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, 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.
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(Exact name of registrant as specified in its
charter)
DELAWARE 251752651
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
300 DELAWARE AVENUE, SUITE 1704, WILMINGTON, DELAWARE 19801
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(Address of principal executive offices) (Zip Code)
(302) 427-7883
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [_] No
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: 5,267,763 shares of common
stock, par value $.01 per share, were outstanding as of November 15, 1999.
FIRST BELL BANCORP, INC.
FORM 10-Q
INDEX
PAGE
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PART I FINANCIAL INFORMATION
Item 1 Consolidated Balance Sheet September
30, 1999 (unaudited) and December 31,
1998 (audited)....................................... 1
Consolidated Statements of Income for the
Three and Nine Months Ended September 30,
1999, and 1998 (unaudited)........................... 2
Consolidated Statements of Comprehensive
Income for the Three and Nine months ended
September 30, 1999, and 1998 (unaudited)............. 3
Consolidated Statements of Changes in
Stockholders' Equity for the Nine Months
Ended September 30, 1999 and 1998 (unaudited)........ 4
Consolidated Statements of Cash Flows for
the Nine Months Ended September 30, 1999
and 1998, (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.................................... 17
Item 6 Exhibits and Reports on Form 8-K..................... 17
SIGNATURES 17
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
FIRST BELL BANCORP, INC.
CONSOLIDATED BALANCE SHEET
(In Thousands)
SEPTEMBER 30, DECEMBER 31,
1999 1998
---- ----
ASSETS (unaudited) (audited)
Cash:
Cash on-hand.................................................................. $ 875 $ 924
Non-interest-bearing deposits................................................. 2,251 2,117
Interest-bearing deposits..................................................... 14,683 18,502
---------- ----------
Total cash................................................................. 17,809 21,543
Federal funds sold............................................................... 23,425 36,175
Investment securities held to maturity - at cost (fair value of $5,263 and
$10,766 at September 30, 1999 and December 31, 1998, respectively)............ 4,983 9,980
Investment securities-available for sale at fair value (cost of $217,754 and $134,743
at September 30, 1999 and December 31, 1998, respectively)....................... 206,546 136,677
Conventional mortgage loans - net of allowance for
loan losses of $895 and $805 at September 30, 1999 and
December 31, 1998, respectively............................................... 528,989 544,635
Other loans, net................................................................. 948 899
Real estate owned................................................................ 29 82
Premises and equipment, net...................................................... 3,832 3,405
Federal Home Loan Bank stock, at cost............................................ 11,650 9,000
Accrued interest receivable...................................................... 5,434 4,272
Other assets..................................................................... 1,043 938
---------- ----------
Total assets.................................................................. $ 804,688 $ 767,606
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Deposits:
Passbook, club and other accounts............................................. $ 72,372 $ 73,578
Money market and NOW accounts................................................. 54,314 52,164
Certificate accounts.......................................................... 370,946 369,386
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Total deposits............................................................ 497,632 495,128
Borrowings....................................................................... 238,000 180,000
Advances by borrowers for taxes and insurance.................................... 5,509 11,354
Accrued interest on deposits..................................................... 5,393 600
Accrued interest on borrowings................................................... 1,261 863
Accrued income taxes............................................................. 169 120
Deferred income tax (asset)/liability............................................ (3,052) 2,424
Dividend payable on common stock................................................. 461 536
Other liabilities................................................................ 2,190 2,679
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Total liabilities............................................................. 747,563 693,704
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; 5,327,763 outstanding at September 30, 1999
