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, 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
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
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). [_] Yes [X] 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: 4,645,536 shares of
common stock, par value $.01 per share, were outstanding as of November 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 September 30, 2002
and December 31, 2001 (unaudited) ............................................. 2
Consolidated Statement of Income for the Three and Nine
Months Ended September 30, 2002 and 2001 (unaudited) .......................... 3
Consolidated Statement of Comprehensive Income for the
Three and Nine months Ended September 30, 2002 and 2001 (unaudited) ........... 4
Consolidated Statement of Changes in Stockholders' Equity
for the Nine months Ended September 30, 2002 and 2001 (unaudited) ............. 5
Consolidated Statement of Cash Flows for the Nine months
Ended September 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 ..................... 16
Item 4 Controls and Procedures ....................................................... 16
PART II OTHER INFORMATION
Item 1 Legal Proceedings ............................................................. 17
Item 2 Changes in Securities and Use of Proceeds ..................................... 17
Item 3 Defaults Upon Senior Securities ............................................... 17
Item 4 Submission of Matters to a Vote of Security Holders ........................... 17
Item 5 Other Information ............................................................. 17
Item 6 Exhibits and Reports on Form 8-K .............................................. 17
SIGNATURES .......................................................................................... 18
CERTIFICATIONS ...................................................................................... 19
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
1
FIRST BELL BANCORP, INC.
CONSOLIDATED BALANCE SHEET
(unaudited, in thousands)
September 30, 2002 December 31, 2001
------------------ ------------------
ASSETS
Cash and cash equivalents:
Cash on-hand $ 1,119 $ 1,103
Non-interest bearing deposits 3,614 2,299
Interest-bearing deposits 36,917 28,796
------------------ ------------------
Total cash and cash equivalents 41,650 32,198
Fed funds sold 3,500 4,150
Investment securities available-for-sale, at fair value
(cost of $324,227 and $283,857) 329,751 281,430
Mortgage-backed securities available-for-sale, at fair value
(cost of $80,775and $56,004) 81,482 55,995
Loans - Net of allowance for loan losses of $925 378,944 436,473
Properties and equipment, net 3,200 3,417
Federal Home Loan Bank stock, at cost 10,400 10,400
Bank owned life insurance 21,817 21,012
Other assets 8,279 10,128
------------------ ------------------
Total Assets $ 879,023 $ 855,203
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Passbook, club and other accounts $ 112,044 $ 85,318
Money market and NOW accounts 67,446 69,625
Certificate accounts 400,816 406,409
------------------ ------------------
Total deposits 580,306 561,352
Borrowings 210,500 214,250
Advances by borrowers for taxes and insurance 3,454 9,471
Other liabilities 7,099 3,689
------------------ ------------------
Total liabilities 801,359 788,762
------------------ ------------------
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, one stock right per share) 86 86
Additional paid in capital 63,042 62,854
Retained earnings 77,909 72,914
Unearned ESOP shares (450,669 and 459,999 shares) (3,107) (3,254)
Unearned MRP (180,845 shares) (2,521) (2,521)
Treasury stock (3,821,814 and 3,837,890 shares) (61,857) (62,030)
Accumulated other comprehensive income (loss), net of taxes 4,112 (1,608)
------------------ ------------------
Total Stockholders' Equity 77,664 66,441
------------------ ------------------
Total Liabilities and Stockholders' Equity $ 879,023 $ 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 NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
2002 2001 2002 2001
----------- ---------- ----------- ----------
INTEREST AND DIVIDEND INCOME:
Loans $ 6,792 $ 8,469 $ 21,358 $ 26,293
Interest-bearing deposits 147 203 461 1,116
