UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[Mark One]
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2003
(_) TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from to
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Commission file number 0-21855
Stewardship Financial Corporation
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New Jersey 22-3351447
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
630 Godwin Avenue, Midland Park, NJ 07432
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(Address of principal executive offices) (Zip Code)
(201) 444-7100
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes [X] No [_]
Indicate by check mark whether the registrant is an accelerated Filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [_] No [X]
The number of shares outstanding of the Issuer's Common Stock, no par value, as
of May 5, 2003 was 1,991,674.
Stewardship Financial Corporation
INDEX
PAGE
NUMBER
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PART I - CONSOLIDATED FINANCIAL INFORMATION
- ---------------------------------------------
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Financial Condition
at March 31, 2003 (Unaudited) and December 31, 2002.............1
Consolidated Statements of Income for the Three
Months ended March 31, 2003 and 2002 (Unaudited)................2
Consolidated Statements of Cash Flows for the Three
Months ended March 31, 2003 and 2002 (Unaudited)................3
Consolidated Statement of Changes in Stockholders'
Equity for the Three Months ended
March 31, 2003 and 2002 (Unaudited).............................4
Notes to Consolidated Financial Statements (Unaudited)..........5-10
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.............................................11-18
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK....16
ITEM 4 - CONTROLS AND PROCEDURES......................................18
PART II - OTHER INFORMATION
- -----------------------------
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K..................................19
SIGNATURES...............................................................20-24
- ----------
PART I- CONSOLIDATED FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
Stewardship Financial Corporation and Subsidiary
Consolidated Statements of Financial Condition
March 31, December 31,
2003 2002
----------------------------------
(Unaudited)
Assets
Cash and due from banks $ 6,465,000 $ 14,039,000
Other interest-earning assets 11,068,000 9,854,000
Federal funds sold 12,025,000 9,525,000
----------------------------------
Cash and cash equivalents 29,558,000 33,418,000
Securities available for sale 8,586,000 12,812,000
Securities held to maturity; estimated fair value
of $ 61,827,000 (2003) and $62,273,000 (2002) 60,439,000 60,887,000
FHLB-NY stock, at cost 1,059,000 1,059,000
Loans, net of allowance for loan losses of
of $ 2,788,000 (2003) and $2,689,000 (2002) 228,470,000 213,579,000
Mortgage loans held for sale 2,773,000 2,099,000
Premises and equipment, net 3,479,000 3,733,000
Accrued interest receivable 1,655,000 1,640,000
Intangible assets, net of accumulated amortization of
$497,000 (2003) and $486,000 (2002) 253,000 264,000
Other assets 1,713,000 1,596,000
----------------------------------
Total assets $ 337,985,000 $ 331,087,000
==================================
Liabilities and stockholders' equity
Liabilities
Deposits:
Noninterest-bearing $ 62,636,000 $ 69,344,000
Interest-bearing 244,652,000 233,391,000
----------------------------------
Total deposits 307,288,000 302,735,000
Securities sold under agreements to repurchase 4,045,000 2,435,000
Accrued expenses and other liabilities 2,014,000 2,100,000
----------------------------------
Total liabilities 313,347,000 307,270,000
----------------------------------
Commitments and contingencies - -
Stockholders' equity
Common stock, no par value; 5,000,000 shares authorized;
1,983,531 and 1,975,437 shares issued outstanding at
March 31, 2003 and December 31, 2002, respectively 15,283,000 15,058,000
Retained earnings 9,256,000 8,600,000
Accumulated other comprehensive income 99,000 159,000
----------------------------------
Total stockholders' equity 24,638,000 23,817,000
----------------------------------
Total liabilities and stockholders' equity $ 337,985,000 $ 331,087,000
==================================
See notes to unaudited consolidated financial statements.
1
Stewardship Financial Corporation and Subsidiary
Consolidated Statements of Income
(Unaudited)
Three Months Ended
March 31,
----------------------------------
2003 2002
----------------------------------
Interest income:
Loans $ 3,882,000 $ 3,555,000
Securities held to maturity
Taxable 395,000 301,000
Non-taxable 178,000 169,000
Securities available for sale 103,000 172,000
Other interest-earning assets 46,000 69,000
----------------------------------
Total interest income 4,604,000 4,266,000
----------------------------------
Interest expense:
Deposits 1,167,000 1,312,000
Borrowed money 13,000 6,000
----------------------------------
Total interest expense 1,180,000 1,318,000
----------------------------------
Net interest income before provision for loan losses 3,424,000 2,948,000
Provision for loan losses 115,000 40,000
----------------------------------
Net interest income after provision for loan losses 3,309,000 2,908,000
----------------------------------
Noninterest income:
Fees and service charges 485,000 432,000
Gain on sales of mortgage loans 96,000 72,000
Miscellaneous 115,000 26,000
----------------------------------
Total noninterest income 696,000 530,000
----------------------------------
Noninterest expenses:
Salaries and employee benefits 1,287,000 1,135,000
Occupancy, net 183,000 165,000
Equipment 179,000 151,000
Data processing 210,000 160,000
Advertising 54,000 63,000
FDIC insurance premium 12,000 11,000
Amortization of intangible assets 11,000 11,000
Charitable contributions 117,000 95,000
Stationery and supplies 43,000 58,000
Miscellaneous 598,000 527,000
----------------------------------
Total noninterest expenses 2,694,000 2,376,000
----------------------------------
Income before income tax expense 1,311,000 1,062,000
Income tax expense 458,000 357,000
----------------------------------
Net income $ 853,000 $ 705,000
==================================
Basic earnings per share $0.43 $0.36
==================================
Diluted earnings per share $0.43 $0.36
==================================
Weighted average number of common shares outstanding 1,980,497 1,930,055
==================================
Weighted average number of diluted common
shares outstanding 1,998,807 1,953,847
==================================
Share data has been restated to reflect a 5% stock dividend paid November,
2002.
