<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------- -------------
Commission File Number 0-27522
PRESTIGE BANCORP, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1785128
- ------------------------------------------------ ----------------------
(State or other jurisdiction of incorporation or (I.R.S.Employer
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 May 15, 1998, there were
914,873 shares of the registrant's common stock outstanding, par value $1.00 per
share.
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<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
March 31, 1998 (unaudited) and December 31, 1997 1
Consolidated Statements of Income of Prestige Bancorp, Inc. for the three
months ended March 31, 1998 and 1997 (unaudited) 2
Consolidated Statements of Stockholders' Equity of Prestige Bancorp, Inc.
for the three months ended March 31, 1998 and 1997 (unaudited) 3
Consolidated Statements of Cash Flows of Prestige Bancorp, Inc. for the three
months ended March 31, 1998 and 1997 (unaudited) 4
Notes to Financial Statements (unaudited) 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 11
PART II. OTHER INFORMATION
- -------- -----------------
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security-Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
- ----------
</TABLE>
<PAGE> 3
PRESTIGE BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------ ------------
ASSETS (Unaudited)
- ------
<S> <C> <C>
Cash and due from banks $ 859,889 $ 927,362
Interest-bearing deposits with banks 4,395,924 1,286,099
Investment securities:
Available for sale 11,686,927 11,017,858
Held to maturity (market value $32,188,900 and
$27,870,426, respectively) 32,081,518 27,741,398
Net loans 104,042,812 96,180,961
Federal Home Loan Bank stock, at cost 2,448,900 1,748,900
Premises and equipment, net 2,828,880 2,673,794
Accrued interest receivable 1,322,190 1,033,261
Other assets 913,029 653,077
------------ ------------
Total assets $160,580,069 $143,262,710
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Non-interest-bearing deposits $ 4,254,163 $ 4,000,085
Interest-bearing deposits 89,310,952 87,155,740
------------ ------------
Total deposits 93,565,115 91,155,825
Federal Home Loan Bank advances 48,977,000 34,677,000
Advance payments by borrowers for taxes and insurance 781,393 856,881
Income taxes payable 211,324 178,068
Deferred tax liability 88,517 77,927
Accrued interest payable 218,336 153,336
Other liabilities 957,812 533,862
------------ ------------
Total liabilities 144,799,497 127,632,899
------------ ------------
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; 963,023 963,023
Treasury stock, 48,150 shares, at cost; (775,881) (775,881)
Additional paid-in-capital 8,045,250 8,033,296
Unearned ESOP shares, 72,405 shares; (724,050) (724,050)
Retained earnings 8,171,611 8,064,202
Net unrealized holding gains on
available for sale securities, net of taxes 100,619 69,221
------------ ------------
Total stockholders' equity 15,780,572 15,629,811
------------ ------------
Total liabilities and stockholders' equity $160,580,069 $143,262,710
============ ============
</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
March 31,
------------------------------
1998 1997
---------- ----------
<S> <C> <C>
Interest income:
Interest and fees on loans $1,936,689 $1,496,384
Interest on mortgage-backed securities 161,950 211,420
Interest and dividends on other investment securities 519,971 402,538
Interest on deposits in other financial institutions 68,927 22,942
---------- ----------
Total interest income 2,687,537 2,133,284
---------- ----------
Interest expense:
Interest on deposits 928,042 853,108
Advances from Federal Home Loan Bank 603,920 298,508
---------- ----------
Total interest expense 1,531,962 1,151,616
---------- ----------
Net interest income 1,155,575 981,668
Provision for loan losses 38,000 17,000
---------- ----------
Net interest income after provision for loan losses 1,117,575 964,668
---------- ----------
Other income:
