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 June 30, 1997
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 incorporation or (I.R.S.Employer
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 August 14, 1997, there
were 914,873 shares of the registrant's common stock outstanding, par value
$1.00 per share.
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2
PRESTIGE BANCORP, INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
Consolidated Balance Sheets of Prestige Bancorp, Inc. as of
June 30, 1997 (unaudited) and December 31, 1996 1
Consolidated Statements of Income of Prestige Bancorp, Inc. for the three
months ended June 30, 1997 and 1996 (unaudited) 2
Consolidated Statements of Income of Prestige Bancorp, Inc. for the six
months ended June 30, 1997 and 1996 (unaudited) 3
Consolidated Statements of Stockholders' Equity of Prestige Bancorp, Inc.
for the six months ended June 30, 1997 and 1996 (unaudited) 4
Consolidated Statements of Cash Flows of Prestige Bancorp, Inc. for the six
months ended June 30, 1997 and 1996 (unaudited) 5
Notes to Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security-Holders 17
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
Table
3
PRESTIGE BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1997 1996
----------- ------------
ASSETS (Unaudited)
Cash and due from banks $ 807,817 $ 735,951
Interest-bearing deposits with banks 1,624,041 1,411,727
Investment securities:
Available for sale 11,423,442 11,442,549
Held to maturity (market value $25,910,800 and
$20,364,934, respectively) 25,890,390 20,461,927
Net loans 90,839,675 76,545,153
Federal Home Loan Bank stock, at cost 1,549,100 753,900
Premises and equipment, net 2,036,468 1,880,919
Accrued interest receivable 1,008,131 810,884
Deferred tax asset 10,019 35,726
Other assets 532,038 561,413
------------ ------------
Total assets $135,721,121 $114,640,149
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Noninterest-bearing deposits $ 3,410,426 $ 2,554,148
Interest-bearing deposits 85,485,529 81,267,320
------------ ------------
Total deposits 88,895,955 83,821,468
Federal Home Loan Bank advances 30,281,125 14,477,000
Advance payments by borrowers for taxes and insurance 924,320 622,057
Income taxes payable 102,872 24,360
Other liabilities 407,933 265,064
------------ ------------
Total liabilities 120,612,205 99,209,949
------------ ------------
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, 963,023 shares issued and
914,873 outstanding on June 30,
1997; 963,023 shares issued and outstanding on
December 31, 1996 963,023 963,023
Treasury stock at cost, 48,150 shares on
June 30, 1997; none at December 31, 1996 (775,881) -
Additional paid-in-capital 8,013,475 8,000,176
Unearned ESOP shares, 74,004 shares at
June 30, 1997; 75,549 shares at December 31, 1996 (740,040) (755,490)
Retained earnings - substantially restricted 7,763,321 7,390,945
Net unrealized holding gains (losses) on
available for sale securities, net of taxes (114,982) (168,454)
------------ ------------
Total stockholders' equity 15,108,916 15,430,200
------------ ------------
Total liabilities and stockholders' equity $135,721,121 $114,640,149
============ ============
The accompanying notes are an integral part of these financial statements.
1
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PRESTIGE BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
June 30,
----------------------------------
1997 1996
---------- ----------
Interest income:
Interest and fees on loans $1,647,271 $1,205,124
Interest on mortgage-backed securities 195,601 236,762
Interest and dividends on other investment securities 449,266 168,162
Interest on deposits in other financial institutions 10,771 20,637
---------- ----------
Total interest income 2,302,909 1,630,685
---------- ----------
Interest expense:
Interest on deposits 908,399 849,638
Advances from Federal Home Loan Bank 356,882 65,866
---------- ----------
Total interest expense 1,265,281 915,504
---------- ----------
Net interest income 1,037,628 715,181
Provision for loan losses 27,000 9,000
---------- ----------
Net interest income after provision for loan losses 1,010,628 706,181
---------- ----------
Other income:
Fees and service charges 88,854 68,705
Other income, net 7,121 9,364
---------- ----------
Total other income 95,975 78,069
---------- ----------
Other expenses:
Salaries and employee benefits 364,956 293,191
Premises and occupancy costs 78,300 83,194
Federal deposit insurance premiums 14,166 46,235
Data processing costs 51,116 42,186
Advertising costs 26,050 23,871
Transaction processing costs 47,183 39,745
ATM transaction fees 23,434 23,360
Other expenses 140,345 97,733
---------- ----------
Total other expenses 745,550 649,515
---------- ----------
Income before income tax expense 361,053 134,735
Income tax expense 136,681 49,958
---------- ----------
Net income $ 224,372 $ 84,777
========== ==========
Primary earnings per share (1):
Net income $ 0.27 N/A
Weighted average number of common shares outstanding 840,930 N/A
Fully diluted earnings per share (1):
Net income $ 0.27 N/A
Weighted average number of common shares outstanding 841,278 N/A
(1) Earnings per share information for 1996 is not presented as the Corporation
completed its conversion and initial stock offering on June 27, 1996.
