SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------ ------
Commission file number 01-13465
Falmouth Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Delaware 04-3337685
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
20 Davis Straits, Falmouth, MA 02540
(Address of principal executive offices)
(Zip Code)
(508) 548-3500
(Registrant's telephone number including area code)
NA
(Former name, former address and former fiscal year,
if changed from last Report)
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 twelve months (or for such
shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirement 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
Outstanding at
Class March 31, 2003
----- --------------
Common Stock, Par Value $.01 903,173
Transitional small business disclosure format:
Yes [ ] No [X]
FALMOUTH BANCORP, INC.
AND SUBSIDIARIES
INDEX TO FORM 10-QSB
PART I. FINANCIAL INFORMATION Page
Item 1 Financial Statements
Condensed Consolidated Balance Sheets
March 31, 2003 and September 30, 2002 1
Condensed Consolidated Statements of Income
For Three and Six Months Ended
March 31, 2003 and 2002 2-3
Condensed Consolidated Statements of Changes
in Stockholders' Equity For Six Months Ended
March 31, 2003 and 2002 4
Condensed Consolidated Statements of Cash Flows
For Six Months Ended March 31, 2003 and 2002 5-6
Notes to Unaudited Condensed Consolidated
Financial Statements 7-9
Item 2 Management's Discussion and Analysis of
Financial Condition and Operating Results 10-15
Item 3 Controls and Procedures 16
PART II OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
Certifications 20-21
FORWARD LOOKING STATEMENTS
This report contains certain forward-looking statements consisting of
estimates with respect to the financial condition, results of operations
and business of the Company and the Bank that are subject to various
factors which could cause actual results to differ materially from these
estimates. These factors include, but are not limited to: general and
local economic conditions; changes in interest rates, deposit flows, demand
for mortgages and other loans, real estate values, and competition; changes
in accounting principles, policies, or guidelines; changes in legislation
or regulation; and other economic, competitive, governmental, regulatory,
and technological factors affecting our operations, pricing, products and
services.
Any or all of our forward-looking statements in the report and in any
other public statements we make may turn out to be wrong. They can be
affected by inaccurate assumptions we might make or by known or unknown
risks and uncertainties. Consequently, no forward-looking statement can be
guaranteed.
We undertake no obligation to publicly update forward-looking
statements, whether as a result of new information, future events or
otherwise.
Part I. Item I. FALMOUTH BANCORP, INC. AND SUBSIDIARIES
---------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
March 31, 2003 and September 30, 2002
-------------------------------------
March 31, September 30,
2003 2002
--------- -------------
(unaudited)
<s> <c> <c>
ASSETS
Cash, due from banks, and interest bearing deposits $ 2,565,533 $ 2,916,804
Federal funds sold 16,561,540 4,505,780
------------ ------------
Total cash and cash equivalents 19,127,073 7,422,584
Investments in available-for-sale securities (at fair value) 20,638,764 18,712,954
Investments in held-to-maturity securities (fair values of
$30,438,844 as of March 31, 2003 and $28,034,474 as of
September 30, 2002) 30,395,076 28,060,267
Federal Home Loan Bank stock, at cost 878,000 878,000
Loans, net 81,866,437 95,009,955
Premises and equipment 1,727,307 1,792,016
Accrued interest receivable 1,091,240 1,114,924
Cooperative Central Bank Reserve Fund Deposit 395,395 395,395
Other assets 1,077,522 1,134,907
------------ ------------
Total Assets $157,196,814 $154,521,002
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 18,157,202 $ 17,552,180
Interest-bearing 115,572,701 114,164,879
------------ ------------
Total deposits 133,729,903 131,717,059
Securities sold under agreements to repurchase 721,688 471,872
Federal Home Loan Bank advances 5,275,144 5,178,175
Other liabilities 738,757 761,663
------------ ------------
Total Liabilities 140,465,492 138,128,769
------------ ------------
Minority preferred stockholders' equity in a subsidiary
company of Falmouth Bank 50,500 53,500
------------ ------------
Stockholders' equity:
Preferred stock, par value $.01 per share, authorized
500,000 shares; none issued
Common stock, par value $.01 per share, authorized
2,500,000 shares; issued 1,454,750 shares 14,547 14,547
Paid-in capital 13,972,459 13,981,543
Retained earnings 13,304,221 13,735,221
Unallocated Employee Stock Ownership Plan shares (257,206) (301,299)
Treasury stock (551,577 shares as of March 31, 2003;
553,971 shares as of September 30, 2002) (9,765,505) (9,807,890)
Unearned compensation (340,994) (477,088)
Accumulated other comprehensive loss (246,700) (806,301)
------------ ------------
Total stockholders' equity 16,680,822 16,338,733
------------ ------------
Total liabilities and stockholders' equity $157,196,814 $154,521,002
============ ============
The accompanying notes are an integral part of these
condensed consolidated financial statements.
