SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
Annual report pursuant to Section 13 of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1997
Commission File No.: 0-26744
PATRIOT BANK CORP.
(exact name of registrant as specified in its charter)
DELAWARE 23-2820537
(State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
High and Hanover Streets, Pottstown, Pennsylvania 19464
(Address of principal executive offices)
Registrant's telephone number,
including area code: (610) 323-1500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
(Title of class)
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.
Yes _X_ No ___.
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of the
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant, i.e., persons other than directors and executive officers of the
registrant is $66,001,803 and is based upon the last sales price as quoted on
The Nasdaq Stock Market for March 10, 1998.
As of March 10, 1998, the Registrant had 4,355,876 shares outstanding (excluding
treasury shares).
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for the 1998 Annual
Meeting of Stockholders are incorporated by reference into Part III of this Form
10-K.
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INDEX
PART I PAGE
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Item 1. Business
Item 2. Properties.
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item 4A. Executive Officers of the Registrant
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the
Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial
Owners and Management
Item 13. Certain Relationships and Related
Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K
SIGNATURES
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Item 1. Business
General
Patriot Bank Corp. (the "Company") is a Delaware corporation and is the
holding company for Patriot Bank (the "Bank") and Patriot Investment Company
("PIC"). The Company is a bank holding company and is subject to regulation by
the Board of Governors of the Federal Reserve System (the "FRB"), the Federal
Deposit Insurance Corporation (the "FDIC") and the Securities and Exchange
Commission (the "SEC"). The Company's executive offices are located at the
administrative offices of the Bank at High and Hanover Streets, Pottstown,
Pennsylvania 19464.
The Bank was originally chartered in 1938. In 1991, the Bank's predecessor
converted from a federally-chartered mutual savings bank to a
Pennsylvania-chartered mutual savings bank and changed its name to Patriot
Savings Bank. In August 1995, the Bank converted from a Pennsylvania-chartered
mutual savings bank to a federally-chartered mutual savings bank. On December 1,
1995, the Company acquired the Bank as part of the Bank's conversion from a
mutual to stock form of ownership (the "Conversion"). In connection with the
Conversion, the Bank changed its name to Patriot Bank. On May 23, 1997, the Bank
converted to a Pennsylvania-chartered commercial bank. The Bank conducts
business through its network of 13 community banking offices located in
Montgomery, Berks, Lehigh, Northampton and Chester Counties, Pennsylvania. The
Bank's deposits are insured up to the maximum allowable by the Savings Insurance
Fund ("SAIF") administered by the FDIC. At December 31, 1997, the Bank had total
assets of $809.1 million, deposits of $289.6 million and stockholder's equity of
$43.3 million.
The Bank is a community-oriented financial services provider whose business
primarily consists of attracting retail deposits from the general public and
small businesses and originating commercial, consumer, and mortgage loans in the
Bank's market area. In addition to its lending activities, the Bank also invests
in investment and mortgage-backed securities. The Bank uses advances from the
Federal Home Loan Bank of Pittsburgh ("FHLB") and repurchase agreements as
sources of funds.
The Bank's revenues are derived principally from interest on loans,
interest on investment and mortgage-backed securities and other fees and service
charges. The Bank's primary sources of funds are deposits, FHLB advances,
repurchase agreements, interest on loans and investment and mortgage-backed
securities and principal repayments.
PIC is a Delaware investment corporation that was incorporated by the
Company on September 10, 1996. Its primary business consists of maintaining an
investment portfolio. At December 31, 1997, PIC had total assets of $49.7
million, liabilities of $26.5 million, and stockholder's equity of $23.2
million.
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Market Area and Competition
The Company is located approximately 45 miles northwest of Philadelphia,
Pennsylvania and its market consists primarily of Montgomery, Berks, Lehigh,
Northampton, Bucks, and Chester counties, Pennsylvania. The segment of the
markets served by the Company is primarily industrially oriented and
demographically is comprised of middle income and upper income households.
The Company faces significant competition both in originating loans and
attracting deposits. The Company's competitors are other financial services
providers operating within its primary market area, some of which are larger and
have greater financial resources than the Company. The Company's competition for
loans and deposits comes principally from commercial banks, savings and loan
associations, savings banks, credit unions, and mortgage banking companies (some
of which are subsidiaries of major financial institutions). In addition, the
Company faces increasing competition for deposits from non-bank institutions
such as brokerage firms and insurance firms with products such as money market
funds, mutual funds and annuities. Competition may increase as a result of the
continuing reduction in the effective restrictions on interstate operations of
financial institutions.
Management considers the Company's reputation for financial strength,
superior customer service, convenience and product offerings as a competitive
advantage in attracting and retaining customers.
Subsidiary Activities
The Company has two wholly-owned subsidiaries: The Bank and PIC. The Bank
has three wholly-owned subsidiaries: Marathon Management Company, Inc.
("Marathon"), Patriot Financial Center, Inc. ("PBFC"), and Patriot Commercial
Leasing Co., Inc. ("PCLC"). Marathon provides title insurance services through a
joint venture partnership. At December 31, 1997, Marathon had total assets of
$170,000. PBFC markets certain nondeposit investment products. At December 31,
1997, PBFC had total assets of $10,000. PCLC is a commercial leasing company. At
December 31, 1997, PCLC had total assets of $2.3 million.
Personnel
As of December 31, 1997, the Bank had 133 full-time and 19 part-time
employees, none of whom was covered by a collective bargaining agreement.
Management believes that the Bank has good relations with its employees and
there are no pending or threatened labor disputes with its employees.
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Regulation and Supervision
General. The Company, as a bank holding company, is required to file
certain reports with, and otherwise comply with the rules and regulations of the
FRB under the Bank Holding Company Act, as amended (the "BHCA"). In addition,
the activities of Pennsylvania-chartered commercial banks, such as the Bank, are
governed by the Pennsylvania Banking Code and the Federal Deposit Insurance Act
("FDI Act").
The Bank is subject to extensive regulation, examination and supervision by
the Pennsylvania Department of Banking ("PDB"), as its primary regulator, and
the FDIC, as the deposit insurer. The Bank is a member of the Federal Home Loan
Bank ("FHLB") System and its deposit accounts are insured up to applicable
limits by the Savings Association Insurance Fund ("SAIF") managed by the FDIC.
The Bank must file reports with the PDB and the FDIC concerning its activities
and financial condition in addition to obtaining regulatory approvals prior to
entering into certain transactions such as mergers with, or acquisitions of,
other banking institutions. The PDB and/or the FDIC conduct periodic
examinations to test the Bank's safety and soundness and compliance with various
regulatory requirements. This regulation and supervision establishes a
comprehensive framework of activities in which an institution can engage and is
intended primarily for the protection of the insurance fund and depositors. The
regulatory structure also gives the regulatory authorities extensive discretion
in connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and
the establishment of adequate loan loss reserves for regulatory purposes. Any
change in such regulatory requirements and policies, whether by the FRB, the
FDIC or the Congress, could have a material adverse impact on the Company, the
Bank and their operations. Certain of the regulatory requirements applicable to
the Bank and to the Company are referred to below or elsewhere herein. The
description of statutory provisions and regulations applicable to banking
institutions and their holding companies set forth in this Form 10-K does not
purport to be a complete description of such statutes and regulations and their
effects on the Bank and the Company.
Holding Company Regulation. The Company is a bank holding company
registered under the BHCA. As a bank holding company, the Company's activities
and those of the Bank are limited to the business of banking and activities
closely related or incidental to banking.
The BHCA prohibits a bank holding company, directly or indirectly, or
through one or more subsidiaries, from acquiring more than 5% of the voting
stock of another banking institution or holding company thereof, without prior
written approval of the FRB; acquiring or retaining, with certain exceptions,
more than 5% of a nonsubsidiary company engaged in activities other than
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those permitted by the BHCA; or acquiring or retaining control of a depository
institution that is not insured by the FDIC.
Under FRB policy, a bank holding company is expected to act as a source of
financial strength to its subsidiary bank and to commit resources to support the
bank, i.e., to downstream funds to the bank. This support may be required at
times when, absent such policy, the bank holding company might not otherwise
provide such support. Any capital loans by a bank holding company to its
subsidiary bank are subordinate in right of payment to deposits and to certain
other indebtedness of the bank. In the event of a bank holding company's
bankruptcy, any commitment by the bank holding company to a federal bank
regulatory agency to maintain the capital of its subsidiary bank will be assumed
by the bankruptcy trustee and entitled to a priority of payment.
Capital Requirements. The FRB adopted risk-based capital guidelines for
bank holding companies, such as the Company. The required minimum ratio of total
capital to risk-weighted assets (including off-balance sheet activities, such as
standby letters of credit) is 8.0%. At least half of the total capital is
required to be "Tier 1 capital," consisting principally of common stockholders'
equity, noncumulative perpetual preferred stock and minority interests in the
equity accounts of consolidated subsidiaries, less goodwill. The remainder
("Tier 2 capital") may consist of a limited amount of subordinated debt and
intermediate-term preferred stock, certain hybrid capital instruments and other
debt securities, perpetual preferred stock, and a limited amount of the general
loan loss allowance.
In addition to the risk-based capital guidelines, the FRB established
minimum leverage ratio (Tier 1 capital to average total assets) guidelines for
bank holding companies. These guidelines provide for a minimum leverage ratio of
3% for those bank holding companies which have the highest regulatory
examination ratings and are not contemplating or experiencing significant growth
or expansion. All other bank holding companies are required to maintain a
leverage ratio of at least 1% to 2% above the 3% stated minimum. The Company is
in compliance with these guidelines. The Bank is subject to similar capital
requirements also adopted by the FRB.
The risk-based capital standards are required to take adequate account of
interest rate risk, concentration of credit risk and the risks of
non-traditional activities.
Under the FRB prompt corrective action regulations, the FRB is required to
take certain supervisory actions against undercapitalized institutions, the
severity of which depends upon the institution's degree of undercapitalization.
Generally, a bank holding company is considered "well capitalized" if its ratio
of total capital to risk-weighted assets is at least 10%, its ratio of Tier I
(core) capital to risk-weighted assets is at least 6%, its ratio of core capital
to total assets is at least
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5%, and it is not subject to any order or directive by the FRB to meet a
specific capital level. A bank holding company generally is considered
"adequately capitalized" if its ratio of total capital to risk-weighted assets
is at least 8%, its ratio of Tier I (core) capital to risk-weighted assets is at
least 4%, and its ratio of core capital to total assets is at least 4% (3% if
the institution receives the highest CAMEL rating). A bank holding company that
has lower ratios of capital are categorized as "undercapitalized,"
"significantly under capitalized," or "critically undercapitalized." Subject to
a narrow exception, the banking regulator is required to appoint a receiver or
conservator for an institution that is "critically undercapitalized." The
regulation also provides that a capital restoration plan must be filed with the
FRB within 45 days of the date a bank receives notice that it is
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized." Compliance with the plan must be guaranteed by any parent
holding company. In addition, numerous mandatory supervisory actions become
immediately applicable to an undercapitalized institution, including, but not
limited to, increased monitoring by regulators and restrictions on growth,
capital distributions and expansion. The FRB could also take any one of a number
of discretionary supervisory actions, including the issuance of a capital
directive and the replacement of senior executive officers and directors. At
December 31, 1997, the Company was "well capitalized."
Insurance of Deposit Accounts. Deposits of the Bank are presently insured
by the SAIF. Both the SAIF and the Bank Insurance Fund ("BIF"), (the deposit
insurance fund that covers most commercial bank deposits), are statutorily
required to maintain a 1.25% of insured reserve deposits ratio. Both the BIF and
the SAIF currently exceed the 1.25% ratio. Therefore, most institutions,
including the Bank, presently pay no deposit insurance premiums. The FDIC must
assess deposit insurance premiums if the 1.25% ratio is not met, and may impose
premiums on under capitalized or unsafe institutions.
While most banks do not pay deposit insurance, all institutions are
assessed for payment of the FICO bonds. Through 1999, BIF deposits are assessed
for FICO payments at a rate that is one-fifth of the rate assessed on SAIF
deposits. Full pro rata sharing of the FICO payments between BIF and SAIF
members will occur on the earlier of January 1, 2000 or the date the BIF and
SAIF are merged. The FDIC resets the FICO assessment rate every six months. The
current annual rate is 1.26 basis points for BIF deposits, and 6.3 basis points
for SAIF deposits.
Under the FDI Act, insurance of deposits may be terminated by the FDIC upon
a finding that the institution has engaged in unsafe or unsound practices, is in
an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC. The
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management of the Bank does not know of any practice, condition or violation
that might lead to termination of deposit insurance.
Loans to One Borrower. Applicable regulations limit the dollar amount of
loans that the Bank may have outstanding to any one borrower, or group of
affiliated borrowers, to 15% of the capital and surplus of the Bank. As of
December 31, 1997, this limitation was equal to $6.5 million. There are
exceptions from the limitation for certain secured loans, depending upon the
amount and type of collateral.
Limitation on Capital Distributions. Dividend payments by the Bank to the
Company are subject to the Pennsylvania Banking Code of 1965, the Federal
Reserve Act, and the FDI Act. Under the Pennsylvania Banking Code, no dividends
may be paid except from "accumulated net earnings" (generally, undivided
profits). Under the FDI Act, no dividends may be paid by an insured bank if the
bank is in arrears in the payment of any insurance assessment due to the FDIC.
Under current banking laws, the Bank would be limited to approximately $17.9
million of dividends in 1998 plus an additional amount equal to the Bank's net
profit for 1998, up to the date of any such dividend declaration.
State and federal regulatory authorities have adopted standards for the
maintenance of adequate levels of capital by banks. Adherence to such standards
further limits the ability of the Bank to pay dividends to the Company.
Interstate Banking. The Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Interstate Banking Law"), amended various federal
banking laws to provide for nationwide interstate banking, interstate bank
mergers and interstate branching. The interstate banking provisions allow for
the acquisition by a bank holding company of a bank located in another state.
Interstate bank mergers and branch purchase and assumption transactions
were allowed effective June 1, 1997; however, states were permitted to "opt-out"
of the merger and purchase and assumption provisions by enacting a law which
specifically prohibited such interstate transactions. States could have, in the
alternative, enacted legislation to allow interstate merger and purchase and
assumption transactions prior to June 1, 1997. States could also enact
legislation to allow for de novo interstate branching by out of state banks. In
July 1995, Pennsylvania adopted "opt-in" legislation which allows such
transactions.
Transactions with Related Parties. The Bank's authority to engage in
transactions with related parties or "affiliates" (e.g., any company that
controls or is under common control with an institution, including the Company
and its non-savings institution subsidiaries) is limited by Sections 23A and 23B
of
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the Federal Reserve Act ("FRA"). Section 23A limits the aggregate amount of
covered transactions with any individual affiliate to 10% of the capital and
surplus of the Bank. The aggregate amount of covered transactions with all
affiliates is limited to 20% of the Bank's capital and surplus. Certain
transactions with affiliates are required to be secured by collateral in an
amount and of a type described in Section 23A and the purchase of low quality
assets from affiliates is generally prohibited. Section 23B generally provides
that certain transactions with affiliates, including loans and asset purchases,
must be on terms and under circumstances, including credit standards, that are
substantially the same or at least as favorable to the institution as those
prevailing at the time for comparable transactions with non-affiliated
companies. In addition, banks are prohibited from lending to any affiliate that
is engaged in activities that are not permissible for bank holding companies and
no bank may purchase the securities of any affiliate other than a subsidiary.
The Bank's authority to extend credit to executive officers, directors and
10% shareholders ("insiders"), as well as entities such persons control, is
governed by Sections 22(g) and 22(h) of the FRA and Regulation O thereunder.
Among other things, such loans are required to be made on terms substantially
the same as those offered to unaffiliated individuals and to not involve more
than the normal risk of repayment. Recent legislation created an exception for
loans made pursuant to a benefit or compensation program that is widely
available to all employees of the institution and does not give preference to
insiders over other employees. Regulation O also places individual and aggregate
limits on the amount of loans the Bank may make to insiders based, in part, on
the Bank's capital position and requires certain board approval procedures to be
followed.
Enforcement. Under the FDI Act, the FDIC has primary enforcement
responsibility over state nonmember banks and has the authority to bring actions
against the institution and all institution-affiliated parties, including
stockholders, and any attorneys, appraisers and accountants who knowingly or
recklessly participate in wrongful action likely to have an adverse effect on an
insured institution. Formal enforcement action may range from the issuance of a
capital directive or cease and desist order to removal of officers and/or
directors to institution of receivership, conservatorship or termination of
deposit insurance. Civil penalties cover a wide range of violations and can
amount to $25,000 per day, or even $1 million per day in especially egregious
cases. Federal law also establishes criminal penalties for certain violations.
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Standards for Safety and Soundness. The federal banking agencies have adopted
Interagency Guidelines Prescribing Standards for Safety and Soundness
("Guidelines") and a final rule to implement safety and soundness standards
required under the FDI Act. The Guidelines set forth the safety and soundness
standards that the federal banking agencies use to identify and address problems
at insured depository institutions before capital becomes impaired. The
standards set forth in the Guidelines address internal controls and information
systems; internal audit system; credit underwriting; loan documentation;
interest rate risk exposure; asset growth; and compensation, fees and benefits.
If the appropriate federal banking agency determines that an institution fails
to meet any standard prescribed by the Guidelines, the agency may require the
institution to submit to the agency an acceptable plan to achieve compliance
with the standard, as required by the FDI Act. The final rule establishes
deadlines for the submission and review of such safety and soundness compliance
plans when such plans are required.
Federal Reserve System. The Federal Reserve Board regulations require savings
institutions to maintain non-interest earning reserves against their transaction
accounts (primarily NOW and regular checking accounts). During fiscal 1997, the
Federal Reserve Board regulations generally required that reserves be maintained
against aggregate transaction accounts as follows: for accounts aggregating
$47.8 million or less (subject to adjustment by the Federal Reserve Board) the
reserve requirement is 3%; and for accounts aggregating greater than $47.8
million, the reserve requirement is $1.434 million plus 10% (subject to
adjustment by the Federal Reserve Board between 8% and 14%) against that portion
of total transaction accounts in excess of $47.8 million. The first $4.7 million
of otherwise reservable balances (subject to adjustments by the Federal Reserve
Board) were exempted from the reserve requirements. The Bank is in compliance
with the foregoing requirements. The balances maintained to meet the reserve
requirements imposed by the Federal Reserve Board may be used to satisfy
liquidity requirements imposed by the FDIC.
Federal and State Taxation
Federal Taxation
General. The Company and its subsidiaries report their income on a
consolidated basis using the accrual method of accounting, and are subject to
federal income taxation in the same manner as other corporations with some
exceptions, including particularly the Bank's reserve for bad debts discussed
below. The following discussion of tax matters is intended only as a summary and
does not purport to be a comprehensive description of the tax rules applicable
to the Company. For its 1997 taxable year, the Company is subject to a maximum
federal income tax rate of 35%.
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Bad Debt Reserves. As a commercial bank, the Bank is permitted to recognize
bad debt expense based on actual experience. Prior to its conversion to a
commercial bank in May 1997, the Bank was a thrift institution. For fiscal years
beginning prior to December 31, 1995, thrift institutions which qualified under
certain definitional tests and other conditions of the Internal Revenue Code of
1986 (the "Code") were permitted to use certain favorable provisions to
calculate their deductions from taxable income for annual additions to their bad
debt reserve. A reserve could be established for bad debts on qualifying real
property loans (generally secured by interests in real property improved or to
be improved) under (i) the Percentage of Taxable Income Method (the "PTI
Method") or (ii) the Experience Method. The reserve for nonqualifying loans was
computed using the Experience Method.
The Small Business Job Protection Act of 1996 (the "1996 Act") requires
savings institutions to recapture (i.e., take into income) certain portions of
their accumulated bad debt reserves. The 1996 Act repeals the reserve method of
accounting for bad debts effective for tax years beginning after 1995. Thrift
institutions that would be treated as small banks are allowed to utilize the
Experience Method applicable to such institutions, while thrift institutions
that are treated as large banks (those generally exceeding $500 million in
assets) are required to use only the specific charge-off method. Thus, the PTI
Method of accounting for bad debts is no longer available for any financial
institution.
A thrift institution required to change its method of computing reserves
for bad debts will treat such change as a change in method of accounting,
initiated by the taxpayer, and having been made with the consent of the IRS. Any
Section 481(a) adjustment required to be taken into income with respect to such
change generally will be taken into income ratably over a six-taxable year
period, beginning with the first taxable year beginning after 1995, subject to
the residential loan requirement.
Under the residential loan requirement provision, the recapture required by
the 1996 Act will be suspended for each of two successive taxable years,
beginning with the Bank's current taxable year, in which the Bank originates a
minimum of certain residential loans based upon the average of the principal
amounts of such loans made by the Bank during its six taxable years preceding
its current taxable year.
Under the 1996 Act, for its current and future taxable years, the Bank is
permitted to make additions to its tax bad debt reserves. In addition, since the
Banks tax bad debt reserves as of December 31, 1987 exceeded its tax bad debt
reserves as of December 31, 1995 it is not required to recapture any income.
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Distributions. Under the 1996 Act, if the Bank makes "non-dividend
distributions" to the Company, such distributions will be considered to have
been made from the Bank's unrecaptured tax bad debt reserves (including the
balance of its reserves as of December 31, 1987) to the extent thereof, and then
from the Bank's supplemental reserve for losses on loans, to the extent thereof,
and an amount based on the amount distributed (but not in excess of the amount
of such reserves) will be included in the Bank's income. Non-dividend
distributions include distributions in excess of the Bank's current and
accumulated earnings and profits, as calculated for federal income tax purposes,
distributions in redemption of stock, and distributions in partial or complete
liquidation. Dividends paid out of the Bank's current or accumulated earnings
and profits will not be so included in the Bank's income.
The amount of additional taxable income triggered by a non-dividend is an
amount that, when reduced by the tax attributable to the income, is equal to the
amount of the distribution. Thus, if the Bank makes a non-dividend distribution
to the Company, approximately one and one-half times the amount of such
distribution (but not in excess of the amount of such reserves) would be
includable in income for federal income tax purposes, assuming a 35% federal
corporate income tax rate. The Banks does not intend to pay dividends that would
result in a recapture of any portion of its bad debt reserves.
Corporate Alternative Minimum Tax. The Internal Revenue Code of 1986, as
amended (the "Code") imposes a tax on alternative minimum taxable income
("AMTI") at a rate of 20%. The excess of the tax bad debt reserve deduction
using the percentage of taxable income method over the deduction that would have
been allowable under the experience method is treated as a preference item for
purposes of computing the AMTI. Only 90% of AMTI can be offset by net operating
loss carryovers. AMTI is increased by an amount equal to 75% of the amount by
which the Bank's adjusted current earnings exceeds its AMTI (determined without
regard to this preference and prior to reduction for net operating losses). In
addition, for taxable years beginning after December 31, 1986 and before January
1, 1996, an environmental tax of .12% of the excess of AMTI (with certain
modifications) over $2.0 million is imposed on corporations, including the Bank,
whether or not an Alternative Minimum Tax ("AMT") is paid. The Bank does not
expect to be subject to the AMT, but may be subject to the environmental tax
liability.
Dividends Received Deduction and Other Matters. The Company may exclude
from its income 100% of dividends received from the Bank as a member of the same
affiliated group of corporations. The corporate dividends received deduction is
generally 70% in the case of dividends received from unaffiliated corporations
with which the Company and the Bank will not file a consolidated tax return,
except that if the Company owns more than 20% of the
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stock of a corporation distributing a dividend, 80% of any
dividends received may be deducted.
State Taxation
Commonwealth of Pennsylvania. Prior to the Bank's conversion to a
Pennsylvania chartered commercial bank, the Bank was subject to the Mutual
Thrift Institutions Tax ("MTIT"), an excise tax imposed on certain financial
institutions (including savings institutions having capital stock) for the
privilege of doing business in Pennsylvania. The MTIT equals 11.5% of an
institution's "annual taxable net income" determined in accordance with
generally accepted accounting principles with certain modifications. Financial
institutions subject to the MTIT are exempt from all other corporate taxes
imposed by Pennsylvania.
The Bank is now subject to a "Bank Shares Tax" which is imposed on every
bank having capital stock located within Pennsylvania. The Bank Shares Tax is
based on the value of the bank's shares as of the preceding January 1st. The
taxable amount is computed by adding the book value of capital stock paid in,
the book value of the surplus and the book value of undivided profits, and then
deducting from that total an amount equal to the percentage that the book value
of the bank's federal obligations and state obligations bears to the book value
of the bank's total assets. This value is calculated on the basis of the current
year and the preceding five years, but, if a bank has not been in existence for
six years, the taxable amount is computed by adding the value for the number of
years that the bank has been in existence and dividing the resulting sum by that
number of years. The Bank Shares Tax rate is 1.25% of the taxable amount. Banks
subject to the Bank Shares Tax are exempt from all other corporate taxes imposed
by Pennsylvania.
Corporations doing business in Pennsylvania and not subject to the MTIT or
Bank Shares Tax are subject to Pennsylvania Corporate Net Income Tax ("CNIT").
The CNIT is an annual excise tax and is measured by the Corporation's taxable
income as determined under the Code. When a domestic or foreign corporation's
entire business is not transacted wholly within Pennsylvania, such taxable
income must allocated and apportioned to determine that portion subject to the
CNIT. The CNIT rate is 9.99%. Pennsylvania also subjects such corporations to
the Pennsylvania Capital Stock and Franchise Tax.
At the start of 1997, the Bank was subject to the MTIT. After the Bank's
conversion to a Pennsylvania-chartered commercial bank, the Bank ceased to be
subject to the MTIT and the Bank will file its final MTIT return. The Bank is
now subject to the Bank Shares Tax. The January 1st share value of the Bank may
be averaged to include preceding years if Pennsylvania treats the conversion
consistent with a foreign corporation commencing business in Pennsylvania.
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The Company is subject to the Pennsylvania CNIT and the Pennsylvania
Capital Stock and Franchise Tax because it is a foreign corporation doing
business in Pennsylvania. The Company's Pennsylvania CNIT is calculated on an
unconsolidated basis and adjusted to reflect the appropriate allocation and
apportionment requirements. The Company is not subject to the MTIT or Bank
Shares Tax.
State of Delaware Taxation. The Delaware Tax Code excludes from Delaware
corporate income taxation any corporation which limits its activities to the
maintenance and management of intangible investments within the State of
Delaware. This exception for Delaware "holding companies" applies to the Company
as long as its sole activity in the State of Delaware is the maintenance and
management of its subsidiary investments including the Bank and PIC. The Company
is, however, required to file annual reports and pay fees to the State of
Delaware. PIC is not subject to Delaware corporate income tax as an investment
company.
Item 2. Properties
The Bank has 13 banking offices, three (3) of which are located in
Montgomery County, four (4) of which are located in Berks County, three (3) of
which are located in Lehigh County, one (1) of which is located in Northampton
County, one (1) which is located in Chester County, and one (1) of which is
located in Bucks County, Pennsylvania. The Bank owns 6 and leases 7 of the
banking office properties.
Item 3. Legal Proceedings
The Company is a defendant in various legal actions arising from normal
business activities. Management believes that those actions are either without
merit or that the ultimate liability, if any, resulting from such actions will
not have a material adverse effect on the Company's consolidated financial
position or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 4A. Executive Officers of the Registrant
Certain information, including principal occupation during the past five
years, relating to the principal executive officers of the Company, as of March
10, 1998, is set forth below:
Gary N. Gieringer - Age 57. Mr. Gieringer was elected Chairman of the
Board and Chief Executive Officer of the Company in August 1995. Prior
thereto, Mr. Gieringer served as President and Chief Executive Officer of
the Bank.
