SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1997 Commission File Number 0-22186
Prestige Financial Corp.
(Exact name of Registrant as specified in its charter)
New Jersey 22-3216510
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1 Royal Road P.O. Box 2480 Flemington, New Jersey 08822
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 908-806-6200
N / A
Former name, former address and former fiscal year, if changed since last
report
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 Exchange Act
if 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such report(s), 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, being
the only class of capital stock outstanding, was as follows as of November
1, 1997:
Common Stock (par value $.01) 3,287,029 Shares
Table of Contents Page
Part I. Financial information
Item 1. Financial statements
Consolidated Statements of Financial Condition as
of September 30, 1997, December 31, 1996 and
September 30, 1996 3
Consolidated Statements of Income for the Three Months
Ended and Nine Months Ended September 30,1997 and 1996 4
Consolidated Statements of Changes in Stockholders'
Equity for the Nine Months Ended September 30,
1997 and 1996 5
Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1997 and 1996 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
Part II.Other information
Item 6. Exhibits and reports on Form 8-K 19
Signatures 21
Item 1. Financial Statements
Prestige Financial Corp. and Subsidiary
<TABLE>
Consolidated Statements of Financial Condition (Unaudited)
(Dollars in thousands)
<CAPTION>
09/30/97 12/31/96 09/30/96
<S> <C> <C> <C>
ASSETS:
Cash and due from banks $11,739 $9,579 $6,428
Federal funds sold and
short-term investments 887 8,950 16,225
Total cash and cash
equivalents 12,626 18,529 22,653
Loans held for sale, net 14,550 15,013 15,233
Investment securities held
to maturity, net:
Taxable
(Market value $83,955,
$64,744, and $59,937
respectively) 83,669 64,943 61,418
Exempt from Federal
income tax
(Market value $5,548,
$3,937 and $3,504
respectively) 5,569 3,931 3,498
Loans, net 143,562 123,455 113,364
...Less allowance for loan losses 1,769 1,592 1,487
Net loans 141,793 121,863 111,877
Premises and equipment, net 3,456 2,490 2,475
Accrued interest receivable 1,737 1,538 1,281
Other assets 5,110 1,210 921
TOTAL ASSETS $268,510 $229,517 $219,356
LIABILITIES AND STOCKHOLDERS' EQUITY:
LIABILITIES
Federal funds purchased 300 - -
Deposits:
Non-interest bearing 42,426 35,318 31,507
Interest bearing 206,400 177,278 171,656
Total deposits 248,826 212,596 203,163
Accrued interest payable 473 308 320
Accrued expenses and
other liabilities 714 903 790
TOTAL LIABILITIES 250,313 213,807 204,273
STOCKHOLDERS' EQUITY
Common stock, par value $.01;
5,000,000 shares authorized;
3,279,291; 2,661,331 and
2,643,662 shares issued and
outstanding at September 30, 1997,
December 31, 1996 and
September 30, 1996, respectively 33 27 26
Paid in capital 14,635 13,581 13,343
Retained earnings 3,529 2,102 1,714
TOTAL STOCKHOLDERS' EQUITY 18,197 15,710 15,083
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $268,510 $229,517 $219,356
See accompanying notes to Consolidated Financial Statements
</TABLE>
Prestige Financial Corp. and Subsidiary
<TABLE>
Consolidated Statements of Income (Unaudited)
(Dollars in thousands, except per share data)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Interest income:
Loans $3,670 $3,028 $10,412 $8,689
Federal funds sold 91 140 301 311
Investment Securities:
Taxable 1,340 939 3,677 2,599
Exempt from Federal income tax 56 34 149 63
TOTAL INTEREST INCOME 5,157 4,141 14,539 11,662
Interest expense:
Deposits 2,333 1,969 6,602 5,570
Federal funds purchased 1 - 1 3
TOTAL INTEREST EXPENSE 2,334 1,969 6,603 5,573
Net interest income 2,823 2,172 7,936 6,089
Provision for loan losses 199 120 522 265
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 2,624 2,052 7,414 5,824
Non-interest income:
Service charges on deposit
accounts 103 64 284 161
Gain on sale of loans 452 371 1,416 780
Other income 118 34 216 57
TOTAL NON-INTEREST INCOME 673 469 1,916 998
Non-interest expense:
Salaries and employee benefits 1,015 824 2,868 2,255
Net occupancy expense 483 333 1,314 927