See notes to unaudited consolidated financial statements.
2
Stewardship Financial Corporation and Subsidiary
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
March 31,
----------------------------
2003 2002
----------------------------
Cash flows from operating activities:
Net income $ 853,000 $ 705,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization of premises and equipment 166,000 139,000
Amortization of premiums and accretion of discounts, net 197,000 42,000
Accretion of deferred loan fees (20,000) (11,000)
Provision for loan losses 115,000 40,000
Originations of mortgage loans held for sale (8,941,000) (5,613,000)
Proceeds from sale of mortgage loans 8,363,000 7,326,000
Gain on sale of mortgage loans held for sale (96,000) (72,000)
Gain on sale of fixed assets (54,000) --
Gain on sale of securities available for sale (27,000) --
Deferred income tax benefit (77,000) (115,000)
Amortization of intangibles 11,000 11,000
Increase in accrued interest receivable (16,000) (49,000)
Decrease (increase) in other assets 82,000 (47,000)
(Decrease)increase in other liabilities (85,000) 253,000
----------------------------
Net cash provided by operating activities 471,000 2,609,000
----------------------------
Cash flows from investing activities:
Purchase of securities available for sale -- (754,000)
Proceeds from maturities and principal repayments
on securities available for sale 1,369,000 507,000
Proceeds from calls and sales of securities available for sale 2,756,000 --
Purchase of securities held to maturity (9,857,000) (3,597,000)
Proceeds from maturities and principal repayments
on securities held to maturity 4,313,000 1,142,000
Proceeds from call on securities held to maturity 5,825,000 500,000
Purchase of FHLB-NY stock -- (173,000)
Net increase in loans (14,986,000) (6,818,000)
Sales of premises and equipment 227,000 19,000
Additions to premises and equipment (86,000) (94,000)
----------------------------
Net cash used in investing activities (10,439,000) (9,268,000)
----------------------------
Cash flows from financing activities:
Net increase in noninterest-bearing deposits (6,708,000) (1,662,000)
Net increase in interest-bearing deposits 11,260,000 3,620,000
Net increase in securities sold under agreements
to repurchase 1,609,000 --
Cash dividends paid on common stock (197,000) (165,000)
Options exercised -- 55,000
Common stock issued under stock plans 144,000 130,000
----------------------------
Net cash provided by financing activities 6,108,000 1,978,000
----------------------------
Net decrease in cash and cash equivalents (3,860,000) (4,681,000)
Cash and cash equivalents - beginning 33,418,000 34,074,000
----------------------------
Cash and cash equivalents - ending $ 29,558,000 $ 29,393,000
============================
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 1,243,000 $ 1,490,000
Cash paid during the year for income taxes -- 25,000
See notes to unaudited consolidated financial statements
3
Stewardship Financial Corporation and Subsidiary
Consolidated Statement of Changes in Stockholders' Equity
(unaudited)
For the Period Ended March 31, 2002
--------------------------------------------------------------------------------
Accumulated
Other
Comprehensive
Common Stock Retained Income/(Loss),
Shares Amount Earnings Net Total
--------------------------------------------------------------------------------
Balance -- December 31, 2001 1,920,693 $ 12,638,000 $ 7,886,000 $ 29,000 $ 20,553,000
Dividends Paid -- -- (165,000) -- (165,000)
Common stock issued under stock plans 7,736 130,000 -- -- 130,000
Exercise of stock options 5,404 56,000 56,000
Comprehensive income:
Net income for the three months
ended March 31, 2002 -- -- 705,000 -- 705,000
Unrealized holding losses on securities
available for sale arising during the period
(net tax benefit of $44,000) -- -- -- (67,000) (67,000)
------------
Total comprehensive income, net of tax 638,000
--------------------------------------------------------------------------------
Balance -- March 31, 2002 1,933,833 $ 12,824,000 $ 8,426,000 $ (38,000) $ 21,212,000
================================================================================
For the Period Ended March 31, 2003
-----------------------------------------------------------------------------
Accumulated
Other
Comprehensive
Common Stock Retained Income,
Shares Amount Earnings Net Total
-----------------------------------------------------------------------------
Balance -- December 31, 2002 1,975,437 $15,058,000 $ 8,600,000 $159,000 $23,817,000
Dividends paid - - (197,000) - (197,000)
Treasury stock -
Common stock issued under stock plans 8,094 144,000 - - 144,000
Tax benefit - exercise of stock options - 81,000 - - 81,000
Comprehensive income:
Net income for the three months
ended March 31, 2003 - - 853,000 - 853,000
Unrealized holding loss on securities
available for sale arising during the period
(net tax benefit of $38,000) - - - (60,000) (60,000)
--------------
Total comprehensive income, net of tax 793,000
----------------------------------------------------------------------------
Balance -- March 31, 2003 1,983,531 $15,283,000 $ 9,256,000 $ 99,000 $24,638,000
============================================================================
See notes to unaudited consolidated financial statements.
4
Stewardship Financial Corporation and Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)
Note 1. Summary of Significant Accounting Polices
Certain information and footnote disclosures normally included in the unaudited
consolidated financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted pursuant to the rules and regulations of the Securities
Exchange Commission. These unaudited condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto included in the December 31, 2002 Annual Report on Form 10-KSB.
