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 September 30, 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: 0-24611
CFS Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Delaware 35-2042093
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
707 Ridge Road, Munster, Indiana 46321
(Address of principal executive offices)
(219) 836-5500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports 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 of the Exchange Act).
YES [X] NO [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
The Registrant had 12,171,046 shares of Common Stock issued and outstanding as
of October 31, 2003.
CFS BANCORP, INC.
INDEX
Page No
-------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Financial Condition at
September 30, 2003 and (Audited) December 31, 2002 3
Consolidated Statements of Income for the Three and Nine
Months Ended September 30, 2003 and 2002 4
Consolidated Statements of Changes in Stockholders' Equity
for the Nine Months Ended September 30, 2003 5
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2003 and 2002 6
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk 22
Item 4. Controls and Procedures 22
PART II OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 2. Changes in Securities and Use of Proceeds 23
Item 3. Defaults upon Senior Securities 23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23
2
CFS BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
September 30, 2003 December 31, 2002
------------------ -----------------
(Unaudited)
ASSETS
Cash and amounts due from depository institutions $ 15,718 $ 30,312
Interest-bearing deposits 69,842 105,479
Federal funds sold 38,696 74,350
----------- -----------
Cash and cash equivalents 124,256 210,141
Investment securities available-for-sale 67,272 39,064
Mortgage-backed securities available-for-sale 199,079 296,638
Mortgage-backed securities held-to-maturity
(fair value 2003 - $20,803; 2002 - $21,977) 19,267 21,402
Loans receivable, net 978,926 930,348
Investment in Federal Home Loan Bank stock, at cost 26,438 25,780
Office properties and equipment 13,813 13,835
Accrued interest receivable 5,380 6,597
Real estate owned 355 893
Investment in Bank-owned life insurance 31,583 31,009
Prepaid expenses and other assets 12,207 9,055
----------- -----------
Total assets $ 1,478,576 $ 1,584,762
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 881,356 $ 954,222
Borrowed money 418,533 449,431
Advance payments by borrowers for taxes and insurance 5,045 4,410
Other liabilities 19,616 16,037
----------- -----------
Total liabilities 1,324,550 1,424,100
----------- -----------
Stockholders' Equity:
Preferred stock, $.01 par value:
Authorized shares - 15,000,000
Issued and outstanding shares - 0
at September 30, 2003 and December 31, 2002 -- --
Common stock, $.01 par value:
Authorized shares - 85,000,000
Issued shares - 23,423,306
at September 30, 2003 and December 31, 2002
Outstanding shares - 12,152,346 and 12,674,597
at September 30, 2003 and December 31, 2002, respectively 234 234
Additional paid-in capital 189,555 189,786
Retained earnings, substantially restricted 106,287 107,598
Treasury stock, at cost: 11,270,960 and 10,748,709 shares
at September 30, 2003 and December 31, 2002, respectively (133,294) (125,650)
Unallocated common stock held by ESOP (8,356) (8,356)
Unearned common stock held by RRP (1,525) (2,827)
Accumulated other comprehensive income (loss), net of tax 1,125 (123)
----------- -----------
Total stockholders' equity 154,026 160,662
----------- -----------
Total liabilities and stockholders' equity $ 1,478,576 $ 1,584,762
=========== ===========
See accompanying notes
CFS BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
(Unaudited)
For Three Months Ended For Nine Months Ended
September 30, September 30,
------------------------------ ------------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
Interest income:
Loans $ 14,649 $ 15,820 $ 44,863 $ 47,156
Mortgage-related securities 1,295 4,691 4,727 14,053
Other investment securities 392 406 1,294 1,262
Other 654 1,130 2,392 3,682
----------- ----------- ----------- -----------
Total interest income 16,990 22,047 53,276 66,153
Interest expense:
Deposits 3,603 6,387 13,367 19,699
Borrowings 6,730 6,904 20,002 20,583
----------- ----------- ----------- -----------
Total interest expense 10,333 13,291 33,369 40,282
----------- ----------- ----------- -----------
Net interest income before
provision for losses on loans 6,657 8,756 19,907 25,871
Provision for losses on loans 502 500 1,489 1,050
----------- ----------- ----------- -----------
Net interest income after
provision for losses on loans 6,155 8,256 18,418 24,821
Non-interest income:
Loan fees 446 327 1,259 1,022
Fees on deposit accounts 1,409 1,230 3,818 2,677
Insurance commissions -- 294 -- 958
Investment commissions 202 192 520 732
Gain on sale of available-for-sale
investment securities - net 326 10 325 281
Gain on sale of office properties -- -- 24 --
Income from Bank-owned life insurance 363 394 1,092 1,134
Other income 223 192 829 575
----------- ----------- ----------- -----------
Total non-interest income 2,969 2,639 7,867 7,379
Non-interest expense:
Compensation and employee benefits 4,697 5,055 13,563 15,145
Net occupancy expense 561 650 1,761 1,861
Furniture and equipment expense 462 502 1,419 1,440
Federal deposit insurance premiums 26 40 119 126
Data processing 439 397 1,333 1,333
Marketing 261 216 687 627
Other general and administrative expenses 1,396 1,464 4,198 4,030
----------- ----------- ----------- -----------
Total non-interest expense 7,842 8,324 23,080 24,562
----------- ----------- ----------- -----------
Income before income taxes 1,282 2,571 3,205 7,638
