10QSB
Form 10QSB
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10 - QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-49696
RESERVE BANCORP, INC.
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(Exact name of Registrant as specified in its Charter)
Pennsylvania 23-3102103
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification Number)
2000 Mt. Troy Road, Pittsburgh, Pennsylvania 15212
- -------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (412) 322-6107
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
X Yes No
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As of August 7, 2002, there were 757,500 shares of the Registrant's common
stock, par value $0.10 per share, outstanding. The Registrant has no other
classes of common equity outstanding.
Transitional small business disclosure format:
Yes X No
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RESERVE BANCORP, INC.
AND SUBSIDIARY
Pittsburgh, Pennsylvania
Index
PART I. Page(s)
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FINANCIAL INFORMATION
Item 1. Financial statements
Consolidated Balance Sheets - as of June 30, 2002
(Unaudited) and September 30, 2001, as restated........................3
Consolidated Statements of Income - (Unaudited) for the three and
nine months ended June 30, 2002 and 2001...............................4
Consolidated Statements of Cash Flows - (Unaudited) for the nine
months ended June 30, 2002 and 2001....................................5
Notes to (Unaudited) Consolidated Financial Statements...................7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................9
PART II.
OTHER INFORMATION
Item 1. Legal Proceedings...............................................14
Item 2. Changes in Securities...........................................14
Item 3. Defaults Upon Senior Securities.................................14
Item 4. Submission of Matters to a Vote of Security Holders.............14
Item 5. Other Information...............................................14
Item 6. Exhibits and Reports on Form 8-K................................14
Signatures ................................................................15
(2)
RESERVE BANCORP, INC
CONSOLIDATED BALANCE SHEETS
June 30, September 30,
2002 2001
(UNAUDITED) (As Restated)
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ASSETS
Cash and cash equivalents
Interest bearing $ 2,877,845 $ 796,703
Non-interest bearing 201,172 263,253
Interest-bearing deposits in other banks 1,496,718 400,000
Securities held-to-maturity (estimated fair value of
$7,303,114 and $2,177,533) 7,259,053 2,161,455
Mortgage-backed securities held-to-maturity (estimated
fair value of $6,841,065 and $225,337) 6,745,735 223,531
Securities available-for-sale, at fair value 2,707,414 1,644,952
Mortgage-backed securities available-for-sale, at fair value 2,711,750 316,831
Loans, net 35,419,737 37,731,075
Federal Home Loan Bank stock, at cost 303,600 312,600
Accrued interest receivable 382,349 296,496
Premises and equipment, net 356,111 243,760
Prepaid expenses 30,126 44,136
Deferred income taxes 110,528 119,450
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TOTAL ASSETS $ 60,602,138 $ 44,554,242
================ ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 42,771,021 $ 39,037,658
Federal Home Loan Bank advances 5,000,000 -
Advances from borrowers for taxes and insurance 394,421 83,372
Accrued interest payable 130,847 179,177
Other liabilities 143,483 90,127
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TOTAL LIABILITIES 48,439,772 39,390,334
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Commitments and contingencies
Preferred stock, no par value; 2,000,000 authorized;
none outstanding - -
Common stock, par value $.10 per share; 8,000,000
shares authorized; 757,500 shares issued 75,750 -
Additional paid-in-capital 7,104,825 -
Retained earnings - substantially restricted 5,530,445 5,150,151
Accumulated other comprehensive income, net of
applicable income taxes of $18,718 and $9,796 26,597 13,757
Unallocated shares held by Employee Stock Ownership
Plan (ESOP) (575,251) -
---------------- ------------------
TOTAL STOCKHOLDERS' EQUITY 12,162,366 5,163,908
---------------- ------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 60,602,138 $ 44,554,242
================ ==================
(3)
RESERVE BANCORP, INC
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Nine Months Ended
June 30, June 30,
2002 2001 2002 2001
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INTEREST AND DIVIDEND INCOME
Loans $661,967 $707,658 $2,091,891 $2,041,037
Investments 99,531 67,973 226,474 209,343
Mortgaged-backed securities 41,065 12,197 57,848 37,358
Interest-earning demand deposits 43,898 6,835 70,692 37,790
FHLB stock 2,474 3,752 10,473 13,367
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848,935 798,415 2,457,378 2,338,895
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INTEREST EXPENSE
Deposits 381,402 422,772 1,191,184 1,258,838
Advances from Federal Home Loan Bank 14,850 1,425 14,850 7,920
------------- ------------- --------------- ---------------
396,252 424,197 1,206,034 1,266,758
------------- ------------- --------------- ---------------
NET INTEREST INCOME 452,683 374,218 1,251,344 1,072,137
PROVISION FOR LOAN LOSSES 4,500 4,500 13,500 13,500
