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 June 30, 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
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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: 6,205,937 shares of common
stock were outstanding as of August 14, 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 June 30, 2001
and December 31, 2000
Consolidated Statements of Income for the Three-Month and Six-Month
Periods ended June 30, 2001 and 2000
Consolidated Statements of Stockholders' Equity for the
Periods ended June 30, 2001 and December 31, 2000
Consolidated Statements of Cash Flows for the Six-Month
Periods ended June 30, 2001 and 2000
Consolidated Statements of Comprehensive (Loss) Income for the
Three-Month and Six-Month Periods ended June 30, 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)
June 30, December 31,
- ---------------------------------------------------------------------------------------------------------------------------
2001 2000
- ---------------------------------------------------------------------------------------------------------------------------
(unaudited)
ASSETS
Cash and due from banks $ 18,033 $ 2,910
Interest-earning deposits in other financial institutions 3,805 24,166
----------- -----------
Total cash and cash equivalents 21,838 27,076
Investment and mortgage-backed securities available for sale 242,893 84,889
Investment and mortgage-backed securities held to maturity
(market value of $74,935 and $299,685 at June 30, 2001
and December 31, 2000, respectively) 74,786 302,489
Loans held for sale 3,825 8,564
Loans and leases receivable, net of provision for credit loss of $5,950 and
$5,839 at June 30, 2001 and December 31, 2000, respectively 651,019 650,640
Premises and equipment, net 7,062 7,574
Accrued interest receivable 4,471 5,125
Real estate and other property owned 108 62
Cash surrender value life insurance 16,849 16,483
Goodwill 9,146 9,426
Core Deposit Intangible 3,605 3,848
Other assets 11,442 8,729
----------- -----------
Total assets $ 1,047,044 $ 1,124,905
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 554,887 $ 651,958
FHLB advances 406,183 317,186
Securities sold under repurchase agreements 387 80,651
Trust preferred debt securities 19,000 19,000
Advances from borrowers for taxes and insurance 5,191 3,893
Other liabilities 4,561 417
----------- -----------
Total liabilities 990,209 1,073,105
----------- -----------
Preferred stock, $.01 par value, 2,000,000 shares authorized, none
Issued at June 30, 2001 and December 31, 2000, respectively -- --
Common stock, no par value, 10,000,000 shares authorized, 6,555,436
issued at June 30, 2001 and December 31, 2000 -- --
Paid in capital 58,188 58,174
Common stock acquired by ESOP, 347,080 and 359,934 shares at amortized cost
at June 30, 2001 and December 31, 2000, respectively (1,909) (1,999)
Common stock acquired by MRP, 31,423 and 57,195 shares at amortized
cost at June 30, 2001 and December 31, 2000, respectively (83) (241)
Retained earnings 6,412 4,833
Treasury stock, 351,137 and 353,660 at cost at June 30, 2001
and December 31, 2000, respectively (4,024) (4,043)
Accumulated other comprehensive loss (1,749) (4,924)
----------- -----------
Total stockholders' equity 56,835 51,800
----------- -----------
Total liabilities and stockholders' equity $ 1,047,044 $ 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 Six-Month Period Ended
June 30,
- -----------------------------------------------------------------------------------------------------------------------------------
2001 2000 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------------
(unaudited)
INTEREST INCOME
Interest-earning deposits $ 105 $ 168 $ 417 $ 229
Investment and mortgage-backed securities 5,388 7,148 11,665 14,392
Loans and leases 13,694 13,933 27,725 27,122
-------- -------- -------- --------
Total interest income 19,187 21,249 39,807 41,743
-------- -------- -------- --------
INTEREST EXPENSE
Deposits 7,424 7,581 16,182 13,478
Short-term borrowings 258 4,108 721 8,521
Long -term borrowings 5,910 3,673 11,565 7,544
-------- -------- -------- --------
Total interest expense 13,592 15,362 28,468 29,543
-------- -------- -------- --------
Net interest income before provision for
credit losses 5,595 5,887 11,339 12,200