Income tax expense 315 755 886 2,275
----------- ----------- ----------- -----------
Net income $ 967 $ 1,816 $ 2,319 $ 5,363
=========== =========== =========== ===========
Per share data:
Basic earnings per share $ 0.09 $ 0.15 $ 0.21 $ 0.44
Diluted earnings per share 0.08 0.15 0.20 0.43
Cash dividends declared per share 0.11 0.10 0.33 0.30
Weighted average shares outstanding 11,251,705 11,950,795 11,285,488 12,091,355
Weighted average diluted shares outstanding 11,658,617 12,428,830 11,705,965 12,589,649
See accompanying notes
4
CFS BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in thousands)
(Unaudited)
Unallocated Unearned
Common Common Accumulated
Additional Stock Stock Other
Common Paid-In Retained Treasury held held Comprehensive
Stock Capital Earnings Stock by ESOP by RRP Income (Loss) Total
-------- --------- -------- --------- ------------ -------- ------------- --------
Balance at January 1, 2003 $ 234 $ 189,786 $107,598 ($125,650) ($8,356) ($2,827) ($123) $160,662
Net income -- -- 2,319 -- -- -- -- 2,319
Other comprehensive income, net of tax:
Change in unrealized appreciation on
available-for-sale securities, net of
reclassification adjustment -- -- -- -- -- -- 1,248 1,248
--------
Total comprehensive income -- -- -- -- -- -- -- 3,567
Purchase of treasury stock -- -- -- (9,203) -- -- -- (9,203)
Amortization of restricted stock awards
under RRP -- -- (47) -- -- 1,302 -- 1,255
Exercise of stock options -- (258) -- 1,559 -- -- -- 1,301
Tax benefit related to stock options
exercised -- 27 -- -- -- -- -- 27
Cash dividends declared on common stock -- -- (3,583) -- -- -- -- (3,583)
-------------------------------------------------------------------------------------------
Balance at September 30, 2003 $ 234 $ 189,555 $106,287 ($133,294) ($8,356) ($1,525) $ 1,125 $154,026
======== ========= ======== ========= ========= ========= ========= ========
See accompanying notes
5
CFS BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Nine Months Ended September 30,
------------------------------
2003 2002
---------- ----------
Net income $ 2,319 $ 5,363
Adjustments to reconcile net income
to net cash provided by operating activities:
Provision for losses on loans 1,489 1,050
Depreciation expense 1,202 1,366
Tax benefit from exercise of stock options 27 --
Deferred income taxes 925 1,277
Amortization of cost of stock benefit plans 1,255 1,609
Change in deferred income 386 1,215
Decrease in interest receivable 1,217 211
(Decrease) increase in accrued interest payable (353) 275
Proceeds from sale of loans held for sale 8,707 7,027
Origination of loans held for sale (11,576) (6,060)
Net gain (loss) on sale of available-for-sale securities 226 (281)
Decrease (increase) in prepaid expenses and other assets 413 (5,638)
Increase (decrease) in other liabilities 3,818 (4,721)
--------- ---------
Net cash provided by operating activities 10,055 2,693
--------- ---------
Investing activities:
Available-for-sale investment securities:
Purchases (231,545) (312,289)
Repayments 194,370 301,233
Sales 10,132 1,544
Available-for-sale mortgage-related securities:
Purchases (156,478) (143,874)
Repayments 230,079 97,142
Sales 19,106 --
Held to maturity mortgage-related securities:
Repayments 2,047 8,657
Purchase of Federal Home Loan Bank stock (675) (27)
Redemption of Federal Home Loan Bank stock 17 167
Loan originations and principal payments on loans, net (48,699) (54,386)
Additional costs on real estate owned -- (81)
Proceeds from sale of real estate owned 1,653 2,336
Purchases of property and equipment (1,810) (1,607)
Disposals of property and equipment 630 1,010
--------- ---------
Net cash provided by (used in) investing activities 18,827 (100,175)
--------- ---------
6
CFS BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Dollars in thousands)
(Unaudited)
Nine Months Ended September 30,
------------------------------
2003 2002
---------- -----------
Financing activities:
Proceeds from exercise of stock options 1,301 722
Dividends paid on common stock (3,949) (1,154)
Purchase of treasury stock (9,203) (10,973)
Net increase in checking, passbook and money market accounts 16,943 41,657
Net (decrease) increase in certificates of deposit (89,596) 364
Net increase in advance payments by borrowers for
taxes and insurance 635 1,309
Net decrease in borrowed money (30,898) (8,287)
--------- ---------
Net cash flows (used in) provided by financing activities (114,767) 23,638
--------- ---------
Decrease increase in cash and cash equivalents (85,885) (73,844)
Cash and cash equivalents at beginning of period 210,141 272,067
--------- ---------
Cash and cash equivalents at end of period $ 124,256 $ 198,223
========= =========
Supplemental disclosure of non-cash activities:
Transfer of loans to real estate owned $ 1,115 $ 1,671
CFS BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF FINANCIAL STATEMENTS PRESENTATION
The accompanying consolidated financial statements were prepared in accordance
with instructions to Form 10-Q and therefore do not include all the information
or footnotes necessary for a complete presentation of financial position,
results of operations and cash flows in conformity with generally accepted
accounting principles. However, all normal recurring adjustments which, in the
opinion of Management, are necessary for a fair presentation of financial
statements have been included. These financial statements should be read in
conjunction with the audited financial statements and the notes thereto for the
period ended December 31, 2002 contained in the CFS Bancorp, Inc. (the
"Company") annual report to stockholders. The results for the three and nine
months ended September 30, 2003 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2003.
