UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2003
PARK BANCORP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State of incorporation)
36-4082530
(IRS Employer Identification No.)
5400 SOUTH PULASKI ROAD, CHICAGO, ILLINOIS
(Address of Principal Executive Offices)
60632
(ZIP Code)
(773) 582-8616
(Registrant's telephone number, including area
code) Securities registered pursuant to Section
12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01, PAR VALUE PER SHARE
(Title of each class)
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 _______
Indicate by check mark if disclosure of delinquent filers pursuant to item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /x/
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes _______ No ___X___
The aggregate market value of the voting stock of the Registrant held by
non-affiliates was approximately $25,648,000 as of June 30, 2003.
As of March 19, 2004, the Registrant had outstanding 1,150,195 shares of common
stock.
DOCUMENTS INCORPORATED BY REFERENCE
Selected portions of the definitive Proxy Statement for the Registrant's Annual
Meeting of Stockholders to be held on May 5, 2004., are incorporated by
reference into Part III.
PART I
ITEM 1. BUSINESS
GENERAL
Park Bancorp, Inc. ("the Company") is a bank holding company engaged in the
business of banking through its wholly owned subsidiary Park Federal Savings
Bank ("the Bank") and real estate development through its wholly owned
subsidiary PBI Development Corporation ("PBI"). The Bank is engaged in the
business of retail banking, with operations conducted through its main office
and two branch offices located in Chicago and Westmont, Illinois. The Bank also
has two wholly owned subsidiaries. GPS Development Corp. ("GPS") is an Illinois
corporation, which participates in residential real estate development projects.
GPS Corporation is an Illinois corporation, which conducts limited insurance
activities.
The Bank attracts retail deposits from the general public in the areas
surrounding its offices and invests those deposits, together with funds
generated from operations and other borrowings, primarily in fixed-rate,
one-to-four-family residential mortgage loans and securities. The Bank invests,
on a limited basis, in multi-family mortgage, commercial real estate,
construction, land, and consumer loans. The Bank's revenues are derived
principally from interest on its loans and securities. The Bank's primary
sources of funds are deposits, advances from the Federal Home Loan Bank
("FHLB"), securities sold under repurchase agreements, and principal and
interest payments on loans and securities.
MARKET AREA AND COMPETITION
The Bank is a community-oriented savings bank. The Bank's primary deposit
gathering area is concentrated in the communities surrounding its offices, while
its lending activities primarily include areas throughout Cook, DuPage, and Will
Counties in Illinois.
The Bank's market area is both an urban and suburban area with the manufacturing
industry as the major industrial group, followed by the services sector, and
then the wholesale/retail sector. The Bank's Chicago offices are located in
diverse communities, which have a high percentage of customers of various ethnic
backgrounds. Management of the Bank believes that its urban communities are
stable, residential neighborhoods of predominantly one-to-four-family residences
and low to middle income families. The Bank's Westmont office is located in
DuPage County, which consists predominantly of middle to upper income families.
The Bank does not formally track real estate values or construction starts in
its primary market areas; however, the officers and directors of the Bank
maintain relationships with area contractors and real estate agents, which
enable them to continually monitor the trends in housing construction and real
estate sales in the Bank's primary market areas. In addition, the Bank obtains
information on real estate sales on a periodic basis through public records.
Management is not aware of any material adverse trends in real estate values in
its market area.
2.
The Bank's competition for loans comes principally from savings institutions,
mortgage banking companies, and commercial banks. Its most direct competition
for deposits has historically come from savings institutions, commercial banks,
and credit unions. In addition, the Bank faces increasing competition for
deposits and other financial products from nonbank institutions such as
brokerage firms and insurance companies in such areas as short-term money market
funds, corporate and government securities funds, mutual funds, and annuities.
LENDING ACTIVITIES
GENERAL. The Bank's loan portfolio consists primarily of conventional first
mortgage loans secured by one-to-four-family residences. At December 31, 2003,
the Bank had total gross loans outstanding of $161.9 million, of which $100.1
million were one-to-four-family residential mortgage loans, or 61.86% of the
Bank's total gross loans. The remainder of the portfolio consists of $19.2
million of multi-family mortgage loans, or 11.84% of total gross loans; $17.0
million of commercial real estate loans, or 10.50% of total gross loans; $13.0
million of construction and land loans, or 8.04% of total gross loans; and
consumer and other loans of $12.6 million, or 7.76% of total gross loans. The
Bank had no loans held for sale at December 31, 2003.
Loan Approval Procedures and Authority. The Board of Directors establishes the
lending policies of the Bank and delegates lending authority and responsibility
to the Executive Committee, a management committee of the Bank. All real estate
loans must be approved by the Executive Committee. The maximum loan amount is
$500,000 unless approved by the Board of Directors. Pursuant to Office of Thrift
Supervision ("OTS") regulations, loans to one borrower cannot exceed 15% of the
Bank's unimpaired capital and surplus without regulatory notification. The Bank
has no loans to one borrower that are in excess of regulatory limits.
All table amounts throughout the Form 10-K are in thousands except share and per
share data.
3.
The following table sets forth the composition of the Bank's loan portfolio in
dollar amounts and as a percentage of the portfolio at the dates indicated.
-------------------------------At December 31,--------------------------------
---------------
--------2003-------- --------2002--------- --------2001--------
---- ---- ----
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
------ -------- ------ -------- ------ --------
Real estate
Residential
One-to-four-
family $ 100,136 61.86% $ 96,351 62.46% $ 87,620 63.00%
Multi-family 19,167 11.84 17,977 11.65 17,279 12.43
Commercial 16,998 10.50 9,607 6.23 8,548 6.15
Construction and
land 13,013 8.04 11,159 7.23 10,668 7.67
Consumer and other 12,559 7.76 19,166 12.43 14,947 10.75
--------- ----------- --------- ----------- --------- ---------
Total loans, gross 161,873 100.00% 154,260 100.00% 139,062 100.00%
=========== =========== =========
Undisbursed portion
of loans
funds (1,812) (5,226) (3,329)
Deferred loan
origination fees
and unearned
discounts (526) (467) (445)
Allowance for
loan losses (578) (574) (500)
--------- --------- ---------
Total loans, net $ 158,957 $ 147,993 $ 134,788
========= ========= =========
[WIDE TABLE CONTINUED FROM ABOVE]
--------------At December 31,----------------
---------------
-------2000--------- ---------1999-------
---- ----
Percent Percent
Amount of Total Amount of Total
------ -------- ------ --------
Real estate
Residential
One-to-four-
family $ 71,375 70.23% $ 66,826 75.03%
Multi-family 10,924 10.75 9,847 11.05
Commercial 5,316 5.23 3,756 4.22
Construction and
land 9,130 8.98 6,076 6.82
Consumer and other 4,882 4.81 2,561 2.88
--------- --------- --------- --------
Total loans, gross 101,627 100.00% 89,066 100.00%
Undisbursed portion
of loans
funds (3,763) (1,543)
Deferred loan
origination fees
and unearned
discounts (347) (331)
Allowance for
loan losses (500) (500)
--------- ---------
Total loans, net $ 97,017 $ 86,692
========= =========
4.
LOAN MATURITY. The following table shows the contractual maturity of the Bank's
gross loans at December 31, 2003. The table does not include principal
prepayments.
-----------------Real Estate Loans---------------
-----------------
One-to- Construction Consumer Total
Four- Multi- and and Loans
Family Family Commercial Land Other Receivable
------ ------ ---------- ------------- -------- ----------
Amounts due
One year or less $ 295 $ 406 $ 374 $ 10,621 $ 4,248 $ 15,944
After one year
More than one year
to three years 249 2,079 1,066 1,474 2,554 7,422
More than three years
to five years 741 6,905 5,885 828 4,246 18,605
More than five years
to ten years 3,871 4,393 2,833 90 605 11,792
More than ten years
to twenty years 36,741 5,384 6,840 -- 906 49,871
More than twenty years 58,239 -- -- -- -- 58,239
-------- --------- --------- --------- ---------- ----------
Total due after
December 31, 2004 99,841 18,761 16,624 2,392 8,311 145,929
-------- --------- --------- --------- ---------- ----------
Gross loans
receivable $100,136 $ 19,167 $ 16,998 $ 13,013 $ 12,559 $ 161,873
======== ========= ========= ========= ========== ==========
The following table sets forth at December 31, 2003 the dollar amount of total
gross loans receivable contractually due after December 31, 2004 and whether
such loans have fixed interest rates or adjustable interest rates.
------Due After December 31, 2004---
---------------------------
Fixed Adjustable Total
----- ---------- -----
Real estate loans
Residential
One-to-four-family $ 93,874 $ 5,967 $ 99,841
Multi-family 18,575 186 18,761
Commercial 13,915 2,709 16,624
Construction and land 2,222 170 2,392
Consumer and other 5,950 2,361 8,311
---------- ---------- ----------
Total gross loans receivable $ 134,536 $ 11,393 $ 145,929
========== ========== ==========
ORIGINATION AND PURCHASE OF LOANS. The Bank's mortgage lending activities are
conducted through its home office and two branch offices. Although the Bank may
originate adjustable-rate mortgage loans, the substantial majority of the Bank's
loan originations are fixed-rate mortgage loans. While the Bank retains for its
portfolio all of the mortgage loans that it originates, the Bank may, in the
future, sell mortgage loans that it originates depending on market conditions
and the financial condition of the Bank. The Bank has purchased loans or
participated in loans originated by other institutions based upon the Bank's
investment needs and market opportunities.
