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, 2004
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-49696
RESERVE BANCORP, INC.
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(Exact name of Registrant as specified in its Charter)
Pennsylvania 23-3102103
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(State or other jurisdiction of incorporation (I.R.S. Employer 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 May 14, 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)
- ------- -------
FINANCIAL INFORMATION
Item 1. Financial statements
Consolidated Balance Sheets - as of March 31, 2004 (Unaudited)
and September 30, 2003 .........................................3
Consolidated Statements of Income - (Unaudited)
for the three and six months ended March 31, 2004 and 2003......4
Consolidated Statements of Cash Flows - (Unaudited)
for the six months ended March 31, 2004 and 2003..............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..........................................17
PART II.
- --------
OTHER INFORMATION
Item 1. Legal Proceedings................................................18
Item 2. Changes in Securities and Small Business Issuer Purchases
of Equity Securities.............................................18
Item 3. Defaults Upon Senior Securities..................................18
Item 4. Submission of Matters to a Vote of Security Holders..............18
Item 5. Other Information................................................18
Item 6. Exhibits and Reports on Form 8-K..............................18-19
Signatures .................................................................20
RESERVE BANCORP, INC
CONSOLIDATED BALANCE SHEETS
March 31, September 30,
2004 2003
(UNAUDITED) (AUDITED)
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ASSETS
Cash and cash equivalents:
Interest bearing $ 1,007,659 $ 3,118,784
Noninterest bearing 290,364 231,185
Interest-bearing deposits in other banks 1,197,802 1,397,485
Securities held-to-maturity (estimated fair value of
$4,372,193 and $4,574,916) 4,104,566 4,301,648
Mortgage-backed securities held-to-maturity (estimated
fair value of $3,204,181 and $3,997,025) 3,124,332 3,929,953
Securities available-for-sale, at fair value 15,700,633 14,351,220
Mortgage-backed securities available-for-sale, at fair value 13,373,700 8,063,083
Loans, net 35,712,232 34,886,871
Federal Home Loan Bank stock, at cost 607,900 674,500
Accrued interest receivable 496,905 500,626
Premises and equipment, net 439,547 281,411
Real estate held for investment 154,302 154,302
Other assets 211,572 48,184
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TOTAL ASSETS $ 76,421,514 $ 71,939,252
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 54,908,207 $ 50,468,363
Federal Home Loan Bank advances 8,332,520 8,378,469
Advances from borrowers for taxes and insurance 257,612 76,998
Accrued interest payable 65,189 122,542
Other liabilities 274,555 296,131
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Total liabilities 63,838,083 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 7,154,946 7,128,170
Retained earnings - substantially restricted 6,605,504 6,275,671
Accumulated other comprehensive income, net of
applicable income taxes of $117,811 and $102,203 169,575 143,485
Treasury stock, at cost (45,550 and 20,450 shares) (810,003) (342,033)
Unallocated shares held by Employee Stock Ownership
Plan (ESOP) (442,512) (472,008)
Unearned shares held by Restricted Stock Plan (RSP) (169,829) (212,286)
------------ ------------
Net shareholders' equity 12,583,431 12,596,749
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 76,421,514 $ 71,939,252
============ ============
(3)
RESERVE BANCORP, INC
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Six Months Ended
March 31, March 31,
2004 2003 2004 2003
---------- ---------- ---------- ----------
INTEREST AND DIVIDEND INCOME
Loans $ 610,579 $ 638,419 $1,209,865 $1,270,729
Investments 209,289 171,603 422,988 331,145
Mortgaged-backed securities 108,273 121,925 211,967 238,073
Interest-earning demand deposits 16,704 26,151 37,858 52,960
FHLB stock 2,184 3,250 5,559 6,500
---------- ---------- ---------- ----------
947,029 961,348 1,888,237 1,899,407
---------- ---------- ---------- ----------
INTEREST EXPENSE
Deposits 311,931 371,118 624,651 742,926
Advances from Federal Home Loan Bank 43,720 50,526 90,255 91,744
---------- ---------- ---------- ----------
355,651 421,644 714,906 834,670
---------- ---------- ---------- ----------
NET INTEREST INCOME 591,378 539,704 1,173,331 1,064,737
PROVISION FOR LOAN LOSSES 4,500 4,500 9,000 9,000
---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 586,878 535,204 1,164,331 1,055,737
---------- ---------- ---------- ----------
NONINTEREST INCOME
Service charges and other fees 27,378 46,872 56,118 96,507
