<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 September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to _____________________
Commission File Number 0-27522
PRESTIGE BANCORP, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1785128
------------------------------- ---------------
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification Number)
710 Old Clairton Road
Pleasant Hills, Pennsylvania 15236
---------------------------- -----
(Address of principal executive office) (Zip Code)
(412) 655-1190
----------------------------------------------------
(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 November 14, 1997, there
were 914,873 shares of the registrant's common stock outstanding, par value
$1.00 per share.
================================================================================
<PAGE> 2
PRESTIGE BANCORP, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets of Prestige Bancorp, Inc. as of
September 30, 1997 (unaudited) and December 31, 1996 1
Consolidated Statements of Income of Prestige Bancorp, Inc. for the three
months ended September 30, 1997 and 1996 (unaudited) 2
Consolidated Statements of Income of Prestige Bancorp, Inc. for the nine
months ended September 30, 1997 and 1996 (unaudited) 3
Consolidated Statements of Stockholders' Equity of Prestige Bancorp, Inc.
for the nine months ended September 30, 1997 and 1996 (unaudited) 4
Consolidated Statements of Cash Flows of Prestige Bancorp, Inc. for the nine
months ended September 30, 1997 and 1996 (unaudited) 5
Notes to Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security-Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
</TABLE>
<PAGE> 3
PRESTIGE BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
ASSETS (Unaudited)
<S> <C> <C>
Cash and due from banks $ 620,168 $ 735,951
Interest-bearing deposits with banks 3,459,734 1,411,727
Investment securities:
Available for sale 11,472,507 11,442,549
Held to maturity (market value $23,629,564 and
$20,364,934, respectively) 23,485,886 20,461,927
Net loans 93,209,385 76,545,153
Federal Home Loan Bank stock, at cost 1,558,900 753,900
Premises and equipment, net 2,290,570 1,880,919
Accrued interest receivable 1,195,991 810,884
Deferred tax asset -- 35,726
Other assets 541,297 561,413
------------- -------------
Total assets $ 137,834,438 $ 114,640,149
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Noninterest-bearing deposits $ 3,419,658 $ 2,554,148
Interest-bearing deposits 86,646,399 81,267,320
------------- -------------
Total deposits 90,066,057 83,821,468
Federal Home Loan Bank advances 31,177,000 14,477,000
Advance payments by borrowers for taxes and insurance 537,756 622,057
Income taxes payable 163,229 24,360
Deferred tax liability 83,666 --
Other liabilities 362,174 265,064
------------- -------------
Total liabilities 122,389,882 99,209,949
------------- -------------
Stockholders' Equity:
Preferred stock, $1.00 par value;
5,000,000 shares authorized, none issued -- --
Common stock, $1.00 par value; 10,000,000
shares authorized, 963,023 shares issued and 914,873 outstanding on
September 30, 1997; 963,023 shares issued and outstanding on
December 31, 1996 963,023 963,023
Treasury stock at cost, 48,150 shares on
September 30, 1997; none at December 31, 1996 (775,881) --
Additional paid-in-capital 8,021,936 8,000,176
Unearned ESOP shares, 74,004 shares at
September 30, 1997; 75,549 shares at December 31, 1996 (740,040) (755,490)
Retained earnings - substantially restricted 7,937,839 7,390,945
Net unrealized holding gains (losses) on
available for sale securities, net of taxes 37,679 (168,454)
------------- -------------
Total stockholders' equity 15,444,556 15,430,200
------------- -------------
Total liabilities and stockholders' equity $ 137,834,438 $ 114,640,149
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE> 4
PRESTIGE BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
----------------------------
1997 1996
---- ----
<S> <C> <C>
Interest income:
Interest and fees on loans $ 1,804,706 $ 1,342,274
Interest on mortgage-backed securities 187,896 222,904
Interest and dividends on other investment securities 451,033 165,914
Interest on deposits in other financial institutions 23,483 15,927
----------- -----------
Total interest income 2,467,118 1,747,019
----------- -----------
Interest expense:
Interest on deposits 938,687 847,732
Advances from Federal Home Loan Bank 462,048 51,123
----------- -----------
Total interest expense 1,400,735 898,855
----------- -----------
Net interest income 1,066,383 848,164
Provision for loan losses 30,000 11,000
----------- -----------
Net interest income after provision for loan losses 1,036,383 837,164
----------- -----------
Other income:
Fees and service charges 80,363 63,516
Loss on sale of investments (3,200) --
Other income, net 6,367 8,716
----------- -----------
Total other income 83,530 72,232
----------- -----------
Other expenses:
Salaries and employee benefits 403,344 309,861
