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, 2001
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to __________________
Commission File Number 0-26744
PATRIOT BANK CORP.
- --------------------------------------------------------------------------------
(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
- --------------------------------------------------------------------------------
(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: 6,204,299 shares of common
stock were outstanding as of May 11, 2001.
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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, 2001
and December 31, 2000
Consolidated Statements of Income for the Three-Month Periods
ended March 31, 2001 and 2000
Consolidated Statements of Stockholders' Equity for the
Periods ended March 31, 2001 and December 31, 2000
Consolidated Statements of Cash Flows for the Three-Month
Period ended March 31, 2001 and 2000
Consolidated Statements of Comprehensive (Loss) Income for the
Three-Month Period ended March 31, 2001 and 2000
Notes to Consolidated Financial Statements
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Item 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
PART II OTHER INFORMATION
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,
- -----------------------------------------------------------------------------------------------------------------
2001 2000
- -----------------------------------------------------------------------------------------------------------------
(unaudited)
ASSETS
Cash and due from banks $ 2,845 2,910
Interest-earning deposits in other financial institutions 67,959 24,166
---------- ----------
Total cash and cash equivalents 70,804 27,076
Investment and mortgage-backed securities available for sale 264,918 84,889
Investment and mortgage-backed securities held to maturity
(market value of $80,996 and $299,685 at March 31, 2001
and December 31, 2000, respectively) 80,979 302,489
Loans held for sale 8,241 8,564
Loans and leases receivable, net of allowance for credit loss of $5,893 and
$5,839 at March 31, 2001 and December 31, 2000, respectively 645,445 650,640
Premises and equipment, net 7,275 7,574
Accrued interest receivable 4,732 5,125
Real estate and other property owned 669 62
Cash surrender value life insurance 16,666 16,483
Goodwill 13,018 13,274
Other assets 11,246 8,729
---------- ----------
Total assets $1,123,993 $1,124,905
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 649,579 $ 651,958
FHLB advances 388,185 317,186
Securities sold under repurchase agreements 525 80,651
Trust preferred debt securities 19,000 19,000
Advances from borrowers for taxes and insurance 4,774 3,893
Other liabilities 4,792 417
---------- ----------
Total liabilities 1,066,855 1.073,105
---------- ----------
Preferred stock, $.01 par value, 2,000,000 shares authorized, none
Issued at March 31, 2001 and December 31, 2000, respectively -- --
Common stock, no par value, 10,000,000 shares authorized, 6,555,436
issued at March 31, 2001 and December 31, 2000 -- --
Paid in capital 58,178 58,174
Common stock acquired by ESOP, 353,507 and 359,934 shares at amortized cost
at March 31, 2001 and December 31, 2000, respectively (1,954) (1,999)
Common stock acquired by MRP, 44,309 and 57,195 shares at amortized
cost at March 31, 2001 and December 31, 2000, respectively (150) (241)
Retained earnings 5,503 4,833
Treasury stock, 351,137 and 353,660 at cost at March 31, 2001
and December 31, 2000, respectively (4,025) (4,043)
Accumulated other comprehensive loss (414) (4,924)
---------- ----------
Total stockholders' equity 57,138 51,800
---------- ----------
Total liabilities and stockholders' equity $1,123,993 $1,124,905
========== ==========
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,
- ---------------------------------------------------------------------------------------------------------
2001 2000
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(unaudited)
INTEREST INCOME
Interest-earning deposits $ 312 $ 61
Investment and mortgage-backed securities 6,276 7,244
Loans and leases 14,031 13,189
------- -------