6,100,476 outstanding at December 31, 1998;one stock right per share)...... 86 86
Paid-in capital............................................................... 62,129 61,768
Unearned ESOP shares (537,982 and 561,562 shares at September 30, 1999
and December 31, 1998, respectively)......................................... (3,809) (3,972)
Unearned MRP shares (242,384 and 275,441 shares at September 30, 1999 and
December 31, 1998, respectively)........................................... (3,378) (3,839)
Treasury stock (3,268,487 shares and 2,495,774 shares at September 30,
1999 and December 31, 1998, respectively) ................................. (53,272) (38,919)
Accumulated other comprehensive (loss)/income, net of taxes................... (6,770) 1,179
Retained earnings............................................................. 62,139 57,599
---------- ----------
Total Stockholders' Equity....................................................... 57,125 73,902
Total Liabilities and Stockholders' Equity....................................... $ 804,688 $ 767,606
========== ==========
2
FIRST BELL BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
THREE THREE NINE NINE
MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED
SEPT. 30, 1999 SEPT.30, 1998 SEPT.30, 1999 SEPT 30, 1998
- ------------------------------------------------------------------------------------------------------------------------------
Interest income:
Conventional mortgage loans $ 9,475 $ 10,363 $29,141 $31,694
Interest-bearing deposits 235 297 788 912
Mortgage-backed securities -- -- -- 284
Federal funds sold 332 335 620 778
Investment securities 2,597 1,625 7,615 2,854
Other loans 16 14 49 43
Federal Home Loan Bank stock 199 148 557 335
-------- --------- ------- -------
Total interest and dividend income 12,854 12,782 38,770 36,900
Interest expense on deposits 6,031 6,202 17,978 18,598
Interest expense on borrowings 3,348 2,561 9,514 5,470
-------- --------- ------- -------
Total interest expense 9,379 8,763 27,492 24,068
Net interest income 3,475 4,019 11,278 12,832
Provision for loan losses 30 30 90 60
-------- --------- -------- -------
Net interest income after provision
for loan losses 3,445 3,989 11,188 12,772
Other income:
Loan fees and service charges 165 119 386 340
Gain on sale of loans and securities -- -- 45 97
Miscellaneous income 15 -- 10 11
-------- --------- -------- -------
Total other income 180 119 441 448
Other general and administrative expense:
Compensation, payroll taxes and fringe benefits 785 809 2,440 2,472
Federal insurance premiums 77 74 225 234
Office occupancy expense, excluding depreciation 118 121 394 372
Depreciation 73 75 221 217
Computer services 62 56 198 167
Other expenses 305 297 1,228 774
--------- -------- -------- -------
Total general and administrative expense 1,420 1,432 4,706 4,236
Net Income before provision for income taxes 2,205 2,676 6,923 8,984
Provision for income taxes:
Current:
Federal 246 537 831 2,462
State 184 189 530 654
Deferred (credit) expense (200) -- (381) 34
--------- -------- -------- -------
Total provision for income taxes 230 726 980 3,150
Net income $ 1,975 $ 1,950 $ 5,943 $ 5,834
========= ======== ======== =======
Basic earnings per share $ 0.43 $ 0.35 $ 1.21 $ 1.04
Diluted earnings per share $ 0.41 $ 0.34 $ 1.16 $ 0.99
Weighted average shares outstanding-Basic 4,601 5,564 4,908 5,625
Weighted average shares outstanding-Diluted 4,805 5,809 5,115 5,893
3
FIRST BELL BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
(in thousands)
THREE THREE NINE NINE
MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED
SEPT. 30, 1999 SEPT.30, 1998 SEPT.30, 1999 SEPT 30, 1998
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $ 1,975 $ 1,950 $ 5,943 $ 5,834
Unrealized (losses)/gains on securities:
Unrealized holding (losses)/gains arising during
the period (2,895) 1,325 (13,089) 1,715
Less: reclassification adjustment for losses/(gains)
realized in net income -- -- (45) (97)
---------- --------- ---------- ----------
Other comprehensive (loss)/income, before taxes (920) 3,275 (7,101) 7,452
Tax benefit/(expense) 1,131 (564) 5,095 (687)
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Other comprehensive income/(loss), net of taxes $ 211 $ 2,711 $ (2,006) $ 6,765
========== ========= ========== ==========
4
FIRST BELL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(In thousands)
(Unaudited)
Number
Common Additional Unearned
Stock Common Paid-in ESOP Treasury MRP
Shares Stock Capital Shares Stock Stock
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Balance at December 31, 1997 6,511 $86 $61,371 ($4,217) ($32,077) ($4,290)
Purchase of treasury stock (296) (5,074)
Exercise of Options 13 (43) 228
Allocation of ESOP shares 286 172
Allocation of MRP shares 67 451
Dividend on common stock ($0.30)
Change in unrealized gain or
loss, net of taxes
Net income
-------- ----- -------- ------- -------- -------
