U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended December 31, 2002
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ______ to ______
Commission File Number: 0-24589
BCSB BANKCORP, INC.
-----------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in its Charter)
UNITED STATES 52-2108333
- ------------------------------- -------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
4111 E. JOPPA ROAD, SUITE 300, BALTIMORE, MARYLAND 21236
--------------------------------------------------------
(Address of Principal Executive Offices)
(410) 256-5000
-----------------------------------------------
Issuer's Telephone Number, Including Area Code)
N/A
----------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check |X| whether the registrant: (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
--- ---
Indicate by check mark |X| whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes No X
--- ---
As of January 31, 2002, the issuer had 5,874,082 shares of Common Stock
issued and outstanding.
CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of
December 31, 2002 (unaudited) and September 30, 2002...............2
Consolidated Statements of Operations for the Three Months
Ended December 31, 2002 and 2001 (unaudited).......................3
Consolidated Statement of Comprehensive Income for the Three
Months Ended December 31, 2002 and 2001 (unaudited)................4
Consolidated Statements of Cash Flows for the Three Months
Ended December 31, 2002 and 2001 (unaudited).......................5
Notes to Consolidated Financial Statements............................8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation...........................................11
Item 3. Quantitative and Qualitative Disclosures About Market Risk...........18
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
SIGNATURES....................................................................20
CERTIFICATIONS................................................................21
1
BCSB BANKCORP, INC. AND SUBSIDIARIES
------------------------------------
BALTIMORE, MARYLAND
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
DECEMBER 31, SEPTEMBER 30,
2002 2002
--------------- --------------
(Unaudited)
Assets
------
Cash $ 9,774,030 $ 6,467,598
Interest bearing deposits in other banks 10,948,650 15,808,342
Federal funds sold 6,096,045 3,527,387
Investment securities, held to maturity 3,496,130 4,495,986
Investment securities, available for sale 62,914,538 45,083,287
Loans receivable, net 393,831,517 396,616,729
Loans held for sale 252,262 --
Mortgage backed securities, held to maturity 29,055,550 33,691,430
Mortgage backed securities, available for sale 63,497,888 60,411,132
Premises and equipment, net 8,533,702 8,630,812
Federal Home Loan Bank of Atlanta stock 3,673,395 3,939,700
Accrued interest receivable 1,789,187 2,187,458
Prepaid and deferred income taxes 992,620 1,268,370
Goodwill 2,294,327 2,294,327
Core deposit intangible 489,000 542,000
Other assets 1,843,801 2,097,791
-------------- --------------
Total assets $ 599,482,642 $ 587,065,349
============== ==============
Liabilities and Stockholders' Equity
------------------------------------
Liabilities
- -----------
Checks outstanding in excess of bank balance $ -- 390,799
Deposits 510,185,473 498,785,268
Advances from the Federal Home Loan Bank of Atlanta 26,918,050 26,968,099
Trust Preferred Securities 12,500,000 12,500,000
Advance payments by borrowers for taxes and insurance 1,263,278 1,194,371
Income taxes payable 31,835 58,226
Dividends payable 264,891 264,891
Other liabilities 2,631,788 1,598,132
-------------- --------------
Total liabilities 553,795,315 541,759,786
Commitments and contingencies
Stockholders' Equity
- --------------------
Common stock (Par value $.01 - 13,500,000 authorized,
5,874,082 issued and outstanding at December 31, 2002
and September 30, 2002 respectively) 58,741 58,741
Additional paid-in capital 20,314,451 20,302,518
Obligation under Rabbi Trust 1,166,595 1,156,870
Retained earnings (substantially restricted) 25,467,370 25,279,752
Accumulated Other Comperhensive Income (net of taxes) 791,310 664,554
Employee Stock Ownership Plan (914,640) (960,372)
Stock held by Rabbi Trust (1,196,500) (1,196,500)
-------------- --------------
45,687,237 45,305,563
-------------- --------------
Total liabilities and retained earnings $ 599,482,642 $ 587,065,349
============== ==============
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
2
BCSB BANKCORP, INC. AND SUBSIDIARIES
------------------------------------
BALTIMORE, MARYLAND
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
-------------------------------------------------
FOR THREE MONTHS ENDED
DECEMBER 31,
-----------------------------
2002 2001
------- --------
Interest Income
- ---------------
Interest and fees on loans $ 7,007,783 $ 5,104,196
Interest on mortgage-backed securities 1,055,779 826,213
Interest and dividends on investment securities 527,281 673,072
Other interest income 91,146 59,075
------------ -----------
Total interest income 8,681,989 6,662,556
Interest Expense
- ----------------
Interest on deposits 3,675,763 3,629,674
Interest on borrowings - short term 56,975 195,423
Interest on borrowings-long term 274,773 --
Other interest expense 178,726 1,000
------------ -----------
Total interest expense 4,186,237 3,826,097
------------ -----------
Net interest income 4,495,752 2,836,459
Provision for losses on loans 281,998 63,862
------------ -----------
Net interest income after provision
for losses on loans 4,213,754 2,772,597
Other Income
- ------------
Gain on sale of loans 66,985 18,265
Provision for losses on loans held for sale -- (47,821)
Servicing fee income 3 3,759
Fees and charges on loans 50,745 40,364
Fees on transaction accounts 129,290 87,987
Rental income 37,047 23,730
Gain from sale of Investments 25,000 --
Gain from sale of Mortgage Backed Securities 70,010 --
Miscellaneous income 46,674 20,485
------------ -----------
Net other income 425,754 146,759
Non-Interest Expenses
- ---------------------
Salaries and related expense 2,137,591 1,376,051
Occupancy expense 394,983 297,161
Deposit insurance premiums 49,618 33,533
Data processing expense 411,591 231,072
Property and equipment expense 310,508 224,129
Professional fees 58,176 44,917
Advertising 227,764 268,017
Telephone, postage and office supplies 154,650 102,410
Other expenses 162,900 141,423
------------ -----------
Total non-interest expenses 3,907,781 2,718,713
------------ -----------
Income before tax provision 731,727 200,643
Income tax provision 279,218 77,467
------------ -----------
Net income $ 452,509 $ 123,176
============ ===========
Basic and diluted earnings per share $ 0.08 $ 0.02
============ ===========
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
3
BCSB BANKCORP, INC. AND SUBSIDIARIES
------------------------------------
BALTIMORE, MARYLAND
-------------------
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
-----------------------------------------------
(UNAUDITED)
-----------
for Three Months Ended
------------------------
December 31,
------------------------
2002 2001
------- --------
Net Income $ 452,509 $ 123,176
Other comprehensive income, net of tax:
Unrealized net holding (losses)/gains on
available-for-sale portfolios 185,510 (298,029)
Reclassification adjustment for gains
included in net income, net of tax (58,754) --
--------- ---------
Comprehensive income (loss) $ 579,265 $(174,853)
========= =========
See acompanying notes to financial statements.
