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 March 31, 2003
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------------------- --------------------
Commission File Number 0-49696
RESERVE BANCORP, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its Charter)
Pennsylvania 23-3102103
--------------------------------- --------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) 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
--------------
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
------- ------
As of May __, 2003 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
------- ------
RESERVE BANCORP, INC.
AND SUBSIDIARY
Pittsburgh, Pennsylvania
Index
PART I. Page(s)
- ------- -------
FINANCIAL INFORMATION
Item 1. Financial statements
Consolidated Balance Sheets - as of March 31, 2003
(Unaudited) and September 30, 2002 (Audited)........................................................3
Consolidated Statements of Income - (Unaudited) for the
three and six months ended March 31, 2003 and 2002..................................................4
Consolidated Statements of Cash Flows - (Unaudited) for the six
months ended March 31, 2003 and 2002............................................................5 - 6
Notes to (Unaudited) Consolidated Financial Statements............................................7 - 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................................9 - 13
Item 3. Controls and Procedures......................................................................13
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 - 17
(2)
RESERVE BANCORP, INC
CONSOLIDATED BALANCE SHEETS
March 31, September 30,
2003 2002
(UNAUDITED) (AUDITED)
--------------- -----------------
ASSETS
Cash and cash equivalents
Interest bearing $ 3,031,434 $ 1,335,623
Non-interest bearing 305,529 319,537
Interest-bearing deposits in other banks 1,896,202 1,795,869
Securities held-to-maturity (estimated fair value of
$4,890,035 and $5,950,102) 4,653,355 5,405,046
Mortgage-backed securities held-to-maturity (estimated
fair value of $6,178,990 and $6,659,988) 6,017,537 6,891,886
Securities available-for-sale, at fair value 10,645,939 5,979,584
Mortgage-backed securities available-for-sale, at fair value 8,114,049 2,665,481
Loans, net 34,826,990 35,016,785
Federal Home Loan Bank stock, at cost 645,100 303,600
Accrued interest receivable 508,614 421,735
Premises and equipment, net 382,717 369,237
Prepaid expenses 30,384 13,040
Deferred income taxes 40,921 42,299
----------- -----------
TOTAL ASSETS $71,098,771 $60,559,722
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $48,401,579 $42,986,487
Federal Home Loan Bank advances 9,425,000 4,883,312
Advances from borrowers for taxes and insurance 220,071 61,835
Accrued interest payable 134,015 119,641
Other liabilities 188,816 158,504
----------- -----------
TOTAL LIABILITIES 58,369,481 48,209,779
----------- -----------
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 75,750
Additional paid-in-capital 7,100,646 7,089,908
Retained earnings - substantially restricted 5,991,206 5,654,945
Accumulated other comprehensive income, net of
applicable income taxes of $43,306 and $44,005 63,192 60,340
Unallocated shares held by Employee Stock Ownership
Plan (ESOP) (501,504) (531,000)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 12,729,290 12,349,943
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $71,098,771 $60,559,722
=========== ===========
See accompanying notes to the unaudited financial statements
(3)
RESERVE BANCORP, INC
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Six Months Ended
March 31, March 31,
2003 2002 2003 2002
-------- --------- ---------- ----------
INTEREST AND DIVIDEND INCOME
Loans $638,419 $696,265 $1,270,729 $1,429,924
Investments 171,603 71,384 331,145 126,943
Mortgaged-backed securities 121,925 7,434 238,073 16,783
Interest-earning demand deposits 26,151 19,138 52,960 26,794
FHLB stock 3,250 2,999 6,500 7,999
-------- -------- ---------- ----------
961,348 797,220 1,899,407 1,608,443
-------- -------- ---------- ----------
INTEREST EXPENSE
Deposits 371,118 393,337 742,926 809,782
Advances from Federal Home Loan Bank 50,526 - 91,744 -
-------- -------- ---------- ----------
421,644 393,337 834,670 809,782
-------- -------- ---------- ----------
NET INTEREST INCOME 539,704 403,883 1,064,737 798,661