Provision for credit losses (500) (300) (950) (600)
-------- -------- -------- --------
Net interest income after provision for
credit losses 5,095 5,587 10,389 11,600
-------- -------- -------- --------
NON-INTEREST INCOME
Service fees, charges and other operating income 1,404 1,198 2,637 2,419
Loss on sale of real estate acquired through
foreclosure (30) (3) (16) (3)
Gain on sale of investment and mortgage-backed
securities available for sale 101 1 503 1
Mortgage banking gains 472 584 826 870
-------- -------- -------- --------
Total non-interest income 1,947 1,780 3,950 3,287
-------- -------- -------- --------
NON-INTEREST EXPENSE
Salaries and employee benefits 2,518 2,667 4,946 5,351
Office occupancy and equipment 1,132 1,316 2,305 2,729
Professional services 186 355 355 480
Advertising 194 227 332 303
Deposit processing 151 164 306 319
Goodwill amortization 183 154 364 307
Core Deposit Intangible 121 121 243 243
Office supplies & postage 147 190 290 406
MAC expense 119 146 226 296
Other operating expense 204 384 697 872
-------- -------- -------- --------
Total non-interest expense 4,955 5,724 10,064 11,306
-------- -------- -------- --------
Income before taxes and cumulative effect of
change in accounting principle 2,087 1,643 4,275 3,581
Income taxes 596 337 1,193 787
-------- -------- -------- --------
Income before cumulative effect of change
In accounting principle 1,491 1,306 3,082 2,794
Cumulative effect of change in accounting principle, net of
($105,000) in income tax -- -- (204) --
-------- -------- -------- --------
Net income $ 1,491 $ 1,306 $ 2,878 $ 2,794
======== ======== ======== ========
Basic Earnings Per Share:
Income before cumulative effect of change in accounting
principle $ 0.26 $ 0.22 $ 0.52 $ 0.48
Cumulative effective of change in accounting principle -- -- (.03) --
-------- -------- -------- --------
Net Income $ 0.26 $ 0.22 $ 0.49 $ 0.48
======== ======== ======== ========
Dilutive Earnings Per Share:
Income before cumulative effect of change in accounting
principle $ 0.25 $ 0.22 $ 0.52 $ 0.47
Cumulative effective of change in accounting principle -- -- (.03) --
-------- -------- -------- --------
Net Income $ 0.25 $ 0.22 $ 0.49 $ 0.47
======== ======== ======== ========
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
-------- -------- -------- -------- -------- -------- -------- --------
Release and amortization
of MRP 26 -- -- 158 -- -- -- 158
Release of ESOP shares 13 14 90 -- -- -- -- 104
Purchase ESPP shares 3 -- -- -- -- 19 -- 19
Change in unrealized losses
On securities available
For sale, net of taxes -- -- -- -- -- -- 3,175 3,175
Net income -- -- -- -- 2,878 -- -- 2,878
Cash dividends paid -- -- -- -- (1,299) -- -- (1,299)
-------- -------- -------- -------- -------- -------- -------- --------
BALANCE AT JUNE 30, 2001 5,826 $ 58,188 $ (1,909) $ (83) $ 6,412 $ (4,024) $ (1,749) $ 56,835
-------- -------- -------- -------- -------- -------- -------- --------
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)
Six-Months Period Ended June 30,
--------------------------------
2001 2000
---- ----
Operating activities
Net Income $2,878 $2,794
Adjustments to reconcile net income to net cash (used) provided by operating
activities
Amortization and accretion of
Deferred loan origination fees (43) (242)
Premiums and discounts (1,067) (1,451)
MRP shares 158 180
Goodwill and Core Deposit Intangible 607 550
Provision for credit losses 950 600
Release of ESOP shares 104 79
Gain on sale of securities available for sale (194) (1)
Loss (gain) on sale of real estate owned 16 3
Charge-off (Recoveries) real estate owned 39 16
Depreciation of premises and equipment 809 882
Mortgage loans originated for sale (36,350) (60,691)
Mortgage loans sold 41,089 54,604
(Increase) decrease in deferred income taxes (2,374) 104
Increase in cash surrender value of life insurance (366) (402)
Increase (decrease) in accrued interest receivable 654 (184)
Decrease in other assets (2,086) 3,422
Decrease in other liabilities 4,060 (1,670)
--------- --------
Net Cash (used) provided by operating activities 8,884 (1,407)
--------- --------
Investing activities
Loan originations and principal payments on loans, net (2,261) (62,772)
Proceeds from the sale of securities - available for sale 49,755 --
Proceeds from the maturity of securities - available for sale 25,433 1,896
