10-Q 1 j8833801e10-q.txt PRESTIGE BANCORP, INC. 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________ to ________________ Commission File Number 0-27522 PRESTIGE BANCORP, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Pennsylvania 25-1785128 ------------------------------- ---------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 710 Old Clairton Road Pleasant Hills, Pennsylvania 15236 ---------------------------- ----- (Address of principal executive office) (Zip Code) (412) 655-1190 ---------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes __X__ No _____ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: As of May 14, 2001 there were 946,116 shares of the registrant's common stock outstanding, par value $1.00 per share. ================================================================================ 2 PRESTIGE BANCORP, INC. TABLE OF CONTENTS

3 PRESTIGE BANCORP, INC. CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these financial statements. 1 4 PRESTIGE BANCORP, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

The accompanying notes are an integral part of these financial statements. 2 5 PRESTIGE BANCORP, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 (Unaudited)

The accompanying notes are an integral part of these statements. 3 6 PRESTIGE BANCORP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

The accompanying notes are an integral part of these financial statements. 4 7 PRESTIGE BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 (UNAUDITED) 1. BASIS OF ORGANIZATION: On February 14, 1996, the Board of Directors of Prestige Bank, F.S.B. (the Bank) adopted a Plan of Conversion (the Plan) from a federally chartered mutual savings bank to a federally chartered stock savings bank and the issuance of its stock to Prestige Bancorp, Inc., (the Corporation), a Pennsylvania corporation. The Corporation sold 963,023 shares of its common stock (including 77,041 shares to its newly formed Employee Stock Ownership Trust (the ESOP)), at $10.00 per share. Simultaneously there was a corresponding exchange of all of the Bank's stock for approximately 50% of the net offering proceeds. The remaining portion of the net proceeds was retained by the Corporation net of $770,410, which was loaned to the ESOP for its purchase. The conversion and public offering was completed on June 27, 1996 with net proceeds from the offering, net of the ESOP loan, totaling $8,188,394, after offering expenses. 2. BASIS OF PRESENTATION: The following unaudited financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to those rules and regulations, although the Corporation believes that the disclosures made are adequate to make the information presented not misleading. However, such interim information reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of management, necessary for a fair presentation of financial position and results of operations for the periods presented. The results of operations for the three-month period ended March 31, 2001, are not necessarily indicative of the results to be expected for the year ending December 31, 2001. The unaudited financial statements and notes hereto should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2000, contained in the Corporation's Annual Report and Form 10-K. Earnings Per Common Share ------------------------- The Corporation follows Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." Under SFAS No. 128, earnings per share are classified as basic earnings per share and diluted earnings per share. Basic earnings per share includes only the weighted average common shares outstanding. Diluted earnings per share includes the weighted average common shares outstanding and any dilutive common stock equivalent shares in the calculation. Treasury shares are treated as retired for earnings per share purposes. 5 8 The following tables reflect the calculation of earnings per share under SFAS No. 128. Three Months Ended -------------------------------- March 31, 2001 March 31, 2000 -------------- -------------- Basic earnings per share: Net income $ 33,150 $239,810 Average shares outstanding 872,198 906,327 Earnings per share $ 0.04 $ 0.26 Diluted earnings per share: Net income $ 33,150 $239,810 Average shares outstanding 872,198 906,327 -------- -------- Diluted average shares outstanding 872,198 906,327 Earnings per share $ 0.04 $ 0.26 For the three months ended March 31, 2001 and 2000, options to purchase 85,097 and 107,426 shares of common stock, respectively, were outstanding but not included in the computation of diluted earnings per share because the options' exercise price was greater than the average market price of the Corporation's common shares for the period. Comprehensive Income The Corporation follows SFAS No. 130, "Reporting Comprehensive Income." This accounting standard requires the reporting of all changes in the equity of an enterprise that result from recognized transactions and other economic events of the period other than transactions with owners in their capacity as owners. Prior to the issuance of this standard, some of those changes in equity were displayed in the income statement, while others were included directly in balances within a separate component of equity