**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C.20549**

 

**FORM 10-QSB**

 
| **(Mark One)**                                                                                                                                                |                                                                                    |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------|
|                                                                                                                                                          |                                                                                    |
| **ý**                                                                                                                                                    | **QUARTERLY  REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|                                                                                                                                                          |                                                                                    |
| **For the quarterly period ended September 30, 2002**                                                                                                         |
|                                                                                                                                                          |                                                                                    |
| **o**                                                                                                                                                         | **TRANSITION  REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT**                    |
|                                                                                                                                                          |                                                                                    |
| **For the transition period  from          to          ** |
|                                                                                                                                                          |                                                                                    |
| **Commission File No. 000-32827**                                                                                                                             |
|                                                                                                                                                               |                                                                                         |  |

 

| **COAST BANCORP**                                                                   |
|-------------------------------------------------------------------------------------|
| (Exact name of Registration as Specified in its Charter)                            |
|                                                                                |   |   |
| **California**                                                                      |   | **77-0567091** |
| (State or other jurisdiction of incorporation or organization)                      |   | (IRS Employer Identification No.) |
|                                                                                |   |   |
| **553B Higuera Street, San Luis Obispo, CA 93401**                                  |
| (Address of principal executive offices)                                            |
|                                                                                |   |   |
| **(805) 541-0400**                                                                  |
| (Registrant’s telephone number, including area code)                           |
|                                                                                |   |   |
| **Not applicable**                                                                  |
| (Former name, former address and former fiscal year, if changed since  last report) |
|                                                                                |   |   |

 

Check whether the issuer (1) filed all reportsrequired to be filed by Section 13 or 15(d) of the Exchange Act during the past12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.  Yes: ý No o

 

# **APPLICABLE ONLY TO CORPORATE ISSUERS**

State the number of shares outstanding of each of theissuer’s classes of common equity, as of the latest practicable date:

 

Common Stock – As of November 1, 2002, there were632,400 shares of the issuer’s common stock outstanding.

 

TransitionalSmall Business Disclosure Format

(Checkone)

yes: o no: ý

 

 

----

 

**FORWARD LOOKING STATEMENTS**

 

**CERTAIN STATEMENTS IN THISQUARTERLY REPORT ON FORM 10-QSB INCLUDE FORWARD-LOOKING INFORMATION WITHIN THEMEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, AND ARE SUBJECT TO THE“SAFE HARBOR” CREATED BY THOSE SECTIONS. THESE FORWARD-LOOKING STATEMENTS INVOLVE CERTAIN RISKS AND UNCERTAINTIESTHAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN THE FORWARD-LOOKINGSTATEMENTS.  SUCH RISKS AND UNCERTAINTIESINCLUDE, BUT ARE NOT LIMITED TO, THE FOLLOWING FACTORS: COMPETITIVE PRESSURE INTHE BANKING INDUSTRY INCREASES SIGNIFICANTLY; CHANGES IN THE INTEREST RATEENVIRONMENT REDUCE MARGINS; GENERAL ECONOMIC CONDITIONS, EITHER NATIONALLY ORREGIONALLY, ARE LESS FAVORABLE THAN EXPECTED, RESULTING IN, AMONG OTHER THINGSA DETERIORATION IN CREDIT QUALITY AND AN INCREASE IN THE PROVISION FOR POSSIBLELOAN LOSSES; CHANGES IN THE REGULATORY ENVIRONMENT; CHANGES IN BUSINESSCONDITIONS, PARTICULARLY IN SAN LUIS OBISPO COUNTY; VOLATILITY OF RATESENSITIVE DEPOSITS; OPERATIONAL RISKS INCLUDING DATA PROCESSING SYSTEMSFAILURES OR FRAUD; ASSET/LIABILITY MATCHING RISKS AND LIQUIDITY RISKS; ANDCHANGES IN THE SECURITIES MARKETS.**

 

**THEREFORE,THE INFORMATION SET FORTH THEREIN SHOULD BE CAREFULLY CONSIDERED WHENEVALUATING THE BUSINESS PROSPECTS OF COAST BANCORP AND COAST NATIONAL BANK.**

** **

**MOREOVER, WHEREVER PHRASES SUCH AS SIMILAR TO, “INMANAGEMENT’S OPINION,”“MANAGEMENT BELIEVES,” OR “MANAGEMENT CONSIDERS” AREUSED, SUCH STATEMENTS ARE AS OF, AND BASED UPON THE KNOWLEDGE OF MANAGEMENT, ATTHE TIME MADE AND ARE SUBJECT TO CHANGE BY THE PASSAGE OF TIME AND/ORSUBSEQUENT EVENTS, AND ACCORDINGLY SUCH STATEMENTS ARE SUBJECT TO THE SAMERISKS AND UNCERTAINTIES NOTED ABOVE WITH RESPECT TO FORWARD-LOOKING STATEMENTS.**

 

2

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## **INDEX**

## **COAST BANCORP**

## **PART I – FINANCIAL INFORMATION**

 
| **Item 1 -**                         | **Financial  Statements**                                                                   |
|--------------------------------------|---------------------------------------------------------------------------------------------|
|                                 | Statement  of Financial Condition                                                           |
|                                 | Statement  of Operations                                                                    |
|                                 | Statement  of Changes in Shareholders’ Equity                                          |
|                                 | Cash  Flow Statement                                                                        |
|                                 | Notes to Financial Statements                                                               |
|                                 |
| Item  2 -                            | Management’s  Discussion and Analysis of Financial Condition And Results of Operations |
|                                 |                                                                                        |
|                                 | Overview                                                                                    |
|                                 | Net  Interest Income                                                                        |
|                                 | Provision  for Loan Losses                                                                  |
|                                 | Noninterest  Income                                                                         |
|                                 | Noninterest  Expense                                                                        |
|                                 | Income Taxes                                                                                |
|                                 | Financial  Condition                                                                        |
|                                 | Asset Quality                                                                               |
|                                 | Capital                                                                                     |
|                                 | Liquidity                                                                                   |
|                                 |                                                                                        |
| Item 3 –                        | Controls and Procedures                                                                     |
|                                 |                                                                                        |
| **PART II – OTHER INFORMATION** |
|                                 | Item  1 – Legal Proceedings                                                            |
|                                 | Item  2 – Changes in Securities and Use of Proceeds                                    |
|                                 | Item 3 –  Defaults Upon Senior Securities                                              |
|                                 | Item  4 – Submission of Matters to a Vote of Security Holders                          |
|                                 | Item  5 – Other Information                                                            |
|                                 | Item 6 –  Exhibits and Reports of Form 8-K                                             |
|                                 |                                                                                        |
| SIGNATURES                           |
|                                 |
| CERTIFICATIONS                       |
|                                      |                                                                                             |  |