Fees and service charges 95,143 63,534
Other income, net 6,293 9,845
---------- ----------
Total other income 101,436 73,379
---------- ----------
Other expenses:
Salaries and employee benefits 500,583 362,828
Premises and occupancy costs 116,105 79,483
Federal deposit insurance premiums 14,424 13,752
Data processing costs 62,274 48,234
Advertising costs 27,728 22,215
Transaction processing costs 59,509 46,218
ATM transaction fees 23,522 21,548
Other expenses 163,801 114,448
---------- ----------
Total other expenses 967,946 708,726
---------- ----------
Income before income tax expense 251,065 329,321
Income tax expense 97,912 124,979
---------- ----------
Net income $ 153,153 $ 204,342
========== ==========
Basic earnings per share:
Net income $ 0.18 $ 0.23
Weighted average number of common shares outstanding 842,753 884,984
Diluted earnings per share:
Net income $ 0.18 $ 0.23
Weighted average number of common shares outstanding 851,678 $ 884,984
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 5
PRESTIGE BANCORP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
Net Unrealized
Holding Gains
Additional Unearned (Losses) on Available
Common Paid-In Treasury ESOP Retained for Sale Securities,
Stock Capital Stock Shares Earnings Net of Taxes Total
----- ------- ----- ------ -------- ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 $ 963,023 $ 8,033,296 ($775,881) ($724,050) $8,064,202 $ 69,221 $15,629,811
Net income 153,153 153,153
Allocation of 828 ESOP shares 11,954 11,954
Increase in net unrealized
holding gains on available for
sale securities, net of taxes 31,398 31,398
Cash dividends declared:
Common stock ( $0.05 per
share on 914,873 shares) (45,744) (45,744)
--------- ----------- --------- --------- ---------- --------- -----------
Balance, March 31, 1998 $ 963,023 $ 8,045,250 ($775,881) ($724,050) $8,171,611 $ 100,619 $15,780,572
========= =========== ========= ========= ========== ========= ===========
Balance, December 31, 1996 $ 963,023 $ 8,000,176 $ -- ($755,490) $7,390,945 ($168,454) $15,430,200
Net income 204,342 204,342
Allocation of 773 ESOP shares 5,971 5,971
Increase in net unrealized
holding losses on available for
sale securities, net of taxes (93,247) (93,247)
Cash dividends declared:
Common stock ( $0.03 per
share on 963,023 shares) (28,891) (28,891)
Treasury stock purchases,
43,150 shares (697,751) (697,751)
--------- ----------- --------- --------- ---------- --------- -----------
Balance, March 31, 1997 $ 963,023 $ 8,006,147 ($697,751) ($755,490) $7,566,396 ($261,701) $14,820,624
========= =========== ========= ========= ========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 6
PRESTIGE BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Operating activities:
Net income $ 153,153 $ 204,342
------------ ------------
Adjustments to reconcile net income to net cash
provided (used) by operating activities-
Depreciation of premises and equipment 68,859 42,848
Amortization of premiums and discounts, net (27,738) (1,661)
Non cash compensation expense related to MRP Plan 33,115 --
Non cash compensation expense related to ESOP benefit 24,794 18,811
Gain on sale of premises and equipment (57) --
Provision for loan losses 38,000 17,000
Increase in other liabilities 411,110 98,421
Increase in accrued interest payable 65,000 85,233
Increase in income taxes payable 22,913 122,889
Increase in accrued interest receivable (288,929) (338,327)
Increase in other assets (109,792) (37,268)
------------ ------------
Total adjustments 237,275 7,946
------------ ------------
Net cash provided by operating activities 390,428 212,288
------------ ------------
Investing activities:
Loan originations (16,500,458) (9,631,028)
Principal payments on loans 8,600,607 3,589,595
Principal payments on mortgage-backed securities available for sale 219,733 253,738
Principal payments on mortgage-backed securities held to maturity 398,118 661,495
Principal payments on investment securities held to maturity 9,480 --
Proceeds from calls of held to maturity securities 1,500,000 --
