U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark one)
(X) ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, for the fiscal year ended December 31,
1997, or
( ) TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (no fee required), for the
transition period from _______________ to ______________.
Commission file number:
PSB BANCORP, INC.
(Name of small business issuer in its charter)
Pennsylvania 59-3454146
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Registrant's telephone number, including area code:(215)979-7900
Securities registered pursuant to Section 12 (b) of the Act:
None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock ($0.01 par value)
Check whether the issuer (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the
past 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 ____
Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B is not contained in this
form, and no disclosure will be contained, to the best of
Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. (X)
The Registrant's revenues for its most recent fiscal year
were $18,561,000.
The aggregate market value of common stock of the
Registrant held by nonaffiliates, based on the average between
the closing bid and the closing asked prices as of March 28,
2000 was $22,372,808. As of March 28, 2000, the Registrant had
4,542,362 shares of Common Stock outstanding.
Documents incorporated by reference. None
Transitional Small Business Disclosure Format (check one):
Yes _____ No X
PSB BANCORP, INC.
FORM 10-KSB
For the Year Ended December 31, 1999
Table of Contents
Page No.
PART I
Item 1. Description of Business
Item 2. Description of Property
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of
Securities Holders
PART II
Item 5. Market for Common Equity and Related
Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of
Operations
Item 8. Financial Statements
Item 9. Changes In and Disagreements With
Accountants on Accounting and Financial
Disclosure
PART III
Item 10. Directors, Executive Officers, Promoters
and Control Persons; Compliance With
Section 16(a) of the Exchange Act
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial
Owners and Management
Item 13. Certain Relationships and Related
Transactions
Item 14. Exhibits and Reports on Form 8-K (F-3)
PART I
Item 1 Business
Effective July 18, 1998, First Penn Bank (the Bank) and PSB
Holding Company ("MHC") completed the Plan of Conversion and
Reorganization from Mutual Holding Company to Stock Holding
Company. Under the Plan of Conversion, the newly formed Holding
Company, PSB Bancorp, Inc. ("Holding Company"), issued 1,610,732
shares of common stock, no par value, at a price of $10.00 per
share. Existing shareholders of the Bank exchanged their shares
for 2.572374 shares of PSB Bancorp, Inc. shares and the Mutual
Holding Company merged with and into the Bank. Effective
October 12, 1999 there was a change in charter from a Savings
Bank to a Commercial Bank and subsequent name change for
Pennsylvania Savings Bank, resulting from the acquisition of
First Bank of Philadelphia.
The Holding Company was organized as a Pennsylvania
business corporation on October 3, 1997 at the direction of the
bank for the purpose of becoming a holding company for the Bank
upon completion of the Conversion and Reorganization. The
Holding Company is subject to regulation by the Federal Reserve
Bank of Philadelphia, and its principal business is the
ownership of the Bank. In the future, the Holding Company may
acquire or organize other operating subsidiaries, although there
are no current plans, arrangements or understandings, written or
oral, to do so.
The Bank is a Pennsylvania state chartered commercial bank,
headquartered in Philadelphia, Pennsylvania. The Bank is a
community-oriented institution offering traditional deposit and
loan products. The Bank operates 7 full-service offices. Five
offices are located in Philadelphia, Pennsylvania and one office
is located in Glenside, Montgomery County, Pennsylvania.
At December 31, 1999, the Bank had total assets of
$279.6 million, total deposits of $193.2 million and
shareholders' equity of $36.0 million.
The Bank is primarily engaged in the business of attracting
deposits from the general public in the Bank's market area and
investing such deposits in loans secured by one- to four-family
residential real estate, commercial real estate loans,
commercial business loans, construction loans, student loans and
investment and mortgage-backed securities. The Bank's deposits
are insured by the Savings Association Insurance Fund (the
"SAIF") of the FDIC to the extent that such deposits were
assumed from the mutual savings bank in the 1995 MHC
Reorganization. Deposits accepted by the Bank after the MHC
Reorganization are insured by the FDIC's Bank Insurance Fund
(the "BIF").
The Bank has focused its lending activities primarily on
the origination of loans secured by first mortgages on owner-
occupied, one- to four-family residences for retention in the
Bank's portfolio. The Bank has expanded origination of one-to
four-family residential mortgage loans for resale in the
secondary market through expansion of its mortgage banking
operations. As part of a strategy to diversify its loan
portfolio, achieve a higher net interest margin and reduce
interest rate risk, the bank has increased its origination of
construction loans, commercial real estate loans, commercial
business loans, multifamily real estate loans and student loans
which was an existing program of First Bank of Philadelphia. To
a lesser extent, the Bank and its subsidiaries also originate
consumer loans, including home equity, second mortgage, and
other consumer loans. The Bank expects this diversification
trend to continue.
Through its subsidiary, Transnational Mortgage Company
(TNMC), the Bank has conducted a mortgage banking operation
since 1989. Mortgage banking consists primarily of the
origination, purchase, sale and servicing of first mortgage
loans secured by one-to four family homes. Such loans are sold
either as individual loans, as mortgage-backed securities, or as
participation certificates issued or guaranteed by FNMA or
FHLMC. Loans may be sold either on a servicing retained or
servicing released basis.
The Bank's principal sources of funds are deposits and the
principal and interest payments on loans, investment securities
and mortgage-backed securities. The Bank has available credit
with the Federal Home Loan Bank of Pittsburgh ("FHLB") which at
December 31, 1999 had advanced $34.0 million. The principal
source of income is interest received from loans, investment
securities and mortgage-backed securities. The Bank's principal
expenses are the interest paid on deposits and the cost of
employee compensation and benefits.
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 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 operates under the name of
First Penn Bank (the "Bank") and holds a commercial bank
charter. This will provide the Bank with greater lending
flexibility, particularly with respect to commercial loans. The
Bank operates 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.
Subsidiaries
The Bank owns three direct subsidiaries and one indirect
subsidiary. Transnational Mortgage Corp. ("TNMC") is engaged in
a mortgage banking business, PSA Service Corp. conducts real
estate appraisals, processes credit applications and provides
other services in connection with the origination of loans. PSA
Financial Corp. primarily originates business loans and
commercial real estate loans. Its subsidiary, PSA Consumer
Discount Company, primarily originates consumer loans.
Personnel
As of December 31, 1999, the Bank had 66 full-time and one
part-time employee. The Bank is not a party to any collective
bargaining agreements.
Competition
In the Philadelphia metropolitan market area, the banking
business is highly competitive. The Bank competes with local
commercial banks as well as numerous regionally-based commercial
banks which have assets, capital and lending limits
significantly larger than those of the Bank. The Bank also
competes with thrift institutions, savings institutions, credit
unions, issuers of commercial paper, other securities and other
non-depository institutions. The Bank seeks to be competitive
with respect to interest rates paid and charged, and for service
charges on customer accounts.
Among the advantages many of the Bank's competitors have
over the Bank are larger asset and capital bases, and the
ability to finance wide ranging advertising campaigns and to
allocate their investment assets to regions of highest yield and
demand. Many international banking services are indirectly
offered through correspondent relationships. By virtue of their
greater capital, most competitors have substantially higher
lending limits than that of the Bank.
In the past, the United States Congress has periodically
considered and adopted legislation that has sought to deregulate
banks and other financial institutions as well as increase the
competition among banks and other financial institutions for
capital, deposits, loans and other banking or financial
business. Such legislation has modified or eliminated
geographic restrictions on banks and bank holding companies and
could modify or eliminate current prohibitions against banks
engaging in one or more non-banking activities. The Bank cannot
predict whether further new legislation will result from this
scrutiny or the competitive effects of any such legislation on
the Bank.
Regulation
As a state-chartered bank, the Bank is subject to
regulation, supervision and regular examination by the
Pennsylvania Department of Banking ("the Department") and is
subject to the applicable provisions of the Pennsylvania Banking
Code of 1965, as amended ("the Banking Code"). The Bank is a
member of the Federal Reserve System and is subject to
regulation, supervision, reporting requirements and regular
examinations by the Federal Reserve Board. In addition, the
Bank's deposits are insured by the Federal Deposit Insurance
Corporation (the "FDIC") up to a maximum of $100,000 per insured
account holder. The FDIC has the authority to increase its
insurance premiums to cover losses and expenses. Some aspects
of the lending and deposit business that are regulated by the
Federal Reserve Board and the FDIC include personal lending,
commercial lending, mortgage lending, reserve requirements
against certain deposit accounts and the maintenance of the
requisite capital to asset ratios. The Bank is also subject to
numerous federal, state and local laws and regulations which set
forth specific restrictions and procedural requirements with
respect to the extension of credit, credit practices, the
disclosure of credit terms and discrimination in credit
transactions. As a consequence of the extensive regulation of
commercial banking activities in the United States, the Bank's
business is particularly susceptible to being affected by
federal and state legislation and regulation which may
negatively impact the cost of doing business.
In December of 1992, the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA") was enacted.
Among other things, FDICIA provides increased funding for the
FDIC Bank Insurance Fund ("BIF") and provides for expanded
regulation of depository institutions and their affiliates,
including parent holding companies. FDICIA provides the federal
banking agencies with broad powers to take corrective action to
resolve problems of insured depository institutions. The extent
of these powers depends upon whether the institutions in
question are categorized under the following specified capital
tiers as "well-capitalized," "adequately capitalized,"
"undercapitalized, "significantly undercapitalized" or
"critically undercapitalized." A depository institution's
capital tier will depend upon where its capital levels are in
relation to various relevant capital measures, which will
include a risk-based capital measure, a leverage ratio and
certain other factors. An institution shall be deemed to be
"well capitalized" if the bank has a total risk-based capital
ratio of 10.0% or greater, a tier 1 risk-based capital ratio of
6.0% or greater, or a leverage ratio of 5.0% or greater. An
institution shall be deemed to be "adequately capitalized" if
the bank has a total risk-based capital ratio of 8.0% or
greater, a tier 1 risk-based capital ratio of 4.0% or greater,
and a leverage ratio of 4.0% or greater, or a leverage ratio of
3.0% or greater if the bank is rated composite 1 under the CAMEL
rating system in the most recent examination of the bank and is
not experiencing or anticipating significant growth. An
institution shall be deemed to be "undercapitalized" if the bank
has a total risk-based capital ratio that is less than 8.0%, or
a tier 1 risk-based capital ratio that is less than 4.0%, or a
leverage ratio that is less than 4.0%, or has a leverage ratio
that is less than 3.0%, if the bank is rated composite 1 under
the CAMEL rating system in the most recent examination of the
bank and is not experiencing or anticipating significant growth.
An institution shall be deemed to be "significantly
undercapitalized" if the bank has a total risk-based capital
ratio that is less than 6.0%, or a tier 1 risk-based capital
ratio that is less than 3.0% or a leverage ratio that is less
than 3.0%. An institution shall be deemed to be "critically
undercapitalized" if the bank has a ratio of tangible equity to
total assets that is equal to or less than 2.0%.
The BIF funding provisions required the FDIC bank fund to
become adequately capitalized (which occurred during 1995),
defined as $1.25 of reserves for every $100 of insured deposits,
through a risk-based deposit insurance assessment system. As a
result of becoming adequately capitalized, effective January 1,
1996, the FDIC reduced the deposit assessments to the following:
As defined below, institutions classified as "well capitalized"
are assessed premiums at a rate ranging from $0 per $100 of
deposits to $.17 per $100 of deposits. Institutions classified
as "adequately capitalized" are assessed premiums at a rate
ranging from $.03 per $100 of deposits to $.24 per $100 of
deposits. Institutions classified as "undercapitalized" are
assessed premiums at a rate ranging from $.10 per $100 of
deposits to $.27 per $100 of deposits. As of December 31, 1999,
the Bank was classified as "well capitalized" and was assessed
premiums in the amount of $87,000 for fiscal year 1999. In
addition, as a result of legislation passed in 1996, banks
became subject to assessments relating to interest payments on
Financing Corporation ("FICO") bonds issued in connection with
the resolution of the thrift industry crisis. The FICO
assessment rate is adjusted quarterly to reflect changes in the
assessment bases of the BIF and the Savings Association Fund
("SAIF"). Currently, the FICO assessment s on BIF-insured
deposits are set at an annual rate of 0.0122% of assessable
deposits. This is one-fifth the rate currently applicable to
SAIF-insured deposits. It is expected that after December 31,
1999 (or when the BIF and SAIF are merged, if sooner), all
assessable deposits at all institutions will be assessed at the
same rates in order to pay FICO bond interest.
Regulation of the Holding Company
The Holding Company is a bank holding company subject to
supervision and regulation by the Federal Reserve under the Bank
Holding Company Act of 1956, as amended. As a Bank Holding
Company, the Holding Company's activities and those of its
subsidiary are limited to the business of banking and activities
closely related or incidental to banking, and the Holding
Company may not directly or indirectly acquire the ownership or
control or more than 5% if any class of voting shares or
substantially all of the assets of any company, including the
bank, without prior approval of the Federal Reserve.
The Bank is subject to supervision and examination by
applicable federal and state banking agencies. The Bank is also
a Pennsylvania-chartered bank subject to supervision and
regulation by the PDOB. In addition, since the deposits of the
Bank are insured by the FDIC, the Bank is also subject to
regulation by the FDIC. The Bank is also subject to requirements
and restrictions under federal and state law, including
requirements to maintain reserves against deposits, restrictions
on the types of investments that may be made and the types of
services that may be offered. Various consumer laws and
regulations also affect the operations of the Bank. In addition
to the impact of regulation, commercial banks are affected
significantly by the actions of the Federal Reserve in
attempting to control the money supply and credit availability
in order to influence the economy.
The Bank is subject to restrictions under federal law which
limit its ability to transfer funds to the Holding Company,
whether in the form of loans, other extensions of credit,
investments and asset purchases. Such transfers by the Bank to
the Holding Company are generally limited in amount to 10% of
the Bank's capital and surplus. Furthermore, such loans and
extensions of credit are required to be secured in specific
amounts, and all transactions are required to be on an arm's
length basis. The Bank has never made any loan or extension of
credit to the Holding Company nor has it purchased any assets
from the Holding Company.
Under Federal Reserve policy, a bank holding company is
expected to act as a source of financial strength the Bank and
to commit resources to support the Bank, i.e., to downstream
funds to the Bank. This support may be required at times, when
absent such policy, the bank holding company might not otherwise
provide such support. Any capital loans by the bank holding
company to the Bank are subordinate in right of payment to
deposits and to certain other indebtedness of the Bank. In the
event of a bank holding company's bankruptcy, any commitment by
the bank holding company to a federal bank regulatory agency to
maintain the capital of the Bank will be assumed by the
bankruptcy trustee and entitled to a priority of payment.
New Legislation
Landmark legislation in the financial services area was
signed into law on November 12, 1999. The Gramm-Leach-Bliley
Act dramatically changes certain banking laws that have been in
effect since the early part of the 20th century. The most
radical changes are that the separation between banking and the
securities businesses mandated by the Glass-Steagall Act has now
been removed, and the provisions of any state law that prohibits
affiliation between banking and insurance entities have been
preempted. Accordingly, the new legislation now permits firms
engaged in underwriting and dealing in securities, and insurance
companies, to own banking entities, and permits bank holding
companies (and in some cases, banks) to own securities firms and
insurance companies. The provisions of federal law that
preclude banking entities from engaging in non-financially
related activities, such as manufacturing, have not been
changed. For example, a manufacturing company cannot own a bank
and become a bank holding company, and a bank holding company
cannot own a subsidiary that is not engaged in financial
activities, as defined by the regulators.
The new legislation creates a new category of bank holding
company called a "financial holding company." In order to avail
itself of the expanded financial activities permitted under the
new law, a bank holding company must notify the Federal Reserve
that it elects to be a financial holding company. A bank
holding can make this election if it, and all its bank
subsidiaries, are well capitalized, well managed, and have at
least a satisfactory Community Reinvestment Act rating, each in
accordance with the definitions prescribed by the Federal
Reserve and the regulators of the subsidiary banks. Once a bank
holding company makes such an election, and provided that the
Federal Reserve does not object to such election by such bank
holding company, the financial holding company may engage in
financial activities (i.e, securities underwriting, insurance
underwriting, and certain other activities that are financial in
nature as to be determined by the Federal Reserve) by simply
giving a notice to the Federal reserve within thirty days after
beginning such business or acquiring a company engaged in such
business. This makes the regulatory approval process to engage
in financial activities much more streamlined than it was under
prior law.
It is too early to tell what effect the Gramm-Leach-Bliley
Act may have on the Bank. The intent and scope of the act is
positive for the financial services industry, and is an attempt
to modernize federal banking laws and make U. S. institutions
competitive with those from other countries. While the
legislation makes significant changes in U. S. banking law, such
changes may not directly affect the Bank's business unless it
decides to avail itself of new opportunities available under the
new law. The Bank does not expect any of the provisions of the
new Act to have a material adverse effect on the Bank's existing
operations, or to significantly increase its costs.
Interstate Acquisitions.
The Commonwealth of Pennsylvania has enacted legislation
regarding the acquisition of commercial banks, bank holding
companies, savings banks and savings and loan associations
located in Pennsylvania by institutions located outside of
Pennsylvania. The statute dealing with savings institutions
authorizes (i) a savings bank, savings and loan association or
holding company thereof located in another state (a "foreign
institution") to acquire the voting stock of, merge or
consolidate with, or purchase assets and assume liabilities of,
a Pennsylvania-chartered savings bank and (ii) the establishment
of branches in Pennsylvania by foreign institutions, in each
case subject to certain conditions including (A) reciprocal
legislation in the state in which the foreign institution
seeking entry into Pennsylvania is located permitting comparable
entry by Pennsylvania savings institutions and (B) approval by
the PDOB. Pennsylvania law also provides for nationwide
branching by Pennsylvania-chartered savings banks and savings
and loan associations, subject to the PDOB's approval and
certain other conditions.
On September 29, 1994, the United States Congress enacted
the Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994 (the "Interstate Banking Law"), which amended various
federal banking laws to provide for nationwide interstate
banking, interstate bank mergers and interstate branching. The
Interstate Banking Law currently allows the acquisition by a
bank holding company of a bank located in another state,
interstate bank mergers and branch purchase and assumption
transactions. Only a few states have "opted-out" of the merger
and purchase and assumption provisions by enacting laws that
specifically prohibit such interstate transactions.
Pursuant to the Interstate Banking Law, states may also
enact legislation to allow for de novo interstate branching by
out of state banks.
National Monetary Policy
As previously indicated, the earnings and growth of the
Bank are, and will continue to be, affected by the policies of
the regulatory authorities, including the Department, the
Federal Reserve Board and the FDIC. In addition to the
supervisory and regulatory duties as they are related to
operation of a bank, the Federal Reserve Board is also
responsible for the regulation of the United State money supply
and additional credit conditions. This controlling influence is
undertaken in response to national and international economic
developments. Among the means available to the Federal Reserve
Board to implement these objectives are open market operations
in the U.S. governmental securities, establishing the interest
rate on temporary loans made to banks (i.e., the discount rate)
and other measures. Alternatives to controlling economic
conditions are used in varying combinations to influence overall
growth and credit distribution, lending, investing and savings.
The effect of these various controlling influences may affect
interest rates charged on loans or paid on deposits.
Bank profitability is significantly dependent on interest
rate differentials. In general, the difference between the
interest paid by a bank on its deposits and borrowed money and
the interest received by a bank on securities held in its
investment portfolio and loans originated and maintained by the
bank comprise the major portion of a bank's earnings. Thus, the
earnings and growth of a bank will be subject to the influence
of economic conditions, both domestic and foreign, and on the
levels of and changes in interest rates. The monetary policies
and regulations of the Federal Reserve Board have had a
significant effect on the operating results of commercial banks
in the past and are expected to continue to do so in the future.
The effects of such policies upon the future business, earnings
and growth of the Bank cannot be predicted.
Dividend Limitations
The Pennsylvania Banking Code of 1965 provides that cash
dividends may be declared and paid only out of accumulated net
earnings and that, prior to the declaration of any dividend, if
the surplus of a bank is less than the amount of its capital,
the bank shall, until the surplus is equal to such amount,
transfer to surplus an amount which is at least ten percent of
the net earnings of the bank for the period since the end of the
last fiscal year for any shorter period since the declaration of
a dividend. If the surplus of a bank is less than fifty percent
of the amount of the capital, no dividend may be declared or
paid without the prior approval of the Department until the
surplus is equal to fifty percent of the bank's capital.
Additionally, the Department has the power to issue orders
prohibiting the payment of dividends where such payment is
deemed to be an unsafe or unsound banking practice.
Under the Federal Reserve Act, as amended, if losses have
at any time been sustained by a bank, equal to or exceeding its
undivided profits then on hand, no dividend shall be made; and
no dividends shall ever be made in an amount greater than the
bank's net profits. Cash dividends must be approved by the
Federal Reserve Board, if the total of all cash dividends
declared by the bank in any calendar year, including the
proposed cash dividend, exceeds the total of the bank's net
profits for that year plus its retained net profits from the
preceding two years less any required transfers to surplus or a
fund for the retirement of preferred stock, if any. The Federal
Reserve Board has the authority under the Federal Reserve Act to
prohibit the payment of cash dividends by a bank when it
determines such payment to be an "unsafe and unsound banking
practice" under the existing circumstances.
Transactions with Affiliates
Extensions of credit by the Bank to executive officers,
trustees, and principal shareholders and related interests of
such persons are subject to Sections 22(g) and 22(h) of the FRA
and the Federal Reserve's Regulation O. These rules limit the
aggregate amount of loans to any such individual and their
related interests, and require that all such loans be pre-
approved by the full Board of the Holding Company voting without
such person being present. These rules also provide that no
institution shall make any loan or extension of credit in any
manner to any of such persons, unless such loan or extension of
credit is made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time
for comparable transactions with other persons, does not involve
more than the normal risk of repayment or present other
unfavorable features, and the institution follows underwriting
procedures that are not less stringent than those applicable to
comparable transactions by the institution with persons who are
not executive officers, trustees, principal shareholders, or
employees of the institution. Loans can be made to employees,
including executives and trustees, on more favorable terms than
to the general public, if all employees are eligible for such
preferential terms. Regulation O also sets forth additional
limitations on extensions of credit by an institution to its
executive officers. Management believes that the Savings Bank is
in compliance with Sections 22(g) and 22(h) of the FRA and the
Federal Reserve's Regulation O. (see Item 13 for details on
extensions of credit to directors and executive officers).