1
FALMOUTH BANCORP, INC. AND SUBSIDIARIES
---------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
-------------------------------------------
(unaudited)
Three Months Ended Six Months Ended
------------------------- -------------------------
March 31, March 31, March 31, March 31,
2003 2002 2003 2002
--------- --------- --------- ---------
<s> <c> <c> <c> <c>
Interest and dividend income:
Interest and fees on loans $1,321,836 $1,897,389 $2,816,705 $3,918,873
Interest and dividends on securities:
Taxable 311,522 215,134 649,634 405,490
Dividends on marketable equity securities 20,843 17,989 41,290 42,722
Dividends on Cooperative Bank Investment
and Liquidity Funds - - - 551
Other interest 33,501 20,538 63,921 61,239
---------- ---------- ---------- ----------
Total interest and dividend income 1,687,702 2,151,050 3,571,550 4,428,875
---------- ---------- ---------- ----------
Interest expense:
Interest on deposits 561,113 764,953 1,214,464 1,663,938
Interest on securities sold under agreement
to repurchase 3,226 1,285 5,209 3,399
Interest on Federal Home Loan Bank advances 61,644 80,023 124,097 164,538
---------- ---------- ---------- ----------
Total interest expense 625,983 846,261 1,343,770 1,831,875
---------- ---------- ---------- ----------
Net interest and dividend income 1,061,719 1,304,789 2,227,780 2,597,000
Provision for loan losses - 30,000 - 80,000
---------- ---------- ---------- ----------
Net interest income after provision for
for loan losses 1,061,719 1,274,789 2,227,780 2,517,000
---------- ---------- ---------- ----------
Other income:
Service charges on deposit accounts 43,279 43,815 93,644 92,771
Securities gains (losses), net (378,905) - (455,492) 17,062
Net gains on sales of loans 286,462 73,109 611,773 259,526
Loan servicing fees 34,980 14,856 64,172 23,928
Other income 59,645 52,804 147,445 132,210
---------- ---------- ---------- ----------
Total other income 45,461 184,584 461,542 525,497
---------- ---------- ---------- ----------
Other expense:
Salaries and employee benefits 506,807 421,653 994,486 851,752
Occupancy expense 44,433 40,641 85,414 82,181
Equipment expense 44,869 50,548 89,693 99,588
Data processing expense 109,053 92,949 197,758 187,713
Directors' fees 18,675 22,050 37,285 35,050
Legal and professional fees 34,593 47,271 90,913 94,718
Other expenses 255,608 165,589 502,663 339,955
---------- ---------- ---------- ----------
Total other expenses 1,014,038 840,701 1,998,212 1,690,957
---------- ---------- ---------- ----------
Income before income taxes 93,142 618,672 691,110 1,351,540
Income taxes 92,320 226,425 315,170 492,625
---------- ---------- ---------- ----------
Net income before extraordinary item 822 392,247 375,940 858,915
Extraordinary item (net of tax benefit
of $300,020) (572,348) - (572,348) -
---------- ---------- ---------- ----------
Net income (loss) after extraordinary item $ (571,526) $ 392,247 $ (196,408) $ 858,915
========== ========== ========== ==========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
2
FALMOUTH BANCORP, INC. AND SUBSIDIARIES
---------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
-------------------------------------------
(Continued)
(unaudited)
Three Months Ended Six Months Ended
------------------------- -------------------------
March 31, March 31, March 31, March 31,
2003 2002 2003 2002
--------- --------- --------- ---------
<s> <c> <c> <c> <c>
Comprehensive income (loss) $(174,494) $ 261,133 $ 363,193 $ 895,417
========= ========= ========= =========
Earnings per common share before
extraordinary item $ 0.00 $ 0.45 $ 0.43 $ 0.97
Loss per common share on extraordinary item (0.66) - (0.66) -
--------- --------- --------- ---------
Earnings (loss) per common share after
extraordinary item $ (0.66) $ 0.45 $ (0.23) $ 0.97
========= ========= ========= =========
Earnings per common share before
extraordinary item, assuming dilution $ 0.00 $ 0.43 $ 0.41 $ 0.93
Loss per common share on extraordinary item,
assuming dilution (0.62) - (0.62) -
--------- --------- --------- ---------
Earnings (loss) per common share after
extraordinary item, assuming dilution $ (0.62) $ 0.43 $ (0.21) $ 0.93
========= ========= ========= =========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
3
FALMOUTH BANCORP, INC. AND SUBSIDIARIES
---------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
--------------------------------------------------------------------
Six Months ended March 31, 2003
-------------------------------
(unaudited)
Unallocated Accumulated
Employee Other
Stock Compre-
Ownership hensive
Common Paid-In Retained Plan Treasury Unearned Income
Stock Capital Earnings Shares Stock Compensation (Loss) Total
------ ------- -------- ----------- -------- ------------ ----------- -----
<s> <c> <c> <c> <c> <c> <c> <c> <c>
Balance, September 30, 2002 $14,547 $13,981,543 $13,735,221 $(301,299) $(9,807,890) $(477,088) $(806,301) $16,338,733
Employee Stock Ownership Plan 65,751 65,751
ESOP shares released 44,093 44,093
Recognition and retention plan 68,009 68,009
Distribution of RRP shares (136,094) 136,094 -
Purchase of treasury stock
Exercise of stock options and
related tax benefit (6,750) 42,385 35,635
Dividends declared ($.26 per
share) (234,592) (234,592)
Comprehensive income:
Net loss (196,408)
Net change in unrealized
holding gain on available-
for-sale securities 559,601
Comprehensive Income 363,193
------- ----------- ----------- --------- ----------- --------- --------- -----------
Balance, March 31, 2003 $14,547 $13,972,459 $13,304,221 $(257,206) $(9,765,505) $(340,994) $(246,700) $16,680,822
======= =========== =========== ========= =========== ========= ========= ===========
Six Months ended March 31, 2002
-------------------------------
(unaudited)
Unallocated Accumulated
Employee Other
Stock Compre-
Ownership hensive
Common Paid-In Retained Plan Treasury Unearned Income
Stock Capital Earnings Shares Stock Compensation (Loss) Total
------ ------- -------- ----------- -------- ------------ ----------- -----
<s> <c> <c> <c> <c> <c> <c> <c> <c>
