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 June 30, 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 25-1752651
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
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 August 14, 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 June 30, 2002
and December 31, 2001 (unaudited)...................................................2
Consolidated Statement of Income for the Three and Six
Months Ended June 30, 2002 and 2001
(unaudited).........................................................................3
Consolidated Statement of Comprehensive Income for the
Three and Six Months Ended June 30, 2002 and 2001 (unaudited).......................4
Consolidated Statement of Changes in Stockholders' Equity
for the Six Months Ended June 30, 2002 (unaudited)..................................5
Consolidated Statement of Cash Flows for the Six Months
Ended June 30, 2002 and 2001 (unaudited)............................................6
Notes to Unaudited Consolidated Financial Statements................................7
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations......................................10
Item 3 Quantitative and Qualitative Disclosure About Market Risk..........................15
PART II OTHER INFORMATION
Item 1 Legal Proceedings..................................................................16
Item 2 Changes in Securities and Use of Proceeds..........................................16
Item 3 Defaults Upon Senior Securities....................................................16
Item 4 Submission of Matters to a Vote of Security Holders................................16
Item 5 Other Information..................................................................16
Item 6 Exhibits and Reports on Form 8-K...................................................17
SIGNATURES ...................................................................................18
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
1
FIRST BELL BANCORP, INC
CONSOLIDATED BALANCE SHEET
(UNAUDITED, IN THOUSANDS)
JUNE 30, 2002 DECEMBER 31, 2001
--------------- -----------------
ASSETS
Cash and cash equivalents:
Cash on-hand $ 938 $ 1,103
Non-interest bearing deposits 2,661 2,299
Interest-bearing deposits 36,857 28,796
--------------- -----------------
Total cash and cash equivalents 40,456 32,198
Fed funds sold 9,050 4,150
Investment securities available-for-sale, at fair value (cost of $300,815 and
$283,857, respectively) 302,115 281,430
Mortgage-backed securities available-for-sale, at fair value (cost of $71,601
and $56,084, respectively) 72,021 55,995
Loans - Net of allowance for loan losses of $925 404,190 436,473
Properties and equipment, net 3,273 3,417
Federal Home Loan Bank stock, at cost 10,400 10,400
Bank owned life insurance 21,542 21,012
Other assets 8,879 10,128
--------------- -----------------
Total Assets $ 871,926 $ 855,203
=============== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Passbook, club and other accounts $ 102,588 $ 85,318
Money market and NOW accounts 69,876 69,625
Certificate accounts 396,170 406,409
--------------- -----------------
Total Deposits 568,634 561,352
Borrowings 211,750 214,250
Advances by borrowers for taxes insurance 11,591 9,471
Other liabilities 6,909 3,689
--------------- -----------------
Total liabilities 798,884 788,762
--------------- -----------------
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 62,970 62,854
Retained earnings 76,390 72,914
Unearned ESOP shares (446,817 and 459,999 shares, respectively) (3,161) (3,254)
Unearned MRP (180,845 shares) (2,521) (2,521)
Treasury stock (3,821,814 and 3,837,890 shares, respectively) (61,857) (62,030)
Accumulated other comprehensive income (loss), net of taxes 1,135 (1,608)
--------------- -----------------
Total Stockholders' Equity 73,042 66,441
--------------- -----------------
Total Liabilities and Stockholders' Equity $ 871,926 $ 855,203
=============== =================
See notes to unaudited consolidated financial statements
2
FIRST BELL BANCORP, INC.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
2002 2001 2002 2001
--------------- --------------- ------------- -----------
INTEREST AND DIVIDEND INCOME:
Loans $ 7,060 $ 8,643 $ 14,564 $ 17,824
Interest-bearing deposits 162 320 314 913
Mortgage-backed securities 654 461 1,254 597
Federal funds sold 23 69 50 162
Investment securities - taxable 1,215 838 2,117 1,492
Investment securities - exempt from federal income tax 2,000 2,048 4,043 4,167
Federal Home Loan Bank stock 85 197 200 375
