UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended.................................. MARCH 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from __________ to ___________
Commission File No.: 000-23809
FIRST SENTINEL BANCORP, INC.
(exact name of registrant as specified in its charter)
DELAWARE 22-3566151
(State or other jurisdiction of incorporation (IRS Employer I.D. No.)
or organization)
1000 WOODBRIDGE CENTER DRIVE, WOODBRIDGE, NJ 07095
(Address of principal executive offices)
Registrant's telephone number, including area code: (732) 726-9700
NOT APPLICABLE
Former Name, Address, and Fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No .
------- -------
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).
Yes X No .
------- -------
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT MAY 1, 2003
- ----------------------------- --------------------------------
Common Stock 27,584,150 shares
FIRST SENTINEL BANCORP, INC.
INDEX TO FORM 10-Q
Page #
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Financial Condition as of March 31, 2003 and December
31, 2002 3
Consolidated Statements of Income for the Three Months Ended March 31, 2003 and
2002 4
Consolidated Statements of Stockholders' Equity for the Three Months Ended March
31, 2003 and 2002 5
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2003
and 2002 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 9
Item 3. Quantitative and Qualitative Disclosure About Market Risk 15
Item 4. Controls and Procedures 15
PART II. OTHER INFORMATION. 15
SIGNATURES 17
CERTIFICATIONS 18
2
FIRST SENTINEL BANCORP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except share data) (Unaudited)
March 31, December 31,
2003 2002
---------------- --------------
ASSETS
Cash and due from banks ............................................................. $ 30,521 $ 21,695
Federal funds sold .................................................................. 42,600 44,250
---------------- --------------
Total cash and cash equivalents ................................................ 73,121 65,945
Federal Home Loan Bank of New York (FHLB-NY) stock, at cost ......................... 22,081 20,835
Investment securities available for sale ............................................ 113,243 114,219
Mortgage-backed securities available for sale ....................................... 805,386 790,562
Loans held for sale, net ............................................................ 4,842 563
Loans receivable, net ............................................................... 1,210,287 1,200,647
Interest and dividends receivable ................................................... 10,823 11,055
Premises and equipment, net ......................................................... 16,237 15,882
Core deposit intangibles ............................................................ 4,358 4,568
Other assets ........................................................................ 30,853 32,758
---------------- --------------
Total assets ................................................................... $ 2,291,231 $ 2,257,034
================ ==============
- ------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits ............................................................................ $ 1,406,077 $ 1,387,986
Borrowed funds ...................................................................... 621,623 596,663
Advances by borrowers for taxes and insurance ....................................... 9,978 9,615
Other liabilities ................................................................... 14,246 16,570
---------------- --------------
Total liabilities .............................................................. 2,051,924 2,010,834
---------------- --------------
Company-obligated mandatorily redeemable preferred capital securities of a
subsidiary trust holding solely junior subordinated debentures of the Company.... 25,000 25,000
---------------- --------------
STOCKHOLDERS' EQUITY
Preferred stock; authorized 10,000,000 shares; none issued and outstanding........... -- --
Common stock, $.01 par value, 85,000,000 shares authorized;
43,106,742 and 27,584,150 shares issued and outstanding at 3/31/03 and
43,106,742 and 28,422,028 shares issued and outstanding at 12/31/02 ............ 430 430
Paid-in capital ..................................................................... 203,106 203,229
Retained earnings ................................................................... 166,801 163,681
Accumulated other comprehensive ..................................................... 11,221 9,776
income...............................................................
Treasury stock (15,397,938 and 14,586,591 shares at 3/31/03 and 12/31/02,
respectively) ................................................................... (157,284) (145,480)
Common stock acquired by the Employee Stock Ownership Plan (ESOP).................... (9,174) (9,404)
Common stock acquired by the Recognition and Retention Plan (RRP).................... (793) (1,032)
---------------- --------------
Total stockholders' equity ..................................................... 214,307 221,200
---------------- --------------
Total liabilities and stockholders' equity ..................................... $ 2,291,231 $ 2,257,034
================ ==============
See accompanying notes to the unaudited consolidated financial statements.
3
FIRST SENTINEL BANCORP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except share data) (Unaudited)
Three Months Ended March 31,
-------------------------------------
2003 2002
-------------- -------------
INTEREST INCOME:
Loans ...................................................... $ 19,193 $ 21,395
Investment and mortgage-backed securities
available for sale ....................................... 9,588 9,721
-------------- -------------
Total interest income ................................... 28,781 31,116
-------------- -------------
INTEREST EXPENSE:
Deposits:
NOW and money market demand ............................... 1,336 2,095
Savings ................................................... 722 838
Certificates of deposit ................................... 4,180 6,074
-------------- -------------
Total interest expense - deposits ....................... 6,238 9,007
Borrowed funds ............................................. 7,532 7,076
-------------- -------------
Total interest expense .................................. 13,770 16,083
-------------- -------------
Net interest income ..................................... 15,011 15,033
Provision for loan losses .................................... -- 100
-------------- -------------
Net interest income after provision for loan losses...... 15,011 14,933
-------------- -------------
NON-INTEREST INCOME:
Fees and service charges ................................... 888 1,240
Net gain on sales of loans and securities
available for sale ...................................... 893 116
Income on Bank Owned Life Insurance......................... 398 415
Other income ............................................... 244 179
-------------- -------------
Total non-interest income ............................... 2,423 1,950
-------------- -------------
NON-INTEREST EXPENSE:
Compensation and benefits .................................. 4,311 3,964
Occupancy .................................................. 646 558
Equipment .................................................. 428 438
Advertising ................................................ 255 175
Federal deposit insurance .................................. 58 59
Amortization of core deposit intangibles ................... 210 212
Distributions on preferred capital securities............... 472 498
General and administrative ................................. 1,171 1,134
-------------- -------------
Total non-interest expense .............................. 7,551 7,038
-------------- -------------
Income before income tax expense ........................ 9,883 9,845
Income tax expense ........................................... 3,333 3,244
-------------- -------------
Net income .............................................. $ 6,550 $ 6,601
============== =============
Basic earnings per share ..................................... $ 0.24 $ 0.22
============== =============
Weighted average shares outstanding - Basic .................. $ 26,945,588 29,459,563
============== =============
Diluted earnings per share ................................... $ 0.24 $ 0.22
============== =============
Weighted average shares outstanding - Diluted................. 27,652,037 30,198,768
============== =============
See accompanying notes to the unaudited consolidated financial statements.
