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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 June 30, 2004
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to _____________________
Commission File Number: 0-22399
WAYPOINT FINANCIAL CORP.
------------------------
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 25-1872581
------------- -------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
235 North Second Street, P.O. Box 1711, Harrisburg, Pennsylvania 17105
- ----------------------------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
717-236-4041
------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by checkmark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [X] No [ ]
Indicate the number of shares outstanding of each of the Bank's classes of
common stock, as of the latest practicable date. 33,402,460 shares of stock, par
value of $.01 per share, outstanding at June 30, 2004.
CONTENTS
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Financial Condition.............................................................. 4
Consolidated Statements of Income........................................................................... 5
Consolidated Statements of Shareholders' Equity............................................................. 6
Consolidated Statements of Cash Flows....................................................................... 7-8
Notes to Consolidated Financial Statements.................................................................. 9-16
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
I. Forward-Looking Statements........................................................................ 17
II. Critical Accounting Policies...................................................................... 17
III. Market Risk and Interest Rate Sensitivity Management.............................................. 18
IV. Liquidity......................................................................................... 18
V. Capital Resources................................................................................. 19
VI. Results of Operations
Comparison for the Three-Month Periods Ended June 30, 2004 and June, 2003
Net Income................................................................................... 20
Net Interest Income.......................................................................... 20-23
Noninterest Income........................................................................... 23-24
Noninterest Expense.......................................................................... 24-25
Provision for Income Taxes................................................................... 25
Comparison for the Six-Month Periods Ended June 30, 2004 and June 30, 2003
Net Income................................................................................... 25
Net Interest Income.......................................................................... 25-26
Noninterest Income........................................................................... 26
Noninterest Expense.......................................................................... 26
Provision for Income Taxes................................................................... 26
VII. Financial Condition
Marketable Securities........................................................................ 27
Loans Receivable, Net........................................................................ 27
Loan Commitments............................................................................. 27
Loan Quality................................................................................. 27
Non-Performing Assets........................................................................ 28
Allowance for Loan Losses.................................................................... 28
Allocation of the Allowance for Loan Losses.................................................. 29
Deposits..................................................................................... 29
Other Borrowings............................................................................. 29
Item 3. Quantitative and Qualitative Disclosures about Market Risk....................................... 29
Item 4. Controls and Procedures.......................................................................... 29
Part II. Other Information..................................................................................... 30
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures........................................................................................................ 31
Exhibits - Certifications......................................................................................... 32-35
2
Part I. Financial Information.
Part 1, Item 1 Financial Statements.
(Balance of this page is intentionally left blank)
3
WAYPOINT FINANCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
June 30, December 31,
2004 2003
------------ ------------
(In thousands, except share data)
(Unaudited)
Assets
Cash and cash equivalents $ 98,305 $ 100,016
Marketable securities 2,509,427 2,489,770
FHLB stock 103,422 97,982
Loans receivable, net 2,477,915 2,397,640
Loans held for sale, net 13,164 17,011
Loan servicing rights 2,703 2,528
Investment in real estate and other joint ventures 21,357 20,773
Premises and equipment, net of accumulated
depreciation of $48,018 and $45,261 48,841 49,789
Accrued interest receivable 23,640 23,597
Goodwill 18,332 17,881
Intangible assets 2,801 2,881
Deferred tax asset, net 19,910 9,059
Bank-owned life insurance 94,585 92,522
Other assets 8,454 8,453
------------ ------------
Total assets $ 5,442,856 $ 5,329,902
============ ============
Liabilities and Stockholders' Equity
Deposits $ 2,799,987 $ 2,720,915
Other borrowings 2,144,391 2,110,681
Escrow 3,524 2,568
Accrued interest payable 8,701 10,009
Postretirement benefit obligation 2,248 2,248
Income taxes payable 3,021 2,586
Trust preferred debentures 46,392 46,392
Other liabilities 38,462 32,270
------------ ------------
Total liabilities 5,046,726 4,927,669
------------ ------------
Preferred stock, 10,000,000 shares authorized but unissued
Common stock, $.01 par value, authorized 100,000,000 shares,
42,991,487 shares issued and 33,402,460 outstanding at June 30, 2004,
43,031,041 shares issued and 33,247,630 shares outstanding at
December 31, 2003 428 425
Paid in capital 356,534 353,530
Retained earnings 247,888 241,668
Accumulated other comprehensive loss (24,453) (8,502)
Employee stock ownership plan (13,451) (13,423)
Recognition and retention plans (4,206) (4,206)
Paid in capital from obligations under Rabbi Trust, 544,948 shares at
June 30, 2004 and 495,826 shares at December 31, 2003 9,253 8,457
Treasury stock shares held in Rabbi Trust at cost, 544,948 shares at
June 30, 2004 and 563,162 shares at December 31, 2003 (9,253) (9,240)
Treasury stock, 9,589,027 shares at June 30, 2004
and 9,716,075 shares at December 31, 2003 (166,610) (166,476)
------------ ------------
Total stockholders' equity 396,130 402,233
------------ ------------
Total liabilities and stockholders' equity $ 5,442,856 $ 5,329,902
============ ============
See accompanying notes to consolidated financial statements.
4
WAYPOINT FINANCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Income
Three Months Ended June 30, Six Months Ended June 30,
----------------------------- -------------------------
2004 2003 2004 2003
----------- --------- --------- ---------
(In thousands, except share data)
(Unaudited)
Interest Income:
Loans $ 33,918 $ 37,198 $ 67,739 $ 74,592
Marketable securities and interest-earning cash 24,718 27,352 49,907 55,767
--------- --------- --------- ---------
Total interest income 58,636 64,550 117,646 130,359
--------- --------- --------- ---------
Interest Expense:
Deposits and escrow 12,087 13,465 24,246 27,949
Borrowed funds 19,839 20,669 39,372 41,522
--------- --------- --------- ---------
Total interest expense 31,926 34,134 63,618 69,471
--------- --------- --------- ---------
Net interest income 26,710 30,416 54,028 60,888
Provision for loan losses 902 2,064 2,803 4,485
--------- --------- --------- ---------
Net interest income after provision for loan losses 25,808 28,352 51,225 56,403
--------- --------- --------- ---------
Noninterest Income:
Banking service and account fees 5,444 3,924 9,798 7,313
Financial services fees 2,284 2,348 4,696 4,393
Residential mortgage banking 1,057 1,297 1,571 2,600
Bank-owned life insurance 1,027 1,142 2,063 2,288
Gain on securities and derivatives, net 1,283 3,717 6,689 5,590
Other (217) (1,601) (212) (1,928)
--------- --------- --------- ---------
Total noninterest income 10,878 10,827 24,605 20,256
--------- --------- --------- ---------
Noninterest Expense:
Salaries and benefits 12,250 11,803 25,454 23,235
Equipment expense 1,741 1,849 3,557 3,620
Occupancy expense 1,870 1,829 3,891 3,751
Marketing 1,379 1,215 2,309 2,306
Amortization of intangible assets 189 192 389 312
Outside services 1,303 1,312 2,723 2,579
Communications and supplies 1,335 1,296 2,615 2,622
Borrowing prepayment penalties - - 4,704 -
Acquisition expense 194 - 3,159 -
Other 2,138 3,276 4,529 6,229
--------- --------- --------- ---------
Total noninterest expense 22,399 22,772 53,330 44,654
--------- --------- --------- ---------
Income before income taxes 14,287 16,407 22,500 32,005
Income tax expense 4,335 4,987 7,349 9,274
--------- --------- --------- ---------
Net income $ 9,952 $ 11,420 $ 15,151 $ 22,731
========= ========= ========= =========
Basic earnings per share $ 0.31 $ 0.35 $ 0.48 $ 0.68
========= ========= ========= =========
Diluted earnings per share $ 0.30 $ 0.34 $ 0.46 $ 0.66
========= ========= ========= =========
See accompanying notes to consolidated financial statements.