Total interest income 20,619 20,494
------- -------
INTEREST EXPENSE
Deposits 8,760 5,897
Short-term borrowings 469 4,413
Long - term borrowings 5,648 3,871
------- -------
Total interest expense 14,877 14,181
------- -------
Net interest income before provision for
Credit losses 5,742 6,313
Provision for credit losses 450 300
------- -------
Net interest income after provision for
Credit losses 5,292 6,013
------- -------
NON-INTEREST INCOME
Service fees, charges and other operating income 1,233 1,221
Gain on sale of real estate acquired through
Foreclosure 15 --
Gain on sale of investment and mortgage-backed
Securities available for sale 402 --
Mortgage banking gains 354 286
------- -------
Total non-interest income 2,004 1,507
------- -------
NON-INTEREST EXPENSE
Salaries and employee benefits 2,103 2,684
Office occupancy and equipment 1,174 1,413
Professional services 170 125
Federal deposit insurance premiums 31 25
Data processing 59 48
Advertising 138 76
Deposit processing 155 155
Goodwill amortization 303 275
Office supplies & postage 143 216
MAC expense 107 150
Other operating expense 726 415
------- -------
Total non-interest expense 5,109 5,582
------- -------
Income before taxes and cumulative effect of change in
accounting principle 2,187 1,938
Income taxes 597 450
Income before cumulative effect of change in accounting principle
1,590 1,488
------- -------
Cumulative effect of change in accounting principle, net of ($105,000 )in
income tax (204) --
------- -------
Net Income $ 1,386 $ 1,488
======= =======
Basic earnings per share:
Income before cumulative effect of change in accounting principle $ 0.27 $ 0.26
Cumulative effective of change in accounting principle (0.03) --
------- -------
Net Income $ 0.24 $ 0.26
======= =======
Diluted earnings per share:
Income before cumulative effect of change in accounting principle $ 0.27 $ 0.25
Cumulative effective of change in accounting principle (0.03) --
------- -------
Net Income $ 0.24 $ 0.25
======= =======
The accompanying notes are an integral part of these statements.
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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, 2000 5,691 $58,117 $(2,141) $(638) $ 4,737 $(4,172) $(6,135) $ 49,768
Common stock retired by MRP (20) -- -- (20)
Common stock forfeited by
MRP -- -- -- 20 -- -- -- 20
Release and amortization
of MRP 52 3 -- 377 -- -- -- 380
Release of ESOP shares 25 74 142 -- -- -- -- 216
Purchase ESPP shares 16 -- -- -- -- 129 -- 129
Change in unrealized losses
on securities available
for sale, net of taxes -- -- -- -- -- -- 1,211 1,211
Net income -- -- -- -- 2,009 -- -- 2,009
Cash dividends paid -- -- -- -- (1,913) -- -- (1,913)
----- ------- ------- ----- ------- ------- ------- --------
Balance at December 31, 2000 5,784 $58,174 $(1,999) $(241) $ 4,833 $(4,043) $(4,924) $ 51,800
----- ------- ------- ----- ------- ------- ------- --------
Common stock retired by MRP -- -- -- --
Common stock forfeited by
MRP -- -- -- -- -- -- -- --
Release and amortization
of MRP 13 -- -- 91 -- -- -- 91
Release of ESOP shares 6 4 45 -- -- -- -- 49
Purchase ESPP shares 3 -- -- -- -- 18 -- 18
Change in unrealized losses
on securities available
for sale, net of taxes -- -- -- -- -- -- 4,510 4,510
Net income -- -- -- -- 1,386 -- -- 1,386
Cash dividends paid -- -- -- -- (716) -- -- (716)
----- ------- ------- ----- ------- ------- ------- --------
Balance at March 31, 2001 5,806 $58,178 $(1,954) $(150) $ 5,503 $(4,025) $ (414) $ 57,138
----- ------- ------- ----- ------- ------- ------- --------
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,
-----------------------------------
2001 2000
---- ----
Operating activities
Net Income $ 1,386 $ 1,488
Adjustments to reconcile net income to net cash provided
by operating activities
Amortization and accretion of
Deferred loan origination fees (51) (241)
Premiums and discounts (654) (731)
MRP shares 91 90
Goodwill 303 275
Provision for credit losses 450 300
Release of ESOP shares 49 74
Gain on sale of securities available for sale (93) --
Loss (gain) on sale of real estate owned (15) --
Charge-off real estate owned 2 --
