<PAGE> 1
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to _______________
Commission File Number 0-27522
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 August 14, 2000 there
were 946,116 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
June 30, 2000 (unaudited) and December 31, 1999 1
Consolidated Statements of Income of Prestige Bancorp, Inc. for the three
months ended June 30, 2000 and 1999 (unaudited) 2
Consolidated Statements of Income of Prestige Bancorp, Inc. for the six
months ended June 30, 2000 and 1999 (unaudited) 3
Consolidated Statements of Stockholders' Equity of Prestige Bancorp, Inc.
for the six months ended June 30, 2000 and 1999 (unaudited) 4
Consolidated Statements of Cash Flows of Prestige Bancorp, Inc. for the six
months ended June 30, 2000 and 1999 (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>
June 30, December 31,
2000 1999
------------- -------------
ASSETS (Unaudited)
<S> <C> <C>
Cash and due from banks $ 944,168 $ 1,411,002
Interest-bearing deposits with banks 2,620,464 3,787,311
Investment securities:
Available for sale 8,964,403 10,985,172
Held to maturity (market value $22,533,108 and
$23,027,655 respectively) 23,798,763 24,361,002
Net loans 161,076,562 150,962,353
Federal Home Loan Bank stock, at cost 3,648,900 3,648,900
Premises and equipment, net 2,432,213 2,503,345
Accrued interest receivable 1,265,345 1,177,480
Deferred tax asset 770,129 548,118
Other assets 1,039,219 1,187,636
------------- -------------
Total assets $ 206,560,166 $ 200,572,319
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Non-interest-bearing deposits $ 8,290,182 $ 7,537,107
Interest-bearing deposits 114,393,641 112,953,650
------------- -------------
Total deposits 122,683,823 120,490,757
Federal Home Loan Bank advances 66,277,000 62,977,000
Advance payments by borrowers for taxes and insurance 1,556,398 1,068,008
Income taxes payable 131,507 163,736
Accrued interest payable 621,153 422,971
Other liabilities 633,022 496,558
------------- -------------
Total liabilities 191,902,903 185,619,030
------------- -------------
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 June 30, 2000 and December 31, 1999 1,162,313 1,162,313
Treasury stock at cost: 216,197 and 172,349 shares at
June 30, 2000 and December 31, 1999, respectively (2,699,348) (2,246,618)
Additional paid-in-capital 11,588,089 11,581,741
Unearned ESOP shares: 76,714 and 79,007 shares at
June 30, 2000 and December 31, 1999, respectively (635,320) (654,310)
Retained earnings - substantially restricted 5,715,669 5,543,671
Accumulated other comprehensive income (474,140) (433,508)
------------- -------------
Total stockholders' equity 14,657,263 14,953,289
------------- -------------
Total liabilities and stockholders' equity $ 206,560,166 $ 200,572,319
============= =============
</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
June 30,
--------------------------------
2000 1999
----------- -----------
<S> <C> <C>
Interest income:
Interest and fees on loans $ 3,133,800 $ 2,540,836
Interest on mortgage-backed securities 170,472 197,461
Interest and dividends on other investment securities 436,041 397,642
Interest on deposits in other financial institutions 17,061 35,093
----------- -----------
Total interest income 3,757,374 3,171,032
----------- -----------
Interest expense:
Interest on deposits 1,202,541 1,112,010
Advances from Federal Home Loan Bank 996,273 676,922
----------- -----------
Total interest expense 2,198,814 1,788,932
----------- -----------
Net interest income 1,558,560 1,382,100
Provision for loan losses 422,000 105,000
----------- -----------
Net interest income after provision for loan losses 1,136,560 1,277,100
----------- -----------
Other income:
Fees and service charges 234,187 189,982
(Loss) gain on sale of investments (15,510) 9,309
Gain (loss) on sale of assets 665 (615)
Gain on sale of foreclosed real estate 2,488 --
Other income, net 5,004 3,405
----------- -----------
Total other income 226,834 202,081
----------- -----------
Other expenses:
Salaries and employee benefits 627,748 607,014
Premises and occupancy costs 150,911 145,816
Federal deposit insurance premiums 6,213 16,044
Data processing costs 70,587 63,457
Advertising costs 48,570 34,879
Transaction processing costs 86,129 76,801
ATM transaction fees 41,900 38,331
Other expenses 226,733 195,058
----------- -----------
Total other expenses 1,258,791 1,177,400
----------- -----------
Income before income tax expense 104,603 301,781
Income tax expense 36,822 116,789
----------- -----------
Net income $ 67,781 $ 184,992
=========== ===========
Basic earnings per share:
Net income $ 0.08 $ 0.20
Weighted average number of common shares outstanding 869,639 915,041
Diluted earnings per share:
Net income $ 0.08 $ 0.20
Weighted average number of common shares outstanding 869,639 915,041
</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>
Six Months Ended
June 30,
-------------------------------
2000 1999
----------- ----------
<S> <C> <C>
Interest income:
Interest and fees on loans $ 6,098,032 $4,986,038
Interest on mortgage-backed securities 350,255 387,278
Interest and dividends on other investment securities 872,133 749,282
Interest on deposits in other financial institutions 52,527 149,820
----------- ----------
Total interest income 7,372,947 6,272,418
----------- ----------
Interest expense:
Interest on deposits 2,385,873 2,198,133
Advances from Federal Home Loan Bank 1,912,103 1,367,700
----------- ----------
Total interest expense 4,297,976 3,565,833
