<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, 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 November 15, 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> <C>
Item 1. Financial Statements
Consolidated Balance Sheets of Prestige Bancorp, Inc. as of
September 30, 1999 (unaudited) and December 31, 1998 1
Consolidated Statements of Income of Prestige Bancorp, Inc. for the three
months ended September 30, 1999 and 1998 (unaudited) 2
Consolidated Statements of Income of Prestige Bancorp, Inc. for the nine
months ended September 30, 1999 and 1998 (unaudited) 3
Consolidated Statements of Stockholders' Equity of Prestige Bancorp, Inc.
for the nine months ended September 30, 1999 and 1998 (unaudited) 4
Consolidated Statements of Cash Flows of Prestige Bancorp, Inc. for the nine
months ended September 30, 1999 and 1998 (unaudited) 5
Notes to Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 13
PART II. OTHER INFORMATION
- -------- -----------------
Item 1. Legal Proceedings 21
Item 2. Changes in Securities 21
Item 3. Defaults upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security-Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 22
- ----------
</TABLE>
<PAGE> 3
PRESTIGE BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- -------------
ASSETS (Unaudited)
- ------
<S> <C> <C>
Cash and due from banks $ 1,300,489 $ 975,202
Interest-bearing deposits with banks 1,631,187 9,177,755
Investment securities:
Available for sale 11,265,335 9,907,260
Held to maturity (market value $24,499,846 and
$25,598,337 respectively) 25,376,548 25,478,289
Net loans 143,801,207 123,916,834
Federal Home Loan Bank stock, at cost 3,448,900 2,548,900
Premises and equipment, net 2,557,253 2,634,609
Accrued interest receivable 1,317,496 1,116,560
Deferred tax asset 409,252 90,359
Other assets 1,310,108 1,528,216
------------ ------------
Total assets $192,417,775 $177,373,984
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Non-interest-bearing deposits $ 6,241,323 $ 5,731,447
Interest-bearing deposits 112,768,433 103,966,675
------------ ------------
Total deposits 119,009,756 109,698,122
Federal Home Loan Bank advances 56,977,000 50,977,000
Advance payments by borrowers for taxes and insurance 551,477 1,023,230
Income taxes payable 157,318 172,086
Accrued interest payable 261,054 234,442
Other liabilities 493,637 509,199
------------ ------------
Total liabilities 177,450,242 162,614,079
------------ ------------
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 September 30, 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
September 30, 1999 and December 31, 1998, respectively (2,161,243) (2,161,243)
Additional paid-in-capital 11,576,275 10,727,677
Unearned ESOP shares: 80,114 and 79,393 shares at
September 30, 1999 and December 31, 1998, respectively (672,660) (690,380)
Retained earnings - substantially restricted 5,381,925 5,826,182
Accumulated other comprehensive income (319,077) (42,421)
------------ ------------
Total stockholders' equity 14,967,533 14,759,905
------------ ------------
Total liabilities and stockholders' equity $192,417,775 $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
September 30,
--------------------------------
1999 1998
------------ ----------
<S> <C> <C>
Interest income:
Interest and fees on loans $2,739,390 $2,255,981
Interest on mortgage-backed securities 190,551 135,718
Interest and dividends on other investment securities 440,971 581,360
Interest on deposits in other financial institutions 14,885 48,624
---------- ----------
Total interest income 3,385,797 3,021,683
---------- ----------
Interest expense:
Interest on deposits 1,162,508 1,020,171
Advances from Federal Home Loan Bank 753,233 696,374
---------- ----------
Total interest expense 1,915,741 1,716,545
---------- ----------
Net interest income 1,470,056 1,305,138
Provision for loan losses 120,000 42,000
---------- ----------
Net interest income after provision for loan losses 1,350,056 1,263,138
---------- ----------
Other income:
Fees and service charges 212,608 135,024
Loss on sale of investments -- (6,311)
Gain on sale of assets 1,995 2,995
Loss on sale of foreclosed real estate -- (8,500)
Other income, net 3,633 2,775
---------- ----------
Total other income 218,236 125,983
---------- ----------
Other expenses:
Salaries and employee benefits 617,454 502,552
Premises and occupancy costs 146,040 140,645
Federal deposit insurance premiums 16,488 14,469
Data processing costs 63,646 67,179
Advertising costs 25,435 40,724
Transaction processing costs 76,831 63,538
ATM transaction fees 41,859 28,799
Other expenses 192,362 191,146
---------- ----------
Total other expenses 1,180,115 1,049,052
---------- ----------
Income before income tax expense 388,177 340,069
Income tax expense 147,767 131,740
---------- ----------
Net income $ 240,410 $ 208,329
========== ==========
Basic earnings per share:
Net income $ 0.26 $ 0.21