12
<PAGE>
Joseph W. Major - Age 42. Mr. Major was elected President and Chief
Operating Officer of the Company and the Bank in September 1995 and Chief
Executive Officer of the Bank in April 1997. Prior to his appointment at
the Company and the Bank, Mr. Major was a partner in the firm of Mauger &
Major.
Richard A. Elko - Age 36. Mr. Elko was elected Executive Vice
President and Chief Financial Officer of the Company and the Bank in
January 1996. Prior to his appointment at the Company and the Bank, Mr.
Elko was Corporate Controller at Sovereign Bancorp, Inc.
Robert G. Phillips - Age 46. Mr. Phillips was elected Treasurer of the
Company and the Bank in August 1995. Prior thereto, Mr. Phillips was
Treasurer of the Bank.
Paulette A. Strunk - Age 48. Ms. Strunk was elected Corporate
Secretary of the Company and the Bank in September 1995. Prior thereto, Ms.
Strunk was Vice President of the Bank.
13
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's common stock is traded in the over-the-counter market and is
quoted on the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") National Market System under the symbol "PBIX." At March 10,
1998, the total number of holders of record of the Company's common stock was
563.
The following table sets forth the high and low bid and asked information
of the Company's common stock to the extent available as reported by NASDAQ.
Such prices have been adjusted to reflect all stock dividends paid during 1996
and 1997.
<TABLE>
<CAPTION>
1996 1997
Bid Asked Bid Asked
- ----------------------------------------------------- -------------------------------------------------
Qtr High Low High Low Qtr High Low High Low
- ----------------------------------------------------- -------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1st 8-55/64 8-1/2 9-1/32 8-55/64 1st 13-21/64 10-47/64 14-1/6 11-1/4
2nd 8-15/16 8-11/16 9-7/64 8-55/64 2nd 14-31/64 11-7/8 14-57/64 12-19/64
3rd 10-21/64 8-55/64 10-1/2 8-15/16 3rd 18-1/2 14-31/64 19-1/8 14-51/64
4th 11-3/8 10-1/16 11-35/64 10-21/64 4th 20-3/4 16-1/2 21-1/4 16-3/4
</TABLE>
The bid quotations reflect interdealer quotations, do not include retail mark
ups, mark downs or commissions,and may not necessarily represent actual
transactions. The bid information as stated is, to the knowledge of management
of the Company, the best approximate value at the time indicated.
Dividend Information.
Dividends on the Company's common stock are generally payable in February,
May, August, and November.
Set forth below are the cash dividends paid by the Company during 1996 and
1997. Such dividends have been adjusted to reflect all stock dividends paid
during such years.
1997 1996
---- ----
First Quarter $.069 $.013
Second Quarter $.073 $.042
Third Quarter $.077 $.056
Fourth Quarter $.079 $.067
For certain limitations on the ability of the Bank to pay dividends to the
Company, See Part I, Item I "Business -- Regulation and Supervision --
Limitation on Capital Distributions" and Note 11 at Item 8 "Financial Statements
and Supplementary Data" hereof.
14
<PAGE>
Item 6. Selected Financial Data
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The selected consolidated financial and other data and management's discussion
and analysis set forth below is derived in part from, and should be read in
conjunction with, the Consolidated Financial Statements and Notes thereto,
contained elsewhere herein.
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Selected Financial Condition Data:
Total assets $851,500 $529,165 $268,869 $221,035 $221,895
Investment and mortgage-backed
securities available for sale(1) 343,125 159,148 47,646 33,025 --
Investment and mortgage-backed
securities held to maturity(1) 62,516 72,710 3,917 8,669 34,436
Loans held for sale 4,095 -- -- -- --
Loans receivable 422,209 280,184 194,250 168,974 161,529
Allowance for possible loan losses (2,512) (1,830) (1,702) (1,720) (1,665)
Deposits 289,528 239,514 201,618 189,938 198,876
Borrowings 508,301 231,595 10,000 10,000 2,000
Stockholders' equity 46,533 53,117 54,110 17,868 17,517
For Year Ended December 31,
--------------------------------------------------------------------
1997 1996 1995 1994 1993
------- -------- -------- -------- --------
(in thousands)
Selected Operating Data:
Interest Income $50,249 $29,594 $17,168 $15,498 $17,361
Interest Expense 35,807 17,502 9,549 8,125 9,628
------ ------ ----- ----- -----
Net interest income before provision
for possible loan losses 14,442 12,092 7,619 7,373 7,733
Provision for possible loan losses 915 305 60 56 1
------ ----- ----- ----- -----
Net interest income after provision
for possible loan losses 13,527 11,787 7,559 7,317 7,732
Non-interest income 2,330 637 518 674 1,496
Non-interest expense 11,158 9,198 6,151 6,090 5,451
------ ----- ----- ----- -----
Income before income taxes 4,699 3,226 1,926 1,901 3,777
Income taxes 1,326 1,251 734 717 1,460
------ ----- ----- ----- -----
Net income $3,373 $1,975 $1,192 $1,184 $2,317
====== ====== ====== ====== ======
Earnings per share - diluted(2) $0.741 $0.387
====== ======
Net income before special charge(3) $2,811
======
Earnings per share - diluted
before special charge(2)(3) $0.551
======
</TABLE>
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA, CONTINUED
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------------------------------
1997 1996 1995 1994 1993
--------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Performance Ratios(4):
Return on Average Assets 0.49% 0.48% 0.50% 0.54% 0.99%
Return on Average Assets
before special charge(3) -- 0.68 -- -- --
Return on Average Equity 7.22 3.71 5.40 6.59 13.61
Return on Average Equity
before special charge(3) -- 5.28 -- -- --
Average interest rate spread(5) 2.10 2.95 3.29 3.33 3.31
Net interest margin(6) 2.14 3.01 3.39 3.45 3.43
Average interest-earning
assets to average
interest bearing liabilities 104.90 113.69 109.20 107.16 106.9
Total non-interest expense to
average assets(10) 1.56 1.93 2.65 2.75 2.34
Dividend payout ratio(2) 40.31 45.91 -- -- --
Regulatory Capital Ratios(7):
Tier 1 capital to
average assets(8) 7.90% 9.97% 20.14% 8.46% 7.89%
Total risk adjusted capital to
risk-adjusted assets(8) 12.92 20.28 34.27 13.98 13.61
Tier 1 capital to
risk-adjusted assets(8) 14.54 20.98 35.35 15.33 14.90
Asset Quality Ratios(9):
Non-performing assets as a percent
of total assets 0.15 0.12 0.29 0.45 0.64
Non-performing assets as a percent
of loans receivable 0.26 0.20 0.30 0.43 0.53
Allowance for possible loan
losses as a percent of
loans receivable 0.59 0.65 0.88 1.01 1.02
Allowance for possible loan
losses as a percent of
non-performing loans 225.90 321.94 292.94 234.94 190.94
</TABLE>
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA, CONTINUED
(1) Effective January 1, 1994, Patriot adopted SFAS No. 115 and classified
$3,341,000 of investment and mortgage-backed securities as held to
maturity, $31,095,000 of investment and mortgage-backed securities as
available for sale and no securities as trading securities.
(2) Patriot completed its initial public offering on December 1, 1995.
Therefore, earnings per share and dividend payout ratio are not
applicable for years prior to 1996.
(3) Special charge representing the special deposit insurance assessment
levied against all SAIF member financial institutions by the FDIC to
recapitalize its SAIF fund.
(4) All ratios are based on average monthly balances during the indicated
periods.
(5) The average interest rate spread represents the difference between the
weighted average yield on total assets and the weighted average cost of
total liabilities and equity.
(6) The net interest margin represents tax-equivalent net interest income as
a percent of average interest-earning assets.
(7) For definitions and further information relating to regulatory capital
requirements, see footnote 14 of the consolidated financial statements.
(8) Regulatory capital ratios for 1996 and years prior are calculated under
OTS guidelines, current year ratios are calculated using FDIC guidelines
due to the conversion to a state chartered commercial bank
(9) Non-performing assets consist of non-performing loans and real estate
owned (REO). Non-performing loans consist of non-accrual loans, while REO
consists of real estate acquired through foreclosure and real estate
acquired by acceptance of a deed in lieu of foreclosure.
(10) Calculated prior to special charge, representing the special deposit
insurance assessment levied against all SAIF member financial
institutions by the FDIC to recapitalize its SAIF fund.
17
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
In addition to historical information, this discussion and analysis of Patriot
Bank Corp. and Subsidiaries (Patriot) contains forward-looking statements. The
forward-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.
Summary. For the year ended December 31, 1997, Patriot reported net income of
$3,373,000 or $.74 per share compared to net income of $1,975,000 or $.39 per
share for the tear ended December 31, 1996. This represents an increase in net
income of 71% and an increase in earnings per share of 90%. Return on average
equity was 7.22% for 1997 compared to 3.71% for 1996.
The 1996 results include a special after-tax charge of $836,000 ($1,338,000
before-tax) representing the special deposit insurance assessment levied against
all SAIF member financial institutions by the FDIC to recapitalize its SAIF
fund. Excluding the special charge, Patriot reported net income of $2,811,000 or
$.55 per share for 1996.
Stock Conversion. Patriot became a publicly owned company on December 1, 1995
when it issued 3,769,125 shares of common stock to the public and raised net
proceeds of $36,652,000.
Stock Dividends. On September 22, 1997 and November 21, 1996 Patriot paid
special 20% stock dividends to its shareholders. For comparative purposes, per
share amounts, as presented herein, have been adjusted to reflect these stock
dividends.
Charter Conversion. On May 22, 1997, Patriot Bank completed its conversion from
a federally chartered savings bank to a state chartered commercial bank. The
charter conversion had no significant impact on the financial condition or
results of operation of Patriot.
Capital Transactions. On June 5, 1997 Patriot issued $19 million of 10.30% trust
preferred securities. The trust preferred securities, subject to certain
limitations, qualify as tier 1 capital for regulatory purposes. During 1997
Patriot repurchased a total of 1,042,000 shares of its common stock at a total
cost of $13,554,000.
Deposit Sale. On November 21, 1997, Patriot completed the sale of $10,350,000 of
deposits and a branch office. Patriot received a 7.5% premium on the deposits
and recognized a net gain of $885,000.
Year 2000 Compliance. Pursuant to its strategic business plan, Patriot has made
significant investments in new technology over the last two years. As a result
of these investments, the primary systems used by Patriot are currently Year
2000 compliant. Management has initiated a comprehensive program to analyze and
proactively plan for ensuring all of Patriot's systems are year 2000 compliant.
It is currently anticipated that certain secondary systems will require
modification. The cost of these modifications is expected to be minimal.
Net Interest Income. Net interest income for 1997 was $14,442,000 compared to
$12,092,000 in 1996. This represents an increase of 19% and is primarily due to
an increase in average balances. Average balances increased throughout 1997 as
Patriot grew its assets to more fully utilize the capital raised in the stock
conversion. Much of Patriot's asset growth resulted from the origination of
commercial, consumer and mortgage loans. Additionally, Patriot purchased
investment and mortgage-backed securities. Most of the investment and
mortgage-backed securities purchased either have short average lives (five years
or less) or have adjustable rates. Patriot's asset growth was funded through
deposit growth and borrowings.
As a result of these growth strategies the stock repurchases and the issuance of
the trust preferred securities. Patriot's net interest margin (net interest
income as a percentage of average interest-earning assets) decreased as
anticipated to 2.14% from 3.01% in 1996.
18
<PAGE>
Interest on loans was $27,008,000 for 1997 compared to $18,429,000 for 1996. The
average balance of loans was $348,186,000 with an average yield of 7.76%
compared to an average balance of $234,726,000 with an average yield of 7.85%
for 1996. The increase in average balance is due to an emphasis placed on
commercial loans, residential mortgage loans and home equity loans during 1997.
The decrease in average yield is primarily a result of an emphasis on short-term
and adjustable-rate loans many of which are originated with teaser rates.
Interest on Patriot's investment portfolio (investment and mortgage-backed
securities) was $23,048,000 for 1997 compared to $11,409,000 in 1996. The
average balance of the investment portfolio was $336,718,000 with an average
yield of 6.96% for 1997 compared to an average balance of $165,159,000 with an
average yield of 6.69% for 1996. The increase in average balance and the
increase in average yield was due to the purchase of higher yielding investment
and mortgage-backed securities. The majority of securities purchased in 1997
were adjustable rate collateralized mortgage obligations with interest rates
tied to one month LIBOR.
Interest on total deposits was $13,405,000 for 1997 compared to $9,895,000 for
1996. The average balance of total deposits was $275,811,000 with an average
cost of 4.86% for 1997 compared to an average balance of $218,364,000 with an
average cost of 4.53% for 1996. The increase in average balance was the result
of aggressive marketing of money market and other transaction-based deposit
accounts, the opening of two new community banking offices and an increase in
Patriot's jumbo deposit program offset somewhat by the deposit sale. The
increase in average yield was the result of a higher percentage of jumbo
deposits offset by the emphasis on transaction-based deposit accounts.
Interests on borrowings was $22,402,000 in 1997 compared to $7,607,000 in 1996.
The average balance of borrowings was $382,357,000 with an average cost of 5.86%
for 1997 compared to an average balance of $136,200,000 with an average cost of
5.57% for 1996. The increase in average balance was due to the use of borrowings
to fund the growth in the balance sheet. The increase in average cost was due to
higher balances of long-term borrowings and due to the issuance of the trust
preferred securities.
19
<PAGE>
Spread Analysis. The following table sets forth Patriot's average balances and
the yields on those balances for the years ended December 31, 1997, 1996 and
1995. The yields and costs are derived by dividing income or expense by the
average balance of assets or liabilities, respectively, for the periods shown,
except where noted otherwise. The yields and costs include fees which are
considered adjustments to yields.
<TABLE>
<CAPTION>
For the Year Ended December 31,
--------------------------------------------------------------------------------------------------
1997 1996 1995
------------------------------ ----------------------------- ----------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
------- -------- ------ ------- -------- ------ ------- -------- ------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Interest-earning deposits $ 5,522 $ 193 3.49% $ 3,207 $ 116 3.62% $ 4,719 $ 201 4.26%
Investment and mortgage-
backed securities(1) 336,718 23,048 6.96 165,159 11,049 6.69 46,802 2,865 6.12
Loans receivable, net(2) 348,186 27,008 7.76 234,726 18,429 7.85 173,020 14,102 8.15
-------- ------- ---- -------- ------- ---- -------- ------- ----
Net interest-earning assets 690,426 50,249 7.34 403,092 29,594 7.34 224,541 17,168 7.65
Non-interest-earning assets 16,635 -- -- 7,018 -- -- 7,248 -- --
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total assets $707,061 $50,249 7.16 $410,110 $29,594 7.22 $231,789 $17,168 7.41
======== ======= ---- ======== ======= ---- ======== ======= ====
Liabilities and Equity:
Interest-bearing liabilities:
Savings deposits $ 93,902 $ 2,632 2.80 $ 82,354 $ 2,120 2.57 $ 78,004 $ 2,083 0.03
Certificates Of Deposits 181,909 10,773 5.92 136,010 7,775 5.72 118,494 6,897 5.82
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total deposits 275,811 13,405 4.86 218,364 9,895 4.53 196,498 8,980 4.57
Borrowings(3) 382,357 22,402 5.86 136,200 7,607 5.57 9,126 569 6.23
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total interest-bearing
liabilities 658,168 35,807 5.44 354,564 17,502 4.94 205,624 9,549 4.64
Non-interest-bearing
liabilities 2,188 -- -- 2,300 -- -- 4,069 -- --
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total liabilities 660,356 35,807 5.42 356,864 17,502 4.90 209,693 9,549 4.55
Equity 46,705 -- -- 53,246 -- -- 22,096 -- --
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total liabilities and equity $707,061 35,807 5.06 $410,110 $17,502 4.27 $231,789 $ 9,549 4.12
======== ======= ---- ======== ======= ----- ======== ======= ----
Net interest rate spread(4) 2.10% 2.95% 3.29%
==== ==== ====
Net interest margin(5) 2.14% 3.01% 3.39%
Ratio of interest-earning
assets to interest-bearing
liabilities 104.90% 113.69% 109.20%
</TABLE>
20
<PAGE>
(1) Includes securities available for sale and held to maturity and
unamortized discounts and premiums.
(2) Amount is net of deferred loan fees, loans in process, discounts and
premiums, and allowance for possible loan losses and includes loans held
for sale and non-performing loans for which the accrual of interest has
been discontinued.
(3) Includes short-term, long-term, and trust preferred securities.
(4) Net interest rate spread represents the difference between the average
yield on total assets and the average cost of total liabilities and
equity.
(5) Net interest margin represents tax-equivalent net interest income divided
by average interest-earning assets.
Rate/Volume Analysis. The following table presents the extent to which net
interest income changed due to changes in interest rates and changes in the
volume of interest-earning assets and interest-bearing liabilities during the
periods indicated. Information is provided in each category with respect to
changes attributable to changes in rate (changes in rate multiplied by prior
volume), and the net change. The changes attributable to the combined impact of
volume and rate have been allocated proportionally to the changes due to volume
and the changes due to rate.
<TABLE>
<CAPTION>
Year Ended December 31, 1997 Year Ended December 31, 1996
Compared to Year Ended Compared to Year Ended
December 31, 1996 December 31, 1995
---------------------------- -----------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
---------------------------- -----------------------------
Volume Rate Net Volume Rate Net
------ ------ ------ ------- ------ ------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Interest-earning deposits $81 $(4) $77 $(58) $(27) $(85)
Investment and mortgage-backed securities 11,737 262 11,999 7,894 290 8,184
Loans(1) 8,804 (225) 8,579 4,862 (535) 4,327
----- ----- ----- ----- ----- -----
Total interest-earning assets 20,622 33 20,655 12,698 (272) 12,426
------ -- ------ ------ ----- ------
Interest-bearing liabilities:
Deposits 3,023 487 3,510 1,117 (202) 915
Borrowings 14,404 391 14,795 7,103 (65) 7,038
------ --- ------ ----- ---- -----
Total interest-bearing liabilities 17,427 878 18,305 8,220 (267) 7,953
------ --- ------ ----- ----- -----
Net change in net interest income $3,195 $(845) $2,350 $4,478 $(5) $4,473
====== ====== ====== ====== ==== ======
</TABLE>
- -----------------
(1) Includes non-accrual loans.
Provision for Possible Loan Losses. The provision for possible loan losses was
$915,000 for 1997 compared to $305,000 for 1996. The increase in the provision
is a reflection of the growth of Patriot's loan portfolio and the origination of
more commercial and consumer loans. See "Credit Quality" for a detailed
discussion of Patriot's asset quality.
21
<PAGE>
The following table sets forth the activity in the allowance for possible loan
losses for the years indicated:
<TABLE>
<CAPTION>
At or for the Year Ended December 31,
--------------------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
(In thousands)
<S> <C> <C> <C> <C> <C>
Allowance, beginning of year $1,830 $1,702 $1,720 $1,665 $1,450
Charge-offs:
Residential 17 13 76 -- 3
Commercial -- 98 -- -- --
Home equity and consumer 259 66 5 5 --
--- -- - - --
Total charge-offs 276 177 81 5 3
------ ------ ------ ------ ------
Recoveries:
Residential 2 -- -- -- --
Commercial 31 -- -- -- 217
Home equity and consumer 10 -- 3 4 --
-- -- - - --
Total recoveries 43 -- 3 4 217
------ ------ ------ ------ ------
Net charge-offs (recoveries) 233 177 78 1 (214)
Provision charged to operations 915 305 60 56 1
------ ------ ------ ------ ------
Allowance, end of year $2,512 $1,830 $1,702 $1,720 $1,665
====== ====== ====== ====== ======
Net charge-offs (recoveries)
to average loans .07% .08% .05% --% (.12)%
Allowance for possible loan losses
as a percentage of
year-end total loans .59% .65% .88% 1.01% 1.02%
</TABLE>
Non-Interest Income. Total non-interest income was $2,330,000 for 1997 compared
to $637,000 for 1996. The increase was primarily due to an increased emphasis on
recurring non-interest income including loan and deposit fees, ATM fees and
mortgage banking gains. Non-interest income in 1997 also includes a gain of
$885,000 recognized from the deposit sale and net gains of $438,000 associated
with the sale of investment securities.
Non-Interest Expense. Total non-interest expense was $11,158,000 for 1997
compared to $9,198,000 for 1996. The increase in non-interest expense was the
result of increased salary and employee benefit costs and occupancy and
equipment costs, both related to Patriot's expanded operations. Non-interest
expense in 1996 also includes the special charge of $1,338,000 for the special
deposit insurance assessment levied against all SAIF member financial
institutions by the FDIC to recapitalize its SAIF fund. The ratio of
non-interest expense to average assets improved to 1.56% for 1997 compared to
1.93% for 1996 (excluding the special charge). The improvement in the overhead
ratio reflects the growth of Patriot while maintaining an emphasis on managing
costs.
Income Tax Provision. The income tax provision was $1,326,000 for 1997 compared
to $1,251,000 for 1996. The effective tax rate was 28.22% for 1997 compared to
38.78% for 1996. The decrease in the effective tax rate is the result of
Patriot's tax planning strategies which include investments in tax-exempt
securities. Also, prior to Patriot Bank's charter conversion, it was subject to
state income taxes. Patriot Bank's state tax expense is now considered a
non-interest expense.
22
<PAGE>
FINANCIAL CONDITION
Loan Portfolio. Patriot's primary loan products are commercial, home equity
loans on existing owner-occupied residential real estate, and fixed-rate and
adjustable-rate mortgage loans. Patriot also offers residential construction
loans and other consumer loans.
Commercial Lending. Patriot originates commercial loans with an emphasis on
small businesses, professionals and entrepreneurs within Patriot's local
markets. Most of Patriot's commercial loan relationships have exposure of
$500,000 or less. Commercial loans are generally secured by real estate and
personal guarantees.
Consumer Lending. Patriot offers variable rate (based upon prime rate) home
equity lines of credit which extend credit lines based on an applicant's income
and equity in their home. These lines are generally secured by single-family,
owner-occupied residential properties. Patriot also offers fixed-rate home
equity loans which are generally secured by single-family, owner-occupied
residential properties. These loans are generally originated with terms from 1
to 15 years. Patriot also offers a variety of other consumer loans, which
primarily consist of installment loans secured by automobiles, student loans,
credit cards and other loans secured by deposit accounts.
Mortgage Lending. Patriot offers both fixed-rate and adjustable-rate mortgage
loans secured by one- to four-family residences, primarily owner-occupied,
located in Patriot's primary market area. Patriot generally underwrites its
first mortgage loans in accordance with underwriting standards set by the
Federal Home Loan Mortgage Corp. (FHLMC) and the Federal National Mortgage
Association (FNMA). Patriot also offers construction loans to qualified
borrowers for the construction of one- to four-family residences in Patriot's
market area. These loans are underwritten in accordance with the same standards
as Patriot's mortgages on existing properties, except the loans generally
provide for disbursement in stages during a construction period of up to 12
months, during which period the borrower is required to make monthly payments of
accrued interest on the outstanding loan balance.
At December 31, 1997, Patriot's total loan portfolio was $422,209,000 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 loans,
home equity loans and residential mortgage loans. During 1997, Patriot
originated total loans of $279,422,000 compared to total loans originated in
1996 of $130,674,000.
The following table sets forth the composition of Patriot's loan portfolio in
dollar amounts and in percentages of the respective portfolios at the dates
indicated:
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
----------------- ---------------- ------------------ ---------------- -----------------
Percent Percent Percent Percent Percent
Amount of Total Amount of Total Amount of Total Amount of Total Amount of Total
-------- -------- -------- -------- ------- -------- -------- --------- -------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential mortgages $302,684 71.29% $192,518 68.13% $131,352 66.86% $108,203 63.41 $108,116 66.13%
Home equity 77,070 18.15 72,480 25.65 57,969 29.50 56,914 33.35 50,611 30.96
Construction 4,039 0.95 3,210 1.14 1,712 .87 374 .22 44 .03
Commercial 36,957 8.70 11,822 4.18 3,288 1.67 3,760 2.20 4,431 2.71
Other consumer loans 3,853 0.91 2,546 .90 2,159 1.10 1,391 .82 276 .17
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total loans, gross 424,603 100.00% 282,576 100.00% 196,480 100.00% 170,642 100.00% 163,478 100.00%
Deferred loan fees (2,394) (2,392) (2,230) (1,668) (1,949)
------- ------- ------- ------- -------
Total loans, net $422,209 $280,184 $194,250 $168,974 $161,529
======== ======== ======== ======== ========
</TABLE>
23
<PAGE>
The following table sets forth the maturity schedule for the
Company's loan portfolio (excluding residential real estate and consumer loans):
<TABLE>
<CAPTION>
Amounts at December 31, 1997, Maturing
---------------------------------------------
after one
in year
one year or through after
less five years five years Total
----------- ---------- ---------- ------
(in thousands)
<S> <C> <C> <C> <C>
Loan Maturity Schedule:
Commercial loans $13,974 $18,941 $4,042 $36,957
Residential construction loans 37 158 2,254 2,449
Other construction loans 1,446 144 -- 1,590
------- ------- ------ -------
Total $15,457 $19,243 $6,296 $40,996
======= ======= ====== =======
Fixed rates $ 7,483 $18,691 $6,296 $32,470
Adjustable rates 7,974 552 -- 8,526
------- ------- ------ -------
Total $15,457 $19,243 $6,296 $40,996
======= ======= ====== =======
</TABLE>
Credit Quality. Management and the Board of Directors perform a monthly review
of all delinquent loans. The procedures taken by Patriot with respect to
delinquencies vary depending on the nature of the loan and period of
delinquency. When a borrower fails to make a required payment on a loan, Patriot
takes a number of steps to have the borrower cure the delinquency and restore
the loan to current status.
Patriot's Asset/Loan Review Committee reviews and classifies Patriot's assets
monthly and reports the results of its review to the Board of Directors. Patriot
classifies assets in accordance with applicable regulations and management
guidelines.
Patriot generally requires appraisals on an annual basis on foreclosed
properties and, to the extent necessary, properties deemed to be in-substance
foreclosures. Patriot generally conducts inspections on foreclosed properties
and properties deemed in-substance foreclosures on at least a quarterly basis.
24
<PAGE>
Non-Accrual and Past-Due Loans. Patriot accrues interest on all loans until
management determines that the collection of interest is doubtful. In no event
does Patriot continue accruing interest on loans contractually past due 90 days
or more. Upon discontinuance of interest accrual, all unpaid accrued interest is
reversed. Patriot had no restructured loans within the meaning of SFAS No. 15
and no potential problem loans within the meaning of the Securities and Exchange
Commission Guide 3 at December 31, 1997.
