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, 1999
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.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 251752651
- -------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
300 DELAWARE AVENUE, SUITE 1704, WILMINGTON, DELAWARE 19801
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(302) 427-7883
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
- -------------------------------------------------------------------------------
(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: 5,382,843 shares of common
stock, par value $.01 per share, were outstanding as of August 12, 1999.
FIRST BELL BANCORP, INC.
FORM 10-Q
INDEX
PAGE
----------
PART I FINANCIAL INFORMATION
Item 1 Consolidated Balance Sheets June 30, 1999 (unaudited)
and December 31, 1998 (audited)............................... 2
Consolidated Statements of Income for the
Three and Six Months Ended June 30, 1999, and 1998
(unaudited)................................................... 3
Consolidated Statements of Comprehensive Income for the
Three and Six months ended June 30, 1999, and
1998 (unaudited).............................................. 4
Consolidated Statements of Changes in Stockholders' Equity
for the Six Months Ended June 30, 1999 and 1998 (unaudited)... 5
Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 1999 and 1998, (unaudited)........................... 6
Notes to Unaudited Consolidated Financial Statements.......... 8
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations................. 9
Item 3 Quantitative and Qualitative Disclosure About Market Risk..... 16
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............................................. 17
Item 6 Exhibits and Reports on Form 8-K.............................. 17
SIGNATURES
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
FIRST BELL BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands)
JUNE 30, DECEMBER 31,
1999 1998
---------- ------------
(unaudited) (audited)
ASSETS:
Cash:
Cash on-hand........................................................................ $ 812 $ 924
Non-interest-bearing deposits....................................................... 1,687 2,117
Interest-bearing deposits........................................................... 18,011 18,502
-------- --------
Total cash...................................................................... 20,510 21,543
Federal funds sold..................................................................... 18,000 36,175
Investment securities held to maturity - at cost (fair value of $10,371 and
$10,766 at June 30, 1999 and December 31, 1998, respectively)....................... 9,985 9,980
Investment securities-available for sale at fair value (cost of $213,604 and $134,743
at June 30, 1999 and December 31, 1998, respectively).................................. 205,246 136,677
Conventional mortgage loans - net of allowance for
loan losses of $865 and $805 at June 30, 1999 and
December 31, 1998, respectively..................................................... 534,901 544,636
Other loans, net....................................................................... 936 899
Real estate owned...................................................................... 31 82
Properties and equipment, net.......................................................... 3,350 3,405
Federal Home Loan Bank stock, at cost.................................................. 11,650 9,000
Accrued interest receivable............................................................ 5,279 4,272
955 937
Other assets........................................................................... -------- --------
$810,843 $767,606
Total assets........................................................................ ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Deposits:
Passbook, club and other accounts................................................... $ 75,911 $ 73,578
Money market and NOW accounts....................................................... 52,560 52,164
-------- --------
Certificate accounts................................................................ 359,172 369,386
Total deposits.................................................................. 487,643 495,128
Borrowings............................................................................. 243,000 180,000
Advances by borrowers for taxes and insurance.......................................... 15,146 11,354
Accrued interest on deposits........................................................... 3,893 600
Accrued interest on borrowings......................................................... 1,136 863
Accrued income taxes................................................................... 49 120
