Old Second Bancorp - 10-Q quarterly report FY

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For transition period from          to          

Commission File Number 0 -10537

OLD SECOND BANCORP, INC.

(Exact name of Registrant as specified in its charter)

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 ý  No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).  Yes ý  No o

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date: As of October 24, 2003, the Registrant had outstanding 6,685,140 shares of common stock, $1.00 par value per share.

OLD SECOND BANCORP, INC.

Form 10-Q Quarterly Report

Table of Contents

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PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

Old Second Bancorp, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands, except share data)

See accompanying notes to consolidated financial statements.

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Old Second Bancorp, Inc. and Subsidiaries

Consolidated Statements of Income

(In thousands, except share data)

See accompanying notes to consolidated financial statements.

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Old Second Bancorp, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

Nine Months Ended September 30, 2003 and 2002

(In thousands)

See accompanying notes to consolidated financial statements.

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Old Second Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Note 1 – Summary of Significant Accounting Policies

The accounting policies followed in the preparation of interim financial statements are consistent with those used in the preparation of annual financial information. The interim financial statements reflect all normal and recurring adjustments, which are necessary, in the opinion of management, for a fair statement of results for the interim periods presented.  Results for the periods ended September 30, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003.  These interim financial statements should be read in conjunction with the audited financial statements and notes included in the Company’s 2002 Form 10-K.  Unless otherwise indicated, amounts in the tables contained in these Notes are in thousands.

Note 2 – Securities

Securities available for sale are summarized as follows:

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Note 3 – Loans

Major classifications of loans were as follows:

Note 4 – Allowance for Loan Losses

Changes in the allowance for loan losses
   as of  September 30, are summarized as follows:

Note 5 – Notes Payable

The Company had a $30 million line of credit available with Marshall & Ilsley under which there was no outstanding balance as of September 30, 2003 and a $20 million line of credit available with Marshall & Ilsley under which there was no outstanding balance as of December 31, 2002.  A Revolving Business Note dated May 1, 2003 secures the line of credit and is guaranteed by the Company.   The note provides that any outstanding principal will bear interest at our option, at the rate of either 1% over the previous month average (Federal Reserve targeted rate) federal funds rate or 0.90% over the adjusted interbank rate with a minimum interest rate of 2.20%.  This borrowing is for general corporate purposes, including funding loans held for sale at the Old Second Mortgage Company subsidiary.

Note 6 – Cumulative Trust Preferred Securities

During June 2003, the Company completed its tender offer for shares of its common stock, in which 723,053 shares were repurchased at $42.50 per share.  The total cash payment required to complete the tender offer was approximately $30.7 million, which was funded by the sale of trust preferred securities.  The Company completed the sale of $27.5 million of cumulative trust preferred securities by its subsidiary, Old Second Capital Trust I in June 2003.  An additional $4.1 million of cumulative trust preferred securities was sold in the first week of

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July 2003.  The cumulative trust preferred securities are amortized over 30 years using the straight-line method.  Cash distributions on the securities are payable quarterly at an annual rate of 7.80% and are included in interest expense in the consolidated financial statements.

Note 7 – Earnings Per Share

Earnings per share were as follows (share data not in thousands):

Note 8 – Comprehensive Income

Comprehensive income was as follows:

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Item 2.   Managements’ Discussion and Analysis of Financial Condition and Results of Operations

Overview

Old Second Bancorp is a financial services company with its main headquarters located in Aurora, Illinois.  The Company has offices located in Kane, Kendall, DeKalb, DuPage, Lake and LaSalle counties in Illinois.  The Company provides financial services through its three subsidiary banks at its twenty-three banking locations.  Old Second Mortgage, which also conducts business as “Maple Park Mortgage”, provides mortgage-banking services at its four offices.  Old Second Financial, Inc. provides insurance products.  The Old Second National Bank of Aurora, the Company’s lead subsidiary bank, also engages in trust operations.