 

3

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# **COAST BANCORP & Subsidiary**

 

ConsolidatedBalance Sheet (Unaudited)

 
|                                                                                                                                                                                          |   | **September  2002** |    | **December  2001** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|---------|--------------------|--------|
| ASSETS                                                                                                                                                                                        |   |                |    |               |   |
|                                                                                                                                                                                          |   |                |    |               |   |
| Cash and due from banks                                                                                                                                                                       |   | $                   | 5,555   |               | $      | 3,899 |   |
| Federal funds sold                                                                                                                                                                            |   | 13,790              |    | 8,650              |   |
| TOTAL  CASH AND CASH EQUIVALENTS                                                                                                                                                              |   | 19,345              |    | 12,549             |   |
| Interest-bearing deposits                                                                                                                                                                     |   | —              |    | —             |   |
|                                                                                                                                                                                          |   |                |    |               |   |
| Investment securities:                                                                                                                                                                        |   |                |    |               |   |
| Securities held to maturity                                                                                                                                                                   |   | —              |    | —             |   |
| Securities available for sale                                                                                                                                                                 |   | 6,178               |    | 11,264             |   |
| TOTAL INVESTMENT  SECURITIES                                                                                                                                                                  |   | 6,178               |    | 11,264             |   |
| Loans:                                                                                                                                                                                        |   |                |    |               |   |
| Commercial                                                                                                                                                                                    |   | 15,416              |    | 15,061             |   |
| Real estate - construction                                                                                                                                                                    |   | 5,182               |    | 5,738              |   |
| Real estate - other                                                                                                                                                                           |   | 35,556              |    | 31,064             |   |
| Consumer                                                                                                                                                                                      |   | 25,048              |    | 25,055             |   |
| TOTAL LOANS                                                                                                                                                                                   |   | 81,202              |    | 76,918             |   |
| Net deferred loan fees                                                                                                                                                                        |   | (300                | )       | (274               | )      |
| Allowance for credit losses                                                                                                                                                                   |   | (970                | )       | (850               | )      |
| NET LOANS                                                                                                                                                                                     |   | 79,932              |    | 75,794             |   |
| Premises and equipment                                                                                                                                                                        |   | 5,688               |    | 3,894              |   |
| Deferred taxes                                                                                                                                                                                |   | 324                 |    | 213                |   |
| Federal reserve bank stock, at cost                                                                                                                                                           |   | 202                 |    | 189                |   |
| Other assets                                                                                                                                                                                  |   | 1,026               |    | 724                |   |
| TOTAL ASSETS                                                                                                                                                                                  |   | $                   | 112,695 |               | $      | 104,627 |   |
|                                                                                                                                                                                          |   |                |    |               |   |
| LIABILITIES AND  STOCKHOLDERS’ EQUITY                                                                                                                                                    |   |                |    |               |   |
| Deposits:                                                                                                                                                                                     |   |                |    |               |   |
| Noninterest-bearing demand                                                                                                                                                                    |   | $                   | 27,068  |               | $      | 24,831 |   |
| Money market and NOW                                                                                                                                                                          |   | 27,903              |    | 29,958             |   |
| Savings                                                                                                                                                                                       |   | 4,473               |    | 4,610              |   |
| Time deposits of $100,000 or more                                                                                                                                                             |   | 21,662              |    | 20,932             |   |
| Other time deposits                                                                                                                                                                           |   | 17,878              |    | 16,195             |   |
| TOTAL DEPOSITS                                                                                                                                                                                |   | 98,984              |    | 96,526             |   |
| Notes payable                                                                                                                                                                                 |   | 725                 |    | 735                |   |
| Trust Preferred Securities                                                                                                                                                                    |   | 5,000               |    | —             |   |
| Other liabilities                                                                                                                                                                             |   | 250                 |    | 210                |   |
| TOTAL LIABILITIES                                                                                                                                                                             |   | 104,959             |    | 97,471             |   |
| Commitments and contingencies - Note #4 and #11                                                                                                                                               |   |                |    |               |   |
| Stockholders’ equity                                                                                                                                                                     |   |                |    |               |   |
| Preferred  stock - 10,000,000 authorized, none outstanding  Common stock no par value; 10,000,000 shares authorized;   issued and outstanding: 632,400 in  2002 and 632,400 in 2001 |   | 6,324               |    | 6,324              |   |
| Retained earnings (deficit)                                                                                                                                                                   |   | 1,318               |    | 732                |   |
| Accumulated other comprehensive income - net unrealized (losses)  gains on available-for-sale securities                                                                                      |   | 94                  |    | 100                |   |
| TOTAL STOCKHOLDERS’ EQUITY                                                                                                                                                               |   | 7,736               |    | 7,156              |   |
| TOTAL LIABILITIES AND  STOCKHOLDERS’ EQUITY                                                                                                                                              |   | $                   | 112,695 |               | $      | 104,627 |   |

 

*The accompanying notes are anintregal part of these consolidated financial statements*

 

4

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**COAST BANCORP & Subsidiary**

 

Statement of Operations (unaudited)

(In Thousands, except for per share numbers)