Weighted average number of common shares outstanding 916,119 1,006,229
Diluted earnings per share:
Net income $ 0.26 $ 0.21
Weighted average number of common shares outstanding 916,119 1,012,066
</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,
---------------------------------
1999 1998
------------ -----------
<S> <C> <C>
Interest income:
Interest and fees on loans $7,725,428 $6,320,723
Interest on mortgage-backed securities 577,829 451,446
Interest and dividends on other investment securities 1,190,253 1,684,370
Interest on deposits in other financial institutions 164,705 154,999
---------- ----------
Total interest income 9,658,215 8,611,538
---------- ----------
Interest expense:
Interest on deposits 3,360,641 2,912,073
Advances from Federal Home Loan Bank 2,120,933 1,994,501
---------- ----------
Total interest expense 5,481,574 4,906,574
---------- ----------
Net interest income 4,176,641 3,704,964
Provision for loan losses 315,000 122,000
---------- ----------
Net interest income after provision for loan losses 3,861,641 3,582,964
---------- ----------
Other income:
Fees and service charges 564,107 351,578
Gain (loss) on sale of investments 48,559 (13,511)
Gain on sale of assets 3,375 26,250
Loss on sale of foreclosed real estate -- (8,500)
Other income, net 10,436 14,596
---------- ----------
Total other income 626,477 370,413
---------- ----------
Other expenses:
Salaries and employee benefits 1,792,647 1,517,429
Premises and occupancy costs 437,469 388,248
Federal deposit insurance premiums 48,076 43,374
Data processing costs 190,549 194,989
Advertising costs 86,076 92,302
Transaction processing costs 230,288 185,690
ATM transaction fees 111,816 79,984
Other expenses 572,045 538,915
---------- ----------
Total other expenses 3,468,966 3,040,931
---------- ----------
Income before income tax expense 1,019,152 912,446
Income tax expense 389,342 355,804
---------- ----------
Net income $ 629,810 $ 556,642
========== ==========
Basic earnings per share:
Net income $ 0.69 $ 0.55
Weighted average number of common shares outstanding 915,051 1,013,930
Diluted earnings per share:
Net income $ 0.69 $ 0.54
Weighted average number of common shares outstanding 915,253 1,026,575
</TABLE>
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, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
Common Accumulated
Stock Additional Other
Comprehensive $1.00 par Treasury Paid-in Unearned Retained Comprehensive
Income value Stock Capital ESOP Shares Earnings Income Total
------ ---------- ------------ ----------- ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1998 $1,100,090 $(2,161,243) $10,727,677 $(690,380) $ 5,826,182 $ (42,421) $14,759,905
Allocation of 3,248 ESOP shares - - 18,277 17,720 - - 35,997
Cash dividends declared:
Common stock ($.18 per share) - - - - (176,622) - (176,622)
Stock dividend declared:
Common stock (5% per share) 62,223 - 830,321 - (892,544) - -
Cash in lieu of stock - - - - (4,901) - (4,901)
Net income $629,810 - - - - 629,810 - 629,810
Net unrealized losses on available
for sale securities, net of tax (306,624) - - - - - (306,624) (306,624)
of $204,416
Reclassification adjustment for
gains realized in net income net
of tax of $18,591 29,968 29,968 29,968
---------
Comprehensive income $353,154
========= ---------- ------------ ----------- ---------- ----------- ---------- ------------
BALANCE, September 30, 1999 $1,162,313 $(2,161,243) $11,576,275 $(672,660) $ 5,381,925 $(319,077) $14,967,533
========== ============ =========== ========== =========== ========== ============
BALANCE, December 31, 1997 $ 963,023 $ (775,881) $ 8,033,296 $(724,050) $ 8,064,202 $ 69,221 $15,629,811
Allocation of 1,998 ESOP shares - - 38,556 16,550 - - 55,106
Cash dividends declared:
Common stock ($.13 per share) - - - - (144,109) - (144,109)
Stock dividend declared:
Common stock (15% per share) 137,067 - 2,648,956 - (2,786,023) - -
Cash in lieu of stock - - - - (3,484) - (3,484)
Treasury stock purchases 50,557 (716,139) (716,139)
shares
Net income $556,642 - - - - 556,642 - 556,642
Net unrealized losses on available
for sale securities, net of tax (109,790) - - - - - (109,790) (109,790)
of $73,193
Reclassification adjustment for
losses realized in net income
net of tax of $5,269 (8,242) - - - - - (8,242) (8,242)
---------
Comprehensive income $438,610
========= ---------- ------------ ----------- ---------- ----------- ---------- ------------
BALANCE, September 30, 1998 $1,100,090 $(1,492,020) $10,720,808 $(707,500) $ 5,687,228 $ (48,811) $15,259,795
========== ============ =========== ========== =========== ========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 7
PRESTIGE BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Operating activities:
Net income $ 629,810 $ 556,642
------------ ------------
Adjustments to reconcile net income to net cash
provided (used) by operating activities
Depreciation of premises and equipment 259,148 223,480