Mortgage-backed securities 724 728 1,977 1,325
Federal funds sold 52 91 102 253
Investment securities - taxable 3,411 2,589 9,570 8,248
Investment securities - exempt from federal income tax - - - -
Federal Home Loan Bank stock 86 177 286 552
----------- ---------- ----------- ----------
Total interest income 11,212 12,257 33,754 37,787
INTEREST EXPENSE:
Deposits 5,071 7,101 15,662 22,008
Borrowings 3,071 3,167 9,134 9,502
----------- ---------- ----------- ----------
Total interest expense 8,142 10,268 24,796 31,510
----------- ---------- ----------- ----------
NET INTEREST INCOME 3,070 1,989 8,958 6,277
PROVISION FOR LOAN LOSSES - - - -
----------- ---------- ----------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 3,070 1,989 8,958 6,277
OTHER ONCOME:
Loan fees and service charges 295 270 852 785
Gain on sale of investments, net 119 - 783 329
Gain on sale of loans - - - 62
Other income 277 281 809 710
----------- ---------- ----------- ----------
Total other income 691 551 2,444 1,886
OTHER EXPENSES:
Compensation, payroll taxes and fringe benefits 671 685 1,945 1,953
Office occupancy expense 241 220 707 661
Computer services 80 80 243 241
Miscellaneous expenses 329 294 993 967
----------- ---------- ----------- ----------
Total other expenses 1,321 1,279 3,888 3,822
----------- ---------- ----------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES 2,440 1,261 7,514 4,341
PROVISION FOR INCOME TAXES:
Current:
Federal 448 (34) 1,329 446
State 127 (58) 379 213
Deferred credit (274) (111) (801) (805)
----------- ---------- ----------- ----------
Total provision for income taxes 301 (203) 907 (146)
NET INCOME $ 2,139 $ 1,464 $ 6,607 $ 4,487
=========== ========== =========== ==========
BASIC EARNINGS PER SHARE $ 0.52 $ 0.36 $ 1.60 $ 1.10
DILUTED EARNINGS PER SHARE $ 0.50 $ 0.35 $ 1.55 $ 1.07
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC 4,150 4,099 4,139 4,092
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED 4,279 4,201 4,262 4,191
See notes to unaudited consolidated financial statements
3
FIRST BELL BANCORP, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(unaudited, in thousands)
Three Months Ended September 30, Nine Months Ended September 30,
2002 2001 2002 2001
-------------- --------------- -------------- ---------------
Net income $ 2,139 $ 1,464 $ 6,607 $ 4,487
Unrealized gains on securities:
Unrealized holding gains arising during
the period 4,632 2,192 9,450 3,534
Less: reclassification adjustment for gains
realized in net income 119 - 783 329
-------------- --------------- -------------- ---------------
Other comprehensive income, before taxes 6,652 3,656 15,274 7,692
Tax expense 1,534 870 2,947 1,255
-------------- --------------- -------------- ---------------
Other comprehensive income, net of taxes $ 5,118 $ 2,786 $ 12,327 $ 6,437
============== =============== ============== ===============
See notes to unaudited consolidated financial statements
4
FIRST BELL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(unaudited, in thousands)
Additional Unearned Unearned
Common Stock Paid-in ESOP Treasury MRP
Shares Par Value Capital Shares Stock Shares
------------------------------------------------------------------------
Balance at December 31, 2000 4,758 $ 86 $ 62,556 $ (3,507) $ (62,030) $ (2,937)
Allocation of ESOP shares 185 158
Allocation of MRP shares 19 416
Dividend payable ($0.36)
Unrealized gain in securities
available-for-sale, net of taxes
Net income
-------- --------- --------- -------- --------- --------
Balance at September 30, 2001 4,758 $ 86 $ 62,760 $ (3,349) $ (62,030) $ (2,521)
======== ========= ========= ======== ========= ========
Balance at December 31, 2001 4,758 $ 86 $ 62,854 $ (3,254) $ (62,030) $ (2,521)
Allocation of ESOP shares 188 147
Exercise of options 16 173
Dividend payable ($0.39)
Unrealized gain in securities
available-for-sale, net of taxes
Net income
-------- --------- --------- -------- --------- --------
Balance at September 30, 2002 4,774 $ 86 $ 63,042 $ (3,107) $ (61,857) $ (2,521)
======== ========= ========= ======== ========= ========
Accumulated
Other
Comprehensive Retained
Income (Loss) Earnings Total
-------------------------------------
Balance at December 31, 2000 $ (1,067) $ 68,519 $ 61,620
Allocation of ESOP shares 343
