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, 1997
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.
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(Exact name of registrant as specified in its charter)
DELAWARE 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: 3,629,574 shares of common
stock, par value $.01 per share, were outstanding as of August 1, 1997.
PATRIOT BANK CORP. AND SUBSIDIARIES
INDEX
Page
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PART I FINANCIAL INFORMATION
Item 1 FINANCIAL STATEMENTS
Consolidated Statements of Financial Condition at June 30, 1997
and December 31, 1996
Consolidated Statements of Income for the Three-Month
and Six-Month Periods ended June 30, 1997 and 1996
Consolidated Statements of Cash Flows for the Six-Month Periods
ended June 30, 1997 and 1996
Notes to Consolidated Financial Statements
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
PART II OTHER INFORMATION
Items 1 through 6
SIGNATURES
Patriot Bank Corp. and Subsidiaries
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in thousands, except share data)
June 30, December 31,
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1997 1996
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(unaudited) (note)
Assets
Cash and due from banks $ 921 $ 1,997
Interest-earning deposits in other
financial institutions 2,960 4,856
-------- --------
Total cash and cash equivalents 3,881 6,853
Investment and mortgage-backed securities
available for sale - at market value 259,056 159,148
Investment securities held to maturity (market value
of $68,943 and $72,722 at June 30, 1997 and
December 31, 1996, respectively) 69,134 72,710
Loans receivable 345,286 280,184
Allowance for possible loan losses (2,041) (1,830)
Premises and equipment, net 8,739 7,724
Accrued interest receivable 3,993 2,649
Real estate owned 172 74
Other assets 10,795 1,653
-------- --------
Total assets $699,015 $529,165
======== ========
Liabilities and stockholders' equity
Deposits $283,331 $239,514
Borrowings 342,416 231,595
Advances from borrowers for taxes and insurance 3,733 2,499
Other liabilities 1,509 2,440
-------- --------
Total liabilities 630,989 476,048
-------- --------
Trust Preferred Corporation-obligated mandatory
redeemable capital securities of subsidiary
trust holding solely subordinated debentures
of Patriot Bank Corp. ("Trust Preferred Securities") 18,525 --
-------- --------
Preferred stock, $.01 par value, 2,000,000
shares authorized, none issued -- --
Common stock, $.01 par value, 10,000,000
shares authorized, 4,683,594 shares issued
at 6/30/97 and 12/31/96 47 47
Additional paid-in capital 49,014 49,014
Common stock acquired by ESOP, 271,377
shares at cost at 6/30/97 and 12/31/96 (2,571) (2,571)
Common stock acquired by MRP, 160,644
shares at amortized cost at 3/31/97 and 12/31/96 (1,364) (1,538)
Retained earnings 11,263 10,357
Treasury stock, 607,092 and 226,147 shares at 6/30/97 and
12/31/96 respectively (7,979) (2,517)
Net unrealized appreciation on investment
and mortgage-backed securities available
for sale, net of taxes 1,091 325
-------- --------
Total stockholders' equity 49,501 53,117
-------- --------
Total liabilities and stockholders' equity $699,015 $529,165
======== ========
The accompanying notes are an integral part of these statements.
Note: The balance sheet at December 31, 1996 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.
