<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 December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ____________
Commission File Number 0-27522
PITTSBURGH HOME FINANCIAL CORP.
-------------------------------
(Exact name of registrant as specified in its charter)
----------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Pennsylvania 25-1772349
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer
- -------------------------------------------------------------- Identification Number)
----------------------
438 Wood Street
Pittsburgh, Pennsylvania 15222
(Address of principal executive office) (Zip Code)
</TABLE>
(412) 281-0780
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(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 February 17,
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>
<S> <C>
PART I. FINANCIAL INFORMATION PAGE
- ----------------------------- ----
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of December 31, 1997
(unaudited) and September 30, 1997 3
Consolidated Statements of Income for the three
months ended December 31, 1997 (unaudited) and 1996 (unaudited). 4
Consolidated Statement of Changes in Stockholders' Equity
for the three months ended December 31, 1997
(unaudited) 5
Consolidated Statements of Cash Flows for the
three months ended December 31, 1997 (unaudited) and 1996 (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 16
PART II. OTHER INFORMATION
- -------- -----------------
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security-Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES
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PITTSBURGH HOME FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31, September 30,
1997 1997
(Unaudited)
------------ --------------
<S> <C> <C>
ASSETS
Cash $ 2,540,818 $ 1,844,534
Interest-bearing deposits 3,566,120 3,379,240
------------- ------------
6,106,938 5,223,774
Investment securities trading (cost of $2,213,000 and $904,875) 2,273,625 955,587
Investments and mortgage-backed securities; available for sale 78,088,386 64,387,368
Investments and mortgage-backed securities; held to maturity
(fair value of $10,090,748 and $10,054,039) 10,013,487 10,017,166
Loans receivable, net of allowance of $1,452,928 and
$1,419,196 190,301,403 181,338,949
Accrued interest receivable 2,047,994 2,026,718
Premises and equipment, net 3,038,748 2,699,396
Goodwill 294,379 302,632
Federal Home Loan Bank - at cost 6,372,500 5,110,000
Deferred income taxes 183,119 142,119
Foreclosed real estate 748,906 907,398
Other assets 199,190 192,673
------------ ------------
Total assets $299,668,675 $273,303,780
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 141,915,308 $138,730,862
Advances from Federal Home Loan Bank 127,450,000 101,700,000
Advances by borrowers for taxes and insurance 2,999,437 1,649,312
Accrued income taxes payable 587,333 275,749
Other liabilities 2,057,086 2,133,472
------------ ------------
Total liabilities 275,009,164 244,489,395
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 16,253,239 21,017,411
Treasury stock - at cost, 212,756 shares at
December 31, 1997 and September 30, 1997 (2,948,004) (2,948,004)
Unearned shares of employee stock ownership plan (1,635,524) (1,669,498)
Unearned shares of recognition and retention plan (815,090) (868,250)
Unrealized gain on securities available for sale 804,000 597,000
Retained earnings (substantially restricted) 12,979,069 12,663,905
------------ ------------
Total stockholders' equity 24,659,511 28,814,385
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $299,668,675 $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
December 31,
(Unaudited)
-------------------- --------------------
1997 1996
-------------------- --------------------
<S> <C> <C>
Interest income:
Loans receivable $3,711,568 $2,933,492
Mortgage-backed securities 722,027 392,926
Investment securities
Taxable 716,188 421,899
Tax exempt 98,054 79,923
Interest-bearing deposits 71,814 101,809
----------- -----------
Total interest income 5,319,651 3,930,049
Interest expense:
Deposits 1,691,321 1,515,019
Interest on advances and other borrowings 1,778,498 769,112
----------- -----------
Total interest expense 3,469,819 2,284,131
----------- -----------
Net interest income before provision for losses on loans 1,849,832 1,645,918
Provision for losses on loans 120,000 75,000
----------- -----------
Net interest income after provision for losses on loans 1,729,832 1,570,918
Noninterest income:
Service charges and other fees 185,030 100,826
Gain on trading account securities 130,256 -
Other income 11,764 9,361
----------- -----------
Total noninterest income 327,050 110,187
Noninterest expenses:
Salaries and employee benefits 714,008 557,292
Net occupancy expense 136,573 110,849
Amortization of goodwill 8,253 2,751
Federal insurance premium 22,296 21,100
Marketing 59,398 54,099
Data processing costs 52,466 55,626
Other operating expense 200,705 193,928
----------- -----------
Total noninterest expense 1,193,699 995,645