The following table sets forth information regarding non-performing assets:
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Non-accrual loans:
Residential mortgages $524 $411 $494 $498 $715
Commercial 128 6 10 16 65
Home equity and consumer 125 151 77 215 92
------ ---- ---- ---- ------
Total non-accrual loans greater than 90 days 777 568 581 729 872
------ ---- ---- ---- ------
Residential mortgages 328 -- -- -- --
Home equity and consumer 7 -- -- -- --
- -- -- -- --
Total non-accrual loans less than 90 days 335 -- -- -- --
--- -- -- -- --
Total non-performing loans 1,112 568 581 729 872
REO 162 74 195 265 548
------ ---- ---- ---- ------
Total non-performing assets $1,274 $642 $776 $994 $1,420
====== ==== ==== ==== ======
Allowance for possible loan losses as a percent
of loans receivable .59% .65% .88% 1.01% 1.02%
Allowance for possible loan losses as a percent
of total non-performing loans 225.90 321.94 292.94 235.94 190.94
Non-performing loans as a percent of total
loans receivable .26 .20 .30 .43 .53
Non-performing assets as a percent of total assets .15 .12 .29 .45 .64
</TABLE>
25
<PAGE>
Allowance for Possible Loan Losses. The adequacy of the allowance for possible
loan losses is based on management's evaluation of the risks inherent in its
loan portfolio and the general economy. Management makes a quarterly
determination as to an appropriate provision from earnings necessary to maintain
an allowance for loan losses that is adequate to cover estimated losses with
respect to loans receivable which are deemed probable and estimable based on
information currently known to management. The amount charged to earnings is
based upon several factors, including a continuing review of delinquent,
classified and non-accrual loans, large loans, and overall portfolio quality,
regular examination and review of the loan portfolio by regulatory authorities,
analytical review of loan charge-off experience, delinquency rates, other
relevant historical and peer statistical ratios, and management's judgment with
respect to local and general economic conditions and their impact on the
existing loan portfolio. Although management believes the allowance is adequate
to protect against future losses arising out of its existing loan portfolio,
actual losses are dependent on future events and, as such, further additions to
the allowance may be necessary. Patriot will continue to monitor and modify its
allowance for loan losses as conditions dictate.
The following table sets forth management's allocation of the allowance for
possible loan losses at the dates indicated:
<TABLE>
<CAPTION>
At December 31,
---------------------------------------------------------------------------------------------------
1997 1996 1995
---------------------------------- ------------------------------- ------------------------------
Percent of Percent of Percent of
Percent of Loans in Percent of Loans in Percent of Loans in
Allowance Each Allowance Each Allowance Each
to Category to Category to Category
Total to Total Total to Total Total to Total
Amount Allowance Loans Amount Allowance Loans Amount Allowance Loans
-------- ---------- ---------- ------- ---------- ---------- ------ ---------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential
mortgages $1,253 49.88% 72.24% $895 48.87% 69.27% $1,265 74.32% 67.73%
Commercial 629 25.04 8.70 261 14.28 4.18 33 1.94 1.67
Home equity
and consumer 630 25.08 19.06 674 36.85 26.55 404 23.74 30.60
------ ------ ------- ------ ------ ------ ------ ------ ------
Total valuation
allowances $2,512 100.00% 100.00% $1,830 100.00% 100.00% $1,702 100.00% 100.00%
====== ====== ======= ====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
1994 1993
-------------------------------- ---------------------------------
Percent of Percent of
Percent of Loans in Percent of Loans in
Allowance Each Allowance Each
to Category to Category
Total to Total Total to Total
Amount Allowance Loans Amount Allowance Loans
------- --------- ---------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Residential
mortgages $1,212 70.47% 63.63% $1,193 71.65% 66.16%
Commercial 52 3.02 2.20 59 3.54 2.71
Home equity
and consumer 456 26.51 34.17 413 24.81 31.13
------ ------- ------- ------- ----- ------
Total valuation
allowances $1,720 100.00% 100.00% $1,665 100.00% 100.00%
====== ======= ======= ====== ====== ======
</TABLE>
Cash and Cash Equivalents. Cash and cash equivalents at December 31, 1997 were
$9,014,000 compared to $6,853,000 at December 31, 1996. The increase in cash and
cash equivalents was primarily due to cash needed to support two additional
community banking offices opened in 1997 and the increased activity associated
with servicing commercial customers.
26
<PAGE>
Investment and Mortgage-Backed Securities. Investment securities consist of US
Treasury and government agency securities, corporate debt and equity securities.
Mortgage-backed securities consist of securities generally insured by either the
FHLMC, FNMA or the Government National Mortgage Association (GNMA).
Collateralized mortgage obligations consist of securities issued by the FHLMC,
FNMA or private issuers.
Total investment and mortgage-backed securities at December 31, 1997 were
$405,641,000 compared to $231,858,000 at December 31, 1996. The increase in
investment and mortgage-backed securities was due to the purchase of investment
and mortgage-backed securities pursuant to Patriot's growth strategy. The
majority of securities purchased in 1997 were adjustable rate collateralized
mortgage obligations with interest rates tied to one month LIBOR.
The following table sets forth certain information regarding the amortized cost
and market value of investment and mortgage-backed securities at the dates
indicated:
<TABLE>
<CAPTION>
At December 31,
---------------------------------------------------------------------
1997 1996 1995
--------------------- ------------------ --------------------
Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value
----------- -------- ---------- ------ --------- ------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Available for sale:
Investment securities:
US Treasury and government
agency securities $19,884 $20,086 $5,023 $4,990 $7,105 $7,175
Corporate securities 17,493 18,767 -- -- 1,019 1,046
Equity securities 48,168 52,553 23,797 24,492 1,914 1,914
Mortgage-backed securities:
FHLMC 11,287 11,501 14,582 14,709 12,179 12,258
FNMA 20,163 20,254 25,118 25,124 17,709 17,755
GNMA 12,592 12,871 14,498 14,751 5,463 5,539
Collateralized mortgage obligations:
FHLMC 75,085 75,784 37,928 37,639 1,964 1,959
FNMA 118,778 118,844 31,654 31,502 -- --
Other 12,522 12,465 5,976 5,941 -- --
------ ------ ----- ----- ------- -------
Total investment and mortgage-backed
securities available for sale $335,972 $343,125 $158,576 $159,148 $47,353 $47,646
======== ======== ======== ======== ======= =======
Held to maturity:
Investment securities:
US Treasury and government
agency securities $1,035 $1,034 $1,911 $1,892 $2,414 $2,397
Corporate securities 1,502 1,544 2,506 2,533 1,503 1,566
Collateralized mortgage obligations:
FHLMC 1,801 1,804 -- -- -- --
FNMA 9,775 9,887 -- -- -- --
Other 48,403 48,548 68,293 68,297 -- --
------ ------ ------ ------ -- --
Total investment and mortgage-backed
securities held to maturity $62,516 $62,817 $72,710 $72,722 $3,917 $3,963
======= ======= ======= ======= ====== ======
</TABLE>
27
<PAGE>
The following table sets forth certain information regarding the carrying value,
weighted average yield and contractual maturities of the Company's investment
and mortgage-backed securities as of December 31, 1997.
<TABLE>
<CAPTION>
More than More than
one year five years No stated
One year or less to five years to ten years More than 10 years maturity
----------------- ----------------- ------------------- ------------------ ----------------
Weighted Weighted Weighted Weighted Weighted
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield Value Yield Value Yield
------- ------- ------- ------- ------- -------- ------- -------- -------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Available for sale:
Investment securities:
U.S. Treasury and
government securities $-- --% $2,753 2.83% $1,858 2.83% $15,475 2.83% $-- --%
Corporate securities -- -- -- -- -- -- 18,767 9.36 -- --
Equity securities -- -- -- -- -- -- -- -- 52,553 6.20
Mortgage-backed securities:
FHLMC 1,460 7.42 4,240 7.42 876 7.42 4,925 7.42 -- --
FNMA 2,516 7.41 5,769 7.41 4,172 7.41 7,797 7.41 -- --
GNMA 207 6.72 905 6.72 1,452 6.72 10,307 6.72 -- --
Collateralized mortgage obligations:
FHLMC 8,581 7.08 17,057 7.08 13,123 7.08 37,023 7.08 -- --
FNMA 1,596 7.20 56,219 7.20 56,474 7.20 4,555 7.20 -- --
Other 1,679 6.40 7,896 6.40 2,890 6.40 -- -- -- --
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
Total available for
sale $16,039 7.10% $94,839 7.01% $80,845 7.06% $98,849 6.86% $52,553 6.20%
======= ==== ======= ==== ======= ==== ======= ==== ======= ====
Held to maturity:
Investment securities:
U.S Treasury and
government securities $135 5.57% $650 5.57% $250 5.57% $-- --% $-- --%
Corporate securities -- -- 1,502 6.96 -- -- -- -- -- --
Equity securities -- -- -- -- -- -- -- -- -- --
Collateralized mortgage obligations:
FHLMC 392 6.00 1,409 6.00 -- -- -- -- -- --
FNMA 1,013 7.00 4,838 7.00 3,924 7.00 -- -- -- --
Other 11,188 7.07 32,009 7.07 5,206 7.07 -- -- -- --
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
Total available
for sale $12,728 7.02% $40,408 7.00% $9,380 7.00% $-- --% $-- --%
======= ==== ======= ==== ======= ==== ======= ==== ======= ====
</TABLE>
<TABLE>
<CAPTION>
Total
-------------------
Weighted
Carrying Average
Value Yield
------- -------
<S> <C> <C>
Available for sale:
Investment securities:
U.S. Treasury and
government securities $20,086 2.83%
Corporate securities 18,767 9.36
Equity securities 52,553 6.20
Mortgage-backed securities:
FHLMC 11,501 7.42
FNMA 20,254 7.41
GNMA 12,871 6.72
Collateralized mortgage obligations:
FHLMC 75,784 7.08
FNMA 118,844 7.20
Other 12,465 6.40
-------- ----
Total available for
sale $343,125 6.86%
======== ====
Held to maturity:
Investment securities:
U.S Treasury and
government securities $1,035 5.57%
Corporate securities 1,502 6.96
Equity securities -- --
Collateralized mortgage obligations:
FHLMC 1,801 6.00
FNMA 9,775 7.00
Other 48,403 7.07
-------- ----
Total available
for sale $62,516 7.00%
======== ====
</TABLE>
28
<PAGE>
Patriot accounts for its investment securities in accordance with SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," which
requires management to classify investments in equity securities that have
readily determinable fair values and all investments in debt securities as
either held to maturity and reported at amortized cost, available for sale and
reported at fair value with unrealized gains and losses reported in a separate
component of stockholders' equity, or trading securities and reported at fair
value with unrealized gains and losses included in earnings.
In November 1995, the Financial Accounting Standards Board issued a special
report entitled "A Guide to Implementation of Statement No. 115 on Accounting
for Certain Investments in Debt and Equity Securities." This guide allows
enterprises to reassess the appropriateness of the classification of all
securities held. Based on this special report, Patriot reclassified $6,000,000
of securities from held to maturity to available for sale. The transfer was made
at fair value and resulted in an estimated unrealized loss of $59,000 and a
decrease in stockholders' equity of $39,000 based on current market values.
The following table represents the securities of single issuers (other than
obligations of the United States and its political subdivisions, agencies and
corporations) having an aggregate book value in excess of 10% of Patriot's
stockholder's equity which were held at 12-31-97:
At December 31, 1997
--------------------------------
(in thousands)
Issuer Carrying Value Fair Value
- ------ -------------- ----------
FHLMC Preferred Stock $31,299 $31,299
FHLB Stock $13,760 $13,760
Capstead Securities Corp. IV $6,055 $6,079
CMC Securities Corporation II 6,377 6,441
GE Capital MTG. Services, Inc. 7,500 7,500
Commerce Capital Trust 5,276 5,276
Securitized Asset Sales, Inc. 4,853 4,853
Other Assets. Premises and equipment at December 31, 1997 were $8,542,000
compared to $7,724,000 at December 31, 1996. The increase was due to the opening
of two new banking offices, and investments in technology. Accrued interest
receivable at December 31, 1997 was $4,119,000 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 December 31, 1997 was $162,000
compared to $74,000 at December 31, 1996.
Deposits. Deposits are generally 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. Patriot also solicits jumbo deposits from various
sources.
Total deposits at December 31, 1997 were $289,528,000 compared to $239,514,000
at December 31, 1996. The increase in balance was the result of aggressive
marketing of money market and other transaction-based deposit accounts, the
opening of two new community banking offices and an increase in Patriot's jumbo
deposit program.
29
<PAGE>
The following table sets forth the distribution of average deposit accounts for
the periods indicated and the weighted average yield on each category of deposit
presented:
<TABLE>
<CAPTION>
For the Year Ended December 31,
-----------------------------------------------------------------------------------------
1997 1996 1995
----------------------------- --------------------------- -------------------------------
Percent Percent Percent
of Total Weighted of Total Weighted of Total Weighted
Average Average Average Average Average Average Average Average Average
Balance Deposits Yield Balance Deposits Yield Balance Deposits Yield
------- -------- ------- ------- --------- -------- ------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Money market deposits $42,425 15.38% 4.29% $33,829 15.49% 4.02% $27,512 14.00% 3.95%
Passbook deposits 27,149 9.84 2.61 27,444 12.57 2.38 32,059 16.32 2.19
NOW deposits 18,399 6.67 0.55 17,502 8.02 0.58 16,685 8.49 1.65
Demand deposits 5,929 2.15 -- 3,579 1.64 -- 1,748 0.89 --
Certificates of deposit 181,909 65.96 5.92 136,010 62.28 5.72 118,494 60.30 5.82
------- ------- ----- ------- ------ ----- ------- ------- ----
Total $275,811 100.00% 4.86% $218,364 100.00% 4.53% $196,498 100.00% 4.57%
======== ======= ===== ======== ======= ===== ======== ======= =====
</TABLE>
At December 31, 1997, the Company had $41,788,000 in certificate of deposit
accounts in amounts of $100,000 or more maturing as follows:
Maturity Period Amount
--------------- ------
Three months or less........................... $ 942
Over three through six months.................. 1,806
Over six through 12 months..................... 4,712
Over 12 months................................. 34,328
-------
Total..................................... 41,788
=======
Borrowings. Patriot utilizes borrowings as a source of funds for its growth
strategy and its asset/liability management. Patriot is eligible to obtain
advances from the Federal Home Loan Bank (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. 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.
Patriot also uses repurchase agreements as a funding source. Repurchase
agreements are generally short-term obligations collateralized by government
agency securities.
30
<PAGE>
The following table presents certain information regarding borrowed funds:
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------------------------------------
1997 1996 1995
----------------------- ------------------- -------------------
Average Average Average
Balance Rate Balance Rate Balance Rate
-------- -------- -------- ------ ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
FHLB advances $275,200 5.78% $210,000 5.64% $10,000 5.82%
Repurchase agreements 214,684 5.89 21,595 6.22 -- --
Trust Preferred 18,417 10.80 -- -- -- --
------- ----- ------- ----- ------- -----
Total borrowings outstanding $508,301 6.01% $231,595 5.69% $10,000 5.82%
======== ==== ======== ==== ======= ====
Short-term $385,684 5.84% $145,595 5.73% $10,000 5.82%
Long-term $122,617 6.55 86,000 5.65 -- --
-------- ---- -------- ---- ------- ----
Total borrowings outstanding $508,301 6.01% $231,595 5.69% $10,000 5.82%
======== ==== ======== ==== ======= ====
</TABLE>
Stockholders' Equity. Total stockholders' equity was $46,533,000 at December 31,
1997 compared to $53,117,000 at December 31, 1996. The decrease was a result of
the repurchase of common stock and cash dividends paid offset somewhat by the
retention of earnings and an increase in the net unrealized gain on investment
and mortgage-backed securities available for sale.
31
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Liquidity. Patriot's primary sources of funds are deposits, principal and
interest payments on loans, principal and interest payments on investment and
mortgage-backed securities, FHLB advances and repurchase agreements. While
maturities and scheduled amortization of loans and investment and
mortgage-backed securities are predictable sources of funds, deposit inflows and
loan and mortgage-backed security prepayments are greatly influenced by economic
conditions, general interest rates and competition. Therefore, Patriot manages
its balance sheet to provide adequate liquidity based upon various economic,
interest rate and competitive assumptions and in light of profitability
measures.
During 1997, significant liquidity was provided by financing activities,
particularly FHLB advances, repurchase agreements and the trust preferred
securities, as well as by deposit growth. Maturities of investment and
mortgage-backed securities also provided significant liquidity during 1997. The
funds provided by these activities were invested in new loans and investment and
mortgage-backed securities, and funded the sale of deposits and the repurchase
of Patriot's common stock.
At December 31, 1997, Patriot had outstanding loan commitments of $49,663,000.
Patriot anticipates that it will have sufficient funds available to meet its
loan origination commitments. Certificates of deposit which are scheduled to
mature in one year or less from December 31, 1997 totaled $91,399,000. Based
upon historical experience, Patriot expects that substantially all of the
maturing certificates of deposit will be retained at maturity.
Capital Resources. FDIC regulations currently require companies to maintain a
minimum leverage capital ratio of not less than 3% of tier 1 capital to total
adjusted assets and not less than 4% of risk-adjusted assets, and a minimum
risk-based capital ratio (based upon credit risk) of not less than 8%. The FDIC
requires a minimum leverage capital requirement of 3% for institutions rated
composite 1 under the CAMEL rating system. For all other institutions, the
minimum leverage capital requirement is 3% plus at least an additional 100 to
200 basis points.
At December 31, 1997, Patriot Bank's and Bank Corp.'s capital ratios exceeded
all well capitalized required ratios. The following table sets forth the capital
ratios of Patriot Bank Corp., Patriot Bank and the current regulatory
requirements at December 31, 1997:
<TABLE>
<CAPTION>
To Be Well
For Capital Capitalized Under
Actual Adequacy Purposes Prompt Corrective Action
----------------- ---------------- -----------------------
Amount Ratio Amount Ratio Amount Ratio
------ ------ --------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997
Total capital (to risk weighted assets)
Patriot Bank Corp. $62,807 14.54% $34,567 8% $43,208 10%
Patriot 44,100 10.77% 32,748 8% 40,936 10%
Tier I capital (to risk-weighted assets)
Patriot Bank Corp. 55,837 12.92% 17,283 4% 25,925 6%
Patriot 41,588 10.16% 16,374 4% 24,561 6%
Tier I capital (to average assets)
Patriot Bank Corp. 55,837 7.90% 28,282 4% 35,353 5%
Patriot 41,588 6.12% 27,204 4% 34,005 5%
</TABLE>
32
<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 on and off 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.
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 pursues 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 December 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
$111,213,000 representing a one-year cumulative "gap," as defined above, as a
percentage of total assets of negative 13.06%.
33
<PAGE>
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at December 31, 1997, which are
anticipated, based upon certain assumptions, to reprice or mature in each of the
future time periods shown. Except as stated below, the amount of assets and
liabilities shown which reprice or mature during a particular period were
determined in accordance with the earlier of term to repricing or the
contractual maturity of the asset or liability. The table sets forth an
approximation of the projected repricing of assets and liabilities at December
31, 1997, on the basis of contractual maturities, anticipated prepayments, and
scheduled rate adjustments within a three-month period and subsequent selected
time intervals. The loan amounts in the table reflect principal balances
expected to be repaid and/or repriced as a result of contractual amortization
and anticipated prepayments of adjustable-rate loans and fixed-rate loans, and
as a result of contractual rate adjustments on adjustable-rate loans.
<TABLE>
<CAPTION>
At December 31, 1997
-------------------------------------------------------------------------
3 Months 3 Months to 6 Months to 1 Year to 3 Years to More than
or Less 6 Months 1 Year 3 Years 5 Years 5 Years Total
-------- ---------- ------ ------- ------- ------- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest earning assets(1):
Interest earning deposits $6,417 $-- $-- $-- $-- $-- $6,417
Investment and mortgage-backed
securities, net(2)(5) 203,471 12,472 17,242 35,116 33,820 103,520 405,641
Loans receivable, net(3)(5) 54,791 29,865 71,878 97,005 57,143 113,110 423,792
--------- ------ ------- ------- ------- -------- -------
Total interest-earning assets 264,679 42,337 89,120 132,121 90,963 216,630 835,850
Non-interest-earning assets -- -- -- -- -- 15,650 15,650
--------- ------ ------- ------- ------- -------- -------
Total assets 264,679 42,337 89,120 132,121 90,963 232,280 851,500
--------- ------ ------- ------- ------- -------- -------
Interest-bearing liabilities:
Money market and passbook savings
accounts(6) 8,407 8,407 16,813 14,810 4,928 22,841 76,206
Demand and NOW accounts(6) 292 292 584 2,335 2,335 22,187 28,025
Certificates of deposit 17,538 25,317 44,015 87,006 3,540 7,881 185,297
Borrowings 375,684 -- 10,000 19,000 85,000 18,617 508,301
--------- ------ ------- ------- ------- ------- -------
Total interest-bearing liabilities 401,921 34,016 71,412 123,151 95,803 71,526 797,829
Non-interest-bearing liabilities 7,138 7,138
Equity -- -- -- -- -- 46,533 46,533
--------- ------ ------- ------- ------- -------- -------
Total liabilities and equity 401,921 34,016 71,412 123,151 95,803 125,197 851,500
--------- ------ ------- ------- ------- -------- -------
Interest sensitivity gap(4) $(137,242) $8,321 $17,708 $8,970 $(4,840) $107,083 $ --
========= ====== ======= ======= ======= ======== =======
Cumulative interest sensitivity gap $(137,242) $(128,921) $(111,213) $(102,243) $(107,083) $ --
========= ========= ========= ========= ========= ========
Cumulative interest sensitivity
gap as a percent of total assets (16.12)% (15.14)% (13.06)% (12.01)% (12.58)% --%
Cumulative interest-earning assets
as a percent of cumulative
interest-bearing liabilities 65.85% 70.43% 78.08% 83.78% 85.26% 104.77%
</TABLE>
34
<PAGE>
(1) Interest-earning assets are included in the period in which the balances
are expected to be repaid and/or repriced as a result of anticipated
prepayments, scheduled rate adjustments, and contractual maturities.
(2) Includes investment and mortgage-backed securities available for sale and
held to maturity.
(3) For purposes of the gap analysis, loans receivable includes non-
performing loans and is reduced for the allowance for possible loan
losses, and unamortized discounts and deferred loan fees.
(4) Interest sensitivity gap represents the difference between total
interest-earning assets and total interest-bearing liabilities.
(5) Annual prepayment rates for loans and mortgage-backed securities range
from 12% to 30%.
(6) Money market and savings accounts, and NOW accounts are assumed to have
decay rates between 4% and 76% annually and have been estimated based
upon a historic analysis of core deposit trends.
In addition to gap analysis, 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.
Through the use of income simulation modeling Patriot has calculated an
estimate of net interest income for the year ending December 31, 1998 based upon
the assets, liabilities and off-balance sheet financial instruments in existence
at December 31, 1997. Patriot has also estimated changes to that estimated net
interest income based upon immediate and sustained changes in interest rates
("rate shocks"). Rate shocks assume that all interest rates increase or decrease
on the first day of the period modeled and remain at that level for the entire
period. The following table reflects the estimated percentage change in
estimated net interest income for the year ending December 31, 1998.
Rate shock to interest rates % change
---------------------------- --------
+2% (12.1%)
+1% (5.5%)
-1% 5.3%
-2% 11.5%
Patriot's management believes that the assumptions utilized in evaluating
Patriot's estimated net interest income are reasonable; however, the interest
rate sensitivity of Patriot's assets, liabilities and off-balance sheet
financial instruments as well as the estimated effect of changes in interest
rates on estimated net interest income could vary substantially if different
assumptions are used or actual experience differs from the experience on which
the assumptions were based.
35
<PAGE>
QUARTERLY DATA
The following table presents selected quarterly consolidated financial data:
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------------------------------------------
Dec. 31, Sept. 30, June 30, March 31, Dec. 31, Sept. 30, June 30, March 31,
1997 1997 1997 1997 1996 1996 1996 1996
-------- -------- -------- -------- -------- -------- ------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total interest income $14,860 $13,746 $11,323 $10,320 $9,102 $8,424 $6,862 $5,206
Total interest expense 11,138 10,143 7,730 6,796 5,855 5,194 3,867 2,586
------ ------ ----- ----- ----- ----- ----- -----
Net interest income 3,722 3,603 3,593 3,524 3,247 3,230 2,995 2,620
Provision for possible loan losses 455 235 120 105 100 90 80 35
--- --- --- --- --- -- -- --
Net interest income after
provision for possible loan losses 3,267 3,368 3,473 3,419 3,147 3,140 2,915 2,585
Other income 1,274 575 256 225 257 128 131 121
Other expenses 3,405 2,859 2,521 2,373 2,145 3,381 1,928 1,744
----- ----- ----- ----- ----- ----- ----- -----
Income before income taxes 1,136 1,084 1,208 1,271 1,259 (113) 1,118 962
Income tax provision 242 253 370 461 452 (20) 440 379
--- --- --- --- --- ---- --- ---
Net income $894 $831 $838 $810 $807 $(93) $678 $583
==== ==== ==== ==== ==== ===== ==== ====
Earnings per share diluted .216 .183 .175 .167 .158 (.021) .132 .118
Dividends per share .079 .077 .073 .069 .067 .056 .042 .013
</TABLE>
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
General. Patriot reported net income of $1,975,000 or $.39 per share for the
year ended December 31, 1996. This represents an increase of 66% over net income
of $1,192,000 in 1995. Return on average equity was 3.71%, for 1996 compared to
5.40%, for 1995.
Net Interest Income. Net interest income for 1996 was $12,092,000 compared to
$7,619,000 in 1995. This represents an increase of 58% and is primarily due to
an increase in average balances. Patriot's average interest rate spread (the
difference between the weighted average yield on interest-earning assets and the
weighted average cost of interest-bearing liabilities) was 2.44% in 1996
compared to 3.01% in 1995.
Interest on loans was $18,429,000 for 1996 compared to $14,102,000 for 1995. The
average balance of loans was $234,726,000 with an average yield of 7.85%
compared to an average balance of $173,020,000 with an average yield of 8.15%
for 1995. The increase in average balance is due to the origination of
residential mortgage loans and home equity loans and to a lesser extent,
commercial loans. The decrease in average yield is primarily a result of an
emphasis on short-term and adjustable-rate loans.
36
<PAGE>
Interest on investment and mortgage-backed securities was $11,049,000 for 1996
compared to $2,865,000 in 1995. The average balance of the investment portfolio
was $165,159,000 with an average yield of 6.69% for 1996 compared to an average
balance of $46,802,000 with an average yield of 6.12% for 1995. The increase in
average balance and the increase in average yield was due to the purchase of
investment and mortgage-backed securities.
Interest on total deposits was $9,895,000 for 1996 compared to $8,980,000 for
1995. The average balance of total deposits was $218,364,000 with an average
cost of 4.53% for 1996 compared to an average balance of $196,498,000 with an
average cost of 4.57% for 1995. The increase in average balance was the result
of aggressive marketing of time and transaction-based deposit accounts. The
opening of three new community banking offices and the introduction of a jumbo
deposit program late in 1996. The decrease in average yield was the result of an
emphasis placed on transaction-based deposit accounts and lower rates offered on
time deposits.
Interest on borrowings was $7,607,000 in 1996 compared to $569,000 in 1995. The
average balance of borrowings was $136,200,000 with an average cost of 5.57% for
1996 compared to an average balance of $9,126,000 with an average cost of 6.23%
for 1995. The increase in average balance was due to the use of borrowings to
fund the growth in the balance sheet. The decrease in average cost was due to
higher balances of short-term borrowings.
Provision for Possible Loan Losses. The provision for possible loan losses was
$305,000 for 1996 compared to $60,000 for 1995. The increase in the provision is
a reflection of the growth of Patriot's loan portfolio and the origination of
commercial and consumer loans.
Non-interest Income. Total non-interest income was $637,000 for 1995 compared to
$518,000 for 1995. The increase was primarily due to mortgage banking gains
recognized in 1996 and less of a net loss on the sale of investment and
mortgage-backed securities in 1996 than in 1995, offset somewhat by less of a
net gain on the disposition of real estate acquired through foreclosure.
