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, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-25172
FIRST BELL BANCORP, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 251752651
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(State or other jurisdiction of (IRS Employer 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: 6,497,702 shares of common
stock, par value $.01 per share, were outstanding as of August 14, 1998.
FIRST BELL BANCORP, INC.
FORM 10-Q
INDEX
PAGE
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PART I FINANCIAL INFORMATION
Item 1 Consolidated Balance Sheets June 30, 1998 (unaudited)
and December 31, 1997 (audited)................................... 2
Consolidated Statements of Income and Comprehensive Income
for the Three and Six Months Ended June 30, 1998
and 1997, (unaudited)............................................. 3
Consolidated Statements of Changes in Stockholders' Equity
for the Six Months Ended June 30, 1998 and 1997, (unaudited)...... 4
Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 1998 and 1997, (unaudited)............................... 5
Notes to Unaudited Consolidated Financial Statements.............. 6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations..................... 7
Item 3 Quantitative and Qualitative Disclosure About Market Risk......... 13
PART II OTHER INFORMATION
Item 1 Legal Proceedings................................................. 13
Item 2 Changes in Securities............................................. 13
Item 3 Defaults Upon Senior Securities................................... 13
Item 4 Submission of Matters to a Vote of Security Holders............... 13
Item 5 Other Information................................................. 14
Item 6 Exhibits and Reports on Form 8-K.................................. 14
SIGNATURES
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
1
FIRST BELL BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands)
JUNE 30, DECEMBER 31,
1998 1997
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ASSETS:
Cash: (unaudited) (audited)
Cash on-hand......................................................... $ 712 $ 872
Non-interest-bearing deposits........................................ 1,850 1,708
Interest-bearing deposits............................................ 24,719 21,943
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Total cash........................................................ 27,281 24,523
Mortgage-backed securities-held for sale, at fair value (cost of $0
and $31,654 at June 30, 1998 and December 31, 1997, respectively)..... -- 31,885
Federal funds sold...................................................... 36,475 1,550
Investment securities held to maturity - at cost (fair value of $10,567
and $10,553 at June 30, 1998 and December 31, 1997, respectively)..... 9,973 9,973
Investment securities held for sale, at fair value (cost of $94,404 and
$15,928 at June 30, 1998 and December 31, 1997, respectively)........ 94,892 15,902
Conventional mortgage loans - net of allowance for
loan losses of $745 and $715 at June 30, 1998 and
December 31, 1997, respectively...................................... 570,214 578,487
Other loans, net........................................................ 773 907
Real estate owned....................................................... 65 --
Properties and equipment, net........................................... 3,381 3,492
Federal Home Loan Bank stock, at cost................................... 9,000 5,148
Accrued interest receivable............................................. 3,589 3,202
Other assets............................................................ 995 615
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Total assets......................................................... $756,638 $675,684
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LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Passbook, club and other accounts.................................... $ 69,823 $ 67,587
Money market and NOW accounts........................................ 47,196 47,264
Certificate accounts................................................. 357,231 380,204
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Total deposits................................................... 474,250 495,055
Borrowings.............................................................. 180,000 90,000
Advances by borrowers for taxes and insurance........................... 16,044 12,226
Accrued interest on deposits............................................ 4,131 535
Accrued interest on borrowings.......................................... 667 332
Accrued income taxes.................................................... 168 229
Deferred income tax liability........................................... 1,880 1,725
