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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, 2002
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 000-24811
SOUND FEDERAL BANCORP
(Exact name of registrant as specified in its charter)
Federal 13-4029393
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 Mamaroneck Ave., Mamaroneck, New York 10543
(Address of principal executive offices)
(Zip Code)
(914) 698-6400
(Registrant's telephone number including area code)
N/A
---------------------------------------------------------
(Former name, former address and former fiscal year,
if changed from 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 twelve 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 the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date.
Shares
Outstanding at
Class November 13, 2002
-------------- -----------------
Common Stock, 4,778,292
par value, $0.10
TABLE OF CONTENTS
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets at September 30, 2002 and March 31, 2002 1
Consolidated Statements of Income for the Three and Six Months
Ended September 30, 2002 and 2001 2
Consolidated Statement of Changes in Stockholders' Equity for the Six Months
Ended September 30, 2002 3
Consolidated Statements of Cash Flows for the Six Months
Ended September 30, 2002 and 2001 4
Notes to Unaudited Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk 17
Item 4. Controls and Procedures 17
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities and Use of Proceeds 18
Item 3. Defaults upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
Certification of Chief Executive Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 20
Certification of Chief Financial Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 21
Part 1. - Financial Information
Item 1. Financial Statements
Sound Federal Bancorp and Subsidiary
Consolidated Balance Sheets
(Unaudited)
(Dollars in thousands) September 30, March 31,
2002 2002
--------------------- ---------------------
Assets
Cash and due from banks $ 8,851 6,931
Federal funds sold and other overnight deposits 33,428 19,847
----------- -------------
Total cash and cash equivalents 42,279 26,778
----------- -------------
Securities available for sale, at fair value (including $36,966 and $35,779
pledged as collateral for borrowings under repurchase agreements at
September 30, 2002 and March 31, 2002, respectively) 159,178 150,231
Loans, net:
Mortgage loans 443,423 419,120
Consumer loans 1,647 1,469
Allowance for loan losses (Note 4) (2,346) (2,221)
----------- ------------
Total loans, net 442,724 418,368
----------- ------------
Accrued interest receivable 3,464 3,241
Federal Home Loan Bank stock 4,141 4,141
Premises and equipment, net 5,613 5,459
Deferred income taxes 144 942
Goodwill 13,970 13,970
Other assets 1,119 855
----------- ------------
Total assets $672,632 623,985
=========== ============
Liabilities and Stockholders' Equity
Liabilities:
Deposits $565,834 519,905
Borrowings (Note 5) 35,012 34,922
Mortgagors' escrow funds 2,788 5,021
Accrued expenses and other liabilities 2,819 3,122
---------- -------------
Total liabilities 606,453 562,970
---------- -------------
Stockholders' equity (Note 1):
Preferred stock ($0.10 par value; 10,000,000 shares authorized;
none issued and outstanding) - -
Common stock ($0.10 par value; 20,000,000 shares authorized; 5,223,218 and
5,220,218 shares issued at September 30, 2002 and March 31, 2002,
respectively) 522 522
Additional paid-in capital 22,660 22,525
Treasury stock, at cost (444,926 shares at September 30, 2002 and
at March 31, 2002) (4,350) (4,350)
Common stock held by Employee Stock Ownership Plan ("ESOP") (1,009) (1,105)
Common stock awards under the Recognition and Retention Plan ("RRP") (172) (244)
Retained earnings 46,444 42,566
Accumulated other comprehensive income, net of taxes (Note 6) 2,084 1,101
---------- ------------
Total stockholders' equity 66,179 61,015
----------- ------------
Total liabilities and stockholders' equity $672,632 623,985
=========== ============
See accompanying notes to unaudited consolidated financial statements.
-1-
Sound Federal Bancorp and Subsidiary
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)
For the Quarter Ended For the Six Months Ended
September 30, September 30,
----------------------------- ------------------------------
2002 2001 2002 2001
Interest and Dividend Income
Loans $ 7,626 $ 6,270 $ 15,240 $ 12,083
Mortgage-backed and other securities 2,007 2,949 4,047 6,096
Federal funds sold and other overnight deposits 127 187 232 494
Other earning assets 38 58 84 156
--------- --------- ---------- ---------
Total interest and dividend income 9,798 9,464 19,603 18,829
--------- --------- ---------- ---------
Interest Expense
Deposits 3,102 4,683 6,186 9,737
Borrowings 411 257 827 526
Other interest-bearing liabilities 17 21 37 37
--------- --------- ---------- ---------
Total interest expense 3,530 4,961 7,050 10,300
---------- --------- ---------- ---------
Net interest income 6,268 4,503 12,553 8,529
Provision for loan losses (Note 4) 50 25 125 50
--------- --------- ---------- ---------
Net interest income after provision for loan losses 6,218 4,478 12,428 8,479
--------- --------- ---------- ---------
Non-Interest Income
Service charges and fees 211 169 381 308
Gain on sale of real estate owned 13 - 13 57
--------- --------- ---------- ---------
Total non-interest income 224 169 394 365
--------- --------- ---------- ---------
Non-Interest Expense
Compensation and benefits 1,623 1,251 3,051 2,476
Occupancy and equipment 385 372 829 693
Data processing service fees 258 215 487 407
Advertising and promotion 278 153 426 309
Other 665 430 1,259 870
--------- --------- ---------- ---------
Total non-interest expense 3,209 2,421 6,052 4,755
--------- --------- ---------- ---------
Income before income tax expense 3,233 2,226 6,770 4,089
Income tax expense 1,203 854 2,579 1,542
--------- --------- ---------- ---------
Net income $ 2,030 $ 1,372 $ 4,191 $ 2,547
========= ========= ========== =========
Basic earnings per share (Note 3) $ 0.44 $ 0.30 $ 0.90 $ 0.55
========= ========= ========== =========
Diluted earnings per share (Note 3) $ 0.43 $ 0.29 $ 0.88 $ 0.55
========= ========= ========== =========
See accompanying notes to unaudited consolidated financial statements.
