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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For Quarter Ended: September 30, 2002
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Commission File Number: 0-19345
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ESB FINANCIAL CORPORATION
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(Exact name of registrant as specified in its charter)
PENNSYLVANIA 25-1659846
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
600 LAWRENCE AVENUE, ELLWOOD CITY, PA 16117
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(Address of principal executive offices) (Zip Code)
(724) 758-5584
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. X Yes No
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Number of shares of common stock outstanding as of October 31, 2002:
COMMON STOCK, $0.01 PAR VALUE 8,788,029 SHARES
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(Class) (Outstanding)
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ESB FINANCIAL CORPORATION
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
Consolidated Statements of Financial Condition
as of September 30, 2002 (Unaudited) and December 31, 2001..........1
Consolidated Statements of Operations for the three and nine months
ended September 30, 2002 and 2001 (Unaudited).......................2
Consolidated Statement of Changes in Stockholders' Equity
For the nine months ended September 30, 2002 (Unaudited)............3
Consolidated Statements of Cash Flows for the nine
months ended September 30, 2002 and 2001 (Unaudited)................4
Notes to Consolidated Financial Statements..........................6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations...................13
Item 3. Quantitative and Qualitative Disclosures about Market Risk.........22
Item 4. Controls and Procedures............................................22
PART II - OTHER INFORMATION
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Item 1. Legal Proceedings..................................................24
Item 2. Changes in Securities..............................................24
Item 3. Defaults Upon Senior Securities....................................24
Item 4. Submission of Matters to a Vote of Security Holders................24
Item 5. Other Information..................................................24
Item 6. Exhibits and Reports on Form 8-K...................................24
Signatures.........................................................25
Certifications.....................................................26
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
ESB FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Financial Condition
As of September 30, 2002 (Unaudited) and December 31, 2001
(Dollar amounts in thousands)
SEPTEMBER 30, DECEMBER 31,
2002 2001
(Unaudited)
-------------- --------------
ASSETS
Cash on hand and in banks $ 3,913 $ 4,135
Interest-earning deposits 6,733 9,489
Federal funds sold 1,560 1,855
Securities available for sale; amortized cost of $843,196 and $636,815 864,801 640,282
Loans receivable, net of allowance for loan losses of $4,086 and $5,147 343,046 523,131
Accrued interest receivable 8,009 8,219
Federal Home Loan Bank (FHLB) stock 25,359 21,889
Premises and equipment, net 9,475 9,883
Real estate owned (REO), net 1,065 1,590
Real estate held for investment 14,322 7,253
Goodwill 7,127 7,127
Intangible assets 722 897
Prepaid expenses and other assets 3,849 4,794
Bank owned life insurance 23,414 22,524
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TOTAL ASSETS $ 1,313,395 $ 1,263,068
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits $ 596,637 $ 591,999
FHLB advances 503,007 434,003
Repurchase agreements 75,600 119,640
Other borrowings 2,566 --
Guaranteed preferred beneficial interest in subordinated debt, net 24,192 24,159
Advance payments by borrowers for taxes and insurance 1,146 4,058
Accrued expenses and other liabilities 13,565 9,306
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TOTAL LIABILITIES 1,216,713 1,183,165
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STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 5,000,000 shares authorized;
none issued -- --
Common stock, $.01 par value, 30,000,000 shares authorized;
9,172,888 and 7,706,580 shares issued;
8,797,835 and 7,320,388 shares outstanding 92 77
Additional paid-in capital 58,095 57,906
Treasury stock, at cost; 375,053 and 386,192 shares (4,195) (4,318)
Unearned Employee Stock Ownership Plan (ESOP) shares (2,469) (2,912)
Unvested shares held by Management Recognition Plan (MRP) (233) (255)
Retained earnings 31,133 27,117
Accumulated other comprehensive income, net 14,259 2,288
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TOTAL STOCKHOLDERS' EQUITY 96,682 79,903
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,313,395 $ 1,263,068
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See accompanying notes to consolidated financial statements.
1
ESB FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
For the three and nine months ended September 30, 2002 and 2001 (Unaudited)
(Dollar amounts in thousands, except share data)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
INTEREST INCOME:
Loans receivable $ 6,087 $ 10,002 $ 24,013 $ 30,166
Securities available for sale 11,763 9,168 30,863 28,814
FHLB stock 197 376 637 1,058
Deposits with banks and federal funds sold 35 55 100 219
---------- ---------- ---------- ----------
TOTAL INTEREST INCOME 18,082 19,601 55,613 60,257
---------- ---------- ---------- ----------
INTEREST EXPENSE:
Deposits 4,480 5,482 14,125 17,110
Borrowed funds and repurchase agreements 7,709 8,733 23,334 26,657
Guaranteed preferred beneficial interest in subordinated debt 557 557 1,670 1,670
---------- ---------- ---------- ----------
TOTAL INTEREST EXPENSE 12,746 14,772 39,129 45,437
---------- ---------- ---------- ----------
NET INTEREST INCOME 5,336 4,829 16,484 14,820
(Recovery of) provision for loan losses (103) 5 (580) 44
---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER (RECOVERY OF) PROVISION FOR LOAN LOSSES 5,439 4,824 17,064 14,776
---------- ---------- ---------- ----------
NONINTEREST INCOME:
Fees and service charges 414 554 1,929 1,407
Net realized gain on sale of securities available for sale 423 758 548 736
Increase of cash surrender value of bank owned life insurance 293 284 890 786
Other 121 171 586 458
---------- ---------- ---------- ----------
TOTAL NONINTEREST INCOME 1,251 1,767 3,953 3,387
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NONINTEREST EXPENSE:
Compensation and employee benefits 2,404 2,135 7,160 6,436
Premises and equipment 565 543 1,723 1,648
Federal deposit insurance premiums 25 27 77 77
Data processing 161 151 538 406
Other 767 1,572 3,338 3,265
---------- ---------- ---------- ----------
TOTAL NONINTEREST EXPENSE 3,922 4,428 12,836 11,832
---------- ---------- ---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES 2,768 2,163 8,181 6,331
Provision for income taxes 498 299 1,452 924
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NET INCOME $ 2,270 $ 1,864 $ 6,729 $ 5,407
========== ========== ========== ==========
NET INCOME PER SHARE:
Basic $0.27 $0.23 $0.80 $0.66
Diluted $0.26 $0.22 $0.78 $0.65
Net income per share for prior periods has been restated to reflect the
six-for-five stock split, declared on September 17, 2002. See accompanying notes
to consolidated financial statements.
