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 March 31, 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 May 1,
1998:
Common Stock (par value $.01) 4,205,389 Shares
Table of Contents Page
Part I. Financial information
Item 1. Financial statements
Consolidated Statements of Financial Condition as
of March 31, 1998, December 31, 1997 and
March 31, 1997 3
Consolidated Statements of Income for the Three Months
Ended March 31, 1998 and 1997 4
Consolidated Statements of Changes in Stockholders'
Equity for the Three Months Ended March 31,
1998 and 1997 5
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1998 and 1997 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 17
Part II. Other information
Item 6. Exhibits and reports on Form 8-K 17
Signatures 18
Item 1. Financial Statements
<TABLE>
Prestige Financial Corp. and Subsidiaries
Consolidated Statements of Financial Condition (Unaudited)
(Dollars in thousands)
<CAPTION>
03/31/98 12/31/97 03/31/97
<S> <C> <C> <C>
ASSETS:
Cash and due from banks $10,654 $10,297 $7,464
Federal funds sold and short-
term investments 11,911 11,313 4,230
Total cash and cash equivalents 22,565 21,610 11,694
Loans held for sale, net 13,521 16,284 15,241
Investment securities available
for sale, net:
Taxable 2,080 - -
Investment securities held to
maturity, net:
Taxable 90,857 89,249 71,859
(Market value $91,382,
$89,804, and $71,053
respectively)
Exempt from Federal income tax 5,184 5,569 4,794
(Market value $5,175,
$5,556 and $4,798 respectively)
Loans, net 149,679 141,647 125,503
...Less allowance for loan losses 1,852 1,838 1,598
Net loans 147,827 139,809 123,905
Premises and equipment, net 3,402 3,428 2,717
Accrued interest receivable 1,875 2,009 1,564
Other assets 5,423 5,629 5,039
TOTAL ASSETS $292,734 $283,587 $236,813
LIABILITIES AND STOCKHOLDERS' EQUITY:
LIABILITIES
Deposits:
Non-interest bearing 45,384 47,595 32,565
Interest bearing 225,457 215,561 186,168
Total deposits 270,841 263,156 218,733
Accrued interest payable 490 426 315
Accrued expenses and
other liabilities 1,262 1,116 1,174
TOTAL LIABILITIES 272,593 264,698 220,222
STOCKHOLDERS' EQUITY
Common stock, par value $.01;
5,000,000 shares authorized;
3,363,733, 3,308,624 and
2,690,331 shares issued and
outstanding at March 31, 1998,
December 31, 1997 and March 31,
respectively 34 33 27
Paid in capital 15,763 15,071 13,961
Retained earnings 4,347 3,785 2,603
Accumulated Other Comprehensive Income (3) - -
TOTAL STOCKHOLDERS' EQUITY 20,141 18,889 16,591
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $292,734 $283,587 $236,813
</TABLE>
See accompanying notes to Consolidated Financial Statements
<TABLE>
Prestige Financial Corp. and Subsidiaries
Consolidated Statements of Income (Unaudited)
(Dollars in thousands, except per share data)
<CAPTION>
Three Months Ended
March 31,
1998 1997
<S> <C> <C>
Interest income:
Loans $3,723 $3,266
Federal funds sold and short-term 117 114
investments
Investment Securities:
Taxable 1,381 1,065
Exempt from Federal income tax 50 43
TOTAL INTEREST INCOME 5,271 4,488
Interest expense:
Deposits 2,524 2,069
TOTAL INTEREST EXPENSE 2,524 2,069
Net interest income 2,747 2,419
Provision for loan losses 113 90
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 2,634 2,329
Non-interest income:
Service charges on deposit accounts 110 86
Gain on sale of loans 416 438
Increase in cash surrender value
of corporate owned life insurance 81 15
Other income 103 19
TOTAL NON-INTEREST INCOME 710 558
Non-interest expense:
Salaries and employee benefits 1,087 917
Net occupancy expense 446 354
Data processing 93 89
Advertising/business development 39 71
Directors fees 93 56
Other expenses 394 301
TOTAL NON-INTEREST EXPENSE 2,152 1,788
Income before provision for income taxes 1,192 1,099
Provision for income taxes 364 398
NET INCOME $828 $701
Net income per common share:
Basic $0.20 $0.18
Diluted $0.19 $0.16
