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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark one)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, for the fiscal year ended December 31, 2000, or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (no fee required), for the transition period from
_______________ to ______________.
Commission file number: 000-24601
PSB BANCORP, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2930740
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11 Penn Center, Suite 2601
1835 Market Street
Philadelphia, PA 19103
(Address of principal executive offices)
(215)979-7900
Registrant's telephone number, including area code:
Securities registered pursuant to Section 12 (b) of the Act:
None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock ($0.01 par value)
Indicate by checkmark whether the issuer (1) filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the
past 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 by checkmark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein and will not be
contained, to the best of the Registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. ( )
The aggregate market value of common stock of the Registrant held by
nonaffiliates, based on the average between the closing bid and the
closing asked prices as of April 12, 2001 was $17,406,941. As of April
12, 2001, the Registrant had 4,095,751 shares of common stock outstanding.
Documents incorporated by reference: None
PSB BANCORP, INC.
FORM 10-K
For the Year Ended December 31, 2000
Table of Contents
Page No.
PART I
Item 1. Description of Business 4
Item 2. Description of Property 13
Item 3. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of
Securities Holders 13
PART II
Item 5. Market for Common Equity
and Related Stockholder Matters 14
Item 6. Selected Financial Data 14
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 15
Item 7A Quantitative and Qualitative
Disclosures about Market Risk 41
Item 8. Financial Statements 41
Item 9. Changes In and Disagreements With
Accountants on Accounting and Financial
Disclosure 41
PART III
Item 10. Directors, Executive Officers, Promoters
and Control Persons; Compliance With
Section 16(a) of the Exchange Act 42
Item 11. Executive Compensation 44
Item 12. Security Ownership of Certain
Beneficial Owners and Management 52
Item 13. Certain Relationships and Related
Transactions 54
Item 14. Exhibits and Reports on Form 8-K 54
PART I
Item 1 Business
PSB Bancorp, Inc. ("PSB")was organized as a Pennsylvania business
corporation on October 3, 1997 for the purpose of becoming a holding
company for First Penn Bank (the "Bank"). PSB is subject to regulation by
the Federal Reserve Bank of Philadelphia, and its principal business is
the ownership of First Penn Bank. At December 31, 2000, PSB had total
assets of $254.8 million, total deposits of $204.2 million and
shareholders' equity of $36.0 million.
On October 12, 1999, PSB completed its acquisition of First Bank of
Philadelphia. In connection with the acquisition, each outstanding share
of First Bank of Philadelphia was exchanged for .857 shares of PSB common
stock. In addition, options to acquire 1,612,500 shares of First Bank of
Philadelphia were converted into options to acquire 1,381,912 shares of
PSB's common stock.
As part of the transaction, PSB merged Pennsylvania Savings Bank,
which held a state savings bank charter, with and into First Bank of
Philadelphia, which holds a state commercial bank charter. The resulting
operating subsidiary operates under the name of First Penn Bank and holds
a state commercial bank charter. This provides First Penn Bank with
greater lending flexibility. First Penn Bank operates 7 full-service
offices. Six offices are located in Philadelphia, Pennsylvania and one
office is located in Glenside, Montgomery County, Pennsylvania.
The Bank is primarily engaged in the business of attracting deposits
from the general public in First Penn Bank's market area and investing
such deposits in loans secured by residential mortgage loans, commercial
real estate loans, commercial business loans, construction loans, student
loans and mortgage-backed securities. First Penn Bank's deposits are
insured by the Savings Association Insurance Fund of the FDIC to the
extent that such deposits were assumed from the mutual savings bank in the
1995 mutual holding company reorganization. Deposits accepted by First
Penn Bank after the mutual holding company reorganization are insured by
the FDIC's Bank Insurance Fund.
Historically, the Bank has focused its lending activities primarily
on the origination of loans secured by first mortgages on owner-occupied,
one- to four-family residences for retention in First Penn Bank's
portfolio. First Penn Bank has expanded origination of one- to four-family
residential mortgage loans for resale in the secondary market through
expansion of its mortgage banking operations. As part of a strategy to
diversify its loan portfolio, achieve a higher net interest margin and
reduce interest rate risk, First Penn Bank has increased its origination
of construction loans, commercial real estate loans, commercial business
loans, multifamily real estate loans and student loans. To a lesser
extent, First Penn Bank and its subsidiaries also originate consumer
loans, including home equity, second mortgage, and other consumer loans.
First Penn Bank expects to continue this diversification trend.
As part of the Bank's strategy to continue diversifying its product
offerings, PSB has entered into an Agreement and Plan of Reorganization
with Jade Financial Corp. Jade Financial Corp. has one subsidiary bank,
IGA Federal Savings Bank, which has a high concentration of consumer
loans, particularly automobile and personal loans. The addition of these
deposits and lines of business will allow the Bank to further diversify
its loan portfolio, and add additional lines of revenue. The acquisition
also provides the Bank with an additional five branch offices in
Philadelphia and the counties surrounding the Philadelphia metropolitan
area which will increase the Bank's geographical reach and provide access
to a larger customer base.
Through First Penn Bank's subsidiary, Transnational Mortgage Company,
First Penn Bank has conducted a mortgage banking operation since 1989.
Mortgage banking consists primarily of the origination, purchase, sale and
servicing of first mortgage loans secured by one- to four-family homes.
Such loans are sold either as individual loans, as mortgage-backed
securities, or as participation certificates issued or guaranteed by FNMA
or FHLMC. Loans may be sold either on a servicing retained or servicing
released basis.
First Penn Bank's principal sources of funds are deposits and the
principal and interest payments on loans, investment securities and
mortgage-backed securities. First Penn Bank has available credit with the
Federal Home Loan Bank of Pittsburgh ("FHLB"). At December 31, 2000,
First Penn Bank had no advances outstanding with the FHLB. The principal
source of income is interest received from loans, investment securities
and mortgage-backed securities. First Penn Bank's principal expenses are
the interest paid on deposits and borrowings and the cost of employee
compensation and benefits.
Business Strategy
PSB's strategy is to maximize profitability by providing quality
deposit and loan products in an efficient manner as a well-capitalized and
independent financial institution. Generally, PSB seeks to implement this
strategy by emphasizing retail deposits as its primary source of funds and
by maintaining a substantial part of its assets in locally-originated
residential first mortgage, commercial real estate loans, commercial
business loans, construction loans and student loans, mortgage-backed
securities and other liquid investment securities. PSB's business strategy
incorporates the following elements: (1) increasing assets by expanding
its retail branch network to include other contiguous segments of the
metropolitan Philadelphia market, (2) expanding its lending operations
throughout the metropolitan Philadelphia area and the adjacent counties of
Pennsylvania, New Jersey and Delaware, and (3) increasing net interest
income and reducing interest rate risk by emphasizing the origination for
portfolio of commercial real estate, construction, commercial business and
student loans that generally bear higher interest rates and have shorter
terms than residential mortgage loans. The pending acquisition of Jade
Financial Corp with its five branch network and emphasis on consumer
lending is consistent with this strategy.
Subsidiaries
PSB's only subsidiary is First Penn Bank. First Penn Bank owns three
direct subsidiaries and one indirect subsidiary. Transnational Mortgage
Corp. is engaged in a mortgage banking business, PSA Service Corp.
conducts real estate appraisals, processes credit applications and
provides other services in connection with the origination of loans. PSA
Financial Corp. primarily originates business loans and commercial real
estate loans. Its subsidiary, PSA Consumer Discount Company, primarily
originates consumer loans.
Personnel
As of December 31, 2000, PSB and the Bank had 68 full-time and two
part-time employees. The Bank is not a party to any collective bargaining
agreements.
Competition
In the Philadelphia metropolitan market area, the banking business is
highly competitive. First Penn Bank competes with local commercial banks
as well as numerous regionally-based commercial banks that have assets,
capital and lending limits significantly larger than those of First Penn
Bank. First Penn Bank also competes with thrift institutions, savings
institutions, credit unions, issuers of commercial paper, other securities
and other non-depository institutions. First Penn Bank seeks to be
competitive with respect to interest rates paid and charged, and for
service charges on customer accounts.
Among the advantages many of First Penn Bank's competitors have over
First Penn Bank are larger asset and capital bases, and the ability to
finance wide ranging advertising campaigns and to allocate their
investment assets to regions of highest yield and demand. Many
international banking services are indirectly offered through
correspondent relationships. By virtue of their greater capital base,
most competitors have substantially higher lending limits than those of
First Penn Bank.
Regulation of First Penn Bank
As a state-chartered bank, First Penn Bank is subject to regulation,
supervision and regular examination by the Pennsylvania Department of
Banking (the "Department") and is subject to the applicable provisions of
the Pennsylvania Banking Code of 1965, as amended (the "Banking Code").
First Penn Bank is a member of the Federal Reserve System and is subject
to regulation, supervision, reporting requirements and regular
examinations by the Federal Reserve Board. In addition, First Penn Bank's
deposits are insured by the Federal Deposit Insurance Corporation (the
"FDIC") up to a maximum of $100,000 per insured account holder. The FDIC
has the authority to increase its insurance premiums to cover losses and
expenses. Some aspects of the lending and deposit business that are
regulated by the Federal Reserve Board and the FDIC include personal
lending, commercial lending, mortgage lending, reserve requirements
against certain deposit accounts and the maintenance of the requisite
capital to asset ratios. First Penn Bank is also subject to numerous
federal, state and local laws and regulations that set forth specific
restrictions and procedural requirements with respect to the extension of
credit, credit practices, the disclosure of credit terms and
discrimination in credit transactions. As a consequence of the extensive
regulation of commercial banking activities in the United States, First
Penn Bank's business is particularly susceptible to changes in federal and
state legislation and regulation that may negatively affect the cost of
doing business.
In December of 1992, the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA") was enacted. Among other things, FDICIA
provided increased funding for the FDIC Bank Insurance Fund ("BIF") and
provides for expanded regulation of depository institutions and their
affiliates, including parent holding companies. FDICIA provides the
federal banking agencies with broad powers to take corrective action to
resolve problems of insured depository institutions. The extent of these
powers depends upon whether the institutions in question are categorized
under the following specified capital tiers as "well-capitalized,"
"adequately capitalized," "undercapitalized, "significantly
undercapitalized" or "critically undercapitalized." A depository
institution's capital tier will depend upon where its capital levels are
in relation to various relevant capital measures, which will include a
risk-based capital measure, a leverage ratio and certain other factors.
First Penn Bank is deemed to be "well capitalized" if it has a total risk-
based capital ratio of 10.0% or greater, a tier 1 risk-based capital ratio
of 6.0% or greater, and a leverage ratio of 5.0% or greater. At December
31, 2000, First Penn Bank was "well-capitalized" under these regulations.
Regulation of PSB
PSB is a bank holding company subject to supervision and regulation
by the Federal Reserve under the Bank Holding Company Act of 1956, as
amended. As a bank holding company, PSB's activities and those of its
subsidiary are limited to the business of banking and activities closely
related or incidental to banking, and PSB may not directly or indirectly
acquire the ownership or control of more than 5% of any class of voting
shares or substantially all of the assets of any company, without prior
approval of the Federal Reserve.
Under Federal Reserve policy, PSB is expected to act as a source of
financial strength to First Penn Bank and to commit resources to support
First Penn Bank, i.e., to downstream funds to First Penn Bank. This
support may be required at times, when absent such policy, PSB might not
otherwise provide such support. Any capital loans by PSB to First Penn
Bank are subordinate in right of payment to deposits and to certain other
indebtedness of First Penn Bank. In the event of PSB's bankruptcy, any
commitment by PSB to a federal bank regulatory agency to maintain the
capital of First Penn Bank will be assumed by the bankruptcy trustee and
entitled to a priority of payment.
PSB is subject to restrictions under federal law that limit its
ability to receive funds from First Penn Bank, whether in the form of
loans, other extensions of credit, investments and asset purchases. Such
transfers by First Penn Bank to PSB are generally limited in amount to 10%
of First Penn Bank's capital and surplus. Furthermore, such loans and
extensions of credit are required to be secured in specific amounts, and
all transactions are required to be on an arm's length basis. First Penn
Bank has never made any loan or extension of credit to PSB nor has it
purchased any assets from PSB.
New Legislation
Landmark legislation in the financial services area was signed into
law on November 12, 1999. The Gramm-Leach-Bliley Act dramatically changes
certain banking laws that have been in effect since the early part of the
20th century. The most radical changes are that the separation between
banking and the securities businesses mandated by the Glass-Steagall Act
has now been removed, and the provisions of any state law that prohibits
affiliation between banking and insurance entities have been preempted.
Accordingly, the new legislation now permits firms engaged in underwriting
and dealing in securities, and insurance companies, to own banking
entities, and permits bank holding companies (and in some cases, banks) to
own securities firms and insurance companies. The provisions of federal
law that preclude banking entities from engaging in non-financially
related activities, such as manufacturing, have not been changed. For
example, a manufacturing company cannot own a bank and become a bank
holding company, and a bank holding company cannot own a subsidiary that
is not engaged in financial activities, as defined by the regulators.
The new legislation creates a new category of bank holding company
called a "financial holding company." In order to avail itself of the
expanded financial activities permitted under the new law, a bank holding
company must notify the Federal Reserve that it elects to be a financial
holding company. A bank holding company can make this election if it, and
all its bank subsidiaries, are well-capitalized, well-managed, and have at
least a satisfactory Community Reinvestment Act rating, each in accordance
with the definitions prescribed by the Federal Reserve and the regulators
of the subsidiary banks. Once a bank holding company makes such an
election, and provided that the Federal Reserve does not object to such
election by such bank holding company, the financial holding company may
engage in financial activities (i.e, securities underwriting, insurance
underwriting, and certain other activities that are financial in nature as
determined by the Federal Reserve) by simply giving a notice to the
Federal Reserve within thirty days after beginning such business or
acquiring a company engaged in such business. This makes the regulatory
approval process to engage in financial activities much more streamlined
than it was under prior law.
It is too early to tell what effect the Gramm-Leach-Bliley Act may
have on PSB. The intent and scope of the act is positive for the financial
services industry, and is an attempt to modernize federal banking laws and
make U. S. institutions competitive with those from other countries.
