SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2002
--------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-14854
Salisbury Bancorp, Inc.
--------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Connecticut 06-1514263
------------------------------- ------------------------------------
(State or Other Jurisdiction of
Incorporation or Organization) (I.R.S. Employer Identification No.)
5 Bissell Street Lakeville Connecticut 06039
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant"s Telephone Number, Including Area Code (860) 435-9801
------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 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 [ ]
Transitional Small Business Disclosure Format: Yes [ ] No [X]
Documents Incorporated by Reference: None
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer"s classes
of common stock, as of November 1, 2002
1,423,238
---------
1
SALISBURY BANCORP, INC.
TABLE OF CONTENTS
Part I. FINANCIAL INFORMATION Page
Item 1. Condensed Financial Statements:
Condensed Consolidated Balance Sheets -September 30, 2002 (unaudited)
and December 31, 2001 4
Condensed Consolidated Statements of Income -three and nine months ended
September 30, 2002 and 2001 5
(unaudited)
Condensed Consolidated Statements of Cash Flows -nine months ended September 30, 2002 and 2001 6
(unaudited)
Notes to Consolidated Financial Statements 8
Item 2. Management"s Discussion and Analysis 12
Item 3. Controls and Procedures 20
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 2. Changes in Securities and Use of Proceeds 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
Signatures 22
Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 23
2
Part I--FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
3
SALISBURY BANCORP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except per share data)
SEPTEMBER 30, DECEMBER 31,
2002 2001
---- ----
(unaudited)
ASSETS
Cash & due from banks:
Non-Interest Bearing $ 5,793 $ 7,184
Interest Bearing 85 258
Federal funds sold 0 18,150
Money market mutual funds 527 618
--------- ---------
Cash and cash equivalents 6,405 26,210
Investment Securities:
Held to maturity securities at amortized cost 324 400
Available-for-sale securities at market value 129,853 102,248
Federal Home Loan Bank stock, at cost 2,945 2,945
Loans:
Commercial, financial and agricultural 9,269 10,797
Real estate-construction and land development 4,653 3,935
Real estate-residential 98,860 102,201
Real estate-commercial 17,258 17,423
Consumer 8,436 10,030
Other 190 125
Allowance for loan losses (1,383) (1,445)
--------- ---------
Net loans 137,283 143,066
Bank premises & equipment 2,774 2,683
Investment in real estate 75 75
Accrued interest receivable 1,851 1,681
Intangible assets on branch acquisition 0 3,227
Goodwill 2,358 0
Core deposit intangible 817 0
Due from broker 477 0
Other assets 455 1,067
--------- ---------
Total Assets $ 285,617 $ 283,602
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand $ 35,724 $ 37,702
Savings & NOW 58,987 48,435
Money Market 40,919 48,897
Time 67,118 66,317
--------- ---------
Total Deposits 202,748 201,351
Federal Home Loan Bank advances 53,151 53,004
Due to broker 0 4,204
Other liabilities 2,733 1,680
--------- ---------
Total Liabilities 258,632 260,239
--------- ---------
Shareholders' equity:
Common stock, par value $.10 per share;
Authorized 3,000,000 shares
Issued and outstanding shares: 1,423,238 at September 30, 2002 142 142
and 1,422,358 at December 31, 2001
Additional paid-in capital 2,304 2,281
Retained earnings 22,759 21,219
Accumulated other comprehensive income (loss) 1,780 (279)
--------- ---------
Total Shareholders' Equity 26,985 23,363
--------- ---------
Total Liabilities and Shareholders' Equity $ 285,617 $ 283,602
========= =========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
4
SALISBURY BANCORP, INC.
-----------------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(amounts in thousands, except per share data)
September 30, 2002 and 2001
(unaudited)
Nine Months Ended Three Months Ended
September 30 September 30
2002 2001 2002 2001
---- ---- ---- ----
Interest and dividend income:
Interest and fees on loans $ 7,373 $ 8,590 $ 2,366 $ 2,842
Interest and dividends on securities:
Taxable 3,070 3,147 1,062 1,043
Tax-exempt 1,488 687 523 254
Dividends on equity securities 144 161 72 47
Other interest 97 239 25 124
------- ------- ------- -------
Total interest and dividend income 12,172 12,824 4,048 4,310
------- ------- ------- -------
Interest expense:
Interest on deposits 3,145 4,067 1,007 1,290
Interest on Federal Home Loan Bank advances 2,143 2,267 720 764
------- ------- ------- -------
Total interest expense 5,288 6,334 1,727 2,054
------- ------- ------- -------
Net interest and dividend income 6,884 6,490 2,321 2,256
Provision for loan losses 112 112 37 37
------- ------- ------- -------
Net interest and dividend income after provision
for loan losses 6,772 6,378 2,284 2,219
------- ------- ------- -------
Other income:
Trust department income 767 751 256 240
Service charges on deposit accounts 352 353 117 107
Gain on sale of available-for-sale securities 465 88 259 45
Other income 664 543 270 208
------- ------- ------- -------
Total other income 2,248 1,735 902 600
------- ------- ------- -------
Other expense:
Salaries and employee benefits 3,168 2,833 1,056 969
Occupancy expense 225 162 77 47
Equipment expense 361 367 120 121
Data processing 382 388 129
135
Amortization of core deposit intangible 51 7
17 7
Other expense 1,444 1,118 481 362
------- ------- ------- -------
Total other expense 5,631 4,875 1,880 1,641
------- ------- ------- -------
Income before income taxes 3,389 3,238 1,306 1,178
Income taxes 909 1,067 328 384
------- ------- ------- -------
Net income $ 2,480 $ 2,171 $ 978 $ 794
======= ======= ======= =======
Earnings per common share outstanding $ 1.74 $ 1.51 $ .69 $ .56
======= ======= ======= =======
Earnings per common share outstanding,
assuming dilution $ 1.74 $ 1.51 $ .69 $ .56
======= ======= ======= =======
Dividends per share $ .66 $ .63 $ .22 $ .21
======= ======= ======= =======
The accompanying notes are an integral part of these
condensed consolidated financial statements.