Weighted average shares outstanding
- - basic 4,149,655 4,001,355
Weighted average shares outstanding
- - diluted 4,459,540 4,249,731
</TABLE>
See accompanying notes to Consolidated Financial Statements
<TABLE>
Prestige Financial Corp. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
Three Months Ended March 31, 1998 and 1997 (Unaudited)
(Dollars in thousands)
<CAPTION> Accumulated
Number of 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
Common stock grants 9,348 - 59 - - 59
Dividend reinvestment
and common stock purchase plan 18,571 - 300 - - 300
Common stock issued
under 401(k) plan 1,433 - 21 - - 21
Common stock cash dividend - - - (200) - (200)
Net income - - - 701 - 701
Balance, March 31, 1997 2,690,683 $27 $13,961 $2,603 - $16,591
Balance, December 31, 1977 3,308,624 33 15,071 3,785 - 18,889
Exercise of options 7,957 - 63 - - 63
Common stock grants 11,216 - 59 - - 59
Dividend reinvestment
and common stock purchase plan 33,714 1 534 - - 535
Common stock issued
under 401(k) plan 2,222 - 36 - - 36
Common stock cash dividend - - - (266) - (266)
Unrealized Loss on Investment
Securities Available for Sale - - - - (3) (3)
Net income - - - 828 - 828
Balance, March 31, 1998 3,363,733 $34 $15,763 $4,347 ($3) $20,141
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
Prestige Financial Corp. and Subsidiaries
Consolidated Statements of Cash Flow
Three Months Ended March 31, 1998 and 1997 (Unaudited)
(Dollars in thousands)
<CAPTION>
Three Months
Ended March 31,
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net income $828 $701
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 113 90
Depreciation and amortization 133 103
Amortization (accretion) of investment
securities premiums and discounts, net 221 167
Amortization of organizational costs 4 4
Decrease (increase) in accrued interest 134
receivable 134 (26)
Decrease (increase) in other assets 204 (27)
Gain on sale of loans (416) (438)
Proceeds from sale of loans held for sale 10,192 8,323
Net increase in loans held for sale (7,013) (8,113)
Increase in accrued interest payable 64 7
Increase in accrued expenses and other
liabilities 146 271
Decrease in deferred loan fees and unearned
discounts (62) (91)
Common stock grants 59 59
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,607 1,030
Cash flows from investing activities:
Proceeds from maturities of investment
securities held to maturity 16,756 5,612
Principal paydowns on mortgage-backed securities
held to maturity 4,982 1,546
Purchases of investment and mortgage-backed
securities held to maturity (23,182) (15,104)
Purchases of investment securities available for
sale (2,085) -
Net increase in loans (8,069) (2,041)
Purchase of corporate owned life insurance - (3,806)
Capital expenditures (107) (330)
NET CASH USED IN INVESTING ACTIVITIES (11,705) (14,123)
Cash flows from financing activities:
Net increase in demand deposits, MMA, NOW and
savings accounts 6,774 3,589
Net increase in certificates of deposit 911 2,548
Proceeds from issuance of common stock, net 634 321
Dividends paid (266) (200)
NET CASH PROVIDED BY FINANCING ACTIVITIES 8,053 6,258
Increase (decrease) in cash and cash equivalents 955 (6,835)
Cash and cash equivalents at begining of year 21,610 18,529
Cash and cash equivalents at end of period $22,565 $11,694
Supplemental disclosure of cash flow information-
Cash paid during the year for:
Interest $2,460 $2,062
Income taxes - 85
</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 ended March 31,
1998 are not necessarily indicative of the results that may be expected for
the year ended December 31, 1998.
3. Stockholders' Equity
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 247,908 shares and 198,701 shares for the three months
ended March 31, 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 March 31, 1998 and 1997 total
comprehensive income amounted to $825 Thousand and $701 Thousand,
respectively.