2
ESB FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders' Equity
For the nine months ended September 30, 2002 (Unaudited)
(Dollar amounts in thousands)
ACCUMULATED
OTHER
COMPREHENSIVE
ADDITIONAL UNEARNED UNVESTED INCOME, TOTAL
COMMON PAID-IN TREASURY ESOP MRP RETAINED NET OF STOCKHOLDERS'
STOCK CAPITAL STOCK SHARES SHARES EARNINGS TAX EQUITY
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
BALANCE AT DECEMBER 31, 2001 $ 77 $ 57,906 $ (4,318) $ (2,912) $ (255) $ 27,117 $ 2,288 $ 79,903
Comprehensive results:
Net income -- -- -- -- -- 6,729 -- 6,729
Other comprehensive results, net -- -- -- -- -- -- 12,166 12,166
Reclassification adjustment -- -- -- -- -- -- (195) (195)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total comprehensive results -- -- -- -- -- 6,729 11,971 18,700
Cash dividends at $0.30 per share -- -- -- -- -- (2,246) -- (2,246)
Six-for-five stock split 15 -- -- -- -- (15) -- --
Purchase of treasury stock, at
cost (63,506 shares) -- -- (771) -- -- -- -- (771)
Reissuance of treasury stock
for stock option exercises -- 44 894 -- -- (452) -- 486
Principal payments on ESOP debt -- 145 -- 443 -- -- -- 588
Accrued compensation expense MRP -- -- -- -- 22 -- -- 22
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
BALANCE AT SEPTEMBER 30, 2002 $ 92 $ 58,095 $ (4,195) $ (2,469) $ (233) $ 31,133 $ 14,259 $ 96,682
========== ========== ========== ========== ========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
3
ESB FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the nine months ended September 30, 2002 and 2001 (Unaudited)
(Dollar amounts in thousands)
NINE MONTHS ENDED
SEPTEMBER 30,
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2002 2001
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OPERATING ACTIVITIES:
Net Income $ 6,729 $ 5,407
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING
ACTIVITIES:
Depreciation and amortization for premises and equipment 691 629
(Recovery of) provision for loan losses and loss on REO (110) 51
Amortization (accretion) of premiums/discounts 1,011 (333)
Origination of loans available for sale (15,029) (11,257)
Proceeds from sale of loans available for sale 49,009 11,379
Net gain on sale of securities available for sale (548) (736)
Amortization of intangible assets 173 6
Amortization of goodwill -- 552
Compensation expense on ESOP and MRP 611 532
Decrease in accrued interest receivable 210 413
Increase in prepaid expenses and other assets (4,278) (2,520)
Increase in accrued expenses and other liabilities 4,259 2,575
Other (3,945) (3,211)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 38,783 3,487
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INVESTING ACTIVITIES:
Loan originations and purchases (114,560) (123,254)
Purchases of:
Securities available for sale (261,875) (146,141)
FHLB Stock (3,470) (3,038)
Fixed Assets (275) (778)
Bank owned life insurance -- (3,500)
Principal repayments of:
Loans receivable 126,390 110,884
Securities available for sale 146,438 93,434
Proceeds from sale of:
Securities available for sale 42,923 64,760
REO 47 534
Additions to real estate held for investment (7,069) --
Net effect of securitization (249) --
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NET CASH USED IN INVESTING ACTIVITIES (71,700) (7,099)
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FINANCING ACTIVITIES:
Net increase in deposits 4,638 16,230
Proceeds from long-term borrowings 152,543 79,522
Repayments of long-term borrowings (104,935) (95,188)
Net (decrease) increase in short-term borrowings (20,078) 6,381
Proceeds received from exercise of stock options 443 244
Dividends paid (2,196) (1,908)
Payments to acquire treasury stock (771) (1,299)
Stock purchased by ESOP -- (44)
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NET CASH PROVIDED BY FINANCING ACTIVITIES 29,644 3,938
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Net (decrease) increase in cash equivalents (3,273) 326
Cash equivalents at beginning of period 15,479 13,326
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Cash equivalents at end of period $ 12,206 $ 13,652
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4
ESB FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows, (Continued)
For the nine months ended September 30, 2002 and 2001 (Unaudited)
(Dollar amounts in thousands)
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------------
2002 2001
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SUPPLEMENTAL INFORMATION:
Interest paid $ 37,672 $ 47,619
Income taxes paid 2,275 742
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCE ACTIVITIES:
Transfers from loans receivable to real estate acquired
through foreclosure -- 244
Dividends declared but not paid 781 712
Securitization of 1-4 family mortgage loans 135,310 --
See accompanying notes to consolidated financial statements.
5
ESB FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. BASIS OF PRESENTATION
ESB Financial Corporation (the Company) is a thrift holding company.
The consolidated financial statements include the accounts of the
Company and its direct and indirect wholly-owned subsidiaries, which
are ESB Bank, F.S.B. (ESB or the Bank), PennFirst Financial Services,
Inc., PennFirst Capital Trust I (the Trust), THF, Inc., ESB Financial
Services, Inc., AMSCO, Inc. (AMSCO) and PennFirst Financial Advisory
Services, Inc.
AMSCO is engaged in real estate development and construction of 1-4
family residential units independently or in conjunction with its joint
ventures. Three of the joint ventures are 51% owned by AMSCO and the
Bank has provided all development and construction financing. The three
joint ventures have been included in the consolidated financial
statements and reflected within the balance sheet as real estate held
for investment and related operating income and expenses reflected
within other non-interest income or expense. The Bank loans to AMSCO
and related interest have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements for the
interim periods include all adjustments, consisting only of normal
recurring accruals, which are necessary, in the opinion of management,
to fairly reflect the Company's financial position and results of
operations. Additionally, these consolidated financial statements for
the interim periods have been prepared in accordance with instructions
for the Securities and Exchange Commission's Form 10-Q and therefore do
not include all information or footnotes necessary for a complete
presentation of financial condition, results of operations and cash
flows in conformity with generally accepted accounting principles. For
further information, refer to the audited consolidated financial
statements and footnotes thereto for the year ended December 31, 2001,
as contained in the 2001 Annual Report to Stockholders.
The results of operations for the three and nine months ended September
30, 2002 are not necessarily indicative of the results that may be
expected for the entire year. Certain amounts previously reported have
been reclassified to conform with the current periods' reporting
format.
2. OPERATING SEGMENTS
An operating segment is defined as a component of an enterprise that
engages in business activities that generate revenue and incur expense,
the operating results of which are reviewed by management and for which
discrete financial information is available. At September 30, 2002, the
Company was doing business through 17 full service banking branches,
one loan production office and its various other subsidiaries. Loans
and deposits are primarily generated from the areas where banking
branches are located. The Company derives its income predominantly from
interest on loans and securities and to a lesser extent, non-interest
income. The Company's principal expenses are interest paid on deposits
and borrowed funds and normal operating costs. The Company's operations
are principally in the savings and loan industry. Consistent with
internal reporting, the Company's operations are reported in one
operating segment, which is community banking.
3. WHOLE LOAN SALE AND SECURITIZATION
During the second quarter of 2002, the Company completed a whole loan
sale of a portion of the Bank's 1-4 family mortgage loan portfolio. The
Company recognized a gain on the sale of these loans, which is
classified as part of the proceeds from loans available for sale. The
Company retained servicing on these loans, which resulted in the
recording of a servicing asset in the amount of $265,000. In addition
to the whole loan sale, during the second quarter, the Company also
securitized 1-4 family mortgage loans with Federal Home Loan Mortgage
Corporation totaling approximately $134.3 million. The Company retained
the servicing rights in the securitized loans, all of which were
retained in the securities available for sale portfolio, and recorded a
servicing asset of approximately $941,000.
6
Servicing assets are amortized in proportion to, and over the period
of, estimated net servicing revenues. Impairment of servicing assets is
based on fair value of those assets, estimated using discounted cash
flows and prepayment assumptions for the market area of the servicing
portfolio. For purposes of measuring impairment, the servicing asset is
stratified based on interest rate. The amount of impairment recognized
is the amount by which the capitalized servicing asset for a stratum
exceeds the fair value of that stratum. The impairment valuation at
September 30, 2002 is $61,000. The amortization taken on the servicing
asset for the nine-month period ended September 30, 2002 was $136,000.
4. GUARANTEED PREFERRED BENEFICIAL INTEREST IN SUBORDINATED DEBT
On December 9, 1997, the Trust, a statutory business trust established
under Delaware law that is a subsidiary of the Company, issued $25.3
million, 8.625% Trust Preferred Securities (Preferred Securities) with
a stated value and liquidation preference of $10 per share. The Trust's
obligations under the Preferred Securities issued are fully and
unconditionally guaranteed by the Company.
The proceeds from the sale of the Preferred Securities were utilized by
the Trust to invest in $25.3 million of 8.625% Junior Subordinated
Debentures (the Subordinated Debt) of the Company. The Subordinated
Debt is unsecured and ranks subordinate and junior in right of payment
to all indebtedness, liabilities and obligations of the Company. The
Subordinated Debt primarily represents the sole assets of the Trust.
Interest on the Preferred Securities is cumulative and payable
quarterly in arrears. The Company has the right to optionally redeem
the Subordinated Debt prior to the maturity date of December 31, 2027,
on or after December 31, 2002, at 100% of the stated liquidation
amount, plus accrued and unpaid distributions, if any, at the
redemption date.
Under the occurrence of certain events, specifically, a tax event,
investment company event or capital treatment event as more fully
defined in the Indenture dated December 7, 1997, the Company may redeem
in whole, but not in part, the Subordinated Debt prior to December 31,
2027.
Proceeds from any redemption of the Subordinated Debt would cause a
mandatory redemption of the Preferred Securities and the common
securities having an aggregate liquidation amount equal to the
principal amount of the Subordinated Debt redeemed.
Unamortized deferred debt issuance costs associated with the Preferred
Securities amounted to $1.1 million and $1.1 million as of September
30, 2002 and December 31, 2001, respectively, and are amortized on a
level-yield basis over the term of the Preferred Securities.
