# ** **

# **FORM 10-QSB**

 

**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20429**

 

**(Mark One)**
| **ý** | **QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |
|------------|-----------------------------------------------------------------------------------------|

 

**For the quarterly period ended March 31, 2003**

 
| **o** | **TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE  ACT** |
|-------|----------------------------------------------------------------------|

 

**For the transition period from             to             **

 

**Commission File No. 000-32827**

 

**COASTBANCORP**

(Exact name of Registration as Specified in its Charter)

 

| **California**                                                                      |   | **77-0567091**                    |
|-------------------------------------------------------------------------------------|--------|-----------------------------------|
| (State of incorporation or organization)                                            |   | (IRS Employer Identification No.) |
|                                                                                |   |                              |
| **500 Marsh Street, San Luis Obispo, CA 93401**                                     |
| (Address of principal executive offices)                                            |
|                                                                                |   |                              |
| **(805) 541-0400**                                                                  |
| (Registrant’s telephone number, including area code)                           |
|                                                                                |   |                              |
| **553-B Higuera Street, San Luis Obispo, CA 93401**                                 |
| (Former name, former address and former fiscal year, if changed since  last report) |

 

Checkwhether the issuer (1) filed all reports required to be filed by Section 13 or15(d) of the Exchange Act during the past 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90days.  Yes:   ý      No:   o

# ** **

# **APPLICABLE ONLY TO CORPORATE ISSUERS**

 

Statethe number of shares outstanding of each of the issuer’s classes of commonequity, as of the latest practicable date:

CommonStock – As of April 30, 2003, there were 633,300 shares of the issuer’s commonstock 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 THEFORWARD-LOOKING STATEMENTS.  SUCH RISKSAND UNCERTAINTIES INCLUDE, BUT ARE NOT LIMITED TO, THE FOLLOWING FACTORS:COMPETITIVE PRESSURE IN THE BANKING INDUSTRY INCREASES SIGNIFICANTLY; CHANGESIN THE INTEREST RATE ENVIRONMENT REDUCE MARGINS; GENERAL ECONOMIC CONDITIONS,EITHER NATIONALLY OR REGIONALLY, ARE LESS FAVORABLE THAN EXPECTED, RESULTINGIN, AMONG OTHER THINGS A DETERIORATION IN CREDIT QUALITY AND AN INCREASE IN THEPROVISION FOR POSSIBLE LOAN LOSSES; CHANGES IN THE REGULATORY ENVIRONMENT;CHANGES IN BUSINESS CONDITIONS, PARTICULARLY IN SAN LUIS OBISPO COUNTY;VOLATILITY OF RATE SENSITIVE DEPOSITS; OPERATIONAL RISKS INCLUDING DATAPROCESSING SYSTEMS FAILURES OR FRAUD; ASSET/LIABILITY MATCHING RISKS ANDLIQUIDITY RISKS; AND CHANGES IN THE SECURITIES MARKETS.**

 

**THEREFORE, THE INFORMATION SETFORTH THEREIN SHOULD BE CAREFULLY CONSIDERED WHEN EVALUATING THE BUSINESSPROSPECTS OF THE BANCORP.**

 

**MOREOVER, WHEREVER PHRASES SUCH ASSIMILAR TO, “IN MANAGEMENT’S OPINION,”“MANAGEMENT BELIEVES,” OR “MANAGEMENTCONSIDERS” ARE USED, SUCH STATEMENTS ARE AS OF, AND BASED UPON THE KNOWLEDGE OFMANAGEMENT, AT THE TIME MADE AND ARE SUBJECT TO CHANGE BY THE PASSAGE OF TIMEAND/OR SUBSEQUENT EVENTS, AND ACCORDINGLY SUCH STATEMENTS ARE SUBJECT TO THESAME RISKS AND UNCERTAINTIES NOTED ABOVE WITH RESPECT TO FORWARD-LOOKINGSTATEMENTS.**

 

2

----

 

## **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                                                                                      |
|                                                                                                     |
| **Item 2 - Management’s Discussion and  Analysis of Financial Condition and Results of Operations** |
|                                                                                                     |
| Overview                                                                                                 |
| Net Interest Income                                                                                      |
| Provision for Loan Losses                                                                                |
| Non-interest Income                                                                                      |
| Non-interest 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                                                                      |
| 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**                                                                                           |

 

3

----

 

**COASTBANCORP & SUBSIDIARIES**

 

**ITEM I - FINANCIAL STATEMENTS**

 

ConsolidatedBalance Sheet (Unaudited)

