<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q/A
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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
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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: 4,105,502 shares of common
stock, par value $.01 per share, were outstanding as of May 1, 1997.
<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, 1997 and December 31, 1996 3
Consolidated Statements of Income for the
Three-Month Periods ended March 31, 1997 and 1996 4
Consolidated Statements of Cash Flows for the
Three-Month Periods ended March 31, 1997 and 1996 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
Items 1 through 6 15
SIGNATURES 16
<PAGE> 3
<TABLE>
<CAPTION>
Patriot Bank Corp. and Subsidiaries
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands, except share data)
March 31, December 31,
- --------------------------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------------------------
(unaudited) (note)
<S> <C> <C>
Assets
Cash and due from banks $ 1,086 $ 1,997
Interest-earning deposits in other
financial institutions 1,713 4,856
-------- --------
Total cash and cash equivalents 2,799 6,853
Investment and mortgage-backed securities
available for sale - at market value 211,675 159,148
Investment securities held to maturity (market value
of $70,406 and $72,722 at March 31, 1997 and
December 31, 1996, respectively) 71,009 72,710
Loans receivable 294,799 280,184
Allowance for possible loan losses (1,927) (1,830)
Premises and equipment, net 8,292 7,724
Accrued interest receivable 3,249 2,649
Real estate owned 72 74
Other assets 4,087 1,653
-------- --------
Total assets $594,055 $529,165
======== ========
Liabilities and stockholders' equity
Deposits $266,280 $239,514
Borrowings 275,244 231,595
Advances from borrowers for taxes and insurance 3,062 2,499
Other liabilities 1,375 2,440
------- -------
Total liabilities 545,961 476,048
------- -------
Preferred stock, $.01 par value, 2,000,000
shares authorized, none issued - -
Common stock, $.01 par value, 10,000,000
shares authorized, 4,683,594 shares issued
at 3/31/97 and 12/31/96 47 47
Additional paid-in capital 49,014 49,014
Common stock acquired by ESOP, 271,377
shares at cost at 3/31/97 and 12/31/96 (2,571) (2,571)
Common stock acquired by MRP, 160,644
shares at amortized cost at 3/31/97 and 12/31/96 (1,451) (1,538)
Retained earnings 10,803 10,357
Treasury stock, 578,092 and 226,147 shares at 3/31/97 and
12/31/96 respectively (7,522) (2,517)
Net unrealized appreciation (depreciation) on investment
and mortgage-backed securities available
for sale, net of taxes (226) 325
-------- --------
Total stockholders' equity 48,094 53,117
-------- --------
Total liabilities and stockholders' equity $594,055 $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> 4
<TABLE>
<CAPTION>
Patriot Bank Corp. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except for share data)
Three-Month Period Ended March 31,
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1997 1996
- -------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
Interest income
Interest-earning deposits $ 30 $ 50
Investment and mortgage-backed securities 4,750 1,253
Loans 5,540 3,903
----- -----
Total interest income 10,320 5,206
------ -----
Interest expense
Deposits 3,094 2,308
Borrowings 3,702 279
----- -----
Total interest expense 6,796 2,587
----- -----
Net interest income before
provision for possible loan losses 3,524 2,619
Provision for possible loan losses 105 35
----- -----
Net interest income after
provision for loan losses 3,419 2,584
Non-interest income
Service fees, charges and other operating
income 139 121
Gain on sale of investment and mortgage-backed
securities 86 -
----- -----
Total non-interest income 225 121
----- -----
Non-interest expense
Salaries and employee benefits 1,433 884
Occupancy and equipment 429 214
Federal deposit insurance premiums 116 116
Data processing 48 90
Advertising 125 75
Deposit processing 61 63
Other operating expenses 161 301
----- -----
Total non-interest expense 2,373 1,743
----- -----
Income before income taxes 1,271 962
Income taxes 461 379
------- -------
Net income $ 810 $ 583
======= =======
Earnings per share $ 0.201 $ 0.142
======= =======
Dividends per share $ 0.083 $ 0.016
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 5
<TABLE>
<CAPTION>
Patriot Bank Corp. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Three-Month Period Ended March 31,
- -------------------------------------------------------------------------------------------------
1997 1996
- -------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
Operating activities
Net income $ 810 $ 583
Adjustments to reconcile net income to net cash provided
by operating activities
Amortization and accretion of
Deferred loan origination fees (85) (125)
Premiums and discounts 40 (2)
Management recognition plan 87 -
