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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 2004
Commission file number 0-23533
MYSTIC FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-3401049
- -------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
60 HIGH STREET
MEDFORD, MASSACHUSETTS 02155
- ---------------------- -----
(Address of principal executive offices) (Zip Code)
(781) 395-2800
(Registrant's telephone number, including area code)
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 12-b-2 of the Exchange Act).
YES NO X
----- -----
As of November 10, 2004, 1,565,945 shares of the registrant's common stock
were outstanding.
MYSTIC FINANCIAL, INC. AND SUBSIDIARIES
INDEX
PART I FINANCIAL INFORMATION Page
--------------------- ----
Item 1 Financial Statements
Consolidated Balance Sheets - September 30, 2004
and June 30, 2004 3
Consolidated Statements of Income - Three Months
Ended September 30, 2004 and 2003 4
Consolidated Statements of Changes in Stockholders' Equity -
Three Months Ended September 30, 2004 and 2003 5
Consolidated Statements of Cash Flows - Three Months
Ended September 30, 2004 and 2003 6
Notes to Unaudited Consolidated Financial Statements -
September 30, 2004 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 3 Quantitative and Qualitative Disclosures About
Market Risk 24
Item 4 Controls and Procedures 24
PART II OTHER INFORMATION
-----------------
Item 1 Legal Proceedings 25
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 25
Item 3 Defaults Upon Senior Securities 25
Item 4 Submission of Matters to a Vote of Security Holders 25
Item 5 Other Information 25
Item 6 Exhibits 25
SIGNATURES 26
- ----------
Mystic Financial, Inc. and Subsidiaries
Part I - Financial Information
Item 1 - Financial Statements
Consolidated Balance Sheets
(In Thousands)
September 30, June 30,
2004 2004
------------- --------
(Unaudited)
Assets
Cash and due from banks $ 12,645 $ 10,761
Federal funds sold 1,918 3,214
Short-term investments 1,756 1,726
-------- --------
Total cash and cash equivalents 16,319 15,701
Securities available for sale, at fair value 66,132 88,724
Securities held to maturity (fair value approximates $9,744 and $11,032,
respectively) 9,787 11,287
Federal Home Loan Bank stock, at cost 3,701 3,234
Loans, net of allowance for loan losses of $2,716 and $2,537,
respectively 332,362 311,806
Bank premises and equipment, net 3,138 3,294
Real estate held for investment, net 1,453 1,470
Foreclosed real estate 1,532 -
Accrued interest receivable 1,543 1,647
Due from Co-operative Central Bank 929 929
Other assets 2,526 3,100
-------- --------
$439,422 $441,192
======== ========
Liabilities and Stockholders' Equity
Deposits $339,148 $351,407
Federal Home Loan Bank borrowings 57,052 47,861
Subordinated debt 12,373 12,373
Mortgagors' escrow accounts 1,095 967
Accrued interest payable 522 421
Accrued expenses and other liabilities 1,480 1,423
-------- --------
Total liabilities 411,670 414,452
-------- --------
Stockholders' equity
Preferred stock, $.01 par value, 1,000,000 shares authorized; none issued - -
Common stock, $.01 par value, 5,000,000 shares authorized; 2,746,501 and
2,746,501 issued, respectively 27 27
Additional paid-in capital 27,199 27,071
Retained earnings 18,035 17,998
Treasury stock, at cost, 1,180,556 shares and 1,180,556 shares,
respectively (16,136) (16,136)
Accumulated other comprehensive (loss) (283) (1,053)
Unearned ESOP shares, 66,349 shares and 71,659 shares, respectively (909) (983)
Unearned RRP stock, 18,300 and 18,589 shares, respectively (181) (184)
-------- --------
Total stockholders' equity 27,752 26,740
-------- --------
$439,422 $441,192
======== ========
See accompanying notes to unaudited consolidated financial statements.
3
Mystic Financial, Inc. and Subsidiaries
Part I - Financial Information
Item 1 - Financial Statements
Consolidated Statements of Income
(In Thousands, Except Per Share Data)
Three Months Ended
September 30, September 30,
2004 2003
------------- -------------
(Unaudited)
Interest and dividend income:
Interest and fees on loans $4,548 $4,313
Interest and dividends on securities 835 961
Other interest 19 24
------ ------
Total interest and dividend income 5,402 5,298
------ ------
Interest expense:
Deposits 1,298 1,541
Federal Home Loan Bank borrowings 492 573
Subordinated Debt 149 143
------ ------
Total interest expense 1,939 2,257
------ ------
Net interest income 3,463 3,041
Provision for loan losses 179 87
------ ------
Net interest income, after provision for loan losses 3,284 2,954
------ ------
Non-interest income:
Customer service fees 270 215
Gain on sales of securities available for sale, net 21 45
Gain on sales of loans - 63
Other 2 1
------ ------
Total non-interest income 293 324
------ ------
Non-interest expense:
Salaries and employee benefits 1,683 1,523
Occupancy and equipment expenses 372 352
Data processing expenses 130 103
Professional fees 576 181
Other general and administrative expenses 480 428
------ ------
Total non-interest expense 3,241 2,587
------ ------
Income before income taxes 336 691
Provision for income taxes 131 251
------ ------
Net income $ 205 $ 440
====== ======
Earnings per share-basic $ 0.14 $ 0.31
====== ======
Weighted average shares outstanding - basic 1,479 1,425
====== ======
Earnings per share-diluted $ 0.13 $ 0.29
====== ======
Weighted average shares outstanding - diluted 1,580 1,503
====== ======
See accompanying notes to unaudited consolidated financial statements.
