<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 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
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 August 14,
1998, there were issued and outstanding 1,969,369 shares of the Registrant's
Common Stock, par value $.01 per share.
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PITTSBURGH HOME FINANCIAL CORP.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of June 30, 1998
(unaudited) and September 30, 1997 3
Consolidated Statements of Income for the three and nine
months ended June 30, 1998 (unaudited) and 1997 (unaudited). 4
Consolidated Statement of Changes in Stockholders' Equity
for the nine months ended June 30, 1998
(unaudited) 5
Consolidated Statements of Cash Flows for the
nine months ended June 30, 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 18
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>
June 30,
1998 September 30,
(Unaudited) 1997
-------------- -------------
<S> <C> <C>
ASSETS
Cash $ 3,011,891 $ 1,844,534
Interest-bearing deposits 6,816,567 3,379,240
------------- -------------
9,828,458 5,223,774
Investment securities trading (cost of $2,448,350 and $904,875) 2,300,013 955,587
Investments and mortgage-backed securities; available for sale 127,198,445 64,387,368
Investments and mortgage-backed securities; held to maturity
(fair value of $10,071,200 and $10,054,039) 10,004,302 10,017,166
Loans receivable, net of allowance of $1,567,192 and
$ 1,419,196 206,450,571 181,338,949
Accrued interest receivable 2,894,350 2,026,718
Premises and equipment, net 3,268,128 2,699,396
Goodwill 277,872 302,632
Federal Home Loan Bank stock - at cost 7,863,400 5,110,000
Deferred income taxes -- 142,119
Foreclosed real estate 1,075,654 907,398
Other assets 1,372,013 192,673
------------- -------------
Total assets $ 372,533,206 $ 273,303,780
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 148,453,810 $ 138,730,862
FHLB Advances 155,266,730 101,700,000
Reverse repurchase agreements 25,000,000 --
Guaranteed preferred beneficial interest in subordinated debt 11,500,000 --
Advances by borrowers for taxes and insurance 3,832,925 1,649,312
Deferred income taxes 50,412 --
Accrued income taxes payable 8,173 275,749
Other liabilities 2,586,289 2,133,472
------------- -------------
Total liabilities 346,698,339 244,489,395
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 16,303,535 21,017,411
Treasury stock - at cost, 212,756 shares (2,948,004) (2,948,004)
Unearned shares of employee stock ownership plan (1,551,794) (1,669,498)
Unearned shares of recognition and retention plan (708,770) (868,250)
Accumulated other comprehensive income 970,000 597,000
Retained earnings (substantially restricted) 13,748,079 12,663,905
------------- -------------
Total stockholders' equity 25,834,867 28,814,385
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 372,533,206 $ 273,303,780
============= =============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE> 4
PITTSBURGH HOME FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three months ended Nine months ended
June 30, June 30,
(Unaudited) (Unaudited)
--------------------------- -----------------------------
1998 1997 1998 1997
---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Interest income:
Loans receivable $4,148,337 $ 3,398,959 $11,872,912 $ 9,529,250
Mortgage-backed securities 1,014,119 632,328 2,445,537 1,531,693
Investment securities
Taxable 1,008,784 521,302 2,796,902 1,407,190
Tax exempt 98,214 76,264 298,031 238,551
Interest-bearing deposits 102,268 50,569 267,961 230,351
---------- ----------- ----------- ------------
Total interest income 6,371,722 4,679,422 17,681,343 12,937,035
Interest expense:
Deposits 1,723,158 1,631,438 5,117,539 4,743,005
Advances and escrows 2,417,493 1,198,035 6,229,652 2,916,891
Guaranteed preferred beneficial interest
in subordinated debt 249,529 -- 421,988 --
---------- ----------- ----------- ------------
Total interest expense 4,390,180 2,829,473 11,769,179 7,659,896
---------- ----------- ----------- ------------
Net interest income before provision for loan losses 1,981,542 1,849,949 5,912,164 5,277,139
Provision for loan losses 120,000 105,000 360,000 255,000
---------- ----------- ----------- ------------
Net interest income after provision for loan losses 1,861,542 1,744,949 5,552,164 5,022,139
