1996 ANNUAL REPORT
PRIME BANCORP, INC.
Bank Headquarters
Corporate Offices
Valley Green Corporate Center
7111 Valley Green Road
Fort Washington, PA 19034
Main Office
Prime Bank
6425 Rising Sun Avenue
Philadelphia, PA 19111
Main Office
First Sterling Bank
80 West Lancaster Avenue
Devon, PA 19333
(Map of Metropolitan Philadelphia and five-county Delaware Valley area)
Prime's corporate offices, main offices, and 23 branches, located throughout the
five-county Delaware Valley area, are easily accessible. The First Sterling
merger brought Prime five new branch locations.
Branches
Prime Bank
First Sterling
Bank
Philadelphia County
Burholme
Chestnut Hill
18th & JFK
Grant
Kensington
Lawndale
Penn Treaty
Somerton
Montgomery County
Horsham
Huntingdon Valley
Jenkintown
Montgomeryville
Willow Grove
First Sterling Bala Cynwyd
First Sterling Bryn Mawr
Bucks County
Fairless Hills
Oxford Valley
Richboro
Southampton
Yardley
Chester County
First Sterling Devon
Delaware County
First Sterling St. Davids
First Sterling Media
Please see inside back cover for a full listing of our branch location
addresses.
PRIME BANCORP, INC.
FINANCIAL HIGHLIGHTS*
(Dollars in thousands except per share data) 1995 1996 % Change
- -----------------------------------------------------------------------------------------
Net Income $7,469 $4,017 (1) -46.2%
Fully Diluted Earnings Per Share 1.38 0.74 (1) -46.4%
Dividends Declared Per Share 0.62 0.68 9.7%
At Year End
Assets 819,961 926,071 12.9%
Loans Receivable, Net 497,034 616,893 24.1%
Deposits 644,306 736,642 14.3%
Stockholders' Equity 69,279 70,516 1.8%
Book Value Per Share 13.15 13.33 (1) 1.4%
Selected Ratios
Return on Average Assets 0.97% 0.45% (1) -52.1%
Return on Average Stockholders' Equity 11.89% 5.79% (1) -51.3%
Ratio of Equity to Assets 8.45% 7.61% (1) -8.5%
Ratio of Non-Performing Assets to Total Assets 0.70% 0.92% 31.4%
* All amounts have been restated to reflect the 1996 merger with First
Sterling Bancorp, as more fully described in Footnote 2 to the Consolidated
Financial Statements.
(1) Includes a one time FDIC special insurance assessment of $1.66 million net
of taxes, restructuring charges of $1.70 million net of taxes and $620
thousand of additional loan loss provision net of taxes. Excluding these
charges, net income, fully diluted earnings per share, book value per
share, return on average assets, return on average equity and equity to
assets would have been $8.01 million, $1.47, $14.08, .91%, 11.55%, and
8.01% for the twelve months ended December 31, 1996, respectively.
[The printed version of this document contains a bar graph depicting the
following plot points]
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
Deposit Growth $439,796 $491,163 $585,066 $644,306 $736,642
[The printed version of this document contains a bar graph depicting the
following plot points]
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
Loan Growth $369,145 $405,331 $443,182 $497,034 $616,893
[The printed version of this document contains a bar graph depicting the
following plot points]
$ in Millions
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
Net Interest Income 20.20 23.67 25.79 28.42 32.52
PRIME BANCORP, INC. o 1996 ANNUAL REPORT o PAGE 1
March, 1997
Dear Shareholders:
The year 1996 was a turning point, an exciting period of transition, for Prime
Bancorp, Inc. I recently completed my first year as President and Chief
Executive Officer, and have never been more optimistic about the future.
Prime is strategically positioned to become the premier Delaware Valley
commercial bank. As we become a complete financial services provider, I believe
our commitment to customer service excellence will make Prime the bank of choice
for individuals and businesses throughout our region.
We took some very important steps last year. First, we made significant
progress toward our conversion from a thrift to a commercial bank. During 1996,
Congress passed legislation removing two major financial obstacles to the
conversion. The first resolved the issue of the deductibility of the allowance
for loan losses for tax purposes, providing a significant savings for the thrift
industry. The second piece of legislation resulted in a one-time BIF/SAIF
recapitalization assessment which will help make the future more equitable, in
terms of deposit insurance, between thrifts and commercial banks.
Also in 1996, we completed the merger of First Sterling Bancorp, Inc. into
Prime Bancorp, Inc. Through this merger, Prime expanded its presence into
Delaware, Montgomery, and Chester counties. The merger brought us many benefits
including five additional branches and First Sterling's high-quality commercial
loan generation capabilities. We've added William H. Bromley, founder and
President of First Sterling, and his talented staff, to the Prime organization.
And, three First Sterling board appointees have joined the Prime Bancorp, Inc.
Board of Directors bringing with them their valuable expertise and insights.
(Please see pages six and seven for "About The First Sterling Merger.")
Illustrating Prime's new direction, we introduced a fresh new look for
Prime Bancorp, Inc. on the front of this report. It symbolizes the organization
that we are rapidly becoming. Stating our name proudly and boldly, the new look
underscores our continuous movement forward as we seek future opportunities.
Still another transition, in 1996 we accepted the retirement of Erwin T.
Straw. Although he will continue as Chairman of the Board of Directors, he will
no longer participate in day to day bank operations. Erv Straw's fine
leadership, along with our dedicated Board of Directors and staff, set the solid
foundation upon which we now build. We wish him well and thank him for his
enormous contribution to our community and the banking industry. (Please see
page eight for "A Tribute To Erwin T. Straw.")
[Picture of James J. Lynch]
James J. Lynch
President & C.E.O.
DISCUSSION OF 1996 FINANCIAL RESULTS
Prime reported earnings of $4.02 million for the year ending December 31, 1996.
The earnings have been restated to reflect the results of the merger for the
full year in accordance with the pooling of interests accounting method. The
Bank's net income for 1996, excluding one-time charges, was $8.01 million, a
7.2% increase over last year.
Prime's core earnings, measured by the spread between net interest income
and non-interest expenses, strongly improved during 1996, with the Bank
demonstrating strong balance sheet growth. Loans, led by growth in commercial,
construction, and consumer lending, grew 24.1% from $497.0 million to $616.9
million. It is important to note that most of this growth was supported by a
14.3% increase in core deposits from $644.3 million in 1995 to $736.6 million at
the end of 1996. Balance sheet growth drove net interest income up 14.4% from
$28.42 million during 1995 to $32.52 million in 1996, an increase of $4.10
million.
Non-interest expenses, excluding one-time charges, also increased but at a
slower 11.1% pace. The higher expenses were attributable to the hiring of key
lending personnel, the continued expansion of our branch network, and
technological enhancements upgrading data processing and telecommunication
systems.
Non-interest income growth was flat during 1996 at $3.22 million compared
to $3.44 million for 1995. However, 1995's non-interest income included a $260
thousand gain from the one-time sale of mortgage servicing. This is an area that
will receive management focus as we look to increase revenues from fee income.
A LOOK BEYOND ONE-TIME EVENTS
One-time charges played a significant role in the financial results for 1996. It
is important to look beyond the short-term impact of these charges and focus on
the long-term benefits that they represent.
First, there was a one-time assessment of all thrifts to recapitalize the
federal deposit savings associations insurance fund. Prime's portion of the
assessment was $1.66 million on an after-tax basis. Second, the merger with
First Sterling generated $1.70 million, after taxes, in one-time, merger-related
costs.
Finally, as mentioned in our November 8th proxy, we adopted a more
aggressive strategy to accelerate the resolution of problem real estate loans
during 1996. This effort required the one-time charge of approximately $1
million ($620 thousand after tax), along with additional amounts to replenish
reserves depleted by charged-off loans. We strongly believe this strategy will
be more economical than a long-term approach to working out the problem real
estate loans.
PRIME BANCORP, INC. o 1996 ANNUAL REPORT o PAGE 3
I BELIEVE THAT CUSTOMERS,
BOTH INDIVIDUALS AND BUSINESSES, STILL
WANT A BANKER THEY CAN TRUST --
NOT JUST A BANK -- TO HANDLE THE
IMPORTANT DETAILS
OF THEIR FINANCIAL LIVES.
THAT IS WHY PRIME STRESSES
SERVICE EXCELLENCE ABOVE ALL ELSE.
Including these one-time charges, net income for 1996 was $4.02 million, or
$.74 per share on a fully diluted basis. Earnings for 1995 were $7.47 million,
or $1.38 per share.
PRIME'S POSITION TODAY
I believe that customers, both individuals and businesses, still want a banker
they can trust -- not just a bank -- to handle the important details of their
financial lives. That is why Prime stresses service excellence above all else.
Sure, we are committed to continuing to probe and develop cost-effective
technologies. But it is our service that makes us shine.
With the completion of the merger, Prime is positioned to effectively
compete with the smaller community and neighborhood banks and with the big
banking institutions. We have become more than a traditional thrift organization
by combining the best of a retail-oriented traditional thrift with the best of a
commercial lending bank. The result, we believe, will be the best commercial
bank in our marketplace.
RETAIL BANKING
Our friendly, experienced retail banking team, enhanced by our new employees
from First Sterling, are dedicated to serving our retail customers. As we expand
and change, we will guide our employees with ongoing training to strengthen
product knowledge, as well as service and management skills.
As a recognized leader in the area of mortgage lending, we bring our
customers the convenience of obtaining a mortgage where they bank. We plan to
work to increase market share in this area and in the more general area of
consumer lending.
Although the merger brought us five additional branches, we will continue
to develop Prime's distribution network. We plan to open two new branches in
1997. We believe one of the locations will be the Plymouth Meeting area and we
are researching other viable locations for the second.
COMMERCIAL BANKING
Like our retail banking team, our exceptional commercial banking group has
benefited from the addition of the fine people from First Sterling. Focused on
building relationships, our commercial lending team does what it takes to serve
Prime's business clients. Enhanced cash management products and services are
being introduced and delivered to meet the needs of our business customers.
To further support our commercial banking efforts, we are pursuing new
lines of business through an alliance with Valley Forge Asset Management, an
established money management
firm. Through this alliance we can offer our business customers ancillary
services such as 401k and pension plan options. And for our individual private
banking customers, the alliance enables us to offer asset management services.
We are also exploring other alliances to bring our customers non-traditional
banking products such as mutual funds, annuities, and other insurance products.
1997 AND BEYOND
Looking at 1997, we expect this to be the year that Prime becomes a
billion-dollar bank. We also believe that we will complete our conversion to a
commercial bank by the end of the year further strengthening our competitive
edge.
As always, we will continue to evaluate the returns of fee income versus
the costs and risks of products and technologies. One of the new consumer
technologies planned for 1997 is an automated telephone system designed to give
customers and businesses easy 24-hour access to account and product information.
We also plan to bring PC banking to our business customers this Spring and we
are exploring the feasibility of home PC banking and internet banking for our
individual customers in the future.
As we expand our services and open new branch locations, we will continue
to support important community reinvestment projects such as the rehabilitation
of the St. Joseph's orphanage in North Philadelphia into a 62-unit apartment
complex for low-income housing. Prime is also involved with Habitat for
Humanity, a project that assists public efforts to revitalize urban communities
by creating home ownership opportunities for low-income families. These projects
help us participate in the rebuilding of our inner cities as good corporate
citizens and neighbors.
As mentioned in the beginning of my letter, I've never been more optimistic
about the future. Clearly we are proud of our accomplishments in 1996 and we are
ready to meet the challenges of 1997 and beyond. Prime has become a bold new
force in Delaware Valley banking. We look forward to telling you about our
progress in future reports. And finally, I'd like to take this opportunity to
thank all of you, our customers, our staff, our board, and our shareholders, for
your confidence and support.
Sincerely,
[SIGNATURE]
James J. Lynch
President & C.E.O.
PRIME BANCORP, INC. o 1996 ANNUAL REPORT o PAGE 1
ABOUT THE
FIRST STERLING MERGER
[Picture of Main Office]
Main Office
Devon, PA
[Picture of Corporate Offices]
Corporate
Offices
Fort Washington, PA
First Sterling Bank opened in 1988 as a state chartered commercial bank. It was
founded by William H. Bromley, formerly with Industrial Valley Bank (IVB), and a
group of business leaders, to fill a niche in the western suburbs marketplace
for the service-oriented community bank. In just eight years, Mr. Bromley and
his staff, successfully grew the bank to five locations with total assets of
$235 million.
MERGER BENEFITS
The merger enables Prime to expand into the very desirable western
Pennsylvania suburbs. Mergers among the large major banks have disrupted the
Delaware Valley's banking market. By merging First Sterling into Prime, the
combined organization is better equipped to aggressively penetrate this market.
Prime's banking operations contribute significantly to First Sterling's
ability to attract more, and larger, commercial loans and deposits. And Prime
benefits from First Sterling's high-quality commercial loan generation programs.
The valuable experience and areas of specialization of the First Sterling
management team and Board of Directors is yet another merger benefit. Prime
welcomes contributions from all new employees and directors.
PRIME AND FIRST STERLING
A Winning Combination
PRIME BANCORP, INC. BEFORE MERGER AFTER MERGER
- -------------------------------------------------------------------------------
Total Assets $691 million $926 million
1996 Annual Net Income (1) $5.8 million $8.0 million
Total Branches 18 23
Loan Mix:
Commercial 31% 41%
Real Estate/Construction 9% 6%
Consumer 20% 16%
Residential Mortgages 40% 37%
Deposit Mix:
Demand 19% 22%
Savings 30% 24%
Time 51% 54%
(1) Excludes one time FDIC special assessment and restructuring and other
merger related expenses.
[Picture of James J. Lynch, William H. Bromley and Walter L. Tillman, Jr.]
James J. Lynch,
President & C.E.O.,
Prime Bancorp, Inc.
William H. Bromley,
Executive V.P.,
Prime Bancorp, Inc.
Walter L. Tillman, Jr.
Executive V.P.,
Prime Bancorp, Inc.
The greater size of the combined organization is also beneficial giving
Prime earnings growth through expansion and efficiencies. There is a larger pool
of resources creating savings in such areas as training, advertising, and
promotion.
The top management of Prime and First Sterling see the merger as a positive
event for shareholders, customers, and employees of both banks. "We are
extremely pleased to have reached this agreement with First Sterling," said
James J. Lynch, President and Chief Executive Officer of Prime Bancorp, Inc.
"The combination of these two companies creates a premier commercial bank for
the five-county Philadelphia area. First Sterling provides a perfect complement
to Prime's existing branch network. The five First Sterling branches offer Prime
an entrance into the rapidly expanding western suburbs. All branch locations of
both banks will remain open and we will continue to grow and expand by opening
new branches providing more opportunities for our employees."
According to William H. Bromley, Executive V.P. of Prime Bancorp, Inc. and
First Sterling's President, the merger brings many resources to First Sterling
customers and employees. "This merger is viewed favorably by the entire First
Sterling family. It enables us to offer our customers additional financial
products. The expansion of credit lines, through the combined capital of the two
banks, helps us to better serve our customers' needs," Mr. Bromley explained.
"We are equally excited and comfortable that the First Sterling culture and
level of service will not be interrupted, but will be enhanced, by the merger."
NEW ADVERTISING CAMPAIGN FEATURES PRIME'S NEW IMAGE
As a result of the merger, Prime has grown, spread its wings, and become a "Bold
New Force" in the Delaware Valley banking community. A new advertising campaign
is currently introducing the new Prime Bank image to the public.
Prime now has "The strength of a big bank, the service of a small one."