4
Mystic Financial, Inc. and Subsidiaries
Part I - Financial Information
Item 1 - Financial Statements
Consolidated Statements of Changes in Stockholders' Equity
Three Months Ended September 30, 2004 and 2003
(In Thousands)
(Unaudited)
Accumulated
Additional Other Unearned Unearned Total
Common Paid-In Retained Treasury Comprehensive ESOP RRP Stockholders'
Stock Capital Earnings Stock Income (Loss) Shares Stock Equity
------ ---------- -------- -------- ------------- -------- -------- --------------
Balance at June 30, 2004 $27 $27,071 $17,998 $(16,136) $(1,053) $ (983) $(184) $26,740
Comprehensive income:
Net income - - 205 - - - - 205
Net unrealized gain on securities
available for sale, net of tax
effects - - - - 770 - - 770
Total comprehensive income - - - - - - - 975
Dividends declared and paid ($0.115
per share) - - (168) - - - - (168)
Decrease in unearned ESOP shares - 128 - - - 74 - 202
Decrease in unearned RRP stock - - - - - - 3 3
--- ------- ------- -------- ------- ------- ----- -------
Balance at September 30, 2004 $27 $27,199 $18,035 $(16,136) $ (283) $ (909) $(181) $27,752
=== ======= ======= ======== ======= ======= ===== =======
Balance at June 30, 2003 $27 $25,819 $18,338 $(17,131) $ 767 $(1,293) $(283) $26,244
Comprehensive income:
Net income - - 440 - - - - 440
Net unrealized loss on securities
available for sale, net of tax
effects - - - - (501) - - (501)
Total comprehensive income - - - - - - - (61)
Stock dividend - 5% - 614 (1,616) 1,002 - - - -
Dividends declared and paid ($0.10
per share) - - (143) - - - - (143)
Stock options exercised (420 shares) - 7 - - - - - 7
Decrease in unearned ESOP shares - 45 - - - 79 - 124
Decrease in unearned RRP stock - - - - - - 54 54
--- ------- ------- -------- ------- ------- ----- -------
Balance at September 30, 2003 $27 $26,485 $17,019 $(16,129) $ 266 $(1,214) $(229) $26,225
=== ======= ======= ======== ======= ======= ===== =======
See accompanying notes to unaudited consolidated financial statements
5
Mystic Financial, Inc. and Subsidiaries
Part I - Financial Information
Item 1 - Financial Statements
Consolidated Statements of Cash Flows
(In Thousands)
Three Months Ended
September 30, September 30,
2004 2003
------------- -------------
(Unaudited)
Cash flows from operating activities:
Net income $ 205 $ 440
Adjustments to reconcile net income to net cash provided by
operating activities
Provision for loan losses 179 87
Net accretion of securities (147) (36)
Amortization of unearned ESOP shares 202 124
Amortization of unearned RRP stock 3 54
Gain on sales of securities available for sale, net (21) (45)
Gain on sales of loans, net - (63)
Depreciation and amortization of servicing rights 178 189
Net change in mortgage loans held for sale - (13,361)
Decrease (increase) in accrued interest receivable 104 (35)
Increase in other assets (1,120) (382)
Increase (decrease) in accrued expenses and other liabilities 158 (95)
--------- ---------
Net cash used by operating activities (259) (13,123)
--------- ---------
Cash flows from investing activities:
Activity in available-for-sale securities
Sales 19,910 7,683
Maturities, prepayment and calls 5,768 12,326
Purchases (1,991) (22,800)
Activity in securities held-to-maturity
Maturities, prepayment and calls 1,500 -
Purchase of Federal Home Loan Bank stock (467) (28)
Proceeds from sales of loans - 3,812
Loans originated, net of payments received (20,735) (251)
Purchases of banking premises and equipment - (609)
--------- ---------
Net cash provided by investing activities 3,985 133
--------- ---------
Cash flows from financing activities:
Net (decrease) increase in deposits (12,259) 3,209
Proceeds from FHLB advances 186,951 148,176
Repayment of FHLB advances (177,760) (138,786)
Net increase in mortgagors' escrow accounts 128 102
Dividends paid (168) (143)
Proceeds from exercise of stock options - 7
--------- ---------
Net cash (used) provided by financing activities (3,108) 12,565
--------- ---------
Net change in cash and cash equivalents 618 (425)
Cash and cash equivalents at beginning of period 15,701 19,800
--------- ---------
Cash and cash equivalents at end of period $ 16,319 $ 19,375
========= =========
Supplemental cash flow information:
Interest paid $ 1,838 $ 2,256
Income taxes paid 20 55
6
Mystic Financial, Inc. and Subsidiaries
Part I - Financial Information
Item 1 - Financial Statements
Notes to Unaudited Consolidated Financial Statements
September 30, 2004
1) Basis of Presentation and Consolidation
The unaudited consolidated interim financial statements of Mystic
Financial, Inc. and subsidiary ("Mystic" or the "Company") presented herein
should be read in conjunction with the consolidated financial statements
for the year ended June 30, 2004, included in the Annual Report on Form 10-
K of Mystic Financial, Inc., the holding company for Medford Co-operative
Bank (the "Bank").
The significant accounting policies followed by the Company for interim
financial reporting are consistent with the accounting policies followed
for annual financial reporting. The unaudited consolidated interim
financial statements herein have been prepared in accordance with
accounting principles generally accepted in the United States of America
for interim financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. 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, the consolidated financial statements reflect
all adjustments (consisting solely of normal recurring accruals) necessary
for a fair presentation of such information. Interim results are not
necessarily indicative of results to be expected for the entire year.
2) Foreclosed Real Estate
Real estate acquired through foreclosure is held for sale and initially
recorded at the lower of cost or fair value at the date of foreclosure.
Subsequent to foreclosure, valuations are periodically performed by
management and the assets are carried at the lower of carrying amount or
fair value less cost to sell.
3) Commitments and Contingencies
At September 30, 2004, the Bank had outstanding commitments to originate
loans amounting to approximately $16.5 million, and unadvanced funds on
construction loans, lines of credit and equity loans amounting to
approximately $41.7 million, $11.0 million and $32.8 million, respectively.
The Bank has sold loans with recourse in the amount of $352,996.