Premises and occupancy costs 81,096 79,614
Federal deposit insurance premiums 14,190 548,485
Data processing costs 49,121 43,505
Advertising costs 28,710 25,217
Transaction processing costs 47,467 40,392
ATM transaction fees 24,037 24,300
Other expenses 146,795 79,192
----------- -----------
Total other expenses 794,760 1,150,566
----------- -----------
Income before income tax expense 325,153 (241,170)
Income tax expense (benefit) 123,189 (95,848)
----------- -----------
Net income $ 201,964 $ (145,322)
=========== ===========
Primary earnings per share:
Net income $ 0.24 $ (0.16)
Weighted average number of common shares outstanding 840,878 885,982
Fully diluted earnings per share:
Net income $ 0.24 $ (0.16)
Weighted average number of common shares outstanding 842,738 $ 885,982
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 5
PRESTIGE BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------------
1997 1996
---- ----
<S> <C> <C>
Interest income:
Interest and fees on loans $ 4,948,361 $ 3,676,562
Interest on mortgage-backed securities 594,917 705,873
Interest and dividends on other investment securities 1,302,837 456,803
Interest on deposits in other financial institutions 57,196 72,044
----------- -----------
Total interest income 6,903,311 4,911,282
----------- -----------
Interest expense:
Interest on deposits 2,700,194 2,556,656
Advances from Federal Home Loan Bank 1,117,438 163,258
----------- -----------
Total interest expense 3,817,632 2,719,914
----------- -----------
Net interest income 3,085,679 2,191,368
Provision for loan losses 74,000 29,000
----------- -----------
Net interest income after provision for loan losses 3,011,679 2,162,368
----------- -----------
Other income:
Fees and service charges 232,751 192,894
Loss on sale of investments (3,200) --
Other income, net 23,333 27,463
----------- -----------
Total other income 252,884 220,357
----------- -----------
Other expenses:
Salaries and employee benefits 1,131,128 887,934
Premises and occupancy costs 238,879 246,424
Federal deposit insurance premiums 42,108 639,329
Data processing costs 148,471 129,084
Advertising costs 76,975 67,156
Transaction processing costs 140,868 116,982
ATM transaction fees 69,019 69,219
Other expenses 401,588 239,440
----------- -----------
Total other expenses 2,249,036 2,395,568
----------- -----------
Income before income tax expense 1,015,527 (12,843)
Income tax expense (benefit) 384,849 (9,964)
----------- -----------
Net income $ 630,678 $ (2,879)
=========== ===========
Primary earnings per share (1):
Net income $ 0.74
Weighted average number of common shares outstanding 855,436 N/A
Fully diluted earnings per share (1):
Net income $ 0.74
Weighted average number of common shares outstanding 856,093 N/A
</TABLE>
(1) Earnings per share information for 1996 is not presented as the Corporation
completed its conversion and initial stock offering on June 27, 1996.
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 6
PRESTIGE BANCORP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
Net Unrealized
Holding Gains
(Losses) on
Available
Additional Unearned for Sale
Common Paid-In Treasury ESOP Retained Securities,
Stock Capital Stock Shares Earnings Net of Taxes Total
-------- ---------- --------- ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $963,023 $8,000,176 $ -- $(755,490) $7,390,945 $(168,454) $15,430,200
Net income -- -- -- -- 630,678 -- 630,678
Allocation of 1,545 ESOP shares -- 21,760 -- 15,450 -- -- 37,210
Decrease in net unrealized
holding losses on available for
sale securities, net of taxes -- -- -- -- -- 206,133 206,133
Cash dividends declared:
Common stock ( $0.03 per
share on 963,023 shares; $0.06
per share on 914,873 shares ) -- -- -- -- (83,784) -- (83,784)
Treasury stock purchases,
48,150 shares -- -- (775,881) -- -- -- (775,881)
-------- ---------- --------- ---------- ---------- ---------- -----------
Balance, September 30, 1997 $963,023 $8,021,936 $(775,881) $(740,040) $7,937,839 $ 37,679 $15,444,556
======== ========== ========= ========= ========== ========= ===========
Balance, December 31, 1995 $ -- $ -- $ -- $ -- $7,245,432 $ (67,457) $ 7,177,975
Net income -- -- -- -- (2,879) (2,879)
Issuance and exchange of common
stock as a result of the conversion 963,023 8,005,781 -- -- -- -- 8,968,804
77,041 shares acquired for ESOP -- -- -- (770,410) -- -- (770,410)
Increase in net unrealized
holding losses on available for
sale securities, net of taxes -- -- -- -- -- (187,536) (187,536)
-------- ---------- --------- --------- ---------- --------- -----------
Balance, September 30, 1996 $963,023 $8,005,781 $ -- $(770,410) $7,242,553 $(254,993) $15,185,954
======== ========== ========= ========= ========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 7
PRESTIGE BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------
1997 1996
---- ----
<S> <C> <C>
Operating activities:
Net income $ 630,678 $ (2,879)
------------ ------------