5
WAYPOINT FINANCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
EMPLOYEE
ACCUMULATED STOCK
COMMON PAID IN RETAINED COMPREHENSIVE OWNERSHIP
STOCK CAPITAL EARNINGS INCOME (LOSS) PLAN
--------------- -------------- -------------- --------------- ------------
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
Balance at December 31, 2002 $ 404 $ 315,636 $ 245,388 $ 11,710 $ (14,460)
Net income 22,731
Dividends paid at $.21 per share (6,956)
Exercised stock options (194,314 shares) 3 2,795
Unrealized losses on securities, net of
income tax of $(2,567) (3,380)
Comprehensive income
Earned portion of RRP
Tax benefit on exercised options 675
Treasury stock purchased (2,915,825 shares)
Dividend reinvestment plan, net (185)
-------- --------- --------- ---------- ---------
Balance at June 30, 2003 $ 407 $ 318,921 $ 261,163 $ 8,330 $ (14,460)
======== ========= ========= ========== =========
Balance at December 31, 2003 $ 425 $ 353,530 $ 241,668 $ (8,502) $ (13,423)
Net income 15,151
Dividends paid at $.28 per share (8,931)
Exercised stock options (154,830 shares) 3 2,782
Unrealized losses on securities, net of
income tax of $(9,918) (15,951)
Comprehensive income
ESOP stock committed for release (28)
Tax benefit on exercised options 1,307
Treasury stock adjustment
Dividend reinvestment plan, net (302)
Reclassification for obligations under
Rabbi Trust (783)
-------- --------- --------- ---------- ---------
Balance at June 30, 2004 $ 428 $ 356,534 $ 247,888 $ (24,453) $ (13,451)
======== ========= ========= ========== =========
PAID IN
CAPITAL
FROM TREASURY
RECOGNITION OBLIGATIONS STOCK
AND UNDER PURCHASED
RETENTION RABBI IN RABBI TREASURY COMPREHENSIVE
PLAN (RRP) TRUST TRUST STOCK TOTAL INCOME
------------- ------------- ----------- ----------- ------------ -------------
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
Balance at December 31, 2002 $ (6,977) $ - $ - $ (98,819) $ 452,882
Net income 22,731 $ 22,731
Dividends paid at $.21 per share (6,956)
Exercised stock options (194,314 shares) 2,798
Unrealized losses on securities, net of
income tax of $(2,567) (3,380) (3,380)
----------
Comprehensive income $ 19,351
==========
Earned portion of RRP 254 254
Tax benefit on exercised options 675
Treasury stock purchased (2,915,825 shares) (50,258) (50,258)
Dividend reinvestment plan, net (185)
--------- --------- --------- --------- -----------
Balance at June 30, 2003 $ (6,723) $ - $ - $(149,077) $ 418,561
========= ========= ========= ========= ===========
Balance at December 31, 2003 $ (4,206) $ 8,457 $ (9,240) $(166,476) $ 402,233
Net income 15,151 $ 15,151
Dividends paid at $.28 per share (8,931)
Exercised stock options (154,830 shares) 2,785
Unrealized losses on securities, net of
income tax of $(9,918) (15,951) (15,951)
----------
Comprehensive income $ (800)
==========
ESOP stock committed for release (28)
Tax benefit on exercised options 1,307
Treasury stock adjustment (134) (134)
Dividend reinvestment plan, net (302)
Reclassification for obligations under
Rabbi Trust 796 (13) -
--------- --------- --------- --------- -----------
Balance at June 30, 2004 $ (4,206) $ 9,253 $ (9,253) $(166,610) $ 396,130
========= ========= ========= ========= ===========
See accompanying notes to consolidated financial statements.
6
WAYPOINT FINANCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Six Months Ended
June 30,
--------------------------
2004 2003
------------ -----------
(In thousands)
(Unaudited)
Cash flows from operating activities:
Net income $ 15,151 $ 22,731
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses 2,803 4,485
Net depreciation, amortization and accretion 3,363 3,982
Loans originated for sale (99,176) (250,299)
Proceeds from sales of loans originated for sale 104,308 245,708
Origination of loan servicing rights (401) (525)
Net gain on sales of interest-earning assets (8,308) (10,101)
Gain on the sale of foreclosed real estate (205) (146)
Loss from joint ventures 652 2,747
(Increase) decrease in accrued interest receivable (43) 1,548
Decrease in accrued interest payable (1,308) (40)
Amortization of intangibles 389 312
Earned ESOP expense 1,422 1,111
Earned RRP expense 1,082 1,242
Benefit for deferred income taxes (934) (3,654)
Increase in income taxes payable 435 2,752
Other, net 18,933 2,387
----------- -----------
Net cash provided by operating activities 38,163 24,240
----------- -----------
Cash flows from investing activities:
Proceeds from maturities, sales, and principal reductions
of marketable securities 1,467,988 2,070,158
Purchase of marketable securities (1,516,415) (2,070,689)
Loan originations less principal payments on loans (85,254) (102,058)
Investments in real estate held for investment and other joint ventures (1,456) (6,255)
Proceeds on real estate and premises and equipment 1,174 1,054
Purchases of premises and equipment, net (1,948) (2,494)
Payments for acquired business (422) (6,000)
----------- -----------
Net cash used in investing activities (136,333) (116,284)
7
WAYPOINT FINANCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(continued)
For the Six Months Ended
June 30,
--------------------------
2004 2003
----------- -----------
(In thousands)
(Unaudited)
Cash flows from financing activities:
Net increase in deposits 74,478 117,781
Proceeds from other borrowings 25,000 340,000
Payments and maturities of other borrowings (205,017) (353,392)
Net increase in other short-term borrowings 207,490 48,467
Net increase in escrow 956 1,620
Net proceeds from issuance of Trust Preferred Securities - 14,719
Dividend reinvestment plan (302) (185)
Cash dividends (8,931) (6,956)
Payments to acquire treasury stock - (50,258)
Proceeds from the exercise of stock options 2,785 2,798
----------- -----------
Net cash provided by financing activities 96,459 114,594
----------- -----------
Net (decrease) increase in cash and cash equivalents (1,711) 22,550
Cash and cash equivalents at beginning of period 100,016 96,088
----------- -----------
Cash and cash equivalents at end of period $ 98,305 $ 118,638
=========== ===========
Supplemental disclosures:
Cash paid during the period for:
Interest on deposits, advances and other borrowings
(includes interest credited to deposit accounts) $ 64,926 $ 69,511
Income taxes 6,643 7,246
Cash received during the period for:
Income taxes 69 255
Non-cash investing activities:
Transfers from loans to foreclosed real estate 684 826
Fair value of assets acquired (non-cash) - 6,000
See accompanying notes to financial statements.
8
WAYPOINT FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(All dollar amounts presented in the tables are in thousands,
except per share data)
(Unaudited)
(1) Basis of Presentation and Accounting Policies
The Consolidated Financial Statements include the accounts of Waypoint Financial
Corp. ("Waypoint Financial", "the Company", or "the Registrant") and its
wholly-owned subsidiaries Waypoint Bank, Waypoint Financial Investment
Corporation, Waypoint Service Corporation, Waypoint Brokerage Services, Inc.,
Waypoint Insurance Group, Inc. Waypoint Bank is the sole owner of the following
subsidiaries: Waypoint Investment Corporation, and C.B.L. Service Corporation.
All significant intercompany transactions and balances are eliminated in
consolidation.
The accompanying interim consolidated financial statements have been prepared in
accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all the information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments, consisting of normal recurring
accruals necessary for a fair presentation of the results of interim periods,
have been made. Operating results for the six-month period ended June 30, 2004
are not necessarily indicative of the results that may be expected for the year
ended December 31, 2004 or any other interim period. It is suggested that these
consolidated financial statements be read in conjunction with Waypoint
Financial's 2003 Annual Report on Form 10-K.
The accounting policies followed in the presentation of interim financial
results are consistent with those followed on an annual basis. These policies
are presented on pages 49 through 82 of the 2003 Annual Report on Form 10-K.
Waypoint Financial accounts for Stock Option Plans under Accounting Principles
Board Opinion No. 25, and, accordingly, compensation expense has not been
recognized in the accompanying financial statements. Had compensation expense
for these plans been recorded in the financial statements of Waypoint Financial
consistent with the fair value provisions of Statement 123, net income and net
income per share would have been reduced to the following pro-forma amounts (in
thousands, except per-share data):
For the three months ended June 30 For the six months ended June 30
---------------------------------- --------------------------------
2004 2003 2004 2003
---------- ----------- ----------- -----------
Net Income
As reported $ 9,952 $ 11,420 $ 15,151 $ 22,731
Deduct: Total stock-based employee
compensation expense determined under
fair value based method, net of related
tax effects (273) (264) (570) (588)
--------- ---------- ---------- ----------
Pro forma $ 9,679 $ 11,156 $ 14,581 $ 22,143
Basic earnings per share
As reported $ 0.31 $ 0.35 $ 0.48 $ 0.68
Pro forma $ 0.31 $ 0.34 $ 0.46 $ 0.67
Diluted earnings per share
As reported $ 0.30 $ 0.34 $ 0.46 $ 0.66
Pro forma $ 0.29 $ 0.33 $ 0.44 $ 0.65
9
WAYPOINT FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(All dollar amounts presented in the tables are in thousands,
except per share data)
(Unaudited)
(2) Pending Acquisition
On March 9, 2004, Waypoint Financial announced that Sovereign Bancorp, Inc.,
parent company of Sovereign Bank, had reached a definitive agreement to acquire
Waypoint Financial. The transaction is valued at approximately $980 million,
with each share of Waypoint common stock being entitled to receive $28.00 in
cash, 1.262 shares of Sovereign common stock, or a combination thereof per
share, subject to election and allocation procedures which are intended to
ensure that, in the aggregate, 70% of the Waypoint shares will be exchanged for
Sovereign common stock and 30% will be exchanged for cash. Waypoint Financial
incurred acquisition expenses of $3.2 million relating to advisory services
during the six-month period ended June 30, 2004 associated with the pending
acquisition. The transaction is expected to close by January 31, 2005, and is
subject to approval by various regulatory agencies and Waypoint shareholders.
