<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, 1999
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 17, 1999,
there were issued and outstanding 1,778,666 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>
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of March 31, 1999
(unaudited) and September 30, 1998 3
Consolidated Statements of Income (unaudited) for the three
and six months ended March 31, 1999 and 1998. 4
Consolidated Statement of Changes in Stockholders' Equity
(unaudited) for the six months ended March 31, 1999. 5
Consolidated Statements of Cash Flows (unaudited) for the
six months ended March 31, 1999 and 1998. 6
Notes to Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security-Holders 19
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES
</TABLE>
<PAGE> 3
PITTSBURGH HOME FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
March 31, September 30,
1999 1998
(Unaudited)
------------- -------------
ASSETS
<S> <C> <C>
Cash $ 1,973,988 $ 1,959,659
Interest-bearing deposits 1,352,228 2,516,522
------------- -------------
3,326,216 4,476,181
Investment securities trading (cost of $1,727,163 at September 30, 1998) -- 1,415,291
Investment securities available for sale (cost of $125,974,695 and$128,405,910) 126,027,695 130,208,910
Investment securities held to maturity
(fair value of $10,033,700 at September 30, 1998) -- 10,000,000
Loans receivable, net of allowance of $1,767,649 and $1,737,973 236,641,502 211,980,925
Accrued interest receivable 2,580,797 2,797,759
Premises and equipment, net 4,021,918 3,315,565
Goodwill 253,111 269,618
Federal Home Loan Bank stock - at cost 8,325,900 7,863,400
Deferred income taxes 1,115,588 221,718
Foreclosed real estate 1,941,633 1,273,928
Other assets 411,383 455,429
------------- -------------
Total assets $ 384,645,743 $ 374,278,724
============= =============
LIABILITIES
Deposits $ 156,379,859 $ 153,982,999
Advances from Federal Home Loan Bank 163,516,730 155,266,730
Reverse repurchase agreements 25,000,000 25,000,000
Guaranteed preferred beneficial interests in subordinated debt 10,793,419 10,781,166
Advances by borrowers for taxes and insurance 3,152,567 1,618,579
Accrued income taxes payable -- 543,130
Other liabilities 2,444,099 2,286,655
------------- -------------
Total liabilities 361,286,674 349,479,259
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 16,332,170 16,308,564
Treasury stock - at cost, 403,459 and 310,424 (5,874,574) (4,511,868)
Unearned shares of ESOP (1,427,320) (1,514,220)
Unearned shares of Recognition and Retention Plan (549,290) (655,610)
Accumulated other comprehensive income 35,000 1,190,000
Retained earnings (substantially restricted) 14,821,262 13,960,778
------------- -------------
Total stockholders' equity 23,359,069 24,799,465
Total liabilities and stockholders' equity $ 384,645,743 $ 374,278,724
============= =============
</TABLE>
3
<PAGE> 4
PITTSBURGH HOME FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three months ended Six months ended
March 31, March 31,
(Unaudited) (Unaudited)
------------------------------ ------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
Interest income:
<S> <C> <C> <C> <C>
Loans receivable $ 4,517,005 $ 4,013,007 $ 8,734,331 $ 7,724,575
Mortgage-backed securities 1,474,707 709,391 2,974,281 1,431,418
Investment securities:
Taxable 728,105 1,071,930 1,603,201 1,788,118
Tax exempt 103,009 101,763 205,955 199,817
Interest-bearing deposits 45,437 93,879 96,244 165,693
------------ ------------ ------------ ------------
Total interest income 6,868,263 5,989,970 13,614,012 11,309,621
Interest expense:
Deposits 1,718,420 1,703,060 3,524,861 3,394,381
Advances from Federal Home Loan Bank and other 2,647,823 2,033,661 5,329,829 3,812,159
Guaranteed preferred beneficial interest
in subordinated debt 252,227 172,459 506,846 172,459
------------ ------------ ------------ ------------
Total interest expense 4,618,470 3,909,180 9,361,536 7,378,999
------------ ------------ ------------ ------------
Net interest income 2,249,793 2,080,790 4,252,476 3,930,622
Provision for loan losses 150,000 120,000 300,000 240,000
------------ ------------ ------------ ------------
Net interest income after provision for loan losses 2,099,793 1,960,790 3,952,476 3,690,622
Noninterest income:
Service charges and other fees 193,282 107,096 374,122 292,126
Net (loss)/gain on trading securities (14,625) 50,375 (181,856) 180,631