Data processing 103 87 284 222
Advertising/business development 95 61 260 150
Directors fees 94 38 240 115
Other expenses 407 276 1,063 828
TOTAL NON-INTEREST EXPENSE 2,197 1,619 6,029 4,497
Income before provision for
income taxes 1,100 902 3,301 2,325
Provision for income taxes 389 362 1,181 935
NET INCOME $711 $540 $2,120 $1,390
Net income per common share:
Primary $0.20 $0.17 $0.61 $0.43
Fully diluted $0.20 $0.17 $0.61 $0.43
Weighted average shares
outstanding - primary 3,509,457 3,277,514 3,457,025 3,234,842
Weighted average shares
outstanding - fully diluted 3,536,992 3,277,514 3,495,090 3,234,842
See accompanying notes to Consolidated Financial Statements
</TABLE>
Prestige Financial Corp. and Subsidiary
<TABLE>
Consolidated Statements of Changes in Stockholders' Equity
Nine Months Ended September 30, 1997 and 1996 (Unaudited)
(Dollars in thousands)
<CAPTION>
Number of Total
Common Common Paid-In Retained Stockholders'
Shares Stock Capital Earnings Equity
<S> <C> <C> <C> <C> <C>
Balance, December 31,
1995 1,972,539 $20 $11,354 $684 $12,058
Exercise of warrants 6,600 - 51 - 51
Exercise of options 5,673 - 35 - 35
Common stock grants 7,480 - 59 - 59
Dividend reinvestment
and common stock
purchase plan 145,378 1 1,819 - 1,820
Common stock issued
under 401(k) plan 1,877 - 25 - 25
Five-for-four common
stock split 504,115 5 - (5) -
Common stock cash
dividend - - - (355) (355)
Net income - - - 1,390 1,390
Balance, September 30,
1996 2,643,662 26 13,343 1,714 15,083
Balance, December 31,
1996 2,661,331 27 13,581 2,102 15,710
Exercise of warrants 2,937 - 28 - 28
Exercise of options 7,619 - 50 - 50
Common stock grants 9,348 - 59 - 59
Dividend reinvestment
and common stock
purchase plan 55,074 1 846 - 847
Common stock issued
under 401(k) plan 4,759 - 71 - 71
Six-for-five common
stock split 538,223 5 - (5) -
Common stock cash
dividend - - - (688) (688)
Net income - - - 2,120 2,120
Balance, September 30,
1997 3,279,291 $33 $14,635 $3,529 $18,197
See accompanying notes to Consolidated Financial Statements
</TABLE>
Prestige Financial Corp. and Subsidiary
<TABLE>
Consolidated Statements of Cash Flow
Nine Months Ended September 30, 1997 and 1996 (Unaudited)
(Dollars in thousands)
<CAPTION>
Nine
Months Ended
September 30,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $2,120 $1,390
Adjustments to reconcile net income to net
cash used in operating activities:
Provision for loan losses 522 265
Depreciation and amortization 353 265
Amortization (accretion) of investment
securities premiums and discounts, net 349 328
Amortization of organizational costs 11 11
Increase in accrued interest receivable (199) (323)
(Increase) decrease in other assets (3,911) 972
Gain on sale of loans (1,416) (780)
Proceeds from sale of loans held for sale 29,359 17,688
Net increase in loans held for sale (27,480) (21,900)
Increase in accrued interest payable 165 71
(Decrease) increase in accrued expenses and
other liabilities (189) 233
Increase (decrease) in deferred loan fees and
unearned discounts 159 (150)
Common stock grants 59 59
NET CASH USED IN OPERATING ACTIVITIES (98) (1,871)
Cash flows from investing activities:
Proceeds from maturities of investment
securities 25,506 19,025
Principal paydowns on mortgage-backed
securities 4,837 3,470
Purchases of investment and mortgage-backed
securities (51,056) (44,469)
Net increase in loans (20,611) (9,971)
Capital expenditures (1,319) (809)
NET CASH USED IN INVESTING ACTIVITIES (42,643) (32,754)
Cash flows from financing activities:
Increase in Federal funds purchased 300 -
Net increase in demand deposits, MMA, NOW and
savings accounts 23,473 27,017
Net increase in certificates of deposit 12,757 12,629
Proceeds from issuance of common stock, net 996 1,931
Dividends paid (688) (355)
NET CASH PROVIDED BY FINANCING ACTIVITIES 36,838 41,222
(Decrease) increase in cash and cash
equivalents (5,903) 6,597
Cash and cash equivalents at begining of year 18,529 16,056
Cash and cash equivalents at end of period $12,626 $22,653
Supplemental disclosure of cash flow information-
Cash paid during the year for:
Interest $6,438 $5,502
Income taxes 1,488 849
Transfers from loans to OREO 418 -
See accompanying notes to Consolidated Financial Statements
