FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
(X) Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
OR
( ) Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarter Ended:
June 30, 1997 Commission File Number: 0-17286
PRIME BANCORP, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2860688
------------------------------- -------------------
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7111 Valley Green Road, Fort Washington, Pennsylvania 19111
------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(215) 836-2400
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange
Act of 1934 during the preceding 12 months (or for 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
The number of shares outstanding of the Registrant's common stock as of
June 30, 1997:
Common Stock -- 5,395,238
<PAGE>
PRIME BANCORP, INC.
INDEX
Part I Financial Information
Item 1. Consolidated Financial Statements
Financial Highlights 1
Consolidated Statements of Financial 2
Condition:
December 31, 1996 and June 30, 1996
and 1997 (Unaudited)
Consolidated Statements of Operations, 3
Three Months Ended:
June 30, 1996 and 1997
(Unaudited)
Consolidated Statements of Operations, 4
Six Months Ended:
June 30, 1996 and 1997
(Unaudited)
Consolidated Statements of Cash Flows, 5 - 6
Three Months Ended:
June 30, 1996 and 1997
(Unaudited)
Notes to Consolidated Financial Statements 7 - 8
Item 2. Management's Discussion and Analysis of 9 - 15
Financial Condition and Results of Operations
Part II Other Information 16
Signatures 17
<PAGE>
FINANCIAL HIGHLIGHTS
(Dollars in thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
CONDENSED STATEMENT OF OPERATIONS
Three Months Ended June 30, Six Months Ended June 30,
- --------------------------------------------------------------------------------------------
1996 1997 $ Change % Change 1996 1997 $ Change % Change
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net interest
income $8,141 $9,114 $ 973 12.0% $15,732 $17,833 $ 2,101 13.4%
Provision for
loan losses 472 873 401 85.0% 835 1,718 883 105.8%
Non-interest
income 849 1,313 464 54.7% 1,722 2,555 833 48.4%
Non-interest
expenses 5,121 5,865 744 14.5% 10,034 11,433 1,399 13.9%
Income before
taxes 3,397 3,689 292 8.6% 6,585 7,237 652 9.9%
Income taxes 1,191 1,173 (18) -1.5% 2,283 2,406 123 5.4%
- --------------------------------------------------------------------------------------------
Net income $2,206 $2,516 $310 14.1% $4,302 $4,831 $529 12.3%
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
Earnings per share $0.41 $0.45 $0.04 9.8% $0.80 $0.88 $0.08 10.0%
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
Dividends per share $0.17 $0.17 $0.00 0.0% $0.34 $0.34 $0.00 0.0%
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PERFORMANCE RATIOS
Three Months Ended June 30, Six Months Ended June 30,
- --------------------------------------------------------------------------------------------
1996 1997 $ Change % Change 1996 1997 $ Change % Change
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Return on average
assets 1.03% 1.07% 0.04% 3.9% 1.03% 1.04% 0.01% 1.0%
Return on average
equity 12.69% 13.62% 0.93% 7.3% 12.41% 13.20% 0.79% 6.4%
Net interest
margin 4.15% 4.19% 0.04% 1.0% 4.09% 4.14% 0.05% 1.2%
Efficiency ratio 56.96% 56.28% -0.68% -1.2% 57.49% 56.08% -1.41% -2.5%
- --------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CONDENSED STATEMENT OF CONDITION
June 30,
- --------------------------------------------------------------------
1996 1997 $ Change % Change
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total assets $872,051 $965,000 $92,949 10.7%
Loans receivable, net 545,232 622,416 77,184 14.2%
Investment securities
available for sale 145,926 114,708 (31,218) -21.4%
Investment securities
held to maturity 107,572 131,698 24,126 22.4%
Deposits 656,795 710,791 53,996 8.2%
Total borrowings 134,500 171,484 36,984 27.5%
Shareholders' equity 69,771 74,748 4,977 7.1%
- -------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ASSET QUALITY
June 30,
- -----------------------------------------------
1996 1997
- -----------------------------------------------
<S> <C> <C>
Non-performing assets
to total assets 0.87% 0.72%
Allowance for loan
losses to total loans 1.33% 1.39%
Allowance for loan losses
to non-performing loans 103.59% 186.65%
Allowance for loan losses
to non-performing assets 95.62% 124.44%
- -----------------------------------------------
</TABLE>
1
<PAGE>
PRIME BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31, June 30,
- --------------------------------------------------------------------------
1996 1996 1997
- --------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
Assets
Cash and due from banks.................... $ 29,161 $ 21,933 $ 34,736
Interest-bearing deposits.................. 2,703 3,478 20,251
Federal funds sold......................... 600 1,100 --
-------- -------- --------
Cash and cash equivalents............... 32,464 26,511 54,987
-------- -------- --------
Investment securities (fair value of
($110,874, $106,526 and $132,057)....... 110,766 107,572 131,698
Investment securities available for sale... 125,428 145,926 114,708
Loans receivable........................... 624,426 552,558 631,370
Deferred fees............................ (327) (80) (325)
Allowance for loan losses................ (7,206) (7,246) (8,629)
-------- -------- --------
Loans receivable, net................. 616,893 545,232 622,416