Balance at September 30, 1998 6,228 $86 $61,681 $(4,045) $(36,923) $(3,839)
======== ===== ======== ======= ======== =======
Balance at December 31, 1998 6,100 $86 $61,768 $(3,972) $(38,918) $(3,839)
Purchase of Treasury Stock (772) (14,353)
Allocation of ESOP Shares 232 163
Allocation of MRP Shares 129 461
Dividend on common stock ($0.30)
Change in unrealized gain or
loss, net of taxes
Net income
-------- ----- -------- -------- -------- -------
Balance at September 30, 1999 5,328 $86 $62,129 ($3,809) ($53,271) $(3,378)
======== ===== ======== ======== ======== =======
Accumulated
Other
Com-prehensive
Income, Net of Retained
Taxes Earnings Total
--------------------------------------------
--------------------------------------------
Balance at December 31, 1997 $ 117 $ 51,993 $ 72,983
Purchase of treasury stock (5,074)
Exercise of Options 185
Allocation of ESOP shares 458
Allocation of MRP shares 518
Dividend on common stock ($0.30) (1,697) (1,697)
Change in unrealized gain or
loss, net of taxes 931 931
Net income 5,834 5,834
------- -------- --------
Balance at September 30, 1998 $ 1,048 $ 56,130 $ 74,138
======= ======== ========
Balance at December 31, 1998 $ 1,179 $ 57,598 $ 73,902
Purchase of Treasury Stock (14,353)
Allocation of ESOP Shares 395
Allocation of MRP Shares 590
Dividend on common stock ($0.30) (1,403) (1,403)
Change in unrealized gain or
loss, net of taxes (7,949) (7,949)
Net income 5,943 5,943
------- -------- --------
Balance at September 30, 1999 ($6,770) $ 62,138 $ 57,125
======= ======== ========
5
FIRST BELL BANCORP, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended Nine Months Ended
September 30, 1999 September 30, 1998
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,943 $ 5,834
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 221 217
Deferred income taxes (381) 34
Amortization of premiums and accretion of discounts (76) (10)
Provision for loan losses 90 60
Compensation expense-allocation of ESOP and MRP shares 809 936
Gain on sale of mortgage-backed securities, available for sale -- (97)
Loss on sale of real estate owned 8 4
Gain on sale of investment securities, available for sale (45) --
(Increase) or decrease in assets and liabilities
Accrued interest receivable (1,163) (1,198)
Accrued interest on borrowings 398 503
Accrued income taxes 49 (108)
Other assets (106) (587)
Other liabilities (311) (82)
Dividend payable (75) --
---------- ----------
Net cash provided by operating activities 10,154 10,218
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment securities, available for sale (90,188) (115,391)
Maturity/(purchase) of federal funds 12,750 (17,600)
Maturity of investment securities, available for sale -- 10,000
Maturity of investment securities, held to maturity 5,000 --
Principal repayments 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 repayments on investment securities, available for sale 4,076 2,499
Net decrease in conventional loans 15,464 20,806
Net (increase)/decrease in other loans (50) 37
Purchase of Federal Home Loan Bank stock (2,650) (3,852)
Net proceeds from sale of real estate owned 138 43
Purchase of premises and equipment (648) (169)
---------- ----------
Net cash used in investing activities (52,791) (71,873)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits, NOW accounts and savings
accounts 944 2,839
Net increase/(decrease) in certificate accounts 1,560 (18,676)
Net increase in advances by borrowers for taxes and insurance (5,845) (6,277)
Net increase in borrowings 58,000 90,000
Dividends paid (1,403) (1,725)
Options exercised -- 149
Purchase of treasury stock (14,353) (5,074)
---------- ----------
Net cash provided by financing activities 38,903 61,236
---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS (3,734) (419)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 21,543 24,520
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 17,809 $ 24,101
========== ==========
FIRST BELL BANCORP, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
SUPPLEMENTAL DISCLOSURES:
Cash paid for:
Interest on deposits and advances by borrowers for
taxes and insurance $ 13,185 $ 13,886
Interest on borrowings 9,116 4,967
Income taxes 1,312 3,187
Non-cash transactions:
Transfers from conventional loans to real estate acquired
through foreclosures 92 191
Increase in additional paid-in capital-ESOP and MRP
allocation and options exercised 361 310
Unrealized (depreciation)/appreciation on securities
available for sale (11,111) 1,810
FIRST BELL BANCORP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR NINE AND THREE MONTHS ENDED SEPTEMBER 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 the Association 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, 1999 and related
consolidated statements of income, comprehensive income, cash flows and changes
in stockholders' equity for the nine and three months ended September 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 September 30, 1999 and December 31, 1998.
