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, 1996
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)
DELAWARE 232820537
- --------------------------------------------------------------------------------
(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
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
- --------------------------------------------------------------------------------
(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: 3,902,995 shares of common
stock, par value $.01 per share, were outstanding as of June 30, 1996.
2
PATRIOT BANK CORP. AND SUBSIDIARIES
INDEX
Page
PART I FINANCIAL INFORMATION....................................... 3
Item 1 FINANCIAL STATEMENTS
Consolidated Statements of Financial Condition at
June 30, 1996 and December 31, 1995....................... 3
Consolidated Statements of Income for the
Three-Month and Six-Month Periods ended June 30,
1996 and 1995............................................. 4
Consolidated Statements of Cash Flows for the
Six-Month Periods ended June 30, 1996 and 1995............ 5
Notes to Consolidated Financial Statements............... 6
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION........................ 10
PART II OTHER INFORMATION........................................... 15
Items 1 through 6................................................. 15
SIGNATURES........................................................... 17
2
3
Patriot Bank Corp. and Subsidiaries
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands, except share data)
June 30, December 31,
- -------------------------------------------------------------------------------------
1996 1995
- -------------------------------------------------------------------------------------
(unaudited) (note)
Assets
Cash and due from banks $ 2,992 $ 2,878
Interest-earning deposits in other
financial institutions 4,384 15,678
------- ------
Total cash and cash equivalents 7,376 18,556
Investment and mortgage-backed securities
available for sale - at market value 98,119 47,646
Investment securities held to maturity
(market value of $71,124 and $3,963 at
June 30, 1996 and December 31, 1995,
respectively) 71,706 3,917
Loans receivable 232,867 194,250
Allowance for possible loan losses (1,814) (1,702)
Premises and equipment, net 4,600 3,450
Accrued interest receivable 2,032 1,205
Real estate owned 147 195
Other assets 2,713 1,352
-------- --------
Total assets $417,746 $268,869
======== ========
Liabilities and stockholders' equity
Deposits $218,688 $201,618
Borrowings 139,900 10,000
Advances from borrowers for taxes and
insurance 2,972 1,778
Other liabilities 2,183 1,363
------- -------
Total liabilities 363,743 214,759
------- -------
Preferred stock, $.01 par value, 2,000,000
shares authorized, none issued -- --
Common stock, $.01 par value, 10,000,000
shares authorized, 3,902,995 shares issued 39 38
Additional paid-in capital 38,431 36,700
Common stock acquired by ESOP, 271,377
shares at cost (2,714) (2,714)
Common stock acquired by MRP, 133,870
shares at cost (1,711) --
Retained earnings 20,852 19,893
Net unrealized appreciation (depreciation)
on investment and mortgage-backed
securities available for sale, net of taxes (894) 193
-------- --------
Total stockholders' equity 54,003 54,110
-------- --------
Total liabilities and stockholders' equity $417,746 $268,869
======== ========
The accompanying notes are an integral part of these statements.
Note: The balance sheet at December 31, 1995 is taken from the audited financial
statements at that date but does not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
3
4
Patriot Bank Corp. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except for share data)
Three-Month Period Ended June 30, Six-Month Period Ended June 30,
- -------------------------------------------------------------------------------------------------------
1996 1995 1996 1995
- -------------------------------------------------------------------------------------------------------
(unaudited)
Interest income
Interest-earning deposits $ 19 $ 26 $ 69 $ 46
Investment and mortgage-backed
securities 2,504 685 3,757 1,290
Loans 4,339 3,368 8,242 6,712
----- ----- ----- -----
Total interest income 6,862 4,079 12,068 8,048
----- ----- ------ -----
Interest expense
Deposits 2,358 2,184 4,666 4,214
Borrowings 1,510 96 1,788 198
----- ----- ----- -----
Total interest expense 3,868 2,280 6,454 4,412
----- ----- ----- -----
Net interest income 2,994 1,799 5,614 3,636
Provision for possible loan losses 80 15 115 30
----- ----- ----- -----
Net interest income after
provision for loan losses 2,914 1,784 5,499 3,606
Non-interest income
Service fees, charges and other
operating income 119 153 240 240
Gain on disposition of real
estate owned 12 -- 12 --
----- ----- ----- -----
Total non-interest income 131 153 252 240
----- ----- ----- -----
Non-interest expense
Salaries and employee benefits 1,041 688 1,925 1,383
Occupancy and equipment 195 186 408 380
Federal deposit insurance premiums 114 107 231 215
Data processing 105 64 195 140
Advertising 134 100 209 155
Deposit processing 60 65 123 119
Other operating expenses 279 244 581 440
----- ----- ----- -----
Total non-interest expense 1,928 1,454 3,672 2,832
----- ----- ----- -----
Income before income taxes 1,117 483 2,079 1,014
Income taxes 439 180 819 381
----- ----- ----- -----
Net income $ 678 $ 303 $1,260 $ 633
======= ====== ====== ======
Earnings per share $ .19 $ .36
======= ======
Dividends per share $ .02 $ . 06
======= ======
The accompanying notes are an integral part of these statements.