2. STOCK BASED COMPENSATION
The Company accounts for its stock options in accordance with Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB
No. 25). Under APB No. 25, as the exercise price of the Company's employees'
stock options which have been granted equals the market price of the underlying
stock on the date of grant, no compensation expense is recognized. Compensation
expense for shares granted under the Recognition and Retention Plan ("RRP") is
ratably recognized over the period of service, usually the vesting period, based
on the fair value of the stock on the date of grant.
Pursuant to Financial Accounting Standards Board (FASB) Statement No. 123,
Accounting for Stock-Based Compensation, as amended (FAS No. 123), pro forma net
income and pro forma earnings per share are presented in the following table as
if the fair value method of accounting for stock-based compensation plans had
been utilized. The effects of applying FAS No. 123 in this pro forma disclosure
are not indicative of future amounts.
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- ------------------
(Dollars in thousands, except per share data)
2003 2002 2003 2002
------ ------ ------ ------
Net income (as reported) $ 967 $1,816 $2,319 $5,363
Stock based compensation expense determined
using fair value method, net of tax 213 150 578 572
------ ------ ------ ------
Pro forma net income $ 754 $1,666 $1,741 $4,791
====== ====== ====== ======
Diluted earnings per share (as reported) $ 0.08 $ 0.15 $ 0.20 $ 0.43
Pro forma diluted earnings per share $ 0.06 $ 0.13 $ 0.15 $ 0.38
The fair value of the option grants for the three and nine months ended
September 30, 2003 and 2002 was estimated using the Black-Scholes option value
model, with the following assumptions: dividend yield 3.14% in 2003 and 2.80% in
2002, expected volatility of 30.2% in both 2003 and 2002, risk free interest
rate of 3.92% in 2003 and 3.60% in 2002, a contract term of ten years, and an
original expected life of seven years for all options granted.
8
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. Option valuation models such as the Black-Scholes require the
input of highly subjective assumptions including the expected stock price
volatility. The Company's stock options have characteristics significantly
different from traded options and, inasmuch as changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
3. LOAN PORTFOLIO
The Company's loan portfolio consisted of the following at the dates indicated:
September 30, 2003 December 31, 2002
--------------------- ----------------------
(Dollars in thousands)
Mortgage loans: Amount Percent Amount Percent
----------- ------- --------- -------
Single-family residential $ 329,593 33.33% $ 386,050 41.11%
Multi-family residential 86,584 8.76 71,170 7.58
Commercial real estate 342,754 34.66 271,426 28.91
Construction and land development:
Single-family residential 15,581 1.58 12,118 1.29
Multi-family residential 67,912 6.87 63,893 6.80
Commercial and land development 102,256 10.34 88,951 9.47
Home equity 63,922 6.47 45,106 4.81
-------------------- ---------------------
Total mortgage loans 1,008,602 102.01 938,714 99.97
Other loans:
Commercial 34,826 3.52 40,034 4.26
Consumer 2,892 .29 2,610 .28
Undisbursed portion of
loan proceeds (54,492) (5.51) (39,704) (4.23)
Deferred loan fees (3,039) (.31) (2,632) (.28)
----------------------------------------------
Total loans receivable 988,789 100.00% 939,022 100.00%
----------------------------------------------
Less:
Allowance for losses on loans 9,863 8,674
---------- ---------
Loans receivable, net $ 978,926 $ 930,348
========== =========
9
4. INVESTMENT SECURITIES
Amortized cost of investment securities and their fair values were as follows
(in thousands):
Available-for-sale at September 30, 2003:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
Callable agency securities, corporate bonds
and commercial paper $56,166 $627 $ -- $56,793
Trust preferred securities 4,933 -- 237 4,696
Equity securities 5,929 29 175 5,783
------- ---- ---- -------
$67,028 $656 $412 $67,272
======= ==== ==== =======
Available-for-sale at December 31, 2002:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
Callable agency securities, corporate bonds
and commercial paper $30,767 $320 $ -- $31,087
Trust preferred securities 4,931 -- 531 4,400
Equity securities 4,400 83 906 3,577
----- -- --- -----
$40,098 $403 $1,437 $39,064
======= ==== ====== =======
10
5. MORTGAGE-BACKED SECURITIES
The amortized cost of mortgage-backed securities and their fair values are as
follows (in thousands):
Available-for-sale at September 30, 2003:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- --------
Participation certificates $121,217 $1,109 $152 $122,174
Real estate mortgage investment conduits
and collateralized mortgage obligations 76,526 381 2 76,905
-------- ------ ---- --------
$197,743 $1,490 $154 $199,079
======== ====== ==== ========
Available-for-sale at December 31, 2002:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- --------
Participation certificates $64,084 $820 $136 $64,768
Real estate mortgage investment conduits
and collateralized mortgage obligations 231,752 862 744 231,870
-------- ------ ---- -------
$295,836 $1,682 $880 $296,638
======== ====== ==== ========
Held-to-maturity at September 30, 2003:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- --------
Participation certificates $18,535 $1,511 $13 $20,033
Real estate mortgage investment conduits
and collateralized mortgage obligations 732 38 -- 770
------- ------ --- --------
$19,267 $1,549 $13 $20,803
======= ====== === =======
Held-to-maturity at December 31, 2002:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- --------
Participation certificates $20,651 $520 $10 $21,161
Real estate mortgage investment conduits
and collateralized mortgage obligations 751 65 -- 816
------- ---- --- -------
$21,402 $585 $10 $21,977
======= ==== === =======
11
6. DEPOSITS
The following table sets forth the dollar amount of deposits and the percentage
of total deposits in various types of deposits offered by the Bank at the dates
indicated.