-------- -------- --------
Loans held for sale ....................... 49 6,654 1,403
Accrued interest receivable................ 6,826 6,995 7,447
Real estate owned.......................... 1,335 583 2,293
Land acquired for development and resale... 8,858 10,107 7,053
Property and equipment..................... 10,291 9,931 10,256
Other assets............................... 13,161 12,540 12,739
-------- -------- --------
Total assets......................... $926,071 $872,051 $965,000
-------- -------- --------
-------- -------- --------
Liabilities and Shareholders' Equity
Liabilities:
Deposits................................ $736,642 $656,795 $710,791
Advances from Federal Home Loan Bank of
Pittsburgh............................ 56,598 73,878 87,475
Other borrowed money.................... 51,685 60,622 84,009
Advance payments by borrowers for taxes
and insurance......................... 2,104 2,442 1,944
Other liabilities....................... 8,526 8,543 6,033
-------- -------- --------
Total liabilities.................... 855,555 802,280 890,252
-------- -------- --------
Shareholders' equity:
Serial preferred, $1 par value; 2,000,000
shares authorized and unissued....... -- -- --
Common stock, $1 par value; 13,000,000
shares authorized; 5,291,157,
5,271,745 and 5,395,238 shares issued 5,291 5,291 5,395
Additional paid-in capital.............. 37,390 37,456 38,343
Retained earnings....................... 29,156 28,911 32,156
Valuation adjustment for debt securities
net of taxes......................... (1,321) (1,887) (1,146)
-------- -------- --------
Total shareholders' equity.............. 70,516 69,771 74,748
-------- -------- --------
Total liabilities and shareholders'
equity............................... $926,071 $872,051 $965,000
-------- -------- --------
-------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
PRIME BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended June 30,
- --------------------------------------------------------------------------
1996 1997
- --------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Interest income:
Loans receivable, net................... $ 12,193 $ 13,606
Investment securities................... 3,865 3,934
Interest-bearing deposits............... 161 129
--------- ---------
Total interest income............. 16,219 17,669
--------- ---------
Interest expense:
Deposits................................ 6,505 6,718
Short-term borrowings................... 1,246 1,767
Long-term borrowings.................... 327 70
--------- ---------
Total interest expense............ 8,078 8,555
--------- ---------
Net interest income............... 8,141 9,114
--------- ---------
Provision for loan losses..................... 472 873
--------- ---------
Net interest income after provision
for loan losses...................... 7,669 8,241
--------- ---------
Non-interest income:
Fees and service charges................ 531 804
Gain (loss) on sale of:
Loans held for sale................... 23 27
Investment securities available for
sale................................. 22 (1)
Real estate owned..................... -- 27
Mortgage servicing rights............... -- 106
Rental income........................... 75 49
Other................................... 198 301
--------- ---------
Total non-interest income.......... 849 1,313
--------- ---------
Non-interest expenses:
Salaries and employee benefits.......... 2,416 2,934
Occupancy and equipment................. 1,247 1,393
Federal insurance premiums.............. 252 89
Other................................... 1,206 1,449
--------- ---------
Total non-interest expenses........ 5,121 5,865
--------- ---------
Income before income taxes.............. 3,397 3,689
Income taxes............................ 1,191 1,173
--------- ---------
Net Income......................... $ 2,206 $ 2,516
--------- ---------
--------- ---------
Earnings per share:
Primary and fully diluted.................... $ .41 $ .45
--------- ---------
--------- ---------
Weighted average number of shares
outstanding................................. 5,411,299 5,526,740
--------- ---------
Dividends declared per share................. $ .17 $ .17
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
PRIME BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
- -------------------------------------------------------------------------
1996 1997
- -------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Interest income:
Loans receivable, net................... $ 23,626 $ 26,865
Investment securities................... 7,724 7,735
Interest-bearing deposits............... 311 199
--------- ---------
Total interest income............. 31,661 34,799
--------- ---------
Interest expense:
Deposits................................ 13,178 13,699
Short-term borrowings................... 2,021 2,963
Long-term borrowings.................... 730 304
--------- ---------
Total interest expense............ 15,929 16,966
--------- ---------
Net interest income............... 15,732 17,833
--------- ---------
Provision for loan losses..................... 835 1,718
--------- ---------
Net interest income after provision
for loan losses...................... 14,897 16,115
--------- ---------
Non-interest income:
Fees and service charges................ 1,040 1,282
Gain (loss) on sale of:
Loans held for sale................... 49 35
Investment securities available for
