<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, 2000
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 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)
225 Ross Street
Pittsburgh, Pennsylvania 15219
--------------------------------------- ----------
(Address of principal executive office) (Zip Code)
(412) 227-1945
----------------------------------------------------
(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,
2000, there were issued and outstanding 1,697,506 shares of the Registrant's
Common Stock, par value $.01 per share.
<PAGE> 2
PITTSBURGH 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, 2000
(unaudited) and September 30, 1999 3
Consolidated Statements of Income (unaudited) for the three and nine
months ended June 30, 2000 and 1999. 4
Consolidated Statement of Changes in Stockholders' Equity
(unaudited) for the nine months ended June 30, 2000. 5
Consolidated Statements of Cash Flows (unaudited) for the
nine months ended June 30, 2000 and 1999. 6
Notes to Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 2. Changes in Securities 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security-Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES
</TABLE>
<PAGE> 3
PITTSBURGH FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
June 30, September 30,
2000 1999
(Unaudited)
------------ ------------
<S> <C> <C>
ASSETS
Cash $ 1,441,726 $ 1,589,834
Interest-bearing deposits 4,831,979 3,729,265
------------ ------------
6,273,705 5,319,099
Investment securities available for sale (cost of $96,646,464
and $113,557,150) 90,546,463 109,745,150
Loans receivable, net of allowance of $2,164,843 and $1,956,744 306,397,968 278,085,048
Loans held for sale 4,006,019 --
Accrued interest receivable 2,415,953 2,635,063
Premises and equipment, net 5,034,322 4,586,498
Goodwill 211,843 236,602
Federal Home Loan Bank stock - at cost 10,763,400 9,715,900
Deferred income taxes 2,460,812 1,682,812
Foreclosed real estate 1,370,476 1,956,740
Prepaid income taxes 1,456,415 1,242,673
Other assets 714,216 536,279
------------ ------------
Total assets $431,651,592 $415,741,864
============ ============
LIABILITIES
Deposits $180,520,992 $169,462,592
Advances from Federal Home Loan Bank 192,716,730 184,066,730
Reverse repurchase agreements 20,000,000 25,000,000
Guaranteed preferred beneficial interests in subordinated debt 10,824,051 10,805,672
Advances by borrowers for taxes and insurance 4,668,174 1,975,086
Other liabilities 2,375,340 2,405,650
------------ ------------
Total liabilities 411,105,287 393,715,730
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 16,293,330 16,311,188
Treasury stock - at cost, 484,619 and 395,277 (6,874,791) (5,755,444)
Unearned shares of ESOP (1,199,555) (1,340,100)
Unearned shares of Recognition and Retention Plan (283,490) (442,970)
Accumulated other comprehensive (loss) (4,026,000) (2,516,000)
Retained earnings (substantially restricted) 16,614,990 15,747,639
------------ ------------
Total stockholders' equity 20,546,305 22,026,134
------------ ------------
Total liabilities and stockholders' equity $431,651,592 $415,741,864
============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE> 4
PITTSBURGH FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three months ended Nine months ended
June 30, June 30,
(Unaudited) (Unaudited)
------------------------------ -------------------------------
2000 1999 2000 1999
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Interest income:
Loans receivable $6,018,056 $4,763,230 $17,435,664 $13,497,561
Mortgage-backed securities 1,021,215 1,255,474 3,366,227 4,229,755
Investment securities:
Taxable 712,886 679,375 2,093,666 2,282,576
Tax exempt -- 102,946 147,938 308,901
Interest-bearing deposits 37,964 45,988 125,977 142,232
---------- ---------- ----------- -----------
Total interest income 7,790,121 6,847,013 23,169,472 20,461,025
Interest expense:
Deposits 2,110,320 1,711,156 5,835,182 5,236,017
Federal Home Loan Bank and other borrowings 3,336,375 2,743,990 9,886,093 8,073,819
Guaranteed preferred beneficial interest
in subordinated debt 252,226 246,694 756,679 753,540
---------- ---------- ----------- -----------
Total interest expense 5,698,921 4,701,840 16,477,954 14,063,376
---------- ---------- ----------- -----------
Net interest income 2,091,200 2,145,173 6,691,518 6,397,649
Provision for loan losses 150,000 150,000 450,000 450,000
---------- ---------- ----------- -----------
Net interest income after provision for loan losses 1,941,200 1,995,173 6,241,518 5,947,649
Noninterest income:
Service charges and other fees 152,895 249,120 620,377 623,242
Extinguishment of facility lease -- -- (201,500) --
Net gain on sale of fixed assets 472,312 -- 549,609 --
Net loss on sale of loans (38,095) -- (38,095) --
