1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-26744
PATRIOT BANK CORP.
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(Exact name of registrant as specified in its charter)
PENNSYLVANIA 232820537
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
High and Hanover Streets, Pottstown, Pennsylvania 19464-9963
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(Address of principal executive offices) (Zip Code)
(610) 323-1500
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. /X/ Yes / / No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: 6,190,297 shares of common
stock were outstanding as of May 11, 2000.
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PATRIOT BANK CORP. AND SUBSIDIARIES
INDEX
Page
PART I FINANCIAL INFORMATION
Item 1 FINANCIAL STATEMENTS (Unaudited)
Consolidated Balance Sheets at March 31, 2000
and December 31, 1999 3
Consolidated Statements of Income for the Three-Month
Periods ended March 31, 2000 and 1999 4
Consolidated Statements of Stockholders' Equity for the
Periods ended March 31, 2000 and December 31, 1999 5
Consolidated Statements of Cash Flows for the Three-Month Periods
ended March 31, 2000 and 1999 6
Consolidated Statements of Comprehensive (Loss) Income
for the Three-Month Periods ended March 31, 2000 and
1999 7
Notes to Consolidated Financial Statements 8
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION 14
Item 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 21
PART II OTHER INFORMATION
22
Items 1 through 6
SIGNATURES
2
3
Patriot Bank Corp. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
March 31, December 31,
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2000 1999
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(unaudited)
ASSETS
Cash and due from banks $ 2,626 $ 4,919
Interest-earning deposits in other financial institutions 14,464 3,242
----------- -----------
Total cash and cash equivalents 17,090 8,161
Investment and mortgage-backed securities available for sale 86,659 87,334
Investment and mortgage-backed securities held to maturity (market value of
$328,334 and $330,754 at March 31, 2000
and December 31, 1999, respectively) 337,726 348,047
Loans held for sale 4,615 4,972
Loans and leases receivable, net of provision for credit loss of $6,261 and $6,082
at March 31, 2000 and December 31, 1999, respectively 658,272 621,978
Premises and equipment, net 10,600 11,376
Accrued interest receivable 4,759 4,845
Real estate and other property owned 131 193
Cash surrender value life insurance 15,915 15,700
Goodwill 14,129 14,189
Other assets 11,047 12,648
----------- -----------
Total assets $ 1,160,943 $ 1,129,443
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 566,074 $ 502,002
FHLB advances 365,191 412,692
Securities sold under repurchase agreements 152,508 137,103
Trust preferred debt securities 19,000 19,000
Advances from borrowers for taxes and insurance 5,228 4,761
Other liabilities 2,663 4,117
----------- -----------
Total liabilities 1,110,664 1,079,675
----------- -----------
Preferred stock, $.01 par value, 2,000,000 shares authorized, none
Issued at March 31, 2000 and December 31, 1999, respectively -- --
Common stock, no par value, 10,000,000 shares authorized, 6,555,490
and 6,555,490 issued at March 31, 2000 and December 31, 1999, respectively -- --
Paid in capital 58,155 58,117
Common stock acquired by ESOP, 379,216 and 385,643 shares at amortized cost at
March 31, 2000 and December 31, 1999, respectively (2,105) (2,141)
Common stock acquired by MRP, 96,746 and 108,794 shares at amortized
cost at March 31, 2000 and December 31, 1999, respectively (548) (638)
Retained earnings 5,684 4,737
Treasury stock, 365,192 and 369,991 at cost at March 31, 2000
and December 31, 1999, respectively (4,116) (4,172)
Accumulated other comprehensive loss (6,791) (6,135)
----------- -----------
Total stockholders' equity 50,279 49,768
----------- -----------
Total liabilities and stockholders' equity $ 1,160,943 $ 1,129,443
=========== ===========
The accompanying notes are an integral part of these statements.
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4
Patriot Bank Corp. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except for share data)
Three-Month Period Ended
March 31,
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2000 1999
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(unaudited)
INTEREST INCOME
Interest-earning deposits $ 61 $ 85
Investment and mortgage-backed securities 7,244 7,203
Loans and leases 13,189 10,673
------- -------
Total interest income 20,494 17,961
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INTEREST EXPENSE
Deposits 5,897 4,919
Short-term borrowings 4,413 3,012
Long-term borrowings 3,871 4,343
------- -------
Total interest expense 14,181 12,274
------- -------
Net interest income before provision for
credit losses 6,313 5,687
Provision for credit losses 300 300
------- -------
Net interest income after provision for
credit losses 6,013 5,387
------- -------
NON-INTEREST INCOME
Service fees, charges and other operating income 1,221 721
Gain on sale of real estate acquired through
foreclosure -- 1
Gain on sale of investment and mortgage-backed
securities available for sale -- 284
Mortgage banking gains 286 128
------- -------
Total non-interest income 1,507 1,134
------- -------
NON-INTEREST EXPENSE
Salaries and employee benefits 2,684 2,387
Office occupancy and equipment 1,413 1,110
Professional services 125 130
Federal deposit insurance premiums 25 55
Data processing 48 37
Advertising 76 165
Deposit processing 155 122
Goodwill amortization 275 196
Office supplies & postage 216 158
MAC expense 150 71
Other operating expense 415 298
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Total non-interest expense 5,582 4,729
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Income before income taxes 1,938 1,792
Income taxes 450 488
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Net income $ 1,488 $ 1,304
======= =======
Earnings per share - basic $ 0.26 $ 0.23
======= =======
Earnings per share - diluted $ 0.25 $ 0.22
======= =======
Dividends per share $ 0.09 $ 0.08
======= =======
The accompanying notes are an integral part of these statements.
