<PAGE> 1
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to _______________
Commission File Number 0-27522
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 May 3, 1999, there were
996,964 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>
Item 1. Financial Statements
Consolidated Balance Sheets of Prestige Bancorp, Inc. as of
March 31, 1999 (unaudited) and December 31, 1998 1
Consolidated Statements of Income of Prestige Bancorp, Inc. for the three
months ended March 31, 1999 and 1998 (unaudited) 2
Consolidated Statements of Stockholders' Equity of Prestige Bancorp, Inc.
for the three months ended March 31, 1999 and 1998 (unaudited) 3
Consolidated Statements of Cash Flows of Prestige Bancorp, Inc. for the three
months ended March 31, 1999 and 1998 (unaudited) 4
Notes to Consolidated 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 16
Item 2. Changes in Securities 16
Item 3. Defaults upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security-Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
</TABLE>
<PAGE> 3
PRESTIGE BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------- -------------
ASSETS (Unaudited)
- ------
<S> <C> <C>
Cash and due from banks $ 754,491 $ 975,202
Interest-bearing deposits with banks 7,385,286 9,177,755
Investment securities:
Available for sale 11,264,912 9,907,260
Held to maturity (market value $24,190,860 and
$25,598,337, respectively) 24,296,206 25,478,289
Net loans 128,568,942 123,916,834
Federal Home Loan Bank stock, at cost 2,548,900 2,548,900
Premises and equipment, net 2,656,185 2,634,609
Accrued interest receivable 1,216,982 1,116,560
Deferred tax asset 177,985 90,359
Other assets 1,357,297 1,528,216
------------- -------------
Total assets $ 180,227,186 $ 177,373,984
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Non-interest-bearing deposits $ 5,446,823 $ 5,731,447
Interest-bearing deposits 108,973,259 103,966,675
------------- -------------
Total deposits 114,420,082 109,698,122
Federal Home Loan Bank advances 48,977,000 50,977,000
Advance payments by borrowers for taxes and insurance 1,034,021 1,023,230
Income taxes payable 262,064 172,086
Accrued interest payable 225,049 234,442
Other liabilities 478,200 509,199
------------- -------------
Total liabilities 165,396,416 162,614,079
------------- -------------
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, 1,162,313 shares issued at March 31, 1999;
1,100,090 shares issued at December 31, 1998 1,162,313 1,100,090
Treasury stock at cost: 165,349 and 157,476 shares at
March 31, 1999 and December 31, 1998, respectively (2,161,243) (2,161,243)
Additional paid-in-capital 11,565,143 10,727,677
Unearned ESOP shares: 83,362 and 79,393 shares at
March 31, 1999 and December 31, 1998, respectively (690,380) (690,380)
Retained earnings - substantially restricted 5,076,155 5,826,182
Accumulated other comprehensive income (121,218) (42,421)
------------- -------------
Total stockholders' equity 14,830,770 14,759,905
------------- -------------
Total liabilities and stockholders' equity $ 180,227,186 $ 177,373,984
============= =============
</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,
---------------------------
1999 1998
----------- ----------
<S> <C> <C>
Interest income:
Interest and fees on loans $2,445,202 $1,936,689
Interest on mortgage-backed securities 189,817 161,950
Interest and dividends on other investment securities 351,640 519,971
Interest on deposits in other financial institutions 114,727 68,927
---------- ----------
Total interest income 3,101,386 2,687,537
---------- ----------
Interest expense:
Interest on deposits 1,086,123 928,042
Advances from Federal Home Loan Bank 690,778 603,920
---------- ----------
Total interest expense 1,776,901 1,531,962
---------- ----------
Net interest income 1,324,485 1,155,575
Provision for loan losses 90,000 38,000
---------- ----------
Net interest income after provision for loan losses 1,234,485 1,117,575
---------- ----------
Other income:
Fees and service charges 161,517 95,143
Gain on sale of investments 39,250 --
Gain on sale of assets 1,995 --
Other income, net 3,398 6,293
---------- ----------
Total other income 206,160 101,436
---------- ----------
Other expenses:
Salaries and employee benefits 568,179 500,583
Premises and occupancy costs 145,613 116,105
Federal deposit insurance premiums 15,544 14,424
Data processing costs 63,446 62,274