Item 2 Description of Property
As of December 31, 1999, the Bank conducted its business
through an executive/administrative office and seven full-
service offices. On October 12, 1999 the Bank acquired First
Bank Of Philadelphia's office at 1632 Walnut Street,
Philadelphia, PA 19103. The aggregate net book value of the
Bank's office premises and equipment was $1.7 million as of
December 31, 1999. The Bank is leasing its Center City full-
service office and executive office for a term of eleven years.
Lease expense for the years ended December 31, 1999, 1998 and
1997 was $274,800, $281,698, and $265,118, respectively.
Item 3 Legal Proceedings
Periodically, there have been various claims and lawsuits
involving the Bank, such as claims to enforce liens,
condemnation proceedings on properties in which the Bank holds
security interests, claims involving the making and servicing of
real property loans and other issues incident to the Bank's
business. The Bank is not a party to any pending legal
proceedings that it believes would have a material adverse
effect on the financial condition or operations of the Bank..
Item 4 Submission of Matters to a Vote of Securities Holders
The Registrant's annual meeting of shareholders was held on
October 4, 1999. The following matters were voted upon and
approved by the vote indicated:
- Approval of the proposed merger of Pennsylvania
Savings Bank and First Bank of Philadelphia,
For 1,383,227, Against 322, 182, Abstain 857
Non-Vote 929,800;
- The election of two Class I directors to hold office
for three years from the date of election,
Anthony DiSandro - For 2,345,204, Withheld 290,862,
RoseAnne Paucielo - For 2,340,632, Withheld 295,433;
- Approval of Stockton Bates, LLP as the auditors for
fiscal year 1999,
For 2,503,338, Against 113,657, Abstain 19,071;
- Approval of an amendment to the Articles of
Incorporation of the Registrant,
For 2,279,032, Against 320,443, Abstain 14,196,
Non-Vote 22,395;
- Adoption of the Registrant's Employee Stock Option
Plan,
For 1,340,474, Against 353,052, Abstain 12,740,
Non-Vote 929,800;
- Adoption of the Registrant's Management Recognition
Plan,
For 1,332,170, Against 381,963, Abstain 14,528,
Non-Vote 907,405;
- Approval of the adjournment of the annual meeting,
For 1,389,227, Against 326,480, Abstain 12,757,
Non-Vote 907,405.
PART II
Item 5 Market for Common Equity and Related Stockholder Matters
The common stock of PSB Bancorp, Inc is traded over-the-
counter on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ") under the symbol PSBI. The
following table sets forth the high and low bid prices for the
Bank's Common Stock, as reported by NASDAQ. The following quotes
reflect inter-dealer prices without retail mark-up, markdown or
commission and may not necessarily represent actual
transactions. As the table indicates, the Holding Company has
not declared cash dividends.
1999 1998 Cash
Bid Prices Bid Prices Dividend
High Low High Low Declared
First Quarter 61/2 61/2 261/4 261/4 -
Second Quarter 61/4 61/4 26 26 -
Third Quarter 63/16 6 9.188 61/2 -
Forth Quarter 41/2 41/4 8 61/4 -
Dividend payments by the Bank are subject to the
restrictions of the Pennsylvania Banking Code of 1965 (the
"Banking Code"). Under the Banking Code, no dividends may be
paid except from "accumulated net earnings" (generally,
undivided profits). Under the Federal Deposit Insurance Act, no
dividends may be paid by an insured bank if the bank is in
arrears in the payment of any insurance assessment due to the
FDIC. State and federal regulatory authorities have adopted
standards for the maintenance of adequate levels of capital by
banks. Adherence to such standards further limits the ability
of the Bank to pay dividend.
Item 6 Selected Financial Data
The selected financial and operating information set forth
below should be read in conjunction with "Management's
Discussion and Analysis of the Financial Condition and Results
of Operations of PSB Bancorp, Inc and the financial statements
of the bank included elsewhere herein (dollars in thousands
except for per share data).
<TABLE>
<CAPTION>
At and for the Year Ended
December 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(Dollars in Thousands except per share data)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets $279,608 $227,486 $194,910 $185,768 $174,043
Cash and cash equivalents 17,275 47,527 41,584 48,308 35,949
Loans receivable, net 167,787 121,240 110,218 99,453 101,762
Loans held for sale 8,221 6,938 6,575 4,598 1,041
Investment securities 30,435 21,447 23,165 19,526 21,339
Mortgage-backed securities 46,957 23,400 5,002 5,942 6,905
Deposits 193,210 185,654 169,051 163,273 150,600
Retained earnings or shareholders' equity 36,047 36,130 19,983 18,751 13,871
Book Value Per Share 8.26 8.22 8.73 - -
SUMMARY STATEMENT OF OPERATIONS:
Interest Income 18,561 15,226 13,837 13,018 12,597
Interest Expense 9,219 7,800 7,376 6,941 6,448
Net interest income 9,342 7,426 6,461 6,077 6,149
Provision for loan losses 200 283 60 133 252
Net interest income after provision for loan losses 9,142 7,143 6,401 5,944 5,897
Noninterest income 913 1,373 1,169 1,000 982
Noninterest expense 8,198 6,517 6,113 6,402 6,384
Income before income taxes 1,857 1,999 1,457 542 495
Income tax provision (227) 355 345 201 433
Net Income 2,084 1,664 1,112 341 62
Earnings per Share - basic(3) $ 0.48 $ 0.38 $ 0.49 $ - $ -
Earnings per Share - diluted $ 0.40 $ 0.32 $ 0.38 $ - $ -
PERFORMANCE DATA:
Return on average assets 0.76% 0.81% 0.90% 0.18% 0.04%
Return on average equity 5.79% 5.94% 7.59% 1.82% 0.45%
Dividend Payout - - - - -
Equity to assets 12.89% 15.88% 11.88% 10.09% 7.97%
Interest rate spread 2.17% 2.89% 3.01% 3.00% 3.32%
ASSET QUALITY RATIOS:
Nonperforming loans to total loans 1.16% 1.83% 2.53% 5.36% 6.55%
Nonperforming assets to total assets 1.11% 1.60% 2.68% 4.43% 5.22%
Allowance for loan losses to total loans 0.69% 0.80% 0.82% 1.35% 1.69%
Allowance for loan losses to nonperforming loans 59.82% 43.56% 32.50% 25.11% 25.74%
Allowance for loan losses to nonperforming assets 39.65% 28.29% 18.49% 17.00% 19.10%
Net charge-offs as a percentage of total loans - 0.21% 0.42% 0.45% 0.03%
Loans past due 90 days or more as to interest or
principal and accruing interest $ 180 $ - $ 232 $ 2,468 $ 1,565
Nonaccrual loans 1,882 2,367 2,737 3,108 5,171
Total nonperforming loans 2,062 2,367 2,969 5,576 6,736
Real estate owned (REO) 1,047 1,277 2,249 2,659 2,344
Total nonperforming assets $ 3,109 $ 3,644 $ 5,218 $ 8,235 $ 9,080
</TABLE>
Item 7 Management's Discussion and Analysis of 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 by 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 $2.1 million, $1.7 million
and $1.1 million for the years ended December 31, 1999, 1998 and
1997, respectively. These increases were due largely to the
increase in interest income discussed below. The Company's
earnings per share for the years ended December 31, 1999, 1998
and 1997 was $0.48, $.0.38 and $0.49, respectively. The primary
factors contributing to this improvement were an improvement in
the Bank's 1999 net interest margin as compared to 1998 and
1997.
Net Interest Income and Average Balances
Net interest income is the key component of the Bank's
profitability structure and is managed in coordination with the
Bank's interest rate sensitivity position. Net interest income
of $9.3 million in 1999 was 26% higher than 1998's net interest
income of $7.4 million. The Bank's net interest margin, net
interest income divided by total average interest-earning
assets, increased 13 basis points to 3.89% for 1999 from 3.76%
for 1998. The Bank's net interest spread, the difference
between the yield on interest-earning assets and the rates paid
on interest-bearing liabilities, decreased 5 basis points to
2.84% for 1999, from 2.89% for 1998. The improvement in net
interest margin reflected an improvement in the Bank's yield on
interest earning assets and lower cost of funds and the
resolution of a significant portion of the Bank's non-performing
assets portfolio and subsequent conversion to a performing basis
during 1999. The decrease in the net interest spread is due to
an increase in the rates paid on interest-bearing liabilities,
due to an increase in borrowed funds. Total non-performing
assets at December 31, 1999, was $3.1 million, representing 1.1%
of total assets, compared to $3.6 million, representing 1.6% of
total assets at December 31, 1998, and $5.2 million,
representing 2.7% of total assets at December 31, 1997. This was
a $539,000, or 15% reduction in total non-performing assets from
1998 to 1999.
The Bank's yield on average interest-earning assets
increased to 7.73% for 1999 compared to 7.71% for 1998. Average
loans of $150 million at December 31, 1999, represented 63% of
total average interest-earning assets, and provided a 1999 yield
of 8.96%, compared to average loans of $123 million at
December 31, 1998, representing 63% of total average interest-
earning assets, and providing a 1998 yield of 9.18%. Average
investments and interest bearing deposits with banks increased
$15.9 million or 18% to $90 million at December 31, 1999, from
$74.1 million at December 31, 1998. These assets provided a
yield of 5.67% in 1999 compared to 5.26% in 1998.
Total average interest-bearing liabilities increased
$12.6 million or 7.8% to $178.5 million at December 31, 1999,
from $165.9 million at December 31, 1998. Total interest expense
increased $1.4 million to $9.2 million at December 31, 1999 from
$7.8 million for 1998. The Bank's cost of funds increased to
4.99% for 1999 compared to 4.88% for 1998.
Net interest income of $7.4 million in 1998 was 13% higher
than the 1997 total of $6.5 million. Total interest income
increased $1.4 million in 1998 to $15.2 million from
$13.8 million in 1997. Total interest expense increased
$424,000 in 1998 to $7.8 million compared to 1997. Total average
interest-earning assets provided an average yield of 7.71% in
1998 and average interest-bearing liabilities cost 4.82% in 1998
compared to 7.65% and 4.82%, respectively, for 1997. The Bank's
net interest spread increased to 2.89% in 1998 from 3.13% in
1997 and the Bank's net interest margin increased to 3.76% in
1998 from 3.71% in 1997.
The following tables presents a summary of the principal
components of and changes in interest income and interest
expense for the periods indicated (in thousands):
<TABLE>
<CAPTION>
Changes From Prior Period
Year Ended December 31, 1999 to 1998 1996 to 1997
1999 1998 1997 Amt. Pdt. Amt. Pct.
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Income:
Interest bearing deposits with bank $939 $2,340 $1,725 ($1,401) -60% $615 36
Investment securities 1,535 1,233 1,651 302 20% (418) -34
Mortgage-backed securities 2,630 327 374 2,303 88% (47) -14
Loans 13,457 11,326 10,087 2,131 16% 1,239 12
Total interest income $18,561 $15,226 $13,837 $3,335 18% $1,389 10
Interest Expense
Now checking accounts 310 151 155 159 51% (4) -3
Money market accounts 580 461 438 119 21% 23 5
Savings accounts 862 840 803 22 3% 37 5
Certificates of deposit 6,518 6,182 5,787 336 5% 395 7
Borrowings 949 166 193 783 83% (27) -14
Total interest expense $9,219 $7,800 $7,376 $1,419 15% $424 6
Net interest income $9,342 $7,426 $6,461 $1,916 21% $965 15
</TABLE>
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 table presents,
on a tax equivalent basis, the average daily balances of assets,
liabilities and shareholders' equity and the respective interest
earned or incurred on interest-earning assets and interest-
bearing liabilities, as well as average rates for the period
indicated (in thousands):
<TABLE>
<CAPTION>
Consolidated
Year Ended December 31,
1999 1998 1997
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
(Dollars in Thousands) (Dollars in Thousands) (Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Interest-earning deposits(1) $23,227 $940 4.05% $49,201 $2,340 4.76% $35,532 $1,725 4.85%
Investment securities 22,034 1,534 6.96 18,573 1,233 6.64 23,728 1,651 6.96
Mortgage-backed securities 44,751 2,630 5.88 6,326 327 5.17 5,696 374 6.57
Net loans(2) 150,223 13,457 8.96 123,430 11,326 9.18 109,083 10,087 9.25
Total interest-earning assets 240,235 $18,561 7.73% 197,530 $15,226 7.71% 174,039 $13,837 7.95%
Noninterest-earning assets 6,942 7,514 9,470
Total assets $247,177 $205,044 $183,509
LIABILITIES
Interest-bearing liabilities:
Now checking accounts $8,924 $310 3.47% $2,322 $73 3.14% $1,852 $65 3.51%
Money market accounts 15,761 580 3.68 4,469 166 3.71 4,977 179 3.60
Savings deposits 29,686 862 2.90 42,184 1,213 2.88 40,708 1,153 2.83
Certificates 118,623 6,519 5.50 110,203 6,323 5.74 102,903 5,949 5.78
Total deposits 172,994 8,271 4.78 159,178 7,775 4.88 150,440 7,346 4.88
Borrowed money 9,129 813 8.91 2,737 25 0.00 2,621 31 0.00
Total interest-bearing liabilities 182,123 9,084 4.99% 161,915 7,800 4.82% 153,061 7,377 4.82%
Non-interest-bearing liabilities 29,051 15,118 11,121
Total liabilities 211,174 177,033 164,182
Retained earnings or shareholders' equity 36,005 28,011 19,327
Total liabilities and retained
earnings or shareholders' equity $247,179 $205,044 $183,509
Net interest income $9,477 $7,426 $6,460
Interest rate spread(3) 2.74% 2.89% 3.13%
</TABLE>
The following table presents the extent to which changes in
interest rates and changes in the volume of interest-earning
assets and interest-bearing liabilities have affected the Bank's
interest income and interest expense during the periods
indicated. Information is provided in each category with
respect to (i) changes attributable to changes in volume
(changes in volume multiplied by prior rate), (ii) changes
attributable to changes in rate (changes in rate multiplied by
prior volume), and (iii) the net change. The changes
attributable to the combined impact of volume and rate have been
allocated proportionately to the changes due to volume and the
changes due to rate (in thousands):
<TABLE>
<CAPTION>
1999 versus 1998 1998 versus 1997
Increase (decrease) Increase (decrease)
Net Net
Volume Rate Change Volume Rate Change
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Interest bearing deposits with banks ($1,052) ($349) ($1,401) $651 ($36) $615
Investment securities 230 72 302 (359) (59) (418)
Mortgage-backed securities 1,987 316 2,303 33 (80) (47)
Loans 2,460 (329) 2,131 1,317 (78) 1,239
Total interest income $3,625 ($290) $3,335 $1,642 ($253) $1,389
Interest Expense
Now checking accounts 207 (48) (48) 15 (19) (4)
Money market accounts 419 (300) (300) (18) 41 23
Savings accounts (362) 384 384 42 (5) 37
Certificates of deposits 483 (147) (147) 419 (24) 395
Total interest expense $747 ($111) ($111) $458 ($7) $451
Net change in net interest income $2,878 ($179) ($179) $1,184 ($246) $938
</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 borrower's ability to
pay, prior loss experience within the portfolio, current
economic conditions and the results of the most recent
regulatory examinations. The Bank provided $200,000, $283,000
and $60,000 in loan loss provisions and charge-offs against the
allowance for loan loss of $0, $270,000 and $495,000 for the
years ended December 31, 1999, 1998 and 1997, respectively.
Although management utilizes its best judgment in providing
for loan losses, there can be no assurance that the Bank will
not have to increase its provision for loan losses in the future
as a result of possible future increases to its non-performing
loans or for other reasons based on changes in facts and
circumstances. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review
the Bank's allowance for loan losses and the carrying value of
its non-performing assets. Such agencies may require the Bank
to recognize additions to its allowance for loan losses based on
their judgments about information available to them at the time
of their examination.
Non-Interest Income
The following table provides a summary of non-interest
income, by category of income, for the three years ended
December 31, 1999 (in thousands):
Year Ended December 31,
1999 1998 1997
Service fees on deposit accounts $434 $402 $432
Other 479 971 736
Total $913 $1,373 $1,168
Non-interest income decreased $460,000 or 34% to $913,000
for 1999 compared to $1.4 million for 1998. The reason for this
decrease was the gain on sale of other loans of $372,000 in 1999
compared to gain on sale of loans of $863,000 in 1998. The
major source of non-interest income is gain on sale of loans,
rental income, other income and service fees on deposit
accounts. The latter component increased 7% or $32,000 from
1998 to 1999. The primary reason for this increase is due to an
increase in service fee income which is derived from return
check and stop payment charges, commissions on travelers checks,
charges assessed for money orders and official checks, MAC
processing fees, safe deposit box rentals and credit card fees.
Management does not anticipate non-interest income will increase
significantly in the near future
Non-Interest Expense
The following table provides a summary of non-interest
expense, by category of expense, for the three years ended
December 31, 1999 (in thousands):
Year Ended December 31,
1999 1998 1997
Salaries and employment benefits $3,601 $3,252 $3,041
Rent and occupancy expense 1,290 1,260 1,308
Professional fees 1,064 95 120
FDIC insurance expense 87 84 88
General insurance 157 90 78
Advertising 140 111 81
Data processing fees 237 211 191
Directors fees 215 224 232
Other operating expense 1,407 1,183 973
Total $8,198 $6,510 $6,112
Total non-interest expense increased 26% or $1.7 million,
to $8.2 million in 1999 compared to $6.5 million in 1998.
Significant items of note include a $969,000 increase in
professional fees to $1.1 million in 1999 from $95,000 in 1998,
which is primarily due to fees associated with the merger of
Pennsylvania Savings Bank and First Bank of Philadelphia and a
$349,000 increase in compensation and employee benefits due to
normal salary increases as well as an increase in employees as
of the merger date of October 12, 1999.
Total non-interest expense increased $398,000 or 6% to
$6.5 million in 1998 from $6.1 million in 1997. Significant
items of note include total compensation and employee benefits
increased 6% or $211,000 for 1998 compared to 1997. This was
offset by a 4% decrease in rent and occupancy for 1998 compared
to 1997 and an 18% increase in other non-interest expense for
1998 compared to 1997.
Income Taxes
The Company had an income tax credit of $227,000 for 1999
and an income tax provision of $342,000 and $345,000 for the
years ended December 31, 1998 and 1997 respectively. The 1999
credit resulted from net operating loss carry forwards that were
held by First Bank of Philadelphia and now can be used by the
Company.
Liquidity and Interest Rate Sensitivity
Integral to the management of the Bank's balance sheet is
the maintaining of adequate liquidity and the ability to
evaluate and control interest rate risk. 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 repricing
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,
loan principal repayments and maturities and cash received on
maturities or amortization of investment securities. At
December 31, 1999 there was $9.3 million in interest earning
deposits with banks maturing within the ensuing twelve month
period compared to $47.5 million maturing within the ensuing
twelve month period at December 31, 1998. At December 31, 1999
there was $21.0 million of residential construction loans
maturing within the ensuing twelve month period compared to
$14.0 million maturing within the ensuing twelve month period at
December 31, 1998. An additional $6.7 million of individual
Small Business Administration loans was held by the Bank at
December 31, 1999, compared to $8.2 million at December 31,
1998. These loans are 100% guaranteed as to principal and
interest and are backed by the full faith and credit of the U.S.
Government. They re-price quarterly and are readily marketable.
The liquidity position of the Bank is also strengthened by a
$50 million credit facility with the Federal Home Loan Bank of
Pittsburgh (FHLB). Advances are secured by all FHLB stock and
qualifying mortgage loans. There was $34.0 million in advances
outstanding against this line at December 31, 1999. There were
no advances outstanding against this line at December 31, 1998.
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 1999, net cash provided by operating
activities was $4.1 million, compared to net cash provided by
operating activities of $2.1 million in 1998, and operating cash
used of $385,000 in 1997. During 1999, the Bank's investing
activities used $87.7 million in net cash and the Bank's
financing activities provided $53.4 million in net cash. The
major components within these two categories during 1999 was an
increase in total loans receivable of $46.5 million and proceeds
from borrowed funds of $34.0 million. The net result of these
items was a $30.3 million decrease in cash and cash equivalents
for 1999, compared to a net increase of $5.9 million for 1998
and a net decrease of $6.7 million for 1997.
Interest rate sensitivity is closely related to liquidity
because 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.
A bank that does not have a relatively close relationship
between the quantity of assets that mature or re-price within a
given time period and the quantity of liabilities that mature or
re-price within the same time period, will find that its net
interest margin will fluctuate more widely than a bank that has
a closer match. Furthermore, a bank that tends to have
liabilities re-pricing earlier than it does assets will be
susceptible to a decline in its net interest margin as interest
rates rise.
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.
One 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 December 31, 1999,
the Bank had a one-year liability sensitive gap of $93.4 million
and a gap ratio of .55 or 33% of total assets as of that date.
This compares with a one-year liability sensitive gap of
$31.5 million and a gap ratio of 0.22 or 14% of total assets at
December 31, 1998.
The following table shows the interest rate sensitive data
at December 31, 1999 (in thousands):
<TABLE>
<CAPTION>
Interest Rate Sensitivity Analysis
As of December 31, 1999
Balance
No Stated at
Gap table at December 31, 1999 0-3 Mo's 3-12 Mo's 1-5 Yrs >5 Yrs Maturity 12/31/99
<S> <C> <C> <C> <C> <C> <C>
Interest bearing deposits with banks $ 9,354 $ 9,354
Investment securities $ 9,845 $ 7,462 $ 51,054 $ 9,031 77,392
Mortgage loans 14,867 6,164 15,198 60,074 96,303
Commercial loans 5,667 1,055 3,464 1,147 1,333
Consumer loans 345 255 812 1,412
Student loans 40,509 255 812 40,509
Construction loans 17,133 3,878 20,991
SBA loans 5,556 1,127 6,683
Other assets 15,630 15,630
Total assets $ 93,412 $22,324 $26,936 $112,275 $24,661 $279,608
Non interest bearing deposits $14,603 $ 14,603
NOW accounts $ 12,093 12,093
Money market accounts 16,415 16,415
Savings accounts 30,175 30,175
Time deposits 21,442 $79,373 $17,100 $ 2,009 119,924
Borrowed funds 49,640 49,640
Other liabilities 711 711
Total liabilities 129,765 $79,373 $17,100 $ 2,009 15,314 243,561
Shareholder's equity 36,047 36,047
Total liabilities and shareholder's equity $129,765 $79,373 $17,100 $ 2,009 $51,361 $279,608
GAP ($36,353) ($57,049) $ 9,836 $110,266 ($26,700) $0
Cumulative GAP ($36,353) ($93,402) ($83,566) $ 26,700 $0 $0
</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. At
December 31, 1999, the Bank was required to have 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 December 31, 1999 were 17.90% and
18.60%, respectively, and the Bank's Tier I leverage ratio was
11.48%. These ratios exceed the requirements for classification
as a "well-capitalized" institution, the industry's highest
capital category. Capital ratios declined during 1999 over 1998
due to a 39% increase in total risk adjusted assets from 1998 to
1999. The improvement in capital ratios during 1998 over 1997
was due to net income of $1.7 million and an 8% increase in
total risk adjusted assets from 1997 to 1999. Following are the
Bank's risk based capital ratios at December 31, 1999, 1998 and
1997 (in 000's):
<TABLE>
<CAPTION>
December 31,
1999 1998 1997
<S> <C> <C> <C>
Tier I Capital $31,348 $36,119 $19,986
Tier II Capital 1,231 740 718
Total Qualifying Capital $32,579 $36,859 $20,704
Risk Adjustment Total Assets $175,163 $107,590 $98,929
Tier I Risk-Based Capital Ratio 17.90% 33.57% 20.20%
Total Risk-Based Capital Ratio 18.60% 34.26% 20.93%
Leverage Ratio 11.48% 16.13% 10.61%
</TABLE>
FINANCIAL CONDITION
General
Total assets of the Bank increased $52.1 million or 22.90%
during 1999, from $227.5 million at December 31, 1998 to
$279.6 million at December 31, 1999. The major reason for this
increase in total assets during 1999 was an 500.27% increase in
securities purchased under agreement to resell, a $34.0 million
increase in advances from the FHLB and a $6.5 million increase
in total deposits.
