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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 September 30, 2002
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 0-11487
LAKELAND FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
INDIANA 35-1559596
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
202 East Center Street
P.O. Box 1387, Warsaw, Indiana 46581-1387 (Address of principal executive
offices) (Zip Code)
Registrant's telephone number, including area code (574)267-6144
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practicable date.
Class Outstanding at October 31, 2002
Common Stock, No Par Value 5,768,806
LAKELAND FINANCIAL CORPORATION
Form 10-Q Quarterly Report
Table of Contents
PART I.
Page Number
Item 1. Financial Statements . . . . . . . . . . . . . . . . . . . 1
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 20
Item 4. Controls and Procedures . . . . . . . . . . . . . . . . . 21
PART II.
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . 24
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . 24
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . 24
Item 4. Submission of Matters to a Vote of Security Holders . . . 24
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . 24
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . 24
Form 10-Q Signature Page . . . . . . . . . . . . . . . . . . . . . . 25
Form 10-Q Certifications . . . . . . . . . . . . . . . . . . . . . . 26
LAKELAND FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
As of September 30, 2002 and December 31, 2001
(in thousands)
(Page 1 of 2)
September 30, December 31,
2002 2001
------------ ------------
(Unaudited)
ASSETS Cash and cash equivalents:
Cash and due from banks $ 48,333 $ 70,219
Short-term investments 11,910 8,904
------------ ------------
Total cash and cash equivalents 60,243 79,123
Securities available-for-sale:
U. S. Treasury and government agency securities 17,359 19,440
Mortgage-backed securities 226,916 216,654
State and municipal securities 33,861 29,663
Other debt securities 0 5,882
------------ ------------
Total securities available-for-sale
(carried at fair value) 278,136 271,639
Real estate mortgages held-for-sale 1,149 8,493
Loans:
Total loans 792,552 738,223
Less: Allowance for loan losses 9,082 7,946
------------ ------------
Net loans 783,470 730,277
Land, premises and equipment, net 24,404 24,252
Accrued income receivable 5,063 5,441
Intangible assets 5,709 6,161
Other assets 13,535 12,326
------------ ------------
Total assets $ 1,171,709 $ 1,137,712
============ ============
(Continued)
1
LAKELAND FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
As of September 30, 2002 and
December 31, 2001 (in thousands
except for share and per share data)
(Page 2 of 2)
September 30, December 31,
2002 2001
------------ ------------
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest bearing deposits $ 162,707 $ 169,549
Interest bearing deposits 715,107 623,831
------------ ------------
Total deposits 877,814 793,380
Short-term borrowings:
Federal funds purchased 0 49,000
U.S. Treasury demand notes 3,532 4,000
Securities sold under agreements
to repurchase 108,405 149,117
Other borrowings 35,000 30,000
------------ ------------
Total short-term borrowings 146,937 232,117
Accrued expenses payable 11,801 6,131
Other liabilities 2,374 1,843
Long-term borrowings 31,355 11,389
Guaranteed preferred beneficial interests in
Company's subordinated debentures 19,338 19,318
------------ ------------
Total liabilities 1,089,619 1,064,178
SHAREHOLDERS' EQUITY
Common stock: No par value, 90,000,000 shares authorized, 5,813,984 shares
issued and 5,768,806 outstanding as of September 30, 2002, and 5,813,984
shares issued and 5,775,632
outstanding at December 31, 2001 1,453 1,453
Additional paid-in capital 8,537 8,537
Retained earnings 68,265 62,378
Accumulated other comprehensive income 4,658 1,835
Treasury stock, at cost (823) (669)
------------ ------------
Total shareholders' equity 82,090 73,534
------------ ------------
Total liabilities and shareholders' equity $ 1,171,709 $ 1,137,712
============ ============
The accompanying notes are an integral part of these consolidated financial statements.
2
LAKELAND FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHANSIVE INCOME
For the Three Months and Nine Months
Ended September 30, 2002, and 2001
(in thousands except for share and
per share data)
(Unaudited)
(Page 1 of 2)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
INTEREST AND DIVIDEND INCOME
- ----------------------------
Interest and fees on loans: Taxable $ 12,309 $ 14,721 $ 36,960 $ 45,363
Tax exempt 58 33 125 100
------------ ------------ ------------ ------------
Total loan income 12,367 14,754 37,085 45,463
Short-term investments 73 140 165 416
Securities:
U.S. Treasury and government agency securities 340 715 1,077 2,141
Mortgage-backed securities 3,028 3,120 8,825 9,664
State and municipal securities 402 442 1,202 1,331
Other debt securities 6 112 208 341
------------ ------------ ------------ ------------
Total interest and dividend income 16,216 19,283 48,562 59,356
INTEREST EXPENSE
- ----------------
Interest on deposits 4,277 7,127 12,855 24,493
Interest on short-term borrowings 536 1,647 2,091 5,583
Interest on long-term debt 778 613 2,105 1,834
------------ ------------ ------------ ------------
Total interest expense 5,591 9,387 17,051 31,910
------------ ------------ ------------ ------------
NET INTEREST INCOME 10,625 9,896 31,511 27,446
- -------------------
Provision for loan losses 1,041 970 2,290 1,490