This new position enables Prime to compete with banks of all sizes when it comes
to personal service and products. Not too big and not too small. Prime is now
just the right size for success.
[Picture of two covers]
A WELCOME TO FOUR
NEW BOARD MEMBERS
WE ARE PROUD TO WELCOME
FOUR NEW DISTINGUISHED MEMBERS TO THE
PRIME BANCORP, INC. BOARD OF DIRECTORS.
THEY ARE:
WILLIAM J. CUNNINGHAM,
BASKETBALL HALL OF FAMER
AND FORMER CHAMPIONSHIP WINNING
COACH OF THE PHILADELPHIA
76ERS AND FORMER OWNER AND
FOUNDER OF THE MIAMI HEAT PRO
BASKETBALL FRANCHISE.
ROBERT A. FOX,
PRESIDENT OF R.A.F. INDUSTRIES, A PRIVATE
INVESTMENT COMPANY WHICH ACQUIRES AND
MANAGES A DIVERSIFIED GROUP OF OPERATING
COMPANIES AND VENTURE CAPITAL
INVESTMENTS.
ROY T. PERAINO,
FORMER CHAIRMAN AND CHIEF EXECUTIVE OFFICER
OF CONTINENTAL BANCORP AND
CONTINENTAL BANK AND FORMER PRESIDENT OF
MIDLANTIC CORPORATION.
ARTHUR L. POWELL,
PRESIDENT OF KRAVCO, INC.,
A REAL ESTATE DEVELOPMENT
COMPANY WHICH SPECIALIZES IN
LARGE SHOPPING MALLS.
PRIME BANCORP, INC. o 1996 ANNUAL REPORT o PAGE 7
A TRIBUTE TO ERWIN T. STRAW
[Picture of Erwin T. Straw]
OFTEN DESCRIBED AS A TRUE GENTLEMAN,
MR. STRAW'S CARING, SINCERITY,
AND GOOD HUMOR ARE PART OF
WHAT'S MADE HIM A SUCCESS IN
ALL AREAS OF HIS LIFE.
Erwin T. Straw
Chairman
From 1984 through January 1996, Erwin T. Straw served Prime Bank as President
and Chief Executive Officer. On January 31, 1996, he turned the position over to
his successor, James J. Lynch, and became Chairman of the Board of Directors of
Prime Bancorp, Inc. Although continuing this role, Mr. Straw is now retiring
from participation in the Bank's day to day operations. It is at this time that
we would like to honor him for his long, successful career and his many
contributions.
Born and raised in Philadelphia, Mr. Straw was a member of Northeast
Catholic High School's Class of 1946. After high school, he enlisted in the U.S.
Navy and served as a radio operator on a minesweeper into 1948. He graduated
with honors in 1952 from Mount Saint Mary's College, Emmitsburg, PA, and he was
elected as President of the Honor Society. He later graduated from Stonier
Graduate School of Banking, Rutgers University. Prior to joining Prime Bank, Mr.
Straw was Lending Vice President at Cheltenham Bank from 1960 to 1984.
An active member of the Philadelphia business community, Mr. Straw is a
past President and Director of the Insured Financial Institutions of the
Delaware Valley. He is a Director of the Pennsylvania Association of Community
Bankers, and a member of the Thrift Institutions Advisory Council for the
Federal Reserve Bank of Philadelphia. His many civic roles include serving as
Treasurer of the Board of Trustees of Episcopal Hospital, a Trustee of Manor
Junior College, and a Director of the Philadelphia Protestant Home.
Often described as a true gentleman, Mr. Straw's caring, sincerity, and
good humor are part of what's made him a success in all areas of his life. The
father of seven children, six daughters and one son, he and his wife, Ella, now
have thirteen grandchildren.
We thank Mr. Straw for his leadership and dedication to Prime Bank's
success. Through his many years of service to the Bank, he has built a stable,
competitive organization with a strong service culture and a commitment to its
customers, community, and employees. We wish him all the best.
- -------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
The activities of Prime Bancorp, Inc. (the "Company") are limited primarily to
holding the common stock of its principal subsidiaries, Prime Bank and First
Sterling Bank (the "Bank"). The Bank's mission is to provide individuals,
businesses and communities, within the Philadelphia area, with high-quality
financial services. Operating through 23 offices, the Bank lends, gathers
deposit money, and provides other financial services. Loans are diversified
among residential mortgage, commercial real estate, consumer, and commercial
lines while deposits are gathered through multiple checking, savings, and CD
product lines.
[The printed version of this document contains a bar graph depicting the
following plot points]
In Millions
1994 1995 1996*
-------- -------- --------
Net Income $6.71 $7.47 $8.01
- ----------
* excludes one-time charges
NET INCOME
Prime Bancorp, Inc. reported net income of $4.02 million during 1996
compared with $7.47 million for 1995, and $6.71 million for 1994. The decrease
in income for 1996 was caused by one-time charges, on an after-tax basis,
including $1.66 million for an assessment to recapitalize the federal deposit
insurance fund, $1.70 million in merger-related costs, and $620 thousand in
extra loan loss provisioning. All numbers, including prior financial
information, have been restated to reflect the results of the merger with First
Sterling Bancorp, Inc., Devon, Pennsylvania for all years in accordance with the
pooling-of-interests accounting method. Net income for 1996, excluding one-time
charges, would have been $8.01 million, a 7.2% increase over 1995.
[The printed version of this document contains a bar graph depicting the
following plot points]
In Millions
1994 1995 1996
-------- -------- --------
Net Income $25.79 $28.42 $32.52
NET INTEREST INCOME
Net interest income for a bank is analogous to the gross profit of a
business. It represents the difference between income earned on earning assets
and the interest expense paid on liabilities. Net interest income is affected by
market and economic conditions which influence rates, as well as loan and
deposit growth.
Net interest income strongly increased by 14.4% over 1995 which was 10.2%
ahead of 1994. Balance sheet growth drove net interest income higher to $32.52
million during 1996 compared to $28.42 million for 1995, and $25.79 million for
1994. The improvement was largely supported by volume increases. Earning assets
in 1996 increased 12.2%. Period end loans increased 24.1%, led by growth in
commercial, construction, consumer, and consumer real estate.
Prime's net interest margin declined from 4.18% during 1995 to 4.14% during
1996, compared with 4.44% in 1994. Most of this decrease in margins has been
caused by changes in balance sheet mix and thinner spreads on newly booked
business.
PRIME BANCORP, INC. o 1996 ANNUAL REPORT o PAGE 9
PRIME BANCORP, INC. 1996 ANNUAL REPORT
Management is committed to maintaining long-term stability in net interest
income despite changes in interest rates. This is accomplished through the
approximate matching of asset repricings and durations to liability repricings
and durations.
The two tables on pages 15 and 16 present an analytical explanation of
Prime's net interest income. The first provides a detailed spread analysis and
the second shows a differential rate/volume variance analysis.
[The printed version of this document contains a bar graph depicting the
following plot points]
In Millions
1994 1995 1996
-------- -------- --------
Provision for loan losses $1.59 $1.13 $3.84
PROVISION FOR LOAN LOSSES
The provision for loan losses for 1996 was sharply higher than in 1995.
Provision for loan losses was $3.84 million in 1996 compared with $1.13 million
in 1995. The increased level reflected additional provisioning to keep pace with
rapid loan growth, the one-time charge of approximately $1 million ($620
thousand after tax) to accelerate the resolution of problem loans, and
additional amounts to replenish reserves depleted by charged-off loans. Net
charge-offs were higher at $2.71 million in 1996, which included a large
charge-off on a residential construction loan. This compares with net
charge-offs $1.11 million in 1995 and $1.13 million in 1994.
NON-INTEREST INCOME
Non-interest income was $3.44 million in 1995 while 1996's amount was $3.22
million. Non-interest income for 1995 included a $260 thousand gain from the
one-time sale of mortgage servicing. The slight decline in investment income for
1996 followed a strong increase from 1994 to 1995.
In spite of the decrease, fees and service charges continued steady growth.
Security gains were $288 thousand and $448 thousand in 1996 and 1995 compared
with security losses of $285 thousand in 1994.
[The printed version of this document contains a bar graph depicting the
following plot points]
In Millions
1994 1995 1996
-------- -------- --------
Non-Interest income $2.18 $3.44 $3.22
NON-INTEREST EXPENSE
Non-interest expenses of $26.00 million for 1996 included $4.97 million in
non-recurring expenses. Specifically, this included $2.71 million for the
assessment to recapitalize the federal deposit savings association insurance
fund and $2.26 million in merger-related costs. Excluding one-time charges,
non-interest expenses were $21.02 million, up 11.1% from $18.93 million for 1995
which was 18.1% higher than they were in 1994.
Non-interest expenses also increased because of a 15.1% increase in
salaries and benefits primarily due to the hiring of key lending personnel,
continued expansion of the branch network, and technological enhancements
involving the upgrading of data processing and telecommunication systems.
[The printed version of this document contains a bar graph depicting the
following plot points]
In Millions
1994 1995 1996*
-------- -------- --------
Non-Interest Expense $16.03 $18.93 $21.02
- ----------
* excludes one-time charges
PRIME BANCORP, INC. 1996 ANNUAL REPORT
INCOME TAXES
The provision for federal and state income taxes for the years ended
December 31, 1996, 1995, and 1994 was $1.90 million, $4.34 million, and $3.63
million, respectively.
The lower provision for income taxes for 1996 was the result of lower
pre-tax income and credits earned through the Bank's reinvestment projects,
which was offset by non-deductible merger costs.
[The printed version of this document contains a bar graph depicting the
following plot points]
In Millions
1994 1995 1996
-------- -------- --------
Income Taxes $3.63 $4.34 $1.90
BALANCE SHEET REVIEW
Prime's total assets grew 12.9% from $820.0 million at year-end 1995 to
$926.1 million twelve months later. Balance sheet changes are summarized in the
following table (dollars in millions):
- -------------------------------------------------------------
Balance Sheet 1995 1996 $Change %Change
- -------------------------------------------------------------
Loans (Net)(1) $503.8 $616.9 $113.1 22.5%
Investments(2) 259.3 239.5 (19.8) -7.6%
Non-earning assets 56.9 69.7 12.8 22.5%
Total Assets 820.0 926.1 106.1 12.9%
Deposits 644.3 736.6 92.3 14.3%
Purchased Funds(3) 97.7 110.4 12.7 13.0%
Other Liabilities 8.7 8.6 (.1) -1.1%
Equity 69.3 70.5 1.2 1.7%
Total Liabilities
and Equity 820.0 926.1 106.1 12.9%
=============================================================
(1) Loans (net) includes loans receivable and loans held for sale.
(2) Investments includes investments and interest-bearing deposits.
(3) Purchased funds includes advance payments by borrowers for taxes and
insurance.
1996 balance sheet growth was supported by a $92.3 million increase in deposits
and a $12.7 million increase in purchased funds, as well as a $1.2 million
increase in equity and a $.1 million decline in other liabilities. These funds
were used to support loan growth of $113.1 million. There was an investment
decline of $19.8 million, which also helped fund growth, and a $12.8 million
increase in non-earning assets.
LOANS
Loans grew 22.5% from $503.8 million at the end of 1995 to $616.9 million at the
end of 1996, an increase of $113.1 million. During 1996, commercial, consumer,
and commercial real estate loan growth was strong, as a result of the Bank's
expanded and improved lending team.
INVESTMENTS
Investments declined moderately, 7.6%, during the year, making room on the
balance sheet for more loan growth. Management's investment strategy continues
to focus on maintaining an adequate reserve of shorter-term investments to
conservatively meet liquidity needs, combined with a more permanent portfolio of
medium-term investments to serve asset/liability management purposes.
The composition of the investment portfolio is also influenced by the
"Qualified Thrift Lender" test established by Federal laws which require the
Bank to maintain 65% of its assets in housing related loans and investments. In
order to meet this requirement and because of the Bank's loan diversification
into non-housing related products, most of the Bank's portfolio investments are
placed in mortgage-backed securities. Prime's mortgage-backed securities are
principally collateralized mortgage obligations (CMOs) and adjustable rate
mortgages (ARMs).
NON-INTEREST EARNING ASSETS
Non-interest earning assets increased from $56.9 million in 1995 to $69.7
million in 1996. This increase reflects higher levels associated with strong
demand deposit and other balance sheet growth.
DEPOSITS
Deposits increased $92.3 million or 14.3% during 1996. The year was
characterized by strong growth in checking account balances, particularly in
commercial deposits. Also, good growth in retail CDs, including $11.7 million in
a new callable CD product introduced late in the year, contributed to the
increase.
PRIME BANCORP, INC. o 1996 ANNUAL REPORT o PAGE 11
PRIME BANCORP, INC. 1996 ANNUAL REPORT
PURCHASED FUNDS
Purchased funds at year-end 1996 increased 13.0% to $110.4 million from $97.7
million at year-end 1995. Purchased funds at year- end 1996 included $32.6
million in customer repos. Customer repos for 1995 came to $19.1 million.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses increased from $6.08 million at the end of 1995 to
$7.21 million at the end of 1996, an increase of 18.5%. The allowance for loan
losses is based on a periodic evaluation of the portfolio and is maintained at a
level that management considers adequate to absorb losses known and inherent in
the portfolio.
Management considers a variety of factors when establishing the allowance
recognizing that an inherent risk of loss always exists in the lending process.
Consideration is given to the impact of current economic conditions,
diversification of the loan portfolio, historical loss experience, delinquency
statistics, results of detailed loan reviews, borrowers' financial and
managerial strengths, the adequacy of underlying collateral, and other relevant
factors.
As a result of the merger with First Sterling, the Bank has modified its
approach to the workout of certain assets. This strategy involves the
accelerated resolution of problem assets which, the Bank believes, is more
economical than a long-term work out approach, and will allow management to
concentrate its resources on growth and revenue generation.
The allowance for loan losses is increased by the provision for loan losses
and recoveries on previously charged-off loans, and is reduced by actual
charge-offs. While management uses available information to establish allowances
for losses on loans, future additions to the allowance for loan losses may be
necessary based on the changes in economic conditions.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the allowance for loan losses. Such
agencies may require the Bank to make additions to the allowance for loan losses
based on their assessment of information which is available to them at the time
of their examination.
A substantial portion of the Company's loans are secured by real estate in
its market area. Accordingly, the ultimate collectibility of a substantial
portion of the Company's loan portfolio and the recoverability of a substantial
portion of the carrying amount of real estate owned is susceptible to changes in
economic and market conditions in the Company's local area. However, management
believes that the allowance for loan losses is adequate and that the value
assigned to properties included in real estate owned do not exceed their current
estimated fair values less estimated costs to sell.
CAPITAL ADEQUACY
The Company's equity increased by $1.2 million during 1996. The Company's equity
ratio was 7.61% at year-end 1996 vs. 8.45% at year-end 1995. These capital
ratios qualify the Bank as "well capitalized" under current regulatory
guidelines and provide a foundation for future growth.
BANKING RISKS
CREDIT RISK
During 1996, Prime continued to place a heavy emphasis on generating high
quality loans. Approvals of loans rest with experienced lenders who follow
detailed underwriting and appraisal standards. The Bank focuses on keeping
credit risks at reasonable levels.
In 1996 higher provisions were made regarding credit risk. As previously
stated, the increased level reflected additional provisioning to keep pace with
rapid loan growth, the one-time charge of approximately $1 million ($620
thousand after tax) to accelerate the resolution of problem loans, and
additional amounts to replenish reserves depleted by charged-off loans.