Proceeds from the maturity of securities - held to maturity 7,233 22,320
Purchase of securities - available for sale (6,461) (425)
Proceeds from sale of real estate owned 988 223
Purchase of premises and equipment (313) (1,235)
Proceeds from sale of premises and equipment 16 2,431
--------- --------
Net cash used by investing activities (74,390) (37,562)
--------- --------
Financing activities
Net (decrease) increase in deposits (97,263) 144,994
(Repayment of) proceeds from short term borrowings 8,733 (167,490)
Repayment of long term borrowings -- (1,901)
Proceeds from long term borrowings -- 70,000
Increase (decrease) in advances from
Borrowers for taxes and insurance 1,298 1,452
Cash paid for dividends (1,299) (1,098)
Purchase of Treasury Stock 19 --
--------- --------
Net cash (used) provided by financing activities (88,512) 45,957
--------- --------
Net increase (decrease) in cash and cash equivalents (5,238) 6,988
Cash and cash equivalents at beginning of year 27,076 8,161
--------- --------
Cash and cash equivalents at of the six month period $ 21,838 $ 15,149
========= ========
Supplemental Disclosures
Cash paid for interest on deposits $ 15,987 $ 13,148
========= ========
Cash paid for income taxes $ 788 $ 1,054
========= ========
Transfers from loans and leases to real
estate owned $ 1,089 $ 123
========= ========
Transfer securities from available for sale
to held to maturity $ 220,471 $ --
========= ========
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 Six-Month Period Ended
- -----------------------------------------------------------------------------------------------------------------------------------
June 30,
- -----------------------------------------------------------------------------------------------------------------------------------
2001 2000 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $ 1,491 $ 1,306 $ 2,878 $ 2,794
Other comprehensive income, net of tax
Unrealized gains on securities
Unrealized holding (losses) gains arising during the period (1,335) (44) 3,236 (700)
Less: Reclassification adjustment for gains included
in net income -- -- (61) --
------- ------- ------- -------
Comprehensive income $ 156 $ 1,262 $ 6,053 $ 2,094
======= ======= ======= =======
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PATRIOT BANK CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 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 June 30, 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)
June 30, 2001
Note 2 - Investment And Mortgage-Backed Securities
The amortized cost and estimated fair value of investment and mortgage-backed
securities are as follows:
- -----------------------------------------------------------------------------------------------------------------------------
June 30, 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 $ 28,549 $ -- $ 1,216 $ 27,333 $ -- $ -- $ -- $ --
Corporate debt securities 16,253 -- 1,894 14,359 17,084 15 1,992 15,107
FHLMC Preferred Stock 34,976 1,595 -- 36,571 44,973 1,915 -- 46,888
FHLB Stock 20,709 -- -- 20,709 16,609 -- -- 16,609
Equity securities 5,854 27 431 5,450 6,295 9 639 5,665
Mortgage-backed securities
FHLMC 543 10 -- 553 613 7 -- 620
FNMA 43,087 32 765 42,354 -- -- -- --
GNMA 125 10 -- 135 -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Collateralized Mortgage Obligations:
FHLMC 49,109 58 720 48,447 -- -- -- --
FNMA 43,302 18 304 43,016 -- -- -- --
Other 3,935 31 -- 3,966 -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Total securities available for
Sale $246,442 $ 1,781 $ 5,330 $242,893 $ 85,574 $ 1,946 $ 2,631 $ 84,889
======== ======== ======== ======== ======== ======== ======== ========
HELD TO MATURITY:
Investment securities
U.S. Treasury and
Government agency
Securities $ 22,224 $ 504 $ 232 $ 22,496 $ 76,545 $ 4,144 $ 7,131 $ 73,558
Corporate debt securities 1,000 11 -- 1,011 1,001 -- 1 1,000
Mortgage-backed securities
FHLMC 2,044 26 38 2,032 3,446 27 47 3,426
Fannie Mae 1,839 83 59 1,863 48,462 2,605 1,183 49,884
GNMA 2,841 45 67 2,819 3,573 38 83 3,528
Colateralized mortgage
Obligations
FHLMC 31,941 972 966 31,947 90,920 1,240 2,238 89,922
Fannie Mae 12,897 82 212 12,767 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 $ 74,786 $ 1,723 $ 1,574 $ 74,935 $302,489 $ 9,112 $ 11,916 $299,685
