SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One):
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2002,
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
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Commission File No. 0-28366
Norwood Financial Corp.
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(Exact Name of Registrant as specified in Its Charter)
Pennsylvania 23-2828306
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(State or Other Jurisdiction of Incorporation (I.R.S. Employer
or Organization) Identification No.)
717 Main Street, Honesdale, Pennsylvania 18431
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(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number, Including Area Code: (570) 253-1455
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.10 per share
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(Title of Class)
Check whether the issuer: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
past 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 if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Indicate by check mark whether the Registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2) YES NO X
--- ---
As of March 14, 2003, there were 1,773,408 shares outstanding of the
registrant's Common Stock.
The Registrant's voting stock trades on the NASDAQ National Market
under the symbol "NWFL." The aggregate market value of the voting stock held by
non-affiliates of the registrant, based on the last price the registrant's
Common Stock was sold on March 14 2003, was $42,239,925 ($29.99 per share based
on 1,408,467 shares of Common Stock outstanding).
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Annual Report to Stockholders for the Fiscal Year
ended December 31, 2002. (Parts I, II, and IV)
2.Portions of the Proxy Statement for the 2003 Annual Meeting
of Stockholders. (Part III)
PART I
Forward Looking Statements
The Private Securities Litigation Reform Act of 1995 contains safe harbor
provisions regarding forward-looking statements. When used in this discussion,
the words "believes", "anticipates," "contemplates," "expects," and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties which could cause actual results
to differ materially from those projected. Those risks and uncertainties include
changes in interest rates, risks associated with the effect of opening a new
branch, the ability to control costs and expenses, and general economic
conditions. Norwood Financial Corp undertakes no obligation to publicly release
the results of any revisions to those forward-looking statements which may be
made to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
Item 1. Business.
General
Norwood Financial Corp. (the "Company") a Pennsylvania corporation is
the holding company for Wayne Bank. On March 29, 1996, the Bank completed a
holding company reorganization and became a wholly owned subsidiary of the
Company. At December 31, 2002, the Company had total assets of $367.5 million,
deposits of $291.9 million, and stockholders' equity of $40.1 million.
Wayne Bank is a Pennsylvania chartered commercial bank located in
Honesdale, Pennsylvania. The Bank was originally chartered on February 17, 1870
as Wayne County Savings Bank. Wayne County Savings Bank changed its name to
Wayne County Bank and Trust in December 1943. In September 1993, the Bank
adopted the name Wayne Bank. The Bank's deposits are currently insured by the
Bank Insurance Fund ("BIF") as administered by the Federal Deposit Insurance
Corporation ("FDIC"). The Bank is regulated by the Pennsylvania Department of
Banking ("PDB") and the FDIC.
The Bank is an independent community-oriented bank with six offices in
Wayne County, three offices in Pike County and one office in Monroe County. The
Bank offers a wide variety of personal, business credit services and trust and
investment products to the consumers, businesses, nonprofit organizations, and
municipalities in each of the communities that the Bank serves. The Bank
primarily serves the Pennsylvania counties of Wayne, Pike and Monroe, and to a
much lesser extent, the counties of Lackawanna and Susquehanna. In addition, the
Bank operates eleven automated teller machines with ten in branch locations and
one remote service facility.
1
Competition
The competition for deposit products comes from other insured financial
institutions such as commercial banks, thrift institutions, credit unions, and
multi-state regional banks in the Company's market area of Wayne, Pike and
Monroe Counties, Pennsylvania. Deposit competition also includes a number of
insurance products sold by local agents and investment products such as mutual
funds and other securities sold by local and regional brokers. Loan competition
varies depending upon market conditions and comes from other insured financial
institutions such as commercial banks, thrift institutions, credit unions,
multi-state regional banks, and mortgage bankers.
Personnel
As of December 31, 2002, the Bank had 122 full-time and 10 part-time
employees. None of the Bank's employees are represented by a collective
bargaining group.
Lending Activities
The Bank's loan products include loans for personal and business use.
This includes mortgage lending to finance principal residences as well as second
home dwellings. The products include adjustable rate mortgages up to 30 years
which are retained and serviced through the Bank, fixed rate mortgage products
which may be sold, servicing retained, in the secondary market through the
Federal National Mortgage Association (Fannie Mae) or held in the Bank's
portfolio subject to certain internal guidelines. Fixed rate home equity loans
are originated on terms up to 180 months, as well as offering a home equity line
of credit tied to prime rate. The Bank also offers indirect dealer financing of
automobiles (new and used), boats, and recreational vehicles through a network
of over 60 dealers in Northeast Pennsylvania.
Commercial loans and commercial mortgages are provided to local small
and mid-sized businesses at a variety of terms and rate structures. Commercial
lending activities include lines of credit, revolving credit, term loans,
mortgages, various forms of secured lending and a limited amount of letter of
credit facilities. The structure may be fixed, immediately repricing tied to the
prime rate or adjustable at set intervals.
Adjustable-rate loans decrease the risks associated with changes in
interest rates by periodically repricing, but involve other risks because as
interest rates increase, the underlying payments by the borrower increase, thus
increasing the potential for default. At the same time, the marketability of the
underlying collateral may be adversely affected by higher interest rates. Upward
adjustment of the contractual interest rate may also be limited by the maximum
periodic interest rate adjustment permitted in certain adjustable-rate mortgage
loan documents, and, therefore is potentially limited in effectiveness during
periods of rapidly rising interest rates. These risks have not had an adverse
effect on the Bank.
2
Consumer lending, including indirect financing provides benefits to the
Bank's asset/liability management program by reducing the Bank's exposure to
interest rate changes, due to their generally shorter terms. Such loans may
entail additional credit risks compared to owner-occupied residential mortgage
lending. However, the Bank believes that the higher yields and shorter terms
compensate the Bank for the increased credit risk associated with such loans.