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,
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1997 1996 1997 1996
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(unaudited)
Interest income
Interest-earning deposits $ 30 $ 19 $ 116 $ 69
Investment and mortgage-backed securities 4,986 2,504 9,680 3,757
Loans 6,307 4,339 11,848 8,242
------- ------- ------- -------
Total interest income 11,323 6,862 21,644 12,068
------- ------- ------- -------
Interest expense
Deposits 3,272 2,358 6,366 4,666
Borrowings 4,458 1,510 8,161 1,788
------- ------- ------- -------
Total interest expense 7,730 3,868 14,527 6,454
------- ------- ------- -------
Net interest income before
provision for possible loan losses 3,593 2,994 7,117 5,614
Provision for possible loan losses 120 80 225 115
------- ------- ------- -------
Net interest income after
provision for loan losses 3,473 2,914 6,892 5,499
Non-interest income
Service fees, charges and other operating
income 161 119 300 240
Gain (loss) on sale of real estate acquired through
foreclosure (9) 12 (9) 12
Gain on sale of investment and
mortgage-backed securities
available for sale 104 -- 190 --
------- ------- ------- -------
Total non-interest income 256 131 481 252
------- ------- ------- -------
Non-interest expense
Salaries and employee benefits 1,667 1,041 3,100 1,925
Occupancy and equipment 450 195 878 408
Federal deposit insurance premiums 116 114 271 231
Data processing 42 105 90 195
Advertising 125 134 249 209
Deposit processing 76 60 137 123
Other operating expenses 45 279 169 581
------- ------- ------- -------
Total non-interest expense 2,521 1,928 4,894 3,672
------- ------- ------- -------
Income before income taxes 1,208 1,117 2,479 2,079
Income taxes 370 439 832 819
------- ------- ------- -------
Net income $ 838 $ 678 $ 1,647 $ 1,260
======= ====== ======= =======
Earnings per share $ .210 $ .158 $ .411 $ .300
======= ====== ======= =======
Dividends per share $ .09 $ .02 $ .17 $ .05
======= ======= ======= =======
The accompanying notes are an integral part of these statements.
Patriot Bank Corp. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Six-Month Period Ended June 30,
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1997 1996
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(unaudited)
Operating activities
Net income $ 1,647 $ 1,260
Adjustments to reconcile net income to net cash provided
by operating activities
Amortization and accretion of
Deferred loan origination fees (154) (288)
Premiums and discounts 120 (4)
Management recognition plan 174 21
Provision for possible loan losses 225 115
Gain on sale of investment and mortgage-backed securities 9 (12)
Gain on the sale of AFS investments 190 --
Depreciation of premises and equipment 357 86
Deferred income taxes (22) 144
Increase in accrued interest receivable (1,344) (827)
Increase in other assets (9,333) (765)
(Decrease) increase in other liabilities (931) 820
--------- ---------
Net cash provided (used) by operating activities (9,062) 550
--------- ---------
Investing activities
Loan originations and principal payments on loans, net (65,092) (38,309)
Proceeds from the maturity of investment and
mortgage-backed securities - available for sale 4,186 5,468
Proceeds from the maturity of investment and
mortgage-backed securities - held to maturity 3,576 2,519
Proceeds from the sale of investment and mortgage-
backed securities - available for sale 719 --
Purchase of investment and mortgage-backed
securities - available for sale (104,151) (57,779)
Purchase of investment and mortgage-backed
securities - held to maturity (70,308)
Proceed from sale of real estate owned 30 53
Purchase of premises and equipment (1,372) (1,236)
--------- ---------
Net cash (used in) provided by investing activities (162,104) (159,592)
--------- ---------
Financing activities
Net increase in deposits $ 43,817 $ 17,070
Net proceeds from short-term borrowings 85,821 99,900
Net proceeds from long-term borrowings 25,000 30,000
Net Proceeds from trust preferred stock 18,525 --
Advances from borrowers for
taxes and insurance 1,234 1,194
Cash paid for dividends (741) (302)
Purchase of treasury stock (5,462) --
--------- ---------
Net cash provided by financing activities 168,194 147,862
--------- ---------
Net decrease in cash and cash equivalents (2,972) (11,180)
Cash and cash equivalents at beginning of period 6,853 18,556
--------- ---------
Cash and cash equivalents at end of period $ 3,881 $ 7,376
========= =========
Supplemental disclosures
Cash paid for interest on deposits was $6,335 and $4,671 for the six-month
periods ended June 30, 1997 and 1996, respectively. Cash paid for income taxes
was $1,060 and $745 for the six-month periods ended June 30, 1997 and 1996,
respectively. Transfers from loans to real estate owned were $139 and $0 for the
six-month periods ended June 30, 1997 and 1996, respectively.
The accompanying notes are an integral part of these statements.
PATRIOT BANK CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 1997
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 six-month period ended June 30, 1997 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, 1996.