Depreciation of premises and equipment 405 440
Mortgage loans originated for sale (19,228) (23,278)
Mortgage loans sold 19,551 23,635
Decrease (increase) in deferred income taxes (2,372) (29)
Increase in cash surrender value of life insurance (183) (215)
(Increase) decrease in accrued interest receivable 393 86
Decrease in other assets (2,431) 2,083
Decrease in other liabilities 4,328 (1,454)
-------- --------
Net Cash provided by operating activities 1,931 2,523
-------- --------
Investing activities
Loan originations and principal payments on loans, net 3,855 (36,369)
Proceeds from the sale of securities - available for sale 44,615 --
Proceeds from the maturity of securities - available for sale 7,630 984
Proceeds from the maturity of securities - held to maturity 1,040 10,321
Purchase of securities - available for sale (4,098) (400)
Proceeds from sale of real estate owned 312 83
Purchase of premises and equipment -- (379)
Proceeds from sale of premises and equipment (122) 365
Cash received in business combination 16 --
-------- --------
Net cash provided by (used in) investing activities 53,248 (25,395)
-------- --------
Financing activities
Net increase in deposits (2,507) 63,915
(Repayment of) proceeds from short term FHLB Advances 70,999 (32,066)
Repayment of short term repurchase agreements (80,126) (30)
Decrease in advances from
Borrowers for taxes and insurance 881 467
Cash paid for dividends (716) (541)
Purchase of Treasury Stock 18 56
-------- --------
Net cash (used in) provided by financing activities (11,451) 31,801
-------- --------
Net increase in cash and cash equivalents 43,728 8,929
Cash and cash equivalents at beginning of year 27,076 8,161
-------- --------
Cash and cash equivalents at of the six month period $ 70,804 $ 17,090
======== ========
Supplemental Disclosures
Cash paid for interest on deposits $ 8,729 $ 5,739
======== ========
Cash paid for income taxes $ 784 $ 650
======== ========
Transfer securities from held to maturity to
available for sale $220,471 --
======== ========
Transfers from loans to real estate owned $ 943 $ 21
======== ========
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
(in thousands, unaudited)
Three-Month Period Ended
- ------------------------------------------------------------------------------------------------
March 31,
2001 2000
- ------------------------------------------------------------------------------------------------
Net income $1,386 $1,488
Other comprehensive income, net of tax
Unrealized gains on securities
Unrealized holding gains (losses) arising during the period 4,571 (656)
Reclassification adjustment for (gains) included
in net income (61) --
------ ------
Comprehensive income $5,896 $ 832
====== ======
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PATRIOT BANK CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
March 31, 2001
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, 2001 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, 2000.
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PATRIOT BANK CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
March 31, 2001
Note 2 - Investment And Mortgage-Backed Securities
The amortized cost and estimated fair value of investment and mortgage-backed
securities are as follows:
- -----------------------------------------------------------------------------------------------------------------------------------
March 31, 2001 December 31, 2000
- -----------------------------------------------------------------------------------------------------------------------------------
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
cost gain loss value cost gain loss value
- -----------------------------------------------------------------------------------------------------------------------------------
(in thousands)
AVAILABLE FOR SALE:
Investment securities
U.S. . Treasury and
government agency
Securities $ 28,071 $ -- $ 745 $ 27,326 $ -- $ -- $ -- $ --
Corporate debt
securities 15,589 55 1,883 13,761 17,084 15 1,992 15,107
FHLMC Preferred Stock 34,975 2,243 -- 37,218 44,973 1,915 -- 46,888
FHLB Stock 20,164 -- -- 20,164 16,609 -- -- 16,609