5
SALISBURY BANCORP, INC.
-----------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(amounts in thousands)
Nine months ended September 30, 2002 and 2001
(unaudited)
2002 2001
---- ----
Cash flows from operating activities:
Net income $ 2,480 $ 2,171
Adjustments to reconcile net income to net cash provided by
operating activities:
Accretion of securities, net 380 (55)
Gain on sales of available-for-sale securities, net (465) (88)
Provision for loan losses 112 112
Depreciation and amortization 232 261
Amortization of core deposit intangible 52 7
Accretion of fair value adjustment on deposits (90) (21)
(Increase) decrease in interest receivable (170) 192
(Increase) decrease in prepaid expenses 46 (68)
(Increase) decrease in other assets 222
74
Increase in taxes payable 153 0
Increase (decrease) in accrued expenses (67) 47
Decrease in interest payable (28) (24)
Increase (decrease) in other liabilities 10 (16)
------- -------
Net cash provided by operating activities 2,867 2,592
Cash flows from investing activities:
Purchase of Federal Home Loan Bank stock (0) (15)
Purchases of available-for-sale securities (88,594) (58,599)
Proceeds from sales of available-for-sale securities 37,174 40,555
Proceeds from maturities of available-for-sale securities 22,600 12,330
Proceeds from maturities of held-to-maturity securities 68 7
Net (increase) decrease in loans 5,657 8,037
Recoveries of loans previously charged-off 14 101
Capital expenditures (323) (197)
------- -------
Net cash used in investing activities (23,404) (13,855)
------- -------
The accompanying notes are an integral part of these
condensed consolidated financial statements.
6
SALISBURY BANCORP, INC.
-----------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(amounts in thousands)
Nine months ended September 30, 2002 and 2001
(unaudited)
(continued)
2002 2001
---- ----
Cash flows from financing activities:
Net increase in deposits 1,487 23,595
Advances from Federal Home Loan Bank 1,005 10,000
Principal payments on advances from Federal Home Loan Bank (857) (4,028)
Dividends paid (925) (1,156)
Net repurchase of common stock 22 (691)
-------- --------
Net cash provided by financing activities 732 27,720
-------- --------
Net decrease in cash and cash equivalents (19,805) 16,457
Cash and cash equivalents at beginning of period 26,210 13,759
-------- --------
Cash and cash equivalents at end of period $ 6,405 $ 32,216
======== ========
Supplemental disclosures:
Interest paid $ 5,316 $ 6,358
Income taxes paid 680 1,137
The accompanying notes are an integral part of these
condensed consolidated financial statements.
7
SALISBURY BANCORP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 - BASIS OF PRESENTATION
------------------------------
The accompanying condensed interim financial statements are unaudited and
include the accounts of Salisbury Bancorp, Inc. (the "Company"), those of
Salisbury Bank and Trust Company (the "Bank"), its wholly-owned subsidiary and
the Bank's subsidiary, S.B.T. Realty, Inc. The consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to SEC Form 10-QSB.
Accordingly, they do not include all the information and footnotes required by
accounting principles generally accepted in the United States of America (GAAP)
for complete financial statements. All significant intercompany accounts and
transactions have been eliminated in the consolidation. These financial
statements reflect, in the opinion of Management, all adjustments, consisting of
only normal recurring adjustments, necessary for a fair presentation of the
Company's financial position and the results of its operations and its cash
flows for the periods presented. Operating results for the nine months ended
September 30, 2002 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2002. These financial statements
should be read in conjunction with the financial statements and notes thereto
included in the Company's 2001 Annual Report on Form 10-KSB.
The year-end condensed balance sheet data was derived from audited financial
statements, but does not include all disclosures required by GAAP.
NOTE 2 -COMPREHENSIVE INCOME
----------------------------
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" establishes standards for disclosure of comprehensive income, which
includes net income and any changes in equity from non-owner sources that are
not recorded in the income statement (such as changes in the net unrealized
gains (losses) on securities). The purpose of reporting comprehensive income is
to report a measure of all changes in equity that result from recognized
transactions and other economic events of the period other than transactions
with owners in their capacity as owners. The Company's one source of other
comprehensive income is the net unrealized gain (loss) on securities.