Dividend payable on common stock........................................ 575 575
Other liabilities....................................................... 2,054 2,024
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Total liabilities.................................................... 679,769 602,701
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; 6,524,557 outstanding at June 30, 1998
6,510,150 outstanding at December 31, 1997........................ 86 86
Paid-in capital...................................................... 61,560 61,371
Unearned ESOP shares (579,978 and 596,088 shares at June 30, 1998
and December 31, 1997, respectively)................................ (4,102) (4,217)
Unearned MRP shares (275,441 shares at June 30, 1998 and 307,798 at
December 31, 1997, respectively).................................. (3,839) (4,290)
Treasury stock (2,071,694 shares and 2,085,625 shares at June 30,
1998 and December 31, 1997, respectively) ........................ (31,849) (32,077)
Accumulated other comprehensive income, net of taxes................. 287 117
Retained earnings.................................................... 54,726 51,993
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Total Stockholders' Equity.............................................. 76,869 72,983
Total Liabilities and Stockholders' Equity.............................. $756,638 $675,684
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2
FIRST BELL BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME & COMPREHENSIVE INCOME
(In thousands, except per share amounts)
(Unaudited)
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1998 JUNE 30, 1997
------------- ------------- ------------- -------------
Interest income:
Conventional mortgage loans $10,637 $10,425 $21,331 $20,390
Interest-bearing deposits 272 311 616 579
Mortgage-backed securities 0 882 283 1,654
Federal funds sold 276 137 443 476
Investment securities 950 666 1,337 1,301
Other loans 14 17 29 35
Federal Home Loan Bank stock 104 95 187 171
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Total interest and dividend income 12,253 12,533 24,226 24,606
Interest expense on deposits 6,126 6,672 12,396 13,094
Interest expense on borrowings 1,643 1,651 2,909 2,868
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Total interest expense 7,769 8,323 15,305 15,962
Net interest income 4,484 4,210 8,921 8,644
Provision for loan losses 10 30 30 50
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Net interest income after provision
for loan losses 4,474 4,180 8,891 8,594
Other income:
Loan fees and service charges 120 112 221 239
Gain on sale of loans and securities -- 258 97 258
Miscellaneous income 3 40 11 43
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Total other income 123 410 329 540
Other general and administrative expense:
Compensation, payroll taxes and fringe benefits 848 718 1,663 1,403
Federal insurance premiums 78 80 159 98
Office occupancy expense, excluding depreciation 127 128 251 258
Depreciation 71 74 142 147
Computer services 56 54 111 109
Other expenses 224 245 479 456
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Total general and administrative expense 1,404 1,299 2,805 2,471
Net Income before provision for income taxes 3,193 3,291 6,415 6,663
Provision for income taxes:
Current:
Federal 990 951 2,018 1,959
State 231 256 480 514
Deferred expense (credit) 14 170 34 280
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Total provision for income taxes 1,235 1,377 2,532 2,753
Net income $ 1,958 $ 1,914 $ 3,883 $ 3,910
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Other comprehensive income, net of taxes,
unrealized gain on investments 235 199 170 99
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Comprehensive income $ 2,193 $ 2,113 $ 4,053 $ 4,009
======= ======= ======= =======
Basic earnings per share $0.35 $0.34 $0.69 $0.64
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Diluted earnings per share $0.33 $0.32 $0.65 $0.61
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Weighted average shares outstanding 6,524 6,517 6,520 7,061
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3
FIRST BELL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(In thousands)
(Unaudited)
Accumulated
Number Other Com-
Common Additional Unearned prehensive
Stock Common Paid-in ESOP Treasury MRP Income, Net Retained
Shares Stock Capital Shares Stock Stock of Taxes Earnings Total
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Balance at December 31, 1996 7,758 $86 $61,063 $(4,454) ($11 684) ($4,792) -- $46,214 $ 86,433
Purchase of treasury stock (1,247) (20,393) (20,393)
Allocation of ESOP shares 129 109 238
Allocation and adjustments of
MRP shares 8 502 581 1,091
Dividend on common stock ($0.10) (1,204) 1,204)
Change in unrealized gain or
loss, net of taxes 99 99
Net income 3,910 3,910