Equity securities 5,859 21 341 5,539 6,295 9 639 5,665
Mortgage-backed securities
FHLMC 1,368 12 -- 1,380 613 7 -- 620
FNMA 47,325 66 568 46,823 -- -- -- --
GNMA 129 9 -- 138 -- -- -- --
-------- ------ ------ -------- -------- ------ ------- --------
Collateralized Mortgage
Obligations:
FHLMC 54,632 170 497 54,305 -- -- -- --
FNMA 52,950 148 261 52,837 -- -- -- --
Other 5,386 41 -- 5,427 -- -- -- --
-------- ------ ------ -------- -------- ------ ------- --------
Total securities
available
for Sale $266,448 $2,765 $4,295 $264,918 $ 85,574 $1,946 $ 2,631 $ 84,889
======== ====== ====== ======== ======== ====== ======= ========
HELD TO MATURITY:
Investment securities
U.S. Treasury and
Government agency
Securities $ 23,708 $ 517 $ 223 $ 24,002 $ 76,545 $4,144 $ 7,131 $ 73,558
Corporate debt
securities 1,000 12 -- 1,012 1,001 -- 1 1,000
Mortgage-backed
securities
FHLMC 2,330 28 42 2,316 3,446 27 47 3,426
Fannie Mae 2,058 90 72 2,076 48,462 2,605 1,183 49,884
GNMA 3,160 46 70 3,136 3,573 38 83 3,528
Colateralized mortgage
Obligations
FHLMC 33,287 813 989 33,111 90,920 1,240 2,238 89,922
Fannie Mae 15,436 126 219 15,343 70,043 922 1,198 69,767
Other -- -- -- -- 6,196 14 35 6,175
CMBS -- -- -- -- 2,303 122 -- 2,425
-------- ------ ------ -------- -------- ------ ------- --------
Total securities
held to
maturity $ 80,979 $1,632 $1,615 $ 80,996 $302,489 $9,112 $11,916 $299,685
======== ====== ====== ======== ======== ====== ======= ========
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Note 3 - Loans Receivable
Loans receivable are summarized as follows:
March 31, December 31,
- ------------------------------------------------------------------------------
2001 2000
- ------------------------------------------------------------------------------
(in thousands)
Mortgage loan portfolio
Secured by real estate $244,169 $253,213
Construction 9,705 10,779
Consumer loan portfolio
Home equity 62,538 64,733
Consumer 8,422 8,553
Comercial loan portfolio
Commercial 257,298 252,837
Commercial leases 69,711 67,094
-------- --------
Total loans receivable 651,843 657,209
Less deferred loan origination fees (505) (730)
Allowance for credit losses (5,893) (5,839)
-------- --------
Total loans receivable, net $645,445 $650,640
======== ========
Note 4 - Deposits
Deposits are summarized as follows:
March 31, December 31,
- -------------------------------------------------------------------------------
Deposit type 2001 2000
- -------------------------------------------------------------------------------
(in thousands)
NOW $ 23,732 $ 23,163
Money market 123,613 110,092
Savings accounts 28,466 29,051
Non-interest-bearing demand 38,584 41,309
-------- --------
Total demand, transaction, money
market and savings deposits 214,395 203,615
Certificates of deposits 435,184 448,343
-------- --------
Total deposits $649,579 $651,958
======== ========
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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.
ANTI-DILUTIVE OPTIONS. Patriot had 44,500 and 34,500 anti-dilutive options at
March 31, 2001 and 2000, respectively.
For Three-Months Ended March 31, 2001
-------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ------
BASIC EPS
Net Income available to common
Stockholders $1,386 5,845 $0.24
EFFECT OF DILUTIVE SECURITIES
Dilutive Options -- 40 --
------ ----- -----
DILUTED EPS
Net income available to common
Stockholders plus assumed conversions $1,386 5,885 $0.24
====== ===== =====
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
====== ===== =====
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Note 6 - Segment Reporting
The Company has two reportable segments: Patriot Bank, and Patriot
Commercial Leasing Corporation. Patriot Bank operates a community banking
network with eighteen community banking offices providing deposits and loan
services to customers. Patriot Commercial Leasing Corporation is a small ticket
leasing company headquartered in Pottstown, PA.
The following table highlights income statement and balance sheet
information for each of the segments at or for the three-month period ending
March 31, 2001 and 2000 (in thousands).
