UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(x) Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarterly period
ended March 31, 2000 or
( ) Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period
from .
No. 000-24601
(Commission File Number)
PSB BANCORP, INC.
(Exact Name of Registrant as Specified in its Charter)
Pennsylvania 23-2930740
(State of Incorporation) (IRS Employer ID Number)
11 Penn Center Suite 2601
1835 Market Street, Philadelphia, PA 19103
(Address of Principal Executive Office
(215) 979-7900
(Registrant's Telephone Number)
Securities registered pursuant to Section 12(b) of the Exchange
Act: none
Securities registered pursuant to Section 12(g) of the Exchange
Act: Common Stock, no par value per share.
Check whether the issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act 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 __
Number of shares outstanding as of March 31, 2000
COMMON STOCK (No Par Value) 4,542,362
(Title of Class) (Outstanding Shares)
PSB Bancorp, Inc.
FORM 10-QSB
For the Quarter Ended March 31, 2000
Contents
Page No.
PART I. FINANCIAL INFORMATION.
Item 1. Financial Statements
Consolidated Statement of Financial
Condition as of March 31, 2000 (Unaudited)
and December 31, 1999 3
Consolidated Statement of Income (Unaudited)
for the Three Month Periods Ended
March 31, 2000 and 1999. 5
Consolidated Statement of Comprehensive
Income (Unaudited) for the Three Month
Periods Ended March 31, 2000 and 1999. 6
Consolidated Statement of Shareholders'
Equity (Unaudited) for the Three Month
Periods Ended March 31, 2000 and 1999. 7
Consolidated Statement of Cash Flows
(Unaudited) for the Three Month Periods
Ended March 31, 2000 and 1999. 8
Note to Consolidated Financial Statements 10
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
PART II. OTHER INFORMATION
Item 2 Legal Proceedings 24
Item 3 Changes in Securities 24
Item 4 Defaults upon Senior Securities 24
Item 5 Submission of Matters to a Vote of
Security Holders 24
Item 6 Exhibits and Reports on Form 8-K 24
Part I FINANCIAL INFORMATION
Item I Financial Statements
PSB BANCORP, INC
BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
(unaudited) (audited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 4,241 $ 7,921
Interest bearing deposits with banks 7,787 9,354
Investment securities -
available-for-sale, at fair value 27,503 26,435
Mortgage-backed securities
available-for-sale, at fair value 44,860 45,951
Mortgage-backed securities
held-to-maturity (fair value of
$1,007 and $1,032) 997 1,006
Investment securities held-to-maturity
(fair value of $3,799 and $3,779) 4,000 4,000
Loans, less allowance for loan losses
of $1,349 and $1,231, respectively 155,989 167,787
Loans held for sale 7,797 8,221
Property acquired through loan
foreclosure actions, net 1,237 1,047
Premises and equipment, net 1,901 1,692
Accrued interest receivable 2,330 2,446
Prepaid corporate taxes 735 784
Deferred tax asset 1,170 1,459
Other assets 1,575 1,505
TOTAL ASSETS $ 262,122 $ 279,608
LIABILITIES
Deposits
Non-interest bearing $ 17,015 $ 14,720
Interest bearing 171,117 178,490
188,132 193,210
Borrowed Funds 20,000 34,000
Securities purchased under agreements
to resell 16,084 15,640
Income taxes payable 270 45
Accrued interest payable 433 515
Other liabilities 443 151
Total liabilities 225,362 243,561
SHAREHOLDERS' EQUITY
Common stock-authorized, 15,000,000
shares no par value issued and
outstanding, 4,538,483 0 0
Additional paid-in capital 40,859 40,873
Employee stock ownership plan (1,319) (1,359)
Accumulated deficit (325) (1,136)
Unrealized loss, investments available
for sale (2,455) (2,331)
Total shareholders' equity 36,760 36,047
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 262,122 $ 279,608
___________________________________________________________________
</TABLE>
The accompanying notes are an integral part of these financial
statements.
PSB BANCORP, INC
STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended
March 31, March 31,
2000 1999
(unaudited) (unaudited)
<S> <C> <C>
INTEREST INCOME
Loans, including fees $ 4,134 $ 2,897
Investment securities 1,259 698
Deposits with banks 27 478
Total interest income 5,420 4,073
INTEREST EXPENSE
Interest on deposits 2,011 2,071
Interest on borrowings 570 0
Interest - other 0 5
Total interest expense 2,581 2,076
Net interest income 2,839 1,997
PROVISION FOR LOAN LOSSES 100 0
Net interest income after provision
for loan losses 2,739 1,997
NON-INTEREST INCOME 157 270
NON-INTEREST EXPENSES
Salaries and employee benefits 1,076 848
Occupancy and equipment 271 321
Other operating 560 555
Total non-interest expenses 1,907 1,724
Income before income taxes 989 543
INCOME TAXES 235 73
NET INCOME $ 754 $ 470
Net income per common share
Basic $ .17 $ .10
Diluted .15 .09
_____________________________________________________________
</TABLE>
The accompanying notes are an integral part of these financial
statements.
