UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 2002
------------------
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 000-27205
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PEOPLES BANCORP OF NORTH CAROLINA, INC.
---------------------------------------
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 56-2132396
- -------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
518 WEST C STREET
NEWTON, NORTH CAROLINA 28658
---------------------- -----
(Address of principal executive office) (Zip Code)
(828) 464-5620
--------------
(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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
3,133,547 SHARES OF COMMON STOCK, NO PAR VALUE, OUTSTANDING AT NOVEMBER 13,
- --------------------------------------------------------------------------------
2002.
- -----
INDEX
PART I - FINANCIAL INFORMATION PAGE(S)
Item 1. Financial Statements
Consolidated Balance Sheets at September 30, 2002
(Unaudited) and December 31, 2001 3
Consolidated Statements of Earnings for the three
months ended September 30, 2002 and September 30, 2001
(Unaudited), and for the nine months ended September
30, 2002 and September 30, 2001 (Unaudited) 4
Consolidated Statements of Comprehensive Income for the
three months ended September 30, 2002 and September 30,
2001 (Unaudited), and for the nine months ended
September 30, 2002 and September 30, 2001 (Unaudited) 5
Consolidated Statements of Cash Flows for the nine
months ended September 30, 2002 and September 30, 2001
(Unaudited) 6-7
Notes to Consolidated Financial Statements (Unaudited) 8-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-16
Item 3. Quantitative and Qualitative Disclosures About Market
Risk 17
Item 4. Controls and Procedures 18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities and Use of Proceeds 19
Item 3. Defaults upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19-20
Signatures 21
Certifications 22-23
This Form 10-Q contains forward-looking statements. These statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those anticipated in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
changes in interest rate environment, management's business strategy, national,
regional, and local market conditions and legislative and regulatory conditions.
Readers should not place undue reliance on forward-looking statements,
which reflect management's view only as of the date hereof. The Company
undertakes no obligation to publicly revise these forward-looking statements to
reflect subsequent events or circumstances. Readers should also carefully
review the risk factors described in other documents the Company files from time
to time with the Securities and Exchange Commission.
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PEOPLES BANCORP OF NORTH CAROLINA, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, December 31,
Assets 2002 2001
------ -------------- -------------
(Unaudited)
Cash and due from banks $ 14,822,792 13,042,320
Federal funds sold 3,045,000 2,261,000
-------------- -------------
Cash and cash equivalents 17,867,792 15,303,320
-------------- -------------
Investment securities available for sale 75,258,103 84,286,037
Other investments 4,902,773 4,602,773
-------------- -------------
Total securities 80,160,876 88,888,810
-------------- -------------
Mortgage loans held for sale 5,342,705 5,338,931
Loans, net 503,369,476 484,517,151
Premises and equipment, net 15,148,833 14,679,191
Cash surrender value of life insurance 4,767,281 4,583,000
Accrued interest receivable and other assets 6,537,452 6,194,301
-------------- -------------
Total assets $ 633,194,415 619,504,704
============== =============
Liabilities and Shareholders' Equity
------------------------------------
Deposits:
Non-interest bearing demand $ 66,453,485 56,826,130
NOW, MMDA & savings 157,503,640 145,591,866
Time, $100,000 or more 158,360,558 156,034,091
Other time 125,093,632 131,771,102
-------------- -------------
Total deposits 507,411,315 490,223,189
Demand notes payable to U.S. Treasury 1,600,000 117,987
FHLB borrowings 59,821,429 68,214,286
Trust preferred securities 14,000,000 14,000,000
Accrued interest payable and other liabilities 2,179,514 1,548,139
-------------- -------------
Total liabilities 585,012,258 574,103,601
-------------- -------------
Shareholders' equity:
Preferred stock, no par value; authorized
5,000,000 shares; no shares issued
and outstanding - -
Common stock, no par value; authorized
20,000,000 shares; issued and
outstanding 3,133,547 shares in 2002
and 3,218,714 shares in 2001 35,097,773 36,407,798
Retained earnings 11,797,862 9,915,399
Accumulated other comprehensive income 1,286,522 (922,094)
-------------- -------------
Total shareholders' equity 48,182,157 45,401,103
-------------- -------------
Total liabilities and shareholders' equity $ 633,194,415 619,504,704
============== =============
See accompanying notes to consolidated financial statements.