For the three-month period ended March 31, 2001
-----------------------------------------------
Patriot Bank Patriot Commercial Leasing Total
------------ -------------------------- -----
Net interest income $ 5,143 $ 599 $ 5,742
Other income 1,654 350 2,004
Total net income 1,193 193 1,386
Total assets 1,053,331 70,662 1,123,993
Total loans and leases, gross 582,132 69,711 651,843
For the three-month period ended March 31, 2000
-----------------------------------------------
Patriot Bank Patriot Commercial Leasing 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, gross 601,295 64,669 665,964
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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 and SFAS No. 138 in June 2000 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 adopted SFAS 133 on January 1, 2001. At the time of
adoption, Patriot reclassified approximately $220,471,000 of fixed rate mortgage
backed securities, CMO's and agency securities from held to maturity to
available for sale and equity resulting in a net of tax increase of
approximately $3 million in accumulated other comprehensive income. Patriot
typically has not used derivative instruments and currently holds no positions
that had further significant impact upon the adoption of SFAS 133 on earnings,
financial condition or equity. During the first quarter of 2001, Patriot sold
$30,333,000 of the securities reclassified resulting in a cumulative change in
accounting principle with a net after tax impact of a $204,000 loss.
Note 8 - Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities
In September 2000, the FASB issued SFAS No. 140 "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities."
This statement supercedes and replaces the guidance in Statement 125. It revises
the standards of accounting for securitizations and other transfers of financial
assets and collateral and requires certain disclosures, although it carries over
most of Statement 125's provisions without reconsideration. The Statement is
effective for transfers and servicing of financial assets and extinguishments of
liabilities occurring after March 31, 2001 and for recognition and
reclassification of collateral and for disclosures relating to securitization
transactions and collateral for fiscal years ending after December 15, 2000.
This Statement is to be applied prospectively with certain exceptions. Other
than those exceptions, earlier or retroactive application of its accounting
provisions is not permitted. There was no impact from the adoption of this
statement on Patriot's earnings, financial condition, or equity.
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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 $.24 and net income
of $1,386,000 for the three-month period ended March 31, 2001 compared to
diluted earnings per share of $.25 and net income of $1,488,000 for the three
month period ended March 31, 2000. Return on average equity was 10.49%, for the
three-month period ended March 31, 2001 compared to 12.16%, for the three-month
period ended March 31, 2000.
NET INTEREST INCOME. Net interest income for the three-month period ended
March 31, 2001 was $5,742,000 compared to $6,313,000 for the same period in
2000. Patriot's net interest margin (net interest income as a percentage of
average interest-earning assets) was 2.28% for the three-month period ended
March 31, 2001 compared to 2.46% for the same period in 2000. The decrease
during the first quarter of 2001 is primarily due to the impact of general
increases in market rates throughout 2000 on Patriot's funding sources
compressing Patriot's net interest margin offset by growth in Patriot's
commercial loan portfolio.
Interest on loans and leases was $14,031,000 for the three-month period ended
March 31, 2001 compared to $13,189,000 for the same period in 2000. The average
balance of loans was $657,442,000 with an average yield of 8.62% for the
three-month period ended March 31, 2001 compared to an average balance of
$636,859,000 with an average yield of 8.29% for the same period in 2000. The
increase in average balance is due to growth in the originations of commercial
loans and leases. The increase in average yield is primarily a result of a
greater volume of higher yielding commercial loans and leases.
Interest on Patriot's investment portfolio (investment and mortgage-backed
securities) was $6,276,000 for the three-month period ended March 31, 2001
compared to $7,244,000 for the same period in 2000. The average balance of the
investment portfolio was $375,724,000 with an average yield of 7.04% for the
three-month period ended March 31, 2001 compared to an average balance of
$430,001,000 with an average yield of 7.06% for the same period in 2000. The
decrease in average balance is primarily due to Patriot allowing the investment
portfolio to amortize down so they can be replaced with commercial assets, as
well as Patriot sold $44.6 MM in securities during the first quarter. The
decrease in average yield is related to the sale of higher yielding securities.