4
BCSB BANKCORP, INC. AND SUBSIDIARIES
------------------------------------
BALTIMORE, MARYLAND
-------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
-------------------------------------------------
FOR THREE MONTHS ENDED
DECEMBER 31,
-------------------------------
2002 2001
----------- -----------
Operating Activities
- --------------------
Net Income $ 452,509 $ 123,176
Adjustments to Reconcile Net Income to Net
Cash Used by Operating Activities
---------------------------------
Accretion of discount on investments (4,652) (3,255)
Dividends on Investment Securities (211,204) (176,203)
Gain on sale of investments (25,000) --
Loans originated for sale (2,108,541) (4,251,759)
Loans sold 1,923,264 862,241
Gain on sale of loans (66,985) (18,264)
Loan fees and costs deferred, net (73,142) 59,344
Amortization of deferred loan cost, net (17,136) (45,048)
Provision for losses on loans 281,998 63,892
Provision for loss on loans held for sale -- 47,821
Non-cash compensation under Stock-Based Benefit Plan 57,665 44,542
Amortization of premium on mortgage backed securities 139,569 9,979
Amortization of purchase premiums and discounts, net (260,897) --
Gain on sale of mortgaged backed securities (70,010) --
Provision for depreciation 241,983 200,169
Decrease in accrued interest receivable on loans 265,212 116,657
Decrease in accrued interest receivable on investments 99,191 193,985
Decrease/ (increase) in accrued interest receivable on mortgage
backed securities 36,868 (69,242)
Decrease/ (increase) in prepaid income taxes 187,556 (311,753)
Decrease/ (increase) in other assets 253,990 (187,409)
Decrease in accrued interest payable on deposits (39,955) (73,396)
(Decrease)/ increase in income taxes payable (26,391) 125,881
Increase/ (decrease) in other liabilities and payables to
disbursing agents 1,033,656 (913,660)
Increase in obligation under Rabbi-Trust 9,725 --
----------- -----------
Net cash used by operating activities 2,079,273 (4,202,332)
5
BCSB BANKCORP, INC. AND SUBSIDIARIES
------------------------------------
BALTIMORE, MARYLAND
-------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
-------------------------------------------------
FOR THREE MONTHS ENDED
DECEMBER 31,
-------------------------------
2002 2001
----------- -----------
Cash Flows from Investing Activities
- ------------------------------------
Proceeds from maturing interest bearing deposits $ -- $ 2,154,000
Purchases of investment securities - available for sale (24,080,065) (17,446,000)
Proceeds from maturities of investment securities - available for sale 5,500,000 1,500,000
Proceeds from sale of investment securities- available for sale 1,025,000 --
Purchases of investment securities - held to maturity -- (500,000)
Proceeds from maturities of investment securities - held to maturity 1,000,000 6,500,000
Longer term loans originated (16,507,135) (12,755,432)
Principal collected on longer term loans 21,516,122 22,305,990
Net increase in short-term loans (2,560,117) (13,012,473)
Principal collected on mortgage backed securities - available for sale 6,548,288 3,371,613
Purchase of mortgage backed securities - available for sale (16,322,869) (19,921,432)
Proceeds from sale of mortgaged backed securities- available for sale 6,782,470
Principal collected on mortgage backed securities - held to maturity 4,606,048 4,438,351
Proceeds from sales of foreclosed realestate -- 80,569
Investment in premises and equipment (144,873) (221,157)
Proceeds from sale if Federal Home Loan Bank of Atlanta stock 266,305 --
------------ ------------
Net cash used by investing activities (12,370,826) (23,505,971)
Cash Flows from Financing Activities
- ------------------------------------
Decrease in checks written in excess of bank balance (390,799) --
Net increase in demand deposits, money market, passbook
accounts and advances by borrowers for taxes and
insurance 6,057,205 6,378,758
Net increase in certificates of deposit 5,905,436 15,370,596
Increase in Federal Home Loan Bank of Atlanta advances -- 3,000,000
Repayment of Federal Home Loan Bank of Atlanta advances -- (3,000,000)
Acquisition of stock for Rabbi Trust -- (57,000)
Increase in Dividends Payable -- 1
Dividends paid on stock (264,891) (264,046)
------------ ------------
Net cash provided by financing activities 11,306,951 21,428,309
------------ ------------
Decrease/ (increase) in cash and cash equivalents 1,015,398 (6,279,994)
Cash and cash equivalents at beginning of period 25,703,327 12,968,998
------------ ------------
Cash and cash equivalents at end of period $ 26,718,725 $ 6,689,004
============ ============
6
BCSB BANKCORP, INC. AND SUBSIDIARIES
------------------------------------
BALTIMORE, MARYLAND
-------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
-------------------------------------------------
FOR THREE MONTHS ENDED
DECEMBER 31,
-------------------------------
2002 2001
----------- -----------
The following is a summary of cash and cash equivalents:
Cash $ 9,774,030 $ 4,154,535
