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 March 31, 2002
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 (IRS Employer
incorporation or organization) 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: 4,774,436 shares of common
stock, par value $.01 per share, were outstanding as of May 7, 2002.
FIRST BELL BANCORP, INC.
FORM 10-Q
INDEX
PAGE
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PART I FINANCIAL INFORMATION
Item 1 Financial Statements.............................................. 1
Consolidated Balance Sheet March 31, 2002
and December 31, 2001 (unaudited)................................. 2
Consolidated Statement of Income for the Three
Months Ended March 31, 2002 and 2001
(unaudited)....................................................... 3
Consolidated Statement of Comprehensive Income for the
Three Months Ended March 31, 2002 and 2001 (unaudited)............ 4
Consolidated Statement of Changes in Stockholders' Equity
for the Three Months Ended March 31, 2002 and 2001 (unaudited).... 5
Consolidated Statement of Cash Flows for the Three Months
Ended March 31, 2002 and 2001 (unaudited)......................... 6
Notes to Unaudited Consolidated Financial Statements for the Three
Months Ended March 31, 2002 and 2001.............................. 7
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations..................... 9
Item 3 Quantitative and Qualitative Disclosure About Market Risk......... 13
PART II OTHER INFORMATION
Item 1 Legal Proceedings................................................. 14
Item 2 Changes in Securities and Use of Proceeds......................... 14
Item 3 Defaults Upon Senior Securities................................... 14
Item 4 Submission of Matters to a Vote of Security Holders............... 14
Item 5 Other Information................................................. 14
Item 6 Exhibits and Reports on Form 8-K.................................. 14
SIGNATURES....................................................................... 15
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
1
FIRST BELL BANCORP,INC
CONSOLIDATED BALANCE SHEET
(unaudited, in thousands)
March 31, 2002 December 31, 2001
-------------- -----------------
ASSETS
Cash and cash equivalents:
Cash on-hand $ 883 $ 1,103
Non-interest bearing deposits 12,271 2,299
Interest-bearing deposits 42,428 28,796
--------- ---------
Total cash and cash equivalents 55,582 32,198
Fed funds sold 1,650 4,150
Investment securities available-for-sale, at fair value (cost of $292,969 and
$283,857, respectively) 291,313 281,430
Mortgage-backed securities available-for-sale at fair value (cost of $62,827
and $56,004, respectively) 62,715 55,995
Loans - Net of allowance for loan losses of $925 415,413 436,473
Properties and equipment, net 3,349 3,417
Federal Home Loan Bank stock, at cost 10,400 10,400
Bank owned life insurance 21,273 21,012
Other assets 10,633 10,128
--------- ---------
Total Assets $ 872,328 $ 855,203
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Passbook, club and other accounts $ 101,744 $ 85,318
Money market and NOW accounts 71,295 69,625
Certificate accounts 400,263 406,409
--------- ---------
Total deposits 573,302 561,352
Borrowings 213,000 214,250
Advances by borrowers for taxes and insurance 11,910 9,471
Other liabilities 5,488 3,689
--------- ---------
Total liabilities 803,700 788,762
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; 4,774,436 and 4,758,360 outstanding, respectively;
one stock right per share) 86 86
Additional paid in capital 62,905 62,854
Retained earnings 74,393 72,914
Unearned ESOP shares (466,590 and 459,999 shares, respectively) (3,207) (3,254)
Unearned MRP (180,845 shares) (2,521) (2,521)
Treasury stock (3,821,814 and 3,837,890 shares, respectively) (61,859) (62,030)
Accumulated other comprehensive loss, net of taxes (1,169) (1,608)
--------- ---------
Total Stockholders' Equity 68,628 66,441
Total Liabilities and Stockholders' Equity $ 872,328 $ 855,203
========= =========
See notes to unaudited consolidated financial statements
2
FIRST BELL BANCORP, INC.