Interest on total deposits was $8,760,000 for the three-month period ended
March 31, 2001 compared to $5,897,000 for the same period in 2000. The average
balance of total deposits was $643,198,000 with an average cost of 5.52% for the
three-month period ended March 31, 2001 compared to an average balance of
$514,897,000 with an average cost of 4.59% for the same period in 2000. The
increase in average balance is primarily the result of an increase in Patriot's
jumbo deposit program and aggressive marketing of certificates of deposit, money
market and other transaction-based deposit accounts. The increase in average
yield was the result of growth in the jumbo deposit program and general
increases in interest rates.
Interest on borrowings was $6,117,000 for the three-month ended March 31,
2001 compared to $8,284,000 for the same periods in 2000. The average balance of
borrowings was $413,227,000 with an average cost of 5.92% for the three-month
period ended March 31, 2001 compared to an average balance of $570,226,000 with
a cost of 5.81% for the same period in 2000. The decrease in average balance was
due to growth in Patriot's deposit based products. The increase in the yield on
borrowings was the result of a general increase in interest rates.
PROVISION FOR CREDIT LOSSES. The provision for credit losses was $450,000 for
the three-month period ended March 31, 2001 compared to $300,000 for the same
period in 2000. Patriot analyzes the loan loss reserve on a monthly basis to
ensure its adequacy. Patriot's total loans consist of four distinct portfolios -
mortgage, consumer, commercial loans and commercial leases. The mortgage loan
portfolio is mature as Patriot has been in the mortgage lending business for
many years. The consumer loan portfolio is also mature as Patriot has been in
this business for many years as well. The level of reserves allocated to
mortgage and consumer lending have been consistently based on extensive
historical data regarding, among other things, delinquencies, charge-offs and
recoveries. Since entering the commercial loan and lease businesses, Patriot has
maintained reserves for these portfolios at the high end of the acceptable range
as determined by management due in part to limited historical data regarding
delinquencies, charge-offs and recoveries. As the commercial loan and lease
portfolios have matured, Patriot has analyzed recent historical data regarding
delinquencies, charge-offs
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and recoveries to determine the appropriate level of reserves. Almost all of the
growth during the first quarter in Patriot's loan portfolio has been in
commercial lending and leasing. Based on the aforementioned criteria, the
provision was increased during the first quarter of 2001 due to the additional
exposure that has been assumed by Patriot by focusing more on commercial lending
and leasing. Patriot continues to have excellent asset quality with low levels
of delinquencies with a low level of non-performing assets. At March 31, 2001
Patriot's non-performing assets were .39% of total assets and all loans 30 days
or more delinquent were 1.05% of total loans.
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NON-INTEREST INCOME. Total non-interest income was $2,004,000 for the
three-month period ended March 31, 2001 compared to $1,507,000 for the same
period in 2000. The increase in non-interest income was primarily due to gains
recognized on the sale of investment securities available for sale. Non-interest
income also includes recurring non-interest income such as loan and deposit
fees, ATM fees, and income from bank owned life insurance.
NON-INTEREST EXPENSE. Total non-interest expense was $5,109,000 for the
three-month period ended March 31, 2001 compared to $5,582,000 for the same
period in 2000. The decrease in non-interest expense was primarily due to
Patriot's restructuring of its mortgage banking operations overhead structure
from a fixed to variable cost model.
INCOME TAX PROVISION. The income tax provision was $597,000 along with a
benefit of $105,000 relating to a change in accounting principle for the
three-month period ended March 31, 2001. The income tax provision for the first
quarter of 2000 was $450,000. The effective tax rate was 26.20% for three-month
period ended March 31, 2001 compared to 23.22% for the same period in 2000. The
increase is primarily due to less income provided by certain tax preferential
securities as some were sold during the first quarter of 2001.
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, 2001
Patriot's total loan portfolio was $645,445,000, compared to a total loan
portfolio of $650,640,000 at December 31, 2000. The decrease in the loan
portfolio is primarily the result of Patriot's two year plan to allow mortgages
to run-off, offset by aggressive marketing of commercial loans and leases.