Provision for possible loan losses 105 35
Gain on sale of investment and mortgage-backed securities (87) -
Depreciation of premises and equipment 132 46
Deferred income taxes 284 (1)
Increase in accrued interest receivable (600) (332)
(Increase) decrease in other assets (2,221) 121
Increase (decrease) in other liabilities (1,066) 132
-------- -------
Net cash provided (used) by operating activities (2,601) 459
-------- -------
Investing activities
Loan originations and principal payments on loans, net (14,531) (3,381)
Proceeds from the maturity of investment and
mortgage-backed securities - available for sale 2,311 1,650
Proceeds from the maturity of investment and
mortgage-backed securities - held to maturity 1,701 195
Purchase of investment and mortgage-backed
securities - available for sale (55,844) (30,762)
Purchase of investment and mortgage-backed
securities - held to maturity - (25,016)
Purchase of premises and equipment (700) (478)
-------- --------
Net cash (used in) provided by investing activities (67,063) (57,792)
-------- --------
Financing activities
Net increase in deposits $ 26,766 $ 8,169
Net proceeds from short-term borrowings 45,649 25,500
(Proceeds) repayments from long-term borrowings (2,000) 10,000
Decrease advances from borrowers for
taxes and insurance 563 304
Cash paid for dividends (363) (75)
Purchase of treasury stock (5,005) -
------- -------
Net cash provided by financing activities 65,610 43,898
------ -------
Net decrease in cash and cash equivalents (4,054) (13,435)
Cash and cash equivalents at beginning of period 6,853 18,556
----- --------
Cash and cash equivalents at end of period $ 2,799 $ 5,121
======== ========
</TABLE>
Supplemental disclosures
Cash paid for interest on deposits was $3,085 and $2,309 for the three-month
periods ended March 31, 1997 and 1996, respectively. Cash paid for income taxes
was $0 and $40 for the three-month periods ended March 31, 1997 and 1996,
respectively. Transfers from loans to real estate owned were $0 and $0 for the
three-month peiords ended March 31, 1997 and 1996, respectively.
The accompanying notes are an integral part of these statements.
<PAGE> 6
PATRIOT BANK CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
March 31, 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 three-month period
ended March 31, 1997 are not necessarily indicative of the results which may be
expected for the entire year. The consolidated financial statements should be
read in conjunction with the annual report on Form 10-K for the year ended
December 31, 1996.
Note 2 - Earnings Per Share
Earnings per share has been calculated on a fully diluted basis. Weighted
average shares outstanding during the three month periods ended March 31, 1997
and 1996 were 4,031,000 and 4,197,000.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 128, EARNINGS PER SHARE, which is effective for
financial statements issued after December 15, 1997. Early adoption of the new
standard is not permitted. The new standard eliminates primary and fully diluted
earnings per share and requires presentation of basic and diluted earnings per
share together with disclosure of how the per share amounts were computed. The
adoption of this new standard is not expected to have a material impact on the
disclosure of earnings per share in the financial statements.
<PAGE> 7
PATRIOT BANK CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
March 31, 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>
- ----------------------------------------------------------------------------------------------------------------------
March 31, 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 $ 4,819 $ 2 $ 135 $ 4,686 $ 5,023 $ - $ 33 $ 4,990
Corporate securities 5,000 - - 5,000 - - - -
Equity securities 22,279 1,345 14 23,610 23,797 695 - 24,492
Mortgage-backed
securities
FHLMC 13,930 124 70 13,984 14,582 149 22 14,709
FNMA 24,449 81 336 24,194 25,118 150 144 25,124
GNMA 13,997 238 - 14,235 14,498 253 - 14,751
Collateralized mortgage
Obligations
FHLMC 38,332 111 538 37,905 37,928 7 296 37,639
FNMA 83,348 - 951 82,397 31,654 13 165 31,502
Other 5,877 - 213 5,664 5,976 - 35 5,941
------ ----- ----- ------- ------ ----- ----- ------
Total Investment
and mortgage-
backed securities
available for sale $212,031 $1,901 $ 2,257 $211,675 $158,576 $1,267 $ 695 $159,148
======== ====== ======= ======== ======== ====== ====== ========
Investment and Mortgage-Backed Securities Held to Maturity
Investment securities
U.S. Treasury and
government
agency
securities $ 1,665 $ 3 $ 31 $ 1,637 $ 1,911 $ - $ 19 $ 1,892
Corporate securities 2,503 9 5 2,507 2,506 27 - 2,533
Mortgage-backed
securities
Collateralized mortgage
obligations
FHLMC 3,117 - 50 3,067 - - - -
FNMA - - - - - - - -
Other 63,724 - 529 63,195 68,293 281 277 68,297
-------- ------ ------ -------- -------- ------ ------ --------
Total investment and
mortgage-backed
