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, 1998
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 12, 1998, there
were 1,051,940 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, 1998 (unaudited) and December 31, 1997 1
Consolidated Statements of Income of Prestige Bancorp, Inc. for the three
months ended June 30, 1998 and 1997 (unaudited) 2
Consolidated Statements of Income of Prestige Bancorp, Inc. for the six
months ended June 30, 1998 and 1997 (unaudited) 3
Consolidated Statements of Stockholders' Equity of Prestige Bancorp, Inc.
for the six months ended June 30, 1998 and 1997 (unaudited) 4
Consolidated Statements of Cash Flows of Prestige Bancorp, Inc. for the six
months ended June 30, 1998 and 1997 (unaudited) 5
Notes to Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 12
PART II. OTHER INFORMATION
- -------- -----------------
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security-Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
- ----------
3
PRESTIGE BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1998 1997
------------ ------------
ASSETS (Unaudited)
- ------
Cash and due from banks $ 904,123 $ 927,362
Interest-bearing deposits with banks 2,772,149 1,286,099
Investment securities:
Available for sale 11,673,327 11,017,858
Held to maturity (market value $32,674,905 and
$27,870,426, respectively) 32,508,648 27,741,398
Net loans 108,995,533 96,180,961
Federal Home Loan Bank stock, at cost 2,498,900 1,748,900
Premises and equipment, net 2,651,473 2,673,794
Accrued interest receivable 1,157,569 1,033,261
Other assets 1,494,115 653,077
------------ ------------
Total assets $164,655,837 $143,262,710
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Non-interest-bearing deposits $ 4,838,135 $ 4,000,085
Interest-bearing deposits 92,768,964 87,155,740
------------ ------------
Total deposits 97,607,099 91,155,825
Federal Home Loan Bank advances 48,977,000 34,677,000
Advance payments by borrowers for taxes and insurance 972,095 856,881
Income taxes payable 160,373 178,068
Deferred tax liability 55,274 77,927
Accrued interest payable 213,598 153,336
Other liabilities 745,553 533,862
------------ ------------
Total liabilities 148,730,992 127,632,899
------------ ------------
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, 1,107,312 shares issued and
1,051,940 outstanding; 1,100,090 963,023
Treasury stock, 55,372 shares, at cost; (775,881) (775,881)
Additional paid-in-capital 10,710,582 8,033,296
Unearned ESOP shares, 81,362 shares at June 30, 1998;
83,265 at December 31, 1997 (707,500) (724,050)
Retained earnings 5,531,521 8,064,202
Net unrealized holding gains on
available for sale securities, net of taxes 66,033 69,221
------------ ------------
Total stockholders' equity 15,924,845 15,629,811
------------ ------------
Total liabilities and stockholders' equity $164,655,837 $143,262,710
============ ============
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,
------------------------------------
1998 1997
---------- ----------
Interest income:
Interest and fees on loans $2,128,052 $1,647,271
Interest on mortgage-backed securities 153,778 195,601
Interest and dividends on other investment securities 583,040 449,266
Interest on deposits in other financial institutions 37,447 10,771
---------- ----------
Total interest income 2,902,317 2,302,909
---------- ----------
Interest expense:
Interest on deposits 963,860 908,399
Advances from Federal Home Loan Bank 694,206 356,882
---------- ----------
Total interest expense 1,658,066 1,265,281
---------- ----------
Net interest income 1,244,251 1,037,628
Provision for loan losses 42,000 27,000
---------- ----------
Net interest income after provision for loan losses 1,202,251 1,010,628
---------- ----------
Other income:
Fees and service charges 121,410 88,854
Loss on sale of investments (7,200) --
Gain on sale of assets 23,256 --
Other income, net 5,528 7,121
---------- ----------
Total other income 142,994 95,975
---------- ----------
Other expenses:
Salaries and employee benefits 514,294 364,956
Premises and occupancy costs 131,498 78,300
Federal deposit insurance premiums 14,480 14,166
Data processing costs 65,536 51,116
Advertising costs 23,851 26,050
Transaction processing costs 62,643 47,183
ATM transaction fees 27,663 23,434
Other expenses 183,968 140,345
---------- ----------
Total other expenses 1,023,933 745,550
---------- ----------
Income before income tax expense 321,312 316,053
Income tax expense 126,152 136,681
---------- ----------
Net income $ 195,160 $ 224,372
========== ==========
Basic earnings per share:
Net income $ 0.20 $ 0.23
Weighted average number of common shares outstanding 969,788 967,070
Diluted earnings per share:
Net income $ 0.20 $ 0.23
Weighted average number of common shares outstanding 989,988 $ 967,470
The accompanying notes are an integral part of these financial statements.