CONSOLDATED STATEMENT OF INCOME
(unaudited, in thousands except per share amounts)
THREE MONTHS
ENDED
MARCH 31, 2002 MARCH 31, 2001
-------------- --------------
Conventional mortgage loans $ 7,493 $ 9,164
Interest-bearing deposits 151 593
Mortgage-backed securities 599 136
Federal funds sold 28 93
Investment securities - taxable 902 654
Investment securities - exempt from federal income tax 2,043 2,119
Other loans 11 17
Federal Home Loan Bank stock 116 178
-------- --------
Total interest income 11,343 12,954
Interest expense on deposits 5,519 7,534
Interest expense on borrowings 3,022 3,179
-------- --------
Total interest expense 8,541 10,713
-------- --------
Net interest income 2,802 2,241
Provision for loan losses -- --
-------- --------
Net interest income after provision for loan losses 2,802 2,241
Other income:
Loan fees and service charges 301 285
Gain on sale of investments, net -- 340
Gain on sale of loans -- 62
Other income 262 164
-------- --------
Total other income 563 851
General and administrative expenses:
Compensation, payroll taxes and fringe benefits 585 657
Office occupancy expense, excluding depreciation 146 148
Depreciation 76 76
Computer services 82 80
Other expenses 329 276
-------- --------
Total general and administrative expenses 1,218 1,237
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Net income before taxes 2,147 1,855
Provision for income taxes:
Current:
Federal 1,171 290
State 107 205
Deferred credit (1,106) (315)
-------- --------
Total provision for income taxes 172 180
Net income $ 1,975 $ 1,675
======== ========
Basic earnings per share $ 0.48 $ 0.41
Diluted earnings per share $ 0.47 $ 0.40
Weighted average shares outstanding-Basic 4,122 4,055
Weighted average shares outstanding-Diluted 4,225 4,186
See notes to unaudited consolidated financial statements
3
FIRST BELL BANCORP, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(unaudited, in thousands)
Three Months Ended
March 31, 2002 March 31, 2001
-------------- --------------
Net income $ 1,975 $ 1,675
Unrealized gains/(losses)on securities:
Unrealized holding gains (losses) arising during
the period 870 2,798
Less: reclassification adjustment for gains
realized in net income -- 330
------- -------
Other comprehensive income, before taxes 870 2,468
Tax expense (431) (962)
------- -------
Other comprehensive income, net of taxes $ 2,414 $ 3,181
======= =======
See notes to unaudited consolidated financial statements
4
FIRST BELL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(unaudited, in thousands)
Number Accumulated
Common Additional Unearned Comprehensive
Stock Common Paid-in ESOP Treasury MRP Income, Net Retained
Shares Stock Capital Shares Stock Stock of Taxes Earnings Total
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000 4,758 $ 86 $62,556 $(3,507) $(62,030) $(2,937) $(1,067) $68,519 $61,620
Allocation of ESOP shares 80 58 138
Dividend payable ($0.12) (549) (549)
Change in unrealized gain or --
loss, net of taxes 1,506 1,506
Net income 1,675 1,675
------ ------ ------- ------- -------- ------- ------- ------- -------
Balance at March 31, 2001 4,758 $ 86 $62,636 $(3,449) $(62,030) $(2,937) $ 439 $69,645 $64,390
===== ====== ======= ======= ======== ======= ======= ======= =======
Balance at December 31, 2001 4,758 $ 86 $62,854 $(3,254) $(62,030) $(2,521) $(1,608) $72,914 $66,441
Allocation of ESOP shares 51 47 98
Exercise of options 16 171 171
Dividend payable ($0.12) (496) (496)
Change in unrealized gain or
loss, net of taxes 439 439
Net income 1,975 1,975
------ ------ ------- ------- -------- ------- ------- ------- -------
Balance at March 31, 2002 4,774 $ 86 $62,905 $(3,207) $(61,859) $(2,521) $(1,169) $74,393 $68,628
===== ====== ======= ======= ======== ======= ======= ======= =======
See notes to unaudited consolidated financial statements
5
FIRST BELL BANCORP, INC.
