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, 1998 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
of 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,
1998:
Common Stock (par value $.01) 4,257,821 Shares
Table of Contents Page
Part I. Financial information
Item 1. Financial statements
Consolidated Statements of Financial Condition as
of June 30, 1998, December 31, 1997 and
June 30, 1997 3
Consolidated Statements of Income for the Three Months
Ended and Six Months Ended June 30, 1998 and 1997 4
Consolidated Statements of Changes in Stockholders'
Equity for the Six Months Ended June 30,
1998 and 1997 5
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1998 and 1997 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
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>
06/30/98 12/31/97 06/30/97
<S> <C> <C> <C>
ASSETS:
Cash and due from banks $10,974 $10,297 $12,235
Federal funds sold and
short-term investments 10,307 11,313 6,030
Total cash and cash
equivalents 21,281 21,610 18,265
Loans held for sale, net 9,090 16,284 15,189
Investment securities
available for sale, net:
Taxable 8,112 - -
Investment securities held
to maturity, net:
Taxable
(Market value $88,319,
$89,804, and $76,592
respectively) 87,770 89,249 76,595
Exempt from Federal
income tax
(Market value $6,617,
$5,556 and $5,444
respectively) 6,620 5,569 5,447
Loans, net 168,279 141,647 133,632
...Less allowance for loan losses 2,019 1,838 1,704
Net loans 166,260 139,809 131,928
Premises and equipment, net 3,650 3,428 3,189
Accrued interest receivable 2,149 2,009 1,779
Other assets 5,467 5,629 5,159
TOTAL ASSETS $310,399 $283,587 $257,551
LIABILITIES AND STOCKHOLDERS' EQUITY:
LIABILITIES
Deposits:
Non-interest bearing 55,139 47,595 41,932
Interest bearing 232,477 215,561 197,052
Total deposits 287,616 263,156 238,984
Accrued interest payable 463 426 325
Accrued expenses and
other liabilities 1,131 1,116 895
TOTAL LIABILITIES 289,210 264,698 240,204
STOCKHOLDERS' EQUITY
Common stock, par value
$.01; 5,000,000 shares authorized;
4,249,518; 3,308,624 and 3,249,737
shares issued and outstanding at
June 30, 1998, December 31, 1997
and June 30, 1997, respectively 42 33 32
Paid in capital 16,304 15,071 14,253
Retained earnings 4,824 3,785 3,062
Accumulated Other
Comprehensive Income 19 - -
TOTAL STOCKHOLDERS' EQUITY 21,189 18,889 17,347
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $310,399 $283,587 $257,551
</TABLE>
See accompanying notes to Consolidated Financial Statements
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,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Interest income:
Loans $3,880 $3,476 $7,603 $6,742
Federal funds sold 75 96 192 210
Investment Securities
Available for Sale:
Taxable 60 - 69 -
Investment Securities
Held to Maturity:
Taxable 1,361 1,272 2,733 2,337
Exempt from Federal
income tax 52 50 102 93
TOTAL INTEREST INCOME 5,428 4,894 10,699 9,382
Interest expense:
Deposits 2,557 2,200 5,081 4,269
Federal funds purchased 1 - 1 -
TOTAL INTEREST EXPENSE 2,558 2,200 5,082 4,269
Net interest income 2,870 2,694 5,617 5,113
Provision for loan losses 250 233 363 323
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 2,620 2,461 5,254 4,790
Non-interest income:
Service charges on
deposit accounts 125 95 235 181
Gain on sale of loans 449 526 865 964
Increase in cash surrender
value of corporate owned
life insurance 86 45 167 60
Other income 124 19 227 38
TOTAL NON-INTEREST INCOME 784 685 1,494 1,243
Non-interest expense:
Salaries and employee
benefits 1,100 936 2,187 1,853
Net occupancy expense 473 477 919 831
Data processing 141 92 234 181
Advertising/business
development 56 94 95 165
Directors fees 95 90 188 146
Other expenses 356 356 750 657
TOTAL NON-INTEREST EXPENSE 2,221 2,045 4,373 3,833
Income before provision for
income taxes 1,183 1,101 2,375 2,200
Provision for income taxes 361 394 725 792
NET INCOME $822 $707 $1,650 $1,408
Net income per common share:
Basic $0.20 $0.18 $0.39 $0.35
Diluted $0.18 $0.16 $0.36 $0.33