Commercial lending including real-estate related loans entail
significant additional risks when compared with residential real estate and
consumer lending. For example, commercial loans typically involve larger loan
balances to single borrowers or groups of related borrowers. The payment
experience on such loans typically is dependent on the successful operation of
the project and these risks can be significantly impacted by the cash flow of
the borrowers and market conditions for commercial office, retail, and warehouse
space. In periods of decreasing cash flows, the commercial borrower may permit a
lapse in general maintenance of the property causing the value of the underlying
collateral to deteriorate. The liquidation of commercial property is often more
costly and may involve more time to sell than residential real estate.
Due to the type and nature of the collateral, consumer lending
generally involves more credit risk when compared with residential real estate
lending. Consumer lending collections are typically dependent on the borrower's
continuing financial stability, and thus, are more likely to be adversely
affected by job loss, divorce, illness and personal bankruptcy. In most cases,
any repossessed collateral for a defaulted consumer loan will not provide an
adequate source of repayment of the outstanding loan balance. The remaining
deficiency is usually turned over to a collection agency.
3
Types of Loans. Set forth below is selected data relating to the
composition of the Bank's loan portfolio at the dates indicated.
As of December 31,
----------------------------------------------------------------------------------------
2002 2001 2000 1999 1998
---------------- --------------- ---------------- --------------- ---------------
$ % $ % $ % $ % $ %
-------- ------ -------- ----- -------- ----- -------- ----- -------- -----
(Dollars in Thousands)
Type of Loans:
Commercial, Financial and Agricultural.... $ 15,074 6.9 $ 17,442 8.1 $ 17,102 7.9 $ 15,672 7.6 $ 25,559 13.6
Real Estate-Construction.................. 4,109 1.9 4,642 2.2 2,425 1.1 3,339 1.6 3,046 1.6
Real Estate-Mortgage
Residential............. 69,040 31.6 64,635 30.1 59,517 27.5 56,967 27.7 52,392 27.7
Commercial............... 79,623 36.5 63,609 29.6 56,815 26.2 51,562 25.1 30,734 16.4
Lease financing, net of unearned
Income.................................... 1,592 .7 6,126 2.9 13,644 6.3 23,974 11.7 33,860 18.0
Consumer Loans to Individuals............. 48,951 22.4 58,143 27.1 67,286 31.0 54,045 26.3 42,061 22.7
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
218,389 100.0 214,597 100.0 216,789 100.0 205,559 100.0 187,652 100.0
===== ===== ===== ===== =====
Unearned income and deferred fees......... (419) (403) (312) (399) (733)
Allowance for loan losses..... (3,146) (3,216) (3,300) (3,344) (3,333)
-------- -------- -------- -------- --------
$214,824 $210,978 $213,177 $201,816 $183,586
======== ======== ======== ======== ========
4
Maturities and Sensitivities of Loans to Changes in Interest Rates. The
following table sets forth maturities and interest rate sensitivity for selected
categories of loans as of December 31, 2002. Scheduled repayments are reported
in the maturity category in which payment is due.
Less than One to Over
One Year Five Years Five Years Total
-------- ---------- ---------- -----
(in thousands)
Commercial, Financial
and Agricultural $5,182 $ 4,834 $5,058 $15,074
Real Estate-
Construction 4,109 -- -- 4,109
Commercial
Mortgage 5,958 7,443 66,222 79,623
------- ------- ------- -------
Total $15,249 $12,277 $71,280 $98,806
======= ======= ======= =======
Loans with fixed-rate $1,585 $4,228 $7,752 $13,565
Loans with floating
Rates 13,664 8,049 63,528 85,241
------- ------- ------- -------
Total $15,249 $12,277 $71,280 $98,806
======= ======= ======= =======
5
Non-performing Assets. The following table sets forth information
regarding non-accrual loans, foreclosed real estate owned and loans that are 90
days or more delinquent but on which the Bank was accruing interest at the dates
indicated. The Bank did not have any loans accounted for as troubled debt
restructuring at the dates indicated. For the year ended December 31, 2002,
interest income that would have been recorded on loans accounted for on a
non-accrual basis under the original terms of such loans was $74,000 of which
$23,000 was collected.
As of December 31,
-------------------------------------------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
(in thousands)
Non-accrual loans:
Commercial and all other........................ $ -- $ 64 $ 64 $ 64 $ 65
Real estate..................................... 213 597 518 513 503
Consumer........................................ 3 11 -- 19 20
---- ---- ---- ---- ----
Total....................................... 216 672 582 596 588
Accruing loans which are contractually
past-due 90 days or more:
Commercial and all other....................... -- -- -- -- --
Real estate.................................... -- -- 34 -- --
Consumer....................................... 5 11 64 61 34
---- ---- ---- ---- ----
Total............................................. 5 11 98 61 34
---- ---- ---- ---- ----
Total non-performing loans........................ 221 683 680 657 622
Foreclosed real estate............................ 21 54 27 110 204
---- ---- ---- ---- ----
Total non-performing assets....................... $242 $737 $707 $767 $826
==== ==== ==== ==== ====
Total non-performing loans to total loans .10% .32% .31% .32% .33%
Total non-performing loans to total assets........ .06% .20% .21% .21% .22%
Total non-performing assets to total assets....... .07% .21% .22% .24% .30%
The recorded investment in impaired loans, not requiring an allowance
for loan losses was $256,000 and $618,000 at December 31, 2002 and 2001,
respectively. The recorded investment in impaired loans requiring an allowance
for loan losses was $-0- and $64,000 at December 31, 2002 and 2001,
respectively. The related allowance for loan losses associated with these loans
was $-0- and $7,000, respectively, at December 31, 2002 and 2001. For the years,
ended December 31, 2002, 2001 and 2000, the average recorded investment in these
impaired loans was $262,000, $694,000 and $364,000 and the interest income
recognized on these impaired loans was $23,000, $22,000 and $-0-, respectively.
