1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ________________
Commission File Number 0-27522
PRESTIGE BANCORP, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1785128
- ------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
710 Old Clairton Road
Pleasant Hills, Pennsylvania 15236
---------------------------- -----
(Address of principal executive office) (Zip Code)
(412) 655-1190
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes __X__ No _____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: As of May 14, 2001 there were
946,116 shares of the registrant's common stock outstanding, par value $1.00 per
share.
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PRESTIGE BANCORP, INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
Consolidated Balance Sheets of Prestige Bancorp, Inc. as of
March 31, 2001 (unaudited) and December 31, 2000 1
Consolidated Statements of Income of Prestige Bancorp, Inc. for the three
months ended March 31, 2001 and 2000 (unaudited) 2
Consolidated Statements of Stockholders' Equity of Prestige Bancorp, Inc.
for the three months ended March 31, 2001 and 2000 (unaudited) 3
Consolidated Statements of Cash Flows of Prestige Bancorp, Inc. for the three
months ended March 31, 2001 and 2000 (unaudited) 4
Notes to Consolidated Financial Statements (unaudited) 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security-Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
3
PRESTIGE BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2001 2000
------------- -------------
(Unaudited)
ASSETS
Cash and due from banks $ 807,967 $ 1,223,252
Interest-bearing deposits with banks 14,148,662 4,647,771
Investment securities:
Available for sale 7,359,735 8,911,314
Held to maturity (market value $17,874,580 and
$21,924,761 respectively) 17,882,813 22,243,491
Net loans 150,217,338 153,416,598
Federal Home Loan Bank stock, at cost 3,690,000 3,689,900
Premises and equipment, net 2,289,361 2,343,491
Accrued interest receivable 1,220,420 1,301,026
Deferred tax asset 2,414,644 2,411,016
Other assets 1,447,498 1,587,097
------------- -------------
Total assets $ 201,478,438 $ 201,774,956
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Non-interest-bearing deposits $ 8,029,089 $ 8,023,201
Interest-bearing deposits 121,280,759 113,770,089
------------- -------------
Total deposits 129,309,848 121,793,290
Federal Home Loan Bank advances 58,800,000 66,300,000
Advance payments by borrowers for taxes and insurance 744,956 884,319
Accrued interest payable 463,549 648,145
Other liabilities 498,806 599,270
------------- -------------
Total liabilities 189,817,159 190,225,024
------------- -------------
Stockholders' Equity:
Preferred stock, $1.00 par value;
5,000,000 shares authorized, none issued -- --
Common stock, $1.00 par value; 10,000,000 shares authorized,
1,162,313 shares issued at March 31, 2001 and December 31, 2000,
respectively 1,162,313 1,162,313
Treasury stock at cost: 216,197 shares at March 31, 2001
and December 31, 2000, respectively (2,699,348) (2,699,348)
Additional paid-in-capital 11,590,160 11,588,778
Unearned ESOP shares: 74,341 shares at March 31, 2001
and December 31, 2000, respectively (615,670) (615,670)
Retained earnings - substantially restricted 2,410,840 2,377,690
Accumulated other comprehensive loss (187,016) (263,831)
------------- -------------
Total stockholders' equity 11,661,279 11,549,932
------------- -------------
Total liabilities and stockholders' equity $ 201,478,438 $ 201,774,956
============= =============
The accompanying notes are an integral part of these financial statements.
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PRESTIGE BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
------------------------------
2001 2000
---------- ----------
Interest income:
Interest and fees on loans $2,915,802 $2,964,231
Interest on mortgage-backed securities 148,089 179,783
Interest and dividends on other investment securities 387,727 436,091
Interest on deposits in other financial institutions 71,214 35,467
---------- ----------
Total interest income 3,522,832 3,615,572
---------- ----------
Interest expense:
Interest on deposits 1,308,087 1,183,332
Advances from Federal Home Loan Bank 955,031 915,830
---------- ----------
Total interest expense 2,263,118 2,099,162
---------- ----------
Net interest income 1,259,714 1,516,410
Provision for loan losses 90,000 120,000
---------- ----------
Net interest income after provision for loan losses 1,169,714 1,396,410
---------- ----------
Other income:
Fees and service charges 204,945 206,566
Net gain on sale of investments 30,535 7,546
Gain on sale of assets -- 1,995
Other income, net 3,806 3,419
---------- ----------
Total other income 239,286 219,526
---------- ----------
Other expenses:
Salaries and employee benefits 611,863 641,182
Premises and occupancy costs 140,725 151,535
Federal deposit insurance premiums 15,146 6,226
Data processing costs 70,271 67,546
Advertising costs 35,258 35,433
Transaction processing costs 85,907 87,049
ATM transaction fees 39,365 39,761
Legal and professional expenses 200,402 63,575
Other expenses 153,959 132,243
---------- ----------
Total other expenses 1,352,896 1,224,550
---------- ----------
Income before income tax expense 56,104 391,386
Income tax expense 22,954 151,576
---------- ----------
Net income $ 33,150 $ 239,810
========== ==========
Basic earnings per share:
Net income $ 0.04 $ 0.26
Weighted average number of common shares outstanding 872,198 906,327
Diluted earnings per share:
Net income $ 0.04 $ 0.26
Weighted average number of common shares outstanding 872,198 906,327
The accompanying notes are an integral part of these financial statements.
