UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001
or
[_] 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 0-25172
FIRST BELL BANCORP, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 251752651
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(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)
300 DELAWARE AVENUE, SUITE 1704, WILMINGTON, DELAWARE 19801
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(Address of principal executive offices) (Zip Code)
(302) 427-7883
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year, if changed since
last report)
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
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: 4,758,360 shares of common
stock, par value $.01 per share, were outstanding as of November 9, 2001.
FIRST BELL BANCORP, INC.
FORM 10-Q
INDEX
PAGE
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PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheet September 30, 2001 (unaudited)
and December 31, 2000 ............................................................. 4
Consolidated Statement of Income for the Three and
Nine Months Ended September 30, 2001 and 2000 (unaudited).......................... 5
Consolidated Statement of Comprehensive Income for the
Three and Nine Months Ended September 30, 2001 and
2000 (unaudited)................................................................... 6
Consolidated Statement of Changes in Stockholders' Equity
for the Nine Months Ended September 30, 2001 and 2000 (unaudited)................. 7
Consolidated Statement of Cash Flows for the Nine Months
Ended September 30, 2001 and 2000 (unaudited)...................................... 8
Notes to Unaudited Consolidated Financial Statements for the Three
and Nine Months Ended September 30, 2001 and 2000 (unaudited)..................... 10
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations...................................... 12
Item 3 Quantitative and Qualitative Disclosure About Market Risk.......................... 17
PART II OTHER INFORMATION
Item 1 Legal Proceedings.................................................................. 18
Item 2 Changes in Securities and Use of Proceeds.......................................... 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
SIGNATURES 20
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
FIRST BELL BANCORP, INC.
CONSOLIDATED BALANCE SHEET
(in thousands)
SEPTEMBER 30, DECEMBER 31,
2001 2000
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ASSETS (unaudited)
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Cash:
Cash on-hand $ 935 988
Non-interest-bearing deposits 2,362 2,113
Interest-bearing deposits 40,476 37,408
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Total cash 43,773 40,509
Federal funds sold 6,335 6,425
Investment securities available-for-sale at fair value (cost of $239,233 and
$215,237, respectively) 240,690 213,234
Mortgage-backed securities available-for-sale at fair value (cost $52,987 and
$21,271, respectively) 59,599 21,523
Conventional mortgage loans - net of allowance for loan losses of $925 463,328 526,842
Other loans, net 929 969
Real estate owned - 29
Premises and equipment, net 3,490 3,682
Federal Home Loan Bank stock, at cost 10,400 11,400
Accrued interest receivable 5,608 5,383
Deferred income tax asset 767 1,232
Prepaid income taxes 1,010 152
Bank owned life insurance 20,728 -
Other assets 1,429 1,300
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Total assets $ 858,086 $ 832,680
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LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Deposits:
Passbook, club and other accounts $ 80,386 $ 69,607
Money market and NOW accounts 61,502 61,609
Certificate accounts 418,009 405,469
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Total deposits 559,897 536,685
Borrowings 215,500 219,250
Advances by borrowers for taxes and insurance 5,431 10,993
Accrued interest on deposits 6,814 869
Accrued interest on borrowings 1,059 1,183
Dividend payable on common stock 490 490
Other liabilities 1,529 1,590
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Total liabilities 790,720 771,060
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Stockholders' equity:
Preferred stock, ($0.01 par value; 2,000,000 shares authorized;
No shares issued or outstanding) - -
Common stock ($0.01 par value; 20,000,000 shares authorized;
8,596,250 issued; 4,758,360 outstanding one stock right per share) 86 86
Paid-in capital 62,760 62,556
Unearned ESOP shares (475,966 and 506,257 shares, respectively) (3,349) (3,507)
Unearned MRP shares (180,845 and 210,727 shares, respectively) (2,521) (2,937)
Treasury stock (3,837,890 shares) (62,030) (62,030)
Accumulated other comprehensive income/(loss), net of taxes 883 (1,067)
Retained earnings 71,537 68,519
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Total Stockholders' Equity 67,366 61,620
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Total Liabilities and Stockholders' Equity $ 858,086 $ 832,680
============= ============
See notes to consolidated financial statements
3
FIRST BELL BANCORP, INC.
