Item 1. Business - ------------------
Pulse Bancorp, Inc. (the "Registrant" or the "Corporation") is a savings bank holding company incorporated under the laws of the State of New Jersey in November 1989, for the sole purpose of acquiring all of the issued and outstanding common stock of Pulawski Savings and Loan Association (the "Association") in connection with the reorganization of the Association into the holding company form of organization and exchange of shares of common stock of the Association for those of the Corporation (the "Reorganization").
The Association was chartered by the State of New Jersey in 1916 and following several name changes, the last of which occurred in 1993, the Association became Pulse Savings Bank (the "Bank"). In 1996, the Corporation formed three wholly owned subsidiaries named Pulse Investment, Inc., Pulse Real Estate, Inc. and Pulse Insurance Services, Inc. The subsidiaries are currently inactive.
At September 30, 1997, the assets of the Corporation consisted of all of the issued and outstanding shares of the Bank's Common Stock, $2.0 million in loans receivable from the Bank and $823,000 in investment securities. References throughout this Report to the Corporation or the Bank include, unless otherwise specified or the context otherwise requires, the Corporation's and the Bank's predecessors in interest.
At September 30, 1997, the Bank had total assets, deposits and stockholders' equity of approximately $526.0 million, $411.0 million, and $43.2 million, respectively. The Bank is a New Jersey-chartered savings bank in capital stock form. The Bank's deposits are insured by the Federal Deposit Insurance Corporation ("FDIC") under the Savings Association Insurance Fund ("SAIF").
The Bank conducts its business through five offices located in South River, South Amboy, Monroe Township, East Brunswick, and Lawrenceville, New Jersey. The Bank's executive offices are located at 6 Jackson Street, South River, New Jersey, and its telephone number is (732) 257-2400.
The principal business of the Bank is the acceptance of savings deposits from the general public and the origination of mortgage loans obtained for the purpose of constructing, financing or refinancing one-to four-family dwellings and other improved residential and commercial real estate. In addition, the Bank purchases investment and mortgage-backed securities. Its income is derived largely from interest income on interest-earning assets such as loans, mortgage-backed securities and investments. Its principal expenses are interest paid on deposits, borrowings and operating expenses.
The level of earnings (net interest income) of the Bank will vary, depending upon the difference between the amount of income that it receives from its loans, mortgage-backed securities and investment portfolios and its cost of funds. This is because the Bank's cost of funds are sensitive to changes in short-term interest rates due to shorter-term savings accounts bearing interest rates determined by current market conditions while a significant portion of the Bank's loan portfolio, consisting of long-term, fixed-rate real estate loans, do not reprice as rapidly or to the same extent as the Bank's deposits. Consequently, the Bank is vulnerable to future increases in interest rates which, if significant, may have a material adverse affect on its financial condition and results of operations.
The Bank originates fixed-rate and adjustable-rate mortgages and has in the past purchased primarily one to five year adjustable-rate loans on residential and multi-family dwellings for retention in its portfolio. It has adopted a strategy designed to improve and stabilize its operational results to counter the volatile cost of its funds and the mismatch between its relatively long-term, fixed-rate assets and short-term, rate sensitive liabilities. The principal objective of this strategy is to restructure assets to lessen the potential adverse effects of interest rate volatility on earnings, while maintaining high quality (low credit risk) assets and improving profits.
The Bank operates in an area that is highly industrialized, extremely diverse and densely populated. No one industry or group of industries predominates in the Bank's operating area. However, the Bank is affected by the economy and real estate market in the State of New Jersey, particularly northern New Jersey, and the New York City metropolitan area.
Lending Activities - -------------------
General. As of September 30, 1997, 89.1% of the Bank's gross loan and mortgage-backed securities portfolio consisted of loans and securities secured by mortgages on one- to four-family residential properties, which included conventional mortgage loans, insured loans, guaranteed loans, mortgage-backed securities, collateralized mortgage obligations, and consumer loans secured by real estate (home equity loans). Additionally, the Bank originates and purchases multi-family and commercial real estate loans, which loans represent 10.9% of the Bank's gross loan portfolio at September 30, 1997. To a lesser extent, the Bank also originates consumer loans not secured by real estate.
Loan Portfolio Analysis. Set forth below is selected data relating to the composition of the Bank's loan portfolio, including mortgage-backed securities, by type of loan and type of security on the dates indicated.
Mortgage-backed Securities. The Bank periodically purchases collateralized mortgage obligations ("CMOs") and mortgage-backed securities guaranteed by the Government National Mortgage Association ("GNMA") and the Federal National Mortgage Association ("FNMA") and participation certificates issued by the Federal Home Loan Mortgage Corporation ("FHLMC"). CMOs are aggregates of pools of pass-through securities consisting of mortgage loans that serve as security. Mortgage-backed securities represent a participation interest in a pool of single-family mortgages, the principal and interest payments on which are passed from the mortgage originators, through intermediaries (generally quasi-governmental agencies) that pool and repackage the participation interests in the form of securities, to investors such as the Bank. GNMA mortgage-backed securities are certificates issued and backed by the GNMA and are secured by interests in pools of mortgages which are fully insured by the Federal Housing Administration ("FHA") or partially guaranteed by the Veterans' Administration ("VA"). FNMA mortgage-backed securities are certificates issued and guaranteed by the FNMA that are secured by conventional mortgage loans. FHLMC mortgage-backed securities are participation certificates issued and guaranteed by the FHLMC and secured by interests in pools of conventional mortgages. At September 30, 1997, mortgage-backed securities, consisting of GNMA, FHLMC, FNMA and CMOs amounted to approximately $216.2 million or 62.4% of the net loan and mortgage-backed securities portfolio.
Mortgage-backed securities typically are issued with stated principal amounts, and the securities are backed by pools of mortgages that have loans with interest rates that are within a range and have varying maturities. The underlying pool of mortgages can be composed of either fixed-rate mortgages or adjustable-rate mortgage loans. Mortgage-backed securities are generally referred to as mortgage participation certificates or pass-through certificates. As a result, the interest rate risk characteristics of the underlying pool of mortgages, (i.e., fixed-rate or adjustable-rate) as well as prepayment risk, are passed on to the certificate holder. The life of a mortgage-backed pass-through security is equal to the life of the underlying mortgages. Mortgage-backed securities issued by FHLMC, FNMA, and GNMA make up a majority of the pass-through certificates market.