Net (loss) on trading securities -- -- -- (181,856)
Net gain/(loss) on available for sale securities -- (5,386) (171,539) 171,906
Other income 61,432 34,896 139,725 90,479
---------- ---------- ----------- -----------
Total noninterest income 648,544 278,630 898,577 703,771
Noninterest expenses:
Compensation and employee benefits 877,829 854,709 2,670,756 2,442,492
Premises and occupancy costs 235,078 182,791 644,526 498,110
Amortization of goodwill 8,254 8,254 24,761 24,761
Federal insurance premium 9,117 23,503 42,469 69,867
Loss on sale of foreclosed real estate 87,033 -- 172,377 14,662
Marketing 157,257 31,933 310,723 150,092
Data processing costs 87,640 73,375 241,823 231,583
Other expenses 447,693 250,271 1,140,938 755,060
---------- ---------- ----------- -----------
Total noninterest expense 1,909,901 1,424,836 5,248,373 4,186,627
---------- ---------- ----------- -----------
Income before income taxes 679,843 848,967 1,891,722 2,464,793
Income taxes 240,200 263,000 559,443 765,000
---------- ---------- ----------- -----------
Net income $ 439,643 $ 585,967 $ 1,332,279 $ 1,699,793
========== ========== =========== ===========
Diluted earnings per share $ 0.29 $ 0.36 $ 0.85 $ 1.03
========== ========== =========== ===========
Dividends per share $ 0.09 $ 0.07 $ 0.27 $ 0.21
========== ========== =========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE> 5
PITTSBURGH FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD ENDED JUNE 30, 2000
(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, 1999 $21,821 $16,311,188 $15,747,639 $(5,755,444)
Treasury stock purchased (1,119,347)
ESOP shares released -- (17,858) -- --
RRP amortization -- -- -- --
Cash dividends declared -- -- (464,928) --
Change in unrealized gain
(loss) on investment
securities available for
sale, net of taxes $(1,338,461) -- -- -- --
Less reclassification
adjustment for gains
included in net income (171,539)
-----------
Other comprehensive income
(loss) (1,510,000)
Net income for period $ 1,332,279 -- -- 1,332,279 --
-----------
Comprehensive Income (loss) $ (177,721)
===========
-----------------------------------------------
Balance as of June 30, 2000 $21,821 $16,293,330 $16,614,990 $(6,874,791)
===============================================
</TABLE>
<TABLE>
<CAPTION>
Unearned shares of Accumulated Total
Employee Stock Unearned shares other Stockholders'
Ownership Plan of RRP comprehensive income Equity
================= =============== ==================== =============
<S> <C> <C> <C> <C>
Balance as of September 30, 1999 $(1,340,100) $(442,970) $(2,516,000) $22,026,134
Treasury stock purchased (1,119,347)
ESOP shares released 140,545 -- -- 122,687
RRP amortization -- 159,480 -- 159,480
Cash dividends declared -- -- -- (464,928)
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) (1,510,000) (1,510,000)
Net income for period -- -- -- 1,332,279
Comprehensive Income (loss)
--------------------------------------------------------------------------
Balance as of June 30, 2000 $(1,199,555) $ (283,490) $(4,026,000) $20,546,305
==========================================================================
</TABLE>
5
<PAGE> 6
PITTSBURGH FINANCIAL CORP
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the nine months ended June 30,
2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,332,279 $ 1,699,793
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and goodwill amortization 344,752 249,618
Amortization and accretion of premiums and discounts on
assets and deferred loan fees 775,485 (134,991)
Amortization of RRP and release of ESOP shares 282,167 323,442
Provision for loan losses 450,000 450,000
Sale of equity securities, trading -- 1,415,291
Deferred tax provision (benefit) (991,742) (1,591,999)
Other, net 2,722,329 1,874,036
------------ ------------
Net cash provided by operating activities 4,915,270 4,285,190
CASH FLOWS FROM INVESTING ACTIVITIES
Loan originations (72,941,096) (85,109,420)
Loan principal repayments 45,026,954 42,015,457
Net REO activity 586,264 (633,746)
Purchases of:
Available for sale securities (8,092,500) (27,181,674)
Proceeds from sales, maturities and principal repayments of:
Available for sale securities 18,325,405 41,559,041
Held to maturity securities -- 10,000,000
Purchase of land, premises and equipment (1,641,928) (986,819)
Net sale of land, premises and equipment 874,112 -
Other, net 778,000 504,500
------------ ------------
Net cash (used) provided by investing activities (17,084,789) (19,832,661)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in checking, passbook, and money market
deposit accounts 309,790 592,876
Net increase in certificates of deposit 10,748,610 7,443,428
Increase in advances from the Federal Home Loan Bank 3,650,000 10,550,000
