UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(mark one)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 0-24040
PENNFED FINANCIAL SERVICES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 22-3297339
- ---------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
622 Eagle Rock Avenue, West Orange, NJ 07052-2989
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (973) 669-7366
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(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 |_|.
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act).
YES |X|. NO |_|.
As of May 8, 2003, there were issued and outstanding 6,962,168 shares of
the Registrant's Common Stock.
PART I - Financial Information
Item 1. Financial Statements
PennFed Financial Services, Inc. and Subsidiaries
Consolidated Statements of Financial Condition
March 31, June 30,
2003 2002
----------- -----------
(Dollars in thousands)
ASSETS
Cash and cash equivalents ................................................... $ 90,714 $ 37,189
Investment securities available for sale, at market value, amortized cost of
$4,421 and $4,266 at March 31, 2003 and June 30, 2002 ................ 4,636 4,295
Investment securities held to maturity, at amortized cost, market value of
$258,750 and $178,676 at March 31, 2003 and June 30, 2002 .............. 256,198 179,490
Mortgage-backed securities held to maturity, at amortized cost, market value
of $110,536 and $174,036 at March 31, 2003 and June 30, 2002 ........... 106,017 169,689
Loans held for sale ......................................................... 14,443 1,592
Loans receivable, net of allowance for loan losses of $6,314 and $5,821
at March 31, 2003 and June 30, 2002 .................................... 1,295,195 1,439,668
Premises and equipment, net ................................................. 20,711 19,598
Real estate owned, net ...................................................... 28 28
Federal Home Loan Bank of New York stock, at cost ........................... 25,223 25,656
Accrued interest receivable, net ............................................ 8,539 9,564
Goodwill and other intangible assets ........................................ 3,636 5,043
Other assets ................................................................ 3,563 615
----------- -----------
$ 1,828,903 $ 1,892,427
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
Liabilities:
Deposits ............................................................... $ 1,106,036 $ 1,174,507
Federal Home Loan Bank of New York advances ............................ 504,465 504,465
Other borrowings ....................................................... 26,456 23,314
Mortgage escrow funds .................................................. 10,063 12,772
Accounts payable and other liabilities ................................. 18,931 14,071
----------- -----------
Total liabilities ...................................................... 1,665,951 1,729,129
----------- -----------
Guaranteed Preferred Beneficial Interests in the Company's
Junior Subordinated Debentures ..................................... 46,500 46,500
Unamortized issuance expenses .......................................... (1,906) (1,963)
----------- -----------
Net Trust Preferred securities ......................................... 44,594 44,537
----------- -----------
Stockholders' Equity:
Serial preferred stock, $.01 par value, 7,000,000 shares
authorized, no shares issued ....................................... -- --
Common stock, $.01 par value, 15,000,000 shares authorized, 11,900,000
shares issued and 6,978,668 and 7,347,552 shares outstanding at
March 31, 2003 and June 30, 2002 (excluding shares held in treasury
of 4,921,332 and 4,552,448 at March 31, 2003 and June 30, 2002) ... 60 60
Additional paid-in capital ............................................. 65,277 63,820
Employee Stock Ownership Plan Trust debt ............................... (794) (1,244)
Retained earnings, partially restricted ................................ 122,998 114,444
Accumulated other comprehensive income, net of taxes ................... 138 18
Treasury stock, at cost, 4,921,332 and 4,552,448 shares at
March 31, 2003 and June 30, 2002 .................................... (69,321) (58,337)
----------- -----------
Total stockholders' equity ............................................. 118,358 118,761
----------- -----------
$ 1,828,903 $ 1,892,427
=========== ===========
See notes to consolidated financial statements.
2
PennFed Financial Services, Inc. and Subsidiaries
Consolidated Statements of Income
Three months ended Nine months ended
March 31, March 31,
------------------------- -------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
(Dollars in thousands, except per share amounts)
Interest and Dividend Income:
Interest and fees on loans ..................... $ 20,038 $ 22,406 $ 64,920 $ 69,927
Interest on federal funds sold ................. 93 -- 106 1
Interest and dividends on investment securities 3,805 3,583 10,694 13,612
Interest on mortgage-backed securities ......... 1,640 3,003 6,218 7,716
----------- ----------- ----------- -----------
25,576 28,992 81,938 91,256
----------- ----------- ----------- -----------
Interest Expense:
Deposits ....................................... 7,393 9,825 25,900 32,363
Borrowed funds ................................. 7,394 7,320 22,508 23,161
----------- ----------- ----------- -----------
14,787 17,145 48,408 55,524
----------- ----------- ----------- -----------
Net Interest and Dividend Income Before Provision
for Loan Losses ................................ 10,789 11,847 33,530 35,732
Provision for Loan Losses ........................... 100 300 525 1,225
----------- ----------- ----------- -----------
Net Interest and Dividend Income After Provision
for Loan Losses ................................ 10,689 11,547 33,005 34,507
----------- ----------- ----------- -----------
Non-Interest Income:
Service charges ................................ 1,294 765 3,647 2,174
Net gain (loss) from real estate operations .... 1 (12) 3 (58)
Net gain on sales of loans ..................... 498 22 1,292 109
Other .......................................... 220 273 712 677
----------- ----------- ----------- -----------
2,013 1,048 5,654 2,902
----------- ----------- ----------- -----------
Non-Interest Expenses:
Compensation and employee benefits ............. 3,358 3,209 10,152 9,624
Net occupancy expense .......................... 498 409 1,308 1,203
Equipment ...................................... 544 617 1,571 1,649
Advertising .................................... 36 121 154 361
Amortization of intangibles .................... 465 483 1,407 1,462
Federal deposit insurance premium .............. 49 52 147 154
Preferred securities expense ................... 1,092 1,092 3,276 3,276
Other .......................................... 982 1,044 2,938 3,072
----------- ----------- ----------- -----------
7,024 7,027 20,953 20,801
----------- ----------- ----------- -----------
Income Before Income Taxes .......................... 5,678 5,568 17,706 16,608
Income Tax Expense .................................. 2,106 1,964 6,486 5,880
----------- ----------- ----------- -----------
Net Income .......................................... $ 3,572 $ 3,604 $ 11,220 $ 10,728
=========== =========== =========== ===========
Weighted average number of common shares outstanding:
Basic .......................................... 6,950,081 7,173,326 7,021,298 7,255,536
=========== =========== =========== ===========
Diluted ........................................ 7,464,791 7,702,997 7,546,527 7,790,381
=========== =========== =========== ===========
Net income per common share:
Basic .......................................... $ 0.51 $ 0.50 $ 1.60 $ 1.48
=========== =========== =========== ===========
Diluted ........................................ $ 0.48 $ 0.47 $ 1.49 $ 1.38
=========== =========== =========== ===========
See notes to consolidated financial statements.
3
PennFed Financial Services, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
Three months ended Nine months ended
March 31, March 31,
----------------- -----------------
2003 2002 2003 2002
------- ------- ------- -------
(In thousands)
Net income ........................................... $ 3,572 $ 3,604 $11,220 $10,728
Other comprehensive income, net of tax:
Unrealized gains on investment securities available
for sale:
Unrealized holding gains arising during period 76 1 120 1
------- ------- ------- -------
Comprehensive income ................................. $ 3,648 $ 3,605 $11,340 $10,729
======= ======= ======= =======
See notes to consolidated financial statements.
4
PennFed Financial Services, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
For the Nine Months Ended March 31, 2003 and 2002
-------------------------------------------------
Employee
Stock Accumulated
Serial Additional Ownership Other
Preferred Common Paid-In Plan Trust Retained Comprehensive Treasury
Stock Stock Capital Debt Earnings Income Stock
--------- -------- ---------- ---------- -------- ------------- --------
(Dollars in thousands)
Balance at June 30, 2001 $ -- $ 60 $ 61,504 $ (1,801) $102,694 $ -- $(49,927)
Allocation of Employee Stock
Ownership Plan (ESOP) stock... 418
ESOP adjustment................. 1,890
Purchase of 430,000 shares of
treasury stock................ (9,280)
Issuance of 214,585 shares of
treasury stock for options
exercised and Dividend
Reinvestment Plan (DRP)....... (1,095) 2,548
Cash dividends of $0.17 per
common share.................. (1,247)
Unrealized gain on investment
securities available for sale,
net of income taxes........... 1
Net income for the nine months
ended March 31, 2002.......... 10,728
--------- -------- ---------- ---------- -------- ------------- --------
Balance at March 31, 2002....... $ -- $ 60 $ 63,394 $ (1,383) $111,080 $ 1 $(56,659)
========= ======== ========== ========== ======== ============= ========
Balance at June 30, 2002........ $ -- $ 60 $ 63,820 $ (1,244) $114,444 $ 18 $(58,337)
Allocation of ESOP stock........ 450
ESOP adjustment................. 1,457
Purchase of 455,000 shares of
treasury stock................ (12,122)
Issuance of 86,116 shares of
treasury stock for options
exercised and DRP............. (566) 1,138
Cash dividends of $0.30 per
common share.................. (2,100)
Unrealized gain on investment
securities available for sale,
net of income taxes........... 120
Net income for the nine months
ended March 31, 2003.......... 11,220
--------- -------- ---------- ---------- -------- ------------- --------
Balance at March 31, 2003....... $ -- $ 60 $ 65,277 $ (794) $122,998 $ 138 $(69,321)
========= ======== ========== ========== ======== ============= ========
See notes to consolidated financial statements.
