Item 1. Business
General
First Bell Bancorp, Inc (the "Company") is incorporated under Delaware law and is a savings and loan holding company subject to regulations by the Office of Thrift Supervision ("OTS"), the Federal Deposit Insurance Corporation ("FDIC") and the Securities and Exchange Commission ("SEC"). First Bell Bancorp, Inc. owns all of the capital stock of its subsidiary, Bell Federal Savings and Loan Association of Bellevue (the "Association"). In June 2001, the Association established a Delaware Holding Company subsidiary, 1891 Associates, Inc., to hold a portion of the investment securities previously owned exclusively by the Association. At December 31, 2001, the Company had consolidated total assets of $855.2 million and total equity of $66.4 million. Currently, the Company does not transact any material business other than through its subsidiary, the Association. All references to the Company include the Association and it subsidiary, 1891 Associates, Inc., unless otherwise indicated.
Bell Federal Savings and Loan Association of Bellevue was originally founded in 1891 as the Commercial Building and Loan Association, a state chartered building and loan association. In 1941, the Association converted to a federally chartered mutual savings and loan association and changed its name to First Federal Savings and Loan Association of Bellevue. The Association again changed its name in 1971 to Bell Federal Savings and Loan Association of Bellevue. The Association's deposits are insured up to applicable limits by the Savings Association Insurance Fund ("SAIF"). The Association's business is conducted through six branch offices located throughout the suburban Pittsburgh, Pennsylvania area and its principal office in the borough of Bellevue. The Company's principal executive office is located at Suite 1704, 300 Delaware Avenue, Wilmington, Delaware 19801 and its executive office telephone number is (302) 427-7883.
The principal business of the Company is to operate a traditional customer oriented savings and loan association. The Company attracts retail deposits from the general public and invests those funds primarily in fixed and adjustable-rate, owner-occupied, single-family conventional mortgage loans and, to much lesser extent, residential construction loans, multi-family loans, home equity loans and consumer loans. The Company's revenues are derived principally from interest on conventional mortgage loans, interest and dividends on investment securities and short-term investments and other fees and service charges. The Company's primary sources of funds are deposits and borrowings.
The Association is subject to extensive regulation, supervision and examination by the OTS, its primary regulator and the FDIC, which insures its deposits. The Association is a member of the Federal Home Loan Bank ("FHLB").
Private Securities Litigation Reform Act Safe Harbor Statement
In addition to historical information, this 10-K 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 loan losses discussion and certain sections of the 2001 Annual Report
incorporated herein. The Company's actual results could differ materially from those of management's 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.
Market Area and Competition
The Association has been, and continues to be, a community-oriented savings institution offering a variety of financial services to meet the needs of the community it serves. Its primary market area is in the areas surrounding its offices, while its lending activities extend throughout Allegheny County and parts of Beaver, Butler, Washington and Westmoreland Counties, in Pennsylvania. In addition to its principal office in Bellevue, the Association operates six other retail offices, all of which are located in Allegheny County.
The communities in Allegheny County are composed mostly of stable, residential neighborhoods of predominantly one and two-family residences and middle-to-upper-income families. Management believes that, to a large degree, the economic vitality of these communities depends on the economic vitality of the City of Pittsburgh.
The Greater Pittsburgh area has been in the process of restructuring over the past decade. Once centered on heavy manufacturing, primarily steel, its economic base is now more diverse, including technology, health and business services. Several "Fortune 500" industrial firms are headquartered in the Greater Pittsburgh area, including USX Corp. and Aluminum Company of America. The largest employers in Pittsburgh, by the number of local employees, include University of Pittsburgh Medical Center, USAirways, the University of Pittsburgh and Mellon Bank Corp. Seven colleges and universities are located in the Greater Pittsburgh area.
The Association serves its market area with a wide selection of residential loans and other retail financial services. Management considers the Association's reputation for customer service as its major competitive advantage in attracting and retaining customers in its market area. The Association also believes it benefits from its community orientation, as well as its established deposit base and level of core deposits.
Lending Activities
Loan and Mortgage-Backed Securities Portfolio Composition. The loan portfolio consists primarily of conventional mortgage loans secured by one- to four-family, owner-occupied residences, and, to a much lesser extent, residential construction loans, multi-family loans, home equity loans and consumer loans. Mortgage loans are originated to be held in the portfolio. At December 31, 2001, total loans receivable were $441.5 million, of which $420.8 million, or 95.3%, were conventional mortgage loans. Of the conventional mortgage loans outstanding at that date, 91.0% were fixed-rate loans. At December 31, 2001, the loan portfolio also included $5.7 million of residential construction loans; $241,000 of multi-
family loans; $14.0 million of residential home equity loans; and $778,000 of other consumer loans. The Association also offers FHA/VA qualifying one- to four-family residential mortgage loans.
The types of loans originated are regulated by federal law and regulations. Interest rates charged on loans are affected principally by the demand for such loans and the supply of money available for lending purposes. These factors are, in turn, affected by general and economic conditions, monetary policies of the federal government, legislative and tax policies and governmental budgetary matters.
Set forth below is a table showing loan origination, purchase and sales activity for the periods indicated.
(1) Includes conventional mortgages, residential construction loans and home equity mortgage loans. (2) The Association originated no multi-family loans during the periods shown.
The following table sets forth the composition of the loan portfolio and the mortgage-backed securities portfolio in dollar amounts and in percentages of the portfolio at the dates indicated.
Loan Maturity Schedule. The following table sets forth certain information at December 31, 2001 regarding the dollar amount of loans maturing in the portfolio based on their remaining contractual terms to maturity. The table does not include the effect of prepayments or scheduled principal amortization. Prepayments and scheduled principal amortization on loans totalled $100.4 million, $59.6 million and $96.7 million for the years ended December 31, 2001, 2000 and 1999, respectively.
The following table sets forth the dollar amount of all loans and mortgage- backed securities at December 31, 2001, which have fixed or adjustable interest rates, and which are due after December 31, 2002.
One- to Four-Family Residential Mortgage Lending Residential mortgage loans are primarily secured by owner-occupied one-to-four-family residences. Loan originations are generally obtained from existing or past customers, members of the local communities served, or referrals from local real estate agents, attorneys and builders. The Association originates fixed-rate loans and adjustable rate mortgage ("ARM") loans.
Originated mortgage loans are held in the loan portfolio and are secured by properties located within the Association's primary market area. Historically, the market interest rates of mortgage loans in the Pittsburgh area have been below national averages. The mortgage loan portfolio has decreased from $535.2 million at December 31, 2000 to $440.8 million at December 31, 2001.
The Association from time to time purchases one- to four-family mortgage loans and loan participations. A number of these loans are secured by properties located outside the Association's market area, such as other regions of Pennsylvania, California, Illinois, Maryland, New York, Texas, Virginia, Utah, North Carolina, Tennessee and Georgia. The Association did not purchase any mortgage loans or participations in 2001. At December 31, 2001, the Association had $8.8 million in purchased mortgage loans and loan participations serviced by others, totalling 2.0% of the total loan portfolio at that date, primarily secured by one- to four-family residences. The Association intends to continue purchasing loans to supplement reduced loan demand as needed. Loans purchased generally must meet the same underwriting criteria as loans originated by the Association.