PSB BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(IN THOUSANDS)
Three Months Ended
March 31,
2000 1999
(unaudited)
Net Income $754 $470
Other comprehensive income,
net of tax:
Unrealized gain (loss),
investments available for
sale (124) (248)
Other comprehensive income (124) (248)
Comprehensive Income $630 $222
==== ====
PSB BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Employee Accumulated
Additional Stock Other
Common Paid-in Ownership Retained Comprehensive Comprehensive
Stock Capital Plan Earnings Income Total Income
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1998 $ 419 $40,371 $(1,433) $(3,220) $ 3 $36,140
Net Income for the nine
months ended March 31, 1999 470 470 470
Employee Stock Ownership Plan:
Shares released (23) 63 40
Exchange from common stock
from merger of Pennsylvania
Savings Bank and First Bank
of Philadelphia (419)
Other comprehensive income,
net of tax:
Change in unrealized loss
on investment and
mortgage-backed
securities
available-for-sale,
net of taxes ____ _______ _______ _______ (248) (248) (248)
BALANCE, March 31, 1999
(UNAUDITED) $ $40,348 $(1,370) $(2,750) $ (245) $36,402 $ 222
==== ======= ======== +====== ======= ======= ======
BALANCE, DECEMBER 31, 1999 $ 0 $40,873 $(1,359) (1,136) $(2,331) $36,047 (250)
Net Income for the nine
months ended March 31, 2000 754 754 754
Adjustment in accrued pension 57 57
Employee Stock Ownership Plan:
Shares released (14) 40 26
Other comprehensive income,
net of tax:
Change in unrealized loss
on investment and
mortgage-backed
securities
available-for-sale,
net of taxes ____ ______ _______ _______ (124) (124) (124)
BALANCE, March 31, 2000
(UNAUDITED) $ 0 $40,859 $(1,319) $ (325) $(2,455) $36,760 $ 630
==== ======= ======= ======= ======= =+===== =====
</TABLE>
PSB BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 754 $ 470
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Amortization of premium/discount on
mortgage-backed securities 10 2
Depreciation and amortization 76 86
Write-down and expenses of real estate owned 53 27
Gain (loss) on sale of real estate owned 0 20
Gain (loss) on sale of loans 19 (140)
Provision for losses on loans 100 0
Deferred taxes 289 (60)
Compensation expense-Employee Stock Ownership Plan 40 25
Change in assets and liabilities:
Decrease in loans held for sale 424 1,745
(Increase) decrease in accrued interest receivable 116 (190)
Increase in prepaid expenses and other assets (71) (534)
(Increase) decrease in prepaid corporate taxes 50 (66)
Increase in corporate taxes payable 225 133
Increase (decrease) in accrued interest payable (82) 16
Increase in accrued expenses 291 351
Total Adjustments 1,540 1,415
Net cash used for operating activities 2,294 1,885
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of mortgage-backed securities, available for sale 0 (4,995)
Purchase of investment securities, held-to-maturity 0 0
Purchase of investment securities, available-for-sale (500) (1,250)
Maturities of investment securities, available-for-sale 0 1,000
Maturities of investment securities, held-to-maturity 0 0
Mortgage-backed security maturities and
principal repayments 878 592
Acquisition costs of and proceeds from the sale of
Federal Home Loan Bank stock (150) 0
Proceeds from sale of real estate owned net of
improvements 71 255
Property acquired through loan foreclosure action (314) 0
Capital expenditures (285) (106)
Increase in total loans receivable, net 11,798 (8,693)
Net cash used in investing activities 11,498 (13,197)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in deposits, net (5,077) 5,054
Change in advances for borrowers' taxes and 0 0
insurance (406) (438)
Proceeds from borrowed funds (14,000) 0
Change in securities purchased under agreements to resell 444 25
Net cash (used) provided by financing activities (19,039) 4,641
NET DECREASE IN CASH AND CASH EQUIVALENTS (5,247) (6,671)
Cash and Cash equivalents, beginning of period 17,275 47,528
CASH AND CASH EQUIVALENTS, END OF PERIOD 12,028 40,857
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest on deposits and borrowings $ 2,581 $ 2,086
======== ========
Income taxes $ 235 $ 73
======== ========
Noncash activities
Loans transferred to real estate owned $ 304 $ 159
======== ========
Unrealized gain (loss) on investment and mortgage-backed
securities available-for-sale, net of taxes $ (2,455) $ -
======== ========
</TABLE>
PSB BANCORP, INC.
NOTE TO FINANCIAL STATEMENTS
MARCH 31, 2000
(UNAUDITED)
Basis of Presentation:
The consolidated financial statements include the accounts
of PSB Bancorp, Inc. ( the "Company") and its wholly-owned
subsidiary, First Penn Bank. Significant inter-company accounts
and transactions have been eliminated. The accompanying unaudited
consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include
all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments considered
necessary for fair presentation have been included. Operating
results for the three months ended March 31, 2000 are not
necessarily indicative of the results that may be expected for
the full fiscal year. For further information, refer to the
financial statements and footnotes thereto included in the Bank's
Annual Report on form 10K for the year ended December 31, 1999.
Merger:
On October 12, 1999, the Company completed its acquisition
of First Bank of Philadelphia ("First Bank"). In connection with
the acquisition, each outstanding share of First Bank was
exchanged for .857 shares of PSB Bancorp, Inc (PSBI) common
stock. In addition, options to acquire 1,612,500 shares of First
Bank have been converted into options to acquire 1,381,912 shares
of the Company's common stock.
As part of the transaction, PSBI merged Pennsylvania Savings
Bank, which held a state savings bank charter, with and into
First Bank, which holds a state commercial bank charter. The
resulting operating subsidiary will operate under the name of
First Penn Bank (the "Bank") and will hold a commercial bank
charter. This will provide the Bank with greater lending
flexibility, particularly with respect to commercial loans. The
Bank will operate seven branches including two in Center City
Philadelphia, and one in Montgomery County, Pennsylvania.