5
PennFed Financial Services, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Nine months ended March 31,
---------------------------
2003 2002
--------- ---------
(Dollars in thousands)
Cash Flows from Operating Activities:
Net income .............................................................. $ 11,220 $ 10,728
Adjustments to reconcile net income to net cash provided by
operating activities:
Net gain on sales of loans .............................................. (1,292) (109)
Proceeds from sales of loans held for sale .............................. 109,166 9,593
Net gain on sales of real estate owned .................................. -- (40)
Amortization of investment and mortgage-backed securities
premium, net .......................................................... 632 319
Depreciation and amortization ........................................... 1,290 1,306
Provision for losses on loans and real estate owned ..................... 525 1,251
Amortization of cost of stock plans ..................................... 1,907 2,309
Amortization of intangibles ............................................. 1,407 1,462
Amortization of premiums on loans and loan fees ......................... 5,476 2,795
Amortization of Trust Preferred securities issuance costs ............... 57 57
(Increase) decrease in accrued interest receivable, net of accrued
interest payable ...................................................... 84 (347)
Increase in other assets ................................................ (2,948) (177)
Increase (decrease) in accounts payable and other liabilities ........... 4,793 (3,305)
Decrease in mortgage escrow funds ....................................... (2,709) (486)
Other, net .............................................................. -- (19)
--------- ---------
Net cash provided by operating activities ............................... 129,608 25,337
--------- ---------
Cash Flows from Investing Activities:
Proceeds from maturities of investment securities ....................... 187,710 274,585
Purchases of investment securities held to maturity ..................... (264,491) (120,148)
Purchases of investment securities available for sale ................... (155) (15)
Net proceeds (outflow) from loan originations net of principal repayments
of loans ............................................................. 14,254 (146,420)
Proceeds from loans sold ................................................ 4,170 --
Purchases of loans ...................................................... (676) (19,233)
Proceeds from principal repayments of mortgage-backed securities ........ 63,227 37,692
Purchases of mortgage-backed securities ................................. (114) (20,364)
Proceeds from sale of premises and equipment ............................ -- 14
Purchases of premises and equipment ..................................... (2,403) (729)
Net inflow from real estate owned activity .............................. -- 329
Redemptions of Federal Home Loan Bank of New York stock ................. 433 1,267
--------- ---------
Net cash provided by investing activities ............................... 1,955 6,978
--------- ---------
Cash Flows from Financing Activities:
Net increase (decrease) in deposits ..................................... (67,530) 51,145
Increase (decrease) in advances from the Federal Home Loan Bank
of New York and other borrowings ...................................... 3,142 (56,210)
Cash dividends paid ..................................................... (2,100) (1,247)
Purchases of treasury stock, net of reissuance .......................... (11,550) (7,826)
--------- ---------
Net cash used in financing activities ................................... (78,038) (14,138)
--------- ---------
Net Increase in Cash and Cash Equivalents .................................... 53,525 18,177
Cash and Cash Equivalents, Beginning of Period ............................... 37,189 15,771
--------- ---------
Cash and Cash Equivalents, End of Period ..................................... $ 90,714 $ 33,948
========= =========
6
PennFed Financial Services, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Continued)
Nine months ended March 31,
---------------------------
2003 2002
----------- -----------
(Dollars in thousands)
Supplemental Disclosures of Cash Flow Information:
Cash paid during period for:
Interest ......................................................... $ 49,978 $ 56,883
=========== ===========
Income taxes ..................................................... $ 9,074 $ 5,511
=========== ===========
Supplemental Schedule of Non-Cash Activities:
Transfer of loans receivable to real estate owned, net ........... $ -- $ 6
=========== ===========
Transfer of loans receivable to loans held for sale, at cost ..... $ 120,908 $ 9,401
=========== ===========
Securitization of loans receivable and transfer to mortgage-backed
securities ..................................................... $ -- $ 65,923
=========== ===========
See notes to consolidated financial statements.
7
PENNFED FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The interim consolidated financial statements of PennFed Financial Services,
Inc. ("PennFed") and subsidiaries (with its subsidiaries, the "Company") include
the accounts of PennFed and its subsidiaries (Penn Federal Savings Bank (the
"Bank"), PennFed Capital Trust I and PennFed Capital Trust II). These interim
consolidated financial statements included herein should be read in conjunction
with the Company's Annual Report on Form 10-K for the year ended June 30, 2002.
The interim consolidated financial statements reflect all normal and recurring
adjustments which are, in the opinion of management, considered necessary for a
fair presentation of the financial condition and results of operations for the
periods presented. There were no adjustments of a non-recurring nature recorded
during the nine months ended March 31, 2003 and 2002. The interim results of
operations presented are not necessarily indicative of the results for the full
year.
2. Commitments to Originate Loans
The Company enters into commitments to originate loans whereby the interest rate
on the loan is determined prior to funding (rate lock commitments). Rate lock
commitments on mortgage loans that are intended to be sold are considered to be
derivatives and are recorded within other assets at fair value with changes in
fair value recorded in the net gain on sales of loans. Fair value is based upon
current prices in the secondary market for mortgage loans with similar
characteristics as the rate lock commitments.
3. Adoption of Recently Issued Accounting Standards
Effective July 1, 2002, the Company adopted Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"),
Statement of Financial Accounting Standards No. 143, "Accounting for Asset
Retirement Obligations" ("SFAS 143") and Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" ("SFAS 144").
SFAS 142 requires that, upon adoption, amortization of goodwill will cease and
instead, the carrying value of goodwill will be evaluated for impairment on an
annual basis. Identifiable intangible assets will continue to be amortized over
their useful lives and reviewed for impairment in accordance with Statement of
Financial Position No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of" ("SFAS 121").
SFAS 143 requires that the fair value of a liability for an asset retirement
obligation be recognized in the period in which it is incurred, if a reasonable
estimate of fair value can be made. The associated asset retirement cost would
be capitalized as part of the carrying amount of the long-lived asset.
SFAS 144 supersedes SFAS 121 but retains the requirements of SFAS 121 for
recognizing and measuring the impairment loss of long-lived assets to be held
and used. For long-lived assets to be disposed of by sale, SFAS 144 requires a
single accounting model be used for all long-lived assets, whether previously
held and used or newly acquired. Long-lived assets to be disposed of other than
by sale would be considered held and used until disposition. SFAS 144 also
broadens the presentation of discontinued operations in the income statement to
include more disposal transactions.
The adoption of SFAS 142, SFAS 143 and SFAS 144 did not have an effect on the
Company's financial condition, results of operations or cash flows as of and for
the nine months ended March 31, 2003.
Effective October 1, 2002, the Company adopted Statement of Financial Accounting
Standards No. 147, "Acquisitions of Certain Financial Institutions, an amendment
of FASB Statements No. 72 and 144 and FASB Interpretation No. 9" ("SFAS 147").
Among other things, SFAS 147 amends SFAS 144 to include in its scope long-term
customer-relationship intangible assets of financial institutions such as
depositor- and borrower-relationship intangible assets. Consequently, those
intangible assets are subject to the same undiscounted cash flow recoverability
test and impairment loss recognition and measurement provisions that SFAS 144
requires for other long-lived assets that are held and used. The adoption of
SFAS 147 did not have an effect on the Company's financial position, results of
operations or cash flows as of and for the nine months ended March 31, 2003.
8
Effective January 1, 2003, the Company adopted FASB Interpretation No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 addresses the
disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under guarantees. FIN 45 also clarifies the
requirements related to the recognition of a liability by a guarantor at the
inception of a guarantee for the obligations the guarantor has undertaken in
issuing that guarantee. For recognition and initial measurement, FIN 45 is
applicable on a prospective basis to guarantees issued or modified after
December 31, 2002. The adoption of FIN 45 did not have an effect on the
Company's financial position, results of operations or cash flows as of and for
the nine months ended March 31, 2003. For disclosure requirements, FIN 45 is
effective for financial statements of interim or annual periods ending after
December 15, 2002. See Note 5. - Guaranteed Preferred Beneficial Interests in
the Company's Junior Subordinated Debentures, for disclosure regarding the
Company's guarantee of the obligations under the Guaranteed Preferred Beneficial
Interests in the Company's Junior Subordinated Debentures.
4. Recently Issued Accounting Standards
In December 2002, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure" ("SFAS 148"). SFAS 148 amends FASB
Statement No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), to
provide alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. SFAS 148
is effective for reporting periods beginning after December 15, 2002. As the
Company did not adopt the SFAS 123 fair value based method of accounting for
stock options, the adoption of SFAS 148 should have no impact on its
consolidated financial position or results of operations.