Waypoint Financial is obligated to pay an additional $5.7 million of acquisition
expenses relating to contingent advisory services upon consummation of the
transaction.
(3) Recently Issued Accounting Guidance
In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities, which addresses how a business
enterprise should evaluate whether it has a controlling financial interest in an
entity through means other than voting rights and accordingly should consolidate
the entity. FIN 46 Revised (FIN 46R), issued in December 2003, replaces FIN 46.
FIN 46R requires public entities to apply FIN 46 or FIN 46R to all entities that
are considered special-purpose entities in practice and under the FASB
literature that was applied before the issuance of FIN 46 by the end of the
first reporting period that ends after December 15, 2003. Waypoint Financial
does not have any investments in entities it believes are variable interest
entities for which the Company is the primary beneficiary. Accordingly, Waypoint
Financial's adoption of FIN 46 and FIN 46R did not result in the consolidation
of any variable interest entities.
In October 2003, the FASB issued SFAS No. 132 (revised 2003), "Employers'
Disclosures about Pensions and Other Postretirement Benefits," (SFAS 132R). SFAS
132R amends SFAS No. 87, "Employers' Accounting for Pensions," SFAS No. 88,
"Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits," SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," and SFAS No. 132.
SFAS 132R revised employers' disclosures about pension plans and other
postretirement benefit plans. It did not change the measurement or recognition
of those plans required by SFAS Nos. 87, 88 and 106. While retaining the
disclosure requirements of SFAS No. 132, which it replaced, SFAS 132R requires
additional disclosures about assets, obligations, cash flows, and net periodic
benefit costs of defined benefit plans and other defined benefit postretirement
plans. The provisions of SFAS 132R are generally effective for financial
statements with fiscal years ending after December 15, 2003. The interim period
disclosures required by this statement are effective for interim periods
beginning after December 15, 2003. Waypoint Financial has complied with the
required provisions of SFAS 132R. The interim period disclosures required by
this statement are omitted as they are deemed immaterial to Waypoint Financial's
consolidated financial condition and results of operations for the periods
presented.
On December 8, 2003, the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 ("the Medicare Act") was enacted. The Medicare Act
introduced both a Medicare prescription drug benefit and a federal subsidy to
sponsors of retiree health care plans that provide a benefit at least
actuarially equivalent to the Medicare benefit. Waypoint has elected to defer
accounting for the effects of the Medicare Act due to significant uncertainties
concerning how actuarial equivalency will be determined, how the subsidy payment
system will operate, and expected results of voluntary benefit elections of plan
participants. Accordingly, the accumulated post-retirement benefit obligation
and net periodic benefit cost do not reflect the effects of the Medicare Act.
On May 19, 2004, the FASB issued FAS 106-2 (FAS 106-2), Accounting and
Disclosure Requirements Related to the Medicare Prescription Drug, Improvement
and Modernization Act of 2003. Waypoint Financial expects to adopt the
provisions of FAS 106-2 effective for the interim period beginning July 1, 2004,
but has not yet determined the potential impact on Waypoint Financial's
financial condition or results of operations.
10
WAYPOINT FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(All dollar amounts presented in the tables are in thousands,
except per share data)
(Unaudited)
(4) Earnings Per Share
Basic earnings per share is based on the total weighted average shares
outstanding for a given period. Diluted earnings per share is based on total
weighted average shares outstanding, and also assumes the exercise or conversion
of all potentially dilutive instruments currently outstanding. The computations
for basic and diluted earnings per share for the three-month and six-month
periods ended June 30 are as follows:
Per Share
Income Shares Amount
---------- ---------- ---------------
For the three-month period ended June 30, 2004
Basic earnings per share $ 9,952 31,706,000 $ 0.31
Dilutive effect of stock options and grants 1,274,000 (.01)
---------- ---------- ---------------
Diluted earnings per share $ 9,952 32,980,000 $ 0.30
========== ========== ===============
For the three-month period ended June 30, 2003
Basic earnings per share $ 11,420 32,690,000 $ 0.35
Dilutive effect of stock options and grants 973,000 (.01)
---------- ---------- ---------------
Diluted earnings per share $ 11,420 33,663,000 $ 0.34
========== ========== ===============
Per Share
Income Shares Amount
---------- ---------- ---------------
For the six-month period ended June 30, 2004
Basic earnings per share $ 15,151 31,624,000 $ 0.48
Dilutive effect of stock options and grants 1,258,000 (.02)
---------- ---------- ---------------
Diluted earnings per share $ 15,151 32,882,000 $ 0.46
========== ========== ===============
For the six-month period ended June 30, 2003
Basic earnings per share $ 22,731 33,243,000 $ 0.68
Dilutive effect of stock options and grants 971,000 (.02)
---------- ---------- ---------------
Diluted earnings per share $ 22,731 34,214,000 $ 0.66
========== ========== ===============
Excluded from the computation of diluted earnings per share were anti-dilutive
options of 6,514 shares and 60,377 shares for the three months ended June 30,
2004 and June 30, 2003, respectively, and 5,762 shares and 143,399 shares for
the six months ended June 30, 2004 and June 30, 2003, respectively, because the
exercise prices were greater than the average market price of the common shares
during the respective period.
11
WAYPOINT FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(All dollar amounts presented in the tables are in thousands,
except per share data)
(Unaudited)
(5) Marketable Securities
The amortized cost, gross unrealized holding gains, gross unrealized holding
losses and fair value for trading and available-for-sale securities by major
security type were as follows:
As of June 30, 2004
--------------------------------------------------
Gross Gross
Unrealized Unrealized
Amortized Holding Holding Fair
Cost Gains Losses Value
--------------------------------------------------
Available-for-sale:
U.S. Government and agencies $ 513,496 $ - $ (10,546) $ 502,950
Corporate bonds 40,657 - (2,367) 38,290
Municipal securities 81,735 1,772 (1,743) 81,764
Equity securities 105,574 44 (3,055) 102,563
Mortgage-backed securities:
Commercial mortgage-backed securities 39,963 - (574) 39,389
Agency PC's & CMO's 1,124,833 1,835 (24,228) 1,102,440
Private issue CMO's 638,104 2,526 (3,172) 637,458
---------- ---------- ---------- ----------
Total mortgage-backed securities 1,802,900 4,361 (27,974) 1,779,287
---------- ---------- ---------- ----------
Total securities available-for-sale 2,544,362 6,177 (45,685) 2,504,854
Trading:
Rabbi Trust deferred compensation investments (a) 4,202 371 - 4,573
---------- ---------- ---------- ----------
Total trading securities 4,202 371 - 4,573
---------- ---------- ---------- ----------
Total marketable securities $2,548,564 $ 6,548 $ (45,685) $2,509,427
========== ========== ========== ==========
As of December 31, 2003
--------------------------------------------------
Gross Gross
Unrealized Unrealized
Amortized Holding Holding Fair
Cost Gains Losses Value
--------------------------------------------------
Available-for-sale:
U.S. Government and agencies $ 458,029 $ 1,164 $ (3,334) $ 455,859
Corporate bonds 66,342 - (4,462) 61,880
Municipal securities 83,201 3,301 (404) 86,098
Equity securities 153,708 4,186 (1,780) 156,114
Mortgage-backed securities:
Commercial 82,471 6 (358) 82,119
Agency PC's & CMO's 933,350 1,929 (5,342) 929,937
Private issue CMO's 722,617 151 (8,697) 714,071
---------- ---------- ---------- ----------
Total mortgage-backed securities 1,738,438 2,086 (14,397) 1,726,127
---------- ---------- ---------- ----------
Total securities available-for-sale 2,499,718 10,737 (24,377) 2,486,078
Trading:
Rabbi Trust deferred compensation investments (a) 3,434 258 - 3,692
---------- ---------- ---------- ----------
Total trading securities 3,434 258 - 3,692
---------- ---------- ---------- ----------
Total marketable securities $2,503,152 $ 10,995 $ (24,377) $2,489,770
========== ========== ========== ==========
(a) Consists primarily of equity and mutual fund investments.