Adjustments to reconcile net income to net cash
provided (used) by operating activities-
Depreciation of premises and equipment 131,768 128,715
Amortization of premiums and discounts, net 6,066 (6,421)
Compensation expense related to ESOP benefit 60,284 --
Loss on sale of mutual fund shares 3,200 --
Provision for loan losses 74,000 29,000
Increase in other liabilities 74,036 406,840
Increase (decrease) in income taxes payable 120,840 (76,770)
Increase in accrued interest receivable (385,107) (103,191)
Decrease (increase) in other assets 20,116 (395,371)
Other, net -- 1,786
------------ ------------
Total adjustments 105,203 (15,412)
------------ ------------
Net cash provided (used) by operating activities 735,881 (18,291)
------------ ------------
Investing activities:
Loan originations (30,476,102) (19,638,827)
Principal payments on loans 13,737,870 8,097,126
Principal payments on mortgage-backed securities available for sale 422,012 522,502
Principal payments on mortgage-backed securities held to maturity 1,442,231 1,265,646
Proceeds from sale of mutual fund shares 101,000 --
Purchases of available for sale securities (211,747) (4,661,064)
Purchases of held to maturity investment securities (6,473,125) --
Maturities of investment securities held to maturity 2,000,000 1,000,000
Purchases of premises and equipment (541,419) (164,919)
Purchase of Federal Home Loan Bank stock (805,000) (1,700)
------------ ------------
Net cash used by investing activities (20,804,280) (13,581,236)
------------ ------------
Financing activities:
Net change in advance payments by borrowers for taxes and insurance (84,301) (215,332)
Proceeds from Federal Home Loan Bank advances 79,307,500 20,150,000
Payments on Federal Home Loan Bank advances (62,607,500) (16,950,000)
Net increase in Money Market, NOW and Passbook savings accounts 4,008,340 2,624,047
Net increase (decrease) in certificate accounts 2,236,249 (1,368,318)
Purchases of treasury stock (775,881) --
Common stock cash dividends paid (83,784) --
Additional paid-in-capital from stock offering -- 8,198,394
------------ ------------
Net cash provided by financing activities 22,000,623 12,438,791
------------ ------------
Net increase (decrease) in cash and cash equivalents 1,932,224 (1,160,736)
Cash and cash equivalents at beginning of period 2,147,678 4,393,667
------------ ------------
Cash and cash equivalents at end of period $ 4,079,902 $ 3,232,931
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for income taxes $ 261,000 $ 132,000
Cash paid during the period for interest on deposits and borrowings 3,729,582 2,718,371
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 8
PRESTIGE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
1. PLAN OF CONVERSION:
On February 14, 1996, the Board of Directors of Prestige Bank, F.S.B. (the Bank)
adopted a Plan of Conversion (the Plan) from a federally chartered mutual
savings bank to a federally chartered stock savings bank and the issuance of its
stock to Prestige Bancorp, Inc. (the Corporation), a Pennsylvania corporation.
The Plan provided that the holding company offer nontransferable subscription
rights to purchase common stock of the holding company. The rights were offered
first to eligible account holders of record, a tax-qualified employee stock
ownership plan to be adopted by the Bank, supplemental eligible account holders,
certain other depositors and borrowers, and directors, officers and employees.
The Corporation sold 963,023 shares of its common stock (including 77,041 shares
to its newly formed Employee Stock Ownership Trust (the ESOP)) at $10.00 a
share. Simultaneously there was a corresponding exchange of all the Bank's stock
for approximately 50% of the net offering proceeds. The remaining portion of the
net proceeds were retained by the Corporation net of $770,410 which was loaned
to the ESOP for its purchase. The conversion and public offering was completed
on June 27, 1996 with net proceeds from the offering, net of the ESOP loan,
totaling $8,188,394, after offering expenses.
2. BASIS OF PRESENTATION:
The following unaudited financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to those rules and regulations, although
the Corporation believes that the disclosures made are adequate to make the
information presented not misleading. However, such interim information reflects
all adjustments (consisting solely of normal recurring adjustments) which are,
in the opinion of management, necessary for a fair presentation of financial
position and results of operations for the periods presented. The results of
operations for the three and nine month periods ended September 30, 1997, are
not necessarily indicative of the results to be expected for the year ending
December 31, 1997.
The unaudited financial statements and notes hereto should be read in
conjunction with the audited financial statements and notes thereto for the year
ended December 31, 1996, contained in the Corporation's Annual Report and Form
10-K.
