<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 March 31, 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
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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: 3,769,125 shares of common
stock, par value $.01 per share, were outstanding as of March 31, 1996.
<PAGE> 2
PATRIOT BANK CORP. AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition at
March 31, 1996 and December 31, 1995 3
Consolidated Statements of Income for the Three-Month
Periods ended March 31, 1996 and 1995 4
Consolidated Statements of Cash Flows for the Three-
Month Periods ended March 31, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 9
PART II. OTHER INFORMATION 14
Items 1 through 6.
SIGNATURES
2
<PAGE> 3
<TABLE>
<CAPTION>
PATRIOT BANK CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS, EXCEPT SHARE DATA)
March 31, December 31,
- - -------------------------------------------------------------------------------------------
1996 1995
- - -------------------------------------------------------------------------------------------
(unaudited) (note)
<S> <C> <C>
Assets
Cash and due from banks $ 3,617 $ 2,878
Interest-earning deposits in other
financial institutions 1,504 15,678
-------- --------
Total cash and cash equivalents 5,121 18,556
Investment and mortgage-backed securities
available for sale - at market value 93,733 47,646
Investment securities held to maturity (market value
of $10,827 and $3,963 at March 31, 1996 and
December 31, 1995, respectively) 11,010 3,917
Loans receivable 197,761 194,250
Allowance for possible loan losses (1,734) (1,702)
Premises and equipment, net 3,604 3,450
Accrued interest receivable 1,537 1,205
Real estate owned 191 195
Other assets 1,767 1,352
-------- --------
Total assets $312,990 $268,869
======== ========
Liabilities and stockholders' equity
Deposits $209,787 $201,618
Borrowings 45,500 10,000
Advances from borrowers for taxes and insurance 2,082 1,778
Other liabilities 1,495 1,363
-------- --------
Total liabilities 258,864 214,759
-------- --------
Preferred stock, $.01 par value,2,000,000
shares authorized, none issued -- --
Common stock, $.01 par value, 10,000,000
shares authorized, 3,769,125 shares issued 38 38
Additional paid-in capital 36,700 36,700
Common stock acquired by ESOP, 271,377
shares at cost (2,714) (2,714)
Retained earnings 20,400 19,893
Net unrealized gain (loss) on investment
and mortgage-backed securities available
for sale, net of taxes (298) 193
-------- --------
Total stockholders' equity 54,126 54,110
-------- --------
Total liabilities and stockholders' equity $312,990 $268,869
======== ========
The accompanying notes are an integral part of these statements.
Note: The balance sheet at December 31, 1995 is taken from the audited financial statements at that date but does not include all
of the information and footnotes required by generally accepted accounting principles for complete financial statements.
</TABLE>
3
<PAGE> 4
<TABLE>
<CAPTION>
PATRIOT BANK CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE DATA)
Three-Month Period Ended March 31
- - -------------------------------------------------------------------------------------------
1996 1995
- - -------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
Interest income
Interest-earning deposits $ 50 $ 20
Investment and mortgage-backed securities 1,253 605
Loans 3,903 3,344
------- -------
Total interest income 5,206 3,969
------- -------
Interest expense
Deposits 2,308 2,030
Borrowings 279 102
------- -------
Total interest expense 2,587 2,132
------- -------
Net interest income 2,619 1,837
Provision for possible loan losses 35 15
------- -------
Net interest income after
provision for loan losses 2,584 1,822
Non-interest income
Service fees, charges and other operating
income 121 87
------- -------
Total non-interest income 121 87
------- -------
Non-interest expense
Salaries and employee benefits 884 695
Occupancy and equipment 214 194
Federal deposit insurance premiums 116 108
Data processing 90 76
Advertising 75 55
Deposit processing 63 54
Other operating expenses 301 196
------- -------
Total non-interest expense 1,743 1,378
------- -------
Income before income taxes 962 531
Income taxes 379 201
------- -------
Net income $ 583 $ 330
======= =======
Earnings per share $ .17
=======
Dividends per share $ .02
=======
The accompanying notes are an integral part of these statements.