12
WAYPOINT FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(All dollar amounts presented in the tables are in thousands,
except per share data)
(Unaudited)
(6) Loans Receivable, Net
The following table presents the composition of loans receivable, net, as of the
dates indicated:
June 30, December 31,
2004 2003
----------- -----------
Residential mortgage loans (principally conventional):
Secured by 1-4 family residences $ 305,586 $ 347,679
Construction (net of undistributed
portion of $26,094 and $25,580) 16,804 25,500
----------- -----------
322,390 373,179
Less:
Unearned discount (1) 6
Net deferred loan origination fees 2,042 2,321
----------- -----------
Total residential mortgage loans 320,349 370,852
----------- -----------
Commercial loans:
Commercial real estate 744,347 651,139
Commercial business 364,194 343,129
Construction and site development
(net of undistributed portion of
$36,281 and $54,163) 106,361 103,611
----------- -----------
1,214,902 1,097,879
Less:
Net deferred loan origination fees 1,608 1,853
----------- -----------
Total commercial loans 1,213,294 1,096,026
----------- -----------
Consumer and other loans:
Manufactured housing 87,552 93,323
Home equity and second mortgage 552,116 561,937
Indirect automobile 195,420 174,416
Other 116,803 106,968
----------- -----------
951,891 936,644
Plus (minus):
Net deferred loan origination fees (806) (1,035)
Deferred dealer costs 22,740 23,584
----------- -----------
Total consumer and other loans 973,825 959,193
----------- -----------
Less: Allowance for loan losses 29,553 28,431
----------- -----------
Loans receivable, net $ 2,477,915 $ 2,397,640
=========== ===========
Loans having an aggregate carrying value of $350,171,000 and $404,365,000 were
pledged as collateral for FHLB advances at June 30, 2004 and December 31, 2003,
respectively.
Waypoint Financial conducts certain residential mortgage banking activities
including the origination of mortgage loans for securitization or sale to
investors and the servicing of mortgage loans for investors. Mortgage loans
serviced for others are not included in the accompanying consolidated statements
of financial condition. The unpaid principal balances of these loans totaled
$321,057,000 and $340,937,000 at June 30, 2004 and December 31, 2003,
respectively.
13
WAYPOINT FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(All dollar amounts presented in the tables are in thousands,
except per share data)
(Unaudited)
Waypoint Financial's investment in loan servicing rights is included in the
accompanying consolidated statement of financial condition. Waypoint Financial
did not purchase or sell any mortgage servicing rights during the six-month
periods ended June 30, 2004 and 2003.
Waypoint Financial sold mortgage loans totaling $103,023,000 and $242,294,000
during the six-month periods ended June 30, 2004 and June 30, 2003,
respectively. Waypoint Financial did not exchange loans for mortgage-backed
securities during the six-month periods ended June 30, 2004 and June 30, 2003.
Investor custodial balances maintained in connection with the foregoing mortgage
servicing rights totaled $3,896,000 at June 30, 2004 and $3,836,000 at December
31, 2003.
(7) Deposits
The following table presents the composition of deposits as of the dates
indicated:
June 30, December 31,
2004 2003
----------- ------------
Savings $ 239,384 $ 252,072
Time 1,396,074 1,408,970
Transaction 831,903 560,520
Money market 332,626 499,353
----------- -----------
Total deposits $ 2,799,987 $ 2,720,915
=========== ===========
(8) Other Borrowings
The following table presents the composition of Waypoint Financial's other
borrowings as of the dates indicated:
June 30, December 31,
2004 2003
----------- ------------
FHLB advances $ 1,821,849 $ 1,827,627
Repurchase agreements 322,542 278,054
Other - 5,000
----------- ------------
Total other borrowings $ 2,144,391 $ 2,110,681
=========== ============
14
WAYPOINT FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(All dollar amounts presented in the tables are in thousands,
except per share data)
(Unaudited)
(9) Derivatives
Waypoint Financial uses derivative financial instruments as part of an overall
interest rate risk management strategy primarily to manage its exposure due to
fluctuations in market interest rates. This exposure includes the impact of
changing interest rates on cash flows from interest-bearing assets and
liabilities, as well as the impact of changing interest rates on the market
value of interest-bearing assets and liabilities.
Waypoint Financial's derivative portfolio includes derivative instruments that
are designated in fair value hedging relationships and other derivatives that
are not accounted for as hedges under SFAS No. 133.
The following table summarizes Waypoint Financial's derivatives designated as
hedges under SFAS No. 133 as of June 30, 2004 and December 31, 2003:
Number Year of Maturity Year of Call Notional Amount Fair Value
------ ---------------- ------------ --------------- ----------
As of June 30, 2004:
Callable interest rate swaps 27 2008-2019 2003-2005 $275,000 $(1,023)
Regular interest rate swaps 1 2005 - 50,000 990
Forward loan sale commitments 72 - - 7,826 (26)
-------
Total $ (59)
=======
As of December 31, 2003:
Callable interest rate swaps 27 2006-2018 2003 $270,000 $(5,577)
Regular interest rate swaps 6 2004-2005 - 200,000 4,752
Forward loan sale commitments 58 - - 6,429 (17)
-------
Total $ (842)
=======
For the six-month periods ended June 30, 2004 and 2003, ineffectiveness with the
callable interest rate swap hedging relationship was recognized but was
insignificant to earnings. No ineffectiveness was recognized in earnings with
the regular interest rate swap and the forward loan sale commitment hedging
relationships for the six-month periods ended June 30, 2004 and June 30, 2003.
Summary information regarding other derivative activities at June 30, 2004 and
December 31, 2003 follows:
Notional
Number Amount Fair Value
------ --------- ------------
As of June 30, 2004:
Interest rate cap 1 $ 250,000 $ 2,925
Interest rate lock commitments 92 11,701 11
Forward loan sale commitments 92 11,701 (64)
-------
Total $ 2,872
=======
As of December 31, 2003:
Interest rate cap 1 $ 250,000 $ 3,287
Interest rate lock commitments 54 5,523 18
Forward loan sale commitments 54 5,523 (29)
-------
Total $ 3,276
=======
15
WAYPOINT FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(All dollar amounts presented in the tables are in thousands,
except per share data)
(Unaudited)
The interest rate cap has a 2008 maturity date and a strike rate of 5.5% based
on one-month Libor. Waypoint Financial recognized a gain of $1,148,000 for the
three-month period ending June 30, 2004 and a loss of $362,000 for the six-month
period ending June 30, 2004 on the fair value of the interest rate cap
agreement.
For the six-month periods ended June 30, 2004 and June 30, 2003, gains and
losses associated with interest rate lock commitments and forward loan sale
commitments were recognized but were insignificant to earnings.
(Balance of this page is intentionally left blank.)
16
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of the significant changes
in the results of operations, capital resources and liquidity presented in its
accompanying interim consolidated financial statements for Waypoint Financial
Corp. and Subsidiaries. This discussion should be read in conjunction with the
2003 Annual Report on Form 10-K. Current performance does not guarantee and may
not be indicative of similar performance in the future.
I. Forward-Looking Statements
In addition to historical information, this report contains forward-looking
statements. The forward-looking statements contained in the following sections
are subject to certain risks and uncertainties that could cause actual results
to differ materially from those projected in the forward-looking statements.
Important factors that might cause such a difference include, but are not
limited to, interest rate trends, the general economic climate in Waypoint
Financial's market area and the country as a whole, Waypoint Financial's ability
to control costs and expenses, competitive products and pricing, loan
delinquency rates and changes in federal and state regulation. Readers should
not place undue reliance on these forward-looking statements, as they reflect
management's analysis only as of the date of this report. Waypoint Financial has
no obligation to update or revise these forward-looking statements to reflect
events or circumstances that occur after the date of this report. Readers should
carefully review the risk factors described in other documents that Waypoint
Financial files periodically with the Securities and Exchange Commission.
II. Critical Accounting Policies
Waypoint Financial's significant accounting policies are described in Note 1 of
the Notes to Consolidated Financial Statements filed in Waypoint Financial's
2003 Annual Report on Form 10-K. The preparation of financial statements in
accordance with accounting principles generally accepted in the United States
requires management to make estimates that require assumptions about highly
uncertain matters and could vary sufficiently to cause a material effect on
Waypoint Financial's financial condition or results of operations. We have
identified accounting for the allowance for loan losses, goodwill, benefit plans
and accounting for income taxes as our most critical accounting policies. These
critical accounting policies, including the nature of the estimates and types of
assumptions used, are described in Management's Discussion and Analysis of
Financial Condition and Results of Operations in Waypoint Financial's 2003
Annual Report on Form 10-K.
17
III. Market Risk and Interest Rate Sensitivity Management
Waypoint Financial monitors its interest rate risk position by utilizing
simulation analysis. Net interest income fluctuations and the net portfolio
value ratio are determined in various interest rate scenarios and monitored
against acceptable limitations established by management and approved by the
Board of Directors. Such rate scenarios include "ramped" rate changes adjusting
rates in +/- 100 basis point (bp) increments resulting in projected changes to
net interest income over the next 12 months and immediate rate shocks resulting
in projected net portfolio value ratios as indicated in the following table:
As of June 30, 2004 As of December 31, 2003
------------------------------------ --------------------------------------
Change in Percent change Net Percent change Net
interest rates in net interest portfolio in net interest portfolio
(in basis points) income (1) ratio (2) income (1) ratio (2)
---------------- --------------- --------- --------------- ----------
+300 10.20% 5.70% 6.22% 5.53%
+200 6.70 6.10 4.05 5.85
+100 3.22 6.65 1.77 6.34
0 - 7.09 - 6.54
(100) (2.81) 6.75 (3.10) 6.09
(200) (6.84) 6.04 (6.63) 5.21
(1) The percentage change in this column represents an increase (decrease) in
net interest income for 12 months in a stable interest rate environment
versus net interest income for 12 months in the various rate scenarios.