Amortization of premiums and discounts, net 15,683 (17,759)
Non cash compensation expense related to MRP Plan 107,469 99,835
Non cash compensation expense related to ESOP benefit 56,792 77,076
Loss on sale of mutual funds 17,625 14,700
Gain on sale of equity securities (66,184) --
Gain on sale of premises and equipment -- (37,971)
Provision for loan losses 315,000 122,000
Decrease in other liabilities (36,357) (52,972)
Increase in accrued interest payable 26,612 64,788
Decrease in income taxes payable (149,321) (51,978)
Increase in accrued interest receivable (200,936) (318,571)
Decrease (increase) in other assets 110,639 (295,333)
------------ ------------
Total adjustments 456,170 (172,505)
------------ ------------
Net cash provided by operating activities 1,085,980 384,137
------------ ------------
Investing activities:
Loan originations (54,260,762) (48,921,937)
Principal payments on loans 34,061,389 27,613,421
Principal payments on mortgage-backed securities available for sale 450,275 1,159,786
Principal payments on mortgage-backed securities held to maturity 1,248,528 1,336,875
Principal payments on investment securities held to maturity 337,202 105,319
Proceeds from calls of held to maturity investment securities 3,000,000 3,500,000
Proceeds from sale of available for sale mutual funds 733,931 660,500
Proceeds from sale of equity securities 129,480 --
Proceeds from calls of available for sale investment securities 1,000,000 4,600,000
Return of capital on investment securities -- 897
Purchases of available for sale mortgage backed securities (1,500,000) --
Purchases of available for sale investment securities (2,583,870) (2,506,812)
Purchases of held to maturity investment securities (4,500,000) (9,227,081)
Proceeds from sale of premises and equipment -- 206,118
Purchases of premises and equipment (181,792) (369,254)
Purchase of Federal Home Loan Bank stock (900,000) (800,000)
------------ ------------
Net cash used by investing activities (22,965,619) (22,642,168)
------------ ------------
Financing activities:
Net change in advance payments by borrowers for taxes and insurance (471,753) (147,275)
Purchases of MRP shares -- (611,575)
Proceeds from Federal Home Loan Bank advances 25,600,000 21,000,000
Payments on Federal Home Loan Bank advances (19,600,000) (4,700,000)
Net increase in Money Market, NOW and Passbook savings accounts 7,024,372 5,239,552
Net increase in certificate accounts 2,287,262 5,758,452
Purchases of treasury stock -- (716,139)
Cash in lieu of stock dividend on fractional shares (4,901) (3,484)
Common stock cash dividends paid (176,622) (144,109)
------------ ------------
Net cash provided by financing activities 14,658,358 25,675,422
------------ ------------
Net (decrease) increase in cash and cash equivalents (7,221,281) 3,417,391
Cash and cash equivalents at beginning of period 10,152,957 2,213,461
------------ ------------
Cash and cash equivalents at end of period $ 2,931,676 $ 5,630,852
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for income taxes $ 500,400 $ 405,000
Cash paid during the period for interest on deposits and borrowings 5,454,962 4,841,785
============ ============
Supplemental schedule of noncash investing activity:
Loans transferred to real estate owned $ -- $ 250,000
</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, 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 and nine month periods ended September 30, 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
The Corporation follows 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. Treasury shares are treated as retired for earnings
per share purposes.
6
<PAGE> 9
The following tables reflect the calculation of earnings per share under
SFAS No. 128.
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------
September 30, September 30,
1999 1998
------------- -------------
<S> <C> <C>
Basic earnings per share:
Net income $240,410 $ 208,329
Average shares outstanding 916,119 1,006,229
Earnings per share $ 0.26 $ 0.21
Diluted earnings per share:
Net income $240,410 $ 208,329
Average shares outstanding 916,119 1,006,229
Stock options -- 5,837
-------- ----------
Diluted average shares outstanding 916,119 1,012,066
Earnings per share $ 0.26 $ 0.21
Nine Months Ended
--------------------------------
September 30, September 30,
1999 1998
------------- -------------
Basic earnings per share:
Net income $629,810 $ 556,642
Average shares outstanding 915,051 1,013,930
Earnings per share $ 0.69 $ 0.55
Diluted earnings per share:
Net income $629,810 $ 556,642
Average shares outstanding 915,051 1,013,930
Stock options 202 12,645
-------- ----------
Diluted average shares outstanding 915,253 1,026,575
Earnings per share $ 0.69 $ 0.54
</TABLE>
For the three and nine months ended September 30, 1999, options to purchase
105,325 and 92,725 shares of common stock, respectively, 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.