3
PEOPLES BANCORP OF NORTH CAROLINA, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings (Unaudited)
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, 2002 September 30, 2001 September 30, 2002 September 30, 2001
------------------- ------------------ ------------------ ------------------
Interest Income:
Interest and fees on loans $ 8,204,934 9,086,321 23,959,509 28,302,751
Interest on federal funds sold 2,661 63,627 26,509 103,887
Interest on investment securities:
U.S. Government agencies 870,809 1,063,023 2,744,381 2,920,393
States and political subdivisions 140,161 222,524 469,795 709,852
Other 125,287 132,621 372,284 314,803
------------------- ------------------ ------------------ ------------------
Total interest income 9,343,852 10,568,116 27,572,478 32,351,686
------------------- ------------------ ------------------ ------------------
Interest expense:
NOW, MMDA & savings deposits 549,096 777,098 1,598,442 2,392,574
Time deposits 2,237,246 4,516,969 8,206,010 13,892,349
FHLB borrowings 663,681 650,895 2,000,613 1,493,793
Trust preferred securities 183,750 - 551,250 -
Other 4,959 7,432 17,087 76,141
------------------- ------------------ ------------------ ------------------
Total interest expense 3,638,732 5,952,394 12,373,402 17,854,857
------------------- ------------------ ------------------ ------------------
Net interest income 5,705,120 4,615,722 15,199,076 14,496,829
Provision for loan losses 1,577,500 759,788 3,343,600 1,641,988
------------------- ------------------ ------------------ ------------------
Net interest income after provision
for loan losses 4,127,620 3,855,934 11,855,476 12,854,841
------------------- ------------------ ------------------ ------------------
Other income:
Service charges 799,230 712,574 2,208,713 2,049,548
Other service charges and fees 97,798 105,740 374,856 337,494
Gain (loss) on sale of securities 625,616 512,830 625,616 707,557
Mortgage banking income 138,148 226,336 538,014 682,010
Insurance and brokerage commissions 131,287 102,446 353,156 267,114
Miscellaneous 277,967 449,989 899,412 1,658,413
------------------- ------------------ ------------------ ------------------
Total other income 2,070,046 2,109,915 4,999,767 5,702,136
------------------- ------------------ ------------------ ------------------
Other expense:
Salaries and employee benefits 2,459,645 2,001,725 7,313,518 6,838,724
Occupancy 827,228 774,685 2,340,301 2,237,166
Other 907,268 1,087,574 2,948,324 3,317,971
------------------- ------------------ ------------------ ------------------
Total other expenses 4,194,141 3,863,984 12,602,143 12,393,861
------------------- ------------------ ------------------ ------------------
Earnings before income taxes 2,003,525 2,101,865 4,253,100 6,163,116
Income taxes 709,800 715,600 1,427,200 2,055,400
------------------- ------------------ ------------------ ------------------
Net earnings $ 1,293,725 1,386,265 2,825,900 4,107,716
=================== ================== ================== ==================
Basic earnings per share $ 0.41 0.43 0.89 1.28
=================== ================== ================== ==================
Diluted earnings per share $ 0.41 0.43 0.89 1.27
=================== ================== ================== ==================
Cash dividends declared per share $ 0.10 0.10 0.30 0.30
=================== ================== ================== ==================
See accompanying notes to consolidated financial statements.
4
PEOPLES BANCORP OF NORTH CAROLINA, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Unaudited)
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, 2002 September 30, 2001 September 30, 2002 September 30, 2001
------------------ ------------------ ------------------ ------------------
Net earnings $ 1,293,725 1,386,265 2,825,900 4,107,716
------------------ ------------------ ------------------ ------------------
Other comprehensive income, net
of tax:
Unrealized gains on
investment securities, net
of taxes of $593,726,
$346,747, $1,114,489
and $719,321,
respectively 930,603 543,489 1,746,844 1,127,460
Unrealized gain on derivative
financial instruments
qualifying as cash flow
hedges, net of tax of
$460,389 and $538,289,
respectively 721,611 - 843,711 -
Reclassification
adjustment for (gains)
included in net earnings,
net of taxes of $(243,677),
$(199,747), $(243,677) and
$(275,593), respectively (381,939) (313,083) (381,939) (431,964)
------------------ ------------------ ------------------ ------------------
Other comprehensive income 1,270,275 230,406 2,208,616 695,496
------------------ ------------------ ------------------ ------------------
Comprehensive income 2,564,000 1,616,671 5,034,516 4,803,212
================== ================== ================== ==================
See accompanying notes to consolidated financial statements.
5
PEOPLES BANCORP OF NORTH CAROLINA, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
Nine months ended September 30, 2002 and 2001
2002 2001
------------- ------------
Cash flows from operating activities:
Net earnings $ 2,825,900 4,107,716
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation, amortization and accretion 1,235,434 1,166,392
Provision for loan losses 3,343,600 1,641,988
Gain on sale of investment securities (625,616) (707,557)
Gain on sale of mortgage loans (20,474) (18,489)
Gain on sale of premises and equipment (4,424) (2,818)
Loss (gain) on sale of other real estate (19,596) 16,840
Increase in cash value life insurance (184,281) -
Change in:
Other assets (785,082) 476,328
Other liabilities 631,375 (688,238)
Mortgage loans held for sale 16,700 (735,346)
------------- ------------
Net cash provided by operating activities 6,413,536 5,256,816
------------- ------------
Cash flows from investing activities:
Purchases of investment securities available-for-sale (35,717,125) (71,634,940)
Proceeds from calls and maturities of investment securities
available for sale 12,399,688 15,066,859
Proceeds from sales of investment securities available for sale 35,191,263 39,736,019
Purchase of other investments (300,000) (1,457,400)
Net change in loans (22,408,151) (58,857,773)
Purchase of premises and equipment (1,799,430) (3,474,006)
Proceeds from sale of premises and equipment 388,329 523,595
Proceeds from sale of other real estate 465,761 60,310
------------- ------------
Net cash used in investing activities (11,779,665) (80,037,336)
------------- ------------
Cash flows from financing activities:
Net change in deposits 17,188,126 47,717,894
Net change in demand notes payable to U.S. Treasury 1,482,013 -
Net proceeds (repayments of) FHLB borrowings (8,392,857) 30,857,144
Transaction costs associated with trust preferred securities (93,219) -
Common stock repurchased (1,314,250) -
Proceeds from exercise of options 4,225 -
Cash dividends (943,437) (965,615)
------------- ------------
Net cash provided by financing activities 7,930,601 77,609,423
------------- ------------
Net change in cash and cash equivalents 2,564,472 2,828,903
Cash and cash equivalents at beginning of period 15,303,320 18,639,197
------------- ------------
Cash and cash equivalents at end of period $ 17,867,792 21,468,100
============= ============
6
PEOPLES BANCORP OF NORTH CAROLINA, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
Nine months ended September 30, 2002 and 2001
(Continued)
2002 2001
----------- ----------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $12,578,607 17,871,361
Income taxes $ 1,161,500 2,420,593
Noncash investing and financing activities:
Change in net unrealized gain (loss) on investment securities
available for sale and derivative financial instruments, net of tax $ 2,208,616 695,496
Transfer of loans to other real estate $ 212,226 195,000
See accompanying notes to consolidated financial statements.