(2) The net portfolio value ratio in this column represents net portfolio
value of Waypoint Financial in various rate scenarios, divided by the
present value of expected net cash flows from existing assets in those
same scenarios. Net portfolio value is defined as the present value of
expected net cash flows from existing assets, minus the present value of
expected net cash flows from existing liabilities, plus or minus the
present value of expected net cash flows from existing off-balance-sheet
contracts.
Simulation results are influenced by a number of estimates and assumptions with
regard to embedded options, prepayment behaviors, pricing strategies and
cashflows. As of these dates, the net portfolio ratio fell within the "minimal
risk" category established under OTS guidelines for interest rate risk
measurement.
IV. Liquidity
Waypoint Financial meets its liquidity needs by either reducing its assets or
increasing its liabilities. Sources of asset liquidity include short-term
investments, securities available for sale, maturing and repaying loans, and
monthly cash flows from mortgage-backed securities. The loan portfolio provides
an additional source of liquidity due to Waypoint Financial's participation in
the secondary mortgage market and resulting ability to sell loans as necessary.
Waypoint Financial also meets its liquidity needs by attracting deposits and
utilizing borrowing arrangements with the FHLB of Pittsburgh and the Federal
Reserve Bank of Philadelphia for short and long-term loans as well as other
short-term borrowings. Waypoint Financial also occasionally uses brokered
deposits to supplement other sources of funds to the extent such deposits are
determined to have more favorable interest cost and risk characteristics at the
time of purchase relative to other sources of funding.
During the six months ended June 30, 2004, securities including FHLB stock
increased $25.1 million and loans receivable, net increased $80.3 million.
Funding for Waypoint Financial's asset growth was provided by growth in deposits
totaling $79.1 million and borrowings totaling $33.7 million. At June 30, 2004,
Waypoint Financial had $1,821.8 million in FHLB loans outstanding, a decrease of
$5.8 million during the six months then ended.
Waypoint Bank is required by OTS regulations to maintain sufficient liquidity to
ensure its safe and sound operation. Waypoint Bank had sufficient liquidity
during the six-month periods ended June 30, 2004 and June 30, 2003. The sources
of liquidity previously discussed are deemed by management to be sufficient to
fund outstanding loan commitments and meet other obligations.
18
V. Capital Resources
Waypoint had $396.1 million in stockholders' equity or 7.28% of total assets at
June 30, 2004, as compared to $402.2 million or 7.55% of total assets at
December 31, 2003. Notable changes in stockholders' equity for the six months
ended June 30, 2004 included increases of $15.2 million from net income and $3.6
million from activity related to employer stock plans. Offsetting these
increases were a decrease of $16.0 million in the market value of
available-for-sale securities (net of taxes) and dividends paid to shareholders
totaling $8.9 million.
Under OTS regulations a savings association must satisfy three minimum capital
requirements: Total capital, Tier 1 capital to risk weighted assets and Tier 1
capital to average assets. Savings associations must meet all of the standards
in order to comply with the capital requirements. At June 30, 2004, and December
31, 2003, Waypoint Bank met all three minimum capital requirements to be well
capitalized.
RISK-BASED CAPITAL RATIOS AND LEVERAGE RATIOS
WAYPOINT BANK Minimum Requirement Minimum Requirement to
Actual for Capital Adequacy be "Well Capitalized"
------------------------ -------------------------- --------------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------- ----- -------- -----
(in thousands) (in thousands) (in thousands)
As of June 30, 2004
Total Capital
(to Risk Weighted Assets) $432,989 12.6% $274,443 8.0% $343,054 10.0%
Tier 1 Capital
(to Risk Weighted Assets) 403,436 11.8 137,222 4.0 205,832 6.0
Tier 1 Capital
(to Average Assets) 403,436 7.5 215,322 4.0 269,153 5.0
As of December 31, 2003
Total Capital
(to Risk Weighted Assets) $432,167 13.1% $263,756 8.0% $329,695 10.0%
Tier 1 Capital
(to Risk Weighted Assets) 402,653 12.2 131,878 4.0 197,817 6.0
Tier 1 Capital
(to Average Assets) 402,653 7.4 216,609 4.0 270,762 5.0
A reconciliation of Waypoint Bank's regulatory capital to capital using United
States generally accepted accounting principles (GAAP) as of June 30, 2004
follows:
TIER 1
TANGIBLE (CORE) RISK-BASED
CAPITAL CAPITAL CAPITAL
-------- -------- ----------
GAAP capital at Waypoint Financial $396,130 $396,130 $396,130
Capital attributed to affiliates (4,048) (4,048) (4,048)
GAAP capital at Waypoint Bank 392,082 392,082 392,082
Capital adjustments:
Unrealized gains, net of taxes, on
securities available for sale 24,447 24,447 24,447
Allowance for loan losses - - 29,553
Certain intangible assets (12,919) (12,919) (12,919)
Disallowed servicing assets (174) (174) (174)
-------- -------- --------
Regulatory capital at Waypoint Bank $403,436 $403,436 $432,989
======== ======== ========
19
VI. Results of Operations
COMPARISON FOR THE THREE-MONTH PERIODS ENDED JUNE 30, 2004 AND JUNE 30, 2003
NET INCOME
Net income for the three months ended June 30, 2004 was $10.0 million or $.30
per share as compared to $11.4 million or $.34 per share for the three months
ended June 30, 2003. The calculation of earnings per share is presented in Note
(4) of the accompanying Notes to Consolidated Financial Statements. The
following paragraphs include a discussion of the components of net income.
NET INTEREST INCOME
Waypoint Financial's principle source of revenue is net interest income, which
represents the difference between interest income generated by earning assets
such as loans and marketable securities and interest expense on interest-bearing
liabilities such as deposits and borrowings. Net interest income can be
significantly impacted by movements in market interest rates.
Net interest income after provision for loan losses totaled $25.8 million for
the current quarter as compared to $28.4 million recorded during the quarter
ended June 30, 2003. The decrease in net interest income from the comparable
prior period came primarily from the cumulative effects of record high
prepayments during 2003 and in the first six months of 2004 on mortgage loans
and mortgage-backed securities. In the current environment, yields on new loan
and security assets acquired into portfolio are at lower rates relative to
assets being replaced. This trend is exacerbated by aggressive pricing by key
competitors in Waypoint's market for both loans and deposits, which results in
spread compression. These impacts, which were partially reduced by favorable mix
improvements in the loan and deposit portfolios, resulted in the net interest
margin ratio (tax-equivalent) decreasing to 2.22% for the current quarter from
2.44% for the quarter ended June 30, 2003.
Table 1 presents, on a tax-equivalent basis, Waypoint Financial's average asset
and liability balances, interest rates, interest income and interest expense for
each of the three-month and six-month periods ended June 30, 2004 and June 30,
2003. Table 2 presents a rate-volume analysis of changes in net interest income
on a tax-equivalent basis for the three and six-month periods ended June 30,
2004 and June 30, 2003.
Pursuant to management's evaluation of the adequacy of Waypoint's allowance for
loan losses, the provision for loan losses totaled $.9 million for the current
quarter versus $2.1 million for the quarter ended June 30, 2003. Waypoint
Financial's provision expense and allowance for loan losses are discussed in
further detail in the Asset Quality section of this report.