Comprehensive Income
Three months ended Nine months ended
September 30, September 30,
2002 2001 2002 2001
---- ---- ---- ----
Net income $ 978 $ 794 $2,480 $2,171
Net unrealized (losses) gains
on securities during period 964 625 2,059 931
------ ------ ------ ------
Comprehensive income $1,942 $1,419 $4,539 $3,102
====== ====== ====== ======
8
NOTE 3 - COMPUTATION OF EARNINGS PER SHARE
The Company has computed and presented earnings per share ("EPS") in accordance
with Statement of Financial Accounting Standards No. 128. Reconciliation of the
numerators and the denominators of the basic and diluted per share computation
for net income are as follows:
(amounts in thousands, except per share data)
(unaudited)
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Nine months ended September 30, 2002
Basic EPS
Net income and income available to common stockholders $2,480 1,423 $ 1.74
Effect of dilutive securities, options 0
------ -----
Diluted EPS
Income available to common stockholders and assumed
conversions $2,480 1,423 $ 1.74
====== =====
Nine months ended September 30, 2001
Basic EPS
Net income and income available to common stockholders $2,177 1,435 $ 1.51
Effect of dilutive securities, options 0
------ -----
Diluted EPS
Income available to common stockholders and assumed
conversions $2,177 1,435 $ 1.51
====== =====
(amounts in thousands, except per share data)
(unaudited)
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Three months ended September 30, 2002
Basic EPS
Net income and income available to common stockholders $ 978 1,423 $ .69
Effect of dilutive securities, options 0
------ -----
Diluted EPS
Income available to common stockholders and assumed
conversions
$ 978 1,423 $ .69
====== =====
Three months ended September 30, 2001
Basic EPS
Net income and income available to common stockholders $ 794 1,424 $ .56
Effect of dilutive securities, options 0
------ -----
Diluted EPS
Income available to common stockholders and assumed
conversions $ 794 1,424 $ .56
====== =====
9
NOTE 4 - IMPACT OF NEW ACCOUNTING STANDARDS
-------------------------------------------
FASB has issued SFAS No. 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities. This Statement replaces
SFAS No. 125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, and rescinds SFAS Statement No. 127, "Deferral
of the Effective Date of Certain Provisions of FASB Statement No. 125". SFAS No.
140 provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities. This statement provides
consistent standards for distinguishing transfers of financial assets that are
sales from transfers that are secured borrowings. This statement is effective
for transfers and servicing of financial assets and extinguishments of
liabilities occurring after March 31, 2001; however, the disclosure provisions
are effective for fiscal years ending after December 15, 2000. In management's
opinion, the adoption of SFAS No. 140 did not have a material effect on the
Company's consolidated financial statements.
Statement of Financial Accounting Standards No. 141 improves the consistency of
the accounting and reporting for business combinations by requiring that all
business combinations be accounted for under a single method - the purchase
method. Use of the pooling-of-interests method is no longer permitted. Statement
No. 141 requires that the purchase method be used for business combinations
initiated after June 30, 2001. The impact of adopting this Statement on the
consolidated financial statements was not material.
Statement of Financial Accounting Standards No. 142 requires that goodwill no
longer be amortized to earnings, but instead be reviewed for impairment. The
amortization of goodwill ceases upon adoption of the Statement, which for most
companies, was January 1, 2002. The impact of adopting this Statement on the
consolidated financial statements was not material.
In October 2002, the FASB issued SFAS No. 147 "Acquisitions of Certain Financial
Institutions", an Amendment of SFAS Nos. 72 and 144 and FASB Interpretation No.
9. SFAS No. 72 "Accounting for Certain Acquisitions of Banking or Thrift
Institutions" and FASB Interpretation No. 9 "Applying APB Opinions No. 16 and 17
When a Savings and Loan Association or a Similar Institution Is Acquired in a
Business Combination Accounted for by the Purchase Method" provided interpretive
guidance on the application of the purchase method to acquisitions of financial
institutions. Except for transactions between two or more mutual enterprises,
FASB Statement No. 147 removes acquisitions of financial institutions from the
scope of both Statement 72 and Interpretation 9 and requires that those
transactions be accounted for in accordance with FASB Statements No. 141
"Business Combinations" and No. 142 "Goodwill and Other Intangible Assets".
Thus, the requirement in paragraph 5 of Statement 72 to recognize (and
subsequently amortize) any excess of the fair value of liabilities assumed over
the fair value of tangible and identifiable intangible assets acquired as an
unidentifiable intangible asset no longer applies to acquisitions within the
scope of FASB Statement No. 147. In addition, FASB Statement No. 147 amends FASB
Statement No. 144 "Accounting for the Impairment or Disposal of Long-Lived
Assets" to include in its scope long-term customer-relationship intangible
assets of financial institutions such as depositor- and borrower-relationship
intangible assets and credit cardholder intangible assets. Consequently, those
intangible assets are subject to the same undiscounted cash flow recoverability
test and impairment loss recognition and measurement provisions that FASB
Statement No. 144 requires for other long-lived assets that are held and used.
Paragraph 5 of FASB Statement No. 147, which relates to the application of the
purchase method of accounting, is effective for acquisitions for which the date
of acquisition is on or after October 1, 2002. The provisions in paragraph 6
related to accounting for the impairment or disposal of certain long-term
customer -relationship intangible assets are effective on October 1, 2002.
Transition provisions for previously recognized unidentifiable intangible assets
in paragraphs 8-14 are effective on October 1, 2002, with earlier application
permitted.
In accordance with paragraph 9 of FASB Statement No. 147, the Company, has
reclassified, as of September 30, 2002 its recognized unidentifiable intangible
asset related to branch acquisition(s). This asset was reclassified as goodwill
(reclassified goodwill). The amount reclassified was $2,357,884, the carrying
amount as of January 1, 2002. The reclassified goodwill is being accounted for
and reported prospectively as goodwill under FASB Statement No. 142, with no
amortization expense. Accordingly, the consolidated financial statements for the
nine-months ended September 30, 2002 do not reflect amortization in the amount
of $71,572 that would have been recorded if FASB Statement No. 147 had not been
issued.
10
FASB Statement No. 147 requires that the Company's reclassified goodwill shall
be tested for impairment as of January 1, 2002 and that such test be completed
by December 31, 2002.