Interest bearing deposits in other banks 10,948,650 2,169,339
Federal funds sold 6,096,045 564,130
------------- -------------
Balance of cash items reflected on Statement of
Financial Condition 26,818,725 6,888,004
Less - certificate of deposit with a maturity of
more than three months 100,000 199,000
------------- -------------
Cash and cash equivalents reflected on the
Statement of Cash Flows $ 26,718,725 $ 6,689,004
============= =============
Supplemental Disclosures of Cash Flows Information:
Cash paid during the period for:
Interest $ 4,210,016 $ 3,872,672
============= =============
Income taxes $ 50,000 $ --
============= =============
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
7
BCSB BANKCORP, INC. AND SUBSIDIARIES
------------------------------------
BALTIMORE, MARYLAND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
------------------------------------------------------
Note 1 - Principals of Consolidation
---------------------------
BCSB Bankcorp, Inc. (the "Company") owns 100% of BCSB Bankcorp Capital
Trust I and Baltimore County Savings Bank, F.S.B. and subsidiaries
(the "Bank") and also invests in federal funds sold, interest-bearing
deposits in other banks and U.S. Agency bonds. The Bank owns 100% of
Baltimore County Service Corporation and Ebenezer Road, Inc. The
accompanying consolidated financial statements include the accounts
and transactions of these companies on a consolidated basis since the
date of acquisition. All intercompany transactions have been
eliminated in the consolidated financial statements. Ebenezer Road,
Inc. sells insurance products.
Note 2 - Basis for Financial Statement Presentation
------------------------------------------
The accompanying consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the
United States of America and the instructions to Form 10-Q.
Accordingly, they do not include all of the disclosures required by
accounting principles generally accepted in the United States of
America for complete financial statements. In the opinion of
management, all adjustments (none of which were other than normal
recurring accruals) necessary for a fair presentation of the financial
position and results of operations for the periods presented have been
included. The financial statements of the Company are presented on a
consolidated basis with those of the Bank. The results for the three
months ended December 31, 2002 are not necessarily indicative of the
results of operations that may be expected for the year ended
September 30, 2003. The consolidated financial statements should be
read in conjunction with the consolidated financial statements and
related notes which are incorporated by reference in the Company's
Annual Report on Form 10-KSB for the year ended September 30, 2002.
Note 3 - Cash Flow Presentation
----------------------
For purposes of the statements of cash flows, cash and cash
equivalents include cash and amounts due from depository institutions,
investments in federal funds, and certificates of deposit with
original maturities of 90 days or less.
Note 4- Pro-Forma Income
----------------
Merger Agreement - On July 24, 2002, the Company acquired WHG
Bancshares Corporation, the holding company for Heritage Savings Bank,
a federally chartered savings bank. Holders of outstanding shares of
WHG Bancshares received $14.25 in cash.
The combination was accounted for under the purchase method of
accounting, and accordingly, the net assets were recorded at their
estimated fair values at the date of acquisition, July 24, 2002. The
Company recorded net premiums of $2,779,968 on assets and $2,981,701
on liabilities. A core deposit intangible of $630,000 was also
recorded. Fair value adjustments on the assets and liabilities
purchased are being amortized over the estimated lives of the related
assets and liabilities. The excess of purchase price over the
estimated fair value of the underlying net assets of $2,294,327 was
allocated to goodwill. Goodwill will be assessed for impairment on an
annual basis.
The following unaudited pro forma condensed consolidated financial
information reflects the results of operations of the Company for the
years ended December 31, 2002 and 2001 as if the transaction had
occurred at the beginning of the period presented. These pro forma
results are not necessarily indicative of what the Company's results
of operations would have been had the acquisition actually taken place
at the beginning of each period presented.
8
For the three months ended
--------------------------
December 30, 2001
-----------------
Net interest income $3,658,370
Net income 213,519
Diluted net income per share 0.04
Note 5 - Earnings Per Share
------------------
Basic per share amounts are based on the weighted average shares of
common stock outstanding. Diluted earnings per share assume the
conversion, exercise or issuance of all potential common stock
instruments such as options, warrants and convertible securities,
unless the effect is to reduce a loss or increase earnings per share.