Allocation of MRP shares 435
Dividend payable ($0.36) (1,469) (1,469)
Unrealized gain in securities -
available-for-sale, net of taxes 1,950 1,950
Net income 4,487 4,487
------------ --------- --------
Balance at September 30, 2001 $ 883 $ 71,537 $ 67,366
============ ========= ========
Balance at December 31, 2001 $ (1,608) $ 72,914 $ 66,441
Allocation of ESOP shares 335
Exercise of options 173
Dividend payable ($0.39) (1,612) (1,612)
Unrealized gain in securities
available-for-sale, net of taxes 5,720 5,720
Net income 6,607 6,607
------------ --------- --------
Balance at September 30, 2002 $ 4,112 $ 77,909 $ 77,664
============ ========= ========
See notes to unaudited consolidated financial statements
5
FIRST BELL BANCORP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited, in thousands)
Nine Months Ended September 30,
CASH FLOWS FROM OPERATING ACTIVITIES: 2002 2001
---------- ----------
Net income $ 6,607 $ 4,487
Adjustments to reconcile net income to net cash provived by operating activities:
Depreciation 229 225
Deferred income taxes (801) (805)
Amortization of premiums and accretion of discounts 828 189
Compensation expense-allocation of ESOP and MRP shares 335 778
Loss on sale of real estate owned - 21
Gain on sale of investments, net (783) (329)
Gain on sale of mortgage loans - (62)
Increase in the value of BOLI insurance (805) (728)
Increase or decrease in assets and liabilities:
Accrued interest receivable (402) (225)
Accrued interest on deposits 4,025 5,945
Accrued interest on borrowings (66) (124)
Accrued income taxes 820 (858)
Dividend payable 124 -
Other, net (1,389) (189)
---------- ----------
Net cash provided by operating activities 8,722 8,325
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of investments securities, available for sale 107,328 29,889
Sale of mortgage-backed securities, available for sale - 21,184
Purchase of mortgage-backed securities, available for sale (38,005) (61,671)
Purchase of investment securities, available for sale (172,792) (66,375)
Maturity of Federal Funds 650 90
Principal repayments on mortgage-backed securities, available for sale 12,915 7,002
Principal repayments on investment securities, available for sale 25,369 7,798
Net decrease in conventional loans 57,529 43,409
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 (12) (33)
---------- ----------
Net cash used in investing activities (7,018) (17,492)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits, NOW accounts and savings accounts 24,547 10,672
Net increase (decrease) in certificate accounts (5,593) 12,540
Net decrease in advances by borrowers for taxes and insurance (6,017) (5,562)
Net decrease in borrowings (3,750) (3,750)
Dividend paid (1,612) (1,469)
Exercise of stock options 173 -
---------- ----------
Net cash provided by financing activities 7,748 12,431
---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 9,452 3,264
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 32,198 40,509
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 41,650 $ 43,773
========== ==========
SUPPLEMENTAL DISCLOSURES:
Cash paid for:
Interest on deposits and advances by borrowers for taxes and insurance $ 11,637 $ 16,063
Interest on borrowings 9,200 9,626
Income taxes 749 1,347
See notes to unaudited consolidated financial statements
6
FIRST BELL BANCORP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 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 September 30, 2002 and related consolidated
statements of income, comprehensive income, cash flows and changes in
stockholders' equity for the three and nine months ended September 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. Recent Accounting Pronouncements
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
7
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 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.
On October 1, 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (FAS) No. 147, "Acquisitions of
Certain Financial Institutions", effective for all business combinations
initiated after October 1, 2002. This Statement addresses the financial
accounting and reporting for the acquisition of all or part of a financial
institution, except for a transaction between two or more mutual enterprises.