Also in accordance with paragraph 9 of FASB Statement No. 147, as of September
30, 2002, the Company reclassified its core deposit intangible asset and
accounted for it as an asset apart from the unidentifiable intangible asset and
not as goodwill.
The Company has no goodwill other than reclassified goodwill. The test for
impairment of the reclassified goodwill will be completed by December 31, 2002.
The effect of the Company's adoption of SFAS No. 147 was to increase net income
for the nine and three months periods ended September 30, 2002 by $43,692 and
$14,564, respectively.
The Company's amortization expense related to reclassified goodwill was $3,974
and $3,974 for the nine and three month periods ended September 30, 2001,
respectively.
11
Part I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis
12
Overview
Salisbury Bancorp, Inc. (the "Company"), a Connecticut corporation, is the
holding company for Salisbury Bank and Trust Company, (the "Bank") which is
headquartered in Lakeville, Connecticut. The Company's sole subsidiary is the
Bank, which has a full service Trust Department and offers commercial banking
products and services through four full service offices in the towns of Canaan,
Lakeville, Salisbury and Sharon, Connecticut.
The following is Management's discussion of the financial condition and results
of operations on a condensed consolidated basis of Salisbury Bancorp, Inc. which
includes the accounts of Salisbury Bank and Trust Company. Management's
discussion should be read in conjunction with Salisbury Bancorp, Inc.'s Annual
Report on Form 10-KSB for the year ended December 31, 2001.
The Company continues to focus on providing a strong foundation for building
shareholder value and for serving its customers, and therefore, remains
committed to investing in the technological and human resources necessary to
implement new personalized financial products and to deliver them with the
highest quality of service. The Bank's internet product which is called "SBTNET"
for example, was introduced just over a year ago and now has approximately 1300
customers using the product. Also, as previously reported the Bank expanded its
online services to include "SBT V-CARD" and "SBT PAL" earlier this year. These
additional services have proven popular with our customers. The Bank plans to
continue enhancing its Internet banking products for customers.
Net income for the nine months ended September 30, 2002 increased 14.23% to
$2,480,000 or $1.74 per diluted share as compared to net income of $2,171,000 or
$1.51 per diluted share for the nine months ended September 30, 2001. The
improvement in net income is primarily the result of an increase in net interest
and dividend income, an increase in gains on sales of available-for-sale
securities coupled with reductions in interest expense, as well as a reduction
in income taxes that resulted from increased income from tax exempt securities.
Total assets at September 30, 2002 were $285,617,000 compared to $283,602,000 at
December 31, 2001. This represents an increase of $2,015,000 or just less than
one percent. As reported previously, the asset mix continues to change when
comparing the balance sheet of December 31, 2001 to the balance sheet of
September 30, 2002, as the cash received from the acquisition of the Canaan
branch that was primarily invested in Federal Funds at December 31, 2001 has now
been invested in the securities portfolio which has increased $27,529,000 or
26.07% to $133,122,000 at September 30, 2002 compared to $105,593,000 at
December 31, 2001. This increase in the securities portfolio has also been the
result of a continuing economic environment of generally lower interest rates
that targets refinancing opportunities to longer term fixed rate products that
are offered by the secondary mortgage market. This has resulted in a decrease in
total net loans outstanding of 4.04% to $137,283,000 at September 30, 2002 from
$143,066,000 at December 31, 2001. During the first nine months of 2002,
nonperforming loans increased $ 494,000 to $1,081,000. This compares to total
nonperforming loans of $587,000 at December 31, 2001. Although this increase
represents an increase of 84.16%, total nonperforming loans continue to be less
than one percent of total outstanding loans and is not considered to be
significant or indicative of any trend. At September 30, 2002, the Company does
not have any assets classified as Other Real Estate Owned; therefore, total
nonperforming loans represent total nonperforming assets as well. Deposits at
September 30, 2002 totaled $202,748,000 which represents a slight increase over
December 31, 2001 total deposits of $ 201,351,000. Federal Home Loan Bank
advances totaled $53,151,000 at September 30, 2002 compared to $53,004,000 at
December 31, 2001. This slight increase represents overnight borrowings used to
fund some daily cash flow needs of the Company.
As a result of the Company's financial performance, the Board of Directors
declared a third quarter cash dividend of $.22 per common share. This compares
to a cash dividend of $.21 per common share that was paid for the corresponding
period of 2001. This dividend was paid on October 25, 2002 to shareholders of
record as of September 30, 2002. Dividends year-to-date total $.66 per common
share for 2002 and represent a payout ratio of approximately 37.93%. This
compares to dividends year-to-date of $.63 for the same nine month period in
2001. The Company's risk based capital ratios at September 30, 2002, which
included the risk weighted assets and capital of the Salisbury Bank and Trust
Company were 15.85% for tier 1 capital and 16.88% for total capital. The
Company's leverage ratio was 7.81% at September 30, 2002.
13
NINE MONTHS ENDED SEPTEMBER 30, 2002
AS COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2001
Net Interest Income
-------------------
The Company's earnings are primarily dependent upon net interest income and
noninterest income from its community banking operations with the net interest
income being the largest component of the Company' revenues. Net interest and
dividend income is the difference between interest and dividends earned on the
loan and securities portfolios and interest paid on deposits and advances from
the Federal Home Loan Bank. Noninterest income is primarily derived from the
Trust Department and from service charges and other fees related to deposit and
loan accounts. For the following discussion, net interest income is presented on
a fully taxable-equivalent ("FTE") basis. FTE interest income restates reported
interest income on tax exempt loans and securities as if such interest were
taxed at the Company's federal tax rate of 34% for all periods presented.