Cash dividends paid to shareholders (464,928) (377,848)
Purchase of treasury stock (1,119,347) (1,363,151)
------------ ------------
Net cash provided by financing activities 13,124,125 16,845,305
Net increase in cash and cash equivalents 954,606 1,297,834
Cash and cash equivalents at beginning of year 5,319,099 4,476,181
------------ ------------
Cash and cash equivalents at end of year $ 6,273,705 $ 5,774,015
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest (includes interest credited on deposits of $5,930,310 and
$5,198,799 in 2000 and 1999 respectively) $ 16,629,984 $ 14,033,849
============ ============
Income taxes paid $ 773,185 $ 1,842,500
============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Foreclosed mortgage loans transferred to real estate owned 980,104 1,086,352
Unrealized gain on securities available for sale (2,288,000) (4,144,000)
Deferred income taxes 778,000 1,409,000
------------ ------------
Accumulated other comprehensive income $ (1,510,000) $ (2,735,000)
============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
6
<PAGE> 7
PITTSBURGH FINANCIAL CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements of
Pittsburgh Financial Corp. (formerly 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 the
Company and its wholly owned subsidiaries, Pittsburgh Savings Bank (dba
BankPittsburgh) (formerly Pittsburgh Home Savings Bank) (the "Bank")
and Pittsburgh Home Capital Trust I. All significant intercompany
balances and transactions have been eliminated in consolidation.
Components of Comprehensive Income include net income and unrealized
gains or losses on the Company's available-for-sale securities. During
the three months ended June 30, 2000, total comprehensive gain amounted
to $193,643, compared to a $994,033 comprehensive loss for the three
months ended June 30, 1999. During the nine months ended June 30, 2000,
total comprehensive loss amounted to $177,721, compared to $1,035,207
for the nine months ended June 30, 1999.
The results of operations for the three and nine months ended June 30,
2000 are not necessarily indicative of the results to be expected for
the year ending September 30, 2000. 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, 1999.
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. 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
7
<PAGE> 8
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.
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,
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Numerator for basic and diluted earnings
per share - net income $ 439,643 $ 585,967 $1,332,279 $1,699,793
Denominator:
Denominator for basic earnings per
share - weighted-average shares 1,527,540 1,576,020 1,558,587 1,607,282
Effect of dilutive securities:
Employee stock options -- 21,492 8,369 27,319
Unvested Management Recognition Plan stock -- 13,679 -- 11,929
---------- ---------- ---------- ----------
Dilutive potential common shares -- 35,171 8,369 39,248
---------- ---------- ---------- ----------
Denominator for diluted earnings per
share - adjusted weighted-average
shares and assumed conversions 1,527,540 1,611,191 1,566,956 1,646,529
========== ========== ========== ==========
Basic earnings per share $ 0.29 $ 0.37 $ 0.85 $ 1.05
========== ========== ========== ==========
Diluted earnings per share $ 0.29 $ 0.36 $ 0.85 $ 1.03
========== ========== ========== ==========
</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 (129,451 and 146,091
shares at June 30, 2000 and 1999 respectively) are excluded from basic
average shares outstanding.
Note 4 - Recent Accounting and Regulatory Developments
Financial Accounting Standards Board Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities," establishes accounting
and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and hedging
activities. As amended by FAS 137 the standard is effective for fiscal
years beginning after June 15, 2000, and will be adopted by the Company
for the year ended
8
<PAGE> 9
September 30, 2001. The impact of adoption is not expected to
materially affect the Company's financial condition or results of
operations.
Note 5 - Memorandum of Understanding
As a Pennsylvania-chartered savings bank the deposits of which are
insured by the Federal Deposit Insurance Corporation ("FDIC"), the Bank
is subject to the supervision, examination and regulation of the
Pennsylvania Department of Banking (the "Department") and the FDIC
(collectively, the Department and the FDIC are referred to herein as
the "Regulators"). the Regulators have recently completed an
examination of the Bank pursuant to which the Regulators found certain
risk management practices of the Bank were deficient and resulted in
less than satisfactory liquidity and interest rate risk positions.