PROVISION FOR LOAN LOSSES 4,500 4,500 9,000 9,000
-------- -------- ---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 535,204 399,383 1,055,737 789,661
-------- -------- ---------- ----------
NONINTEREST INCOME
Service charges and other fees 46,872 38,202 96,507 74,600
Income from real estate rental 3,150 1,200 5,300 2,400
Gain on sale of investments 17,955 - 34,748 -
-------- -------- ---------- ----------
67,977 39,402 136,555 77,000
-------- -------- ---------- ----------
NONINTEREST EXPENSE
Compensation and benefits 155,122 131,617 302,102 250,872
Occupancy and equipment expense 29,213 28,969 53,936 57,025
Federal insurance premiums 1,825 4,764 7,942 11,547
Service bureau expense 28,986 28,300 54,503 54,374
Other 100,892 65,662 182,439 130,124
-------- -------- ---------- ----------
316,038 259,312 600,922 503,942
-------- -------- ---------- ----------
INCOME BEFORE INCOME TAX 287,143 179,473 591,370 362,719
INCOME TAX EXPENSE 104,680 64,952 217,234 131,268
-------- -------- ---------- ----------
NET INCOME $182,463 $114,521 $ 374,136 $ 231,451
======== ======== ========== ==========
EARNINGS PER SHARE - BASIC $ 0.26 N/A 0.53 N/A
WEIGHTED AVERAGE SHARES OUTSTANDING 703,908 - 703,171 -
See accompanying notes to the unaudited financial statements
(4)
RESERVE BANCORP, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended
March 31,
2003 2002
----------- ----------
OPERATING ACTIVITIES
Net income $ 374,136 $ 231,451
Adjustments to reconcile change in net income to
net cash provided by operating activities
Amortization of:
Deferred loan origination fees (3,603) (42,409)
Premiums and discounts on investment securities 26,239 (5,279)
Provision for loan losses 9,000 9,000
Depreciation and amortization of premises and equipment 22,426 23,039
Net gain on sales of securities available-for-sale (34,748) -
Amortization of ESOP unearned compensation 40,234 -
(Increase) decrease in:
Accrued interest receivable (86,879) 11,549
Prepaid expenses (17,344) (3,841)
Deferred income tax (4,027) -
Increase (decrease) in:
Other liabilities 44,686 (37,370)
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 370,120 186,140
---------- ----------
INVESTING ACTIVITIES
Proceeds from maturities of interest-bearing deposits
in other banks 100,000 100,000
Purchases of interest-bearing deposits in other banks (200,028) (396,520)
Proceeds from maturities and calls of
securities held-to-maturity 900,000 749,477
Proceeds from principal repayments of
mortgage-backed securities held-to-maturity 862,539 36,326
Purchases of securities held-to-maturity (150,000) (3,836,431)
Purchases of securities available-for-sale (5,655,657) -
Proceeds from sales of securities available-for-sale 292,098 -
Proceeds from maturities and calls of
securities available-for-sale 750,000 460,000
Purchases of mortgage-backed securities available-for-sale (5,906,748) -
Proceeds from principal repayments of
mortgage-backed securities available-for-sale 435,346 98,716
Purchases of FHLB stock (341,500) -
Purchases of premises and equipment (35,906) (62,680)
Net loan originations and principal repayments on loans 184,398 1,794,119
---------- ----------
NET CASH USED BY INVESTING ACTIVITIES (8,765,458) (1,056,993)
---------- ----------
See accompanying notes to the unaudited financial statements
(5)
RESERVE BANCORP, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - CONTINUED
Six Months Ended
March 31,
2003 2002
----------- -----------
FINANCING ACTIVITIES
Net increase in FHLB advances 4,541,688 -
Net increase in deposits 5,415,092 4,795,767
Dividends paid (37,875) -
Net increase in advances from borrowers
for taxes and insurance 158,236 286,128
Payment of conversion costs - (174,836)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 10,077,141 4,907,059
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,681,803 4,036,206
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,655,160 1,059,956
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 3,336,963 $ 5,096,162
=========== ===========
SUPPLEMENTAL DISCLOSURES
Cash paid for:
Interest on deposits, advances, and other borrowings $ 820,296 $ 847,555
=========== ===========
Income taxes $ 144,166 $ 70,325
=========== ===========
See accompanying notes to the unaudited financial statements
(6)
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, 2002 audited consolidated financial
statements, including the notes thereto.