4
5
Patriot Bank Corp. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, unaudited)
Accumulated
Other
Number of Paid-in Retained Treasury Comprehensive
Shares Capital ESOP MRP Earnings Stock Income (Loss) Total
-----------------------------------------------------------------------------------------------------
BALANCE AT JANUARY 1, 1999 4,347 $ 60,404 $(2,285) $(971) $ 4,220 $(22,963) $ 3,855 $ 42,260
Common stock issued 3 26 -- -- 26
Common stock acquired by
MRP (3) -- -- (26) -- -- -- (26)
Treasury stock purchased (377) -- -- -- -- (4,808) -- (4,808)
Treasury stock retired -- (23,531) -- -- -- 23,531 -- --
Common stock issued for
Business combination 1,640 21,047 -- -- -- -- -- 21,047
Release and amortization
of MRP 48 53 -- 359 -- -- -- 412
Release of ESOP shares 26 118 144 -- -- -- -- 262
Purchase ESPP shares 7 -- -- -- -- 68 -- 68
Change in unrealized gains
on securities available
for sale, net of taxes -- -- -- -- -- -- (9,900) (9,900)
Net income -- -- -- -- 2,200 -- -- 2,200
Cash dividends paid -- -- -- -- (1,683) -- -- (1,683)
----- -------- ------- ----- ------- -------- ------- --------
BALANCE AT DECEMBER 31, 1999 5,691 $ 58,117 $(2,141) $(638) $ 4,737 $ (4,172) $(6,135) $ 49,768
----- -------- ------- ----- ------- -------- ------- --------
Amortization of MRP shares 12 -- -- 90 -- -- -- 90
Amortization of ESOP shares 6 38 36 -- -- -- -- 74
Purchase ESPP shares 5 -- -- -- -- 56 -- 56
Change in unrealized gains
on securities available
for sale, net of taxes -- -- -- -- -- -- (656) (656)
Net income -- -- -- -- 1,488 -- -- 1,488
Cash dividends paid -- -- -- -- (541) -- -- (541)
----- -------- ------- ----- ------- -------- ------- --------
BALANCE AT MARCH 31, 2000 5,714 $ 58,155 $(2,105) $(548) $ 5,684 $ (4,116) $(6,791) $ 50,279
===== ======== ======= ===== ======= ======== ======= ========
The accompanying notes are an integral part of these statements.
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6
Patriot Bank Corp. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
Three-Months Period Ended March 31,
-----------------------------------
2000 1999
-------- --------
Operating activities
Net Income $ 1,488 $ 1,304
Adjustments to reconcile net income to net cash provided by operating activities
Amortization and accretion of
Deferred loan origination fees (241) 2
Premiums and discounts (731) (581)
MRP shares 90 90
Goodwill 275 196
Provision for credit losses 300 300
Release of ESOP shares 74 71
Gain on sale of securities available for sale -- (284)
Loss on sale of real estate owned -- (1)
Charge-off real estate owned -- 59
Depreciation of premises and equipment 440 522
Mortgage loans originated for sale (23,278) (7,161)
Mortgage loans sold 23,635 11,804
Decrease in deferred income taxes (29) (2,062)
Increase in cash surrender value of life insurance (215) --
Increase in accrued interest receivable 86 254
Increase in other assets 2,083 4,863
(Decrease) in other liabilities (1,454) (948)
-------- --------
Net Cash provided by operating activities 2,523 8,428
-------- --------
Investing activities
Loan originations and principal payments on loans, net (36,369) (1,488)
Proceeds from the sale of securities - available for sale -- 4,121
Proceeds from the maturity of securities - available for sale 984 25,633
Proceeds from the maturity of securities - held to maturity 10,321 8,363
Purchase of securities - available for sale (400) (41,576)
Purchase of bank owned life insurance -- (14,905)
Proceeds from sale of real estate owned 83 5
Purchase of premises and equipment (379) (809)
Proceeds from sale of premises and equipment 365 --
Cash received in business combination -- 10,077
-------- --------
Net cash used in by investing activities (25,395) (10,579)
-------- --------
Financing activities
Net increase in deposits 63,915 941
Repayment of short term borrowings (32,066) (2,068)
Repayment of (proceeds) from long term borrowings (30) (25)
Increase (decrease) in advances from
Borrowers for taxes and insurance 467 306
Cash paid for dividends (541) (392)
Purchase of Treasury Stock 56 (4,808)
-------- --------
Net cash (used) provided by financing activities 31,801 (6,046)
-------- --------
Net (decrease) increase in cash and cash equivalents 8,929 (8,197)
Cash and cash equivalents at beginning of year 8,161 30,487
-------- --------
Cash and cash equivalents at end of year $ 17,090 $ 22,290
======== ========
Supplemental Disclosures
Cash paid for interest on deposits $ 5,739 $ 4,681
======== ========
Cash paid for income taxes $ 650 $ 618
======== ========
Transfers from loans to real estate owned $ 21 $ 60
======== ========
The accompanying notes are an integral part of these statements.