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5
PRESTIGE BANCORP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(Unaudited)
Common Accumulated
Stock Additional Other
Comprehensive $1.00 par Treasury Paid-in Unearned Retained Comprehensive
Income value Stock Capital ESOP Shares Earnings (Loss) Income Total
------ ----- ----- ------- ----------- -------- ------------- -----
BALANCE, December 31, 2000 $1,162,313 $(2,699,348) $11,588,778 $(615,670) $2,377,690 $(263,831) $11,549,932
Allocation of 1,228
ESOP shares -- -- 1,382 -- -- -- 1,382
Cash dividends declared
Common stock -- -- -- -- -- -- --
Net income $ 33,150 -- -- -- -- 33,150 -- 33,150
Net unrealized gains on
available for sale
securities, net of tax
of $39,183 58,775 -- -- -- -- -- 58,775 58,775
Reclassification
adjustment for gains
realized in net income
net of tax of $12,495 18,040 -- -- -- -- -- 18,040 18,040
--------
Comprehensive gain $109,965
======== ---------- ----------- ----------- --------- ---------- --------- -----------
BALANCE, March 31, 2001 $1,162,313 $(2,699,348) $11,590,160 $(615,670) $2,410,840 $(187,016) $11,661,279
========== =========== =========== ========= ========== ========= ===========
BALANCE, December 31, 1999 $1,162,313 $(2,246,618) $11,581,741 $(654,310) $5,543,671 $(433,508) $14,953,289
Allocation of 1,146 ESOP
shares -- -- 4,265 -- -- -- 4,265
Cash dividends declared:
Common stock ($.07
per share) -- -- -- -- (69,297) -- (69,297)
Treasury stock purchases,
43,848 shares -- (444,355) -- -- -- -- (444,355)
Net income $239,810 -- -- -- -- 239,810 -- 239,810
Net unrealized losses on
available for sale
securities, net of tax
of $54,900 (82,350) -- -- -- -- -- (82,350) (82,350)
Reclassification adjustment
for gains realized in net
income net of tax of $2,922 4,624 -- -- -- -- -- 4,624 4,624
--------
Comprehensive income $162,084
======== ---------- ----------- ----------- --------- ---------- --------- -----------
BALANCE, March 31, 2000 $1,162,313 $(2,690,973) $11,586,006 $(654,310) $5,714,184 $(511,234) $14,605,986
========== =========== =========== ========= ========== ========= ===========
The accompanying notes are an integral part of these statements.
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PRESTIGE BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
-----------------------------------
2001 2000
------------ ------------
Operating activities:
Net income $ 33,150 $ 239,810
------------ ------------
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation of premises and equipment 69,373 85,005
Amortization of premiums and discounts, net 763 185
Non cash compensation expense related to MRP Plan 35,803 29,772
Non cash compensation expense related to ESOP benefit 14,222 17,105
Gain on sale of equity securities (28,967) (7,546)
Gain on calls of held to maturity securities (1,568) --
Provision for loan losses 90,000 120,000
Decrease in other liabilities (113,304) (83,988)
(Decrease) increase in accrued interest payable (184,596) 169,674
Increase in income taxes payable -- 98,083
Increase in deferred income taxes (54,837) (41,782)
Decrease (increase) in accrued interest receivable 80,606 (154,561)
Decrease (increase) in other assets 103,796 (146,048)
------------ ------------
Total adjustments 11,291 85,899
------------ ------------
Net cash provided by operating activities 44,441 325,709
------------ ------------
Investing activities:
Loan originations (4,856,897) (14,147,872)
Principal payments on loans 7,966,157 9,630,808
Principal payments on mortgage-backed securities available for sale 99,934 145,682
Principal payments on mortgage-backed securities held to maturity 323,730 261,001
Principal payments on investment securities held to maturity 37,847 7,882
Proceeds from calls of held to maturity investment securities 4,000,000 --
Proceeds from calls of available for sale investment securities 1,500,000 --
Proceeds from sale of equity securities 118,768 26,000
Purchases of available for sale investment securities (10,226) (8,508)
Purchases of premises and equipment (15,243) (86,521)
Purchase of Federal Home Loan Bank stock (100) --
------------ ------------
Net cash provided (used) by investing activities 9,163,970 (4,171,528)
------------ ------------
Financing activities:
Net change in advance payments by borrowers for taxes and insurance (139,363) 283,898
Proceeds from Federal Home Loan Bank advances -- 14,000,000
Payments on Federal Home Loan Bank advances (7,500,000) (13,500,000)
Net increase in Money Market, NOW and Passbook savings accounts 2,645,850 2,035,342
Net increase in certificate accounts 4,870,708 169,009
Purchases of treasury stock -- (444,355)
Common stock cash dividends paid -- (69,297)
------------ ------------
Net cash (used) provided by financing activities (122,805) 2,474,597
------------ ------------
Net increase (decrease) in cash and cash equivalents 9,085,606 (1,371,222)
Cash and cash equivalents at beginning of period 5,871,023 5,198,313
------------ ------------
Cash and cash equivalents at end of period $ 14,956,629 $ 3,827,091
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for income taxes $ 21,400 $ 95,275
Cash paid during the period for interest on deposits and borrowings 2,447,714 1,929,488
Supplemental schedule of noncash investing activity:
Loans transferred to real estate owned $ -- $ 17,000
------------ ------------
The accompanying notes are an integral part of these financial statements.