Principles of consolidation
The consolidated financial statements include the accounts of Stewardship
Financial Corporation, ("the Corporation") and its wholly owned subsidiary,
Atlantic Stewardship Bank ("the Bank"). Atlantic Stewardship Bank includes its
wholly owned subsidiary, Stewardship Investment Corp. All significant
intercompany accounts and transactions have been eliminated in the consolidated
financial statements. Certain prior period amounts have been reclassified to
conform to the current presentation. The consolidated financial statements of
the Corporation have been prepared in conformity with accounting principles
generally accepted in the United States of America. In preparing the financial
statements, management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities as of the dates of the statements
of financial condition and revenues and expenses during the reporting periods.
Actual results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant changes
relate to the determination of the allowance for loan losses. Management
believes that the allowance for loan losses is adequate. While management uses
available information to recognize losses on loans, future additions to the
allowance for loan losses may be necessary based on changes in economic
conditions in the market area.
Stock-Based Compensation
The Corporation has two stock-based employee compensation plans and two director
compensation plans. The Corporation accounts for those plans under the
recognition and measurement principles of APB Opinion No. 25, Accounting for
Stock Issued to Employees, and related Interpretations. No stock-based employee
compensation cost is reflected in net income, as all options granted under those
plans had an exercise price equal to the market value of the underlying common
stock on the date of grant. The following table illustrates the effect on net
income and earnings per share if the Corporation had applied the fair value
recognition provisions of FASB Statement No. 123, Accounting for Stock-Based
Compensation, to stock-based employee compensation.
2003 2002
-------------------------
Net Income:
Net income as reported $853,000 $705,000
Total stock-based compensation expense determined
under fair value based method for all awards,
net of related tax effects (14,000) (4,000)
----------- ---------
Pro forma net income 839,000 701,000
=========== =========
5
Earnings per share:
As reported Basic earnings per share $ 0.43 $ 0.36
As reported Diluted earnings per share 0.43 0.36
Pro forma Basic earnings per share 0.42 0.36
Pro forma Diluted earnings per share 0.42 0.36
Note 2. Basis of presentation
The interim unaudited consolidated financial statements included herein have
been prepared in accordance with instructions for Form 10-Q and the rules and
regulations of the Securities and Exchange Commission ("SEC") and, therefore, do
not include information or footnotes necessary for a complete presentation of
consolidated financial condition, results of operations, and cash flows in
conformity with accounting principles generally accepted in the United States of
America. However, all adjustments, consisting only of normal recurring
adjustments, which in the opinion of management are necessary for a fair
presentation of the consolidated financial statements, have been included. The
results of operations for three months ended March 31, 2003 are not necessarily
indicative of the results which may be expected for the entire year.
6
Stewardship Financial Corporation and Subsidiary
Notes to Consolidated Financial Statements Continued
(Unaudited)
Note 3. Securities Available for Sale
The following table sets forth the amortized cost and carrying value of the
Corporation's securities available for sale as of March 31, 2003 and December
31, 2002. In accordance with Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities",
securities available for sale are carried at estimated fair value.
March 31, 2003
-----------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Carrying
Cost Gains Losses Value
-----------------------------------------------------------------
U.S. Government agencies $ 1,005,000 $ 14,000 $ - $ 1,019,000
Obligations of state and political
subdivisions 596,000 21,000 - 617,000
Mortgage-backed securities 6,824,000 126,000 - 6,950,000
-----------------------------------------------------------------
$ 8,425,000 $ 161,000 $ - $ 8,586,000
=================================================================
December 31, 2002
-----------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Carrying
Cost Gains Losses Value
-----------------------------------------------------------------
U.S. Government agencies 2,706,000 27,000 - 2,733,000
Obligations of state and political
subdivisions 797,000 24,000 - 821,000
Mortgage-backed securities 9,050,000 208,000 - 9,258,000
-----------------------------------------------------------------
$12,553,000 $ 259,000 $ - $ 2,812,000
=================================================================
Note 4. Securities Held to Maturity
The following table sets forth the carrying value and estimated fair value
of the Corporation's securities held to maturity as of March 31, 2003 and
December 31, 2002. Securities held to maturity are stated at cost, adjusted for
amortization of premiums and accretion of discounts.
March 31, 2003
-----------------------------------------------------------------
Gross Gross Estimated
Carrying Unrealized Unrealized Fair
Value Gains Losses Value
-----------------------------------------------------------------
U.S. Treasury securities $ 1,013,000 $ 61,000 $ - $ 1,074,000
U.S. Government agencies 14,196,000 146,000 - 14,342,000
Obligations of state and political
subdivisions 19,304,000 838,000 1,000 20,141,000
Mortgage-backed securities 25,926,000 387,000 43,000 26,270,000
-----------------------------------------------------------------
$ 60,439,000 $ 1,432,000 $ 44,000 $61,827,000
=================================================================
December 31, 2002
-----------------------------------------------------------------
Gross Gross Estimated
Carrying Unrealized Unrealized Fair
Value Gains Losses Value
-----------------------------------------------------------------
U.S. Treasury securities $ 1,514,000 $ 70,000 $ - $ 1,584,000
U.S. Government agencies 13,125,000 182,000 13,307,000
Obligations of state and political
subdivisions 20,060,000 712,000 - 20,772,000
Mortgage-backed securities 26,188,000 462,000 40,000 26,610,000
-----------------------------------------------------------------
$ 60,887,000 $ 1,426,000 $ 40,000 $62,273,000
=================================================================
7
Stewardship Financial Corporation and Subsidiary
Notes to Consolidated Financial Statements Continued
(Unaudited)
Note 5. Loans
The Corporation's primary market area for lending is the small and medium
sized business and professional community as well as the individuals residing,
working and shopping in the Bergen, Passaic and Morris counties, New Jersey
area. The following table sets forth the composition of loans as of the periods
indicated.
