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:
March 31, 1998 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 19034
-----------------------------------------------------------
(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 May 13, 1998:
Common Stock -- 5,468,441
<PAGE>
PRIME BANCORP, INC.
INDEX
Part I Financial Information
Item 1. Consolidated Financial Statements
Consolidated Statements of Financial 1
Condition:
March 31, 1998 (Unaudited) and
December 31, 1997
Consolidated Statements of Income, 2
Three Months Ended:
March 31, 1998 and 1997
(Unaudited)
Consolidated Statements of Cash Flows, 3 - 4
Three Months Ended:
March 31, 1998 and 1997
(Unaudited)
Consolidated Statements of Shareholders' 5
Equity and Comprehensive Income,
Three Months Ended:
March 31, 1998 and 1997
(Unaudited)
Notes to Consolidated Financial Statements 6 - 7
Item 2. Management's Discussion and Analysis of 8 - 15
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures 16
About Market Risk
Part II Other Information 17
Signature 18
<PAGE>
PRIME BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
- --------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Assets
Cash and due from banks...................... $ 30,832 $ 23,068
Interest-bearing deposits.................... 35,028 18,161
---------- ----------
Cash and cash equivalents................. 65,860 41,229
---------- ----------
Investment securities held to maturity (fair
value of $112,232 and $118,850)........... 111,325 117,988
Investment securities available for sale
at fair value............................. 176,343 115,728
Loans receivable............................. 639,380 639,333
Allowance for loan losses.................. (8,869) (8,485)
---------- ----------
Loans receivable, net................... 630,511 630,848
---------- ----------
Loans held for sale ......................... 6,637 3,229
Accrued interest receivable.................. 7,319 7,429
Real estate owned............................ 568 957
Land acquired for development and resale..... 5,134 5,925
Property and equipment....................... 9,783 10,023
Other assets................................. 13,192 20,069
---------- ----------
Total assets........................... $1,026,672 $ 953,425
---------- ----------
---------- ----------
Liabilities and Shareholders' Equity
Liabilities:
Deposits.................................. $ 717,486 $ 694,444
Repurchase agreements..................... 80,604 91,486
Borrowings from Federal Home Loan Bank of
Pittsburgh.............................. 139,527 79,550
Advance payments by borrowers for taxes
and insurance........................... 1,171 1,716
Other liabilities......................... 5,903 6,365
---------- ----------
Total liabilities...................... 944,691 873,561
---------- ----------
Shareholders' equity:
Serial preferred, $1 par value; 2,000,000
shares authorized and unissued.......... -- --
Common stock, $1 par value; 13,000,000
shares authorized; 5,467,266 and
5,444,266 shares issued and outstanding
in 1998 and 1997........................ 5,467 5,444
Additional paid-in capital................ 39,473 39,096
Retained earnings......................... 37,509 35,884
Accumulated other comprehensive income,
net of taxes............................ (468) (560)
---------- ----------
Total shareholders' equity................ 81,981 79,864
---------- ----------
Total liabilities and shareholders' equity $1,026,672 $ 953,425
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
PRIME BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31,
- --------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Interest income:
Loans receivable, net................... $ 14,151 $ 13,259
Investment securities................... 3,964 3,801
Interest-bearing deposits............... 243 70
--------- ---------
Total interest income.............. 18,358 17,130
--------- ---------
Interest expense:
Deposits................................ 6,133 6,982
Short-term borrowings................... 1,343 1,196
Long-term borrowings.................... 1,085 234
--------- ---------
Total interest expense............. 8,561 8,412
--------- ---------
Net interest income................ 9,797 8,718
--------- ---------
Provision for loan losses..................... 570 845
--------- ---------
Net interest income after provision
for loan losses...................... 9,227 7,873
--------- ---------
Non-interest income:
Fees and service charges................ 621 478
Gain on sale of:
Securitization and sale of mortgages.. -- 518
Real estate owned..................... -- 17
Mortgage banking income................. 302 33
Other................................... 252 195
--------- ---------
Total non-interest income.......... 1,175 1,241
--------- ---------
Non-interest expenses:
Salaries and employee benefits.......... 3,273 2,906