 
|                                                |   | **For the  Three Months Ended  September 30,** |   | **For the  Nine Months Ended  September 30,** |   |
|-----------------------------------------------------|--------|------------------------------------------------|--------|-----------------------------------------------|--------|
|                                                |   | **2002**                                       |   | **2001**                                      |   | **2002** |   | **2001** |   |
|                                                |   |                                           |   |                                          |   |   |   |   |   |
| Interest income:                                    |   |                                           |   |                                          |   |   |   |   |   |
| Interest and fees on loans                          |   | $                                              | 1,534  |                                          | $      | 1,523 |   | $ | 4,410 |   | $ | 4,504 |   |
| Interest on taxable securities                      |   |                                           | 76     |                                          | 195    |   | 261 |   | 624 |   |
| Interest on federal funds sold                      |   |                                           | 24     |                                          | 66     |   | 79 |   | 307 |   |
| Other interest income                               |   |                                           | 3      |                                          | — |   | 9 |   | 6 |   |
|                                                |   |                                           |   |                                          |   |   |   |   |   |
| Total interest income                               |   | 1,637                                          |   | 1,784                                         |   | 4,759 |   | 5,441 |   |
|                                                |   |                                           |   |                                          |   |   |   |   |   |
| Interest expense:                                   |   |                                           |   |                                          |   |   |   |   |   |
| Interest on money market and NOW accounts           |   |                                           | 82     |                                          | 211    |   | 256 |   | 693 |   |
| Interest on savings deposits                        |   |                                           | 14     |                                          | 26     |   | 43 |   | 76 |   |
| Interest on time deposits                           |   |                                           | 270    |                                          | 434    |   | 833 |   | 1,476 |   |
| Interest on other borrowings                        |   |                                           | 13     |                                          | 21     |   | 33 |   | 32 |   |
| Total Interest Expense                              |   | 379                                            |   | 692                                           |   | 1,165 |   | 2,277 |   |
|                                                |   |                                           |   |                                          |   |   |   |   |   |
| Net interest income                                 |   |                                           | 1,258  |                                          | 1,092  |   | 3,594 |   | 3,164 |   |
| Provision for loan losses                           |   |                                           | 36     |                                          | 51     |   | 116 |   | 114 |   |
|                                                |   |                                           |   |                                          |   |   |   |   |   |
| Net interest income after provision for loan losses |   | 1,222                                          |   | 1,041                                         |   | 3,478 |   | 3,050 |   |
|                                                |   |                                           |   |                                          |   |   |   |   |   |
| Noninterest Income:                                 |   |                                           |   |                                          |   |   |   |   |   |
| Service charges on deposit accounts and other       |   | 57                                             |   | 56                                            |   | 162 |   | 247 |   |
| Gain on sale of Loans and Leases                    |   | 119                                            |   |                                          |   | 377 |   |   |   |
| Gain on sale of securities                          |   | 39                                             |   | 20                                            |   | 135 |   | 95 |   |
| Total noninterest income                            |   | 215                                            |   | 76                                            |   | 674 |   | 342 |   |
|                                                |   |                                           |   |                                          |   |   |   |   |   |
| Noninterest Expense:                                |   |                                           |   |                                          |   |   |   |   |   |
| Salaries and benefits                               |   | 579                                            |   | 493                                           |   | 1,691 |   | 1,427 |   |
| Net occupancy expense (net of rental income)        |   | 80                                             |   | 55                                            |   | 222 |   | 143 |   |
| Equipment expense                                   |   | 47                                             |   | 47                                            |   | 146 |   | 133 |   |
| Other expense                                       |   | 413                                            |   | 255                                           |   | 1,104 |   | 929 |   |
|                                                |   |                                           |   |                                          |   |   |   |   |   |
| Total noninterest expense                           |   | 1,119                                          |   | 850                                           |   | 3,163 |   | 2,632 |   |
|                                                |   |                                           |   |                                          |   |   |   |   |   |
| Income before taxes                                 |   | 318                                            |   | 267                                           |   | 989 |   | 760 |   |
| Income taxes                                        |   | 102                                            |   | 120                                           |   | 403 |   | 327 |   |
| Net income                                          |   | $                                              | 216    |                                          | $      | 147 |   | $ | 586 |   | $ | 433 |   |
|                                                |   |                                           |   |                                          |   |   |   |   |   |
| Earnings per share - Basic                          |   | $                                              | 0.34   |                                          | $      | 0.23 |   | $ | 0.93 |   | $ | 0.68 |   |
| Earnings per share - Diluted                        |   | $                                              | 0.33   |                                          | $      | 0.22 |   | $ | 0.89 |   | $ | 0.66 |   |

 

*The accompanying notes are anintregal part of these consolidated financial statements*

 

5

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**COASTBANCORP & Subsidiary**

 

Statement of changes inShareholders’ Equity 

(In Thousands, Except Number of Shares)(Unaudited)

 
|                                                                                          |   | **Common  Stock** |   | **Comprehensive  Income** |   | **Retained  Earnings** |   | **Other  Comprehensive  Income** |   | **Total** |   |
|-----------------------------------------------------------------------------------------------|--------|-------------------|--------|---------------------------|--------|------------------------|--------|----------------------------------|--------|-----------|--------|
| **Number of  Shares**                                                                         |   | **Amount**        |
| Balance  at January 1, 2001                                                                   |   | 627,000           |   | $                         | 6,270  |                   |   |                             | $      | 116       |   | $ | (22 | ) | 6,364 |   |
| Exercise of stock options                                                                     |   | 5,400             |   | 54                        |   |                   |   |                             |   |      |   | 54 |   |
| Cash dividends                                                                                |   |              |   |                      |   |                   |   | (32                              | )      |      |   | (32 | ) |
| Comprehensive Income                                                                          |   |              |   |                      |   |                   |   |                             |   |      |   |   |   |
| Net income                                                                                    |   |              |   |                      |   | $                      | 648    |                             | 648    |      |   |   | 648 |   |
| Unrealized gain on securities available for sale                                              |   |              |   |                      |   | 178                    |   |                             |   | 178       |   | 178 |   |
| Reclassification adjustment for gain on Sale of investment securities  included in net income |   |              |   |                      |   | (56                    | )      |                             |   | (56       | )      | (56 | ) |
| Total comprehensive income                                                                    |   |              |   |                      |   | $                      | 770    |                             |   |      |   |   |   |   |
|                                                                                          |   |              |   |                      |   |                   |   |                             |   |      |   |   |   |
| Balance at December 31, 2001                                                                  |   | 632,400           |   | 6,324                     |   |                   |   | 732                              |   | 100       |   | 7,156 |   |
| Exercise of stock options                                                                     |   |              |   |                      |   |                   |   |                             |   |      |   | — |   |
| Cash dividends                                                                                |   |              |   |                      |   |                   |   |                             |   |      |   | — |   |
| Comprehensive Income                                                                          |   |              |   |                      |   |                   |   |                             |   |      |   |   |   |
| Net income                                                                                    |   |              |   |                      |   | $                      | 586    |                             | 586    |      |   |   | 586 |   |
| Unrealized loss. on securities available for sale                                             |   |              |   |                      |   | 74                     |   |                             |   | 74        |   | 74 |   |
| Reclassification adjustment for gain on Sale of investment securities  included in net income |   |              |   |                      |   | (80                    | )      |                             |   | (80       | )      | (80 | ) |
| Total comprehensive income                                                                    |   |              |   |                      |   | $                      | 580    |                             |   |      |   |   |   |   |
|                                                                                          |   |              |   |                      |   |                   |   |                             |   |      |   |   |   |
| Balance at September 30, 2002                                                                 |   | 632,400           |   | $                         | 6,324  |                   |   |                             | $      | 1,318     |   | $ | 94 |   | $ | 7,736 |   |
|                                                                                               |        |                   |        |                           |        |                        |        |                                  |        |           |        |  |  |  |  |  |  |  |