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5
PRESTIGE BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Six Months Ended
June 30,
---------------------------
1998 1997
---------- ----------
Interest income:
Interest and fees on loans $4,064,741 $3,143,655
Interest on mortgage-backed securities 315,728 407,021
Interest and dividends on other investment securities 1,103,011 851,804
Interest on deposits in other financial institutions 106,374 33,713
---------- ----------
Total interest income 5,589,854 4,436,193
---------- ----------
Interest expense:
Interest on deposits 1,891,902 1,761,507
Advances from Federal Home Loan Bank 1,298,126 655,390
---------- ----------
Total interest expense 3,190,028 2,416,897
---------- ----------
Net interest income 2,399,826 2,019,296
Provision for loan losses 80,000 44,000
---------- ----------
Net interest income after provision for loan losses 2,319,826 1,975,296
---------- ----------
Other income:
Fees and service charges 216,553 152,388
Loss on sale of investments (7,200) --
Gain on sale of assets 23,256 --
Other income, net 11,821 16,966
---------- ----------
Total other income 244,430 169,354
---------- ----------
Other expenses:
Salaries and employee benefits 1,014,877 727,784
Premises and occupancy costs 247,603 157,783
Federal deposit insurance premiums 28,904 27,918
Data processing costs 127,810 99,350
Advertising costs 51,579 48,265
Transaction processing costs 122,152 93,401
ATM transaction fees 51,185 44,982
Other expenses 347,769 254,793
---------- ----------
Total other expenses 1,991,879 1,454,276
---------- ----------
Income before income tax expense 572,377 690,374
Income tax expense 224,064 261,660
---------- ----------
Net income $ 348,313 $ 428,714
========== ==========
Basic earnings per share:
Net income $ 0.36 $ 0.43
Weighted average number of common shares outstanding 969,376 992,260
Diluted earnings per share:
Net income $ 0.35 $ 0.43
Weighted average number of common shares outstanding 984,678 992,463
The accompanying notes are an integral part of these financial statements.
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6
PRESTIGE BANCORP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
Net Unrealized
Holding Gains
(Losses) on
Additional Unearned Available for
Common Paid-In Treasury ESOP Retained Sale Securities
Stock Capital Stock Shares Earnings Net of Taxes Total
---------------------------------------------------------------------------------------------
Balance, December 31, 1997 $ 963,023 $ 8,033,296 ($ 775,881) ($724,050) $8,064,202 $ 69,221 $15,629,811
Net income 348,313 348,313
Allocation of 1903
ESOP shares 28,330 16,550 44,880
Decrease in net
unrealized holding
gains on available
for sale securities,
net of taxes (3,188) (3,188)
Cash dividends declared:
Common stock ($0.10
per share on 914,873
shares) (91,487) (91,487)
Stock dividend declared:
Common stock (15% per
share on 914,873
shares) 137,067 2,648,956 (2,786,023) --
Cash in lieu of stock
dividend on fractional
shares (3,484) (3,484)
---------- ----------- ---------- --------- ---------- --------- -----------
Balance, June 30, 1998 $1,100,090 $10,710,582 ($ 775,881) ($707,500) $5,531,521 $ 66,033 $15,924,845
========== =========== ========== ========= ========== ========= ===========
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 1,776
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) (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
========== =========== ========== ========= ========== ========= ===========
NOTE: All numbers of shares have been restated to reflect the stock dividend.
(See Note 2.)
