<PAGE> 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 September 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: 3,714,539 shares of common
stock, par value $.01 per share, were outstanding as of November 1, 1996.
<PAGE> 2
PATRIOT BANK CORP. AND SUBSIDIARIES
INDEX
Page
PART I FINANCIAL INFORMATION
Item 1 FINANCIAL STATEMENTS
Consolidated Statements of Financial Condition
at September 30, 1996 and December 31, 1995 3
Consolidated Statements of Income for the
Three-Month and Nine-Month Periods ended
September 30, 1996 and 1995 4
Consolidated Statements of Cash Flows for the
Nine-Month Periods ended September 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
SIGNATURES 16
2
<PAGE> 3
<TABLE>
<CAPTION>
Patriot Bank Corp. and Subsidiaries
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands, except share data)
September 30, December 31,
- ----------------------------------------------------------------------------------------------------------------
1996 1995
- ----------------------------------------------------------------------------------------------------------------
(unaudited) (note)
<S> <C> <C>
Assets
Cash and due from banks $ 897 $ 2,878
Interest-earning deposits in other
financial institutions 3,175 15,678
-------- --------
Total cash and cash equivalents 4,072 18,556
Investment and mortgage-backed securities
available for sale - at market value 145,202 47,646
Investment securities held to maturity (market value
of $65,703 and $3,963 at September 30, 1996 and
December 31, 1995, respectively) 66,257 3,917
Loans receivable 264,634 194,250
Allowance for possible loan losses (1,855) (1,702)
Premises and equipment, net 6,512 3,450
Accrued interest receivable 2,469 1,205
Real estate owned 80 195
Other assets 2,187 1,352
-------- --------
Total assets $489,558 $268,869
======== ========
Liabilities and stockholders' equity
Deposits $219,852 $201,618
Borrowings 213,500 10,000
Advances from borrowers for taxes and insurance 1,087 1,778
Other liabilities 3,718 1,363
-------- --------
Total liabilities 438,157 214,759
-------- --------
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 amortized cost (1,624) --
Treasury stock, 188,456 shares at cost (2,517) --
Retained earnings 20,446 19,893
Net unrealized appreciation (depreciation) on investment
and mortgage-backed securities available
for sale, net of taxes (660) 193
-------- --------
Total stockholders' equity 51,401 54,110
-------- --------
Total liabilities and stockholders' equity $489,558 $268,869
======== ========
</TABLE>
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
<PAGE> 4
<TABLE>
<CAPTION>
Patriot Bank Corp. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except for share data)
Three-Month Period Ended September 30, Nine-Month Period Ended September 30,
- ------------------------------------------------------------------------------------------------------------------------------------
1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C>
Interest income
Interest-earning deposits $ 23 $ 32 $ 91 $ 78
Investment and mortgage-backed securities 3,492 739 7,249 2,029
Loans 4,909 3,537 13,152 10,249
-------- ------ ------- -------
Total interest income 8,424 4,308 20,492 12,356
-------- ------ ------- -------
Interest expense
Deposits 2,501 2,346 7,167 6,560
Borrowings 2,693 129 4,481 327
-------- ------ ------- -------
Total interest expense 5,194 2,475 11,648 6,887
-------- ------ ------- -------
Net interest income 3,230 1,833 8,844 5,469
Provision for possible loan losses 90 15 205 45
-------- ------ ------- -------
Net interest income after
provision for loan losses 3,140 1,818 8,639 5,424
Non-interest income
Service fees, charges and other operating
income 124 144 364 384
Gain on disposition of real estate owned 4 -- 16 --
-------- ------ ------- -------
Total non-interest income 128 144 380 384
-------- ------ ------- -------
Non-interest expense
Salaries and employee benefits 1,165 658 3,091 2,041
Occupancy and equipment 241 177 632 557
Federal deposit insurance premiums 1,454 215 1,609 430
Data processing 98 65 293 205
Advertising 105 45 314 200
Deposit processing 61 65 184 184