- ------------------------------------------------------------------------------
Assets. Total assets increased to $804.7 million at September 30, 1999 from
$767.6 million at December 31 ,1998. This increase of $37.1 million or 4.8% was
the result of an increase in investment securities offset by decreases in
conventional mortgage loans and federal funds sold. Investment securities
increased by $64.9 million or 44.2% to $211.5 million at September 30, 1999 from
$146.7 million at December 31, 1998. The increase was the result of the purchase
of $90.2 million of investment securities, available for sale, funded by
borrowings and federal funds sold. Offsetting the purchases, was a decline of
$13.0 million in unrealized gain or loss on investment securities, available for
sale, $5.0 million maturity of a treasury note, $4.1 million in Collateralized
Mortgage Obligations ("CMO's) principal repayments and the sale of $3.3 million
in municipal securities. Conventional mortgage loans decreased by $15.6 million
or 2.9% to $529.0 million at September 30, 1999 from $544.6 million at December
31, 1998. The decrease was the result of principal repayments of $83.0 million
offset by the origination of $59.1 million in conventional mortgage loans and
$5.5 million in disbursements for home equity loans. Federal funds sold
decreased to $23.4 million at September 30, 1999 from $36.2 million at December
31, 1998. The $12.8 million or 35.2% decrease was the result of the funds being
used to finance the purchase of investment securities.
Liabilities. Total liabilities increased by $53.9 million or 7.8% to $747.6
million at September 30, 1999 from $693.7 million at December 31, 1998. The
increase was the result of increases in borrowings and accrued interest on
deposits reduced by decreases in advances by borrowers for taxes and insurance
and deferred income tax liability. Borrowings increased by $58.0 million or
32.2% to $238.0 million at September 30, 1999 from $180.0 million at December
31, 1998. The increase in borrowings were used to finance the purchase of
investment securities and treasury stock. Accrued interest on deposits increased
by $4.8 million to $5.4 million at September 30, 1999 from $600,000 at December
31, 1998. The increase is attributable to the timing of interest payments on
certificate accounts. Advances by borrowers for taxes and insurance decreased by
$5.8 million or 51.5% to $5.5 million at September 30, 1999 from $11.3 million
at December 31, 1998. The decrease is the result of the payment of property
taxes on conventional mortgages serviced by the Association during the third
quarter. Deferred income tax liability decreased by $5.5 million to an asset of
$3.1 million at September 31, 1999 from a liability of $2.4 million at December
31, 1998. The decrease was primarily the result of the $6.8 million unrealized
loss, net of taxes, on investment securities.
Capital. Total stockholders' equity decreased by $16.8 million or 22.7% to $57.1
million at September 30, 1999 from $73.9 million at December 31, 1998. The
decrease was the result of the purchase of $14.4 million worth of the Company's
stock pursuant to its sixth stock repurchase program, the decline of $7.9
million in accumulated other comprehensive income, net of taxes and payment of
$1.4 million in dividends. Offsetting the decreases was net income of $5.9
million for the nine months ended September 30, 1999.
Liquidity and Capital Resources. The Company's primary sources of funds are
deposits, borrowings, and principal and interest payments on mortgages and
investments. While maturities
9
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, 1999 was the purchase of $90.2 million of investment securities,
held as available-for-sale and the investment of $59.1 million in conventional
mortgages. Sources of funds for the nine months ended September 30, 1999 were
the additional borrowings of $58.0 million and $88.9 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 ratio is currently 4.0%. The Association's
average liquidity ratio was 8.2% during the three month period ended September
30, 1999. 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, 1999, assets qualifying for liquidity, including
cash and investments, totaled $56.4 million.
At September 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%, 21.5% 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 Operation for the Nine and Three Months ended September
- --------------------------------------------------------------------------------
30, 1999 and 1998.
- -----------------
General. Net income for the nine months ended September 30, 1999 increased by
$109,000 or 1.9% to $5.9 million from $5.8 million for the nine months ended
September 30, 1998. The increase was the result of tax equivalent interest
income increasing by $4.0 million. Tax equivalent securities were $199.1 million
at September 30, 1999 compared to $117.2 million at December 31, 1998.
Offsetting the increase in tax equivalent interest income were increases in
interest expense of $3.4 million and general and administrative expenses of
$470,000. Net income for the quarters ended September 30, 1999 and 1998 remained
flat at $2.0 million. Other significant fluctuations included: tax equivalent
interest income increased by $520,000, other income increased by $61,000, income
taxes decreased by $48,000 and interest expense increased by $616,000.