The accompanying notes are an integral part of these financial statements.
2
5
PRESTIGE BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Six Months Ended
June 30,
----------------------------------
1997 1996
---------- ----------
Interest income:
Interest and fees on loans $3,143,655 $2,334,288
Interest on mortgage-backed securities 407,021 482,969
Interest and dividends on other investment securities 851,804 290,889
Interest on deposits in other financial institutions 33,713 56,117
---------- ----------
Total interest income 4,436,193 3,164,263
---------- ----------
Interest expense:
Interest on deposits 1,761,507 1,708,924
Advances from Federal Home Loan Bank 655,390 112,135
---------- ----------
Total interest expense 2,416,897 1,821,059
---------- ----------
Net interest income 2,019,296 1,343,204
Provision for loan losses 44,000 18,000
---------- ----------
Net interest income after provision for loan losses 1,975,296 1,325,204
---------- ----------
Other income:
Fees and service charges 152,388 129,378
Other income, net 16,966 18,747
---------- ----------
Total other income 169,354 148,125
---------- ----------
Other expenses:
Salaries and employee benefits 727,784 578,073
Premises and occupancy costs 157,783 166,810
Federal deposit insurance premiums 27,918 90,844
Data processing costs 99,350 85,579
Advertising costs 48,265 41,939
Transaction processing costs 93,401 76,590
ATM transaction fees 44,982 44,919
Other expenses 254,793 160,248
---------- ----------
Total other expenses 1,454,276 1,245,002
---------- ----------
Income before income tax expense 690,374 228,327
Income tax expense 261,660 85,884
---------- ----------
Net income $ 428,714 $ 142,443
========== ==========
Primary earnings per share (1):
Net income $ 0.50 N/A
Weighted average number of common shares outstanding 862,835 N/A
Fully diluted earnings per share (1):
Net income $ 0.50 N/A
Weighted average number of common shares outstanding 863,011 N/A
(1) Earnings per share information for 1996 is not presented as the Corporation
completed its conversion and initial stock offering on June 27, 1996.
The accompanying notes are an integral part of these financial statements.
3
6
PRESTIGE BANCORP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
Net Unrealized
Holding Gains
Additional Unearned (Losses) on Available
Common Paid-In Treasury ESOP Retained for Sale Securities,
Stock Capital Stock Shares Earnings Net of Taxes Total
-------- ---------- -------- --------- -------- -------------------- ----------
Balance, December 31, 1996 $963,023 $8,000,176 $ - $(755,490) $7,390,945 $(168,454) $15,430,200
Net income - - - - 428,714 - 428,714
Allocation of 1,545
ESOP shares - 13,299 - 15,450 - - 28,749
Decrease in net
unrealized holding
losses on available
for sale securities,
net of taxes - - - - - 53,472 53,472
Cash dividends declared:
Common stock ( $0.03
per share on 963,023
shares; $0.03 per
share on 914,873
shares) - - - - (56,338) - (56,338)
Treasury stock purchases,
48,150 shares - - (775,881) - - - (775,881)
-------- ---------- --------- --------- ---------- --------- -----------
Balance, June 30, 1997 $963,023 $8,013,475 $(775,881) $(740,040) $7,763,321 $(114,982) $15,108,916
======== ========== ========= ========= ========== ========= ===========
Balance, December 31, 1995 $ - $ - $ - $ - $7,245,432 $ (67,457) $ 7,177,975
Net income - - - - 142,443 - 142,443
Issuance and exchange of
common stock as a result
of the conversion 963,023 8,005,781 - - - - 8,968,804
77,041 shares acquired
for ESOP - - - (770,410) - - (770,410)
Increase in net unrealized
holding losses on
available for sale
securities, net of taxes - - - - - (246,184) (246,184)
-------- ---------- --------- --------- ---------- --------- -----------
Balance, June 30, 1996 $963,023 $8,005,781 $ - $(770,410) $7,387,875 $(313,641) $15,272,628
======== ========== ========= ========= ========== ========= ===========
The accompanying notes are an integral part of these financial statements.