</TABLE>
4
<PAGE> 5
<TABLE>
<CAPTION>
PATRIOT BANK CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Three-Month Period Ended March 31
- - -----------------------------------------------------------------------------------------------------
1996 1995
- - -----------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
Operating activities
Net income $ 583 $ 330
Adjustments to reconcile net income to net cash provided
by operating activities
Amortization and accretion of
Deferred loan origination fees (125) (106)
Premiums and discounts (2) (14)
Provision for possible loan losses 35 15
Depreciation of premises and equipment 46 43
Deferred income taxes 1 --
(Increase) decrease in accrued interest receivable (332) 43
Decrease in other assets 121 116
(Increase) decrease in other liabilities 132 (13)
------- --------
Net cash provided by operating activities 459 414
------- --------
Investing activities
Loan originations and principal payments on loans, net (3,381) 1,644
Proceeds from the maturity of investment and
mortgage-backed securities - available for sale 1,650 328
Proceeds from the maturity of investment and
mortgage-backed securities - held to maturity 195 --
Purchase of investment and mortgage-backed
securities - available for sale (30,762) (69)
Purchase of investment and mortgage-backed
securities - held to maturity (25,016) --
(Purchase) disposition of premises and equipment (478) 2
------- --------
Net cash (used in) provided by investing activities (57,792) 1,905
------- --------
Financing activities
Net increase in deposits $ 8,169 $ 1,070
Net proceeds (repayments) from short-term borrowings 25,500 (5,000)
Increase in advances from borrowers
for taxes and insurance 304 724
Proceeds from long-term borrowings 10,000 --
Cash dividends paid (75) --
------- --------
Net cash provided by (used in)
financing activities 43,898 (3,206)
------- --------
Net increase (decrease) in
cash and cash equivalents (13,435) (887)
Cash and cash equivalents at beginning of period 18,556 5,448
------- --------
Cash and cash equivalents at end of period $ 5,121 $ 4,561
======= ========
Supplemental disclosures
Cash paid for interest was $2,309 and $2,032 for the three-month periods ended
March 31, 1996 and 1995, respectively. Cash paid for income taxes was $40 and
$40 for the three-month periods ended March 31, 1996 and 1995, respectively.
Transfers from loans to real estate owned were $-0-and $24 for the three-month
peiords ended March 31, 1996 and 1995, respectively.
The accompanying notes are an integral part of these statements.
</TABLE>
5
<PAGE> 6
PATRIOT BANK CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
March 31, 1996
Note 1 - General
The accompanying financial statements of Patriot Bank Corp. and Subsidiaries
("Patriot") include the accounts of the parent company, Patriot Bank Corp. and
its wholly-owned subsidiary, Patriot Bank. All material intercompany balances
and transactions have been eliminated in consolidation. These financial
statements have been prepared in accordance with the instructions for Form 10-Q
and therefore do not include certain information or footnotes necessary for the
presentation of financial condition, results of operations, and cash flows in
conformity with generally accepted accounting principles. However, in the
opinion of management, the consolidated financial statements reflect all
adjustments (which consist of normal recurring accruals) necessary for a fair
presentation of the results for the unaudited periods. The results of operations
for the three-month period ended March 31, 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. Prior to December 1, 1995,
Patriot Bank Corp. had no assets, liabilities or operations, and accordingly,
the data prior to such time represents the financial condition and results of
operations of Patriot Bank.
Note 2 - Conversion to Stock Form of Ownership and Earnings Per Share
On July 13, 1995, the Board of Directors of Patriot Bank adopted an overall
Plan of Conversion (the Conversion), as amended on August 30, 1995, pursuant to
which Patriot Bank converted from a federally chartered mutual savings bank to a
federally chartered capital stock savings bank. All of Patriot Bank's
outstanding capital stock was acquired by Patriot, a newly organized Delaware
corporation which became the holding company for Patriot Bank.
The conversion was completed on December 1, 1995 when Patriot issued 3,769,125
shares of common stock to the public. Earnings per share has been calculated
based on 3,498,000 weighted average share outstanding during the period ended
March 31, 1996. The provisions of Accounting Principles Board No. 15, "Earnings
Per Share," are not applicable for the period ended March 31, 1995.
