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, 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 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
--------------
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 August 14, 2003 there were 744,550 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 June 30, 2003
(Unaudited) and September 30, 2002 (Audited)...........................3
Consolidated Statements of Income - (Unaudited) for the
three and nine months ended June 30, 2003 and 2002.....................4
Consolidated Statements of Cash Flows - (Unaudited) for the nine
months ended June 30, 2003 and 2002................................5 - 6
Notes to (Unaudited) Consolidated Financial Statements...............7 - 9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................10 - 14
Item 3. Controls and Procedures.........................................14
PART II.
OTHER INFORMATION
Item 1. Legal Proceedings...............................................15
Item 2. Changes in Securities...........................................15
Item 3. Defaults Upon Senior Securities.................................15
Item 4. Submission of Matters to a Vote of Security Holders.............15
Item 5. Other Information...............................................15
Item 6. Exhibits and Reports on Form 8-K................................15
Signatures ................................................................16
(2)
RESERVE BANCORP, INC
CONSOLIDATED BALANCE SHEETS
June 30, September 30,
2003 2002
(UNAUDITED) (AUDITED)
----------- -----------
ASSETS
Cash and cash equivalents
Interest bearing $ 3,707,757 $ 1,335,623
Non-interest bearing 296,097 319,537
Interest-bearing deposits in other banks 1,796,380 1,795,869
Securities held-to-maturity (estimated fair value of
$4,637,376 and $5,950,102) 4,302,297 5,405,046
Mortgage-backed securities held-to-maturity (estimated
fair value of $5,206,372 and $6,659,988) 5,085,520 6,891,886
Securities available-for-sale, at fair value 12,660,524 5,979,584
Mortgage-backed securities available-for-sale, at fair value 7,545,594 2,665,481
Loans, net 34,988,729 35,016,785
Federal Home Loan Bank stock, at cost 628,400 303,600
Accrued interest receivable 564,383 421,735
Premises and equipment, net 374,348 369,237
Other assets 38,083 55,339
----------- -----------
TOTAL ASSETS $71,988,112 $60,559,722
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $49,902,321 $42,986,487
Federal Home Loan Bank advances 8,724,908 4,883,312
Advances from borrowers for taxes and insurance 373,192 61,835
Accrued interest payable 132,019 119,641
Other liabilities 263,570 158,504
----------- -----------
TOTAL LIABILITIES 59,396,010 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; 749,850
shares outstanding 75,750 75,750
Additional paid-in-capital 7,118,429 7,089,908
Retained earnings - substantially restricted 6,072,371 5,654,945
Accumulated other comprehensive income, net of
applicable income taxes of $120,713 and $42,286 173,710 60,340
Treasury stock, at cost (7,650 shares) (127,888) -
Unallocated shares held by Employee Stock Ownership
Plan (ESOP) (486,756) (531,000)
Unearned shares held by Restricted Stock Plan (RSP) (233,514) -
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 12,592,102 12,349,943
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $71,988,112 $60,559,722
=========== ===========
See accompanying notes to the unaudited financial statements.
(3)
RESERVE BANCORP, INC
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Nine Months Ended
June 30, June 30,
2003 2002 2003 2002
---------- ---------- ---------- ----------
INTEREST AND DIVIDEND INCOME
Loans $ 620,545 $ 661,967 $1,891,274 $2,091,891
Investments 179,233 99,531 510,378 226,474
Mortgaged-backed securities 162,141 41,065 400,214 57,848
Interest-earning demand deposits 27,586 43,898 80,546 70,692
FHLB stock 3,297 2,474 9,797 10,473
---------- ---------- ---------- ----------
992,802 848,935 2,892,209 2,457,378
---------- ---------- ---------- ----------
INTEREST EXPENSE
Deposits 370,579 381,402 1,113,505 1,191,184
Advances from Federal Home Loan Bank 66,000 14,850 157,744 14,850
---------- ---------- ---------- ----------
436,579 396,252 1,271,249 1,206,034
---------- ---------- ---------- ----------
NET INTEREST INCOME 556,223 452,683 1,620,960 1,251,344
PROVISION FOR LOAN LOSSES 4,500 4,500 13,500 13,500
---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 551,723 448,183 1,607,460 1,237,844
---------- ---------- ---------- ----------
NONINTEREST INCOME
Service charges and other fees 52,666 35,817 149,173 110,417
Income from real estate rental 3,150 1,200 8,450 3,600
Gain on sale of investments -- 34,079 34,748 34,079
---------- ---------- ---------- ----------
55,816 71,096 192,371 148,096
---------- ---------- ---------- ----------
NONINTEREST EXPENSE
Compensation and benefits 187,556 145,675 489,658 396,547
Occupancy and equipment expense 28,598 28,488 82,534 85,513
Federal insurance premiums 10,925 5,825 18,867 17,372
Service bureau expense 29,168 21,543 83,671 75,917
Other 107,183 78,218 289,622 208,342
---------- ---------- ---------- ----------
363,430 279,749 964,352 783,691
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAX 244,109 239,530 835,479 602,249
INCOME TAX EXPENSE 87,281 90,687 304,515 221,955
---------- ---------- ---------- ----------
NET INCOME $ 156,828 $ 148,843 $ 530,964 $ 380,294
========== ========== ========== ==========
EARNINGS PER SHARE - BASIC $ 0.23 $ 0.20 $ 0.76 $ 0.20
EARNINGS PER SHARE - DILUTIVE $ 0.22 $ 0.20 $ 0.75 $ 0.20
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC 692,708 699,483 699,683 699,483
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED 704,071 699,483 711,046 699,483
See accompanying notes to the unaudited financial statements.