6
<PAGE> 9
3. INVESTMENT SECURITIES:
The cost and market values of investment securities are summarized as follows:
Investment securities held to maturity:
<TABLE>
<CAPTION>
September 30, 1997
----------------------------
Amortized Market
Cost Value
------------ -----------
<S> <C> <C>
U.S. government and government
agency obligations:
Due after one and within five years $ 2,001,564 $ 1,998,595
Due after five and within ten years 11,495,087 11,573,430
Due after ten years 1,500,000 1,500,155
Federal Home Loan Mortgage
Corporation (FHLMC) certificates:
Due after one and within five years 604,616 613,255
Due after ten years 6,567,669 6,586,928
Government National Mortgage
Association (GNMA) certificates due
after ten years 1,205,453 1,243,455
Federal National Mortgage Association
(FNMA) certificates due within one year 111,497 113,746
=========== ===========
$23,485,886 $23,629,564
=========== ===========
</TABLE>
Investment securities available for sale:
<TABLE>
<CAPTION>
September 30, 1997
--------------------------
Market
Cost Value
----------- -----------
<S> <C> <C>
U.S. government and government
agency obligations:
Due after one and within five years $ 2,000,000 $ 1,980,620
Due after five and within ten years 2,502,239 2,487,655
Due after ten years 2,000,000 1,991,560
Federal Home Loan Mortgage
Corporation (FHLMC) certificates:
Due within one year 815,820 815,274
Due after one and within five years 965,627 961,689
Due after ten years 286,992 300,049
Federal National Mortgage Association
(FNMA) certificates due after one and
within five years 1,196,712 1,176,411
Mutual fund investment 1,310,654 1,272,776
Common stock portfolio 331,602 486,473
=========== ===========
$11,409,646 $11,472,507
=========== ===========
</TABLE>
7
<PAGE> 10
4. LOANS RECEIVABLE:
Loans receivable are summarized as follows:
September 30,
1997
------------
Commercial, including commercial secured by real estate $ 9,544,603
------------
Real estate loans:
1-4 family 71,480,645
Construction 1,493,220
------------
72,973,865
Less- Undisbursed loan proceeds 1,008,792
Deferred loan costs (14,273)
------------
71,979,346
------------
Consumer loans:
Share 577,123
Automobile 1,791,058
Home equity 6,857,697
Student 2,269,539
Credit cards 437,186
Personal unsecured/other 125,413
------------
12,058,016
------------
93,581,965
Less- Allowance for loan losses 372,580
============
$ 93,209,385
============
5. ALLOWANCE FOR LOAN LOSSES:
Activity with respect to the allowance for loan losses is summarized as follows:
Nine Months Ended
September 30,
---------------------
1997 1996
---- ----
Balance at beginning of period $ 306,926 $287,060
Provision for loan losses 74,000 29,000
Charge-offs (8,446) --
Recoveries 100 100
========= ========
Balance at end of period $ 372,580 $316,160
========= ========
8
<PAGE> 11
6. DEPOSITS:
The aggregate amount of short-term certificates of deposit, each with a minimum
denomination of $100,000, was approximately $5,949,000 at September 30, 1997.
The scheduled maturities of the Bank's certificate accounts as of September 30,
1997 are as follows (amounts approximate):
October 1, 1997 to September 30, 1998 34,968,921
October 1, 1998 to September 30, 1999 3,481,035
October 1, 1999 to September 30, 2000 4,425,271
October 1, 2000 to September 30, 2001 2,214,012
October 1, 2001 and thereafter 830,205
===========
$45,919,444
===========
7. INCOME TAXES:
The provision for (benefit from) income taxes is as follows:
Nine Months Ended
September 30,
--------------------
1997 1996
---- ----
Federal $ 313,068 $(9,058)
State 71,781 (906)
========= =======
$ 384,849 $(9,964)
========= =======
8. RELATED PARTY TRANSACTIONS:
Certain directors and executive officers of the Bank, including their immediate
families and companies in which they are principal owners, are loan customers of
the Bank. In management's opinion, such loans are made in the normal course of
business and were granted on substantially the same terms and conditions as
loans to other individuals and businesses of comparable creditworthiness at the
time. Total loans to these persons at September 30, 1997, and December 31, 1996,
amounted to $328,791 and $419,236, respectively. Additionally, the Bank has an
unfunded loan commitment for a director in the amount of $93,000 as of September
30, 1997.
9. CAPITAL STOCK:
On April 23, 1997, at the annual stockholders meeting, the Board of Directors
and shareholders formally approved the Corporation's Stock Option Plan (the
Option Plan) and Management Recognition and Retention Plan and Trust (the MRP
Plan; the Option Plan and the MRP Plan herein are referred to as the Plans) as
fully described in the Corporation's proxy statement dated March 31, 1997. In
connection with the MRP Plan, the Corporation incurred compensation expense of
approximately $36,603 and $54,871 during the quarter and nine months ended
September 30, 1997, respectively.