September 30, 2003 December 31, 2002
----------------------- ---------------------
Amount Percent Amount Percent
-------- ------- -------- -------
(Dollars in thousands)
Checking accounts:
Noninterest-bearing $ 35,725 4.06% $ 31,318 3.28%
Interest-bearing 91,063 10.33 90,905 9.53
Money market accounts 135,033 15.32 121,693 12.76
Saving accounts 211,407 23.99 212,370 22.26
-------- ------ ------- ------
Core deposits 473,228 53.70 456,286 47.83
-------- ------ ------- ------
Certificates of deposit:
$100,000 or less 326,116 37.01 380,493 39.90
Over $100,000 81,863 9.29 117,082 12.27
-------- ------ ------- ------
Time deposits 407,979 46.30 497,575 52.17
-------- ------ ------- ------
Deposits 881,207 100.00% 953,861 100.00%
====== ======
Accrued interest 149 361
-------- --------
Total $881,356 $954,222
======== ========
7. RECENT ACCOUNTING PRONOUNCEMENTS
In May 2003, Statement of Financial Accounting Standards ("SFAS") No. 150,
"Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity" was issued, establishing standards for how an issuer
classifies and measures certain financial instruments with characteristics of
both liabilities and equity. This statement requires that an issuer classify
certain financial instruments, which may previously have been classified as
equity, as a liability. This generally includes financial instruments which
either 1) require mandatory redemption at a specified time other than upon
liquidation or termination of the entity, 2) include an obligation to either
repurchase the issuer's equity shares or is indexed to such an obligation and
which may require settlement in cash or 3) require the issuance of a variable
number of the issuer's shares based on a monetary amount which is generally
unrelated to the value of those shares. The Statement was effective for the
Company as of July 1, 2003 and does not expected to have a material impact on
the Company's accounting and reporting.
In January 2003 the FASB issued FASB Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities. The objective of this
interpretation is to provide guidance on how to identify a variable interest
entity (VIE) and determine when the assets, liabilities, noncontrolling
interest, and results of operations of a VIE need to be included in a company's
consolidated financial statements. The Company does not expect the adoption of
FIN 46 to have a material impact on its results of operations, financial
position, or liquidity.
12
8. EARNINGS PER SHARE
Set forth below is information with respect to calculation of basic and diluted
earnings per share for the periods indicated.
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- ---------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
(Dollars in thousands, except per share data)
Net income $967 $1,816 $2,319 $5,363
Weighted average number of common shares outstanding 12,156,485 13,086,622 12,255,014 13,323,455
Average ESOP shares not committed to be released (760,780) (882,227) (790,726) (912,133)
Average RRP shares not vested (144,000) (253,600) (178,800) 319,967)
----------- ----------- ----------- -----------
Weighted average number of shares outstanding
for basic earnings per share computation purposes 11,251,705 11,950,795 11,285,488 12,091,355
Dilutive effects of employee stock options 406,912 478,035 420,477 498,294
----------- ----------- ----------- -----------
Weighted average shares and common share equivalents
outstanding for diluted earnings per share purposes 11,658,617 12,428,830 11,705,965 12,589,649
========== ========== ========== ==========
Basic earnings per share $0.09 $0.15 $0.21 $0.44
Diluted earnings per share 0.08 0.15 0.20 0.43
9. COMPREHENSIVE INCOME
Comprehensive income is the total of reported net income and all other revenues,
expenses, gains and losses that under generally accepted accounting principles
are not includable in reported net income but are reflected in stockholders'
equity.
The following table presents the Company's comprehensive income:
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ---------------------
2003 2002 2003 2002
-------- --------- ------- --------
(Dollars in thousands)
Net income $ 967 $1,816 $2,319 $5,363
Net change in unrealized gain (loss) on
securities available-for-sale, net 184 (622) 1,248 (78)
------ ------ ------ ------
Comprehensive income $1,151 $1,194 $3,567 $5,285
====== ====== ====== ======
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD LOOKING STATEMENTS
This Form 10-Q contains certain forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995, and may be identified by
the use of such words as "believe," "expect," "anticipate," "should," "planned,"
"estimated" and "potential." Examples of forward-looking statements include, but
are not limited to, estimates with respect to the financial condition, results
of operations and business of the Company that are subject to various factors
which could cause actual results to differ
13
materially from these estimates. These factors include, but are not limited to,
1) general economic conditions, 2) changes in interest rates, deposit flows,
loan demand, real estate values, and competition; 3) changes in accounting
principles, policies, or guidelines; changes in legislation or regulation and 4)
other economic, competitive, governmental, regulatory, and technological factors
affecting the Company's operations, pricing, products and services.
CHANGES IN FINANCIAL CONDITION
At September 30, 2003 the Company's total assets amounted to $1.5 billion
compared to $1.6 billion at December 31, 2002, a decrease of $0.1 billion, while
total liabilities decreased $0.1 billion and stockholders' equity decreased $6.7
million over the same period.
Cash and cash equivalents were $124.3 million at September 30, 2003 compared to
$210.1 million at December 31, 2002. The decrease of $85.9 million was primarily
the result of funding certificate of deposit withdrawals and the origination of
new commercial and multi-family real estate mortgage loans.
Investment securities available-for-sale amounted to $67.3 million at September
30, 2003 compared to $39.1 million at December 31, 2002. Mortgage-backed
securities available-for-sale were $199.1 million at September 30, 2003 compared
to $296.6 million at December 31, 2002 while mortgage-backed securities
held-to-maturity were $19.3 million at September 30, 2003 compared to $21.4
million at December 31, 2002. This aggregate net decrease of $71.5 million in
investment and mortgage-backed securities was used primarily to fund
originations of new commercial and multi-family real estate mortgage loans and
deposit withdrawals.