Note 2 - Earnings Per Share
Earnings per share has been calculated on a fully diluted basis. Weighted
average shares outstanding during the six month periods ended June 30, 1997 and
1996 were 4,012,000 and 4,197,000.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 128, Earnings per Share, which is effective for
financial statements issued after December 15, 1997. Early adoption of the new
standard is not permitted. The new standard eliminates primary and fully diluted
earnings per share and requires presentation of basic and diluted earnings per
share together with disclosure of how the per share amounts were computed. The
adoption of this new standard is not expected to have a material impact on the
disclosure of earnings per share in the financial statements.
PATRIOT BANK CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 1997
Note 3 - Investment And Mortgage-Backed Securities
The amortized cost and estimated fair value of investment and mortgage-backed
securities are as follows:
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June 30, 1997 December 31, 1996
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Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
cost gain loss value cost appreciation depreciation value
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(in thousands)
Investment and Mortgage-Backed Securities Available for Sale
Investment securities
U.S. Treasury and
government
agency
securities $ 4,819 $ -- $ 42 $ 4,644 $ 5,023 $ -- $ 33 $ 4,990
Corporate securities 14,992 -- -- 14,992 -- -- -- --
Equity securities 47,038 2,030 -- 49,068 23,797 695 -- 24,492
Mortgage-backed
securities
FHLMC 12,937 141 1 13,077 14,582 149 22 14,709
FNMA 22,844 157 183 22,818 25,118 150 144 25,124
GNMA 13,966 314 -- 14,280 14,498 253 -- 14,751
Collateralized mortgage
Obligations
FHLMC 53,662 89 200 53,551 37,928 7 296 37,639
FNMA 81,763 2 427 81,338 31,654 13 165 31,502
Other 5,497 -- 209 5,288 5,976 -- 35 5,941
-------- --------- -------- -------- -------- ------- ------- --------
Total Investment
and mortgage-
backed securities
available for sale $257,385 $ 2,733 $ 1,062 $259,056 $158,576 $ 1,267 $ 695 $159,148
======== ========= ======== ======== ======== ======= ===== ========
Investment and Mortgage-Backed Securities Held to Maturity
Investment securities
U.S. Treasury and
government
agency
securities $ 1,665 $ 3 $ 24 $ 1,644 $ 1,911 $ -- $ 19 $ 1,892
Corporate securities $ 2,502 $ 20 $ -- $ 2,522 $ 2,506 $ 27 $ -- $ 2,533
Mortgage-backed
securities
Collateralized mortgage
obligations
FNMA 3,034 -- 28 3,006 -- -- -- --
Other 61,933 36 198 61,771 68,293 281 277 68,297
-------- --------- -------- -------- ------- ------- ------ --------
Total investment and
mortgage-backed
securities held to
maturity $ 69,134 $ 59 $ 250 $ 68,943 $72,710 $ 308 $ 296 $ 72,722
========= ========= ======== ======== ======= ======= ====== ========
Note 4 - Loans Receivable
Loans receivable are summarized as follows:
June 30, December 31,
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1997 1996
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(in thousands)
Real estate loans
First mortgages secured by one- to four-family
residences $245,597 $192,518
Home equity and second mortgage 75,537 72,480
Construction 1,107 3,210
Multi-family and commercial 21,967 11,822
-------- --------
344,209 280,030
Consumer loans 3,252 2,546
-------- --------
Total loans receivable 347,461 282,576
Less deferred loan origination fees (2,175) (2,392)
-------- --------
Total loans receivable, net $345,286 $280,184
======== ========
Note 5 - Deposits
Deposits are summarized as follows:
June 30, December 31,
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Deposit type 1997 1996
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(in thousands)
NOW $ 21,829 $ 17,842
Money market 44,290 33,411
Savings accounts 28,466 27,712
Non-interest-bearing demand 3,435 3,432
-------- --------
Total demand, transaction, money
market and savings deposits 98,020 82,397
Certificates of deposits 185,311 157,117
-------- --------
Total deposits $283,331 $239,514
======== ========
Note 6 - Trust Preferred Offering
On June 5, 1997 Patriot Bank Corp issued 19 million of 10.30% of junior
subordinated deferable interest debentures (the "debentures") to Patriot
Capital Trust I (the "Trust") a Delaware business trust, in which Patriot Bank
Corp. owns all of the common equity. The debentures are the sole asset of the
Trust. The Trust issued 19 million of preferred securities to investors. The
Company's obligations under the debentures and related documents, taken
together, constitute a full and unconditional guarantee by the Company of the
Trust's obligations under the preferred securities. Although the debentures will
be treated as debt of Patriot Bank Corp., they currently qualify for tier 1
capital treatment in an amount up to 25% of total tier 1 capital. The preferred
securities are redeemable by Patriot Bank Corp. on or after June 1, 2007 or
earlier in the event the deduction of related interest for federal income taxes
is prohibited, treatment as tier 1 capital is no longer permitted or certain
other contingencies arise. The preferred must be redeemed upon maturity of the
debentures on June 1, 2027.
