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, 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.
------------------------------------------------------
(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: 4,358,468 shares of common
stock, par value $.01 per share, were outstanding as of November 1, 1997.
<PAGE>
PATRIOT BANK CORP. AND SUBSIDIARIES
INDEX
Page
PART I FINANCIAL INFORMATION
Item 1 FINANCIAL STATEMENTS
Consolidated Statements of Financial Condition at
September 30, 1997 and December 31, 1996
Consolidated Statements of Income for the Three-Month
and Nine-Month Periods ended September 30, 1997 and
1996
Consolidated Statements of Cash Flows for the
Nine-Month Periods ended September 30, 1997 and 1996
Notes to Consolidated Financial Statements
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
PART II OTHER INFORMATION
Items 1 through 6
SIGNATURES
<PAGE>
Patriot Bank Corp. and Subsidiaries
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
- -------------------------------------------------------------------------------------------------------
1997 1996
- -------------------------------------------------------------------------------------------------------
(unaudited) (note)
<S> <C> <C>
Assets
Cash and due from banks $ 2,056 $ 1,997
Interest-earning deposits in other
financial institutions 11,377 4,856
-------- --------
Total cash and cash equivalents 13,433 6,853
Investment and mortgage-backed securities
available for sale - at market value 336,252 159,148
Investment securities held to maturity (market value
of $65,410 and $72,722 at September 30, 1997 and
December 31, 1996, respectively) 65,324 72,710
Loans held for sale 4,718 --
Loans receivable 394,071 280,184
Allowance for possible loan losses (2,246) (1,830)
Accrued interest receivable 5,019 2,649
Real estate owned 149 74
Premises and equipment, net 8,746 7,724
Other assets 2,020 1,653
-------- --------
Total assets $827,486 $529,165
======== ========
Liabilities and stockholders' equity
Deposits $293,411 $239,514
Borrowings 466,854 231,595
Advances from borrowers for taxes and insurance 2,117 2,499
Other liabilities 3,210 2,440
-------- --------
Total liabilities 765,592 476,048
-------- --------
Trust Preferred Corporation-obligated
mandatory redeemable capital securities of
subsidiary trust holding solely subordinated
debentures of Patriot Bank Corp. ("Trust
Preferred Securities") 18,406 --
-------- --------
Preferred stock, $.01 par value, 2,000,000
shares authorized, none issued -- --
Common stock, $.01 par value, 10,000,000
shares authorized, 5,626,423 shares issued
at September 30, 1997 and December 31, 1996 56 47
Additional paid-in capital 59,761 49,014
Common stock acquired by ESOP, 370,216
shares at cost at September 30, 1997 and December 31, 1996 (2,571) (2,571)
Common stock acquired by MRP, 198,883
shares at amortized cost at September 30, 1997 and December 31, 1996 (1,377) (1,538)
Retained earnings 1,137 10,357
Treasury stock, 1,267,955 and 271,736 shares at September 30, 1997 and
December 31, 1996 respectively (16,071) (2,517)
Net unrealized appreciation on investment
and mortgage-backed securities available
for sale, net of taxes 2,553 325
-------- --------
Total stockholders' equity 43,488 53,117
-------- --------
Total liabilities and stockholders' equity $827,486 $529,165
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
Note: The balance sheet at December 31, 1996 is taken from the audited financial
statements at that date but does not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
<PAGE>
Patriot Bank Corp. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except for share data)
<TABLE>
<CAPTION>
Three-Month Period Nine-Month Period
Ended September 30, Ended September 30,
- -----------------------------------------------------------------------------------------------
1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C>
Interest income
Interest-earning deposits $ 47 $ 23 $ 136 $ 91
Investment and mortgage-backed securities 6,395 3,492 16,102 7,249
Loans 7,304 4,909 19,152 13,152
-------- -------- -------- --------
Total interest income 13,746 8,424 35,390 20,492
-------- -------- -------- --------
Interest expense
Deposits 3,456 2,501 9,822 7,167
Borrowings 6,687 2,693 14,847 4,481
-------- -------- -------- --------
Total interest expense 10,143 5,194 24,669 11,648
-------- -------- -------- --------
Net interest income before