Net gain on available for sale securities 80,000 6,101 177,292 6,101
Other income 27,058 15,676 55,583 27,440
------------ ------------ ------------ ------------
Total noninterest income 285,715 179,248 425,141 506,298
Noninterest expenses:
Compensation and employee benefits 840,377 781,438 1,587,783 1,495,446
Premises and occupancy costs 166,293 153,647 315,319 290,220
Amortization of goodwill 8,253 8,254 16,507 16,507
Federal insurance premium 23,861 22,295 46,364 44,591
Loss on sale of foreclosed real estate -- -- 14,662 --
Marketing 69,440 43,140 118,159 102,538
Data processing costs 84,182 63,051 158,208 115,517
Other expenses 299,343 279,865 504,789 480,570
------------ ------------ ------------ ------------
Total noninterest expense 1,491,749 1,351,690 2,761,791 2,545,389
------------ ------------ ------------ ------------
Income before income taxes 893,759 788,348 1,615,826 1,651,531
Income taxes 278,000 278,000 502,000 570,000
------------ ------------ ------------ ------------
Net income $ 615,759 $ 510,348 $ 1,113,826 $ 1,081,531
============ ============ ============ ============
Basic earnings per share $ 0.38 $ 0.29 $ 0.68 $ 0.62
============ ============ ============ ============
Diluted earnings per share $ 0.37 $ 0.28 $ 0.67 $ 0.59
============ ============ ============ ============
</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 MARCH 31, 1999
(UNAUDITED)
<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, 1998 $ 21,821 $ 16,308,564 $ 13,960,778 $ (4,511,868)
Treasury stock purchased (1,370,714)
ESOP shares released -- 24,051 -- --
Exercise of stock options -- (445) -- 8,008
RRP amortization -- -- -- --
Cash dividends declared -- -- (253,342) --
Change in unrealized gain (loss) on investment
securities available for sale, net of taxes $ (977,708) -- -- -- --
Less reclassification adjustment for gains
included in net income (177,292)
------------
Other comprehensive income (loss) (1,155,000)
Net income for period $ 1,113,826 -- -- 1,113,826 --
------------
Comprehensive Income (loss) $ (41,174)
============
------------ ------------ ------------ ------------
Balance as of March 31, 1999 $ 21,821 $ 16,332,170 $ 14,821,262 $ (5,874,574)
============ ============ ============ ============
</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, 1998 $ (1,514,220) $ (655,610) $ 1,190,000 $ 24,799,465
Treasury stock purchased (1,370,714)
ESOP shares released 86,900 -- -- 110,951
Exercise of stock options -- -- -- 7,563
RRP amortization -- 106,320 -- 106,320
Cash dividends declared -- -- -- (253,342)
Change in unrealized gain (loss) on investment
securities available for sale, net of taxes -- -- -- --
Less reclassification adjustment for gains
included in net income
Other comprehensive income (loss) (1,155,000) (1,155,000)
Net income for period -- -- -- 1,113,826
Comprehensive Income (loss)
------------ ------------ ------------ ------------
Balance as of March 31, 1999 $ (1,427,320) $ (549,290) $ 35,000 $ 23,359,069
============ ============ ============ ============
</TABLE>
5
<PAGE> 6
PITTSBURGH HOME FINANCIAL CORP
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the six months ended March 31,
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,113,826 $ 1,081,531
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and goodwill amortization 155,330 125,649
Amortization and accretion of premiums and discounts on
assets and deferred loan fees (386,600) (706,085)
Amortization of RRP and release of ESOP shares 206,646 231,663
Provision for loan losses 300,000 240,000
Purchase of equity securities, trading -- (5,466,231)
Sale of equity securities, trading 1,371,416 4,406,075
Deferred tax provision (benefit) (893,870) 88,530
Other, net 1,708,526 (4,740,828)
------------ ------------
Net cash (used) provided by operating activities 3,575,274 (4,739,696)
CASH FLOWS FROM INVESTING ACTIVITIES
Loan orginations (48,357,115) (40,479,743)
Loan principal repayments 23,136,943 25,190,805
Proceeds from sale of REO -- 275,744
Purchases of:
Available- for- sale securities (20,181,374) (51,437,748)
Proceeds from sales, maturities and principal repayments of:
Available for sale securities 23,015,696 12,750,000
Held to maturity securities 10,000,000 --
Purchase of land, premises and equipment (845,176) (604,496)
Other, net (535,205) (176,000)
------------ ------------
Net cash (used) provided by investing activities (13,766,231) (54,481,438)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in checking, passbook, and money market