March 31, December 31,
2003 2002
-----------------------------------------------
Mortgage
Residential $ 41,857,000 $ 39,705,000
Commercial 93,646,000 88,593,000
Commercial 41,569,000 38,228,000
Equity 13,484,000 12,471,000
Installment 40,380,000 37,293,000
Other 614,000 241,000
-----------------------------------------------
Total loans 231,550,000 216,531,000
-----------------------------------------------
Less: Deferred loan fees 292,000 263,000
Allowance for loan losses 2,788,000 2,689,000
-----------------------------------------------
3,080,000 2,952,000
-----------------------------------------------
Loans, net $ 228,470,000 $ 213,579,000
===============================================
Note 6. Allowance for loan losses
Three Months Ended March 31,
2003 2002
---------------------------------------------
Balance, beginning of period $ 2,689,000 $ 2,602,000
Provision charged to operations 115,000 40,000
Recoveries of loans charged off - 9,000
Loans charged off (16,000) (11,000)
-----------------------------------------------
Balance, end of period $ 2,788,000 $ 2,640,000
===============================================
8
Stewardship Financial Corporation and Subsidiary
Notes to Consolidated Financial Statements Continued
(Unaudited)
Note 7. Loan Impairment
The Corporation has defined the population of impaired loans to include all
nonaccrual loans, loans more than 90 days past due, and restructured loans. The
following table sets forth information regarding the impaired loans as of the
periods indicated.
March 31, December 31,
2003 2002
------------------------------------------------
Impaired loans
With related allowance for loan losses $ 1,081,000 $ 499,000
Without related allowance for loan losses 223,000 848,000
------------------ -----------------------
Total impaired loans $ 1,304,000 $ 1,347,000
================== =======================
Related allowance for loan losses $ 209,000 $ 189,000
================== =======================
9
Stewardship Financial Corporation and Subsidiary
Notes to Consolidated Financial Statements Continued
(Unaudited)
Note 8. Earnings Per Share
Basic earnings per share is calculated by dividing net income by the average
daily number of common shares outstanding during the period. Common stock
equivalents are not included in the calculation.
Diluted earnings per share is computed similar to that of basic earnings per
share except that the denominator is increased to include the number of
additional common shares that would have been outstanding if all potential
dilutive common shares were issued. Potential dilutive securities totaled 18,310
and 23,792 shares for the three months ended March 31, 2003 and 2002,
respectively.
All share and per share amounts have been restated to reflect a 5% stock
dividend paid November 15, 2002.
Note 9. Comprehensive Income
Total comprehensive income includes net income and other comprehensive income
which is comprised of unrealized holding gains and losses on securities
available for sale, net of taxes. The Corporation's total comprehensive income
for the three months ended March 31, 2003 and 2002 was $793,000 and $638,000
respectively. The difference between the Corporation's net income and total
comprehensive income for these periods relates to the change in the net
unrealized holding gains on securities available for sale during the applicable
period of time.
Note 10. Recent Accounting Pronouncements
FASB Interpretation No. 45
In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" (FIN 45). FIN 45 addresses disclosures to
be made by a guarantor in its financial statements about its obligations under
guarantees. The Corporation met the disclosure requirements as required by FIN
45. The interpretation also requires the recognition, at estimated fair value,
of a liability by the guarantor at the inception of certain guarantees issued or
modified after December 31, 2002. This recognition requirement did not have a
material impact on the Corporation's consolidated financial statements.
FASB Interpretation No. 46
FASB Interpretation No. 46, "Consolidation of Variable Interest Entities," was
issued in January, 2003. The Interpretation provides guidance on the
identification of entities controlled through means other than voting rights.
The Interpretation specifies how a business enterprise should evaluate its
interests in a variable interest entity to determine whether to consolidate that
entity. A variable interest entity must be consolidated by its primary
beneficiary if the entity does not effectively disperse risks among the parties
involved. The adoption of the interpretation did not have a significant effect
on the Corporation's consolidated financial statements.
10
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Form 10-Q contains certain "forward looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995, and may be identified
by the use of such words as "believe," "expect," "anticipate," "should,"
"planned," "estimated," and "potential." Examples of forward looking statements
include, but are not limited to, estimates with respect to the financial
condition, results of operations and business of the Corporation that are
subject to various factors which could cause actual results to differ materially
from these estimates. These factors include: changes in general, economic, and
market conditions, legislative and regulatory conditions, or the development of
an interest rate environment that adversely affects the Corporation's interest
rate spread or other income anticipated from operations and investments. As used
in this Form 10-Q, "we" and "us" and "our" refer to Stewardship Financial
Corporation(the "Corporation") and its consolidated subsidiary, Atlantic
Stewardship Bank, (the "bank"), depending on the context.
Critical Accounting Policies and Estimates
- ------------------------------------------
"Management's Discussion and Analysis of Financial Condition and Results of
Operation," as well as disclosures found elsewhere in this Form 10-Q, are based
upon the Corporation's consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
the Corporation to make estimates and judgments that affect the reported amounts
of assets, liabilities, revenues and expenses. Note 1 to the Corporation's
Audited Consolidated Financial Statements for the year ended December 31, 2002
included in our Annual Report on Form 10-KSB for the year ended December 31,
2002, as supplemented by this report, contains a summary of the Corporation's
significant accounting policies. Management believes the Corporation's policy
with respect to the methodology for the determination of the allowance for loan
losses involves a higher degree of complexity and requires 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 materially impact results of operations. This critical policy
and its application is periodically reviewed with the Audit Committee and the
Board of Directors.