Deferred income tax liability.......................................................... (1,720) 2,424
Dividend payable on common stock....................................................... 470 536
Other liabilities...................................................................... 2,277 2,679
--------- ---------
Total liabilities................................................................... 751,894 693,704
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; 5,427,843 outstanding at June 30, 1999
6,100,476 outstanding at December 31, 1998;one stock right per share)........... 86 86
Paid-in capital..................................................................... 62,052 61,768
Unearned ESOP shares (545,842 and 561,562 shares at June 30, 1999
and December 31, 1998, respectively)............................................... (3,861) (3,972)
Unearned MRP shares (242,384 and 275,441 shares at June 30, 1999 and
December 31, 1998, respectively)................................................ (3,378) (3,889)
Treasury stock (3,168,407 shares and 2,495,774 shares at June 30,
1999 and December 31, 1998, respectively)....................................... (51,572) (38,919)
Accumulated other comprehensive income, net of taxes................................ (5,006) 1,179
Retained earnings................................................................... 60,628 57,598
-------- --------
Total Stockholders' Equity............................................................. 58,949 73,902
Total Liabilities and Stockholders' Equity............................................. $810,843 $767,606
======== ========
2
FIRST BELL BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1999 JUNE 30, 1998
-------------- ------------- -------------- -------------
Interest income:
Conventional mortgage loans $ 9,712 $10,637 $19,666 $21,331
Interest-bearing deposits 291 272 553 616
Mortgage-backed securities 0 0 0 283
Federal funds sold 52 276 289 443
Investment securities 2,697 841 5,018 1,228
Other loans 18 14 32 29
Federal Home Loan Bank stock 189 104 358 187
------- ------- ------- -------
Total interest and dividend income 12,959 12,144 25,916 24,117
Interest expense on deposits 5,926 6,126 11,947 12,396
Interest expense on borrowings 3,289 1,643 6,166 2,909
------- ------- ------- -------
Total interest expense 9,215 7,769 18,113 15,305
Net interest income 3,744 4,375 7,803 8,812
Provision for loan losses 30 10 60 30
------- ------- ------- -------
Net interest income after provision
for loan losses 3,714 4,365 7,743 8,782
Other income:
Loan fees and service charges 124 120 220 221
Gain on sale of loans and securities 0 0 45 97
Miscellaneous income 15 3 (4) 11
------- ------- ------- -------
Total other income 139 123 261 329
Other general and administrative expense:
Compensation, payroll taxes and fringe benefits 921 848 1,655 1,663
Federal insurance premiums 74 78 148 159
Office occupancy expense, excluding depreciation 126 127 276 251
Depreciation 76 71 148 142
Computer services 78 56 137 111
Other expenses 380 224 922 479
------- ------- ------- -------
Total general and administrative expense 1,655 1,404 3,286 2,805
Net Income before provision for income taxes 2,198 3,084 4,718 6,306
Provision for income taxes:
Current:
Federal 184 896 584 1,924
State 164 216 346 465
Deferred expense (credit) (83) 14 (180) 34
------- ------- ------- -------
Total provision for income taxes 265 1,126 750 2,423
Net income $ 1,933 $ 1,958 $ 3,968 $ 3,883
======= ======= ======= =======
Basic earnings per share $0.40 $0.35 $0.78 $0.69
======= ======= ======= =======
Diluted earnings per share $0.38 $0.33 $0.75 $0.65
======= ======= ======= =======
Weighted average shares outstanding-Basic 4,852 5,664 5,070 5,655
======= ======= ======= =======
Weighted average shares outstanding-Diluted 5,080 5,941 5,278 5,935
======= ======= ======= =======
3
FIRST BELL BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
AS OF JUNE 30, 1999
(unaudited)
(in thousands except per share amounts)
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1999 JUNE 30, 1998
-------------- -------------- -------------- --------------
Net income $ 1,933 $1,958 $ 3,968 $3,883
Unrealized gains/(losses) on securities:
Unrealized holding gains(losses) arising during
the period (7,858) 400 (10,195) 389
Less: reclassification adjustment for (gains)/losses
realized in net income -- -- (45) (97)
------- ------ -------- ------
Other comprehensive income, before taxes (5,925) 2,358 (6,182) 4,175
Tax (expense)/benefit 2,634 (165) 3,965 (122)
------- ------ -------- ------
Other comprehensive income, net of taxes $(3,291) $2,193 $ (2,217) $4,053
======= ====== ======== ======
4
FIRST BELL BANCORP, INC.