(4)
RESERVE BANCORP, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended
June 30,
2003 2002
------------ ------------
OPERATING ACTIVITIES
Net income $ 530,964 $ 380,294
Adjustments to reconcile change in net income to
net cash provided by operating activities
Amortization of:
Deferred loan origination fees (49,566) (46,797)
Premiums and discounts on investment securities 45,758 (10,923)
Provision for loan losses 13,500 13,500
Depreciation and amortization of premises and equipment 33,626 33,325
Gain on call of security held-to-maturity -- (34,079)
Net gain on sales of securities available-for-sale (34,748) --
Amortization of ESOP unearned compensation 72,765 18,496
Amortization of RSP unearned compensation 21,229 --
(Increase) decrease in:
Accrued interest receivable (142,648) (85,853)
Prepaid expenses (25,043) 13,800
Increase (decrease) in:
Other liabilities 81,316 5,026
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 547,153 286,789
------------ ------------
INVESTING ACTIVITIES
Proceeds from maturities of interest-bearing deposits
in other banks 100,000 100,000
Purchases of interest-bearing deposits in other banks (100,000) (1,196,520)
Proceeds from maturities and calls of
securities held-to-maturity 1,250,000 2,744,477
Proceeds from principal repayments of
mortgage-backed securities held-to-maturity 1,782,433 56,404
Purchases of securities held-to-maturity (150,000) (7,796,384)
Purchases of securities available-for-sale (8,411,117) (1,500,000)
Purchases of mortgage-backed securities held-to-maturity -- (6,580,118)
Proceeds from sales of securities available-for-sale 292,098 --
Proceeds from maturities and calls of
securities available-for-sale 1,692,650 460,000
Purchases of mortgage-backed securities available-for-sale (5,753,191) (2,540,239)
Proceeds from principal repayments of
mortgage-backed securities available-for-sale 825,465 145,453
Purchases of FHLB stock (324,800) --
Proceeds from sale of FHLB stock -- 9,000
Purchases of premises and equipment (38,737) (145,676)
Net loan originations and principal repayments on loans 64,122 2,344,635
------------ ------------
NET CASH USED BY INVESTING ACTIVITIES (8,771,077) (13,898,968)
------------ ------------
See accompanying notes to the unaudited financial statements.
(5)
RESERVE BANCORP, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - CONTINUED
Nine Months Ended
June 30,
2003 2002
------------ ------------
FINANCING ACTIVITIES
Net increase in FHLB advances 3,841,596 5,000,000
Net increase in deposits 6,915,834 3,733,363
Dividends paid (113,625) --
Net increase in advances from borrowers
for taxes and insurance 311,357 311,049
Proceeds from issuance of common stock -- 6,985,000
Payment of conversion costs -- (398,172)
Common stock acquired by RSP (254,656) --
Purchase of treasury stock (127,888) --
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 10,572,618 15,631,240
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,348,694 2,019,061
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,655,160 1,059,956
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 4,003,854 $ 3,079,017
============ ============
SUPPLEMENTAL DISCLOSURES
Cash paid for:
Interest on deposits, advances, and other borrowings $ 1,258,870 $ 1,254,363
============ ============
Income taxes $ 270,110 $ 130,885
============ ============
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 B - COMPREHENSIVE INCOME
Total comprehensive income for the three months ended June 30, 2003 and 2002 was
$267,346 and $169,240, respectively. Total comprehensive income for the nine
months ended June 30, 2003 and 2002 was $644,344 and $393,134, respectively.