This Statement removes acquisitions of financial institutions, other than
transactions between two or more mutual enterprises, from the scope of FAS No.
72, "Accounting for Certain Acquisitions of Banking or Thrift Institutions", and
FASB Interpretation No. 9, Applying APB Opinions No. 16 and 17 "When a Savings
and Loan Association or a Similar Institution Is Acquired in a Business
Combination Accounted for by the Purchase Method". The acquisition of all or
part of a financial institution that meets the definition of a business
combination shall be accounted for by the purchase method in accordance with FAS
No. 141, "Business Combinations", and FAS No. 142, "Goodwill and Other
Intangible Assets". This Statement also provides guidance on the accounting for
the impairment or disposal of acquired long-term customer-relationship
intangible
8
assets (such as depositor- and borrower-relationship intangible assets and
credit cardholder intangible assets), including those acquired in transactions
between two or more mutual enterprises. The adoption of this statement did not
have a material effect on the Company's financial position or results of
operations.
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 September 30, 2002 and December 31, 2001.
Assets. Total assets were $879.0 million at September 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, and
cash and cash equivalents were partially offset by decreases in conventional
mortgage loans and Federal funds. Mortgage-backed securities at September 30,
2002 were $81.5 million compared to $56.0 million at December 31, 2001. The
increase was the net result of the purchase of $38.0 million in mortgage-backed
securities offset by principal repayments of $12.9 million. Investment
securities, available for sale, at September 30, 2002 were $329.7 million
compared to $281.4 million at December 31, 2001. The net increase was the result
of a restructuring of the investment securities portfolio and the Company's
decision to increase the size of the investment portfolio. During the first nine
months of the current year, the Company purchased $172.8 million in investment
securities offset by securities sold of $107.3 million and principal repayments
of $25.4 million. This restructuring was completed to realize net securities
gains on the sale of the securities while also increasing the yield on the tax
exempt investment portfolio and to invest principal repayments from the mortgage
portfolio into shorter-term securities. Cash increased by $9.5 million to $41.7
million at September 30, 2002 from $32.2 million at December 31, 2001. Federal
funds sold decreased by $650,000. The Association had outstanding commitments to
purchase investment securities of $5.4 million, respectively as of September 30,
2002. These commitments were fulfilled in October 2002. The balance of loans,
net decreased by $57.6 million to $378.9 million at September 30, 2002 from the
December 31, 2001 balance of $436.5 million. This net decrease was a result of
loan refinancing and the Company's decision to reinvest a portion of the loan
principal repayments in shorter-term securities.
10
Liabilities. Total liabilities increased to $801.4 million at September 30, 2002
compared to $788.8 million at December 31, 2001. The increase in liabilities
resulted from increases in deposits, which were partially offset by decreases in
advances by borrowers for taxes and insurance, borrowings and other liabilities.
Deposits increased by $18.9 million to $580.3 million at September 30, 2002 from
$561.4 million at December 31, 2001. The increase was the net result of an
increase of $26.7 million in passbook, club and other accounts, offset by
decreases in money market and NOW accounts of $2.2 million and certificates of
deposit of $5.6 million. The shift in deposits into core accounts and out of
certificates of deposit and money market and NOW accounts was driven by consumer
demand for liquidity and a reluctance to accept lower yields offered for
longer-term certificates of deposit. Other liabilities increased by $3.4 million
while advances by borrowers for taxes and insurance decreased $6.0 million.
These account balance fluctuations 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 $3.8 million to
$210.5 million at September 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 $11.2 million to $77.6 million
at September 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 $5.7 million during the
nine-month period ended September 30, 2002. Retained earnings increased by $5.0
million to $77.9 million at September 30, 2002 from $72.9 million at December
31, 2001. The increase was the result of net income of $6.6 million offset by
dividends of $1.6 million.
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 nine month periods
ended September 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 nine months ended September 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
September 30, 2002 and December 31, 2001".