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PRESTIGE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
(UNAUDITED)
1. BASIS OF ORGANIZATION:
On February 14, 1996, the Board of Directors of Prestige Bank, F.S.B. (the Bank)
adopted a Plan of Conversion (the Plan) from a federally chartered mutual
savings bank to a federally chartered stock savings bank and the issuance of its
stock to Prestige Bancorp, Inc., (the Corporation), a Pennsylvania corporation.
The Corporation sold 963,023 shares of its common stock (including 77,041 shares
to its newly formed Employee Stock Ownership Trust (the ESOP)), at $10.00 per
share. Simultaneously there was a corresponding exchange of all of the Bank's
stock for approximately 50% of the net offering proceeds. The remaining portion
of the net proceeds was retained by the Corporation net of $770,410, which was
loaned to the ESOP for its purchase. The conversion and public offering was
completed on June 27, 1996 with net proceeds from the offering, net of the ESOP
loan, totaling $8,188,394, after offering expenses.
2. BASIS OF PRESENTATION:
The following unaudited financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in annual financial
statements prepared in accordance with accounting principles generally accepted
in the United States have been condensed or omitted pursuant to those rules and
regulations, although the Corporation believes that the disclosures made are
adequate to make the information presented not misleading. However, such interim
information reflects all adjustments (consisting solely of normal recurring
adjustments), which are, in the opinion of management, necessary for a fair
presentation of financial position and results of operations for the periods
presented. The results of operations for the three-month period ended March 31,
2001, are not necessarily indicative of the results to be expected for the year
ending December 31, 2001.
The unaudited financial statements and notes hereto should be read in
conjunction with the audited financial statements and notes thereto for the year
ended December 31, 2000, contained in the Corporation's Annual Report and Form
10-K.
Earnings Per Common Share
- -------------------------
The Corporation follows Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings Per Share." Under SFAS No. 128, earnings per share are classified
as basic earnings per share and diluted earnings per share. Basic earnings per
share includes only the weighted average common shares outstanding. Diluted
earnings per share includes the weighted average common shares outstanding and
any dilutive common stock equivalent shares in the calculation. Treasury shares
are treated as retired for earnings per share purposes.
5
8
The following tables reflect the calculation of earnings per share under SFAS
No. 128.
Three Months Ended
--------------------------------
March 31, 2001 March 31, 2000
-------------- --------------
Basic earnings per share:
Net income $ 33,150 $239,810
Average shares outstanding 872,198 906,327
Earnings per share $ 0.04 $ 0.26
Diluted earnings per share:
Net income $ 33,150 $239,810
Average shares outstanding 872,198 906,327
-------- --------
Diluted average shares outstanding 872,198 906,327
Earnings per share $ 0.04 $ 0.26
For the three months ended March 31, 2001 and 2000, options to purchase 85,097
and 107,426 shares of common stock, respectively, were outstanding but not
included in the computation of diluted earnings per share because the options'
exercise price was greater than the average market price of the Corporation's
common shares for the period.
Comprehensive Income
The Corporation follows SFAS No. 130, "Reporting Comprehensive Income." This
accounting standard requires the reporting of all changes in the equity of an
enterprise that result from recognized transactions and other economic events of
the period other than transactions with owners in their capacity as owners.
Prior to the issuance of this standard, some of those changes in equity were
displayed in the income statement, while others were included directly in
balances within a separate component of equity in the balance sheet.
Office of Thrift Supervision
The Corporation announced on September 25, 2000 that the Savings Bank entered
into a Supervisory Agreement with the Office of Thrift Supervision (the "OTS").
This Supervisory Agreement formalized the understandings of the OTS and the Bank
pursuant to an informal directive issued by the OTS to the Bank on May 17, 2000.
In conjunction with a routine regulatory examination of the Bank by the OTS, the
OTS requested the Bank to enter into the Supervisory Agreement. The Supervisory
Agreement was signed on September 20, 2000, (the "Effective Date") and, among
other things, places restrictions on the Bank's growth. The Bank may seek
modification of this limitation on growth by submission of a written request to
the Regional Director of the OTS ("Regional Director") and by obtaining the
prior written approval of the Regional Director. Under the Supervisory
Agreement, the Bank may not increase its assets in an amount exceeding net
interest credited on deposit liabilities (or earnings credited on share
accounts) during any calendar quarter, without prior written approval of the
Regional Director. Additionally, the Supervisory Agreement requires the Bank or
its Board of Directors to review and revise various policies including 1)
interest rate risk management, 2) strategic planning to direct the operations
and affairs of the Bank and in managing and reducing the interest rate risk of
the Bank, 3) investment and underwriting policies, 4) transactions with the
affiliates of the Bank, and 5) internal loan and asset classifications policies.
The Supervisory Agreement continues the restriction imposed on the Bank by the
directive not to extend loans for a business purpose except for those business
loans which the Bank was committed to extend on or before May 17, 2000 or which
were loans in process. This restriction on the extension of new loans for a
business purpose also extends to renewals of business loans with revolving
credit or balloon loan features at maturity. The Bank may request that the
Regional Director waive this limitation on the extension of an individual
commercial loan to a customer, including any revised terms or renewal of a
business loan. The restrictions on the Bank's operations were immediately
effective and the Supervisory Agreement will remain in place until terminated by
the OTS.
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9
The Corporation has worked closely with the OTS to implement the Supervisory
Agreement and believes it has materially complied with the Agreement to date.