In January 2003, FASB issued FASB Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN 46"). FIN 46 is an interpretation of
Accounting Research Bulletin No. 51, "Consolidated Financial Statements" and
addresses consolidation by business enterprises of variable interest entities
having certain characteristics. FIN 46 is effective immediately for certain
disclosure requirements and variable interest entities created after January 31,
2003 and in fiscal 2003 for all other variable interest entities. As the Company
does not have variable interest entities, the adoption of FIN 46 will not have
an effect on the Company's financial position, results of operations or cash
flows.
In April 2003, FASB issued Statement of Financial Accounting Standards No. 149,
"Amendment of Statement 133 on Derivative Instruments and Hedging Activities"
("SFAS 149"). SFAS 149 amends and clarifies accounting for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities under SFAS 133. In particular, SFAS 149
clarifies under what circumstances a contract with an initial net investment
meets the characteristic of a derivative and when a derivative contains a
financing component that warrants special reporting in the statement of cash
flows. SFAS 149 is generally effective for contracts entered into or modified
after June 30, 2003 and is not expected to have an impact on the Company's
consolidated financial position, results of operations or cash flows.
5. Guaranteed Preferred Beneficial Interests in the Company's Junior
Subordinated Debentures
In October 1997, PennFed formed a wholly-owned trust subsidiary, PennFed Capital
Trust I (the "Trust I"). Effective October 21, 1997, Trust I sold $34.5 million
of 8.90% cumulative trust preferred securities to the public which are reflected
on the Consolidated Statements of Financial Condition as Guaranteed Preferred
Beneficial Interests in the Company's Junior Subordinated Debentures (the "Trust
Preferred securities"). Trust I used the proceeds from the sale of the Trust
Preferred securities to purchase 8.90% junior subordinated deferrable interest
debentures issued by PennFed. The sole assets of Trust I are $35.6 million of
junior subordinated debentures which mature in 2027 and are redeemable at any
time after five years. The obligations of PennFed related to Trust I constitute
a full and unconditional guarantee by PennFed of Trust I Issuer's obligations
under the Trust Preferred securities. The Company used the proceeds from the
junior subordinated debentures for general corporate purposes, including a $20
million capital contribution to the Bank to support future growth. See Note 9. -
Subsequent Event, for additional information regarding the redemption of the
Trust Preferred securities of Trust I.
In March 2001, PennFed formed a second wholly-owned trust subsidiary, PennFed
Capital Trust II (the "Trust II"). Effective March 28, 2001, Trust II sold $12
million of 10.18% cumulative trust preferred securities in a private
9
transaction exempt from registration under the Securities Act of 1933, as
amended (the "Act"). Therefore, these securities have not been registered under
the Act. The trust preferred securities are reflected on the Consolidated
Statements of Financial Condition as Guaranteed Preferred Beneficial Interests
in the Company's Junior Subordinated Debentures. Trust II used the proceeds from
the sale of the Trust Preferred securities to purchase 10.18% junior
subordinated deferrable interest debentures issued by PennFed. The sole assets
of Trust II are $12.4 million of junior subordinated debentures which mature in
2031 and are redeemable at any time after ten years. The obligations of PennFed
related to Trust II constitute a full and unconditional guarantee by PennFed of
Trust II Issuer's obligations under the Trust Preferred securities. The Company
used the proceeds from the junior subordinated debentures for general corporate
purposes, including a $4.2 million capital contribution to the Bank to support
future growth.
6. Other Contingencies
In 1987, the New Jersey Department of Environmental Protection ("NJDEP")
conducted an environmental contamination investigation of the Orange Road branch
site of First Federal Savings and Loan Association of Montclair ("First
Federal"). Prior to the acquisition by First Federal, the location was used as a
gasoline service station. On August 16, 1989, the NJDEP issued a "no further
action" letter to First Federal with regard to this site. The Bank acquired
First Federal effective September 11, 1989. Notwithstanding the earlier "no
further action" letter, on June 25, 1997, the NJDEP issued a letter demanding
that Penn Federal Savings Bank develop a remedial work plan for the Orange Road
branch site as a result of an investigation conducted on behalf of an adjacent
property owner. The Bank disputed the NJDEP position that Penn Federal Savings
Bank was a responsible party. On July 1, 1998, the NJDEP issued a letter
determining that Penn Federal Savings Bank, Mobil Oil Corporation (now
ExxonMobil) and the former gasoline service station owner were all responsible
parties for the clean up at the subject site. Responsible parties may ultimately
have full or partial obligation for the cost of remediation. In order to comply
with the NJDEP, the Bank has entered into a cost sharing arrangement with
ExxonMobil whereby ExxonMobil has agreed to develop and implement the remedial
action work plan required by the NJDEP.
Based upon an environmental engineering report, a remedial investigation would
cost approximately $30,000. The environmental engineering company has also
indicated that, based upon their experience with similar type projects, the
majority of cases are addressed by natural remediation. Natural remediation
costs, if needed, range from $60,000 to $150,000. At March 31, 2003 and June 30,
2002, a contingent environmental liability of $45,000 is included in Accounts
payable and other liabilities on the Company's Consolidated Statements of
Financial Condition. The $45,000 represents one-half of the remedial
investigation (one-half of $30,000, or $15,000) plus one-half of the lower end
of the range for natural remediation (one-half of $60,000, or $30,000). Based
upon the most current information available, management believes the $45,000
represents the most likely liability at this time.
7. Computation of EPS
The computation of EPS is presented in the following table.
Three months ended Nine months ended
March 31, March 31,
------------------------- -------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
(Dollars in thousands, except per share amounts)
Net income ................................... $ 3,572 $ 3,604 $ 11,220 $ 10,728
=========== =========== =========== ===========
Number of shares outstanding:
Weighted average shares issued ............... 11,900,000 11,900,000 11,900,000 11,900,000
Less: Weighted average shares held in treasury 4,791,118 4,450,067 4,689,711 4,339,762
Less: Average shares held by the ESOP ........ 952,000 952,000 952,000 952,000
Plus: ESOP shares released or committed to be
released during the fiscal year .... 793,199 675,393 763,009 647,298
----------- ----------- ----------- -----------
Average basic shares ......................... 6,950,081 7,173,326 7,021,298 7,255,536
Plus: Average common stock equivalents ....... 514,710 529,671 525,230 534,845
----------- ----------- ----------- -----------
Average diluted shares ....................... 7,464,791 7,702,997 7,546,527 7,790,381
=========== =========== =========== ===========
Earnings per common share:
Basic ................................ $ 0.51 $ 0.50 $ 1.60 $ 1.48
=========== =========== =========== ===========
Diluted .............................. $ 0.48 $ 0.47 $ 1.49 $ 1.38
=========== =========== =========== ===========
10
11
8. Stockholders' Equity and Regulatory Capital
The Bank's regulatory capital amounts and ratios are presented in the following
table.
To Be Well
For Minimum Capitalized Under
Capital Adequacy Prompt Corrective
Actual Purposes Action Provisions
------------------- ------------------- -------------------
Amount Ratio Amount Ratio Amount Ratio
-------- -------- -------- -------- -------- --------
(Dollars in thousands)
As of March 31, 2003
Tangible capital, and ratio to
adjusted total assets ........... $163,497 8.94% $ 27,426 1.50% N/A N/A
Tier I (core) capital, and ratio to
adjusted total assets ........... $163,497 8.94% $ 73,137 4.00% $ 91,421 5.00%
Tier I (core) capital, and ratio to
risk-weighted assets ............ $163,497 16.64% N/A N/A $ 58,949 6.00%
Risk-based capital, and ratio to
risk-weighted assets ............ $169,867 17.29% $ 78,599 8.00% $ 98,248 10.00%
As of June 30, 2002
Tangible capital, and ratio to
adjusted total assets ........... $158,034 8.37% $ 28,323 1.50% N/A N/A
Tier I (core) capital, and ratio to
adjusted total assets ........... $158,034 8.37% $ 75,529 4.00% $ 94,411 5.00%
Tier I (core) capital, and ratio to
risk-weighted assets ............ $158,034 15.36% N/A N/A $ 61,722 6.00%
Risk-based capital, and ratio to
risk-weighted assets ............ $163,828 15.93% $ 82,296 8.00% $102,869 10.00%
12
The previous table reflects information for the Bank. Savings and loan holding
companies, such as PennFed, are not subject to capital requirements for capital
adequacy purposes or for prompt corrective action requirements. Bank holding
companies, however, are subject to capital requirements established by the Board
of Governors of the Federal Reserve System (the "FRB"). The following table
summarizes the Company's capital amounts and ratios under the FRB's capital
requirements for bank holding companies.