NOTE B - BUSINESS/PLAN OF CONVERSION
Reserve Bancorp, Inc. (the "Company") was incorporated under the laws of the
Commonwealth of Pennsylvania for the purpose of becoming the holding company of
Mt. Troy Bank (the "Bank") in connection with the Bank's conversion from a
federally chartered mutual savings bank to a federally chartered stock savings
bank, pursuant to its Plan of Conversion. Prior to fiscal 2002, the financial
statements include the accounts of the Bank only. The operating results of the
Company depend primarily upon the operating results of the Bank and, to a lesser
extent, income from interest-earning assets such as investment securities. Mt.
Troy Bank is a federally-chartered, SAIF-insured stock savings bank. The Bank
conducted business from two offices, Reserve Township and the City of
Pittsburgh, through April 2003. In April 2003, the Pittsburgh branch was closed
due to the landlord's decision to close the supermarket in which the branch was
located. The Bank's principal sources of revenue originate from its portfolio of
residential real estate and commercial mortgage loans as well as income from
investment and mortgage-backed securities. The Bank is subject to regulation and
supervision by the Federal Deposit Insurance Corporation (FDIC) and the Office
of Thrift Supervision (OTS).
On April 5, 2002, the Bank completed its mutual-to-stock conversion (the
"Conversion"). In connection with the Conversion, the Company 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 March 31, 2003, the Company did not have any stock
options or potentially dilutive common stock equivalents outstanding.
Stockholders of the Company ratified the adoption of the 2003 Stock Option Plan
at a meeting of stockholders on April 8, 2003.
Three Months Ended Six Months Ended
March 31, March 31,
----------------------------- -----------------------
2003 2002 2003 2002
---- ----- ---- ----
Net Income $ 182,463 $ 114,521 $ 374,136 $231,451
Less income attributable to pre-stock conversion
period (all income through April 4, 2002) - (114,521) - (231,451)
----------- ---------- --------- --------
Income available to common stockholders
used in basic EPS $ 182,463 $ - $ 374,136 -
=========== ========== ========= ========
Weighted average number of shares
used in basic EPS 703,908 N/A 703,171 N/A
=========== =========
(7)
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 March 31,
2003, the loan had an outstanding balance of $531,000 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 five 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 six month period ended March 31, 2003, compensation from the ESOP of
$40,234 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 March 31, 2003, the ESOP had 7,375 allocated shares and
51,625 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 three months ended March 31, 2003 and 2002
was $182,839 and $100,860, respectively. Total comprehensive income for the six
months ended March 31, 2003 and 2002 was $376,988 and $223,894, respectively.
NOTE F - ASSET QUALITY
At March 31, 2003 and September 30, 2002, the Company had total nonperforming
loans (i.e., loans which are contractually past due 90 days or more) of
approximately $449,000 and $385,000, respectively. Nonperforming loans were
1.28% of total loans at March 31, 2003. Total nonperforming assets as a percent
of total assets at March 31, 2003 was 0.63%.
(8)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
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 $71.1 million at March 31, 2003, are reflective of an
increase of $10.5 million or 17.4% as compared to $60.6 million at September 30,
2002. Stockholders' equity increased by $379,000 to $12.7 million at March 31,
2003, as compared to $12.3 million at September 30, 2002. The increase in total
assets was due to increases in cash and cash equivalents, mortgage-backed
securities, and investment securities, partially offset by a decrease in loans
receivable. The increase in the liabilities was primarily due to increases in
FHLB advances and savings deposits and certificates. 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 $3,337,000 at March 31, 2003, an increase of
$1,682,000 or 101.6% as compared to $1,655,000 at September 30, 2002. This
increase was primarily due to excess liquidity being held as interest-bearing
deposits at the Federal Home Loan Bank.
Interest-bearing Deposits in Other Banks. Interest-bearing deposits in other
banks totaled $1.9 million at March 31, 2003 and $1.8 million at September 30,
2002. The increase was due to an additional purchase of a certificated of
deposit totaling $100,000.
Investment Securities. Investment securities totaled $15,299,000 at March 31,
2003, an increase of $3,914,000 or 34.4%, as compared to $11,385,000 at
September 30, 2002. This was primarily a result of purchases of $5.8 million of
government agency obligations and corporate bonds, offset by the proceeds from
maturities, sales, and calls totaling $1.9 million.