------------ ------------ ------------ ------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 9,584 8,926 29,221 25,956
- ------------------------- ------------ ------------ ------------ ------------
NONINTEREST INCOME
- ------------------
Trust and brokerage fees 590 600 1,889 2,023
Service charges on deposit accounts 1,786 1,385 4,922 4,002
Other income (net) 727 864 2,470 2,486
Net gains on the sale of branches 0 753 0 753
Net gains on the sale of real estate mortgages
held-for-sale 493 348 1,204 792
Net securities gains (losses) 39 50 55 52
------------ ------------ ------------ ------------
Total noninterest income 3,635 4,000 10,540 10,108
NONINTEREST EXPENSE
- -------------------
Salaries and employee benefits 4,803 4,616 13,937 13,202
Occupancy and equipment expense 1,171 1,158 3,352 3,668
Other expense 2,733 3,040 9,013 8,628
------------ ------------ ------------ ------------
Total noninterest expense 8,707 8,814 26,302 25,498
(Continued)
3
LAKELAND FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months and Nine Months
Ended September 30, 2002, and 2001
(in thousands except for share and
per share data)
(Unaudited)
(Page 2 of 2)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAX EXPENSE 4,512 4,112 13,459 10,566
- --------------------------------
Income tax expense 1,559 1,345 4,628 3,299
------------ ------------ ------------ ------------
NET INCOME $ 2,953 $ 2,767 $ 8,831 $ 7,267
- ---------- ============ ============ ============ ============
Other comprehensive income, net of tax:
Unrealized gain/(loss) on available-
for-sale securities 386 2,526 2,823 4,431
------------ ------------ ------------ ------------
TOTAL COMPREHENSIVE INCOME $ 3,339 $ 5,293 $ 11,654 $ 11,698
============ ============ ============ ============
AVERAGE COMMON SHARES OUTSTANDING FOR BASIC EPS 5,813,984 5,813,984 5,813,984 5,813,984
BASIC EARNINGS PER COMMON SHARE $ 0.51 $ 0.48 $ 1.52 $ 1.25
- ------------------------------- ============ ============ ============ ============
AVERAGE COMMON SHARES OUTSTANDING FOR DILUTED EPS 5,992,824 5,853,748 5,957,792 5,836,549
DILUTED EARNINGS PER COMMON SHARE $ 0.49 $ 0.47 $ 1.48 $ 1.25
- --------------------------------- ============ ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements.
4
LAKELAND FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 2002 and 2001
(in thousands)
(Unaudited)
(Page 1 of 2)
2002 2001
------------ ------------
Cash flows from operating activities:
Net income $ 8,831 $ 7,267
------------ ------------
Adjustments to reconcile net income to net cash from operating activities:
Depreciation 1,755 1,775
Provision for loan losses 2,290 1,490
Amortization of intangible assets 472 666
Amortization of mortgage servicing rights 296 205
Impairment of mortgage servicing rights 461 471
Loans originated for sale (56,724) (43,467)
Net gain on sale of loans (1,204) (792)
Proceeds from sale of loans 64,894 42,672
Net (gain) loss on sale of premises and equipment 24 (23)
Net gain on sale of branches 0 (753)
Net gain on sale of securities available-for-sale (55) (52)
Net securities amortization 1,271 791
Increase (decrease) in taxes payable (760) 904
Decrease in income receivable 378 467
Increase (decrease) in accrued expenses payable 925 (580)
(Increase) decrease in other assets 2,225 (1,984)
Increase in other liabilities 531 332
------------ ------------
Total adjustments 16,779 2,122
------------ ------------
Net cash from operating activities 25,610 9,389
------------ ------------
Cash flows from investing activities:
Proceeds from maturities, sales and calls of securities available-for-sale 59,321 39,700
Purchases of securities available-for-sale (62,519) (34,469)
Net increase in total loans (55,483) (30,520)
Proceeds from sales of land, premises and equipment 11 0
Purchases of land, premises and equipment (1,942) (1,361)
Net payments from branch divestitures 0 (40,325)
------------ ------------
Net cash from investing activities (60,612) (66,975)
------------ ------------
(Continued)
5
LAKELAND FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2002 and 2001
(in thousands)
(Unaudited)
(Page 2 of 2)
2002 2001
------------ ------------
Cash flows from financing activities:
Net increase in total deposits $ 84,434 $ 36,773
Proceeds from short-term borrowings 21,709,394 23,303,700
Payments on short-term borrowings (21,794,574) (23,306,611)
Proceeds from long-term borrowings 20,000 0
Payments on long-term borrowings (34) (33)
Dividends paid (2,945) (2,486)
Purchase of treasury stock (153) (126)
------------ ------------
Net cash from financing activities 16,122 31,217
------------ ------------
Net decrease in cash and cash equivalents (18,880) (26,369)
Cash and cash equivalents at beginning of the period 79,123 88,993
------------ ------------
Cash and cash equivalents at end of the period $ 60,243 $ 62,624
============ ============
Cash paid during the period for:
Interest $ 17,275 $ 32,646
============ ============
Income taxes $ 5,569 $ 2,395
============ ============
Loans transferred to other real estate $ 0 $ 1,435
============ ============
The accompanying notes are an integral part of these consolidated financial statements.
6
LAKELAND FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002
(Unaudited)
NOTE 1. BASIS OF PRESENTATION
This report is filed for Lakeland Financial Corporation (the
"Company") and its wholly owned subsidiaries, Lake City Bank (the "Bank") and
Lakeland Capital Trust ("Lakeland Trust"). All significant inter-company
balances and transactions have been eliminated in consolidation. Also included
is the Bank's wholly-owned subsidiary, LCB Investments Limited ("LCB
Investments").