Noninterest income:
Service charges and other fees 147,267 82,802 439,393 260,751
Other income 15,919 8,630 43,359 29,249
Net gain on trading account and available
for sale securities 1,601 151,815 188,333 151,815
Loss on sale of REO -- (16,142) -- (16,142)
---------- ----------- ----------- ------------
Total noninterest income 164,787 227,105 671,085 425,673
Noninterest expenses:
Compensation and employee benefits 758,357 642,828 2,253,803 1,851,859
Premises and occupancy costs 132,775 110,754 422,995 339,994
Amortization of goodwill 8,254 8,254 24,761 19,259
Federal insurance premium 21,941 21,998 66,532 43,333
Marketing 80,536 52,815 183,074 133,129
Data processing costs 62,520 70,873 178,037 194,071
Other expenses 202,274 190,977 682,844 678,057
---------- ----------- ----------- ------------
Total noninterest expense 1,266,657 1,098,499 3,812,046 3,259,702
Income before income taxes 759,672 873,555 2,411,203 2,188,110
Income taxes 264,686 326,300 834,686 775,300
---------- ----------- ----------- ------------
Net income $ 494,986 $ 547,255 $ 1,576,517 $ 1,412,810
========== =========== =========== ============
Basic earnings per share $ 0.28 $ 0.30 $ 0.90 $ 0.75
========== =========== =========== ============
Diluted earnings per share $ 0.27 $ 0.29 $ 0.86 $ 0.74
========== =========== =========== ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
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PITTSBURGH HOME FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
Additional
Comprehensive Common Paid In Retained
Income Stock Capital Earnings
------------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Balance as of September 30, 1997 $21,821 $21,017,411 $ 12,663,905
ESOP shares released -- 71,691 --
RRP amortization -- -- --
Cash dividends declared -- -- (492,343)
Return of capital -- (4,785,567) --
Change in unrealized
gain on investment securities
available for sale, net of taxes 373,000 -- -- --
Net income for period $1,576,517 -- -- 1,576,517
----------
Comprehensive Income $1,949,517
========== ------- ----------- ------------
Balance as of June 30, 1998 $21,821 $16,303,535 $ 13,748,079
======= =========== ============
</TABLE>
<TABLE>
<CAPTION>
Unearned Accumulated
shares of Unearned other Total
Treasury Employee Stock shares of comprehensive Stockholders'
Stock Ownership Plan RRP income Equity
------------ --------------- ------------ ------------- --------------
<S> <C> <C> <C> <C> <C>
Balance as of September 30, 1997 $(2,948,004) $(1,669,498) $(868,250) $597,000 $28,814,385
ESOP shares released -- 117,704 -- -- 189,395
RRP amortization -- -- 159,480 -- 159,480
Cash dividends declared -- -- -- -- (492,343)
Return of capital -- -- -- -- (4,785,567)
Change in unrealized
gain on investment securities
available for sale, net of taxes -- -- -- 373,000 373,000
Net income for period -- -- -- -- 1,576,517
Comprehensive Income
----------- ----------- --------- -------- ------------
Balance as of June 30, 1998 $(2,948,004) $(1,551,794) $(708,770) $970,000 $ 25,834,867
=========== =========== ========= ======== ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE> 6
PITTSBURGH HOME FINANCIAL CORP
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the nine months ended June 30,
1998 1997
------------ ------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,576,517 $ 1,412,811
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and goodwill 191,873 148,523
Amortization and accretion of premiums and discounts on
assets and deferred loan fees (1,499,948) 482,510
Amortization of ESOP plan 117,704 128,944
Amortization of RRP 159,480 141,760
Provision for loan losses 360,000 255,000
Purchase of equity securities, trading (8,190,693) (2,203,523)
Sale of equity securities, trading 6,958,081 1,017,073
Release of ESOP shares 71,691 34,260
Deferred tax benefit 192,531 347,632
Other, net (2,048,441) (913,904)
------------ ------------
Net cash provided by operating activities (2,111,205) 851,086
CASH FLOWS FROM INVESTING ACTIVITIES
Loan orginations (60,351,859) (63,796,412)
Loan principle repayments 34,803,387 26,727,516
Proceeds from loan sales -- 617,700
Net REO activity (168,256) --
Purchases of:
Available for sale securities (93,288,586) (27,150,565)
Purchases of:
Held to maturity securities -- (10,000,000)