Loans increased 28% to $167.7 million during 1999 from
$122.2 million at December 31, 1998. The increase in loans was
primarily a result of 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 due to 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. Other real estate owned
decreased by $230,000 as the Bank sold properties from its
portfolio. Total shareholders' equity decrease by $83,000
representing 1999 net income of $2.1 million and an unrealized
loss from investments of $2.3 million.
Investment Activities
The Bank's investment portfolio is comprised of mortgage-
backed securities, investment securities, and cash and cash
equivalents. The carrying value of the Bank's investment
securities and mortgaged-backed securities portfolio totaled
$76.6 million at December 31, 1999, compared to $44.9 million at
December 31, 1998. The Bank's cash and cash equivalents,
consisting of cash and due from banks, and interest-earning
deposits with other financial institutions, totaled
$17.3 million at December 31, 1999, compared to $47.5 million at
December 31, 1998, a decrease of $30.3 million, or 64%. The
majority of the Bank's mortgage-backed securities are issued or
guaranteed by the United States Government or agencies thereof.
At December 31, 1999, mortgage-backed securities totaled
$49.7 million. The majority of this amount represents securities
that were issued or guaranteed by either FNMA, FHLMC or the
Government National Mortgage Association ("GNMA"). The Bank
historically maintains high levels of interest-earning deposits
as part of its strategy for meeting liquidity requirements and
improving interest sensitivity.
The Bank is required under federal regulations to maintain
a minimum amount of liquid assets that may be invested in
specified short-term securities and certain other investments.
See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
The Bank generally has maintained a portfolio of liquid assets
that exceeds regulatory requirements. Liquidity levels may be
increased or decreased depending upon the yields on investment
alternatives and upon management's judgment as to the
attractiveness of the yields then available in relation to other
opportunities and its expectation of the level of yield that
will be available in the future, as well as management's
projections as to the short-term demand for funds to be used in
the Bank's loan origination and other activities.
Pursuant to SFAS No. 115, which the Bank adopted in 1994,
the Bank classifies its investment securities and mortgage-
backed securities as either held-to-maturity, available for sale
or trading. Available for sale and trading securities are
carried at market value, while held-to-maturity securities are
carried at amortized cost. At December 31, 1999, $5.0 million
of the Bank's investment securities and mortgaged-backed
securities were classified held-to-maturity and $71.7 million of
the Bank's investment securities and mortgaged-backed securities
were classified available for sale. The Bank did not carry any
trading securities at December 31, 1999.
The Bank's Board of Directors has also adopted an
investment policy that identifies acceptable types of
investments for the Bank and establishes criteria to guide
management in classifying investments as prescribed by SFAS
No. 115. The policy also authorizes the Bank's investment
officer to make investments of up to $1 million. Under the
investment policy the Bank may invest in certain AAA rated
derivative securities. As of December 31, 1999, the Bank had no
collateralized mortgage obligations. The Bank may not invest in
high-risk collateralized mortgage obligations ("CMOs") and the
Bank's investment officer must periodically analyze the risk of
any CMO held by Bank to determine that such securities are not
within the high-risk category.
On January 29, 1999, the Holding Company purchased
1,600,000 shares of Series A Convertible Preferred Stock, $.01
par value per share, of McGuire Performance Solutions, Inc.
("MPS"). The Holding Company purchased the shares for $.78125
per share for a total cost of $1,250,000. The Holding Company
owns 100% of MPS's Series A Convertible Preferred Stock which
represents a 15% voting interest in MPS. MPS is a nationally
recognized firm delivering cost-effective solutions for high
performance total balance sheet management to banks, thrifts,
credit unions and other financial institutions
On December 14, 1999 the Holding Company invested
$2,500,000 in a two year convertible debenture issued by
BankZip.com, a start-up internet banking company for community
bankers. The debenture is convertible into 1 million shares of
common stock upon the earlier of an initial public offering by
BankZip or the day prior to the maturity date. The company,
which spun off in December 1999 from Patriot Bank of Pottstown,
is building a national network of community banks through which
BankZip would offer an end-to-end internet services, such as
opening an account, account balances and transferring funds. In
addition to software, BankZip is proposing to give participating
community institutions access to customer service through a call
center it would operate and marketing that would be conducted on
a national scale. Alliance Partners (community banks), also
offer a national portfolio of BankZip.com co-branded financial
service products, including brokerage and insurance. Once an
Alliance Partner is signed up, the service can be deployed in as
few as thirty days. Currently, BankZip.com is enabling Alliance
Partners in the Northeast to support their launch in the
Philadelphia market in May 2000. Fully developed, BankZip.com
expects to support approximately 500 banks with as many as 4,000
branches and 5,000 ATMs across the nation within five years.
The Bank invested $795,000 in the common stock of Jade
Financial Corp., the holding company for IGA Federal Savings
Bank.
Carrying and Market Value of Investment and Mortgage-Backed
Securities.
The following table sets forth certain information
regarding the carrying and market values of the Bank's
investment securities and mortgage-backed securities in the
Bank's held-to-maturity portfolio at December 31, 1999 and 1998
and in the Bank's total investment securities and mortgage-
backed securities portfolio at December 31, 1997.
<TABLE>
<CAPTION>
Held to Maturity
At December 31, 1999
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(In Thousands)
<S> <C> <C> <C> <C>
Investment Securities:
Debt:
FNMA $1,000 $- $ 38 $962
FHLMC 3,000 - 183 2,817
Total debt securities held to maturity $4,000 $- $221 $3,779
Mortgage-backed securities:
GNMA 979 23 - 1,002
FHLMC 27 2 - 29
Total mortgage-backed securities held to maturity $1,006 $25 $ - $1,031
Total securities held to maturity $5,006 $25 $221 $4,810
<CAPTION>
Held to Maturity
At December 31, 1998
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(In Thousands)
<S> <C> <C> <C> <C>
Investment Securities:
Debt:
FNMA $1,000 $1 $ - $1,001
FHLMC 2,996 8 - 3,004
Total debt securities held to maturity $3,996 $9 $ - $4,005
Mortgage-backed securities:
GNMA 1,269 74 - 1,343
FHLMC 58 4 - 62
Total mortgage-backed securities held to maturity $1,327 $78 $ - $1,405
Total securities held to maturity $5,323 $87 $ - $5,410
</TABLE>
The following table presents the estimated fair value of
investment securities and mortgage-backed securities available
for sale and the net unrealized gain or loss at the periods
indicated:
<TABLE>
<CAPTION>
Available for Sale
At December 31, 1999
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(In Thousands)
<S> <C> <C> <C> <C>
Investment Securities:
Equity:
Investments in mutual funds $2,354 $- $24 $2,330
FHLB and FRB Stock 2,056 - - 2,056
Investment, Other 100 _-_ ___-_ 100
Total equity securities available for sale $4,510 $- $24 $4,486
Debt:
FNMA Notes 3,500 $- 198 3,302
Municipal tax-exempt 3,511 - 310 3,201
FHLB Notes 11,499 598 10,901
Total debt securities available for sale $18,510 $- 1,106 $17,404
Mortgage-backed securities:
FNMA 39,540 - 2,188 37,352
GNMA 9,151 - 552 8,599
Total mortgage-backed securities
available for sale $48,691 $- $2,740 $45,951
Total securities available-for-sale $71,711 $- $3,870 $67,841
<CAPTION>
Available for Sale
At December 31, 1998
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(In Thousands)
<S> <C> <C> <C> <C>
Investment Securities:
Equity:
Investments in mutual funds $2,354 $ - $1 $2,353
FHLB and FRB Stock 1,131 - - 1,131
Total equity securities available for sale $3,485 $ - $1 $3,485
Debt:
FNMA Notes 3,500 11 - 3,511
Municipal tax-exempt 3,544 - - 3,544
FHLB Notes 6,498 - 6,498
SLMA 1,000 1 - 1,001
Total debt securities available for sale $14,542 $ - $- $14,554
Mortgage-backed securities:
FNMA 11,884 - 6 11,878
GNMA 10,196 - - 10,196
Total mortgage-backed securities
available for sale $22,080 $ - $6 $22,073
Total securities available-for-sale $40,107 $12 $7 $40,112
</TABLE>
Investment Portfolio Maturities.
The following table sets forth the scheduled maturities,
carrying values, and weighted average yields for the Bank's
investment securities and mortgage-backed securities portfolios,
classified as being held to maturity at December 31, 1999.
Adjustable-rate, mortgage-backed securities are included in the
period in which interest rates are next scheduled to adjust (in
thousands except for yields).
<TABLE>
<CAPTION>
At December 31, 1999
In one year After one year After five years
or less to five years to ten years Over ten years
No Stated
Carrying Average Carrying Average Carrying Average Carrying Average Maturity
Value Yield Value Yield Value Yield Value Yield or Rate Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Held to maturity:
Investment Securities $ - - $2,000 6.37% $1,000 6.50% $1,000 7.09% $ - $4,000
Mortgage-backed Securities - - - - - - 1,006 8.47% - 1,006
Total held to maturity $ - - $2,000 6.37% $1,000 6.50% $2,006 15.56% $ - $5,006
Available for sale:
Investment Securities $2,500 5.90% $10,483 6.04% $4,526 6.58% $1,000 5.41% $4,410 $22,919
Mortgage-backed Securities 879 5.13% 238 5.22% 42,913 6.37% 4,662 6.75% - 48,692
Investment, other 100 - - - - - - - - 100
Total available for sale $3,479 11.03% $10,721 11.26% $47,439 12.95% $5,662 12.16% $4,410 $71,711
</TABLE>
Loan Portfolio
Historically, the principal lending activity of the Bank
has been the origination, for retention in its portfolio, of
fixed-rate and, to a much lesser extent, adjustable-rate
mortgage loans secured by one- to four-family residential real
estate located in its market area. The Bank and its
subsidiaries also originate loans secured by multifamily
residential and commercial real estate, construction loans,
commercial business loans and consumer loans. Also, as a result
of the merger with First Bank of Philadelphia the Bank has taken
on a student loan program which was an existing program of First
Bank of Philadelphia and now appears in the Company's
consolidated results. 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.
One- to four-family residential mortgage loans originated
for resale in the secondary market are underwritten according to
standards that conform to Federal National Mortgage Association
("FNMA") and/or Federal Home Loan Mortgage Corporation ("FHLMC")
guidelines. One- to four-family residential mortgage loans
originated and held in portfolio are generally underwritten to
conform to secondary market standards but from time to time the
Bank does originate nonconforming loans if, in the Bank's
judgment, the borrower does not present an unreasonable risk of
default. The Bank and Transnational Mortgage Corp. ("TNMC"),
its mortgage banking subsidiary, have sold in the secondary
market a limited amount of fixed-rate residential mortgage
loans. The Bank has primarily been a portfolio lender and at
any one time the Bank holds only a nominal amount of loans that
may be sold. The Bank has begun to expand its mortgage banking
capabilities through TNMC, however, and anticipates that its
origination of loans in Southeastern Pennsylvania and Southern
New Jersey for sale in the secondary market will increase
significantly.
At December 31, 1999 the Bank's net loan portfolio totaled
$167.8 million, representing 60% of total assets at that date,
compared to $121.2 million representing 53% of total assets at
December 31, 1998. As of December 31, 1999 one to four family
residential loans totaled $55.7 million representing 33% of the
loan portfolio, compared to $58.1 million representing 47% of
the loan the loan portfolio at December 31, 1998. At
December 31, 1999 construction loans totaled $23.5 million
representing 13% of the total loan portfolio. This compares to
$16.0 million representing 13% of the loan portfolio at
December 31, 1998. Another significant portion of the Bank's
loan portfolio is the student loan program which was implemented
in 1999 by First Bank of Philadelphia prior to the merger. As
of December 31, 1999 the student loan portfolio totaled
$40.5 million representing 23% of the total loan portfolio.
The following table summarizes the loan portfolio of the
Bank by loan category and amount at December 31 for the past
three years, including data regarding the portion of the Bank's
loans that bear fixed and adjustable interest rates,
respectively. From time to time, TNMC has originated and sold
mortgage loans to third party investors within the Bank's
financial reporting periods. Similarly, student loans are
frequently originated and sold within the Bank's financial
reporting periods. Such mortgage and student loans are not
reflected in the financial tables and financial statements
pertaining to a particular period to the extent that such loans
were sold prior to any period end. The loan categories
correspond to the Bank's general classifications (in thousands
except for percentage):
<TABLE>
<CAPTION>
At December 31,
1999 1998 1997
Amount Percent Amount Percent Amount Percent
<S> <C> <C> <C> <C> <C> <C>
Real Estate Loans:
One-to-four family $55,716 32.89% $58,162 47.40% $57,810 71.59%
Construction loans 23,528 13.89% 15,981 13.02% 11,457 4.14%
Five or more family residence 2,712 1.60% 3,356 2.73% 3,075 1.12%
Nonresidential 27,117 16.01% 22,575 18.40% 20,914 18.20%
Commercial loans 10,682 6.31% 13,216 10.77% 9,117 3.04%
SBA loans 6,682 3.94% 8,251 6.72% 8,225
Student loans 40,509 23.91% - 0.00% -
Consumer loans 2,468 1.46% 1,168 0.95% 1,201 1.91%
Total loans(2) $169,414 100.00% $122,709 100.00% $111,799 100.00%
Less:
Unearned fees and discounts $389 $431 $478
Undisbursed loan proceeds 7 7 138
Allowance for loan losses 1,231 1,031 965
Net Loans $167,801 $121,240 $110,218
Total loans with:
Fixed rates $104,185 $96,849 78.93% $87,159 77.96%
Adjustable rate 65,229 25,860 21.07% 24,640 22.04%
Total loans(2) 169,414 100.00% 122,709 100.00% 111,799 100.00%
</TABLE>
(1) Consists of both secured and unsecured personal loans.
(2) Does not include loans originated and held for sale by
TNMC, the Bank's subsidiary, which amounted to $8.2 million
$6.9 million and $6.6 million, at December 31, 1999, 1998 and
1997, respectively.
Loan Maturities
The following table sets forth the maturity or period of
re-pricing of the Bank's loan portfolio at December 31, 1999.
Demand loans and loans having no stated schedule of repayments
and no stated maturity are reported as due in one year or less.
Adjustable and floating-rate loans are included in the period in
which interest rates are next scheduled to adjust rather than
the period in which they contractually mature, and fixed-rate
loans are included in the period in which the final contractual
repayment is due (in thousands).
<TABLE>
<CAPTION>
Amounts At December 31, 1999
Multi-Family Consumer
and and
One to Four Commercial Commercial
Family Real Estate Construction Business Total Loans
<S> <C> <C> <C> <C> <C>
Amounts due:
Non-accrual $1,498 $47 $41 $296 $1,882
Within one year 4,550 5,952 23,015 47,875 81,392
After one year:
1-3 years 1,818 6,183 324 2,634 10,959
3 to 5 years 1,770 9,352 149 3,190 14,461
5 to 15 years 5,913 6,658 - 3,640 16,211
Over 15 years 40,166 1,637 - 2,706 44,509
Total due after one year $48,915 $23,830 $473 $12,170 $86,141
Total amounts due $55,715 $29,829 $23,529 $60,341 $169,414
</TABLE>
Loan Origination, Purchase and Sale Schedule
The following table shows total loans originated,
purchased, sold and repaid during the periods indicated for the
Bank and its subsidiaries (in thousands).
<TABLE>
<CAPTION>
For the Year Ended
December 31,
1999 1998 1997
<S> <C> <C> <C>
Loans receivable, net and Loans held for
sale at beginning of period $ 79,818 $ 68,490 $ 57,183
Loan Originations
1-4 Family Residential Real Estate 31,696 45,237 28,318
Other Real Estate 86,157 56,284 55,377
Consumer and commercial business loans 142,992 6,761 3,248
Total Loan Originations $260,845 $108,282 $ 86,943
Loans purchased 0 0 0
Transfer to OREO (35) (443) 0
Principal repayments (153,341) (25,972) (10,561)
Sales of loans (10,243) (21,083) (16,152)
Increase(decrease) in loans in process (5) (131) 133
Increase(decrease) in allowance for loan losses 200 66 31
Net increase(decrease) in loans $ 97,421 $ 60,719 $ 60,394
Loans receivable, net and loans held for
sale at end of period $177,239 $129,209 $117,577
</TABLE>
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 in due. In most cases,
deficiencies are cured promptly. If a delinquency extends
beyond 60 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 decreased
$539.000 or 17% to $3.1 million at December 31, 1999, compared
to $3.6 million at December 31, 1998. Contributing to this
decrease was a net decrease of $230,000 in the Bank's OREO
portfolio and $489,000 in the Bank's non-accrual portfolio,
through the continuing legal action against the Bank's problem
loan customers, through foreclosure and other court actions and
aggressive account management on the Bank's performing loan
portfolio to minimize future problems.
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 backed out of interest income. There are
occasional exceptions if the loans are well secured and in the
process of collection. The Bank did not have any material
restructured loans within the meaning of SFAS No. 15.
The following table sets forth information regarding loans
30 or more days delinquent and still accruing interest, non-
accrual loans, and owned real estate held by the Bank at the
dates indicated (in thousands):
<TABLE>
<CAPTION>
At December 31,
1999 1998 1997
<S> <C> <C> <C>
Loans past due 90 days or more as to interest or
principal and accruing interest $ 180 $ - $ 232
Nonaccrual loas(1) 1,878 2,367 2,737
Loans restructured to provide a reduction or deferral
of interest or principal - - -
------ ------ ------
Total nonperforming loans $2,058 $2,367 $2,969
Real estate owned (REO) 1,047 1,277 2,249
------ ----- ------
Total Nonperforming Assets $3,105 $3,644 $5,218
====== ====== ======
Nonperforming loans to total loans 1.16% 1.83% 2.53%
Nonperforming assets to total assets 1.11% 1.60% 2.68%
Allowance for loan losses to total
loans 0.69% 0.80% 0.82%
Allowance for loan losses to
nonperforming loans 59.82% 43.56% 32.50%
Allowance for loan losses to
nonperforming assets 39.65% 28.29% 18.49%
Net charge-offs as a percentage of
total loans 0.00% 0.21% 0.42%
</TABLE>
At December 31, 1999, the recorded investment in loans that
are considered to be impaired was $0.1 million (all of which was
on a non-accrual basis). Included in the allowance for loan
losses at December 31, 1998, was $17,000 related to the
$0.1 million of impaired loans. The average recorded investment
in impaired loans during 1998 was $0.1 million. No interest
income related to these impaired loans was recognized during the
year. At December 31, 1997, the recorded investment in loans
that are considered to be impaired was $0.1 million (all of
which was on a non-accrual basis). Included in the allowance
for loan losses at December 31, 1997, was $17,000 related to the
$0.1 million of impaired loans. The average recorded investment
in impaired loans during 1997 was $0.4 million. No interest
income related to these impaired loans was recognized during the
year using the cash basis method of income recognition.
Other real estate owned
Real estate acquired by the Bank as a result of foreclosure
is classified as other real estate owned ("OREO") until it is
sold. The OREO is initially recorded at the lower of the
related loan balance or fair value of the property at the date
acquired. If the value of the property is less than the loan,
less any related specific loan loss provisions, the difference
is charged against the allowance for loan losses. Any subsequent
write-down of OREO is charged against earnings. The Bank had
$1.0 million and $1.3 million of property acquired as a result
of foreclosure at December 31, 1999 and 1998.
Classified Assets
As part of the Bank's loan review procedures which
ultimately results in the establishment of the Bank's allowance
for loan losses (which follows this section), the Bank
identifies and classifies its problem assets into three
classifications: "substandard," "doubtful" and "loss."
Substandard assets have one or more defined weaknesses and are
characterized by the distinct possibility that the bank will
sustain some loss if the deficiencies are not corrected.
Doubtful assets have the weaknesses of substandard assets with
the additional characteristic that the weaknesses make
collection or liquidation in full on the basis of currently
existing facts, conditions and values questionable, and there is
a high possibility of loss. An asset classified as loss is
considered uncollectible and of such little value that
continuance as an asset of the institution is not warranted.
The Bank charges-off that portion of an asset as soon as it is
classified as a loss. Exclusive of the Bank's $1.0 million of
OREO, the Bank's classified assets at December 31, 1999
consisted of $929,000 of loans classified as substandard,
compared to $1.4 million classified as substandard at
December 31, 1998.
