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, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________________ to _______________________
Commission File Number 0-25172
FIRST BELL BANCORP, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 251752651
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(State or other jurisdiction (IRS Employer Identification No.)
of 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: 6,228,202 shares of common
stock, par value $.01 per share, were outstanding as of November 16, 1998.
FIRST BELL BANCORP, INC.
FORM 10-Q
INDEX
PAGE
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PART I FINANCIAL INFORMATION
Item 1 Consolidated Balance Sheets September 30, 1998 (unaudited)
and December 31, 1997 (audited)................................... 2
Consolidated Statements of Income and Comprehensive Income for the
Three and Nine Months Ended September 30, 1998
and 1997, (unaudited)............................................. 3
Consolidated Statements of Changes in Stockholders' Equity
for the Nine Months Ended September 30, 1998 and 1997,
(unaudited)....................................................... 4
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1998 and 1997, (unaudited).......................... 5
Notes to Unaudited Consolidated Financial Statements.............. 7
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations..................... 8
Item 3 Quantitative and Qualitative Disclosure About Market Risk......... 15
PART II OTHER INFORMATION
Item 1 Legal Proceedings................................................. 16
Item 2 Changes in Securities............................................. 16
Item 3 Defaults Upon Senior Securities................................... 16
Item 4 Submission of Matters to a Vote of Security Holders............... 16
Item 5 Other Information................................................. 16
Item 6 Exhibits and Reports on Form 8-K.................................. 16
SIGNATURES
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
FIRST BELL BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands)
SEPTEMBER 30, DECEMBER 31,
1998 1997
-------- --------
ASSETS: (unaudited) (audited)
Cash:
Cash on-hand...................................................................................... $ 919 $ 872
Non-interest-bearing deposits..................................................................... 1,843 1,708
Interest-bearing deposits......................................................................... 21,339 21,943
-------- --------
Total cash..................................................................................... 24,101 24,523
Mortgage-backed securities-held for sale, at fair value (cost of $31,654
at December 31, 1997).............................................................................. -- 31,885
Federal funds sold................................................................................... 19,150 1,550
Investment securities held to maturity - at cost (fair value of $10,794 and
$10,553 at September 30, 1998 and December 31, 1997, respectively)................................ 9,978 9,973
Investment securities available for sale, at fair value (cost of $118,835 and $15,940 at
September 30, 1998 and December 31, 1997, respectively)........................................... 120,645 15,902
Conventional mortgage loans - net of allowance for
loan losses of $775 and $715 at September 30, 1998 and
December 31, 1997, respectively................................................................... 557,449 578,487
Other loans, net..................................................................................... 871 907
Real estate owned.................................................................................... 124 --
Properties and equipment, net........................................................................ 3,444 3,492
Federal Home Loan Bank stock, at cost................................................................ 9,000 5,148
Accrued interest receivable.......................................................................... 4,401 3,202
Other assets......................................................................................... 1,202 615
-------- --------
Total assets...................................................................................... $750,365 $675,684
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Passbook, club and other accounts................................................................. $ 71,975 $ 67,587
Money market and NOW accounts..................................................................... 45,715 47,264
Certificate accounts.............................................................................. 361,528 380,204
-------- --------
Total deposits................................................................................ 479,218 495,055
Borrowings........................................................................................... 180,000 90,000