CONSOLIDATED STATEMENT OF INCOME
(in thousands, except per share amounts)
(unaudited)
THREE THREE NINE NINE
MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED
SEPT. 30, 2001 SEPT. 30, 2000 SEPT. 30, 2001 SEPT. 30, 20000
-------------- -------------- -------------- ---------------
Interest income:
Conventional mortgage loans $ 8,453 $ 9,619 $ 26,243 $ 28,811
Interest-bearing deposits 203 256 1,116 803
Mortgage-backed securities 728 358 1,325 572
Federal funds sold 91 183 253 698
Investment securities 2,589 2,577 8,248 7,900
Other loans 16 17 50 51
Federal Home Loan Bank stock 177 208 552 598
-------------- -------------- -------------- --------------
Total interest and dividend income 12,257 13,218 37,787 39,433
Interest expense on deposits 7,101 7,051 22,008 20,261
Interest expense on borrowings 3,167 3,315 9,502 9,757
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Total interest expense 10,268 10,366 31,510 30,018
-------------- -------------- -------------- --------------
Net interest income 1,989 2,852 6,277 9,415
Provision for loans losses - - - -
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Net interest income after provision for loans losses 1,989 2,852 6,277 9,415
Other income:
Loan fees and service charges 270 159 785 468
Gain on sale of securities - - 329 138
Gain on sale of loans - - 62 -
Income from bank owned life insurance 280 - 728 -
Miscellaneous income 1 5 (18) 95
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Total other income 551 164 1,886 701
Other general and administrative expense:
Compensation, payroll taxes and fringe benefits 685 694 1,953 2,113
Federal insurance premiums 26 27 78 81
Office occupancy expense, excluding depreciation 145 103 436 351
Depreciation 75 75 225 219
Computer services 80 74 241 206
Other expenses 268 473 889 1,162
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Total general and administrative expense 1,279 1,446 3,822 4,132
-------------- -------------- -------------- --------------
Net Income before provision for income taxes 1,261 1,570 4,341 5,984
Provision for income taxes:
Federal (34) (41) 446 294
State (58) 168 213 412
Deferred credit (111) (48) (805) (99)
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Total provision for income taxes (203) 79 (146) 607
-------------- -------------- -------------- --------------
Net income $ 1,464 $ 1,491 $ 4,487 $ 5,377
============== ============== ============== ==============
Basic earnings per share $ 0.36 $ 0.37 $ 1.10 $ 1.28
Diluted earnings per share $ 0.35 $ 0.35 $ 1.07 $ 1.24
Weighted average shares outstanding-Basic 4,099 4,061 4,092 4,190
Weighted average shares outstanding-Diluted 4,201 4,213 4,191 4,331
See notes to consolidated financial statements
4
FIRST BELL BANCORP, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(unaudited)
(in thousands)
THREE THREE NINE NINE
MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED
SEPT. 30, 2001 SEPT. 30, 2000 SEPT. 30, 2001 SEPT. 30, 20000
-------------- -------------- -------------- ---------------
Net income $ 1,464 $ 1,491 $ 4,487 $ 5,377
-------------- -------------- -------------- ---------------
Unrealized gains on securities:
Unrealized holding gains arising during
the period 2,192 2,184 3,534 6,880
Less: reclassification adjustment for gains
realized in net income - - 329 -
-------------- -------------- -------------- ---------------
Other comprehensive income, before taxes 3,656 3,675 7,692 12,257
Tax expense related to other comprehensive
income 870 801 1,255 2,677
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Comprehensive income $ 2,786 $ 2,874 $ 6,437 $ 9,580
============== ============== ============== ===============
See notes to consolidated financial statements
5
FIRST BELL BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(in thousands)
(unaudited)
Accumulated
Number of Other Com-
Common Unearned Unearned prehensive
Stock Common Paid-in ESOP MRP Treasury Income/(loss) Retained
Shares Stock Capital Shares Shares Stock ,Net of Taxes Earnings Total
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Balance at December 31, 1999 5,189 $86 $62,217 $(3,740) $(3,378) $(55,522) $(8,931) $63,786 $54,518
Purchase of treasury stock (431) (6,533) (6,533)
Allocation of ESOP shares 179 159 338
Allocation of MRP shares 91 441 532
Dividend on common stock ($0.36) (1,480) (1,480)
Change in unrealized gain or
(loss), net of taxes of $2,677 4,203 4,203
Net income 5,377 5,377
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Balance at September 30, 2000 4,758 $86 $62,487 $(3,581) $(2,937) $(62,055) $(4,728) $67,683 $56,955
===== === ======= ======= ======== ======== ======= ======= =======
Balance at December 31, 2000 4,758 $86 $62,556 $(3,507) $(2,937) $(62,030) $(1,067) $68,519 $61,620