6
Potential Problem Loans. As of December 31, 2002, there were no loans
not previously disclosed, where known information about possible credit problems
of borrowers causes management to have serious doubts as to the ability of such
borrowers to comply with the present loan repayment terms.
Analysis of the Allowance for Loan Losses. The following table sets
forth information with respect to the Bank's allowance for loan losses for the
years indicated:
Years Ended December 31,
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(in thousands)
2002 2001 2000 1999 1998
--------- --------- --------- --------- ---------
Total loans receivable net of unearned
Income ....................................... $ 217,970 $ 214,194 $ 216,477 $ 205,160 $ 186,919
========= ========= ========= ========= =========
Average loans receivable ...................... $ 213,814 $ 214,905 $ 211,174 $ 196,005 $ 186,877
========= ========= ========= ========= =========
Allowance balance at beginning of period ...... $ 3,216 $ 3,300 $ 3,344 $ 3,333 $ 3,250
Charge-offs:
Commercial and all other .................... (34) (12) -- (12) (294)
Real Estate ................................ (122) (11) (9) (17) (14)
Consumer .................................. (608) (711) (589) (419) (366)
Leases ..................................... (30) (152) (170) (184) (115)
--------- --------- --------- --------- ---------
Total ......................................... (794) (886) (768) (632) (789)
Recoveries:
Commercial and all other ................... -- 8 54 74 89
Real Estate ................................ 13 1 73 -- 7
Consumer ................................... 72 85 88 83 50
Leasing .................................... 9 13 29 16 6
--------- --------- --------- --------- ---------
Total ......................................... 94 107 244 173 152
--------- --------- --------- --------- ---------
Net Charge-offs .............................. (700) (779) (524) (459) (637)
--------- --------- --------- --------- ---------
Provision Expense ............................. 630 695 480 470 720
Allowance balance at end of period ............ $ 3,146 $ 3,216 $ 3,300 $ 3,344 $ 3,333
========= ========= ========= ========= =========
Allowance for loan losses as a percent of total
loans outstanding ........................... 1.44% 1.50% 1.52% 1.63% 1.78%
========= ========= ========= ========= =========
Net loans charged off as a percent of average
loans outstanding ........................... .33% .36% .25% .23% .34%
========= ========= ========= ========= =========
7
Allocation of the Allowance For Loan Losses. The following table sets
forth the allocation of the Bank's allowance for loan losses by loan category
and the percent of loans in each category to total loans at the date indicated.
The allocation is made for analytical purposes and is not necessarily indicative
of the categories in which credit losses may occur. The total allowance is
available to absorb losses from any type of loan.
2002 2001 2000 1999 1998
-------------- -------------- --------------- -------------- ---------------
(Dollars in thousands)
% of % of % of % of % of
Loans Loans Loans Loans Loans
to Total to Total to Total to Total to Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Commercial, financial and
agricultural $ 265 6.9% $ 426 8.1% $ 345 7.9% $ 376 7.6% $ 346 13.6
Real estate - construction 21 1.9 70 2.2 40 1.1 31 1.6 23 1.6
Real estate - mortgage 1,926 68.1 1,421 59.7 1,314 53.7 1,171 52.8 647 44.1
Consumer loans to individuals 788 22.4 715 27.1 719 31.0 551 26.3 442 22.7
Lease Financing 24 .7 92 2.9 118 6.3 180 11.7 254 18.0
General Risk Allocation 122 -- 492 -- 764 -- 1,035 -- 1,621 --
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total $3,146 100.0% $3,216 100.0% $3,300 100.0% $3,344 100.0% $3,333 100.0%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
8
Investment Activities
General. The Company maintains a portfolio of investment securities
consisting principally of obligations of the U.S. Government and its agencies
and obligations of state, counties and municipalities including school
districts. The Company considers its investment portfolio a source of earnings
and liquidity.
Securities Portfolio. Carrying values of securities at the dates
indicated are as follows:
As of December 31,
----------------------------------
(Dollars in thousands) 2002 2001 2000
-------- -------- -------
Securities:
(carrying value)
U.S. Government
Agencies.............................
33,197 15,647 20,879
State and political
Subdivisions........................ 21,364 18,866 15,993
Corporate Notes and bonds............ 11,403 14,244 7,953
Mortgage-backed Securities........... 53,358 51,459 38,152
Equity Securities.................... 1,725 1,803 1,572
-------- -------- -------
Total Securities $121,047 $102,019 $84,549
======== ======== =======
Fair value of
Securities........................... $121,347 $102,257 $84,851
======== ======== =======
9
Maturity Distribution of Securities. The following table sets forth
certain information regarding carrying values, weighted average yields, and
maturities of the Company's securities portfolio at December 31, 2002. Yields on
tax-exempt securities are stated on a fully taxable equivalent basis using a
Federal tax rate of 34%. Actual maturities may differ from contractual
maturities as certain instruments have call features which allow prepayment of
obligations. Maturity on mortgage backed securities is based upon estimated
average life rather than contractual terms. Equity securities with no stated
maturity are classified as "one year or less."