CASH AND CASH EQUIVALENTS. Cash and cash equivalents at March 31, 2001 were
$70,804,000 compared to $27,076,000 at December 31, 2000. The increase in cash
balances is associated with the sale of investment securities.
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, 2001 were
$345,897,000 compared to $387,378,000 at December 31, 2000. The decrease in
investment and mortgage-backed securities is primarily due to $44.6 MM of
investments sold during this period along with normal investment amortization
offset by an increase in market value on AFS securities.
OTHER ASSETS. Premises and equipment at March 31, 2001 was $7,275,000
compared to $7,574,000 at December 31, 2000. The decrease in premises and
equipment is primarily associated with normal depreciation. Accrued interest
receivable at March 31, 2001 was $4,732,000 compared to $5,125,000 at December
31, 2000. Real estate owned at March 31, 2001 was $669,000 compared to $62,000
at December 31, 2000. The real estate owned balance of $669,000 is reflective of
one commercial property that was sold by the end of April 2001. Bank owned life
insurance policy with a cash surrender value at March 31, 2001 of $16,666,000
compared to $16,483,000 at December 31, 2000. Goodwill at March 31, 2001 was
$13,018,000 compared to $13,274,000 at December 31, 2000. Other assets at March
31, 2001 were $11,246,000 compared to $8,729,000 at December 31, 2000. The
increase in other assets was primarily due to timing on the receipt of proceeds
on the sale of investments.
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, 2001 were $649,579,000 compared to $651,958,000
at December 31, 2000. The decrease in balance is primarily attributed to the
intentional run-off of $19,038,000 in wholesale CD's offset by growth of
$10,780,000 in core deposits and $5,879,000 in retail CD's.
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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, 2001 were $407,710,000
compared to $416,837,000 at December 31, 2000. The decrease is primarily
associated with funding being provided by normal amortization of Patriot's
mortgage portfolio and investment sales offset by growth in the commercial loan
and lease portfolios.
OTHER LIABILITIES. Other Liabilities at March 31, 2001 were $4,792,000 compared
to $417,000 at December 31, 2000. The increase in balance is primarily the
result of an increase in Patriot's deferred taxes resulting from the
reclassification of investments from held to maturity to available for sale.
STOCKHOLDERS' EQUITY. Total stockholders' equity was $57,138,000 at March 31,
2001 compared to $51,800,000 at December 31, 2000. The increase in balance is
primarily due to earnings and an increase in accumulated other comprehensive
income which was a result of an increase in the market value particularly on
securities transferred from "held to maturity" to "available for sale" under
FAS133 offset by dividends paid to shareholders.
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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, 2001, significant liquidity was
provided by growth in deposits and maturities of investment and mortgage-backed
securities. The funds provided by these activities were invested in new loans
and the repayment of borrowings.
At March 31, 2001, Patriot had outstanding loan commitments of
$29,438,000. 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, 2001 totaled
$361,727,000. 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 March 31, 2001, 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, 2001:
To Be To Be
Actual Adequacy Capitalized Well Capitalized
------ -------------------- ----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
As of March 31, 2001
Total capital (to risk weighted assets)
Patriot Bank Corp. $70,010 10.62% $52,732 8% $65,915 10%
Patriot 69,398 10.54% 52,650 8% 65,812 10%
Tier I capital (to risk-weighted assets)
Patriot Bank Corp. 63,535 9.64% 26,366 4% 39,549 6%
Patriot 62,496 9.50% 26,325 4% 39,487 6%
Tier I capital (to average assets)
Patriot Bank Corp. 63,535 5.76% 44,141 4% 55,176 5%
Patriot 62,496 5.66% 44,141 4% 55,176 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, 2001, Patriot's total net interest-earning
assets maturing or repricing within one year exceeded its total interest-bearing
liabilities maturing or repricing in the same time period by $24,790,000
representing a one-year cumulative "gap," as defined above, as a percentage of
total assets of a positive 2.21%.