provision for possible loan losses 3,603 3,230 10,271 8,844
Provision for possible loan losses 235 90 460 205
-------- -------- -------- --------
Net interest income after
provision for loan losses 3,368 3,140 10,261 8,639
Non-interest income
Service fees, charges and other operating
income 245 124 545 364
Mortgage banking gains 88 -- -- --
Gain on sale of real estate acquired through
foreclosure -- 4 (9) 16
Gain on sale of investment and mortgage-backed
securities 242 -- 432 --
-------- -------- -------- --------
Total non-interest income 575 128 1,056 380
-------- -------- -------- --------
Non-interest expense
Salaries and employee benefits 1,795 1,165 4,896 3,091
Occupancy and equipment 472 241 1,351 632
Federal deposit insurance premiums 42 1,454 89 1,609
Data processing 41 98 130 293
Advertising 97 105 347 314
Deposit processing 83 61 320 184
Other operating expenses 329 257 721 930
-------- -------- -------- --------
Total non-interest expense 2,859 3,381 7,754 7,053
-------- -------- -------- --------
Income before income taxes 1,084 (113) 3,563 1,966
Income taxes 253 (20) 1,084 799
-------- -------- -------- --------
Net income $ 831 $ (93) $ 2,479 $ 1,167
======== ======== ======== ========
Earnings per share $ 0.20 $ (0.02) $ .53 $ .02
======== ======== ======== ========
Dividends per share $ 0.08 $ 0.47 $ .22 $ .09
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
Patriot Bank Corp. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Nine-Month Period
Ended September 30,
- -----------------------------------------------------------------------------------------------------------------------------------
1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
Operating activities
Net income $ 2,481 $ 1,167
Adjustments to reconcile net income to net cash provided
by operating activities
Amortization and accretion of
Deferred loan origination fees (145) (367)
Premiums and discounts 70 (30)
Management recognition plan 262 108
Provision for possible loan losses 460 205
Loss (Gain) on sale of Real Estate Owned 9 (16)
Gains on Mortgage Banking (88) --
Gain on the sale of AFS investments (432) --
Depreciation of premises and equipment 746 162
Increase (Decrease) in Deferred income taxes 458 (105)
Increase in accrued interest receivable (2,370) (1,264)
Increase in other assets (1,807) (289)
Increase in other liabilities 770 2,355
--------- ---------
Net cash provided (used) by operating activities 414 550
--------- ---------
Investing activities
Loan originations and principal payments on loans, net (123,500) (70,037)
Proceeds from the sale of loans 4,963 --
Proceeds from the maturity of investment and
mortgage-backed securities - available for sale 13,179 13,002
Proceeds from the maturity of investment and
mortgage-backed securities - held to maturity 6,386 4,158
Proceeds from the sale of investment and
mortgage-backed securities - available for sale 1,327 --
Purchase of investment and mortgage-backed
securities - available for sale (187,036) (111,854)
Purchase of investment and mortgage-backed
securities - held to maturity -- (66,498)
Proceed from sale of real estate owned 35 131
Purchase of premises and equipment (1,768) (3,224)
--------- ---------
Net cash (used in) provided by investing activities (286,414) (234,322)
--------- ---------
Financing activities
Net increase in deposits $ 53,897 $ 18,234
Net proceeds from short-term borrowings 195,059 173,500
Proceeds from long-term borrowings 40,200 30,000
Proceed from Trust Preffered Stock 18,406 --
Decrease in advances from borrowers for
taxes and insurance (382) (691)
Cash paid for dividends (1,046) (614)
Purchase of treasury stock (13,554) (2,517)
--------- ---------
Net cash provided by financing activities 292,580 217,912
--------- ---------
Net decrease in cash and cash equivalents 6,580 (14,484)
Cash and cash equivalents at beginning of period 6,853 18,556
--------- ---------
Cash and cash equivalents at end of period $ 13,433 $ 4,072
========= =========
</TABLE>
Supplemental disclosures
Cash paid for interest on deposits was $10,203 and $7,170 for the nine-month
periods ended September 30, 1997 and 1996, respectively. Cash paid for income
taxes was $1,460 and $1,161 for the nine-month periods ended September 30, 1997
and 1996, respectively. Transfers from loans to real estate owned were $139 and
$0 for the nine-month peiords ended September 30, 1997 and 1996, respectively.