----------- -----------
Income before income taxes 863,183 685,460
Income taxes 292,000 242,454
----------- -----------
Net income $ 571,183 $ 443,006
=========== ===========
Basic earnings per share $ 0.33 $ 0.22
=========== ===========
Diluted earnings per share $ 0.31 $ 0.22
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE> 5
PITTSBURGH HOME FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Additional
Common Paid In Retained Treasury
Stock Capital Earnings Stock
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance as of September 30, 1997 $ 21,821 $ 21,017,411 $ 12,663,905 $ (2,948,004)
ESOP shares released -- 21,395 -- --
RRP amortization -- -- -- --
Change in unrealized gain on investment
securities available for sale, net of taxes -- -- -- --
Net income for period -- -- 571,183 --
Return of capital -- (4,785,567) -- --
Cash dividends declared -- -- (256,019) --
--------------------------------------------------------------------------
Balance as of December 31, 1997 $ 21,821 $ 16,253,239 $ 12,979,069 $ (2,948,004)
==========================================================================
Net unrealized
gain (loss)
Unearned shares of Unearned on securities Total
Employee Stock shares of available for Stockholders'
Ownership Plan RRP sale Equity
--------------------------------------------------------------------------
Balance as of September 30, 1997 $ (1,669,498) $ (868,250) $ 597,000 $ 28,814,385
ESOP shares released 33,974 -- -- 55,369
RRP amortization -- 53,160 -- 53,160
Change in unrealized gain on investment
securities available for sale, net of taxes -- -- 207,000 207,000
Net income for period -- -- -- 571,183
Return of capital -- -- -- (4,785,567)
Cash dividends declared -- -- -- (256,019)
---------------------------------------------------------------------------
Balance as of December 31, 1997 $ (1,635,524) $ (815,090) $ 804,000 $24,659,511
===========================================================================
</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 three months ended December 31,
1997 1996
------------ -----------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 571,183 $ 443,006
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and goodwill amortization 61,685 44,456
Amortization and accretion of premiums and discounts on
assets and deferred loan fees 83,336 1,493
Amortization of ESOP 33,974 48,181
Amortization of RRP 53,160 35,440
Provision for loan losses 120,000 75,000
Purchase of equity securities, trading (3,114,037) -
Sale of equity securities, trading 1,926,255 -
Release of ESOP shares 21,395 8,026
Deferred tax benefit (41,000) 122,000
Other, net (1,185,351) (322,476)
------------- ------------
Net cash provided by operating activities (1,469,400) 455,126
CASH FLOWS FROM INVESTING ACTIVITIES
Loan orginations (18,178,766) (21,599,154)
Loan principal repayments 8,973,840 8,151,889
Proceeds from loan sales -- 617,700
Purchases of:
Available for sale securities (17,308,373) (12,225,000)
Proceeds from sales, maturities and principal repayments of:
Available for sale securities 3,965,171 1,914,835
Purchase of land (153,250) --
Purchases of premises and equipment (239,534) (909,217)
Other 50,491 158,407
------------- ------------
Net cash (used) provided by investing activities (22,890,421) (23,890,540)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in checking, passbook, and money market
deposit accounts 1,938,540 3,545,298
Net increase (decrease) in certificates of deposit 1,245,906 8,105,900
Increase in advances by borrowers for taxes and insurance 1,350,125 851,966
Increase in advances from the Federal Home Loan Bank 25,750,000 13,000,000
Return of capital (4,785,567) --
Cash dividends paid to shareholders (256,019) (237,196)
Purchase of recognition and retention plan shares -- (1,063,170)
Purchase of treasury stock -- (1,429,930)
------------- ------------
Net cash provided by financing activities 25,242,985 22,772,868
Net decrease in cash and cash equivalents 883,164 (662,546)
Cash and cash equivalents at beginning of year 5,223,774 7,561,710
------------- ------------
Cash and cash equivalents at end of year $ 6,106,938 $ 6,899,164
============= ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year for:
Interest (includes interest credited on deposits of $1,719,157 and $1,515,019
in 1997, and 1996 respectively) $ 3,497,655 $ 2,284,132
============ ============
Income taxes paid $ 19,250 $ 251,300
============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Foreclosed mortgage loans transferred to real estate owned (158,492) (84,593)
Unrealized gain on investment securities and mortgage-backed securities 1,211,000 298,000
Deferred income taxes (407,000) (102,000)
---------- ----------
Net unrealized gain on investment and mortgage-backed securities $ 804,000 $ 196,000
========== =========
</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 months ended December 31, 1997
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 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.