To Be Well
For Minimum Capitalized Under
Capital Adequacy Prompt Corrective
Actual Purposes Action Provisions
------------------- ------------------- -------------------
Amount Ratio Amount Ratio Amount Ratio
-------- -------- -------- -------- -------- --------
(Dollars in thousands)
As of March 31, 2003
Tangible capital, and ratio to
adjusted total assets ........... $152,743 8.35% $ 27,450 1.50% N/A N/A
Tier I (core) capital, and ratio to
adjusted total assets ........... $152,743 8.35% $ 73,199 4.00% $ 91,498 5.00%
Tier I (core) capital, and ratio to
risk-weighted assets ............ $152,743 15.70% N/A N/A $ 58,378 6.00%
Risk-based capital, and ratio to
risk-weighted assets ............ $159,113 16.35% $ 77,837 8.00% $ 97,297 10.00%
As of June 30, 2002
Tangible capital, and ratio to
adjusted total assets ........... $151,600 8.02% $ 28,349 1.50% N/A N/A
Tier I (core) capital, and ratio to
adjusted total assets ........... $151,600 8.02% $ 75,597 4.00% $ 94,496 5.00%
Tier I (core) capital, and ratio to
risk-weighted assets ............ $151,600 14.87% N/A N/A $ 61,150 6.00%
Risk-based capital, and ratio to
risk-weighted assets ............ $157,386 15.44% $ 81,534 8.00% $101,917 10.00%
9. Subsequent Event
Subsequent to March 31, 2003, the Company announced the redemption of the $34.5
million of 8.90% Junior Subordinated deferrable interest Debentures, which
resulted in the trustee announcing the redemption of the related Trust Preferred
securities issued by Trust I. The redemption will occur during the June 2003
quarter. The redemption is expected to be funded by new financing at a
significantly lower rate of interest. In accordance with accounting principles
generally accepted in the United States of America, as a result of the
redemption of these securities, management estimates the Company would also
recognize a one-time expense of approximately $1.5 million, or approximately
$0.13 per share, associated with the unamortized issuance costs related to the
Trust Preferred securities issued by Trust I. Currently, these issuance costs
are amortized over the term of the related Trust Preferred securities. For the
three and nine months ended March 31, 2003, the Company recognized $16,000 and
$47,000, respectively, of preferred securities expense associated with the
amortization of issuance costs related to the Trust Preferred securities issued
by Trust I.
13
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
The Company's results of operations are dependent primarily on net interest
income, which is the difference between the income earned on its loan,
securities and investment portfolios and its cost of funds, consisting of the
interest paid on deposits and borrowings. General economic and competitive
conditions, particularly changes in interest rates, government policies and
actions of regulatory authorities, also significantly affect the Company's
results of operations. Future changes in applicable laws, regulations or
government policies may also have a material impact on the Company.
When used in this Form 10-Q and in future filings by the Company with the
Securities and Exchange Commission (the "SEC"), in the Company's press releases
or other public or shareholder communications, and in oral statements made with
the approval of an authorized executive officer, the words or phrases "will
likely result," "are expected to," "will continue," "is anticipated,"
"estimate," "project" or similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements are subject to certain risks and
uncertainties, including, among other things, changes in economic conditions in
the Company's market area, changes in policies by regulatory agencies,
fluctuations in interest rates and demand for loans in the Company's market
area, the relationship of short-term interest rates to long-term interest rates,
competition and terrorist acts that could cause actual results to differ
materially from historical earnings and those presently anticipated or
projected. The Company wishes to caution readers not to place undue reliance on
any forward-looking statements, which speak only as of the date made. The
Company wishes to advise readers that the factors listed above, as well as other
factors, could affect the Company's financial performance and could cause the
Company's actual results for future periods to differ materially from any
opinions or statements expressed with respect to future periods in any current
statements.
The Company will not undertake - and specifically declines any obligation - to
publicly release the result of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
these statements or to reflect the occurrence of anticipated or unanticipated
events.
Financial Condition
Total assets decreased $63.5 million to $1.829 billion at March 31, 2003 from
$1.892 billion at June 30, 2002. The decrease was primarily due to a $144.5
million decrease in net loans receivable and a $63.7 million decrease in
mortgage-backed securities, offset by a $53.5 million increase in cash and cash
equivalents and a $76.7 million increase in investment securities held to
maturity. The effects of accelerated prepayments on loans held to maturity and
the sale of conforming, fixed rate, one- to four-family residential mortgage
loans held for sale into the secondary market have more than offset loan
originations. Low market interest rates and the resulting effect of loan
refinancing activity has led to an increase in the runoff of the mortgage-backed
securities portfolio. With increased cash flows from asset repayments and the
sale of loans, cash and cash equivalents have increased since June 30, 2002.
Deposits decreased $68.5 million to $1.106 billion at March 31, 2003 from $1.175
billion at June 30, 2002. A decrease in short- and medium-term certificates of
deposit was partially offset by an increase in core deposit accounts (checking,
money market and savings accounts). At March 31, 2003, Federal Home Loan Bank
("FHLB") of New York advances and other borrowings of $530.9 million were
relatively unchanged from the $527.8 million at June 30, 2002.
Non-accruing loans (loans whereby the collection of principal or interest
becomes delinquent more than 90 days) at March 31, 2003 totaled $1.8 million, as
compared to $3.3 million at June 30, 2002, while the ratio of non-accruing loans
to total loans decreased to 0.13% at March 31, 2003 from 0.23% at June 30, 2002.
Real estate owned at March 31, 2003 remained unchanged at $28,000. Total
non-performing assets (non-accruing loans and real estate owned) at March 31,
2003 totaled $1.8 million, a decrease of $1.5 million from the $3.3 million
recorded at June 30, 2002. The ratio of non-performing assets to total assets
decreased to 0.10% at March 31, 2003 from 0.17% at June 30, 2002.
Stockholders' equity at March 31, 2003 totaled $118.4 million compared to $118.8
million at June 30, 2002. The slight decrease primarily reflects the repurchase
of 455,000 shares of the Company's outstanding stock at an average price of
$26.64 per share and the declaration of cash dividends nearly offset by the net
income recorded for the nine months ended March 31, 2003 and the exercise of
stock options.
14
Results of Operations
General. For the three months ended March 31, 2003, net income was $3.6 million,
or $0.48 per diluted share, compared to net income of $3.6 million, or $0.47 per
diluted share, for the comparable prior year period. For the nine months ended
March 31, 2003, net income was $11.2 million, or $1.49 per diluted share. These
results compare to net income of $10.7 million, or $1.38 per diluted share, for
the nine months ended March 31, 2002.
Interest and Dividend Income. Interest and dividend income for the three and
nine months ended March 31, 2003 decreased to $25.6 million and $81.9 million,
respectively, from $29.0 million and $91.3 million for the three and nine months
ended March 31, 2002. In general, the decline in interest and dividend income
reflects a lower level of interest-earning assets due to the effects of loan
sales and accelerated prepayments, and a lower yield earned on these assets as a
result of prepayments of higher yielding loans and origination of loans at lower
market interest rates. Average interest-earning assets were $1.755 billion and
$1.789 billion for the three and nine months ended March 31, 2003, respectively,
compared to $1.775 billion and $1.801 billion for the comparable prior year
periods. The average yield earned on interest-earning assets decreased to 5.85%
for the three months ended March 31, 2003 from 6.55% for the three months ended
March 31, 2002. For the nine months ended March 31, 2003, the average yield
earned on interest-earning assets decreased to 6.10% from 6.75% for the
comparable prior year period.
Interest income on residential one- to four-family mortgage loans for the three
and nine months ended March 31, 2003 decreased $2.6 million and $6.2 million,
respectively, when compared to the prior year periods. The decrease in interest
income on residential one- to four-family mortgage loans for the three months
ended March 31, 2003 was due to a decrease in the average yield earned on this
loan portfolio to 5.73% from 6.46% for the three months ended March 31, 2002,
reflecting the payoff or refinance of higher yielding loans and the origination
of lower yielding loans. In addition, the decrease in interest income on
residential one- to four-family mortgage loans for the three months ended March
31, 2003 was due to a decrease in the average balance outstanding to $1.071
billion from $1.112 billion for the prior year period as the result of
accelerated prepayments and loan sales. For the nine months ended March 31,
2003, the decrease in interest income on residential one- to four-family
mortgage loans was primarily due to a decrease in the average yield earned on
this loan portfolio, when compared to the prior year period. The average yield
earned on residential one- to four-family mortgage loans for the nine months
ended March 31, 2003 decreased to 5.97% from 6.65% for the nine months ended
March 31, 2002. The average balance outstanding of residential one- to
four-family mortgage loans decreased slightly to $1.120 billion for the nine
months ended March 31, 2003 compared to $1.130 billion for the prior year
period.