In February 2001, the Company sold approximately $20.2 million fixed rate mortgage loans. The sale of loans was completed to improve the Company's interest rate risk position. There were no loan sales for the years ended December 31, 2000 and 1999. Most of the loan portfolio is underwritten in conformity with Federal National Mortgage Association ("FNMA") secondary market requirements. Although the
Association has been approved by FNMA to sell loans in the secondary market, there is no assurance that the Association will be able to originate loans for sale in the secondary market or, that if originated, such loans will be sold in the secondary market in the future. Should the Association decide to sell mortgage loans in the future, the lower interest rates on such loans, characteristic of the Pittsburgh market, may tend to diminish the demand for such loans in the secondary market.
In 2001, the maximum loan to value ratio on Adjustable Rate Loans was increased to 90%. On all other conventional mortgages with the exception of Community Reinvestment Act ("CRA") loans, the maximum loan-to-value ratio is 80%. If the loan to value ratio exceeds 80%, private mortgage insurance is purchased to bring the Company's exposure at or below 80%. As a result, a majority of borrowers are previous homeowners, whom the Association believes to be relatively stable borrowers. The Association also offers FHA/VA qualifying one-to four-family residential mortgage loans. One-to four-family residential mortgage loans do not provide for negative amortization. Mortgage loans in the portfolio generally include due-on-sale clauses, which provide the Association with the contractual right to demand the loan immediately due and payable in the event that the borrower transfers ownership of the property that is subject to the mortgage. It is the Association's policy to enforce due-on-sale clauses. The residential mortgage loans originated are generally for terms to maturity from 15 to 30 years. At December 31, 2001, the maximum one-to four-family loan amount is $600,000, unless otherwise approved by the Board of Directors.
Presently, four ARM loans are offered; a one-year, three-year, five-year and 7/1 ARM loan. The one-year ARM loan has an interest rate that adjusts annually based on a spread of 2.50 percentage points above the rate on one-year United States Treasury securities. The one-year ARM loan is subject to a limitation on interest rate increases and decreases of 2.0% per year, a lifetime ceiling on interest rate increases of 6.0% above the origination rate, and a floor rate equal to the origination interest rate. This mortgage can convert to a fixed-rate loan at specified times during the first five years. The three- year ARM loan has an interest rate that adjusts every three years based on a spread of 2.75 percentage points above the rate on three-year United States Treasury securities. The three-year ARM is subject to a limitation on interest rate increases and decreases of 2% per change, a lifetime ceiling on the interest rate of 6.0% above the origination rate and a floor rate equal to the origination interest rate. The five-year ARM loan has an interest rate that adjusts every five years based on a spread of 2.75 percentage points above the rate on five-year United States Treasury securities. The five-year ARM loan is subject to a limitation on interest rate increases and decreases of 3.0% per change, a lifetime ceiling on the interest rate of 6.0% above the origination rate, and a floor rate equal to the origination interest rate. The 7/1 ARM loan has an interest rate that remains constant for the first seven years and then the interest rate adjusts annually based on a spread of 2.50 percentage points above the rate on one-year United States Treasury securities. After the initial seven years, this ARM loan is subject to a limitation on interest rate increases and decreases of 2.0% per year, a lifetime ceiling on interest rate increases of 6.0% above the origination rate, and a floor equal to the origination interest rate. The mortgage can convert to a fixed-rate loan at the first change date.
The volume and types of ARM loans originated are affected by such market factors as the level of interest rates, competition, consumer preferences and the availability of funds. In 2001, $5.7 million of the $26.0 million, or 21.9%, of the conventional mortgage and construction loans originated were adjustable rate mortgages. Although ARM loans will continue to be offered, there can be no assurance that in the
future ARM loans will be originated in sufficient volume to constitute a significant portion of the loan portfolio.
In an effort to provide financing for low and moderate income home buyers, additional single family residential mortgage loans are offered to low and moderate income borrowers and residents of CRA neighborhoods, with terms of up to 30 years. Such loans must be secured by a single-family, owner-occupied unit. These loans are originated using modified underwriting guidelines with reduced down payments and expenses. Private mortgage insurance is normally required. Because the Association typically charges a lower rate of interest, lower mortgage origination fees and a discount on closing costs on its CRA loans, a lower rate of return is expected on such loans, as compared to other residential mortgage loans. For the years ended December 31, 2001, 2000 and 1999, the Association originated 16, 35, and 47 loans under the CRA loan program, respectively, with aggregate dollar amounts of $1.1 million, $2.1 million, and $2.8 million, respectively.
Residential Construction Loans. The Association originates loans for the construction of one-to four-family residential properties. Such loans are made on contract directly to the home buyer. Residential construction loans are subject to the same maximum loan amounts as conventional mortgage loans. Residential construction loans are made for terms of up to one year, at which time the loans convert to permanent conventional mortgage financing. Residential construction loans are generally offered at the Association's prevailing interest rate. An additional fee may be charged for construction servicing. Advances are made to builders as phases of construction of the property are completed. As of December 31, 2001, the Association's residential construction loans totaled $5.7 million, or 1.3% of the total loan portfolio. Of these construction loans, $2.6 million had been committed but was undisbursed as of that date.
Construction lending involves greater risks than other loans due the fact that loan funds are advanced upon the security of the project under construction and are predicated on the future value of the property upon completion of construction. Moreover, because of the uncertainties inherent in estimating construction costs, delays resulting from labor problems, material shortages or weather conditions and other unpredictable contingencies, it is relatively difficult to evaluate accurately the total funds required to complete a project and to establish the related loan-to-value ratio. Because of these factors, the analysis of prospective construction loan projects requires an expertise that is different in significant respects from that which is required for residential mortgage lending.
Multi-Family Loans. In prior years, the Association also originated multi- family loans. As of December 31, 2001, the Association's total loan portfolio contained 7 multi-family loans, totalling $241,000, or 0.1%, of total loans. Since 1991, the Association has not originated any multi-family mortgage loans. In the future, the Association may originate a limited number of multi-family loans on a case-by-case basis.
The multi-family loans in the Association's portfolio consist of fixed-rate rate loans which were originated at prevailing market rates. The Association's policy has been to originate multi-family loans only in its market area. In making multi-family loans, the Association considers primarily the ability of net operating income generated by the real estate to support the debt service, the financial resources and
income level and managerial expertise of the borrower, the marketability of the property, and the Association's lending experience with the borrower.
Second Mortgage Loans. During 1998, the Association began offering home equity installment and line of credit loans to homeowners in its lending territory. Home equity installment loans are underwritten for a fixed rate with a five year term or an adjustable rate ten year term in which the rate adjusts after the fifth year based on the prime rate. Line of credit loans can be drawn on for ten years and paid back in twenty years and are based on the prime rate. The Association offers second mortgage loans with maximum combined loan-to-value ratios of up to 80%. During 2001 the Association originated 197 home equity installment and line of credit loans totaling $5.0 million. At December 31, 2001, the Association had $14.0 million or 3.2% of total loans in second mortgage loans.
Consumer Loans. The Association also offers secured consumer loans. At December 31, 2001, the Association's consumer loans totalled $778,000, or 0.2% of the Association's total loan portfolio, all of which were secured by deposit accounts.