----------- ----------
Net interest income 3,074,971 2,706,585
Provision for loan losses 542,000 195,000
----------- ----------
Net interest income after provision for loan losses 2,532,971 2,511,585
----------- ----------
Other income:
Fees and service charges 440,752 351,499
(Loss) gain on sale of investments (7,964) 48,559
Gain on sale of assets 2,660 1,380
Gain on sale of foreclosed real estate 2,488 --
Other income, net 8,424 6,803
----------- ----------
Total other income 446,360 408,241
----------- ----------
Other expenses:
Salaries and employee benefits 1,268,930 1,175,193
Premises and occupancy costs 302,447 291,429
Federal deposit insurance premiums 12,438 31,588
Data processing costs 138,133 126,903
Advertising costs 84,003 60,641
Transaction processing costs 173,178 153,457
ATM transaction fees 81,662 69,957
Other expenses 422,551 379,683
----------- ----------
Total other expenses 2,483,342 2,288,851
----------- ----------
Income before income tax expense 495,989 630,975
Income tax expense 188,398 241,575
----------- ----------
Net income $ 307,591 $ 389,400
=========== ==========
Basic earnings per share:
Net income $ 0.35 $ 0.43
Weighted average number of common shares outstanding 887,983 914,509
Diluted earnings per share:
Net income $ 0.35 $ 0.43
Weighted average number of common shares outstanding 887,983 914,812
</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 SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(Unaudited)
<TABLE>
<CAPTION>
Common
Stock Additional
Comprehensive $1.00 par Treasury Paid-in
Income value Stock Capital
------------- --------- -------- ----------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1999 $ 1,162,313 $ (2,246,618) $ 11,581,741
Allocation of 2,293 ESOP shares -- -- 6,348
Cash dividends declared:
Common stock ($.14 per share) -- -- --
Treasury stock purchases, 43,848
shares -- (452,730) --
Net income $ 307,591 -- -- --
Net unrealized losses on available
for sale securities, net of tax
of $23,795 (35,693) -- -- --
Reclassification adjustment for
losses realized in net income
net of tax of $3,025 (4,939) -- -- --
-----------
Comprehensive income $ 266,959
=========== ----------- ------------ ------------
BALANCE, June 30, 2000 $1,162,313 $ (2,699,348) $ 11,588,089
=========== ============ ============
BALANCE, December 31, 1998 $ 1,100,090 $ (2,161,243) $ 10,727,677
Allocation of 2,140 ESOP shares -- -- 12,962
Cash dividends declared:
Common stock ($.12 per share) -- -- --
Stock dividend declared:
Common stock (5% per share) 62,223 -- 830,321
Cash in lieu of stock -- -- --
Net income $ 389,400 -- -- --
Net unrealized losses on available
for sale securities, net of tax
of $106,319 (159,479) -- -- --
Reclassification adjustment for
gains realized in net income net
of tax of $18,591 29,968 -- -- --
-----------
Comprehensive income $ 259,889
=========== ----------- ------------ ------------
BALANCE, June 30, 1999 $ 1,162,313 $ (2,161,243) $ 11,570,960
=========== ============ ============
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Other
Unearned Retained Comprehensive
ESOP Shares Earnings Income Total
----------- --------- ------------ -----
<S> <C> <C> <C> <C>
BALANCE, December 31, 1999 $ (654,310) $ 5,543,671 $ (433,508) $ 14,953,289
Allocation of 2,293 ESOP shares 18,990 -- -- 25,338
Cash dividends declared:
Common stock ($.14 per share) -- (135,593) -- (135,593)
Treasury stock purchases, 43,848
shares -- -- -- (452,730)
Net income -- 307,591 -- 307,591
Net unrealized losses on available
for sale securities, net of tax
of $23,795 -- -- (35,693) (35,693)
Reclassification adjustment for
losses realized in net income
net of tax of $3,025 -- -- (4,939) (4,939)
Comprehensive income
----------- ----------- ------------ ------------
BALANCE, June 30, 2000 $ (635,320) $ 5,715,669 $ (474,140) $ 14,657,263
=========== =========== ============ ============
BALANCE, December 31, 1998 $ (690,380) $ 5,826,182 $ (42,421) $ 14,759,905
Allocation of 2,140 ESOP shares 17,720 -- -- 30,682
Cash dividends declared:
Common stock ($.12 per share) -- (116,804) -- (116,804)
Stock dividend declared:
Common stock (5% per share) -- (892,544) -- --
Cash in lieu of stock -- (4,901) -- (4,901)
Net income -- 389,400 -- 389,400
Net unrealized losses on available
for sale securities, net of tax
of $106,319 -- -- (159,479) (159,479)
Reclassification adjustment for
gains realized in net income net
of tax of $18,591 -- -- 29,968 29,968
Comprehensive income
----------- ----------- ------------ ------------
BALANCE, June 30, 1999 $ (672,660) $ 5,201,333 $ (171,932) $ 14,928,771
=========== =========== ============ ============
</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>
Six Months Ended
June 30,
---------------------------------
2000 1999
---------- --------
<S> <C> <C>
Operating activities:
Net income $ 307,591 $ 389,400
------------ ------------
Adjustments to reconcile net income to net cash
provided (used) by operating activities
Depreciation of premises and equipment 165,043 171,816
Amortization of premiums and discounts, net (4,721) 13,497
Non cash compensation expense related to MRP Plan 63,565 70,429
Non cash compensation expense related to ESOP benefit 32,028 38,637
Loss on sale of mutual funds -- 17,625
Gain on sale of equity securities (3,183) (66,184)
Loss on sale of available for sale investment
securities 8,877 --
Loss on sale of available for sale mortgage backed
securities 2,270 --
Provision for loan losses 542,000 195,000
Increase (decrease) in other liabilities 121,399 (41,909)