Allocation of ESOP shares 185 343
Allocation of MRP shares 19 158 416 435
Dividend on common stock ($0.36) (1,469) (1,469)
Change in unrealized gain or
(loss), net of taxes of $1,337 1,950 1,950
Net income 4,487 4,487
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Balance at September 30, 2001 4,758 $86 $62,760 $(3,349) $(2,521) $(62,030) $ 883 $71,537 $67,366
===== === ======= ======= ======= ======== ======= ======= =======
See notes to consolidated financial statements
6
FIRST BELL BANCORP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended Nine Months Ended
SEPT.30, 2001 SEPT.30, 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,487 $ 5,377
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 225 219
Deferred income taxes (805) (99)
Amortization of premiums and accretion of discounts 189 (90)
Compensation expense-allocation of ESOP and MRP shares 778 684
Loss/(Gain) on sale of real estate owned 21 (84)
Gain on sale of mortgage-backed securities, available for sale (314) -
Gain on sale of investment securities, available for sale (15) -
Gain on sale of investment securities, held to maturity - (138)
Gain on sale of mortgage loans (62) -
Changes in assets and liabilities
Accrued interest receivable (225) (685)
Accrued interest on deposits 5,945 5,652
Accrued interest on borrowings (124) 222
Prepaid income taxes (858) (93)
Other assets (857) (116)
Other liabilities (60) (1,978)
Dividend payable - 34
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Net cash provided by operating activities 8,325 8,905
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CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of investment securities, held to maturity - 5,125
Sale of investment securities, available for sale 29,889 -
Sale of mortgage-backed securities, available for sale 21,184 -
Purchase of investment securities, available for sale (61,671) -
Purchase of mortgage-backed securities, available for sale (66,375) (23,291)
Principal repayments on investment securities, available for sale 7,798 1,429
Principal repayments on mortgage-backed securities, available for sale 7,002 1,286
Maturity of federal funds 90 28,200
Sale of conventional loans 20,207 -
Net decrease/(increase) in conventional loans 43,369 (1,230)
Net decrease/(increase) in other loans 40 (14)
Purchase of Bank Owned Life Insurance (20,000) -
Sale of Federal Home Loan Bank stock 1,000 -
Net proceeds from sale of real estate owned 8 474
(Purchase) retirement of premises and equipment (33) (52)
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Net cash (used for)/provided by investing activities (17,492) 11,927
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits, NOW accounts and savings
accounts 10,672 4,769
Net increase in certificate accounts 12,540 11,093
Net decrease in advances by borrowers for taxes and insurance (5,562) (5,706)
Net decrease in borrowings (3,750) (17,500)
Dividends paid (1,469) (1,448)
Purchase of treasury stock - (6,533)
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Net cash provided by/(used for) financing activities 12,429 (15,325)
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NET DECREASE IN CASH AND CASH EQUIVALENTS 3,265 5,507
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 40,509 20,468
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 43,773 $ 25,975
========== =========
See notes to consolidated financial statements
7
FIRST BELL BANCORP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (continued)
(in thousands)
(unaudited)
SUPPLEMENTAL DISCLOSURES: Nine Months Ended Nine Months Ended
Cash paid for: SEPT.30, 2001 SEPT.30, 2000
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Interest on deposits and advances by borrowers for
taxes and insurance $16,063 $14,609
Interest on borrowings 9,626 9,535
Income taxes 1,347 2,053
Non-cash transactions:
Transfers from conventional loans to real estate acquired through foreclosures - 29
Increase in additional paid-in capital-ESOP and MRP allocation 204 270
Unrealized appreciation on securities available for sale 1,950 6,880
8
FIRST BELL BANCORP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
1. Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of First Bell
Bancorp, Inc. ("First Bell" or the "Company") and its wholly-owned subsidiary,
Bell Federal Savings and Loan Association of Bellevue (the "Association") and
the Association's wholly-owned subsidiary, 1891 Associates, Inc. All significant
intercompany transactions have been eliminated in consolidation. The investment
in the Association on First Bell's financial statements and the investment in
1891 Associates, Inc. on the Association's financial statements are carried at
the parent company's equity in the underlying net assets.