Mortgage-backed Securities. Mortgage-backed securities totaled $14,132,000 at
March 31, 2003, an increase of $4,575,000 or 47.9%, as compared to $9,557,000 at
September 30, 2002. The increase was primarily due to purchases of $5.8 million,
offset by principal repayments totaling $1,298,000.
Loans Receivable, net. Net loans receivable at March 31, 2003 totaled
$34,827,000, a decrease of $190,000 or 0.5%, as compared to $35,017,000 at
September 30, 2002. The decrease was primarily due to principal repayments
exceeding new loan originations.
Deposits. Total deposits, after interest credited, increased $5,416,000 or 12.6%
to $48,402,000 at March 31, 2003, as compared to $42,986,000 at September 30,
2002. The increase was primarily due to increases in statement savings accounts
and certificates of deposits.
(9)
FHLB Advances. FHLB advances totaled $9.4 million at March 31, 2003 as compared
to $4.9 million at September 30, 2002. The increase of $4.5 million or 91.8% was
due to additional advances partially offset by repayments. The increase was part
of a leveraging strategy, which is currently including purchases of available
for sale securities.
Stockholders' Equity. Stockholders' equity totaled $12,729,000 at March 31,
2003, as compared to $12,350,000 at September 30, 2002. The increase of $379,000
or 3.1% was due to earnings for the six months ended March 31, 2003 of $374,000,
along with an increase in accumulated other comprehensive income of $3,000, and
an increase of $40,000 from the release of ESOP shares, less dividends paid of
$38,000.
Results of Operations for the Three months Ended March 31, 2003 and 2002
Net Income. We recorded net income of $182,000 for the three months ended March
31, 2003, as compared to net income of $115,000 for the three months ended March
31, 2002. The $67,000 or 58.3% increase in net income for the three months ended
March 31, 2003 was primarily the result of increases in net interest income and
noninterest income, partially 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 $136,000 or 33.7% for the
three months ended March 31, 2003, as compared to the three-month period ended
March 31, 2002. Although the average balance of interest-earning assets
increased $18.1 million or 38.9%, the average yield earned thereon decreased 90
basis points. The average balance of interest-bearing liabilities increased by
$10.8 million or 25.7%, however, the average rate paid thereon decreased 55
basis points.
The net interest rate spread decreased to 2.74% for the three month period ended
March 31, 2003 from 3.09% for the three month period ended March 31, 2002.
Interest Income. Interest income increased $164,000 or 20.6% to $961,000 for the
three month period ended March 31, 2003, as compared to $797,000 for the three
month period ended March 31, 2002. The increase is due primarily to a higher
balance of interest-earning assets in the 2003 period.
Interest on loans receivable decreased $58,000 or 8.3% for the three months
ended March 31, 2003, as compared to the three month period ended March 31,
2002. This decrease was the result of a $1.9 million decrease in the average
balance of loans receivable and a 26 basis point decrease in the average yield
earned thereon.
Interest income on investment securities increased $101,000 or 142% for the
three months ended March 31, 2003 as compared to the three month period ended
March 31, 2002. The increase was the result of a $8.6 million increase in the
average balance of investment securities offset by a 13 basis point decrease in
the average yield earned thereon.
Interest income on mortgage-backed securities increased $114,000 or more than 14
times for the three months ended March 31, 2003, as compared to the three months
ended March 31, 2002. This increase was the result of a $10.0 million increase
in the average balance of mortgage-backed securities, partially offset by a 263
basis point decrease in the average yield earned thereon.
Interest income on other interest-earning assets and FHLB stock increased $7,000
or 31.8% for the three months ended March 31, 2003, as compared to the three
months ended March 31, 2002. The increase was primarily due to a $1.4 million
increase in the average interest-earning deposits at other financial
institutions, partially offset by a 9 basis point decrease in the average yield
earned thereon.
The average yield on the average balance of interest-earning assets was 5.93%
and 6.84% for the three month periods ended March 31, 2003 and 2002,
respectively.