STATEMENT OF CASH FLOWS
(unaudited, in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES: MARCH 31, 2002 MARCH 31, 2001
-------------- --------------
Net income 1,975 1,675
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 76 76
Deferred income taxes (1,106) (315)
Amortization of premiums and accretion of discounts 307 (15)
Compensation expense-allocation of ESOP and MRP shares 98 138
Loss on sale of real estate owned -- 21
Gain on sale of mortgage-backed securities, available for sale -- (325)
Gain on sale of investment securities, available for sale -- (15)
Gain on sale of mortgage loans -- (62)
Increase in the value of BOLI insurance (261)
Increase or decrease in assets and liabilities:
Accrued interest receivable (267) (407)
Accrued interest on deposits 1,531 2,652
Accrued interest on borrowings (16) (43)
Accrued income taxes 242 59
Other, net 686 1,732
------ ------
Net cash provided by operating activities 3,265 5,171
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of investments securities, available for sale -- 27,946
Sale of mortgage-backed securities, available for sale -- 20,870
Purchase of mortgage-backed securities, available for sale (10,098) --
Purchase of investment securities, available for sale (15,476) (56,644)
Maturity of Federal Funds 2,500 --
Principal repayments on mortgage-backed securities, available for sale 3,178 401
Principal repayments on investment securities, available for sale 6,149 817
Net decrease in conventional loans 21,015 11,197
Proceeds from the sale of conventional loans -- 20,207
Purchase of bank owned life insurance -- (20,000)
Net (increase)/decrease in other loans 45 (17)
Net proceeds from sale of real estate owned -- 8
Purchase of premises and equipment (8) (2)
------ ------
Net cash used in investing activities 7,305 4,783
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits, NOW accounts and savings accounts 18,096 6,066
Net increase (decrease) in certificate accounts (6,146) 4,125
Net increase in advances by borrowers for taxes and insurance 2,439 540
Net decrease in borrowings (1,250) (1,250)
Dividend paid (496) (490)
Exercise of stock options 171 --
------ ------
Net cash provided by financing activities 12,814 8,991
NET INCREASE IN CASH AND CASH
EQUIVALENTS 23,384 18,945
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 32,198 40,509
------ ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD 55,582 59,454
====== ======
SUPPLEMENTAL DISCLOSURES:
Cash paid for:
Interest on deposits and advances by borrowers
for taxes and insurance 1,319 4,882
Interest on borrowings 3,037 3,222
Income taxes 48 925
Noncash Transactions:
Transfers from conventional loans to real estate acquired through foreclosure -- --
Increase in additional paid-in capital-ESOP allocation 51 80
Unrealized appreciation on securities available for sale 870 2,798
See notes to unaudited consolidated financial statements
6
FIRST BELL BANCORP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
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 ("Bell Federal Savings" or
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 March 31, 2002 and related consolidated
statements of income, comprehensive income, cash flows and changes in
stockholders' equity for the three months ended March 31, 2002 and 2001 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, 2001.
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 July 2001, FASB issued SFAS No. 141, Business Combinations, effective for all
business combinations initiated after June 30, 2001, as well as all business
combinations accounted for by the purchase method that are completed after June
30, 2001. The new statement requires that the purchase method of accounting be
used for all business combinations and prohibits the use of the pooling-of-
interests method. The adoption of Statement No. 141 did not have a material
effect on the Company's financial position or results of operations.
In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets, effective for fiscal years beginning after December 15, 2001. The
statement changes the accounting for goodwill from an amortization method to an
impairment-only approach. Thus, amortization of
7
goodwill, including goodwill recorded in past business combinations, will cease
upon adoption of this statement. However, the new statement did not amend SFAS
No. 72, Accounting for Certain Acquisitions of Banking or Thrift Institutions,
which requires recognition and amortization of unidentified intangible assets
relating to the acquisition of financial institutions or branches thereof. The
FASB has decided to undertake a limited scope project to reconsider the
provisions of SFAS No. 72 in 2002. Therefore, the adoption of Statement No. 142
did not have a material effect on the Company's financial position or results of
operations.