======== ======== ======== ======== ======== ======== ======== ========
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Note 3 - Loans Receivable
Loans receivable are summarized as follows:
June 30, December 31,
- ----------------------------------------------------------------------------------------
2001 2000
- ----------------------------------------------------------------------------------------
(in thousands)
Mortgage loan portfolio
Secured by real estate $ 234,849 $ 253,213
Construction 7,821 10,779
Consumer loan portfolio
Home equity 65,053 64,733
Consumer 8,497 8,553
Comercial loan portfolio
Commercial 269,333 252,837
Commercial leases 71,406 67,094
--------- ---------
Total loans receivable 656,959 657,209
Less deferred loan origination fees 10 (730)
Allowance for credit losses (5,950) (5,839)
--------- ---------
Total loans receivable, net $ 651,019 $ 650,640
========= =========
Note 4 - Deposits
Deposits are summarized as follows:
June 30, December 31,
- -------------------------------------------------------------------------------------------
Deposit type 2001 2000
- -------------------------------------------------------------------------------------------
(in thousands)
NOW $ 28,905 $ 23,163
Money market 136,008 110,092
Savings accounts 31,038 29,051
Non-interest-bearing demand 37,273 41,309
-------- --------
Total demand, transaction, money
market and savings deposits 233,224 203,615
Certificates of deposits 321,663 448,343
-------- --------
Total deposits $554,887 $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.
For Three-Months Ended June 30, 2001 For Six-Months Ended June 30, 2001
------------------------------------ ----------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------- ----------- ------------- -------
BASIC EPS
Net Income available to common
Stockholders $ 1,491 5,854 $ 0.25 $ 2,878 5,850 $ 0.49
EFFECT OF DILUTIVE SECURITIES
Dilutive Options -- 114 -- -- 77 --
---------- --------- -------- -------- -------- -------
DILUTED EPS
Net income available to common
Stockholders plus assumed conversions $ 1,491 5,968 $ 0.25 $ 2,878 5,927 $ 0.49
========= ========= ======== ======== ======== =======
For Three-Months Ended June 30, 2000 For Six-Months Ended June 30, 2000
------------------------------------ ----------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ---------- ----------- ------------- -------
BASIC EPS
Net Income available to common
Stockholders $ 1,306 5,814 $ 0.22 $ 2,794 5,810 $ 0.48
EFFECT OF DILUTIVE SECURITIES
Dilutive Options -- 146 -- -- 196 (.01)
--------- -------- -------- -------- -------- -------
DILUTED EPS
Net income available to common
Stockholders plus assumed conversions $ 1,306 5,960 $ 0.22 $ 2,794 6,006 $ 0.47
========= ======== ======== ======== ======== =======
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Note 6 - Segment Reporting
The Company has two reportable segments: Patriot Bank (PB), and Patriot
Commercial Leasing Corporation (PCLC). 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 and
six-month periods ending June 30, 2001 and 2000 (in thousands).
For the three-month period ended June 30, 2001 For the six-month period ended June 30, 2001
---------------------------------------------- --------------------------------------------
PB PCLC Total PB PCLC Total
-- ---- ----- -- ---- -----
Net interest income $ 5,017 $ 578 $ 5,595 $ 10,162 $ 1,177 $ 11,339
Other income 1,554 393 1,947 3,208 742 3,950
Total net income 1,301 190 1,491 2,496 382 2,878
Total assets 974,876 72,168 1,047,044 974,876 72,168 1,047,044
Total loans and leases, gross 585,553 71,406 656,959 585,553 71,406 656,959
For the three-month period ended June 30, 2000 For the six-month period ended June 30, 2000
---------------------------------------------- --------------------------------------------
PB PCLC Total PB PCLC Total
-- ---- ----- -- ---- -----
Net interest income $ 5,341 $ 546 $ 5,887 $ 11,162 $ 1,038 $ 12,200
Other income 1,417 363 1,780 2,736 551 3,287
Total net income 1,092 214 1,306 2,511 283 2,794
Total assets 1,113,173 63,247 1,176,420 1,113,173 63,247 1,176,420
Total loans and leases, gross 622,214 62,062 684,276 622,214 62,062 684,276
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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 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.
