 30, 2003
primarily as a result of increased residential and commercial loan volume.
Residential mortgage loans, which include home equity first mortgages, rose by
$58.9 million or 21.3% during the period as record low interest rates continue
to generate increased levels of mortgage loan activity. Commercial loans showed
moderate growth of $46.2 million or 2.7% during the six months ended June 30,
2003. Additionally, the increase in other assets reflected the purchase during
the period ended June 30, 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 $96.9 million or 18.3% during the same period resulting
from paydowns and maturities.
Total deposits reflected an increase of $10.1 million or 0.6% during the
six months ended June 30, 2003 as the Company's focus on transaction accounts
successfully replaced maturing time deposits with demand and savings deposits.
Advances from the FHLB of Topeka used to help meet funding needs rose $28.5
million or 4.2% during the period. Securities under agreement to repurchase
which represent interest-bearing accounts from commercial customers decreased
during the six months ended June 30, 2003 by $31.6 million or 52.9%.
Stockholders' equity increased slightly from $167.9 million at December
31, 2002 to $168.0 million at June 30, 2003. Earnings during the period of $14.2
million were offset by an increase in treasury shares and the adjustment to
accumulated other comprehensive income resulting from a decrease in unrealized
gains on available for sale securities. The Company increased its shares of
treasury stock during 2003 as part of a stock repurchase program in which the
Company purchased 979,100 shares of its common stock at an average per share
price of $14.94 and an aggregate cost of $14.6 million. The increase in common
stock and additional paid-in capital during the period ended June 30, 2003 of
$1.2 million included the exercise of 109,000 options to purchase the Company's
stock. At June 30, 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 JUNE 30, 2003 AND 2002 AND THE
SIX MONTHS ENDED JUNE 30, 2003 AND 2002
Net Income. Net income for the three and six months ended June 30, 2003
was $7.1 million and $14.2 million, respectively, down slightly from $7.5
million and $14.5 million, respectively, for the same periods in the prior year.
Diluted earnings per share for the second quarter 2003 were $.40, up 8.1% from
the second quarter 2002. Diluted earnings per share for the six months ended
June 30, 2003 were $.78, up 6.8% from the same period last year. Diluted
earnings per share include the effect of the Company's share repurchase program
which resulted in 2.0 million fewer shares outstanding on average during the
second quarter of 2003 compared to the second quarter of 2002.
Net Interest Income. The Company's net interest income declined $2.2
million or 9.8% to $20.6 million for the quarter ended June 30, 2003 from $22.9
million for the comparable 2002 period. Net interest income declined $3.1
million or 6.7% to $43.0 million for the six months ended June 30, 2003 from
$46.1 million for the comparable 2002 period. Net interest margin during both
the three and six month periods ended June 30, 2003 declined to 3.15% and 3.25%,
respectively, from 3.44% and 3.47% for the three and six month periods ended
June 30, 2002, respectively. The decrease in net interest income was largely due
to the current low level of interest rates and the resulting asset repricings.
The Company anticipates further declines in net interest income along with lower
spreads and margins.
Interest Income. Total interest income declined 15.5% during the three
months ended June 30, 2003 from $44.1 million at June 30, 2002 to $37.3 million.
Similarly, interest income declined 13.6% during the six months ended June 30,
2003 compared to the same period in the prior year from $89.2 million to $77.0
million. The decline was primarily due to a lower yield on interest-earning
assets, which dropped from 6.63% to 5.68% in the three-month comparative period
and from 6.73% to 5.84% in the six-month comparative period. The decreases in
yield were offset to a certain extent in both comparative periods by increases
in loan average balances driven primarily by growth in the residential mortgage
and commercial loan portfolios.
Interest Expense. Total interest expense decreased $4.6 million or 21.6%
in the three months ended June 30, 2003 as compared to the same period in the
prior year, and fell by $9.1 million or 21.0% in the six months ended June 30,
2003 as compared to the same period in the prior year. These decreases came
primarily as a result of the declining cost of deposits, which fell
approximately 100 basis points during both comparative periods. Also
contributing to the decrease in interest expense was the decline in average
balance of interest-bearing deposits of $85.1 million or 4.9% for the
three-month comparative period and $56.6 million or 3.3% for the six-month
comparative period. This decrease was partially offset by an increase in
interest expense on trust preferred securities as the Company accrued interest
on the additional trust preferred securities issued in July and October of 2002.