Advertising costs 25,762 27,728
Transaction processing costs 76,656 59,509
ATM transaction fees 31,626 23,522
Other expenses 184,625 163,801
---------- ----------
Total other expenses 1,111,451 967,946
---------- ----------
Income before income tax expense 329,194 251,065
Income tax expense 124,786 97,912
---------- ----------
Net income $ 204,408 $ 153,153
========== ==========
Basic earnings per share:
Net income $ 0.22 $ 0.15
Weighted average number of common shares outstanding 913,971 1,017,623
Diluted earnings per share:
Net income $ 0.22 $ 0.15
Weighted average number of common shares outstanding 914,577 1,028,402
</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, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
Common
Stock Additional
Comprehensive $1.00 par Treasury Paid-in Unearned
Income value Stock Capital ESOP Shares
------------ ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1998 $ 1,100,090 $ (2,161,243) $ 10,727,677 $ (690,380)
Allocation of 1,070 ESOP shares -- -- 7,145 --
Cash dividends declared:
Common stock ($.06 per share) -- -- -- --
Stock dividend declared:
Common stock (5% per share) 62,223 -- 830,321 --
Cash in lieu of stock -- -- -- --
Net income $ 204,408 -- -- -- --
Net unrealized losses on available
for sale securities, net of tax (103,152) -- -- -- --
of $68,768
Reclassification adjustment for
gains realized in net income net
of tax of $14,895 24,355
------------
Comprehensive income $ 125,611
============ ------------ ------------ ------------ ------------
BALANCE, March 31, 1999 $ 1,162,313 $ (2,161,243) $ 11,565,143 $ (690,380)
============ ============ ============ ============
BALANCE, December 31, 1997 $ 963,023 $ (775,881) $ 8,033,296 $ (724,050)
Allocation of 999 ESOP shares -- -- 11,954 --
Cash dividends declared:
Common stock ($.04 per share) -- -- -- --
Net income $ 153,153 -- -- -- --
Net unrealized gains on available
for sale securities, net of tax 31,398 -- -- -- --
of $20,932
------------
Comprehensive income $ 184,551
============ ------------ ------------ ------------ ------------
BALANCE, March 31, 1998 $ 963,023 $ (775,881) $ 8,045,250 $ (724,050)
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Other
Retained Comprehensive
Earnings Income Total
------------ ------------- ----------
<S> <C> <C> <C>
BALANCE, December 31, 1998 $ 5,826,182 $ (42,421) $ 14,759,905
Allocation of 1,070 ESOP shares -- -- 7,145
Cash dividends declared:
Common stock ($.06 per share) (56,990) -- (56,990)
Stock dividend declared:
Common stock (5% per share) (892,544) -- --
Cash in lieu of stock (4,901) -- (4,901)
Net income 204,408 -- 204,408
Net unrealized losses on available
for sale securities, net of tax -- (103,152) (103,152)
of $68,768
Reclassification adjustment for
gains realized in net income net
of tax of $14,895 24,355 24,355
Comprehensive income
------------ ------------ ------------
BALANCE, March 31, 1999 $ 5,076,155 $ (121,218) $ 14,830,770
============ ============ ============
BALANCE, December 31, 1997 $ 8,064,202 $ 69,221 $ 15,629,811
Allocation of 999 ESOP shares -- -- 11,954
Cash dividends declared:
Common stock ($.04 per share) (45,744) -- (45,744)
Net income 153,153 -- 153,153
Net unrealized gains on available
for sale securities, net of tax -- 31,398 31,398
of $20,932
Comprehensive income
------------ ------------ ------------
BALANCE, March 31, 1998 $ 8,171,611 $ 100,619 $ 15,780,572
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 6
PRESTIGE BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Operating activities:
Net income $ 204,408 $ 153,153
Adjustments to reconcile net income to net cash -- --
provided by operating activities-
Depreciation of premises and equipment 84,921 68,859
Amortization of premiums and discounts, net 11,893 (27,738)
Non cash compensation expense related to MRP Plan 34,301 33,115
Non cash compensation expense related to ESOP benefit 19,985 24,794
Loss on sale of mutual funds 17,625 --
Gain on sale of equity securities (56,875) --
Gain on sale of premises and equipment -- (57)
Provision for loan losses 90,000 38,000
(Decrease) increase in other liabilities (43,839) 411,110
(Decrease) increase in accrued interest payable (9,393) 65,000
Increase in income taxes payable 54,787 22,913
Increase in accrued interest receivable (100,422) (288,929)
Decrease (increase) in other assets 136,618 (109,792)
------------ ------------