Other operating expenses 257 172 930 612
-------- ------ ------- -------
Total non-interest expense 3,381 1,397 7,053 4,229
-------- ------ ------- -------
Income before income taxes (113) 565 1,966 1,579
Income taxes (20) 222 799 603
-------- ------ ------- -------
Net income $ (93) $ 343 $ 1,167 $ 976
======== ====== ======= =======
Earnings per share $(0.025) $ 0.275
======== =======
Dividends per share $ 0.067 $ .133
======== =======
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>5
<TABLE>
<CAPTION>
Patriot Bank Corp. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Nine-Month Period Ended September 30,
- ---------------------------------------------------------------------------------------------------------------
1996 1995
- ---------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
Operating activities
Net income $ 1,167 $ 976
Adjustments to reconcile net income to net cash
provided by operating activities
Amortization and accretion of
Deferred loan origination fees (367) (330)
Premiums and discounts (30) (54)
Provision for possible loan losses 205 45
Gain on sale of real estate owned (16) --
Depreciation of premises and equipment 162 142
Management recognition plan 108 --
Deferred income taxes (105) (145)
Increase in accrued interest receivable (1,264) (113)
Increase in other assets (289) (103)
Increase in other liabilities 2,355 164
---------- --------
Net cash provided by operating activities 1,926 582
---------- --------
Investing activities
Loan originations and principal payments on loans, net (70,037) (15,881)
Proceeds from the maturity of investment and
mortgage-backed securities - available for sale 13,002 3,716
Proceeds from the maturity of investment and
mortgage-backed securities - held to maturity 4,158 --
Purchase of investment and mortgage-backed
securities - available for sale (111,854) (8,153)
Purchase of investment and mortgage-backed
securities - held to maturity (66,498) (1,250)
Proceeds from sale of real estate owned 131 13
Purchase of premises and equipment (3,224) (56)
---------- --------
Net cash used in investing activities (234,322) (21,611)
---------- --------
Financing activities
Net increase in deposits $ 18,234 $ 13,178
Net proceeds from short-term borrowings 173,500 9,500
Proceeds from long-term borrowings 30,000 --
Decrease in advances from borrowers for
taxes and insurance (691) (776)
Cash paid for dividends (614) --
Purchase of Treasury Stock (2,517) --
---------- --------
Net cash provided by financing activities 217,912 21,902
---------- --------
Net increase (decrease) in cash and cash equivalents (14,484) 873
Cash and cash equivalents at beginning of period 18,556 5,448
---------- --------
Cash and cash equivalents at end of year $ 4,072 $ 6,321
========== =========
</TABLE>
SUPPLEMENTAL DISCLOSURES
Cash paid for interest on deposits was $7,170,000 and $6,568,000 for the nine-
month periods ended September 30, 1996 and 1995, respectively. Cash paid for
income taxes was $1,161,000 and $460,000 for the nine-month periods ended
September 30, 1996 and 1995, respectively. Transfers from loans to real estate
owned were $0 and $135,000 for the nine-month peiords ended September 30, 1996
and 1995, respectively.
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
PATRIOT BANK CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
September 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, an 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 nine-month periods ended September 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.
On October 25, 1996 Patriot announced a special 20% stock dividend. The
stock distribution will be made on November 21, 1996 to stockholders of record
on November 7, 1996. Earnings per share have been calculated on a fully diluted
basis and have been adjusted for the special 20% stock dividend. Weighted
average shares outstanding during the three-month and nine-month periods ended
September 30, 1996, were 4,225,000 and 4,239,000, respectively. The provisions
of Accounting Principles Board No. 15, "Earnings Per Share," are not applicable
for the three-month and nine-month periods ended September 30, 1995.