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,
------------------------------
1998 1997
------------ ------------
Operating activities:
Net income $ 348,313 $ 428,714
------------ ------------
Adjustments to reconcile net income to net cash
provided (used) by operating activities-
Depreciation of premises and equipment 145,088 86,944
Amortization of premiums and discounts, net (19,636) 2,371
Non cash compensation expense related to MRP Plan 65,535 --
Non cash compensation expense related to ESOP benefit 54,010 38,983
Loss on sale of mutual funds 7,200 --
Gain on sale of premises and equipment (37,971) --
Provision for loan losses 80,000 44,000
Increase in other liabilities 202,561 17,757
Increase in accrued interest payable 60,262 114,878
(Decrease) increase in income taxes payable (38,222) 68,572
Increase in accrued interest receivable (124,308) (197,247)
(Increase) decrease in other assets (318,998) 29,375
------------ ------------
Total adjustments 75,521 205,633
------------ ------------
Net cash provided by operating activities 423,834 634,347
------------ ------------
Investing activities:
Loan originations (32,338,637) (22,506,830)
Principal payments on loans 19,444,065 8,168,308
Principal payments on mortgage-backed securities available for sale 698,744 305,662
Principal payments on mortgage-backed securities held to maturity 889,230 1,041,765
Principal payments on investment securities held to maturity 86,841 --
Proceeds from calls of held to maturity securities 2,500,000 --
Proceeds from sale of available for sale mutual funds 355,400 --
Proceeds from calls of available for sale securities 600,000 --
Return of capital on investment securities 897 --
Purchases of available for sale securities (2,321,702) (196,910)
Purchases of held to maturity investment securities (8,225,007) (6,473,125)
Proceeds from sale of premises and equipment 206,118 --
Purchases of premises and equipment (290,914) (242,493)
Purchase of Federal Home Loan Bank stock (750,000) (795,200)
------------ ------------
Net cash used by investing activities (19,144,965) (20,698,823)
------------ ------------
Financing activities:
Net change in advance payments by borrowers for taxes and insurance 115,214 302,263
Purchases of MRP shares (587,575) --
Proceeds from Federal Home Loan Bank advances 18,000,000 49,600,375
Payments on Federal Home Loan Bank advances (3,700,000) (33,796,250)
Net increase in Money Market, NOW and Passbook savings accounts 3,903,493 3,352,187
Net increase in certificate accounts 2,547,781 1,722,300
Purchases of treasury stock -- (775,881)
Cash in lieu of stock dividend on fractional shares (3,484) --
Common stock cash dividends paid (91,487) (56,338)
------------ ------------
Net cash provided by financing activities 20,183,942 20,348,656
------------ ------------
Net increase in cash and cash equivalents 1,462,811 284,180
Cash and cash equivalents at beginning of period 2,213,461 2,147,678
------------ ------------
Cash and cash equivalents at end of period $ 3,676,272 $ 2,431,858
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for income taxes $ 265,000 $ 171,000
Cash paid during the period for interest on deposits and borrowings 3,129,766 2,302,017
============ ============
Supplemental schedule of noncash investing activity:
Loans transferred to real estate owned $ 250,000 $ --
The accompanying notes are an integral part of these financial statements.
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8
PRESTIGE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(UNAUDITED)
1. THE CORPORATION:
----------------
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 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, 1998, are not
necessarily indicative of the results to be expected for the year ending
December 31, 1998.
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, 1997, contained in the Corporation's Annual Report and Form
10-K.
Earnings Per Common Share
- -------------------------
During the fourth quarter of 1997, the Company adopted 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. All prior periods
have been restated to reflect this adoption. Treasury shares are treated as
retired for earnings per share purposes.
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The following tables reflect the calculation of earnings per share under SFAS
No. 128.