Non-interest Expense. Total non-interest expense was $9,198,000 for 1996
compared to $6,151,000 for 1995. The increase in non-interest expense was the
result of increased salary and employee benefit costs and occupancy and
equipment costs, both related to Patriot's expanded operations. Non-interest
expense in 1996 also includes the special charge of $1,338,000 for the special
deposit insurance assessment levied against all SAIF member financial
institutions by the FDIC to recapitalize its SAIF fund.
Income Tax Provision. The income tax provision was $1,251,000 for 1996 compared
to $734,000 for 1995. The effective tax rate was 38.78% for 1996 compared to
38.11% for 1995.
37
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors
Patriot Bank Corp.
We have audited the accompanying consolidated Balance Sheets of Patriot Bank
Corp. and Subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1997. These consolidated
financial statements are the responsibility of Patriot Bank Corp.'s management.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Patriot Bank Corp.
and Subsidiaries as of December 31, 1997 and 1996, and the consolidated results
of their operations and their consolidated cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
Grant Thornton LLP
Philadelphia, Pennsylvania
January 21, 1998
38
<PAGE>
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The discussion concerning the effects of interest rate changes on the
Company's estimated net interest income for the year ending December 31, 1998
set forth in the last three paragraphs under "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Management of
Interest Rate Risk" in Item 7 hereof, is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
Patriot Bank Corp. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
December 31,
----------------------
1997 1996
------- ------
<S> <C> <C>
Assets
Cash and due from banks $2,597 $1,997
Interest-earning deposits in other financial institutions 6,417 4,856
-------- --------
Total cash and cash equivalents 9,014 6,853
Investment and mortgage-backed securities available for sale 343,125 159,148
Investment and mortgage-backed securities held to maturity
(market value of $62,817 and $72,722 at December 31,
1997 and 1996, respectively) 62,516 72,710
Loans held for sale 4,095 --
Loans receivable 422,209 280,184
Allowance for possible loan losses (2,512) (1,830)
Premises and equipment, net 8,542 7,724
Accrued interest receivable 4,119 2,649
Real estate owned 162 74
Other assets 230 1,653
-------- --------
Total assets $851,500 $529,165
======== ========
Liabilities and stockholders' equity
Deposits $289,528 $239,514
FHLB Advances 275,200 210,000
Securities sold under repurchase agreements 214,684 21,595
Advances from borrowers for taxes and insurance 3,135 2,499
Guaranteed Preferred Beneficial Interest in the
Company's subordinated debt 18,417 --
Other liabilities 4,003 2,440
-------- --------
Total liabilities 804,967 476,048
-------- --------
Preferred stock, $0.01 par value, 2,000,000 shares authorized,
none issued at December 31, 1997 and 1996, respectively -- --
Common stock, $0.01 par value, 10,000,000 shares authorized,
5,626,423 and 4,683,594 shares issued at December 31,
1997 and 1996, respectively 56 47
Additional paid-in capital 59,926 49,014
Common stock acquired by ESOP, 349,649 and 308,513
shares at cost at December 31, 1997 and 1996, respectively (2,428) (2,571)
Common stock acquired by MRP, 166,754 and 160,644 shares at
amortized cost at December 31, 1997 and 1996, respectively (1,285) (1,538)
Retained earnings 1,680 10,357
Treasury stock acquired, 1,267,955 and 226,147 shares
at cost at December 31, 1997 and 1996, respectively (16,071) (2,517)
Net unrealized gain on investment and mortgage-backed
securities available for sale, net of taxes 4,655 325
-------- --------
Total stockholders' equity 46,533 53,117
-------- --------
Total liabilities and stockholders' equity $851,500 $529,165
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
39
<PAGE>
Patriot Bank Corp. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(in thousands)
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Interest income
Interest-earning deposits $193 $116 $201
Investment and mortgage-backed securities 23,048 11,049 2,865
Loans 27,008 18,429 14,102
------ ------ -----
Total interest income 50,249 29,594 17,168
------ ------ ------
Interest expense
Deposits 13,405 9,895 8,980
Short-term Borrowings 15,648 5,965 569
Long-term Borrowings 6,754 1,642 --
------ ------ -----
Total interest expense 35,807 17,502 9,549
------ ------ -----
Net interest income before provision for
possible loan losses 14,442 12,092 7,619
Provision for possible loan losses 915 305 60
------ ------ -----
Net interest income after
provision for loan losses 13,527 11,787 7,559
------ ------ -----
Non-interest income
Service fees, charges and other operating income 830 526 519
Gain on the sale of branch deposits and facility 885
(Loss) Gain on sale of real estate acquired through
foreclosure (9) 16 96
Gain (loss) on sale of investment and mortgage-backed
securities available for sale 438 (28) (97)
Mortgage banking gains 186 123 --
------ ------ -----
Total non-interest income 2,330 637 518
------ ------ -----
Non-interest expense
Salaries and employee benefits 7,048 4,324 3,048
Occupancy and equipment 1,952 978 658
Federal deposit insurance premiums 132 1,814 439
Data processing 167 373 258
Advertising 551 397 226
Deposit processing 307 253 236
Other operating expenses 1,001 1,059 1,286
------ ------ -----
Total non-interest expense 11,158 9,198 6,151
------ ----- -----
Income before income taxes 4,699 3,226 1,926
Income taxes 1,326 1,251 734
------ ------ -----
Net income $3,373 $1,975 $1,192
====== ====== ======
Earning per share - basic $0.78 $0.39
===== =====
Earnings per share - diluted $0.74 $0.39
===== =====
Dividends per share $0.30 $0.18
===== =====
</TABLE>
The accompanying notes are an integral part of these statements.
40
<PAGE>
Patriot Bank Corp. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 1997,
1996 and 1995
(in thousands)
<TABLE>
<CAPTION>
Unrealized
gains
(losses) on
Additional securities
Number of Common paid-in Retained Treasury available
shares stock capital ESOP MRP earnings stock for sale Total
------ ----- ------- ---- ----- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995 -- -- -- -- -- 18,701 -- (833) 17,868
Shares issued upon
conversion 3,769 38 36,614 -- -- -- -- -- 36,652
Common stock acquired
by ESOP (301) -- -- (3,015) -- -- -- -- (3,015)
Release of ESOP shares 30 -- 86 301 -- -- -- -- 387
Change in unrealized gains
on securities available
for sale, net of taxes -- -- -- -- -- -- -- 1,026 1,026
Net income -- -- -- -- -- 1,192 -- -- 1,192
----- --- ------- ------- ------- ------ -------- ------ -------
Balance at December 31, 1995 3,498 38 36,700 (2,714) -- 19,893 -- 193 54,110
----- --- ------- ------- ------- ------ -------- ------ -------
Common stock issued 134 1 1,731 -- -- -- -- -- 1,732
Common stock acquired
by MRP (134) -- -- -- (1,732) -- -- -- (1,732)
Amortization of MRP -- -- -- -- 194 -- -- -- 194
Treasury stock purchased (188) -- -- -- -- -- (2,517) -- (2,517)
Stock dividend 661 8 10,530 -- -- (10,538) -- -- --
Release of ESOP shares 17 -- 53 143 -- -- -- -- 196
Change in unrealized gains
on securities available
for sale, net of taxes -- -- -- -- -- -- -- 132 132
Net income -- -- -- -- -- 1,975 -- -- 1,975
Cash dividends paid -- -- -- -- -- (973) -- -- (973)
----- --- ------- ------- ------- ------ -------- ------ -------
Balance at December 31, 1996 3,988 $47 $49,014 $(2,571) $(1,538) $10,357 $(2,517) $325 $53,117
----- --- ------- ------- ------- ------ -------- ------ -------
Common stock issued 5 -- 102 -- -- -- -- -- 102
Common stock acquired
by MRP (5) -- -- -- (102) -- -- -- (102)
Treasury stock purchased (830) -- -- -- -- -- (13,554) -- (13,554)
Stock dividend 631 9 10,645 -- -- (10,654) -- -- --
Release of MRP 32 -- -- -- 355 -- -- -- 355
Release of ESOP shares 21 -- 165 143 -- -- -- -- 308
Change in unrealized gains
on securities available
for sale, net of taxes -- -- -- -- -- -- -- 4,330 4,330
Net income -- -- -- -- -- 3,373 -- -- 3,373
Cash dividends paid -- -- -- -- -- (1,396) -- -- (1,396)
----- --- ------- ------- ------- ------ -------- ------ -------
Balance at December 31, 1997 3,842 $56 $59,926 $(2,428) $(1,285) $1,680 $(16,071) $4,655 $46,533
===== === ======= ======= ======= ====== ======== ====== =======
</TABLE>
The accompanying notes are an integral part of these statements.
41
<PAGE>
Patriot Bank Corp. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
Operating activities
Net Income 3,373 1,975 1,192
Adjustments to reconcile net income to net cash provided by
operating activities
Amortization and accretion of
Deferred loan origination fees (145) (464) (460)
Premiums and discounts (94) (39) (71)
MRP share 355 194
Provision for possible loan losses 915 305 60
Release of ESOP shares 308 196 387
(Gain) loss on sale of securities available for sale (438) 28 97
Loss (gain) on sale of real estate owned 9 (16) (96)
Gain on sale of deposits and facility (885) -- --
Depreciation of premises and equipment 762 259 187
Mortgage loans originaterd for sale (13,753) -- --
Mortgage loans sold 9,658 -- --
Decrease (increase) decrease in deferred income taxes 459 (277) 96
Increase in accrued interest receivable (1,470) (1,444) (29)
Increase in other assets (1,149) (71) (315)
Increase (decrease) in other liabilities 1,563 1,077 (39)
-------- ------ ------
Net Cash used by operating activities (532) 1,723 1,009
-------- ------ ------
Investing activities
Loan originations & principal payments on loans, net (142,265) (85,643) (25,309)
-------- ------ ------
Proceeds from the sale of securities - available for sale 4,280 3,918 10,249
Proceeds from the maturity of securities - available for sale 26,740 16,784 5,289
Proceeds from the maturity of securities - held to maturity 10,194 5,625 --
Purchase of securities - available for sale (208,017) (132,012) (22,450)
Purchase of securities - held to maturity -- (74,418) (1,251)
Proceeds from sale of real estate owned 50 131 398
Purchase of premises and equipment (1,880) (4,533) (95)
Proceeds from sale of premises and equipment 300 -- --
-------- ------ ------
Net cash (used in by investing activities (310,598) (270,148) (33,169)
-------- ------ ------
Financing activities
Net increase in deposits 60,361 37,896 11,680
Decrease from sale of deposits (9,462) -- --
Proceeds from short term borrowings 171,089 135,595 --
Proceeds from long term borrowings 87,200 86,000 --
Proceeds from trust preferred securities 18,417 -- --
Increase (decrease) in advances from borrowers for
taxes and insurance 636 721 (49)
Net proceeds from stock conversion -- -- 33,637
Cash paid for dividends (1,396) (973) --
Purchase of Treasury Stock (13,554) (2,517) --
-------- ------ ------
Net cash provided by financing activities 313,291 256,722 45,268
-------- ------ ------
Net (decrease) increase in cash and cash equivalents 2,161 (11,703) 13,108
Cash and cash equivalents at beginning of year 6,853 18,556 5,448
-------- ------ ------
Cash and cash equivalents at end of year 9,014 6,853 18,556
======== ======= ======
</TABLE>
The accompanying notes are an integral part of these statements.
42
<PAGE>
Patriot Bank Corp. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a description of the significant accounting policies of Patriot
Bank Corp. and Subsidiaries (Patriot). Such accounting and reporting policies
conform with generally accounting principles and predominant practices within
the financial institution industry.
Patriot, through its subsidiaries, offers a broad range of lending, depository
and related financial services to small businesses and consumers primarily
through 13 community banking offices located in Berks, Bucks, Chester,
Montgomery, Northampton and Lehigh counties in Pennsylvania and through direct
mail and various electronic and telephonic means.
Patriot Bank principally competes with other banking and financial institutions
in its primary market communities. Commercial banks, savings banks, savings and
loan associations, credit unions and money market funds actively compete for
deposits and loans. Such institutions, as well as consumer finance and insurance
companies, may be considered competitors of Patriot with respect to one or more
of the services they render.
a. Basis of Financial Presentation
The accompanying financial statements include the accounts of the parent
company, Patriot Bank Corp. and its subsidiaries: Patriot Bank and its
subsidiaries, Marathon Management Company, Patriot Financial Center, Inc.,
Patriot Commercial Leasing Company, Inc., and Patriot Investment Company. All
material intercompany balances and transactions have been eliminated in
consolidation.
In preparing the consolidated financial statements, management makes estimates
and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities, and the reported amounts of
revenues and expenses. Actual results could differ from those estimates.
The principal estimates that are particularly susceptible to significant change
in the near term relate to the allowance for possible loan losses, mortgage
servicing rights, and other real estate owned.
The evaluation of the adequacy of the adequacy of the allowance for possible
loan losses includes, among other factors, an analysis of historical loss rates,
by category, applied to current loan totals. However, actual losses may be
higher or lower than historical trends, which vary. Actual losses on specified
problem loans, which also are provided for in the evaluation, may vary from
estimated loss percentages, which are established based upon a limited number of
potential loss classifications.
In June 1997, the Financial Accounting Standards Board (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 has evaluated SFAS No. 130 and does not foresee a material effect on the
presentation of it's financial position or results of operation.
43
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
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 has
evaluated SFAS No. 131 and does not foresee a material effect on the
presentation of it's financial position or results of operation.
b. Investment and Mortgage-Backed Securities
Patriot classifies its investment and mortgage-backed securities in accordance
with Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." Under SFAS No. 115, debt
securities that Patriot has the intent and ability to hold to maturity are
classified as held to maturity and reported at amortized cost. Securities
expected to be held for an indefinite period of time are classified as available
for sale and are carried at fair value, with unrealized gains and losses
reported as a separate component of stockholders' equity, net of estimated
income taxes. Securities that are bought and held principally for the purpose of
selling are classified as trading and reported at fair value, with unrealized
gains and losses included in earnings. Patriot has no securities held for
trading. Gains or losses on the sales of securities are recognized at trade date
utilizing the specific identification method.
c. Loans held for resale
Loans held for resale consist of residential mortgage loans originated by
Patriot. They are recorded at the lower of cost or estimated fair value on an
aggregate basis.
d. Loans and Allowance for Possible Loan Losses
Loans that management has the intent and ability to hold for the foreseeable
future or until maturity or payoff are stated at unpaid principal balances and
net of deferred loan origination fees and discounts. Interest is accrued and
credited to operations based upon the principal amount of loans outstanding.
Loan fees and certain direct loan origination costs are deferred, and the net
fee or cost is recognized as an adjustment to interest income using the interest
method over the contractual life of the loans, adjusted for estimated
prepayments based on Patriot's historical prepayment experience.
Management's periodic evaluation of the adequacy of the allowance for possible
loan losses is based on Patriot's past loss experience, known and inherent risks
in the portfolio, adverse situations that may affect the borrower's ability to
repay, the estimated value of any underlying collateral, and current economic
conditions. Such estimates are susceptible to change, and actual losses on
specific loans may vary from estimated losses. The allowance for possible loan
losses is increased by charges to income and decreased by charge-offs (net of
recoveries).
Uncollectible interest on loans that are contractually past due is charged off,
or an allowance is established based on management's periodic evaluation. The
allowance is established by a charge to interest income equal to all interest
previously accrued, and income is subsequently recognized only to the extent
that cash payments are received until, in management's judgment, the borrower's
ability to make periodic interest and principal payments is reestablished, in
which case the loan is returned to accrual status.
44
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
On January 1, 1995, Patriot adopted SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan," as amended by SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan: Income Recognition and Disclosures." SFAS No. 114 requires
that a creditor measure impairment based on the present value of expected future
cash flows discounted at the loan's effective interest rate, except that as a
practical expedient, a creditor may measure impairment based on a loan's
observable market price, or the fair value of the collateral if the loan is
collateral dependent. Regardless of the measurement method, a creditor must
measure impairment based on the fair value of the collateral when the creditor
determines that foreclosure is probable. SFAS No. 118 allows creditors to use
existing methods for recognizing interest income on impaired loans.
SFAS No. 114, as amended, applies to all loans that are identified for
evaluation, uncollateralized as well as collateralized, except large groups of
smaller-balance homogeneous loans that are collectively evaluated for
impairment. Those loans include residential mortgage, home equity and consumer
loans. Patriot's loan portfolio is substantially comprised of residential
mortgage, home equity and consumer loans; therefore, the adoption of SFAS No.
114 had no material effect on Patriot's consolidated financial position or
results of operations. Patriot's impaired loans at December 31, 1997 and 1996
were not significant.
e. Premises and Equipment
Land is carried at cost. Buildings, leasehold improvements and furniture,
fixtures and equipment are carried at cost less accumulated depreciation.
Depreciation is provided for by the straight-line method over the estimated
useful lives of the assets.
On January 1, 1996, Patriot adopted SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which
provides guidance on when to recognize and how to measure impairment losses of
long-lived assets and certain identifiable intangibles and how to value
long-lived assets to be disposed of. The adoption of SFAS No. 121 had no
material effect on the consolidated financial position or results of operations.
f. Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities
On January 1, 1997 Patriot adopted SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," as amended by
SFAS No. 127, which provides accounting guidance on transfers of financial
assets, servicing of financial assets and extinguishments of liabilities.
Adoption of this new statement did not have a material impact on Patriot's
consolidated financial position or results of operations.
g. Employee Benefit Plans
Patriot has certain employee benefit plans covering substantially all employees.
Patriot accrues costs as incurred.
On January 1, 1996, Patriot adopted SFAS No. 123, "Accounting for Stock-Based
Compensation," which contains a fair value-based method for valuing stock-based
compensation that entities may use, which measures compensation cost at the
grant date based on the fair value of the award. Compensation is then recognized
over the service period, which is usually the vesting period. Alternatively, the
standard permits entities to continue accounting for employee stock options and
similar instruments under APB Opinion No. 25, "Accounting for Stock Issued to
Employees." Entities that continue to account for stock options using APB
Opinion No. 25 are required to make pro forma disclosures of net income and
earnings per share, as if the fair value-based method of accounting defined in
SFAS No. 123 had been applied. Patriot's employee stock option plan is accounted
for under APB Opinion No. 25.
45
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
h. Advertising Cost
Patriot expenses advertising costs as incurred.
i. Income Taxes
Deferred income taxes are provided on temporary differences between amounts
reported for financial statement and tax purposes in accordance with SFAS No.
109, "Accounting for Income Taxes."
j. Earnings per Shares
In 1997, Patriot adopted the provisions of SFAS No. 128, "Earnings per Share."
SFAS 128 eliminates primary and fully diluted earnings per share and requires
presentation of basic and diluted earnings per share in conjunction with the
disclosure of the methodology used in computing such earnings per share. Basic
earnings per share excludes dilution and is computed by dividing income
available to common shares by the weighted average common shares outstanding
during the period. Diluted earnings per share takes into account the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised and converted into common stock. Prior periods' earnings per
share calculations have been restated to reflect the adoption of SFAS No. 128.
k. Statement of Cash Flows
Cash and cash equivalents are defined as cash on hand, cash items in process of
collection and amounts due from banks. Interest-earning deposits consist of
deposit accounts with the Federal Home Loan Bank (FHLB) of Pittsburgh and
deposits with other financial institutions generally having maturities of three
months or less. Cash paid for interest on deposits was $13,368,000, $9,888,000
and $8,988,000 for the years ended December 31, 1997, 1996 and 1995,
respectively. Cash paid for income taxes was $1,982,000, $1,161,000 and
$6,701,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
Transfers from loans to real estate owned were $167,000, $31,000, and $218,000
for the years ended December 31, 1997, 1996 and 1995, respectively. Transfers of
investment securities from held to maturity to available for sale were $-0-,
$-0- and $6,000,000 for the years ended December 31, 1997,1996 and 1995,
respectively.
l. Reclassifications
Certain prior period amounts have been reclassified to conform with the current
year's presentation. These reclassifications had no effect on net income.
NOTE 2 - RESTRICTIONS ON CASH AND AMOUNTS DUE FROM DEPOSITORY INSTITUTIONS
Patriot is required to maintain certain average reserve balances as established
by the Federal Reserve Board. The amounts of those reserve balances for the
reserve computation periods, which included December 31, 1997 and 1996, were
$1,583,000 and $456,000, respectively.
46
<PAGE>
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>
1997
------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
cost Gains Loss Fair Value
--------- ---------- ---------- ----------
(in thousands)
<S> <C> <C> <C> <C>
Available for Sale:
Investment securities:
U.S. Treasury and
government agency
securities $19,884 $202 $-- $20,086
Commerce Bancorp, Inc. 5,000 276 -- 5,276
Other Corporate Securities 12,493 998 -- 13,491
FHLMC Stock 30,031 1,245 -- 31,276
FHLB Stock 13,760 -- -- 13,760
Equity securities 4,377 3,140 -- 7,517
Mortgage-backed securities:
FHLMC 11,287 214 -- 11,501
FNMA 20,163 185 94 20,254
GNMA 12,592 279 -- 12,871
Collateralized mortgage
obligations:
FHLMC 75,085 806 107 75,784
FNMA 118,778 503 437 118,844
Securitized Asset Sales, Inc. 4,934 -- 81 4,853
GE Capital MTG. Services, Inc. 7,476 24 -- 7,500
Other 112 -- -- 112
-------- ------ ---- --------
Total investment
and mortgage-backed
securities available for sale $335,972 $7,872 $719 $343,125
======== ====== ==== ========
Held to Maturity:
Investment securities:
U.S. Treasury and
government agency
securities $1,035 $4 $5 $1,034
Corporate securities 1,502 42 -- 1,544
Collateralized mortgage
obligations:
FHLMC 1,801 3 -- 1,804
FNMA 9,775 112 -- 9,887
Capstead Securities Corp. IV 6,055 24 -- 6,079
CMC Securities Corporation 6,377 64 -- 6,441
Other 35,971 150 93 36,028
-------- ------ ---- --------
Total investment
and mortgage-backed
securities held to maturity $62,516 $399 $98 $62,817
======== ====== ==== ========
</TABLE>
47
<PAGE>
NOTE 3 - INVESTMENT AND MORTGAGE-BACKED SECURITIES, CONTINUED
<TABLE>
<CAPTION>
1996
--------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
cost Gains Losses Fair Value
--------- ---------- ---------- ----------
(in thousands)
<S> <C> <C> <C> <C>
Available for Sale:
Investment securities:
U.S. Treasury and
government agency
securities $5,023 $-- $33 $4,990
Equity securities 23,797 695 -- 24,492
Mortgage-backed securities:
FHLMC 14,582 149 22 14,709
FNMA 25,118 150 144 25,124
GNMA 14,498 253 -- 14,751
Collateralized mortgage
obligations:
FHLMC 37,928 7 296 37,639
FNMA 31,654 13 165 31,502
Other 5,976 -- 35 5,941
-------- ------ ---- --------
Total investment
and mortgage-backed
securities available for sale $158,576 $1,267 $695 $159,148
======== ====== ==== ========
Held to Maturity:
Investment securities:
U.S. Treasury and
government agency
securities $1,911 $-- $19 $1,892
Corporate securities 2,506 27 -- 2,533
Collateralized mortgage
obligations:
Other 68,293 281 277 68,297
-------- ------ ---- --------
Total investment
and mortgage-backed
securities held to maturity $72,710 $308 $296 $72,722
======== ====== ==== ========
</TABLE>
48
<PAGE>
NOTE 3 - INVESTMENT AND MORTGAGE-BACKED SECURITIES, CONTINUED
The amortized cost and estimated fair value of investment and mortgage-backed
securities at December 31, 1997, by contractual maturity, are shown below.
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties:
<TABLE>
<CAPTION>
Held to maturity Available for sale
----------------------- -------------------------
Amortized Fair Amortized Fair
cost value cost value
--------- ------- ---------- -------
(in thousands)
<S> <C> <C> <C> <C>
Investment and mortgage-backed securities
Due in one year or less $12,728 $12,764 $16,018 $16,039
Due after one year through five years 40,408 40,603 94,564 94,839
Due after five years through ten years 9,380 9,450 80,569 80,845
Due after ten years -- -- 96,653 98,849
Equity Securities -- -- 48,168 52,553
------- ------- -------- --------
Total investment and mortgage-backed securities $62,516 $62,817 $335,972 $343,125
======= ======= ======== ========
</TABLE>
For purposes of the maturity table, mortgage-backed securities, which are not
due at a single maturity date, have been allocated over maturity groupings based
on the contractual maturities. The mortgage-backed securities may mature earlier
than their contractual maturities because of principal prepayments.
Proceeds from sales of investment and mortgage-backed securities and the
realized gross gains and losses from those sales are as follows:
<TABLE>
<CAPTION>
Available for sale Held to maturity
----------------------------- ----------------------
Year ended December 31, Year ended December 31,
1997 1996 1995
------ ----- -------
(in thousands)
<S> <C> <C> <C>
Proceeds from sales $4,280 $3,918 $10,249
====== ====== =======
Gross realized gains 438 $75 $--
Gross realized losses -- (103) (97)
--- ----- ----
Net realized gain (loss) $438 $(28) $(97)
==== ==== ====
</TABLE>
On November 15, 1995, the FASB issued a special report entitled "A Guide to
Implementation of Statement No. 115 on Accounting for Certain Investments in
Debt and Equity Securities." This guide allowed enterprises to reassess the
appropriateness of the classification of all securities held. Based on this
special report, Patriot reclassified $6,000,000 of securities from held to
maturity to available for sale. The transfer was made at fair value and resulted
in an estimated unrealized loss of $59,000 and a decrease in stockholders'
equity of $39,000 based on current market values.
Securities having an aggregate amortized cost of $335,000, $412,000 and $445,000
were pledged to secure public deposits at December 31, 1997, 1996 and 1995,
respectively.
49
<PAGE>
NOTE 4 - LOANS RECEIVABLE
Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------
1997 1996
-------- --------
(in thousands)
<S> <C> <C>
Real estate loans
First mortgages secured by one- to four-family
residences $302,684 $192,518
Home equity and second mortgage 77,070 72,480
Construction 4,039 3,210
Multi-family and commercial 36,957 11,822
-------- --------
420,750 280,030
Consumer loans 3,853 2,546
-------- --------
Total loans receivable 424,603 282,576
Less deferred loan origination fees (2,394) (2,392)
-------- --------
Total loans receivable, net $422,209 $280,184
======== ========
</TABLE>
Activity in the allowance for possible loan losses is summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
(in thousands)
<S> <C> <C> <C>
Balance at beginning of year $1,830 $1,702 $1,720
Provision for possible loan losses 915 305 60
Loans charged off (276) (177) (81)
Recoveries 43 -- 3
------ ------ ------
Balance at end of year $2,512 $1,830 $1,702
====== ====== ======
</TABLE>
Non-performing loans, consisting of all loans 90 days past due and certain other
loans for which the accrual of interest has been discontinued, were $1,112,000
and $568,000 at December 31, 1997 and 1996, respectively. Interest income that
would have been recorded under the original terms of such loans and the interest
income actually recognized are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Interest income that would have been recorded $71 $53 $53
Interest income recognized (21) (17) (14)
--- ---- ---
Interest income foregone $50 $36 $39
=== === ===
</TABLE>
50
<PAGE>
NOTE 5 - PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
Estimated
useful lives 1997 1996
------------ ------- ------
(in thousands)
<S> <C> <C> <C>
Land -- $1,255 $1,220
Buildings 30-40 6,051 5,966
Furniture, fixtures and equipment 3-7 4,059 2,969
Leasehold improvements 15 655 506
-- ------ ------
12,020 10,661
Less accumulated depreciation (3,478) (2,937)
------- ------
$8,542 $7,724
====== ======
</TABLE>
NOTE 6 - DEPOSITS
Deposits and their average rates are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------- ---------------------
Average Average
Balance rate Balance rate
------- ------ -------- ------
(in thousands)
<S> <C> <C> <C> <C>
NOW deposits $16,908 0.61% $17,842 0.49%
Money market 51,696 4.44 33,411 4.57
Savings accounts 24,510 2.38 27,712 2.38
Non-interest-bearing demand 11,117 -- 3,433 --
------- ------ -------- ----
Total demand, transaction, money market and 104,231 2.86 82,398 2.76
savings deposits
Certificates of deposit 185,297 5.87 157,116 5.76
-------- ---- -------- ----
Total $289,528 4.79% $239,514 4.73%
======== ==== ======== ====
</TABLE>
The aggregate amount of certificates of deposit with minimum denominations of
$100,000 or more totaled approximately $41,788,000 and $19,357,000 at December
31, 1997 and 1996, respectively. At December 31, 1997, Patriot has one company
who's certificates of deposits totaled approximately $30,490,000.