deposit accounts 4,896,957 3,113,181
Net increase in certificates of deposit (2,500,097) 4,086,183
Increase in advances from the Federal Home Loan Bank 8,250,000 48,566,730
Increase in Guaranteed preferred beneficial interest in subordinated debt -- 11,500,000
Return of capital -- (4,785,567)
Cash dividends paid to shareholders (253,342) (374,181)
Purchase of treasury stock (1,352,526) --
------------ ------------
Net cash provided by financing activities 9,040,992 62,106,346
Net (decrease) increase in cash and cash equivalents (1,149,965) 2,885,212
Cash and cash equivalents at beginning of year 4,476,181 5,223,774
------------ ------------
Cash and cash equivalents at end of year $ 3,326,216 $ 8,108,986
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest (includes interest credited on deposits of $3,631,276 and $2,893,325
in 1999 and 1998 respectively) $ 9,483,364 $ 6,700,035
============ ============
Income taxes paid $ 1,413,000 $ 792,500
============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Foreclosed mortgage loans transferred to real estate owned 294,869 --
Unrealized gain on securities available for sale (1,750,000) 257,500
Deferred income taxes 595,000 (88,000)
------------ ------------
Accumulated other comprehensive income $ (1,155,000) $ 169,500
============ ============
</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 consolidated financial statements include the accounts of Pittsburgh
Home Financial Corp. and its wholly owned subsidiaries, Pittsburgh Home
Savings Bank (the "Bank") and Pittsburgh Home Capital Trust I. All
significant intercompany balances and transactions have been eliminated
in consolidation.
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 six months ended March 31, 1999 and 1998, total comprehensive
income (loss) amounted to a loss of $41,174 and income of $1,250,531,
respectively.
The results of operations for the three and six months ended March 31,
1999 are not necessarily indicative of the results to be expected for
the year ending September 30, 1999. 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, 1998.
Note 2 - Business
--------
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 nine offices in
7
<PAGE> 8
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 - Earnings per share
------------------
Earnings per share are based on the weighted average number of shares of
common stock. Basic earnings per share is calculated by dividing income
available to holders of common shares by the weighted average number of
common shares outstanding during the period. Options, warrants, and
other potentially diluted securities are excluded from the basic
calculation, but are included in diluted earnings per share.
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,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator for basic and diluted earnings
per share - net income $ 615,759 $ 510,348 $1,113,826 $1,081,531
Denominator:
Denominator for basic earnings per
share - weighted-average shares 1,601,253 1,748,003 1,622,913 1,745,007
Effect of dilutive securities:
Employee stock options 33,693 60,952 30,232 60,195
Unvested Management Recognition Plan stock 14,535 22,849 11,054 22,347
---------- ---------- ---------- ----------
Dilutive potential common shares 48,228 83,801 41,286 82,552
---------- ---------- ---------- ----------
Denominator for diluted earnings per
share - adjusted weighted-average
shares and assumed conversions 1,649,481 1,831,804 1,664,199 1,827,559
========== ========== ========== ==========
Basic earnings per share $ 0.38 $ 0.29 $ 0.68 $ 0.62
========== ========== ========== ==========
Diluted earnings per share $ 0.37 $ 0.28 $ 0.67 $ 0.59
========== ========== ========== ==========
</TABLE>
The Company accounts for its Employee Stock Ownership Plan (ESOP) in
accordance with SOP 93-6, "Employers Accounting for Employee Stock
Ownership Plans,"; shares controlled by the ESOP are not considered in
the weighted average shares outstanding until the shares are committed
for allocation to an employee's individual account. In accordance with
SOP 93-6, uncommitted shares held by the ESOP (149,861 and 165,166
shares at March 31, 1999 and 1998 respectively) are excluded from basic
average shares outstanding.
Note 4 - 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 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.