9
<PAGE> 12
The aforementioned approval of the Option Plan made 96,302 options available for
grant to employees and others who perform substantial services for the
Corporation. As of September 30, 1997, the Corporation has granted 76,741
options.
Although the Board of Directors has granted shares and options to officers and
directors of the Corporation and officers, directors, and employees of the Bank,
such actions cannot be finalized until the Office of Thrift Supervision ("OTS")
has approved the plans. The OTS has made its comments on the Plans. The
Corporation has submitted responses and now awaits a reply from the OTS. The
Corporation expects to receive final approval from the OTS.
As permitted by Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation," the Corporation accounts for the
Option Plan under APB Opinion No. 25, "Accounting for Stock Issued to Employees"
whereby no compensation cost has been recorded in accordance with certain
valuation models, such as the Black Scholes model, the Corporation's net income
and earnings per share would have been reduced to the following pro forma
amounts:
For the
Nine Months Ended
September 30, 1997
--------------------
Net income:
As reported $630,678
Pro forma 621,826
Primary earnings per share:
As reported $ 0.74
Pro forma 0.73
Fully Diluted earnings per share:
As reported $ 0.74
Pro forma 0.73
10
<PAGE> 13
A summary of the status of the Corporation's Stock Option Plan at September 30,
1997, and changes during the three month period then ended is presented in the
table and narrative following:
<TABLE>
<CAPTION>
Weighted
Average
Shares Exercise Price
------ --------------
<S> <C> <C>
Outstanding at beginning of period 31,376 $15.63
Granted 45,365 17.25
Exercised -- --
Forfeited -- --
Outstanding at end of period 76,741 16.59
Exercisable at end of period -- --
Weighted average fair value of options granted $5.51
</TABLE>
The options are exercisable one year from the grant date in equal installments
over a period of five years. The maximum term of any option granted under the
Plan cannot exceed 10 years.
The 76,741 options outstanding at September 30, 1997, have a weighted average
exercise price of $16.59 and a weighted average remaining contractual life of
9.8 years. None of these options are exercisable. During the third quarter of
1997, one option grant totaling 45,365 shares was issued. The fair value of each
option grant is estimated on the date of grant using the Black-Scholes option
pricing model with the following assumptions used for grants in 1997: weighted
average risk-free interest rate of 6.41%, weighted average expected dividend
yield of 1.21%, expected life of 7.0 years and expected volatility of 19.00%.
Additionally, on March 3, 1997, the Corporation initiated a plan to repurchase,
at market value, up to 5% (48,150 shares) of its outstanding shares of common
stock through the use of its existing cash and cash equivalents. This repurchase
program was completed on April 28, 1997.
11
<PAGE> 14
10. RETAINED EARNINGS AND REGULATORY CAPITAL:
The Bank's actual capital amounts and ratios are presented below in the
following table. There is no deduction from capital for interest-rate risk
(amounts in thousands).
<TABLE>
<CAPTION>
To Be Well Capitalized
For Capital Adequacy Under Prompt Corrective
Actual Purposes Action Provisions
------------------ ------------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to Risk
Weighted Assets):
As of
September 30, 1997 12,827 19.45% =>5,275 =>8.0% =>6,594 =>10.0%
Tier 1 Capital (to Risk
Weighted Assets):
As of
September 30, 1997 $12,454 18.89% =>2,638 =>4.0% =>3,957 =>6.0%
Tier 1 Capital (to
Average Assets):
As of
September 30, 1997 $12,454 9.49% =>5,247 =>4.0% =>6,559 =>5.0%
</TABLE>
11. FUTURE ACCOUNTING STANDARDS:
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" (SFAS No. 128).
SFAS No. 128 differs from current accounting guidance in that earnings per share
is classified as basic earnings per share and diluted earnings per share,
compared to primary earnings per share and fully diluted earnings per share
under current standards. Basic earnings per share differs from primary earnings
per share in that it includes only the weighted average common shares
outstanding and does include any dilutive securities in the calculation. Diluted
earnings per share under the new standard differs in certain calculations than
fully diluted earnings per share under existing standards. Adoption of SFAS No.
128 is required for interim and annual periods ending after December 15, 1997.
Had the Corporation applied the provisions of SFAS No. 128 in 1997 to the
earnings per share calculations, the basic and diluted earnings per share for
the three and nine months ended September 30, 1997 would have been $0.24 and
$0.74, respectively.
12
<PAGE> 15
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 (SFAS No. 130) "Reporting Comprehensive
Income," which establishes standards for reporting and display of comprehensive
income and its components in a full set of general purpose financial statements.
