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 June 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 August 1,
1997:
Common Stock (par value $.01) 3,251,927 Shares
Table of Contents Page
Part I. Financial information
Item 1. Financial statements
Consolidated Statements of Financial Condition as
of June 30, 1997, December 31, 1996 and June 30, 1996 3
Consolidated Statements of Income for the Three Months
Ended and Six Months Ended June 30, 1997 and 1996 4
Consolidated Statements of Changes in Stockholders'
Equity for the Six Months Ended June 30,
1997 and 1996 5
Consolidated Statements of Cash Flows for the Six
Months Ended June 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 4. Submission of Matters to a Vote of Security Holders 19
Item 6. Exhibits and reports on Form 8-K 20
Signatures 21
Item 1. Financial Statements
Prestige Financial Corp. and Subsidiary
<TABLE>
Consolidated Statements of Financial Condition
(Unaudited)
(Dollars in thousands)
<CAPTION>
06/30/97 12/31/96 06/30/96
<S> <C> <C> <C>
ASSETS:
Cash and due from banks $12,235 $9,579 $7,243
Federal funds sold and
short-term investments 6,030 8,950 4,700
Total cash and cash
equivalents 18,265 18,529 11,943
Loans held for sale, net 15,189 15,013 14,478
Investment securities held
to maturity, net:
Taxable
(Market value $76,592,
$64,744, and $56,322
respectively) 76,595 64,943 57,367
Exempt from Federal
income tax
(Market value $5,444,
$3,937 and $3,342
respectively) 5,447 3,931 3,337
Loans, net 133,632 123,455 114,016
...Less allowance for loan losses 1,704 1,592 1,409
Net loans 131,928 121,863 112,607
Premises and equipment, net 3,189 2,490 2,449
Accrued interest receivable 1,779 1,538 1,243
Other assets 5,159 1,210 877
TOTAL ASSETS $257,551 $229,517 $204,301
LIABILITIES AND STOCKHOLDERS' EQUITY:
LIABILITIES
Deposits:
Non-interest bearing 41,932 35,318 25,757
Interest bearing 197,052 177,278 163,538
Total deposits 238,984 212,596 189,295
Accrued interest payable 325 308 302
Accrued expenses and
other liabilities 895 903 515
TOTAL LIABILITIES 240,204 213,807 190,112
STOCKHOLDERS' EQUITY
Common stock, par value $.01;
5,000,000 shares authorized;
3,249,737; 2,661,331 and
2,596,993 shares issued and
outstanding at June 30, 1997,
December 31, 1996 and June 30,
1996, respectively 32 27 26
Paid in capital 14,253 13,581 12,859
Retained earnings 3,062 2,102 1,304
TOTAL STOCKHOLDERS' EQUITY 17,347 15,710 14,189
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $257,551 $229,517 $204,301
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 Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Interest income:
Loans $3,476 $2,958 $6,742 $5,661
Federal funds sold 96 37 210 171
Investment Securities:
Taxable 1272 907 2,337 1,660
Exempt from Federal income tax 50 15 93 29
TOTAL INTEREST INCOME 4,894 3,917 9,382 7,521
Interest expense:
Deposits 2,200 1,849 4,269 3,601
Federal funds purchased - 3 - 3
TOTAL INTEREST EXPENSE 2,200 1,852 4,269 3,604
Net interest income 2,694 2,065 5,113 3,917
Provision for loan losses 233 100 323 145
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 2,461 1,965 4,790 3,772
Non-interest income:
Service charges on deposit
accounts 95 53 181 97
Gain on sale of loans 526 234 964 409
Other income 64 13 98 23
TOTAL NON-INTEREST INCOME 685 300 1,243 529
Non-interest expense:
Salaries and employee benefits 936 756 1,853 1,431
Net occupancy expense 477 304 831 594
Data processing 92 73 181 135
Advertising/business development 94 50 165 89
Directors fees 90 38 146 77
Other expenses 356 289 657 552
TOTAL NON-INTEREST EXPENSE 2,045 1,510 3,833 2,878
Income before provision for
income taxes 1,101 755 2,200 1,423
Provision for income taxes 394 306 792 573
NET INCOME $707 $449 $1,408 $850
Net income per common share:
Primary $0.20 $0.14 $0.41 $0.26
Fully diluted $0.20 $0.14 $0.41 $0.26
Weighted average shares
outstanding - primary 3,473,512 3,235,021 3,440,852 3,209,951
Weighted average shares
outstanding - fully diluted 3,473,512 3,235,021 3,457,961 3,209,951
See accompanying notes to Consolidated Financial Statements
</TABLE>
Prestige Financial Corp. and Subsidiary
<TABLE>
Consolidated Statements of Changes in Stockholders' Equity
Six Months Ended June 30, 1997 and 1996
(Unaudited)
(Dollars in thousands)
<CAPTION>
Total
Number of Stock-
Common Common Paid-In Retained holders'
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 4,400 - 34 - 34
Exercise of options 5,535 - 34 - 34
Common stock grants 7,480 - 59 - 59
Dividend reinvestment
and common stock
purchase plan 102,312 1 1,369 - 1,370
Common stock issued
under 401(k) plan 612 - 9 - 9
Five-for-four common