Occupancy and equipment................. 1,456 1,267
Federal insurance premiums.............. 85 80
Other................................... 1,570 1,313
--------- ---------
Total non-interest expenses........ 6,384 5,566
--------- ---------
Income before income taxes.............. 4,018 3,548
Income taxes............................ 1,354 1,233
--------- ---------
Net Income......................... $ 2,664 $ 2,315
--------- ---------
--------- ---------
Earnings per share:
Basic...................................... $ .49 $ .43
Diluted.................................... .48 .43
Weighted average number of shares outstanding
Basic...................................... 5,448,386 5,331,719
Diluted.................................... 5,603,026 5,434,138
Dividends declared per share................. $ .19 $ .17
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
PRIME BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31,
- --------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net Income................................. $ 2,664 $ 2,315
Adjustments to reconcile net income
to net cash from operating
activities:
Depreciation......................... 818 613
(Gain) loss on sale of:
Loans held for sale................ (205) (7)
Securitization and sale of
mortgages........................ -- (518)
Real estate owned.................. -- (17)
Provision for loan losses............ 570 845
Decrease in accrued interest
receivable ........................ 110 69
Decrease in other assets............ 7,006 4,551
Increase (decrease) in other
liabilities....................... (467) 1,351
--------- ---------
Net cash provided from operating
activities.................... 10,496 9,202
--------- ---------
Cash flows from investing activities:
Investment securities available for sale:
Purchases................................ (74,889) (14,698)
Maturities............................... 14,317 6,433
Sales.................................... -- 21,894
Investment securities:
Purchases................................ (9,083) (13,875)
Maturities............................... 15,746 5,897
Loans receivable:
Originations, net of repayments.......... (245) (3,237)
Loans held for sale:
Originations, net of repayments.......... (14,650) (1,850)
Sales.................................... 11,447 1,541
Proceeds from sale of land acquired for
development and resale................... 1,126 1,160
Increase in land acquired for development
and resale............................... (335) (320)
Purchase of property and equipment......... (459) (600)
(Increase) decrease in real estate owned... (178) (123)
Proceeds from sale of real estate owned.... 579 84
--------- ---------
Net cash provided from (used in) investing
activities............................. (56,624) 2,306
--------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
PRIME BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31,
- ---------------------------------------------------------------------------
1998 1997
- ---------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Cash flows from financing activities:
Net increase (decrease) in deposits........ 23,042 (14,060)
(Increase) decrease in repurchase
agreements............................... (10,882) 7,177
Borrowings from the Federal Home Loan Bank
of Pittsburgh........................... 81,200 189,200
Repayments of borrowings from the Federal
Home Loan Bank of Pittsburgh ............ (21,223) (188,224)
Decrease in advance payments by borrowers
for taxes and insurance.................. (545) (602)
Net proceeds from issuance of common stock. 201 472
Cash dividends paid........................ (1,034) (915)
--------- ---------
Net cash provided from (used in)
financing activities.................. 70,759 (6,952)
--------- ---------
Net change in cash and cash equivalents 24,631 4,556
Cash and cash equivalents:
Beginning of period...................... 41,229 32,464
--------- ---------
End of period............................ $ 65,860 $ 37,020
--------- ---------
--------- ---------
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest............................. $ 8,484 $ 6,344
Income taxes......................... 52 4
--------- ---------
--------- ---------
Non-cash investing activity consisting of:
Securitization of residential loans.. $ -- $ 15,709
--------- ---------
--------- ---------
Transfer of loans to real estate owned $ 12 $ 1,310
--------- ---------
--------- ---------
Tax benefit associated with the
exercise of stock options.......... $ 199 $ 465
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
PRIME BANCORP, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
AND OTHER COMPREHENSIVE INCOME
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31,
- --------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
Common stock:
Beginning of period $ 5,444 $ 5,291
Stock options exercised 23 88
-------- --------