--------------- --------------- ------------- -----------
Total interest income 11,199 12,576 22,542 25,530
INTEREST EXPENSE:
Deposits 5,072 7,373 10,590 14,907
Borrowings 3,042 3,156 6,064 6,335
--------------- --------------- ------------- -----------
Total interest expense 8,114 10,529 16,654 21,242
--------------- --------------- ------------- -----------
NET INTEREST INCOME 3,085 2,047 5,888 4,288
PROVISION FOR LOAN LOSSES - - - -
--------------- --------------- ------------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LO 3,085 2,047 5,888 4,288
OTHER ONCOME:
Loan fees and service charges 257 230 558 515
Gain on sale of investments, net 663 (11) 663 329
Gain on sale of loans - - - 62
Other income 270 265 532 429
--------------- --------------- ------------- -----------
Total other income 1,190 484 1,753 1,335
OTHER EXPENSES:
Compensation, payroll taxes and fringe benefits 689 611 1,274 1,268
Office occupancy expense 244 217 466 441
Computer services 80 81 162 161
Miscellaneous expenses 335 397 665 673
--------------- --------------- ------------- -----------
Total other expenses 1,348 1,306 2,567 2,543
--------------- --------------- ------------- -----------
INCOME BEFORE PROVISION FOR INCOME TAXES 2,927 1,225 5,074 3,080
PROVISION FOR INCOME TAXES:
Current:
Federal 697 190 881 480
State 144 66 251 271
Deferred credit (407) (379) (526) (694)
--------------- --------------- ------------- -----------
Total provision for income taxes 434 (123) 606 57
NET INCOME $ 2,493 $ 1,348 $ 4,468 $ 3,023
=============== =============== ============= ===========
BASIC EARNINGS PER SHARE $ 0.61 $ 0.33 $ 1.08 $ 0.74
DILUTED EARNINGS PER SHARE $ 0.59 $ 0.32 $ 1.05 $ 0.72
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC 4,122 4,091 4,132 4,087
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED 4,256 4,186 4,253 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 JUNE 30, SIX MONTHS ENDED JUNE 30,
2002 2001 2002 2001
---------- ----------- --------- ----------
Net income $ 2,493 $ 1,348 $ 4,468 $ 3,023
Unrealized gains/(losses)on securities:
Unrealized holding gains (losses) arising during
the period 4,155 (1,456) 4,819 1,342
Less: reclassification adjustment for gains (losses)
realized in net income 663 (11) 663 329
---------- ----------- --------- ----------
Other comprehensive income, before taxes 5,985 (97) 8,624 4,036
Tax expense (benefit) 1,187 (567) 1,413 395
---------- ----------- --------- ----------
Other comprehensive income, net of taxes $ 4,798 $ 470 $ 7,211 $ 3,641
========== =========== ========= ==========
See notes to unaudited consolidated financial statements
4
FIRST BELL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(UNAUDITED, IN THOUSANDS)
ACCUMULATED
ADDITIONAL UNEARNED UNEARNED OTHER
COMMON STOCK PAID-IN ESOP TREASURY MRP COMPREHENSIVE
SHARES PAR VALUE CAPITAL SHARES STOCK SHARES INCOME (LOSS)
--------------------------------------------------------------------------------------
Balance at December 31, 2002 4,758 $ 86 $ 62,556 $ (3,507) $ (62,030) $ (2,937) $ (1,067)
Allocation of ESOP shares 118 96
Allocation of MRP shares 19 416
Dividend payable ($0.24)
Unrealized loss in securities
available-for-sale, net of taxes 628
Net income
-------- --------- ---------- ----------- --------- -------- -------------
Balance at June 30, 2001 4,758 $ 86 $ 62,693 $ (3,411) $ (62,030) $ (2,521) $ (439)
======== ========= ========== =========== ========= ======== =============
Balance at December 31, 2001 4,758 $ 86 $ 62,854 $ (3,254) $ (62,030) $ (2,521) $ (1,608)
Allocation of ESOP shares 116 93
Exercise of options 16 173
Dividend payable($0.24)
Unrealized gain in securities
available-for-sale, net of taxes 2,743
Net income
-------- --------- ---------- ----------- --------- -------- -------------
Balance at June 30, 2002 4,774 $ 86 $ 62,970 $ (3,161) $ (61,857) $ (2,521) $ 1,135
======== ========= ========== =========== ========= ======== =============
RETAINED
EARNINGS TOTAL
-------------------
Balance at December 31, 2002 $ 68.519 $ 61.620
Allocation of ESOP shares 214
Allocation of MRP shares 435
Dividend payable ($0.24) (980) (980)
Unrealized loss in securities -
available-for-sale, net of taxes 628
Net income 3,023 3,023
-------- --------
Balance at June 30, 2001 $ 70,562 $ 64,940
======== ========
Balance at December 31, 2001 $ 72,914 $ 66,441
Allocation of ESOP shares 209
Exercise of options 173
Dividend payable($0.24) (992) (992)
Unrealized gain in securities
available-for-sale, net of taxes 2,743
Net income 4,468 4,468
-------- --------
Balance at June 30, 2002 $ 76,390 $ 73,042
