<PAGE> 1
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, 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
PITTSBURGH HOME FINANCIAL CORP.
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1772349
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
438 Wood Street
Pittsburgh, Pennsylvania 15222
- --------------------------------------- -------------
(Address of principal executive office) (Zip Code)
(412) 281-0780
----------------------------------------------
(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 15, 1998,
there were issued and outstanding 1,969,369 shares of the Registrant's Common
Stock, par value $.01 per share.
<PAGE> 2
PITTSBURGH HOME FINANCIAL CORP.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
- ------- --------------------- ----
<S> <C> <C>
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of March 31, 1998
(unaudited) and September 30, 1997 3
Consolidated Statements of Income for the three and six
months ended March 31, 1998 (unaudited) and 1997 (unaudited). 4
Consolidated Statement of Changes in Stockholders' Equity
for the six months ended March 31, 1998
(unaudited) 5
Consolidated Statements of Cash Flows for the
six months ended March 31, 1998 (unaudited) and 1997 (unaudited). 6
Notes to Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
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 19
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES
</TABLE>
<PAGE> 3
PITTSBURGH HOME FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
March 31, September 30,
1998 1997
(Unaudited)
----------- ----------
<S> <C> <C>
ASSETS
Cash $ 2,855,182 $ 1,844,534
Interest-bearing deposits 5,253,804 3,379,240
------------- ------------
8,108,986 5,223,774
Investment securities trading (cost of $2,203,350 and $904,875) 2,196,374 955,587
Investments and mortgage-backed securities; available for sale 100,670,933 64,387,368
Investments and mortgage-backed securities; held to maturity
(fair value of $10,023,438 and $10,054,039) 10,009,809 10,017,166
Loans receivable, net of allowance of $1,593,964 and
$1,419,196 201,314,458 181,338,949
Accrued interest receivable 2,864,141 2,026,718
Premises and equipment, net 3,194,750 2,699,396
Goodwill 286,125 302,632
Federal Home Loan Bank stock - at cost 7,513,400 5,110,000
Deferred income taxes 53,589 142,119
Foreclosed real estate 631,654 907,398
Other assets 1,467,807 192,673
------------- ------------
Total assets $ 338,312,026 $273,303,780
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 145,930,226 $138,730,862
Advances from Federal Home Loan Bank 150,266,730 101,700,000
Guaranteed preferred beneficial interest in subordinated debt 11,500,000 -
Advances by borrowers for taxes and insurance 2,960,740 1,649,312
Accrued income taxes payable 431,362 275,749
Other liabilities 2,085,637 2,133,472
------------- ------------
Total liabilities 313,174,695 244,489,395
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 5,000,000 shares authorized,
none issued - -
Common stock, $.01 par value, 10,000,000 shares authorized,
2,182,125 shares issued and outstanding 21,821 21,821
Additional paid-in capital 16,281,718 21,017,411
Treasury stock - at cost, 212,756 shares (2,948,004) (2,948,004)
Unearned shares of employee stock ownership plan (1,594,029) (1,669,498)
Unearned shares of recognition and retention plan (761,930) (868,250)
Accumulated other comprehensive income 766,500 597,000
Retained earnings (substantially restricted) 13,371,255 12,663,905
------------- ------------
Total stockholders' equity 25,137,331 28,814,385
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 338,312,026 $273,303,780
============= ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
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PITTSBURGH HOME FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three months ended Six months ended
March 31, March 31,
(Unaudited) (Unaudited)
------------------------------ -----------------------------
1998 1997 1998 1997
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Interest income:
Loans receivable $ 4,013,007 $ 3,196,799 $ 7,724,575 $ 6,130,291
Mortgage-backed securities 709,391 506,439 1,431,418 899,365
Investment securities:
Taxable 1,071,930 463,989 1,788,118 885,888
Tax exempt 101,763 82,364 199,817 162,287
Interest-bearing deposits 93,879 77,973 165,693 179,782
----------- ----------- ----------- -----------
Total interest income 5,989,970 4,327,564 11,309,621 8,257,613
Interest expense:
Deposits 1,703,060 1,596,548 3,394,381 3,111,567
Advances and escrows 2,033,661 949,744 3,812,159 1,718,856
Guaranteed preferred beneficial interest
in subordinated debt 172,459 - 172,459 -
----------- ----------- ----------- -----------