Increase (decrease) in accrued interest payable 198,182 (14,443)
Decrease in income taxes payable (32,229) (7,335)
Increase in deferred income taxes (194,924) (109,554)
Increase in accrued interest receivable (87,865) (563)
Decrease in other assets 86,702 91,617
------------ ------------
Total adjustments 897,144 358,633
------------ ------------
Net cash provided by operating activities 1,204,735 748,033
------------ ------------
Investing activities:
Loan originations (31,284,585) (34,269,478)
Principal payments on loans 20,628,376 22,569,185
Principal payments on mortgage-backed securities available for
sale 284,558 386,223
Principal payments on mortgage-backed securities held to maturity 523,326 828,025
Principal payments on investment securities held to maturity 36,974 289,232
Proceeds from calls of held to maturity investment
securities -- 3,000,000
Proceeds from sale of available for sale mutual funds -- 733,931
Proceeds from sale of available for sale investment
securities securities 991,126 --
Proceeds from sale of available for sale mortgage backed
securities 593,798 --
Proceeds from sale of equity securities 99,433 129,480
Proceeds from calls of available for sale investment
securities -- 1,000,000
Purchases of available for sale mortgage backed
securities -- (1,500,000)
Purchases of available for sale investment securities (17,169) (2,576,656)
Purchases of held to maturity investment securities -- (4,500,000)
Purchases of premises and equipment (93,911) (146,765)
Purchase of Federal Home Loan Bank stock -- (512,500)
------------ ------------
Net cash used by investing activities (8,238,074) (14,569,323)
------------ ------------
Financing activities:
Net change in advance payments by borrowers for taxes and
insurance 488,390 146,486
Purchases of MRP shares (1,850) --
Proceeds from Federal Home Loan Bank advances 84,750,000 1,750,000
Payments on Federal Home Loan Bank advances (81,450,000) (2,500,000)
Net increase in Money Market, NOW and Passbook savings accounts 2,255,561 3,914,684
Net (decrease) increase in certificate accounts (62,495) 2,486,907
Purchases of treasury stock (444,355) --
Cash in lieu of stock dividend on fractional shares -- (4,901)
Common stock cash dividends paid (135,593) (116,804)
------------ ------------
Net cash provided by financing activities 5,399,658 5,676,372
------------ ------------
Net decrease in cash and cash equivalents (1,633,681) (8,144,918)
Cash and cash equivalents at beginning of period 5,198,313 10,152,957
------------ ------------
Cash and cash equivalents at end of period $ 3,564,632 $ 2,008,039
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for income taxes $ 415,550 $ 320,200
Cash paid during the period for interest on deposits and
borrowings 4,099,794 3,580,276
Supplemental schedule of noncash investing activity:
Loans transferred to real estate owned $ 70,000 $ --
</TABLE>
The accompanying notes are an integral part of these financial statements
5
<PAGE> 8
PRESTIGE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
1. BASIS OF ORGANIZATION:
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 per
share. Simultaneously there was a corresponding exchange of all of the Bank's
stock for approximately 50% of the net offering proceeds. The remaining portion
of the net proceeds were retained by the Corporation net of $770,410, which was
loaned to the ESOP for its purchase. The conversion and public offering was
completed on June 27, 1996 with net proceeds from the offering, net of the ESOP
loan, totaling $8,188,394, after offering expenses.
2. BASIS OF PRESENTATION:
The following unaudited financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in annual financial
statements prepared in accordance with accounting principles generally accepted
in the United States 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 six month periods ended
June 30, 2000, are not necessarily indicative of the results to be expected for
the year ending December 31, 2000.
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, 1999, 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
------------------------------
June 30, 2000 June 30, 1999
------------- -------------
<S> <C> <C>
Basic earnings per share:
Net income $ 67,781 $184,992
Average shares outstanding 869,639 915,041
Earnings per share $ .08 $ .20
Diluted earnings per share:
Net income $ 67,781 $184,992
Average shares outstanding 869,639 915,041
Stock options -- --
-------- --------
Diluted average shares outstanding 869,639 915,041
Earnings per share $ .08 $ .20
</TABLE>
For the three months ended June 30, 2000 and 1999, options to purchase 111,026
and 105,325 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.
<TABLE>
<CAPTION>
Six Months Ended
------------------------------
June 30, 2000 June 30, 1999
------------- -------------
<S> <C> <C>
Basic earnings per share:
Net income $307,591 $389,400
Average shares outstanding 887,983 914,509
Earnings per share $ .35 $ .43
Diluted earnings per share:
Net income $307,591 $389,400
Average shares outstanding 887,983 914,509
Stock options -- 303
-------- --------
Diluted average shares outstanding 887,983 914,812
Earnings per share $ .35 $ .43
</TABLE>
For the six months ended June 30, 2000 and 1999, options to purchase 111,026 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 February 17, 1999 the Board of Directors declared a stock dividend of 5% to
shareholders of record of March 2, 1999, which was paid on March 19, 1999. All
per share data have been restated to reflect the stock dividend.