======== ========
See notes to unaudited consolidated financial statements
5
FIRST BELL BANCORP, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
SIX MONTHS ENDED JUNE 30,
CASH FLOWS FROM OPERATING ACTIVITIES: 2002 2001
----------- -----------
Net income $ 4,468 $ 3,023
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 153 150
Deferred income taxes (526) (694)
Amortization of premiums and accretion of discounts 602 45
Compensation expense-allocation of ESOP and MRP shares 209 649
Gain on sale of investments, net (663) (329)
Gain on sale of mortgage loans - (62)
Increase in the value of BOLI insurance (530) (448)
Increase or decrease in assets and liabilities:
Accured interest receivable 118 37
Accured interest on deposits 3,171 4,693
Accured interest on borrowings (60) (112)
Accured income taxes 1,127 (872)
Other, net (774) (565)
----------- -----------
Net cash provided by operating activities 7,295 5,515
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of investments securities, available for sale 103,437 29,889
Sale of mortgage-backed securities, available for sale - 21,194
Purchase of mortgage-backed securities, available for sale (24,985) (50,123)
Purchase of investment securities, available for sale (133,421) (56,386)
Purchase of Federal Funds (4,900) -
Principal repayments on mortgage-backed securities, available for sale 9,151 2,091
Principal repayments on investment securities, available for sale 13,324 3,720
Net decrease in conventional loans 32,283 28,223
Proceeds from the sale of conventional loans - 20,207
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
Purchase of premises and equipment (9) (8)
----------- -----------
Net cash used in investing activities (5,120) (20,185)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVIITES:
Net increase in demand deposits, NOW accounts and savings accounts 17,521 8,097
Net increase (decrease) in certificate accounts (10,239) 4,383
Net increase in advances by borrowers for taxes and insurance 2,120 1,679
Net decrease in borrowings (2,500) (2,500)
Dividend paid (992) (980)
Exercise of stock options 173 -
----------- -----------
Net cash provided by financing activities 6,083 10,679
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 8,258 (3,991)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 32,198 40,509
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 40,456 $ 36,518
=========== ===========
SUPPLEMENTAL DISCLOSURES:
Cash paid for:
Interest on deposits and advances by borrowers for taxes and insurance $ 1,267 $ 8,357
Interest on borrowings 3,085 6,447
Income taxes (43) 1,626
See notes to unaudited consolidated financial statements
6
FIRST BELL BANCORP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 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 June 30, 2002 and related consolidated
statements of income, comprehensive income, cash flows and changes in
stockholders' equity for the three and six months ended June 30, 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, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (FAS) 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. FAS No. 141 also specifies criteria which
must be met for intangible assets acquired in a purchase method business
combination to be recognized and reported apart from goodwill. The adoption of
FAS No. 141 did not have a material effect on the Company's financial position
or results of operations.
7
On January 1, 2002, the Company adopted FAS No. 142, Goodwill and Other
Intangible Assets, effective for fiscal years beginning after December 15, 2001.
This statement changes the accounting for goodwill from an amortization method
to an impairment-only approach. Thus, amortization of goodwill, including
goodwill recorded in past business combinations, will cease upon adoption of
this statement. However, this new statement did not amend FAS 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
undertaken a limited scope project to reconsider the provisions of FAS No. 72 in
2002 and has issued an exposure draft of a proposed statement, Acquisitions of
Certain Financial Institutions, that would remove acquisitions of financial
institutions from the scope of FAS No. 72. The adoption of this proposed
statement would require all goodwill originating from acquisitions that meet the
definition of a business combination as defined in Emerging Issues Task Force
Issue ("EITF") No. 98-3 to be discontinued. The adoption of FAS No. 142 did not
have a material effect on the Company's financial position or results of
operations.