20
TABLE 1a AVERAGE BALANCE SHEETS, RATES AND INTEREST INCOME AND EXPENSE SUMMARY
(THREE-MONTH PERIODS)
For the three months ended,
----------------------------------------------------------------------------
June 30, 2004 June 30, 2003
Rate ------------------------------------ ------------------------------------
as of Average Average
June 30, Average Yield/ Average Yield/
2004 Balance Interest (2) Cost Balance Interest (2) Cost
-------- ----------- ------------ --------- ----------- ------------ -------
(All dollar amounts are in thousands)
Assets:
Interest-earning assets:
Loans, net (1) (5) 5.60% $ 2,480,290 $ 34,122 5.48% $ 2,420,366 $ 37,383 6.17%
Marketable securities 4.00 2,443,617 25,097 4.13 2,720,763 27,794 4.17
Other interest-earning assets 0.94 71,898 160 0.98 66,404 151 1.05
---- ----------- -------- ----- ----------- -------- -----
Total interest-earning assets 4.76 4,995,805 59,379 4.75 5,207,533 65,328 5.06
---- -------- ----- -------- -----
Noninterest-earning assets 411,252 233,851
----------- -----------
Total assets $ 5,407,057 $ 5,441,384
=========== ===========
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Savings deposits 0.22 $ 244,070 131 0.21 $ 262,658 314 0.48
Time deposits 2.78 1,354,165 9,247 2.89 1,392,343 11,686 3.37
Transaction and money market deposits 1.05 1,124,042 2,703 0.97 836,419 1,456 0.70
Escrow 0.76 3,135 6 0.79 4,400 9 0.86
Borrowed funds 3.66 2,231,662 19,839 3.49 2,469,623 20,669 3.32
---- ----------- -------- ----- ----------- -------- -----
Total interest-bearing liabilities 2.63 4,957,074 31,926 2.56 4,965,443 34,134 2.74
---- -------- ----- -------- -----
Noninterest-bearing liabilities 45,902 53,867
----------- -----------
Total liabilities 5,002,976 5,019,310
Stockholders' equity 404,081 422,074
----------- -----------
Total liabilities and
stockholders' equity $ 5,407,057 $ 5,441,384
=========== ===========
Net interest income, tax-equivalent 27,453 31,194
Interest rate spread, tax-equivalent (3) 2.13% 2.19% 2.32%
==== ===== ====
Net interest-earning assets $ 38,731 $ 242,090
=========== ===========
Net interest margin, tax-equivalent (4) 2.22% 2.44%
===== ====
Ratio of interest-earning assets
to interest-bearing liabilities 1.01x 1.05x
=========== ===========
Adjustment to reconcile tax-equivalent
net interest income to net interest income (743) (778)
-------- --------
Net interest income before
provision for loan losses $ 26,710 $ 30,416
-------- --------
(1) Includes net income recognized on deferred loan fees and costs of $151,000
for the three months ended June 30, 2004, and $726,000 for the three
months ended June 30, 2003.
(2) Interest income and yields are shown on a tax-equivalent basis using an
effective tax rate of 35%.
(3) Represents the difference between the average yield on interest-earning
assets and the average cost on interest-bearing liabilities.
(4) Represents the annualized net interest income before the provision for
loan losses divided by average interest-earning assets.
(5) Includes loans on nonaccrual status and loans held for sale.
21
TABLE 1b AVERAGE BALANCE SHEETS, RATES AND INTEREST INCOME AND EXPENSE SUMMARY
(SIX-MONTH PERIODS)
For the six months ended,
----------------------------------------------------------------------------
June 30, 2004 June 30, 2003
------------------------------------ ------------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest (2) Cost Balance Interest (2) Cost
----------- ------------ --------- ----------- ------------ -------
(All dollar amounts are in thousands)
Assets:
Interest-earning assets:
Loans, net (1) (5) $ 2,462,645 $ 68,133 5.51% $ 2,391,181 $ 74,944 6.28%
Marketable securities 2,481,736 50,756 4.12 2,719,810 56,676 4.25
Other interest-earning assets 55,594 237 0.91 65,286 314 1.12
----------- -------- ----- ----------- -------- -----
Total interest-earning assets 4,999,975 119,126 4.77 5,176,277 131,934 5.15
-------- ----- -------- -----
Noninterest-earning assets 359,518 220,886
----------- -----------
Total assets $ 5,359,493 $ 5,397,163
=========== ===========
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Savings deposits $ 246,166 258 0.21 $ 260,043 628 0.49
Time deposits 1,372,175 19,252 2.81 1,395,538 24,706 3.57
Transaction and money market deposits 1,087,852 4,725 0.87 801,614 2,597 0.65
Escrow 3,022 11 0.75 4,135 18 0.88
Borrowed funds 2,197,973 39,372 3.52 2,453,724 41,522 3.37
----------- -------- ----- ----------- -------- -----
Total interest-bearing liabilities 4,907,188 63,618 2.58 4,915,054 69,471 2.83
-------- ----- -------- -----
Noninterest-bearing liabilities 47,392 53,226
----------- -----------
Total liabilities 4,954,580 4,968,280
Stockholders' equity 404,913 428,883
----------- -----------
Total liabilities and
stockholders' equity $ 5,359,493 $ 5,397,163
=========== ===========
Net interest income, tax-equivalent 55,508 62,463
Interest rate spread, tax-equivalent (3) 2.19% 2.32%
===== =====
Net interest-earning assets $ 92,787 $ 261,223
=========== ===========
Net interest margin, tax-equivalent (4) 2.25% 2.45%
===== =====
Ratio of interest-earning assets
to interest-bearing liabilities 1.02x 1.05x
=========== ===========
Adjustment to reconcile tax-equivalent
(1,480) (1,575)
-------- --------
Net interest income before
provision for loan losses $ 54,028 $ 60,888
-------- --------
(1) Includes net income recognized on deferred loan fees and costs of $326,000
for the six months ended June 30, 2004, and $1,359,000 for the six months
ended June 30, 2003.
(2) Interest income and yields are shown on a tax-equivalent basis using an
effective tax rate of 35%.
(3) Represents the difference between the average yield on interest-earning
assets and the average cost on interest-bearing liabilities.
(4) Represents the annualized net interest income before the provision for
loan losses divided by average interest-earning assets.
(5) Includes loans on nonaccrual status and loans held for sale.
22
TABLE 2 RATE/VOLUME ANALYSIS OF CHANGES IN NET INTEREST INCOME
Three Months Ended June 30, 2004 Six Months Ended June 30, 2004
Compared to Compared to
Three Months Ended June 30, 2003 Six Months Ended June 30, 2003
Increase (Decrease) Increase (Decrease)
-------------------------------- --------------------------------
Volume Rate Net Volume Rate Net
------- -------- --------- -------- -------- --------
(Dollar amounts in thousands)
Interest-earning assets:
Loans, net $ 2,424 $ (5,685) $ (3,261) $ 2,199 $ (9,010) $ (6,811)
Marketable securities (3,049) 352 (2,697) (4,887) (1,033) (5,920)
Other interest-earning assets 18 (9) 9 (44) (33) (77)
------- -------- --------- -------- -------- --------
Total interest-earning assets (607) (5,342) (5,949) (2,732) (10,076) (12,808)
------- -------- --------- -------- -------- --------
Interest-bearing liabilities:
Savings deposits (20) (163) (183) (32) (338) (370)
Time deposits (311) (2,128) (2,439) (410) (5,044) (5,454)
Transaction and money market
deposits 599 648 1,247 1,092 1,036 2,128
Escrow (2) (1) (3) (4) (3) (7)
Borrowed funds (3,645) 2,815 (830) (4,502) 2,352 (2,150)
------- -------- --------- -------- -------- --------
Total interest-bearing liabilities (3,379) 1,171 (2,208) (3,856) (1,997) (5,853)
------- -------- --------- -------- -------- --------
Change in net interest income $ 2,772 $ (6,513) $ (3,741) $ 1,124 $ (8,079) $ (6,955)
======= ======== ========= ======== ======== ========
NONINTEREST INCOME
The table below presents a comparison of noninterest income for the three-month
and six-month periods ended June 30, 2004 and 2003.
TABLE 3 CHANGES IN NONINTEREST INCOME
Three months ended June 30
----------------------------------
2004 2003 Change %
-------- -------- ------- -----
(Dollar amounts in thousands)
Banking services and account fees $ 5,444 $ 3,924 $ 1,520 38.7%
Financial services fees 2,284 2,348 (64) (2.7)
Residential mortgage banking 1,057 1,297 (240) (18.5)
Bank-owned life insurance 1,027 1,142 (115) (10.1)
Gain on securities and derivatives, net 1,283 3,717 (2,434) (65.5)
Other (217) (1,601) 1,384 86.4
-------- -------- ------- -----
Total $ 10,878 $ 10,827 $ 51 0.5%
======== ======== ======= =====
Six months ended June 30
----------------------------------
2004 2003 Change %
-------- -------- ------- -----
(Dollar amounts in thousands)
Banking services and account fees $ 9,798 $ 7,313 $ 2,485 34.0%
Financial services fees 4,696 4,393 303 6.9
Residential mortgage banking 1,571 2,600 (1,029) (39.6)
Bank-owned life insurance 2,063 2,288 (225) (9.8)
Gain on securities and derivatives, net 6,689 5,590 1,099 19.7
Other (212) (1,928) 1,716 89.0
-------- -------- ------- -----
Total $ 24,605 $ 20,256 $ 4,349 21.5%
======== ======== ======= =====
23
Noninterest income was $10.9 million for the quarter ended June 30, 2004 as
compared to $10.8 million for the quarter ended June 30, 2003, with notable
changes between these periods as follows:
- Banking services and account fees totaled $5.4 million, up $1.5
million primarily due to increased overdraft fees, service charges,
and commercial fees. These trends reflect increased account and
transaction volumes, pricing increases, and increased service
offerings.
- Financial services fees totaled $2.3 million for both periods.