 
| **(in thousands)**                                                                                                                |   | **March 31,  2003** |    | **December 31,  2002** |   |
|-----------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|---------|------------------------|--------|
| **ASSETS**                                                                                                                        |   |                |    |                   |   |
| Cash  and due from banks                                                                                                          |   | $                   | 6,949   |                   | $      | 7,742 |   |
| Federal  funds sold                                                                                                               |   | 18,690              |    | 15,470                 |   |
| TOTAL CASH AND CASH  EQUIVALENTS                                                                                                  |   | 25,639              |    | 23,212                 |   |
|                                                                                                                              |   |                |    |                   |   |
| Interest-bearing  deposits                                                                                                        |   | —              |    | —                 |   |
|                                                                                                                              |   |                |    |                   |   |
| Investment  securities:                                                                                                           |   |                |    |                   |   |
| Securities  held to maturity                                                                                                      |   | —              |    | —                 |   |
| Securities  available for sale                                                                                                    |   | 2,084               |    | 2,092                  |   |
| TOTAL INVESTMENT SECURITIES                                                                                                       |   | 2,084               |    | 2,092                  |   |
| Loans:                                                                                                                            |   |                |    |                   |   |
| Commercial                                                                                                                        |   | 30,231              |    | 30,530                 |   |
| Real  estate - construction                                                                                                       |   | 6,899               |    | 6,055                  |   |
| Real  estate - other                                                                                                              |   | 54,379              |    | 45,765                 |   |
| Consumer                                                                                                                          |   | 3,991               |    | 7,420                  |   |
| TOTAL LOANS                                                                                                                       |   | 95,500              |    | 89,770                 |   |
| Net  deferred loan fees                                                                                                           |   | (385                | )       | (355                   | )      |
| Allowance  for credit losses                                                                                                      |   | (1,010              | )       | (1,000                 | )      |
| NET LOANS                                                                                                                         |   | 94,105              |    | 88,415                 |   |
| Premises  and equipment                                                                                                           |   | 6,684               |    | 6,684                  |   |
| Deferred  taxes                                                                                                                   |   | 272                 |    | 286                    |   |
| Federal  reserve bank stock, at cost                                                                                              |   | 287                 |    | 287                    |   |
| Other  assets                                                                                                                     |   | 968                 |    | 981                    |   |
| TOTAL ASSETS                                                                                                                      |   | $                   | 130,039 |                   | $      | 121,957 |   |
|                                                                                                                              |   |                |    |                   |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                    |   |                |    |                   |   |
| Deposits:                                                                                                                         |   |                |    |                   |   |
| Noninterest-bearing  demand                                                                                                       |   | $                   | 27,215  |                   | $      | 26,496 |   |
| Money  market and NOW                                                                                                             |   | 33,104              |    | 29,581                 |   |
| Savings                                                                                                                           |   | 6,335               |    | 5,906                  |   |
| Time  deposits of $100,000 or more                                                                                                |   | 31,457              |    | 28,269                 |   |
| Other  time deposits                                                                                                              |   | 18,146              |    | 17,584                 |   |
| TOTAL DEPOSITS                                                                                                                    |   | 116,257             |    | 107,836                |   |
| Notes  payable                                                                                                                    |   | 677                 |    | 721                    |   |
| Company  obligated manditorily redeemable preferred securities of subsidiary trust  holding solely junior subordinated debentures |   | 5,000               |    | 5,000                  |   |
| Other  liabilities                                                                                                                |   | 138                 |    | 571                    |   |
| TOTAL LIABILITIES                                                                                                                 |   | 122,072             |    | 114,128                |   |
| Commitments  and contingencies                                                                                                    |   | —              |    | —                 |   |
| Stockholders’  equity                                                                                                        |   |                |    |                   |   |
| Preferred  stock - 10,000,000 authorized, none outstanding                                                                        |   |                |    |                   |   |
| Common  stock no par value; 10,000,000 shares authorized; issued and outstanding:  633,300 in 2003 and 632,400 in 2002            |   | 6,337               |    | 6,324                  |   |
| Additional  paid-in capital                                                                                                       |   |                |    |                   |   |
| Retained  earnings                                                                                                                |   | 1,586               |    | 1,456                  |   |
| Accumulated  other comprehensive income - net unrealized gains on available-for-sale  securities                                  |   | 44                  |    | 49                     |   |
| TOTAL STOCKHOLDERS’ EQUITY                                                                                                   |   | 7,967               |    | 7,829                  |   |
| TOTAL LIABILITIES AND  STOCKHOLDERS’ EQUITY                                                                                  |   | $                   | 130,039 |                   | $      | 121,957 |   |

 

*The accompanying notes are an integral part of theseconsolidated financial statements*

 

4

----

 

# **COAST BANCORP & SUBSIDIARIES**

 

Statementof Operations (unaudited)

(InThousands, except for per share numbers)

 
|                                                 |   | **For the Three Months Ended  March 31,** |   |
|------------------------------------------------------|--------|-------------------------------------------|--------|
|                                                 |   | **2003**                                  |   | **2002** |   |
|                                                 |   |                                      |   |   |   |
| Interest  income:                                    |   |                                      |   |   |   |
| Interest  and fees on loans                          |   | $                                         | 1,644  |   | $ | 1,416 |   |
| Interest  on taxable securities                      |   | 19                                        |   | 99 |   |
| Interest  on federal funds sold                      |   | 48                                        |   | 26 |   |
| Other  interest income                               |   | 5                                         |   | 3 |   |
|                                                 |   |                                      |   |   |   |
| Total  interest income                               |   | 1,716                                     |   | 1,544 |   |
|                                                 |   |                                      |   |   |   |
| Interest  expense:                                   |   |                                      |   |   |   |
| Interest  on money market and NOW accounts           |   | 68                                        |   | 89 |   |
| Interest  on savings deposits                        |   | 12                                        |   | 15 |   |
| Interest  on time deposits                           |   | 283                                       |   | 291 |   |
| Interest  on other borrowings                        |   | 77                                        |   | 9 |   |
| Total  Interest Expense                              |   | 440                                       |   | 404 |   |
|                                                 |   |                                      |   |   |   |
| Net  interest income                                 |   | 1,276                                     |   | 1,140 |   |
| Provision  for loan losses                           |   | 9                                         |   | 20 |   |
|                                                 |   |                                      |   |   |   |
| Net  interest income after provision for loan losses |   | 1,267                                     |   | 1,120 |   |
|                                                 |   |                                      |   |   |   |
| Noninterest  income:                                 |   |                                      |   |   |   |
| Service  charges on deposit accounts and other       |   | 84                                        |   | 53 |   |
| Gain  on sale of loans and servicing fees            |   | 25                                        |   | — |   |
| Gain  on sale of securities                          |   | —                                    |   | 58 |   |
|                                                 |   |                                      |   |   |   |
| Total  noninterest income                            |   | 109                                       |   | 111 |   |
|                                                 |   |                                      |   |   |   |
| Noninterest  expense:                                |   |                                      |   |   |   |
| Salaries  and benefits                               |   | 631                                       |   | 560 |   |
| Net  occupancy expense (net of rental income)        |   | 95                                        |   | 72 |   |
| Equipment  expense                                   |   | 65                                        |   | 49 |   |
| Other  expense                                       |   | 363                                       |   | 311 |   |
|                                                 |   |                                      |   |   |   |
| Total  noninterest expense                           |   | 1,154                                     |   | 992 |   |
|                                                 |   |                                      |   |   |   |
| Income  before taxes                                 |   | 222                                       |   | 239 |   |
| Income  taxes                                        |   | 92                                        |   | 103 |   |
| Net  income                                          |   | $                                         | 130    |   | $ | 136 |   |
|                                                 |   |                                      |   |   |   |
| Earnings  per share - Basic                          |   | $                                         | 0.20   |   | $ | 0.22 |   |
| Earnings  per share - Diluted                        |   | $                                         | 0.19   |   | $ | 0.20 |   |