End of period 5,467 5,379
-------- --------
Additional paid in capital:
Beginning of period 39,096 37,390
Stock options exercised 178 384
Tax benefit associated with
exercise of stock options 199 465
-------- --------
End of period 39,473 38,239
-------- --------
Retained earnings:
Beginning of period 35,884 29,156
Net income 2,664 $ 2,664 2,315 $ 2,315
------- -------
Dividends declared (1,039) (915)
-------- --------
End of period 37,509 30,556
-------- --------
Accumulated comprehensive income:
Beginning of period (560) (1,321)
Unrealized holding gains
(losses) on securities arising
during the period, net of
income taxes 92 (74)
------- -------
Other comprehensive income 92 92 (74) (74)
------- -------
Comprehensive income $ 2,756 $ 2,241
------- -------
------- -------
End of period (468) (1,395)
------- -------
Total shareholders' equity $81,981 $72,779
------- -------
------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
PRIME BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying consolidated financial statements have been
prepared in accordance with generally accepted accounting
principles for interim financial information. 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 the management of Prime
Bancorp, Inc. necessary to present fairly the statement of results
for the interim periods. For further information refer to the
consolidated financial statements and footnotes thereto included in
the Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
Business
Prime Bancorp, Inc. ("the Company") was incorporated under the
laws of the Commonwealth of Pennsylvania in 1996. The Company's
principal subsidiary is Prime Bank, a commercial bank (the "Bank")
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 corporate headquarters is in Fort Washington,
Pennsylvania. Its operations center is in northeast Philadelphia,
Pennsylvania. The Company's bank subsidiary has eight full service
branch offices in Philadelphia, five in Bucks County, Pennsylvania,
eight in Montgomery County, Pennsylvania, two in Delaware County,
Pennsylvania, and one in Chester County, Pennsylvania.
The Company follows a corporate strategy which focuses on
providing individuals, business, and communities with high quality
banking services. Banking services include lending money,
gathering money and other complimentary fee generating services.
The Company's loan products include commercial, commercial real
estate and consumer loans and residential mortgages. Deposits and
funding are gathered along five major lines which are checking,
savings, retail CDs, jumbo CDs and commercial cash management.
Earnings Per Share
In February 1997, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards
("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 with basic EPS which,
unlike primary EPS, excludes dilution and is computed by dividing
income available to common shareholders 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
adopted SFAS 128 on December 31, 1997 and, accordingly, all prior
EPS data presented has been restated.
6
<PAGE>
PRIME BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table shows the computation of shares
outstanding for calculating earnings per share for the three months
ended March 31, 1998 and 1997:
<TABLE>
<CAPTION>
Three Months Ended March 31,
- --------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------
<S> <C> <C>
Basic
Numerator
Net income available to
common shareholders $ 2,664 $ 2,315
Demoninator
Weighted average shares
outstanding 5,448,386 5,331,719
- -------------------------------------------------------------------
Basic EPS $ .49 $ .43
- -------------------------------------------------------------------
- -------------------------------------------------------------------
Diluted
Numerator
Net income available to
common shareholders $ 2,664 $ 2,315
Demoninator
Weighted average shares
outstanding 5,448,386 5,331,719
Dilutive stock options 154,640 102,419
- -------------------------------------------------------------------
5,603,026 5,434,138
- -------------------------------------------------------------------
Diluted EPS $ .48 $ .43
- -------------------------------------------------------------------
- -------------------------------------------------------------------
</TABLE>
Comprehensive Income
In June 1997, FASB issued SFAS 130, Reporting Comprehensive
Income. This statement is effective for fiscal years beginning
after December 15, 1997. SFAS establishes standards for reporting
and presentation of comprehensive income and its components in
financial statements. The Company adopted this statement in the
first quarter of 1998 and has presented the required information
abount comprehensive income in the consolidated statements of
shareholders' equity and other comprehensive income. The only
component of other comprehensive income is the SFAS 115 adjustment.