5.
The following table sets forth the Bank's loan originations, purchases, and
principal repayments for the periods indicated:
For the Year Ended December 31,
------------------------------
2003 2002 2001
---- ---- ----
Beginning balance, net $ 147,993 $ 134,788 $ 97,017
Loans originated
One-to-four-family 37,967 30,553 31,585
Multi-family 6,907 4,860 8,728
Commercial real estate 10,873 3,393 3,354
Construction and land 9,405 9,832 7,113
Consumer and other 3,373 2,570 616
---------- ---------- ----------
Total loans originated 68,525 51,208 51,396
Loans purchased 7,605 16,238 10,144
---------- ---------- ----------
76,130 67,446 61,540
Principal payments (68,576) (52,270) (24,203)
Change in allowance for loan losses (4) (74) --
Change in undisbursed loan funds 3,414 (1,897) 434
---------- ----------- ----------
Ending balance, net $ 158,957 $ 147,993 $ 134,788
========== ========== ==========
One-to-Four-Family Mortgage Lending. The Bank offers mortgage loans secured by
one-to-four-family residences located in the Bank's primary market area. Loan
applications are obtained by the Bank's loan officers through their contacts
with the local real estate industry, customers, and members of the local
communities. The Bank's policy is to originate one-to-four-family residential
mortgage loans in amounts up to 80% of the lower of the appraised value or the
selling price of the property securing the loan and up to 95% of the appraised
value or selling price if private mortgage insurance is obtained. The
residential mortgage loans originated by the Bank are for maturity terms of up
to 30 years.
The Bank offers adjustable rate mortgage ("ARM") loans as a means of reducing
its exposure to changes in interest rates. However, the volume and types of ARM
loans originated by the Bank have been affected by such market factors as the
level of interest rates, competition, consumer preferences, and the availability
of funds. In recent years, the Bank has not originated a significant amount of
ARM loans as compared to its originations of fixed-rate loans. ARM loans pose
credit risks different from the risks inherent in fixed rate loans, primarily
because as interest rates rise, the underlying payments of the borrower rise,
thereby increasing the potential for default. The ARM loans currently offered by
the Bank do not provide for initial deep discount "teaser" interest rates.
Although the Bank will continue to offer ARM loans, there can be no assurance
that in the future the Bank will be able to originate a sufficient volume of ARM
loans to constitute a significant portion of the Bank's loan portfolio.
Multi-Family Lending. The Bank originates multi-family mortgage loans secured by
properties located in the Bank's primary market area. The amount of multi-family
loans originated by the Bank depends upon market conditions.
6.
Pursuant to the Bank's current underwriting policies, a multi-family mortgage
loan may be made in an amount up to 80% of the appraised value of the underlying
property. In addition, the Bank generally requires a debt service ratio of 120%.
Properties securing a multi-family loan are appraised by an independent
appraiser. Title and property insurance are required on all multi-family loans.
The Bank's underwriting policies require that the borrower be able to
demonstrate strong management skills and the ability to maintain the property
for current rental income. The borrower is required to present evidence of the
ability to repay the mortgage and a satisfactory credit history. In making its
assessment of the creditworthiness of the borrower, the Bank reviews the
financial statements and the employment and credit history of the borrower as
well as other related documentation. Loans secured by multi-family residential
properties generally involve a greater degree of risk than one-to-four-family
residential mortgage loans. Because payments on loans secured by multi-family
properties are often dependent on successful operation or management of the
properties, repayment of such loans may be subject to a greater extent to
adverse conditions in the real estate market or the economy. The Bank seeks to
minimize these risks through its underwriting policies, which require such loans
to be qualified at origination on the basis of the property's income and debt
coverage ratio.
Commercial Real Estate Lending. On a limited basis, the Bank originates
commercial real estate loans that are generally secured by properties used for
business purposes such as small office buildings or retail facilities located in
its primary market areas. The Bank's underwriting procedures provide that
commercial real estate loans may be made in amounts up to the lesser of 80% of
the appraised value of the property or the sales price. The Bank has generally
required that the properties securing commercial real estate loans have debt
service coverage ratios of at least 120%.
Loans secured by commercial real estate properties are generally larger and
involve a greater degree of risk than one-to-four-family residential mortgage
loans. Because payments on loans secured by commercial real estate properties
are often dependent on successful operation or management of the properties,
repayment of such loans is subject to adverse conditions in the real estate
market or the economy. The Bank seeks to minimize these risks through its
underwriting standards, which require such loans to be qualified on the basis of
the property's income and debt service ratio.
Construction and Land Lending. The Bank originates construction and land loans
in its primary market areas. The Bank's construction loans primarily are made to
finance development of one-to-four-family residential properties. These loans
are primarily fixed-rate loans with maturities of one year or less. The Bank's
policies provide that construction loans may be made in amounts up to 80% of the
appraised value of the property for construction of one-to-four-family
residences. The Bank requires an independent appraisal of the property. Loan
proceeds are disbursed in increments as construction progresses and as regular
inspections warrant. Land loans generally do not exceed 75% of the actual cost
or current appraised value of the property, whichever is less.
7.
Construction lending may be viewed as involving a greater degree of risk than
one-to-four-family mortgage lending. The repayment of the construction loan is,
to a great degree, dependent upon the successful and timely completion of the
construction of the subject property. Construction delays or the financial
impairment of the builder may further impair the borrower's ability to repay the
loan.
Consumer and Other Lending. The Bank's consumer and other loans generally
consist of automobile loans, second mortgage loans, loans secured by deposits,
commercial lines of credit secured by real estate, and participations purchased.
The Bank purchases one-to-four-family mortgage loans and loan participations
from other financial institutions in its primary market area. At December 31,
2003, the Bank had $6.8 million in purchased mortgage loans and loan
participations serviced by others, totaling 4.18% of the total loan portfolio at
that date, primarily secured by one-to-four-family residences. The Bank may
purchase loans to supplement reduced loan demand as needed and must meet the
same underwriting criteria as loans originated by the Bank.
Delinquencies and Classified Assets. The Board of Directors and management
perform a monthly review of all loans sixty days or more past due. The
procedures taken by the Bank with respect to delinquencies vary depending on the
nature of the loan and period of delinquency. The Bank sends the borrower a
written notice of nonpayment after the loan is first past due. If the loan is
not brought current and it becomes necessary to take legal action, which occurs
after a loan is delinquent at least 60 days, the Bank may commence foreclosure
proceedings. If a foreclosure action is instituted and the loan is not brought
current, paid in full, or refinanced before the foreclosure sale, the real
property securing the loan is foreclosed upon and sold.
Federal regulations and the Bank's Classification of Assets Policy require that
the Bank utilize an internal asset classification system as a means of reporting
problem and potential problem assets. The Bank has incorporated the OTS internal
asset classifications as a part of its credit monitoring system. The Bank
currently classifies problem and potential problem assets as "Substandard,"
"Doubtful," or "Loss" assets, depending upon the severity of the delinquency
status or repayment capacity of the borrower. The likelihood of collection on
the loan declines with each classification, and assets classified as "Loss" are
those considered "uncollectible" and of such little value that their continuance
as assets without the establishment of a specific loss allowance is not
warranted. Assets that do not currently expose the Bank to sufficient risk to
warrant classification in one of the aforementioned categories but possess
weaknesses are designated "Special Mention."
The Bank's Executive Committee reviews and classifies the Bank's assets monthly
and reports the results of its review to the Board of Directors. The Bank
classifies assets in accordance with the management guidelines described above.
At December 31, 2003, the Bank had $545,000 of assets classified as "Special
Mention" and $76,000 of assets classified as "Doubtful." No assets were
classified as "Substandard" or "Loss."
8.
NON-ACCRUAL AND PAST-DUE LOANS. The following table sets forth information
regarding nonaccrual loans, troubled-debt restructurings, and other real estate
owned ("REO"). It is the policy of the Bank to cease accruing interest on loans
90 days or more past due. For the years ended December 31 presented below, the
amount of interest income that would have been recognized on nonaccrual loans is
immaterial to the financial statements.
-----------------------------At December 31,----------------------------
---------------
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
Nonaccrual loans
Residential real estate
One-to-four-family $ 544 $ 235 $ 122 $ 457 $ --
Multi-family -- -- -- -- --
Commercial -- -- -- -- --
Construction and land -- -- -- -- --
Consumer and other 1 -- -- 1 63
----------- ----------- ----------- ----------- -----------
Total nonperforming loans 545 235 122 458 63
REO 76 55 -- -- --
----------- ----------- ----------- ----------- -----------
Total nonperforming assets $ 621 $ 290 $ 122 $ 458 $ 63
=========== =========== =========== =========== ===========
At December 31, 2003, there were five loans totaling $464,000 that were 60 to 89
days delinquent.