The consolidated balance sheet as of September 30, 2001 and related consolidated
statements of income, comprehensive income, cash flows and changes in
stockholders' equity for the three and nine months ended September 30, 2001 and
2000 are unaudited. In the opinion of management, all adjustments necessary for
a fair presentation of such financial statements have been included. Such
adjustments consisted of normal recurring items. Interim results are not
necessarily indicative of results for a full year.
The financial statements and notes are presented as permitted by Form 10-Q. The
interim statements are unaudited and should be read in conjunction with the
financial statements and notes thereto contained in First Bell's annual report
for the fiscal year ended December 31, 2000.
2. Establishment of a Delaware Holding Company
-------------------------------------------
In June, 2001 Bell Federal Savings established a Delaware Holding Company
subsidiary to hold a portion of the investment securities previously owned
exclusively by the Association. Bell Federal Savings provided a $100 million
line of credit to the subsidiary. The proceeds from the line of credit were used
to purchase $100 million of Bank Qualified Municipal Securities which were
previously held as "available for sale" securities by Bell Federal Savings. The
securities are also classified as "available for sale" by the Delaware Holding
Company subsidiary.
3. Recent Accounting Pronouncements
--------------------------------
In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfer and
Servicing of Financial Assets and Extinguishments of Liabilities" which replaces
SFAS No.125, issued in June 1996. SFAS No. 140 revises the standards for
accounting for securitization and other transfers of financial assets and
collateral and requires certain disclosures, but it retains most of the
provisions of SFAS No. 125. The statement provides consistent standards for
distinguishing transfers of financial assets that are sales from transfers that
are secured borrowings. SFAS No. 140 is effective for transfers occurring after
March 31, 2001 and for disclosures relating to securitization transactions and
collateral for years ending after December 15, 2000. Implementation of SFAS No
140 did not have a material impact on the Company's financial condition or
results of operations.
9
On June 29, 2001, the FASB approved SFAS No. 141, "Business Combinations." SFAS
No. 141 requires that the purchase method of accounting be used for all business
combinations initiated after September 30, 2001. Goodwill and certain intangible
assets will remain on the balance sheet and not be amortized. On an annual
basis, or when there is reason to suspect that their values have been diminished
or impaired, these assets must be tested for impairment, and write-downs may be
necessary. The Company implemented SFAS No. 141 on July 1, 2001. The
implementation had no impact on its consolidated financial position or results
of operations.
On June 29, 2001, SFAS No. 142, "Goodwill and Other Intangible Assets" was
approved by the FASB. SFAS No. 142 changes the accounting for goodwill from an
amortization method to an impairment-only approach. Amortization of goodwill,
including goodwill recorded in past business combinations, will cease upon
adoption of this statement. The Company is required to implement SFAS No. 142 on
January 1, 2002. It is anticipated that the implementation of SFAS No, 142 will
not have any impact on the consolidated financial position or results of
operations of the Company.
10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Private Securities Litigation Reform Act Safe Harbor Statement
- --------------------------------------------------------------
In addition to historical information, this 10-Q includes certain
forward-looking statements based on current management expectations. Examples of
this forward-looking information can be found in, but are not limited to, the
allowance for loan losses discussion and the quantitative and qualitative
disclosure about market risk. The Company's actual results could differ
materially from those of management expectations. Factors that could cause
future results to vary from current management expectations include, but are not
limited to, general economic conditions, legislative and regulatory changes,
monetary and fiscal policies of the federal government, changes in tax policies,
rates and regulations of federal, state and local tax authorities, changes in
interest rates, deposit flows, the cost of funds, demand for loan products,
demand for financial services, competition, changes in the quality or
composition of the Company's loan and investment portfolios, changes in
accounting principles, policies or guidelines, and other economic, competitive,
governmental and technological factors, including war or terrorist activities
affecting the Company's operations, markets, products, services and prices. The
Company does not undertake-and specifically disclaims any obligation-to publicly
release the result of any revisions which may be made to any forward-looking
statements to reflect events or circumstances after the date of such statements
or to reflect the occurrence of anticipated or unanticipated events.