</TABLE>
Prestige Financial Corp. and Subsidiary
Notes to Consolidated Financial Statements (Unaudited)
1. Principles of consolidation
Prestige State Bank (the "Bank") is a wholly-owned subsidiary of Prestige
Financial Corp. The accompanying unaudited consolidated financial
statements include the accounts of Prestige Financial Corp. and its
subsidiary (the "Corporation"). All significant intercompany accounts and
transactions have been eliminated in consolidation.
2. Basis of presentation
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation of the financial statements
have been included. Operating results for the three months ended September
30, 1997 and for the nine months ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the year
ended December 31, 1997.
3. Stockholders' Equity
On August 26, 1997 the Board of Directors approved a 7.5 cent per share
cash dividend on common stock, paid September 30, 1997 to shareholders of
record at September 19, 1997.
On May 15, 1997 the Board of Directors approved a 7.5 cent per share cash
dividend on common stock, paid June 30, 1997 to shareholders of record at
June 20, 1997.
On February 24, 1997 the Board of Directors approved a six-for-five stock
split, distributed April 18, 1997 to shareholders of record at April 9,
1997. Also on February 24, 1997 the Board of Directors approved a 7.5 cent
per share cash dividend on common stock, paid March 31, 1997 to
shareholders of record at March 20, 1997.
4. Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, Reporting
Comprehensive Income. SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components in a full set of general
purpose financial statements. Under SFAS No. 130, comprehensive income is
divided into net income and other comprehensive income. Other
comprehensive income includes items previously recorded directly in equity,
such as unrealized gains or losses on securities available for sale. SFAS
No. 130 is effective for interim and annual periods beginning after
December 15, 1997. Comparative financial statements provided for earlier
periods are required to be reclassified to reflect application of the
provisions of the Statement.
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information. SFAS No. 131 establishes standards
for the way public businesses are to report information about operating
segments in annual financial statements and requires those enterprises to
report selected financial information about operating segments in interim
financial reports to shareholders. SFAS No. 131 is effective for financial
statements for periods beginning after December 15, 1997.
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share". SFAS
No. 128 supersedes Accounting Principles Board Opinion No. 15, "Earnings
Per Share", and specifies the computation, presentation, and disclosure
requirements for earnings per share (EPS) for entities with publicly held
common stock or potential common stock. SFAS No. 128 replaces Primary EPS
and Fully Diluted EPS with Basic EPS and Diluted EPS, respectively. SFAS
No. 128 also requires dual presentation of Basic and Diluted EPS on the
face of the income statement for entities with complex capital structures
and a reconciliation of the information utilized to calculate Basic EPS to
that used to calculate Diluted EPS.
SFAS No. 128 is effective for periods ending after December 15, 1997.
Earlier application is not permitted. After adoption, all prior period EPS
is required to be restated to conform with SFAS No. 128. The Corporation
will adopt SFAS No. 128 at December 31, 1997 and expects that the adoption
will result in Basic EPS being higher than Primary EPS and Diluted EPS
being approximately the same as Fully Diluted EPS.
SFAS No. 129, "Disclosure of Information About Capital Structure" was also
issued in February 1997. SFAS No. 129 is effective for periods ending
after December 15, 1997. SFAS No. 129 lists required disclosures about
capital structure that had been included in a number of separate statements
and opinions of authoritative accounting literature. As such, the adoption
of SFAS No. 129 is not expected to have a significant impact on the
disclosures in the financial statements of the Corporation.