Accounting Standards
The FASB has issued SFAS 132, Employers' Disclosure About
Pensions and Other Post Retirement Benefits. SFAS 132 standardizes
disclosure about pensions and other post retirement benefits. This
statement is effective for fiscal years beginning after December
15, 1997. Adoption of SFAS 132 will not have a material impact on
the Company's financial statements.
Subsequent Events
On May 14, 1998, the Company announced a two-for-one (2 for 1)
stock split payable June 19, 1998 for all shareholders of record on
May 29, 1998. The stock split is being effected in the form of a
tax-free dividend.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition
Assets of the company increased 7.68% or $73.2 million to $1.0
billion at March 31, 1998 from $953.4 million at December 31, 1997.
This increase is primarily attributable to an increase in
investment securities available for sale of $60.6 million and an
increase of $24.6 million in cash and cash equivalents. This is
partially offset by decreases in investment securities and other
assets.
The Company's liabilities increased by 8.14% or $71.1 million,
to $944.7 million at March 31, 1998 from $873.6 million at December
31, 1997. This increase was primarily due to an increase in
borrowings from the Federal Home Bank of Pittsburgh of $60.0
million and an increase of $23.0 million in deposits which is
partially offset by decreases in repurchase agreements and other
liabilities.
Liquidity and Capital Resources
Liquidity is a measure of the ability to fund customers' needs
for borrowings and deposit withdrawals. The Company's principal
sources of funds are deposits, repayments on loans, proceeds from
the sale of loans, funds from operations, advances from the FHLB of
Pittsburgh and repurchase agreements.
Cash flows from operating activities provided $10.5 million
and $9.2 million for the three months ended March 31, 1998 and
1997, respectively. The increase is primarily due to a decrease in
other assets of $7.0 million in 1998 compared to $4.6 million in
1997 which is partially offset by decreases in other liabilities
and provision for loan losses.
Cash flows used in investing activities were $56.6 million for
the three months ended March 31, 1998 compared to cash provided
from investing activities of $2.3 million for the same period in
1997. This change was primarily attributable to an increase in
investment security purchases of $84.0 million in 1998 from $28.6
million in 1997 and a decrease in security sales of $21.9 million
in 1998 offset by an increase in investment maturities of $17.7
million.
Cash flows provided by financing activities were $70.8 million
for the three months ended March 31, 1998 compared to cash used in
financing activities of $7.0 million for the same period in 1997.
This change is primarily attributable to an increase of $60.0
million in net borrowings from the Federal Home Loan Bank of
Pittsburgh in 1998 compared to an increase of $976 thousand in
1997. Deposits in 1998 increased $23.0 million compared to a
decrease of $14.1 million for the same period in 1997.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Capital
The Board of Governors of the Federal Reserve System (the
"FRB") has adopted risk-based capital and leverage ratio
requirements for bank holding companies such as the Company and
banks such as the Bank which are members of the Federal Reserve
System. At March 31, 1998, the Bank met each of its capital
requirements. The table below sets forth the minimum capital
ratios applicable to the Bank, together with the actual dollar
amounts and percentages of capital for the Bank in each category at
March 31, 1998:
<TABLE>
<CAPTION>
For
Capital To Be Well
Adequacy Capitalized Under
Actual Purposes: Action Provisions:
-------------- -------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
-------------- -------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(to risk
weighted
assets) $76,144 11.31% $53,848 8.00% $67,310 10.00%
Tier I Capital
(to risk
weighted
assets) 67,725 10.06% 26,924 4.00% 40,386 6.00%
Tier I Captial
(to average
assets) 67,725 7.27% 37,276 4.00% 46,595 5.00%
</TABLE>
Net Income
The Company reported consolidated net income of $2.7 million
for the three months ended March 31, 1998. This represents an
increase of 15.08% or $349 thousand when compared to the same
period in 1997. This increase was primarily attributable to an
increase in net interest income of $1.1 million and a reduction in
the loan loss provision of $275 thousand which was offset by an
increase in non-interest expenses of $818 thousand and an increase
in income taxes of $121 thousand.