4
FIRST SENTINEL BANCORP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands) (Unaudited)
Accumulated
Other Common Common Total
Compre- Stock Stock Stock-
Common Paid In Retained hensive Treasury Acquired Acquired holders'
Stock Capital Earnings Gain Stock by ESOP By RRP Equity
-------------------------------------------------------------------------------------------
Balance at December 31, 2001 .......... $430 $201,858 $148,463 $2,178 $(110,571) $(10,321) $(1,910) $230,127
Net income for the three months
ended March 31, 2002................ -- -- 6,601 -- -- -- -- 6,601
Cash dividends declared ($0.075) ...... -- -- (2,320) -- -- -- -- (2,320)
Net change in unrealized gain on
securities available for sale ...... -- -- -- (662) -- -- -- (662)
Purchases of treasury stock ........... -- -- -- -- (9,868) -- -- (9,868)
Exercise of stock options.............. -- -- (325) -- 492 -- -- 167
Tax benefit on stock options and RRP .. -- 326 -- -- -- -- -- 326
Purchase and retirement of common
stock............................... -- (108) -- -- -- -- -- (108)
Amortization of RRP ................... -- -- -- -- -- -- 220 220
ESOP expense........................... -- 100 -- -- -- 229 -- 329
-------------------------------------------------------------------------------------------
Balance at March 31, 2002 ............. $430 $202,176 $152,419 $1,516 $(119,947) $(10,092) $(1,690) $224,812
===========================================================================================
Balance at December 31, 2002 .......... $430 $203,229 $163,681 $9,776 $(145,480) $(9,404) $(1,032) $221,200
Net income for the three months
ended March 31, 2003................ -- -- 6,550 -- -- -- -- 6,550
Cash dividends declared ($0.105) ...... -- -- (2,953) -- -- -- -- (2,953)
Net change in unrealized gain on
securities available for sale ...... -- -- -- 1,445 -- -- -- 1,445
Purchases of treasury stock ........... -- -- -- -- (12,353) -- -- (12,353)
Exercise of stock options.............. -- (67) (477) -- 549 -- -- 5
Purchase and retirement of common
stock............................... -- (177) -- -- -- -- -- (177)
Amortization of RRP ................... -- -- -- -- -- -- 239 239
ESOP expense........................... -- 121 -- -- -- 230 -- 351
-------------------------------------------------------------------------------------------
Balance at March 31, 2003 ............. $430 $203,106 $166,801 $11,221 $(157,284) $(9,174) $ (793) $214,307
===========================================================================================
See accompanying notes to the unaudited consolidated financial statements.
5
FIRST SENTINEL BANCORP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands) (Unaudited)
Three Months Ended
March 31,
----------------------------
2003 2002
------------ ------------
Cash flows from operating activities:
Net income ............................................................................ $ 6,550 $ 6,601
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING
ACTIVITIES:
Depreciation of premises and equipment ................................................ 372 351
Amortization of core deposit intangibles .............................................. 210 212
ESOP expense .......................................................................... 351 329
Amortization of RRP ................................................................... 239 220
Net amortization of premiums and accretion of discounts and deferred fees ............. 1,175 1,310
Provision for loan losses ............................................................. -- 100
Loans originated for sale ............................................................. (18,080) (6,961)
Proceeds from sales of mortgage loans available for sale .............................. 13,811 11,492
Net gain on sales of loans and securities available for sale .......................... (893) (116)
Net gain on sale of real estate owned ................................................. (81) --
Decrease (increase) in interest and dividends receivable .............................. 232 (66)
Tax benefit on stock options and RRP .................................................. -- 326
Decrease in other liabilities ......................................................... (3,182) (728)
Decrease in other assets .............................................................. 1,833 4,837
------------ ------------
Net cash provided by operating activities ....................................... 2,537 17,907
------------ ------------
Cash flows from investing activities:
Proceeds from sales/calls/maturities of investment securities available for sale ...... 17,687 10,650
Purchases of investment securities available for sale ................................. (15,579) (26,948)
Purchase of FHLB-NY stock ............................................................. (1,246) (349)
Proceeds from sales of mortgage-backed securities available for sale .................. 50,036 9,907
Principal payments on mortgage-backed securities ...................................... 91,049 61,704
Purchases of mortgage-backed securities available for sale ............................ (155,868) (123,736)
Principal repayments on loans ......................................................... 158,526 191,180
Origination of loans .................................................................. (164,096) (190,170)
Purchases of mortgage loans ........................................................... (3,299) (13,585)
Proceeds from sale of real estate owned ............................................... 153 --
Purchases of premises and equipment ................................................... (727) (244)
------------ ------------
Net cash used in investing activities ........................................... (23,364) (81,591)
------------ ------------
Cash flows from financing activities:
Purchase of treasury stock ............................................................ (12,353) (9,868)