Prestige Financial Corp. and Subsidiary
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Financial Condition
At September 30, 1997, total assets had reached $268.5 Million which was a
$39.0 Million, or 17.0%, increase as compared to the December 31, 1996
balance of $229.5 Million; and a $49.1 Million, or 22.4%, increase when
compared to the September 30, 1996 balance of $219.4 Million. This growth
was funded primarily from deposits (mainly "core" demand and time accounts)
which increased by $36.2 Million, or 17.0%, to $248.8 Million at September
30, 1997 as compared to $212.6 Million at December 31, 1996; and by $45.6
Million, or 22.4%, when compared to the September 30, 1996 balance of
$203.2 Million. Branch openings in the western portion of Clinton Township
in August 1997, in the eastern portion of Clinton Township in May 1996, and
the opening of free standing and supermarket branches located in the
"Prestige Plaza" shopping center containing an Edwards Food Store in
Raritan Township in May of 1997 contributed to this growth as did several
CD promotions.
Total Stockholders' Equity stood at $18.2 Million as of September 30, 1997
and was $2.5 Million, or 15.9%, higher than the year-end 1996 balance of
$15.7 Million; and $3.1 Million, or 20.5%, higher than the September 30,
1996 balance of $15.1 Million. These increases were primarily attributable
to increased earnings and dividends reinvested and optional cash purchases
made by shareholders in accordance with the Corporation's Dividend
Reinvestment and Common Stock Purchase Plan, partially offset by cash
dividends paid. Dividends paid to common stockholders totaled $688 Thousand
or $.21 per weighted average share outstanding for the nine months ended
September 30, 1997; up from $388 Thousand or $.13 per weighted average
share outstanding for the same period a year ago.
Within the asset composition, the above growth was primarily utilized to
fund increases in the loan and investment portfolios. As of September 30,
1997 outstanding loans, including loans held for sale, totaled $158.1
Million which was $19.6 Million, or 14.2%, more than the December 31, 1996
balance of $138.5 Million; and $29.5 Million, or 22.9%, greater than the
September 30, 1996 balance of $128.6 Million. Much of this growth took
place in the commercial mortgage and commercial loan categories, with
residential mortgages and home equity loans contributing to a lesser
degree.
Loans held for sale totaled $14.6 Million at September 30, 1997 vs. $15.0
Million at December 31, 1996 and $15.2 Million at September 30, 1996. The
loans held for sale category is comprised primarily of SBA loans which
provide attractive yields as well as a ready source of liquidity and
potential gains on sales. Recognized as the leading SBA lender in New
Jersey in 1996 and 1995, the Bank carries the designation of "Preferred
Lender" in New York and Pennsylvania as well as New Jersey, where it
remains among the State's top lenders. Preferred lender status enables the
Bank to streamline the SBA loan application and approval process for
qualified borrowers.
Investment securities (all classified as held to maturity) at September 30,
1997 amounted to $89.2 Million, an increase of $20.3 Million, or 29.5% as
compared to the December 31, 1996 balance of $68.9 Million; and higher by
$24.3 Million, or 37.4%, when compared with the September 30, 1996 balance
of $64.9 Million. This growth resulted primarily from the purchase of
securities issued by the United States government and its agencies,
including mortgage-backed securities, notes and SBA guaranteed loan pool
certificates.
At September 30, 1997, other assets totaled $5.1 Million, an increase of
$3.9 Million versus the December 31, 1996 balance of $1.2 Million, and an
increase of $4.2 Million when compared with the September 30, 1996 balance
of $.9 Million. These increases are primarily attributable to an
investment in corporate owned life insurance.
At September 30, 1997, the allowance for loan losses stood at $1.769
Million; $177 Thousand more than the year-end 1996 figure of $1.592 Million
and $282 Thousand more than the September 30, 1996 balance of $1.487
Million. The increase in the first nine months of 1997 from year-end 1996
resulted from provisions of $522 Thousand and net charge-offs of $345
Thousand. The allowance as a percentage of total outstanding loans as of
September 30, 1997 was 1.12% as compared to 1.15% as of December 31, 1996,
and 1.16% as of September 30, 1996.