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.
Note 9 - Business Combinations
In June 2001, the FASB issued Statement No. 141, "Business Combinations." The
Statement addresses financial accounting and reporting for business combinations
and supersedes APB Opinion No. 16, Business Combinations, and FASB Statement No.
38, Accounting for Pre-acquisition Contingencies of Purchased Enterprises. All
business combinations in the scope of the Statement are to be accounted for
using the purchase method, thereby eliminating the use of the pooling of
interest method.
The provisions of the Statement apply to all business combinations initiated
after June 30, 2001. The Statement also applies to all business combinations
accounted for using the purchase method for which the date of acquisition is
July 1, 2001, or later. Historically, Patriot has not used the pooling of
interest method and therefore, expects no impact on earnings, financial
condition, or equity upon adoption of Statement No. 141.
Note 10 - Goodwill and Other Intangible Assets
In June 2001, the FASB issued Statement No. 142, "Goodwill and Other Intangible
Assets." The Statement addresses financial accounting and reporting for acquired
goodwill and other intangible assets and supersedes APB Opinion No. 17,
Intangible Assets. It addresses how intangible assets that are acquired
individually or with a group of other assets (but not those acquired in a
business combination) should be accounted for in financial statements upon their
acquisition. The Statement also addresses how goodwill and other intangible
assets should be accounted for after they have been initially recognized in the
financial statements, including requirements for periodic impairment evaluation.
The provisions of the Statement are required to be applied starting with fiscal
years beginning after December 15, 2001, except that goodwill and intangible
assets acquired after June 30, 2001, will be subject immediately to the
non-amortization and amortization provisions of the Statement. Early application
is permitted for entities with fiscal years beginning after March 15, 2001,
provided that the first interim financial statements have not previously been
issued. The Statement is required to be applied at the beginning of an entity's
fiscal year and to be applied to all goodwill and other intangible assets
recognized in its financial statements at that date. Upon adoption of Statement
No. 142 in January 2002, the anticipated effect on Patriot's earnings as a
result of the elimination of goodwill amortization expense is $800,000 after-tax
for fiscal year 2002. As required by SFAS No. 141, Patriot will perform an
impairment test upon adoption. At this time, Patriot doesn't anticipate any
impairment.
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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 $1,491,000 for the three-month period ended June 30, 2001 compared to
diluted earnings per share of $.22 and net income of $1,306,000 for the three
month period ended June 30, 2000. Diluted earnings per share for the six-month
period ending June 30, 2001 was $.49 and net income of $2,878,000 compared with
$.47 and net income of $2,794,000 for the six-month period ended June 30, 2000.
Return on average equity was 10.57%, for the three-month period ended June 30,
2001 compared to 10.46%, for the three-month period ended June 30, 2000.
NET INTEREST INCOME. Net interest income for the three-month and six-month
periods ended June 30, 2001 was $5,595,000 and $11,339,000 compared to
$5,887,000 and $12,200,000 for the same periods in 2000. The decrease is
primarily due to Patriot's 2-year plan to shrink the balance sheet as well as
general changes in the interest rate environment. Patriot's net interest margin
(net interest income as a percentage of average interest-earning assets) was
2.31% for the six-month period ended June 30, 2001 compared to 2.36% for the
same period in 2000.
Interest on loans and leases was $13,694,000 and $27,725,000 for the
three-month and six-month periods ended June 30, 2001 compared to $13,933,000
and 27,122,000 for the same periods in 2000. The average balance of loans was
$656,661,000 with an average yield of 8.45% for the six-month period ended June
30, 2001 compared to an average balance of $656,564,000 with an average yield of
8.27% for the same period in 2000. The decrease in interest on loans is the
result of Patriot's two year plan to allow mortgages to run-off, offset by
aggressive marketing of commercial loans and leases. The increase in average
yield is primarily a result of a greater volume of higher yielding commerical
loans and leases.