 

*The accompanying notes are an integral part of theseconsolidated financial statements*

 

5

----

 

**COASTBANCORP & SUBSIDIARIES**

Statement of changes inStockholders’ Equity

(InThousands, Except Number of Shares) (Unaudited)

 
|                                                                                          |                  | **Common Stock** |       | **Comprehensive  Income** |   | **Retained  Earnings** |   | **Accumulated  Other  Comprehensive  Income** |   | **Total** |   |
|-----------------------------------------------------------------------------------------------|-----------------------|------------------|------------|---------------------------|--------|------------------------|--------|-----------------------------------------------|--------|-----------|--------|
|                                                                                          |                  |             |       |                      |   |
|                                                                                          | **Number of  Shares** |             | **Amount** |                      |   |                   |   |                                          |
| **Balance at January 1, 2002**                                                                |                  | 632,400          |       | $                         | 6,324  |                   |   |                                          | $      | 732       |   | $ | 100 |   | $ | 7,156 |   |
| Exercise  of stock options                                                                    |                  |             |       |                      |   |                   |   |                                          |   |      |   | — |   |
| Cash  dividends                                                                               |                  |             |       |                      |   |                   |   | (47                                           | )      |      |   | (47 | ) |
| **Comprehensive  Income**                                                                     |                  |             |       |                      |   |                   |   |                                          |   |      |   |   |   |
| Net  income                                                                                   |                  |             |       |                      |   | $                      | 771    |                                          | 771    |      |   |   | 771 |   |
| Unrealized  gain on available-for-sale securities, net of taxes of $47,268                    |                  |             |       |                      |   | 68                     |   |                                          |   | 68        |   | 68 |   |
| Less  reclassification adjustments for gains included in net income, net of taxes  of $82,815 |                  |             |       |                      |   | (119                   | )      |                                          |   | (119      | )      | (119 | ) |
| **Total  comprehensive income**                                                               |                  |             |       |                      |   | $                      | 720    |                                          |   |      |   |   |   |   |
|                                                                                          |                  |             |       |                      |   |                   |   |                                          |   |      |   |   |   |
| **Balance at December 31, 2002**                                                              |                  | 632,400          |       | $                         | 6,324  |                   |   |                                          | $      | 1,456     |   | $ | 49 |   | $ | 7,829 |   |
| Exercise  of stock options                                                                    |                  | 900              |       | 13                        |   |                   |   |                                          |   |      |   | 13 |   |
| Cash  dividends                                                                               |                  |             |       |                      |   |                   |   |                                          |   |      |   | — |   |
| **Comprehensive  Income**                                                                     |                  |             |       |                      |   |                   |   |                                          |   |      |   |   |   |
| Net  income                                                                                   |                  |             |       |                      |   | $                      | 130    |                                          | 130    |      |   |   | 130 |   |
| Unrealized  gain on available-for-sale securities, net of taxes                               |                  |             |       |                      |   | (5                     | )      |                                          |   | (5        | )      | (5 | ) |
| **Total  comprehensive income**                                                               |                  |             |       |                      |   | $                      | 125    |                                          |   |      |   |   |   |   |
|                                                                                          |                  |             |       |                      |   |                   |   |                                          |   |      |   |   |   |
| **Balance at March 31, 2003**                                                                 |                  | 633,300          |       | $                         | 6,337  |                   |   |                                          | $      | 1,586     |   | $ | 44 |   | $ | 7,967 |   |

 

*The accompanying notes are an integral part of theseconsolidated financial statements*

 

6

----

 

# **COAST BANCORP & SUBSIDIARIES**

 

Statementof Cash Flows (unaudited)

(In Thousands)