Non-performing loans consist of loans on which the accrual of interest has
been discontinued, or loans on which interest is still being accrued but
that are contractually past due 90 days or more as to interest or principal
payments. Non-performing loans totaled $1.2 Million at September 30, 1997
compared with $.8 Million at December 31, 1996 and $.8 Million at September
30, 1996. Non-accrual loans (also classified as impaired loans) totaled
$688 Thousand (.44% of total loans) as of September 30, 1997 as compared to
$454 Thousand (.33% of total loans) as of December 31, 1996, and $442
Thousand (.34% of total loans) as of September 30, 1996. Of the $688
Thousand in non-accrual loans at September 30, 1997, $195 Thousand is fully
guaranteed by the SBA.
Considering the information in the previous two paragraphs as well as other
relevant factors, management believes that the allowance for loan losses is
adequate. While management uses available information to determine the
adequacy of the allowance, future additions may occur based upon growth in
the loan portfolio or changes in loan quality resulting from circumstances
beyond the Corporation's control such as changes in economic conditions in
the region in which the Corporation conducts business. In addition,
various regulatory agencies, as an integral part of their examination
process, periodically review the Bank's allowance for loan losses. Such
agencies may require the Bank to recognize additions to the allowance based
on their judgments of information available to them at the time of their
examination.
Capital Adequacy.
The Federal Reserve Board (FRB) in the case of bank holding companies such
as the Corporation and the Federal Deposit Insurance Corporation (FDIC) in
the case of state banks such as the Bank have adopted risk-based capital
guidelines which require a minimum ratio of 8% of total risk-based capital
to assets, as defined in the guidelines. At least one half of the total
capital, or 4%, is to be comprised of common equity and qualifying
perpetual preferred stock, less deductible intangibles (Tier 1 capital).
Risk-based capital ratios are expressed as percentages of capital to "risk
adjusted assets" and therefore relate capital to the risk factors inherent
within a company's asset base, including off-balance sheet risk exposure.
Various weightings are assigned to different asset categories as well as
off-balance sheet exposure depending upon the risk associated with each
category. In general, less capital is required for a less risky asset
composition.
At September 30, 1997, the Corporation's and the Bank's core (Tier 1) risk-
based capital ratios were 10.81% and 9.92%, respectively, versus 11.69% and
10.89% at December 31, 1996; and 11.90% and 11.04% at September 30, 1996.
These ratios compare favorably to a minimum of 4% as required by the FRB
and the FDIC.
At September 30, 1997, the Corporation's and the Bank's total (Tier 1 plus
Tier 2) risk-based capital ratios were 11.86% and 10.97%, respectively,
versus 12.87% and 12.08% at December 31, 1996; and 13.08% and 12.22% at
September 30, 1996. These ratios also compare favorably to a minimum of 8%
as required by the FRB and the FDIC.
The FRB and the FDIC have supplemented the risk-based capital guidelines
with an additional capital ratio referred to as the leverage ratio or core
capital ratio. The regulations require financial institutions to maintain
a minimum leverage ratio of 4% to 5%, depending upon the condition of the
institution.
At September 30, 1997, the Corporation's and the Bank's leverage ratios
were 6.97% and 6.43%, respectively, versus 7.01% and 6.55% at December 31,
1996; and 6.96% and 6.61% at September 30, 1996. Again, these ratios
compare favorably with existing guidelines established by the FRB and the
FDIC.
The foregoing capital ratios are based in part on specific quantitative
measures of assets, liabilities and certain off-balance sheet items as
calculated under regulatory accounting practices. Capital amounts and
classifications are subject to qualitative judgments by the regulatory
authorities about capital components, risk weightings and other factors.
Management believes that, as of September 30, 1997, the Corporation and the
Bank meet all capital adequacy requirements to which they are subject.
Further, the most recent FDIC notification characterized the Bank as a well-
capitalized institution under the prompt corrective action regulations.
There have been no conditions or events since that notification that
management believes have changed the Bank's capital classification.
