UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
----------------------------------
Washington, DC 20549
----------------------
FORM 10-Q
(Mark One)
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
Commission file number 0-17353
FMS FINANCIAL CORPORATION
-------------------------
(Exact name of registrant as specified in its charter)
New Jersey 22-2916440
- ---------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
3 Sunset Road, Burlington, New Jersey 08016
- -------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (609) 386-2400
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 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 NO X .
--- ---
As of May 2, 2003 there were issued and outstanding 6,469,711 shares of
the registrant's Common Stock, par value $.10 per share.
FMS FINANCIAL CORPORATION AND SUBSIDIARY
----------------------------------------
QUARTERLY REPORT ON FORM 10-Q
-----------------------------
MARCH 31, 2003
--------------
TABLE OF CONTENTS
-----------------
Page
----
PART I - Financial Information
- ------------------------------
Item 1 - Financial Statements
Consolidated Statements of Financial Condition as of
March 31, 2003 (unaudited) and December 31, 2002....................................1
Consolidated Statements of Operations (unaudited)
for the three months ended
March 31, 2003 and March 31, 2002...................................................2
Consolidated Statements of Cash Flows (unaudited) for the three
months ended March 31, 2003 and March 31, 2002..................................... 3
Consolidated Statements of Changes in Stockholders' Equity
(unaudited) for the three months ended March 31, 2003 and
March 31, 2002......................................................................4
Notes to Consolidated Financial Statements...............................................5
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations..................................6 - 15
Item 3 - Disclosure about Market Risk............................................................16
Item 4- Disclosure Controls and Procedures......................................................16
PART II - Other Information
- ---------------------------
Item 1 - Legal Proceedings.......................................................................16
Item 2 - Changes in Securities...................................................................16
Item 3 - Defaults Upon Senior Securities.........................................................16
Item 4 - Submission of Matters to a Vote of Security Holders.....................................16
Item 5 - Other Information.......................................................................16
Item 6 - Exhibits and Reports on Form 8-K........................................................16
FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
- -------------------------------------------------------------------------------------------------------------------------------
March 31, 2003 December 31, 2002
- -------------------------------------------------------------------------------------------------------------------------------
ASSETS (Unaudited)
- -------------------------------------------------------------------------------------------------------------------------------
Cash and amounts due from depository institutes $ 33,189,157 $ 41,497,691
Interest-bearing deposits 0 12,252
Short term funds 32,143,150 46,900,403
-------------- ---------------
Total cash and cash equivalents 65,332,307 88,410,346
Investment securities held to maturity 214,374,955 164,227,126
Investment securities available for sale 140,237,231 118,612,961
Loans, net 374,081,474 361,674,400
Mortgage-backed securities held to maturity 318,607,995 342,122,678
Accrued interest receivable:
Loans 1,629,535 1,560,272
Mortgage-backed securities 2,012,486 2,175,776
Investments 1,954,003 1,543,610
Federal Home Loan Bank stock 11,809,620 12,061,720
Real estate held for development, net 0 87,926
Real estate owned, net 500,775 291,200
Premises and equipment, net 30,832,581 29,092,970
Deferred income taxes 2,224,937 2,972,572
Prepaid expenses and other assets 1,654,043 1,005,822
Trust Capital securities issue costs, net 698,538 717,999
Excess of cost over fair value of assets acquired 1,315,158 0
-------------- ---------------
TOTAL ASSETS $1,167,265,638 $ 1,126,557,378
============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------------------------------------
Liabilities:
Deposits $ 838,610,293 $ 800,340,222
Securities sold under agreements to repurchase 225,000,000 225,000,000
Advances from the Federal Home Loan Bank 11,191,047 11,232,103
Trust Capital Securities - FMS Statutory Trust 1 25,000,000 25,000,000
Advances by borrowers for taxes and insurance 2,287,383 2,049,813
Accrued interest payable 1,335,721 1,383,054
Dividends payable 193,914 193,914
Other liabilities 4,518,296 3,720,453
-------------- ---------------
Total liabilities 1,108,136,654 1,068,919,559
-------------- ---------------
Commitments and contingencies
Stockholders' Equity:
Preferred stock - $.10 par value 5,000,000 shares authorized; none issued
Common stock - $.10 par value 10,000,000 shares authorized; shares
issued 7,949,809 and 7,949,809 and shares outstanding 6,463,811
and 6,463,811 as of March 31, 2003 and December 31, 2002, respectively 794,981 794,981
Paid-in capital in excess of par 8,279,525 8,279,525
Accumulated other comprehensive income - net of deferred income taxes 1,061,210 1,216,053
Retained earnings 59,879,848 58,233,840
Less: Treasury stock (1,485,998 and 1,485,998 shares, at cost, as of
March 31, 2003 and December 31, 2002, respectively) (10,886,580) (10,886,580)
-------------- ---------------
Total stockholders' equity 59,128,984 57,637,819
-------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,167,265,638 $ 1,126,557,378
============== ===============
See notes to consolidated financial statements.