The objective of SFAS No. 130 is to report a measure of all changes in equity of
an enterprise that result from transactions and other economic events of the
period other than transactions with owners. SFAS No. 130 is effective for fiscal
years beginning after December 15, 1997. Currently, the only component of
comprehensive income which applies to the Corporation are the unrealized holding
gains and losses on available for sale securities.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 (SFAS No. 131) "Disclosures about
Segments of an Enterprise and Related Information," which introduces a new model
for segment reporting called the "management approach." The management approach
is based on the way the chief operating decision-maker organizes segments within
a Corporation for making operating decisions and assessing performance. SFAS No.
131 is effective for fiscal years beginning after December 15, 1997. Management
has not yet determined what, if any, reportable segments under SFAS No. 131
would apply to the Corporation.
13
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
At September 30, 1997, the Corporation's total assets amounted to $137.8
million compared with $114.6 million at December 31, 1996. The $23.2 million or
20.2% increase was primarily due to an increase of $16.7 million or 21.8% in net
loans receivable and an increase of $3.1 million or 9.6% in investment
securities. The growth in net loans receivable was attributed to increases in
commercial and one-to-four family residential real estate loans. Such increase
in assets was funded through an increase in deposits of $6.2 million or 7.5% and
a $16.7 million or 115.4% increase in Federal Home Loan Bank advances. Total
stockholders' equity amounted to $15.4 million or 11.21% of total assets at
September 30, 1997, compared to equity of $15.4 million or 13.46% of total
assets at December 31, 1996. The Corporation repurchased 48,150 shares of its
common stock and has paid three quarterly dividends during the year.
The Corporation's nonperforming assets increased $62,000 or 15.9% to
$453,000 at September 30, 1997, compared to $391,000 at December 31, 1996. The
increase was due to an increase in residential mortgage nonperforming loans.
RESULTS OF OPERATIONS
GENERAL--The Corporation's net income for the quarter ended September 30,
1997 was $202,000 or $.24 per share compared to a net loss of $145,000 or ($.16)
for the same quarter in the prior year. The loss in the third quarter of 1996
resulted from a $502,000 before tax ($308,000 after tax) FDIC special assessment
to recapitalize the Savings Association Insurance Fund ("SAIF"). Excluding the
SAIF charge, the Corporation would have recognized net income of $163,000 or
$.18 per share for the quarter ended September 30, 1996. The $39,000 increase in
net income for the quarter ended September 30, 1997 as compared to the quarter
ended September 30, 1996, excluding the SAIF charge, was primarily the result of
a $218,000 increase in net interest income before provision for loan losses
which was partially offset by a $146,000 increase in total non-interest expense
and a $25,000 increase in provision for income taxes. The annualized return on
average assets and return on average equity for the quarter ended September 30,
1997, was .59% and 5.27%, respectively, compared to .63% and 4.21% for the same
period of 1996, excluding the SAIF charge.
The Corporation's net income for the nine months ended September 30, 1997
was $631,000 or $.74 per share compared to a net loss of $3,000 for the same
period of 1996. Excluding the SAIF charge, the Corporation would have recognized
net income of $305,000 for the nine months ended September 30, 1996. The
$326,000 increase in net income for the nine months ended September 30, 1997 as
compared to the nine months ended September 30, 1996, excluding the SAIF charge,
was primarily the result of a $894,000 increase in net interest income before
provision for loan losses which was partially offset by a $355,000 increase in
total non-interest expense and a $201,000 increase in provision for income
taxes. The annualized return on average assets and return on average equity for
the nine months ended September 30, 1997, was .64% and 5.53%, respectively,
compared to .42% and 3.77% for the same period of 1996 excluding the SAIF
charge.
14
<PAGE> 17
Earnings per share information for the nine months ended September 30, 1996
is not applicable as the Corporation did not complete its initial stock offering
until June 27, 1996. A portion of the increased net interest income for the nine
month periods ended September 30, 1997, compared to the same period in 1996 can
be attributed to the investment of the funds raised through the formation of the
holding Corporation, sale of stock and the conversion of Prestige Bank from a
mutual chartered savings association to a stock chartered savings association on
June 27, 1996.
INTEREST INCOME--The Corporation reported interest income of $2.5 million
for the three months ended September 30, 1997, as compared to $1.7 million for
the three months ended September 30, 1996. The increase of $720,000 or 41.2% for
the quarter ended September 30, 1997, as compared to the same period in the
prior year can be attributed to a $463,000 or 34.5% increase in interest and
fees on loans and a $285,000 or 171.7% increase in interest and dividends on
other investment securities as the Corporation continued to leverage its capital
by expanding its loan and investment portfolios. Among the areas of focused
growth within the Corporation's lending portfolio was commercial loans. Average
balances for commercial loans during the third quarter of 1997 was $9.0 million,
compared to $804,000 for the same period in 1996. The average balances on loans
receivable and investment securities, net of mortgage backed securities, during
the third quarter of 1997 were $93.2 million and $26.1 million, respectively,
compared to $72.5 million and $11.1 million, respectively, for the same period
in 1996. In addition, the Corporation benefited from earning higher yields on
loans receivable and investment securities, net of mortgage backed securities.