-2-
Sound Federal Bancorp and Subsidiary
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the Six Months Ended September 30, 2002
(Unaudited)
(Dollars in thousands, except per share data)
Common Comon
Addtional Stock Stock
Common Paid-In Treasury Held By Awards
Stock Capital Stock ESOP Under RRP
----------- ---------- ---------- -------- ----------
Balance at March 31, 2002 $ 522 $ 22,525 $ (4,350) $ (1,105) $ (244)
Net income - - - - -
Other comprehensive income (Note 6) - - - - -
Total comprehensive income
Dividends paid ($0.16 per share) - - - - -
Issuance of stock pursuant to stock option plan - 27 - - -
Vesting of RRP shares - - - - 72
ESOP shares committed to be released for
allocation - 108 - 96 -
---------- ----------- --------- ----------- ---------
Balance at September 30, 2002 $ 522 $ 22,660 $(4,350) $ (1,009) $ (172)
========== =========== ========= =========== =========
Sound Federal Bancorp and Subsidiary
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the Six Months Ended September 30, 2002
(Unaudited)
(Dollars in thousands, except per share data)
Accumulated
Other Total
Retained Comprehensive Stockholders
Earnings Income Equity
---------- ------------- -------------
Balance at March 31, 2002 $ 42,566 $ 1,101 $ 61,015
Net income 4,191 - 4,191
Other comprehensive income (Note 6) - - 983
--------
Total comprehensive income 5,174
Dividends paid ($0.16 per share) (313) - (313)
Issuance of stock pursuant to stock option plan - - 27
Vesting of RRP shares - - 72
ESOP shares committed to be released for
allocation - - 204
---------- ------------- ----------
Balance at September 30, 2002 $ 46,444 $ 2,084 $ 66,179
========== ============= ==========
See accompanying notes to unaudited consolidated financial statements.
-3-
Sound Federal Bancorp and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) For the Six Months Ended
(In thousands) September 30,
-----------------------------------------
2002 2001
-------------------- -------------------
OPERATING ACTIVITIES
Net income $ 4,191 $ 2,547
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 125 50
Depreciation, amortization and accretion 532 (496)
ESOP and RRP expense 276 190
Income taxes 216 2,253
Gain on sale of real estate owned (13) (57)
Other adjustments, net (552) (265)
-------------------- -------------------
Net cash provided by operating activities 4,775 4,222
-------------------- -------------------
INVESTING ACTIVITIES
Purchases of securities available for sale (46,561) (24,421)
Proceeds from principal payments, maturities and calls of securities 39,238 48,428
Disbursements for loan originations, net of principal repayments (24,986) (46,234)
Net decrease in certificates of deposit - 1,491
Proceeds from sales of real estate owned 127 254
Purchases of premises and equipment (502) (52)
-------------------- -------------------
Net cash used in investing activities (32,684) (20,534)
-------------------- -------------------
FINANCING ACTIVITIES
Net increase in deposits 45,929 6,943
Net decrease in mortgagors' escrow funds (2,233) (1,867)
Issuance of stock pursuant to stock option plan 27 -
Purchases of treasury stock - (483)
Dividends paid on common stock (313) (273)
-------------------- -------------------
Net cash provided by financing activities 43,410 4,320
-------------------- -------------------
Increase (decrease) in cash and cash equivalents 15,501 (11,992)
Cash and cash equivalents at beginning of period 26,778 40,849
-------------------- -------------------
Cash and cash equivalents at end of period $ 42,279 $ 28,857
==================== ===================
SUPPLEMENTAL INFORMATION
Interest paid $ 7,018 $ 10,155
Income taxes paid (received) 2,316 (657)
Loans transferred to real estate owned 171 253
==================== ==================
See accompanying notes to unaudited consolidated financial statements.
-4-
Sound Federal Bancorp and Subsidiary
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Reorganization and Stock Offerings
On October 8, 1998, Sound Federal Bancorp issued shares of its common stock
in connection with a Plan of Reorganization ("the "Reorganization") and related
Subscription and Community Offering (the "Offering"). In the Reorganization,
Sound Federal Savings and Loan Association (the "Bank") converted from a
federally chartered mutual savings association to a federally chartered stock
savings association (the "Conversion"). The Bank became the wholly-owned
subsidiary of Sound Federal Bancorp, which became the majority-owned subsidiary
of Sound Federal, MHC (the "Mutual Holding Company"). Collectively, Sound
Federal Bancorp and the Bank are referred to herein as "the Company".
Sound Federal Bancorp issued a total of 5,212,218 shares of its common
stock in the Reorganization and Offering, consisting of 2,810,510 shares (or
53.92%) issued to the Mutual Holding Company, 102,200 shares (or 1.96%) issued
to the Sound Federal Savings and Loan Association Charitable Foundation and
2,299,508 shares (or 44.12%) issued to other stockholders. After deducting
offering costs of $1.1 million, the net cash proceeds from the Offering were
$20.0 million.
On June 13, 2002, the Mutual Holding Company adopted a plan to convert to a
capital stock corporation. Upon conversion, shares of the Company's common stock
held by the public will be exchanged for shares of a Delaware holding company
which will become the Bank's parent company. In addition, shares of the Delaware
holding company will be offered for sale to the Bank's depositors and certain
borrowers in a subscription offering. The shares to be sold in the subscription
offering represent the ownership interest of the Mutual Holding Company. The
conversion and offering will result in additional capital and an increase in the
number of shares outstanding.
2. Basis of Presentation
The consolidated financial statements included herein have been prepared by
the Company without audit. In the opinion of management, the unaudited
consolidated financial statements include all adjustments, consisting of normal
recurring accruals, necessary for a fair presentation of the financial position
and results of operations for the periods presented. Certain information and
footnote disclosures normally included in accordance with accounting principles
generally accepted in the United States of America have been condensed or
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission; however, the Company believes that the disclosures are adequate to
make the information presented not misleading. The operating results for the
periods presented are not necessarily indicative of results to be expected for
any other interim period or for the entire fiscal year ending March 31, 2003.
The consolidated financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America. In
preparing the consolidated financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, income and expense. Actual results could differ significantly from
these estimates. A material estimate that is particularly susceptible to
near-term change is the allowance for loan losses, which is discussed in Note 4.