Total interest expense 3,909,180 2,546,292 7,378,999 4,830,423
----------- ----------- ----------- -----------
Net interest income before provision
for loan losses 2,080,790 1,781,272 3,930,622 3,427,190
Provision for loan losses 120,000 75,000 240,000 150,000
----------- ----------- ----------- -----------
Net interest income after provision
for loan losses 1,960,790 1,706,272 3,690,622 3,277,190
Noninterest income:
Service charges and other fees 107,096 77,123 292,126 177,949
Gain on trading account securities 56,476 - 186,732 -
Other income 15,676 11,258 27,440 20,619
----------- ----------- ----------- -----------
Total noninterest income 179,248 88,381 506,298 198,568
Noninterest expenses:
Compensation and employee benefits 781,438 651,739 1,495,446 1,209,031
Premises and occupancy costs 153,647 118,391 290,220 229,240
Amortization of goodwill 8,254 8,254 16,507 11,005
Federal insurance premium 22,295 235 44,591 21,335
Marketing 43,140 26,215 102,538 80,314
Data processing costs 63,051 67,572 115,517 123,198
Other expenses 279,865 293,152 480,570 487,080
----------- ----------- ----------- -----------
Total noninterest expense 1,351,690 1,165,558 2,545,389 2,161,203
----------- ----------- ----------- -----------
Income before income taxes 788,348 629,095 1,651,531 1,314,555
Income taxes 278,000 206,546 570,000 449,000
----------- ----------- ----------- -----------
Net income $ 510,348 $ 422,549 $ 1,081,531 $ 865,555
=========== =========== =========== ===========
Basic earnings per share $ 0.29 $ 0.24 $ 0.62 $ 0.46
=========== =========== =========== ===========
Diluted earnings per share $ 0.28 $ 0.23 $ 0.59 $ 0.45
=========== =========== =========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
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PITTSBURGH HOME FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
Additional
Comprehensive Common Paid In Retained Treasury
Income Stock Capital Earnings Stock
------ ----- ------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance as of September 30, 1997 $ 21,821 $21,017,411 $12,663,905 $(2,948,004)
ESOP shares released - 49,874 - -
RRP amortization - - - -
Cash dividends declared - - (374,181) -
Return of capital - (4,785,567) - -
Change in unrealized gain on investment
securities available for sale$ net of taxes 169,500 - - - -
Net income for period $1,081,531 - - 1,081,531 -
----------
Comprehensive Income $1,251,031
==========
-------- ----------- ----------- ------------
Balance as of March 31, 1998 $ 21,821 $16,281,718 $13,371,255 $(2,948,004)
======== =========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
Unearned shares of Accumulated Total
Employee Stock Unearned shares of other Stockholders'
Ownership Plan RRP comprehensive income Equity
-------------- --- ------------------- ------
<S> <C> <C> <C> <C>
Balance as of September 30, 1997 (1,669,498) $ (868,250) $ 597,000 $ 28,814,385
ESOP shares released
75,469 - - 125,343
RRP amortization
- 106,320 - 106,320
Cash dividends declared
- - - (374,181)
Return of capital
- - - (4,785,567)
Change in unrealized gain on investment
securities available for sale$ net of taxes
- - 169,500 169,500
Net income for period
- - - 1,081,531
Comprehensive Income
Balance as of March 31, 1998 ---------- --------- --------- ------------
(1,594,029) $(761,930) $ 766,500 $ 25,137,331
========== ========= ========= ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE> 6
PITTSBURGH HOME FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the six months ended March 31,
1998 1997
---- ----
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,081,531 $ 865,555
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and goodwill amortization 125,649 98,184
Amortization and accretion of premiums and discounts on
assets and deferred loan fees (706,085) (50,660)
Amortization of ESOP plan 75,469 96,362
Amortization of RRP 106,320 88,600
Provision for loan losses 240,000 150,000
Purchase of equity securities, trading (5,466,231) -
Sale of equity securities, trading 4,406,075 -
Release of ESOP shares 49,874 22,592
Deferred tax benefit 88,530 122,000
Other, net (6,052,256) (1,289,722)
----------- -----------
Net cash provided by operating activities (6,051,124) 102,911
CASH FLOWS FROM INVESTING ACTIVITIES
Loan orginations (40,479,743) (39,285,391)
Loan principal repayments 25,190,805 16,553,341
Proceeds from loan sales - 617,700
Proceeds from sale of REO 275,744 -
Purchases of:
Available for sale securities (51,437,748) (26,915,000)
Proceeds from sales, maturities and principal repayments of:
Available for sale securities 12,750,000 5,528,571
Purchase of land - 1997 (153,250) -