The unaudited consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
of America for interim financial information and with instructions for Form
10-Q. Accordingly, they do not include all of the information and footnotes
required by accounting principles generally accepted in the United States of
America for complete financial statements. In the opinion of management, all
adjustments (all of which are normal and recurring in nature) considered
necessary for a fair presentation have been included. Operating results for
the three-month and nine-month periods ending September 30, 2002 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2002. The 2001 Lakeland Financial Corporation Annual Report on
Form 10-K should be read in conjunction with these statements.
NOTE 2. NEW ACCOUNTING PRONOUNCEMENTS
On January 1, 2002, the Company adopted a new accounting standard,
Statement of Financial Accounting Standard No. 142, which addresses accounting
for goodwill and intangible assets arising from business combinations.
Identifiable intangible assets must be separated from goodwill. Identifiable
intangible assets with finite useful lives are amortized under the new
standard, whereas unidentified intangible assets resulting from business
combinations, both amounts previously recorded and future amounts purchased,
cease being amortized. Annual impairment testing is required for goodwill with
impairment being recorded if the carrying amount of goodwill exceeds its
implied fair value. Adoption of this standard on January 1, 2002 did not have
a material effect on the Company's financial statements.
7
Intangible assets subject to amortization are as follows:
As of September 30, 2002
----------------------------
Gross Carrying Accumulated
Amount Amortization
-------------- ------------
(in thousands)
Core deposit intangible $ 2,032 $ 953
Other unidentified intangible 6,812 2,182
-------------- ------------
Total $ 8,844 $ 3,135
============== ============
Amortization expense for the three-month and nine-month periods ended
September 30, 2002 was $151,000 and $452,000, respectively. Estimated
amortization expense for the next five years is:
Before SFAS No. 147 After SFAS No. 147
For year ended 12/31/02 $603,000 $149,000
For year ended 12/31/03 $584,000 $130,000
For year ended 12/31/04 $568,000 $114,000
For year ended 12/31/05 $554,000 $100,000
For year ended 12/31/06 $541,000 $ 87,000
On October 1, 2002, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 147,
"Acquisitions of Certain Financial Institutions." SFAS No. 147 is effective
October 1, 2002, and may be early applied. SFAS No. 147 supersedes SFAS No.
72, "Accounting for Certain Acquisitions of Banking or Thrift Institutions."
SFAS No. 147 provides guidance on the accounting for the acquisition of a
financial institution, and applies to all such acquisitions except those
between two or more mutual enterprises. Under SFAS No. 147, the excess of the
fair value of liabilities assumed over the fair value of tangible and
identifiable intangible assets acquired in a financial institution business
combination represents goodwill that should be accounted for under SFAS No.
142, "Goodwill and Other Intangible Assets." If certain criteria are met, the
amount of the unidentifiable intangible asset resulting from prior financial
institutions acquisitions is to be reclassified to goodwill upon adoption of
this Statement. Financial institutions meeting conditions outlined in SFAS No.
147 are required to restate previously issued financial statements. The
objective of the restatement is to present the balance sheet and income
statement as if the amount accounted for under SFAS No. 72 as an
unidentifiable intangible asset had been reclassified to goodwill as of the
date the Company adopted SFAS No. 142. Adoption of SFAS No. 147 on October 1,
2002 resulted in the reclassification of $5.0 million of previously recognized
8
unidentifiable intangible assets to goodwill. Additionally, prior period
amortization expense was reversed totaling $114,000 and $0 for the three months
ended September 30, 2002 and 2001, and $341,000 and $0 for the nine months
ended September 30, 2002 and 2001. The effect of the restatement was to
increase net income by $68,000 and $0 for the three months ended September 30,
2002 and 2001, and $203,000 and $0 for the nine months ended September 30, 2002
and 2001.
NOTE 3. EARNINGS PER SHARE
Basic earnings per common share is based upon weighted-average common
shares outstanding. Diluted earnings per common share shows the dilutive
effect of additional common shares issueable.
The common shares outstanding for the shareholders' equity section of
the consolidated balance sheet at September 30, 2002 reflects the acquisition
of 45,178 shares of Company common stock to offset a liability for a
directors' deferred compensation plan. These shares are treated as outstanding
when computing the weighted-average common shares outstanding for the
calculation of both basic and diluted earnings per share.
For the three-month periods ended September 30, 2002 and 2001, stock
options for 486,995 shares and 330,575 shares were considered dilutive for
purposes of computing diluted earnings per share. For the nine-month periods
ended September 30, 2002 and 2001, stock options for 402,726 and 247,225 were
considered dilutive for purposes of computing diluted earnings per share.
NOTE 4. LOANS
September 30, December 31,
2002 2001
------------ ------------
(in thousands)
Commercial and industrial loans $ 530,199 $ 478,288
Agri-business and agricultural loans 64,488 58,901
Real estate mortgage loans 43,614 44,898
Real estate construction loans 2,276 2,354
Installment loans and credit cards 151,975 153,782
------------ ------------
Total loans $ 792,552 $ 738,223
============ ============
Impaired loans $ 13,299 $ 10,008
Non-performing loans $ 7,600 $ 2,498
9
NOTE 5. RECLASSIFICATIONS
Certain amounts appearing in the financial statements and notes
thereto for prior periods have been reclassified to conform with the current
presentation. The reclassification had no effect on net income or
stockholders' equity as previously reported.