Weighted average shares
outstanding - basic 4,207,049 4,039,340 4,178,833 4,020,453
Weighted average shares
outstanding - diluted 4,537,242 4,341,890 4,531,362 4,301,065
</TABLE>
See accompanying notes to Consolidated Financial Statements
Prestige Financial Corp. and Subsidiary
<TABLE>
Consolidated Statements of Changes in Stockholders' Equity
Six Months Ended June 30, 1998 and 1997 (Unaudited)
(Dollars in thousands)
<CAPTION>
Number of Accumulated Other Total
Common Common Paid-In Retained Comprehensive Stockholders'
Shares Stock Capital Earnings Income Equity
<S> <C> <C> <C> <C> <C> <C>
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
Balance, December 31,
1997 3,308,624 33 15,071 3,785 - 18,889
Exercise of options 10,973 - 81 - - 81
Common stock grants 11,216 - 59 - - 59
Dividend reinvestment
and common stock
purchase plan 73,471 1 1,025 - - 1,026
Common stock issued
under 401(k) plan 4,334 - 68 - - 68
Five-for-four common
stock split 840,900 8 - (8) - -
Common stock cash
dividend - - - (603) - (603)
Unrealized Gain on
Investment Securities
Available for Sale - - - - 19 19
Net income - - - 1,650 - 1,650
Balance, June 30, 1998 4,249,518 $42 $16,304 $4,824 $19 $21,189
</TABLE>
See accompanying notes to Consolidated Financial Statements
Prestige Financial Corp. and Subsidiary
<TABLE>
Consolidated Statements of Cash Flow
Six Months Ended June 30, 1998 and 1997 (Unaudited)
(Dollars in thousands)
<CAPTION>
Six Months
Ended June 30,
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net income $1,650 $1,408
Adjustments to reconcile net income to net
cash used in operating activities:
Provision for loan losses 363 323
Depreciation and amortization 263 223
Amortization / accretion of investment
securities premiums and discounts, net 440 265
Amortization of organizational costs 7 8
Increase in accrued interest receivable (140) (241)
Decrease (increase) in other assets 155 (3,957)
Gain on sale of loans (865) (964)
Proceeds from sale of loans held for sale 21,921 21,307
Net increase in loans held for sale (13,862) (20,520)
Increase in accrued interest payable 37 17
Increase (decrease) in accrued expenses and
other liabilities 3 (8)
Increase (decrease) in deferred loan fees and
unearned discounts 110 (106)
Common stock grants 59 59
NET CASH PROVIDED BY (USED IN) OPERATING
OPERATING ACTIVITIES 10,141 (2,186)
Cash flows from investing activities:
Proceeds from maturities of investment
securities 30,492 12,775
Principal paydowns on mortgage-backed
securities 8,069 3,257
Purchases of investment and mortgage-backed
securities (46,654) (29,465)
Net increase in loans (26,924) (10,282)
Capital expenditures (485) (922)
NET CASH USED IN INVESTING ACTIVITIES (35,502) (24,637)
Cash flows from financing activities:
Net increase in demand deposits, MMA, NOW
and savings accounts 22,297 24,426
Net increase in certificates of deposit 1,663 1,962
Proceeds from issuance of common stock, net 1,175 613
Dividends paid (603) (443)
NET CASH PROVIDED BY FINANCING ACTIVITIES 25,032 26,558
Decrease in cash and cash equivalents (329) (265)
Cash and cash equivalents at begining of year 21,610 18,529
Cash and cash equivalents at end of period $21,281 $18,264
Supplemental disclosure of cash flow information-
Cash paid during the year for:
Interest $5,045 $4,252
Income taxes 561 1,096
</TABLE>
See accompanying notes to Consolidated Financial Statements
Prestige Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
1. Principles of consolidation
Prestige Financial Corp. (the "Corporation") is a one bank holding company
which was organized as a corporation under New Jersey law in February,
1993. On July 31, 1993, Prestige State Bank (the "Bank"), a New Jersey-
chartered commercial bank, consummated its reorganization into a holding
company structure pursuant to a Plan of Acquisition whereby the Bank became
a wholly-owned subsidiary of the Corporation. The reorganization was
accounted for under the pooling of interests method of accounting for
financial reporting purposes.