Although the Regulators also concluded that capital and earnings were
adequate and that asset quality had improved and was considered strong,
the Regulators determined that the Bank should enter into a Memorandum
of Understanding ("MOU") with the Regulators in order to ensure that
the Bank takes appropriate steps to improve its liquidity and interest
rate risk management position. On June 28, 2000, the Bank's Board of
Directors entered into an MOU with the Regulators that requires the
Bank to initiate various procedures to improve its funds management and
interest rate risk management practices.
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
At June 30, 2000, the Company's total assets amounted to $431.7 million
compared to $415.7 million at September 30, 1999, an increase of 3.8%. Cash and
interest-bearing deposits increased $1.0 million or 18.9%, to $6.3 million at
June 30, 2000, compared to $5.3 million at September 30, 1999. Investments and
mortgage-backed securities decreased $19.2 million, or 17.5%, from $109.7
million at September 30, 1999 to $90.5 million at June 30, 2000. At June 30,
2000, the Company had $4.0 million in loans held for sale. The Company is using
the proceeds from the sale of loans to decrease short-term borrowings and
improve interest rate risk. During the nine months ended June 30, 2000, the
Company's loans receivable, net of allowance increased $28.3 million, or 10.2%,
to $306.4 million at June 30, 2000 compared to $278.1 million at September 30,
1999. The growth is primarily attributable to increases in residential mortgage
loans and to a lesser extent, commercial real estate and home equity loans.
Total liabilities increased by $17.4 million, or 4.4%, to $411.1
million at June 30, 2000 compared to $393.7 million at September 30, 1999.
Deposits increased by $11.0 million, or 6.5% to $180.5 million at June 30, 2000
compared to $169.5 million at September 30, 1999. The Company procured a total
of $10.1 million in wholesale certificate of deposits from outside brokerage
firms. Borrowed funds increased $3.6 million or 1.72% to $212.7 million at June
30, 2000 compared to $209.1 million at September 30, 1999. The Company increased
its FHLB advances to aid liquidity and fund loans receivable. Guaranteed
preferred beneficial interest in subordinated debt totaled $10.8 million at June
30, 2000.
Total stockholders' equity decreased $1.5 million or 6.8% to $20.5
million at June 30, 2000 compared to $22.0 million at September 30, 1999. The
decrease was primarily attributable to $178,000 comprehensive loss, $465,000 in
cash dividends, along with the purchase of treasury shares totaling $1.1
million.
10
<PAGE> 11
RESULTS OF OPERATIONS
GENERAL. The Company reported net income of $440,000 for the quarter
ended June 30, 2000 as compared to $586,000 for the same quarter in 1999. For
the nine months ended June 30, 2000, net income was $1.33 million as compared to
$1.70 million for the nine months ended June 30, 1999. The Company recognized a
pre-tax net gain of $472,000 on sale of fixed assets, which was offset, in part,
by a net loss on sale of mortgage loans and real estate owned of $125,000 for
the quarter ended June 30, 2000. This compares to a pre-tax net loss on
investment sales of $5,000 for the same period ended June 30, 1999. For the nine
months ended June 30, 2000, the Company recognized net gains on sale of fixed
assets of $550,000, offset by net losses on sale of investments, mortgage loans,
and real estate owned of $382,000, and a loss on an early extinguishment of a
facility lease of $202,000. This compares to a net loss on sale of investments
and real estate owned of $25,000 for the nine months ended June 30, 1999.
Excluding the results of the sale of fixed assets, the sale of mortgage loans,
the investment sales, and the sale of real estate owned, net income for the
quarter ended June 30, 2000 was $200,000 as compared to $590,000 for the same
quarter in 1999, a decrease of 66.1%. Excluding the results of the sale of fixed
assets, the investment sales, the sale of mortgage loans, the sale of real
estate owned, and the early lease extinguishment for the nine months ended June
30, 2000 net income was $1.36 million as compared to $1.72 million for the nine
months ended June 30, 1999, a decrease of 20.9%.
The Company recognized a decrease in net interest income before
provision for loan losses of $54,000 or 2.5% for the quarter and an increase of
$294,000 or 4.6% for the nine month period as compared to the same periods in
the prior year. The margin compression is primarily a result of increasing
funding costs related to the Company's interest-bearing liabilities. Noninterest
income (excluding the fixed asset sales, investment sales, loan sales, and the
early lease extinguishment) decreased $70,000 or 24.5% for the quarter and
increased $46,000 or 6.5% for the nine month period as compared to the same
periods in the prior year. Noninterest expense (excluding the loss on sale of
real estate owned) increased $398,000 or 27.9% for the quarter and $904,000 or
21.6% for the nine month period. The increase in noninterest expense is
primarily attributable to the increased personnel and facility costs of the
subsidiary Bank's new branch offices, increased personnel costs of the
subsidiary Bank's commercial lending department, additional consulting and
professional service fees related to the Company's strategic technology
initiatives, facility planning issues, the development of a new Delaware
investment company subsidiary, and an overall increase in general operating
expenses. In addition to these items, effective April 3, 2000, the Company and
the subsidiary Bank changed their names to Pittsburgh Financial Corp. and
BankPittsburgh, respectively, and a significant portion of the costs incurred as
a result of the name changes as well as certain related marketing costs were
expensed during the past quarter.