Advances by borrowers for taxes and insurance........................................................ 5,949 12,226
Accrued interest on deposits......................................................................... 5,246 535
Accrued interest on borrowings....................................................................... 835 332
Accrued income taxes................................................................................. 121 229
Deferred income tax liability........................................................................ 2,445 1,725
Dividend payable on common stock..................................................................... 546 575
Other liabilities.................................................................................... 1,867 2,024
-------- --------
Total liabilities................................................................................. 676,227 602,701
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; 6,228,202 outstanding at September 30, 1998
6,510,625 outstanding at December 31, 1997..................................................... 86 86
Paid-in capital................................................................................... 61,681 61,371
Unearned ESOP shares (571,923 and 596,089 shares at September 30, 1998
and December 31, 1997, respectively)............................................................. (4,045) (4,217)
Unearned MRP shares (275,441 and 307,798 shares at September 30, 1998 and
December 31, 1997, respectively)................................................................. (3,839) (4,290)
Treasury stock (2,368,049 and 2,085,625 shares at September 30, 1998 and
December 31, 1997, respectively) ................................................................ (36,923) (32,077)
Accumulated other comprehensive income, net of taxes.............................................. 1,048 177
Retained earnings................................................................................. 56,130 51,993
-------- --------
Total Stockholders' Equity........................................................................... 74,138 72,983
Total Liabilities and Stockholders' Equity........................................................... $750,365 $675,684
======== ========
2
FIRST BELL BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME & COMPREHENSIVE INCOME
(In thousands, except per share amounts)
(Unaudited)
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
Sept. 30, 1998 Sept. 30, 1997 Sept. 30, 1998 Sept. 30, 1997
-------------- --------------- -------------- --------------
Interest income:
Conventional mortgage loans $10,363 $10,440 $31,694 $30,830
Interest-bearing deposits 297 412 912 991
Mortgage-backed securities -- 998 284 2,652
Federal funds sold 335 15 778 492
Investment securities 1,625 625 2,854 1,926
Other loans 14 16 43 50
Federal Home Loan Bank stock 148 94 335 265
------- ------- ------- -------
Total interest and dividend income 12,782 12,600 36,900 37,206
Interest expense on deposits 6,202 6,913 18,598 20,007
Interest expense on borrowings 2,561 1,610 5,470 4,478
------- ------- ------- -------
Total interest expense 8,763 8,523 24,068 24,485
Net interest income 4,019 4,077 12,832 12,721
Provision for loan losses 30 -- 60 50
------- ------- ------- -------
Net interest income after provision
for loan losses 3,989 4,077 12,772 12,671
Other income:
Loan fees and service charges 119 128 340 367
Gain/(loss) on sale of loans and securities -- (8) 97 250
Miscellaneous income -- (2) 11 41
------- ------- ------- -------
Total other income 119 118 448 658
Other general and administrative expense:
Compensation, payroll taxes and fringe benefits 809 784 2,472 2,188
Federal insurance premiums 74 80 234 178
Office occupancy expense, excluding depreciation 121 54 372 312
Depreciation 75 74 217 221
Computer services 56 54 167 163
Other expenses 297 214 774 669
------- ------- ------- -------
Total general and administrative expense 1,432 1,260 4,236 3,731
Net Income before provision for income taxes 2,676 2,935 8,984 9,598
Provision for income taxes:
Current:
Federal 537 811 2,462 2,770
State 189 248 654 762
Deferred expense (credit) -- 30 34 310
------- ------- ------- -------
Total provision for income taxes 726 1,089 3,150 3,842
Net income $ 1,950 $ 1,846 $ 5,834 $ 5,756
======= ======= ======= =======
Other comprehensive income, net of taxes,
unrealized gain on investments 761 183 931 282
------- ------- ------- -------
Comprehensive income $ 2,711 $ 2,029 $ 6,765 $ 6,038
======= ======= ======= =======
Basic earnings per share $0.35 $0.33 $1.04 $0.97
------- ------- ------- -------
Diluted earnings per share $0.34 $0.31 $0.99 $0.92
------- ------- ------- -------
Weighted average shares outstanding 5,809 5,907 5,894 6,257
======= ======= ======= =======
3
FIRST BELL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 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
-----------------------------------------------------------------------------------------
[zz]