Net loans receivable increased to $978.9 million at September 30, 2003 from
$930.3 million at December 21, 2002. This net increase of $48.6 million resulted
from using a portion of the reduction in cash and cash equivalents to fund new
loan originations. The net reduction of $53.0 million in single-family
residential mortgage and construction loans at September 30, 2003 compared to
December 31, 2002 reflected the continuing shift in the composition of the
Company's loan portfolio to increased investment in commercial, commercial real
estate, multi-family real estate and home equity loans.
Deposits were $881.4 million at September 30, 2003 compared to $954.2 million at
December 31, 2002. The decrease of $72.9 million was primarily concentrated in
certificates of deposit ($89.6 million) offset by an increase in core deposits
($16.9 million). The decrease in certificates of deposits was due to the
Company's strategy during the first nine months of 2003 to pay rates which would
be at the 50th percentile when compared to the competition while actively
striving to increase core deposits.
Borrowed money decreased to $418.5 million at September 30, 2003 from $449.4
million at December 31, 2002. Substantially all of the decrease was due to
repayment of approximately $30.0 million in September 2003. Borrowed funds
consist of advances from the Federal Home Loan Banks of Indianapolis and Chicago
and Community Investment Program funds from the Federal Home Loan Bank of
Indianapolis, which are paid down in accordance with scheduled payments.
Stockholders' equity was $154.0 million at September 30, 2003 compared to $160.7
million at December 31, 2002. The $6.6 million net reduction in stockholder's
equity was the result primarily of the $9.2 million repurchase of the Company's
common stock, held as treasury stock, offset partially, by $1.3 million of
options exercised during the first nine months of 2003. This net decrease in
stockholders' equity resulting from the Company's stock repurchase activity was
also partially offset by $1.3 million of shares held in the RRP Trust becoming
vested and issued to plan participants and $3.6 million added to retained
earnings from comprehensive net income, less $3.6 million of dividends paid to
stockholders.
14
AVERAGE BALANCES, NET INTEREST INCOME, YIELDS EARNED AND RATES PAID
The following tables set forth, for the periods indicated, information regarding
1) the total dollar amount of interest income of the Company from
interest-earning assets and the resultant average yields, 2) the total dollar
amount of interest expense on interest-bearing liabilities and the resultant
average rate, 3) net interest income, 4) interest rate spread and 5) net
interest margin. Information is based on average daily balances.
Three Months Ended September 30,
-----------------------------------------------------------------------------
2003 2002
------------------------------------ --------------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
-----------------------------------------------------------------------------
(Dollars in thousands)
Interest - earning assets:
Loans Receivable (1)
Real estate loans $937,940 $14,084 6.01% $896,307 $15,247 6.80%
Other loans 41,488 565 5.45 37,352 573 6.14
---------------------- -----------------------
Total loans 979,428 14,649 5.98 933,659 15,820 6.78
Securities 302,119 1,687 2.23 401,769 5,097 5.07
Other interest-earning assets (2) 179,646 654 1.46 202,272 1,130 2.23
---------------------- -----------------------
Total interest-earning assets 1,461,193 16,990 4.65 1,537,700 22,047 5.74
Non-interest earning assets 75,724 76,589
---------- ----------
Total assets $1,536,917 $1,614,289
========== ==========
Interest-bearing liabilities:
Deposits:
Checking and money market accounts $252,107 399 0.63 $192,530 $699 1.45
Savings accounts 214,270 231 0.43 215,979 698 1.29
Certificates of deposit 416,722 2,973 2.85 509,764 4,990 3.92
---------------------- -----------------------
Total deposits 883,099 3,603 1.63 918,273 6,387 2.78
Total borrowings 448,083 6,730 6.01 458,916 6,904 6.02
---------------------- -----------------------
Total interest-bearing liabilities 1,331,182 10,333 3.10 1,377,189 13,291 3.86
Non-interest bearing liabilities (3) 51,415 69,206
---------- ----------
Total liabilities 1,382,597 1,446,395
Net worth 154,320 167,894
---------- ----------
Total liabilities and retained income $1,536,917 $1,614,289
========== ==========
Net interest-earning assets $130,011 $160,511
========== ==========
Net interest income/interest rate spread $6,657 1.55% $8,756 1.88%
================= ================
Net interest margin 1.82% 2.28%
======= ======
Ratio of average interest-earning assets to
average interest-bearing liabilities 109.77% 111.65%
======= ======
(1) The average balance of loans receivable includes non-performing loans,
interest on which is recognized on a cash basis.
(2) Includes money market accounts, federal funds sold and interest-earning
bank deposits.
(3) Consists primarily of demand deposit accounts.