in the balance sheet. Office of Thrift Supervision The Corporation announced on September 25, 2000 that the Savings Bank entered into a Supervisory Agreement with the Office of Thrift Supervision (the "OTS"). This Supervisory Agreement formalized the understandings of the OTS and the Bank pursuant to an informal directive issued by the OTS to the Bank on May 17, 2000. In conjunction with a routine regulatory examination of the Bank by the OTS, the OTS requested the Bank to enter into the Supervisory Agreement. The Supervisory Agreement was signed on September 20, 2000, (the "Effective Date") and, among other things, places restrictions on the Bank's growth. The Bank may seek modification of this limitation on growth by submission of a written request to the Regional Director of the OTS ("Regional Director") and by obtaining the prior written approval of the Regional Director. Under the Supervisory Agreement, the Bank may not increase its assets in an amount exceeding net interest credited on deposit liabilities (or earnings credited on share accounts) during any calendar quarter, without prior written approval of the Regional Director. Additionally, the Supervisory Agreement requires the Bank or its Board of Directors to review and revise various policies including 1) interest rate risk management, 2) strategic planning to direct the operations and affairs of the Bank and in managing and reducing the interest rate risk of the Bank, 3) investment and underwriting policies, 4) transactions with the affiliates of the Bank, and 5) internal loan and asset classifications policies. The Supervisory Agreement continues the restriction imposed on the Bank by the directive not to extend loans for a business purpose except for those business loans which the Bank was committed to extend on or before May 17, 2000 or which were loans in process. This restriction on the extension of new loans for a business purpose also extends to renewals of business loans with revolving credit or balloon loan features at maturity. The Bank may request that the Regional Director waive this limitation on the extension of an individual commercial loan to a customer, including any revised terms or renewal of a business loan. The restrictions on the Bank's operations were immediately effective and the Supervisory Agreement will remain in place until terminated by the OTS. 6 9 The Corporation has worked closely with the OTS to implement the Supervisory Agreement and believes it has materially complied with the Agreement to date. 3. INVESTMENT SECURITIES: The cost and market values of investment securities are summarized as follows: Investment securities available for sale:

Investment securities held to maturity:

7 10 4. LOANS RECEIVABLE: Loans receivable are summarized as follows: March 31, 2001 ------------- Real estate loans: 1-4 family $ 102,772,618 Construction 1,064,000 Commercial real estate 13,951,894 ------------- 117,788,512 Less- Undisbursed loan proceeds 54,400 ------------- 117,734,112 Commercial business loans: 16,347,899 Consumer loans: Home equity 12,473,974 Student 2,610,566 Automobile 2,591,000 Collateral 808,868 Credit cards 524,032 Personal unsecured/other 539,859 ------------- 19,548,299 ------------- 153,630,310 Less- Allowance for loan losses 3,432,873 Deferred loan costs (19,901) ------------- $ 150,217,338 ============= 5. ALLOWANCE FOR LOAN LOSSES: Activity with respect to the allowance for loan losses is summarized as follows: Three Months Ended March 31, --------------------------- 2001 2000 ---------- ---------- Balance at beginning of period $3,387,779 $ 982,588 Provision for loan losses 90,000 120,000 Charge-offs (71,558) (9,308) Recoveries 26,652 -- ---------- ---------- Balance at end of period $3,432,873 $1,093,280 ========== ========== 8 11 6. DEPOSITS: The scheduled maturities of the Bank's certificate accounts as of March 31, 2001 are as follows (amounts approximate): April 1, 2001 to March 31, 2002 $36,146,714 April 1, 2002 to March 31, 2003 14,014,347 April 1, 2003 to March 31, 2004 7,683,307 April 1, 2004 to March 31, 2005 2,931,866 April 1, 2005 and thereafter 3,647,827 ----------- TOTAL $64,424,061 =========== Certificates of $100,000 or more $11,469,726 =========== 7. INCOME TAXES: The income tax expense was as follows: Three Months Ended March 31, ---------------------- 2001 2000 ------- -------- Federal $18,125 $123,547 State 4,829 28,029 ------- -------- $22,954 $151,576 ======= ======== 8. RELATED PARTY TRANSACTIONS: Certain directors and executive officers of the Bank, including their immediate families and companies in which they are principal owners, are loan customers of the Bank. In management's opinion, such loans are made in the normal course of business and were granted on substantially the same terms and conditions as loans to other individuals and businesses of comparable creditworthiness at the time. Total loans to these persons at March 31, 2001, and December 31, 2000, amounted to $867,193 and $894,683, respectively. 