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(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
-------------------------------------------------------------------------------------------------
Balance at December 31, 1997 6,511 $86 $61,371 ($4,217) ($32,077) ($4,290) $ 117 $51,993 $ 72,983
Exercise of Options 13 (79) 228 149
Allocation of ESOP shares 201 115 316
Allocation of MRP shares 67 451 518
Dividend on common stock ($0.20)
(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
===== === ======= ======= ======== ======== ======= ======= ========
Balance at December 31, 1998 6,100 86 61,768 (3,972) (38,918) (3,839) 1,179 57,598 $ 73,902
Purchase of Treasury Stock (672) (12,653)
Allocation of ESOP Shares 155 111 (12,653) 266
Allocation of MRP Shares 129 461 590
Dividend on common stock ($0.20) (939) (939)
Change in unrealized gain or
loss, net of taxes (6,185) (6,185)
Net income 3,968 3,968
----- --- ------- ------- -------- -------- ------- ------- --------
Balance at June 30, 1999 5,428 $86 $62,052 ($3,861) ($51,571) $ (3,378) ($5,006) $60,627 $ 58,949
===== === ======= ======= ======== ======== ======= ======= ========
5
FIRST BELL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except per share amounts)
(Unaudited)
Six Months Ended Six Months Ended
June 30, 1999 June 30, 1998
----------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,968 $ 3,883
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 148 142
Deferred income taxes (180) 34
Amortization of premiums and accretion of discounts (54)
Provision for loan losses 60 30
Compensation expense-allocation of ESOP and MRP shares 549 642
Gain on sale of mortgage-backed securities, available for sale -- (97)
Loss on sale of real estate owned 9 --
Gain on sale of investment securities, available for sale (45) --
Increase or decrease in assets and liabilities
Accrued interest receivable (1,007) (386)
Accrued interest on deposits 3,293 3,597
Accrued interest on borrowings 273 335
Accrued income taxes (71) (61)
Other assets (18) (380)
Other liabilities (94) 220
Dividend payable (66) --
-------- --------
Net cash provided by operating activities 6,765 7,960
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment securities, available for sale (85,188) (89,758)
(Purchase) /maturity of federal funds 18,175 (34,925)
Maturity of investment securities, available for sale -- 10,000
Principal paydowns on mortgage-backed securities, available for sale -- 1,402
Net proceeds from sale of mortgage-backed securities, available for sale -- 30,352
Net proceeds from sale of investments, available for sale 3,317 --
Principal paydowns on investment securities, available for sale 3,247 1,287
Net decrease in conventional loans 9,592 8,178
Net (increase)/decrease in other loans (37) 134
Purchase of Federal Home Loan Bank stock (2,650) (3,852)
Net proceeds from sale of real estate owned 124 --
Purchase of premises and equipment (93) (31)
-------- --------
Net cash used in investing activities (53,513) (77,213)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits, NOW accounts and savings
accounts 2,729 2,168
Net decrease in certificate accounts (10,214) (22,973)
Net increase in advances by borrowers for taxes and insurance 3,792 3,818
Net increase in borrowings 63,000 90,000
Dividend paid (939) (1,150)
Options exercised -- 149
Purchase of treasury stock (12,653) --
-------- --------
Net cash provided by financing activities 45,715 72,012
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS (1,033) 2,759
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 21,543 24,522
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 20,510 $ 27,281
======== ========
6
SUPPLEMENTAL DISCLOSURES:
Cash paid for:
Interest on deposits and advances by borrowers for
taxes and insurance $ 8,654 $8,800
Interest on borrowings 5,893 2,574
Income taxes 1,003 2,452
Noncash transactions:
Transfers from conventional loans to real estate acquired through foreclosure 81 85
Increase in additional paid-in capital-ESOP and MRP allocation and options
exercised 284 189
Unrealized appreciation/(depreciation) on securities available for sale (8,216) 484
7
FIRST BELL BANCORP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR SIX AND THREE MONTHS ENDED JUNE 30, 1999 AND 1998
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, 1999 and related consolidated
statements of income, comprehensive income, cash flows and changes in
stockholders' equity for the six and three months ended June 30, 1999 and 1998
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, 1998.
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 preparation for the year 2000. 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.
8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Comparison of Financial Condition at June 30, 1999 and December 31, 1998.
- ------------------------------------------------------------------------
Assets. Total assets increased by $43.2 million, or 5.6% to $810.8 million at
June 30, 1999 from $767.6 million at December 31, 1998. This rise in total
assets was the result of increases in investment securities, available for sale
and Federal Home Loan Bank ("FHLB") stock offset by decreases in federal funds
sold and conventional mortgage loans. Investment securities, available for sale
at June 30, 1999, were $205.2 million compared to $136.7 million at December 31,
1998. The $68.6 million or 50.2% increase was the result of the purchase of
$85.2 million in municipal securities, funded by borrowings and federal funds
sold. Offsetting these purchases was a decline of $10.1 million in the
unrealized gain or loss on the investments, the sale of $3.3 million municipal
securities and principal paydowns at $3.2 million. FHLB stock increased by $2.7
million, or 29.4% to $11.7 million at June 30, 1999 from $9.0 million at
December 31, 1998. The increase was the result of the minimum amount of stock
required by the FHLB increasing due to the additional borrowings obtained from
the FHLB during the first six months of 1999. Federal funds sold decreased by
$18.2 million or 50.2% to $18.0 million at June 30, 1999, from $36.2 million at
December 31, 1998. As stated above the reduction in federal funds sold were
used to fund the purchases of investment securities. Conventional mortgage
loans at June 30, 1999, were $534.9 million compared to $544.6 million at
December 31, 1998. The $9.7 million or 1.8% decrease was the result of
principal repayments of $64.9 million reduced by the origination of $49.8
million in conventional mortgage loans and $5.0 million in disbursements for
home equity loans.
