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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 quarterly period ended December 31, 2002
Commission file number 0-32589
Chesterfield Financial Corp.
(Exact name of registrant as specified in its charter)
Delaware 36-4441126
(State of Incorporation) (I.R.S. Employer
Identification No.)
10801 S. Western Avenue, Chicago, Illinois, 60643
(Address of principal executive offices)
(773) 239-6000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all the reports
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 report), and (2) has been subject to such filing
requirements for the past 90 days.
(1) Yes X No
---- ----
(2) Yes X No
---- ----
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes No X
---- -----
The number of shares outstanding of each of the issuer's classes of common
stock was 3,896,314 shares of common stock, par value $.01, outstanding as of
February 10, 2003.
- --------------------------------------------------------------------------------
CHESTERFIELD FINANCIAL CORP.
FORM 10-Q
Index
Part I. Financial Information Page (s)
- ------- --------------------- --------
Item 1. Financial Statements
Consolidated Condensed Balance Sheets as of
December 31, 2002 (unaudited) and June 30, 2002 3
Consolidated Condensed Statements of Income for the three
and six months ended December 31, 2002 and 2001 (unaudited) 4
Consolidated Condensed Statements of Stockholders' Equity
for the six months ended December 31, 2002 and 2001 (unaudited) 5
Consolidated Condensed Statements of Cash Flows for the six
months ended December 31, 2002 and 2001 (unaudited) 6
Notes to Consolidated Condensed Financial Statements (unaudited) 7-10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 11-14
Item 3. Quantitative and Qualitative Disclosures about Market Risks 15
Item 4. Controls and Procedures 16
Part II. Other Information
- -------- -----------------
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signature Page 18
Certifications 19-21
CHESTERFIELD FINANCIAL CORP.
CONSOLIDATED CONDENSED BALANCE SHEETS (unaudited)
Dollars in thousands
December 31, June 30,
Assets 2002 2002
- -----------------------------------------------------------------------------------------------------------------
Cash and due from financial institutions $ 8,945 $ 7,559
Interest-earning deposits 85,061 83,367
Federal funds sold 5,800 3,800
- -----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 99,806 94,726
Securities available-for-sale 20,277 17,374
Securities held to maturity, at amortized cost (approximate fair value of
$57,472 at December 31, 2002 and $58,299 at June 30, 2002) 56,358 57,483
Loans receivable, net of allowance for loan losses of $1,379 at
December 31, 2002 and $1,576 at June 30, 2002 158,685 169,881
Federal Home Loan Bank stock 17,779 17,342
Premises and equipment 2,487 2,529
Accrued interest receivable and other assets 4,680 4,005
- -----------------------------------------------------------------------------------------------------------------
Total assets $ 360,072 $ 363,340
=================================================================================================================
- -----------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
$ 278,706 $ 278,126
Liabilities
Deposits
Advance payments by borrowers for taxes and insurance 2,287 2,622
Accrued expenses and other liabilities 6,587 5,851
- -----------------------------------------------------------------------------------------------------------------
Total liabilities 287,580 286,599
Stockholders' equity
Preferred stock, $.01 par value per share, 1,000,000 shares authorized, no
shares issued and outstanding - -
Common stock, $.01 par value per share, 7,000,000 shares authorized; 4,304,738
shares issued; 3,896,314 and 4,239,738 outstanding at December 31, 2002 and
June 30, 2002 43 43
Additional paid in capital 42,282 42,153
Retained earnings 42,468 41,085
Unearned ESOP shares (2,945) (3,056)
Unearned RRP shares (2,209) (2,496)
Treasury stock, at cost (7,444) (1,167)
Accumulated other comprehensive income 297 179
- -----------------------------------------------------------------------------------------------------------------
Total stockholders' equity 72,492 76,741
- -----------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 360,072 $ 363,340
=================================================================================================================
See accompanying notes to unaudited consolidated condensed financial statements.
3
CHESTERFIELD FINANCIAL CORP.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (unaudited)
Dollars in thousands, except per share data
Three months ended Six months ended
December 31, December 31,
------------------------------------------------
2002 2001 2002 2001
- --------------------------------------------------------------------------------------------------------------
Interest and dividend income
Loans, including fees $ 2,811 $ 2,958 $ 5,686 $ 5,945
Securities 708 1,395 1,583 2,835
Interest-earning deposits 333 319 680 899
Federal Home Loan Bank stock dividends 269 245 490 370
Other interest income 24 29 48 69
- --------------------------------------------------------------------------------------------------------------
Total interest and dividend income 4,145 4,946 8,487 10,118
Interest expense on deposits 1,467 2,115 3,132 4,619
- --------------------------------------------------------------------------------------------------------------
Net interest income before provision for loan losses 2,678 2,831 5,355 5,499
Provision for loan losses (200) - (200) -
- --------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 2,878 2,831 5,555 5,499
Non-interest income
Insurance commissions 786 563 1,370 1,038
Service charges on deposit accounts 68 77 138 151
Other 28 37 71 69
- --------------------------------------------------------------------------------------------------------------
Total non-interest income 882 677 1,579 1,258
Non-interest expense
Salaries and employee benefits 1,391 1,210 2,737 2,293
Occupancy 201 210 395 400
Equipment 121 127 236 267
Data processing 85 83 168 162
Federal deposit insurance 33 30 66 60
Insurance agency bad debt expense 199 5 203 9
Other 479 494 868 816
- --------------------------------------------------------------------------------------------------------------
Total non-interest expense 2,509 2,159 4,673 4,007
- --------------------------------------------------------------------------------------------------------------
Income before income taxes 1,251 1,349 2,461 2,750
Income tax expense 463 475 904 951
- --------------------------------------------------------------------------------------------------------------
Net income $ 788 $ 874 $ 1,557 $ 1,799
- --------------------------------------------------------------------------------------------------------------
Basic earnings per share $ 0.23 $ 0.22 $ 0.44 $ 0.45
- --------------------------------------------------------------------------------------------------------------
Diluted earnings per share $ 0.22 $ 0.22 $ 0.43 $ 0.45
- --------------------------------------------------------------------------------------------------------------
Comprehensive income $ 764 $ 739 $ 1,675 $ 1,829
- --------------------------------------------------------------------------------------------------------------
See accompanying notes to unaudited consolidated condensed financial statements.