7
PEOPLES BANCORP OF NORTH CAROLINA, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(1) Summary of Significant Accounting Policies
----------------------------------------------
The consolidated financial statements include the financial statements of
Peoples Bancorp of North Carolina, Inc. and its wholly owned subsidiaries,
PEBK Capital Trust I and Peoples Bank, along with its wholly owned
subsidiaries, Peoples Investment Services, Inc. and Real Estate Advisory
Services, Inc. (collectively called the "Company"). All significant
intercompany balances and transactions have been eliminated in
consolidation.
The Company's accounting policies are fundamental to understanding
management's discussion and analysis of results of operations and financial
condition. Many of the Company's accounting policies require significant
judgment regarding valuation of assets and liabilities and/or significant
interpretation of the specific accounting guidance. A description of the
Company's significant accounting policies can be found in Note 1 of the
Notes to Consolidated Financial Statements in the Company's 2002 Annual
Report to Shareholders which is Appendix A to the Proxy Statement for the
May 2, 2002 Annual Meeting of Shareholders. The following is a summary of
the more judgmental and complex accounting policies of the Company.
Many of the Company's assets and liabilities are recorded using various
valuation techniques that require significant judgment as to
recoverability. The collectability of loans is reflected through the
Company's estimate of the allowance for loan losses. The Company performs
periodic and systematic detailed reviews of its lending portfolio to assess
overall collectability. In addition, certain assets and liabilities are
reflected at their estimated fair value in the consolidated financial
statements. Such amounts are based on either quoted market prices or
estimated values derived by the Company utilizing dealer quotes or market
comparisons.
There are other complex accounting standards that require the Company to
employ significant judgment in interpreting and applying certain of the
principles prescribed by those standards. These judgments include, but are
not limited to, the determination of whether a financial instrument or
other contract meets the definition of a derivative in accordance with
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS 133), and the
applicable hedge deferral criteria and the accounting for the transfer of
financial assets and extinguishments of liabilities in accordance with the
Statement of Financial Accounting Standards No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities" (SFAS 140).
The consolidated financial statements in this report are unaudited. In the
opinion of management, all adjustments (none of which were other than
normal accruals) necessary for a fair presentation of the financial
position and results of operations for the periods presented have been
included.
Management of the Company has made a number of estimates and assumptions
relating to reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these consolidated financial
statements in conformity with generally accepted accounting principles.
Actual results could differ from those estimates.
(2) Allowance for Loan Losses
----------------------------
The following is an analysis of the allowance for loan losses for the nine
months ended September 30, 2002 and 2001:
2002 2001
------------ ----------
Balance, beginning of period $ 6,090,570 4,713,227
Provision for loan losses 3,343,600 1,641,988
Less:
Charge-offs (2,026,485) (608,455)
Recoveries 105,360 160,567
------------ ----------
Net charge-offs (1,921,125) (447,888)
------------ ----------
Balance, end of period $ 7,513,045 5,907,327
============ ==========
8
(3) Net Earnings Per Share
-------------------------
Net earnings per common share is based on the weighted average number of
common shares outstanding during the period while the effects of potential
common shares outstanding during the period are included in diluted
earnings per share. The average market price during the year is used to
compute equivalent shares.
The reconciliation of the amounts used in the computation of both "basic
earnings per share" and "diluted earnings per share" for the three months
and nine months ended September 30, 2002 is as follows:
For the three months ended September 30, 2002
---------------------------------------------
Net Common Per Share
Earnings Shares Amount
-------------- --------- ----------
Basic earnings per share $ 1,293,725 3,143,243 $ 0.41
==========
Effect of dilutive securities:
Stock options - 5,452
-------------- ---------
Diluted earnings per share $ 1,293,725 3,148,695 $ 0.41
============== ========= ==========
For the nine months ended September 30, 2002
--------------------------------------------
Net Common Per Share
Earnings Shares Amount
-------------- --------- ----------
Basic earnings per share $ 2,825,900 3,158,185 $ 0.89
==========
Effect of dilutive securities:
Stock options - 8,736
-------------- ---------
Diluted earnings per share $ 2,825,900 3,166,921 $ 0.89
============== ========= ==========
The reconciliation of the amounts used in the computation of both "basic
earnings per share" and "diluted earnings per share" for the three months
and nine months ended September 30, 2001 is as follows:
For the three months ended September 30, 2001
---------------------------------------------
Net Common Per Share
Earnings Shares Amount
------------ --------- ---------
Basic earnings per share $ 1,386,265 3,218,714 $ 0.43
=========
Effect of dilutive securities:
Stock options - 18,403
------------ ---------
Diluted earnings per share $ 1,386,265 3,237,117 $ 0.43
============ ========= =========
For the nine months ended September 30, 2001
--------------------------------------------
Net Common Per Share
Earnings Shares Amount
------------ --------- ---------
Basic earnings per share $ 4,107,716 3,218,714 $ 1.28
=========
Effect of dilutive securities:
Stock options - 10,768
------------ ---------
Diluted earnings per share $ 4,107,716 3,229,482 $ 1.27
============ ========= =========
9
(4) Derivative Instruments and Hedging Activities
-------------------------------------------------
In the normal course of business, the Company enters into derivative
contracts to manage interest rate risk by modifying the characteristics of
the related balance sheet instruments in order to reduce the adverse effect
of changes in interest rates. All derivative financial instruments are
recorded at fair value in the financial statements.