 
|                                              |   | **For the Three Months Ended  March 31,** |   |
|---------------------------------------------------|--------|-------------------------------------------|--------|
|                                              |   | **2003**                                  |   | **2002** |   |
| Operating  activities                             |   |                                      |   |   |   |
| Net  income                                       |   | $                                         | 130    |   | $ | 136 |   |
| Adjustments  to reconcile net income to           |   |                                      |   |   |   |
| Net  cash provided by operating activities:       |   |                                      |   |   |   |
| Depreciation  and amortization                    |   | 87                                        |   | 52 |   |
| Provision  for loan losses                        |   | 9                                         |   | 20 |   |
| Realized  gain on investment securities           |   |                                      |   | (58 | ) |
| Other  items - net                                |   | 11                                        |   | (4 | ) |
| Net cash provided by  operating activities        |   | 237                                       |   | 146 |   |
|                                              |   |                                      |   |   |   |
| Investing  activities                             |   |                                      |   |   |   |
| Change  in interest-bearing deposits              |   | —                                    |   | — |   |
| Proceeds  from sale of investment securities      |   | —                                    |   | 2,071 |   |
| Maturities  of investment securities              |   | —                                    |   | 1,000 |   |
| Net  change in loans                              |   | (5,699                                    | )      | (4,389 | ) |
| Purchase  of premises and equipment               |   | (501                                      | )      | (589 | ) |
| Net cash used by investing  activities            |   | (6,200                                    | )      | (1,907 | ) |
|                                              |   |                                      |   |   |   |
| Financing  activities                             |   |                                      |   |   |   |
| Increase  in deposits                             |   | 8,421                                     |   | (1,104 | ) |
| Principle  payments on notes payable              |   | (44                                       | )      | — |   |
| Proceeds  from exercise of options                |   | 13                                        |   | (3 | ) |
| Net cash provided (used) by  financing actvities  |   | 8,390                                     |   | (1,107 | ) |
|                                              |   |                                      |   |   |   |
| Increase in cash and cash  equivalents            |   | 2,427                                     |   | (2,868 | ) |
|                                              |   |                                      |   |   |   |
| Cash  and cash equivalents at beginning of period |   | 23,212                                    |   | 12,549 |   |
|                                              |   |                                      |   |   |   |
| Cash and cash equivalents  at end of period       |   | $                                         | 25,639 |   | $ | 9,681 |   |

 

7

----

 

**Note1**                    **Basis ofPresentation**

 

The accompanying financial information hasbeen prepared in accordance with the Securities and Exchange Commission rulesand regulations for quarterly reporting and therefore does not necessarilyinclude all information and footnote disclosures normally included in financialstatements prepared in accordance with generally accepted accountingprinciples.  This information should beread in conjunction with the Company’s Annual Report for the year endedDecember 31, 2002 filed on Form 10-KSB.

 

Operating results for interim periods are notnecessarily indicative of operating results for an entire fiscal year.  In the opinion of management, the unauditedfinancial information for the three month period ended March 31, 2003 and 2002,reflect all adjustments, consisting only of normal recurring accruals andprovisions, necessary for a fair presentation thereof.

 

Some matters discussed in this Form 10-QSBmay be “forward-looking statements” within the meaning of the PrivateLitigation Reform Act of 1995 and therefore may involve risks, uncertaintiesand other factors which may cause our actual results to be materially differentfrom the results expressed or implied by our forward-looking statements.  These statements generally appear with wordssuch as “anticipate”, “believe”, “estimate”, “may”, “intend”, and “expect”.

 

**Note 2                    Earnings Per Share**

 

Effective December 31, 1997, the Bank adoptedSFAS No. 128, *“Earnings per Share”.* Accordingly, basic earnings per share are computed by dividing incomeavailable to common shareholders by the weighted average number of commonshares outstanding during each period. The computation of diluted earnings per share also considers the numberof shares issuable upon the assumed exercise of outstanding common stockoptions.  All earnings per common shareamounts presented have been restated in accordance with the provisions of thisstatement.

 
|                                          |   | **For the  Three Months Ended  March 31,** |   |
|-----------------------------------------------|--------|--------------------------------------------|--------|
|                                          |   | **2003**                                   |   | **2002** |   |
|                                          |   | **Shares**                                 |   | **Shares** |   |
| Used  in Basic EPS                            |   | 632,750                                    |   | 632,400 |   |
| Dilutive  Effect of Outstanding Stock Options |   | 31,638                                     |   | 31,983 |   |
| Earnings  per share - Diluted                 |   | 664,388                                    |   | 664,383 |   |

 

**Note3**                    **Stock-BasedCompensation**

 

SFAS No. 123, “Accounting for Stock-Based Compensation,” encourages,but does not require, companies to record compensation cost for stock-basedemployee compensation plans at fair value. The Company has chosen to continue to account for stock-basedcompensation using the intrinsic value method prescribed in AccountingPrinciples Board (“APB”) Opinion No. 25, *“Accounting for Stock Issued to Employees,”*and related interpretations. Accordingly, compensation cost for stock options is measured as theexcess, if any, of the quoted market price of the Company’s stock at the dateof the grant over the amount an employee must pay to acquire the stock.

 

8

----

 

Had compensation costs for the Company’s stock option plan beendetermined based on the fair value at the grant dates for awards under thisplan consistent with the method of SFAS No. 123, the Company’s net income andearnings per share would have been reduced for 2003 and 2002 to the pro formaamounts indicated below:

 
|                                                                                             |   | **For the Three Months Ended  March 31,** |   |
|--------------------------------------------------------------------------------------------------|--------|-------------------------------------------|--------|
|                                                                                             |   | **2003**                                  |   | **2002** |   |
|                                                                                             |   |                                      |   |   |   |
| Net  Income:                                                                                     |   |                                      |   |   |   |
| As  reported                                                                                     |   | $                                         | 130    |   | $ | 136 |   |
| Stock-based  compensation using the intrinsic value method                                       |   | —                                    |   | — |   |
| Stock-Based  compensation that would have been reported using the fair value method of  SFAS 123 |   | (11                                       | )      | (11 | ) |
| Pro  Forma net income                                                                            |   | $                                         | 119    |   | $ | 125 |   |
|                                                                                             |   |                                      |   |   |   |
| Basic  earnings per share:                                                                       |   |                                      |   |   |   |
| As  reported                                                                                     |   | $                                         | 0.20   |   | $ | 0.22 |   |
| Proforma                                                                                         |   | $                                         | 0.19   |   | $ | 0.20 |   |
|                                                                                             |   |                                      |   |   |   |
| Diluted  earnings per share:                                                                     |   |                                      |   |   |   |
| As  reported                                                                                     |   | $                                         | 0.19   |   | $ | 0.20 |   |
| Pro  forma                                                                                       |   | $                                         | 0.18   |   | $ | 0.19 |   |