9
<PAGE> 10
Note 5 - Recent Accounting and Regulatory Developments
---------------------------------------------
The Financial Accounting Standards Board issued Statement No. 131,
"Disclosures about Segments of an Enterprise and Related
Information"which is effective for fiscal years beginning after December
15, 1997 and requires public companies to disclose certain information
about reporting operating segments in complete sets of the financial
statements of the enterprise. Statement No. 131 does not materially
effect the Company's financial position or results of operations as the
Company's management views the Bank as one segment of business which is
community banking.
Financial Accounting Standards Board Statement No. 132, "Employers
Disclosures about Pensions and Other Post-retirement Benefits" is
effective for fiscal years beginning after December 15, 1997. This
statement requires revised disclosures about pension and other
post-retirement benefit plans, but does not impact the measurement of
recognition of those plans. Statement No. 132 had no impact on the
Company's financial position or results of operations.
Financial Accounting Standards Board Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, and hedging
activities. The standard is effective for fiscal years beginning after
June 15, 1999, and will be adopted by the Company for the year ended
September 30, 2000. The Company is in the process of determining the
impact of adoption.
Note 6 - 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 and
received proceeds of $10,769,829 (net of $735,171 of offering costs).
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 subordinated debentures
are redeemable at anytime after January 30, 2003 by the Company. The
subordinated debentures will mature on January 30, 2028.
10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
At March 31, 1999, the Company's total assets amounted to $384.6 million
compared with $374.3 million at September 30, 1998, an increase of 2.8%. Cash
and interest-bearing deposits decreased $1.2 million, or 26.7%, to $3.3 million
at March 31, 1999, compared to $4.5 million at September 30, 1998. Investment
securities trading decreased $1.4 million, as the Company discontinued its
trading securities strategy. Investments and mortgage-backed securities
(held-to-maturity and available for sale) decreased by $14.2 million, or 10.1%,
from $140.2 million at September 30, 1998 to $126.0 million at March 31, 1999.
During the six months ended March 31, 1999, the Company increased its loan
originations. Loans receivable, net of allowance, increased $24.6 million, or
11.6%, to $236.6 million at March 31, 1999 compared to $212.0 million at
September 30, 1998. The growth is primarily attributable to increases in
residential mortgage loans.
Total liabilities increased by $11.8 million, or 3.4%, to $361.3 million
at March 31, 1999 compared to $349.5 million at September 30, 1998. Deposits
increased by $2.4 million, or 1.6% to $156.4 million at March 31, 1999 compared
to $154.0 million at September 30, 1998. Borrowed funds increased $8.2 million
or 5.3% to $163.5 million at March 31, 1999 compared to $155.3 million at
September 30, 1998, as the Company increased its FHLB advances to aid liquidity
and fund loans receivable.
Total stockholders' equity decreased $1.4 million or 5.6% to $23.4
million at March 31, 1999 compared to $24.8 million at September 30, 1998. The
decrease was primarily attributable to the purchase of treasury stock and a loss
in other comprehensive income.
11
<PAGE> 12
RESULTS OF OPERATIONS
GENERAL. The Company reported net income of $616,000 and $1.11 million
for the three and six months ended March 31, 1999, respectively, compared to
$510,000 and $1.08 million for the three and six months ended March 31, 1998.
The Company recognized pre-tax net gains on trading activities and investment
sales of $65,000 for the quarter and pre-tax net losses of $5,000 for the six
months ended March 31, 1999. This compares to pre-tax net gains of $56,000 for
the quarter and $187,000 for the six months ended March 31, 1998. Excluding the
results of the trading activities and investment sales, net income for the
quarter ended March 31, 1999 was $571,000 as compared to $473,000 for the same
quarter in 1998. Excluding the results of the trading activities and investment
sales, for the six months ended March 31, 1999 net income was $1.11 million as
compared to $961,000 for the six months ended March 31, 1998, and increase of
15.5%.
The Company recognized an increase in net interest income before
provision for loan losses of $169,000 or 8.1% for the quarter and $322,000 or
8.2% for the six month period. This increase was offset by an increase in the
provision for loan losses of $30,000 or 25.0% for the quarter and $60,000 or
25.0% for the six month period. Noninterest income (excluding the trading
activities and investment sales) increased $98,000 or 79.5% for the quarter and
increased $110,000 or 34.5% for the six month period. Noninterest expense
increased $140,000 or 10.4% for the quarter and $216,000 or 8.5% for the six
month period.