4
CHESTERFIELD FINANCIAL CORP.
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY (unaudited)
Six months ended December 31, 2002 and 2001
Dollars in thousands
Additional Unearned
Common Paid-in Retained Treasury ESOP
Stock Capital Earnings Stock Shares
======================================================================
Balance at July 1, 2001 $ 43 $ 41,999 $ 37,827 $ - $ (3,293)
Comprehensive income
Net income 1,799
Unrealized gain on securities
available-for-sale, net
Total comprehensive income
Grant of shares under RRP 601
Amortization of vested RRP shares
ESOP shares committed to be released 65 119
----------------------------------------------------------------------
Balance at December 31, 2001 $ 43 $ 42,665 $ 39,626 $ - $ (3,174)
======================================================================
Balance at July 1, 2002 $ 43 $ 42,153 $ 41,085 $ (1,167) $ (3,056)
Comprehensive income
Net income
1,557
Unrealized gain on securities
available-for-sale, net
Total comprehensive income
Dividends paid
1 (174) 2
Purchases of treasury stock (6,277)
Amortization of vested RRP shares
Income tax benefit of RRP vesting
34
ESOP shares committed to be released 94 109
----------------------------------------------------------------------
Balance at December 31, 2002 $ 43 $ 42,282 $ 42,468 $ (7,444) $ (2,945)
======================================================================
Accumulated
Unearned Other Total
RRP Comprehensive Stockholders'
Shares Income (Loss) Equity
==============================================
Balance at July 1, 2001 $ - $ (23) $ 76,553
Comprehensive income
Net income 1,799
Unrealized gain on securities
available-for-sale, net 30 30
--------
Total comprehensive income 1,829
Grant of shares under RRP (2,815) (2,214)
Amortization of vested RRP shares 63 63
ESOP shares committed to be released 184
----------------------------------------------
Balance at December 31, 2001 $ (2,752) $ 7 $ 76,415
==============================================
Balance at July 1, 2002 $ (2,496) $ 179 $ 76,741
Comprehensive income
Net income
1,557
Unrealized gain on securities
available-for-sale, net
118 118
--------
Total comprehensive income
1,675
Dividends paid
(171)
Purchases of treasury stock (6,277)
Amortization of vested RRP shares
287 287
Income tax benefit of RRP vesting
34
ESOP shares committed to be released 203
----------------------------------------------
Balance at December 31, 2002 $ (2,209) $ 297 $ 72,492
==============================================
See accompanying notes to unaudited consolidated condensed financial statements.
5
CHESTERFIELD FINANCIAL CORP.
Consolidated Condensed Statements of Cash Flows (unaudited)
Dollars in thousands
Six months ended
December 31,
- ------------------------------------------------------------------------------------------------------------
2002 2001
- ------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 1,557 $ 1,799
Adjustments to reconcile net income to net cash from operating activities:
Provision for loan losses (200) -
Depreciation and amortization 205 224
Net amortization of securities (28) (2)
ESOP compensation expense 203 184
RRP compensation expense 287 63
Federal Home Loan Bank stock dividends (437) (153)
Net change in:
Deferred loan origination fees 21 34
Accrued interest receivable and other assets (655) (953)
Accrued expenses and other liabilities 708 1,236
- ------------------------------------------------------------------------------------------------------------
Net cash from operating activities 1,661 2,432
- ------------------------------------------------------------------------------------------------------------
Cash flows from investing activities: Activity in held-to-maturity securities:
Maturities, calls and payments 21,083 50,941
Purchases (19,934) (30,000)
Activity in available-for-sale securities:
Payments 2,280 392
Purchases (5,000) -
Purchase of Federal Home Loan Bank Stock - (15,000)
Loan originations and payments, net 11,348 (725)
Additions to premises and equipment (155) (210)
- ---------------------------------------------------------------------------------------------------------------
Net cash from investing activities 9,622 5,398
- ---------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net change in deposits 580 12,733
Net change in advance payments by borrowers for taxes and insurance (335) (245)
Dividends paid (171) -
Purchase of treasury stock (6,277) (2,214)
- ------------------------------------------------------------------------------------------------------------
Net cash from financing activities (6,203) 10,274
- ------------------------------------------------------------------------------------------------------------
Net change in cash and cash equivalents 5,080 18,104
Cash and cash equivalents at beginning of period 94,726 66,921
- ------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 99,806 $ 85,025
- ------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Due to brokers for securities transactions $ - $ 5,000
- ------------------------------------------------------------------------------------------------------------
See accompanying notes to unaudited consolidated condensed financial statements.