While the legislation makes significant changes in U. S. banking law, such
changes may not directly affect PSB's business unless it decides to avail
itself of new opportunities available under the new law. PSB does not
expect any of the provisions of the new Act to have a material adverse
effect on the Bank's existing operations, or to significantly increase its
costs.
Interstate Acquisitions
On September 29, 1994, the United States Congress enacted the Riegle-
Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Banking Law"), which amended various federal banking laws to
provide for nationwide interstate banking, interstate bank mergers and
interstate branching. The Interstate Banking Law currently allows the
acquisition by a bank holding company of a bank located in another state,
interstate bank mergers and branch purchase and assumption transactions.
Only a few states have "opted-out" of the merger and purchase and
assumption provisions by enacting laws that specifically prohibit such
interstate transactions.
Pursuant to the Interstate Banking Law, states may also enact
legislation to allow for de novo interstate branching by out of state
banks.
National Monetary Policy
As previously indicated, the earnings and growth of the Bank are, and
will continue to be, affected by the policies of the regulatory
authorities, including the Pennsylvania Department of Banking ("PDOB"),
the Federal Reserve and the FDIC. In addition to the supervisory and
regulatory duties as they are related to operation of a bank, the Federal
Reserve is also responsible for the regulation of the United States money
supply and additional credit conditions. This controlling influence is
undertaken in response to national and international economic
developments. Among the means available to the Federal Reserve to
implement these objectives are open market operations in U.S. government
securities, establishing the interest rate on temporary loans made to
banks (i.e., the discount rate) and other measures. Alternatives to
controlling economic conditions are used in varying combinations to
influence overall growth and credit distribution, lending, investing and
savings. The effect of these various controlling influences may affect
interest rates charged on loans or paid on deposits.
Bank profitability is significantly dependent on interest rate
differentials. In general, the difference between the interest paid by a
bank on its deposits and borrowed money and the interest received by a
bank on securities held in its investment portfolio and loans originated
and maintained by the bank comprise the major portion of a bank's
earnings. Thus, the earnings and growth of a bank will be subject to the
influence of economic conditions, both domestic and foreign, and on the
levels of and changes in interest rates. The monetary policies and
regulations of the Federal Reserve have had a significant effect on the
operating results of commercial banks in the past and are expected to
continue to do so in the future. The effects of such policies upon the
future business, earnings and growth of the Bank cannot be predicted.
Dividend Limitations
The Banking Code provides that cash dividends may be declared and
paid only out of accumulated net earnings and that, prior to the
declaration of any dividend, if the surplus of First Penn Bank is less
than the amount of its capital, the Bank shall, until the surplus is equal
to such amount, transfer to surplus an amount which is at least ten
percent of the net earnings of the bank for the period since the end of
the last fiscal year or for any shorter period since the declaration of a
dividend. If the surplus of First Penn Bank is less than fifty percent of
the amount of the capital, no dividend may be declared or paid without the
prior approval of the PDOB until the surplus is equal to fifty percent of
the bank's capital. Additionally, the PDOB has the power to issue orders
prohibiting the payment of dividends where such payment is deemed to be an
unsafe or unsound banking practice.
Under the Federal Reserve Act ("FRA"), as amended, if losses have at
any time been sustained by First Penn Bank, equal to or exceeding its
undivided profits then on hand, no dividend shall be made; and no
dividends shall ever be made in an amount greater than the bank's net
profits. Cash dividends must be approved by the Federal Reserve, if the
total of all cash dividends declared by the First Penn Bank in any
calendar year, including the proposed cash dividend, exceeds the total of
the bank's net profits for that year plus its retained net profits from
the preceding two years less any required transfers to surplus or a fund
for the retirement of preferred stock, if any. The Federal Reserve has the
authority under the FRA to prohibit the payment of cash dividends by a
bank when it determines such payment to be an "unsafe and unsound banking
practice" under the existing circumstances.
Transactions with Affiliates
Extensions of credit by First Penn Bank to executive officers,
trustees, and principal shareholders and related interests of such persons
are subject to Sections 22(g) and 22(h) of the FRA and the Federal
Reserve's Regulation O. These rules limit the aggregate amount of loans
to any such individual and their related interests, and require that all
such loans be pre-approved by the full Board of PSB, voting without such
person being present. These rules also provide that no institution shall
make any loan or extension of credit in any manner to any of such persons,
unless such loan or extension of credit is made on substantially the same
terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons, does not involve more
than the normal risk of repayment or present other unfavorable features,
and the institution follows underwriting procedures that are not less
stringent than those applicable to comparable transactions by the
institution with persons who are not executive officers, trustees,
principal shareholders, or employees of the institution. Loans can be
made to employees, including executives and trustees, on more favorable
terms than to the general public, if all employees are eligible for such
preferential terms. Regulation O also sets forth additional limitations
on extensions of credit by an institution to its executive officers.
Management believes that First Penn Bank is in compliance with
Sections 22(g) and 22(h) of the FRA and the Federal Reserve's Regulation
O.
Item 2 Description of Property
As of December 31, 2000, the Bank conducted its business through an
executive/administrative office and seven full-service offices. On
October 12, 1999 the Bank acquired First Bank Of Philadelphia's office at
1632 Walnut Street, Philadelphia, PA 19103. The aggregate net book value
of the Bank's office premises and equipment was $1.8 million as of
December 31, 2000. The Bank is leasing its Center City full-service
office and executive office for a term of eleven years and it's 1632
Walnut Street office for ten years. Lease expense for the years ended
December 31, 2000, 1999 and 1998 was $371,147, $274,800, and $281,698,
respectively.
Item 3 Legal Proceedings
Periodically, there have been various claims and lawsuits involving
First Penn Bank, such as claims to enforce liens, condemnation proceedings
on properties in which First Penn Bank holds security interests, claims
involving the making and servicing of real property loans and other issues
incident to the Bank's business. First Penn Bank is not a party to any
pending legal proceedings that it believes would have a material adverse
effect on the financial condition or operations of the Bank.
Item 4 Submission of Matters to a Vote of Securities Holders
PSB's annual meeting of shareholders was held on December 6, 2000.
The following matters were voted upon and approved by the vote indicated.
- The election of two Class II directors to hold
office for three years from the date of election,
following are the results of those elections:
Nominee Voting Results
James W. Eastwood For 3,505,118
Withheld 268,796
Stephen Marcus For 2,340,632
Withheld 269,223
PART II
Item 5 Market for Common Equity and Related Stockholder Matters
The common stock of PSB Bancorp, Inc is traded over-the-counter on
the National Association of Securities Dealers Automated Quotation System
("Nasdaq") under the symbol "PSBI". The following table sets forth the
high and low bid prices for PSB's common stock, as reported by Nasdaq. The
following quotes reflect inter-dealer prices without retail mark-up,
markdown or commission and may not necessarily represent actual
transactions. As the table indicates, PSB did not declare any cash
dividends for the periods indicated.
2000 1999 Cash
Bid Prices Bid Prices Dividend
High Low High Low Declared
First Quarter 5 1/8 4 7/8 6 1/2 6 1/2 -
Second Quarter 4 5/16 4 5/16 6 1/4 6 1/4 -
Third Quarter 4 15/32 4 1/4 6 3/16 6 -
Fourth Quarter 4 1/8 4 1/16 4 1/2 4 1/4 -
Item 6 Selected Financial Data
The selected financial and operating information set forth below
should be read in conjunction with "Management's Discussion and Analysis
of the Financial Condition and Results of Operations" of PSB and the
financial statements of PSB included elsewhere herein (dollars in
thousands, except for per share data).
At and for the Year Ended
December 31,
2000 1999 1998 1997 1996
BALANCE SHEET DATA:
Total assets $254,819 $279,608 $227,486 $194,910 $185,768
Cash and cash equivalents 17,906 17,275 47,527 41,584 48,308
Loans receivable, net 145,856 167,787 121,240 110,218 99,453
Loans held for sale 9,080 8,221 6,938 6,575 4,598
Investment securities 30,208 30,435 21,447 23,165 19,526
Mortgage-backed securities 43,137 46,957 23,400 5,002 5,942
Deposits 204,175 193,210 185,654 169,051 163,273
Retained earnings or shareholders' equity 35,982 36,047 36,130 19,983
18,751
Book value per share 8.79 8.26 8.22 8.73 -
SUMMARY STATEMENT OF OPERATIONS:
Interest income 21,139 18,561 15,226 13,837 13,018
Interest expense 10,624 9,219 7,800 7,376 6,941
Net interest income 10,515 9,342 7,426 6,461 6,077
Provision for loan losses 100 200 283 60 133
Net interest income after provision for loan
losses 10,415 9,142 7,143 6,401 5,944
Noninterest income 687 913 1,373 1,169 1,000
Noninterest expense 8,326 8,198 6,517 6,113 6,402
Loss on investment in Iron Bridge Holdings, Inc. 101 - - - -
Loss on investment in ZipFinancial, Inc. 2,500 - - - -
Income before income taxes 175 1,857 2,006 1,457 542
Income tax provision 10 (227) 342 345 201
Net income 165 2,084 1,664 1,112 341
Earnings per share - basic(3) $ 0.04 $ 0.48 $ 0.38 $ 0.49 $ -
Earnings per share - diluted $ 0.04 $ 0.40 $ 0.32 $ 0.38 $ -
PERFORMANCE DATA:
Return on average assets 0.005% 0.76% 0.81% 0.90% 0.18%
Return on average equity 0.04% 5.79% 5.94% 7.59% 1.82%
Dividend payout - - - - -
Equity to assets 14.17% 12.89% 15.88% 11.88% 10.09%
Interest rate spread 3.17% 2.66% 2.89% 3.01% 3.00%
ASSET QUALITY DATA:
Nonperforming loans to total loans 1.98% 1.16% 1.83% 2.53% 5.36%
Nonperforming assets to total assets 1.63% 1.11% 1.60% 2.68% 4.43%
Allowance for loan losses to total loans 0.86% 0.69% 0.80% 0.82%
1.35%
Allowance for loan losses to nonperforming loans 43.59% 59.82% 43.56% 32.50%
25.11%
Allowance for loan losses to nonperforming assets 32.58% 39.65% 28.29% 18.49%
17.00%
Net charge-offs as a percentage of total loans - - 0.21% 0.42% 0.45%
Loans past due 90 days or more as to interest or
principal and accruing interest $ - 180 $ $ 232 $ 2,468
Nonaccrual loans 3,095 1,882 2,367 2,737 3,108
Total non-performing loans 3,095 2,062 2,367 2,969 5,576
Real estate owned (REO) 1,046 1,047 1,277 2,249 2,659
Total non-performing assets $ 4,141 $ 3,109 $ 3,644 $ 5,218 $ 8,235
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion and analysis of the financial condition and
results of operations of PSB Bancorp, Inc. should be read in conjunction
with the consolidated financial statements of PSB Bancorp, Inc., including
the related notes thereto, included elsewhere herein.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND
1998
General
PSB's results of operations depend primarily on the Bank's net
interest income, which is the difference between interest income on
interest-earning assets, and interest expense on its interest-bearing
liabilities. Its interest-earning assets consist primarily of loans
receivable and investment securities, while its interest-bearing
liabilities consist primarily of deposits and borrowings. The Bank's net
income is also affected by its provision for loan losses and its level of
non-interest income as well as by its non-interest expense, such as salary
and employee benefits, occupancy costs and charges relating to non-
performing and other classified assets.
Performance Overview - PSB's net income for 2000 was $165,000 or $0.04 on
a diluted per share basis compared to net income of $2.1 million or $0.40
per diluted share for 1999 and net income of S1.7 million or $0.32 per
diluted share for 1998. The significant decrease in net income from 1999
to 2000 was the result of a one-time charge taken by PSB to reflect the
write-off of a $2.5 million investment in BankZip.com, an aggregator of
Internet banking services that has ceased operations. PSB's net income
for 2000, without the one-time charge, would have been $2.7 million or
$0.63 on a diluted per share basis. The overall increase in PSB's revenue
from 1999 to 2000 was primarily due to an increase in volume in the Bank's
consumer loan portfolio and secondarily to a slight improvement in the
yield on the overall loan portfolio. The increase in net income from 1998
to 1999 was due largely to an increase in net interest income resulting
from an improvement in the Bank's net interest margin as discussed below.
Net Interest Income and Average Balances
Net interest income is the key component of the Bank's profitability
structure and is managed in coordination with the Bank's interest rate
sensitivity position. Net interest income in 2000 of $10.5 million was
$1.2 million or 12.90% higher than 1999's net interest income of $9.3
million. The Bank had net interest income of $9.3 million in 1999 which
was 25.67% higher than 1998's net interest income of $7.4 million.
The Bank's net interest margin, net interest income divided by total
average interest-earning assets, increased 22 basis points from 3.94% in
1999 to 4.16% in 2000, primarily due to a $1.6 million increase in the
volume of the consumer loan portfolio and a 64 basis point increase in the
overall yield of the average interest-earning assets. In 1999, the net
interest margin increased 18 basis points to 3.94% from 3.76% for 1998.
The improvement in the Bank's net interest margin in 1999 reflected an
improvement in the Bank's yield on interest earning assets, a lower cost
of funds and the resolution of a significant portion of the Bank's non-
performing assets portfolio and subsequent conversion of those assets to a
performing basis.
The Bank's net interest spread, the difference between the yield on
interest-earning assets and the rates paid on interest-bearing
liabilities, increased 43 basis points to 3.17% in 2000, however in 1999,
the Bank experienced a decrease of 15 basis points to 2.74% from 2.89% for
1998. Although in 2000, the Bank experienced an overall increase in
interest-bearing liabilities, the rate paid on those liabilities increased
by only 21 basis points to 5.20% from 4.99% in 1999, while the yield
earned on interest-earning assets increased 64 basis points. The decrease
in the net interest spread to 2.74% in 1999 from 2.89% in 1998 was
primarily due to a 285 basis point increase in the average rate paid on
borrowed money, and an increase in the amount of borrowed funds while the
average yield on interest-earning assets increased by only two basis
points.
The Bank's yield on average interest-earning assets increased to
8.37% for 2000 compared to 7.73% in 1999. In 1999, the Bank's yield on
average interest-earning assets was 7.71% identical to the yield for 1998.