The unaudited interim consolidated financial statements presented herein
should be read in conjunction with the annual audited consolidated financial
statements of the Company for the fiscal year ended March 31, 2002, included in
the Company's 2002 Annual Report.
-5-
3. Earnings Per Share
Weighted average common shares used in calculating basic and diluted
earnings per share ("EPS") for the three months ended September 30, 2002 were
4,659,180 and 4,769,165, respectively. For the quarter ended September 30, 2001,
weighted average common shares used in calculating basic and diluted EPS were
4,613,294 and 4,670,645, respectively.
For the six months ended September 30, 2002, weighted average shares for
calculating basic and diluted earnings per share were 4,658,360 and 4,761,360;
for the six months ended September 30, 2001 the respective weighted average
shares were 4,627,392 and 4,672,320.
Diluted EPS reflects incremental shares for stock options and unvested RRP
shares, computed using the treasury stock method.
4. Allowance for Loan Losses
The allowance for loan losses is increased by provisions for loan losses
charged to income and by recoveries of prior charge-offs, and is decreased by
charge-offs. Losses are charged to the allowance when all or a portion of a loan
is deemed to be uncollectible. Recoveries of loans previously charged-off are
credited to the allowance for loan losses when realized. Management's periodic
determination of the allowance is based on continuing reviews of the portfolio,
using a consistently-applied methodology. The allowance for loan losses consists
of losses that are both probable and estimable at the date of the financial
statements. In determining the allowance for loan losses, management considers
factors such as the Company's past loan loss experience, known risks in the
portfolio, adverse situations affecting a borrower's ability to repay, the
estimated value of underlying collateral, and current economic conditions.
Determining the allowance for loan losses involves significant management
judgments utilizing the best information available. Those judgments are subject
to further review by various sources, including the Company's regulators.
Changes in the allowance may be necessary in the future based on changes in
economic and real estate market conditions, new information obtained regarding
known problem loans, the identification of additional problem loans and other
factors, certain of which are outside of management's control.
Activity in the allowance for loan losses for the periods indicated is
summarized as follows:
Three Months Ended Six Months Ended Year Ended
September 30, September 30, March 31,
------------- ------------- ------------- ------------ ---------
2002 2001 2002 2001 2002
------------- ------------- ------------- ------------ ---------
(in thousands)
Balance at beginning of period.... $ 2,296 $ 2,072 $ 2,221 $ 2,047 $ 2,047
Provision for loan losses......... 50 25 125 50 175
Charge-offs....................... -- -- -- -- (15)
Recoveries........................ -- -- -- -- 14
--------- --------- --------- --------- ----------
Balance at end of period.......... $ 2,346 $ 2,097 $ 2,346 $ 2,097 2,221
========= ========= ========= ========= ===========
-6-
5. Borrowings
The Company had the following outstanding borrowings under securities
repurchase agreements with the FHLB at September 30, 2002:
Coupon
------ Accrued
Maturity Date Rate Borrowings Interest Payable
------------- ---- ---------- ----------------
(dollars in thousands)
January 2008 (1) 5.42% $ 9,928 $ 101
December 2008(2) 4.72 5,000 --
March 2003 2.54 7,000 15
March 2004 3.57 7,000 21
March 2005 4.22 6,000 21
-------------- -----------
4.17% $ 34,928 $ 158
============== ===========
(1) Callable quarterly beginning January 2003 (2) Callable quarterly since
November 2001
The securities transferred to the FHLB subject to these repurchase
agreements include U.S. Government and agency securities available for sale with
a carrying value of $15.5 million and mortgage-backed securities available for
sale with a carrying value of $21.5 million. Accrued interest receivable on
these securities totaled $301,000 at September 30, 2002.
An outstanding FHLB advance of $84,000 is included in borrowings in the
consolidated balance sheets at September 30, 2002 and March 31, 2002. This
advance bears interest at a fixed rate of 8.29% and matures in December 2002.
6. Comprehensive Income
Comprehensive income represents the sum of net income and items of "other
comprehensive income or loss" that are reported directly in stockholders'
equity, such as the change during the period in the after-tax net unrealized
gain or loss on securities available for sale.
The Company's other comprehensive income represents net unrealized holding
gains and losses arising during the period on securities available for sale, net
of related income taxes, as follows:
Three Months Ended Six Months Ended
September 30, September 30,
------------------------------ --------------------------
2002 2001 2002 2001
------------- ------------- ----------- ------------
(in thousands)
Net unrealized holding gain arising during
the period on securities available for sale... $ 580 $ 901 $ 1,603 $ 661
Related deferred income tax effect............. (224) (342) (620) (251)
---------- ------------- ----------- -------------
Other comprehensive income..................... $ 356 $ 559 $ 983 $ 410
========== ============= =========== =============
-7-
The Company's accumulated other comprehensive income, which is included in
stockholders' equity, is summarized as follows:
September 30, March 31,
2002 2002
------------ --------------
(In thousands)
Net unrealized holding gain on securities available for sale...... $ 3,565 $ 1,962
Additional minimum pension liability.............................. (170) (170)
Related deferred income taxes...................... (1,311) (691)
----------- -----------
Accumulated other comprehensive income...................... $ 2,084 $ 1,101
=========== ===========
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
The Company's results of operations depend primarily upon its net interest
income, which is the difference between income earned on interest-earning
assets, such as loans and securities, and the interest expense paid on deposits.
The Company's operations are affected to a much lesser degree by non-interest
income, such as banking service charges and fees. Net income is also affected
by, among other things, provisions for loan losses and non-interest expenses.
The Company's principal operating expenses, aside from interest expense, are
compensation and benefits, occupancy and equipment, data processing service
fees, advertising and promotion and other expenses such as ATM expenses,
professional fees and insurance premiums. The Company's results of operations
also are affected significantly by general economic and competitive conditions,
particularly changes in market interest rates, government legislation and
policies affecting fiscal affairs, housing and financial institutions, monetary
policies of the Federal Reserve System, and the actions of bank regulatory
authorities.