 

*The accompanying notes are anintregal part of these consolidated financial statements*

 

6

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**COAST BANCORP & Subsidiary**

 

Statement of Cash Flows (unaudited)

(In Thousands)

 
|                                              |   | **For the  Nine Months Ended  September 30,** |   |
|---------------------------------------------------|--------|-----------------------------------------------|--------|
|                                              |   | **2002**                                      |   | **2001** |   |
| Operating activities                              |   |                                          |   |   |   |
| Net income                                        |   | $                                             | 586    |   | $ | 433 |   |
| Adjustments to reconcile net income to            |   |                                          |   |   |   |
| Net cash provided by operating activities:        |   |                                          |   |   |   |
| Depreciation and amortization                     |   | 158                                           |   | 149 |   |
| Provision for loan losses                         |   | 116                                           |   | 114 |   |
| Realized gain on investment securities            |   | (135                                          | )      | (95 | ) |
| Other items - net                                 |   | (337                                          | )      | 635 |   |
| Net cash provided by  operating activities        |   | 388                                           |   | 1,236 |   |
|                                              |   |                                          |   |   |   |
| Investing activities                              |   |                                          |   |   |   |
| Change in interest-bearing deposits               |   | —                                        |   | 200 |   |
| Proceeds from sale of investment securities       |   | 6,191                                         |   | 10,548 |   |
| Maturities of investment securities               |   | 1,000                                         |   | 9,444 |   |
| Purchase of investment securities                 |   | (2,012                                        | )      | (13,594 | ) |
| Net change in loans                               |   | (4,254                                        | )      | (14,586 | ) |
| Increase in Federal Reserve Bank Stock            |   | (13                                           | )      | (17 | ) |
| Purchase of premises and equipment                |   | (1,952                                        | )      | (233 | ) |
| Net cash provided (used)  by investing activities |   | (1,040                                        | )      | (8,238 | ) |
|                                              |   |                                          |   |   |   |
| Financing activities                              |   |                                          |   |   |   |
| Increase in deposits                              |   | 2,458                                         |   | 6,389 |   |
| Proceeds from trust preferred securities          |   | 5,000                                         |   | — |   |
| Principal payments                                |   | (10                                           | )      | — |   |
| Proceeds from exercise of Options                 |   | —                                        |   | 42 |   |
| Net cash provided by  financing actvities         |   | 7,448                                         |   | 6,431 |   |
|                                              |   |                                          |   |   |   |
| Increase in cash and cash  equivalents            |   | 6,796                                         |   | (571 | ) |
|                                              |   |                                          |   |   |   |
| Cash and cash equivalents at beginning of period  |   | 12,549                                        |   | 9,543 |   |
|                                              |   |                                          |   |   |   |
| Cash and cash equivalents  at end of period       |   | $                                             | 19,345 |   | $ | 8,972 |   |

 

*The accompanying notes are anintregal part of these consolidated financial statements*

 

7

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**Note 1 -Basis of Presentation**

 

The accompanying financial information has been prepared in accordancewith the Securities and Exchange Commission rules and regulations for quarterlyreporting and therefore does not necessarily include all information andfootnote disclosures normally included in financial statements prepared inaccordance with generally accepted accounting principles.  This information should be read inconjunction with the Company’s Annual Report for the year ended December 31,2001 filed on Form 10-KSB.

 

Operating results for interim periods are not necessarily indicative ofoperating results for an entire fiscal year. In the opinion of management, the unaudited financial information forthe three month and nine month period ended September 30, 2002 and 2001,reflect all adjustments, consisting only of normal recurring accruals andprovisions, necessary for a fair presentation thereof.

 

Some matters discussed in this Form 10-QSB may be “forward-lookingstatements” within the meaning of the Private Litigation Reform Act of 1995 andtherefore may involve risks, uncertainties and other factors which may causeour actual results to be materially different from the results expressed orimplied by our forward-looking statements. These statements generally appear with words such as “anticipate”,“believe”, “estimate”, “may”, “intend”, and “expect”.

 

# **Note 2 - Earnings Per Share**

 

Effective December 31, 1997, the Bank adopted SFAS No. 128, *“Earningsper Share”.*  Accordingly,basic earnings per share are computed by dividing income available to commonshareholders by the weighted average number of common shares outstanding duringeach period.  The computation of dilutedearnings per share also considers the number of shares issuable upon theassumed exercise of outstanding common stock options.  All earnings per common share amounts presented have beenrestated in accordance with the provisions of this statement.

 
|                                          |   | **For  the Three Months Ended  September 30,** |   | **For  the Nine Months Ended  September 30,** |   |
|-----------------------------------------------|--------|------------------------------------------------|--------|-----------------------------------------------|--------|
|                                          |   | **2002**                                       |   | **2001**                                      |   | **2002** |   | **2001** |   |
|                                          |   | **Shares**                                     |   | **Shares**                                    |   | **Shares** |   | **Shares** |   |
| Used  in Basic EPS                            |   | 632,400                                        |   | 631,200                                       |   | 632,400 |   | 630,519 |   |
| Dilutive  Effect of Outstanding Stock Options |   | 24,432                                         |   | 22,908                                        |   | 25,572 |   | 20,292 |   |
| Earnings  per share - Basic                   |   | 656,832                                        |   | 654,108                                       |   | 657,972 |   | 650,811 |   |

 

#### **Item 2.    Management’sDiscussion and Analysis of Financial Condition and Results of Operations**

 

The unaudited financial statements have been prepared in accordance withthe instructions to Form 10-QSB and contain statements relating to futureresults of the Company that are considered to be “forward looking statements”within the meaning of the Private Securities Litigation Reform Act of1995.  These statements relate to, amongother things, credit loss reserve adequacy, and simulation of changes ininterest rates and litigation results. Actual results may differ materially from those expressed or implied asa result of certain risks and uncertainties, including, but not limited to,changes in political and economic conditions, interest rate fluctuations,competitive product and pricing pressures within the Company’s markets, equityand fixed income market fluctuations, personal and corporate customers’bankruptcies, inflation, acquisitions and integrations of acquired businesses,technological change, changes in law, changes in fiscal, monetary, regulatoryand tax policies, monetary fluctuations, political and global changes arisingfrom the terrorist attacks of September 11, 2001 and their aftermath, successin gaining regulatory approvals when required as well as other risks anduncertainties detailed elsewhere in this quarterly report or from time to timein the filings of the Company with the Securities and Exchange Commission.  Such forward-looking statements speak onlyas of the date on which such statements are made, and the corporationundertakes no obligation to update any forward-looking statement to reflectevents or circumstances after the date on which such statement is made or toreflect the occurrence of unanticipated events.  The accompanying financial information should be read inconjunction with the Company's Annual Report on Form 10-KSB for the year endedDecember 31, 2001.