Purchases of premises and equipment (451,246) (1,014,168)
Other (176,000) (110,955)
----------- -----------
Net cash (used) provided by investing activities (54,481,438) (44,625,902)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in checking, passbook, and money market
deposit accounts 3,113,181 4,049,508
Net increase in certificates of deposit 4,086,183 9,309,196
Increase in advances by borrowers for taxes and insurance 1,311,428 801,539
Increase in advances from the Federal Home Loan Bank 48,566,730 31,500,000
Increase in Guaranteed preferred beneficial
interest in subordinated debt 11,500,000 -
Return of capital (4,785,567) -
Cash dividends paid to shareholders (374,181) (356,177)
Purchase of Recognition and Retention Plan shares - (1,063,170)
Purchase of treasury stock - (2,748,373)
----------- -----------
Net cash provided by financing activities 63,417,774 41,492,523
Net decrease in cash and cash equivalents 2,885,212 (3,030,468)
Cash and cash equivalents at beginning of year 5,223,774 7,561,710
----------- -----------
Cash and cash equivalents at end of year $ 8,108,986 $ 4,531,242
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest (includes interest credited on deposits of $2,893,325 and
$3,111,567 in 1998, and 1997 respectively) $ 6,700,035 $ 4,830,423
=========== ===========
Income taxes paid $ 792,500 $ 683,300
=========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Foreclosed mortgage loans transferred to real estate owned - 159,955
Unrealized gain (loss) on securities available for sale 257,500 (144,000)
Deferred income taxes (88,000) 49,000
----------- -----------
Net unrealized gain (loss) securities available for sale $ 169,500 $ (95,000)
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
6
<PAGE> 7
PITTSBURGH HOME FINANCIAL CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements of
Pittsburgh Home Financial Corp. (the "Company") have been prepared in
accordance with instructions to Form 10-Q. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
However, such information reflects all adjustments (consisting solely of
normal recurring adjustments) which are, in the opinion of management,
necessary for a fair statement of results for the interim periods.
The results of operations for the three and six months ended March 31,
1998 are not necessarily indicative of the results to be expected for
the year ending September 30, 1998. The unaudited consolidated financial
statements and notes thereto should be read in conjunction with the
audited financial statements and notes thereto for the year ended
September 30, 1997.
Note 2 - Business
The Company's Bank subsidiary, Pittsburgh Home Savings Bank (the
"Bank"), is a state chartered stock savings bank primarily engaged in
attracting retail deposits from the general public and using such
deposits to originate loans (primarily single-family residential loans.)
The Bank conducts business from eight offices in Allegheny and Butler
counties of western Pennsylvania and primarily lends in this geographic
area. The Bank is subject to competition from other financial
institutions and other companies which provide financial services. The
Bank is subject to the regulations of certain federal and state agencies
and undergoes periodic examinations by those regulatory authorities.
The Company's trust subsidiary, Pittsburgh Home Capital Trust I (the
"Trust") was formed to issue $11.5 million of 8.56% Cumulative Trust
Preferred Securities. These securities represent undivided beneficial
interests in Pittsburgh Home Capital Trust I. The Trust purchased junior
subordinated deferrable interest debentures which were issued by the
Company.
Note 3 - Principles of consolidation
The consolidated financial statements include the accounts of Pittsburgh
Home Financial Corp. and its wholly owned subsidiaries, Pittsburgh Home
Savings Bank and Pittsburgh
7
<PAGE> 8
Home Capital Trust I. All significant intercompany balances and
transactions have been eliminated in consolidation.
Note 4 - Conversion
The Company is a Pennsylvania corporation which is the holding company
for the Bank. The Company was organized by the Bank for the purpose of
acquiring all of the capital stock of the Bank in connection with its
conversion from a mutual stock organization to the stock holding company
form which was completed on April 1, 1996 (the "Conversion").
In the Conversion, 2,182,125 shares of common stock were sold at a
subscription price of $10.00 per share, resulting in net proceeds of
approximately $21.0 million. In exchange for 50% of the net conversion
proceeds ($10.5 million), the Company acquired 100% of the stock of the
Bank and retained the remaining $10.5 million at the holding company
level.