Investment Portfolio Maturities
After one through After five through Total Investment
One year or Less five years ten years After ten years Securities
------------------- ----------------- ---------------- --------------- ----------------
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average
(Dollars in thousands) Value Yield Value Yield Value Yield Value Yield Value Yield
- ---------------------- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Obligations of
U.S. Government Agencies $ --- ---% $31,186 3.58% $1,002 3.62% $ 1,009 6.58% $ 33,197 3.67%
Obligations of state and
political subdivisions --- ---% 4,169 6.09% 696 5.49% 16,499 7.33% 21,364 7.03%
Mortgage-backed Securities 5,837 6.00% 37,245 5.25% 9,206 4.52% 1,070 4.95% 53,358 5.20%
Corporate Securities 2,546 5.56% 7,847 5.65% --- --- 1,011 7.64% 11,403 5.81%
Equity Securities 1,725 3.43% --- --- --- --- --- --- 1,725 3.43%
------- ---- ------- ---- ------- ---- ------- ---- -------- ----
Total Investment
Securities $10,108 5.45% $80,446 4.69% $10,904 4.50% $19,589 7.18% $121,047 5.14%
======= ==== ======= ==== ======= ==== ======= ==== ======== ====
10
Deposit Activities.
General. The Bank provides a full range of deposit products to its retail and
business customers. These include interest-bearing and noninterest bearing
transaction accounts, statement savings and money market accounts. Certificate
of deposit terms range up to 5 years for retail instruments. The Bank
participates in Jumbo CD ($100,000 and over) markets with local municipalities
and school districts which are typically priced on a competitive bid basis.
Other services the Bank offers it's customers on a limited basis include cash
management, direct deposit and Automated Clearing House (ACH) activity. The Bank
operates ten automated teller machines and is affiliated with the STAR ATM
network. The Bank offers internet banking through its website,
www.waynebank.com.
The following table sets forth information regarding deposit categories of the
Company.
2002 2001 2000
-------------------- ------------------- --------------------
(in thousands) Average Average Average
Balance Rate Paid Balance Rate Paid Balance Rate Paid
------- --------- ------- --------- ------- ---------
Non-Interest Bearing
Demand $ 33,966 -- $ 31,407 -- $ 29,525 --
Interest-bearing demand 38,178 .26% 31,889 1.22% 28,789 1.80%
Money Market 36,518 1.72% 34,212 2.66% 32,033 3.11%
Savings 48,361 1.34% 42,631 1.86% 42,492 2.20%
Time 127,571 3.73% 122,161 5.18% 111,778 5.45%
-------- -------- --------
Total $284,594 $262,300 $244,617
======== ======== ========
Maturities of Time Deposits. The following table indicates the amount of the
Bank's certificates of deposit in amounts of $100,000 or more and other time
deposits of $100,000 or more by time remaining until maturity as of December 31,
2002.
(in thousands) Certificates
of Deposit
----------
Maturity Period
---------------
Within three months....................... $10,746
Over three through six months............. 6,667
Over six through twelve months............ 7,081
Over twelve months........................ 5,039
-------
$29,533
=======
11
Short-Term Borrowings
The following table sets forth information concerning short-term borrowings
(those maturing within one year) which consist principally of federal funds
purchased, securities sold under agreements to repurchase, Federal Home Loan
Bank advances and U.S. Treasury demand notes, that the Company had during the
periods indicated.
(in thousands) Years ended December 31,
------------------------------
2002 2001 2000
---- ---- ----
Short term borrowings:
Average balance during the year..................... $9,552 $ 7,781 $ 6,914
Maximum month-end during the year .................. 15,168 9,411 9,347
Average interest rate during the year .............. 1.84% 3.80% 4.38%
Total short-term borrowings at end of the year...... $9,016 $ 6,641 $ 7,860
Trust Activities
The Bank operates a Trust Department which provides estate planning, investment
management and financial planning to customers. At December 31, 2002, the Bank
acted as trustee for $60.1 million of assets of which $28.6 million are
non-discretionary with no investment authority.
Subsidiary Activities
The Bank, a Pennsylvania chartered bank, is the only wholly owned
subsidiary of the Company. Norwood Investment Corp. (NIC), incorporated in 1996,
a Pennsylvania licensed insurance agency, is a wholly-owned subsidiary of the
Bank. NIC's business is annuity and mutual fund sales and discount brokerage
activities primarily to customers of the Bank. The annuities, mutual funds and
other investment products are not insured by the FDIC or any other government
agency. They are not deposits, obligations of or guaranteed by any bank. The
securities are offered through Invest Financial a registered broker/dealer. NIC
had sales volume of $4.9 million in 2002, generating revenues for the Company of
$136,000.
WCB Realty Corp. is a wholly-owned real estate subsidiary of the Bank
whose principal asset is the administrative offices of the Company.
WTRO Properties Inc. is a wholly-owned real estate subsidiary of the
Bank established to hold title to certain real estate upon which the Bank has
foreclosed. WTRO held title to two properties in 2002, each of which was
subsequently sold in October 2002.
Regulation
Set forth below is a brief description of certain laws which relate to
the regulation of the Registrant and the Bank. The description does not purport
to be complete and is qualified in its entirety by reference to applicable laws
and regulations.
12
Regulation of the Company
Recent Legislation to Curtail Corporate Accounting Irregularities. On
July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002
(the "Act"). The Securities and Exchange Commission (the "SEC") has promulgated
certain regulations pursuant to the Act and will continue to propose additional
implementing or clarifying regulations as necessary in furtherance of the Act.
The passage of the Act and the regulations implemented by the SEC subject
publicly-traded companies to additional and more cumbersome reporting
regulations and disclosure. Compliance with the Act and corresponding
regulations may increase the Company's expenses.