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7
PRESTIGE BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
----------------------------------
1997 1996
---------- ----------
Operating activities:
Net income $ 428,714 $ 142,443
------------ ------------
Adjustments to reconcile net income to net cash
(used) provided by operating activities-
Depreciation of premises and equipment 86,944 85,901
Amortization of premiums and discounts, net 2,371 (7,453)
Compensation expense related to ESOP benefit 38,983 -
Provision for loan losses 44,000 18,000
Increase in other liabilities 132,635 71,049
Increase in income taxes payable 68,572 18,685
Increase in accrued interest receivable (197,247) (156,889)
Decrease (increase) in other assets 29,375 (300,852)
Other, net - 1,786
------------ ------------
Total adjustments 205,633 (269,773)
------------ ------------
Net cash provided (used) by operating activities 634,347 (127,330)
------------ ------------
Investing activities:
Loan originations (22,506,830) (12,495,406)
Principal payments on loans 8,168,308 5,373,623
Principal payments on mortgage-backed securities
available for sale 305,662 449,513
Principal payments on mortgage-backed securities held to maturity 1,041,765 871,270
Purchases of available for sale securities (196,910) (4,532,115)
Purchases of held to maturity investment securities (6,473,125) -
Maturities of investment securities held to maturity - 1,000,000
Purchases of premises and equipment (242,493) (138,883)
Purchase of Federal Home Loan Bank stock (795,200) (1,700)
------------ ------------
Net cash used by investing activities (20,698,823) (9,473,698)
------------ ------------
Financing activities:
Net change in advance payments by borrowers for taxes
and insurance 302,263 231,514
Proceeds from Federal Home Loan Bank advances 49,600,375 10,800,000
Payments on Federal Home Loan Bank advances (33,796,250) (10,300,000)
Net increase in Money Market, NOW and Passbook savings accounts 3,352,187 2,147,870
Net increase (decrease) in certificate accounts 1,722,300 (249,626)
Purchases of treasury stock (775,881) -
Common stock cash dividends paid (56,338) -
Additional paid-in-capital from stock offering - 8,198,394
------------ ------------
Net cash provided by financing activities 20,348,656 10,828,152
------------ ------------
Net increase in cash and cash equivalents 284,180 1,227,124
Cash and cash equivalents at beginning of period 2,147,678 4,393,667
------------ ------------
Cash and cash equivalents at end of period $ 2,431,858 $ 5,620,791
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for income taxes $ 171,000 $ 67,000
Cash paid during the period for interest on deposits
and borrowings 2,302,017 1,819,880
============ ============
The accompanying notes are an integral part of these financial statements.
5
8
PRESTIGE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
1. PLAN OF CONVERSION:
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 Plan provided that the holding company offer nontransferable
subscription rights to purchase common stock of the holding company. The rights
were offered first to eligible account holders of record, a tax-qualified
employee stock ownership plan to be adopted by the Bank, supplemental eligible
account holders, certain other depositors and borrowers, and directors,
officers and employees.
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
a share. Simultaneously there was a corresponding exchange of all the Bank's
stock for approximately 50% of the net offering proceeds. The remaining portion
of the net proceeds were 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 generally accepted accounting principles
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 and six month periods ended
June 30, 1997, are not necessarily indicative of the results to be expected for
the year ending December 31, 1997.