------ --- ------- ------- -------- ------- ---- ------- --------
Balance at June 30, 1997 6,511 $86 $61,200 $(4,345) $(32,077) ($4,290) $ 99 $49,501 $ 70,174
====== === ======= ======= ======== ======= ==== ======= =========
Balance at December 31, 1997 6,511 $86 $61,371 $(4,217) $(32,077) $ (4,290) $117 $51,993 $ 72,983
Exercised of Options 13 (79) 228 149
Allocation of ESOP 201 115 316
Allocation of MRP Shares 67 451 518
Dividend on common stock ($0.10) (1,150) (1,150)
Change in unrealized gain or
loss, net of taxes 170 170
Net income 3,883 3,883
------ --- ------- ------- -------- ------- ---- ------- --------
Balance at June 30, 1998 6,524 $86 $61,560 $(4,102) $(31,849) $(3,839) $287 $54,726 $ 76,869
====== === ======= ======= ======== ======= ==== ======= =========
4
FIRST BELL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Six Months Ended Six Months Ended
June 30, 1998 June 30, 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,883 $ 3,910
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 142 147
Deferred income taxes 34 280
Amortization of premiums and accretion of discounts 1 111
Provision for loan losses 30 50
Compensation expense-allocation of ESOP and MRP shares 642 513
Gain on sale of mortgage-backed securities, available for sale (97) --
Gain on sale of real estate owned -- (31)
Gain on sale of conventional mortgage loans -- (258)
Net proceeds from sale of conventional mortgage loans -- 19,839
Increase or decrease in assets and liabilities
Accrued interest receivable (386) (875)
Accrued interest on deposits 3,597 3,525
Accrued interest on borrowings 335 185
Accrued income taxes (61) 74
Other assets (380) (988)
Other liabilities 220 1,469
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Net cash provided by operating activities 7,960 27,951
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment securities, available for sale (89,758) (25,947)
Purchase of mortgage-backed securities, available for sale -- (71,545)
(Purchase)/maturity of Federal Funds (34,925) 71,275
Maturity of investment securities, available for sale 10,000 5,000
Principal paydowns on mortgage-backed securities, available for sale 1,402 6,087
Principal paydowns on investment securities, available for sale 1,287 --
Net proceeds from sale of mortgage-backed securities, available for sale 30,352 --
Net increase/(decrease) in conventional mortgage loans 8,178 (57,447)
Net decrease in other loans 134 62
Purchase of Federal Home Loan Bank stock (3,852) (1,901)
Net proceeds from sale of real estate owned -- 260
Purchase of premises and equipment (31) (63)
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Net cash used in investing activities (77,213) (74,219)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits, NOW accounts and savings
accounts 2,168 3,388
Net increase/(decrease) in certificate accounts (22,973) 22,899
Net increase in advances by borrowers for taxes and insurance 3,818 4,917
Net increase in borrowings 90,000 38,000
Dividend paid (1,150) (750)
Options exercised 149 --
Purchase of treasury stock -- (20,394)
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Net cash provided by financing activities 72,012 48,060
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NET INCREASE IN CASH AND CASH EQUIVALENTS 2,759 1,792
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 24,523 26,406
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 27,281 $ 28,198
======== ========
SUPPLEMENTAL DISCLOSURES:
Cash paid for:
Interest on deposits and advances by borrowers for
taxes and insurance $ 8,800 $ 9,569
Interest on borrowings 2,574 2,683
Income taxes 2,452 2,424
Noncash transactions:
Transfers from conventional loans to real estate acquired through foreclosure 85 94
Increase in additional paid-in capital-ESOP allocation and options exercised 189 136
Unrealized appreciation/(depreciation) on securities available for sale 484 167
Transfers from conventional mortgage loans to conventional mortgage loans, -- 29,989
available for sale
5
FIRST BELL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR SIX AND THREE MONTHS ENDED JUNE 30, 1998 AND 1997
1. Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of First Bell
Bancorp, Inc. ("First Bell" or the "Company") and its wholly-owned subsidiary
Bell Federal Savings and Loan Association of Bellevue (the "Association"). All
significant intercompany transactions have been eliminated in consolidation.
The investment in Bell Federal on First Bell's financial statements is carried
at the parent company's equity in the underlying net assets.
The consolidated balance sheet as of June 30, 1998 and related consolidated
statements of income and comprehensive income, cash flows and changes in
stockholders' equity for the six and three months ended June 30, 1998 and 1997
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, 1997.