Income from real estate rental 3,300 3,150 6,450 5,300
Gain on sale of investments 60,079 17,955 87,373 34,748
---------- ---------- ---------- ----------
90,757 67,977 149,941 136,555
---------- ---------- ---------- ----------
NONINTEREST EXPENSE
Compensation and benefits 194,540 155,122 367,315 302,102
Occupancy and equipment expense 33,970 29,213 58,932 53,936
Federal deposit insurance premiums 5,043 1,825 12,836 7,942
Service bureau expense 22,076 28,986 49,483 54,503
Other 101,181 100,892 187,081 182,439
---------- ---------- ---------- ----------
356,810 316,038 675,647 600,922
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAX EXPENSE 320,825 287,143 638,625 591,370
INCOME TAX EXPENSE 118,153 104,680 237,447 217,234
---------- ---------- ---------- ----------
NET INCOME $ 202,672 $ 182,463 $ 401,178 $ 374,136
========== ========== ========== ==========
EARNINGS PER SHARE - BASIC $ 0.31 $ 0.26 $ 0.61 $ 0.53
EARNINGS PER SHARE - DILUTED $ 0.30 $ 0.26 $ 0.59 $ 0.53
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC 652,896 703,908 655,358 703,171
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED 676,884 703,908 679,346 703,171
(4)
RESERVE BANCORP, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended
March 31,
2004 2003
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OPERATING ACTIVITIES
Net income $ 401,178 $ 374,136
Adjustments to reconcile net income to
net cash provided by operating activities
Amortization of:
Deferred loan origination fees (33,649) (3,603)
Premiums and discounts on investment securities 218,251 26,239
Provision for loan losses 9,000 9,000
Depreciation and amortization of premises and equipment 21,620 22,426
Net gain on sales of securities available-for-sale (87,373) (34,748)
Compensation expense - ESOP and RSP 98,729 40,234
(Increase) decrease in:
Accrued interest receivable 3,721 (86,879)
Prepaid expenses (178,998) (21,371)
Increase (decrease) in:
Accrued interest payable (57,353) 14,374
Other liabilities (21,576) 30,312
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NET CASH PROVIDED BY OPERATING ACTIVITIES 373,550 370,120
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INVESTING ACTIVITIES
Purchase of interest-bearing deposits in other banks - (200,028)
Proceeds from maturities of interest-bearing deposits
in other banks 200,000 100,000
Proceeds from maturities and calls of
securities held-to-maturity 195,000 900,000
Proceeds from principal repayments of
mortgage-backed securities held-to-maturity 794,969 862,539
Purchases of securities held-to-maturity - (150,000)
Proceeds from sales of securities available-for-sale 2,496,849 292,098
Purchases of securities available-for-sale (5,371,742) (5,655,657)
Proceeds from sales of mortgage-backed securities
available-for-sale 4,133,953 -
Purchases of mortgage-backed securities available-for-sale (10,382,870) (5,906,748)
Proceeds from maturities and calls of
securities available-for-sale 1,653,842 750,000
Proceeds from principal repayments of
mortgage-backed securities available-for-sale 733,177 435,346
Net sales (purchases) of FHLB stock 66,600 (341,500)
Purchases of premises and equipment (179,756) (35,906)
Net loan originations and principal repayments on loans (800,712) 184,398
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NET CASH USED IN INVESTING ACTIVITIES (6,460,690) (8,765,458)
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(5)
RESERVE BANCORP, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - CONTINUED
Six Months Ended
March 31,
2004 2003
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FINANCING ACTIVITIES
Net (decrease) increase in FHLB advances (45,949) 4,541,688
Net increase in deposits 4,439,844 5,415,092
Dividends paid (71,345) (37,875)
Net increase in advances from borrowers
for taxes and insurance 180,614 158,236
Purchase of treasury stock (467,970) -
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NET CASH PROVIDED BY FINANCING ACTIVITIES 4,035,194 10,077,141
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NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (2,051,946) 1,681,803
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,349,969 1,655,160
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,298,023 $ 3,336,963
============ ============
SUPPLEMENTAL DISCLOSURES
Cash paid for:
Interest on deposits, advances, and other borrowings $ 772,259 $ 820,296
============ ============
Income taxes $ 367,350 $ 144,166
============ ============
(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. The 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, opened 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 March 31, 2004 and 2003
was $207,719 and $182,839, respectively. Total comprehensive income for the six
months ended March 31, 2004 and 2003 was $427,268 and $376,988, respectively.