4
5
Patriot Bank Corp. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Six-Month Period Ended June 30,
- ---------------------------------------------------------------------------------------------------
1996 1995
- ---------------------------------------------------------------------------------------------------
(unaudited)
Operating activities
Net income $ 1,260 $ 633
Adjustments to reconcile net income to net cash
provided by operating activities
Amortization and accretion of
Deferred loan origination fees (288) (202)
Premiums and discounts (4) (26)
Provision for possible loan losses 115 30
Gain on sale of real estate owned (12) --
Depreciation of premises and equipment 86 96
Management recognition plan 21 --
Deferred income taxes 114 (8)
Increase in accrued interest receivable (827) (87)
Increase in other assets (765) (256)
Increase (Decrease) in other liabilities 820 (506)
------- --------
Net cash provided (used) by operating activities 550 (326)
------- --------
Investing activities
Loan originations and principal payments on
loans, net (38,309) 2,514
Proceeds from the maturity of investment and
mortgage-backed securities - available for sale 5,468 --
Proceeds from the maturity of investment and
mortgage-backed securities - held to maturity 2,519 1,787
Purchase of investment and mortgage-backed
securities - available for sale (57,779) (4,584)
Purchase of investment and mortgage-backed
securities - held to maturity (70,308) (1,250)
Proceeds from sale of real estate owned 53 --
Purchase of premises and equipment (1,236) (26)
-------- ---------
Net cash (used in) provided by investing
activities (159,592) (1,559)
Financing activities
Net increase (decrease) in deposits $ 17,070 $ 6,579
Net proceeds (repayments) from short-term
borrowings 99,900 (500)
Proceeds from long-term borrowings 30,000 --
(Decrease) increase in advances from borrowers
for taxes and insurance 1,194 1,163
Cash paid for dividends (302) --
------- -------
Net cash provided by (used in) financing
activities 147,862 7,242
------- -------
Net increase (decrease) in cash and cash
equivalents (11,180) 5,357
Cash and cash equivalents at beginning of year 18,556 5,448
------- -------
Cash and cash equivalents at end of year $ 7,376 $ 10,805
========== =========
Supplemental disclosures
Cash paid for interest on deposits was $4,671,000 and $4,500,000 for the
six-month periods ended June 30, 1996 and 1995, respectively. Cash paid for
income taxes was $745,000 and $400,000 for the six-month periods ended June 30,
1996 and 1995, respectively. Transfers from loans to real estate owned were $-0-
and $25,000 for the six-month periods ended June 30, 1996 and 1995,
respectively.
The accompanying notes are an integral part of these statements.
5
6
PATRIOT BANK CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 1996
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 subsidiary, Patriot Bank. 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 and six-month periods ended June 30,
1996 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, 1995.
Note 2 - Conversion to Stock Form of Ownership and Earnings Per Share
On July 13, 1995, the Board of Directors of Patriot Bank adopted an
overall Plan of Conversion (the Conversion), as amended on August 30, 1995,
pursuant to which Patriot Bank converted from a federally chartered mutual
savings bank to a federally chartered capital stock savings bank. All of Patriot
Bank's outstanding capital stock was acquired by Patriot, a newly organized
Delaware corporation which became the holding company for Patriot Bank. The
conversion was completed on December 1, 1995 when Patriot issued 3,769,125
shares of common stock to the public.