6
Notes to Consolidated Condensed Financial Statements (unaudited)
- --------------------------------------------------------------------------------
Note 1 - Basis of Presentation
The accompanying unaudited consolidated condensed financial statements have been
prepared in accordance with generally accepted accounting principles ("GAAP")
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 notes required by GAAP for complete financial statements. In the
opinion of management, all adjustments (consisting of only normal recurring
accruals) necessary for a fair presentation have been included. The results of
operations and other data for the three and six months ended December 31, 2002
are not necessarily indicative of results that may be expected for the entire
fiscal year ending June 30, 2003.
Chesterfield Financial Corp. (the "Company") is a Delaware corporation that was
organized in January 2001 at the direction of the Board of Directors of
Chesterfield Federal Savings and Loan Association (the "Bank") for the purpose
of owning all of the outstanding capital stock of the Bank following the
completion of the Bank's mutual-to-stock conversion. The Company offered for
sale 4,304,738 shares of its outstanding common stock in a public offering to
eligible depositors and members of the general public (the "Offering"), which
was completed on May 2, 2001. The accompanying unaudited consolidated condensed
financial statements for the three and six months ended December 31, 2002 and
2001 represent the accounts of the Company, the Bank and its wholly owned
subsidiary, Chesterfield Insurance Services, LLC. All intercompany accounts and
transactions have been eliminated in consolidation.
Note 2 - Capital Resources
The Bank is subject to regulatory capital requirements administered by the
federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly additional discretionary actions by
regulators that, if undertaken, could have a material impact on the Bank's
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Bank must meet specific capital
guidelines that involve quantitative measures of the entity's assets,
liabilities, and certain off-balance sheet items as calculated under regulatory
accounting purposes. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of total and Tier 1
capital to risk-weighted assets, and of Tier 1 capital to average assets and of
tangible capital to average assets. As of December 31, 2002, the Bank met the
capital adequacy requirements to which it is subject. The Bank's tangible equity
ratio at December 31, 2002 was 16.74%. The Tier 1 capital ratio was 16.74%, the
Tier 1 risk-based ratio was 43.05%, and the total risk-based capital ratio was
43.97%.
The most recent notification from the federal banking agencies categorized the
Bank as well capitalized under the regulatory framework for prompt corrective
action. To be categorized as well capitalized, the Bank must maintain minimum
total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios. There are no
conditions or events since that notification that have changed the Bank's
category.
Note 3 - Commitments and Contingencies
At December 31, 2002, the Company had outstanding commitments to make loans of
$3.9 million and unused lines of credit outstanding of $20.3 million. At June
30, 2002, the Bank had outstanding commitments to make loans of $3.4 million and
unused lines of credit outstanding of $19.9 million.
7
Notes to Consolidated Condensed Financial Statements (unaudited)
- ----------------------------------------------------------------
Note 4 - Earnings Per Share
Basic earnings per share for the three months ended December 31, 2002 and 2001
was computed by dividing net income by the weighted average number of shares of
common stock outstanding for the period, which were 3,492,676 and 3,955,206,
respectively. Basic earnings per share for the six months ended December 31,
2002 and 2001 was computed by dividing net income by the weighted average number
of shares of common stock outstanding for the period, which were 3,572,159 and
3,967,027, respectively. Unearned Employee Stock Ownership Plan ("ESOP") shares
and unearned Recognition and Retention Plan ("RRP") shares are not considered
outstanding for the calculation. Diluted earnings per share for the three months
ended December 31, 2002 and 2001 was computed by dividing net income by the
weighted average number of shares of common stock outstanding and additional
shares issuable under stock option and stock grant plans for the period, which
were 3,562,902 and 3,957,643, respectively. Diluted earnings per share for the
six months ended December 31, 2002 and 2001 was computed by dividing net income
by the weighted average number of shares of common stock outstanding and
additional shares issuable under stock option and stock grant plans for the
period, which were 3,632,009 and 3,968,246, respectively.
Note 5 - Segment Reporting
The Company's operations are managed along two major operating segments: banking
and insurance. Loans, investments and deposits provide the revenues in the
banking segment. Insurance commissions provide the revenue in the insurance
segment. Holding company services have been included in other. All inter-segment
services provided are charged at the same rates as those charged to unaffiliated
customers. Such services are included in the revenues and net income of the
respective segments and are eliminated to arrive at consolidated totals. The
accounting policies are the same as those described in the summary of
significant accounting policies. Information reported for internal performance
assessment is summarized below:
Dollars in thousands Six months ended December 31, 2002
-------------------------------------------------------------
Segment Segment Other Consolidated
-------------------------------------------------------------
Net interest income $ 5,236 $ 4 $ 115 $ 5,355
Provision for loan losses (200) - - (200)
Other revenue
470 1,388 (279) 1,579
Other expense (3,303) (1,349) (21) (4,673)
Income taxes (867) (17) (20) (904)
-------------------------------------------------------------
Segment profit $ 1,736 $ 26 $ (205) $ 1,557
=============================================================
Depreciation $ 159 $ 38 $ - $ 197
Provision for loan loss (200) - - (200)
Segment assets $ 358,376 $ 3,273 $(1,577) $360,072
Six months ended December 31, 2001
-------------------------------------------------------------
Banking Insurance
Segment Segment Other Consolidated
-------------------------------------------------------------
Net interest income $ 5,213 $ 5 $ 281 $ 5,499
Provision for loan losses - - - -
Other revenue 295 1,054 (91) 1,258
Other expense (2,976) (1,018) (13) (4,007)
Income taxes (845) (16) (90) (951)
-------------------------------------------------------------
Segment profit $ 1,687 $ 25 $ 87 $ 1,799
=============================================================
Depreciation $ 188 $ 36 $ - $ 244
Amortization of goodwill - 30 - 30
Segment assets $ 361,933 $ 2,152 $ (1,189) $362,896
-------------------------------------------------------------
8
Notes to Consolidated Condensed Financial Statements (unaudited)
- ----------------------------------------------------------------
Note 6 - New Accounting Pronouncements
Two new accounting standards were issued in July 2000. Statement No. 141 relates
to business combinations and Statement No. 142 relates to goodwill and other
intangible assets.