Interest on Patriot's investment portfolio (investment and mortgage-backed
securities) was $5,388,000 and $11,665,000 for the three-month and six-month
periods ended June 30, 2001 compared to $7,148,000 and $14,392,000 for the same
periods in 2000. The average balance of the investment portfolio was
$356,087,000 with an average yield of 6.91% for the six-month period ended June
30, 2001 compared to an average balance of $424,545,000 with an average yield of
7.11% for the same period in 2000. The decrease in average balance is primarily
due to Patriot allowing the investment portfolio to amortize down so it can be
replaced with commercial assets. The decrease in average yield is related to
general decreases in market rates on adjustable securities.
Interest on total deposits was $7,424,000 and $16,182,000 for the
three-month and six-month periods ended June 30, 2001 compared to $7,581,000 and
$13,478,000 for the same periods in 2000. The average balance of total deposits
was $608,763,000 with an average cost of 5.36% for the six-month period ended
June 30, 2001 compared to an average balance of $557,857,000 with an average
cost of 4.84% for the same period in 2000. The increase in average balance is
primarily the result of aggressive marketing of certificates of deposit, money
market and other transaction-based deposit accounts, offset by a decrease in
Patriot's jumbo deposit program. The increase in average yield was the result of
general increases in interest rates and growth in the jumbo deposit program in
2000. Patriot has shifted their focus in 2001 from growing jumbo deposits by
replacing them with lower cost of borrowings as they run-off.
Interest on borrowings was $6,168,000 and $12,286,000 for the three-month
and six-month periods ended June 30, 2001 compared to $7,781,000 and $16,065,000
for the same periods in 2000. The average balance of borrowings was $417,959,000
with an average cost of 5.85% for the six-month period ended June 30, 2001
compared to an average balance of $541,502,000 with a cost of 5.93% for the same
period in 2000. The decrease in average balance was due to borrowings being
replaced by proceeds received on the investment sales, run-off of the mortgage
loan portfolio and growth in Patriot's deposit based products offset by
Patriot's commercial loan and lease portfolios. The decrease in the cost of
borrowings was the result of a decrease in interest rates.
PROVISION FOR CREDIT LOSSES. The provision for credit losses was $500,000
and $950,000 for the three-month and six-month periods ended June 30, 2001
compared to $300,000 and $600,000 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 and recoveries to
determine the appropriate level of reserves. Almost all of the growth during the
first six-months of 2001 in Patriot's loan portfolio has been in commercial
lending and leasing. Based on the aforementioned criteria, the provision was
increased in 2001 due to the additional exposure that has been assumed by
Patriot by focusing more on commercial lending and leasing, which historically
has had a higher credit risk despite the fact that
14
15
Patriot continues to currently have excellent asset quality with low levels of
non-performing assets. At June 30, 2001 Patriot's non-performing assets were
.39% of total assets and all loans 30 days or more delinquent were 1.09% of
total loans.
NON-INTEREST INCOME. Total non-interest income was $1,947,000 and
$3,950,000 for the three-month and six-month periods ended June 30, 2001
compared to $1,780,000 and $3,287,000 for the same periods in 2000. The increase
in non-interest income was primarily due to gains recognized on the sale of
investment securities available for sale and an increased emphasis on recurring
non-interest income such as loan and deposit fees, ATM fees, and income from
bank owned life insurance, offset by a decrease in mortgage banking gains.