15
Nine Months Ended September 30,
---------------------------------------------------------------------------
2003 2002
---------------------------------------------------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
---------------------------------------------------------------------------
(Dollars in thousands)
Interest - earning assets:
Loans Receivable (1)
Real estate loans $ 920,504 $43,125 6.25% $ 880,205 $45,766 6.93%
Other loans 40,757 1,738 5.69 31,374 1,390 5.91
---------------------- -----------------------
Total loans 961,261 44,863 6.22 911,579 47,156 6.90
Securities 332,553 6,021 2.41 380,171 15,315 5.37
Other interest-earning assets (2) 200,944 2,392 1.59 224,152 3,682 2.19
---------------------- -----------------------
Total interest-earning assets 1,494,758 53,276 4.75 1,515,902 66,153 5.82
Non-interest earning assets 76,967 80,362
---------- ----------
Total assets $1,571,725 $1,596,264
========== ==========
Interest-bearing liabilities:
Deposits:
Checking and money market accounts $ 246,285 1,757 0.95 $187,831 2,029 1.44
Savings accounts 214,500 1,119 0.70 214,903 2,167 1.34
Certificates of deposit 451,696 10,491 3.10 498,973 15,503 4.14
---------------------- -----------------------
Total deposits 912,481 13,367 1.95 901,707 19,699 2.91
Total borrowings 448,952 20,002 5.94 461,230 20,583 5.95
---------------------- -----------------------
Total interest-bearing liabilities 1,361,433 33,369 3.27 1,362,937 40,282 3.94
Non-interest bearing liabilities (3) 54,628 64,301
---------- ----------
Total liabilities 1,416,061 1,427,238
Net worth 155,664 169,026
---------- ----------
Total liabilities and retained income $1,571,725 $1,596,264
========== ==========
Net interest-earning assets $133,325 $152,965
========== ==========
Net interest income/interest rate spread $19,907 1.48% $25,871 1.88%
================= =================
Net interest margin 1.78% 2.28%
====== ======
Ratio of average interest-earning assets to
average interest-bearing liabilities 109.79% 111.22%
====== ======
(1) The average balance of loans receivable includes non-performing loans,
interest on which is recognized on a cash basis.
(2) Includes money market accounts, federal funds sold and interest-earning
bank deposits.
(3) Consists primarily of demand deposit accounts.
16
RATE /VOLUME ANALYSIS
The following tables set forth the effects of changing rates and volumes on net
interest income of the Company. Information is provided with respect to 1)
effects on interest income attributable to changes in volume (changes in volume
multiplied by prior rate), 2) effects on interest income attributable to changes
in rate (changes in rate multiplied by prior volume) and 3) changes in
rate/volume (changes in rate multiplied by changes in volume).
Three Months Ended September 30,
2003 compared to 2002
-------------------------------------------------
(Dollars in thousands)
Increase (decrease) due to
-------------------------------------------------
Total Net
Rate/ Increase
Rate Volume Volume Decrease
--------------------------------------------------
Interest-earning assets:
Loans receivable:
Real estate loans ($1,788) $708 ($83) ($1,163)
Other loans (65) 64 (7) (8)
----------------------------------------------------
(1,853) 772 (90) (1,171)
Securities (2,854) (1,264) 708 (3,410)
Other interest-earning assets (393) (127) 44 (476)
----------------------------------------------------
Total net change in income on
interest-earning assets (5,100) (619) 662 (5,057)
Interest-bearing liabilities:
Deposits:
Checking and money market accounts (394) 216 (122) (300)
Savings accounts (465) (6) 4 (467)
Certificates of deposit (1,353) (911) 247 (2,017)
----------------------------------------------------
Total deposits (2,212) (701) 129 (2,784)
Borrowings (11) (163) -- (174)
----------------------------------------------------
Total net change in expense on
interest-bearing liabilities (2,223) (864) 129 (2,958)
----------------------------------------------------
Net change in net interest income ($2,877) $245 $533 ($2,099)
====================================================
17
Nine Months Ended September 30,
2003 compared to 2002
--------------------------------------------------------
(Dollars in thousands)
Increase (decrease) due to
--------------------------------------------------------
Total Net
Rate/ Increase
Rate Volume Volume (Decrease)
--------------------------------------------------------
Interest-earning assets:
Loans receivable:
Real estate loans ($4,529) $2,095 ($207) ($2,641)
Other loans (52) 416 (16) 348
----------------------------------------------------------
(4,581) 2,511 (223) (2,293)
Securities (8,432) (1,918) 1,056 (9,294)
Other interest-earning assets (1,014) (381) 105 (1,290)
----------------------------------------------------------
Total net change in income on
interest-earning assets (14,027) 212 938 (12,877)
Interest-bearing liabilities:
Deposits:
Checking and money market accounts (689) 632 (215) (272)
Savings accounts (1,046) (4) 2 (1,048)
Certificates of deposit (3,914) (1,469) 371 (5,012)
----------------------------------------------------------
Total deposits (5,649) (841) 158 (6,332)
Borrowings (34) (548) 1 (581)
----------------------------------------------------------
Total net change in expense on
interest-bearing liabilities (5,683) (1,389) 159 (6,913)
----------------------------------------------------------
Net change in net interest income ($8,344) $1,601 $779 ($5,964)
==========================================================
18
RESULTS OF OPERATIONS
The Company reported net income of $967,000 or $0.08 per diluted share for the
three months ended September 30, 2003 compared to $1.8 million or $0.15 per
diluted share for the three months ended September 30, 2002. Net income for the
nine months ended September 30, 2003 was $2.3 million or $0.20 per diluted share
compared to $5.4 million or $0.43 per diluted share for the same period in 2002.
Net interest income for the third quarter of 2003 was $6.7 million compared to
$8.8 million reported for the third quarter of 2002. Net interest income for the
first nine months of 2003 was $19.9 million compared to $25.9 million for the
same period in 2002. Net interest income is determined by average interest rate
spread (i.e. the difference between the average yields on interest-earning
assets and the average rates paid on interest-bearing liabilities) and also the
average amount of interest-earning assets relative to interest-bearing and
noninterest-bearing liabilities. During the third quarter of 2002, the Company
opened two new offices. These offices, opened in early July 2002, offered an
above-market rate 90-day certificate of deposit. This offer was available for a
60-day period and resulted in approximately $80.0 million in new deposits. This
promotion had an effect on both interest income and interest expense and in the
short term reduced interest rate spreads and margins. For the three months ended
September 30, 2003 compared to the three months ended September 30, 2002, the
interest rate spread was 1.55 percent compared to 1.88 percent, respectively,
while the net interest margin was 1.82 percent compared to 2.28 percent,
respectively. For the nine months ended September 30, 2003 compared to the same
period in 2002, the interest rate spread was 1.48 percent compared to 1.88
percent, respectively, while the net interest margin was 1.78 percent compared
to 2.28 percent, respectively.