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) (20,394) (20,394)
Allocation of ESOP shares 200 169 369
Allocation and adjustments of
MRP shares 8 502 581 1,091
Dividend on common stock ($0.10) (1,775) (1,775)
Change in other comprehensive
income 282 282
Net income 5,756 5,756
------ --- ------- -------- -------- ------- ------ ------- --------
Balance at September 30, 1997 6,511 $86 $61,271 $(4,285) $(32,078) $(4,290) $ 282 $50,776 $ 71,762
====== === ======= ======== ======== ======= ====== ======= ========
Balance at December 31, 1997 6,511 $86 $61,371 $(4,217) $(32,077) $(4,290) $ 117 $51,993 $ 72,983
Purchase of treasury stock (296) (5,074) (5,074)
Exercise of Options 13 (43) 228 185
Allocation of ESOP 286 172 458
Allocation of MRP Shares 67 451 518
Dividend on common stock ($0.10) (1,697) (1,697)
Change in other comprehensive
income 931 931
Net income 5,834 5,834
------ --- ------- ------- -------- ------- ------- -------- --------
Balance at September 30, 1998 6,228 $86 $61,681 $(4,045) $(36,923) $(3,839) $1,048 $56,130 $ 74,138
====== === ======= ======= ======== ======= ====== ======= ========
4
FIRST BELL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Nine Months Ended Nine Months Ended
September 30, 1998 September 30, 1997
------------------- -------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,834 $ 5,756
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 217 221
Deferred income taxes 34 310
Amortization of premiums and accretion of discounts (10) 185
Provision for loan losses 60 50
Compensation expense-allocation of ESOP and MRP shares 936 785
(Gain)/loss on sale of mortgage-backed securities, available for sale (97) 8
Loss/(Gain) on sale of real estate owned 4 (25)
Gain on sale of conventional mortgage loans, available for sale -- (258)
Net proceeds from sale of conventional mortgage loans,
available for sale -- 29,662
Net proceeds from sale of mortgage-backed securities, available
for sale 30,352 46,668
Increase or decrease in assets and liabilities
Accrued interest receivable (1,198) (644)
Accrued interest on deposits 4,712 5,306
Accrued interest on borrowings 503 216
Accrued income taxes (108) 28
Other assets (587) (1,268)
Other liabilities (82) 50
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Net cash provided by operating activities 40,570 87,050
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment securities, available for sale (115,391) (25,947)
Purchase of mortgage-backed securities, available for sale -- (92,528)
(Purchase)/maturity of Federal Funds (17,600) 72,050
Maturity of investment securities, available for sale 10,000 5,000
Principal paydowns on mortgage-backed securities, available for sale 1,402 11,718
Principal paydowns on investment securities, available for sale 2,499 --
Net (increase)/decrease in conventional loans 20,806 (65,344)
Net (increase)/decrease in other loans 37 (4)
Purchase of Federal Home Loan Bank stock (3,852) (1,801)
Net proceeds from sale of real estate owned 43 254
Purchase of premises and equipment (169) (87)
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Net cash used in investing activities (102,225) (96,689)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits, NOW accounts and savings
accounts 2,839 (153)
Net increase/(decrease) in certificate accounts (18,676) 22,681
Net increase in advances by borrowers for taxes and insurance (6,277) (4,683)
Net increase in borrowings 90,000 16,000
Dividends paid (1,725) (1,338)
Options exercised 149 --
Purchases of treasury stock (5,074) (20,393)
--------- --------
Net cash provided by financing activities 61,236 12,114
--------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS (419) 2,475
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 24,520 26,406
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 24,101 $ 28,881
========= ========
SUPPLEMENTAL DISCLOSURES:
Cash paid for:
Interest on deposits and advances by borrowers for
taxes and insurance $ 13,886 $ 14,701
Interest on borrowings 4,967 1,394
Income taxes 3,187 3,530
Noncash transactions:
Transfers from conventional loans to real estate acquired through foreclosure 191 94
Increase in additional paid-in capital-ESOP allocation and options exercised 310 208
Unrealized appreciation/(depreciation) on securities available for sale 1,810 466
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 NINE AND THREE MONTHS ENDED SEPTEMBER 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 September 30, 1998 and related
consolidated statements of income and comprehensive income, cash flows and
changes in stockholders' equity for the three and nine months ended September
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 in these financial statements. 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
------------------------------------------------------------------
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, the quantitative and qualitative disclosure
about market risk and the Year 2000 compliance. 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 September 30, 1998 and December 31, 1997.