In August 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations, which requires that the fair value of a liability be recognized
when incurred for the retirement of a long-lived asset and the value of the
asset be increased by that amount. The statement also requires that the
liability be maintained at its present value in subsequent periods and outlines
certain disclosures for such obligations. The adoption of this statement, which
is effective January 1, 2003, is not expected to have a material effect on the
Company's financial statements.
In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. SFAS No. 144 supercedes SFAS No. 121 and applies
to all long-lived assets (including discontinued operations) and consequently
amends APB Opinion No. 30, Reporting Results of Operations-Reporting the Effects
of Disposal of a Segment of a Business. SFAS No. 144 requires that long-lived
assets that are to be disposed of by sale be measured at the lower of book value
or fair value less costs to sell. SFAS No. 144 is effective for financial
statements issued for fiscal years beginning after December 15, 2001 and,
generally, its provisions are to be applied prospectively. The adoption of this
statement did not expected to have a material effect on the Company's financial
statements.
8
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
discussion of the expected effects of recent accounting pronouncements, 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 March 31, 2002 and December 31, 2001.
- --------------------------------------------------------------------------
Assets. Total assets were $872.3 million at March 31, 2002 in comparison to
$855.2 million at December 31, 2001. Increases in mortgage-backed securities-
available for sale, investment securities-available for sale and cash and cash
equivalents were offset by decreases in conventional mortgage loans. Mortgage-
backed securities at March 31, 2002 were $62.7 million compared to $56.0 million
at December 31, 2001. The increase was the result of the purchase of $10.1
million in mortgage-backed securities offset principal repayments of $3.2
million. Investment securities, available for sale, at March 31, 2002 were
$291.3 million compared to $281.4 million at December 31, 2001. The increase
was the result of the purchase of $15.5 million in investment securities offset
by principal repayments of $6.1 million. Cash increased by $23.4 million to
$55.6 million at March 31, 2002 from $32.2 million at December 31, 2001. The
Association had outstanding commitments to purchase investment securities of
$30.0 million as of March 31, 2002. These commitments were fulfilled in April,
2002.
Liabilities. Total liabilities increased to $803.7 million at March 31, 2002
compared to $788.8 million at December 31, 2001. Increases in deposits,
advances by borrowers for taxes and insurance and other liabilities were offset
by decreases in borrowings. Deposits increased by $12.0 million to $573.3
million at March 31, 2002 from $561.4 million at December 31, 2001. The
increase was the net result of increases of $16.4 million in passbook, club and
other accounts and $1.7 million in money market and NOW accounts offset by
decreases in certificates of deposit of $6.1 million. Other liabilities
increased by $1.8 million while advances by borrowers for taxes and insurance
increased $2.4 million. These increases were the result of the timing of
payments for accrued expenses and customer payments in relation to the actual
tax payment of
9
property taxes and insurance payments. Borrowings decreased by $1.3 million to
$213.0 million at March 31, 2002 from $214.3 million at December 31, 2001. The
decrease was the result of normal quarterly principal repayments.
Capital. Total stockholders' equity increased by $2.2 million to $68.6 million
at March 31, 2002 from $66.4 million at December 31, 2001. 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 $439,000 during the three month period
ended March 31, 2002. Retained earnings increased by $1.5 million to $74.4
million at March 31, 2002 from $72.9 million at December 31, 2001. The increase
was the result of net income of $1.98 million reduced by dividends of $496,000.
Liquidity and Capital Resources. The Company's primary sources of funds on a
consolidated basis 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 three months ended March 31,
2002 was the purchase of $10.1 million of mortgage-backed securities available-
for-sale, investment securities available-for-sale of $15.5 million and mortgage
loan originations of $33.8. Sources of funds for the three months ended March
31, 2002 were $43.6 million in principal and interest payments on conventional
mortgage loans and increases in savings deposits of $12.0 million.
At March 31, 2002, 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
9.20%, 9.20%, 23.82% and 24.09%, respectively. The Association is considered a
"well capitalized" institution under the prompt corrective action regulations of
the OTS.