Total adjustments 239,601 237,275
------------ ------------
Net cash provided by operating activities 444,009 390,428
------------ ------------
Investing activities:
Loan originations (15,700,086) (16,500,458)
Principal payments on loans 10,957,978 8,600,607
Principal payments on mortgage-backed securities available for sale 248,436 219,733
Principal payments on mortgage-backed securities held to maturity 429,580 398,118
Principal payments on investment securities held to maturity 240,136 9,480
Proceeds from calls of held to maturity investment securities 3,000,000 1,500,000
Proceeds from sale of available for sale mutual funds 733,931 --
Proceeds from sale of equity securities 115,000 --
Proceeds from calls of available for sale investment securities 1,000,000 600,000
Purchases of available for sale mortgage-backed securities (1,500,000) --
Purchases of available for sale investment securities (2,046,527) (1,430,944)
Purchases of held to maturity investment securities (2,500,000) (6,225,507)
Proceeds from sale of premises and equipment -- 410
Purchases of premises and equipment (106,497) (224,298)
Purchase of Federal Home Loan Bank stock -- (700,000)
------------ ------------
Net cash used by investing activities (5,128,049) (13,752,859)
------------ ------------
Financing activities:
Net change in advance payments by borrowers for taxes and insurance 10,791 (75,488)
Purchases of MRP shares -- (183,275)
Proceeds from Federal Home Loan Bank advances -- 17,000,000
Payments on Federal Home Loan Bank advances (2,000,000) (2,700,000)
Net increase in Money Market, NOW and Passbook savings accounts 2,956,091 2,242,841
Net increase in certificate accounts 1,765,869 166,449
Cash in lieu of stock dividend on fractional shares (4,901) --
Common stock cash dividends paid (56,990) (45,744)
------------ ------------
Net cash provided by financing activities 2,670,860 16,404,783
------------ ------------
Net increase in cash and cash equivalents (2,013,180) 3,042,352
Cash and cash equivalents at beginning of period 10,152,957 2,213,461
------------ ------------
Cash and cash equivalents at end of period $ 8,139,777 $ 5,255,813
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for income taxes $ 70,000 $ 75,000
Cash paid during the period for interest on deposits and borrowings 1,786,293 1,466,961
============ ============
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, 1999
(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 was retained by the Corporation net of $770,410 that 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 month period ended March 31, 1999, are not necessarily
indicative of the results to be expected for the year ending December 31, 1999.
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, 1998, contained in the Corporation's Annual Report and Form
10-K.
Earnings Per Common Share
- -------------------------
During the fourth quarter of 1997, the Corporation 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 tables reflect the calculation of earnings per share under SFAS
No. 128.
<TABLE>
<CAPTION>
Three Months Ended
------------------------------
March 31, March 31,
1999 1998
---------- ----------
<S> <C> <C>
Basic earnings per share:
Net income $ 204,408 $ 153,153
Average shares outstanding 913,971 1,017,623
Earnings per share $ .22 $ .15
Diluted earnings per share:
Net income $ 204,408 $ 153,153
Average shares outstanding 913,971 1,017,623
Stock options 606 10,779
---------- ----------
Diluted average shares outstanding 914,577 1,028,402
Earnings per share $ .22 $ .15
</TABLE>
For the three months ended March 31, 1999, options to purchase 92,725 shares of
common stock were outstanding but not included in the computation of diluted
earnings per share because the options' exercise price was greater than the
average market price of the Corporation's common shares for the period.
On April 15, 1998 the Board of Directors declared a stock dividend of 15% to
shareholders of record of June 2, 1998 payable on June 19, 1998. In addition, on
February 17, 1999 the Board of Directors declared a stock dividend of 5% to
shareholders of record of March 2, 1999 payable on March 19, 1999. All per share
data have been restated to reflect the stock dividends.
Comprehensive Income
- --------------------
The Corporation 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 the balance sheet.