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Assets. Total assets increased by $74.7 million, or 11.1% to $750.4 million at
September 30, 1998 from $675.7 million at December 31, 1997. The increase was
the result of increases in investment securities, federal funds sold, Federal
Home Loan Bank ("FHLB") stock and accrued interest receivable. Offsetting these
increases were decreases in mortgage-backed securities and conventional mortgage
loans. Investment securities increased to $130.6 million at September 30, 1998
from $25.9 million at December 31, 1997. The $104.7 million or 404.8% increase
was the result of the purchase of $115.4 million of municipal securities and
Collateralized Mortgage Obligations ("CMO's") reduced by principle repayments on
CMO's of $12.5 million. Federal funds sold increased by $17.6 million to $19.2
million at September 30, 1998 from $1.6 million at December 31, 1997. FHLB
stock increased to $9.0 million at September 30, 1998 from $5.1 million at
December 31, 1997. The $3.9 million or 74.8% increase was the result of a
higher minimum balance required by the FHLB due to the additional borrowings in
1998. Accrued interest receivable increased by $1.2 million or 37.4% to $4.4
million at September 30, 1998 from $3.2 million at December 31, 1997. The
increase was the result of interest earning assets increasing by $72.6 million
at September 30, 1998 from December 31, 1997. Offsetting the above increases
was a decrease of $31.9 million in mortgage-backed securities. The decrease was
the result of the sale of the mortgage-backed securities during the first
quarter of 1998, which resulted in a gain of $97,000. In addition, conventional
mortgage loans decreased by $21.0 million or 3.6% to $557.4 million at September
30, 1998 from $578.4 million at December 31, 1997. The decrease was the result
of principle payments and prepayments of $71.4 million offset by originations of
conventional mortgage loans of $42.6 million and an increase in home equity
loans of $2.8 million. During the second quarter of 1998, the Association began
offering home equity installment and line of credit loans to homeowners in its
lending territory.
Liabilities. Total liabilities at September 30, 1998 were $676.2 million
compared to $602.7 million at December 31, 1997. The $73.5 or 12.2% increase
was the result of increases in borrowings and accrued interest on deposits
reduced by decreases in deposits and advances by borrowers for taxes and
insurance. Borrowings increased by $90.0 million or 100% to $180.0 million at
September 30, 1998 from $90.0 million at December 31, 1997. The additional
borrowings were used to fund the purchase of the municipal securities, discussed
previously. Accrued interest on deposits increased to $5.2 million at
September 30, 1998 from $535,000 at December 31, 1997. The $4.7 million
increase is attributable to the timing of interest payments on certificate
accounts. Deposits decreased by $15.8 million or 3.2% to $479.2 million at
September 30, 1998 from $495.0 million at December 31, 1997. The decrease was
primarily the result of certificate accounts declining by $18.7 million or 4.9%
to $361.5 million at September 30, 1998 from $380.2 million at December 31,
1997. The decrease was the result of the withdrawal of high cost institutional
retail accounts in the first quarter of fiscal 1998. Advances by borrowers for
taxes and insurance declined by $6.3 million or 51.3% to $5.9 million at
September 30, 1998 from $12.2 million at December 31, 1997. The decrease was
the result of payments of property taxes on conventional mortgage loans serviced
by the Association made during the third quarter.
7
Capital. Total stockholders' equity increased by $1.2 million or 1.6% to $74.1
million at September 30, 1998 from $73.0 million at December 31, 1997. The
increase was the result of net income of $5.8 million and a $931,000 increase in
accumulated other comprehensive income, net of taxes. Offsetting these increases
was the $5.1 million purchase of treasury stock and $1.7 million in dividends
declared.