The Bank's application and certificate of incorporation were accepted by
the New Jersey Banking Commissioner on March 13, 1989. The Bank was
granted a charter by the Commissioner on September 2, 1989 and received its
Certificate of Authority and commenced operations on March 12, 1990. The
Bank is not a member of the Federal Reserve and has its deposits insured by
the Federal Deposit Insurance Corporation.
PSB Investment Management, Inc., a wholly-owned subsidiary of the Bank, was
organized as a corporation under New Jersey law in July, 1996. PSB
Investment Management, Inc. manages a portfolio of investments for its own
account. The Bank has no other subsidiaries.
PFC Financial Services, Inc., a wholly-owned subsidiary of the Corporation,
was organized as a corporation under New Jersey law in December 1997. PFC
Financial Services, Inc. provides customers with financial planning and
access to non-deposit investment products such as mutual funds, debt and
equity securities, fixed and variable annuities, etc. through Financial
Network Investment Corporation, a licensed broker/dealer, insurance agency
and registered investment advisor. PFC Financial Services, Inc. commenced
operations in January, 1998.
The accompanying unaudited consolidated financial statements include the
accounts of Prestige Financial Corp. and its subsidiaries. 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 and six months
ended June 30, 1998 are not necessarily indicative of the results that may
be expected for the year ended December 31, 1998.
3. Stockholders' Equity
On May 21, 1998 the Board of Directors approved an eight cent per share
cash dividend on common stock, paid June 30, 1998 to shareholders of record
at June 19, 1998.
On February 23, 1998 the Board of Directors approved an eight cent per
share cash dividend on common stock, paid March 31, 1998 to shareholders of
record at March 20, 1998. Also on February 23, 1998 the Board of Directors
approved a five-for-four stock split, distributed April 17, 1998 to
shareholders of record at April 8, 1998.
4. Net Income Per Common Share
Basic net income per common share is calculated by dividing net income by
weighted average shares outstanding. Diluted net income per common share
is calculated by dividing net income by weighted average shares outstanding
as adjusted for the assumed exercise of potential common stock, using the
treasury stock method. Potential common stock resulting from stock option
agreements totaled 330,193 shares and 302,550 shares for the three months
ended June 30, 1998 and 1997, respectively. Potential common stock
resulting from stock option agreements totaled 352,529 shares and 280,612
shares for the six months ended June 30, 1998 and 1997, respectively. All
weighted average shares outstanding reflect the five-for-four stock split
distributed April 17, 1998 and the six-for-five stock split distributed
April 18, 1997.
5. Recent Accounting Pronouncements
Effective January 1, 1998, the Corporation adopted the provisions of
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 consists of 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.
Comparative financial statements provided for earlier periods are required
to be reclassified to reflect application of the provisions of SFAS No.
130.
SFAS No. 130 requires total comprehensive income and its components to be
displayed on the face of a financial statement for annual financial
statements. For interim financial statements, SFAS No. 130 requires only
total comprehensive income to be reported and allows such disclosure to be
presented in the notes to the interim financial statements.
For the three month periods ended June 30, 1998 and 1997 total
comprehensive income amounted to $844 Thousand and $707 Thousand,
respectively.
For the six month periods ended June 30, 1998 and 1997 total comprehensive
income amounted to $1.669 Million and $1.408 Million, respectively.
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 131, "Disclosures About Segments of an Enterprise and Related
Information." SFAS No. 131 establishes standards and disclosure
requirements for the way companies report information about operating
segments, including related product information. Operating segments are
defined based upon the way management organizes segments for making
operations decisions and evaluating performance. Information such as
segment net earnings, revenues, expense items and certain balance sheet
amounts are required to be presented. These amounts are to be reconciled
to the Corporation's combined financial information. SFAS No. 131 is
effective for financial statements issued for annual periods ending after
December 15, 1998 and interim periods beginning in 1999.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
About Pensions and Other Postretirement Benefits." This Statement
standardizes the disclosure requirements for pension and other
postretirement benefits by requiring additional information that will
facilitate financial analysis, and eliminating certain disclosures that are
considered no longer useful. SFAS No. 132 supersedes the disclosure
requirements in SFAS Nos. 87, 88 and 106. This Statement is effective for
fiscal years beginning after December 15, 1997 and will be adopted December
31, 1998.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement establishes accounting
and reporting standards for derivative instruments, and for hedging
activities. SFAS No. 133 supersedes the disclosure requirements in SFAS
Nos. 80, 105, and 119. This Statement is effective for periods after June
15, 1999. The adoption of SFAS No. 133 is not expected to have a material
impact on the financial position or results of operations 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 June 30, 1998, total assets had reached $310.4 Million which was a $26.8
Million, or 9.4%, increase as compared to the December 31, 1997 balance of
$283.6 Million; and a $52.8 Million, or 20.5%, increase when compared to
the June 30, 1997 balance of $257.6 Million. This growth was funded
primarily from deposits (mainly "core" demand and time accounts) which
increased by $24.4 Million, or 9.3%, to $287.6 Million at June 30, 1998 as
compared to $263.2 Million at December 31, 1997; and by $48.6 Million, or
20.3%, when compared to the June 30, 1997 balance of $239.0 Million. The
June 1998 opening of the Corporation's eighth office, in a bank building on
Main Street in Somerville, NJ that is listed on the National Register of
Historic Places, contributed to this growth as did the opening of a branch
in the western portion of Clinton Township in August 1997 and the opening
of free standing and supermarket branches located in the "Prestige Plaza"
shopping center in Raritan Township in May of 1997.