10
Part 1
LAKELAND FINANCIAL CORPORATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
and
RESULTS OF OPERATION
September 30, 2002
OVERVIEW
Lakeland Financial Corporation is the holding company for Lake City
Bank. The Company is headquartered in Warsaw, Indiana and operates 40 offices
in 11 counties in northern Indiana. The Company earned $8.8 million for the
first nine months of 2002 versus $7.3 million in the same period of 2001, an
increase of 21.5%. The increase was driven by a $4.1 million increase in net
interest income and a $432,000 increase in non-interest income. Offsetting
these positive impacts were increases of $800,000 in the provision for loan
losses, and $804,000 in non-interest expense. Basic earnings per share for the
first nine months of 2002 was $1.52 per share versus $1.25 per share for the
first nine months of 2001. Diluted earnings per share reflect the potential
dilutive impact of stock options granted under an employee stock option plan.
Diluted earnings per share for the first nine months of 2002 was $1.48 per
share, versus $1.25 per share for the first nine months of 2001.
Net income for the third quarter of 2002 was $3.0 million, an
increase of 6.7% versus $2.8 million for the comparable period of 2001. Basic
earnings per share for the third quarter of 2002 was $0.51 per share versus
$0.48 per share for the third quarter of 2001. Diluted earnings per share for
the third quarter of 2002 was $0.49 per share versus $0.47 per share for the
third quarter of 2001.
RESULTS OF OPERATIONS
Net Interest Income
For the nine-month period ended September 30, 2002, net interest
income totaled $31.5 million, an increase of 14.8%, or $4.1 million versus the
first nine months of 2001. For the three-month period ended September 30,
2002, net interest income totaled $10.6 million, an increase of 7.4%, or
$729,000, over the same period of 2001. Net interest income increased in both
the nine and three month periods of 2002 versus the comparable periods of
2001, primarily due to the implementation of a liability pricing strategy
which has resulted in an improved net interest margin. In addition, average
interest bearing assets and average non-interest bearing demand deposits
increased in both the nine and three month periods ending September 30, 2002.
The effect of these changes was to increase the Company's net interest margin
to 4.11% and 4.05%, respectively, for the nine and three month periods ended
September 30, 2002, versus 3.63% and 3.81% for the comparable periods of 2001.
11
During the first nine months of 2002, total interest and dividend
income decreased by $10.8 million, or 18.2% to $48.6 million, versus $59.4
million during the same nine months of 2001. During the third quarter of 2002,
interest and dividend income decreased $3.1 million, or 15.9%, to $16.2
million, versus $19.3 million during the same quarter of 2001. Daily average
earning assets for the first nine months of 2002 increased 1.00% to $1.045
billion versus the same period in 2001. For the third quarter, daily average
earning assets increased 0.8% to $1.061 billion versus the same period in
2001. The tax equivalent yield on average earning assets decreased by 146
basis points to 6.2% for the nine-month period ended September 30, 2002 versus
the same period of 2001. For the three-month period ended September 30, 2002,
the yield decreased by 119 basis points to 6.1% from the yield for the
three-month period ended September 30, 2001.
The decrease in the yield on average earning assets reflected
decreases in the yields on both loans and securities caused by the falling
interest rate environment. The yield on securities is historically lower than
the yield on loans, and decreasing the ratio of securities to total earning
assets will normally improve the yield on earning assets. The ratio of average
daily securities to average earning assets for the nine-month and three-month
periods ended September 30, 2002 were 26.2% and 25.9% compared to 28.4% and
27.8% for the same periods of 2001.
The average daily loan balances for the first nine months of 2002
increased 3.9% to $757.4 million, over the average daily loan balances of
$728.7 million for the same period of 2001. During the same period, loan
interest income declined by $8.4 million, or 18.4%, to $37.1 million. The
decrease was the result of a 180 basis point decrease in the tax equivalent
yield on loans to 6.4% from 8.2% in the first nine months of 2001. The average
daily loan balances for the third quarter of 2002 increased $24.9 million, or
3.3%, to $769.0 million, versus $744.1 million for the same period of 2001.
During the same period, loan interest income declined by $2.4 million, or
16.2%, to $12.4 million versus $14.8 million during the third quarter of 2001.
The decrease was the result of a 147 basis point decrease in the tax
equivalent yield on loans, to 6.3%, versus 7.7% in the third quarter of 2001.
In both the nine and three month periods ended September 30, 2002, increases
in the average daily loan balances occurred despite the impact of the
Company's September, 2001 branch divestiture, which included $24.4 million in
loans.
Income from short-term investments was $165,000 for the nine-month
period and $73,000 for the three-month period ended September 30, 2002. This
compares to $416,000 and $140,000 for the same periods of 2001. The $251,000
decrease between the nine-month periods was primarily the result of a 298
basis point decrease in yields. The $67,000 decrease between the three-month
periods resulted primarily from a 187 basis point decrease in yields.
12
The average daily securities balances for the first nine months of
2002 decreased $19.9 million, or 6.8%, to $274.1 million, versus $294.0
million for the same period of 2001. During the same periods, income from
securities declined by $2.2 million, or 16.1%, to $11.3 million versus $13.5
million during the first nine months of 2001. The decrease was the result of
the decrease in average daily balances of securities combined with a 59 basis
point decline in the tax equivalent yields on securities, to 5.8% versus 6.4%
in the first nine months of 2001. The average daily securities balances for
the third quarter of 2002 decreased $18.1 million, or 6.2%, to $274.6 million,
versus $292.7 million for the same period of 2001. During the same periods,
income from securities declined by $613,000, or 14.0%, to $3.8 million versus
$4.4 million during the third quarter of 2001. The decrease was the result of
a 47 basis point decrease in the tax equivalent yield on securities, to 5.7%,
versus 6.2% in the third quarter of 2001, combined with the decline in average
daily securities balances.