Average loans of $167.0 million at December 31, 2000 represented 66% of
total interest-earning assets, providing an average yield of 9.60%,
average loans of $150.0 million at December 31, 1999, represented 63% of
total average interest-earning assets, and provided an average yield of
8.96%, compared to average loans of $123.0 million at December 31, 1998,
representing 63% of total average interest-earning assets, and providing
an average yield of 9.18%. The substantial increase in the yield on the
loan portfolio in 2000 was due to the Bank's successful strategy of
increasing the volume of higher yielding consumer loans. Average
investments and interest bearing deposits with banks decreased $4.6
million or 5.10% at December 31, 2000 from December 31, 1999. At December
31, 1999, average investments and interest bearing deposits with banks
increased $15.9 million or 21.47% to $90.0 million, from $74.1 million at
December 31, 1998.
At December 31, 2000, total average-interest bearing liabilities
increased $22.2 million or 12.18% to $204.3 million compared to $182.1
million at December 31, 1999. Total average interest-bearing liabilities
increased $20.2 million or 12.48% at December 31, 1999, from
$161.9 million at December 31, 1998. Total interest expense increased
$1.5 million at December 31, 2000 to $10.6 million as compared to a total
interest expense increase of $1.4 million to $9.2 million at December 31,
1999 from $7.8 million for 1998. The Bank's cost of funds has continuously
increased over the last three years from 4.82% in 1998 to 4.99% in 1999
and 5.20% in 2000.
Net interest income of $10.5 million in 2000 was 12.56% higher than
net interest income of $9.3 million in 1999. Net interest income of $9.5
million in 1999 was 25.80% higher than the 1998 total of $7.4 million. In
2000, total interest income increased $2.6 million to $21.1 million
compared to an increase in 1999 of $3.3 million to $18.5 million from
$15.2 million in 1998. The Bank had an increase in total interest expense
in 2000 of $1.5 million compared to an increase in 1999 of $1.3 million.
The following tables presents a summary of the principal components
of and changes in interest income and interest expense for the periods
indicated (in thousands):
Changes From Prior Period
Year Ended December 31, 2000 to 1999 1999 to 1998
2000 1999 1998 Amt. Pct. Amt. Pct.
Interest income:
Interest bearing deposits with bank $ 239 $939 $ 2,340 $ (700) (75%) $(1,401)
(60%)
Investment securities 1,835 1,535 1,233 300 20% 302 24%
Mortgage-backed securities 3,011 2,630 327 381 14% 2,303 704%
Loans 16,054 13,457 11,326 2,597 19% 2,131 19%
Total interest income $21,139 $18,561 $15,226 $2,578 14% $3,335 22%
Interest expense
Now checking accounts 316 310 151 6 2% 159 105%
Money market accounts 425 580 461 (155) (27%) 119 26%
Savings accounts 851 862 840 (11) (1%) 22 3%
Certificates of deposit 6,450 6,518 6,182 13 .20% 336 5%
Borrowings 2,582 949 166 1,552 164% 783 472%
Total interest expense $10,624 $ 9,219 $ 7,800 $1,405 15% $1,419 18%
Net interest income $10,515 $ 9,342 $ 7,426 $1,173 13% $1,916 26%
Average Balance Sheets and Rate/Yield Analysis
Net interest income is affected by changes in both average interest
rates and average volumes of interest-earning assets and interest-bearing
liabilities. The following table presents, on a tax equivalent basis, the
average daily balances of assets, liabilities and shareholders' equity and
the respective interest earned or incurred on interest-earning assets and
interest-bearing liabilities, as well as average rates for the period
indicated:
Consolidated
Year Ended December 31,
2000 1999 1998
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
(Dollars in Thousands)
ASSETS
Interest-earning assets:
Interest-earning
deposits(1) $ 12,601 $ 239 1.90% $ 23,227 $ 940 4.05% $ 49,201 $ 2,340
4.76%
Investment securities 28,405 1,835 6.46 22,034 1,534 6.96 18,573 1,233 6.64
Mortgage-backed
securities 44,409 3,011 6.78 44,751 2,630 5.88 6,326 327 5.17
Net loans(2) 167,250 16,054 9.60 150,223 13,457 8.96 123,430 11,326 9.18
Total interest-
earning assets $252,665 $21,139 8.37% $240,235 $18,561 7.73% $197,530
$15,226 7.71%
Noninterest-earning
assets 9,880 6,942 7,514
Total assets $262,545 $247,177 $205,044
LIABILITIES
Interest-bearing
liabilities:
Now checking accounts $ 15,150 $ 316 2.09% $ 8,924 $ 310 3.47% $ 2,322 $ 73
3.14%
Money market accounts 10,373 425 4.10 15,761 580 3.68 4,469 166 3.71
Savings deposits 28,866 851 2.95 29,686 862 2.90 42,184 1,213 2.88
Certificates 114,812 6,450 5.62 118,623 6,518 5.49 110,203 6,182 5.60
Total deposits 169,201 8,042 4.80 172,994 8,270 4.78 159,178 7,634 4.80
Borrowed money 35,103 2,582 7.30 9,129 949 10.40 2,737 166 6.06
Total interest-
bearing
liabilities $204,304 $10,624 5.20% $182,123 $ 9,219 4.99% $161,915 $ 7,800
4.82%
Non-interest-bearing
liabilities 21,375 29,049 15,118
Total liabilities $225,679 $211,174 $177,033
Retained earnings or
shareholders' equity 36,866 36,005 28,011
Total liabilities and
retained earnings or
shareholders' equity $262,545 $247,177 $205,044
Net interest income $10,515 $ 9,342 $ 7,426
Interest rate spread(3) 3.17% 2.74% 2.89%
Net yield on interest-
earning assets 4.16% 3.94% 3.76%
Ratio of interest-
earning assets to
interest-bearing
liabilities 1.24x 1.32x 1.22x
The following table presents the extent to which changes in interest
rates and changes in the volume of interest-earning assets and interest-
bearing liabilities have affected the Bank's interest income and interest
expense during the periods indicated. Information is provided in each
category with respect to (i) changes attributable to changes in volume
(changes in volume multiplied by prior rate), (ii) changes attributable to
changes in rate (changes in rate multiplied by prior volume), and
(iii) the net change. The changes attributable to the combined impact of
volume and rate have been allocated proportionately to the changes due to
volume and the changes due to rate (in thousands):
2000 versus 1999 1999 versus 1998
Increase (decrease) Increase (decrease)
Net Net
Volume Rate Change Volume Rate Change
Interest Income:
Interest earning deposits with banks $ (201) $(499) $ (700) $(1,052) $(349) $(1,401)
Investment securities 411 (110) 301 242 60 302
Mortgage-backed securities (23) 403 380 2,259 44 2,303
Loans 1,635 962 2,597 2,402 (271) 2,131
Total interest income $1,822 $ 756 $2,578 $ 3,851 $(516) $ 3,335
Interest Expense
Now checking accounts 130 (123) 7 207 (48) 159
Money market accounts (221) 66 (155) 419 (300) 119
Savings accounts (24) 15 (9) (362) 384 22
Certificates of deposits (214) 154 (60) 483 (147) 336
Borrowings 1,900 (278) 1,622 665 118 783
Total interest expense $1,571 $(114) $1,405 $1,412 $ 7 $1,419
Net change in net interest income $ 251 $ 590 $1,173 $2,439 $(523) $1,916
Provision for Loan Losses
The provision for loan losses represents the charge against earnings
that is required to fund the allowance for loan losses. The Bank
determines the level of the allowance for loan losses through a regular
review of the loan portfolio. Management's evaluation of the adequacy of
the allowance for loan losses is based upon an examination of the
portfolio as well as such factors as declining trends, the volume of loan
concentrations, adverse situations that may affect the borrower's ability
to pay, prior loss experience within the portfolio, current economic
conditions and the results of the most recent regulatory examinations.
The Bank allocated $100,000, $200,000 and $283,000 as additions to the
allowance for loan loss and had charge-offs against the allowance of $0,
$0 and $270,000 for the years ended December 31, 2000, 1999 and 1998,
respectively.
Although management utilizes its best judgment in providing for loan
losses, there can be no assurance that the Bank will not have to increase
its provision for loan losses in the future as a result of possible future
increases to its non-performing loans or for other reasons based on
changes in facts and circumstances. In addition, various regulatory
agencies, as an integral part of their examination process, periodically
review the Bank's allowance for loan losses and the carrying value of its
non-performing assets. Such agencies may require the Bank to recognize
additions to its allowance for loan losses based on their judgments about
information available to them at the time of their examination.
Non-Interest Income
The following table provides a summary of non-interest income, by
category of income, for the three years ended December 31, 2000, 1999, and
1998 (in thousands):
Year Ended December 31,
2000 1999 1998
Service fees on deposit accounts $412 $434 $ 402
Other 275 479 971
Total $687 $913 $1,373
The major source of non-interest income is gain on sale of loans,
other income and service fees on deposit accounts. Non-interest income
decreased $226,000 or 24.7% in 2000 which followed a decrease of $460,000
or 33.5% in 1999. The decreases in 2000 and 1999 reflect a continued
decrease on gains from the sale of mortgage loans of $185,000 and $372,000
in 2000 and 1999, compared to a gain on sale of loans of $863,000 in 1998.
Management expects non-interest income will continue to show a declining
trend if: (1) they are unable to reverse the decline in deposit accounts
on which they charge service fees; and (2) the subsidiary mortgage company
is unable to reverse its current decline in performance.
Non-Interest Expense
The following table provides a summary of non-interest expense, by
category of expense, for the three years ended December 31, 2000, 1999 and
1998 (in thousands):
Year Ended December 31,
2000 1999 1998
Salaries and employment benefits $4,383 $3,601 $3,252
Rent and occupancy expense 1,162 1,290 1,260
Professional fees 381 1,064 95
FDIC insurance expense 37 87 84
General insurance 139 157 90
Advertising 129 140 111
Data processing fees 356 237 211
Directors fees 246 215 224
Other operating expense 1,493 1,407 1,183
Total $8,326 $8,198 $6,510
Total non-interest expense for 2000 increased a modest $128,000 or
1.56% compared to an increase of $1.7 million or 25.92% to $8.2 million in
1999 from $6.5 million in 1998. Significant items of note that materially
affected the increase in non-interest income in 1999, included a $969,000
increase in professional fees to $1.1 million in 1999 from $95,000 in
1998, which was primarily due to fees associated with the merger of
Pennsylvania Savings Bank and First Bank of Philadelphia and a $349,000
increase in compensation and employee benefits due to normal salary
increases as well as an increase in the number of employees after the
merger.
Income Taxes
The Company had an income tax provision of $10,0000, an income tax
credit of $227,000, and an income tax provision of $342,000 for the years
ended December 31, 2000, 1999 and 1998, respectively. The 1999 credit
resulted from net operating loss carry forwards that were held by First
Bank of Philadelphia and used by PSB.
Liquidity and Interest Rate Sensitivity
Integral to the management of PSB's balance sheet is the maintaining
of adequate liquidity and the ability to evaluate and control interest
rate risk. Liquidity represents the ability to meet potential cash
outflows resulting from deposit customers who need to withdraw funds or
borrowers who need available credit. Interest rate sensitivity focuses on
the impact of fluctuating interest rates and the repricing characteristics
of rate sensitive assets and liabilities on net interest income.
PSB's asset/liability management committee monitors the level of
short-term assets and liabilities to maintain an appropriate balance
between liquidity, risk, and return. Liquidity is derived from various
sources that includes increases in core deposits, sales of certificates of
deposits, loan principal repayments and loan maturities and cash received
on maturities or amortization of investment securities.
The liquidity position of PSB is also strengthened by a $109 million
credit facility with the Federal Home Loan Bank of Pittsburgh (FHLB).
Advances are secured by FHLB stock and qualifying mortgage loans. There
were no advances outstanding against this line at December 31, 2000 and
$34.0 million at December 31, 1999. There were no advances outstanding
against this line at December 31, 1998.
Maximizing cash flow over time is crucial to the maintenance of
adequate liquidity. PSB's total cash flow is a product of its operating
activities, investing activities and financing activities. During the
twelve month period ended December 31, 2000, net cash used in operating
activities was $3.4 million, compared to net cash provided by operating
activities of $891,000 for the same period of 1999. During the twelve
month period ended December 31, 2000, net cash provided by investing
activities was $24.6 million, compared to net cash used by investing
activities of $82.7 million for the same period of 1999. Financing
activities used net cash of $27.6 million during the twelve months ended
December 31, 2000, compared to $53.4 million in net cash provided in
financing activities for the same period of 1999. The net result of these
items was a $631,000 increase in cash and cash equivalents for the twelve
month period ended December 31, 2000, compared to a $30.3 million decrease
in cash and cash equivalents for the same period of 1999. The increase in
cash and cash equivalents in 2000 is primarily due to a decrease in loans
receivable of $21.8 million, a decrease in purchase of investments and a
decrease in borrowed funds of $34.0 million.
During 1999, net cash used in operating activities was $891,000
compared to net cash provided by operating activities of $2.1 million in
1998. During 1999, PSB's investing activities used $82.7 million in net
cash and PSB's financing activities provided $53.4 million in net cash. In
1998, PSB's investing activities used $26.9 million in net cash and PSB's
financing activities provided $30.7 million in net cash. The major
components within these two categories during 1999 were an increase in
total loans receivable of $46.7 million and proceeds from borrowed funds
of $34.0 million. The net result of these items was a $30.3 million
decrease in cash and cash equivalents for 1999, compared to a net increase
of $5.9 million for 1998. This significant decrease in cash and cash
equivalents in 1999 reflects management's decision to redeploy cash and
interest-earning deposits into investment securities.
Interest rate risk management is closely related to liquidity
management because each is directly affected by the maturity of assets and
liabilities. Interest rate risk management monitors the effect that
fluctuations in interest rates have on net interest income. The primary
function of PSB's interest rate sensitivity management is to reduce
exposure to interest rate risk through an appropriate balance between
interest-earning assets and interest-bearing liabilities. The goal is to
minimize fluctuations in the net interest margin of the Bank due to
general changes in interest rates.
The net interest margin of a bank that does not have a relatively
close relationship between the quantity of assets that mature or re-price
within a given time period and the quantity of liabilities that mature or
re-price within the same time period will fluctuate more widely than a
bank that has a closer match. Furthermore, a bank that has liabilities
that reprice earlier than its assets will have a decline in its net
interest margin as interest rates rise.