(10)
Interest Expense. Interest expense totaled $422,000 for the three months ended
March 31, 2003, as compared to $393,000 for the three months ended March 31,
2002. The $29,000 or 7.1% increase was primarily due to an increased average
balance of all interest-bearing liabilities of $10.8 million and a 55 basis
point decrease in the average rate paid on the total average interest-bearing
liabilities.
Interest expense on deposits totaled $371,000 for the three months ended March
31, 2003, as compared to $393,000 for the three months ended March 31, 2002. The
$22,000 or 5.6% decrease was primarily due to a 59 basis point decrease in the
average rate paid thereon, partially offset by a $5.1 million increase in the
average balance of deposits.
Interest on FHLB advances increased $51,000 for the three months ended March 31,
2003, as compared to the three months ended December 31, 2001. The increase was
due to an increase of the borrowings outstanding.
Provision for Loan Losses. During the three month periods ended March 31, 2003
and 2002, we established 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.
Noninterest Income. During the three months ended March 31, 2003, noninterest
income increased $29,000 or 74.4%, as compared to the three months ended March
31, 2002, primarily due to a $9,000 increase in service charges and other fee
income, and an $18,000 gain on sale of investment securities.
Noninterest Expense. Total noninterest expense increased by $57,000 or 22.0%
during the three months ended March 31, 2003, as compared to the three months
ended March 31, 2002. The increase was primarily attributable to increases of
$21,000 in ESOP compensation expense and $35,000 in legal and annual meeting
expenses associated with being a public reporting company.
Income Tax Expense. The provision for income tax totaled $105,000 for the three
months ended March 31, 2003 as compared to $65,000 for the three months ended
March 31, 2002. The $40,000 increase was due to increased income.
Results of Operations for the Six months Ended March 31, 2003 and 2002
Net Income. We recorded net income of $374,000 for the six months ended March
31, 2003, as compared to net income of $231,000 for the six months ended March
31, 2002. The $143,000 or 61.9% increase in net income for the six months ended
March 31, 2003 was primarily the result of increases in net interest income and
noninterest income, partially 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 $266,000 or 33.3% for the six
months ended March 31, 2003, as compared to the six month period ended March 31,
2002. Although the average balance of interest-earning assets increased $16.7
million or 36.3%, the average yield earned thereon decreased 93 basis points.
The average balance of interest-bearing liabilities increased by $9.5 million or
23.0%, however, the average rate paid thereon decreased 63 basis points.
The net interest rate spread decreased to 2.76% for the six month period ended
March 31, 2003 from 3.06% for the six month period ended March 31, 2002.
Interest Income. Interest income increased $291,000 or 18.1% to $1,899,000 for
the six month period ended March 31, 2003, as compared to $1,608,000 for the six
month period ended March 31, 2002. The increase is due primarily to a higher
balance of interest-earning assets in 2003.
Interest on loans receivable decreased $159,000 or 11.1% for the six months
ended March 31, 2003, as compared to the six month period ended March 31, 2002.
This decrease was the result of a $2.2 million decrease in the average balance
of loans receivable and a 42 basis point decrease in the average yield earned
thereon.
(11)
Interest income on investment securities increased $204,000 or 160.6% for the
six months ended March 31, 2003 as compared to the six month period ended March
31, 2002. The increase was the result of a $8.1 million increase in the average
balance of investment securities and a 32 basis point increase in the average
yield earned thereon.
Interest income on mortgage-backed securities increased $222,000 or more than 13
times for the six months ended March 31, 2003, as compared to the six months
ended March 31, 2002. This increase was the result of a $9.5 million increase in
the average balance of mortgage-backed securities, partially offset by a 203
basis point decrease in the average yield earned thereon.
Interest income on other interest-earning assets and FHLB stock increased
$24,000 or 69% for the six months ended March 31, 2003, as compared to the six
months ended March 31, 2002. The increase was primarily due to a $1.3 million
increase in the average interest-earning deposits at other financial
institutions and a 41 basis point increase in the average yield earned thereon.
The average yield on the average balance of interest-earning assets was 6.04%
and 6.97% for the six month periods ended March 31, 2002 and 2001, respectively.
Interest Expense. Interest expense totaled $835,000 for the six months ended
March 31, 2003, as compared to $810,000 for the six months ended March 31, 2002.