On the date a derivative contract is entered into, the Company designates
the derivative as a fair value hedge, a cash flow hedge, or a trading
instrument. Changes in the fair value of instruments used as fair value
hedges are accounted for in the earnings of the period simultaneous with
accounting for the fair value change of the item being hedged. Changes in
the fair value of the effective portion of cash flow hedges are accounted
for in other comprehensive income rather than earnings. Changes in fair
value of instruments that are not intended as a hedge are accounted for in
the earnings of the period of the change.
The Company formally documents all hedging relationships, including an
assessment that the derivative instruments are expected to be highly
effective in offsetting the changes in fair values or cash flows of the
hedged items.
As of September 30, 2002, the Company had cash flow hedges with a notional
amount of $60 million. These derivative instruments consisted of two
interest rate swap agreements that were used to convert floating rate loans
to fixed rate for a period of two years ending in June 2004 and July 2004.
Interest rate swap agreements generally involve the exchange of fixed and
variable rate interest payments between two parties, based on a common
notional principal amount and maturity date. The terms of the swaps are
determined based on management's assessment of future interest rates and
other factors. The Company recorded an asset of $1.4 million for the fair
value of these cash flow hedges resulting in an after-tax increase in other
comprehensive income of $843,700. As of September 30, 2002, no
ineffectiveness was recorded in earnings.
(5) Commitments and Contingencies
-------------------------------
The Company is party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend
credit, standby letters of credit and financial guarantees. Those
instruments involve, to varying degrees, elements of credit risk in excess
of the amount recognized in the balance sheet. The contract amounts of
those instruments reflect the extent of involvement the Company has in
particular classes of financial instruments. At September 30, 2002, the
contractual amounts of the Company's commitments to extend credit and
standby letters of credit were $100.6 million and $2.2 million,
respectively.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates and because they may
expire without being drawn upon, the total commitment amount of $100.6
million does not necessarily represent future cash requirements. Standby
letters of credit and financial guarantees written are conditional
commitments issued by the Company to guarantee the performance of a
customer to a third party.
The Company has an overall interest rate-risk management strategy that
incorporates the use of derivative instruments to minimize significant
unplanned fluctuations in earnings that are caused by interest rate
volatility. By using derivative instruments, the Company is exposed to
credit and market risk. If the counterparty fails to perform, credit risk
is equal to the extent of the fair-value gain in the derivative. The
Company minimizes the credit risk in derivative instruments by entering
into transactions with high-quality counterparties that are reviewed
periodically by the Company.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Summary. Net earnings for the third quarter of 2002 were $1.3 million, a
decrease of $93,000 or 7% from the $1.4 million earned in the same period in
2001. Basic and diluted earnings per share for the quarter ended September 30,
2002 decreased to $0.41 from $0.43 in the comparable period of 2001. The
decrease in earnings is primarily attributable to an increase in the provision
for loan losses and increased non-interest expense partially offset by increased
net interest income. The annualized return on average assets was 0.83% for the
three months ended September 30, 2002 compared to 0.92% for the same period in
2001, and annualized return on average shareholders' equity was 10.77% for the
three months ended September 30, 2002 compared to 11.75% for the same period in
2001.
Net earnings for the nine months ended September 30, 2002 were $2.8
million, a decrease of 31% from the $4.1 million earned in the first nine months
of 2001. Basic earnings per share for this period decreased to $0.89 from $1.28
for the nine months ended September 30, 2001. Diluted earnings per share for the
nine months ended September 30, 2002 and 2001 were $0.89 and $1.27,
respectively. The decrease in earnings was primarily due to an increase in the
provision for loan losses, increased non-interest expense and decreased
non-interest income. These were partially offset by an increase in net interest
income. Annualized return on average assets was 0.61% for the first nine months
of 2002 compared to 0.97% for the same period in 2001, and annualized return on
average shareholders' equity was 7.95% versus 11.65%, respectively.
Net Interest Income. Net interest income, the major component of the
Company's net income, was $5.7 million for the three months ended September 30,
2002 an increase of 24% over the $4.6 million earned in the same period in 2001.
The increase in 2002 third quarter net interest income was primarily
attributable to a decrease in the cost of funds.
Interest income decreased $1.2 million or 12% for the three months ended
September 30, 2002 compared with the same period in 2001. The decrease was due
to a decrease in the yield on earning assets, which is primarily attributable to
reductions in the prime commercial lending rate of Peoples Bank (the "Bank").
Interest expense decreased $2.3 million or 39% for the three months ended
September 30, 2002 compared with the same period in 2001. The decrease in
interest expense was due to a decrease in the cost of funds to 2.82% for the
three months ended September 30, 2002 from 4.80% for the same period in 2001,
partially offset by an increase in volume of interest bearing liabilities. The
decrease in the cost of funds is primarily attributable to a decrease in the
average rate paid on certificates of deposit to 3.19% for the three months ended
September 30, 2002 from 5.80% for the same period one year ago.
Net interest income for the nine month period ended September 30, 2002 was
$15.2 million, an increase of 5% from net interest income of $14.5 million for
the nine months ended September 30, 2001. The increase was primarily
attributable to a decrease in the cost of funds.