Allowance for loan losses
The provision for loan losses is an amount charged against
earnings to fund the allowance for loan 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 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 15%, and
doubtful assets will have a minimum reserve of 50%. Due to the
fact that most of the Bank's problem loans are secured by real
estate, management has allocated a majority of the allowance for
loan losses to these real estate collateralized loans. 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 of $200,000, $283,000 and $60,000 as
of December 31, 1999, 1998 and 1997. The following table
summarizes the changes in the Bank's allowance for loan losses
for each of the past three years (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
<S> <C> <C> <C>
Allowance, beginning of period $1,031 $ 965 $1,400
Charge-offs;
Real Estate: One-to-four family - 270 495
Consumer
------ ------ ------
Total charge-offs - 270 495
------ ------ ------
Total recoveries - 53 -
------ ------ ------
Net charge-offs (recoveries) - 217 495
Provision charged to operations 200 283 60
------ ------ ------
Allowance, end of period $1,231 $1,031 $ 965
====== ====== ======
Allowance for loan losses to total loans 0.69% 0.80% 0.82%
Allowance for loan losses to nonaccrual loans 65.55% 43.56% 35.26%
Net charge-offs as a percentage of total loans 0.00% 0.21% 0.42%
</TABLE>
Deposits
Deposits are the primary source of the Bank's funds for
lending and other investment purposes. The Bank's current
deposit products include statement savings accounts, passbook
savings accounts, NOW accounts, personal and commercial demand
deposit accounts, money market accounts, and certificates of
deposit accounts. Included among these deposit products are
Individual Retirement Account certificates and Keogh retirement
certificates. In addition to deposits, the Bank derives funds
from the amortization and prepayment of loans and mortgage-
backed securities, the maturity of investment securities and if
need advances from the FHLB.
The Bank's deposits are obtained primarily from residents
in its primary market area. The principal methods used by the
Bank to attract deposit accounts include offering a wide variety
of services and accounts, no service charges for maintaining
accounts, competitive interest rates and convenient office
hours. The Bank operates in a highly competitive banking
environment competing against large regional Banks as well as
other community banks. This has limited the gathering of core
deposits. The Bank relies upon certificates of deposit as its
primary funding source, but it has instituted a program that
emphasizes the gathering of more stable, core deposits through
traditional marketing methods to attract new customers and
savings deposits.
The following tables present the average balances and rates
paid on deposits for each of the years ended December 31, 1999,
1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
1999 1998 1997
----------------- ----------------- -----------------
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Demand deposits $ 18,911 $ 19,460 $ 10,345
NOW checking accounts 8,924 3.47% 2,322 3.14% 1,852 3.51%
Money market accounts 15,761 3.68% 4,469 3.71% 4,977 3.60%
Savings accounts 29,686 2.90% 42,184 2.88% 40,708 2.83%
Certificates of deposit 118,623 5.50% 110,203 5.74% 102,903 5.78%
-------- -------- --------
Total deposits $191,905 $178,638 $160,785
======= ======== ========
</TABLE>
As of December 31, 1999, the Bank had total certificates of
deposit of approximately $128.5 million. The following table
summarizes the composition of these deposits (in thousands):
<TABLE>
<CAPTION>
Amount Percentage
<S> <C> <C>
Certificates of deposit in excess of $100,000 $ 18,878 15%
Individual retirement accounts 8,611 7%
Other certificates of deposit 101,046 78%
Total $128,535 100%
</TABLE>
The Bank's certificates of deposit in excess of $100,000
which totaled $18.9 million at December 31, 1999, mature as
follows: $3.4 million within three months, $12.8 million between
three and twelve months; and $2.7 million after twelve months.
The ability of the Bank to attract and maintain deposits
and the Bank's cost of funds on these deposit accounts have
been, and will continue to be, significantly affected by
economic and competitive conditions.
Borrowings
The Bank is a member of the Federal Home Loan Bank System,
which consists of 12 regional FHLB's subject to supervision and
regulation by the Federal Housing Finance Board. The FHLB's
provide a central credit facility primarily for member
institutions. The Bank, as a member of the FHLB of Pittsburgh,
is required to hold shares of common stock in that FHLB in an
amount at least equal to 1% of the aggregate principal amount of
its unpaid residential mortgage loans, home purchase contracts,
and similar obligations at the beginning of each year, or 5% of
its advances (borrowings) from the FHLB of Pittsburgh, whichever
is greater. The Bank had a $1.7 million investment in stock of
the FHLB of Pittsburgh at December 31, 1999, which was in
compliance with this requirement. At December 31, 1999, the
Bank had $34.0 million in outstanding borrowings from the FHLB
of Pittsburgh.
Impact of Inflation
The financial statements and related financial data
presented herein have been prepared in accordance with generally
accepted accounting principles which require the measurement of
financial position and operating results in terms of historical
dollars without considering changes in the relative purchasing
power of money over time due to inflation. The primary impact
of inflation on the operation of the Bank is reflected in
increased operating costs. Unlike most industrial companies,
virtually all of the assets and liabilities of a financial
institution are monetary in nature. As a result, interest rates
have a more significant impact on a financial institution's
performance than the effects of general levels of inflation.
Interest rates do not necessarily move in the same direction or
in the same magnitude as the price of goods and services. The
Bank believes that continuation of its efforts to manage the
rates, liquidity and interest sensitivity of its assets and
liabilities is necessary to generate an acceptable return on
assets.
Recently Issued Accounting Standards
In November 1993, the American Institute of Certified
Public Accountants issued SOP 93-6, which requires an employer
to record compensation expense in an amount equal to the fair
value of shares committed to be released to employees from an
employee stock ownership plan and to exclude unallocated shares
from earnings per share computations. The effect of SOP 93-6 on
net income and book value per share in future periods cannot be
predicted due to the uncertainty of the fair value of the shares
at the time they will be committed to be released.
In October 1995, FASB issued SFAS No. 123. This statement
encourages all entities to adopt a fair value-based method of
accounting for employee stock compensation plans, whereby
compensation cost is measured at the grant date based on the
value of the award and is recognized over the service period,
which is usually the vesting period. However, it also allows an
entity to continue to measure compensation cost for those plans
using the intrinsic value-based method of accounting prescribed
by Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," whereby compensation
cost is the excess, if any, of the quoted market price of the
stock at the grant date (or other measurement date) over the
amount an employee must pay to acquire the stock. Entities
electing to remain with the accounting in APB opinion No. 25
must make pro forma disclosures of net income and earnings per
share, as if the fair value-based method of accounting had been
applied.
Generally, stock options issued under the 1995 Stock Option
Plan have no intrinsic value at the grant date, and under APB
Opinion No. 25, no compensation cost is recognized for them. The
accounting requirements of this statement are generally
effective for transactions entered into in fiscal years that
begin after December 15, 1995. The disclosure requirements of
this statement are generally effective for financial statements
for fiscal years beginning after December 15, 1995. The Bank has
continued accounting for stock options under APB Opinion No. 25
and has made the pro forma disclosures prescribed by this
statement.
SFAS No. 128, "Earnings Per Share," issued in February
1997, establishes standards for computing and presenting
earnings per share ("EPS") and applies to entities with
publicly-held common stock or potential common stock. It
replaces the presentation of primary EPS with a presentation of
basic EPS and requires the dual presentation of basic and
diluted EPS on the face of the income statement. SFAS No. 128 is
effective for the financial statements for the periods ending
after December 15, 1997. SFAS No. 128 requires restatement of
all prior period EPS data presented. The impact of its adoption
has not been material to the Bank.
In June 1997, FASB issued Statement of Financial Accounting
Standards No. 130 ("SFAS No. 130"), "Reporting Comprehensive
Income" and Statement No. 131 ("SFAS No. 131"), "Disclosures
About Segments of an Enterprise and Related Information." SFAS
No. 130, establishes standards for the reporting and
presentation of comprehensive income and its components in
financial statements. SFAS No. 130 requires that all items that
are required to be recognized as components of comprehensive
income be reported in a financial statement that is displayed
with the same prominence as other financial statements. The
statement does not require a specific format for that financial
statement but requires that an enterprise display an amount
representing total comprehensive income for the period in the
financial statement. This Statement is effective for fiscal
years beginning after December 15, 1997. For the year ended
December 31, 1999, the Bank had $2.3 million unrealized loss in
other comprehensive income items.
SFAS No. 131 establishes standards for the way that public
business enterprises report information about segments in annual
financial statements. It also requires that those enterprises
report selected information about operating segments in interim
financial reports issued to shareholders. It also establishes
standards for related disclosures about products and services,
geographic areas, and major customers. This statement is
effective for financial statement periods beginning after
December 31, 1997. Management has not identified any individual
operating segments of the Bank.
In June 1998, FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement
establishes accounting and reporting standards for derivative
instruments and hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at
fair value. This statement is effective for financial statement
periods beginning after June 15, 1999. Management does not
expect SFAS No. 133 to have a material effect on the financial
statements of the Bank.
Item 8 Financial Statements
The audited financial statement of PSB Bancorp, Inc. as of
December 31, 1999, 1998 and 1997 and for the years ended
December 31, 1999, 1998 and 1997, including the report of
Stockton Bates & Company, P.C. thereon, which are included at
exhibit 99 to this Annual Report on Form 10-K, are hereby
incorporated herein by reference.
Item 9 Changes In an Disagreements with Accountants on
Accounting and Financial Disclosure
None
PART III
Item 10 Directors, Executive Officers, Promoters and Control
Person; Compliance with Section 16 (a)
The Holding Company's Bylaws require that the Board of
Directors of the Holding Company consist of at least six and not
more than twenty-five directors, and that Board of Directors
shall set the exact number from time to time. The Holding
Company's Board of Directors has fixed the number of directors
at six members. Such Bylaws establish three classes of
directors. Directors are elected for three year terms, with one
class to be elected each year.
The following table sets forth information, as of
December 1, 1999, with respect to the directors and executive
officers of PSB Bancorp, Inc.:.
<TABLE>
<CAPTION>
Year
First
Elected Principal Occupation
Name/Position(1) Age Director During Past Five Years
<S> <C> <C> <C>
Jane Scacceti Fumo, Director(2)(3) 45 1997 Certified Public Accountant,
Drucker & Scaccetti, P.C.
James W. Eastwood, Director 54 1997 President of Granary Associates
(hospital development and consulting
firm)
<CAPTION>
Class II Directors
(Term expiring 2000)
Year
First
Elected Principal Occupation
Name/Position(1) Age Director During Past Five Years
<S> <C> <C> <C>
Vincent J. Fumo, Chairman and 56 1997 Chairman and Chief Executive Officer
Chief Executive Officer(2) of PSB Bancorp, Inc. and First Penn
Bank and Pennsylvania State Senator
Thomas J. Finley, Jr., Director 79 1997 Retired
<CAPTION>
Class III Director
(Term expiring 2001)
Year
First
Elected Principal Occupation
Name/Position(1) Age Director During Past Five Years
<S> <C> <C> <C>
Anthony DiSandro, Director, 52 1997 President and Chief Operating Officer
President and Chief Operating Officer of PSB Bancorp, Inc. and First Penn
Bank
Rosanne Pauciello, Director and 55 1997 Corporate Secretary of PSB Bancorp,
Corporate Secretary Inc., and First Penn Bank; School
District of Philadelphia Home and
School Visitor
</TABLE>
(1) Each Director was elected as an initial director of PSB
Bancorp, Inc. in connection with the Conversion and
Reorganization.
(2) Vincent J. Fumo and Jane Scaccetti Fumo are husband and
wife.
(3) Jane Scaccetti Fumo also serves as a director of Nutrition
Management Corp., which has a class of securities
registered or subject to the Securities Exchange Act of
1934, as amended ("Exchange Act").
The following table sets forth information, as of
December 31, 1999, with respect to the directors and executive
officers of the Bank.
<TABLE>
<CAPTION>
Year First
Term Elected Principal Occupation During
Name Age Expires Director(1) Past Five Years
- ---- --- ------- ----------- ---------------------------
<S> <C> <C> <C> <C>
James W. Eastwood, Director 54 2000 1998 President of Granary Associates
(hospital development and
consulting firm)
P. Charles DeRita, Director 88 2000 1998 Vice President and Manager of
Hallmark Abstract Co.
Vincent J. Fumo, Chairman and 56 2000 1998 Chairman and Chief Executive
Chief Executive Officer Officer of First Penn Bank,
Pennsylvania State Senator
James F. Kenney, Director 41 2001 1998 City of Philadelphia Councilman
since 1992
Roseanne Pauciello, Director 55 2001 1998 Corporate Secretary of First
and Corporate Secretary Penn Bank; School District of
Philadelphia Home and School
Visitor
Thomas J. Finley, Jr., Director 79 2001 1998 Retired
S. Michael Palermo, Director 59 2001 1998 Assistant Executive Director of
Pennsylvania Turnpike Commission
Alfonso Tumini, Director 49 1999 1998 Attorney
Anthony DiSandro, Director, 52 1999 1998 President and Chief Operating
President and Chief Operating Officer of First Penn Bank
Officer
Stephen Marcus, Director 68 2000 1999 Retired. Chairman of 1999
Emerging Growth Equity Ltd
</TABLE>
(1) Period indicated excludes service as a trustee of the
Bank's predecessors. Each Director was elected as an
initial Director of the bank in connection with the
Conversion and Reorganization.
Executive Officers Who Are Not Directors
<TABLE>
<CAPTION>
Principal Occupation During
Name/Position Age During Past Five Years
- ------------- --- ---------------------------
<S> <C> <C>
Gary Polimeno, Vice President 47 Vice President of First Penn Bank. Also Treasurer
and Treasurer of First Penn Bank since 1994.
</TABLE>
Stock Ownership of Management as of December 31, 1999
<TABLE>
<CAPTION>
Amount and Percent of
Nature of Outstanding
Beneficial Shares of
Name of Beneficial Owner Ownership Common Stock
- ------------------------ ---------- ------------
<S> <C> <C>
Anthony DiSandro 372,784(1) 12.02%
James W. Eastwood 30,949 *
Thomas J. Finley, Jr. 18,515 *
Jane Scaccetti Fumo 289,276(2) 9.32%
Vincent J. Fumo 526,434(2) 16.99%
Roseanne Pauciello 10,271 *
All executive officers and
Directors as a group (6 persons) 1,249,145
- -----------------------------------------------------------------------
Ownership percentage is less than 1%
</TABLE>
(1) Amount includes 50,512 shares held indirectly through the
401 (k) Plan, 25724 shares held through the Profit Sharing
plan, 26,135 shares held by the 1995 Management Recognition
Plan that have been awarded to Mr. DiSandro, 15,727 shares
held by Mr. DiSandro directly and 42,683 shares subject to
immediately exercisable options. Also includes 237,614
shares held by the ESOP of which Mr. DiSandro is a trustee.
(2) Vincent Fumo and Jane Scaccetti Fumo are husband and wife.
Amount includes 46,303 shares held through the 401(k)
Plan, 20,265 shares held through the Profit Sharing Plan,
109,668 held in IRA accounts, 26,138 shares held by the
1995 MRP that have been awarded to Mr. Fumo, 6014 shares
held by Jane Scaccetti Fumo, 772 shares held on behalf of
the daughter of Vincent and Jane Scaccetti Fumo and 42,683
shares subject to immediately exercisable options. Also
includes 237,614 shares held by the ESOP of which Mr. Fumo
is a trustee.
Meetings and Committees of the Board of Directors
The business of the Bank is conducted at regular and
special meetings of the full Board of Directors and its standing
committees. The standing committees consist of the Executive,
Asset/Liability and Investment, Audit, Finance and Budget,
Nominating, Strategic Planning, Loan, Compensation and Benefits,
and Marketing and Community Relations Committees. During 1999,
the Board of Directors met a twelve regular meetings. No member
of the Board or any committee thereof attended less than 75% of
the meetings.
The Executive Committee of the Board of Directors consists
of Rosanne Pauciello, who serves as Chairman, Anthony DiSandro
and S. Michael Palermo. The Executive Committee meets
immediately prior to meetings of the full Board. All significant
actions of the Executive Committee are reviewed by the entire
Board; however, the Executive Committee has decision making
authority as assigned by the Board. The Executive Committee met
twelve times during 1999.
The Asset/Liability and Investment Committee consists of
Directors, Alfonso Tumini, Chairman, P. Charles De Rita, James
W. Eastwood, Thomas J. Finley, Jr., James F. Kenney and S.
Michael Palermo. This committee meets to review the maturity and
repricing of the Bank's assets and liabilities in an effort to
manage the Bank's interest rate risk in accordance with the
Bank's interest rate risk policy and otherwise reviews the
Bank's strategies for interest rate risk management. The
investment committee makes and monitors investments in
accordance with the Bank's Investment Policy. The
Asset/Liability and Investment committee met four times during
1999.
The Audit, Finance and Budget Committee consists of
Directors, Thomas J. Finley, Chairman, Anthony DiSandro, Vincent
J. Fumo, James F. Kenney and S. Michael Palermo. This committee
reviews the Bank's general financial condition and the results
of the annual audit and participates in the formulation of the
Bank's budget and supervises the Bank's adherence to its budget.
The Audit, finance and Budget committee met twelve times during
1999.
The Nominating Committee consists of Directors, Vincent J.
Fumo, Chairman, Anthony DiSandro, and Rosanne Pauciello. The
Nominating Committee, is responsible for selecting and
submitting nominees for directors to the Board at its meeting
for the purpose of appointing directors. Shareholder nominations
for director must be made in accordance with the Bank's Bylaws.
The Nominating Committee met once in 1999 in order to nominate a
replacement for Sylvia M. DiBona who resigned as director
October 21, 1999.
The Strategic Planning Committee consists of Directors,
Stephen Marcus, Chairman, Rosanne Pauciello, Anthony DiSandro
and Vincent J. Fumo. The Strategic Planning Committee conducts
analysis of the Bank's status and performance to produce
recommendations to the Board for strategies for growth and
profitability. The Strategic Planning Committee met four times
during 1999.
The Loan Committee consists of Directors, Rosanne
Pauciello, Chairman, P. Charles DeRita, Anthony DiSandro, James
W. Eastwood, Stephen Marcus and Alfonso Tumini. The Loan
Committee approves loans of up to $1 million. The committee
submits loans exceeding $1 million to the Board for approval.
The Loan committee met twelve times during 1999.
The Compensation and Benefits Committee consists of
Directors, James W. Eastwood, Chairman, Anthony DiSandro, Thomas
J. Finley, Jr, Rosanne Pauciello and Alfonso Tumini. The
Compensation and Benefits Committee is responsible for
establishing and monitoring compensation levels in view of
management's performance and coordinating and instituting
special compensation plans. The Compensation and Benefits
Committee met four times during 1999.
The Marketing and Community Relations Committee consists of
Directors, James F. Kenney, Chairman, P. Charles DeRita, Vincent
J. Fumo, Stephen Marcus, and S. Michael Palermo. The Marketing
and Community Relations Committee is responsible for
implementing marketing and community relations plans, to promote
to the public. The Marketing and Community Relations Committee
met four times during 1999.
Director Compensation
As of December 31, 1999 directors were paid $700 per Board
meeting attended. In addition, directors were paid $350 per
committee meeting attended. Directors of the Bank's subsidiaries
and affiliates PSA Financial Corp., PSA Service Corp., PSA
Consumer Discount Company, Transnational Mortgage Corp., and PSB
Mutual Holding Company, were paid $250, $150, $150, $250 and
$200, respectively, per Board meeting attended.
Item 11 Executive Compensation
The following table sets forth for the years ended
December 31, 1999, 1998 and 1997 certain information as to the
total remuneration paid by the Bank to executive officers who
received salary and bonuses in excess of $100,000 during such
fiscal year.
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
---------------------------------- -------------------------------------
Other All
Annual Security Other
Fiscal Compensation Restricted Underlying Compensation
Name and Principal Position Year Salary(1) Bonuses (2) Stock(3) Option (4)
- --------------------------- ------ --------- ------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Vincent J. Fumo 1999 $159,500 $150,000 $ 44,515 30,000 $ 22,050
Chairman and Chief Executive Officer 1998 $147,788 $150,000 $ 67,876 0 0 $ 22,750
1997 $139,987 $117,500 $ 60,671 0 $ 23,800
Anthony DiSandro 1999 $178,200 $150,000 $ 46,439 30,000 $ 28,350
President and Chief Operating 1998 $165,115 $150,000 $ 61,104 0 0 $ 27,650
Officer 1997 $147,456 $125,000 $ 56,540 0 $ 27,650
Gary Polimeno 1999 $106,050 $ 35,000 $ 3,435 0 $ 8,400
President and Treasurer 1998 $102,942 $ 35,000 $ 5,671 0 0 $ 8,400
1997 $ 87,282 $ 35,000 $ 2,966 0 0 $ 8,400
</TABLE>
_____________
(1) Includes the portion of salary deferred by the executive
pursuant to the 401(k) Plan.
(2) Consists of lease payments paid by the Bank with respect to
vehicle provided by the Bank for the executive's use and
compensation income related to restricted stock awards. For
the year ended December 31,1999, Mr. Fumo, Mr. DiSandro and
Mr. Polimeno recognized compensation expense of $28,958,
$28,963 and $3,435 for those shares which were vested as of
December 31, 1999.
(3) Mr. Fumo, Mr. DiSandro and Mr. Polimeno hold 56,138 shares,
56,135 shares and 2,750 shares of restricted stock,
respectively, which as of December 31, 1999, has a fair
market value of $245,604, $245,590 and $12,031. Of such
shares, 13,754, 13,754 and 2,750 shares of each of Messrs.
Fumo, DiSandro and Polimeno, respectively, were awarded at
April 30, 1996, 12,383 and 12,381 shares of Messrs. Fumo
and DiSandro, respectively, were granted on December 31,
1996, 30,000 and 30,000 shares of Messrs. Fumo and
DiSandro, respectively, were granted on October 31, 1999.
All shares awarded vest at a rate of 20% per year over a
five (5) year period.
(4) Includes trustees fees of $13,650 and $19,950 paid to
Mr. Fumo and Mr. DiSandro, respectively, for the year ended
December 31, 1999, and directors fees paid by the Bank's
subsidiaries to Mr. Fumo, Mr. DiSandro and Mr. Polimeno of
$8,400, $8,400 and $8,400, respectively, for the year ended
December 31, 1999. Includes trustees fees of $14,350 and
$19,250 paid to Mr. Fumo and Mr. DiSandro, respectively,
for the year ended December 31, 1998, and directors fees
paid by the Bank's subsidiaries to Mr. Fumo, Mr. DiSandro
and Mr. Polimeno of $8,400, $8,400, and $8,400,
respectively, for the year ended December 31, 1998.
Includes directors fees of $15,400 and $19,250 paid to
Mr. Fumo and Mr. DiSandro, respectively, for the year ended
December 31, 1997, and directors fees paid by the Bank's
subsidiaries to Mr. Fumo, Mr. DiSandro and Mr. Polimeno of
$8,400, $8,400 and $8,400, respectively, for the year ended
December 31, 1997.
Employment Agreements
In connection with the MHC Reorganization, the Bank entered
into employment agreements (the "Employment Agreements") with
Vincent J. Fumo, Chairman and Chief Executive Officer and
Anthony DiSandro, President and Chief Operating Officer. These
agreements were assumed by the Holding Company upon completion
of the Conversion. Under the terms of his Employment Agreement,
Mr. Fumo serves as Chairman and Chief Executive Officer of the
Holding Company and the Bank at a base salary of $159,500. Under
the terms of his Employment Agreement, Mr. DiSandro serves as
President and Chief Operating Officer of the Holding Company and
the Bank at a base salary of $178,200. Each Employment Agreement
provides for an initial term of three years, which will
thereafter be automatically renewed for an additional three
years on each anniversary date unless terminated pursuant to its
terms by the respective parties.