NON-INTEREST EXPENSE. Total non-interest expense was $4,955,000 and
$10,064,000 for the three-month and six-month periods ended June 30, 2001
compared to $5,724,000 and $11,306,000 for the same periods in 2000. The
decrease in non-interest expense was primarly 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 $596,000 and $1,193,000
for the three-month and six-month periods ended June 30, 2001 compared to
$337,000 and $787,000 for the same periods in 2000. The effective tax rate was
28.56% and 27.91% for three-month and six-month periods ended June 30, 2001
compared to 20.51% and 21.97% for the same periods in 2000. The increase in
income tax provision is primarily due to less income provided by certain tax
preferential securities as some were sold during 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 June 30, 2001
Patriot's total loan portfolio was $651,019,000, compared to a total loan
portfolio of $650,640,000 at December 31, 2000. The increase in the loan
portfolio was primarily the result of aggressive marketing of commercial loans
and leases offset by Patriot's two-year plan to allow residential mortgages to
run-off. During the six-month period ended June 30, 2001, Patriot originated
total loans and leases of $111,666,000, compared to total loans and leases
originated of $212,846,000 for the same period in 2000. Commercial loan and
lease originations for the six-month period ended June 30, 2001 were $74,180,000
compared to $106,255,000 for the same period in 2000. Mortgage loan originations
for the six-month period ended June 30, 2001 were $20,600,000 compared to
$92,239,000 for the same period in 2000.
CASH AND CASH EQUIVALENTS. Cash and cash equivalents at June 30, 2001 were
$21,838,000 compared to $27,076,000 at December 31, 2000. The decrease 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 June 30, 2001 were $317,679,000 compared to $387,378,000 at
December 31, 2000. The decrease in investment and mortgage-backed securities is
primarily due to $49.7 MM of investments sold during this period along with
normal investment amortization. Additionally, 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 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.
OTHER ASSETS. Other assets at June 30, 2001 were $11,442,000 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 June 30, 2001 were $554,887,000 compared to $651,958,000
at December 31, 2000. The decrease in balance is primarily attributed to the
run-off of wholesale banking deposits offset by growth in Patriot's core
deposits.
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16
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 June 30, 2001 were $425,570,000
compared to $416,837,000 at December 31, 2000. The increase is primarily
associated with higher yielding deposits being replaced by lower yielding
borrowings.
OTHER LIABILTIIES. Other Liabilities at June 30, 2001 were $4,561,000 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 $56,835,000 at June 30,
2001 compared to $51,800,000 at December 31, 2000. The increase in balance is
primarily due to earnings offset by dividends paid to shareholders' and
increases in accumulated other comprehensive income.
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17
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 six-month period ended June 30, 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 June 30, 2001, Patriot had outstanding loan commitments of
$63,917,000. 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 June 30, 2001 totaled $284,297,000.
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 June 30, 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 June 30, 2001:
To Be To Be
Actual Adequacy Capitalized Well Capitalized
------ -------------------- ----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
As of June 30, 2001
Total capital (to risk weighted assets)
Patriot Bank Corp. $71,165 11.06% $51,456 8% $64,320 10%
Patriot 70,065 10.91% 51,385 8% 64,231 10%
Tier I capital (to risk-weighted assets)
Patriot Bank Corp. 64,833 10.08% 25,728 4% 38,592 6%
Patriot 63,397 9.87% 25,692 4% 38,539 6%
Tier I capital (to average assets)
Patriot Bank Corp. 64,833 6.18% 41,982 4% 52,478 5%
Patriot 63,397 6.04% 43,061 4% 53,826 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 June 30, 2001, 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
$52,231,000 representing a one-year cumulative "gap," as defined above, as a
percentage of total assets of negative 4.99%.