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NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 448,183 369,718 1,237,844 1,058,637
------------- ------------- --------------- ---------------
NONINTEREST INCOME
Service charges and other fees 35,817 29,292 110,417 77,840
Income from real estate rental 1,200 1,200 3,600 3,275
Gain on sale of investments 34,079 14,320 34,079 35,120
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71,096 44,812 148,096 116,235
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NONINTEREST EXPENSE
Compensation and benefits 145,675 115,606 396,547 340,873
Occupancy and equipment expense 28,488 28,392 85,513 86,451
Federal insurance premiums 5,825 4,268 17,372 13,397
Service bureau expense 21,543 25,853 75,917 75,368
Other 78,218 76,063 208,342 217,255
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279,749 250,182 783,691 733,344
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INCOME BEFORE INCOME TAX 239,530 164,348 602,249 441,528
INCOME TAX EXPENSE 90,687 59,936 221,955 161,078
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NET INCOME $148,843 $104,412 $ 380,294 $ 280,450
============= ============= =============== ===============
EARNINGS PER SHARE - BASIC (SINCE INCEPTION) $ 0.20 N/A $ 0.20 N/A
WEIGHTED AVERAGE SHARES OUTSTANDING 699,483 - 699,483 -
(4)
RESERVE BANCORP, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended
June 30,
2002 2001
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OPERATING ACTIVITIES
Net income $ 380,294 $280,450
Adjustments to reconcile change in net income to
net cash provided by operating activities
Amortization of:
Deferred loan origination fees (46,797) (43,918)
Premiums and discounts on investment securities (10,923) (4,563)
Provision for loan losses 13,500 13,500
Depreciation and amortization of premises and equipment 33,325 37,844
Gain on call of security held to maturity (34,079) -
Net gain on sales of securities available-for-sale - (35,120)
Amortization of ESOP unearned compensation 18,496 -
(Increase) decrease in:
Accrued interest receivable (85,853) (28,031)
Prepaid expenses 13,800 (37,390)
Increase (decrease) in:
Other liabilities 5,026 (3,804)
---------------- ---------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 286,789 178,968
---------------- ---------------
INVESTING ACTIVITIES
Purchases of interest-bearing deposits in other banks (1,196,520) (200,000)
Proceeds from maturities of interest-bearing deposits
in other banks 100,000 297,000
Proceeds from maturities and calls of
securities held-to-maturity 2,744,477 300,000
Proceeds from principal repayments of
mortgage-backed securities held-to-maturity 56,404 51,482
Purchases of securities held-to-maturity (7,796,384) (1,149,204)
Purchases of mortgage-backed securities held-to-maturity (6,580,118) -
Proceeds from sales of securities available-for-sale - 214,255
Proceeds from maturities and calls of
securities available-for-sale 460,000 500,000
Proceeds from principal repayments of
mortgage-backed securities available-for-sale 145,453 30,750
Purchases of securities available-for-sale (1,500,000) (375,260)
Purchases of mortgage-backed securities available-for-sale (2,540,239) -
Purchases of premises and equipment (145,676) (19,334)
Purchase of FHLB stock - (5,300)
Proceeds from sale of FHLB stock 9,000 -
Net loan originations and principal repayments on loans 2,344,635 (1,001,703)
---------------- ---------------
NET CASH USED IN INVESTING ACTIVITIES (13,898,968) (1,357,314)
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(5)
RESERVE BANCORP, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - CONTINUED
Nine Months Ended
June 30,
2002 2001
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FINANCING ACTIVITIES
Net increase (decrease) in FHLB advances 5,000,000 (1,450,000)
Net increase in deposits 3,733,363 2,260,804
Net increase in advances from borrowers
for taxes and insurance 311,049 393,011
Proceeds from issuance of common stock 6,985,000 -
Payment of conversion costs (398,172) -
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NET CASH PROVIDED BY FINANCING ACTIVITIES 15,631,240 1,203,815
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NET INCREASE IN CASH AND CASH EQUIVALENTS 2,019,061 25,469
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,059,956 988,608
---------------- ----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,079,017 1,014,077
================ ================
SUPPLEMENTAL DISCLOSURES
Cash paid for:
Interest on deposits, advances, and other borrowings $ 1,254,363 1,277,101
================ ================
Income taxes $ 130,885 211,341
================ ================
(6)
RESERVE BANCORP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10 - QSB and, therefore, do not
necessarily include all information that would be included in audited financial
statements. The information furnished reflects all adjustments which are, in the
opinion of management, necessary for a fair statement of the results of
operations. All such adjustments are of a normal recurring nature. The results
of operations for the interim periods are not necessarily indicative of the
results to be expected for the full year or any other interim period. The
accompanying unaudited consolidated interim financial statements should be read
in conjunction with the September 30, 2001 audited financial statements,
including the notes thereto.