1
FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
- ---------------------------------------------------------------------------------------------------------------
Three Months ended
March 31,
-------------------------------
2003 2002
- ---------------------------------------------------------------------------------------------------------------
INTEREST INCOME: (Unaudited)
Interest income on:
Loans $ 6,225,726 $ 6,356,484
Mortgage-backed securities 4,536,145 4,298,315
Investments 2,670,324 3,656,647
----------- -----------
Total interest income 13,432,195 14,311,446
----------- -----------
INTEREST EXPENSE:
Interest expense on:
Deposits 2,601,214 3,925,331
Long term debt 331,567 285,833
Borrowings 2,342,200 2,095,853
----------- -----------
Total interest expense 5,274,981 6,307,017
----------- -----------
NET INTEREST INCOME 8,157,214 8,004,429
PROVISION FOR LOAN LOSSES 60,000 3,000
----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 8,097,214 8,001,429
----------- -----------
OTHER INCOME (EXPENSE):
Loan service charges and other fees 23,814 28,010
Gain on sale of real estate held for development, net 600,780 0
Gain on sale of loans 29 75
Loss on disposal of fixed assets (141,151) 0
Real estate owned operations, net (6,830) (7,854)
Service charges on accounts 1,071,897 864,788
Other income 23,353 84,620
----------- -----------
Total other income 1,571,892 969,639
----------- -----------
OPERATING EXPENSES:
Salaries and employee benefits 3,823,402 3,448,686
Occupancy and equipment 1,328,515 1,106,408
Purchased services 674,025 614,898
Federal deposit insurance premiums 32,196 30,978
Professional fees 177,716 198,213
Advertising 115,611 83,202
Other 482,161 313,554
----------- -----------
Total operating expenses 6,633,626 5,795,939
----------- -----------
INCOME BEFORE INCOME TAXES 3,035,480 3,175,129
INCOME TAXES 1,195,557 1,122,547
----------- -----------
NET INCOME $ 1,839,923 $ 2,052,582
=========== ===========
BASIC EARNINGS PER COMMON SHARE $ 0.28 $ 0.31
=========== ===========
DILUTED EARNINGS PER COMMON SHARE $ 0.28 $ 0.30
=========== ===========
Dividends declared per common share $ 0.03 $ 0.03
=========== ===========
Weighted average common shares outstanding 6,463,811 6,717,670
Potential dilutive effect of the exercise of stock options 40,116 18,098
=========== ===========
Adjusted weighted average common shares outstanding 6,503,927 6,735,768
=========== ===========
See notes to consoldiated financial statements.
2
- --------------------------------------------------------------------------------
FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
Three Months ended
March 31
--------------------------------
2003 2002
- -------------------------------------------------------------------------------------------------
(Unaudited)
OPERATING ACTIVITIES:
Net income $ 1,839,923 $ 2,052,582
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 60,000 3,000
Depreciation and amortization 985,554 905,511
Realized (gains) and losses on:
Sale of loans and loans held for sale (29) (75)
Disposal and sale of fixed assets 141,151 0
Gain on real estate held for development, net (600,780) 0
Increase in accrued interest receivable (316,366) (216,000)
Increase in prepaid expenses and other assets (648,221) (618,555)
Decrease in accrued interest payable (47,333) (308,974)
Increase (Decrease) in other liabilities 797,843 (855,926)
Provision for deferred income taxes 850,606 124,679
------------ ------------
Net cash provided by operating activities 3,062,348 1,086,242
------------ ------------
INVESTING ACTIVITIES:
Proceeds from sale of:
Education loans 42,641 50,709
Real estate held for development 688,706 0
Real estate owned 0 12,920
Property and equipment 176,555 7,385
Principal collected and proceeds from maturities of investment
securities held to maturity 35,533,268 38,065,471
Proceeds from maturities of investment securities available
for sale 16,372,159 11,425,873
Principal collected on mortgage-backed securities held
to maturity 48,033,512 28,373,661
Principal collected on loans, net 23,504,023 18,437,939
Loans originated or acquired, net (36,263,074) (38,039,082)
Purchase of investment securities and mortgage-backed
securities held to maturity (111,591,237) (50,604,478)
Purchase of investment securities and mortgage-backed
securities available for sale (38,645,883) (9,712,633)
Purchase of Federal Home Loan Bank stock 252,100 (1,498,100)
Purchase of office property and equipment (2,515,827) (644,147)
Net cash received from deposit purchase, net 16,539,246 0
------------ ------------
Net cash used by investing activities (47,873,811) (4,124,482)
------------ ------------
FINANCING ACTIVITIES:
Net increase in demand deposits and savings accounts 24,065,072 23,009,611
Net decrease in time deposits (2,334,248) (16,696,758)
Net (decrease) increase in FHLB advances (41,056) 9,961,790
Proceeds from securities sold under agreement to repurchase 0 20,000,000
Net proceeds from issuance of trust capital securities 0 24,251,086
Increase in advances from borrowers for taxes and insurance 237,570 151,428
Purchase of treasury stock 0 (221,952)
Dividends paid on common stock (193,914) (201,531)
Net proceeds from issuance of common stock 0 1,195
------------ ------------
Net cash provided by financing activities 21,733,424 60,254,869
------------ ------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (23,078,039) 57,216,629
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 88,410,346 63,359,124
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 65,332,307 $120,575,753
============ ============
Supplemental Disclosures:
Cash paid for:
Interest on deposits, advances, and other borrowings $ 5,322,314 $ 6,615,991
Income taxes 867,500 1,054,982
Non-cash investing and financing activities:
Dividends declared and not paid at quarter end 193,914 200,979
Non-monetary transfers from loans to real estate acquired
acquired through foreclosure 209,575 0
Investments purchased and not yet settled 0 4,325,000
See notes to consolidated financial statements.