Interest Income Interest income discussed in this section is tax equivalent
interest income. Tax equivalent interest income is being used because interest
on investment securities include tax-exempt securities. Tax-exempt securities
carry pre-tax yields lower than comparable assets. Therefore, it is more
meaningful to analyze interest income on a tax equivalent basis. Tax equivalent
increases of $2.8 million and $1.0 million were made for the nine and three
months ended September 30, 1999. For the nine and three months ended September
30, 1998, tax equivalent increases of $644,000 and $536,000 respectively, were
made.
10
Tax equivalent interest income for the nine months ended September 30, 1999
increased by $4.0 million or 10.7% to $41.5 million from $37.5 million at
September 30, 1998. The increase was the result of a rise in interest on
investment securities and dividends on FHLB stock. Offsetting these increases
were decreases in interest on conventional mortgage loans, federal funds sold
and interest-bearing deposits. Tax equivalent interest income on investment
securities was $10.4 million for the nine months ended September 30, 1999
compared to $3.5 million for the nine months ended September 30, 1998. The $6.9
million increase was the result of the average balance increasing to $208.0
million for the nine months ended September 30 1999 from $68.7 million for the
comparable 1998 period. Dividends on FHLB stock increased by $222,000 or 66.3%
to $557,000 for the nine months ended September 30, 1999 from $335,000 for the
nine months ended September 30, 1998. This was due to the additional stock that
has been purchased to meet FHLB minimum requirements in response to the
additional borrowings obtained from the FHLB during the year. Interest income on
conventional mortgage loans decreased by $2.6 million or 8.1% to $29.1 million
for the nine months ended September 30, 1999 from $31.7 million for the nine
months ended September 30, 1998. The decrease was the result of the average
balance of conventional mortgage loans declining by $34.3 million or 6.0% to
$537.3 for the nine months ended September 30, 1999 from $571.6 million for the
nine months ended September 30, 1998. In addition, there was a thirteen basis
points decline on the average rate earned on conventional mortgage loans. The
average rate was 7.2% for the nine months ended September 30, 1999 compared to
7.4% for the nine months ended September 30, 1998. Interest on federal funds
sold decreased by $158,000 or 20.3% to $620,000 for the nine months ended
September 30, 1999 from $778,000 for the comparable 1998 period. The decrease
was the result of a decline in the average balance of federal funds sold of $2.8
million or 15.1% to $15.7 million for the nine months ended September 30, 1999
from $18.5 million for the nine months ended September 30, 1998. In addition,
the average rate earned on federal funds sold decreased by thirty four basis
points. The average rate for the nine months ended September 30, 1999 was 5.3%
compared to 5.6% for the nine months ended September 30, 1998. Interest on
interest-bearing deposits decreased by $124,000 or 13.6% to $788,000 for the
nine months ended September 30, 1999 from $912,000 for the nine months ended
September 30, 1998. The decrease was the result of the average rate earned
falling to 4.8% for the nine months ended September 30, 1999 from 5.4% for the
nine months ended September 30, 1998. Offsetting the decline in the average rate
earned on interest-bearing deposits, was the average balance increasing by $1.1
million or 4.8% to $23.5 million for the nine months ended September 30, 1999
from $22.4 million for the comparable 1998 period.
Tax equivalent interest income for the quarter ended September 30, 1999
increased by $520,000 or 3.9% to $13.8 million from $13.3 million for the
quarter ended September 30, 1998. The increase was the result of a rise in tax
equivalent interest on investment securities and dividends on FHLB stock offset
a decrease in interest earned on conventional mortgage loans and
interest-bearing deposits. Tax equivalent interest on investment securities
increased by $1.4 million or 65.7% to $3.6 million for the quarter ended
September 30, 1999 from $2.2 million for the quarter ended September 30, 1998.
The increase was the result of the average balance of investment securities
increasing to $212.8 million for the quarter ended September 30, 1999 from
$125.8 million for the comparable 1998 period. Offsetting the increase in the
average balance of investment securities was a fourteen basis point decrease in
the average rate earned. The average rates were 6.7% and 6.9% for the quarter
ended September 30, 1999 and 1998, respectively. Dividends on FHLB stock
increased by $51,000 or 34.5% to $199,000 for the quarter ended September 30,
1999 from $148,000 for the quarter ended September 30, 1998. The increase was
the result of the average balance rising to $11.7 million for the quarter ended
September 30, 1999
11
from $9.0 million for the comparable 1998 period. As stated above, the increase
is due to the additional stock that has been purchased to meet FHLB minimum
requirements as the result of the additional borrowings that have been obtained.