At December 31, 1997, scheduled maturities of certificates of deposit were as
follows:
1998 $91,399
1999 70,384
2000 10,985
2001 1,586
2002 2,048
Thereafter 8,895
--------
$185,297
========
51
<PAGE>
NOTE 7 - FHLB ADVANCES
a. SHORT TERM
Short-term advances from the FHLB have maturities of less than one year.
These advances are collateralized by FHLB stock and certain first mortgage
loans and mortgage-backed securities. Short-term borrowings are summarized as
follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(In thousands)
<S> <C> <C>
Balance at year-end $171,000 $134,000
Maximum amount outstanding at any month-end during the period $213,000 $183,500
Average amount outstanding during each period $155,042 $106,855
Weighted average interest rate on short-term borrowings 5.76% 5.50%
</TABLE>
b. LONG TERM
At December 31, 1997 and 1996, long-term advances from the FHLB totaling
$104,200 and $76,000 have maturities of one to ten years. These advances are
collateralized by FHLB stock and certain first mortgage loans and
mortgage-backed securities.
At December 31, 1997, the outstanding long-term borrowings mature as follows
(in thousands):
1998 0
1999 19,000
2000 0
2001 0
2002 85,000
Thereafter 200
-------
104,200
NOTE 8 - SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
a. SHORT TERM
Patriot enters into sales of securities under agreements to repurchase. These
transactions are reflected as a liability on the accompanying Consolidated
Balance Sheets. The dollar amount of securities underlying the agreements
remains in the asset account, although the securities underlying the
agreements are delivered to primary dealers who manage the transactions. At
December 31, 1997 and 1996, all of the agreements were to repurchase
identical securities.
Short-term repurchase agreements generally have maturities of less than one
year. These repurchase agreements are collateralized by certain
mortgage-backed, agency and corporate securities. Short-term repurchase
agreements are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
-------- -------
(In thousands)
<S> <C> <C>
Balance at year-end $214,684 $11,595
Maximum amount outstanding at any month-end during the period $221,962 $11,595
Average amount outstanding during each period $115,593 $254
Weighted average interest rate on short-term borrowings 5.77% 6.40%
Mortgage-backed securities underlying the agreements at year-end:
Carrying value $227,629 $23,287
Estimated fair value $227,629 $23,287
</TABLE>
52
<PAGE>
NOTE 8 - SECURITIES SOLD UNDER REPURCHASE AGREEMENTS, CONTINUED
b. LONG TERM
At December 31, 1997 and 1996 long-term repurchase agreements totalling $0
and $10,000 generally have maturities of one to two years. These repurchase
agreements are collateralized by certain mortgage-backed securities.
NOTE 9 - TRUST PREFERRED SECURITIES
On May 29, 1997, Patriot issued $19,000,000 of 10.30% junior subordinated
debentures to Patriot Capital Trust I, a Delaware Business Trust, in which
Patriot owns all of the common equity. The trust issued $19,000,000 of preferred
securities to investors, secured by the junior subordinated debentures and the
guarantee of Patriot. Although the junior subordinated debentures will be
treated as debt of Patriot, they currently qualify for Tier I capital treatment,
subject to certain limitations, under risk-based capital guidelines of the
Federal Reserve. The Trust Preferred Securities are callable by the Company on
or after July 1, 2007, or earlier in the event the deduction of related interest
for federal income taxes is prohibited, treatment as Tier I capital is no longer
permitted or certain other contingencies arise. The Trust Preferred Securities
must be redeemed upon maturity of the debentures in 2027.
NOTE 10 - EQUITY TRANSACTIONS
On July 28, 1997 Patriot completed a tender offer to purchase 449,537 (539,444
after 20% stock dividend) shares at $18.00 per share.
On August 25, 1997, Patriot announced a 20% stock dividend. The stock
distribution was made on September 22, 1997 to stockholders of record on
September 8, 1997.
On October 25, 1996, Patriot announced a 20% stock dividend. The stock
distribution was made on November 21, 1996 to stockholders of record on November
7, 1996. At December 31, 1997 and 1996 shares outstanding were 4,358,000 and
4,457,000 respectively. All share amounts have been retroactively adjusted for
stock dividends.
In July 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 (not effected
for stock dividends) shares of common stock to the public. The provisions of
SFAS No. 128, "Earnings Per Share," are not applicable for the year ended
December 31, 1995.
53
<PAGE>
Note 11 - BRANCH SALE
On November 21, 1997 Patriot completed the sale of a community banking
office and $10,350,000 of deposits form that office at a 7.5% premium Patriot
recognized a gain from the sale of the deposits and the physical facility of
approximately $885,000
NOTE 12 - INCOME TAXES
Applicable income taxes in the consolidated statements of income are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------ ----
(in thousands)
<S> <C> <C> <C>
Current
Federal $1,301 $1,306 $525
State 109 222 113
APIC from Stock Compensation 55 -- --
------ ------ ----
Total current 1,465 1,528 638
===== ----- ---
Deferred
Federal (39) (277) 96
State (100) -- --
------ ------ ----
Total deferred (139) (277) 96
------ ------ ----
Applicable income taxes $1,326 $1,251 $734
====== ====== ====
Effective tax rate 28.2% 38.8% 38.1%
====== ====== ====
</TABLE>
54
<PAGE>
NOTE 12 - INCOME TAXES, CONTINUED
The income tax provision reconciled to taxes computed at the statutory federal
rate is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Federal tax expense at statutory rate 35.0% 35.0% 35.0%
Adjustment resulting from:
State tax, net of federal tax benefit .8 2.3 3.7
Tax-exempt interest and dividend income (9.0) (1.4) (0.1)
ESOP expense 1.2 0.6 1.6
MRP expense (1.2) 1.5 --
Other 1.4 0.8 (2.1)
---- ---- ----
Income taxes 28.2% 38.8% 38.1%
==== ==== ====
</TABLE>
1997 1996
-------- -----
(in thousands)
Deferred tax assets
Deferred loan fees $184 $288
Allowance for possible loan losses 854 579
Uncollectible interest 18 23
Non-qualified pension plan 14 14
MRP expense 66 68
State NOL carryovers 100 --
Reserves 11 --
-------- ----
Total deferred tax assets $1,247 $972
======== ====
Deferred tax liabilities
Depreciation $368 $211
Discount accretion 134 87
Pension plan -- 15
Gain on sale of loans 48 100
Excess loan servicing fees -- --
Unrealized gain on securities
available for sale 2,498 228
-------- ----
Total deferred tax liabilities 3,048 641
-------- ----
Net deferred tax (liability) asset ($1,801) $331
======== ====
Based on management's evaluation of the likelihood of realization, no valuation
allowance has been provided against deferred tax benefits.
55
<PAGE>
NOTE 12 - INCOME TAXES, CONTINUED
Prior to 1996, the Bank was permitted to deduct a percentage of its taxable
income as an addition to a bad debt reserve for tax purposes regardless of the
Bank's charge-off experience. This special deduction was repealed for taxable
years following 1995. The Bank is now required to compute its bad debt
deductions for tax purposes using the specific charge-off method. At December
31, 1997, 1996, and 1995 the Bank's tax bad debt reserve was approximately $ 4.0
million.
The Bank is not required to recapture its tax bad debt reserve into taxable
income as long as the Bank continues to operate as a bank under federal tax law
and does not use the reserve to fund dividends or redeem its stock. In
accordance with SFAS No. 109, the Bank has not recorded any deferred tax
liability on of its tax bad debt reserve. The tax that would be paid were the
Bank ultimately required to recapture of the reserve would amount to
approximately $1.4 million.
56
<PAGE>
NOTE 13 - EARNINGS PER SHARE
Patriot's calculation of earnings per share in accordance with SFAS No. 128,
"Earnings Per Share" is as follows:
<TABLE>
<CAPTION>
For Year Ended December 31, 1997
--------------------------------------------
Income Shares Per-Share
Numerator (Denominator) Amount
--------- ----------- ---------
<S> <C> <C> <C>
Basic EPS
Net Income available to common
stockholders $3,373 4,350 $0.78
Effect of Dilutive Securities
Options -- 204 (.04)
------ ----- -----
Diluted EPS
Net income available to common
stockholders plus assumed conversions $3,373 4,554 $0.74
====== ===== =====
</TABLE>
Options to purchase 3,600 shares of common stock at $18.02 were outstanding
during the year. They were not included in the computation of diluted EPS
because the option exercise price was greater than the average market price.
<TABLE>
<CAPTION>
For Year Ended December 31, 1996
--------------------------------------------------
Income Shares Per-Share
Numerator (Denominator) Amount
--------- ------------- ----------
<S> <C> <C> <C>
Basic EPS
Net Income available to common
stockholders $1,975 5,048 $0.39
Effect of Dilutive Securities
Options -- 61 --
------ ----- -----
Diluted EPS
Net income available to common
stockholders plus assumed conversions $1,975 5,109 $0.39
====== ===== =====
</TABLE>
All option at December 31, 1996 had exercise prices less than the average market
price, accordingly they have all been included in the above calculation.
As a result of the conversion completed in December 1995, EPS for the year ended
December 31, 1995 was not applicable.
57
<PAGE>
NOTE 14 - EMPLOYEE BENEFIT PLANS
a. Pension Plan
Effective December 31, 1996, the Board of Directors approved the termination of
Patriot's non-contributory defined benefit pension plan. Previously, the plan
covered substantially all full time employees meeting certain eligibility
requirements. As a result of this termination, all participating employees
became fully vested under the plan. Distributions of the participants' vested
benefits took place in the fourth quarter of 1997. Such distributions were in
the form of cash payouts and rollovers into Patriot's 401(k) plan. In accordance
with SFAS No. 88, "Employers' Accounting for Settlements and Curtailments of
Defined Pension Plans and for Terminated Benefits", both a settlement and
curtailment had occurred. For the year ended December 31, 1997, the loss
associated with the settlement and curtailment of this plan was not significant.
No gain or loss was recognized for the year ended December 31, 1996.
b. 401(k) Plan
Patriot maintains a 401(k) plan covering all of its employees who have attained
age 21 and have completed at least one year of service. Effective January 1,
1997, the 401(k) plan has been amended whereby all eligible employees will
receive a contribution to the plan equal to 3% of their base salary prior to
January 1, 1997. Subsequent to January 1997 Patriot will contribute 100% of an
employee's contribution up to 3% of base salary and 50% of an employee's
contribution between 3% and 6% of base salary. Prior to 1997, Patriot
contributed 50% of an employee's contribution, up to 6% of salary. Patriot's
contributions were $143,000, $35,000 and $32,000 for the years ended December
31, 1997, 1996 and 1995, respectively.
c. Employee Stock Ownership Plan
In 1995, Patriot established an internally leveraged Employee Stock Ownership
Plan (ESOP) for eligible employees who have completed one year of service with
Patriot or its subsidiaries. In December 1995, the ESOP borrowed $3,015,000 from
Patriot to purchase 434,000 (as adjusted for subsequent stock dividends) newly
issued shares of common stock. Patriot makes contributions to the ESOP equal to
the ESOP's debt service less any dividends received by the ESOP. Any dividends
received by the ESOP are used to pay debt service. The ESOP shares are pledged
as collateral for its debt. As the debt is repaid, shares are released from
collateral and allocated to qualifying employees based on the proportion of debt
service paid in the year. Patriot accounts for its ESOP in accordance with
Statement of Position 93-6, "Employers' Accounting for Employee Stock Ownership
Plans." Accordingly, the debt of the ESOP is recorded as debt and the shares
pledged as collateral are reported as unearned ESOP shares in the consolidated
Balance Sheets. As shares are released from collateral, Patriot reports
compensation expense equal to the current market price of the shares, and the
allocated shares are included in outstanding shares for earnings per share
computations. Dividends on allocated ESOP shares are recorded as a reduction of
retained earnings; dividends on unallocated ESOP shares are recorded as a
reduction of debt and accrued interest. ESOP compensation expense was $308,000,
$194,000 and $387,000 in 1997, 1996 and 1995, respectively. The ESOP shares as
of December 31, 1997 were as follows:
Allocated shares 85,000
Unreleased shares 349,000
----------
Total ESOP shares 434,000
==========
Fair value of unreleased shares $7,395,000
==========
58
<PAGE>
NOTE 14 - EMPLOYEE BENEFIT PLANS, CONTINUED
d. Stock-Based Compensation
Patriot maintains a Management Recognition Plan (MRP). The MRP provides that up
to 217,000 shares of common stock may be granted, at the discretion of the
Board, to key directors and officers at no cost to the individuals. Patriot
granted 193,000 shares in 1996 and 6,000 (as adjusted for subsequent stock
dividends) shares in 1997 in the form of restricted stock payable over five
years from the date of grant. The recipients of the restricted stock are
entitled to all voting and other stockholder rights, except that the shares,
while restricted, may not be sold, pledged or otherwise disposed of and are
required to be held in escrow. In the event the recipient terminates association
with Patriot for reasons other than death, disability or change in control, the
recipient forfeits all rights to the allocated shares under restriction which
are canceled and revert to Patriot for reissuance under the plan. Shares
acquired by the MRP were newly issued shares and were recorded at the date of
award based on the market value of shares. Shares acquired by the MRP, which are
shown as a separate component of stockholders' equity, are being amortized to
expense over the five-year vesting period. As shares are vested during this
five-year period, Patriot records compensation expense equal to the shares being
amortized. For the years ended December 31, 1997 and 1996, $355,000 and $194,000
was amortized to expense. At December 31, 1997, 18,000 shares were reserved for
future grants under the plan.
Patriot maintains stock option plan. The stock option plan is accounted for
under APB Opinion No. 25 and related interpretations. The plan permits the grant
of options to employees and directors for up to 542,000 shares of common stock.
The options have a term of 10 years and vest over a five-year period. The
exercise price of each option equals the market price of Patriot's stock on the
date of grant. Accordingly, no compensation cost has been recognized for the
plan. Had compensation cost for the plan been determined based on the fair value
of the options at the grant dates consistent with the method of SFAS No. 123,
Patriot's 1997 and 1996 net income and earnings per share would have been
reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996
-------------------------- ----------------------------
As reported Pro-forma As reported Pro forma
------------ ---------- ----------- ----------
<S> <C> <C> <C> <C>
Net income $3,373,000 $3,110,000 $1,975,000 $1,841,000
Earnings per share - basic $0.78 $0.72 $0.39 $0.36
Earnings per share - diluted $0.74 $0.68 $0.39 $0.36
</TABLE>
59
<PAGE>
NOTE 14 - EMPLOYEE BENEFIT PLANS, CONTINUED
A summary status of Patriot's option plans as of December 31, 1997 and 1996 and
the charges during the years ending on those dates is presented below:
<TABLE>
<CAPTION>
1997 1996
------------------- --------------------
Weighted Weighted
Average Average
Shares Price Shares Price
------- -------- -------- --------
<S> <C> <C> <C> <C>
Outstanding, beginning of year 510,000 $8.98 -- --
Granted 7,000 16.38 510,000 $8.98
------- ----- ------- -----
Outstanding at year-end 517,000 $9.08 510,000 $8.98
======= ===== ======= =====
Options exercisable at year-end 102,000 --
======= =======
Weighted average fair value of
options granted during the year $6.68 $3.42
===== =====
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes options-pricing model as follows:
<TABLE>
<S> <C> <C>
Assumptions:
Dividend yield 2.40% 2.40%
Expected volatility 33.30% 22.90%
Risk-free interest rate 6.47% 6.50%
</TABLE>
The following table summarizes information about non-qualified options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Excercisable
------------------------------------------------- ----------------------------------
Number Weighted Number
Outstanding at Average Weighted Outstanding at Weighted
Range of December 31, Remaining Average December 31, Average
Excercise Prices 1997 Contractual Life Exercise Price 1997 Excercise Price
- ----------------- ------------- ---------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
$8.98 510,000 8.5 years $8.98 102,000 $8.98
$14.74 - $18.02 7,200 9.5 years $16.38 -- $16.38
</TABLE>
60
<PAGE>
NOTE 15 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONCENTRATIONS
OF CREDIT RISK
Patriot is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers,
including commitments to extend credit. Those instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amount
recognized in the consolidated Balance Sheets. The contract or notional amounts
of those instruments reflect the extent of Patriot's involvement in particular
classes of financial instruments.
Patriot's exposure to credit loss in the event of non-performance by the other
party to the financial instrument for commitments to extend credit is
represented by the contractual notional amount of those instruments. Patriot
uses the same credit policies in making commitments and conditional obligations
as it does for on-balance-sheet instruments. Unless noted otherwise, Patriot
requires collateral to support financial instruments with credit risk.
The contractual or notional amounts of outstanding loan commitments as of
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Total
Fixed rate Variable rate commitments
commitments commitments outstanding
----------- ------------- -----------
(in thousands)
<S> <C> <C> <C>
Financial instruments whose contract
amounts represent credit risk
Mortgage loans $3,059 $1,093 $4,152
Consumer and other loans 388 21,387 21,775
Commercial lines of credit -- 20,074 20,074
Construction loans 3,662 -- 3,662
----- -- -----
$7,109 $42,554 $49,663
====== ======= =======
Financial instruments whose notional
or contract amounts exceed the
amount of the credit risk
Interest rate cap -- 50,000 50,000
Interest rate floor -- 50,000 50,000
</TABLE>
Fees received in connection with these commitments are recognized as income over
the life of the commitment or the life of the loan.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Patriot evaluates each customer's creditworthiness on
a case-by-case basis. The amount of collateral obtained, if deemed necessary by
Patriot upon extension of credit, is based on management's credit evaluation of
the borrower. Collateral for commitments generally includes residential or other
real estate.
61
<PAGE>
NOTE 15 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
AND CONCENTRATIONS OF CREDIT RISK, CONTINUED
Interest rate cap and floor agreements are instruments used by Patriot to manage
its interest rate risk. An interest rate cap is an agreement whereby the seller
of the cap contractually agrees to pay the buyer the difference between the
actual interest rate and strike rate per the cap contract, if the actual rate is
higher than the strike rate. An interest rate floor is an agreement whereby the
seller of the floor contractually agrees to pay the buyer the difference between
the actual interest rate and the strike rate of the floor contract, if the
actual rate is lower than the strike rate.
NOTE 16 - COMMITMENTS AND CONTINGENCIES
a. Lease Commitments
Patriot is committed to various operating leases related to branch facilities
having initial or remaining terms in excess of one year. The minimum annual
rental commitments under these leases outstanding at December 31, 1997 are as
follows:
1998 $206,552
1999 180,000
2000 180,000
2001 196,817
2002 219,600
Thereafter 2,042,758
---------
3,025,727
=========
Total rental expense for all leases for the year ended December 31, 1997 and
1996 totaled $184,516 and $54,815, respectively. There were no leases in 1995.
b. Other
Patriot is a defendant in various legal actions arising from normal business
activities. Management believes that those actions are without merit or that the
ultimate liability, if any, resulting from such actions will not have a material
adverse effect on Patriot's consolidated financial position or results of
operations.
62
<PAGE>
NOTE 17 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires
disclosure of the estimated fair value of Patriot's assets and liabilities
considered to be financial instruments. As with most financial institutions, the
majority of Patriot's assets and liabilities are considered financial
instruments as defined in SFAS No. 107. However, many of such instruments lack
an available trading market, as characterized by a willing buyer and seller
engaging in an exchange transaction. Also, it is Patriot's general practice and
intent to hold the preponderance of its financial instruments to maturity and
not to engage in trading or sales activities. Therefore, Patriot has used
significant estimates and present value calculations to prepare this disclosure.
Changes in the assumptions or methodologies used to estimate fair value may
affect the estimated amounts.
Fair values have been estimated using data which management considered the best
available. Fair value of financial instruments actively traded in a secondary
market has been estimated using quoted market prices. The fair value of loans
receivable has been estimated using present value cash flow, discounted at an
interest rate that gives effect to estimated prepayment risk and credit loss
factors. Fair value of financial instrument liabilities with no stated
maturities has been estimated to equal the carrying amount. Fair value of
financial instrument liabilities with stated maturities has been estimated using
present value cash flow, discounted at a rate approximating current market rates
for similar assets and liabilities. The resulting estimated fair values and
carrying amounts at December 31, 1997 and 1996, respectively were as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------- ----------------------
Estimated Estimated
fair Carrying fair Carrying
value amount value amount
--------- -------- --------- --------
(in thousands)
<S> <C> <C> <C> <C>
Financial Assets:
Cash and cash equivalents $9,014 $9,014 $6,853 $6,853
Investment and mortgage-backed
securities available for sale 343,125 343,125 159,148 159,148
Investment and mortgage-backed
securities held to maturity 62,817 62,516 72,722 72,710
Total Loans receivable (net) 426,557 423,792 280,468 278,354
Financial Liabilities:
Deposits with no stated maturities 104,231 104,231 82,398 82,398
Deposits with stated maturities 185,532 185,297 158,888 157,116
Borrowings 516,149 508,301 229,947 231,595
Off-balance sheet items
Commitments to extend credit 49,663 49,663 18,996 18,996
Caps and floors 5 317 -- --
</TABLE>
63
<PAGE>
NOTE 18 - REGULATORY MATTERS
On May 22, 1997, Patriot Bank completed its conversion from a federally
chartered savings bank to a state chartered commercial bank. Effective with the
charter conversion Patriot Bank's regulators changed from the OTS to the State
of Pennsylvania and the FDIC. Patriot Bank Corp. is regulated by the Federal
Reserve.
Patriot is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory - and possible additional discretionary - actions by
regulators that, if undertaken, could have a direct material effect on Patriot's
consolidated financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, Patriot must meet specific
capital guidelines that involve quantitative measures of Patriots assets,
liabilities and certain off-balance sheet items as calculated under regulatory
accounting practices. Patriot's capital amounts are also subject to qualitative
judgments by the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require Patriot to maintain minimum amounts and ratios (set forth in the table
below) of total and core capital (as defined in the regulations) to
risk-weighted assets, and of core capital to adjusted assets. Management
believes, as of December 31, 1997, that Patriot meets all capital adequacy
requirements to which it is subject.
As of December 31, 1997, the most recent notification from the Department of
Banking of the Commonwealth of Pennsylvania categorized Patriot as well
capitalized under the regulatory framework for prompt corrective action. To be
categorized as well capitalized, Patriot must maintain minimum total risk-based,
core risk-based and core leverage ratios as set forth in the table. There are no
conditions or events since that notification that management believes have
changed the institutions category.
<TABLE>
<CAPTION>
Required to be Required to be
Adequately Well
Actual Capitalized Capitalized
----------------- --------------- ----------------------
Amount Ratio Amount Ratio Amount Ratio
-------- ----- -------- ----- -------- ------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997
Total capital (to risk weighted
assets)
Patriot Bank Corp. $62,807 14.54% $34,567 8% $43,208 10%
Patriot 44,100 10.77% 32,748 8% 40,936 10%
Tier I capital (to risk-weighted
assets)
Patriot Bank Corp. 55,837 12.92% 17,283 4% 25,925 6%
Patriot 41,588 10.16% 16,374 4% 24,561 6%
Tier I capital (to average assets)
Patriot Bank Corp. 55,837 7.90% 28,282 4% 35,353 5%
Patriot 41,588 6.12% 27,204 4% 34,005 5%
</TABLE>
Patriot Bank is subject to regulations of certain regulatory agencies and,
accordingly, is periodically examined by such regulatory authorities. As a
consequence of the regulation of banking activities, Patriot Bank's operations
are susceptible to changes in legislation and regulations.
64
<PAGE>
NOTE 18 - REGULATORY MATTERS, CONTINUED
On September 30, 1996, the Deposit Insurance Funds Act of 1996 (the Funds Act)
was signed into law which, among other things, imposed a special one-time
assessment on Savings Association Insurance Fund (SAIF) member institutions,
including Patriot Bank, to recapitalize the SAIF. As required by the Funds Act,
the Federal Deposit Insurance Corporation (FDIC) imposed a special assessment of
65.7 basis points on SAIF assessable deposits held as of March 31, 1995, payable
November 27, 1996. The special assessment was recognized as a tax-deductible
expense in 1996. Patriot recorded a special after-tax charge of $836,000
($1,338,000 before-tax) as a result of the FDIC special assessment.
The Funds Act also spreads the obligations for payment of the Financing
Corporation (FICO) bonds across all Bank Insurance Fund (BIF) and SAIF members.
Beginning on January 1, 1997, BIF deposits will be assessed for FICO payments at
a rate of 20% of the rate assessed on SAIF deposits. Based on current estimates
by the FDIC, BIF deposits will be assessed a FICO payment of 1.3 basis points,
while SAIF deposits will pay an estimated 6.5 basis points on the FICO bonds.
Full pro rata sharing of the FICO payments between BIF and SAIF members will
occur on the earlier of January 1, 2000 or the date the BIF and SAIF are merged.
The Funds Act specifies that the BIF and SAIF will be merged on January 1, 1999,
provided the savings associations remain as of that time.
In conformity with Patriot's charter, a "liquidation account" was established
for Patriot Bank at the time of its conversion to the stock form of ownership.
In the unlikely event of a complete liquidation of Patriot Bank, holders of
savings accounts with qualifying deposits, who continue to maintain their
savings accounts, would be entitled to a distribution from the "liquidation
account" in an amount equal to the then current adjusted savings account balance
before any liquidation distribution could be made with respect to capital stock.
The balance in the "liquidation account" was $11,487,000 at December 31, 1997.
This amount may not be utilized for the payment of cash dividends to the holding
company.
For the period ended December 31, 1996 Patriot was regulated by the (OTS) Office
of Thrift thus 1996 capital ratios are calculated under OTS guidelines.