Three Months Ended
-----------------------------------
June 30, 1998 June 30, 1997
------------- -------------
Basic earnings per share:
Net income $195,160 $224,372
Average shares outstanding 969,788 967,070
Earnings per share $ .20 $ .23
Diluted earnings per share:
Net income $195,160 $224,372
Average shares outstanding 969,788 967,070
Stock options 20,200 400
--------- ---------
Diluted average shares outstanding 989,988 967,470
Earnings per share $ .20 $ .23
Six Months Ended
-----------------------------------
June 30, 1998 June 30, 1997
------------- -------------
Basic earnings per share:
Net income $348,313 $428,714
Average shares outstanding 969,376 992,260
Earnings per share $ .36 $ .43
Diluted earnings per share:
Net income $348,313 $428,714
Average shares outstanding 969,376 992,260
Stock options 15,302 203
--------- ---------
Diluted average shares outstanding 984,678 992,463
Earnings per share $ .35 $ .43
For the three and six months ended June 30, 1998, options to purchase 1,633
shares of common stock 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 periods.
On April 15, 1998 the Board of Directors declared a stock dividend of 15% to
shareholders of record of June 2, 1998 payable on June 19, 1998. All per share
data have been restated to reflect the stock dividend.
Comprehensive Income
- --------------------
The Company adopted SFAS No. 130, "Reporting Comprehensive Income", in the
quarter ended March 31, 1998. 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 a statement of financial position.
Six Months Ended
-----------------------------------
June 30, 1998 June 30, 1997
------------- -------------
(unaudited)
Net income $348,313 $428,714
Other comprehensive income, net of tax
Unrealized holding (loss) gain
arising during the period (3,188) $ 53,472
-------- --------
Comprehensive income $345,125 $482,186
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10
3. INVESTMENT SECURITIES:
----------------------
The cost and market values of investment securities are summarized as follows:
Investment securities held to maturity:
June 30, 1998
---------------------------
Amortized Market
Cost Value
----------- ----------
U.S. government and government
agency obligations:
Due within one year $ 508,699 $ 507,347
Due after one and within five years 4,406,379 4,405,475
Due after five and within ten years 13,501,638 13,522,069
Due after ten years 6,958,015 6,991,314
Federal Home Loan Mortgage
Corporation (FHLMC) certificates:
Due after one and within five years 443,397 450,204
Due after five and within ten years 3,318,784 3,353,451
Due after ten years 2,309,565 2,356,278
Government National Mortgage
Association (GNMA) certificates due
after ten years 1,062,171 1,088,767
----------- -----------
$32,508,648 $32,674,905
=========== ===========
Investment securities available for sale:
June 30, 1998
---------------------------
Market
Cost Value
----------- -----------
U.S. government and government
agency obligations:
Due within one year $ 2,000,000 $ 1,995,000
Due after one and within five years 1,004,660 1,002,775
Due after five and within ten years 1,500,979 1,496,720
Due after ten years 2,000,000 2,000,940
Corporate Debentures 493,518 491,915
Federal Home Loan Mortgage
Corporation (FHLMC) certificates:
Due within one year 502,924 501,393
Due after ten years 212,172 221,085
Federal National Mortgage Association
(FNMA) certificates due after one and
within five years 1,109,409 1,091,981
Mutual fund investment 1,553,028 1,526,653
Common stock portfolio 1,186,518 1,344,865
----------- -----------
$11,563,208 $11,673,327
=========== ===========
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4. LOANS RECEIVABLE:
-----------------
Loans receivable are summarized as follows:
June 30,
1998
------------
Commercial, including commercial secured by real estate $ 15,181,679
Construction 1,919,800
Less-Undisbursed loan proceeds 272,932
------------
Total Commercial, including commercial secured by real estate 16,828,547
------------
Real estate loans:
1-4 family 77,398,831
Construction 755,480
------------
78,154,311
Less- Undisbursed loan proceeds 221,460
Deferred loan (costs) / fees (5,869)
------------
77,938,720
------------
Consumer loans:
Collateral 552,140
Automobile 2,276,670
Home equity 9,071,467
Student 2,227,943
Credit cards 397,065
Other 154,915
------------
14,680,200
------------
109,447,467
Less- Allowance for loan losses 451,934
============
$108,995,533
============
5. ALLOWANCE FOR LOAN LOSSES:
--------------------------
Activity with respect to the allowance for loan losses is summarized as follows:
Six Months Ended
June 30,
--------------------
1998 1997
--------- --------
Balance at beginning of period $402,964 $306,926
Provision for loan losses 80,000 44,000
Charge-offs (31,030) (1,626)