 

#### **Item 2**. Management’s Discussion and Analysis of Financial Condition and Resultsof Operations

 

The unaudited financial statements have been prepared in accordancewith the 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 as well as the war in Iraq andits aftermath, success in gaining regulatory approvals when required as well asother risks and uncertainties detailed elsewhere in this quarterly report orfrom time to time in the filings of the Company with the Securities ExchangeCommission.  Such forward-lookingstatements speak only as of the date on which such statements are made, and thecorporation undertakes no obligation to update any forward-looking statement toreflect events or circumstances after the date on which such statement is madeor to reflect the occurrence of unanticipated events.  The accompanying financial information should be read inconjunction with Coast Bancorp’s Annual Report on Form 10-KSB for the year endedDecember 31, 2002.

 

Descriptionof Business

 

*CoastBancorp*

 

Coast Bancorp (the “Bancorp” or “Coast Bancorp”), headquartered in SanLuis Obispo, California, is a California corporation incorporated in 2001.  Coast Bancorp became the bank holdingcompany of Coast National Bank on May 31, 2001 through a corporatereorganization.  In the reorganization,Coast National Bank became the wholly-owned subsidiary of Coast Bancorp and theshareholders of the Bank became shareholders of Coast Bancorp.  Coast Bancorp is operated through atwo-tiered corporate structure.  At theholding company level the affairs of Coast Bancorp are overseen by a Board ofDirectors elected by the shareholders of Coast Bancorp at the annual meeting ofshareholders.  The business of the Bankis overseen by a Board of Directors elected by Coast Bancorp, the sole owner ofthe Bank.  As of the date of this Form10-QSB the respective members of the Board of Directors of the Bank and theBoard of Directors of Coast Bancorp are identical.  Coast Bancorp is subject to the regulations of, and examinationby, the Board of Governors of the Federal Reserve System.  At present, Coast Bancorp does not

 

9

----

 

engage in any material business activitiesother than the ownership of the Bank.  Financialinformation presented herein for March 31, 2003 and comparative information forDecember 31, 2002 and March 31, 2002 is inclusive of the consolidatedCompany.

 

*CoastNational Bank*

 

CoastNational Bank (the “Bank”) was chartered June 16, 1997 (charter #23222) by TheOffice of the Comptroller of the Currency as a national bank.  The Bank commenced operations on that datewith two offices, 16 employees and $6,250,000 in capital.  The original branch offices were located at486 Marsh Street, San Luis Obispo and 1199 Grand Avenue, Arroyo Grande,California.  Since that time, anadditional branch office was opened in June 1998 at 948 Morro Bay Boulevard inMorro Bay, California and another branch office was opened in July 1999 at 1193Los Osos Valley Road in Los Osos, California. In July 2002, a loan production office was opened at 930 South BroadwayStreet in Santa Maria, California.

 

Whenthe Bank opened for business in June 1997, it purchased the real estate andbuilding that housed the Arroyo Grande branch office.  On October 14, 1999, the Bank purchased an adjacent lot next tothe San Luis Obispo main office on Marsh Street.  A few months later on February 1, 2000, the Bank also purchasedthe contiguous property and building that was home to the San Luis Obispo mainoffice at 486 Marsh Street. Construction of a new head office building on the adjacent lot began onOctober 11, 2001 and was completed on November 25, 2002.  The new main office, located at 500 MarshStreet is approximately 10,700 square feet with the San Luis Obispo branchoperation occupying the ground floor and the administrative offices occupyingthe second floor.  The original mainoffice at 486 Marsh Street now houses the Bank’s Small Business Lending Centerand the Bank’s Note Department.

 

OnMarch 29, 2002, the Bank purchased a vacant site on Morro Bay Boulevard inMorro Bay that is approximately one block from the existing branch.  The purpose for this acquisition was theeventual construction and relocation of the Morro Bay branch to a largerfacility with a drive-through lane.

 

Asof March 31, 2003, the Bank had a total of 55 employees.  A number of these employees are part-timehowever. Part-time employees are converted to full-time equivalent employees onthe percentage of their weekly hours worked compared to 40 hours.  On a full-time equivalent basis, employeesrepresent 49 positions.  The Bank valuesits employees and feels that it enjoys satisfactory relations with them.  They are actively engaged individually andas a team in contributing to the Bank’s realization of its vision and mission.

 

CoastNational Bank anticipates being able to satisfy its cash requirements, nearterm, with continuing deposit growth.

 

**Critical Accounting Policies**

 

Ouraccounting policies are integral to understanding the results reported.  In preparing its consolidated financialstatements, the Company is required to make judgments and estimates that mayhave a significant impact upon its financial results.  Certain accounting policies require the Company to makesignificant estimates and assumptions, which have a material impact on thecarrying value of certain assets and liabilities, and are considered criticalaccounting policies.  The estimates andassumptions used are based on the historical experiences and other factors,which are believed to be reasonable under the circumstances.  Actual results could differ significantlyfrom these estimates and assumptions, which could have a material impact on thecarrying value of assets and liabilities at the balance sheet dates and resultsof operations for the reporting periods. For example, the Company’s determination of the adequacy of itsallowance for loan losses is particularly susceptible to management’s judgmentand estimates.  The following is a briefdescription of our current accounting policies involving significant managementvaluation judgments.