NOTE B - PLAN OF CONVERSION
On April 5, 2002, Mt. Troy Bank (the "Bank") completed its mutual-to-stock
conversion (the "Conversion"). In connection with the Conversion, Reserve
Bancorp, Inc. (the "Company") a Pennsylvania chartered corporation, sold 757,500
shares of its common stock in a subscription offering at $10.00 per share. Upon
completion of these transactions, the Bank became a wholly-owned subsidiary of
the Company.
The common stock of the Company began trading on the OTC Bulletin Board on April
8, 2002 under the symbol "RSVB."
NOTE C - EARNINGS PER SHARE
Earnings per share is computed by dividing net income by the weighted average
number of common shares outstanding, less unallocated shares held by the Bank's
Employee Stock Ownership Plan, during the period. Diluted earnings per share is
calculated by dividing net income by the weighted average number of common
shares outstanding, including the effect of stock options, if dilutive, in
accordance with SFAS 128. At June 30, 2002, the Company did not have any stock
options or potentially dilutive common stock equivalents outstanding.
Three Months Ended Nine Months Ended
June 30, June 30,
--------------------------- -----------------------------
2002 2001 2002 2001
---- ---- ---- ----
Net income $148,843 $104,412 $380,294 $280,450
Less income attributable to pre-stock
conversion period (all income through 4/4/02) (6,543) (104,412) (237,994) (280,450)
------------ ------------ ------------ ------------
Income available to common stockholders
used in basic EPS $142,300 $ - $142,300 $ -
============ ============ ============ ============
Weighted average number of shares
used in basic EPS 699,483 - 699,483 -
============ ============ ============ ============
(7)
RESERVE BANCORP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE D - EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
As part of the conversion discussed in Note B, an Employee Stock Ownership Plan
(ESOP) was established for all employees who have completed one year of service
and have attained the age of 21. The ESOP borrowed $590,000 from the Company and
used the funds to purchase 59,000 shares of common stock of the Company issued
in the offering. The loan will be repaid principally from the Bank's
discretionary contributions to the ESOP over a period of 10 years. On June 30,
2002, the loan had an outstanding balance of $590,000 and an interest rate of
4.75%. The loan obligation of the ESOP is considered unearned compensation and,
as such, recorded as a reduction of the Company's stockholders' equity. Both the
loan obligation and the unearned compensation are reduced by the amount of the
loan repayments made by the ESOP. Shares purchased with the loan proceeds are
held in a suspense account for allocation among participants as the loan is
repaid. Contributions to the ESOP and shares released from the suspense account
are allocated among participants on the basis of compensation in the year of
allocation. Benefits become fully vested at the end of seven years of service
under the terms of the ESOP Plan. Benefits may be payable upon retirement,
death, disability, or separation from service. Since the Bank's annual
contributions are discretionary, benefits payable under the ESOP cannot be
estimated. Compensation expenses are recognized to the extent of the fair value
of shares committed to be released.
For the three and the nine month period ended June 30, 2002, compensation from
the ESOP of $18,496 was expensed. Compensation is recognized at the average fair
value of the ratably released shares during the accounting period as the
employees performed services. At June 30, 2002, the ESOP had 1,475 allocated
shares and 57,525 unallocated shares. For the purpose of computing earnings per
share, all ESOP shares committed to be released have been considered
outstanding.