At September 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
9.09%, 9.09%, 23.72% and 23.99%, 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
11
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 September 30, 2002, the Association had
$24.9 million of dividends that could be paid to the Company without regulatory
approval and the Company had $1.5 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 the regulatory authorities would approve
such application.
Comparison of Results of Operation for the Nine and Three Months ended September
30, 2002 and 2001.
General. Net income for the nine months ended September 30, 2002 was $6.6
million in comparison to $4.5 million for the nine months ended September 30,
2001. The increase can be attributed to decreases in interest expense partially
offset by a smaller decrease in interest income 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 September 30, 2002, net income was $2.1 million
compared to $1.5 million for the three months ended September 30, 2001. The
increase of $676,000 resulted from the same sources previously described for the
nine-month period ended September 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 $2.7 million and $993,000 were made for the nine months and three
months ended September 30, 2002, respectively. For the nine and three months
ended September 30, 2001, tax equivalent adjustments of $2.5 million and
$912,000 were made, respectively. Interest income for the nine months ended
September 30, 2002 decreased by $3.9 million or 9.6% to $36.4 million from $40.3
million for the nine months ended September 30, 2001. The decrease was the net
result of decreases in interest earned on conventional mortgage loans, federal
funds sold, interest bearing deposits and dividends on Federal Home Loan Bank
stock, partially offset by increases in interest earned on mortgage-backed
securities and investment securities. Interest earned on investment securities
was $12.3 million for the nine months ended September 30, 2002 compared to $10.8
million for the same period of the prior year. The increase was the result of
the average balance increasing to $296.3 million from $233.8 million while the
average interest rate decreased to 5.52% from 6.15% for the nine months ended
September 30, 2002 and 2001, respectively. Interest on mortgage-backed
securities for the nine months ended September 30, 2002 was $1.9 million
compared to $1.3 million in the same period for the prior year. The $652,000
increase can be attributable to an increase in the average balance from $32.7
million to $67.2 million offset by a decrease in the average rate earned on the
securities from 5.40% to 3.92%. Interest on interest bearing deposits totaled
$461,000 for the nine months ended September 30, 2002 compared to $1.1 million
for the nine months ended September 30, 2001. The $655,000 decrease is the net
result of a $4.6 million decrease in the average balance and a decrease in the
average rate from 4.35% to 1.58%. Interest earned on federal funds sold
decreased by $151,000 to $102,000 for the nine months ended September 30,
12
2002 from $253,000 for the comparable 2001 period. The decrease was primarily
the result of a decrease in the federal funds sold average interest rate from
5.06% to 1.67%. The average balance in the federal funds sold account increased
from $6.7 million to $8.2 million. Interest earned on conventional mortgage
loans decreased $4.9 million or 18.8% to $21.4 million for the nine months ended
September 30, 2002 from $26.3 million for the nine months ended September 30,
2001. 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, 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 three-quarters of the current year. The average rate earned and the
average balance for the nine months ended September 30, 2002 were 6.96% and
$409.2 million, respectively. For the nine months ended September 30, 2001, the
average rate earned and the average balance were 7.13% and $491.8 million,
respectively.