Interest income for the third quarter of 2003 was $17.0 million compared to
$22.0 million for the third quarter of 2002. Interest income for the first nine
months of 2003 was $53.3 million compared to $66.2 million for the first nine
months of 2002. The primary reason for the decreases in the 2003 periods was the
significant decline in the average yields earned on interest-earning assets in
2003 as compared to 2002 reflecting the effect of the low interest rate
environment existing throughout 2003. Increases in the average balance of total
loans outstanding during the 2003 periods as compared to the 2002 periods
partially offset the decline in average yields. Decreases in the average
balances of securities and other interest-earning assets further contributed to
the decline in interest income in both the three and nine months ended September
30, 2003 when compared to the same periods in 2002.
Interest expense for the three months ended September 30, 2003 was $10.3 million
compared to $13.3 million for the same period in 2002. Interest expense for the
nine months ended September 30, 2003 was $33.4 million compared to $40.3 million
for the nine months ended September 30, 2002. The decrease in interest expense
for the three and nine months ended September 30, 2003 when compared to the 2002
periods was primarily the result of a decrease in the average cost of deposits
combined with a decrease in the average balance of higher cost certificates of
deposit. Also during these same periods, the average balance of borrowed money
decreased. The average balance of total deposits decreased when comparing the
three months ended September 30, 2003 to the three months ended September 30,
2002, reflecting a partial reduction in the deposits obtained in the previously
mentioned special promotion in the third quarter of 2002. Average balances of
total deposits increased modestly when comparing the nine months ended September
30, 2003 to the nine months ended September 30, 2002.
The Company's provisions for loan losses for the three months ended September
30, 2003 and 2002 were relatively stable, amounting to $502,000 and $500,000,
respectively, while the provisions for the nine months ended September 30, 2003
and 2002 were $1.5 million and $1.1 million, respectively. In light of the
Company's emphasis on increasing its commercial real estate and business lending
and the increased estimate of the amount of probable and estimable inherent
losses in the loan portfolio, the Company continues to increase its allowance.
The allowance for loan losses to total loans at September 30, 2003
19
was 1.00 percent compared to 0.92 percent at December 31, 2002, while
non-performing assets were $14.9 million at September 30, 2003 compared to $16.2
million at December 31, 2002.
The following table sets forth information with respect to the Company's
non-performing assets at the dates indicated:
September 30, 2003 December 31, 2002
------------------ -----------------
(Dollars in thousands)
Non-accrual loans:
Mortgage loans:
Construction and land development $1,250 $1,323
Single-family residential 5,830 7,294
Multi-family residential 1,772 36
Commercial real estate 4,147 5,621
Home equity 340 324
Other loans:
Commercial 1,161 692
Consumer 36 35
------- -------
Total non-performing loans 14,536 15,325
Real estate owned 355 893
------- -------
Total non-performing assets $14,891 $16,218
======= =======
Non-performing assets to total assets 1.01 % 1.02 %
Non-performing loans to total loans 1.47 1.63
The following table is a summary of changes in the allowance for loan losses for
the nine months ended September 30, 2003 and the year ended December 31, 2002:
Nine Months Ended Year Ended
September 30, 2003 December 31, 2002
------------------ -----------------
(Dollars in thousands)
Balance at beginning of period $8,674 $7,662
Provision for loan losses 1,489 1,956
Charge-offs (473) (1,183)
Recoveries 173 239
------ ------
Balance at end of period $9,863 $8,674
====== ======
Allowance for loan losses to total
non-performing loans at end of period 67.85% 56.60%
Allowance for loan losses to total
loans at end of period 1.00 0.92
20
Non-interest income for the three months ended September 30, 2003 was $3.0
million compared to $2.6 million for the three months ended September 30, 2002
and amounted to $7.9 million for the nine months ended September 30, 2003
compared to $7.4 million for the same period in 2002. The improvement in
non-interest income was the result of increased fees on deposit accounts in both
periods, which were partially offset by reductions in insurance commissions due
to the sale of the Company's insurance agency assets in December 2002.
Non-interest income in the three and nine months ended September 30, 2003
included net gains on the sale of securities in the Company's available-for-sale
investment portfolio of $326,000 and $325,000, respectively, compared to $10,000
and $281,000 for the three and nine months ended September 30, 2002.
Non-interest expense was $7.8 million for the three months ended September 30,
2003 compared to $8.3 million for the three months ended September 30, 2002.
Non-interest expense was $23.1 million for the first nine months of 2003
compared to $24.6 million for the same period in 2002. For both the three and
nine months ended September 30, 2003, compared to the same periods in 2002,
decreases in non-interest expense resulted primarily from decreases in
compensation and employee benefits due to reductions in overhead and
compensation expense as a result of the Company's outsourcing of the sale of
investment products and the sale of the insurance agency's assets.
Income tax expense for the three months ended September 30, 2003 was $315,000 or
24.6 percent of income before income taxes compared to $755,000 or 29.4 percent
of income before income taxes for the three months ended September 30, 2002. For
the nine months ended September 30, 2003, income tax expense was $886,000 or
27.6 percent of income before income taxes compared to $2.3 million or 29.8
percent for the same period in 2002. The Company estimates that its effective
income tax rate for the remainder of 2003 will be approximately 25.0 percent.