-----------------------------At December 31,----------------------------
---------------
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
Allowance for loan losses as a
percent of gross loans receivable 0.36% 0.37% 0.36% 0.49% 0.56%
Allowance for loan losses as a per-
cent of total nonperforming loans 106.06 244.26 409.84 109.17 793.65
Nonperforming loans as a percent of
gross loans receivable(1) 0.34 0.15 0.09 0.45 0.07
Nonperforming assets as a percentage
of total assets(1) 0.23 0.12 0.05 0.19 0.03
(1) Nonperforming assets consist of nonperforming loans and REO. Nonperforming
loans consist of all loans 90 days or more past due.
ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is established through
a provision for loan losses based on management's evaluation of the risks
inherent in the loan portfolio, its classifications of individual loans, and the
general economy. The allowance for loan losses is maintained at an amount
management considers adequate to cover losses on loans receivable that are
deemed probable and estimable. The allowance is based upon a number of factors,
including current economic conditions, actual loss experience, and industry
trends. In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Bank's allowance for loan losses.
Such agencies may require the Bank to make additional provisions for loan losses
based upon information available at the time of the review. The Bank will
continue to monitor and modify the allowance for loan losses as conditions
dictate.
9.
The following table sets forth activity in the Bank's allowance for loan losses
for the years set forth in the table.
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
Balance at beginning of year $ 574 $ 500 $ 500 $ 500 $ 500
Provision for loan losses -- 120 -- -- --
Charge-offs
One-to-four-family -- (19) -- -- --
Consumer and other (22) (27) -- -- --
----------- ----------- ----------- ----------- -----------
Total 552 574 -- -- --
Recoveries 26 -- -- -- --
----------- ----------- ----------- ----------- -----------
Balance at end of year $ 578 $ 574 $ 500 $ 500 $ 500
=========== =========== =========== =========== ===========
Net charge-offs to average
gross loans outstanding --% 0.03% --% --% --%
10
The following table sets forth the amount of the Bank's allowance for loan
losses, the percent of allowance for loan losses to total allowance, and the
percent of gross loans to total gross loans in each of the categories listed at
the dates indicated.
---------------------------------------At December 31,------------------------------------
---------------
------------2003------------- ------------2002------------ -------------2001------------
---- ---- ----
Percent of Percent of Percent of
Gross Gross Gross
Loans in Loans in Loans in
Each Each Each
Percent of Category Percent of Category Percent of Category
Allowance to Total Allowance to Total Allowance to Total
to Total Gross to Total Gross to Total Gross
Amount Allowance Loans Amount Allowance Loans Amount Allowance Loans
-------------------------------------------------------------------------------------------
One-to-four-family $ 200 34.60% 61.86% $ 241 41.99% 62.46% $ 190 38.00% 63.00%
Multi-family 61 10.55 11.84 90 15.68 11.65 60 12.00 12.43
Commercial 68 11.76 10.50 48 8.36 6.23 59 11.80 6.15
Construction and land 104 17.99 8.04 57 9.93 7.23 57 11.40 7.67
Consumer and other 145 25.10 7.76 138 24.04 12.43 69 13.80 10.75
Unallocated - -- -- -- -- -- 65 13.00 --
------- ------- ------- ------ ----- ------ ------ ------- -------
Total allowance for loan
losses $ 578 100.00% 100.00% $ 574 100.00% 100.00% $ 500 100.00% 100.00%
======= ======= ======= ====== ====== ====== ======= ======= =======
[WIDE TABLE CONTINUED FROM ABOVE]
----------------------At December 31,-----------------------
--------------
------------2000------------- ------------1999-------------
---- ----
Percent of Percent of
Gross Gross
Loans in Loans in
Each Each
Percent of Category Percent of Category
Allowance to Total Allowance to Total
to Total Gross to Total Gross
Amount Allowance Loans Amount Allowance Loans
----------------------------------------------------------
One-to-four-family $ 177 35.40% 70.23% $ 267 53.40% 75.03%
Multi-family 55 11.00 10.75 98 19.60 11.05
Commercial 60 12.00 5.23 38 7.60 4.22
Construction and land 54 10.80 8.98 61 12.20 6.82
Consumer and other 49 9.80 4.81 11 2.20 2.88
Unallocated 105 21.00 -- 25 5.00 --
------ ------ ------ ------ ------ ------
Total allowance for loan
losses $ 500 100.00% 100.00% $ 500 100.00% 100.00%
====== ====== ====== ====== ====== ======
11.
INVESTMENT ACTIVITIES
The investment policies of the Company and the Bank as established by the Board
of Directors attempt to provide and maintain liquidity, generate a favorable
return on investments without incurring undue interest rate and credit risk, and
complement the Bank's lending activities. The policies provide the authority to
invest in United States Treasury and federal agency securities, mortgage-backed
securities, corporate bonds, municipal securities, and equity securities.
Investments in mortgage-backed securities involve a risk that actual prepayments
will be greater than estimated prepayments over the life of the security, which
may require adjustments to the amortization of any premium or accretion of any
discount relating to such instruments, thereby reducing or increasing,
respectively, the net yield on such securities. There is also reinvestment risk
associated with the cash flows from such securities. In addition, the market
value of debt securities may be adversely affected by changes in interest rates.
All United States government securities held at December 31, 2003 are callable
at the option of the issuer, which also presents prepayment risk to the Company.
The following table sets forth information regarding the carrying amount and
fair values of the Company's securities at the dates indicated.
------------------------------At December 31,-------------------------------
---------------
-----------2003-------- ----------2002-------- ----------2001----------
---- ---- ----
Carrying Fair Carrying Fair Carrying Fair
Amount Value Amount Value Amount Value
- ---------------------------------------------------------------------------------------------------------------
Available-for-sale
U.S. government securities $ 10,023 $ 10,023 $ -- $ -- $ 29,627 $ 29,627
Corporate bonds 11,747 11,747 18,080 18,080 15,052 15,052
Mortgage-backed securities
FNMA (1) 28,929 28,929 16,220 16,220 5,156 5,156
FHLMC (2) 15,723 15,723 17,750 17,750 8,641 8,641
Municipal securities -- -- 1,259 1,259 1,415 1,415
Equity securities 5,636 5,636 7,804 7,804 5,813 5,813
----------- ---------- ---------- ---------- ---------- ----------
Total available-for-sale $ 72,058 $ 72,058 $ 61,113 $ 61,113 $ 65,704 $ 65,704
=========== ========== ========== ========== ========== ==========
(1) Federal National Mortgage Association.
(2) Federal Home Loan Mortgage Corporation.
12.
The table below sets forth certain information regarding the carrying amount,
weighted average yields, and contractual maturities of the Company's securities
and mortgage-backed securities as of December 31, 2003. All of the Company's
securities are classified as available-for-sale. Equity securities have no
stated maturity and are included in the total column only.
--------------------------At December 31, 2003---------------------
--------------------
More than One More than Five
One Year or Less Year to Five Years Years to Ten Years
---------------- ------------------ ------------------
Weighted Weighted Weighted
Carrying Average Carrying Average Carrying Average
Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ----- -----
Securities
U.S. government securities $ -- --% $ 3,005 3.37% $ 7,018 4.15%
Corporate notes -- -- 11,747 5.08 -- --
Equity securities -- -- -- -- -- --
--------- ---- --------- ---- --------- -----
Total securities $ -- --% $ 14,752 4.71% $ 7,018 4.15%
========= ==== ========= ==== ========= =====
Mortgage-backed securities
FNMA $ 81 6.00% $ 541 5.83% $ -- --%
FHLMC - - 1,534 4.98 760 5.33
--------- ---- --------- ---- --------- -----
Total mortgage-
backed securities $ 81 6.00% $ 2,075 5.20% $ 760 5.33%
========= ==== ========= ==== ========= =====
[WIDE TABLE CONTINUED FROM ABOVE]
--------------At December 31, 2003------------
--------------------
More than
Ten Years Total
--------- -----
Weighted Weighted
Carrying Average Carrying Average
Amount Yield Amount Yield
------ ----- ------ -----
Securities
U.S. government securities $ -- --% $ 10,023 3.89%
Corporate notes -- -- 11,747 5.08
Equity securities -- -- 5,636 3.32
---------- ----- ---------- ----
Total securities $ -- --% $ 27,406 4.28%
========== ===== ========== ====
Mortgage-backed securities
FNMA $ 28,307 3.80% $ 28,929 3.85%
FHLMC 13,42 3.71 15,723 3.91
---------- ----- ---------- ----
Total mortgage-
backed securities $ 41,736 3.78% $ 44,652 3.87%
========== ===== ========== ====
Included in the table above are $10.0 million of FHLB and FHLMC notes that are
callable at the option of the issuing agency. Callable and variable rate FHLB
advances totaled $20.0 million and $2.0 million at December 31, 2003,
respectively. The Company has call risk on both the investing and borrowing
positions. If FHLB advances are called, the Company generally has the ability to
refinance them, although the interest rates on new advances may be higher.
13.
SOURCES OF FUNDS
GENERAL. Deposits, loan payments, cash flows generated from operations, and FHLB
advances are the primary sources of the funds used in lending, investing, and
for other general purposes.
DEPOSITS. The Bank offers a variety of deposit accounts with a range of interest
rates and terms. The Bank's deposits consist of passbook savings, NOW accounts,
money market accounts, and certificates of deposit. The flow of deposits is
influenced significantly by general economic conditions, changes in money market
rates, prevailing interest rates, and competition. At December 31, 2003, the
Bank had $72.0 million of certificate accounts maturing in a year or less. The
Bank's deposits are obtained predominantly from the areas surrounding its
banking offices. The Bank relies primarily on customer service and competitive
rates to attract and retain these deposits.