No adjustments were made to net income (numerator) for all periods
presented. The basic and diluted weighted average shares outstanding
for the three months ended December 31, 2002 and 2001 is as follows:
9
BCSB BANKCORP, INC. AND SUBSIDIARIES
------------------------------------
BALTIMORE, MARYLAND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
------------------------------------------------------
Note 5 - Earnings Per Share (Continued)
------------------
For the Three months Ended December 31, 2002
----------------------------------------------
Income Shares Per Share
Basic EPS (Numerator) (Denominator) Amount
--------- ----------- ------------- ----------
Income available to shareholders $ 452,509 5,718,212 $ 0.08
Effect of dilutive shares -- 33,792 --
----------- ---------- ------------
Diluted EPS
-----------
Income available to common stockholders
plus assumed conversions $ 452,509 5,752,004 $ 0.08
=========== ========== ============
For the Three months Ended December 31, 2001
----------------------------------------------
Income Shares Per Share
Basic EPS (Numerator) (Denominator) Amount
--------- ----------- ------------- ----------
Income available to shareholders $ 123,176 5,562,886 $ 0.02
Effect of dilutive shares -- 136,585 --
----------- ---------- ---------
Diluted EPS
-----------
Income available to common stockholders
plus assumed conversions $ 123,176 $5,699,471 $ .02
=========== ========== =========
Note 6 - Regulatory Capital
------------------
The following table sets forth the Bank's capital position at December
31, 2002.
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provision
---------------------- ---------------------- ----------------------
Actual % of Required % of Required % of
Amount Assets Amount Assets Amount Assets
------ ------ -------- ------ -------- ------
(unaudited)
Tangible (1) $ 47,245,070 8.01% $ 8,847,783 1.50% N/A N/A
Tier 1 capital (2) 47,245,070 13.95 N/A N/A 20,323,556 6.00%
Core (1) 47,245,070 8.01 23,594,087 4.00 29,492,608 5.00
Risk-weighted (2) 49,587,170 14.64 27,098,519 8.00 33,873,148 10.00
<FN>
____________
(1) To adjusted total assets.
(2) To risk-weighted assets.
</FN>
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company was formed by the Bank to become the holding company of the
Bank following the Bank's reorganization to the mutual holding company form of
organization (the "Reorganization"). The Reorganization was consummated on July
8, 1998.
The Company's net income is dependent primarily on its net interest income,
which is the difference between interest income earned on its loan, investment
securities and mortgage-backed securities portfolio and interest paid on
interest-bearing liabilities. Net interest income is determined by (i) the
difference between yields earned on interest-earning assets and rates paid on
interest-bearing liabilities ("interest rate spread") and (ii) the relative
amounts of interest-earning assets and interest-bearing liabilities. The
Company's interest rate spread is affected by regulatory, economic and
competitive factors that influence interest rates, loan demand and deposit
flows. To a lesser extent, the Company's net income also is affected by the
level of other income, which primarily consists of fees and charges, and levels
of non-interest expenses such as salaries and related expenses.
The operations of the Company are significantly affected by prevailing
economic conditions, competition and the monetary, fiscal and regulatory
policies of governmental agencies. Lending activities are influenced by the
demand for and supply of housing, competition among lenders, the level of
interest rates and the availability of funds. Deposit flows and costs of funds
are influenced by prevailing market rates of interest, primarily on competing
investments, account maturities and the levels of personal income and savings in
the Company's market area.
FORWARD-LOOKING STATEMENTS
When used in this Form 10-Q, the words or phrases "will likely result,"
"are expected to," "will continue," "is anticipated," "estimate," "project" or
similar expressions are intended to identify "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are subject to certain risks and uncertainties including changes in
economic conditions in the Company's market area, changes in policies by
regulatory agencies, fluctuations in interest rates, demand for loans in the
Company's market area, and competition that could cause actual results to differ
materially from historical earnings and those presently anticipated or
projected. The Company wishes to caution readers not to place undue reliance on
any such forward-looking statements, which speak only as of the date made. The
Company wishes to advise readers that the factors listed above could affect the
Company's financial performance and could cause the Company's actual results for
future periods to differ materially from any opinions or statements expressed
with respect to future periods in any current statements.
The Company does not undertake, and specifically disclaims any obligation,
to publicly release the result of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
RECENT ACQUISITION
On July 24, 2002, the Company and the Bank completed the acquisition of WHG
Bancshares Corporation ("WHG Bancshares") and its wholly owned subsidiary,
Heritage Savings Bank, F.S.B. ("Heritage Bank"). Stockholders of WHG Bancshares
received $14.25 per share in cash for each of the 1,285,050 outstanding shares
of WHG Bancshares's common stock. As a result of the merger, Heritage Bank
merged into the Bank and its five locations became branch offices of the Bank.
The aggregate purchase price was approximately $18.3 million. The transaction
was accounted for using the purchase method.
