UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q/A
(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 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
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
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Tier 1 leverage ratio
9.59% 5.52% 3.00%
Tier 1 risk based ratio
16.56% 9.57% 4.00%
Total risk-based ratio
17.81% 10.13% 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%.
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.
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(Registrant)
Date September 9, 1997
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Joseph W. Major
President and Chief Operating Officer
Date September 9, 1997
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Richard A. Elko
Executive Vice President and
Chief Financial Officer