Comprehensive Income
The Corporation follows SFAS No. 130, "Reporting Comprehensive Income." 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 available for sale:
<TABLE>
<CAPTION>
June 30, 2000
-----------------------------
Amortized Market
Cost Value
--------- -----------
<S> <C> <C>
U.S. government and government
agency obligations:
Due after one and within five years $3,500,000 $3,360,285
Due after five and within ten years 500,000 472,030
Corporate Debentures 493,951 458,565
Federal Home Loan Mortgage
Corporation (FHLMC) certificates:
Due after ten years 1,921,149 1,827,110
Federal National Mortgage Association
(FNMA) certificates:
Due within one year 36,303 35,563
Due after ten years 1,398,185 1,322,799
Mutual fund investment 569,956 561,445
Common stock portfolio 1,335,092 926,606
---------- ----------
$9,754,636 $8,964,403
========== ==========
</TABLE>
Investment securities held to maturity:
<TABLE>
<CAPTION>
June 30, 2000
----------------------------
Amortized Market
Cost Value
--------- ------
<S> <C> <C>
U.S. government and government
agency obligations:
Due within one year $ 1,504,462 $ 1,470,055
Due after five and within ten years 8,495,691 8,012,675
Due after ten years 6,834,400 6,309,979
Federal Home Loan Mortgage
Corporation (FHLMC) certificates:
Due after five and within ten years 2,182,851 2,132,323
Due after ten years 1,335,054 1,318,949
Government National Mortgage
Association (GNMA) certificates:
Due after ten years 1,629,072 1,577,109
Federal National Mortgage
Association (FNMA) certificates:
Due after ten years 1,817,233 1,712,018
----------- -----------
$23,798,763 $22,533,108
=========== ===========
</TABLE>
8
<PAGE> 11
4. LOANS RECEIVABLE:
Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
June 30,
2000
--------
<S> <C>
Real estate loans:
1-4 family $ 103,995,156
Construction 2,403,840
Commercial real estate 16,556,169
-------------
122,955,165
Less- Undisbursed loan proceeds 1,196,465
-------------
121,758,700
Commercial business loans: 22,028,220
Consumer loans:
Home equity 11,955,863
Student 2,379,488
Automobile 2,678,364
Collateral 701,118
Credit cards 571,944
Personal unsecured/other 483,598
-------------
18,770,375
-------------
162,557,295
Less- Allowance for loan losses 1,494,908
Deferred loan costs (14,175)
-------------
$ 161,076,562
=============
</TABLE>
5. ALLOWANCE FOR LOAN LOSSES:
Activity with respect to the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------------
2000 1999
-------- --------
<S> <C> <C>
Balance at beginning of period $ 982,588 $ 571,183
Provision for loan losses 542,000 195,000
Charge-offs (30,035) (16,751)
Recoveries 355 --
----------- ---------
Balance at end of period $ 1,494,908 $ 749,432
=========== =========
</TABLE>
<PAGE> 12
6. DEPOSITS:
The scheduled maturities of the Bank's certificate accounts as of June 30, 2000
are as follows (amounts approximate):
<TABLE>
<S> <C>
July 1, 2000 to June 30, 2001 $36,791,691
July 1, 2001 to June 30, 2002 8,062,580
July 1, 2002 to June 30, 2003 6,985,222
July 1, 2003 to June 30, 2004 2,289,652
July 1, 2004 and thereafter 3,627,453
-----------
TOTAL $57,756,598
===========
Certificates of $100,000 or more $10,216,729
===========
</TABLE>
7. INCOME TAXES:
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------
2000 1999
-------- --------
<S> <C> <C>
Federal $154,227 $196,313
State 34,171 45,262
--------- ---------
$188,398 $241,575
========= =========
</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 June 30, 2000, and December 31, 1999,
amounted to $675,039 and $634,845, 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 $34,000 and $64,000 during the three and six months ended June 30,
2000, respectively, compared to $36,000 and $70,000 for the comparable periods
of 1999.
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 June 30, 2000, the Corporation had granted 112,679 options of
which 1,146 shares had been forfeited. The options are exercisable one year from
the grant date and vest in equal installments over a period of five years. As of
June 30, 2000, there had
10
<PAGE> 13
been 507 options exercised. The maximum term of any option granted under the
Plan cannot exceed 10 years.
On February 17, 1999 the Board of Directors declared a stock dividend of 5% to
shareholders of record of March 2, 1999, which was paid on March 19, 1999. All
option data above have been restated to reflect the stock dividend.
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 although the Savings Bank
exhibits a high interest rate risk profile under the OTS model the Savings Bank
at this point does not have to deduct any amount from capital for interest-rate
risk (amounts in thousands).