The CMOs (in the form of real estate mortgage investment conduits) held by the Bank at September 30, 1997 totaled $33.2 million and consisted of FNMA, FHLMC, and privately issued pools. The portfolio of CMOs held in the Bank's mortgage-backed securities portfolio at September 30, 1997 did not include any residual interests in CMOs. Further, at September 30, 1997, the Bank's mortgage-backed securities portfolio did not include any "stripped" CMOs (i.e., CMOs that pay interest only and do not repay principal or CMOs that repay principal only and do not pay interest).
Residential Real Estate Loans. One of the primary lending activities of the Bank is to originate loans to enable borrowers to purchase existing homes or to construct new homes. The Bank's real estate loan portfolio also includes loans on one- to four-family dwellings, multi-family housing (over four units), and loans made for the development of unimproved real estate to be used for residential housing. At September 30, 1997, approximately 89.1% of the Bank's gross loan and mortgage-backed securities portfolio consisted of loans (including conventional mortgage loans, insured loans, guaranteed loans, collateralized mortgage obligations and guaranteed mortgage-backed securities) secured by one- to four-family dwellings.
The loan-to-value ratio, maturity and other provisions of the loans made by the Bank generally have reflected the policy of making less than the maximum loan permissible under applicable regulations, consistent with lending practices, market conditions, and underwriting standards established by the Bank. The Bank's general policy currently limits the maximum loan-to-value ratio on single-family conventional
loans to 95% and 80% on multi-family and commercial real estate loans. Mortgage loans originated by the Bank are intended to conform to the FHLMC and the FNMA underwriting standards so that they may be eligible for sale in the secondary market. Mortgage loans, both fixed- and adjustable-rate, made by the Bank generally are long-term loans, amortized on a monthly basis, with principal and interest due each month. The initial contractual loan payment period for residential loans typically ranges from 15 to 30 years. The Bank's experience indicates that real estate loans remain outstanding for significantly shorter periods than their contractual terms. Borrowers may refinance or prepay loans at their option, subject to any prepayment penalty provisions included in the note, and any applicable state laws relating to such penalty.
Due to consumer demand in the Bank's primary market area in which its offices are located, to date, the Bank has originated primarily fixed-rate loans and one, three, five, seven and ten year adjustable-rate loans. These one and three year adjustable-rate residential mortgage loans which adjust based upon the respective one and three year U.S. Treasury securities, are offered in an effort to shorten the maturity and increase the interest rate sensitivity of the Bank's total loan portfolio.
Commercial Real Estate Loans. The Bank has in the past purchased both construction loans and permanent loans on multi-family and commercial properties. Loans secured by multi-family, commercial and other income-producing real estate generally are limited to 80% of appraised value and generally have an initial contractual loan payment periods from 15 to 30 years with varying call provisions. Commercial real estate loans generally are made on an adjustable-rate basis indexed to the one-year, three-year or five-year U.S. Treasury index. Commercial real estate loans, consisting primarily of office buildings, strip shopping centers, mini-storage facilities, and industrial buildings amounted to $22.3 million or 6.5% of the Bank's gross loan and mortgage-backed securities portfolio at September 30, 1997.
Construction Loans. The Bank will occasionally originate a residential construction loan with an initial term of one to two years. Generally, such loans are repaid or converted to permanent loans when the property is completed or sold.
Commercial real estate and construction lending is generally considered to involve a higher level of credit risk than one-to four-family residential lending due to the concentration of principal in a limited number of loans and borrowers and the effects of general economic conditions on real estate developers and managers. The Bank's risk of loss on a construction loan is dependent largely upon the accuracy of the initial estimate of the property's value upon completion of the project and the estimated cost of the project. If the estimated cost of construction or development proves to be inaccurate, the Bank may be required to advance funds beyond the amount originally committed to permit completion of the project. If the estimate of value proves to be inaccurate, the Bank may be confronted, at or prior to the maturity of the loan, with a project with value which is insufficient to assure full repayment. When loan payments become due, borrowers may experience cash flow from the project which is not adequate to service total debt. This cash flow shortage may result in the failure to make loan payments. In such cases, the Bank may be compelled to modify the terms of the loan. In addition, the nature of these loans is such that they are generally less predictable and more difficult to evaluate and monitor. The Bank seeks to minimize these risks by lending primarily to established customers and generally restricting such loans to its primary market area.
Consumer Loans. The Bank presently originates loans secured by savings accounts and home equity loans. Consumer loans, including home equity loans, amounted to $14.6 million or 4.1% of the Bank's total gross loan and mortgage-backed securities portfolio at September 30, 1997.
Commercial Business Loans. The Bank generally does not offer commercial business loans. At September 30, 1997, none of the Bank's loans were classified as commercial business loans.
Loan Maturity Schedule. The following table sets forth certain information at September 30, 1997, regarding the dollar amount of loans and mortgage-backed securities maturing in the Bank's portfolio based on their contractual terms to maturity. Demand loans, loans having no stated schedule of repayments and no stated maturity, and overdrafts are reported as due in one year or less.
- --------------------- Footnotes included in next table.
The following table sets forth the dollar amount of all loans due after one year from September 30, 1997, which have predetermined interest rates and have floating or adjustable interest rates, based on contractual terms.
- -------------------- (1) Does not include scheduled principal amortization. Experience indicates that prepayments significantly reduce the average term of maturity. (2) Includes collateralized mortgage obligations.
Loan Solicitation and Processing. The Bank actively solicits mortgage loan applications from real estate brokers, contractors, existing customers, customer referrals, and call-ins and walk-ins to its offices. An appraisal of the real estate intended to secure the proposed loan is undertaken by an independent fee appraiser.
In connection with the loan approval process, the Bank's loan officers analyze the loan applications and the property involved. All residential mortgage loans are processed by a loan officer and then submitted to the Bank's President for his approval. All multi-family and commercial real estate loans purchased by the Bank are reviewed by a committee of three executive officers. In addition, all multi-family and commercial loans are inspected by two directors. In connection with loans purchased by the Bank, the Bank also requires an independent appraisal, in addition to the information required for all loans originated by the Bank. All loans approved by the executive officers are then submitted to the Bank's Board of Directors for its approval. Prior to closing any long-term loan, the borrower must provide proof of fire and casualty insurance on the property serving as collateral, which insurance must be maintained during the full term of the loan.