11
<PAGE> 12
Diluted earnings per share was $.29 for the quarter ended June 30, 2000,
compared to $.36 per share for the same quarter of 1999. Excluding the sale of
fixed assets, investment sales, the early lease extinguishment, and the sale of
foreclosed real estate items noted above, diluted earnings per share were $.13
for the quarter ended June 30, 2000 and $.36 for the same quarter in 1999.
Diluted earnings per share was $.85 for the nine months ended June 30, 2000
compared to $1.03 for the same period in 1999. Excluding the sale of fixed
assets, investment sales, the early lease extinguishment, and sale of foreclosed
real estate items noted above, diluted earnings per share were $.87 for the nine
months ended June 30, 2000 and $1.03 for the same period in 1999.
INTEREST INCOME. Interest income increased $1.0 million or 14.7% for the
quarter and $2.7 million or 13.2% for the nine months ended June 30, 2000,
compared to the same period in 1999. The average balance on loans receivable
increased by $68.6 million and $79.9 million for the quarter and nine months
ended June 30, 2000, which was partially offset by a 10 and 15 basis point
decline in the average yield earned thereon. The Company is continuing its
efforts to diversify its loans receivable portfolio from its previous emphasis
on one-to-four family residential lending to a more broad based, full service
commercial bank-like portfolio. It should be noted that the largest individual
dollar component of its loans receivable portfolio will continue to be its
residential lending, as this has been a Company strength, and the ongoing high
level of service and commitment will also continue in this area.
12
<PAGE> 13
Average Balances, Net Interest Income and Yields Earned and Rates Paid
For the three months ended June 30,
<TABLE>
<CAPTION>
2000 1999
------------------------------------ -----------------------------------
Average Average Average Average
Balance Interest Yield/Rate Balance Interest Yield/Rate
--------- -------- ---------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Investment securities $ 35,709 $ 713 7.99% $ 44,926 $ 783 6.97%
Mortgage-backed securities 61,228 1,021 6.67 81,682 1,255 6.15
Loans receivable:
First mortgage loans 267,312 5,035 7.53 225,027 4,422 7.86
Other loans 46,848 983 8.39 20,529 341 6.64
-------- ------ -------------------
Total loans receivable 314,160 6,018 7.66 245,556 4,763 7.76
Other interest-earning assets 3,892 38 3.91 5,681 46 3.24
-------- ------ -------------------
Total interest-earning assets 414,989 $7,790 7.51% 377,845 $6,847 7.25%
==== ====
Non-interest earning assets 15,750 12,320
-------- --------
Total assets $430,739 $390,165
======== ========
Interest-bearing liabilities:
Deposits $173,213 $2,110 4.87% $154,605 $1,711 4.432%
FHLB advances and other 213,307 3,336 6.26 191,918 2,744 5.72
Guaranteed preferred beneficial
interest in subordinated debt 11,500 252 8.77 11,500 247 8.59
Escrows -- -- -- 3,685 -- --
-------- ------ -------------------
Total interest-bearing liabilities $398,020 $5,698 5.73% $361,708 $4,702 5.20%
==== ====
Non-interest bearing liabilities 12,142 5,063
-------- --------
Total liabilities 410,162 366,771
Stockholders' equity 20,577 23,394
-------- --------
Total liabilities and stockholders' equity $430,739 $390,165
======== ========
Net interest-earning assets $ 16,969 $16,137
======== ========
Net interest income/interest rate spread $2,092 1.78% $2,145 2.05%
=================== ===================
Net interest margin 2.02% 2.27%
==== ====
</TABLE>
13
<PAGE> 14
Average Balances, Net Interest Income and Yields Earned and Rates Paid
For the nine months ended June 30,
<TABLE>
<CAPTION>
2000 1999
------------------------------------ -----------------------------------
Average Average Average Average
Balance Interest Yield/Rate Balance Interest Yield/Rate
--------- -------- ---------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Investment securities $ 39,389 $ 2,242 7.59% $ 49,670 $25,919 6.96%
Mortgage-backed securities 66,653 3,366 6.73 88,259 4,230 6.39
Loans receivable:
First mortgage loans 264,938 14,922 7.51 211,482 12,470 7.86