The transaction was accounted for as a pooling of interests
for financial reporting purposes, and as a tax-free
reorganization for tax purposes.
Business Strategy:
The Bank's strategy is to maximize profitability by
providing quality deposit and loan products in an efficient
manner as a well-capitalized and independent financial
institution. Generally, the Bank seeks to implement this
strategy by emphasizing retail deposits as its primary source of
funds and by maintaining a substantial part of its assets in
locally-originated residential first mortgage, commercial real
estate loans, commercial business loans, construction loans and
student loans, mortgage-backed securities and other liquid
investment securities. The Bank's business strategy incorporates
the following elements: (1) increasing assets by expanding its
retail branch network to include other contiguous segments of the
metropolitan Philadelphia market, (2) expanding its lending
operations throughout the metropolitan Philadelphia area and the
adjacent counties of Pennsylvania, New Jersey and Delaware, and
(3) increasing net interest income and reducing interest rate
risk by emphasizing the origination for portfolio of commercial
real estate, construction, commercial business and student loans
which generally bear higher interest rates and have shorter terms
than residential mortgage loans.
The Bank does not have any items other than net income that would
be required to be recognized as comprehensive income in accordance
with SFAS No. 130, "Reporting Comprehensive Income."
Basic earnings per share ("EPS") is computed based on the
weighted average number of shares of common stock outstanding during
the periods presented. Stock options are considered common stock
equivalents and are included in the computation of dilutive EPS using
the treasury stock method, unless anti-dilutive.
The following table reconciles the numerators and denominators of
the basic and diluted EPS computations for the Bank's net income for
the three months ended March 31, 2000:
Income Shares Per-Share
(Numerator) (Denominator) Amount
Basic EPS:
Income available to
common shareholders $754,000 4,370,642 $.17
Effect of Dilutive
Securities:
Options 553,288
Diluted EPS:
Income available to
common shareholders $754,000 4,923,930 $.15
The following table reconciles the numerators and
denominators of the basic and diluted EPS computations for the
Bank's net income for the three months ended March 31, 1999:
Income Shares Per-Share
(Numerator) (Denominator) Amount
Basic EPS:
Income available to
common shareholders $470,000 4,538,176 $.10
Effect of Dilutive
Securities:
Options 714,299
Diluted EPS:
Income available to
common shareholders $470,000 5,252,475 $.09
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
General
The Bank's results of operations depend primarily on its net
interest income, which is the difference between interest income
on interest-earning assets, and interest expense on its interest-
bearing liabilities. Its interest-earning assets consist
primarily of loans receivable and investment securities, while
its interest-bearing liabilities consist primarily of deposits
and borrowings. The Bank's net income is also affected by its
provision for loan losses and its level of non-interest income as
well as its non-interest expense, such as salary and employee
benefits, occupancy costs and charges relating to non-performing
and other classified assets.
Net Income
The Bank's net income totaled $754,000 and $470,000 for the
three months ended March 31, 2000 and 1999, respectively. The
increase was due largely to the increase in interest earning
assets. The Company's earnings per share and diluted earnings per
share for the three months ended March 31, 2000 was $0.17 and
$.0.15 respectively, compared to $0.10 and $0.09 per share for
the three months ended March 31, 1999, respectively. The increase
in earnings per share reflects the increased earnings of the
Company and improving net interest margin.
Net Interest Income and Average Balances
Net interest income is a key component of the Bank's
profitability structure and is managed in coordination with the
Bank's interest rate sensitivity position. Net interest income
for the first quarter of 2000 was $2.8 million, or 30% greater
than $2.0 million for the first quarter of 1999. The increase
generally reflected management's strategy of pursuing
diversification of the Bank's loan composition while maintaining
adequate margins over minimum required capital levels, an
improving yield on the Bank's loan portfolio and an increase in
mortgage-backed and investment securities.
Average total loans of $174.4 million for the three months
ended March 31, 2000, represented 68% of average total interest-
earning assets, and provided a yield of 9.53% for the period,
compared to average total loans of $130.3 million for the three
months ended March 31, 1999, representing 58% of average total
interest-earning assets, and providing a yield of 8.89% for the
period. Average investments and interest bearing deposits with
banks decreased $12.1 million or 13% to $80.7 million for the
three months ended March 31, 2000, from $92.8 million for the
same period in 1999. These assets provided a yield of 5.73% for
the three months ended March 31, 2000, compared to 4.95% for the
same period in 1999. Overall, average total interest-earning
assets provided a yield of 8.50% for the three months ended
March 31, 2000, compared to 7.30% for the same period in 1999.
Average total interest-bearing liabilities increased $22.6
million or 11.3% to $200.9 million at a yield of 5.21% for the
three months ended March 31, 2000, from $178.3 million at a yield
of 4.74% for the same period in 1999. The Bank's net interest
spread increased to 3.29% in 2000 from 2.56% in 1999 and the
Bank's net interest margin increased to 4.39% in 2000 from 3.51%
in 1999.