NOTE C - ASSET QUALITY
At June 30, 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 $383,000 and $385,000, respectively. Nonperforming loans were
1.09% of total loans at June 30, 2003. Total nonperforming assets as a percent
of total assets at June 30, 2003 was 0.53%.
(7)
NOTES TO (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS
NOTE D - 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 (ESOP) and unvested shares held by the Bank's
Restricted Stock Plan (RSP), 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. Stockholders of the Company ratified the adoption of
the 2003 Stock Option Plan at a meeting of stockholders on April 8, 2003. The
computation of basic and dilutive earnings per share is shown in the table
below:
Three Months Ended Nine Months Ended
June 30, June 30,
2003 2002 2003 2002
-------- -------- -------- --------
Basic EPS computation:
Numerator-Net Income $156,828 $148,843 $530,964 $380,294
Less income attributable to pre-stock
conversion period (all income through
April 4, 2002) - (6,543) - (237,994)
-------- -------- -------- --------
Income available to common stockholders
used in basic EPS $156,828 $142,300 $530,964 $142,300
======== ======== ======== ========
Denominator-Weighted average number of
shares outstanding 692,708 699,483 699,683 699,483
======== ======== ======== ========
Basic EPS $ .23 $ .20 $ .76 $ .20
======== ======== ======== ========
Diluted EPS computation:
Numerator-Net Income $156,828 $148,843 $530,964 $380,294
Less income attributable to pre-stock
conversion period (all income through
April 4, 2002) - (6,543) - (237,994)
-------- -------- -------- --------
Income available to common stockholders
used in diluted EPS $156,828 $142,300 $530,964 $142,300
======== ======== ======== ========
Denominator-Weighted average number of
shares outstanding 692,708 699,483 699,683 699,483
Dilutive Stock Options - - - -
Dilutive Unvested RSP 11,363 - 11,363 -
-------- -------- -------- --------
Weighted average common shares and
Common stock equivalents 704,071 699,483 711,046 699,483
======== ======== ======== ========
Diluted EPS $ .22 $ .20 $ .75 $ .20
======== ======== ======== ========
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,
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 nine month period ended June 30, 2003, compensation from the ESOP of
$72,765 was expensed.
(8)
NOTES TO (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS
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, 2003, the ESOP had 8,850 allocated shares and 50,150 unallocated shares. For
the purpose of computing earnings per share, all ESOP shares committed to be
released have been considered outstanding.
NOTE E - RESTRICTED STOCK PLAN (RSP)
The company maintains a RSP for directors and officers. The objective of this
plan is to enable the Company and the Bank to retain its corporate officers and
directors who have the experience and ability necessary to manage these
entities. Directors and officers who are selected by members of a
Board-appointed committee are eligible to receive benefits under the RSP. The
non-employee directors of the Company and the Bank serve as trustees for the
RSP, and have the responsibility to invest all funds contributed by the Bank to
the Trust created for the RSP.
The Company reserved 30,300 shares, acquired 15,150 shares, and granted a total
of 15,150 shares of common stock, of which 3,787 shares became immediately
vested under the plan with the remaining shares vesting over a three-year period
beginning April 8, 2004. A total of 3,787 shares were vested as of June 30,
2003. The RSP shares purchased initially will be excluded from stockholders'
equity. The Company recognizes compensation expense in the amount of fair value
of the common stock at the grant date, pro rata, over the years during which the
shares are payable and recorded as an addition to the stockholders' equity.
Directors and officers who terminate their association with the Company shall
forfeit the right to any shares, which were awarded but not earned.
Net compensation expense attributable to the RSPs amounted to $21,229 for the
period ended June 30, 2003.
NOTE F - STOCK OPTION PLAN
The Company maintains a Stock Option Plan for the directors and officers. An
aggregate of 75,750 shares of authorized but unissued common stock of the
Company were reserved for future issuance under this Plan. The stock options
have an expiration term of ten years, subject to certain extensions and early
terminations. The per share exercise price of an incentive stock option shall at
a minimum equal the fair market value of a share of common stock on the date the
option was granted. Proceeds from the exercise of the stock options are credited
to common stock for the aggregate par value and the excess is credited to
paid-in capital.