Total Stockholders' Equity stood at $21.2 Million as of June 30, 1998 and
was $2.3 Million, or 12.2%, higher than the year-end 1997 balance of $18.9
Million; and $3.8 Million, or 22.0%, higher than the June 30, 1997 balance
of $17.3 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 (the Plan), partially offset by cash dividends
paid. Under the provisions of the Plan, shareholders may reinvest dividends
free from brokers' commissions and may make optional cash purchases of
Corporation common stock to a maximum of $5 Thousand per quarter at a 5%
discount from market price. The increase in stockholders' equity was
achieved despite cash dividends paid totaling $603 Thousand in the first
six months of 1998, up from $443 Thousand in the first six months of 1997.
The Corporation has paid consecutive quarterly cash dividends since March
31, 1995 and last increased the dividend rate in March 1998 to $.08 per
share from $.075 per share.
Within the asset composition, the above growth was primarily utilized to
fund increases in the loan and investment portfolios. As of June 30, 1998
outstanding loans, including loans held for sale, totaled $177.4 Million
which was $19.5 Million, or 12.3%, more than the December 31, 1997 balance
of $157.9 Million; and $28.6 Million, or 19.2%, greater than the June 30,
1997 balance of $148.8 Million. Loan growth occurred primarily in the
commercial mortgage and tax exempt municipal loan categories, and to a
lesser degree in the indirect consumer and home equity portfolios.
Loans held for sale totaled $9.1 Million at June 30, 1998 vs. $16.3 Million
at December 31, 1997 and $15.2 Million at June 30, 1997. Loans held for
sale are 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 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 at June 30, 1998 amounted to $102.5 Million, an
increase of $7.7 Million, or 8.1% as compared to the December 31, 1997
balance of $94.8 Million; and higher by $20.5 Million, or 25.0%, when
compared with the June 30, 1997 balance of $82.0 Million. This growth
resulted primarily from the purchase of securities issued by the United
States government and its agencies, including mortgage-backed securities.
At June 30, 1998, other assets totaled $5.5 Million versus the December 31,
1997 balance of $5.6 Million, and the June 30, 1997 balance of $5.2
Million. Other assets consist primarily of investments in corporate owned
life insurance.
At June 30, 1998, the allowance for possible loan losses stood at $2.019
Million --$181 Thousand more than the year-end 1997 figure of $1.838
Million and $315 Thousand more than the June 30, 1997 balance of $1.704
Million. The first half 1998 change from year-end 1997 resulted from
provisions of $363 Thousand and net charge-offs of $182 Thousand. The
allowance as a percentage of total outstanding loans as of June 30, 1998
was 1.14% as compared to 1.16% as of December 31, 1997, and 1.15% as of
June 30, 1997.
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 $1.4 Million at June 30, 1998
compared with $1.1 Million at December 31, 1997 and $1.3 Million at June
30, 1997. Non-accrual loans (also classified as impaired loans) totaled
$862 Thousand (.49% of total loans) as of June 30, 1998 as compared to $874
Thousand (.54% of total loans) as of December 31, 1997, and $791 Thousand
(.53% of total loans) as of June 30, 1997. Of the $862 Thousand in non-
accrual loans at June 30, 1998, $196 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, 1998, the Corporation's and the Bank's core (Tier 1) risk-based
capital ratios were 10.33% and 9.24%, respectively, versus 10.78% and 9.85%
at December 31, 1997; and 11.10% and 10.25% at June 30, 1997. These ratios
compare favorably to a minimum of 4% as required by the FRB and the FDIC.