On a diluted per share basis net income increased to $.48 from
$.43 for the three months ended March 31, 1998 compared to the same
period in 1997. The Company's return on average assets was 1.12%
and 1.02% for the three months ended March 31, 1998 and 1997,
respectively. The Company's return on average equity for the three
months ended March 31, 1998 and 1997 was 13.40% and 12.95%.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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 $9.8 million for the three months ended March 31, 1998.
This represents a 12.4% increase when compared to net interest
income of $8.7 million for the same period in 1997. This is the
result of improved margins resulting from loan growth in higher
yielding commercial and commercial real estate loans.
The net interest margin increased to 4.41% from 4.15% for the
three months ended March 31, 1998 and 1997. The increase is
primarily the result of a change in the loan mix and reduced
deposit costs.
The table below illustrates the changes in the net interest
rate margin and interest rate spread for the three months ended
March 31, 1998 and 1997.
<TABLE>
<CAPTION>
Three Months Ended March 31, 1998
Average Interest
Balance Inc/Exp Yield
- ----------------------------------------------------------------
<S> <C> <C> <C>
Interest earning assets:
Commercial & commercial real estate $353,873 $ 8,188 9.38%
Consumer 107,883 2,527 9.50%
Residential mortgages 180,204 3,436 7.63%
- ----------------------------------------------------------------
Total loans 641,960 14,151 8.94%
Investments 265,017 4,282 6.55%
- ----------------------------------------------------------------
Total Earning assets 906,977 18,433 8.24%
Allowance for loan loss (8,624) - -
Non-earning assets 64,727 - -
- ----------------------------------------------------------------
Total assets $963,080 $ 18,433
- ----------------------------------------------------------------
- ----------------------------------------------------------------
Interest-bearing liabilities:
Demand $149,136 $ 62 0.17%
Savings 194,086 1,406 2.94%
Retail C/D's 298,863 3,949 5.36%
Jumbo C/D's 53,112 716 5.47%
- ----------------------------------------------------------------
Total deposits 695,197 6,133 3.58%
Borrowings 182,415 2,428 5.40%
- ----------------------------------------------------------------
Total interest-bearing
liabilities 877,612 8,561 3.96%
Other liabilities 4,823 - -
Shareholders' equity 80,645 - -
- ----------------------------------------------------------------
Total liabilities & shareholder's
equity $963,080 $ 8,561
- ----------------------------------------------------------------
- ----------------------------------------------------------------
Net interest income/interest
rate spread 9,872 4.28%
- ----------------------------------------------------------------
- ----------------------------------------------------------------
Net interest earning
assets/net yield 29,365 4.41%
- ----------------------------------------------------------------
- ----------------------------------------------------------------
Interest earning assets to interest-
bearing liabilities 103%
- ----------------------------------------------------------------
- ----------------------------------------------------------------
</TABLE>
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Net Interest Income - Continued
<TABLE>
<CAPTION>
Three Months Ended March 31, 1997
Average Interest
Balance Inc/Exp Yield
- ----------------------------------------------------------------
<S> <C> <C> <C>
Interest earning assets:
Commercial & commercial real estate $291,666 $ 6,668 9.27%
Consumer 103,634 2,334 9.13%
Residential mortgages 223,126 4,257 7.63%
- ----------------------------------------------------------------
Total loans 618,426 13,259 8.70%
Investments 240,467 3,945 6.65%
- ----------------------------------------------------------------
Total Earning assets 858,893 17,204 8.12%
Allowance for loan loss (7,666) - -
Non-earning assets 65,918 - -
- ----------------------------------------------------------------
Total assets $917,145 $ 17,204
- ----------------------------------------------------------------
- ----------------------------------------------------------------
Interest-bearing liabilities:
Demand $123,586 $ 66 0.22%
Savings 194,788 1,476 3.07%
Retail C/D's 350,178 4,687 5.43%
Jumbo C/D's 56,044 752 5.44%
- ----------------------------------------------------------------
Total deposits 724,596 6,981 3.91%
Borrowings 112,641 1,430 5.15%
- ----------------------------------------------------------------
Total interest-bearing
liabilities 837,237 8,411 4.07%
Other liabilities 7,415 - -
Shareholders' equity 72,493 - -
- ----------------------------------------------------------------
Total liabilities & shareholder's
equity $917,145 $ 8,411
- ----------------------------------------------------------------
- ----------------------------------------------------------------
Interest income/interest
rate spread 8,793 4.05%
- ----------------------------------------------------------------
- ----------------------------------------------------------------
Net interest earning
assets/net yield 21,656 4.15%
- ----------------------------------------------------------------
- ----------------------------------------------------------------
Interest earning assets to interest-
bearing liabilities 103%
- ----------------------------------------------------------------
- ----------------------------------------------------------------
</TABLE>
Provisions for Loan Losses
The provision for loan losses was $570 thousand for the three
months ended March 31, 1998 compared to $845 thousand for the same
period in 1997. The allowance for loan losses was $8.9 million and
$8.5 million at March 31, 1998 and December 31, 1997, respectively.