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 2002 AND SEPTEMBER 30, 2002
During the three months ended December 31, 2002, the Company's assets
increased by $12.4 million, or 2.1% from $587.1 million at September 30, 2002 to
$599.5 million at December 31, 2002. Loans receivable, net decreased by $2.5
million, or .6%, from $396.6 million at September 30, 2002 to $394.1 million at
December 31, 2002. The Company's mortgage-backed securities available for sale
increased by $3.1 million, or 5.1%, from $60.4 million at September 30, 2002 to
$63.5 million at December 31, 2002. The Company's mortgage-backed securities
held to maturity
11
decreased by $4.6 million or 13.8% from $33.7 million at September 30, 2002 to
$29.1 million at December 31, 2002. The Company's investment portfolio available
for sale increased $17.8 million or 39.6%, from $45.1 million at September 30,
2002 to $62.9 million at December 31, 2002. The Company's investment portfolio
held to maturity decreased $1.0 million from $4.5 million at September 30, 2002
to $3.5 million at December 31, 2002. The Company's deposits increased by $11.4
million, or 2.3%, from $498.8 million at September 30, 2002 to $510.2 million at
December 31, 2002. The increase in deposits was achieved through normal
marketing efforts and the acquisition of WHG Bancshares. The growth in deposits
helped to fund security purchases.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED DECEMBER 31, 2002 AND
2001
Net Income. Net income increased by $329,000, or 267.3%, from $123,000 for
the three months ended December 31,2001 to $452,000 for the three months ended
December 31, 2002. The increase in net income was primarily attributable to
increased interest income due to an increase in the average balance of loans of
$120.3 million, from $271.5 million at December 31, 2001 to $391.8 million at
December 31, 2002, of which $116.8 million was a result of the merger with WHG
Bancshares.
Net Interest Income. Net interest income was $4.5 million for the three
months ended December 31, 2002, compared to $2.8 million for the three months
ended December 31, 2001, representing an increase of $1.7 million, or 58.5%. The
increase was primarily due to the increase in the volume of interest-earning
assets.
Interest Income. Interest income increased by $2.0 million, or 30.3% from
$6.7 million for the three months ended December 31, 2001 to $8.7 million for
the three months ended December 31, 2002. Interest and fees on loans increased
by $1.9 million, or 37.3%, from $5.1 million for the three months ended December
31, 2001 to $7.0 million for the three months ended December 31, 2002. This was
primarily due to a $120.3 million increase in the average balance of loans
receivable which more than offset a decrease in the average yield on loans of 37
basis points from 7.5% at December 31, 2001 to 7.2% at December 31, 2002. The
increase in the average balance of loans was primarily attributable to the
merger with WHG Bancshares which consisted of $116.8 million in loans
receivable. The decrease in the average yield was attributed to the prevailing
market rates in the economy. Interest on mortgage-backed securities increased by
$230,000 or 27.8% from $826,000 for the three months ended December 31, 2001 to
$1.1 million for the three months ended December 31, 2002. This increase was
primarily due to the increase in the average balance of mortgage-backed
securities from $61.7 million at December 31, 2001 to $92.8 million at December
31, 2002. Interest and dividends on investment securities decreased by $146,000
or 21.7% from $673,000 for the three months ended December 31, 2001 to $527,000
for the three months ended December 31, 2002. This was primarily due to a
decrease in the average rate received on investments from 6.08% at December 31,
2001 to 3.76% at December 31,2002.
Interest Expense. Interest expense, which consists of interest on deposits,
interest on borrowed money and other interest expense increased from $3.8
million for the three months ended December 31, 2001 to $4.2 million for the
three months ended December 31, 2002 a change of $360,000 or 9.4%. Interest on
deposits increased $46,000 due to an increase in the average volume of deposits
by $163.0 million from $341.2 million at December 31, 2001 to $504.2 million at
December 31, 2002. The average yield on deposits decreased by 133 basis points
from 4.25% at December 31, 2001 to 2.92% at December 31, 2002. The Company was
able to increase its deposits through its use of advertising and the acquisition
of WHG Bancshares. Interest on short-term borrowings decreased by $138,000 for
the three months ended December 31, 2002, and interest on long-term borrowings
increased by $274,000. This increase was primarily due to an increase of $7.5
million in the average balances of advances from the Federal Home Loan Bank of
Atlanta during the quarter ended December 31, 2002. Also contributing to
interest expense was interest on the Trust Preferred Securities which was
$178,000 for the period ending December 31, 2002.
12
Average Balance Sheet. The following tables sets forth certain information
relating to the Company's average balance sheet and reflects the average yield
on assets and cost of liabilities for the periods indicated and the average
yields earned and rates paid. Such yield and costs are derived by dividing
income or expense by the average daily balance of assets or liabilities,
respectively, for the period ended December 31, 2002. The period ended December
31, 2001 average balances were computed using month-end balances, except for
Other Investments which were computed using daily balances. Total average assets
are computed using month-end balances.
The table also presents information for the periods indicated with respect
to the differences between the average yield earned on interest-earning assets
and average rate paid on interest-bearing liabilities, or "interest rate
spread," which banks have traditionally used as an indicator of profitability.
Another indicator of net interest income is "net interest margin," which is its
net interest income divided by the average balance of interest-earning assets.