7
5. SECURITIES
The Company's securities available for sale portfolio is summarized as
follows:
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Amortized Unrealized Unrealized Fair
(Dollar amounts in thousands) cost gains losses value
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SEPTEMBER 30, 2002:
Trust Preferred securities $ 1,967 $ 6 $ (102) $ 1,871
U.S. Government securities 5,977 809 -- 6,786
Municipal securities 92,749 3,703 -- 96,452
Equity securities 1,469 83 (231) 1,321
Corporate Bonds 112,217 4,850 (6,848) 110,219
Mortgage-backed securities 628,817 19,355 (20) 648,152
---------- ---------- ---------- ----------
$ 843,196 $ 28,806 $ (7,201) $ 864,801
========== ========== ========== ==========
DECEMBER 31, 2001:
Trust Preferred securities $ 1,967 $ -- $ (17) $ 1,950
U.S. Government securities 5,975 318 -- 6,293
Municipal securities 87,648 964 (680) 87,932
Equity securities 2,360 144 (253) 2,251
Corporate Bonds 116,325 1,974 (3,839) 114,460
Mortgage-backed securities 422,540 5,447 (591) 427,396
---------- ---------- ---------- ----------
$ 636,815 $ 8,847 $ (5,380) $ 640,282
========== ========== ========== ==========
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6. LOANS RECEIVABLE
The Company's loans receivable as of the respective dates are
summarized as follows:
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SEPTEMBER 30, DECEMBER 31,
(Dollar amounts in thousands) 2002 2001
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MORTGAGE LOANS:
Residential - single family $ 159,015 $ 337,896
Residential - multi family 31,414 29,154
Commercial real estate 52,506 48,869
Construction 42,363 46,072
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285,298 461,991
OTHER LOANS:
Consumer loans 62,337 65,815
Commercial business 12,975 15,264
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360,610 543,070
LESS:
Allowance for loan losses 4,086 5,147
Deferred loan fees and net discounts 99 483
Loans in process 13,379 14,309
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$ 343,046 $ 523,131
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8
The following is a summary of the changes in the allowance for loan
losses:
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(Dollar amounts in thousands)
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Balance, December 1999 $ 4,823
Allowance for loan losses of Spring Hill Savings Bank 544
Provision for loan losses (55)
Chargeoffs (409)
Recoveries 78
----------
Balance, December 2000 4,981
Allowance for loan losses of Workingmen's Savings Bank 154
Provision for loan losses 47
Chargeoffs (44)
Recoveries 9
----------
Balance, December 2001 5,147
Provision (580)
Chargeoffs (522)
Recoveries 41
----------
Balance September 2002 $ 4,086
==========
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7. DEPOSITS
The Company's deposits as of the respective dates are summarized as
follows:
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(Dollar amounts in thousands) SEPTEMBER 30, 2002 DECEMBER 31, 2001
--------------------------- --------------------------
Type of accounts Amount % Amount %
- ------------------------------------------------------------------------------------------------
Noninterest-bearing deposits $ 22,781 3.8% $ 16,126 2.7%
NOW account deposits 43,304 7.3% 43,592 7.4%
Money Market deposits 76,572 12.8% 72,706 12.3%
Passbook account deposits 94,141 15.8% 85,765 14.5%
Time deposits 359,839 60.3% 373,810 63.1%
---------- ----------- ---------- -----------
$ 596,637 100.0% $ 591,999 100.0%
========== ========== ========== ===========
Time deposits mature as follows:
Within one year $ 240,080 40.2% $ 263,091 44.4%
After one year through two years 44,956 7.5% 80,348 13.6%
After two years through three years 43,116 7.2% 17,292 2.9%
Thereafter 31,687 5.4% 13,079 2.2%
---------- ----------- ---------- -----------
$ 359,839 60.3% $ 373,810 63.1%
========== =========== ========== ===========
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9
8. BORROWED FUNDS
The Company's borrowed funds as of the respective dates are summarized
as follows:
- -------------------------------------------------------------------------------------------------------------
(Dollar amounts in thousands) SEPTEMBER 30, 2002 DECEMBER 31, 2001
-------------------------- -------------------------------
Weighted Weighted
average rate Amount average rate Amount
- --------------------------------------------------------------------------------------------------------------
FHLB ADVANCES:
Due within 12 months 5.37% $ 206,630 5.14% $ 171,051
Due beyond 12 months but within 2 years 5.55% 91,655 6.36% 157,699
Due beyond 2 years but within 3 years 5.15% 67,468 5.25% 77,055
Due beyond 3 years but within 4 years 5.14% 74,654 5.47% 23,885
Due beyond 4 years but within 5 years 4.40% 62,451 6.07% 1,816
Due beyond 5 years 6.68% 149 6.69% 2,309
------------ ------------
503,007 433,815
============ ============
REPURCHASE AGREEMENTS
Due within 12 months 4.62% $ 64,600 5.19% $ 98,040
Due beyond 12 months but within 2 years 7.30% 11,000 6.96% 10,600
Due beyond 2 years but within 3 years -- -- 7.30% 11,000
------------ ------------
$ 75,600 $ 119,640
============ ============
OTHER BORROWINGS
ESOP BORROWINGS
Due beyond 4 years but within 5 years 5.38% $ 2,402 -- --
============ ============
TREASURY TAX AND LOAN NOTE PAYABLE 1.55% $ 164 1.64% $ 188
============ ============
- --------------------------------------------------------------------------------------------------------------
Included in the $503.0 million of FHLB advances, is approximately $65.5 million
of convertible select advances. These advances are fixed to the call date. The
FHLB has the right to call any convertible select advance on its call date or
quarterly thereafter. At the call date the advances may reset, at various
spreads, to the three month London Interbank Offer Rate Index (LIBOR). Should
the advance be called, the Company has the right to pay off the advance without
penalty. It has historically been the Company's position to pay off the advance
and replace it with fixed rate funding.
10
9. NET INCOME PER SHARE
Net income per share and weighted average shares and equivalents
outstanding for all periods reported have been restated to reflect
stock dividends and splits, including the Company's six-for-five stock
split declared on September 17, 2002.
The following table summarizes the Company's net income per share.
--------------------------------------------------------------------------------------------------------
(Dollar amounts in thousands, except earnings per share)
--------------------------------------------------------------------------------------------------------
Three Months Three Months
Ended Ended
September 30, 2002 September 30, 2001
------------------ ------------------
Net income $ 2,270 $ 1,864
Weighted-average common shares outstanding 8,460 8,154
------------ ------------
BASIC EARNINGS PER SHARE $ 0.27 $ 0.23
============ ============
Weighted-average common shares outstanding 8,460 8,154
Common stock equivalents due to effect of stock options 268 276
------------ ------------
Total weighted-average common shares and equivalents 8,728 8,430
------------ ------------
DILUTED EARNINGS PER SHARE $ 0.26 $ 0.22
============ ============
Nine Months Nine Months
Ended Ended
September 30, 2002 September 30, 2001
------------------ ------------------
Net income $ 6,729 $ 5,407
Weighted-average common shares outstanding 8,439 8,156
------------ ------------
BASIC EARNINGS PER SHARE $ 0.80 $ 0.66
============ ============
Weighted-average common shares outstanding 8,439 8,156
Common stock equivalents due to effect of stock options 239 214
------------ ------------
Total weighted-average common shares and equivalents 8,678 8,370
------------ ------------
DILUTED EARNINGS PER SHARE $ 0.78 $ 0.65
============ ============
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The shares controlled by the ESOP of 363,581 and 367,673 at September
30, 2002 and September 30, 2001, respectively, are not considered in
the weighted average shares outstanding until the shares are committed
for allocation to an employee's individual account. Options to purchase
96,085 shares of common stock at $11.36 per share were outstanding as
of September 30, 2002, but were not included in the computation of
diluted earnings per share for the three and nine month periods ended
September 30, 2002 because the option's exercise price was greater than
the average market price of common shares. The options expire on June
30, 2008. Options to purchase 96,264 shares of common stock at $11.36
per share were outstanding as of September 30, 2001, but were not
included in the computation of diluted earnings per share for the three
and nine month periods ended September 30, 2001 because the option's
exercise price was greater than the average market price of common
shares. The options expire on June 30, 2008.
11
10. COMPREHENSIVE INCOME
In complying with Financial Accounting Standards No. 130, "Reporting
Comprehensive Income", the Company has developed the following table,
which includes the tax effects of the components of other comprehensive
income (loss). Other comprehensive income (loss) consists of net
unrealized gain on securities available for sale. Other comprehensive
gain (loss) and related tax effects for the nine months ended September
30, consists of:
----------------------------------------------------------------------------------------------------
(Dollar amounts in thousands) 2002 2001
----------------------------------------------------------------------------------------------------
Unrealized Reclassification Unrealized Reclassification
Gain Adjustment Gain Adjustment
------------ ------------ ------------ ------------
Before tax amount $ 18,433 $ (295) $ 14,398 $ (360)
Tax (expense) benefit (6,267) 100 (4,895) 122
------------ ------------ ------------ ------------
After tax amount $ 12,166 $ (195) $ 9,503 $ (238)
============ ============ ============ ============
----------------------------------------------------------------------------------------------------
For the nine months ended September 30, 2002, total comprehensive
income was $18.7 million and for the nine months ended September 30,
2001, total comprehensive income was $14.7 million. For the three
months ended September 30, 2002, total comprehensive income was $9.1
million and for the three months ended September 30, 2001, total
comprehensive income was $6.9 million.