4) Earnings Per Share
Basic earnings per share represents income available to common stock
divided by the weighted-average number of common shares outstanding during
the period. In calculating earnings per share, the number of shares of
common stock outstanding is reduced by shares held in treasury, shares held
by the Company's Employee Stock Ownership Plan (the "ESOP") that have not
been allocated or are not committed for release to participants' individual
accounts, and unearned Recognition and Retention Plan (the "RRP") shares.
Diluted earnings per share reflects additional common shares that would
have been outstanding if dilutive potential common shares had been issued,
as well as any adjustment to income that would result from the assumed
conversion. Potential common shares that may be issued by the Company
relate to outstanding stock options and unearned RRP shares and are
determined using the treasury stock method.
7
Mystic Financial, Inc. and Subsidiaries
Part I - Financial Information
Item 1 - Financial Statements
Notes to Unaudited Consolidated Financial Statements
September 30, 2004
5) Book Value Per Share
Book value per share was $18.74 as of September 30, 2004 and $18.31 as of
September 30, 2003. In calculating book value per share, the number of
shares of common stock outstanding is reduced by the number of shares held
by the ESOP that have not been allocated or committed to be released to
participants' individual accounts, unearned RRP shares and treasury stock.
There were 1,481,296 and 1,432,094 shares of common stock outstanding as of
September 30, 2004 and 2003, respectively, for purposes of calculating the
Company's book value per share.
6) Securities
The following table sets forth the Company's securities at the dates
indicated.
September 30, 2004 June 30, 2004
------------------ --------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- ----- --------- -----
(In Thousands)
Securities available for sale:
U.S. Government & federal
agency obligations $ 3,436 $ 3,412 $ 2,444 $ 2,394
Corporate 6,535 6,544 8,549 8,566
Mortgage-backed securities 44,859 44,160 67,622 65,839
Other bonds & obligations 8,766 8,709 8,775 8,549
Marketable equity securities 3,001 3,307 3,022 3,376
------- ------- ------- -------
Total $66,597 $66,132 $90,412 $88,724
======= ======= ======= =======
Securities held to maturity:
U.S. Government & federal
agency obligations $ 9,787 $ 9,744 $11,287 $11,032
======= ======= ======= =======
8
Mystic Financial, Inc. and Subsidiaries
Part I - Financial Information
Item 1 - Financial Statements
Notes to Unaudited Consolidated Financial Statements
September 30, 2004
7) Loans
The following table presents selected data relating to the composition of
the Company's loan portfolio (including residential mortgage loans held for
sale) by type of loan on the dates indicated.
September 30, 2004 June 30, 2004
------------------- -------------------
Amount Percent Amount Percent
------ ------- ------ -------
(Dollars in Thousands)
Residential mortgage loans $175,448 52.8% $167,701 53.8%
Commercial real estate loans 80,207 24.1% 80,071 25.7%
Commercial loans 23,648 7.1% 21,580 6.9%
Consumer loans 657 0.2% 687 0.2%
Home equity loans 22,506 6.8% 18,171 5.8%
Construction loans 32,555 9.8% 26,069 8.4%
-------- ----- -------- -----
Total loans 335,021 100.8% 314,279 100.8%
Less:
Deferred loan origination fees (57) 0.0% (64) 0.0%
Allowance for loan losses 2,716 0.8% 2,537 0.8%
-------- ----- -------- -----
Loans, net $332,362 100.0% $311,806 100.0%
======== ===== ======== =====
8) Allowance for Loan Losses
The following table analyzes activity in the Company's allowance for loan
losses for the periods indicated.
Three Months Ended Three Months Ended
September 30, 2004 September 30, 2003
------------------ ------------------
(Dollars in Thousands)
Average loans, net $321,527 $281,616
======== ========
Period-end net loans $332,362 $276,364
======== ========
Allowance for loan losses at beginning of period $ 2,537 $ 2,347
Provision for loan losses 179 87
Plus recoveries - 5
Loans charged-off - (2)
-------- --------
Allowance for loan losses at end of period $ 2,716 $ 2,437
======== ========
Non-performing loans $ 556 $ 2,435
======== ========
Ratios:
Allowance for loan losses to period-end net loans 0.82% 0.88%
Net charge-offs (recoveries) to average loans, net 0.00% 0.00%
9
Mystic Financial, Inc. and Subsidiaries
Part I - Financial Information
Item 1 - Financial Statements
Notes to Unaudited Consolidated Financial Statements
September 30, 2004
9) Deposits and Federal Home Loan Bank Borrowings
The following tables set forth the Company's various types of deposit
accounts and the balances in these accounts as well as the FHLB borrowings
of the Company at the dates indicated.
September 30, 2004 June 30, 2004
------------------- -------------------
Amount Percent Amount Percent
------ ------- ------ -------
(Dollars in Thousands)
Deposits:
Savings deposits $ 78,345 23.1% $ 83,001 23.6%
NOW accounts 26,159 7.7% 26,292 7.5%
IOLTA accounts 11,533 3.4% 12,505 3.6%
Money market deposits 51,736 15.3% 54,968 15.6%
Demand deposits 34,059 10.0% 36,066 10.3%
Certificates of deposit 137,316 40.5% 138,575 39.4%
-------- ----- -------- -----
Total deposits $339,148 100.0% $351,407 100.0%
======== ===== ======== =====
Federal Home Loan Bank Borrowings:
Maturities less than one year $ 37,500 65.7% $ 28,300 59.1%
Maturities greater than one year 19,552 34.3% 19,561 40.9%
-------- ----- -------- -----
Total borrowed funds $ 57,052 100.0% $ 47,861 100.0%
======== ===== ======== =====
10) Stock Option Plan
On March 24, 1999, the Company's stockholders approved the 1999 Stock
Option Plan (the "Stock Option Plan"). Under the Stock Option Plan, the
Company may grant options to its directors, officers and employees for up
to 270,223 shares of common stock. Both incentive stock options and non-
qualified stock options may be granted under the Stock Option Plan. The
exercise price of each option equals the market price of the Company's
stock on the date of grant and an option's maximum term is ten years.