The following table presents the deposit activity of the Bank for the years
indicated:
---------Years Ended December 31,--------
-----------------------
2003 2002 2001
---- ---- ----
Net deposits (withdrawals) $ 3,073 $ (4,443) $ 9,145
Interest credited on deposit accounts 3,421 5,337 5,956
----------- ----------- -----------
Total increase in deposit accounts $ 6,494 $ 894 $ 15,101
=========== =========== ===========
At December 31, 2003, the Bank had $14.9 million in certificate accounts in
amounts of $100,000 or more maturing as follows:
Weighted
Average
Maturity Period Amount Rate
--------------- ------ ----
Three months or less $ 2,262 2.35%
Over three through six months 1,666 2.27
Over six through twelve months 5,259 2.47
Over twelve months 5,691 3.34
----------- ----
Total $ 14,878 2.76%
=========== ====
14.
The following table sets forth the distribution of the Bank's deposit accounts
for the years indicated.
-----------------------------------------December 31,-----------------------------------------
------------
-----------2003------------ ------------2002-------------- -----------2001------------
---- ---- ----
Percent of Percent of Percent of
Amount Total Amount Total Amount Total
------ ----- ------ ----- ------ -----
Passbook accounts $ $ 36,368 21.33% $ 34,626 21.12% $ 33,543 20.57%
Money market savings accounts 11,044 6.48 8,576 5.23 7,901 4.85
NOW accounts 10,258 6.02 8,804 5.37 8,316 5.10
Non-interest-bearing accounts 6,099 3.58 4,478 2.73 4,915 3.01
------------ -------- ------------ -------- ------------ --------
Total transaction accounts 63,769 37.41 56,484 34.45 54,675 33.53
Certificate accounts
1.00% to 1.99% 46,429 27.24 7,299 4.45 -- --
2.00% to 2.99% 33,470 19.63 32,619 19.89 8,951 5.49
3.00% to 3.99% 13,744 8.06 47,111 28.73 14,499 8.89
4.00% to 4.99% 8,191 4.81 13,528 8.25 22,167 13.59
5.00% to 5.99% 1,933 1.13 3,753 2.29 33,750 20.70
6.00% to 6.99% 2,926 1.72 3,174 1.94 28,019 17.18
7.00% to 7.99% -- -- -- -- 1,013 0.62
------------ -------- ------------ -------- ------------ --------
Total certificate accounts 106,693 62.59 107,484 65.55 108,399 65.51
------------ -------- ------------ -------- ------------ --------
Total deposits $ 170,462 100.00% $ 163,968 100.00% $ 163,074 100.00%
============ ======== ============ ======== ============ ========
The following table presents, by various rate categories, the amount of
certificate accounts outstanding at the dates indicated and the periods to
maturity of the certificate accounts outstanding at December 31, 2003.
--------------------Period to Maturity from December 31, 2003----------------
-----------------------------------------
Less than 1 to 2 to 3 to 4 to More than
1 Year 2 Years 3 Years 4 Years 5 Years 5 Years Total
------ ------- ------- ------- ------- ------- -----
Certificate accounts
1.00% to 1.99% $ 42,049 $ 4,380 $ -- $ -- $ -- $ -- $ 46,429
2.00% to 2.99% 21,197 10,891 1,050 23 309 -- 33,470
3.00% to 3.99% 3,988 5,073 230 975 3,423 55 13,744
4.00% to 4.99% 1,946 1,877 585 3,456 323 4 8,191
5.00% to 5.99% 1,430 304 47 152 - - 1,933
6.00% to 6.99% 1,378 275 13 1,260 - - 2,926
---------- ---------- ---------- --------- ---------- ---------- ----------
Total $ 71,988 $ 22,800 $ 1,925 $ 5,866 $ 4,055 $ 59 $ 106,693
========== ========== ========== ========= ========== ========== ==========
15.
BORROWINGS. Although deposits are the Bank's primary source of funds, the Bank's
policy has been to utilize borrowings, such as advances from the FHLB.
The Bank obtains advances from the FHLB upon the security of its capital stock
in the FHLB of Chicago and certain of its mortgage loans. Such advances are made
pursuant to several different credit programs, each of which has its own
interest rate and range of maturities. The maximum amount that the FHLB will
advance to member institutions fluctuates in accordance with the policies of the
OTS and the FHLB. There were $55.2 million of FHLB advances outstanding at
December 31, 2003, which carry interest rates ranging from 1.34% to 4.95% and
mature on various dates, subject to certain call options by the FHLB.
The Company's borrowings also include collateralized borrowings through
securities sold under repurchase agreements. The Company maintains physical
control over the securities.
Information concerning securities sold under agreements to repurchase is
summarized as follows:
2003 2002
---- ----
Balance at year end $ 6,904 $ 10,599
Maximum month-end balance during the year 10,789 10,775
Average balance during the year 9,006 10,509
Average interest rate at year end 2.93% 3.24%
Average interest rate during the year 2.93 3.81
SUBSIDIARY ACTIVITIES
The Company engages in the business of purchasing unimproved land for
development into residential subdivisions of primarily single-family lots
through their wholly owned subsidiaries, PBI and GPS. The Company has been
engaged in this activity since 1985 and, since that time, has developed and sold
over 600 units in five different subdivisions in the Chicago metropolitan area.
PBI and GPS provide all of the capital for a project in exchange for an
ownership interest that entitles them to a percentage of the profit or loss
generated by the joint venture. PBI and GPS have an interest in the net profit
of each joint venture with the percentage based upon a number of factors,
including characteristics of the venture, the perceived risks involved, and the
time to completion. The net profit distributions are defined in the joint
venture agreement as the gross profits of the joint venture from sales, less all
expenses, loan repayments, capital contributions, and an agreed-upon rate of
return to PBI and GPS on such capital contribution.
During 2001, GPS was involved in the Prairie Ridge development, located in
Naperville, Illinois. This project consisted of 88 single-family lots. As of
December 31, 2001, all 88 lots have been sold. PBI was involved in the Prairie
Trail South development located in Batavia, Illinois. The project consisted of
96 single-family lots. As of December 31, 2001, all 96 lots have been sold.
Real estate development activities involve risks that could have an adverse
effect on the profitability of the Bank. PBI and GPS incur substantial costs to
acquire, improve, and market the land prior to commencement of construction.
There are negative cash flows in the early
16.
stages of the project as development costs are incurred. Positive cash flows do
not occur until sales of the lots are closed. During the construction phase, a
number of factors could result in cost overruns, which could decrease or
possibly eliminate the potential profit from the project. In addition, the
profit potential on any given project may cease if the project is not completed,
the underlying value of the project or the general market area declines, the
project is not sold or is sold over a longer period of time than initially
contemplated, or a combination of these factors occurs. Additionally, the
ability to generate income from such projects is dependent, in part, on the
economy of the metropolitan Chicago area. Although the economy has been stable
in recent years, there can be no assurance that it will continue to be
favorable. There were no gains or losses on the sales of real estate held for
development for the years ended December 31, 2003 and 2002; and there was a
$13,000 gain in 2001.
EMPLOYEES
At December 31, 2003, the Company had 54 full-time equivalent employees. None of
the Company's employees are represented by any collective bargaining group.
Management considers its relationship with the employees to be excellent.
REGULATION
The Bank is subject to regulation, examination, and supervision by the OTS, as
its chartering agency, and the Federal Deposit Insurance Corporation ("FDIC"),
as the deposit insurer. The Bank's deposit accounts are insured up to applicable
limits by the FDIC. The Bank must file reports with the OTS and the FDIC
concerning its activities and financial condition in addition to obtaining
regulatory approvals prior to establishing branches or entering into certain
transactions such as mergers with, or acquisitions of, other financial
institutions. The Bank is also required to either provide notice or apply to the
OTS before making dividend payments. Periodic examinations by the OTS and the
FDIC test the Bank's compliance with various regulations, including, among
others, those dealing with capital adequacy, safety and soundness and consumer
protection. The Company, as a savings bank holding company, is also required to
file certain reports and otherwise comply with the rules and regulations of the
OTS and the Securities and Exchange Commission ("SEC") under the federal
securities laws. This regulation and supervision establish a comprehensive
framework of activities in which a depository institution and its holding
company can engage and are intended primarily for the protection of the
insurance fund and depositors, rather than the stockholders of the Company. The
regulatory authorities have extensive discretion in connection with their
supervisory and enforcement activities and examination policies, including
policies with respect to the classification of assets and the establishment of
adequate loan loss allowances for regulatory purposes. Any change in the
regulatory structure or the applicable statutes, regulations or policies,
whether by the OTS, the FDIC, the SEC, or the Congress, could have a material
impact on the Company and the Bank and their operations.
RECENT FEDERAL LEGISLATIVE INITIATIVES. PATRIOT ACT OF 2001. The PATRIOT Act of
2001, enacted in response to the September 11, 2001 terrorists attacks, requires
bank regulators to consider a financial institution's compliance with the Bank
Secrecy Act ("BSA") when reviewing applications from financial institutions.