Basic and diluted earnings per share were $.38 and $.37, respectively,
for the three months ended March 31, 1999, compared to $.29 and $.28,
respectively, for the same period in 1998. The 1999 and 1998 quarter's earnings
per share amounts include $.02 per share of gains related to the net gains on
trading activities and investment sales. Consequently, basic and diluted
earnings per share excluding trading activities and investment sales were $.36
and $.35, respectively, for the quarter ended March 31, 1999 as compared to $.27
and $.26, respectively, for the quarter ended March 31, 1998.
Basic and diluted earnings per share were $.68 and $.67, respectively,
for the six months ended March 31, 1999 compared to $.62 and $.59 for the same
period in 1998. The six months ended March 31, 1999 earnings per share amounts
were not impacted by trading activities and investment sales as compared to $.07
per share of gains related to trading activities and investment sales for the
six months ended March 31, 1998. Consequently, basic and diluted earnings per
share excluding trading activities and investment sales were $.68 and $.67,
respectively, for the six months ended March 31, 1999 as compared to $.55 and
$.52, respectively, for the six months ended March 31, 1998, an increase of
23.6% and 28.8%, respectively.
12
<PAGE> 13
INTEREST INCOME. Interest income increased $878,000 or 14.7% for the
quarter and $2.3 million or 20.4% for the six months ended March 31, 1999,
compared to the same period in 1998. The increase was due to the increase in
investment and loan origination activity. The average balance of investment and
mortgage-backed securities totaled $140.4 million and $143.3 million with
weighted average yields of 6.57% and 6.68% for the three and six months ended
March 31, 1999, an increase of 41.0% and 56.8%, respectively, from $99.6 million
and $91.4 million with weighted average yields of 7.56% and 7.48% for the same
periods ended March 31, 1998. The average balance on loans receivable increased
by $33.0 million and $32.3 million for the three and six months ended March 31,
1999, respectively, which were partially offset by a 31 basis point and 26 basis
point decline in the average yield earned thereon.
INTEREST EXPENSE. Interest expense increased $709,000 or 18.1% and $2.0
million or 27.0% for the three and six months ended March 31, 1999, compared to
the same period in 1998. The increase was due primarily to a $57.7 million and
$75.5 million increase in average interest-bearing liabilities for the three and
six months ended March 31, 1999 when compared to the same period in 1998.
Average deposits increased $4.2 million and $9.8 million for the three and six
months ended March 31, 1999 when compared to the same periods in 1998. Average
borrowed funds increased $49.4 million and $58.1 million for the three and six
months ended March 31, 1999 when compared to the same periods in 1998. Interest
expense associated with the guaranteed preferred beneficial interest in
subordinated debt totaled $252,000 and $507,000 for the three and six months
ended March 31, 1999 when compared to $172,000 for the same periods in 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 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 $25,000 for the six
months ended March 31, 1999.
PROVISION FOR LOAN LOSSES. It is management's policy to maintain an
allowance for estimated losses based on the perceived risk of loss in the loan
portfolio and the adequacy of the allowance. Management's periodic evaluation of
the adequacy of the allowance is based on the Company's past loan loss
experience, known and inherent risks in the portfolio, adverse situations that
may affect the borrower's ability to repay, the estimated value of the
underlying collateral and current economic conditions. The allowance for loan
losses is evaluated based on an assessment of the losses inherent in the loan
portfolio. Management classifies all delinquent assets as Special Mention,
Substandard, Doubtful or Loss. The evaluation of the adequacy of the allowance
incorporates an estimated range of required allowance based on the items noted
above. A reserve level is estimated by management for each category of
classified loans, with an estimated percentage applied to the delinquent loan
category balance. In addition, management notes that there is an inherent risk
of potential loan loss in the Company's overall, non-classified loan portfolio.
This inherent risk is addressed by applying an estimated low and high percentage
of potential loss to the remaining unclassified loan portfolio. Management
extends out the
13
<PAGE> 14
various line item balances and estimated percentages in order to arrive at an
estimated required loan loss allowance reserve. Activity for the period under
analysis is taken into account (charge offs, recoveries, provision) in order to
challenge the Company's overall process, as well as its previous loss history.
The estimated range of required reserve balance is then compared to the current
allowance for loan loss balance, and any required adjustments are made
accordingly.