Stock options exercised ............................................................... 72 167
Cash dividends paid ................................................................... (2,953) (2,320)
Net increase in deposits .............................................................. 18,091 36,230
Net increase in short-term borrowed funds ............................................. -- --
Proceeds from borrowed funds .......................................................... 50,000 40,000
Repayment of borrowed funds ........................................................... (25,040) (15,036)
Net increase in advances by borrowers for taxes and insurance ......................... 363 517
Purchase and retirement of common stock ............................................... (177) (108)
------------ ------------
Net cash provided by financing activities ....................................... 28,003 49,582
------------ ------------
Net increase (decrease) in cash and cash equivalents ............................ 7,176 (14,102)
Cash and cash equivalents at beginning of period ......................................... 65,945 53,875
------------ ------------
Cash and cash equivalents at end of period ............................................... $ 73,121 $ 39,773
============ ============
Supplemental disclosures of cash flow information: Cash paid during the period
for:
Interest .......................................................................... $ 14,165 $ 16,002
Income taxes ...................................................................... 4,803 --
See accompanying notes to the unaudited consolidated financial statements.
6
FIRST SENTINEL BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles ("GAAP") for interim
financial information and in conformity with the instructions to Form 10-Q and
Article 10 of Regulation S-X for First Sentinel Bancorp, Inc. ("First Sentinel"
or the "Company") and its wholly-owned subsidiaries, First Savings Bank, ("First
Savings" or the "Bank") Pulse Investment, Inc., Pulse Insurance Services, Inc.
and Pulse Real Estate, Inc., and the Bank's wholly-owned subsidiaries, FSB
Financial LLC, and 1000 Woodbridge Center Drive, Inc. Certain disclosures have
been omitted or condensed pursuant to such rules. These interim financial
statements should be read in conjunction with the December 31, 2002 Annual
Report to Stockholders.
In the opinion of management, all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial condition, results
of operations, and changes in cash flows have been made at and for the three
months ended March 31, 2003 and 2002. The results of operations for the three
months ended March 31, 2003, are not necessarily indicative of results that may
be expected for the entire fiscal year ending December 31, 2003.
STOCK-BASED COMPENSATION
The Company applies the "intrinsic value based method" as described in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations in accounting for its stock-based
compensation. No employee compensation cost for stock options is reflected in
net income, as all options granted under the Company's stock option plans had
exercise prices greater than or equal to the market value of the underlying
common stock on the date of grant. Stock awarded to employees under the
Company's Recognition and Retention Plan is expensed by the Company over the
awards' vesting period based upon the fair market value of the stock on the date
of the grant. The following table illustrates the effect on net income and
earnings per share if the Company had applied the fair value recognition
provisions for stock-based compensation pursuant to Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-based
Compensation," amended by SFAS No. 148, "Accounting for Stock-based Compensation
- - Transition and Disclosures" (in thousands, except per share data):
Three Months Ended March 31,
2003 2002
------------- --------------
Net income, as reported $ 6,550 $ 6,601
Add:
Stock-based employee compensation expense
included in reported net income, net of related
tax effects (RRP awards) 155 143
Deduct:
Total stock-based employee compensation expense
determined under fair value based method
for all options and RRP awards, net
of related tax effects 162 332
------------ -------------
Pro forma net income $ 6,543 $ 6,412
============ =============
Net income per common share:
Basic - as reported $ 0.24 $ 0.22
============ =============
Basic - pro forma 0.24 0.22
============ =============
Diluted - as reported 0.24 0.22
============ =============
Diluted - pro forma $ 0.24 $ 0.21
============ =============
7
EARNINGS PER SHARE
Basic earnings per share is calculated by dividing net income by the daily
average number of common shares outstanding during the period. Common stock
equivalents are not included in the calculation.
Diluted earnings per share is computed similarly to that of basic earnings per
share except that the denominator is increased to include the number of
additional common shares that would have been outstanding if all potential
dilutive common shares were issued utilizing the treasury stock method.
Calculation of Basic and Diluted Earnings Per Share
- -----------------------------------------------------
(dollars in thousands, except share data)
Three Months Ended March 31,
2003 2002
-------------- -------------
Net income $ 6,550 $ 6,601
============== =============
Basic weighted-average common shares
outstanding 26,945,588 29,459,563
Plus: Dilutive stock options and awards 706,449 739,205
-------------- -------------
Diluted weighted-average common
shares outstanding 27,652,037 30,198,768
============== =============
Net income per common share:
Basic $ 0.24 $ 0.22
============== =============
Diluted $ 0.24 $ 0.22
============== =============
(2) DIVIDENDS
Based upon current operating results, the Company declared cash dividends of
$0.105 per share on January 23, 2003, payable February 28, 2003, to stockholders
of record on February 14, 2003.