Total interest expense decreased $14.9 million, or 46.6%, to $17.1
million for the nine-month period ended September 30, 2002, from $31.9 million
for the comparable period in 2001. The decrease was primarily the result of a
188 basis point decrease in the Company's daily cost of funds to 2.19%, versus
4.07% for the same period of 2001. Total interest expense decreased $3.8
million, or 40.4%, to $5.6 million for the three-month period ended September
30, 2002, from $9.4 million for the comparable period of 2001. The decrease
was primarily the result of a 139 basis point decrease in the Company's daily
cost of funds to 2.11%, versus 3.50%, for the same period of 2001. On an
average daily basis, total deposits (including demand deposits) increased $1.8
million, or 0.2%, to $846.8 million for the nine-month period ended September
30, 2002, versus $845.0 million in the same period in 2001. The average daily
deposit balances for the third quarter of 2002 increased $15.2 million, or
1.8%, to $869.3 million versus $854.1 million during the third quarter of
2001. In both the nine and three month periods ended September 30, 2002,
increases in average daily total deposits occurred despite the impact of the
Company's September, 2001 branch divestiture, which included $70.3 million in
deposits. On an average daily basis, noninterest bearing demand deposits
increased $10.0 million, or 7.3% and 7.0%, respectively, for both the nine and
three-month periods ended September 30, 2002, versus the same periods in 2001.
When comparing the nine months ended September 30, 2002 with the same period
of 2001, the average daily balance of time deposits, which pay a higher rate
of interest compared to demand deposit and transaction accounts, decreased
$8.1 million and the rate paid on such accounts declined by 247 basis points
versus the same period in 2001. In the third quarter of 2002, the average
daily balance of time deposits increased by $8.3 million and the rate paid on
such accounts decreased by 189 basis points. During the remainder of 2002,
13
management plans to continue efforts to grow relationship type accounts such
as demand deposit and Investors' Weekly accounts, which pay a lower rate of
interest compared to time deposit accounts and are generally viewed by
management as stable and reliable funding sources. Average daily balances of
borrowings decreased $8.4 million, or 4.2%, to $193.8 million for the nine
months ended September 30, 2002 versus $202.2 million for the same period in
2001, and decreased $27.4 million, or 13.1%, for the three months ended
September 30, 2002. The rate on borrowings decreased 201 basis points and 142
basis points, respectively, when comparing the nine and three month periods of
2002 with the same periods of 2001. On an average daily basis, total deposits
(including demand deposits) and purchased funds decreased 0.6% and 1.2%,
respectively, for the nine-month and three-month periods ended September 30,
2002 versus the same periods in 2001.
Provision for Loan Losses
Based on management's review of the adequacy of the allowance for
loan losses, provisions for losses on loans of $2.3 million and $1.0 million
were recorded during the nine-month and three-month periods ended September
30, 2002, versus provisions of $1.5 million and $970,000 recorded during the
same periods of 2001. The increase in the provision for loan losses for the
nine month period reflected a number of factors, including the increase in the
size of the loan portfolio, the amount of impaired loans, the amount of past
due accruing loans (90 days or more), and management's overall view on current
credit quality, as discussed in more detail below.
Noninterest Income
Noninterest income categories for the nine and three-month periods
ended September 30, 2002 and 2001 are shown in the following table:
Nine Months ended
September 30,
----------------------------------
Percent
2002 2001 Change
---------- ---------- ----------
(in thousands)
Trust and brokerage fees $ 1,889 $ 2,023 (6.6)%
Service charges on deposits 4,922 4,002 23.0
Other income (net) 2,470 2,486 (0.6)
Net gains on the sale of branches 0 753 (100.0)
Net gains on the sale of real estate
mortgages held-for-sale 1,204 792 52.0
Net securities gains 55 52 5.8
---------- ---------- ----------
Total noninterest income $ 10,540 $ 10,108 4.3 %
========== ========== ==========
14
Three Months ended
September 30,
----------------------------------
Percent
2002 2001 Change
---------- ---------- ----------
(in thousands)
Trust and brokerage fees $ 590 $ 600 (1.7)%
Service charges on deposits 1,786 1,385 29.0
Other income (net) 727 864 (15.9)
Net gain on the sale of branches 0 753 (100.0)
Net gains on the sale of real estate
mortgages held-for-sale 493 348 41.7
Net securities gains 39 50 (22.0)
---------- ---------- ----------
Total noninterest income $ 3,635 $ 4,000 (9.1)%
========== ========== ==========
Trust fees increased 16.9%, from $1.2 million to $1.4 million, in the
first nine months of 2002 versus the same period in 2001. This increase was
primarily in employee benefit plan, executorship, living trust and
testamentary trust fees. Brokerage fees decreased 39.5%, from $846,000 to
$512,000, in the first nine months of 2002 versus the same period in 2001,
driven by nonrecurring fees received in 2001 of approximately $156,000 related
to the sale of several annuity accounts, and reduced trading volume during
2002.
The primary sources of the increase in service charges on deposit
accounts were fees related to business checking accounts as well as fees
related to new deposit services which were implemented in the first quarter of
2002.
Other income consists of normal recurring fee income such as mortgage
service fees, credit card fees, insurance fees, and safe deposit box rent, as
well as other income that management classifies as non-recurring. Other fee
income decreased $16,000 in the first nine months of 2002 versus the same
period in 2001, and decreased $137,000 in the third quarter versus the same
period in 2001. The primary driver behind the third quarter decrease was a
$258,000 charge for non-cash impairment of the Bank's mortgage servicing
rights versus a $175,000 charge in the third quarter of 2001.