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, 1999
-----------------------------------
Amortized Market
Cost Value
--------------- ---------------
<S> <C> <C>
U.S. government and government
agency obligations:
Due within one year $ 499,916 $ 507,655
Due after one and within five years 1,511,081 1,513,393
Due after five and within ten years 6,494,526 6,459,723
Due after ten years 7,007,442 6,916,818
Federal Home Loan Mortgage
Corporation (FHLMC) certificates:
Due within one year 282,978 285,479
Due after five and within ten years 2,819,052 2,853,467
Due after ten years 1,800,993 1,798,770
Government National Mortgage
Association (GNMA) certificates:
Due after ten years 1,894,081 1,895,903
Federal National Mortgage
Association (FNMA) certificates:
Due after ten years 1,986,137 1,959,652
----------- -----------
$24,296,206 $24,190,860
=========== ===========
</TABLE>
Investment securities available for sale:
<TABLE>
<CAPTION>
March 31, 1999
-----------------------------------
Amortized Market
Cost Value
--------------- ---------------
<S> <C> <C>
U.S. government and government
agency obligations:
Due after one and within five years $ 3,001,194 $ 2,974,680
Due after five and within ten years 1,500,000 1,487,010
Corporate Debentures 493,681 477,410
Federal Home Loan Mortgage
Corporation (FHLMC) certificates:
Due after ten years 2,170,466 2,163,891
Federal National Mortgage Association
FNMA) certificates:
Due after one and within five years 822,839 816,815
Due after 10 years 1,501,406 1,488,720
Mutual fund investment 531,365 528,309
Common stock portfolio 1,445,992 1,328,077
----------- -----------
$11,466,943 $11,264,912
=========== ===========
</TABLE>
7
<PAGE> 10
4. LOANS RECEIVABLE:
Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
March 31,
1999
------------
<S> <C>
Commercial real estate $ 9,367,239
Commercial business loans 19,875,525
Construction 750,000
Less- Undisbursed loan proceeds 398,559
Deferred loan fees 50,221
------------
29,543,984
------------
Real estate loans:
1-4 family 82,973,151
Construction 1,337,120
------------
84,310,271
Deferred loan costs 39,349
Less- Undisbursed loan proceeds 823,411
------------
83,526,209
Consumer loans:
Collateral 513,929
Automobile 2,491,330
Home equity 9,827,238
Student 2,327,070
Credit cards 514,870
Other 457,561
Deferred loan costs 18,287
------------
16,150,285
------------
129,220,478
Less- Allowance for loan losses 651,536
============
$128,568,942
============
</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,
-----------------------
1999 1998
--------- ---------
<S> <C> <C>
Balance at beginning of period $ 571,183 $ 402,964
Provision for loan losses 90,000 38,000
Charge-offs (9,647) (18,081)
========= =========
Balance at end of period $ 651,536 $ 422,883
========= =========
</TABLE>
8
<PAGE> 11
- --------------------------------------------------------------------------------
6. DEPOSITS:
The scheduled maturities of the Bank's certificate accounts as of March 31, 1999
are as follows (amounts approximate):
<TABLE>
<S> <C> <C>
April 1, 1999 to March 31, 2000 $38,196,810
April 1, 2000 to March 31, 2001 11,370,106
April 1, 2001 to March 31, 2002 3,630,818
April 1, 2002 to March 31, 2003 2,006,037
April 1, 2003 and thereafter 2,501,096
-----------
TOTAL $57,704,867
===========
Certificates of $100,000 or more $10,525,441
===========
</TABLE>
7. INCOME TAXES:
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
1999 1998
-------- -------
<S> <C> <C>
Federal $103,360 $80,746
State 21,426 17,166
-------- -------
$124,786 $97,912
======== =======
</TABLE>
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, 1999, and December 31, 1998,
amounted to $514,552 and $301,801, respectively. Additionally, the Bank has an
unfunded loan commitment for a director in the amount of $93,000 as of March 31,
1999.
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 $34,000 and $33,000 during the quarters ended March 31, 1999 and
1998, respectively.
9
<PAGE> 12
The aforementioned approval of the Option Plan made 116,285 options available
for grant to employees and others who perform substantial services for the
Corporation. As of March 31, 1999, the Corporation had granted 106,979 options.
The options are exercisable one year from the grant date in equal installments
over a period of five years and as of March 31, 1999 there have been 507 shares
exercised. The maximum term of any option granted under the Plan cannot exceed
10 years.
On April 15, 1998 the Board of Directors declared a stock dividend of 15% to
shareholders of record of June 2, 1998 payable on June 19, 1998. In addition, on
February 17, 1999 the Board of Directors declared a stock dividend of 5% to
shareholders of record of March 2, 1999 payable on March 19, 1999. All option
data above have been restated to reflect the stock dividends.
