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, 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 June 30, 1998:
Common Stock -- 10,964,911
<PAGE>
PRIME BANCORP, INC.
INDEX
Part I Financial Information
Item 1. Consolidated Financial Statements
Financial Highlights 1
Consolidated Statements of Financial 2
Condition:
June 30, 1998 and 1997 (Unaudited)
and December 31, 1997
Consolidated Statements of Income, 3
Three Months Ended:
June 30, 1998 and 1997
(Unaudited)
Consolidated Statements of Income, 4
Six Months Ended:
June 30, 1998 and 1997
(Unaudited)
Consolidated Statements of Cash Flows, 5 - 6
Six Months Ended:
June 30, 1998 and 1997
(Unaudited)
Consolidated Statements of Shareholders' 7
Equity and Comprehensive Income,
Three Months Ended:
June 30, 1998 and 1997
(Unaudited)
Consolidated Statements of Shareholders' 8
Equity and Comprehensive Income,
Six Months Ended:
June 30, 1998 and 1997
(Unaudited)
Notes to Consolidated Financial Statements 9 - 12
Item 2. Management's Discussion and Analysis of 13 - 21
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 22
Part II Other Information 23
Signatures 24
<PAGE>
FINANCIAL HIGHLIGHTS
(Dollars in thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
--------------- -----------------
June 30, June 30,
- ----------------------------------------------------- -------------------------------------
Income Statement 1998 1997 $ Change % Change 1998 1997 $ Change % Change
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Interest
Income $10,065 $9,035 $ 1,030 11.4% $19,862 $17,753 $ 2,109 11.9%
Provision for
Loan Losses 591 873 (282) -32.3% 1,161 1,718 (557) -32.4%
Non-Interest
Income 1,681 1,394 287 20.6% 2,856 2,635 221 8.4%
Non-Interest
Expenses 6,607 5,867 740 12.6% 12,991 11,434 1,557 13.6%
- --------------------------------------------------------------------------------------------
Income Before
Taxes 4,548 3,689 859 23.3% 8,566 7,236 1,330 18.4%
Income Taxes 1,594 1,173 421 35.9% 2,948 2,405 543 22.6%
- --------------------------------------------------------------------------------------------
Net Income $2,954 $2,516 $ 438 17.4% $5,618 $4,831 $787 16.3%
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
Earnings per share $ 0.26 $ 0.23 $ 0.03 13.0% $ 0.50 $ 0.44 $0.06 13.6%
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
Dividends per share $0.095 $0.085 $0.010 11.8% $ 0.19 $ 0.17 $0.02 11.8%
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
------------- ----------------
June 30, June 30,
- ------------------------------------------------------ --------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PERFORMANCE RATIOS 1998 1997 $ Change % Change 1998 1997 $ Change % Change
Return on Average
Assets 1.16% 1.08% 0.08% 7.4% 1.14% 1.05% 0.09% 8.6%
Return on Average
Equity 14.31% 13.65% 0.66% 4.8% 13.86% 13.31% 0.55% 4.1%
Net Interest
Margin 4.24% 4.17% 0.07% 1.7% 4.32% 4.16% 0.16% 3.8%
Efficiency Ratio 56.12% 56.28% -0.16% -0.3% 57.12% 57.54% -0.42% -0.7%
- ------------------------------------------------------ -------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Actual Balances Average Balances Average Balances
June 30, Quarter Ended June 30, Six Months Ended June 30,
- ---------------------------------------------------------------------------------------------
BALANCE SHEET 1998 1997 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total Assets $1,047,287 $965,000 $1,019,935 $930,677 $991,508 $923,911
Loans Receivable 628,930 631,045 634,084 624,326 642,522 621,376
Investment Securities
Available for Sale 213,137 114,708 220,192 121,899 185,560 121,132
Investment Securities
Held to Maturity 85,744 131,698 96,690 130,952 105,389 125,527
Deposits 727,372 710,791 723,196 717,642 709,197 721,119
Total Borrowings 229,741 171,484 208,798 131,141 195,607 121,891
Shareholders' Equity 84,246 74,748 82,815 73,910 81,730 73,202
- ---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
June 30,
------------------
ASSET QUALITY 1998 1997
- ----------------------------------------------------
<S> <C> <C>
Non-Performing Assets to
Total Assets 0.27% 0.72%
Allowance for Loan Losses to
Total Loans 1.47% 1.37%
Allowance for Loan Losses to
Non-Performing Loans 421.01% 186.65%
Allowance for Loan Losses to
Non-Performing Assets 328.49% 124.44%
- ----------------------------------------------------
</TABLE>
1
<PAGE>
PRIME BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
- ----------------------------------------------------------------------------
1998 1997 1997
- ----------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
Assets
Cash and due from banks...................$ 32,804 $ 34,736 $ 23,068
Interest-bearing deposits................. 52,081 20,251 18,161
Cash and cash equivalents.............. 84,885 54,987 41,229
Investment securities (market value of
$86,534, $132,057 and $118,848)........ 85,744 131,698 117,988
Investment securities available for sale at
market value........................... 213,137 114,708 115,728
Loans receivable.......................... 628,930 631,045 639,333
Allowance for loan losses............... (9,237) (8,629) (8,485)
---------- -------- --------
Loans receivable, net................... 619,693 622,416 630,848
---------- -------- --------
Loans held for sale ...................... 5,985 1,403 3,229
Accrued interest receivable............... 8,375 7,447 7,429
Real estate owned......................... 618 2,293 957
Land acquired for development and resale.. 3,532 7,053 5,925
Property and equipment, net............... 9,439 10,256 10,023
Other assets.............................. 15,879 12,739 20,069
---------- -------- --------
Total assets........................$1,047,287 $965,000 $953,425
---------- -------- --------