 

*Allowancefor Loan Losses*

 

Theallowance for loan losses represents management’s best estimate of lossesinherent in the existing loan portfolio. The allowance for loan losses is increased by the provision for loanlosses charged to expense and reduced by loans charged off, net ofrecoveries.  The allowance for loanlosses is determined based on management’s assessment of several factors:reviews and evaluation of individual loans, changes in the nature and volume ofthe loan portfolio, current economic conditions and the related impact onspecific borrowers and industry groups, historical loan loss experiences andthe levels of classified and nonperforming loans.

 

Loansare considered impaired if, based on current information and events, it isprobable that we will be unable to collect the scheduled payments of principalor interest when due according to the contractual terms of the loan agreement.  The measurement of impaired loans isgenerally based on the present value of expected future cash flows discountedat the historical effective

 

10

----

 

interest rate stipulated in theloan agreement, except that all collateral-dependent loans are measured forimpairment based on the fair value of the collateral.  In measuring the fair value of the collateral, management usesassumptions and methodologies consistent with those that would be utilized byunrelated third parties.

 

Changesin the financial condition of individual borrowers, in economic conditions, inhistorical loss experience and in the condition of the various markets in whichcollateral may be sold may all affect the required level of the allowance forloan losses and the associated provision for loan losses.

 

*Availablefor Sale Securities*

 

Thefair value of most securities classified as available for sale are based onquoted market prices.  If quoted marketprices are not available, fair values are extrapolated from the quoted pricesof similar instruments.

 

##### **Overview**

 

As of March 31, 2003, total consolidated assets of Coast Bancorp were$130.0 million in comparison to total assets of $122.0 million as of December31, 2002. This represents an increase of $8.0 million, or 6.6%.  Compared to total assets of $103.5 millionat March 31, 2002, the Company has increased assets by $26.5 million, or 25.6%,over the last twelve months.

 

For the three months ended March 31, 2003 theBancorp reported consolidated net income of $130,000 or $0.19 diluted earningsper share compared to net income of $136,000 and $0.20 diluted earnings pershare for the same period during 2002.

 

##### **Net Interest Income**

 

Net interest income is the amount by which the interest andamortization of fees generated from loans and other earning assets exceed thecost of funding 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 $1,276,000 for the quarter ended March 31, 2003, compared to$1,140,000 for the quarter ended March 31, 2002, representing an increase of11.93%.  This increase was primarily theresult of the significant growth in interest-earning assets generated by theBank’s branches.

 

The following table sets forth the componentsof net interest income, average earning assets and net interest margin: (inthousands)

 
|                    |   | **Three Months Ended  March 31,** |    | **Year Ended  December 31,  2002** |   |
|-------------------------|--------|-----------------------------------|---------|------------------------------------|--------|
|                    |   | **2003**                          |    | **2002**                           |   |   |
|                    |   |                              |    |                               |   |   |   |
| Interest  Income        |   | $                                 | 1,716   |                               | $      | 1,544 |   | $ | 6,406 |   |
| Interest  Expense       |   | 440                               |    | 404                                |   | 1,614 |   |
|                    |   |                              |    |                               |   |   |   |
| Net Interest Income     |   | $                                 | 1,276   |                               | $      | 1,140 |   | $ | 4,792 |   |
|                    |   |                              |    |                               |   |   |   |
| Average  Earning Assets |   | $                                 | 108,467 |                               | $      | 94,993 |   | $ | 97,661 |   |
| Net  Interest Margin    |   | 4.71                              | %       | 4.80                               | %      | 4.91 | % |

 

The decrease in the net interest margin inthe first quarter of 2003 as compared to the net interest margin atDecember 31, 2002 was due primarily to the lingering effect that followeda 50 basis point reduction in short-term interest rates by the Federal Reserveon November 7, 2002.

 

11

----

 

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

 

Management of the Bank and the Bancorp believes that the allowance forloan losses is adequate.  The Bank hasestablished a monitoring system for loans in order to identify impaired loansand potential problem loans and to permit periodic evaluation of impairment andadequacy of the allowance for loan losses in a timely manner.  The monitoring system and allowance for loanlosses methodology have evolved over a period of years, and loanclassifications have been incorporated into the determination of the allowancefor loan losses.  This monitoring systemand allowance methodology includes a loan-by-loan analysis for all classifiedloans as well as loss factors for the balance of the unclassifiedportfolio.  Classified loans arereviewed individually to estimate the amount of probable losses that needs tobe included in the allowance.  Thesereviews include analysis of financial information as well as evaluation ofcollateral securing the credit.  Lossfactors on the unclassified portion of the portfolio are based on such factorsas historical loss experience, current portfolio delinquency and trends, andother inherent risk factors such as economic conditions, concentrations in theportfolio, risk levels of particular loan categories, internal loan review andmanagement oversight.

 

The Company made a $9,000 contribution to the allowance for loan lossesfor the three months ended March 31, 2003 compared to $20,000 for the sameperiod in 2002.  Management believesthat the allowance, which equals 1.05% of total loans at March 31, 2003, isadequate to cover future losses.  Theallowance for loan losses at December 31, 2002 was 1.11% of total loans.