6
<PAGE> 7
PATRIOT BANK CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
March 31, 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>
- - ------------------------------------------------------------------------------------------------------------------------------------
March 31, 1996 December 31, 1995
- - ------------------------------------------------------------------------------------------------------------------------------------
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
cost appreciation depreciation 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 $ 6,143 $ -- $ 22 $ 6,121 $ 6,105 $ 49 $ -- $ 6,154
Corporate securities 1,015 5 -- 1,020 1,019 27 -- 1,046
Other securities 2,222 -- 32 2,190 1,000 21 -- 1,021
FHLB stock 2,275 -- -- 2,275 1,914 -- -- 1,914
Mortgage-backed
securities
FHLMC 10,816 83 -- 10,899 12,179 95 16 12,258
FNMA 23,166 -- 126 23,040 17,709 161 115 17,755
GNMA 5,266 45 -- 5,311 5,463 79 3 5,539
Collateralized mortgage
obligations 43,281 -- 404 42,877 1,964 -- 5 1,959
-------- -------- ------- -------- -------- ------ ----- --------
Total Investment
and mortgage-
backed securities
available for sale $ 94,184 $ 133 $ 584 $ 93,733 $ 47,353 $ 432 $ 139 $ 47,646
======== ======== ======= ======== ======== ====== ===== ========
Investment and Mortgage-Backed Securities Held to Maturity
Investment securities
Corporate securities $ 1,503 $ 25 $ -- $ 1,528 $ 1,503 $ 63 $ -- $ 1,566
Other securities 2,41 -- 21 2,392 2,414 4 21 2,397
Mortgage-backed
securities
Collateralized mortgage
obligations 7,094 -- 187 6,907 -- -- -- --
-------- -------- ------- -------- -------- ------ ----- --------
Total investment and
mortgage backed
securities held to
maturity $ 11,010 $ 25 $ 208 $ 10,827 $ 3,917 $ 67 $ 21 $ 3,963
======== ======== ======= ======== ======== ====== ===== ========
</TABLE>
7
<PAGE> 8
PATRIOT BANK CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
March 31, 1996
Note 4 - Loans Receivable
Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
March 31, December 31,
- - -----------------------------------------------------------------------------------------------
1996 1995
- - -----------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Real estate loans
First mortgages secured by one- to four-family
residences $134,669 $131,352
Home equity and second mortgage 58,212 57,969
Construction 1,441 1,712
Multi-family and commercial 3,471 3,288
------- -------
197,793 194,321
Consumer loans 2,243 2,159
------- -------
Total loans receivable 200,036 196,480
Less deferred loan origination fees (2,275) (2,230)
------- -------
Total loans receivable, net $197,761 $194,250
======== ========
</TABLE>
Note 5 - Deposits
Deposits are summarized as follows:
<TABLE>
<CAPTION>
March 31, December 31,
- - -----------------------------------------------------------------------------------------------
Deposit Type 1996 1995
- - -----------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
NOW $ 17,602 $ 16,857
Money Market 35,325 34,162
Savings Accounts 28,079 27,511
Non-interest bearing demand 3,846 2,519
------- -------
Total demand, transaction, money
market and savings deposits 84,852 81,049
Certificates of deposit 124,935 120,569
------- -------
Total deposits $ 209,787 $ 201,618
========= =========
</TABLE>
8
<PAGE> 9
PATRIOT BANK CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
March 31, 1996
GENERAL. Patriot Bank Corp. and Subsidiaries (Patriot) reported net income of
$583,000 for the three-month period ended March 31, 1996. This represents an
increase of 77% over net income of $330,000 for the three-month period ended
March 31, 1995. Return on average equity and return on average assets were 4.30%
and .77%, respectively, for three three-month period ended March 31, 1996
compared to 7.03% and .56%, respectively, for the same period in 1995.
STOCK CONVERSION. On July 13, 1995, Patriot Bank's Board of Directors adopted
an overall Plan of Conversion (the Conversion) as amended on August 30, 1995,
pursuant to which Patriot Bank converted from a federally chartered mutual
savings bank to a federally chartered capital stock savings bank. All of Patriot
Bank's outstanding capital stock was acquired by Patriot Bank Corp., a newly
organized Delaware corporation which became the holding company for Patriot
Bank. The Conversion was completed on December 1, 1995 when Patriot issued
3,769,125 shares of common stock to the public and raised net proceeds of
$36,652,000.
NET INTEREST INCOME. Net interest income for the three-month period ended
March 31, 1996 was $2,619,000 compared to $1,837,000 for the same period in
1995. This represents an increase of 42.6% and 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 3.78% for the three-month
period ended March 31, 1996 compared to 3.40% for the same period in 1995.
Interest on loans was $3,903,000 for the three-month period ended March 31,
1996 compared to $3,344,000 for the same period in 1995. The average balance of
loans was $195,507,000 with an average yield of 7.99% compared to an average
balance of $167,810,000 with an average yield of 7.95% for the same priod in
1995. The increase in average balance is due to the aggressive marketing of
residential mortgage loans and home equity loans. The increase in average yield
is primarily a result of the upward repricing of adjustable rate loans offset
somewhat by more competitive pricing.