Private Securities and Litigation Reform Act Safe Harbor Statement
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In addition to historical information, this 10-Q includes certain forward
looking statements based on current management expectations. Examples of this
forward looking information can be found in, but are not limited to, the
allowance for losses discussion and the quantitative and qualitative disclosure
about market risk. The Company's actual results could differ materially from
those 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 affecting the Company's operations, markets, products,
services and prices.
6
Item 2. Management Discussion and Analysis of Financial Condition and Results
of Operations.
Comparison of Financial Condition at June 30, 1998 and December 31, 1997.
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Assets. Total assets increased by $80.9 million, or 12.0% to $756.6 million at
June 30, 1998 from $675.7 million at December 31, 1997. The increase in total
assets was the result of increases in other investment securities of $79.0
million, federal funds sold of $34.9 million and Federal Home Loan Bank ("FHLB")
stock of $3.9 million. Offsetting these increases were decreases of $31.9
million in mortgage-backed securities and $8.3 million in conventional mortgage
loans. Other investment securities increased by $79.0 million or 305.3% to
$104.9 million at June 30, 1998 from $25.9 million at December 31, 1997. The
increase was the result of the purchase of $89.8 million of investment
securities. These securities consisted of municipal securities and
Collateralized Mortgage Obligations ("CMO'S"). Federal funds sold at June 30,
1998 was $36.5 million compared to $1.6 million at December 31, 1997. The $34.9
million increase was the result of the additional borrowing the Company made at
the end of the second quarter being temporarily invested in the federal funds
sold. The funds will be used to purchase municipal securities, of which $25.8
million was committed at June 30, 1998 and to help maintain the required
liquidity levels. FHLB stock increased $3.9 million or 74.8% to $9.0 million at
June 30, 1998 from $5.1 million at December 31, 1997. This increase was the
result of a higher minimal balance required by the FHLB due to the additional
borrowings. Reducing the effect of the above increases was a decrease in
mortgage-backed securities of $31.9 million to zero at June 30, 1998. All of the
mortgage-backed securities were sold in the first quarter of 1998 that resulted
in a gain of $97,000. In addition, conventional mortgage loans decreased by $8.3
million or 1.5% to $570.2 million at June 30, 1998 from $578.5 million at
December 31, 1998. The decrease was the result of payments and prepayments of
$48.0 million offset by $35.1 in conventional mortgage loans originated through
June 30, 1998 and an increase of home equity loans of $1.2 million. During the
second quarter, the Association began offering home equity installment and line
of credit loans to homeowners in its lending territory.
Liabilities. Liabilities increased by $77.1 million or 12.8% to $679.8 million
at June 30, 1998 from $602.7 million at December 31, 1997. The increase was the
result of increases of $90.0 million in borrowings, $3.8 million in advances by
borrowers for taxes and insurance and $3.6 million in accrued interest on
deposits. Offsetting these increases was a decrease in deposits of $20.8
million. Borrowings increased by $90.0 million or 100% to $180.0 million at
June 30, 1998 from $90.0 million at December 31, 1997. The additional
borrowings were needed to fund the purchase of municipal securities. Advances
by borrowers for taxes and insurance increased by $3.8 million or 31.2% to $16.0
million at June 30, 1998 from $12.2 million at December 31, 1997. The increase
was the result of the collection of funds for taxes and insurance for future
payments. Accrued interest at June 30, 1998 was $4.1 million compared to
$535,000 at December 31, 1997. The $3.6 million increase is attributable to the
timing of interest payments on certificate accounts. Total deposits declined by
$20.8 million or 4.2% to $474.3 at June 30, 1998 from $495.1 million at December
31, 1997. The decrease was the result of certificate accounts declining by
$23.0 million or 6.0% to $357.2 million at June 30, 1998 from $380.2 million at
December 31, 1997. The decrease was the result of the withdrawal of high cost
institutional retail accounts.