Under the BSA, a financial institution is required to have systems in place to
detect certain transactions, based on the size and nature of the
17.
transaction. Financial institutions are generally required to report cash
transactions involving more than $10,000 to the United States Treasury. In
addition, financial institutions are required to file suspicious activity
reports for transactions that involve more than $5,000 and which the financial
institution knows, suspects, or has reason to suspect involve illegal funds, are
designed to evade the requirements of the BSA, or have no lawful purpose. The
Bank's compliance with the BSA therefore will be considered by its federal
regulators when reviewing applications submitted by the Bank.
IMPACT OF THE GRAMM-LEACH-BLILEY ACT. In 1999, the Gramm-Leach-Bliley Act ("the
GLB Act") was enacted, which, among other things, established a comprehensive
framework to permit affiliations among commercial banks, insurance companies,
and securities firms. The GLB Act significantly reforms various aspects of the
financial services business, including but not limited to: (i) establishing a
new framework under which bank holding companies and, subject to numerous
restrictions, banks can own securities firms, insurance companies, and other
financial companies; (ii) subjecting banks to the same securities regulation as
other providers of securities products; and (iii) prohibiting new unitary
savings and loan holding companies from engaging in nonfinancial activities or
affiliating with nonfinancial entities. The GLB Act restricts the powers of new
unitary savings and loan association holding companies. Unitary savings and loan
holding companies in existence or with applications filed with the OTS on or
before May 4, 1999, such as the Company, retain their authority under the prior
law. All other unitary savings and loan holding companies are limited to
financially related activities permissible for bank holding companies, as
defined under the GLB Act. The GLB Act also prohibits non-financial companies
from acquiring grandfathered unitary savings and loan association holding
companies.
The provisions in the GLB Act permitting full affiliations between bank holding
companies or banks and other financial companies do not increase our authority
to affiliate with securities firms, insurance companies, or other financial
companies. As a unitary savings and loan holding company, the Company was
generally permitted to have such affiliations prior to the enactment of the GLB
Act. It is expected, however, that these provisions will benefit the Company's
competitors.
The GLB Act imposes new requirements on financial institutions with respect to
customer privacy by generally prohibiting disclosure of customer information to
non-affiliated third parties unless the customer has been given the opportunity
to object and has not objected to such disclosure. Financial institutions are
further required to disclose their privacy policies to customers annually. Final
regulations implementing customer privacy restrictions under the GLB Act have
been promulgated by the OTS and the other federal bank regulators. Compliance
with such privacy regulations was voluntary until July 2001.
The Company does not believe that the GLB Act will have a material adverse
affect upon its operations in the near term. However, to the extent the GLB Act
permits banks, securities firms, and insurance companies to affiliate, the
financial services industry may experience further consolidation. This could
result in a growing number of larger financial institutions that offer a wider
variety of financial services than the Company currently offers and that can
aggressively compete in the markets the Company currently serves.
18.
ITEM 2. PROPERTIES
The Company is located and conducts its business at the Bank's main office at
5400 South Pulaski Road, Chicago, Illinois 60632. In addition to the main
office, the Bank has branch locations at 2740 West 55th Street, Chicago,
Illinois 60632 and 21 East Ogden Avenue, Westmont, Illinois 60559. The Company
owns all three of its offices. The Company believes that the current facilities
are adequate to meet its present and immediately foreseeable needs. The Bank
recently purchased property, for a price of $428,000, near the 55th Street
location for possible future expansion.
ITEM 3. LEGAL PROCEEDINGS
The Company and the Bank are not involved in any pending proceedings other than
the legal proceedings occurring in the ordinary course of business. Such legal
proceedings in the aggregate are believed by management to be immaterial to the
Company's business, financial condition and results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of stockholders during the fourth quarter of
the year ended December 31, 2003.
19.
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the NASDAQ National Market under the
symbol "PFED" and has 729 stockholders as of December 31, 2003. The table below
shows the reported high and low sales price of the common stock and dividends
declared during the periods indicated in 2003 and 2002.
----------------2003---------------- ----------------2002----------------
---- ----
Dividends Dividends
High Low Declared High Low Declared
---- --- -------- ---- --- --------
First quarter $ 26.14 $ 22.85 $ 0.15 $ 19.25 $ 17.71 $ 0.12
Second quarter 28.45 24.90 0.15 23.10 18.50 0.12
Third quarter 28.10 25.80 0.15 23.00 20.86 0.15
Fourth quarter 29.79 26.58 0.15 23.76 22.00 0.15
ITEM 6. SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following tables set forth selected historical financial and other data of
the Company for the periods and at the dates indicated. The information should
be read in conjunction with the Consolidated Financial Statements and Notes
thereto of the Company contained elsewhere herein.
SELECTED FINANCIAL DATA
--------------------At or for the year ended December 31,------------------
-------------------------------------
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
Total assets $ 266,063 $ 251,532 $ 243,448 $ 235,183 $ 226,027
Cash and cash equivalents 11,081 23,998 27,909 4,066 4,024
Securities available-for-sale 72,058 61,113 65,704 125,220 124,359
Loans receivable, net(1) 158,957 147,993 134,788 97,017 86,692
Deposits 170,462 163,968 163,074 147,973 145,675
Securities sold under repurchase
agreements 6,904 10,599 10,658 18,686 13,185
FHLB advances 55,175 43,663 39,000 36,000 36,000
Stockholders' equity 29,540 29,894 27,278 29,279 27,358
Interest income 13,653 14,675 16,519 16,006 14,920
Interest expense 5,972 7,541 10,107 9,873 8,171
Net interest income 7,681 7,134 6,412 6,133 6,749
Provision for loan losses - 120 - - -
Noninterest income 1,090 1,154 777 723 2,045
Noninterest expense 5,380 4,967 4,754 4,497 4,702
Income tax expense 1,141 1,036 831 802 1,385
Net income 2,250 2,165 1,604 1,557 2,707
20.
SELECTED FINANCIAL RATIOS AND OTHER DATA
------------At or for the Year Ended December 31,-----------
-------------------------------------
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
PERFORMANCE RATIOS:
Return on average assets 0.85% 0.88% 0.65% 0.68% 1.23%
Return on average equity 7.61 7.64 5.58 5.86 7.87
Average equity to average assets 11.23 11.53 11.67 11.64 15.61
Dividend payout ratio 28.98 27.85 38.09 44.64 34.28
Net interest rate spread(2) 2.86 2.74 2.18 2.30 2.56
Net interest margin(3) 3.07 3.04 2.68 2.80 3.20
Efficiency ratio(4) 61.34 59.93 66.12 65.59 53.47
Noninterest expense to average assets 2.04 2.02 1.93 1.97 2.13
ASSET QUALITY RATIOS:
Nonperforming loans as a
percent of gross loans receivable(5) 0.34% 0.15% 0.09% 0.45% 0.07%
Nonperforming assets as a
percentage of total assets(5) 0.23 0.12 0.05 0.19 0.03
Allowance for loan losses as a
percent of gross loans receivable 0.36 0.37 0.38 0.49 0.56
Allowance for loan losses as a
percent of nonperforming loans(5) 106.06 244.26 409.84 109.17 793.65
OTHER DATA:
Number of full service offices 3 3 3 3 3
(1) The allowance for loan losses at December 31, 2003 and 2002 was $578 and
$574, respectively, and $500 for the years ended December 31, 2001, 2000,
and 1999.
(2) The net interest rate spread represents the difference between the weighted
average yield on interest-earning assets and the weighted average cost of
interest-bearing liabilities.
(3) The net interest margin represents net interest income as a percent of
average interest-earning assets.
(4) The efficiency ratio represents noninterest expense as a percent of net
interest income before the provision for loan losses and noninterest
income.
(5) Nonperforming assets consist of nonperforming loans and REO. Nonperforming
loans consist of all loans 90 days or more past due and all other
nonaccrual loans.
21.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The primary business of the Company is the ownership of the Bank. The Company's
results of operations are dependent primarily on net interest income, which is
the difference between the interest income earned on interest-earning assets,
such as loans and securities, and the interest expense on interest-bearing
liabilities, such as deposits and borrowings. The Company also generates
noninterest income such as income from real estate development activities and
service fees. Noninterest expense consists of employee compensation and
benefits, occupancy and equipment expense, and other operating expenses. The
Company's results of operations are also significantly affected by general
economic and competitive conditions, particularly changes in market interest
rates, government policies, and actions of regulatory agencies.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report contains certain forward-looking statements within the meaning of
Section 27a of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Reform Act of
1995, as amended, and are including this statement for purposes of these safe
harbor provisions. Forward-looking statements, which are based on certain
assumptions and describe future plans, strategies, and expectations of the
Company, are generally identifiable by use of the words "believe," "expect,"
"intend," "anticipate," "estimate," "project," or similar expressions. The
Company's ability to predict results or the actual effect of future plans or
strategies is inherently uncertain. Factors that could have a material adverse
effect on the operations and future prospects of the Company and its wholly
owned subsidiaries include, but are not limited to, changes in: interest rates;
the economic health of the local real estate market; general economic
conditions; legislative/regulatory provisions; monetary and fiscal policies of
the U.S. Government, including policies of the U.S. Treasury and the Federal
Reserve Board; the quality or composition of the loan and securities portfolios;
demand for loan products; deposit flows; competition; demand for financial
services in the Company's market area; and accounting principles, policies, and
guidelines. These risks and uncertainties should be considered in evaluating
forward-looking statements, and undue reliance should not be placed on such
statements.