(3) COMMITMENTS AND CONTINGENCIES
At March 31, 2003, the Company had the following commitments: (i) to originate
loans of $122.7 million; (ii) unused equity lines of credit of $68.4 million;
(iii) unused commercial lines of credit of $13.9 million; (iv) unused
construction lines of credit of $83.5 million; and (v) letters of credit
outstanding totaling $1.6 million. Further, certificates of deposits, which are
scheduled to mature and/or rollover in one year or less, totaled $432.5 million
at March 31, 2003.
(4) ALLOWANCE FOR LOAN LOSSES
The following table presents the activity in the allowance for loan losses (in
thousands):
Three Months Ended March 31,
2003 2002
------------ ------------
Balance at beginning of period $ 12,830 $ 12,932
Provision charged to operations - 100
Net (charge-offs) recoveries (2) 1
------------ ------------
Balance at end of period $ 12,828 $ 13,033
============ ============
(5) COMPREHENSIVE INCOME
Total comprehensive income, consisting of net income and the net change in
unrealized gain/(loss) on securities available for sale, was $8.0 million and
$5.9 million for the three months ended March 31, 2003 and 2002, respectively.
8
FIRST SENTINEL BANCORP, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL.
Statements contained in this report that are not historical fact are
forward-looking statements, as that term is defined in the Private Securities
Litigation Reform Act of 1995. Such statements may be characterized as
management's intentions, hopes, beliefs, expectations or predictions of the
future. It is important to note that such forward-looking statements are subject
to risks and uncertainties that could cause actual results to differ materially
from those projected in such forward-looking statements. Factors that could
cause future results to vary materially from current expectations include, but
are not limited to, changes in interest rates, economic conditions, deposit and
loan growth, real estate values, loan loss provisions, competition, customer
retention, changes in the accounting principles, policies or guidelines and
legislative and regulatory changes.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES. "Management's Discussion and
Analysis of Financial Condition and Results of Operation," as well as
disclosures found elsewhere in this Form 10-Q, are based upon the Company's
consolidated financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of America. The
preparation of these financial statements requires the Company to make estimates
and judgments that affect the reported amounts of assets, liabilities, revenues
and expenses. Note 1 to the Company's Audited Consolidated Financial Statements
for the year ended December 31, 2002 included in our Annual Report on Form 10-K
for the year ended December 31, 2002, as supplemented by this report, contains a
summary of the Company's significant accounting policies. Management believes
the Company's policy with respect to the methodology for the 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 materially impact results of
operations. This critical policy and its application is periodically reviewed
with the Audit Committee and the Board of Directors.
The provision for loan losses is based upon management's evaluation of the
adequacy of the allowance, including an assessment of known and inherent risks
in the portfolio, giving consideration to the size and composition of the loan
portfolio, actual loan loss experience, level of delinquencies, detailed
analysis of individual loans for which full collectibility may not be assured,
the existence and estimated net realizable value of any underlying collateral
and guarantees securing the loans, and current economic and market conditions.
Although management uses the best information available, the level of the
allowance for loan losses remains an estimate which is subject to significant
judgment and short-term change. Various regulatory agencies, as an integral part
of their examination process, periodically review the Company's allowance for
loan losses. Such agencies may require the Company to make additional provisions
for loan losses based upon information available to them at the time of their
examination. Furthermore, the majority of the Company's loans are secured by
real estate in the State of New Jersey. Accordingly, the collectibility of a
substantial portion of the carrying value of the Company's loan portfolio is
susceptible to changes in local market conditions and may be adversely affected
should real estate values decline or should New Jersey experience an adverse
economic shock. Future adjustments to the allowance for loan losses may be
necessary due to economic, operating, regulatory and other conditions beyond the
Company's control.
ASSETS. Total assets grew $34.2 million from December 31, 2002, to $2.3 billion
at March 31, 2003. Changes in asset composition during the quarter consisted
primarily of increases in mortgage-backed securities ("MBS"), loans receivable
and cash and cash equivalents.
MBS available for sale increased $14.8 million, or 1.9%, to $805.4 million at
March 31, 2003, from $790.6 million at December 31, 2002. Purchases totaling
$155.9 million exceeded sales and principal repayments of $49.4 million and
$91.0 million, respectively, for the three month period ended March 31, 2003.
Purchases during the quarter consisted primarily of MBS issued by U.S.
government-sponsored agencies. At March 31, 2003, approximately 64% of the
Company's MBS had adjustable rates and the portfolio had a modified duration of
2.8 years.
Loans receivable, net, increased $13.9 million from December 31, 2002, to $1.2
billion at March 31, 2003. Total loan originations for the three months ended
March 31, 2003, were $182.2 million, compared to $197.1 million for the same
period in 2002, and $160.8 million for the trailing quarter. Fixed-rate
single-family first mortgage loan originations totaled $67.2 million, or 36.9%
of production, while adjustable-rate single-family first mortgage loans
accounted for $25.3 million,
9
or 13.9% of total originations for the first three months of 2003. Also during
the first quarter of 2003, construction lending, primarily for single-family
developments, totaled $25.1 million, or 13.8% of total originations, while
commercial real estate, commercial and multi-family loan originations were $14.6
million, or 8.0%. During the same period, consumer loan originations, including
home equity loans and credit lines, were $49.9 million, or 27.4% of total
originations. In addition, the Company purchased $3.3 million of primarily
adjustable-rate single-family first mortgage loans through correspondents during
the three months ended March 31, 2003. Purchased loans are underwritten
internally and are extended at higher rates than those currently offered by the
Bank.