Waypoint Benefits Consulting, acquired on April 1, 2003, was
reflected in both periods and contributed an increase of $.2
million. This increase was offset by a $.2 million decrease in title
insurance income resulting from decreased refinancing activity in
the mortgage banking market.
- Residential mortgage banking income totaled $1.1 million, down $.2
million from the prior period. Within this category, net gains on
the sale of loans decreased $.9 million and loan servicing
activities including valuation adjustments resulted in a net revenue
increase of $.7 million. The loan sale results reflect both a sales
volume decrease and a decrease in the average gain per dollar of
loan principal sold. Sales volume was reduced as mortgage rates
increased during the quarter and gains were reduced as lower market
volume increased competitive pricing pressures.
- Gains on securities decreased $2.4 million in the current quarter,
primarily due to decreased sales of marketable securities. This
income category also includes gains and losses in the valuation of
an interest rate cap that does not receive hedge accounting
treatment. This valuation resulted in a gain of $1.1 million during
the current quarter and a loss of $1.1 million during the comparable
prior quarter.
- Other income resulted in a net loss of $.2 million during the
current quarter, but this was an improvement of $1.4 million on a
comparative basis. This change resulted primarily from Waypoint's
investment in certain Small Business Investment Corporation (SBIC)
partnerships, which contributed breakeven results for the current
period versus a net loss of $1.5 million for the comparable prior
period.
NONINTEREST EXPENSE
The following table presents a comparison of noninterest expense for the
three-month and six-month periods ended June 30, 2004 and 2003.
TABLE 4 CHANGES IN NONINTEREST EXPENSE
Three months ended June 30
------------------------------------
2004 2003 Change %
-------- -------- ------ -----
(Dollar amounts in thousands)
Salaries and benefits $ 12,250 $ 11,803 $ 447 3.8%
Equipment expense 1,741 1,849 (108) (5.8)
Occupancy expense 1,870 1,829 41 2.2
Marketing 1,379 1,215 164 13.5
Amortization of intangible assets 189 192 (3) (1.6)
Outside services 1,303 1,312 (9) (0.7)
Communications and supplies 1,335 1,296 39 3.0
Borrowing prepayment penalties - - - -
Acquisition expense 194 - 194 -
Other 2,138 3,276 (1,138) (34.7)
-------- -------- ------- -----
Total $ 22,399 $ 22,772 $ (373) (1.6)%
======== ======== ======= =====
24
Six months ended June 30
------------------------------------
2004 2003 Change %
-------- -------- ------ -----
(Dollar amounts in thousands)
Salaries and benefits $ 25,454 $ 23,235 $2,219 9.6%
Equipment expense 3,557 3,620 (63) (1.7)
Occupancy expense 3,891 3,751 140 3.7
Marketing 2,309 2,306 3 0.1
Amortization of intangible assets 389 312 77 24.7
Outside services 2,723 2,579 144 5.6
Communications and supplies 2,615 2,622 (7) (0.3)
Borrowing prepayment penalties 4,704 - 4,704 -
Acquisition expense 3,159 - 3,159 -
Other 4,529 6,229 (1,700) (27.3)
-------- -------- ------ -----
Total $ 53,330 $ 44,654 $8,676 19.4%
======== ======== ====== =====
Noninterest expense was $22.4 million for the quarter ended June 30, 2004 versus
$22.8 million for the quarter ended June 30, 2003, with notable changes between
these periods as follows:
- Salaries and benefits expense totaled $12.2 million, up $.4 million.
Increases from expansion in the retail banking franchise and
increased investment in sales and marketing personnel were partially
offset by attrition in non-essential operational positions in
advance of the Sovereign integration of Waypoint.
- Marketing expenses increased $.2 million on increased product
advertising.
- Expenses associated with the Sovereign acquisition totaled $.2
million, with no corresponding expenses in the comparable prior
quarter.
- Other expenses decreased $1.2 million, which included a $.7 million
decrease in loan servicing and other non-deferrable loan costs. The
remaining decrease of $.5 million was spread over other expense
categories, which are generally being managed downward in advance of
the integration with Sovereign.
PROVISION FOR INCOME TAXES
Income tax expense for the current quarter totaled $4.3 million, resulting in an
effective tax rate of 30.3% on income before taxes of $14.3 million. For the
quarter ended June 30, 2003, income taxes were $5.0 million, resulting in an
effective tax rate of 30.4% on income before taxes of $16.4 million.
COMPARISON FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2004 AND JUNE 30, 2003
NET INCOME
Net income for the six months ended June 30, 2004 was $15.2 million or $.46 per
share as compared to $22.7 million or $.66 per share for the six months ended
June 30, 2003. The calculation of earnings per share is presented in Note (4) of
the accompanying Notes to Consolidated Financial Statements. The following
paragraphs include a discussion of the components of net income.
NET INTEREST INCOME
Net interest income after provision for loan losses totaled $51.2 million for
the six months ended June 30, 2004, which represents a decrease of $5.2 million
from $56.4 million for the six months ended June 30, 2003. The decrease in net
interest income came primarily from the cumulative effects of record high
prepayments during 2003 and in the first six months of 2004 on mortgage loans
and mortgage-backed securities. In the current environment, yields on new loan
and security assets acquired into portfolio are at lower rates relative to
assets being replaced. This trend is exacerbated by aggressive pricing by key
competitors in Waypoint's market for both loans and deposits, which results in
spread compression. These impacts, which were partially reduced by favorable mix
improvements in the loan and deposit portfolios, resulted in the net interest
margin ratio (tax-equivalent) decreasing to 2.25% for the six months ended June
30, 2004 from 2.45% for the six months ended June 30, 2003.
25
Pursuant to management's evaluation of the adequacy of Waypoint's allowance for
loan losses, the provision for loan losses decreased to $2.8 million for the six
months ended June 30, 2004 from $4.5 million for the comparable prior period.
Waypoint Financial's provision expense and allowance for loan losses are
discussed in further detail in the Asset Quality section of this report.
NONINTEREST INCOME
Noninterest income was $24.6 million for the six months ended June 30, 2004, up
$4.3 million or 21.5% from $20.3 million for the comparable prior period.
Notable changes in the six months ended June 30, 2004 versus the six months
ended June 30, 2003 included:
- Banking services and account fees totaled $9.8 million, up $2.5
million on increased overdraft and NSF fees, ATM and debit card fees
and commercial credit and other fees.
- Financial services fees totaled $4.7 million, up $.3 million. Within
this category, insurance fees from Waypoint Benefits Consulting
which was acquired April 1, 2003 increased $1.0 million. Partially
offsetting this increase was a $.7 million decrease in title
insurance fees due to the slowdown in mortgage banking activity
during 2004.
- Residential mortgage banking income totaled $1.6 million, down $1.0
million. Within this category, net gains on the sale of loans
decreased $2.1 million as refinancing activity slowed significantly
during the current period due to rising mortgage interest rates. The
decrease in net selling gains was partially offset by a $1.1 million
improvement in loan servicing income, which was enhanced by an
improvement of $.3 million in the valuation of loan servicing
rights.
- Gains on securities and derivatives were $6.7 million in the period,
up $1.1 million. Waypoint Financial recognized a $.4 million loss in
the current period and a $1.1 million loss in the comparable prior
period on the fair value of an interest rate cap that was acquired
to manage interest rate risk associated with the valuation of
marketable securities.
- Other income resulted in a net loss of $.2 million during the
current period, but this was an improvement of $1.7 million on a
comparative basis. This change resulted primarily from Waypoint's
investment in certain SBIC partnerships, which contributed breakeven
results for the current period versus a net loss of $1.5 million for
the comparable prior period.
NONINTEREST EXPENSE
Noninterest expense was $53.3 million for the six months ended June 30, 2004, up
$8.7 million from $44.7 million for the comparable prior period. Notable changes
in the current period included:
- Salaries and benefits expense totaled $25.5 million, up $2.2
million. The increase was due primarily to annual merit raises and
staffing increases in the banking and financial services business
lines.
- Waypoint Financial incurred $4.7 million in borrowing prepayment
expenses to restructure certain wholesale investment leverage
positions during the current period with no corresponding expenses
in the comparable prior period.
- Acquisition expenses associated with the Sovereign acquisition of
Waypoint Financial totaled $3.2 million during the current period
with no corresponding expenses in the comparable prior period. The
acquisition expenses of $3.2 million included $2.9 million in
investment advisory fees and $.3 million in legal and other fees
associated with the acquisition.
- Other expenses decreased $1.7 million, which included a $1.2 million
decrease in loan servicing and other non-deferrable loan costs. The
remaining decrease of $.5 million was spread over other expense
categories, which are generally being managed downward in advance of
the integration with Sovereign.
PROVISION FOR INCOME TAXES
Income tax expense for the six months ended June 30, 2004 totaled $7.3 million,
or an effective tax rate of 32.7% on income before taxes of $22.5 million. This
compares to income taxes of $9.3 million and an effective tax rate of 29.0% on
income before taxes of $32.0 million. The increase in the effective tax rate in
the current period reflects the impact of approximately $3.0 million of
acquisition expenses that are not deductible for income tax purposes.