The $25,000 or 3% increase was primarily due to a 63 basis point decrease in the
average rate paid on the total average interest-bearing liabilities, partially
offset by an increased average balance of all interest-bearing liabilities of
$9.5 million.
Interest expense on deposits totaled $743,000 for the six months ended March 31,
2003, as compared to $810,000 for the six months ended March 31, 2002. The
$67,000 or 8.3% decrease was primarily due to a 66 basis point decrease in the
average rate paid thereon, partially offset by a $4.3 million increase in the
average balance of deposits.
Interest on FHLB advances increased $92,000 for the six months ended March 31,
2003, as compared to the six months ended March 31, 2002. The increase was due
to an increase of the borrowings outstanding.
Provision for Loan Losses. During the six month periods ended March 31, 2003 and
2002, we established provisions for loan losses of $9,000. 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 six months ended March 31, 2003, noninterest
income increased $60,000 or 77.9%, as compared to the six months ended March 31,
2002, primarily due to a $14,000 increase in loan fee income and a $35,000
increase in gain on sale of investment securities.
Noninterest Expense. Total noninterest expenses increased by $97,000 or 19%
during the six months ended March 31, 2003, as compared to the six months ended
March 31, 2002. The increase was primarily attributable to increases of $51,000
in compensation and employees benefits, including $40,000 attributable to the
ESOP plan, and a $45,000 increase in legal expense and annual meeting expenses
associated with being a public reporting company.
Income Tax Expense. The provision for income tax totaled $217,000 for the six
months ended March 31, 2003 as compared to $131,000 for the six months ended
March 31, 2002. The $86,000 increase was due to increased income.
(12)
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 March 31,
2003, we had obligations to fund outstanding loan commitments of approximately
$1.6 million, for which adequate resources were available to fund these loans.
At March 31, 2003, 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
March 31, 2003, management was not aware of any current recommendations by the
regulatory authorities, which, if implemented, would have such an effect.
CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. Based on their evaluation
as of the date within 90 days of the filing date of this Quarterly Report on
Form 10-QSB, the Registrant's principal executive officer and principal
financial officer have concluded that the Registrant's disclosure controls and
procedures (as defined in Rules 13a-14(c) and 15D-14(c) under the Securities
Exchange Act of 1934 (the Exchange Act) are effective to ensure that information
required to be disclosed by the Company in reports that it files or submits
under the Exchange Act is recorder, processed, summarized and reported within
the time periods specified in Securities and Exchange Commission rules and
forms.
(b) Change in internal controls. There were no significant changes in the
Registrant's internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
(13)
OTHER INFORMATION
Part II.
Item 1. Legal Proceedings
-----------------
None
Item 2. Change in Securities
--------------------
Not Applicable
Item 3. Defaults Upon Senior Securities
-------------------------------
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Company held its Annual Meeting of Stockholders for the
year ended September 30, 2002 on April 8, 2003. At the
meeting, stockholders ratified the 2003 Stock Option Plan
and the 2003 Restricted Stock Plan. Stockholders also
reelected Robert B. Shust and Timothy Schneider as
directors, each for a four-year term, and ratified the
appointment of Stokes & Hinds, LLC as the Company's
independent auditor for the fiscal year ending September 30,
2003.
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
99.1 Certification pursuant to 18 U.S.C.ss.1350
(b) Reports
None
(14)
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: May 14, 2003 By /s/Richard A. Sinewe
------------------------ ---------------------
Richard A. Sinewe
President
(Principal Executive Officer)
Date: May 14, 2003 By /s/Robert B. Kastan
------------------------ ---------------------
Robert B. Kastan
Treasurer/Controller
(Principal Financial/
Accounting Officer)
(15)
SECTION 302 CERTIFICATION
I, Richard A. Sinewe, President, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Reserve
Bancorp, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: May 14, 2003 /s/ Richard A. Sinewe
------------------------
Richard A. Sinewe
President
(16)
SECTION 302 CERTIFICATION
I, Robert B. Kastan, Treasurer/Controller, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Reserve
Bancorp, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: May 14, 2003 /s/ Robert B. Kastan
-------------------------------
Robert B. Kastan
Treasurer/Controller
(17)