Interest income decreased $4.8 million or 15% to $27.6 million for the nine
months ended September 30, 2002 compared to $32.4 million for the same period in
2001. The decrease was due to a decrease in the yield on earning assets, which
is primarily attributable to decreases in the Bank's prime commercial lending
rate. Average loans increased 13% to $503.9 million, while average investment
securities available for sale decreased 5% to $79.3 million in the nine months
ended September 30, 2002 compared to the same period in 2001. All other
interest-earning assets including federal funds sold increased to an average of
$6.8 million in the nine months ended September 30, 2002 from $6.6 million in
the same period in 2001. The tax equivalent yield on average earning assets
decreased to 6.30% for the nine months ended September 30, 2002 from 8.17% for
the nine months ended September 30, 2001.
11
Interest expense decreased 31% to $12.4 million for the nine months ended
September 30, 2002 compared to $17.9 million for the corresponding period in
2001. The decrease in interest expense was due to a decrease in the average rate
paid on interest bearing liabilities to 3.22% for the nine months ended
September 30, 2002 from 5.15% for the same period in 2001, partially offset by
an increase in volume of interest bearing liabilities. The decrease in the cost
of funds is primarily attributable to a decrease in the average rate paid on
certificates of deposit to 3.87% for the nine months ended September 30, 2002
from 6.20% for the same period in 2001.
Provision for Loan Losses. For the three months ended September 30, 2002 a
contribution of $1.6 million was made to the provision for loan losses compared
to $760,000 for the three months ended September 30, 2001. For the nine months
ended September 30, 2002 a contribution of $3.3 million was made to the
provision for loan losses compared to a $1.6 million contribution to the
provision for loan losses for the nine months ended September 30, 2001. The
increase in the provision for loan losses reflects an increase in non-performing
assets resulting from the continuing slowdown in the local economy, including
several large companies that have dramatically reduced their activities, which
adversely impacts ancillary businesses that include our customers.
Non-Interest Income. Total non-interest income was $2.1 million in the
third quarter of 2002 and 2001. Service charges were $799,000 for the three
months ended September 30, 2002, a 12% increase over the same period in 2001.
This is primarily attributable to an increase in account maintenance fees.
During the third quarter of 2002, the Company recognized gains of $626,000 from
the sale of securities as compared to a $513,000 gain on sale of securities
during the third quarter of 2001. Miscellaneous income decreased 38% to $278,000
for the three months ended September 30, 2002. The decrease in miscellaneous
income is partially attributable to a reduction in merchant processing income,
resulting from the sale of merchant credit card processing services during
second quarter 2002.
Total non-interest income was $5.0 million for the nine months ended
September 30, 2002, a decrease of 12% from the $5.7 million earned in the same
period of 2001. This decrease reflects reductions in miscellaneous income,
mortgage banking income and gains on sales of securities, which were partially
offset by an increase in service charges. Miscellaneous income decreased 46% for
the nine months ended September 30, 2002. The decrease in miscellaneous income
is partially attributable to a reduction in merchant processing income,
resulting from the sale of merchant credit card processing services during
second quarter 2002. During the period ended September 30, 2001, miscellaneous
income included an increase in value of an interest rate floor contract. The
Company had no realized gains or losses associated with derivative financial
instruments for the nine months ended September 30, 2002. During the nine month
period ended September 30, 2002, the Company recognized a $626,000 gain from the
sale of securities as compared to a $708,000 gain on sale of securities for the
same period in 2001.
Non-Interest Expense. Total non-interest expense was $4.2 million in the
third quarter of 2002, an increase of 9% over the same period in 2001. Salary
and employee benefits totaled $2.5 million for the three months ended September
30, 2002 as compared to $2.0 million for the third quarter of 2001. This
increase is primarily attributable to lower expense associated with the accrual
of management and employee incentives for the three months ended September 30,
2001. Occupancy expense increased 7% for the quarter ended September 30, 2002.
Other expense decreased 17% to $907,000 for the three months ended September 30,
2002 as compared to the same period in 2001. The decrease in other expense is
primarily attributable to a reduction in merchant processing expense, resulting
from the sale of merchant credit card processing services during second quarter
2002.
Total non-interest expense was $12.6 million in the nine months ended
September 30, 2002, an increase of 2% from the same period in 2001. The increase
in non-interest expense for the period ending September 30, 2002 is primarily
due to a 7% increase in salary and employee benefits for the nine months ended
September 30, 2002 as compared to the same period of 2001. This is partially
attributable to lower expenses associated with the accrual of management and
employee incentives for the period ended September 30, 2001. Occupancy expense
increased 5% for the nine months ended September 30, 2002. Other expense
decreased 11% to $2.9 million for the nine months ended September 30, 2002 as
compared to the same period in 2001. The decrease in other
12
expense is primarily attributable to a reduction in merchant processing expense,
resulting from the sale of merchant credit card processing services during
second quarter 2002.
Income Taxes. The Company reported income taxes of $710,000 and $716,000
for the third quarters of 2002 and 2001, respectively. This represented
effective tax rates of 35% and 34% for the respective periods.
The Company reported income taxes of $1.4 million and $2.1 million for the
nine months ended September 30, 2002 and 2001, respectively. This represented
effective tax rates of 34% and 33% for the respective periods.
ANALYSIS OF FINANCIAL CONDITION
Investment Securities. Available-for-sale securities amounted to $75.3
million at September 30, 2002 compared to $84.3 million at December 31, 2001.
This decrease is attributable to paydowns on mortgage backed securities and
maturities during the nine months ended September 30, 2002. Average investment
securities for the nine months ended September 30, 2002 amounted to $79.3
million compared to $81.1 million for the year ended December 31, 2001.