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, 1996, contained in the Corporation's Annual Report and
Form 10-K.
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3. INVESTMENT SECURITIES:
The cost and market values of investment securities are summarized as follows:
Investment securities held to maturity:
June 30, 1997
-----------------------------------
Amortized Market
Cost Value
--------------- ---------------
U.S. government and government
agency obligations:
Due after one and within five years $ 4,001,648 $ 3,980,770
Due after five and within ten years 11,498,926 11,539,240
Due after ten years 1,500,000 1,519,370
Federal Home Loan Mortgage
Corporation (FHLMC) certificates:
Due after one and within five years 649,789 650,506
Due after ten years 6,857,683 6,797,221
Government National Mortgage
Association (GNMA) certificates due
after ten years 1,270,449 1,308,353
Federal National Mortgage Association
(FNMA) certificates due within one year 111,895 115,340
----------- -----------
$25,890,390 $25,910,800
=========== ===========
Investment securities available for sale:
June 30, 1997
-----------------------------------
Market
Cost Value
--------------- ---------------
U.S. government and government
agency obligations:
Due after one and within five years $ f2,000,000 $ 1,975,000
Due after five and within ten years 2,502,658 2,451,400
Due after ten years 2,000,000 1,936,860
Federal Home Loan Mortgage
Corporation (FHLMC) certificates:
Due within one year 400,918 392,253
Due after one and within five years 1,458,399 1,418,777
Due after ten years 287,911 295,662
Federal National Mortgage Association
(FNMA) certificates due after one and
within five years 1,233,510 1,173,250
Mutual fund investment 1,400,018 1,358,940
Common stock portfolio 331,602 421,300
----------- -----------
$11,615,016 $11,423,442
=========== ===========
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4. LOANS RECEIVABLE:
Loans receivable are summarized as follows:
June 30,
1997
----------------
Commercial, including commercial secured by real estate $ 8,941,189
------------
Real estate loans:
1-4 family 70,600,877
Construction 1,830,120
------------
72,430,997
Less- Undisbursed loan proceeds 1,299,877
Deferred loan costs (11,958)
------------
71,143,078
------------
Consumer loans:
Share 583,760
Automobile 1,608,296
Home equity 6,179,728
Student 2,194,703
Credit cards 416,129
Personal unsecured/other 122,152
------------
11,104,768
------------
91,189,035
Less- Allowance for loan losses 349,360
------------
$ 90,839,675
============
5. ALLOWANCE FOR LOAN LOSSES:
Activity with respect to the allowance for loan losses is summarized as
follows:
Six Months Ended
June 30,
------------------------------
1997 1996
------------- --------------
Balance at beginning of period $306,926 $287,060
Provision for loan losses 44,000 18,000
Charge-offs (1,626) -
Recoveries 60 60
-------- --------
Balance at end of period $349,360 $305,120
======== ========
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6. DEPOSITS:
The aggregate amount of short-term certificates of deposit, each with a minimum
denomination of $100,000, was approximately $5,621,000 at June 30, 1997. The
scheduled maturities of the Bank's certificate accounts as of June 30, 1997 are
as follows (amounts approximate):
July 1, 1997 to June 30, 1998 $34,437,000
July 1, 1998 to June 30, 1999 3,683,000
July 1, 1999 to June 30, 2000 4,185,000
July 1, 2000 to June 30, 2001 2,359,000
July 1, 2001 and thereafter 741,000
-----------
$45,405,000
===========
7. INCOME TAXES:
The provision for income taxes is as follows:
Six Months Ended
June 30,
------------------------
1997 1996
-------- -------
Federal $212,461 $69,791
State 49,199 16,093
-------- -------
$261,660 $85,884
======== =======
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 June 30, 1997, and December 31, 1996,
amounted to $354,710 and $419,236, respectively.
Additionally, the Bank has an unfunded loan commitment for a director in the
amount of $93,000 as of June 30, 1997.
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 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 $18,268
during the quarter ended June 30, 1997.