22.
AVERAGE STATEMENT OF FINANCIAL CONDITION
The following table sets forth certain information relating to the Company's
Average Statement of Financial Condition and reflects the average yield on
assets and average cost of liabilities for the years ended December 31, 2003,
2002, and 2001. The yields and costs are derived by dividing interest income or
expense by the average balance of assets or liabilities, respectively, for the
years shown. Average balances are derived from average month-end balances.
Management does not believe that the use of average monthly balances instead of
average daily balances has caused any material differences in the information
presented. Average balances of loans receivable include loans on which the Bank
has discontinued accruing interest. Loan yields include fees, which are
considered adjustments to yields.
--------------------------Year Ended December 31,-----------------------------
-----------------------
------------------2003--------------- ------------------2002---------------
---- ----
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- ---- ------- -------- ----
ASSETS
Interest-earnings assets
Securities, net(1) $ 37,478 $ 1,681 4.49% $ 41,513 $ 2,411 5.81%
Loans receivable(2) 151,866 10,239 6.74 145,447 10,742 7.39
Mortgage-backed securities, net(1) 38,367 1,481 3.86 23,034 1,235 5.36
Interest-earning deposits and other investments 22,171 252 1.14 24,547 287 1.17
----------- -------- ----------- ---------
Total interest-earning assets 249,882 13,653 5.46 234,541 14,675 6.26
Non-interest-earning assets 13,504 11,363
----------- -----------
Total assets $ 263,386 $ 245,904
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities
Passbook accounts $ 36,091 340 0.94 $ 34,530 506 1.47
Money market savings accounts 9,907 153 1.54 8,153 153 1.88
NOW accounts 15,671 50 0.32 12,780 53 .41
Certificate accounts 109,752 3,260 2.97 107,739 4,408 4.09
----------- -------- ----------- ---------
Total deposits 171,421 3,803 2.22 163,202 5,120 3.14
FHLB advances and other borrowings 58,285 2,169 3.72 50,966 2,421 4.75
----------- -------- ----------- ---------
Total interest-bearing liabilities 229,706 5,972 2.60 214,168 7,541 3.52
-------- ---------
Non-interest-bearing liabilities 4,102 3,385
----------- -----------
Total liabilities 233,808 217,553
Stockholders' equity 29,578 28,351
----------- -----------
Total liabilities and stockholders' equity $ 263,386 $ 245,904
=========== ===========
Net interest income $ 7,681 $ 7,134
======== =========
Net interest rate spread(3) 2.86% 2.74%
Net interest margin(4) 3.07% 3.04%
Ratio of average interest-earning assets to
average interest-bearing liabilities 108.78% 109.51%
[WIDE TABLE CONTINUED FROM ABOVE]
--------Year Ended December 31,-------
-----------------------
-----------------2001-----------------
----
Average
Average Yield/
Balance Interest Cost
------- -------- ----
ASSETS
Interest-earnings assets
Securities, net(1) $ 88,751 $ 6,153 6.93%
Loans receivable(2) 114,218 8,868 7.76
Mortgage-backed securities, net(1) 16,660 993 5.96
Interest-earning deposits and other investments 19,914 505 2.54
----------- ---------
Total interest-earning assets 239,543 16,519 6.90
Non-interest-earning assets 6,946
-----------
Total assets $ 246,489
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities
Passbook accounts $ 32,528 648 1.99
Money market savings accounts 7,425 242 3.26
NOW accounts 12,234 85 .69
Certificate accounts 110,671 6,366 5.75
----------- ---------
Total deposits 162,858 7,341 4.51
FHLB advances and other borrowings 51,109 2,766 5.41
----------- ---------
Total interest-bearing liabilities 213,967 10,107 4.72
---------
Non-interest-bearing liabilities 3,761
-----------
Total liabilities 217,728
Stockholders' equity 28,761
-----------
Total liabilities and stockholders' equity $ 246,489
===========
Net interest income $ 6,412
=========
Net interest rate spread(3) 2.18%
Net interest margin(4) 2.68%
Ratio of average interest-earning assets to
average interest-bearing liabilities 111.95%
(1) Includes unamortized discounts and premiums.
(2) Amount is net of deferred loan origination fees, undisbursed loan funds,
unamortized discounts, and allowance for loan losses and includes
non-performing loans.
(3) Net interest rate spread represents the difference between the yield on
average interest-earning assets and the average cost of interest-bearing
liabilities.
(4) Net interest margin represents net interest income divided by average
interest-earning assets.
23.
RATE/VOLUME ANALYSIS
The following table presents the extent to which changes in interest rates and
changes in the volume of interest-earning assets and interest-bearing
liabilities have affected interest income and interest expense during the years
indicated. Information is provided in each category with respect to: (i) changes
attributable to changes in volume (changes in volume multiplied by prior rate);
(ii) changes attributable to changes in rate (changes in rate multiplied by
prior volume); and (iii) the net change. The changes attributable to the
combined impact of volume and rate have been allocated proportionately to the
changes due to volume and the changes due to rate.
-------2003 Compared to 2002------- --------2002 Compared to 2001------
--------------------- ---------------------
Increase (Decrease) Due to Increase (Decrease) Due to
Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- ---
INTEREST EARNED ON
Securities, net $ (181) $ (549) $ (730) $ (2,423) $ (1,319) $ (3,742)
Loans receivable, net 433 (936) (503) 2,308 (434) 1,874
Mortgage-backed securities,
net 592 (346) 246 342 (100) 242
Interest-earning deposits
and other investments (27) (8) (35) 107 (325) (218)
--------- ---------- ---------- ---------- ---------- ----------
Total interest-earning
assets 817 (1,839) (1,022) 334 (2,178) (1,844)
--------- ---------- ---------- ---------- ---------- ----------
INTEREST EXPENSE ON
Passbook savings accounts 15 (181) (166) 29 (171) (142)
Money market savings accounts 27 (27) -- 14 (103) (89)
NOW accounts 9 (12) (3) 2 (34) (32)
Certificate accounts 59 (1,207) (1,148) (120) (1,839) (1,959)
FHLB advances and other
borrowings 273 (525) (252) (7) (337) (344)
--------- ---------- ---------- ----------- ---------- ----------
Total interest-bearing
liabilities 383 (1,952) (1,569) (82) (2,484) (2,566)
--------- ---------- ---------- ----------- ---------- ----------
Change in net interest income $ 434 $ 113 $ 547 $ 416 $ 306 $ 722
========= ========== ========== ========== ========== ==========
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 2003 AND DECEMBER 31, 2002
Total assets at December 31, 2003 were $266.1 million compared to $251.5 million
at December 31, 2001 an increase of $14.6 million. Cash and cash equivalents
decreased $12.9 million to $11.1 million at December 31, 2003, primarily as a
result of loan demand during 2003. During 2003, loans increased by $11.0 million
to $159.0 million, primarily as a result of a decreasing interest rate
environment resulting in high volumes of loan originations and refinancings. In
addition, the Company purchased $7.6 million of loan participations in 2003.
The allowance for loan losses was $578,000 and $574,000 for the years December
31, 2003 and 2002, respectively. There were no impaired loans at either date.
Nonaccrual loans were $545,000 at December 31, 2003 compared to $235,000 at the
prior year end. Losses, if any, on nonaccrual loans are not expected to be
significant. Loans totaling $22,000 and $46,000 were
24.
charged off during 2003 and 2002, respectively. Recoveries totaled $26,000 in
2003, there were no recoveries in 2002.
Total liabilities at December 31, 2003 were $236.5 million compared to $221.6
million at December 31, 2002, an increase of $14.9 million. Deposits increased
$6.5 million, the change was due to an increase in checking, money market, and
passbook accounts. In addition, the Company increased FHLB advances by $11.5
million. These increases were partially offset by a decrease in securities sold
under repurchase agreements of $3.7 million. The increase in borrowings was used
to fund the increased loan demand that was experienced in 2003.
Stockholders' equity at December 31, 2003 was $29.5 million compared to $29.9
million at December 31, 2002, a decrease of $354,000. The decrease in
stockholders' equity from December 31, 2002 was attributable to the repurchase
of 87,107 shares of treasury stock at an average price of $25.72, cash dividends
paid of $652,000, and unrealized losses on securities available for sale of
$323,000 offset by net income of $2.3 million and exercised options of 14,007
shares at $15.74.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
General
- -------
Net income increased to $2.3 million in 2003. The increase is primarily due to
increases in the Company's net interest income, partially offset by an increase
in noninterest expense.
Net Interest Income
- -------------------
Interest income in 2003 was $13.7 million compared to $14.7 million in 2002, a
decrease of 6.96%. The decrease in interest income was primarily due to an
increase in the average balance of loans receivable and mortgage-backed
securities of $21.8 million, partially offset by a $6.4 million decrease in the
average balance of securities, interest-earning deposits, and other investments
due to calls and maturities. The average yield on earning assets decreased 80
basis points due to a decreasing rate environment.