---------- -------- --------
Liabilities and Shareholders' Equity
Liabilities:
Deposits...............................$ 727,372 $710,791 $694,444
Repurchase agreements.................. 82,215 84,009 91,486
Borrowings from Federal Home Loan Bank of
Pittsburgh........................... 147,526 87,475 79,550
Advance payments by borrowers for taxes
and insurance........................ 1,548 1,944 1,716
Other liabilities...................... 4,380 6,033 6,365
---------- -------- --------
Total liabilities................... 963,041 890,252 873,561
---------- -------- --------
Commitments & contingencies
Shareholders' equity:
Serial preferred, $1 par value; 2,000,000
shares authorized and unissued....... -- -- --
Common stock, $1 par value; 13,000,000
shares authorized; 10,964,911,
10,790,476 and 10,888,532 shares issued
and outstanding..................... 10,965 10,790 10,888
Additional paid-in capital............. 34,298 32,948 33,652
Retained earnings...................... 39,422 32,156 35,884
Accumulated other comprehensive income. (439) (1,146) (560)
---------- -------- --------
Total shareholders' equity.......... 84,246 74,748 79,864
---------- -------- --------
Total liabilities and shareholders'
equity...........................$1,047,287 $965,000 $953,425
---------- -------- --------
---------- -------- --------
</TABLE>
2
<PAGE>
PRIME BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended June 30,
- -----------------------------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
Interest income:
Loans receivable...................... $ 14,276 $ 13,526 $ 12,193
Investment securities................. 4,710 3,935 3,865
Interest-bearing deposits............. 306 129 161
--------- --------- ---------
Total interest income.............. 19,292 17,590 16,219
--------- --------- ---------
Interest expense:
Deposits.............................. 6,435 6,718 6,505
Short-term borrowings................. 1,506 1,767 1,246
Long-term borrowings.................. 1,286 70 327
--------- --------- ---------
Total interest expense............. 9,227 8,555 8,078
--------- --------- ---------
Net interest income................ 10,065 9,035 8,141
--------- --------- ---------
Provision for loan losses................ 591 873 472
--------- --------- ---------
Net interest income after provision
for loan losses.................... 9,474 8,162 7,669
--------- --------- ---------
Non-interest income:
Fees and service charges.............. 697 790 531
Gain on sale of assets................ 282 31 22
Mortgage banking income............... 405 144 23
Other................................. 297 429 273
--------- --------- ---------
Total non-interest income.......... 1,681 1,394 849
--------- --------- ---------
Non-interest expense:
Salaries and employee benefits........ 3,434 2,931 2,416
Occupancy and equipment............... 1,394 1,395 1,247
Federal insurance premiums............ 102 90 252
Other................................. 1,677 1,451 1,206
--------- --------- ---------
Total non-interest expenses........ 6,607 5,867 5,121
--------- --------- ---------
Income before income taxes............... 4,548 3,689 3,397
Income taxes............................. 1,594 1,173 1,191
--------- --------- ---------
Net Income........................ $ 2,954 $ 2,516 $ 2,206
--------- --------- ---------
--------- --------- ---------
Earnings Per Share:
Basic................................. $ 0.27 $ 0.23 $ 0.21
Diluted............................... $ 0.26 $ 0.23 $ 0.20
Weighted average number of shares
outstanding:
Basic................................. 10,939,386 10,787,608 10,482,374
Diluted............................... 11,296,390 10,989,594 10,805,350
Dividends declared per share............. $ 0.095 $ 0.085 $ 0.085
--------- --------- --------
--------- --------- --------
</TABLE>
3
<PAGE>
PRIME BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
Six Months Ended June 30,
- ----------------------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
Interest income:
Loans receivable...................... $ 28,427 $ 26,785 $ 23,529
Investment securities................. 8,674 7,735 7,724
Interest-bearing deposits............. 549 199 311
--------- --------- ---------
Total interest income.............. 37,650 34,719 31,564
--------- --------- ---------
Interest expense:
Deposits.............................. 12,568 13,699 13,178
Short-term borrowings................. 2,849 2,963 2,021
Long-term borrowings.................. 2,371 304 730
--------- --------- ---------
Total interest expense............. 17,788 16,966 15,929
--------- --------- ---------
Net interest income................ 19,862 17,753 15,635
--------- --------- ---------
Provision for loan losses................ 1,161 1,718 835
--------- --------- ---------
Net interest income after provision
for loan losses.................... 18,701 16,035 14,800
--------- --------- ---------
Non-interest income:
Fees and service charges.............. 1,335 1,276 1,137
Gain on sale of assets................ 282 48 153
Securitization and sale of mortgages.. -- 517 --
Mortgage banking income............... 688 168 49
Other................................. 551 626 480
--------- --------- ---------
Total non-interest income........... 2,856 2,635 1,819
--------- --------- ---------
Non-interest expenses:
Salaries and employee benefits........ 6,707 5,834 4,894
Occupancy and equipment............... 2,850 2,758 2,416
Federal insurance premiums............ 186 170 498
Other................................. 3,248 2,672 2,226
--------- --------- ---------
Total non-interest expenses......... 12,991 11,434 10,034
--------- --------- ---------
Income before income taxes............... 8,566 7,236 6,585