3
FMS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulated Total
Common shares Common Paid-in comprehensive Retained Treasury Stockholders'
outstanding stock capital income earnings stock Equity
- ------------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 2001 6,717,705 $794,888 $8,278,423 $ 147,496 $51,055,818 $ (8,073,444) $52,203,181
Net Income 2,052,582 2,052,582
Other comprehensive income
Unrealized loss on securities
available for sale, net of
taxes of $100,116 (178,137) (178,137)
-----------
Total comprehensive income 1,874,445
-----------
Dividends declared ($.03) (200,977) (200,977)
Exercise of stock options 925 93 1,102 1,195
Purchase of common stock (19,317) (221,952) (221,952)
- -----------------------------------------------------------------------------------------------------------------------------------
Balances at March 31, 2002 6,699,313 $794,981 $8,279,525 $ (30,641) $52,907,423 $ (8,295,396) $53,655,892
- ------------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 2002 6,463,811 $794,981 $8,279,525 $1,216,053 58,233,840 $(10,886,580) $57,637,819
Net Income 1,839,923 1,839,923
Other comprehensive income
Unrealized loss on securities
available for sale, net of
taxes of $102,971 (154,843) (154,843)
-----------
Total comprehensive income
1,685,080
-----------
Dividends declared ($.03) (193,915) (193,915)
Exercise of stock options
Purchase of common stock
- ------------------------------------------------------------------------------------------------------------------------------------
Balances at March 31, 2003 6,463,811 $794,981 $8,279,525 $1,061,210 $59,879,848 $(10,886,580) $59,128,984
- ------------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
4
FMS FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE
MONTHS ENDED MARCH 31, 2003 (UNAUDITED).
1-GENERAL
In the opinion of management, the accompanying unaudited consolidated financial
statements of FMS Financial Corporation contain all adjustments, consisting of
normal recurring accruals, necessary for a fair presentation of its financial
condition, results of operations, cash flows and changes in stockholders' equity
for the periods and dates indicated. The results of operations for the three
months ended March 31, 2003 are not necessarily indicative of the operating
results for the full fiscal year or any other interim period.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions for Form 10-Q, and therefore, do not include
all information and notes necessary for a fair presentation of financial
condition, results of operations and statements of cash flows in conformity with
generally accepted accounting principles. These statements should be read in
conjunction with the consolidated statements and related notes which are
incorporated by reference to the Corporation's annual report on Form 10-K for
the year ended December 31, 2002. The consolidated financial statements include
the Corporation's principle subsidiary, Farmers & Mechanics Bank ("the Bank").
The Corporation maintains an incentive stock option plan as permitted by SFAS
No. 148 "Accounting for Stock-Based Compensation - Transition and Disclosure."
The Corporation will continue to use the intrinsic value method of accounting
for stock options. No options have been granted during the three months ended
March 31, 2003.
2-DEPOSITS
On March 28, 2003, the Bank purchased the deposits of the Florence branch of Sun
National Bank totaling $17.9 million.
3-LONG-TERM DEBT
Long-Term Debt at March 31, 2003 and December 31, 2002 consisted of $25.0
million of Trust Capital Securities. The interest rate resets every three months
to LIBOR plus 360 basis points and will not exceed 11.00% through the first five
years from its issuance. The proceeds were used for the paydown in August 2002
of the $10.0 million subordinated debentures, expansion of the Bank's operations
and general corporate purposes.
4-REGULATORY CAPITAL REQUIREMENTS
The Bank is considered "well capitalized" by OTS regulations at March 31, 2003.
The Bank's regulatory tangible and tier 1 (core) capital ratios are $70.3
million or 6.04% of total bank assets and $74.3 million or 17.02% for risk-based
capital.
5-RECENTLY ISSUED ACCOUNTING STANDARDS
In April 2003, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 149 "Amendment of Statement 133 on
Deriative Instruments and Hedging Activities". SFAS No. 149 amends and clarifies
financial accounting and reporting for deriative instruments including
derivative instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities under SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 149 is effective for
contracts entered into or modified after June 30, 2003. The adoption of this
standard is not expected to have a material effect on the Consolidated
Statements of Financial Condition or Consolidated Statements of Operations.
5
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2003.
FMS Financial Corporation ("the Corporation") may from time to time make written
or oral "forward-looking statements," including statements contained in the
Corporation's filings with the Securities and Exchange Commission (including
this quarterly report on Form 10-Q and the exhibits thereto), in its reports to
stockholders and in other communications by the Corporation, which are made in
good faith by the Corporation pursuant to the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995.
These forward-looking statements involve risk and uncertainties, such as
statements of the Corporation's plans, objectives, expectations, estimates and
intentions, that are subject to change based on various important factors (some
of which are beyond the Corporation's control). The following factors, among
others, could cause the Corporation's financial performance to differ materially
from the plans, objectives, expectations, estimates and intentions expressed in
such forward-looking statements: the strength of the United States economy in
general and the strength of the local economies in which the Corporation
conducts operations; the effects of, and changes in, trade, monetary and fiscal
policies and laws, including interest rate policies of the board of governors of
the federal reserve system, inflation, interest rate, market and monetary
fluctuations; the timely development of and acceptance of new products and
services of the Corporation and the perceived overall value of these products
and services by users, including the features, pricing and quality compared to
competitors' products and services; the willingness of users to substitute
competitors' products and services for the Corporation's products and services;
the success of the Corporation in gaining regulatory approval of its products
and services, when required; the impact of changes in financial services laws
and regulations (including laws concerning taxes, banking, securities and
insurance); technological changes; acquisitions; changes in consumer spending
and saving habits; and the success of the Corporation at managing the risks
involved in the foregoing.