Loan Servicing and Loan Fees. Servicing on all loans that have been sold has been retained. Fees are received for these servicing activities, which include collecting and remitting loan payments, inspecting the properties and making certain insurance and tax payments on behalf of the borrowers. At December 31, 2001, the Association was servicing $31.0 million of loans for others. Loan servicing income was $40,000, $6,000 and $7,000 for the years ended December 31, 2001, 2000 and 1999, respectively. The Association also receives income in the form of service charges and other fees on loans. For the years ended December 31, 2001, 2000 and 1999, the Association earned $576,000, $167,000 and $142,000, respectively, in loan related service charges and other fees.
Mortgage-backed Securities. As of December 31, 2001, the Association had $56.0 million in mortgage-backed securities. These securities consisted of five Federal National Mortgage Association ("FNMA"), adjustable rate securities, with a fair value of $56.0 million. These securities are classified as available- for-sale. At December 31, 2000 the Association had $21.5 million in mortgage- backed securities. The Association had no mortgage-backed securities at December 31, 1999. The Association may invest in mortgage-backed securities in the future to offset any significant decrease in demand for one- to four-family loans.
Loan Approval Procedures and Authority. Loan approval authority has been granted by the Board of Directors to the Association's Loan Committee. All mortgage loans must be approved by the Loan Committee. As of December 31, 2001, any loan application over $600,000 must be approved by the Board of Directors.
Upon receipt of a completed loan application from a prospective borrower, the Association generally orders a credit report, verifies employment, income and other information, and, if necessary, obtains additional financial or credit related information. An appraisal of the real estate used for collateral is also obtained. All appraisals are performed by licensed certified appraisers. The Board of Directors annually approves the independent appraisers used by the Association and reviews the Association's appraisal policy. When the credit information is obtained and an appraisal is completed, loans are
presented for approval to the Association's Loan Committee. The Loan Committee must approve all loans originated by the Association.
The Association's policy is to require either title insurance or an attorney's opinion of title, and hazard insurance on all real estate loans. Borrowers are required to advance funds together with each payment of principal and interest to a mortgage escrow account from which the Association makes disbursements for items such as real estate taxes, hazard insurance premiums and private mortgage insurance premiums, if required.
Asset Quality
Loan Collection. When a borrower fails to make a required payment on a loan, the Association takes a number of steps to induce the borrower to cure the delinquency and restore the loan to a current status. The borrower is sent a written notice of non-payment when the loan is 15 days past due. In the event payment is not then received, additional letters and phone calls generally are made. If the loan is still not brought current and it becomes necessary to take legal action, which typically occurs after a loan is delinquent 120 days or more, the Association may commence foreclosure proceedings against the real property that secures the loan. Decisions as to when to commence foreclosure actions are made on a case by case basis. If a foreclosure action is instituted and the loan is not brought current, paid in full, or refinanced within 30 days of delivery of the notice of default and intent to foreclose, the real property securing the loan is generally sold at foreclosure or by the Association as soon thereafter as practicable.
On purchased mortgage loans or loan participations, monthly reports are received from loan servicers in order to monitor the loan portfolio. Based upon servicing agreements with the servicers of the loans, the Association relies upon the servicer to contact delinquent borrowers, collect delinquent amounts and to initiate foreclosure proceedings, when necessary, all in accordance with applicable laws, regulations and the terms of the servicing agreements between the Association and its servicing agents.
Delinquent Loans. At December 31, 2001, 2000 and 1999, delinquencies in the loan portfolio were as follows:
Non-Performing Loans and Real Estate Owned. The following table sets forth information regarding non-accrual mortgage and other loans and real estate owned ("REO"). Interest is not accrued on loans past due 90 days or more. The Association had no real estate owned and no in substance foreclosures at December 31, 2001. During the years ended December 31, 2001, 2000 and 1999, the amounts of interest income that would have been recorded on non-accrual loans, had they been current, totalled $50,000, $32,000, and $6,000, respectively. Interest income recorded on non-accrual loans was $57,000, $33,000, and $8,000 for each of the years ended December 31, 2001, 2000 and 1999, respectively.
Classified Assets. Federal regulations and the Association's policy require the classification of loans and other assets, such as debt and equity securities considered to be of lesser quality, as "Substandard," "Doubtful" or "Loss" assets. An asset is considered "Substandard" if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. "Substandard" assets include those characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Assets classified as "Doubtful" have all of the weaknesses inherent in those classified "Substandard," with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
At December 31, 2001, classified assets totaled $1.1 million, or 0.12% of total assets, and consisted of twenty-three conventional and one second mortgage loan classified as "Substandard".
Allowance for Loan Losses, Investments in Real Estate and Real Estate Owned. The allowance for loan losses is established and maintained through a provision for loan losses based on management's evaluation of the risk inherent in the loan portfolio and the condition of the local economy in the Company's market area. Such evaluation, which includes a review of all loans on which full collectibility is not reasonably assured, considers among other matters, the estimated fair value of the underlying collateral, economic and regulatory conditions, and other factors that warrant recognition of an adequate loan loss allowance. Management believes that the allowance for loan losses is adequate to cover losses inherent in the portfolio as of December 31, 2001. Although management believes it uses the best information available to make determinations with respect to the allowance for loan losses, future adjustments may be necessary if economic and other conditions differ substantially from the economic and other conditions in the assumptions used in making the initial determinations, such as a material increase in the balance of the loan portfolio.
The following table sets forth the allowance for loan losses at the dates indicated.
____________________________ (1) The total amount of the allowance for loan losses for each of the periods shown was allocated to mortgage loans. At the end of each reported period, mortgage loans represented in excess of 99.8% of total loans.
In addition, the OTS and FDIC, as an integral part of their examination process, periodically review the allowance for loan losses and real estate owned and investments in real estate valuations. Such agencies may require the recognition of additions to the allowance or additional write-downs based on their judgments about information available to them at the time of their examination. The OTS, in conjunction with the other federal banking agencies, adopted an interagency policy statement on the allowance for loan and lease losses. The policy statement provides guidance for financial institutions on both the responsibilities of management for the assessment and establishment of adequate allowances and guidance for banking agency examiners to use in determining the adequacy of general valuation guidelines. Generally, the policy statement recommends that institutions have effective systems and controls to identify, monitor and address asset quality problems; that management analyze all significant factors that affect the collectibility of the portfolio in a reasonable manner; and that management establish acceptable allowance evaluation processes that meet the objectives set forth in the policy statement. As a result of the declines in local and regional real estate market values and the significant losses experienced by many financial institutions, there has been a greater level of scrutiny by regulatory authorities of the loan portfolios of financial institutions undertaken as part of the examination of institutions by the OTS and the FDIC. While management believes that it has established an adequate allowance for loan losses, there can
be no assurance that regulators, in reviewing the loan portfolio, will not request a material increase at that time in the allowance for loan losses, thereby negatively affecting the financial condition and earnings at such time.