The weighted average yield on loans receivable and investment securities during
the third quarter of 1997 were 7.7% and 6.9%, respectively, compared to 7.4% and
6.0%, respectively, for the same period in 1996.
For the nine months ended September 30, 1997, the Corporation reported
interest income of $6.9 million, as compared to $4.9 million for comparable
period in 1996. The increase of $2.0 million or 40.6% for the quarter ended
September 30, 1997, as compared to the same period in the prior year can be
attributed to an $1.3 million or 34.6% increase in interest and fees on loans
and a $846,000 or 185.1% increase in interest and dividends on other investment
securities as the Corporation continued to leverage its capital by expanding its
loan and investment portfolios. Among the areas of focused growth within the
Corporation's lending portfolio was commercial loans. Average balances for
commercial loans during the nine months of 1997 was $6.9 million, compared to
$363,000 for the same period in 1996. The average balances on loans receivable
and investment securities, net of mortgage backed securities, during the nine
months of 1997 were $87.1 million and $26.2 million, respectively, compared to
$67.2 million and $10.8 million, respectively, for the same period in 1996. In
addition, the Corporation benefited from earning higher yields on loans
receivable and investment securities, net of mortgage backed securities. The
weighted average yield on loans receivable and investment securities during the
nine months of 1997 were 7.6% and 6.6%, respectively, compared to 7.3% and 5.6%,
respectively, for the same period in 1996.
INTEREST EXPENSE--Interest expense increased $502,000 or 55.8% during the
three months ended September 30, 1997. The increase for the three months ended
September 30, 1997 compared to the same period in the prior year was primarily
due to growth in average interest-bearing liabilities. Average deposits and
Federal Home Loan Bank (FHLB) of Pittsburgh advances during the third quarter of
1997 were $89.8 million and $31.3 million, respectively, compared to $82.3
million and $4.3 million, respectively, for the same period in 1996.
15
<PAGE> 18
For the nine months ended September 30, 1997, interest expense increased
$1.1 million or 40.4%. The increase for the nine months ended September 30, 1997
compared to the same period in the prior year was primarily due to growth in
average interest-bearing liabilities. Average deposits and Federal Home Loan
Bank (FHLB) of Pittsburgh advances during the nine months of 1997 were $87.8
million and $27.1 million, respectively, compared to $82.1 million and $3.8
million, respectively, for the same period in 1996.
PROVISION FOR LOAN LOSSES--During the three months and nine months ended
September 30, 1997 the Corporation recorded provisions for losses on loans of
$30,000 and $74,000, respectively, compared to $11,000 and $29,000 for the
comparable periods in 1996. The Corporation recorded such provisions to adjust
the Corporation's allowance for loan losses to a level deemed appropriate based
upon an assessment of the volume and type of lending presently being conducted
by the Corporation, industry standards, current analysis of the existing
portfolio of loans, and a review of the current economic conditions in the
Corporation's market area. The increase in the three months and nine months
ended 1997 reflects the increased amount of lending by the Corporation.
OTHER INCOME--Other income increased $12,000 or 16.7% and $33,000 or 15.0%
for the three months and nine months ended September 30, 1997, respectively,
compared to same periods in 1996. The increase was primarily attributed to
increases in fees and service charges generated from an increase in total
transaction accounts.
OTHER EXPENSES-- Total other expenses decreased $356,000 or 30.9% for the
quarter ended September 30, 1997, as compared to the quarter ended September 30,
1996. Without the SAIF charge, other expenses increased $146,000 or 22.5%
primarily the result of a $93,000 or 30.0% increase in salaries and employee
benefits due to approved salary increases, additional employees and the addition
of compensation expense of $21,301 and $36,603 for the ESOP and Management
Recognition and Retention Plans, respectively, and $68,000 in other expenses
primarily due to professional fees and other costs associated with the annual
reporting process. These increases were partially offset by a $32,000 reduction
in FDIC premiums for the three months ended September 30, 1997, as compared to
the same period during fiscal 1996, due to a new premium schedule that resulted
from the 1996 legislation that recapitalized the savings association fund.
Total other expenses decreased $147,000 or 6.1% for the nine months ended
September 30, 1997, as compared to the nine months ended September 30, 1996.