LIQUIDITY RISKS
A solid base of stable core deposits is the key to minimizing liquidity risk.
The second key is maintaining a pool of readily marketable investments as a
liquidity reserve to support unforeseen fluctuations in deposit and loan
volumes. The third and final key is to maintain plenty of excess borrowing
capacity.
Prime's loan to deposit ratio improved during 1996. The Bank's unused
borrowing capacity at the Federal Home Loan Bank was approximately $161.8
million at year end.
The following table provides key asset quality trends (dollars in thousands).
1992 1993 1994 1995 1996
- -----------------------------------------------------------------------------------------------------------------
Net Charge-offs $(1,150) $ (941) $(1,132) $(1,114) $(2,713)
Net Charge-offs as % of Loans 0.31% 0.23% 0.26% 0.22% 0.44%
Non-Performing Assets $6,622 $7,133 $ 7,291 $ 5,755 $8,509(1)
Non-Performing Assets as % of Assets 1.29% 1.19% 0.99% 0.70% 0.92%
Allowance for Loan Losses $4,386 $5,605 $ 6,067 $ 6,082 $7,206
Allowance as % Loans 1.19% 1.38% 1.37% 1.22% 1.17%
Allowance as % Non-Performing Assets 66.23% 78.58% 83.21% 105.68% 84.69%(1)
- -----------------------------------------------------------------------------------------------------------------
(1) Non-performing assets, which includes non-accrual loans, increased from
$5.8 million in 1995 to $8.5 million in 1996. The increase was primarily
attributable to the classification of construction and commercial loans to
non-accrual status during the third quarter of 1996.
INTEREST RATE RISK
Prime's management strategy is to avoid speculative interest rate risk.
Interest rate risk represents the volatility of net interest income and
portfolio market value caused by changes in market interest rates.
Net interest income volatility is reduced primarily through the management
of deposit and loan rates, and the approximate rate sensitivity matching of
assets and liabilities over multiple time frames (the difference in assets and
liabilities in these time frames being referred to as "the gap"). The table on
the next page presents the Bank's gaps over multiple time frames. The Bank's
tactical gap (weighted average one year gap) of a negative $12.9 million or a
negative 1.5% of earning assets is considered by management to be moderate and
reasonable. Consequently, changes in market rates of interest should have a
relatively minimal impact on net interest income. Prime's estimated duration of
equity finished the year within Asset/Liability management policy guidelines.
PRIME BANCORP, INC. o 1996 ANNUAL REPORT o PAGE 13
PRIME BANCORP, INC. 1996 ANNUAL REPORT
GAP ANALYSIS
December 31, 1996
(Dollars in thousands)
3 Mo More 3 Mo More 6 Mo More 1 Yr More 3 Yr More 5 Yr More
Earning Assets: or less thru 6 Mo thru 1 Yr thru 3 Yr thru 5 Yr thru 10 Yr 10 Yr Total
- ---------------------------------------------------------------------------------------------------------------------------
Construction Loans $38,575 $ -- $ -- $ -- $ -- $ -- $ -- $ 38,575
ARM'S (6) 12,134 15,799 39,752 36,792 36,567 2,360 -- 143,404
Fixed Mortgages (1, 6) 5,338 3,610 7,132 25,472 26,364 17,298 520 85,734
Consumer Loans (6) 38,626 3,069 6,576 22,133 23,574 6,559 2,035 102,572
Commercial (6) 109,961 7,479 13,417 35,187 56,042 23,592 8,136 253,814
Liquidity 20,766 5,987 12,032 11,955 4,030 -- -- 54,770
Portfolio 74,315 9,719 19,158 51,423 13,341 12,003 4,768 184,727
- ---------------------------------------------------------------------------------------------------------------------------
Total Earning Assets $299,715 $ 45,663 $ 98,067 $182,962 $159,918 $61,812 $15,459 $863,596
Liabilities
- ---------------------------------------------------------------------------------------------------------------------------
Checking Accounts (2) $ -- $ -- $ -- $ 30,956 $ 30,956 $77,384 $ -- $139,296
Savings Accounts (2) 2,645 2,645 5,290 21,164 15,756 15,522 -- 63,022
Premier MM/Select (3) 30,927 30,927 23,585 -- -- -- -- 85,439
Money Market (1) 8,576 8,576 17,151 10,192 -- -- -- 44,495
Certificates (4) 103,233 81,931 102,464 93,820 20,112 2,820 10 404,390
Borrowed Funds 95,709 -- 5,024 7,550 -- -- -- 108,283
Capital (5) 668 668 1,334 5,334 5,334 5,333 -- 18,671
- ---------------------------------------------------------------------------------------------------------------------------
Total Liabilities $241,758 $ 124,747 $154,848 $169,016 $ 72,158 $101,059 $10 $863,596
GAP $57,957 $(79,084) $(56,781) $ 13,946 $ 87,760 $(39,247) $15,449
as % earning assets 6.7% -9.1% -6.6% 1.6% 10.2% -4.6% 1.8%
Cumulative GAP $57,957 $(21,127) $(77,908) $(63,962) $ 23,798 $(15,449)
as % earning assets 6.7% -2.4% -9.0% -7.4% 2.8% -1.8%
Tactical GAP (12,910)
as % earning assets -1.49%
- ---------------------------------------------------------------------------------------------------------------------------
(1) Assumes Market Prepayment Rates.
(2) Assumes run-offs over 10 years.
(3) Assumes repricings over 1 year.
(4) Reflects the impact of interest rate swaps.
(5) Capital investment is targeted over 7 years.
(6) Reflects net deferred fees excluding allowance for loan loss.
PRIME BANCORP, INC. 1996 ANNUAL REPORT
SPREAD ANALYSIS
(Dollars in thousands)
1994 1995 1996
- ----------------------------------------------------------------------------------------------------------------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
- ----------------------------------------------------------------------------------------------------------------------------------
Interest-earning assets: (1)
Loans receivable, net (2,3,4)
Residential $167,291 $14,231 8.51% $194,394 $16,983 8.74% $221,251 $18,569 8.39%
Construction 34,995 4,063 11.61% 27,798 3,357 12.08% 29,467 3,116 10.57%
Commercial 160,001 13,778 8.61% 180,635 17,554 9.72% 220,213 20,750 9.42%
Consumer 55,710 4,449 7.99% 60,219 5,218 8.67% 78,741 6,709 8.52%
Credit Card 3,364 531 15.78% 5,899 850 14.41% 7,960 1,080 13.57%
- ----------------------------------------------------------------------------------------------------------------------------------
421,361 37,052 8.79% 468,945 43,962 9.37% 557,632 50,224 9.01%
- ----------------------------------------------------------------------------------------------------------------------------------
Investment securities (4) 192,018 11,462 5.97% 239,844 15,910 6.63% 247,988 16,353 6.59%
Interest-bearing deposits 5,969 248 4.15% 8,278 646 7.80% 8,485 295 3.48%
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest earning assets 619,348 48,762 7.87% 717,067 60,518 8.44% 814,105 66,872 8.21%
- ----------------------------------------------------------------------------------------------------------------------------------
Non-interest earning assets 39,719 -- -- 50,830 -- -- 68,911 -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total assets $659,067 $48,762 $767,897 $60,518 -- $883,016 $66,872 --
- ----------------------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities: (1)
Passbook/Statement $ 67,870 $ 1,366 2.01% $ 65,157 $ 1,353 2.08% $ 63,827 $ 1,338 2.10%
Money Market/Premier 92,866 2,739 2.95% 105,923 3,919 3.70% 120,817 4,334 3.59%
Commercial Checking 47,222 304 0.64% 56,100 510 0.91% 73,627 578 0.79%
N.O.W. Accounts 32,690 577 1.77% 36,444 737 2.02% 40,720 782 1.92%
Time Deposits 286,972 13,881 4.84% 333,791 18,747 5.62% 356,453 19,679 5.52%
- ----------------------------------------------------------------------------------------------------------------------------------
527,620 18,867 3.58% 597,415 25,266 4.23% 655,444 26,711 4.08%
- ----------------------------------------------------------------------------------------------------------------------------------
FHLB advances and other
borrowings 49,765 2,413 4.85% 84,897 5,291 6.23% 116,386 6,429 5.52%
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 577,385 21,280 3.69% 682,312 30,557 4.48% 771,830 33,140 4.29%
- ----------------------------------------------------------------------------------------------------------------------------------
Other liabilities 23,682 -- -- 22,786 -- -- 41,813 -- --
Stockholders' equity 58,000 -- -- 62,799 -- -- 69,373 -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $659,067 $21,280 $767,897 $30,557 $883,016 $33,140
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest income/interest
rate spread $27,482 4.18% $29,961 3.96% $33,732 3.92%
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest earning assets/
net yield interest-earning
assets $41,963 4.44% $34,755 4.18% $42,275 4.14%
- ----------------------------------------------------------------------------------------------------------------------------------
Interest earning assets
to interest-bearing liabilities 107% 105% 105%
- ----------------------------------------------------------------------------------------------------------------------------------
(1) Average balances are calculated on a monthly basis.
(2) Non-accrual loans are included in loans.
(3) Yields on loans include income from origination fees, net of costs.
(4) Tax free income is calculated on a tax equivalent basis.
PRIME BANCORP, INC. o 1996 ANNUAL REPORT o PAGE 15
PRIME BANCORP, INC. 1996 ANNUAL REPORT
RATE/VOLUME ANALYSIS
The table below sets forth certain information regarding changes in interest
income and interest expense of the Bank for the periods indicated. For each
category of interest-earning asset and interest-bearing liability, information
is provided on changes attributable to (1) changes in volume (changes in average
volume multiplied by the prior year's rate), and (2) changes in rate (changes in
rate multiplied by the prior year's volume). The difference in the rate/volume
is allocated on a pro-rata basis to the change in rate variance and the change
in volume variance.
Years Ended December 31,
- ---------------------------------------------------------------------------------------------------------------------------
1994 vs. 1995 1995 vs. 1996
- ---------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) Due To Increase (Decrease) Due to
- ---------------------------------------------------------------------------------------------------------------------------
Volume Rate Total Volume Rate Total
- ---------------------------------------------------------------------------------------------------------------------------
Interest income:
Loan portfolio
Residential $2,306 $ 401 $2,707 $2,619 $(883) $1,736
Construction (836) 130 (706) 130 (371) (241)
Commercial 1,777 1,999 3,776 3,692 (496) 3,196
Consumer 360 409 769 1,551 (60) 1,491
Credit Card 400 (81) 319 296 (66) 230
- ---------------------------------------------------------------------------------------------------------------------------
4,007 2,858 6,865 8,288 (1,876) 6,412
- ---------------------------------------------------------------------------------------------------------------------------
Investments 2,855 1,793 4,648 511 113 624
Interest earning deposits 96 302 398 11 (362) (351)
- ---------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 6,958 4,953 11,911 8,810 (2,125) 6,685
- ---------------------------------------------------------------------------------------------------------------------------
Interest expense:
Savings (55) 42 (13) (25) 9 (16)
Money Market/Premier 385 795 1,180 552 (136) 416
Commercial Checking 57 149 206 70 (2) 68
N.O.W. Accounts 66 94 160 92 (47) 45
Time deposits 2,266 2,600 4,866 1,319 (387) 932
- ---------------------------------------------------------------------------------------------------------------------------
2,719 3,680 6,399 2,008 (563) 1,445
- ---------------------------------------------------------------------------------------------------------------------------
Federal Home Loan
Bank advances and other borrowings 1,704 1,174 2,878 1,962 (824) 1,138
- ---------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 4,423 4,854 9,277 3,970 (1,387) 2,583
- ---------------------------------------------------------------------------------------------------------------------------
Change in net interest income $2,535 $99 $2,634 $4,840 $(738) $4,102
- ---------------------------------------------------------------------------------------------------------------------------
PRIME BANCORP, INC. 1996 ANNUAL REPORT
Financial Condition Data
(Dollars in thousands)
As of December 31,
- ---------------------------------------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996
- ---------------------------------------------------------------------------------------------------------------------------
Total Amount of:
Assets $512,404 $598,858 $739,231 $819,961 $926,071
Loans (2) and mortgage-backed securities 409,361 493,779 566,514 639,866 766,811
Investment securities and interest-bearing deposits 68,367 66,113 117,193 123,310 89,628
Land acquired for development and resale 1,000 838 694 10,405 8,858
Deposits 439,796 491,163 585,066 644,306 736,642
Advances from Federal Home Loan
Bank of Pittsburgh 10,900 23,000 24,694 37,646 37,598
Other borrowed money 1,851 18,644 56,525 57,622 70,685
Stockholders' equity 52,001 58,629 57,369 69,279 70,516
Offices open 14 16 20 22 23
- ---------------------------------------------------------------------------------------------------------------------------
OPERATING DATA
(Dollars in thousands, except per share data)
Years Ended December 31,
- ---------------------------------------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996
- ---------------------------------------------------------------------------------------------------------------------------
Interest income $40,027 $41,953 $47,068 $58,979 $65,664
Interest expense 19,830 18,283 21,280 30,557 33,140
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income 20,197 23,670 25,788 28,422 32,524
Provision for loan losses 2,163 2,160 1,594 1,129 3,837
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 18,034 21,510 24,194 27,293 28,687
Gain (loss) on sale of:
Loans receivable 5 148 81 68 99
Investment securities 737 269 (285) 448 288
Mortgage servicing -- -- -- 260 --
Land acquired for development and resale -- -- -- 20 --
Real estate owned (71) (26) (17) (64) 14
Rental income 214 350 321 174 240
Fees and service charges and other income 1,989 1,859 2,077 2,537 2,580
Non-interest expense 11,994 13,593 16,034 18,930 25,995
- ---------------------------------------------------------------------------------------------------------------------------
Income before income taxes and effect of cumulative
change in accounting principle 8,914 10,517 10,337 11,806 5,913
Income tax expense 3,182 3,939 3,625 4,337 1,896
- ---------------------------------------------------------------------------------------------------------------------------
Income before effect of cumulative change
in accounting principle 5,732 6,578 6,712 7,469 4,017
Cumulative effect on prior years of change in tax
accounting method -- 1,055 -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Net income $5,732 $ 7,633 $6,712 $7,469 $4,017
- ---------------------------------------------------------------------------------------------------------------------------
Dividends declared $1,301 $1,821 $1,949 $2,351 $2,811
- ---------------------------------------------------------------------------------------------------------------------------
Earnings per share (1) $1.05 $1.27 $1.26 $1.38 $.74
- ---------------------------------------------------------------------------------------------------------------------------
(1) Earnings per share have been adjusted to reflect the stock split and stock
dividends.
(2) Loans include loans receivable and loans held for sale.
PRIME BANCORP, INC. o 1996 ANNUAL REPORT o PAGE 17
PRIME BANCORP, INC. 1996 ANNUAL REPORT
CONSOLIDATED SUMMARY OF QUARTERLY EARNINGS
The following quarterly financial information for the years ended December 31,
1995 and 1996 is unaudited. However, in the opinion of management, all
adjustments, which include only normal recurring adjustments necessary to
present fairly the results of operations for the periods, are reflected in
conformity with generally accepted accounting principles. Results of operations
for the periods presented are not necessarily indicative of the results for the
entire year or for any other interim period.