The following table presents information related to the outstanding options:
Officers' Directors'
Stock Stock Exercise
Options Options Price
-------- ---------- --------
Outstanding, September 30, 2002 - - N/A
Granted 15,150 22,725 $17.00
Exercised - - N/A
Forfeited - - N/A
------- -------
Outstanding, June 30, 2003 15,150 22,725 $17.00
There were 15,150 options outstanding for officers with an exercise price of
$17.00 and a remaining contractual life of 9.75 years. The options vest 1/3 at
the date of the grant and 1/3 annually thereafter. There were also 22,725
options outstanding for directors with an exercise price of $17.00 and a
remaining contractual life of 9.75 years. The options vest 1/3 at the date of
the grant and 1/3 annually thereafter.
(9)
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 $72.0 million at June 30, 2003, are reflective of an
increase of $11.4 million or 18.8% as compared to $60.6 million at September 30,
2002. Stockholders' equity increased by $242,000 to $12.6 million at June 30,
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. 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 $4,004,000 at June 30, 2003, an increase of
$2,349,000 or 141.9% 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 $1.8 million at June 30, 2003 and September 30, 2002.
INVESTMENT SECURITIES. Investment securities totaled $16,963,000 at June 30,
2003, an increase of $5,578,000 or 49.0%, as compared to $11,385,000 at
September 30, 2002. This was primarily a result of purchases of $8.6 million of
government agency obligations and corporate bonds, offset by the proceeds from
maturities, sales, and calls totaling $3.2 million.
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities totaled $12,631,000 at
June 30, 2003, an increase of $3,074,000 or 32.2%, 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 $2.6 million.
LOANS RECEIVABLE, NET. Net loans receivable at June 30, 2003 totaled
$34,989,000, a decrease of $28,000 or 0.08%, 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 $6,916,000 or 16.1%
to $49,902,000 at June 30, 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.
FHLB ADVANCES. FHLB advances totaled $8.7 million at June 30, 2003 as compared
to $4.9 million at September 30, 2002. The increase of $3.8 million or 77.6% 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.
(10)
STOCKHOLDERS' EQUITY. Stockholders' equity totaled $12,592,000 at June 30, 2003,
as compared to $12,350,000 at September 30, 2002. The increase of $242,000 or
1.96% was due to earnings for the nine months ended June 30, 2003 of $531,000,
along with an increase in accumulated other comprehensive income of $114,000,
and an increase of $72,000 from the release of ESOP shares, less dividends paid
of $113,000, purchases of $128,000 in treasury stock, and the awarding of RSP
shares unearned of $234,000.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2003 AND 2002
NET INCOME. We recorded net income of $157,000 for the three months ended June
30, 2003, as compared to net income of $149,000 for the three months ended June
30, 2002. The $8,000 or 5.4% increase in net income for the three months ended
June 30, 2003 was primarily the result of increases in net interest income,
partially offset by increases in noninterest expense and decreases in
noninterest income. Changes in the components of income and expense are
discussed herein.
NET INTEREST INCOME. Net interest income increased $103,000 or 22.7% for the
three months ended June 30, 2003, as compared to the three-month period ended
June 30, 2002. Although the average balance of interest-earning assets increased
$16.1 million or 29.8%, the average yield earned thereon decreased 62 basis
points. The average balance of interest-bearing liabilities increased by $12.3
million or 27.0%, however, the average rate paid thereon decreased 45 basis
points.
The net interest rate spread decreased to 2.65% for the three month period ended
June 30, 2003 from 2.82% for the three month period ended June 30, 2002.
INTEREST INCOME. Interest income increased $144,000 or 17.0% to $993,000 for the
three month period ended June 30, 2003, as compared to $849,000 for the three
month period ended June 30, 2002. The increase is due primarily to a higher
balance of interest-earning assets in the 2003 period.
Interest on loans receivable decreased $41,000 or 6.2% for the three months
ended June 30, 2003, as compared to the three month period ended June 30, 2002.
This decrease was the result of a $675,000 decrease in the average balance of
loans receivable and a 33 basis point decrease in the average yield earned
thereon.