Liabilities. Liabilities at June 30, 1999 were $751.9 million compared to
$693.7 million at December 31, 1998. The $58.2 or 8.4% increase was the result
of increases in borrowings, advances by borrowers for taxes and insurance and
accrued interest on deposits. Reducing the effect of these increases were
decreases in total deposits and deferred income tax liability. Borrowings
increased by $63.0 million or 35% to $243.0 million at June 30, 1999 from $180.0
million at December 31, 1998. The increase in borrowings were used to fund the
purchase of investment securities and treasury stock. Advances by borrowers for
taxes and insurance increased by $3.8 million or 33.4% to $15.1 million at June
30, 1999 from $11.3 at December 31, 1998. The increase was the result of the
collection of funds for taxes and insurance for future payments. Accrued
interest on deposits at June 30, 1999 was $3.9 million compared to $600,000 at
December 31, 1998. The $3.3 million increase is attributable to the timing of
interest payments on certificate accounts. Total deposits decreased by $7.5
million or 1.5% to $487.6 million at June 30, 1999 from $495.1 million at
December 31, 1998. The decrease was the result of higher paying interest
certificate accounts being allowed to run off. Offsetting the decrease in
certificate accounts was a $2.3 million or 3.2% increase in passbook, clubs, and
other accounts. Deferred income tax liability decreased by $4.1 million to an
asset of $1.7 million at June 30, 1999 from a liability of $2.4 million at
December 31, 1998. The decrease was primarily the result of the $5.0 million
unrealized loss, net of taxes on investment securities.
9
Capital. Total stockholders' equity decreased by $15.0 million or 20.2% to
$58.9 million at June 30, 1999 from $73.9 million at December 31, 1998. The
increase was the result of the purchase of $12.7 million in treasury stock and
the $6.2 million decline in accumulated other comprehensive income, net of taxes
as the result of the unrealized loss on investment securities. Offsetting these
declines was an increase in retained earnings of $3.0 million. This increase was
the result of net income of $4.0 million reduced by dividend declared of
$939,000.
Liquidity and Capital Resources. The Company's primary sources of funds are
deposits, borrowings, and principal and interest payments 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, 1999 was the purchase of $85.2 million of investment securities, held as
available-for-sale and the investment of $49.8 million in conventional mortgage
loans. Sources of funds for the six months ended June 30, 1999 were the
additional $63.0 million in borrowings, and $68.1 million in principal
repayments of conventional mortgage loans and investments.
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 6.3%. 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, 1999, assets qualifying for liquidity, including cash
and investments, totaled $58.7 million.
At June 30, 1999, 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 9.0%, 9.0%, 21.6%, and 21.8%, 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,
- -------------------------------------------------------------------------------
1999 and 1998.
- -------------
General. Net income for the six months ended June 30, 1999 increased by
$85,000 or 2.2% to $4.0 from $3.9 million for the six months ended June 30,
1998. The increase was the result of tax equivalent interest income increasing
by $3.5 million. Tax exempt securities were $199.1 million at June 30, 1999
compared to $117.2 million at December 31, 1998. Offsetting this increase was
an increase in interest expense of $2.8 million, general and administrative
expense increasing by $481,000 and other income decreasing by $68,000.
10
Net income for the quarters ended June 30, 1999 and 1998 remained relatively
flat. Tax equivalent interest income rose to $14.0 million for the three months
ended June 30, 1999, from $12.3 million for the comparable 1998 period. Both
interest expense and general and administrative expenses rose by $1.4 million
and $251,000, respectively.