The allowance for loan losses is based upon management's evaluation of the
adequacy of the allowance, including an assessment of known and inherent risks
in the portfolio, giving consideration to the size and composition of the loan
portfolio, actual loan loss experience, level of delinquencies, detailed
analysis of individual loans for which full collectibility may not be assured,
the existence and estimated net realizable value of any underlying collateral
and guarantees securing the loans, and current economic and market conditions.
Although management uses the best information available, the level of the
allowance for loan losses remains an estimate which is subject to significant
judgment and short-term change. Various regulatory agencies, as an integral part
of their examination process, periodically review the Corporation's allowance
for loan losses. Such agencies may require the Corporation to make additional
provisions for loan losses based upon information available to them at the time
of their
11
examination. Furthermore, the majority of the Corporation's loans are secured by
real estate in the State of New Jersey. Accordingly, the collectibility of a
substantial portion of the carrying value of the Corporation's loan portfolio is
susceptible to changes in local market conditions and may be adversely affected
should real estate values decline or the Northern New Jersey area experience an
adverse economic shock. Future adjustments to the allowance for loan losses may
be necessary due to economic, operating, regulatory and other conditions beyond
the Corporation's control.
Financial Condition
- -------------------
Total assets increased by $6.9 million, or 2.1%, from $331.1 million at December
31, 2002 to $338.0 million at March 31, 2003. Net loans increased $14.9 million.
The increase was partially offset by decreases of $4.2 million in securities
available for sale and $3.9 million in cash and cash equivalents. The
composition of the loan portfolio is basically unchanged at March 31, 2003 when
compared with the portfolio at December 31, 2002.
Total deposits amounted to $307.3 million at March 31, 2003, an increase of $4.6
million, or 1.5% from $302.7 million at December 31, 2002. Interest-bearing
deposits increased $11.3 million, or 4.8%, to $244.7 million at March 31, 2003.
The increase in interest-bearing deposits was offset by a decrease in
noninterest-bearing deposits of $6.7 million, or 9.7%, to $62.6 million at March
31, 2003. The net increase in deposits can be attributed to the continued return
of customers to banking products from stock related products.
The Corporation's main focus during the first three months of fiscal year 2003
was to redeploy principal repayments, maturities, and calls on securities
available for sale. The Corporation continues to enhance the product line of the
bank. Management has developed an escrow product during the first quarter of
2003 which provides for tracking and accounting for transactions on a subaccount
basis. Management has also commenced a conversion to a check imaging system
which will provide customers with images of paid checks instead of returning
original checks. It is anticipated that this conversion will be completed during
the second quarter of 2003. In addition to creating an efficient research
system, the imaging system will be integrated into the Bank's Online Banking
system. The Corporation anticipates that this integration will occur during the
third quarter of 2003. This will allow customers to have access to images of
paid checks. Management believes that these new products continue to enhance the
delivery channels and products being offered to existing and new customers.
12
Results of Operations
- ---------------------
Three Months Ended March 31, 2003 and 2002
- ------------------------------------------
General
- -------
The Corporation reported net income of $853,000, or $0.43 basic earnings per
share, for the three months ended March 31, 2003, compared to $705,000, or $0.36
basic earnings per share, for the same period in 2002. The $148,000 increase was
primarily caused by increases in net interest income and noninterest income. The
growth in revenues was partially offset by increases in noninterest expense and
an increase in the provision for loan loss.
Net interest income
- -------------------
Net interest income increased $476,000, or 16.1%, for the three months ended
March 31, 2003 as compared with the corresponding period in 2002. The increase
was primarily due to an increase in average net interest-earning assets. The
increase in net interest income was partially offset by a decrease in the net
interest margin.
Total interest income on a tax equivalent basis increased $344,000, or 7.9%,
primarily due to a decrease in the yields on interest-earning assets. The growth
in total interest income was offset by an increase in the average earning
assets. Due to the low interest rate environment experienced since the fourth
quarter of 2001, tax equivalent yields on interest earning assets fell 75 basis
points from 6.71% for the three months ended March 31, 2002 to 5.96% for the
same period in 2003. The average balance on interest-earning assets increased
$56.2 million, or 21.5%, from $261.4 million for the three months ended March
31, 2002 to $317.6 million for the same period in 2003, primarily being funded
by an increase to the Corporation's average deposit base. The Corporation
continued to experience an increase in loan demand which allowed loans on
average to increase $35.3 million to an average $226.9 million for the three
months ended March 31, 2003, from an average $191.5 million for the comparable
period in 2002. The Corporation also increased its investment portfolio by $20.6
million to an average $72.9 million at March 31, 2003.
Interest paid on deposits and borrowed money decreased by $138,000, or 10.5%,
when compared to the same period in 2002. This decrease was due primarily to a
decrease in cost of funds related to the general low interest rate environment.
The average balance of total interest-bearing deposits increased to $242.1
million for the three months ended March 31, 2003 from $199.6 million for the
comparable period in 2002, primarily as a result of the Corporation's expanding
customer base and the movement of funds by customers from the stock market to
banking products. Yields on deposits and borrowed money decreased from 2.68% for
the three month period ended March 31, 2002 to 1.98% for the comparable period
in 2003.