Options generally vest over a five year period.
The Company applies APB Opinion 25 and related Interpretations in
accounting for the Stock Option Plan. Accordingly, no compensation cost has
been recognized. Had compensation cost for the Company's Stock Option Plan
been determined based on the fair value at the grant dates for awards under
the plan consistent with the method prescribed by SFAS No. 123, the
Company's net income and earnings per share would have been adjusted to the
pro forma amounts indicated below:
10
Mystic Financial, Inc. and Subsidiaries
Part I - Financial Information
Item 1 - Financial Statements
Notes to Unaudited Consolidated Financial Statements
September 30, 2004
Three Months Ended
-------------------------------------
September 30, September 30,
2004 2003
------------- -------------
(In thousands, except per share data)
Net income
As reported $ 205 $ 440
Pro forma 202 426
Basic earnings per share
As reported $0.14 $0.31
Pro forma 0.14 0.30
Diluted earnings per share
As reported $0.13 $0.29
Pro forma 0.13 0.28
11) Recent Developments
On July 7, 2004, the Company entered into an agreement and plan of merger
with Brookline Bancorp, Inc. ("Brookline"), pursuant to which Brookline
will acquire the Company in an exchange of cash and stock. Brookline is
headquartered in Brookline, Massachusetts, and operates Brookline Bank.
Under the terms of agreement, stockholders of the Company will be entitled
to receive either cash or shares of Brookline common stock, subject to
election and allocation procedures which are intended to ensure that, in
aggregate, 40% of the shares of the Company are converted into the right to
receive cash of $39.00 per share and that 60% are converted into the right
to receive a fixed exchange of 2.6786 shares of Brookline common stock for
each share of the Company. It is anticipated that the merger will close in
the first quarter of 2005, provided that regulatory and the Company
shareholder approvals are obtained. In connection with the merger of the
Company and Brookline, the Bank will merge into Brookline Bank.
11
Mystic Financial, Inc. and Subsidiaries
Part I - Financial Information
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
September 30, 2004
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion compares the consolidated financial condition of
the Company at September 30, 2004 to June 30, 2004, and the results of
operations for the three months ended September 30, 2004, compared to the
same period in 2003. This discussion and analysis should be read in
conjunction with the consolidated financial statements and related notes
thereto included within this report.
Forward-looking Statements
The Company and the Bank may from time to time make written or oral
"forward-looking statements." These forward-looking statements may be
contained in this quarterly filing with the Securities and Exchange
Commission (the "SEC"), the Annual Report to Shareholders, other filings
with the SEC, and in other communications by the Company and the Bank,
which are made in good faith pursuant to the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995. The words "may,"
"could," "should," "would," "believe," "anticipate," "estimate," "expect,"
"intend," "plan" and similar expressions are intended to identify forward-
looking statements.
Forward-looking statements include statements with respect to the Company's
beliefs, plans, objectives, goals, expectations, anticipations, estimates
and intentions, that are subject to significant risks and uncertainties.
The following factors, many of which are subject to change based on various
other factors beyond the Company's control, and other factors discussed in
this Form 10-Q, as well as other factors identified in the Company's
filings with the SEC and those presented elsewhere by management from time
to time, could cause its financial performance to differ materially from
the plans, objectives, expectations, estimates and intentions expressed in
such forward-looking statements:
* the strength of the United States economy in general and the strength
of the local economies in which the Company and the Bank conduct
operations;
* the effects of, and changes in, trade, monetary and fiscal policies
and laws, including interest rate policies of the Federal Reserve
Board;
* inflation, interest rate, market and monetary fluctuations;
* the timely development of and acceptance of new products and services
and the perceived overall value of these products and services by
users, including the features, pricing and quality compared to
competitors' products and services;
* the willingness of users to substitute competitors' products and
services for the Company's and the Bank's products and services;
* the Company's and the Bank's success in gaining regulatory approval
of their products and services, when required;
* the impact of changes in financial services' laws and regulations
(including laws concerning taxes, banking, securities and insurance);
12
Mystic Financial, Inc. and Subsidiaries
Part I - Financial Information
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
September 30, 2004
* the impact of technological changes;
* acquisitions;
* changes in consumer spending and saving habits; and
* the Company's and the Bank's success at managing the risks involved
in their business.
This list of important factors is not exclusive. The Company or the Bank
does not undertake to update any forward-looking statement, whether written
or oral, that may be made from time to time by or on behalf of the Company
or the Bank.
General
The Bank completed its conversion from a mutual to a stock institution and
was simultaneously acquired by the Company on January 8, 1998. The
Company's principal business activity consists of the ownership of the
Bank. The Company also invests in short-term investment grade marketable
securities and other liquid investments.
The Bank is a Massachusetts chartered stock co-operative bank founded in
1886 with three full-service offices in Medford, Massachusetts and four
other full-service offices located in Lexington, Arlington, Bedford and
Malden, Massachusetts. The business of the Bank consists of attracting
deposits from the general public and using these funds to originate various
types of loans primarily in eastern Middlesex County, Massachusetts,
including mortgage loans secured by one-to-four family residences, home
equity loans, commercial loans secured by general business assets and
commercial real estate loans secured by commercial property, and to invest
in U.S. Government and federal agency and other securities.
The Bank has one active subsidiary, Mystic Securities Corporation, which
was established for the sole purpose of acquiring and holding investment
securities. All securities held by Mystic Securities Corporation are
investments which are permissible for banks to hold under Massachusetts
law.
The Company's profitability depends primarily on its net interest income,
which is the difference between the interest income it earns on its loans
and investment portfolio and its cost of funds, which consists mainly of
interest paid on deposits and on borrowings from the Federal Home Loan Bank
of Boston. Net interest income is affected by the relative amounts of
interest-earning assets and interest-bearing liabilities and the interest
rates earned or paid on these balances. When interest-earning assets
approximate or exceed interest-bearing liabilities, any positive interest
rate spread will generate net interest income.