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 included tax-exempt securities. Tax-
exempt securities carry pre-tax yields lower than comparable assets. Therefore,
it is more meaningful to analyze interest income on a tax-equivalent basis. Tax
equivalent increases of $1.8 million and $1.0 million were made for the six and
three months ended June 30, 1999. For the six and three months ended June 30,
1998, a tax equivalent increase of $109,000 was made. Tax equivalent interest
income for the six-months ended June 30, 1999, increased by $3.5 million or
14.5% to $27.7 million from $24.2 for the comparable 1998 period. The increase
was the result of interest earned on investment securities and dividends on FHLB
stock rising. Offsetting these increases were decreases in interest earned on
conventional mortgage loans and federal funds sold. Tax equivalent interest
earned on investment securities for the six months ended June 30, 1999, was $6.8
million compared to $1.3 million for the six months ended June 30, 1998. The
$5.5 million increase was the result of the average balance of investment
securities rising to $205.6 million for the six months ended June 30, 1999 from
$40.2 million for the comparable 1998 period. This was due to the municipal
securities that were purchased from the end of the first quarter in 1998 through
the end of the first quarter of 1999. Dividend income on FHLB stock increased
by $171,000 or 91.4% to $358,000 for the six months ended June 30, 1999, from
$187,000 for the six months ended June 30, 1998. This was due to the additional
stock that has been purchased to meet the FHLB minimum requirements in response
to the additional borrowings obtained from the FHLB. Interest earned on
conventional mortgage loans decreased by $1.7 million 7.8% to $19.6 million from
$21.3 million for the six months ended June 30, 1999, and 1998, respectively.
The decrease was the result of the average balance of conventional mortgage
loans declining to $541.0 million for the six months ended June 30, 1999, from
$575.4 million due to prepayments and the decline in originations of
conventional mortgage loans. In addition, there was a 14 basis points decline
on the average rate earned on conventional mortgage loans. The rate for the six
months ended June 30, 1999, was 7.27% compared to 7.41% for the six months ended
June 30, 1998. Interest earned on federal funds sold decreased by $154,000 or
34.8% to $289,000 for the six months ended June 30, 1999, from $443,000 for the
comparable 1998 period. The decline was the result of the average balance
falling by $4.1 million or 25.6% to $11.9 million for the six months ended June
30, 1999, from $16.0 million for the six months ended June 30, 1998, due to
fluctuations of excess cash. Also contributing to the decline in interest
earned on federal funds sold was the average rate earned for the six months
ended June 30, 1999, was 4.85% compared to 5.53% for the six months ended June
30, 1998.
Tax equivalent interest income for the quarter ended June 30, 1999, increased by
$1.7 million or 13.9% to $14.0 million from $12.3 million for the quarter ended
June 30, 1998. The increase was the result of tax equivalent interest earned or
investment securities rising along with dividends on FHLB stock. Offsetting
these increases were decreases in interest-earned on conventional mortgage loans
and federal funds sold. The reasons for these increases and
11
decreases are the same that were discussed above for the six months ended June
30, 1999 and 1998.
Interest Expense. Interest expense for the six and three months ended June
30, 1999 increased by $2.8 million or 18.3% and $1.4 million or 18.6% from the
comparable 1998 periods. The primary reason for the increase was a rise in
interest expense on borrowing. Interest expense on borrowings was $6.2 million
for the six months ended June 30, 1999, compared to $2.9 million for the six
months ended June 30, 1998, and $3.3 million for the quarter ended June 30,
1999, compared to $1.6 million for the quarter ended June 30, 1998. The
increase was the result of the additional $63.0 in borrowings obtained during
1999.
Net Interest Income. Tax equivalent net interest income for the six and three
months ended June 30, 1999 increased by $695,000 and $253,000 over the six and
three months ended June 30, 1998. This was the result of tax equivalent
interest income increasing more than interest expense.
Provision for Loan Losses. The provision for loan losses increased by $30,000
for the six months ended June 30, 1999 to $60,000 from $30,000 for the six
months ended June 30, 1998. For the quarter ended June 30, 1999 the provision
was $30,000 compared to $10,000 for the quarter ended June 30, 1998. The
increase in the provision is the result of an increase in jumbo mortgages
originated by the Association. At June 30, 1999, non-performing assets were
$436,000 compared to $580,000 at December 31, 1998. The allowance for loan
losses equaled 198.4% of total non-performing assets at June 30, 1999, as
compared to 138.8% at December 31, 1998. There were no loans charged off for
the six month periods ended June 30, 1999, and 1998. 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 June 30, 1999.
