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 December 31, 2003
[ ] 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
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RESERVE BANCORP, INC.
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(Exact name of Registrant as specified in its Charter)
Pennsylvania 23-3102103
- --------------------------------------------- -------------------------------
(State or other jurisdiction of incorporation (I.R.S. Employer Identification
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
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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 February 13, 2004, there were 711,950 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 December 31, 2003
(Unaudited) and September 30, 2003 .....................................3
Consolidated Statements of Income - (Unaudited) for the three
months ended December 31, 2003 and 2002.................................4
Consolidated Statements of Cash Flows - (Unaudited) for the three
months ended December 31, 2003 and 2002...............................5-6
Notes to (Unaudited) Consolidated Financial Statements.................7-11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.....................................12-16
Item 3. Controls and Procedures..........................................16
PART II.
- --------
OTHER INFORMATION
Item 1. Legal Proceedings................................................17
Item 2. Changes in Securities............................................17
Item 3. Defaults Upon Senior Securities..................................17
Item 4. Submission of Matters to a Vote of Security Holders..............17
Item 5. Other Information................................................17
Item 6. Exhibits and Reports on Form 8-K.................................17
Signatures ................................................................ 18
(2)
RESERVE BANCORP, INC
CONSOLIDATED BALANCE SHEETS
December 31, September 30,
2003 2003
(UNAUDITED) (AUDITED)
---------------- ---------------
ASSETS
Cash and cash equivalents:
Interest bearing $ 2,810,298 $ 3,118,784
Noninterest bearing 288,258 231,185
Interest-bearing deposits in other banks 1,297,643 1,397,485
Securities held-to-maturity (estimated fair value of
$4,550,484 and $4,574,916) 4,300,670 4,301,648
Mortgage-backed securities held-to-maturity (estimated
fair value of $3,428,015 and 3,997,025) 3,367,730 3,929,953
Securities available-for-sale, at fair value 16,350,309 14,351,220
Mortgage-backed securities available-for-sale, at fair value 6,475,776 8,063,083
Loans, net 35,489,612 34,886,871
Federal Home Loan Bank stock, at cost 584,200 674,500
Accrued interest receivable 540,345 500,626
Premises and equipment, net 294,083 281,411
Real estate held for investment 154,302 154,302
Other assets 46,879 48,184
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TOTAL ASSETS $ 72,000,105 $ 71,939,252
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 51,603,654 $ 50,468,363
Federal Home Loan Bank advances 7,477,880 8,378,469
Advances from borrowers for taxes and insurance 245,588 76,998
Accrued interest payable 89,643 122,542
Other liabilities 256,177 296,131
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Total liabilities 59,672,942 59,342,503
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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 75,750
Additional paid-in-capital 7,140,697 7,128,170
Retained earnings - substantially restricted 6,404,508 6,275,671
Accumulated other comprehensive income, net of
applicable income taxes of $114,333 and $102,203 164,528 143,485
Treasury stock, at cost (45,550 and 20,450 shares) (810,003) (342,033)
Unallocated shares held by Employee Stock Ownership
Plan (ESOP) (457,260) (472,008)
Unearned shares held by Restricted Stock Plan (RSP) (191,057) (212,286)
------------ ------------
Net shareholders' equity 12,327,163 12,596,749
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TOTAL $ 72,000,105 $ 71,939,252
============ ============
See accompanying notes to unaudited consolidated financial statements.
(3)
RESERVE BANCORP, INC
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended
December 31,
2003 2002
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INTEREST AND DIVIDEND INCOME
Loans $599,286 $632,310
Investments 213,699 159,542
Mortgage-backed securities 103,694 116,148
Interest-earning demand deposits 21,154 26,809
FHLB stock 3,375 3,250
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941,208 938,059
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INTEREST EXPENSE
Deposits 312,720 371,808
Advances from Federal Home Loan Bank 46,535 41,218
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359,255 413,026
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NET INTEREST INCOME 581,953 525,033
PROVISION FOR LOAN LOSSES 4,500 4,500
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NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 577,453 520,533
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NONINTEREST INCOME
Service charges and other fees 28,740 49,635
Income from real estate rental 3,150 2,150
Gain on sale of investments 27,294 16,793
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59,184 68,578
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NONINTEREST EXPENSE
Compensation and benefits 172,775 146,980
Occupancy and equipment expense 24,962 24,723
Federal deposit insurance premiums 7,793 6,117
Service bureau expense 27,407 25,517
Other 85,900 81,547
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318,837 284,884
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INCOME BEFORE INCOME TAX EXPENSE 317,800 304,227
INCOME TAX EXPENSE 119,294 112,554
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NET INCOME $198,506 $191,673
======== ========
EARNINGS PER SHARE - BASIC $ 0.30 $ 0.27
EARNINGS PER SHARE - DILUTED $ 0.29 $ 0.27
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC 657,821 702,433
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED 681,809 702,433
See accompanying notes to unaudited consolidated financial statements.