Interest on Patriot's investment portfolio (investment and mortgage-backed
securities) was $1,253,000 for the three-month period ended March 31, 1996
compared to $605,000 for the same period in 1995. The average balance of the
investment portfolio was $75,764,000 with an average yield of 6.62% for the
three-month period ended March 31, 1996 compared to an average balance of
$42,680,000 with an average yield of 5.67% 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 $2,308,000 for the three-month period ended
March 31, 1996 compared to $2,030,000 in the same period in 1995. The average
balance of total deposits was $203,336,000 with an average cost of 4.55% for the
three-month period ended March 31, 1996 compared to an average balance of
$189,258,000 with an average cost of 4.30% for the same period in 1995. The
increase in average balance was primarily the result of an emphasis placed on
transaction based deposit products and competitive pricing of certificates of
deposit. The increase in average cost was primarily the result of a change in
deposit composition toward higher yielding products and more competitive
pricing.
Interest on borrowings was $277,000 for the three-month period ended March 31,
1996 compared to $99,000 for the same period in 1995. The average balance of
borrowings was $20,646,000 with an average cost of 5.38% for the three-month
period ended March 31, 1996 compared to an average balance of $6,478,000 with a
cost of 6.12% 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.
9
<PAGE> 10
PROVISION FOR POSSIBLE LOAN LOSSES. The provision for possible loan losses was
$35,000 for the three-month period ended March 31, 1996 compared to $15,000 for
the same period in 1995. The increase in the provision was due to an increase in
loans offset by Patriot's high asset quality, low level of delinquencies and low
level of non-performing assets. At March 31, 1996 Patriot's non-performing
assets were .31% of total assets and all loans 30 days or more delinquent were
.83% of total loans.
NON-INTEREST INCOME. Total non-interest income was $121,000 for the three-
month period ended March 31, 1996 compared to $87,000 for the same period in
1995. The increase was due to an increase in loan servicing income and deposit
fees and are consistent with increases in loans and deposits.
NON-INTEREST EXPENSE. Total non-interest expense was $1,743,000 for the
three-month period ended March 31, 1996 compared to $1,378,000 for the same
period in 1995. The increase in non-interest expense was the result of the
recognition of expense related to Patriot's Employee Stock Ownership Plan (ESOP)
and additional compensation and benefits and other costs related to the growth
of Patriot, offset somewhat by other operating efficiencies and cost-saving
efforts. The ratio of non-interest expense to average assets was 2.49% for the
three-month period ended March 31, 1996 compared to 2.52% for the same period in
1995. The improvement in the overhead ratio reflects Patriot's emphasis on
managing costs.
INCOME TAX PROVISION. The income tax provision was $379,000 for the
three-month period ended March 31, 1996 compared to $201,000 for the same period
in 1995. The increase in the income tax provision was consistent with the growth
in net income before taxes.
Financial Condition
LOAN PORTFOLIO. Patriot's primary loan products are fixed-rate and
adjustable-rate mortgage loans and home equity loans on existing owner-occupied
residential real estate. Patriot also offers residential construction loans,
commercial loans and other consumer loans. At March 31, 1996, Patriot's total
loan portfolio was $197,761,000, 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. During the three-month period ended March 31, 1996, Patriot originated
total loans of $11,905,000, compared to total loans originated of $4,489,000 for
the same period in 1995.
CASH AND CASH EQUIVALENTS. Cash and cash equivalents at March 31, 1996 were
$5,121,000 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 Government National
Mortgage Association (GNMA) and collateralized mortgage obligations.
Total investment and mortgage-backed securities at March 31, 1996 were
$104,743,000 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.
10
<PAGE> 11
OTHER ASSETS. Premises and equipment at March 31, 1996 was $3,604,000 compared
to $3,450,000 at December 31, 1995. The increase was primarily due to the
renovation of Patriot's corporate headquarters. Accrued interest receivable at
March 31, 1996 was $1,537,000 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 March 31, 1996 was $191,000 compared to $195,000 at
December 31, 1995. The decrease in real estate owned was due to cash payments
received on foreclosed assets.
DEPOSITS. Deposits are attracted from within Patriot's primary market area
through the offering of various deposit instruments, including NOW accounts,
money market accounts, savings accounts, certificates of deposit and retirement
savings plans.
Total deposits at March 31, 1996 were $209,787,000 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 March 31, 1996 were $45,500,000 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 $54,126,000 at March 31,
1996 compared to $54,110,000 at December 31, 1995. The increase is a result of
the retention of earnings offset somewhat by an increase in the unrealized loss
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 March 31, 1996 was 5.23%.