At June 30, 1998, the Corporation's and the Bank's total (Tier 1 plus Tier
2) risk-based capital ratios were 11.32% and 10.24%, respectively, versus
11.83% and 10.91% at December 31, 1997; and 12.19% and 11.34% at June 30,
1997. 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, 1998, the Corporation's and the Bank's leverage ratios were
7.18% and 6.42%, respectively, versus 6.75% and 6.26% at December 31, 1997;
and 7.01% and 6.49% at June 30, 1997. 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, 1998, 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 428% for June 30, 1998, versus 390% for December 31, 1997, and
versus 456% for June 30, 1997. All of these are considered by management
to be satisfactory.
Results of Operations
Net income for the first six months of 1998 amounted to $1.650 Million
compared to $1.408 Million for the same period in 1997. Related diluted
earnings-per-share data were: $.36 per share for the first six months of
1998 versus $.33 per share for the same period in 1997. The annualized
return on average assets was 1.14% and 1.17% for the first six months of
1998 and 1997, respectively. The annualized return on average shareholders'
equity was 16.54% and 17.05% for the first six months of 1998 and 1997,
respectively.
Net income for the second quarter ended June 30, 1998 was $822 Thousand
compared to $707 Thousand for the same period in 1997. Related diluted
earnings per share were: $.18 per share for the second quarter of 1998
versus $.16 per share for the same period in 1997. The annualized return
on average assets was 1.11% and 1.14% for the second quarter of 1998 and
1997, respectively. The annualized return on average shareholders' equity
was 16.00% and 16.68% for the second quarter of 1998 and 1997,
respectively.
Net Interest Income.
The $504 Thousand, or 9.9%, increase in net interest income reflected in
the first six months of 1998 (at $5.617 Million) over the same period in
1997 (at $5.113 Million) was attributable to an increase in earning asset
volume. The net interest margin for the six months ended June 30, 1998
declined to 4.24% from 4.51%, primarily as a result of declines in earning
asset yields.
The $176 Thousand, or 6.5%, increase in net interest income reflected in
the second quarter of 1998 (at $2.870 Million) over the same period in 1997
(at $2.694 Million) was attributable to the same factors as discussed in
the above comparisons of the first six months of 1998 and 1997.
Noninterest Income.
For the first six months of 1998 noninterest income increased $251 Thousand
or 20.2% to $1.494 Million, up from $1.243 Million for the same period in
1997.
The Corporation received data processing credits totalling $120 Thousand in
the first six months of 1998 included in other income as a result of
participation in software development and testing with a third party
vendor. No such credits were received during the six months ended June 30,
1997.,
Income resulting from increases in the cash surrender value of corporate
owned life insurance was $107 Thousand greater for the six months ended
June 30, 1998 than for the same period a year ago. The underlying policies
were purchased in February 1997.
Also within other income, fees generated by a new retail investment
subsidiary, PFC Financial Services, Inc., totaled $59 Thousand for the six
months ended June 30, 1998. PFC Financial Services commenced operations in
January, 1998.
Service charges on deposit accounts contributed another $54 Thousand to the
increase in noninterest income for the six months ended June 30, 1998
compared to the six months ended June 30, 1997 primarily as a result of
increased volume of business accounts and related service offerings.
The above increases in noninterest income were offset by a decline in gains
from sales of loans which amounted to $865 Thousand during the first six
months of 1998 versus $964 Thousand in the first six months of 1997. This
decrease is attributable to reductions in average premiums on sold loans.
For the second quarter of 1998, noninterest income increased $99 Thousand
or 14.5% to $784 Thousand, up from $685 Thousand for the same period in
1997. This increase was attributable to the same factors as discussed in
the above comparisons of the first six months of 1998 and 1997.
Noninterest Expense.
For the first six months of 1998 as compared to the same period in 1997,
total noninterest expense increased by $540 Thousand, or 14.1%, to $4.373
Million from $3.833 Million.
Salaries and benefits accounted for $334 Thousand of the above increase due
to the January 1 effective date for all pay increases, the addition of
personnel to staff the Corporation's larger branch network and service a
growing customer base, and the adoption of a supplemental executive
retirement plan in February 1997.