13
Analysis of Net Interest Income (Unaudited)
For the Three Months Ended March 31,
2003 2002
-------------------------------------- --------------------------------------
Average Average
Interest Rates Interest Rates
Average Income/ Earned/ Average Income/ Earned/
Balance Expense Paid Balance Expense Paid
------- ------- ---- ------- ------- ----
(Dollars in thousands)
Assets
Interest-earning assets:
Loans (1) $ 226,857 $ 3,882 6.92 % $ 191,539 $ 3,555 7.51 %
Taxable investment securities (1) 52,495 491 3.76 34,022 461 5.46
Tax-exempt investment securities (1) (2) 20,428 266 5.22 18,320 256 5.59
Other interest-earning assets 17,777 46 1.05 17,496 69 1.59
----------- ----------- ------------ ----------
Total interest-earning assets 317,557 4,685 5.96 261,377 4,341 6.71
----------- ----------
Non-interest-earning assets:
Allowance for loan losses (2,732) (2,621)
Other assets 20,605 18,712
----------- ------------
Total assets $ 335,430 $ 277,468
=========== ============
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Interest-bearing demand deposits $ 106,190 $ 294 1.12 % $ 92,165 $ 308 1.36 %
Savings deposits 38,185 79 0.83 27,347 69 1.02
Time deposits 94,760 794 3.40 79,451 935 4.77
Borrowing 2,981 13 1.84 678 6 3.86
----------- ----------- ------------ ----------
Total interest-bearing liabilities 242,116 1,180 1.98 199,641 1,318 2.68
----------- ----------
Non-interest-bearing liabilities:
Demand deposits 66,684 55,080
Other liabilities 2,223 1,781
Stockholders' equity 24,407 20,966
----------- ------------
Total liabilities and stockholders' equity $ 335,430 $ 277,468
=========== ============
Net interest income (taxable equivalent basis) $ 3,505 $ 3,023
=========== ==========
Net interest spread (taxable equivalent basis) 3.98 % 4.03 %
====== ======
Net yield on interest-earning
assets (taxable equivalent basis) (3) 4.45 % 4.66 %
====== ======
- ----------------
(1) For purpose of these calculations, nonaccruing loans are included in the
average balance. Fees are included in loan interest. Loans and total
interest-earning assets are net of unearned income. Securities are included
at amortized cost.
(2) The tax equivalent adjustments are based on a marginal tax rate of 34% and
the provisions of Section 291 of the Internal Revenue Code.
(3) Net interest income (taxable equivalent basis) divided by average
interest-earning assets.
2003 2002
---- ----
Reconciliation of net interest (Dollars in thousands)
income( tax equivalent basis):
Net interest income 3,424 2,948
Tax equivalent basis adjustment 81 75
Net interest income (tax equivalent ----- -----
basis) 3,505 3,023
===== =====
14
Provision for loan losses
- -------------------------
The Corporation maintains an allowance for loan losses at a level considered by
management to be adequate to cover the inherent risks associated with its loan
portfolio, after giving consideration to changes in general market conditions
and in the nature and volume of the Corporation's loan activity. The allowance
for loan losses is based on estimates, and ultimate losses are charged to
operations during the period in which such additions are deemed necessary.
The provision charged to operations totaled $115,000 and $40,000 during the
three months ended March 31, 2003 and 2002, respectively. The increase in the
provision was caused primarily by the strong growth in loan demand and the
monitoring of the loan loss reserve as a percent of total loans. See "Asset
Quality" section for summary of allowance for loan losses and nonperforming
assets. The Corporation monitors its loan portfolio and intends to continue to
provide for loan loss reserves based on its ongoing periodic review of the loan
portfolio and general market conditions.
Noninterest income
- ------------------
Noninterest income increased $166,000, or 31.3% to $696,000 for the three months
ended March 31, 2003 from $530,000 for the comparable period in 2002. Deposit
related fees increased $53,000 due to an increase in the deposit base and income
derived from the merchant credit card processing and debit card programs.
Increases in mortgage activity and the volume of mortgage loans sold attributed
to an increase of $24,000 in the gain on sales of mortgage loans. During the
first quarter of 2003, the Corporation sold a property located in Hawthorne, New
Jersey and realized a profit of $54,000. This property had been originally
purchased in December 2000 as a strategy to improve our branch facility on
Lafayette Avenue, in Hawthorne, New Jersey. The corporation altered this
strategy. The Bank opened a branch on Goffle Road in Hawthorne, New Jersey, and
management found it could not utilize the additional property.
Noninterest expense
- -------------------
Noninterest expense increased by approximately $318,000, or 13.4%, to $2.7
million for the three months ended March 31, 2003, compared to $2.4 million for
the same period in 2002. Salaries and employee benefits, the major component of
noninterest expense, increased $152,000, or 13.3%, during the three months ended
March 31, 2003. This increase was due to additional staffing in the lending
department and deposit and branch operations areas and general increases for
merit and performance. Occupancy and equipment expenses increased $46,000, or
14.6%, primarily due to the increased number of branch facilities. Data
processing expense increased $50,000, or 31.3%, due to the increase in our
deposit base, the enhancements to our online banking and bill payment functions
and the implementation of the check imaging upgrade. Miscellaneous expenses
increased $71,000, or 13.5%, due to increased costs associated with the general
growth of the Corporation.
15
Income taxes
- ------------
Income tax expense increased $101,000, or 28.3%, to $458,000 for the three
months ended March 31, 2003 from $357,000 for three months ended March 31, 2002.
Income tax expense as a percentage of pretax income was 34.9% for the three
months ended March 31, 2003 as compared to 33.6% for the same period in 2002.