Interest income on commercial and multi-family real estate loans increased
$428,000 and $1.8 million for the three and nine months ended March 31, 2003,
respectively, when compared to the prior year periods. At March 31, 2003,
commercial and multi-family real estate loans represented approximately 12.4% of
the Company's gross loan portfolio, as compared to 10.1% at June 30, 2002. The
increases in interest income on commercial and multi-family real estate loans
were attributable to increases of $28.0 million and $35.9 million in the average
outstanding balance for the three and nine months ended March 31, 2003,
respectively, when compared to the prior year periods. The growth in interest
income for this portfolio was partially offset by decreases in the average yield
earned on commercial and multi-family real estate loans. The average yield
decreased to 7.74% and 7.84% for the current three and nine month periods,
respectively, compared to 8.09% and 8.17% for the three and nine months ended
March 31, 2002. As with other loans, the payoff of higher yielding loans and the
origination of loans at lower market interest rates has resulted in a decline in
the yield of the commercial and multi-family real estate loan portfolio.
Interest income on consumer loans decreased $193,000 and $642,000 for the three
and nine months ended March 31, 2003, respectively, when compared to the prior
year periods. The decreases in interest income for this loan portfolio are
reflective of the lower market interest rates. The average yield earned on
consumer loans decreased to 6.17% and 6.25% for the three and nine months ended
March 31, 2003, respectively, from 6.55% and 6.87% for the comparable prior year
periods. In addition, the decreases in interest income on consumer loans were
attributable to decreases of $5.5 million and $1.9 million in the average
balance outstanding for the three and nine months ended March 31, 2003,
respectively, when compared to the three and nine months ended March 31, 2002.
Interest income on investment securities and other interest-earning assets
increased $222,000 for the three months ended March 31, 2003 and decreased $2.9
million for the nine months ended March 31, 2003, compared to the prior year
periods. The increase in interest income during the three months ended March 31,
2003 is primarily attributable to a $40.7 million increase in the average
balance outstanding, when compared to the prior year period. As a partial offset
to the reduction in loans and mortgage-backed securities due to increased
prepayments, additional investment securities were purchased during the current
three month period. For the nine months ended March 31, 2003, the
15
decrease in interest income on these securities was partially attributable to a
$30.0 million decrease in the average balance outstanding, when compared to the
nine months ended March 31, 2002. The decrease in the average balance during the
current nine month period is primarily attributable to callable investment
securities that were redeemed before maturity. The interest income on investment
securities and other interest-earning assets for the current year periods was
negatively impacted by declines in the average yield earned on these securities.
The average yield decreased to 5.74% and 5.86% for the three and nine months
ended March 31, 2003, respectively, compared to 6.39% and 6.64% for the prior
year periods as called investment securities were replaced with lower yielding
investments.
Interest income on the mortgage-backed securities portfolio decreased $1.4
million and $1.5 million for the three and nine months ended March 31, 2003,
respectively, compared to the prior year periods, primarily as the result of
accelerated prepayments. The average balance outstanding of mortgage-backed
securities decreased $74.1 million and $18.1 million for the three and nine
months ended March 31, 2003, respectively, when compared to the prior year
periods, primarily due to accelerated prepayments. In addition, the decreases in
interest income on mortgage-backed securities were partially attributable to
decreases in the average yield earned on this securities portfolio to 5.54% and
5.83% for the three and nine months ended March 31, 2003, respectively, compared
to 6.24% and 6.42% for the comparable prior year periods.
Interest Expense. Interest expense decreased $2.4 million and $7.1 million for
the three and nine months ended March 31, 2003, respectively, from the
comparable prior year periods. The decreases in the current year periods were
attributable to decreases in the Company's cost of funds to average rates of
3.64% and 3.84% for the three and nine months ended March 31, 2003,
respectively, from 4.20% and 4.41% for the comparable prior year periods, as a
result of lower market interest rates. The decrease in interest expense for the
three months ended March 31, 2003 was also attributable to a $9.6 million
decrease in total average deposits and borrowings, when compared to the three
months ended March 31, 2002. For the nine months ended March 31, 2003, total
average deposits and borrowings were relatively unchanged, when compared to the
nine months ended March 31, 2002.
For the three and nine months ended March 31, 2003, the average rate paid on
deposits decreased to 2.70% and 3.02%, respectively, from 3.54% and 3.82% for
the three and nine months ended March 31, 2002. Average deposit balances
decreased $17.1 million from $1.126 billion for the three months ended March 31,
2002 to $1.109 billion for the current three month period. Continued low
interest rates during the three months ended March 31, 2003 have resulted in a
decrease in the balance of certificates of deposit while growth in core deposits
has slowed. With a reduction in the Company's funding needs as a result of loan
sales and accelerated loan prepayments, higher costing certificates of deposit
have been priced to allow runoff. For the nine months ended March 31, 2003,
average deposit balances increased $13.6 million to $1.143 billion from $1.129
billion for the comparable prior year period. Increases in core deposits,
partially attributable to the lack of investment alternatives in the lower
interest rate environment, have outpaced the runoff of certificates of deposit
for the nine months ended March 31, 2003.
The average cost of FHLB of New York advances decreased to 5.66% for the three
and nine months ended March 31, 2003 from 5.72% and 5.81% while the average
balance of FHLB of New York advances increased $21.5 million and $32.6 million
for the same respective periods, when compared to the prior year periods. For
the three and nine months ended March 31, 2003, the average balance of other
borrowings decreased $14.0 million and $45.2 million, respectively, when
compared to the three and nine months ended March 31, 2002. The average rate
paid on other borrowings increased to 4.58% and 4.61% for the three and nine
months ended March 31, 2003, respectively, compared to 4.57% and 4.47% for the
comparable prior year periods.
Net Interest and Dividend Income. Net interest and dividend income before
provision for loan losses for the three and nine months ended March 31, 2003 was
$10.8 million and $33.5 million, respectively, compared to $11.8 million and
$35.7 million recorded in the comparable prior year periods. Average net
interest-earning assets decreased $10.7 million and $13.0 million for the three
and nine months ended March 31, 2003, respectively, when compared to the prior
year periods. The net interest rate spread and net interest margin for the three
months ended March 31, 2003 were 2.21% and 2.45%, respectively, a decrease from
2.35% and 2.65% for the comparable prior year period. For the nine months ended
March 31, 2003, the net interest rate spread and net interest margin were 2.26%
and 2.51%, respectively, a decrease from 2.34% and 2.66% for the nine months
ended March 31, 2002. The net interest margin was reduced during the current
periods when compared to the prior year periods principally due to the effect of
accelerated prepayments resulting from lower market interest rates.
Provision for Loan Losses. The provision for loan losses for the three and nine
months ended March 31, 2003 was $100,000 and $525,000, respectively, compared to
$300,000 and $1.2 million for the comparable prior year periods. The reduced
provision for loan losses for the current year periods is consistent with
reductions in non-performing loans.
16
The allowance for loan losses at March 31, 2003 of $6.3 million reflects a
$493,000 increase from the $5.8 million at June 30, 2002. The allowance for loan
losses as a percentage of non-accruing loans was 360.39% at March 31, 2003,
compared to 177.74% at June 30, 2002. Non-accruing loans were $1.8 million at
March 31, 2003 compared to $3.3 million at June 30, 2002. The allowance for loan
losses as a percentage of total loans at March 31, 2003 was 0.48% compared to
0.40% at June 30, 2002 primarily due to the decline in the overall loan
portfolio. See the discussion in this Form 10-Q under "Critical Accounting
Policy."
Non-Interest Income. For the three and nine months ended March 31, 2003,
non-interest income was $2.0 million and $5.7 million, respectively, compared to
$1.0 million and $2.9 million for the prior year periods. The increases in
non-interest income for the current periods were primarily due to increases in
service charges and net gain on sales of loans, when compared to the three and
nine months ended March 31, 2002.
Service charge income for the three and nine months ended March 31, 2003 was
$1.3 million and $3.6 million, respectively, reflecting increases of $529,000
and $1.5 million over the $765,000 and $2.2 million recorded for the prior year
periods. Service charges increased partially because of fees associated with
various loan prepayments and/or modifications and partially because of increased
service charges related to checking accounts.
During the three and nine months ended March 31, 2003, the net gain on sales of
loans was $498,000 and $1.3 million, respectively, compared to $22,000 and
$109,000 for the three and nine months ended March 31, 2002. Approximately $49.4
million and $107.9 million of conforming, fixed rate one- to four-family
residential mortgage loans were sold into the secondary market during the three
and nine months ended March 31, 2003, respectively. Additionally, during the
current quarter, the Company recognized a $200,000 gain on a commitment to sell
approximately $6.2 million of one- to four-family residential mortgage loans to
a financial institution. Furthermore, during the three months ended December 31,
2002, a $4.0 million commercial real estate loan participation was sold as a
means to reduce the Company's credit exposure on a single commercial real estate
property, resulting in a net gain of approximately $183,000. During the three
and nine months ended March 31, 2002, loan production was retained in portfolio
as a partial replacement of investment securities called before maturity. In
addition, effective with the issuance of $12 million of Trust Preferred
securities in March 2001, a determination was made to suspend the sale of
conforming, fixed rate one- to four-family residential mortgage loan production
to leverage the proceeds of the issuance. As a result, only $858,000 and $9.5
million of conforming, fixed rate one- to four-family residential mortgage loans
were sold during the three and nine months ended March 31, 2002, respectively.