It should be noted that additional capital raised via the Dividend
Reinvestment and Common Stock Purchase Plan provides the ability to
downstream capital from Prestige Financial Corp. to the Bank should the
Bank's capital ratios require it.
Liquidity.
The liquidity position of the Corporation is dependent upon the successful
management of its assets and liabilities so as to meet the needs of both
deposit and credit customers. Liquidity needs arise principally to
accommodate possible deposit outflows and to meet customers' requests for
loans. Such needs can be satisfied by maturing loans and investments, short
term liquid assets, and the ability to raise short-term funds from external
sources.
So far, virtually all funding needs have been met via the acquisition of
deposits, and not through other sources such as borrowings or securities
sold under repurchase agreements. In addition, the total of all liquid
assets (e.g. Federal funds sold, short term investments, assets available
for sale) as measured against what may be considered volatile liabilities
(i.e. short term $100,000 certificates of deposit) produced liquidity
ratios of 332% for September 30, 1997, versus 401% for December 31, 1996,
and versus 488% for September 30, 1996. All of these are considered by
management to be satisfactory.
Interest Rate Sensitivity
The management of interest rate risk is also important to the profitability
of the entity. Interest rate risk arises when earning assets mature or
have their interest rates change in time periods different from that of
supporting interest bearing liabilities; or when interest bearing
liabilities mature or have their interest rates change in time periods
different from that of the earning assets they support. Interest rate risk
also arises as a result of differences in the magnitude of interest rate
sensitivity of earning assets and their supporting interest bearing
liabilities as a result of market conditions, and variations in indices and
the existence of caps and floors applicable to variable rate instruments.
The Bank employs two primary approaches to interest rate risk measurement:
income simulation analysis and gap analysis. Income simulation analysis is
the more comprehensive tool as it considers the maturity and repricing
characteristics of assets and liabilities as well as the relative
sensitivity of these balance sheet components to interest rate fluctuations
and attempts to measure the projected responsiveness of net interest income
to changes in interest rate levels over several time frames.
Gap analysis measures the difference between interest sensitive assets and
interest sensitive liabilities in a number of time frames. At any given
point in time, the Corporation may be in an asset-sensitive position,
meaning its interest-sensitive assets exceed its interest-sensitive
liabilities; or in a liability-sensitive position, whereby its interest-
sensitive liabilities exceed its interest-sensitive assets.
As of September 30, 1997 there was a cumulative twelve month gap of a
negative $45.4 Million as compared to a negative $30.6 Million gap as of
December 31, 1996 and a negative $24.1 Million gap as of September 30,
1996. From this static gap viewpoint, a negative gap may be expected to
cause reductions in net interest income in a rising rate environment and
enhance net interest income in a declining rate environment. However, the
repricing of liabilities can be, and often are, "lagged" behind earning
asset rate increases, or exaggerated when rates decrease, in order to
offset the gap's effects. In addition, rate sensitive assets may reprice
at different frequencies than rate sensitive liabilities within the twelve
month time frame, further offsetting the gap's effects.
As alluded to earlier, it is precisely these "dynamics" that are better
addressed by income simulation, and whose complexities make income
simulation the more meaningful method of measuring interest rate risk. As
of September 30, 1997 income simulation analysis for the next twelve months
projects a moderate dollar increase in net interest income in the event of
an increasing interest rate environment, and a slightly larger, yet
acceptable, dollar decrease in net interest income given a declining
interest rate environment.
Results of Operations
Net income for the first nine months of 1997 amounted to $2.120 Million
compared to $1.390 Million for the same period in 1996. Related fully
diluted earnings-per-share data were: $.61 per share for the first nine
months of 1997 versus $.43 per share for the same period in 1996. The
annualized return on average assets was 1.15% and .95% for the first nine
months of 1997 and 1996, respectively. The annualized return on average
shareholders' equity was 16.70% and 13.92% for the first nine months of
1997 and 1996, respectively.
Net income for the third quarter ended September 30, 1997 was $711 Thousand
compared to $540 Thousand for the same period in 1996. Related fully
diluted earnings per share were: $.20 per share for the third quarter of
1997 versus $.17 per share for the same period in 1996. The annualized
return on average assets was 1.09% and 1.02% for the third quarter of 1997
and 1996, respectively. The annualized return on average shareholders'
equity was 16.07% and 14.97% for the third quarter of 1997 and 1996,
respectively.