Results of Operations

Net income for the third quarter of 2003 was $5.8 million, or $0.85 diluted earnings per share, compared to $5.2 million, or $0.70 diluted earnings per share in the third quarter of 2002.  This was a 10.45% increase in earnings, or 21.43% on a per share basis partially as a result of the shares purchased in the tender offer at the end of the second quarter.  The return on equity increased to 20.67% in the third quarter of 2003, from 16.23% for the same period of 2002.   Net income for the first nine months of 2003 was $16.6 million, or $2.30 diluted earnings per share, compared to $15.0 million, or $2.00 diluted earnings per share in the first nine months of 2002.  This was a 10.80% increase in earnings, or 15.00% on a per share basis.  The return on equity increased to 17.27% in the first nine months of 2003, from 15.93% for the same period of 2002.

Net Interest Income

Net interest income for the first nine months of 2003 grew 9.17%, to $46.0 million on the strength of continued asset growth.  The net interest margin declined to 3.97% in the first nine months of 2003 compared to 4.35% one year earlier.  Net interest margin was 3.84% for the third quarter of 2003 and 4.06% in the third quarter of 2002.  Given the current interest rate environment, the Company’s net interest margin could be expected to continue this trend throughout the remainder of 2003.

Certain non-GAAP performance measures and ratios are used by management to evaluate and measure our performance. These include taxable-equivalent net interest income (including its individual components) and net interest margin (including its individual components). We believe that these measures and ratios provide users of our financial information a more accurate view of the performance of the interest-earning assets and interest-bearing liabilities and of our operating efficiency for comparative purposes. Other financial services holding companies may define or calculate these measures and ratios differently. See the table below for supplemental data and the corresponding reconciliation to GAAP financial measures for the periods ended September 30, 2003 and 2002.

We review yields on certain asset categories and the net interest margin of the Company and its banking subsidiaries on a fully taxable-equivalent basis (“FTE”). In this non-GAAP presentation, net interest income is adjusted to reflect tax-exempt interest income on an

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equivalent before-tax basis. This measure ensures comparability of net interest income arising from both taxable and tax-exempt sources.

Provision for Loan Losses and the Application of Critical Accounting Policies

The provision for loan losses amounted to $828,000 and $710,000 for the third quarters of 2003 and 2002, respectively.  The provision for loan losses amounted to $2.5 million and $2.3 million for the first nine months of 2003 and 2002, respectively.  Provisions for loan losses are made to provide for probable and estimable losses inherent in the loan portfolio.  The provision reflects a number of factors, including the size of the loan portfolio, the amount of past due accruing loans (90 days or more), the amount of non-accrual loans and management’s overall view on current credit quality.  Net charge-offs were $105,000 and $141,000 in the third quarters of 2003 and 2002, respectively.  Net charge-offs were $708,000 and $142,000 in the first nine months of 2003 and 2002, respectively.  The increase in the nine-month period was due to a combination of higher charge-offs on loans during 2003 and higher than expected recoveries in 2002.  Total loan charge-offs were $1,168,000 in the first nine months of 2003, compared with $799,000 in the first nine months of 2002, while recoveries for the same periods were $460,000 and $657,000, respectively.  The increase in loan charge-offs during 2003 is directly attributable to the downturn in the economy over the past three years.

The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States and follow general practices within the banking industry. Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements. Future changes in information may affect these estimates, assumptions, and judgments, which, in turn, may affect amounts reported in the financial statements.

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All significant accounting policies are presented in Note 1 to the consolidated financial statements for the year ended December 31, 2002. These policies, along with the disclosures presented in the other financial statement notes and in this discussion, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined.

Management has determined that its accounting policies with respect to the allowance for loan losses is the accounting area requiring subjective or complex judgments that is most important to the Company’s financial position and results of operations, and therefore, is its only critical accounting policy. The allowance for loan losses represents management’s estimate of probable credit losses inherent in the loan portfolio. Determining the amount of the allowance for loan losses is considered a critical accounting estimate because it requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience, and consideration of current economic trends and conditions, all of which may be susceptible to significant change. The loan portfolio also represents the largest asset type on the consolidated statement of condition. The methodology used to determine the allowance for loan losses and a discussion of the factors driving changes in the amount of the allowance for loan losses is included in the Provision for Losses for Loans section in the Company’s Form 10-K for the year ended December 31, 2002.