The Company's profitability is also affected by the level of non-interest
income and non-interest expense. Non-interest income consists primarily of
service fees, loan servicing and other loan fees and gains on sales of
securities. Non-interest expense consists of salaries and benefits,
occupancy related expenses and other general operating expenses.
13
Mystic Financial, Inc. and Subsidiaries
Part I - Financial Information
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
September 30, 2004
The operations of the Bank, and banking institutions in general, are
significantly influenced by general economic conditions and related
monetary and fiscal policies of financial institution's regulatory
agencies. Deposit flows and the cost of funds are influenced by interest
rates on competing investments and general market rates of interest.
Lending activities are affected by the demand for financing real estate and
other types of loans, which in turn are affected by the interest rates at
which such financing may be offered and other factors affecting loan demand
and the availability of funds.
Business Strategy
The Bank's business strategy is to operate as a well-capitalized,
profitable community bank dedicated to financing home ownership, small
business and consumer needs in its market area and providing quality
service to its customers. The Bank has implemented this strategy by: (i)
monitoring the needs of customers and providing quality service; (ii)
emphasizing consumer-oriented banking by originating residential mortgage
loans and consumer loans, and by offering various deposit accounts and
other financial services and products; (iii) recently increasing its
emphasis on commercial banking and lending by originating loans for small
businesses and providing greater services in its commercial and commercial
real estate loan department; (iv) maintaining high asset quality through
conservative underwriting; and (v) producing stable earnings.
Critical Accounting Policy
The Notes to Consolidated Financial Statements for the year ended June 30,
2004 included in our Annual Report on Form 10-K for the year ended June 30,
2004, contain a summary of the Company's significant accounting policies.
The Company believes its policy with respect to the methodology for its
determination of the allowance for loan losses involves a higher degree of
complexity and requires management to make difficult and subjective
judgments which often require assumptions or estimates about highly
uncertain matters. Changes in these judgments, assumptions or estimates
could cause reported results to differ materially. These critical policies
and their application are periodically reviewed with the Company's Audit
Committee and Board of Directors.
Recent Developments
On July 7, 2004, the Company entered into an agreement and plan of merger
with Brookline Bancorp, Inc. ("Brookline"), pursuant to which Brookline
will acquire the Company in an exchange of cash and stock. Brookline is
headquartered in Brookline, Massachusetts, and operates Brookline Bank.
Under the terms of agreement, stockholders of the Company will be entitled
to receive either cash or shares of Brookline common stock, subject to
election and allocation procedures which are intended to ensure that, in
aggregate, 40% of the shares of the Company are converted into the right to
receive cash of $39.00 per share and that 60% are converted into the right
to receive a fixed exchange of 2.6786 shares of Brookline common stock for
each share of the Company. It is anticipated that the merger will close in
the first quarter of 2005, provided that regulatory and the Company
shareholder approvals are obtained. In connection with the merger of the
Company and Brookline, the Bank will merge into Brookline Bank.
14
Mystic Financial, Inc. and Subsidiaries
Part I - Financial Information
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
September 30, 2004
Average Balances, Interest and Average Yields
The following tables set forth certain information relating to the
Company's average balance sheet and reflect the interest earned on assets
and interest cost of liabilities for the periods indicated and the average
yields earned and rates paid for the periods indicated. Such yields and
costs are derived by dividing income or expense by the average monthly
balances of assets and liabilities, respectively, for the periods
presented. Average balances are derived from daily balances. Loans on
non-accrual status are included in the average balances of loans shown in
the tables. The securities in the following tables are presented at
amortized cost.
15
MYSTIC FINANCIAL, INC. AND SUBSIDIARIES
AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS
THREE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
Three Months Ending September 30, 2004 Three Months Ending September 30, 2003
-------------------------------------- --------------------------------------
Average Interest Yield/ Average Interest Yield/
Balance Income/Expense Rate Balance Income/Expense Rate
------- -------------- ------ ------- -------------- ------
(Dollars in thousands)
INTEREST-EARNING ASSETS:
Total loans, net $321,527 $4,548 5.66% $281,765 $4,313 6.12%
Securities 95,886 835 3.48% 117,898 961 3.26%
Other earning assets 5,398 19 1.41% 8,323 24 1.15%
-------- ------ -------- ------
Total interest-earning assets 422,811 5,402 5.11% 407,986 5,298 5.19%
------ ------
Cash and due from banks 7,613 9,559
Other assets 7,433 7,980
-------- --------
Total assets $437,857 $425,525
======== ========
INTEREST-BEARING LIABILITIES:
Savings deposits $ 83,121 153 0.73% $ 71,898 136 0.75%
NOW and IOLTA accounts 34,528 13 0.15% 43,513 15 0.14%
Money market deposits 54,690 213 1.55% 55,149 217 1.56%
Certificates of deposit 136,169 919 2.67% 139,877 1,173 3.33%
-------- ------ -------- ------
Total interest-bearing deposits 308,508 1,298 1.67% 310,437 1,541 1.97%
FHLB borrowings 54,901 492 3.56% 47,942 573 4.74%
Subordinated debt 12,000 149 4.86% 12,000 143 4.66%
-------- ------ -------- ------
Total interest-bearing liabilities 375,409 1,939 2.05% 370,379 2,257 2.42%
------ ------
Demand deposit accounts 33,069 27,369
Other liabilities 2,096 2,226
-------- --------
Total liabilities 410,574 399,974
Stockholders' equity 27,283 25,551
-------- --------
Total liabilities and stockholders' equity $437,857 $425,525
======== ========
Net interest income $3,463 $3,041
====== ======
Interest rate spread 3.06% 2.78%
Net interest margin 3.28% 2.98%
Interest earning assets/interest-bearing
liabilities 1.13x 1.10x
16
Mystic Financial, Inc. and Subsidiaries
Part I - Financial Information
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
September 30, 2004
Rate/Volume Analysis
The following table sets forth certain information regarding changes in
interest income and interest expense of the Company for the periods
indicated. For each category of interest-earning asset and interest-
bearing liability, information is provided on changes attributable to: (i)
changes in volume (changes in volume multiplied by old rate); and (ii)
changes in rates (change in rate multiplied by old volume). Changes in
rate-volume (changes in rate multiplied by the changes in volume) are
allocated between changes in rate and changes in volume.