Dividend payments by the Association have primarily been used to pay dividends
to stockholders, interest on borrowings and other operating expenses of the
company. The ability of the Association to pay dividends and other capital
distributions to the Company is generally limited by the OTS regulations.
Additionally, the OTS may prohibit the payment of the dividends that are
otherwise permissible by regulation for safety and reasons. As of March 31,
2002, the Association had $15.2 million of dividends that could be paid to the
Company without regulatory approval and $1.0 million in cash or cash
equivalents. Any dividend by the Association beyond its current year net income
combined with retained net income of the preceding two years would require
notification to or approval of the OTS. To the extent the Association were to
apply for a dividend distribution to the Company in excess of the regulatory
permitted dividend amounts, no assurances can be made such application would be
approved by the regulatory authorities.
Comparison of Results of Operation for the Three Months ended March 31, 2002 and
- --------------------------------------------------------------------------------
2001.
- -----
General. Net income for the three months ended March 31, 2002 was $1.98 million
in comparison to $1.68 million for the three months ended March 31, 2001. The
increase can be attributable to a increase in net interest income, decreases in
general administrative expenses,
10
increases in other income offset by decreases in gains on the sale of loans and
investments and a decrease in 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 $850,000 and $823,000 were made for the three months ended March
31, 2002 and 2001, respectively. Tax equivalent interest income for the three
months ended March 31, 2002 decreased by $1.6 million or 11.5% to $12.2 million
from $13.8 million for the three months ended March 31, 2001. The net decrease
was the result of decreases in interest earned on conventional mortgage loans,
interest bearing deposits, and federal funds sold while interest earned on
mortgage-backed securities and investment securities increased. Interest earned
on conventional mortgage loans decreased $1.7 million or 18.3% to $7.5 million
for the three months ended March 31, 2002 from $9.2 million for the three months
ended March 31, 2001. The decrease was the result of the average balance and
the average rate earned on conventional mortgage loans declining for the three
months ended March 31, 2002 from the comparable 2001 period. The decreases in
the average balance and the average rate were primarily due to mortgage
refinancing and Company's desire to reduce its interest rate risk associated
with the long-term mortgage portfolio. The average rate earned and the average
balance for the three months ended March 31, 2002 were 7.05% and $426.0 million,
respectively. For the three months ended March 31, 2001, the average rate
earned and the average balance were 7.11% and $516.5 million, respectively.
Interest on interest bearing deposits was $151,000 for the three months ended
March 31, 2002 compared to $593,000 for the three months ended March 31, 2001.
The $422,000 decrease is the net result of a $8.6 million decrease in the
average balance and a decrease in the average rate from 5.11% to 1.60%.
Interest earned on federal funds sold decreased by $65,000 to $28,000 for the
three months ended March 31, 2002 from $93,000 for the comparable 2001 period.
The decrease was the result of decreases in the federal funds sold average
balance and decreases in the average rate earned on the investment. Interest on
mortgage-backed securities for the three months ended March 31, 2002 was
$599,000 compared to $136,000 in the prior year. The $463,000 increase can be
attributable to an increase in the average balance from $6.98 million to $58.6
million offset by a decrease in the average rate earned on the securities to
4.09% from 7.80%. Tax equivalent interest on investment securities for the
three months ended March 31, 2002 was $3.8 million compared to $3.6 million in
the prior year. The $200,000 increase can be attributable to an increase in the
average balance from $224.9 million to $283.2 million offset by a decrease in
the average rate earned on the securities to 5.36% from 6.40%.