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Adequacy Prompt Corrective
Actual Purposes Action Provisions
------------------- -------------------- ------------------------
Amount Ratio Amount Ratio Amount Ratio
-------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to Risk
Weighted Assets):
As of
June 30, 2000 $15,177 13.44% =>$9,031 =>8.0% =>$11,289 =>10.0%
Tier 1 Capital (to Risk
Weighted Assets):
As of
June 30, 2000 $13,765 12.19% =>$4,515 =>4.0% =>$6,773 =>6.0%
Tier 1 Capital (to
Average Assets):
As of
June 30, 2000 $13,765 6.76% =>$8,146 =>4.0% =>$10,183 =>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.
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
11
<PAGE> 14
extend credit approximating $13.0 million as of June 30, 2000. 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.
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:
The Financial Accounting Standards Board ("FASB") has issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and
hedging activities. As amended by SFAS 137, "Accounting for Derivative
Instruments and Hedging Activities-Deferral of the Effective Date of FASB
Statement No. 133-an Amendment of FASB Statement No. 133," the standard is
effective for fiscal years beginning after June 15, 2000, and will be adopted by
the Corporation for the year ending December 31, 2001.
The FASB has also issued SFAS 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities-an Amendment of FASB Statement No.
133," which amends the accounting and reporting standards of Statement 133 for
certain derivative instruments and certain hedging activities. The impact of
adoption of these standards is not expected to materially affect the
Corporation's financial condition or results of operations.
13. OFFICE OF THRIFT SUPERVISION
The Corporation announced on May 24, 2000 that it took immediate action to
comply with an informal supervisory directive issued by the Office of Thrift
Supervision (the "OTS") to the Savings Bank during a routine regulatory
examination of the Bank. The informal directive was issued May 17, 2000 and was
effective as of that date (the "Effective Date") and among other things, placed
restrictions on the Savings Bank's growth. Accordingly, during each calendar
quarter the Savings Bank may have an increase in assets in an amount not to
exceed net interest credited on deposit liabilities. The Savings Bank may seek
modification of this by submission of a written request to the assistant
regional director of the OTS. Additionally, the Savings Bank was to limit the
extension of loans for a business purpose to those that had been committed to on
or before the Effective Date or those that were loans in process. The OTS had
also directed the Savings Bank to take actions to review and revise its
operational policies to correct weaknesses in the Savings Bank's commercial
lending activities, the asset quality of the commercial loan portfolio, the
Savings Bank's loan administration and the Savings Bank internal review
procedures concerning loan classifications for its various loans.
12
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SUPERVISION AND REGULATION
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"). The
Corporation announced on May 24, 2000 that it took immediate action to comply
with an informal supervisory directive issued by the Office of Thrift
Supervision (the "OTS") to the Savings Bank during a routine regulatory
examination of the Bank.
The informal directive was issued May 17, 2000 and was effective as of
that date (the "Effective Date") and among other things, placed restrictions on
the Savings Bank's growth. Accordingly, during each calendar quarter the Savings
Bank may have an increase in assets in an amount not to exceed net interest
credited on deposit liabilities. The Savings Bank may seek modification of this
by submission of a written request to the assistant regional director of the
OTS. Additionally, the Savings Bank was to limit the extension of loans for a
business purpose to those that had been committed to on or before the Effective
Date or those that were loans in process. The OTS had also directed the Savings
Bank to take actions to review and revise its operational policies to strengthen
the procedures relating to the Savings Bank's commercial lending activities, the
asset quality of the commercial loan portfolio, the Savings Bank's loan
administration and the Savings Bank's internal review procedures concerning loan
classifications for its various loans.
The Corporation agrees with the OTS that the foregoing measures will
assist the Savings Bank in managing asset quality. The Savings Bank's Board of
Directors appointed a special committee to oversee the implementation of the
directive and take any corrective actions that might be necessary. The first
action taken to comply with this directive was to engage in a comprehensive
commercial loan review and to evaluate the level of loan loss reserves. The
results of this commercial loan review were to increase the second quarter
provision for loan loss reserves to $422,000. The Corporation will continue to
work closely with the OTS to formalize arrangements concerning the Savings
Bank's operations and activities. The Savings Bank remains a "well-capitalized"
institution, and this directive does not result in any interruption of the
Savings Bank's day-to-day operations. Management anticipates that compliance
with this directive will not alter the Savings Bank's classification as a
"well-capitalized" institution.
In addition to complying with the foregoing directive, the Bank has
implemented strategies to reduce its exposure to rising interest rates. The Bank
will review its interest rate risk position as of June 30, 2000 once final
interest rate risk financial information for such quarter is available and will
continue to implement interest rate risk reduction strategies as needed.
FINANCIAL CONDITION
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"), an officer loan, deposits
maintained at the Savings Bank, common stock of mostly savings associations or
savings and loan holding companies and other assets (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. As of June 30, 2000, the Corporation had outstanding
borrowings
13
<PAGE> 16
of $375,000 from the Savings Bank to support cash levels. The loan is
adequately secured in accordance with applicable law.
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.