Prestige Financial Corp. and Subsidiaries
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Financial Condition
At March 31, 1998, total assets had reached $292.7 Million which was a $9.1
Million, or 3%, increase as compared to the December 31, 1997 balance of
$283.6 Million; and a $55.9 Million, or 24%, increase when compared to the
March 31, 1997 balance of $236.8 Million. This growth was funded primarily
from deposits (mainly "core" demand and time accounts) which increased by
$7.7 Million, or 3%, to $270.8 Million at March 31, 1998 as compared to
$263.2 Million at December 31, 1997; and by $52.1 Million, or 24%, when
compared to the March 31, 1997 balance of $218.7 Million. 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 contributed to
this growth as did selected CD promotions.
Total Stockholders' Equity stood at $20.1 Million as of March 31, 1998 and
was $1.3 Million, or 7%, higher than the year-end 1997 balance of $18.9
Million; and $3.6 Million, or 21%, higher than the March 31, 1997 balance
of $16.6 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 $266 Thousand in the first
three months of 1998, up from $200 Thousand in the first three months of
1997. The Corporation has paid consecutive quarterly cash dividends since
March 31, 1995 and increased the dividend rate to $.08 per share from $.075
per share in March 1998.
Within the asset composition, the above growth was primarily utilized to
fund increases in the loan and investment portfolios. As of March 31, 1998
outstanding loans, including loans held for sale, totaled $163.2 Million
which was $5.3 Million, or 3%, more than the December 31, 1997 balance of
$157.9 Million; and $22.5 Million, or 16%, greater than the March 31, 1997
balance of $140.7 Million.
Loans held for sale totaled $13.5 Million at March 31, 1998 vs. $16.3
Million at December 31, 1997 and $15.2 Million at March 31, 1997. 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 at March 31, 1998 amounted to $98.1 Million, an
increase of $3.3 Million, or 3% as compared to the December 31, 1997
balance of $94.8 Million; and higher by $21.5 Million, or 28%, when
compared with the March 31, 1997 balance of $76.7 Million. This growth
resulted primarily from the purchase of securities issued by the United
States government and its agencies, including mortgage-backed securities.
At March 31, 1998, other assets totaled $5.4 Million versus $5.6 Million at
December 31, 1997 and $5.0 Million at March 31, 1997. Other assets consist
primarily of investments in corporate owned life insurance.
At March 31, 1998, the allowance for loan losses stood at $1.852 Million --
$14 Thousand more than the year-end 1997 figure of $1.838 Million and $254
Thousand more than the March 31, 1997 balance of $1.598 Million. The
increase in the first three months of 1998 from year-end 1997 resulted from
provisions of $113 Thousand less net charge-offs of $99 Thousand. The
allowance as a percentage of total outstanding loans was 1.16% as of March
31, 1998 and December 31, 1997, and 1.14% as of March 31, 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 $1.5 Million at March 31, 1998
compared with $1.1 Million at December 31, 1997 and $839 Thousand at March
31, 1997. Non-accrual loans (also classified as impaired loans) totaled
$874 Thousand (.54% of total loans) as of March 31, 1998 versus $920
Thousand (.58% of total loans) at December 31, 1997, and $454 Thousand
(.33% of total loans) as of March 31, 1997. Of the $874 Thousand in non-
accrual loans at March 31, 1998, $197 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 March 31, 1998, the Corporation's and the Bank's core (Tier 1) risk-
based capital ratios were 11.00% and 9.88%, respectively, versus 10.78% and
9.85% at December 31, 1997; and 11.42% and 10.55% at March 31, 1997. These
ratios compare favorably to a minimum of 4% as required by the FRB and the
FDIC.
At March 31, 1998, the Corporation's and the Bank's total (Tier 1 plus Tier
2) risk-based capital ratios were 12.01% and 10.89%, respectively, versus
11.83% and 10.91% at December 31, 1997; and 12.52% and 11.65% at March 31,
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 March 31, 1998, the Corporation's and the Bank's leverage ratios were
7.15% and 6.44%, respectively, versus 6.75% and 6.26% at December 31, 1997;
and 7.14% and 6.62% at March 31, 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 March 31, 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 exercise of stock
options and 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 406% for March 31, 1998, versus 390% for December 31, 1997, and
versus 362% for March 31, 1997. All of these are considered by management
to be satisfactory.