9. CAPITAL STOCK: On April 23, 1997, at the annual stockholders meeting, the Board of Directors and shareholders formally approved the Corporation's Stock Option Plan (the Option Plan) and Management Recognition and Retention Plan and Trust (the MRP Plan; the Option Plan and the MRP Plan herein are referred to as the Plans) as fully described in the Corporation's proxy statement dated March 31, 1997. In connection with the MRP Plan, the Corporation incurred compensation expense of approximately $36,000 during the three months ended March 31, 2001, compared to $30,000 for the comparable period of 2000. The aforementioned approval of the Option Plan made 116,285 options available for grant to employees and others who perform substantial services for the Corporation. As of March 31, 2001, the Corporation had granted 112,929 options of which 27,325 shares had been forfeited. The options are exercisable one year from the grant date and vest in equal installments over a period of five years. As of March 31, 2001, there had been 507 options exercised. The maximum term of any option granted under the Plan cannot exceed 10 years. 9 12 10. RETAINED EARNINGS AND REGULATORY CAPITAL: The Savings Bank's actual capital amounts and ratios are presented below in the following table. There was no deduction from capital for interest-rate risk (amounts in thousands).

11. COMMITMENTS AND CONTINGENT LIABILITIES: The Corporation incurs off-balance sheet risks in the normal course of business in order to meet the financing needs of its customers. These risks derive from commitments to extend or receive credit. Such commitments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the financial statements. Commitments to extend credit are obligations to lend to a customer as long as there is no violation of any condition established in the loan agreement. Commitments generally have fixed expiration dates or other termination clauses. A portion of the commitments is not expected to be drawn upon; thus, the total commitment amounts do not necessarily represent future cash requirements. Each customer's creditworthiness is evaluated on a case-by-case basis. The Bank's exposure to credit loss in the event of nonperformance by the other party to these commitments to extend credit is represented by their contractual amounts. The Bank uses the same credit and collateral policies in making commitments as for all other lending. The Bank has outstanding various commitments to extend credit approximating $11.4 million as of March 31, 2001. In the opinion of management, the funding of the credit commitments will not have a material adverse effect on the Bank's financial position or results of operations. Additionally, the Bank is also subject to asserted and unasserted potential claims encountered in the normal course of business. In the opinion of management and legal counsel, the resolution of these claims will not have a material adverse effect on the Bank's financial position or results of operations. 10 13 12. FUTURE ACCOUNTING STANDARDS: The Financial Accounting Standards Board ("FASB") has issued SFAS 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities - a Replacement of FASB Statement No. 125." effective for transfers and extinguishments after March 31, 2001. The impact and adoption of this standard is not expected to materially affect the Corporation's financial condition or results of operations. 11 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SUPERVISION AND REGULATION The Corporation announced on September 25, 2000 that the Savings Bank entered into a Supervisory Agreement with the Office of Thrift Supervision (the "OTS"). This Supervisory Agreement formalized the understandings of the OTS and the Bank pursuant to an informal directive issued by the OTS to the Bank on May 17, 2000. In conjunction with a routine regulatory examination of the Bank by the OTS, the OTS requested the Bank to enter into the Supervisory Agreement. The Supervisory Agreement was signed on September 20, 2000, (the "Effective Date") and, among other things, places restrictions on the Bank's growth. The Bank may seek modification of this limitation on growth by submission of a written request to the Regional Director of the OTS ("Regional Director") and by obtaining the prior written approval of the Regional Director. Under the Supervisory Agreement, the Bank may not increase its assets in an amount exceeding net interest credited on deposit liabilities (or earnings credited on share accounts) during any calendar quarter, without prior written approval of the Regional Director. Additionally, the Supervisory Agreement requires the Bank or its Board of Directors to review and revise various policies including 1) interest rate risk management, 2) strategic planning to direct the operations and affairs of the Bank and in managing and reducing the interest rate risk of the Bank, 3) investment and underwriting policies, 4) transactions with the affiliates of the Bank, and 5) internal loan and asset classifications policies. The Supervisory Agreement continues the restriction imposed on the Bank by the directive not to extend loans for a business purpose except for those business loans which the Bank was committed to extend on or before May 17, 2000 or which were loans in process. This restriction on the extension of new loans for a business purpose also extends to renewals of business loans with revolving credit or balloon loan features