Proceeds from calls of available for sale securities 600,000 --
Purchases of available for sale securities (1,430,944) (177,375)
Purchases of held to maturity investment securities (6,225,507) (6,473,125)
Proceeds from sale of premises and equipment 410 --
Purchases of premises and equipment (224,298) (15,976)
Purchase of Federal Home Loan Bank stock (700,000) (386,200)
------------ ------------
Net cash used by investing activities (13,752,859) (12,178,876)
------------ ------------
Financing activities:
Net change in advance payments by borrowers for taxes and insurance (75,488) 27,033
Purchases of MRP shares (183,275) --
Proceeds from Federal Home Loan Bank advances 17,000,000 19,773,125
Payments on Federal Home Loan Bank advances (2,700,000) (11,450,000)
Net increase in Money Market, NOW and Passbook savings accounts 2,242,841 2,452,846
Net increase in certificate accounts 166,449 1,001,363
Purchases of treasury stock -- (24,532)
Common stock cash dividends paid (45,744) (28,891)
------------ ------------
Net cash provided by financing activities 16,404,783 11,750,944
------------ ------------
Net increase (decrease) in cash and cash equivalents 3,042,352 (215,644)
Cash and cash equivalents at beginning of period 2,213,461 2,147,678
------------ ------------
Cash and cash equivalents at end of period $ 5,255,813 $ 1,932,034
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for income taxes $ 75,000 $ --
Cash paid during the period for interest on deposits and borrowings 1,466,961 1,066,382
============ ============
Supplemental schedule of noncash investing activity:
Loans transferred to real estate owned $ 35,000 $ --
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 7
PRESTIGE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
1. THE CORPORATION:
----------------
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 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 months ended March 31, 1998, are not necessarily
indicative of the results to be expected for the year ending December 31, 1998.
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, 1997, contained in the Corporation's Annual Report and Form
10-K.
Earnings Per Common Share
- -------------------------
During the fourth quarter of 1997, the Company adopted SFAS No. 128, "Earnings
Per Share". Under SFAS No. 128, earnings per share are classified as basic
earnings per share and diluted earnings per share. Basic earnings per share
includes only the weighted average common shares outstanding. Diluted earnings
per share includes the weighted average common shares outstanding and any
dilutive common stock equivalent shares in the calculation. All prior periods
have been restated to reflect this adoption. Treasury shares are treated as
retired for earnings per share purposes.
5
<PAGE> 8
The following table reflects the calculation of earnings per share under SFAS
No. 128.
<TABLE>
<CAPTION>
AT MARCH 31, 1998 1997
- --------------------------------------------------------------- --------
<S> <C> <C>
Basic earnings per share:
Net income $ 153,153 $204,342
Average shares outstanding 842,753 884,984
Earnings per share .18 .23
Diluted earnings per share:
Net income $ 153,153 $204,342
Average shares outstanding 842,753 884,984
Stock options 8,925 -
--------- --------
Diluted average shares outstanding 851,678 884,984
Earnings per share .18 .23
</TABLE>
Comprehensive Income
- --------------------
The Company adopted SFAS No. 130, "Reporting Comprehensive Income", in the
quarter ended March 31, 1998. This accounting standard requires the reporting of
all changes in the equity of an enterprise that result from recognized
transactions and other economic events of the period other than transactions
with owners in their capacity as owners. Prior to the issuance of this standard,
some of those changes in equity were displayed in the income statement, while
others were included directly in balances within a separate component of equity
in a statement of financial position.