Repayment of principal on loans totaled $158.5 million for the three months
ended March 31, 2003, compared to $191.2 million for the same period in 2002,
and $175.4 million for the trailing quarter. The decrease in repayments was
primarily attributable to reduced refinance activity, as many borrowers have
already realized the economic benefits of refinancing their mortgage debt.
Repayments for the quarter ended March 31, 2002, also included the early pay-off
of a $14.9 million commercial real estate loan. Loan sales for the first quarter
of 2003 totaled $13.8 million, compared with $11.5 million for the same period
in 2002. The Company generally sells fixed-rate, 30-year loan production as a
means of managing interest rate risk. At March 31, 2003, $562.3 million, or
approximately 54%, of the Company's mortgage loans had adjustable interest
rates. Approximately $150.0 million of these adjustable-rate loans are scheduled
to reprice within the next twelve months.
Of the total loan portfolio at March 31, 2003, 1-4 family mortgage loans
comprised 67.0%, home equity loans comprised 9.1%, and commercial real estate,
multi-family and construction loans comprised 22.6%. The Company intends to
continue to prudently expand its non-residential mortgage lending activities
while maintaining its underwriting standards and commitment to community-based
lending.
While management intends to continue emphasizing the origination of loans,
future levels of loan originations and repayments will be significantly
influenced by external interest rates and other economic factors outside of the
control of the Company, as well as the Company's interest rate risk management
practices.
Cash and cash equivalents increased $7.2 million, or 10.9%, to $73.1 million at
March 31, 2003, from $65.9 million at December 31, 2002. The Company's intent is
to prudently deploy investable funds in a manner which does not expose it to
significant interest rate, market or credit risk.
LIABILITIES. Deposits increased $18.1 million, or 1.3% from December 31, 2002,
to $1.4 billion at March 31, 2003. Core deposits, consisting of checking,
savings and money market accounts, grew by $34.2 million, or 4.4%, to $819.4
million and accounted for 58.3% of total deposits at March 31, 2003. This
compares with a core/total deposits ratio of 56.6% at December 31, 2002, and
52.8% at March 31, 2002. Certificates of deposit declined by $16.1 million, or
2.7%, compared with year-end 2002, with decreases occurring primarily in the
one-year and shorter maturity categories. The Company intends to continue its
efforts to develop and maintain core deposit relationships while reducing
higher-costing certificates of deposit.
Borrowed funds increased $25.0 million, or 4.2%, to $621.6 million at March 31,
2003, from $596.7 million at December 31, 2002 as the Company took advantage of
historically low interest rates for long-term asset/liability positioning.
CAPITAL. The Company's stockholders' equity decreased $6.9 million, or 3.1%, to
$214.3 million at March 31, 2003, from $221.2 million at December 31, 2002. The
decrease in equity was primarily attributable to the repurchase of $12.5 million
of the Company's common stock and cash dividends of $3.0 million, partially
offset by net income of $6.6 million for the three months ended March 31, 2003,
an increase in the net unrealized gain on securities available for sale of $1.4
million and the amortization of stock-based compensation and benefit plans of
$590,000. Book value and tangible book value per share were $7.77 and $7.61,
respectively, at March 31, 2003, compared with $7.78 and $7.62, respectively, at
December 31, 2002, and $7.43 and $7.26, respectively, at March 31, 2002.
10
The Federal Deposit Insurance Corporation requires that the Bank meet minimum
leverage, Tier 1 and total risk-based capital requirements. At March 31, 2003,
the Bank exceeded all regulatory capital requirements, as follows (dollars in
thousands):
Required Actual
---------------------- ---------------------- Excess of Actual
% of % of Over Regulatory
Amount Assets Amount Assets Requirements
----------- ---------- ----------- ---------- ---------------------
Leverage Capital $90,003 4.00% $183,030 8.13% $ 93,027
Risk-based Capital:
Tier 1 43,525 4.00% 183,030 16.82% 139,505
Total 87,050 8.00% 195,858 18.00% 108,808
LIQUIDITY AND CAPITAL RESOURCES. The Company's primary sources of funds are
deposits; proceeds from principal and interest payments on loans and
mortgage-backed securities; sales of loans, mortgage-backed securities and
investments available for sale; maturities or calls of investment securities;
and advances from the FHLB-NY and other borrowed funds. While maturities and
scheduled amortization of loans and mortgage-backed securities are a predictable
source of funds, deposit cash flows and mortgage prepayments are greatly
influenced by interest rates, competition, and economic conditions.
The most significant sources of funds for the first three months of 2003 were
principal repayments and prepayments of loans and mortgage-backed securities
totaling $158.5 million and $91.0 million, respectively, proceeds from sales of
MBS totaling $50.0 million, new borrowings of $50.0 million, a net increase in
deposits totaling $18.1 million, proceeds from sales, calls and maturities of
investment securities of $17.7 million and proceeds from sales of mortgage loans
of $13.8 million. If necessary, the Company has additional borrowing capacity
with the FHLB-NY, including an available overnight line of credit of up to $50.0
million. At March 31, 2003, the Company had unpledged investment securities and
MBS available for sale with a market value of $403.3 million.
The primary uses of funds for the first three months of 2003 were the
origination of loans, including loans held for sale, totaling $182.2 million,
purchases of mortgage-backed securities totaling $155.9 million, the repayment
of borrowings of $25.0 million, purchases of investment securities totaling
$15.6 million and the repurchase of $12.5 million of common stock.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND
2002.