3. INVESTMENT SECURITIES:
The cost and market values of investment securities are summarized as follows:
Investment securities available for sale:
March 31, 2001
------------------------------
Amortized Market
Cost Value
---------- ----------
U.S. government and government
agency obligations:
Due after one and within five years $2,500,000 $2,515,030
Corporate Debentures 494,114 446,640
Federal Home Loan Mortgage
Corporation (FHLMC) certificates:
Due after ten years 1,748,091 1,753,709
Federal National Mortgage Association
(FNMA) certificates:
Due after ten years 1,165,665 1,166,378
Mutual fund investment 598,320 596,853
Common stock portfolio 1,165,239 881,125
---------- ----------
$7,671,429 $7,359,735
========== ==========
Investment securities held to maturity:
--------------------------------
March 31, 2001
--------------------------------
Amortized Market
Cost Value
----------- -----------
U.S. government and government
agency obligations:
Due within one year $ 500,386 $ 500,379
Due after five and within ten years 4,497,620 4,495,900
Due after ten years 6,770,033 6,715,868
Federal Home Loan Mortgage
Corporation (FHLMC) certificates:
Due after five and within ten years 2,124,362 2,179,929
Due after ten years 850,753 844,291
Government National Mortgage
Association (GNMA) certificates:
Due after ten years 1,450,354 1,458,182
Federal National Mortgage
Association (FNMA) certificates:
Due after ten years 1,689,305 1,680,031
----------- -----------
$17,882,813 $17,874,580
=========== ===========
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4. LOANS RECEIVABLE:
Loans receivable are summarized as follows:
March 31,
2001
-------------
Real estate loans:
1-4 family $ 102,772,618
Construction 1,064,000
Commercial real estate 13,951,894
-------------
117,788,512
Less- Undisbursed loan proceeds 54,400
-------------
117,734,112
Commercial business loans: 16,347,899
Consumer loans:
Home equity 12,473,974
Student 2,610,566
Automobile 2,591,000
Collateral 808,868
Credit cards 524,032
Personal unsecured/other 539,859
-------------
19,548,299
-------------
153,630,310
Less- Allowance for loan losses 3,432,873
Deferred loan costs (19,901)
-------------
$ 150,217,338
=============
5. ALLOWANCE FOR LOAN LOSSES:
Activity with respect to the allowance for loan losses is summarized as follows:
Three Months Ended
March 31,
---------------------------
2001 2000
---------- ----------
Balance at beginning of period $3,387,779 $ 982,588
Provision for loan losses 90,000 120,000
Charge-offs (71,558) (9,308)
Recoveries 26,652 --
---------- ----------
Balance at end of period $3,432,873 $1,093,280
========== ==========
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11
6. DEPOSITS:
The scheduled maturities of the Bank's certificate accounts as of March 31, 2001
are as follows (amounts approximate):
April 1, 2001 to March 31, 2002 $36,146,714
April 1, 2002 to March 31, 2003 14,014,347
April 1, 2003 to March 31, 2004 7,683,307
April 1, 2004 to March 31, 2005 2,931,866
April 1, 2005 and thereafter 3,647,827
-----------
TOTAL $64,424,061
===========
Certificates of $100,000 or more $11,469,726
===========
7. INCOME TAXES:
The income tax expense was as follows:
Three Months Ended
March 31,
----------------------
2001 2000
------- --------
Federal $18,125 $123,547
State 4,829 28,029
------- --------
$22,954 $151,576
======= ========
8. RELATED PARTY TRANSACTIONS:
Certain directors and executive officers of the Bank, including their immediate
families and companies in which they are principal owners, are loan customers of
the Bank. In management's opinion, such loans are made in the normal course of
business and were granted on substantially the same terms and conditions as
loans to other individuals and businesses of comparable creditworthiness at the
time. Total loans to these persons at March 31, 2001, and December 31, 2000,
amounted to $867,193 and $894,683, respectively.
9. CAPITAL STOCK:
On April 23, 1997, at the annual stockholders meeting, the Board of Directors
and shareholders formally approved the Corporation's Stock Option Plan (the
Option Plan) and Management Recognition and Retention Plan and Trust (the MRP
Plan; the Option Plan and the MRP Plan herein are referred to as the Plans) as
fully described in the Corporation's proxy statement dated March 31, 1997. In
connection with the MRP Plan, the Corporation incurred compensation expense of
approximately $36,000 during the three months ended March 31, 2001, compared to
$30,000 for the comparable period of 2000.
The aforementioned approval of the Option Plan made 116,285 options available
for grant to employees and others who perform substantial services for the
Corporation. As of March 31, 2001, the Corporation had granted 112,929 options
of which 27,325 shares had been forfeited. The options are exercisable one year
from the grant date and vest in equal installments over a period of five years.
As of March 31, 2001, there had been 507 options exercised. The maximum term of
any option granted under the Plan cannot exceed 10 years.
9
12
10. RETAINED EARNINGS AND REGULATORY CAPITAL:
The Savings Bank's actual capital amounts and ratios are presented below in the
following table. There was no deduction from capital for interest-rate risk
(amounts in thousands).