At June 30, 2000, the Corporation's total assets amounted to $206.6
million compared with $200.6 million at December 31, 1999. The $6.0 million or
3.0% increase was primarily due to increases of $10.1 million or 6.7% in net
loans receivable that was partially offset by reductions in total investment
securities of $2.6 million and cash and cash equivalents of $1.6 million. The
growth in net loans receivable was attributed to increases in commercial
business and commercial real estate of $1.6 million or 4.3%, $7.8 million or
8.1% in one-to-four family residential real estate loans and $1.4 million or
8.3% in consumer loans. The decrease in total investment securities of $2.6
million was due to $1.7 million in sales of investment, mortgage backed and
equity securities and $808,000 in principal payments on mortgage backed
securities. Decreased cash and cash equivalents of $1.6 million were primarily
attributable to $10.7 million in new loans in excess of principal payments
received on existing loans which was partially offset by an increase in deposits
and Federal Home Loan Bank ("FHLB") advances of $2.2 million and $3.3 million,
respectively. Total stockholders' equity amounted to $14.7 million or 7.10% of
total assets at June 30, 2000, compared to equity of $15.0 million or 7.46% of
total assets at December 31, 1999. The $296,000 decrease in stockholders' equity
was primarily attributable to stock repurchases of $452,000 and cash dividends
of $136,000. This was partially offset by net income of $308,000. The
Corporation paid a quarterly dividend $.07 per share during the first and second
quarters of 2000 compared to $.06 per share for the same periods in 1999.
The Corporation's nonperforming assets increased $478,000 or 35.8% to
$1.8 million at June 30, 2000, compared to $1.3 million at December 31, 1999.
The increase was primarily due to a rise in nonperforming commercial business
and commercial real estate loans from $131,000 and $458,000 at December 31,
1999, respectively, compared to $551,000 and $861,000, respectively, at June 30,
2000. The $551,000 of nonperforming commercial business loans was comprised of
nine loans and the $861,000 of nonperforming commercial real estate loans was
comprised of two loans. Management continues to take appropriate measures to
address these deficiencies. However, these loans continue to be monitored and
appropriately reserved under the allowance for loan losses.
One of the nonperforming commercial real estate loans totaling
$458,000, at June 30, 2000, is 75% guaranteed by the Small Business
Administration ("SBA"). After realization of the collateral, management is of
the opinion it may sustain a loss, but such loss has been adequately reserved
and is not expected to result in a material adverse effect on the Savings Bank's
financial position or results of operations.
14
<PAGE> 17
The following table sets forth the amounts and categories of the
Savings Bank's nonperforming assets at the dates indicated. The Savings Bank had
no loans classified as troubled debt restructurings during the periods indicated
below.
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, JUNE 30,
2000 1999 1999
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Non-accruing loans:
One-to-four family residential $ 207 $ 327 $ 456
Construction loans ............. -- 49 --
Consumer loans ................. 123 162 163
Commercial real estate ......... 861 458 465
Commercial business loans ...... 551 131 35
------ ------ ------
Total nonperforming loans .... 1,742 1,127 1,119
Real estate owned .............. 70 207 205
------ ------ ------
Total nonperforming assets ... $1,812 $1,334 $1,324
====== ====== ======
Total nonperforming loans as a
percentage of total loans .... 1.06% .74% .82%
====== ====== ======
Total nonperforming assets as a
percentage of total assets ... .88% .67% .72%
====== ====== ======
</TABLE>
RESULTS OF OPERATIONS
General--The Corporation's net income for the quarter ended June 30,
2000 was $68,000 or $.08 per diluted share compared to net income of $185,000 or
$.20 per diluted share for the same quarter in the prior year. The second
quarter earnings for 2000 included a provision for loan loss of $422,000 that
primarily resulted from a comprehensive review of commercial loans. The Savings
Bank reevaluated the level of its loan loss reserve in connection with the
informal OTS directive issued May 17, 2000. The $422,000 provision for loan loss
was an increase of $317,000 from the comparable period in 1999. The $117,000
decrease in net income for the quarter ended June 30, 2000, as compared to the
same period in 1999, was mainly the result of increases in total other expenses
of $82,000 and the $317,000 increase in provision for losses on loans. This was
partially offset by a 12.8% increase of $177,000 in net interest income before
provision for loan losses, a $44,000 or 23.2% increase in fees and service
charges and a decrease in income tax expense of $80,000. The annualized return
on average assets and return on average equity for the three months ended June
30, 2000 were .13% and 1.85%, respectively, compared to .41% and 4.96%,
respectively, for the same period of 1999.
Net income for the six months ended June 30, 2000 was $308,000 or $.35
per diluted share compared to net income of $389,000 or $.43 per diluted share
for the comparable period of 1999. Excluding loss on sale of investments of
$5,000, net of tax, core net income for the six months ended June 30, 2000 was
$313,000 or $.35 per diluted share. This compares to core net income of $359,000
or $.39 per diluted share for the six months ended June 30, 1999. The $46,000 or
12.8% decrease in core net income for the six months ended June 30, 2000, as
compared to the same period in 1999, was primarily the result of increases in
total other expenses of $194,000 and a $347,000 increase in provision for losses
on loans. This was partially offset by a 13.6% increase of $368,000 in net
interest income before provision for loan losses and an increase in fees and
service charges of $90,000 or 25.6%. The annualized return on average assets and
return on average equity for the six months ended June 30, 2000, excluding loss
on sale of investments, were .31% and 4.24%, respectively. This compares to an
annualized return on average assets and return on average equity for the six
months ended June 30, 1999, excluding gain on sale of investments, of .40% and
4.82%, respectively.