Assets classified as a Loss are considered uncollectible and of such
little value that continuance as an asset is not warranted. A Loss
classification does not mean that an asset has no recovery or salvage value, but
that it is not practical or desirable to defer writing off all or a portion of
the asset, even though partial recovery may be affected in the future. All loans
classified as loss have been written off through provision in specific allowance
reserve. The allowance is increased by provisions for loan losses which are
charged against income. During the three and six months ended March 31, 1999,
the Company recorded provisions for losses on loans of $150,000 and $300,000
compared to $120,000 and $240,000 for the comparable periods in 1998.
The Company designates all loans that are 90 or more days past due as
non-performing. Generally, when loans are classified as non-performing, unpaid
accrued interest is a reduction of interest income on loans receivable and is
only recognized when cash payments are received. Subsequent to September 30,
1998, the Company's non-performing assets have continued to increase. From
September 30, 1998 to March 31, 1999, the Company's non-performing assets
increased from $4.5 million to $5.4 million. This $900,000 or 20.0% increase was
primarily attributable to four new non-accruing construction loans (which had
principal balances ranging from $132,000 to $280,000). Three of such loans, with
an aggregate outstanding balance of $664,000 were made to one contractor. Two of
the homes are completed and listed for sale, while the other property will not
be developed until the other two properties are sold. The fourth spec
construction loan was sold in December 1998 for $288,000 which equaled the
Bank's carrying value.
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 $106,000 or 59.1%
and decreased $81,000 or 16.0%, respectively for the three and six months ended
March 31, 1999 compared to the same periods in 1998. The increase for the three
months is attributable to an $86,000 or 80.4% increase in service charges and
other fees and a pre-tax net gain on trading activities and investment sales of
$65,000. The decrease for the six months ended March 31, 1999 is attributable to
a pre-tax net loss on trading activities and investment sales of $5,000 which
was offset by an $82,000 or 28.1% increase in service charges and other fees.
This compares to pre-tax net gains of $56,000 for the quarter and $187,000 for
the six months ended March 31, 1998.
14
<PAGE> 15
NONINTEREST EXPENSES. Noninterest expenses increased by $140,000 or
10.4% and $216,000 or 8.5% for the three and six months ended March 31, 1999,
compared to the same period in 1998. The increase was primarily attributable to
a $59,000 and $92,000 increase in salaries and employee benefits, a $26,000 and
$16,000 increase in marketing, and a $21,000 and $43,000 increase in data
processing costs for the three and six months ended March 31, 1999 when compared
to the same periods in 1998. The increase in salaries and employee benefits is
due to normal salary increases and the hiring of new employees. The increase in
marketing is due to increased marketing and the opening of a new branch. The
increase in data processing costs is the result of upgrading the Company's
technology.
PROVISION FOR INCOME TAXES. The Bank incurred provisions for income
taxes of $278,000 and $502,000 for the three and six months ended March 31,
1999, compared with $278,000 and $570,000 for the same period in 1998. The
effective tax rates during the three and six months ended March 31, 1999 and
1998 were 31.1% and 31.1%, and 35.3% and 34.5% respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds are deposits, advances from the
FHLB, 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, 1999, the
Company had $163.5 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 March 31, 1999, the total approved loan commitments
outstanding amounted to $27.9 million, and unused lines of credit amounted to
$854,000. Certificates of deposit scheduled to mature in one year or less at
March 31, 1999, totaled $64.6 million. Management believes that a significant
portion of maturing deposits will remain with the Bank.
As of March 31, 1999, the Bank's regulatory capital was well in excess
of all applicable regulatory requirements. At March 31, 1999, the Bank's Tier 1
risk-based, total risk-based and Tier 1 leverage capital ratios amounted to
18.62%, 17.65% and 8.31%, respectively, compared to regulatory requirements of
4.0%, 8.0% and 4.0%, respectively.
15
<PAGE> 16
"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.
YEAR 2000
The Year 2000 (Y2K) issue is primarily a result of computer software
programs recognizing a two digit date field rather than the full four digits
which identify the appropriate year. Any computer program or hardware that is
date sensitive may recognize "00" as year 1900 as opposed to the intended year
2000. The Y2K problem started decades ago when early computers had very limited
memory and storage space.