Comparison of Financial Condition at September 30, 2001 and December 31, 2000.
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Assets. Total assets were $858.1 million at September 30, 2001 in comparison to
$832.7 million at December 31, 2000. There were increases in mortgage-backed
securities-available for sale, investment securities-available for sale and Bank
Owned Life Insurance ("BOLI"). Offsetting these increases were decreases in
conventional mortgage loans and Federal Home Loan Bank stock. Mortgage-backed
securities at September 30, 2001 were $59.6 million compared to $21.5 million at
December 31, 2000. The increase was the result of the purchase of $66.4 million
in mortgage-backed securities offset by sales of mortgage-backed securities of
$21.2 million and principal repayments of $7.0 million. Investment securities,
available for sale, at September 30, 2001 were $240.7 million compared to $213.2
million at December 31, 2000. The increase was the result of the purchase of
$61.7 million in investment securities offset by sales of securities of $29.9
million and principal repayments of $7.8 million. The mortgage backed securities
and the securities available for sale were sold to reduce the Association's
interest rate risk position. During the first quarter, the Company also
purchased $20.0 million in BOLI. Accrued earnings from this purchase are
capitalized and are used to defray the cost of employee benefits. Cash increased
by $3.3 million to $43.8 million at September 30, 2001 from $40.5 million at
December 31, 2000. In addition, the Association's investment in stock of the
Federal Home Loan Bank was reduced by $1.0 million as a result of the net
decrease in the balance of mortgage loans and mortgage-backed securities.
Liabilities. Total liabilities increased to $790.7 million at September 30, 2001
compared to $771.1 million at December 31, 2000. Increases in deposits and
accrued interest on deposits were offset by decreases in borrowings and advances
by borrowers for taxes and insurance. Deposits increased by $23.2 million to
$559.9 million at September 30, 2001 from $536.7
11
million at December 31, 2000. The increase was the net result of increases in
certificate accounts of $12.5 million and an increase in passbook, club and
other accounts of $10.8 million. Accrued interest on deposits increased by $5.9
million to $6.8 million at September 30, 2001 from $869,000 at December 31,
2000. The increase is attributable to the timing of interest payments on
certificate accounts. Borrowings decreased by $3.8 million to $215.5 million at
September 30, 2001 from $219.3 million at December 31, 2000. The decrease was
the result of normal quarterly principal repayments. Advances by borrowers for
taxes and insurance decreased by $5.6 million to $5.4 million at September 30,
2001 from $11.0 million at December 31, 2000. The decrease is the result of the
timing of customer payments in relation to the actual tax payment of property
taxes and insurance payments.
Capital. Total stockholders' equity increased by $5.7 million to $67.4 million
at September 30, 2001 from $61.6 million at December 31, 2000. The increase was
the result of an increase in the value of the Company's investment securities,
net of taxes and an increase in retained earnings. Accumulated other
comprehensive gain (loss), net of taxes improved by $2.0 million during the nine
month period ended September 31, 2001. Retained earnings increased by $3.0
million to $71.5 million at September 30, 2001 from $68.5 million at December
31, 2000. The increase was the result of net income of $4.5 million reduced by
dividends of $1.5 million.
Liquidity and Capital Resources. The Company's primary sources of funds are
deposits, borrowings, and principal and interest payments on mortgages,
mortgage-backed securities and investments. While maturities and scheduled
amortization of loans are predictable sources of funds, deposit flows and
mortgage prepayments are strongly influenced by changes in general interest
rates, economic conditions and competition.
The primary use of funds by the Company for the nine months ended September 30,
2001 was the purchase of $20.0 million in Bank Owned Life Insurance, $64.1
million of mortgage-backed securities available-for-sale and investment
securities available for sale of $63.1 million. Sources of funds for the nine
months ended September 30, 2001 were $51.8 million in principal and interest
payments on conventional mortgage loans, sales of mortgage-backed securities and
investments, available for sale, of $51.1 million and increases in savings
deposits of $23.2 million.
At September 30, 2001, the Association's capital exceeded all of the capital
requirements of the Office of Thrift Supervision ("OTS"). The Association's
Tangible, Tier I (core) capital (to adjusted total assets), Tier I capital (to
risk-weighted assets) and Total capital (to risk-weighted assets) ratios were
9.18%, 9.18%, 22.32% and 23.85%, respectively. The Association is considered a
"well capitalized" institution under the prompt corrective action regulations of
the OTS.