Note 3 - Principles of consolidation
The consolidated financial statements include the accounts of Pittsburgh
Home Financial Corp. and its wholly owned subsidiary, Pittsburgh Home
Savings Bank. All significant intercompany balances and transactions
have been eliminated in consolidation.
7
<PAGE> 8
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
December 31,
1997 1996
----------- -----------
<S> <C> <C>
Numerator for basic and diluted earnings
per share - net income $ 571,183 $ 443,006
Denominator:
Denominator for basic earnings per
share - weighted-average shares 1,742,010 2,013,566
Effect of dilutive securities:
Employee stock options 59,437 29,001
Unvested Management Recognition Plan stock 21,865 4,893
----------------------------------------
Dilutive potential common shares 81,302 33,894
----------------------------------------
Denominator for diluted earnings per
share - adjusted weighted-average
shares and assumed conversions 1,823,312 2,047,460
========================================
Basic earnings per share $ 0.33 $ 0.22
========================================
Diluted earnings per share $ 0.31 $ 0.22
========================================
</TABLE>
In accordance with Statement 128, unreleased shares held by the Employee
Stock Ownership Plan (ESOP) (148,073 and 161,477 shares at December 31,
1997 and 1996 respectively) and unvested shares held for the Recognition
and Retention Plan (RRP) (73,293 and 87,285 shares at December 31, 1997
and 1996, 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 December 31, 1997. These options are subject to vesting
provisions as well as other provisions of the Stock Option Plan. No
options have been exercised through December 31, 1997.
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 67,960 shares were awarded as of December 31,
1997. 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 three month periods ended December 31, 1997 and
1996 was $53,160 and $35,440, 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.
Note 11 - Subsequent Event
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 used 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 December 31, 1997, the Company's total assets amounted to $299.7
million compared with $273.3 million at September 30, 1997, an increase of 9.7%.
Cash and interest-bearing deposits increased $883,000, or 16.9%, to $6.1 million
at December 31, 1997, compared to $5.2 million at September 30, 1997. Investment
securities trading increased $1.3 million, or 137.9% from $956,000 at September
30, 1997 to $2.3 million at December 31, 1997. 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 $13.7 million, or 18.4%, from $74.4 million at
September 30, 1997. During the quarter ended December 31, 1997, the Company
purchased $17.3 million in investments and mortgage-backed securities. Loans
receivable, net of allowance, increased $8.9 million, or 4.9%, to $190.3 million
at December 31, 1997 compared to $181.3 million at September 30, 1997. The
growth is primarily attributable to increases in residential mortgage loans.
Total liabilities increased by $30.5 million, or 12.5%, to $275.0
million at December 31, 1997 compared to $244.5 million at September 30, 1997.
Deposits increased by $3.2 million, or 2.3% to $141.9 million at December 31,
1997 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. Borrowed funds increased $25.8 million or 25.4% to $127.5
million at December 31, 1997 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 $4.1 million or 14.2% to $24.7
million at December 31, 1997 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 $571,000 and $443,000 for
the three months ended December 31, 1997 and 1996, respectively. Basic and
diluted earnings per share were $.33 and $.31 per share for the quarter ended
December 31, 1997, compared to $.22 and $.22 per share, respectively, for the
same quarter of 1996. Trading activity gains had an after tax impact on both
calculations of $.05 per share for the quarter ended December 31, 1997. In
addition to the increased net income in 1997, the per share results were
favorably impacted by an overall reduction in the average number of shares
outstanding as a result of stock repurchase programs in effect from November
1996 through April 1997. This $128,000, or 28.9%, increase was primarily the
result of an increase in net interest income after the provision for losses on
loans of $159,000 or 10.1% and an increase in total noninterest income of
$217,000 or 196.8% primarily due to the gains on trading account securities
which were partially offset by an increase in the provision for loan losses of
$45,000 or 60.0%, an increase in total noninterest expense of $198,000 or 19.9%,
and an increase in the provision for income taxes of $50,000 or 20.4%.