Liquidity and Capital Resources. The Company's primary sources of funds are
deposits, borrowings, and principle and interest payments on loans 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 nine months ended
September 30, 1998 was the purchase of $115.4 million of investment securities
held as available-for-sale and the origination of $42.6 million in conventional
mortgage loans. Sources of funds for the quarter ended September 30, 1998 were
an additional $90.0 million in FHLB borrowings, $75.3 million in principal
payments and prepayments of conventional mortgage loans and investments, $30.4
million from the sale of the mortgage-backed securities and $10.0 million from
the maturity of investment securities. In addition, there were net withdrawals
of $15.8 million in deposits.
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 Office of Thrift Supervision ("OTS") regulations. The
minimum required liquidity balance is currently 4.0%. The Association's average
liquidity ratio was 9.6% for the quarter ended September 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 September 30, 1998, assets qualifying for liquidity, including
cash and investments, totaled $48.9 million.
At September 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%, 22.2%, and 22.5%, 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 Nine and Three Months ended
- -----------------------------------------------------------------------
September 30, 1998 and 1997.
- ---------------------------
General. Net income for the nine months ended September 30, 1998 and 1997
remained stable at $5.8 million. Tax equivalent net interest income increased by
$755,000 or 5.9% to $13.4 million for the nine months ended September 30, 1998
from $12.7 million for the comparative 1997 period. Offsetting this increase was
an increase in other expenses of $505,000 or 13.5% to $4.2 million for the nine
months ended September 30, 1998 from $3.7 million for the nine months ended
8
September 30, 1997. In addition, other income declined to $448,000 from
$658,000 for the nine months ended September 30, 1998 and 1997, respectively.
Net income for the quarter ended September 30, 1998 increased by $104,000 or
5.6% to $2.0 million from $1.8 million for the comparative 1997 period. Net
interest income increased by $478,000 or 11.7% to $4.6 million for the three
months ended September 30, 1998 from $4.1 million for the three months ended
September 30, 1997. Offsetting this increase were increases in income taxes of
$173,000 and general and administrative expenses of $172,000.
Interest Income. Interest income discussed in this section is the tax
equivalent interest income. Tax equivalent interest income is being used
because interest on investment securities include 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. A tax equivalent increase of $644,000 has been made to interest on
investment securities for the nine months ended September 30, 1998. The Company
had no tax-exempt securities in 1997. Tax equivalent interest income for the
nine months ended September 30, 1998 increased by $338,000 or 1.0% to $37.5
million from $37.2 million for the comparative 1997 period. The increase was the
result of a rise in interest earned on investment securities , conventional
mortgage loans, federal funds sold and FHLB stock offset by a decline in
interest earned on mortgage-backed securities and interest bearing deposits.
Interest earned on investment securities increased by $1.6 million or 81.6% to
$3.5 million for the nine months ended September 30, 1998 from $1.9 million for
the nine months ended September 30, 1997. The increase was the result of the
average balance in investment securities increasing to $68.7 million from $36.0
million for the nine months ended September 30, 1998 and 1997, respectively.
Interest income on conventional mortgage loans increased by $864,000 or 2.8%
from $30.8 million for the comparable 1997 period. The increase was the result
of the average balance of conventional mortgage loans increasing by $17.6
million or 3.2% to $571.6 million for the nine months ended September 30, 1998
from $554.0 million for the comparative 1997 period. In addition, interest on
federal funds sold and dividends on FHLB stock increased by a total of $356,000
from the nine months ended September 30, 1998 from the nine months ended
September 30, 1997. Offsetting these increases was a decrease of $2.4 million in
interest earned on mortgage-backed securities due to sale of the remaining
mortgage-backed securities during the first quarter of 1998. In addition,
interest earned on interest-bearing deposits declined by $79,000 or 8.0% to
$912,000 for the nine months ended September 30, 1998 from $991,000 for the
comparable 1997 period. The decline was the result of the average balance of
interest-bearing deposits declining to $22.4 million for the nine months ended
September 30, 1998 from $24.1 million for the nine months ended September 30,
1997.