15
<PAGE> 18
INTEREST INCOME--The Corporation reported interest income of $3.8
million for the three months ended June 30, 2000, as compared to $3.2 million
for the three months ended June 30, 1999. The increase of $586,000 or 18.5% for
the quarter ended June 30, 2000, compared to the same period in the prior year
can be attributed to a $593,000 or 23.3% increase in interest and fees on loans.
The increase of $593,000 in interest and fees on loans was the result of loan
growth and an increase in the average yield earned on loans receivable. Average
balances for loan receivables, net of undisbursed loan proceeds, during the
second quarter of 2000 were $161.1 million, compared to $134.2 million for the
same period in 1999. The average yield earned on loans receivable, during the
quarter ended June 30, 2000, was 7.8% compared to 7.6%.
The Corporation reported interest income of $7.4 million for the six
months ended June 30, 2000, as compared to $6.3 million for the six months ended
June 30, 1999. The increase of $1.1 million or 17.6% for the six months ended
June 30, 2000, compared to the same period in the prior year can be attributed
to a $1.1 million or 22.3% increase in interest and fees on loans. The increase
of $1.1 million in interest and fees on loans was the result of loan growth and
an increase in the average yield earned on loans receivable. Average balances
for loan receivables, net of undisbursed loan proceeds, during the six months
ended June 30, 2000 were $157.9 million, compared to $130.8 million for the same
period in 1999. The average yield earned on loans receivable during the six
months ended June 30, 2000 was 7.7% compared to 7.6% for the same period in
1999.
INTEREST EXPENSE--Interest expense increased $409,000 or 22.9% during
the three months ended June 30, 2000 as compared to the same period last year.
This increase was due to growth in average interest-bearing liabilities and a
rise in the weighted average interest rate paid on interest-bearing liabilities.
Average deposits and Federal Home Loan Bank (FHLB) of Pittsburgh advances during
the second quarter of 2000 were $122.2 million and $67.1 million, respectively,
compared to $116.1 million and $49.4 million, respectively, for the same period
in 1999. The weighted average interest rate on interest-bearing liabilities
during the second quarter of 2000 was 4.6% compared to 4.3% for the same period
in 1999.
Interest expense increased $732,000 or 20.5% during the six months
ended June 30, 2000 as compared to the same period last year. This increase was
due to growth in average interest-bearing liabilities and a rise in the weighted
average interest rate paid on interest-bearing liabilities. Average deposits and
Federal Home Loan Bank (FHLB) of Pittsburgh advances during the six months ended
June 30, 2000 were $122.1 million and $65.1 million, respectively, compared to
$114.7 million and $49.9 million, respectively, for the same period in 1999. The
weighted average interest rate on interest-bearing liabilities during the six
months ended June 30, 2000 was 4.6% compared to 4.3% for the same period in
1999.
PROVISION FOR LOAN LOSSES--During the three and six months ended June
30, 2000 the Corporation recorded provisions for losses on loans of $422,000 and
$542,000, respectively, compared to $105,000 and $195,000, respectively, for the
comparable period in 1999. The increases in provisions for losses on loans of
$317,000 and $347,000 for the three and six months ended June 30, 2000,
respectively, compared to the same periods in 1999 was due to a comprehensive
commercial loan review. This review took place in connection with the informal
OTS directive issued May 17, 2000. The Corporation establishes a provision for
loan losses that is charged to operations. The allowance for loan losses is
maintained at a level that is deemed to be appropriate based upon a
comprehensive methodology that is updated on a monthly basis. This methodology
includes:
o A detailed review of all criticized and impaired loans is performed 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 analysis of the loan's
performance, the related collateral value, cash flow considerations and
the financial capability of any guarantor.
16
<PAGE> 19
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,
borrowers' 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. All loans are assigned risk ratings 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 comprehensive methodology of this
monthly process provides appropriate support. The OTS has noted weaknesses in
the loan classification process and the Corporation is taking steps to rectify
these weaknesses.
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, nonperforming, delinquent loans greater than
sixty days and problem loans are reviewed monthly to determine potential losses.
Generally, consumer loans are considered losses when 180 days past due. The
Savings Bank's management is unable to determine in what loan category future
charge-offs and recoveries may occur. Therefore, the entire allowance for loan
losses is available to absorb future loan losses in any loan category. During
the six months ended June 30, 2000, the Corporation charged off $21,000 in
commercial business loans, $5,000 in one-to-four family residential loans and
$4,000 in consumer loans.
Although management utilizes its best judgment in providing for losses,
there can be no assurance that the Savings Bank will not have to increase its
provision for loan losses in the future as a result of higher risk commercial
and consumer loans, future changes in the economy or for other adverse reasons
discovered from the comprehensive methodology described above. In addition,
various regulatory agencies, as an integral part of their examination process,
periodically review the Savings Bank's provision for loan losses and the
carrying value of its nonperforming assets based on their judgments from
information available at the time of their examination. The OTS last examined
the Savings Bank as of March 31, 2000. Management and the directors of the
Corporation and the Savings Bank believe that the allowance for loan losses is
currently adequate.
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.