Investment Activities
As a member of the FHLB System, the Association is required to maintain liquid assets at minimum levels which vary from time to time. The Association increases or decreases its liquid investments depending on the availability of funds, the comparative yields on liquid investments in relation to the return on loans and in response to its interest rate risk management. To meet liquidity obligations, federally chartered savings institutions have authority to invest in various types of assets, including U.S. Treasury obligations, securities of various federal agencies, mortgage-backed and mortgage-related securities, certain certificates of deposit of insured banks and savings institutions, certain bankers acceptances, repurchase agreements, loans of federal funds and, subject to certain limits, corporate securities, commercial paper and mutual funds. The Association's liquid investments primarily consist of federal funds sold, U.S. Government securities, federal agency securities and interest-bearing deposits. Historically, the Association has maintained its liquid assets at levels well above the minimum regulatory requirements.
The Company's Investment Committee, which is appointed by the Chief Executive Officer, formulates the investment policy of the Company. The Company's Investment Committee reports all purchases and sales of investments to the Board of Directors. The policy of the Association is to invest funds among various categories of investments and maturities to meet the day-to-day, cyclical and long-term changes in assets and liabilities. In establishing its investment strategies, the Company considers its cash position, the condition of its loans, the stability of deposits, its capital position, its interest rate risk and other factors.
Investment Securities. OTS guidelines regarding investment portfolio policy and accounting require insured institutions to categorize securities and certain other assets as held for "investment," "sale," or "trading." The Association's investment policy provides for "held for investment" and "available for sale" portfolios. Although the Association's investment policy allows that some investments and loans will qualify to be held-to-maturity, the policy allows the sale of investments in certain specific instances, such as when the quality of an asset deteriorates, or when regulatory changes require that an asset be disposed. At December 31, 2001, the Association had total investments of $291.8 million, all of which were classified as available-for- sale. The investments classified as available-for-sale consisted of $178.1 million in municipal securities, $47.5 million in Small Business Association securities, $46.0 million in collateralized mortgage obligations ("CMO's"), $4.8 million in Federal Home Loan Bank bonds, $5.0 million in Trust Preferred securities, $10.4 million in Federal Home Loan Bank Stock and $4,000 in stock of FNMA.
The following table sets forth certain information regarding the carrying and market values of the portfolio of investment securities available-for-sale and held-to-maturity at the dates indicated:
Other Investments. In 2001, the Company purchased $20.0 million in Bank Owned Life Insurance ("BOLI"). This insurance was purchased as a means to offset employee benefit costs and earned $1.0 million in the year ended December 31, 2001.
The following table sets forth the carrying values, market values and average yields for the Association's available for sale investment portfolio (excluding $10.4 million in FHLB stock and $4,000 in FNMA stock) by maturity, call date or repricing date, whichever is first, at December 31, 2001, (dollars in thousands).
Sources of Funds
General. The lending and investment activities are predominantly funded by savings deposits, borrowings, interest and principal payments on loans and other investments, and loan origination fees.
Deposits. Deposits serve as the predominant source of funds. The Association offers interest rates on deposits that are competitive in the Greater Pittsburgh market area to maintain a strong depositor base. Deposits consist of savings and club accounts, interest-bearing and non-interest-bearing demand deposit accounts, money market deposit accounts and certificates of deposit. The Association relies on its competitive pricing policies and customer service to maintain deposit growth. The Association has produced an overall increase in total deposits of 9.7%, from $511.9 million at December 31, 1999 to $561.3 million at December 31, 2001. The flow of deposits is influenced significantly by general economic conditions, changes in money market and prevailing interest rates and competition.
The following table presents the deposit activity for the periods indicated.
The following table indicates the amount of the certificates of deposit of $100,000 or more by the time remaining until maturity as of December 31, 2001.
The following table sets forth the distribution of the average daily balance of deposit accounts and borrowings for the periods indicated and the weighted average nominal interest rates on each category of deposits presented.
The following table presents the amount of certificate accounts outstanding based upon original contractual periods to maturity and contracted rates, at December 31, 2001, and based upon contracted rates, at December 31, 2000 and 1999.
Borrowings
Borrowings are used in conjunction with deposits in funding the operating and investment activity of the Company. At December 31, 2001, the Company had borrowings of $214.3 million. Of these borrowings, $208.0 million are held at the Association level and the remaining $6.3 is held at the Company level. All of the Association's borrowings have an original contractual maturity of ten years. However, every six months the FHLB has the option to convert $70 million of these borrowings to an adjustable rate based on the three month LIBOR. If the FHLB elects to convert the borrowings to an adjustable rate, the borrowings can be repaid without penalty. The balance of the Association's borrowings, $138 million carry a fixed interest rate for the first five years. On the fifth anniversary date the FHLB has the option to convert these borrowings to an adjustable rate based on the three month LIBOR. Again, if the FHLB elects to convert the borrowings to adjustable rates, the borrowing can be repaid without penalty. If the borrowings are not converted to an adjustable rate, the rate remains fixed at the current contractual rate for the remaining five years of the borrowings. The weighted average rate on these borrowings is 5.73%. The FHLB borrowings are secured by assets of the Association. The Company has an adjustable rate term loan of $6.2 million The interest rate on this term loan adjusts quarterly based on the three month LIBOR rate, plus 150 basis points. The rate on this loan as of December 31, 2001, is 3.77%. These borrowings are secured by the assets of the Company.
Subsidiary Activities
In June, 2001, Bell Federal Savings established a Delaware Holding Company subsidiary, 1891 Associates, Inc., to hold a portion of the investment securities previously owned exclusively by the Association. Bell Federal Savings provided a $100 million line of credit to the subsidiary. The proceeds from the line of credit were used to purchase $98.5 million of Bank Qualified Municipal Securities which were previously held as "available-for-sale" securities by the Association. These securities are also classified as "available-for-sale" by the Delaware Holding Company subsidiary.
REGULATION AND SUPERVISION
General
As a savings and loan holding company, the Company is required by federal law to file reports with, and otherwise comply with, the rules and regulations of the OTS. The Association is subject to extensive regulation, examination and supervision by the OTS, as its primary federal regulator, and the FDIC, as the deposit insurer. The Association is a member of the FHLB System, and with respect to deposit insurance the SAIF managed by the FDIC. The Association must file reports with the OTS and the FDIC concerning its activities and financial condition in addition to obtaining regulatory approvals prior to entering into certain transactions such as mergers with, or acquisitions of, other savings institutions. The OTS and/or the FDIC conduct periodic examinations to test the Association's safety and soundness and compliance with various regulatory requirements. This regulation and supervision establishes a comprehensive framework of activities in which an institution can engage and is intended primarily for the protection of the insurance fund and depositors. The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes. Any change in such regulatory requirements and policies, whether by the OTS, the FDIC or the United States Congress, could have a material adverse impact on the Company, the Association and their operations. Certain of the regulatory requirements applicable to the Association and to the Company are referred to below or elsewhere herein. The description of statutory provisions and regulations applicable to savings institutions and their holding companies set forth in this Form 10-K does not purport to be a complete description of such statutes and regulations and their effects on the Association and the Company.