Income taxes............................. 2,948 2,405 2,283
--------- --------- ---------
Net Income.......................... $ 5,618 $ 4,831 $ 4,302
--------- --------- ---------
--------- --------- ---------
Earnings per share:
Basic................................ $ 0.51 $ 0.45 $ 0.41
Diluted.............................. 0.50 0.44 0.40
Weighted average number of shares
outstanding:
Basic................................ 10,918,197 10,771,842 10,477,269
Diluted.............................. 11,243,822 10,954,676 10,811,728
Dividends declared per share............. $ 0.19 $ 0.17 $ 0.17
--------- --------- ---------
--------- --------- ---------
</TABLE>
4
<PAGE>
PRIME BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
- -------------------------------------------------------------------------
1998 1997
- -------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net Income................................. $ 5,618 $ 4,831
Adjustments to reconcile net income
to net cash from operating
activities:
Depreciation & amortization of
intangibles....................... 1,191 1,236
(Gain) loss on sale of:
Loans........... ................. (872) (35)
Investment securities............. 26 (517)
Land acquired for development and
resale.......................... 7 --
Real estate owned ................ -- (44)
Provision for loan losses........... 1,161 1,718
Loans held for sale:
Originations, net of repayments... (28,861) (9,559)
Sales............................. 26,977 6,151
Increase in accrued interest
receivable ..................... (946) (621)
Decrease in other assets............ 4,514 1,167
Decrease in other liabilities....... (1,992) (2,498)
--------- ---------
Net cash provided from operating activities.. 6,823 1,829
--------- ---------
Cash flows from investing activities:
Investment securities
Purchases................................ (9,757) (29,648)
Repayments............................... 42,001 8,716
Investment securities available for sale:
Purchases................................ (158,791) (20,199)
Repayments............................... 24,445 9,561
Sales.................................... 36,900 41,455
Loans receivable:
Originations, net of repayments.......... (11,120) (25,336)
Sales.................................... 21,041 --
Proceeds from sale of land acquired for
development and resale................... 2,830 2,501
Increase in land acquired for development
and resale............................... (444) (696)
Purchase of property and equipment......... (428) (1,018)
(Increase) decrease real estate owned...... (167) 71
Proceeds from sale of real estate owned.... 579 1,401
--------- ---------
Net cash used in investing activities........ (52,911) (13,192)
--------- ---------
</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,
- -------------------------------------------------------------------------
1998 1997
- -------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Cash flows from financing activities:
Net increase (decrease) in deposits........ 32,928 (25,851)
Borrowings from the Federal Home Loan Bank
of Pittsburgh........................... 80,000 576,900
Repayments of borrowings from the Federal
Home Loan Bank of Pittsburgh ............ (12,024) (546,023)
Increase (decrease) in repurchase agreements (9,271) 30,324
Decrease in advance payments by borrowers
for taxes and insurance.................. (168) (160)
Net proceeds from issuance of common stock. 352 528
Cash dividends paid........................ (2,073) (1,832)
--------- ---------
Net cash provided from financing activities.. 89,744 33,886
--------- ---------
Net change in cash and cash equivalents...... 43,656 22,523
Cash and cash equivalents at beginning of year 41,229 32,464
--------- ---------
Cash and cash equivalents at end of year..... $ 84,885 $ 54,987
--------- ---------
--------- ---------
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest............................. $ 17,797 $ 12,836
Income taxes......................... 2,552 2,170
--------- ---------
--------- ---------
Non-cash activity consist of:
Securitization of residential loans.. $ -- $ 17,798
Transfer of mortgage sec to available
for sale........................... $ -- $ 15,709
Transfer of loans to real estate owned $ 73 $ 2,386
Tax benefit associated with the
exercise of stock options......... $ 371 $ 534
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
PRIME BANCORP, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
AND OTHER COMPREHENSIVE INCOME
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended June 30,
- --------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
Common stock:
Beginning of period $ 10,934 $ 10,758
Stock options 31 32
-------- --------
End of period 10,965 10,790
-------- --------
Additional paid in capital:
Beginning of period 34,006 32,860
Stock options 120 19
Tax benefit associated with
exercise of stock options 172 69
-------- --------
End of period 34,298 32,948
-------- --------
Retained earnings:
Beginning of period 37,509 30,556
Net income 2,954 $ 2,954 2,516 $ 2,516
------- -------
Dividends declared (1,041) (916)
-------- --------
End of period 39,422 32,156
-------- --------
Accumulated comprehensive income:
Beginning of period (468) (1,395)
Unrealized holding gains
(losses) on securities arising
during the period, net of
income taxes 17 264
Less reclassification adjustment
for gains (losses) included
in net income 12 (15)
------- -------
Other comprehensive income 29 29 249 249
------- -------
Comprehensive income $ 2,983 $ 2,765
-------- ------- -------- -------
------- -------
End of period (439) (1,146)
-------- --------
Total shareholders' equity $ 84,246 $ 74,748
-------- --------