17
<PAGE> 20
<TABLE>
<CAPTION>
JUNE 30, 2000 DECEMBER 31, 1999 JUNE 30, 1999
------------------------ --------------------- ----------------------
% 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 .. $ 171 63.51% $169 62.78% $158 62.96%
Construction .................... 29 1.47 16 1.77 5 1.62
Commercial business and
commercial real estate ........ 1,103 23.56 638 24.14 447 23.44
Consumer:
Automobile, home equity, student,
share and other consumer ...... 79 11.46 72 11.31 70 11.98
Allocation to general risk ...... 113 -- 88 -- 69 --
------ ------ ---- ------ ---- ------
Total ........................ $1,495 100.00% $983 100.00% $749 100.00%
====== ====== ==== ====== ==== ======
</TABLE>
OTHER INCOME--Total other income increased $46,000 and $91,000, net of
gains and losses on sales of investments, assets and foreclosed real estate, for
the three and six months ended June 30, 2000, respectively, compared to same
periods in 1999. This income was attributed to increases in fees and service
charges generated from total transaction accounts.
OTHER EXPENSES--Total other expenses increased $82,000 or 7.0% for the
quarter ended June 30, 2000, as compared to the quarter ended June 30, 1999. The
increase in total other expenses occurred as a result of a $21,000 or 3.5%
increase in salaries and employee benefits primarily attributable to one
additional full-time equivalent in the second quarter of 2000 as a result of the
commercial loan expansion and approved salary increases. Additionally, there was
an increase of $32,000 in other expenses primarily due to an increase in
temporary staffing for commercial loan reviews.
Total other expenses increased $194,000 or 8.5% for the six months
ended June 30, 2000, as compared to the six months ended June 30, 1999. The
increase in total other expenses occurred as a result of a $94,000 or 3.5%
increase in salaries and employee benefits primarily attributable to two
additional employees hired as a result of the commercial loan expansion and
approved salary increases. Additionally, there was an increase of $43,000 in
other expenses primarily due to increases in temporary staffing for commercial
loan reviews and general operating expenses.
INCOME TAXES--The Corporation recorded a provision for income taxes of
$37,000 and $188,000 for the three and six months ended June 30, 2000,
respectively, as compared to $117,000 and $242,000, respectively, for the same
periods in the prior year. Such decreases for 2000 as compared to 1999 were due
to a decrease in net income before tax.
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
18
<PAGE> 21
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 that provide 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 June 30,
2000, the Corporation had $66.3 million of outstanding advances from the FHLB of
Pittsburgh.
During the six months ended June 30, 2000 and June 30, 1999, the
Corporation's operating activities provided net cash of approximately $1.2
million and $748,000, respectively. The primary reasons for the $1.2 million net
cash provided during the three months ended June 30, 2000 were $308,000 in net
income, $198,000 increase in accrued interest payable, and $542,000 in provision
for loan losses. During the six months ended June 30, 1999, the $748,000 net
cash provided was attributable to $172,000 in depreciation of premises and
equipment, and $195,000 in provision for loan losses, which was partially offset
by a $110,000 increase in deferred income taxes.
Net cash used by investing activities was $8.2 million for the six
months ended June 30, 2000. The primary reason for the $8.2 million net cash
used by investing activities was the Corporation originated $10.7 million in new
loans in excess of principal payments received on existing loans. This was
offset by $1.7 million in sales of investment, mortgage backed and equity
securities. This compares with net cash used by investing activities of $14.6
million for the six months ended June 30, 1999. During the six months ended June
30, 1999, the Corporation originated $11.7 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.
Net cash provided by financing activities for the six months ended June
30, 2000, was $5.4 million. This was attributable to increases in Money Market,
Passbook Savings and Transaction accounts of $2.3 million and $3.3 million in
net FHLB advances. During the same period last year, the Corporation experienced
a $5.7 million increase in net cash provided by financing activities primarily
due to a $6.4 million increase in core deposits and certificates that was
partially offset by a decrease in net FHLB advances of $750,000.
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 June 30, 2000, the Savings Bank's tangible, core, and risk-based capital
ratios amounted to 6.69%, 6.69%, and 13.44%, respectively, which substantially
exceeded applicable requirements.
YEAR 2000 ISSUES
The Year 2000 issue arose 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 were anticipated for many
such products and systems when attempting to process information containing
dates that fall after December 31, 1999. These concerns were commonly referred
to as the "Year 2000" problems, and the acronym "Y2K" was commonly substituted
for the phrase "Year 2000."
19
<PAGE> 22
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.
Due to Corporation's Y2K preparation, the Corporation did not
experience any significant Y2K problems. Although the Corporation is unable at
this time to assess any future impact of any other dates which might cause Y2K
failures, management does not believe at the current time that the cost of
remediating these Y2K problems will have a material adverse impact upon its
business, results of operations, liquidity or financial condition.
The Corporation's costs associated with Year 2000 included replacement
of non-compliant computer, telephone, software, and related equipment. Excluding
costs of Corporation's personnel time, the Corporation estimated that the total
Year 2000 project costs would not exceed $131,000 (pre-tax). As of June 30,
2000, the Corporation estimated that it had incurred $116,000 in connection with
its Y2K project plan. Most of these costs related to equipment acquisitions and
accordingly have been capitalized.
20
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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
The Corporation filed a Form 8-K on May 24, 2000.
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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: August 14, 2000 By: /s/ John A. Stiver
------------------
John A. Stiver,
Chairman of the Board, Chief
Executive Officer and President
Dated: August 14, 2000 By: /s/ James M. Hein
-----------------
James M. Hein,
Chief Financial Officer
22