7
<PAGE> 10
3. INVESTMENT SECURITIES:
The cost and market values of investment securities are summarized as follows:
Investment securities held to maturity:
<TABLE>
<CAPTION>
September 30, 1999
--------------------------------
Amortized Market
Cost Value
----------- -----------
<S> <C> <C>
U.S. government and government
agency obligations:
Due within one year $ 500,000 $ 501,095
Due after one and within five years 1,508,503 1,484,171
Due after five and within ten years 8,495,294 8,167,301
Due after ten years 6,908,446 6,534,744
Federal Home Loan Mortgage
Corporation (FHLMC) certificates:
Due within one year 196,717 198,670
Due after five and within ten years 2,519,277 2,491,499
Due after ten years 1,540,756 1,530,604
Government National Mortgage
Association (GNMA) certificates:
Due after ten years 1,786,439 1,751,809
Federal National Mortgage
Association (FNMA) certificates:
Due after ten years 1,921,116 1,839,953
----------- -----------
$25,376,548 $24,499,846
=========== ===========
Investment securities available for sale:
September 30, 1999
--------------------------------
Amortized Market
Cost Value
----------- -----------
U.S. government and government
agency obligations:
Due after one and within five years $ 4,500,737 $ 4,396,145
Due after five and within ten years 500,000 480,155
Corporate Debentures 493,789 459,875
Federal Home Loan Mortgage
Corporation (FHLMC) certificates:
Due after ten years 2,022,972 1,952,396
Federal National Mortgage Association
FNMA) certificates:
Due after one and within five years 806,900 797,560
Due after 10 years 1,463,202 1,406,180
Mutual fund investment 545,508 538,675
Common stock portfolio 1,464,021 1,234,349
----------- -----------
$11,797,129 $11,265,335
=========== ===========
</TABLE>
8
<PAGE> 11
4. LOANS RECEIVABLE:
Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
September 30,
1999
------------
<S> <C>
Commercial real estate $ 14,422,012
Commercial business loans 19,229,363
Construction 750,000
Less- Deferred loan fees 61,167
------------
34,340,208
------------
Real estate loans:
1-4 family 93,013,265
Construction 1,468,594
------------
94,481,859
Deferred loan costs 49,250
Less- Undisbursed loan proceeds 1,278,267
------------
93,252,842
Consumer loans:
Collateral 547,674
Automobile 2,500,379
Home equity 10,702,431
Student 2,336,524
Credit cards 473,550
Other 493,554
Deferred loan costs 14,642
------------
17,068,754
------------
144,661,804
Less- Allowance for loan losses 860,597
------------
$143,801,207
============
</TABLE>
5. ALLOWANCE FOR LOAN LOSSES:
Activity with respect to the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Balance at beginning of period $571,183 $402,964
Provision for loan losses 315,000 122,000
Charge-offs (25,586) (39,162)
-------- --------
Balance at end of period $860,597 $485,802
======== ========
</TABLE>
9
<PAGE> 12
6. DEPOSITS:
The scheduled maturities of the Bank's certificate accounts as of September 30,
1999 are as follows (amounts approximate):
<TABLE>
<CAPTION>
<S> <C>
October 1, 1999 to September 30, 2000 $ 39,842,414
October 1, 2000 to September 30, 2001 10,618,516
October 1, 2001 to September 30, 2002 3,141,166
October 1, 2002 to September 30, 2003 2,688,758
October 1, 2003 and thereafter 1,935,406
------------
TOTAL $ 58,226,260
============
Certificates of $100,000 or more $ 9,897,271
===========
</TABLE>
7. INCOME TAXES:
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------
1999 1998
----------- -----------
<S> <C> <C>
Federal $317,382 $292,708
State 71,960 63,096
-------- --------
$389,342 $355,804
======== ========
</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 September 30, 1999, and December 31, 1998,
amounted to $635,816 and $301,801, respectively.
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 $37,000 and $107,000 during the three and nine months ended
September 30, 1999 compared to $34,000 and $100,000 for the comparable periods
of 1998.
10
<PAGE> 13
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 September 30, 1999, the Corporation had granted 109,079
options. The options are exercisable one year from the grant date in equal
installments over a period of five years and as of September 30, 1999 there have
been 507 options 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 September 30, 1999 $14,407 14.25% =>$8,090 =>8.0% =>$10,112 =>10.0%
Tier 1 Capital (to Risk
Weighted Assets):
As of September 30, 1999 $13,546 13.40% =>$4,045 =>4.0% =>$6,067 =>6.0%
Tier 1 Capital (to
Average Assets):
As of September 30, 1999 $13,546 7.41% =>$7,315 =>4.0% =>$9,143 =>5.0%
</TABLE>
11. COMMITMENTS AND CONTINGENT LIABILITIES:
The Corporation incurs off-balance sheet risks in the normal course of business
in order to meet the financing needs of its customers. These risks derive from
commitments to extend or receive credit. Such commitments involve, to varying
degrees, elements of credit risk in excess of the amount recognized in the
financial statements.