LIQUIDITY AND COMMITMENTS
The Company's liquidity, represented by cash and cash equivalents, is a product
of its operating, investing, and financing activities. The Company's primary
sources of funds are deposits, borrowings, amortization, prepayments and
maturities of outstanding loans and mortgage-backed securities, maturities of
investment securities and other short-term investments, and funds provided from
operations. While scheduled payments from the amortization of loans and
mortgage-related securities and maturing investment securities and short-term
investments are relatively predictable sources of funds, deposit flows and loan
prepayments are greatly influenced by general interest rates. In addition, the
Company invests excess funds in federal funds sold and other short-term
interest-earning assets which provide liquidity to meet lending requirements.
Liquidity management is both a daily and long-term function of business
management. Excess liquidity is generally invested in short-term investments
such as federal funds. The Company uses its sources of funds primarily to meet
its ongoing commitments, pay maturing certificates of deposit and savings
withdrawals, fund loan commitments, and maintain a portfolio of mortgage-backed
and mortgage-related securities and investment securities. At September 30, 2003
the total approved investment and loan origination commitments outstanding
amounted to $53.9 million. At the same date, the unadvanced portion of
construction loans amounted to $54.5 million. Investment securities scheduled to
mature in one year or less at September 30, 2003 were $5.8 million.
Based on historical experience, the Company believes that a significant portion
of maturing deposits will remain with the Company. The Company anticipates that
it will continue to have sufficient funds, together with borrowings, to meet its
current commitments.
21
At September 30, 2003 the regulatory capital of Citizens Financial Services, FSB
was significantly in excess of regulatory limits set by the Office of Thrift
Supervision. The current requirements and the Bank's actual levels at September
30, 2003 are set forth below (dollars in thousands):
Required Capital Actual Capital Excess Capital
--------------------- ---------------------- -----------------------
Amount Percent Amount Percent Amount Percent
-------- ------- -------- ------- -------- -------
Tangible capital $21,952 1.50% $130,928 8.95% $108,976 7.45%
Core capital 58,538 4.00 130,928 8.95 72,390 4.95
Risk-based capital 87,977 8.00 140,791 12.80 52,814 4.80
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For a discussion of the Company's asset and liability management policies as
well as the potential impact of interest rate changes upon the market value of
the Company's portfolio equity, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in the Company's annual report to
stockholders for the year ended December 31, 2002. There has been no material
change in the Company's assets and liability position or the market value of the
Company's portfolio equity since December 31, 2002.
ITEM 4. CONTROLS AND PROCEDURES
Our management evaluated, with the participation of our Chief Executive Officer
and Chief Financial Officer, the effectiveness of our disclosure controls and
procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities
Exchange Act of 1934) as of the end of the period covered by this report. Based
on such evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures are designed to ensure
that information required to be disclosed by us in the reports that we file or
submit under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
regulations and are operating in an effective manner.
No change in our internal control over financial reporting (as defined in Rules
13a-15(f) or 15(d)-15(f) under the Securities Exchange Act of 1934) occurred
during the most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
22
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits (filed herewith unless otherwise noted).
3.1 Certificate of Incorporation of CFS Bancorp, Inc.*
3.2 Bylaws of CFS Bancorp, Inc.*
4.0 Form of Stock Certificate of CFS Bancorp, Inc.*
10.1 Employment Agreement entered into between Citizens Financial Services,
FSB and Thomas F. Prisby**
10.2 Employment Agreement entered into between Citizens Financial Services,
FSB and James W. Prisby **
10.3 Employment Agreement entered into between Citizens Financial Services,
FSB and John T. Stephens**
10.4 Employment Agreement entered into between CFS Bancorp, Inc. and Thomas
F. Prisby**
10.5 Employment Agreement entered into between CFS Bancorp, Inc. and James
W. Prisby**
10.6 Employment Agreement entered into between CFS Bancorp, Inc. and John T.
Stephens**
10.7 CFS Bancorp, Inc. Amended and Restated 1998 Stock Option Plan***
10.8 CFS Bancorp, Inc. Amended and Restated 1998 Recognition and Retention
Plan and Trust Agreement***
10.9 CFS Bancorp, Inc. 2003 Stock Option Plan****
31.1 Certificate of Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
31.2 Certificate of Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section
1350 as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section
1350 as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002
23
--------
* Incorporated by Reference from the Company's Registration Statement on
Form S-1 filed on March 26, 1998, as amended and declared effective on
May 14, 1998.
** Incorporated by Reference from the Company's report on Form 10-Q for
the quarterly period ended June 30, 2003.
*** Incorporated by Reference from the Company's Definitive Proxy Statement
for the Annual Meeting of Stockholders filed on March 23, 2001.
**** Incorporated by Reference from the Company's Definitive Proxy Statement
for the Annual Meeting of Stockholders filed on March 31, 2003.
(b) Reports filed on Form 8-K.
On July 25, 2003, the Company filed a Current Report on Form 8-K
furnishing its report of earnings for the quarter ended June 30, 2003 under Item
9.
On September 23, 2003, the Company filed a Current Report on Form 8-K
in connection with the announcement of its quarterly dividend.
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.
CFS BANCORP, INC.
Date: November 13, 2003 By: /s/ Thomas F. Prisby
-------------------------------------
Thomas F. Prisby, Chairman and
Chief Executive Officer
Date: November 13, 2003 By: /s/ John T. Stephens
-------------------------------------
John T. Stephens, Executive Vice
President and Chief Financial Officer
24