Loans. At September 30, 2002, loans amounted to $510.9 million compared to
$490.6 million at December 31, 2001, an increase of $20.3 million. Average
loans represented 85% of total earning assets for the nine months ended
September 30, 2002, compared to 83% for the year ended December 31, 2001.
Mortgage loans held for sale were $5.3 million at September 30, 2002 and
December 31, 2001.
Allowance for Loan Losses. The allowance for loan losses reflects management's
assessment and estimate of the risks associated with extending credit and its
evaluation of the quality of the loan portfolio. The Bank periodically analyzes
the loan portfolio in an effort to review asset quality and to establish an
allowance for loan losses that management believes will be adequate in light of
anticipated risks and loan losses. In assessing the adequacy of the allowance,
size, quality and risk of loans in the portfolio are reviewed. Other factors
considered are:
- the Bank's loan loss experience;
- the amount of past due and nonperforming loans;
- specific known risks;
- the status and amount of other past due and nonperforming assets;
- underlying estimated values of collateral securing loans;
- current and anticipated economic conditions; and
- other factors which management believes affect the allowance for
potential credit losses.
An analysis of the credit quality of the loan portfolio and the adequacy of
the allowance for loan losses is prepared by the Bank's credit administration
personnel and presented to the Bank's Executive and Loan Committee on a regular
basis. In addition, the Bank has engaged an outside loan review consultant to
perform, and report on an annual basis, an independent review of the quality of
the loan portfolio relative to the results of the Bank's loan grading system.
The allowance for loan losses is established through charges to expense in the
form of a provision for loan losses. Loan losses and recoveries are charged and
credited directly to the allowance.
An allowance for loan losses is also established, as necessary, for
individual loans considered to be impaired in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 114. A loan is considered impaired
when, based on current information and events, it is probable that all amounts
due according to the contractual terms of the loan will not be collected.
Impaired loans are measured based on the present value of expected future cash
flows, discounted at the loan's effective interest rate, or at the loan's
observable market price, or the fair value of collateral if the loan is
collateral dependent. At September 30, 2002 and December 31, 2001, the recorded
investment in loans that were considered to be impaired under SFAS No. 114 was
13
approximately $9.0 million and $4.4 million, respectively, with related
allowance for loan losses of approximately $1.9 million and $699,000,
respectively.
The Bank's allowance for loan losses is also subject to regulatory
examinations and determinations as to adequacy, which may take into account such
factors as the methodology used to calculate the allowance for loan losses and
the size of the allowance for loan losses compared to a group of peer banks
identified by the regulators. During their routine examinations of banks, the
FDIC and the North Carolina Commissioner of Banks may require the Company to
recognize additions to the allowance based on their judgments about information
available to them at the time of their examination.
While it is the Bank's policy to charge off in the current period loans for
which a loss is considered probable, there are additional risks of future losses
which cannot be quantified precisely or attributed to particular loans or
classes of loans. Because these risks include the state of the economy,
management's judgment as to the adequacy of the allowance is necessarily
approximate and imprecise. After review of all relevant matters affecting loan
collectability, management believes that the allowance for loan losses is
appropriate.
The Company grants loans and extensions of credit primarily within the
Catawba Valley region of North Carolina, which encompasses Catawba, Alexander,
Iredell and Lincoln counties. Although the Bank has a diversified loan
portfolio, a substantial portion of the loan portfolio is collateralized by real
estate, which is dependent upon the real estate market. Non-real estate loans
also can be affected by local economic conditions. At September 30, 2002,
approximately 7% of the Company's portfolio was not secured by any type of
collateral. Unsecured loans generally involve higher credit risk than secured
loans and, in the event of customer default, the Company has a higher exposure
to potential loan losses.
Non-performing Assets. Non-performing assets totaled $9.1 million at
September 30, 2002 or 1.43% of total assets, compared to $4.7 million at
December 31, 2001, or 0.75% of total assets. Non-accrual loans were $8.4
million at September 30, 2002, an increase of $4.6 million from non-accruals of
$3.8 million at December 31, 2001. As a percentage of total loans outstanding,
non-accrual loans were 1.65% at September 30, 2002 compared to 0.77% at December
31, 2001. The Bank had loans ninety days past due and still accruing at
September 30, 2002 of $ 615,000 as compared to $655,000 at December 31, 2001.
Total non-performing loans were $9.0 million and $4.4 million at September
30, 2002 and December 31, 2001, respectively. This increase is attributable to
customers that were adversely impacted by the slowdown in area businesses. The
ratio of non-performing loans to total loans was 1.77% at September 30, 2002, as
compared to 0.90% at December 31, 2001. The allowance for loan losses at
September 30, 2002 amounted to $7.5 million or 1.47% of total loans compared to
$6.1 million or 1.24% of total loans at December 31, 2001. This increase
reflects an increase in non-performing assets.
Deposits. Total deposits at September 30, 2002 were $507.4 million, an
increase of 4% over deposits of $490.2 million at December 31, 2001.
Certificates of deposit in amounts greater than $100,000 or more totaled $158.4
million at September 30, 2002 as compared to $156.0 million at December 31,
2001. At September 30, 2002, brokered deposits amounted to $35.6 million as
compared to $0 at December 31, 2001. This reflects management's efforts to
manage the cost of funds by replacing high cost local deposits with lower cost
brokered deposits to fund loan growth. Brokered deposits are generally
considered to be more susceptible to withdrawal as a result of interest rate
changes and to be a less stable source of funds, as compared to deposits from
the local market.