Statement No. 141 was issued to improve the transparency of the accounting and
reporting for business combinations by requiring that all business combinations
initiated after June 30, 2001 be accounted for under the purchase method of
accounting. Since this accounting standard applies to business combinations
initiated after June 30, 2001, it will have no effect on the Company's financial
statements unless the Company enters into a business combination transaction.
Statement No. 142 requires that goodwill no longer be amortized to earnings, but
instead be reviewed for impairment. This change provides investors with greater
transparency regarding the economic value of goodwill and its impact on
earnings. The amortization of goodwill ceased upon the adoption of Statement No.
142, which was July 1, 2002 for the Company. The Company has approximately
$450,000 of unamortized goodwill that it discontinued amortizing. Adoption of
this standard on July 1, 2002 will result in lower amortization expense. The
Company performed an analysis of goodwill for impairment as of June 30, 2002,
and determined that the goodwill was not impaired. The impact of this standard
on the six-month periods ended December 31, 2002 and 2001 was as follows:
Three Months Ended Six Months Ended
December 31, December 31,
-----------------------------------------
2002 2001 2002 2001
---- ---- ---- ----
Net Income
Reported net income $ 788 $ 874 $ 1,557 $ 1,799
Add back: goodwill amortization
- 30 - 30
-----------------------------------------
Adjusted net income $ 788 $ 30 $ 1,557 $ 1,829
=========================================
Basic and Diluted Earnings per Common Share
Reported net income $ 0.23 $ 0.22 $ 0.44 $ 0.45
Add back: goodwill amortization
- 0.01 - 0.01
-----------------------------------------
Adjusted net income $ 0.23 $0.23 $ 0.44 $ 0.46
=========================================
In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
143, "Accounting For Asset Retirement Obligations" (SFAS No. 143). SFAS No. 143
addresses financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. SFAS No. 143 is effective for financial statements issued for fiscal
years beginning after June 15, 2002. This pronouncement did not have a material
effect on the Company's consolidated financial statements.
In August 2001, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets," which replaced SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 144
established a single accounting model, based on the framework established in
SFAS No. 121, for long-lived assets to be disposed of by sale. SFAS No. 144 also
resolved significant implementation issues related to SFAS No. 121. The
provisions of SFAS No. 144 are effective for financial statements issued for
fiscal years beginning after December 15, 2001. This pronouncement did not have
a material effect on the Company's consolidated financial statements.
9
Notes to Consolidated Condensed Financial Statements (unaudited)
- ----------------------------------------------------------------
Note 6 - New Accounting Pronouncements (continued)
The FASB recently issued SFAS No. 145 and No. 146. SFAS No. 145 applies for
years beginning after May 14, 2002 and may be adopted sooner. SFAS No. 145
covers extinguishments of debt and leases and includes some minor technical
corrections. Under previous accounting guidance, gains or losses from
extinguishments of debt were always treated as extraordinary items. Under SFAS
No. 145, they will no longer be considered extraordinary, except under very
limited conditions. Upon adoption of SFAS No. 145, any prior gains and losses
from extinguishments of debt must be reclassified as ordinary gains and losses.
Under SFAS No. 145, if a capital lease is modified to become an operating lease,
it will be accounted for as a sale-leaseback, by following the accounting
guidance of SFAS No. 98, instead of being accounted for as a new lease.
SFAS No. 146 covers accounting for costs associated with exit or long-lived
asset disposal activities, such as restructurings, consolidation or closing of
facilities, lease termination costs, or employee relocation or severance costs.
SFAS No. 146 replaces Emerging Issues Task Force (EITF) 94-3, and is to be
applied prospectively to exit or disposal activities initiated after December
31, 2002 and may be adopted sooner. A company may not restate its previously
issued financial statements. SFAS No. 146 requires exit or long-lived asset
disposal costs to be recognized as an expense when the liability is incurred and
can be measured at fair value, rather than at the date of making a commitment to
an exit or disposal plan. Management does not expect the effects of the
adoptions of SFAS No. 145 and SFAS No. 146 to have any effect on the Company's
consolidated financial statements.
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 did not have any effect on the Company's consolidated
financial statements.
FASB Statement (FAS) 148, Accounting for Stock-Based Compensation - Transition
and Disclosure was issued in December 2002. Management is currently studying the
requirements of FAS 148. It applies to annual financial statements for fiscal
years ending after December 15, 2002 and to interim financial statements for
interim periods beginning after December 15, 2002. FAS 148:
o requires more prominent disclosure of how an entity's accounting policy for
compensation affects net income;
o amends FAS 123 to provide three choices regarding how to adopt FAS 123; and
o amends APB 28, Interim Financial Reporting, to require companies still
using APB Opinion 25 for stock-based compensation to provide tabular
disclosure in interim financial statements of the effects that using FAS
123 would have on compensation expense, net income, and earnings per share.