Balance, September 30, 2001 $14,547 $13,901,279 $12,676,198 $(389,483) $(8,749,737) $(137,429) $(404,687) $16,910,688
Employee Stock Ownership Plan 46,499 46,499
ESOP shares released 44,092 44,092
Recognition and retention plan 36,080 36,080
Distribution of RRP shares (137,429) 137,429 -
Purchase of treasury stock (576,195) (576,195)
Exercise of stock options and
related tax benefit (8,182) 69,866 61,684
Dividends declared ($.26 per
share) (221,310) (221,310)
Comprehensive income:
Net income 858,915
Net change in unrealized
holding gain on available-
for-sale securities 36,502
Comprehensive Income 895,417
------- ----------- ----------- --------- ----------- --------- --------- -----------
Balance, March 31, 2002 $14,547 $13,838,247 $13,313,803 $(345,391) $(9,256,066) - $(368,185) $17,196,955
======= =========== =========== ========= =========== ========= ========= ===========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
4
FALMOUTH BANCORP, INC. AND SUBSIDIARIES
---------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
For the Six Months Ended March 31, 2003 and 2002
------------------------------------------------
2003 2002
---- ----
(unaudited) (unaudited)
<s> <c> <c>
Cash flows from operating activities
Net income (loss) $ (196,408) $ 858,915
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Realized (gains) losses on available for sale investment
securities, net 455,492 (17,062)
Amortization of investment securities, net 641,850 217,777
Provision for loan loss - 80,000
Change in deferred loan costs net of origination fees (69,530) (678)
Net gains on sales of loans (611,773) (259,526)
Depreciation and amortization 84,300 101,984
Loss on disposal of equipment - 1,071
(Increase) decrease in accrued interest receivable 23,684 (43,333)
(Increase) decrease in prepaid expenses 8,494 (17,339)
Increase in other assets (221,168) (232,823)
Recognition and retention plan (RRP) 68,009 36,080
Decrease in accrued expenses (59,544) (36,599)
Increase in taxes payable 518,447 77,238
Decrease in accrued interest payable (25) (172)
Decrease in other liabilities (205,525) (90,980)
------------ ------------
Net cash provided by operating activities 436,303 674,553
------------ ------------
Cash flows from investing activities
Purchases of available-for-sale securities (14,804,935) (4,112,161)
Proceeds from sales of available-for-sale securities 660,788 60,868
Proceeds from maturities of available-for-sale securities 12,159,847 629,203
Purchases of held-to-maturity securities (19,111,631) (12,132,422)
Proceeds from maturities of held-to-maturity securities 16,291,371 7,022,884
Loan originations and principal collections, net (25,800,353) (11,805,518)
Proceeds from sales of loans 39,625,174 17,054,513
Capital expenditures (19,591) (69,986)
------------ ------------
Net cash provided by (used in) investing activities 9,000,670 (3,352,619)
------------ ------------
Cash flows from financing activities:
Net increase in demand deposits, NOW and savings accounts 4,381,404 4,941,686
Net decrease in time deposits (2,368,560) (2,528,680)
Net increase (decrease) in securities sold under agreements
to repurchase 249,816 (342,747)
Repayments of Federal Home Loan Bank long-term advances (47,031) (2,043,310)
Net change in Federal Home Loan Bank short-term advances 144,000 -
Redemption of preferred shares relative to minority interests (3,000) -
Proceeds from exercise of stock options 35,635 61,684
Dividends paid (234,592) (221,310)
Employee Stock Ownership Plan 65,751 46,499
Unallocated ESOP shares released 44,093 44,092
Purchase of treasury stock - (576,195)
------------ ------------
Net cash provided by (used in) financing activities 2,267,516 (618,281)
------------ ------------
The accompanying notes are an integral part of these
condensed consolidated financial statements.
5
FALMOUTH BANCORP, INC. AND SUBSIDIARIES
---------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
For the Six Months Ended March 31, 2003 and 2002
------------------------------------------------
(continued)
2003 2002
---- ----
(unaudited) (unaudited)
<s> <c> <c>
Decrease in cash and cash equivalents 11,704,489 (3,296,347)
Cash and cash equivalents at beginning of period 7,422,584 10,835,279
------------ ------------
Cash and cash equivalents at end of period $ 19,127,073 $ 7,538,932
============ ============
Supplemental disclosures
Interest paid $ 1,343,795 $ 1,832,047
Income taxes paid (503,297) 415,387
The accompanying notes are an integral part of these
condensed consolidated financial statements.
6
FALMOUTH BANCORP, INC.
----------------------
AND SUBSIDIARIES
----------------
Notes to Unaudited Condensed Consolidated Financial Statements
Note 1 - Basis of Presentation
The condensed consolidated financial statements of Falmouth Bancorp,
Inc. (the "Company") and its subsidiaries presented herein are unaudited
and should be read in conjunction with the consolidated financial
statements of the Company for the year ended September 30, 2002. The
results of operations for the six-month period ended March 31, 2003 are not
necessarily indicative of the results to be expected for the full year.
All material intercompany balances and transactions have been eliminated in
consolidation. In the opinion of management, the condensed consolidated
financial statements reflect all adjustments (consisting solely of normal
recurring adjustments) necessary for a fair presentation of results for the
interim periods. The year-end condensed balance sheet was derived from
audited financial statements, but does not include all disclosures required
by accounting principles generally accepted in the USA (GAAP).
Note 2 - Accounting Policies
The accounting and reporting policies of the Company conform to GAAP
and prevailing practices within the banking industry. The interim
financial information should be read in conjunction with the Company's 2002
Annual Report contained on Form 10-KSB.
Management is required to make estimates and assumptions that affect
amounts reported in the consolidated financial statements. Actual results
could differ significantly from those estimates.