THREE MONTHS ENDED DECEMBER 31
--------------------------------------------------------------------------
2002 2001
--------------------------------- ----------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
------- -------- ------- ------- -------- -------
(DOLLARS IN THOUSANDS)
Interest-earning assets:
Loans.................................... $ 391,822 $ 7,008 7.15% $ 271,499 $ 5,104 7.52%
Mortgage-backed securities............... 92,795 1,056 4.55 61,694 826 5.36
Dividends and investment securities...... 56,096 527 3.76 44,298 673 6.08
Other Investments........................ 24,336 91 1.50 8,183 59 2.88
--------- --------- ---------- --------
Total interest-earning assets........ 565,049 8,682 6.15 385,674 6,662 6.91
Noninterest-earning assets.................. 30,496 19,087
--------- ----------
Total assets......................... $ 595,545 $ 404,761
========= ==========
Interest-bearing liabilities:
Deposits................................. $ 504,238 3,676 2.92 341,283 3,630 4.25
FHLB Advances............................ 25,760 332 5.16 18,300 195 4.26
Trust Preferred Securities............... 12,500 178 5.70 -- -- --
Other liabilities........................ 1,435 1 0.28 1,708 1 0.23
--------- --------- ---------- --------
Total interest-bearing liabilities.......... 543,933 4,187 3.08 361,291 3,826 4.24
Noninterest-bearing liabilities............. 5,125 --------- ------ 814 -------- -----
--------- ----------
Total liabilities.................... 549,058 362,105
Stockholders' equity ....................... 46,487 42,656
--------- ----------
Total liabilities and stockholders'
equity.......................... $ 595,545 $ 404,761
========= ==========
Net interest income......................... $ 4,495 $ 2,836
========= ========
Interest rate spread........................ 3.07% 2.67%
====== ======
Net interest margin......................... 3.18% 2.94%
====== ======
Ratio average interest earning assets/
interest bearing liabilities............ 103.88% 106.75%
====== ======
13
Provision for Loan Losses. The Company charges provisions for loan losses
to earnings to maintain the total allowance for loan losses at a level
management considers adequate to provide for probable future loan losses. In
determining the provision, management considers prior loss experience, current
economic conditions and the probability of these conditions affecting future
loan performance. The Company established provisions for losses on loans of
$282,000 for the three months ended December 31, 2002, as compared to $64,000
for the three months ended December 31, 2001, representing an increase of
$218,000. Loan chargeoffs for the three months ended December 31, 2002 were
$243,000 as compared to $107,000 for the three months ended December 31, 2001.
Loan recoveries were $195,000 for the three months ended December 31, 2002
compared to $72,000 for the three months ended December 31, 2001. Non performing
loans at December 31, 2002 were $759,000 as compared to $693,000 at December 31,
2001. The total loss allowance allocated to domestic loans is $2.3 million. In
establishing such provisions, management considered an analysis of the risk
inherent in the loan portfolio.
Other Income. Other income increased by $271,000, or 185.0% from $147,000
for the three months ended December 31, 2001 to $418,000 for the three months
ended December 31, 2002. The increase in other income for the three months ended
December 31 2002 was partially attributable to gains on the sale of loans of
$67,000. There was also a gain on the sale of Mortgaged Backed Securities of
$70,000 and a gain on the sale of investments of $25,000. These gains were
achieved through the Company's implementation of a strategy to mitigate interest
rate risk. These gains may not be achieved in the future should market
conditions change. Fees on transaction accounts increased by $41,000.
Non-interest Expenses. Total non-interest expenses increased by $1.2
million, or 43.7%, from $2.7 million for the three months ended December 31,
2001 to $3.9 million for the three months ended December 31, 2002. The increase
in non-interest expenses was due to increases in salaries and related expenses
of $762,000, or 55.4%. The increase in non-interest expenses also was due in
part to the absence of a credit to compensation expense of $125,000 for the
quarter ended December 31, 2001 for the directors retirement plan due to the
decline of value of the shares held in the Rabbi-Trust. The Company established
the Rabbi-Trust to hold shares of Company Common Stock in connection with the
Company's obligation to pay deferred compensation under the Directors'
Retirement Plan. The related deferred compensation obligation was classified as
a liability and adjusted with a corresponding charge (or credit) to compensation
cost by multiplying the number of shares owned by the Rabbi Trust by the change
in the fair market value of each share, to reflect changes of the amount owed to
the directors. No adjustments to compensation expense for the Rabbi Trust were
required for the quarter ended December 31, 2002 as a result of stockholder
approval of an amendment to the Directors' Retirement Plan at the 2002 annual
meeting of stockholders.
The Company also experienced increases of $181,000, or 78.4% in data
processing expenses, from $231,000 at December 31, 2001 to $412,000 at December
31, 2002. This increase was primarily due to an increased number of transaction
accounts due to the merger with WHG Bancshares and a rate increase. Occupancy
expense increased by $98,000 or 33.0% from $297,000 at December 31, 2001 to
$395,000 at December 31, 2002. The Company also experienced increases of
$87,000, or 38.8% in property plant and equipment expense and an increase of
$53,000, or 52.0% in telephone postage and office supplies. These increases were
due to the cost of the additional branch offices acquired in the WHG Bancshares
merger.
Income Taxes. The Company's income tax expense was $279,000 and $77,000 for
the three months ended December 31, 2002 and 2001, respectively. The Company's
effective tax rates were 38.2% and 38.6% for the three months ended December 31,
2002 and 2001, respectively.
COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET RISK
The Company is a party to financial instruments with off-balance sheet risk
including commitments to extend credit under existing lines of credit and
commitments to sell loans. These instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amount recognized in
the consolidated balance sheets.
Off-balance sheet financial instruments whose contract amounts represent
credit and interest rate risk are summarized as follows:
14
December 31, 2002 September 30, 2002
----------------- ------------------
(dollars in thousands)
Commitments to originate new loans $ 8,600 $12,900
Commitments to originate new loans held for sale -- --
Unfunded commitments to extend credit under existing
equity line and commercial lines of credit 17,700 20,800
Commercial letters of credit 350 431
Commitments to sell loans held for sale -- --
The Company does not have any special purpose entities or other similar
forms of off-balance sheet financing arrangements.