Results of Operations
Net income for the first three months of 1998 amounted to $828 Thousand
compared to $701 Thousand for the same period in 1997. Related diluted
earnings-per-share data were: $.19 per share for the first three months of
1998 versus $.16 per share for the same period in 1997. These figures
reflect the five-for-four stock split distributed in April, 1998 and the
six-for-five stock split distributed in April, 1997. The annualized return
on average assets was 1.18% and 1.21% for the first three months of 1998
and 1997, respectively. The annualized return on average shareholders'
equity was 17.12% and 17.45% for the first three months of 1998 and 1997,
respectively.
Net Interest Income.
The $328 Thousand, or 14%, increase in net interest income reflected in the
first three months of 1998 (at $2.7 Million) over the same period in 1997
(at $2.4 Million) was attributable to an increase in earning asset volume.
The net interest margin for the three months ended March 31, 1998 declined
to 4.21% from 4.35% for the three months ended March 31, 1997 primarily as
a result of declines in earning asset yields.
Noninterest Income.
For the first three months of 1998 noninterest income increased $152
Thousand or 27% to $710 Thousand, up from $558 Thousand for the same period
in 1997.
Income resulting from increases in the cash surrender value of corporate
owned life insurance was $66 Thousand greater for the three months ended
March 31, 1998 than for the same period a year ago. The underlying
policies were purchased in February 1997.
The Corporation received data processing credits totalling $60 Thousand in
the first three 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 three months ended March
31, 1997.
Also within other income, fees generated by a new retail investment
subsidiary, PFC Financial Services, Inc., totaled $19 Thousand for the
three months ended March 31, 1998. PFC Financial Services commenced
operations in January, 1998.
Service charges on deposit accounts contributed another $24 Thousand to the
increase in noninterest income for the three months ended March 31, 1998
compared to the three months ended March 31, 1997 primarily as a result of
increased volume of business accounts and related service offerings.
Noninterest Expense.
For the first three months of 1998 as compared to the same period in 1997,
total noninterest expense increased by $364 Thousand, or 20%, to $2.2
Million from $1.8 Million.
Salaries and benefits accounted for $170 Thousand of the above increase due
to the January 1 effective date for all pay increases, the addition of
personnel to service the Corporation's growing customer base, and the
adoption of a supplemental executive retirement plan in February 1997.
Occupancy related expenses increased $92 Thousand for the first three
months of 1998 versus the same period in 1997 due to 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.
Directors fees grew by $37 Thousand for the three months ended March 31,
1998 compared to the three months ended March 31, 1997 as a result of the
adoption of a non-tax qualified retirement plan for outside directors in
February 1997.
The remaining increase in noninterest expense is primarily attributable to
volume related increases in postage costs, ATM fees, and lending expenses.
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) was 60.99% for the first three months of 1998 compared with 59.33%
for the first three months of 1997. More strictly directed at noninterest
expense control, the "overhead ratio" (annualized noninterest expense over
average assets for the period) improved slightly to 3.06% for the first
three months of 1998 as compared to 3.08% for the first three months of
1997. Though acceptable even at current levels, management believes these
ratios will improve as economies of scale are realized and increased
revenues resulting from growth offset the fixed costs associated with
branch openings.
Provisions for Loan Losses.
For the first three months of 1998 as compared to the first three months of
1997, the provision for loan losses increased by $23 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 March 31, 1998
amounted to just .54% of total loans.
Income Tax Expense
Provisions for income tax totaled $364 Thousand for the first three months
of 1998 versus $398 Thousand in the first three months of 1997. The
Corporation's effective tax rate declined to 30.5% for the three months
ended March 31, 1998 from 36.2% for the three months ended March 31, 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 (March 31, 1998.)
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 March 31, 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
March 31, 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: May 13, 1998
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