Loan Purchases and Sales. Because the Bank's savings deposits generally exceed the demand for loans from its customers in its local market area, in addition to originating loans for its portfolio, the Bank has in the past purchased a portion of its real estate loan portfolio in the secondary market. The Bank's purchases in the secondary market are dependent upon the demand for mortgage credit in the local market area and the inflow of funds from traditional sources. Purchases of loans enable the Bank to utilize available funds more quickly and to obtain a yield higher than could generally be obtained in the Bank's primary market area. The Bank purchased loans totaling $4.7 million during the 1997 fiscal year.
The Bank has not sold loans, other than student loans, during the past five years.
Loan Commitments. It is the policy of the Bank to generally grant commitments to fund loans for periods not to exceed 60 days at a specified term and interest rate unless a lock-in fee is paid. The total amount of the Bank's commitments to originate loans at September 30, 1997 was $16.4 million of which $3.7 million were at fixed rates.
The origination of fixed-rate loans creates a potential for interest rate risk. In a rising interest rate environment, the interest-bearing liabilities used to fund loan originations will experience increasing costs while fixed-rate assets cannot reprice. Accordingly, net interest income may be negatively impacted. The reverse would occur in a declining interest rate environment. The Bank monitors this situation by regularly evaluating its interest rate risk. Although fixed-rate loans often are repaid well before the date of contractual maturity, the Bank has attempted to offset the increased interest rate risk of these assets by increasing the interest rate sensitivity of its other assets. In recent years, the Bank has substantially increased its mortgage-backed and investment securities portfolios, partly to address the greater interest rate risk of its fixed-rate assets.
In addition, the Bank has a Homeowners' Equity Credit Line Program that represents undisbursed funds from approved lines of credit. These lines of credit are secured by the respective one to four family residential properties owned by the borrowers. At September 30, 1997, the Bank had outstanding commitments on approved lines of credit of $10.7 million.
Loan Origination and Other Fees. In addition to interest earned on loans, the Bank may receive loan origination fees or "points" and commitment fees for originating or purchasing loans.
Statement of Financial Accounting Standards No. 91 ("SFAS No. 91"), which prescribes the accounting for recording non-refundable fees and costs associated with the origination and acquisition of loans. SFAS No. 91 requires the deferral and subsequent amortization of all loan origination fees net of certain loan origination costs over the related life of the loan.
The Bank's loan origination fees generally are 0% - 1.0% on conventional residential mortgage loans and 0%-3% for commercial real estate loans. The Bank does not charge origination fees on fixed-rate conventional mortgage loans or on home equity loans. The total amount of deferred loan fees and discounts on loans at September 30, 1997, was $300,000.
The Bank also receives other fees and charges relating to existing loans, which include prepayment penalties, late charges, and fees collected in connection with a change in borrower or other loan modifications. These fees and charges have not constituted a material source of income.
Non-Performing and Restructured Loans and Asset Classification. At September 30, 1997, the Bank had classified approximately $7.6 million in assets, of which $7.5 million were loans classified as substandard and $136,000 was real estate acquired as a result of foreclosure. Of the $7.5 million in loans classified by the Bank, approximately $6.8 million included loans internally classified but which were not delinquent greater than 90 days at September 30, 1997 ("performing/non-performing loans"). Such performing/non-performing loans were classified by the Bank due to other factors (such as negative cash flow or past delinquencies) and are not included in the following table.
The table below sets forth information with respect to the Bank's non-performing loans for the periods indicated. It does not include real estate acquired as a result of foreclosure. Accruing mortgage loans more than 90 days delinquent are loans that management considers adequately secured, where management believes, based upon its evaluation of each loan and its prior experience with similar loans, that such interest receivable is collectible in due course. A loan is placed on non-accrual status when, in management's judgment, further accruals of interest will be uncollectible. Loans which continue to accrue interest while contractually past due more than ninety days consist almost entirely of smaller balance mortgage loans secured by single family residential properties having fair values in excess of the Bank's recorded investment therein.
For the year ended September 30, 1997, gross interest income which would have been recorded had the non-accrual and restructured loans been current in accordance with their original terms would have amounted to approximately $303,000. The amount that the Bank included in interest income on such loans for the year ended September 30, 1997 was $143,000.
At September 30, 1997, the Bank had loans with an aggregate principal balance of $7.5 million classified as substandard ($3.8 million of such loans were non-performing or restructured at September 30, 1997). The following is a description of the larger non-performing or restructured loans as of September 30, 1997.
Hollowbrook Associates is a loan originated in 1990 to finance the acquisitions of a 2-story, 45,000 square foot office building on 2.75 acres in Wappinger Falls, New York. The loan was subject to a troubled debt restructuring in May 1994 which resulted in a reduction of the interest rate of the loan
to 6.75% and an extension of its maturity to May 1, 1999. During 1997, in accordance with the restructuring agreement, the interest rate was increased to 8.50%. The loan has performed in accordance with its restructured terms and had a remaining balance of $2.1 million at September 30, 1997.
Brentwood Associates is a loan purchased in 1988 to finance the purchase of a 32 unit, 8 building apartment complex located in Barrington, New Jersey. This non-accrual loan, which has a $654,000 balance, is in foreclosure proceedings and is being operated by a court appointed rent receiver.
The remainder of the non-performing loans consists of smaller balance loans aggregating $1.0 million which are secured by 1-to 4-family residential property.
The Bank's other substandard assets at September 30, 1997, consisted of $136,000 of real estate owned.
Provision for Loan Losses and Losses on Real Estate Owned. A provision for loan losses is charged to operations based on management's evaluation of the risk inherent in its loan portfolio in relation to the level of the allowance for loan losses and changes in the nature and volume of its loan activity.