The Corporation cautions that the foregoing list of important factors is not
exclusive. The Corporation does not undertake to update any forward-looking
statement, whether written or oral, that may be made from time to time by or on
behalf of the Corporation.
6
FINANCIAL CONDITION
Total Assets - at March 31, 2003 were $1.2 billion as compared with total assets
at December 31, 2002 of $1.1 billion.
Investment Securities Held to Maturity - increased $50.2 million to $214.4
million at March 31, 2003 from $164.2 million at December 31, 2002 primarily due
to purchases of $74.3 million in collateralized mortgage obligations (CMO's),
$10.0 million in U.S. Agency Notes, $1.8 million in Municipal Bonds, partially
offset by principal paydowns of $31.7 million in CMO's, the maturity of $1.8
million in Municipal Bonds and calls of $2.0 million in U.S. Agency Notes during
the period. Investment securities held to maturity at March 31, 2003 consisted
of $13.0 million in adjustable rate securities and $201.4 million in fixed rate
securities. A comparison of cost and approximate market values of investment
securities held to maturity as of March 31, 2003 and December 31, 2002 follows:
March 31, 2003 December 31, 2002
- --------------------------------------------------------------------------------------- ------------------------------
Gross Gross Estimated Estimated
Amortized Unrealized Unrealized Market Amortized Market
Cost Gains Losses Value Cost Value
- --------------------------------------------------------------------------------------- ------------------------------
U. S. Gov't Agencies $ 33,828,847 $ 499,602 $ (24,589) $ 34,303,860 $ 25,914,918 $ 26,547,362
CMO's 166,079,379 1,002,236 (223,546) 166,858,069 123,809,139 124,545,227
Municipal bonds 14,466,729 14,516 0 14,481,245 14,503,069 14,509,921
- --------------------------------------------------------------------------------------- ------------------------------
Total $ 214,374,955 $ 1,516,354 $(248,135) $ 215,643,174 $ 164,227,126 $ 165,602,510
======================================================================================= ==============================
Short Term Funds - decreased $14.8 million to $32.1 million at March 31, 2003
from $46.9 million at December 31, 2002. The decrease is the result of purchases
of investment securities.
Investment Securities Available for Sale - increased $21.6 million to $140.2
million at March 31, 2003 from $118.6 million at December 31, 2002. The increase
is the result of purchases of $10.3 million of mortgage-backed securities
(MBS's) and $28.3 million of CMO's, partially offset by principal paydowns of
$16.4 million of CMO's and MBS's and $258 thousand in market adjustments at
March 31, 2003. Investment securities available for sale consisted of $128.2
million in fixed rate securities and $12.0 million in adjustable rate securities
at March 31, 2003. A comparison of cost and approximate market values of
investment securities available for sale as of March 31, 2003 and December 31,
2002 follows:
March 31, 2003 December 31, 2002
- --------------------------------------------------------------------------------------- ------------------------------
Gross Gross Estimated Estimated
Amortized Unrealized Unrealized Market Amortized Market
Cost Gains Losses Value Cost Value
- --------------------------------------------------------------------------------------- ------------------------------
U. S. Gov't Agencies $ 24,993,504 $ 156,446 $ 0 $ 25,149,950 $ 24,993,110 $ 25,358,000
CMO's 43,286,961 162,957 (176,247) 43,273,671 21,978,385 22,107,521
MBS's 70,205,105 1,608,505 0 71,813,610 69,631,991 71,147,440
- --------------------------------------------------------------------------------------- ------------------------------
Total $ 138,485,570 $ 1,927,908 $(176,247) $ 140,237,231 $ 116,603,486 $ 118,612,961
======================================================================================= ==============================
7
Loans, net - increased $12.4 million to $374.1 million at March 31, 2003 from
$361.7 million at December 31, 2002. This increase was primarily the result of
$36.3 million of loans originated, partially offset by approximately $23.5
million of principal collected on loans during the three months ended March 31,
2003. The following table shows loans receivable by major categories at the
dates indicated.
March 31, December 31,
2003 2002
--------------------------------------
Mortgage Loans $ 277,758,937 $ 272,777,144
Construction Loans 676,361 305,607
Commercial Construction 1,518,276 1,157,268
Consumer Loans 3,313,794 3,521,889
Commercial Real Estate 82,272,816 76,354,155
Commercial Business 13,642,445 12,621,048
-------------------------------------
Subtotal 379,182,629 366,737,111
Less:
Deferred loan fees 727,962 745,236
Allowance for
possible loan losses 4,373,193 4,317,475
-------------------------------------
Total loans, net $ 374,081,474 $ 361,674,400
=====================================
At March 31, 2003, the recorded investment in loans for which impairment has
been recognized in accordance with SFAS Nos. 114 and 118 totaled $1.9 million of
which $985 thousand related to loans that were individually measured for
impairment with a valuation allowance of $414 thousand and $955 thousand of
loans that were collectively measured for impairment with a valuation allowance
of $27 thousand. The Bank had $4.4 million in total reserves for loan losses at
March 31, 2003, representing approximately 153% of non-performing loans and 1.2%
of total loans. For the three months ended March 31, 2003, the average recorded
investment in impaired loans was approximately $1.9 million. The Bank recognized
$8 thousand of interest income on impaired loans for the three months ended
March 31, 2003, all of which was recognized on the cash basis.