stock split 504,115 5 - (5) -
Common stock cash
dividend - - - (225) (225)
Net income - - - 850 850
Balance, June 30, 1996 2,596,993 26 12,859 1,304 14,189
Balance, December 31, 1996 2,661,331 27 13,581 2,102 15,710
Exercise of warrants 1,200 - 12 - 12
Common stock grants 9,348 - 59 - 59
Dividend reinvestment
and common stock
purchase plan 36,786 - 558 - 558
Common stock issued
under 401(k) plan 2,849 - 43 - 43
Six-for-five common
stock split 538,223 5 - (5) -
Common stock cash
dividend - - - (443) (443)
Net income - - - 1,408 1,408
Balance, June 30, 1997 3,249,737 $32 $14,253 $3,062 $17,347
</TABLE>
Prestige Financial Corp. and Subsidiary
<TABLE>
Consolidated Statements of Cash Flow
Six Months Ended June 30, 1997 and 1996
(Unaudited)
(Dollars in thousands)
<CAPTION>
Six Months
Ended June 30,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $1,408 $850
Adjustments to reconcile net income to net
cash used in operating activities:
Provision for loan losses 323 145
Depreciation and amortization 223 168
Amortization (accretion) of investment
securities premiums and discounts, net 265 168
Amortization of organizational costs 8 7
Increase in accrued interest receivable (241) (285)
(Increase) decrease in other assets (3,957) 1,020
Gain on sale of loans (964) (409)
Proceeds from sale of loans held for sale 17,360 6,897
Net increase in loans held for sale (16,572) (10,725)
Increase in accrued interest payable 17 53
Decrease in accrued expenses and other
liabilities (8) (42)
Decrease in deferred loan fees and unearned
discounts (106) (125)
Common stock grants 59 59
NET CASH USED IN OPERATING ACTIVITIES (2,185) (2,219)
Cash flows from investing activities:
Proceeds from maturities of investment
securities 12,775 12,356
Principal paydowns on mortgage-backed
securities 3,257 1,909
Purchases of investment and mortgage-backed
securities (29,465) (31,867)
Net increase in loans (10,282) (10,606)
Capital expenditures (922) (686)
NET CASH USED IN INVESTING ACTIVITIES (24,637) (28,894)
Cash flows from financing activities:
Net increase in demand deposits, MMA, NOW and
savings accounts 24,426 11,240
Net increase in certificates of deposit 1,962 14,538
Proceeds from issuance of common stock, net 613 1,447
Dividends paid (443) (225)
NET CASH PROVIDED BY FINANCING ACTIVITIES 26,558 27,000
Decrease in cash and cash equivalents (264) (4,113)
Cash and cash equivalents at begining of year 18,529 16,056
Cash and cash equivalents at end of period $18,265 $11,943
Supplemental disclosure of cash flow information-
Cash paid during the year for:
Interest $4,252 $3,551
Income taxes 1,096 557
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 June 30,
1997 and for the six months ended June 30, 1997 are not necessarily
indicative of the results that may be expected for the year ended December
31, 1997.
3. Stockholders' Equity
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 publically 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 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.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Financial Condition
At June 30, 1997, total assets had reached $257.6 Million which was a $28.1
Million, or 12.2%, increase as compared to the December 31, 1996 balance of
$229.5 Million; and a $53.3 Million, or 26.1%, increase when compared to
the June 30, 1996 balance of $204.3 Million. This growth was funded
primarily from deposits (mainly "core" demand and time accounts) which
increased by $26.4 Million, or 12.4%, to $239.0 Million at June 30, 1997 as
compared to $212.6 Million at December 31, 1996; and by $49.7 Million, or
26.3%, when compared to the June 30, 1996 balance of $189.3 Million. The
opening of the Clinton Township branch in May of 1996 and the 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 $17.3 Million as of June 30, 1997 and
was $1.6 Million, or 10.2%, higher than the year-end 1996 balance of $15.7
Million; and $3.1 Million, or 21.8%, higher than the June 30, 1996 balance
of $14.2 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.
Within the asset composition, the above growth was primarily utilized to
fund increases in the loan and investment portfolios. As of June 30, 1997
outstanding loans, including loans held for sale, totaled $148.8 Million
which was $10.3 Million, or 7.4%, more than the December 31, 1996 balance
of $138.5 Million; and $20.3 Million, or 15.8%, greater than the June 30,
1996 balance of $128.5 Million. Loan growth exhibited during the first
half of 1997 was positively effected by Small Business Administration (SBA)
loan production, as the Bank continued to benefit from its "Preferred SBA
Lender" status.