RESULTS OF OPERATIONS. For the quarter ended March 31, 2003, basic and diluted
earnings per share were $0.24. This represented increases of 8.5% and 8.4%,
respectively, over basic and diluted earnings per share of $0.22 for the quarter
ended March 31, 2002. Net income for the three months ended March 31, 2003,
totaled $6.6 million, a decrease of $51,000, or 0.8%, compared with the first
quarter of 2002. Annualized return on average equity increased 55 basis points
to 11.98% for the first quarter of 2003, from 11.43% for the comparable 2002
period. Annualized return on average assets was 1.16% for the March 2003
quarter, compared to 1.22% for the same period in 2002.
11
CONSOLIDATED AVERAGE STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
THREE MONTHS ENDED MARCH 31,
--------------------------------------------------------------------------------
2003 2002
------------------------------------ ---------------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
------------------------------------ ---------------------------------------
ASSETS
Interest-earning assets:
Federal funds sold ..................... $ 34,354 $ 101 1.18% $ 54,362 $ 228 1.68%
Investment securities available for
sale (1) ............................. 131,618 1,644 5.00 137,617 1,931 5.61
Mortgage-backed securities available
for sale ............................. 771,408 7,843 4.07 641,076 7,562 4.72
---------- ---------- ---------- ----------
Total investments .................... 937,380 9,588 4.09 833,055 9,721 4.67
Mortgage loans ......................... 1,103,789 17,353 6.29 1,128,874 19,160 6.79
Home equity loans ...................... 62,892 1,074 6.83 71,882 1,312 7.30
Home equity lines of credit ............ 48,278 562 4.66 40,604 546 5.38
Other loans ............................ 15,057 204 5.42 19,913 377 7.57
---------- ---------- ---------- ----------
Total loans .......................... 1,230,016 19,193 6.24 1,261,273 21,395 6.79
---------- ---------- ---------- ----------
Total interest-earning assets ........... 2,167,396 28,781 5.31% 2,094,328 31,116 5.94%
Non-interest earning assets ............. 92,927 74,389
Total assets ...................... $2,260,323 $2,168,717
========== ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest-bearing liabilities:
NOW and money market accounts .......... $ 491,108 $ 1,336 1.09% $ 439,538 $ 2,095 1.91%
Savings accounts ....................... 225,574 722 1.28 184,617 838 1.82
Certificates of deposit ................ 595,202 4,180 2.81 647,890 6,074 3.75
---------- ---------- ---------- ----------
Total interest-bearing deposits ...... 1,311,884 6,238 1.90 1,272,045 9,007 2.83
Borrowed funds ......................... 601,673 7,532 5.01 556,569 7,076 5.09
---------- ---------- ---------- ----------
Total interest-bearing liabilities ...... 1,913,557 13,770 2.88 1,828,614 16,083 3.52
Non-interest bearing deposits ........... 73,082 60,485
Other liabilities ....................... 54,950 48,529
---------- ----------
Total liabilities ................. 2,041,589 1,937,628
Stockholders' equity .................... 218,734 231,089
---------- ----------
Total liabilities and stockholders'
equity ........................ $2,260,323 $2,168,717
---------- ---- ========== ----------- ----
Net interest income/interest rate spread .. $ 15,011 2.43% $ 15,033 2.42%
========== ==== ========== ====
Net interest-earning assets/net interest
margin ................................. $ 253,839 2.77% $ 265,714 2.87%
========== ==== ========== ====
Ratio of interest-earning assets
to interest-bearing liabilities......... 1.13 X 1.15 X
========== ==========
(1) Includes FHLB-NY stock.
12
INTEREST INCOME. Interest income for the three months ended March 31, 2003,
decreased by $2.3 million, or 7.5%, to $28.8 million, compared to $31.1 million
for the same period in 2002.
Interest on loans decreased $2.2 million, or 10.3%, to $19.2 million for the
three months ended March 31, 2003, compared to $21.4 million for the same period
in 2002. The average balance of the loan portfolio decreased $31.3 million, or
2.5%, to $1.2 billion for the first quarter of 2003, compared with the first
three months of 2002, as the decline in the Company's 1-4 family mortgage loan
portfolio attributable to prepayments was only partially offset by growth in
non-residential and construction mortgage lending. The average yield on the
portfolio decreased 55 basis points to 6.24% as a result of lower market
interest rates and the amortization of deferred loan costs associated with
mortgage loan prepayments.
Interest on MBS and investment securities, including Fed funds sold and FHLB-NY
stock, declined $133,000 for the quarter ended March 31, 2003, compared with the
same period in 2002. The average balance of the investment and MBS portfolios
totaled $937.4 million, with an annualized yield of 4.09% for the three months
ended March 31, 2003, compared with an average balance of $833.1 million with an
annualized yield of 4.67% for the three months ended March 31, 2002. The decline
in average yield on the investment and MBS portfolios reflects historically low
market interest rates, as well as the impact of mortgage prepayments on MBS.
The Company remains focused on maintaining appropriate balance sheet structure
in the current challenging economic environment. With interest rates at historic
lows, the Company believes it prudent to maintain an asset sensitive interest
rate risk position and to carefully manage asset extension risk. The Company
does not wish to sacrifice credit quality or assume undue interest rate risk in
pursuit of short-term earnings enhancement.