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7
Patriot Bank Corp. and Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME LOSS
(in thousands, unaudited)
Three-Month Period Ended
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March 31,
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2000 1999
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Net income $ 1,488 $ 1,304
Other comprehensive income, net of tax
Unrealized gains on securities
Unrealized holding (losses) gains arising during the period (656) (1,261)
Less: Reclassification adjustment for gains included
in net income -- (187)
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Comprehensive income (loss) $ 832 $ (144)
======= =======
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PATRIOT BANK CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
March 31, 2000
Note 1 - General
The accompanying financial statements of Patriot Bank Corp. and Subsidiaries
("Patriot") include the accounts of the parent company, Patriot Bank Corp. and
its wholly-owned subsidiaries, Patriot Bank and Patriot Investment Company. All
material intercompany balances and transactions have been eliminated in
consolidation. These financial statements have been prepared in accordance with
the instructions for Form 10-Q and therefore do not include certain information
or footnotes necessary for the presentation of financial condition, results of
operations, and cash flows in conformity with generally accepted accounting
principles. However, in the opinion of management, the consolidated financial
statements reflect all adjustments (which consist of normal recurring accruals)
necessary for a fair presentation of the results for the unaudited periods. The
results of operations for the three-month period ended March 31, 2000 are not
necessarily indicative of the results which may be expected for the entire year.
The consolidated financial statements should be read in conjunction with the
annual report on Form 10-K for the year ended December 31, 1999.
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PATRIOT BANK CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
March 31, 2000
Note 2 - Investment And Mortgage-Backed Securities
The amortized cost and estimated fair value of investment and
mortgage-backed securities are as follows:
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March 31, 2000 December 31, 1999
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Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
cost gain loss value cost gain loss value
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands)
AVAILABLE FOR SALE:
Investment securities
Corporate debt securities $ 17,360 $ 9 $ 1,183 $ 16,186 $ 17,361 $ 73 $ 771 $ 16,663
FHLMC Preferred Stock 44,968 -- 856 44,112 44,966 797 1,151 44,612
FHLB Stock 21,235 -- -- 21,235 20,835 -- -- 20,835
Equity securities 6,303 -- 1,177 5,126 6,305 -- 1,081 5,224
-------- ------ ------- -------- -------- ------ ------- --------
Total securities available for
sale $ 89,866 $ 9 $ 3,216 $ 86,659 $ 89,467 $ 870 $ 3,003 $ 87,334
======== ====== ======= ======== ======== ====== ======= ========
HELD TO MATURITY:
Investment securities
U.S. Treasury and
government agency
Securities $ 75,210 $4,304 $ 6,130 $ 73,384 $ 74,246 $ -- $ 7,455 $ 66,791
Corporate debt securities 1,501 1 -- 1,502 1,501 -- 1 1,500
Mortgage-backed securities
FHLMC 4,117 32 65 4,084 4,272 32 12 4,292
Fannie Mae 53,050 2,652 3,742 51,960 54,809 26 3,162 51,673
GNMA 4,319 32 88 4,263 4,528 44 3 4,569
Collateralized mortgage
Obligations
FHLMC 108,182 1,489 4,680 104,991 114,178 690 4,059 110,809
Fannie Mae 80,170 1,025 4,063 77,132 82,489 227 3,501 79,215
Other 8,882 -- 107 8,775 9,732 -- 32 9,700
CMBS 2,295 33 85 2,243 2,292 -- 87 2,205
-------- ------ ------- -------- -------- ------ ------- --------
Total securities held to maturity $337,726 $9,568 $18,960 $328,334 $348,047 $1,019 $18,312 $330,754
======== ====== ======= ======== ======== ====== ======= ========
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Note 3 - Loans Receivable
Loans receivable are summarized as follows:
March 31, December 31,
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2000 1999
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(in thousands)
Mortgage loan portfolio
Secured by real estate $ 303,731 $ 293,852
Construction 11,032 10,481
Consumer loan portfolio
Home equity 67,457 69,785
Consumer 8,723 9,081
Commercial loan portfolio
Commercial 210,352 189,189
Commercial leases 64,669 57,808
--------- ---------
Total loans receivable 665,964 630,196
Less deferred loan origination fees (1,431) (2,136)
Allowance for credit losses (6,261) (6,082)
--------- ---------
Total loans receivable, net $ 658,272 $ 621,978
========= =========
Note 4 - Deposits
Deposits are summarized as follows:
March 31, December 31,
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Deposit type 2000 1999
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(in thousands)
NOW $ 35,545 $ 34,635
Money market 90,824 86,705
Savings accounts 35,846 37,193
Non-interest-bearing demand 37,547 30,760
-------- --------
Total demand, transaction, money
market and savings deposits 199,762 189,293
Certificates of deposits 366,312 312,709
-------- --------
Total deposits $566,074 $502,002
======== ========
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NOTE 5 - EARNINGS PER SHARE
The dilutive effect of stock options is excluded from basic earnings
per share but included in the computation of diluted earnings per share.