Average Balance Sheets and Rate/Yield Analysis
Net interest income is effected by changes in both average
interest rates and average volumes of interest-earning assets and
interest-bearing liabilities. The following tables present the
average daily balances of assets, liabilities and shareholders'
equity and the respective interest earned or paid on interest-
earning assets and interest-bearing liabilities, as well as
average rates for the period indicated (in thousands):
<TABLE>
<CAPTION>
Three Months Ended March 31
2000 1999
Average Interest/ Yield/ Average Interest/ Yield/
Balance Expense Rate Balance Expense Rate
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Interest-earning deposits $ 4,696 $ 48 4.09% $ 46,194 $ 478 4.14%
Investment securities 8,030 135 6.72% 19,118 273 5.71%
Mortgage-backed securities 67,954 1,084 6.38% 27,476 425 6.19%
Net loans 174,394 4,153 9.53% 130,336 2,897 8.89%
Total interest-earning assets 255,074 $5,420 8.50% 223,124 $4,073 7.30%
Noninterest-earning assets 11,235 7,132
Total assets $266,309 $230,256
======== ========
LIABILITIES
Interest-bearing liabilities:
Now checking accounts $ 12,323 $ 71 2.30% $ 8,357 $ 77 3.69%
Money market accounts 13,768 122 3.54% 13,441 119 3.54%
Savings deposits 29,589 210 2.84% 29,216 206 2.82%
Certificates 103,706 1,608 6.20% 124,563 1,674 5.38%
Total deposits 159,386 2,011 5.05% 175,577 2,076 4.73%
Borrowed money 41,558 607 5.84% 2,728 39 5.72%
Total interest-bearing
liabilities 200,944 2,618 5.21% 178,305 2,115 4.74%
Non-interest-bearing liabilities 29,442 15,763
Total liabilities 230,386 194,068
Retained earnings or shareholders'
equity 35,923 36,188
Total liabilities and retained
earnings or shareholders'
equity $266,309 $230,256
Net interest income $2,802 $1,958
Interest rate spread(3) 3.29% 2.56%
Net yield on interest-earning
assets(4) 4.39% 3.51%
Ratio of interest-earning assets
to interest-bearing liabilities 1.27x 1.25x
</TABLE>
Provision for Loan Losses
The provision for loan losses represents the charge against
earnings that is required to fund the allowance for loan losses.
The Bank determines the level of the allowance for loan losses
through a regular review of the loan portfolio. Management's
evaluation of the adequacy of the allowance for loan losses is
based upon an examination of the portfolio as well as such
factors as declining trends, the volume of loan concentrations,
adverse situations that may affect the borrowers ability to pay,
prior loss experience within the portfolio, current economic
conditions and the results of the most recent regulatory
examinations. The adequacy of the loan loss allowance is
reviewed monthly by the Board of Directors. See "Asset Quality -
Allowance for Loan Losses." The Bank provided a loan loss
provision of $100,000 during the three months ended March 31,
2000 compared to $0 for 1999. Additionally, the Bank did not have
any charge-offs against the allowance for loan losses during such
period. During the three month periods ended March 31, 1999, the
Bank had no charge-offs against the allowance for loan losses.
Non-interest Income
Non-interest income consists of gain on sale of loans, loan
fees, service charges, rental income and other income. Non-
interest income decreased by $113,000, or 41.9%, to 157,000 for
the three months ended March 31, 2000, from $270,000 for the
three months ended March 31, 1999. The principal reasons for the
decrease in non-interest income was a $121,000 decrease in gain
on sale of loans to $19,000 in 2000 from $140,000 in 1999, due to
a decrease in number of loans sold by Transnational Mortgage
Corp. in 2000. This decrease was partially offset by a $38,000
increase in loan fees. For the first quarter of 2000, increases
in loan fees and rental income were offset by decreases in the
gain on sale of loans and other income resulting largely from the
decrease in Transnational's business.
Non-interest Expense
Non-interest expense principally consists of employees'
compensation and benefits, deposit insurance premiums and
premises and occupancy costs. Non-interest expense increased by
$183,000, or 9.6%, to $1.9 million for the three months ended
March 31, 2000, from $1.7 million for the three months ended
March 31, 1999. The principal reasons for the increase was a
$228,000 increase in compensation and employee benefits due to
normal salary increases. Non-interest expense has increased due
to cost associated with the Bank's expansion strategy through the
merger of Pennsylvania Savings Bank and First Bank of
Philadelphia.
Provision for Income Taxes
Income tax provisions for the three months ended March 31,
2000 and 1999 of $235,000 and $73,000, respectively, generally
reflect the Bank's pre-tax income in accordance with the
principles of SFAS No. 109, "Accounting for Income Taxes."
Liquidity and Interest Rate Sensitivity
The maintenance of adequate liquidity and the mitigating of
interest rate risk is integral to the management of the Bank's
balance sheet. Liquidity represents the ability to meet potential
cash outflows resulting from deposit customers who need to
withdraw funds or borrowers who need available credit. Interest
rate sensitivity focuses on the impact of fluctuating interest
rates and the re-pricing characteristics of rate sensitive assets
and liabilities on net interest income.
The Bank's asset/liability management committee monitors the
level of short-term assets and liabilities to maintain an
appropriate balance between liquidity, risk and return.
Liquidity is derived from various sources which includes
increases in core deposits, sales of certificates of deposits,
the amortization and prepayment of loans and mortgage-backed
securities, maturities of investment securities and other short-
term investments. The liquidity position of the Bank is also
strengthened by a $50 million credit facility with the Federal
Home Loan Bank (FHLB). Advances are secured by all FHLB stock
and qualifying mortgage loans. The Bank had $20.0 million
outstanding as of March 31, 2000 compared to $34.0 million
outstanding as of December 31, 1999.