Comparison of Results of Operation for the Nine and Three Months ended September
- --------------------------------------------------------------------------------
30, 2001 and 2000.
- ------------------
General. Net income for the nine months ended September 30, 2001 was $4.5
million in comparison to $5.4 million for the nine months ended September 30,
2000. The decline can be attributable to a decrease in interest income and
increases in interest expense offset by increases in other income and decreases
in general administrative expenses and income taxes. For the three months ended
September 30, 2001, net income was $1.5 million compared to $1.5 million for the
three months ended September 30, 2000. Primary fluctuations between the two
quarterly
12
periods occurred in other income, general and administrative expenses and the
provision for income taxes.
Interest Income. Interest income discussed in this section is tax equivalent
interest income. Tax equivalent interest income is being used because interest
on investment securities includes tax-exempt securities. Tax-exempt securities
carry pre-tax yields lower than comparable assets. Therefore, it is more
meaningful to analyze interest income on a tax equivalent basis. Tax equivalent
increases of $2.5 million and $912,000 were made for the nine months and three
months ended September 30, 2001, respectively. For the nine and three months
ended September 30, 2000, tax equivalent adjustments of $3.0 million and
$970,000 were made, respectively. Interest income for the nine months ended
September 30, 2001 decreased by $2.1 million or 4.9% to $40.3 million from $42.4
million for the nine months ended September 30, 2000. The decrease was the net
result of decreases in interest earned on conventional mortgage loans and
federal funds sold while interest earned on mortgage-backed securities and
interest bearing deposits increased. Interest on mortgage-backed securities for
the nine months ended September 30, 2001 was $1.3 million compared to $572,000
in the prior year. The $753,000 increase can be attributable to an increase in
the average balance from $10.8 million to $32.7 million offset by a decrease in
the average rate earned on the securities to 5.40% from 7.06%. Interest on
interest bearing deposits was $1.1 million for the nine months ended September
30, 2001 compared to $803,000 for the nine months ended September 30, 2000. The
$313,000 increase is the net result of a $15.7 million increase in the average
balance and a decrease in the average rate from 5.80% to 4.35%. Interest earned
on federal funds sold decreased by $445,000 to $253,000 for the nine months
ended September 30, 2001 from $698,000 for the comparable 2000 period. The
decrease was primarily the result of a decrease in the federal funds sold
average balance. Interest earned on conventional mortgage loans decreased $2.6
million or 8.9% to $26.2 million for the nine months ended September 30, 2001
from $28.8 million for the nine months ended September 30, 2000. The decrease
was the result of the average rate earned and the average balance on
conventional mortgage loans declining for the nine months ended September 30,
2001 from the comparable 2000 period. The decreases in the average rate and the
average balance were primarily due to mortgage refinancing and the sale of
mortgage loans during the first quarter of the current year. The average rate
earned and the average balance for the nine months ended September 30, 2001 were
7.13% and $490.8 million, respectively. For the nine months ended September 30,
2000, the average rate earned and the average balance were 7.19% and $534.4
million, respectively.
Interest income for the three months ended September 30, 2001 decreased by $1.0
million or 7.2% to $12.2 million from $13.2 million for the three months ended
September 30, 2000. The decrease was the net result of increases in interest
earned on mortgage-backed securities and decreases in interest earned on
conventional mortgage loans and interest earned on federal funds sold. Interest
earned on mortgage-backed securities was $728,000 for the three months ended
September 30, 2001 compared to $358,000 for the comparable 2000 period. The
$370,000 increase can be attributable to an increase in the average balance from
$20.6 million to $58.8 million offset by a decrease in the average rate earned
on the securities to 5.09% from 6.71%. Interest earned on conventional mortgage
loans decreased by $1.2 million or 12.1% to $8.5 million for the three months
ended September 30, 2001 from $9.6 million for the three months ended September
30, 2000. The decrease was the result of the average balance decreasing to
$471.3 million from $535.2 million for the three months ended September 30, 2001
and 2000, respectively. In addition, the average rate earned on conventional
mortgage loans decreased to 7.17% for the three months ended September 30, 2001
from 7.19% for the comparable 2000
13
period. Interest earned on federal funds sold decreased by $92,000 or 50.3% to
$91,000 for the three months ended September 30, 2001 from $183,000 for the
three months ended September 30, 2000. The decrease can be primarily
attributable to the decline of the average balance to $7.2 million from $10.9
million for the three months ended September 30, 2001 and 2000, respectively.