These tables show that the Company benefited from lower rates of interest
on its interest-bearing liabilities and that increases in volume more than
offset the lower interest rates on our interest earning assets, during the
three months ended September 30, 2004 as compared with the same period in
2003.
Three Months Ended September 30,
2004 vs 2003
Increase (Decrease)
--------------------------------
Due To
--------------------------------
Rate Volume Total
---- ------ -----
(In thousands)
Interest and dividend income:
Loans, net $(344) $ 579 $ 235
Investments 62 (188) (126)
Other earning assets 5 (10) (5)
----- ----- -----
Total (277) 381 104
----- ----- -----
Interest expense:
Savings deposits (4) 21 17
NOW and IOLTA accounts 1 (3) (2)
Money market deposits (2) (2) (4)
Certificates of deposits (224) (30) (254)
----- ----- -----
Total deposits (229) (14) (243)
FHLB Borrowings (157) 76 (81)
Subordinated debt 6 - 6
----- ----- -----
Total (380) 62 (318)
----- ----- -----
Change in net interest income $ 103 $ 319 $ 422
===== ===== =====
17
Mystic Financial, Inc. and Subsidiaries
Part I - Financial Information
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
September 30, 2004
Financial Condition and Results of Operations
Comparison of Financial Condition at September 30, 2004 and June 30, 2004
The Company's total assets amounted to $439.4 million at September 30, 2004
compared to $441.2 million at June 30, 2004, a decrease of $1.8 million or
0.4%.
Cash and cash equivalents increased to $16.3 million at September 30, 2004
from $15.7 million at June 30, 2004, an increase of $618,000 or 3.9%.
Securities available for sale decreased to $66.1 million at September 30,
2004 from $88.7 million at June 30, 2004 while securities held to maturity
decreased to $9.8 million from $11.3 at June 30, 2004.
Net loans increased by $20.6 million or 6.6% to $332.4 million or 75.6% of
total assets at September 30, 2004 as compared to $311.8 million or 70.7%
of total assets at June 30, 2004. Commercial real estate, construction and
commercial loans, net of unadvanced funds, increased by $8.7 million or
6.8% to $136.4 million at September 30, 2004 from $127.7 million at June
30, 2004. Commercial real estate loans increased by $136,000 or 0.2% to
$80.2 million at September 30, 2004 from $80.1 million at June 30, 2004.
Construction loans increased by $6.5 million or 24.9% to $32.6 million at
September 30, 2004 from $26.1 million at June 30, 2004. Commercial loans
increased by $2.1 million or 9.6% to $23.6 million at September 30, 2004
from $21.6 million at June 30, 2004.
Residential mortgage loans increased by $7.7 million or 4.6% to $175.4
million at September 30, 2004 from $167.7 million at June 30, 2004. Home
equity loans increased by $4.3 million or 23.9% to $22.5 million at
September 30, 2004 from $18.2 million at June 30, 2004. At September 30,
2004, the Company had $44.9 million in its servicing portfolio compared to
$46.0 million at June 30, 2004.
The Company's deposits decreased to $339.1 million at September 30, 2004
from $351.4 million at June 30, 2004, a decrease of $12.3 million or 3.5%.
Savings accounts decreased by $4.7 million or 5.6% to $78.3 million at
September 30, 2004 from $83.0 million at June 30, 2004. Money market
accounts decreased by $3.2 million or 5.9% to $51.7 million at September
30, 2004 from $55.0 million at June 30, 2003. Demand deposit accounts
decreased by $2.0 million or 5.6% to $34.1 million at September 30, 2004
from $36.1 million at June 30, 2004. NOW accounts decreased by $133,000 or
0.5% to $26.2 million at September 30, 2004 from $26.3 million at June 30,
2004. Certificates of deposit decreased by $1.3 million or 0.9% to $137.3
million at September 30, 2004 from $138.6 million at June 30, 2004. IOLTA
accounts decreased by $1.0 million or 7.8% to $11.5 million at September
30, 2004 from $12.5 million at June 30, 2004. Deposits are the primary
source of funds for investment and lending activities. Deposit flows vary
significantly and are influenced by prevailing interest rates, market
conditions and competition.
Federal Home Loan Bank borrowings increased by $9.2 million to $57.1
million at September 30, 2004 from $47.9 million at June 30, 2004. The
proceeds from the borrowings were used to fund the growth in the loan area
and to replace the deposit runoff.
18
Mystic Financial, Inc. and Subsidiaries
Part I - Financial Information
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
September 30, 2004
Comparison of the Operating Results for the Three Months Ended September
30, 2004 and 2003
Net Income. Net income for the three months ended September 30, 2004 was
$205,000, a decrease of $235,000, or 53.4%, compared to $440,000 for the
three months ended September 30, 2003. The first quarter results reflect
an increase in net interest income of $422,000, or 13.9%, a decrease in
non-interest income of $31,000, or 9.6%, and an increase in non-interest
expense of $654,000, or 25.3%. Return on average assets was 0.19% for the
three months ended September 30, 2004 as compared to 0.41% for the three
months ended September 30, 2003. Return on average equity was 3.01% for
the three months ended September 30, 2004 as compared to 6.88% for the
three months ended September 30, 2003.
Interest and Dividend Income. Total interest and dividend income increased
by $104,000 or 2.0% to $5.4 million for the three months ended September
30, 2004 from $5.3 million for the three months ended September 30, 2003.
The increase in interest income was a result of a higher level of loans and
securities resulting from general asset growth, partially offset by a
decrease in the average yield on interest-earning assets caused by
generally declining interest rates.