Note 3 - Impact of New Accounting Standards
Statement of Financial Accounting Standards No. 141, Business
Combinations, improves the consistency of the accounting and reporting for
business combinations by requiring that all business combinations be
accounted for under a single method - the purchase method. Use of the
pooling-of-interests method is no longer permitted. Statement No. 141
requires that the purchase method be used for business combinations
initiated after June 30, 2001. The adoption of SFAS No. 141 had no
immediate effect on the Company's consolidated financial statements since
it had no pending business combinations as of June 30, 2001 or as of the
date of the issuance of these consolidated financial statements. If the
Company consummates business combinations in the future, any such
combinations that would have been accounted for by the pooling-of-interests
method under Opinion 16 will be accounted for under the purchase method and
the difference in accounting could have a substantial impact on the
Company's consolidated financial statements.
SFAS No. 142 requires that goodwill no longer be amortized to
earnings, but instead be reviewed for impairment. The amortization of
goodwill ceases upon adoption of the Statement. All of the provisions of
SFAS No. 142 were effective for the Company beginning with its fiscal year
ending September 30, 2002 The adoption of SFAS No. 142 did not have an
impact on the Company's consolidated financial statements.
In August 2001, the FASB issued SFAS No. 144 "Accounting for
Impairment or Disposal of Long Lived Assets." The provisions of SFAS No.
144 are required to be adopted starting with fiscal years
7
beginning after December 15, 2001. The adoption of this Statement did not
have a material impact on the Company's consolidated financial statements.
In June 2002, the FASB issued SFAS No. 146 "Accounting for Costs
Associated with Exit or Disposal Activities." This statement requires that
a liability for a cost associated with an exit or disposal activity be
recognized and measured initially at fair value only when the liability is
incurred. SFAS No. 146 is effective for exit or disposal activities that
are initiated after December 31, 2002. This Statement did not have a
material impact on the Company's consolidated financial statements.
In October 2002, the FASB issued SFAS No. 147 "Acquisitions of
Certain Financial Institutions" an Amendment of SFAS No. 72 and SFAS No.
144 and FASB Interpretation No. 9 SFAS No. 72 "Accounting for Certain
Acquisitions of Banking or Thrift Institutions" and FASB interpretation No.
9 "Applying APB Opinions No. 16 and 17 When a Savings and Loan Association
Is Acquired in a Business Combination Accounted for by the Purchase
Method," that provided interpretive guidance on the application of the
purchase method to acquisitions of financial institutions. SFAS No. 147
was effective October 1, 2002. There was no impact on the Company's
consolidated financial statements on adoption of this Statement.
Note 4 - Accounting for Stock-Based Compensation.
Statement of Financial Accounting Standards No. 148 "Accounting for
Stock-Based Compensation - Transition and Disclosure, an amendment to FASB
Statement No. 123 (SFAS No. 148)" was issued by FASB in December 2002.
This new Statement requires, in interim financial statements, certain new
disclosures about stock-based compensation. Management measures stock-
based compensation in accordance with APB Opinion No. 25. The following
table illustrates the effect on net income and earnings per share if the
Company had applied the fair value recognition provision of SFAS No. 123
"Accounting for Stock-Based Compensation" to stock-based compensation.
Three months ended Six months ended
March 31, March 31,
------------------------- -------------------------
2003 2002 2003 2002
---- ---- ---- ----
<s> <c> <c> <c> <c>
Net income (loss) as reported, after extraordinary item $(571,526) $ 392,247 $(196,408) $ 858,915
Stock based compensation expense determined under
fair value method, net of tax benefit (4,694) (1,141) (9,441) (22,623)
--------- --------- --------- ---------
Pro forma net income (loss) $(576,220) $ 391,106 $(205,849) $ 836,292
========= ========= ========= =========
Earnings (loss) per share:
Basic as reported $ (0.66) $ 0.45 $ (0.23) $ 0.97
Basic - pro forma $ (0.66) $ 0.45 $ (0.24) $ 0.95
Diluted as reported $ (0.62) $ 0.43 $ (0.21) $ 0.93
Diluted - pro forma $ (0.62) $ 0.43 $ (0.22) $ 0.91
8
Note 5 - Dividends
On February 24, 2003, the Board of Directors of the Company declared
a quarterly cash dividend of $0.13 per share of common stock, which was
paid on March 25, 2003 to stockholders of record at the close of business
on March 11, 2003.
Note 6 - Recent Developments
During the quarter ended March 31, 2003 the Company issued 600
treasury shares due to exercised employee stock options. At March 31, 2003,
the Company had 551,577 treasury shares.
Note 7 - Contingency and Extraordinary Item
Falmouth Capital Corporation ("FCC"), a subsidiary of the Bank, was
established in December 1999 as a Massachusetts-chartered real estate
investment trust (the "REIT"). The Bank received dividends from FCC.
The Bank, and several other financial institutions operating in the
Commonwealth of Massachusetts with similar real estate investment trust
subsidiaries, have recently received Notices of Intent to Assess additional
state excise taxes from the Massachusetts Department of Revenue (the
"DOR"), challenging the dividends received deduction claimed by the Bank
and other institutions. The Bank received a Notice of Intent to assess a
tax in the amount of $470,972 and intends to vigorously appeal this Notice.
The Company has not recorded a loss provision in regard to this matter.
In a matter that may affect the assessment described above, on March
5, 2003, the Commonwealth of Massachusetts enacted tax legislation that
imposed taxes on the Bank for the above described dividends paid by the
Bank's REIT to the Bank. The new tax, including interest, for the Bank was
$572,348 covering the years ending 1999, 2000, 2001, 2002, and the five
months ended February 28, 2003. The Company expensed this amount in its
financial statements for the quarter ended March 31, 2003, net of the tax
benefit of approximately $300,020 and classified it as an extraordinary
item on the statements of income for the three months ended March 31, 2003
and the six months ended March 31, 2003. The Company believes the
legislation will be challenged, especially the retroactive provisions, on
constitutional and other grounds. The Company would support such a
challenge and otherwise intends to defend vigorously its position.