sale................................ 153 517
Real estate owned..................... -- 44
Mortgage servicing rights............... -- 131
Rental income........................... 143 104
Other................................... 337 442
--------- ---------
Total non-interest income......... 1,722 2,555
--------- ---------
Non-interest expenses:
Salaries and employee benefits.......... 4,894 5,840
Occupancy and equipment................. 2,416 2,754
Federal insurance premiums.............. 498 170
Other................................... 2,226 2,669
--------- ---------
Total non-interest expenses....... 10,034 11,433
--------- ---------
Income before income taxes.............. 6,585 7,237
Income taxes............................ 2,283 2,406
--------- ---------
Net Income........................ $ 4,302 $ 4,831
--------- ---------
--------- ---------
Earnings per share:
Primary and fully diluted..................... $ .80 $ .88
--------- ---------
--------- ---------
Weighted average number of shares
outstanding.................................. 5,408,776 5,518,857
--------- ---------
--------- ---------
Dividends declared per share.................. $ .34 $ .34
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
PRIME BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
- -------------------------------------------------------------------------
1996 1997
- -------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net Income................................. $ 4,302 $ 4,831
Adjustments to reconcile net income
to net cash from operating
activities:
Depreciation........................ 1,209 1,236
(Gain) loss on sale of:
Loans held for sale............... (49) (35)
Investment securities available
for sale........................ (153) (517)
Real estate owned ................ -- (44)
Provision for loan losses........... 835 1,718
Increase in accrued interest
receivable ........................ (512) (621)
(Increase) decrease in other assets. (974) 1,167
Decrease in other liabilities....... (165) (2,498)
--------- ---------
Net cash provided from operating
activities....................... 4,493 5,237
--------- ---------
Cash flows from investing activities:
Investment securities available for sale:
Purchases................................ (41,132) (20,199)
Maturities............................... 7,660 9,561
Sales.................................... 14,391 41,455
Investment securities:
Purchases................................ (27,748) (29,648)
Maturities............................... 15,918 8,716
Loans receivable:
Originations, net of repayments.......... (50,351) (25,336)
Loans held for sale:
Originations, net of repayments.......... (3,028) (9,559)
Sales.................................... 3,237 6,151
Proceeds from sale of land acquired for
development and resale................... 1,374 2,501
Increase in land acquired for development
and resale............................... (1,076) (696)
Purchase of property and equipment......... (969) (1,018)
(Increase) decrease real estate owned...... (12) 71
Proceeds from sale of real estate owned.... 166 1,401
--------- ---------
Net cash used in investing activities...... (81,570) (16,600)
--------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
PRIME BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
- -------------------------------------------------------------------------
1996 1997
- -------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Cash flows from financing activities:
Net increase (decrease) in deposits........ 12,489 (25,851)
Advances from the Federal Home Loan Bank
of Pittsburgh........................... 1,228,150 576,900
Repayments of advances from the Federal
Home Loan Bank of Pittsburgh ............ (1,179,174) (546,023)
Increase (decrease) in other borrowed money (9,744) 30,324
Increase (decrease) in advance payments by
borrowers taxes and insurance............ 39 (160)
Net proceeds from issuance of common stock. 201 528
Cash dividends paid........................ (1,263) (1,832)
--------- ---------
Net cash provided from financing
activities........................... 50,698 33,886
--------- ---------
Net change in cash and cash equivalents (26,379) 22,523
--------- ---------
Cash and cash equivalents:
Beginning of period....................... 52,890 32,464
--------- ---------
End of period............................. $ 26,511 $ 54,987
--------- ---------
--------- ---------
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest............................. $ 14,268 $ 12,836
--------- ---------
--------- ---------
Income taxes......................... 1,658 2,170
--------- ---------
--------- ---------
Non-cash investing activity consist of:
Securitization of residential loans.. $ -- $ 17,798
--------- ---------
--------- ---------
Transfer of loans to held for sale... $ -- $ 15,709
--------- ---------
--------- ---------
Transfer of loans to real estate owned $ 318 $ 2,386
--------- ---------
--------- ---------
Tax benefit associated with the
exercise of stock options......... $ 74 $ 534
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
PRIME BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a description of the significant accounting policies of
Prime Bancorp, Inc. and subsidiaries (the "Company"). The accompanying
consolidated financial statements have been prepared in conformity with
generally accepted accounting principles, which have been applied on a
consistent basis.