Note 5 - Earnings per share
Earnings per share are based on the weighted average number of shares of
common stock. In 1997, the Financial Accounting Standards Board ("FASB")
issued Statement No. 128, "Earnings per Share". Statement 128 replaced
the calculation of primary and fully diluted earnings per share with
basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options and
unvested stock grants. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. Earnings per share
amounts for all periods have been presented, and where appropriate,
restated to conform to the Statement 128 requirements.
8
<PAGE> 9
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Three months ended Six months ended
March 31, March 31,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator for basic and diluted earnings
per share - net income $ 510,348 $ 422,549 $1,081,531 $ 865,555
Denominator:
Denominator for basic earnings per
share - weighted-average shares 1,748,003 1,781,090 1,745,007 1,897,328
Effect of dilutive securities:
Employee stock options 60,952 22,711 60,195 25,856
Unvested Management Recognition Plan stock 22,849 12,256 22,347 8,575
---------- ---------- ---------- ----------
Dilutive potential common shares 83,801 34,967 82,552 34,431
---------- ---------- ---------- ----------
Denominator for diluted earnings per
share - adjusted weighted-average
shares and assumed conversions 1,831,804 1,816,057 1,827,559 1,931,759
========== ========== ========== ==========
Basic earnings per share $ 0.29 $ 0.24 $ 0.62 $ 0.46
========== ========== ========== ==========
Diluted earnings per share $ 0.28 $ 0.23 $ 0.59 $ 0.45
========== ========== ========== ==========
</TABLE>
In accordance with Statement 128, unreleased shares held by the Employee
Stock Ownership Plan (ESOP) (144,318 and 157,113 shares at March 31,
1998 and 1997 respectively) and unvested shares held for the Recognition
and Retention Plan (RRP) (66,920 and 87,825 shares at March 31, 1998 and
1997, respectively) have been excluded from basic average shares
outstanding. Such shares are included in basic average shares
outstanding as they are released for allocation (ESOP) or become vested
(RRP). Unvested RRP shares and stock options are included in diluted
average shares outstanding based upon the treasury stock method.
Note 6 - Return of Capital
On December 19, 1997, the Company paid a special one-time cash
distribution of $2.50 per share. The Company obtained a private letter
ruling from the Internal Revenue Service which allowed them to treat
$2.43 per share of this distribution as a return of capital. The return
of capital was reflected as a reduction to additional paid-in-capital in
the Company's financial statements. For the stockholders, the return of
capital is treated
9
<PAGE> 10
as a reduction in the cost basis of the shares and is not subject to
income taxes until the shares are sold. The remaining $.07 per share
was treated as an ordinary dividend. The total distribution paid was
$4,923,423 on 1,969,369 shares of stock.
Note 7 - Employee Stock Ownership Plan (ESOP)
In connection with the Conversion, the Company established an ESOP for
the benefit of eligible employees. The ESOP Trust borrowed $1.9 million
from the Company and purchased 174,570 shares, equal to 8% of the total
number of shares issued in the Conversion. The Company accounts for its
ESOP in accordance with SOP 93-6, "Employers Accounting for Employee
Stock Ownership Plans," which requires the Company to recognize
compensation expense equal to the fair value of the ESOP shares during
the periods in which they become committed to be released. To the extent
that the fair value of ESOP shares differs from the cost of such shares,
this differential will be charged or credited to equity. Management
expects the recorded amount of expense to fluctuate as continuing
adjustments are made to reflect changes in the fair value of the ESOP
shares. Employers with internally leveraged ESOPs, such as the Company,
will not report the loan receivable from the ESOP as an asset and will
not report the ESOP debt from the employer as a liability.
Note 8 - Stock Option Plan
On October 15, 1996, the Stock Option Plan was approved by the Company's
stockholders. A total of 218,212 shares of common stock may be issued
pursuant to the Stock Option Plan and 195,511 shares were awarded as of
March 31, 1998. These options are subject to vesting provisions as well
as other provisions of the Stock Option Plan. No options have been
exercised through March 31, 1998.
Note 9 - Recognition and Retention Plan and Trust (RRP)
On October 15, 1996, the RRP was approved by the Company's stockholders.
A total of 87,285 shares of common stock are available for awards
pursuant to the RRP and 86,990 shares were awarded as of March 31, 1998.
Awards will vest in equal installments over a five year period, with the
first installment vesting on the first anniversary date of the grant and
each additional installment vesting on the four subsequent anniversaries
of such date, subject to various requirements as more fully described in
the plan documents. Compensation cost related to RRP shares earned
during the six month period ended March 31, 1998 and 1997 were $106,320
and $96,362 respectively.