7
Capital. Total stockholders' equity increased by $3.9 million or 5.3% to $76.9
million at June 30, 1998 from $73.0 million at December 31, 1997. The increase
was the result of net income of $3.9 million. In addition, MRP and ESOP
allocations and the exercise of options resulted in an increase of stockholders'
equity of $983,000. This was offset by dividends declared of $1.2 million.
Liquidity and Capital Resources. The Company's primary sources of funds are
deposits, borrowings, and principal and interest payments on loans, 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 investing activities of the Company for the six months ended June
30, 1998 was the purchase of $89.8 million of investment securities, available-
for-sale and the origination of $35.1 million of conventional mortgage loans.
In addition, there was net withdrawals of $20.8 in deposits. Sources of funds
for the quarter ended June 30, 1998 were an additional $90.0 million in
borrowings, $48.0 million of principal payments and prepayments, net proceeds of
$30.4 million from the sale of the mortgage-backed securities and $10.0 million
from the maturity of investment securities.
The Association is required to maintain an average daily balance of liquid
assets as a percentage of net withdrawable deposit accounts plus short-term
borrowings as defined by the Office of Thrift Supervision ("OTS") regulations.
The minimum required liquidity balance is currently 4.0%. The Association's
average liquidity ratio was 9.4% for the quarter ended June 30, 1998. The
Association's most liquid assets are cash and short-term investments.
The levels of the Association's liquid assets are dependent on the
Association's operating, financing, lending and investing activities during any
given period. At June 30, 1998, assets qualifying for liquidity, including cash
and investments, totaled $65.6 million.
At June 30, 1998, the Association's capital exceeded all of the capital
requirements of the OTS. The Association's tangible, Tier I (core) capital (to
total assets), Tier I Capital (to risk-based assets) and risk-based capital (to
risk-based assets) ratios were 9.7%, 9.7%, 22.1%, and 22.3%, respectively. The
Association is considered a "well capitalized" institution under the prompt
corrective action regulations of the OTS.
Comparison of Results of Operations for the Six and Three Months ended June 30,
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1998 and 1997.
- -------------
General. Net income for the six months ended June 30, 1998 and 1997 remained
stable at $3.9 million. Net interest income for the six months ended June 30,
1998 increased by $277,000 or 3.2% to $8.9 million from $8.6 million for the
comparable 1997 period. Income taxes decreased by $221,000 or 8.0% to $2.5
million from $2.8 million for the six months ended June 30, 1998 and 1997,
respectively. Offsetting these increases to net income was an increase
8
in other expenses of $334,000 or 13.5% to $2.8 million for the six months ended
June 30, 1998 from $2.5 million for the comparable 1997 period. In addition,
other income declined by $211,000 or 39.1% to $329,000 for the six months ended
June 30, 1998 from $540,000 for the six months ended June 30, 1997.
Net income for the three months ended June 30, 1998 increased by $44,000 or
2.3% to $2.0 million from $1.9 million for the three months ended June 30, 1997.
The increase was the result of net interest income increasing by $274,000 or
6.5% to $4.5 million for the quarter ended June 30, 1998 from $4.2 million for
the comparable 1997 period. Income taxes declined to $1.2 million for the three
months ended June 30, 1998 from $1.4 million for the three months ended June 30,
1997. Again, offsetting these increases to net income was an increase of
$105,000 in other expenses and other income declining by $287,000.
Interest Income. The interest income for the six months ended June 30, 1998
is the tax equivalent interest income. Tax equivalent interest income is being
used because interest earned on investment securities included tax-exempt
securities. Tax-exempt securities carry pre-tax yields lower than comparable
taxable assets. Therefore, it is more meaningful to analyze interest income on
a tax-equivalent basis. The Company held no tax-exempt securities during the
first six months of 1997. Actual interest income for the six months ended June
30, 1998 was $24.1 million with a tax equivalent adjustment to interest income
of $109,000. Interest income declined $380,000 or 1.5% to $24.2 million for the
six months ended June 30, 1998 from $24.6 million for the comparable 1997
period. The decrease was primarily the result of a decline in interest on
mortgage-backed securities offset by an increase in interest on conventional
mortgage loans. Interest on mortgage-backed securities for the six months ended
June 30, 1998 was $283,000 compared to $1.7 million for the six months ended
June 30, 1997. The $1.4 million decrease was the result of the sale of all the
mortgage-backed securities in the first quarter of 1998. Interest on
conventional mortgage loans increased by $941,000 or 4.6% to $21.3 million for
the first quarter of 1998 from $20.4 million for the comparable 1997 period.