Occupancy related expenses increased $88 Thousand for the first six months
of 1998 versus the same period in 1997 due to the opening of the
Corporation's eighth office, on Main Street in Somerville in June 1998, the
opening of a branch in the western portion of Clinton Township in August
1997 and the opening of free standing and supermarket branches located in
the "Prestige Plaza" shopping center in Raritan Township in May of 1997.
Data Processing costs contributed another $53 Thousand to the increase in
noninterest expense, primarily as a result of increased volume.
Directors compensation grew by $42 Thousand for the six months ended June
30, 1998 compared to the six months ended June 30, 1997 as a result of the
adoption of a non-tax qualified retirement plan for outside directors in
February 1997.
Other expenses grew by $93 Thousand for the six months ended June 30, 1998
compared to the six months ended June 30, 1997 primarily as a result of
volume related increases in telephone and postage costs, ATM fees, and
lending expenses.
Offsetting these increases in noninterest expense, advertising and business
development costs decreased by $70 Thousand for the six months ended June
30, 1998 versus the same period in 1997 as branch locations opened in prior
years mature and require somewhat less intensive marketing efforts.
For the second quarter of 1998 as opposed to the same period in 1997, total
noninterest expenses rose by $176 Thousand, or 8.6%, to $2.221 Million from
2.045 Million. The increases in noninterest expense reflected in the
second quarter of 1998 over the same period in 1997 are attributable to the
same factors as discussed in the above comparisons of the first six months
of 1998 and 1997.
As some indication of the Corporation's control over noninterest expense
(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)
was 60% for the first six months of 1998 vs. 59% for the first six months
of 1997; and was 59% for the second quarter 1998 vs. 60% for the second
quarter 1997. More strictly directed at noninterest expense control, the
"overhead ratio" (annualized noninterest expense over average assets for
the period) improved to 3.03% from 3.20% for the first six months of 1998
vs. the first six months of 1997; and to 3.14% from 3.31% for the second
quarter 1998 vs. the second quarter 1997.
Provisions for Loan Losses.
For the first six months of 1998 as compared to the first six months of
1997, the provision for loan losses increased by $40 Thousand. For the
second quarter of 1998 as compared to the second quarter of 1997, the
provision for loan losses increased by $17 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, 1998 amounted
to just .49% of total loans.
Income Tax Expense.
Provisions for income tax totaled $725 Thousand and $361 Thousand for the
six and three months ended June 30, 1998, respectively, down from $792
Thousand and $394 Thousand for the six and three months ended June 30,
1997, respectively. The Corporation's effective tax rate declined to 30.5%
for the six months ended June 30, 1998 compared with 36.0% for the six
months ended June 30, 1997. This decrease was primarily attributable to an
increase in tax exempt income associated with municipal lending and an
investment in corporate owned life insurance; and the operations of PSB
Investment Management, Inc. 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
There have been no material changes to information required regarding
quantitative and qualitative disclosures about market risk from the end of
the preceding fiscal year to the date of the most recent interim balance
sheet (June 30, 1998.)
Part II Other Information
Item 4. Submission of Matters to a Vote of Security Holders
On April 21, 1998, 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 1999 Annual Meeting.
Amendment to the 1994 Stock Option Plan for Senior Management
An amendment to increase by 43,750 (to 173,875) the number of
shares which may be optioned under the plan was approved with
1,939,417 votes cast in favor; 140,258 votes cast against; 80,298 votes
abstained; and 448,918 non-votes.
Amendment to the 1994 Stock Option Plan for Outside Directors
An amendment to increase by 25,000 (to 157,000) the number of
shares which may be optioned under the plan was approved with
1,900,243 votes cast in favor; 220,097 votes cast against; 39,933 votes
abstained; and 448,618 non-votes.
Ratification of Independent Accountants
The selection of KPMG Peat Marwick LLP as the Corporation's
independent accountants for 1998 was ratified with 2,597,779
votes cast in favor; 3,826 votes cast against; and 7,286 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, 1998.
(a)(11) Statement on Computation of per-share earnings
Please refer to footnote four on page eight of this Form 10-Q.
(a)(27) Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended
June 30, 1998.
(1) Previously filed with the Corporation's Form S-4, File No. 33-59752,
and incorporated in the Corporation's 1997 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 10, 1998
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