The accompanying notes are an integral part of these statements.
<PAGE>
PATRIOT BANK CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
September 30, 1997
Note 1 - General
The accompanying financial statements of Patriot Bank Corp. and
Subsidiaries ("Patriot") include the accounts of the parent company, Patriot
Bank Corp. and its wholly-owned subsidiaries, Patriot Bank and Patriot
Investment Company. All material intercompany balances and transactions have
been eliminated in consolidation. These financial statements have been prepared
in accordance with the instructions for Form 10-Q and therefore do not include
certain information or footnotes necessary for the presentation of financial
condition, results of operations, and cash flows in conformity with generally
accepted accounting principles. However, in the opinion of management, the
consolidated financial statements reflect all adjustments (which consist of
normal recurring accruals) necessary for a fair presentation of the results for
the unaudited periods. The results of operations for the nine-month period ended
September 30, 1997 are not necessarily indicative of the results which may be
expected for the entire year. The consolidated financial statements should be
read in conjunction with the annual report on Form 10-K for the year ended
December 31, 1996.
Note 2 - Earnings Per Share
On September 22, 1997 Patriot paid a special 20% stock dividend to
stockholders of record on September 8, 1997. Earnings per share has been
calculated on a fully diluted basis and has been adjusted for the special 20%
stock dividend. Weighted average shares outstanding during the nine month
periods ended September 30, 1997 and 1996 were 4,718,000 and 5,028,000.
The FASB has issued SFAS No. 128, Earnings per Share, which is effective
for financial statements issued after December 15, 1997. Early adoption of the
new standard is not permitted. The new standard eliminates primary and fully
diluted earnings per share and requires presentation of basic and diluted
earnings per share together with disclosure of how the per share amounts were
computed. The adoption of this new standard is not expected to have a material
impact on the disclosure of earnings per share in the financial statements.
<PAGE>
PATRIOT BANK CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
September 30, 1997
Note 3 - Investment And Mortgage-Backed Securities
The amortized cost and estimated fair value of investment and
mortgage-backed securities are as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
September 30, 1997 December 31, 1996
- -----------------------------------------------------------------------------------------------------------------------------------
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 $ 7,634 $ 24 $ -- $ 7,658 $ 5,023 $ -- $ 33 $ 4,990
Corporate securities 16,993 7 -- 17,000 -- -- -- --
Equity securities 49,834 3,380 27 53,187 23,797 695 -- 24,492
Mortgage-backed
securities
FHLMC 12,415 199 -- 12,614 14,582 149 22 14,709
FNMA 21,437 230 106 21,561 25,118 150 144 25,124
GNMA 13,356 390 -- 13,746 14,498 253 -- 14,751
Collateralized mortgage
Obligations
FHLMC 86,215 172 86 86,301 37,928 7 296 37,639
FNMA 119,313 128 342 119,099 31,654 13 165 31,502
Other 5,135 -- 49 5,086 5,976 -- 35 5,941
-------- -------- -------- -------- -------- -------- -------- --------
Total Investment
and mortgage-
backed securities
available for sale $332,332 $ 4,530 $ 610 $336,252 $158,576 $ 1,267 $ 695 $159,148
======== ======== ======== ======== ======== ======== ======== ========
Investment and Mortgage-Backed Securities Held to Maturity
Investment securities
U.S. Treasury and
government
agency
securities $ 1,165 $ -- $ 9 $ 1,156 $ 1,911 $ -- $ 19 $ 1,892
Corporate securities $ 2,502 $ 27 $ -- $ 2,529 $ 2,506 $ 27 $ -- $ 2,533
Mortgage-backed
securities
Collateralized mortgage
obligations
FHLMC -- -- -- -- -- -- -- --
FNMA 2,401 -- 92 2,309 -- -- -- --
Other 59,256 191 31 59,416 68,293 281 277 68,297
-------- -------- -------- -------- -------- -------- -------- --------