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The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at June 30, 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 June 30,
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 June 30, 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
------- -------- ------ ------- ------- -------
(In thousands)
INTEREST EARNING ASSETS(1):
Interest earning deposits $ 3,805 $ -- $ -- $ -- $ -- $ --
Investment and mortgage-backed securities, 47,373 14,523 11,622 32,909 22,958 188,294
net (2)(5) 124,821 43,377 73,416 195,253 144,515 73,462
Loans receivable, net(3)(5) ---------- ---------- ---------- ---------- ---------- ----------
Total interest-earning assets 175,999 57,900 85,038 228,162 167,473 261,756
Non-interest-earning assets -- -- -- -- -- 70,716
---------- ---------- ---------- ---------- ---------- ----------
Total assets 175,999 57,900 85,038 228,162 167,473 332,472
---------- ---------- ---------- ---------- ---------- ----------
INTEREST-BEARING LIABILITIES:
Money market and passbook savings 6,787 6,787 13,574 22,736 18,556 98,606
accounts(6) 84 84 167 482 996 64,365
Demand and NOW accounts (6) 97,522 76,051 110,724 26,509 8,499 2,358
Certificates of deposit 19,000 0 40,388 120,000 72,000 179,373
Borrowings ---------- ---------- ---------- ---------- ---------- ----------
123,393 82,922 164,853 169,727 100,051 344,702
Total interest-bearing liabilities
4,561
Non-interest-bearing liabilities -- -- -- -- -- 56,835
Equity ---------- ---------- ---------- ---------- ---------- ----------
123,393 82,922 164,853 169,727 100,051 406,098
Total liabilities and equity ---------- ---------- ---------- ---------- ----------
$ 52,606 $ (25,022) $ (79,815) $ 58,435 $ 67,422 $ (73,626)
Interest sensitivity gap(4) ========== ========== ========== ========== ========== ==========
$ 52,606 $ 27,584 $ (52,231) $ 6,204 $ 73,626 $--
Cumulative interest sensitivity gap ========== ========== ========== ========== ========== ==========
5.02% 2.63% (4.99)% 0.59% 7.03% --%
Cumulative interest sensitivity gap as a percent
of total assets
Cumulative interest-earning assets as a 142.63% 113.37% 85.93% 101.15% 111.49% 99.05%
percent of cumulative interest-bearing liabilities
Total
-----
INTEREST EARNING ASSETS(1):
Interest earning deposits $ 3,805
Investment and mortgage-backed securities, 317,679
net (2)(5)
Loans receivable, net(3)(5) 654,844
----------
Total interest-earning assets 976,328
Non-interest-earning assets 70,716
----------
Total assets 1,047,044
----------
INTEREST-BEARING LIABILITIES:
Money market and passbook savings 167,046
accounts(6)
Demand and NOW accounts (6) 66,178
Certificates of deposit 321,663
Borrowings 430,761
----------
Total interest-bearing liabilities 985,648
Non-interest-bearing liabilities 4,561
Equity 56,835
----------
Total liabilities and equity 1,047,044
----------
Interest sensitivity gap(4) $--
==========
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
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20
(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 decay rates have
been estimated based upon a historical 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 negative gap (interest-sensitive
liabilities are greater than interest-sensitive assets) within the next year,
which generally indicates that a decrease in rates may lead to an increase in
net interest income and an increase in rates may lead to a decrease in net
interest income.
The disscusion concerning the effects of interest rate changes on the
Company's estimated net interest income for the year ending December 31, 2001
set forth in "Managements Discussion an Analysis of Financial and Results of
Operations -- Management of Interest Rate Risk" in Item 2 herof, 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 June 30, 2002, based upon
the assets, liabilities and off-balance sheet financial instruments in existence
at June 30, 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 June 30, 2002.
---------------------------------------------------------------------
Rate ramp
to interest rates % change
---------------------------------------------------------------------
+2% .16%
-2% (3.19%)
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
The company held its Annual Meeting of Shareholders on April 24,
2001. At the said meeting 6,190,072 shares of Common Stock were entitled to
vote, of which 5,297,765 shares were present in person or by proxy. The
following matters were voted upon at the Annual Meeting and the number of
affirmative votes, negative votes and abstentions with respect to the matters
are as follows:
1. At the Annual Meeting, two directors were elected for three-year terms.
The nominees were James B. Elliott and Larry V. Thren.
For % Withheld %
James B. Elliott 5,094,549 96.20 203,216 3.80
Larry V. Thren 5,093,739 96.10 204,026 3.90
The names of each of the directors whose term of office continued after
the Annual Meeting and their respective term expirations are as follows:
James A. Bentley Jr. 2002
Richard A. Elko 2002
Russell J. Kunkel 2003
Thomas D. Paulus 2003
2. The ratification of the appointment of KPMG Peat Marwick LLP as
independent auditors of Patriot Bank Corp. for fiscal year ending December 31,
2001.
For % Against % Abstain %
5,161,226 97.40% 48,120 .9% 88,419 1.70%
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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.
none
(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 August 14, 2001
------------------------------------- -------------------------------------------
Richard A. Elko
President and Chief Executive Officer
Date August 14, 2001
------------------------------------- -------------------------------------------
James G. Blume
Senior Vice President and
Chief Financial Officer
24