Maximizing cash flow over time is crucial to the maintenance
of adequate liquidity. The Bank's total cash flow is a product
of its operating activities, investing activities and financing
activities. During the three months ended March 31, 2000, net
cash provided by operating activities was $2.3 million, compared
to net cash provided by operating activities of $1.9 million for
the same period of 1999. During the three months ended March 31,
2000, net cash provided by investing activities was $11.5
million, compared to net cash used by investing activities of
$13.2 million for the same period of 1999. Financing activities
used net cash of $19.0 million during the three months ended
March 31, 2000, compared to $4.6 million in net cash provided in
financing activities for the same period of 1999. The net result
of these items was a $5.2 million decrease in cash and cash
equivalents for the three months ended March 31, 2000, compared
to a $6.7 million increase in cash and cash equivalents for the
same period of 1999.
Interest rate sensitivity is closely related to liquidity
since each is directly affected by the maturity of assets and
liabilities. Rate sensitivity also deals with exposure to
fluctuations in interest rates and its effect on net interest
income. The primary function of the Bank's interest rate
sensitivity management is to reduce exposure to interest rate
risk through an appropriate balance between interest-earning
assets and interest-bearing liabilities. The goal is to minimize
fluctuations in the net interest margin of the Bank due to
general changes in interest rates.
The blending of fixed and floating rate loans and
investments to match the re-pricing and maturity characteristics
of the various funding sources is a continuous process in an
attempt to minimize any fluctuations in net interest income. The
composition of the balance sheet is designed to minimize any
significant fluctuation in net interest income and to maximize
liquidity. Management believes that the accessibility to FHLB
borrowings will provide the flexibility to assist in keeping
fluctuations in net interest income under control and to maintain
an adequate liquidity position.
Another tool used by management to gauge the structure of
the balance sheet is a "gap" analysis which categorizes assets
and liabilities on the basis of maturity date, the date of next
re-pricing, and the applicable amortization schedule. This
analysis summarizes the matching or mismatching of rate sensitive
assets versus rate sensitive liabilities according to specified
time periods. Management concentrates on the zero to three month
and one year gap intervals. At March 31, 2000, the Bank had a
one-year liability gap of $102.7 million and a gap ratio of 0.45
or 39.2% of total assets as of that date. This compares with a
one-year liability gap of $93.4 million and a gap ratio of 0.55
or 33.4% of total assets at December 31, 1999.
The following table shows the interest rate sensitive data
at March 31, 2000 (in thousands):
PSB BANCORP, INC
Interest Rate Sensitivity Analysis
As of March 31, 2000
<TABLE>
<CAPTION>
Balance
0-3 3-12 No Stated at March 31
Months Months 1-5 Yrs >5 yrs Maturity 2000
<S> <C> <C> <C> <C> <C> <C>
Interest bearing deposits
with banks $ 7,787 $ 7,787
Investment securities $ 1,000 $ 13,693 $ 54,894 $ 7,773 77,360
Real estate loans 8,773 5,690 18,472 58,987 91,922
Commercial loans 7,311 33 2,645 9,989
Consumer loans 198 256 932 1,386
Student loans 31,906 31,906
Construction loans 15,444 6,014 417 21,875
SBA loans 43 1,323 6,089 7,455
Other assets 12,442 12,442
Total assets $ 71,221 $ 12,978 $ 36,806 $120,902 $ 20,215 $262,122
Non interest bearing
deposits $ 17,016 $ 17,016
NOW accounts $ 12,453 12,453
Money market accounts 12,799 12,799
Savings accounts 29,458 29,458
Time deposits 34,804 $ 61,308 $ 17,098 $ 3,197 116,407
Borrowed funds 36,084 36,084
Other liabilities 1,145 1,145
Total liabilities 125,598 61,308 17,098 3,197 18,161 225,362
Shareholder's equity 36,760 36,760
Total liabilities and
shareholder's equity $125,598 $ 61,308 $ 17,098 $ 3,197 $ 54,921 $262,122
GAP $(54,377) $ (48,330) $ 19,708 $117,705 $(34,706) $ 0
Cumulative GAP $(54,377) $(102,707) $(82,999) $ 34,706 $ 0 $ 0
Cumulative GAP Ratio 0.57 0.45 0.59 1.17 1.00 1.00
</TABLE>
Capital Adequacy
The Bank is required to maintain minimum ratios of Tier I
and total capital to total "risk weighted" assets and a minimum
Tier I leverage ratio, as defined by the banking regulators. The
Bank's liquidity is quantified through the use of a standard
liquidity ratio of liquid assets (cash and cash equivalents,
investment securities available-for-sale, mortgage-backed
securities available-for-sale and Federal Home Loan Bank stock)
to short-term borrowings plus deposits. At March 31, 2000. The
Bank was required to have a minimum Tier I and total capital
ratios of 4.0% and 8.0%, respectively, and a minimum Tier I
leverage ratio of 4.0%. The Bank's actual Tier I and total
capital ratios at March 31, 2000, were 24.4% and 25.5%,
respectively, and the Bank's Tier I leverage ratio was 11.99%.
These ratios exceed the requirements for classification as a
"well capitalized" institution, the industry's highest capital
category.
On March 31, 2000, the Bank was in compliance with
regulatory capital requirements as follows:
<TABLE>
<CAPTION>
March 31, 2000
Minimum Well Capitalized
Actual Capital Requirements Capital Requirements
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
Tier I capital to risk weighted
assets $31,918 24.45% $5,221 4.00% $7,832 6.00%
Total capital to risk weighted
assets 33,267 25.48% 10,443 8.00% 13,054 10.00%
Leverage to average assets 31,918 11.99% 10,651 4.00% 13,313 5.00%
December 31, 1999
Minimum Well
Actual Capital Requirements Capital Requirements
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
Tier I capital to risk weighted
assets $31,348 17.90% $7,006 4.00% $ 10,510 6.00%
Total capital to risk weighted
assets 32,579 18.60% 14,013 8.00% 17,516 10.00%
Leverage to average assets 31,348 11.48% 10,927 4.00% 13,659 5.00%
</TABLE>
FINANCIAL CONDITION
General
The Bank's total assets decreased $17.5 million or 6.3% from
$279.6 million at December 31, 1999 to $262.1 million at March
31, 2000. The decrease in assets was primarily the result of a
decrease in net loans and loans held for sale.