Borrowed Funds. Federal Home Loan Bank borrowings were $59.8 million at
September 30, 2002 compared to $68.2 million at December 31, 2001. The average
balance of Federal Home Loan Bank borrowings for the nine months ended September
30, 2002 was $61.8 million compared to $42.5 million for the year ended December
31, 2001. At September 30, 2002, Federal Home Loan Bank borrowings with
maturities exceeding one year amounted to $58.0 million. The Company had no
federal funds purchased as of September 30, 2002 or December 31, 2001.
14
Interest Rate Risk Management. The objective of the Company's interest rate
risk management strategies is to identify and manage the sensitivity of net
interest income to changing interest rates, in order to achieve the Company's
overall financial goals.
The Company manages its exposure to fluctuations in interest rates through
policies established by the Asset/Liability Committee ("ALCO") of the Bank. The
ALCO meets monthly and has the responsibility for approving asset/liability
management policies, formulating and implementing strategies to improve balance
sheet positioning and/or earnings and reviewing the interest rate sensitivity of
the Company.
In order to assist in achieving a desired level of interest rate
sensitivity, the Company entered into off-balance sheet contracts during 2002
that are considered derivative financial instruments. These contracts consist
of interest rate swap agreements under which the Company pays a variable rate
and receives a fixed rate. At September 30, 2002, the Company had two interest
rate swap contracts outstanding, accounted for as cash flow hedges. Under the
first swap agreement, the Company received 6.33% and paid 4.75% (based on the
prime rate at September 30, 2002) on a notional amount of $40.0 million. The
swap agreement matures in June 2004. Under the second swap agreement, the
Company received 6.05% and paid 4.75% (based on the prime rate at September 30,
2002) on a notional amount of $20.0 million. The swap agreement matures in July
2004. Management believes that the risk associated with using this type of
derivative financial instrument to mitigate interest rate risk should not have
any material unintended impact on the Company's financial condition or results
of operations.
Liquidity. The Bank's liquidity position is generally determined by the
need to respond to short term demand for funds created by deposit withdrawals
and the need to provide resources to fund assets, typically in the form of
loans. How the Bank responds to these needs is affected by the Bank's ability to
attract deposits, the maturity of its loans and securities, the flexibility of
assets within the securities portfolio, the current earnings of the Bank, and
the ability to borrow funds from other sources.
The Bank's primary sources of liquidity are cash and cash equivalents,
available-for-sale securities, deposit growth, and the cash flows from principal
and interest payments on loans and other earning assets. In addition, the Bank
is able, on a short-term basis, to borrow funds from the Federal Reserve System,
the Federal Home Loan Bank of Atlanta (FHLB) and The Bankers Bank, and is also
able to purchase federal funds from other financial institutions.
At September 30, 2002, the Bank had a significant amount of deposits in
amounts greater than $100,000, including brokered deposits. The balance and
cost of these deposits are more susceptible to changes in the interest rate
environment than other deposits. The Bank had a line of credit with the FHLB
equal to 20% of the Bank's total assets, with an outstanding balance of $59.8
million at September 30, 2002. The Bank also has the ability to borrow up to
$26.5 million for the purchase of overnight federal funds from three
correspondent financial institutions.
The liquidity ratio for the Bank, which is defined as net cash, interest
bearing deposits with banks, Federal Funds sold, certain investment securities
and certain FHLB advances available under the line of credit, as a percentage of
net deposits (adjusted for deposit runoff projections) and short-term
liabilities was 25.47% at September 30, 2002 and 25.82% at December 31, 2001.
The December 31, 2001 ratio has been restated to reflect an increase in the
percentage of borrowing availability at the FHLB, which the Bank recognizes as a
factor of its liquidity.
Capital Resources. Shareholders' equity at September 30, 2002 was $48.2
million compared to $45.4 million at December 31, 2001. At September 30, 2002
and December 31, 2001, unrealized gains and losses, net of taxes, amounted to a
gain of $1.3 million and a loss of $922,000, respectively. Annualized return on
average equity for the nine months ended September 30, 2002 was 7.95% compared
to 9.65% for the year ended December 31, 2001. Total cash dividends paid during
the nine months ended September 30, 2002 amounted to $943,000, a decrease of 2%
compared to total cash dividends of $966,000 paid for the first nine months of
2001. This decrease is attributable to a reduction in shares outstanding due to
stock repurchase activity. The Company repurchased $1.3 million, or 85,500
shares of its common stock during the nine months ended September 30,
15
2002 as part of the stock repurchase plan implemented in February 2002. The
Company's Board of Directors has authorized aggregate stock repurchases of up to
$3.0 million.
Under the regulatory capital guidelines, financial institutions are
currently required to maintain a total risk-based capital ratio of 8.0% or
greater, with a Tier 1 risk-based capital ratio of 4.0% or greater. Tier 1
capital is generally defined as shareholders' equity and Trust Preferred
Securities less all intangible assets and goodwill. The Company's Tier I
capital ratio was 10.97% and 11.14% at September 30, 2002 and December 31, 2001,
respectively. Total risk based capital is defined as Tier 1 capital plus
supplementary capital. Supplementary capital, or Tier 2 capital, consists of
the Company's allowance for loan losses, not exceeding 1.25% of the Company's
risk-weighted assets. Total risk-based capital ratio is therefore defined as the
ratio of total capital (Tier 1 capital and Tier 2 capital) to risk-weighted
assets. The Company's total risk based capital ratio was 12.22% and 12.27% at
September 30, 2002 and December 31, 2001, respectively. In addition to the Tier
I and total risk-based capital requirements, financial institutions are also
required to maintain a leverage ratio of Tier 1 capital to total average assets
of 4.0% or greater. The Company's Tier I leverage capital ratio was 9.78% and
10.46% at September 30, 2002 and December 31, 2001, respectively.