Other Income. Other income for the six month period ended June 30, 1999
declined to $261,000 from $329,000 for the six months ended June 30, 1998. The
decrease was the result of gains on sales on investments being $45,000 for 1999
compared to $97,000 for 1998 and other income which includes $9,000 in losses in
1999 from the sale of real estate owned.
For the quarter ended June 30, 1999, other income increased by $16,000 or 13.0%
to $139,000 from $123,000 for the quarter ended June 30, 1998. This was
primarily the result of $12,000 in gains from the sale of real estate owned.
General and Administrative Expenses. General and administrative expenses
increased by $481,000 or 17.1% to $3.3 million for the six months ended June 30,
1999 compared to $2.8 million for the comparable 1998 period. The increase was
primarily due to an increase in other expenses that were associated with the
annual meeting and one-time non-recurring expenses related to the termination of
the Association's defined benefit pension plan.
12
General and administrative expenses for the quarter ended June 30, 1999 was
$1.7 million compared to $1.4 million for the quarter ended June 30, 1998. The
increase was the result of increases in other expenses and compensation, payroll
taxes and fringe benefits. Other expenses increased by $156,000 or 69.6% to
$380,000 for the quarter ended June 30, 1999 from $224,000 for the quarter ended
June 30, 1998. As stated above, the increase was the result of one-time non-
recurring expenses. Compensation, payroll taxes and fringe benefits increased
by $73,000 or 8.6% to $921,000 for the quarter ended June 30, 1999, from
$848,000 for the quarter ended June 30, 1998. The increase was the result of
the cost associated with the termination of the employees pension fund during
the second quarter of 1999.
Income Taxes. Tax equivalent income taxes for the six months and quarters
ended June 30, 1999 and 1998, remained relatively flat. For the six months
ended June 30, 1999, and 1998, taxes include tax equivalent adjustments of $1.8
million and $109,000, respectively. For the quarters ended June 30, 1999 and
1998, taxes include tax equivalent adjustment of $1.0 million and $109,000,
respectively.
Other Comprehensive Income. The Financial Accounting Standards Board ("FASB")
recently issued SFAS No. 130, "Reporting Comprehensive Income," which became
effective for financial statements for fiscal years beginning after December 15,
1997. SFAS No. 130 established standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purpose financial statements.
The following table sets forth the related tax effects allocated to each
element of comprehensive income for the six and three months ended June 30,
1999, and 1998.
Six Months Ended June 30, 1999 Six Months Ended June 30, 1998
------------------------------------------ --------------------------------
Tax Net-of Tax Net-of-
Pre-Tax (Expense) Tax Pre-Tax (Expense) Tax
Amount or Benefit Amount Amount or Benefit Amount
--------- ----------- -------- -------- ----------------- -------------
Unrealized gains or losses
on securities:
Unrealized holding gains/(losses)
arising during the period $(10,195) $3,983 $(6,212) $389 $(160) $229
Reclassification adjustment
for gains realized in net
income (45) 18 (27) (97) 38 (59)
-------- ---------- ------- ------- ---------------- ------------
Net realized gains/(losses) (10,150) 3,965 (6,185) 292 (122) 170
-------- ---------- ------- ------- ---------------- ------------
Other comprehensive income $(10,150) $3,965 $(6,185) $292 $(122) $170
======== ========== ======= ======= ================ ============
13
Three Months Ended Three Months Ended
June 30, 1999 June 30, 1998
------------------------------- ----------------------------
Tax Net-of Tax Net-of-
Pre-Tax (Expense) Tax Pre-Tax (Expense) Tax
Amount or Benefit Amount Amount or Benefit Amount
-------- ----------- -------- ------- ----------- ------
Unrealized gains or losses
on securities:
Unrealized holding gains/(losses)
arising during the period $(7,858) $2,634 $(5,224) $400 $(165) $235
------- ------ ------- ---- ----- ----
Net realized gains/(losses) (7,858) 2,634 (5,224) 400 (165) 235
------- ------ ------- ---- ----- ----
Other comprehensive income $(7,858) $2,634 $(5,224) $400 $(165) $235
======= ====== ======= ==== ===== ====
The following tables set forth the component of accumulated other comprehensive
income for the six and three months ended June 30, 1999 and 1998.