Other loans 38,450 2,513 8.71 18,987 1,028 7.22
-------- ------- -------------------
Total loans receivable 303,388 17,435 7.66 230,469 13,498 7.81
Other interest-earning assets 3,828 126 4.39 5,013 142 3.78
-------- ------- -------------------
Total interest-earning assets 413,258 $23,169 7.48% 373,411 $20,461 7.31%
==== ====
Non-interest earning assets 16,255 12,680
-------- --------
Total assets $429,513 $386,091
======== ========
Interest-bearing liabilities:
Deposits $167,840 $ 5,810 4.62% $153,028 $ 5,236 4.56%
FHLB advances and other 217,139 9,886 6.07 187,360 8,066 5.74
Guaranteed preferred beneficial
interest in subordinated debt 11,500 757 8.78 11,500 753 8.73
Escrows -- 25 -- 3,141 8 0.34
-------- ------- -------------------
Total interest-bearing liabilities $396,479 $16,478 5.54% $355,029 $14,063 5.28%
==== ====
Non-interest bearing liabilities 12,265 7,120
-------- --------
Total liabilities 408,744 362,149
Stockholders' equity 20,769 23,942
-------- --------
Total liabilities and stockholders' equity $429,513 $386,091
======== ========
Net interest-earning assets $ 16,779 $ 18,382
======== ========
Net interest income/interest rate spread $ 6,691 1.93% $ 6,398 2.02%
==================== ===================
Net interest margin 2.16% 2.28%
==== ====
</TABLE>
14
<PAGE> 15
The average balance of investment and mortgage-backed securities totaled $96.9
million and $106.0 million with weighted average yields of 7.15% and 7.18% for
the three and nine months ended June 30, 2000 compared to $126.6 million and
$137.9 million with weighted average yields of 6.68% and 6.59% for the same
periods in 1999. During the nine months ended June 30, 2000, the Company
continued to change its asset mix by decreasing its investment portfolio and
reinvesting the proceeds in higher yielding, internally generated loans
receivable.
Net loans receivable at June 30, 2000 and September 30, 1999 are summarized
below:
<TABLE>
<CAPTION>
June 30, 2000 September 30, 1999
------------- ------------------
<S> <C> <C>
First mortgage loans:
Secured by 1-4 family residence $245,497,614 $219,675,811
1-4 family residential construction 12,825,247 17,896,602
1-4 family residential construction -builder
16,298,274 20,827,475
Commercial construction 11,099,994 --
Non-residential 18,027,823 15,678,557
Less loans in process (18,086,097) (18,997,323)
Deferred loan costs 564,128 521,928
Unamortized premium on mortgage loans 52,048 --
------------ ------------
Total first mortgage loans 286,279,031 255,603,050
============ ============
Home equity loans and lines 21,070,264 18,556,225
Other loans 5,218,536 5,882,517
Less allowance for loan losses (2,164,843) (1,956,744)
------------ ------------
$310,403,987 $278,085,048
============ ============
</TABLE>
INTEREST EXPENSE. Interest expense increased $1.0 million or 21.3% and
$2.4 million or 17.0% for the three and nine months ended June 30, 2000,
compared to the same period in 1999. The increase was due primarily to a $36.3
million and $41.5 million increase in average interest-bearing liabilities for
the three and nine months ended June 30, 2000 when compared to the same period
in 1999. Average deposits increased $18.6 million and $14.8 million for the
three and nine months ended June 30, 2000 when compared to the same period in
1999. Average borrowed funds increased $21.4 million and $29.8 million for the
three and nine months ended June 30, 2000 when compared to the same period in
1999. Interest expense associated with the guaranteed preferred beneficial
interest in subordinated debt totaled $252,000 and $757,000 for the three and
nine months ended June 30, 2000 when compared to $247,000 and $754,000 for the
same period in 1999. In connection with the Bank's ongoing management of its
interest rate risk position, the Bank purchased a $25.0 million notional value
interest rate cap from the FHLB. The cap is 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 $37,500 for the nine months ended June 30, 2000.
15
<PAGE> 16
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 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.