 

Changes in the allowance for loan losses for the quarter ended March31, 2002 and 2001 are as follows (dollar amounts in thousands):

 
|                            |   | **Three Months Ended  March 31,** |   |
|---------------------------------|--------|-----------------------------------|--------|
|                            |   | **2003**                          |   | **2002** |   |
|                            |   |                              |   |   |   |
| Allowance,  Beginning of Period |   | $                                 | 1,000  |   | $ | 850 |   |
| Provision  for Loan Losses      |   | 9                                 |   | 20 |   |
| Net  Recoveries                 |   | 1                                 |   | 5 |   |
|                            |   |                              |   |   |   |
| Allowance,  End of Period       |   | $                                 | 1,010  |   | $ | 875 |   |

 

##### **Non-interest Income**

 

Non-interest income represents deposit account service charges andother types of fee income.  Non-interestincome for the quarter ended March 31, 2003 totaled $109,000 compared to$111,000 for the same period in 2002 a 1.8% decrease.  During the three months ended March 31, 2003, the Bank elected tonot realize any gains from either the sale of investment securities or from thesale of the guaranteed portion of government guaranteed loans.

 

##### **Non-interest Expense**

 

Non-interest expense represents salaries, occupancy expenses,professional expenses, outside services and other miscellaneous expensesnecessary to conduct business. Noninterest expense for the quarter ended March 31, 2003 totaled$1,154,000 compared to $992,000 for the same period in 2002 for an increase of16.3%.  This increase is primarily dueto the continuing growth of the Bank’s government guaranteed lending departmentspecializing in Small Business Administration lending programs, the opening ofthe Bank’s new head office building during the latter part of 2002 and the overallexpansion of the Bank’s customer base.

 

##### **Income Taxes**

 

The Bank recorded a $92,000 tax provision during the first quarter of2003 compared to $103,000 during the same period in 2002.

 

12

----

 

##### **Financial Condition**

 

*BalanceSheet Summary*

 

As of March 31, 2003, total consolidated assets of Coast Bancorp were$130.0 million in comparison to total assets of $122.0 million as of December31, 2002. This represents an increase of $8.0 million, or 6.6%.  Compared to total assets of $103.5 millionat March 31, 2002, the company has increased assets by $26.5 million, or 25.6%,over the last twelve months.  Theseincreases are the result of significant growth in deposits of all types.

 

It should be noted that for several quarters prior to September 30,2002, management consciously restricted asset and deposit growth in order tomaintain well-capitalized regulatory ratios. With the completion of the trust preferred offering immediately prior tothe end of the third quarter at September 30, 2002, the Company waswell-positioned to finance future growth. Subsequently, the majority of the company’s asset growth has occurredsince September 30, 2002.  In the lastsix months, assets have increased $17.3 million, or 15.4%, with growth indeposits representing the majority of this growth.  Management believes that these recent increases are primarily dueto the aggressive business development efforts put forth by the Bank’s staff inconjunction with the opening of the Bank’s new head office building in November2002.

 

The majority of the growth in deposits has been reinvested in loans,which have increased by $14.1 million, or 17.3%, from $81.4 million at March31, 2002 to $95.5 million at March 31, 2003. The balance of the deposit growth has been invested in Fed Funds to fundcontinuing strong loan demand and to meet the ongoing liquidity needs of theBank.

 

*Earnings Summary*

 

Consolidated net income for the three monthsended March 31, 2003 was $130,000 or $0.19 diluted earnings per share comparedto net income of $136,000 or $0.20 diluted earnings per share for the sameperiod during 2002.  The decrease inearnings in 2003 as compared to the same three-month period in 2002 was dueprimarily to the lingering effect on the Bank’s net interest margin following a50 basis point reduction in short-term rates by the Federal Reserve on November7, 2002, increases in non-interest expenses such as those associated with theopening of the Bank’s new head office building as well as the continuingexpansion of the Bank’s Government Guaranteed lending department, and thepayment of quarterly interest on the Company’s Trust Preferred borrowing.

 

##### **Asset Quality**

 

As of March 31, 2003, the Company had one loan on non-accrual in anamount of $6,000 and no loans 90 days or more past due and still accruing.  There were also no restructured loans.  As of March 31, 2002 the Company had noloans on nonaccrual or loans 90 day past due and still accruing. As of December31, 2002 the Company had no loans on non-accrual or loans 90 days past due andstill accruing.

 

As of March 31, the Company has had no OREO during 2003 or 2002.

 

##### **Capital**

 

The objective of the Company’s asset/liability strategy is to manageliquidity and interest rate risk. Ultimately, management seeks to monitor the safety and soundness of theBank and its capital base, while maintaining adequate net interest margins andspreads to provide an appropriate return to the stockholders.

 

Stockholders equity at March 31, 2003 was$7.967 million, compared to $7.829 at December 31, 2002.  Stockholders equity increased primarily fromnet income of $130,000.  The balance ofthe increase was the result of a former employee exercising the vested amountof their stock options immediately upon their departure from the Bank.

 

The Company is required to meet certainminimum risk-based capital guidelines and leverage ratios set by the bankregulatory authorities. The risk-based capital standards establish capitalrequirements that are more sensitive to risk differences between variousassets, consider off balance sheet activities in assessing capital adequacy,and minimize the disincentives to holding liquid, low risk assets.  The leverage ratio consists of tangible TierI capital divided by average total assets.

 

13

----

 

Coast Bancorp maintains capital ratios above the Federal regulatoryguidelines for “well-capitalized” bank holding companies.  The ratios for the Company are as follows:

 
|                             |   | **Regulatory Standard**     |   | **Coast  National Bank** |   | **Coast  National Bank**  |   |
|----------------------------------|--------|-----------------------------|--------|--------------------------|--------|---------------------------|--------|
|                             |   | **Adequately  Capitalized** |   | **Well  Capitalized**    |   | **As of  March 31, 2003** |   | **As of  December 31, 2002** |   |
| Total  risk-based capital ratio  |   | 8.00                        | %      | 10.00                    | %      | 12.62                     | %      | 13.33 | % |
| Tier  1 risk-based capital ratio |   | 4.00                        | %      | 6.00                     | %      | 11.65                     | %      | 12.30 | % |
| Tier  1 leverage capital ratio   |   | 4.00                        | %      | 5.00                     | %      | 9.66                      | %      | 10.18 | % |

 

**Liquidity**

 

Management is not aware of any future capital expenditures or othersignificant demands on commitments which would severely impair liquidity.