In August 2001, the FASB issued FAS 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 new statement takes effect for
fiscal years beginning after June 15, 2002. 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.
On January 1, 2002, the Company adopted FAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. FAS No. 144 supercedes FAS 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. FAS 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. The
adoption of FAS No. 144 did not have a material effect on the Company's
financial statements.
In April 2002, the FASB issued FAS No. 145, "Rescission of FASB Statement No. 4,
44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections". FAS
No. 145 rescinds FAS No. 4, which required all gains and losses from
extinguishment of debt to be aggregated and, if material, classified as an
extraordinary item, net of related income tax effect. As a result, the criteria
in Opinion 30 will now be used to classify those gains and losses. This
statement also amends FAS No. 13 to require that certain lease modifications
that have economic effects similar to sale-leaseback transactions be accounted
for in the same manner as sale-leaseback transactions. This statement also makes
technical corrections to existing pronouncements, which are not substantive but
in some cases may change accounting practice. FAS No. 145 is effective for
transactions occurring after May 15, 2002. The adoption of FAS No. 145 did not
have a material effect on the Company's financial position or results of
operations.
In July 2002, the FASB issued FAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities, which requires companies to recognize costs
associated with exit or disposal activities when they are incurred rather than
at the date of a commitment to an exit or disposal plan. This statement replaces
EITF Issue No. 94-3, Liability Recognition for Certain
8
Employee Termination Benefits and Other Costs to Exit an Activity (Including
Certain Costs Incurred in a Restructuring). The new statement will be effective
for exit or disposal activities initiated after December 31, 2002, the adoption
of which is not expected to have a material effect on the Company's financial
statements.
9
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 June 30, 2002 and December 31, 2001.
Assets. Total assets were $871.9 million at June 30, 2002 in comparison to
$855.2 million at December 31, 2001. Increases in mortgage-backed
securities-available for sale, investment securities-available for sale, Federal
funds and cash and cash equivalents were partially offset by a decrease in
conventional mortgage loans. Mortgage-backed securities at June 30, 2002 were
$72.0 million compared to $56.0 million at December 31, 2001. The increase was
the result of the purchase of $25.0 million in mortgage-backed securities offset
by principal repayments of $9.2 million. Investment securities, available for
sale, at June 30, 2002 were $302.1 million compared to $281.4 million at
December 31, 2001. The increase was the result of the purchase of $133.4 million
in investment securities offset by securities sold of $103.4 million and
principal repayments of $13.3 million. Cash increased by $8.3 million to $40.5
million at June 30, 2002 from $32.2 million at December 31, 2001. Federal funds
purchased also increased by $4.9 million. The Association had outstanding
commitments to sell and purchase investment securities of $1.9 million and $5.4
million, respectively as of June 30, 2002. These commitments were fulfilled in
July, 2002. The balance of loans, net decreased by $32.3 million to $404.2
million at June 30, 2002 from the December 31, 2001 balance of $436.5 million.
Liabilities. Total liabilities increased to $798.9 million at June 30, 2002
compared to $788.8 million at December 31, 2001. Increases in deposits, advances
by borrowers for taxes and insurance and other liabilities were partially offset
by decreases in borrowings. Deposits increased by $7.3 million to $568.6 million
at June 30, 2002 from $561.4 million at December 31, 2001. The increase was the
net result of increases of $17.3 million in passbook, club and other accounts
and $251,000 in money market and NOW accounts offset by decreases in
10
certificates of deposit of $7.3 million. Other liabilities increased by $3.2
million while advances by borrowers for taxes and insurance increased $2.1
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 property
taxes and insurance payments. Borrowings decreased by $2.5 million to $211.8
million at June 30, 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 $6.6 million to $73.0 million
at June 30, 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
income (loss), net of taxes improved by $2.7 million during the six month period
ended June 30, 2002. Retained earnings increased by $3.5 million to $76.4
million at June 30, 2002 from $72.9 million at December 31, 2001. The increase
was the result of net income of $4.5 million offset by dividends of $992,000.