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
PRIME BANCORP, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
AND OTHER COMPREHENSIVE INCOME
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
- ----------------------------------------------------------------------
1998 1997
- ----------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
Common stock:
Beginning of period $ 10,888 $ 10,582
Stock options 77 208
-------- --------
End of period 10,965 10,790
-------- --------
Additional paid in capital:
Beginning of period 33,652 32,099
Stock options 275 316
Tax benefit associated with
exercise of stock options 371 533
-------- --------
End of period 34,298 32,948
-------- --------
Retained earnings:
Beginning of period 35,884 29,156
Net income 5,618 $ 5,618 4,831 $ 4,831
------- -------
Dividends declared (2,080) (1,831)
-------- --------
End of period 39,422 32,156
-------- --------
Accumulated comprehensive income:
Beginning of period (560) (1,321)
Unrealized holding gains
(losses) on securities arising
during the period, net of
income taxes 109 190
Less reclassification adjustment
for gains (losses) included in
net income 12 (15)
------- -------
Other comprehensive income 121 121 175 175
------- -------
Comprehensive income $ 5,739 $ 5,006
-------- ------- -------- -------
------- -------
End of period (439) (1,146)
-------- --------
Total shareholders' equity $ 84,246 $ 74,748
-------- --------
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
8
<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
negotiating 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, construction, 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.
9
<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
and six months ended June 30, 1998 and 1997:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
- --------------------------------------------------------------------------------------------
1998 1997 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Basic
Numerator
Net income available to
common shareholders $ 2,954 $ 2,516 $ 5,618 $ 4,831
Demoninator
Weighted average shares
outstanding 10,939,386 10,787,608 10,918,197 10,771,842
- --------------------------------------------------------------------------------------------
Basic EPS $ 0.27 $ 0.23 $ 0.51 $ 0.45
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
Diluted
Numerator
Net income available to
common shareholders $ 2,954 $ 2,516 $ 5,618 $ 4,831
Demoninator
Weighted average shares
outstanding 10,939,386 10,787,608 10,918,197 10,771,842
Dilutive stock options 357,004 201,986 325,625 182,834
- --------------------------------------------------------------------------------------------
11,296,390 10,989,594 11,243,822 10,954,676
- --------------------------------------------------------------------------------------------
Diluted EPS $ 0.26 $ 0.23 $ 0.50 $ 0.44
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
</TABLE>
Accounting Standards
In June 1998, the Financial Accounting Standards Board issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities". This statement establishes accounting and reporting
standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to
as derivatives) and for 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. The accounting for changes in the fair value of a
derivative depends on the intended use of the derivative and the
resulting designation. If certain conditions are met, a derivative
may be specifically designated as (a) a hedge of certain exposure
to changes in the fair value of a recognized asset or liability or
an unrecognized firm commitment, (b) a hedge of the exposure to
variable cash flows of a forecasted transaction, or (c) a hedge of
the foreign currency exposures. This Statement is effective for
all fiscal quarters of fiscal years beginning after June 15, 1999.
Earlier adoption is permitted. The Company has not yet determined
the impact, if any, of this Statement, including its provisions for
the potential reclassifications of investment securities, on net
income, financial condition or equity.
10
<PAGE>
PRIME BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Forward-Looking Statements
This report contains certain forward looking statements,
either expressed or implied, which are provided to assist the
reader in making judgements about the Company's possible future
financial performance. Such statements are subject to certain
risks and uncertainties including changes in economic conditions in
the Company's market area, changes in policies by regulatory
agencies, fluctuations in interest rates, demand for loans in the
Company's market and competition that could cause actual results to
differ materially from historical earnings and those presently
anticipated or projected. The Company wishes to caution readers
not to place undue reliance on any such forward-looking statements,
which speak only as of the date made. The Company wishes to advise
readers that the factors listed above could affect the Company's
financial performance and could cause the Company's actual results
for future periods to differ materially from any opinions or
statements expressed with respect to future periods in any current
statements.
Year 2000
The approach of the year 2000 may present significant issues
for financial, information, and operational systems. Many systems
in use today may not be able to appropriately interpret dates after
December 31, 1999, because they allow only two digits to indicate
the year in a date. As a result, certain systems are unable to
distinguish January 1, 2000 from January 1, 1900. This could
threaten the integrity of information processing, causing safety,
operational and financial issues.