Provision for Loan Losses. The Company's provision for loan losses
remained the same at $1.8 million and $3.6 million for the three and six-month
periods ended June 30, 2003 and June 30, 2002, respectively. Charge-offs (net of
recoveries) in the three and six-month periods ended June 30, 2003 were $2.0
million and $3.0 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
12
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 $1.0 million or 13.3%
during the three months ended June 30, 2003 and $2.4 million or 16.6% during the
six months ended June 30, 2003 compared to the same periods in the prior year.
These increases were primarily due to a significant increase in deposit related
income, which consists primarily of service charges and fees on deposit
accounts. Deposit related income rose $1.4 million or 28.1% and $2.5 million or
27.9% during the three and six month comparative periods, respectively.
Noninterest expense. Total noninterest expense for the three and six
months ended June 30, 2003 decreased by $773,000 or 4.4% and $342,000 or 1.0%,
respectively, compared to the same period in the prior year. The declines during
the comparative periods were primarily due to a reduction in compensation and
employee benefits expense, which fell 9.5% and 3.9%, respectively, led by a
reduction in executive benefit plan expense and a focus on monitoring and
controlling compensation and benefits expense, as it represents the largest
component of noninterest expense.
13
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 JUNE 30,
-----------------------------------------------------------------------------------
2003 2002
-----------------------------------------------------------------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
---------- ---------- ------- ---------- ---------- -------
ASSETS
Loans receivable(1) $2,183,413 $ 32,979 6.04% $1,985,362 $ 35,008 7.05%
Securities:
Available for sale(2) 133,756 1,548 4.63 110,463 1,664 6.03
Held to maturity 262,503 2,399 3.65 450,972 6,685 5.93
---------- ---------- ---------- ----------
Total securities 396,259 3,947 3.98 561,435 8,349 5.95
Other earning assets(3) 45,196 387 3.43 118,293 790 2.67
---------- ---------- ---------- ----------
Total interest-earning
assets 2,624,868 37,313 5.68% 2,665,090 44,147 6.63%
---------- ===== ---------- =====
Noninterest-earning assets 153,049 128,034
---------- ----------
Total assets $2,777,917 $2,793,124
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Transaction accounts(4) $ 670,057 1,739 1.04% $ 594,471 2,726 1.84%
Term certificates of deposit 973,532 6,631 2.73 1,134,201 10,546 3.73
---------- ---------- ---------- ----------
Total deposits 1,643,589 8,370 2.04 1,728,672 13,272 3.08
FHLB advances 640,920 6,422 3.96 603,996 6,302 4.13
Securities sold under agreements
to repurchase 33,881 76 0.90 37,330 121 1.30
Senior Notes 21,295 629 11.81 21,545 637 11.81
Mandatorily redeemable trust
preferred securities 60,250 1,171 7.77 40,250 921 9.16
---------- ---------- ---------- ----------
Total interest-bearing 2,399,935 16,668 2.79% 2,431,793 21,253 3.51%
---------- ===== ---------- =====
Noninterest-bearing liabilities 210,088 191,445
Stockholders' equity 167,894 169,886
---------- ----------
Total liabilities
and stockholders' equity $2,777,917 $2,793,124
========== ==========
Net interest-earning assets $ 224,933 $ 233,297
========== ==========
Net interest income/interest rate
spread $ 20,645 2.89% $ 22,894 3.12%
========== ====== ========== ======
Net interest margin 3.15% 3.44%
====== ======
Ratio of average interest-earning
to average interest-bearing 109.37% 109.59%
====== ======
SIX MONTHS ENDED JUNE 30,
-------------------------------------------------------------------------------------
2003 2002
-------------------------------------------------------------------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
---------- ---------- ------- ---------- ---------- --------
ASSETS
Loans receivable(1) $2,157,244 $ 66,028 6.15% $1,995,866 $ 69,479 6.99%
Securities:
Available for sale(2) 148,737 3,656 4.92 136,915 5,285 7.72
Held to maturity 296,341 6,553 4.42 431,111 12,984 6.02
---------- ---------- ---------- ----------
Total securities 445,078 10,209 4.59 568,026 18,269 6.43
Other earning assets(3) 45,841 770 3.36 94,790 1,415 2.99
---------- ---------- ---------- ----------
Total interest-earning
assets 2,648,163 77,007 5.84% 2,658,682 89,163 6.73%
---------- ===== ---------- ======
Noninterest-earning assets 149,113 127,302
---------- ----------
Total assets $2,797,276 $2,785,984
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Transaction accounts(4) $ 663,328 3,596 1.09% $ 577,712 5,298 1.85%
Term certificates of deposit 978,040 13,734 2.83 1,120,246 21,626 3.89
---------- ---------- ---------- ----------
Total deposits 1,641,368 17,330 2.13 1,697,958 26,924 3.20
FHLB advances 658,528 12,901 3.90 631,717 12,784 4.03
Securities sold under agreements
to repurchase 40,171 183 0.92 38,417 248 1.30
Senior Notes 21,295 1,258 11.81 21,545 1,273 11.81
Mandatorily redeemable trust
preferred securities 60,250 2,349 7.80 40,250 1,843 9.16
---------- ---------- ---------- ----------
Total interest-bearing 2,421,612 34,021 2.83% 2,429,887 43,072 3.57%
---------- ===== ---------- ======
Noninterest-bearing liabilities 206,341 188,654
Stockholders' equity 169,323 167,443
---------- ----------
Total liabilities
and stockholders' equity $2,797,276 $2,785,984
========== ==========
Net interest-earning assets $ 226,551 $ 228,795
========== ==========
Net interest income/interest rate
spread $ 42,986 3.01% $ 46,091 3.16%
========== ====== ========== ======
Net interest margin 3.25% 3.47%
====== ======
Ratio of average interest-earning
to average interest-bearing 109.36% 109.42%
====== ======
----------
(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.
14
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 June 30, 2003, the Company had $210.1 million in
available borrowing capacity with the FHLB.
At June 30, 2003, the Company had outstanding loan commitments (including
unused lines of credit) for home equity, commercial real estate and commercial
business loans of approximately $372.4 million and an additional $11.4 million
in performance standby letters of credit. Certificates of deposit, which are
scheduled to mature within one year, totaled $696.8 million at June 30, 2003,
and borrowings, which are scheduled to mature within the same period, totaled
$105.8 million. The Company anticipates that sufficient funds will be available
to meet its current loan total 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, the Company issued $80.0 million of Senior Notes. As of
June 30, 2003, the Company had 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 June 30,
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 11.20%, a Tier 1 risk-based capital ratio of
9.43% and a leverage ratio of 7.15%.
15
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 COMMITMENTS
The following tables present contractual cash obligations and commitments
of the Company as of June 30, 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 $712,685 $ 77,663 $ 35,000 $100,000 $500,022
Securities sold under agreements to repurchase 28,125 28,125 -- -- --
Senior Notes 21,295 -- 21,295 -- --
Mandatorily redeemable trust preferred securities 60,250 -- -- -- 60,250
Operating leases 7,807 1,081 1,601 898 4,227
Data processing maintenance obligation 796 265 531 -- --
-------- -------- -------- -------- --------
Total contractual cash obligations $830,958 $107,134 $ 58,427 $100,898 $564,499
======== ======== ======== ======== ========
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 $263,339 $142,324 $105,997 $ 14,935 $ 83
Standby letters of credit 11,420 10,393 1,027 -- --
Other commitments 109,104 12,267 10,156 29,588 57,093
-------- -------- -------- -------- --------
Total commitments $383,863 $164,984 $117,180 $ 44,523 $ 57,176
======== ======== ======== ======== ========
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
16
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.