Total loans decreased to $163.8 million at March 31, 2000
from $176.0 million at December 31, 1999. The decrease of $12.2
million, or 6.9%, was primarily the result of payoffs arising
from seasonal fluctuations within the Bank's student loan
program. This program was an existing program of First Bank of
Philadelphia and now appears in the Company's consolidated
results because of the merger. These loans are funded to students
at qualifying schools and are subsequently contractually sold at
par within 45 to 60 days of origination to an investor. Decrease
of other loan products such as commercial real estate,
construction loans and consumer loans were also a factor as
illustrated by the following loan composition table in thousands:
<TABLE>
<CAPTION>
At March 31, At December 31,
2000 1999
Amount Percent Amount Percent Variance # Change
<S> <C> <C> <C> <C> <C> <C>
Real Estate Loans:
One-to-four family(1) $63,605 38.39% $ 63,937 35.99% ($ 332) -0.52%
Construction loans 21,875 13.20% 23,528 13.25% ( 1,653) -7.03%
Five or more family residence 2,300 1.39% 2,712 1.53% (412) -15.19%
Nonresidential 26,017 15.70% 27,117 15.27% ( 1,100) - 4.06%
Commercial loans 9,989 6.03% 10,682 6.01% (693) - 6.49%
SBA loans 7,455 4.05% 6,682 3.76% 773 10.37%
Student loans held for sale 31,906 19.26% 40,509 22.80% ( 8,603) -21.24%
Consumer loans 2,518 1.52% 2,468 1.39% 50 1.99%
Total loans $165,665 95.50% $177,635 100.00% ($11,970) -6.74%
======== ===== ======== ======= ====== =====
Less:
Unearned fees and deposits $ 530 $ 389
Undisbursed loan proceeds -- 7
Allowance for loan losses 1,349 1,231
Net Loans $163,786 $176,008
======== ========
</TABLE>
(1) Includes loans held for sale
Total investment securities (including mortgage-backed
securities) decreased $32,000 or .01%, to $77.4 million at March
31, 2000, from $77.3 million at December 31, 1999.
Cash and cash equivalents, including interest-bearing
deposits with banks, decreased $5.3 million to $12.0 million at
March 31, 2000, from $17.3 million at December 31, 1999. This
decrease was the result of the redemption of certificate of
deposits and disbursements of loan proceeds.
Total liabilities increased from $243.6 million at
December 31, 1999 to $225.4 million at March 31, 2000. This
$18.2 million, or 7.5% increase, reflected an increase in the
Bank's primary source of funds, and securities purchased under
agreements to resale.
Asset Quality
Delinquent Loans
When a borrower fails to make a required payment on a loan,
the Bank attempts to cure the deficiency by contacting the
borrower and seeking payment. Contacts are generally made on the
15th day after a payment is due. In most cases, deficiencies are
cured promptly. If a delinquency extends beyond 30 days, the
loan and payment history is carefully reviewed, additional
notices are sent to the borrower and efforts are made to collect
the loan. While the Bank generally prefers to work with
borrowers to resolve such problems, when the account becomes 90
days delinquent, the Bank does institute foreclosure or other
proceedings, as necessary, to minimize any potential loss.
Non-Performing Assets
The Bank's level of non-performing assets increased $1.3
million, or 30.9%, during the three months ended March 31, 2000,
from $3.1 million at December 31, 1999 to $4.5 million at
March 31, 2000. Contributing to this increase was an increase of
$799,000 in loans past due 90 days or more as to interest or
principal and accruing interest, through the transition of loans
from First Bank of Philadelphia due to the merger. An increase of
$398,000 in non-accrual loans, and an increase of $190,000 in the
Bank's OREO portfolio. As a matter of policy, the accrual of loan
interest is discontinued if management believes that, after
considering economic and business conditions and collection
efforts, the borrower's financial condition is such that
collection of interest becomes doubtful. This is normally done
when a loan reaches 90 days delinquent. At this time, all
accrued but unpaid interest is reversed. There are occasional
exceptions if the loans are in the process of collection and the
loan is fully secured.
The following table sets forth non-performing assets as of
March 31, 2000 and December 31, 1999 (dollars in thousands):
<TABLE>
<CAPTION>
At March 31, At December 31,
2000 1999
<S> <C> <C>
Loans past due 90 days or more as to interest or
principal and accruing interest $ 979 $ 180
Nonaccrual loans 2,276 1,878
Loans restructured to provided a reduction or deferral
of interest or principal - -
Total nonperforming loans 3,255 2,058
Real estate owned (REO) 1,237 1,047
Total nonperforming assets $4,492 $3,105
Nonperforming loans to total loans 1.97% 1.16
Nonperforming assets to total assets 1.71% 1.11
Allowance for loan losses to total loans 0.62% 0.69
Allowance for loan losses to nonperforming loans 41.44% 59.82
Allowance for loan losses to nonperforming assets 30.03% 39.65
Net charge-offs as a percentage of total loans - -
</TABLE>
Allowance for loan losses
The provision for loan losses is an amount charged against
earnings to fund the allowance for possible future losses on
existing loans. In order to determine the amount of the
provision for loan losses, the Bank conducts a monthly review of
the loan portfolio to evaluate overall credit quality. In
establishing its allowance for loan losses, management considers
the size and risk exposure for each segment of the loan
portfolio, past loss experience, current indicators such as the
present levels and trends of delinquency rates and collateral
values, and the potential losses for future periods. The
provisions are based on management's review of the economy,
interest rates, general market conditions, and in certain
instances, an estimate of net realizable value (or fair value) of
the collateral, as applicable, considering the current and
anticipated future operating environment. These estimates are
particularly susceptible to changes that may result in a material
adjustment to the allowance for loan losses. As adjustments
become identified, they are reported in earnings for the period
in which they become known. Management believes that it makes an
informed judgment based upon available information. The adequacy
of the allowance is reviewed monthly by the Board of Directors.