For Three-Months Ended March 31, 2000
---------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ------
BASIC EPS
Net Income available to common
Stockholders $1,488 5,805 $0.26
EFFECT OF DILUTIVE SECURITIES
Dilutive Options -- 247 (.01)
------ ----- -----
DILUTED EPS
Net income available to common
Stockholders plus assumed conversions $1,488 6,052 $0.25
====== ===== =====
For Three-Months Ended March 31, 1999
---------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ------
BASIC EPS
Net Income available to common
Stockholders $1,304 5,575 $0.23
EFFECT OF DILUTIVE SECURITIES
Dilutive Options -- 229 (.01)
------ ----- -----
DILUTED EPS
Net income available to common
Stockholders plus assumed conversions $1,304 5,804 $0.22
====== ===== =====
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Note 6 - Segment Reporting
The Company has three reportable segments: Patriot Bank ("PB"),
Patriot Commercial Leasing Corporation ("PCLC") and BankZip.Com ("ZIP"). PB
operates a community banking network with twenty-six community banking offices
providing deposits and loan services to customers. PCLC is a small ticket
leasing company headquartered in Exton, PA. ZIP is a new internet initiative
launched in the third quarter of 1999. In the fourth quarter of 1999 Patriot's
ownership of Zip was reduced to an insignificant percentage that will cause
Patriot to only report results for that segment for the third and fourth
quarters of 1999. Patriot currently holds a $5 million in debenture at the
applicable Federal rate from Zip that will allow Patriot to convert 5 million
warrants to shares in the event of ZIP having an IPO.
The following table highlights income statement and balance sheet
information for each of the segments at or for the three-month periods ending
March 31, 2000 and 1999 (in thousands).
For the three-month period ended March 31, 2000
-----------------------------------------------
PB PCLC ZIP Total
-- ---- --- -----
Net interest income $ 5,820 $ 493 $ -- $ 6,313
Other income 1,319 188 -- 1,507
Total net income 1,419 69 -- 1,488
Total assets 1,095,066 65,877 -- 1,160,943
Total loans and leases 593,603 64,669 -- 658,272
For the three-month period ended March 31, 1999
-----------------------------------------------
PB PCLC ZIP Total
-- ---- --- -----
Net interest income $ 5,278 $ 409 $ -- $ 5,687
Other income 1,000 134 -- 1,134
Total net income 1,284 20 -- 1,304
Total assets 1,044,144 47,464 -- 1,091,608
Total loans and leases 510,170 45,106 -- 555,276
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Note 7 - Accounting for Derivative Instruments and Hedging Activities
In June 1998, the FASB issued SFAS No. 133 "Accounting for
Derivative Instruments and Hedging Activities." This statement as amended by
SFAS No. 137 in June 1999 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, (collectively referred to as derivatives) and for 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. The accounting for changes in the fair value of a
derivative depends on the intended use of the derivative and the resulting
designation. If certain conditions are met, a derivative may be specifically
designated as (a) a hedge of certain exposure to changes in the fair value of a
recognized asset or liability or an unrecognized firm commitment; (b) a hedge of
the exposure to variable cash flows of a forecasted transaction; or (c) a hedge
of foreign currency exposure. SFAS No. 133, as amended, is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000. Earlier adoption
is permitted. Patriot has not yet determined the impact, if any, of this
statement, including if applicable, its provisions for the potential
reclassifications of certain investment securities, on earnings, financial
condition or equity.
Note 8 - Business Combinations
On January 22, 1999, the Company consummated its acquisition of
First Lehigh Corporation (First Lehigh), the holding company of First Lehigh
Bank. At the time of the merger First Lehigh Bank was a commercial bank with
$104,475,000 in total assets, $93,905,000 in total deposits, and five branches
in Lehigh and Carbon counties of Pennsylvania. Patriot issued 1,640,000 shares
of common stock for all of the outstanding common and preferred stock of First
Lehigh. The transaction had a total value of $21,047,000. The acquisition was
accounted for as a purchase, and accordingly the results of operations of First
Lehigh is have been included in Patriot;s consolidated statement of income from
the date of acquisition. The transaction added $6,712,000 of goodwill which is
being amortized over 15 years and $4,508,000 of core deposit intangibles to
Patriot's balance sheet which is being amortized on an accelerated basis over a
period of 5-20 years.
On June 28, 1999. The company acquired three offices of Ark Mortgage
Inc. The offices acquired are located in Fort Washington, Lancaster, and
Bethlehem. The purchase price was equal to $250,000 in cash less certain profits
on the acquired mortgage pipeline. The acquisition will be accounted for as a
purchase and will add approximately $170,000 of goodwill to Patriot's balance
sheet which will be amortized over a period of 15 years.
On November 6, 1998, Patriot acquired Keystone Financial Leasing
Company (KFL). KFL is a small-ticket commercial leasing company which had total
assets of $43,327,000 including lease receivables of $42,764,000 at the date of
acquisition. KFL was purchased for $6,258,000 in cash plus contingent
consideration based upon future revenues of KFL. The acquisition was accounted
for as a purchase. Goodwill arising from the transaction totaled $2,267,000 and
is being amortized over 15 years.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
In addition to historical information, this discussion and analysis of
Patriot Bank Corp. and Subsidiaries (Patriot) contains forward-looking
statements. The forward-looking statements contained herein are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those projected in the forward-looking statements. Important
factors that might cause such a difference include, but are not limited to those
discussed in the "Management's Discussion and Analysis of Financial Condition
and Results of Operations". Readers are cautioned not to place undue reliance on
these forward-looking statements, which reflect management's analysis only as of
the date hereof. Patriot undertakes no obligation to publicly revise or update
these forward-looking statements to reflect events or circumstances that arise
after the date hereof.
GENERAL. Patriot reported diluted earnings per share of $.25 and net income
of $1,488,000 for the three-month period ended March 31, 2000. This represents
an increase of 14% over diluted earnings per share of $.22 and net income of
$1,304,000 for the three month period ended March 31, 1999. Return on average
equity was 12.16%, for the three-month period ended March 31, 2000 compared to
9.44%, for the three-month period ended March 31, 1999.