Noninterest Income

Noninterest income was $8.0 million during the third quarter of 2003 and $6.8 million in the third quarter of 2002, an increase of $1.2 million, or 18.22%.  An increase in loan originations in the third quarter of 2003 resulted in an increase in the gain on sale of loans of $380,000, or 14.69% and an increase in secondary mortgage fees of $222,000 or 63.79%.  The increase in loan originations in the first nine months of 2003 resulted in an increase in the gain on sale of loans of $3.7 million, or 65.08% and an increase in secondary mortgage fees of $627,000 or 72.49% over the first nine months of 2002.  An unprecedented volume of mortgage originations continued during the first nine months of 2003.  While mortgage rates remain near historically low levels, the Company does not anticipate that the level of income from residential mortgage activity will continue throughout the year.  Service charges on deposits increased $312,000, or 20.26% for the quarter and $788,000, or 18.32% for the nine-month period.  This increase included a one-time recognition of income in the amount of $192,000 of charges previously set aside pursuant to our check bounce protection program. Trust income increased by $181,000 to $4.0 million for the first nine months of 2003.

Noninterest Expense

Noninterest expense was $14.1 million during the third quarter of 2003, an increase of $1.7 million, or 13.85%, from $12.4 million in the third quarter of 2002.  Noninterest expense was $41.1 million during the first nine months of 2003, an increase of $6.4 million, or 18.51%, from $34.7 million in the first nine months of 2002.  Salaries and benefits, which is the largest component of noninterest expense, increased $1.3 million, or 16.78%, over the same quarter of 2002 and increased $5.0 million, or 23.42%, over the first nine months of 2002.  The full-time equivalent number of employees was 538 as of September 30, 2003, compared to 512 one year

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earlier.  In addition to increased staffing and merit increases, commissions and incentives tied to earnings performance also increased.  Employee benefit expenses increased as well, primarily as a result of higher employee healthcare insurance, retirement benefits and payroll taxes associated with the salary increases.  Net occupancy expenses increased $116,000, or 15.74% and furniture and equipment expenses decreased $369,000 or 33.70% over the third quarter of the prior year.  Net occupancy expenses increased $433,000, or 20.77% and furniture and equipment expenses decreased $187,000 or 5.86% over the first nine months of the prior year.  As the Company has expanded into and developed new markets, related facility and employee expenses have increased accordingly.

A primary cause of the increase in noninterest expense was an increase in expenses of Old Second Mortgage. Mortgage business continued to increase as a result of the low interest rate environment and expanded utilization of the Company’s branch network. Salaries and benefits, which account for a major portion of noninterest expense, increased $2.1 million at Old Second Mortgage compared to the first nine months of 2002 as a result of the expanded business.

Other expense, which consists primarily of postage, processing fees, professional fees and marketing, increased from $8.0 million in the first nine months of 2002 to $9.3 million in the first nine months of 2003 due to the increased loan activity at Old Second Mortgage.

Income Taxes

The Company’s provision for Federal and State of Illinois income taxes was $3.1 million and $2.8 million for the third quarters of 2003 and 2002 respectively and $9.1 million and $7.9 million for the first nine months of 2003 and 2002 respectively.  The average effective income tax rate for the third quarters 2003 and 2002 was 34.7% and 34.8% respectively and 35.3% and 34.4% for the first nine months of 2003 and 2002 respectively.   The increase in the average effective tax rate for 2003 was related to the decrease in tax-exempt income.

Financial Condition

Assets

Total assets were $1.74 billion at September 30, 2003, an increase of $131.3 million or 8.17% from $1.61 billion at December 31, 2002.

Loans

Total loans were $1.26 billion as of September 30, 2003, an increase of $195.9 million or 18.45% for the nine-month period, from $1.06 billion as of December 31, 2002. The largest increase in loan classifications was in residential real estate loans, which increased $111.4 million, or 42.49%. The increases reflect the continuing loan demand in the markets in which the Company operates.  The loan portfolio generally reflects the profile of the communities in which the Company operates. Because the Company is located in growing areas, real estate lending (including commercial, residential, and construction) is a significant portion of the portfolio. These categories comprised 74.93% of the portfolio as of December 31, 2002 and 79.05% of the portfolio as of September 30, 2003.