The Bank provides valuation reserves for anticipated losses on loans and real estate owned when management determines that a significant decline in the value of the collateral has occurred, as a result of which the value of the collateral is less than the amount of the unpaid principal of the related loan plus estimated costs of acquisition and sale. In addition, the Bank also provides reserves based on the dollar amount and type of collateral securing its loans, in order to provide for future losses inherent in Bank loans. Although management believes that it uses the best information available to make such determinations, future adjustments to reserves may be necessary, and net income could be significantly affected, if circumstances differ substantially from the assumptions used in making the initial determinations.
At September 30, 1997, non-performing and restructured loans totaled $3.8 million. Management believes the allowance for loan losses is established at a level adequate to provide for potential credit losses in accordance with generally accepted accounting principles at September 30, 1997. However, there can be no assurance that, in the future, pursuant to a request from its regulators or as a result of the Bank's ongoing review, the Bank will not significantly increase or decrease its allowance for loan losses, thereby impacting the Bank's financial condition and earnings.
The following table sets forth an analysis of the Bank's allowance for loan losses.
A breakdown of the allowance for loan losses by category of loan and the relationship of each category of loan to total loans is presented below for the periods shown.
- ----------------------- (1) Includes home equity lines of credit.
Investment Activities - ---------------------
Income from investment securities provides a significant source of income for the Bank. Investment decisions are made within policy guidelines established by the Board of Directors. The Bank invests in instruments such as U.S. Treasury securities, municipal securities, corporate debt securities and overnight federal funds. The use of short-term security investments reflects management's response to the significantly increasing percentage of savings deposits with short maturities. It is the intention of management to maintain shorter maturities in the Bank's investment portfolio in order to better match the interest rate sensitivities of its assets and liabilities. However, during periods of rapidly declining interest rates, such investments also decline at a faster rate than does the yield on long-term investments.
A breakdown of investment securities by type is presented below.
The following table is a summary of scheduled investment maturities and weighted average yields at September 30, 1997.
Exclusive of securities issued by the U.S. government and U.S. government agencies and corporations, no aggregate investment with any issuer exceeds 10% of stockholders' equity.
Sources of Funds - ----------------
General. Deposits are the major source of the Bank's funds for lending and other investment purposes. In addition to deposits, the Bank derives funds from loan and mortgage-backed securities principal repayments. Historically, the Bank has not relied significantly upon the sale of loans (or loan participations) or funds borrowed from the Federal Home Loan Bank ("FHLB") of New York or from other outside sources. Loan repayments are a relatively stable source of funds, while deposit inflows are significantly influenced by general interest rates and money market conditions. Borrowings may be used on a short-term basis to compensate for reductions in the availability of funds from other sources. They also may be used on a long-term basis for general business purposes.
Deposits. The Bank offers a wide variety of deposit accounts, although a substantial majority of such deposits are in fixed-term, market-rate certificate accounts. Deposit account terms vary, primarily as to the required minimum balance amount, the amount of time that the funds must remain on deposit (typically between three months and five years) and the applicable interest rate.
Fixed-term, market-rate certificates have been the primary sources of new deposits for the Bank and, at September 30, 1997, such certificates represented approximately 64.1% of the Bank's accounts. The Bank also offers IRA plans, money market deposit accounts, passbook accounts and NOW (negotiable order of withdrawal) accounts.
Jumbo Certificate Accounts
The following table indicates the amount of the Bank's certificate accounts of $100,000 or more by time remaining until maturity as of September 30, 1997.
Certificate Maturity Period Accounts - --------------- ----------- (In Thousands) Three months................................... $ 4,654 Over three through six months.................. 5,996 Over six through twelve months................. 3,422 Over twelve months............................. 3,428 ------- $17,500 =======
Borrowings. Savings deposits are the primary source of funds of the Bank's lending and investment activities and for its general business purposes. The Bank generally has not relied upon advances from the FHLB of New York to supplement its supply of lendable funds or to meet deposit withdrawal requirements. The Bank generally has been able to finance operations through internally-generated funds. However, in 1996, the Board of Directors decided to engage in an asset growth strategy funded by borrowings. As a result, the Bank made medium and short term borrowings which were used to fund increased loan demand, purchases of investment and mortgage-backed securities and the repurchase of shares of common stock of the Corporation. The Bank had borrowings of $67.7 million outstanding at September 30, 1997.
Yields Earned and Rates Paid - ----------------------------
The Bank's earnings depend primarily on its net interest income. Net interest income is affected by (i) the volume of interest-earning assets and interest-bearing liabilities, (ii) rates of interest earned on interest-earning assets and rates paid on interest-bearing liabilities, and (iii) the difference ("interest rate spread") between rates of interest earned on interest-earning assets and rates paid on interest-bearing liabilities. When interest-earning assets approximate or exceed interest-bearing liabilities, any positive interest rate spread will generate net interest income.
A portion of the Bank's real estate loans are long-term, fixed-rate loans. Accordingly, the average yield on the Bank's loan portfolio changes slowly and generally does not keep pace with changes in interest rates on deposit accounts and borrowings. Accordingly, when interest rates rise, the Bank's yield on its loan portfolio increases more slowly than the rate by which its cost of funds increases which may adversely impact the Bank's interest rate spread.
The following table sets forth for the periods indicated, information regarding the total dollar amounts of interest income from interest-earning assets and the resulting average yields, the total dollar amounts of interest expense on interest-bearing liabilities and the resulting average costs, net interest income, interest rate spread, net interest-earning assets, the net yield earned on interest-earning assets, and the ratio of total interest-earning assets to total interest-bearing liabilities. Average balances have been calculated primarily on a daily basis.
- ----------------------- (1) Includes non-accrual loans. (2) Includes tax-exempt securities. Income from such securities, which amounted to approximately $39,000, $39,000 and $38,000 during the years ended September 30, 1995, 1996 and 1997, respectively, is included without adjustment to a tax-equivalent basis. Such adjustments were not made due to their immateriality. (3) Investments classified as available for sale are included in the average at amortized cost amounts.
Gap Analysis - ------------
As rates on sources of funds have become deregulated and subject to competitive pressures, financial institutions have become increasingly concerned with the extent to which they are able to match maturities of interest-earning assets and interest-bearing liabilities. Such matching is facilitated by examining the extent to which such assets and liabilities are "interest rate sensitive" and by monitoring an institution's interest rate sensitivity "gap." An asset or liability is considered to be interest rate sensitive if it will mature or reprice within a specific time period. The interest rate sensitivity gap is defined as the excess of interest-earning assets maturing or repricing within a specific time period over interest-bearing liabilities maturing or repricing within that time period.