Recoveries - 60
========= ========
Balance at end of period $451,934 $349,360
========= ========
9
12
6. DEPOSITS:
---------
The aggregate amount of short-term certificates of deposit, each with a minimum
denomination of $100,000, was approximately $6,497,000 at June 30, 1998. The
scheduled maturities of the Bank's certificate accounts as of June 30, 1998 are
as follows (amounts approximate):
July 1, 1998 to June 30, 1999 30,512,951
July 1, 1999 to June 30, 2000 8,780,518
July 1, 2000 to June 30, 2001 6,548,850
July 1, 2001 to June 30, 2002 1,131,515
July 1, 2002 and thereafter 1,377,146
------------
TOTAL $ 48,350,980
============
Certificates of $100,000 or more $ 6,496,786
============
7. INCOME TAXES:
-------------
The provision for income taxes is as follows:
Six Months Ended
June 30,
---------------------
1998 1997
-------- --------
Federal $185,088 $212,461
State 38,976 49,199
-------- --------
$224,064 $261,660
======== ========
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, 1998, and December 31, 1997,
amounted to $205,813 and $182,175, respectively. Additionally, the Bank has an
unfunded loan commitment for a director in the amount of $93,000 as of June 30,
1998.
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 $32,000 during the quarter ended June 30, 1998.
10
13
The aforementioned approval of the Option Plan made 110,747 options available
for grant to employees and others who perform substantial services for the
Corporation. As of June 30, 1998, the Corporation has granted 89,885 options.
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.
On April 15, 1998 the Board of Directors declared a stock dividend of 15% to
shareholders of record of June 2, 1998 payable on June 19, 1998.
10. RETAINED EARNINGS AND REGULATORY CAPITAL:
-----------------------------------------
The Savings Bank's actual capital amounts and ratios are presented below in the
following table. Based on the asset size of the Savings Bank and its strong risk
based capital ratios, the Corporation believes that the Savings Bank does not
have deduct any amount 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, 1998 $13,395 16.76% $6,394 8.0% $7,993 10.0%
Tier 1 Capital (to Risk
Weighted Assets):
As of
June 30, 1998 $12,943 16.19% $3,197 4.0% $4,796 6.0%
Tier 1 Capital (to
Average Assets):
As of
June 30, 1998 $12,943 8.13% $6,368 4.0% $7,960 5.0%
11. FUTURE ACCOUNTING STANDARDS:
----------------------------
In February 1998, the Financial Accounting Standards Board issued SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits". SFAS
No. 132 revises employers' disclosures about pension and other postretirement
benefit plans, but does not change the measurement or recognition of those
plans. SFAS No. 132 standardizes the disclosure requirements for pensions and
other postretirement benefits, to the extent practicable; requires additional
information on changes in the benefit obligations and fair values of plan assets
that will facilitate financial analysis; and eliminates certain disclosures.
SFAS No. 132 will be effective for the Corporation's financial statements for
the year ended December 31, 1998.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. SFAS No. 133 will be effective for all fiscal
quarters and fiscal years beginning after June 15, 1999.
11
14
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
- -------------------
The Corporation is a registered savings and loan holding company. The
financial activity of the Corporation is undertaken primarily through its sole
subsidiary Prestige Bank, A Federal Savings Bank (the "Savings Bank"). Assets
held directly by the Corporation includes all of the outstanding capital stock
of the Savings Bank, a loan receivable from the Prestige Bancorp Employee Stock
Ownership Trust (the "ESOP"), deposits maintained at the Savings Bank and common
stock of several savings associations or savings and loan holding companies
(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.
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.
As described in greater detail below, the Corporation and Savings Bank
intend to continue an emphasis on residential mortgage loans. However, as part
of the business strategy to increase profitability, the Savings Bank will
continue to widen its range of lending activities to include small business
commercial loans, commercial real estate loans and consumer loans. Although such
lending activities entail greater risk than residential mortgage lending,
management is willing to accept such risks because of its belief that there are
lending opportunities in its market area which are not being currently fulfilled
by other financial institutions and management believes it can properly manage
the risks of greater consumer and commercial lending.