In 1997, the Company employed a consultant to assess certain
major information technology ("IT") and non-IT systems in regard to
the year 2000 issue. Only one system was evaluated at that time as
being unable to accommodate the date change to a new century.
Plans to replace that system are well under way with a completion
date expected late this year. In early 1998, the Company also
formed an in-house task force of senior management. This task
force expanded the scope of the outside consultant's study and
identified the approximately seventy systems used by the Company
that may be affected by the date change to January 1, 2000. Each
system so identified has been assigned to a department manager to
(a) address the year 2000 issue with the vendor, (b) to develop an
action plan which includes the testing, certification and
implementation of hardware and software changes, if needed, and (c)
the development of a contingency plan. The Year 2000 Committee
provides direction to the department managers and monitors action
plans from each area. The overall plan is to complete this
process, including testing and implementation, in the first half of
1999. The most critical systems will likely be completed earlier.
The testing of major systems is already underway.
11
<PAGE>
PRIME BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Year 2000 - Continued
In addition to modifying existing systems, the Company is also
replacing certain equipment and software to ensure year 2000
compliance. During the third quarter of 1998, management plans to
replace the teller hardware and software system at a cost of
approximately $1.0 million. While management is unable to be more
precise at this time regarding the cost of year 2000 compliance, it
is currently estimated that expenditures will exceed $2.0 million
but are likely to be less than $3.0 million. Many of these
expenditures will be capitalized and amortized over a number of
years in compliance with GAAP and SEC rules on the Year 2000.
There should not be a material effect on any year's earnings and
management does not anticipate establishing special reserves.
Management currently expects the Company and its third party
vendors to be Year 2000 compliant in all material respects before
December 31, 1999. However, even with the best of preparation, it
is possible for unanticipated problems to arise. While a variety
of Year 2000 problems could occur, management has not identified
any particular scenarios as being both material and a "worst case".
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition
Assets of the Company increased 9.8% or $93.9 million to $1.05
billion at June 30, 1998 from $953.4 million at December 31, 1997.
This increase is primarily attributable to rising deposit levels
(up $33 million or 5%) and increased borrowings from the Federal
Home Loan Bank (FHLB). This added funding financed a $37 million
or 8% increase in commercial and consumer loans plus a $65 million
increase in investment assets (net of a $47 million decline in
residential mortgages). This net increase in investment assets is,
in part, temporary as it results from re-investing maturing
securities and mortgage prepayments in advance of the expected
maturity dates and prepayments. These investments in advance of
anticipated cash flows were funded by short term borrowings from
the FHLB. The anticipated cash flows were subsequently realized.
Consequently, about $30 million of the net increase in the level of
investment assets will be eliminated in August when the borrowings
from the FHLB will be paid and the debt will be retired.
Management's strategy to borrow in order to finance investments
that would employ cash flows not available until later in the year,
was to reduce the risk that the period's in which these cash flows
were realized would not yield returns as favorable as what was
available at the time of the borrowings. This strategy proved
successful.
The mix of the Company's loan receivables continues to shift
from residential mortgages to commercial and consumer assets as the
following table illustrates. The decline in residential mortgages
resulted from prepayments due to lower borrowing costs for
consumers and from loan sales the Company consummated in May.
This sale of residential mortgages involved $21 million in
principal and resulted in a gain of $315 thousand. Management
believes the mortgages sold, which carried relatively high rates,
were likely to be prepaid by consumers seeking lower rates.
Consequently, the gain may well exceed the earnings the Company
would have realized had it retained the assets until their eventual
pre-payment dates.
Loan Portfolio
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1998 1997 1997
- ---------------------------------------------------------------------------------
Balance % Loans Balance % Loans Balance % Loans
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial &
Commercial R.E. $ 382,280 61% $ 350,996 55% $ 322,551 51%
Consumer 111,412 18% 106,129 17% 103,699 17%
Residential 135,238 21% 182,208 28% 204,795 32%
- ---------------------------------------------------------------------------------
Total Loans $ 628,930 100% $ 639,333 100% $ 631,045 100%
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Liquidity and Capital Resources
Liquidity for a financial institution is a measure of the
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 and other borrowed money.
Cash flows from operating activities provided $6.8 million and
$1.8 million for the six months ended June 30, 1998 and 1997,
respectively. This increase is primarily due to a decrease in
other assets of $4.5 million in 1998 compared to $1.2 million in
1997, which was partially offset by a decrease in other liabilities
of $2.0 million in 1998 compared to $2.5 million in 1997 and a
decrease in the provision for loan losses.
Cash flows used in investing activities were $52.9 million for
the six months ended June 30, 1998 compared to $13.2 million for
the same period in 1997. This change was primarily attributable to
an increase in the purchase of investment securities available for
sale of $158.8 million in 1998 compared to $20.2 million in 1997,
which was partially offset by increased investment repayments and
loan sales.