The following table summarizes the anticipated maturities or repricing of
the Company's interest-earning assets and interest-bearing liabilities as of
June 30, 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) $1,102,420 $ 396,564 $ 324,014 $ 242,747 $ 126,680 $2,192,425
Securities:
Available for sale(3) 37,694 24,502 42,223 7,413 794 112,626
Held to maturity 64,450 84,836 40,727 58,005 69,675 317,693
Other interest-earning assets(4) 92,857 3,977 -- -- -- 96,834
---------- ---------- ---------- ---------- ---------- ----------
Total $1,297,421 $ 509,879 $ 406,964 $ 308,165 $ 197,149 $2,719,578
========== ========== ========== ========== ========== ==========
Interest-bearing liabilities:
Deposits(5):
Money market and NOW
accounts $ 272,590 $ 30,606 $ 64,269 $ 47,759 $ 181,104 $ 596,328
Passbook accounts 3,805 11,414 23,342 16,298 37,710 92,569
Certificates of deposit 302,306 395,299 175,659 84,599 3,309 961,172
FHLB advances(6) 87,663 -- 25,000 100,000 500,022 712,685
Securities sold under
agreements to repurchase 28,125 -- -- -- -- 28,125
Senior Notes -- -- 21,295 -- -- 21,295
Mandatorily redeemable trust
preferred securities(6) 20,000 -- -- -- 40,250 60,250
---------- ---------- ---------- ---------- ---------- ----------
Total $ 714,489 $ 437,319 $ 309,565 $ 248,656 $ 762,395 $2,472,424
========== ========== ========== ========== ========== ==========
Excess (deficiency) of
interest-earning assets over
interest-bearing liabilities $ 582,932 $ 72,560 $ 97,399 $ 59,509 $ (565,246) $ 247,154
========== ========== ========== ========== ========== ==========
Cumulative excess of
interest-earnings assets over
interest-bearing liabilities $ 582,932 $ 655,492 $ 752,891 $ 812,400 $ 247,154 $ 247,154
========== ========== ========== ========== ========== ==========
Cumulative excess of
interest-earning assets over
interest-bearing liabilities
as a percentage of total assets 20.47% 23.02% 26.44% 28.53% 8.68% 8.68%
========== ========== ========== ========== ========== ==========
----------
(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.
17
(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.
ITEM 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this quarterly 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on May 28, 2003. Management
solicited proxies for the meeting and there was no solicitation in opposition to
management's nominees for director, as listed in the Proxy Statement. All
nominees for director were re-elected for a three-year term. Votes were cast for
director as follows:
Nominee For Withheld Abstain
------- --- -------- -------
Joseph A. Leone 16,863,652 -- 296,567
Jan A. Norton 11,961,979 4,901,673 296,567
Other Continuing Directors
----- ---------- --------
Edward A. Townsend
William D. Breedlove
Andrew M. Coats
Robert A. Kotecki
George P. Nigh
J. David Rosenberg
18
The stockholders ratified the appointment of KPMG LLP, independent
auditors, to audit the Company's financial statements for the year ending
December 31, 2003. Votes were cast as follows:
For Against Abstain
--- ------- -------
16,804,496 337,944 17,779
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit 31.1 - Certification as adopted pursuant to section 302 of
the Sarbanes-Oxley Act of 2002.
Exhibit 31.2 - Certification as adopted pursuant to section 302 of
the Sarbanes-Oxley Act of 2002.
Exhibit 32 - Certification pursuant to 18 U.S.C. section 1350, as
adopted pursuant to section 906 of the Sarbanes-Oxley
Act of 2002.
b. Reports on Form 8-K
The Company filed the following Form 8-Ks during the quarter ended June
30, 2003:
1. On April 17, 2003, Local Financial Corporation announced by press
release its earnings for the quarter ended March 31, 2003. 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.
2. Effective June 27, 2003, Local Oklahoma Bank, the wholly-owned
subsidiary of Local Financial Corporation, affected a charter change to become
an Oklahoma state banking corporation and a state member bank of the Federal
Reserve System.
19
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: August 14, 2003 By /s/ Edward A. Townsend
-------------------------
Edward A. Townsend
Chairman of the Board
Chief Executive Officer
LOCAL FINANCIAL CORPORATION
Date: August 14, 2003 By /s/ Richard L. Park
----------------------
Richard L. Park
Chief Financial Officer
20
FORM 10-Q
INDEX TO EXHIBITS
EXHIBIT DESCRIPTION
31.1 Certification as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
31.2 Certification as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
21