11. EFFECT OF RECENT ACCOUNTING AND REGULATORY PRONOUNCEMENTS
On January 1, 2002, the Company adopted Financial Accounting Standards
No. 142 (FAS 142) "Goodwill and Other Intangible Assets". FAS 142
requires that goodwill and other indefinite lived intangible assets
will no longer be amortized but will be subject to annual impairment
tests. The Company has determined that if FAS 142 had been in effect
for the quarter and nine months ended September 30, 2001, the
comparative results would have been:
--------------------------------------------------------------------------------------------------------------
(Dollar amounts in thousands,except share data)
--------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
-------------------------------- --------------------------------
2002 2001 2002 2001
-------------------------------- --------------------------------
Reported net income $ 2,270 $ 1,864 $ 6,729 $ 5,407
Add back: Goodwill amortization -- 184 -- 551
------------------------------ -------------------------------
Adjusted net income $ 2,270 $ 2,048 $ 6,729 $ 5,958
============================== ===============================
Basic earnings per share:
Reported earnings per share $ 0.27 $ 0.23 $ 0.80 $ 0.66
Goodwill amortization -- 0.02 -- 0.07
------------------------------ -------------------------------
Adjusted earnings per share $ 0.27 $ 0.25 $ 0.80 $ 0.73
============================== ===============================
Diluted earnings per share:
Reported earnings per share $ 0.26 $ 0.22 $ 0.78 $ 0.65
Goodwill amortization -- 0.02 -- 0.06
------------------------------ -------------------------------
Adjusted earnings per share $ 0.26 $ 0.24 $ 0.78 $ 0.71
============================== ===============================
FAS 142 requires a transitional impairment test to be applied to all
goodwill within the first six months after adoption. The Company has
performed its transitional impairment test on its goodwill asset and
has concluded that the recorded value of the Company's goodwill was not
impaired as of January 31, 2002. The Company will perform its required
annual impairment test on its goodwill asset in the fourth quarter of
2002.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
- --------------------------------------------------------------------------------
CHANGES IN FINANCIAL CONDITION
GENERAL. The Company's total assets increased by $50.3 million or 4.0% to $1.3
billion at September 30, 2002 from $1.3 billion at December 31, 2001. This net
increase was primarily the result of increases to securities, FHLB stock, real
estate held for investment and bank owned life insurance (BOLI) of $224.5
million, $3.5 million, $7.1 million and $890,000, respectively. Partially
offsetting these increases were decreases in cash and cash equivalents, loans
receivable, accrued interest receivable, premises and equipment, real estate
owned and prepaid expenses and other assets of $3.3 million, $180.1 million,
$210,000, $408,000, $525,000 and $1.1 million, respectively. The increase in
total assets reflects a corresponding increase in total liabilities of $33.5
million or 2.8% and an increase in stockholders' equity of $16.8 million or
21.0%. The increase in total liabilities was the result of increases in
deposits, Federal Home Loan Bank (FHLB) advances, other borrowings and accrued
expenses and other liabilities of $4.6 million, $69.0 million, $2.6 million and
$4.3 million, respectively. Partially offsetting these increases were decreases
in repurchase agreements and advance payments by borrowers for taxes and
insurance of $44.0 million and $2.9 million, respectively. The increase in
stockholders' equity was the result of increases in common stock, additional
paid-in capital, retained earnings and accumulated other comprehensive income of
$15,000, $174,000, $4.0 million and $12.0 million, respectively, partially
offset by decreases in treasury stock, unearned employee stock ownership plan
(ESOP) shares and unvested shares held by the management recognition plan (MRP)
of $123,000, $443,000 and $22,000, respectively.
CASH ON HAND, INTEREST-EARNING DEPOSITS AND FEDERAL FUNDS SOLD. Cash on hand,
interest-earning deposits and federal funds sold represent cash equivalents and
decreased a combined $3.3 million or 21.1% to $12.2 million at September 30,
2002 from $15.5 million at December 31, 2001.
SECURITIES. The Company's securities portfolio increased by $224.5 million or
35.1% to $864.8 million at September 30, 2002 from $640.3 million at December
31, 2001. During the nine months ended September 30, 2002, the Company completed
a securitization of a portion of its 1-4 family mortgage loan portfolio and
retained the resulting securities in the available for sale portfolio. The
securitization increased the available for sale mortgage-backed security
portfolio by approximately $134.3 million. The Company also recorded purchases
of available for sale securities of $261.9 million, consisting of purchases of
mortgage-backed securities of $238.6 million, municipal bonds of $14.1 million
and corporate bonds of $9.2 million. Partially offsetting the securitization and
purchases of securities were sales of available for sale securities of $42.9
million, consisting of mortgage backed securities of $24.9 million, corporate
bonds of $9.1 million, municipal bonds of $8.2 million and equity securities of
$711,000 and repayments and maturities of securities of $146.4 million, during
the nine months ended September 30, 2002.
LOANS RECEIVABLE. Net loans receivable decreased $180.1 million or 34.4% to
$343.0 million at September 30, 2002 from $523.1 million at December 31, 2001.
Included in this decrease were decreases in mortgage loans of $176.7 million or
38.2% and other loans of $5.8 million, partially offset by decreases in
allowance for loan fees, deferred loan fees and loans in process of $1.1
million, $384,000 and $930,000, respectively. The decreases to the loan
portfolio resulted primarily from the completion of a whole loan sale and
securitization during the nine months ended September 30, 2002 in which the
Company sold approximately $33.1 million of fixed rate and adjustable rate 1-4
family mortgages and securitized an additional $134.3 million of fixed rate and
adjustable rate 1-4 family mortgage loans.
NON-PERFORMING ASSETS. Non-performing assets include non-accrual loans and real
estate acquired through foreclosure. Non-performing assets amounted to $3.3
million or 0.25% and $4.1 million or 0.32% of total assets at September 30, 2002
and December 31, 2001, respectively.
REAL ESTATE HELD FOR INVESTMENT. The Company's real estate held for investment
increased $7.1 million or 97.5% to $14.3 million during the nine months ended
September 30, 2002 as a result of increased activity in the joint ventures in
which the Company has a 51% ownership.
DEPOSITS. Total deposits increased $4.6 million or 0.8% to $596.6 million at
September 30, 2002 from $592.0 million at December 31, 2001. Non-interest
bearing deposits and interest bearing deposits increased $6.7 million and $12.0
million, respectively, during the nine months ended September 30, 2002. Time
deposits decreased $14.0 million during the nine months ended September 30,
2002.
13
FHLB ADVANCES, REPURCHASE AGREEMENTS AND OTHER BORROWINGS. Borrowed funds and
repurchase agreements increased a combined $27.5 million or 5.0% to $581.2
million at September 30, 2002 from $553.6 million at December 31, 2001. FHLB
advances increased $69.2 million or 15.9%, while repurchase agreements decreased
$41.6 million or 34.8%. ESOP borrowings increased $2.4 million during the
quarter ended September 30, 2002 as a result of the Company refinancing the
internal ESOP loan with a third party.
STOCKHOLDERS' EQUITY. Stockholders' equity increased $16.8 million or 21.0% to
$96.7 million at September 30, 2002 from $79.9 million at December 31, 2001. The
increase in stockholders' equity was the result of increases in common stock,
additional paid-in capital, retained earnings and accumulated other
comprehensive income of $15,000, $174,000, $4.0 million and $12.0 million,
respectively, and decreases in treasury stock, unearned ESOP shares and unvested
shares held by the MRP of $123,000, $443,000 and $22,000, respectively. The
increase to accumulated other comprehensive income was the result of increases
to the market values of the Company's available for sale portfolio. During the
third quarter, the Company declared a six for five stock split, which was paid
on October 25, 2002 to the stockholders of record at the close of business on
September 30, 2002.
RESULTS OF OPERATIONS
GENERAL. The Company recorded net income of $2.3 million and $6.7 million for
the three and nine months ended September 30, 2002, respectively, as compared to
net income of $1.9 million and $5.4 million, respectively, for the same periods
in the prior year.
For the three months ended September 30, 2002, net income increased $407,000 or
21.9%. The increase can be attributable to an increase in net interest income of
$507,000 and decreases in the provision for loan losses and non-interest expense
of $108,000 and $506,000 respectively, partially offset by a decrease in
non-interest income of $516,000 and an increase to provision for income taxes of
$199,000.
Net income increased $1.3 million or 24.5% for the nine months ended September
30, 2002, as compared to the nine months ended September 30, 2001. This increase
was primarily attributable to increases in net interest income and non-interest
income of $1.7 million and $566,000, respectively and a decrease to provision
for loan losses of $624,000. Partially offsetting these increases were increases
in non-interest expense and provision for income taxes of $1.0 million and
$528,000, respectively.