Interest on conventional mortgage loans decreased by $888,000 or 8.6% to $9.5
million for the quarter ended September 30, 1999 from $10.4 million for the
quarter ended September 30, 1998. The decrease was the result of the average
balance decreasing $34.0 million or 6.0% to $529.8 million for the quarter ended
September 30, 1999 from $563.8 million for the quarter ended September 30, 1998.
Also contributing to the decline was the average rate earned on conventional
mortgages falling to 7.2% from 7.4% for the quarters ended September 30, 1999
and 1998, respectively. Interest earned on interest-bearing deposits decreased
by $62,000 or 20.9% to $235,000 for the quarter ended September 30, 1999 from
$297,000 for the comparable 1998 period. The decline was the result of the
average rate earned decreasing to 4.9% from 5.5% for the quarters ended
September 30, 1999 and 1998, respectively. In addition, the average balance
declined to $19.6 million for the quarter ended September 30, 1999 from $21.7
million for the quarter ended September 30, 1998.
Interest Expense. Interest expense for the nine months ended September 30, 1999
increased by $3.4 million or 14.2% to $27.5 million from $24.1 million for the
nine months ended September 30, 1998. Interest expense on borrowings increased
by $4.0 million or 73.9% to $9.5 million from $5.5 million for the nine months
ended September 30, 1998. The increase was the result of the average balance
rising to $227.8 million from $130.0 for the nine months ended September 30,
1999 and 1998, respectively. Reducing the impact of the increase in interest
expense on borrowing was a decrease in interest expense on deposits of $620,000
of 3.3%. This decrease was the result of the average rate paid on certificate
accounts declining to 5.5% for the nine months ended September 30, 1999 from
5.9% for the comparable 1998 period.
Interest expense for the quarter ended September 30, 1999 increased by
$616,000 or 7.0% to $9.4 million from $8.8 million for the quarter ended
September 30, 1998. The increase was the result of the reasons stated above.
Net Interest Income. Tax equivalent interest income for the nine ended September
30, 1999 increased by $599,000 or 4.4% to $14.1 million from $13.5 million for
the nine months ended September 30, 1998. This was the result of tax equivalent
interest income rising by $4.0 million offset by a rise in interest expense of
$3.4 million. For the quarter ended September 30, 1999, tax equivalent net
interest income decreased by $96,000 or 2.1% to $4.5 million from $4.6 million
for the comparable 1998 period. This was the result of interest expense rising
by $616,000 while tax equivalent interest income rose by $520,000.
Provision for Loan Loss. The provision for loan loss increased by $30,000 for
the nine months ended September 30, 1999 to $90,000 from $60,000 for the nine
months ended September 30, 1998. For the quarters ended September 30, 1999 and
1998, the provision remained flat at $30,000. The addition to the provision is
the result of an increase in the origination of jumbo, home equity and Community
Reinvestment Act ("CRA") mortgages. The addition was deemed prudent due to the
additional risks associated with these types of lending. At September 30, 1999,
non-performing assets were $449,000 compared to $580,000 at December 31, 1998.
The allowance for loan losses equaled 199.3% of total non-performing assets at
September 30, 1999, as compared to 138.8% at December 31, 1998. There were no
loans charged off during the nine month periods ended September 30, 1999 and
1998. Management believes that the current level of loan loss reserve is
adequate to cover losses inherent in the portfolio as of such date. There
12
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, 1999.
Other Income. Other income for the nine months ended September 30, 1999
decreased by $7,000 or 1.6% to $441,000 from $448,000 for the nine months ended
September 30, 1998. The decrease was the result of a decline in gains on sale of
investments to $45,000 for the nine months ended September 30, 1999 from $97,000
for the comparable 1998 period. Offsetting this decrease was an increase in loan
fees and service charges of $46,000 or 13.5%. This increase was the result of a
rise in ATM and checking account service fees.
For the quarter ended September 30, 1999, other income increased by $61,000
or 51.3% to $180,000 from $119,000 for the quarter ended September 30, 1998. The
increase was the result of an increase in loan fees and service charges for the
reasons stated above and an increase in miscellaneous income. The increase in
miscellaneous income was primarily the result of the collection of commissions
for utility payments.