In April 2002, the Company resumed the sale of these loans for interest rate
risk management purposes in a lower interest rate environment.
Other non-interest income decreased $53,000 and increased $35,000 for the three
and nine months ended March 31, 2003, respectively, when compared to the prior
year periods. Other non-interest income included a decrease of $17,000 and an
increase of $64,000 in earnings from the Investment Services at Penn Federal
program for the three and nine months ended March 31, 2003, respectively, when
compared to the prior year periods. Through this program, customers have
convenient access to financial consulting/advisory services and related
uninsured non-deposit investment and insurance products.
Non-Interest Expenses. Non-interest expenses were $7.0 million for the three
months ended March 31, 2003, relatively unchanged from the prior year period.
For the nine months ended March 31, 2003, non-interest expenses were $21.0
million compared to $20.8 million for the nine months ended March 31, 2002. The
Company's non-interest expenses as a percent of average assets of 1.55% for the
three months ended March 31, 2003 compares to 1.54% for the prior year period.
Similarly, non-interest expenses as a percent of average assets were 1.51% for
the nine months ended March 31, 2003 compared to 1.50% for the prior year
period.
Income Tax Expense. Income tax expense for the three and nine months ended March
31, 2003 was $2.1 million and $6.5 million, respectively, compared to $2.0
million and $5.9 million for the three and nine months ended March 31, 2002. The
effective tax rate for the three and nine months ended March 31, 2003 was 37.1%
and 36.6%, respectively, compared to 35.3% and 35.4% for the three and nine
months ended March 31, 2002. The effective tax rates for the current year
periods reflect a higher State of New Jersey income tax rate due to the change
in state tax laws.
17
Analysis of Net Interest Income
The following tables set forth certain information relating to the Company's
Consolidated Statements of Financial Condition and the Consolidated Statements
of Income for the three and nine months ended March 31, 2003 and 2002 and
reflect the average yield on assets and average cost of liabilities for the
periods indicated. Such yields and costs are derived from average daily
balances. The average balance of loans receivable includes non-accruing loans.
The yields and costs include fees which are considered adjustments to yields.
Three Months Ended March 31,
-----------------------------------------------------------------------------
2003 2002
------------------------------------- ------------------------------------
Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate (1) Balance Paid Rate (1)
----------- ---------- -------- ----------- ---------- --------
(Dollars in thousands)
Interest-earning assets:
One- to four-family mortgage
loans ............................. $ 1,070,621 $ 15,297 5.73% $ 1,111,880 $ 17,900 6.46%
Commercial and multi-family real
estate loans ...................... 157,330 3,045 7.74 129,350 2,617 8.09
Consumer loans ....................... 111,446 1,696 6.17 116,913 1,889 6.55
----------- ---------- ----------- ----------
Total loans receivable ............ 1,339,397 20,038 6.01 1,358,143 22,406 6.62
Federal funds sold ................... 31,844 93 1.17 -- -- --
Investment securities and other ...... 265,051 3,805 5.74 224,354 3,583 6.39
Mortgage-backed securities ........... 118,432 1,640 5.54 192,505 3,003 6.24
----------- ---------- ----------- ----------
Total interest-earning assets ..... 1,754,724 $ 25,576 5.85 1,775,002 $ 28,992 6.55
========== ==========
Non-interest earning assets .............. 63,441 51,183
----------- -----------
Total assets ...................... $ 1,818,165 $ 1,826,185
=========== ===========
Deposits and borrowings:
Money market and demand deposits ..... $ 167,192 $ 133 0.32% $ 146,530 $ 275 0.76%
Savings deposits ..................... 343,126 2,150 2.54 232,227 1,210 2.11
Certificates of deposit .............. 598,749 5,110 3.46 747,378 8,340 4.53
----------- ---------- ----------- ----------
Total deposits .................... 1,109,067 7,393 2.70 1,126,135 9,825 3.54
FHLB of New York advances ............ 504,465 7,126 5.66 482,960 6,892 5.72
Other borrowings ..................... 23,419 268 4.58 37,448 428 4.57
----------- ---------- ----------- ----------
Total deposits and borrowings ..... 1,636,951 $ 14,787 3.64 1,646,543 $ 17,145 4.20
========== ==========
Other liabilities ........................ 16,413 19,436
----------- -----------
Total liabilities ................. 1,653,364 1,665,979
Trust Preferred securities ............... 44,584 44,508
Stockholders' equity ..................... 120,217 115,698
----------- -----------
Total liabilities and stockholders'
equity ........................ $ 1,818,165 $ 1,826,185
=========== ===========
Net interest income and net
interest rate spread ................. $ 10,789 2.21% $ 11,847 2.35%
=========== ======== ========== =======
Net interest-earning assets and
interest margin ...................... $ 117,773 2.45% $ 128,459 2.65%
=========== ======== =========== =======
Ratio of interest-earning assets to
deposits and borrowings .............. 107.19% 107.80%
======== =======
(1) Annualized.
18
Nine Months Ended March 31,
-----------------------------------------------------------------------------
2003 2002
------------------------------------- ------------------------------------
Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate (1) Balance Paid Rate (1)
----------- ---------- -------- ----------- ---------- --------
(Dollars in thousands)
Interest-earning assets:
One- to four-family mortgage
loans ............................. $ 1,120,200 $ 50,201 5.97% $ 1,129,841 $ 56,397 6.65%
Commercial and multi-family real
estate loans ...................... 155,876 9,280 7.84 120,025 7,449 8.17
Consumer loans ....................... 115,939 5,439 6.25 117,865 6,081 6.87
----------- ---------- ----------- ----------
Total loans receivable ............ 1,392,015 64,920 6.21 1,367,731 69,927 6.81
Federal funds sold ................... 11,995 106 1.16 45 1 3.35
Investment securities and other ...... 243,242 10,694 5.86 273,273 13,612 6.64
Mortgage-backed securities ........... 142,176 6,218 5.83 160,319 7,716 6.42
----------- ---------- ----------- ----------
Total interest-earning assets ..... 1,789,428 $ 81,938 6.10 1,801,368 $ 91,256 6.75
========== ==========
Non-interest earning assets .............. 63,612 48,948
----------- -----------
Total assets ...................... $ 1,853,040 $ 1,850,316
=========== ===========
Deposits and borrowings:
Money market and demand deposits ..... $ 168,433 $ 723 0.57% $ 138,728 $ 856 0.82%
Savings deposits ..................... 331,661 6,552 2.63 213,818 3,350 2.09
Certificates of deposit .............. 642,476 18,625 3.86 776,380 28,157 4.83
----------- ---------- ----------- ----------
Total deposits .................... 1,142,570 25,900 3.02 1,128,926 32,363 3.82
FHLB of New York advances ............ 504,465 21,688 5.66 471,871 20,827 5.81
Other borrowings ..................... 23,337 820 4.61 68,543 2,334 4.47
----------- ---------- ----------- ----------
Total deposits and borrowings ..... 1,670,372 $ 48,408 3.84 1,669,340 $ 55,524 4.41
========== ==========
Other liabilities ........................ 18,515 21,283
----------- -----------
Total liabilities ................. 1,688,887 1,690,623
Trust Preferred securities ............... 44,565 44,489
Stockholders' equity ..................... 119,588 115,204
----------- -----------
Total liabilities and stockholders'
equity ........................ $ 1,853,040 $ 1,850,316
=========== ===========
Net interest income and net
interest rate spread ................. $ 33,530 2.26% $ 35,732 2.34%
=========== ======== ========== =======
Net interest-earning assets and
interest margin ...................... $ 119,056 2.51% $ 132,028 2.66%
=========== ======== =========== =======
Ratio of interest-earning assets to
deposits and borrowings .............. 107.13% 107.91%
======== =======
(1) Annualized.
19
Non-Performing Assets
The table below sets forth the amounts and categories of the Company's
non-performing assets. Loans are placed on non-accrual status when the
collection of principal or interest becomes delinquent more than 90 days. There
are no loans delinquent more than 90 days which are still accruing. Real estate
owned represents assets acquired in settlement of loans and is shown net of
valuation allowances.
March 31, June 30,
2003 2002
--------- ---------
(Dollars in thousands)
Non-accruing loans:
One- to four-family ............................ $ 1,399 $ 2,905
Commercial and multi-family .................... 92 --
Consumer ....................................... 261 370
--------- ---------
Total non-accruing loans ................... 1,752 3,275
Real estate owned, net .............................. 28 28
--------- ---------
Total non-performing assets ................ 1,780 3,303
--------- ---------
Total risk elements ........................ $ 1,780 $ 3,303
========= =========
Non-accruing loans as a percentage of total loans ... 0.13% 0.23%
========= =========
Non-performing assets as a percentage of total assets 0.10% 0.17%
========= =========
Total risk elements as a percentage of total assets . 0.10% 0.17%
========= =========
Critical Accounting Policy
Allowance for Loan Losses - The allowance for loan losses is established through
charges to earnings based on management's evaluation of the probable credit
losses presently inherent in its loan portfolio. This evaluation, which includes
a review of loans for which full collectibility may not be reasonably assured,
considers among other matters, loan classifications, the estimated fair value of
the underlying collateral, economic conditions, historical loan loss experience,
portfolio growth and composition and other factors that warrant recognition in
providing for an adequate loan loss allowance.