(amounts in thousands)(unaudited)
Nine months ended September 30 2002 2001
---- ----
Interest and Dividend Income $ 12,172 $ 12,824
(financial statements)
Tax Equivalent Adjustment 767 354
Total Interest Income (on an FTE basis) 12,939 13,178
Interest Expense (5,288) (6,334)
-------- --------
Net Interest Income-FTE $ 7,651 $ 6,844
-------- --------
Interest and dividend income on an FTE basis for the nine months ended September
30, 2002 totaled $12,939,000 as compared to $13,178,000 for the same time period
in 2001. This is a decrease of $239,000 or 1.81%. Although there is an increase
in earning assets, this decrease in interest and dividend income is primarily
the result of an economic environment of generally lower interest rates. A
continuing change in the mix of earnings assets which reflects an increase in
tax exempt securities has resulted in a significant increase in the tax
equivalent adjustment to $767,000 for the nine months ended September 30, 2002
as compared to $354,000 for the same period in 2001. This is an increase of
$413,000 or approximately 117%.
Interest expense on deposits for the first nine months of 2002 decreased
$922,000 or 22.67% and totaled $3,145,000. This compares to $4,067,000 for the
corresponding period in 2001. Although deposits increased, primarily as the
result of the Canaan Branch acquisition during the fourth quarter of 2001,
generally lower interest rates resulted in the decrease in interest expense.
Interest expense for Federal Home Loan Bank advances decreased $124,000 or 5.47%
when comparing the nine month period ended September 30, 2002 to the same nine
month period in 2001. There was an increase in borrowings of $147,000 to
$53,151,000 at September 30, 2002, when compared to total borrowings of
$53,004,000 at September 30, 2001, however, the average of borrowed funds during
the nine month period ended September 30, 2002 is less than the average of
borrowed funds for the corresponding period in 2001, which attributes to the
decrease in interest expense for borrowed funds. Although interest margins
continue to be pressured by generally lower interest rates and by aggressive
competition, net interest income (on an FTE basis) increased $807,000 or 11.80%
and totaled $7,651,000 at September 30, 2002, compared to $6,844,000 at
September 30, 2001.
Noninterest Income
------------------
Noninterest income totaled $2,248,000 for the nine months ended September 30,
2002 as compared to $1,735,000 for the nine months ended September 30, 2001.
Trust Department income increased slightly to $767,000 from $751,000. Service
charges decreased $1,000 and totaled $352,000 at September 30, 2002. This
compares to total services charges of $353,000 at September 30, 2001. Gains on
sales of available-for-sale securities totaled $465,000 at September 30, 2002.
This represents an increase of $377,000 or 428% when comparing total gains on
sales of available-for-sale securities of $88,000 at September 30, 2001.
Movement in the markets have presented opportunities for the Company to enhance
the
14
return from the securities portfolio which has resulted in this increase. Other
income increased $121,000 or 22.28% to $664,000 at September 30, 2002. This
compares to total other income of $543,000 at September 30, 2001. This increase
is primarily the result of increased fees generated from the refinancing
activities in the secondary mortgage market
Noninterest Expense
-------------------
Noninterest expense increased 15.51% to $5,631,000 for the first nine months of
2002 as compared to $4,875,000 for the corresponding period in 2001. Salaries
and employee benefits totaled $3,168,000 for the nine month period ended
September 30, 2002 compared to $2,833,000 for the same period in 2001. This is
an increase of $335,000 or 11.83% and is primarily the result of the addition of
staff for the Canaan Branch that was opened in September 2001 coupled with the
additional staff that also was hired to service the increase in new business at
the Bank's other facilities. Annual pay raises and the increasing costs of
employee benefits have also contributed to the increased expense. Occupancy and
equipment expenses increased $57,000 or 10.78% to $586,000. This compares to
total occupancy and equipment expense of $529,000 for the same nine months
period in 2001. The increase is primarily the result of expenses associated with
having an additional office to maintain. The Company has also incurred some
onetime maintenance costs relating to unscheduled repairs at its other
facilities. Amortization expense of the "Core Deposit Intangible" assets
associated with the Canaan Branch acquisition totaled $51,000 for the nine
months ended September 30, 2002. This compares to amortization expense of $7,000
at September 30, 2001. The expense for 2002 represents a full nine months of
amortization while the total expense for 2001 only represents one partial month
because the acquisition was completed in September 2001. Other operating
expenses totaled $1,444,000 for the period ended September 30, 2002, compared to
other operating expenses totaling $1,118,000 for the corresponding period in
2001. The increase of $326,000 or 29.16% is primarily the result of additional
expenses relating to the operation of the Canaan Branch acquired last year
coupled with increased expenses relating to Trust operations as well as normal
increases in expenses associated with the operation of the Company.
Income Taxes
------------
The income tax provision for the first nine months of 2002 totaled $909,000 in
comparison to $1,067,000 for the corresponding period in 2001. This decrease is
primarily the result of the impact of an increase in tax exempt interest income
earned from the securities portfolio.
Net Income
----------
Overall, net income totaled $2,480,000 for the nine months ended September
30,2002. This compares to net income of $2,171,000 for the same period in 2001.
This is an increase of $309,000 or 14.23% and represents earnings of $1.74 per
diluted share. This compares to earnings per diluted share of $1.51 for the same
period in 2001. The improvement in net income is primarily a reflection of an
increase in interest earning assets, which has resulted in an increase in total
net interest income.