NOTE E - COMPREHENSIVE INCOME
Total comprehensive income for the nine months ended June 30, 2002 and 2001 was
$393,134 and $243,259, respectively. Total comprehensive income for the three
months ended June 30, 2002 and 2001, was $169,240 and $112,664, respectively.
NOTE F - ASSET QUALITY
At June 30, 2002 and September 30, 2001, the Company had total nonperforming
loans (i.e., loans which are contractually past due 90 days or more) of
approximately $418,000 and $74,000, respectively. Nonperforming loans were 1.18%
of total loans at June 30, 2002. Total nonperforming assets as a percent of
total assets at June 30, 2002 was 0.69%.
(8)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Our results of operations are primarily dependent upon net interest income,
which is the difference between the interest income earned on interest-earning
assets, primarily loans, mortgage-backed securities, and investment securities
and the interest expense on interest-bearing liabilities, primarily deposits and
borrowings. Net interest income may be affected significantly by general
economic and competitive conditions and policies of regulatory agencies,
particularly those with respect to market interest rates. The results of
operations are also significantly influenced by the level of noninterest income,
such as loan-related fees and fees on deposit-related services, and the
provision for loan losses.
The Management's Discussion and Analysis section of this Form 10-QSB contains
certain forward-looking statements (as defined in the Private Securities
Litigation Reform Act of 1995). These forward-looking statements may involve
risks and uncertainties. Although management believes that the expectations
reflected in such forward-looking statements are reasonable, actual results may
differ from the results in these forward-looking statements. We do not undertake
to update any forward-looking statement, whether written or oral, that may be
made from time to time.
Changes in Financial Condition
Our total assets of $60.6 million at June 30, 2002, are reflective of an
increase of $16.0 million or 36.0% as compared to $44.6 million at September 30,
2001. Stockholders' equity increased by $7.0 million, to $12.2 million at June
30, 2002, as compared to $5.2 million at September 30, 2001. The increase in
total assets was due to increases in interest bearing cash and deposits with
other financial institutions, and mortgage-backed securities and investment
securities, partially offset by a decrease in loans receivable.
The increases in the various categories of assets and in stockholders' equity
are due primarily to the effect of the additional capital received in connection
with the Bank's mutual-to-stock conversion completed in April 2002.
The increase in the liabilities was primarily due to increases in savings
deposits and advances from the Federal Home Loan Bank. Changes in the components
of assets, liabilities and equity are discussed herein.
Cash and Cash Equivalents. Cash and cash equivalents, which consist of
interest-bearing and noninterest-bearing deposits with original maturities of
three months or less, totaled $3,079,000 at June 30, 2002, an increase of
$2,019,000 or 190% as compared to $1,060,000 at September 30, 2001. This
increase was primarily due to increased interest-bearing deposits maintained at
the Federal Home Loan Bank, resulting from the deposit of subscription funds
received in connection with the Bank's mutual-to-stock conversion completed in
April, 2002.
Interest-bearing Deposits in Other Banks. Interest-bearing deposits in Other
Banks totaled $1.5 million at June 30, 2002, an increase of $1.1 million or 274%
as compared to $400,000 at September 30, 2001.
Investment Securities. Investment securities totaled $9,966,000 at June 30,
2002, an increase of $6,160,000 or 161.9%, as compared to $3,806,000 at
September 30, 2001. This was primarily a result of purchases of $7.29 million of
commercial paper, FHLB bonds, and municipal securities, offset by the proceeds
from maturities, calls and payments totaling $1.18 million.
Mortgage-backed Securities. Mortgage-backed securities totaled $9,457,000 at
June 30, 2002, an increase of $8,917,000 or more than seventeen times the total
of $540,000 at September 30, 2001. The increase was due to purchases of
$9,120,000 offset by principal payments totaling $203,000.
Loans Receivable, net. Net loans receivable at June 30, 2002 totaled
$35,420,000, a decrease of $2,311,000 or 6.1%, as compared to $37,731,000 at
September 30, 2001. The decrease was primarily due to net principal repayments.
Deposits. Total deposits, after interest credited, increased $3,733,000 or 9.6%
to $42,771,000 at June 30, 2002, as compared to $39,038,000 at September 30,
2001. The increase was primarily due to increases in passbook savings accounts.
(9)
Stockholders' Equity. Stockholders' equity totaled $12,162,000 at June 30, 2002,
as compared to $5,164,000 at September 30, 2001. The increase of $6,998,000 or
135% was due to earnings for the nine months ended June 30, 2002 of $380,294, an
increase in accumulated other comprehensive income of $13,000, and $6,587,000
from the issuance of common stock.