Net income for the nine month period ended September 30, 2002 included several
one-time gains and recoveries, including a net gain of $510,000 in connection
with the whole loan sale, $265,000 of which relates to servicing rights retained
by the Company on the loans. The whole loan sale and securitization of 1-4
family residential mortgage loans also resulted in a reduction in the allowance
for loan losses of approximately $150,000. The Company also reached final
settlement and recovered $402,000 from the bankruptcy trustee on certain
previously reserved non-performing lease loans associated with the Company's
Bennett lease pools. These gains and recoveries were substantially offset by a
write down in connection with a real estate acquired through foreclosure (REO)
property of $470,000 and costs of approximately $256,000 incurred in connection
with ongoing litigation. Without these gains and recoveries, net income would
have been $6.5 million for the nine month period ended September 30, 2002 as
compared to $5.4 million for the same period in the prior year, or an increase
of 20.2%.
NET INTEREST INCOME. Net interest income increased $507,000 or 10.5% to $5.3
million for the three months ended September 30, 2002, compared to $4.8 million
for the same period in the prior year. This increase in net interest income can
be attributed to a decrease in interest expense of $2.0 million partially offset
by a decrease in interest income of $1.5 million.
Net interest income increased $1.7 million or 11.2% to $16.5 million for the
nine months ended September 30, 2002, compared to $14.8 million for the same
period in the prior year. This increase in net interest income can be attributed
to a decrease in interest expense of $6.3 million partially offset by a decrease
in interest income of $4.6 million.
INTEREST INCOME. Interest income decreased $1.5 million or 7.7% to $18.1 million
for the three months ended September 30, 2002, compared to $19.6 million for the
same period in the prior year. This decrease can be
14
attributed to decreases in interest earned on loans receivable, FHLB stock and
interest-earning deposits of $3.9 million, $179,000 and $20,000, respectively,
partially offset by an increase in interest earned on securities of $2.6
million.
Interest earned on loans receivable decreased $3.9 million or 39.1% to $6.1
million for the three months ended September 30, 2002, compared to $10.0 million
for the same period in the prior year. This decrease was primarily attributable
to a decrease in the average balance of loans outstanding of $191.1 million or
36.0% to $339.5 million for the three months ended September 30, 2002 compared
to $530.6 million for the same period in the prior year. The decrease in the
average balance of loans outstanding between periods can be partially attributed
to the loan sale and securitization of a portion of the Company's 1-4 family
mortgage loan portfolio that occurred in the second quarter of 2002. In addition
to the decrease in the average balance of loans outstanding was a decline in the
yield on the loans to 7.16% for the three months ended September 30, 2002 from
7.53% for the same period in the prior year.
Interest earned on securities increased $2.6 million or 28.3% to $11.8 million
for the three months ended September 30, 2002, compared to $9.2 million for the
same period in the prior year. This increase was primarily attributable to an
increase in the average balance of securities of $244.2 million or 40.5% to
$846.7 million for the three months ended September 30, 2002 compared to $602.5
million for the same period in the prior year. The increase in the average
balance of the Company's securities portfolio between periods can be partially
attributed to the securitization of a portion of the Company's 1-4 family
mortgage loan portfolio. Partially offsetting the increase in the average
balance was a decrease in the tax equivalent yield on securities to 5.84% for
the three months ended September 30, 2002 from 6.49% for the same period in the
prior year.
Interest income decreased $4.6 million or 7.7% to $55.6 million for the nine
months ended September 30, 2002, compared to $60.3 million for the same period
in the prior year. This decrease can be attributed to decreases in interest
earned on loans receivable, FHLB stock and interest-earning deposits of $6.2
million, $421,000 and $119,000, respectively. Partially offsetting the decreases
was an increase in interest earned on securities of $2.0 million.
Interest earned on loans receivable decreased $6.2 million or 20.4% to $24.0
million for the nine months ended September 30, 2002, compared to $30.2 million
for the same period in the prior year. This decrease was primarily attributable
to a decrease in the average balance of loans outstanding of $82.4 million or
15.6% to $444.4 million for the nine months ended September 30, 2002, compared
to $526.8 million for the same period in the prior year. The decrease in the
average balance of loans outstanding between periods can be partially attributed
to the loan sale and securitization of a portion of the Company's 1-4 family
mortgage loan portfolio that occurred in the second quarter of 2002. In addition
to this decrease in average balance was a decrease in the yield on loans
receivable to 7.21% for the nine months ended September 30, 2002, compared to
7.64% for the same period in the prior year.
Interest earned on securities increased $2.0 million or 7.1% to $30.9 million
for the nine months ended September 30, 2002, compared to $28.8 million for the
same period in the prior year. This increase was primarily attributable to an
increase in the average balance of securities of $137.0 million or 22.8% to
$739.2 million for the nine months ended September 30, 2002, compared to $602.2
million for the same period in the prior year. The increase in the average
balance of the Company's securities portfolio between periods can be partially
attributed to the securitization of a portion of the Company's 1-4 family
mortgage loan portfolio. Partially offsetting the increase in average balance
was a decline in the tax equivalent yield on securities to 5.89% for the nine
months ended September 30, 2002 compared to 6.79% for the same period in the
prior year.
INTEREST EXPENSE. Interest expense decreased $2.0 million or 13.7% to $12.7
million for the three months ended September 30, 2002, compared to $14.8 million
for the same period in the prior year. This decrease in interest expense can be
attributed to decreases in interest incurred on deposits as well as borrowed
funds and repurchase agreements combined of $1.0 million and $1.0 million,
respectively.
Interest incurred on deposits decreased $1.0 million or 18.3% to $4.5 million
for the three months ended September 30, 2002, compared to $5.5 million for the
same period in the prior year. This decrease was primarily attributable to a
decline in the cost of interest-bearing deposits to 3.03% from 4.22% for the
quarters ended September 30, 2002 and 2001, respectively. This decrease was
partially offset by an increase in the average balance of interest-bearing
15
deposits of $71.0 million or 13.8% to $586.2 million for the three months ended
September 30, 2002, compared to $515.2 million for the same period in the prior
year.
Interest incurred on borrowed funds and repurchase agreements, combined
decreased $1.0 million or 11.7% to $7.7 million for the three months ended
September 30, 2002, compared to $8.7 million for the same period in the prior
year. This decrease was primarily attributable to a decrease in the cost of
these funds to 5.32% from 6.00% for the quarters ended September 30, 2002 and
2001, respectively. In addition to the decrease in the cost of funds, the
average balance of borrowed funds and repurchase agreements decreased a combined
$11.1 million or 1.9% to $566.4 million for the three months ended September 30,
2002, compared to $577.5 million for the same period in the prior year.
Interest expense decreased $6.3 million or 13.9% to $39.1 million for the nine
months ended September 30, 2002, compared to $45.4 million for the same period
in the prior year. This decrease in interest expense can be attributed to
decreases in interest incurred on deposits and borrowed funds as well as
repurchase agreements combined of $3.0 million and $3.3 million, respectively.
Interest incurred on deposits decreased $3.0 million or 17.5% to $14.1 million
for the nine months ended September 30, 2002, compared to $17.1 million for the
same period in the prior year. This decrease was primarily attributable to a
decrease in the cost of interest-bearing deposits to 3.25% for the nine months
ended September 30, 2002 compared to 4.47% for the same period in the prior
year. Partially offsetting this decline was an increase in the average balance
of interest-bearing deposits of $69.4 million or 13.6% to $580.8 million for the
nine months ended September 30, 2002, compared to $511.4 million for the same
period in the prior year.
Interest incurred on borrowed funds and repurchase agreements combined decreased
$3.3 million or 12.5% to $23.3 million for the nine months ended September 30,
2002, compared to $26.7 million for the same period in the prior year. This
decrease was primarily attributable to a decrease in the cost of these funds to
5.45% for the nine months ended September 30, 2002, compared to 6.17% for the
same period in the prior year. In addition to the decrease in the cost of these
funds, the average balance of borrowed funds and repurchase agreements decreased
a combined $12.6 million or 2.2% to $564.7 million for the nine months ended
September 30, 2002, compared to $577.4 million for the nine months ended
September 30, 2001.