General and Administrative Expenses. General and administrative expenses for the
nine months ended September 30, 1999 increased by $470,000 or 11.1% to $4.7
million from $4.2 million for the nine months ended September 30, 1998. The
increase was primarily the result of an increase in other expenses of $454,000.
The increase in other expenses was primarily due to expenses associated with the
annual meeting and one-time non-recurring expenses related to the termination of
the Association's defined benefit pension plan.
General and administrative expenses for the quarters ended September 30,
1999 and 1998 remained flat at $1.4 million.
Income Taxes. Tax equivalent income taxes for the nine and three months ended
September 30, 1999 and 1998 remained relatively flat. For the nine months ended
September 30, 1999 and 1998, taxes included tax equivalent adjustments of $2.8
million and $644,000, respectively. For the quarter ended September 30, 1999 and
1998, taxes include tax equivalent adjustments of $1.0 million and $536,000,
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 nine and three months ended September
30, 1999, and 1998.
Nine Months Ended Nine Months Ended
September 30, 1999 September 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 $(13,089) $5,113 $(7,976) $1,715 $(725) $990
13
Reclassification adjustment
for gains realized in net
income (45) 18 (27) (97) 38 (59)
-------- ----- ------ ---- ---- ---
Net realized gains/(losses) (13,044) 5,095 (7,949) 1,618 (687) 931
------- ----- ------ ----- ----- ----
Other comprehensive income $(13,044) $5,095 $(7,949) $1,618 $(687) $931
======== ====== ======= ====== ===== ====
Three Months Ended Three Months Ended
September 30, 1999 September 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 $(2,895) $1,131 $(1,764) $1,325 $(564) $761
------ ----- ------ ----- ---- ---
Net realized gains/(losses) (2,895) 1,131 (1,764) 1,325 (564) 761
------ ----- ------ ----- ----- ---
Other comprehensive income $(2,895) $1,131 $(1,764) $1,325 $(564) $761
======= ====== ======= ====== ===== ====
The following tables set forth the component of accumulated other comprehensive
income for the six and three months ended September 30, 1999 and 1998.
Nine Months Nine Months
Ended Ended
September 30, 1999 September 30, 1998
------------------ ------------------
Beginning Balance $1,179 $117
Net unrealized gains/(losses) on securities, net of taxes (7,949) 931
------ ---
Ending Balance $(6,770) $1,048
======= ======
Three Months Three Months
Ended Ended
September 30, 1999 September 30, 1998
------------------ ------------------
Beginning Balance $5,006 $287
Net unrealized gains/(losses) on securities, net of taxes (1,764) 761
------ ---
Ending Balance $(6,770) $1,048
======= ======
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 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
14
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 $45,000.
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 the Company's 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. This plan has been tested and reviewed.
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, 2000. First Bell has not yet determined the
impact that this standard will have on its financial statements.
Recent Legislation. Recent legislation designed to modernized the regulation of
the financial services industry expands the ability of bank holding companies to
affiliate with other types of financial services companies such as insurance
companies and investment banking companies. However, the legislation provides
that companies that acquire control of a single savings association after May 4,
1999 (or that filed an application for that purpose after that date) are not
entitled to the unrestricted activities formerly allowed for a unitary savings
and loan holding company. Rather, these companies will have authority to engage
in the activities permitted "a financial holding company" under the new
legislation, including insurance and securities-related activities, and the
activities currently permitted for multiple savings and loan holding companies,
15
but generally not in commercial activities. The authority for unrestricted
activities is grandfathered for unitary savings and loan holding companies, such
as the Company, that existed prior to May 4, 1999. However, the authority for
unrestricted activities would not apply to any company that acquired the
Company.
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
September 30, 1999. However, the OTS results are not yet available for the
quarter ended September 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 statements and notes thereto
contained in First Bell's Annual Report for the fiscal year ended December 31,
1998.
16
PART 11- 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.
17
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
FIRST BELL BANCORP, INC.
(Registrant)
Date: November 15, 1999 /s/ Albert H. Eckert, II
--------------------------------
Albert H. Eckert, III
President and Chief Executive Officer
Date: November 15, 1999 /s/ Jeffrey M. Hinds
--------------------------------
Jeffrey M. Hinds
Executive Vice President and Chief
Financial
Officer (Principal Accounting
Officer)
18