NET INTEREST INCOME. Net interest income for the three-month period ended
March 31, 2000 was $6,313,000 compared to $5,687,000 for the same period in
1999. This increase is primarily due to an increase in average balances
associated with growth in the commercial loan and lease portfolios. Patriot's
net interest margin (net interest income as a percentage of average
interest-earning assets) was 2.46% for the three-month period ended March 31,
2000 compared to 2.32% for the same period in 1999. The increase in margin is
primarily due to the growth of Patriot's commercial loan and lease portfolio.
Interest on loans and leases was $13,189,000 for the three-month period
ended March 31, 2000 compared to $10,673,000 for the same period in 1999. The
average balance of loans was $636,859,000 with an average yield of 8.29% for the
three-month period ended March 31, 2000 compared to an average balance of
$541,505,000 with an average yield of 7.93% for the same period in 1999. The
increase in average balance is due to strong originations of commercial loans
and leases coupled with the inclusion of the First Lehigh acquisition assets
being present for the entire 1st quarter of 2000. The increase in average yield
is primarily a result of a greater volume of higher yielding commercial loans
and leases coupled with generally higher interest rates.
Interest on Patriot's investment portfolio (investment and mortgage-backed
securities) was $7,244,000 for the three-month period ended March 31, 2000
compared to $7,203,000 for the same period in 1999. The average balance of the
investment portfolio was $430,001,000 with an average yield of 7.06% for the
three-month period ended March 31, 2000 compared to an average balance of
$453,395,000 with an average yield of 6.60% for the same period in 1999. The
decrease in average balance was primarily due to normal amortization of
investments. The increase in average yield is related to increases in yields in
the market.
Interest on total deposits was $5,897,000 for the three-month period ended
March 31, 2000 compared to $4,919,000 for the same period in 1999. The average
balance of total deposits was $514,897,000 with an average cost of 4.59% for the
three-month period ended March 31, 2000 compared to an average balance of
$442,156,000 with an average cost of 4.51% for the same period in 1999. The
increase in average balance is primarily the result of growth in Patriot's jumbo
certificate program coupled with the inclusion of the First Lehigh acquisition
liabilities being present for the entire 1st quarter of 2000. The increase in
average yield was the result of a generally higher yields on certificates of
deposit.
Interest on borrowings was $8,284,000 for the three-month period ended
March 31, 2000 compared to $7,355,000 for the same period in 1999. The average
balance of borrowings was $570,226,000 with an average cost of 5.81% for the
three-month period ended March 31, 2000 compared to an average balance of
$549,858,000 with a cost of 5.42% for the same period in 1999. The increase in
average balance was due to the use of borrowings to fund the growth in the
balance sheet. The increase in the cost of borrowings was the result of a
general increase in interest rates.
PROVISION FOR CREDIT LOSSES. The provision for credit losses was $300,000
for the three-month period ended March 31, 2000 and March 31, 1999. The
provision is a reflection of the growth of Patriot's loan portfolio offset
somewhat by Patriot's asset quality and low level of delinquencies and low level
of non-performing assets. At March 31, 2000 Patriot's non-performing assets were
.18% of total assets and all loans 30 days or more delinquent were .86% of total
loans.
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NON-INTEREST INCOME. Total non-interest income was $1,507,000 for the
three-month period ended March 31,2000 compared to $1,134,000 for the same
period in 1999. The increase in other non-interest income was primarily due to
an increased emphasis on recurring non-interest income including an increase in
mortgage banking gains to $286,000 from $128,000 for the same period in 1999 as
well as growth in other areas such as loan and deposit fees, ATM fees, and
income from bank owned life insurance.
NON-INTEREST EXPENSE. Total non-interest expense was $5,582,000 for the
three-month period ended March 31, 2000 compared to $4,729,000 for the same
period in 1999. The increase in non-interest expense was the result of the
inclusion of the First Lehigh acquisition being present for the entire 1st
quarter of 2000 coupled with normal growth in Patriot's operations.
INCOME TAX PROVISION. The income tax provision was $450,000 for the
three-month period ended March 31, 2000 compared to $488,000 for the same period
in 1999. The effective tax rate was 23.22% for 2000 compared to 27.23% for 1999.
The decrease in rate is a result the purchase of certain tax exempt investments
offset somewhat by of the amortization of non-deductible goodwill.
FINANCIAL CONDITION
LOAN AND LEASE PORTFOLIO. Patriot's primary portfolio loan products are
commercial loans, small ticket commercial leases, fixed-rate and adjustable-rate
mortgage loans and home equity loans and lines of credit. Patriot also offers
residential construction loans and other consumer loans. At March 31, 2000
Patriot's total loan portfolio was $658,272,000, compared to a total loan
portfolio of $621,978,000 at December 31, 1999. The increase in the loan
portfolio was primarily the result of aggressive marketing of commercial loans
and leases. During the three-month period ended March 31, 2000, Patriot
originated total loans and leases of $97,155,000, compared to total loans and
leases originated of $53,663,000 for the same period in 1999. Commercial loan
and lease originations for the three-month period ended March 31, 2000 were
$52,217,000 compared to $27,073,000 for the same period in 1999.
CASH AND CASH EQUIVALENTS. Cash and cash equivalents at March 31, 2000 were
$17,090,000 compared to $8,161,000 at December 31, 1999. The increase in cash
balances is associated with timing differences in borrowing activity and
investment prepayments.