Proceeds from sales, maturities and principal repayments of:
Available for sale securities 29,953,667 11,744,695
Purchase of land (153,250) --
Purchases of premises and equipment (824,756) (988,594)
Other, net 50,161 (556,731)
------------ ------------
Net cash (used) provided by investing activities (89,979,492) (63,402,391)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in checking, passbook, and money market
deposit accounts 2,171,468 2,690,305
Net increase in certificates of deposit 7,551,480 11,738,232
Increase in advances by borrowers for taxes and insurance 2,183,613 1,618,723
Increase in advances from the Federal Home Loan Bank 53,566,730 47,700,000
Increase in repurchase agreements 25,000,000 --
Increase in Guaranteed preferred beneficial interest in subordinated debt 11,500,000 --
Return of capital (4,785,567) --
Cash dividends paid to shareholders (492,343) (474,339)
Purchase of Recognition and Retention Plan shares -- (1,063,170)
Purchase of treasury stock -- (2,948,004)
Net cash provided by financing activities 96,695,381 59,261,747
Net decrease in cash and cash equivalents 4,604,684 (3,289,558)
Cash and cash equivalents at beginning of year 5,223,774 7,561,710
------------ ------------
Cash and cash equivalents at end of year $ 9,828,458 $ 4,272,152
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest (includes interest credited on deposits of $4,159,241 and $4,743,005
in 1998 and 1997 respectively) $ 10,217,558 $ 7,659,896
============ ============
Income taxes paid $ 1,211,750 $ 986,534
============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Foreclosed mortgage loans transferred to real estate owned 483,903 382,809
Unrealized gain on securities available for sale 565,000 579,500
Deferred income taxes (192,000) (197,500)
------------ ------------
Accumulated other comprehensive income $ 373,000 $ 382,000
============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
6
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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 nine months ended June 30,
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 Nine months ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator for basic and diluted earnings
per share - net income $ 494,986 $ 547,255 $1,576,517 $1,412,810
Denominator:
Denominator for basic earnings per
share - weighted-average shares 1,748,003 1,797,255 1,746,005 1,863,960
Effect of dilutive securities:
Employee stock options 59,617 39,885 60,052 32,608
Unvested Management Recognition Plan stock 22,348 21,524 22,304 10,815
-------------------------------------------------------------------
Dilutive potential common shares 81,965 61,409 82,356 43,423
-------------------------------------------------------------------
Denominator for diluted earnings per
share - adjusted weighted-average
shares and assumed conversions 1,829,968 1,858,634 1,828,361 1,907,383
===================================================================
Basic earnings per share $ 0.28 $ 0.30 $ 0.90 $ 0.75
===================================================================
Diluted earnings per share $ 0.27 $ 0.29 $ 0.86 $ 0.74
===================================================================
</TABLE>
In accordance with Statement 128, unreleased shares held by the Employee
Stock Ownership Plan (ESOP) (140,494 and 154,162 shares at June 30, 1998
and 1997 respectively) and unvested shares held for the Recognition and
Retention Plan (RRP) (66,920 and 87,825 shares at June 30, 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 as a reduction in the cost basis of the shares and is
not subject to income taxes until the
9
<PAGE> 10
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
June 30, 1998. These options are subject to vesting provisions as well
as other provisions of the Stock Option Plan. No options have been
exercised through June 30, 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 June 30, 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 nine month period ended June 30, 1998 and 1997 were $159,480
and $141,760 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 Number 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
stockholders' equity to be included in other comprehensive income. Prior
year financial statements have been reclassified to conform to the
requirements of Statement Number 130.