The blending of fixed and floating rate loans and investments to
match their pricing and maturity characteristics of the various funding
sources is a continuous process in an attempt to minimize fluctuations in
net interest income caused by changes in interest rates. The composition
of the balance sheet is designed to minimize any significant fluctuation
in net interest income and to maximize liquidity. Management believes that
the accessibility to FHLB borrowings will provide the flexibility to
assist in keeping fluctuations in net interest income under control and to
maintain an adequate liquidity position.
One tool used by management to gauge the structure of the balance
sheet is a "gap" analysis that categorizes assets and liabilities on the
basis of maturity date, the date of next re-pricing, and the applicable
amortization schedule. This analysis summarizes the matching or
mismatching of rate sensitive assets versus rate sensitive liabilities
according to specified time periods. Management concentrates on the zero
to three month and one year gap intervals. At December 31, 2000, PSB had
a one-year liability sensitive gap of $33.2 million and a gap ratio of
0.78 or 13.0% of total assets as of that date.
The following table shows the interest rate sensitive data at
December 31, 2000 (in thousands):
Interest Rate Sensitivity Analysis
As of December 31, 2000
More Balance
than No Stated at
Gap table at December 31, 1999 0-3 Months 3-12 Months 1-5 Yrs 5 Yrs Maturity
12/31/00
Interest bearing deposits with banks $14,969 $ 14,969
Investment securities 5,361 $ 6,172 $ 26,477 $ 32,329 $ 1,357 71,696
Mortgage loans 26,037 9,045 44,550 15,007 94,639
Commercial loans 4,260 5,673 3,969 13,902
Consumer loans 641 29 1,419 10 2,099
Student loans 11,288 11,288
Construction loans 22,775 553 23,328
SBA loans 11,029 11,029
Other assets 450 11,419 11,869
Total assets $96,810 $ 20,919 $ 76,968 $ 47,346 $ 12,776 $254,819
Non interest bearing deposits $ 13,601 $ 13,601
NOW accounts 12,801 12,801
Money market accounts $ 5,323 5,126 10,449
Savings accounts 5,612 22,447 28,059
Time deposits 18,380 $108,178 $ 12,493 214 139,265
Borrowed funds 13,402 13,402
Other liabilities 1,260 1,260
Total liabilities 42,717 $108,178 $ 12,493 $ 54,189 1,260 218,837
Shareholder's equity 35,982 35,982
Total liabilities and shareholder's $42,717 $108,178 $ 12,493 $ 54,189 $ 37,242
$254,819
equity
GAP $54,093 $(87,259) $ 64,475 $ (6,843) $(24,466) $ 0
Cumulative GAP $54,093 $(33,166) $(31,309) $ 24,466 $ 0 $ 0
Cumulative GAP Ratio 2.27 0.78 1.19 1.11 1.00 1.00
Capital Adequacy
The Bank is required to maintain minimum ratios of Tier I and total
capital to total "risk weighted " assets and a minimum Tier I leverage
ratio, as defined by the banking regulators. At December 31, 2000, the
Bank was required to have minimum Tier I and total capital ratios of 4.0%
and 8.0%, respectively, and a minimum Tier I leverage ratio of 4.0%. The
Bank's actual Tier I and total capital ratios at December 31, 2000 were
23.29% and 24.21%, respectively, and the Bank's Tier I leverage ratio was
13.21%. These ratios exceed the requirements for classification as a
"well-capitalized" institution, the industry's highest capital category.
Capital ratios increased during 2000 over 1999 due to a 16% decrease in
total risk adjusted assets and a 9% increase in Tier 1 and total capital
from 1999 to 2000. The decline in capital ratios during 1999 over 1998 was
due to a 39% increase in total risk adjusted assets from 1998 to 1999.
Following are the Bank's risk based capital ratios at December 31, 2000,
1999 and 1998 (dollars in thousands):
December 31,
2000 1999 1998
Tier I Capital $ 34,183 $ 31,348 $ 36,119
Tier II Capital 1,349 1,231 740
Total Qualifying Capital $ 35,532 $ 32,579 $ 36,859
Risk Adjustment Total Assets $146,793 $175,163 $107,590
Tier I Risk-Based Capital
Ratio 23.29% 17.90% 33.57%
Total Risk-Based Capital
Ratio 24.21% 18.60% 34.26%
Leverage Ratio 13.21% 11.48% 16.13%
Management expects that the Bank's capital ratios will decrease
significantly as a result of the largely cash acquisition of Jade
Financial Corp expected to close in the second quarter of 2000.
Nevertheless, management is confident that the Bank will remain "well
capitalized".
FINANCIAL CONDITION
General
PSB's total assets decreased $24.8 million or 8.8% to $254.8 million
at December 31, 2000 from $279.6 million at December 31, 1999. The
decrease in assets was primarily the result of a decrease in net loans
receivable and investments. This decrease in assets was a strategy
implemented by management in consideration of the pending cash acquisition
of Jade Financial Corp. and the effect of the acquisition on the Bank's
capital ratios. Total assets of PSB increased $52.1 million or 22.9%
during 1999, from $227.5 million at December 31, 1998. The major reason
for this increase in total assets during 1999 was a 500.27% increase in
securities purchased under agreement to resell, a $34.0 million increase
in advances from the FHLB, and a $6.5 million increase in total deposits.
This increased use of leverage was a strategy initiated by management with
the assistance of its nationally-recognized, affiliate McGuire Performance
Solutions, to better utilize excess capital and increase earnings and
return on equity.
Net loans decreased to $154.9 million at December 31, 2000, from
$176.0 million at December 31, 1999. The decrease of $21.1 million, or
12.0%, was the result of payoffs in PSB's student loan program without a
corresponding increase in the volume of student loans to offset the
payoffs. A decrease in construction, commercial, and non-residential
loans were also contributing factors. Increased loan origination of other
loan products such as commercial real estate, SBA loans and consumer loans
as well as modest growth in residential mortgage loans were not
significant enough to offset the decreases in the other portions of the
loan portfolio.
Net loans increased 45.2% to $176.0 million for the year ended
December 31, 1999 from $121.2 million at December 31, 1998. The increase
in loan volume was primarily a result of PSB's student loan program. This
program was an existing program of First Bank of Philadelphia. These loans
are funded to students at qualifying schools and are subsequently
contractually sold at par within 30 to 45 days of origination to an
investor. Other real estate owned decreased by $230,000 because PSB sold
properties from its portfolio. Total shareholders' equity increased by
$25,000 resulting from net income for 2000 of $176,000 and a repurchase of
common stock.
Investment Activities
The Bank's investment portfolio is comprised of mortgage-backed
securities, investment securities, and cash and cash equivalents. The
carrying value of the Bank's investment securities and mortgaged-backed
securities portfolio totaled $73.9 million at December 31, 2000 compared
to $81.3 million at December 31, 1999 and $45.4 million at December 31,
1998. The Bank's cash and cash equivalents, consisting of cash and due
from banks, and interest-earning deposits with other financial
institutions, totaled $17.9 million at December 31, 2000 compared to
$17.3 million at December 31, 1999, and $47.5 million at December 31,
1998. The majority of the Bank's mortgage-backed securities are issued or
guaranteed by the United States Government or agencies thereof. At
December 31, 2000, mortgage-backed securities totaled $43.9 million
compared to $49.7 million at December 31, 1999. The majority of this
amount represents securities that were issued or guaranteed by either
FNMA, FHLMC or the Government National Mortgage Association ("GNMA"). The
Bank historically maintains high levels of interest-earning deposits as
part of its strategy for meeting liquidity requirements and improving
interest sensitivity.
The Bank is required under federal regulations to maintain a minimum
amount of liquid assets that may be invested in specified short-term
securities and certain other investments. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity
and Capital Resources." The Bank generally has maintained a portfolio of
liquid assets that exceeds regulatory requirements. Liquidity levels may
be increased or decreased depending upon the yields on investment
alternatives and upon management's judgment as to the attractiveness of
the yields then available in relation to other opportunities and its
expectation of the level of yield that will be available in the future, as
well as management's projections as to the short-term demand for funds to
be used in the Bank's loan origination and other activities.
Pursuant to SFAS No. 115, which the Bank adopted in 1994, the Bank
classifies its investment securities and mortgage-backed securities as
either held-to-maturity, available-for-sale or trading. Available-for-
sale and trading securities are carried at market value, while held-to-
maturity securities are carried at amortized cost. At December 31, 2000,
$5.0 million of the Bank's investment securities and mortgaged-backed
securities were classified held-to-maturity and $69.0 million of the
Bank's investment securities and mortgaged-backed securities were
classified available-for-sale. The Bank did not carry any trading
securities at December 31, 2000.
The Bank's Board of Directors has also adopted an investment policy
that identifies acceptable types of investments for the Bank and
establishes criteria to guide management in classifying investments as
prescribed by SFAS No. 115. The policy also authorizes the Bank's
investment officer to make investments of up to $1 million. Under the
investment policy, the Bank may invest in certain AAA rated derivative
securities. As of December 31, 2000, the Bank had no collateralized
mortgage obligations. The Bank may not invest in high-risk collateralized
mortgage obligations ("CMOs") and the Bank's investment officer must
periodically analyze the risk of any CMO held by Bank to determine that
such securities are not within the high-risk category.
On January 29, 1999, PSB purchased 1,600,000 shares of Series A
Convertible Preferred Stock, $.01 par value per share, of McGuire
Performance Solutions, Inc. ("MPS"). PSB purchased the shares for $.78125
per share for a total cost of $1,250,000. PSB owns 100% of MPS's Series A
Convertible Preferred Stock which represents a 49% voting interest in MPS.
MPS is a nationally recognized firm delivering cost-effective solutions
for high performance total balance sheet management to banks, thrifts,
credit unions and other financial institutions.
On November 16, 1999, PSB invested $2,500,000 in a two year
convertible debenture issued by ZipFinancial.com, Inc., doing business as
BankZip, a start-up internet banking company for community banks. The
debenture was convertible into 1 million shares of common stock upon the
earlier of an initial public offering by BankZip or the day prior to the
maturity date. The total capitalization of BankZip was $13.9 million. To
reflect the uncertainty surrounding this investment, as of September 30,
2000, PSB established an equity account valuation reserve pursuant to SFAS
115 of 50% or $1.25 million while BankZip sought additional financing.
Because the company has not raised sufficient additional capital and has
ceased operations, PSB has elected to write off this investment as of
December 31, 2000 and take an after-tax charge to earnings of
$1.5 million.
PSB invested $795,000 in the common stock of Jade Financial Corp.,
the holding company for IGA Federal Savings Bank and in February of 2001
invested an additional $1.4 million in Jade Financial Corp. common stock.
Both purchases were open market purchases. PSB has entered into a merger
agreement with Jade Financial Corp. and expects to close the transaction
in the second quarter of 2001.
Carrying and Market Value of Investment and Mortgage-Backed Securities.
The following table sets forth certain information regarding the
carrying and market values of the Bank's investment securities and
mortgage-backed securities in the Bank's held-to-maturity portfolio at
December 31, 2000, 1999 and 1998.
Held-to-Maturity
At December 31, 2000
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(In Thousands)
Investment Securities:
Debt:
FNMA $1,000 $ - ($ 8) $ 992
FHLMC 3,000 - (42) 2,958
Total debt securities held-to-maturity $4,000 $ - ($50) $3,950
Mortgage-backed securities:
GNMA 883 34 - 917
FHLMC 27 2 - 29
Total mortgage-backed securities held-to-
maturity $ 910 $36 $ - $ 946
Total securities held-to-maturity $4,910 $36 ($50) $4,896
Held-to-Maturity
At December 31, 1999
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(In Thousands)
Investment Securities:
Debt:
FNMA $1,000 $ - ($ 38) $ 962
FHLMC 3,000 - (183) 2,817
Total debt securities held-to-maturity $4,000 $ - ($221) $3,779
Mortgage-backed securities:
GNMA 979 23 - 1,002
FHLMC 27 2 - 29
Total mortgage-backed securities held-to-
maturity $1,006 $25 $ - $1,031
Total securities held-to-maturity $5,006 $25 ($221) $4,810
The following table presents the estimated fair value of investment
securities and mortgage-backed securities available-for-sale and the net
unrealized gain or loss at the periods indicated:
Available-for-Sale
At December 31, 2000
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(In Thousands)
Investment Securities:
Equity:
Investments in mutual funds $ 2,354 $ - $ 14 $ 2,340
FHLB and FRB Stock 2,591 - - 2,591
Total equity securities available-for-sale $ 4,945 $ - $ 14 $ 4,931
Debt:
FNMA Notes 3,500 - 42 3,458
Municipal tax-exempt 3,480 - 51 3,429
FHLB Notes 11,499 - 130 11,369
Total debt securities available-for-sale $18,479 $ - $ 223 $18,256
Mortgage-backed securities:
FNMA 34,789 - 620 34,169
GNMA 8,219 - 161 8,058
Total mortgage-backed securities
available-for-sale $43,008 $ - $ 781 $42,227
Other investments 2,559 462 - 3,021
Total securities available-for-sale $68,991 $462 $1,018 $68,435
Available-for-Sale
At December 31, 1999
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(In Thousands)
Investment Securities:
Equity:
Investments in mutual funds $ 2,354 $- $ 24 $2,330
FHLB and FRB Stock 2,056 - - 2,056
Total equity securities available-for-sale $ 4,410 $- $24 $4,386
Debt:
FNMA Notes 3,500 $- 198 3,302
Municipal tax-exempt 3,511 - 310 3,201
FHLB Notes 11,499 598 10,901
Total debt securities available-for-sale $18,510 $- 1,106 $17,404
Mortgage-backed securities:
FNMA 39,540 - 2,188 37,352
GNMA 9,151 - 552 8,599
Total mortgage-backed securities
available-for-sale $48,691 $- $2,740 $45,951
Other investments 4,645 - - 4,645
Total securities available-for-sale $76,256 $30 $3,870 $72,386
Available-For-Sale
At December 31, 1998
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(In Thousands)
Investment Securities:
Equity:
Investments in mutual funds $ 2,354 $-- $1 $ 2,353
FHLB and FRB Stock 1,131 -- -- 1,131
Total equity securities available-for-sale 3,485 -- 1 3,484
Debt:
FNMA Notes 3,500 11 -- 3,511
Municipal tax-exempt 3,544 -- -- 3,544
FHLB Notes 6,498 -- 6,498
SLMA 1,000 1 -- 1,001
Total debt securities available-for-sale 14,542 -- -- 14,554
Mortgage-backed securities:
FNMA 11,884 -- 6 11,878
GNMA 10,196 -- -- 10,196
Total mortgage-backed securities
available-for-sale 22,080 -- 6 22,074
Total securities available-for-sale $40,107 $12 $7 $40,112
Investment Portfolio Maturities.