At June 30, 1998, the Corporation's total assets amounted to $164.7
million compared with $143.3 million at December 31, 1997. The $21.4 million or
14.9% increase was primarily due to an increase of $12.8 million or 13.3% in net
loans receivable, an increase of $5.4 million or 14.0% in investment securities
and an increase in cash and cash equivalents of $1.5 million or 66.1%. The
growth in net loans receivable was attributed to increases in commercial
business, commercial real estate, and one-to-four family residential real estate
loans and growth in investment securities occurred as the Corporation proceeded
to leverage its strong capital position. Increased cash and cash equivalents of
$1.5 million was primarily attributable to increases in principal payments on
loans and investment calls on investment securities due to the low interest rate
environment. Such increase in assets was funded through an increase in deposits
of $6.5 million or 7.1% and a $14.3 million or 41.2% increase in Federal Home
Loan Bank advances. Total stockholders' equity amounted to $15.9 million or
9.67% of total assets at June 30, 1998, compared to equity of $15.6 million or
10.91% of total assets at December 31, 1997. The Corporation paid a quarterly
dividend of $.05 per share during the first and second quarter of 1998 compared
to $.03 per share for the same periods in 1997.
On April 30, 1998, Prestige Bank, a Federal Savings Bank (the "Bank")
completed the sale of the land and building situated in Bethel Park,
Pennsylvania, on which the Bank's Bethel Park branch is located. The Bank has
entered into a two year lease with the new owner with three one year options
concerning the continued operation of the Bethel Park branch of the bank at such
location. The Corporation will recognize a gain of $37,914 on the sale of the
property. Such gain will be recognized over three (3) calendar years commencing
this year.
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The Corporation's nonperforming assets decreased $40,000 or 6.5% to
$571,000 at June 30, 1998, compared to $611,000 at December 31, 1997. The
decrease was due to a decrease in residential mortgage nonperforming loans.
RESULTS OF OPERATIONS
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GENERAL--The Corporation's net income for the quarter ended June 30,
1998 was $195,000 or $.20 per diluted share compared to net income of $224,000
or $.23 per diluted share for the same quarter in the prior year. The $29,000
decrease in net income for the quarter ended June 30, 1998 as compared to the
quarter ended June 30, 1997 can be traced primarily to the additional expenses
incurred in the opening and operating of (i) our first supermarket branch in
October 1997 and (ii) our Elizabeth, Pennsylvania branch office in February
1998. Although the increased costs of these branches have impacted earnings for
the short term, management is seeking long term customer growth, which should
positively affect shareholder value. These factors contributed significantly to
the increase in other expenses of $278,000. Net interest income before provision
for loan losses increased $206,000 primarily due to the Corporation's efforts to
leverage its balance sheet, as discussed above and other income increased
$47,000. The annualized return on average assets and return on average equity
for the quarter ended June 30, 1998, was .47% and 4.91%, respectively, compared
to .68% and 5.98% for the same period of 1997.
The Corporation's net income for the six months ended June 30, 1998 was
$348,000 or $.35 per diluted share compared to net income of $429,000 or $.43
per diluted share for the same six months in the prior year. The $81,000
decrease in net income for the six months ended June 30, 1998 as compared to the
six months ended June 30, 1997 was primarily caused by the opening and operating
of the two new branches discussed above. Other expenses increased $538,000,
which was partially offset, by an increase in net interest income before
provision for loan losses of $381,000 and an increase in other income of
$75,000. The annualized return on average assets and return on average equity
for the six months ended June 30, 1998, was .43% and 4.40%, respectively,
compared to .67% and 5.65% for the same period of 1997.
Net income for the quarter ended June 30, 1998 increased $42,000 or
$.04 per share when compared to the quarter ended March 31, 1998. The primary
reasons for the increase were increases of $88,000 in net interest income before
provision for loan losses and other income of $42,000 which was partially offset
by an increase in total other expenses of $56,000.