Results of Operations for the Three Months Ended June 30, 2002 and 2001
Net Income. We recorded income of $149,000 for the three months ended June 30,
2002, as compared to net income of $104,000 for the three months ended June 30,
2001. The $45,000 or 43.3% increase in net income for the three months ended
June 30, 2002 was primarily the result of increases in net interest income and
noninterest income, offset by increases in noninterest expense and provision for
income taxes. Changes in the components of income and expense are discussed
herein.
Net Interest Income. Net interest income increased $78,000 or 21.0% for the
three months ended June 30, 2002, as compared to the three month period ended
June 30, 2001. The average balance of interest-earning assets increased $12.4
million or 29.8%, whereas the average rate earned thereon decreased 139 basis
points. The average balance of interest-bearing liabilities increased by $8.7
million or 23.5%, whereas the average rate paid thereon decreased 111 basis
points.
The net interest rate spread, which is the difference between the yield on
average interest-earning assets and the cost of average interest-bearing
liabilities, decreased to 2.82% for the three month period ended June 30, 2002
from 3.10% for the three month period ended June 30, 2001.
Interest Income. Interest income increased $51,000 or 6.3% to $849,000 for the
three month period ended June 30, 2002, as compared to $798,000 for the three
month period ended June 30, 2001.
Interest on loans receivable decreased $46,000 or 6.5% for the three months
ended June 30, 2002, as compared to the three month period ended June 30, 2001.
This decrease was the result a 68 basis point decrease in the average yield
earned on loans receivable, only partially offset by a $730,000 increase in the
average balance of loans receivable.
Interest income on mortgage-backed securities increased $29,000 or 241% for the
three months ended June 30, 2002, as compared to the three months ended June 30,
2001. This increase was the result of $4.3 million increase in the average
balance of mortgage-backed securities, resulting in part from the investment of
proceeds received in connection with the Bank's mutual-to-stock conversion
completed in April, 2002, partially offset by a 423 basis point decrease in the
average yield earned thereon.
Interest income on investment securities increased $32,000 or 47.1% for the
three months ended June 30, 2002, as compared to the three months ended June 30,
2001. The increase was the result of $3.9 million increase in the average
balance of investment securities, resulting in part from the investment of
proceeds received in connection with the Bank's mutual-to-stock conversion
completed in April, 2002, partially offset by a 144 basis point decrease in the
average yield earned thereon.
Interest income on other interest-earning assets increased $36,000 or 338.0% for
the three months ended June 30, 2002, as compared to the three months ended June
30, 2001. The increase was primarily due to a $3.5 million increase in the
average balance of other interest-earning assets resulting from the deposit of
subscription funds received in connection with the Bank's mutual-to-stock
conversion completed in April 2002 and a 100 basis point increase in the average
yield earned thereon.
The average yield on the average balance of interest-earning assets was 6.28%
and 7.67% for the three month periods ended June 30, 2002 and 2001,
respectively.
Interest Expense. Interest expense totaled $396,000 for the three months ended
June 30, 2002, as compared to $424,000 for the three months ended June 30, 2001.
The $28,000 or 6.6% decrease was primarily due to a 111 basis point decrease in
the average rate paid on the total average interest-bearing liabilities,
partially offset by an $8.7 million increase in the average balance of
interest-bearing liabilities.
Interest expense on FHLB advances increased $13,000 or 94% for the three months
ended June 30, 2002, as compared to the three months ended June 30, 2001. The
increase was due to an increase in the average balance of FHLB advances during
the three months ended June 30, 2002.
Provision for Loan Losses. During the three month periods ended June 30, 2002
and 2001, we established
(10)
provisions for loan losses of $4,500. This reflected management's evaluation of
the underlying credit risk of the loan portfolio and the level of allowance for
loan losses.
At June 30, 2002, the allowance for loan losses totaled $177,000 or .50% and
42.34% of total loans and total non-performing loans, respectively, as compared
to $166,000 or .44% and 224.3%, respectively, at September 30, 2001. Our
non-performing loans (non-accrual loans and accruing loans 90 days or more
overdue) totaled $418,000 and $74,000 at June 30, 2002 and September 30, 2001,
respectively, which represented 1.18% and 0.20% of total loans, respectively.