Each Employment Agreement provides for the payment of
certain severance benefits in the event of the executive's
resignation for specified reasons or as a result of his
termination by the Holding Company or the Bank without "Cause"
(as defined in each Employment Agreement). The executive would
be entitled to severance payments if: (1) he terminates
employment during the term of such agreement following any
breach of the Employment Agreement by the Bank or Holding
Company, loss of title, office or significant authority,
reduction in annual compensation or benefits, or relocation of
the executive's principal place of employment by more than 30
miles, or (2) if the Bank or the Holding Company terminates his
employment, other than for Cause.
If either executive becomes entitled to receive severance
payments under his Employment Agreement, he would receive, over
a period of 36 months, a cash payment equal to three times his
average annual compensation during the five year period
preceding termination of employment. Payments would be made in
equal monthly installments. In addition to the severance
payments, the executive would be entitled to continue to receive
life, medical, dental and other insurance coverages (or a dollar
mount equal to the cost of obtaining each such coverage) for a
period of up to 36 months from the date of termination.
Payments under the Employment Agreements are limited, however,
to the extent (i) that they will constitute excess parachute
payments under Section 280G of the Internal Revenue Code of
1986, as amended ("Code"), or (ii) not permitted under the
Federal Deposit Insurance Act.
Compensation of Officers and Directors Through Benefit Plans
Defined Benefit Retirement Plan.
The Bank maintained a noncontributory defined benefit
retirement plan ("Retirement Plan"). At December 31, 1999, the
Retirement Plan fully met its funding requirements under
Section 412 of the Code. Employee contributions are not
permitted under the Retirement Plan. The Retirement Plan was
"frozen" as of September 30, 1994 and benefits no longer accrue
thereunder. Because the Retirement Plan is fully funded, the
Bank will generally not be required to make any additional
contributions unless asset depreciation from investment occurs.
Participants will continue to vest in accordance with the
provisions of the Retirement Plan. No new employees will be
eligible for participation. The Plan, however, remains subject
to all other requirements of the Code.
Benefits under the Retirement Plan begin to vest after
three years in accordance with the following schedule:
Years of Service Percentage Vested
3 years or less 0%
After 3 years 20%
After 4 years 40%
After 5 years 60%
After 6 years 80%
After 7 years 100%
The following table indicates the annual retirement benefit
that would be payable under the Retirement Plan upon retirement
at age 65 in calendar year 1999, expressed in the form of a
single life annuity for the final average salary and benefit
service classifications specified below.
<TABLE>
<CAPTION>
Final Average Years of Service and Benefits Payable at Retirement
Compensation 15 20 25 30 35 40
<S> <C> <C> <C> <C> <C> <C>
$50,000 $13,804 $18,405 $23,006 $27,608 $27,608 $27,608
$75,000 $21,950 $29,267 $36,583 $43,900 $43,900 $43,900
$100,000 $30,096 $40,128 $50,160 $60,192 $60,192 $60,192
$125,000 $38,242 $50,990 $63,827 $65,827 $65,827 $65,827
$150,000* $46,388 $61,851 $65,827 $65,827 $65,827 $65,827
</TABLE>
____________
* Represents the limit on plan compensation imposed by the Code
effective January 1, 1994.
As of December 1, 1999, Mr. Fumo, Mr. DiSandro, and
Mr. Polimeno had 20, 19 and 21 years of credited service (i.e.
benefit service), respectively.
First Penn Bank Cash or Deferred Profit Sharing Plan (401(k)).
The Bank also maintains the First Penn Cash or Deferred
Profit Sharing Plan, which is a qualified, tax-exempt profit
sharing plan with a cash-or-deferred feature under
Section 401(k) of the Code (the "401(k) Plan"). All employees
who have attained age 21 and have completed two years of
employment during which they worked at least 1,000 hours are
eligible to participate. Assets of the 401(k) Plan are managed
by the 401(k) Plan's trustees. Mr. Fumo and Mr. DiSandro
presently serve as trustees to the 401(k) Plan.
Under the 401(k) Plan, participants are permitted to make
pre-tax salary reduction contributions to the plan equal to a
percentage of up to 15% of compensation. Additional after-tax
contributions of up to 10% of compensation may be made to the
Plan. For these purposes, "compensation" includes total
compensation (including salary reduction contributions made
under the 401(k) Plan sponsored by the Bank), but does not
include compensation in excess of the Code Section 401(a)(17)
limits (presently $160,000). The Bank may also annually make a
discretionary profit sharing contribution to the 401(k) Plan. A
participant must complete 1,000 hours of service during the plan
year and be employed on the last day of the plan year to receive
an allocation of the profit sharing contribution. For the 1999,
1998 and 1997 plan year, the Bank made a profit sharing
contribution of $0, $0 and $0.
All employee contributions and profit sharing contributions
to the 401(k) plan and earnings thereon are fully and
immediately vested.
Plan benefits will be paid to each participant as a joint
and survivor or single life annuity. In addition, a participant
may, under certain circumstances, elect a lump sum or period
certain payment upon normal retirement, death or disability, or
after termination of employment.
First Penn Bank Profit Sharing Plan
The Bank also maintains the First Penn Bank Profit Sharing
Plan, which is a qualified plan pursuant to Section 401(a) of
the Code. Employees who have completed at least two years of
service during which they have worked 1,000 hours or more and
who have attained age 21 are eligible to participate in the
Profit Sharing Plan. Pursuant to the Profit Sharing Plan the
Bank, in its discretion, makes contributions to the accounts of
eligible employees. Employee contributions are neither
permitted nor required. Benefits under the Profit Sharing Plan
become 100% vested upon entry to the Plan.
Employee Stock Ownership Plan and Trust ("ESOP").
In 1995, the Bank ESOP acquired 42,780 shares of the bank's
Common Stock with the proceeds of a $427,800 loan from an
unaffiliated financial institution ("1995 Loan"). Due to the
Conversion and Reorganization, the Bank's Common Stock held by
the ESOP was converted into 110,046 shares of PSB Bancorp, Inc
Common Stock.
In connection with the Conversion and Reorganization, the
ESOP borrowed $1,288,540 from the Holding Company to purchase an
additional 128,854 shares of PSB Bancorp, Inc. Common Stock.
Holding Company also lent sufficient funds to the ESOP to enable
the ESOP to repay the 1995 Loan which had an outstanding balance
of $234,000 at December 31, 1998. The loan by the Holding
Company to the ESOP will be repaid from the bank's contributions
to the ESOP held by the ESOP over the 10 year term of the loan.
The interest rate for the ESOP loan is 8.5%.
Shares purchased by the ESOP with the proceeds of the loan
(including shares originally acquired by the ESOP with the
proceeds of the 1995 Loan) are held in a suspense account and
released on a pro rata basis as the loan is repaid.
Discretionary contributions to the ESOP and shares released from
the suspense account are allocated among participants on the
basis of each participant's proportional share of total
compensation. Forfeitures will be reallocated among the
remaining plan participants.
In any plan year, the Bank may make additional
discretionary contributions to the ESOP for the benefit plan
participants in either cash or shares of Common Stock, which may
be acquired through the purchase of outstanding shares in the
market or from individual shareholders or which constitute
authorized but unissued shares or shares held in treasury by
Holding Company. The timing, amount, and manner of such
discretionary contributions will be affected by several factors,
including applicable regulatory policies, the requirements of
applicable laws and regulations, and market conditions.
Employees of the Bank who have completed 1,000 hours of
service during 12 consecutive months and who have attained age
21 are eligible to participate in the ESOP.
Benefits under the ESOP generally become 100% vested after
the fifth year of service or upon normal retirement (as defined
in the ESOP), disability or death of the participant. If a
participant terminates employment for any other reason prior to
fully vesting, his non-vested account balance will be forfeited.
Forfeitures will be reallocated among remaining participating
employees in the same proportion as contributions. Benefits may
be payable upon death, retirement, early retirement, disability
or separation from service. The Bank's contributions to the
ESOP will not be fixed, so benefits payable under the ESOP
cannot be estimated. See "Management Discussion and Analysis of
Financial Condition and Results of Operations -Impact of New
Accounting Standards".
A committee consisting of the Bank's Chairman and Chief
Executive Officer, President, and Vice President and Treasurer,
will administer the ESOP (the "ESOP Committee"). Messrs. Fumo
and DiSandro serve as trustees for the ESOP. The ESOP Committee
may instruct the trustee regarding of funds contributed to the
ESOP. The ESOP trustees must vote all allocated shares held in
the suspense account in a manner calculated to most accurately
reflect the instructions the ESOP trustees have received from
participants regarding the allocated stock, subject to and in
accordance with the fiduciary duties under ERISA owed by the
ESOP trustee to the ESOP participants.
Pursuant to SOP 93-6, compensation expense for a leveraged
ESOP is recorded at the fair market value of the ESOP shares
when committed to be released to participants' accounts. See
"Management Discussion and Analysis of Financial Condition And
Results of Operations - Comparison of Operating Results for the
years ended December 31, 1999 and 1998."
The ESOP is subject to the requirements of ERISA and the
regulations of the IRS and the Department of Labor issued
thereunder. The Bank has received a favorable determination
letter from the IRS regarding the tax-qualified status of the
ESOP.
1995 Stock Option and Incentive Plan
In connection with the MHC Reorganization, the Bank adopted
the 1995 Stock Option Plan. Options for all shares reserved for
issuance under the 1995 Stock Option Plan have been granted to
officers and employees of the Bank. In connection with the
Conversion and Reorganization, the 1995 Stock Option Plan was
assumed by the Holding Company and appropriate adjustments were
made to the exercise price and the number of shares underlying
each option to reflect the exchange ratio.
There was no exercise of options by any of Messrs. Fumo,
DiSandro and Polimeno under the 1995 Stock Option Plan at and
for the fiscal year ended December 31, 1999.
1995 Management Development and Recognition Plans
In connection with the MHC Reorganization, the Bank adopted
Management Development and Recognition Plans (collectively, the
"1995 MRP's") for officers, employees and non-employee directors
of the Bank. All shares under the 1995 MRP have been awarded.
For purposes of the Conversion and Reorganization, the shares
awarded under the 1995 MRP participants were treated in the same
manner as shares held by other minority shareholders.
1998 Employee Stock Option Plan
This option plan provides for the grant of (i) options to
purchase common stock intended to qualify as incentive stock
options under Section 422 of the Code, and (ii) options that do
not so qualify nonqualified stock options. Pursuant to the
option plan, up to 161,073 shares of common stock (subject to
adjustment) are reserved for issuance by PSB upon exercise of
stock options to be granted to certain officers and employees of
PSB from time to time under the option plan. The purpose of the
option plan is to give certain officers and employees an
opportunity to acquire common stock and to thereby help PSB
attract, retain and motivate key employees and officers.
There have been no options granted to any directors,
executive officer or trustee under this plan.
1998 Management Recognition Plan
The 1998 Management Recognition Plan (the "MRP") is a
method of providing certain senior executive officers of PSB
with a proprietary interest in PSB, to reward such officers for
their service and to encourage such persons to remain in the
service of PSB. Pursuant to the MRP, PSB will award certain
senior executive officers of PSB "plan share awards"
representing the right to earn shares of common stock over a
period of five years from the date of the plan share award. PSB
will contribute sufficient funds to the MRP to enable the MRP to
purchase common stock representing up to 4% of the aggregate
number of shares outstanding.(i.e., up to 124,046 shares of
common stock).
Under this plan, share awards have been made to Messrs.
Fumo and DiSandro for 30,000 shares each.
Item 12 Security Ownership of Certain Beneficial Owners and
Management
The Holding Company is not aware of any holder of 5% or
more of Holding Company Common Stock other than the management
personnel identified in item 10 herein.
Item 13 Certain Relationships and Related Transactions
Federal regulations require that all loans or extensions of
credit to executive officers and directors must generally be
made on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable
transactions with other persons (unless the loan or extension of
credit is made under a benefit program generally available to
all other employees and does not give preference to any insider
over any other employee) and must not involve more than the
normal risk of repayment or present other unfavorable features.
Pursuant to the above regulations, the Bank adopted an Insiders'
Loan Policy in December 1996 pursuant to which
trustees/directors, officers and employees of the Bank or any of
its subsidiaries are eligible to receive a 1% reduction of the
interest rate of mortgage loans. Federal regulations also
require that loans made to a director or executive officer in an
amount that, when aggregated with the amount of all other loans
to such person and his related interests, are in excess of the
greater of $25,000 or 5% of the Bank's capital and surplus (up
to a maximum of %500,000) must be approved in advance by a
majority of the disinterested members of the Board of Directors.
See "REGULATION - Federal Regulation of Bank - Transactions with
Affiliates;" The aggregate amount of loans by the Bank to its
executive officers and directors was $1.7 million at
December 31, 1999, which is 4.62% of shareholders' equity.
The Bank's Insiders' Loan Policy applies to the following
loans: (1) a first mortgage on an employee's residence, (2) a
first mortgage on the employee's secondary home when it is used
by the employee as a vacation home and not as an investment
property, and (3) a second mortgage home equity loan on the
employee's personal residence. The interest rate discount is
subject to increase by 1% if the employee does not complete five
years of continuous service with the Bank or its subsidiaries.
At December 31, 1999 mortgage loans were extended to Rosanne
Pauciello and Alfonso Tumini on the following terms:
(1) principal amount of $168,000 at an interest rate of 8.625%
for a term of 30 years; and (2) principal amount of $24,040 at
an interest rate of 9.0% for a term of 36 months. At
December 31, 1998, mortgage loans were extended to Mr. Fumo and
Mr. DiSandro on the following terms: (1) principal amount of
$200,000 at an interest rate of 7.5% for a term of 360 months to
Mr. Fumo; and (2) principal amount of $400,000 at an interest
rate of 6.0% for a term of 360 months to Mr. DiSandro. As of
December 31, 1999, Mr Fumo's and Mr DiSandro's mortgage loan
balance was $905,025 and $392,953.
Item 14 Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a) Exhibits.
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 (filed
herewith).
23.1 Consent of Stockton Bates & Company,
P.C. (filed herewith).
27 Financial Data Schedule (filed
herewith).
99 Financial Statements (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 duly authorized.
March, 2000 PSB BANCORP, INC.
By /s/ Anthony DiSandro
Anthony DiSandro
President and Chief Operating Officer
In accordance with the Securities Exchange Act of 1934,
this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.
Signature Title Date
/s/ Vincent J. Fumo Chairman and Chief March 28, 2000
Vincent J. Fumo Executive Officer
/s/ Anthony DiSandro President and Chief March 28, 2000
Anthony DiSandro Operating Officer
/s/ Gary Polimeno Vice President and March 28, 2000
Gary Polimeno Treasurer (Principal
Accounting and Financial
Officer)
/s/ James W. Eastwood Director March 28, 2000
James W. Eastwood
/s/ Thomas J. Finley, Jr. Director March 28, 2000
Thomas J. Finley, Jr.
/s/ Roseanne Pauciello Corporate Secretary March 28, 2000
Roseanne Pauciello and Director
________________ Director March 28, 2000
Jane Scacetti Fumo
Exhibit 21
Schedule of Subsidiaries*
First Penn Bank
Transnational PSA Financial Corp PSA Service Corp
Mortgage
Corp. PSA Consumer
Discount Company
____________
* All ownership interests indicated are 100% ownership.
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 (filed
herewith).
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.
PSB BANCORP, INC.
AND SUBSIDIARY
Consolidated Financial Statements
December 31, 1999
PSB Bancorp, Inc. And Subsidiary
CONTENTS
Page
Independent Auditors' Report 1
Financial Statements:
Consolidated Statement of Financial Condition,
December 31, 1999 and 1998 2
Consolidated Statement of Income
for the Years Ended December 31, 1999,
1998, and 1997 3-4
Consolidated Statement of Stockholders' Equity
for the Years Ended December 31, 1999,
1998, and 1997 5
Consolidated Statement of Cash Flows
for the Years Ended December 31, 1999,
1998, and 1997 6-8
Consolidated Statement of Comprehensive Income
for the Years Ended December 31, 1999,
1998, and 1997 9
Notes to Consolidated Financial Statements 10-43
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
PSB Bancorp, Inc.
Philadelphia, Pennsylvania
We have audited the accompanying consolidated statement of
financial condition of PSB Bancorp, Inc. and Subsidiary as of
December 31, 1999 and 1998 and the related consolidated
statements of income, stockholders' equity, cash flows and
comprehensive income for each of the three years ended
December 31, 1999, 1998 and 1997. These consolidated financial
statements are the responsibility of the Bank's management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits. As discussed in
Note 1, the consolidated financial statements of PSB Bancorp,
Inc. and Subsidiaries for December 31, 1998 and 1997 were
restated for the 1999 pooling of interest transaction with First
Bank of Philadelphia. We did not audit the separate financial
statements of First Bank of Philadelphia for 1998 and 1997,
which report total assets constituting 28% of the consolidated
total assets and total interest income constitutes 34% of the
consolidated totaled interest income for December 31, 1998 and
total interest income constitutes 36% of the consolidated
totaled interest income for December 31, 1997. Those statements
were audited by other auditors whose report dated January 29,
1999 and January 28, 1998 have been furnished to us, and our
opinion insofar as it relates to the amounts included for First
Bank of Philadelphia is based solely on the report of the other
auditors.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
financial condition of PSB Bancorp, Inc. and Subsidiary at
December 31, 1999 and 1998, the results of their operations and
their cash flows for each of the three years ended December 31,
1999, 1998 and 1997 in conformity with generally accepted
accounting principles.