Business
Prime Bancorp, Inc. ("the Company") was incorporated under the laws of
the Commonwealth of Pennsylvania in 1996 for the purpose of converting the
Company's predecessor, incorporated in 1988, from a Delaware Corporation to
a Pennsylvania Corporation, while at the same time effecting the merger with
First Sterling Bancorp, Inc. The Company is regulated as a bank holding
company. The Company's principal subsidiaries are Prime Bank, a savings
bank, and First Sterling Bank (the "Banks"), whose principal business
consists of attracting deposits and obtaining borrowings, then converting
those deposits and borrowings into various types of loans and investments.
The Company's operations are headquartered in northeast Philadelphia,
Pennsylvania with corporate offices located in Fort Washington, Pennsylvania
with eight additional full service branch offices in northeast Philadelphia,
five full service branches in Bucks County, Pennsylvania, seven full service
branches in Montgomery County, Pennsylvania, two in Delaware County,
Pennsylvania, and one in Chester County, Pennsylvania.
On July 7, 1997, the Company announced plans to merge Prime Bank, a
Pennsylvania chartered stock savings bank, and First Sterling Bank, a
Pennsylvania state chartered commercial bank. The combined entity will be
one commercial bank called Prime Bank. Since December 31, 1996, the Company
has operated as a bank holding company with Prime Bank as a savings bank
subsidiary and First Sterling Bank as a commercial bank subsidiary. Prime
Bank with approximately $702 million in assets, has 18 branches located in
Philadelphia, Bucks and Montgomery counties. First Sterling Bank with
approximately $235 million in assets, has 5 branches located in Montgomery,
Chester and Delaware counties.
The transaction is subject to customary regulatory approvals and is
expected to take place later this year.
Basis of Financial Statement Presentation
The accompanying consolidated financial statements include the accounts
of the Company and its wholly-owned and majority-owned subsidiaries. The
Company's principal subsidiaries are the Banks. All significant intercompany
balances and transactions have been eliminated in consolidation. Certain
reclassifications have been made to prior year amounts to conform with the
current year's presentation; such reclassifications have no impact on income.
7
<PAGE>
PRIME BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Basis of Financial Statement Presentation - Continued
The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
statement of results for the interim periods. Results of operations for the
six month period ended June 30, 1997 are not necessarily indicative of the
results to be expected for the full year.
Earnings Per Share
Earnings per share was calculated based on the weighted average number
of shares of common stock outstanding for the respective periods. Stock
options are considered common stock equivalents and are included in the
computation of the number of outstanding shares using the treasury stock
method.
Accounting Standards
In February 1997, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards No. 128
("SFAS 128"), Earnings Per Share. SFAS 128, which supersedes APB
Opinion No. 15 ("APB 15"), Earnings Per Share, specifies the
computation, presentation, and disclosure requirements for earnings
per share ("EPS") for entities with publicly held common stock. It
replaces the presentation of primary EPS, unlike primary EPS,
excludes dilution and is computed by dividing income available to
common stockholders by the weighted average number of common shares
outstanding for the period. Diluted EPS is computed similarly to
fully diluted EPS under APB 15. The Company will adopt SFAS 128 as
of December 31, 1997. Management does not expect SFAS 128 to have
a material effect on the EPS of the Company.
In June 1997, FASB issued Statement of Financial Accounting
Standards No. 130 ("SFAS 130"), Reporting Comprehensive Income.
SFAS 130, establishes standards for reporting and presentation of
comprehensive income and its components in financial statements.
The Company will adopt SFAS 130 as of December 31, 1997.
Management does not expect SFAS 130 to have a material effect on
the financial statements of the Company.