6
<PAGE> 7
PATRIOT BANK CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
September 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:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
September 30, 1996 December 31, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
cost gain loss value cost appreciation depreciation value
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment and Mortgage-Backed Securities Available for Sale
Investment securities
U.S. Treasury and
government
agency
securities $ 6,221 $ -- $ 66 $ 6,155 $ 6,105 $ 49 $ -- $ 6,154
Corporate securities 1,008 3 -- 1,011 1,019 27 -- 1,046
Other securities 3,981 327 139 4,169 1,000 21 -- 1,021
FHLB stock 10,791 -- -- 10,791 1,914 -- -- 1,914
Mortgage-backed
securities
FHLMC 15,243 89 -- 15,332 12,179 95 16 12,258
FNMA 25,281 -- 288 24,993 17,709 161 115 17,755
GNMA 14,698 14 -- 14,712 5,463 79 3 5,539
Collateralized mortgage
obligations 68,979 -- 940 68,039 1,964 -- 5 1,959
------- ------ ------- ------- ------- ---- ---- -------
Total Investment
and mortgage-
backed securities
available for sale $146,202 $ 433 $ 1,433 $145,202 $ 47,353 $ 432 $ 139 $ 47,646
======== ======= ======== ======== ======== ====== ===== ========
Investment and Mortgage-Backed Securities Held to Maturity
Investment securities
Corporate securities $ 1,502 $ 5 $ -- $ 1,507 $ 1,503 $ 63 $ -- $ 1,566
Other securities 1,912 -- 50 1,862 2,414 4 21 2,397
Mortgage-backed
securities
Collateralized mortgage
obligations 62,843 -- 509 62,334 -- -- -- --
------- ------ ------- ------- ------- ---- ----- ------
Total investment and
mortgage-backed
securities held to
maturity $ 66,257 $ 5 $ 559 $ 65,703 $ 3,917 $ 67 $ 21 $ 3,963
======== ======= ======== ======== ======== ====== ====== ========
</TABLE>
7
<PAGE> 8
Note 4 - Loans Receivable
Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
September 30, December 31,
- -------------------------------------------------------------------------------------------------------------
1996 1995
- -------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Real estate loans
First mortgages secured by one- to four-family
residences $186,059 $131,352
Home equity and second mortgage 68,384 57,969
Construction 2,106 1,712
Multi-family and commercial 8,095 3,288
------- -------
264,644 194,321
Consumer loans 2,460 2,159
------- -------
Total loans receivable 267,104 196,480
Less deferred loan origination fees (2,470) (2,230)
------- -------
Total loans receivable, net $264,634 $194,250
======== ========
Note 5 - Deposits
Deposits are summarized as follows:
September 30, December 31,
- -------------------------------------------------------------------------------------------------------------
Deposit type 1996 1995
- -------------------------------------------------------------------------------------------------------------
(in thousands)
NOW $ 15,001 $ 16,857
Money market 32,581 34,162
Savings accounts 27,591 27,511
Non-interest-bearing demand 4,756 2,519
-------- --------
Total demand, transaction, money
market and savings deposits 79,929 81,049
Certificates of deposits 139,923 120,569
-------- --------
Total deposits $ 219,852 $ 201,618
========= =========
</TABLE>
8
<PAGE> 9
Note 6 - Stock Repurchase
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.
Note 7 - Legislative Matters
On September 30, 1996, the President signed into law the Deposit Insurance
Funds Act of 1996 (the "Funds Act") which, among other things, imposes a special
one-time assessment on SAIF member institutions, including Patriot Bank, to
recapitalize the SAIF. As required by the Funds Act, the FDIC imposed a special
assessment of 65.7 basis points on SAIF assessable deposits held as of March 31,
1995, payable November 27, 1996. The special assessment was recognized as an
expense in the third quarter of 1996 and is tax deductible. Patriot Bank
recorded a special after-tax charge of $836,000 (1,338,000 before-tax) as a
result of the FDIC special assessment.
The Funds Act also spreads the obligations for payment of the Financing
Corporation ("FICO") bonds across all SAIF and BIF members. Beginning on January
1, 1997, BIF deposits will be assessed for FICO payments at a rate of 20% of the
rate assessed on SAIF deposits. Based on current estimates by the FDIC, BIF
deposits will be assessed a FICO payment of 1.3 basis points, while SAIF
deposits will pay an estimated 6.5 basis points on the FICO bonds. Full pro rata
sharing of the FICO payments between BIF and SAIF members will occur on the
earlier of January 1, 2000 or the date the BIF and SAIF are merged. The Funds
Act specifies that the BIF and SAIF will be merged on January 1, 1999 provided
no savings associations remain as of that time.
As a result of the Funds Act, the FDIC recently proposed to lower SAIF
assessments to 0 to 27 basis points effective January 1, 1997, a range
comparable to that of BIF members. However, SAIF members will continue to make
the highter FICO payments described above. Management cannot predict the level
of FDIC insurance assessments on an on-going basis, whether the savings
association charter will be eliminated or whether the BIF and SAIF will
eventually be merged.
Note 8 - Recent Developments
On October 28, 1996 Patriot announced its intention to convert the charter
of Patriot Bank from a federally chartered savings bank to a state chartered
commercial bank. This change will have no significant effect on the financial
condition or results of operation of Patriot.