(4)
RESERVE BANCORP, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended
December 31,
2003 2002
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OPERATING ACTIVITIES
Net income $ 198,506 $ 191,673
Adjustments to reconcile net income to
net cash provided by operating activities
Amortization of:
Deferred loan origination fees 22,354 19,917
Premiums and discounts on investment securities 166,731 8,381
Provision for loan losses 4,500 4,500
Depreciation and amortization of premises and equipment 9,802 10,560
Net gain on sales of securities available-for-sale (27,294) (16,793)
Compensation expense - ESOP and RSP 50,180 18,862
(Increase) decrease in:
Accrued interest receivable (39,719) (41,056)
Prepaid expenses (10,826) (7,368)
Increase (decrease) in:
Accrued interest payable (32,899) (2,169)
Other liabilities (39,954) 39,888
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NET CASH PROVIDED BY OPERATING ACTIVITIES 301,381 226,395
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INVESTING ACTIVITIES
Proceeds from maturities of interest-bearing deposits
in other banks 100,000 -
Proceeds from maturities and calls of
securities held-to-maturity - 250,000
Proceeds from principal repayments of
mortgage-backed securities held-to-maturity 554,617 364,475
Purchases of securities held-to-maturity - (400,000)
Proceeds from sales of securities available-for-sale - 216,793
Purchases of securities available-for-sale (3,070,000) (3,094,939)
Proceeds from sales of mortgage-backed securities
available-for-sale 4,125,482 -
Purchases of mortgage-backed securities available-for-sale (3,079,024) -
Proceeds from maturities and calls of
securities available-for-sale 1,140,943 250,000
Proceeds from principal repayments of
mortgage-backed securities available-for-sale 372,980 208,968
Net sales (purchases) of FHLB stock 90,300 (73,000)
Purchases of premises and equipment (22,474) (18,181)
Capitalized costs of real estate owned (1,600) -
Net loan originations and principal repayments on loans (627,995) 69,022
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NET CASH USED IN INVESTING ACTIVITIES (416,771) (2,226,862)
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See accompanying notes to unaudited consolidated financial statements.
(5)
RESERVE BANCORP, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - CONTINUED
Three Months Ended
December 31,
2003 2002
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FINANCING ACTIVITIES
Net decrease in FHLB advances (900,589) (450,595)
Net increase in deposits 1,135,291 2,898,024
Dividends paid (71,345) (37,876)
Net increase in advances from borrowers
for taxes and insurance 168,590 155,133
Purchase of treasury stock (467,970) --
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NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (136,023) 2,564,686
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NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (251,413) 564,219
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,349,969 1,655,160
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,098,556 $ 2,219,379
=========== ===========
SUPPLEMENTAL DISCLOSURES
Cash paid for:
Interest on deposits, advances, and other borrowings $ 319,536 $ 415,195
=========== ===========
Income taxes $ 132,775 $ 12,025
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See accompanying notes to unaudited consolidated financial statements.
(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 financial
position and 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, 2003 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. 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. A
new supermarket branch, in McCandless, Pennsylvania, is schedule to open on
February 20, 2004. 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 - COMPREHENSIVE INCOME
Total comprehensive income for the three months ended December 31, 2003 and 2002
was $219,549 and $194,149, respectively.
(7)
NOTE D - ASSET QUALITY
At December 31, 2003 and September 30, 2003, the Company had total nonperforming
loans (i.e., loans which are contractually past due 90 days or more) of
approximately $108,000 and $60,000, respectively. Nonperforming loans were 0.30%
of total net loans at December 31, 2003. Total nonperforming assets as a percent
of total assets at December 31, 2003 was 0.23%.