Real estate properties acquired through foreclosure are recorded at the lower of
cost or estimated fair value less costs to dispose of such properties. If fair
value at the date of foreclosure is lower than the balance of the related loan,
the difference will be charged-off to the allowance for loan losses at the time
of transfer. Valuations are periodically updated by management and if the value
declines, a specific provision for losses on real estate owned is established by
a charge to operations.
Loan losses are charged against the allowance for loan losses when management
believes that the recovery of principal is unlikely. If, as a result of loans
charged off or increases in the size or risk characteristics of the loan
portfolio, the allowance is below the level considered by management to be
adequate to absorb future loan losses on existing loans, the provision for loan
losses is increased to the level considered necessary to provide an adequate
allowance. The allowance is an amount that management believes will be adequate
to absorb probable losses on existing loans that may become uncollectible, based
on evaluations of the collectibility of the loans. The evaluations take into
consideration such factors as changes in the nature and volume of the loan
portfolio, overall portfolio quality, review of specific problem loans and
current economic conditions that may affect the borrowers' ability to pay.
Economic conditions may result in the necessity to change the allowance quickly
in order to react to deteriorating financial conditions of the Company's
borrowers. As a result, additional provisions on existing loans may be required
in the future if borrowers' financial conditions deteriorate or if real estate
values decline.
Where appropriate, reserves are allocated to individual loans that exhibit
observed or probable credit weakness. For example, reserves may be specifically
assigned for loans that are 90 days or more past due, loans where the borrower
has filed for bankruptcy or loans identified by the Company's internal loan
review process. Reserves are based upon management's estimate of the borrower's
ability to repay the loan given the availability of collateral, other sources of
20
cash flow and legal options available to the Company. For loans not subject to
specific reserve allocations, historical loss rates by loan category are
applied. An unallocated reserve is maintained to recognize the imprecision in
estimating and measuring loss when evaluating reserves for individual loans or
pools of loans. Reserves on individual loans are reviewed no less frequently
than quarterly and adjusted as appropriate.
The Company has not substantively changed any aspect of its overall approach in
its determination of the level of the allowance for loan losses. There have been
no material changes in assumptions of estimation techniques as compared to prior
periods that impacted the determination of the current period allowance.
Although management believes that it uses the best information available to
determine the allowances, unforeseen market conditions could result in
adjustments and net earnings could be significantly affected if circumstances
differ substantially from the assumptions used in making the final
determination. Future additions to the Company's allowance will be the result of
periodic loan, property and collateral reviews and thus cannot be predicted in
advance. In addition, federal regulatory agencies, as an integral part of the
examination process, periodically review the Company's allowance for loan
losses. These agencies may require the Company to record additions to the
allowance level based upon their assessment of the information available to them
at the time of examination. At March 31, 2003, the Company had a total allowance
for loan losses of $6.3 million representing 360.39% of total non-accruing loans
and 0.48% of total loans. Based on the procedures discussed above, management is
of the opinion the reserve of $6.3 million was adequate, but not excessive, to
absorb probable credit losses associated with the loan portfolio at March 31,
2003.
Off Balance Sheet - The Company is a party to financial instruments with
off-balance sheet risk in the normal course of business. These financial
instruments are not recorded on the balance sheet when either the exchange of
the underlying asset or liability has not yet occurred. These financial
instruments include certain commitments to extend credit, unused lines of credit
and commitments to purchase loans. These instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amount
recognized in the Consolidated Statements of Financial Condition.
Interest Rate Sensitivity
Interest Rate Sensitivity Gap. The interest rate risk inherent in assets and
liabilities may be determined by analyzing the extent to which these assets and
liabilities are "interest rate sensitive" and by measuring an institution's
interest rate sensitivity "gap." An asset or liability is said to be interest
rate sensitive within a defined time period if it matures or reprices within
that period. The difference or mismatch between the amount of interest-earning
assets maturing or repricing within a defined period and the amount of
interest-bearing liabilities maturing or repricing within the same period is
defined as the interest rate sensitivity gap. An institution is considered to
have a positive gap if the amount of interest-earning assets maturing or
repricing within a specified time period exceeds the amount of interest-bearing
liabilities maturing or repricing within the same period. If more
interest-bearing liabilities than interest-earning assets mature or reprice
within a specified period, then the institution is considered to have a negative
gap. Accordingly, in a rising interest rate environment, in an institution with
a positive gap, the yield on its rate sensitive assets would theoretically rise
at a faster pace than the cost of its rate sensitive liabilities, thereby
improving future net interest income. In a falling interest rate environment, a
positive gap would indicate that the yield on rate sensitive assets would
decline at a faster pace than the cost of rate sensitive liabilities and
diminish net interest income. For an institution with a negative gap, the
reverse would be expected.
At March 31, 2003, the Company's total interest-earning assets maturing or
repricing within one year exceeded its total deposits and borrowings maturing or
repricing within one year by $309.6 million, representing a one year positive
gap of 16.93% of total assets, compared to a one year positive gap of 5.11% of
total assets at June 30, 2002. The Company's gap position changed from June 30,
2002 primarily due to the decline in market interest rates which has increased
prepayment activity on loans and mortgage-backed securities and has raised
expectations that certain investment securities with callable features will be
redeemed before maturity. Also contributing to the change in the gap position
was a decrease in certificates of deposit maturing within one year, partially
offset by an increase in FHLB of New York advances now maturing within one year.
In evaluating the Company's exposure to interest rate risk, certain limitations
inherent in the method of interest rate gap analysis must be considered. For
example, although certain assets and liabilities may have similar maturities or
periods to repricing, they may react in different degrees to changes in market
interest rates. Also, the interest rates on certain types of assets and
liabilities may fluctuate in advance of changes in market interest rates, while
interest rates on other types may lag behind changes in market rates.
Additionally, certain assets, such as adjustable rate
21
mortgages, have features which restrict changes in interest rates in the
short-term and over the life of the asset. Further, in the event of a change in
interest rates, prepayment and early withdrawal levels may deviate significantly
from those assumed in calculating the gap position. Finally, the ability of many
borrowers to service their debt may decrease in the event of an interest rate
increase. The Company considers all of these factors in monitoring its exposure
to interest rate risk.
Net Portfolio Value. The Company's interest rate sensitivity is regularly
monitored by management through additional interest rate risk ("IRR") measures,
including an IRR "Exposure Measure" or "Post-Shock" NPV ratio and a "Sensitivity
Measure." A low Post-Shock NPV ratio indicates greater exposure to IRR. Greater
exposure can result from a low initial NPV ratio or high sensitivity to changes
in interest rates. The Sensitivity Measure is the change in the NPV ratio, in
basis points, caused by a 2% increase or decrease in rates, whichever produces a
larger decline. At least quarterly, and generally monthly, management models the
change in net portfolio value ("NPV") over a variety 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 rate scenario divided by the market value of assets
in the same scenario.
As of March 31, 2003, the Bank's internally generated initial NPV ratio was
3.64%. Following a 2% increase in interest rates, the Bank's Post-Shock NPV
ratio was 5.87%. The change in the NPV ratio, or the Bank's Sensitivity Measure,
was positive 2.23%. As of March 31, 2003, the Company's internally generated
initial NPV ratio was 3.05%, the Post-Shock ratio was 5.16%, and the Sensitivity
Measure was positive 2.11%. Variances between the Bank's and the Company's NPV
ratios are attributable to balance sheet items which are adjusted during
consolidation, such as investments, intercompany borrowings and capital.
Internally generated NPV measurements are based on simulations which utilize
institution specific assumptions and generally result in different levels of
presumed interest rate risk (generally lower) than Office of Thrift Supervision
("OTS") measurements indicate.
The OTS measures the Bank's IRR on a quarterly basis using data from the
quarterly Thrift Financial Reports filed by the Bank with the OTS, coupled with
non-institution specific assumptions which are based on national averages. As of
December 31, 2002 (the latest date for which information is available), the
Bank's initial NPV ratio, as measured by the OTS, was 8.60%, the Bank's
Post-Shock ratio was 6.75% and the Sensitivity Measure was negative 1.85%.
In addition to monitoring NPV and gap, management also monitors the duration of
assets and liabilities and the effects on net interest income resulting from
parallel and non-parallel increases or decreases in rates.
At March 31, 2003, based on its internally generated simulation models, the
Company's consolidated net interest income projected for one year forward would
increase 8.5% from the base case, or current market, as a result of an immediate
and sustained 2% increase in interest rates. Conversely, the Company's
consolidated net interest income projected for one year forward would decrease
8.6% from the base case, or current market, as a result of an immediate and
sustained 1% decrease in interest rates.