During the third quarter of 2001, the Company sold five non-strategic
branches resulting in a gain of $753,000. Excluding this one-time gain, total
non-interest income increased by 12.7% and 11.9%, respectively, in the first
nine months and third quarter of 2002, versus the same periods in 2001.
15
The increase in profits from the sale of mortgages reflected an
increase in the volume of mortgages sold during the first nine months of 2002
versus sales during the first nine months of 2001. During the first nine
months of 2002, the Company sold $64.1 million in mortgages versus $42.1
million in the comparable period of 2001. This increase in volume was the
result of the low interest rate environment during 2002, which has resulted in
increased mortgage refinance activity and increased demand for home mortgages.
Noninterest Expense
Noninterest expense categories for the nine and three-month periods
ended September 30, 2002, and 2001 are shown in the following table:
Nine Months ended
September 30,
----------------------------------
Percent
2002 2001 Change
---------- ---------- ----------
(in thousands)
Salaries and employee benefits $ 13,937 $ 13,202 5.6 %
Occupancy and equipment expense 3,352 3,668 (8.6)
Other expense 9,013 8,628 4.5
---------- ---------- ----------
Total noninterest expense $ 26,302 $ 25,498 3.2 %
========== ========== ==========
Three Months ended
September 30,
----------------------------------
Percent
2002 2001 Change
---------- ---------- ----------
(in thousands)
Salaries and employee benefits $ 4,803 $ 4,616 4.1 %
Occupancy and equipment expense 1,171 1,158 1.1
Other expense 2,733 3,040 (10.1)
---------- ---------- ----------
Total noninterest expense $ 8,707 $ 8,814 (1.2)%
========== ========== ==========
The increase in salaries and employee benefits reflected normal
salary increases and increases related to the employee 401(k) plan and
incentive compensation plan. Total employees decreased to 460 at September 30,
2002, from 476 at September 30, 2001. This decrease resulted primarily from
the reduction in staff in connection with the sale of the five bank branches
in September, 2001.
16
The decrease in occupancy and equipment expense was also primarily
related to the sale of the five branch offices in the third quarter of 2001.
Other expense includes corporate and business development, data
processing fees, telecommunications, postage, and professional fees such as
legal, accounting, and directors' fees. Other expense increased primarily due
to increased data processing, advertising and public relations expenses
incurred during the first nine-months of 2002 versus the same period of 2001.
Other expense declined in the third quarter of 2002 versus the same period of
2001 primarily due to reduced professional fees.
Income Tax Expense
Income tax expense increased $1.3 million, or 40.3%, for the first
nine months of 2002, compared to the same period in 2001. Income tax expense
for the third quarter of 2002 increased $214,000, or 15.9%, compared to the
third quarter of 2001. The combined state franchise tax expense and the
federal income tax expense as a percentage of income before income tax expense
increased to 34.4% during the first nine months of 2002 compared to 31.2%
during the same period in 2001. It increased to 34.6% for the third quarter of
2002 versus 32.7% for the third quarter of 2001. The increases were primarily
due to greater profitability which resulted in a higher percentage of income
being subject to the state franchise tax combined with the Company being taxed
at the 35% federal tax rate in 2002 versus the 34% rate in 2001.
FINANCIAL CONDITION
Total assets of the Company were $1.172 billion as of September 30,
2002, an increase of $34.0 million, or 3.0%, when compared to $1.138 billion
as of December 31, 2001.
Total cash and cash equivalents decreased by $18.9 million, or 23.9%,
to $60.2 million at September 30, 2002 from $79.1 million at December 31,
2001. The decrease was attributable to funding needs associated with
corresponding increases in the Company's securities and loans portfolios.
Total securities available-for-sale increased by $6.5 million, or
2.4%, to $278.1 million at September 30, 2002 from $271.6 million at December
31, 2001. The increase was a result of a number of transactions in the
securities portfolio. Paydowns of $46.8 million were received, and the
amortization of premiums, net of the accretion of discounts, was $1.3 million.
Maturities, calls and sales of securities totaled $12.4 million. These
17
portfolio decreases were offset by securities purchases totaling $62.5
million, and an increase of $4.5 million in the fair value of the securities.
The investment portfolio is managed to limit the Company's exposure to risk by
containing mostly CMO's and other securities which are either directly or
indirectly backed by the federal government or a local municipal government.
Real estate mortgages held-for-sale decreased by $7.4 million, or
86.5%, to $1.1 million at September 30, 2002 from $8.5 million at December 31,
2001. The balance of this asset category is subject to a high degree of
variability depending on, among other things, recent mortgage loan rates and
the timing of loan sales into the secondary market. During the nine months
ended September 30, 2002, $56.7 million in real estate mortgages were
originated for sale and $64.1 million in mortgages were sold.
Total loans, excluding real estate mortgages held-for-sale, increased
by $54.3 million or 7.4% to $792.6 million at September 30, 2002 from $738.2
million at December 31, 2001. The mix of loan types within the Company's
portfolio remained relatively unchanged, reflecting 75% commercial, 6% real
estate and 19% consumer loans compared to 73% commercial, 6% real estate and
21% consumer loans at December 31, 2001.
The allowance for loan losses increased $1.1 million, or 14.3%, to
$9.1 million at September 30, 2002 from $7.9 million at December 31, 2001. Net
charge-offs for the nine months ended September 30, were $1.2 million in 2002
and $1.0 million in 2001. The allowance for loan losses at September 30, 2002
was 1.15% of total loans, net of residential mortgage loans held for sale on
the secondary market, versus 1.08% at December 31, 2001.