Without the SAIF charge, other expenses increased $355,000 or 18.7% primarily
the result of a $243,000 or 27.4% increase in salaries and employee benefits due
to approved salary increases, additional employees and the addition of
compensation expense of $60,284 and $54,871 for the ESOP and Management
Recognition and Retention Plans, respectively, and $163,000 in other expenses
primarily due to professional fees and other costs associated with the annual
reporting process. These increases were partially offset by a $95,000 reduction
in FDIC premiums for the nine months ended September 30, 1997, as compared to
the same period during fiscal 1996, due to a new premium schedule that resulted
from the 1996 legislation that recapitalized the savings association fund.
INCOME TAXES--The Corporation incurred a provision for income taxes of
$123,000 and $385,000 for the three months and nine months respectively ended
September 30, 1997, as compared to $98,000 and $184,000, excluding the SAIF
charge tax effect, for the same period in the prior year. Such increases were
primarily due to an increase in taxable income.
16
<PAGE> 19
LIQUIDITY AND CAPITAL RESOURCES.
The Corporation's primary sources of funds are deposits, repayments,
prepayments and maturities of outstanding loans and mortgage-backed securities,
maturities of investment securities and other short-term investments, and funds
provided from operations. While scheduled loan and mortgage-backed securities
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 Corporation manages the pricing of its deposits
to maintain a deposit balance deemed appropriate and desirable by its Board of
Directors. In addition, the Corporation invests in short-term interest-earning
assets which provides liquidity to meet lending requirements. Although the
Corporation has historically relied on deposits for funding, the Corporation in
1996 began to use advances from the FHLB of Pittsburgh to leverage its strong
capital position. As of September 30, 1997, the Corporation had $31.2 million of
outstanding advances from the FHLB of Pittsburgh.
During the nine months ended September 30, 1997 and 1996, the Corporation's
operating activities provided net cash of approximately $733,000 and used net
cash of approximately $18,000, respectively. The primary reasons for the
$733,000 net cash provided during the nine months ended September 30, 1997 were
$631,000 in net income, $132,000 in depreciation of premises and equipment, and
a $121,000 increase in income taxes payable, which was partially offset by a
$385,000 increase in accrued interest receivable. During the nine months ended
September 30, 1996, the $18,000 net cash used was the result of a increase in
accrued interest receivable of $103,000, a $395,000 increase in other assets,
and a $77,000 decrease in income taxes payable which was partially offset by
$129,000 in depreciation of premises and equipment, and an increase in other
liabilities of $407,000.
Net cash used by investing activities was $20.8 million for the nine months
ended September 30, 1997. During the nine months ended September 30, 1997, the
Corporation originated $16.7 million in new loans in excess of principal
payments received on existing loans and purchased $6.5 million of investment
securities designated held to maturity due to their longer term maturity
structure. In addition, a $2.0 million held to maturity security was called in
the third quarter of 1997. This compares with the nine months ended September
30, 1996 when the Corporation had approximately $11.5 million in new loans in
excess of principal payments received on existing loans and purchased $4.7
million of investment securities designated available for sale due to the
Corporation needing more flexibility as it prepared for the conversion of
Prestige Bank from a mutual chartered savings association to a stock chartered
savings association on June 27, 1996.
Net cash provided by financing activities for the nine months ended
September 30, 1997, was approximately $22.0 million, attributable to increases
in core deposits and certificate accounts of $4.0 million and $2.2 million,
respectively, and increases in net Federal Home Loan Bank advances of $16.7
million. During the same period last year, the Corporation experienced a $12.4
million increase in net cash provided by financing activities primarily due to
an $8.2 million of capital raised in connection with the conversion of Prestige
Bank from a mutual chartered savings association to a stock chartered savings
association on June 27, 1996, a $2.6 million increase in core deposits and
increases in net Federal Home Loan Bank advances of $3.2 million.
The Bank is required to maintain specified amounts of capital pursuant to the
Financial Institutions Reform, Recovery and Enforcement Act of 1989 and
regulations thereunder. Savings associations are required to maintain tangible
capital of 1.5%, core capital of 4.00% and risk-based capital of 8.00%. At
September 30, 1997, the Bank's tangible, core, and risk-based capital ratios
amounted to 9.06%, 9.06%, and 19.45%, respectively, which substantially exceeded
applicable requirements.
17
<PAGE> 20
PRESTIGE BANCORP, INC.
PART II
Item 1. Legal Proceedings
Neither the Corporation nor the Bank is involved in any pending
legal proceedings other than nonmaterial legal proceedings
occurring in the ordinary course of business.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security-Holders
Not applicable
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
None.
18
<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.
PRESTIGE BANCORP, INC.
Dated: November 14, 1997 By: /s/ Robert S. Zyla
--------------------------
Robert S. Zyla, President
Dated: November 14, 1997 By: /s/ James M. Hein
--------------------------
James M. Hein, Controller
19
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