NOTE E - 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 diluted earnings per share is shown in the table below:
Three Months Ended
December 31,
2003 2002
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Basic EPS computation:
Numerator-Net Income $ 198,506 $ 191,673
============ ============
Denominator-Weighted average number of shares
outstanding 657,821 702,433
============ ============
Basic EPS $ .30 $ .27
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Diluted EPS computation:
Numerator-Net Income $ 198,506 $ 191,673
============ ============
Denominator-Weighted average number of shares
outstanding 657,821 702,433
Dilutive Stock Options 12,625 -
Dilutive Unvested RSP 11,363 -
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Weighted average common shares and
common stock equivalents 681,809 702,433
============ ============
Diluted EPS $ .29 $ .27
============ ============
(8)
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 December
31, 2003, the loan had an outstanding balance of $472,000 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 three month period ended December 31, 2003, compensation from the ESOP
of $27,275 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 December 31, 2003, the ESOP had 11,800 allocated shares
and 47,200 unallocated shares. For the purpose of computing earnings per share,
all ESOP shares committed to be released have been considered outstanding.
NOTE F - RESTRICTED STOCK PLAN (RSP)
The Company maintains a RSP for directors, officers and selected employees. The
objective of this plan is to enable the Company and the Bank to retain its
corporate officers, directors and selected employees who have the experience and
ability necessary to manage these entities. Directors, officers and selected
employees 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 December 31,
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 vested.
Net compensation expense attributable to the RSPs amounted to $21,229 for the
period ended December 31, 2003.
(9)
NOTE G - STOCK OPTION PLAN
The Company maintains a Stock Option Plan for the directors, officers and
selected employees. 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
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Outstanding, September 30, 2003 15,150 22,725 $17.00
Granted - - N/A
Exercised - - N/A
Forfeited - - N/A
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Outstanding, December 31, 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 9.25 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 9.25 years. The options vest 1/3 at the date of
the grant and 1/3 annually thereafter.
NOTE H - STOCK BASED COMPENSATION
The Company accounts for the stock option plan under the recognition and
measurement principles of APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. No stock-based employee compensation
cost is reflected in net income, as all options granted under the plan have an
exercise price equal to the market value of the underlying common stock on the
date of the grant. The following table illustrates the effect on net income and
earnings per share if the Company applies the fair value recognition provisions
of FASB Statement No. 123, Accounting for Stock-Based Compensation, to the stock
option plan.
(10)
THREE MONTHS ENDED
DECEMBER 31,
2003 2002
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Net income, as reported $198,506 $191,673
Deduct: total stock-based employee compensation expense
determined under fair value based methods for all
awards, net of related tax effects (1,326) (-)
-------- --------
Pro forma net income $197,180 $191,673
======== ========
Earnings per share:
Basic-as reported $0.30 $0.27
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Basic-pro forma $0.30 $0.27
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Diluted-as reported $0.29 $0.27
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Diluted-pro forma $0.29 $0.27
===== =====
For the purpose of computing the pro forma effects of stock option grants under
the fair value accounting method, the fair value of the stock option grant was
estimated on the date of the grant using the Black Scholes option pricing model.
(11)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the consolidated financial condition and results of
operations of the Company should be read in conjunction with the accompanying
consolidated financial statements.
General
The Company's 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 quarterly report
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. The
Company does not undertake to update any forward-looking statement, whether
written or oral, that may be made from time to time.
Changes in Financial Condition
The Company's total assets of $72.0 million at December 31, 2003, are reflective
of an increase of $100,000 or 0.14% as compared to $71.9 million at September
30, 2003. Shareholders' equity decreased by $300,000 to $12.3 million at
December 31, 2003, as compared to $12.6 million at September 30, 2003. The
increase in total assets was primarily due to increases in investment securities
and net loans, partially offset by a decrease in cash and cash equivalents and
mortgage backed securities. The increase in total assets was primarily funded by
an increase in deposits partially offset by paydowns on FHLB advances. The
decrease in shareholders' equity was primarily due to open market repurchases of
the Company's common stock. The 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 $3,099,000 at December 31, 2003, a decrease of
$251,000 or 7.5% as compared to $3,350,000 at September 30, 2003. This change
was primarily due to a decrease in interest-bearing deposits maintained at the
Federal Home Loan Bank.
Interest-bearing Deposits in Other Banks. Interest-bearing deposits in other
banks totaled $1.3 million at December 31, 2003, a decrease of $100,000 or 7.1%
as compared to $1.4 million at September 30, 2003.