It is the objective of the Bank's evaluation process to
establish the following components of the allowance for loan
losses: a specific allocation for certain identified loans, a
general allocation for pools of loans based on risk rating, and
a general allocation for inherent loan portfolio losses.
Management performs current evaluations of its criticized and
classified loan portfolios and assigns specific reserves that
reflects the current risk to the Bank. As a general rule,
special mention assets will have a minimum reserve of 5%,
substandard assets will have a minimum reserve of 10%, and
doubtful assets will have a minimum reserve of 50%. A general
reserve allocation is applied for pools of loans based on risk
rating for all loans not specifically reserved for as described
previously.
Based upon management's analysis, the Bank recorded
provisions for loan losses during the three month periods ended
March 31, 2000 and 1999 of $100,000 and $0, respectively. The
Bank recorded no charge-offs or recoveries for the periods ended
March 31, 2000 and 1999.
Part II. OTHER INFORMATION
Item 2 Legal Proceedings
None.
Item 3 Changes in Securities
None.
Item 4 Defaults upon Senior Securities
None.
Item 5 Submission of Matters to a Vote of Security Holders
None.
Item 6. Exhibits and Reports on Form 8-K
Exhibit Index.
Exhibit No. Document
2.1 Agreement and Plan of Reorganization,
dated as of March 19, 1999, between
PSB Bancorp, Inc. and First Bank of
Philadelphia. (incorporated herein by
reference to Exhibit 2.1 of the S-4
Registration Statement of PSB Bancorp,
Inc. filed June 25, 1999).
3.1 Articles of Incorporation of First
Penn Bank (incorporated herein by
reference to Exhibit 3.1 of the SB-2
Registration Statement of PSB Bancorp,
Inc. filed October 9, 1997).
3.2 Bylaws of First Penn Bank
(incorporated herein by reference to
Exhibit 3.2 of the SB-2 Registration
Statement of PSB Bancorp, Inc. filed
October 9, 1997).
10.1* First Penn Bank's Retirement Plan
(incorporated herein by reference to
Exhibit 10.1 of the SB-2 Registration
Statement of PSB Bancorp, Inc. filed
October 9, 1997).
10.2* First Penn Bank's Cash or Deferred
Profit Sharing Plan (incorporated
herein by reference to Exhibit 10.2
of the SB-2 Registration Statement of
PSB Bancorp, Inc. filed October 9,
1997).
10.3* First Penn Bank's Profit Sharing Plan
(incorporated herein by reference to
Exhibit 10.3 of the SB-2 Registration
Statement of PSB Bancorp, Inc filed
October 9, 1997).
10.4* Employment Agreement with Vincent J.
Fumo (incorporated herein by reference
to Exhibit 7.1 of the SB-2
Registration Statement of PSB Bancorp,
Inc filed October 9, 1997).
10.5* Employment Agreement with Anthony
DiSandro (incorporated herein by
reference to Exhibit 7.2 of the SB-2
Registration Statement of PSB Bancorp,
Inc filed October 9, 1997).
10.6* First Penn Bank's Employee Stock
Ownership Plan (incorporated herein by
reference to Exhibit 10.4 of the SB-2
Registration Statement of PSB Bancorp,
Inc. filed on October 9, 1997).
10.7 Lease Agreement between Eleven
Colonial Penn Plaza Associates and
First Penn Bank, dated as of
October 10, 1995 (incorporated herein
by reference to Exhibit 10.7 of Form
S-1, Amendment No. 3 of PSB Bancorp,
Inc. filed May 5, 1998).
10.8 Lease Agreement between Eleven
Colonial Penn Plaza Associates and
First Penn Bank, dated as of
October 12, 1995 (incorporated herein
by reference to Exhibit 10.8 of Form
S-1, Amendment No. 3 of PSB Bancorp,
Inc. filed on May 5, 1998).
10.9 First Penn Bank's Stock Option Plan
(incorporated herein by reference to
Exhibit 10.9 of the S-4 Registration
Statement of PSB Bancorp, Inc. filed
June 25, 1999).
10.10 First Penn Bank's Management
Recognition Plan (incorporated herein
by reference to Exhibit 10.10 of the
S-4 Registration Statement of PSB
Bancorp, Inc. filed June 25, 1999).
21 Schedule of Subsidiaries (incorporated
herein by reference to Form 10-KSB of PSB
Bancorp, Inc. filed on March 30, 2000).
23.1 Consent of Stockton Bates & Company,
P.C. (filed herewith).
27 Financial Data Schedule (filed herewith).
____________
* Denotes a management contract or compensatory plan or
arrangement.
(b) Reports on Form 8-K
None.
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 dully authorized.