10
Management's Discussion and Analysis of Financial Condition and Results of
- --------------------------------------------------------------------------
Operations
- ----------
General
The Company's results of operations depend primarily on its net interest income.
Net interest income is the difference between the interest income we earn on our
interest-earning assets, consisting primarily of loans, investment securities
and interest-earning deposits with other financial institutions, and the
interest we pay on our interest-bearing liabilities, primarily savings accounts
and time deposits. Provisions for loan losses, non-interest income, and
non-interest expense also affect our results of operations. Non-interest income
consists primarily of insurance commissions and service charges on deposit
accounts. Non-interest expense consists primarily of salaries and employee
benefits, occupancy, equipment, data processing and deposit insurance premiums.
Our results of operations may also be affected significantly by general and
local economic and competitive conditions, particularly those with respect to
changes in market interest rates, governmental policies and actions of
regulatory authorities.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
This report contains certain forward looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Reform Act of
1995, and is including this statement for purposes of these safe harbor
provisions. Forward-looking statements, which are based on certain assumptions
and describe future plans, strategies and expectations of the Company and the
Bank, are generally identifiable by use of the words such as "believe,"
"expect," "intend," "anticipate," "estimate," "project" or similar expressions.
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
affect on the operations and future prospects of the Company and the
subsidiaries include, but are not limited to, changes in: interest rates,
general economic conditions, legislative/regulatory changes, monetary and fiscal
policies of the U.S. Government, including policies of the U.S. Treasury and the
Federal Reserve Board, the quality or composition of the loan or investment
portfolios, demand for loan products, deposit flows, competition, demand for
financial services in the Company's market area, our implementation of new
technologies, our ability to develop and maintain secure and reliable electronic
systems and accounting principles, policies and guidelines. These risks and
uncertainties should be considered in evaluating forward-looking statements and
undue reliance should not be placed on such statements. Further information
concerning the Company and its business, including additional factors that could
materially affect the Company's financial results, is included in the Company's
filings with the Securities and Exchange Commission.
Liquidity
The Company's and the Bank's liquidity management objective is to ensure the
availability of sufficient cash flows to meet all financial commitments and to
capitalize on opportunities for expansion. Liquidity management addresses the
ability to meet deposit withdrawals on demand or at contractual maturity, and to
fund new loans and investments as opportunities arise. The Bank's primary
sources of internally generated funds are principal and interest payments on
loans receivable, cash flows generated from operations, and cash flows generated
by investments. External sources of funds primarily consist of increases in
deposits. Federal regulations require the Bank to maintain sufficient liquidity
to ensure its safe and sound operation. At December 31, 2002, the Bank believes
it was in compliance with Office of Thrift Supervision ("OTS") liquidity
requirements.
The Company's cash flows are comprised of three classifications: cash flows from
operating activities, cash flows from investing activities, and cash flows from
financing activities. Cash flows provided by operating activities, $1.7 million,
consisting primarily of interest and dividends received less interest paid on
deposits for the six months ended December 31, 2002. The Company was provided
$9.6 million by investing activities for the six months ended December 31, 2002.
Loan principal repayments exceeded originations by $11.3 million. Maturities,
calls and payments on securities totaled $23.4 million, while purchases of new
securities amounted to $24.9 million. Net cash used in financing activities
amounted to $6.2 million for the six months ended December 31, 2002, primarily
in repurchasing $6.3 million of the Company's common stock at an average cost of
$18.28 per share. At December 31, 2002, the Bank had outstanding commitments to
10
Management's Discussion and Analysis of Financial Condition and Results of
- --------------------------------------------------------------------------
Operations
- ----------
make loans of $3.9 million and unused lines of credit outstanding of $20.3
million. Management anticipates that it will have sufficient funds available to
meet its current loan commitments. Certificates of deposit scheduled to mature
in one year or less from December 31, 2002 totaled $156.6 million. Consistent
with historical experience, management believes that a significant portion of
such deposits will remain with the Bank, and that their maturity and repricing
will not have a material adverse impact on the operating results of the Bank.
Changes in Financial Condition
At December 31, 2002, total assets were $360.1 million, down $3.3 million, or
0.9%, from $363.3 million at June 30, 2002. Cash and cash equivalents increased
$5.1 million, or 5.4%, to $99.8 million at December 31, 2002, compared to $94.7
million at June 30, 2002. Loans receivable at December 31, 2002, were $158.7
million, down $11.2 million, or 6.6%, from $169.9 million at June 30, 2002.
Total deposits at December 31, 2002 were $278.7 million, up $580,000, or 0.2%,
from $278.1 million at June 30, 2002.
Total stockholders' equity as of December 31, 2002 was $72.5 million, or 20.1%
of total assets, compared to $76.7 million, or 21.1% of total assets at June 30,
2002. On October 22, 2002 the Board of Directors of the Company declared its
first quarterly dividend of $0.05 per share that was paid on December 2, 2002,
to stockholders of record as of November 15, 2002. On January 21, 2003, the
Board of Directors of the Company declared a second quarter dividend of $0.06
per share, to be paid on March 3, 2003, to stockholders of record as of February
14, 2003.
On July 25, 2002, the Company announced the completion of the stock repurchase
program begun on May 13, 2002, and its intent to initiate a new program to
repurchase up to 197,300 shares of the Company's common stock. During the
quarter ended September 30, 2002, the Company repurchased 275,200 shares at a
cost of $5.0 million, or an average cost of $18.11 per share.