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1998 March 31, 1997
-------------- --------------
(unaudited)
<S> <C> <C>
Net income $153,153 $204,342
Other comprehensive income, net of tax
Unrealized holding gain (loss) arising during the period $ 31,398 ($ 93,247)
-------- --------
Comprehensive income $184,551 $111,095
</TABLE>
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>
March 31, 1998
--------------------------------
Amortized Market
Cost Value
----------- -----------
<S> <C> <C>
U.S. government and government
agency obligations:
Due within one year $ 512,081 $ 509,851
Due after one and within five years 3,905,361 3,897,282
Due after five and within ten years 13,008,328 13,018,895
Due after ten years 7,032,773 7,037,950
Federal Home Loan Mortgage
Corporation (FHLMC) certificates:
Due after one and within five years 523,113 530,974
Due after ten years 5,896,292 5,960,374
Government National Mortgage
Association (GNMA) certificates due
after ten years 1,117,092 1,145,899
Federal National Mortgage Association
(FNMA) certificates due within one year 86,478 87,675
----------- -----------
$32,081,518 $32,188,900
=========== ===========
</TABLE>
Investment securities available for sale:
<TABLE>
<CAPTION>
March 31, 1998
-------------------------------
Market
Cost Value
----------- -----------
<S> <C> <C>
U.S. government and government
agency obligations:
Due within one year $ 2,000,000 $ 1,988,760
Due after one and within five years 1,005,236 1,000,550
Due after five and within ten years 1,501,399 1,487,190
Due after ten years 2,000,000 1,983,750
Federal Home Loan Mortgage
Corporation (FHLMC) certificates:
Due within one year 865,342 864,483
Due after ten years 285,160 298,676
Federal National Mortgage Association
(FNMA) certificates due after one and
within five years 1,149,740 1,129,688
Mutual fund investment 1,844,351 1,807,199
Common stock portfolio 867,935 1,126,631
----------- -----------
$11,519,163 $11,686,927
=========== ===========
</TABLE>
7
<PAGE> 10
4. LOANS RECEIVABLE:
-----------------
Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
March 31,
1998
------------
<S> <C>
Commercial, including commercial secured by real estate $ 14,867,870
Construction 1,455,000
Less-Undisbursed loan proceeds 664,786
------------
Total Commercial, including commercial secured by real estate 15,658,084
------------
Real estate loans:
1-4 family 74,420,765
Construction 755,480
------------
75,176,245
Less- Undisbursed loan proceeds 286,152
Deferred loan (costs) / fees (3,386)
------------
74,893,479
------------
Consumer loans:
Share 544,460
Automobile 2,182,891
Home equity 8,361,465
Student 2,266,203
Credit cards 414,992
Other 144,121
------------
13,914,132
------------
104,465,695
Less- Allowance for loan losses 422,883
------------
$104,042,812
============
</TABLE>
5. ALLOWANCE FOR LOAN LOSSES:
--------------------------
Activity with respect to the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------
1998 1997
--------- ---------
<S> <C> <C>
Balance at beginning of period $ 402,964 $ 306,926
Provision for loan losses 38,000 17,000
Charge-offs (18,081) (1,626)
Recoveries -- 40
--------- ---------
Balance at end of period $ 422,883 $ 322,340
========= =========
</TABLE>
8
<PAGE> 11
6. DEPOSITS:
---------
The aggregate amount of short-term certificates of deposit, each with a minimum
denomination of $100,000, was approximately $5,802,000 at March 31, 1998. The
scheduled maturities of the Bank's certificate accounts as of March 31, 1998 are
as follows (amounts approximate):
April 1, 1998 to March 31, 1999 31,760,092
April 1, 1999 to March 31, 2000 5,529,003
April 1, 2000 to March 31, 2001 6,421,102
April 1, 2001 to March 31, 2002 1,056,329
April 1, 2002 and thereafter 1,203,122
-----------
TOTAL $45,969,648
===========
Certificates of $100,000 or more $ 5,802,265
===========
7. INCOME TAXES:
-------------
The provision for income taxes is as follows:
Three Months Ended
March 31,
-----------------------
1998 1997
-------- --------
Federal $80,746 $101,179
State 17,166 23,800
------- --------
$97,912 $124,979
======= ========
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 March 31, 1998, and December 31, 1997,
amounted to $232,931 and $182,175, respectively. Additionally, the Bank has an
unfunded loan commitment for a director in the amount of $93,000 as of March 31,
1998.
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 $33,000 during the quarter ended March 31, 1998.
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 March 31, 1998, the Corporation has granted 76,741 options.
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 March 31, 1998
have a weighted average exercise price of $16.59 and a weighted average
remaining contractual life of 9.6 years. None of these options are exercisable.
10. RETAINED EARNINGS AND REGULATORY CAPITAL:
-----------------------------------------
The Savings Bank's actual capital amounts and ratios are presented below in the
following table. Based on the asset size of the Savings Bank and its strong risk
based capital ratios, the Corporation believes that the Savings Bank does not
have deduct any amount from capital for interest-rate risk (amounts in
thousands).