Asset Quality
- -------------
The Corporation's principal earning assets are its loans to businesses and
individuals located in northern New Jersey. Inherent in the lending function is
the risk of deterioration in the borrower's ability to repay its loans under its
existing loan agreements. Risk elements include nonaccrual loans, past due and
restructured loans, potential problem loans, loan concentrations and other real
estate owned. The following table shows the composition of nonperforming assets
at the end of the last four quarters:
03/31/03 12/31/02 09/30/02 06/30/02
-------- -------- -------- --------
(Dollars in Thousands)
Nonaccrual loans: (1) $ 409 $ 495 $ 231 $ 165
Loans past due 90 days or more: (2) 41 4 20 8
Restructured loans: 854 848 769 765
------ ------ ------ ------
Total nonperforming loans $1,304 $1,347 $1,020 $ 938
====== ====== ====== ======
Allowance for loan losses $2,788 $2,689 $2,693 $2,663
====== ====== ====== ======
Nonaccrual loans to total loans 0.18% 0.23% 0.11% 0.08%
Nonperforming loans to total loans 0.56% 0.62% 0.50% 0.48%
Nonperforming loans to total assets 0.39% 0.41% 0.32% 0.31%
Allowance for loan losses to total loans 1.19% 1.24% 1.32% 1.37%
(1) Generally represents loans to which the payments of interest or principal
are in arrears for a period of more than 90 days. Interest previously accrued on
these loans and not yet paid is reversed and charged against income during the
current period. Interest earned thereafter is only included in income to the
extent that it is received in cash.
(2) Represents loans to which payments of interest or principal are
contractually past due 90 days or more but which are currently accruing income
at the contractually stated rates. A determination is made to continue accruing
income on those loans which are sufficiently collateralized and on which
management believes all interest and principal owed will be collected.
There were no loans at March 31, 2003, other than those included in the above
table, where the Corporation was aware of any credit conditions of any borrowers
that would indicate a strong possibility of the borrowers not complying with the
present terms and conditions of repayment and which may result in such loans
being included as non-accrual, past due or restructured at a future date.
The Corporation's lending activities are concentrated in loans secured by real
estate located in northern New Jersey. Accordingly, the collectibility of a
substantial portion of the Corporation's loan portfolio is susceptible to
changes in real estate market conditions.
16
Market Risk
The Corporation's primary exposure to market risk arises from changes in
market interest rates ("interest rate risk"). The Corporation's profitability is
largely dependent upon its ability to manage interest rate risk. Interest rate
risk can be defined as the exposure of the Corporation's net interest income to
adverse movements in interest rates. Although the Corporation manages other
risks, as in credit and liquidity risk, in the normal course of its business,
management considers interest rate risk to be its most significant market risk
and could potentially have the largest material effect on the Corporation's
financial condition. The Corporation manages its interest rate risk by utilizing
an asset/liability simulation model and by measuring and managing its interest
sensitivity gap. Interest sensitivity gap is determined by analyzing the
difference between the amount of interest-earning assets maturing or repricing
within a specific time period and the amount of interest-bearing liabilities
maturing or repricing within the same period of time. The Asset Liability
Committee of the Board of Directors reviews and discusses these measurements on
a monthly basis.
The Corporation does not have any material exposure to foreign currency
exchange rate risk or commodity price risk. The Corporation did not enter into
any market rate sensitive instruments for trading purposes nor did it engage in
any hedging transactions utilizing derivative financial instruments during the
three months ended March 31, 2003.
The Corporation is, however, a party to financial instruments with
off-balance sheet risk in the normal course of business to meet the financing
needs of its customers. These instruments, which include commitments to extend
credit and standby letters of credit, involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the
consolidated statement of condition. Commitments to extend credit are agreements
to lend to a customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed expiration dates
and may require collateral from the borrower if deemed necessary by the
Corporation. Standby letters of credit are conditional commitments issued by the
Corporation to guarantee the performance of a customer to a third party up to a
stipulated amount and with specified terms and conditions. Commitments to extend
credit and standby letters of credit are not recorded on the Corporation's
consolidated balance sheet until the instrument is exercised.
Capital Adequacy
The Corporation is subject to capital adequacy guidelines promulgated by
the Board of Governors of the Federal Reserve System ("FRB"). The Bank is
subject to similar capital adequacy requirements imposed by the Federal Deposit
Insurance Corporation. The FRB has issued regulations to define the adequacy of
capital based upon the sensitivity of assets and off-balance sheet exposures to
risk factors. Four categories of risk weights (0%, 20%, 50% and 100%) were
established to be applied to different types of balance sheet assets and
off-balance sheet exposures. The aggregate of the risk weighted items
(risk-based assets) is the denominator of the ratio, the numerator is risk-based
capital. Under the regulations, risk-based capital has been classified into two
categories. Tier 1 capital includes common and qualifying perpetual preferred
stockholders' equity less goodwill. Tier 2 capital includes mandatory
convertible debt, allowance for loan losses, subject to certain limitations, and
certain subordinated and term debt securities. Total qualifying capital consists
of Tier 1 capital and Tier 2 capital; however; the amount of Tier 2 capital may
not exceed the amount of Tier 1 capital. At March 31, 2003, the minimum
risk-based capital requirements to be considered adequately capitalized were 4%
for Tier 1 capital and 8% for total capital.
17
Federal banking regulators have also adopted leverage capital guidelines to
supplement the risk-based measures. The leverage ratio is determined by dividing
Tier 1 capital as defined under the risk-based guidelines by average total
assets (non risk-adjusted) for the preceding quarter. At March 31, 2003, the
minimum leverage ratio requirement to be considered weall capitalized was 4%.