Investment Securities. Investment securities totaled $20.7 million at December
31, 2003, an increase of $2.0 million or 10.7%, as compared to $18.7 million at
September 30, 2003. This increase was primarily the result of the purchase of
$2.7 million of government agency and municipal bonds, offset by the proceeds
from calls of $1.0 million.
(12)
Mortgage-backed Securities. Mortgage-backed securities totaled $9.8 million at
December 31, 2003, a decrease of $2.2 million or 18.3%, as compared to $12.0
million at September 30, 2003. The decrease was primarily due to sales of $4.3
million and principal payments totaling $772,000 offset by purchases of $3.0
million.
Loans Receivable, net. Net loans receivable at December 31, 2003 totaled $35.5
million, an increase of $600,000 or 1.7%, as compared to $34.9 million at
September 30, 2003. The increase was primarily due to originations exceeding
principal repayments.
Deposits. Total deposits, after interest credited, increased $1.1 million or
2.2% to $51.6 million at December 31, 2003, as compared to $50.5 million at
September 30, 2003. The change was due to increases in savings and NOW accounts,
offset by a decrease in certificates of deposit.
Federal Home Loan Bank Advances. Federal Home Loan Bank advances totaled $7.5
million at December 31, 2003 compared to $8.4 million at September 30, 2003.
Shareholders' Equity. Shareholders' equity totaled $12,327,000 at December 31,
2003, as compared to $12,597,000 at September 30, 2003. The decrease of $270,000
or 2.1% was primarily due to open market repurchases of the Company's stock
totaling $468,000 and dividends paid of $71,000, offset by increases in
quarterly net income of $199,000, other comprehensive income of $21,000 and
$49,000 from the release of ESOP and RSP shares.
Results of Operations for the Three Months Ended December 31, 2003 and 2002.
Net Income. Net income of $199,000 was recorded for the three months ended
December 31, 2003, as compared to net income of $192,000 for the three months
ended December 31, 2002. The $7,000 or 3.6% increase in net income for the
quarter ended December 31, 2003 was primarily the result of an increase in net
interest 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 $57,000 or 10.8% for the
three month period ended December 31, 2003, as compared to the three month
period ended December 31, 2002. The average balance of interest-earning assets
increased $9.9 million or 16.2%, whereas the average rate earned thereon
decreased 84 basis points. The average balance of interest-bearing liabilities
increased by $10.1 million or 20.7%, whereas the average rate paid thereon
decreased 95 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, increased to 2.89% for the three month period ended December 31,
2003 from 2.78% for the three month period ended December 31, 2002.
Interest Income. Interest income increased $3,000 or .32% to $941,000 for the
three month period ended December 31, 2003, as compared to $938,000 for the
three month period ended December 31, 2002.
Interest on loans receivable decreased $33,000 or 5.2% for the three month
period ended December 31, 2003, as compared to the three month period ended
December 31, 2002. This change was the result of a $537,000 increase in the
average balance of loans receivable offset by a 48 basis point decrease in the
average yield earned on these loans reflecting market rates.
(13)
Interest income on mortgage-backed securities decreased $12,000 or 10.7% for the
three month period ended December 31, 2003, as compared to the three month
period ended December 31, 2002. This change was the result of a $1.4 million
decrease in the average balance of mortgage-backed securities and a 136 basis
point decrease in the average yield earned thereon. The average balance of
investment securities increased as a result of increased deposits and FHLB
borrowings.
Interest income on investment securities increased $54,000 or 33.9% for the
three month period ended December 31, 2003, as compared to the three month
period ended December 31, 2002. The increase was the result of a $9.9 million
increase in the average balance of investment securities, offset by a 54 basis
point decrease in the average yield earned thereon.
Interest income on other interest-earning assets decreased $6,000 or 18.4% for
the three month period ended December 31, 2003, as compared to the three month
period ended December 31, 2002. The decrease was primarily due to a 95 basis
point decrease in the average yield earned thereon, partially offset by an
$841,000 increase in the average balance of other interest-earning assets,
primarily interest-bearing deposits in other banks.
The average yield on the average balance of interest-earning assets was 5.33%
and 6.17% for the three month periods ended December 31, 2003 and 2002,
respectively.