General. The Company, as a bank holding company under the Bank Holding
Company Act of 1956, as amended ("BHCA"), is subject to regulation and
supervision by the Board of Governors of the Federal Reserve System ("Federal
Reserve") and by the Pennsylvania Department of Banking (the "Department"). The
Company is required to file annually a report of its operations with, and is
subject to examination by, the Federal Reserve and the Department. This
regulation and oversight is generally intended to ensure that the Company limits
its activities to those allowed by law and that it operates in a safe and sound
manner without endangering the financial health of its subsidiary banks.
Under the BHCA, the Company must obtain the prior approval of the
Federal Reserve before it may acquire control of another bank or bank holding
company, merge or consolidate with another bank holding company, acquire all or
substantially all of the assets of another bank or bank holding company, or
acquire direct or indirect ownership or control of any voting shares of any bank
or bank holding company if, after such acquisition, the bank holding company
would directly or indirectly own or control more than 5% of such shares.
Federal statutes impose restrictions on the ability of a bank holding
company and its nonbank subsidiaries to obtain extensions of credit from its
subsidiary bank, on the subsidiary bank's investments in the stock or securities
of the holding company, and on the subsidiary bank's taking of the holding
company's stock or securities as collateral for loans to any borrower. A bank
holding company and its subsidiaries are also prevented from engaging in certain
tie-in arrangements in connection with any extension of credit, lease or sale of
property, or furnishing of services by the subsidiary bank.
A bank holding company is required to serve as a source of financial
and managerial strength to its subsidiary banks and may not conduct its
operations in an unsafe or unsound manner. In addition, it is the policy of the
Federal Reserve that a bank holding company should stand ready to use available
resources to provide adequate capital to its subsidiary banks during periods of
financial stress or adversity and should maintain the financial flexibility and
capital-raising capacity to obtain additional resources for assisting its
subsidiary banks. A bank holding company's failure to meet its obligations to
serve as a source of strength to its subsidiary banks will generally be
considered by the Federal Reserve to be an unsafe and unsound banking practice
or a violation of the Federal Reserve regulations, or both.
13
Non-Banking Activities. The business activities of the Company, as a
bank holding company, are restricted by the BHCA. Under the BHCA and the Federal
Reserve's bank holding company regulations, the Company may only engage in, or
acquire or control voting securities or assets of a company engaged in, (1)
banking or managing or controlling banks and other subsidiaries authorized under
the BHCA and (2) any BHCA activity the Federal Reserve has determined to be so
closely related to banking or managing or controlling banks to be a proper
incident thereto. These include any incidental activities necessary to carry on
those activities, as well as a lengthy list of activities that the Federal
Reserve has determined to be so closely related to the business of banking as to
be a proper incident thereto.
Financial Modernization. The Gramm-Leach-Bliley Act, permits greater
affiliation among banks, securities firms, insurance companies, and other
companies under a new type of financial services company known as a "financial
holding company." A financial holding company essentially is a bank holding
company with significantly expanded powers. Financial holding companies are
authorized by statute to engage in a number of financial activities previously
impermissible for bank holding companies, including securities underwriting,
dealing and market making; sponsoring mutual funds and investment companies;
insurance underwriting and agency; and merchant banking activities. The Act also
permits the Federal Reserve and the Treasury Department to authorize additional
activities for financial holding companies if they are "financial in nature" or
"incidental" to financial activities. A bank holding company may become a
financial holding company if each of its subsidiary banks is well capitalized,
well managed, and has at least a "satisfactory" CRA rating. A financial holding
company must provide notice to the Federal Reserve within 30 days after
commencing activities previously determined by statute or by the Federal Reserve
and Department of the Treasury to be permissible. The Company has not submitted
notice to the Federal Reserve of its intent to be deemed a financial holding
company.
Regulatory Capital Requirements. The Federal Reserve has adopted
capital adequacy guidelines pursuant to which it assesses the adequacy of
capital in examining and supervising a bank holding company and in analyzing
applications to it under the Bank Holding Company Act. The Federal Reserve's
capital adequacy guidelines are similar to those imposed on the Bank by the
Federal Deposit Insurance Corporation. See "Regulation of the Bank-Regulatory
Capital Requirements."
Regulation of the Bank
General. As a Pennsylvania chartered, insured commercial bank, the Bank
is subject to extensive regulation and examination by the Department and by the
FDIC, which insures its deposits to the maximum extent permitted by law. The
federal and state laws and regulations applicable to banks regulate, among other
things, the scope of their business, their investments, the reserves required to
be kept against deposits, the timing of the availability of deposited funds and
the nature and amount of and collateral for certain loans. The laws and
regulations governing the Bank generally have been promulgated to protect
depositors and not for the purpose of protecting stockholders. This regulatory
structure also gives the federal and state banking agencies extensive discretion
in connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the
14
classification of assets and the establishment of adequate loan loss reserves
for regulatory purposes. Any change in such regulation, whether by the
Department, the FDIC or the United States Congress, could have a material impact
on the Company, the Bank and their operations.
Pennsylvania Banking Law. The Pennsylvania Banking Code ("Banking
Code") contains detailed provisions governing the organization, location of
offices, rights and responsibilities of directors, officers, and employees, as
well as corporate powers, savings and investment operations and other aspects of
the Bank and its affairs. The Banking Code delegates extensive rule-making power
and administrative discretion to the Department so that the supervision and
regulation of state chartered banks may be flexible and readily responsive to
changes in economic conditions and in savings and lending practices.
The Federal Deposit Insurance Corporation Act ("FDIA"), however,
prohibits state chartered banks from making new investments, loans, or becoming
involved in activities as principal and equity investments which are not
permitted for national banks unless (1) the FDIC determines the activity or
investment does not pose a significant risk of loss to the BIF and (2) the bank
meets all applicable capital requirements. Accordingly, the additional operating
authority provided to the Bank by the Banking Code is significantly restricted
by the FDIA.