The following table reflects the interest rate sensitivity of the Bank's interest-earning assets and interest-bearing liabilities as of September 30, 1997, the Bank's interest rate sensitivity gap at various periods and the ratio of the Bank's interest-earning assets to interest-bearing liabilities at various periods. As the table indicates, the Bank has a negative gap for assets and liabilities maturing or repricing within one year, thereby leaving the Bank vulnerable to future increases in interest rates. The Bank has assumed that its savings and interest-bearing demand deposits will be withdrawn annually at a rate of 18% on the cumulative declining balance of such accounts. This assumption is based upon prior experience and management's assessment of future trends.
- ----------------- (1) Includes FHLB of New York stock classified as repricing in one year or less. (2) Does not include prepayment assumptions or scheduled amortization which could significantly reduce the terms to maturity of these assets.
The table above indicates the time periods in which interest-earning assets and interest-bearing liabilities will mature or may reprice in accordance with their contractual terms. However, the table does not necessarily indicate the impact of general interest rate movements on the Bank's net interest yield because the repricing of various categories of assets and liabilities is discretionary and is subject to competitive and other pressures. As a result, various assets and liabilities indicated as repricing within the same period may in fact reprice at different times and at different rate levels. Furthermore, the table does not reflect either scheduled principle amortization or the Bank's prepayment experience, both of which reduce the actual term to maturity of the Bank's loan portfolio.
Rate/Volume Analysis - --------------------
Changes in net interest income are attributable to three factors: a change in volume of an interest-earning asset or interest-bearing liability, a change in rates or a change caused by a combination of changes in volume and rate. The table below sets forth certain information regarding changes in interest income and interest expense of the Bank for the periods indicated. For each category of interest-earning asset and interest-bearing liability, information is provided on changes attributable to (1) changes in volume (changes in volume multiplied by old rate); (2) changes in rates (changes in rate multiplied by old volume); and (3) changes in rate-volume (changes in rate multiplied by changes in volume).
Market Risk
Market risk is the risk of loss from adverse changes in market prices and rates. The Bank's market risk arises primarily from interest rate risk inherent in its lending and deposit taking activities. To that end, management actively monitors and manages its interest rate risk exposure.
The Bank's profitability is affected by fluctuations in interest rates. A sudden and substantial increase in interest rates may adversely impact the Bank's earnings to the extent that the interest rates borne by assets and liabilities do not change at the same speed, to the same extent, or on the same basis. The Bank monitors the impact of changes in interest rates on its net interest income using several tools. One measure of the Bank's exposure to differential changes in interest rates between assets and liabilities is shown in the Bank's Maturity and Rate Sensitivity Analysis is under the Asset/Liability Management caption. Another measure is the test specified by OTS Thrift Bulletin No. 13, "Interest Rate Risk Management." This test measures the impact on net interest income and on net portfolio value of an immediate change in interest rates in 100 basis point increments. Net portfolio value is defined as the net present value of assets, liabilities, and off-balance sheet contracts. Following are the estimated impacts of immediate changes in interest rates at the specified levels at September 30, 1997.
Percentage Changes in Interest Rates: Net Interest Net Portfolio Basis Points Income(1) Value(2) - --------------- ----------------- ------------ +400 -48% -60% +300 -34 -42 +200 -21 -31 +100 -9 -12 - 100 +8 +9 - 200 +8 +22 - 300 N/A N/A - 400 N/A N/A
- --------------- (1) The percentage change in this column represents net interest income for 12 months in a stable interest rate environment versus the Net Interest Income in the various rate scenarios. (2) The percentage change in this column represents net portfolio value of the Bank in a stable interest rate environment versus the net portfolio value in the various rate scenarios.
The Bank's primary objective in managing interest rate risk is to minimize the adverse impact of changes in interest rates on the Bank's net interest income and capital while structuring the Bank's asset-liability structure to obtain the maximum yield-cost spread on that structure. The Bank relies primarily on its asset-liability structure to control interest rate risk.
The Bank continually evaluates interest rate risk management opportunities, including the use of derivative financial instruments. Management believes that hedging instruments currently available are not cost-effective, and therefore, has focused its efforts on increasing the Bank's yield-cost spread through wholesale and retail growth opportunities.
The following table shows the Company's financial instruments that are sensitive to changes in interest rates, categorized by expected maturity, and the instruments' fair values at September 30, 1997. Market risk sensitive instruments are generally defined as on-and-off-balance sheet derivatives and other financial instruments.
Expected Maturity/Principal Repayment at September 30,
- --------------- (1) Loans are reduced for nonaccrual loans but are not reduced for the allowance for loan losses. (2) Total balance equals the notional amount of off-balance sheet items and interest rates are the weighted average interest rates of the underlying loans.
Expected maturities are contractual matures adjusted for prepayments of principal. The Company uses certain assumptions to estimate fair values and expected maturities. For assets, expected maturities are based upon contractual maturity, projected repayments and prepayments of principal. The prepayment experience reflected herein is based on the Company's historical experience. The Company's average Constant Prepayment Rate ("CPR") on its total fixed-rate portfolio is 10%, and 6% on its adjustable-rate portfolio for interest-earning assets (excluding investment securities, which do not have prepayment features). For deposit liabilities, in accordance with standard industry practice and the Company's own historical experience, "decay factors," used to estimate deposit runoff of 12.5%, 8.8%, and between 8% and 100% for passbook, checking and money market deposit accounts, respectively. The actual maturities of these instruments could vary substantially if future prepayments differ from the Company's historical experience.
Personnel - ---------
As of September 30, 1997, the Bank had 52 full-time employees and 9 part-time employees. The employees are not represented by a collective bargaining unit. The Bank believes its relationship with its employees to be satisfactory.
Competition - -----------
The Bank faces strong competition in its attraction of savings deposits (its primary source of funds available for lending) and in the origination of real estate loans. Its most direct competition for savings deposits and loans historically has come from other thrift institutions and commercial banks located in Middlesex County, New Jersey. The Bank faces additional significant competition for investor funds from short-term money market securities and other corporate and government securities.