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The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at March 31, 2001, 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,
2001, on the basis of contractual maturities, anticipated prepayments, and
scheduled rate adjustments within a Three-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, 2001
-----------------
3 Months 3 Months to 6 Months to 1 Year to 3 Years to More than
or Less 6 Months 1 Year 3 Years 5 Years 5 Years Total
------- -------- ------ ------- ------- ------- -----
(In thousands)
INTEREST EARNING ASSETS(1):
Interest earning deposits $ 67,959 $ -- $ -- $ -- $ -- $ -- $ 67,959
Investment and mortgage-backed 57,564 10,353 13,669 54,191 32,291 177,829 345,897
securities, net (2)(5)
Loans receivable, net(3)(5) 115,402 55,082 80,547 202,691 142,101 57,863 653,686
-------- -------- -------- -------- -------- --------- ---------
Total interest-earning assets 240,925 65,435 94,216 256,882 174,392 235,692 1,067,542
Non-interest-earning assets -- -- -- -- -- 56,451 56,451
-------- -------- -------- -------- -------- --------- ---------
Total assets 240,925 65,435 94,216 256,882 174,392 292,143 1,123,993
INTEREST-BEARING LIABILITIES:
Money market and passbook
savings 3,364 2,894 6,149 18,724 15,378 105,569 152,078
accounts(6)
Demand and NOW accounts (6) 163 163 326 1,104 1,018 59,543 62,317
Certificates of deposit 131,995 97,219 132,513 63,033 8,483 1,941 435,184
Borrowings 1,000 -- -- 145,000 87,000 179,484 412,484
-------- -------- -------- -------- -------- --------- ---------
Total interest-bearing
liabilities 136,522 100,276 138,988 227,861 111,879 346,537 1,062,063
Non-interest-bearing
liabilities 4,792 4,792
Equity -- -- -- -- -- 57,138 57,138
-------- -------- -------- -------- -------- --------- ---------
Total liabilities and equity 136,522 100,276 138,988 227,861 111,879 408,467 1,123,993
-------- -------- -------- -------- -------- --------- ---------
Interest sensitivity gap(4) $104,403 $(34,841) $(44,772) $ 29,021 $ 62,513 $(116,324)
======== ======= ======= ======= ======== =========
Cumulative interest
sensitivity gap $104,403 $ 69,562 $ 24,790 $ 53,811 $116,324
======== ======= ======= ======= ========
Cumulative interest
sensitivity gap as a 9.29% 6.19% 2.21% 4.79% 10.35%
percent of total assets
Cumulative interest-earning
assets as a 176.47% 129.38% 106.60% 108.91% 116.26% 100.52%
percent of cumulative
interest-bearing
liabilities
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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 have been estimated utilizing historical analysis
and industry expectations.
(6) Money market and savings accounts, and NOW account rates 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
As shown above, the Bank has a positive gap (interest-sensitive assets are
greater than interest-sensitive liabilities) within the next year, which
generally indicates that a decrease in rates may lead to a decrease in net
interest income and an increase in rates may lead to an increase in net interest
income.
The discussion concerning the effects of interest rate changes on the
Company's estimated net interest income for the year ending December 31, 2001set
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, 2002, based upon
the assets, liabilities and off-balance sheet financial instruments in existence
at March 31, 2001. Patriot has also estimated changes to that estimated net
interest income based upon interest rates rising or falling in monthly
increments ("rate ramps"). Rate ramps assume that all interest rates increase or
decrease in monthly increments evenly throughout the period modeled. The
following table reflects the estimated percentage change in estimated net
interest income for the period ending March 31, 2002.
Rate shock to interest rates % change
---------------------------- --------
+2% 4.31%
-2% (7.60%)
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.
(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 11, 2001
--------------------------------------
Richard A. Elko
President and Chief Executive Officer
Date May 11, 2001
--------------------------------------
James G. Blume
Senior Vice President and
Chief Financial Officer
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