The increase was the result of the average balance of conventional mortgage
loans increasing by $26.4 million or 4.8% for the six months ended June 30, 1998
to $575.4 from $549.0 million for the six months ended June 30, 1997.
For the quarter ended June 30, 1998, interest income decreased by $280,000 or
2.2% to $12.3 million from $12.5 million for the quarter ended June 30, 1997.
Again, interest income is the tax equivalent interest income. The decrease was
the result of a decline in interest on mortgage-backed securities offset by
increases in interest on investment securities, conventional mortgage loans and
federal funds sold. Interest on mortgage-backed securities was zero for the
quarter ended June 30, 1998 compared to $882,000 for the quarter ended June 30,
1997. This was the result of the sale of the mortgage-backed securities.
Interest on investment securities increased by $284,000 or 42.6% to $950,000 for
the quarter ended June 30, 1998 from $666,000 for the quarter June 30, 1997.
The increase was the result of the average balance in investment securities
increasing by $17.8 million or 46.2% to $56.4 million for the quarter ended June
30, 1998 from $38.6 million for the comparable 1997 period. Reducing the impact
of the increase in the average balance was a 16 basis points decline on the
average yield earned on investment securities. The average yields were 6.74%
and 6.90% for the quarters ended June 30, 1998 and 1997, respectively. Interest
on conventional mortgage loans increased
9
$212,000 or 2.0% to $10.6 million for the three months ended June 30, 1998 from
$10.4 million for the three months ended June 30, 1997. The increase was
primarily the result of the average balance of conventional mortgage loans
rising to $574.1 million for the quarter ended June 30, 1998 from $560.8 million
for the comparable 1997 period. Interest on federal funds sold increased by
$139,000 or 101.5% to $276,000 for the quarter ended June 30, 1998 from $137,000
for the quarter ended June 30, 1997. The increase was the result of the average
balance increasing by $10.3 million to $19.9 million for the quarter ended June
30, 1998 from $9.6 million for the comparable 1997 period.
Interest Expense. Interest expense for the six months ended June 30, 1998 was
$15.3 million compared to $16.0 million for the six months ended June 30, 1997.
The $657,000 or 4.1% decline was primarily the result of the average balance of
deposit accounts and advances by borrowers for taxes and insurance decreasing to
$492.8 million for the six months ended June 30, 1998 from $510.6 million for
the comparable 1997 period.
Interest expense for the quarter ended June 30, 1998 decreased by $554,000 or
6.7% to $7.8 million from $8.3 million for the quarter ended June 30, 1997.
Again, the decrease was the result of the average balance of deposit accounts
and advances by borrowers for taxes and insurance decreasing to $488.0 million
for the quarter ended June 30, 1998 from $516.8 million for the comparable 1997
period.
Net Interest Income. Net interest income for the six months ended June 30,
1998 increased by $277,000 or 3.2% to $8.9 million from $8.6 million for the six
months ended June 30, 1997. The increase was obtained by lowering interest
expense by $657,000 while interest income decrease decreased by $380,000.
For the quarter ended June 30, 1998, net interest income increased by $274,000
or 6.5%. Again, interest expense was reduced by $554,000 while interest income
decreased by $280,000.