The average balance of net loans for the three months ended September 30,
2004 was $321.5 million compared to $281.8 million for the three months
ended September 30, 2003. The average yield on net loans was 5.66% for the
three months ended September 30, 2004 compared to 6.12% for the three
months ended September 30, 2003. This decrease in yield was the result of
a high volume of higher-yielding fixed-rate loans refinancing to lower-
yielding products and the adjustable-rate loans continuing to reprice at
lower levels as the repricing indexes remain at historic lows.
The average balance of securities for the three months ended September 30,
2004 was $95.9 million compared to $117.9 million for the three months
ended September 30, 2003. The average yield on securities was 3.48% for the
three months ended September 30, 2004 compared to 3.26% for the three
months ended September 30, 2003.
The average balance of other earning assets for the three months ended
September 30, 2004 was $5.4 million compared to $8.3 million for the three
months ended September 30, 2003. The average yield on other earning assets
was 1.41% for the three months ended September 30, 2004 compared to 1.15%
for the three months ended September 30, 2003.
19
Mystic Financial, Inc. and Subsidiaries
Part I - Financial Information
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
September 30, 2004
Interest Expense. Total interest expense decreased by $318,000 or 14.1% to
$1.9 million for the three months ended September 30, 2004 from $2.3
million for the three months ended September 30, 2003. Average interest-
bearing deposits decreased by $1.9 million or 0.6% to $308.5 million for
the three months ended September 30, 2004 from $310.4 million for the three
months ended September 30, 2003. Average borrowings increased by $7.0
million to $54.9 million for the three months ended September 30, 2004 from
$47.9 million for the three months ended September 30, 2003. The average
rate on interest-bearing deposits decreased 30 basis points to 1.67% for
the three months ended September 30, 2004 from 1.97% for the three months
ended September 30, 2003, while the average rate on borrowed funds
decreased 118 basis points to 3.56% from 4.74% during the same period. The
decline in interest expense resulted from continued growth in lower-rate
core deposits while higher-rate term deposits declined, from the prepayment
and maturities of higher-cost Federal Home Loan Bank (the "FHLB")
borrowings and from lower interest rates in the economy in general.
Interest expense on subordinated debt for the three months ended September
30, 2004 was $149,000 as compared to $143,000 for the three months ended
September 30, 2003. Average subordinated debt for the three months ended
September 30, 2004 was $12.0 million with an average rate of 4.86% as
compared to $12.0 million with an average rate of 4.66% for the three
months ended September 30, 2003.
Net Interest Income. Net interest income for the three months ended
September 30, 2004 was $3.5 million as compared to $3.0 million for the
three months ended September 30, 2003. The $422,000 increase can be
attributed to a combination of the $104,000 increase in interest and
dividend income, and a $318,000 decrease in interest expense on deposits,
borrowed funds and subordinated debt. The average yield on interest-
earning assets decreased 8 basis points to 5.11% for the three months ended
September 30, 2004 from 5.19% for the three months ended September 30,
2003, while the average cost on interest-bearing liabilities decreased by
37 basis points to 2.05% for the three months ended September 30, 2004 from
2.42% for the three months ended September 30, 2003. As a result, the
interest rate spread increased by 28 basis points to 3.06% for the three
months ended September 30, 2004 from 2.78% for the three months ended
September 30, 2003. The net interest margin increased by 30 basis points
to 3.28% for the three months ended September 30, 2004 from 2.98% from the
three months ended September 30, 2003.
Provision for Loan Losses. The provision for loan losses for the three
months ended September 30, 2004 was $179,000 compared to $87,000 for the
three months ended September 30, 2003. The increase in the provision for
the three month period was related to growth in the overall loan portfolio.
At September 30, 2004, the balance of the allowance for loan losses was
$2.7 million or 0.82% of net loans. At September 30, 2003, the balance of
the allowance for loan losses was $2.4 million or 0.88% of net loans.
20
Mystic Financial, Inc. and Subsidiaries
Part I - Financial Information
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
September 30, 2004
Provisions result from management's continuing review of the loan portfolio
as well as its judgment as to the adequacy of the reserves in light of the
condition of the economy and the real estate market.
Management believes that based on information currently available, the
allowance for loan losses is adequate and overall credit quality remains
strong.
Non-performing loans at September 30, 2004 totaled $556,000 as compared to
$2.4 million at September 30, 2003. During the three months ended
September 30, 2004, real estate supporting one non-performing in the amount
of $1.5 million was foreclosed on. As a result, the loan balance was
transferred to foreclosed real estate as of September 30, 2004.
Non-interest Income. Total non-interest income decreased by $31,000 or
9.6% to $293,000 for the three months ended September 30, 2004 as compared
to $324,000 for the three months ended September 30, 2003. Gain on sale of
loans decreased to $0 for the three months ended September 30, 2004 as
compared to $63,000 for the three months ended September 30, 2003. Gains
on the sale of securities decreased by $24,000 to $21,000 for the three
months ended September 30, 2004 as compared to $45,000 for the same period
last year.
Non-interest Expense. Total non-interest expense increased by $654,000 or
25.3% to $3.2 million for the three months ended September 30, 2004 as
compared to $2.6 million for the three months ended September 30, 2003 due
to the additional cost associated with the Malden, Massachusetts branch,
which opened in September 2003, and increased professional fees associated
with the previously announced merger with Brookline Bancorp, Inc.
Provision for Income Taxes. The Bank's effective tax rate for the three
months ended September 30, 2004 was 39.0%, as compared to 36.3% for the
three months ended September 30, 2003, as a result of a decrease in the
earning assets of the Bank's operating subsidiary, Mystic Securities, Inc.,
which is taxed a lower rate than the Company and the Bank
Asset/Liability Management
A principal operating objective of the Company is to produce stable
earnings by achieving a favorable interest rate spread that can be
sustained during fluctuations in prevailing interest rates. Since the
Company's principal interest-earning assets have longer terms to maturity
than its primary source of funds, i.e. deposits, increases in general
interest rates will generally result in an increase in the Company's cost
of funds before the yield on its asset portfolio adjusts upward. Banking
institutions have generally sought to reduce their exposure to adverse
changes in interest rates by attempting to achieve a closer match between
the periods in which their interest-bearing liabilities and interest-
earning assets can be expected to reprice through the origination of
adjustable-rate mortgages and loans with shorter terms and the purchase of
other shorter term interest-earning assets.