The Bank's competition for real estate loans comes principally from other thrift institutions, commercial banks, and mortgage banking companies.
The Bank competes for loans by charging competitive interest rates and loan fees, remaining efficient and providing a wide range of services to borrowers, real estate brokers, and home builders. It competes for savings by offering depositors a wide variety of savings accounts, checking accounts, convenient office locations, drive-up facilities, extended banking hours, tax-deferred retirement programs, and other miscellaneous services.
The Bank considers Middlesex County, New Jersey and, to a lesser extent, Mercer, Monmouth and Ocean Counties, its primary market area for savings. While the majority of the Bank's mortgage loans are originated in this market area, the Bank also makes loans, to a much lesser degree, throughout New Jersey.
Based upon total assets, the Bank was the 21st largest thrift institution in the State of New Jersey as of September 30, 1997. The Bank competes with larger financial institutions, headquartered both inside and outside of Middlesex County, New Jersey, that maintain offices in the Bank's market area. These competitors may be able to offer better loan rates from time to time due to their size, financial resources, and competitive strategy.
Regulation - ----------
General. The Corporation owns all of the capital stock of the Bank and is a savings bank holding company. As a savings bank holding company, the Corporation is subject to regulation by the Office of Thrift Supervision ("OTS"). As a company whose stock is publicly-traded, the Corporation is also subject to the reporting, proxy solicitation, and other regulations of the Securities and Exchange Commission ("SEC").
The Bank is a New Jersey-chartered capital stock savings bank, the accounts of which are insured by the FDIC, and as such, is subject to the regulation, supervision and examination of the New Jersey Department of Banking and the FDIC. The New Jersey Department of Banking (the "Department") regulates the Bank's internal organization as well as its deposit, lending and investment activities. The Department must approve changes to the Bank's certificate of incorporation, the establishment or relocations of branch offices and mergers involving the Bank. In addition, the Department conducts periodic examinations of the Bank. Many of the areas regulated by the Department are subject to similar regulation by the FDIC.
Bank Regulation - ---------------
New Jersey law provides that no dividend may be paid by the Bank unless after the payment of such dividend, the capital stock of the Bank will not be impaired and either the Bank will have a surplus of not less than 50% of its capital stock, or the payment of such dividend will not reduce the statutory surplus of the Bank.
Generally, federal law limits the activities and equity investments of FDIC-insured, state-chartered banks to those that are permissible for national banks.
Insurance of Deposit Accounts. The Bank's deposit accounts are insured by the SAIF to a maximum of $100,000 for each insured member (as defined by law and regulation). Insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC or the institution's primary regulator.
As a member of the SAIF, the Bank paid an insurance premium to the FDIC equal to a minimum of 0.23% of its total deposits. The FDIC also maintains another insurance fund, The Bank Insurance Fund ("BIF"), which primarily insures commercial bank deposits. In 1996, the annual insurance premium for most BIF members was lowered to $2,000. The lower insurance premiums for BIF members placed SAIF members at a competitive disadvantage to BIF members.
Effective September 30, 1996, federal law was revised to mandate a one-time special assessment on SAIF members such as the Bank of approximately .657% of deposits held on March 31, 1995. Beginning January 1, 1997, the deposit insurance assessment for SAIF members was reduced to .064% of deposits on an annual basis through the end of 1999. During this same period, BIF members will be assessed approximately .013% of deposits. After 1999, assessments for BIF and SAIF members should be the same. It is expected that these continuing assessments for both SAIF and BIF members will be used to repay outstanding Financing Corporation bond obligations. As a result of these changes,
beginning January 1, 1997, the rate of deposit insurance assessed the Bank declined by approximately 70%.
Capital Requirements. Under FDIC regulations, state-chartered banks that are not members of the Federal Reserve System ("state non-member banks") are required to maintain a minimum leverage capital requirement consisting of a ratio of Tier 1 capital to total assets of 4%. For institutions other than those most highly rated by the FDIC, an additional "cushion" of at least 100 to 200 basis points is required. Tier 1 capital is the sum of common stockholders' equity, noncumulative perpetual preferred stock (including any related surplus) and minority investments in certain subsidiaries, less certain intangible assets, deferred tax assets, certain identified losses and certain investments in securities subsidiaries. As a SAIF-insured, state-chartered bank, the Bank must currently also deduct from Tier 1 capital an amount equal to its investments in, and extensions of credit to, subsidiaries engaged in certain activities not permissible for national banks.
In addition to the leverage ratio, state nonmember banks must maintain a minimum ratio of qualifying total capital to risk-weighted assets of at least 8.0%, of which at least four percentage points must be Tier 1 capital. Qualifying total capital consists of Tier 1 capital plus Tier 2 or supplementary capital items which include allowances for loan losses in an amount of up to 1.25% of risk-weighted assets, cumulative preferred stock and preferred stock with a maturity of over 20 years and certain other capital instruments. The includable amount of Tier 2 capital cannot exceed the institution's Tier 1 capital. Qualifying total capital is further reduced by the amount of the bank's investments in banking and finance subsidiaries that are not consolidated for regulatory capital purposes, reciprocal cross-holdings of capital securities issued by other banks and certain other deductions. Under the FDIC risk-weighted system, all of a bank's balance sheet assets and the credit equivalent amounts of certain off-balance sheet items are assigned to risk weight categories. The aggregate dollar amount of each category is multiplied by the risk weight assigned to that category. The sum of these weighted values equals the bank's risk-weighted assets.
Each federal banking agency is required to revise its risk-based capital standards for insured institutions to ensure that those standards take adequate account of interest-rate risk ("IRR"), concentration of credit risk, and the risks of nontraditional activities, as well as to reflect the actual performance and expected risk of loss on multi-family residential loans. The FDIC, the Office of the Comptroller of the Currency, and the Federal Reserve Board have proposed procedures for measuring IRR exposure and alternative methods for determining what amount of additional capital, if any, a bank may be required to maintain for IRR.
Pursuant to New Jersey banking law the minimum leverage capital for a depository institution is a ratio of Tier 1 capital to total assets of four percent. However, the Commissioner of the Department may require a higher ratio for a particular depository institution.