Commitments to originate new loans or to extend credit are agreements to
lend to a customer as long as there is no violation of any condition established
in the contract. Loan commitments generally expire within 30 to 45 days. Most
equity line commitments for the unfunded portion of equity lines are for a term
of 20 years, and commercial lines of credit are generally renewable on an annual
basis. Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Company evaluates each
customer's creditworthiness on a case-by-case basis. The amounts of collateral
obtained, if deemed necessary by the Company upon extension of credit, is based
on management's credit evaluation of the borrower.
Commitments to sell loans held for sale are agreements to sell loans to a
third party at an agreed upon price. At December 31, 2002, the aggregate fair
value of these commitments exceeded the book value of the loans to be sold.
CONTRACTUAL OBLIGATIONS
As of December 31, 2002
Payments due by period
----------------------
(Dollars in thousands)
Less than
1 year 1-3 years 4-5 years Over 5 years Total
---------- --------- --------- ------------ -----
Deposits $20,439 292,885 32,581 -- 345,905
Long-term borrowings -- 3,250 21,500 9,000 33,750
Lease obligations 738 2,242 1,187 3,425 7,592
------- ------- ------ ------ -------
Total contractual cash
obligations $21,177 298,377 55,268 12,425 387,247
======= ======= ====== ====== =======
15
CRITICAL ACCOUNTING POLICIES
The Company's significant accounting policies are set forth in note 1 of
the consolidated financial statements as of September 30, 2002 which was filed
on Form 10-KSB. Of these significant accounting policies, the Company considers
its policy regarding the allowance for loan losses to be its most critical
accounting policy, because it requires management's most subjective and complex
judgments. In addition, changes in economic conditions can have a significant
impact on the allowance for loan losses and therefore the provision for loan
losses and results of operations. The Company has developed appropriate policies
and procedures for assessing the adequacy of the allowance for loan losses,
recognizing that this process requires a number of assumptions and estimates
with respect to its loan portfolio. The Company's assessments may be impacted in
future periods by changes in economic conditions, the impact of regulatory
examinations, and the discovery of information with respect to borrowers that is
not known to management at the time of the issuance of the consolidated
financial statements.
ASSET QUALITY
At December 31, 2002, the Company had approximately $973,000 in
non-performing assets (nonaccrual loans and real estate owned) or .16% of total
assets. At September 30, 2002, non-performing assets were $1.6 million or .28%
of total assets. At December 31, and September 30, 2002, impaired loans totaled
$671,000 and $0, respectively, as defined by Statement of Financial Accounting
Standards No. 114, "Accounting by Creditors for Impairment of a Loan." At
December 31, 2002, $ 671,000 of impaired loans was on nonaccrual status, and
their related reserve for losses totaled $73,000. There was no impact on the
provision as management had already anticipated the loans' performance in
setting the allowance for loan losses in previous periods. The average carrying
value of impaired loans was $598,000 during the three months ended December 31,
2002. No interest income has been recorded on impaired loans in the three months
ended December 31, 2002. The Bank's net charge-offs for the three months ended
December 31, 2002 were $48,000. The Bank's allowance for loan losses was $2.3
million at December 31, 2002 and $2.2 million at September 30, 2002. As a result
of the Company's continued shift toward commercial, construction, consumer and
home equity loans, and the recent decrease in residential mortgage loans, as
well as the continued decline in the local and regional economy, the ratio of
the allowance for loan losses to total loans, net of loans in process and
deferred loan fees increased to .61% at December 31, 2002, compared to.58% at
September 30, 2002.
The following table presents an analysis of the Company's non-performing
assets:
At At
December 31, September 30,
2002 2002
----------- ------------
Nonperforming loans:
Nonaccrual loans $ 759 $1,391
Loans 90 days past due and accruing -- --
Restructured loans -- --
------ ------
Total nonperforming loans 759 1,391
Other non-performing assets 214 229
------ ------
Total nonperforming assets $ 973 $1,620
====== ======
Nonperforming loans to loans receivable, net .25% .35%
Nonperforming assets as a percentage
of loans and other real estate owned .25% .41%
Nonperforming assets to total assets .16% .28%
Regulations require that the Company classify its assets on a regular
basis. There are three classifications for
16
problem assets: substandard, doubtful and loss. The Company regularly reviews
its assets to determine whether any assets require classification or
re-classification. At December 31, 2002, the Company had $1.7 million in
classified assets, consisting of $1.7 million in substandard and loss loans and
$0 in real estate owned. At September 30, 2002, the Company had $2.0 million in
substandard assets, consisting of $1.8 million in loans and $0 in real estate
owned and $214,000 in other repossessed assets.
In addition to regulatory classifications, the Company also classifies as
"special mention" assets that are currently performing in accordance with their
contractual terms but may become classified or non-performing assets in the
future. At December 31, 2002, the Company has identified approximately $3.3
million in assets classified as special mention.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2002, the Bank exceeded all regulatory minimum capital
requirements. For information comparing the Bank's tangible, core and risk-based
capital levels to the regulatory requirements, see Note 5 of Notes to
Consolidated Financial Statements.
The Company's primary sources of funds are deposits and proceeds from
maturing investment securities and mortgage-backed securities and principal and
interest payments on loans. While maturities and scheduled amortization of
mortgage-backed securities and loans are a predictable source of funds, deposit
flows and mortgage prepayments are greatly influenced by general interest rates,
economic conditions, competition and other factors.