1995 1996
- ------------------------------------------------------------------------------------------------------------------------------
1st 2nd 3rd 4th 1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------------------------------------------
Interest income $13,888 $14,735 $15,005 $15,351 $15,345 $16,219 $16,989 $17,111
Interest expense 6,950 7,665 7,824 8,118 7,851 8,078 8,589 8,622
- ------------------------------------------------------------------------------------------------------------------------------
Net interest income 6,938 7,070 7,181 7,233 7,494 8,141 8,400 8,489
Provision for loan losses (233) (360) (363) (173) (363) (472) (537) (2,465)(1)
- ------------------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 6,705 6,710 6,818 7,060 7,131 7,669 7,863 6,024
- ------------------------------------------------------------------------------------------------------------------------------
Non-interest income 417 1,043 931 1,052 970 849 672 730
Non-interest expense (4,301) (4,743) (4,795) (5,091) (4,913) (5,121) (7,934)(2) (8,027)(3)
- ------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income
taxes 2,821 3,010 2,954 3,021 3,188 3,397 601 (1,273)
Income tax (expense) benefit (982) (1,125) (1,106) (1,124) (1,092) (1,191) (114)(2) 501(3)
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Net Income (loss) $ 1,839 $ 1,885 $ 1,848 $ 1,897 $ 2,096 $ 2,206 $ 487 $ (772)
- ------------------------------------------------------------------------------------------------------------------------------
Earnings per share $ 0.35 $ 0.36 $ 0.35 $ 0.36 $ 0.39 $ 0.41 $ 0.09 $(0.14)
- ------------------------------------------------------------------------------------------------------------------------------
(1) Includes a one-time provision of approximately $1.0 million to accelerate
the resolution of problem loans.
(2) Includes a one-time FDIC Special Insurance Assessment of $1.66 million net
of taxes.
(3) Includes restructuring charges of $1.70 million net of taxes.
PRIME BANCORP, INC. 1996 ANNUAL REPORT
MARKET INFORMATION
The Company's common stock is traded on the over-the-counter market and reported
on the NASDAQ National Market System under the symbol "PSAB." On February 1,
1997 there were 5,380,990 shares of common stock issued and outstanding, which
were held by approximately 812 stockholders. The following table sets forth the
high and low closing sale prices for the common stock, as quoted on the NASDAQ
National Market System, and the dividends declared per share, for the periods
indicated.
Dividends
Declared
For The Quarter Ended High Low (Per Share)
--------------------------------------------------------
December 31, 1988 $ 5.39 $ 4.27 N/A
March 31, 1989 $ 5.76 $ 5.16 $.03
June 30, 1989 6.05 5.68 .03
September 30, 1989 6.87 5.76 .04
December 31, 1989 6.69 5.68 .04
--------------------------------------------------------
March 31, 1990 $ 5.95 $ 4.84 $.05
June 30, 1990 5.12 4.27 .05
September 30, 1990 4.46 4.00 .05
December 31, 1990 3.53 3.15 .05
--------------------------------------------------------
March 31, 1991 $ 5.58 $ 3.25 $.05
June 30, 1991 6.05 5.12 .05
September 30, 1991 8.36 5.31 .05
December 31, 1991 8.36 6.69 .07
--------------------------------------------------------
March 31, 1992 $ 9.11 $ 8.36 $.08
June 30, 1992 9.48 8.74 .09
September 30, 1992 8.93 8.28 .10
December 31, 1992 10.78 9.40 .10
--------------------------------------------------------
March 31, 1993 $13.39 $10.23 $.10
June 30, 1993 15.08 12.19 .18
September 30, 1993 15.08 13.23 .11
December 31, 1993 17.35 14.67 .11
--------------------------------------------------------
March 31, 1994 $17.56 $15.91 $.13
June 30, 1994 17.97 16.95 .13
September 30, 1994 15.91 14.87 .13
December 31, 1994 15.23 14.32 .15
--------------------------------------------------------
March 31, 1995 $17.27 $16.14 $.15
June 30, 1995 16.36 15.68 .15
September 30, 1995 19.09 18.18 .15
December 31, 1995 20.88 18.00 .17
--------------------------------------------------------
March 31, 1996 $18.25 $17.75 $.17
June 30, 1996 18.75 18.00 .17
September 30, 1996 19.50 18.75 .17
December 31, 1996 20.50 18.75 .17
--------------------------------------------------------
The Board of Directors of the Company, on December 20, 1995, declared a
special 10% stock dividend to shareholders in the form of a dividend which was
paid on February 1, 1996 to shareholders of record on January 2, 1996. The
trading information set forth above has been adjusted to reflect such stock
dividends and adjusted for the previous stock split and 10% stock dividends for
purposes of comparability.
It is the Company's current policy to pay quarterly cash dividends. Future
cash dividends will be subject to determination and declaration by the Board of
Directors, which will take into account the Company's financial condition,
results of operations, industry standards, economic conditions, and regulatory
and tax considerations. Funds for the payment of the dividends by the Company
are obtained from the Bank. The amount of dividends that may be declared or paid
by the Bank are subject to certain restrictions. See Note 3 to the consolidated
financial statements.
The listed market makers for the stock are: Robert W. Baird & Co., Inc.;
Wheat First Securities Inc.; Herzog, Heine, Geduld, Inc.; Sandler O'Neill &
Partners; Janney Montgomery Scott, Inc.; F.J. Morrissey & Co., Inc.; and Ryan
Beck & Co., Inc.
PRIME BANCORP, INC. o 1996 ANNUAL REPORT o PAGE 19
- ---------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
December 31,
- ---------------------------------------------------------------------------------------------------------------------------
1995 1996
- ---------------------------------------------------------------------------------------------------------------------------
Assets:
Cash and due from banks $17,627 $29,161
Interest-bearing deposits 35,263 2,703
Federal Funds Sold -- 600
- ---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 52,890 32,464
- ---------------------------------------------------------------------------------------------------------------------------
Investment securities (fair value of $99,129 and $110,874) 98,000 110,766
Investment securities available for sale 126,065 125,428
Loans receivable: 503,665 624,426
Deferred fees (549) (327)
Allowance for loan losses (6,082) (7,206)
- ---------------------------------------------------------------------------------------------------------------------------
Loans receivable, net 497,034 616,893
- ---------------------------------------------------------------------------------------------------------------------------
Loans held for sale 6,814 49
Accrued interest receivable 6,483 6,826
Real estate owned 419 1,335
Land acquired for development and resale 10,405 8,858
Property and equipment, net 10,278 10,291
Other assets 11,573 13,161
- ---------------------------------------------------------------------------------------------------------------------------
Total assets $819,961 $926,071
- ---------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity:
Liabilities:
Deposits $644,306 $736,642
Advances from Federal Home Loan Bank of Pittsburgh 37,646 37,598
Other borrowed money 57,622 70,685
Advance payments by borrowers for taxes and insurance 2,403 2,104
Other liabilities 8,705 8,526
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 750,682 855,555
- ---------------------------------------------------------------------------------------------------------------------------
Commitments & Contingencies (Note 14)
Stockholders' equity:
Serial preferred, $1 par value; 2,000,000 shares authorized and unissued -- --
Common stock, $1 par value; 13,000,000 shares authorized and 5,270,357
and 5,291,157 issued and outstanding 5,270 5,291
Additional paid-in capital 37,204 37,390
Retained earnings (Note 3) 27,950 29,156
Valuation adjustment for debt securities net of taxes (1,145) (1,321)
- ---------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 69,279 70,516
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $819,961 $926,071
- ---------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
PRIME BANCORP, INC. 1996 ANNUAL REPORT
Consolidated Statements of Operations
(Dollars in thousands, except per share data)
Years Ended December 31,
- ---------------------------------------------------------------------------------------------------------------------------
1994 1995 1996
- ---------------------------------------------------------------------------------------------------------------------------
Interest income:
Loans receivable $36,185 $43,050 $49,462
Investment securities 10,635 15,283 15,907
Interest-bearing deposits 248 646 295
- ---------------------------------------------------------------------------------------------------------------------------
Total interest income 47,068 58,979 65,664
- ---------------------------------------------------------------------------------------------------------------------------
Interest expense:
Deposits 18,867 25,266 26,711
Short-term borrowings 1,349 3,534 5,272
Long-term borrowings 1,064 1,757 1,157
- ---------------------------------------------------------------------------------------------------------------------------
Total interest expense 21,280 30,557 33,140
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income 25,788 28,422 32,524
- ---------------------------------------------------------------------------------------------------------------------------
Provision for loan losses 1,594 1,129 3,837
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 24,194 27,293 28,687
- ---------------------------------------------------------------------------------------------------------------------------
Non-interest income:
Fees and service charges 1,595 1,781 1,902
Gain (loss) on sale of:
Loans receivable, net 81 68 99
Investment securities, net (285) 448 288
Land acquired for development and resale -- 20 --
Mortgage servicing -- 260 --
Real estate owned (17) (64) 14
Rental income 321 174 240
Other 482 756 678
- ---------------------------------------------------------------------------------------------------------------------------
Total non-interest income 2,177 3,443 3,221
- ---------------------------------------------------------------------------------------------------------------------------
Non-interest expense:
Salaries and employee benefits 7,638 9,065 10,437
Occupancy and equipment 2,960 3,825 4,985
Federal deposit insurance premiums 876 1,008 753
FDIC special assessment -- -- 2,713
Restructuring and other merger related expenses -- -- 2,260
Other 4,560 5,032 4,847
- ---------------------------------------------------------------------------------------------------------------------------
Total non-interest expense 16,034 18,930 25,995
- ---------------------------------------------------------------------------------------------------------------------------
Income before income taxes 10,337 11,806 5,913
Income taxes 3,625 4,337 1,896
- ---------------------------------------------------------------------------------------------------------------------------
Net income $ 6,712 $ 7,469 $ 4,017
- ---------------------------------------------------------------------------------------------------------------------------
Primary and fully diluted earnings per share:
Net income $ 1.26 $ 1.38 $ .74
Weighted average number of shares outstanding 5,311,513 5,399,571 5,430,529
Dividends declared per share $ .54 $ .62 $ .68
- ---------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
PRIME BANCORP, INC. o 1996 ANNUAL REPORT o PAGE 21
PRIME BANCORP, INC. 1996 ANNUAL REPORT
Consolidated Statements of Stockholders' Equity
(Dollars in thousands)
Valuation
Adjustment
for Debt
Additional Securities Total
Common Paid in Retained Net of Stockholders'
Stock Capital Earnings Taxes Equity
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 $5,204 $36,896 $18,069 $313 $60,482
Stock options exercised 66 267 -- -- 333
Tax benefit associated with exercise of stock options -- 41 -- -- 41
Dividends declared ($.54 per common share) -- -- (1,949) -- (1,949)
Valuation adjustment for debt securities net of taxes -- -- -- (7,397) (7,397)
Net Income -- -- 6,712 -- 6,712
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 5,270 37,204 22,832 (7,084) 58,222
Dividends declared ($.62 per common share) -- -- (2,351) -- (2,351)
Valuation adjustment for debt securities net of taxes -- -- -- 5,939 5,939
Net Income -- -- 7,469 -- 7,469
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 5,270 37,204 27,950 (1,145) 69,279
Stock options exercised 21 112 -- -- 133
Tax benefit associated with exercise of stock options -- 74 -- -- 74
Dividends declared ($.68 per common share) -- -- (2,811) -- (2,811)
Valuation adjustment for debt securities net of taxes -- -- -- (176) (176)
Net Income -- -- 4,017 -- 4,017
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 $5,291 $37,390 $29,156 $(1,321) $70,516
- ---------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
PRIME BANCORP, INC. 1996 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Years Ended December 31,
- ---------------------------------------------------------------------------------------------------------------------------
1994 1995 1996
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $6,712 $7,469 $4,017
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization of intangibles 1,596 1,887 2,443
(Gain) Loss on sale of:
Loans held for sale (81) (68) (99)
Investment securities 285 (448) (288)
Land acquired for development and resale -- (20) --
Real estate owned 17 64 (14)
Provision for loan losses 1,594 1,129 3,837
Increase in accrued interest receivable (909) (1,365) (343)
(Increase) decrease in other assets (3,514) 1,626 (1,296)
Increase (decrease) in other liabilities 7,388 (4,798) (462)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided from operating activities 13,088 5,476 7,795
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Investment securities:
Purchases (13,256) (49,549) (35,314)
Maturities 21 15,427 23,029
Investment securities held for sale:
Purchases (150,862) (84,848) (63,087)
Maturities 19 062 13,630 24,333
Sales 49,801 118,343 40,443
Loans receivable:
Originations, net of repayments (40,259) (71,816) (121,829)
Sales -- -- --
Loans held for sale:
Originations, net of repayments (10,228) (7,015) (7,855)
Sales 8,756 9,742 9,492
Decrease in land acquired for development and resale 144 (819) (1,188)
Purchase of property and equipment (2,021) (1,611) (2,077)
Proceeds from the sale of land acquired for
development and resale -- 520 2,735
Decrease in real estate owned (5) (225) --
Proceeds from sale of real estate owned 1,015 914 367
Net cash and cash equivalents received from
banking institutions acquired 78,195 -- --
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (59,637) (57,307) (130,951)
- ---------------------------------------------------------------------------------------------------------------------------
PRIME BANCORP, INC. o 1996 ANNUAL REPORT o PAGE 23
PRIME BANCORP, INC. 1996 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Dollars in thousands)
Years Ended December 31,
- ---------------------------------------------------------------------------------------------------------------------------
1994 1995 1996
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase in deposits $11,780 $59,432 $92,336
Advances from the Federal Home Loan Bank
of Pittsburgh 47,544 79,602 46,200
Repayments of advances from the Federal
Home Loan Bank of Pittsburgh (45,850) (66,650) (46,248)
Increase in other borrowed money 37,881 2,147 13,063
Increase (decrease) in advance payments
by borrowers for taxes and insurance 9 102 (299)
Net proceeds from issuance of common stock 1,333 -- 207
Purchase of treasury stock -- (198) --
Cash dividends paid (1,763) (2,292) (2,529)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided from financing activities 50,934 72,143 102,730
- ---------------------------------------------------------------------------------------------------------------------------
Net change in cash and cash equivalents 4,385 20,312 (20,426)
Cash and cash equivalents:
Beginning of year 28,193 32,578 52,890
End of year $32,578 $52,890 $32,464
- ---------------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $20,748 $29,142 $33,165
Income taxes 4,170 4,238 3,100
Securitization of residential loans -- -- 2,091
Transfer of investment securities to held to maturity 6,217 87,035 --
Transfer of investment securities to available for sale -- 38,324 --
Transfer of loans receivable to loans held for sale -- 4,813 --
Transfer of loans held for sale to loans receivable -- -- 3,136
Transfer of loans receivable to real estate owned 957 849 1,269
Benefit associated with the exercise of stock options 66 -- 74
Acquisitions:
In conjunction with the acquisitions,
liabilities assumed and assets
acquired were as follows:
Assets acquired, net of cash and cash received $4,519 $ -- $ --
Cash and cash equivalents received 78,195 -- --
Liabilities assumed 82,714 -- --
- ---------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
- -------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a description of the significant accounting policies of Prime
Bancorp, Inc. and subsidiaries (the "Company"). The accompanying consolidated
financial statements have been prepared in conformity with generally accepted
accounting principles ("GAAP"), which have been applied on a consistent basis.
BUSINESS
The Company's principal subsidiaries are Prime Bank and First Sterling Bank
whose principal business consists of attracting deposits and obtaining
borrowings, then converting those deposits and borrowings into various types of
loans, mortgage-backed securities, and other investments. These operations are
conducted through a branch network in Southeastern Pennsylvania. The Banks are
subject to competition from other financial institutions and are also subject to
the regulations of certain federal agencies and undergo periodic examinations by
those regulatory authorities.