On June 7, 1996, Patriot stockholders approved the Patriot Bank Corp. 1996
Stock-Based Incentive Plan pursuant to which 134,000 shares of previously
authorized shares and 354,000 stock options with an exercise price of $12.9375
were issued. Earnings per share have been calculated on a fully diluted basis
based on the weighted average shares and common equivalent shares (dilutive
stock options) outstanding during the three-month and six-month periods ended
June 30, 1996, of 3,532,000 and 3,515,000, respectively. The provisions of
Accounting Principles Board No. 15, "Earnings Per Share," are not applicable for
the three-month and six-month periods ended June 30, 1995.
6
7
PATRIOT BANK CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 1996
Note 3 - Investment And Mortgage-Backed Securities
The amortized cost and estimated fair value of investment and mortgage-backed
securities are as follows:
- ---------------------------------------------------------------------------------------------------------------------
June 30, 1996 December 31, 1995
- ---------------------------------------------------------------------------------------------------------------------
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
cost gain loss value cost appreciation depreciation value
- ---------------------------------------------------------------------------------------------------------------------
(in thousands)
Investment and Mortgage-Backed Securities Available for Sale
Investment securities
U.S. Treasury and
government
agency
securities $ 6,182 $ -- $ 140 $ 6,042 $ 6,105 $ 49 $ -- $ 6,154
Corporate securities 1,012 2 -- 1,014 1,019 27 -- 1,046
Other securities 3,851 94 204 3,741 1,000 21 -- 1,021
FHLB stock 6,995 -- -- 6,995 1,914 -- -- 1,914
Mortgage-backed
securities
FHLMC 15,710 31 -- 15,741 12,179 95 16 12,258
FNMA 26,510 -- 460 26,050 17,709 161 115 17,755
GNMA 14,975 -- 94 14,881 5.463 79 3 5,539
Collateralized mortgage
obligations 24,294 -- 639 23,655 1,964 -- 5 1,959
------ ----- ----- ------ ------ ---- ----- ------
Total Investment
and mortgage-
backed securities
available for sale $ 99,529 $ 127 $1,537 $ 98,119 $47,353 $ 432 $ 139 $ 47,646
======== ===== ====== ======= ======= ===== ===== ========
Investment and Mortgage-Backed Securities Held to Maturity
Investment securities
Corporate securities $ 1,503 $ 2 $ -- $ 1,505 $ 1,503 $ 63 $ -- $ 1,566
Other securities 1,912 -- 31 1,881 2,414 4 21 2,397
Mortgage-backed
securities
Collateralized mortgage
obligations 68,291 -- 553 67,738 -- -- -- --
-------- ----- ------ ------- ------ ---- ----- --------
Total investment and
mortgage backed
securities held to
maturity $ 71,706 $ 2 $ 584 $ 71,124 $ 3,917 $ 67 $ 21 $ 3,963
======== ===== ====== ======== ======= ===== ===== ========
7
8
Note 4 - Loans Receivable
Loans receivable are summarized as follows:
June 30, December 31,
- ---------------------------------------------------------------------------------------------
1996 1995
- ---------------------------------------------------------------------------------------------
(in thousands)
Real estate loans
First mortgages secured by one- to
four-family residences $162,964 $131,352
Home equity and second mortgage 62,997 57,969
Construction 1,813 1,712
Multi-family and commercial 5,210 3,288
--------- --------
232,984 194,321
Consumer loans 2,353 2,159
-------- --------
Total loans receivable 235,337 196,480
Less deferred loan origination fees (2,470) (2,230)
Total loans receivable, net $232,867 $194,250
======== ========
Note 5 - Deposits Deposits are summarized as follows:
June 30, December 31,
- ---------------------------------------------------------------------------------------------
Deposit type 1996 1995
- ---------------------------------------------------------------------------------------------
(in thousands)
NOW $ 18,284 $ 16,857
Money market 33,814 34,162
Savings accounts 28,504 27,511
Non-interest-bearing demand 4,756 2,519
-------- -------
Total demand, transaction, money
market and savings deposits 85,358 81,049
Certificates of deposits 133,330 120,569
-------- --------
Total deposits $ 218,688 $ 201,618
========= =========
8
9
Note 6 -
Legislation is pending in Congress to mitigate the effect of the Bank
Insurance Fund (BIF) Savings Association Insurance Fund (SAIF) premium
disparity. Under the legislation a special assessment would be imposed on the
amount of deposits held by SAIF-member institutions, including the Bank, as of a
specified date, currently March 31, 1995, to recapitalize the SAIF. The amount
of the special assessment would be left to the discretion of the FDIC but is
generally estimated at between 79 to 85 basis points of insured deposits. The
legislation would also require that the BIF and SAIF be merged, provided that
subsequent legislation is enacted requiring federal savings associations to
become national banks or state chartered banks or thrifts, and that the
Financing Insurance Company (FICO) payments be spread across all BIF and SAIF
members. The payment of the special assessment would have the effect of
immediately reducing the capital of SAIF-member institutions, net of any tax
effect; however, it would not affect Patriot Bank's compliance with its
regulatory capital requirements. Management cannot predict whether legislation
imposing such an assessment will be enacted, or, if enacted, the specific terms
of such legislation including the amount of any special assessment and when and
whether ongoing SAIF premiums will be reduced to a level equal to that of BIF
premiums. Management can also not predict whether or when the BIF and SAIF will
merge. The assessment of an 79 to 85 basis point fee to recapitalize the SAIF
would result in approximately $980,000 to $1,055,000 payment on an after-tax
basis.