Cash flows provided from financing activities were $89.7
million for the six months ended June 30, 1998 compared to $33.9
million for the same period in 1998. This change is primarily
attributable to an increase of $32.9 million in deposits compared
to a decrease of $25.9 million for the same period in 1997. Net
borrowings from the Federal Home Loan Bank of Pittsburgh increased
by $68.0 million in 1998 compared to $30.9 million in 1997. These
increases were partially offset by a decrease of $9.3 million in
repurchase agreements in 1998 compared to an increase of $30.3
million in 1997.
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 and banks which are members
of the Federal Reserve System. At June 30, 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 June 30, 1998:
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Capital - Continued
<TABLE>
<CAPTION>
For To Be Well
Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes: Action Provisions:
-------------- -------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
-------------- -------------- ------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(to risk
weighted
assets) $88,234 12.85% $54,922 8.00% $68,652 10.00%
Tier I Capital
(to risk
weighted
assets) 79,644 11.60% 27,461 4.00% 41,191 6.00%
Tier I Capital
(to average
assets) 79,644 7.84% 40,617 4.00% 50,771 5.00%
</TABLE>
Net Income
The Company reported net income of $5.6 million and $3.0
million for the six month and three month periods ended June 30,
1998. This represents an increase of $787 thousand (16.3%) and $438
thousand (17.4%) when compared to the same periods in 1997. The six
month increase was primarily attributable to an increase in net interest
income of $2.1 million, a $504 thousand increase in non-interest
income (excluding gains on the sale of assets), and a reduction in
the loan loss provision of $557 thousand partly offset by less in
gains on the sale of assets, down $283 thousand and an increase in
non-interest expenses of $1.6 million plus the resulting increase
in income taxes of $543 thousand. The three month increase was
primarily attributable to an increase in net interest income of
$1.0 million, a reduction in the loan loss provision of $282
thousand and an increase in non-interest income of $287 thousand
partly offset by an increase of $740 thousand in non-interest
expenses plus the resulting increase in income taxes of $421
thousand.
On a diluted per share basis net income was $0.50 and $0.26
for the six months and three months ended June 30, 1998. The
Company's return on average assets was 1.14% and 1.16% for the six
months and three months ended June 30, 1998 compared to 1.05% and
1.08% for the same periods in 1997. The Company's return on
average equity was 13.86% and 14.31% for the six months and three
months ended June 30, 1998 compared to 13.31% and 13.65% for the
same periods in 1997.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Net Interest Income
Net interest income was $19.9 million and $10.1 million for
the six months and three months ended June 30, 1998. This
represents a 11.9% and 11.4% increase when compared to net interest
income of $17.8 million and $9.0 million for the same periods in
1997. This is primarily the result of loan growth in commercial and
commercial real estate loans, offsetting declining levels of lower
yielding residential mortgages.
The net interest margin increased to 4.32% and 4.24% for the
six months and three months ended June 30, 1998 from 4.16% and
4.17% for the same periods in 1997. The increase is primarily the
result of the change in 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 and six
months ended June 30, 1998 and 1997.
<TABLE>
<CAPTION>
CONSOLIDATED AVERAGE BALANCE SHEETS AND TAXABLE EQUIVALENT
INCOME/EXPENSE AND RATES
(Dollars in thousands)
Three Months Ended June 30, 1998
- --------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------
Average Interest Average Interest
Balance Inc/Exp Yield Balance Inc/Exp Yield
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Commercial & commercial
real estate $375,754 $ 8,725 9.31% $308,668 $ 7,213 9.37%
Consumer 110,216 2,573 9.36% 104,229 2,347 9.03%
Residential mortgages 157,114 2,978 7.58% 211,429 3,966 7.50%
- ---------------------------------------------------------------------------------
Total loans 643,084 14,276 8.90% 624,326 13,526 8.69%
- ---------------------------------------------------------------------------------
Investments 316,882 5,091 6.44% 252,851 4,139 6.57%
Total Earning assets 959,966 19,367 8.09% 877,177 17,665 8.08%
Allowance for loan loss (9,069) -- -- (8,220) -- --
Non-earning assets 69,038 -- -- 61,720 -- --
- ---------------------------------------------------------------------------------
Total assets $1,019,935 $ 19,367 $930,677 $ 17,665
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Interest-bearing liabilities:
Demand $159,517 $ 61 0.15% $130,236 $ 72 0.22%
Savings 203,569 1,535 3.02% 196,211 1,411 2.88%
Retail C/D's 304,046 4,078 5.38% 336,240 4,543 5.42%
Jumbo C/D's 56,064 761 5.44% 54,955 692 5.05%
- ---------------------------------------------------------------------------------
Total deposits 723,196 6,435 3.57% 717,642 6,718 3.75%
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Borrowings 208,798 2,792 5.36% 131,141 1,837 5.62%
Total interest-bearing
liabilities 931,994 9,227 3.97% 848,783 8,555 4.04%
Other liabilities 5,126 -- -- 7,984 -- --
Shareholders' equity 82,815 -- -- 73,910 -- --
- ---------------------------------------------------------------------------------
Total liabilities &
shareholder's equity $1,019,935 $ 9,227 $930,677 $ 8,555