As of March 31, 2003 the Bank had outstanding loan commitments of $29.8 million,
of which $16.2 million represented variable rate loans and $13.6 million
represented fixed rate loans. The Bank intends to fund these commitments through
scheduled amortization of loans and mortgage-backed securities, additional
borrowings, and if necessary, the sale of investment securities available for
sale.
8
Non-Performing Assets - The following table sets forth information regarding
non-accrual loans, troubled debt restructured and real estate owned assets by
the Bank.
March 31, December 31,
2003 2002
----------- -----------
Loans accounted for on a non-accrual basis:
Mortgage loans:
One-to-four family $ 696,446 $ 960,558
Commercial real estate 1,242,506 1,785,864
Consumer and other 895 11,789
----------- -----------
Total non-accrual loans $ 1,939,847 $ 2,758,211
----------- -----------
Troubled debt restructuring $ 916,453 $ 986,581
Real estate owned, net 500,775 291,200
Other non-performing assets 0 87,926
----------- -----------
Total non-performing assets, net $ 3,357,075 $ 4,123,918
=========== ===========
Total non-accrual loans to net loans 0.52% 0.76%
=========== ===========
Total non-accrual loans to total assets 0.17% 0.24%
=========== ===========
Total non-performing assets to total assets 0.29% 0.37%
=========== ===========
Mortgage-Backed Securities Held to Maturity - decreased $23.5 million to $318.6
million at March 31, 2003 from $342.1 million at December 31, 2002. The decrease
is the result of principal paydowns of $47.6 million, partially offset by the
purchases of $25.5 million of FNMA, FHLMC and GNMA fixed rate securities.
Mortgage-backed securities at March 31, 2003 consisted of $280.0 million in
fixed rate securities and $38.6 million in adjustable rate securities.
Mortgage-backed securities held to maturity at March 31, 2003 and December 31,
2002 are summarized below:
March 31, 2003 December 31, 2002
- ----------------------------------------------------------------------------------------- --------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated Amortized Estimated
Cost Gains Losses Market Value Cost Market Value
- ----------------------------------------------------------------------------------------- --------------------------------
GNMA $ 28,181,777 $ 1,471,643 $ (224) $ 29,653,196 $ 33,862,839 $ 35,556,313
FNMA 226,312,912 6,295,258 (42) 232,608,128 233,608,680 239,975,322
FHLMC 64,113,306 1,349,079 (103) 65,462,282 74,651,159 76,090,093
- ----------------------------------------------------------------------------------------- --------------------------------
Total $ 318,607,995 $ 9,115,980 $ (369) $ 327,723,606 $ 342,122,678 $ 351,621,728
========================================================================================= ================================
9
Deposits - increased $38.3 million to $838.6 million at March 31, 2003 from
$800.3 million at December 31, 2002. On March 28, 2003, the Bank purchased the
deposits of the Florence branch of Sun National Bank totaling $17.9 million.
Non-interest bearing checking accounts increased $15.8 million, savings accounts
increased $14.7 million, money market accounts increased $9.8 million and
certificates of deposits increased $5.4 million for the three months ended March
31, 2003. These increases were partially offset by a decrease in checking
accounts of $7.4 million during this period. Interest credited to depositors
accounts for the three months ended March 31, 2003 amounted to $2.6 million. The
following table sets forth certain information concerning deposits at the dates
indicated.
March 31, 2003 December 31, 2002
- --------------------------------------------------------------------------------------------------------------------
Percent Weighted Percent Weighted
of Total Average of Total Average
Amount Deposits Rate Amount Deposits Rate
- --------------------------------------------------------------------------------------------------------------------
Non-interest checking $150,754,743 17.98% 0.00% $134,969,939 16.85% 0.00%
Checking accounts 148,360,187 17.69% 0.73% 155,730,226 19.46% 1.18%
Savings accounts 176,147,042 21.00% 1.00% 161,458,450 20.18% 1.34%
Money market accounts 134,556,562 16.05% 1.10% 124,795,059 15.59% 1.86%
Certificates 228,791,759 27.28% 2.85% 223,386,548 27.92% 3.58%
- --------------------------------------------------------------------------------------------------------------------
Total Deposits $838,610,293 100.00% 1.31% $800,340,222 100.00% 1.86%
====================================================================================================================
Borrowings - at March 31, 2003 amounted to $236.2 million. Borrowings consisted
of $225.0 million in securities sold under the agreement to repurchase with a
weighted average interest rate of 4.08% and $11.2 million in Federal Home Loan
Bank Advances with a weighted average interest rate of 1.77%. At December 31,
2002 borrowings consisted of $225.0 million in securities sold under agreements
to repurchase with a weighted average rate of 4.08% and $11.2 million in Federal
Home Loan Bank Advances with a weighted average interest rate of 1.78%.
Long-term debt - at March 31, 2003 and December 31, 2002 consisted of $25.0
million of Trust Capital Securities. The interest rate resets every three months
to LIBOR plus 360 basis points and will not exceed 11.00% through the first five
years from its issuance.
RESULTS OF OPERATIONS
General
The earnings of the Corporation depend primarily upon the level of net interest
income, which is the difference between interest earned on its interest-earning
assets such as loans and investments, and the interest paid on interest-bearing
liabilities, such as deposits including non-interest checking accounts,
long-term debts and borrowings. Net interest income is a function of the
interest rate spread, which is the difference between the weighted average yield
earned on interest-earning assets and the weighted average rate paid on
interest-bearing liabilities, as well as the average balance of interest-earning
assets as compared to interest-bearing liabilities. Net income is also affected
by non-interest income, such as gains (losses) on the sale of loans and
investments, provision for loan losses and real estate owned, service charges
and other fees, and operating expenses, such as: salaries, employee benefits,
deposit insurance premiums, depreciation, occupancy and equipment expense and
purchased services expense.