Legislation regarding bad debt recapture has been passed by Congress and
sent to the President for signature. The legislation requires recapture of
reserves accumulated after 1987. The recapture tax on post 1987 reserves must be
paid over a six-year period starting in 1996. The payment of the tax can be
deferred in each of 1996 and 1997 if an institution originates at least the same
average annual principal amount of mortgage loans that it originated in the six
years prior to 1996. Management anticipates that this legislation will have no
significant adverse impact on the operations of Patriot.
No assurance can be given as to whether legislation as discussed above
will be enacted or, if enacted, what the terms of such legislation would be.
9
10
PATRIOT BANK CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
June 30, 1996
GENERAL. Patriot Bank Corp. and Subsidiaries (Patriot) reported net income
of $678,000 or $.19 per share for the three-month period ended June 30, 1996.
This represents an increase of 124% over net income of $303,000 for the
three-month period ended June 30, 1995. Net income for the six-month period
ended June 30, 1996 was $1,260,000 or $.36 per share compared to $633,000 for
the six-month period ended June 30, 1995. Return on average assets and return on
average equity were .72% and 5.05%, respectively, for the three-month period
ended June 30, 1996 compared to .55% and 6.36%, respectively, for the
three-month period ended June 30, 1995.
STOCK CONVERSION. On July 13, 1995, Patriot Bank's Board of Directors
adopted an overall Plan of Conversion (the Conversion) as amended on August 30,
1995, pursuant to which Patriot Bank converted from a federally chartered mutual
savings bank to a federally chartered capital stock savings bank. All of Patriot
Bank's outstanding capital stock was acquired by Patriot Bank Corp., a newly
organized Delaware corporation which became the holding company for Patriot
Bank. The Conversion was completed on December 1, 1995 when Patriot issued
3,769,000 shares of common stock to the public and raised net proceeds of
$36,652,000. On June 7, 1996, Patriot stockholders approved the Patriot Bank
Corp. 1996 Stock-Based Incentive Plan pursuant to which 134,000 shares of
previously authorized shares were issued.
NET INTEREST INCOME. Net interest income for the three-month and six-
month periods ended June 30, 1996 was $2,994,000 and $5,614,000 compared to
$1,799,000 and $3,636,000 for the same periods in 1995. This increase is
primarily due to an increase in average balances. Patriot's net interest margin
(net interest income as a percentage of average interest-earning assets) was
3.45% for the six-month period ended June 30, 1996 compared to 3.44% for the
same period in 1995.
Interest on loans was $4,339,000 and $8,242,000 for the three-month and
six-month periods ended June 30, 1996 compared to $3,368,000 and $6,712,000 for
the same periods in 1995. The average balance of loans was $206,866,000 with an
average yield of 7.98% for the six-month period ended June 30, 1996 compared to
an average balance of $165,684,000 with an average yield of 8.10% for the same
period in 1995. The increase in average balance is due to the aggressive
marketing of residential mortgage loans and home equity loans. The decrease in
average yield is primarily a result of an emphasis on short-term and adjustable
rate loans.