The following schedule summarizes the actual capital balances and ratios of
Patriot Bank at December 31, 1996:
<TABLE>
<CAPTION>
Tangible Leverage Leverage Risk-based
capital (core) capital (core) capital capital to
to tangible to tangible to risk-adjusted risk-adjusted
assets assets assets assets
----------- -------------- ---------------- -------------
(in thousands)
<S> <C> <C> <C> <C>
Regulatory capital $32,049 $32,049 $32,049 $33,879
Minimum capital requirement 7,490 14,980 9,944 19,889
------- ------- ------- -------
Excess $24,559 $17,069 $22,105 $13,990
======= ======= ======= =======
Capital ratio 6.47% 6.47% 12.89% 13.63%
==== ==== ===== =====
</TABLE>
65
<PAGE>
NOTE 19 - PARENT COMPANY FINANCIAL INFORMATION
Condensed financial information for Patriot Bank Corp. is as follows:
Condensed Balance Sheets
<TABLE>
<CAPTION>
December 31,
1997 1996
------ -------
(in thousands)
<S> <C> <C>
Assets
Cash and cash equivalents $89 $--
Loans to subsidiaries 499 --
Investment in subsidiaries 66,517 53,246
Other assets 3 465
------- -------
Total assets $67,108 $53,711
======= =======
Liabilities and stockholders' equity
Other liabilities $2,158 $594
Trust Preferred Securities 18,417 --
Stockholders' equity 46,533 53,117
------ ------
Total liabilities and stockholders' equity $67,108 $53,711
======= =======
</TABLE>
Condensed Statements of Income
<TABLE>
<CAPTION>
Year ended December 31,
1997 1996
------- ------
(in thousands)
<S> <C> <C>
Interest income $161 $824
Other Income 5 --
------ ------
Total Income 166 824
Interest expense 1,187 --
Other Expense 875 531
------ ------
Total Expense 2,062 531
Income (loss) before income taxes and undistributed
earnings of subsidiaries (1,896) 293
Income taxes (benefit) expense (527) 111
------ ------
Income (loss) before undistributed earnings
of subsidiaries (1,396) 182
Earnings of subsidiaries 4,742 1,793
------ ------
Net income $3,373 $1,975
====== ======
</TABLE>
66
<PAGE>
NOTE 19 - PARENT COMPANY FINANCIAL INFORMATION, CONTINUED
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31,
1997 1996
------- ------
(in thousands)
<S> <C> <C>
Cash flows from operating activities
Net income $3,373 $1,975
Adjustments to reconcile net income to net cash
provided by operating activities
Earnings from subsidiaries (4,742) (1,793)
Dividends from subsidiaries 13,615 5,000
Change in other assets 462 (363)
Change in other liabilities 1,564 530
MRP/ESOP Plans 663 390
-------- -------
Net cash provided by operating activities 14,935 5,739
-------- -------
Cash flows from investing activities
Investment in subsidiary (17,814) (20,581)
Loans to subsidiary (499) 18,214
-------- -------
Net cash used in investing activities (18,313) (2,367)
-------- -------
Cash flows from financing activities
Net proceeds from trust preferred securities 18,417 --
Cash dividends paid to stockholders (1,396) (973)
Purchase of treasury stock (13,554) (2,517)
-------- -------
Net cash provided by financing activities 3,467 (3,490)
-------- -------
Increase (decrease) in cash and cash equivalents 89 (118)
Cash and cash equivalents at beginning of year -- 118
-------- -------
Cash and cash equivalents at end of year $ 89 $ --
======== =======
</TABLE>
67
<PAGE>
Item 9. Change In and Disagreements with Accountants on Accounting and Financial
Disclosure
On February 26, 1998, the Board of Directors of the Company engaged
KPMG Peat Marwick LLP as the Company's independent auditors for the fiscal year
ending December 31, 1998. The Company interviewed several independent accounting
firms before selecting KPMG Peat Marwick LLP. The decision to change the
Company's accountants was recommended by the Audit Committee of the Company's
Board of Directors.
The Company did not have any disagreements with the Company's former
accountants on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure during the Company's last
two fiscal years or any subsequent interim period. The prior accountant's
reports on the Company's financial statements for the years ended December 31,
1996 and 1997 did not contain an adverse opinion or a disclaimer of opinion, nor
were such reports qualified or modified as to uncertainty, audit scope, or
accounting principles.
The Company did not consult with KPMG Peat Marwick LLP on any matter during
the Company's two most recent fiscal years.
68
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The information relating to Directors and Executive Officers of the
Registrant is incorporated herein by reference to the Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on April 23, 1998.
Item 11. Executive Compensation
The information relating to executive compensation and directors'
compensation is incorporated herein by reference to the Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on April 23, 1998,
excluding the Stock Performance Graph and Compensation Report.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The information relating to security ownership of certain beneficial owners
and management is incorporated herein by reference to the Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on April 23, 1998.
Item 13. Certain Relationships and Related Transactions
The information relating to certain relationships and related transactions
is incorporated herein by reference to the Registrant's Proxy Statement for the
Annual Meeting of Stockholders to be held on April 23, 1998.
69
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. Financial Statements.
Consolidated financial statements are omitted because the required
information is either not applicable, not required or is shown in the respective
financial statements or in the notes thereto.
2. Financial Statement Schedules.
Financial statement schedules are omitted because the required information
is either not applicable, not required or is shown in the respective financial
statements or in the notes thereto.
(3) Exhibits
(a) The following exhibits are filed as part of this report.
3.1 Certificate of Incorporation of the Patriot Bank Corp. (Incorporated
by reference to Exhibit 3.1 to Patriot Bank Corp.'s Registration
Statement No. 33-96530 on Form S-1)
3.2 Bylaws of the Patriot Bank Corp. (Incorporated by reference to
Exhibit 3.2 to Patriot Bank Corp.'s Registration Statement No.
35-96530 on Form S-1.)
10.1 Employment Agreement between Patriot Bank Corp. and Joseph W. Major
dated May 23, 1997.***
10.2 Employment Agreement between Patriot Bank Corp. and Gary N. Gieringer
dated May 23, 1997.***
10.3 Employment Agreement between Patriot Bank Corp. and Richard A. Elko
dated May 23, 1997.***
10.4 Charge in Control Agreement between Patriot Bank Corp. and Paulette
A. Strunk dated May 23, 1997.***
10.5 Change in Control Agreement between Patriot Bank Corp. and Robert G.
Philips dated May 23, 1997.***
10.6 Employment Agreement between Patriot Bank and Joseph W. Major dated
May 23, 1997.***
10.7 Employment Agreement between Gary N. Gieringer and Patriot Bank dated
May 23, 1997.***
10.8 Employment Agreement between Richard A. Elko and Patriot Bank dated
May 23, 1997.***
10.9 Change in Control Agreement between Paulette A. Strunk and Patriot
Bank dated May 23, 1997.***
10.10 Change in Control Agreement between Robert G. Philips and Patriot
Bank dated May 23, 1997.***
10.11 The Patriot Bank Corp. 1996 Stock-Based Incentive Plan. (Incorporated
by reference to Patriot Bank Corp.'s
70
<PAGE>
Proxy Statement for the 1996 Annual Meeting of Stockholders filed
April 26, 1996).***
21.0 Subsidiaries.
23.1 Consent of Grant Thornton LLP
27.0 Financial Data Schedule
27.1 Financial Data Schedule
99.0 Proxy Statement for the 1998 Annual Meeting of Stockholders (filed
herewith)
*** Denotes a management contract or a compensatory plan or arrangement.
(b) Reports on Form 8-K.
None.
71
<PAGE>
CONFORMED
SIGNATURES
Pursuant to the requirements of Section 13 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.
By: /s/ Joseph W. Major
-----------------------------
Joseph W. Major
President and Chief Operating
Officer
DATED: March 18, 1998
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
dates indicated.
Name Title Date
- ---- ----- ----
/s/ Gary N. Gieringer Chairman of the Board and March 18, 1998
- --------------------- Chief Executive Officer
Gary N. Gieringer
/s/ Joseph W. Major President and Chief March 18, 1998
- --------------------- Operating Officer
Joseph W. Major
/s/ Richard A. Elko Executive Vice President March 18, 1998
- --------------------- and Chief Financial Officer
Richard A. Elko (Chief Accounting Officer)
Director ________, 1998
- ---------------------
John H. Diehl
/s/ James B. Elliott Director March 18, 1998
- ---------------------
James B. Elliott
/s/ Leonard A. Huff Director March 18, 1998
- ---------------------
Leonard A. Huff
/s/ Samuel N. Landis Director March 18, 1998
- ---------------------
Samuel N. Landis
/s/ Larry V. Thren Director March 18, 1998
- ---------------------
Larry V. Thren
72
Exhibit 10.1
PATRIOT BANK CORP.
EMPLOYMENT AGREEMENT
AS AMENDED AND RESTATED
This AGREEMENT ("Agreement") as amended and restated effective May 23, 1997
was first made effective as of December 1, 1995, by and between Patriot Bank
Corp. (the "Holding Company"), a corporation organized under the laws of
Delaware, with its principal administrative office at High and Hanover Street,
Pottstown, Pennsylvania, and Joseph W. Major (the "Executive"). Any reference to
"Bank" herein shall mean Patriot Bank or any successor thereto.
WHEREAS, the Holding Company wishes to assure itself of the services of
Executive for the period provided in this Agreement; and
WHEREAS, the Executive is willing to serve in the employ of the Holding
Company on a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of Executive's employment hereunder, Executive agrees to
serve as President and Chief Operating Officer of the Holding Company. The
Executive shall render administrative and management services to the Holding
Company such as are customarily performed by persons in a similar executive
capacity. During said period, Executive also agrees to
1
<PAGE>
serve, if elected, as an officer and director of any subsidiary
of the Holding Company.
2. TERMS.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
for a period of sixty (60) full calendar months thereafter. Commencing on the
date of the execution of this Agreement, the term of this Agreement shall be
extended for one day each day until such time as the board of directors of the
Holding Company (the "Board") or Executive elects not to extend the term of the
Agreement by giving written notice to the other party in accordance with Section
8 of this Agreement, in which case the term of this Agreement shall be fixed and
shall end on the fifth anniversary of the date of such written notice.
(b) During the period of Executive's employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and
reasonable leaves of absence, Executive shall devote substantially all his
business time, attention, skill, and efforts to the faithful performance of his
duties hereunder including activities and services related to the organization,
operation and management of the Holding Company and its direct or indirect
subsidiaries ("Subsidiaries") and participation in community and civic
organizations; provided, however, that, with the approval of the Board, as
evidenced by a resolution of such Board, from time to time, Executive may serve,
or continue to serve, on the boards of directors of, and hold any other offices
or positions in, companies or organizations, which, in such Board's judgment,
will not present any conflict of interest with the Holding Company or its
Subsidiaries, or materially affect the performance of Executive's duties
pursuant to this Agreement.
2
<PAGE>
(c) Notwithstanding anything herein contained to the contrary: (i)
Executive's employment with the Holding Company may be terminated by the Holding
Company or Executive during the term of this Agreement, subject to the terms and
conditions of this Agreement; (ii) nothing in this Agreement shall mandate or
prohibit a continuation of Employee's employment following the expiration of the
term of the Agreement upon such terms as the Board and the Executive may
mutually agree.
(d) Upon the termination of Executive's employment with the Holding
Company, the daily extensions provided pursuant to section 2(a), shall cease (if
such extension have not previously ceased), and, if such termination is under
circumstances described in section 4(a), the term "remaining term of the
Agreement" in section 4(b) shall mean the period of time commencing from the
date of such termination and ending the last day of the employment period
computed with reference to all extensions prior to such termination.
3. COMPENSATION AND REIMBURSEMENT.
(a) The Executive shall be entitled to a salary from the Holding Company or
its Subsidiaries of One Hundred and Twenty-five Thousand Dollars ($125,000.00)
per year ("Base Salary"). Base Salary shall include any amounts of compensation
deferred by Executive under any qualified or unqualified plan maintained by the
Holding Company and its Subsidiaries. Such Base Salary shall be payable
bi-weekly. During the period of this Agreement, Executive's Base Salary shall be
reviewed at least annually; the first such review will be made no later than one
year from the date of this Agreement. Such review shall be conducted by the
Board or by a Committee of the Board delegated such responsibility by the Board.
The Committee or the Board may increase Executive's Base Salary. Any increase in
Base Salary shall become the "Base Salary" for purposes of this Agreement. In
addition to the Base Salary provided in this Section (a), the
3
<PAGE>
Holding Company shall also provide Executive, at no premium cost to Executive,
with all such other benefits as provided uniformly to permanent full-time
employees of the Holding Company and its Subsidiaries.
(b) The Holding Company will provide Executive with employee benefit plans,
arrangements and perquisites substantially equivalent to those in which
Executive was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, and the Holding Company and its
Subsidiaries will not, without Executive's prior written consent, make any
changes in such plans, arrangements or perquisites which would materially
adversely affect Executive's rights or benefits thereunder, except to the extent
that such changes are made applicable to all Holding Company and Bank employees
eligible to participate in such plans, arrangements and perquisites on a
nondiscriminatory basis. Without limiting the generality of the foregoing
provisions of this Subsection (b), Executive shall be entitled to participate in
or receive benefits under any employee benefit plans including, but not limited
to, retirement plans, supplemental retirement plans, pension plans,
profit-sharing plans, health-and-accident plans, medical coverage or any other
employee benefit plan or arrangement made available by the Holding Company and
its Subsidiaries in the future to its senior executives and key management
employees, subject to and on a basis consistent with the terms, conditions and
overall administration of such plans and arrangements. Executive shall be
entitled to incentive compensation and bonuses as provided in any plan of the
Holding Company and its Subsidiaries in which Executive is eligible to
participate. Nothing paid to the Executive under any such plan or arrangement
will be deemed to be in lieu of other compensation to which the Executive is
entitled under this Agreement.
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(c) In addition to the Base Salary provided for by paragraph (a) of this
Section 3 and other compensation provided for by paragraph (b) of this Section
3, the Holding Company shall pay or reimburse Executive for all reasonable
travel and other reasonable expenses incurred in the performance of Executive's
obligations under this Agreement and may provide such additional compensation in
such form and such amounts as the Board may from time to time determine. The
Executive shall be provided at his option, with an automobile expense allowance
or the use of a recent model automobile which will be owned or leased by the
Holding Company or the Bank, as may be mutually agreed upon by the Executive and
the Holding Company or the Bank. All reasonable expenses associated therewith
shall be borne by the Holding Company or the Bank.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
The provisions of this Section shall in all respects be subject to the
terms and conditions stated in Section 7.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the provisions
of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Holding Company of Executive's full-time employment hereunder
for any reason other than a Change in Control, as defined in Section 5(a)
hereof, or Termination for Cause, as defined in Section 7 hereof, (ii)
Executive's resignation from the Holding Company's employ, upon, any (A) failure
to elect or reelect or to appoint or reappoint Executive as President and Chief
Operating Officer, unless consented to by the Executive, (B) unless consented to
by the Executive, a material change in Executive's function, duties, or
responsibilities with the Holding Company or its Subsidiaries, which change
would cause Executive's position to become one of lesser responsibility,
importance, or scope from
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the position and attributes thereof described in Section 1, above, (C) a
relocation of Executive's principal place of employment by more than 20 miles
from its location at the effective date of this Agreement, unless consented to
by the Executive, (D) a material reduction in the benefits and perquisites to
the Executive from those being provided as of the effective date of this
Agreement, unless consented to by the Executive, (E) a liquidation or
dissolution of the Holding Company or the Bank, or (F) breach of this Agreement
by the Holding Company. Upon the occurrence of any event described in clauses
(A), (B), (C), (D) (E) or (F), above, Executive shall have the right to elect to
terminate his employment under this Agreement by resignation upon not less than
thirty (30) days prior written notice given within six (6) full calendar months
after the event giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8, the Holding Company shall be obligated to
pay Executive, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, a sum equal to the sum of: (i)
the amount of the remaining payments (or benefits) that the Executive would have
earned if he had continued his employment with the Holding Company or the Bank
during the remaining unexpired term of this Agreement based on the Executive's
Base Salary at the Date of Termination; and (ii) the amount equal to the annual
contributions that would have been made on Executive's behalf to any employee
benefit plans of the Bank or the Holding Company during the remaining term of
this Agreement based on contributions made (on an annualized basis) at the Date
of Termination. At the election of the Executive, which election is to be made
within thirty (30) days of the Date of Termination, such payments shall be made
in a lump sum or paid monthly during the remaining term of the Agreement
following the Employee's termination. In the event that no election is made,
payment to the Executive will be made on a monthly basis in approximately
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equal installments during the remaining term of the Agreement. Such payments
shall not be reduced in the event the Executive obtains other employment
following termination of employment.
(c) Upon the occurrence of an Event of Termination, the Holding Company
will cause to be continued life, medical, dental and disability coverage
substantially equivalent to the coverage maintained by the Holding Company or
its Subsidiaries for Executive prior to his termination at no premium cost to
the Executive. Such coverage shall cease upon the expiration of the remaining
term of this Agreement.
5. CHANGE IN CONTROL.
(a) No benefit shall be payable under this Section 5 unless there shall
have been a Change in Control of the Bank or the Holding Company. For purposes
of this Agreement, a "Change in Control" of the Holding Company or the Bank
shall mean an event of a nature that: (i) would be required to be reported in
response to Item 1(a) of the current report on Form 8-K, as in effect on the
date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 (the "Exchange Act"); or (ii) results in a Change in Control of the Bank or
the Holding Company within the meaning of the Change in Bank Control Act and the
Rules and Regulations promulgated by the Federal Deposit Insurance Corporation
("FDIC") at 12 C.F.R. ss.303.4(a) with respect to the Bank and the Board of
Governors of the Federal Reserve System ("FRB") at 12 C.F.R. ss.225.41(b) with
respect to the Holding Company, as in effect on the date hereof, or; (iii)
results in a transaction requiring prior FRB approval under the Bank Holding
Company Act of 1956 and the regulations promulgated thereunder by the FRB at 12
C.F.R. ss.225.11, as in effect on the date hereof, or (iv) without limitation
such a Change in Control shall be deemed to have occurred at such time as (A)
any "person" (as the term is used in Sections 13(d) and 14(d) of the Exchange
Act) is or becomes the "beneficial owner"
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(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
voting securities of the Bank or the Holding Company representing 20% or more of
the Bank's or the Holding Company's outstanding voting securities or right to
acquire such securities except for any voting securities of the Bank purchased
by the Holding Company and any voting securities purchased by any employee
benefit plan of the Holding Company or its Subsidiaries; or (B) individuals who
constitute the Board on the date hereof (the "Incumbent Board") cease for any
reason to constitute at least a majority thereof, provided that any person
becoming a director subsequent to the date hereof whose election was approved by
a vote of at least three-quarters of the directors comprising the Incumbent
Board, or whose nomination for election by the Company's stockholders was
approved by a Nominating Committee solely composed of members which are
Incumbent Board members, shall be, for purposes of this clause (B), considered
as though he were a member of the Incumbent Board; or (C) a plan of
reorganization, merger, consolidation, sale of all or substantially all the
assets of the Bank or the Holding Company or similar transaction occurs or is
effectuated in which the Bank or Holding Company is not the resulting entity;
provided, however, that such an event listed above will be deemed to have
occurred or to have been effectuated upon the receipt of all required federal
regulatory approvals not including the lapse of any statutory waiting periods;
or (D) a proxy statement has been distributed soliciting proxies from
stockholders of the Holding Company, by someone other than the current
management of the Holding Company, seeking stockholder approval of a plan of
reorganization, merger or consolidation of the Holding Company or Bank with one
or more corporations as a result of which the outstanding shares of the class of
securities then subject to such plan or transaction are exchanged for or
converted into cash or property or securities not issued by the Bank or the
Holding Company; or (E) a tender offer is made for 20% or more of the voting
securities of the Bank or Holding Company.
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(b) If a Change in Control has occurred pursuant to Section 5(a) or the
Board has determined that a Change in Control has occurred, Executive shall be
entitled to the benefits provided in paragraphs (c) and, (d), of this Section 5
upon his subsequent termination of employment at any time during the term of
this Agreement due to (i) Executive's dismissal, or (ii) Executive's voluntary
resignation following any demotion, loss of title, office or significant
authority or responsibility, reduction in the annual compensation or material
reduction in benefits or relocation of his principal place of employment by more
than 20 miles from its location immediately prior to the change in control,
unless such termination I is because of his death, disability, Retirement or
Termination for Cause.
(c) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Holding Company shall pay Executive, or in the event of his subsequent
death, his beneficiary or beneficiaries, or his estate, as the case may be, as
severance pay or liquidated damages, or both, a sum equal to the greater of: (i)
the payments due for the remaining term of the Agreement; or (ii) five (5) times
Executive's average annual compensation for the five (5) preceding taxable
years. Such annual compensation shall include Base Salary, commissions, bonuses,
contributions on behalf of Executive to any pension and profit sharing plan,
severance payments, directors or committee fees and fringe benefits paid or to
be paid to the Executive during such years. At the election of the Executive,
which election is to be made within thirty (30) days of the Date of Termination
following a Change in Control, such payment shall be made in a lump sum or paid
in equal monthly installments during the thirty-six (36) months, following
Executive's Date of Termination. In the event that no election is made, payment
to the Executive will be made on a monthly basis in approximately equal
installments during the remaining term of the Agreement. Such payments shall not
be reduced in the event Executive obtains other employment following termination
of employment.
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(d) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Company will cause to be continued life, medical, dental and disability
coverage substantially equivalent to the coverage maintained by the Bank for
Executive at no premium cost to Executive prior to his severance. Such coverage
and payments shall cease upon the expiration of sixty (60) months following the
Date of Termination.
6. CHANGE OF CONTROL RELATED PROVISIONS.
(a) In each calendar year that Executive is entitled to receive payments or
benefits under the provisions of the Employment Agreement with the Bank and this
Employment Agreement, the Holding Company shall determine if an excess parachute
payment (as defined in Section 4999 of the Internal Revenue Code of 1986, as
amended, and any successor provision thereto, (the "Code")) exists. Such
determination shall be made after taking any reductions permitted pursuant to
Section 28OG of the Code and the regulations thereunder. Any amount determined
to be an excess parachute payment after taking into account such reductions
shall be hereafter referred to as the "Initial Excess Parachute Payment." As
soon as practicable after a Change in Control, the Initial Excess Parachute
Payment shall be determined. Upon the Date of Termination following a Change in
Control, the Holding Company shall pay Executive, subject to applicable
withholding requirements under applicable city, state or federal law an amount
equal to:
(1) twenty (20) percent of the Initial Excess Parachute Payment (or such
other amount equal to the tax imposed under Section 4999 of the Code;
and
(2) such additional amount (tax allowance) as may be necessary to
compensate Executive for the payment by Executive of city, stated and
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federal income and excise taxes on the payment provided under Clause
(1) and on any payments under this Clause (2). In computing such tax
allowance, the payment to be made under Clause (1) shall be multiplied
by the "gross up percentage" ("GUP"). The GUP shall be determined as
follows:
Tax Rate
GUP = _____________
1 - Tax Rate
The "Tax Rate" for purposes of computing the GUP shall be the sum of
the highest marginal federal, state and city income and employment
related tax rates, including any applicable excise tax rates,
applicable to the Executive in the year in which the payment under
Clause (1) is made.
(b) Notwithstanding the foregoing, if it shall subsequently be determined
in a final judicial determination or a final administrative settlement to which
Executive is a party that the excess parachute payment as defined in Section
4999 of the Code, reduced as described above, is more than the Initial Excess
Parachute Payment (such different amount being hereafter referred to as the
"Determinative Excess Parachute Payment") then the Holding Company's independent
accountants shall determine the amount (the "Adjustment Amount") the Holding
Company must pay to the Executive in order to put the Executive in the same
position as the Executive would have been if the Initial Excess Parachute
Payment had been equal to the Determinative Excess Parachute Payment. In
determining the Adjustment Amount, independent accountants of the Holding
Company shall take into account any and all taxes (including, any penalties and
interest) paid by or for Executive or refunded to Executive or for Executive's
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benefit. As soon as practicable after the Adjustment Amount has been so
determined, the Holding Company shall pay the Adjustment Amount to Executive. In
no event however, shall Executive make any payment under this paragraph to the
Holding Company.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of a
material loss to the Holding Company or one of its affiliates caused by
Executive's personal dishonesty, willful misconduct, any breach of fiduciary
duty involving personal profit, intentional failure to perform stated duties,
willful violation of any law, rule, regulation (other than traffic violations or
similar offenses), final cease and desist order or material breach of any
provision of this Agreement. Notwithstanding the foregoing, Executive shall not
be deemed to have been terminated for Cause unless and until there shall have
been delivered to him a Notice of Termination which shall include a copy of a
resolution duly adopted by the affirmative vote of not less than three-fourths
of the members of the Board at a meeting of the Board called and held for that
purpose (after reasonable notice to Executive and an opportunity for him,
together with counsel, to be heard before the Board), finding that in the good
faith opinion of the Board, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail. The
Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause. During the period beginning on the date
of the Notice of Termination for Cause pursuant to Section 8 hereof through the
Date of Termination, stock options and related limited rights granted to
Executive under any stock option plan shall not be exercisable nor shall any
unvested awards granted to Executive under any stock benefit plan of the Bank,
the Holding Company or any subsidiary or affiliate thereof, vest. At the Date of
Termination, such stock options and related limited rights and any such unvested
awards shall become null and void
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and shall not be exercisable by or delivered to Executive at any time
subsequent to such Termination for Cause.
8. NOTICE.
(a) Any purported termination by the Holding Company or by Executive shall
be communicated by Notice of Termination to the other party hereto. For purposes
of this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
(b) Subject to Section 9(c), "Date of Termination" shall mean the date
specified in the Notice of Termination (which, in the case of a Termination for
Cause, shall not be less than thirty (30) days from the date such Notice of
Termination is given) provided, however, that if a dispute exists regarding the
Executive's termination, the "Date of Termination" shall be determined in
accordance with Section 8(c) of this Agreement.
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, except upon the occurrence of a
Change in Control and voluntary termination by the Executive in which case the
Date of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal therefrom having expired and no appeal having been perfected)
and provided further that the Date of Termination shall be extended by a notice
of dispute only if such notice is given in good faith and the party giving such
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notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Holding Company will
continue to pay Executive his full compensation in effect when the notice giving
rise to the dispute was given (including, but not limited to, Base Salary) and
continue him as a participant in all compensation, benefit and insurance plans
in which he was participating when the notice of dispute was given, until the
dispute is finally resolved in accordance with this Agreement. Amounts paid
under this Section are in addition to all other amounts due under this Agreement
and shall not be offset against or reduce any other amounts due under this
Agreement.
9. POST-TERMINATION OBLIGATIONS.
(a) All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Holding Company.
(b) Executive shall, upon reasonable notice, furnish such information and
assistance to the Holding Company as may reasonably be required by the Holding
Company in connection with any litigation in which it or any of its subsidiaries
or affiliates is, or may become, a party.
10. NONDISCLOSURE OF HOLDING COMPANY BUSINESS.
Executive recognizes and acknowledges that the knowledge of the business
activities and plans for business activities of the Holding Company and its
Subsidiaries as it may exist from time to time, is a valuable, special and
unique asset of the business of the Holding Company and its Subsidiaries.
Executive will not, during or after the term of his employment, disclose any
knowledge of the past, present, planned or
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considered business activities of the Holding Company and its Subsidiaries
thereof to any person, firm, corporation, or other entity for any reason or
purpose whatsoever unless expressly authorized by the Board of Directors or
required by law. Notwithstanding the foregoing, Executive may disclose any
knowledge of banking, financial and/or economic principles, concepts or ideas
which are not solely and exclusively derived from the business plans and
activities of the Holding Company. In the event of a breach or threatened breach
by the Executive of the provisions of this Section, the Holding Company will be
entitled to an injunction restraining Executive from disclosing, in whole or in
part, the knowledge of the past, present, planned or considered business
activities of the Holding Company or its Subsidiaries or from rendering any
services to any person, firm, corporation, other entity to whom such knowledge,
in whole or in part, has been disclosed or is threatened to be disclosed.
Nothing herein will be construed as prohibiting the Holding Company from
pursuing any other remedies available to the Holding Company for such breach or
threatened breach, including the recover of damages from Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Holding Company subject to this Section 11.