The following table reflects the Corporation's capital ratios at March 31, 2003.
Required Actual Excess
-------- ------ ------
Risk-based capital:
Tier 1 4.00% 10.61% 6.61%
Total 8.00% 11.82% 3.82%
Leverage Ratio 4.00% 7.24% 3.24%
Liquidity
The Corporation's primary sources of funds are deposits, amortization and
prepayments of loans and mortgage-backed securities, maturities of investment
securities and funds provided by operations. While scheduled loan and
mortgage-backed securities amortization and maturities of investment securities
are a relatively predictable source of funds, deposit flow and prepayments on
loan and mortgage-backed securities are greatly influenced by market interest
rates, economic conditions, and competition. The Corporation's liquidity,
represented by cash and cash equivalents, is a product of its operating,
investing and financing activities.
The primary source of cash from operating activities is net income.
Liquidity management is both a daily and long-term function of business
management. Excess liquidity is generally invested in short-term investments,
such as federal funds sold. The Corporation anticipates that it will have
sufficient funds available to meet its current loan commitments. At March 31,
2003, the Corporation has outstanding loan commitments of $23.9 million and
unused lines and letters of credit totaling $53.4 million. Certificates of
deposit scheduled to mature in one year or less, at March 31, 2003, totaled
$54.2 million. Management believes that a significant portion of such deposits
will remain with the Corporation. Cash and cash equivalents decreased $3.9
million during the first three months of 2003. Operating activities and
financing activities provided $0.5 million and $6.1 million respectively. These
amounts were offset by investing activities amounting to $10.4 million.
ITEM 3 Quantitative and Qualitative Disclosures about Market Risk
Disclosure about quantitive and qualitative market risk is located in the Market
Risk section of Management's Discussion and Analysis of Financial Condition and
Results of Operations.
ITEM 4 Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
-------------------------------------------------
Based on their evaluation as of a date within 90 days of the filing date of this
Quarterly Report on Form 10-Q, the Corporation's chief executive officer and
principal accounting officer have concluded that the Corporation's disclosure
controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the
Securities Exchange Act of 1934 (the "Exchange Act")) are effective to ensure
that information required to be disclosed by the Corporation in reports that it
files or submits under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange
Commission's rules and forms.
(b) Changes in internal controls.
----------------------------
There were no significant changes in the Corporation's internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
18
Part II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Exhibit
Number Description of Exhibits
3(i) Certificate of Incorporation of the Corporation (1)
3(ii) By-laws of the Corporation (1)
10(i) 1995 Incentive Stock Option Plan (1)
10(ii) 1995 Stock Option Plan for Non-Employee Directors (1)
10(iii) 1995 Employee Stock Purchase Plan (2)
10(iv) Stock Bonus Plan (2)
10(v) Stewardship Financial Corporation Dividend Reinvestment Plan (3)
10(vi) Stewardship Financial Corporation Director Stock Plan (4)
10(vii) Amended and Restated 1995 Stock Option Plan (5)
10(viii) Amended and Restated Director Stock Plan (5)
10(ix) Dividend Reinvestment Plan (6)
21 Subsidiaries (1)
99.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
- -----------------------
(1) Incorporated by reference from Exhibits 5(B)(3)(i), 5(B)(3)(ii),
5(B)(3)(iii), 5(B)(10)(a), 5(B)(10)(b), 5(B)(21) from the Corporation's
Registration Statement on Form 8-B, Registration No. 0-21855, filed December 10,
1996.
(2) Incorporated by reference from Exhibits 4(c) to 23(d) from the Corporation's
Registration Statement on Form S-8, Registration No. 333-20793, filed January
31, 1997.
(3) Incorporated by reference from Exhibit 4(a) from the Corporation's
Registration Statement on Form S-3, Registration No. 333-20699, filed January
30, 1997.
(4) Incorporated by reference from Exhibit 4(a) from the Corporation's
Registration Statement on Form S-8, Registration No. 333-31245, filed July 11,
1997.
(5) Incorporated by reference from Exhibits 10(vii) and 10(viii) from the
Corporation's Annual Report on Form 10-KSB, filed March 31, 1999.
(6) Incorporated by reference from Exhibit 4(a) from the Corporation's
Registration Statement on Form S-3, Registration No. 333-54738, filed January
31, 2001.
(b) Reports on Form 8-K
(1) On April 23, 2003, the Corporation filed a current report on Form 8-K which
included a press release announcing the Corporation's results for the quarter
ended March 31, 2003.
19
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Stewardship Financial Corporation
Date: May 13, 2003 By: /s/ Paul Van Ostenbridge
----------------------------- --------------------------------
Paul Van Ostenbridge
President and Chief Executive
Officer
(Authorized officer
on behalf of registrant)
Date: May 13, 2003 By: /s/ Julie E. Holland
-------------------------- --------------------------------
Julie E. Holland
Vice President and Treasurer
(Principal accounting officer)
20
Certification of Quarterly Report
I, Paul Van Ostenbridge, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Stewardship Financial
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying 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
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
21
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 13, 2003 /s/ Paul Van Ostenbridge
---------------------------------------------
Name: Paul Van Ostenbridge
Title: President and Chief Executive Officer
22
Certification of Quarterly Report
I, Julie E. Holland, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Stewardship Financial
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying 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
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
23
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 13, 2003 /s/ Julie E. Holland
--------------------------------------
Name: Julie E. Holland
Title: Vice President and Treasurer
24