Interest expense in 2003 was $6.0 million compared to $7.5 million in 2002, a
decrease of 20.8%. The decrease in interest expense is due to an increase in the
average balance of deposits and other borrowings of $15.5 million, offset by a
decrease in the average rate paid on deposits and borrowings of 92 basis points.
Net interest income in 2003 was $7.7 million compared to $7.0 million in 2002,
an increase of 7.67%. The increase was primarily due to an increase in the net
interest rate spread from 2.74% in 2002 to 2.86% in 2003 and an increase in the
net interest margin from 3.04% in 2002 to 3.07% in 2003.
Provision for Loan Losses
- -------------------------
Management establishes provisions for loan losses, which are charged to
operations, at a level management believes is appropriate to absorb probable
incurred credit losses in the loan portfolio. In evaluating the level of the
allowance for loan losses, management considers historical loss experience, the
types of loans and the amount of loans in the loan portfolio,
25.
adverse situations that may affect the borrower's ability to repay, estimated
value of any underlying collateral, peer group information, and prevailing
economic conditions. This evaluation is inherently subjective, as it requires
estimates that are susceptible to significant revision as more information
becomes available or as future events change. There was no provision for losses
on loans provided in 2003, and a $120,000 provision for losses on loans was
provided in 2002. The lack of provision is indicative of management's assessment
that the allowance for loan losses is adequate, given the trends in loan
delinquencies and historical loss experience of the portfolio and current
economic conditions.
Management assesses the allowance for loan losses on a quarterly basis and makes
provisions for loan losses as necessary in order to maintain the adequacy of the
allowance. While management uses available information to recognize losses on
loans, future loan loss provisions may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the allowance for loan losses and
may require us to recognize additional provisions based on their judgment of
information available to them at the time of their examination. The allowance
for loan losses as of December 31, 2003 is maintained at a level that represents
management's best estimate of inherent losses in the loan portfolio, and such
losses were both probable and reasonably estimable.
Noninterest Income
- ------------------
Noninterest income in 2003 was $1.1 million compared to $1.2 million in 2002.
The decrease was primarily attributable to a gain on the sale of real estate
held for expansion of $126,000 in 2002, with no gains or losses recognized in
2003.
Noninterest Expense
- -------------------
Noninterest expense in 2003 was $5.4 million compared to $5.0 million in 2002,
an increase of 8.31%. The increase was primarily a result of increased
compensation and benefits of $312,000 due to normal cost-of-living adjustments
and increased health insurance costs.
Income Taxes
- ------------
Income tax expense was $1.1 million in 2003 compared to $1.0 million in 2002.
The increase in income tax expense was primarily due to an increase in pre-tax
income in 2003. The effective tax rate was 33.6% for the year ended December 31,
2003 compared to 32.4% for the prior year.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
General
- -------
Net income increased to $2.2 million in 2002 from $1.6 million in 2001. The
increase is primarily due to increases in the Company's net interest income and
noninterest income, partially offset by increases in noninterest expense, which
is more fully discussed below.
26.
Net Interest Income
- -------------------
Interest income in 2002 was $14.7 million compared to $16.5 million in 2001, a
decrease of 11.2%. The decrease in interest income was primarily due to a
decrease of $40.9 million in the average balance of securities and
mortgage-backed securities due to calls and maturities, offset by an increase in
the average balance of loans receivable of $31.2 million. In addition, there was
a 64 basis point decrease in the average yield on earning assets due to a
decreasing rate environment, which resulted in refinancings of mortgage loans at
lower rates and repayment of mortgage-backed securities.
Interest expense in 2002 was $7.5 million compared to $10.1 million in 2001, a
decrease of 25.4%. The decrease in interest expense is due to a decrease in the
average rate paid on deposits and borrowings of 120 basis points.
At December 31, 2001, the Company had $88.4 million, or 81.5%, of certificates
of deposit scheduled to mature during 2002. The majority of these certificates
of deposit were renewed at lower rates throughout the year.
Net interest income in 2002 was $7.1 million compared to $6.4 million in 2001,
an increase of 11.3%. The increase was primarily due to an increase in the net
interest rate spread to 2.74% in 2002 from 2.18% in 2001 and an increase in the
net interest margin to 3.04% in 2002 from 2.68% in 2001.
Provision for Loan Losses
- -------------------------
Management establishes provisions for loan losses, which are charged to
operations, at a level management believes is appropriate to absorb probable
incurred credit losses in the loan portfolio. In evaluating the level of the
allowance for loan losses, management considers historical loss experience, the
types of loans and the amount of loans in the loan portfolio, adverse situations
that may affect the borrower's ability to repay, the estimated value of any
underlying collateral, peer group information, and prevailing economic
conditions. This evaluation is inherently subjective, as it requires estimates
that are susceptible to significant revision as more information becomes
available or as future events change. There was a $120,000 provision for losses
on loans provided in 2002, and no provision was provided in 2001. The increased
provision for loan losses is reflective of the increase in net charge-offs to
$46,000 in 2002 compared to none in the prior year. In addition, nonperforming
loans increased to $235,000 at December 31, 2002 from $122,000 at December 31,
2001.
Management believes that its assessment of the allowance for loan losses is
adequate, given the trends in loan delinquencies and historical loss experience
of the portfolio and current economic conditions.
Management assesses the allowance for loan losses on a quarterly basis and makes
provisions for loan losses as necessary in order to maintain the adequacy of the
allowance. While management uses available information to recognize losses on
loans, future loan loss provisions may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the allowance for loan losses and
may require us to recognize additional provisions based on their judgment of
information available to them at the time of their examination. The allowance
for loan losses as
27.
of December 31, 2002 is maintained at a level that represents management's best
estimate of inherent losses in the loan portfolio, and such losses were both
probable and reasonably estimable.
Noninterest Income
- ------------------
Noninterest income in 2002 was $1.2 million compared to $777,000 in 2001. The
increase was primarily attributable to $272,000 of income generated from
bank-owned life insurance. In addition, the Company realized net gains on the
sale of securities of $346,000 in 2002 compared to $325,000 in 2001. The Company
sold real estate held for expansion during 2002 with a resultant gain of
$126,000.
Noninterest Expense
- -------------------
Noninterest expense in 2002 was $5.0 million compared to $4.8 million in 2001.
The increase was primarily a result of occupancy and equipment expenses
increased due to depreciation expense associated with hardware and software
upgrades and capital expenditures.
Income Taxes
- ------------
Income tax expense was $1.0 million in 2002 compared to $831,000 in 2001. The
increase in income tax expense was primarily due to an increase in pre-tax
income in 2002. The effective tax rate was 32.4% for the year ended December 31,
2002 compared to 34.1% for the prior year. The decrease in the effective tax
rate was primarily a result of an increase in tax exempt income related to the
cash surrender value of life insurance.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds are deposits, principal and interest
payments on loans and securities, proceeds from maturities and calls of
securities, FHLB advances, and securities sold under repurchase agreements.
While maturities and scheduled amortization of loans and securities are
predictable sources of funds, deposit flows and mortgage prepayments are greatly
influenced by general interest rates, economic conditions, and competition. The
Bank maintains a liquidity ratio substantially above the regulatory requirement.
This requirement, which may be varied at the direction of the OTS depending upon
economic conditions and deposit flows, is based upon a percentage of deposits
and short-term borrowings. The required ratio is currently 4.0%. The Bank's
average regulatory liquidity ratios were 48.12%, 27.26%, and 41.36%, for the
years ended December 31, 2003, 2002, and 2001, respectively.
The Company's cash flows are comprised of three primary classifications: cash
flows from operating activities, investing activities, and financing activities.
Cash flows provided by operating activities were $1.5 million, $1.6 million, and
$3.0 million in 2003, 2002, and 2001, respectively. Net cash from investing
activities consisted primarily of disbursements for loan originations and the
purchase of securities, offset by principal collections on loans, proceeds from
maturing securities and paydowns on mortgage-backed securities, and the
investment in and proceeds from the sale of real estate held for development.
Net cash from financing activities consisted primarily of the activity in
deposit accounts, FHLB borrowings, and securities sold under repurchase
agreements in addition to the purchase of treasury stock. The
28.
net cash from financing activities was $11.8 million, $4.6 million, and $3.5
million in 2003, 2002, and 2001, respectively.
At December 31, 2003, the Bank exceeded all of its regulatory capital
requirements with a Tier 1 (core) capital level of $24.8 million, or 9.5% of
adjusted total assets, which is above the required level of $10.5 million, or
4%; and total risk-based capital of $25.4 million, or 16.0% of risk-weighted
assets, which is above the required level of $12.7 million, or 8%.
The Bank's most liquid assets are cash and short-term investments. The levels of
these assets are dependent on the Bank's operating, financing, lending, and
investing activities during any given period. At December 31, 2003, cash and
short-term investments totaled $11.1 million. The Bank has other sources of
liquidity if a need for additional funds arises, including the repayment of
loans and mortgage-backed securities. The Bank may also utilize FHLB advances or
the sale of securities available-for-sale as a source of funds.
CRITICAL ACCOUNTING POLICIES
At December 31, 2003 the Company had no accounting policies that were determined
to be critical. However, the following policy may impact the results of future
operations of the company.