On November 25, 2002, the Company announced the completion of the stock
repurchase program begun on July 25, 2002, and its intent to initiate a new
program to repurchase up to 188,000 additional shares of the Company's common
stock. During the quarter ended December 31, 2002, the Company repurchased
68,224 shares at a cost of $1.3 million, or an average cost of $18.95 per share.
During the six months ended December 31, 2002, the Company repurchased 343,424
shares at a cost of $6.3 million, or an average cost of $18.28 per share. No
shares have been repurchased under the November 25th program. At December 31,
2002, there were 3,896,314 common shares outstanding with a book value of $18.61
per share, compared to 4,239,738 shares with a book value of $18.10 per share at
June 30, 2002.
Asset Quality
The Company's non-performing loans were $223,000, or 0.14% of loans receivable
as of December 31, 2002, compared to $222,000 as of June 30, 2002. The $1.4
million allowance for losses on loans to loans receivable was 0.87% as of
December 31, 2002, compared to 0.93% as of June 30, 2002. During the current
six-month period the Company recorded recoveries on previously charged-off loans
of $3,000 and recorded no charge-offs. (Also see: Provision for Loan Losses.)
Comparison of Operating Results for the Quarters Ended December 31, 2002 and
2001
General. Net income for the quarter ended December 31, 2002 was $788,000, or
$0.22 diluted earnings per share, compared to net income of $874,000, or $0.22
diluted earnings per share for the quarter ended December 31, 2001. The
Company's return on average assets for the quarter ended December 31, 2002, was
0.88%, compared to 0.98% for the quarter ended December 31, 2001. Return on
average equity for the current quarter was 4.39%, compared to 4.51% for the same
quarter last year.
11
Management's Discussion and Analysis of Financial Condition and Results of
- --------------------------------------------------------------------------
Operations
- ----------
Interest Income. Total interest income decreased by $801,000, or 16.2%, to $4.1
million for the quarter ended December 31, 2002, from $4.9 million for the
quarter ended December 31, 2001. A decrease in average interest-earning assets
of $2.9 million between periods, combined with a decrease in yield on
interest-earning assets to 4.83%, from 5.71% for the same quarter last year, and
a change in the mix of interest-earning assets favoring lower yielding
interest-earning deposits, caused the decline in interest income. The average
balance of securities for the quarter ended December 31, 2002, decreased $39.7
million from the average balance for the quarter ended December 31, 2001, while
the average balance of interest-earning deposits and federal funds sold
increased $35.9 million.
Interest Expense. Interest expense on deposits decreased by $648,000, or 30.6%,
to $1.5 million for the quarter ended December 31, 2002, from $2.1 million for
the same period in 2001. The decrease was primarily attributable to reductions
in deposit rates paid, with the average cost of funds decreasing to 2.11% for
the current period, from 3.13% for the same period last year, offset to some
extent by a $7.0 million increase in the average balances of deposit accounts.
The average balance of time deposits, which generally are paid a higher rate
than other deposits, decreased $3.7 million between these two periods.
Net Interest Income. Net interest income decreased by $153,000, or 5.4%, to $2.7
million for the quarter ended December 31, 2002, from $2.8 million for the same
period in 2001. The net interest rate spread increased 14 basis points, to 2.72%
in 2002, from 2.58% in 2001, while the net interest margin decreased 15 basis
points, to 3.12% in 2002, from 3.27% in 2001. The ratio of average
interest-earning assets to average interest-bearing liabilities was 123.8% in
2002, compared to 128.0% in 2001.
Provision for Loan Losses. From August 1997 through December 1999, the Company
originated $508,900 of community development loans (thirteen loans) to a real
estate development company to acquire vacant lots and deteriorated buildings for
future development. The Company has closely monitored these loans since
origination and established $300,000 in specific valuation reserves on these
loans through provisions for loan losses recorded in 1998, 1999, 2000, and 2001.
During October 2002 nine of these parcels were sold and the entire principal
balances of the related loans were recovered. Therefore, $200,000 of the
$300,000 specific valuation reserve was recovered as a negative loan loss
provision. As of December 31, 2002, the four remaining loans with principal
balances of $196,000 were on non-accrual status. Management has reviewed the
four remaining loans and determined that no additional loan loss provision is
required.
Non-interest Income. Non-interest income increased $205,000, or 30.3%, to
$882,000 for the quarter ended December 31, 2002, from $677,000 for the same
period in 2001. Insurance commissions generated by the Company's insurance
subsidiary increased $223,000, or 39.6%, to $786,000 in 2002, compared to
$563,000 in 2001.
Non-interest Expense. Total non-interest expense increased $350,000, or 16.2%,
to $2.5 million for the quarter ended December 31, 2002, from $2.2 million for
the quarter ended December 31, 2001. The primary causes for the increase were a
$181,000, or 15.0% increase in salaries and employee benefits, which included an
$80,000 increase in expense from the amortization of shares granted in November
2001 under the Company's 2001 Recognition and Retention Plan ("RRP"), and a
$194,000 increase in insurance agency bad debt expense.
The increase in insurance agency bad debt expense was primarily the result of a
$194,000 provision for loss on an insurance premium receivable from a long-term
commercial client of the Company's insurance agency subsidiary, Chesterfield
Insurance Services LLC ("CIS"). CIS continues to aggressively pursue collection
of this receivable. Management has reviewed all similar commercial premium
receivables and determined that no additional bad debt provisions are required.