Stockton Bates, LLP
Certified Public Accountants
Philadelphia, Pennsylvania
March 17, 2000
PSB BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
DECEMBER 31, 1999 AND 1998
PSB Bancorp, Inc. And Subsidiary
Consolidated Statement Of Financial Condition
<TABLE>
<CAPTION>
ASSETS
December 31: 1999 1998
- -----------------------------------------------------------------------------
(In Thousands, except per share data)
<S> <C> <C>
CASH AND CASH EQUIVALENTS:
Cash and due from banks $ 7,921 $ 2,126
Interest bearing deposits in other
financial institutions 9,354 45,401
INVESTMENTS:
Investment securities available-for-sale,
at fair value 21,890 18,038
Mortgage-backed securities available-for-sale,
at fair value 45,951 22,074
Investment securities held-to-maturity (fair value
of $3,779,400 and $4,005,600) 4,000 3,996
Mortgage-backed securities held-to-maturity (fair
value of $1,031,525 and $1,404,753) 1,006 1,327
INVESTMENTS, OTHER (See Note 21) 4,545
LOANS RECEIVABLE, net 167,787 121,240
LOANS HELD FOR SALE 8,221 6,938
REAL ESTATE:
Acquired in settlement of loans 1,047 1,277
OFFICE PROPERTIES AND EQUIPMENT, net of accumulated
depreciation 1,692 1,619
ACCRUED INTEREST RECEIVABLE 2,446 1,702
PREPAID EXPENSES AND OTHER ASSETS 3,748 1,748
- -----------------------------------------------------------------------------
TOTAL ASSETS $279,608 $227,486
=============================================================================
<FN>
See Accompanying Notes
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ASSETS
December 31: 1999 1998
- ----------------------------------------------------------------------------
(In Thousands, except per share data)
<S> <C> <C>
LIABILITIES:
Deposits:
Non-interest bearing $ 14,720 $ 20,830
Interest bearing 178,490 165,920
- ----------------------------------------------------------------------------
193,210 186,750
Securities purchased under agreements to resell 15,640 2,495
Advances from Federal Home Loan Bank 34,000
Income taxes payable 45 465
Accrued interest payable on savings accounts 515 502
Employee Stock Ownership Plan debt 234
Accrued expenses and other liabilities 151 910
- -----------------------------------------------------------------------------
Total liabilities 243,561 191,356
STOCKHOLDERS' EQUITY:
Common Stock, no par value, 15,000,000 shares
authorized; 4,538,483 shares
issued and outstanding for December 31, 1999
and 1998
Additional paid-in capital 40,873 40,790
Employee Stock Ownership Plan ( 1,359) ( 1,443)
Retained earnings ( 1,136) ( 3,220)
Accumulated other comprehensive income ( 2,331) 3
- -----------------------------------------------------------------------------
Total stockholders' equity 36,047 36,130
- -----------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $279,608 $227,486
=============================================================================
</TABLE>
PSB Bancorp, Inc. And Subsidiary
Consolidated Statement Of Income
<TABLE>
<CAPTION>
Year Ended December 31: 1999 1998 1997
- -----------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
INTEREST AND DIVIDEND INCOME:
Interest on loans $ 13,457 $ 11,326 $ 10,087
Investment securities 4,165 1,560 2,025
Interest-earning deposits 939 2,340 1,725
- -----------------------------------------------------------------------------
Total interest income 18,561 15,226 13,837
INTEREST EXPENSE:
Interest on deposits 8,270 7,775 7,345
Interest on borrowings 949
Interest - other 25 31
- -----------------------------------------------------------------------------
Total interest expense 9,219 7,800 7,376
- -----------------------------------------------------------------------------
Net interest income 9,342 7,426 6,461
Provision for loan losses 200 283 60
- -----------------------------------------------------------------------------
Net interest income after provision
for loan losses 9,142 7,143 6,401
NONINTEREST INCOME 913 1,373 1,168
NONINTEREST EXPENSE:
Compensation and employee benefits 3,601 3,252 3,041
Premises and occupancy costs 1,290 1,260 1,308
Federal insurance premiums 87 84 88
Data processing 237 211 191
Advertising 140 111 81
Directors fees 215 224 232
General Insurance 157 90 78
Professional fees 1,064 95 120
Other 1,407 1,183 973
- -----------------------------------------------------------------------------
Total noninterest expense 8,198 6,510 6,112
- -----------------------------------------------------------------------------
<CAPTION>
Consolidated Statement Of Income
Year Ended December 31: 1999 1998 1997
- -----------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
INCOME BEFORE PROVISION FOR INCOME TAX $ 1,857 $ 2,006 $ 1,457
Provision for federal and state income
tax:
Current 460 465 308
Deferred ( 687) ( 123) 37
- -----------------------------------------------------------------------------
Total income tax provision ( 227) 342 345
- -----------------------------------------------------------------------------
NET INCOME $ 2,084 $ 1,664 $ 1,112
=============================================================================
BASIC EARNINGS PER SHARE $ .48 $ .38 $ .49
=============================================================================
DILUTED EARNINGS PER SHARE $ .40 $ .32 $ .38
=============================================================================
<FN>
See Accompanying Notes
</TABLE>
PSB BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
PSB Bancorp, Inc. And Subsidiary
Consolidated Statement Of Stockholders' Equity
<TABLE>
<CAPTION>
Years Ended December 31, 1999, 1998 and 1997:
===========================================================================================
Employee
Additional Stock
Common Paid-in Ownership
Stock Capital Plan
- -------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 $ 1,614 $ 23,806 ($ 356)
Net income for the year ended December 31, 1997
Employee Stock Ownership Plan:
Shares released 61
Other comprehensive income, net of tax:
Change in unrealized loss on investment
and mortgage-backed securities available-for-sale
- -------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 1,614 23,806 ( 295)
Net income for the year ended December 31, 1998
Employee Stock Ownership Plan:
Shares released ( 19) 141
Other comprehensive income (loss), net of tax:
Change in unrealized loss on investment
and mortgage-backed securities available-for-sale
Cash of PSB Mutual Holding Company from
merger of PSB Mutual Holding Company and
Pennsylvania Savings Bank upon completion of
Conversion and Reorganization
Issuance of common stock to Employee Stock
Ownership Plan upon completion of Conversion
and Reorganization ( 1,289)
Exchange of Pennsylvania Savings Bank common
stock for PSB Bancorp, Inc. common stock upon
completion of Conversion and Reorganization ( 1,195) 1,195
Issuance of common stock upon completion of
Conversion and Reorganization 16,107
Expenses relating to stock offering ( 718)
- -------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 419 40,371 ( 1,443)
Net income for the year ended December 31, 1999
Issuance of common stock to Management Recognition
Plan 21,390 232,615
Employee Stock Ownership Plan:
Shares released 83 84
Exchange from common stock from merger of
Pennsylvania Savings Bank and First Bank of
Philadelphia ( 419) 419
Other comprehensive income, net of tax:
Change in unrealized loss on investment and
mortgage-backed securities available-for-sale
- -------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 $ -0- $ 40,873 ($1,359)
===========================================================================================
<FN>
See Accompanying Notes
</TABLE>
PSB Bancorp, Inc. And Subsidiary
Consolidated Statement Of Stockholders' Equity
<TABLE>
<CAPTION>
Years Ended December 31, 1999, 1998 and 1997:
=========================================================================================================
Accumu-
lated
Other Compre-
Retained Compre- hensive
Earnings hensive Income
(Deficit) Income Total (Loss)
- ---------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 ($6,243) ($ 70) $18,751 $ -
Net income for the year ended December 31, 1997 1,112 1,112 1,112
Employee Stock Ownership Plan:
Shares released 61
Other comprehensive income, net of tax:
Change in unrealized loss on investment
and mortgage-backed securities available-for-sale 60 60 60
- ---------------------------------------------------------------------------------------------------------
$1,172
======
BALANCE, DECEMBER 31, 1997 (5,131) ( 10) 19,984
Net income for the year ended December 31, 1998 1,664 1,664 $1,664
Employee Stock Ownership Plan:
Shares released 122
Other comprehensive income, net of tax:
Change in unrealized loss on investment
and mortgage-backed securities available-for-sale 13 13 13
Cash of PSB Mutual Holding Company from
merger of PSB Mutual Holding Company and
Pennsylvania Savings Bank upon completion of
Conversion and Reorganization 247 247
Issuance of common stock to Employee Stock
Ownership Plan upon completion of Conversion
and Reorganization ( 1,289)
Exchange of Pennsylvania Savings Bank common
stock for PSB Bancorp, Inc. common stock upon
completion of Conversion and Reorganization
Issuance of common stock upon completion of
Conversion and Reorganization 16,107
Expenses relating to stock offering ( 718)
- ---------------------------------------------------------------------------------------------------------
$1,677
======
BALANCE, DECEMBER 31, 1998 (3,220) 3 36,130
Net income for the year ended December 31, 1999 2,084 2,084 $2,084
Issuance of common stock to Management Recognition
Plan 254,005
Employee Stock Ownership Plan:
Shares released 167
Exchange from common stock from merger of
Pennsylvania Savings Bank and First Bank of
Philadelphia
Other comprehensive income, net of tax:
Change in unrealized loss on investment and
mortgage-backed securities available-for-sale ( 2,334) ( 2,334) (2,334)
- ---------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 ($1,136) ($2,331) $36,047 ($ 250)
=========================================================================================================
<FN>
See Accompanying Notes
</TABLE>
PSB Bancorp, Inc. And Subsidiary
Consolidated Statement Of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Year Ended December 31: 1999 1998 1997
- -------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,084 $ 1,664 $ 1,112
- -------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Amortization of premium/discount on
mortgage-backed securities 51 ( 7) 2
Depreciation and amortization 277 348 388
Write-down and expenses of real estate owned 234 95 8
Gain (loss) on sale of real estate 20 ( 37) ( 31)
Gain on sale of property and equipment 9
Gain (loss) on sale of loans 372 ( 863) ( 556)
Provision for losses on loans 200 283 60
Deferred taxes ( 564) 37 37
Compensation expense-Employee Stock Ownership Plan 84 61
Change in assets and liabilities:
(Increase) decrease in loans held-for-sale ( 1,283) 500 ( 1,421)
Increase in accrued interest receivable ( 744) ( 11) ( 68)
Increase in prepaid expenses ( 220) ( 25) ( 366)
Increase in prepaid corporate taxes ( 336) ( 3) ( 54)
Increase (decrease) in corporate taxes payable ( 420) 157 166
Increase (decrease) in accrued pension cost ( 7) ( 3)
Increase in accrued interest payable 14 20 70
Increase (decrease) in accrued expenses ( 660) ( 72) 271
- -------------------------------------------------------------------------------------------------
Total adjustments ( 2,975) 485 ( 1,497)
- -------------------------------------------------------------------------------------------------
Net cash provided by (used in)
operating activities ( 891) 2,149 ( 385)
- -------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment securities, available-for-sale ( 9,716) ( 11,544) ( 9,042)
Purchase of mortgage-backed securities,
available-for-sale ( 29,691) ( 20,308)
Mortgage-backed security maturities and
principal repayments 3,677 1,980 991
Maturities of investment securities,
available-for-sale 1,000 8,720 1,000
Maturities of investment securities,
held-to-maturity 16,500 16,156
Net change in Federal Home Loan Bank stock ( 878) ( 12) ( 26)
Increase in total loans receivable, net ( 46,747) ( 11,804) ( 11,523)
Proceeds from sale of real estate owned net of
improvements 698 1,404 1,130
Property acquired through loan foreclosure action ( 484)
(Increase) decrease in capitalized conversion costs 155 ( 155)
Proceeds from sale of property and equipment 220
Capital expenditures ( 350) ( 219) ( 280)
- -------------------------------------------------------------------------------------------------
Net cash used in investing activities ( 82,729) ( 26,908 ( 13,454)
- -------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in deposits, net 6,402 16,603 5,778
Change in securities purchased under agreements
to resell 13,145 ( 347) 1,305
Net proceeds from stock offering 14,101
Payment of ESOP loan ( 234)
Proceeds received from merger with PSB Mutual
Holding Company 247
Proceeds from borrowed funds 34,000
Change in advances for borrowers' taxes and
insurance 55 97 69
- -------------------------------------------------------------------------------------------------
Net cash provided by financing activities 53,368 30,701 7,115
- -------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (30,252) 5,942 ( 6,724)
- -------------------------------------------------------------------------------------------------
Cash and cash equivalents, beginning of year 47,527 41,585 48,309
- -------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $17,275 $47,527 $41,585
=================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the year for:
Interest on deposits and borrowings $ 8,405 $ 7,780 $ 7,275
=================================================================================================
Income taxes $ 33 $ 400 $ 280
=================================================================================================
Noncash activities:
Loans transferred to real estate owned $ 699 $ 491 $ 697
=================================================================================================
Unrealized gain (loss) on investment mortgage-
backed securities available-for-sale,
net of taxes ($ 2,334) $ 13 $ 60
=================================================================================================
<FN>
See Accompanying Notes
</TABLE>
PSB Bancorp, Inc. And Subsidiary
Consolidated Statement Of Comprehensive Income
<TABLE>
<CAPTION>
Year Ended December 31: 1999 1998 1997
- ------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Net Income $2,084 $1,664 $1,112
Other Comprehensive Income, net of tax:
Unrealized gain (loss), investments
available-for-sale (2,334) 13 60
- ------------------------------------------------------------------------------
Other comprehensive income (2,334) 13 60
- ------------------------------------------------------------------------------
Comprehensive income ($ 250) $1,677 $1,172
==============================================================================
<FN>
See Accompanying Notes
</TABLE>
PSB Bancorp, Inc. And Subsidiary
Notes To Consolidated Financial Statements
Years Ended December 31, 1999, 1998 And 1997
1. DESCRIPTION OF ORGANIZATION:
PSB Bancorp, Inc. (the "Holding Company") was organized as
Pennsylvania business corporation on October 3, 1997 at the
direction of Pennsylvania Savings Bank (the "Bank") for the
purposes of becoming a holding company for the Bank upon the
Conversion and Reorganization. The Holding Company is subject
to regulation by the Securities and Exchange Commission and the
Federal Reserve, and its principal business is the ownership of
the Bank. In the future, the Holding Company may acquire or
organize other operating subsidiaries, although there are no
current plans, arrangements or understandings, written or oral,
to do so.
Effective July 17, 1998, Pennsylvania Savings Bank (the
"Bank") and PSB Mutual Holding Company ("MHC") completed the
Plan of Conversion from Mutual Holding Company to Stock Holding
Company. Under the Plan of Conversion, the newly formed holding
company, PSB Bancorp, Inc. (the "Holding Company") issued
1,610,732 shares of common stock, no par value, at a price of
$10.00 per share in a direct and syndicated offering.
Furthermore, based on an independent appraisal, existing
stockholders of Pennsylvania Savings Bank, other than the MHC,
exchanged each of their shares (579,390 shares) for 2.572374
shares of PSB Bancorp, Inc. and the Mutual Holding Company
merged with and into the Bank. The common stock of PSB Bancorp,
Inc. began trading on the Nasdaq National Market under the
symbol "PSBI" on July 17, 1998. Effective October 12, 1999,
there was a change in charter from a Savings Bank to a
Commercial Bank and subsequent name change for Pennsylvania
Savings Bank, to First Penn Bank resulting from the acquisition
of First Bank of Philadelphia.
First Penn Bank, through its seven branch offices, makes
residential, construction, commercial, student and consumer
loans to customers and provides community banking services
principally within, Southeastern Pennsylvania and Southern New
Jersey. Transnational Mortgage Corporation, a wholly owned
subsidiary, originates residential loans. PSA Financial
Corporation, a wholly owned subsidiary, originates residential
and consumer loans. PSA Consumer Discount, a wholly owned
subsidiary of PSA Financial, originates consumer loans. All
loan origination's are to customers principally within, but not
limited to, the County of Philadelphia, Pennsylvania. PSA
Service Corporation, a wholly owned subsidiary, processes all
loans for Pennsylvania Savings Bank and the other subsidiaries.
The Bank competes with other banking and financial
institutions in its primary markets. Commercial banks, savings
banks, savings and loan associations, mortgage bankers and
brokers, credit unions and money market funds actively compete
for deposits and loans in the Bank's market area. Such
institutions, as well as consumer finance, mutual funds,
insurance companies, and brokerage and investment banking firms,
may be considered competitors of the Bank with respect to one or
more of the services it renders.
The Bank is subject to regulations of certain state and
federal agencies and, accordingly, is periodically examined by
those regulatory authorities. As a consequence of the extensive
regulation of commercial banking activities, the Bank's business
is particularly susceptible to being affected by state and
federal legislation and regulations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation:
The consolidated financial statements for the periods prior
to July 17, 1998 are those of First Bank of Philadelphia and
Pennsylvania Savings Bank (the "Bank") and its wholly-owned
subsidiaries, PSA Service Corporation, Transnational Mortgage
Corporation and PSA Financial Corporation. The Bank became the
wholly-owned subsidiary of the PSB Bancorp, Inc. (the "Holding
Company") on July 17, 1998 and as a result the consolidated
financial statements for the period subsequent to July 17, 1998
also include the accounts of the Holding Company and its wholly-
owned subsidiary, Pennsylvania Savings Bank. The Holding
Company's business is conducted principally through the Bank and
its wholly-owned subsidiaries. Significant intercompany
balances and transactions have been eliminated.
Impact of Year 2000:
The Bank was well prepared to enter the new year at
midnight on January 1, 2000. Contingency and event plans were
in effect as the century rollover took place. No material
defects or problems were experienced with hardware, software,
equipment or operations.
During 1999, the Bank utilized a comprehensive "Customer
Awareness" campaign to ensure that the customers and the general
public were themselves prepared for Y2K. Due to this campaign
and the efforts of our peers and regulators, the Bank
experienced no material impact to liquidity.
Reporting Comprehensive Income - New Pronouncement:
In 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes new rules for the reporting
and display of comprehensive income and its components; however,
the adoption of this Statement had no impact on the Company's
net income or stockholders' equity. SFAS No. 130 requires the
Company's unrealized holding gains and losses to be included in
other comprehensive income. Prior year's financial statements
have been reclassified to conform to these requirements.
Cash and Cash Equivalents:
Cash and cash equivalents include unrestricted cash on
hand, demand deposits maintained in depository institutions and
other readily convertible investments with original contractual
terms to maturity of three months or less.
Investment in Debt and Marketable Equity Securities:
Gains and losses realized on sales of investment securities
represent differences between net proceeds and carrying values
determined by the specific identification method. Premiums paid
and discounts received at the time of purchase are deferred and
amortized over the remaining life of the securities using a
method which approximates a level yield. Mortgage-backed
security amortization rates are periodically adjusted to reflect
changes in the prepayment speeds of the underlying mortgages.
Loans and Allowance for Loan Losses:
Loans that management has the intent and ability to hold
for the foreseeable future or until maturity or payoff are
stated at the amount of unpaid principal and reduced by an
allowance for loan losses. Interest on loans is accrued and
credited to operations based upon the principal amounts
outstanding. Loan origination fees and discounts on mortgage
loans are amortized to income using the interest method over the
remaining period to contractual maturity, adjusted for actual
prepayments. The allowance for loan losses is established
through a provision for possible loan losses charged to
expenses. Loans are charged against the allowance for loan
losses when management believes that the collectibility of the
principal is unlikely. The allowance is an amount that
management believes will be adequate to absorb possible loan
losses on existing loans that may become uncollectible based on
evaluations of the collectibility of loans and prior loan loss
experience. The evaluations take into consideration such
factors as changes in the nature and volume of the loan
portfolio, overall portfolio quality, review of specific problem
loans and current economic conditions that may affect the
borrower's ability to pay. Income is subsequently recognized
only to the extent that cash payments are received, or until in
management's judgment, the borrower's ability to make periodic
interest and principal payments is back to normal, in which case
the loan is returned to accrual status.
Effective January 1, 1997, interest is discontinued on all
loans that are contractually past due 3 months. Prior to
January 1, 1997, interest was discontinued on residential loans
that were contractually past due 12 months, unless the value of
the mortgaged property well exceeded the loan balance in which
case interest continued to accrue until the loan balance plus
accrued interest equaled the fair market value of the property
securing the loan. The Bank has recorded interest income, net
of taxes, of $80,341 for the year ended December 31, 1996 on
loans that were contractually past due for more than three
months. The effect on net income per share would have been a
reduction of $.06 for the year ended December 31, 1996 if this
interest had not been accrued. Interest was discontinued on
commercial, consumer and unsecured loans that were contractually
past due 3 months. No adjustment is made for interest
previously accrued. Income is subsequently recognized only to
the extent that cash payments are received, or until in
management's judgment, the borrower's ability to make periodic
interest and principal payments is back to normal, in which case
the loan is returned to accrual status.
Loan Origination and Commitment Fees:
Loan fees and certain direct loan origination costs are
deferred and the net fee or cost is recognized as an adjustment
of the loan yield over the contractual life of the loan using
the interest method. When a loan is sold, unamortized fees are
recognized as income. Other loan fees and charges representing
service costs for the prepayment of loans, for delinquent
payments or for miscellaneous loan services are recognized when
collected. Commitment fees and costs relating to commitments
whose likelihood of exercise is remote are recognized over the
commitment period on a straight-line basis. If the commitment
is subsequently exercised during the commitment period, the
remaining unamortized commitment fee at the time of exercise is
recognized over the life of the loan as an adjustment of yield.
Loans Held for Sale:
Included in loans held for sale are any loans which the
Bank believes may be involved in interest rate risk management
or other decisions which might reasonably result in such loans
not being held until maturity. Any such conforming loans are
transferred to loans held for sale and valued at the lower of
aggregate cost or market, including considering of forward
commitments to sell, until ultimate disposition.
Effective January 1, 1997, the Bank adopted the provision
of Statement of Financial Accounting Standards No. 125 -
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" ("SFAS No. 125"). The adoption
of SFAS No. 125 had no significant impact on the earnings or
financial condition of the Bank. The Bank carries any retained
interest in a transferred asset on the statement of condition as
a servicing asset. The servicing assets represent the fair
value of the servicing contracts associated with purchase or
origination and subsequent securitization of the mortgage loans.
Servicing assets are amortized in proportion to and over the
period of estimated net servicing income. Servicing assets are
evaluated periodically for impairment based on their fair value
and impairment, if any, is recognized through a valuation
allowance and a charge to operations.
Real Estate Owned:
Real estate owned consists of properties acquired through
foreclosure. Real estate owned is stated at the lower of cost
or estimated fair value minus estimated costs to sell. Write-
downs of real estate owned which occur after the initial
transfer from the loan portfolio are recorded as expenses of
real estate owned. Costs of holding foreclosed property are
charged to expense in the current period, except for significant
property improvements which are capitalized to the extent that
carrying value does not exceed estimated fair value. Real
estate held for investment is carried at the lower of cost,
including cost of improvements and amenities incurred subsequent
to acquisition, or net realizable value.
Income Taxes:
The Bank records deferred tax assets and liabilities for
the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the
enactment date.
Office Properties and Equipment:
Land is carried at cost. Office properties and equipment
are recorded at cost less accumulated depreciation.
Depreciation is computed based on cost using the straight-line
method over estimated useful lives of 25-50 years for buildings,
10-25 years for land improvements and 3-10 years for office
equipment. Maintenance and repair of property and equipment are
charged to operations. Major improvements are capitalized.
Financial Statement Presentation:
Certain items in prior year financial statements have been
reclassified to conform to the 1999 presentation.
Advertising:
Advertising costs are charged to operations when incurred
and amounted to $140,000, $111,000 and $81,000 for the years
ended December 31, 1999, 1998 and 1997, respectively.
Use of Estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual
results could differ from those estimates.
The principal estimate that is susceptible to significant
change in the near term relates to the allowance for loan
losses. The evaluation of the adequacy of the allowance for
loan losses includes an analysis of the individual loans and
overall risk characteristics and size of the different loan
portfolios, and takes into consideration current economic and
market condition, the capability of specific borrowers to pay
specific loan obligations, as well as current loan collateral
values. However, actual losses on specific loans, which also
are encompassed in the analysis, may vary from estimated losses.
Per Share Information:
Earnings per share have been calculated based on the
weighted average common shares outstanding for the respective
periods less the uncommitted ESOP shares. The number of shares
used in the computation of earnings per share for the years
ended December 31, 1999 and 1998 was 4,365,426 and 4,393,933 for
basic earnings per share, and 5,167,021 and 5,122,120 for
diluted earnings per share, respectively. Earnings per share
for the year ended December 31, 1999 reflect the shares issued
and outstanding due to the merger of Pennsylvania Savings Bank
and First Bank of Philadelphia effective October 12, 1999. In
connection with the acquisition, each outstanding share of First
Bank of Philadelphia was exchanged for .857 shares of PSB
Bancorp, Inc. common stock. The effect of the merger on
earnings per share is reflected in prior years computation.
Cash deposited in Financial Institutions:
The Bank maintains cash balances at other financial
institutions in the Philadelphia regional area. Accounts at
these financial institutions are insured by the Federal Deposit
Insurance Corporation up to $100,000. In the normal course of
business, the Bank may have deposits that exceed the insured
balance.