A tax equivalent increase of $536,000 was made for the quarter ended September
30, 1998. Tax equivalent interest income for the quarter ended September 30,
1998 increased by $718,000 or 5.7% to $13.3 million from $12.6 million for the
quarter ended September 30, 1997. The increase was the result of interest
earned on investment securities, federal funds sold and dividends on FHLB stock
rising while interest earned on mortgage-backed securities and interest-bearing
deposits were declining. Interest earned on investment securities increased by
$1.5 million or 245.8% to $2.2 million for the quarter ended September 30, 1998
from $625,000 for the comparable 1997 period. The increase was the result of
the average balance for investment
9
securities increasing to $125.8 million for the quarter ended September 30, 1997
from $36.1 million for the quarter ended September 30, 1997. Interest on
federal funds sold increased by $320,000 to $335,000 for the quarter ended
September 30, 1998 from $15,000 for the quarter ended September 30, 1997. The
increase was the result of the average balance increasing to $23.4 million for
the quarter ended September 30, 1998 from $1.0 million for the comparable 1997
period. Dividends on FHLB stock increased by $54,000 or 57.4% to $148,000 for
the quarter ended September 30, 1998 from $94,000 for the quarter ended
September 30, 1997. The increase was the result of the average balance
increasing by $3.2 million or 53.9% to $9.0 million for the quarter ended
September 30, 1998 from $5.8 million for the quarter ended September 30, 1997.
Interest on mortgage-backed securities was zero for the quarter ended September
30, 1998 compared to $998,000 for the quarter ended. This was the result of the
sale of the mortgage-backed securities previously discussed. In addition,
interest on interest-bearing deposits declined by $115,000 or 27.9% to $297,000
for the quarter ended September 30, 1998 from $412,000 for the quarter ended
September 30, 1997. The decrease was the result of the average balance of
interest-bearing deposits falling to $21.7 million for the quarter ended
September 30, 1998 from $26.5 million for the comparable 1997 period.
Interest Expense. Interest expense for the nine months ended September 30, 1998
decreased by $417,000 or 1.7% to $24.1 million from $24.5 million for the nine
months ended September 30, 1997. Interest expense on deposits decreased by $1.4
million or 7.0% to $18.6 million for the nine months ended September 30, 1998
from $20.0 million for the nine months ended September 30, 1997. The decrease
was primarily the result of the decline of $30.2 million or 7.7% in the average
balance of certificate accounts to $361.0 million for the nine months ended
September 30, 1998 from $391.2 million for the nine months ended September 30,
1997. As discussed previously, the decline was the result of the withdrawal of
high cost institutional retail accounts. Offsetting this decrease, was an
increase in interest on borrowings to $5.5 million for the nine months ended
September 30, 1998 from $4.5 million for the comparable 1997 period. The $1.0
million or 22.2% increase was the result of the average balance of borrowings
increasing by $21.0 million or 19.3% to $130.0 million for the nine months ended
September 30, 1998 from $109.0 million for the nine months ended September 30,
1997.
Interest expense for the quarter ended September 30, 1998 increased by
$240,000 or 2.8% to $8.8 million from $8.5 million for the quarter ended
September 30, 1997. The increase was the result of interest on borrowings
increasing by $1.0 or 59.1% to $2.6 million for the quarter ended September 30,
1998 from $1.6 million for the comparable 1997 period. This increase was the
result of the average balance on borrowings increasing to $180.0 million from
$116.2 million for the quarters ended September 30, 1998 and 1997, respectively.
Offsetting this increase wa a decrease in interest on deposits of $711,000 or
10.3%. Again, the decrease was primarily the result of the average balance of
certificate accounts declining due to the withdrawal of high cost institutional
retail accounts.