(7)
NOTE D - ASSET QUALITY
At March 31, 2004 and September 30, 2003, the Company had total nonperforming
loans (i.e., loans which are contractually past due 90 days or more) of
approximately $107,000 and $60,000, respectively. Nonperforming loans were 0.30%
of total net loans at March 31, 2004. Total nonperforming assets as a percent of
total assets at March 31, 2004 was 0.14%.
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 Six Months Ended
March 31, March 31,
2004 2003 2004 2003
-------- ------------ -------- --------
Basic EPS computation:
Numerator-Net Income $202,672 $ 182,463 $401,178 $374,136
======== ============ ======== ========
Denominator-Weighted average number of shares
outstanding 652,896 703,908 655,358 703,171
======== ============ ======== ========
Basic EPS $ 0.31 $ 0.26 $ 0.61 $ 0.53
======== ============ ======== ========
Diluted EPS computation:
Numerator-Net Income $202,672 $ 182,463 $401,178 $374,136
======== ============ ======== ========
Denominator-Weighted average number of shares
outstanding 652,896 703,908 655,358 703,171
Dilutive Stock Options 12,625 - 12,625 -
Dilutive Unvested RSP 11,363 - 11,363 -
-------- ------------ -------- --------
Weighted average common shares and
common stock equivalents 676,884 703,908 679,346 703,171
======== ============ ======== ========
Diluted EPS $ 0.30 $ 0.26 $ 0.59 $ 0.53
======== ============ ======== ========
(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 March 31,
2004, the loan had an outstanding balance of $442,500 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, 2004, compensation from the ESOP of
$56,272 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, 2004, the ESOP had 13,275 allocated shares and
45,725 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 March 31,
2004. 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 RSP amounted to $42,457 for the six
month period ended March 31, 2004.
(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
------- ------- -----
Outstanding, September 30, 2003 15,150 22,725 $17.00
Granted - - N/A
Exercised - - N/A
Forfeited - - N/A
------ ------
Outstanding, March 31, 2004 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 9.00 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 9.00 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
MARCH 31,
2004 2003
--------- ----------
Net income, as reported $ 202,672 $ 182,463
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 $ 201,346 $ 182,463
========= =========
Earnings per share:
Basic-as reported $ 0.31 $ 0.26
========= =========
Basic-pro forma $ 0.31 $ 0.26
========= =========
Diluted-as reported $ 0.30 $ 0.26
========= =========
Diluted-pro forma $ 0.30 $ 0.26
========= =========
SIX MONTHS ENDED
MARCH 31,
2004 2003
--------- ----------
Net income, as reported $ 401,178 $ 374,136
Deduct: total stock-based employee compensation expense
determined under fair value based methods for all
awards, net of related tax effects (2,652) (-)
--------- ---------
Pro forma net income $ 398,526 $ 374,136
========= =========
Earnings per share:
Basic-as reported $ 0.61 $ 0.53
========= =========
Basic-pro forma $ 0.61 $ 0.53
========= =========
Diluted-as reported $ 0.59 $ 0.53
========= =========
Diluted-pro forma $ 0.59 $ 0.53
========= =========
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 annual 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. 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
The Company's total assets of $76.4 million at March 31, 2004, are reflective of
an increase of $4,500,000 or 6.3% as compared to $71.9 million at September 30,
2003. Total liabilities increased by $4.5 million to $63.8 million at March 31,
2004, as compared to $59.3 million at September 30, 2003. Stockholders' equity
decreased by $13,000 to $12,583,000 at March 31, 2004, as compared to
$12,596,000 at September 30, 2003. The increase in total assets was primarily
due to increases in investment securities, net loans, mortgage-backed
securities, premises and equipment, partially offset by a decrease in cash and
cash equivalents. The increase in total liabilities was primarily due to a $4.4
million increase in deposits. The decrease in stockholders' equity was primarily
due to repurchases of the Company's common stock. The changes in the components
of assets, liabilities and equity are discussed as follows.
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 $1,298,000 at March 31, 2004, a decrease of
$2,052,000 or 61.3% 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 $1.2 million at March 31, 2004, a decrease of $200,000 or 14.3% as
compared to $1.4 million at September 30, 2003.