Interest Expense. Interest expense for the three months ended March 31, 2002
decreased by $2.2 million or 20.3% to $8.5 million from $10.7 million for the
three months ended March 31, 2001. The decrease was due to decreases in
interest expense on deposits and in the cost of borrowings. Interest expense on
deposits decreased by $2.0 million or 26.7% to $5.5 million for the three months
ended March 31, 2002 from $7.5 million for the three months ended March 31,
2001. The average rate paid on deposits for the three months ended March 31,
2002 and 2001 was 3.83% and 5.44%, respectively. The average balance on
deposits, which includes borrower's deposits for taxes and insurance, was $575.8
million and $554.3 million for the three months ended March 31, 2002 and 2001,
respectively. Interest expense on borrowings decreased by $157,000 to $3.0
million for the three months ended March 31, 2002 from $3.2 million for the
three months ended March 31, 2001. The average rate paid on borrowings for the
three months
11
ended March 31, 2002 and 2001 was 5.66% and 5.82%, respectively. The average
balance on borrowings was $213.4 million and $218.5 million for the three months
ended March 31, 2002 and 2001, respectively.
Net Interest Income. Net interest income increased to $3.7 million for the
three months ended March 31, 2002 from $3.1 million for the three months ended
March 31, 2001. The increase was the result of interest expense decreasing by
$2.2 million while interest income decreased by $1.6 million.
Provision for Loan Losses. The provisions for loan loss was zero for the three
months ended March 31, 2002 and 2001, respectively. At March 31, 2002, non-
performing assets were $1.1 million compared to $1.1 million at December 31,
2001. The allowance for loan losses equaled 83% of total non-performing assets
as of March 31, 2002. There were no loans charged off during the three months
ended March 31, 2002 and 2001. Management believes that the current level of
loan loss reserve is adequate to cover losses inherent in the portfolio as of
March 31, 2002. There can be no assurance, however, that the Company will not
sustain losses in future periods which could be substantial in relation to the
size of the allowance as of March 31, 2002.
Other Income. Other income for the three months ended March 31, 2002 decreased
by $288,000 or 33.8% to $563,000 from $851,000 for the three months ended March
31, 2001. The decrease was the net result of increases in miscellaneous income,
loan fees and service charges offset by a decrease in gains on sale of
securities and loans. Loan fees and service charges increased by $16,000 to
$301,000 for the three months ended March 31, 2002 from $285,000 for the
comparable 2001 period. Other income increased by $98,000 to $262,000 for the
three months ended March 31, 2002 from $164,000 for the comparable 2001 period
largely due to earnings on the BOLI. Gains on sales of loans and investments
were $402,000 for the three months ended March 31, 2001. There were no sales of
loans or securities during the quarter ended March 31, 2002.
General and Administrative Expenses. General and administrative expenses for
the three months ended March 31, 2002 decreased by $19,000 or 1.5%. The
decrease was mainly the result of declines in compensation, payroll taxes and
fringe benefits offset by a increase in other expenses. Compensation, payroll
taxes and fringe benefits decreased by $72,000 or 11.0% to $585,000 for the
three months ended March 31, 2002 from $657,000 from the three months ended
March 31, 2001. The decrease was the result of a temporary reduction in
employees. Other expenses increased by $53,000 for the three months ended March
31, 2002. All other general and administrative expenses remained consistent
when comparing the two quarterly periods ended March 31, 2002 and 2001.
Income Taxes. Tax equivalent income taxes for the three months ended March 31,
2002 remained unchanged at $1.0 million when compares to the three months ended
March 31, 2001. The percentage of non-taxable income in proportion to taxable
income earned during the respective periods increased slightly. Tax equivalent
adjustments of $850,000 and $823,000 were made during the respective quarters.
12
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, 2001 to
March 31, 2002. However, the OTS results are not yet available for the quarter
ended March 31, 2002. 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, 2001. The Company
saw a widening of its interest margin due to the general decrease in interest
rates that occurred during 2001.
13
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 11.0 - Computation of Earnings Per Share (filed herewith)
Exhibit 99.0 - Independent Accountants Review Report, dated April 16,
2002
*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
None
14
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: May 15, 2002 /s/ Albert H. Eckert,
------------------------------------------
Albert H. Eckert, II
President and Chief Executive Officer
Date: May 15, 2002 /s/ Jeffrey M. Hinds
------------------------------------------
Jeffrey M. Hinds
Executive Vice President and
Chief Financial Officer
(Principal Accounting Officer)
15