9
12
The aforementioned approval of the Option Plan made 96,302 options available
for grant to employees and others who perform substantial services for the
Corporation. As of June 30, 1997, the Corporation has granted 31,376 options.
Although the Board of Directors has granted shares and options to officers and
directors of the Corporation and officers, directors, and employees of the Bank,
such actions cannot be finalized until the Office of Thrift Supervision ("OTS")
has approved the Plans. The OTS has made its first round of comments on the
Plans. The Corporation has submitted responses and now awaits a reply from the
OTS. The Corporation expects to receive final approval from the OTS.
As permitted by Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation," the Corporation accounts for the
Option Plan under APB Opinion No. 25, "Accounting for Stock Issued to
Employees" whereby no compensation cost has been recorded in accordance with
certain valuation models, such as the Black Scholes model, the Corporation's
net income and earnings per share would have been reduced to the following pro
forma amounts:
For the
Six Months
Ended
June 30, 1997
-------------
Net income:
As reported $428,714
Pro forma 425,619
Primary earnings per share:
As reported $ 0.50
Pro forma 0.49
Fully Diluted earnings per share:
As reported $ 0.50
Pro forma 0.49
A summary of the status of the Corporation's Stock Option Plan at June 30,
1997, and changes during the period then ended is presented in the table and
narrative following:
Weighted
Average
Shares Exercise Price
------ --------------
Outstanding at beginning of period -- $ --
Granted 31,376 15.63
Exercised -- --
Forfeited -- --
Outstanding at end of period 31,376 15.63
Exercisable at end of period -- --
Weighted average fair value of
options granted $5.36
The options are exercisable one year from the grant date in equal installments
over a period of five years. The maximum term of any option granted under the
Plan cannot exceed 10 years.
10
13
The 31,376 options outstanding at June 30, 1997, have an exercise price of
$15.63 and a weighted average remaining contractual life of 9.8 years. None of
these options are exercisable. During the second quarter of 1997, one option
grant totaling 31,376 shares was issued. The fair value of each option grant is
estimated on the date of grant using the Black-Scholes option pricing model
with the following assumptions used for grants in 1997: risk-free interest rate
of 6.89%, expected dividend yield of 1.28%, expected life of 7.0 years and
expected volatility of 19.00%.
Additionally, on March 3, 1997, the Corporation initiated a plan to repurchase,
at market value, up to 5% (48,150 shares) of its outstanding shares of common
stock through the use of its existing cash and cash equivalents. This
repurchase program was completed on April 28, 1997.
10. RETAINED EARNINGS AND REGULATORY CAPITAL:
The Bank's actual capital amounts and ratios are presented below in the
following table. There is no deduction from capital for interest-rate risk
(amounts in thousands).
To Be Well Capitalized
For Capital Adequacy Under Prompt Corrective
Actual Purposes Action Provisions
--------------------------- ---------------------------- --------------------------
Amount Ratio Amount Ratio Amount Ratio
------------- ---------- ------------- ---------- ------------ ----------
Total Capital (to Risk
Weighted Assets):
As of June 30, 1997 $12,671 19.84% =>5,109 =>8.0% =>6,386 =>10.0%
Tier 1 Capital (to Risk
Weighted Assets):
As of June 30, 1997 $12,322 19.30% =>2,554 =>4.0% =>3,832 =>6.0%
Tier 1 Capital (to
Average Assets):
As of June 30, 1997 $12,322 9.62% =>5,123 =>4.0% =>6,404 =>5.0%
11. FUTURE ACCOUNTING STANDARD:
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" (SFAS No. 128).
SFAS No. 128 differs from current accounting guidance in that earnings per
share is classified as basic earnings per share and diluted earnings per share,
compared to primary earnings per share and fully diluted earnings per share
under current standards. Basic earnings per share differs from primary earnings
per share in that it includes only the weighted average common shares
outstanding and does include any dilutive securities in the calculation.
Diluted earnings per share under the new standard differs in certain
calculations than fully diluted earnings per share under existing standards.
Adoption of SFAS No. 128 is required for interim and annual periods ending
after December 15, 1997. Had the Corporation applied the provisions of SFAS
No. 128 in the second
11
14
quarter of 1997 to the earnings per share calculations, the basic and diluted
earnings per share for the three and six months ended June 30, 1997 would have
been $0.27 and $0.50, respectively.