Interest income for the three months ended September 30, 2002 decreased by
$964,000 or 7.3% to $12.2 million from $13.2 million for the three months ended
September 30, 2001. The decrease was the net result of increases in interest
earned on investment securities and decreases in interest earned on conventional
mortgage loans, mortgage-backed securities, federal funds sold, interest bearing
deposits and Federal Home Loan Bank stock. Interest earned on investment
securities was $4.4 million for the three months ended September 30, 2002
compared to $3.5 million for the third quarter of 2001. The increase was the
result of the average balance increasing to $311.4 million from $237.1 million
while the average interest rate decreased to 5.66% from 5.91% for the three
months ended September 30, 2002 and 2001, respectively. Interest earned on
mortgage-backed securities was $724,000 for the three months ended September 30,
2002 compared to $728,000 for the comparable 2001 period. The increase was the
net result of the average balance increasing to $71.4 million from $58.8 million
while the average interest rate decreased to 4.05% from 4.95% for the three
months ended September 30, 2002 and 2001, respectively. Interest earned on
conventional mortgage loans decreased by $1.7 million or 19.8% to $6.8 million
for the three months ended September 30, 2002 from $8.5 million for the three
months ended September 30, 2001. The decrease was the result of the average
balance decreasing to $391.9 million from $472.2 million for the three months
ended September 30, 2002 and 2001, respectively. In addition, the average rate
earned on conventional mortgage loans decreased to 6.93% for the three months
ended September 30, 2002 from 7.17% for the comparable 2001 period. Interest
earned on federal funds sold decreased by $39,000 to $52,000 for the three
months ended September 30, 2002 from $91,000 for the three months ended
September 30, 2001. This decrease can be primarily attributable to the decline
in the average interest rate earned to 1.74% from 5.09% while the average
balance increased to $12.0 million from $7.2 million for the three months ended
September 30, 2002 and 2001, respectively.
Interest Expense. Interest expense for the nine months ended September 30, 2002
decreased by $6.7 million or 21.3% to $24.8 million from $31.5 million for the
nine months ended September 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 $6.3 million or 28.8% to $15.7 million for the
nine months ended September 30, 2002 from $22.0 million for the nine months
ended September 30, 2001. The average rate paid on deposits for the nine months
ended September 30, 2002 and 2001 was 3.60% and 5.26%, respectively. The average
balance on deposits and borrowers' deposits for taxes and insurance was $579.7
million and $557.9 million for the nine months ended September 30, 2002 and
2001, respectively. Interest expense on borrowings decreased by $368,000 to $9.1
million for the nine months ended September 30, 2002 from $9.5 million for the
nine months ended September 30, 2001. The average balance on
13
borrowings was $212.4 million and $217.2 million for the nine months ended
September 30, 2002 and 2001, respectively. The average rate paid on borrowings
for the nine months ended September 30, 2002 and 2001 was 5.73% and 5.83%,
respectively.
Interest expense for the three months ended September 30, 2002 decreased by $2.1
million to $8.1 million from $10.3 million for the three months ended September
30, 2001. The decrease was due to a decrease in interest expense on deposits and
a decrease in the cost of borrowings. An increase in the average deposit balance
to $581.0 million from $560.6 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 5.07% to 3.49%. Interest expense on
borrowings decreased by $96,000 to $3.1 million for the three months ended
September 30, 2002 from $3.2 million for the three months ended September 30,
2001. The average balance on borrowings was $210.9 million and $215.9 million
for the three months ended September 30, 2002 and 2001, respectively. The
average rate paid on borrowings for the three months ended September 30, 2002
and 2001 was 5.82% and 5.87%, respectively.
Net Interest Income. Net interest income increased to $11.6 million for the nine
months ended September 30, 2002 from $8.8 million for the nine months ended
September 30, 2001. The increase was the result of interest expense decreasing
by $6.7 million while interest income decreased by $3.9 million. Similarly, net
interest income increased by $1.1 million for the three months ended September
30, 2002, as compared to the same period ended September 30, 2001. This increase
was the result of interest expense decreasing by $2.1 million while interest
income decreased by $964,000.
Provision for Loan Losses. The provision for loan loss was zero for each of the
nine and three months periods ended September 30, 2002 and 2001. At September
30, 2002, non-performing assets were $1.5 million compared to $1.1 million at
December 31, 2001. The allowance for loan losses equaled 62.9% of total
non-performing assets as of September 30, 2002. There were no loans charged off
during the nine and three-month periods ended September 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 September 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
September 30, 2002.
Other Income. Other income for the nine months ended September 30, 2002
increased by $558,000 or 29.6% to $2.4 million from $1.9 million for the nine
months ended September 30, 2001. The increase was the result of increases in
gains on sale of investment securities, miscellaneous income and service
charges. Gains on sale of investment securities increased to $783,000 for the
nine months ended September 30, 2002 from $329,000 for the nine months ended
September 30, 2001. Other income increased by $99,000 to $809,000 for the nine
months ended September 30, 2002 from $710,000 for the comparable 2001 period.