The Company has purchased on the open market shares of common stock to
fully fund the RRP. The cost of unearned RRP shares is recorded as a
reduction of stockholders' equity.
10
<PAGE> 11
Note 10 - Recent Accounting and Regulatory Developments
The Financial Accounting Standards Board released Statement of Financial
Accounting Standard Number 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities" ("SFAS 125") in
June 1996. SFAS 125 is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after
December 31, 1996 and is to be applied prospectively. SFAS 125
establishes standards for resolving issues related to the circumstances
under which the transfer of financial assets should be considered as
sales of all or part of the assets or as secured borrowings and about
when a liability should be considered extinguished. The Company does not
anticipate any material impact on statements of income and financial
condition from the adoption of this statement.
As of January 1, 1998, the Company adopted Statement 130, Reporting
Comprehensive Income. Statement 130 establishes new rules for the
reporting and display of comprehensive income and its components;
however, the adoption of this Statement had no impact on the Company's
net income or shareholders' equity. Statement 130 requires unrealized
gains or losses on the Company's available-for-sale securities, which
prior to adoption were reported separately in shareholders' equity to be
included in other comprehensive income. Prior year financial statements
have been reclassified to conform to the requirements of Statement 130.
During the six months ended March 31, 1998 and 1997, total comprehensive
income amounted to $1,251,031 and $770,550, respectively.
Note 11 -Capital Trust I
In January 1998, the Company formed a trust subsidiary, Pittsburgh Home
Capital Trust I ("the Trust"), and on January 30, 1998, the Trust sold
$11.5 million of 8.56% Cumulative Trust Preferred Securities to the
public. The Preferred Securities represent undivided beneficial
interests in the Trust. The Trust used the proceeds from the sale of the
preferred securities to purchase junior subordinated deferrable interest
debentures which were issued by the Company. The Company will use the
proceeds for general corporate purposes. The subordinated debentures are
redeemable at anytime after January 30, 2003 by the Company. The
subordinated debentures will mature on January 30, 2028.
11
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
At March 31, 1998, the Company's total assets amounted to $338.3 million
compared with $273.3 million at September 30, 1997, an increase of 23.8%. Cash
and interest-bearing deposits increased $2.9 million, or 55.8%, to $8.1 million
at March 31, 1998, compared to $5.2 million at September 30, 1997. Investment
securities trading increased $1.2 million, or 130.1% from $956,000 at September
30, 1997 to $2.2 million at March 31, 1998. During fiscal 1997, the Company
implemented a wholesale leveraging strategy designed to take advantage of its
excess capital. The Company determined to invest in mortgage-backed securities
and U.S. government and agency obligations, at a positive interest rate spread
over the funding obligation, which has been Federal Home Loan Bank ("FHLB")
advances. Investments and mortgage-backed securities (held to maturity and
available for sale) increased by $36.3 million, or 48.8%, from $74.4 million at
September 30, 1997. During the period ended March 31, 1998, the Company
purchased $51.4 million in investments and mortgage-backed securities. Loans
receivable, net of allowance, increased $20.0 million, or 11.0%, to $201.3
million at March 31, 1998 compared to $181.3 million at September 30, 1997. The
growth is primarily attributable to increases in residential mortgage loans.
Total liabilities increased by $68.7 million, or 28.1%, to $313.2
million at March 31, 1998 compared to $244.5 million at September 30, 1997. The
Company's trust subsidiary, Pittsburgh Home Capital Trust I, sold $11.5 million
of 8.56% Cumulative Trust Preferred Securities on January 30, 1998. The
guaranteed preferred beneficial interest in subordinated debt totaled $11.5
million at March 31, 1998. Deposits increased by $7.2 million, or 5.2% to $145.9
million at March 31, 1998 compared to $138.7 million at September 30, 1997. The
increase in deposits is attributable, in part, to the Bank's new supermarket
branch located in the Pittsburgh area. Advances from the FHLB increased $48.6
million or 47.8% to $150.3 million at March 31, 1998 compared to $101.7 million
at September 30, 1997, as the Company increased its FHLB advances to increase
liquidity and used those funds to reinvest in assets at higher yields.
Total stockholders' equity decreased $3.7 million or 12.8% to $25.1
million at March 31, 1998 compared to $28.8 million at September 30, 1997. The
decrease was primarily attributable to a special return of capital dividend
totaling $4.9 million that the Company paid on December 19, 1997, which was
partially offset by net income during the period.