Investment Securities. Investment securities totaled $19.8 million at March 31,
2004, an increase of $1.1 million or 5.9%, as compared to $18.7 million at
September 30, 2003. This increase was
(12)
primarily the result of the purchase of $4.0 million of Government agency and
municipal bonds, $1.2 million of mutual funds, offset by the proceeds from sales
and calls of $4.1 million.
Mortgage-backed Securities. Mortgage-backed securities totaled $16.5 million at
March 31, 2004, an increase of $4.6 million or 37.5%, as compared to $12.0
million at September 30, 2003. The increase was primarily due to purchases of
$10.4 million, offset by principal payments totaling $1.5 million and sales of
$4.3 million.
Loans Receivable, net. Net loans receivable at March 31, 2004 totaled $35.7
million, an increase of $800,000 or 2.3%, as compared to $34.9 million at
September 30, 2003. The increase was primarily due to net principal
originations.
Deposits. Total deposits, after interest credited, increased $4.4 million or
8.7% to $54.9 million at March 31, 2004, as compared to $50.5 million at
September 30, 2003. The change was due to increases in savings, and certificates
of deposit, offset by decreases in NOW accounts.
Federal Home Loan Bank Advances. Federal Home Loan Bank advances totaled $8.3
million at March 31, 2004 compared to $8.4 million at September 30, 2003.
Stockholders' Equity. Stockholders' equity totaled $12,583,000 at March 31,
2004, as compared to $12,597,000 at September 30, 2003. The decrease of $13,000
or 0.1% was primarily due to the repurchase of $468,000 in shares of the
Company's stock and dividends paid of $71,000, offset by increases in net income
for the six month period ended March 31, 2004 of $401,000, other comprehensive
income of $25,000, and $99,000 from the release of ESOP and RSP shares.
Results of Operations for the Three Months Ended March 31, 2004 and 2003
Net Income. Net income of $203,000 was recorded for the three months ended March
31, 2004, as compared to net income of $182,000 for the three months ended March
31, 2003. The $21,000 or 11.5% increase in net income for the quarter ended
March 31, 2004 was primarily the result of increases in net interest income and
noninterest income, offset by increases in noninterest expense and provision for
income taxes. Changes in the components of income and expense are discussed
herein.
Net Interest Income. Net interest income increased $52,000 or 9.6% for the three
month period ended March 31, 2004, as compared to the three month period ended
March 31, 2003. The average balance of interest-earning assets increased $7.2
million or 11.1%, while the average rate earned thereon decreased 67 basis
points. The average balance of interest-bearing liabilities increased by $7.6
million or 14.4%, while the average rate paid thereon decreased 83 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 2.90% for the three month period ended March 31, 2004
from 2.74% for the three month period ended March 31, 2003.
Interest Income. Interest income decreased $14,000 or 1.5% to $947,000 for the
three month period ended March 31, 2004, as compared to $961,000 for the three
month period ended March 31, 2003.
Interest on loans receivable decreased $28,000 or 4.4% for the three month
period ended March 31, 2004, as compared to the three month period ended March
31, 2003. This change was the result of
(13)
a $1,021,000 increase in the average balance of loans receivable offset by a 51
basis point decrease in the average yield earned on these loans.
Interest income on mortgage-backed securities decreased $14,000 or 11.2% for the
three month period ended March 31, 2004, as compared to the three month period
ended March 31, 2003. This change was the result of a $1.6 million increase in
the average balance of mortgage-backed securities and a 110 basis point decrease
in the average yield earned thereon.
Interest income on investment securities increased $37,000 or 21.5% for the
three month period ended March 31, 2004, as compared to the three month period
ended March 31, 2003. The increase was the result of a $5.6 million increase in
the average balance of investment securities, offset by a 61 basis point
decrease in the average yield earned thereon.
Interest income on other interest-earning assets decreased $10,000 or 34.5% for
the three month period ended March 31, 2004, as compared to the three month
period March 31, 2003. The decrease was primarily due to a 38 basis point
decrease in the average yield earned thereon, and a $1.1 million decrease in the
average balance of other interest-earning assets.
The average yield on interest-earning assets was 5.26% and 5.93% for the three
month periods ended March 31, 2004 and 2003, respectively.