The annualized ratio of non-interest expense to average assets was 2.80% in
2002, compared to 2.42% in 2001, and the Company's efficiency ratio was 70.5%
for the current quarter, compared to 61.5% for the same period last year.
12
Management's Discussion and Analysis of Financial Condition and Results of
- --------------------------------------------------------------------------
Operations
- ----------
Provision for Income Taxes. The provision for income taxes of $463,000 for the
quarter ended December 31, 2002, resulted in an effective tax rate of 37.0%,
compared to a provision of $475,000 and a 35.2% effective tax rate for the same
quarter last year. The increase in the effective income tax rate results
primarily from increased state income taxes due to reduced amounts of U.S.
Government and Agency interest income.
Comparison of Operating Results for the Six Months Ended December 31, 2002 and
2001
General. Net income for the six months ended December 31, 2002, was $1.6
million, or $0.43 diluted earnings per share, compared to net income of $1.8
million, or $0.45 diluted earnings per share for the six months ended December
31, 2001. The Company's return on average assets for the six months ended
December 31, 2002, was 0.87%, compared to 1.02% for the same period last year.
Return on average equity for the six months was 4.28%, compared to 4.66% for the
same period last year.
Interest Income. Total interest income decreased by $1.6 million, or 16.1%, to
$8.5 million for the six months ended December 31, 2002, from $10.1 million for
the six months ended December 31, 2001. An increase in average interest-earning
assets of $2.5 million between periods, combined with a decrease in yield on
interest-earning assets to 4.91% for the six months ended December 31, 2002,
from 5.90% for the same period last year, and a change in the mix of
interest-earning assets favoring lower yielding interest-earning deposits,
caused the decline in interest income. The average balance of securities for the
six months ended December 31, 2002, decreased $33.3 million from the average
balance for the six months ended December 31, 2001, while the average balance of
interest-earning deposits and federal funds sold increased $27.1 million.
Interest Expense. Interest expense on deposits decreased by $1.5 million, or
32.2%, to $3.1 million for the six months ended December 31, 2002, from $4.6
million for the same period in 2001. The decrease was primarily attributable to
reductions in deposit rates paid, with the average cost of funds decreasing to
2.25% for the current period, from 3.45% for the same period last year, offset
to some extent by a $10.5 million increase in the average balances of deposit
accounts.
Net Interest Income. Net interest income decreased by $144,000, or 2.6%, to $5.4
million for the six months ended December 31, 2002, from $5.5 million for the
same period in 2001. The net interest rate spread increased 21 basis points, to
2.66% in 2002, from 2.45% in 2001, while the net interest margin decreased 11
basis points, to 3.10% in 2002, from 3.21% in 2001. The ratio of average
interest-earning assets to average interest-bearing liabilities was 124.3% for
the six months ended December 31, 2002, compared to 128.2% for the same period
last year.
Non-interest Income. Non-interest income increased $321,000, or 25.5%, to $1.6
million for the six months ended December 31, 2002, from $1.3 million for the
same period in 2001. Insurance commissions generated by the Company's insurance
subsidiary increased $332,000, or 32.0% to $1.4 million in 2002, compared to
$1.0 million in 2001.
Non-interest Expense. Total non-interest expense increased $666,000, or 16.6%,
to $4.7 million for the six months ended December 31, 2002, from $4.0 million
for the six months ended December 31, 2001. The primary causes for the increase
were a $444,000, or 19.4% increase in salaries and employee benefits, which
included a $223,000 increase in expense from the amortization of shares granted
in November 2001 under the Company's 2001 RRP, and the $194,000 increase in
insurance agency bad debt expense discussed above. The annualized ratio of
non-interest expense to average assets was 2.60% in 2002, compared to 2.27% in
2001, and the Company's efficiency ratio was 67.4% for 2002, compared to 59.3%
for 2001.
Provision for Income Taxes. The provision for income taxes of $904,000 for the
six months ended December 31, 2002 resulted in an effective tax rate of 36.7%,
compared to a provision of $951,000 and a 34.6% effective tax rate for the same
period last year. The increase in the effective income tax rate results
primarily from increased state income taxes due to reduced amounts of U.S.
Government and Agency interest income.
13
Quantitative and Qualitative Disclosures about Market Risks
Quantitative and Qualitative Disclosures about Market Risks
The OTS provides all institutions that file a Consolidated Maturity/Rate
schedule as a part of their quarterly Thrift Financial Report with an interest
rate sensitivity report of Net Portfolio Value ("NPV"). The OTS simulation model
uses a discounted cash flow analysis and an option-based pricing approach to
measuring the interest rate sensitivity of NPV. The OTS model estimates the
economics value of each type of asset, liability, and off-balance sheet contract
under the assumption that the U.S. Treasury yield curve shifts instantaneously
and parallel up and down 100 to 300 basis points in 100 basis point increments.
The OTS provides thrifts the results of their interest rate sensitivity model,
which is based on information provided by the Bank, to estimate the sensitivity
of NPV.
The OTS model utilizes an option-based pricing approach to estimate the
sensitivity of mortgage loans. The most significant embedded option in these
types of assets is the prepayment option of the borrowers. The OTS model uses
various price indications and prepayment assumptions to estimate sensitivity of
mortgage loans.
In the OTS model, the value of deposit accounts appears on the asset and
liability side of the NPV analysis. In estimating the value of certificate of
deposit accounts ("CD"), the liability portion of the CD is represented by the
implied value when comparing the difference between the CD face rate and
available wholesale CD rates. On the asset side of the NPV calculation, the
value of the "customer relationship" due to the rollover of retail CD deposits
represents an intangible asset in the NPV calculation.