 

On June 1, 2001 Coast Bancorp acquired all of the outstanding shares ofCoast National Bank’s common stock in a non-cash transaction.  Coast Bancorp has no material businessactivity other than the involvement in Coast National Bank.

 

Coast National Bank commenced operations June16, 1997 with two offices and $6,250,000.00 in capital.  All shares sold and issued were of oneclass.  In June 1998 the Morro Baybranch was opened, expanding our customer base and service area.  In June 1999 the Los Osos branch was alsoopened to further serve the needs of the residents of the North Coast.  A government-guaranteed lending center wasestablished in July 2000 in San Luis Obispo. In July 2002 a loan productionoffice was opened in Santa Maria.  CoastNational Bank anticipates being able to satisfy its cash requirements, nearterm, with continuing deposit growth.

 

8

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OnSeptember 26, 2002, the Company completed its offering of trust preferredsecurities in the amount of $5.0 million. The securities were issued by a special purpose trust formed by theCompany and were sold to a pooled investment vehicle sponsored by Keefe,Bruyette & Woods and FTN Financial, in a private transaction.  The securities were sold pursuant to anapplicable exemption from registration under the Securities Act of 1933, asamended (the "Act"), and have not been registered under the Act.  FTN Financial assisted the Company in theplacement of the trust preferred securities. The securities may not be offered or sold in the United States absentregistration or an applicable exemption from registration requirements.

 

 

The$5.0 million in trust preferred securities have a floating rate of interest,which is reset quarterly, equal to the 3-month LIBOR plus 3.40%.  The floating rate, however, may not exceed11.95% for the first five years.  The$5.0 million accounts for approximately 62% of the Company's asset growth for thenine-month period ending September 30, 2002.

 

TheCompany is reflecting the trust preferred securities as financing debt on itsconsolidated balance sheet.

 

Ifthe Company elects to defer interest payments pursuant to the terms of theagreement, then the Company may not (i) declare or pay any dividends ordistributions on, or redeem, purchase, acquire or make a liquidation paymentwith respect to any of the Company's capital stock, or (ii) make any payment ofprincipal or premium, if any, or interest on or repay, repurchase or redeem anydebt securities of the Company that rank pari passu with or junior in interestto the debt securities, other than, among other items, a dividend in theform of stock, warrants, options or other rights in the same stock as that onwhich the dividend is being paid or ranks pari passu with or junior to suchstock.  The prohibition on payment ofdividends and payments on pari passu or junior debt also applies in the case ofan event of default under the agreements.

 

 

Immediatelyfollowing the completion of the trust preferred offering, the Company down-streamed$3.6 million to the Bank in the form of Tier I capital where it will financefuture growth.

 

**Critical AccountingPolicies**

 

In preparing its consolidated financial statements, the Company isrequired to make judgments and estimates that may have a significant impactupon its financial results. Certain accounting policies require the Company tomake significant estimates and assumptions, which have a material impact on thecarrying value of certain assets and liabilities, and are considered critical accountingpolicies. The estimates and assumptions used are based on the historicalexperiences and other factors, which are believed to be reasonable under thecircumstances.  Actual results coulddiffer significantly from these estimates and assumptions, which could have amaterial impact on the carrying value of assets and liabilities at the balancesheet dates and results of operations for the reporting periods.  The Company’s determination of the adequacyof its allowance for loan losses is particularly susceptible to management’sjudgment and estimates. For further information, see the section titled"Provision and Allowance for Loan Losses."

 

##### **Overview**

 

Forthe three months ended September 30, 2002 the Company reported net income of$216,000 or $0.33 diluted earnings per share compared to net income of $147,000or $0.22 diluted earnings per share for the same period during 2001.  For the nine month ended September 30, 2002the company reported net income of $586,000 or $0.89 diluted earnings per sharecompared to net income of $433,000 or $0.66 diluted earnings per share for thesame period during 2001.

 

##### **NetInterest Income**

 

Net interest income is the amount by which the interest and amortizationof fees generated from loans and other earning assets exceed the cost offunding those assets, usually deposit account interest expense.  Net interest income depends on thedifference between gross interest and fees earned on the loans and investmentportfolios and the interest rates paid on deposits and borrowings (the“interest rate spread”).  Net interestincome was $3,594,000 for the nine monthended September 30, 2002, compared to $3,164,000 for the nine months endedSeptember 30, 2001 an increase of 13.6%.

 

Thefollowing table sets forth the components of net interest income, averageearning assets and net interest margin: (in thousands)

 
|                   |   | **Three  Months Ended  September 30,** |   | **Nine  Months Ended  September 30,** |   | **Year Ended  December 31,** |   |
|------------------------|--------|----------------------------------------|--------|---------------------------------------|--------|------------------------------|--------|
|                   |   | **2002**                               |   | **2001**                              |   | **2002**                     |   | **2001** |   | **2001** |   |
|                   |   |                                   |   |                                  |   |                         |   |   |   |   |   |
| Interest Income        |   | 1,637                                  |   | 1,784                                 |   | 4,759                        |   | 5,441 |   | 7,084 |   |
| Interest Expense       |   | 379                                    |   | 692                                   |   | 1,165                        |   | 2,277 |   | 2,773 |   |
|                   |   |                                   |   |                                  |   |                         |   |   |   |   |   |
| Net Interest Income    |   | 1,258                                  |   | 1,092                                 |   | 3,594                        |   | 3,164 |   | 4,311 |   |
|                   |   |                                   |   |                                  |   |                         |   |   |   |   |   |
| Average Earning Assets |   | 95,300                                 |   | 92,099                                |   | 96,161                       |   | 92,828 |   | 93,823 |   |
| Net Interest Margin    |   | 5.28                                   | %      | 4.74                                  | %      | 4.98                         | %      | 4.54 | % | 4.59 | % |

 

The 13.6% increase in net interest income for the first nine months of2002 was primarily the result of the significant growth in interest-earningassets generated by the Bank’s branches. The Company also experienced an increase in the net interest margin dueto

 

9

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the decline of high interest rate deposits. For the nine months endedSeptember 30, 2002 net interest expense was $1,165,000 compared to $2,277,000for the nine months ended September 2001 a decrease of 48.8%.