Commitments to extend credit are obligations to lend to a customer as long as
there is no violation of any condition established in the loan agreement.
Commitments generally have fixed expiration dates or other termination clauses.
A portion of the commitments is not expected to be drawn upon; thus, the total
commitment amounts do not necessarily represent future cash requirements. Each
customer's creditworthiness is evaluated on a case-by-case basis.
11
<PAGE> 14
The Bank's exposure to credit loss in the event of nonperformance by the other
party to these commitments to extend credit is represented by their contractual
amounts. The Bank uses the same credit and collateral policies in making
commitments as for all other lending. The Bank has outstanding various
commitments to extend credit approximating $12.5 million as of September 30,
1999. In the opinion of management, the funding of the credit commitments will
not have a material adverse effect on the Bank's financial position or results
of operations.
In addressing year 2000 liquidity concerns, the Savings Bank entered into an
arrangement with the Federal Home Loan Bank of Pittsburgh to receive $6.0
million in funding in both the third and fourth quarters of 1999.
Additionally, the Bank is also subject to asserted and unasserted potential
claims encountered in the normal course of business. In the opinion of
management and legal counsel, the resolution of these claims will not have a
material adverse effect on the Bank's financial position or results of
operations.
12. 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, 2000. The Corporation
does not have any derivative instruments or hedging activities as of September
30, 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.
13. SUBSEQUENT EVENT:
Robert S. Zyla, President of the Savings Bank and Corporation, has departed in
October 1999 due to a physical disability. Chairman and CEO of the Corporation
and the Bank John A. Stiver and James M. Hein, Controller of the Corporation and
Chief Financial Officer of the Bank, have assumed Mr. Zyla's responsibilities.
John A. Stiver will assume the Presidency until a successor is named. Mr. Zyla
will remain on the Board of Directors. As a result of Mr. Zyla's departure, the
Company will expect to incur a one-time after tax charge of approximately
$69,000 or $.08 per diluted share which will be incurred in the fourth quarter
of 1999. This $69,000 charge is comprised of approximately $52,000 in MRP Plan
expenses and approximately $17,000 in deferred salary expenses.
12
<PAGE> 15
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 certain 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. In addition, management believes it can properly
manage the risks of greater consumer and commercial lending.
At September 30, 1999, the Corporation's total assets amounted to
$192.4 million compared with $177.4 million at December 31, 1998. The $15.0
million or 8.5% increase was primarily due to increases of $19.9 million or
16.1% in net loans receivable and $1.3 million or 3.5% in investment securities
that was partially offset by a reduction in cash and cash equivalents of $7.2
million or 71.1%. The growth in net loans receivable was attributed to increases
in commercial business and commercial real estate of $7.3 million or 27.7%,
$11.7 million or 14.4% in one-to-four family residential real estate loans and
$1.4 million or 8.7% in consumer loans. Decreased cash and cash equivalents of
$7.2 million were primarily attributable to $20.2 million in new loans in excess
of principal payments received on existing loans and a $1.3 million increase in
investment securities which was partially offset by an increase in deposits and
Federal Home Loan Bank ("FHLB") advances of $9.3 million and $6.0 million,
respectively. Total stockholders' equity amounted to $15.0 million or 7.78% of
total assets at September 30, 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 dividends totaling $.18 per
share for the nine months ended September 30, 1999 compared to $.13 per share
for the same period in 1998.
The Corporation's nonperforming assets decreased $238,000 or 26.4% to
$665,000 at September 30, 1999, compared to $903,000 at December 31, 1998. The
decrease was primarily due to a decrease in nonperforming loans. There are three
loans that management has identified as potential problems. The first
13
<PAGE> 16
is a Small Business Administration ("SBA") backed commercial real estate loan of
$458,000 that is 75% guaranteed by the SBA. After realization of the collateral,
management is of the opinion it may sustain a loss, but such loss has been
adequately reserved and will not result in a material adverse effect on the
Bank's financial position or results of operations. In addition, there are two
commercial loans to another borrower that represent potential problem loans. At
September 30, 1999, the balance outstanding of these loans totaled $497,000. In
the opinion of management, the resolution of these potential loan problems will
not have a material adverse effect on the Bank's financial position or results
of operations.