Interest on Patriot's investment portfolio (investment and mortgage-backed
securities) was $2,504,000 and $3,757,000 for the three-month and six-month
periods ended June 30, 1996 compared to $685,000 and $1,290,000 for the same
periods in 1995. The average balance of the investment portfolio was
$114,311,000 with an average yield of 6.57% for the six-month period ended June
30, 1996 compared to an average balance of $43,171,000 with an average yield of
5.98% for the same period in 1995. The increase in average balance and the
increase in yield was due to the purchase of investment and mortgage-backed
securities to more fully leverage Patriot's capital.
Interest on total deposits was $2,358,000 and $4,666,000 for the
three-month and six-month periods ended June 30, 1996 compared to $2,184,000 and
$4,214,000 in the same periods in 1995. The average balance of total deposits
was $207,514,000 with an average cost of 4.51% for the six-month period ended
June 30, 1996 compared to an average balance of $190,001,000 with an average
cost of 4.40% for the same period in 1995. The increase in average balance was
primarily the result of an emphasis placed on transaction based deposit products
and competitive pricing of certificates of deposit. The increase in average cost
was primarily the result of a change in deposit composition toward higher
yielding products and more competitive pricing.
Interest on borrowings was $1,510,000 and $1,788,000 for the three-month
and six-month periods ended June 30, 1996 compared to $96,000 and $198,000 for
the same periods in 1995. The average balance of borrowings was $64,701,000 with
an average cost of 5.53% for the six-month period ended June 30, 1996 compared
to an average balance of $6,050,000 with a cost of 6.40% for the same period in
1995. The increase in average balance was due to the use of borrowings to fund
the growth in the balance sheet. The decrease in the cost of borrowings was the
result of lower overall interest rates.
10
11
PROVISION FOR POSSIBLE LOAN LOSSES. The provision for possible loan losses
was $80,000 and $115,000 for the three-month and six-month periods ended June
30, 1996 compared to $15,000 and $30,000 for the same periods in 1995. The
increase in the provision was due to an increase in loans and Patriot's re-entry
into commercial lending offset by Patriot's high asset quality, low level of
delinquencies and low level of non-performing assets. At June 30, 1996 Patriot's
non-performing assets were .13% of total assets and all loans 30 days or more
delinquent were .49% of total loans.
NON-INTEREST INCOME. Total non-interest income was $131,000 and $252,000
for the three-month and six-month periods ended June 30, 1996 compared to
$153,000 and $240,000 for the same periods in 1995. The increase was due to an
increase in loan servicing income and deposit fees and are consistent with
increases in loans and deposits.
NON-INTEREST EXPENSE. Total non-interest expense was $1,928,000 and
$3,672,000 for the three-month and six-month periods ended June 30, 1996
compared to $1,454,000 and $2,832,000 for the same periods in 1995. The increase
in non-interest expense was the result of the recognition of expense related to
Patriot's Employee Stock Ownership Plan (ESOP) and additional compensation and
benefits and other costs related to the growth of Patriot, offset somewhat by
other operating efficiencies and cost-saving efforts. The ratio of non-interest
expense to average assets was 2.23% for the six-month period ended June 30, 1996
compared to 2.59% for the same period in 1995. The improvement in the overhead
ratio reflects Patriot's emphasis on managing costs.
INCOME TAX PROVISION. The income tax provision was $439,000 and $819,000
for the three-month and six-month periods ended June 30, 1996 compared to
$180,000 and $381,000 for the same periods in 1995. The increase in the income
tax provision was consistent with the growth in net income before taxes.
Financial Condition
LOAN PORTFOLIO. Patriot's primary loan products are fixed-rate and
adjustable-rate mortgage loans and home equity loans on existing owner-occupied
residential real estate. Patriot also offers residential construction loans,
commercial loans and other consumer loans. At June 30, 1996, Patriot's total
loan portfolio was $232,867,000, compared to a total loan portfolio of
$194,250,000 at December 31, 1995. The increase in the loan portfolio was the
result of aggressive marketing of residential mortgage loans and home equity
loans and Patriot's re-entry into commercial lending. During the six-month
period ended June 30, 1996, Patriot originated total loans of $60,564,000,
compared to total loans originated of $11,341,000 for the same period in 1995.