(RECOVERY OF) PROVISION FOR LOAN LOSSES. The provision for loan losses decreased
$108,000 reflecting a recovery of loan losses of $103,000 for the three months
ended September 30, 2002 compared to a provision for loan losses of $5,000 for
the same period in the prior year. The provision for loan losses decreased
$624,000 reflecting a recovery of loan losses of $580,000 for the nine months
ended September 30, 2002 compared to a provision for loan losses of $44,000 for
the same period in the prior year. The recoveries for the nine months ended
September 30, 2002 include a final recovery of $402,000 on the Company's Bennett
Lease pools, which was received from the bankruptcy trustee and a reduction to
the provision for loan losses of approximately $150,000, which resulted from the
whole loan sale and securitization of a portion of the Company's 1-4 family
residential mortgage loans. These recoveries were increased by other operating
recoveries recorded in the third quarter of 2002 and partially offset by
provisions recorded in the first and second quarters of 2002 resulting from the
normal operations of the Company. In determining the appropriate level of
allowance for loan losses, management considers historical loss experience, the
financial condition of borrowers, economic conditions (particularly as they
relate to markets where the Company originates loans), the status of
non-performing assets, the estimated underlying value of the collateral and
other factors related to the collectability of the loan portfolio. The Company's
total allowance for losses on loans at September 30, 2002 amounted to $4.1
million or 1.1% of the Company's total loan portfolio as compared to $5.1
million or 0.95% at December 31, 2001. The Company's allowance for losses on
loans as a percentage of non-performing loans was 182.66% and 205.72% at
September 30, 2002 and December 31, 2001, respectively.
NON-INTEREST INCOME. Non-interest income decreased $516,000 or 29.0% to $1.3
million for the three months ended September 30, 2002, compared to $1.8 million
for the same period in the prior year. This decrease can be attributed to
decreases in fees and service charges, net realized gains on sale of securities
and other income of $140,000, $335,000 and $50,000, respectively. Gross gains on
securities for the three months ended September 30, 2002 were $554,000, offset
by impairment losses of $132,000 on certain publicly traded equity investments
16
classified as other than temporary. Non-interest income increased $566,000 or
16.7% to $4.0 million for the nine months ended September 30, 2002, compared to
$3.4 million for the same period in the prior year. This increase can be
attributed to increases in fees and service charges, the cash surrender value of
the BOLI and other income of $522,000, $104,000 and $128,000, respectively,
between periods. Partially offsetting these increases was a decrease to net
realized gain on sale of securities available for sale of $188,000. Gross gains
on securities for the nine month period ended September 30, 2002 were $1.2
million, offset by gross securities losses of $702,000. Gross securities losses
for the included impairment losses of $290,000 on certain publicly traded equity
investments classified as other than temporary.
NON-INTEREST EXPENSE. Non-interest expense decreased $506,000 or 11.4% to $3.9
million for the three months ended September 30, 2002, from $4.4 million for the
same period in the prior year. This decrease was primarily the result of a
decrease to other expense of $805,000, partially offset by increases in
compensation and employee benefits, premises and equipment and data processing
expenses of $269,000, $25,000 and $10,000, respectively. Non-interest expense
increased $1.0 million or 8.5% to $12.8 million for the nine months ended
September 30, 2002, from $11.8 million for the same period in the prior year.
This increase was primarily the result of increases in compensation and employee
benefits, premises and equipment, data processing and other expenses of
$724,000, $75,000, $132,000 and $73,000, respectively.
PROVISION FOR INCOME TAXES. The provision for income taxes increased $199,000 or
66.6% to $498,000 for the three months ended September 30, 2002 and $528,000 or
57.1% to $1.5 million for the nine months ended September 30, 2002 compared to
$299,000 and $924,000, respectively, for the prior year periods. These increases
in the provision for income taxes are primarily attributable to the increases to
net income for the quarter and year to date as compared to the same periods in
the prior year.
17
AVERAGE BALANCE SHEET AND YIELD/RATE ANALYSIS. The following tables sets forth,
for periods indicated, information concerning the total dollar amounts of
interest income from interest-earning assets and the resultant average yields,
the total dollar amounts of interest expense on interest-bearing liabilities and
the resultant average costs, net interest income, interest rate spread and the
net interest margin earned on average interest-earning assets. For purposes of
these tables, average balances are calculated using monthly averages and the
average loan balances include non-accrual loans and exclude the allowance for
loan losses, and interest income includes accretion of net deferred loan fees.
Interest and yields on tax-exempt securities (tax-exempt for federal income tax
purposes) are shown on a fully tax equivalent basis utilizing a federal tax rate
of 34%. Yields and rates have been calculated on an annualized basis utilizing
monthly interest amounts.
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollar amounts in thousands) THREE MONTHS ENDED SEPTEMBER 30,
2002 2001
------------------------------------- -------------------------------------
AVERAGE YIELD / AVERAGE YIELD /
BALANCE INTEREST RATE BALANCE INTEREST RATE
- ------------------------------------------------------------------------------------------------------------------------------------
INTEREST-EARNING ASSETS:
Taxable securities available for sale $ 702,011 $ 10,204 5.81% $ 452,988 $ 7,259 6.41%
Taxable corporate bonds available for sale 53,239 368 2.70% 58,793 703 4.68%
Tax-exempt securities available for sale 91,453 1,805 7.89% 90,749 1,824 8.04%
---------- ---------- ---------- ---------- ---------- ----------
846,703 12,377 5.84% 602,530 9,786 6.49%
---------- ---------- ---------- ---------- ---------- ----------
Mortgage loans 265,173 4,811 7.26% 448,947 8,466 7.54%
Other loans 74,349 1,276 6.81% 81,635 1,536 7.46%
---------- ---------- ---------- ---------- ---------- ----------
339,522 6,087 7.16% 530,582 10,002 7.53%
---------- ---------- ---------- ---------- ---------- ----------
Cash equivalents 10,825 35 1.28% 8,852 55 2.49%
FHLB stock 24,180 197 3.23% 22,082 376 6.81%
---------- ---------- ---------- ---------- ---------- ----------
35,005 232 2.63% 30,934 431 5.57%
---------- ---------- ---------- ---------- ---------- ----------
TOTAL INTEREST-EARNING ASSETS 1,221,230 18,696 6.12% 1,164,046 20,219 6.94%
Other noninterest-earning assets 85,526 -- -- 55,184 -- --
---------- ---------- ---------- ---------- ---------- ----------
Total assets $1,306,756 $ 18,696 5.72% $1,219,230 $ 20,219 6.62%
========== ========== ========== ========== ========== ==========
INTEREST-BEARING LIABILITIES:
Interest-bearing demand deposits $ 215,839 $ 682 1.25% $ 183,423 $ 920 1.99%
Time deposits 370,312 3,798 4.07% 331,746 4,562 5.46%
---------- ---------- ---------- ---------- ---------- ----------
586,151 4,480 3.03% 515,169 5,482 4.22%
---------- ---------- ---------- ---------- ---------- ----------
FHLB advances 476,486 6,483 5.32% 432,293 6,552 6.01%
Repurchase agreements & other borrowings 89,882 1,226 5.34% 145,173 2,181 5.96%
Preferred securities 24,186 557 9.21% 24,142 557 9.15%
---------- ---------- ---------- ---------- ---------- ----------
TOTAL INTEREST-BEARING LIABILITIES 1,176,705 12,746 4.26% 1,116,777 14,772 5.25%
Noninterest-bearing demand deposits 22,023 -- -- 16,982 -- --
Other noninterest-bearing liabilities 13,804 -- -- 8,653 -- --
---------- ---------- ---------- ---------- ---------- ----------
Total liabilities 1,212,532 12,746 4.14% 1,142,412 14,772 5.13%
Stockholders' equity 94,224 -- -- 76,818 -- --
---------- ---------- ---------- ---------- ---------- ----------
Total liabilities and equity $1,306,756 $ 12,746 3.84% $1,219,230 $ 14,772 4.81%
========== ========== ========== ========== ========== ==========
NET INTEREST INCOME $ 5,950 $ 5,447
========== ==========
INTEREST RATE SPREAD (difference between
weighted average rate on interest-earning
assets and interest-bearing liabilities) 1.85% 1.69%
========== ==========
NET INTEREST MARGIN (net interest
income as a percentage of average
interest-earning assets) 2.01% 1.95%
========== ==========
- -----------------------------------------------------------------------------------------------------------------------------------
18
- -----------------------------------------------------------------------------------------------------------------------------------
(Dollar amounts in thousands) NINE MONTHS ENDED SEPTEMBER 30,
2002 2001
---------------------------------------- --------------------------------------
AVERAGE YIELD / AVERAGE YIELD /
BALANCE INTEREST RATE BALANCE INTEREST RATE
- -----------------------------------------------------------------------------------------------------------------------------------
INTEREST-EARNING ASSETS:
Taxable securities available for sale $ 594,141 $ 26,205 5.88% $ 455,466 $ 22,780 6.67%