The following table sets forth the amounts and categories of the
Savings Bank's non-performing assets at the dates indicated. The Savings Bank
had no loans during the periods indicated below which should be classified as
troubled debt restructurings.
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
------------- ------------- -------------
1999 1998 1998
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Non-accruing loans:
One-to-four family residential....... $253 $483 $310
Consumer loans....................... 157 116 21
Commercial real estate............... -- 99 99
Commercial business loans............ 50 -- --
---- ---- ----
Total nonperforming loans.......... 460 698 430
Real estate owned.................... 205 205 242
---- ---- ----
Total nonperforming assets......... $665 $903 $672
==== ==== ====
Total nonperforming loans as a
percentage of total loans.......... .32% .56% .36%
==== ==== ====
Total nonperforming assets as a
percentage of total assets......... .35% .51% .40%
==== ==== ====
</TABLE>
RESULTS OF OPERATIONS
- ---------------------
General--The Corporation's net income for the quarter ended September
30, 1999 was $240,000 or $.26 per diluted share compared to net income of
$208,000 or $.21 per diluted share for the same quarter in the prior year. The
$32,000 or 15.4% increase in net income for the quarter ended September 30, 1999
as compared to the quarter ended September 30, 1998 was primarily the result of
an increase of $165,000 or 12.6% in net interest income before provision for
loan losses and an increase in total other income of $92,000 or 73.0%. That
increase was partially offset by increases of $131,000 or 12.5% and $78,000 or
185.7% in total other expenses and provision for losses on loans, respectively.
The annualized return on average assets and return on average equity for the
three months ended September 30, 1999 were .50% and 6.42%, respectively,
compared to .49% and 5.30%, respectively, for the same period of 1998.
The Corporation's net income for the nine months ended September 30,
1999 was $630,000 or $.69 per diluted share compared to net income of $557,000
or $.54 per diluted share for the comparable period of 1998. Excluding gains and
losses on sales of investments and assets, net of tax, core net income for the
nine months ended September 30, 1999 was $598,000 or $.65 per diluted share
compared to $549,000 or $.53 per diluted share for the comparable period of
1998. The $49,000 or 8.9% increase in core net income was primarily the result
of an increase of $472,000 or 12.7% in net interest income before provision for
losses on loans and an increase in total other income of $216,000, net of the
gains and losses on sales of investments and assets, that was partially offset
by an increase in total other expenses of $428,000 or 14.1% and an increase in
provision for losses on loans of $193,000 or 158.2%. The annualized return on
average assets and return on average equity, excluding gains on sales of
investments and assets, for the nine months ended
14
<PAGE> 17
September 30, 1999 were .43% and 5.34%, respectively, compared to .45% and 4.64%
for the same period of 1998.
Net income for the quarter ended September 30, 1999 increased $55,000
or $.06 per share when compared to the quarter ended June 30, 1999. The primary
reasons for the rise were increases of $88,000 in net interest income before
provision for loan losses and other income of $23,000 which was partially offset
by an increase in provision for losses on loans and income tax expense of
$15,000 and $31,000, respectively. The increase of $88,000 in net interest
income before provision for loan losses benefited by a $36,000 net change in
collection of past due interest on loans. This equated to a $.02 per share
effect when comparing the second and third quarters of 1999 earnings per share.
INTEREST INCOME--The Corporation reported interest income of $3.4
million for the three months ended September 30, 1999, as compared to $3.0
million for the three months ended September 30, 1998. The increase of $364,000
or 12.0% for the quarter ended September 30, 1999, compared to the same period
in the prior year can be attributed to a $483,000 or 21.4% increase in interest
and fees on loans that was partially offset by a decrease of $140,000 or 24.1%
in interest and dividends on other investment securities. The increase of
$483,000 in interest and fees on loans was primarily the result of loan growth.
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 third quarter of 1999 were $33.8 million, compared to $20.6
million for the same period in 1998. The average balances on total loans
receivable, net of undisbursed loan proceeds, during the third quarter of 1999
were $142.3 million compared to $114.8 million for the same period in 1998.
The Corporation reported interest income of $9.7 million for the nine
months ended September 30, 1999, as compared to $8.6 million for the nine months
ended September 30, 1998. The increase of $1.1 million or 12.8% for the nine
months ended September 30, 1999, compared to the same period in the prior year
can be attributed to a $1.4 million or 22.2% increase in interest and fees on
loans that was partially offset by a decrease of $494,000 or 29.3% in interest
and dividends on other investment securities. The increase of $1.4 million in
interest and fees on loans was primarily the result of loan growth. Average
balances for commercial business and commercial real estate loans, including net
construction loans, during the nine months of 1999 were $31.0 million, compared
to $17.0 million for the same period in 1998. The average balances on total
loans receivable, net of undisbursed loan proceeds, during the nine months of
1999 were $134.7 million compared to $108.3 million for the same period in 1998.