A bank is considered to be "well capitalized" if it has a total risk-based
capital ratio of 10.0 % or greater, a Tier I risk-based capital ratio of 6.0% or
greater, and has a leverage ratio of 5.0% or greater. Based upon these
guidelines, the Bank was considered to be "well capitalized" at September 30,
2002 and December 31, 2001.
16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the quantitative and qualitative
disclosures about market risks as of September 30, 2002 from that presented in
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2001.
17
ITEM 4. CONTROLS AND PROCEDURES
Within ninety (90) days prior to the filing date of this report, the
Company, under the supervision and with the participation of the Chief Executive
Officer and Chief Financial Officer, performed an evaluation of the
effectiveness of the Company's disclosure controls and procedures. Based upon
the evaluation, the Company's Chief Executive Officer and Chief Financial
Officer have concluded that the Company's disclosure controls and procedures are
effective to alert the Company to material information required to be included
in reports filed with the Securities and Exchange Commission. Subsequent to the
date of the evaluation, there were no significant changes in the Company's
internal controls or in other factors that could significantly affect the
disclosure controls, including any corrective actions with regard to significant
deficiencies or material weaknesses.
18
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the opinion of management, the Company is not involved in any
pending legal proceedings other than routine, non-material
proceedings occurring in the ordinary course of business.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit (3)(i) Articles of Incorporation of Peoples Bancorp
of North Carolina, Inc., incorporated by
reference to Exhibit (3)(i) to the Form
8-A filed with the Securities and Exchange
Commission on September 2, 1999
Exhibit (3)(ii) Amended and Restated Bylaws of Peoples
Bancorp of North Carolina, Inc., incorporated
by reference to Exhibit (3)(ii) to the Form
10-K filed with the Securities and Exchange
Commission on March 28, 2002
Exhibit (4) Specimen Stock Certificate, incorporated by
reference to Exhibit (4) to the Form 8-A filed
with the Securities and Exchange Commission on
September 2, 1999
Exhibit (10)(a) Employment Agreement between Peoples Bank and
Tony W. Wolfe incorporated by reference to
Exhibit (10)(a) to the Form 10-K filed with
the Securities and Exchange Commission on
March 30, 2000
Exhibit (10)(b) Employment Agreement between Peoples Bank
and Joseph F. Beaman, Jr. incorporated by
reference to Exhibit (10)(b) to the Form 10-K
filed with the Securities and Exchange
Commission on March 30, 2000
19
Exhibit (10)(c) Employment Agreement between Peoples Bank and
Clifton A. Wike incorporated by reference to
Exhibit (10)(c) to the Form 10-K filed with
the Securities and Exchange Commission on
March 30, 2000
Exhibit (10)(d) Employment Agreement between Peoples Bank and
William D. Cable incorporated by reference to
Exhibit (10)(d) to the Form 10-K filed with
the Securities and Exchange Commission on
March 30, 2000
Exhibit (10)(e) Employment Agreement between Peoples Bank and
Lance A. Sellers incorporated by reference
to Exhibit (10)(e) to the Form 10-K filed
with the Securities and Exchange Commission
on March 30, 2000
Exhibit (10)(f) Peoples Bancorp of North Carolina, Inc.
Omnibus Stock Ownership and Long Term
Incentive Plan incorporated by reference to
Exhibit (10)(f) to the Form 10-K filed with
the Securities and Exchange Commission on
March 30, 2000
Exhibit (10)(g) Employment Agreement between Peoples Bank and
A. Joseph Lampron incorporated by reference to
Exhibit (10)(g) to the Form 10-K filed with
the Securities and Exchange Commission on
March 28, 2002
Exhibit (10)(h) Peoples Bank Directors' and Officers'
Deferral Plan, incorporated by reference to
Exhibit (10)(h) to the Form 10-K filed with
the Securities and Exchange Commission on
March 28, 2002
Exhibit (10)(i) Rabbi Trust for the Peoples Bank Directors'
and Officers' Deferral Plan, incorporated by
reference to Exhibit (10)(i) to the Form 10-K
filed with the Securities and Exchange
Commission on March 28, 2002
(b) Reports on Form 8-K
During the quarter ended September 30, 2002 the Company filed no
reports on Form 8-K.
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Peoples Bancorp of North Carolina, Inc.
November 13, 2002 By: /s/ Tony W. Wolfe
----------------------- -------------------------------------
Date Tony W. Wolfe
President and Chief Executive Officer
(Principal Executive Officer)
November 13, 2002 By: /s/ A. Joseph Lampron
----------------------- -------------------------------------
Date A. Joseph Lampron
Executive Vice President and Chief
Financial Officer
(Principal Financial and Principal
Accounting Officer)
21
CERTIFICATIONS
I, Tony W. Wolfe, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Peoples Bancorp
of North Carolina Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
November 13, 2002 /s/ Tony W. Wolfe
- ------------------------- -------------------------------------
Date Tony W. Wolfe
President and Chief Executive Officer
(Principal Executive Officer)
22
CERTIFICATIONS
I, A. Joseph Lampron, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Peoples Bancorp
of North Carolina Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
November 13, 2002 /s/ A. Joseph Lampron
- ------------------------- -------------------------------------
Date A. Joseph Lampron
Executive Vice President and Chief
Financial Officer
(Principal Financial and Principal
Accounting Officer)
23