When used in this report on Form 10-Q, 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. Such statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from historical results and
those presently anticipated or projected. Among others, these risks and
uncertainties include changes in economic conditions in the Company's market
area, changes in policies by regulatory agencies, fluctuations in interest
rates, demand for loans in the Company's market area and competition. The
Company wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. The Company
wishes to advise readers that the factors listed above could affect the
Company's financial performance and could cause the Company's actual results for
future periods to differ materially from its forward-looking statements. The
Company does 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
such statements or to reflect the occurrence of anticipated or unanticipated
events.
-8-
Recent Developments
On June 13 2002, the Mutual Holding Company adopted a plan to convert to a
capital stock corporation. Upon conversion, shares of the Company's common stock
held by the public will be exchanged for shares of a Delaware holding company
which will become the Bank's parent company. In addition, shares of the Delaware
holding company will be offered for sale to the Bank's depositors and certain
borrowers in a subscription offering. The shares to be sold in the subscription
offering represent the ownership interest of the Mutual Holding Company.
Financial Condition
Assets. Assets totaled $672.6 million at September 30, 2002 as compared to
$624.0 million at March 31, 2002. Net loans increased $24.4 million, or 5.8%, to
$442.7 million at September 30, 2002 as compared to $418.4 million at March 31,
2002. The increase in net loans primarily reflects our continued strong level of
loan originations, which totaled $90.3 million during the six months ended
September 30, 2002, and which were partially offset by loan principal repayments
of $66.4 million during the period. Securities available for sale increased $8.9
million, or 6.0%, to $159.2 million at September 30, 2002, as compared to $150.2
million at March 31, 2002. Federal funds sold and other overnight deposits
increased $13.6 million to $33.4 million during the same period. These increases
were funded principally by a $45.9 million increase in deposits.
Liabilities. Deposits totaled $565.8 million at September 30, 2002, as
compared to $519.9 million at March 31, 2002. Certificates of deposit increased
$28.7 million to $341.0 million from $312.3 million, savings and club accounts
increased $6.5 million to $125.1 million from $118.6 million and money market
accounts increased $2.6 million to $38.6 million from $36.0 million. Borrowings
totaled $35.0 million at September 30, 2002, as compared to $34.9 million at
March 31, 2002. Borrowings at September 30, 2002 consisted of Federal Home Loan
Bank borrowings.
Stockholders' Equity. Total stockholders' equity increased $5.2 million, or
8.5% to $66.2 million at September 30, 2002, as compared to $61.0 million at
March 31, 2002. The increase in stockholders' equity reflects $4.2 million in
net income and an increase of $983,000 in accumulated other comprehensive
income, partially offset by dividends paid of $313,000. Our equity to assets
ratio was 9.84% at September 30, 2002, as compared to 9.78% at March 31, 2002.
Comparison of Results of Operations for the Three Months Ended
September 30, 2002 and 2001
Net Income. Net income amounted to $2.0 million or diluted earnings per
share of $0.43 for the quarter ended September 30, 2002, as compared to $1.4
million or diluted earnings per share of $0.29 for the quarter ended September
30, 2001. The increase in net income for the current quarter was due primarily
to an increase of $1.8 million in net interest income, partially offset by
increases of $788,000 in non-interest expense and $349,000 in income tax
expense.
-9-
Interest Income. Interest income totaled $9.8 million during the quarter
ended September 30, 2002, as compared to $9.5 million for the same period in the
prior year. This increase was due to an increase of $105.6 million in average
interest-earning assets to $630.5 million during the quarter ended September 30,
2002, as compared to $524.9 million for the same quarter in the prior year,
offset partially by a 98 basis point decrease in the average yield on
interest-earning assets to 6.17% from 7.15%. The increase in the average balance
of interest-earning assets was due primarily to increases in loans and in
federal funds sold and other overnight deposits, partially offset by a decrease
in mortgage-backed securities. The decrease in the average yield on
interest-earning assets reflects the origination of fixed-rate loans and the
repricing of our adjustable-rate securities portfolio during periods of
declining interest rates, and particularly during the second half of calendar
2001. In addition, federal funds sold and other overnight deposits, which earn
less interest than longer-term interest-earning assets, represent a larger
portion of interest-earning assets. Federal funds sold and other overnight
deposits represented 6.0% of interest-earning assets for the quarter ended
September 30, 2002, as compared to 3.8% for the same period in the prior year.
Loans. Interest income on loans increased $1.3 million to $7.6 million for
the quarter ended September 30, 2002, as compared to $6.3 million for the same
quarter in 2001. This increase is due to an increase of $112.3 million in the
average balance of loans to $440.2 million from $327.9 million, partially offset
by a 72 basis point decrease in the yield earned to 6.87% from 7.59%.
The growth of the loan portfolio was principally a result of increased
originations as borrowers sought to take advantage of the lowest mortgage
interest rates in 40 years. The low market interest rates created a robust
housing market and also compelled many consumers to refinance their existing
mortgage loans. We originated $37.7 million of loans during the three months
ended September 30, 2002. These loans were originated at rates lower than the
yields being earned on the existing loan portfolio. As a result, the decline in
average yield earned on the loan portfolio continued in the first six months of
fiscal 2003. The yield on the loan portfolio may decrease further until market
interest rates begin to increase.
Mortgage-Backed Securities. Interest on mortgage-backed securities
decreased $771,000 to $1.5 million for the quarter ended September 30, 2002, as
compared to $2.3 million for the quarter ended September 30, 2001. This decrease
was due primarily to a decrease of $23.7 million in the average balance to
$105.0 million and a decrease of 132 basis points in the average yield to 5.72%
from 7.04%. The lower average balances in the current year reflect principal
repayments and prepayments on mortgage-backed securities, which we used to fund
loan growth.
-10-
Other Securities. Interest on other securities decreased $171,000 to
$494,000 for the quarter ended September 30, 2002, as compared to the same
quarter in 2001, due to a 164 basis point decrease in the average yield to 4.54%
from 6.18%, which has partially offset by an increase of $528,000 in the average
balance to $43.2 million. The decrease in the average yield reflects the
decrease in market interest rates during fiscal 2002. Federal Funds Sold and
Other Overnight Deposits. For the quarter ended September 30, 2002, interest on
Federal funds sold and other overnight deposits decreased $60,000 to $127,000,
reflecting a 226 basis point decrease in the average yield earned to 1.34%,
partially offset by an increase of $17.1 million in the average balance to $37.6
million. The decrease in the average yield reflects the decrease in market
interest rates during fiscal 2002.