INVESTMENT AND MORTGAGE-BACKED SECURITIES. Investment securities consist
primarily of U.S. agency securities, mortgage-backed securities which are
generally insured or guaranteed by either FHLMC, FNMA or the GNMA and
collateralized mortgage obligations.
Total investment and mortgage-backed securities at March 31, 2000 were
$424,385,000 compared to $435,381,000 at December 31, 1999. The decrease in
investment and mortgage-backed securities is primarily due to normal investment
amortization.
OTHER ASSETS. Premises and equipment at March 31, 2000 was $10,600,000
compared to $11,376,000 at December 31, 1999. The decrease in premises and
equipment is primarily associated with normal depreciation coupled with the sale
of a closed branch office acquired from First Lehigh. Accrued interest
receivable at March 31, 2000 was $4,759,000 compared to $4,845,000 at December
31, 1999. Real estate owned at March 31, 2000 was $131,000 compared to $193,000
at December 31, 1999. Bank owned life insurance policy with a cash surrender
value at March 31, 2000 of $15,915,000 compared to $15,700,000 at December 31,
1999. Goodwill at March 31, 2000 was $14,129,000 compared to $14,189,000 at
December 31, 1999. Other assets at March 31, 2000 were $11,047,000 compared to
$12,648,000 at December 31, 1999.
DEPOSITS. Deposits are primarily attracted from within Patriot's market area
through the offering of various deposit instruments, including NOW accounts,
money market accounts, savings accounts, certificates of deposit and retirement
savings plans. Patriot also attracts jumbo certificates of deposit.
Total deposits at March 31, 2000 were $566,074,000 compared to $502,002,000
at December 31, 1999. The increase in balance is primarily attributed to growth
in Patriot's Jumbo CD program.
BORROWINGS. Patriot utilizes borrowings as a source of funds for its asset
growth and its asset/liability management. Patriot is eligible to obtain
advances from the FHLB upon the security of the FHLB common stock it owns and
certain of its residential mortgages and mortgage-backed securities, provided
certain standards related to creditworthiness have been met. Patriot may also
utilize repurchase agreements to meet its liquidity needs. FHLB advances are
made pursuant to several different credit programs, each of which has its own
interest rate and range of maturities. The maximum amount that the FHLB will
advance to member institutions fluctuates from time to time in accordance with
the policies of the FHLB. Total borrowings at March 31, 2000 were $536,669,000
compared to $568,795,000 at December 31, 1999.
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STOCKHOLDERS' EQUITY. Total stockholders' equity was $50,279,000 at March
31, 2000 compared to $49,768,000 at December 31, 1999. The increase in balance
is primarily due to earnings offset by dividends to shareholders' and decreases
in accumulated other comprehensive income.
YEAR 2000 ISSUES
Year 2000 issues result from the inability of many computer programs
or computerized equipment to accurately calculate, store or use data for the
year 2000 or later. These potential shortcomings could result in a system
failure or miscalculations causing disruptions of operations, including among
other things, a temporary inability to process transactions, track important
customer information, provide convenient access to this information, or engage
in normal business operations. While lingering concern exists about certain
dates during the Year 2000, the most significant date, January 1, 2000, has
passed without incident. As of the date of this filing Patriot has not
experienced any significant Year 2000 problems relating to its internal or third
party computer systems. Nor has Patriot experienced any issues regarding ability
of commercial customers to meet debt service as a result of Year 2000 issues.
Patriot incurred costs related to year 2000 compliance and testing amounting to
$144,000 and will continue to monitor systems for problems in the future,
however the costs related to that process are not expected to be significant.
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LIQUIDITY AND CAPITAL RESOURCES
Liquidity. Patriot's primary sources of funds are deposits, principal and
interest payments on loans, principal and interest payments on investment and
mortgage-backed securities, FHLB advances and repurchase agreements. While
maturities and scheduled amortization of loans and investment and
mortgage-backed securities are predictable sources of funds, deposit inflows and
loan and mortgage-backed security prepayments are greatly influenced by economic
conditions, general interest rates and competition. Therefore, Patriot manages
its balance sheet to provide adequate liquidity based upon various economic,
interest rate and competitive assumptions and in light of profitability
measures.
During the three-month period ended March 31, 2000, significant liquidity
was provided by growth in deposits and maturities investment and mortgage-backed
securities. The funds provided by these activities were invested in new loans
and the repayment of borrowings.
At March 31, 2000, Patriot had outstanding loan commitments of
$41,674,000. Patriot anticipates that it will have sufficient funds available to
meet its loan origination commitments. Certificates of deposit which are
scheduled to mature in one year or less from March 31, 2000 totaled
$286,902,000. Based upon historical experience, Patriot expects that
substantially all of the maturing certificates of deposit will be retained at
maturity.
Capital Resources. FDIC regulations currently require companies to
maintain a minimum leverage capital ratio of not less than 3% of tier 1 capital
to total adjusted assets and not less than 4% of risk-adjusted assets, and a
minimum risk-based capital ratio (based upon credit risk) of not less than 8%.