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the Amended and Restated Employment Agreement dated
May 23, 1997, between Executive and the Bank, such compensation payments and
benefits paid by the Bank will be subtracted from any amount due simultaneously
to Executive under similar provisions of this Agreement. Payments pursuant to
this Agreement and the Bank Agreement shall be allocated in proportion to the
level of
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activity and the time expended on such activities by the Executive as determined
by the Holding Company and the Bank on a quarterly basis.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the Holding Company or any
predecessor of the Holding Company and Executive, except that this Agreement
shall not affect or operate to reduce any benefit or compensation inuring to the
Executive of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Holding Company and their respective successors and assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
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(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
15. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
16. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
17. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of Delaware,
unless otherwise specified herein.
18. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by
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arbitration, conducted before a panel of three arbitrators sitting in a location
selected by the Executive within fifty (50) miles from the location of the Bank,
in accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction; provided, however, that Executive shall be entitled to seek
specific performance of his right to be paid until the Date of Termination
during the pendency of any dispute or controversy arising under or in connection
with this Agreement.
In the event any dispute or controversy arising under or in connection with
Executive's termination is resolved in favor of the Executive, whether by
judgment, arbitration or settlement, Executive shall be entitled to the payment
of all back-pay, including salary, bonuses and any other cash compensation,
fringe benefits and any compensation and benefits due Executive under this
Agreement.
19. PAYMENT OF COSTS AND LEGAL FEES.
In the event any dispute or controversy arising under or in connection with
Executive's termination is resolved in Executive's favor, whether by judgment,
arbitration or settlement, Executive shall be entitled to the payment of (i) all
reasonable legal fees paid or incurred by Executive in resolving such dispute or
controversy, and (ii) any back-pay, including salary, bonuses and any other cash
compensation, fringe benefits and any compensation and benefits due Executive
under this Agreement.
20. INDEMNIFICATION.
The Holding Company shall provide Executive (including his heirs, executors
and administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, or in lieu thereof, shall indemnify
Executive (and
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his heirs, executors and administrators) to the fullest extent permitted under
Delaware law against all expenses and liabilities reasonably incurred by him in
connection with or arising out of any action, suit or proceeding in which he may
be involved by reason of his having been a director or officer of the Holding
Company (whether or not he continues to be a director or officer at the time of
incurring such expenses or liabilities), such expenses and liabilities to
include, but not be limited to, judgments, court costs and attorneys' fees and
the cost of reasonable settlements.
21. SUCCESSOR TO THE HOLDING COMPANY.
The Holding Company shall require any successor or assignee, whether direct
or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank or the Holding Company,
expressly and unconditionally to assume and agree to perform the Holding
Company's obligations under this Agreement, in the same manner and to the same
extent that the Holding Company would be required to perform if no such
succession or assignment had taken place.
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SIGNATURES
IN WITNESS WHEREOF, PATRIOT BANK CORP. has caused this Amended and Restated
Agreement to be executed and its seal to be affixed hereunto by its duly
authorized officer and its directors, and Executive has signed this Agreement,
on the 23rd day of May, 1997.
ATTEST: PATRIOT BANK CORP.
By
- -------------------------- ------------------------
Secretary Gary N. Gieringer for the
Entire Board of Directors
WITNESS:
By
- -------------------------- ------------------------
Joseph W. Major
20
Exhibit 10.2
PATRIOT BANK CORP.
EMPLOYMENT AGREEMENT
AS AMENDED AND RESTATED
This AGREEMENT ("Agreement") as amended and restated effective May 23, 1997
was first made effective as of December 1, 1995, by and between Patriot Bank
Corp. (the "Holding Company"), a corporation organized under the laws of
Delaware, with its principal administrative office at High and Hanover Street,
Pottstown, Pennsylvania, and Gary N. Gieringer (the "Executive"). Any reference
to "Bank" herein shall mean Patriot Bank or any successor thereto.
WHEREAS, the Holding Company wishes to assure itself of the
services of Executive for the period provided in this Agreement; and
WHEREAS, the Executive is willing to serve in the employ of the Holding
Company on a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained.
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of Executive's employment hereunder, Executive agrees to
serve as Chairman of the Board of Directors and Chief Executive Officer of the
Holding Company. The Executive shall render administrative and management
services to the Holding Company such as are customarily performed by persons in
a similar executive capacity. During said period, Executive
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also agrees to serve, if elected, as an officer and director of any
subsidiary of the Holding Company.
2. TERMS.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
for a period of sixty (60) full calendar months thereafter. Commencing on the
date of the execution of this Agreement, the term of this Agreement shall be
extended for one day each day until such time as the board of directors of the
Holding Company (the "Board") or Executive elects not to extend the term of the
Agreement by giving written notice to the other party in accordance with Section
8 of this Agreement, in which case the term of this Agreement shall be fixed and
shall end on the fifth anniversary of the date of such written notice.
(b) During the period of Executive's employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and
reasonable leaves of absence. Executive shall devote substantially all his
business time, attention, skill, and efforts to the faithful performance of his
duties hereunder including activities and services related to the organization,
operation and management of the Holding Company and its direct or indirect
subsidiaries ("Subsidiaries") and participation in community and civic
organizations; provided, however, that, with the approval of the Board, as
evidenced by a resolution of such Board, from time to time, Executive may serve,
or continue to serve, on the boards of directors of, and hold any other offices
or positions in, companies or organizations, which, in such Board's judgment,
will not present any conflict of interest with the Holding Company or its
Subsidiaries, or materially affect the performance of Executive's duties
pursuant to this Agreement.
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(c) Notwithstanding anything herein contained to the contrary: (i)
Executive's employment with the Holding Company may be terminated by the Holding
Company or Executive during the term of this Agreement, subject to the terms and
conditions of this Agreement; (ii) nothing in this Agreement shall mandate or
prohibit a continuation of Employee's employment following the expiration of the
term of the Agreement upon such terms as the Board and the Executive may
mutually agree.
(d) Upon the termination of Executive's employment with the Holding
Company, the daily extensions provided pursuant to section 2(a), shall cease (if
such extension have not previously ceased), and, if such termination is under
circumstances described in section 4(a), the term "remaining term of the
Agreement" in section 4(b) shall mean the period of time commencing from the
date of such termination and ending the last day of the employment period
computed with reference to all extensions prior to such termination.
3. COMPENSATION AND REIMBURSEMENT.
(a) The Executive shall be entitled to a salary from the Holding Company or
its Subsidiaries of One Hundred and Seventy-Six Thousand Dollars ($176,000.00)
per year ("Base Salary"). Base Salary shall include any amounts of compensation
deferred by Executive under any qualified or unqualified plan maintained by the
Holding Company and its Subsidiaries. Such Base Salary shall be payable
bi-weekly. During the period of this Agreement, Executive's Base Salary shall be
reviewed at least annually; the first such review will be made no later than one
year from the date of this Agreement. Such review shall be conducted by the
Board or by a Committee of the Board delegated such responsibility by the Board.
The Committee or the Board may increase Executive's Base Salary. Any increase in
Base Salary shall become the "Base Salary" for purposes of this Agreement. In
addition to the Base Salary provided in this Section 3(a), the
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Holding Company shall also provide Executive, at no premium cost to Executive,
with all such other benefits as provided uniformly to permanent full-time
employees of the Holding Company and its Subsidiaries.
(b) The Holding Company will provide Executive with employee benefit plans,
arrangements and perquisites substantially equivalent to those in which
Executive was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, and the Holding Company and its
Subsidiaries will not, without Executive's prior written consent, make any
changes in such plans, arrangements or perquisites which would materially
adversely affect Executive's rights or benefits thereunder, except to the extent
that such changes are made applicable to all Holding Company and Bank employees
eligible to participate in such plans, arrangements and perquisites on a
nondiscriminatory basis. Without limiting the generality of the foregoing
provisions of this Subsection (b), Executive shall be entitled to participate in
or receive benefits under any employee benefit plans including, but not limited
to, retirement plans, supplemental retirement plans, pension plans,
profit-sharing plans, health-and-accident plans, medical coverage or any other
employee benefit plan or arrangement made available by the Holding Company and
its Subsidiaries in the future to its senior executives and key management
employees, subject to and on a basis consistent with the terms, conditions and
overall administration of such plans and arrangements. Executive shall be
entitled to incentive compensation and bonuses as provided in any plan of the
Holding Company and its Subsidiaries in which Executive is eligible to
participate. Nothing paid to the Executive under any such plan or arrangement
will be deemed to be in lieu of other compensation to which the Executive is
entitled under this Agreement.
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(c) In addition to the Base Salary provided for by paragraph (a) of this
Section 3 and other compensation provided for by paragraph (b) of this Section
3, the Holding Company shall pay or reimburse Executive for all reasonable
travel and other reasonable expenses incurred in the performance of Executive's
obligations under this Agreement and may provide such additional compensation in
such form and such amounts as the Board may from time to time determine. The
Executive shall be provided at his option, with an automobile expense allowance
or the use of a recent model automobile which will be owned or leased by the
Holding Company or the Bank, as may be mutually agreed upon by the Executive and
the Holding Company or the Bank. All reasonable expenses associated therewith
shall be borne by the Holding Company or the Bank.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
The provisions of this Section shall in all respects be subject to the
terms and conditions stated in Section 7.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the provisions
of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Holding Company of Executive's full-time employment hereunder
for any reason other than a Change in Control, as defined in Section 5(a)
hereof, or Termination for Cause, as defined in Section 7 hereof, (ii)
Executive's resignation from the Holding Company's employ, upon, any (A) failure
to elect or reelect or to appoint or reappoint Executive as Chairman of the
Board of Directors and Chief Executive Officer unless consented to by the
Executive, (B) unless consented to by the Executive, a material change in
Executive's function, duties, or responsibilities with the Holding Company or
its Subsidiaries, which change would cause Executive's position to become one of
lesser responsibility,
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importance, or scope from the position and attributes thereof described in
Section 1, above, (C) a relocation of Executive's principal place of employment
by more than 20 miles from its location at the effective date of this Agreement,
unless consented to by the Executive, (D) a material reduction in the benefits
and perquisites to the Executive from those being provided as of the effective
date of this Agreement, unless consented to by the Executive, (E) a liquidation
or dissolution of the Holding Company or the Bank, or (F) breach of this
Agreement by the Holding Company. Upon the occurrence of any event described in
clauses (A), (B), (C), (D) (E) or (F), above, Executive shall have the right to
elect to terminate his employment under this Agreement by resignation upon not
less than thirty (30) days prior written notice given within six (6) full
calendar months after the event giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8, the Holding Company shall be obligated to
pay Executive, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, a sum equal to the sum of: (i)
the amount of the remaining payments (or benefits) that the Executive would have
earned if he had continued his employment with the Holding Company or the Bank
during the remaining unexpired term of this Agreement based on the Executive's
Base Salary at the Date of Termination; and (ii) the amount equal to the annual
contributions that would have been made on Executive's behalf to any employee
benefit plans of the Bank or the Holding Company during the remaining term of
this Agreement based on contributions made (on an annualized basis) at the Date
of Termination. At the election of the Executive, which election is to be made
within thirty (30) days of the Date of Termination, such payments shall be made
in a lump sum or paid monthly during the remaining term of the agreement
following the Employee's termination. In the event that no election is made,
payment to
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the Executive will be made on a monthly basis in approximately equal
installments during the remaining term of the Agreement. Such payments shall not
be reduced in the event the Executive obtains other employment following
termination of employment.
(c) Upon the occurrence of an Event of Termination, the Holding Company
will cause to be continued life, medical, dental and disability coverage
substantially equivalent to the coverage maintained by the Holding Company or
its Subsidiaries for Executive prior to his termination at no premium cost to
the Executive. Such coverage shall cease upon the expiration of the remaining
term of this Agreement.
5. CHANGE IN CONTROL.
(a) No benefit shall be payable under this Section 5 unless there shall
have been a Change in Control of the Bank or the Holding Company. For purposes
of this Agreement, a "Change in Control" of the Holding Company or the Bank
shall mean an event of a nature that: (i) would be required to be reported in
response to Item 1(a) of the current report on Form 8-K, as in effect on the
date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 (the "Exchange Act"); or (ii) results in a Change in Control of the Bank or
the Holding Company within the meaning of the Change in Bank Control Act and the
Rules and Regulations promulgated by the Federal Deposit Insurance Corporation
("FDIC") at 12 C.F.R. ss.303.4(a) with respect to the Bank and the Board of
Governors of the Federal Reserve System ("FRB") at 12 C.F.R. ss.225.41(b) with
respect to the Holding Company, as in effect on the date hereof, or; (iii)
results in a transaction requiring prior FRB approval under the Bank Holding
Company Act of 1956 and the regulations promulgated thereunder by the FRB at 12
C.F.R. ss.225.11, as in effect on the date hereof, or (iv) without limitation
such a Change in Control shall be deemed to have occurred at such time as (A)
any "person" (as the term is used in Sections 13(d) and
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14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of voting securities
of the Bank or the Holding Company representing 20% or more of the Bank's or the
Holding Company's outstanding voting securities or right to acquire such
securities except for any voting securities of the Bank purchased by the Holding
Company and any voting securities purchased by any employee benefit plan of the
Holding Company or its Subsidiaries; or (B) individuals who constitute the Board
on the date hereof (the "Incumbent Board") cease for any reason to constitute at
least a majority thereof, provided that any person becoming a director
subsequent to the date hereof whose election was approved by a vote of at least
three-quarters of the directors comprising the Incumbent Board, or whose
nomination for election by the Company's stockholders was approved by a
Nominating Committee solely composed of members which are Incumbent Board
members, shall be, for purposes of this clause (B), considered as though he were
a member of the Incumbent Board; or (C) a plan of reorganization, merger,
consolidation, sale of all or substantially all the assets of the Bank or the
Holding Company or similar transaction occurs or is effectuated in which the
Bank or Holding Company is not the resulting entity; provided, however, that
such an event listed above will be deemed to have occurred or to have been
effectuated upon the receipt of all required federal regulatory approvals not
including the lapse of any statutory waiting periods; or (D) a proxy statement
has been distributed soliciting proxies from stockholders of the Holding
Company, by someone other than the current management of the Holding Company,
seeking stockholder approval of a plan of reorganization, merger or
consolidation of the Holding Company or Bank with one or more corporations as a
result of which the outstanding shares of the class of securities then subject
to such plan or transaction are exchanged for or converted into cash or property
or securities not issued by the Bank or the Holding Company; or (E) a tender
offer is made for 20% or more of the voting securities of the Bank or Holding
Company.
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(b) If a Change in Control has occurred pursuant to Section 5(a) or the
Board has determined that a Change in Control has occurred, Executive shall be
entitled to the benefits provided in paragraphs (c) and, (d), of this Section 5
upon his subsequent termination of employment at any time during the term of
this Agreement due to (i) Executive's dismissal, or (ii) Executive's voluntary
resignation following any demotion, loss of title, office or significant
authority or responsibility, reduction in the annual compensation or material
reduction in benefits or relocation of his principal place of employment by more
than 20 miles from its location immediately prior to the change in control,
unless such termination is because of his death, disability, Retirement or
Termination for Cause.
(c) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Holding Company shall pay Executive, or in the event of his subsequent
death, his beneficiary or beneficiaries, or his estate, as the case may be, as
severance pay or liquidated damages, or both, a sum equal to the greater of: (i)
the payments due for the remaining term of the Agreement; or (ii) five (5) times
Executive's average annual compensation for the five (5) preceding taxable
years. Such annual compensation shall include Base Salary, commissions, bonuses,
contributions on behalf of Executive to any pension and profit sharing plan,
severance-payments, directors or committee fees and fringe benefits paid or to
be paid to the Executive during such years. At the election of the Executive,
which election is to be made within thirty (30) days of the Date of Termination
following a Change in Control, such payment shall be made in a lump sum or paid
in equal monthly installments during the thirty-six (36) months, following
Executive's Date of Termination. In the event that no election is made, payment
to the Executive will be made on a monthly basis in approximately equal
installments during the remaining term of the Agreement. Such payments shall not
be reduced in the event Executive obtains other employment following termination
of employment.
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(d) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Company will cause to be continued life, medical, dental and disability
coverage substantially equivalent to the coverage maintained by the Bank for
Executive at no premium cost to Executive prior to his severance. Such coverage
and payments shall cease upon the expiration of sixty (60) months following the
Date of Termination.
6. CHANGE OF CONTROL RELATED PROVISIONS.
(a) In each calendar year that Executive is entitled to receive payments or
benefits under the provisions of the Employment Agreement with the Bank and this
Employment Agreement, the Holding Company shall determine if an excess parachute
payment (as defined in Section 4999 of the Internal Revenue Code of 1986, as
amended, and any successor provision thereto, (the "Code")) exists. Such
determination shall be made after taking any reductions permitted pursuant to
Section 28OG of the Code and the regulations thereunder. Any amount determined
to be an excess parachute payment after taking into account such reductions
shall be hereafter referred to as the "Initial Excess Parachute Payment." As
soon as practicable after a Change in Control, the Initial Excess Parachute
Payment shall be determined. Upon the Date of Termination following a Change in
Control, the Holding Company shall pay Executive, subject to applicable
withholding requirements under applicable city, state or federal law an amount
equal to:
(1) twenty (20) percent of the Initial Excess Parachute Payment (or
such other amount equal to the tax imposed under Section 4999 of
the Code; and
(2) such additional amount (tax allowance) as may be necessary to
compensate Executive for the payment by Executive of city, state
and
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federal income and excise taxes on the payment provided under
Clause (1) and on any payments under this Clause (2). In
computing such tax allowance, the payment to be made under Clause
(1) shall be multiplied by the "gross up percentage" ("GUP"). The
GUP shall be determined as follows:
Tax Rate
GUP = _____________
1 - Tax Rate
The "Tax Rate" for purposes of computing the GUP shall be the sum
of the highest marginal federal, state and city income and
employment-related tax rates, including any applicable excise tax
rates, applicable to the Executive in the year in which the
payment under Clause (1) is made.
(b) Notwithstanding the foregoing, if it shall subsequently be determined
in a final judicial determination or a final administrative settlement to which
Executive is a party that the excess parachute payment as defined in Section
4999 of the Code, reduced as described above, is more than the Initial Excess
Parachute Payment (such different amount being hereafter referred to as the
"Determinative Excess Parachute Payment") then the Holding Company's independent
accountants shall determine the amount (the "Adjustment Amount") the Holding
Company must pay to the Executive in order to put the Executive in the same
position as the Executive would have been if the Initial Excess Parachute
Payment had been equal to the Determinative Excess Parachute Payment. In
determining the Adjustment Amount, independent accountants of the Holding
Company shall take into account any and all taxes (including any penalties and
interest) paid by or for Executive or refunded to Executive or for Executive's
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benefit. As soon as practicable after the Adjustment Amount has been so
determined, the Holding Company shall pay the Adjustment Amount to Executive. In
no event however, shall Executive make any payment under this paragraph to the
Holding Company.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of a
material loss to the Holding Company or one of its affiliates caused by
Executive's personal dishonesty, willful misconduct, any breach of fiduciary
duty involving personal profit, intentional failure to perform stated duties,
willful violation of any law, rule, regulation (other than traffic violations or
similar offenses), final cease and desist order or material breach of any
provision of this Agreement. Notwithstanding the foregoing, Executive shall not
be deemed to have been terminated for Cause unless and until there shall have
been delivered to him a Notice of Termination which shall include a copy of a
resolution duly adopted by the affirmative vote of not less than three-fourths
of the members of the Board at a meeting of the Board called and held for that
purpose (after reasonable notice to Executive and an opportunity for him,
together with counsel, to be heard before the Board), finding that in the good
faith opinion of the Board, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail. The
Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause. During the period beginning on the date
of the Notice of Termination for Cause pursuant to Section 8 hereof through the
Date of Termination, stock options and related limited rights granted to
Executive under any stock option plan shall not be exercisable nor shall any
unvested awards granted to Executive under any stock benefit plan of the Bank,
the Holding Company or any subsidiary or affiliate thereof, vest. At the Date of
Termination, such stock options and related limited rights and any such unvested
awards shall become null and void
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and shall not be exercisable by or delivered to Executive at any
time subsequent to such Termination for Cause.
8. NOTICE.
(a) Any purported termination by the Holding Company or by Executive shall
be communicated by Notice of Termination to the other party hereto. For purposes
of this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
(b) Subject to Section 9(c), "Date of Termination" shall mean the date
specified in the Notice of Termination (which, in the case of a Termination for
Cause, shall not be less than thirty (30) days from the date such Notice of
Termination is given) provided, however, that if a dispute exists regarding the
Executive's termination, the "Date of Termination" shall be determined in
accordance with Section 8(c) of this Agreement.
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, except upon the occurrence of a
Change in Control and voluntary termination by the Executive in which case the
Date of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal therefrom having expired and no appeal having been perfected)
and provided further that the Date of Termination shall be extended by a notice
of dispute only if such notice is given in good faith and the party giving such
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notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Holding Company will
continue to pay Executive his full compensation in effect when the notice giving
rise to the dispute was given (including, but not limited to, Base Salary) and
continue him as a participant in all compensation, benefit and insurance plans
in which he was participating when the notice of dispute was given, until the
dispute is finally resolved in accordance with this Agreement. Amounts paid
under this Section are in addition to all other amounts due under this Agreement
and shall not be offset against or reduce any other amounts due under this
Agreement.
9. POST-TERMINATION OBLIGATIONS.
(a) All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Holding Company.
(b) Executive shall, upon reasonable notice, furnish such information and
assistance to the Holding Company as may reasonably be required by the Holding
Company in connection with any litigation in which it or any of its subsidiaries
or affiliates is, or may become, a party.
10. NONDISCLOSURE OF HOLDING COMPANY BUSINESS.
Executive recognizes and acknowledges that the knowledge of the business
activities and plans for business activities of the Holding Company and its
Subsidiaries as it may exist from time to time, is a valuable, special and
unique asset of the business of the Holding Company and its Subsidiaries.
Executive will not, during or after the term of his employment, disclose any
knowledge of the past, present, planned or
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considered business activities of the Holding Company and its Subsidiaries
thereof to any person, firm, corporation, or other entity for any reason or
purpose whatsoever unless expressly authorized by the Board of Directors or
required by law. Notwithstanding the foregoing, Executive may disclose any
knowledge of banking, financial and/or economic principles, concepts or ideas
which are not solely and exclusively derived from the business plans and
activities of the Holding Company. In the event of a breach or threatened breach
by the Executive of the provisions of this Section, the Holding Company will be
entitled to an injunction restraining Executive from disclosing, in whole or in
part, the knowledge of the past, present, planned or considered business
activities of the Holding Company or its Subsidiaries or from rendering any
services to any person, firm, corporation, other entity to whom such knowledge,
in whole or in part, has been disclosed or is threatened to be disclosed.
Nothing herein will be construed as prohibiting the Holding Company from
pursuing any other remedies available to the Holding Company for such breach or
threatened breach, including the recovery of damages from Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Holding Company subject to this Section 11.
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the Amended and Restated Employment Agreement dated
May 23, 1997, between Executive and the Bank, such compensation payments and
benefits paid by the Bank will be subtracted from any amount due simultaneously
to Executive under similar provisions of this Agreement. Payments pursuant to
this Agreement and the Bank Agreement shall be allocated in proportion to the
level of
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activity and the time expended on such activities by the Executive as determined
by the Holding Company and the Bank on a quarterly basis.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the Holding Company or any
predecessor of the Holding Company and Executive, except that this Agreement
shall not affect or operate to reduce any benefit or compensation inuring to the
Executive of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Holding Company and their respective successors and assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
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(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
15. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
16. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included
solely for convenience of reference and shall not control the meaning or
interpretation of any of the provisions of this Agreement.
17. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of Delaware,
unless otherwise specified herein.
18. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by
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arbitration, conducted before a panel of three arbitrators sitting in a location
selected by the Executive within fifty (50) miles from the location of the Bank,
in accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction; provided, however, that Executive shall be entitled to seek
specific performance of his right to be paid until the Date of Termination
during the pendency of any dispute or controversy arising under or in connection
with this Agreement.
In the event any dispute or controversy arising under or in connection with
Executive's termination is resolved in favor of the Executive, whether by
judgment, arbitration or settlement, Executive shall be entitled to the payment
of all back-pay, including salary, bonuses and any other cash compensation,
fringe benefits and any compensation and benefits due Executive under this
Agreement.
19. PAYMENT OF COSTS AND LEGAL FEES.
In the event any dispute or controversy arising under or in connection with
Executives termination is resolved in Executive's favor, whether by judgment,
arbitration or settlement, Executive shall be entitled to the payment of (i) all
reasonable legal fees paid or incurred by Executive in resolving such dispute or
controversy, and (ii) any back-pay, including salary, bonuses and any other cash
compensation, fringe benefits and any compensation and benefits due Executive
under this Agreement.
20. INDEMNIFICATION.
The Holding Company shall provide Executive (including his heirs, executors
and administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, or in lieu thereof, shall indemnify
Executive (and
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his heirs, executors and administrators) to the fullest extent permitted under
Delaware law against all expenses and liabilities reasonably incurred by him in
connection with or arising out of any action, suit or proceeding in which he may
be involved by reason of his having been a director or officer of the Holding
Company (whether or not he continues to be a director or officer at the time of
incurring such expenses or liabilities), such expenses and liabilities to
include, but not be limited to judgments, court costs and attorneys' fees and
the cost of reasonable settlements.
21. SUCCESSOR TO THE HOLDING COMPANY.
The Holding Company shall require any successor or assignee, whether direct
or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank or the Holding Company,
expressly and unconditionally to assume and agree to perform the Holding
Company's obligations under this Agreement, in the same manner and to the same
extent that the Holding Company would be required to perform if no such
succession or assignment had taken place.
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SIGNATURES
IN WITNESS WHEREOF, PATRIOT BANK CORP. has caused this Amended and Restated
Agreement to be executed and its seal to be affixed hereunto by its duly
authorized officer and its directors, and Executive has signed this Agreement,
on the 23rd day of May, 1997.
ATTEST: PATRIOT BANK CORP.
By
- -------------------------- --------------------------------
Secretary Joseph W. Major for the
Entire Board of Directors
WITNESS:
By
- -------------------------- --------------------------------
Gary N. Gieringer
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Exhibit 10.3
PATRIOT BANK CORP.
EMPLOYMENT AGREEMENT
AS AMENDED AND RESTATED
This AGREEMENT ("Agreement") as amended and restated effective May 23, 1997
was first made effective as of December 1, 1995, by and between Patriot Bank
Corp. (the "Holding Company"), a corporation organized under the laws of
Delaware, with its principal administrative office at High and Hanover Street,
Pottstown, Pennsylvania, and Richard A. Elko (the "Executive"). Any reference to
"Bank" herein shall mean Patriot Bank or any successor thereto.
WHEREAS, the Holding Company wishes to assure itself of the services of
Executive for the period provided in this Agreement; and
WHEREAS, the Executive is willing to serve in the employ of the Holding
Company on a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of Executive's employment hereunder,
Executive agrees to serve as Executive Vice President and Chief Financial
Officer of the Holding Company. The Executive shall render administrative and
management services to the Holding Company such as are customarily performed by
persons in a similar executive capacity. During said period, Executive also
agrees to
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serve, if elected, as an officer and director of any subsidiary of the
Holding Company.
2. TERMS.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
for a period of sixty (60) full calendar months thereafter. Commencing on the
date of the execution of this Agreement, the term of this Agreement shall be
extended for one day each day until such time as the board of directors of the
Holding Company (the "Board") or Executive elects not to extend the term of the
Agreement by giving written notice to the other party in accordance with Section
8 of this Agreement, in which case the term of this Agreement shall be fixed and
shall end on the fifth anniversary of the date of such written notice.