The following table sets forth the scheduled maturities, carrying
values, and weighted-average yields for the Bank's investment securities
and mortgage-backed securities portfolios. Adjustable-rate, mortgage-
backed securities are included in the period in which interest rates are
next scheduled to adjust (in thousands except for yields).
At December 31, 2000
In one year After one year After five years
or less to five years to ten years Over ten years
Carry- Carry- Carry- Carry- No Stated
ing Average ing Average ing Average ing Average Maturity
Value Yield Value Yield Value Yield Value Yield or Rate
Total
Held-to-maturity:
Investment Securities $ - - $2,000 6.37% $1,000 6.50% $ 1,000 7.09% $ -
$ 4,000
Mortgage-backed
securities - - - - - - 910 8.55% - 910
Total held-to-
maturity $ - - $2,000 6.37% $1,000 6.50% $ 1,910 15.64% $ - $
4,910
Available-for-sale:
Investment securities $2,500 5.32% $9,953 7.64% $4,000 6.80% $ 4,380 4.69%
$2,591 $23,424
Mortgage-backed
securities 443 3.07% - -% - -% 42,565 6.48% - 43,008
Investment, other - - - - - - - - 2,559 2,559
Total available-
for-sale $2,943 8.39% $9,953 7.64% $4,000 6.80% $46,945 11.17%
$5,150 $68,991
Loan Portfolio
Historically, the principal lending activity of the Bank has been the
origination, for retention in its portfolio, of fixed-rate and, to a much
lesser extent, adjustable-rate mortgage loans secured by one- to four-
family residential real estate located in its market area. The Bank and
its subsidiaries also originate loans secured by multifamily residential
and commercial real estate, construction loans, commercial business loans
and consumer loans. Also, as a result of the merger with First Bank of
Philadelphia, the Bank maintains a student loan program which was an
existing program of First Bank of Philadelphia and now appears in PSB's
consolidated results. These loans are funded to students at qualifying
schools and are subsequently contractually sold at par within 45 to 60
days of origination to an investor.
One- to four-family residential mortgage loans originated for resale
in the secondary market are underwritten according to standards that
conform to Federal National Mortgage Association ("FNMA") or Federal Home
Loan Mortgage Corporation ("FHLMC") guidelines. One- to four-family
residential mortgage loans originated and held in portfolio are generally
underwritten to conform to secondary market standards but from time to
time the Bank does originate nonconforming loans if, in the Bank's
judgment, the borrower does not present an unreasonable risk of default.
The Bank and Transnational Mortgage Corp. ("TNMC"), its mortgage banking
subsidiary, have sold in the secondary market a limited amount of fixed-
rate residential mortgage loans. The Bank has primarily been a portfolio
lender and at any one time the Bank holds only a nominal amount of loans
that may be sold.
At December 31, 2000 the Bank's net loan portfolio totaled
$154.9 million, representing 60.8% of total assets at that date, compared
to $176.0 million representing 62.9% of total assets at December 31, 1999.
As of December 31, 2000, one- to four-family residential loans totaled
$63.5 million representing 40.6% of the loan portfolio, compared to
$63.9 million representing 36.0% of the loan portfolio at December 31,
1999. At December 31, 2000 construction loans totaled $23.3 million
representing 14.9% of the total loan portfolio. This compares to
$23.5 million representing 13.2% of the loan portfolio at December 31,
1999 and $16.0 million representing 13.0% of the loan portfolio at
December 31, 1998.
The following table summarizes the loan portfolio of the Bank by loan
category and amount at December 31 for the past five years, including data
regarding the portion of the Bank's loans that bear fixed and adjustable
interest rates, respectively. From time to time, TNMC has originated and
sold mortgage loans to third party investors within the Bank's financial
reporting periods. Similarly, student loans are frequently originated and
sold within the Bank's financial reporting periods. Such mortgage and
student loans are not reflected in the financial tables and financial
statements pertaining to a particular period to the extent that such loans
were sold prior to any period end. The loan categories correspond to the
Bank's general classifications (in thousands, except for percentage):
At December 31,
2000 1999 1998
Amount Percent Amount Percent Amount Percent
Real Estate Loans:
One- to four-family $63,557 40.60% $ 63,937 35.99% $ 58,162 47.41%
Construction loans 23,328 14.90% 23,528 13.25% 15,981 13.02%
Five or more family residence 2,552 1.63% 2,712 1.53% 3,356 2.73%
Nonresidential 28,805 18.40% 27,117 15.27% 22,575 18.40%
Commercial loans 13,902 8.88% 10,682 6.01% 13,216 10.77%
SBA loans 11,029 7.04% 6,682 3.76% 8,251 6.72%
Student loans 11,288 7.21% 40,509 22.80% - 0.00%
Consumer loans 2,099 1.34% 2,468 1.39% 1,168 0.95%
Total loans $156,560 100.00% $177,635 100.00% $122,709 100.00%
Less:
Unearned fees and discounts $275 $ 404 $431
Undisbursed loan proceeds - (8) (7)
Allowance for loan losses 1,349 1,231 1,031
Net loans $154,936 $176,008 $121,254
Total loans with:
Fixed rates $107,700 68.80% $112,406 78.93% $ 96,849 78.93%
Adjustable rate 48,860 31.20% 65,229 21.07% 25,860 21.07%
Total loans $156,560 100.00% $177,635 100.00% $122,709 100.00%
At December 31,
1997 1996
Amount Percent Amount Percent
(Dollars In Thousands)
Real Estate Loans:
One- to four-family $ 57,810 71 59% $ 66,008 62 30%
Construction loans 11,457 4 14% 2,467 2 33%
Five or more family residence 3,075 1 12% 654 0 62%
Nonresidential 20,914 18 20% 21,854 20 63%
Commercial loans 9,117 3 04% 6,911 6 52%
SBA loans 8,225 7,047 6 65%
Student loans -- -- -- --
Consumer loans 1,201 1 91% 1,006 0 95%
Total loans $111,799 100.00% $105,947 100.00%
Less:
Unearned fees and discounts $ 478 $ 629
Undisbursed loan proceeds 138 --
Allowance for loan losses 965 1,400
Net Loans $110,218 $103,918
Total loans with:
Fixed rates $ 86,203 77.10% $ 85,688 80.87%
Adjustable rate 25,596 22.90% 20,259 19.13%
Total loans $111,799 100.00% $105,947 100.00%
Loan Maturities
The following table sets forth the maturity or period of re-pricing
of the Bank's loan portfolio at December 31, 2000. Demand loans and loans
having no stated schedule of repayments and no stated maturity are
reported as due in one year or less. Adjustable and floating-rate loans
are included in the period in which interest rates are next scheduled to
adjust rather than the period in which they contractually mature, and
fixed-rate loans are included in the period in which the final contractual
repayment is due (in thousands).
Amounts At December 31, 2000
Multi-Family Consumer
and and
One to Four Commercial Commercial
Family Real Estate Construction Business Total Loans
Amounts due:
Non-accrual $ 1,718 $ 292 $ 814 $ 270 $ 3,094
Within one year 6,821 6,689 20,736 21,678 55,924
After one year:
1-3 years 1,803 5,421 1,778 3,403 12,405
3 to 5 years 3,916 13,418 - 2,771 20,105
5 to 15 years 5,976 4,157 - 6,302 16,435
Over 15 years 43,323 1,380 - 3,894 48,597
Total due after one year $55,018 $24,376 $ 1,778 $16,370 $ 97,542
Total amounts due $63,557 $31,357 $23,328 $38,318 $156,560
Delinquent Loans
When a borrower fails to make a required payment on a loan, the Bank
attempts to cure the deficiency by contacting the borrower and seeking
payment. Contacts are generally made on the 15th day after a payment in
due. In most cases, deficiencies are cured promptly. If a delinquency
extends beyond 60 days, the loan and payment history is carefully
reviewed, additional notices are sent to the borrower and efforts are made
to collect the loan. While the Bank generally prefers to work with
borrowers to resolve such problems, when the account becomes 90 days
delinquent, the Bank does institute foreclosure or other proceedings, as
necessary, to minimize any potential loss.
Non-Performing Assets
In 2000, the Bank's level of non-performing assets increased
$1.0 million or 32.3% to $4.1 million compared to a decrease of $539,000
or 13.8% to $3.1 million at December 31, 1999 from $3.6 million at
December 31, 1998. The primary reason for the increase in non-performing
assets in 2000 was the transfer of a number of First Bank of Philadelphia
loans assumed in the merger being reclassified as non-performing.
Contributing to the decrease in 1999 were net decreases of $230,000 in the
Bank's OREO portfolio and $489,000 in the Bank's non-accrual portfolio,
attributable to continuing legal action against the Bank's problem loan
customers, through foreclosure and other court actions and aggressive
account management on the Bank's performing loan portfolio to minimize
future problems.
As a matter of policy, the accrual of loan interest is discontinued
if management believes that, after considering economic and business
conditions and collection efforts, the borrower's financial condition is
such that collection of interest becomes doubtful. This is normally done
when a loan reaches 90 days delinquent. At this time, all accrued but
unpaid interest is backed out of interest income. There are occasional
exceptions if the loans are well secured and in the process of collection.
The Bank did not have any material restructured loans within the meaning
of SFAS No. 15.
The following table sets forth information regarding loans 30 or more
days delinquent and still accruing interest, non-accrual loans, and owned
real estate held by the Bank at the dates indicated (dollars in
thousands):
At December 31,
2000 1999 1998 1997 1996
Loans past due 90 days or more as to interest
or principal and accruing interest $ - $ 180 $ - $ 232 $2,468
Nonaccrual loans 3,095 1,882 2,367 2,737 3,098
Loans restructured to provide a reduction or
deferral of interest or principal - - - - -
Total nonperforming loans $3,095 $2,062 $2,367 $2,969 $5,566
Real estate owned (REO) 1,046 1,047 1,277 2,249 $2,659
Total Nonperforming Assets $4,141 $3,109 $3,644 $5,218 $8,225
Nonperforming loans to total loans 1.98% 1.16% 1.93% 2.66% 5.15%
Nonperforming assets to total assets 1.63% 1.11% 1.60% 2.68% 4.42%
Allowance for loan losses to total
loans 0.86% 0.69% 0.80% 0.82% 1.33%
Allowance for loan losses to
nonperforming loans 43.59% 59.82% 43.56% 32.50% 25.15%
Allowance for loan losses to
nonperforming assets 32.58% 39.65% 28.29% 18.49% 17.02%
Net charge-offs as a percentage of
total loans 0.00% 0.00% 0.21% 0.42% 0.44%
Other real estate owned
Real estate acquired by the Bank as a result of foreclosure is
classified as other real estate owned ("OREO") until it is sold. The OREO
is initially recorded at the lower of the related loan balance or fair
value of the property at the date acquired. If the value of the property
is less than the loan, less any related specific loan loss provisions, the
difference is charged against the allowance for loan losses. Any
subsequent write-down of OREO is charged against earnings. The Bank had
$1.0 million and $1.0 million of property acquired as a result of
foreclosure at December 31, 2000 and 1999.
Classified Assets
As part of the Bank's loan review procedures which ultimately results
in the establishment of the Bank's allowance for loan losses, the Bank
identifies and classifies its problem assets into three classifications:
"substandard," "doubtful" and "loss." Substandard assets have one or more
defined weaknesses and are characterized by the distinct possibility that
the bank will sustain some loss if the deficiencies are not corrected.
Doubtful assets have the weaknesses of substandard assets with the
additional characteristic that the weaknesses make collection or
liquidation in full on the basis of currently existing facts, conditions
and values questionable, and there is a high possibility of loss. An
asset classified as loss is considered uncollectible and of such little
value that continuance as an asset of the Bank is not warranted. The Bank
charges-off that portion of an asset as soon as it is classified as a
loss. Exclusive of the Bank's $1.0 million of OREO, the Bank's classified
assets at December 31, 2000 consisted of $1.0 of loans classified as
substandard, compared to $929,000 classified as substandard at
December 31, 1998.
Allowance for loan losses
The provision for loan losses is an amount charged against earnings
to fund the allowance for loan losses on existing loans. In order to
determine the amount of the provision for loan losses, the Bank conducts a
monthly review of the loan portfolio to evaluate overall credit quality.
In establishing its allowance for loan losses, management considers the
size and risk exposure for each segment of the loan portfolio, past loss
experience, current indicators such as the present levels and trends of
delinquency rates and collateral values, and the potential losses for
future periods. The provisions are based on management's review of the
economy, interest rates, general market conditions, and in certain
instances, an estimate of fair value of the collateral, as applicable,
considering the current and anticipated future operating environment.
These estimates are particularly susceptible to changes that may result in
a material adjustment to the allowance for loan losses. As adjustments
become identified, they are reported in earnings for the period in which
they become known. Management believes that it makes an informed judgment
based upon available information. The adequacy of the allowance is
reviewed monthly by the Board of Directors.
It is the objective of the Bank's evaluation process to establish the
following components of the allowance for loan losses. A specific
allocation for certain identified loans, a general allocation for pools of
loans based on risk rating and a general allocation for inherent loan
portfolio losses. Management performs current evaluations of its
criticized and classified loan portfolios and assigns specific reserves
that reflects the current risk to the Bank. As a general rule, special
mention assets will have a minimum reserve of 5%, substandard assets will
have a minimum reserve of 15%, and doubtful assets will have a minimum
reserve of 50%. Due to the fact that most of the Bank's problem loans are
secured by real estate, management has allocated a majority of the
allowance for loan losses to these real estate collateralized loans. A
general reserve allocation is applied for pools of loans based on risk
rating for all loans not specifically reserved for as described
previously.