Holding Company Regulation
The Company is a non-diversified unitary savings and loan holding company within the meaning of federal law. Under prior law, a unitary savings and loan holding company, such as the Company was not generally restricted as to the types of business activities in which it may engage, provided that the Association continued to be a qualified thrift lender. See "Federal Savings Institution Regulation-QTL Test." The Gramm-Leach-Bliley Act of 1999 provides that no company may acquire control of a savings association after May 4, 1999 unless it engages only in the financial activities permitted for financial holding companies under the law or for multiple savings and loan holding companies as described below. Further, the Gramm-Leach Bliley Act specifies that existing savings and loan holding companies may only engage in such activities. The Gramm-Leach-Bliley Act, however, grandfathered the unrestricted authority for activities with respect to unitary savings and loan holding companies existing prior to May 4, 1999, such as the Company, so long as the Association continues to comply with the QTL Test. Upon any nonsupervisory acquisition by the Company of another savings institution or savings bank that meets the qualified thrift lender test and is deemed to be a savings institution by the OTS, the Company would become a multiple savings and loan holding company (if the acquired institution is held as a separate subsidiary) and would generally be limited to activities permissible for bank holding companies under Section 4(c)(8) of the Association Holding Company Act, subject to the prior approval of the OTS, and certain activities authorized by OTS regulation.
A savings and loan holding company is prohibited from, directly or indirectly, acquiring more than 5% of the voting stock of another savings institution or savings and loan holding company, without prior written approval of the OTS and from acquiring or retaining control of a depository institution that is not insured by the FDIC. In evaluating applications by holding companies to acquire savings institutions, the OTS considers the financial and managerial resources and future prospects of the company and institution involved, the effect of the acquisition on the risk to the deposit insurance funds, the convenience and needs of the community and competitive factors.
The OTS may not approve any acquisition that would result in a multiple savings and loan holding company controlling savings institutions in more than one state, subject to two exceptions: (i) the approval of interstate supervisory acquisitions by savings and loan holding companies; and (ii) the acquisition of a savings institution in another state if the laws of the state of the target savings institution specifically permit such acquisitions. The states vary in the extent to which they permit interstate savings and loan holding company acquisitions.
Although savings and loan holding companies are not subject to specific capital requirements or specific restrictions on the payment of dividends or other capital distributions, federal regulations do prescribe such restrictions on subsidiary savings institutions as described below. The Association must notify the OTS 30 days before declaring any dividend to the Company. In addition, the financial impact of a holding company on its subsidiary institution is a matter that is evaluated by the OTS and the agency has authority to order cessation of activities or divestiture of subsidiaries deemed to pose a threat to the safety and soundness of the institution.
Acquisition of the Holding Company
Under the Federal Change in Bank Control Act ("CIBCA"), a notice must be submitted to the OTS if any person (including a company), or group acting in concert, seeks to acquire 10% or more of the Company's outstanding voting stock, unless the OTS has found the acquisition will not result in a change of control of the Company. Under CIBCA, the OTS has 60 days from the filing of a complete notice to act, taking into consideration certain factors, including the financial and managerial resources of the acquirer and the anti-trust effects of the acquisition. Any company that so acquires control would then be subject to regulation as a savings and loan holding company.
Federal Savings Institution Regulation
Business Activities. The activities of federal savings institutions are governed by federal law and regulations. These laws and regulations delineate the nature and extent of the activities in which federal associations may engage. In particular, many types of lending authority for federal association, e.g., commercial, non-residential real property loans and consumer loans, are limited to a specified percentage of the institution's capital or assets.
Capital Requirements. The OTS capital regulations require savings institutions to meet three minimum capital standards: a 1.5% tangible capital ratio, a 4% leverage ratio (3% for institutions receiving the highest rating on the CAMELS rating system) and an 8% risk-based capital ratio. In addition, the prompt corrective action standards discussed below also establish, in effect, a minimum 2% tangible capital
standard, a 4% leverage ratio (3% for institutions receiving the highest rating on the CAMELS financial institution rating system), and, together with the risk- based capital standard itself, a 4% Tier I risk-based capital standard. The OTS regulations also require that, in meeting the tangible, leverage and risk-based capital standards, institutions must generally deduct investments in and loans to subsidiaries engaged in activities not permissible for a national bank.
The risk-based capital standard for savings institutions requires the maintenance of Tier I (core) and total capital (which is defined as core capital and supplementary capital) to risk-weighted assets of 4% and 8%, respectively. In determining the amount of risk-weighted assets, all assets, including certain off-balance sheet assets, are multiplied by a risk-weight factor of 0% to 100%, assigned by the OTS capital regulation based on the risks believed inherent in the type of asset. Core (Tier 1) capital is defined as common stockholders' equity (including retained earnings), certain noncumulative perpetual preferred stock and related surplus, and minority interests in equity accounts of consolidated subsidiaries less intangibles other than certain mortgage servicing rights and credit card relationships. The components of supplementary capital currently include cumulative preferred stock, long-term perpetual preferred stock, mandatory convertible securities, subordinated debt and intermediate preferred stock, the allowance for loan and lease losses limited to a maximum of 1.25% risk-weighted assets and up to 45% of unrealized gains on available-for- sale equity securities with readily determinable fair values. Overall, the amount of supplementary capital included as part of total capital cannot exceed 100% of core capital.
The capital regulations also incorporate an interest rate risk component. Savings institutions with "above normal" interest rate risk exposure are subject to a deduction from total capital for purposes of calculating their risk-based capital requirements. For the present time, the OTS has deferred implementation of the interest rate risk component deduction, although the OTS may require individual savings associations with "above normal" interest rate risk to hold additional capital. At December 31, 2001, the Association met each of its capital requirements.
The following table presents the Association's capital position at December 31, 2001.
Prompt Corrective Regulatory Action. The OTS is required to take certain supervisory actions against undercapitalized institutions, the severity of which depends upon the institution's degree of undercapitalization. Generally, a savings institution that has a ratio of total capital to risk weighted assets of less than 8%, a ratio of Tier 1 (core) capital to risk-weighted assets of less than 4% or a ratio of core capital to total assets of less than 4% (3% or less for institutions with highest examination rating) is considered to be "undercapitalized." A savings institution that has a total risk-based capital ratio less than 6%, a Tier 1 capital ratio of less than 3% or a leverage ratio that is less than 3% is considered to be "significantly undercapitalized" and a savings institution that has a tangible capital to asset ratio equal to or
less than 2% is deemed be "critically undercapitalized." Subject to a narrow exception, the OTS is required to appoint a receiver or conservator for an institution that is "critically undercapitalized." The regulation also provides that a capital restoration plan must be filed with the OTS within 45 days of the date a savings institution receives notice that it is "undercapitalized," "significantly undercapitalized" or "critically undercapitalized." Compliance with the plan must be guaranteed by any parent holding company. In addition, numerous mandatory supervisory actions become immediately applicable to an undercapitalized institution, including, but not limited to, increased monitoring by regulators and restrictions on growth, capital distributions and expansion. The OTS could also take any one of a number of discretionary supervisory actions, including the issuance of a capital directive and the replacement of senior executive officers and directors.
Insurance of Deposit Accounts. The Association is a member of the SAIF. The FDIC maintains a risk-based assessment system by which institutions are assigned to one of three categories based on their capitalization and one of three subcategories based on examination ratings and other supervisory information. An institution's assessment rate depends upon the categories to which it is assigned. Assessment rates for SAIF member institutions are determined semiannually by the FDIC and currently range from zero to 27 basis points of assessable assets for the healthiest to most at risk institutions, respectively.