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Adequacy 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
March 31, 1998 $13,166 17.11% =>$6,156 =>8.0% =>$7,696 =>10.0%
Tier 1 Capital (to Risk
Weighted Assets):
As of
March 31, 1998 $12,743 16.56% =>$3,078 =>4.0% =>$4,617 =>6.0%
Tier 1 Capital (to
Average Assets):
As of
March 31, 1998 $12,743 8.21% =>$6,205 =>4.0% =>$7,757 =>5.0%
</TABLE>
11. FUTURE ACCOUNTING STANDARDS:
----------------------------
In February 1998, the Financial Accounting Standards Board issued SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits". SFAS
No. 132 revises employers' disclosures about pension and other postretirement
benefit plans, but does not change the measurement or recognition of those
plans. SFAS No. 132 standardizes the disclosure requirements for pensions and
other postretirement benefits, to the extent practicable; requires additional
information on changes in the benefit obligations and fair values of plan assets
that will facilitate financial analysis; and eliminates certain disclosures.
SFAS No. 132 will be effective for the Corporation's financial statements for
the year ended December 31, 1998.
12. SUBSEQUENT EVENT
----------------
On April 15, 1998, the Board of Directors a declared a stock dividend of 15% to
shareholders of record of June 2, 1998 to be distributed on June 19, 1998.
10
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
- -------------------
The Corporation is a registered savings and loan holding company. The
financial activity of the Corporation is undertaken primarily through its sole
subsidiary Prestige Bank, A Federal Savings Bank (the "Savings Bank"). Assets
held directly by the Corporation includes all of the outstanding capital stock
of the Savings Bank, a loan receivable from the Prestige Bancorp Employee Stock
Ownership Trust (the "ESOP"), deposits maintained at the Savings Bank and common
stock of several savings associations or savings and loan holding companies
(collectively the "Directly Held Assets"). Each stock ownership interest in the
unrelated savings associations or savings and loan holding companies amounts to
less than a 1% interest in such entities.
The following discussion of the financial condition and activities of
the Corporation should be read as the consolidated activities of the Corporation
and the Savings Bank. Unless the following discussion specifically identifies an
activity, event or condition as relating to the Directly Held Assets, it is
assumed that such activity, event or condition occurred as a result of a direct
action of the Savings Bank and an indirect action of the Corporation.
As described in greater detail below, the Corporation and Savings Bank
intend to continue an emphasis on residential mortgage loans. However, as part
of the business strategy to increase profitability, the Savings Bank will
continue to widen its range of lending activities to include small business
commercial loans, commercial real estate loans and consumer loans. Although such
lending activities entail greater risk than residential mortgage lending,
management is willing to accept such risks because of its belief that there are
lending opportunities in its market area which are not being currently fulfilled
by other financial institutions and management believes it can properly manage
the risks of greater consumer and commercial lending.
At March 31, 1998, the Corporation's total assets amounted to $160.6
million compared with $143.3 million at December 31, 1997. The $17.3 million or
12.1% increase was primarily due to an increase of $7.9 million or 8.2% in net
loans receivable, an increase of $5.0 million or 12.9% in investment securities
and an increase in cash and cash equivalents of $3.0 million or 137.5%. The
growth in net loans receivable was attributed to increases in commercial
business, commercial real estate, and one-to-four family residential real estate
loans and growth in investment securities occurred as the Corporation proceeded
to leverage its strong capital position. Increased cash and cash equivalents of
$3.0 was primarily attributable to increases in principal payments on loans and
investment calls on investment securities due to the low interest rate
environment. Such increase in assets was funded through an increase in deposits
of $2.4 million or 2.6% and a $14.3 million or 41.2% increase in Federal Home
Loan Bank advances. Total stockholders' equity amounted to $15.8 million or
9.83% of total assets at March 31, 1998, compared to equity of $15.6 million or
10.91% of total assets at December 31, 1997. The Corporation paid a quarterly
dividend of $.05 per share during the first quarter of 1998 compared to $.03 per
share for the same period in 1997.
The Corporation's nonperforming assets increased $38,000 or 6.2% to
$649,000 at March 31, 1998, compared to $611,000 at December 31, 1997. The
increase was due to an increase in residential mortgage nonperforming loans.