12
<PAGE> 13
RESULTS OF OPERATIONS
GENERAL. The Company reported net income of $510,000 and $1.1million for
the three and six months ended March 31, 1998, respectively, compared to
$423,000 and $866,000 for the three and six months ended March 31, 1997. Basic
and diluted earnings per share were $.29 and $.28, respectively, for the quarter
ended March 31, 1998, compared to $.24 and $.23, respectively, for the same
quarter of 1997. Basic and diluted earnings per share for the six month period
were $.62 and $.59, respectively, compared to $.46 and $.45, respectively, for
the same period of 1997. The trading activity gains had an after tax impact on
both the basic and diluted calculations of $.02 and $.07 per share,
respectively, for the quarter and six months ended March 31, 1998. The $87,000,
or 20.6% increase and $216,000 or 24.9% increase in net income for the three and
six months ended March 31, 1998, respectively, compared to the same periods in
1997, is primarily attributable to the increase in net interest income before
provision for loan losses of $300,000 or 16.8% for the quarter and $504,000 or
14.7% for the six month period. Included in interest expense for the 1998
periods is $172,000 related to the $11.5 million of trust preferred securities
that the Company's trust subsidiary, Pittsburgh Home Capital Trust I, sold on
January 30, 1998. The Company also continued to utilize its trading account
strategy and recognized pre-tax net gains of $56,000 for the quarter and
$187,000 for the six months ended March 31, 1998. There were no trading gains
for the same periods in 1997. Noninterest income (excluding the trading gains)
also increased $34,000 or 38.9% for the quarter and $120,000 or 60.3% for the
six month period. These increases were partially offset by an increase in the
provision for loan losses of $45,000 or 60.0% for the quarter and $90,000 or
60.0% for the six month period, an increase in noninterest expense of $186,000
or 15.9% for the quarter and $384,000 or 17.8% for the six month period, and an
increase in the provision for income taxes of $71,000 or 34.3% for the quarter
and $121,000 or 26.9% for the six month period.
INTEREST INCOME. Interest income increased $1.7 million or 39.5% and
$3.0 million or 36.1% for the three and six months ended March 31, 1998,
respectively, compared to the same periods in 1997. The increase was due to the
increase in investment and loan origination activity. The average balance of
investment and mortgage-backed securities totaled $99.6 million and $91.4
million with weighted average yields of 7.56% and 7.48% for the three and six
months ended March 31, 1998, respectively, an increase of 58.1% and 58.8%,
respectively, from $63.0 million and $57.5 million with weighted average yields
of 6.63% and 6.77% for the same periods ended March 31, 1997. The increase in
investments is attributable to the Company's wholesale leveraging strategy. The
investments and mortgage-backed securities purchased have been funded primarily
with advances from the FHLB. The average balance on loans receivable increased
by $41.7 million and $42.7 million for the three and six months ended March 31,
1998, respectively, which were partially offset by a 14 basis point and 10 basis
point decline in the average yield earned thereon.
13
<PAGE> 14
INTEREST EXPENSE. Interest expense increased $1.4 million or 56.0% and
$2.6 million or 54.2% for the three and six months ended March 31, 1998,
respectively, compared to the same periods in 1997. The increase was due
primarily to a $99.2 million and $89.9 million increase in average
interest-bearing liabilities for the three and six months ended March 31, 1998
when compared to the same periods in 1997. Average deposits increased $13.7
million and $13.1 million for the three and six months ended March 31, 1998,
respectively, when compared to the same period in 1997. Average borrowed funds
increased $77.6 million and $72.8 million for the three and six months ended
March 31, 1998, respectively, when compared to the same periods in 1997. Such
increases were primarily due to the Bank's new branch, as well as increased
borrowings from the FHLB of Pittsburgh. Interest expense associated with the
guaranteed preferred beneficial interest in subordinated debt totaled $172,000
for the three and six months ended March 31, 1998. On March 6, 1998, the Bank
purchased a $25.0 million notional value interest rate cap from the FHLB. This
purchase was in connection with the Bank's ongoing management of its interest
rate risk position. The cap is being used as an off-balance sheet hedge to the
Bank's risk associated with its shorter term liabilities. The cost of the cap is
being amortized as a yield adjustment to interest expense over the five year
term of the transaction. Interest expense associated with the amortization of
the rate cap totaled $8,000 for the six months ended March 31, 1998.