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Net interest income/interest
rate spread $ 10,140 4.12% $ 9,110 4.04%
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Net interest earning
assets/net yield $ 27,972 4.24% $ 28,394 4.17%
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Interest earning assets to interest-
bearing liabilities 103% 103%
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Net Interest Income - Continued
<TABLE>
<CAPTION>
CONSOLIDATED AVERAGE BALANCE SHEETS AND TAXABLE EQUIVALENT
INCOME/EXPENSE AND RATES
(Dollars in thousands)
Six Months Ended June 30, 1998
- -------------------------------------------------------------------------------
1998 1997
Average Interest Average Interest
Balance Inc/Exp Yield Balance Inc/Exp Yield
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Commercial & commercial
real estate $364,813 $ 16,913 9.35% $300,167 $ 13,881 9.33%
Consumer 109,050 5,100 9.43% 103,931 4,681 9.08%
Residential mortgages 168,659 6,414 7.61% 217,278 8,223 7.57%
- ----------------------------------------------------------------------------------
Total loans 642,522 28,427 8.92% 621,376 26,785 8.69%
- ---------------------------------------------------------------------------------
Investments 290,949 9,373 6.50% 246,659 8,084 6.61%
Total earning assets 933,471 37,800 8.17% 868,035 34,869 8.10%
Allowance for loan loss (8,847) -- -- (7,943) -- --
Non-earning assets 66,884 -- -- 63,819 -- --
- ---------------------------------------------------------------------------------
Total assets $991,508 $ 37,800 $923,911 $ 34,869
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Interest-bearing liabilities:
Demand $154,327 $ 123 0.16% $126,911 $ 138 0.22%
Savings 198,827 2,941 2.98% 195,500 2,887 2.98%
Retail C/D's 301,455 8,027 5.37% 343,209 9,230 5.42%
Jumbo C/D's 54,588 1,477 5.46% 55,499 1,444 5.25%
- ---------------------------------------------------------------------------------
Total deposits 709,197 12,568 3.57% 721,119 13,699 3.83%
- ---------------------------------------------------------------------------------
Borrowings 195,607 5,220 5.38% 121,891 3,267 5.40%
Total interest-bearing
liabilities 904,804 17,788 3.96% 843,010 16,966 4.06%
Other liabilities 4,974 -- -- 7,699 -- --
Shareholders' equity 81,730 -- -- 73,202 -- --
- ---------------------------------------------------------------------------------
Total liabilities &
shareholder's equity $991,508 $ 17,788 $923,911 $ 16,966
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Net interest income/interest
rate spread $ 20,012 4.21% $ 17,903 4.04%
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Net interest earning
assets/net yield $ 28,667 4.32% $ 25,025 4.16%
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Interest earning assets to
interest- bearing
liabilities 103% 103%
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
</TABLE>
Provisions for Loan Losses
The provision for loan losses was $1.2 million and $591
thousand for the six months and three months ended June 30, 1998
compared to $1.7 million and $873 thousand for the same period in
1997. The allowance for loan losses was $9.2 million and $8.5
million at June 30, 1998 and December 31, 1997, respectively. The
Company had net charge-offs of $409 thousand for the six months
ended June 30, 1998, compared to $295 thousand for the comparable
period in 1997.
17
<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, among other things, 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 non-accrual 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 six months ended June 30, 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 1,161 1,718
Recoveries:
Commercial & Commercial Real Estate 83 370
Consumer 60 26
Residential 2 8
-------- --------
Total 145 404
-------- --------
Losses charged against allowance:
Commercial & Commercial Real Estate (23) (289)
Consumer (510) (352)
Residential (21) (58)
-------- --------
Total (554) (699)
-------- --------
Balance at the end of period $ 9,237 $ 8,629
-------- --------
-------- --------
</TABLE>
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Credit Risk - Continued
The Bank manages credit risk by maintaining diversification in
its loan portfolio, by establishing and enforcing rigorous
underwriting standards, by intensive collection efforts, by regular
reviews by the loan review committees and by an internal risk
rating system.
Asset Quality
Non-performing assets, which include non-accruing loans and
real estate owned, totaled $2.8 million at June 30, 1998 compared
to $4.0 million at December 31, 1997.
The following table sets forth non-performing assets as of
June 30, 1998 and December 31, 1997 (Dollars in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
- -----------------------------------------------------------------
<S> <C> <C>
Non-accrual loans (1):
Residential loans $ 981 $ 1,170
Consumer loans 453 380
Commercial loans 760 1,453
Total non-accrual loans 2,194 3,003
Real estate owned 618 957
Total non-performing assets $ 2,812 $ 3,960
Total non-performing loans to
loans receivable 0.35% 0.47%
Total non-performing assets to
total assets 0.27% 0.42%
Ratio of allowance for loan
losses to non-performing loans 421.01% 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 $6.3 million and 0.61% at June
30, 1998 and $9.9 million and 1.04% at December 31, 1997 if
the condominium project was included in non-performing assets.
The project was valued at $3.5 million on the Company's books
at June 30, 1998, down from $5.9 million at December 31, 1997.
The completion and sale of condominium units continues to
reduce the carrying value of this asset.