PSB BANCORP, INC
By:/s/Anthony DiSandro
Anthony DiSandro,
President, Chief Executive
Officer & Director
By:/s/Karen Washington
Karen Washington,
(Principal Financial
Officer and Chief
Accounting Officer)
May 15, 2000
Exhibit Index.
Exhibit No. Document
2.1 Agreement and Plan of Reorganization,
dated as of March 19, 1999, between
PSB Bancorp, Inc. and First Bank of
Philadelphia. (incorporated herein by
reference to Exhibit 2.1 of the S-4
Registration Statement of PSB Bancorp,
Inc. filed June 25, 1999).
3.1 Articles of Incorporation of First
Penn Bank (incorporated herein by
reference to Exhibit 3.1 of the SB-2
Registration Statement of PSB Bancorp,
Inc. filed October 9, 1997).
3.2 Bylaws of First Penn Bank
(incorporated herein by reference to
Exhibit 3.2 of the SB-2 Registration
Statement of PSB Bancorp, Inc. filed
October 9, 1997).
10.1* First Penn Bank's Retirement Plan
(incorporated herein by reference to
Exhibit 10.1 of the SB-2 Registration
Statement of PSB Bancorp, Inc. filed
October 9, 1997).
10.2* First Penn Bank's Cash or Deferred
Profit Sharing Plan (incorporated
herein by reference to Exhibit 10.2
of the SB-2 Registration Statement of
PSB Bancorp, Inc. filed October 9,
1997).
10.3* First Penn Bank's Profit Sharing Plan
(incorporated herein by reference to
Exhibit 10.3 of the SB-2 Registration
Statement of PSB Bancorp, Inc filed
October 9, 1997).
10.4* Employment Agreement with Vincent J.
Fumo (incorporated herein by reference
to Exhibit 7.1 of the SB-2
Registration Statement of PSB Bancorp,
Inc filed October 9, 1997).
10.5* Employment Agreement with Anthony
DiSandro (incorporated herein by
reference to Exhibit 7.2 of the SB-2
Registration Statement of PSB Bancorp,
Inc filed October 9, 1997).
10.6* First Penn Bank's Employee Stock
Ownership Plan (incorporated herein by
reference to Exhibit 10.4 of the SB-2
Registration Statement of PSB Bancorp,
Inc. filed on October 9, 1997).
10.7 Lease Agreement between Eleven
Colonial Penn Plaza Associates and
First Penn Bank, dated as of
October 10, 1995 (incorporated herein
by reference to Exhibit 10.7 of Form
S-1, Amendment No. 3 of PSB Bancorp,
Inc. filed May 5, 1998).
10.8 Lease Agreement between Eleven
Colonial Penn Plaza Associates and
First Penn Bank, dated as of
October 12, 1995 (incorporated herein
by reference to Exhibit 10.8 of Form
S-1, Amendment No. 3 of PSB Bancorp,
Inc. filed on May 5, 1998).
10.9 First Penn Bank's Stock Option Plan
(incorporated herein by reference to
Exhibit 10.9 of the S-4 Registration
Statement of PSB Bancorp, Inc. filed
June 25, 1999).
10.10 First Penn Bank's Management
Recognition Plan (incorporated herein
by reference to Exhibit 10.10 of the
S-4 Registration Statement of PSB
Bancorp, Inc. filed June 25, 1999).
21 Schedule of Subsidiaries (incorporated
herein by reference to Form 10-KSB of PSB
Bancorp, Inc. filed on March 30, 2000).
23.1 Consent of Stockton Bates & Company,
P.C. (filed herewith).
27 Financial Data Schedule (filed herewith).
____________
* Denotes a management contract or compensatory plan or
arrangement.
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> MAR-31-2000 DEC-31-1999
<PERIOD-END> MAR-31-2000 DEC-31-1999
<CASH> 4,241 7,921
<INT-BEARING-DEPOSITS> 7,787 9,354
<FED-FUNDS-SOLD> 0 0
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 4,997 5,006
<INVESTMENTS-CARRYING> 76,082 71,711
<INVESTMENTS-MARKET> 72,363 67,841
<LOANS> 165,135 177,239
<ALLOWANCE> 1,349 1,231
<TOTAL-ASSETS> 262,122 279,606
<DEPOSITS> 188,132 193,210
<SHORT-TERM> 0 0
<LIABILITIES-OTHER> 37,230 50,351
<LONG-TERM> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 36,760 36,047
<TOTAL-LIABILITIES-AND-EQUITY> 262,122 279,606
<INTEREST-LOAN> 4,134 13,457
<INTEREST-INVEST> 1,259 4,165
<INTEREST-OTHER> 27 939
<INTEREST-TOTAL> 5,420 18,561
<INTEREST-DEPOSIT> 2,011 8,270
<INTEREST-EXPENSE> 2,581 9,219
<INTEREST-INCOME-NET> 2,839 9,342
<LOAN-LOSSES> 100 200
<SECURITIES-GAINS> 0 0
<EXPENSE-OTHER> 1,907 8,198
<INCOME-PRETAX> 989 1,857
<INCOME-PRE-EXTRAORDINARY> 989 1,857
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 754 2,084
<EPS-BASIC> 0.17 0.48
<EPS-DILUTED> 0.15 0.40
<YIELD-ACTUAL> 4.39 3.89
<LOANS-NON> 2,276 1,878
<LOANS-PAST> 979 180
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 1,231 1,031
<CHARGE-OFFS> 0 0
<RECOVERIES> 18 0
<ALLOWANCE-CLOSE> 1,349 1,231
<ALLOWANCE-DOMESTIC> 1,349 1,231
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