12
15
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
At June 30, 1997, the Company's total assets amounted to $135.7
million compared with $114.6 million at December 31, 1996. The $21.1 million or
18.4% increase was primarily due to an increase of $14.3 million or 18.7% in
net loans receivable and an increase of $5.4 million or 16.9% in investment
securities. The growth in net loans receivable was attributed to increases in
commercial and one-to-four family residential real estate loans. Such increase
in assets was funded through an increase in deposits of $5.1 million or 6.1%
and a $15.8 million or 109.0% increase in Federal Home Loan Bank advances.
Total stockholders' equity amounted to $15.1 million or 11.13% of total assets
at June 30, 1997, compared to equity of $15.4 million or 13.46% of total assets
at December 31, 1996. The $321,000 decrease was the result of the Company's
repurchase of its common stock and quarterly dividends paid which was partially
offset by net income during the period.
The Company's nonperforming assets increased $18,000 or 4.6% to
$409,000 at June 30, 1997, compared to $391,000 at December 31, 1996. The
increase was due to an increase in nonperforming mortgage loans.
RESULTS OF OPERATIONS
GENERAL--The Company's net income for the quarter ended June 30, 1997
was $224,000 or $.27 per share compared to net income of $85,000 for the same
quarter in the prior year. The $139,000 increase in net income for the quarter
ended June 30, 1997 as compared to the quarter ended June 30, 1996 was
primarily the result of a $323,000 increase in net interest income before
provision for loan losses which was partially offset by a $96,000 increase in
total non-interest expense and a $87,000 increase in provision for income
taxes. The annualized return on average assets and return on average equity for
the quarter ended June 30, 1997, was .68% and 5.98%, respectively, compared to
.35% and 3.48% for the same period of 1996.
The Company's net income for the six months ended June 30, 1997 was
$429,000 or $.50 per share compared to net income of $142,000 for the same
period of 1996. The $287,000 increase in net income for the six months ended
June 30, 1997 as compared to the six months ended June 30, 1996 was primarily
the result of a $676,000 increase in net interest income before provision for
loan losses, which was partially offset by a $209,000 increase in total
non-interest expense, and a $176,000 increase in provision for income taxes.
The annualized return on average assets and return on average equity for the
six months ended June 30, 1997 was .67% and 5.65%, respectively, compared to
.30% and 3.35% for the same period of 1996.
Earnings per share information for the 1996 prior periods are not
applicable as the Company did not complete its initial stock offering until
June 27, 1996. A portion of the increased net interest income for the three and
six month periods ended June 30, 1997,
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compared to the same period in 1996 can be attributed to the investment of the
funds raised through the formation of the holding company, sale of stock and
the conversion of Prestige Bank from a mutual chartered savings association to
a stock chartered savings association on June 27, 1996.
INTEREST INCOME--The Company reported interest income of $2.3 million
for the three months ended June 30, 1997, as compared to $1.6 million for the
three months ended June 30, 1996. The increase of $672,000 or 41.2% for the
quarter ended June 30, 1997, as compared to the same period in the prior year
can be attributed to a $442,000 or 36.7% increase in interest and fees on loans
and a $281,000 or 167.3% increase in interest and dividends on other investment
securities as the Company continued to leverage its capital by expanding its
loan and investment portfolios. Among the areas of focused growth within the
Company's lending portfolio was commercial loans. Average balances for
commercial loans during the second quarter of 1997 was $7.0 million, compared
to $249,000 for the same period in 1996. The average balances on loans
receivable and investment securities, net of mortgage backed securities, during
the second quarter of 1997 were $87.3 million and $26.6 million, respectively,
compared to $66.7 million and $11.1 million, respectively, for the same period
in 1996. In addition, the Company benefited from earning higher yields on loans
receivable and investment securities, net of mortgage backed securities. The
weighted average yield on loans receivable and investment securities during the
second quarter of 1997 were 7.5% and 6.8%, respectively, compared to 7.2% and
6.1%, respectively, for the same period in 1996.