Net Interest Income. Tax equivalent net interest income for the nine months
ended September 30, 1998 increased by $755,000 or 5.9% to $13.5 million from
$12.7 million for the nine months ended September 30, 1997. The increase was
the result of interest income increasing by $338,000 and interest expense
decreasing by $417,000.
10
For the quarter ended September 30, 1998, tax equivalent net interest income
increased by $478,000 or 11.7%. The increase was the result of interest income
increasing by $718,000 offset by an increase in interest expense of $240,000.
Provision for Loan Losses. The provision for loan losses for the nine months
ended September 30, 1998 increased by $10,000 or 20.0% to $60,000 from $50,000
for the nine months ended September 30, 1997. The provision for the quarters
ended September 30, 1998 and 1997 was $30,000 and zero, respectively. At
September 30, 1998, non-performing assets were $637,000 compared to $634,000 at
December 31, 1997. The allowance for loan losses equaled 121.7% of total non-
performing assets, as compared to 112.8% at December 31, 1997. For the nine
months ended September 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 on the portfolio as of such date. 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 at September 30, 1998.
Other Income. Other income for the nine months ended September 30, 1998
decreased by $210,000 or 31.9%. The decrease was the result of decreases in
gains on sales of loans and investments, miscellaneous income and loan fees and
service charges. Gains on sale of loans and investments decreased by $153,000
or 61.2% to $97,000 for the nine months ended September 30, 1998 from $250,000
for the comparable 1997 period. In 1997, the sale of conventional mortgage
loans resulted in a gain of $250,000 compared to the gain of $97,000 on the sale
of mortgage-backed securities in 1998. Miscellaneous income declined by $30,000
as the result of a gain of $31,000 on sale of real estate owned in 1997 from the
nine months ended September 30, 1998 and 1997, respectively. Loan fees and
service charges decreased by $27,000 or 7.4% to $340,000 for the nine months
ended September 30, 1998 from $367,000 for the nine months ended September 30,
1997. This decrease was the result of an adjustment to the servicing assets due
to prepayments on conventional mortgages that the Company service for others.
Other income for the quarters ended September 30, 1998 and 1997 remained
stable at $119,000 and $118,000, respectively.
General and Administrative Expenses. General and administrative expenses were
$4.2 million and $3.7 million for the nine months ended September 30, 1998 and
1997, respectively. the $505,000 or 13.5% increase occurred due to increases in
compensation, payroll taxes and fringe benefits, other expenses, office
occupancy expense and federal insurance premiums. Compensation, payroll taxes
and fringe benefits increased by $284,000 or 13.0% to $2.5 million for the nine
months ended September 30, 1998 from $2.2 million for the nine months ended
September 30, 1997. The increase was due to a rise in the cost of the employee
stock programs as the result of the average price of the Company's common stock
increasing in 1998. Other expenses increased to $774,000 for the nine months
ended September 30, 1998 from $669,000 for the comparable 1997 period. The
$105,000 or 15.7% invested was primarily the result of expenses associated with
the new advertising campaign and installment loans and lines of credit program
that the Company has undertaken in 1998. Office occupancy expense increased by
$60,000 or 19.2% to $372,000 for the nine months ended September 30, 1998 from
$312,000
11
for the nine months ended September 30, 1997. The increase was the result of
property taxes and prepaid service contacts expense rising during 1998. Federal
insurance premiums increased by $56,000 or 31.5% to $234,000 from $178,000 for
the nine months ended September 30, 1998 and 1997, respectively. The increase
was the result of 1996 federal insurance refund that was recorded in the first
quarter of 1997.
General and administrative expenses for the quarter ended September 30, 1998
was $1.4 million compared to $1.3 million for the quarter ended September 30,
1997. The $172,000 or 13.7% increase was the result of increases in
compensation, payroll taxes and fringe benefits, other expenses and office
occupancy expense. The reasons for the increases in these areas are the same as
discussed above.
Income Taxes. Income taxes for the nine months ended September 30, 1998 and
1997 remained flat at $3.8 million. A tax equivalent increase of $644,000 was
made for the nine months ended September 30, 1998.