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 and six month periods
ended June 30, 2002 was the purchase of mortgage-backed securities available for
sale, investment securities available for sale and mortgage loan originations.
Sources of funds for the three and six months ended June 30, 2002 were in
principal and interest payments on conventional mortgage loans and increases in
savings deposits. Detail on the amounts of these sources and uses of funds are
disclosed above under "Comparison of Financial Condition at June 30, 2002 and
December 31, 2001".
At June 30, 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
9.10%, 9.10%, 24.01% and 24.28%, 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 June 30, 2002,
the Association had $21.1 million of dividends that could be paid to the Company
without regulatory approval and the Company had $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 that such application
would be approved by the regulatory authorities.
11
Comparison of Results of Operation for the Six and Three Months ended June 30,
2002 and 2001.
General. Net income for the six months ended June 30, 2002 was $4.5 million in
comparison to $3.0 million for the six months ended June 30, 2001. The increase
can be attributed to decreases in interest income, offset by a larger decrease
in interest expense and increases in other income. Income taxes increased as a
result of the increase in net income before taxes and a higher percentage of
income being derived from sources which are taxable. For the three months ended
June 30, 2002, net income was $2.5 million compared to $1.3 million for the
three months ended June 30, 2001. The increase of $1.1 million resulted from the
same sources previously described for the six month period ended June 30, 2002
and 2001.
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 $1.7 million and $846,000 were made for the six months and three
months ended June 30, 2002, respectively. For the six and three months ended
June 30, 2001, tax equivalent adjustments of $1.6 million and $806,000 were
made, respectively. Interest income for the six months ended June 30, 2002
decreased by $2.9 million or 10.8% to $24.2 million from $27.2 million for the
six months ended June 30, 2001. The decrease was the net result of decreases in
interest earned on conventional mortgage loans, federal funds sold and interest
bearing deposits offset by increases in interest earned on mortgage-backed
securities and investment securities. Interest on mortgage-backed securities for
the six months ended June 30, 2002 was $1.3 million compared to $597,000 in the
same period for the prior year. The $657,000 increase can be attributable to an
increase in the average balance from $19.7 million to $65.2 million offset by a
decrease in the average rate earned on the securities to 3.85% from 6.05%.
Interest on interest bearing deposits totaled $314,000 for the six months ended
June 30, 2002 compared to $913,000 for the six months ended June 30, 2001. The
$599,000 decrease is the net result of a $1.1 million decrease in the average
balance and a decrease in the average rate from 4.79% to 1.70%. Interest earned
on federal funds sold decreased by $112,000 to $50,000 for the six months ended
June 30, 2002 from $162,000 for the comparable 2001 period. The decrease was
primarily the result of a decrease in the federal funds sold average interest
rate from 5.04% to 1.60%. The average balance in the federal funds sold account
also decreased from $6.4 million to $6.3 million. Interest earned on
conventional mortgage loans decreased $3.2 million or 18.2% to $14.5 million for
the six months ended June 30, 2002 from $17.8 million for the six months ended
June 30, 2001. The decrease was the result of the average rate earned and the
average balance on conventional mortgage loans declining for the six months
ended June 30, 2002 from the comparable 2001 period. The decreases in the
average rate and the average balance were primarily due to mortgage refinancing
during the first half of the current year. The average rate earned and the
average balance for the six months ended June 30, 2002 were 6.97% and $417.1
million, respectively. For the six months ended June 30, 2001, the average rate
earned and the average balance were 7.11% and $500.6 million, respectively.