Interest Expense. Interest expense for the nine months ended September 30, 2001
increased by $1.5 million or 5.0% to $31.5 million from $30.0 million for the
nine months ended September 30, 2000. The increase was due to the increase in
interest expense on deposits offset by a decrease in the cost of borrowings.
Interest expense on deposits increased by $1.7 million or 8.6% to $22.0 million
for the nine months ended September 30, 2001 from $20.3 million for the nine
months ended September 30, 2000. The average rate paid on deposits for the nine
months ended September 30, 2001 and 2000 was 5.26% and 5.09%, respectively. The
average balance on deposits and borrower's deposits for taxes and insurance was
$557.9 million and $530.5 million for the nine months ended September 30, 2001
and 2000, respectively. Interest expense on borrowings decreased by $255,000 to
$9.5 million for the nine months ended September 30, 2001 from $9.8 million for
the nine months ended September 30, 2000. The average rate paid on borrowings
for the nine months ended September 30, 2001 and 2000 was 5.83% and 5.84%,
respectively. The average balance on borrowings was $217.2 million and $222.7
million for the nine months ended September 30, 2001 and 2000, respectively.
Interest expense for the three months ended September 30, 2001 decreased by
$98,000 to $10.3 million from $10.4 million for the three months ended September
30, 2000. The average balance on deposits and borrower's deposits for taxes and
insurance increased from $533.0 million to $560.6 million while the average rate
paid on these deposits decreased from 5.33% to 5.07% during the three month
periods ended September 30, 2001 and September 30, 2000, respectively. Interest
expense on borrowings decreased by $148,000 to $3.2 million for the three months
ended September 30, 2001 from $3.3 million for the three months ended September
30, 2000. The average rate paid on borrowings for the three months ended
September 30, 2001 and 2000 was 5.87% and 6.00%, respectively. The average
balance on borrowings was $215.6 million and $220.9 million for the three months
ended September 30, 2001 and 2000, respectively.
Net Interest Income. Net interest income decreased to $8.8 million for the nine
months ended September 30, 2001 from $12.4 million for the nine months ended
September 30, 2000. The decline was the result of interest expense increasing by
$1.5 million while interest income decreased by $2.1 million.
For the three months ended September 30, 2001 net interest income decreased by
$921,000 compared to the quarterly period ended September 30, 2000 as a net
result of decreases in interest income and interest expense.
Provision for Loan Losses. The provision for loan loss was zero for the nine and
three months ended September 30, 2001 and September 30, 2000, respectively. At
September 30, 2001, non-performing assets were $538,000 compared to $594,000 at
December 31, 2000. The allowance for loan losses equaled 171.9% of total
non-performing assets as of September 30, 2001. There were no loans charged off
during the nine and three months ended September 30, 2001 and 2000. Management
believes that the current level of loan loss reserve is adequate to cover losses
inherent in the portfolio as of September 30, 2001. There can be no assurance,
however, that the
14
Company will not sustain losses in future periods which could be substantial in
relation to the size of the allowance as of September 30, 2001.
Other Income. Other income for the nine months ended September 30, 2001
increased by $1.2 million or 169.0% to $1.8 million from $701,000 for the nine
months ended September 30, 2000. The increase was the result of increases in
gains on sale of securities, miscellaneous income and loan fees and service
charges. Gains on sale of securities increased to $391,000 for the nine months
ended September 30, 2001 from $138,000 for the nine months ended September 30,
2000. Other income increased by $615,000 to $710,000 for the nine months ended
September 30, 2001 from $95,000 for the comparable 2000 period largely due to
earnings on the BOLI purchase. Loan fees and service charges increased by
$317,000 to $785,000 for the nine months ended September 30, 2001 from $468,000
for the comparable 2000 period.
Other income for the three months ended September 30, 2001 increased by $387,000
as the result of increases in miscellaneous income and loan fees and service
charges.