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 to deduct any amount 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
March 31, 1999 $13,779 14.66% =>$7,522 =>8.0% =>$9,402 =>10.0%
Tier 1 Capital (to Risk
Weighted Assets):
As of
March 31, 1999 $13,127 13.96% =>$3,761 =>4.0% =>$5,641 =>6.0%
Tier 1 Capital (to
Average Assets):
As of
March 31, 1999 $13,127 7.34% =>$7,156 =>4.0% =>$8,945 =>5.0%
</TABLE>
11. FUTURE ACCOUNTING STANDARDS:
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No.133, "Accounting for Derivative Instruments and Hedging Activities", which is
required to be adopted in years beginning after June 15, 1999. The Corporation
does not have any derivative instruments or hedging activities as of March 31,
1999.
In February 1999, SFAS No. 135, "Rescission of FASB Statement No. 75 and
Technical Corrections," was issued. This statement did not have a material
effect on the Corporation's financial statements.
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 include all of the outstanding capital stock of
the Savings Bank, a loan receivable from the Prestige Bancorp Employee Stock
Ownership Trust (the "ESOP"), loan receivables to officers of the Savings Bank,
deposits maintained at the Savings Bank and common stock of mostly 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 1.25%
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 commercial business
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, 1999, the Corporation's total assets amounted to $180.2
million compared with $177.4 million at December 31, 1998. The $2.8 million or
1.6% increase was primarily due to an increase of $4.7 million or 3.8% in net
loans receivable that was partially offset by a decrease in cash and cash
equivalents of $2.0 million or 19.8%. The growth in net loans receivable was
attributed to an increase in commercial business and commercial real estate of
$2.9 million or 11.0%, and an increase of $1.7 million or 2.1% in one-to-four
family residential real estate loans. Decreased cash and cash equivalents of
$2.0 million was primarily attributable to $4.7 million in new loans in excess
of principal payments received on existing loans and $2.0 million reduction in
Federal Home Loan Bank advances which was partially offset by an increase in
deposits of $4.7 million. Total stockholders' equity amounted to $14.8 million
or 8.23% of total assets at March 31, 1999, compared to equity of $14.8 million
or 8.32% of total assets at December 31, 1998. On February 17, 1999 the Board of
Directors declared a stock dividend of 5% to shareholders of record of March 2,
1999 payable on March 19, 1999. The Corporation paid a quarterly dividend of
$.06 per share during the first quarter of 1999 compared to $.04 per share for
the same period in 1998.
The Corporation's nonperforming assets increased $459,000 or 50.8% to
$1.4 million at March 31, 1999, compared to $903,000 at December 31, 1998. The
increase was primarily due to the addition of one nonperforming Small Business
Administration ("SBA") backed commercial real estate loan of $465,000 that is
75% guaranteed by the SBA.
11
<PAGE> 14
RESULTS OF OPERATIONS
General--The Corporation's net income for the quarter ended March 31,
1999 was $204,000 or $.22 per diluted share compared to net income of $153,000
or $.15 per diluted share for the same quarter in the prior year. Excluding gain
on sale of investments of $39,000, or $24,000 after tax, core net income for the
quarter ended March 31, 1999 was $180,000 or $.20 per diluted share. The $27,000
or 17.6% increase in core net income for the quarter ended March 31, 1999 as
compared to the quarter ended March 31, 1998 was primarily the result of an
increase of $168,000 or 14.5% in net interest income before provision for loan
losses and an increase in total other income, net of the $39,000 gain on sale of
investments, of $66,000 that was partially offset by an increase in provision
for loan losses of $52,000 and an increase in total other expenses of $143,000
or 14.8%. The annualized return on average assets and return on average equity
for the three months ended March 31, 1999, excluding gain on sale of
investments, was .40% and 4.85%, respectively, compared to .39% and 3.89% for
the same period of 1998.
INTEREST INCOME--The Corporation reported interest income of $3.1
million for the three months ended March 31, 1999, as compared to $2.7 million
for the three months ended March 31, 1998. The increase of $413,000 or 15.4% for
the quarter ended March 31, 1999, compared to the same period in the prior year
can be attributed to a $508,000 or 26.2% increase in interest and fees on loans
that was partially offset by a decrease of $168,000 or 32.3% in interest and
dividends on other investment securities. 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, including net construction loans, during the first
quarter of 1999 were $28.3 million, compared to $12.9 million for the same
period in 1998. The average balances on total loans receivable, net of
undisbursed loan proceeds, during the first quarter of 1999 were $127.4 million
compared to $100.6 million for the same period in 1998.