Effective March 19, 1996, Prime Bank, a federal savings bank, converted
into a Pennsylvania chartered stock savings bank with the legal name, "Prime
Bank, a savings bank." After the conversion, the Bank continued to do business
under the name "Prime Bank" and the Bank's deposits continue to be insured by
the Savings Association Insurance Fund ("SAIF") administered by the Federal
Deposit Insurance Corporation ("FDIC"). The Bank continues to meet all
applicable "qualified thrift lender" tests. In the opinion of the Company's
management, there are not likely to be any material differences in the impact of
Pennsylvania banking laws and regulations on the ordinary activities of the
Bank, as compared to federal laws and regulations applicable to federal savings
associations.
BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned and majority-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
Certain amounts in prior years have been reclassified for comparative purposes.
In preparing the consolidated financial statements, management is required
to make estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the balance sheet and revenues and expenses for
the period. Actual results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant change in
the near term relate to the determination of the allowance for loan losses and
the valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of the allowances
for loan losses and the estimated fair value of real estate owned, management
obtains independent appraisals for significant properties.
CASH AND CASH EQUIVALENTS
For purposes of the Consolidated Statements of Cash Flows, the Company considers
cash and cash equivalents to include cash, due from banks, interest-bearing
deposits with maturities of 3 months or less and federal funds sold.
INVESTMENT SECURITIES
Securities classified as held-to-maturity are those securities in which the
Company has the ability and intent to hold the securities until maturity and are
recorded at amortized cost, adjusted for the amortization of premiums and
discounts. All other securities not included in held-to-maturity are classified
as available-for-sale and are recorded at fair value.
Unrealized holding gains and losses, net of the related tax effect, on
available-for-sale securities are excluded from earnings and are reported as a
separate component of stockholders' equity until realized. Transfers of
securities between categories are recorded at fair value at the date of
transfer.
With the issuance of "A Guide to Implementation of Statement 115 Accounting
for Debt and Equity Securities," the Financial Accounting Standards Board
allowed institutions to reassess the appropriateness of the classifications of
all securities and account for any resulting reclassifications at fair value.
The reclassifications could occur no later than December 31, 1995 and would not
call into question the intent of an institution to hold other debt securities to
maturity in the future (See Note 5).
A decline in the fair value of any available-for-sale or held-to-maturity
security below cost that is deemed other than temporary is charged to earnings
resulting in the establishment of a new cost basis for the security.
Premiums and discounts are amortized or accreted over the life of the
related security as an adjustment to yield using the effective interest method.
Dividend and interest income are recognized when earned. Realized gains and
losses are included in earnings and are derived using the specific
identification method for determining the cost of securities sold.
The Company has one interest rate swap which is used to hedge the interest
rate risk of 7 year fixed-rate certificates of
PRIME BANCORP, INC. o 1996 ANNUAL REPORT o PAGE 25
PRIME BANCORP, INC. 1996 ANNUAL REPORT
deposit. The Company has three interest rate swaptions which are used to
hedge the interest rate risk of 15 year fixed-rate certificates of deposit which
are callable in two years. The Company does not use derivatives for trading
purposes.
REAL ESTATE OWNED
Real estate acquired in partial or full satisfaction of loans are classified as
Real Estate Owned ("REO"). Prior to transferring a real estate loan to REO it is
written down to the lower of cost or fair value less costs to sell. This
write-down is charged to the allowance for loan losses. Subsequently, REO is
carried at the lower of fair value less estimated costs to sell or carrying
value.
LAND ACQUIRED FOR DEVELOPMENT AND RESALE
Land acquired for development and resale represents land and construction in
progress and is carried at the lower of cost or fair value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is computed using the straight-line method based upon the lesser of
the lease term (where applicable) or the estimated useful lives of the related
property, which range from 5 to 40 years. Maintenance and repairs are expensed
as incurred.
LOANS RECEIVABLE
Interest income is recognized on the accrual basis. Generally, loans are placed
on non-accrual status when the loan becomes past due by 90 days or more as to
principal or interest. After a loan is placed on non-accrual status, any
interest previously accrued but not yet collected is reversed against current
interest income. A loan is returned to accrual status only when the borrower has
brought principal and interest current and full collectability is reasonably
assured.
Fees earned for servicing loans for others are reported as income when the
related loan payments are collected. Loan servicing costs are charged to expense
as incurred. If the Banks sell loans and continue to service such loans for the
investor, the computation of the gain or loss is adjusted to allow for a normal
servicing fee over the estimated remaining maturities of the loans sold. Normal
servicing fees are based on the minimum servicing rates of the relevant
federally-sponsored market makers or comparable rates for transactions with
other investors. The resulting deferral is amortized as an adjustment of
servicing fee income over a period generally not in excess of 7 years.
LOAN IMPAIRMENT
Impaired loans are measured based on the present value of expected future cash
flows, discounted at the loan's effective interest rate or, as a practical
expedient, at the loans observable market price or the fair value of the
collateral if the loan is collateral dependent. All payments received are
applied to the principal balance.
DEFERRED LOAN FEES, NET
Loan origination fees, commitment fees and loan origination costs are deferred
and amortized as an adjustment to the yield over the life of the loan in a
manner which approximates the interest method.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is based on a periodic evaluation of the portfolio
and is maintained at a level that management considers adequate to absorb losses
known and inherent in the portfolio. Management considers a variety of factors
when establishing the allowance recognizing that an inherent risk of loss always
exists in the lending process. Consideration is given to the impact of current
economic conditions, diversification of the loan portfolio, historical loss
experience, delinquency statistics, results of detailed loan and regulatory
reviews, borrowers' financial and managerial strengths, the adequacy of
underlying collateral, and other relevant factors. The allowance for loan losses
is increased by the provision for loan losses and recoveries on previously
charged-off loans, and is reduced by actual charge-offs. While management uses
available information to recognize losses on loans, future additions to the
allowance for loan losses may be necessary based on changes in economic
conditions. In addition, various regulatory agencies as an integral part of
their examination process, periodically review the allowance for loan losses.
Such agencies may require the Company to recognize additions to the allowance
for loan losses based on their judgments of information which is available to
them at the time of their examination.
A substantial portion of the Company's loans are secured by real estate in
the Company's market area. Accordingly, the ultimate collectibility of a
substantial portion of the Company's loan portfolio and the recoverability of a
substantial portion of the carrying amount of real estate owned is susceptible
to changes in economic and market conditions in the market area. However,
management believes that the allowance for loan losses is adequate and that the
value assigned to properties included in real estate owned and land acquired for
development and resale do not exceed their current estimated fair values less
estimated costs to sell.
PRIME BANCORP, INC. 1996 ANNUAL REPORT
LOANS HELD FOR SALE
The Banks have adopted a policy to sell fixed-rate single family residential
mortgage loans and adjustable-rate mortgages which meet the underwriting and
securitization characteristics of certain market makers. Conforming loans are
recorded as loans held for sale and are valued at the lower of aggregate cost or
market.
MORTGAGE SERVICING RIGHTS\
The Company recognizes as separate assets, the right to service mortgage
loans based on the fair value of those rights.
The carrying value of capitalized MSRs at December 31, 1996 was $340
thousand which approximated fair value. Fair value was determined by calculating
the discounted present value of estimated expected net future cash flows,
considering estimated prepayments and defaults, projected interest rates and
other factors. For purposes of evaluating and measuring impairment, capitalized
MSRs are aggregated into groups having homogeneous risk characteristics, based
on the attributes of the underlying loans, and are separately valued, using
appropriate assumptions for each risk group. No valuation allowance was required
for capitalized MSRs at December 31, 1996.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. Adoption of this Statement did not have a material impact on the Company's
financial position, results of operations, or liquidity.
TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES
In June 1996, the Financial Accounting Standards Board issued SFAS No. 125,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities. SFAS No. 125 is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after December 31,
1996 and is to be applied prospectively. This Statement provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities based on consistent application of a financial
components approach that focuses on control. It distinguishes transfers of
financial assets that are sales from transfers that are secured borrowings.
Management of the Company does not expect that adoption of SFAS No. 125 will
have a material impact on the Company's financial position, results of
operations, or liquidity.
INCOME TAXES
The Company and its wholly owned subsidiaries file a consolidated federal income
tax return.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Prior to January 1, 1996 the Bank qualified under provisions of the
Internal Revenue Code which permitted it to deduct up to 8% of taxable income,
an allowance for bad debts based on a percentage of taxable income before such
deduction. This tax provision was repealed on January 1, 1996 from the Internal
Revenue Code.
CAPITAL
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
prompt corrective action regulations define specific capital categories based on
an institution's capital ratios. The capital categories, in declining order, are
"well capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized," and "critically undercapitalized."
To be considered "adequately capitalized," an institution must generally
have a leverage ratio of at least 4%, a Tier 1 risk-based capital ratio of at
least 4%, and a total risk-based capital ratio of at least 8%. A bank holding
company must generally have a primary capital ratio of at least 5.5% and a total
capital ratio of at least 6.0% to be deemed adequately capitalized. The
regulatory capital ratios of the company and each bank exceed those
requirements. The regulatory capital ratios of both Prime Bank and First
Sterling Bank exceed the "well capitalized" ratio requirements of 10% total
risk-based capital, 6.0% Tier 1 risk-based capital and a 5.0% leverage ratio.
PRIME BANCORP, INC. o 1996 ANNUAL REPORT o PAGE 27
PRIME BANCORP, INC. 1996 ANNUAL REPORT
REGULATORY CAPITAL SCHEDULE
(Dollars in thousands)
Capital
Actual Requirements
Amount Ratio Amount Ratio
- --------------------------------------------------------------
Tier 1 capital
(to risk-weighted assets):
Prime Bank $44,564 9.56% $18,648 4.00%
First Sterling
Bank 13,479 8.14% 6,621 4.00%
- --------------------------------------------------------------
Total capital
(to risk-weighted assets):
Prime Bank 49,022 10.52% 37,296 8.00%
First Sterling
Bank 15,556 9.40% 13,242 8.00%
- --------------------------------------------------------------
Leverage (to average assets):
Prime Bank 44,564 6.65% 26,791 4.00%
First Sterling
Bank 13,479 5.88% 9,173 4.00%
- --------------------------------------------------------------
EARNINGS PER SHARE
Earnings per share have been calculated based on the weighted average number of
shares of common stock outstanding for the respective periods. Stock options are
considered common stock equivalents and are included in the computation of the
number of outstanding shares using the treasury stock method, unless
anti-dilutive. Earnings per share has been restated to reflect the stock splits
and stock dividends.
STOCK OPTION PLAN
The Company accounts for its stock option plan in accordance with the provisions
of Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock
Issued to Employees, and related interpretations. As such, compensation expense
is recorded on the date of grant only if the current market price of the
underlying stock exceeds the exercise price. On January 1, 1996, the Company
adopted SFAS No. 123, Accounting for Stock-Based Compensation, which permits
entities to recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows
entities to continue to apply the provisions of APB Opinion No. 25 and provide
pro forma net income and pro forma earnings per share disclosures for employee
stock option grants made in 1995 and future years as if the fair-value-based
method defined in SFAS No. 123 had been applied. The Company has elected to
continue to apply the provisions of APB Opinion No. 25 and provide the pro forma
disclosure provisions of SFAS No. 123.
2. ACQUISITIONS
On December 31, 1996, the Company acquired First Sterling Bancorp, Inc.
("FSB") in a transaction structured as a pooling of interests. Each outstanding
share of common stock of FSB was exchanged for one share of the Company. This
resulted in the issuance of approximately 1.66 million shares of Company stock.
In connection with the First Sterling Bancorp, Inc. merger and as required by
the Convertible Subordinated Debentures agreement, at December 31, 1996 the
Company also converted the $1.05 million principal amount of debentures issued
in 1990 and 1991 by First Sterling Bancorp, Inc. to 110,510 shares of Prime
stock. The transaction was tax-free to the shareholders for federal income tax
purposes.
The results of operations previously reported by the separate enterprises
and the combined amounts presented in the accompanying consolidated financial
statements are summarized below.
Years Ended
December 31,
- -----------------------------------------------------------------
1994 1995 1996
- -----------------------------------------------------------------
Net interest income:
Prime Bancorp $19,733 $20,970 $23,808
First Sterling 6,055 7,452 8,716
- -----------------------------------------------------------------
Combined $25,788 $28,422 $32,524
- -----------------------------------------------------------------
Net income:
Prime Bancorp $5,808 $5,853 $3,265
First Sterling 904 1,616 752
- -----------------------------------------------------------------
Combined $6,712 $7,469 $4,017
- -----------------------------------------------------------------
Total Assets:
Prime Bancorp $566,904 $607,975 $691,422
First Sterling 172,327 211,986 234,649
- -----------------------------------------------------------------
Combined $739,231 $819,961 $926,071
- -----------------------------------------------------------------
Total Deposits:
Prime Bancorp $447,651 $476,539 $554,237
First Sterling 137,415 167,767 182,405
- -----------------------------------------------------------------
Combined $585,066 $644,306 $736,642
- -----------------------------------------------------------------
Total Stockholders' Equity:
Prime Bancorp $47,641 $56,247 $57,037
First Sterling 9,728 13,032 13,479
- -----------------------------------------------------------------
Combined $57,369 $69,279 $70,516
- -----------------------------------------------------------------
PRIME BANCORP, INC. 1996 ANNUAL REPORT
3. STOCKHOLDERS' EQUITY
OTS regulations require that mutual associations converting to stock form of
ownership establish a "Liquidation Account" in an amount equal to the total net
worth of the association as of the date of the latest balance sheet contained in
the final offering circular. Each eligible savings account holder is entitled to
a proportionate share (subaccount) of this amount in the event of a complete
liquidation of the association, and only in such event. This subaccount is
reduced if the subaccount holders' savings deposits fall below the amount at the
date of record and will cease to exist if the savings account is closed. The
liquidation account will never be increased despite any increase after
conversion in the related savings deposits of a subaccount holder. At the time
of its conversion to a stock form of ownership, Prime Bank's liquidation account
was approximately $18,737,000. Prime Bank's liquidation account at December 31,
1996 was approximately $4,500,000.
The creation and maintenance of the liquidation account does not restrict
use or application of any of the stockholders' equity accounts of Prime Bank
except that Prime Bank may not declare or pay any cash dividend on or repurchase
any of its common stock, if the effect of such dividend or repurchase would be
to cause the stockholders' equity of Prime Bank to be reduced below the
aggregate amount then required for the liquidation account or the regulatory net
worth requirement.
The Company offers to its stockholders a Dividend Reinvestment and Stock
Purchase Plan, which provides participants with a method of reinvesting all or a
portion of cash dividends paid on shares of common stock in additional shares of
common stock without the payment of brokerage commissions or charges. Shares
purchased under such plan are purchased in the open market.
4. STOCK OPTION PLAN
The Company's Incentive Stock Option Plan provides for the grant of incentive
options to directors and certain employees of the Company or its subsidiaries
and the grant of non-incentive options to directors who are not full-time
employees of the Company or its subsidiaries. The option plan is administered by
a stock option committee which consists of three directors of the Company, none
of whom are eligible to receive options. The exercise price under the option
plan must be at least equal to the fair market value of the shares on the date
of grant, and no option may be exercisable after the expiration of ten years
from the date it is granted.
Under the Company's original option plan, 367,356 shares of Common Stock
have been reserved for issuance, of which a total of 364,731 stock options have
been granted since inception of the plan at an option price of $4.32 per share.