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Nonperforming loans of $4.6 million as of September 30, 2003, were down from $5.4 million as of December 31, 2002. Nonperforming loans include loans in nonaccrual status, renegotiated loans, and loans past due ninety days or more and still accruing.  Nonaccrual loans decreased from $4.8 million as of December 31, 2002 to $2.9 million as of September 30, 2003.  The allowance for loan losses as a percentage of nonperforming loans was 379.71% at September 30, 2003 as compared to 289.66% as of December 31, 2002.  Asset quality has remained strong, although net charge-offs increased from $142,000 in the first nine months of 2002 to $708,000 in the first nine months of 2003, which was directly attributable to the downturn in the economy over the past three years.

The Company’s provision for loan losses during the first nine months of 2003 was increased to $2.5 million from $2.3 million during the first nine months of the previous year.  One measure of the adequacy of the allowance for loan losses is the ratio of the allowance to total loans. The allowance for loan losses as a percentage of total loans was 1.40% as of September 30, 2003, compared to 1.49% as of December 31, 2002.  In management’s judgment, an adequate allowance for probable and estimable losses inherent in the loan portfolio has been established; however, there can be no assurance that such losses will not exceed the estimated amounts in the future.

Along with other financial institutions, management shares a concern for the outlook of the economy during the remainder of 2003.  A slowdown in economic activity beginning in 2001 severely impacted several major industries as well as the economy as a whole.  Even though there are numerous indications of emerging strength, it is not certain that this strength is sustainable.  In addition, consumer confidence may be negatively impacted by the substantial decline in equity prices.  These events could still adversely affect cash flows for both commercial and individual borrowers, as a result of which, the Company could experience increases in problem assets, delinquencies and losses on loans.

Securities

Securities totaled $363.8 million as of September 30, 2003, a decrease of $25.5 million from $389.2 million as of December 31, 2002.  The net unrealized gains, net of deferred taxes, in the portfolio decreased to $4.2 million as of September 30, 2003, a decrease of $1.2 million from $5.4 million as of December 31, 2002.

Deposits and Borrowings

Total deposits were $1.54 billion as of September 30, 2003, an increase of $153.4 million or 11.03% from $1.39 billion as of December 31, 2002.  Demand deposits increased $15.7 million during the first nine months from $196.9 million to $212.6 million or 7.97%.  At the same time, savings deposits, which include money market accounts, increased $71.9 million or 10.77% from $667.9 million to $739.8 million.  Time deposits increased $65.8 million from $525.9 million to $591.7 million or 12.51% during the same period.  Given the lower interest rate environment in which retail time deposits were maturing, pricing and sales strategies targeted growth in transactional deposit accounts and customer reinvestment of maturing time deposit balances in longer-term maturities.  Successful selling efforts in these areas resulted in an increase in new account relationships and core funding sources.

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Securities sold under repurchase agreements, which are typically of short-term duration, decreased from $60.8 million as of December 31, 2002, to $33.6 million as of September 30, 2003. Other short-term borrowings decreased from $7.9 million to $4.0 million due to the decrease in federal funds purchased.  The Company is currently maintaining liquid assets and delivering consistent growth in core funding to provide funding for loan growth.

Capital

The Company and its three subsidiary banks are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines provide for five classifications, the highest of which is well capitalized. The Company and its subsidiary banks were categorized as well capitalized as of September 30, 2003. The accompanying table shows the capital ratios of the Company and Old Second National Bank, the Company’s lead subsidiary bank, as of September 30, 2003.

Capital levels and minimum required levels:

During June 2003, the Company completed its tender offer for shares of its common stock, in which 723,053 shares were repurchased at $42.50 per share.  The total cash payment required to complete the tender offer was approximately $30.7 million, which was funded by the sale of trust preferred securities, as discussed below, and by available corporate funds.  The 723,053 shares purchased in June brought the total to 1,523,802 shares repurchased since July 1999.  The Company also completed the sale of $27.5 million of cumulative trust preferred securities by its subsidiary, Old Second Capital Trust I.  An additional $4.1 million of cumulative

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trust preferred securities was sold in the first week of July 2003.  Each trust preferred security has a liquidation amount of $10.00 and a distribution rate of 7.80% per year with cumulative quarterly cash distributions.