21
Mystic Financial, Inc. and Subsidiaries
Part I - Financial Information
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
September 30, 2004
The term "interest rate sensitivity" refers to those assets and liabilities
that mature and reprice periodically in response to fluctuations in market
rates and yields. Thrift institutions have historically operated in a
mismatched position with interest-sensitive liabilities exceeding interest-
sensitive assets in the short-term time periods. As noted above, one of
the principal goals of the Company's asset/liability program is to more
closely match the interest rate sensitivity characteristics of the asset
and liability portfolios.
In order to properly manage interest rate risk, the Board of Directors has
established an Asset/Liability Management Committee made up of members of
the Board and management to monitor the difference between the Company's
maturing and repricing assets and liabilities and to develop and implement
strategies to decrease the "negative gap" between the two. The primary
responsibilities of the committee are to assess the Company's
asset/liability mix, recommend strategies to the Board that will enhance
income while managing the Company's vulnerability to changes in interest
rates and report to the Board the results of the strategies used.
Liquidity and Capital Resources
The Company's primary sources of funds consist of deposits, borrowings,
repayment and prepayment of loans, sales and participations of loans,
maturities of securities and interest-bearing deposits, and funds provided
from operations. While scheduled repayments of loans and maturities of
securities are predictable sources of funds, deposit flows and loan
prepayments are greatly influenced by the general level of interest rates,
economic conditions, and competition. The Company uses its liquidity
resources primarily to fund existing and future loan commitments, to fund
net deposit outflows, to invest in other interest-earning assets, to
maintain liquidity, and to meet operating expenses.
The Company is required to maintain adequate levels of liquid assets. This
requirement, which may be varied depending upon economic conditions and
deposit flows, is based upon a percentage of deposits and short-term
borrowings. The Company has historically maintained a level of liquid
assets in excess of regulatory requirements. The Company's liquidity ratio
at September 30, 2004 was 32.6%, using the short-term assets to short-term
liabilities formula defined under the Federal Deposit Insurance
Corporation's Uniform Bank Performance Reports.
A major portion of the Company's liquidity consists of cash and cash
equivalents, short-term U.S. Government and federal agency obligations, and
corporate bonds. The level of these assets is dependent upon the Company's
operating, investing, lending and financing activities during any given
period.
Liquidity management is both a daily and long-term function of management.
If the Company requires funds beyond its ability to generate them
internally, the Company believes it could borrow
22
Mystic Financial, Inc. and Subsidiaries
Part I - Financial Information
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
September 30, 2004
additional funds from the FHLB. At September 30, 2004, the Company had
outstanding borrowings of $57.1 million and an available line of credit of
$3.5 million from the FHLB.
At September 30, 2004, the Company had $16.5 million in outstanding
commitments to originate loans. The Company anticipates that it will have
sufficient funds available to meet its current loan origination
commitments. Certificates of deposit which are scheduled to mature in one
year or less totaled $78.4 million at September 30, 2004.
Based upon historical experience, management believes that a significant
portion of such deposits will remain with the Bank. At September 30, 2004,
the Company and the Bank exceeded all of their regulatory capital
requirements.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements that have or
are reasonably likely to have a current or future effect on the Company's
financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources that is material to
investors.
23
Mystic Financial, Inc. and Subsidiaries
Part I - Financial Information
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
September 30, 2004
Item 3. Quantitative and Qualitative Disclosures About Market Risk
In management's opinion, there has been no material change in market risk
since disclosed in Item 7A of the Company's Annual Report on Form 10-K for
the year ended June 30, 2004.
Item 4. Controls and Procedures
Management, including the Company's President and Chief Executive Officer
and Senior Vice President, Chief Financial Officer and Treasurer, has
evaluated the effectiveness of the Company's disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of
the end of the period covered by this report. Based upon that evaluation,
the President and Chief Executive Officer and Chief Financial Officer
concluded that the disclosure controls and procedures were effective, in
all material respects, to ensure that information required to be disclosed
in the reports the Company files and submits under the Exchange Act is
recorded, processed, summarized and reported as and when required.
There were no significant changes in the Company's internal control over
financial reporting, as defined in Rules 13a-15(e) and 15d-15(e), during
the fiscal quarter ended September 30, 2004 that have materially affected,
or are reasonably likely to materially affect, the Company's internal
control over financial reporting.
24
Mystic Financial, Inc. and Subsidiaries
Part II - Other Information
September 30, 2004
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
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
3.1 Certificates of Incorporation of Mystic Financial, Inc.*
3.2 Bylaws of Mystic Financial, Inc.*
4.3 Specimen of Stock Certificate of Mystic Financial, Inc.*
31.1 Rule 13a-14(a) Certification of President and Chief Executive
Officer as adopted pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002.
31.2 Rule 13a-14(a) Certification of Senior Vice President, Chief
Financial Officer and Treasurer as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of President and Chief Executive Officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Senior Vice President, Chief Financial Officer
and Treasurer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
* Incorporated herein by reference to Registration Statement No.
333-34447 on Form S-1 of Mystic Financial, Inc. filed with the
Securities and Exchange Commission on August 27, 1997, as amended.
25
Mystic Financial, Inc. and Subsidiaries
Part II - Other Information
Signatures
September 30, 2004
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.
MYSTIC FINANCIAL, INC.
Date: November 10, 2004 By: /s/ Ralph W. Dunham
----------------- -------------------------------
Ralph W. Dunham
President and Chief Executive
Officer
Date: November 10, 2004 By: /s/ Anthony J. Patti
----------------- -------------------------------
Anthony J. Patti
Senior Vice President, Chief
Financial Officer and Treasurer
26