15
THREE MONTHS ENDED SEPTEMBER 30, 2002
AS COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2001
For the following discussion, interest income is presented on a fully taxable
equivalent ("FTE") basis. FTE interest restates reported interest income on
tax-exempt loans and securities as if such interest were taxed at the Company's
federal income tax rate of 34% for all periods presented.
(amounts in thousands)(unaudited)
Three months ended September 30 2002 2001
---- ----
Interest and Dividend Income $ 4,048 $ 4,310
(financial statements)
Tax Equivalent Adjustment 269 131
Total interest and dividend income (on an FTE basis) 4,317 4,441
Interest Expense (1,727) (2,054)
------- -------
Net Interest and Dividend Income-FTE $ 2,590 $ 2,387
------- -------
Net Interest Income
-------------------
Interest and dividend income on a FTE basis equaled $4,317,000 for the three
months ended September 30, 2002 as compared to $4,441,000 for the same period in
2001. Although there is an increase in earning assets , this decrease in
interest and dividend income is primarily the result of an economic environment
of generally lower interest rates. As mentioned previously, a change in the mix
of earning assets has resulted in an increased portfolio of tax exempt
securities which in turn has resulted in a significant increase in the tax
equivalent adjustment to $269,000 in 2002 from $131,000 in 2001. This is an
increase of $138,000 or 105%.
Interest expense on deposits decreased $283,000 for the quarter to $1,007,000,
compared to $1,290,000 for the same quarter in 2001. Although deposits have
increased slightly, this decrease is primarily the result of generally lower
interest rates. Interest expense on Federal Home Loan Bank advances decreased to
$720,000, as compared to $764,000 for the same period in 2001. The balance sheet
reflects an increase in advances as of September 30, 2002 compared to September
30, 2001. However, average outstanding advances for the three months period
ending September 30, 2002 is less than the same period in 2001 which results in
a decrease in interest expense. This is a reflection of the Company's
utilization of these borrowings as a component of its funding strategy.
As a result, net interest and dividend income on a FTE basis for the three
months ended September 30, 2002 totaled $2,590,000 as compared to $2,387,000 for
the same period in 2001. The increase was $203,000 or 8.50%.
Noninterest Income
------------------
Noninterest income totaled $902,000 for the three months ended September 30,
2002, as compared to $600,000 for the three months ended September 30, 2001.
Trust Department income increased to $256,000 for the third quarter of 2002.
Third quarter 2001 Trust Department income totaled $240,000. Service charge
income totaled $117,000 for the quarter as compared to $107,000 for the same
period in 2001. Other income increased $62,000 or 29.81% to $270,000 for the
three months ended September 30, 2002. This compares to other income totaling
$208,000 for the corresponding period in 2001. The increase includes a non
recurring life insurance benefit of $74,000. Gains on sales of
available-for-sale securities increased $214,000 or 476% for the period ended
September 30, 2002 and totaled $259,000 which compares to $45,000 for the same
period in 2001. Movements in the markets presented opportunities for the Company
to enhance the return from the securities portfolio and at the same time produce
an increase in gains on sale of certain available-for-sale securities.
16
Noninterest Expense
-------------------
Noninterest expense totaled $1,880,000 for the three months ended September 30,
2002, as compared to $1,641,000 for the same period in 2001. This is an increase
of $239,000 or 14.56%. Salaries and benefits increased $87,000 or 8.98% to
$1,056,000 for the three months ended September 30, 2002. This compares to
expenditures of $969,000 for the corresponding period in 2001. As mentioned
previously, additional staff was hired for the Canaan Branch that opened during
the fourth quarter of 2001 and these and other expenses associated with the new
branch did not exist during the first three quarters of 2001 and therefore,
reflect increases when comparing 2002 to 2001. Additionally, annual salary
increases and increased costs of employee benefits also contribute to the
increase in salary and employee benefit expenses. Occupancy and equipment
expense increased to $197,000 from $168,000. This is an increase of $29,000 or
17.26%. This increase can also be primarily attributed to the addition of the
Canaan Branch. Other operating expenses totaled $481,000 for the three months
ended September 30, 2002. This is an increase of $119,000 or 32.87% when
comparing the three months ended September 30, 2001 other operating expenses of
$362,000. The increase encompasses normal increases in operating expenses,
however, the most significant influence to the increase is related to costs
relating to Trust operations as well as to the payment of life insurance
benefits that totaled $41,000. Amortization of "Core Deposit Intangible" assets
totaled $17,000 for the three months ended September 30, 2002 compared to $
$7,000 for the same period in 2001. This increase reflects three full months of
amortization expense for 2002 however, it reflects only a partial month of
expense for 2001. Data processing expenses have remained consistent when
comparing the second quarter of 2002 to the second quarter of 2001.
Income Taxes
------------
The income tax provision for the three months ended September 30, 2002 totaled
$328,000 in comparison to an income tax provision of $384,000 for the same
period in 2001. The decrease is primarily the result of the impact of an
increase in tax exempt interest income earned from the securities portfolio.
Net Income
----------
Overall, net income totaled $978,000 for the third quarter of 2002 compared to
$794,000 for the comparable period of 2001. This is an increase of $184,000 or
23.17% and represents earnings of $.69 per diluted share. This compares to
earnings per diluted share of $.56 for the same period in 2001. The improvement
in net income is a reflection of an increase in interest earning assets.