The primary investing activities of the Company are the origination of
loans and the purchase of investment securities and mortgage-backed securities.
During the three months ended December 31, 2002 and 2001, the Company had $16.5
million and $12.8 million, respectively, of loan originations. During the three
months ended December 31, 2002 and 2001, the Company purchased investment
securities in the amounts of $24.1million and $17.9million, respectively, and
mortgage-backed securities in the amounts of $16.3million and $19.9 million,
respectively. The primary financing activity of the Company is the attraction of
savings deposits.
The Company has other sources of liquidity if there is a need for funds.
The Bank has the ability to obtain advances from the FHLB of Atlanta. In
addition, the Company maintains a portion of its investments in interest-bearing
deposits at other financial institutions that will be available, if needed.
The Bank is required to maintain minimum levels of liquid assets as defined
by OTS regulations. This requirement, which may be changed at the direction of
the OTS depending upon economic conditions and deposit flows, is based upon a
percentage of deposits and short-term borrowings. The Bank's average daily
liquidity ratio for the month of December was approximately 21.4%, which
exceeded the required level for such period. Management seeks to maintain a
relatively high level of liquidity in order to retain flexibility in terms of
investment opportunities and deposit pricing. Because liquid assets generally
provide for lower rates of return, the Bank's relatively high liquidity will, to
a certain extent, result in lower rates of return on assets.
The Company's most liquid assets are cash, interest-bearing deposits in
other banks and federal funds sold, which are short-term, highly liquid
investments with original maturities of less than three months that are readily
convertible to known amounts of cash. The levels of these assets are dependent
on the Company's operating, financing and investing activities during any given
period. At December 31, 2002, cash, interest-bearing deposits in other banks and
federal funds sold were $9.8 million, $10.9 million and $6.1 million,
respectively.
The Company anticipates that it will have sufficient funds available to
meet its current commitments. Certificates of deposit which are scheduled to
mature in less than one year at December 31, 2002 totaled $204.4 million. Based
on past experience, management believes that a significant portion of such
deposits will remain with the Bank.
17
The Bank is a party to financial instruments with off-balance-sheet risk made in
the normal course of business to meet the financing needs of its customers.
These financial instruments are standby letters of credit, lines of credit and
commitments to fund mortgage loans and involve to varying degrees elements of
credit risk in excess of the amount recognized in the statement of financial
position. The contract amounts of those instruments express the extent of
involvement the Company has in this class of financial instruments and
represents the Company's exposure to credit loss from nonperformance by the
other party.
The Company generally requires collateral or other security to support
financial instruments with off-balance-sheet credit risk. At December 31, 2002,
the Company had commitments under standby letters of credit and lines of credit
and commitments to originate mortgage loans of $350,000, $17.7million and $8.6
million respectively.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the possible chance of loss from unfavorable changes in
market prices and rates. These changes may result in a reduction of current and
future period net interest income, which is the favorable spread earned from the
excess of interest income on interest-earning assets over interest expense on
interest-bearing liabilities.
The Company considers interest rate risk to be its most significant market
risk, which could potentially have the greatest impact on operating earnings.
The structure of the Company's loan and deposit portfolios is such that a
significant change in interest rates may adversely impact net market values and
net interest income.
The Company monitors whether material changes in market risk have occurred
since September 30, 2002. The Company does not believe that any material adverse
changes in market risk exposures occurred since September 30, 2002.
ITEM 4. CONTROLS AND PROCEDURES
Within 90 days prior to the date of this report, the Company carried out an
evaluation, under the supervision and with the participation of the Company's
principal executive officer and principal financial officer, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures. Based on this evaluation, the Company's principal executive
officer and principal financial officer concluded that the Company's disclosure
controls and procedures are effective in timely alerting them to material
information required to be included in the Company's periodic SEC reports.
In addition, and there have been no significant changes in the Company's
internal controls or in other factors that could significantly affect those
controls subsequent to the date of their last evaluation.
18
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) List of Exhibits
The following exhibit is filed herewith:
Exhibit Title
Number -----
------
99 Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
(b) Form 8-K
No Reports on Form 8-K were filed during the quarter ended
December 31, 2002.
19
SIGNATURES
In accordance with the requirements 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.
BCSB BANKCORP, INC.
Date: February 11, 2003 /s/ Gary C. Loraditch
--------------------------------------------
Gary C. Loraditch
President
(Principal Executive Officer)
Date: February 11, 2003 /s/ Bonnie M. Klein
--------------------------------------------
Bonnie M. Klein
Vice President and Treasurer
(Principal Financial and Accounting Officer)
20
CERTIFICATION
I, Gary C. Loraditch, President of BCSB Bankcorp, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of BCSB Bankcorp,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
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 the registrant's board of directors (or persons performing the
equivalent function):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: February 11, 2003
/s/ Gary C. Loraditch
-----------------------------------
Gary C. Loraditch
President
(Principal Executive Officer)
21
CERTIFICATION
I, Bonnie M. Klein, Vice President and Treasurer of BCSB Bankcorp, Inc.,
certify that:
1. I have reviewed this quarterly report on Form 10-Q of BCSB Bankcorp,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
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 the registrant's board of directors (or persons performing the
equivalent function):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: February 11, 2003
/s/ Bonnie M. Klein
-----------------------------------
Bonnie M. Klein
Vice President and Treasurer
(Principal Financial Officer)
22