3. INVESTMENTS AND MORTGAGE-BACKED SECURITIES:
The following is a summary of the Bank's investment in
available-for-sale and held-to-maturity securities:
<TABLE>
<CAPTION>
Available-for-Sale
December 31, 1999
--------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Gains Value
- -----------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
Investment Securities:
Equity:
Investment in mutual funds $ 2,354 $ - ($ 24) $ 2,330
FHLB and FRB Stock 2,056 2,056
- ------------------------------------------------------------------------------------------
Total equity securities 4,410 ( 24) 4,386
- ------------------------------------------------------------------------------------------
Debt:
FNMA 3,500 ( 198) 3,302
Municipal Tax-exempt 3,511 ( 310) 3,201
FHLB Notes 11,499 ( 598) 10,901
- ------------------------------------------------------------------------------------------
Total debt securities 18,510 ( 1,106) 17,404
- ------------------------------------------------------------------------------------------
Mortgage-backed Securities:
FNMA 39,540 ( 2,188) 37,352
GNMA 9,151 ( 552) 8,599
- ------------------------------------------------------------------------------------------
Total mortgage-backed
securities 48,691 ( 2,740) 45,951
- ------------------------------------------------------------------------------------------
Other Investments:
JADE Financial 100 100
- ------------------------------------------------------------------------------------------
Total other investments 100 100
- ------------------------------------------------------------------------------------------
Total available-for-sale
Securities 71,711 ( 3,870) 67,841
<CAPTION>
Held-to-Maturity
December 31, 1999
--------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Gains Value
- -----------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
Investment Securities:
Debt:
FNMA $ 1,000 $ - ($ 38) $ 962
FHLMC 3,000 ( 183) 2,817
- ------------------------------------------------------------------------------------------
Total debt securities 4,000 ( 221) 3,779
Mortgage-backed Securities:
GNMA 979 23 1,002
FHLMC 27 2 29
- ------------------------------------------------------------------------------------------
Total mortgage-backed
securities 1,006 25 1,031
- ------------------------------------------------------------------------------------------
Total held-to-maturity
securities 5,006 25 ( 221) 4,810
- -------------------------------------------------------------------------------------------
TOTAL INVESTMENTS AND MORTGAGE-
BACKED SECURITIES $76,617 $ 25 ($4,091) $72,551
===========================================================================================
</TABLE>
The following is a summary of the Bank's investment in
available-for-sale and held-to-maturity securities:
<TABLE>
<CAPTION>
Available-for-Sale
December 31, 1998
--------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Gains Value
- -----------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
Investment Securities:
Equity:
Investment in mutual funds $ 2,354 $ - ($ 1) $ 2,353
FHLB and FRB stock 1,131 1,131
- -----------------------------------------------------------------------------------------
Total equity securities 3,485 ( 1) 3,484
- ------------------------------------------------------------------------------------------
Debt:
FNMA 3,500 11 3,511
Municipal Tax-exempt 3,544 3,544
SLMA 1,000 1 1,001
FHLB Notes 6,498 6,498
- ------------------------------------------------------------------------------------------
14,542 12 14,554
- ------------------------------------------------------------------------------------------
28,037 12 ( 1) 18,038
- ------------------------------------------------------------------------------------------
Mortgage-backed Securities:
FNMA 11,884 - ( 6) 11,878
GNMA 10,196 10,196
- ------------------------------------------------------------------------------------------
Total mortgage-backed securities 22,080 ( 6) 22,074
- ------------------------------------------------------------------------------------------
Total available-for-
sale securities 40,107 12 ( 7) 40,112
- ------------------------------------------------------------------------------------------
<CAPTION>
Held-to-Maturity
December 31, 1998
--------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Gains Value
- -----------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
Investment Securities:
Debt:
FNMA $ 1,000 $ 1 $ - $ 1,001
FHLMC 2,996 8 3,004
- -----------------------------------------------------------------------------------------
Total debt securities 3,996 9 4,005
- -----------------------------------------------------------------------------------------
Mortgage-backed Securities:
GNMA 1,269 74 1,343
FHLMC 58 4 62
- ------------------------------------------------------------------------------------------
Total mortgage-backed
securities 1,327 78 1,405
- ------------------------------------------------------------------------------------------
Total held-to-maturity
securities 5,323 87 5,410
- ------------------------------------------------------------------------------------------
TOTAL INVESTMENTS AND MORTGAGE-
BACKED SECURITIES $44,842 $ 100 ($ 7) $44,935
==========================================================================================
</TABLE>
Assets, principally securities, carried at approximately
$2,496M and $2,495M at December 31, 1999 and 1998, respectively,
were pledged to secure deposits as required or permitted by law.
The amortized cost and estimated market values of
securities at December 31, 1999 and 1998 by contractual
maturities, are as follows:
December 31, 1999:
- ----------------------------------------------------------------
Estimated
Market Amortized
Value Cost
- ----------------------------------------------------------------
Due less than one year $ 4,556 $ 4,397
Due after one year through five years 10,508 9,941
Due after five years through fifteen years 7,500 7,104
Due after fifteen years 2,000 1,796
Mutual Funds 2,354 2,330
Mortgage-backed securities 49,699 46,983
- ----------------------------------------------------------------
76,617 72,551
- ----------------------------------------------------------------
December 31, 1998:
- ----------------------------------------------------------------
Due after one year through five years 8,540 8,549
Due after five years through fifteen years 6,998 7,010
Due after fifteen years 3,544 3,544
- ----------------------------------------------------------------
19,082 19,103
Mutual Funds 2,354 2,353
Mortgage-backed securities 23,406 23,479
- ----------------------------------------------------------------
$44,842 $44,935
================================================================
Proceeds from maturities of investment securities
available-for-sale during the years ended December 31, 1999 and
1998 totaled $1.0 million and $9.0 million, respectively. The
proceeds for all periods were the result of security call
options which were exercised and no gains or losses were
realized on those sales.
4. LOANS RECEIVABLE:
Loans receivable consist of the following:
December 31: 1999 1998
- ----------------------------------------------------------------
(In Thousands)
Real Estate Loans:
One-to-four family $ 55,716 $ 58,162
Five or more family residence 2,712 3,356
Construction loans 23,528 15,981
Nonresidential 27,117 22,575
- ----------------------------------------------------------------
109,073 100,074
Student loans 40,509
Consumer loans 2,468 1,168
SBA loans 6,682 8,251
Commercial loans 10,682 13,216
- ----------------------------------------------------------------
169,414 122,709
Less:
Unearned fees and discounts ( 389) ( 431)
Undisbursed loan proceeds ( 7) ( 7)
Allowance for loan losses ( 1,231) ( 1,031)
- ----------------------------------------------------------------
$167,787 $121,240
================================================================
Loans receivable at December 31, 1999 and 1998 includes
$112.4 million and $96.8 million of fixed rate loans and $65.2
million and $25.9 million of adjustable rate loans,
respectively.
A summary of loan maturities at December 31, 1999 is as
follows:
<TABLE>
<CAPTION>
Multi-Family
and Consumer
Commercial and
One to Four Real Commercial Total
Family Estate Construction Business Loans
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Amounts due:
Non-accrual $ 1,498 $ 47 $ 41 $ 296 $ 1,882
- ------------------------------------------------------------------------------------
Within one year 4,550 5,952 23,015 47,875 81,392
- ------------------------------------------------------------------------------------
After one year:
1 to 3 years 1,818 6,183 324 2,634 10,959
3 to 5 years 1,770 9,352 149 3,190 14,461
5 to 15 years 5,913 6,658 3,640 16,211
Over 15 years 40,166 1,637 2,706 44,509
- ------------------------------------------------------------------------------------
Total due
after one year 48,915 23,830 473 12,170 86,141
- ------------------------------------------------------------------------------------
TOTAL AMOUNTS DUE $55,715 $29,829 $23,529 $60,341 $169,414
====================================================================================
</TABLE>
A summary of changes in the allowance for loan losses is as
follows:
December 31: 1999 1998
- ----------------------------------------------------------------
(In Thousands)
BALANCE, BEGINNING OF YEAR $ 1,031 $ 965
Provision charged to operation 200 283
Recoveries of loans previously
charged-off 53
Charged-off ( 270)
- ----------------------------------------------------------------
BALANCE, END OF YEAR $ 1,231 $ 1,031
================================================================
The provision for loan losses charged to expense is based
upon past loan and loss experience and an evaluation of
potential losses in the current loan portfolio, including the
evaluation of impaired loans under SFAS Nos. 114 and 118. A
loan is considered to be impaired when, based upon current
information and events, it is probable that the Bank will be
unable to collect all amounts due according to the contractual
terms of the loan. As of December 31, 1999 and 1998, 100% of
the impaired loan balance was measured for impairment based on
the fair value of the loans' collateral. Impairment losses are
included in the provision for loan losses. SFAS Nos. 114 and
118 do not apply to large groups of smaller balance homogeneous
loans that are collectively evaluated for impairment, except for
those loans restructured under a troubled debt restructuring.
Loans collectively evaluated for impairment include consumer
loans and residential real estate loans. At December 31, 1999,
the Bank's impaired loans consisted of two commercial real
estate loans with a total recorded balance of $295,265 for which
specific allowances of $14,763 have been established. At
December 31, 1998, the Bank's impaired loans consisted of two
commercial real estate loans with a total recorded balance of
$325,537 for which specific allowances of $16,227 have been
established. The average investment in impaired loans for the
year ended December 31, 1999 and 1998 was $582,613 and $339,946,
respectively.
Loans on which the accrual of interest has been
discontinued amounted to $1.9 million and $2.4 million at
December 31, 1999 and 1998, respectively.
Certain directors and officers of the Bank have loans with
the Bank. Such loans were made in the ordinary course of
business and do not represent more than a normal risk of
collection. Loans to officers and directors amounted to $1.7
million and $1.6 million at December 31, 1999 and 1998,
respectively. During the years ended December 31, 1999 and
1998 loans of $192,040 and $668,495, respectively, were
disbursed to executive officers and trustees, while principal
repayments of $41,834 and $285,205 were received in those years,
respectively.
5. LOANS HELD FOR SALE:
Loans held for sale are as follows:
<TABLE>
<CAPTION>
December 31, 1999:
- ------------------------------------------------------------------------------
Gross un- Gross un- Fair
realized realized Market
Cost Gains Losses Value
- ------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
Residential mortgage loans $8,221 $ - $ - $8,221
<CAPTION>
Gross un- Gross un- Fair
realized realized Market
Cost Gains Losses Value
(In Thousands)
<S> <C> <C> <C> <C>
Residential mortgage loans $6,938 $ - $ - $6,938
</TABLE>
6. ACCRUED INTEREST RECEIVABLE:
A summary of accrued interest receivable is as follows:
December 31: 1999 1998
(In Thousands)
Loans $1,865 $1,143
FHLB Overnight 8 182
Mortgage-backed securities 313 128
Investment securities 260 249
$2,446 $1,702
7. OFFICE PROPERTIES AND EQUIPMENT:
Office properties and equipment are summarized by major
classification as follows:
December 31: 1999 1998
(In Thousands)
Land, buildings and improvements $2,284 $2,139
Furniture, fixtures and equipment 3,082 2,892
5,366 5,031
Less accumulated depreciation ( 3,674) (3,412)
$1,692 $1,619
Depreciation expense was $262,000 and $145,000 for the
years ended December 31, 1999 and 1998, respectively.
8. REAL ESTATE OWNED - ACQUIRED THROUGH SETTLEMENT OF LOANS:
Real estate owned consists of the following:
December 31: 1999 1998
- ----------------------------------------------------------------
(In Thousands)
Real estate acquired through
settlement of loans $1,047 $1,277
9. FEDERAL HOME LOAN BANK STOCK:
The Bank is a member of the Federal Home Loan Bank System.
As a member, the Bank maintains an investment in the capital
stock of the Federal Home Loan Bank of Pittsburgh in an amount
not less than 1% of its outstanding home loans or 1/20 of its
outstanding notes payable, if any, to the Federal Home Loan Bank
of Pittsburgh, whichever is greater, as calculated December 31
of each year.
10. DEPOSITS:
The following tables present the average balances and rates
paid on deposits at is as follows:
<TABLE>
<CAPTION>
Year Ended December 31: 1999 1998
- -----------------------------------------------------------------------------
(In Thousand except percentage)
Average Average Average Average
Balance Rate Balance Rate
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Demand deposits $ 18,911 - % $ 19,460 - %
NOW checking accounts 8,924 3.47 2,322 3.14
Money market accounts 15,761 3.68 4,469 3.71
Savings accounts 29,686 2.90 42,184 2.88
Certificates of deposit 118,623 5.50 110,203 5.74
- -----------------------------------------------------------------------------
Total deposits $191,905 $178,638
=============================================================================
</TABLE>
As of December 31, 1999, the Bank had total certificates of
deposit of approximately $128.5 million. The following table
summarizes the composition of these deposits:
Amount Percentage
(In Thousands except Percentage)
Certificates of deposits in
excess of $100,000 $ 18,878 15%
Individual retirement accounts 8,611 7
Other certificates of deposit 101,046 78
Total $128,535 100%
The Bank's certificates of deposit in excess of $100,000
which totaled $18.9 million at December 31, 1999, mature as
follows: $3.4 million within three months, $12.8 million
between three and twelve months; and $2.7 million after twelve
months.
The ability of the Bank to attract and maintain deposits
and the Bank's cost of funds on these deposit accounts have
been, and will continue to be, significantly affected by
economic and competitive conditions.
Certificates of deposit have scheduled maturities as
follows:
December 31: 1999 1998
(In Thousands)
Within one year $100,815 $101,147
Beyond one year but within three years 15,451 16,606
Due thereafter 3,658 4,555
$119,924 $122,308
Interest expense on deposits is comprised of the following:
December 31: 1999 1998
(In Thousands)
NOW accounts $ 310 $ 151
Savings accounts 862 840
Money Market accounts 580 461
Certificates of deposit 6,518 6,340
8,270 7,791
Early withdrawal penalties ( 17)
$8,270 $7,775
The aggregate amount of certificates of deposit accounts
with a minimum denomination of $100,000 was approximately $18.9
million and $19.3 million at December 31, 1999 and 1998,
respectively.
The aggregate amount of demand deposits that have been re-
classified as loan balances at December 31, 1999 and 1998 was $-
0- and $41,735, respectively.
11. INCOME TAX MATTERS:
The Bank and its wholly owned subsidiary file a
consolidated federal income tax return and separate state and
local income tax returns on a calendar year end basis.
The provision for income taxes consists of the following:
Year Ended December 31: 1999 1998
- ----------------------------------------------------------------
(In Thousands)
Currently payable:
Federal $450 $453
State 10 12
460 465
Deferred ( 687) ( 123)
- ----------------------------------------------------------------
TOTAL ($227) $342
================================================================
The reconciliation between the actual provision for federal
and state income taxes and the amount of income taxes which
would have been provided at statutory rates is as follows:
Year Ended December 31: 1999 1998
- ----------------------------------------------------------------
(In Thousands)
Expected income tax expense
at federal tax rate $631 $682
Travel and entertainment 20 20
State tax net of federal benefit 6 8
Valuation allowances effect ( 652) ( 356)
Benefit of loss carryforward ( 233)
Other differences, net 1 ( 12)
- ----------------------------------------------------------------
( $227) $342
================================================================
Deferred taxes are included in the accompanying statements
of financial condition as of December 31, 1999 and 1998 for the
estimated future tax effects of differences between the
financial statement and federal income tax bases of assets and
liabilities given the provisions of currently enacted tax laws.
The net deferred tax asset (liability) consist of the
following components:
December 31: 1999 1998
- ----------------------------------------------------------------
Deferred Tax Asset:
Unrealized loss on available-for-
sale securities $1,554 $ -
Deferred income 60 80
Loss carryforward limitation 1,497 1,730
Less valuation allowance ( 845) ( 1,441)
Other 81 81
Deferred Tax Liability:
Unrealized gain on available-for-
sale securities ( 2)
Allowance for loan losses ( 223) ( 283)
Property and equipment ( 27) ( 22)
- ----------------------------------------------------------------
NET DEFERRED TAX ASSETS $2,097 $ 143
================================================================
Management has determined that based on its assessment of
projected levels of taxable income, realization of the net
deferred tax asset is more likely than not.
The Bank has available the following net operating loss
carryforwards for federal income tax purposes:
2009 2,941,210
2010 1,732,016
2011 126,058
2012 53,119
--------------------------
$4,852,403
==========================
The utilization of net operating loss carryforwards
generated prior to February 1995 is limited to $548,748 per year
due to the limitation imposed under Section 382 of the Internal
Revenue Code. As of December 31, 1999, approximately $4.8
million of these carryforwards are subject to this annual
limitation. The loss carryforward was a result of the
acquisition of First Bank of Philadelphia. The loss
carryforward was a result of the acquisition of First Bank of
Philadelphia.
Prior to January 1, 1996, the Bank was allowed a special
bad debt deduction for tax purposes based on a percentage of
taxable income (8%) or on specified experience formulas, subject
to certain limitations based upon aggregate loan balances at the
end of the year. If the above amounts deducted were used for
purposes other than for loan losses, such as in a distribution
in liquidation, or if the Bank would cease to be a qualified
thrift lender under the tax law, or otherwise, the amounts
deducted would be subject to federal income tax at the then
current corporate tax rate.
The special bad debt method of accounting for bad debts for
tax purposes utilized by qualified thrift institutions was
repealed effective for tax years beginning January 1, 1996.
Thrift institutions must now use either the direct write-off or
experience method of accounting for bad debts and must treat
this change as a change in accounting method. Any adjustment
that is required to be taken into account because of the change
will be determined solely with respect to the applicable excess
reserves of the thrift which will be taken into income over a
six-year period for tax purposes. Pennsylvania Savings Bank
qualifies as a small bank. The Banks applicable excess reserves
will be the excess of the balance of its reserves as of the
close of its last tax year beginning before January 1, 1996 over
the greater of (a) its pre-1988 reserves, or (b) what the
thrift's reserves would have been at the close of its last tax
year beginning before January 1, 1996, had the thrift used the
experience method. If a Bank meets the residential loan
requirement, the income to be recognized may be deferred. A
Bank meets the residential loan requirement if, for the tax
year, the principal amount of residential loans made by the Bank
during the year is not less than its base amount. The "base
amount" generally is the average of the principal amounts of the
residential loans made by the Bank during the six most recent
tax years beginning before January 1, 1996. For the year ended
December 31, 1996, the Bank meets the residential loan
requirement and has elected to deferred recognition of the
income.
Prior to January 1, 1988, the Bank was not required and did
not record deferred income taxes on the difference between the
allowance for loan losses reported for financial reporting
purposes and the special bad debt deduction for income tax
purposes.
Retained earnings at December 31, 1999 and 1998 includes
$2,450,099 for which no deferred federal income tax liability
has been recognized.
Subsequent to December 31, 1987, the base year, and prior
to January 1, 1996, the Bank was required to record a deferred
tax asset related to the allowance for loan losses reported for
financial reporting purposes and a deferred tax liability for
special bad debt deduction. However, if it is more likely than
not that some portion or all of the deferred tax asset will not
be realized, the deferred tax asset should be reduced by a
valuation allowance. The valuation allowance should be
sufficient to reduce the deferred tax asset to the amount that
is more likely than not to be realized.
As required by SFAS No. 109 "Accounting for Income Taxes,"
the Bank determined that no valuation reserve was necessary for
the net deferred tax asset since it is more likely than not that
the deferred tax asset will be realized through carryforwards to
taxable income in future years and future reversals of existing
temporary differences. The Bank will continue to review the
criteria related to the recognition of deferred tax assets on a
quarterly basis.
The Bank has made additions to the special bad debt
deduction allowance since December 31, 1987 and, therefore, a
deferred tax liability for the special bad debt deduction has
been recorded in the amount of $223,754 and $282,754 for years
ended December 31, 1999 and 1998, respectively.
Deferred tax expense results from timing differences in the
recognition of revenue and expense for tax and financial
statement purposes. The sources of these differences are as
follows:
Year Ended December 31: 1999 1998 1997
- ----------------------------------------------------------------
Bad debts ($ 10) $12 ($12)
Depreciation 5 5 29
Deferred loan fees 20 20 20
Valuation allowance ( 652) ( 160)
- ----------------------------------------------------------------
DEFERRED TAX EXPENSE $687 ($123) $37
================================================================
12. DIVIDENDS PAID:
On June 30, 1996, the Bank paid a cash dividend of $.0375
per share to stockholders of record as of June 15, 1996. This
dividend was paid from accumulated net earnings as of June 30,
1996. Subsequently, in September 1996, the Savings Association
Insurance Fund (SAIF) assessed and collected from the Bank a one
time special assessment of $567,000. This assessment eliminated
the Bank's prior earnings and resulted in the Bank reporting
both significantly lower net income for the year ended
December 31, 1996 and an accumulated deficit as of December 31,
1996.
13. FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF
1991 (FDICIA):
FDICIA was signed into law on December 19, 1991 and
includes significant changes to the legal and regulatory
environment for insured depository institutions, including
reductions in insurance coverage for certain kinds of deposits,
increased supervision by the federal regulatory agencies,
increased reporting requirements for insured institutions, and
new regulations concerning internal controls, accounting and
operations.
The regulations require institutions to have a minimum 4%
leverage capital ratio, a minimum 4% tier 1 risk-based capital
ratio and a minimum 8% total risk-based capital ratio to be
considered "adequately capitalized". An institution is deemed
to be "critically undercapitalized" if it has a tangible equity
ratio of 2% or less.
The following table sets out the Bank's various regulatory
capital categories at December 31, 1999:
<TABLE>
<CAPTION>
Minimum Well
Capital Capital
Actual Requirements Requirements
Amount Ratio Amount Ratio Amount Ratio
(In Thousands except percentage)
<S> <C> <C> <C> <C> <C> <C>
Tier l 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>
The following table sets out the Bank's various regulatory
capital categories at December 31, 1998:
<TABLE>
<CAPTION>
Minimum Well
Capital Capital
Actual Requirements Requirements
Amount Ratio Amount Ratio Amount Ratio
(In Thousands except percentage)
<S> <C> <C> <C> <C> <C> <C>
Tier l capital to risk
weighted assets $36,119 33.57% $4,304 4.00% $ 6,455 6.00%
Total capital to risk
weighted assets 36,859 34.26 8,607 8.00 10,759 10.00
Leverage to average assets 36,119 16.13 8,958 4.00 11,198 5.00
</TABLE>
14. DIFFERENCES BETWEEN FEDERAL DEPOSITORY INSURANCE
CORPORATION CALL REPORT AND CONSOLIDATED FINANCIAL STATEMENTS:
An adjustment has been made to the accounts which is
reflected in the consolidated financial statements but is not
reflected in the Bank's December Federal Depository Insurance
Corporation Call Reports. The adjustment and its effect on
retained earnings are as follows:
December 31: 1999 1998
- ----------------------------------------------------------------
(In Thousands)
Retained earnings per the Bank's
December Federal Depository Insurance
Corporation Call Report ($1,068) ($3,160)
PSB Bancorp, Inc. net income for the
year ended December 31, 1999
not reflected on Call Report ( 68) ( 61)
- ----------------------------------------------------------------
RETAINED EARNINGS PER ACCOMPANYING
FINANCIAL STATEMENTS ($1,136) ($3,221)
================================================================
15. LEASE COMMITMENTS:
On October 12, 1995, the Bank signed a lease agreement for
office and branch space in center city Philadelphia. The lease
commenced on July 1, 1996 and extends for 11 years. On
September 7, 1999, the Bank signed a lease agreement for office
space at 1632 Walnut Street, Philadelphia. The lease commenced
on January 1, 2000 and extends for 10 years. Lease expense for
this lease for the years ended December 31, 1999 and 1998 was
$424,003 and $432,418, respectively.
The Bank was obligated under various other leases. Lease
expense for these leases for the year ended December 31, 1999
and 1998 was $44,750 and $34,567, respectively.
Minimum annual rentals are as follows:
1999 $ 519,594
2000 453,796
2001 460,686
2002 471,465
2003 495,228
Thereafter $1,411,578
16. RETIREMENT PLANS:
The Bank sponsors the following retirement plans:
A. Defined Benefit Pension Plan:
Covers employees who were at least 21 years of age, with 12
months of service with the Bank and have accumulated 1,000 hours
of service during the Plan year. The Plan calls for benefits to
be paid to eligible employees at retirement based upon years of
service with the Bank and compensation rates near retirement.
Contributions to the Plan reflect benefits attributed to
employees' service. Plan assets consist of common stock,
investment grade corporate bonds and U.S. Government
obligations. The Retirement Plan was "frozen" as of
September 30, 1994 and benefits no longer accrue thereunder. No
new employees will be eligible for participation.