Interest Expense. Interest expense for the quarter ended September 30, 2002
totaled $3.5 million as compared to $5.0 million for the quarter ended September
30, 2001. The decrease in interest expense was due to a decrease in the average
cost of liabilities to 2.40% from 4.04%, resulting from declining market
interest rates during fiscal 2002. The average balance of interest-bearing
liabilities increased $92.1 million to $584.2 million for the quarter ended
September 30, 2002 from $492.1 million for the same quarter in the prior year.
Interest expense on certificates of deposit totaled $2.6 million for the
quarter ended September 30, 2002 as compared to $4.0 million for the same
quarter in 2001. The decrease was due primarily to a 225 basis point decrease in
the average cost to 3.09% from 5.34%, offset partially by an increase of $38.7
million in the average balance of certificates of deposit to $332.3 million from
$293.6 million in the same quarter last year. The decrease in the average cost
of certificates of deposit was the result of the decrease in interest rates
during fiscal 2002.
Interest on savings accounts amounted to $330,000 for the quarter ended
September 30, 2002, as compared to $455,000 for the quarter ended September 30,
2001. The decrease was the result of a 60 basis point decrease in the average
cost of savings accounts to 1.05% from 1.65%, offset partially by an increase of
$15.7 million in the average balance of savings accounts to $125.1 million.
Interest expense on other deposits (NOW and money market accounts) amounted
to $188,000 for the quarter ended September 30, 2002 as compared to $275,000 for
the same quarter in the prior year. The average cost of these accounts decreased
70 basis points, offset partially by an increase of $16.7 million in the average
balance of these accounts.
For the quarter ended September 30, 2002, interest expense on borrowings
amounted to $411,000 as compared to $257,000 in the prior year. The average
balance of borrowings for the current quarter was $35.0 million and the average
cost was 4.66%. For the quarter ended September 30, 2001, the average balance of
borrowings was $14.8 million and the average cost was 6.90%. We used the
increase in Federal Home Loan Bank borrowings to fund loan originations.
Net Interest Income. Net interest income for the quarter ended September
30, 2002 amounted to $6.3 million, an increase of $1.8 million, or 39.2%, from
$4.5 million for the same quarter in the prior year. The interest rate spread
was 3.77% and 3.11% for the quarters ended September 30, 2002 and 2001,
respectively. The net interest margin for those periods was 3.94% and 3.40%,
respectively.
-11-
The increases in interest rate spread and net interest margin are a result
of decreasing market interest rates in calendar 2001. This decrease in market
interest rates has reduced the cost of interest-bearing liabilities faster than
the rates on interest-earning assets such as loans or securities. However, if
market interest rates decrease further, interest rate spread and net interest
margin may decrease since competitive factors could inhibit our ability to lower
interest rates on deposit accounts any further. Our interest rate spread and net
interest margin may also come under pressure as the full effect of recent
mortgage refinancings is reflected in asset yields. In addition, if interest
rates increase, the cost of our interest-bearing liabilities will increase
faster than the rates on our interest-earning assets, also causing decreases in
our net interest rate spread and net interest margin.
Provision for Loan Losses. Management regularly reviews our loan portfolio
and makes provisions for loan losses in amounts required to maintain the
allowance for loan losses in accordance with generally accepted accounting
principles. The allowance consists of losses that are both probable and
estimable at the date of the financial statements. The allowance for loan losses
consists of amounts allocated to specific nonperforming loans and to loans in
each major portfolio category. Loan categories such as single-family residential
mortgage loans, which represented 90.9% of total loans at September 30, 2002,
are generally evaluated on an aggregate or "pool" basis. Our allowance for loan
losses is predominately determined on a pool basis by applying loss factors to
the current balances of the various loan categories. The loss factors are
determined by management based on an evaluation of our historical loss
experience, delinquency trends, volume and type of lending conducted, and the
impact of current economic conditions in our market area.
The provision for loan losses was $50,000 for the quarter ended September
30, 2002 as compared to $25,000 for the quarter ended September 30, 2001.
Non-performing loans amounted to $876,000, or 0.20% of total loans at September
30, 2002, as compared to $1.1 million, or 0.33% of total loans at September 30,
2001. The allowance for loan losses amounted to $2.3 million, or 0.53% of total
loans at September 30, 2002 and $2.2 million, or 0.53% of total loans at March
31, 2002. There were no charge-offs for the quarters ended September 30, 2002
and 2001. The increase in the provision for loan losses reflects our continued
substantial origination of adjustable-rate mortgage loans in the portfolio and
overall portfolio growth. Adjustable rate mortgage loans can involve greater
credit risk than fixed rate loans because as interest rates increase, the
underlying payments by the borrower increase, thus increasing the risk of
default by the borrower. At the same time, the marketability of the underlying
collateral may be adversely affected by higher interest rates. At September 30,
2002, adjustable rate loans accounted for 17.8% of total loans as compared to
15.0% at March 31, 2002 and 6.0% at September 30, 2001.
Non-Interest Income. Non-interest income consists principally of service
charges on deposit accounts, fees earned on the sale of investment products,
late charges on loans and various other service fees. Non-interest income
totaled $224,000 and $169,000 for the quarters ended September 30, 2002 and
2001, respectively and included service fees of $211,000 and $169,000 for the
same respective quarters. Service fees include fees of $67,000 and $34,000
generated by Mamaroneck Advisors, Inc. during the quarters ended September 30,
2002 and 2001, respectively. Mamaroneck Advisors, Inc. is our service
corporation that sells investment and insurance products.
Non-Interest Expense. Non-interest expense totaled $3.2 million for the
quarter ended September 30, 2002, as compared to $2.4 million for the quarter
ended September 30, 2001. This increase was due primarily to increases of
$372,000 in compensation expense, $125,000 in advertising and promotion expense
and $235,000 in other non-interest expense. The increases in non-interest
expense were due primarily to operating expenses for the New Rochelle and Somers
branches, which were opened in December 2001 and July 2002, respectively, as
well as internal growth to support lending and branch operations.