 

##### **Provision for Loan Losses**

 

Managementof the Company believes that the allowance for loan losses is adequate.  The Company has established a monitoringsystem for loans in order to identify impaired loans and potential problemloans and to permit periodic evaluation of impairment and adequacy of theallowance for loan losses in a timely manner. The monitoring system and allowance for loan losses methodology haveevolved over a period of years, and loan classifications have been incorporatedinto the determination of the allowance for loan losses.  This monitoring system and allowancemethodology includes a loan-by-loan analysis for all classified loans as wellas loss factors for the balance of the unclassified portfolio.  Classified loans are reviewed individuallyto estimate the amount of probable losses that needs to be included in theallowance.  These reviews includeanalysis of financial information as well as evaluation of collateral securingthe credit.  Loss factors on theunclassified portion of the portfolio are based on such factors as historicalloss experience, current portfolio delinquency and trends, and other inherentrisk factors such as economic conditions, concentrations in the portfolio, risklevels of particular loan categories, internal loan review and managementoversight.

 

The Company made a $116,000 contribution to theallowance for loan losses for the nine months ended September 30, 2002 comparedto $114,000 for the same period in 2001. Management believes that the allowance, which equals 1.19% of net loansat September 30, 2002, is adequate to cover future losses.  The allowance for loan losses at December31, 2001 was also 1.11% of total loans.

 

Changes in the allowance for loan losses forthe three months ended and the nine months ended September 30, 2002 and 2001are as follows (dollar amounts in thousands):

 
|                                  |   | **Three  Months Ended  September 30,** |   | **Nine  Months Ended****September  30,** |   |
|---------------------------------------|--------|----------------------------------------|--------|------------------------------------------|--------|
|                                  |   | **2002**                               |   | **2001**                                 |   | **2002** |   | **2001** |   |
|                                  |   |                                   |   |                                     |   |   |   |   |   |
| Allowance, Beginning of Period        |   | $                                      | 940    |                                     | $      | 750 |   | $ | 850 |   | $ | 700 |   |
| Provision for Loan Losses             |   | 36                                     |   | 50                                       |   | 116 |   | 114 |   |
| Loans Charged Off - net of Recoveries |   | (6                                     | )      | —                                   |   | 4 |   | (14 | ) |
|                                  |   |                                   |   |                                     |   |   |   |   |   |
| Allowance, End of Period              |   | $                                      | 970    |                                     | $      | 800 |   | $ | 970 |   | $ | 800 |   |

 

##### **NoninterestIncome**

 

Noninterest income representsdeposit account service charges and other types of fee income.  Noninterest income for the three monthsended September 30, 2002 totaled $215,000 compared to $76,000 for the sameperiod in 2001 a 182.9% increase. Noninterest income for the nine months endedSeptember 30, 2001 totaled $674,000 compared to $342,000 for the same period in2001 a 97.1% increase. This increase is primarily due to realized gains andservicing income from the sale of the guaranteed portion of governmentguaranteed loans. The gain on sale of loan and leases for the nine monthsSeptember 30, 2002 was $377,000 compared to $0 gains for the nine months endedSeptember 30, 2001.  Additionally the gainon sale of securities for the nine months ended September 30, 2002 was $135M a42.8% increase over the same period in 2001.

 

##### **NoninterestExpense**

 

Noninterestexpense represents salaries, occupancy expenses, professional expenses, outsideservices and other miscellaneous expenses necessary to conduct business.  Noninterest expense for the three monthsended September 30, 2002 totaled $1,119,000 compared to $850,000 for the sameperiod in 2001 a 31.6% increase. Noninterest expense for the nine months endedSeptember 30, 2002 totaled $3,163,000 compared to $2,632,000 for the sameperiod in 2001 a 17.0% increase. This increase isprimarily due to the opening of a government guaranteed lending departmentspecializing in Small Business Administration lending programs during thelatter part of 2000 and the overall expansion of the customer base.

 

##### **IncomeTaxes**

 

The Company recorded a $102,000 tax provisionfor the three months ended September 30, 2002 compared to $120,000 during thesame period in 2001.  The nine monthsended tax provision was $403,000 compared to $327,000 or the same period in2001.

 

10

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##### **FinancialCondition**

 

As of September 30, 2002, total consolidated assetsof Coast Bancorp were $112.7 million compared to $104.6 million as of December 31,2001.  This represents an increase of$8.1 million, or 7.74%.  The componentsof this increase can be attributed to the completion of a trust preferredoffering ($5.0 million), growth in deposits ($2.5 million) and retainedearnings ($.6 million).  Over the lastseveral quarters, management has consciously restricted growth in order tomaintain well-capitalized regulatory ratios. With the completion of the trust preferred offering, the Company is nowwell-positioned to finance future asset growth.

 

The Company reported net income for the ninemonths ended September 30, 2002 of $586,000 compared to $433,000 for thesame period in 2001.  This represents anincrease of $153,000, or 35.33%.

 

Net income for the three months endingSeptember 30, 2002 was $216,000 compared to $147,000 for the same period in2001.  This represents an increase of$69,000, or 46.94%.

 

The increase in year-to-date earnings can be peggedto two primary events.  First, the Bankwas able to improve its net interest margin during a very challenging interestrate environment.  For reference, theBank's net interest margin improved from 4.59% at December 31, 2001 to 5.28% atSeptember 30, 2002.  Second, year-to-dateearnings were enhanced as a result of increased servicing income and loan salesactivity derived through the Bank's government guaranteed lending center.

 

##### **AssetQuality**

 

As of September 30, 2002 the Bank has no loans onnonaccrual and no loans 90 day past due and still accruing.  The Bank has had no OREO during 2001 or2002.