11
<PAGE> 14
RESULTS OF OPERATIONS
- ---------------------
GENERAL--The Corporation's net income for the quarter ended March 31,
1998 was $153,000 or $.18 per diluted share compared to net income of $204,000
or $.23 per diluted share for the same quarter in the prior year. The $51,000
decrease in net income for the quarter ended March 31, 1998 as compared to the
quarter ended March 31, 1997 can be traced primarily to the additional expenses
incurred in the opening and operating of (i) our first supermarket branch in
October 1997 and (ii) our Elizabeth, Pennsylvania branch office in February
1998. Although the increased costs of these branches have impacted earnings for
the short term, management is seeking long term customer growth, which could
positively affect future earnings. These factors were the primary component of
the non-interest expense increase of $259,000. Net interest income before
provision for loan losses increased $174,000 primarily due to the Corporation's
efforts to leverage its balance sheet, as discussed above. The annualized return
on average assets and return on average equity for the quarter ended March 31,
1998, was .39% and 3.89%, respectively, compared to .65% and 5.34% for the same
period of 1997.
INTEREST INCOME--The Corporation reported interest income of $2.7
million for the three months ended March 31, 1998, as compared to $2.1 million
for the three months ended March 31, 1997. The increase of $555,000 or 26.0% for
the quarter ended March 31, 1998, compared to the same period in the prior year
can be attributed to a $441,000 or 29.5% increase in interest and fees on loans
and a $117,000 or 29.0% 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 business and commercial real
estate loans. Average balances for commercial business and commercial real
estate loans during the first quarter of 1998 were $12.9 million, compared to
$4.8 million for the same period in 1997. The average balances on loans
receivable and investment securities, net of mortgage backed securities, during
the first quarter of 1998 were $100.6 million and $33.2 million, respectively,
compared to $80.8 million and $26.0 million, respectively, for the same period
in 1997. In addition, the Corporation benefited from earning higher yields on
loans receivable. The weighted average yield on loans receivable during the
first quarter of 1998 was 7.7% compared to 7.4% for the same period in 1997.
INTEREST EXPENSE--Interest expense increased $380,000 or 33.0% during
the three months ended March 31, 1998 as compared to the same period last year.
This increase was primarily due to growth in average interest-bearing
liabilities. Average deposits and Federal Home Loan Bank (FHLB) of Pittsburgh
advances during the first quarter of 1998 were $92.1 million and $46.3 million,
respectively, compared to $85.6 million and $23.2 million, respectively, for the
same period in 1997.
PROVISION FOR LOAN LOSSES--During the three months ended March 31, 1998
the Corporation recorded provisions for losses on loans of $38,000 compared to
$17,000 for the comparable period in 1997. 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.
OTHER INCOME--Other income increased $28,000 or 38.4% for the three
months ended March 31, 1998, compared to same period in 1997. 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 increased $259,000 or 36.5% for
the quarter ended March 31, 1998, as compared to the quarter ended March 31,
1997. The increase occurred as a result the result of a $138,000 or 38.0%
increase in salaries and employee benefits due to approved salary increases,
additional employees at our two new branch offices and the addition of
compensation expense of $33,000 for the Management Recognition and Retention
Plans. Additionally, there was $50,000 increase in other
12
<PAGE> 15
expenses due to higher than previously anticipated public reporting costs and
general operating expenses.
INCOME TAXES--The Corporation incurred a provision for income taxes of
$98,000 for the three months ended March 31, 1998, as compared to $125,000 for
the same period in the prior year. The decrease of $27,000 in 1998 compared to
1997 was due to a decrease in taxable income.
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 March 31, 1998, the Corporation had $49.0 million of
outstanding advances from the FHLB of Pittsburgh.