For the six months ended June 30, 1997, the Company reported interest
income of $4.4 million, as compared to $3.2 million for comparable period in
1996. The increase of $1.2 million or 40.2% for the quarter ended June 30,
1997, as compared to the same period in the prior year can be attributed to an
$810,000 or 34.7% increase in interest and fees on loans and a $561,000 or
192.8% increase in interest and dividends on other investment securities as the
Company continued to leverage its capital by expanding its loan and investment
portfolios. Among the areas of focused growth within the Company's lending
portfolio was commercial loans. Average balances for commercial loans during
the six months of 1997 was $5.9 million, compared to $142,000 for the same
period in 1996. The average balances on loans receivable and investment
securities, net of mortgage backed securities, during the six months of 1997
were $84.1 million and $26.3 million, respectively, compared to $64.5 million
and $10.6 million, respectively, for the same period in 1996. In addition, the
Company benefited from earning higher yields on loans receivable and investment
securities, net of mortgage backed securities. The weighted average yield on
loans receivable and investment securities during the six months of 1997 were
7.5% and 6.5%, respectively, compared to 7.2% and 5.5%, respectively, for the
same period in 1996.
INTEREST EXPENSE--Interest expense increased $349,000 or 38.1% during
the three months ended June 30, 1997. The increase for the three months ended
June 30, 1997 compared to the same period in the prior year was primarily due
to growth in average interest-bearing liabilities. Average deposits and Federal
Home Loan Bank (FHLB) of Pittsburgh advances during the second quarter of 1997
were $88.2 million and $26.8 million, respectively, compared to $82.7 million
and $4.0 million, respectively, for the same period in 1996.
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For the six months ended June 30, 1997, interest expense increased
$596,000 or 32.7%. The increase for the six months ended June 30, 1997 compared
to the same period in the prior year was primarily due to growth in average
interest-bearing liabilities. Average deposits and Federal Home Loan Bank
(FHLB) of Pittsburgh advances during the second quarter of 1997 were $86.9
million and $25.0 million, respectively, compared to $82.0 million and $3.5
million, respectively, for the same period in 1996.
PROVISION FOR LOAN LOSSES--During the three months and six months
ended June 30, 1997 the Company recorded provisions for losses on loans of
$27,000 and $44,000, respectively, compared to $9,000 and $18,000 for the
comparable periods in 1996. The Company recorded such provisions to adjust the
Company's allowance for loan losses to a level deemed appropriate based upon an
assessment of the volume and type of lending presently being conducted by the
Company, industry standards, current analysis of the existing portfolio of
loans, and a review of the current economic conditions in the Company's market
area. The increase in the three months and six months ended 1997 reflects the
increased amount of lending by the Company.
OTHER INCOME--Other income increased $18,000 or 23.1% and $21,000 or
14.2% for the three months and six months ended June 30, 1997, respectively,
compared to same periods in 1996. The increase was primarily attributed to
increases in fees and service charges generated from an increase in total
transaction accounts.
OTHER EXPENSES-- Total other expenses increased $96,000 or 14.7% and
$209,000 or 16.8% for the three months and six months respectively ended June
30, 1997 as compared to the same periods during fiscal 1996. Such increases
were primarily the result of a $72,000 and $150,000 increase in salaries and
employee benefits, and an $42,000 and $95,000 increase in other expenses for
the three months and six months ended June 30, 1997, respectively, when
compared to the same periods during fiscal 1996. The increase in salaries and
employee benefits was due to approved salary increases and the addition of
compensation expense of $38,440 and $57,251 for the three and six month periods
ended June 30, 1997, respectively, for the ESOP and Management Recognition and
Retention Plans. The increase in other expenses was caused by increased
professional fees and other costs associated with operating the Company as a
public reporting entity. These increases were partially offset by a $32,000 and
$63,000 reduction in FDIC premiums for the three months and six months
respectively ended June 30, 1997, as compared to the same periods during fiscal
1996, due to a new premium schedule that resulted from the 1996 legislation
that recapitalized the savings association fund.