Taxable corporate bonds available for sale 55,244 1,154 2.75% 56,279 2,403 5.63%
Tax-exempt securities available for sale 89,812 5,309 7.88% 90,414 5,499 8.11%
---------- ---------- ---------- ---------- ---------- ----------
739,197 32,668 5.89% 602,159 30,682 6.79%
---------- ---------- ---------- ---------- ---------- ----------
Mortgage loans 368,456 20,042 7.25% 445,420 25,398 7.60%
Other loans 75,924 3,970 6.99% 81,392 4,768 7.83%
---------- ---------- ---------- ---------- ---------- ----------
444,380 24,012 7.21% 526,812 30,166 7.64%
---------- ---------- ---------- ---------- ---------- ----------
Cash equivalents 10,120 100 1.32% 8,719 219 3.35%
FHLB stock 23,546 637 3.62% 20,926 1,058 6.74%
---------- ---------- ---------- ---------- ---------- ----------
33,666 737 2.93% 29,645 1,277 5.74%
---------- ---------- ---------- ---------- ---------- ----------
TOTAL INTEREST-EARNING ASSETS 1,217,243 57,417 6.29% 1,158,616 62,125 7.15%
Other noninterest-earning assets 73,307 -- -- 52,135 -- --
---------- ---------- ---------- ---------- ---------- ----------
Total assets $1,290,550 $ 57,417 5.93% $1,210,751 $ 62,125 6.84%
========== ========== ========== ========== ========== ==========
INTEREST-BEARING LIABILITIES:
Interest-bearing demand deposits $ 211,104 $ 2,305 1.46% $ 179,997 $ 2,950 2.19%
Time deposits 369,710 11,819 4.27% 331,419 14,160 5.71%
---------- ---------- ---------- ---------- ---------- ----------
580,814 14,124 3.25% 511,416 17,110 4.47%
---------- ---------- ---------- ---------- ---------- ----------
FHLB advances 462,662 19,184 5.47% 410,361 19,029 6.20%
Repurchase agreements & other borrowings 102,045 4,150 5.36% 166,995 7,628 6.11%
Preferred securities 24,175 1,670 9.21% 24,131 1,670 9.25%
---------- ---------- ---------- ---------- ---------- ----------
TOTAL INTEREST-BEARING LIABILITIES 1,169,696 39,128 4.44% 1,112,903 45,437 5.46%
Noninterest-bearing demand deposits 21,095 -- -- 15,720 -- --
Other noninterest-bearing liabilities 13,122 -- -- 8,044 -- --
---------- ---------- ---------- ---------- ---------- ----------
Total liabilities 1,203,913 39,128 4.31% 1,136,667 45,437 5.34%
Stockholders' equity 86,637 -- -- 74,084 -- --
---------- ---------- ---------- ---------- ---------- ----------
Total liabilities and equity $1,290,550 $ 39,128 4.02% $1,210,751 $ 45,437 5.02%
========== ========== ========== ========== ========== ==========
NET INTEREST INCOME $ 18,289 $ 16,688
========== ==========
INTEREST RATE SPREAD (difference between
weighted average rate on interest-earning
assets and interest-bearing liabilities) 1.85% 1.69%
========== ==========
NET INTEREST MARGIN (net interest
income as a percentage of average
interest-earning assets) 2.03% 1.98%
========== ==========
- ----------------------------------------------------------------------------------------------------------------------------------
19
ANALYSIS OF CHANGES IN NET INTEREST INCOME. The following tables analyze the
changes in interest income and interest expense, between the three and nine
month period ended September 30, 2002 and 2001, in terms of: (1) changes in
volume of interest-earning assets and interest-bearing liabilities and (2)
changes in yields and rates. The tables reflect the extent to which changes in
the Company's interest income and interest expense are attributable to changes
in rate (change in rate multiplied by prior period volume), changes in volume
(changes in volume multiplied by prior period rate) and changes attributable to
the combined impact of volume/rate (change in rate multiplied by change in
volume). The changes attributable to the combined impact of volume/rate are
allocated on a consistent basis between the volume and rate variances. Changes
in interest income on securities reflects the changes in interest income on a
fully tax equivalent basis.
The table analyzing changes in interest income between the three months ended
September 30, 2002 and 2001 is presented as follows:
- -----------------------------------------------------------------------------------------------------------------------------
(Dollar amounts in thousands) 2002 VERSUS 2001
INCREASE (DECREASE) DUE TO
---------------------------------------------------------
VOLUME RATE TOTAL
- -----------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME:
Securities $ 3,648 $ (1,057) $ 2,591
Loans (3,446) (469) (3,915)
Cash equivalents 10 (30) (20)
FHLB stock 33 (212) (179)
---------- ---------- ----------
Total interest-earning assets 245 (1,768) (1,523)
---------- ---------- ----------
INTEREST EXPENSE:
Deposits 685 (1,687) (1,002)
FHLB advances 636 (705) (69)
Repurchases & other borrowings (769) (186) (955)
Preferred securities 1 (1) --
---------- ---------- ----------
Total interest-bearing liabilities 553 (2,579) (2,026)
---------- ---------- ----------
NET INTEREST INCOME $ (308) $ 811 $ 503
========== ========== ==========
- -----------------------------------------------------------------------------------------------------------------------------
The table analyzing changes in interest income between the nine months ended
September 30, 2002 and 2001 is presented as follows:
- -----------------------------------------------------------------------------------------------------------------------------
(Dollar amounts in thousands) 2002 VERSUS 2001
INCREASE (DECREASE) DUE TO
---------------------------------------------------------
VOLUME RATE TOTAL
- -----------------------------------------------------------------------------------------------------------------------------
Interest income:
Securities $ 6,397 $ (4,411) $ 1,986
Loans (4,525) (1,629) (6,154)
Cash equivalents 31 (150) (119)
FHLB stock 119 (540) (421)
---------- ---------- ----------
Total interest-earning assets 2,022 (6,730) (4,708)
---------- ---------- ----------
INTEREST EXPENSE:
Deposits 2,111 (5,097) (2,986)
FHLB advances 2,285 (2,130) 155
Repurchases & other borrowings (2,713) (765) (3,478)
Preferred securities 3 (3) --
---------- ---------- ----------
Total interest-bearing liabilities 1,686 (7,995) (6,309)
---------- ---------- ----------
NET INTEREST INCOME $ 336 $ 1,265 $ 1,601
========== ========== ==========
- -----------------------------------------------------------------------------------------------------------------------------
20
ASSET AND LIABILITY MANAGEMENT
The primary objective of the Company's asset and liability management function
is to maximize the Company's net interest income while simultaneously
maintaining an acceptable level of interest rate risk given the Company's
operating environment, capital and liquidity requirements, performance
objectives and overall business focus. The principal determinant of the exposure
of the Company's earnings to interest rate risk is the timing difference between
the repricing or maturity of interest-earning assets and the repricing or
maturity of its interest-bearing liabilities. The Company's asset and liability
management policies are designed to decrease interest rate sensitivity primarily
by shortening the maturities of interest-earning assets while at the same time
extending the maturities of interest-bearing liabilities. The Board of Directors
of the Company continues to believe in strong asset/liability management in
order to insulate the Company from material and prolonged increases in interest
rates. As a result of this policy, the Company emphasizes a larger, more
diversified portfolio of residential mortgage loans in the form of
mortgage-backed securities. Mortgage-backed securities generally increase the
quality of the Company's assets by virtue of the insurance or guarantees that
back them, are more liquid than individual mortgage loans and may be used to
collateralize borrowings or other obligations of the Company.
The Company's Board of Directors has established an Asset and Liability
Management Committee consisting of four outside directors, the President and
Chief Executive Officer, Group Senior Vice President/Chief Financial Officer,
Group Senior Vice President/Operations, Group Senior Vice President/Lending and
Group Senior Vice President/Administration. This committee, which meets
quarterly, generally monitors various asset and liability management policies
and strategies which were implemented by the Company over the past few years.
These strategies have included: (i) an emphasis on the investment in
adjustable-rate and shorter duration mortgage-backed securities; (ii) an
emphasis on the origination of single-family residential adjustable-rate
mortgages (ARMs), residential construction loans and commercial real estate
loans, which generally have adjustable or floating interest rates and/or shorter
maturities than traditional single-family residential loans, and consumer loans,
which generally have shorter terms and higher interest rates than mortgage loans
and (iii) increase the duration of the liability base of the Company by
extending the maturities of savings deposits, borrowed funds and repurchase
agreements.
As of September 30, 2002, the implementation of these asset and liability
initiatives resulted in the following: (i) $159.9 million or 44.4% of the
Company's total loan portfolio had adjustable interest rates or maturities of 12
months or less; (ii) $66.6 million or 37.1% of the Company's portfolio of
single-family residential mortgage loans (including residential construction
loans) consisted of ARMs; and (iii) $291.2 million or 44.9% of the Company's
portfolio of mortgage-backed securities were secured by ARMs.