During the three months ended March 31, 1998 and 1997, the Corporation's
operating activities provided net cash of approximately $390,000 and $212,000,
respectively. The primary reasons for the $390,000 net cash provided during the
three months ended March 31, 1998 were $153,000 in net income, $69,000 in
depreciation of premises and equipment, and a $411,000 increase in other
liabilities, which was partially offset by a $289,000 increase in accrued
interest receivable. During the three months ended March 31, 1997, the $212,000
net cash provided was the result of $204,000 in net income, $98,000 increase in
other liabilities, $85,000 increase in accrued interest payable and $123,000
increase in income taxes payable which was partially offset by a $338,000
increase in accrued interest receivable.
Net cash used by investing activities was $13.8 million for the three
months ended March 31, 1998. During the three months ended March 31, 1998, the
Corporation originated $7.9 million in new loans in excess of principal payments
received on existing loans and purchased $6.2 million of investment securities
designated held to maturity due to their longer term maturity structure. In
addition, $1.5 million of held to maturity securities were called and $1.4
million available for sale securities were purchased in the first quarter of
1998. This compares with the three months ended March 31, 1997 when the
Corporation had approximately $6.0 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.
Net cash provided by financing activities for the three months ended
March 31, 1998, was approximately $16.4 million, attributable to increases in
core deposits of $2.2 million and increases in net Federal Home Loan Bank
advances of $14.3 million. During the same period last year, the Corporation
experienced a $11.8 million increase in net cash provided by financing
activities primarily due to a $2.5 million increase in core deposits and
increases in net Federal Home Loan Bank advances of $8.3 million.
The Savings 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 March
31, 1998, the Savings Bank's tangible, core, and risk-based capital ratios
amounted to 7.99%, 7.99%, and 17.11%, respectively, which substantially exceeded
applicable requirements.
13
<PAGE> 16
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
---------------------------------------------------
a) An annual meeting of shareholders of the Corporation was held
on April 29, 1998 ("Annual Meeting").
b) Not applicable.
c) There were 914,873 shares of Common Stock of the Corporation
eligible to be voted at the Annual Meeting and 790,549 shares
were represented at the meeting by the holders thereof, which
constituted a quorum. The items voted upon at the Annual
Meeting and the vote for each proposal were as follows:
1. Election of directors for a three-year term.
<TABLE>
<CAPTION>
For Withheld
--- --------
<S> <C> <C>
John A. Stiver..............................784,137 6,412
Patricia A. White...........................786,149 4,400
Michael R. Macosko..........................788,949 1,600
</TABLE>
2. Proposal to ratify the appointment of Arthur Andersen LLP
as the Corporation's independent auditors for the year ending December 31, 1998.
For Against Abstain
--- ------- -------
787,720 1,225 1,604
Each of the proposals was adopted by the shareholders of the
Corporation.
d) Not applicable.
Item 5. Other Information
-----------------
None.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
None.
14
<PAGE> 17
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: May 15, 1998 By: /s/ ROBERT S. ZYLA
-------------------------
Robert S. Zyla, President
Dated: May 15, 1998 By: /s/ JAMES M. HEIN
-------------------------
James M. Hein, Controller
15
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 860
<INT-BEARING-DEPOSITS> 4,396
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 11,687
<INVESTMENTS-CARRYING> 32,082
<INVESTMENTS-MARKET> 32,189
<LOANS> 104,043
<ALLOWANCE> 423
<TOTAL-ASSETS> 160,580
<DEPOSITS> 93,565
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,257
<LONG-TERM> 48,977
0
0
<COMMON> 7,508
<OTHER-SE> 8,273
<TOTAL-LIABILITIES-AND-EQUITY> 160,580
<INTEREST-LOAN> 1,937
<INTEREST-INVEST> 682
<INTEREST-OTHER> 69
<INTEREST-TOTAL> 2,688
<INTEREST-DEPOSIT> 928
<INTEREST-EXPENSE> 604
<INTEREST-INCOME-NET> 1,156
<LOAN-LOSSES> 38
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 968
<INCOME-PRETAX> 251
<INCOME-PRE-EXTRAORDINARY> 251
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 153
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
<YIELD-ACTUAL> 3.05
<LOANS-NON> 614
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 403
<CHARGE-OFFS> 18
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 423
<ALLOWANCE-DOMESTIC> 373
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 50
</TABLE>