INTEREST EXPENSE--Interest expense increased $199,000 or 11.6% during
the three months ended September 30, 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 third quarter of 1999 were $119.5
million and $54.5 million, respectively, compared to $101.3 million and $49.6
million, respectively, for the same period in 1998. The weighted average
interest rate on interest-bearing liabilities during the third quarter of 1999
was 4.4% compared to 4.6% for the same period in 1998.
Interest expense increased $575,000 or 11.7% during the nine months
ended September 30, 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 nine months of 1999 were $116.3 million
and $51.4 million, respectively, compared to $96.7 million and $48.5 million,
respectively, for the same period in 1998. The weighted average interest rate on
15
<PAGE> 18
interest-bearing liabilities during the first nine months of 1999 was 4.4%
compared to 4.5% for the same period in 1998.
PROVISION FOR LOAN LOSSES--During the three and nine months ended
September 30, 1999 the Corporation recorded provisions for losses on loans of
$120,000 and $315,000, respectively, compared to $42,000 and $122,000,
respectively, 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 a comprehensive methodology and procedural
discipline which is updated on a monthly basis. This methodology includes:
o A detailed review of all criticized and impaired loans to determine if
any specific reserve allocations are required on an individual loan
basis. The specific reserve established for these criticized and
impaired loans is based on careful analysis of the loan's performance,
the related collateral value, cash flow considerations and the
financial capability of any guarantor.
o The application of reserve allocations to all outstanding loans and
certain unfunded commitments is based upon review of historical losses
and qualitative factors, which include but are not limited to, economic
trends, delinquencies, concentrations of credit, trends in loan volume,
experience and depth of management, examination and audit results,
effects of any changes in lending policies and trends in policy
exceptions.
o The application of reserve allocations for all commercial and
commercial real estate loans are calculated by using a risk rating
system. Risk ratings are assigned to all loans based upon an internal
review. There are ten risk ratings and each rating has a corresponding
reserve factor that is used to calculate the required reserve.
o The maintenance of a general unallocated reserve occurs in order to
provide conservative positioning and protection against unknown events
or circumstances that have occurred, but have not yet been identified
by the Savings Bank through its credit administration process. It must
be emphasized that a general unallocated reserve is prudent recognition
of the fact that reserve estimates, by definition, lack precision.
After completion of this process, evaluation of the adequacy of the
reserve and the establishment of the provision level for the next month are
performed. The Corporation believes that the procedural discipline, systematic
methodology, and comprehensive documentation of this monthly process provides
appropriate support for accounting purposes.
When it is determined that the prospects for recovery of the principal
of a loan have significantly diminished, the loan is immediately charged against
the allowance account; subsequent recoveries, if any, are credited to the
allowance account. In addition, non-accrual, delinquent loans greater than sixty
days and problem loans are reviewed monthly to determine potential losses.
Consumer loans are considered losses when they are 180 days past due.
The Savings Bank's management is unable to determine in what loan
category future charge-offs and recoveries may occur. The following schedule
sets forth the allocation of the allowance for loan losses among various
categories. The entire allowance for loan losses is available to absorb future
loan losses in any loan category.
16
<PAGE> 19
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 DECEMBER 31, 1998 SEPTEMBER 30, 1998
-------------------- -------------------- -------------------
% OF % OF % OF
LOANS IN LOANS IN LOANS IN
EACH EACH EACH
CATEGORY CATEGORY CATEGORY
TO TOTAL TO TOTAL TO TOTAL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
------ ----- ------ ----- ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
One-to-four family residential and
construction ................................. $164 64.74% $152 65.56% $139 67.29%
Commercial business, commercial real estate
and construction ............................. 537 23.57 349 21.95 274 19.85
Consumer:
Automobile, home equity, student, share and
other consumer ................................ 73 11.69 70 12.49 73 12.86
Allocation to general risk ....................... 87 -- -- -- -- --
---- ------ ---- ------ ---- ------
Total ......................................... $861 100.00% $571 100.00% $486 100.00%
==== ====== ==== ====== ==== ======
</TABLE>
OTHER INCOME--Total other income increased $88,000 and $216,000, net of
gains and losses on sales of investments and assets, for the three and nine
months ended September 30, 1999, respectively, compared to same periods in 1998.
The increases were attributed to increases in fees and service charges generated
from an increase in total transaction accounts.