In addition to the assessment for deposit insurance, institutions are required to make payments on bonds issued in the late 1980s by the Financing Corporation ("FICO") to recapitalize the predecessor to the SAIF. During 2001, FICO payments for SAIF members approximated 1.9 basis points of assessable assets.
The Association's assessment rate for fiscal 2001 was 0.47 basis points and the premium paid for this period was $104,000. A significant increase in SAIF insurance premiums would likely have an adverse effect on the operating expenses and results of operations of the Association. Management cannot predict what insurance assessment rates will be in the future.
Insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC or the OTS. The management of the Association does not know of any practice, condition or violation that might lead to termination of deposit insurance.
Loans to One Borrower. Federal law provides that savings institutions are generally subject to the limits on loans to one borrower applicable to national banks. A savings institution may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of its unimpaired capital and surplus. An additional amount may be lent, equal to 10% of unimpaired capital and surplus, if secured by readily-marketable collateral. At December 31, 2001, the Association's limit on loans to one borrower was $11.9 million and the Association's largest aggregate outstanding balance of loans to one borrower was $597,000.
QTL Test. The HOLA requires savings institutions to meet a QTL test. Under the QTL test, a savings association is required to either qualify as a "domestic building and loan association" under the Internal Revenue Code or to maintain at least 65% of its "portfolio assets" (total assets less: (i) specified
liquid assets up to 20% of total assets; (ii) intangibles, including goodwill; and (iii) the value of property used to conduct business) in certain "qualified thrift investments" (primarily residential mortgages and related investments, including certain mortgage-backed securities) in at least 9 months out of each 12 month period.
A savings institution that fails the QTL test is subject to certain operating restrictions and may be required to convert to a bank charter. As of December 31, 2001, the Association maintained 70.5% of its portfolio assets in qualified thrift investments and, therefore, met the QTL test. Recent legislation has expanded the extent to which education loans, credit card loans and small business loans may be considered "qualified thrift investments."
Limitation on Capital Distributions. OTS regulations impose limitations upon all capital distributions by a savings institution, such as cash dividends, payments to repurchase its shares and payments to shareholders of another institution in a cash-out merger. Under the regulation, an application to and the prior approval of the OTS is required prior to any capital distribution if the institution does not meet the criteria for "expedited treatment" of applications under OTS regulations (e.g., generally, examination ratings in the two top categories), the total capital distributions for the calendar year exceed net income for that year plus the amount of retained net income for the preceding two years, the institution would be undercapitalized following the distribution or the distribution would otherwise be contrary to a statute, regulation or agreement with OTS. If an application is not required, the institution must still provide prior notice to OTS of the capital distribution. In the event the Association's capital fell below its regulatory requirements or the OTS notified it that it was in need of more than normal supervision, the Association's ability to make capital distributions could be restricted. In addition, the OTS could prohibit a proposed capital distribution by any institution, which would otherwise be permitted by the regulation, if the OTS determines that such distribution would constitute an unsafe or unsound practice.
Liquidity. The Company is required to maintain liquid assets as a level, which would be consistent with the safe and sound operation of the Association. Management of the Association believes that it has met or exceeded these requirements during the current and prior fiscal years.
Assessments. Savings institutions are required to pay assessments to the OTS to fund the agency's operations. The general assessments, paid on a semi- annual basis, are computed upon the savings institution's total assets, including consolidated subsidiaries, as reported in the Association's latest quarterly thrift financial report. The assessments paid by the Association for the fiscal year ended December 31, 2001 totaled $164,000.
Transactions with Related Parties. The Association's authority to engage in transactions with related parties or "affiliates" (e.g., any company that controls or is under common control with an institution, including the Company and its non-savings institution subsidiaries) is limited by federal law. The aggregate amount of covered transactions with any individual affiliate is limited to 10% of the capital and surplus of the savings institution. The aggregate amount of covered transactions with all affiliates is limited to 20% of the savings institution's capital and surplus. Certain transactions with affiliates are required to be secured by collateral in an amount and of a type described in federal law. The purchase of low quality assets from affiliates is generally prohibited. Transactions with affiliates must be on terms and under circumstances that are at least as favorable to the institution as those prevailing at the time for
comparable transactions with non-affiliated companies. In addition, savings institutions are prohibited from lending to any affiliate that is engaged in activities that are not permissible for bank holding companies and no savings institution may purchase the securities of any affiliate other than a subsidiary.
The Association's authority to extend credit to executive officers, directors and 10% shareholders ("insiders"), as well as entities such persons control, is also governed by federal law. Such loans are required to be made on terms substantially the same as those offered to unaffiliated individuals and not involve more than the normal risk of repayment. Recent legislation created an exception for loans made pursuant to a benefit or compensation program that is widely available to all employees of the institution and does not give preference to insiders over other employees. The law also limits both the individual and aggregate amount of loans the Association may make to insiders based, in part, on the Association's capital position and requires certain board approval procedures to be followed.
Enforcement. The OTS has primary enforcement responsibility over savings institutions and has the authority to bring actions against the institution and all institution-affiliated parties, including stockholders, and any attorneys, appraisers and accountants who knowingly or recklessly participate in wrongful action likely to have an adverse effect on an insured institution. Formal enforcement action may range from the issuance of a capital directive or cease and desist order to removal of officers and/or directors to institution of receivership, conservatorship or termination of deposit insurance. Civil penalties cover a wide range of violations and can amount to $25,000 per day, or even $1 million per day in especially egregious cases. The FDIC has the authority to recommend to the Director of the OTS enforcement action to be taken with respect to a particular savings institution. If action is not taken by the Director, the FDIC has authority to take such action under certain circumstances. Federal law also establishes criminal penalties for certain violations.
Standards for Safety and Soundness. The federal banking agencies have adopted Interagency Guidelines Prescribing Standards for Safety and Soundness. The guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. If the OTS determines that an institution fails to meet any standard prescribed by the guidelines, the OTS may require the institution to submit an acceptable plan to achieve compliance with the standard.
Federal Home Loan Bank System
The Association is a member of the Federal Home Loan Bank System, which consists of twelve regional Federal Home Loan Banks. The Federal Home Loan Bank provides a central credit facility primarily for member institutions. The Association, as a member of the Federal Home Loan Bank, is required to acquire and hold shares of capital stock in that Federal Home Loan Bank in an amount at least equal to 1.0% of the aggregate principal amount of its unpaid residential mortgage loans and similar obligations at the beginning of each year, or 1/20 of its advances (borrowings) from the Federal Home Loan Bank, whichever is greater. The Association was in compliance with this requirement with an investment in Federal Home Loan Bank stock at December 31, 2001 of $10.4 million.