Other deposit accounts such as transaction accounts, money market deposit
accounts, passbook accounts, and non-interest bearing accounts also are included
on the asset and liability side of the NPV calculation in the OTS model. The
accounts are valued at 100% of the respective account balances on the liability
side. On the assets side of the analysis, the value of the "customer
relationship" of the various types of deposit accounts is reflected as a deposit
intangible.
The table below sets forth, as of September 30, 2002 (the most recent date
available), the estimated changes in the Bank's NPV that would result from the
designated instantaneous changes in the U.S. Treasury yield curve.
Net Portfolio Value as a %of
Net Portfolio Value Present Value of Assets
-------------------------------- ---------------------------
Change in
Interest Rates Estimated Amount of NPV Percent
(basis points) NPV Change Percent Ratio Change
- ------------------- ------ ----------------- -----------------------------------
(in thousands)
+300bp $ 61,192 $(13,372) (18)% 16.96% (14)%
+200 66,409 (8,155) (11)% 18.12% (9)%
+100 71,383 (3,181) (4)% 19.18% (3)%
0 74,564 - - 19.83% -
-100 75,353 789 1% 19.96% 1%
-200 - - - - -
-300 - - - - -
- --------------------------------------------------------------------------------
For the September 30, 2002 reporting cycle the OTS suppressed all model outputs
associated with the -300 and -200 basis point scenarios because of the
abnormally low prevailing interest rate environment. The Company does not expect
a material change when December 31, 2002 data becomes available.
14
Controls and Procedures....
- --------------------------------------------------------------------------------
Controls and Procedures
The Company's Chief Executive Officer and Chief Financial Officer have
concluded, based on their evaluation within 90 days prior to the filing date of
this report, that the Company's disclosure controls and procedures (as defined
in Securities Exchange Act Rules 13a-14(c) and 15d-14(c)) are effective to
ensure that information required to be disclosed in the reports that the Company
files or submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported, within the time periods specified in the
Securities and Exchange Commission's rules and forms. There have been no
significant changes in the Company's internal controls or in other factors that
could significantly affect these controls subsequent to the date of the
foregoing evaluation.
15
Part II - Other Information
Item 1. Legal Proceedings
The Company and the Bank are not engaged in any legal proceedings
of a material nature at the present time.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of the Company was held at the
main office of Chesterfield Financial Corp., 10801 South Western
Avenue, Chicago, Illinois, on Tuesday, November 20, 2002 at 12:00
noon local time, pursuant to due notice. According to the
certified list of stockholders, which was presented at the Annual
Meeting, there were 3,964,538 outstanding votes that were
entitled to be cast at the Annual Meeting, of which 1,982,270
represented a majority. There were present at the Annual Meeting
in person or by proxy the holders of 3,397,422 votes, said votes
constituting a majority and more than a quorum of the outstanding
votes entitled to be cast.
Proposal No. 1 - Election of Directors
Proposal No. 1 was for the election of C. C. DeHaan and Richard
E. Urchell, each to serve as directors for terms of three years
and until their successors have been elected and qualified. There
were 3,348,834 votes cast for C. C. DeHaan and 3,359,146 votes
cast for Richard E. Urchell.
Proposal No. 2 - Ratification of Crowe, Chizek and Company, LLP
as Auditors
Proposal No. 2 was for the appointment of Crowe, Chizek and
Company, LLP to serve as auditors for the Company for the fiscal
year ending June 30, 2003. There were 3,360,213 votes cast to
ratify the appointment of Crowe, Chizek and Company LLP.
Accordingly, each nominee for director having received a
favorable vote of a plurality of the votes cast at the Annual
Meeting and Proposal 2 having received a favorable vote of at
least a majority of the Company's outstanding votes present in
person or by proxy to be cast at the Annual Meeting, each of the
propositions described above was declared to be duly approved by
the stockholders of the Company.
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
99 Certification of the Chief Executive Officer and Chief
Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
None
16
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.
Chesterfield Financial Corp.
Dated: February 11, 2003 /s/ Michael E. DeHaan
- -------------------------- ---------------------------
Michael E. DeHaan
President and Chief Executive Officer
(Principal Executive Officer)
Dated: February 11, 2003 /s/ Karen M. Wirth
- ------------------------ --------------------
Karen M. Wirth
Treasurer
(Principal Financial and
Accounting Officer)
17
Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Michael E. DeHaan, Chairman, President and Chief Executive Officer, certify
that:
1. I have reviewed this quarterly report on Form 10-Q of Chesterfield
Financial Corp.;
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 this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the period presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a)
designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared; b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and c) presented in
this quarterly report our conclusions about the effectiveness of the
disclosure controls and procedures based on our evaluation as of the
Evaluation Date; 5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: February 11, 2003 /s/ Michael E. DeHaan
- ------------------------ ---------------------
Michael E. DeHaan
Chairman, President and
Chief Executive Officer
19
Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Karen M. Wirth, Treasurer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Chesterfield
Financial Corp.;
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 this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the period presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a)
designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared; b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and c) presented in
this quarterly report our conclusions about the effectiveness of the
disclosure controls and procedures based on our evaluation as of the
Evaluation Date; 5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: February 11, 2003 /s/ Karen M. Wirth
- ------------------------ ------------------
Karen M. Wirth
Treasurer (Chief Financial
Officer)
20