Item 3.    Quantitative and Qualitative Disclosure About Market Risk

Liquidity and Market Risk

Liquidity is the Company’s ability to fund its operations, to meet depositor withdrawals, to provide for customer’s credit needs, and to meet maturing obligations and its existing commitments, to withstand fluctuations in deposit levels.  The liquidity of the Company principally depends on cash flows from operating activities, investment in and maturity of assets, changes in balances of deposits and borrowings, and its ability to borrow funds in the money or capital markets.

Net cash inflow from operating activities was $49.3 million in the first nine months of 2003 compared to $7.0 million in the first nine months of 2002. The increase in inflows was directly related to the increase in loans held for sale by Old Second Mortgage Company.  Interest received net of interest paid was a principal source of operating cash inflows in both periods reported.  Management of investing and financing activities, and market conditions, determine the level and the stability of net interest cash flows.  Management’s policy is to mitigate the impact of changes in market interest rates to the extent possible, so that balance sheet growth is the principle determinant of growth in net interest cash flows.

Net cash outflows from investing activities were $180.9 million in the nine months ended September 30, 2003, compared to $188.1 million a year earlier. In the first nine months of 2003, securities transactions aggregated a net inflow of $20.2 million, and net principal disbursed on loans accounted for net outflows of $196.6 million. In the first nine months of 2002, securities transactions aggregated a net outflow of $51.9 million, and net principal disbursed on loans accounted for net outflows of $130.3 million.  Cash outflows for property and equipment were $4.7 million in 2003 compared to $5.9 million for the same nine months of 2002.

During 2003, cash outflows of $31.4 million used to repurchase treasury stock were directly offset by a $30.2 million cash inflow from the sale of cumulative trust preferred securities thereby providing a net cash outflow on the transactions of $1.2 million during the third quarter.  Cash inflows from financing activities included an increase in deposits of $153.4 million offset by a decrease in fed funds purchased and repurchase agreements of $27.2 million and a $3.9 million decrease in other short-term borrowings in the first nine months of 2003.  This compares with a net cash inflow of $236.7 million associated with an increase in deposits of $284.7 million, an increase of fed funds purchased and other repurchase agreements of $16.8 million, offset by a reduction in other short term borrowings of $19.8 million, and a payoff of the notes payable of  $33.4 million in the first nine months of 2002.

Interest Rate Risk

The impact of movements in general market interest rates on a financial institution’s financial condition, including capital adequacy, earnings, and liquidity, is known as interest rate

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risk. Interest rate risk is the Company’s primary market risk. As a financial institution, accepting and managing this risk is an inherent aspect of the Company’s business. However, safe and sound management of interest rate risk requires that it be maintained at prudent levels.

The Company analyzes interest rate risk by examining the extent to which assets and liabilities are interest rate sensitive. The interest sensitivity gap is defined as the difference between the amount of interest earning assets maturing or repricing within a specific time period and the amount of interest-bearing liabilities maturing or repricing within that time period. A gap is considered positive when the amount of interest sensitive assets exceeds the amount of interest sensitive liabilities. A gap is considered negative when the amount of interest sensitive liabilities exceeds the amount of interest sensitive assets. During a period of rising interest rates, a negative gap would tend to result in a decrease in net interest income while a positive gap would tend to positively affect net interest income. The Company’s policy is to manage the balance sheet such that fluctuations in the net interest margin are minimized regardless of the level of interest rates.

The accompanying table does not necessarily indicate the future impact of general interest rate movements on the Company’s net interest income because the repricing of certain assets and liabilities is discretionary and is subject to competitive and other pressures. As a result, assets and liabilities indicated as repricing within the same period may in fact reprice at different times and at different rate levels. Assets and liabilities are reported in the earliest time frame in which maturity or repricing may occur. Although securities available for sale are reported in the earliest time frame in which maturity or repricing may occur, these securities may be sold in response to changes in interest rates or liquidity needs.