The following table sets forth the plans' required
disclosures with SFAS No. 132, "Employers' Disclosures About
Pensions and Other Postretirement Benefits."
1999 1998
- ----------------------------------------------------------------
Change in benefit obligation:
Benefit obligation at prior
year-end $670,690 $643,774
Service cost
Interest cost 46,051 48,252
Actuarial (gain) loss 12,464 21,256
Benefits paid ( 23,857) ( 42,592)
- ----------------------------------------------------------------
Benefit obligation at
current year-end $705,348 $670,690
================================================================
Change in plan assets:
Fair value of plan
assets at prior year-end $774,314 $739,135
Actual return on plan assets 155,535 77,771
Employer contributions
Benefits paid ( 23,857) ( 42,592)
- ----------------------------------------------------------------
Fair value of plan assets at
current year-end $905,992 $774,314
================================================================
Funded status $200,644 $103,624
Unrecognized actuarial gain ( 375,029) ( 296,083)
Unrecognized prior service cost
Unrecognized transition
obligation (asset) 92,599 98,773
- ----------------------------------------------------------------
Accrued benefit cost ($ 81,786) ($ 93,685)
================================================================
Amount recognized in the
statement of financial position
- accrued benefit cost ($ 81,786) ($ 93,685)
================================================================
Net pension cost included the following components:
December 31: 1999 1998
- ----------------------------------------------------------------
Service cost $ - $ -
Interest cost 46,051 48,252
Expected return on plan assets ( 52,493) ( 50,248)
Amortization of transition amount 6,174 6,174
Amortization of prior service cost ( 46,800)
Amortization of gain ( 11,631) ( 9,535)
- ----------------------------------------------------------------
NET PERIODIC PENSION COST (CREDIT) ( $11,899) ( $52,157)
================================================================
The significant actuarial assumptions used in calculating
the above information is as follows:
December 31: 1999 1998
- ----------------------------------------------------------------
Weighted average discount rate 7% 7%
Weighted average rate of compensation N/A N/A
Weighted average expected long-term
rate of return on Plan Assets 7% 7%
Pension contributions were $-0- and $-0- for the years
ended December 31, 1999 and 1998, respectively.
The following three employee benefit plans cover all
eligible employees, those with two years of service, (a year of
service defined as having at least 1,000 hours of service) and
being at least 21 years of age on the first day of the plan
year.
B. Cash or Deferred Profit-Sharing Plan:
Contributions to this Plan are determined by the
participant's written election to reduce their compensation by
no more than 15% of eligible compensation and also not to exceed
code section 401(k) and other limitations as set by the plan
documents.
The Bank may also make discretionary contributions made out
of net income.
Bank contributions to the Plan for the years ended
December 31, 1999 and 1998 amounted to $-0- and $-0-,
respectively.
C. Profit-Sharing Plan:
Contributions to the Plan are determined annually by the
Board of Trustees based upon net income. Allocation of the
contributions to participants is based upon annual compensation.
Contributions to the Plan for the years ended December 31,
1999 and 1998 were $-0- and $-0-, respectively.
D. Employee Stock Ownership Plan ("ESOP"):
Effective October 23, 1995, the Bank has established an
ESOP for eligible employees. The ESOP is a tax-qualified plan
subject to the requirements of ERISA and the Code. Employees
with a 12-month period of employment with the Bank during which
they worked at least 1,000 hours and who have attained age 21
are eligible to participate. The ESOP borrowed funds from an
unrelated third party lender and used the funds to purchase
42,780 shares of Common Stock. Due to the Conversion and
Reorganization, the Savings Bank Common Stock held by the ESOP
was converted into 110,046 shares of PSB Bancorp, Inc. Stock.
The ESOP borrowed $1,288,540 from the Holding Company to
purchase an additional 128,854 shares of PSB Bancorp, Inc.
The Common Stock purchased by the ESOP serves as collateral
for the ESOP loans. The loan will be repaid principally from
the Bank's contributions to the ESOP over a period of up to
seven years. Shares purchased by the ESOP will be held in a
suspense account for allocation among participants as the loans
are repaid. Shares released from the suspense account in an
amount proportional to the repayment of the ESOP loans will be
allocated among participants on the basis of compensation in the
year of allocation, up to an annual adjusted maximum level of
compensation (currently $150,000).
Benefits under the ESOP generally become 100% vested after
the third year of service or upon normal retirement (as defined
in the ESOP), disability or death of the participant. If a
participant terminates employment for any other reason prior to
fully vesting, his nonvested account balance will be forfeited.
Forfeitures will be reallocated among remaining participating
employees in the same proportion as contributions. Benefits may
be payable upon death, retirement, early retirement disability
or separation from service. The Bank's contributions to the
ESOP will not be fixed, so benefits payable under the ESOP
cannot be estimated. The Bank's contributions to the ESOP
recorded as compensation expense for the years ended
December 31, 1999 and 1998 were $147,038 and $147,290,
respectively.
Information with respect to the ESOP is as follows:
December 31: 1999 1998
Allocated shares 238,900 238,900
Committed shares 61,558 57,782
Uncommitted shares 177,342 181,118
Fair value of uncommitted
ESOP shares 1,163,939 1,381,025
Interest expense incurred $ 5,187 $ 25,142
Dividends received N/A N/A
E. Management Recognition Plan:
The Bank's Board of Trustees has also adopted a Management
Recognition Plan (the "MRP") effective October 20, 1995, as a
method of providing certain senior executive officers of the
Bank with a propriety interest in the Bank, to such officers for
their service and to encourage such persons to remain in the
service of the Bank. Benefits may be granted at the sole
discretion of the Compensation Committee of the Bank's Board of
Trustees. The MRP is managed by trustees who are directors of
the Bank and who have responsibility to invest all funds
contributed by the Bank to the trust created for the MRP. The
Bank contributed $254,005 to the MRP trust in 1996 which enabled
the MRP to purchase 21,390 shares of Common Stock. Due to the
Conversion and Reorganization, the Savings Bank Common Stock
held by the MRP was converted into 55,023 shares of PSB Bancorp,
Inc. Stock. Unless the Compensation Committee of the Board
specifies otherwise, shares granted to MRP participants will be
in the form of restricted stocks which vest over a five-year
period at the rate of 20% of such shares per year. Compensation
expense in the amount of the fair market value of the common
stock at the date of the grant to the employee will be
recognized pro rata over the five years during which the shares
are vested. As of December 31, 1999, 55,023 shares have been
allocated to individual employees. For the years ended
December 31, 1999 and 1998, the Bank recorded compensation
expense of $57,602 and $50,799, respectively for the Management
Recognition Plan.
F. Stock Option Plan:
The Bank's Board of Trustees adopted the Pennsylvania
Savings Bank Stock Option Plan (the "Option Plan") approved by a
majority of stockholders on April 30, 1996. The Option Plan
provides for the grant of (I) options to purchase Common Stock
intended to qualify as incentive stock options ("Incentive Stock
Option") under Section 422 of the Code, and (ii) options that do
not so qualify ("Nonqualified Stock Options"). Pursuant to the
Option Plan, up to 53,475 shares of Common Stock (subject to
adjustment) will be reserved for issuance by the Bank upon
exercise of stock options to be granted to certain officers and
employees of the Bank from time to time under the Option Plan.
The purpose of the Option Plan is to give certain officers and
employees an opportunity to acquire Common Stock and thereby
help the Bank attract, retain and motivate key employees and
officers.
At April 30, 1996, 29,409 shares of Common Stock were
granted at the market price of $11.87 and on December 31, 1996,
6,450 were granted at the market price of $13.25. On
October 31, 1999, 30, 000 shares of common stock were granted at
the market price of $5.375. No options were granted in 1998.
The shares granted on April 30, 1996 and December 31, 1996 were
converted to 75,651 and 16,592 shares of PSB Bancorp, Inc.
stock, respectively, due to the Conversion and Reorganization.
If the bank had than elected to adopt the accounting
provision of SFAS 123 then compensation cost would have reduced
net income and earnings per share by $241,232 and $.21 in 1996
and $151,200 and $.03 in 1999.
The weighted average fair value at date of grants for
options granted in 1996 were $6.59 for options granted at
April 30 and $7.35 for options granted at December 31, 1996 and
$2.52 for option granted on October 31, 1999. The fair value
of options at date of grant was estimated using the Black-
Scholes Option Pricing Model with the following assumptions:
expected life 10 years, interest rate 8.00%, volatility 17.00%
and dividend yield of 0.00%. All options expire in 2006. All
of the options remained outstanding at December 31, 1999 and
1998.
17. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK:
The Bank is a party to financial instruments with off-
balance-sheet risk in the normal course of business to meet the
financing needs of its customers. These financial instruments
include commitments to extend credit generally consisting of
residential purchase money mortgage commitments, or the unfunded
portion of construction loans in process and standby letter of
credit.
Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition
established in the loan agreement. These commitments are
comprised of the undisbursed portion of construction loans and
residential loan origination's. The Bank's exposure to credit
loss from nonperformance by the other party to the financial
instruments for commitments to extend credit is represented by
the contractual amount of those instruments. The Bank uses the
same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments.
Generally, collateral, usually in the form of real estate, is
required to support financial instruments with credit risk.
18. SIGNIFICANT CONCENTRATIONS OF CREDIT RISK:
The Bank grants mortgage, consumer and construction loans
primarily to customers in Southeastern Pennsylvania and Southern
New Jersey. Although the Bank has a diversified loan portfolio,
a substantial portion of its customers' ability to honor their
contracts is dependent upon the local economy. The Bank's net
investment in loans is subject to a significant concentration of
credit risk given that the investment is primarily within a
specific geographic area.
As of December 31, 1999 and 1998, the Bank had a net
investment of $167.8 million and $121.2 million, respectively,
in loans receivable. These loans possess an inherent credit
risk given the uncertainty regarding the borrower's compliance
with the terms of the loan agreement. To reduce credit risk,
the loans are secured by varying forms of collateral, including
first mortgages on real estate, liens on personal property,
savings accounts, etc. It is generally Bank policy to file
liens on titled property taken as collateral on loans. In the
event of default, the Bank's policy is to foreclose or repossess
collateral on which it has filed liens.
In the event that any borrower completely failed to comply
with the terms of the loan agreement and the related collateral
proved worthless, the Bank would incur a loss equal to the loan
balance.
19. COMMITMENTS:
In the normal course of business the Bank makes various
commitments and is exposed to certain contingent liabilities
which are not reflected in the accompanying financial
statements. These commitments and contingent liabilities
include open-end credit available. At December 31, 1999 and
1998, the Bank's customers had unused lines of credit available
of $19.7 million and $9.4 million, respectively.
Outstanding commitments to originate loans are as follows:
December 31: 1999 1998
- ----------------------------------------------------------------
(In Thousands)
First mortgage loans:
Fixed rates $ 110 $ 290
Variable rates 5,250 1,940
- ----------------------------------------------------------------
$5,360 $2,230
================================================================
Commitments under standby letters of credit totaled
approximately $4,000 and $361,000 at December 31, 1999 and 1998,
respectively.
Other:
There has been no change in the action brought against the
Bank on January 9, 1997. This action was filed in the Court of
Common Pleas of Montgomery County, Pennsylvania, against eleven
defendants including the Bank. The action is related to a
former loan customer whose loan was paid off from the proceeds
of a subsequent lender after which the customer filed for
bankruptcy. The complaint, filed by a subsequent lender,
contains 20 separate counts against the numerous defendants.
The Bank filed objections to the complaint and does not intend
to answer the complaint until the objections are resolved. The
action is in the preliminary discovery stage (interrogatories
and requests for production of documents) and depositions have
not been scheduled. Management feels that the complaint
contains serious legal and procedural shortcomings. At this
time, management does not believe that the outcome of the case
will have a material impact on the Bank's financial position or
results of operation.
20. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107,
"Disclosures about Fair Value of Financial Instruments,"
requires the disclosure of the fair value of financial
instruments, both assets and liabilities recognized and not
recognized in the statement of financial position.
A financial instrument is defined as cash, evidence of an
ownership interest in equity, or a contract that both imposed on
one entity a contractual obligation to deliver cash or another
financial instrument to a second entity or to exchange other
financial instruments on potentially unfavorable terms with the
second entity, conveys to that second entity a contractual right
to receive cash or another financial instrument from the first
entity or the exchange of other financial instruments on
potentially favorable terms with the first entity.
The fair value of a financial instrument is the amount at
which the instrument could be exchanged in a current transaction
between willing parties, other than in a forced sale or
liquidation. Quoted market prices should be used when
available, if not available management's best estimate of fair
value may be based on quoted market price of financial
instruments with similar characteristics or on valuation
techniques, such as using the present value of estimated future
cash flows using a discount rate commensurate with the
corresponding risk associated with those cash flows. These
techniques are significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows
and future economic conditions. In that regard, the fair value
estimates cannot be substantiated by comparison to independent
markets and, in many cases, could not be realized in immediate
settlement of the instrument. In addition, these estimates are
only indicative of individual financial instruments' values and
should not be considered an indication of the fair value of the
Bank taken as a whole. Statement No. 107 excludes certain
financial instruments and all nonfinancial instruments from its
disclosure requirements.
The following tables represents the carrying value and fair
market value of financial instruments as of December 31, 1999:
Carrying Fair
Amount Value
- ----------------------------------------------------------------
(In Thousands)
Assets:
Cash and cash equivalents $ 17,275 $17,275
Investments securities
available-for-sale 21,890 19,734
Mortgage-backed securities
available-for-sale 48,693 45,951
Investment securities held-
to-maturity 4,000 3,779
Mortgage-backed securities
held-to-maturity 1,006 1,031
Loans receivable - net 167,787 167,787
Loans held for sale 8,221 8,221
Federal Home Loan Bank stock 2,056 2,056
Liabilities:
NOW, MMDA and Passbook accounts 54,371 54,371
Certificate of Deposits 128,535 128,535
The following tables represents the carrying value and fair
market value of financial instruments as of December 31, 1998:
Carrying Fair
Amount Value
- ----------------------------------------------------------------
(In Thousands)
Assets:
Cash and cash equivalents $ 47,527 $47,527
Investments securities
available-for-sale 18,038 18,038
Mortgage-backed securities
available-for-sale 22,074 22,074
Investment securities held-
to-maturity 3,996 4,006
Mortgage-backed securities
held-to-maturity 1,327 1,405
Loans receivable - net 121,240 122,632
Loans held for sale 6,938 6,938
Federal Home Loan Bank stock 572 572
Liabilities:
NOW, MMDA and Passbook accounts 63,347 63,347
Certificate of Deposits 122,308 122,631
Cash and Cash Equivalents:
The carrying amounts reported in the statement of financial
condition for cash and cash equivalents approximate the fair
value for those assets.
Investments Securities:
The fair value for investments are based on quoted market
prices.
Mortgage-backed Securities:
The fair value of mortgage-backed securities issued by
quasi-governmental agencies is based on quoted market prices.
Loans Receivable:
The Bank estimates that the fair value of its real estate,
consumer and commercial loans approximates the carrying amount.
The carrying amount is adjusted for the estimated future
possible loan losses through a valuation allowance. The Bank's
real estate loan portfolio was $109.1 million and $100.1 million
at December 31, 1999 and 1998, respectively with rates ranging
from 6.00% to 10.00% and maturities through 30 years. The
Bank's consumer loan portfolio was $2.5 million and $1.2 million
at December 31, 1999 and 1998, respectively with rates ranging
from 5.00% to 22.53% with maturities through 18 years. The
Bank's commercial loan portfolio was $10.7 million and $13.2
million at December 31, 1999 and 1998, respectively with rates
ranging from 8.25% to 10.25% with maturities through one year
and monthly repayment terms. The Bank's student loan portfolio
was $40.5 million and $-0- at December 31, 1999 and 1998,
respectively with rates of 9.50% which are held for sale and
contractually sold to an investor at par within 45 to 60 days of
origination. The Bank's SBA loan portfolio was $6.7 million and
$8.3 million at December 31, 1999 and 1998, respectively, with
rates ranging from 6.00% to 8.75% and maturities through 22
years.
Deposits:
The fair value of deposits with no stated maturity, such as
non-interest bearing demand deposits, NOW accounts, savings
accounts and money market accounts, is equal to the amount
payable on demand as of December 31, 1999 and 1998. The Bank
has not determined the fair values of its time deposits (e.g.
certificates of deposit) due to it not being practical to make
such estimates based on varying interest rates and maturities
involved and the excessive cost that would be incurred. Time
deposits were $128.5 million and $122.3 million at December 31,
1999 and 1998, respectively with rates ranging from 4.00% to
7.00%.
Commitments to Extend Credit and Letters to Credit:
The majority of the Bank's commitments to extend credit and
letters of credit carry current market interest rates if
converted to loans. Because commitments to extend credit and
letters of credit are generally unassignable by either the Bank
or the borrower, they only have value to the Bank and the
borrower. The Bank is unable to estimate the fair value of the
recorded deferred fee amounts.
21. OTHER INVESTMENTS:
On January 29, 1999, the Holding Company purchased
1,600,000 shares of Series A Convertible Preferred Stock, $.01
par value per share, of McGuire Performance Solutions, Inc.
("MPS"). The Holding Company purchased the shares for $.78125
per share for a total cost of $1,250,000. The Holding Company
owns 100% of MPS's Series A Convertible Preferred Stock. MPS is
a nationally recognized firm delivering cost-effective solutions
for high performance total balance sheet management to banks,
thrifts, credit unions and other financial institutions.
On March 31, 1999, the Holding Company purchased a
convertible debenture in the amount of $2.5 million with a rate
of 5.45% from ZipFinancial.Com.Inc. (d/b/a BankZip.com). The
Company, which spun off in December 1999 from Patriot Bank of
Pottstown, is building a national network of community banks
through which Bank Zip would offer an end-to-end internet
services, such as opening an account, account balances and
transferring funds. In addition to software, Bank Zip is
proposing to give participating community institutions access to
customer service through a call center it would operate and
marketing that would be conducted on a national scale. Alliance
Partners (community banks), also offer a national portfolio of
BankZip.com co-branded financial service products, including
brokerage and insurance. Once an Alliance Partner is signed up,
the service can be deployed in as few as thirty days.
Currently, BankZip.com is enabling Alliance Partners in the
Northeast to support their launch in the Philadelphia market in
May 2000. Fully developed, BankZip.com will support over 300
banks with as many as 4,000 branches and 5,000 ATMs across the
nation within five years.
The Bank invested $795,000 in the common stock of JADE
Financial, the Holding Company for IGA Federal Savings.
22. EARNINGS PER SHARE:
December 31, 1999:
- ----------------------------------------------------------------
Per
Income Shares Share
Numerator Denominator
Amount
- ----------------------------------------------------------------
(In Thousands except per share
data)
Basic EPS:
Income available to common
stockholders $2,084 4,365 $.48
Effect of Dilutive Securities:
Stock options 802
- ----------------------------------------------------------------
Diluted EPS:
Income available to common
stockholders and assumed
conversions $2,084 5,167 $.40
================================================================
December 31, 1998:
- ----------------------------------------------------------------
Per
Income Shares Share
Numerator Denominator Amount
- ----------------------------------------------------------------
(In Thousands except per share data)
Basic EPS:
Income available to common
stockholders $1,664 4,394 $.38
Effect of Dilutive Securities:
Stock options 728
- ----------------------------------------------------------------
Diluted EPS:
Income available to common
stockholders and assumed
conversions $1,664 5,122 $.32
================================================================
23. OTHER COMPREHENSIVE INCOME:
In June 1998, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards No.
130 ("SFAS No. 130"), "Reporting Comprehensive Income." SFAS
No. 130 establishes requirements for the disclosure of
comprehensive income in financial statements. Comprehensive
income is defined as net income plus transactions and other
occurrences which are the result of nonowner changes in equity.
For financial statement presented for the Bank, nonowner equity
changes are only comprised of unrealized gains or losses on
available for sale debt securities that will be accumulated with
net income in operations and is effective for years beginning
after December 15, 1998. Reclassification of financial
statements for earlier periods provided for comparative purposes
is required. Adoption of this standard did not have an impact
on the Savings Bank's results of operations. Changes in the
balance of Accumulated Other Comprehensive Income in the
Consolidated Statement of Stockholders' Equity and Consolidated
Statement of Comprehensive Income are the direct result of
changes in the unrealized gains (losses) on available for sale
debt securities.
24. NEW PRONOUNCEMENTS:
In June 1999, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards No.
137, "Accounting for Derivative Instruments and Hedging
Activities" an amendment of FASB Statement No. 133. The
statement becomes effective for fiscal years beginning after
June 15, 1999 and will not be applied retroactively. The
statement establishes accounting and reporting standards for
derivative instruments and hedging activity. Under the
standard, all derivatives must be measured at fair value and
recognized as either assets or liabilities in the financial
statements.
The accounting for changes in fair value (gains and losses)
of a derivative is dependent on the intended use of the
derivative and its designation. Derivatives may be used to: 1)
hedge exposure to change the fair value of a recognized asset or
liability or a firm commitment, referred to as a fair value
hedge, 2) hedge exposure to variable cash flow of forecasted
transactions, referred to as a cash flow hedge, or 3) hedge
foreign currency exposure.
The Bank does not currently have any derivative instruments
or participate in any hedging activity.
The FASB issued Statement of Financial Accounting Standards
No. 134, "Accounting for Mortgage-Backed Securities Retained
after the Securitization of Mortgage Loans Held for Sale by a
Mortgage Banking Enterprise" ("SFAS No. 134") during October
1999, which becomes effective for all periods beginning after
December 15, 1999. SFAS No. 134 conforms the accounting by
mortgage banking enterprises for mortgage-backed securities
subsequent to securitization of other types of assets by non-
mortgage banking enterprises. This statement should not have an
material impact on the Savings Bank's results of operations.
65
03/30/00/SL1 54742v1/00000.000
117
03/30/00/SL1 54742v1/00000.000
Exhibit 23.1
The Board of Directors
PSB Bancorp., Inc. and Subsidiaries:
We consent to the inclusion herein of our report dated
March 17, 2000, which is as of December 31, 1999, relating to
the balance sheets of PSB Bancorp., Inc. and Subsidiaries as of
December 31, 1998 and 1997 and the related statements of
operations, changes in shareholders equity, and cash flows for
each of the years in the three-year period ended December 31,
1999, which report appears in the December 31, 1999 Form 10-KSB
of PSB Bancorp., Inc. and Subsidiaries. We also consent to the
reference included herein to our firm under the heading
"Experts".
/s/ Stockton Bates LLP
Philadelphia, Pennsylvania
March 30, 1999
03/30/00/SL1 56477v1/00000.000
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