Interest income on investment securities increased $79,000 or 79.0% for the
three months ended June 30, 2003 as compared to the three month period ended
June 30, 2002. The increase was the result of an $8.3 million increase in the
average balance of investment securities offset by a 55 basis point decrease in
the average yield earned thereon.
Interest income on mortgage-backed securities increased $121,000 or almost 3
times for the three months ended June 30, 2003, as compared to the three months
ended June 30, 2002. This increase was the result of an $8.4 million increase in
the average balance of mortgage-backed securities and a 153 basis point increase
in the average yield earned thereon.
Interest income on other interest-earning assets and FHLB stock decreased
$15,000 or 32.6% for the three months ended June 30, 2003, as compared to the
three months ended June 30, 2002. The decrease was primarily due to a 117 basis
point decrease in the average yield earned thereon, partially offset by a
$71,000 increase in the average interest-earning deposits at other financial
institutions.
The average yield on the average balance of interest-earning assets was 5.66%
and 6.28% for the three month periods ended June 30, 2003 and 2002,
respectively.
INTEREST EXPENSE. Interest expense totaled $437,000 for the three months ended
June 30, 2003, as compared to $396,000 for the three months ended June 30, 2002.
The $41,000 or 10.4% increase was primarily due to an increased average balance
of all interest-bearing liabilities of $12.3 million, partially offset by a 45
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 June
30, 2003, as compared to $381,000 for the three months ended June 30, 2002. The
$10,000 or 2.6% decrease was primarily due to
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a 49 basis point decrease in the average rate paid thereon, partially offset by
a $5.7 million increase in the average balance of deposits.
Interest on FHLB advances increased $51,000 for the three months ended June 30,
2003, as compared to the three months ended June 30, 2002. The increase was due
to a $6.6 million increase in the average balance of the borrowings outstanding
and a 49 basis point increase.
The average yield on the average balance of interest-bearing liabilities was
3.01% and 3.46% for the three month periods ended June 30, 2003 and 2002,
respectively.
PROVISION FOR LOAN LOSSES. During the three month periods ended June 30, 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 June 30, 2003, noninterest
income decreased $15,000 or 21.1%, as compared to the three months ended June
30, 2002, primarily due to a $17,000 increase in service charges and other fee
income and a $2,000 increase in income from real estate rental income, offset by
a $34,000 gain on sale of investment securities in the prior period.
NONINTEREST EXPENSE. Total noninterest expense increased by $83,000 or 29.6%
during the three months ended June 30, 2003, as compared to the three months
ended June 30, 2002. The increase was primarily attributable to increases of
$33,000 in ESOP compensation expense, $21,000 in RSP compensation expense, and
$29,000 in professional expenses and annual meeting expenses associated with
being a public reporting company.
INCOME TAX EXPENSE. The provision for income tax totaled $87,000 for the three
months ended June 30, 2003 as compared to $91,000 for the three months ended
June 30, 2002.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED JUNE 30, 2003 AND 2002
NET INCOME. We recorded net income of $531,000 for the nine months ended June
30, 2003, as compared to net income of $380,000 for the nine months ended June
30, 2002. The $151,000 or 39.7% increase in net income for the nine months ended
June 30, 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 $370,000 or 29.6% for the
nine months ended June 30, 2003, as compared to the nine month period ended June
30, 2002. Although the average balance of interest-earning assets increased
$16.0 million or 32.6%, the average yield earned thereon decreased 75 basis
points. The average balance of interest-bearing liabilities increased by $10.5
million or 24.5%, however, the average rate paid thereon decreased 58 basis
points.
The net interest rate spread decreased to 2.73% for the nine month period ended
June 30, 2003 from 2.91% for the nine month period ended June 30, 2002.
INTEREST INCOME. Interest income increased $435,000 or 17.7% to $2,892,000 for
the nine month period ended June 30, 2003, as compared to $2,457,000 for the
nine month period ended June 30, 2002. The increase is due primarily to a higher
balance of interest-earning assets in 2003.
Interest on loans receivable decreased $201,000 or 9.6% for the nine months
ended June 30, 2003, as compared to the nine month period ended June 30, 2002.
This decrease was the result of a $1.9 million decrease in the average balance
of loans receivable and a 35 basis point decrease in the average yield earned
thereon.
Interest income on investment securities increased $284,000 or 125.7% for the
nine months ended June 30, 2003 as compared to the nine month period ended June
30, 2002. The increase was the result of an $8.7 million increase in the average
balance of investment securities partially offset by a 34 basis point decrease
in the average yield earned thereon.