Total investment and
mortgage-backed
securities held
to maturity $ 65,324 $ 217 $ 132 $ 65,410 $ 72,710 $ 308 $ 296 $ 72,722
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
<PAGE>
Note 4 - Loans Receivable
Loans receivable are summarized as follows:
September 30, December 31,
- --------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------
(in thousands)
Real estate loans
First mortgages secured by one- to
four-family residences $ 284,153 $ 192,518
Home equity and second mortgages 76,400 72,480
Construction 1,825 3,210
Multi-family and commercial 30,160 11,822
--------- ---------
392,538 280,030
Consumer loans 3,650 2,546
--------- ---------
Total loans receivable 396,188 282,576
Less deferred loan origination fees (2,117) (2,392)
--------- ---------
Total loans receivable, net $ 394,071 $ 280,184
========= =========
Note 5 - Deposits
Deposits are summarized as follows:
September 30, December 31,
- --------------------------------------------------------------------------------
Deposit type 1997 1996
- --------------------------------------------------------------------------------
(in thousands)
NOW $ 20,744 $ 17,842
Money market 47,598 33,411
Savings accounts 26,764 27,712
Non-interest-bearing demand 4,756 3,432
--------- ---------
Total demand, transaction, money
market and savings deposits 99,862 82,397
Certificates of deposits 193,549 157,117
--------- ---------
Total deposits $ 293,411 $ 239,514
========= =========
<PAGE>
Note 6 - Stock repurchase
On July 28, 1997 Patriot completed a tender offer and repurchased 539,444
shares at $15.00 per share as adjusted for the special 20% stock dividend paid
on September 22, 1997.
Note 7 - Branch Sale
On August 8, 1997 Patriot announced that it had entered into a nonbinding
letter of intent to sell approximately $10.9 million of deposits at a 7.5%
premium and the physical facility of its Community Banking Office in Topton, PA.
The sale has received regulatory approval and is expected to be completed by the
end of 1997. Patriot expects to recognize a gain from the sale of the deposits
and the physical facility of approximately $850,000
Note 8 - Reporting Comprehensive Income
In June 1997, the FASB has issued SFAS No. 130, "Reporting of Comprehensive
Income", which is effective for years beginning after December 15, 1997. This
new standard requires entities presenting a complete set of financial statements
to include details of comprehensive income. Comprehensive income consists of net
income or loss for the current period and income, expenses, gains, and losses
that bypass the income statement and are reported directly in a separate
component of equity. Patriot is currently evaluating SFAS No. 130 and does not
foresee any issues that would prevent compliance and implementation of
SFAS No. 130.
Note 9 - Disclosures about Segments of an Enterprise and Related Information
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information", which is effective for all periods
beginning after December 15, 1997. SFAS 131 requires that public business
enterprises report certain information about operating segments in complete sets
of financial statements of the enterprise and in condensed financial statements
of interim periods issued to shareholders. It also requires that public business
enterprises report certain information about their products and services, the
geographic areas in which they operate, and their major customers. Patriot is
currently evaluating SFAS No. 131 and does not foresee any issues that would
prevent compliance and implementation of SFAS No. 131.
Note 10 - Prior period results (SAIF Assessment)
On September 30, 1996, the Deposit Insurance Funds Act of 1996 (the "Funds
Act") became law. The Funds Act among other things imposed 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. The
special assessment was recognized as an expense in the third quarter of 1996 and
was tax deductable. Patriot Bank recorded a special after-tax charge of $836,000
($1,338,000 before tax) as a result of the FDIC special assessment.