INTEREST EXPENSE. Interest expense decreased $2.3 million, or 14.4%, to $13.8
million for the three months ended March 31, 2003, compared to $16.1 million for
the same period in 2002.
Interest expense on deposits decreased $2.8 million, or 30.7%, to $6.2 million
for the three months ended March 31, 2003, compared to $9.0 million for the same
period in 2002. Interest paid on certificates of deposit decreased $1.9 million
as the average cost of certificates for the three-month period ended March 31,
2003, fell 94 basis points to 2.81%, compared to 3.75% for the same period in
2002. The average balance of certificates of deposit decreased to $595.2 million
for the three months ended March 31, 2003, from $647.9 million for the same
period in 2002. Interest paid on core deposits decreased $875,000 as the average
cost of interest-bearing core deposits the three-months ended March 31, 2003,
declined 73 basis points to 1.15%, compared to 1.88% for the same period in
2002. The average balance of interest-bearing core deposits increased $92.5
million, or 14.8%, to $716.7 million for the three months ended March 31, 2003,
from $624.2 million for the same period in 2002. In addition, average
non-interest bearing deposits grew $12.6 million, or 20.8%, to $73.1 million for
the three months ended March 31, 2003, versus the comparable 2002 period.
Interest on borrowed funds for the three months ended March 31, 2003, increased
$456,000, or 6.4%, to $7.5 million, compared to $7.1 million for the same period
in 2002. The average balance of borrowed funds for the three months ended March
31, 2003, increased to $601.7 million from $556.6 million for the same period in
2002. The average interest rate paid on borrowed funds declined to 5.01% for the
three months ended March 31, 2003, compared with 5.09% for the same period in
2002.
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES. Net interest income before
provision for loan losses decreased $22,000, or 0.2%, to $15.0 million for the
three months ended March 31, 2003, compared to the same period in 2002. The
decrease was due to the changes in interest income and interest expense
described above.
The interest rate spread was 2.43% for the three months ended March 31, 2003,
compared with 2.42% for the same period in 2002 and 2.43% for the trailing
quarter. The net interest margin declined to 2.77% for the three months ended
March 31, 2003, from 2.87% for the same period in 2002 and 2.81% for the fourth
quarter of 2002. The Company anticipates some level of margin compression to
continue, particularly if interest rates fall further in the second quarter of
2003.
13
PROVISION FOR LOAN LOSSES. The Company did not record a provision for loan
losses during the quarter ended March 31, 2003, compared to $100,000 for the
same period in 2002, as a result of a reduction in loan portfolio size and
improvements in asset quality compared with March 31, 2002. Provisions for loan
losses are made based on management's evaluation of risks inherent in the loan
portfolio, giving consideration to on-going credit evaluations and changes in
the balance and composition of the loan portfolio. Total loans receivable
increased slightly to $1.2 billion at March 31, 2003 from December 31, 2002,
while non-performing loans declined to $1.4 million at March 31, 2003, compared
with $1.8 million at December 31, 2002 and $1.9 million at March 31, 2002. The
allowance for loan losses as a percentage of total loans was 1.04% at March 31,
2003, compared with 1.06% and 1.03% at December 31, 2002 and March 31, 2002,
respectively. In management's opinion, the allowance for loan losses, totaling
$12.8 million at March 31, 2003, adequately addresses the risks inherent in the
portfolio. Management will continue to review the need for additions to its
allowance for loan losses based upon its quarterly review of the loan portfolio,
the level of delinquencies, and general market and economic conditions.
The following table sets forth ratios regarding non-accrual loans, and loans
which are 90 days or more delinquent, but on which the Company is accruing
interest at the dates indicated. The Company discontinues accruing interest on
delinquent loans when collection of interest is considered doubtful, generally
when 90 days or more delinquent and when loan-to-value ratios exceed 55%, at
which time all accrued but uncollected interest is reversed.
(dollars in thousands) Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31,
2003 2002 2002 2002 2002
------------------------------------------------------
Non-accrual mortgage loans.......................... $1,082 $1,511 $2,297 $1,875 $1,681
Non-accrual other loans............................. 43 30 - 5,552 -
------------------------------------------------------
Total non-accrual loans.......................... 1,125 1,541 2,297 7,427 1,681
Loans 90 days or more delinquent and
still accruing................................. 294 223 440 80 256
------------------------------------------------------
Total non-performing loans.......................... 1,419 1,764 2,737 7,507 1,937
Non-accrual investments (WorldCom, Inc.
corporate bonds)............................... - - 300 300 -
Total foreclosed real estate, net of related
allowance...................................... - 72 100 - 42
------------------------------------------------------
Total non-performing assets......................... $1,419 $1,836 $3,137 $7,807 $1,979
======================================================
Non-performing loans to loans receivable............ 0.12% 0.15% 0.22% 0.59% 0.15%
Non-performing assets to total assets............... 0.06% 0.08% 0.14% 0.35% 0.09%
NON-INTEREST INCOME. Non-interest income increased $473,000, or 24.3%, to $2.4
million for the three months ended March 31, 2003, from $2.0 million for the
same period in 2002. The first quarter of 2003 included net gains on sales of
loans and securities totaling $893,000, compared with $116,000 for the first
quarter of 2002. During the quarter ended March 31, 2003, the Company recognized
gains on the sale of higher coupon mortgage-backed securities that demonstrated
a significant propensity to prepay, as well as several corporate debt
obligations that had attained their price target. The sale of loans and
securities and related gains or losses are dependent on market conditions, as
well as the Company's liquidity and risk management requirements. Partially
offsetting this net gain was a decline in fees and service charges of $352,000,
to $888,000 for the first quarter of 2003. Prior year fees and service charges
included approximately $600,000 in a prepayment fee received upon the early
termination of a $14.9 million commercial real estate loan. Excluding the impact
of this substantial prepayment penalty in 2002, the net increase in fees and
service charges in 2003 was attributable to revisions to the Company's fee
structure implemented in July 2002, as well as growth in the assessable customer
base.