OTHER EXPENSES--Total other expenses increased $131,000 or 12.5% for
the quarter ended September 30, 1999, as compared to the quarter ended September
30, 1998. The increase in total other expenses occurred as a result of a
$114,000 or 22.7% increase in salaries and employee benefits. The increase in
employee salaries and benefits was the result of an additional employee hired
for operations due to increased services provided by the Corporation, an
additional employee hired for commercial loan expansion, and approved salary and
bonus increases. Additionally, there was an increase of $13,000 in transaction
processing costs. This increase was primarily due to growth in total transaction
accounts.
Total other expenses increased $428,000 or 14.1% for the nine months
ended September 30, 1999, as compared to the nine months ended September 30,
1998. The increase in total other expenses occurred as a result of a $276,000 or
18.2% increase in salaries and employee benefits. The increase in employee
salaries and benefits was the result of an additional employee hired for
operations due to increased services provided by the Corporation, an additional
employee hired for commercial loan expansion, and approved salary and bonus
increases. Additionally, there were increases of $49,000, $44,000 and $33,000 in
premises and occupancy costs, transaction processing 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, increased
transaction processing costs associated with the growth in total transaction
accounts and increased general operating expenses.
INCOME TAXES--The Corporation incurred a provision for income taxes of
$148,000 and $389,000 for the three and nine months ended September 30, 1999,
respectively, as compared to $132,000 and $356,000 for the same period in the
prior year. Such increases for 1999 as compared to 1998 were due to an increase
in taxable income.
17
<PAGE> 20
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 Federal Home Loan Bank ("FHLB") of
Pittsburgh to leverage its strong capital position. As of September 30, 1999,
the Corporation had $57.0 million of outstanding advances from the FHLB of
Pittsburgh.
During the nine months ended September 30, 1999 and 1998, the
Corporation's operating activities provided net cash of approximately $1.1
million and $384,000, respectively. The primary reasons for the $1.1 million net
cash provided during the nine months ended September 30, 1999 were $630,000 in
net income, $259,000 in depreciation of premises and equipment, and $315,000 in
provision for loan losses, which was partially offset by a $201,000 increase in
accrued interest receivable and a $149,000 decrease in income taxes payable.
During the nine months ended September 30, 1998, the $384,000 net cash provided
by operating activities was the result of $557,000 in net income, $223,000 in
depreciation of premises and equipment, and a $65,000 increase in accrued
interest payable, which was partially offset by a $319,000 and $295,000 increase
in accrued interest receivable and other assets, respectively.
Net cash used by investing activities was $23.0 million for the nine
months ended September 30, 1999. During the nine months ended September 30,
1999, the Corporation originated $20.2 million in new loans in excess of
principal payments received on existing loans and purchased $4.5 million and
$2.6 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 $22.6 million for the nine months
ended September 30, 1998. The primary reasons for the $22.6 million net cash
used by investing activities was the Corporation had originated $21.3 million in
new loans in excess of principal payments received on existing loans and
purchased $9.2 million of investment securities designated held to maturity due
to their longer term maturity structure. In addition, $3.5 million of held to
maturity securities and $4.6 million of available for sale securities were
called and $2.5 million available for sale securities were purchased in the
first nine months of 1998.
Net cash provided by financing activities for the nine months ended
September 30, 1999, was $14.7 million. This was attributable to increases in
core deposits and certificates of $9.3 million and $6.0 million in net Federal
Home Loan Bank advances. During the same period last year, the Corporation
experienced a $25.7 million increase in net cash provided by financing
activities primarily due to a $11.0 million increase in core deposits and
certificates in addition to increases in net Federal Home Loan Bank advances of
$16.3 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 September 30, 1999, the Savings Bank's tangible, core, and risk-based capital
ratios amounted to 7.09%, 7.09%, and 14.25%, respectively, which substantially
exceeded applicable requirements.
18
<PAGE> 21
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
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. This problem is commonly referred to as
the "Year 2000" problem, and the acronym "Y2K" is a common substitute for the
phrase "Year 2000."
The Corporation is unable at this time to assess the full 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 it or any third party with which it has a material
relationship uses. 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 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, 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. 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 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 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 core application systems,
personal computers and networks have been tested and are considered compliant.
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, contacting key
personnel on January 1, 2000, off-line manual postings of all transactions
currently done by our service provider and detailed procedures to all personnel
in dealing with Y2K potential problems. This contingency plan has been tested
and reviewed. Modifications have been and will continue to be implemented where
deemed necessary.
19
<PAGE> 22
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 September 30, 1999, the Corporation estimates that it has
incurred $116,000 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.
20
<PAGE> 23
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.
21
<PAGE> 24
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 15, 1999 By: /s/ John A. Stiver
-----------------------
John A. Stiver,
Chief Executive Officer
And Chairman of the Board
Dated: November 15, 1999 By: /s/ James M. Hein
-----------------------
James M. Hein, Controller
22
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
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0
0
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</TABLE>