Federal Deposit Insurance. The FDIC is an independent federal agency
that insures the deposits, up to prescribed statutory limits, of federally
insured banks and savings institutions and safeguards the safety and soundness
of the banking and savings industries. The FDIC administers two separate
insurance funds, the BIF, which generally insures commercial bank and state
savings bank deposits, and the Savings Insurance Fund ("SAIF"), which generally
insures savings association deposits. The Bank is a member of the BIF and its
deposit accounts are insured by the FDIC, up to prescribed limits.
The FDIC is authorized to establish separate annual deposit insurance
assessment rates for members of the BIF and the SAIF, and to increase assessment
rates if it determines such increases are appropriate to maintain the reserves
of either insurance fund. In addition, the FDIC is authorized to levy emergency
special assessments on BIF and SAIF members. The FDIC has set the deposit
insurance assessment rates for BIF-member institutions for the first six months
of 2003 at 0% to .027% of insured deposits on an annualized basis, with the
assessment rate for most institutions set at 0%.
In addition, all insured institutions of the FDIC are required to pay
assessments to fund interest payments on bonds issued by the Financing
Corporation, an agency of the Federal government established to finance
resolutions of insolvent thrifts. These assessments, the current annual rate of
which is approximately .0172 of insured deposits, will continue until the
Financing Corporation bonds mature in 2017.
Regulatory Capital Requirements. The FDIC has promulgated capital
adequacy requirements for state-chartered banks that, like the Bank, are not
members of the Federal
15
Reserve System. At December 31, 2002, the Bank exceeded all regulatory capital
requirements and was classified as "well capitalized."
The FDIC's capital regulations establish a minimum 3% Tier I leverage
capital requirement for the most highly-rated state-chartered, non-member banks,
with an additional cushion of at least 100 to 200 basis points for all other
state-chartered, non-member banks, which effectively increases the minimum Tier
I leverage ratio for such other banks to 4% to 5%. Under the FDIC's regulation,
the highest-rated banks are those that the FDIC determines are not anticipating
or experiencing significant growth and have well diversified risk, including no
undue interest rate risk exposure, excellent asset quality, high liquidity, good
earnings and, in general, which are considered a strong banking organization,
rated composite 1 under the Uniform Financial Institutions Rating System. Tier I
or core capital is defined as the sum of common stockholders' equity (including
retained earnings), noncumulative perpetual preferred stock and related surplus,
and minority interests in consolidated subsidiaries, minus all intangible assets
other than certain servicing assets and purchased credit card relationships, and
minus certain other listed items.
The FDIC's regulations also require that state-chartered, non-member
banks meet a risk-based capital standard. The risk-based capital standard
requires the maintenance of total capital (which is defined as Tier I capital
and supplementary (Tier 2) capital) to risk weighted assets of 8%. In
determining the amount of risk-weighted assets, all assets, plus certain off
balance sheet assets, are multiplied by a risk-weight of 0% to 100%, based on
the risks the FDIC believes are inherent in the type of asset or item. The
components of Tier I capital for the risk-based standards are the same as those
for the leverage capital requirement. The components of supplementary (Tier 2)
capital include cumulative perpetual preferred stock, mandatory subordinated
debt, perpetual subordinated debt, intermediate-term preferred stock, up to 45%
of unrealized gains on equity securities and a bank's allowance for loan and
lease losses. Allowance for loan and lease losses includable in supplementary
capital is limited to a maximum of 1.25% of risk-weighted assets. Overall, the
amount of supplementary capital that may be included in total capital is limited
to 100% of Tier I capital.
A bank that has less than the minimum leverage capital requirement is
subject to various capital plan and activities restriction requirements. The
FDIC's regulations also provide that any insured depository institution with a
ratio of Tier I capital to total assets that is less than 2.0% is deemed to be
operating in an unsafe or unsound condition pursuant to Section 8(a) of the FDIA
and could be subject to potential termination of deposit insurance.
The Bank is also subject to minimum capital requirements imposed by the
Department on Pennsylvania-chartered depository institutions. Under the
Department's capital regulations, a Pennsylvania bank or savings bank must
maintain a minimum leverage ratio of Tier 1 capital (as defined under the FDIC's
capital regulations) to total assets of 4%. In addition, the Department has the
supervisory discretion to require a higher leverage ratio for any institutions
based on the institution's substandard performance in any of a number of areas.
16
The Bank was in compliance in both the FDIC and Pennsylvania capital
requirements as of December 31, 2002.
Affiliate Transaction Restrictions. Federal laws strictly limit the
ability of banks to engage in transactions with their affiliates, including
their bank holding companies. In particular loans by a subsidiary bank and its
parent company or the nonbank subsidiaries of the bank holding company are
limited to 10% of a bank subsidiary's capital and surplus and, with respect to
such parent company and all such nonbank subsidiaries, to an aggregate of 20% of
the bank subsidiary's capital and surplus. Further, loans and other extensions
of credit generally are required to be secured by eligible collateral in
specified amounts. Federal law also requires that all transactions between a
bank and its affiliates be on terms as favorable to the bank as transactions
with non-affiliates.
Federal Home Loan Bank System. The Bank is a member of the FHLB of
Pittsburgh, which is one of 12 regional FHLBs. Each FHLB serves as a reserve or
central bank for its members within its assigned region. It is funded primarily
from funds deposited by member institutions and proceeds from the sale of
consolidated obligations of the FHLB System. It makes loans to members (i.e.,
advances) in accordance with policies and procedures established by the Board of
Trustees of the FHLB.