Net Interest Income.
The $1.847 Million, or 30.3%, increase in net interest income reflected in
the first nine months of 1997 (at $7.936 Million) over the same period in
1996 (at $6.089 Million) was attributable to an increase in higher yielding
loan and investment volume as well as an increase in the prime rate in
April 1997 which positively effected prime indexed variable rate
instruments. In addition the cost of supporting funds has declined, as non-
interest bearing demand deposit accounts have grown as a percentage of
total deposit liabilities.
The $651 Thousand, or 30.0%, increase in net interest income reflected in
the third quarter of 1997 (at $2.823 Million) over the same period in 1996
(at $2.172 Million) was attributable to the same factors as discussed in
the above comparisons of the first nine months of 1997 and 1996.
Noninterest Income.
For the first nine months of 1997 noninterest income increased $918
Thousand or 92.0% to $1.916 Million, up from $998 Thousand for the same
period in 1996. This variance was primarily attributable to the gains from
sales of loans which amounted to $1.416 Million during the first nine
months of 1997 versus $780 Thousand in the first nine months of 1996.
Virtually all of the increase in gains on loan sales was due to a higher
volume of loans sold. As discussed earlier, SBA loan production has
remained strong, although the Bank has made a conscious effort to limit its
reliance on SBA loans. The Corporation's residential mortgage division
contributed $168 Thousand in gains during the first nine months of 1997
compared with $80 Thousand for the first nine months of 1996. Management
expects the ongoing origination and sale of residential mortgages to help
limit reliance on sales of SBA loans, with fewer sales allowing the higher
yielding SBA loans to accumulate and help maintain a satisfactory net
interest margin.
Also contributing to the increase in noninterest income were increases in
service charges on deposit accounts, primarily attributable to increased
volume of business accounts and related service offerings. These service
charges totaled $284 Thousand for the nine months ended September 30, 1997
compared with $161 Thousand for the nine months ended September 30, 1996.
Other noninterest income increased to $216 Thousand for the nine months
ended September 30, 1997, up from $57 Thousand for the same period in 1996.
This increase is primarily attributable to increases in the cash surrender
value of corporate owned life insurance policies purchased in the first
quarter of 1997.
For the third quarter of 1997, noninterest income increased $204 Thousand
or 43.5% to $673 Thousand, up from $469 Thousand for the same period in
1996. This increase was attributable to the same factors as discussed in
the above comparisons of the first nine months of 1997 and 1996.
Noninterest Expense.
For the first nine months of 1997 compared with the same period in 1996,
total noninterest expense increased by $1.532 Million, or 34.1%, to $6.029
Million from $4.497 Million.
Salaries and benefits accounted for $613 Thousand of the above increase due
to the January 1 effective date for all pay increases, the adoption of a
supplemental executive retirement plan in February 1997, and the addition
of staff resulting primarily from the opening of the branch in western
Clinton Township in August, 1997, two branch locations in the new "Prestige
Plaza" (Edwards Food Store) shopping center on Route 31 in Raritan Township
in May 1997, and the opening of the eastern Clinton Township branch in May
1996.
Occupancy related expenses increased $387 Thousand for the first nine
months of 1997 versus the same period in 1996 due to the branch openings
just discussed and the leasing of additional office space in the Bank's
Royal Road Headquarters building necessary to house the Bank's expanding
operations.
Data Processing costs contributed another $62 Thousand to the increase in
noninterest expense, primarily as a result of increased volume.
Advertising and business development costs increased by $110 Thousand for
the nine months ended September 30, 1997 versus the same period in 1996 as
the Corporation continues to expand marketing efforts in Hunterdon and
Somerset counties and surrounding environs.
Directors fees grew by $125 Thousand for the nine months ended September
30, 1997 compared to the nine months ended September 30, 1996 as a result
of the adoption of a non-tax qualified retirement plan for outside
directors in February 1997.