To Be Well
Capitalized Under
For Capital Adequacy Prompt Corrective
Actual Purposes Action Provisions
--------------- ----------------------------------------- -------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
Total Capital (to Risk
Weighted Assets):
As of
March 31, 2001 $11,908 11.06% greater than $8,615 greater than 8.0% greater than $10,768 greater than 10.0%
Tier 1 Capital (to Risk
Weighted Assets):
As of
March 31, 2001 $10,562 9.81% greater than $4,307 greater than 4.0% greater than $ 6,461 greater than 6.0%
Tier 1 Capital (to
Average Assets):
As of
March 31, 2001 $10,562 5.29% greater than $7,982 greater than 4.0% greater than $ 9,977 greater than 5.0%
11. COMMITMENTS AND CONTINGENT LIABILITIES:
The Corporation incurs off-balance sheet risks in the normal course of business
in order to meet the financing needs of its customers. These risks derive from
commitments to extend or receive credit. Such commitments involve, to varying
degrees, elements of credit risk in excess of the amount recognized in the
financial statements.
Commitments to extend credit are obligations to lend to a customer as long as
there is no violation of any condition established in the loan agreement.
Commitments generally have fixed expiration dates or other termination clauses.
A portion of the commitments is not expected to be drawn upon; thus, the total
commitment amounts do not necessarily represent future cash requirements. Each
customer's creditworthiness is evaluated on a case-by-case basis.
The Bank's exposure to credit loss in the event of nonperformance by the other
party to these commitments to extend credit is represented by their contractual
amounts. The Bank uses the same credit and collateral policies in making
commitments as for all other lending. The Bank has outstanding various
commitments to extend credit approximating $11.4 million as of March 31, 2001.
In the opinion of management, the funding of the credit commitments will not
have a material adverse effect on the Bank's financial position or results of
operations.
Additionally, the Bank is also subject to asserted and unasserted potential
claims encountered in the normal course of business. In the opinion of
management and legal counsel, the resolution of these claims will not have a
material adverse effect on the Bank's financial position or results of
operations.
10
13
12. FUTURE ACCOUNTING STANDARDS:
The Financial Accounting Standards Board ("FASB") has issued SFAS 140,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities - a Replacement of FASB Statement No. 125." effective for
transfers and extinguishments after March 31, 2001.
The impact and adoption of this standard is not expected to materially affect
the Corporation's financial condition or results of operations.
11
14
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SUPERVISION AND REGULATION
The Corporation announced on September 25, 2000 that the Savings Bank
entered into a Supervisory Agreement with the Office of Thrift Supervision (the
"OTS"). This Supervisory Agreement formalized the understandings of the OTS and
the Bank pursuant to an informal directive issued by the OTS to the Bank on May
17, 2000.
In conjunction with a routine regulatory examination of the Bank by the OTS,
the OTS requested the Bank to enter into the Supervisory Agreement. The
Supervisory Agreement was signed on September 20, 2000, (the "Effective Date")
and, among other things, places restrictions on the Bank's growth. The Bank may
seek modification of this limitation on growth by submission of a written
request to the Regional Director of the OTS ("Regional Director") and by
obtaining the prior written approval of the Regional Director. Under the
Supervisory Agreement, the Bank may not increase its assets in an amount
exceeding net interest credited on deposit liabilities (or earnings credited on
share accounts) during any calendar quarter, without prior written approval of
the Regional Director. Additionally, the Supervisory Agreement requires the Bank
or its Board of Directors to review and revise various policies including 1)
interest rate risk management, 2) strategic planning to direct the operations
and affairs of the Bank and in managing and reducing the interest rate risk of
the Bank, 3) investment and underwriting policies, 4) transactions with the
affiliates of the Bank, and 5) internal loan and asset classifications policies.
The Supervisory Agreement continues the restriction imposed on the Bank by the
directive not to extend loans for a business purpose except for those business
loans which the Bank was committed to extend on or before May 17, 2000 or which
were loans in process. This restriction on the extension of new loans for a
business purpose also extends to renewals of business loans with revolving
credit or balloon loan features at maturity. The Bank may request that the
Regional Director waive this limitation on the extension of an individual
commercial loan to a customer, including any revised terms or renewal of a
business loan. The restrictions on the Bank's operations were immediately
effective and the Supervisory Agreement will remain in place until terminated by
the OTS.
The Corporation has worked closely with the OTS to implement the Supervisory
Agreement and believes it has materially complied with the Agreement to date.
FINANCIAL CONDITION
Assets held directly by the Corporation include all of the outstanding
capital stock of the Savings Bank, a loan receivable from the Prestige Bancorp
Employee Stock Ownership Trust (the "ESOP"), one loan to a former director,
deposits maintained at the Savings Bank, common stock of mostly savings
associations or savings and loan holding companies and other assets
(collectively the "Directly Held Assets"). Each stock ownership interest in the
unrelated savings associations or savings and loan holding companies amounts to
less than a 1.25% interest in such entities. As of March 31, 2001, the
Corporation had outstanding borrowings of $340,000 from the Savings Bank to
support cash levels. The loan is adequately secured in accordance with
applicable law.
The following discussion of the financial condition and activities of the
Corporation should be read as the consolidated activities of the Corporation and
the Savings Bank. Unless the following discussion specifically identifies an
activity, event or condition as relating to the Directly Held Assets, it is
assumed that such activity, event or condition occurred as a result of a direct
action of the Savings Bank and an indirect action of the Corporation.
At March 31, 2001, the Corporation's total assets amounted to $201.5 million
compared with $201.8 million at December 31, 2000. Total investment securities
and net loans decreased $5.9 million and $3.2
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million, respectively, while cash and cash equivalents increased $9.1 million.