Liquidity and Capital Resources
The Company's primary sources of funds are deposits, principal and interest
payments on loans and mortgage-backed securities, and borrowings from the FHLB
of New York. While scheduled loan repayments and maturing investments are
relatively predictable, deposit flows and early loan repayments are more
influenced by interest rates, general economic conditions and competition. The
Company has competitively set rates on deposit products for selected terms and,
when necessary, has supplemented deposits with longer-term or less expensive
alternative sources of funds.
The Bank maintains appropriate levels of liquid assets. The Company's most
liquid assets are cash and cash equivalents, U.S. government agency securities
and mortgage-backed securities. The levels of these assets are dependent on the
Bank's operating, financing, lending and investing activities during any given
period.
The Company uses its liquid resources principally to fund maturing certificates
of deposit and deposit withdrawals, to purchase loans and securities, to fund
existing and future loan commitments, and to meet operating expenses. Management
believes that loan repayments and other sources of funds will be adequate to
meet the Company's foreseeable liquidity needs.
22
The Company's cash needs for the nine months ended March 31, 2003 were provided
by operating activities, including the sale of loans, proceeds from maturities
of investment securities and principal repayments of loans and mortgage-backed
securities. During this period, the cash provided was used for investing
activities, which included the origination of loans and the purchase of
investment securities, as well as to fund a decrease in deposits. Additionally,
during the nine months ended March 31, 2003, the cash provided was used for the
repurchase of common stock. During the nine months ended March 31, 2002, the
cash needs of the Company were provided by operating activities, proceeds from
maturities of investment securities, increased deposits and principal repayments
of loans and mortgage-backed securities. During this period, the cash provided
was used for investing activities, which included the origination and purchase
of loans and the purchase of investment and mortgage-backed securities, as well
as for the purchase of treasury stock and to reduce borrowings.
Current regulatory standards impose the following capital requirements: a
risk-based capital standard expressed as a percentage of risk-adjusted assets; a
ratio of core capital to risk-adjusted assets; a leverage ratio of core capital
to total adjusted assets; and a tangible capital ratio expressed as a percentage
of total adjusted assets. As of March 31, 2003, the Bank exceeded all regulatory
capital requirements and qualified as a "well-capitalized" institution (see Note
8. - Stockholders' Equity and Regulatory Capital, in the Notes to Consolidated
Financial Statements).
Subsequent to March 31, 2003, the Company announced the redemption of the $34.5
million of 8.90% Junior Subordinated deferrable interest Debentures, which
resulted in the trustee announcing the redemption of the related Trust Preferred
securities issued by Trust I. The redemption will occur during the June 2003
quarter. The redemption is expected to be funded by new financing at a
significantly lower rate of interest. In accordance with accounting principles
generally accepted in the United States of America, as a result of the
redemption of these securities, management estimates the Company would also
recognize a one-time expense of approximately $1.5 million, or approximately
$0.13 per share, associated with the unamortized issuance costs related to the
Trust Preferred securities issued by Trust I. Currently, these issuance costs
are amortized over the term of the related Trust Preferred securities. For the
three and nine months ended March 31, 2003, the Company recognized $16,000 and
$47,000, respectively, of preferred securities expense associated with the
amortization of issuance costs related to the Trust Preferred securities issued
by Trust I. The Company anticipates that this additional expense would be
largely offset in the next fiscal year by the savings realized due to the
reduced interest costs on the borrowing.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company's most significant form of market risk is interest rate risk, as the
majority of its assets and liabilities are sensitive to changes in interest
rates. See the discussion in this Form 10-Q under "Item 2. Management's
Discussion and Analysis of Financial Condition and Results of
Operations-Interest Rate Sensitivity."
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures: An evaluation of the
------------------------------------------------
Company's disclosure controls and procedures (as defined in Rule 13a-14(c) under
the Securities Exchange Act of 1934 (the "Act")) was carried out under the
supervision and with the participation of the Company's Chief Executive Officer,
Chief Financial Officer and several other members of the Company's senior
management within the 90-day period preceding the filing date of this quarterly
report. The Company's Chief Executive Officer and Chief Financial Officer
concluded that the Company's disclosure controls and procedures as currently in
effect are effective in ensuring that the information required to be disclosed
by the Company in the reports it files or submits under the Act is (i)
accumulated and communicated to the Company's management (including the Chief
Executive Officer and Chief Financial Officer) in a timely manner, and (ii)
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms.
(b) Changes in Internal Controls: There were no significant changes in the
----------------------------
Company's internal controls or in other factors that could significantly affect
these controls subsequent to the date of their most recent evaluation.
23
PART II - Other Information
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index.
(b) Reports on Form 8-K
None.
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PENNFED FINANCIAL SERVICES, INC.
Date: May 14, 2003 By: /s/ Joseph L. LaMonica
---------------------------------------------
Joseph L. LaMonica
President and Chief
Executive Officer
(Principal Executive Officer)
Date: May 14, 2003 By: /s/ Claire M. Chadwick
---------------------------------------------
Claire M. Chadwick
Executive Vice President,
Chief Financial Officer and
Controller
(Principal Financial and Accounting Officer)
25
CERTIFICATIONS
I, Joseph L. LaMonica, certify that:
1. I have reviewed this quarterly report on Form 10-Q of PennFed Financial
Services, 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: May 14, 2003
/s/ Joseph L. LaMonica
- -------------------------------------
Joseph L. LaMonica
President and Chief Executive Officer
26
CERTIFICATIONS
I, Claire M. Chadwick, certify that:
1. I have reviewed this quarterly report on Form 10-Q of PennFed Financial
Services, 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: May 14, 2003
/s/ Claire M. Chadwick
- --------------------------------------
Claire M. Chadwick
Executive Vice President,
Chief Financial Officer and Controller
27
EXHIBIT INDEX
Regulation Reference to
S-K Prior Filing
Exhibit or Exhibit
Number Document Number
- ---------------------------------------------------------------------------------------------------------------------------
2 Plan of acquisition, reorganization, arrangement, liquidation or succession None
3 (i) Certificate of Incorporation *
3 (ii) Bylaws **
4 Instruments defining the rights of security holders, including indentures *
4 (i) Stockholder Protection Rights Agreement ***
10 Material contracts:
(a) Employee Stock Ownership Plan *
(b) 1994 Amended and Restated Stock Option and Incentive Plan ****
(c) Management Recognition Plan *
(d) Employment Agreement with Joseph L. LaMonica ****
(e) Employment Agreement with Patrick D. McTernan ****
(f) Employment Agreement with Jeffrey J. Carfora *****
(g) Employment Agreement with Barbara A. Flannery ****
11 Statement re: computation of per share earnings 11
15 Letter re: unaudited interim financial information Not required
18 Letter re: change in accounting principles None
19 Report furnished to security holders None
22 Published report regarding matters submitted to vote of security holders None
23 Consents of experts and counsel None
24 Power of Attorney None
99 Additional Exhibits:
Certification pursuant to Section 906 of Sarbanes-Oxley Act of 2002 99
- -----------------------
* Filed as exhibits to the Company's Registration Statement on Form
S-1 under the Securities Act of 1933, filed with the Securities and
Exchange Commission on March 25, 1994 (Registration No. 33-76854).
All of such previously filed documents are hereby incorporated
herein by reference in accordance with Item 601 of Regulation S-K.
** Filed as an exhibit to the Company's Form 10-K under the Securities
Exchange Act of 1934, filed with the Securities and Exchange
Commission on September 24, 1999 (File No. 0-24040). Such previously
filed document is hereby incorporated by reference in accordance
with Item 601 of Regulation S-K.
*** Filed as an exhibit to the Company's Registration Statement on Form
8-A under the Securities Exchange Act of 1934, filed with the
Securities and Exchange Commission on March 28, 1996 as amended on
Form 8-A/A (the "Form 8-A/A") filed with the Securities and Exchange
Commission on February 11, 1998, and as further amended on Form
8-A/A-2 (the "Form 8-A/A-2") filed with the Securities and Exchange
Commission on October 14, 1998. The First Amendment to the
Stockholders Protection Rights Agreement is filed as an exhibit to
the Form 8-A/A and the Second Amendment to the Stockholders
Protection Rights Agreement is filed as an exhibit to the Form
8-A/A-2. These documents are hereby incorporated by reference in
accordance with Item 601 of Regulation S-K.
**** Filed as exhibits to the Company's Form 10-K under the Securities
Exchange Act of 1934, filed with the Securities and Exchange
Commission on September 24, 2001 (File No. 0-24040). All of such
previously filed documents are hereby incorporated by reference in
accordance with Item 601 of Regulation S-K.
***** Filed as an exhibit to the Company's Form 10-Q under the Securities
Exchange Act of 1934, filed with the Securities and Exchange
Commission on February 14, 2002 (File No. 0-24040). Such previously
filed document is hereby incorporated by reference in accordance
with Item 601 of Regulation S-K.
28