INTEREST EXPENSE--Interest expense increased $245,000 or 16.0% during
the three months ended March 31, 1999 as compared to the same period last year.
This increase was due to growth in average interest-bearing liabilities, which
was partially offset by a reduction in the weighted average interest rate paid
on interest-bearing liabilities. Average deposits and Federal Home Loan Bank
(FHLB) of Pittsburgh advances during the first quarter of 1999 were $113.3
million and $50.3 million, respectively, compared to $92.1 million and $46.3
million, respectively, for the same period in 1998. The weighted average
interest rate on interest-bearing liabilities during the first quarter of 1999
was 4.3% compared to 4.4% for the same period in 1998.
PROVISION FOR LOAN LOSSES--During the three months ended March 31, 1999
the Corporation recorded provisions for losses on loans of $90,000 compared to
$38,000 for the comparable periods in 1998. 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 $66,000, net of a $39,000 gain on
sale of investments, for the three months ended March 31, 1999 compared to same
period in 1998. 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 $143,000 or 14.8% for
the quarter ended March 31, 1999, as compared to the quarter ended March 31,
1998. The total other expenses increase occurred as a result of a $67,000 or
13.4% increase in salaries and employee benefits. The increase in
12
<PAGE> 15
employee salaries and benefits was the result of an additional employee hired
for operations due to increased services provided by the Corporation; approved
salary increases; and the expense of employees at the Elizabeth Township branch
office for the first quarter of 1999 as opposed to only two months of the first
quarter of 1998. Additionally, there was a $30,000 and $21,000 increase in
premises and occupancy costs and other expenses, respectively. These increases
were primarily due to higher depreciation expenses associated with additional
equipment needed to replace non-compliant computer, telephone and related
equipment associated with Year 2000, higher consulting expenses, as the
Corporation has outsourced some job functions, and increased general operating
expenses.
INCOME TAXES--The Corporation incurred a provision for income taxes of
$125,000 for the three months ended March 31, 1999 as compared to $98,000 for
the same period in the prior year. Such increase for 1999 as compared to 1998
was due to an increase 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 had 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, 1999, the Corporation had $49.0 million of
outstanding advances from the FHLB of Pittsburgh.
During the three months ended March 31, 1999 and 1998, the
Corporation's operating activities provided net cash of approximately $444,000
and $390,000, respectively. The primary reasons for the $444,000 net cash
provided during the three months ended March 31, 1999 were $204,000 in net
income, $85,000 in depreciation of premises and equipment, $90,000 in provision
for loan losses, and a $137,000 decrease in other assets, which was partially
offset by a $100,000 increase in accrued interest receivable. During the three
months ended March 31, 1998, the $390,000 net cash provided was the result of
$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.
Net cash used by investing activities was $5.1 million for the three
months ended March 31, 1999. During the three months ended March 31, 1999, the
Corporation originated $4.7 million in new loans in excess of principal payments
received on existing loans and purchased $2.5 million and $2.0 million of
investment securities designated held to maturity and available for sale,
respectively. These uses of cash by investing activities were partially offset
by $3.0 million and $1.0 million of held to maturity securities and available
for sale securities, respectively, that were called. This compares with net cash
used by investing activities of $13.8 million for the three months ended March
31, 1998. The primary reasons for the $13.8 million net cash used by investing
activities was the Corporation had originated $7.9 million in new loans in
excess of principal payments received on existing loans and purchased $6.2
million and $1.4 million of investment securities designated held to maturity
and available for sale, respectively. In addition, $1.5 million of held to
maturity securities were called in the first quarter of 1998.
13
<PAGE> 16
Net cash provided by financing activities for the three months ended
March 31, 1999, was $2.7 million, attributable to increases in core deposits and
certificates of $4.7 million which was partially offset by a $2.0 million
decrease in net Federal Home Loan Bank advances. During the same period last
year, the Corporation experienced a $16.4 million increase in net cash provided
by financing activities primarily due to a $2.4 million increase in core
deposits and certificates and increases in net Federal Home Loan Bank advances
of $14.3 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, 1999, the Savings Bank's tangible, core, and risk-based capital
ratios amounted to 7.35%, 7.35%, and 14.66%, respectively, which substantially
exceeded applicable requirements.