 

##### **Capital**

 

The objective of the Company’s asset/liabilitystrategy is to manage liquidity and interest rate risk to ensure the safety andsoundness of the Bank and it’s capital base, while maintaining adequate netinterest margins and spreads to provide an appropriate return to theshareholders.

 

Shareholdersequity at September 30, 2002 was $7.7 million, an increase of  $.6 million over $ 7.1 million at December31, 2001 Shareholders equity increased primarily from net income of  $586,000.

 

TheCompany is required to meet certain minimum risk-based capital guidelines andleverage ratios set by the banks regulatory authorities. The risk-based capitalstandards establish capital requirements that are more sensitive to riskdifferences between various assets, consider off balance sheet activities inassessing capital adequacy, and minimize the disincentives to holding liquid,low risk assets.  The leverage ratioconsists of tangible Tier I capital divided by average total assets.

 

CoastBancorp maintains capital ratios above the Federal regulatory guidelines for“well-capitalized” bank holding companies. The ratios are as follows:

 
|           |   | **Regulatory  Standard**    |   | **Coast  National Bank** |   | **Coast  Bancorp**             |   |
|----------------|--------|-----------------------------|--------|--------------------------|--------|--------------------------------|--------|
|           |   | **Adequately  Capitalized** |   | **Well  Capitalized**    |   | **As of  September 30,  2002** |   | **As of  September 30,  2002** |   |
|           |   |                        |   |                     |   |                           |   |   |   |
| Leverage Ratio |   | 4.00                        | %      | 5.00                     | %      | 10.96                          | %      | 9.52 | % |
| Tier 1 Capital |   | 4.00                        | %      | 6.00                     | %      | 13.34                          | %      | 11.62 | % |
| Total Capital  |   | 8.00                        | %      | 10.00                    | %      | 14.45                          | %      | 12.72 | % |

 

 

##### **Liquidity**

 

Management is not aware of any future capitalexpenditures or other significant demands on commitments, which would severelyimpair liquidity.  For the nine monthsended September 30, 2002 the bank had a loan to deposit ratio of 80.7% andtotal investments to assets of 17.7%.

 

**Item 3. Controls and Procedures**

 

Based on their evaluation as of a date within 90 days of the filing ofthis Form 10-QSB, the company’s Chief Executive Officer and Chief FinancialOfficer have concluded that the company’s disclosure controls and proceduresare effective to ensure that information required to be disclosed in thereports that the company files or submits under the Securities Exchange Act of1934 is recorded, processed, summarized and reported within the time periodsspecified in the Securities and Exchange Commission’s rules and forms.  There have been no significant changes inthe company’s internal controls or in other factors that could significantlyaffect those controls subsequent to the date of their evaluation.

 

11

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### **PART II - OTHER INFORMATION**

 

**ITEM 1.     LEGALPROCEEDINGS**

 

Not Applicable

 

**ITEM 2.     CHANGES IN SECURITIES AND USE OF PROCEEDS**

 

On September 26, 2002, Coast Bancorp Statutory Trust I (Trust), aConnecticut statutory business trust and wholly-owned subsidiary of CoastBancorp, issued $5 million in floating rate Cumulative Trust PreferredSecurities (Securities) to Preferred Term Securities, VII Ltd., a limitedliability company. The Securities bear a rate of Libor plus 3.40% and have aninitial interest rate of 5.220%; the Securities will mature on September 26,2032, but earlier redemption is permitted under certain circumstances, such aschanges in tax or regulatory capital rules. The principal asset of the trust is a $5,155,000.00 floating ratesubordinated debenture of the Company. The subordinated debenture bears an initial interest rate of 5.22%, andmatures September 26, 2032 subject to earlier redemption under certaincircumstances. Coast owns all the common securities of the Trust.

 

12

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The Securities, the subordinated debentures, and the common securitiesissued by the Trust are redeemable in whole or in part on or after September26, 2007, or at any time in whole, but not in part, upon the occurrence ofcertain events.  The Securities areincluded in Tier 1 capital for regulatory capital adequacy determinationpurposes, subject to certain limitations. The Company fully and unconditionallyguarantees the obligations of the Trust with respect to the issuance of theSecurities.

 

Subject to certain exceptions and limitations, the Company may, fromtime to time, defer subordinated debenture interest payments, which wouldresult in a deferral of distribution payments on the Securities and, withcertain exceptions, prevent the Company from declaring or paying cashdistributions on the Company’s common stock or debt securities that rank juniorto the subordinated debentures.

 

The debenture and the guarantee were issued pursuant to the exceptionfrom registration provided by section 4 (2) of the Securities Act of 1933, asamended.

 

**ITEM 3.     DEFAULTS UPON SENIOR SECURITIES**

 

Not Applicable.

 

**ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS**

 

Not Applicable.

 

**ITEM 5.     OTHERINFORMATION**

 

Not Applicable.

 

**ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K**

 

(a) An index of exhibits begins on page 17.

 

(b) On November 4, 2002 theCompany filed a Current Report on Form 8-K, reporting that on October 30, 2002,Coast Bancorp issued a press release announcing the declaration of a $0.075 pershare cash dividend.  A copy of thepress release is attached to this Current Report as Exhibit 99.1 andincorporated into this report by reference.

 

(c) On October 1, 2002, theCompany filed a Current Report on Form 8-K, reporting that on September 27,2002, Coast Bancorp issued a press release announcing the completion ofits  $5 million participation in a trustpreferred pooled investment.

 

13

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###### **Signatures**

 

In accordance with the requirements of the Exchange Act of 1934, theregistrant has caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.

 

 
|   |               |                                                    | COAST  BANCORP |
|--------|--------------------|---------------------------------------------------------|----------------|
|   |               |                                                    |           |
|   |               |                                                    |           |
| Date:  | November  14, 2002 | /s/ Jack  Wauchope                                      |           |   |
|   |               | Jack  Wauchope                                          |           |
|   |               | Chief  Executive Officer  [Principal Executive Officer] |           |
|   |               |                                                    |           |
|   |               |                                                    |           |
| Date:  | November  14, 2002 | /s/ Thomas  Sherman                                     |           |   |
|   |               | Thomas  Sherman                                         |           |
|   |               | Chief  Financial Officer  [Principal Financial Officer] |           |

 