PROVISION FOR LOAN LOSSES. During the three and six months ended March
31, 1998, the Company recorded provisions for losses on loans of $120,000 and
$240,000 compared to $75,000 and $150,000 for the comparable periods in 1997.
Subsequent to September 30, 1997, the Company's non-performing loans have
continued to increase. The Company has increased its originations of
single-family loans during the past several years, which management attributes
to be the primary reason for $4.0 million in non-performing loans at March 31,
1998. Management does not attribute the increase to any specific weakness within
the Company or in the marketplace generally. Although management utilizes its
best judgment in providing for losses with respect to its non-performing assets,
there can be no assurance that the Company will be able to dispose of such
non-performing assets without establishing additional provisions for losses on
loans or further reductions in the carrying value of its real estate owned.
NONINTEREST INCOME. Noninterest income increased by $91,000 or 103.4%
and $307,000 or 154.3% for the three and six months ended March 31, 1998,
compared to the same periods ended March 31, 1997. In April 1997, the Board
authorized a trading account whereby up to $2.5 million could be invested in
trading account securities, with not more than $1.0 million in any single issue,
to be accounted for as trading securities in accordance with SFAS No. 115. Under
Board authorization, there is no limit on the types of securities that the
Company may invest in provided that the securities are approved under the
Company's investment policy, although to date the Company has limited its
investments to equity securities of financial institutions. At March 31, 1998,
the Company had an aggregate of $2.2 million invested in 13 securities. During
the three and six months ended March 31, 1998, the Company recognized a
14
<PAGE> 15
pre-tax net gain on trading account securities of $56,000 and $187,000,
respectively. Non-interest income (excluding the trading gains) increased
$34,000 or 38.9% for the quarter and $120,000 or 60.3% for the six month period.
NONINTEREST EXPENSES. Noninterest expenses increased by $186,000 or
15.9% and $384,000 or 17.8% for the three and six months ended March 31, 1998,
compared to the same periods in 1997. The increase was primarily attributable to
a $130,000 and $286,000 increase in compensation and employee benefits, and a
$36,000 and $61,000 increase in net occupancy expense. The increase in salaries
and employee benefits is due to normal salary increases and the hiring of new
employees. The increase in net occupancy expense is the result of the addition
of a new branch.
PROVISION FOR INCOME TAXES. The Bank incurred provisions for income taxes of
$278,000 and $570,000 for the three and six months ended March 31, 1998,
compared with $207,000 and $449,000 for the same periods in 1997. The effective
tax rates during the three and six months ended March 31, 1998 and 1997 were
35.3% and 34.5%, and 32.8% and 34.2% respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds are deposits, borrowings,
repayments, prepayments and maturities of outstanding loans, maturities of
investment securities and other short-term investments, and funds provided from
operations. While scheduled loan 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. In addition, the Company invests in short-term investment securities
and interest-earning assets which provide liquidity to meet lending
requirements. Although the Company's deposits have historically represented the
majority of its total liabilities, the Company also utilizes other borrowing
sources, primarily advances from the FHLB of Pittsburgh. At March 31, 1998, the
Company had $150.3 million of outstanding advances from the FHLB of Pittsburgh.
Liquidity management is both a daily and long-term function of business
management. The Bank uses its sources of funds primarily to meet its ongoing
commitments, to pay maturing savings certificates and savings withdrawals, to
fund loan commitments and to maintain a portfolio of mortgage-backed and
investment securities. At March 31, 1998, the total approved loan commitments
outstanding amounted to $10.5 million, and unused lines of credit amounted to
$978,000. Certificates of deposit scheduled to mature in one year or less at
March 31, 1998, totaled $81.4 million. Management believes that a significant
portion of maturing deposits will remain with the Bank.