Because of the inability to deduct dividends received from the Bank's
REIT and the accrual of interest on taxes, It is expected that net income
during the remainder of 2003 will be reduced by approximately $60,000 per
quarter.
9
Part I. Item 2. Management's Discussion and
Analysis of Financial Condition and Operating Results
General
Falmouth Bancorp, Inc. (the "Company" or "Bancorp"), a Delaware
corporation, is the holding company for Falmouth Bank (the "Bank" or
"Falmouth"), a Massachusetts chartered stock co-operative bank. At March
31, 2003, there were 903,173 shares of the common stock of the company
outstanding. The Company's stock trades on the American Stock Exchange
under the symbol "FCB".
The Company's sole business activity is ownership of the Bank. The
Company also makes investments in long and short-term marketable securities
and other liquid investments. The business of the Bank consists of
attracting deposits from the general public and local businesses and using
these funds to originate primarily residential and commercial real estate
loans located in Falmouth, Massachusetts and surrounding areas and to
invest in United States Government and Agency securities. To a lesser
extent, the Bank engages in various forms of consumer and home equity
lending. The Bank's business strategy is to operate as a profitable
community bank dedicated to financing home ownership, small business, and
consumer needs in its market area and to provide personal, high quality
service to its customers. The Bank has one subsidiary, Falmouth Capital
Corporation, a real estate investment trust.
The Company had average shares outstanding of 902,802 at March 31,
2003, as compared to 915,087 average shares outstanding at March 31, 2002.
The Company has continued with its stock buy-back programs. At March 31,
2003, the Company had repurchased a total of 551,577 shares, or 37.92% of
its common stock, leaving 903,173 shares issued and outstanding.
Critical Accounting Policies
The Notes to our Audited Consolidated Financial Statements for the
year ended September 30, 2002, included in our Annual Report, contain a
summary of our significant accounting policies. We believe our policies
with respect to the methodology for our determination of the allowance for
loan losses, the valuation of mortgage servicing rights and asset
impairment judgments, and other than temporary declines in the value of our
securities, involve a higher degree of complexity and require management to
make difficult and subjective judgments which often require assumptions or
estimates about highly uncertain matters. Changes in these judgments,
assumptions or estimates could cause reported results to differ materially.
These critical policies and their application are periodically reviewed by
the Audit Committee and our Board of Directors.
Comparison of Financial Condition at March 31, 2003 and September 30, 2002.
The Company's total assets increased by $2.7 million or 1.73% for the
six months ended March 31, 2003, from $154.5 million at September 30, 2002
to $157.2 million at March 31, 2003. Total deposits increased $2.0 million
or 1.53%, from $131.7 million at September 30, 2002 to $133.7 million at
March 31, 2003. This increase was due, in part, to seasonal deposits in NOW
accounts and regular savings accounts during the period. Total net loans
were $81.9 million or 61.2% of total deposits at March 31, 2003, as
compared to $95.0 million or 72.1% of total deposits at September 30, 2002,
representing a
10
decrease of $13.1 million for the period. This decrease was due, in part,
to the large number of 1-4 family mortgages that were re-written, due to
lower market rates, and then sold by the Bank on the secondary market with
the loan servicing retained. Investment securities were $51.9 million or
33.0% of total assets at March 31, 2003, as compared to $47.7 million or
30.8% of total assets at September 30, 2002. Investment securities
increased $4.3 million or 8.9% due, in part, to the reinvestment of cash
flows generated from loan payoffs and sold loans into short-term
securities.
Borrowed funds from the Federal Home Loan Bank of Boston increased
from $5.2 million at September 30, 2002 to $5.3 million at March 31, 2003.
The increase of $97,000 was the result of a one day borrowing at month end.
Securities sold under agreements to repurchase (sweep accounts for
commercial depositors) increased from $472,000 at September 30, 2002 to
$722,000 at March 31, 2003. The increase was attributed to the increased
seasonal deposits of our commercial demand deposit customers.
Stockholders' equity was $16.7 million at March 31, 2003, as compared
to $16.3 million at September 30, 2002, an increase of $342,000. This
change was primarily the result of a net loss and dividends paid to
stockholders which reduced retained earnings by $431,000, a decrease in
accumulated other comprehensive loss of $560,000 due to realized losses on
available for sale investments and the increased value of available for
sale investments, scheduled discharge of liabilities on stock-based
employee benefit plans of $178,000 (ESOP and RRP), and the exercise of
stock options, net of tax benefits, of $35,000. The ratio of stockholders'
equity to total assets was 10.61% at March 31, 2003, and the book value per
share of common stock was $18.47, compared to 10.57% and $18.15,
respectively, at September 30, 2002.
The ratio of the allowance for loan losses to total loans was 1.13%
at March 31, 2003. Management believes the allowance will be adequate
based upon, among other things, past loss experience, prevailing economic
conditions, and the level of credit risk in the loan portfolio. However,
the Bank may periodically provide additional provisions as deemed necessary
to maintain a sufficient allowance for the loan loss to total loan ratio.
Three Months Ended March 31, 2003 and 2002
Net Income. The Company's net loss, after an extraordinary item, for
the three months ended March 31, 2003 was $572,000, as compared to net
income of $392,000 for the three months ended March 31, 2002. The decrease
in net income of $964,000 was due, in part, to a decrease in interest and
dividend income of $463,000 that was offset, in part, by a decrease in
interest expense of $220,000. Other key factors included a one-time charge
to earnings of $572,000, classified as an extraordinary item on the
consolidated statements of income, that is the result of tax legislation
recently enacted by the Commonwealth of Massachusetts related to the
Company's real estate investment trust subsidiary, which is retroactive; a
decrease in other income of $139,000 due to realized losses on investment
securities; an increase in other expenses of $173,000 and a decrease in
income taxes of $134,000. The annualized return on average assets (ROA)
for the three months ended March 31, 2003 was -1.46%, a decrease of 253
basis points, as compared to 1.07% for the same period in the prior year.