Based upon management's analysis, the Bank recorded provisions for
loan losses of $100,000, $200,000, and $283,000 as of December 31, 2000,
1999, and 1998. The following table summarizes the changes in the Bank's
allowance for loan losses for each of the past three years (dollars in
thousands):
Year Ended December 31,
2000 1999 1998 1997 1996
Allowance, beginning of period $1,231 $1,031 $ 965 $1,400 $1,734
Charge-offs;
Real Estate: One- to four-family - - 270 495 466
Consumer
Total charge-offs - - 270 495 466
Total recoveries (18) - 53 - -
Net charge-offs (recoveries) (18) - 217 495 466
Provision charged to operations 100 200 283 60 132
Allowance, end of period $1,349 $1,231 $1,031 $ 985 $1,400
Allowance for loan losses to total
loans 0.86% 0.69% 0.80% 0.82% 1.33%
Allowance for loan losses to
nonaccrual loans 43.59% 65.55% 43.56% 35.26% 45.19%
Net charge-offs as a percentage of
total loans 0.00% 0.00% 0.21% 0.42% 0.44%
Deposits
Deposits are the primary source of the Bank's funds for lending and
other investment purposes. The Bank's current deposit products include
statement savings accounts, passbook savings accounts, NOW accounts,
personal and commercial demand deposit accounts, money market accounts,
and certificates of deposit accounts. Included among these deposit
products are Individual Retirement Account certificates and Keogh
retirement certificates. In addition to deposits, the Bank derives funds
from the amortization and prepayment of loans and mortgage-backed
securities, the maturity of investment securities and, if needed, advances
from the FHLB.
The Bank's deposits are obtained primarily from residents in its
primary market area. The principal methods used by the Bank to attract
deposit accounts include offering a wide variety of services and accounts,
no service charges for maintaining accounts, competitive interest rates
and convenient office hours. The Bank operates in a highly competitive
banking environment competing against large regional banks as well as
other community banks. This has limited the gathering of core deposits.
The Bank relies upon certificates of deposit as its primary funding
source, but it has instituted a program that emphasizes the gathering of
more stable, core deposits through traditional marketing methods to
attract new customers and savings deposits.
The following tables present the average balances and rates paid on
deposits for each of the years ended December 31, 2000, 1999 and 1998
(dollars in thousands):
Year Ended December 31,
2000 1999 1998
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
Demand deposits $ 15,912 -- $ 18,911 -- $ 19,460 --
NOW checking accounts 15,150 3.47% 8,924 3.47% 2,322 3.14%
Money market accounts 10,373 3.68% 15,761 3.68% 4,469 3.71%
Savings accounts 28,866 2.90% 29,686 2.90% 42,184 2.88%
Certificates of deposit 114,812 5.50% 118,623 5.50% 110,203 5.74%
Total deposits $185,113 $191,905 $178,638
As of December 31, 2000, the Bank had total certificates of deposit
of approximately $136.5 million. The following table summarizes the
composition of these deposits (dollars in thousands):
Amount Percentage
Certificates of deposit in excess of
$100,000 $ 25,421 19%
Individual retirement accounts 7,522 6%
Other certificates of deposit 103,579 75%
Total $136,522 100%
The Bank's certificates of deposit in excess of $100,000, which
totaled $25.4 million at December 31, 2000, mature as follows:
$3.7 million within three months, $19.1 million between three and twelve
months; and $2.6 million after twelve months.
The ability of the Bank to attract and maintain deposits and the
Bank's cost of funds on these deposit accounts have been, and will
continue to be, significantly affected by economic and competitive
conditions.
Borrowings
The Bank is a member of the Federal Home Loan Bank System, which
consists of 12 regional FHLBs subject to supervision and regulation by the
Federal Housing Finance Board. The FHLBs provide a central credit
facility primarily for member institutions. The Bank, as a member of the
FHLB of Pittsburgh, is required to hold shares of common stock in that
FHLB in an amount at least equal to 1% of the aggregate principal amount
of its unpaid residential mortgage loans, home purchase contracts, and
similar obligations at the beginning of each year, or 5% of its advances
(borrowings) from the FHLB of Pittsburgh, whichever is greater. The Bank
had a $2.6 million investment in the stock of the FHLB at December 31,
2000, which was in compliance with this requirement. At December 31,
2000, the Bank had no outstanding borrowings from the FHLB of Pittsburgh.
Management's choice not to increase the asset size of the Bank through
additional borrowing was made as a result of the pending acquisition of
Jade Financial Corp. and its effect on the capital ratios of the Bank.
Impact of Inflation
The financial statements and related financial data presented herein
have been prepared in accordance with generally accepted accounting
principles which require the measurement of financial position and
operating results in terms of historical dollars without considering
changes in the relative purchasing power of money over time due to
inflation. The primary impact of inflation on the operation of the Bank
is reflected in increased operating costs. Unlike most industrial
companies, virtually all of the assets and liabilities of a financial
institution are monetary in nature. As a result, interest rates have a
more significant impact on a financial institution's performance than the
effects of general levels of inflation. Interest rates do not necessarily
move in the same direction or in the same magnitude as the price of goods
and services. The Bank believes that continuation of its efforts to
manage the rates, liquidity and interest sensitivity of its assets and
liabilities is necessary to generate an acceptable return on assets.
Recently Issued Accounting Standards
SFAS No. 128, "Earnings Per Share," issued in February 1997,
establishes standards for computing and presenting earnings per share
("EPS") and applies to entities with publicly-held common stock or
potential common stock. It replaces the presentation of primary EPS with
a presentation of basic EPS and requires the dual presentation of basic
and diluted EPS on the face of the income statement. SFAS No. 128 was
effective for the financial statements for the periods ending after
December 15, 1997. SFAS No. 128 requires restatement of all prior period
EPS data presented. The impact of its adoption has not been material to
PSB.
In June 1997, FASB issued Statement of Financial Accounting Standards
No. 130 ("SFAS No. 130"), "Reporting Comprehensive Income" and Statement
No. 131 ("SFAS No. 131"), "Disclosures About Segments of an Enterprise and
Related Information." SFAS No. 130, establishes standards for the
reporting and presentation of comprehensive income and its components in
financial statements. SFAS No. 130 requires that all items that are
required to be recognized as components of comprehensive income be
reported in a financial statement that is displayed with the same
prominence as other financial statements. The statement does not require
a specific format for that financial statement but requires that an
enterprise display an amount representing total comprehensive income for
the period in the financial statement. This Statement was effective for
fiscal years beginning after December 15, 1997. For the year ended
December 31, 2000, PSB had $2.0 million, in unrealized loss in other
comprehensive income items.
SFAS No. 131 establishes standards for the way that public business
enterprises report information about segments in annual financial
statements. It also requires that those enterprises report selected
information about operating segments in interim financial reports issued
to shareholders. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers. This
statement was effective for financial statement periods beginning after
December 31, 1997. Management has not identified any individual operating
segments of PSB for reporting purposes.
In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes
accounting and reporting standards for derivative instruments and hedging
activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and
measure those instruments at fair value. This statement was effective for
financial statement periods beginning after June 15, 1999. SFAS No. 133
did not have a material effect on the financial statements of PSB.
Item 7A Quantitative and Qualitative Disclosures about Market
Risk
For information regarding the market risk of PSB's financial
instruments, see "Interest Rate Sensitivity" in the MD&A. PSB's principal
market risk exposure is to interest rate changes.
Item 8 Financial Statements
The audited financial statement of PSB Bancorp, Inc. as of
December 31, 2000, 1999, and 1998 and for the years ended December 31,
2000, 1999, and 1998, including the report of Stockton Bates & Company,
P.C. thereon, which are included at exhibit 99 to this Annual Report on
Form 10-K, are incorporated herein by reference.
Item 9 Changes In an Disagreements with Accountants on
Accounting and Financial Disclosure
Not applicable for the years presented herein.
PART III
Item 10 Directors, Executive Officers, Promoters and Control
Person; Compliance with Section 16 (a)
The following table sets forth information, as of December 31,
2000, with respect to the current directors of PSB.
Year
First
Elected Principal Occupation
Name/Position Age Director During Past Five Years
Class I directors (Term expiring 2002)
Anthony DiSandro, 53 1997 President and Chief
Director, President Operating Officer of
and Chief Operating PSB Bancorp, Inc.
Officer
Rosanne Pauciello, 54 1997 Corporate Secretary of
PSB Bancorp, Inc;
Director and Philadelphia School
Corporate Secretary District Home and
School Visitor.
Class II Director (Term expiring 2003)
James W. Eastwood, 55 1997 President of Granary
Director Associates, Inc.
hospital development
and consulting firm)
Stephen Marcus 68 2000 Founder, CEO of MARS
Graphic Services,
Inc., Chairman,
Emerging Growth
Equities, Inc.
Class III directors (Term expiring 2001):
Vincent J. Fumo, 57 1997 Chairman and Chief
Chairman and Chief Executive Officer of
Executive Officer PSB Bancorp, Inc. and
Pennsylvania State
Senator.
Thomas J. Finley, 80 1997 Retired.
Jr., Director
_____________________________
Executive Officers Who Are Not Directors
Principal Occupation
Name/Position Age During Past Five Years
Gary Polimeno, Vice 48 Vice President and Treasurer
President Treasurer of PSB
Bancorp, Inc.
Section 16(a) Beneficial Ownership Reporting Compliance
Based upon a review of the information provided to PSB for the twelve
month period ended December 31, 2000, two directors, Mr. Vincent J. Fumo
and Ms. Roseanne Pauciello failed to report on a timely basis, eight and
five purchase transactions, respectively. This resulted in Mr. Fumo not
timely filing four Form 4s and Ms. Pauciello not timely filing five Form
4s. Both Mr. Fumo and Ms. Pauciello timely filed a Form 5 on all
transactions on February 2, 2001.
Item 11 Executive Compensation
The following table sets forth for the years ended December 31, 2000,
1999 and 1998 certain information as to the total remuneration paid by the
Bank to executive officers who received salary and bonuses in excess of
$100,000 during such fiscal year.
Annual Compensation Long Term Compensation
----------------------------------- --------------------------------------
Other All
Annual Security Other
Fiscal Compensation Restricted Underlying Compensation
Name and Principal Position Year Salary(1) Bonuses (2) Stock(3) Option
(4)
- --------------------------- ------ --------- -------- ------------ ---------- ---------- ------------
Vincent J. Fumo 2000 $167,475 $175,000 $15,557 0 0
$24,000
Chairman and Chief Executive
Officer 1999 $159,500 $150,000 $15,557 $161,250 75,000
$22,050
1998 $147,788 $150,000 $20,667 0 0 $22,750
Anthony DiSandro 2000 $187,110 $175,000 $17,126 0 0
$33,200
President and Chief Operating 1999 $178,200 $150,000 $14,476 $161,250 75,000
$28,350
Officer 1998 $165,115 $150,000 $13,895 0 0 $27,650
Gary Polimeno 2000 $108,701 $ 35,000 $ - 0 0 $ 8,400
President and Treasurer 1999 $106,050 $ 35,000 $ - 0 0 $ 8,400
1998 $102,942 $ 35,000 $ - 0 0 $ 8,400
(1) Includes the portion of salary deferred by the executive
pursuant to the 401(k) Plan.
(2) Consists of lease payments paid by the Bank with respect to
a vehicle provided by the Bank for the executive's use.
(3) Mr. Fumo, Mr. DiSandro and Mr. Polimeno hold 56,136 shares,
56,136 shares and 2,750 shares of restricted stock,
respectively, which as of December 31, 2000, has a fair
market value of $231,561, $231,561 and $11,344. Of such
shares, 13,754, 13,754 and 2,750 shares of each of Messrs.
Fumo, DiSandro and Polimeno, respectively, were awarded at
April 30, 1996, 12,382 and 12,382 shares of Messrs. Fumo
and DiSandro, respectively, were granted on December 31,
1996, 30,000 and 30,000 shares of Messrs. Fumo and
DiSandro, respectively, were granted on October 31, 1999.
All shares awarded vest at a rate of 20% per year over a
five (5) year period and no dividends have been paid on the
restricted stock.
(4) Includes trustees fees of $15,600 and $24,800 paid to
Mr. Fumo and Mr. DiSandro, respectively, for the year ended
December 31, 2000, and directors fees paid by the Bank's
subsidiaries to Mr. Fumo, Mr. DiSandro and Mr. Polimeno of
$8,400, $8,400 and $8,400, respectively, for the year ended
December 31, 2000. Includes trustees fees of $13,650 and
$19,950 paid to Mr. Fumo and Mr. DiSandro, respectively,
for the year ended December 31, 1999, and directors fees
paid by the Bank's subsidiaries to Mr. Fumo, Mr. DiSandro
and Mr. Polimeno of $8,400, $8,400, and $8,400,
respectively, for the year ended December 31, 1999.
Includes directors fees of $14,350 and $19,250 paid to
Mr. Fumo and Mr. DiSandro, respectively, for the year ended
December 31, 1998, and directors fees paid by the Bank's
subsidiaries to Mr. Fumo, Mr. DiSandro and Mr. Polimeno of
$8,400, $8,400 and $8,400, respectively, for the year ended
December 31, 1998.
The following table provides certain information with respect to the
number of shares of common stock represented by outstanding options held
by the named executive officers at December 31, 2000. Also included in
the table are the values for "in-the-money" options that represent the
positive spread between the exercise price of any such options and closing
sale price of the common stock at December 31, 2000.
FISCAL YEAR-END OPTION/SAR VALUES
Number of Securities Value of Unexercised
Unexercised Options/SARs In-the-Money Option/SARs
at Fiscal Year End (#) at Fiscal Year End ($)
Exercisable/Unexercisable Exercisable/Unexercisable*
Name
Vincent J. Fumo 117,688/0 0/0
Anthony DiSandro 117,688/0 0/0
* Based on the market value of the underlying stock at the
fiscal year end, minus the exercise price. The market price
on December 31, 2000 was $4.125
Employment Agreements. The Bank has entered into employment
agreements (the "Employment Agreements") with Vincent J. Fumo, Chairman
and Chief Executive Officer and Anthony DiSandro, President and Chief
Operating Officer. Under the terms of his Employment Agreement, Mr. Fumo
serves as Chairman and Chief Executive Officer of PSB and the Bank at a
base salary of $167,475. Under the terms of his Employment Agreement,
Mr. DiSandro serves as President and Chief Operating Officer of PSB and
the Bank at a base salary of $187,110. Each Employment Agreement provides
for an initial term of three years, which will thereafter be automatically
renewed for an additional three years on each anniversary date unless
terminated pursuant to its terms by the respective parties.