<PAGE>
PATRIOT BANK CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
September 30, 1997
In addition to historical information, this discussion and analysis
contains forward-looking statements. The foward-looking statements contained
herein are subject to certain risks and uncertainties that could cause actual
results to differ materially from those projected in the forward-looking
statements. Important factors that might cause such a difference include, but
are not limited to those discussed in the "Management's Discussion and Analysis
of Financial Condition and Results of Operations". Readers are cautioned not to
place undue reliance on these forward-looking statements, which reflect
management's analysis only as of the date hereof. Patriot undertakes no
obligation to publicly revise or update these forward-looking statements to
reflect events or circumstances that arise after the date hereof.
General. Patriot Bank Corp. and subsidiaries (Patriot) reported earnings
per share of $.20 and net income of $831,000 for the three-month period ended
September 30, 1997. This represents an increase of 34% over earnings per share
of $.15 and net income of $743,000 for the three month period ended September
30, 1996. Earnings per share reported for the nine-month period ended September
30,1997 was $.53 with net income of $2,479,000 compared with $.39 per share and
net income of $2,003,000 for the nine-month period ended September 30, 1996.
Return on average equity was 7.38%, for the three-month period ended September
30, 1997 compared to 5.63%, for the three-month period ended September 30, 1996.
Results for 1996 exclude a special after-tax charge representing the special
deposit insurance assessment levied against all SAIF member financial
institutions by the FDIC to recapitalize its SAIF fund.
Net Interest Income. Net interest income for the three-month and nine-month
periods ended September 30, 1997 was $3,603,000 and $10,721,000 compared to
$3,230,000 and $8,844,000 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
2.42% for the nine-month period ended September 30, 1997 compared to 3.18% for
the same period in 1996.
Interest on loans was $7,304,000 and $19,152,000 for the three-month and
nine-month periods ended September 30, 1997 compared to $4,909,000 and
$19,152,000 for the same periods in 1996. The average balance of loans was
$327,399,000 with an average yield of 7.80% for the nine-month period ended
September 30, 1997 compared to an average balance of $221,641,000 with an
average yield of 7.92% 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 of adjustable and shorter term mortgage loans than in the
prior period.
Interest on Patriot's investment portfolio (investment and mortgage-backed
securities) was $6,395,000 and $16,102,000 for the three-month and nine-month
periods ended September 30, 1997 compared to $3,492,000 and $7,249,000 for the
same periods in 1996. The average balance of the investment portfolio was
$314,441,000 with an average yield of 7.32% for the nine-month period ended
September 30, 1997 compared to an average balance of $146,301,000 with an
average yield of 6.61% 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 $3,456,000 and $9,822,000 for the
three-month and nine-month periods ended September 30, 1997 compared to
$2,501,000 and $7,167,000 for the same periods in 1996. The average balance of
total deposits was $270,806,000 with an average cost of 4.85% for the nine-month
period ended September 30, 1997 compared to an average balance of $211,615,000
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 $6,687,000 and $14,847,000 for the three-month
and nine-month periods ended September 30, 1997 compared to $2,693,000 and
$4,481,000 for the same periods in 1996. The average balance of borrowings was
$339,641,000 with an average cost of 5.84% for the nine-month period ended
September 30, 1997 compared to an average balance of $107,761,000 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 borrowings
and an increase in interest rates.
<PAGE>
Provision for Possible Loan Losses. The provision for possible loan losses
was $235,000 and $460,000 for the three-month and nine-month periods ended
September 30, 1997 compared to $90,000 and $205,000 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 September 30, 1997 Patriot's non-performing assets
were .11% of total assets and all loans 30 days or more delinquent were .39% of
total loans.
Non-Interest Income. Total non-interest income was $575,000 and $1,056,000
for the three-month and nine-month periods ended September 30,1997 compared to
$128,000 and $380,000 for the same periods in 1996. The increase in noninterest
income is the result of mortgage banking gains and the sale of investment
securities available for sale and emhasis on increasing fee income.