Non-Interest Income
For the three month period ended June 30, 1998, non-interest
income was $287 thousand or 21% higher than in the same period of
1997.
Deposit and other service fees were lower by $93 thousand or
12% due to loan service fees which in 1997 included a non-recurring
item. In the absence of this non-recurring item, the current
period would have reflected a 6.1% increase over 1997 levels.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Non-Interest Income - Continued
The current period includes $282 thousand in net gains,
largely resulting from the sale of residential mortgages. Such
gains were $251 thousand higher than the $31 thousand reported in
the prior year.
Mortgage banking income, including profits from the
origination and sale of residential mortgages, totaled $405
thousand in the current period, nearly three times the level of
such income in the same period of 1997 when the Company's mortgage
banking function was initially established.
Other income was $132 thousand or 31% lower than in the second
quarter of 1997 when an insurance recovery was recognized.
For the six month period ended June 30, 1998, non-interest
income was $221 thousand or 8% higher than in the same period of
1997. In addition to non-recurring loan service fees and insurance
settlements included in the 1997 results and noted above, there
were $565 thousand in gains on asset sales recorded in the first
half of 1997. Such gains were $283 thousand higher than the
comparable amounts recognized in 1998. Excluding the increase in
gains on asset sales, the insurance settlement and the non-
recurring loan service fees, 1998 non-interest income would have
been $2.6 million or 49.8% higher than the comparable six month
period of 1997.
Non-Interest Expense
The primary component of other expenses is salaries and
employee benefits, which increased 15.0% and 17.2% for the six
months and three months ended June 30, 1998 to $6.7 million and
$3.4 million in 1998 from $5.8 million and $2.9 million in 1997.
This increase is primarily attributable to the Company's expanded
commercial banking activities as well as increased staffing for the
Company's technology and operations departments.
Occupancy and equipment expense increased 3.3% to $2.9 million
for the six months ended June 30, 1998 from $2.8 million for the
same period in 1997. Occupancy and equipment expenses for the
three months ended June 30, 1998 and 1997 remained unchanged. 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 $3.2 million and $1.7 million for
the six months and the three months ended June 30, 1998 from $2.7
million and $1.5 million for the same periods in 1997. This
increase is primarily attributable to increased printing and supply
costs necessitated by the conversion to a commercial bank.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Dividend Policy
The Board of Directors of the Company declared a cash dividend
of .95 cents ($.095) per share of common stock on June 18, 1998,
payable July 31, 1997, to shareholders of record on June 30, 1998.
It is currently the Board's intention to continue to pay
dividends on a quarterly basis. This is the Company's thirty
eighth 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, 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.
Stock Split
The Board of Directors of the Company, on May 14, 1998
declared a two-for one (2 for 1) stock split payable June 19, 1998
for shareholders of record on May 29, 1998. The stock split was
effected in the form of a tax-free dividend.
21
<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURES 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 June 30,
1998.
<TABLE>
<CAPTION>
Expected Maturity/Principal Repayment at June 30,
- ------------------------------------------------------------------------------------
1999 2000 2001 2002 2003 Thereafter Total
- ------------------------------------------------------------------------------------
Interest-sensitive assets:
<S> <C> <C> <C> <C> <C> <C> <C>
Loans $358,616 $ 69,864 $ 62,106 $ 54,800 $ 44,807 $ 44,722 $634,915
Investments 121,575 72,240 40,348 16,682 13,227 34,809 298,881
Interest-bearing
deposits 52,081 -- -- -- -- -- 52,081
- ------------------------------------------------------------------------------------
Total $532,272 $142,104 $102,454 $ 71,482 $ 58,034 $ 79,531 $985,877
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
Interest-sensitive liabilities:
Savings, NOW,
and MMA $197,927 $ 21,637 $ 21,637 $ 21,637 $ 21,637 $ 89,848 $374,323
Certificates
of Deposit 251,331 48,921 31,595 11,372 9,634 196 353,049
Borrowings 112,741 -- -- 30,000 72,000 15,000 229,741
- ------------------------------------------------------------------------------------
Total $561,999 $ 70,558 $ 53,232 $ 63,009 $103,271 $105,044 $957,113
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Average
Interest
Total Rate Fair Value
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Loans $634,915 9.05% $633,804
Investments 298,881 6.39% 300,244
Interest-bearing deposits 52,081 5.50% 52,081
- -------------------------------------------------------------------------------
$985,877 8.06% $986,129
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Liabilities
Savings, NOW, money market account $374,323 1.70% $373,523
Certificates of deposits 353,049 5.55% 354,947
Borrowings 229,741 5.31% 230,187
- -------------------------------------------------------------------------------
$957,113 3.99% $958,657
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
22
<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, 1998 for a report on the Company's Annual
Shareholders' Meeting held April 17, 1998.
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
23
<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, 1998 /s/ James J. Lynch
----------------------------
James J. Lynch
President and Chief
Executive Officer
Date: August 14, 1998 /s/ Frank H. Reeves
----------------------------
Frank H. Reeves
Senior Vice President and
Chief Accounting Officer
24
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
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