The $5.9 million or 19.0% decrease in investment securities was primarily due to
$5.5 million of securities that were called. The net loan decrease of $3.2
million or 2.1% was attributed to decreases in commercial business and
commercial real estate loans of $1.8 million or 5.7%, $559,000 or .5% in
one-to-four family residential real estate loans and $374,000 or 1.9% in
consumer loans. Increased cash and cash equivalents of $9.1 million were
primarily attributable to an increase in deposits of $7.5 million and decreases
in investment securities and net loans of $5.9 million and $3.2 million,
respectively. This was partially offset by a decrease in Federal Home Loan Bank
("FHLB") advances of $7.5 million. Total stockholders' equity amounted to $11.7
million or 5.79% of total assets at March 31, 2001, compared to equity of $11.6
million or 5.72% of total assets at December 31, 2000. The $111,000 increase in
stockholders' equity was primarily attributable to net income of $33,000 for the
quarter ended March 31, 2001 and a decrease in accumulated other comprehensive
losses of $77,000. During 2000, the Board of Directors suspended its cash
dividend to preserve capital due to net losses recognized by the Corporation.
The Board of Directors of Prestige Bancorp will review paying cash dividends on
a quarterly basis.
The Corporation's nonperforming assets increased $646,000 to $6.5 million
at March 31, 2001, compared to $5.9 million at December 31, 2000. The increase
was primarily due to a rise in nonperforming commercial business and commercial
real estate loans from $2.2 million and $3.1 million at December 31, 2000,
respectively, compared to $2.7 million and $3.4 million, respectively, at
March 31, 2001. At March 31, 2001, the $2.7 million of nonperforming commercial
business loans was comprised of seventeen loans and the $3.4 million of
nonperforming commercial real estate loans was comprised of six loans. One
nonperforming commercial business relationship accounts for $1.6 million or
60.6% of the total nonperforming commercial business loans. The $1.6 million has
an U.S. Government guarantee of the payment of principal and interest.
Currently, this commercial business is in bankruptcy, and management is working
closely in the bankruptcy proceedings to protect its interests. Measures
continue to be taken to address the remaining $1.1 million nonperforming
commercial business loans. However, these loans continue to be monitored and
reserved under the allowance for loan losses. Of the six commercial real estate
nonperforming loans, two totaling $812,000 have been written down to estimated
realized collateral values. Three loans totaling $2.5 million have appraisals
supporting the unreserved balances. One loan totaling $127,000 is in the process
of having an appraisal completed. Reserves will be adjusted accordingly when the
appraisal is completed. Management recognizes actual workout of these loans may
differ from these estimates and appraisals.
The following table sets forth the amounts and categories of the Savings
Bank's nonperforming assets at the dates indicated. The Savings Bank had no
loans classified as troubled debt restructurings during the periods indicated
below.
MARCH 31, DECEMBER 31, MARCH 31,
2001 2000 2000
------ ------ ------
(DOLLARS IN THOUSANDS)
Non-accruing loans:
One-to-four family residential ............ $ 82 $ 16 $ 364
Construction loans ........................ -- -- 159
Consumer loans ............................ 259 318 230
Commercial real estate .................... 3,399 3,136 458
Commercial business loans ................. 2,687 2,221 588
------ ------ ------
Total nonperforming loans ............... 6,427 5,691 1,799
Real estate owned ......................... 86 176 224
------ ------ ------
Total nonperforming assets .............. $6,513 $5,867 $2,023
====== ====== ======
Total nonperforming loans as a
Percentage of total loans ............... 4.18% 3.63% 1.14%
====== ====== ======
Total nonperforming assets as a
Percentage of total assets .............. 3.23% 2.91% .99%
====== ====== ======
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RESULTS OF OPERATIONS
General--The Corporation's net income for the quarter ended March 31, 2001
was $33,000 or $.04 per diluted share compared to net income of $240,000 or $.26
per diluted share for the same quarter in the prior year. Excluding gain on sale
of investments, net of tax, net income for the three months ended March 31, 2001
was $15,000 or $.02 per diluted share. This compares to net income after
excluding gain on sale of investments, net of tax, of $235,000 or $.26 per
diluted share for the three months ended March 31, 2000. The decrease of
$220,000 in net income, excluding gain on sale of investments, for the quarter
ended March 31, 2001 as compared to the same period in 2000 was attributable to
a $256,000 decrease in net interest income and an increase in total other
expenses of $128,000. This was partially offset by a reduction in income tax
expense of $129,000.
Interest Income--The Corporation reported interest income of $3.5 million
for the three months ended March 31, 2001, as compared to $3.6 million for the
three months ended March 31, 2000. The interest income decrease of $93,000 or
2.6% for the quarter ended March 31, 2001, compared to the same period in the
prior year can be attributed to a $49,000 or 1.7% decrease in interest and fees
on loans. The decrease of $49,000 in interest and fees on loans was the result
of a decrease in the average yield earned on loans receivable. The average yield
earned on loans receivable, during the quarter ended March 31, 2001, was 7.54%
compared to 7.67% for the same period in 2000.
Interest Expense--Interest expense increased $164,000 or 7.8% during the
three months ended March 31, 2001 as compared to the same period last year. This
increase was due to growth in average interest-bearing liabilities and a rise in
the weighted average interest rate paid on interest-bearing liabilities. Average
deposits and Federal Home Loan Bank (FHLB) of Pittsburgh advances during the
first quarter of 2001 were $125.8 million and $60.5 million, respectively,
compared to $121.9 million and $63.1 million, respectively, for the same period
in 2000. The weighted average interest rate on interest-bearing liabilities
during the first quarter of 2001 was 4.86% compared to 4.54% for the same period
in 2000.