The Corporation recorded net income for the three months ended March 31, 2003 of
$1.8 million, or $.28 diluted earnings per share as compared to $2.1 million, or
$.30 diluted earnings per share for the comparable period in 2002.
10
Interest Rate Spread
The Bank's interest income is affected by the difference or "interest rate
spread" between yields received by the Bank on its interest-earning assets and
the interest rates paid by the Bank on its interest-bearing liabilities
including non-interest checking accounts. Net interest income is affected by (i)
the spread between the yield earned on interest-earning assets and the interest
rates paid on interest-bearing savings deposits including non-interest checking
accounts and borrowings (liabilities) and (ii) the relative amounts of
interest-earning assets versus interest-bearing liabilities. The Bank's interest
rate spread varies over time because money fund accounts and other flexible rate
accounts have become significant sources of savings deposits. Income from
investment securities and mortgage-backed securities depends upon the amount
invested during the period and the yields earned on such securities. The yield
on loans receivable changes principally as a result of existing mortgage loan
repayments, adjustable rate loan adjustments, sales and the interest rates and
volume of new mortgage loans. The average yields and rates are derived by
dividing income or expense by the average balance of interest-earning assets or
interest-bearing liabilities, respectively, for the periods presented.
The following table sets forth certain information relating to the Corporation's
average balance sheet and reflects the average yield on assets and average rates
paid on liabilities for the periods indicated. Such yields and rates are derived
by dividing income or expense by the average balance of interest-earning assets
or interest-bearing liabilities, respectively, for the periods presented:
Three Months Ended March 31,
- --------------------------------------------------------------------------------------------------------------------------------
2003 2002
- -------------------------------------------------------------------------------- -----------------------------------------
Average Average Average Average
Balance Interest Yield/Rate Balance Interest Yield/Rate
----------- ------------ ------------ -------- ----------- -------------
(Dollars in Thousands)
Interest-earning assets:
Loans receivable $ 376,046 $ 6,226 6.62% $ 353,885 $ 6,356 7.18%
Interest-bearing deposits 46,127 156 1.35% 46,520 220 1.89%
Mortgage-backed securities 391,788 4,536 4.63% 283,619 4,298 6.06%
Investment securities 227,107 2,514 4.43% 222,757 3,437 6.17%
-------------- ------------ --------- -------------- ------------- --------
Total interest-earning assets 1,041,068 13,432 5.16% 906,781 14,311 6.31%
-------------- ------------ --------- -------------- ------------- --------
Interest-bearing liabilities:
Checking deposits 288,712 282 0.39% 250,912 430 0.69%
Savings deposits 167,152 419 1.00% 134,647 476 1.41%
Money market deposits 126,227 343 1.09% 93,616 471 2.01%
Time deposits 221,978 1,557 2.81% 245,748 2,548 4.15%
Borrowings 236,223 2,342 3.97% 179,414 2,096 4.67%
Long-Term Debt 25,774 332 5.15% 18,591 286 6.15%
-------------- ------------ --------- -------------- ------------- --------
Total interest-bearing
liabilities $ 1,066,066 5,275 1.98% $ 922,928 6,307 2.73%
============== ------------ --------- ============== ------------- --------
Net interest income $ 8,157 $ 8,004
============ =============
Interest rate spread 3.18% 3.58%
========= ========
Net yield on average interest-
earning assets 3.13% 3.53%
========= ========
Ratio of average interest-earning
assets to average interest-bearing 97.66% 98.25%
liabilities
========= ========
11
Rate/Volume Analysis
The following table describes the extent to which changes in interest rates and
changes in volume of interest-earning assets and interest-bearing liabilities
have affected the Bank's interest income and interest expense during the periods
indicated. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to (i) changes in
rate, (ii) changes in volume and (iii) total changes in rate and volume (the
combined effect of changes in both volume and rate, not separately identified,
has been allocated to rate). A higher level of non-performing loans affects the
changes in both volume and rate.
Three Months Ended March 31,
2003 vs. 2002
Increase (Decrease)
Due to Change in:
--------------------------------
Rate Volume Total
(In Thousands)
--------------------------------
Interest income:
Loans receivable $ (528) $ 398 $ (130)
Interest-bearing deposits (62) (2) (64)
Mortgage-backed securities (1,401) 1,639 238
Investment securities (990) 67 (923)
--------------------------------
Total change - interest income (2,981) 2,102 (879)
--------------------------------
Interest expense:
Checking deposits (212) 64 (148)
Savings deposits (172) 115 (57)
Money market deposits (292) 164 (128)
Time deposits (745) (246) (991)
Borrowings (418) 664 246
Long-Term Debt (65) 111 46
--------------------------------
Total change - interest expense (1,904) 872 (1,032)
--------------------------------
Net change in net interest income (1,077) $1,230 $ 153
================================
12
Net Interest Income - for the three months ended March 31, 2003 totaled $8.2
million. Net interest income for the three months ended March 31, 2003 increased
$153 thousand compared to the same period in 2002 due primarily to a decrease in
interest expense on all deposit products of $1.3 million and an increase in
interest income on mortgage-backed securities of $238 thousand, partially offset
by decreases in interest income on investment securities of $923 thousand,
interest income on loans of $130 thousand and increases in interest expense on
borrowings of $246 thousand and long term debt of $46 thousand.