Note 7 - Charter Conversion
On May 22, 1997 Patriot Bank completed its conversion from a federally
chartered savings bank to a state chartered commercial bank. Effective with the
charter conversion Patriot Bank's regulators will change from the OTS to the
State of Pennsylvania and FDIC. This change will have no significant effect on
the financial condition or results of operation of Patriot Bank.
Note 8 - Stock repurchase
On June 26, 1997 Patriot Bank Corp. announced a tender offer to purchase
up to 750,000 outstanding shares of its common stock, $.01 par value per share.
Patriot Bank Corp. will determine the single per share price of not in excess of
$18.00 nor less than $16.50 per share net to the seller in cash (the "Purchase
Price") that it will pay for shares validly tendered pursuant to this offer. The
offer, proration period and withdrawal rights expired at 5:00 P.M. eastern time
on Monday, July 28, 1997, at which time Patriot repurchased approximately
449,000 shares at $18.00 per share.
Note 9 - Subsequent Events
On August 8, 1997 Patriot announced that it had entered into a nonbinding
letter of intent to sell certain deposits at a 7.5% premium and the physical
facility of its Community Banking Office in Topton, PA. The Topton Community
Banking Office services approximately $11,600,000 in deposits at June 30, 1997.
The sale is subject to regulatory approval and is expected to be completed
during the fourth quarter of 1997.
PATRIOT BANK CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
June 30, 1997
General. Patriot Bank Corp. and subsidiaries (Patriot) reported earnings per
share of $.21 and net income of $838,000 for the three-month period ended
June 30, 1997. This represents an increase of 32.9% over earnings per share of
$.16 and net income of $678,000 for the three month period ended June 30, 1996.
Earnings per share reported for the six-month period ended June 30,1997 was $.41
with net income of $1,647,000 compared with $.30 per share and net income of
$1,260,000 for the six-month period ended June 30, 1996 return on average equity
of 6.94%, for the three-month period ended June 30, 1997 compared to 5.05% for
the three-month period ended June 30, 1996.
Net Interest Income. Net interest income for the three-month and six-month
periods ended June 30, 1997 was $3,593,000 and $7,117,000 compared to $2,994,000
and $5,614,000 for the same periods in 1996. 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 2.39% for the
six-month period ended June 30, 1997 compared to 3.45% for the same period in
1996.
Interest on loans was $6,307,000 and $11,848,000 for the three-month and
six-month periods ended June 30, 1997 compared to $4,339,000 and $8,242,000 for
the same periods in 1996. The average balance of loans was $302,311,000 with an
average yield of 7.85% for the six-month period ended June 30, 1997 compared to
an average balance of $206,866,000 with an average yield of 7.98% for the same
period in 1996. The increase in average balance is due to the aggressive
marketing of commercial, consumer and residential mortgage loans. The decrease
in average yield is primarily a result of a larger percentage adjustable and
shorter term of mortgage loans than in the prior period.