Non-Interest Expense. Total non-interest expense was $2,859,000 and
$7,754,000 for the three-month and nine-month periods ended September 30, 1997
compared to $3,381,000 and $7,053,000 for the same periods in 1996. Overhead in
the third quarter 1996 included a special charge of $1,338,000 representing the
special deposit insurance assessment levied against all SAIF member financial
institutions by the FDIC to recapitalize its SAIF fund. The increase in
non-interest expense was the result of the growth of Patriot including staffing
in four new community banking offices and two lending offices, offset somewhat
by operating efficiencies and cost-saving efforts. The ratio of non-interest
expense to average assets improved to 1.55% for the nine-month period ended
September 30 1997 compared to 2.01% for the same period in 1996 (excluding the
special charge). The improvement in the overhead ratio reflects Patriot's
emphasis on managing costs.
Income Tax Provision. The income tax provision was $253,000 and $1,084,000
for the three-month and nine-month periods ended September 30, 1997
compared to $(20,000) and $799,000 for the same periods in 1996. The effective
tax rate was 30.42% for 1997 compared to 40.64% for 1996. The decrease is a
result of the purchase of certain tax exempt investments and a reduction in
state income tax due to the conversion of Patriot Bank's charter.
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 September 30, 1997 Patriot's total loan portfolio was $394,071,000,
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 nine-month
period ended September 30, 1997, Patriot originated total loans of $68,321,000,
compared to total loans originated of $40,500,000 for the same period in 1996.
Cash and Cash Equivalents. Cash and cash equivalents at September 30, 1997
were $13,433,000 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 September 30, 1997 were
$401,576,000 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.
<PAGE>
Other Assets. Premises and equipment at September 30, 1997 was $8,746,000
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 office. Accrued interest receivable at September 30,
1997 was $5,019,000 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 September 30, 1997 was $149,000 compared to $74,000 at December 31,
1996. Other assets at March 31, 1997 were $2,020,000 compared to $1,653,000 at
December 31, 1996.
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 September 30, 1997 were $293,411,000 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 September 30, 1997 were $466,854,000 compared to
$231,595,000 at December 31, 1996. The increase in borrowings was due to the
leveraging of Patriot's capital and growth of Patriot's loan portfolio.
Stockholders' Equity. Total stockholders' equity was $43,488,000 at
September 30, 1997 compared to $53,117,000 at December 31, 1996. The decrease
was primarily a result of the repurchase of 997,000 shares of common stock at a
cost of $13,554,000.
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 represents. 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 nine-month period ended September 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 nine-month period ended September
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.
<PAGE>
At September 30, 1997, Patriot Bank Corp's and Patriot Bank's and capital
ratios exceeded all well-capitalized ratios as defined by the appropriate
regulatory authority. The following table sets forth the capital ratios of
Patriot Bank Corp., Patriot Bank and the current regulatory requirements at
September 30, 1997:
Patriot Bank Patriot
Corp. Bank Well Capitalized
- --------------------------------------------------------------------------------
Tier 1 leverage ratio 7.05% 5.32% 5.00%
Tier 1 risk based ratio 13.16 10.05 6.00
Total risk-based ratio 14.85 10.62 10.00
<PAGE>
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 September
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 $67,767 representing a one-year cumulative
"gap," as defined above, as a percentage of total assets of negative 8.19%.
<PAGE>
Page
PART II OTHER INFORMATION
Item 1 LEGAL PROCEEDINGS
There are various claims and lawsuits in which the Patriot
is periodically involved incidental to the Patriot's
business, which in the aggregate involve amounts which are
believed by management to be immaterial to the financial
condition and results of operations of the Company.
Item 2 CHANGES IN SECURITIES
Not applicable.
Item 3 DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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 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) Not Applicable
- -----------------------
* 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.
<PAGE>
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, 1997 /s/Joseph W. Major
--------------------------- -----------------------------
Joseph W. Major
President and
Chief Operating Officer
Date November 14, 1997 /s/Richard A. Elko
--------------------------- -----------------------------
Richard A. Elko
Executive Vice President and
Chief Financial Officer
<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>
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
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0
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