Each Employment Agreement provides for the payment of certain
severance benefits in the event of the executive's resignation for
specified reasons or as a result of his termination by PSB or the Bank
without "Cause" (as defined in each Employment Agreement). The executive
would be entitled to severance payments if: (1) he terminates employment
during the term of such agreement following any breach of the Employment
Agreement by the Bank or PSB, loss of title, office or significant
authority, reduction in annual compensation or benefits, or relocation of
the executive's principal place of employment by more than 30 miles, or
(2) if the Bank or PSB terminates his employment, other than for Cause.
If either executive becomes entitled to receive severance payments
under his Employment Agreement, he would receive, over a period of 36
months, a cash payment equal to three times his average annual
compensation during the five-year period preceding termination of
employment. Payments would be made in equal monthly installments. In
addition to the severance payments, the executive would be entitled to
continue to receive life, medical, dental and other insurance coverages
(or a dollar amount equal to the cost of obtaining each such coverage) for
a period of up to 36 months from the date of termination. Payments under
the Employment Agreements are limited, however, to the extent (i) that
they will constitute excess parachute payments under Section 280G of the
Internal Revenue Code of 1986, as amended ("Code"), or (ii) not permitted
under the Federal Deposit Insurance Act.
Compensation Committee Report on Executive Compensation
Under rules established by the Securities and Exchange Commission
("SEC"), PSB is required to provide certain information regarding the
compensation and benefits provided to PSB's Chief Executive Officer and
other executive officers of PSB. The disclosure requirements for the
Chief Executive Officer and other executive officers include the use of
tables and a report explaining the rationale and considerations that led
to fundamental compensation decisions affecting those individuals. In
fulfillment of this requirement, the Committee, at the direction of the
Board of Directors, has prepared the following report for inclusion in
this annual report.
The compensation committee of the Board of Directors (the
"Committee") has established a policy for executive compensation, taking
into account both subjective performance criteria and certain specified
objective performance measures. The purpose of the policy is to:
(i) provide compensation opportunities that are competitive with other
financial services companies; (ii) support PSB's goal setting and
strategic planning process; (iii) motivate the executive management of PSB
to achieve profit and other key goals of the institution, including but
not limited to PSB's commitment to the communities it serves, to its
employees, customers and investors; (iv) motivate the executive management
to operate PSB in a safe and sound manner and in compliance with all
pertinent governmental and regulatory requirements; and (v) minimize
potential overhead by designating a portion of the annual compensation of
executives as variable rather than fixed.
During the course of 2000, the Committee took into account a variety
of objective and subjective criteria in evaluating the performance of the
executive management of PSB. The Committee assessed in detail the various
challenges facing PSB and the significant competitive pressures within
PSB's market area.
In the course of this assessment of competitive salary ranges among
other similarly situated companies, it was noted that competitive
executive compensation packages vary in relationship to these various
subjective and objective factors. A variety of resources were utilized
that provided peer data regarding executive compensation and financial
performance of PSB, that included but was not limited to the "SNL
Executive Compensation Review 2000" for both commercial banks and thrifts,
an assessment that reviews executive compensation and company performance
for publicly traded banks and thrifts. Comparisons were made with
institutions located within Southeastern Pennsylvania, the Middle Atlantic
trading area, and relative to national averages. The peer groups
considered in these analyses are not necessarily comprised of the same
institutions used in the peer group for the stock performance graph.
In determining executive compensation for 2000, the Committee
established certain specific objectives for executive management, which
included the execution of the strategic business plan, identifying and
completing acquisition opportunities.
Additionally, the Committee utilized a number of subjective elements
as part of the decision making process regarding executive compensation.
The individual skills and talents of the executive managers of PSB,
including but not limited to experience, leadership ability, planning and
organizational skills, administrative talent, vision for the future, and
work ethic were given consideration in establishing executive
compensation.
Mr. Vincent J. Fumo was the Chairman and Chief Executive Officer and
Mr. Anthony DiSandro was the President and Chief Operating Officer of PSB
for 2000. Messrs. Fumo's and DiSandro's salaries and bonuses for 2000
were determined by the Committee after review of the recent compensation
practices of similarly sized institutions.
Compensation Committee Interlocks and Insider Participation
The following individuals are members of the compensation committee
of the board of directors:
James W. Eastwood, Chairman of Compensation Committee
and Director of PSB
Anthony DiSandro, President, Chief Operating Officer
and Director of PSB
Thomas J. Finley, Jr., Director of PSB
Rosanne Pauciello, Secretary and Director of PSB
Stephen Marcus, Director of PSB
Stock Performance Graph.
The following graph shows a comparison of total shareholder return on
the common stock, based on the market price of the common stock, with the
cumulative total return of companies on The Nasdaq Stock Market (U.S.)
Index and The Nasdaq Banking Index (U.S.) for the period beginning on
January 1, 1996, through December 31, 2000.
[GRAPHIC]
In the printed version of the document, a line graph appears that
depicts the following plot points:
Comparison of Cumulative Total Returns for PSB Bancorp, Inc., The
Nasdaq Stock Market (U.S.) Index and The Nasdaq Banking Index.
SUMMARY
COMPANY/INDEX/MARKET 12/31/97 12/31/98 12/31/99 12/31/00
The Nasdaq Banking Index
(Industry Index) 100.00 89.94 84.70 99.27
PSB Bancorp, Inc 100.00 77.93 43.32 40.15
The Nasdaq Stock Market (U S ) Index
(Broad Market) 100.00 140.10 260.51 158.57
Notes:
A. The lines represent annual index levels derived from
compounded daily returns that include all dividends.
B. The indexes are reweighed daily, using the market
capitalization on the previous trading day.
C. If the fiscal year-end is not a trading day, the preceding
trading day is used.
D. The index level for all the series was set to 100.00 on
December 31, 1997.
Compensation of Officers and Directors Through Benefit Plans
Defined Benefit Retirement Plan. The Bank has maintained a non-
contributory defined benefit retirement plan ("Retirement Plan"). Under
the terms of the Retirement Plan, all employees age 21 or older who have
worked at the Bank for a period of one year and have been credited with
1,000 or more hours of employment with the Bank during the year are
eligible to accrue benefits under the Retirement Plan. The Bank would
annually contribute an amount to the Retirement Plan necessary to satisfy
the actuarially determined minimum funding requirements in accordance with
the Employee Retirement Income Security Act of 1974, as amended ("ERISA").
At December 31, 1998, the Retirement Plan fully met its funding
requirements under Section 412 of the Code. Employee contributions are
not permitted under the Retirement Plan. The Retirement Plan was "frozen"
as of September 30, 1994 and benefits no longer accrue thereunder. Since
the Retirement Plan is fully funded, the Bank will generally not be
required to make any additional contributions unless asset depreciation
from investment occurs. Participants will continue to vest in accordance
with the provisions of the Retirement Plan. No new employees will be
eligible for participation. The Plan, however, remains subject to all
other requirements of the Code.
Benefits under the Retirement Plan begin to vest after three years in
accordance with the following schedule:
Years of Service Percentage Vested
3 years or less 0%
After 3 years 20%
After 4 years 40%
After 5 years 60%
After 6 years 80%
After 7 years 100%
The following table indicates the annual retirement benefit that
would be payable under the Retirement Plan upon retirement at age 65 in
calendar year 1998, expressed in the form of a single life annuity for the
final average salary and benefit service classifications specified below.
Years of Service and Benefits Payable at Retirement
Final
Average
Compensation 15 20 25 30 35 40
$ 50,000 $13,804 $18,405 $23,006 $27,608 $27,608 $27,608
$ 75,000 $21,950 $29,267 $36,583 $43,900 $43,900 $43,900
$100,000 $30,096 $40,128 $50,160 $60,192 $60,192 $60,192
$125,000 $38,242 $50,990 $63,827 $65,827 $65,827 $65,827
$150,000* $46,388 $61,851 $65,827 $65,827 $65,827 $65,827
______________
* Represents the limit on plan compensation imposed by the Code
effective January 1, 1994.
As of December 31, 2000, Mr. Fumo, Mr. DiSandro, and Mr. Polimeno had
22, 23 and 25 years of credited service (i.e. benefit service),
respectively.
First Penn Bank Cash or Deferred Profit Sharing Plan (401(k)). The
Bank also maintains the First Penn Bank Cash or Deferred Profit Sharing
Plan, which is a qualified, tax-exempt profit sharing plan with a cash-or-
deferred feature under Section 401(k) of the Code (the "401(k) Plan").
All employees who have attained age 21 and have completed two years of
employment during which they worked at least 1,000 hours are eligible to
participate. Assets of the 401(k) Plan are managed by the 401(k) Plan's
trustees. Mr. Fumo and Mr. DiSandro presently serve as trustees to the
401(k) Plan.
Under the 401(k) Plan, participants are permitted to make pre-tax
salary reduction contributions to the plan equal to a percentage of up to
15% of compensation. Additional after-tax contributions of up to 10% of
compensation may be made to the Plan. For these purposes, "compensation"
includes total compensation (including salary reduction contributions made
under the 401(k) Plan sponsored by the Bank), but does not include
compensation in excess of the Code Section 401(a)(17) limits (presently
$160,000). The Bank may also annually make a discretionary profit sharing
contribution to the 401(k) Plan. A participant must complete 1,000 hours
of service during the plan year and be employed on the last day of the
plan year to receive an allocation of the profit sharing contribution.
For the 2000, 1999, 1998, 1997 and 1996 plan years, the Bank made profit
sharing contributions of $0, $0, $0, $0 and $45,568, respectively.
All employee contributions and profit sharing contributions to the
401(k) plan and earnings thereon are fully and immediately vested.
Plan benefits will be paid to each participant as a joint and
survivor or single life annuity. In addition, a participant may, under
certain circumstances, elect a lump sum or period certain payment upon
normal retirement, death or disability, or after termination of
employment.
First Penn Bank Profit Sharing Plan. The Bank also maintains the
First Penn Bank Profit Sharing Plan, which is a qualified plan pursuant to
Section 401(a) of the Code. Employees who have completed at least two
years of service during which they have worked 1,000 hours or more and who
have attained age 21 are eligible to participate in the Profit Sharing
Plan. Pursuant to the Profit Sharing Plan the Bank, in its discretion,
makes contributions to the accounts of eligible employees. Employee
contributions are neither permitted nor required. Benefits under the
Profit Sharing Plan become 100% vested upon entry to the Plan.
Employee Stock Ownership Plan. In 1995, the savings bank ESOP
acquired 42,780 shares of the savings bank common stock with the proceeds
of a $427,800 loan from an unaffiliated financial institution ("1995
Loan"). Due to the conversion and reorganization from a mutual holding
company to a stock holding company structure, the savings bank common
stock held by the ESOP was converted into 110,046 shares of PSB Bancorp,
Inc. common stock.
In connection with the conversion and reorganization, the ESOP
borrowed $1,288,540 from PSB to purchase an additional 128,854 shares of
PSB Bancorp, Inc. common stock. PSB also lent sufficient funds to the
ESOP to enable the ESOP to repay the 1995 Loan which had an outstanding
principal balance of $234,000 at December 31, 1998. The loan by PSB to
the ESOP will be repaid principally from the Bank's contributions to the
ESOP and dividends payable on common stock held by the ESOP over the
anticipated 10-year term of the loan. The interest rate for the ESOP loan
is 8.5%.
Shares purchased by the ESOP with the proceeds of the loan (including
shares originally acquired by the ESOP with the proceeds of the 1995 Loan)
are held in a suspense account and released on a pro rata basis as the
loan is repaid. Discretionary contributions to the ESOP and shares
released from the suspense account will be allocated among participants on
the basis of each participant's proportional share of total compensation.
Forfeitures will be reallocated among the remaining plan participants.
In any plan year, the Bank may make additional discretionary
contributions to the ESOP for the benefit of plan participants in either
cash or shares of common stock, which may be acquired through the purchase
of outstanding shares in the market or from individual shareholders or
which constitute authorized but unissued shares or shares held in treasury
by PSB. The timing, amount, and manner of such discretionary
contributions will be affected by several factors, including applicable
regulatory policies, the requirements of applicable laws and regulations,
and market conditions.
Employees of the Bank who have completed 1,000 hours of service
during 12 consecutive months and who have attained age 21 are eligible to
participate in the ESOP.
Benefits under the ESOP generally become 100% vested after the third
year of service or upon normal retirement (as defined in the ESOP),
disability or death of the participant. If a participant terminates
employment for any other reason prior to fully vesting, his non-vested
account balance will be forfeited. Forfeitures will be reallocated among
remaining participating employees in the same proportion as contributions.
Benefits may be payable upon death, retirement, early retirement,
disability or separation from service. The Bank's contribution to the
ESOP will not be fixed, so benefits payable under the ESOP cannot be
estimated.
A committee consisting of the Bank's Chairman and Chief Executive
Officer, President and Vice President and Treasurer, administers the ESOP
(the "ESOP Committee"). Messrs. Fumo and DiSandro serve as trustees of
the ESOP. The ESOP Committee may instruct the trustees regarding
investment of funds contributed to the ESOP. The ESOP trustees must vote
all allocated shares held in the suspense account in a manner calculated
to most accurately reflect the instructions the ESOP trustees have
received from participants regarding the allocated stock, subject to and
in accordance with the fiduciary duties under ERISA owed by the ESOP
trustees to the ESOP participants.
Pursuant to SOP 93-6, compensation expense for a leveraged ESOP is
recorded at the fair market value of the ESOP shares when committed to be
released to participants' accounts.
The ESOP is subject to the requirements of ERISA and the regulations
of the IRS and the Department of Labor issued thereunder. The Bank has
received a favorable determination letter from the IRS regarding the tax-
qualified status of the ESOP.