Interest Expense. Interest expense totaled $359,000 for the three months ended
December 31, 2003, as compared to $413,000 for the three months ended December
31, 2002. The $54,000 or 13.1% decrease was primarily due to a $10.1 million
increase in the average balance of interest-bearing liabilities, partially
offset by a 95 basis point decrease in the average rate paid on interest-bearing
liabilities.
Interest expense on deposits totaled $313,000 for the three months ended
December 31, 2003, as compared to $372,000 for the three months ended December
31, 2002. The $59,000 or 15.9% decrease was primarily due to a 92 basis point
decrease in the average rate paid thereon, partially offset by a $6.9 million
increase in the average balance of deposits. The increase in deposits is
attributable to attractive deposit product yields.
Interest expense on FHLB advances increased $5,000 for the three months ended
December 31, 2003, as compared to the three months ended December 31, 2002. The
increase was due to a $3.2 million increase in the average balance offset by a
114 basis point decrease in the average rate paid on FHLB advances during the
three months ended December 31, 2003.
The average cost of interest-bearing liabilities was 2.44% and 3.39% for the
three month periods ended December 31, 2003 and 2002, respectively.
Provision for Loan Losses. During the three month ended December 31, 2003 and
2002, the provision for loan losses was $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 December 31, 2003, the allowance for loan losses totaled $197,000 or 0.56%
and 182.94% of total loans and total non-performing loans, respectively, as
compared to $193,000 or 0.50% and 321.67%, respectively, at September 30, 2003.
Our non-performing loans (non-accrual loans and accruing loans 90 days or more
overdue) totaled $108,000 and $60,000 at December 31, 2003 and September 30,
2003, respectively, which represented 0.30% and 0.17% of total net loans,
respectively. Our ratio of non-performing loans to total assets was 0.15% and
0.08% at December 31, 2003 and September 30, 2003, respectively.
(14)
Noninterest Income. During the three months ended December 31, 2003, noninterest
income decreased $9,000 or 13.7%, as compared to the three months ended December
31, 2002, primarily due to reduced loan fee income, partially offset by gains on
the sale of investments.
Noninterest Expense. Total noninterest expense increased by $34,000 or 11.9%
during the three month period ended December 31, 2003, as compared to the three
month period ended December 31, 2002. The increase was attributable to a $26,000
increase in compensation and benefits, including $8,000 attributable to the ESOP
plan and $21,000 attributable to the RSP plan offset by a decrease of $6,000 in
salaries .
Income Tax Expense. The provision for income tax totaled $119,000 for the three
months ended December 31, 2003, as compared to $113,000 for the three months
December 31, 2002. The $6,000 or 5.3% increase was due to increased income.
Liquidity and Capital Resources
The Company's primary sources of funds are new deposits, proceeds from principal
and interest payments on 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-backed securities and
loan repayments are greatly influenced by general interest rates, economic
conditions and competition. The Company maintained liquidity levels adequate to
fund loan commitments, investment opportunities, deposit withdrawals and other
financial commitments. At December 31, 2003, the Company had obligations to fund
outstanding loan commitments of approximately $5.3 million, including
construction loans in process and unused lines of credit, for which adequate
resources were available to fund these loans. At December 31, 2003,
approximately $9.1 million of the Bank's time deposits were scheduled to mature
within the next 12 months. The Bank expects such deposits to be renewed at
market rates. In addition to this source of continuing funding, the Bank has the
ability to obtain advances from the FHLB of Pittsburgh.
At December 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
December 31, 2003, management was not aware of any current recommendations by
the regulatory authorities, which, if implemented, would have such an effect.
At December 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
December 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
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
(15)
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 too
materially affect, the Company's internal control over financial reporting.
(16)
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
---------------------------------------------------
None
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 December 31, 2003, the registrant
filed the following reports on Form 8-K:
o Report dated November 5, 2003 to report the adoption of
a 5% stock repurchase plan (Items 5 and 7)
o Report dated November 10, 2003 to report declaration of
a semi-annual cash dividend and the appointment of a
new director (Items 5 and 7)
(17)
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: February 17, 2004 By /s/Richard A. Sinewe
----------------------------------------
Richard A. Sinewe
President
(Principal Executive Officer)
Date: February 17, 2004 By /s/Robert B. Kastan
----------------------------------------
Robert B. Kastan
Treasurer/Controller
(Principal Financial/Accounting Officer)
(18)