Interest Expense. Interest expense totaled $356,000 for the three months ended
March 31, 2004, as compared to $422,000 for the three months ended March 31,
2003. The $66,000 or 15.6% decrease was primarily due to an 83 basis point
decrease in the average rate paid on the total average interest-bearing
liabilities, partially offset by a $7.6 million increase in the average balance
of interest-bearing liabilities.
Interest expense on deposits totaled $312,000 for the three months ended March
31, 2004, as compared to $371,000 for the three months ended March 31, 2003. The
$59,000 or 15.9% decrease was primarily due to a 78 basis point decrease in the
average rate paid thereon, partially offset by a $5.6 million increase in the
average balance of deposits.
Interest expense on FHLB advances decreased $7,000 for the three months ended
March 31, 2004, as compared to the three months ended March 31, 2003. The
decrease was due to a $2.0 million increase in the average balance and a 125
basis point decrease in the average rate paid on FHLB advances during the three
months ended March 31, 2004.
Provision for Loan Losses. During the three month ended March 31, 2004 and 2003,
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 March 31, 2004, the allowance for loan losses totaled $190,000 or 0.53% and
177.6 % 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. The
Bank's non-performing loans (non-accrual loans and accruing loans 90 days or
more overdue) totaled $107,000 and $60,000 at March 31, 2004 and September 30,
2003, respectively, which represented 0.30% and 0.17% of total net loans,
respectively. The Bank's ratio of non-performing loans to total assets was 0.14%
and 0.08% at March 31, 2004 and September 30, 2003, respectively.
(14)
Noninterest Income. During the three months ended March 31, 2004, noninterest
income increased $23,000 or 33.5%, as compared to the three months ended March
31, 2003, primarily due to gains on the sale of investments, partially offset by
decreases in service charges and other fees.
Noninterest Expense. Total noninterest expense increased by $41,000 or 12.9%
during the three month period ended March 31, 2004, as compared to the three
month period ended March 31, 2003. The increase was attributable to a $39,000
increase in compensation and benefits, including $29,000 attributable to the
ESOP plan and $21,000 attributable to the RSP plan.
Income Tax Expense. The provision for income tax totaled $118,000 for the three
months ended March 31, 2004, as compared to $105,000 for the three months March
31, 2003. The $13,000 or 12.4% increase was due to increased income.
Results of Operations for the Six Months Ended March 31, 2004 and 2003
Net Income. Net income of $401,000 was recorded for the six months ended March
31, 2004, as compared to net income of $374,000 for the six months ended March
31, 2003. The $27,000 or 7.2% increase in net income for the six month period
ended March 31, 2004 was primarily the result of increases in net interest
income and noninterest income, offset by increases in noninterest expense and
provision for income taxes. Changes in the components of income and expense are
discussed herein.
Net Interest Income. Net interest income increased $109,000 or 10.2% for the six
month period ended March 31, 2004, as compared to the six month period ended
March 31, 2003. The average balance of interest-earning assets increased $8.6
million or 13.6%, while the average rate earned thereon decreased 75 basis
points. The average balance of interest-bearing liabilities increased by $8.7
million or 17.1%, while the average rate paid thereon decreased 88 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 six month period ended March 31, 2004
from 2.76% for the six month period ended March 31, 2003.
Interest Income. Interest income decreased $11,000 or 0.58% to $1,888,000 for
the six month period ended March 31, 2004, as compared to $1,899,000 for the six
month period ended March 31, 2003.
Interest on loans receivable decreased $61,000 or 4.8% for the six month period
ended March 31, 2004, as compared to the six month period ended March 31, 2003.
This change was the result of a 53 basis point decrease in the average yield
earned, offset by a $918,000 increase in the average balance of loans
receivable.
Interest income on mortgage-backed securities decreased $26,000 or 11.0% for the
six month period ended March 31, 2004, as compared to the six month period ended
March 31, 2003. This change was the result of a $1.9 million increase in the
average balance of mortgage-backed securities and a 121 basis point decrease in
the average yield earned thereon.
Interest income on investment securities increased $92,000 or 27.8% for the six
month period ended March 31, 2004, as compared to the six month period ended
March 31, 2003. The increase was the
(15)
result of a $5.7 million increase in the average balance of investment
securities, offset by a 45 basis point decrease in the average yield earned
thereon.
Interest income on other interest-earning assets decreased $16,000 or 27.1% for
the six month period ended March 31, 2004, as compared to the six month period
March 31, 2003. The decrease was primarily due to a 73 basis point decrease in
the average yield earned thereon, partially offset by a $39,000 increase in the
average balance of other interest-earning assets.