As of March 31, 1998, the Bank's regulatory capital was well in excess
of all applicable regulatory requirements. At March 31, 1998, the Bank's Tier 1
risk-based, total risk-based and
15
<PAGE> 16
Tier 1 leverage capital ratios amounted to 19.00%, 18.03% and 8.82%,
respectively, compared to regulatory requirements of 4.0%, 8.0% and 4.0%,
respectively.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
In addition to historical information, forward-looking statements are
contained herein that are subject to risks and uncertainties that could cause
actual results to differ materially from those reflected in the forward-looking
statements. Factors that could cause future results to vary from current
expectations, include, but are not limited to, the impact of economic conditions
(both generally and more specifically in the markets in which the Company
operates), the impact of competition for the Company's customers from other
providers of financial services, the impact of government legislation and
regulation (which changes from time to time and over which the Company has no
control), and other risks detailed in this Form 10-Q and in the Company's other
Securities and Exchange Commission ("SEC") filings. Readers are cautioned not to
place undue reliance on these forward-looking statements, which reflect
management's analysis only as of the date hereof. The Company undertakes no
obligation to publicly revise these forward-looking statements, to reflect
events or circumstances that arise after the date hereof. Readers should
carefully review the risk factors described in other documents the Company files
from time to time with the SEC.
IMPACT OF YEAR 2000.
Some of the Company's older computer programs including those used by
certain third party providers, were written using two digits rather than four to
define the applicable year. As a result, those computer programs have
time-sensitive software that recognize a date using "00" as the year 1900 rather
than the year 2000. This could cause a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities.
The Company is currently performing an assessment and may have to modify or
replace portions of its software so that its computer systems will function
properly with respect to dates in the year 2000 and thereafter. The total Year
2000 project cost is estimated to have an immaterial impact.
The project is estimated to be completed not later than December 31, 1998, which
is prior to any anticipated impact on its operating system. The Company believes
that with modifications to existing software and conversions to new software,
the Year 2000 Issue will not pose significant operational problems for its
computer systems or those of the third party providers. However, if such
modifications and conversions are not made, or are not completed timely, the
Year 2000 Issue could have a material impact on the operations of the Company.
The Company has initiated communications with all of its significant suppliers
and large customers to determine the extent to which the Company's interface
systems are vulnerable to
16
<PAGE> 17
those third parties' failure to remediate their own Year 2000 Issues. There is
no guarantee that the systems of other companies on which the Company's systems
rely will be timely converted and would not have an adverse effect on the
Company's systems.
The cost of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources and other factors. However,
there can be no guarantee that these estimates will be achieved and actual
results could differ materially from those anticipated. Specific factors that
might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, and similar uncertainties.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and qualitative disclosures about market risk are presented
at September 30, 1997 in Item 7A of the Company's Annual Report on Form 10-K,
filed with the SEC on December 24, 1997. Management believes there have been no
material changes in the Company's market risk since September 30, 1997.
17
<PAGE> 18
PITTSBURGH HOME FINANCIAL CORP.
PART II
Item 1. Legal Proceedings
Neither the Company nor the Bank is involved in any pending legal
proceedings other than non-material 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 Stockholders ("Annual Meeting") was held on
January 22, 1998.
b) Not applicable.
c) Two matters were voted upon at the Annual Meeting. The stockholders
approved matters brought before the Annual Meeting. The matters voted
upon together with the applicable voting results were as follows:
1) Proposal to elect four directors for a three-year term or until
their successors are elected and qualified - Kenneth F. Maxcy, Jr.
received votes for 1,710,119; against 22,750; abstain 0; and not voted
0. Gregory G. Maxcy received votes for 1,723,596; against 9,273; abstain
0; and not voted 0. Richard F. Lerach received votes for 1,728,318;
against 4,551; abstain 0; and not voted 0. James M. Droney, Jr. received
votes for 1,727,738; against 5,131; abstain 0; and not voted 0.
2) Proposal to ratify the appointment by the Board of Directors of
Ernst & Young LLP as the Company's independent auditors for the fiscal
year ending September 30, 1998; received votes for 1,725,777; against
2,749; abstain 4,343; and not voted 0.
d) Not applicable.
18
<PAGE> 19
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
3.1 Amended and Restated Articles of Incorporation of Pittsburgh
Home Financial Corp. *
3.2 Bylaws of Pittsburgh Home Financial Corp. *
27 Financial Data Schedule
* Incorporated by reference from the Registration Statement on
Form S-1 (Registration No. 33-99658) filed by the Registrant with
the SEC on November 21, 1995, as amended.
(b) No Form 8-K reports were filed during the quarter.
19
<PAGE> 20
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.
PITTSBURGH HOME FINANCIAL CORP.
Date: May 15, 1998 By: /s/ J. Ardie Dillen
---------------------------
J. Ardie Dillen
Chairman, President and
Chief Executive Officer
Date: May 15, 1998 By: /s/ Michael J. Kirk
---------------------------
Michael J. Kirk
Executive Vice President and
Chief Financial Officer
20
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