Six Months Six Months
Ended Ended
June 30, 1999 June 30, 1998
-------------- -------------
Beginning Balance $ 1,179 $117
Net unrealized gains/(losses) on securities, net of taxes (6,185) 170
------- ----
Ending Balance $(5,006) $287
======= ====
Three Months Three Months
Ended Ended
June 30, 1999 June 30, 1998
------------- -------------
Beginning Balance $ 218 $ 52
Net unrealized gains/(losses) on securities, net of taxes (5,224) 235
------- ----
Ending Balance $(5,006) $287
======= ====
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. The Company utilizes a third-party vendor for
processing its primary banking applications and several other third-party
vendors for ancillary computer applications. Based on representations from
third party vendors, the Company and all third-party vendors for the Company's
banking applications have modified, upgraded or replaced their computer
applications and are in the process of validating the changes to ensure Year
2000 compliance. The Company's primary regulator, in conjunction with other
14
regulatory agencies, has developed guidelines which must be met by the Company
to ensure that the Year 2000 issue is properly addressed. In accordance with
these guidelines, the Board of Directors has appointed a Year 2000 Committee,
comprised of senior managers and department heads to assess the impact that the
Year 2000 will have on the Company's operations and financial standing. The
Year 2000 Committee has developed a Year 2000 Compliance Program, the
("Program"). The Program has been divided into five sub-parts: awareness,
assessment, renovation, validation and implementation. The program has been
completed with respect to the Company's mission critical systems. Ancillary
computer communications, data exchanges and non information technology continue
to be tested as other third party vendors complete their Year 2000 computer
changes. In addition to internal processes, the Company monitors through
correspondence, the progress of other third party vendors to ensure that their
systems do not indirectly affect the Company's operations.
Costs. The Company has not and 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 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 $75,000. To date, the Company has spent approximately
$40,000.
Risks and Contingencies. The Company does not have commercial loans
outstanding. However, the Company's mortgage loans could be indirectly affected
by the Year 2000 if the employer's of the borrowers are affected by the Year
2000. The Company has attempted to make its borrowers aware of the Year 2000
issue but the effect that the Year 2000 will have, if any, on the Company's
loans cannot be determined. All customers have been sent year 2000 updates to
inform them of progress of our Year 2000 program.
In the event that the Company's operations are affected by the Year 2000,
either internally or externally through significant vendors including utilities,
other financial institutions or supply companies, the Company's results of
operations and/or financial condition could be adversely affected. In the event
that problems arise, a contingency plan has been developed to ensure the
continued operation of the Company. However, there can be no assurance that any
disruption or failure will be only temporary or that the contingency plan will
function as anticipated in the event of a prolonged disruption or failure.
Recent Accounting Pronouncements. 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.
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, 1998 to June
30, 1999. However, the OTS results are not yet available for the quarter ended
June 30, 1999. 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, 1998.
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 26, 1999.
(b) The names of each Director elected at the Annual Meeting for three
year terms ending in the Year 2002 and votes cast are as follows:
For Withheld
--------- --------
Theodore R. Dixon 4,943,888 254,720
David F. Figgins 4,934,403 264,205
Peter E. Reinert 4,944,726 253,882
16
The names of the Directors whose term of office continued after the
Annual Meeting are as follows:
Albert H. Eckert William S. McMinn
Jeffrey M. Hinds Thomas J. Jackson, Jr.
Robert C. Baierl Jack W. Schweiger
(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,
1999
For Against Abstain
--- ------- -------
5,107,241 76,267 15,101
(ii) Stockholder proposal
For Against Abstain
--- ------- -------
1,322,621 3,092,634 105,394
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.
17
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
FIRST BELL BANCORP, INC.
(Registrant)
Date: August 12, 1999 /s/ Albert H. Eckert, II
--------------------------------------
Albert H. Eckert, II
President and Chief Executive Officer
Date: August 12, 1999 /s/ Jeffrey M. Hinds
--------------------------------------
Jeffrey M. Hinds
Executive Vice President and
Chief Financial Officer (Principal
Accounting Officer)