The maximum number of shares subject to the option plan may be adjusted for a
change in capitalization or reorganization. The option plan is designed
primarily as an incentive for full time employees responsible for the decision
making, policy formation and personnel supervision functions that most directly
affect the earnings of the Company and the welfare of its subsidiaries. Since
the inception of the stock option plan, 245,173 stock options were exercised and
13,439 stock options have been forfeited.
On December 21, 1994, the Board of Directors of the Company adopted an
Incentive Stock Option Plan ("Option Plan") also for the benefit of officers and
other full-time employees of the Company or its subsidiaries. The Option Plan
provides for the grant of non-incentive options to directors who are not full
time employees of the Company. The Option Plan was approved by the shareholders
at the April 19, 1995 annual meeting. Under the Option Plan, 388,978 shares of
common stock, par value $1.00 per share, have been reserved for issuance of
which a total of 255,000 shares have been granted at an average option price of
$17.98 per share as of December 31, 1996. The Board of Directors has also
reserved 100,000 shares of common stock, par value $1.00 per share, for options
granted to one officer.
At December 31, 1996, there were 133,978 additional shares available for
grant under the Plan. The per share weighted-average fair value of stock options
granted during 1995 and 1996 was $556,000 and $872,100 on the date of grant
using the Black Scholes option-pricing model with the following weighted-average
assumptions: 1995--expected dividend yield 3.4%, risk-free interest rate of
5.5%, expected volatility of stock over the expected life of the options of
31.2%, and an expected life of 5 years; 1996--expected dividend yield 3.3%,
risk-free interest rate of 5.8%, expected volatility of stock over the expected
life of the options of 13.8%, and an expected life of 5 years.
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the financial statements. Had the Company determined compensation cost based on
the fair value at the grant date for its stock options under SFAS No. 123, the
Company's net income would have been reduced to the pro forma amounts indicated
below.
1995 1996
- ------------------------------------------------------------------------------
Net income As reported $7,469 $4,017
Pro forma 6,913 3,323
Earning per
share As reported $1.38 $0.74
Pro forma 1.28 0.61
- ------------------------------------------------------------------------------
Pro forma net income reflects only options granted in 1995 and 1996.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected over the options' vesting period of 2 years
and compensation cost for options granted prior to January 1, 1995 is not
considered.
PRIME BANCORP, INC. o 1996 ANNUAL REPORT o PAGE 29
PRIME BANCORP, INC. 1996 ANNUAL REPORT
5. INVESTMENT SECURITIES
Investment securities at December 31, 1995 and 1996 were comprised of the
following (dollars in thousands):
1995 1996
- ---------------------------------------------------------------------------------------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------------------------------
Held to Maturity
- ---------------------------------------------------------------------------------------------------------------------------
State and municipal $ 400 $ 31 $ -- $ 431 $ 6,739 $ 63 $ (31) $ 6,771
Israel Bonds -- -- -- -- 100 -- -- 100
US Govt & US Govt Agency
obligations 11,830 141 -- 11,971 -- -- -- --
Marketable equity securities:
FHLB of Pittsburgh stock 4,120 -- -- 4,120 5,728 -- -- 5,728
FNMA stock 3 -- -- 3 3 -- -- 3
Federal Reserve Bank stock 243 -- -- 243 243 -- -- 243
Atlantic Central Bankers
Bank stock 75 -- -- 75 75 -- -- 75
Financial Institutions
Insurance Group stock 50 -- -- 50 -- -- -- --
Valley Forge Investment
Companies, Inc. -- -- -- -- 100 -- -- 100
Mortgage Backed Securities:
GNMA Pass through
certificates 217 -- (4) 213 136 2 (1) 137
FHLMC Pass through
certificates 207 -- (1) 206 202 1 -- 203
Collateralized Mortgage
Obligations 80,855 1,031 (69) 81,817 97,440 475 (401) 97,514
- ---------------------------------------------------------------------------------------------------------------------------
$98,000 $1,203 $(74) $99,129 $110,766 $541 $(433) $110,874
- ---------------------------------------------------------------------------------------------------------------------------
Available for Sale
- ---------------------------------------------------------------------------------------------------------------------------
U.S. Govt and U.S. Govt
Agency obligations $ 52,961 $646 $ (45) $ 53,562 $ 62,037 $235 $ (244) $ 62,028
SBA Certificates 17,233 55 (1) 17,287 8,340 -- (31) 8,309
Certificates of Deposit 477 -- -- 477 3,000 -- -- 3,000
Mortgage Backed Securities:
GNMA Pass through
certificates 11,773 87 (91) 11,769 10,174 92 (88) 10,178
FHLMC Pass through
certificates 4,962 16 (86) 4,892 3,707 11 (65) 3,653
FNMA Pass through
certificates 10,062 41 (32) 10,071 7,449 46 (54) 7,441
Mortgage Pass through
obligations 158 -- -- 158 -- -- -- --
Collateralized Mortgage
Obligations 28,615 27 (793) 27,849 31,939 33 (1,153) 30,819
- ---------------------------------------------------------------------------------------------------------------------------
$126,241 $872 $(1,048) $126,065 $126,646 $417 $(1,635) $125,428
- ---------------------------------------------------------------------------------------------------------------------------
Gross gains of $0, $851,000, and $296,000 and gross losses of $285,000,
$403,000, and $8,000 were realized on sales of investment securities available
for sale for the years ended December 31, 1994, 1995, and 1996, respectively.
The amortized cost and estimated market value of investments securities at
December 31, 1996, by contractual maturity are shown on the next page (dollars
in thousands). Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
PRIME BANCORP, INC. 1996 ANNUAL REPORT
Held to Maturity Available for Sale
- ---------------------------------------------------------------------------------------------------------------------------
Weighted Weighted
Amortized Fair Average Amortized Fair Average
Cost Value Yield Cost Value Yield
- ---------------------------------------------------------------------------------------------------------------------------
Due in one year or less $6,439 $6,446 5.15% $8,995 $9,001 5.54%
Due after one year through five years -- -- -- 51,901 51,899 6.24%
Due after five years through ten years -- -- -- 6,487 6,488 7.59%
Due after ten years 400 425 9.55% 5,994 5,949 8.06%
- ---------------------------------------------------------------------------------------------------------------------------
6,839 6,871 5.41% 73,377 73,337 6.42%
Marketable equity securities 6,149 6,149 5.98% -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
$12,988 $13,020 5.68% $73,377 $73,337 6.42%
- ---------------------------------------------------------------------------------------------------------------------------
On December 22, 1995, the Company reclassified $50,978,000 in debt
securities from held to maturity to available for sale. The net unrealized gain
at the time of reclassification was $243,000.
Interest rate risk is reduced through investments in medium-term
Collateralized Mortgage Obligations ("CMOs") and Adjustable Rate Mortgages.
Approximately 86% of the CMO investments are U.S. Agency or backed by U.S.
Agency collateral and have average lives less than 3.07 years. The market value
of mortgage-backed securities are inversely related to interest rates, market
values generally rise as interest rates fall, and fall as interest rates rise.
Prepayment speeds, which are partly a function of interest rates, also influence
mortgage-backed security performance.
6. LOANS RECEIVABLE
Loans receivable at December 31, 1994, 1995, and 1996 were comprised of the
following (dollars in thousands):
1994 1995 1996
- -------------------------------------------------------------------------------
First mortgage loans:
Residential:
One to four units $ 185,409 $ 216,163 $ 235,023
Over four units 8,735 9,303 10,783
Commercial and land 88,767 102,958 120,841
Construction (net of loans
in process of $18,907,
$21,683, and $42,104) 36,154 29,881 44,598
- --------------------------------------------------------------------------------
Total first mortgage loans 319,065 358,305 411,245
- --------------------------------------------------------------------------------
Other loans:
Commercial 65,045 68,777 110,840
Installment 63,300 75,464 101,434
Loans on savings accounts 1,464 1,119 907
- --------------------------------------------------------------------------------
Total other loans 129,809 145,360 213,181
- --------------------------------------------------------------------------------
Total loans 448,874 503,665 624,426
- --------------------------------------------------------------------------------
Deferred loan fees (1,406) (549) (327)
Allowance for possible
loan losses (6,067) (6,082) (7,206)
- --------------------------------------------------------------------------------
Total loans receivable, net $441,401 $ 497,034 $ 616,893
- --------------------------------------------------------------------------------
As of December 31, 1995 and 1996, the Bank had impaired loans totaling
approximately $4,838,000 and $7,084,000, all of which had a related allowance
for impairment. The allowance for loan losses on impaired loans totalled
$345,000 and $707,000 as of December 31, 1995 and 1996, respectively. The
average balance of impaired loans was approximately $4,664,000 for 1995 and
$6,072,000 for 1996. Interest income not accrued for impaired loans for the
years ended December 31, 1994, 1995 and 1996 was approximately $380,000,
$366,000, and $414,000, respectively.
The Bank is principally a local lender and therefore has a significant
concentration of loans to borrowers who reside in and/or which are
collateralized by real estate located primarily in Philadelphia, Montgomery, and
Bucks counties.
In addition, the Company has taken a deed in lieu of foreclosure of a
condominium project of approximately $8.5 million. Such amounts are classified
as land acquired for development and resale.
The following is a summary of the activity in the allowance for loan losses
for the years ended December 31, 1994, 1995, and 1996 (dollars in thousands):
1994 1995 1996
- -------------------------------------------------------------------------------
Balance at beginning
of period $ 5,605 $ 6,067 $ 6,082
Provision for loan losses 1,594 1,129 3,837
Recoveries 127 338 190
Losses charged
against allowance (1,259) (1,452) (2,903)
- --------------------------------------------------------------------------------
Balance at end of period $ 6,067 $ 6,082 $ 7,206
- --------------------------------------------------------------------------------
The following is an analysis of loans to directors and officers for the year
ended December 31, 1996 (dollars in thousands):
1996
- -------------------------------------------------------------------------------
Balance at beginning of period $ 8,063
Additions 1,621
Repayments (2,883)
- --------------------------------------------------------------------------------
Balance at end of period $ 6,801
- --------------------------------------------------------------------------------
PRIME BANCORP, INC. o 1996 ANNUAL REPORT o PAGE 31
PRIME BANCORP, INC. 1996 ANNUAL REPORT
The loans to directors and officers are based upon substantially the same
underwriting criteria as those generally used by the Bank and do not involve
more than the normal risk of collectibility or present other unfavorable
features. At December 31, 1994, 1995, and 1996, the outstanding loans to
directors and officers were $11,433,000, $8,063,000, and $6,801,000
respectively.
At December 31, 1994, 1995, and 1996, the Bank was servicing loans for
others in the amount of $38,220,000, $22,775,000, and $34,755,000 respectively.
Loan servicing income for the years ended December 31, 1994, 1995, and 1996 was
$138,000, $228,000, and $1,000 respectively.
7. PROPERTY AND EQUIPMENT
Property and equipment, less accumulated depreciation and amortization, are
summarized by major classification at December 31, 1995, and 1996 as follows
(dollars in thousands):
1995 1996
- ---------------------------------------------------------------------------------------
Land $ 606 $ 596
Buildings 7,166 7,194
Furniture and equipment 8,132 9,489
Leasehold improvements 1,611 1,716
- ---------------------------------------------------------------------------------------
17,515 18,995
Less accumulated depreciation and amortization (7,237) (8,704)
- ---------------------------------------------------------------------------------------
$10,278 $10,291
- ---------------------------------------------------------------------------------------
Depreciation expense for the years ended December 31, 1994, 1995, and 1996 was
$1,281,000, $1,515,000, and $1,708,000, respectively.
8. DEPOSITS
Deposits at December 31, 1995 and 1996 consisted of the following (dollars in
thousands):
1995 1996
- ---------------------------------------------------------------------------------------------------------------------------
Interest % of Interest % of
Rate Amount Total Rate Amount Total
- ---------------------------------------------------------------------------------------------------------------------------
NOW Accounts 1.46% $ 37,602 5.84% 1.91% $ 44,444 6.03%
Money Market Deposit Accounts 3.69% 113,110 17.55% 3.30% 130,028 17.65%
Passbook and Club Accounts 2.05% 63,315 9.83% 2.05% 63,022 8.56%
Commercial Checking Accounts -- 59,799 9.28% -- 94,767 12.86%
- ---------------------------------------------------------------------------------------------------------------------------
273,826 42.50% 332,261 45.10%
- ---------------------------------------------------------------------------------------------------------------------------
IRA Accounts 5.87% 64,506 10.01% 5.79% 61,940 8.41%
14 to 31 Day Certificates 5.96% 462 0.07% 4.88% 227 0.03%
91 Day Certificate Accounts 5.21% 11,374 1.77% 4.96% 7,787 1.06%
Certificates with a $100,000
Minimum Balance 1 to 57
Month Maturities 5.74% 48,929 7.59% 5.44% 54,074 7.34%
6 Month Certificates 5.10% 74,562 11.57% 4.48% 74,395 10.10%
9 Month Certificates 5.06% 28,653 4.45% 4.87% 45,358 6.16%
18 Month Certificates 5.90% 11,335 1.76% 5.13% 9,488 1.29%
12 to 24 Month Certificates 5.18% 36,022 5.59% 5.01% 45,701 6.20%
30 to 60 Month Certificates 5.45% 83,108 12.90% 5.63% 81,683 11.09%
72 to 120 Month Certificates 5.98% 11,529 1.79% 5.95% 12,036 1.63%
180 Month Certificate callable in 2 years -- -- -- 7.30% 11,692 1.59%
- ---------------------------------------------------------------------------------------------------------------------------
370,480 57.50% 404,381 54.90%
- ---------------------------------------------------------------------------------------------------------------------------
$644,306 100.00% $736,642 100.00%
- ---------------------------------------------------------------------------------------------------------------------------
PRIME BANCORP, INC. 1996 ANNUAL REPORT
A summary of certificates by maturity at December 31, 1996 follows (dollars in
thousands):
Years Ending December 31, Amount % of Total
- ------------------------------------------------------------------
1997 $251,608 62.22%
1998 70,567 17.45%
1999 34,650 8.57%
2000 26,128 6.46%
Thereafter 21,428 5.30%
- ------------------------------------------------------------------
$404,381 100.00%
- ------------------------------------------------------------------
Interest expense on deposit accounts for the years ended December 31, 1994,
1995, and 1996 as follows (dollars in thousands):
1994 1995 1996
- -------------------------------------------------------------------
NOW accounts $ 692 $ 737 $ 782
Money market deposit accounts 2,853 3,919 4,334
Passbook and club accounts 1,837 1,862 1,916
Time deposits 13,485 18,748 19,679
- -------------------------------------------------------------------
$18,867 $25,266 $26,711
- -------------------------------------------------------------------
9. ADVANCES FROM FEDERAL HOME LOAN BANK OF PITTSBURGH
Under terms of its collateral agreement, the Bank is required to maintain
otherwise unencumbered qualifying assets in an amount of at least as much as
advances from The Federal Home Loan Bank of Pittsburgh. The advances had
maturities and weighted interest rates as follows at December 31, 1995 and 1996
(dollars in thousands):
December 31,
- -----------------------------------------------------------------------------------------
1995 1996
- -----------------------------------------------------------------------------------------
Weighted Weighted
Interest Interest
Maturing Period Amount Rate Amount Rate
- -----------------------------------------------------------------------------------------
1996 $35,048 5.79% $ -- --
1997 2,048 5.43% 15,048 5.50%
1998 48 5.12% 7,048 6.04%
1999 502 5.70% 502 5.70%
2000 -- -- 15,000 4.97%
- -----------------------------------------------------------------------------------------
$37,646 5.79% $37,598 5.39%
- -----------------------------------------------------------------------------------------
10. OTHER BORROWED MONEY
Other borrowed money at December 31, 1994, 1995, and 1996 was comprised of the
following (dollars in thousands):
1994 1995 1996
- ---------------------------------------------------------------------------------------------------------------------------
Securities sold under agreements to repurchase with a weighted average interest rate
of 6.18% in 1994, 5.60% in 1995 and 4.78% in 1996 $55,146 $37,622 $51,685
Repo plus agreements with the Federal Home Loan Bank of Pittsburgh with a weighted
average interest rate of 5.79% in 1995 and 6.08% in 1996 -- 20,000 19,000
Mortgage loans, secured by real estate payable in monthly installments, bearing
interest at a weighted interest rate of 6.38% in 1994 329 -- --
- ---------------------------------------------------------------------------------------------------------------------------
$55,475 $57,622 $70,685
- ---------------------------------------------------------------------------------------------------------------------------
The Bank has entered into repurchase agreements which are collateralized by
investment and mortgage-backed securities with a carrying value, including
accrued interest of $60,187,000, $49,176,000, and $53,450,000 at December 31,
1994, 1995, and 1996, respectively. The market value of the underlying
collateral was $56,643,000, $47,456,000, and $53,688,000 at December 31, 1994,
1995, and 1996, respectively. The maximum balance of repurchase agreements
outstanding at any month-end during the year was $55,771,000, $59,524,000, and
$124,981,000 for 1994, 1995, and 1996 and the average balance outstanding for
the year was $25,234,000, $51,959,000, and $59,158,000 for the years ended
December 31, 1994, 1995, and 1996, respectively.