In June 1997, FASB issued Statement of Financial Accounting
Standards No. 131 ("SFAS 131"), Financial Reporting for Segments of
a Business Enterprise. SFAS 131 establishes standards for the
reporting, disclosure and presentation of the Company's operating
segments, products and services, geographic areas, and major
customers. SFAS 131 supersedes FASB Statement No. 14, Financial
Reporting for Segments of a Business Enterprise but retains the
requirement to report information about major customers. It amends
FASB Statement No. 94, Consolidation of All Majority-Owned
Subsidiaries, to remove the special disclosure requirements for
previously unconsolidated subsidiaries. The Company will adopt
SFAS 131 as of December 31, 1997.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition
Assets of the Company increased 4.2% or $38.9 million from
$926.1 million at December 31, 1996 to $965.0 million at June 30,
1997. This increase is primarily attributable to an increase of
$22.5 million in cash and cash equivalents and the securitization
of $17.8 million of residential loans and the subsequent sale of
the securities. Proceeds from the sale were used to purchase
investment securities and to fund loan growth.
The Company's liabilities increased by 4.1% or $34.7 million,
from $855.6 million at December 31, 1996 to $890.3 million at June
30, 1997. This increase was primarily due to an increase in
advances from the Federal Home Loan Bank of Pittsburgh of $30.9
million and other borrowed money of $32.3 million which is
partially off set by decreases in deposits of $25.9 million,
advance payments by borrowers for taxes and insurance and other
liabilities.
Liquidity and Capital Resources
Liquidity for a financial institution is a measure of the
financial institution's ability to fund customers' needs for
borrowings and deposit withdrawals. The Company's policy has
always been to maintain a strong liquidity position. The Company's
principal sources of funds are deposits, principal repayments on
loans, proceeds from the sale of loans, funds from operations,
advances from the FHLB of Pittsburgh and other borrowed money.
Cash flows used in investing activities were $16.6 million for
the six months ended June 30, 1997 compared to $81.6 million for
the same period in 1996. This change was primarily attributable to
an increase in investment security sales to $41.4 million in 1997
from $14.4 million in 1996 plus a decrease in securities purchased
to $20.2 million in 1997 from $41.1 million in 1996. Loan
originations net of repayments decreased to $25.3 million in 1997
from $50.4 million in 1996. This decrease is primarily
attributable to the securitization of $17.8 million of residential
loans.
Cash flows provided from financing activities were $33.9
million for the six months ended June 30, 1997 compared to $50.7
million for the same period in 1996. This change is primarily
attributable to an increase of $30.3 million in other borrowed
money in 1997 compared to a decrease of $9.7 million for the same
period in 1996 which was offset by a decrease in deposits of $25.9
million in 1997 compared to an increase of $12.5 million for the
same period in 1996.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Liquidity and Capital Resources - Continued
Cash flows from operating activities provided $4.5 million and
$5.2 million for the six months ended June 30, 1996 and 1997,
respectively. This increase is primarily due to a decrease in
other assets of $1.2 million in 1997 compared to an increase of
$974 thousand in 1996 plus increases in provision for loan losses,
which is partially offset by a decrease in other liabilities of
$2.5 million in 1997 compared to $165 thousand in 1996.
Capital
The Federal Deposit Insurance Corporation has adopted risk-
based capital and leverage ratio requirements for non-member
insured banks such as Prime Bank. At June 30, 1997, Prime Bank met
each of its capital requirements. The table below sets forth the
minimum capital ratio applicable to Prime Bank, together with the
actual dollar amounts and percentages of capital for Prime Bank in
each category at June 30, 1997:
<TABLE>
<CAPTION>
Required Prime Bank
Capital Requirement Ratio Amount Ratio
-------- ------- -----
<S> <C> <C> <C>
Risk-Based Capital
Tier 1 Ratio 4.00% $45,469 9.59%
Total Capital Ratio 8.00% 51,390 10.84%
Tier 1 Leverage Ratio 4.00%/5.00% 45,469 6.51%
</TABLE>
First Sterling Bank is a member of the Federal Reserve System
which has established a minimum level of "primary capital" to total
assets of 5.5% and a minimum level of "total capital" to total
assets of 6.0%.