The objective of managing the Year 2000 process is for the institution
to determine the scope of the problem and to focus its efforts and attention on
solving it. The Federal Financial Institution's Examination Council ("FFIEC")
outlined the Year 2000 management process as a five phase procedure [(1)
Awareness (2) Assessment (3) Renovation (4) Validation (5) Implementation] that
each financial institution would have to navigate in identifying and fixing its
Year 2000 exposures. The Company has developed a detailed timetable which
identifies various milestones and deadlines to aid in managing the Year 2000
process.
The Company outsources substantially all of its data processing
functions, and it is working very closely with its third party provider and
other vendors within the Bank's project plan to ensure that its operational and
financial systems will not be adversely affected by the Y2K problem.
The Awareness and Assessment phases of the Company's plan are completed
and related to the understanding and educating of the Board and appropriate
management personnel as to the issues related to the Y2K problem. The Company is
continuously upgrading its comprehensive
16
<PAGE> 17
project plan (year 2000 binder), and has completed its inventory of equipment,
hardware, and software; updated its Disaster Recovery Plan ("DRP"); and reported
the project status to its Board, its regulators, and its customer base. The
Awareness phase, including the comprehensive inventory of all hardware and
software systems (including systems purchased from software vendors) was
completed March 31, 1998. The Assessment of all hardware and software systems
was completed June 30, 1998.
The Renovation phase of the Bank's project plan centered around the
initial contact and response evaluation of year 2000 letters and worksheets
which were sent to vendors and suppliers; the focus was on entities which have
been classified as fatal or critical to the ongoing operations of the Company.
The Company is coordinating with its third party vendors and suppliers to
complete their Y2K testing.
The Validation and Implementation phases revolve around the resolution
of all vendor's and supplier's compliance status. All critical equipment or
services that are non-compliant will be replaced by the appropriate milestone
date. The Company's testing and implementation of internal mission-critical
systems, vendor provided mission-critical systems, including the Company's third
party service provider has been completed. The Company and the third party
service provider successfully completed its first round of online testing in
September 1998. The second test was completed in March 1999.
The Company has contacted its loan and deposit customers that may
present some exposure to Y2K compliance. Commercial loan customers that are not
Y2K compliant may present some risk of default. The Company's initial assessment
of its commercial loan and other customer accounts present an immaterial impact
on the Company's statement of operations. Continued monitoring and evaluation of
this risk is incorporated into the Company's Y2K project plan.
The Company's costs associated with Year 2000 include an additional
assessment from its third party provider, consultant fees associated with its
DRP and the ongoing Y2K project plan, various hard costs for the replacement of
non-compliant computer, telephone, and related equipment. Excluding the "soft"
costs of Company management and personnel time, the Company estimates that the
total Year 2000 project costs will not exceed $200,000 (pre-tax). As of March
31, 1999, the Company estimates that it has incurred less than $70,000 in
connection with its Y2K project plan.
In the event that the Company and its service providers face a "worst
case" year 2K scenario and its systems would not handle the date changeover, the
impact on the Company is at this point uncertain. Clearly, the Company's Y2K
contingency plan would be enacted, which would include off-line, manual postings
of all transactions, as well as addressing any required Company service provider
changes or outsourcing to Y2K compliant entities.
The Company's plans to complete Y2K compliance are based on management's
and the Board's best estimates. There can be no guarantee that these estimates
will be achieved, and ending results could be significantly different due to
unforeseen circumstances.
17
<PAGE> 18
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and qualitative disclosures about market risk are presented
at September 30, 1998 in Item 7A of the Company's Annual Report on Form 10-K,
filed with the SEC on December 23, 1998. Management believes there have been no
material changes in the Company's market risk since September 30, 1998.
18
<PAGE> 19
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 28, 1999.
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 three directors for a three-year term or until
their successors are elected and qualified - Stephen Spolar
received votes for 1,626,147; against 10,408; abstain 0; and not
voted 0. Charles A. Topnick received votes for 1,629,198; against
7,357; abstain 0; and not voted 0. Joseph G. Lang received votes
for 1,628,084; against 8,471; 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, 1999; received votes for
1,631,305; against 1,200; abstain 4,050; and not voted 0.
d) Not applicable.
19
<PAGE> 20
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.
20
<PAGE> 21
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 17, 1999 By: /s/J.Ardie Dillen
------------------
J. Ardie Dillen
Chairman, President and Chief
Executive Officer
Date: May 17, 1999 By: /s/ Michael J. Kirk
-------------------
Michael J. Kirk
Executive Vice President and Chief
Financial Officer
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