New Jersey banking law requires that a depository institution maintain qualifying capital of at least eight percent of its risk weighted assets. At least four percent of this qualifying capital shall be in the form of Tier 1 capital. For purposes of New Jersey banking law, risk weighted assets, Tier 1 capital, and total assets are defined in the same manner as in the FDIC regulations.
The Bank was in compliance with both the FDIC and New Jersey capital requirements at September 30, 1997.
Capital Distributions. Earnings of the Bank appropriated to bad debt reserves and deducted for Federal income tax purposes are not available for payment of cash dividends or other distributions to stockholders without payment of taxes at the then current tax rate by the Bank on the amount of earnings removed from the reserves for such distributions.
Dividends payable by the Bank to the Corporation and dividends payable by the Corporation to stockholders are subject to various additional limitations imposed by federal and state laws, regulations and policies adopted by federal and state regulatory agencies. The Bank is required by federal law to obtain FDIC approval for the payment of dividends if the total of all dividends declared by the Bank in any year exceed the total of the Bank's net profits (as defined) for that year and the retained net profits (as defined) for the preceding two years, less any required transfers to surplus. Under New Jersey law, the Bank may not pay dividends unless, following payment, the capital stock of the Bank would be unimpaired and (a) the Bank will have a surplus of not less than 50% of its capital stock, or, if not, (b) the payment of such dividends will not reduce the surplus of the Bank.
Under applicable regulations, the Bank would be prohibited from making any capital distributions if, after making the distribution, the Bank would have: (i) a total risk-based capital ratio of less than 8.0%; (ii) a Tier 1 risk-based capital ratio of less than 4.0%; or (iii) a leverage ratio of less than 4.0%, unless a higher ratio is required by the Commissioner of the Department.
Loans to One Borrower. Generally, the Bank may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of its unimpaired capital and surplus.
Federal Home Loan Bank System. The Bank is a member of the FHLB of New York, which is one of 12 regional FHLBs that administers the home financing credit function of savings associations. Each FHLB serves as a reserve or central bank for its members within its assigned region. It is funded primarily from proceeds derived from the sale of consolidated obligations of the FHLB System. It makes loans to members (i.e., advances) in accordance with policies and procedures established by the Board of Directors of the FHLB.
As a member, the Bank is required to purchase and maintain stock in the FHLB of New York in an amount equal to at least 1% of its aggregate unpaid residential mortgage loans, home purchase contracts or similar obligations at the beginning of each year. At September 30, 1997, the Bank had $2.8 million in FHLB stock, which was in compliance with this requirement.
Federal Reserve System. The Federal Reserve Board requires all depository institutions to maintain non-interest bearing reserves at specified levels against their transaction accounts (primarily checking, NOW and Super NOW checking accounts) and non-personal time deposits. The balances maintained to meet the reserve requirements imposed by the Federal Reserve Board may be used to satisfy the liquidity requirements that are imposed by the Department. At September 30, 1997, the Bank's total transaction accounts were below the minimum level for which the Federal Reserve Board requires a reserve.
State-chartered savings banks have authority to borrow from the Federal Reserve Bank "discount window," but Federal Reserve policy generally requires savings banks to exhaust all reasonable alternative sources before borrowing from the Federal Reserve System. The Bank had no discount window borrowings at September 30, 1997.
Holding Company Regulation - --------------------------
General. The Corporation is a unitary savings and loan holding company subject to regulatory oversight by the OTS. As such, the Corporation is required to register and file reports with the OTS and is subject to regulation and examination by the OTS. In addition, the OTS has enforcement authority over the Corporation and its non-savings association subsidiaries, should such subsidiaries be formed, which also permits the OTS to restrict or prohibit activities that are determined to be a serious risk to the subsidiary savings association. This regulation and oversight is intended primarily for the protection of the depositors of the Bank and not for the benefit of stockholders of the Corporation.
Qualified Thrift Lender Test. As a unitary savings and loan holding company, the Corporation generally is not subject to activity restrictions, provided the Bank satisfies the qualified thrift lender ("QTL") test. If the Corporation acquires control of another savings association as a separate subsidiary, it would become a multiple savings and loan holding company, and the activities of the Corporation and any of its subsidiaries (other than the Bank or any other SAIF-insured savings association) would become subject to restrictions applicable to bank holding companies unless such other associations each also qualify as a QTL and were acquired in a supervisory acquisition.
Restrictions on Acquisitions. The Corporation must obtain approval from the OTS before acquiring control of any other SAIF-insured association. Such acquisitions are generally prohibited if they result in a multiple savings and loan holding company controlling savings associations in more than one state. However, such interstate acquisitions are permitted based on specific state authorization or in a supervisory acquisition of a failing savings association.
Federal law generally provides that no "person," acting directly or indirectly or through or in concert with one or more other persons, may acquire "control," as that term is defined in OTS regulations, of a federally insured savings institution without giving at least 60 days written notice to the OTS and providing the OTS an opportunity to disapprove the proposed acquisition. In addition, no company may acquire control of such an institution without prior OTS approval.
Executive Officers of the Company - ---------------------------------
The executive officers of the Corporation as of September 30, 1997, were as follows:
Name Age Position - ---- ----- ---------
Benjamin S. Konopacki 75 Chairman of the Board George T. Hornyak, Jr 47 President and Chief Executive Officer Ronald E. Vaughn, Jr 41 Senior Vice President - Chief Lending Officer Thomas Konopacki 40 Executive Vice President - Controller
The following information describes the principal occupation and employment of the executive officers of the Corporation and the Bank as of September 30, 1997, during at least the past five years.
Benjamin S. Konopacki has been employed by the Bank in various capacities since 1954. From 1965 to 1989, he served as President. From 1965 to 1991, he served as Chief Executive Officer. In
1989, Mr. Konopacki became Chairman of the Board. On January 1, 1991, Mr. Konopacki retired as Chief Executive Officer.
George T. Hornyak, Jr. has been employed by the Bank since 1983. In March 1989, Mr. Hornyak was named President and Chief Operating Officer. Mr. Hornyak became Chief Executive Officer of the Bank on January 1, 1991. He is also a director of Mercer Mutual Insurance Company.
Ronald E. Vaughn, Jr. has been employed by the Bank since August 1988. Since January 1990, he has served as Senior Vice President - Chief Lending Officer. From August 1985 to August 1988, Mr. Vaughn was Vice President - Residential Lending of Lincoln Federal Savings and Loan Association, Westfield, New Jersey.