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Expected Maturity of Interest-Earning Assets and Interest-Bearing Liabilities

Item 4.   Controls and Procedures

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of September 30, 2003. Based on that evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective. There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect internal controls.

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SPECIAL NOTE CONCERNING FORWARD-LOOKING STATEMENTS

This document contains, future oral and written statements of the Company and its management may contain, forward-looking statements, within the meaning of such term in the Private Securities Litigation Reform Act of 1995, with respect to the financial condition, results of operations, plans, objectives, future performance and business of the Company.  Forward-looking statements, which may be based upon beliefs, expectations and assumptions of the Company’s management and on information currently available to management, are generally identifiable by the use of words such as “believe,” “expect,” “anticipate,” “plan,” “intend,” “estimate,” “may,” “will,” “would,” “could,” “should” or other similar expressions.  Additionally, all statements in this document, including forward-looking statements, speak only as of the date they are made, and the Company undertakes no obligation to update any statement in light of new information or future events.

The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain.  Factors that could have a material adverse effect on the operations and future prospects of the Company and its subsidiaries include, but are not limited to, the following:

•                                         The strength of the United States economy in general and the strength of the local economies in which the Company conducts its operations which may be less favorable than expected and may result in, among other things, a deterioration in the credit quality and value of the Company’s assets.

•                                         The economic impact of past and future terrorist attacks, acts of war or threats thereof, and the response of the United States to any such threats and attacks.

•                                         The effects of, and changes in, federal, state and local laws, regulations and policies affecting banking, securities, insurance and monetary and financial matters.

•                                         The effects of changes in interest rates (including the effects of changes in the rate of prepayments of the Company’s assets) and the policies of the Board of Governors of the Federal Reserve System.

•                                         The ability of the Company to compete with other financial institutions as effectively as the Company currently intends due to increases in competitive pressures in the financial services sector.

•                                         The inability of the Company to obtain new customers and to retain existing customers.

•                                         The timely development and acceptance of products and services, including products and services offered through alternative delivery channels such as the Internet.

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•                                         Technological changes implemented by the Company and by other parties, including third party vendors, which may be more difficult or more expensive than anticipated or which may have unforeseen consequences to the Company and its customers.

•                                         The ability of the Company to develop and maintain secure and reliable electronic systems.

•                                         The ability of the Company to retain key executives and employees and the difficulty that the Company may experience in replacing key executives and employees in an effective manner.

•                                         Consumer spending and saving habits which may change in a manner that affects the Company’s business adversely.

•                                         Business combinations and the integration of acquired businesses that may be more difficult or expensive than expected.

•                                         The costs, effects and outcomes of existing or future litigation.

•                                         Changes in accounting policies and practices, as may be adopted by state and federal regulatory agencies and the Financial Accounting Standards Board.

•                                         The ability of the Company to manage the risks associated with the foregoing as well as anticipated.

These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.  Additional information concerning the Company and its business, including other factors that could materially affect the Company’s financial results is included in the Company’s Form 10-K for the year ended December 31, 2002 and in its other filings with the Securities and Exchange Commission.

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PART II - OTHER INFORMATION

Item 1.           Legal Proceedings

The Company and its subsidiaries have, from time to time, collection suits in the ordinary course of business against its debtors and are defendants in legal actions arising from normal business activities. Management, after consultation with legal counsel, believes that the ultimate liabilities, if any, resulting from these actions will not have a material adverse effect on the consolidated financial position of the Company and its subsidiaries.

Item 2.           Changes in Securities and Use of Proceeds

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

Exhibits:

31.1         Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a)

31.2                           Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a)

32.1         Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the 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 the Sarbanes-Oxley Act of 2002.

Reports on Form 8-K:

A report on Form 8-K was filed on July 16, 2003, under Item 5, which reported the Company’s second quarter financial information in the form of a press release.

A report on Form 8-K was filed on October 17, 2003, under Item 12, which reported the Company’s third quarter financial information in the form of a press release.

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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.

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