INCOME TAXES--The Company incurred a provision for income taxes of
$137,000 and $262,000 for the three months and six months respectively ended
June 30, 1997, as compared to $50,000 and $86,000 for the same period in the
prior year. Such increases were primarily due to an increase in taxable income.
LIQUIDITY AND CAPITAL RESOURCES.
The Company's primary sources of funds are deposits, repayments,
prepayments and maturities of outstanding loans and mortgage-backed securities,
maturities of investment
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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 and loan prepayments are greatly
influenced by the movement of interest rates in general, economic conditions
and competition. The Company manages the pricing of its deposits to maintain a
deposit balance deemed appropriate and desirable by its Board of Directors. In
addition, the Company invests in short-term interest-earning assets which
provides liquidity to meet lending requirements. Although the Company has
historically relied on deposits for funding, the company in 1996 began to use
advances from the FHLB of Pittsburgh to leverage its strong capital position.
As of June 30, 1997, the Company had $30.3 million of outstanding advances from
the FHLB of Pittsburgh.
During the six months ended June 30, 1997 and 1996, the Company's
operating activities provided net cash of approximately $634,000 and used net
cash of approximately $127,000, respectively. The primary reasons for the
$634,000 net cash provided during the six months ended June 30, 1997 were
$429,000 in net income, $87,000 in depreciation of premises and equipment, a
$133,000 increase in other liabilities, and a $69,000 increase in income taxes
payable which was partially offset by a $197,000 increase in accrued interest
receivable. During the six months ended June 30, 1996, the $127,000 net cash
used was the result of a increase in accrued interest receivable of $157,000
and a $301,000 increase in other assets which was partially offset by $142,000
in net income, $86,000 in depreciation of premises and equipment, and an
increase in other liabilities of $71,000.
Net cash used by investing activities was $20.7 million for the six
months ended June 30, 1997. During the six months ended June 30, 1997, the
Company originated $14.3 million in new loans in excess of principal payments
received on existing loans and purchased $6.5 million of investment securities
designated held to maturity due to their longer term maturity structure. This
compares with the six months ended June 30, 1996 when the Company had
approximately $7.1 million in new loans in excess of principal payments
received on existing loans and purchased $4.5 million of investment securities
designated available for sale due to the Company needing more flexibility as it
prepared for the conversion of Prestige Bank from a mutual chartered savings
association to a stock chartered savings association on June 27, 1996.
Net cash provided by financing activities for the six months ended
June 30, 1997, was approximately $20.3 million, attributable to increases in
core deposits of $3.4 million and increases in net Federal Home Loan Bank
advances of $15.8 million. During the same period last year, the Company
experienced a $10.8 million increase in net cash provided by financing
activities primarily due to an $8.2 million of capital raised in connection
with the conversion of Prestige Bank from a mutual chartered savings
association to a stock chartered savings association on June 27, 1996 and a
$2.1 million increase in core deposits.
The 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 June
30, 1997, the Bank's tangible, core, and risk-based capital ratios amounted to
9.09%, 9.09%, and 19.84%, respectively, which substantially 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 23, 1997 ("Annual Meeting").
b) Not applicable
c) There were 963,023 shares of Common Stock of the Corporation
eligible to be voted at the Annual Meeting and 797,627 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
------- --------
Robert S. Zyla 784,062 13,565
Charles P. McCullough 784,207 13,420
2. Proposal to ratify the appointment of Arthur Andersen LLP
as the Corporation's independent auditors for the year
ending December 31, 1997.
FOR AGAINST ABSTAIN
------- ------- -------
795,457 800 1,370
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3. Proposal to ratify the Corporation's Stock Option Plan.
FOR AGAINST ABSTAIN
------- ------- -------
554,285 44,840 6,920
4. Proposal to ratify the Corporation's Management
Recognition and Retention Plan and Trust.
FOR AGAINST ABSTAIN
------- ------- -------
700,792 45,850 6,750
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: August 14, 1997 By: /s/ Robert S. Zyla
-----------------------------
Robert S. Zyla, President
Dated: August 14, 1997 By: /s/ James M. Hein
-----------------------------
James M. Hein, Controller
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