Our ratio of non-performing loans to total assets was 0.69% and 0.17% at June
30, 2002 and September 30, 2001, respectively.
Noninterest Income. During the three months ended June 30, 2002, noninterest
income increased $26,000 or 58.7%, as compared to the three months ended June
30, 2001, primarily due to a $20,000 increase in gain on sale of investments.
Noninterest Expense. Total noninterest expense increased by $26,000 or 10.3%
during the three months ended June 30, 2002, as compared to the three months
ended June 30, 2001. The increase was attributable to increases in compensation
and benefits, including $18,000 attributable to the ESOP plan.
Income Tax Expense. The provision for income tax totaled $91,000 for the three
months ended June 30, 2002, as compared to $60,000 for the three months ended
June 30, 2001. The $31,000 or 51.3% increase was due to increased income.
Results of Operations for the Nine Months Ended June 30, 2002 and 2001
Net Income. We recorded net income of $380,000 for the nine months ended June
30, 2002, as compared to net income of $280,000 for the nine months ended June
30, 2001. The $100,000 or 35.7% increase in net income for the nine months ended
June 30, 2002 was primarily the result of increases in net interest income and
noninterest income, offset by increases in noninterest expense and provision for
income taxes. Changes in the components of income and expense are discussed
herein.
Net Interest Income. Net interest income increased $179,000 or 16.7% for the
nine months ended June 30, 2002, as compared to the nine month period ended June
30, 2001. Although the average balance of interest-earning assets increased
$7.30 million or 17.5%, the average yield earned thereon decreased 79 basis
points. The average balance of interest-bearing liabilities increased by $5.4
million or 14.4%, however, the average rate paid thereon decreased 76 basis
points.
The net interest rate spread decreased to 2.91% for the nine month period ended
June 30, 2002 from 2.93% for the nine month period ended June 30, 2001
Interest Income. Interest income increased $118,000 or 5.0% to $2.46 million for
the nine month period ended June 30, 2002, as compared to $2.34 million for the
nine month period ended June 30, 2001.
Interest on loans receivable increased $51,000 or 2.5% for the nine months ended
June 30, 2002, as compared to the nine month period ended June 30, 2001. This
increase was the result of a $1.41 million increase in the average balance of
loans receivable, partially offset by a 12 basis point decrease in the average
yield earned thereon.
Interest income on investment securities increased $17,000 or 8.2% for the nine
months ended June 30, 2002 as compared to the nine month period ended June 30,
2001. The increase was the result of a $1.92 million increase in the average
balance of investment securities, partially offset by a 174 basis point decrease
in the average yield earned thereon.
Interest income on mortgage-backed securities increased $20,000 or 54.8 % for
the nine months ended June 30, 2002, as compared to the nine months ended June
30, 2001. This increase was the result of a $2.1 million increase in the average
balance of mortgage-backed securities, partially offset by a 504 basis point
decrease in the average yield earned thereon.
Interest income on other interest-earning assets increased $30,000 or 58.7% for
the nine months ended June 30, 2002, as compared to the nine months ended June
30, 2001. The increase was primarily due to a $1.9
(11)
million increase in the average interest-earning deposits at other financial
institutions, partially offset by an 88 basis point decrease in the average
yield earned thereon.
The average yield on the average balance of interest-earning assets was 6.67%
and 7.46% for the nine month periods ended June 30, 2002 and 2001, respectively.
Interest Expense. Interest expense totaled $1,206,000 for the nine months ended
June 30, 2002, as compared to $1,267,000 for the nine months ended June 30,
2001. The $61,000 or 4.8% decrease was primarily due to a 76 basis point
decrease in the average rate paid on the total average interest-bearing
liabilities, partially offset by an increased average balances of all
interest-bearing liabilities of $5.4 million.
Interest expense on deposits totaled $1.19 million for the nine months ended
June 30, 2002, as compared to $1.26 million for the nine months ended June 30,
2001. The $68,000 or 5.4% decrease was primarily due to a 71 basis point
decrease in the average rate paid thereon, partially offset by a $4.5 million
increase in the average balance of deposits.