Interest income on mortgage-backed securities increased by $238 thousand to $4.5
million for the three months ended March 31, 2003 from $4.3 million for the same
period in 2002. The average balance of MBS's increased $108.2 million to $391.8
million for the three months ended March 31, 2003 from $283.6 million for the
same period in 2002, which resulted in an interest income volume increase of
$1.6 million. The increase in the average balance during this period was due to
MBS purchases of $248.9 million, partially offset by principal paydowns of
$171.0 million. The average yield of the MBS portfolio decreased 143 basis
points to 4.63% for the quarter ended March 31, 2003 from 6.06% for the same
period in 2002, which resulted in an interest income decrease of $1.4 million
due to changes in rates.
Interest income on loans decreased $130 thousand to $6.2 million for the three
months ended March 31, 2003 from $6.4 million for the same period in 2002. The
average rate on loans decreased 56 basis points to 6.62% for the three months
ended March 31, 2003 from 7.18% for the same period in 2002, which resulted in a
decrease in interest income of $528 thousand due to rate changes. The average
balance of the loan portfolio increased $22.1 million to $376.0 million for the
three months ended March 31, 2003 from $353.9 million for the same period in
2002, which resulted in a volume increase in interest income of $398 thousand.
The increase in the average balance is principally due to an increase in loan
originations of $113.4 million during this period, partially offset by principal
collected on loans of $94.4 million.
Interest income on investment securities decreased $923 thousand to $2.5 million
for the three months ended March 31, 2003 from $3.4 million for the same period
in 2002. The average yield of the investment portfolio decreased 174 basis
points to 4.43% for the quarter ended March 31, 2003 from 6.17% for the same
period in 2002, which resulted in an interest income decrease of $990 thousand
due to rate changes. The average balance of investment securities increased $4.3
million to $227.1 million for the three months ended March 31, 2003 from $222.8
million for the same period in 2002, which resulted in a volume increase in
interest income of $67 thousand. The increase in the average volume during this
period is due to purchases of $346.3 million, partially offset by investment
calls and maturities of $129.9 million and principal paydowns of $135.2 million.
Interest expense on time deposits decreased $991 thousand to $1.6 million for
the three months ended March 31, 2003 from $2.5 million for the same period in
2002. The average rate on time deposits decreased 134 basis points to 2.81% for
the quarter ended March 31, 2003 from 4.15% for the same period in 2002, which
resulted in a decrease in interest expense of $745 thousand. The average balance
of time deposits decreased $23.8 million to $221.9 million for the three months
ended March 31, 2003 from $245.7 million for the same period in 2002, which
resulted in a volume decrease in interest expense of $246 thousand.
Interest expense on checking deposits decreased $148 thousand to $282 thousand
for the three months ended March 31, 2003 from $430 thousand for the same period
in 2002. The average rate on checking deposits decreased 30 basis points to
0.39% for the quarter ended March 31, 2003 from 0.69% for the same period in
2002, which resulted in a decrease in interest expense of $212 thousand. The
average balance of checking deposits increased $38 thousand to $288.7 million
for the three months ended March 31, 2003 from $250.9 for the same period in
2002, which resulted in a volume increase in interest expense of $64 thousand.
13
Interest expense on money market deposits decreased $128 thousand to $343
thousand for the three months ended March 31, 2003 from $471 thousand for the
same period in 2002. The average rate on money market deposits decreased 92
basis points to 1.09% for the quarter ended March 31, 2003 from 2.01% for the
same period in 2002, which resulted in a decrease in interest expense of $292
thousand. The average balance of money market deposits increased $32.6 million
to $126.2 million for the three months ended March 31, 2003 from $93.6 million
for the same period in 2002, which resulted in a volume increase in interest
expense of $164 thousand.
Interest expense on borrowings increased $246 thousand to $2.3 million for the
three months ended March 31, 2003 from $2.1 million for the same period in 2002.
The average balance of borrowings increased $56.8 million to $236.2 million at
March 31, 2003 from $179.4 million for the same period in 2002, which resulted
in a volume increase in interest expense of $664 thousand. The average rate paid
on borrowings decreased 70 basis points to 3.97% for the quarter ended March 31,
2003 from 4.67% for the same period in 2002 which resulted in a decrease in
interest expense of $418 thousand due to rate changes.
Interest expense on long term debt increased $46 thousand to $332 thousand for
the three months ended March 31, 2003 from $286 thousand for the same period in
2002. The $25.0 million in Trust capital securities were issued in March 2002 at
an initial floating rate of 5.59%.
Critical Accounting Estimate-Provision for Loan Losses - A critical accounting
estimate is the provision for loan losses which increased $57 thousand to $60
thousand for the three months ended March 31, 2003 from $3 thousand for the same
period in 2002. At March 31, 2003 the allowance for loan losses amounted to $4.4
million compared to $4.3 million at December 31, 2002. The determination of the
allowance level for loan losses is based on management's analysis of the risk
characteristics of various types of loans, levels of classified loans, previous
loan loss experience, the estimated fair market value of the underlying
collateral and current economic conditions. Additionally, the mix within the
Bank's portfolio continues to change as the Bank offers a wider variety of
products. Within the loan portfolio, a change is also occurring as a shift is
made from lower yielding loans (i.e., one-to-four family loans) to higher
yielding loans (i.e., commercial real estate mortgages, commercial construction,
consumer and commercial business loans). These types of loans contain a higher
degree of risk. The Bank will continue to monitor its allowance for loan losses
and make future adjustments to the allowance through the provision for loan
losses as changing conditions dictate. Although the Bank maintains its allowance
for loan losses at a level that it considers to be adequate to provide for the
inherent risk of loss in its loan portfolio, there can be no assurance that
future losses will not exceed estimated amounts or that additional provisions
for loan losses will not be required in future periods due to the higher degree
of credit risk which might result from the change in the mix of the loan
portfolio or changes in economic conditions. Most of the Bank's lending activity
is with customers located within southern New Jersey. Generally, the loans are
secured by real estate consisting of single-family residential properties. While
this represents a concentration of credit risk, the credit losses arising from
this type of lending compare favorably with the Bank's credit loss experience on
its portfolio as a whole. The ultimate repayment of these loans is dependent to
a certain degree on the local economy and real estate market.