at maturity. The Bank may request that the Regional Director waive this limitation on the extension of an individual commercial loan to a customer, including any revised terms or renewal of a business loan. The restrictions on the Bank's operations were immediately effective and the Supervisory Agreement will remain in place until terminated by the OTS. The Corporation has worked closely with the OTS to implement the Supervisory Agreement and believes it has materially complied with the Agreement to date. FINANCIAL CONDITION Assets held directly by the Corporation include all of the outstanding capital stock of the Savings Bank, a loan receivable from the Prestige Bancorp Employee Stock Ownership Trust (the "ESOP"), one loan to a former director, deposits maintained at the Savings Bank, common stock of mostly savings associations or savings and loan holding companies and other assets (collectively the "Directly Held Assets"). Each stock ownership interest in the unrelated savings associations or savings and loan holding companies amounts to less than a 1.25% interest in such entities. As of March 31, 2001, the Corporation had outstanding borrowings of $340,000 from the Savings Bank to support cash levels. The loan is adequately secured in accordance with applicable law. The following discussion of the financial condition and activities of the Corporation should be read as the consolidated activities of the Corporation and the Savings Bank. Unless the following discussion specifically identifies an activity, event or condition as relating to the Directly Held Assets, it is assumed that such activity, event or condition occurred as a result of a direct action of the Savings Bank and an indirect action of the Corporation. At March 31, 2001, the Corporation's total assets amounted to $201.5 million compared with $201.8 million at December 31, 2000. Total investment securities and net loans decreased $5.9 million and $3.2 12 15 million, respectively, while cash and cash equivalents increased $9.1 million. The $5.9 million or 19.0% decrease in investment securities was primarily due to $5.5 million of securities that were called. The net loan decrease of $3.2 million or 2.1% was attributed to decreases in commercial business and commercial real estate loans of $1.8 million or 5.7%, $559,000 or .5% in one-to-four family residential real estate loans and $374,000 or 1.9% in consumer loans. Increased cash and cash equivalents of $9.1 million were primarily attributable to an increase in deposits of $7.5 million and decreases in investment securities and net loans of $5.9 million and $3.2 million, respectively. This was partially offset by a decrease in Federal Home Loan Bank ("FHLB") advances of $7.5 million. Total stockholders' equity amounted to $11.7 million or 5.79% of total assets at March 31, 2001, compared to equity of $11.6 million or 5.72% of total assets at December 31, 2000. The $111,000 increase in stockholders' equity was primarily attributable to net income of $33,000 for the quarter ended March 31, 2001 and a decrease in accumulated other comprehensive losses of $77,000. During 2000, the Board of Directors suspended its cash dividend to preserve capital due to net losses recognized by the Corporation. The Board of Directors of Prestige Bancorp will review paying cash dividends on a quarterly basis. The Corporation's nonperforming assets increased $646,000 to $6.5 million at March 31, 2001, compared to $5.9 million at December 31, 2000. The increase was primarily due to a rise in nonperforming commercial business and commercial real estate loans from $2.2 million and $3.1 million at December 31, 2000, respectively, compared to $2.7 million and $3.4 million, respectively, at March 31, 2001. At March 31, 2001, the $2.7 million of nonperforming commercial business loans was comprised of seventeen loans and the $3.4 million of nonperforming commercial real estate loans was comprised of six loans. One nonperforming commercial business relationship accounts for $1.6 million or 60.6% of the total nonperforming commercial business loans. The $1.6 million has an U.S. Government guarantee of the payment of principal and interest. Currently, this commercial business is in bankruptcy, and management is working closely in the bankruptcy proceedings to protect its interests. Measures continue to be taken to address the remaining $1.1 million nonperforming commercial business loans. However, these loans continue to be monitored and reserved under the allowance for loan losses. Of the six commercial real estate nonperforming loans, two totaling $812,000 have been written down to estimated realized collateral values. Three loans totaling $2.5 million have appraisals supporting the unreserved balances. One loan totaling $127,000 is in the process of having an appraisal completed. Reserves will be adjusted accordingly when the appraisal is completed. Management recognizes actual workout of these loans may differ from these estimates and appraisals. The following table sets forth the amounts and categories of the Savings Bank's nonperforming assets at the dates indicated. The Savings Bank had no loans classified as troubled debt restructurings during the periods indicated below.