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Interest income on mortgage-backed securities increased $342,000 or more than 5
times for the nine months ended June 30, 2003, as compared to the nine months
ended June 30, 2002. This increase was the result of a $8.2 million increase in
the average balance of mortgage-backed securities and a 204 basis point increase
in the average yield earned thereon.
Interest income on other interest-earning assets and FHLB stock increased $9,000
or 11.3% for the nine months ended June 30, 2003, as compared to the nine months
ended June 30, 2002. The increase was primarily due to a $1.0 million increase
in the average interest-earning deposits at other financial institutions
partially offset by a 37 basis point decrease in the average yield earned
thereon.
The average yield on the average balance of interest-earning assets was 5.92%
and 6.66% for the nine month periods ended June 30, 2003 and 2002, respectively.
INTEREST EXPENSE. Interest expense totaled $1.27 million for the nine months
ended June 30, 2003, as compared to $1.21 million for the nine months ended June
30, 2002. The $65,000 or 5% increase was primarily due to an increased average
balance of all interest-bearing liabilities of $10.5 million, partially offset
by a 58 basis point decrease in the average rate paid on the total average
interest-bearing liabilities.
Interest expense on deposits totaled $1.11 million for the nine months ended
June 30, 2003, as compared to $1.19 million for the nine months ended June 30,
2002. The $78,000 or 6.5% decrease was primarily due to a 66 basis point
decrease in the average rate paid thereon, partially offset by a $5.3 million
increase in the average balance of deposits.
Interest on FHLB advances increased $143,000 for the nine months ended June 30,
2003, as compared to the nine months ended June 30, 2002. The increase was due
to a $5.1 million increase in the average balance of the borrowings outstanding.
The average yield on the average balance of interest-bearing liabilities was
3.19% and 3.77% for the nine month periods ended June 30, 2003 and 2002,
respectively.
PROVISION FOR LOAN LOSSES. During the nine month periods ended June 30, 2003 and
2002, 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, 2003, noninterest
income increased $44,000 or 29.7%, as compared to the nine months ended June 30,
2002, primarily due to a $39,000 increase in loan fee income and a $5,000
increase in real estate rental income.
NONINTEREST EXPENSE. Total noninterest expenses increased by $180,000 or 23%
during the nine months ended June 30, 2003, as compared to the nine months ended
June 30, 2002. The increase was primarily attributable to increases of $93,000
in compensation and employees benefits, including $54,000 attributable to the
ESOP plan and $21,000 attributable to the RSP plan, and a $63,000 increase in
professional expenses and annual meeting expenses associated with being a public
reporting company, and an $8,000 increase in service bureau expense.
INCOME TAX EXPENSE. The provision for income tax totaled $305,000 for the nine
months ended June 30, 2003 as compared to $222,000 for the nine months ended
June 30, 2002. The $83,000 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,
2003, we had obligations to fund outstanding loan commitments of approximately
$2.3 million, for which
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adequate resources were available to fund these loans.
At June 30, 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
June 30, 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 of the Company's disclosure controls and procedures (as
defined in RULE 13a-15(e) under the Securities Exchange Act of 1934
(the "Exchange Act")), the Company's principal executive officer and
principal financial officer have concluded that as of the end of the
period covered by this Quarterly Report on Form 10-QSB such disclosure
controls and procedures 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 recorded, processed, summarized and
reported within the time periods specified in Securities and Exchange
Commission rules and forms.
(b) Changes in internal control over financial reporting. During the
quarter under report, there was no change in the Company's internal
control over financial reporting that has materially affected, or is
reasonably likely to materially affect, the Company's internal control
over financial reporting.
(14)
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 Parente Randolph, LLC (formally 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
31 Certification pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002
32 Certification pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
(b) Reports
During the quarter ended June 30, 2003, the Company filed a
Form 8-K dated May 9, 2003 to report consolidated earnings
for the quarter ended March 31, 2003. (Items 7 and 12)
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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 14, 2003 By /s/ Richard A. Sinewe
-------------------------------------
Richard A. Sinewe
President
(Principal Executive Officer)
Date: August 14, 2003 By /s/ Robert B. Kastan
-------------------------------------
Robert B. Kastan
Treasurer/Controller
(Principal Financial/Accounting Officer)
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