For the quarter ended September 30, 1998, a tax equivalent increase of $536,000
was made to income taxes. Income tax was $1.3 million for the quarter ended
September 30, 1998, compared to $1.1 million for the quarter ended September 30,
1997. The $173,000 or 15.9% increase was primarily the result of net income
before taxes increasing to $3.2 million from $2.9 million for the quarters ended
September 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 by the following four categories.
Readiness
- ---------
The Company utilizes a third-party vendor for processing its primary banking
applications. In addition, the Company also uses several other third-party
vendors for ancillary computer applications. All third party vendors for the
Company's banking applications have given the Company written assurance that
they are in the process of modifying, upgrading or replacing their computer
applications to ensure Year 2000 compliance. The Company has a Year 2000
compliance program where it assesses the Year 2000 issues that may be faced by
its third-party vendors. Under such program, the Company is examining the need
for modifications or replacement of all non-Year 2000 ready software. The
Company's Year 2000 compliance program provides that all critical data
processing applications will be tested. The Company's major data processing
vendor, Fiserv Inc., supplies processing services for customer accounts and
general ledger activities.
Costs
- -----
The Company does not expect to incur any material expense to replace data
processing equipment. The Company does not currently expect that the cost of
its Year 2000 compliance
12
program, including possible remediation costs, will be material to its financial
condition and expects that it will satisfy such compliance program without
material disruption of its operations. The Company estimates the costs related
to Year 2000 compliance will be less than $50,000.
Risks
- -----
In the event that the Company's significant vendors do not successfully and
timely achieve Year 2000 compliance, the results of operations or financial
condition would be adversely affected. The Association sends data communication
to and receives data communication from the Federal Reserve Bank of Cleveland.
Tests of the data communication from the Association to the Federal Reserve Bank
of Cleveland is scheduled in the fourth quarter of 1998.
Contingency Plans
- -----------------
In the event that problems arise beyond our control, a contingency plan has been
developed to ensure the continued operation of the Company.
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 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:
Nine Months Ended Nine Months Ended
------------------- -------------------
September 30, 1998 September 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 $1,715 $(725) $990 $458 $(181) $277
Reclassification adjustment
for (gains)/loss realized
in net income (97) 38 (59) 8 (3) 5
---------- ------------- ---------- ---- ----- ----
Net unrealized gains 1,618 (687) 931 466 (184) 282
---------- ------------- ---------- ---- ----- ----
Other comprehensive income $1,618 $(687) $931 $466 $(184) $282
========== ============= ========== ==== ===== ====
13
Quarter Ended Quarter Ended
------------- -------------
September 30, 1998 September 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 $1,325 $(564) $761 $291 $(113) $178
Reclassification adjustment
for losses realized in net
income -- -- -- 8 (3) 5
---------- ------------- ---------- ---- ----- ----
Net unrealized gains 1,325 (564) 761 299 (116) 183
---------- ------------- ---------- ---- ----- ----
Other comprehensive income $1,325 $(564) $761 $299 $(116) $183
========== ============= ========== ==== ===== ====
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 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
September 30, 1998. However, the OTS results are not yet available for the
quarter ended September 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
14
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.
Not applicable
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibits are filed as part of this report.
Exhibit 3.1 - Certificate of Incorporation of First Bell Bancorp,
Inc.*
Exhibit 3.2 - Bylaws of First Bell Bancorp, Inc.*
Exhibit 4.0 - Stock Certificate of First Bell Bancorp, Inc.*
Exhibit 11 - Computation of Earnings Per Share (filed herewith)
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.
15
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 16, 1998 /s/ Albert H. Eckert, II
-----------------------------------------
Albert H. Eckert, III
President and Chief Executive Officer
Date: November 16, 1998 /s/ Jeffrey M. Hinds
-----------------------------------------
Jeffrey M. Hinds
Executive Vice President and Chief Financial
Officer (Principal Accounting Officer)
16