Income Taxes. Income tax expense amounted to $1.2 million and $854,000 for
the quarters ended September 30, 2002 and 2001, respectively. The effective tax
rates for those same periods were 37.2% and 38.4%, respectively.
-12-
Comparison of Results of Operations for the Six Months Ended
September 30, 2002 and 2001
Net Income. Net income amounted to $4.2 million or diluted earnings per
share of $0.88 for the six months ended September 30, 2002, as compared to $2.5
million or diluted earnings per share of $0.55 for the same period in the prior
year. The increase in net income for the six months ended September 30, 2002 was
due to an increase of $4.0 million in net interest income, partially offset by
an increase of $1.3 million in non-interest expense and an increase of $1.0
million in income tax expense.
Interest Income. Interest income totaled $19.6 million for the six months
ended September 30, 2002, as compared to $18.8 million for the same period in
the prior year. The increase in interest income reflects an increase of $95.5
million in average interest-earning assets to $616.4 million as compared to
$520.9 million for the same period in the prior year, partially offset by an 87
basis point decrease in the average yield on interest-earning assets to 6.34%
from 7.21%. The increase in the average balance of interest-earning assets was
due primarily to increases in loans and in federal funds sold and other
overnight deposits, partially offset by a decrease in mortgage-backed
securities. The decrease in the average yield on interest-earning assets
reflects the origination of fixed-rate loans and the repricing of our
adjustable-rate securities portfolio during periods of declining interest rates,
and particularly during the second half of calendar 2001. In addition, federal
funds sold and other overnight deposits, which earn less interest than
longer-term interest-earning assets, represent a larger portion of
interest-earning assets. Federal funds sold and other overnight deposits
represented 5.4% of interest-earning assets for the six months ended September
30, 2002, as compared to 4.5% for the same period in the prior year.
Loans. For the six months ended September 30, 2002, interest income on
loans amounted to $15.2 million as compared to $12.1 million for the same period
in the prior year. This increase was due to an increase of $114.3 million in the
average balance of loans partially offset by a 54 basis point decrease in the
yield earned to 7.01% from 7.55%.
The growth of the loan portfolio was principally a result of increased
originations, discussed above. We originated $90.3 million of loans during the
six months ended September 30, 2002. These loans were originated at rates lower
than the yields being earned on the existing loan portfolio. As a result, the
decline in average yield earned on the loan portfolio continued in the first six
months of fiscal 2003. The yield on the loan portfolio may decrease further
until market interest rates begin to increase.
Mortgage-Backed Securities. Interest on mortgage-backed securities for the
six months ended September 30, 2002, decreased $1.7 million to $3.0 million as
compared to $4.7 million for the same period in the prior year. The decrease was
due to a decrease of $30.8 million in the average balance to $101.2 million and
a decrease of 124 basis points in the average yield to 5.96% from 7.20%. The
lower average balances in the current year reflect principal repayments and
prepayments on mortgage-backed securities, which we used to fund loan growth.
Other Securities. For the six months ended September 30, 2002, interest on
other securities decreased $309,000 to $1.0 million as compared to $1.3 million
for the same period in the prior year. The decrease was due to a decrease in the
average yield of 184 basis points to 4.66% from 6.50% partially offset by an
increase of $2.9 million in the average balance to $43.7 million for the six
months ended September 30, 2002.
Federal Funds Sold and Other Overnight Deposits. For the six months ended
September 30, 2002, interest on federal funds and other overnight deposits
decreased $258,000 to $232,000, reflecting a 276 basis point decrease in the
average yield to 1.39%, partially offset by an increase of $9.8 million in the
average balance to $33.3 million. The decrease in the average yield reflects the
decrease in market interest rates during fiscal 2002.
Interest Expense. For the six months ended September 30, 2002, interest
expense on interest-bearing liabilities decreased $3.2 million to $7.1 million,
as compared to $10.3 million for the six months ended September 30, 2001. The
decrease in interest expense was due to a 173 basis point decrease in the
average cost to 2.45% from 4.18%, partially offset by an increase of $81.8
million in the average balance of interest-bearing liabilities to $573.3
million.
-13-
For the six months ended September 30, 2002, interest expense on
certificates of deposit amounted to $5.1 million as compared to $8.2 million for
the same period in the prior year. The decrease was due to a 244 basis point
decrease in the average cost to 3.14%, partially offset by a $32.7 million
increase in the average balance of certificates of deposit to $326.4 million as
compared to $293.7 million for the same period in the prior year.
For the six months ended September 30, 2002, interest on savings accounts
decreased $326,000 to $640,000 as compared to the same period in the prior year.
The average cost of savings accounts decreased 72 basis points to 1.05%
partially offset by an increase in the average balance of savings accounts of
$12.9 million to $121.9 million for the same periods.
For the six months ended September 30, 2002, interest expense on other
deposits amounted to $403,000 as compared to $554,000 for the same period in the
prior year. The average cost of these accounts decreased 65 basis points,
partially offset by an increase of $15.8 million in the average balance of these
accounts
For the six months ended September 30, 2002, interest expense on borrowings
was $827,000 as compared to $526,000 for the same period in the prior year. The
increase in interest expense was due to an increase in the average balance of
borrowings of $20.2 million to $35.0 million, partially offset by a decrease in
the average cost of borrowings of 239 basis points to 4.72%. We used the
increase in borrowings to fund loan originations.
Net Interest Income. For the six months ended September 30, 2002, net
interest income amounted to $12.6 million as compared to $8.5 million for the
same period in the prior year. The interest rate spread was 3.89% and 3.03% and
the net interest margin was 4.06% and 3.27% for the respective periods. The
increases in interest rate spread and net interest margin were the result of
decreasing market interest rates in calendar 2001. This decrease in market
interest rates has reduced the cost of interest-bearing liabilities faster than
the rates on interest-earning assets such as loans or securities.