During the nine months ended June 30, 1998 and 1997, total comprehensive
income amounted to $1,949,517 and $1,794,810, 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 June 30, 1998, the Company's total assets amounted to $372.5 million
compared with $273.3 million at September 30, 1997, an increase of 36.3%. Cash
and interest-bearing deposits increased $4.6 million, or 88.5%, to $9.8 million
at June 30, 1998, compared to $5.2 million at September 30, 1997. Investment
securities trading increased $1.3 million, or 140.6% from $956,000 at September
30, 1997 to $2.3 million at June 30, 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 primarily been Federal Home Loan Bank
("FHLB") advances. Investments and mortgage-backed securities (held to maturity
and available for sale) increased by $62.8 million, or 84.4%, from $74.4 million
at September 30, 1997. During the period ended June 30, 1998, the Company
purchased $90.3 million in investments and mortgage-backed securities. Loans
receivable, net of allowance, increased $25.1 million, or 13.9%, to $206.4
million at June 30, 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 $102.2 million, or 41.8%, to $346.7
million at June 30, 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 June 30, 1998. Deposits increased by $9.8 million, or 7.1% to $148.5
million at June 30, 1998 compared to $138.7 million at September 30, 1997. The
increase in deposits is attributable, in part, to the Bank's newest supermarket
branch located in the Pittsburgh area. The Company is continuing to increase its
FHLB advances and other sources of borrowings to increase liquidity and used
those funds to reinvest in assets at higher yields. Advances from the FHLB
increased $53.6 million or 52.7% to $155.3 million at June 30, 1998 compared to
$101.7 million at September 30, 1997. During the quarter ended June 30, 1998,
the Company also entered into reverse repurchase agreements amounting to $25.0
million.
Total stockholders' equity decreased $3.0 million or 10.3% to $25.8
million at June 30, 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
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RESULTS OF OPERATIONS
GENERAL. The Company reported net income of $495,000 and $1.6 million
for the three and nine months ended June 30, 1998, respectively, compared to
$547,000 and $1.4 million for the three and nine months ended June 30, 1997.
Basic and diluted earnings per share were $.28 and $.27, respectively, for the
quarter ended June 30, 1998, compared to $.30 and $.29, respectively, for the
same quarter of 1997. Basic and diluted earnings per share for the nine month
period were $.90 and $.86, respectively, compared to $.75 and $.74,
respectively, for the same period of 1997. The $52,000, or 9.5% decrease and
$164,000 or 11.6% increase in net income for the three and nine months ended
June 30, 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 $132,000 or 7.1% for the quarter and $635,000 or 12.0% for the nine
month period. Included in interest expense for the 1998 periods is $250,000
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 recognized pre-tax net gains on trading account and available for sale
securities of $1,600 for the quarter and $188,000 for the nine months ended June
30, 1998 as compared to $152,000 for the three and nine month periods in 1997.
Noninterest income (excluding trading account and available for sale gains)
increased $88,000 or 116.9% for the quarter and $209,000 or 76.3% for the nine
month period. These increases were partially offset by an increase in the
provision for loan losses of $15,000 or 14.3% for the quarter and $105,000 or
41.2% for the nine month period, an increase in noninterest expense of $169,000
or 15.4% for the quarter and $552,000 or 16.9% for the nine month period, and a
decrease in the provision for income taxes of $61,000 or 18.7% for the quarter
and an increase of $60,000 or 7.7% for the nine month period.
INTEREST INCOME. Interest income increased $1.7 million or 36.2%, and
$4.8 million or 37.2% for the three and nine months ended June 30, 1998,
respectively, compared to the same periods in 1997. The increase was due to the
increase in investment purchases and loan origination activity. The average
balance of investments and mortgage-backed securities totaled $127.0 million and
$103.2 million with weighted average yields of 6.68% and 7.16% for the three and
nine months ended June 30, 1998, respectively, an increase of 93.3% and 70.8%,
respectively, from $65.7 million and $60.3 million with weighted average yields
of 7.21% and 6.93% for the same periods ended June 30, 1997. The increase in
investments is attributable to the Company's wholesale leveraging strategy. The
investments and mortgage-backed securities purchased have been funded with
advances from the FHLB and reverse repurchase agreements. The average balance on
loans receivable increased by $37.7 million and $41.1 million for the three and
nine months ended June 30, 1998, respectively, which were partially offset by a
5 basis point and 10 basis point decline in the average yield earned thereon.