The Federal Home Loan Banks are required to provide funds for the resolution of insolvent thrifts from the late 1980's and to contribute funds for affordable housing programs. These requirements could reduce the amount of dividends that the Federal Home Loan Banks pay to their members and could also result in the Federal Home Loan Banks imposing a higher rate of interest on advances to their members. If dividends were reduced, or interest on future Federal Home Loan Bank advances increased, the Association's net interest income would likely also be reduced. Recent legislation has changed the structure of the Federal Home Loan Banks funding obligations for insolvent thrifts, revised the capital structure of the Federal Home Loan Banks and implemented entirely voluntary membership for Federal Home Loan Banks. Management cannot predict the effect that these changes may have with respect to its Federal Home Loan Bank membership.
Federal Reserve System
The Federal Reserve Board regulations require savings institutions to maintain non-interest earning reserves against their transaction accounts (primarily NOW and regular checking accounts). The regulations generally provide that reserves be maintained against aggregate transaction accounts as follows: a 3% reserve ratio is assessed on net transaction accounts over $5.7 million to and including $41.3 million; a 10% reserve ratio is applied above $41.3 million. The first $5.7 million of otherwise reservable balances (subject to adjustments by the Federal Reserve Board) are exempted from the reserve requirements. These amounts are adjusted annually. The Association complies with the foregoing requirements.
FEDERAL AND STATE TAXATION
Federal Taxation
General. The Company and the Association report their income on a consolidated basis and the accrual method of accounting, and are subject to federal income taxation in the same manner as other corporations with some exceptions, including particularly the Association's reserve for bad debts discussed below. The following discussion of tax matters is intended only as a summary and does not purport to be a comprehensive description of the tax rules applicable to the Association or the Company. The Association has not been audited by the IRS during the last five years. For its 2001 taxable year, the Company is subject to a maximum federal income tax rate of 34%.
Bad Debt Reserves. For tax years beginning prior to December 31, 1995, thrift institutions were allowed to establish a reserve for bad debts and deduct reasonable annual additions to their bad debt reserves. Annual additions to bad debt reserves were calculated using either the experience method or the percentage of taxable income method. Federal legislation effective for tax years beginning after January 1, 1996 eliminated the percentage of taxable income method for all thrift institutions and prohibited thrifts with assets in excess of $500 million from using the reserve method of accounting for bad debts. First Bell is, therefore, required to use the specific charge-off method of accounting for bad debts, with loans deducted as they are charged off. In addition, thrifts were required to "recapture" (i.e., take into income) the amounts added to their bad debt reserves for tax years beginning after January 1, 1988.
Thrift institutions required to change their accounting methods as a result of federal legislation have been permitted to recapture accumulated bad debt reserves ratably over a six year period, starting with the tax year beginning after December 31, 1995, with a two year postponement available provided the institution met certain residential loan requirements. First Bell previously recorded a deferred tax liability equal to the bad debt recapture; as a result, the recapture rules have not affected net income or income tax expenses.
Distributions. Under the 1996 Act, if the Association makes "non-dividend distributions" to the Company, such distributions will be considered to have been made from the Association's unrecaptured tax bad debt reserves (including the balance of its reserves as of December 31, 1987) to the extent thereof, and then from the Association's supplemental reserve for losses on loans, to the extent thereof, and an amount based on the amount distributed (but not in excess of the amount of such reserves) will be included in the Association's income. Non-dividend distributions include distributions in excess of the Association's current and accumulated earnings and profits, as calculated for federal income tax purposes, distributions in redemption of stock, and distributions in partial or complete liquidation. Dividends paid out of the Association's current or accumulated earnings and profits will not be so included in the Association's income.
The amount of additional taxable income triggered by a non-dividend is an amount that, when reduced by the tax attributable to the income, is equal to the amount of the distribution. Thus, if the Association makes a non-dividend distribution to the Company, approximately one and one-half times the amount of such distribution (but not in excess of the amount of such reserves) would be includable in income for federal income tax purposes, assuming a 34% federal corporate income tax rate. The
Association does not intend to pay dividends that would result in a recapture of any portion of its bad debt reserves.
Corporate Alternative Minimum Tax. The Internal Revenue Code (the "Code") imposes a tax on alternative minimum taxable income ("AMTI"), which directly and indirectly taxes certain items as tax preferences (e.g. tax exempt interest income), at a rate of 20%. In 2001, and 2000, due to the Company's level of tax exempt interest income, the Company paid alternative minimum tax of $1.1 million and $944,000, respectively. These payments are subsequently treated as minimum tax credits which have an indefinite carry forward period and can be used to reduce future regular tax liabilities of the Company.
Dividends Received Deduction and Other Matters. The Company may exclude from its income 100% of dividends received from the Association as a member of the same affiliated group of corporations. The corporate dividends received deduction is generally 70% in the case of dividends received from unaffiliated corporations with which the Company and the Association will not file a consolidated tax return, except that if the Company owns more than 20% of the stock of a corporation distributing a dividend, 80% of any dividends received may be deducted.
State and Local Taxation
The Association is subject to the Mutual Thrift Institutions Tax of the Commonwealth of Pennsylvania based on the Association's financial net income determined in accordance with generally accepted accounting principles with certain adjustments. The tax rate under the Mutual Thrift Institutions Tax is 11.5%. Interest on state and federal obligations is excluded from net income. An allocable portion of net interest expense incurred to carry the obligations is disallowed as a deduction. The Company is subject to the Capital Stock Tax of the Commonwealth of Pennsylvania and the Franchise Tax of the state of Delaware.
Personnel
As of December 31, 2001, the Association had 51 full-time equivalent employees. The employees are not represented by a collective bargaining unit, and the Association considers its relationship with its employees to be good.
Item 2.
Item 2. Properties
The Company conducts its business by maintaining an office at 300 Delaware Avenue, Suite 1704, Wilmington, Delaware 19801. The Association conducts its business through its main office located at 532 Lincoln Avenue, Pittsburgh, Pennsylvania 15202 and six full-service branch offices, all of which are located in Allegheny County. Three of the Association's branch offices are leased. Loan originations are processed at the administrative office. The Association believes that its current facilities are adequate to meet the present and immediately foreseeable needs of the Association and the Company.
Item 3.
Item 3. Legal Proceedings
Neither the Company nor its subsidiary is involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business, which in the aggregate involve amounts which are believed by management to be immaterial to the financial condition and results of the operations of the Association.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
None
PART II
Item 5.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Information relating to the market for Registrant's common equity and related stockholder matters appears under "Shareholder Information" on page 47 in the Registrant's 2001 Annual Report to Stockholders and is incorporated herein by reference. Information relating to the dividend restrictions for Registrant's common stock appears under Note 12 to the "Notes to Consolidated Financial Statements Years Ended December 31, 2001, 2000 and 1999" on pages 36 and 37 in the Registrant's 2001 Annual Report to Stockholders and is incorporated herein by reference.
Item 6.
Item 6. Selected Financial Data
The above-captioned information appears under "Selected Financial and Other Data of the Company" in the Registrant's 2001 Annual Report to Stockholders on pages 1 and 2 is incorporated herein by reference.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The above-captioned information appears under "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Registrant's 2001 Annual Report to Stockholders on pages 8 through 21 and is incorporated herein by reference.
Item 7a.
Item 7a. Quantitative and Qualitative Disclosure About Market Risks
The above-captioned information appears under the heading "Interest Rate Sensitivity" in the Registrant's 2001 Annual Report to Stockholders on pages 12 through 13 is incorporated herein by reference.