The average yield on interest-earning assets was 5.29% and 6.04% for the six
month periods ended March 31, 2004 and 2003, respectively.
Interest Expense. Interest expense totaled $715,000 for the six months ended
March 31, 2004, as compared to $835,000 for the six months ended March 31, 2003.
The $120,000 or 14.4% decrease was primarily due to an 88 basis point decrease
in the average rate paid on the total average interest-bearing liabilities,
offset by an $8.7 million increase in the average balance of interest-bearing
liabilities.
Interest expense on deposits totaled $625,000 for the six months ended March 31,
2004, as compared to $743,000 for the six months ended March 31, 2003. The
$118,000 or 15.9% decrease was primarily due to an 84 basis point decrease in
the average rate paid thereon, partially offset by a $6.1 million increase in
the average balance of deposits.
Interest expense on FHLB advances decreased $2,000 for the six months ended
March 31, 2004, as compared to the six month ended March 31, 2003. The decrease
was due to a 120 basis point decrease in the average rate paid on FHLB advances
during the six months ended March 31, 2004, offset by a $2.6 million increase in
the average balance.
Provision for Loan Losses. During the six month ended March 31, 2004 and 2003,
the provision for loan losses was $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, 2004, noninterest
income increased $13,000 or 9.8%, as compared to the six months ended March 31,
2003, primarily due to gains on the sale of investments, partially offset by
decreases in service charges and other fees.
Noninterest Expense. Total noninterest expense increased by $75,000 or 12.4%
during the six month period ended March 31, 2004, as compared to the six month
period ended March 31, 2003. The increase was attributable to a $65,000 increase
in compensation and benefits, including $56,000 attributable to the ESOP plan
and $42,000 attributable to the RSP plan.
Income Tax Expense. The provision for income tax totaled $237,000 for the six
months ended March 31, 2004, as compared to $217,000 for the six months March
31, 2003. The $20,000 or 9.2% 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 repayments are greatly
influenced by general interest rates, economic conditions and
(16)
competition. The Company maintained liquidity levels adequate to fund loan
commitments, investment opportunities, deposit withdrawals and other financial
commitments. At March 31, 2004, the Company had obligations to fund outstanding
loan commitments of approximately $5.9 million, including construction loans in
process and unused lines of credit, for which adequate resources were available
to fund these loans. At March 31, 2004, approximately $8.2 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 March 31, 2004, 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, 2004, 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.
(17)
Part II. - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
None
Item 2. Change in Securities and Small Business Issuer Purchases of Equity
------------------------------------------------------------------
Securities
----------
ISSUER PURCHASES OF EQUITY SECURITIES
-------------------------------------------------------------------------------------------------------------
Period (a) Total (b) Average (c) Total Number of (d) Maximum Number (or
Number of Price Paid Shares (or Units) Approximate Dollar Value) of
Shares (or per Share Purchased as Part of Shares (or Units) that May Yet Be
Units) (or Unit) Publicly Announced Purchased Under the Plans or
Purchased Plans or Programs Programs (1)
-------------------------------------------------------------------------------------------------------------
January
1-31, 2004 0 N/A 0 21,253
-------------------------------------------------------------------------------------------------------------
February
1-29, 2004 0 N/A 0 21,253
-------------------------------------------------------------------------------------------------------------
March
1-31, 2004 0 N/A 0 21,253
-------------------------------------------------------------------------------------------------------------
Total 0 N/A 0 21,253
---------------- --------------- -------------- ------------------------- -----------------------------------
(1) On November 5, 2003, the Company announced that the Board of Directors has
approved a plan to repurchase up to 5%, or 36,353 of the outstanding shares
of the Company. This plan has no stated expiration date.
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, 2003 on January 27, 2004. At the
meeting, stockholders reelected Timothy Schneider as a
director to 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, 2004.
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
(18)
(b) Reports
During the quarter under report, the Company filed a Current
Report on Form 8-K dated March 9, 2004 to announce earnings
for the quarter ended December 31, 2003.
(19)
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, 2004 By /s/Gerald R. Kunic
----------------------------------------
Gerald R. Kunic
President
(Principal Executive Officer)
Date: May 14, 2004 By /s/Robert B. Kastan
----------------------------------------
Robert B. Kastan
Treasurer/Controller
(Principal Financial/Accounting Officer)
(20)