Other Income - for the three month period ended March 31, 2003 was $1.6 million
compared to $970 thousand for the same period in 2002. The increase was
primarily due to a $601 thousand gain on sale of real estate held for
development. The final parcel of land, located in Burlington Township, was sold
in January 2003. Additionally, an increase in retail banking fees for the five
branches opened since the first quarter of 2002 increased other income for the
quarter ended March 31, 2003. The increase was partially offset by the loss of
$141 thousand on the sale of a closed branch building for the quarter ended
March 31, 2003.
14
Operating Expenses - for the three month period ended March 31, 2003 totaled
$6.6 million compared to $5.8 million for the same period in 2002.
Salaries and Employee Benefits - for the three month period ended March 31, 2003
were $3.8 million compared to $3.4 million for the same period in 2002. The
increase was primarily due to additional staff in the five new branches opened
since the first quarter of 2002. Average full time equivalent employees at March
31, 2003 were 503 as compared to 478 at March 31, 2002.
Occupancy and Equipment- for the three month period ended March 31, 2003 were
$1.3 million compared to $1.1 million for the same period in 2002. This increase
is due to additional depreciation and occupancy expense on the new branch
offices opened since the first quarter of 2002. Additionally, the extreme winter
weather increased snow removal expenses $85 thousand to $97 thousand for the
first three months of 2003 compared to the same period in 2002.
Purchased Services - for the three month period ended March 31, 2003 totaled
$674 thousand compared to $615 thousand for the same period in 2002. ATM charges
increased $61 thousand to $352 thousand for the first three months of 2003
compared to $291 thousand for the same period in 2002 due to higher transaction
volume.
ITEM 3: DISCLOSURE ABOUT MARKET RISK
There were no significant changes for the three months ended March 31, 2003 from
the information presented in the annual report on Form 10-K for the year ended
December 31, 2002.
ITEM 4: DISCLOSURE 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 Quarterly Report on Form
10-Q, 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
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in Securities and Exchange Commission rules and forms.
(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 action with regard to significant deficiencies and material
weaknesses.
15
PART II. OTHER INFORMATION
-----------------
Item 1: Legal Proceedings
------- -----------------
None
Item 2: Changes in Securities
------- ---------------------
None
Item 3: Defaults Upon Senior Securities
------- -------------------------------
None
Item 4: Submission of Matters to Vote of Security of Holders
------- ----------------------------------------------------
The Annual Meeting of Stockholders of the Company was held on
April 24, 2003 and the following were presented:
The Election of Directors: Vincent R. Farias and Wayne H. Page
were re-elected as directors for terms of three years ending 2006
and until their successors are elected and qualified. Mr. Farias
received 5,085,970 votes in favor and 66,620 votes were withheld;
Mr.Page received 5,073,970 votes in favor and 78,620 votes were
withheld.
Ratification of the appointment of PricewaterhouseCoopers LLP the
Company's auditors for the 2003 fiscal year:
PricewaterhouseCoopers LLP was ratified as the Company's auditors
with 5,069,793 votes for, 7,162 votes against and 75,635
abstentions.
Item 5: Other Information
------- -----------------
On March 28, 2003, the Bank purchased the deposits of the
Florence branch of Sun National Bank totaling $17.9 million.
Item 6: Exhibits and Reports on Form 8-K
------- --------------------------------
(a) 99.0 certification pursuant to 18 U.S.C. Section 1350 as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
(b) The Company filed a Form 8-K on April 22, 2003 reporting the
Company's earnings for the three months ended March 31, 2003.
16
S I G N A T U R E
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.
FMS FINANCIAL CORPORATION
Date: May 14, 2003 /s/ Craig W. Yates
------------------
Craig W. Yates
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 14, 2003 /s/ Channing L. Smith
---------------------
Channing L. Smith
Vice President and
Chief Financial Officer
(Principal Financial Officer)
SECTION 302 CERTIFICATION
I, Craig W. Yates, President of FMS Financial Corporation, certify that:
1. I have reviewed this quarterly report on Form 10-Q of FMS Financial
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in 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 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 have:
(a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report, (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying 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 equivalent functions):
(a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
May 14, 2003 /s/ Craig W. Yates
- ------------------ ----------------------------
Date Craig W. Yates, President
SECTION 302 CERTIFICATION
I, Channing L. Smith, Chief Financial Officer of FMS Financial Corporation,
certify that:
1. I have reviewed this quarterly report on Form 10-Q of FMS Financial
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in 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 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 have:
(a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report, (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying 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 equivalent functions):
(a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
May 14, 2003 /s/ Channing L. Smith
- ------------------ -----------------------------------------
Date Channing L. Smith, Chief Financial Officer