Provision for Loan Losses--During the three months ended March 31, 2001, the
Corporation recorded provisions for losses on loans of $90,000 compared to
$120,000 for the comparable period in 2000. The Corporation establishes a
provision for loan losses that is charged to operations. The allowance for loan
losses is maintained at a level that is deemed to be appropriate based upon a
comprehensive methodology that is to be updated on a monthly basis. This
methodology includes:
o A detailed review of all criticized and impaired loans is performed to
determine if any specific reserve allocations are required on an
individual loan basis. The specific reserve established for these
criticized and impaired loans is based on analysis of the loan's
performance, the related collateral value, cash flow considerations
and the financial capability of any guarantor.
o The application of reserve allocations to all outstanding loans and
certain unfunded commitments is based upon review of historical losses
and qualitative factors, which include but are not limited to,
economic trends, delinquencies, concentrations of credit, trends in
loan volume, borrowers' experience and depth of management,
examination and audit results, effects of any changes in lending
policies and trends in policy exceptions.
o The application of reserve allocations for all commercial and
commercial real estate loans are calculated by using a risk rating
system. All loans are assigned risk ratings based upon an internal
review. There are ten risk ratings, and each rating has a
corresponding reserve factor that is used to calculate the required
reserve.
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o The maintenance of a general unallocated reserve occurs in order to
provide conservative positioning and protection against unknown events
or circumstances that have occurred, but have not yet been identified
by the Corporation through its credit administration process. It must
be emphasized that a general unallocated reserve is prudent
recognition of the fact that reserve estimates, by definition, lack
precision.
After completion of this process, management evaluates the adequacy of the
existing reserve and establishes the provision level for the next month. The OTS
has noted weaknesses in the loan classification process and the Corporation is
continuing to take steps to rectify these weaknesses.
When it is determined that the prospects for recovery of the principal of a
loan have significantly diminished, the loan is charged against the allowance
account; subsequent recoveries, if any, are credited to the allowance account.
In addition, nonperforming, delinquent loans greater than ninety days and
problem loans are to be reviewed monthly to determine potential losses.
Generally, consumer loans are considered losses when 180 days past due. The
Corporation's management is unable to determine in what loan category future
charge-offs and recoveries may occur. Therefore, the entire allowance for loan
losses is available to absorb future loan losses in any loan category. During
the quarter ended March 31, 2001, the Corporation charged off seven consumer
loans totaling $44,000 and one commercial business loan totaling $27,000.
Although management utilizes its best judgment in providing for losses,
there can be no assurance that the Corporation will not have to increase its
provision for loan losses in the future as a result of commercial and consumer
loans, future changes in the economy or for other adverse reasons discovered
from the methodology described above. In addition, various regulatory agencies,
as an integral part of their examination process, periodically review the
Corporation's provision for loan losses and the carrying value of its
nonperforming assets based on their judgments from information available at the
time of their examination. The OTS last examined the Corporation as of March 31,
2000. The Corporation will continue its review of the commercial loan portfolio
for any further developments and the allowance for loan loss will be adjusted
accordingly.
The Corporation's management is unable to determine in what loan category
future charge-offs and recoveries may occur. The following schedule sets forth
the allocation of the allowance for loan losses among various categories. The
entire allowance for loan losses is available to absorb future loan losses in
any loan category.
MARCH 31, 2001 DECEMBER 31, 2000 MARCH 31, 2000
-------------------- -------------------------------------------------
% OF % OF % OF
LOANS IN LOANS IN LOANS IN
EACH EACH EACH
CATEGORY CATEGORY CATEGORY
TO TOTAL TO TOTAL TO TOTAL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
------ ----- ------ ----- ------ -----
(DOLLARS IN THOUSANDS)
One-to-four family residential.............. $ 168 66.87% $ 179 65.85% $ 168 63.00%
Construction................................ 17 .69 29 .99 15 1.60
Commercial business and
commercial real estate.................... 2,817 19.72 2,876 20.47 585 24.10
Consumer:
Automobile, home equity, student,
share and other consumer.................. 85 12.72 91 12.69 81 11.30
Allocation to general risk.................. 346 -- 212 -- 244 --
----- ------- ------ ------ ------ ------
Total.................................... $3,433 100.00% $3,387 100.00% $1,093 100.00%
====== ======= ====== ====== ====== ======
Other IncomE--Total other income decreased $1,000, excluding net gains on
sales of investments and assets, for the three ended March 31, 2001, compared to
same period in 2000.
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Other Expenses--Total other expenses increased $128,000 or 10.4% for the
quarter ended March 31, 2001, as compared to the quarter ended March 31, 2000.
Major factors for the increase in total other expenses were consulting and legal
fees associated with rectifying asset quality concerns and regulatory matters.
Consulting and legal fees increased $71,000 and $66,000, respectively, for the
three months ended March 31, 2001, as compared to the three months ended March
31, 2000.
Income Taxes--The Corporation recorded an income tax expense of $23,000 for
the three months ended March 31, 2001, respectively, as compared to $152,000 for
the same period in the prior year. Such decrease in income tax expense was due
to a decrease in income before income tax expense of $335,000 for the three
months ended March 31, 2001, as compared to the three months ended March 31,
2000.