Loans held for sale totaled $15.2 Million at June 30, 1997 vs. $15.0
Million at December 31, 1996 and $14.5 Million at June 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.
Investment securities (all classified as held to maturity) at June 30, 1997
amounted to $82.0 Million, an increase of $13.1 Million, or 19.0% as
compared to the December 31, 1996 balance of $68.9 Million; and higher by
$21.3 Million, or 35.1%, when compared with the June 30, 1996 balance of
$60.7 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 June 30, 1997, other assets totaled $5.2 Million, an increase of $3.9
Million versus the December 31, 1996 balance of $1.2 Million, and an
increase of $4.3 Million when compared with the June 30, 1996 balance of
$.9 Million. These increases are primarily attributable to an investment
in corporate owned life insurance.
At June 30, 1997, the allowance for possible loan losses stood at $1.704
Million --$112 Thousand more than the year-end 1996 figure of $1.592
Million and $295 Thousand more than the June 30, 1996 balance of $1.409
Million. The first half 1997 change from year-end 1996 resulted from
provisions of $323 Thousand and net charge-offs of $211 Thousand. The
allowance as a percentage of total outstanding loans as of June 30, 1997
was 1.15% as compared to 1.15% as of December 31, 1996, and 1.10% as of
June 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 $1.342 Million at June 30, 1997
compared with $810 Thousand at December 31, 1996 and $1.075 Million at June
30, 1996. Non-accrual loans (also classified as impaired loans) totaled
$791 Thousand (.53% of total loans) as of June 30, 1997 as compared to $454
Thousand (.33% of total loans) as of December 31, 1996, and $444 Thousand
(.35% of total loans) as of June 30, 1996. Of the $791 Thousand in non-
accrual loans at June 30, 1997, $297 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 June 30, 1997, the Corporation's and the Bank's core (Tier 1) risk-based
capital ratios were 11.10% and 10.25%, respectively, versus 11.69% and
10.89% at December 31, 1996; and 11.38% and 10.78% at June 30, 1996. These
ratios compare favorably to a minimum of 4% as required by the FRB and the
FDIC.
At June 30, 1997, the Corporation's and the Bank's total (Tier 1 plus Tier
2) risk-based capital ratios were 12.19% and 11.34%, respectively, versus
12.87% and 12.08% at December 31, 1996; and 12.51% and 11.91% at June 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 June 30, 1997, the Corporation's and the Bank's leverage ratios were
7.01% and 6.49%, respectively, versus 7.01% and 6.55% at December 31, 1996;
and 6.93% and 6.59% at June 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 June 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 456% for June 30, 1997, versus 401% for December 31, 1996, and
versus 368% for June 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 June 30, 1997 there was a cumulative twelve month gap of a negative
$44.1 Million as compared to a negative $30.6 Million gap as of December
31, 1996 and a negative $22.1 Million gap as of June 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. As a result, at June 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 six months of 1997 amounted to $1.408 Million
compared to $850 Thousand for the same period in 1996. Related fully
diluted earnings-per-share data were: $.41 per share for the first six
months of 1997 versus $.26 per share for the same period in 1996. The
annualized return on average assets was 1.17% and .91% for the first six
months of 1997 and 1996, respectively. The annualized return on average
shareholders' equity was 17.05% and 13.33% for the first six months of 1997
and 1996, respectively.
Net income for the second quarter ended June 30, 1997 was $707 Thousand
compared to $449 Thousand for the same period in 1996. Related fully
diluted earnings per share were: $.20 per share for the second quarter of
1997 versus $.14 per share for the same period in 1996. The annualized
return on average assets was 1.14% and .92% for the second quarter of 1997
and 1996, respectively. The annualized return on average shareholders'
equity was 16.68% and 13.59% for the second quarter of 1997 and 1996,
respectively.
Net Interest Income.
The $1.196 Million, or 30.5%, increase in net interest income reflected in
the first six months of 1997 (at $5.113 Million) over the same period in
1996 (at $3.917 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
higher costing certificates of deposit have run off and non-interest
bearing demand deposit accounts have grown as a percentage of total deposit
liabilities.
The $629 Thousand, or 30.5%, increase in net interest income reflected in
the second quarter of 1997 (at $2.694 Million) over the same period in 1996
(at $2.065 Million) was attributable to the same factors as discussed in
the above comparisons of the first six months of 1997 and 1996.
Noninterest Income.
For the first six months of 1997 noninterest income increased $714 Thousand
or 135.0% to $1.243 Million, up from $529 Thousand for the same period in
1996. This variance was primarily attributable to the gains from sales of
loans which amounted to $964 Thousand during the first six months of 1997
versus $409 Thousand in the first six 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 concious effort to lessen its reliance on SBA loans.