Interest on Patriot's investment portfolio (investment and mortgage-backed
securities) was $4,986,000 and $9,680,000 for the three-month and six-month
periods ended June 30, 1997 compared to $2,504,000 and $3,757,000 for the same
periods in 1996. The average balance of the investment portfolio was
$284,989,000 with an average yield of 6.89% for the six-month period ended June
30, 1997 compared to an average balance of $114,311,000 with an average yield of
6.57% for the same period in 1996. 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 $3,272,000 and $6,366,000 for the three-month
and six-month periods ended June 30, 1997 compared to $2,358,000 and $4,666,000
for the same periods in 1996. The average balance of total deposits was
$265,333,000 with an average cost of 4.84% for the six-month period ended June
30, 1997 compared to an average balance of $207,514,000 with an average cost of
4.51% for the same period in 1996. The increase in average balance was primarily
the result of the opening of four new Community banking offices, an emphasis
placed on transaction based deposit products and growth in jumbo deposits.
Interest on borrowings was $4,458,000 and $8,161,000 for the three-month and
six-month periods ended June 30, 1997 compared to $1,510,000 and $1,788,000 for
the same periods in 1996. The average balance of borrowings was $286,846,000
with an average cost of 5.74% for the six-month period ended June 30, 1997
compared to an average balance of $64,701,000 with a cost of 5.53% for the same
period in 1996. The increase in average balance was due to the use of borrowings
to fund the growth in the balance sheet. The increase in the cost of borrowings
was the result of extending the maturity of certain borrowings, issuance of
trust preferred subordinated debt borrowings, and an increase in interest rates.
Provision for Possible Loan Losses. The provision for possible loan losses
was $120,000 and $225,000 for the three-month and six-month periods ended June
30, 1997 compared to $80,000 and $115,000 for the same periods in 1996. The
increase in the provision was due to an increase in loans and Patriot's
increased emphasis on commercial and consumer lending offset by Patriot's high
asset quality, low level of delinquencies and low level of non-performing
assets. At June 30, 1997 Patriot's non-performing assets were .13% of total
assets and all loans 30 days or more delinquent were .41% of total loans.
Non-Interest Income. Total non-interest income was $256,000 and $481,000 for
the three-month and six-month periods ended June 30,1997 compared to $131,000
and $252,000 for the same periods in 1996. The increase in noninterest income is
the result of gains on the sale of investment securities available for sale
and an emphasis on increasing fee income.
Non-Interest Expense. Total non-interest expense was $2,521,000 and
$4,894,000 for the three-month and six-month periods ended June 30, 1997
compared to $1,928,000 and $3,672,000 for the same periods in 1996. The increase
in non-interest expense was the result of the growth of Patriot including
staffing in four new community banking offices and one lending office, offset
somewhat by operating efficiencies and cost-saving efforts. The ratio of
non-interest expense to average assets improved to 1.63% for the six-month
period ended June 30 1997 compared to 2.23% for the same period in 1996. The
improvement in the overhead ratio reflects Patriot's emphasis on managing costs.
Income Tax Provision. The income tax provision was $370,000 and $832,000 for
the three-month and six-month periods ended June 30, 1997 compared to $439,000
and $819,000 for the same periods in 1996. The effective tax rate was 33.56% for
1997 compared to 39.40% for 1996. The decrease is a result of tax planning.
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. In 1996, Patriot began offering
commercial loans concentrating on small businesses within Patriot's local
markets. At June 30, 1997 Patriot's total loan portfolio was $345,286,000,
compared to a total loan portfolio of $280,184,000 at December 31, 1996. The
increase in the loan portfolio was the result of aggressive marketing of
commercial, consumer and residential mortgage loans. During the six-month period
ended June 30, 1997, Patriot originated total loans of $102,151,000, compared to
total loans originated of $60,564,000 for the same period in 1996.
Cash and Cash Equivalents. Cash and cash equivalents at June 30, 1997 were
$3,881,000 compared to $6,853,000 at December 31, 1996.
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, 1997 were
$328,190,000 compared to $231,858,000 at December 31, 1996. The increase in
investment and mortgage-backed securities was due to the purchase of securities
to more fully leverage Patriot's capital.
Other Assets. Premises and equipment at June 30, 1997 was $8,739,000 compared
to $7,724,000 at December 31, 1996. The increase was primarily due to the
renovation of Patriot's corporate headquarters and Patriot's investment in
technology related equipment and the opening of four new community banking
offices and two lending offices. Accrued interest receivable at June 30, 1997
was $3,993,000 compared to $2,649,000 at December 31, 1996. The increase is
consistent with the growth in the loan and investment portfolios. Real estate
owned at June 30, 1997 was $172,000 compared to $74,000 at December 31, 1996.