The foregoing includes repurchase agreements with the Federal Home Loan
Bank of Pittsburgh under its repo plus program. These agreements do not identify
specific securities as collateral.
PRIME BANCORP, INC. o 1996 ANNUAL REPORT o PAGE 33
PRIME BANCORP, INC. 1996 ANNUAL REPORT
11. EMPLOYEE BENEFIT PLANS
The Banks have defined contribution plans pursuant to the provision of
401(k) of the Internal Revenue Code. The plans cover all employees who meet the
age and service requirements. Prime Bank's plan provides for elective employee
contributions up to 15% of compensation and a 66 2/3% matching company
contribution limited to 6%. First Sterling Bank's plan provides for elective
employee contributions up to 15% of compensation and a 40% matching company
contribution limited to 6%. The Banks contributed $235,000, $241,000, and
$176,000 to these plans during the years ended December 31, 1994, 1995, and
1996, respectively. Prime Bank's plan also includes a profit sharing feature.
Under this feature, all eligible employees share in the Company's profit sharing
contributions. The contributions for 1994, 1995, and 1996 were $135,000,
$134,000, and $135,000, respectively.
The Company has entered into a contract with one executive officer to
provide supplemental benefits after retirement pursuant to a new deferred
compensation agreement. Pursuant to the benefit plan, the Company will
contribute an amount representing the present value of the executive's accrued
benefit under the old plan to a trust established for his benefit with an
independent trustee. In the event of his death, the designated beneficiary would
receive distributions of principal and income of the trust over a period of ten
years, at which point the trust will be liquidated and the Company's obligations
to the executive under his plan shall terminate.
The Company does not provide post-retirement benefits nor post-employment
benefits to its employees other than the 401(k) Savings Plan as may be required
by applicable law.
12. INCOME TAXES
The provision (and benefit) for income taxes for the years ended December 31,
1994, 1995, and 1996 consisted of the following (dollars in thousands):
1994 1995 1996
- -----------------------------------------------------------------
Current:
State $ 286 $ 543 $ 297
Federal 3,109 3,720 1,890
- -----------------------------------------------------------------
3,395 4,263 2,187
- -----------------------------------------------------------------
Deferred:
Federal 230 74 (291)
- -----------------------------------------------------------------
230 74 (291)
- -----------------------------------------------------------------
$3,625 $4,337 $1,896
- -----------------------------------------------------------------
The provision for income taxes for the years ended December 31, 1994, 1995,
and 1996 differed from the statutory rate due to the following (dollars in
thousands):
1994 1995 1996
- -------------------------------------------------------------------
Pretax income $10,337 $11,806 $5,913
- -------------------------------------------------------------------
Tax at statutory rate 3,515 4,014 2,012
Tax exempt interest (97) (119) (127)
State taxes, net of federal
benefit and other 189 358 196
Merger Costs -- -- 222
Income tax credits -- (15) (370)
Other, net 18 99 (37)
- -------------------------------------------------------------------
$ 3,625 $ 4,337 $1,896
- -------------------------------------------------------------------
Deferred income taxes result from temporary differences in recording
certain revenues and expenses for financial reporting purposes. The deferred tax
assets at December 31, 1994, 1995, and 1996 consisted of the following debits
and (credits):
1994 1995 1996
- ---------------------------------------------------------------------
Deferred tax assets
Provision for loan losses
and REO losses $1,979 $1,882 $2,351
Deferred loan fees 626 427 170
Deferred compensation 525 514 537
Depreciation 80 92 233
Valuation adjustment
for debt securities 4,170 862 853
Other, net 327 455 298
- ---------------------------------------------------------------------
Gross deferred tax assets 7,707 4,232 4,442
- ---------------------------------------------------------------------
Deferred tax liabilities
Loss on sale of loans 36 23 16
Deferred loan costs 203 268 377
Valuation adjustment
for debt securities -- 213 42
FDIC insurance premium 179 -- 50
Depreciation 342 383 331
Other 38 31 79
- ---------------------------------------------------------------------
Gross deferred tax liabilities 798 918 895
- ---------------------------------------------------------------------
Net deferred tax assets $6,909 $3,314 $3,547
- ---------------------------------------------------------------------
Included in the table above is the effect of certain temporary differences
for which no deferred tax expense or benefit was recognized. Such items
consisted primarily of unrealized losses on certain investments in debt and
equity securities accounted for under SFAS 115.
PRIME BANCORP, INC. 1996 ANNUAL REPORT
The realizability of deferred tax assets is dependent upon a variety of
factors, including the generation of future taxable income, the existence of
taxes paid and recoverable, the reversal of deferred tax liabilities and tax
planning strategies. Based upon these and other factors, management believes it
is more likely than not that the Company will realize the benefits of these
deferred tax assets.
In January 1996 Prime Bank settled its outstanding case with the IRS in
connection with the examination of its 1980 and subsequent tax year returns. The
United States Tax Court ruled in favor of the IRS on the issue of the
permissibility of reducing the basis of assets by the early withdrawal penalty
on savings certificates. Prime Bank had previously accrued the estimated
liability for the amount of interest due relating to this issue, and the actual
amount paid was not materially different.
Retained earnings at December 31, 1996, the latest tax year end, include
earnings of approximately $7.7 million representing bad debt deductions for
which no provision for federal income taxes has been made.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company is required to disclose information about the fair value of
financial instruments.
The limitations on the making of estimates of fair value are: estimates are
made at a specific point in time, based upon, where available, relevant market
prices and information about the financial instruments. For a substantial
portion of the Company's financial instruments, no quoted market exists.
Therefore, estimates of "fair value" are based on a number of subjective
assumptions. Such assumptions include perceived risks associated with these
financial instruments, market rates of discount, and expected durations. Given
the uncertainties associated with these estimates, the reported "fair values"
represent estimates only and, therefore, cannot be compared to the historical
accounting model. Use of different assumptions would likely result in different
"fair value" estimates.
Under SFAS 107, the fair value of deposit accounts with no stated maturity
is equal to their carrying amount. This approach excludes significant benefits
that result from the low-cost funding provided by such deposits.
The following methods and assumptions were used to estimate the fair value
of each major classification of financial instruments at December 31, 1996:
Cash and Short-Term Investments: Current carrying amounts approximate
estimated fair value.
Securities: Current quoted market prices are used to determine fair value.
Net Loans: The fair value of loans was estimated using a duration method
which approximates the effect of discounting the estimated future cash
flows over the expected repayment periods for loans using rates which
consider credit risk, servicing costs and other relevant factors.
Deposits with no stated maturity: Current carrying amounts approximate
estimated fair value.
Time Deposits: Fair value was estimated using a duration method which
approximates the effect of discounting the estimated future cash flows over
the expected periods using rates which consider alternative borrowing
costs, servicing costs, and other relevant factors.
Other Borrowed Funds: Fair value was estimated using a duration method
which approximates the effect of discounting the estimated cash flows over
the expected periods using rates which consider alternative borrowing
costs.
Off-balance sheet financial instruments: Commitments to extend credit and
standby letters of credit carry current market interest rates if converted
to loans. Because commitments to extend credit and standby letters of
credit, the majority of which carry current interest rates, are generally
unassignable by either the Bank or the borrower, they only have value to
the Bank and the borrower. However, the estimated net amount payable
(receivable) represents the fees currently charged to enter into similar
agreements, taking into account the remaining term of the agreement and the
present credit risk assessment of the counter-party.
The Company enters into derivative instruments primarily to hedge the
interest rate risk associated with various assets and liabilities. Such hedge
instruments generally take the form of interest rate swaps. In part through the
use of these instruments, the Company strives to be essentially insensitive to
changes in interest rates within reasonable ranges (i.e., plus or minus 200
basis points). Such instruments are subject to the same type of credit and
PRIME BANCORP, INC. o 1996 ANNUAL REPORT o PAGE 35
PRIME BANCORP, INC. 1996 ANNUAL REPORT
market risk as other financial instruments, and are monitored and controlled in
accordance with the Company's credit and risk management policies.
On May 4, 1994, the Company entered into an interest rate swap with the
Federal Home Loan Bank of Pittsburgh ("FHLB" ) for $5,000,000 notional amount
with a term of 6 years due May 6, 2000. The swap hedges approximately $5,000,000
in 7 year fixed-rate retail CD's with a remaining term to maturity of 6.1 years.
FHLB pays the Company a fixed rate of 7.01% and the Company in turn pays FHLB a
floating rate based on the London Interbank Offered Rate ("Libor") which as of
December 31, 1996 was 5.375%.
In October through December 1996, the Company entered into three interest
rate swaptions with FHLB for a total notional amount of $15,000,000 with a term
of 15 years, with a call option of 2 years. The swaptions hedge approximately
$12,000,000 in 15 year fixed-rate retail CD's with a call option of 2 years.
FHLB pays a fixed rate ranging from 7.77% to 8.06% and the Company in turn pays
FHLB a floating rate based on Libor.
ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
(Dollars in millions)
December 31,
- ---------------------------------------------------------------------------------------------------------------------------
1995 1996
- ---------------------------------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- ---------------------------------------------------------------------------------------------------------------------------
Financial Assets:
Cash $ 52.9 $ 52.9 $ 32.5 $ 32.5
Investments 224.0 225.2 236.3 236.3
Net Loans (A) 503.8 507.5 616.9 618.9
Financial Liabilities:
Deposits with no stated maturity 273.9 273.9 332.2 332.2
Time Deposits 370.5 370.3 404.4 401.8
Other Borrowed Funds and FHLB Advances 95.2 95.2 108.3 108.3
- ---------------------------------------------------------------------------------------------------------------------------
(A) The carrying amount of net loans includes loans receivable net and loans
held for sale.
December 31,
- ---------------------------------------------------------------------------------------------------------------------------
1995 1996
- ---------------------------------------------------------------------------------------------------------------------------
Net Amount Net Amount
Contract or Payable Contract or Payable
Notional Amount (Receivable) Notional Amount (Receivable)
- ---------------------------------------------------------------------------------------------------------------------------
Off-balance sheet financial instruments:
Commitments to extend credit $ 21.9 0.1 $35.9 $ 0.3
Standby letters of credit 2.4 -- 1.8 --
Commercial loan commitments 28.5 0.5 34.5 0.5
Loan commitments 12.0 -- 12.3 --
Loans in process for construction loans 17.0 -- 42.1 --
Interest rate swaps 5.0 (0.3) 20.0 (0.1)
- ---------------------------------------------------------------------------------------------------------------------------
14. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company enters into financial instruments
which are not recorded in the consolidated financial statements but are required
to meet the financing needs of its customers and to reduce its own exposure to
fluctuations in interest rates. These financial instruments include commitments
to extend credit and standby letters of credit. Those instruments involve, to
varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the statement of financial condition. The contract or
notional amounts of those instruments reflect the extent of involvement the
Company has in particular classes of financial instruments.
The Company's exposure to credit loss in the event of non-performance by
the other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual amount of those
instruments. The Company uses the same credit policies in making commitments and
conditional obligations as it does for on-balance sheet instruments.
PRIME BANCORP, INC. 1996 ANNUAL REPORT
The following is a summary of significant commitments and contingent
liabilities:
December 31,
- ----------------------------------------------------------------
1995 1996
- ----------------------------------------------------------------
Loan commitments:
Fixed rate (rates ranging $ 2,195,000 $ 687,000
from 6.13% to 8.50%
in 1995 and 6.88% to
8.13% in 1996)
Variable rate (rates ranging 9,883,000 11,591,000
from 6.38% to 9.95%
in 1995 and 4.75% to
8.75% in 1996)
Commercial loan commitments 28,482,000 34,496,000
Standby letters of credit 2,415,000 1,810,000
Commitments to extend credit 21,914,000 35,897,000
Commitments to sell
residential loans -- 49,000
Construction loans in process 17,033,000 42,104,000
- ----------------------------------------------------------------
The Bank is required to maintain certain average reserve balances as
established by the Federal Reserve Bank Board. The amounts of these reserve
balances for the reserve computation periods which included December 31, 1995
and 1996 were $3,538,000 and $5,890,000, respectively, which amounts were
satisfied through the restriction of vault cash.
The Company is party to certain claims and litigation arising in the
ordinary course of business. In the opinion of management, the resolution of
such claims and litigation will not materially affect the consolidated financial
position or results of operations. The Company has entered into employment
agreements with certain officers, which range from three to five years. Under
the terms of such agreements, the Company was obligated on December 31, 1996 to
pay, under current base salary levels, an aggregate amount of $2,966,000 over
the remaining term. In the event employment is terminated under circumstances as
defined by the agreements, the employees may be entitled to severance pay equal
to between 1.00 and 2.99 times their base salaries.
In connection with the operation of certain branch offices, the Bank has
entered into operating leases for periods ranging from one to five years. Total
rental expense for the years ended December 31, 1994, 1995, and 1996 was
$549,000, $753,000, and $1,246,000, respectively. Future minimum lease payments
under such operating leases are $1,029,000, $1,029,000, $1,027,000, $921,000,
and $788,000 for the years ended December 31, 1997 through 2001, respectively.
15. PARENT COMPANY FINANCIAL INFORMATION
Presented below are the parent company only financial statements as of
December 31, 1995, and 1996 (dollars in thousands):
PRIME BANCORP, INC.