Provision for Loan Losses. The provision for loan losses was $125,000 for
the six months ended September 30, 2002 as compared to $50,000 for the same
period in the prior year. Non-performing loans amounted to $876,000 or 0.20% of
total loans at September 30, 2002, as compared to $1.1 million or 0.33% of total
loans at September 30, 2001. The allowance for loan losses amounted to $2.3
million or 0.53% of total loans at September 30, 2002 and $2.2 million or 0.53%
of total loans at March 31, 2002. There were no charge-offs during the six
months ended September 30, 2002 and 2001. The increase in the provision for loan
losses reflects our continued substantial origination of adjustable-rate
mortgage loans and overall portfolio growth. Adjustable-rate mortgage loans can
involve greater credit risk than fixed-rate loans because as interest rates
increase, the underlying payments by the borrower increase, thus increasing the
risk of default by the borrower. At the same time, the marketability of the
underlying collateral may be adversely affected by higher interest rates. At
September 30, 2002, adjustable rate loans accounted for 17.8% of total loans as
compared to 15.0% at March 31, 2002 and 6.0% at September 30, 2001.
Non-Interest Income. Non-interest income for the six months ended September
30, 2002 totaled $394,000 as compared to $365,000 for the six months ended
September 30, 2001, and included service fees of $381,000 and $308,000 for the
respective periods. The increase in service fees was due primarily to fees of
$108,000 and $49,000 from the sale of investment products for the respective
six-month periods. Non-interest income for the six months ended September 30,
2002 included a gain on the sale of real estate owned of $13,000 as compared to
$57,000 for the same period in 2001.
-14-
Non-Interest Expense. For the six months ended September 30, 2002,
non-interest expense increased $1.3 million to $6.1 million as compared to $4.8
million for the same period in the prior year. This increase was due primarily
to increases of $575,000 in compensation and benefits, $136,000 in occupancy and
equipment expense, $117,000 in advertising and promotion expense and $389,000 in
other non-interest expense. The increases in non-interest expense were due
primarily to operating expenses for the New Rochelle and Somers branches, which
were opened in December 2001 and July 2002, respectively, as well as internal
growth to support lending and branch operations.
Income Taxes. For the six months ended September 30, 2002, income tax
expense amounted to $2.6 million and $1.5 million, respectively. The effective
tax rates for those same periods were 38.1% and 37.7%, respectively.
Liquidity and Capital Resources
The Company's primary sources of funds are deposits, the proceeds from
principal and interest payments on loans and mortgage-backed securities, and the
proceeds from maturities of investments. While maturities and scheduled
amortization of loans and securities are a predictable source of funds, deposit
flows and mortgage prepayments are greatly influenced by general interest rates,
economic conditions and competition.
The Company's primary investing activities are the origination of mortgage
loans, and the purchase of short-term investments, government agency bonds and
adjustable rate mortgage-backed securities. These activities are funded
primarily by deposit growth and principal repayments on loans, mortgage-backed
securities and other investment securities. For the six months ended September
30, 2002, the Company originated loans totaling $90.3 million and purchased
$46.6 million of securities. These disbursements were funded in part by $39.2
million in principal payments, maturities and calls of securities and $66.4
million in loan principal repayments. For the year ended March 31, 2002, the
Company originated $220.4 million of loans and purchased $57.7 million of
securities.
Liquidity management for the Company is both a daily and long-term process
which is part of the Company's overall management strategy. Excess funds are
generally invested in short-term investments such as Federal funds and
certificates of deposit. In the event that the Bank should require additional
sources of funds, it could borrow from the Federal Home Loan Bank of New York
under an available line of credit.
At September 30, 2002, the Company had outstanding loan origination
commitments of $67.2 million. The Company anticipates that it will have
sufficient funds available to meet its current loan commitments. Time deposits
scheduled to mature in one year or less from September 30, 2002, totaled $269.3
million. Management believes that a significant portion of such deposits will
remain with the Company.
The Bank is subject to certain minimum leverage, tangible and risk-based
capital requirements established by regulations of the OTS. These regulations
require savings associations to meet three minimum capital standards: a tangible
capital ratio requirement of 1.5% of total assets as adjusted under the OTS
regulations; a leverage ratio requirement of 4.0% of core capital to such
adjusted total assets; and a risk-based capital ratio requirement of 8.0% of
core and supplementary capital to total risk-based assets. The OTS prompt
corrective action regulations impose a 4.0% core capital requirement for
categorization as an "adequately capitalized" thrift and a 5.0% core capital
requirement for categorization as a "well capitalized" thrift. Goodwill and most
other intangible assets are deducted in determining regulatory capital for
purposes of all capital ratios. In determining the amount of risk-weighted
assets for purposes of the risk-based capital requirement, a savings association
must compute its risk-based assets by multiplying its assets and certain
off-balance sheet items by risk-weights, which range from 0% for cash and
obligations issued by the United States Government or its agencies to 100% for
consumer and commercial loans, as assigned by the OTS capital regulations. At
September 30, 2002, the Bank exceeded all of the OTS minimum regulatory capital
requirements, and was classified as a well-capitalized institution for
regulatory purposes.
-15-
The following table sets forth the capital position of the Bank as of
September 30, 2002 and March 31, 2002. The actual capital amounts and ratios set
forth below are for the Bank only and, accordingly, do not include additional
capital retained by Sound Federal Bancorp.
OTS Requirements
------------------------------------------------
Minimum Capital Classification as
Bank Actual Adequacy Well Capitalized
------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in thousands)
September 30, 2002
Tangible capital.................... $ 44,254 6.8% $ 9,813 1.5%
Tier I (core) capital............... 44,254 6.8 26,170 4.0 $ 32,711 5.0%
Risk-based capital:
Tier I........................... 44,254 13.2 20,192 6.0
Total............................ 46,601 13.9 26,923 8.0 33,653 10.0
March 31, 2002
Tangible capital.................... $ 39,865 6.5% $ 9,139 1.5%
Tier I (core) capital............... 39,865 6.5 24,371 4.0 $ 30,464 5.0%
Risk-based capital:
Tier I........................... 39,865 12.7 18,776 6.0
Total............................ 42,087 13.5 25,035 8.0 31,294 10.0
Impact of Recent Accounting Pronouncements
SFAS No. 143, "Accounting for Asset Retirement Obligations," is effective
for financial statements issued for fiscal years beginning after June 15, 2002.