INTEREST INCOME. Interest income increased $1.4 million or 35.9% for the
three months ended December 31, 1997, compared to the same period in 1996. The
increase was due to the increase in investment and loan origination activity.
The average balance of investment and mortgage-backed securities totaled $83.1
million and had a weighted average yield of 7.4% compared to $52.1 million with
a weighted average yield of 6.3% for the same period in 1996. The increase in
investments is attributable to the Company's wholesale leveraging strategy. The
investment and mortgage-backed securities purchased have been funded primarily
with advances from the FHLB. The average balance on loans receivable increased
by $43.6 million, which was partially offset by a 26 basis point decline in the
average yield earned thereon.
INTEREST EXPENSE. Interest expense increased $1.2 million or 52.2% for
the three months ended December 31, 1997, compared to the same period in 1996.
The increase was due primarily to a $80.5 million increase in average
interest-bearing liabilities. Average deposits increased $12.4 million for the
three months ended December 31, 1997 when compared to the same period in 1996.
Average borrowed funds increased $68.1 million for the three month period ended
December 31, 1997 when compared to the same period in 1996. Such increases were
primarily due to the opening of a new branch, as well as, increased borrowings
from the FHLB of Pittsburgh.
PROVISION FOR LOAN LOSSES. During the three months ended December 31,
1997, the Company recorded provisions for losses on loans of $120,000 compared
to $75,000 for the comparable period in 1996. Subsequent to September 30, 1997,
the Company's non-performing assets have continued to increase. From
September 30, 1997 to December 31, 1997, the Company's non-performing assets
increased from $4.6 million to $5.0 million. This $400,000 or 8.7% increase was
primarily attributable to two new non-accruing residentia construction loans.
The Company has increased its originations of single-family loans during the
past several
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<PAGE> 14
years, which management attributes to be the primary reason for increased
non-performing assets. 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 $217,000 or 196.8%
for the three months ended December 31, 1997, compared to the three months ended
December 31, 1996. 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 December 31, 1997, the Company had an aggregate of $2.3 million
invested in 11 securities. During the three months ended December 31, 1997, the
Company recognized a pre-tax net gain on trading account securities of $130,000.
Non-interest income (excluding the trading gains) increased $87,000 or 78.6%.
NONINTEREST EXPENSES. Noninterest expenses increased by $198,000 or
19.9% for the three months ended December 31, 1997, compared to the same period
in 1996. The increase was primarily attributable to an $157,000 increase in
salaries and employee benefits, a $26,000 increase in net occupancy expense, and
a $7,000 increase in other operating expenses (consisting primarily of office
supplies, legal and professional fees). 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 $292,000 during the three months ended December 31, 1997, compared with
$242,000 for the same period in 1996. The effective tax rates during the three
months ended December 31, 1997 and 1996 were 33.8% and 35.8%, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds are deposits, 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
14
<PAGE> 15
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 December 31, 1997, the Company had $127.5 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 December 31, 1997, the total approved loan commitments
outstanding amounted to $10.8 million, and unused lines of credit amounted to
$698,000. Certificates of deposit scheduled to mature in one year or less at
December 31, 1997, totaled $62.7 million. Management believes that a significant
portion of maturing deposits will remain with the Bank.
As of December 31, 1997, the Bank's regulatory capital was well in
excess of all applicable regulatory requirements. At December 31, 1997, the
Bank's Tier 1 risk-based, total risk-based and Tier 1 leverage capital ratios
amounted to 17.69%, 16.66% and 7.83%, 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.
15
<PAGE> 16
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 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.
16
<PAGE> 17
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
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.
17
<PAGE> 18
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: February 17, 1998 By: /s/ J. Ardie Dillen
-------------------
J. Ardie Dillen
Chairman, President and
Chief Executive Officer
Date: February 17, 1998 By: /s/ Michael J. Kirk
-------------------
Michael J. Kirk
Executive Vice President
and Chief Financial
Officer
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