INTEREST INCOME--The Corporation reported interest income of $2.9
million for the three months ended June 30, 1998, as compared to $2.3 million
for the three months ended June 30, 1997. The increase of $599,000 or 26.0% for
the quarter ended June 30, 1998, compared to the same period in the prior year
can be attributed to a $481,000 or 29.2% increase in interest and fees on loans
and a $134,000 or 29.8% increase in interest and dividends on other investment
securities as the Corporation continued to leverage its capital by expanding its
loan and investment portfolios. Among the areas of focused growth within the
Corporation's lending portfolio was commercial business and commercial real
estate loans. Average balances for commercial business and commercial real
estate loans during the second quarter of 1998 were $17.6 million, compared to
$7.0 million for the same period in 1997. The average balances on loans
receivable and investment securities, net of mortgage backed securities, during
the second quarter of 1998 were $109.5 million and $37.2 million, respectively,
compared to $87.3 million and $26.6 million, respectively, for the same period
in 1997. In addition, the Corporation benefited from earning higher yields on
loans receivable. The weighted average yield on loans receivable during the
first quarter of 1998 was 7.8% compared to 7.5% for the same period in 1997.
The Corporation reported interest income of $5.6 million for the six
months ended June 30, 1998, as compared to $4.4 million for the six months ended
June 30, 1997. The increase of $1.2 million for the six months ended June 30,
1998, compared to the same period in the prior year can be attributed to a
$921,000 or 29.3% increase in interest and fees on loans and a $251,000 or 29.5%
increase in interest and dividends on other investment securities as the
Corporation continued to leverage its capital by expanding its loan and
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investment portfolios. Among the areas of focused growth within the
Corporation's lending portfolio was commercial business and commercial real
estate loans. Average balances for commercial business and commercial real
estate loans during the first six months of 1998 were $15.2 million, compared to
$5.9 million for the same period in 1997. The average balances on loans
receivable and investment securities, net of mortgage backed securities, during
the six months of 1998 were $105.1 million and $35.2 million, respectively,
compared to $84.1 million and $26.3 million, respectively, for the same period
in 1997. In addition, the Corporation benefited from earning higher yields on
loans receivable. The weighted average yield on loans receivable during the
first six months of 1998 was 7.7% compared to 7.5% for the same period in 1997.
INTEREST EXPENSE--Interest expense increased $393,000 or 31.1% during
the three months ended June 30, 1998 as compared to the same period last year.
This increase 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 1998 were $96.8 million and $49.6 million,
respectively, compared to $88.2 million and $26.8 million, respectively, for the
same period in 1997. The weighted average interest rate on interest-bearing
liabilities during the second quarter of 1998 was 4.5% compared to 4.4% for the
same period in 1997.
Interest expense increased $773,000 or 32.0% during the six months
ended June 30, 1998 as compared to the same period last year. This increase was
primarily due to growth in average interest-bearing liabilities. Average
deposits and Federal Home Loan Bank (FHLB) of Pittsburgh advances during the
first six months of 1998 were $94.5 million and $48.0 million, respectively,
compared to $86.9 million and $25.0 million, respectively, for the same period
in 1997. The weighted average interest rate on interest-bearing liabilities
during the first six months of 1998 was 4.5% compared to 4.3% for the same
period in 1997.
PROVISION FOR LOAN LOSSES--During the three months and six months ended
June 30, 1998 the Corporation recorded provisions for losses on loans of $42,000
and $80,000, respectively, compared to $27,000 and $44,000 for the comparable
periods in 1997. The Corporation recorded such provisions to adjust the
Corporation'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
Corporation, industry standards, current analysis of the existing portfolio of
loans, and a review of the current economic conditions in the Corporation's
market area.
OTHER INCOME--Other income increased $47,000 or 49.0% and $75,000 or
44.4% for the three months and six months ended June 30, 1998, respectively,
compared to same periods in 1997. The increases were primarily attributed to
increases in fees and service charges generated from an increase in total
transaction accounts.
OTHER EXPENSES-- Total other expenses increased $278,000 or 37.3% for
the quarter ended June 30, 1998, as compared to the quarter ended June 30, 1997.