Other noninterest expenses increased by $235 Thousand for the nine months
ended September 30, 1997 compared to the nine months ended September 30,
1996. Consulting, legal and external audit fees accounted for $61 Thousand
of this increase. Postage and telecommunications costs increased by $41
Thousand, printing stationery and supplies expense rose by $28 Thousand,
and ATM fees increased by $23 Thousand. The foregoing increases are all
attributable to growth in the Corporation's asset size and customer base.
In addition, contributions and donations increased by $30 Thousand,
primarily as a result of the Corporation's $25 Thousand gift to Hunterdon
Medical Center for the development of a cancer center and other
improvements.
For the third quarter of 1997 as opposed to the same period in 1996, total
noninterest expenses rose by $578 Thousand, or 35.7%, to $2.197 Million
from $1.619 Million. The increases in noninterest expense reflected in the
third quarter of 1997 over the same period in 1996 are attributable to the
same factors as discussed in the above comparisons of the first nine months
of 1997 and 1996.
As some indication of the Corporation's control over noninterest expenses
despite significant branch expansion, the "efficiency ratio" (noninterest
expense divided by the sum of taxable equivalent net interest income and
noninterest income)improved to 60% from 63% for the first nine months of
1997 vs. the first nine months of 1996; and was 62% vs. 61% for the third
quarter 1997 vs. the third quarter 1996. The "overhead ratio" (annualized
noninterest expense over average assets for the period) has increased to
3.26% from 3.07% for the nine months ended September 30, 1997 compared with
the nine months ended September 30, 1996, primarily as a result of the
branch openings discussed above. This percentage was 3.37% for the third
quarter 1997 as compared to 3.06% for the third quarter 1996. Though
acceptable even at current levels, this overhead ratio should improve as
growth in average assets as a result of branch expansion increases the
denominator of this calculation.
Provisions for Loan Losses.
For the first nine months of 1997 as compared to the first nine months of
1996, the provision for loan losses increased by $257 Thousand. For the
third quarter of 1997 as compared to the third quarter of 1996, the
provision for loan losses increased by $79 Thousand. Provisions are made
as necessary to maintain the allowance for loan losses at targeted levels
as measured against total loans and/or past due accounts. As discussed
previously, the Corporation's non-accrual loans at September 30, 1997
amounted to .44% of total loans.
Income Tax Expense.
Provisions for income tax totaled $1.181 Million and $389 Thousand for the
nine and three months ended September 30, 1997, respectively, up from $935
Thousand and $362 Thousand for the nine and three months ended September
30, 1996, respectively as a result of the Corporation's increased taxable
earnings. The Corporation's effective tax rate declined to 35.8% for the
nine months ended September 30, 1997 compared with 40.2% for the nine
months ended September 30, 1996. This decrease was primarily attributable
to the formation in the third quarter of 1996 of PSB Investment Management,
Inc., a wholly owned subsidiary of the Bank which manages a portfolio of
investment securities for its own account. The earnings of PSB Investment
Management, Inc. are taxed by the State of New Jersey at a rate of 2.25% as
opposed to the 9% state income tax rate to which the Bank and the
Corporation are subject.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Part II Other Information
Item 6. Exhibits and reports on Form 8-K
(a)(2) Plan of Acquisition Between Prestige State Bank and Prestige
Financial Corp. (1)
(a)(3.1) Certificate of Incorporation of the Registrant. (1)
(a)(3.2) Bylaws of the Registrant. (1)
(a)(10) There were no material contracts entered into during the quarter
ended September 30, 1997.
(a)(11) Statement on Computation of per-share earnings
Net income per-share is calculated as net income divided by
weighted average shares outstanding as adjusted for the assumed
exercise of dilutive common stock equivalents, using the treasury
stock method). All weighted average shares outstanding reflect
the six-for-five stock split issued on April 18, 1997 and the
five-for-four stock split issued on April 19, 1996.
(a)(27) Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended
September 30, 1997.
(1) Previously filed with the Corporation's Form S-4, File No. 33-59752,
and incorporated in the Corporation's 1996 Report on Form 10-K by
reference.
Prestige Financial Corp.
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.
Prestige Financial Corp.
(Registrant)
By: /s/ Robert J. Jablonski
Robert J. Jablonski
Chief Executive Officer and
Treasurer/Principal
Financial Officer
Date: November 5, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from SEC Form 10Q
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
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