The Company had charge-offs of $307 thousand for the three months
ended March 31, 1998, compared to $293 thousand for the respective
period in 1997.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Provisions for Loan Losses - Continued
The allowance for loan losses is based on a periodic
evaluation of the loan portfolio and is maintained at a level that
management considers adequate to absorb estimated potential losses.
Management considers a variety of factors, and recognizes the
inherent risk of loss that always exists in the lending process.
Management uses a disciplined methodology to estimate the
appropriate level of allowance for loan losses. This methodology
includes an evaluation of loss potential from individual problem
credits, as well as anticipated specific and general economic
factors that may adversely affect collectibility.
Management's determination of the adequacy of the allowance is
based on periodic evaluations of the credit portfolio. This
evaluation is inherently subjective as it requires material
estimates, including, among others, the amounts and timing of
expected future cash flows on impaired loans, estimated losses on
the loan portfolio, and general amounts for historical loss
experience, economic conditions, uncertainties in estimating losses
and inherent risks in the various credit portfolios, all of which
may be susceptible to significant change. Pursuant to Statement of
Financial Accounting Standard ("SFAS") No. 114, Accounting by
Creditors for Impairment of a Loan, as amended, impaired loans,
consisting of nonaccrual and restructured commercial and commercial
real estate loans, are considered in the methodology for
determining the allowance for credit losses. Impaired loans are
generally evaluated based on the present value of expected future
cash flows or the fair value of the underlying collateral if
principal repayment is expected to come from the sale or operation
of such collateral.
The following is a summary of the activity in the allowance
for loan losses for the three months ended March 31, 1998 and 1997
(Dollars in thousands):
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------
<S> <C> <C>
Balance at the beginning of period $ 8,485 $ 7,206
Provision for loan losses 570 845
Recoveries 121 77
Losses charged against allowance (307) (293)
-------- --------
Balance at the end of period $ 8,869 $ 7,835
-------- --------
-------- --------
</TABLE>
Credit Risk
Credit risk exists in financial instruments such as loans and
leases, investments and off-balance sheet instruments including
loan commitments, letters of credit and derivative instruments.
The object of credit risk management is to reduce the risk of loss
if a party to a contract fails to perform according to the terms
of a transaction. Essential to this process are thorough
underwriting practices regarding new commitments, active monitoring
of all portfolios and the early identification of potential
problems and their prompt resolution.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Credit Risk - Continued
The Company manages credit risk by maintaining a well-
diversified credit portfolio and by adhering to its board approved
credit policies. All loan approvals are made by at least two
experienced banking officers. The level of officer approvals
required is determined by the dollar amount and risk
characteristics of the credit extension. The credit process also
includes the review of approved and renewed loan relationships over
$1.0 million by a committee of directors.