(Parent company only)
STATEMENTS OF FINANCIAL CONDITION
December 31,
- ----------------------------------------------------------------
1995 1996
- ----------------------------------------------------------------
Assets:
Cash on deposit with subsidiary $ 599 $ 99
Investments in bank subsidiaries 63,133 64,277
Investments in non-bank subsidiaries 6,048 6,826
- ----------------------------------------------------------------
Total Assets $69,780 $71,202
- ----------------------------------------------------------------
Liabilities and stockholders' equity:
Liabilities:
Other liabilities $ 501 $ 686
- ----------------------------------------------------------------
Total liabilities 501 686
- ----------------------------------------------------------------
Stockholders' equity:
Common stock 5,270 5,291
Additional paid-in capital 37,204 37,390
Retained earnings 26,805 27,835
- ----------------------------------------------------------------
Total stockholders' equity 69,279 70,516
- ----------------------------------------------------------------
Total liabilities and
stockholders' equity $69,780 $71,202
- ----------------------------------------------------------------
PRIME BANCORP, INC. o 1996 ANNUAL REPORT o PAGE 37
PRIME BANCORP, INC. 1996 ANNUAL REPORT
STATEMENTS OF OPERATIONS
December 31,
- --------------------------------------------------------------------------------
1994 1995 1996
- --------------------------------------------------------------------------------
Income:
Dividends and interest
from subsidiary $ 2,928 $ 3,008 $ 2,109
Equity in undistributed
income of subsidiaries 3,823 4,491 2,097
- --------------------------------------------------------------------------------
Total income 6,751 7,499 4,206
Operating expense 39 30 189
- --------------------------------------------------------------------------------
Net income $ 6,712 $ 7,469 $ 4,017
- --------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
Cash flows from
operating activities:
Net income $ 6,712 $ 7,469 $ 4,017
Adjustments to reconcile
net income to net
cash provided by
operating activities:
Equity in undistributed
income of
subsidiaries (3,823) (4,491) (2,097)
Increase (decrease)
in liabilities (20) 3 (24)
- --------------------------------------------------------------------------------
Net cash provided
by net operating
activities 2,869 2,981 1,896
- --------------------------------------------------------------------------------
Cash flows from
investing activities:
Contribution to
subsidiaries (1,000) (750) --
- --------------------------------------------------------------------------------
Cash used in
investing activities (1,000) (750) --
- --------------------------------------------------------------------------------
Cash flows from financing activities:
Stock options exercised 333 -- 133
Cash dividends paid (1,763) (2,292) (2,529)
- --------------------------------------------------------------------------------
Net cash used in
financing activities (1,430) (2,292) (2,396)
- --------------------------------------------------------------------------------
Net increase in cash 439 (61) (500)
Cash and cash equivalents:
Beginning of year 221 660 599
End of year $ 660 $ 599 $ 99
Supplemental disclosure of
cash flow information:
Tax benefit from
exercise of stock options $ 41 $ -- $ 74
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MANAGEMENT'S STATEMENT ON FINANCIAL REPORTING
Management of Prime Bancorp, Inc. is responsible for establishing and
maintaining an effective internal control structure over financial reporting
presented in conformity with both generally accepted accounting principles and
the Federal Financial Institutions Examination Council instructions for
Consolidated Reports of Condition and Income (call report instructions). The
structure contains monitoring mechanisms, and actions are taken to correct
deficiencies identified.
There are inherent limitations in the effectiveness of any internal control
structure, including the possibility of human error and the circumvention or
overriding of controls. Accordingly, even an effective internal control
structure can provide only reasonable assurance with respect to financial
statement preparation. Further, because of changes in conditions, the
effectiveness of an internal control structure may vary over time.
Management assessed the Company's internal control structure over financial
reporting presented in conformity with both generally accepted accounting
principles and call report instructions as of December 31, 1996. This assessment
was based on criteria for effective internal control over financial reporting
described in Internal Control--Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on this assessment,
management believes that, as of December 31, 1996, the Company maintained an
effective internal control structure over financial reporting presented in
conformity with both generally accepted accounting principles and call report
instructions.
[SIGNATURE] [SIGNATURE]
James J. Lynch, President & C.E.O. Walter L. Tillman, Jr., EVP
PRIME BANCORP, INC. o 1996 ANNUAL REPORT o PAGE 39
[KPMG LOGO]
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS
PRIME BANCORP, INC.:
We have audited the accompanying consolidated statement of financial condition
of Prime Bancorp, Inc. and subsidiaries as of December 31, 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year then ended. We have also audited the accompanying consolidated
statement of financial condition of Prime Bancorp, Inc. and subsidiaries as of
December 31, 1995, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the years in the two-year
period then ended, prior to their restatement for the 1996 pooling-of-interests
transaction described in Note 2 to the consolidated financial statements. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. The financial statements of First
Sterling Bancorp, Inc. included in the 1995 and 1994 restated consolidated
financial statements were audited by other auditors whose report dated February
23, 1996, expressed an unqualified opinion on those statements. The report of
the other auditors has been furnished to us, and our opinion, insofar as it
relates to the amounts included for First Sterling Bancorp, Inc., is based
solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Prime Bancorp, Inc. and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
We also audited the combination of the accompanying consolidated statement
of financial condition as of December 31, 1995 and the related consolidated
statements of operations, stockholders' equity and cash flows for the years
ended December 31, 1995 and 1994, after restatement for the 1996
pooling-of-interests; in our opinion, such statements have been properly
combined on the basis described in Note 2 of the notes to the consolidated
financial statements.
[SIGNATURE]
January 24, 1997
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PRIME BANCORP, INC.
Board of Directors
ERWIN T. STRAW
Chairman of the Board
JAMES J. LYNCH
President and
Chief Executive Officer
FREDERICK G. BETZ
President of Fred Betz
and Sons, Inc. a custom
home building company
WILLIAM J. CUNNINGHAM
Basketball Hall of Famer
and former championship
winning coach of the
Philadelphia 76ers and
former owner and founder
of the Miami Heat pro
basketball franchise
JOSEPH A. FLUEHR, III
Corporate Secretary,
Funeral Director and
owner of Fluehr Funeral Home
ROBERT A. FOX
President of R.A.F. Industries,
a private investment company
which acquires and manages a
diversified group of operating
companies and venture capital
investments
ERNEST LARENZ
President of Medicare Management
Nursing Homes,
Philadelphia, PA
JOSEPH G. MARKMANN, CPA
Associate Professor of Accounting
& former Chairman of Accounting Dept.
of LaSalle University
ROY T. PERAINO
Former Chairman and Chief Executive
Officer of Continental Bancorp
and Continental Bank and former
President of Midlantic
Corporation
DAVID H. PLATT
President of Somerton Springs
Golf Shoppes, Driving Ranges, and
President of Sycamore Ridge,
Inc. Golf Course
ARTHUR L. POWELL
President of Kravco, Inc.,
a real estate development company
which specializes in large
shopping malls
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PRIME BANK
Board of Directors
ERWIN T. STRAW
Chairman of the Board
JAMES J. LYNCH
President and
Chief Executive Officer
DOROTHY M. BERNHARD
Corporate Secretary, Retired,
former Vice President of
North East Federal Savings
and Loan Association
FREDERICK G. BETZ
President of Fred Betz and Sons, Inc.,
a custom home building company
JOSEPH A. FLUEHR, III
Funeral Director and owner
of Fluehr Funeral Home
ROBERT G. HESS, ESQ.
Partner in the law firm of
Howland, Hess, Guinan & Torpey
of Huntingdon Valley, PA
ERNEST LARENZ
President of Medicare
Management Nursing Homes,
Philadelphia, PA
JOSEPH G. MARKMANN, CPA
Associate Professor of Accounting
& former Chairman of Accounting
Dept. of LaSalle University
DAVID H. PLATT
President of Somerton Springs
Pro-Golf Shoppes, Driving Ranges,
and President of Sycamore Ridge,
Inc. Golf Course
JOSEPH SOKOL
Retired, former Vice Chairman
of Prime Bancorp, Inc.
and Prime Bank and
former President of
North East Federal Savings
and Loan Association
ROBERT G. STAHL
Past President of
Stahl Chevrolet, Inc.
RAYMOND L. WEINMANN
President, The Weinmann Group
Consulting Service
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FIRST STERLING BANK
Board of Directors
JAMES J. LYNCH
Chief Executive Officer
WILLIAM H. BROMLEY
President
WILLIAM J. CUNNINGHAM
Basketball Hall of Famer
and former championship
winning coach of the
Philadelphia 76ers and former
owner and founder of the
Miami Heat pro basketball
franchise
JAMES D. KANIA
Partner, Tri-Kan Associates,
a real estate investment company
ARTHUR L. POWELL
President of Kravco, Inc.,
a real estate development
company which specializes
in large shopping malls
THOMAS J. SCANLON, JR.
Director of Sales for
PPG Industries
ALLEN SPEISER
Certified Public Accountant
R. RICHARD WILLIAMS
Founder and President,
Valquip Corporation,
a manufacturer of
industrial controls
PRIME BANCORP, INC. o 1996 ANNUAL REPORT o PAGE 41
OFFICERS
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PRIME BANCORP, INC.
Officers
JAMES J. LYNCH
President and Chief Executive Officer
WILLIAM H. BROMLEY
Executive Vice President
WALTER L. TILLMAN, JR.
Executive Vice President
FRANK H. REEVES
Senior Vice President, Finance
JOSEPH A. FLUEHR, III
Secretary
SETH L MACKLER
Assistant Secretary
MARISSA R. HACK
Treasurer
Commercial Lending
PRIME BANK
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TIMOTHY J. ABELL
Senior Vice President
MICHAEL B. DINDA
Vice President
ROBERT J. MULLIGAN
Vice President
DAVID W. GILL
Assistant Vice President
MICHAEL J. OKINO
Assistant Vice President
FIRST STERLING BANK
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STEVEN C. MCGILVERY
Vice President
DEWEY K. DIMARZIO
Vice President
STEVEN H. SANTINI
Vice President
DOROTHY A. HOERR
Assistant Vice President
PAULA S. HOOK
Assistant Vice President
Commercial Real Estate
Lending/Construction
GREGORY J. WEBSTER
Senior Vice President
JEFFREY T. CONNERS
Assistant Vice President
ROBERT C. KENNEY, JR.
Assistant Vice President
ELEANOR A. REMOLDE
Assistant Vice President
Consumer Lending
CURT T. SCHULMEISTER
Senior Vice President
ROBIN CARMODY
Assistant Vice President
JOSEPH E. MCNAMARA
Assistant Vice President
JANE PASSAGLIA
Assistant Vice President
PATRICIA BERK-HERMANN
Consumer Loan Officer
THOMAS J. BLAIR
Consumer Loan Officer
Residential Mortgage Lending
ROBERT T. STRONG
Senior Vice President
BRIAN MCGOVERN
Assistant Vice President
Credit Policy &
Administration
JOHN T. HENNESSY
Senior Vice President
CAROLYN J. DILTS
Assistant Vice President
BONNIE L. HALBREINER
Assistant Vice President
KENNETH W. HILBERT
Assistant Vice President
CHRISTIAN SCHWEIZER III
Assistant Vice President
Compliance
DOREEN M. BERDAN
Vice President
Data & Item Processing
BARBARA ANNE ERB
Vice President
Deposit Servicing
RITA A. TARR
Vice President
Executive Administration
CAROL M. SCHLACTER
Assistant Secretary
Finance
FRANK H. REEVES
Senior Vice President
MICHAEL J. SEXTON
Vice President & Controller
WILLIAM J. BOYCE
Assistant Controller
Human Resources
PEGGY GROGAN
Personnel Officer
Loan Review &
Community Reinvestment
SETH L MACKLER
Vice President
Loan Servicing
NICHOLAS J. BADAME
Vice President
ROBERT C. REIFF
Assistant Vice President
PATRICIA L. CAMPBELL
Loan Documentation Officer
Marketing/Community
Relations
JOHN F. DOWNES
Vice President
Treasury
MARISSA R. HACK
Vice President
WALTER J. MOLESKI
Assistant Treasurer
Branch Administration
JAN M. SMITH
Senior Vice President
WENDY F. BULLOTTA
Vice President
PRIME
BANK
BRANCH
LOCATIONS
PHILADELPHIA COUNTY
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BURHOLME
1000 Cottman Avenue
Philadelphia, PA 19111-3698
(215) 342-2425
Manager--Ann C. Mozzone
CHESTNUT HILL
8500 Germantown Avenue
Philadelphia, PA 19118-3317
(215) 248-1600
Manager--Missy Dannehower,
Assistant Vice President
18TH & JFK
18th & JFK Boulevard
Philadelphia, PA 19103-7421
(215) 972-7072
Manager--Edwin A. Bergin
GRANT
1695 Grant Avenue
Philadelphia, PA 19115-3199
(215) 673-9600
Manager--Kimberly A. Erwin
KENSINGTON
1841 E. Allegheny Avenue
Philadelphia, PA 19134-3192
(215) 426-9520
Manager--Frances Abel,
Assistant Vice President
LAWNDALE
6425 Rising Sun Avenue
Philadelphia, PA 19111-5299
(215) 742-5300
Manager--Robert A. Farrer,
Assistant Vice President
PENN TREATY
423 E. Girard Avenue
Philadelphia, PA 19125-3305
(215) 426-3303
Manager--Bridget A. Morsa
SOMERTON
O'Hanlon Plaza
14425 Bustleton Avenue
Philadelphia, PA 19116-1177
(215) 671-1232
Manager--Karen S. Sica
MONTGOMERY COUNTY
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HORSHAM
301 Horsham Road
Horsham, PA 19044-2017
(215) 956-9333
Manager--Suzanne B. Shane
HUNTINGDON VALLEY
Bethayres Shopping Ctr.
618 Welsh Road
Huntingdon Valley, PA
19006-6302
(215) 938-7850
Manager--Elizabeth Lutz
JENKINTOWN
The Pavilion
261 Old York Road
Jenkintown, PA 19046-3254
(215) 572-0800
Manager--Lynn Levy Marks,
Assistant Vice President
MONTGOMERYVILLE
521 Stump Road
North Wales, PA 19454-1516
(215) 368-1160
Manager--Stephanie L. Jenkins
WILLOW GROVE
Moreland Plaza
Old York & Moreland Rds.
Willow Grove, PA 19090
(215) 659-5404
Manager--Gregory B. Morgan,
Assistant Vice President
BUCKS COUNTY
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FAIRLESS HILLS
503 S. Oxford Valley Rd
Fairless Hills, PA 19030-2612
(215) 943-2200
Manager--Kathryn M. Geissel,
Assistant Vice President
OXFORD VALLEY
195 Bristol Oxford Valley Road
Langhorne, PA 19047-3011
(215) 943-1100
Manager--Kelly A. Colon
RICHBORO
984 Second Street Pike
Richboro, PA 18954-1527
(215) 322-4400
Manager--Wanda S. Albright,
Assistant Vice President
SOUTHAMPTON
723 Street Road
Southampton, PA 18966-3919
(215) 357-9090
Manager--Donna M. McKenna,
Assistant Vice President
YARDLEY
10 S. Main Street
Yardley, PA 19067-1511
(215) 493-7285
Manager--Deborah A. Zimmaro
FIRST STERLING BANK BRANCH LOCATIONS
MONTGOMERY COUNTY
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BALA CYNWYD
50 Monument Road
Bala Cynwyd, PA 19004
(610) 617-0801
Manager--Marcia C. Gallagher,
Assistant Vice President
BRYN MAWR
22 North Bryn Mawr Ave
Bryn Mawr, PA 19010
(610) 520-0444
Manager--Janice B. Decker,
Assistant Vice President
CHESTER COUNTY
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DEVON
80 West Lancaster Avenue
Devon, PA 19333
(610) 971-1800
Manager--Linda S. Hodges,
Assistant Vice President
DELAWARE COUNTY
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ST. DAVIDS
558 East Lancaster Avenue
St. Davids, PA 19087
(610) 971-9430
Manager--Debra G. Palochak
MEDIA
101 W. Baltimore Pike
Media, PA 19063
(610) 892-2920
Manager--Peter W. Bendistis,
Vice President
PRIME BANCORP, INC.