General and Administrative Expenses. General and administrative expenses for the
nine months ended September 30, 2001 decreased by $310,000 or 7.5% to $3.8
million from $4.1 million for the nine months ended September 30, 2000. The
decrease was mainly the result of declines in compensation, payroll taxes and
fringe benefits and other expenses. Compensation, payroll taxes and fringe
benefits decreased by $160,000 or 7.6% to $2.0 million for the nine months ended
September 30, 2001 from $2.1 million from the nine months ended September 30,
2000. The decrease was the result of a temporary reduction in employees and the
decrease in the cost of employee stock programs. Other expenses declined by
$273,000 for the nine months ended September 30, 2001 compared to the nine
months ended September 30, 2000. Office occupancy expense increased by $85,000
or 24.2% to $436,000 for the nine months ended September 30, 2001 from $351,000
for the nine months ended September 30, 2000. The increase was due to expenses
associated with the maintenance of buildings and equipment and increases in rent
paid for the Association's branch offices. The cost of computer services
increased to $241,000 from $206,000 as a result of the growth in the number of
customer accounts processed and the addition of internet banking.
General and administrative expenses for the three months ended September 30,
2001 decreased by $167,000 or 11.5%. The decrease was the result of the same
factors causing the change in general and administrative expenses for the nine
month period ended September 30, 2001.
Income Taxes. Tax equivalent income taxes decreased by $1.2 million or 32.9% to
$2.4 million for the nine months ended September 30, 2001 from $3.6 million for
the comparable 2000 period. The decrease was primarily the result of net income
before taxes declining to $6.8 million from $9.0 million for the nine months
ended September 30, 2001 and 2000, respectively. Tax equivalent adjustments of
$2.5 million and $3.0 million were made for the nine months ended September 30,
2001 and 2000, respectively.
Tax equivalent income taxes for the three months ended September 30, 2001
decreased to $707,000 from $1.0 million for the three months ended September 30,
2000. The decrease was the result of an increase in the percentage of
non-taxable income in proportion to taxable income earned during the respective
periods. Tax equivalent adjustments of $912,000 and $970,000 were made during
the respective quarters.
15
Item 3. Quantitative and Qualitative Disclosure About Market Risk
The Company's interest rate sensitivity is monitored by management through
selected interest rate risk measures produced internally and by the OTS. Based
on internal reviews, management does not believe that there has been a material
change in the Company's interest rate sensitivity from December 31, 2000 to
September 30, 2001. However, the OTS results are not yet available for the
quarter ended September 30, 2001. All methods used to measure interest rate
sensitivity involve the use of assumptions. Management cannot predict what
assumptions are made by the OTS, which can vary from management's assumptions.
Therefore, the results of the OTS calculations can differ from management's
internal calculations. The Company's interest rate sensitivity should be
reviewed in conjunction with the financial statements and notes thereto
contained in First Bell's Annual Report for the fiscal year ended December 31,
2000. The Company saw a narrowing of its interest margin due to the rise in
interest rates that occurred during 1999 and 2000. In fiscal year 2001, the
federal reserve has decreased short-term interest rates. The effects of these
decreases however, have not yet fully translated into lower deposit costs due to
the maturity dates on the Company's certificates of deposit.
16
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings.
There are various claims and lawsuits in which the Company is
periodically involved incidental to the Company's business, which in
the aggregate involve amounts which are believed by management to be
immaterial to the financial condition and results of operations of the
Company.
Item 2. Changes in Securities and Use of Proceeds.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibits are filed as part of this report.
Exhibit 3.1 - Certificate of Incorporation of First Bell Bancorp,
Inc.*
Exhibit 3.2 - Bylaws of First Bell Bancorp, Inc.*
Exhibit 4.0 - Stock Certificate of First Bell Bancorp, Inc.*
Exhibit 11 - Computation of Earnings Per Share (filed herewith)
*Incorporated herein by reference into this document from the
Exhibits to Form S-1, Registration Statement, filed on November 9,
1994, as amended, Registration No. 33-86160.
(b) Reports on Form 8-K
Form 8-K filed August 28, 2001, Item 4, Change in Certifying
Accountant
17
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
FIRST BELL BANCORP, INC.
(Registrant)
Date: November 14, 2001 /s/ Albert H. Eckert, II
---------------------------
Albert H. Eckert, II
President and Chief Executive Officer
Date: November 14, 2001 /s/ Jeffrey M. Hinds
-----------------------
Jeffrey M. Hinds
Executive Vice President and
Chief Financial Officer (Principal
Accounting Officer)
18