Asset Quality
Non-performing assets, which include non-accruing loans and
real estate owned, totaled $3.3 million at March 31, 1998 compared
to $4.0 million at December 31, 1997.
The following table sets forth non-performing assets as of
March 31, 1998 and December 31, 1997 (Dollars in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
- -----------------------------------------------------------------
<S> <C> <C>
Non-accrual loans (1):
Residential loans $ 1,276 $ 1,170
Consumer loans 383 380
Commercial loans 1,069 1,453
-------- --------
Total non-accrual loans 2,727 3,003
Real estate owned 568 957
-------- --------
Total non-performing assets $ 3,295 $ 3,960
-------- --------
-------- --------
Total non-performing loans to
loans receivable 0.43% 0.47%
-------- --------
-------- --------
Total non-performing assets to
total assets 0.32% 0.42%
-------- --------
-------- --------
Ratio of allowance for loan
losses to non-performing loans 325.23% 282.55%
-------- --------
-------- --------
</TABLE>
(1) Statistics do not include the impact of a condominium
project, which was acquired in 1995 by a deed in lieu of
foreclosure and classified as land acquired for
development and resale. Non-performing assets and the
ratio of non-performing assets to total assets would have
been $8.5 million and 0.83% at March 31, 1998 and $9.9
million and 1.04% at December 31, 1997 if the
condominium project was included in non-performing assets.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Non-Interest Income
Non-interest income decreased by $66 thousand for the three
months ended March 31, 1998 to $1.18 million from $1.24 million for
the comparable period in 1997. This decrease was primarily
attributable to a decrease of $518 thousand in securitized
mortgages sold which is partially offset by an increase of $269
thousand in mortgage banking income and an increase of $143
thousand in fees and service charges.
Non-Interest Expense
The primary component of non-interest expenses is salaries and
employee benefits, which increased 12.6% for the three months ended
March 31, 1998 to $3.3 million from $2.9 million in 1997. This
increase is primarily attributable to the Company's expanded
commercial banking activities.
Occupancy and equipment expense increased 14.9% to $1.5
million for the three months ended March 31, 1998 from $1.3 million
for the same period in 1997. The increase is primarily
attributable to technological enhancements involving the upgrading
of data processing and telecommunication systems and the addition
of a new branch in November 1997.
Other expenses increased to $1.6 million for the three months
ended March 31, 1998 from $1.3 million for the same period in 1997.
This increase is primarily attributable to increased printing and
supply costs necessitated by the conversion to a commercial bank.
Dividend Policy
The Board of Directors of the Company declared a cash dividend
of $0.19 per share of common stock on March 13, 1998, payable May
1, 1998, to shareholders of record on April 3, 1998. It is
currently the Board's intention to continue to pay dividends on a
quarterly basis. This is the Company's thirty-seventh 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.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Dividend Policy - Continued
Under Pennsylvania banking law, the Bank 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.
15
<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSERS ABOUT MARKET RISK
The risk of loss from adverse interest rate changes is
monitored by evaluating the impact, if any, on the Company's net
interest income under a variety of rate assumptions. Management
attempts to limit the projected negative impact of interest rate
changes on its income. Consequently, if the Company's internal
analysis would suggest that a reasonably possible rate projection
would result in a significant loss of net interest income
(generally about 5% or more), it would act to mitigate this
potential future risk. The steps to mitigate possible interest
rate risk include changing the mix of assets and their scheduled
maturities. Among the assets most likely for these changes are
investment securities available for sale and short-term money
market investments. Changing the composition and maturity of
certain liabilities is also an alternative management may consider
as is the option of using derivative financial instruments to
adjust a given sensitivity position.
The following table shows the Company's financial instruments
that are sensitive to changes in interest rates, categorized by
expected maturity, and the instruments' fair values at March 31,
1998.