Allowance for Loan Losses: The allowance for loan losses represents management's
estimate of probable credit losses inherent in the loan portfolio. Estimating
the amount of the allowance for loan losses requires significant judgment and
the use of estimates related to the amount and timing of expected future cash
flows on impaired loans, estimated losses on pools of homogeneous loans, both of
which may be susceptible to significant change. The loan portfolio also
represents the largest asset type on the consolidated balance sheet. Loan losses
are charged off against the allowance, while recoveries of amounts previously
charged off are credited to the allowance. A provision for loan losses is
charged to operations based on management's periodic evaluation of the factors
previously mentioned, as well as other pertinent factors.
There are many factors affecting the allowance for loan losses; some
quantitative, while others require qualitative judgment. Although management
believes its process for determining the allowance adequately considers all
potential factors that could potentially result in credit losses, the process
includes subjective elements and may be susceptible to significant change. To
the extent actual outcomes differ from management estimates, additional
provisions for credit losses could be required that could adversely affect
earnings or financial position in future periods.
COMMITMENTS
At December 31, 2003, the Bank had outstanding commitments to originate loans of
$1.8 million, as compared to $1.7 million in 2002. The Bank anticipates that it
will have sufficient funds available to meet its current loan origination
commitments. Certificate accounts that are scheduled to mature in less than one
year from December 31, 2003 totaled $72.0 million. Management expects that a
substantial portion of the maturing certificate accounts will be renewed at the
Bank. However, if these deposits are not retained, the Bank may utilize FHLB
29.
advances or raise interest rates on deposits to attract new accounts, which may
result in higher levels of interest expense.
The following tables disclose contractual obligations and commercial commitments
of the Company as of December 31, 2003:
Less Than After
Total 1 Year 1 - 3 Years 4 - 5 Years 5 Years
----- ------ ----------- ----------- -------
Securities sold under
agreements to
repurchase $ 6,904 $ 6,904 $ -- $ -- $ --
FHLB advances 55,175 8,000 29,414 7,761 10,000
----------- ----------- ----------- ----------- -----------
Total contractual
cash obligations $ 62,079 $ 14,904 $ 29,414 $ 7,761 $ 10,000
=========== =========== =========== =========== ===========
Total
Amounts Less Than Over
Committed 1 Year 1 - 3 Years 4 - 5 Years 5 Years
--------- ------ ----------- ----------- -------
Letters of credit $ 1,527 $ 967 $ -- $ 560 $ --
Loans in process 1,812 1,812 -- -- --
Commitments to make
loans (all fixed rate) 1,763 1,763 -- -- --
----------- ----------- ----------- ----------- -----------
Total commercial
commitments $ 5,102 $ 4,542 $ -- $ 560 $ --
=========== =========== =========== =========== ===========
IMPACT OF INFLATION AND CHANGING PRICES
The impact of inflation is reflected in the increased cost of operations. Unlike
industrial companies, nearly all of the assets and liabilities of the Company
are monetary in nature. As a result, interest rates have a greater impact on the
Company's performance than do the effects of general levels of inflation.
Interest rates do not necessarily move in the same direction or to the same
extent as the price of goods and services.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Bank's interest rate sensitivity is monitored by management through the use
of a model that estimates the change in net portfolio value ("NPV") over a range
of interest rate scenarios. NPV is the present value of expected cash flows from
assets, liabilities, and off-balance-sheet contracts. An NPV Ratio, in any
interest rate scenario, is defined as the NPV in that scenario divided by the
market value of assets in the same scenario. The Sensitivity Measure is the
decline in the NPV Ratio, in basis points, caused by a 2% increase or decrease
in rates, whichever produces a larger decline. The higher an institution's
Sensitivity Measure is, the greater its exposure to interest rate risk is
considered to be. The OTS has incorporated an interest rate risk component into
its regulatory capital rule. Under the rule, an institution
30.
whose sensitivity measure exceeds 2% would be required to deduct an interest
rate risk component in calculating its total capital for purposes of the
risk-based capital requirement. As of December 31, 2003, the Bank's sensitivity
measure, as measured by the OTS, resulting from a 200 basis point increase in
interest rates was (32)% and would result in a $9.9 million decrease in the NPV
of the Bank. Accordingly, increases in interest rates would be expected to have
a negative impact on the Bank's operating results. The NPV Ratio sensitivity
measure is below the threshold at which the Bank could be required to hold
additional risk-based capital under OTS regulations.
Certain shortcomings are inherent in the methodology used in the above interest
rate risk measurements. Modeling changes in NPV require the making of certain
assumptions that may tend to oversimplify the manner in which actual yields and
costs respond to changes in market interest rates. First, the models assume that
the composition of the Bank's interest sensitive assets and liabilities existing
at the beginning of a period remain constant over the period being measured.
Second, the models assume that a particular change in interest rates is
reflected uniformly across the yield curve regardless of the duration to
maturity or repricing of specific assets and liabilities. Third, the model does
not take into account the impact of the Bank's business or strategic plans on
the structure of interest-earning assets and interest-bearing liabilities.
Accordingly, although the NPV measurement provides an indication of the Bank's
interest rate risk exposure at a particular point in time, such measurement is
not intended to and does not provide a precise forecast of the effect of changes
in market interest rates on the Bank's net interest income and will differ from
actual results. The results of this modeling are monitored by management and
presented to the Board of Directors quarterly.
The following tables show the NPV and projected change in the NPV of the Bank at
December 31, 2003 and 2002 assuming an instantaneous and sustained change in
market interest rates of 100, 200, and 300 basis points.
INTEREST RATE SENSITIVITY OF NET PORTFOLIO VALUE (NPV)
DECEMBER 31, 2003
NPV as a % of
--------------Net Portfolio Value------------ -----------PV of Assets---------
------------------- ------------
Change in Rates $ Amount $ Change % Change NPV Ratio Change
- --------------- -------- -------- -------- --------- ------
+ 300 bp $ 16,153 $ (15,808) (49)% 6.44% (527) bp
+ 200 bp 21,665 (10,296) (32) 8.39 (332) bp
+ 100 bp 27,162 (4,799) (15) 10.22 (149) bp
0 bp 31,961 - - 11.71 -
- 100 bp 33,942 1,981 6 12.23 52 bp
- 200 bp N/A N/A N/A N/A N/A
- 300 bp N/A N/A N/A N/A N/A
31.
DECEMBER 31, 2002
NPV as a % of
--------------Net Portfolio Value------------ -----------PV of Assets---------
------------------- ------------
Change in Rates $ Amount $ Change % Change NPV Ratio Change
- --------------- -------- -------- -------- --------- ------
+ 300 bp $ 18,310 $ (10,895) (37)% 7.62% (374) bp
+ 200 bp 22,792 (6,413) (22) 9.25 (211) bp
+ 100 bp 26,937 (2,268) (8) 10.67 (69) bp
0 bp 29,205 - - 11.36 -
- 100 bp 29,361 156 1 11.31 (5) bp
- 200 bp N/A N/A N/A N/A N/A
- 300 bp N/A N/A N/A N/A N/A
The Bank and the Company do not maintain any securities for trading purposes.
The Bank and the Company do not currently engage in trading activities or use
derivative instruments in a material amount to control interest rate risk. In
addition, interest rate risk is the most significant market risk affecting the
Bank and the Company. Other types of market risk, such as foreign currency
exchange risk and commodity price risk, do not arise in the normal course of the
Company's business activities and operations.
The Bank has experienced a significant increase in interest rate risk since
1998, primarily as a result of investing in callable fixed rate U.S. Government
Agency securities with maturities exceeding ten years. Management is currently
evaluating various alternatives to reduce interest rate risk. The Company has no
plans in the foreseeable future to purchase callable securities.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Information on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
(a) Directors. The information required in response to this item regarding
directors of the Company will be contained in the Company's definitive
Proxy Statement ("the Proxy Statement") for its Annual Meeting of
Stockholders to be held on May 5, 2004 under the caption "Election of
Directors - Information with Respect to the Nominees, Continuing
Directors and Certain Executive Officers" and is incorporated herein by
reference.
32.
(b) Executive Officers of the Company. The information required in response
to this item regarding executive officers of the Company is contained in
Part I of this report and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required in response to this item will be contained in the Proxy
Statement under the captions "Election of Directors - Directors' Compensation"
and "Executive Compensation" and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required in response to this item will be contained in the Proxy
Statement under the captions "Security Ownership of Certain Beneficial Owners"
and "Election of Directors - Information with Respect to the Nominees,
Continuing Directors and Certain Executive Officers" and is incorporated herein
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required in response to this item will be contained in the Proxy
Statement under the caption "Election of Directors - Transactions with Certain
Related Persons" and is incorporated herein by reference.
ITEM 14. CONTROLS AND PROCEDURES
Management, including the Chief Executive Officer and Chief Financial Officer,
have conducted an evaluation of the effectiveness of disclosure controls and
procedures, pursuant to Exchange Act Rule 13a-15(b), as of December 31, 2003.
Based on that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the Company's disclosure controls and procedures are
effective and that no changes are required at this time.
In connection with the evaluation by management, including the Chief Executive
Officer and Chief Financial Officer, of the Company's internal control over
financial reporting, pursuant to Exchange Act Rule 13a-15(d), no changes during
the quarter e