The annualized return on average equity (ROE) for the three months ended
March 31, 2003 was -13.52%, as compared to 9.15% for the same period of the
previous year. Interest and dividend income decreased, primarily as the
result of low interest rates, loan payoffs, and loan sales during the
period. The decrease in interest expense was primarily due to a reduction
in the general level of interest rates while total deposits rose slightly.
11
Interest and Dividend Income. Total interest and dividend income for
the three months ended March 31, 2003 was $1.7 million, a decrease of
$463,000, as compared to $2.2 million for the three month period ended
March 31, 2002. The decrease was attributed to a decrease in interest and
fees on loans of $576,000, which was the result of generally lower interest
rates on loans held for investment, offset by an increase in interest and
dividends on debt securities, dividends on equities securities and an
increase in other interest of $112,000.
Interest Expense. Total interest expense for the three months ended
March 31, 2003 was $626,000, as compared to $846,000 for the same period of
the prior year, a decrease of $220,000. This was the result of decreased
FHLB borrowings as well as a reduction in interest rates paid on deposits
during the period.
Net Interest and Dividend Income. Net interest and dividend income
was $1.06 million for the three-month period ended March 31, 2003 as
compared to $1.3 million for the three months ended March 31, 2002. The
$243,000 decrease was the result of a $463,000 decrease in interest and
dividend income, offset in part by a $220,000 decrease in interest expense.
The net interest margin for the three months ended March 31, 2003 was
2.85%, a decrease of 87 basis points, as compared to 3.72% for the three
months ended March 31, 2002. The decrease in net interest margin was
primarily the result of a decrease in the yield on earning assets.
Provision for Loan Losses. The Bank made no additional provision to
its allowance for loan losses during the quarter ended March 31, 2003, as
compared to a provision of $30,000 for the quarter ended March 31, 2002.
This was the result of management's desire to sell a substantial amount of
its newly originated loans on the secondary market, thus reducing the amount
of growth in loans as compared to the same period of the previous year.
Management believes that, although the provision is deemed adequate based on
its delinquency and loan loss record, additional provisions may be added from
time to time as the loan portfolio expands by loan type and volume, including
expansion in the commercial loan portfolio. The Bank reviews the general and
specific reserves allocated to each loan type, both on and off the balance
sheet. This review procedure allows management to look at the growth and risk
of each loan type. If necessary, additional reserves can be allocated where
loss exposure appears to have risen. Where commercial loans traditionally
have a greater degree of loss exposure, the amount of the allowance may be
greater than that of traditional 1-4 family mortgage loan of the same amount.
If losses appear imminent within a loan type or in general, allowances could
be increased. General allowances are generally increased as the total loan
portfolio increases. Net loans decreased $13.1 million for the three months
ended March 31, 2003, primarily due to refinancing activity and the decision
to sell most of the refinanced loans. This decrease aided in improving the
Bank's allowance for loan loss to 1.13% of total loans at March 31, 2003.
The Bank's Asset/Liability Committee routinely reviews the risk weighting
applied to each type of loan. There have been no changes during the period
ended March 31, 2003. As of March 31, 2003, the Bank had no non-performing
loans.
Other Income. Total other income for the three-month period ended
March 31, 2003 was $45,000, as compared to $185,000 for the three months
ended March 31, 2002. The $140,000 decrease was primarily the result of
realized losses on investment securities of $379,000 due to sales of equity
securities which would otherwise have been reported as permanently impaired
during the period, an increase in net gains on mortgages sold of $213,000,
an increase in loan servicing fee income of $20,000 and an increase in
other income of $7,000.
Other Expenses. Total other expenses for the three months ended
March 31, 2003 were $1.0 million, as compared to $841,000 for the three
months ended March 31, 2002. The $173,000 increase was primarily due to
the combination of an increase in salaries of and employee benefits of
$85,000 due to
12
increases in wages and salaries of $25,000, increases in employer provided
insurance of $10,000, an increase in the ESOP benefit expense of $8,000 and
an increase in the reimbursed payroll account of $46,000, as well as an
increase in occupancy expense of $4,000, an increase in data processing
expense of $16,000, and an increase in other expenses of $90,000, combined
with a decrease in equipment expense of $6,000, a decrease in Directors'
fees of $3,000, and a decrease in legal and professional costs of $13,000.
The increase in other expenses was primarily the result of the amortization
and permanent impairment of mortgage-servicing rights due to the large
number of re-financed mortgages sold. The annualized ratio of operating
expenses to average total assets for the three months ended March 31, 2003
was 2.60%, as compared to 2.30% for the three-month period ended March 31,
2002, an increase of 30 basis points.
Extraordinary Item. The extraordinary item expense was the result of
the recent Massachusetts tax legislation effecting the 95% tax dividend
exclusion of dividends received by the Bank from its real estate investment
trust subsidiary. The new tax legislation expressly disallows the
deduction for dividends received from a real estate investment trust
subsidiary. As a result of the enactment of the legislation, the Company
ceased recording the tax benefits associated with the dividend received
deduction. The extraordinary item of $572,000 is net of an income tax
benefit of $300,000.
Six months Ended March 31, 2003 and 2002
Net Income. The Company's net loss, after an extraordinary item, for
the six months ended March 31, 2003 was $196,000 as compared to net income
of $859,000 at March 31, 2002. The decrease in net income of $1.1 million
was due, in part, to a decrease in interest and dividend income of $857,000
that was offset, in part, by a decrease in interest expense of $488,000.