Interest on FHLB advances increased $7,000 or 87.5% for the nine months ended
June 30, 2002, as compared to the nine months ended June 30, 2001. The increase
was due to an increase of the borrowings outstanding.
Provision for Loan Losses. During the nine month periods ended June 30, 2002 and
2001, we established provisions for loan losses of $13,500. This reflected
management's evaluation of the underlying credit risk of the loan portfolio and
the level of allowance for loan losses.
Noninterest Income. During the nine months ended June 30, 2002, noninterest
income increased $32,000 or 27.4%, as compared to the nine months ended June 30,
2001, primarily due to a $33,000 increase in service charges and other fee
income.
Noninterest Expense. Total noninterest expense increased by $47,000 or 6.4%
during the nine months ended June 30, 2002, as compared to the nine months ended
June 30, 2001. The increase was attributable to increases of $52,000 in
compensation and employees benefits, including $18,000 attributable to the ESOP
plan and a $4,000 increase in Federal insurance premiums expense, offset by a
decrease of $9,000 in various other expenses.
Income Tax Expense. The provision for income tax totaled $222,000 for the nine
months ended June 30, 2002 as compared to $161,000 for the nine months ended
June 30, 2001. The $61,000 increase was due to increased income.
Liquidity and Capital Resources
Our primary sources of funds are new deposits, proceeds from principal and
interest payments of loans, and repayments on investment and mortgage-backed
securities. While maturities and scheduled amortization of loans are a
predictable source of funds, deposit flows and mortgage repayments are greatly
influenced by general interest rates, economic conditions and competition. We
maintain liquidity levels adequate to fund loan commitments, investment
opportunities, deposit withdrawals and other financial commitments. At June 30,
2002, we had obligations to fund outstanding loan commitments of approximately
$507,000, for which adequate resources were available to fund these loans.
At June 30, 2002, management had no knowledge of any trends, events or
uncertainties that will have or are reasonably likely to have material effects
on the liquidity, capital resources or operations of the Company. Further at
June 30, 2002, management was not aware of any current recommendations by the
regulatory authorities which, if implemented, would have such an effect.
(12)
OTHER INFORMATION
Part II.
Item 1. Legal Proceedings
-----------------
None
Item 2. Change in Securities and Use of Proceeds
----------------------------------------
The Registration Statement on Form SB-2 (No. 333-75212) for
which the use of proceeds information is being disclosed was declared
effective by the Securities and Exchange Commission on February 12,
2002. The offering commenced on February 22, 2002 and was completed on
April 5, 2002 after 757,500 shares were sold. The Registration
Statement covered the issuance of 780,275 shares. The managing
underwriter for the offering was Trident Securities, a division of
McDonald Investments, Inc. The title of the securities registered was
Common Stock, par value $0.10 per share. The aggregate price of the
offering amount registered was $7,802,750, and the aggregate offering
price of the amount sold was $7,575,000. The expenses incurred by the
Company and the Bank in connection with the issuance and distribution
of the securities were approximately $398,170, including $120,000 in
underwriting fees. Such payments were not direct or indirect payments
to directors, officers, general partners of the issuer or their
associates, persons owning 10 percent or more of any class of equity
security of the Company or affiliates of the Company. The net offering
proceeds to the Company were approximately $7,177,000. Of this amount,
approximately $3,600,000 was contributed to the working capital of the
Bank, $590,000 was lent by the Company to the Bank's employee stock
ownership plan, and $2,987,000 was contributed to the working capital
of the Company.
Item 3. Defaults Upon Senior Securities
-------------------------------
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not Applicable
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
None
(b) During the quarter ended June 30, 2002, the Company filed a
report on Form 8-K dated April 5, 2002 to report the
completion of its initial public stock offering, in which
757,500 shares were sold in a subscription offering at $10.00
per share in connection with the mutual-to-stock conversion of
the Company's wholly-owned subsidiary, Mt. Troy Bank, a
federally chartered savings bank.
(13)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RESERVE BANCORP, INC.
Date: August 9, 2002 By /s/ Richard A. Sinewe
-------------------------------------------
Richard A. Sinewe
President
(Principal Executive Officer)
Date: August 9, 2002 By /s/ Robert B. Kastan
-------------------------------------------
Robert B. Kastan
Treasurer/Controller
(Principal Financial/Accounting Officer)
(14)