13
<PAGE> 14
INTEREST EXPENSE. Interest expense increased $1.6 million or 57.1% and
$4.1 million or 53.2% for the three and nine months ended June 30, 1998,
respectively, compared to the same periods in 1997. The increase was due
primarily to a $107.9 million and $95.9 million increase in average
interest-bearing liabilities for the three and nine months ended June 30, 1998
when compared to the same periods in 1997. Average deposits increased $7.5
million and $11.2 million for the three and nine months ended June 30, 1998,
respectively, when compared to the same period in 1997. Average borrowed funds
increased $88.7 million and $78.1 million for the three and nine months ended
June 30, 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. Interest expense associated with the guaranteed preferred beneficial
interest in subordinated debt totaled $250,000 and $422,000 for the three and
nine months ended June 30, 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 $17,000 for the nine months ended June 30, 1998.
PROVISION FOR LOAN LOSSES. During the three and nine months ended June
30, 1998, the Company recorded provisions for losses on loans of $120,000 and
$360,000 compared to $105,000 and $255,000 for the comparable periods in 1997.
The Company has increased its originations of single-family loans during the
past several years, which management attributes to be the primary reason for
$3.5 million in non-performing loans at June 30, 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 decreased by $62,300 or 27.4% for
the three months ended June 30, 1998 and increased $245,000 or 57.6% for the
nine months ended June 30, 1998, compared to the same periods ended June 30,
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 June 30, 1998, the Company had an aggregate of $2.3 million
invested in 16 securities. Due to a decline in market conditions, the Company
only recognized a pre-tax net gain on trading account and available for sale
securities of $1,600 for the quarter ended June 30, 1998. The Company recognized
pre-tax net gains on
14
<PAGE> 15
trading account and available for sale securities of $188,000 for the nine
months ended June 30, 1998 as compared to $152,000 for the three and nine months
ended June 30, 1997. Non-interest income (excluding the trading gains) increased
$88,000 or 116.9% for the quarter and $209,000 or 76.3% for the nine month
period.
NONINTEREST EXPENSES. Noninterest expenses increased by $169,000 or
15.4% and $552,000 or 16.9% for the three and nine months ended June 30, 1998,
compared to the same periods in 1997. The increase was primarily attributable to
a $115,000 and $402,000 increase in compensation and employee benefits, a
$22,000 and $83,000 increase in net occupancy expense, and a $28,000 and $50,000
increase in marketing 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 and marketing expense is primarily the result of the
addition of a new branch.
PROVISION FOR INCOME TAXES. The Bank incurred provisions for income taxes of
$265,000 and $835,000 for the three and nine months ended June 30, 1998,
compared with $326,000 and $775,000 for the same periods in 1997. The effective
tax rates during the three and nine months ended June 30, 1998 and 1997 were
34.9% and 34.6%, and 37.3% and 35.4% 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 June 30, 1998, the
Company had $155.3 million of outstanding advances from the FHLB of Pittsburgh
and $25.0 million of reverse repurchase agreements.
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 June 30, 1998, the total approved loan commitments
outstanding amounted to $10.1 million, and unused lines of credit amounted to
$934,000. Certificates of deposit scheduled to mature in one year or less at
June 30, 1998, totaled $73.3 million. Management believes that a significant
portion of maturing deposits will remain with the Bank.
15
<PAGE> 16
As of June 30, 1998, the Bank's regulatory capital was well in excess of
all applicable regulatory requirements. At June 30, 1998, the Bank's Tier 1
risk-based, total risk-based and Tier 1 leverage capital ratios amounted to
19.03%, 18.10% and 8.18%, 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.
16
<PAGE> 17
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 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
Not applicable.
Item 5. Other Information
Deadlines for Shareholder Proposals
Pursuant to Rule 14a-5(e) under the Securities Exchange Act of 1934, as
amended effective June 29, 1998:
(1) The deadline for submitting shareholder proposals for inclusion in
the Company's proxy statement and form of proxy for the Company's
1999 Annual Meeting of Stockholders pursuant to Rule 14a-8 is
August 21, 1998.
(2) The date after which notice of a shareholder proposal submitted
outside the processes of Rule 14a-8 is considered untimely is
October 24, 1998.
18
<PAGE> 19
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: August 14, 1998
By: /s/ J. Ardie Dillen
----------------------------------
J. Ardie Dillen
Chairman, President and
Chief Executive Officer
Date: August 14, 1998
By: /s/ Michael J. Kirk
----------------------------------
Michael J. Kirk
Executive Vice President and Chief
Financial Officer
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