Interest income for the three months ended June 30, 2002 decreased by $1.3
million or 10.0% to $12.0 million from $13.4 million for the three months ended
June 30, 2001. The decrease was the net result of increases in interest earned
on mortgage-backed securities and investment securities and decreases in
interest earned on conventional mortgage loans, federal funds sold,
12
interest bearing deposits and Federal Home Loan Bank stock. Interest earned on
investment securities was $4.1 million for the three months ended June 30, 2002
compared to $3.7 million for the second quarter of 2001. The increase was the
result of the average balance increasing to $294.3 million from $239.4 million
while the average interest rate decreased to 5.52% from 6.17% for the three
months ended June 30, 2002 and 2001, respectively. Interest earned on
mortgage-backed securities was $654,000 for the three months ended June 30, 2002
compared to $461,000 for the comparable 2001 period. The increase was the result
of the average balance decreasing to $409.7 million from $487.7 million while
the average interest rate decreased to 3.65% from 5.68% for the three months
ended June 30, 2002 and 2001, respectively. Interest earned on conventional
mortgage loans decreased by $1.6 million or 18.3% to $7.1 million for the three
months ended June 30, 2002 from $8.6 million for the three months ended June 30,
2001. The decrease was the result of the average balance decreasing to $409.7
million from $487.7 million for the three months ended June 30, 2002 and 2001,
respectively. In addition, the average rate earned on conventional mortgage
loans decreased to 6.89% for the three months ended June 30, 2002 from 7.09% for
the comparable 2001 period. Interest earned on federal funds sold decreased by
$46,000 to $23,000 for the three months ended June 30, 2002 from $69,000 for the
three months ended June 30, 2001. This decrease can be primarily attributable to
the decline of the average balance to $5.8 million from $6.4 million and a
decrease in the average interest rate earned to 1.58% from 4.3% for the three
months ended June 30, 2002 and 2001, respectively.
Interest Expense. Interest expense for the six months ended June 30, 2002
decreased by $4.6 million or 21.6% to $16.7 million from $21.2 million for the
six months ended June 30, 2001. The decrease was due to a decrease in interest
expense on deposits and a decrease in the cost of borrowings. Interest expense
on deposits decreased by $4.3 million or 29.0% to $10.6 million for the six
months ended June 30, 2002 from $14.9 million for the six months ended June 30,
2001. The average rate paid on deposits for the six months ended June 30, 2002
and 2001 was 3.66% and 5.36%, respectively. The average balance on deposits and
borrower's deposits for taxes and insurance was $579.0 million and $556.6
million for the six months ended June 30, 2002 and 2001, respectively. Interest
expense on borrowings decreased by $271,000 to $6.1 million for the six months
ended June 30, 2002 from $6.3 million for the six months ended June 30, 2001.
The average balance on borrowings was $213.0 million and $217.8 million for the
six months ended June 30, 2002 and 2001, respectively. The average rate paid on
borrowings for the six months ended June 30, 2002 and 2001 was 5.69% and 5.82%,
respectively.
Interest expense for the three months ended June 30, 2002 decreased by $2.4
million to $8.1 million from $10.5 million for the three months ended June 30,
2001. An increase in the average balance to $582.1 million from $558.9 million
was offset by a decrease in the average rate paid on deposits during the
comparable three month periods. The average rate paid on deposits decreased from
5.28% to 3.49%. Interest expense on borrowings decreased by $114,000 to $3.0
million for the three months ended June 30, 2002 from $3.2 million for the three
months ended June 30, 2001. The average balance on borrowings was $212.6 million
and $217.2 million for the three months ended June 30, 2002 and 2001,
respectively. The average rate paid on borrowings for the three months ended
June 30, 2002 and 2001 was 5.72% and 5.81%, respectively.
Net Interest Income. Net interest income increased to $7.6 million for the six
months ended June 30, 2002 from $5.9 million for the six months ended June 30,
2001. The increase was the result of interest expense decreasing by $4.6 million
while interest income decreased by $2.9 million.
13
Similarly, net interest income increased by $1.1 million for the three months
ended June 30, 2002 as compared to the same period ended June 30, 2001. This
increase was the result of interest expense decreasing by $2.4 million offset by
interest income decreasing $1.3 million.
Provision for Loan Losses. The provision for loan loss was zero for each of the
six and three months ended June 30, 2002 and 2001. At June 30, 2002,
non-performing assets were $1.4 million compared to $1.1 million at December 31,
2001. The allowance for loan losses equaled 67.4% of total non-performing assets
as of June 30, 2002. There were no loans charged off during the six and three
months ended June 30, 2002 and 2001. Management believes that the current level
of loan loss reserve is adequate to cover losses inherent in the portfolio as of
June 30, 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 June 30, 2002.