As a member, the Bank is required to purchase and maintain stock in the
FHLB of Pittsburgh in an amount equal to the greater of 1% of its aggregate
unpaid residential mortgage loans, home purchase contracts or similar
obligations at the beginning of each year or 5% of the Bank's outstanding
advances from the FHLB. At December 31, 2002, the Bank was in compliance with
this requirement.
Federal Reserve System. The Federal Reserve requires all depository
institutions to maintain non-interest bearing reserves at specified levels
against their transaction accounts (primarily checking and NOW accounts) and
non-personal time deposits. The balances maintained to meet the reserve
requirements imposed by the Federal Reserve may be used to satisfy the liquidity
requirements that are imposed by the Department. At December 31, 2002, the Bank
met its reserve requirements.
Restrictions on Dividends. The Pennsylvania Banking Code states, in
part, that dividends may be declared and paid only out of accumulated net
earnings and may not be declared or paid unless surplus (retained earnings) is
at least equal to contributed capital. The Bank has not declared or paid any
dividends which cause the Bank's retained earnings to be reduced below the
amount required. Finally, dividends may not be declared or paid if the Bank is
in default in payment of any assessment due the FDIC.
The Federal Reserve has issued a policy statement on the payment of
cash dividends by bank holding companies, which expresses the Federal Reserve's
view that a bank holding company should pay cash dividends only to the extent
that the holding company's net income for the past year is sufficient to cover
both the cash dividends and a rate of earnings retention that is consistent with
the holding company's capital needs, asset quality and overall financial
condition. The Federal Reserve also indicated that it would be inappropriate
17
for a company experiencing serious financial problems to borrow funds to pay
dividends. Furthermore, under the federal prompt corrective action regulations,
the Federal Reserve may prohibit a bank holding company from paying any
dividends if the holding company's bank subsidiary is classified as
"undercapitalized."
Item 2. Description of Properties
- -----------------------------------
The Bank operates from its main office located at 717 Main Street,
Honesdale, Pennsylvania and nine additional branch offices. The Bank's total
investment in office property and equipment is $ 11.5 million with a net book
value of $6.0 million as of December 31, 2002. The Bank currently operates
automated teller machines at all ten of its facilities and one automated teller
machine only location. The Bank leases three of its locations with minimum lease
commitments of $127,455 through 2007. The three locations have various renewal
options.
18
Item 3. Legal Proceedings
- ------- -----------------
Neither the Company nor its subsidiaries are involved in any pending
legal proceedings, other than routine legal matters occurring in the ordinary
course of business, which in the aggregate involve amounts which are believed by
management to be immaterial to the consolidated financial condition or results
of operations of the Company.
Item 4. Submission of Matters to a Vote of Security-Holders
- ------- ---------------------------------------------------
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
- ------- ---------------------------------------------------------------------
Information relating to the market for Registrant's common equity and
related stockholder matters appears under "Market and Dividend Information" in
the Registrant's Annual Report to Stockholders for the fiscal year ended
December 31, 2002("Annual Report") and is incorporated herein by reference.
Item 6. Selected Financial Data
- ------- -----------------------
The above-captioned information appears under "Summary of Operations"
in the Annual Report, and is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Conditions and Results
- ------- ------------------------------------------------------------------------
of Operations
-------------
The above-captioned information appears under Management's Discussion
and Analysis of Financial Condition and Results of Operations in the Annual
Report and is incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
- -------- ---------------------------------------------------------
The above-captioned information appears under Management's Discussion
and Analysis of Financial Condition and Results of Operations in the Annual
Report and is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
- ------- -------------------------------------------
The Company's consolidated financial statements listed in Item 15 are
incorporated herein by reference.
19
Item 9. Changes In and Disagreements with Accountants on Accounting and
- ------- -----------------------------------------------------------------------
Financial Disclosure
--------------------
None
PART III
Item 10. Directors and Executive Officers of the Registrant
- -------- --------------------------------------------------
The information contained under the sections captioned "Section 16(a)
Beneficial Ownership Reporting Compliance" and "Proposal I-- Election of
Directors" in the 2003 Proxy Statement are incorporated herein by reference.
Item 11. Executive Compensation
- -------- ----------------------
The information contained under the section captioned "Director and
Executive Compensation" in the Proxy Statement is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
- -------- ----------------------------------------------------------------------
Related Stockholder Matters
---------------------------
(a) Security Ownership of Certain Beneficial Owners
Information required by this item is incorporated herein by
reference to the Section captioned "Voting Securities and
Principal Holders Thereof-- Security Ownership of Certain
Beneficial Owners" of the Proxy Statement.
(b) Security Ownership of Management
Information required by this item is incorporated herein by
reference to the sections captioned "Voting Securities and
Principal Holders Thereof -- Security Ownership of Certain
Beneficial Owners" and "Proposal I -- Election of Directors"
of the Proxy Statement.
(c) Management of the Company knows of no arrangements, including
any pledge by any person of securities of the Company, the
operation of which may at a subsequent date result in a change
in control of the registrant.
20
(d) Equity Compensation Plan Information
(a) (b) (c)
Number of securities
remaining available
. for future issuance
Number of Securities Weighted average under equity
To be issued upon exercise price of compensation plans
Exercise of outstanding (excluding securities
Outstanding options, options, warrants reflected in
Warrants and rights and rights column(a))
------------------- ---------- ----------
Equity Compensation plans
Approved by shareholders
Stock Option Plan.............. 83,220 22.03 369,280
Equity compensation plans
not approved by shareholders..
1999 Directors Stock
Compensation Plan(1)......... 14,000 $24.48 2,100
------ ------ --------
97,220 $22.38 $371,380
====== ====== ========
(1) See Note 12 to the Notes in the Consolidated Financial Statements in the
Registrant's Annual Report.