Activity in the allowance for loan losses is summarized as follows for the nine
months ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
June 30, 2000 June 30, 1999
------------- -------------
<S> <C> <C>
Balance at beginning of year $1,956,744 $1,737,973
Provision charged to income 450,000 450,000
Chargeoffs (244,902) (279,177)
Recoveries 3,001 3,442
---------- ----------
Balance at end of period $2,164,843 $1,912,238
========== ==========
</TABLE>
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,
1999, the Company's non-performing assets decreased from $5.0 million at
September 30, 1999 to $3.0 million at June 30, 2000. This $2.0 million or 40.0%
decrease was primarily attributable to a $1.5 million or 48.5% decrease in
non-accruing loans and a $587,000 decrease in real estate owned. For the three
and nine months ended June 30, 2000 the Company recognized net losses of $87,000
and $172,000, respectively, on foreclosed real estate.
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,
16
<PAGE> 17
even though partial recovery may be affected in the future. All loans classified
as loss have been written off directly or through provision in specific
allowance reserve. The allowance is increased by provisions for loan losses,
which are charged against income. During the three and nine months ended June
30, 2000, the Company recorded provisions for losses on loans of $150,000 and
$450,000, respectively, which were the same provisions for losses on loans in
the same periods in the prior year.
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 $370,000 or 132.6%
and $195,000 or 27.7% for the three and nine months ended June 30, 2000 compared
to the same period in 1999. For the three months ended June 30, 2000, the
Company recognized a pre-tax net gain of $472,000 on sale of fixed assets, which
was offset, in part, by a net loss of $87,000 on the sale of real estate owned,
and $38,000 on sale of mortgage loans. This compares to a pre-tax net loss on
investment sales of $5,000 for the same quarter ended June 30, 1999. For the
nine months ended June 30, 2000, the Company recognized net gains on sale of
fixed assets of $550,000, offset by net losses of $202,000 on the early
extinguishment of a facility lease, $172,000 on sale of investments, $172,000 on
sale of real estate owned, and $38,000 on sale of mortgage loans. This compares
to a net loss on sale of investments and real estate owned of $25,000 for the
nine months ended June 30, 1999. During the quarter and nine months ended June
30, 2000, the Company sold its Pittsburgh office building to the Urban
Redevelopment Authority of Pittsburgh and relocated its branch to a new facility
located in Pittsburgh. A gain on the sale of $472,000 was recognized. Also,
during the nine months ended June 30, 2000, the Company closed its Oakland and
Bloomfield branch offices and transferred the deposits to its new facility
located in Bloomfield. A net gain of $77,000 on the sale of the Oakland building
and a loss of $202,000 on the early lease extinguishment of the prior Bloomfield
office were recognized. The Company believes that the new facilities will enable
the Bank to expand its deposit and loan base in the Pittsburgh and Bloomfield
communities. Noninterest income (excluding the sale of fixed assets, the
investment sales, the sale of mortgage loans, the sale of real estate owned, and
the early lease extinguishment,) for the nine months ended June 30, 2000 net
income was $1.36 million as compared to $1.72 million for the nine months ended
June 30, 1999, a decrease of 20.9%. Excluding the results of the sale of fixed
assets, the sale of mortgage loans, the investment sales, and the sale of real
estate owned, net income for the quarter ended June 30, 2000 was $200,000 as
compared to $590,000 for the same quarter in 1999, a decrease of 66.1%. Other
income increased $27,000 or 76.0% for the three month period and increased
$49,000 or 54.4% for the nine month period ended June 30, 2000 as compared to
the same periods in the prior year. Service charges and other fees decreased
$96,000 or 38.6% and $3,000 or 0.5% for the three and nine months ended June 30,
2000 when compared to the same period in 1999.
NONINTEREST EXPENSES. Noninterest expenses increased by $485,000 or
34.0% and $1.1 million or 25.4% for the three and nine months ended June 30,
2000, compared to the same period in 1999. The increase was primarily
attributable to a $23,000 and $228,000 increase in salaries and employee
benefits, a $197,000 and $386,000 increase in other expenses, a $52,000 and
$146,000
17
<PAGE> 18
increase in premises and occupancy costs, and a $125,000 and a $161,000 increase
in marketing costs for the three and nine months ended June 30, 2000 when
compared to the same period in 1999. The increase in noninterest expense is
primarily attributable to the increased personnel and facility costs of the
Company's newest branch offices, the name changes, the expansion of the
commercial lending department, additional consulting and professional services
fees related to the Company's strategic technology initiatives, facility
planning issues, and the development of a new Delaware investment company
subsidiary, and an overall increase in general operating expenses. Although the
increased costs have adversely affected current earnings, management believes
these investments will enhance future profitability.