The FDIC requires a minimum leverage capital requirement of 3% for institutions
rated composite 1 under the CAMEL rating system. For all other institutions, the
minimum leverage capital requirement is 3% plus at least an additional 1% to 2%,
(100 to 200) basis points. At December 31, 1999, Patriot Bank's and Patriot Bank
Corp.'s capital ratios exceeded all requirements to be considered well
capitalized. The following table sets forth the capital ratios of Patriot Bank
Corp., Patriot Bank and the current regulatory requirements at March 31, 2000:
To Be To Be
Actual Adequacy Capitalized Well Capitalized
Amount Ratio Amount Ratio Amount Ratio
As of March 31, 2000
Total capital (to risk weighted assets)
Patriot Bank Corp. $ 66,859 10.16% $52,620 8% $65,775 10%
Patriot 70,476 10.66% 52,907 8% 66,133 10%
Tier I capital (to risk-weighted assets)
Patriot Bank Corp. 60,174 9.15% 26,310 4% 39,465 6%
Patriot 64,214 9.71% 26,453 4% 39,680 6%
Tier I capital (to average assets)
Patriot Bank Corp. 60,174 5.34% 45,034 4% 56,293 5%
Patriot 64,214 5.69% 45,133 4% 56,416 5%
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MANAGEMENT OF INTEREST RATE RISK
The principal objective of Patriot's interest rate risk management function
is to evaluate the interest rate risk included in certain on and off balance
sheet accounts, determine the level of risk appropriate given Patriot's business
focus, operating environment, capital and liquidity requirements and performance
objectives, and manage the risk consistent with Board approved guidelines.
Through such management, Patriot seeks to reduce the vulnerability of its net
interest income to changes in interest rates. Patriot monitors its interest rate
risk as such risk relates to its operating strategies. Patriot's Board of
Directors has established an Asset/Liability Committee comprised of senior
management, which is responsible for reviewing its asset/liability and interest
rate position and making decisions involving asset/liability considerations. The
Asset/Liability Committee meets regularly and reports trends and Patriot's
interest rate risk position to the Board of Directors.
The matching of assets and liabilities may be analyzed by examining the
extent to which such assets and liabilities are "interest rate sensitive" and by
monitoring an institution's interest rate sensitivity "gap." An asset or
liability is said to be interest rate sensitive within a specific time period if
it will mature or reprice within that time period. The interest rate sensitivity
gap is defined as the difference between the amount of interest-earning assets
maturing or repricing within a specific time period and the amount of
interest-bearing liabilities maturing or repricing within that time period. A
gap is considered positive when the amount of interest rate sensitive assets
exceeds the amount of interest rate sensitive liabilities. A gap is considered
negative when the amount of interest rate sensitive liabilities exceeds the
amount of interest rate sensitive assets. During a period of rising interest
rates, therefore, a negative gap theoretically would tend to adversely affect
net interest income, while a positive gap would tend to result in an increase in
net interest income. Conversely, during a period of falling interest rates, a
negative gap position would theoretically tend to result in an increase in net
interest income while a positive gap would tend to affect net interest income
adversely.
Patriot pursues several actions designed to control its level of interest
rate risk. These actions include increasing the percentage of the loan portfolio
consisting of short-term and adjustable-rate loans through increased
originations of these loans, acquiring short-term and adjustable-rate
mortgage-backed securities, and undertaking to lengthen the maturities of
deposits and borrowings. At March 31, 2000, Patriot's total interest-bearing
liabilities maturing or repricing within one year exceeded its total net
interest-earning assets maturing or repricing in the same time period by
$252,291,000 representing a one-year cumulative "gap," as defined above, as a
percentage of total assets of negative 21.73%.
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The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at March 31, 2000, which are
anticipated, based upon certain assumptions, to reprice or mature in each of the
future time periods shown. Except as stated below, the amount of assets and
liabilities shown which reprice or mature during a particular period were
determined in accordance with the earlier of term to repricing or the
contractual maturity of the asset or liability. The table sets forth an
approximation of the projected repricing of assets and liabilities at March 31,
2000, on the basis of contractual maturities, anticipated prepayments, and
scheduled rate adjustments within a Nine-Month period and subsequent selected
time intervals. The loan amounts in the table reflect principal balances
expected to be repaid and/or repriced as a result of contractual amortization
and anticipated prepayments of adjustable-rate loans and fixed-rate loans, and
as a result of contractual rate adjustments on adjustable-rate loans.