Other Income. Other income for the six months ended June 30, 2002 increased by
$418,000 or 31.3% to $1.8 million from $1.3 million for the six months ended
June 30, 2001. The increase was the result of increases in gains on sale of
investment securities, and miscellaneous income while loan fees and service
charges remained relatively constant. Gains on sale of investment securities
increased to $663,000 for the six months ended June 30, 2002 from $329,000 for
the six months ended June 30, 2001. Other income increased by $103,000 to
$532,000 for the six months ended June 30, 2002 from $429,000 for the comparable
2001 period largely due to earnings on the purchase of Bank Owned Life Insurance
in the first quarter of fiscal 2001. Loan fees and service charges increased by
$43,000 to $558,000 for the six months ended June 30, 2002 from $515,000 for the
comparable 2001 period.
Other income for the three months ended June 30, 2002 increased by $706,000 as
the result of increases in net gains on the sale of investment securities of
$674,000, increases in loan fees and service charges of $27,000 and an increase
in miscellaneous income of $5,000.
General and Administrative Expenses. General and administrative expenses for the
six months ended June 30, 2002 remained relatively unchanged in comparison to
the total for the six month period ended June 30, 2001. Total general and
administrative expenses increased by $24,000 when comparing the two six month
periods. Compensation, payroll taxes and fringe benefits increased by $6,000.
The increase was the result of the increase in the number of full time
equivalent employees from 51 to 53. Office occupancy expense increased by
$22,000 to $313,000 for the six months ended June 30, 2002 from $291,000 for the
six months ended June 30, 2001. 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. Other expenses declined by $8,000 for the six
months ended June 30, 2002 compared to the six months ended June 30, 2001.
General and administrative expenses for the three months ended June 30, 2002
increased by $42,000. The increase was the result of the same factors causing
the change in general and administrative expenses for the six month period ended
June 30, 2002.
Income Taxes. Tax equivalent income taxes increased by $613,000 to $2.3 million
for the six months ended June 30, 2002 from $1.7 million for the comparable 2001
period. The increase was primarily the result of net income before taxes
increasing to $6.8 million from $4.7 million for the six months ended June 30,
2002 and 2001, respectively. Tax equivalent adjustments of
14
$1.7 million and $1.6 million were made for the six months ended June 30, 2002
and 2001, respectively.
Income taxes for the three months ended June 30, 2002 increased to $1.3 million
from $686,000 for the three months ended June 30, 2001. The increase was the
result of a increase in net income before taxes. Tax equivalent adjustments of
$846,000 and $809,000 were made during the respective quarters.
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 June
30, 2002. However, the OTS results are not yet available for the quarter ended
June 30, 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 has seen a widening of
its interest margin due to the general decrease in interest rates that occurred
during 2001 and the first six months of 2002.
15
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.
(a) First Bell Bancorp, Inc. held an Annual Meeting of Stockholders
on April 29, 2002.
(b) The names of each director elected at the Annual Meeting for
terms of three years ending in 2005 and votes cast for each
are as follows:
For Withhold
--------- --------
Theodore R. Dixon 3,658,707 77,069
Peter E. Reinert 3,677,553 58,223
The names of the Directors whose terms of office continued after the
Annual Meeting are as follows:
Albert H. Eckert, II Jeffrey M. Hinds
William S. McMinn Robert C. Baierl
Jack W. Schweiger Thomas J. Jackson, Jr.
(c) A brief description of each matter voted on and a summary of the
voting of each item is as follows:
(1) Ratification of S.R. Snodgrass A.C. as independent auditors of
First Bell Bancorp, Inc. for the fiscal year ending December
31, 2002.
For Against Abstain
------------------------------------
3,697,899 19,938 17,939
ITEM 5. OTHER INFORMATION.
None
16
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
August 7, 2002, (filed herewith)
Exhibit 99.1 - Certification Letter, (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
None
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: August 14, 2002 /s/ Albert H. Eckert, II
------------------------
Albert H. Eckert, II
President and Chief Executive Officer
Date: August 14, 2002 /s/ Jeffrey M. Hinds
--------------------
Jeffrey M. Hinds
Executive Vice President and
Chief Financial Officer (Principal Accounting
Officer)
18