CASH AND CASH EQUIVALENTS. Cash and cash equivalents at June 30, 1996
were $7,376,000 compared to $18,556,000 at December 31, 1995. The decrease in
cash and cash equivalents was primarily due to the investment of a portion of
the proceeds from the stock conversion that were deposited temporarily in an
interest-earning account at December 31, 1995.
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, 1996 were
$169,825,000 compared to $51,563,000 at December 31, 1995. The increase in
investment and mortgage-backed securities was due to the purchase of securities
to more fully leverage Patriot's capital.
11
12
OTHER ASSETS. Premises and equipment at June 30, 1996 was $4,600,000
compared to $3,450,000 at December 31, 1995. The increase was primarily due to
the renovation of Patriot's corporate headquarters. Accrued interest receivable
at June 30, 1996 was $2,032,000 compared to $1,205,000 at December 31, 1995. The
increase is consistent with the growth in the loan and investment portfolios.
Real estate owned at June 30, 1996 was $147,000 compared to $195,000 at December
31, 1995. The decrease in real estate owned was due to the disposal of
foreclosed assets.
DEPOSITS. Deposits are attracted from within Patriot's primary market area
through the offering of various deposit instruments, including NOW accounts,
money market accounts, savings accounts, certificates of deposit and retirement
savings plans.
Total deposits at June 30, 1996 were $218,688,000 compared to $201,618,000
at December 31, 1995. The increase was primarily the result of an emphasis
placed on transaction based deposit products and competitive rates offered on
certificates of deposit.
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, 1996 were $139,900,000 compared to
$10,000,000 at December 31, 1995. The increase in borrowings was due to the
leveraging of Patriot's capital.
STOCKHOLDERS' EQUITY. Total stockholders' equity was $54,003,000 at June
30, 1996 compared to $54,110,000 at December 31, 1995. The decrease is a result
of an increase in the unrealized depreciation on investment and mortgage-backed
securities available for sale.
Liquidity and Capital Resources
LIQUIDITY. Patriot's primary sources of funds are deposits, principal and
interest payments on loans, principle and interest payments on investment and
mortgage-backed securities, and FHLB advances. 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 condition, 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. Patriot has
other sources of liquidity, including repurchase agreements, other borrowings,
and certain investment and mortgage-backed securities.
Patriot Bank is required under applicable federal regulations to maintain
specified levels of "liquid" investments in cash and U.S. Treasury and other
qualifying investments. Regulations currently in effect require Patriot Bank to
maintain liquid assets of not less than 5% of its net withdrawable accounts plus
short-term borrowings, of which short-term liquid assets must consist of not
less than 1%. These levels are changed from time to time by the Office of Thrift
Supervision (OTS) to reflect economic conditions. Patriot Bank's liquidity ratio
at June 30, 1996 was 5.75%.
During the six-month period ended June 30, 1996, significant liquidity was
provided by financing activities, in particular deposit growth and borrowings.
Maturities of investment and mortgage-backed securities also provided
significant liquidity. The funds provided by these activities were reinvested in
new loans and investment and mortgage-backed securities.
12
13
CAPITAL RESOURCES. OTS regulations currently require savings institutions
to maintain a minimum tangible capital ratio of not less than 1.5%, a minimum
leverage capital ratio of not less than 3% of tangible 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 OTS requires a minimum leverage capital
requirement of 3% for associations rated composite 1 under the CAMEL rating
system. For all other savings associations, the minimum leverage capital
requirement is 3% plus at least an additional 100 to 200 basis points.
The OTS has incorporated an interest rate risk component into its
risk-based capital requirements. Under the regulation, savings associations
which are deemed to have an "above normal" level of interest rate risk must
deduct a portion of that risk from total capital for regulatory capital
purposes. The final regulation became effective January 1, 1994; however,
implementation has been delayed. It is currently anticipated that Patriot Bank
will not have an "above normal" level of interest rate risk.
Under the OTS prompt corrective action regulations, the OTS is required to
take certain supervisory actions against undercapitalized institutions, the
severity of which depends on the institution's degree of undercapitalization. A
depository institution's capital tier depends upon its capital levels in
relation to various relevant capital measures, which include leverage and
risk-based capital measures and certain other factors. Under the OTS
regulations, a savings institution that has a leverage capital ratio of less
than 4% (3% for institutions receiving the highest CAMEL rating) will be deemed
to be undercapitalized for purposes of the regulation. Depository institutions
that are not classified as well capitalized or adequately capitalized are
subject to various restrictions regarding capital distributions, payment of
management fees, acceptance of brokered deposits and other operating activities.