13 16 RESULTS OF OPERATIONS General--The Corporation's net income for the quarter ended March 31, 2001 was $33,000 or $.04 per diluted share compared to net income of $240,000 or $.26 per diluted share for the same quarter in the prior year. Excluding gain on sale of investments, net of tax, net income for the three months ended March 31, 2001 was $15,000 or $.02 per diluted share. This compares to net income after excluding gain on sale of investments, net of tax, of $235,000 or $.26 per diluted share for the three months ended March 31, 2000. The decrease of $220,000 in net income, excluding gain on sale of investments, for the quarter ended March 31, 2001 as compared to the same period in 2000 was attributable to a $256,000 decrease in net interest income and an increase in total other expenses of $128,000. This was partially offset by a reduction in income tax expense of $129,000. Interest Income--The Corporation reported interest income of $3.5 million for the three months ended March 31, 2001, as compared to $3.6 million for the three months ended March 31, 2000. The interest income decrease of $93,000 or 2.6% for the quarter ended March 31, 2001, compared to the same period in the prior year can be attributed to a $49,000 or 1.7% decrease in interest and fees on loans. The decrease of $49,000 in interest and fees on loans was the result of a decrease in the average yield earned on loans receivable. The average yield earned on loans receivable, during the quarter ended March 31, 2001, was 7.54% compared to 7.67% for the same period in 2000. Interest Expense--Interest expense increased $164,000 or 7.8% during the three months ended March 31, 2001 as compared to the same period last year. This increase was due to growth in average interest-bearing liabilities and a rise in the weighted average interest rate paid on interest-bearing liabilities. Average deposits and Federal Home Loan Bank (FHLB) of Pittsburgh advances during the first quarter of 2001 were $125.8 million and $60.5 million, respectively, compared to $121.9 million and $63.1 million, respectively, for the same period in 2000. The weighted average interest rate on interest-bearing liabilities during the first quarter of 2001 was 4.86% compared to 4.54% for the same period in 2000. Provision for Loan Losses--During the three months ended March 31, 2001, the Corporation recorded provisions for losses on loans of $90,000 compared to $120,000 for the comparable period in 2000. The Corporation establishes a provision for loan losses that is charged to operations. The allowance for loan losses is maintained at a level that is deemed to be appropriate based upon a comprehensive methodology that is to be updated on a monthly basis. This methodology includes: o A detailed review of all criticized and impaired loans is performed to determine if any specific reserve allocations are required on an individual loan basis. The specific reserve established for these criticized and impaired loans is based on analysis of the loan's performance, the related collateral value, cash flow considerations and the financial capability of any guarantor. o The application of reserve allocations to all outstanding loans and certain unfunded commitments is based upon review of historical losses and qualitative factors, which include but are not limited to, economic trends, delinquencies, concentrations of credit, trends in loan volume, borrowers' experience and depth of management, examination and audit results, effects of any changes in lending policies and trends in policy exceptions. o The application of reserve allocations for all commercial and commercial real estate loans are calculated by using a risk rating system. All loans are assigned risk ratings based upon an internal review. There are ten risk ratings, and each rating has a corresponding reserve factor that is used to calculate the required reserve. 14 17 o The maintenance of a general unallocated reserve occurs in order to provide conservative positioning and protection against unknown events or circumstances that have occurred, but have not yet been identified by the Corporation through its credit administration process. It must be emphasized that a general unallocated reserve is prudent recognition of the fact that reserve estimates, by definition, lack precision. After completion of this process, management evaluates the adequacy of the existing reserve and establishes the provision level for the next month. The OTS has noted weaknesses in the loan classification process and the Corporation is continuing to take steps to rectify these weaknesses. When it is determined that the prospects for recovery of the principal of a loan have significantly