At March 31, 2000
-----------------
3 Months 3 Months to 6 Months to 1 Year to 3 Years to
or Less 6 Months 1 Year 3 Years 5 Years
------- -------- ------ ------- -------
(In thousands)
INTEREST EARNING ASSETS(1):
Interest earning deposits $ 14,464 $ -- $ -- $ -- $ --
Investment and mortgage-backed securities, net(2)(5) 79,895 12,371 14,508 28,170 84,854
Loans receivable, net(3)(5) 106,191 54,991 80,291 102,571 215,955
---------- ---------- ---------- ---------- ----------
Total interest-earning assets 200,550 67,362 94,799 130,741 300,809
Non-interest-earning assets -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Total assets 200,550 67,362 94,799 130,741 300,809
---------- ---------- ---------- ---------- ----------
INTEREST-BEARING LIABILITIES:
Money market and passbook savings accounts(6) 11,259 11,270 22,540 42,746 20,197
Demand and NOW accounts(6) 2,011 2,011 4,021 8,043 16,086
Certificates of deposit 87,106 123,438 76,358 61,172 11,802
Borrowings 224,822 53 50,113 241 242,280
---------- ---------- ---------- ---------- ----------
Total interest-bearing liabilities 325,198 136,772 153,032 112,202 290,365
Non-interest-bearing liabilities
Equity -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Total liabilities and equity 325,198 136,772 153,032 112,202 290,365
---------- ---------- ---------- ---------- ----------
Interest sensitivity gap(4) $ (124,648) $ (69,410) $ (58,233) $ 18,539 $ 10,444
========== ========== ========== ========== ==========
Cumulative interest sensitivity gap $ (124,648) $ (194,058) $ (252,291) $ (233,752) $ (223,308)
========== ========== ========== ========== ==========
Cumulative interest sensitivity gap as a percent of total
assets (10.74)% (16.72)% (21.73)% (20.13)% (19.24)%
Cumulative interest-earning assets as a percent of
cumulative interest-bearing liabilities 61.67% 57.99% 58.98% 67.86% 78.05%
More than
5 Years Total
------- -----
INTEREST EARNING ASSETS(1):
Interest earning deposits $ -- $ 14,464
Investment and mortgage-backed securities, net(2)(5) 204,587 424,385
Loans receivable, net(3)(5) 102,888 662,887
---------- ----------
Total interest-earning assets 307,475 1,101,736
Non-interest-earning assets 59,207 59,207
---------- ----------
Total assets 366,682 1,160,943
---------- ----------
INTEREST-BEARING LIABILITIES:
Money market and passbook savings accounts(6) 18,633 126,645
Demand and NOW accounts(6) 40,946 73,118
Certificates of deposit 6,435 366,311
Borrowings 19,190 536,699
---------- ----------
Total interest-bearing liabilities 85,204 1,102,773
Non-interest-bearing liabilities 7,891 7,891
Equity 50,279 50,279
---------- ----------
Total liabilities and equity 143,374 1,160,943
---------- ----------
Interest sensitivity gap(4) $ 223,308 $ --
========== ==========
Cumulative interest sensitivity gap $ --
========== ==========
Cumulative interest sensitivity gap as a percent of total
assets --%
Cumulative interest-earning assets as a percent of
cumulative interest-bearing liabilities 99.91%
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(1) Interest-earning assets are included in the period in which the
balances are expected to be repaid and/or repriced as a result of
anticipated prepayments, scheduled rate adjustments, and contractual
maturities.
(2) Includes investment and mortgage-backed securities available for
sale and held to maturity.
(3) For purposes of the gap analysis, loans receivable includes
non-performing loans and is reduced for the allowance for possible
loan losses, and unamortized discounts and deferred loan fees.
(4) Interest sensitivity gap represents the difference between total
interest-earning assets and total interest-bearing liabilities.
(5) Annual prepayment rates for loans and mortgage-backed securities
range from 6% to 21%.
(6) Money market and savings accounts, and NOW accounts are assumed to
have decay rates between 4% and 40% annually and have been estimated
based upon a historic analysis of core deposit trends.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The discussion concerning the effects of interest rate changes on the
Company's estimated net interest income for the year ending December 31, 1999
set forth in "Managements Discussion an Analysis of Financial and Results of
Operations -- Management of Interest Rate Risk" in Item 2 hereof, is
incorporated herein by reference.
In addition to gap analysis, Patriot utilizes income simulation modeling in
measuring its interest rate risk and managing its interest rate sensitivity.
Income simulation considers not only the impact of changing market interest
rates on forecasted net interest income, but also other factors such as yield
curve relationships, the volume and mix of assets and liabilities, customer
preferences and general market conditions.
Through the use of income simulation modeling Patriot has calculated an estimate
of net interest income for the year through March 31, 2001, based upon the
assets, liabilities and off-balance sheet financial instruments in existence at
March 31, 2000. Patriot has also estimated changes to that estimated net
interest income based upon immediate and sustained changes in interest rates
("rate shocks"). Rate shocks assume that all interest rates increase or decrease
on the first day of the period modeled and remain at that level for the entire
period. The following table reflects the estimated percentage change in
estimated net interest income for the period ending March 31, 2000.
Rate shock to interest rates % change
---------------------------- --------
+2% (10.43%)
+1% (4.76%)
-1% 6.55%
-2% 14.09%
Patriot's management believes that the assumptions utilized in evaluating
Patriot's estimated net interest income are reasonable; however, the interest
rate sensitivity of Patriot's assets, liabilities and off-balance sheet
financial instruments as well as the estimated effect of changes in interest
rates on estimated net interest income could vary substantially if different
assumptions are used or actual experience differs from the experience on which
the assumptions were based.
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PART II OTHER INFORMATION
Item 1 LEGAL PROCEEDINGS
There are various claims and lawsuits in which Patriot is
periodically involved incidental to the Patriot's business,
which in the aggregate involve amounts which are believed by
management to be immaterial to the financial condition,
equity, and results of operations of the Company.
Item 2 CHANGES IN SECURITIES
Not applicable.
Item 3 DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
Item 5 OTHER INFORMATION
Not applicable.
Item 6 EXHIBITS AND REPORTS ON FORM 8-K.
(a) The Following exhibits are filed as part of this report.
Exhibit 27 Financial Data Schedule
(filed herewith)
(b) Reports filed on Form 8K
none
- -----------------------
* Incorporated herein by reference into this document from the exhibits to Form
S-1, Registration Statement, filed on September 1, 1995 as amended Registration
No. 33-96530.
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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.
PATRIOT BANK CORP.
---------------------------------------
(Registrant)
Date May 12, 2000
------------------- ---------------------------------------
Joseph W. Major
President and Chief Executive Officer
Date May 12, 2000
------------------- ---------------------------------------
James G. Blume
Executive Vice President and
Chief Financial Officer
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