Provisions and Allowances for Loan Losses
-----------------------------------------
Total loans at September 30, 2002 were $138,666,000 which compares to total
loans of $144,511,000 at December 31, 2001. This is a decrease of $5,845,000 or
4.05%. At September 30, 2002 approximately 87% of the Bank's loan portfolio was
related to real estate products and although the portfolio decreased during the
first nine months of 2002, the concentration remained consistent as
approximately 86% of the portfolio was related to real estate at December 31,
2001. There were no material changes in the composition of the loan portfolio
during this period.
Credit risk is inherent in the business of extending loans. The Company
maintains an allowance or reserve for credit losses through charges to earnings.
The loan loss provision for the period ended September 30, 2002 was $112,000 and
was the same as the corresponding period of 2001.
The Bank formally determines the adequacy of the allowance on a monthly basis.
No material changes have been made in the estimation methods or assumptions that
the Bank uses in making this determination during the period ended September 30,
2002. This determination is based on assessment of credit quality or "risk
rating" of loans by senior management, which is submitted to the Board of
Directors for approval. Loans are initially risk rated when originated. If there
is deterioration in the credit, the risk rating is adjusted accordingly.
17
The allowance also includes a component resulting from the application of the
measurement criteria of Statements of Financial Accounting Standards No. 114,
Accounting by Creditors for Impairment of a Loan("SFAS114"). Impaired loans
receive individual evaluation of the allowance necessary on a monthly basis.
Impaired loans are defined in the Bank's Loan Policy as residential real estate
mortgages with balances of $300,000 or more and commercial loans of $100,000 or
more when it is probable that the Bank will not be able to collect all principal
and interest due according to the terms of the note. Such commercial loans and
residential mortgages will be considered impaired under any of the following
circumstances:
1. Non-accrual status;
2. Loans over 90 days delinquent;
3. Troubled debt restructures consummated after December 31, 1994; or
4. Loans classified as "doubtful", meaning that they have weaknesses,
which make collection or liquidation in full, on the basis of
currently existing facts, conditions, and values, highly questionable
and improbable.
The individual allowance for each impaired loan is based upon the present value
of expected future cash flows discounted at the loan's effective interest rate
or the fair value of the collateral if the loan is collateral dependent.
Specifically identifiable and quantifiable losses are immediately charged off
against the allowance.
In addition, a risk of loss factor is applied in evaluating categories of loans
generally as part of the periodic analysis of the Allowance for Loan Losses.
This analysis reviews the allocations of the different categories of loans
within the portfolio and it considers historical loan losses and delinquency
figures as well as any recent delinquency trends.
The credit card delinquency and loss history is evaluated and given a special
loan loss factor because management recognizes the higher risk involved in such
loans. Concentrations of credit and local economic factors are also evaluated on
a periodic basis. Historical average net losses by loan type are examined as
well as trends by type. The Bank's loan mix over the same period of time is also
analyzed. A loan loss allocation is made for each type of loan multiplied by the
loan mix percentage for each loan type to produce a weighted average factor.
There have been no reallocations within the allowance during the period ended
September 30, 2002.
At September 30, 2002, the allowance for loan losses totaled $1,383,000
representing 127.94% of nonperforming loans which totaled $1,081,000 and 1.00%
of total loans outstanding of $138,666,000. This compared to $1,445,000
representing 246.17% of nonperforming loans which totaled $587,000 and 1.00% of
total loans of $144,511,000 at December 31, 2001. This is an increase in
nonperforming loans of $494,000 or 84.16%. This increase, however, involves only
a few isolated accounts. A total of $189,000 in loans was charged off by the
Company during the nine month period ended September 30, 2002. These charged off
loans consisted primarily of loans to individuals. A total of $14,000 of
previously charged off loans was recovered during the nine months period ended
September 30, 2002. Recoveries for the corresponding period in 2001 totaled
$101,000. When comparing the two periods, and excluding the one large recovery
in 2001 of $82,000, net charge-offs were $175,000 for the period ended September
30, 2002 and $53,000 for the same period in 2001, neither of which significantly
impacted the level of the allowance for loan losses. Management believes that
the allowance for loan losses is adequate. While management estimates loan
losses using the best available information, no assurances can be given that
future additions to the allowance will not be necessary based on changes in
economic and real estate market conditions, further information obtained
regarding problem loans, identification of additional problem loans and other
factors, both within and outside of management's control. Additionally, with
expectations of the Company to grow its existing portfolio, future additions to
the allowance may be necessary to maintain adequate coverage ratios.
18
Capital
-------
At September 30, 2002, the Company had $26,985,000 in shareholder equity
compared to $23,363,000 at December 31, 2001. This represents an increase of
$3,622,000 or 15.50%. Several components contributed to the change since
December 2001. Earnings year to date totaled $2,480,000. Market conditions have
resulted in a positive adjustment to unrealized comprehensive income of
$2,059,000. The Company issued 880 new shares of common stock under the terms of
the Director Stock Retainer Plan during the second quarter of 2002 which
resulted in an increase in capital of $22,000. The Company also declared three
quarterly cash dividends in 2002 resulting in a decrease in capital of $939,000.
Under current regulatory definitions, the Bank is "well Capitalized", the
highest rating defined under the Federal Deposit Insurance Corporation
Improvement Act. As a result, the Bank pays the lowest deposit premiums
possible. One primary measure of capital adequacy for regulatory purposes is
based on the ratio of risk-based capital to risk weighted assets. This method of
measuring capital adequacy helps to establish capital requirements that are more
sensitive to the differences in risk associated with various assets. It takes
into account off-balance sheet exposure in assessing capital adequacy and it
minimizes disincentives to holding liquid, low risk assets. At September 30,
2002, the Company had a total risk-based capital ratio of 16.88% compared to
16.21% at December 31, 2001. The leverage ratio at September 30, 2002 was 7.81%
which compares to 7.87% at December 31, 2001. These capital ratios substantially
exceed all applicable requirements for "well capitalized" institutions as
established by Federal Bank supervisory standards.