NON-INTEREST EXPENSE. Non-interest expense for the three months ended March 31,
2003, increased $513,000, or 7.3%, to $7.6 million, compared to $7.0 million for
the same period in 2002. The increase was primarily attributable to $347,000 in
increased compensation and benefits expense resulting from staff and wage
increases, as well as increased healthcare, pension and ESOP costs. In addition,
occupancy costs grew by $88,000, compared with the first quarter of 2002, as a
result of the opening of the Somerset branch in February of 2002 and increased
snow removal and heating costs in 2003. Further, advertising expense for the
three months ended March 31, 2003, was $80,000 greater than the comparable 2002
period as a result of several targeted direct mail and print campaigns aimed at
stimulating core deposit and loan growth. The Company's annualized non-interest
expense, excluding amortization of core deposit intangibles and distributions on
preferred capital securities, divided by average assets was 1.22% for the three
months ended March 31, 2003, compared with 1.17% for the same period in 2002.
The Company's efficiency ratio, calculated as non-interest expense (excluding
14
distributions on preferred capital securities) divided by the sum of net
interest income and non-interest income (excluding net gains on sales of loans
and securities), was 42.8% for the first quarter of 2003, compared with 38.8%
for the same period in 2002.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
There have been no material changes to information required regarding
quantitative and qualitative disclosures about market risk from the end of the
preceding fiscal year to the date of the most recent interim financial
statements (March 31, 2003).
Item 4. CONTROLS AND PROCEDURES.
a.) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.
Christopher Martin, the Company's Chief Executive Officer, and
Thomas M. Lyons, the Company's Chief Financial Officer, conducted an
evaluation of the effectiveness of the Company's disclosure controls
and procedures (as defined in Rule 13a-14(c) under the Securities
Exchange Act of 1934, as amended) as of May 13, 2003. Based upon
their evaluation, they each found the Company's disclosure controls
and procedures were adequate to ensure that information required to
be disclosed in the reports that the Company files and submits under
the Exchange Act is recorded, processed, summarized and reported as
and when required.
b.) CHANGES IN INTERNAL CONTROLS.
There were no significant changes in the Company's disclosure
controls and procedures or internal controls for financial reporting
or other factors that could significantly affect those controls
subsequent to May 13, 2003, and the Company identified no
significant deficiencies or material weaknesses requiring corrective
action with respect to those controls.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
There are various claims and lawsuits in which the Registrant is
periodically involved incidental to the Registrant's business. In the
opinion of management, no material loss is expected from any such
pending claims and lawsuits.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
Item 5. OTHER INFORMATION.
None.
15
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
a.) EXHIBITS
------------------------------------------------------------------------------------------
Exhibit
Number Description Reference
------------------------------------------------------------------------------------------
3.1 Certificate of Incorporation of First Sentinel Bancorp, *
Inc.
3.2 Bylaws of First Sentinel Bancorp, Inc. **
4 Stock certificate of First Sentinel Bancorp, Inc. *
11 Statement re: Computation of per Share Earnings page 7
99 Statements furnished pursuant to Section 906 of the Filed herein
Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350
------------------------------------------------------------------------------------------
b.) REPORTS ON FORM 8-K
None.
* Previously filed and incorporated herein by reference to the Registration
Statement on Form S-1 and exhibits thereto of First Sentinel Bancorp, Inc.
(formerly First Source Bancorp, Inc.), and any amendments or supplements thereto
filed with the SEC on December 19, 1997 and amended on February 9, 1998, SEC
File No. 333-42757.
** Previously filed and incorporated herein by reference to the December 31,
2002 Annual Report on Form 10-K of First Sentinel Bancorp, Inc. filed with the
SEC on March 31, 2003, SEC File No. 000-23809.
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.
FIRST SENTINEL BANCORP, INC.
Date: May 15, 2003 By: /s/ CHRISTOPHER MARTIN
----------------------
Christopher Martin
President and Chief Executive Officer
Date: May 15, 2003 By: /s/ THOMAS M. LYONS
-------------------
Thomas M. Lyons
Executive Vice President and
Chief Financial Officer
17
CERTIFICATION
I, Christopher Martin, certify that:
1. I have reviewed this quarterly report on Form 10-Q of First Sentinel
Bancorp, Inc.;
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 periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the periods in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 15, 2003 /s/ Christopher Martin
------------ ----------------------
Christopher Martin
President and Chief Executive Officer
18
CERTIFICATION
I, Thomas M. Lyons, certify that:
1. I have reviewed this quarterly report on Form 10-Q of First Sentinel
Bancorp, Inc.;
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 periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the periods in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: MAY 15, 2003 /s/ Thomas M. Lyons
------------ -------------------
Thomas M. Lyons
Chief Financial Officer