During the three-month period ended March 31, 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.
11
<PAGE> 12
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 March 31, 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 March
31, 1996:
<TABLE>
<CAPTION>
Patriot
Bank Requirement
- - --------------------------------------------------------------------------------
<S> <C> <C>
Tangible capital to tangible assets 11.49% 1.50%
Leverage (core) capital to tangible assets 11.49 3.00
Leverage (core) capital to risk-adjusted assets 22.21 4.00
Risk-based capital to risk-adjusted assets 23.22 8.00
</TABLE>
Patriot Bank's deposits are insured by the Savings Association Insurance Fund
(SAIF) of the Federal Deposit Insurance Corporation. In order to accelerate the
recapitalization of the SAIF, it has been proposed that SAIF-insured
institutions such as Patriot Bank be assessed a one-time charge of between 85
and 90 basis points of their insured deposits as of March 31, 1995. If enacted,
this assessment would result in an after-tax charge to earnings of approximately
$1,000,000 to $1,100,000. While this charge would not impact Patriot Bank's
status as a well-capitalized institution qualifying for the lowest SAIF
insurance premium, it would have a significant negative impact on earnings in
the period that the charge is taken. No liability or change for this assessment
has been made.
12
<PAGE> 13
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 income
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 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 income income, while a positive gap would tend to
result in an increase in net interest income. Conversely, during a period of
falling interest rates, a negative gap position would theoretically tend to
result in an increase in net interest income while a positive gap would tend to
affect net interest income adversely.
As a traditional thrift lender, Patriot has a significant amount of its
earning assets invested in fixed-rate mortgage loans and fixed-rate
mortgage-backed securities with contractual maturities greater than one year.
Patriot has initiated several actions designed to control its level of interest
rate risk. These actions included: (i) increasing the percentage of the loan
portfolio consisting of short-term and adjustable-rate mortgage loans through
increased originations of these loans, (ii) acquiring short-term and
adjustable-rate mortgage- backed securities, and (iii) undertaking to lengthen
the maturities of deposits and borrowings. At March 31, 1996, Patriot's total
interest-bearing liabilities maturing or repricing within one year exceeded its
total net interest-earning assets maturing or repricing in the same time period
by $29,566,000, representing a one-year cumulative "gap," as defined above, as a
percentage of total assets of negative 9.4%.
13
<PAGE> 14
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.
None
Item 5. OTHER INFORMATION.
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits are filed as part of this report.
Exhibit 3.1 - Certificate of Incorporation of Patriot Bank Corp.*
Exhibit 3.2 - Bylaws of Patriot Bank Corp.*
Exhibit 27 - Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K
None
- - -----------------------
* Incorporated herein by reference into this document from the Exhibits to Form
S-1, Registration Statement, filed on September 1, 1995 as amended,
Registration No. 33-96530.
14
<PAGE> 15
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 May 10, 1996 /s/ Joseph W. Major
---------------------------- --------------------------------------
Joseph W. Major
President and Chief Operating Officer
Date May 10, 1996 /s/ Richard A. Elko
---------------------------- --------------------------------------
Richard A. Elko
Executive Vice President and
Chief Financial Officer
15
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1996
<CASH> 3,617
<INT-BEARING-DEPOSITS> 1,504
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 93,733
<INVESTMENTS-CARRYING> 11,010
<INVESTMENTS-MARKET> 10,827
<LOANS> 197,761
<ALLOWANCE> (1,734)
<TOTAL-ASSETS> 312,990
<DEPOSITS> 209,787
<SHORT-TERM> 35,500
<LIABILITIES-OTHER> 3,577
<LONG-TERM> 10,000
0
0
<COMMON> 38
<OTHER-SE> 54,088
<TOTAL-LIABILITIES-AND-EQUITY> 312,990
<INTEREST-LOAN> 3,903
<INTEREST-INVEST> 1,253
<INTEREST-OTHER> 50
<INTEREST-TOTAL> 5,206
<INTEREST-DEPOSIT> 2,308
<INTEREST-EXPENSE> 2,587
<INTEREST-INCOME-NET> 2,619
<LOAN-LOSSES> 35
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,743
<INCOME-PRETAX> 962
<INCOME-PRE-EXTRAORDINARY> 583
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 583
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
<YIELD-ACTUAL> 3.78<F1>
<LOANS-NON> 522
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,702
<CHARGE-OFFS> 3
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 1,734
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,734
<FN>
<F1> Net interest income as a percentage of average interest-earning assests.
</FN>
</TABLE>