At June 30, 1996, Patriot Bank was classified as well capitalized and was
in compliance with all capital requirements. The following table sets forth the
capital ratios of Patriot Bank and the current regulatory requirements at June
30, 1996:
Patriot
Bank Requirement
- -----------------------------------------------------------------------------------
Tangible capital to tangible assets 8.77% 1.50%
Leverage (core) capital to tangible assets 8.77 3.00
Leverage (core) capital to risk-adjusted assets 17.89 4.00
Risk-based capital to risk-adjusted assets 19.24 8.00
13
14
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 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
operations 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
Committee meets weekly and reports trends and Patriot's interest rate risk
position to the Board of Directors on a quarterly basis.
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.
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.
As a traditional thrift lender, Patriot has a significant amount of its
earning assets invested in fixed-rate mortgage loans and fixed-rate
mortgage-backed securities with contractual maturities greater than one year.
Patriot has initiated several actions designed to control its level of interest
rate risk. These actions included: (i) increasing the percentage of the loan
portfolio consisting of short-term and adjustable-rate mortgage loans through
increased originations of these loans, (ii) acquiring short-term and
adjustable-rate mortgage-backed securities, and (iii) undertaking to lengthen
the maturities of deposits and borrowings. At June 30, 1996, 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 $43,189,000, representing a one-year cumulative "gap," as defined above, as a
percentage of total assets of negative 10.3%.
14
15
PART II OTHER INFORMATION
Item 1 LEGAL PROCEEDINGS
There are various claims and lawsuits in which the Company is periodically
involved incidental to the Company's business, which in the aggregate involve
amounts which are believed by management to be immaterial to the financial
condition 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 June 7, 1996. At the
said meeting 3,769,125 shares of Common Stock were eligible to vote, of which
2,914,289 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 Gary N. Gieringer and Leonard A. Huff.
FOR % WITHHELD %
--- ---- -------- ----
Gary N. Gieringer 2,889,474 99.1 24,815 0.9
Leonard A. Huff 2,891,224 99.2 23,065 0.8
The names of each of the directors whose term of office continued
after the Annual Meeting and their respective term expirations are as
follows:
John H. Diehl 1997
Samuel N. Lardis 1997
Joseph W. Major 1997
Larry V. Thren 1998
James B. Elliot 1998
2. The approval of the Patriot Bank Corp. 1996 Stock-Based Incentive Plan.
FOR % AGAINST % ABSTAIN % NON-VOTE %
--------- ---- ------- ---- ------- --- -------- ----
1,996,720 68.5 298,522 10.2 10,556 0.4 608,491 20.9
3. The appproval of the authorization of the Board of Directors to amend
the Patriot Bank Corp. 1996 Stock-Based Incentive Plan.
FOR % AGAINST % ABSTAIN % NON-VOTE %
--------- ---- ------- ---- ------- --- -------- ----
1,961,370 67.3 308,072 10.6 36,356 1.2 608,491 20.9
4. The ratification of the appointment of Grant Thornton LLP as
independent auditors of Patriot Bank Corp. for the fiscal year ending
December 31, 1996.
FOR % AGAINST % ABSTAIN %
--------- ---- ------- ---- ------- ----
2,865,764 98.5 43,675 1.5 4,850 0.2
15
16
Item 5 OTHER INFORMATION
On August 8, 1996, Patriot announced the completion of its stock repurchase
program pursuant to which 188,456 shares were repurchased at an aggregate cost
of $2,517,000. These treasury shares will be utilized for general corporate
purposes including the issuance of shares in connection with the exercise of
stock options.
Item 6 EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits are filed as part of this report.
Exhibit 3.1 Certificate of Incorporation of Patriot Bank Corp.*
Exhibit 3.2 Bylaws of Patriot Bank Corp.*
Exhibit 27 Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K.
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.
16
17
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 12, 1996 /s/ Joseph W. Major
------------------------ -----------------------------------------
Joseph W. Major
President and Chief Operating Officer
Date August 12, 1996 /s/ Richard A. Elko
------------------------ -----------------------------------------
Richard A. Elko
Executive Vice President and
Chief Financial Officer
17