<TABLE>
<CAPTION)
Expected Maturity/Principal Repayment at March 31,
- ---------------------------------------------------------------------------------
1999 2000 2001 2002 2003 Thereafter Total
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-sensitive assets:
Loans $343,978 $ 79,590 $ 69,275 $ 59,578 $ 45,795 $ 47,801 $646,017
Investments 89,261 66,487 51,163 21,301 17,374 42,082 287,668
Interest-bearing
deposits 35,028 -- -- -- -- -- 35,028
- ---------------------------------------------------------------------------------
Total $468,267 $146,077 $120,438 $ 80,879 $ 63,169 $ 89,883 $968,713
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Interest-sensitive liabilities:
Savings, NOW,
and MMA $159,761 $ 21,326 $ 21,326 $ 21,326 $ 21,326 $106,540 $351,605
Certificates
of Deposit 263,300 49,586 29,993 12,288 10,321 393 365,881
Borrowings 128,131 30,000 -- -- 62,000 -- 220,131
- ---------------------------------------------------------------------------------
Total $551,192 $100,912 $ 51,319 $ 33,614 $ 93,647 $106,933 $937,617
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Average
Interest
Total Rate Fair Value
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Loans $646,017 8.75% $650,628
Investments 287,668 6.41% 288,575
Interest-bearing deposits 35,028 5.50% 35,028
- -------------------------------------------------------------------------------
$968,713 7.94% $974,231
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Liabilities
Savings, NOW, money market account $351,605 1.75% $351,605
Certificates of deposits 365,881 5.56% 367,524
Borrowings 220,131 5.41% 219,966
- -------------------------------------------------------------------------------
$937,617 4.10% $939,095
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
16
<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
The 1998 Annual Meeting of Shareholders of Prime Bancorp, Inc. was held on
April 22, 1998 for the purpose of electing four directors for the fiscal year
1998. The results of the voting with respect to each nominee for director were
as follows:
1. Directors For Withheld Non-Vote
a. Joseph A. Fluehr, III 4,661,926 22,219 --
b. Ernest Larenz 4,661,926 22,219 --
c. Fred Blume 4,659,221 24,924 --
d. Michael B. Laign 4,659,221 24,924 --
Item 5 Other Information
Not applicable.
Item 6 Exhibits and Reports on Form 8-K
a. Exhibits
27 Financial Data Schedule
b. Reports on Form 8-K
None
17
<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.
Date: May 14, 1998 /s/ James J. Lynch
--------------------------------
James J. Lynch
President and Chief
Executive Officer
Date: May 14, 1998 /s/ Frank H. Reeves
-------------------------------
Frank H. Reeves
Senior Vice President and
Chief Accounting Officer
18
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 30,832
<INT-BEARING-DEPOSITS> 35,028
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 176,343
<INVESTMENTS-CARRYING> 111,325
<INVESTMENTS-MARKET> 112,232
<LOANS> 639,380
<ALLOWANCE> 8,869
<TOTAL-ASSETS> 1,026,672
<DEPOSITS> 717,486
<SHORT-TERM> 128,131
<LIABILITIES-OTHER> 7,074
<LONG-TERM> 92,000
0
0
<COMMON> 5,467
<OTHER-SE> 76,514
<TOTAL-LIABILITIES-AND-EQUITY> 1,026,672
<INTEREST-LOAN> 14,151
<INTEREST-INVEST> 3,964
<INTEREST-OTHER> 243
<INTEREST-TOTAL> 18,358
<INTEREST-DEPOSIT> 6,133
<INTEREST-EXPENSE> 2,428
<INTEREST-INCOME-NET> 9,797
<LOAN-LOSSES> 570
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 6,384
<INCOME-PRETAX> 4,018
<INCOME-PRE-EXTRAORDINARY> 4,018
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,664
<EPS-PRIMARY> .49
<EPS-DILUTED> .48
<YIELD-ACTUAL> 8.24
<LOANS-NON> 3,295
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 535
<ALLOWANCE-OPEN> 8,485
<CHARGE-OFFS> 307
<RECOVERIES> 121
<ALLOWANCE-CLOSE> 8,869
<ALLOWANCE-DOMESTIC> 8,869
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,276
</TABLE>