Item 8.
Item 8. Financial Statements and Supplementary Data
The Consolidated Financial Statements of First Bell Bancorp, Inc. and its subsidiary, together with the report thereon by S.R. Snodgrass, A.C. appears in the Registrant's 2001 Annual Report to Stockholders on pages 23 through 44 and are incorporated herein by reference.
Item 9.
Item 9. Change in and Disagreements with Accountants on Accounting and Financial Disclosure
Prior to fiscal year ended December 31, 2001, First Bell's consolidated financial statements were audited by Deloitte & Touche LLP. On August 23, 2001, First Bell dismissed the former accountant and engaged S.R. Snodgrass A.C. which continues as the independent auditors of First Bell. The decision to change auditors was approved by the Board of Directors on August 20, 2001.
For the fiscal year ended December 31, 2000 and up to the date of the replacement of First Bell's former accountant, there were no disagreements with the former accountant on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure which, if not resolved to the satisfaction of the former accountant, would have caused it to make a reference to the subject matter of the disagreement in connection with its reports. The independent auditor's report on the consolidated financial statements for the fiscal year ended December 31, 2000 did not contain an adverse opinion or a disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope, or accounting principles.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
The information relating to Directors and Executive Officers of the Registrant is incorporated herein by reference to the Registrant's Proxy Statement for the Annual Meeting of Stockholders to be held on April 29, 2002, at pages 4 through 5.
Item 11.
Item 11. Executive Compensation
The information relating to directors' compensation and executives' compensation is incorporated herein by reference to the Registrant's Proxy Statement for the Annual Meeting of Stockholders to be held on April 29, 2002, at pages 7 through 12 (excluding the Compensation Committee Report and Stock Performance Graph).
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information relating to security ownership of certain beneficial owners and management is incorporated herein by reference to the Registrant's Proxy Statement for the Annual Meeting of Stockholders to be held on April 29, 2002, at pages 4 through 5.
Item 13.
Item 13. Certain Relationships and Related Transactions
The information relating to certain relationships and related transactions is incorporated herein by reference to the Registrant's Proxy Statement for the Annual Meeting of Stockholders to be held on April 29, 2002, at page 12.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as a part of this report:
(1) Consolidated Financial Statements of the Company are incorporated by reference to the following indicated pages of the 2001 Annual Report to Stockholders.
PAGE
Report Of Independent Auditors for the year ended December 31, 2001.... 23
Consolidated Balance Sheet for the Years Ended December 31, 2001 and 2000............................... 24
Consolidated Statement of Income for the Years Ended December 31, 2001, 2000 and 1999................... 25
Consolidated Statement of Comprehensive Income(Loss) for the Year Ended December 31, 2001, 2000 and 1999.................... 26
Consolidated Statement of Changes in Stockholders' Equity for the Years Ended December 31, 2001, 2000 and 1999........... 27
Consolidated Statement of Cash Flows for the Years Ended December 31, 2001, 2000 and 1999................... 28
Notes to Consolidated Financial Statements for the Years Ended December 31, 2001, 2000 and 1999................... 29-44
The remaining information appearing in the 2001 Annual Report to Stockholders is not deemed to be filed as part of this report, except as expressly provided herein.
(2) Report of Independent Auditors for the years ended December 31, 2000 and 1999 is incorporated by reference to Exhibit 23c.
(3) All schedules are omitted because they are not required or applicable, or the required information is shown in the consolidated financial statements or the notes thereto.
(4) Exhibits
(a) The following exhibits are filed as part of this report. 3.1 Certificate of Incorporation of First Bell Bancorp, Inc.* 3.2 Bylaws of First Bell Bancorp, Inc.* 4.0 Stock Certificate of First Bell Bancorp, Inc.* 4.2 Shareholder Rights Plan** 10.1 First Bell Bancorp, Inc. 1996 Master Stock Option Plan*** 10.2 Bell Federal Savings and Loan Association of Bellevue Master Stock Compensation Plan*** 10.5 Form of Bell Federal Savings and Loan Association of Bellevue Supplemental Executive Retirement Plan* 10.6 Employment Agreement between First Bell Bancorp, Inc. and certain executive officers, including Messrs. Eckert and Hinds **** 10.7 Employment Agreement between Bell Federal Savings and Loan Association of Bellevue and certain executive officers, including Messrs. Eckert and Hinds **** 11.0 Computation of earnings per share (incorporated in 2001 Annual Report) 13.0 Portions of the 2001 Annual Report to Stockholders (filed herewith) 21.0 The wholly owned subsidiary of the Company is Bell Federal Savings and Loan Association of Bellevue, Pittsburgh, Pennsylvania 21.1 The wholly owned subsidiary of the Association is 1891 Associates, Inc., a Delaware Holding Company 23a Consent of Independent Accountant (S.R. Snodgrass A.C. 23b Consent of Independent Accountant (Deloitte & Touche LLP) 23c Report of Independent Auditors (for the years ended December 31, 2000 and 1999)
99.0 Proxy Statement for 2002 Annual Meeting of Stockholders to be held on April 29, 2002 and previously filed on March 27, 2002 is herein incorporated by reference ________________________ * Incorporated herein by reference into this document from the Exhibits to the Form S-1, Registration Statement, originally filed on November 9, 1994, as amended and declared effective on May 9, 1995, Registration No. 33- 86160. ** Incorporated herein by reference into this document from the Exhibits to the Form 8-K originally filed on November 20, 1998. *** Incorporated herein by reference into this document from the Exhibits to the Form S-1 Registration Statement originally filed on November 9, 1994 as amended and declared effective on May 9, 1999, Registration No. 33-86160. **** Incorporated herein by reference into this document from the Exhibits to the December 31, 1998 Form 10-K originally filed on March 30, 1999
(b) Reports on Form 8-K None.
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 29, 2002 By: /s/ Albert H. Eckert II ----------------------- ----------------------- Albert H. Eckert II, President, Chief Executive Officer and Director
Date: March 29, 2002 By: /s/ Jeffrey M. Hinds ----------------------- -------------------- Jeffrey M. Hinds Executive Vice President, Chief Financial Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated.
/s/ Albert H. Eckert, II President, Chief Executive March 29, 2002 - ---------------------------- -------------- Albert H. Eckert, II Officer and Director
/s/ Jeffrey M. Hinds Executive Vice President, March 29, 2002 - ----------------------------- -------------- Jeffrey M. Hinds Chief Financial Officer and Director
/s/ Thomas J. Jackson, Jr. Director March 29, 2002 - ----------------------------- -------------- Thomas J. Jackson, Jr.
/s/ Robert C. Baierl Secretary and Director March 29, 2002 - ----------------------------- -------------- Robert C. Baierl
/s/ William S. McMinn Vice President and March 29, 2002 - ----------------------------- -------------- William S. McMinn Director
/s/ Peter E. Reinert Director March 29, 2002 - ---------------------------- -------------- Peter E. Reinert
/s/ Jack W. Schweiger Director March 29, 2002 - ---------------------------- -------------- Jack W. Schweiger
/s/ Theodore R. Dixon Director March 29, 2002 - ---------------------------- -------------- Theodore R. Dixon