At June 30, 1997, First Sterling Bank met each of its
regulatory capital requirements. The table below sets forth the
minimum capital ratios applicable to First Sterling Bank, together
with the actual dollar amounts and percentages of capital for First
Sterling Bank in each category at June 30 1997:
<TABLE>
<CAPTION>
Required First Sterling
Capital Requirement Ratio Amount Ratio
-------- ------- -----
<S> <C> <C> <C>
Primary Capital Ratio 5.50% $18,836 8.02%
Total Capital Ratio 6.00% 18,836 8.02%
</TABLE>
The Federal Reserve Bank has adopted risk-based capital and
leverage ratio requirements for bank holding companies such as the
Company. At June 30, 1997, the Company meets all regulatory
capital requirements.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Net Income
The Company reported net income of $4.8 million and $2.5
million for the six months and three months ended June 30, 1997.
This represents an increase of $529 thousand and $310 thousand when
compared to the same periods in 1996. The six month increase was
primarily attributable to an increase in net interest income after
the provision for loan losses of $1.2 million and an increase in
non-interest income of $833 thousand partially offset by increases
of $1.4 million in non-interest expenses and $123 thousand in
income taxes. The three month increase was primarily attributable
to an increase in net interest income after the provision for loan
losses of $572 thousand, an increase in non-interest income of $464
thousand and a decrease of $18 thousand in income taxes, partially
offset by increases of $744 thousand in non-interest expenses.
On a fully diluted per share basis net income was $0.88 and
$0.45 for the six months and three months ended June 30, 1997. The
Company's return on average assets was 1.04% and 1.07% for the six
months and three months ended June 30, 1997 compared to 1.03% for
the same periods in 1996. The Company's return on average equity
was 13.20% and 13.62% for the six months and three months ended
June 30, 1997 compared to 12.41% and 12.69% for the same periods in
1996.
Net Interest Income
The major component of the Company's earnings is net interest
income. Net interest income is the difference between interest
income earned on loans and other interest-earning assets and
interest expense paid on deposits and borrowings. Net interest
income was $17.8 million and $9.1 million for the six months and
three months ended June 30, 1997. This represents a 13.4% and
12.0% increase when compared to net interest income of $15.7
million and $8.1 million for the same periods in 1996.
The net interest margin increased to 4.14% and 4.19% for the
six months and three months ended June 30, 1997 from 4.09% and
4.15% for the same period in 1996. The increase is primarily the
result of lower funding costs.
The yield on average interest-earning assets decreased 15 and
14 basis points for the six months and the three months ended June
30, 1997 compared to the same periods in 1996. This decrease is
primarily attributable to decreases in the yield on loans and
deposit and other investments.
The cost of average interest-bearing liabilities decreased 21
and 16 basis points for the six months and three months ended June
30, 1997 compared to the respective periods in 1996. This decrease
is attributable to a general decrease in rates being offered on
deposit products.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Net Interest Income - Continued
The table below illustrates the changes in the net interest
rate margin and interest rate spread for the six months and three
months ended June 30, 1996 and 1997.
<TABLE>
<CAPTION>
Six Months Three Months
Ended June 30, Ended June 30,
-------------- --------------
1996 1997 1996 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable................ 8.98% 8.65% 8.99% 8.72%
Investment securities........... 6.56% 6.91% 6.54% 6.57%
Deposit and other investments... 6.41% 5.03% 7.62% 5.78%
------ ------ ------ ------
Total interest-earning assets..... 8.20% 8.05% 8.23% 8.09%
------ ------ ------ ------
Interest-bearing liabilities:
Deposits........................ 4.04% 3.78% 3.97% 3.74%
Borrowings...................... 5.54% 5.50% 5.45% 5.67%
------ ------ ------ ------
Total interest-bearing liabilities 4.24% 4.03% 4.19% 4.03%
------ ------ ------ ------
Net interest rate spread.......... 3.96% 4.02% 4.04% 4.06%
------ ------ ------ ------
------ ------ ------ ------
Net interest rate margin.......... 4.09% 4.14% 4.15% 4.19%
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
Net interest income has also been affected by a
disproportionate growth of interest-earning assets to interest-
bearing liabilities. Total average interest-earning assets was $
868.0 million and $877.2 million for the six months and three
months ended June 30, 1997 compared to $775.8 million and $792.0
million for the same periods in 1996. Total average interest-
bearing liabilities were $843.0 million and $848.9 million for the
six months and the three months ended June 30, 1997 compared to
$751.3 million and $771.0 million for the comparable periods in
1996.