securities held to
maturity $ 71,009 $ 12 $ 615 $ 70,406 $ 72,710 $ 308 $ 296 $ 72,722
======== ====== ======= ======== ======== ====== ====== ========
</TABLE>
<PAGE> 8
Note 4 - Loans Receivable
Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
March 31, December 31,
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1997 1996
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(in thousands)
<S> <C> <C>
Real estate loans
First mortgages secured by one- to four-family
residences $205,356 $192,518
Home equity and second mortgage 72,953 72,480
Construction 2,186 3,210
Multi-family and commercial 13,725 11,822
-------- --------
294,220 280,030
Consumer loans 2,971 2,546
-------- --------
Total loans receivable 297,191 282,576
Less deferred loan origination fees (2,392) (2,392)
-------- --------
Total loans receivable, net $294,799 $280,184
======== ========
</TABLE>
Note 5 - Deposits
Deposits are summarized as follows:
<TABLE>
<CAPTION>
March 31, December 31,
- --------------------------------------------------------------------------------------------------
Deposit type 1997 1996
- --------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
NOW $ 17,339 $ 17,842
Money market 38,635 33,411
Savings accounts 28,908 27,712
Non-interest-bearing demand 4,756 3,432
-------- --------
Total demand, transaction, money
market and savings deposits 89,638 82,397
Certificates of deposits 176,642 157,117
-------- --------
Total deposits $266,280 $239,514
======== ========
</TABLE>
<PAGE> 9
Note 6 - 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. It is anticipated that this change will become effective in the
second quarter of 1997 and will have no significant effect on the financial
condition or results of operation of Patriot.
<PAGE> 10
PATRIOT BANK CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
March 31, 1997
GENERAL. Patriot Bank Corp. and subsidiaries (Patriot) reported earnings per
share of $.20 and net Income of $810,000 for the three-month period ended March
31, 1997. This represents an increase of 40.8% over earnings per share of $.14
and net income of $583,000 for the three month period ended March 31, 1996.
Return on average assets and return on average equity were .59% and 6.60%,
respectively, for three three-month period ended March 31, 1997 compared to .77%
and 4.03%, respectively, for the three-month period ended March 31,1996.
NET INTEREST INCOME. Net interest income for the three-month period ended
March 31, 1997 was $3,524,000 compared to $2,619,000 for the same period in
1996. This increase is primarily due to an increase in average balances.
PatriotOs net interest margin (net interest income as a percentage of average
interest-earning assets) was 2.43% for the three-month period ended March 31,
1997 compared to 3.58% for the same period in 1996.
Interest on loans was $5,540,000 for the three-month period ended March 31,
1997 compared to $3,903,000 for the same period in 1996. The average balance of
loans was $286,940,000 with an average yield of 7.76% for the three-month period
ended March 31, 1997 compared to an average balance of $197,214,000 with an
average yield of 7.66% 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 increase in average yield is primarily a result
of a larger percentage of commercial and consumer loans than in the prior
period.
Interest on Patriot's investment portfolio (investment and mortgage-backed
securities) was $4,750,000 for the three-month period ended March 31, 1997
compared to $1,253,000 for the same period in 1996. The average balance of the
investment portfolio was $277,409,000 with an average yield of 6.85% for the
three-month period ended March 31, 1997 compared to an average balance of
$75,764,000 with an average yield of 6.62% 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 $3,094,000 for the three-month periods ended
March 31, 1997 compared to $2,308,000 in the same period in 1996. The average
balance of total deposits was $259,727,000 with an average cost of 4.83% for the
three-month period ended March 31, 1997 compared to an average balance of
$203,336,000 with an average cost of 4.55% 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 $3,702,000 for the three-month period ended March
31, 1997 compared to $279,000 for the same period in 1996. The average balance
of borrowings was $265,978,000 with an average cost of 5.64% for the three-month
period ended March 31, 1997 compared to an average balance of $20,646,000 with a
cost of 5.38% 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> 11
PROVISION FOR POSSIBLE LOAN LOSSES. The provision for possible loan losses was
$105,000 for the three-month period ended March 31, 1997 compared to $35,000 for
the same period 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 March 31, 1997 Patriot's non-performing assets were
.13% of total assets and all loans 30 days or more delinquent were .65% of total
loans.