SFAS No. 143 addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. Management does not expect that the adoption of this
pronouncement will impact our results of operations or financial condition.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 is effective for
financial statements issued for fiscal years beginning after December 15, 2001.
The standard addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. The adoption of this pronouncement did not affect
our results of operations or financial condition.
SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment
of FASB Statement No. 13, and Technical Corrections," was issued in April 2002.
Among other things, the standard changes the income statement classification of
gains and losses from early extinguishments of debts. Management does not expect
that the provisions of this statement will impact our results of operations or
financial condition.
-16-
SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities," was issued in June 2002 and requires that a liability be recognized
for these costs only when incurred, while existing practice calls for
recognition of a liability when an entity commits to an exit plan. This
statement is effective for exit or disposal activities initiated after December
31, 2002 and is not expected to impact our results of operations or financial
condition.
SFAS No, 147, "Acquisitions of Certain Financial Institutions," was issued
in October 2002 and eliminates the requirement to amortize an excess of fair
value of liabilities assumed over the fair value of assets acquired in certain
acquisitions of financial institutions. SFAS No. 147 also amends SFAS No. 144 to
include in its scope long-term customer relationship intangible assets of
financial institutions. Management does not expect that the provisions of SFAS
No. 147 will impact our results of operations or financial condition.
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 the Company's assets and liabilities are sensitive to changes
in interest rates. The Company's assets consist primarily of fixed rate mortgage
loans, which have longer maturities than the Company's liabilities which consist
primarily of deposits. The Company's mortgage loan portfolio, consisting
primarily of loans secured by residential real property located in Westchester
County, New York and Fairfield County, Connecticut, is also subject to risks
associated with the local economy. The Company does not own any trading assets.
At September 30, 2002, the Company did not have any hedging transactions in
place, such as interest rate swaps and caps. The Company's interest rate risk
management program focuses primarily on evaluating and managing the composition
of the Company's assets and liabilities in the context of various interest rate
scenarios. Factors beyond management's control, such as market interest rates
and competition, also have an impact on interest income and interest expense.
During the quarter ended September 30, 2002, there were no significant
changes in the Company's assessment of market risk.
Item 4. Controls and Procedures
The Company's management, including the Chief Executive Officer and Chief
Financial Officer, evaluated the effectiveness of the design and operation of
the Company's disclosure controls and procedures (as defined in Rule 13a-14(c)
under the Securities Exchange Act of 1934, as amended) (the "Exchange Act") as
of a date (the "Evaluation Date") within 90 days prior to the filing date of
this report. Based upon that evaluation, the Company's management, including the
Chief Executive Officer and Chief Financial Officer, concluded that, as of the
Evaluation Date, the Company's disclosure controls and procedures were effective
in timely alerting them to any material information relating to the Company and
its subsidiaries required to be included in the Company's Exchange Act filings.
There were no significant changes made in the Company's internal controls
or in other factors that that could significantly affect these internal controls
subsequent to the date of the evaluation performed by the Company's Chief
Executive Officer and Chief Financial Officer.
-17-
Part II--OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not involved in any pending legal proceedings other than
routine legal proceedings occurring in the ordinary course of business. Such
routine legal proceedings in the aggregate are believed by management to be
immaterial to the Company's financial condition and results of operations.
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
The Company held its Annual Meeting of Stockholders on August 8, 2002. The
purpose of the meeting was the election of three directors of the Company and
the ratification of the appointment of KPMG LLP as auditors for the Company for
the fiscal year ending March 31, 2003. The results of the votes were as follows:
Proposal 1 - Election of Directors
For Withheld
-------------------------------------
Bruno J. Gioffre 4,433,296 33,925
James Staudt 4,464,896 2,325
Richard P. McStravick 4,463,381 3,840
Proposal 2 - Ratification of Appointment of KPMG LLP
For Against Abstain
------------------ ---------------------- -----------------
4,428,916 30,799 7,506
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 99.1 - Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
None
-18-
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.
Sound Federal Bancorp
(Registrant)
By: /s/ Anthony J. Fabiano
---------------------------------------
Anthony J. Fabiano
Duly Authorized and Chief Financial
and Accounting Officer
November 14, 2002
-19-
Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Richard P. McStravick, President and Chief Executive Officer, certify
that:
(1) I have reviewed this quarterly report on Form 10-Q of Sound Federal
Bancorp;
(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 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 functions):
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 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.
November 14, 2002 /s/ Richard P. McStravick
- --------------------- -----------------------------------
Date Richard P. McStravick
President and Chief Executive Officer
-20-
Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Anthony J. Fabiano, Senior Vice President and Chief Financial Officer,
certify that:
(1) I have reviewed this quarterly report on Form 10-Q of Sound Federal
Bancorp;
(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 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 annual 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 functions):
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 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.
November 14, 2002 /s/ Anthony J. Fabiano
- --------------------- -----------------------------------
Date Anthony J. Fabiano
Senior Vice President and
Chief Financial Officer
-21-
Exhibit 99.1
Certification pursuant to
18 U.S.C. Section 1350,
as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Richard P. McStravick, President and Chief Executive Officer, and Anthony
J. Fabiano, Senior Vice President and Chief Financial Officer of Sound Federal
Bancorp (the "Company"), each certify in his capacity as an officer of the
Company that he has reviewed the Quarterly Report of the Company on Form 10-Q
for the quarter ended September 30, 2002 and that to the best of his knowledge:
(1) the report fully complies with the requirements of Sections 13(a) of the
Securities Exchange Act of 1934; and
(2) the information contained in the report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
The purpose of this statement is solely to comply with Title 18, Chapter
63, Section 1350 of the United States Code, as amended by Section 906 of the
Sarbanes-Oxley Act of 2002.
November 14, 2002 /s/ Rochard P. McStravick
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Date Ricahrd P. McStravick
President and Chief Executive Officer
November 14, 2002 /s/ Anthony J. Fabiano
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Date Anthony J. Fabiano
Senior Vice President and
Chief Financial Officer