Other key factors included a one-time charge to earnings of $572,000,
classified as an extraordinary item on the consolidated statements of
income, that is the result of tax legislation recently enacted by the
Commonwealth of Massachusetts related to the Company's real estate
investment trust subsidiary, which is retroactive; a decrease in other
income of $64,000 due to realized losses on investment securities; an
increase in other expenses of $307,000 and a decrease in income taxes of
$177,000. The annualized return on average assets (ROA) for the six months
ended March 31, 2003 was -0.25%, as compared to 1.17% for the same period
in the prior year. The annualized return on average equity (ROE) for the
six months ended March 31, 2003 was -2.29%, as compared to 10.04% for the
six months ended March 31, 2002.
Interest and Dividend Income. Total interest and dividend income for
the six months ended March 31, 2003 was $3.6 million, a decrease of $857,000
as compared to $4.4 million for the six-month period ended March 31, 2002.
The decrease in interest and dividend income is attributable to lower
interest rates on loans and other investments as well as a reduction of loans
held for investment from 86.3% of total deposits at March 31, 2002 to 61.2%
at March 31, 2003. Although the investment portfolio grew $23.2 million from
$28.7 million at March 31, 2002 to $51.9 million at March 31, 2003, interest
and dividends on securities and other interest income increased only $242,000
due to the decrease in interest rates generally and the Bank's strategy of
investing in short term, lower yielding securities in anticipation of rising
interest rates. Management believes it is well positioned for a rising rate
scenario. In the short term, profitability will remain relatively unchanged
as the effects of higher earning assets being replaced with lower earning
assets are offset by the effects of higher costing term deposits and
borrowings being replaced with lower costing term deposits and borrowings.
Interest Expense. Interest expense for the six months ended March 31,
2003 was $1.3 million, including $124,000 in interest on FHLB advances, which
is a decrease of $488,000 from $1.8 million for the six months ended March
31, 2002. This was the result of decreased FHLB borrowings as well as a
reduction in interest rates paid on deposits during the period. There was a
$449,000 decrease in interest on
13
deposits and a $39,000 decrease in interest on borrowed funds and securities
sold under agreement to repurchase.
Net Interest and Dividend Income. Net interest and dividend income for
the six-month period ended March 31, 2003 was $2.2 million as compared to
$2.5 million for the six months ended March 31, 2002. The net interest
margin (NIM) for the six months ended March 31, 2003 was 3.00%, a decrease of
67 basis points as compared to 3.70% for the six months ended March 31, 2002.
The reason for the decrease in the NIM was primarily due to the decrease in
interest and fees on loans and the low interest rate environment.
Provision for Loan Losses. The Bank made no allocation to its
allowance for loan loss account for the six months ended March 31, 2003
compared to $80,000 for six months period ended March 31, 2002. The loan
loss provision was decreased due to the reduction in the Bank's loan
portfolio due to the sale of loans. It had been increased in the previous
year to better align the reserve with the size and risk associated with the
portfolio at that time. At March 31, 2003, the Bank had no loans 90 days
or more delinquent. The Bank's allowance for loan losses was 1.13% of total
loans at March 31, 2003. Management believes the provision to be adequate
and commensurate with the level of credit risk.
Other Income. Total other income for the six-month period ended March
31, 2003 was $462,000 as compared to $525,000 for the six months ended March
31, 2002. The $63,000 decrease is primarily the result of an increase of
$352,000 in gains on loans sold offset by an increase of $473,000 in
securities losses on the sale of investment securities taken during the six
months ended March 31, 2003. Other income increased $56,000 during the same
six-month comparative. The $56,000 increase consisted of increases in
service charges of $1,000, increases in other income of $15,000, and
increases in loan servicing fee income of $40,000.
Other Expenses. Other expenses for the six months ended March 31, 2003
were $2.0 million as compared to $1.69 million for the six months ended March
31, 2002. The $307,000 increase was primarily due to an increase in salaries
and employee benefits expense of $143,000, an increase in occupancy expense
of $3,000, an increase in data processing expense of $10,000, an increase in
directors fees of $2,000 and an increase in other expense of $163,000, off
set in part by a decrease in legal and professional fees of $4,000 and a
decrease in equipment expense of $10,000. The ratio of annualized operating
expenses to average total assets for the six months ended March 31, 2003 was
2.57% as compared to 2.30% for the six-month period ended March 31, 2003.
The increase in salary and employee benefits was due, substantially, to the
annual increase in employee compensation. The increase in other expense was
primarily the result of the amortization of mortgage servicing rights.
Extraordinary Item. The extraordinary item expense was the result of
the recent Massachusetts tax legislation effecting the 95% tax dividend
exclusion of dividends received by the Bank from its real estate investment
trust subsidiary. The new tax legislation expressly disallows the
deduction for dividends received from a real estate investment trust
subsidiary. As a result of the enactment of the legislation, the Company
ceased recording the tax benefits associated with the dividend received
deduction. The extraordinary item of $572,000 is net of an income tax
benefit of $300,000.
Liquidity and Capital Resources
The Bank's primary sources of funds consist of deposits, repayment
and prepayment of loans and mortgage-backed securities, maturities of
investments and interest-bearing deposits, and funds provided from
operations. While scheduled repayments of loans and mortgage-backed
securities and maturities of investment securities are predictable sources
of funds, deposit flows and loan prepayments are greatly
14
influenced by the general level of interest rates, economic conditions and
competition. The Bank uses its liquidity resources principally to fund
existing and future loan commitments, to fund net deposit outflows, to
invest in other interest-earning assets, to maintain liquidity, and to meet
operating expenses.
The Bank is required to maintain adequate levels of liquid assets.