Other assets at March 31, 1997 were $10,796,000 compared to $1,653,000 at
December 31, 1996. The increase is primarily due to in intransit items related
to increased lending volume.
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, 1997 were $283,331,000 compared to $239,514,000 at
December 31, 1996. The increase was primarily the result of an emphasis placed
on transaction based deposit products, four new community banking offices and
growth in jumbo deposits.
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, 1997 were $360,941,000 compared to $231,595,000
at December 31, 1996. The increase in borrowings was due to the purchase of
investment securities.
Stockholders' Equity. Total stockholders' equity was $49,501,000 at June 30,
1997 compared to $53,117,000 at December 31, 1996. The decrease was primarily a
result of the repurchase of 381,000 shares of common stock at a cost of
$5,462,000.
Liquidity and Capital Resources
Liquidity. Patriot's primary sources of funds are deposits, principal and
interest payments on loans, principle and interests 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, 1997, significant liquidity was
provided by financing activities, particularly borrowings and deposit growth.
Maturities and sale of investment and mortgage-backed securities also provided
significant liquidity during the six-month period ended June 30, 1997. The funds
provided by these activities were reinvested in new loans and investment and
mortgage-backed securities to maintain an appropriate liquidity position.
Capital Resources. FDIC regulations currently require financial institutions
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
Financial Institutions rated composite 1 under the CAMEL rating system. For all
other Financial Institutions, the minimum leverage capital requirement is 3%
plus at least an additional 100 to 200 basis points.
At June 30, 1997, Patriot Bank's capital ratios compare favorably to the
minimum required amounts of Tier 1 and total capital to "risk weighted" assets
and the minimum Tier 1 leverage ratio as defined by banking regulators. The
following table sets forth the capital ratios of Patriot Bank Corp., Patriot
Bank and the current regulatory requirements at June 30, 1997:
Patriot Bank Patriot
Corp. Bank Requirement
- --------------------------------------------------------------------------------
Tier 1 leverage ratio
9.59% 5.32% 3.00%
Tier 1 risk based ratio
16.66 9.22 4.00
Total risk-based ratio
17.93 9.78 8.00
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 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.
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.
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 pursued 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, 1997, 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 $50,215 representing a one-year cumulative "gap," as defined above, as a
percentage of total assets of negative 7.18%.
Page
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PART II OTHER INFORMATION
Item 1 LEGAL PROCEEDINGS
There are various claims and lawsuits in which the Patriot
Bank Corp 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 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, 1997. At
the said meeting 4,305,432 shares of Common Stock were eligible to vote, of
which 2,700,560 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, three directors were elected for three year terms. The
nominees were John H. Diehl, Samuel N. Landis and Joseph W. Major.
For % Withheld %
John H. Diehl 2,692,108 99.7 8,452 0.3
Samuel N. Landis 2,691,668 99.7 8,892 0.3
Joseph W. Major 2,692,328 99.7 8,232 0.3
The names of each of the directors whose term of office continued after the
Annual Meeting and their respective term expirations are as follows:
Larry V. Thren 1998
James B. Elliot 1998
Gary N. Gieringer 1999
Leonard A. Huff 1999
2. The ratification of the appointment of Grant Thornton LLP as independent
auditors of Patriot Bank Corp. for the fiscal year ending December 31, 1997.
For % Against % Abstain %
2,687,716 99.5 8,904 0.3 3,940 0.1
Item 5 OTHER INFORMATION
Not applicable.
Item 6 EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits are filed as part of this report.
Exhibit 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 filed on Form 8K
Report on Form 8K dated May 29, 1997 contained a press
release announcing the charter conversion from a
federally chartered savings bank to a state chartered
commercial bank.
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* 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.
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, 1997
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Joseph W. Major
President and Chief Operating Officer
Date August 14, 1997
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Richard A. Elko
Executive Vice President and
Chief Financial Officer