26
VII. Financial Condition
MARKETABLE SECURITIES
Marketable securities including FHLB stock totaled $2.613 billion at June 30,
2004, which is comparable to the total of $2.588 billion at December 31, 2003.
Note (5) of the Notes to Consolidated Financial Statements presents the
composition of the marketable securities portfolio as of June 30, 2004 and
December 31, 2003.
LOANS RECEIVABLE, NET
Waypoint Financial continued to increase the weighting of commercial and
consumer loans in the loan portfolio during the six months ended June 30, 2004.
Gross commercial loans increased $117.0 million or 10.7% and gross consumer and
other loans increased $15.2 million or 1.6%. Waypoint Financial attributes the
substantial growth in the commercial loan portfolio primarily to improved
economic conditions and to continued effective sales and marketing efforts.
Offsetting these increases, residential mortgage loans decreased $50.8 million
or 13.6% as Waypoint Financial continued to sell substantially all residential
mortgage originations and prepayments, which slowed relative to speeds
experienced in 2003, still continued at a high level on mortgage loans held in
portfolio. The composition of loans receivable, net is included in Note (6) of
the accompanying Notes to Consolidated Financial Statements.
LOAN COMMITMENTS
Waypoint Financial issues loan commitments to prospective borrowers conditioned
on the occurrence of certain events. Commitments are made in writing on
specified terms and conditions and are generally honored for up to 60 days from
approval. Waypoint Financial had loan commitments and unadvanced loans and lines
of credit totaling $869.7 million at June 30, 2004 and $709.3 million at
December 31, 2003. Discussion regarding the composition and funding of loan
commitments is presented in Note (14) of the consolidated financial statements
in the 2003 Annual Report on Form 10-K.
LOAN QUALITY
Waypoint Financial continued to maintain sound credit quality in the loan
portfolio during the six months ended June 30, 2004. Management attributes this
performance to consistently strong underwriting standards and credit and
collections management. Waypoint Financial follows a comprehensive loan policy
that details credit underwriting, credit management and loan loss provisioning
techniques.
Non-performing loans totaled $18.8 million or 0.75% of total loans as of June
30, 2004 as compared to $18.2 million or 0.76% of total loans as of December 31,
2003. Waypoint Financial's allowance for loan losses was $29.6 million or 1.18%
of total loans as of June 30, 2004 as compared to $28.4 million or 1.17% of
total loans as of December 31, 2003. Net loan charge-offs as a percentage of
average loans outstanding totaled 0.14% on an annualized basis for the six
months ended June 30, 2004 as compared to 0.27% for the six months ended June
30, 2003.
27
NON-PERFORMING ASSETS
The following table sets forth information regarding non-accrual loans, loans
delinquent 90 days or more and still accruing, and other non-performing assets
as of the dates indicated:
As of As of
June 30, 2004 December 31, 2003
------------- -----------------
(Amounts in thousands)
Non-accrual residential mortgage loans $ 228 $ 443
Non-accrual commercial loans 7,107 8,173
Non-accrual other loans 528 90
------------- -----------------
Total non-accrual loans 7,863 8,706
Loans 90 days or more delinquent and still accruing 10,938 9,498
------------- -----------------
Total non-performing loans 18,801 18,204
Total foreclosed other assets 416 313
Total foreclosed real estate 252 472
------------- -----------------
Total non-performing assets $ 19,469 $ 18,989
============= =================
Total non-performing loans to total loans 0.75% 0.76%
============= =================
Allowance for loan losses to non-performing loans 157.19% 156.18%
============= =================
Total non-performing assets to total assets 0.36% 0.36%
============= =================
ALLOWANCE FOR LOAN LOSSES
The following table summarizes the activity in Waypoint Financial's allowance
for loan losses for the periods indicated:
For the For the
three months ended six months ended
June 30, 2004 June 30, 2003 June 30, 2004 June 30, 2003
----------------------------- -----------------------------
(Amounts in thousands)
Balance at beginning of period $ 29,295 $ 27,898 $ 28,431 $ 27,506
Provision for loan losses 902 2,064 2,803 4,485
Charge-offs:
Residential mortgage loans (131) (99) (189) (319)
Commercial loans (1) (136) (97) (1,113)
Consumer and other loans (802) (1,227) (1,898) (2,502)
------------- ------------- ------------- -------------
Total charge-offs (934) (1,462) (2,184) (3,934)
------------- ------------- ------------- -------------
Recoveries:
Residential mortgage loans 35 68 35 81
Commercial loans 56 29 119 292
Consumer and other loans 199 221 349 388
------------- ------------- ------------- -------------
Total recoveries 290 318 503 761
------------- ------------- ------------- -------------
Net charge-offs (644) (1,144) (1,681) (3,173)
------------- ------------- ------------- -------------
Balance at end of period $ 29,553 $ 28,818 $ 29,553 $ 28,818
============= ============= ============= =============
Annualized net charge-offs
to average loans outstanding 0.10% 0.19% 0.14% 0.27%
============= ============= ============= =============
Allowance for loan losses as
a percentage of total loans 1.18% 1.20% 1.18% 1.20%
============= ============= ============= =============
28
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
The following table sets forth the composition of the allowance for loan losses
as of the dates indicated:
As of June 30, 2004 As of December 31, 2003
------------------- -----------------------
(Dollar amounts in thousands)
%of Total %of Total
Amount Reserves Amount Reserves
-------- -------- -------- --------
Residential mortgage loans $ 882 2.98% $ 1,099 3.86%
Commercial loans 22,985 77.78 20,455 71.95
Consumer and other loans 5,686 19.24 6,877 24.19
-------- ------ -------- ------
Total $ 29,553 100.00% $ 28,431 100.00%
======== ====== ======== ======
DEPOSITS
During the six months ended June 30, 2004, deposits increased $79.1 million to
$2.800 billion from $2.721 billion at December 31, 2003. Within the deposit
portfolio, Waypoint Financial experienced substantial growth in its lower-cost
transaction deposits, which increased $271.4 million or 48.4%. This growth in
transaction deposit balances resulted from a combination of pricing incentives
and increased marketing and sales emphasis on this deposit product line.
Partially offsetting this growth was a combined decrease of $192.3 million in
money market, savings, and time deposits. The composition of the deposit
portfolio is included in Note (7) of the accompanying Notes to Consolidated
Financial Statements.
OTHER BORROWINGS
Other borrowings increased to $2.144 billion as of June 30, 2004, which is
comparable to the total of $2.111 billion as of December 31, 2003. The
composition of the borrowing portfolio is included in Note (8) of the
accompanying Notes to Consolidated Financial Statements.
Item 3 Quantitative and Qualitative Disclosures about Market Risk
Reference Item 2, Section III.
Item 4 Controls and Procedures
Waypoint Financial's Chief Executive Officer and Chief Financial Officer have
concluded, based on an evaluation of the effectiveness of its disclosure
controls and procedures pursuant to Rule 13(a)-15(b), that Waypoint Financial's
disclosure controls and procedures (as defined in Rule 13a-15(e)) are effective
in ensuring that all material information required to be filed in this quarterly
report has been made known in a timely manner.
There were no changes in Waypoint Financial's internal controls over financial
reporting that occurred during the fiscal quarter ending June 30, 2004 that have
materially affected, or are reasonably likely to materially affect, Waypoint
Financial's internal controls over financial reporting.
29
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. None.
Item 2. Changes in Securities and Use of Proceeds. None.
Item 3. Defaults Upon Senior Securities. None.
Item 4. Submission of Matters to a Vote of Security Holders. None.
Item 5. Other information. None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
31.1 Certification of the Company's Chief
Executive Officer pursuant to Rule 13a-15 or
15d-15 of the Securities Exchange Act of
1934, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2 Certification of the Company's Chief
Financial Officer pursuant to Rule 13a-15 or
15d-15 of the Securities Exchange Act of
1934, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
32.1 Certification of the Company's Chief
Executive Officer pursuant to 18 U. S. C.
Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of the Company's Chief
Financial Officer pursuant to 18 U. S. C.
Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
1. Incorporated by reference, the Company's
Report on Form 8-K/A dated July 26, 2004,
reported second quarter financial results
and the declaration of a regular quarterly
cash dividend.
2. Incorporated by reference, the Company's
Report on Form 8-K dated July 29, 2004,
reported the promotion of Andrew S. Samuel
to the position of President and Chief
Operating Officer of its subsidiary Waypoint
Bank.
30
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WAYPOINT FINANCIAL CORP.
(Registrant)
By /s/ David E. Zuern
----------------------
David E. Zuern
President and
Chief Executive Officer
By /s/ James H. Moss
----------------------
James H. Moss,
Senior Executive Vice President
and Chief Financial Officer
Dated: August 6, 2004
31