diminished, the loan is charged against the allowance account; subsequent recoveries, if any, are credited to the allowance account. In addition, nonperforming, delinquent loans greater than ninety days and problem loans are to be reviewed monthly to determine potential losses. Generally, consumer loans are considered losses when 180 days past due. The Corporation's management is unable to determine in what loan category future charge-offs and recoveries may occur. Therefore, the entire allowance for loan losses is available to absorb future loan losses in any loan category. During the quarter ended March 31, 2001, the Corporation charged off seven consumer loans totaling $44,000 and one commercial business loan totaling $27,000. Although management utilizes its best judgment in providing for losses, there can be no assurance that the Corporation will not have to increase its provision for loan losses in the future as a result of commercial and consumer loans, future changes in the economy or for other adverse reasons discovered from the methodology described above. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Corporation's provision for loan losses and the carrying value of its nonperforming assets based on their judgments from information available at the time of their examination. The OTS last examined the Corporation as of March 31, 2000. The Corporation will continue its review of the commercial loan portfolio for any further developments and the allowance for loan loss will be adjusted accordingly. The Corporation's management is unable to determine in what loan category future charge-offs and recoveries may occur. The following schedule sets forth the allocation of the allowance for loan losses among various categories. The entire allowance for loan losses is available to absorb future loan losses in any loan category.

Other IncomE--Total other income decreased $1,000, excluding net gains on sales of investments and assets, for the three ended March 31, 2001, compared to same period in 2000. 15 18 Other Expenses--Total other expenses increased $128,000 or 10.4% for the quarter ended March 31, 2001, as compared to the quarter ended March 31, 2000. Major factors for the increase in total other expenses were consulting and legal fees associated with rectifying asset quality concerns and regulatory matters. Consulting and legal fees increased $71,000 and $66,000, respectively, for the three months ended March 31, 2001, as compared to the three months ended March 31, 2000. Income Taxes--The Corporation recorded an income tax expense of $23,000 for the three months ended March 31, 2001, respectively, as compared to $152,000 for the same period in the prior year. Such decrease in income tax expense was due to a decrease in income before income tax expense of $335,000 for the three months ended March 31, 2001, as compared to the three months ended March 31, 2000. LIQUIDITY AND CAPITAL RESOURCES The Corporation's primary sources of funds are dividends from the Savings Bank, repayments by the ESOP of the loan it received from the Corporation, loan repayments made by the Corporation, interest and dividends on debt and equity investments in other companies and interest earned on deposits of the Corporation held at Savings Bank and short-term investments. The primary sources of funds for the Savings Bank are deposits, advances from the FHLB of Pittsburgh, repayments, prepayments and maturities of outstanding loans and mortgage-backed securities, maturities of investment securities and other short-term investments, and funds provided from operations. While scheduled loan and mortgage-backed securities repayments and maturing investment securities and short-term investments are relatively predictable sources of funds, deposit flows, loan and mortgage-backed securities prepayments, and investment securities with callable features are greatly influenced by the movement of interest rates in general, economic conditions or competition. The Savings Bank manages the pricing of its deposits to maintain a deposit balance deemed appropriate and desirable by the Investment/Asset and Liability Committee ("ALCO"). In addition, the Savings Bank invests in short-term interest-earning assets, which provide liquidity to meet lending requirements. The Savings Bank has also utilized advances from the FHLB of Pittsburgh. At March 31, 2001, the Savings Bank had $58.8 million borrowed from the FHLB of Pittsburgh pursuant to various term loans with maturities of less than ten years. During the three months ended March 31, 2001, the Corporation's operating activities provided net cash of approximately $44,000. The primary reasons for the $44,000 net cash provided by operating