9
<PAGE> 10
PATRIOT BANK CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
September 30, 1996
GENERAL. Patriot Bank Corp. and Subsidiaries (Patriot) reported a net loss
of $93,000 or $.025 per share for the three-month period ended September 30,
1996. The net loss includes a special after-tax charge of $836,000 ($1,338,000
before-tax) representing the special deposit insurance assessment levied against
all SAIF member financial institutions by the FDIC to recapitalize its SAIF fund
(see Note 7 to the Consolidated Financial Statements).
Excluding the special charge Patriot reported core income of $743,000 or
$.175 per share for the three-month period ended September 30, 1996. This
represents an increase of 117% over net income of $343,000 for the three-month
period ended September 30, 1995. Excluding the special charge, net income for
the nine-month period ended September 30, 1996 was $2,003,000 or $.475 per share
compared to $976,000 for the nine-month period ended September 30, 1995. Return
on average assets and return on average equity (both based upon core earnings)
were .63% and 5.63%, respectively, for three three-month period ended September
30, 1996 compared to .52% and 7.01%, respectively, for the three-month period
ended September 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.
NET INTEREST INCOME. Net interest income for the three-month and nine-month
periods ended September 30, 1996 was $3,230,000 and $8,844,000 compared to
$1,833,000 and $5,469,000 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
3.18% for the nine-month period ended September 30, 1996 compared to 3.32% for
the same period in 1995.
Interest on loans was $4,909,000 and $13,152,000 for the three-month and
nine-month periods ended September 30, 1996 compared to $3,537,000 and
$12,356,000 for the same periods in 1995. The average balance of loans was
$221,641,000 with an average yield of 7.92% for the nine-month period ended
September 30, 1996 compared to an average balance of $170,072,000 with an
average yield of 8.04% 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 $3,492,000 and $7,249,000 for the three-month and nine-month
periods ended September 30, 1996 compared to $739,000 and $2,029,000 for the
same periods in 1995. The average balance of the investment portfolio was
$146,301,000 with an average yield of 6.61% for the nine-month period ended
September 30, 1996 compared to an average balance of $45,034,000 with an average
yield of 6.01% 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 $2,501,000 and $7,167,000 for the three-month
and nine-month periods ended September 30, 1996 compared to $2,346,000 and
$6,560,000 in the same periods in 1995. The average balance of total deposits
was $211,615,000 with an average cost of 4.51% for the nine-month period ended
September 30, 1996 compared to an average balance of $194,482,000 with an
average cost of 4,51% 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.
Interest on borrowings was $2,693,000 and $4,481,000 for the three-month and
nine-month periods ended September 30, 1996 compared to $129,000 and $327,000
for the same periods in 1995. The average balance of borrowings was $107,761,000
with an average cost of 5.53% for the nine-month period ended September 30, 1996
compared to an average balance of $6,723,000 with a cost of 6.35% 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
<PAGE> 11
PROVISION FOR POSSIBLE LOAN LOSSES. The provision for possible loan losses
was $90,000 and $205,000 for the three-month and nine-month periods ended
September 30, 1996 compared to $15,000 and $45,000 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 September 30,
1996 Patriot's non-performing assets were .15% of total assets and all loans 30
days or more delinquent were .76% of total loans.
NON-INTEREST INCOME. Total non-interest income was $128,000 and $380,000
for the three-month and nine-month periods ended September 30, 1996 compared to
$166,000 and $383,000 for the same periods in 1995.
NON-INTEREST EXPENSE. Total non-interest expense was $3,381,000 and
$7,053,000 for the three-month and nine-month periods ended September 30, 1996
compared to $1,404,000 and $4,214,000 for the same periods in 1995. The increase
in non-interest expense was primarily related to the special charge of
$1,338,000 for the special deposit insurance assessment levied against SAIF
member financial institutions by the FDIC to recapitalize its SAIF fund (see
Note 7 to the Consolidated Financial Statements). The increase in non-interest
expense was also the result of the recognition of expense related to Patriot's
employee stock ownership and stock-based incentive plans, 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 (excluding the special charge)
was 2.01% for the nine-month period ended September 30, 1996 compared to 2.51%
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 (benefit) provision was ($20,000) and
$799,000 for the three-month and nine-month periods ended September 30, 1996
compared to $222,000 and $603,000 for the same periods in 1995. The increase in
the year-to-date 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 September 30, 1996 Patriot's total
loan portfolio was $261,634,000, 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 nine-month
period ended September 30, 1996, Patriot originated total loans of $40,500,000,
compared to total loans originated of $30,100,000 for the same period in 1995.