The Company has a relatively high percentage of commercial and
commercial real estate loans, most of which are extended to small or
medium-sized businesses. Commercial loans represent higher dollar loans to
fewer customers and therefore higher credit risk. Pricing is adjusted to
manage the higher credit risk associated with these types of loans. The
majority of fixed rate mortgage loans, which represent increased interest rate
risk, are sold in the secondary market, as well as some variable rate mortgage
loans. The remainder of the variable rate mortgage loans and a small number of
fixed rate mortgage loans are retained. Management believes the allowance for
loan losses is at a level commensurate with the overall risk exposure of the
loan portfolio. However, as a result of the difficult economic climate,
certain borrowers may experience difficulty and the level of non-performing
loans, charge-offs, and delinquencies could rise and require further increases
in the provision.
Loans are charged against the allowance for loan losses when
management believes that the collectibility of the principal is unlikely.
Subsequent recoveries, if any, are credited to the allowance. The allowance is
an amount that management believes will be adequate to absorb probable losses
18
relating to specifically identified loans based on an evaluation as well as
other probable incurred losses inherent in the loan portfolio. The evaluations
take into consideration such factors as changes in the nature and volume of
the loan portfolio, overall portfolio quality, review of specific problem
loans, and current economic conditions that may affect the borrower's ability
to repay. Management also considers trends in adversely classified loans based
upon a monthly review of those credits. Since December 31, 2001, the
percentage of loans internally adversely classified has increased. In
accordance with FASB Statements 5 and 114, the allowance is provided for
losses that have been incurred as of the balance sheet date and is based on
past events and current economic conditions, and does not include the effects
of expected losses on specific loans or groups of loans that are related to
future events or expected changes in economic conditions. The majority of the
risk in the loan portfolio lies in the commercial loans that include
commercial real estate loans. Accordingly, the Company allocated $6.9 million
of the allowance to these loans, which comprise approximately 75% of the loan
portfolio.
At September 30, 2002, total nonperforming loans increased by $5.1
million to $7.6 million from $2.5 million at December 31, 2001. Loans
delinquent 90 days or more that were included in the accompanying financial
statements as accruing totaled $3.6 million versus $264,000 at December 31,
2001. Total impaired loans increased by $3.3 million to $13.3 million at
September 30, 2002 from $10.0 million at December 31, 2001. The increases in
the loans delinquent 90 days or more and accruing and impaired loans
categories resulted primarily from one commercial credit totaling $3.3
million. The renewal of this loan has been complicated as more than one bank
is involved, and therefore it is past maturity. While this loan is current as
to principal and interest, there can be no assurance that it will remain
current given the circumstances involved. The increase in nonperforming loans
resulted from the addition of the aforementioned loan and one additional
commercial loan of $1.7 million. The impaired loan total includes $3.9 million
in nonaccrual loans. A loan is impaired when full payment under the original
loan terms is not expected. Impairment is evaluated in total for
smaller-balance loans of similar nature such as residential mortgage,
consumer, and credit card loans, and on an individual loan basis for other
loans. If a loan is impaired, a portion of the allowance may be allocated so
that the loan is reported, net, at the present value of estimated future cash
flows using the loan's existing rate or at the fair value of collateral if
repayment is expected solely from the collateral.
Total deposits increased by $84.4 million, or 10.6%, to $877.8
million at September 30, 2002 from $793.4 million at December 31, 2001. The
increase resulted from increases of $97.2 million in certificates of deposit
and $5.0 million in savings accounts. Offsetting these increases were declines
of $6.8 million in demand deposits, $5.5 million in Investors' Weekly
accounts, $4.0 million in money market accounts and $1.2 million in NOW
accounts.
19
Total short-term borrowings decreased by $85.2 million, or 36.7%, to
$146.9 million at June 30, 2002 from $232.1 million at December 31, 2001. The
decrease resulted primarily from a $49.0 million decline in federal funds
purchases combined with a $40.7 million decline in securities sold under
agreements to repurchase. Offsetting these declines was a $5 million increase
in other borrowings, primarily short-term advances from the Federal Home Loan
Bank of Indianapolis.
Total stockholders' equity increased by $8.6 million, or 11.6%, to
$82.1 million at September 30, 2002 from $73.5 million at December 31, 2001.
Net income of $8.8 million, less dividends of $2.9 million, plus the increase
in the accumulated other comprehensive income of $2.8 million, less $154,000
for the cost of treasury stock acquired, comprised this increase.
The Federal Deposit Insurance Corporation's (FDIC) risk based capital
regulations require that all banking organizations maintain an 8.0% total risk
based capital ratio. The FDIC has also established definitions of "well
capitalized" as a 5.0% Tier I leverage capital ratio, a 6.0% Tier I risk based
capital ratio and a 10.0% total risk based capital ratio. All of the Company's
ratios continue to be above "well capitalized" levels. As of September 30,
2002, the Company's Tier 1 leverage capital ratio, Tier 1 risk based capital
ratio and total risk based capital ratio were 8.1%, 10.5% and 11.5%,
respectively.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest rate risk represents the Company's primary market risk
exposure. The Company does not have a material exposure to foreign currency
exchange risk, does not have any material amount of derivative financial
instruments and does not maintain a trading portfolio. The board of directors
annually reviews and approves the policy used to manage interest rate risk.
The policy was last reviewed and approved in May 2002. The policy sets
guidelines for balance sheet structure, which are designed to protect the
Company from the impact that interest rate changes could have on net income,
but does not necessarily indicate the effect on future net interest income.