14

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**CERTIFICATION**

 
| I, Jack C. Wauchope, certify that: |                                                                                                                                                                                                                                                                                                                                                                                                |
|------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                               |                                                                                                                                                                                                                                                                                                                                                                                                |   |
| 1.                                 | I have reviewed this quarterly report on form 10-QSB of Coast  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 presents 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 period.                                                                                    |
|                               |                                                                                                                                                                                                                                                                                                                                                                                                |   |
| 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 13-a-14 and 15d-14) for the registrant and we have:                                                                                                                                                                   |
|                               |                                                                                                                                                                                                                                                                                                                                                                                                |   |
|                               | a.                                                                                                                                                                                                                                                                                                                                                                                                  | designed such disclosure controls and procedures to ensure that  material information relating to the registrant, including its consolidated  subsidiaries, is made known to us by others within those entities,  particularly during the period in which this quarterly report is being  prepared; |
|                               |                                                                                                                                                                                                                                                                                                                                                                                                |   |
|                               | b.                                                                                                                                                                                                                                                                                                                                                                                                  | evaluated the effectiveness of the registrant’s disclosure controls  and procedures as of a date within 90 days prior to the filing date of this  quarterly report (the “Evaluation Date”); and |
|                               |                                                                                                                                                                                                                                                                                                                                                                                                |   |
|                               | c.                                                                                                                                                                                                                                                                                                                                                                                                  | presented in this quarterly report our conclusions about the  effectiveness of the disclosure controls and procedures based on our  evaluation as of the Evaluation Date; |
|                               |                                                                                                                                                                                                                                                                                                                                                                                                |
| 5.                                 | The registrant’s other certifying officers and I have disclosed,  based on our most recent evaluation, to the registrant’s auditors and the  audit committee of registrant’s board of directors (or persons performing the  equivalent function):                                                                                                                                    |
|                               |                                                                                                                                                                                                                                                                                                                                                                                                |   |
|                               | a.                                                                                                                                                                                                                                                                                                                                                                                                  | all significant deficiencies in the design or operation of internal  controls which could adversely affect the registrant’s ability to record,  process, summarize and report financial data and have identified for the  registrant’s auditors any material weakness in internal controls; and |
|                               |                                                                                                                                                                                                                                                                                                                                                                                                |   |
|                               | b.                                                                                                                                                                                                                                                                                                                                                                                                  | any fraud, whether or not material, that involves management or other  employees who have a significant role in the registrant’s internal controls;  and |
|                               |                                                                                                                                                                                                                                                                                                                                                                                                |   |
| 6.                                 | The registrant’s other certifying officers and I have indicated in  this quarterly report whether or not there were significant changes in  internal controls or if other factors that could significantly affect  internal controls subsequent to the date of our most recent evaluation,  including any corrective actions with regard to significant deficiencies and  material weaknesses. |
|                                    |                                                                                                                                                                                                                                                                                                                                                                                                     |  |  |

 

 
| Date: November 14, 2002 |   |   | BY:    | /s/ Jack  Wauchope                              |   |
|-------------------------|--------|--------|--------|-------------------------------------------------|--------|
|                    |   |   |   | Jack C. Wauchope                                |
|                    |   |   |   | Chairman & CEO  Principal Executive Officer |

 

15

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**CERTIFICATION**

 
| I,     | Thomas Sherman, certify that:                                                                                                                                                                                                                                                                                                                                                                       |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                |   |
| 1.     | I have reviewed this quarterly report on form 10-QSB of Coast  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 presents 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 period.                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                |
| 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 13-a-14 and 15d-14) for the registrant and we have:                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                |
|   | a.                                                                                                                                                                                                                                                                                                                                                                                                  | designed such disclosure controls and procedures to ensure that  material information relating to the registrant, including its consolidated  subsidiaries, is made known to us by others within those entities,  particularly during the period in which this quarterly report is being  prepared; |
|   |                                                                                                                                                                                                                                                                                                                                                                                                |
|   | b.                                                                                                                                                                                                                                                                                                                                                                                                  | evaluated the effectiveness of the registrant’s disclosure controls  and procedures as of a date within 90 days prior to the filing date of this  quarterly report (the “Evaluation Date”); and |
|   |                                                                                                                                                                                                                                                                                                                                                                                                |
|   | c.                                                                                                                                                                                                                                                                                                                                                                                                  | presented in this quarterly report our conclusions about the  effectiveness of the disclosure controls and procedures based on our  evaluation as of the Evaluation Date; |
|   |                                                                                                                                                                                                                                                                                                                                                                                                |
| 5.     | The registrant’s other certifying officers and I have disclosed,  based on our most recent evaluation, to the registrant’s auditors and the  audit committee of registrant’s board of directors (or persons performing the  equivalent function):                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                |   |
|   | a.                                                                                                                                                                                                                                                                                                                                                                                                  | all significant deficiencies in the design or operation of internal  controls which could adversely affect the registrant’s ability to record,  process, summarize and report financial data and have identified for the  registrant’s auditors any material weakness in internal controls; and |
|   |                                                                                                                                                                                                                                                                                                                                                                                                |   |
|   | b.                                                                                                                                                                                                                                                                                                                                                                                                  | any fraud, whether or not material, that involves management or other  employees who have a significant role in the registrant’s internal controls;  and |
|   |                                                                                                                                                                                                                                                                                                                                                                                                |   |
| 6.     | The registrant’s other certifying officers and I have indicated in  this quarterly report whether or not there were significant changes in  internal controls or if other factors that could significantly affect  internal controls subsequent to the date of our most recent evaluation,  including any corrective actions with regard to significant deficiencies and  material weaknesses. |
|        |                                                                                                                                                                                                                                                                                                                                                                                                     |  |  |

 

 
| Date: November 14, 2002 |   |   | BY     | /s/ Thomas  Sherman                                                  |   |
|-------------------------|--------|--------|--------|----------------------------------------------------------------------|--------|
|                    |   |   |   | Thomas Sherman                                                       |
|                    |   |   |   | President & Chief Financial Officer  Principal Financial Officer |

 

16

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**EXHIBIT INDEX**

 
| **Exhibit No.** |   | **Description**                                                                                                                                    |
|-----------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------|
|            |   |                                                                                                                                               |
| 11              |   | Statement re: computation of per share earnings is included in Note 2  to the unaudited condensed consolidated financial statements of Registrant. |
|            |   |                                                                                                                                               |
| 99.1            |   | Certificate of Principal Executive Officer Pursuant to 18 U.S.C.  Section 1350                                                                     |
|            |   |                                                                                                                                               |
| 99.2            |   | Certificate of Principal Financial Officer Pursuant to 18 U.S.C.  Section 1350                                                                     |

 

17

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