Maintaining strong capital is essential to bank safety and soundness which
influence customer confidence, potential investors, regulators and shareholders.
However, the effective management of capital resources requires generating
attractive returns on equity to build value for shareholders while maintaining
appropriate levels of capital to fund growth, meeting regulatory requirements
and being consistent with prudent industry practices. Management believes that
the capital ratios of the Company and Bank are adequate to continue to meet the
foreseeable capital needs of the institution.
Liquidity
---------
The Bank's Asset/Liability Management Committee which operates in accordance
with policies established and reviewed by the Bank's Board of Directors,
implements and monitors compliance with these policies regarding the Bank's
asset/liability management practices with regard to interest rate risk,
liquidity and capital. Interest rate risk measures the sensitivity of the
Company's income to short and long term changes in interest rates. One of the
primary objectives of the Committee is to manage the Company's interest rate
risk and control the sensitivity of earnings to changes in interest rates in
order to improve net interest income and interest rate margins and to manage the
maturities and interest rate sensitivities of assets and liabilities. At
September 30, 2002, the Company's interest rate position was asset sensitive.
However, the level of interest rate risk is within the limits approved by the
Board of Directors. Management of liquidity is designed to provide for the
Bank's cash needs at a reasonable cost. These needs include the withdrawal of
deposits on demand or at maturity, the repayment of borrowings as they mature
and lending opportunities. The Company's subsidiary, Salisbury Bank and Trust
Company is a member of the Federal Home Loan Bank system which provides credit
to its members. This enhances the liquidity position by providing a source of
available borrowings. At September 30, 2002, the Company had approximately
$25,573,000 in loan commitments and unadvanced funds outstanding. The Company
maintains ample liquidity to meet its present and foreseeable needs.
Forward Looking Statements
--------------------------
This Form 10-QSB and future filings made by the Company with the Securities and
Exchange Commission, as well as other filings, reports and press releases made
or issued by the Company and the Bank, and oral statements made by executive
officers of the Company and the Bank, may include forward-looking statements
relating to such matters as:
(a) assumptions concerning future economic and business conditions and there
effect on the economy in general and on the markets in which the Company
and the Bank do business, and
(b) expectations for increased revenues and earnings for the Company and Bank
through growth resulting from acquisitions, attraction of new deposit and
loan customers and the introduction of new products and services.
19
Such forward-looking statements are based on assumptions rather than historical
or current facts and, therefore, are inherently uncertain and subject to risk.
Forth those statements, the Company claims the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Act of
1995.
The Company notes that a variety of factors could cause the actual results or
experience to differ materially from the anticipated results or other
expectations described or implied by such forward-looking statements. The risks
and uncertainties that may effect the operation, performance, development and
results of the Company's and Bank's business include the following:
(a) the risk of adverse changes in business conditions in the banking industry
generally and in the specific markets in which the Bank operates;
(b) changes in the legislative an regulatory environment that negatively impact
the Company and Bank through increased operating expenses;
(c) increased competition from other financial and non-financial institutions;
(d) the impact of technological advances; and
(e) other risks detailed from time to time in the Company's filings with the
Securities and Exchange Commission.
Such developments could have an adverse impact on the Company's and the Bank's
financial position and results of operations.
Part I - FINANCIAL INFORMATION
Item 3. Controls and Procedures
Based upon an evaluation within the 90 days prior to the filing date of this
report, the Company's Chief Executive Officer and Chief Financial Officer
concluded that the Company's disclosure controls and procedures are effective.
There have been no significant changes in the Company's internal controls or in
other factors that could significantly affect the Company's internal controls
subsequent to the date of the evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
20
Part II - OTHER INFORMATION
Item 1. - Legal Proceedings-Not applicable
Item 2. - Changes in Securities and Use of Proceeds-Not applicable
Item 3. - Defaults Upon Senior Securities-Not applicable
Item 4. - Submission of Matters to a Vote of Security Holders-Not applicable
Item 5. - Other Information-Not applicable
Item 6. - Exhibits and Reports on Form 8-K
A. Exhibits - 99.1 Certification of Chief Executive Officer pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
99.2 Certification of Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
B. Reports on 8-K:
The Company filed a Form 8-K on August 20, 2002 to report that
Director Craig E. Toensing voluntarily submitted his resignation from
the Boards of Salisbury Bancorp, Inc. and Salisbury Bank and Trust
Company.
The Company filed a Form 8-K on September 5, 2002 to report that the
Company's Board of Directors declared a quarterly cash dividend of
$.22 per share to be paid on October 25, 2002 to shareholders of
record as of September 30, 2002.
21
SALISBURY BANCORP, INC.
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.
Salisbury Bancorp, Inc.
Date: November 12, 2002 by: /s/ John F. Perotti
----------------- ---------------------------------
John F. Perotti
President/Chief Executive Officer
Date: November 12, 2002 by: /s/ John F. Foley
----------------- ---------------------------------
John F. Foley
Chief Financial Officer
22
CERTIFICATIONS
--------------
I, John F. Perotti, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Salisbury Bancorp,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
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
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/ John F. Perotti
-----------------------
President and CEO
23
CERTIFICATIONS
--------------
I, John F. Foley, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Salisbury Bancorp,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
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
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/ John F. Foley
-----------------------
Chief Financial Officer