The Company, through its Asset/Liability Committee, manages interest rate risk
by monitoring the computer simulated earnings impact of various rate scenarios
and general market conditions. The Company then modifies its long-term risk
parameters by attempting to generate the type of loans, investments, and
deposits that currently fit the Company's needs, as determined by the
Asset/Liability Committee. This computer simulation analysis measures the net
interest income impact of various interest rate scenario changes during the
next 12 months. If the change in net interest income is less than 3% of
primary capital, the balance sheet structure is considered to be within
acceptable risk levels. At September 30, 2002, the Company's potential pretax
exposure was within the Company's policy limit, and not significantly
different from December 31, 2001.
20
ITEM 4 - CONTROLS AND PROCEDURES
Based upon an evaluation within the 90 days prior to the filing date
of this report, the Company's Chief Executive Officer and Chief Financial
Officer concluded that the Company's disclosure controls and procedures are
effective. There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect the Company's
internal controls subsequent to the date of the evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
21
FORWARD-LOOKING STATEMENTS
This document (including information incorporated by reference)
contains, and future oral and written statements of the Company and its
management may contain, forward-looking statements, within the meaning of such
term in the Private Securities Litigation Reform Act of 1995, with respect to
the financial condition, results of operations, plans, objectives, future
performance and business of the Company. Forward-looking statements, which may
be based upon beliefs, expectations and assumptions of the Company's
management and on information currently available to management, are generally
identifiable by the use of words such as "believe," "expect," "anticipate,"
"plan," "intend," "estimate," "may," "will," "would," "could," "should" or
other similar expressions. Additionally, all statements in this document,
including forward-looking statements, speak only as of the date they are made,
and the Company undertakes no obligation to update any statement in light of
new information or future events.
The Company's ability to predict results or the actual effect of
future plans or strategies is inherently uncertain. Factors, which could have
a material adverse effect on the operations and future prospects of the
Company and its subsidiaries include, but are not limited to, the following:
o The strength of the United States economy in general and the
strength of the local economies in which the Company
conducts its operations which may be less favorable than
expected and may result in, among other things, a
deterioration in the credit quality and value of the
Company's assets.
o The economic impact of the terrorist attacks that occurred
on September 11th, as well as any future threats and
attacks, and the response of the United States to any such
threats and attacks.
o The effects of, and changes in, federal, state and local
laws, regulations and policies affecting banking,
securities, insurance and monetary and financial matters.
o The effects of changes in interest rates (including the
effects of changes in the rate of prepayments of the
Company's assets) and the policies of the Board of Governors
of the Federal Reserve System.
o The ability of the Company to compete with other financial
institutions as effectively as the Company currently intends
due to increases in competitive pressures in the financial
services sector.
22
o The inability of the Company to obtain new customers and to
retain existing customers.
o The timely development and acceptance of products and
services, including products and services offered through
alternative delivery channels such as the Internet.
o Technological changes implemented by the Company and by
other parties, including third party vendors, which may be
more difficult or more expensive than anticipated or which
may have unforeseen consequences to the Company and its
customers.
o The ability of the Company to develop and maintain secure
and reliable electronic systems.
o The ability of the Company to retain key executives and
employees and the difficulty that the Company may experience
in replacing key executives and employees in an effective
manner.
o Consumer spending and saving habits, which may change in a
manner that affects the Company's business adversely.
o Business combinations and the integration of acquired
businesses, which may be more difficult or expensive than
expected.
o The costs, effects and outcomes of existing or future
litigation.
o Changes in accounting policies and practices, as may be
adopted by state and federal regulatory agencies and the
Financial Accounting Standards Board.
o The ability of the Company to manage the risks associated with
the foregoing as well as anticipated.
These risks and uncertainties should be considered in evaluating
forward-looking statements and undue reliance should not be placed on such
statements. Additional information concerning the Company and its business,
including other factors that could materially affect the Company's financial
results, is included in the Company's filings with the Securities and Exchange
Commission.
23
LAKELAND FINANCIAL CORPORATION
FORM 10-Q
September 30, 2002
Part II - Other Information
Item 1. Legal proceedings
There are no material pending legal proceedings to which the Company
or its subsidiaries is a party other than ordinary routine litigation
incidental to their respective businesses.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
99.1 - Certificate of Chief Executive Officer
99.2 - Certificate of Chief Financial Officer
b. Reports
None
24
LAKELAND FINANCIAL CORPORATION
FORM 10-Q
September 30, 2002
Part II - Other Information
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LAKELAND FINANCIAL CORPORATION
(Registrant)
Date: November 12, 2002 /s/Michael L. Kubacki
Michael L. Kubacki - President and Chief
Executive Officer
Date: November 12, 2002 /s/David M. Findlay
David M. Findlay - Executive Vice President
and Chief Financial Officer
Date: November 12, 2002 /s/Teresa A. Bartman
Teresa A. Bartman - Vice President and
Controller
25
Certifications
I, Michael L. Kubacki, Chief Executive Officer of the Company, certify that:
1. I have reviewed this quarterly report on Form 10-Q of
Lakeland 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 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 the 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
registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
26
controls; and
(b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent
to date of their evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
Date: November 12, 2002 /s/Michael L. Kubacki
Michael L. Kubacki - Chief Executive Officer
27
Certifications
I, David M. Findlay, Chief Financial Officer of the Company, certify that:
1. I have reviewed this quarterly report on Form 10-Q of
Lakeland 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 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 the 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
registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
28
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent
to date of their evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
Date: November 12, 2002 /s/David M. Findlay
David M. Findlay - Chief Financial Officer
29