The implementation of the foregoing asset and liability initiatives and
strategies, combined with other external factors such as demand for the
Company's products and economic and interest rate environments in general, has
resulted in the Company being able to maintain a one-year interest rate
sensitivity gap ranging between a positive 5.0% of total assets to a negative
15.0% of total assets. The one-year interest rate sensitivity gap is defined as
the difference between the Company's interest-earning assets which are scheduled
to mature or reprice within one year and its interest-bearing liabilities which
are scheduled to mature or reprice within one year. At September 30, 2002, the
Company's interest-earning assets maturing or repricing within one year totaled
$488.9 million while the Company's interest-bearing liabilities maturing or
repricing within one-year totaled $566.3 million, providing a deficiency of
interest-earning assets over interest-bearing liabilities of $77.4 million or a
negative 5.9% of total assets. At September 30, 2002, the percentage of the
Company's assets to liabilities maturing or repricing within one year was 86.3%.
The Company does not presently anticipate that its one-year interest rate
sensitivity gap will fluctuate beyond a range of a positive 5.0% of total assets
to a negative 15.0% of total assets.
The one year interest rate sensitivity gap has been the most common industry
standard used to measure an institution's interest rate risk position. The
Company also utilizes income simulation modeling in measuring its interest rate
risk and managing its interest rate sensitivity. The Asset and Liability
Management Committee of the Company believes that simulation modeling enables
the Company to more accurately evaluate and manage the possible effects on net
interest income due to the exposure to changing market interest rates, the slope
of the yield curve and different prepayment and decay assumptions under various
interest rate scenarios. At September 30,
21
2002, the Company's simulation model indicated that the Company's statement of
financial condition is liability sensitive. As such, in a 300 basis point
gradually rising rate environment over 24 months, with minor changes in the
statement of condition and limited reinvestment changes, net interest income is
projected to increase by approximately 7.6% over such 24 month period.
LIQUIDITY
The Company's primary sources of funds generally have been deposits obtained
through the offices of the Bank, borrowings from the FHLB, repurchase agreement
borrowings and amortization and prepayments of outstanding loans and maturing
investment securities. During the nine months ended September 30, 2002, the
Company used its sources of funds primarily to purchase securities and to a
lesser extent, fund loan commitments. As of such date, the Company had
outstanding loan commitments totaling $13.9 million, unused lines of credit
totaling $37.8 million and $13.6 million of undisbursed loans in process.
At September 30, 2002, certificates of deposit amounted to $359.8 million or
60.3% of the Company's total consolidated deposits, including $240.1 million,
which were scheduled to mature by September 30, 2003. At the same date, the
total amount of borrowed funds which were scheduled to mature by September 30,
2003 was $271.2 million. Management of the Company believes that it has adequate
resources to fund all of its commitments, that all of its commitments will be
funded by September 30, 2003 and that, based upon past experience and current
pricing policies, it can adjust the rates of savings certificates to retain a
substantial portion of its maturing certificates and also, to the extent deemed
necessary, refinance the maturing FHLB advances and repurchase agreements.
REGULATORY CAPITAL REQUIREMENTS
Current regulatory requirements specify that the Bank and similar institutions
must maintain tangible capital equal to 1.5% of adjusted total assets, core
capital equal to 4% of adjusted total assets and risk-based capital equal to 8%
of risk-weighted assets. The OTS may require higher core capital ratios if
warranted, and institutions are to maintain capital levels consistent with their
risk exposures. Both the FDIC and the OTS reserve the right to apply this higher
standard to any insured financial institution when considering an institution's
capital adequacy. At September 30, 2002, the Bank was in compliance with all
regulatory capital requirements with tangible, core and risk-based capital
ratios of 6.4%, 6.4% and 14.7%, respectively.
The Management Discussion and Analysis section of this Form 10-Q contains
certain forward-looking statements (as defined in the Private Securities
Litigation Reform Act of 1995). These forward-looking statements may involve
significant risks and uncertainties. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, actual
results may differ materially from the results in these forward-looking
statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- -------------------------------------------------------------------
Quantitative and qualitative disclosures about market risk are presented at
December 31, 2001 in Item 7A of the Company's Annual Report on Form 10-K, filed
with the SEC on March 28, 2002. Management believes there have been no material
changes in the Company's market risk since December 31, 2001.
ITEM 4. CONTROLS AND PROCEDURES
- -------------------------------
As of September 30, 2002, an evaluation was performed under the supervision and
with the participation of the Company's management, including the Chief
Executive Officer and Chief Financial Officer, on the effectiveness of the
design and operation of the Company's disclosure controls and procedures. Based
on that evaluation, the Company's management, including the Chief Executive
Officer and Chief Financial Officer, concluded that the Company's disclosure
controls and procedures were effective as of September 30, 2002. There have been
no significant changes in the Company's internal controls or in other factors
that could significantly affect internal controls subsequent to September 30,
2002.
22
Disclosure controls and procedures are the controls and other procedures of the
Company that are designed to ensure that the information required to be
disclosed by the Company in its reports filed or submitted under the Securities
Exchange Act of 1934, as amended ("Exchange Act") is recorded, processed,
summarized and reported, within the time periods specified in the Securities and
Exchange Commission's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by the Company in its reports filed under
the Exchange Act is accumulated and communicated to the Company's management,
including the principal executive officer and principal financial officer, as
appropriate to allow timely decisions regarding required disclosure.
23
PART II - OTHER INFORMATION
- ---------------------------
ITEM 1. LEGAL PROCEEDINGS
- --------------------------
The Company and its subsidiaries are involved in various legal proceedings
occurring in the ordinary course of business. It is the opinion of management,
after consultation with legal counsel, that these matters will not materially
affect the Company's consolidated financial position or results of operations.
ITEM 2. CHANGES IN SECURITIES
- ------------------------------
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
- ----------------------------------------
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
None.
ITEM 5. OTHER INFORMATION
- --------------------------
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a) Exhibits:
99.1 Certification of Chief Executive Officer Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)
99.2 Certification of Chief Financial Officer Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.1350)
(b) Form 8-K - The Company filed a Form 8-K dated September 17, 2002 to report
a six for five stock split and a quarterly cash dividend of $0.10 per
share payable on October 25, 2002 to the stockholders of record at the
close of business on September 30, 2002.
24
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.
ESB FINANCIAL CORPORATION
Date: November 12, 2002 By: /s/ Charlotte A. Zuschlag
-------------------------------------------
Charlotte A. Zuschlag
President and Chief Executive Officer
Date: November 12, 2002 By: /s/ Charles P. Evanoski
-------------------------------------------
Charles P. Evanoski
Group Senior Vice President and
Chief Financial Officer
25
CERTIFICATIONS
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Charlotte A. Zuschlag, certify that:
1. I have reviewed this quarterly report on Form 10-Q of ESB Financial
Corporation (the "Registrant");
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Registrant as of, and for, the periods presented
in this quarterly report;
4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant
and we have:
a) designed such disclosure controls and procedures to
ensure that material information relating to the
Registrant, including its consolidated subsidiaries, is
made known to us by others within those entities,
particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the Registrant's
disclosure controls and procedures as of a date within
90 days prior to the filing date of this quarterly
report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
5. The Registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the Registrant's auditors
and the audit committee of the Registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or operation
of internal controls which could adversely affect the
Registrant's ability to record, process, summarize and
report financial data and have identified for the
Registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the Registrant's internal controls; and
6. The Registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 12, 2002 By: /s/ Charlotte A. Zuschlag
--------------------------------
Charlotte A. Zuschlag
President and Chief Executive Officer
26
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Charles P. Evanoski, certify that:
1. I have reviewed this quarterly report on Form 10-Q of ESB Financial
Corporation (the "Registrant");
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Registrant as of, and for, the periods presented
in this quarterly report;
4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant
and we have:
a. designed such disclosure controls and procedures to
ensure that material information relating to the
Registrant, including its consolidated subsidiaries, is
made known to us by others within those entities,
particularly during the period in which this quarterly
report is being prepared;
b. evaluated the effectiveness of the Registrant's
disclosure controls and procedures as of a date within
90 days prior to the filing date of this quarterly
report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
5. The Registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the Registrant's auditors
and the audit committee of the Registrant's board of directors (or
persons performing the equivalent function):
a. all significant deficiencies in the design or operation
of internal controls which could adversely affect the
Registrant's ability to record, process, summarize and
report financial data and have identified for the
Registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves
management or other employees who have a significant
role in the Registrant's internal controls; and
6. The Registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 12, 2002 By: /s/ Charles P. Evanoski
----------------------------------
Charles P. Evanoski
Group Senior Vice President and
Chief Financial Officer
27