Provision for Loan Losses. The provision for loan losses decreased by $20,000
for the six and three months ended June 30, 1998 as compared to the six and
three months ended June 30, 1997. The decrease to the provision was the result
of the decline of the balance in conventional mortgage loans since December 31,
1997. At June 30, 1998, non-performing assets were $390,000 compared to
$634,000 at December 31, 1997. The allowance for loan losses equaled 191.0% of
total non-performing assets, as compared to 112.8% at December 31, 1997. For
the six months ended June 30, 1998 and 1997, no loans were charged off.
Management believes that the current level of loan loss reserve is adequate to
cover losses inherent in the portfolio as of such date. There can be no
assurance, however, that the Company will not sustain losses in the future
periods which could be substantial in relation to the size of the allowance at
June 30, 1998.
Other Income. Other income for the six month period ended June 30, 1998
decreased by $211,000 or 39.1% to $329,000 from $540,000 for the six months
ended June 30, 1997. The decrease was primarily the result of gain on sales of
loans and investments decreasing by $161,000. In 1997, the sale of conventional
mortgage loans resulted in a gain of $258,000
10
compared to the gain of $97,000 on the sale of the mortgage-backed securities in
1998. In addition, miscellaneous income declined by $32,000 as the result of a
gain of $31,000 on sale of real estate owned in 1997.
Other income for the quarter ended June 30, 1998 was $123,000 compared to
$410,000 for the quarter ended June 30, 1997. Again, this was the result of the
gains on the sale of conventional mortgage loans and real estate owned in 1997.
General and Administrative Expenses. General and administrative expenses
increased by $334,000 or 13.5% to $2.8 million for the six months ended June 30,
1998 compared to $2.5 million for the six months ended June 30, 1997. The
increase was the result of increases in compensation, payroll taxes and fringe
benefits and federal insurance premiums. Compensation, payroll taxes and fringe
benefits increased $260,000 or 18.5% for the six months ended June 30, 1998 to
$1.7 million from $1.4 million for the comparable 1997 period as the result of
the increased cost of the employee stock programs due to the rise in the average
price of the Company's common stock. Federal insurance premiums for the six
months ended June 30, 1998 was $159,000 compared to $98,000 for the six months
ended June 30, 1997. The $61,000 or 62.2% increase was the result of a 1996
federal insurance refund that was recorded in their first quarter of 1997.
General and administrative expenses for the quarter ended June 30, 1998
increased by $105,000 or 8.1% to $1.4 million from $1.3 million for the quarter
ended June 30, 1997. The increase was primarily the result of compensation,
payroll taxes and fringe benefits increasing by $130,000 due to the increase in
the average price of the Company's common stock.
Income Taxes. Income taxes decreased by $221,000 and $142,000 for the six and
three months ended June 30, 1998 and 1997, respectively. The decrease was the
result of a decline in net income before taxes for the six and three months
ended June 30, 1998 and 1997, respectively.
Preparation for the Year 2000. Many computer systems may not correctly
process information with dates beyond December 31, 1999 due to programming
assumptions that were made as computer applications were developed. The Company
has assessed its primary business information system with respect to the
compatibility with the Year 2000. A plan has been approved by the Company's
Board of Directors to ensure that the operation of the Company remains
uninterrupted. It is not expected that the related costs will have a material
effect on the Company's operating income, liquidity or capital resources.
However, the Company is dependent on outside vendors, who may incur disruptions
as a result of the Year 2000. Accordingly, no assurance can be given that the
Company's results of operations will not be adversely affected by this industry-
wide issue.