activities during the three months ended March 31, 2001 were a $104,000 decrease in other assets, $90,000 in provision for loan losses, $81,000 decrease in accrued interest receivable and $69,000 in depreciation of premises and equipment which was partially offset by a $185,000 decrease in accrued interest payable and a $113,000 decrease in other liabilities. During the three months ended March 31, 2000, net cash provided by operating activities was $326,000. The primary reasons for the $326,000 net cash provided during the three months ended March 31, 2000 were $240,000 in net income, $170,000 increase in accrued interest payable, and $120,000 in provision for loan losses, which was partially offset by a $155,000 increase in accrued interest receivable and a $146,000 increase in other assets. Net cash provided by investing activities was $9.2 million for the three months ended March 31, 2001. The primary reason for the $9.2 million net cash provided by investing activities was the Corporation had $4.0 million and $1.5 million in investment securities held-to-maturity and available-for-sale, respectively, which were called and $8.0 million in principal payments received on existing loans. This was partially offset by $4.9 million in loan originations. This compares with net cash used by investing activities of $4.2 million for the three months ended March 31, 2000. The primary reason for the $4.2 million net cash used by investing activities was the Corporation originated $4.5 million in new loans in excess of principal payments received on existing loans. 16 19 Net cash used by financing activities for the three months ended March 31, 2001, was $123,000. This was attributable to decreases in net FHLB advances of $7.5 million and $139,000 in advance payments by borrowers for taxes and insurance. This was partially offset by increases in total deposits of $7.5 million. During the same period last year, the Corporation experienced a $2.5 million increase in net cash provided by financing activities. This was attributable to increases in core deposits and certificates of $2.2 million and $500,000 in net FHLB advances. The Savings Bank is required to maintain specified amounts of capital pursuant to the Financial Institutions Reform, Recovery and Enforcement Act of 1989 and regulations thereunder. Savings associations are required to maintain tangible capital of 1.5%, core capital of 4.00% and risk-based capital of 8.00%. At March 31, 2001, the Savings Bank's tangible, core, and risk-based capital ratios amounted to 5.27%, 5.27%, and 11.06%, respectively, which exceeded applicable requirements. 17 20 PRESTIGE BANCORP, INC. PART II Item 1. Legal Proceedings Neither the Corporation nor the Bank is involved in any pending legal proceedings other than nonmaterial legal proceedings occurring in the ordinary course of business. Item 2. Changes in Securities Not applicable. Item 3. Defaults upon Senior Securities Not applicable. Item 4. Submission of Matters to a Vote of Security-Holders a) An annual meeting of shareholders of the Corporation was held on April 25, 2001 ("Annual Meeting"). b) 1. Patricia A. White, elected to new three year term 2. Michael R. Macosko, elected to new three year term 3. Morris Propp, elected to a three year term 4. James A. Nania 5. Mark R. Schoen 6. Michael R. Macosko 7. Martin W. Dowling c) There were 946,116 shares of Common Stock of the Corporation eligible to be voted at the Annual Meeting and 787,808 shares were represented at the meeting by the holders thereof, which constituted a quorum. The items voted upon at the Annual Meeting and the vote for each proposal were as follows: 1. Election of directors for a three-year term. For Withheld --- -------- Patricia A. White.......... 714,567 73,241 Michael R. Macosko......... 717,708 70,100 Morris Propp............... 717,451 70,357 In addition to the above, a ballot was received at the Annual Meeting in the amount of 52,610 shares for John A. Stiver. 2. Proposal to ratify the appointment of Arthur Andersen LLP as the Corporation's independent auditors for the year ending December 31, 2001. For Against Abstain --- ------- ------- 780,003 5,587 2,218 Each of the proposals was adopted by the shareholders of the Corporation. d) Not applicable. Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K None 18 21 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 BANCORP, INC. Dated: May 14, 2001 By: /s/ Mark R. Schoen ------------------------------------ Mark R. Schoen, Chairman of the Board of Directors, Chief Executive Officer and President Dated: May 14, 2001 By: /s/ James M. Hein ------------------------------------ James M. Hein, Chief Financial Officer 19

PRESTIGE BANCORP INC 10-Q