The increase occurred as a result of a $149,000 or 40.8% increase in salaries
and employee benefits due to approved salary increases, additional employees at
our two new branch offices and additional compensation expense for the
Management Recognition and Retention Plans. Additionally, there was a $44,000
increase in other expenses due to higher consulting expenses, as the Corporation
has outsourced some job functions, and increased general operating expenses.
Total other expenses increased $538,000 or 37.0% for the six months
ended June 30, 1998, as compared to the six months ended June 30, 1997. The
increase occurred as a result of a $287,000 or 39.4% increase in salaries and
employee benefits due to approved salary increases, additional employees at our
two new branch offices and additional compensation expense of $48,000 for the
Management Recognition and Retention Plans. Additionally, there was a $93,000
increase in other expenses due to higher consulting expenses, as the Corporation
has outsourced some job functions, and increased general operating expenses.
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INCOME TAXES--The Corporation incurred a provision for income taxes of
$126,000 and $224,000 for the three and six months ended June 30, 1998,
respectively, as compared to $137,000 and $262,000 for the same periods in the
prior year. Such decreases for 1998 as compared to 1997 were due to a decrease
in taxable income.
LIQUIDITY AND CAPITAL RESOURCES.
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The Corporation's primary sources of funds are deposits, 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 and loan prepayments are
greatly influenced by the movement of interest rates in general, economic
conditions and competition. The Corporation manages the pricing of its deposits
to maintain a deposit balance deemed appropriate and desirable by its Board of
Directors. In addition, the Corporation invests in short-term interest-earning
assets, which provides liquidity to meet lending requirements. Although the
Corporation had historically relied on deposits for funding, the Corporation in
1996 began to use advances from the FHLB of Pittsburgh to leverage its strong
capital position. As of June 30, 1998, the Corporation had $49.0 million of
outstanding advances from the FHLB of Pittsburgh.
During the six months ended June 30, 1998 and 1997, the Corporation's
operating activities provided net cash of approximately $424,000 and $634,000,
respectively. The primary reasons for the $424,000 net cash provided during the
six months ended June 30, 1998 were $348,000 in net income, $145,000 in
depreciation of premises and equipment, and a $203,000 increase in other
liabilities, which was partially offset by a $124,000 and $319,000 increase in
accrued interest receivable and other assets, respectively. During the six
months ended June 30, 1997, the $634,000 net cash provided was the result of
$429,000 in net income and a $115,000 increase in accrued interest payable which
was partially offset by a $197,000 increase in accrued interest receivable.
Net cash used by investing activities was $19.1 million for the six
months ended June 30, 1998. During the six months ended June 30, 1998, the
Corporation originated $12.9 million in new loans in excess of principal
payments received on existing loans and purchased $8.2 million of investment
securities designated held to maturity due to their longer term maturity
structure. In addition, $2.5 million of held to maturity securities were called
and $2.3 million available for sale securities were purchased in the first six
months of 1998. This compares with net cash used by investing activities of
$20.7 million for the six months ended June 30, 1997. The primary reasons for
the $20.7 million net cash used by investing activities was the Corporation had
approximately $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.
Net cash provided by financing activities for the six months ended June
30, 1998, was $20.2 million, attributable to increases in core deposits and
certificates of $6.5 million and increases in net Federal Home Loan Bank
advances of $14.3 million. During the same period last year, the Corporation
experienced a $20.3 million increase in net cash provided by financing
activities primarily due to a $5.1 million increase in core deposits and
certificates and increases in net Federal Home Loan Bank advances of $15.8
million.
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 June 30, 1998, the Savings Bank's tangible, core, and risk-based capital
ratios amounted to 7.93%, 7.93%, and 16.76%, respectively, which substantially
exceeded applicable requirements.
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PRESTIGE BANCORP, INC.
PART II
Item 1. Legal Proceedings
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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
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Not applicable.
Item 3. Defaults upon Senior Securities
-------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security-Holders
---------------------------------------------------
Not applicable
Item 5. Other Information
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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 12, 1998 By: /s/ ROBERT S. ZYLA
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Robert S. Zyla, President
Dated: August 12, 1998 By: /s/ JAMES M. HEIN
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James M. Hein, Controller
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