1995 Stock Option and Incentive Plan. In 1995, the Bank adopted the
1995 Stock Option Plan. Options for all shares reserved for issuance
under the 1995 Stock Option Plan have been granted to officers and
employees of the Bank. In connection with the conversion and
reorganization from a mutual holding company to a stock holding company
structure, the 1995 Stock Option Plan was assumed by the PSB and
appropriate adjustments were made to the exercise price and the number of
shares underlying each option to reflect the exchange ratio.
There was no exercise of options by any of Messrs. Fumo, DiSandro and
Polimeno under the 1995 Stock Option Plan at and for the fiscal year ended
December 31, 2000.
1995 Management Development and Recognition Plans. In 1995, the Bank
adopted a Management Development and Recognition Plans (the "1995
MRP") for officers, employees and non-employee directors of the Bank. All
shares under the 1995 MRP have been awarded. In connection with the
conversion and reorganization, the shares awarded to the 1995 MRP
participants were treated in the same manner as shares held by other
minority shareholders.
1998 Employee Stock Option Plan. This option plan provides for the
grant of (i) options to purchase common stock intended to qualify as
incentive stock options under Section 422 of the Code, and (ii) options
that do not so qualify nonqualified stock options. Pursuant to the option
plan, up to 161,073 shares of common stock (subject to adjustment) are
reserved for issuance by PSB upon exercise of stock options to be granted
to certain officers and employees of PSB from time to time under the
option plan. The purpose of the option plan is to give certain officers
and employees an opportunity to acquire common stock and to thereby help
PSB attract, retain and motivate key employees and officers.
Under this plan, option grants have been made to Messrs. Fumo and
DiSandro for 75,000 shares each and option grants of 2,857, 2,857 and
4,999 shares have been made to Mr. Eastwood, Mr. Finley and Ms. Pauciello,
respectively.
1998 Management Recognition Plan. The 1998 Management Recognition
Plan (the "MRP") is a method of providing certain senior executive
officers of PSB with a proprietary interest in PSB, to reward such
officers for their service and to encourage such persons to remain in the
service of PSB. Pursuant to the MRP, PSB will award certain senior
executive officers of PSB "plan share awards" representing the right to
earn shares of common stock over a period of five years from the date of
the plan share award. PSB will contribute sufficient funds to the MRP to
enable the MRP to purchase common stock representing up to 4% of the
aggregate number of shares outstanding.(i.e., up to 124,046 shares of
common stock).
Under this plan, share awards have been made to Messrs. Fumo and
DiSandro for 30,000 shares each.
Item 12 Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth certain information furnished to the
Bank as of December 31, 2000, with respect to the beneficial ownership of
common stock by (i) each shareholder known to PSB to be the beneficial
owner of five percent (5%) or more of the outstanding shares of common
stock; (ii) each director of PSB; (iii) the executive officer named in the
Summary Compensation Table on page 45 herein, and (iv) all current
executive officers and directors as a group. Except as indicated in the
footnotes to the table, the persons and entities named have sole voting
and investment power with respect to all shares of common stock of which
they are the respective beneficial owners.
Amount and Percent of
Nature of Outstanding
Beneficial Shares of
Name of Beneficial Owner Ownership common stock
5% Shareholders
First Penn Bank 238,900 5.36%
Employee Stock Ownership Plan
11 Penn Center, Suite 2601
1835 Market Street
Philadelphia, PA 19103
Directors
Anthony DiSandro 490,362(1) 10.72%
James W. Eastwood 33,806(3) *
Thomas J. Finley, Jr. 21,372(3) *
Stephen Marcus 66,900 *
Vincent J. Fumo 637,400(2) 11.34%
Rosanne Pauciello 15,270(3) *
Named Executive Officers
Gary Polimeno 41,927 *
All executive officers and
directors as a group (7 persons) 1,019,327 22.88%
______________
* Ownership percentage is less than 1%.
(1) Amount includes 50,510 shares held indirectly through the
401(k) Plan, 25,723 shares held through the Profit Sharing
Plan, 26,135 shares held by the 1995 Management Recognition
Plan and 30,000 shares held by the 1998 Management
Recognition Plan that have been awarded to Mr. DiSandro,
13,960 shares held in the ESOP, 15,726 shares held by
Mr. DiSandro directly and 117,688 shares subject to
immediately exercisable options. Also includes 238,900
shares held by the ESOP of which Mr. DiSandro is a trustee
and votes in his capacity as trustee.
(2) Amount includes 46,302 shares held through the 401(k) Plan,
13,504 shares held through the Profit Sharing Plan, 162,412
shares held directly, 26,137 shares held by the 1995 MRP
and 30,000 shares held by the 1998 Management Recognition
Plan that have been awarded to Mr. Fumo, 13,578 shares held
in the ESOP, 2,457 shares held on behalf of the daughter of
Vincent and Jane Scaccetti Fumo and 117,688 shares subject
to immediately exercisable options. Also includes 238,900
shares held by the ESOP of which Mr. Fumo is a trustee and
votes in his capacity as such.
(3) James W. Eastwood, Thomas J. Finley, Jr. and Rosanne
Pauciello hold 2,857, 2,857 and 4,999 shares, respectively,
subject to immediately exercisable options granted pursuant
to the 1998 Director Stock Option Plan.
Item 13 Certain Relationships and Related Transactions
Certain directors and executive officers of PSB, and associates of
such persons (including corporations of which such persons are officers or
10% beneficial owners), were customers of and had transactions with PSB
and its subsidiaries in the ordinary course of business during 2000. All
loans made to such persons were made in the ordinary course of business on
substantially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with other
persons, and did not involve more than the normal risks of collectibility
or present other unfavorable features. It is expected that any other
transactions with directors and officers and their associates in the
future will be conducted on the same basis.
Item 14 Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
The consolidated financial statements listed below are from Exhibit
99 to the Registrant's 2000 Form 10-K.
PSB Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheet
Consolidated Statement of Income
Consolidated Statement of Cash Flow
Notes to Consolidated Statements
Report of Independent Public Accountants
The following reports on Form 8-K were filed in the last quarter of
2000:
Form 8-K filed November 3, 2000/Announcement of the
execution of an Agreement and Plan of Reorganization with Jade Financial
Corp.
(a) Exhibits: The exhibits listed below are filed herewith or
incorporated by reference to other filings.
Exhibit No. Document
2.1 Agreement and Plan of Reorganization,
dated as of March 19, 1999, between
PSB Bancorp, Inc. and First Bank of
Philadelphia. (incorporated herein by
reference to Exhibit 2.1 of the S-4
Registration Statement of PSB Bancorp,
Inc. filed June 25, 1999
2.2 Agreement and Plan of Reorganization,
dated as of November 2, 2000, between
PSB Bancorp, Inc., PSB Merger Sub,
Inc. and Jade Financial Corp.
(incorporated herein by reference to
Registration Statement of PSB Bancorp,
Inc. filed on January 16, 2001.)
3.1 Articles of Incorporation of PSB
Bancorp, Inc. (incorporated herein by
reference to Exhibit 3.1 of the SB-2
Registration Statement of PSB Bancorp,
Inc. filed October 9, 1997).
3.2 Bylaws of PSB Bancorp, Inc.
(incorporated herein by reference to
Exhibit 3.2 of the SB-2 Registration
Statement of PSB Bancorp, Inc. filed
October 9, 1997).
10.1* First Penn Bank's Retirement Plan
(incorporated herein by reference to
Exhibit 10.1 of the SB-2 Registration
Statement of PSB Bancorp, Inc. filed
October 9, 1997).
10.2* First Penn Bank's Cash or Deferred
Profit Sharing Plan (incorporated
herein by reference to Exhibit 10.2
of the SB-2 Registration Statement of
PSB Bancorp, Inc. filed October 9,
1997).
10.3* First Penn Bank's Profit Sharing Plan
(incorporated herein by reference to
Exhibit 10.3 of the SB-2 Registration
Statement of PSB Bancorp, Inc filed
October 9, 1997).
10.4* Employment Agreement with Vincent J.
Fumo (incorporated herein by reference
to Exhibit 7.1 of the SB-2
Registration Statement of PSB Bancorp,
Inc filed October 9, 1997).
10.5* Employment Agreement with Anthony
DiSandro (incorporated herein by
reference to Exhibit 7.2 of the SB-2
Registration Statement of PSB Bancorp,
Inc filed October 9, 1997).
10.6* First Penn Bank's Employee Stock
Ownership Plan (incorporated herein by
reference to Exhibit 10.4 of the SB-2
Registration Statement of PSB Bancorp,
Inc. filed on October 9, 1997).
10.7 Lease Agreement between Eleven
Colonial Penn Plaza Associates and
First Penn Bank, dated as of
October 10, 1995 (incorporated herein
by reference to Exhibit 10.7 of Form
S-1, Amendment No. 3 of PSB Bancorp,
Inc. filed May 5, 1998).
10.8 Lease Agreement between Eleven
Colonial Penn Plaza Associates and
First Penn Bank, dated as of
October 12, 1995 (incorporated herein
by reference to Exhibit 10.8 of Form
S-1, Amendment No. 3 of PSB Bancorp,
Inc. filed on May 5, 1998).
10.9 First Penn Bank's Stock Option Plan
(incorporated herein by reference to
Exhibit 10.9 of the S-4 Registration
Statement of PSB Bancorp, Inc. filed
June 25, 1999).
10.10 First Penn Bank's Management
Recognition Plan (incorporated herein
by reference to Exhibit 10.10 of the
S-4 Registration Statement of PSB
Bancorp, Inc. filed June 25, 1999).
21 Schedule of Subsidiaries (incorporated
herein by reference to Form 10-KSB of
PSB Bancorp, Inc. filed on March 30,
2000).
99 Financial Statements (filed herewith)
____________
* Denotes a management contract or compensatory plan or
arrangement.
(b) Reports on Form 8-K
Form 8-K filed November 3, 2000/Announcement of the
execution of an Agreement and Plan of Reorganization
with Jade 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.
April 9, 2001 PSB BANCORP, INC.
By /s/ Anthony DiSandro
Anthony DiSandro
President and Chief Operating
Officer
In accordance with the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
Signature Title Date
/s/ Vincent J. Fumo Chairman and Chief April 9, 2001
Vincent J. Fumo Executive Officer,
Director
/s/ Anthony DiSandro President and Chief April 9, 2001
Anthony DiSandro Operating Officer,
Director
/s/ Gary Polimeno Vice President and April 9, 2001
Gary Polimeno Treasurer (Principal
Accounting and
Financial Officer)
Director April 9, 2001
James W. Eastwood
Director April 9, 2001
Thomas J. Finley, Jr.
/s/ Roseanne Pauciello Corporate Secretary April 9, 2001
Roseanne Pauciello and Director
/s/ Stephen Marcus Director April 9, 2001
Stephen Marcus
Exhibit Index.
Exhibit No. Document
2.1 Agreement and Plan of Reorganization,
dated as of March 19, 1999, between
PSB Bancorp, Inc. and First Bank of
Philadelphia. (incorporated herein by
reference to Exhibit 2.1 of the S-4
Registration Statement of PSB Bancorp,
Inc. filed June 25, 1999).
2.2 Agreement and Plan of Reorganization,
dated as of November 2, 2000, between
PSB Bancorp, Inc., PSB Merger Sub,
Inc. and Jade Financial Corp.
(incorporated herein by reference to
Registration Statement of PSB Bancorp,
Inc. filed on January 16, 2001.)
3.1 Articles of Incorporation of PSB
Bancorp, Inc. (incorporated herein by
reference to Exhibit 3.1 of the SB-2
Registration Statement of PSB Bancorp,
Inc. filed October 9, 1997).
3.2 Bylaws of PSB Bancorp, Inc.
(incorporated herein by reference to
Exhibit 3.2 of the SB-2 Registration
Statement of PSB Bancorp, Inc. filed
October 9, 1997).
10.1* First Penn Bank's Retirement Plan
(incorporated herein by reference to
Exhibit 10.1 of the SB-2 Registration
Statement of PSB Bancorp, Inc. filed
October 9, 1997).
10.2* First Penn Bank's Cash or Deferred
Profit Sharing Plan (incorporated
herein by reference to Exhibit 10.2
of the SB-2 Registration Statement of
PSB Bancorp, Inc. filed October 9,
1997).
10.3* First Penn Bank's Profit Sharing Plan
(incorporated herein by reference to
Exhibit 10.3 of the SB-2 Registration
Statement of PSB Bancorp, Inc filed
October 9, 1997).
10.4* Employment Agreement with Vincent J.
Fumo (incorporated herein by reference
to Exhibit 7.1 of the SB-2
Registration Statement of PSB Bancorp,
Inc filed October 9, 1997).
10.5* Employment Agreement with Anthony
DiSandro (incorporated herein by
reference to Exhibit 7.2 of the SB-2
Registration Statement of PSB Bancorp,
Inc filed October 9, 1997).
10.6* First Penn Bank's Employee Stock
Ownership Plan (incorporated herein by
reference to Exhibit 10.4 of the SB-2
Registration Statement of PSB Bancorp,
Inc. filed on October 9, 1997).
10.7 Lease Agreement between Eleven
Colonial Penn Plaza Associates and
First Penn Bank, dated as of
October 10, 1995 (incorporated herein
by reference to Exhibit 10.7 of Form
S-1, Amendment No. 3 of PSB Bancorp,
Inc. filed May 5, 1998).
10.8 Lease Agreement between Eleven
Colonial Penn Plaza Associates and
First Penn Bank, dated as of
October 12, 1995 (incorporated herein
by reference to Exhibit 10.8 of Form
S-1, Amendment No. 3 of PSB Bancorp,
Inc. filed on May 5, 1998).
10.9 First Penn Bank's Stock Option Plan
(incorporated herein by reference to
Exhibit 10.9 of the S-4 Registration
Statement of PSB Bancorp, Inc. filed
June 25, 1999).
10.10 First Penn Bank's Management
Recognition Plan (incorporated herein
by reference to Exhibit 10.10 of the
S-4 Registration Statement of PSB
Bancorp, Inc. filed June 25, 1999).
21 Schedule of Subsidiaries (incorporated herein
by reference to Form 10-KSB of PSB Bancorp,
Inc. filed on March 30, 2000).
99 Financial Statements (filed herewith).
____________
* Denotes a management contract or compensatory plan or
arrangement.