Provisions for Loan Losses
The provision for loan losses was $1.7 million and $873
thousand for the six months and three months ended June 30, 1997
compared to $835 thousand and $472 thousand for the same period in
1996. The allowance for loan losses was $8.6 million and $7.2
million at June 30, 1997 and December 31, 1996, respectively. The
Company had net charge-offs of $295 thousand for the six months
ended June 30, 1997, compared to $671 thousand for the comparable
period in 1996.
Management considers a variety of factors when establishing
the allowance, recognizing that an inherent risk of loss always
exists in the lending process. Consideration is given to the
impact of current economic conditions, diversification of the loan
portfolio, historical loss experience, delinquency statistics,
results of detailed loan and regulatory reviews, borrowers'
financial and managerial strengths, the adequacy of underlying
collateral, and other relevant factors.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Provisions for Loan Losses - Continued
The following is a summary of the activity in the allowance
for loan losses for the six months ended June 30, 1996 and 1997
(Dollars in thousands):
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Balance at the beginning of period $ 7,082 $ 7,206
Provision for loan losses 835 1,718
Recoveries 75 404
Losses charged against allowance (746) (699)
-------- --------
Balance at the end of period $ 7,246 $ 8,629
-------- --------
-------- --------
</TABLE>
Credit Risk
The Bank manages credit risk by maintaining diversification in
its loan portfolio, by establishing and enforcing rigorous
underwriting standards, by intensive collection efforts, and by
establishing and performing regular loan classification reviews of
loans by the loan review committee.
Asset Quality
Non-performing assets, which include non-accruing loans and
real estate owned, totaled $8.5 million at December 31, 1996
compared to $6.9 million at June 30 1997.
The following table sets forth non-performing assets as of
December 31, 1996 and June 30, 1997 (Dollars in thousands):
<TABLE>
<CAPTION>
December 31, June 30,
1996 1997
-------- --------
<S> <C> <C>
Non-accrual loans (1):
Residential loans $ 1,003 $ 895
Construction 3,162 925
Consumer loans 243 581
Commercial loans 2,751 2,222
-------- --------
Total non-accrual loans 7,159 4,623
Real estate owned 1,335 2 293
-------- --------
Total non-performing assets $ 8,494 $ 6,916
-------- --------
-------- --------
Total non-performing loans to
loans receivable, net 1.17% 0.74%
-------- --------
-------- --------
Total non-performing assets to
total assets 0.92% 0.72%
-------- --------
-------- --------
Ratio of allowance for loan
losses to non-performing loans 100.66% 186.65%
-------- --------
-------- --------
</TABLE>
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(1) Statistics do not include the impact of the condominium
project, which was acquired by a deed in lieu of
foreclosure and classified as land acquired for
development and resale. Non-performing assets, the ratio
of non-performing assets to loans receivable, net and the
ratio of non-performing assets to total assets would have
been $17.0 million, 2.8% and 1.8% at December 31, 1996 and
$13.8 million, 2.2% and 1.4% at June 30, 1997 if the
condominium project was included in non-performing assets.
Non-Interest Income
Non-interest income increased by $833 thousand and $464
thousand for the six months and three months ended June 30, 1997 to
$2.6 million and $1.3 million in 1996 from $1.7 million and $849
thousand for the comparable periods in 1996. The increase for the
six month period was primarily attributable to an increase of $364
thousand realized on the sale of investment securities, a $242
thousand increase in fees and service charges, and increases in the
gain on sale of real estate owned, rental income and other income.
The increase for the three month period is primarily attributable
to an increase in fees and service charges and the sale of mortgage
servicing rights. The Company has instituted a strategy of selling
all current residential mortgage originations to the secondary
market.
Non-Interest Expense
The primary component of other expenses is salaries and
employee benefits, which increased 19.3% and 21.4% for the six
months and three months ended June 30, 1997 from $4.9 million and
$2.4 million in 1996 to $5.8 million and $2.9 million in 1997.
This increase is primarily attributable to additional personnel in
the commercial and commercial real estate lending operations.
Occupancy and equipment expense increased 14.0% to $2.8
million and 11.7% to $1.4 million for the six months and three
months ended June 30, 1997 from $2.4 million and $1.2 million for
the same periods in 1996. The increase is primarily attributable
to the expansion of the branch network and the technological
enhancements involving the upgrading of data processing and
telecommunication systems.