Recent Accounting Pronouncements. Reporting Comprehensive Income -- In June
1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 130,
"Reporting Comprehensive Income." This statement establishes standards for the
reporting and display of comprehensive income and its components (revenues,
expenses, gains, and losses) in a full set of general-purpose financial
statements. The provisions of this statement are effective for fiscal
11
years beginning after December 15, 1997, with reclassification of comparative
financial statements as applicable to interim periods. The Company currently
has one component of other comprehensive income which includes unrealized gains
or losses on securities available for sale which are detailed as follows:
Six Months Ended June 30, 1998 Six Month Ended June 30, 1997
--------------------------------- ------------------------------
Before Tax Net-of-Tax Before Tax Net-of-tax
Amount Tax Amount Amount Tax Amount
----------- ------- ----------- ------- -------- -----------
Unrealized gains or losses
on securities:
Unrealized holding gains
arising during the period $389 $(160) $229 $167 $ (68) $ 99
Less: reclassification adjust-
ment for gains realized in
net income (97) 38 (59) -- -- --
---- ----- ---- ------- ------- -----------
Net realized gains 292 (122) 170 167 (68) 99
---- ----- ---- ------- ------- -----------
Other comprehensive income $292 $(122) $170 $167 $ (68) $ 99
==== ===== ==== ======= ======= ===========
Quarter Ended June 30, 1998 Quarter Ended June 30, 1997
--------------------------------- -------------------------------
Before Tax Net-of-Tax Before Tax Net-of-tax
Amount Tax Amount Amount Tax Amount
----------- ------- ----------- ------- -------- -----------
Unrealized gains or losses
on securities:
Unrealized holding gains
arising during the period $400 $(165) $235 $331 $(132) $199
---- ----- ---- ------- ------- -----------
Net realized gains 400 (165) 235 331 (132) 199
---- ----- ---- ------- ------- -----------
Other comprehensive income $400 $(165) $235 $331 $(132) $199
==== ===== ==== ======= ======= ===========
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits." This Statement revised employers'
disclosures about pension and other postretirement benefit plans. It does not
change the measurement or recognition of those plans. This Statement
standardizes the disclosure requirements for pensions and other postretirement
benefits to the extent practicable, requires additional information on changes
in the benefit obligations and fair values of plan assets that will facilitate
financial analysis, and eliminates certain disclosures. Restatement of
disclosures for earlier periods is required. This Statement is effective for
financial statements for the year ending December 31, 1998.
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement addresses the accounting
for derivative instruments, including certain derivative instruments embedded in
other contracts, and hedging activities. It
12
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. This statement is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. First Bell has not yet determined the
impact that this standard will have on the financial statements.
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, 1997 to June
30, 1998. However, the OTS results are not yet available for the quarter ended
June 30, 1998. 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 statement and notes thereto contained in First Bell's Annual Report
for the fiscal year ended December 31, 1997.
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.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Holding Company held an Annual Meeting of Stockholders on April
27, 1998.
13
(b) The names of each Director elected at the Annual Meeting for three
year terms ending in the year 2001 and votes cast are as follows:
For Withheld
--------- --------
Robert C. Baierl 5,872,770 38,875
Jeffrey M. Hinds 5,868,901 42,744
Thomas J. Jackson, Jr. 5,871,266 40,329
The names of the Directors whose term of office continued after the
Annual Meeting are as follows:
Albert H. Eckert Jack W. Schweiger
Robert C. Baierl Theodore R. Dixon
William S. McMinn Peter E. Reinert
(c) A brief description of each matter voted on and the number of yes and
no votes cast:
(i) Ratification of Deloitte & Touche LLP as independent auditor of
First Bell Bancorp, Inc. for the fiscal year ending December 31,
1998
For Against Abstain
--- ------- -------
5,843,820 53,462 14,363
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibits are filed as part of this report.
Exhibit 3.1 - Certificate of Incorporation of First Bell Bancorp,
Inc.*
Exhibit 3.2 - Bylaws of First Bell Bancorp, Inc.*
Exhibit 4.0 - Stock Certificate of First Bell Bancorp, Inc.*
Exhibit 11 - Computation of Earnings Per Share (filed herewith)
Exhibit 27 - Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K
None
_______________________
* 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.
14
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
FIRST BELL BANCORP, INC.
(Registrant)
Date: August 14, 1998 /s/ Albert H. Eckert, II
--------------------------------------------
Albert H. Eckert, III
President and Chief Executive Officer
Date: August 14, 1998 /s/ Jeffrey M. Hinds
--------------------------------------------
Jeffrey M. Hinds
Executive Vice President and Chief Financial
Officer (Principal Accounting Officer)
15