Item 13. Certain Relationships and Related Transactions
- -------- ----------------------------------------------
The information required by this item is incorporated herein by
reference to the section in the Proxy Statement captioned "Certain Relationships
and Related Transactions".
PART IV
Item 14. Controls and Procedures
- -------- -----------------------
(a) Evaluation of disclosure controls and procedures. Based on their
--------------------------------------------------
evaluation as of a date within 90 days of the filing date of this Annual Report
on Form 10-K, the Registrant's principal executive officer and principal
financial officer have concluded that the Registrant's disclosure controls and
procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities
Exchange Act of 1934 (the "Exchange Act")) are effective to ensure that
information required to be disclosed by the Company in reports that it files or
submits under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange Commission rules
and forms.
21
(b) Changes in internal controls. There were no significant changes in
----------------------------
the Registrant's internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Item 15. Exhibits, Financial Statements, and Reports on Form 8-K
- -------- -------------------------------------------------------
(a) Listed below are all financial statements and exhibits filed as
part of this report, and are incorporated by reference.
1. The consolidated balance sheets of Norwood Financial Corp. and
subsidiary as of December 31, 2002 and 2001, and the related
consolidated statements of income, stockholders' equity and cash
flows for each of the years in the three year period ended
December 31, 2002, together with the related notes and the
independent auditors' report of Beard Miller Company LLP.
independent accountants.
2. Schedules omitted as they are not applicable.
3. Exhibits
3(i) Articles of Incorporation of Norwood Financial Corp.*
3(ii) Bylaws of Norwood Financial Corp.*
4.0 Specimen Stock Certificate of Norwood Financial Corp.*
10.1 Amended Employment Agreement with William W.Davis, Jr.**
10.2 Amended Employment Agreement with Lewis J. Critelli **
10.3 Form of Change-in-Control Severance Agreement with seven
key employees of the Bank*
10.4 Consulting Agreement with Russell L. Ridd***
10.5 Wayne Bank Stock Opton Plan*
10.6 Salary Continuation Agreement between the Bank and
William W. Davis, Jr.**
10.7 Salary Continuation Agreement between the Bank and
Lewis J. Critelli**
10.8 Salary Continuation Agreement between the Bank and
Edward C. Kasper**
10.9 1999 Directors Stock Compensation Plan**
13 Portions of the Annual Report to Stockholders
21 Subsidiaries of Norwood Financial Corp.
(see Item 1. Business General and Subsidiary
Activity)
23 Consent of Independent Accountants.
99.0 Certification pursuant to 18 U.S.C. ss.1350, as adopted
pursuant to ss.906 of Sarbanes Oxley Act of 2002.
(b) Reports on Form 8K - None
_________________________
* Incorporated herein by reference into this document from the Exhibits to
Form 10, Registration Statement initially filed with the Commission on
April 29, 1996, Registration No.6-28366.
22
** Incorporated herein by reference into this document from the Exhibits to
the Registrant's Form 10-K filed with the Commission on March 20, 2000,
File No. 0-28366.
*** Incorporated by reference into this document from the Exhibit to the
Registrant's Form 10-K filed with the Commission on March 31, 1997, File
No. 0-28366.
23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
NORWOOD FINANCIAL CORP.
Dated: March 21, 2003 By: /s/William W. Davis, Jr.
--------------------------------
William W. Davis, Jr.
President, Chief Executive
Officer and Director
(Duly Authorized Representative)
Pursuant to the requirement of the Securities Exchange Act of 1934, this
Report has been signed below on March 21, 2003 by the following persons on
behalf of the Registrant and in the capacities indicated.
By: /s/William W. Davis, Jr. By: /s/Lewis J. Critelli
---------------------------------- ------------------------------------
William W. Davis, Jr. Lewis J. Critelli
President, Chief Executive Officer Executive Vice President
and Chief Financial Officer (Principal Financial and Accounting
and Director Officer)
(Principal Executive Officer)
By: /s/Charles E. Case By: /s/John E. Marshall
---------------------------------- ------------------------------------
Charles E. Case John E. Marshall
Director Director
By: /s/Daneil J. O'Neill By: /s/Dr. Kenneth A. Phillips
---------------------------------- ------------------------------------
Daniel J. O'Neill Dr. Kenneth A. Phillips
Director Director
By: /s/Gary P. Rickard By: /s/Russell L. Ridd
---------------------------------- ------------------------------------
Gary P. Rickard Russell L. Ridd
Director Director
By: /s/Harold A. Shook By:
---------------------------------- ------------------------------------
Harold A. Shook Richard L. Snyder
Director Director
23
SECTION 302 CERTIFICATION
I, William W. Davis, Jr., certify that:
1. I have reviewed this annual report on Form 10-K of Norwood Financial Corp.;
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual 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 annual report (the "Evaluation Date"); and
(c) presented in this annual 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 officer 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.
6. The registrant's other certifying officer and I have indicated in this
annual 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.
Date: March 21, 2003 /s/William W. Davis, Jr.
-------------------------------------
William W. Davis, Jr.
President and Chief Executive Officer
SECTION 302 CERTIFICATION
I, Lewis J. Critelli, certify that:
1. I have reviewed this annual report on Form 10-K of Norwood Financial Corp.;
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual 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 annual report (the "Evaluation Date"); and
(c) presented in this annual 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 officer 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.
6. The registrant's other certifying officer and I have indicated in this
annual 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.
Date: March 21, 2003 /s/Lewis J. Critelli
----------------------------------------------------
Lewis J. Critelli
Executive Vice President and Chief Financial Officer
24