Federal insurance premiums decreased to $170 thousand and $89
thousand for the six months and the three months ended June 30,
1997 from $498 thousand and $252 thousand for the same periods in
1996. This decrease is primarily attributable to a decrease in
Prime Bank's assessment rate from 23 basis points in 1996 to 6
basis points in 1997 as a result of federal legislation which
became effective in the fourth quarter of 1996.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Non-Interest Expense - Continued
Other expenses increased to $2.7 million and $1.4 million for
the six months and the three months ended June 30, 1997 from $2.2
million and $1.2 million for the same periods in 1996. This
increase is primarily attributable to increases in advertising,
legal and office supplies.
Dividend Policy
The Board of Directors of the Company declared a cash dividend
of $0.17 per share of common stock on June 18, 1997, payable August
1, 1997, to shareholders of record on July 5, 1997. It is
currently the Board's intention to continue to pay dividends on a
quarterly basis. This is the Company's thirty fourth consecutive
quarterly cash dividend.
Future payment of dividends, however, will be subject to
determination and declaration by the Board of Directors, which will
take into account the Company's financial condition, results of
operations, industry standards, economic conditions and other
factors including regulatory restrictions. Currently, the Company
must rely on the Banks' payment of dividends to the Company in
order to generate the cash and income to pay the dividend. The
Board may also consider the payment of stock dividends from time to
time in addition to, or in lieu of, cash dividends.
Under Pennsylvania banking law, each of the Banks may declare
and pay dividends only out of accumulated net earnings, and a
dividend may not be declared or paid out of its surplus.
Furthermore, under federal and state banking laws, an institution
may be prevented from paying dividends under certain circumstances
when it is not adequately capitalized. In addition, Prime Bank
(which converted in 1988 from a mutual savings and loan association
to a stock savings bank) may not be permitted to declare or pay a
dividend if the effect of the dividend would be to reduce its
regulatory capital below the amount required for its liquidation
account.
15
<PAGE>
PART II
OTHER INFORMATION
Item 1 Legal Proceedings
The Company is not engaged in any legal proceedings of a
material nature at the present time. From time to time, the
Company is a party to legal proceedings wherein it enforces its
security interest in mortgage loans made by it.
Item 2 Changes in Securities
Not applicable.
Item 3 Defaults Upon Senior Securities
Not applicable.
Item 4 Submission of Matters to a Vote of Security Holders
See the Company's quarterly report on Form 10-Q for the
quarter ended March 31, 1997 for a report on the Company's Annual
Shareholders' Meeting held April 23, 1997.
Item 5 Other Information
Not applicable.
Item 6 Exhibits and Reports on Form 8-K
a. Exhibits
None
b. Reports on Form 8-K
None
16
<PAGE>
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.
Prime Bancorp, Inc.
Date: August 14, 1997 /s/ James J. Lynch
----------------------------
James J. Lynch
President and Chief
Executive Officer
Date: August 14, 1997 /s/ Frank H. Reeves
----------------------------
Frank H. Reeves
Senior Vice President and
Chief Accounting Officer
17
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 34,736
<INT-BEARING-DEPOSITS> 20,251
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 114,708
<INVESTMENTS-CARRYING> 131,698
<INVESTMENTS-MARKET> 132,057
<LOANS> 631,045
<ALLOWANCE> 8,629
<TOTAL-ASSETS> 965,000
<DEPOSITS> 710,791
<SHORT-TERM> 171,484
<LIABILITIES-OTHER> 7,977
<LONG-TERM> 0
0
0
<COMMON> 5,395
<OTHER-SE> 69,353
<TOTAL-LIABILITIES-AND-EQUITY> 965,000
<INTEREST-LOAN> 26,865
<INTEREST-INVEST> 7,735
<INTEREST-OTHER> 199
<INTEREST-TOTAL> 34,799
<INTEREST-DEPOSIT> 13,699
<INTEREST-EXPENSE> 16,966
<INTEREST-INCOME-NET> 17,833
<LOAN-LOSSES> 1,718
<SECURITIES-GAINS> 517
<EXPENSE-OTHER> 11,433
<INCOME-PRETAX> 7,237
<INCOME-PRE-EXTRAORDINARY> 7,237
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,831
<EPS-PRIMARY> .88
<EPS-DILUTED> .88
<YIELD-ACTUAL> 8.05
<LOANS-NON> 4,623
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 535
<ALLOWANCE-OPEN> 7,206
<CHARGE-OFFS> 699
<RECOVERIES> 404
<ALLOWANCE-CLOSE> 8,629
<ALLOWANCE-DOMESTIC> 7,426
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,203
</TABLE>