This guideline, which may be varied depending upon economic conditions and
deposit flows, is based upon a percentage of deposits and short-term
borrowings. The Bank has historically maintained a level of liquid assets
in excess of regulatory requirements. The Bank's liquidity ratio at March
31, 2003 was 50.73%.
A major portion of the Bank's liquidity consists of short-term
securities obligations. The level of these assets is dependent on the
Bank's operating, investing, lending and financing activities during any
given period. At March 31, 2003, regulatory liquidity totaled $70.0
million. The primary investing activities of the Bank include origination
of loans and the purchase of investment securities.
Liquidity management is both a daily and long-term function of
management. If the Bank requires funds beyond its ability to generate them
internally, the Bank believes that it could borrow additional funds from
the Federal Home Loan Bank of Boston (FHLB). At March 31, 2003, the Bank
had outstanding advances from the FHLB of Boston in the amount of $5.3
million in short and long-term borrowings. As these advances mature, they
will be repaid or re-written as longer term matched borrowings which will
assist the match of rate sensitive assets to rate sensitive liabilities as
well as reduce interest expense.
At March 31, 2003, the Bank had $9.5 million in outstanding
residential and commercial commitments to originate loans, as well as $24.0
million in unadvanced loan commitments. If the Bank anticipates that it
may not have sufficient funds available to meet its current loan
commitments it may commence further matched borrowing from the FHLB. At
March 31, 2003, certificates of deposit that are scheduled to mature in one
year or less totaled $40.8 million. Based on historical experience,
management believes that a significant portion of such deposits will remain
with the Bank.
At March 31, 2003 the Bank exceeded all of its regulatory capital
requirements.
15
Part 1. Item 3.
Controls and Procedures.
During the 90-day period prior to the filing date of this report,
management, including the Company's President and Chief Executive Officer
and Senior Vice President and Chief Financial Officer, evaluated the
effectiveness of the design and operation of the Company's disclosure
controls and procedures. Based upon and as of the date of that evaluation,
the President and Chief Executive Officer and Senior Vice President and
Chief Financial Officer concluded that the disclosure controls and
procedures were effective, in all material respects, to ensure that
information required to be disclosed in the reports the Company files and
submits under the Exchange Act is recorded, processed, summarized and
reported as and when required.
There have been no significant changes in the Company's internal
controls or in other factors which could significantly affect internal
controls subsequent to the date the Company carried out its evaluation.
There were no significant deficiencies or material weaknesses identified in
the evaluation and therefore, no corrective actions were taken.
16
OTHER INFORMATION
Part II.
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
The Company held its Annual Meeting of Stockholders ("Meeting")
on January 21, 2003. All of the proposals submitted to stockholders and
the tabulation of votes for each proposal are as follows:
1. Election of three candidates to the Board of Directors to
serve for a three-year term.
The number of votes cast with respect to this matter were as
follows:
Nominee For % Withhold %
------------------------------------------------------------------
Peter A. Frizzell, DDS 800,926 98.9 8,605 1.1
Robert H. Moore 802,939 99.2 6,592 0.8
Henry D. Newman, III 798,025 98.6 11,506 1.4
2. Ratification of the appointment of Shatswell, MacLeod &
Company, P.C. as independent public accountants for
the fiscal year ending September 30, 2003.
For % Against % Abstain %
---------------------------------------------------------
803,493 89.1 2,537 0.3 3,501 0.4
There were no broker non-votes with respect to the above
proposals.
Item 5. Other Information
The Company's Chief Executive Officer and Chief Financial
Officer have furnished statements relating to its Form 10-QSB for the six
months period ended March 31, 2003 pursuant to 18 U.S.C. section 1350, as
adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. The
statements are attached hereto as Exhibits 99.1 and 99.2.
17
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11, Computation of Earnings (Losses) per Share.
Exhibit 99.1, Statement Furnished Pursuant to Section 906 of
the Sarbanes-Oxley Act.
Exhibit 99.2, Statement Furnished Pursuant to Section 906 of
the Sarbanes-Oxley Act.
(b) Reports on Form 8-K
1. The Company filed a Form 8-K with the Securities and
Exchange Commission on March 5, 2003 reporting in Item 5 a one time charge
to earnings resulting from the recently enacted tax legislation in
Massachusetts, related to the Company's real estate investment trust
subsidiary, which was retroactive.
2. The Company filed a Form 8-K with the Securities and
Exchange Commission on April 24, 2003 reporting in Item 12 its earnings for
the second quarter of the 2003 fiscal year.
18
Falmouth Bancorp, Inc. is a publicly owned bank holding company and
the parent corporation of Falmouth Bank, a Massachusetts chartered stock
co-operative bank offering traditional products and services. The Bank
conducts business through its main office located at 20 Davis Straits,
Falmouth, Massachusetts 02540, and its two branch locations in North and
East Falmouth. The telephone number is (508) 548-3500.
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FALMOUTH BANCORP, INC.
(Registrant)
Date: 5/9/2003 By: /s/ Santo P. Pasqualucci
-------- ----------------------------------
Santo P. Pasqualucci
President and Chief Executive Officer
Date: 5/9/2003 By: /s/ George E. Young, III
-------- --------------------
George E. Young, III
Senior Vice President
and Chief Financial Officer
19
Certifications
I, Santo P. Pasqualucci, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Falmouth
Bancorp, 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; and
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 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: May 9, 2003 /s/ Santo P. Pasqualucci
-------------------------------------
Santo P. Pasqualucci
President and Chief Executive Officer
20
I, George E. Young, III, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Falmouth
Bancorp, 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; and
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: May 9, 2003 /s/ George E. Young, III
-------------------------------
George E. Young, III
Senior Vice President and Chief
Financial Officer
21