Thomas Konopacki has been employed by the Bank since 1976 and is currently Executive Vice President and Chief Financial Officer. Mr. Konopacki has served in that capacity since January 1990.
Item 2.
Item 2. Properties - --------------------
The Bank owns its home office which is located at 6 Jackson Street, South River, New Jersey. The Bank also operates four full service branch offices, three of which it owns and one which it leases.
Item 3.
Item 3. Legal Proceedings - --------------------------
From time to time the Registrant is a party to legal proceedings in the ordinary course of business wherein it enforces its security interest in mortgage loans made by it. In the opinion of management, no material loss is expected from any pending legal proceedings.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders - -------------------------------------------------------------
No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended September 30, 1997.
PART II
Item 5.
Item 5. Market for the Registrant's Common Equity and Related Stockholder - -------------------------------------------------------------------------------- Matters - -------
The information contained under the section captioned "Common Stock" in the Corporation's Annual Report to Stockholders for the fiscal year ended September 30, 1997 (the "Annual Report"), is incorporated herein by reference.
Item 6.
Item 6. Selected Financial Data - ---------------------------------
The information contained in the table captioned "Consolidated Financial Highlights" in the Annual Report is incorporated herein by reference.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results - -------------------------------------------------------------------------------- of Operations - -------------
The information contained in the section captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Annual Report is incorporated herein by reference.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk - ---------------------------------------------------------------------
The information contained in the section captioned "Market Risk" under Item 1 herein is incorporated herein by reference.
Item 8.
Item 8. Financial Statements and Supplementary Data
The Corporation's Consolidated Financial Statements listed in Item 14 herein are incorporated herein by reference.
Item 9.
Item 9. Changes in and Disagreements With Accountants on Accounting and - -------------------------------------------------------------------------------- Financial Disclosure - --------------------
None
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant - ------------------------------------------------------------
The information contained under the section captioned "Proposal I -- Election of Directors" in the Corporation's definitive proxy statement for the Corporation's 1998 Annual Meeting of Stockholders (the "Proxy Statement") is incorporated herein by reference.
Additional information concerning executive officers is included under "Part I - Executive Officers of the Registrant."
Item 11.
Item 11. Executive Compensation - --------------------------------
The information contained under the section captioned "Proposal I -- Election of Directors -- Executive Compensation" in the Proxy Statement is incorporated herein by reference.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management - ------------------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners
Information required by this item is incorporated herein by reference to the section captioned "Voting Securities and Certain Beneficial Owners Thereof" in the Proxy Statement.
(b) Security Ownership of Management
Information required by this item is incorporated herein by reference to the section captioned "Proposal I -- Election of Directors" in the Proxy Statement.
(c) Management of the Corporation knows of no arrangements, including any pledge by any person of securities of the Corporation, the operation of which may at a subsequent date result in a change in control of the Registrant.
Item 13.
Item 13. Certain Relationships and Related Transactions - --------------------------------------------------------
The information required by this item is incorporated herein by reference to the section captioned "Proposal I -- Election of Directors -- Certain Transactions With the Company" in the Proxy Statement.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K - -------------------------------------------------------------------------
(a)(1) The Consolidated Financial Statements and Independent Auditors' Report included in the Annual Report, listed below, are incorporated herein by reference.
1. Independent Auditors' Report
2. Pulse Bancorp, Inc.
(a) Consolidated Statements of Financial Condition at September 30, 1996 and 1997 (b) Consolidated Statements of Income for each of the years in the three-year period ended September 30, 1997 (c) Consolidated Statements of Changes in Stockholders' Equity for each of the years in the three-year period ended September 30, (d) Consolidated Statements of Cash Flows for each of the years in the three-year period ended September 30, 1997 (e) Notes to Consolidated Financial Statements
(a)(2) All schedules have been omitted, because the required information is either inapplicable or included in the Notes to Consolidated Financial Statements.
(a)(3) Exhibits are either filed or attached as part of this Report or incorporated herein by reference.
3(i) Certificate of Incorporation1
3(ii) Bylaws2
10.1 Employment Agreement with Benjamin S. Konopacki3
10.2 Employment Agreement with George T. Hornyak, Jr.3
10.3 Employment Agreement with Thomas Konopacki4
10.4 1986 Stock Option and Incentive Plan4
10.5 1993 Stock Option and Incentive Plan5
10.6 1997 Stock Compensation Plan
10.7 1997 Directors Stock Option Plan
13 Annual Report to Stockholders for the fiscal year ended September 30, 1997
21 Subsidiaries of the Registrant
- ------------------------- (1) Incorporated by reference to the Registrant's Registration Statement on Form S-4 (33-23154) declared effective by the Commission on December 7, 1989. (2) Incorporated by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended September 30, 1995. (3) Incorporated by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended September 30, 1993. (4) Incorporated by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended September 30, 1989. (5) Incorporated by reference to the Registrant's Proxy Statement dated December 18, 1992 for the 1993 Annual Meeting of Stockholders.
(b) No Reports on Form 8-K were filed during the last quarter of the period covered by this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
PULSE BANCORP, INC.
Dated: December 29, 1997 By: /s/ George T. Hornyak, Jr. -------------------------- George T. Hornyak, Jr. President, Chief Executive Officer and Director (Duly Authorized Representative)
Pursuant to the requirement of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated as of December 29, 1997.
By: /s/ George T. Hornyak, Jr. By: /s/ Wayne A. Kronowski ------------------------------ ----------------------------- George T. Hornyak, Jr. Wayne A. Kronowski President, Chief Executive Director Office and Director (Principal Executive Officer)
By: /s/ Edwin A. Kolodziej By: /s/ Joseph Chadwick ------------------------------ ----------------------------- Edwin A. Kolodziej Joseph Chadwick Director Director
By: /s/ Benjamin S. Konopacki By: /s/ Edwin A. Roginski ------------------------------ ----------------------------- Benjamin S. Konopacki Edwin A. Roginski Chairman of the Board Director
By: /s/ Thomas Konopacki ------------------------------- Thomas Konopacki Executive Vice President - Controller (Principal Financial and Accounting Officer)