 

**Item 3. Controls and****Procedures**

 

Based on their evaluation as of a date within 90 days of the filing ofthis Form 10-QSB, the Bancorp’s Chief Executive Officer and Chief FinancialOfficer have concluded that the Bancorp’s disclosure controls and proceduresare effective to ensure that information required to be disclosed in thereports that the Bancorp 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 Bancorp’s internal controls or in other factors that could significantlyaffect those controls subsequent to the date of their evaluation.

 

14

----

 

**PART II – OTHER INFORMATION**

 

**ITEM 1 – LEGAL PROCEEDINGS**

 

Notapplicable.

 

**ITEM 2 – CHANGES IN SECURITIES**

 

Notapplicable

 

**ITEM 3 – DEFAULTS UPON SENIOR SECURITIES**

 

Notapplicable.

 

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

 

Notapplicable

 

**ITEM 5 – OTHER INFORMATION**

 

Notapplicable.

 

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

 

(a)          Exhibits

 

EXHIBIT99.1 – CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO 18 U.S.C.SECTION 1350

 

EXHIBIT99.2 – CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO 18 U.S.C.SECTION 1350

 

(b)         Reports on Form 8-K

 

NoForm 8-K’s were filed by the Bank during the quarter ended March 31, 2003.

 

15

----

 

**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:  | May 13, 2003 | /s/ Jack Wauchope                                                                    |   |
|   |         | Jack Wauchope                                                                             |
|   |         | Chairman of the Board  Chief Executive Officer  (Principal Executive Officer)             |
|   |         |                                                                                      |
|   |         |                                                                                      |
| Date:  | May 13, 2003 | /s/ Thomas Sherman                                                                   |   |
|   |         | Thomas Sherman                                                                            |
|   |         | President/Chief Operating Officer  Chief Financial Officer  (Principal Financial Officer) |

 

16

----

 

**CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER**

 

I, Jack C. Wauchope certify that:

 

1.               I have reviewedthis annual report on Form 10-QSB of Coast Bancorp for the quarter ended March31, 2003.

 

2.               Based on myknowledge, this quarterly report does not contain any untrue statement of amaterial fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this annual report;

 

3.               Based on my knowledge,the financial statements, and other financial information included in thisquarterly report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, andfor, the periods presented in this annual report;

 

4.               The registrant’sother certifying officers and I are responsible for establishing andmaintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and have:

 

a.               designed suchdisclosure controls and procedures to ensure that material information relatingto the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which thisquarterly report is being prepared;

 

b.              evaluated theeffectiveness of the registrant’s disclosure controls and procedures as of adate within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

 

c.               presented in thisquarterly report our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of the Evaluation Date;

 

5.               The registrant’sother certifying officers and I have disclosed, based on our most recentevaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunctions):

 

a.               all significantdeficiencies in the design or operation of internal controls which couldadversely affect the registrant’s ability to record, process, summarize andreport financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

b.              any fraud, whetheror not material, that involves management or other employees who have a significantrole in the registrant’s internal controls; and

 

6.               The registrant’sother certifying officers and I have indicated in this quarterly report whetherthere were significant changes in internal controls or in other factors thatcould significantly affect internal controls subsequent to the date of our mostrecent evaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 
| Date:    May 13, 2003 |                                                   |
|-------------------------------------------|--------------------------------------------------------|
|                                      | /s/ JACK C. WAUCHOPE                                   |   |
|                                      | Jack C. Wauchope                                       |
|                                      | Chief Executive Officer  (Principal Executive Officer) |

 

17

----

 

**CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER**

 

I, Thomas J. Sherman, certify that:

 

1.               I have reviewedthis quarterly report on Form 10-QSB of Coast Bancorp for the quarter yearended March 31, 2003.

 

2.               Based on myknowledge, this quarterly report does not contain any untrue statement of amaterial fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this quarterly report;

 

3.               Based on myknowledge, the financial statements, and other financial information includedin this quarterly report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, andfor, the periods presented in this quarterly report;

 

4.               The registrant’sother certifying officers and I are responsible for establishing and maintainingdisclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and15d-14) for the registrant and have:

 

a.               designed suchdisclosure controls and procedures to ensure that material information relatingto the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which thisquarterly report is being prepared;

 

b.              evaluated theeffectiveness of the registrant’s disclosure controls and procedures as of adate within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

 

c.               presented in this quarterly report ourconclusions about the effectiveness of the disclosure controls and proceduresbased on our evaluation as of the Evaluation Date;

 

5.               The registrant’sother certifying officers and I have disclosed, based on our most recentevaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunctions):

 

a.               all significantdeficiencies in the design or operation of internal controls which couldadversely affect the registrant’s ability to record, process, summarize andreport financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

b.              any fraud, whetheror not material, that involves management or other employees who have asignificant role in the registrant’s internal controls; and

 

6.               The registrant’sother certifying officers and I have indicated in this quarterly report whetherthere were significant changes in internal controls or in other factors thatcould significantly affect internal controls subsequent to the date of our mostrecent evaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 
| Date:    May 13, 2003 |                                                   |
|-------------------------------------------|--------------------------------------------------------|
|                                      | /s/ THOMAS J. SHERMAN                                  |   |
|                                      | Thomas J. Sherman                                      |
|                                      | Chief Financial Officer  (Principal Financial Officer) |

 

18

----