PROVISION FOR INCOME TAXES. The Bank incurred provisions for income
taxes of $240,000 and $559,000 for the three and nine months ended June 30,
2000, compared with $263,000 and $765,000 for the same period in 1999. The
effective tax rates during the three and nine months ended June 30, 2000 and
1999 were 35.3%, 31.0%, and 29.6% and 31.0%, 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 June 30, 2000, the
Company had $192.7 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 June 30, 2000, the total approved loan commitments
outstanding amounted to $8.8 million, and unused lines of credit amounted to
$7.7 million. Certificates of deposit scheduled to mature in one year or less at
June 30, 2000, totaled $40.4 million. Management believes that a significant
portion of maturing deposits will remain with the Bank.
As discussed in Note 5 to the Unaudited Consolidated Financial
Statements, the Bank has entered into an MOU which requires that the Bank
implement the policies and take the various actions discussed in this paragraph
within 60 days of June 28, 2000. Among the actions required by the MOU is the
development by the Bank of a funding plan (the "Funding Plan") to establish
objectives to improve the Bank's liquidity and funds management practices. The
Funding Plan will include, at a minimum, strategies to: (1) reduce dependence on
short-term borrowings; (2) improve liquidity levels; (3) improve the level of
core deposits; and (4) reduce the level of pledged assets. The MOU requires the
Bank to submit the Funding Plan to the Regulators for their approval. Until the
funding Plan receives regulatory approval, the Bank's asset growth is limited to
growth that can be funded through internal sources or core deposit growth.
Pursuant to the MOU, the bank also has agreed to revise its Contingency
Liquidity Policy to include all realistic available options to the Bank in the
event of
18
<PAGE> 19
liquidity problems and a detailed description of the steps that would be taken
under each option to access funds. The Bank will also (1) ensure that adequate
personnel are in place to measure, monitor and control levels of interest rate
risk; (2) improve interest rate risk and liquidity monitoring tools; and (3)
institute a system of internal, independent review of reports prepared for the
Bank's board of directors and its committees. Quarterly reports will be
submitted by the Bank to the Regulators describing the actions taken to ensure
compliance with the MOU.
The Bank has begun to take various actions to implement the
requirements of the MOU. It believes that the adoption of new policies, the
revisions to existing policies and procedures and the implementation of the
other changes required by the MOU will improve the Bank's funds management and
risk management practices.
Under federal regulations, the Bank is required to maintain specific amounts of
capital. The following table sets forth certain information concerning the
Bank's regulatory capital.
<TABLE>
<CAPTION>
Tier I Tier I Total
Leverage Risk-Based Risk-Based
Capital Capital Capital
-------- ---------- ----------
<S> <C> <C> <C>
Regulatory capital as a percentage 7.51% 14.80% 15.77%
Minimum capital required as a percentage 4.00 4.00 8.00
==== ===== =====
Excess regulatory capital as a percentage 3.51% 10.80% 7.77%
==== ===== =====
Well-capitalized requirement 5.00% 6.00% 10.00%
==== ===== =====
</TABLE>
"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.
19
<PAGE> 20
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and qualitative disclosures about market risk are
presented at September 30, 1999 in Item 7A of the Company's Annual Report on
Form 10-K, filed with the SEC on December 29, 1999. Management believes there
have been no material changes in the Company's market risk since September 30,
1999.
20
<PAGE> 21
PITTSBURGH 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
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
3.1 Amended and Restated Articles of Incorporation of
Pittsburgh Financial Corp.*
3.2 Amended and Restated Bylaws of Pittsburgh Financial
Corp.*
27 Financial Data Schedule
* Incorporated by reference from the form 10-Q for the quarterly period
ended March 31, 2000 filed by the Registrant with the SEC on
May 15, 2000.
21
<PAGE> 22
(b) On April 6, 2000, Pittsburgh Home Financial Corp. filed a Form 8-K
to report it had officially changed its name to Pittsburgh
Financial Corp. and that Pittsburgh Home Savings Bank had changed
its name to BankPittsburgh.
On June 30, 2000, the Company filed a Form 8-K to report that the
Bank's Board of Directors entered into an MOU with the Regulators. See
Note 5 to the Unaudited Consolidated Financial Statements.
22
<PAGE> 23
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 FINANCIAL CORP.
Date: August 14, 2000 By: /s/ J.Ardie Dillen
-----------------------------------------------
J. Ardie Dillen
Chairman, President and Chief Executive Officer
Date: August 14, 2000 By: /s/ Michael J. Kirk
-----------------------------------------------
Michael J. Kirk
Executive Vice President and Chief
Financial Officer