NON-INTEREST INCOME. Total non-interest income was $225,000 for the
three-month period ended March 31,1997 compared to $121,000 for the same periods
in 1996. The increase in noninterest income is the result of gains on the sale
of equity securities and an emphasis on increasing fee income.
NON-INTEREST EXPENSE. Total non-interest expense was $2,373,000 for the
three-month period ended March 31, 1997 compared to $1,744,000 for the same
period in 1996. The increase in non-interest expense was the result of the
growth of Patriot including staffing in four new community banking offices and
one lending office, offset somewhat by operating efficiencies and cost-saving
efforts. The ratio of non-interest expense to average assets improved to 1.65%
for the three-month period ended March 31 1997 compared to 2.49% for the same
period in 1996. The improvement in the overhead ratio reflects Patriot's
emphasis on managing costs.
INCOME TAX PROVISION. The income tax provision was $461,000 for the
three-month period ended March 31, 1997 compared to $379,000 for the same
period in 1996. The effective tax rate was 36.27% for 1997 compared to 39.40%
for 1996.
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 March 31, 1997 Patriot's total loan portfolio was $294,799,000,
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 three-month
period ended March 31, 1997, Patriot originated total loans of $34,345,000,
compared to total loans originated of $11,905,000 for the same period in 1996.
CASH AND CASH EQUIVALENTS. Cash and cash equivalents at March 31, 1997 were
$2,799,000 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 March 31, 1997 were
$282,684,000 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> 12
OTHER ASSETS. Premises and equipment at March 31, 1997 was $8,292,000 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 one lending office. Accrued interest receivable at March 31, 1997
was $3,249,000 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 March 31, 1997 was $72,000 compared to $74,000 at December 31, 1996.
Other assets at March 31, 1997 were $4,087,000 compared to $1,653,000 at
December 31, 1996. The increase is primarily due to in intransit items related
to increased lending volume.
DEPOSITS. Deposits are primarily attracted from within Patriot's market area
through the offering of various deposit instruments, including NOW accounts,
money market accounts, savings accounts, certificates of deposit and retirement
savings plans. Patriot also attracts jumbo certificates of deposit.
Total deposits at March 31, 1997 were $266,280,000 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 March 31, 1997 were $275,244,000 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 $48,042,000 at March 31,
1997 compared to $53,117,000 at December 31, 1996. The decrease was primarily a
result of the repurchase of 352,000 shares of common stock at a cost of
$5,005,000.
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.
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, 1997 was 5.44%.
During the three-month period ended March 31, 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 three month period ended March 31, 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> 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 March 31, 1997, 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 Corp., Patriot Bank and the current regulatory
requirements at March 31, 1997:
<TABLE>
<CAPTION>
Patriot Bank Patriot
Corp. Bank Requirement
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tangible capital to tangible asset 8.06% 5.70% 1.50%
Leverage (core) capital to tangible assets 8.06 5.70 3.00
Leverage (core) capital to risk-adjusted assets 16.47 11.86 4.00
Risk-based capital to risk-adjusted assets 17.13 12.56 8.00
</TABLE>
<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 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/Liabillity Committee meets regularly and reports trends and PatriotOs
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 ipursued 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 March 31, 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 $44,327 representing a one-year cumulative "gap," as defined above, as a
percentage of total assets of negative 7.46%.
<PAGE> 15
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.
Not applicable.
<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 May 29, 1997 /s/ Joseph W. Major
------------------------ ---------------------------------------
Joseph W. Major
President and Chief Operating Officer
Date May 29, 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>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,086
<INT-BEARING-DEPOSITS> 1,713
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<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 211,675
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<INVESTMENTS-MARKET> 70,406
<LOANS> 294,799
<ALLOWANCE> (1,927)
<TOTAL-ASSETS> 594,055
<DEPOSITS> 266,280
<SHORT-TERM> 191,244
<LIABILITIES-OTHER> 4,437
<LONG-TERM> 84,000
0
0
<COMMON> 47
<OTHER-SE> 48,037
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<INCOME-PRETAX> 1,271
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<NET-INCOME> 810
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