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.
In addition, the Corporation's residential mortgage division contributed
$108 Thousand in gains during the first six months of 1997 compared with
$43 Thousand in the first half 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 contibuting 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 $181 Thousand for the six months ended June 30, 1997
compared with $97 Thousand for the six months ended June 30, 1996.
For the second quarter of 1997, noninterest income increased $385 Thousand
or 128.3% to $685 Thousand, up from $300 Thousand for the same period in
1996. This increase was attributable to the same factors as discussed in
the above comparisons of the first six months of 1997 and 1996.
Noninterest Expense.
For the first six months of 1997 as opposed to the same period in 1996,
total noninterest expense increased by $955 Thousand, or 33.2, to $3.833
Million from $2.878 Million.
Salaries and benefits accounted for $422 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 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 Clinton Township
branch in May 1996.
Occupancy related expenses increased $237 Thousand for the first six 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 $46 Thousand to the increase in
noninterest expense, primarily as a result of increased volume.
Advertising and business development costs increased by $76 Thousand for
the six months ended June 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 $69 Thousand for the six months ended June 30, 1997
compared to the six months ended June 30, 1996 as a result of the adoption
of a non-tax qualified retirement plan for outside directors in February
1997.
For the second quarter of 1997 as opposed to the same period in 1996, total
noninterest expenses rose by $535 Thousand, or 35.4%, to $2.045 Million
from $1.510 Million. The increases in noninterest expense reflected in the
second quarter of 1997 over the same period in 1996 are attributable to the
same factors as discussed in the above comparisons of the first six months
of 1997 and 1996.
As some indication of the Corporation's control over noninterest expenses
(though combining it with a measure of the Corporation's ability to produce
noninterest income), the "efficiency ratio" (noninterest expense divided by
the sum of taxable equivalent net interest income and noninterest
income)improved to 59% from 64% for the first six months of 1997 vs. the
first six months of 1996; and to 60% from 63% for the second quarter 1997
vs. the second quarter 1996. Understandably, however the more precise
measure of noninterest expense control, the "overhead ratio" (annualized
noninterest expense over average assets for the period) has increased
primarily as a result of the branch expansion discussed above. This
percentage was 3.20% and 3.31% for the first half and second quarter 1997,
respectively; as compared to 3.07% and 3.09% for the first half and second
quarter 1996, respectively.
Further increases in noninterest expense, particularly salaries and
benefits and occupancy expenses, are expected in connection with the
Corporation's seventh branch opening scheduled for the third of quarter
1997 on the western side of the Clinton market.
Provisions for Loan Losses.
For the first six months of 1997 as compared to the first six months of
1996, the provision for loan losses increased by $178 Thousand. For the
second quarter of 1997 as compared to the second quarter of 1996, the
provision for loan losses increased by $133 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 June 30, 1997 amounted
to just .53% of total loans.
Income Tax Expense.
Provisions for income tax totaled $792 Thousand and $394 Thousand for the
six and three months ended June 30, 1997, respectively, up from $573
Thousand and $306 Thousand for the six and three months ended June 30,
1996, respectively as a result of the Corporation's increased taxable
earnings. The Corporation's effective tax rate declined to 36.0% for the
six months ended June 30, 1997 compared with 40.3% for the six months ended
June 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 4. Submission of Matters to a Vote of Security Holders
On April 22, 1997, Prestige Financial Corp. held its Annual Meeting of
Shareholders. Matters voted on and the results of such voting are as
follows:
Election of Directors
Roland D. Boehm, Sr.; Louis R. DeFalco; Arnold F. Horvath; Robert J. Jablonski;
Gerald A. Lustig; James W. MacDonald; and Arthur Stryker, Jr. were elected to
serve as Directors of Prestige Financial Corp. until the 1998 Annual Meeting.
Amendment to the 1994 Stock Option Plan for Senior Management
An amendment to increase by 21,600 (to 104,100) the number of shares which may
be optioned under the plan was approved with 1,749,007 votes cast in favor;
65,822 votes cast against; 48,623 votes abstained; and 219,765 non-votes.
Amendment to the 1994 Stock Option Plan for Outside Directors
An amendment to increase by 33,000 (to 105,600) the number of shares which may
be optioned under the plan and to provide that options may be granted to outside
directors attaining two years of service with the Corporation or the Bank was
approved with 1,765,369 votes cast in favor; 83,395 votes cast against; 54,188
votes abstained; and 180,265 non-votes.
Ratification of Independent Accountants
The selection of KPMG Peat Marwick LLP as the Corporation's independent
accountants for 1997 was ratified with 2,077,047 votes cast in favor; 1,024
votes cast against; and 5,146 votes abstained.
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 Incorporatiuon 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 June 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
June 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: August 11, 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>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
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