LIQUIDITY AND CAPITAL RESOURCES
The Corporation's primary sources of funds are dividends from the Savings
Bank, repayments by the ESOP of the loan it received from the Corporation, loan
repayments made by the Corporation, interest and dividends on debt and equity
investments in other companies and interest earned on deposits of the
Corporation held at Savings Bank and short-term investments. The primary sources
of funds for the Savings Bank are deposits, advances from the FHLB of
Pittsburgh, repayments, prepayments and maturities of outstanding loans and
mortgage-backed securities, maturities of investment securities and other
short-term investments, and funds provided from operations. While scheduled loan
and mortgage-backed securities repayments and maturing investment securities and
short-term investments are relatively predictable sources of funds, deposit
flows, loan and mortgage-backed securities prepayments, and investment
securities with callable features are greatly influenced by the movement of
interest rates in general, economic conditions or competition. The Savings Bank
manages the pricing of its deposits to maintain a deposit balance deemed
appropriate and desirable by the Investment/Asset and Liability Committee
("ALCO"). In addition, the Savings Bank invests in short-term interest-earning
assets, which provide liquidity to meet lending requirements. The Savings Bank
has also utilized advances from the FHLB of Pittsburgh. At March 31, 2001, the
Savings Bank had $58.8 million borrowed from the FHLB of Pittsburgh pursuant to
various term loans with maturities of less than ten years.
During the three months ended March 31, 2001, the Corporation's operating
activities provided net cash of approximately $44,000. The primary reasons for
the $44,000 net cash provided by operating activities during the three months
ended March 31, 2001 were a $104,000 decrease in other assets, $90,000 in
provision for loan losses, $81,000 decrease in accrued interest receivable and
$69,000 in depreciation of premises and equipment which was partially offset by
a $185,000 decrease in accrued interest payable and a $113,000 decrease in other
liabilities. During the three months ended March 31, 2000, net cash provided by
operating activities was $326,000. The primary reasons for the $326,000 net cash
provided during the three months ended March 31, 2000 were $240,000 in net
income, $170,000 increase in accrued interest payable, and $120,000 in provision
for loan losses, which was partially offset by a $155,000 increase in accrued
interest receivable and a $146,000 increase in other assets.
Net cash provided by investing activities was $9.2 million for the three
months ended March 31, 2001. The primary reason for the $9.2 million net cash
provided by investing activities was the Corporation had $4.0 million and $1.5
million in investment securities held-to-maturity and available-for-sale,
respectively, which were called and $8.0 million in principal payments received
on existing loans. This was partially offset by $4.9 million in loan
originations. This compares with net cash used by investing activities of $4.2
million for the three months ended March 31, 2000. The primary reason for the
$4.2 million net cash used by investing activities was the Corporation
originated $4.5 million in new loans in excess of principal payments received on
existing loans.
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Net cash used by financing activities for the three months ended March 31,
2001, was $123,000. This was attributable to decreases in net FHLB advances of
$7.5 million and $139,000 in advance payments by borrowers for taxes and
insurance. This was partially offset by increases in total deposits of $7.5
million. During the same period last year, the Corporation experienced a $2.5
million increase in net cash provided by financing activities. This was
attributable to increases in core deposits and certificates of $2.2 million and
$500,000 in net FHLB advances.
The Savings Bank is required to maintain specified amounts of capital
pursuant to the Financial Institutions Reform, Recovery and Enforcement Act of
1989 and regulations thereunder. Savings associations are required to maintain
tangible capital of 1.5%, core capital of 4.00% and risk-based capital of 8.00%.
At March 31, 2001, the Savings Bank's tangible, core, and risk-based capital
ratios amounted to 5.27%, 5.27%, and 11.06%, respectively, which exceeded
applicable requirements.
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PRESTIGE BANCORP, INC.
PART II
Item 1. Legal Proceedings
Neither the Corporation nor the Bank is involved in any pending
legal proceedings other than nonmaterial legal proceedings
occurring in the ordinary course of business.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security-Holders
a) An annual meeting of shareholders of the Corporation was held
on April 25, 2001 ("Annual Meeting").
b) 1. Patricia A. White, elected to new three year term
2. Michael R. Macosko, elected to new three year term
3. Morris Propp, elected to a three year term
4. James A. Nania
5. Mark R. Schoen
6. Michael R. Macosko
7. Martin W. Dowling
c) There were 946,116 shares of Common Stock of the Corporation
eligible to be voted at the Annual Meeting and 787,808 shares
were represented at the meeting by the holders thereof, which
constituted a quorum. The items voted upon at the Annual
Meeting and the vote for each proposal were as follows:
1. Election of directors for a three-year term.
For Withheld
--- --------
Patricia A. White.......... 714,567 73,241
Michael R. Macosko......... 717,708 70,100
Morris Propp............... 717,451 70,357
In addition to the above, a ballot was received at the Annual
Meeting in the amount of 52,610 shares for John A. Stiver.
2. Proposal to ratify the appointment of Arthur Andersen LLP
as the Corporation's independent auditors for the year
ending December 31, 2001.
For Against Abstain
--- ------- -------
780,003 5,587 2,218
Each of the proposals was adopted by the shareholders of the
Corporation.
d) Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRESTIGE BANCORP, INC.
Dated: May 14, 2001 By: /s/ Mark R. Schoen
------------------------------------
Mark R. Schoen,
Chairman of the Board of Directors,
Chief Executive Officer and President
Dated: May 14, 2001 By: /s/ James M. Hein
------------------------------------
James M. Hein,
Chief Financial Officer
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