CASH AND CASH EQUIVALENTS. Cash and cash equivalents at September 30, 1996
were $4,072,000 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 September 30, 1996 were
$211,459,000 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
<PAGE> 12
OTHER ASSETS. Premises and equipment at September 30, 1996 was $6,512,000
compared to $3,450,000 at December 31, 1995. The increase was primarily due to
the renovation of Patriot's corporate headquarters and Patriot's investment in
technology related equipment. Accrued interest receivable at September 30, 1996
was $2,469,000 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 September 30, 1996 was $80,000 compared to $195,000 at December 31,
1995. The decrease in real estate owned was due to the disposal of foreclosed
assets. Other assets at September 30, 1996 were $2,187,000 compared to
$1,352,000 at December 31, 1995. The increase is primarily due to the deferred
tax benefit related to the special charge (see Note 7 to the Consolidated
Financial Statements).
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 September 30, 1996 were $219,852,000 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 September 30, 1996 were $213,500,000 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 $51,401,000 at September
30, 1996 compared to $54,110,000 at December 31, 1995. The decrease is a result
of the repurchase of 188,000 shares of common stock at a cost of $2,517,000 (see
Note 6 to the Consolidated Financial Statements) and 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 interests 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 September 30, 1996 was 5.38%.
During the nine-month period ended September 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
<PAGE> 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 September 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
September 30, 1996:
<TABLE>
<CAPTION>
Patriot
Bank Requirement
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Tangible capital to tangible assets 7.46% 1.50%
Leverage (core) capital to tangible assets 7.46 3.00
Leverage (core) capital to risk-adjusted assets 15.67 4.00
Risk-based capital to risk-adjusted assets 16.47 8.00
</TABLE>
13
<PAGE> 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, which
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.
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 September 30, 1996, using management's estimates of prepayments
and the repricing of deposits and other liabilities, 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 $71,475,000, representing a one-year cumulative "gap," as defined above, as a
percentage of total assets of negative 14.5%.
14
<PAGE> 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
Not applicable.
Item 5 OTHER INFORMATION
Not applicable.
Item 6 EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits are filed as part of this
report.
Exhibit 27 - Financial Data Schedule (filed
herewith)
(b) Reports on Form 8-K.
Report on Form 8-K dated October 22, 1996 (date of
earliest event - October 22, 1996) contained a press
release announcing Patriot's earnings for the third
quarter of 1996.
15
<PAGE> 16
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 November 14, 1996 --------------------------------
------------------------- Joseph W. Major
President and Chief Operating Officer
Date November 14, 1996 --------------------------------
------------------------- Richard A. Elko
Executive Vice President and
Chief Financial Officer
16
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary information extracted from the Form 10-Q and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0001000235
<NAME> PATRIOT BANK CORP.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 897
<INT-BEARING-DEPOSITS> 3,175
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 145,202
<INVESTMENTS-CARRYING> 66,257
<INVESTMENTS-MARKET> 65,703
<LOANS> 264,634
<ALLOWANCE> (1,855)
<TOTAL-ASSETS> 489,558
<DEPOSITS> 219,852
<SHORT-TERM> 183,500
<LIABILITIES-OTHER> 4,805
<LONG-TERM> 30,000
0
0
<COMMON> 39
<OTHER-SE> 51,362
<TOTAL-LIABILITIES-AND-EQUITY> 51,401
<INTEREST-LOAN> 13,152
<INTEREST-INVEST> 7,249
<INTEREST-OTHER> 91
<INTEREST-TOTAL> 20,492
<INTEREST-DEPOSIT> 7,167
<INTEREST-EXPENSE> 4,481
<INTEREST-INCOME-NET> 8,844
<LOAN-LOSSES> 205
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 7,053
<INCOME-PRETAX> 1,966
<INCOME-PRE-EXTRAORDINARY> 1,167
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,167
<EPS-PRIMARY> .275
<EPS-DILUTED> .275
<YIELD-ACTUAL> 3.18
<LOANS-NON> 671
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,702
<CHARGE-OFFS> 52
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 1,855
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,855
</TABLE>