YEAR 2000 ISSUES
The Year 2000 problem arises from the fact that many existing
information technology ("IT") hardware and software systems and non-information
technology ("non-IT") products containing embedded microchip processors were
originally programmed to represent any date with six digits (e.g., 12/31/99), as
opposed to eight digits (e.g., 12/31/1999). Accordingly, problems may arise for
many such products and systems when attempting to process information containing
dates that fall after December 31, 1999. As a result, many such products and
systems could experience miscalculations, malfunctions or disruptions caused by
other dates, such as September 9, 1999 (9/9/99), which was a date traditionally
used as a default date by computer programmers. This problem is commonly
referred to as the "Year 2000" problem, and the acronym "Y2K" is common
substituted for the phrase "Year 2000."
Although the Corporation is unable at this time to assess the possible
impact on its results of operations, liquidity or financial condition of any
Y2K-related disruptions to its business caused by the malfunctioning of any IT
or non-IT system and products that is uses or that third parties with which it
has material relationship use, management does not believe at the current time
that the cost of remediating the Corporation's internal Y2K problems will have a
material adverse impact upon its business, results of operations, liquidity or
financial condition.
The Corporation and the Savings Bank began a process in 1997 that
assigned an individual to begin investigating the Y2K issues. It was determined
that the Savings Bank relies on external processing vendors for all of its
mission critical core application processing and that its approach would be
based on the five-phase approach recommended by the Federal Financial
Institutions Examination Council ("FFIEC"). The Board of Directors and senior
management were apprised of the Year 2000 issues.
In 1997, a Y2K team was formed consisting of the President, Chief
Financial Officer and two employees of the Savings Bank and a member of the
Board of Directors. The initial focus of the team was to identify all issues
that may be affected by the date problem. This included computer hardware and
software, third party processing vendors, environmental factors (i.e., vaults,
security systems, etc.), and miscellaneous items such as preprinted forms,
checkwriters, date stamps, etc. The issues were then categorized as to their
potential impact on the ability of the Savings Bank to service its customers and
ensure business continuity for its shareholders, customers and employees.
Communication was initiated with all of the Savings Bank's vendors; for some
vendors (i.e., PC and network vendors) Year 2000 information was available via
the Internet. Most products and services that the Corporation and the Savings
Bank receive are Year 2000 ready or are scheduled to be Year 2000 ready well in
advance of the millennium. A few products will not be Year 2000 ready and these
have been replaced or are scheduled to be replaced in 1999. The Savings Bank
14
<PAGE> 17
continues to monitor its suppliers of products and services to ensure their Year
2000 readiness. Contingency plans have been received from individual areas of
the Savings Bank and will be combined into an overall bank wide plan.
The Savings Bank has developed a testing plan that includes
documentation for each vendor or product tested. The testing of the Savings
Bank's PCs and networks is near completion. Core applications systems have been
tested and are considered compliant. All remaining issues of serious consequence
will be completed by mid-1999.
In the event that the Corporation's and its service providers' systems
would not handle the date changeover, the impact on the Corporation is at this
point uncertain. However, the Corporation's Y2K contingency plan would be
enacted, which would include evaluating the entire situation and contacting key
personnel on January 1, 2000, off-line manual postings of all transactions that
are currently done by our service provider, and detailed procedures to all
personnel in dealing with Y2K potential problems. This contingency plan is in
process of being tested and reviewed. Modifications will be implemented where
deemed necessary.
The Corporation's costs associated with Year 2000 include various costs
for replacement of non-compliant computer, telephone, software, and related
equipment. Excluding costs of Corporation's personnel time, the Corporation
estimates that the total Year 2000 project costs will not exceed $131,000
(pre-tax). As of March 31, 1999, the Corporation estimates that it has incurred
$103,000 in connection with its Y2K project plan. Most of these incurred costs
related to capital acquisitions and accordingly the capital related costs have
been capitalized.
15
<PAGE> 18
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.
16
<PAGE> 19
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 3, 1999 By: /s/ John A. Stiver
---------------------------
John A. Stiver,
Chief Executive Officer
And Chairman of the Board
Dated: May 3, 1999 By: /s/ Robert S. Zyla
---------------------------
Robert S. Zyla, President
Dated: May 3, 1999 By: /s/ James M. Hein
---------------------------
James M. Hein, Controller
17
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