This increase was 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 $67,000 to $852,000 for the nine months ended September 30, 2002
from $785,000 for the comparable 2001 period as deferred loan fees were
recognized on loans paid in full.
Other income for the three months ended September 30, 2002 increased by $140,000
as the result of increases in net gains on the sale of investment securities of
$120,000 and increases in loan fees and service charges of $24,000 offset by a
decrease in miscellaneous income of $4,000.
14
General and Administrative Expenses. General and administrative expenses for the
nine months ended September 30, 2002 remained relatively constant in comparison
to the total for the nine-month period ended September 30, 2001. Total general
and administrative expenses increased by $65,000 when comparing the two nine
month periods. Compensation, payroll taxes and fringe benefits decreased by
$8,000. Office occupancy expense increased by $46,000 to $707,000 for the nine
months ended September 30, 2002 from $661,000 for the nine months ended
September 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 increased by $26,000 for the nine
months ended September 30, 2002, compared to the nine months ended September 30,
2001.
General and administrative expenses for the three months ended September 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 nine-month
period ended September 30, 2002.
Income Taxes. Tax equivalent income taxes increased by $1.2 million to $3.6
million for the nine months ended September 30, 2002 from $2.4 million for the
comparable 2001 period. The increase was primarily the result of net income
before taxes increasing to $10.2 million from $6.9 million for the nine months
ended September 30, 2002 and 2001, respectively. Tax equivalent adjustments of
$2.7 million and $2.5 million were made for the nine months ended September 30,
2002 and 2001, respectively.
Income taxes for the three months ended September 30, 2002 increased to $1.3
million from $707,000 for the three months ended September 30, 2001. The
increase was the result of an increase in net income before taxes. Tax
equivalent adjustments of $993,000 and $912,000 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, 2001 to
September 30, 2002. However, the OTS results are not yet available for the
quarter ended September 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 nine months
of 2002.
Item 4. Controls and Procedures
The Company maintains a system of controls and procedures designed to ensure
that information required to be disclosed in the reports that the Company files
or submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the rules and forms
of the Securities and Exchange Commission. The Company evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures under the supervision and with the participation of management,
including our Chief Executive Officer and Chief Financial Officer, within 90
days prior to the filing date of this report. Based upon that evaluation, our
Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures are effective in timely alerting them to
material information required to be included in our periodic Securities and
Exchange Commission filings. No significant changes were made to our internal
controls or other factors that could significantly affect these controls
subsequent to the date of their evaluation.
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 11.0- Computation of Earnings Per Share, (filed
herewith)
Exhibit 99.0- Independent Accountants Review Report, dated
November 6, 2002, (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: November 14, 2002 /s/ Albert H. Eckert, II
------------------------
Albert H. Eckert, II
President and Chief Executive Officer
Date: November 14, 2002 /s/ Jeffrey M. Hinds
--------------------
Jeffrey M. Hinds
Executive Vice President and
Chief Financial Officer (Principal Accounting
Officer)
18
CERTIFICATION
I, Albert H. Eckert II, Chief Executive Officer, certify, that:
1. I have reviewed this quarterly report on Form 10-Q of First Bell
Bancorp, Inc.;
2. Based on my knowledge, the quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this quarterly
report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date.
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of the
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated
in this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect the
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: November 14, 2002 By: /s/ Albert H. Eckert, II
-------------------------
19
CERTIFICATION
I, Jeffrey M. Hinds, Chief Financial Officer, certify, that:
1. I have reviewed this quarterly report on Form 10-Q of First Bell
Bancorp, Inc.;
2. Based on my knowledge, the quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this quarterly
report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date.
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of the
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated
in this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect the
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: November 14, 2002 By: /s/ Jeffrey M. Hinds
---------------------
20