(b) During the period of Executive's employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and
reasonable leaves of absence, Executive shall devote substantially all his
business time, attention, skill, and efforts to the faithful performance of his
duties hereunder including activities and services related to the organization,
operation and management of the Holding Company and its direct or indirect
subsidiaries ("Subsidiaries") and participation in community and civic
organizations; provided, however, that, with the approval of the Board, as
evidenced by a resolution of such Board, from time to time, Executive may serve,
or continue to serve, on the boards of directors of, and hold any other offices
or positions in, companies or organizations, which, in such Board's judgment,
will not present any conflict of interest with the Holding Company or its
Subsidiaries, or materially affect the performance of Executive's duties
pursuant to this Agreement.
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(c) Notwithstanding anything herein contained to the contrary: (i)
Executive's employment with the Holding Company may be terminated by the Holding
Company or Executive during the term of this Agreement, subject to the terms and
conditions of this Agreement; (ii) nothing in this Agreement shall mandate or
prohibit a continuation of Employee's employment following the expiration of the
term of the Agreement upon such terms as the Board and the Executive may
mutually agree.
(d) Upon the termination of Executive's employment with the Holding
Company, the daily extensions provided pursuant to section 2(a), shall cease (if
such extension have not previously ceased), and, if such termination is under
circumstances described in section 4(a), the term "remaining term of the
Agreement" in section 4(b) shall mean the period of time commencing from the
date of such termination and ending the last day of the employment period
computed with reference to all extensions prior to such termination.
3. COMPENSATION AND REIMBURSEMENT.
(a) The Executive shall be entitled to a salary from the Holding Company or
its Subsidiaries of One Hundred and Ten Thousand Dollars ($110,000.00) per year
("Base Salary"). Base Salary shall include any amounts of compensation deferred
by Executive under any qualified or unqualified plan maintained by the Holding
Company and its Subsidiaries. Such Base Salary shall be payable bi-weekly.
During the period of this Agreement, Executive's Base Salary shall be reviewed
at least annually; the first such review will be made no later than one year
from the date of this Agreement. Such review shall be conducted by the Board or
by a Committee of the Board delegated such responsibility by the Board. The
Committee or the Board may increase Executive's Base Salary. Any increase in
Base Salary shall become the "Base Salary" for purposes of this Agreement. In
addition to the Base Salary provided in this Section 3(a), the
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Holding Company shall also provide Executive, at no premium cost to Executive,
with all such other benefits as provided uniformly to permanent full-time
employees of the Holding Company and its Subsidiaries.
(b) The Holding Company will provide Executive with employee benefit plans,
arrangements and perquisites substantially equivalent to those in which
Executive was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, and the Holding Company and its
Subsidiaries will not, without Executive's prior written consent, make any
changes in such plans, arrangements or perquisites which would materially
adversely affect Executive's rights or benefits thereunder, except to the extent
that such changes are made applicable to all Holding Company and Bank employees
eligible to participate in such plans, arrangements and perquisites on a
nondiscriminatory basis. Without limiting the generality of the foregoing
provisions of this Subsection (b), Executive shall be entitled to participate in
or receive benefits under any employee benefit plans including, but not limited
to, retirement plans, supplemental retirement plans, pension plans,
profit-sharing plans, health-and-accident plans, medical coverage or any other
employee benefit plan or arrangement made available by the Holding Company and
its Subsidiaries in the future to its senior executives and key management
employees, subject to and on a basis consistent with the terms, conditions and
overall administration of such plans and arrangements. Executive shall be
entitled to incentive compensation and bonuses as provided in any plan of the
Holding Company and its Subsidiaries in which Executive is eligible to
participate. Nothing paid to the Executive under any such plan or arrangement
will be deemed to be in lieu of other compensation to which the Executive is
entitled under this Agreement.
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(c) In addition to the Base Salary provided for by paragraph (a) of this
Section 3 and other compensation provided for by paragraph (b) of this Section
3, the Holding Company shall pay or reimburse Executive for all reasonable
travel and other reasonable expenses incurred in the performance of Executive's
obligations under this Agreement and may provide such additional compensation in
such form and such amounts as the Board may from time to time determine. The
Executive shall be provided at his option, with an automobile expense allowance
or the use of a recent model automobile which will be owned or leased by the
Holding Company or the Bank, as may be mutually agreed upon by the Executive and
the Holding Company or the Bank. All reasonable expenses associated therewith
shall be borne by the Holding Company or the Bank.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
The provisions of this Section shall in all respects be subject to the
terms and conditions stated in Section 7.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the provisions
of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Holding Company of Executive's full-time employment hereunder
for any reason other than a Change in Control, as defined in Section 5(a)
hereof, or Termination for Cause, as defined in Section 7 hereof, (ii)
Executive's resignation from the Holding Company's employ, upon, any (A) failure
to elect or reelect or to appoint or reappoint Executive as Executive Vice
President and Chief Financial Officer, unless consented to by the Executive, (B)
unless consented to by the Executive, a material change in Executive's function,
duties, or responsibilities with the Holding Company or its Subsidiaries, which
change would cause Executive's position to become one of lesser responsibility,
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importance, or scope from the position and attributes thereof described in
Section 1, above, (C) a relocation of Executive's principal place of employment
by more than 20 miles from its location at the effective date of this Agreement,
unless consented to by the Executive, (D) a material reduction in the benefits
and perquisites to the Executive from those being provided as of the effective
date of this Agreement, unless consented to by the Executive, (E) a liquidation
or dissolution of the Holding Company or the Bank, or (F) breach of this
Agreement by the Holding Company. Upon the occurrence of any event described in
clauses (A), (B), (C), (D) (E) or (F), above, Executive shall have the right to
elect to terminate his employment under this Agreement by resignation upon not
less than thirty (30) days prior written notice given within six (6) full
calendar months after the event giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, on the
Date of Termination, as defined in Section 8, the Holding Company shall be
obligated to pay Executive, or, in the event of his subsequent death, his
beneficiary or beneficiaries, or his estate, as the case may be, a sum equal to
the sum of: (i) the amount of the remaining payments (or benefits) that the
Executive would have earned if he had continued his employment with the Holding
Company or the Bank during the remaining unexpired term of this Agreement based
on the Executive's Base Salary at the Date of Termination; and (ii) the amount
equal to the annual contributions that would have been made on Executive's
behalf to any employee benefit plans of the Bank or the Holding Company during
the remaining term of this Agreement based on contributions made (on an
annualized basis) at the Date of Termination. At the election of the Executive,
which election is to be made within thirty (30) days of the Date of Termination,
such payments shall be made in a lump sum or paid monthly during the remaining
term of the agreement following the Employee's termination. In the event that no
election is made, payment to
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the Executive will be made on a monthly basis in approximately equal
installments during the remaining term of the Agreement. Such payments shall not
be reduced in the event the Executive obtains other employment following
termination of employment.
(c) Upon the occurrence of an Event of Termination, the Holding Company
will cause to be continued life, medical, dental and disability coverage
substantially equivalent to the coverage maintained by the Holding Company or
its Subsidiaries for Executive prior to his termination at no premium cost to
the Executive. Such coverage shall cease upon the expiration of the remaining
term of this Agreement.
5. CHANGE IN CONTROL.
(a) No benefit shall be payable under this Section 5 unless there shall
have been a Change in Control of the Bank or the Holding Company. For purposes
of this Agreement, a "Change in Control" of the Holding Company or the Bank
shall mean an event of a nature that: (i) would be required to be reported in
response to Item 1(a) of the current report on Form 8-K, as in effect on the
date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 (the "Exchange Act"); or (ii) results in a Change in Control of the Bank or
the Holding Company within the meaning of the Change in Bank Control Act and the
Rules and Regulations promulgated by the Federal Deposit Insurance Corporation
("FDIC") at 12 C.F.R. ss.303.4(a) with respect to the Bank and the Board of
Governors of the Federal Reserve System ("FRB") at 12 C.F.R. ss.225.41(b) with
respect to the Holding Company, as in effect on the date hereof, or; (iii)
results in a transaction requiring prior FRB approval under the Bank Holding
Company Act of 1956 and the regulations promulgated thereunder by the FRB at 12
C.F.R. ss.225.11, as in effect on the date hereof, or (iv) without limitation
such a Change in Control shall be deemed to have occurred at such time as (A)
any "person" (as the term is used in Sections 13(d) and
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14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of voting securities
of the Bank or the Holding Company representing 20% or more of the Bank's or the
Holding Company's outstanding voting securities or right to acquire such
securities except for any voting securities of the Bank purchased by the Holding
Company and any voting securities purchased by any employee benefit plan of the
Holding Company or its Subsidiaries; or (B) individuals who constitute the Board
on the date hereof (the "Incumbent Board") cease for any reason to constitute at
least a majority thereof, provided that any person becoming a director
subsequent to the date hereof whose election was approved by a vote of at least
three-quarters of the directors comprising the Incumbent Board, or whose
nomination for election by the Company's stockholders was approved by a
Nominating Committee solely composed of members which are Incumbent Board
members, shall be, for purposes of this clause (B), considered as though he were
a member of the Incumbent Board; or (C) a plan of reorganization, merger,
consolidation, sale of all or substantially all the assets of the Bank or the
Holding Company or similar transaction occurs or is effectuated in which the
Bank or Holding Company is not the resulting entity; provided, however, that
such an event listed above will be deemed to have occurred or to have been
effectuated upon the receipt of all required federal regulatory approvals not
including the lapse of any statutory waiting periods; or (D) a proxy statement
has been distributed soliciting proxies from stockholders of the Holding
Company, by someone other than the current management of the Holding Company,
seeking stockholder approval of a plan of reorganization, merger or
consolidation of the Holding Company or Bank with one or more corporations as a
result of which the outstanding shares of the class of securities then subject
to such plan or transaction are exchanged for or converted into cash or property
or securities not issued by the Bank or the Holding Company; or (E) a tender
offer is made for 20% or more of the voting securities of the Bank or Holding
Company.
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(b) If a Change in Control has occurred pursuant to Section 5(a) or the
Board has determined that a Change in Control has occurred, Executive shall be
entitled to the benefits provided in paragraphs (c) and, (d), of this Section 5
upon his subsequent termination of employment at any time during the term of
this Agreement due to (i) Executive's dismissal, or (ii) Executive's voluntary
resignation following any demotion, loss of title, office or significant
authority or responsibility, reduction in the annual compensation or material
reduction in benefits or relocation of his principal place of employment by more
than 20 miles from its location immediately prior to the change in control,
unless such termination is because of his death, disability, Retirement or
Termination for Cause.
(c) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Holding Company shall pay Executive, or in the event of his subsequent
death, his beneficiary or beneficiaries, or his estate, as the case may be, as
severance pay or liquidated damages, or both, a sum equal to the greater of: (i)
the payments due for the remaining term of the Agreement; or (ii) five (5) times
Executive's average annual compensation for the five (5) preceding taxable
years. Such annual compensation shall include Base Salary, commissions, bonuses,
contributions on behalf of Executive to any pension and profit sharing plan,
severance payments, directors or committee fees and fringe benefits paid or to
be paid to the Executive during such years. At the election of the Executive,
which election is to be made within thirty (30) days of the Date of Termination
following a Change in Control, such payment shall be made in a lump sum or paid
in equal monthly installments during the thirty-six (36) months, following
Executive's Date of Termination. In the event that no election is made, payment
to the Executive will be made on a monthly basis in approximately equal
installments during the remaining term of the Agreement. Such payments shall not
be reduced in the event Executive obtains other employment following termination
of employment.
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(d) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Company will cause to be continued life, medical, dental and disability
coverage substantially equivalent to the coverage maintained by the Bank for
Executive at no premium cost to Executive prior to his severance. Such coverage
and payments shall cease upon the expiration of sixty (60) months following the
Date of Termination.
6. CHANGE OF CONTROL RELATED PROVISIONS.
(a) In each calendar year that Executive is entitled to receive payments or
benefits under the provisions of the Employment Agreement with the Bank and this
Employment Agreement, the Holding Company shall determine if an excess parachute
payment (as defined in Section 4999 of the Internal Revenue Code of 1986, as
amended, and any successor provision thereto, (the "Code")) exists. Such
determination shall be made after taking any reductions permitted pursuant to
Section 28OG of the Code and the regulations thereunder. Any amount determined
to be an excess parachute payment after taking into account such reductions
shall be hereafter referred to as the "Initial Excess Parachute Payment." As
soon as practicable after a Change in Control, the Initial Excess Parachute
Payment shall be determined. Upon the Date of Termination following a Change in
Control, the Holding Company shall pay Executive, subject to applicable
withholding requirements under applicable city, state or federal law an amount
equal to:
(1) twenty (20) percent of the Initial Excess Parachute Payment (or
such other amount equal to the tax imposed under Section 4999 of
the Code; and
(2) such additional amount (tax allowance) as may be necessary to
compensate Executive for the payment by Executive of city, stated
and
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federal income and excise taxes on the payment provided under
clause (1) and on any payments under this Clause (2). In
computing such tax allowance, the payment to be made under Clause
(1) shall be multiplied by the "gross up percentage" ("GUP"). The
GUP shall be determined as follows:
Tax Rate
GUP = _____________
1 - Tax Rate
The "Tax Rate" for purposes of computing the GUP shall be the sum
of the highest marginal federal, state and city income and
employment-related tax rates, including any applicable excise tax
rates, applicable to the Executive in the year in which the
payment under Clause (1) is made.
(b) Notwithstanding the foregoing, if it shall subsequently be determined
in a final judicial determination or a final administrative settlement to which
Executive is a party that the excess parachute payment as defined in Section
4999 of the Code, reduced as described above, is more than the Initial Excess
Parachute Payment (such different amount being hereafter referred to as the
"Determinative Excess Parachute Payment") then the Holding Company's independent
accountants shall determine the amount (the "Adjustment Amount") the Holding
Company must pay to the Executive in order to put the Executive in the same
position as the Executive would have been if the Initial Excess Parachute
Payment had been equal to the Determinative Excess Parachute Payment. In
determining the Adjustment Amount, independent accountants of the Holding
Company shall take into account any and all taxes (including any penalties and
interest) paid by or for Executive or refunded to Executive or for Executive's
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benefit. As soon as practicable after the Adjustment Amount has been so
determined, the Holding Company shall pay the Adjustment Amount to Executive. In
no event however, shall Executive make any payment under this paragraph to the
Holding Company.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of a
material loss to the Holding Company or one of its affiliates caused by
Executive's personal dishonesty, willful misconduct, any breach of fiduciary
duty involving personal profit, intentional failure to perform stated duties,
willful violation of any law, rule, regulation (other than traffic violations or
similar offenses), final cease and desist order or material breach of any
provision of this Agreement. Notwithstanding the foregoing, Executive shall not
be deemed to have been terminated for Cause unless and until there shall have
been delivered to him a Notice of Termination which shall include a copy of a
resolution duly adopted by the affirmative vote of not less than three-fourths
of the members of the Board at a meeting of the Board called and held for that
purpose (after reasonable notice to Executive and an opportunity for him,
together with counsel, to be heard before the Board), finding that in the good
faith opinion of the Board, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail. The
Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause. During the period beginning on the date
of the Notice of Termination for Cause pursuant to Section 8 hereof through the
Date of Termination, stock options and related limited rights granted to
Executive under any stock option plan shall not be exercisable nor shall any
unvested awards granted to Executive under any stock benefit plan of the Bank,
the Holding Company or any subsidiary or affiliate thereof, vest. At the Date of
Termination, such stock options and related limited rights and any such unvested
awards shall become null and void
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and shall not be exercisable by or delivered to Executive at any time
subsequent to such Termination for Cause.
8. NOTICE.
(a) Any purported termination by the Holding Company or by Executive shall
be communicated by Notice of Termination to the other party hereto. For purposes
of this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
(b) Subject to Section 9(c), "Date of Termination" shall mean the date
specified in the Notice of Termination (which, in the case of a Termination for
Cause, shall not be less than thirty (30) days from the date such Notice of
Termination is given) provided, however, that if a dispute exists regarding the
Executive's termination, the "Date of Termination" shall be determined in
accordance with Section 8(c) of this Agreement.
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, except upon the occurrence of a
Change in Control and voluntary termination by the Executive in which case the
Date of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal therefrom having expired and no appeal having been perfected)
and provided further that the Date of Termination shall be extended by a notice
of dispute only if such notice is given in good faith and the party giving such
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notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Holding Company will
continue to pay Executive his full compensation in effect when the notice giving
rise to the dispute was given (including, but not limited to, Base Salary) and
continue him as a participant in all compensation, benefit and insurance plans
in which he was participating when the notice of dispute was given, until the
dispute is finally resolved in accordance with this Agreement. Amounts paid
under this Section are in addition to all other amounts due under this Agreement
and shall not be offset against or reduce any other amounts due under this
Agreement.
9. POST-TERMINATION OBLIGATIONS.
(a) All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Holding Company.
(b) Executive shall, upon reasonable notice, furnish such information and
assistance to the Holding Company as may reasonably be required by the Holding
Company in connection with any litigation in which it or any of its subsidiaries
or affiliates is, or may become, a party.
10. NONDISCLOSURE OF HOLDING COMPANY BUSINESS.
Executive recognizes and acknowledges that the knowledge of the business
activities and plans for business activities of the Holding Company and its
Subsidiaries as it may exist from time to time, is a valuable, special and
unique asset of the business of the Holding Company and its Subsidiaries.
Executive will not, during or after the term of his employment, disclose any
knowledge of the past, present, planned or
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considered business activities of the Holding Company and its Subsidiaries
thereof to any person, firm, corporation, or other entity for any reason or
purpose whatsoever unless expressly authorized by the Board of Directors or
required by law. Notwithstanding the foregoing, Executive may disclose any
knowledge of banking, financial and/or economic principles, concepts or ideas
which are not solely and exclusively derived from the business plans and
activities of the Holding Company. In the event of a breach or threatened breach
by the Executive of the provisions of this Section, the Holding Company will be
entitled to an injunction restraining Executive from disclosing, in whole or in
part, the knowledge of the past, present, planned or considered business
activities of the Holding Company or its Subsidiaries or from rendering any
services to any person, firm, corporation, other entity to whom such knowledge,
in whole or in part, has been disclosed or is threatened to be disclosed.
Nothing herein will be construed as prohibiting the Holding Company from
pursuing any other remedies available to the Holding Company for such breach or
threatened breach, including the recovery of damages from Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Holding Company subject to this Section
11(b).
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the Amended and Restated Employment Agreement dated
May 23, 1997, between Executive and the Bank, such compensation payments and
benefits paid by the Bank will be subtracted from any amount due simultaneously
to Executive under similar provisions of this Agreement. Payments pursuant to
this Agreement and the Bank Agreement shall be allocated in proportion to the
level of
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activity and the time expended on such activities by the Executive as determined
by the Holding Company and the Bank on a quarterly basis.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the Holding Company or any
predecessor of the Holding Company and Executive, except that this Agreement
shall not affect or operate to reduce any benefit or compensation inuring to the
Executive of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Holding Company and their respective successors and assigns.
14. MODIFICATION AND WAIVER.
(a) This is Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
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(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
15. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
16. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
17. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of Delaware,
unless otherwise specified herein.
18. ARBITRATION.
Any dispute or controversy arising under or in connection with
this Agreement shall be settled exclusively by
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arbitration, conducted before a panel of three arbitrators sitting in a location
selected by the Executive within fifty (50) miles from the location of the Bank,
in accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction; provided, however, that Executive shall be entitled to seek
specific performance of his right to be paid until the Date of Termination
during the pendency of any dispute or controversy arising under or in connection
with this Agreement.
In the event any dispute or controversy arising under or in connection with
Executive's termination is resolved in favor of the Executive, whether by
judgment, arbitration or settlement, Executive shall be entitled to the payment
of all back-pay, including salary, bonuses and any other cash compensation,
fringe benefits and any compensation and benefits due Executive under this
Agreement.
19. PAYMENT OF COSTS AND LEGAL FEES.
In the event any dispute or controversy arising under or in connection with
Executive's termination is resolved in Executive's favor, whether by judgment,
arbitration or settlement, Executive shall be entitled to the payment of (i) all
reasonable legal fees paid or incurred by Executive in resolving such dispute or
controversy, and (ii) any back-pay, including salary, bonuses and any other cash
compensation, fringe benefits and any compensation and benefits due Executive
under this Agreement.
20. INDEMNIFICATION.
The Holding Company shall provide Executive (including his heirs, executors
and administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, or in lieu thereof, shall indemnify
Executive (and
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his heirs, executors and administrators) to the fullest extent permitted under
Delaware law against all expenses and liabilities reasonably incurred by him in
connection with or arising out of any action, suit or proceeding in which he may
be involved by reason of his having been a director or officer of the Holding
Company (whether or not he continues to be a director or officer at the time of
incurring such expenses or liabilities), such expenses and liabilities to
include, but not be limited to, judgments, court costs and attorneys' fees and
the cost of reasonable settlements.
21. SUCCESSOR TO THE HOLDING COMPANY.
The Holding Company shall require any successor or assignee, whether direct
or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank or the Holding Company,
expressly and unconditionally to assume and agree to perform the Holding
Company's obligations under this Agreement, in the same manner and to the same
extent that the Holding Company would be required to perform if no such
succession or assignment had taken place.
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SIGNATURES
IN WITNESS WHEREOF, PATRIOT BANK CORP. has caused this Amended and Restated
Agreement to be executed and its seal to be affixed hereunto by its duly
authorized officer and its directors, and Executive has signed this Agreement,
on the 23rd day of May, 1997.
ATTEST: PATRIOT BANK CORP.
By
- -------------------------- --------------------------------
Secretary Gary N. Gieringer for the
Entire Board of Directors
WITNESS:
By
- -------------------------- --------------------------------
Richard A. Elko
20
Exhibit 10.4
PATRIOT BANK CORP.
CHANGE IN CONTROL AGREEMENT
AS AMENDED AND RESTATED
This AGREEMENT as amended and restated effective May 23, 1997, was first
made effective as of December 1, 1995, by and between Patriot Bank Corp. (the
"Holding Company"), a corporation organized under the laws of the State of
Delaware, with its office at High and Hanover Streets, Pottstown, Pennsylvania
and Paulette A. Strunk ("Executive"). The term "Bank" refers to Patriot Bank,
the wholly-owned subsidiary of the Holding Company or any successor thereto.
WHEREAS, the Holding Company recognizes the substantial contribution
Executive has made to the Holding Company and wishes to protect his position
therewith for the period provided in this Agreement; and
WHEREAS, Executive has agreed to serve in the employ of the Holding Company
or an affiliate thereof.
NOW, THEREFORE, in consideration of the contribution and responsibilities
of Executive, and upon the other terms and conditions hereinafter provided, the
parties hereto agree as follows:
1. TERM OF AGREEMENT.
The period of this Agreement shall be deemed to have commenced as of the
date first above written and shall continue for a period of twenty-four (24)
full calendar months thereafter. Commencing on the date of the execution of this
Agreement, the term of this Agreement shall be extended for one day each day
until such time as the board of directors of the Holding Company (the "Board")
or Executive elects not to extend the term of the Agreement by giving written
notice to the other party in
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accordance with Section 8 of this Agreement, in which case the term of this
Agreement shall be fixed and shall end on the third anniversary of the date of
such written notice.
2. CHANGE IN CONTROL.
(a) Upon the occurrence of a Change in Control of the Holding Company (as
herein defined) followed at any time during the term of this Agreement by the
termination of Executive's employment, the provisions of Section 3 shall apply.
Upon the occurrence of a Change in Control, Executive shall have the right to
elect to voluntarily terminate his employment at any time during the term of
this Agreement following any demotion, loss of title, office or significant
authority, reduction in annual compensation or material reduction in benefits,
or relocation of his principal place of employment by more than 20 miles from
its location immediately prior to the Change in Control unless such termination
is because of death or termination for Cause.
(b) For purposes of this Agreement, a "Change in Control" of the Bank or
Holding Company shall mean an event of a nature that: (i) would be required to
be reported in response to Item I of the current report on Form 8-K, as in
effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"); or (ii) results in a
Change in Control of the Bank or the Holding Company within the meaning of the
Change in Bank Control Act and the Rules and Regulations promulgated by the
Federal Deposit Insurance Corporation ("FDIC") at 12 C.F.R. ss.303.4(a) with
respect to the Bank and the Board of Governors of the Federal Reserve System
("FRB") at 12 C.F.R. ss.225.41(b) with respect to the Holding Company, as in
effect on the date hereof; or (iii) results in a transaction requiring prior FRB
approval under the Bank Holding Company Act of 1956 and the regulations
promulgated thereunder by the FRB at 12 C.F.R. ss.225.1 1, as in effect on the
date hereof except for the Holding Company's acquisition of the Bank; or (iv)
without limitation such a Change
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in Control shall be deemed to have occurred at such time as (A) any "person" (as
the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of voting securities of the Bank or the Holding Company
representing 20% or more of the Bank's or the Holding Company's outstanding
voting securities or right to acquire such securities except for any voting
securities of the Bank purchased by the Holding Company and any voting
securities purchased by any employee benefit plan of the Bank or the Holding
Company, or (B) individuals who constitute the Board on the date hereof (the
"Incumbent Board") cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director subsequent to the date
hereof whose election was approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board, or whose nomination for election by
the Holding Company's stockholders was approved by the same Nominating Committee
serving under an Incumbent Board, shall be, for purposes of this clause (B),
considered as though he were a member of the Incumbent Board, (C) a plan of
reorganization, merger, consolidation, sale of all or substantially all the
assets of the Bank or the Holding Company or similar transaction occurs in which
the Bank or Holding Company is not the resulting entity; provided, however, that
such an event listed above will be deemed to have occurred or to have been
effectuated upon the receipt of all required regulatory approvals not including
the lapse of any statutory waiting periods, (D) a proxy statement shall be
distributed soliciting proxies from shareholders of the Holding Company, by
someone other than the current management of the Holding Company, seeking
stockholder approval of a plan of reorganization, merger or consolidation of the
Holding Company or Bank or similar transaction with one or more corporations as
a result of which the outstanding shares of the class of securities then subject
to the plan or transaction are exchanged for or converted into cash or property
or securities not issued by the Bank or the Holding Company, or (E) a tender
offer is made for
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20% or more of the voting securities of the Bank or the Holding Company.
(c) Executive shall not have the right to receive termination benefits
pursuant to Section 3 hereof upon Termination for Cause. The term "Termination
for Cause" shall mean termination because of Executive's personal dishonesty,
incompetence, willful misconduct, any breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties, willful violation
of any law, rule, regulation (other than traffic violations or similar offenses)
or final cease and desist order, or any material breach of this Agreement.
Notwithstanding the foregoing, Executive shall not be deemed to have been
Terminated for Cause unless and until there shall have been delivered to him a
copy of a resolution duly adopted by the affirmative vote of not less than
three-fourths of the members of the Board at a meeting of the Board called and
held for that purpose (after reasonable notice to Executive and an opportunity
for him, together with counsel, to be heard before the Board), finding that in
the good faith opinion of the Board, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail.
Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause. During the period beginning on the date
of the Notice of Termination for Cause pursuant to Section 8 hereof through the
Date of Termination, stock options and related limited rights granted to
Executive under any stock option plan shall not be exercisable nor shall any
unvested awards granted to Executive under any stock benefit plan of the Bank,
the Holding Company or any subsidiary or affiliate thereof, vest. At the Date of
Termination, such stock options and related limited rights and any such unvested
awards shall become null and void and shall not be exercisable by or delivered
to Executive at any time subsequent to such Termination for Cause.
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3. TERMINATION BENEFITS.
(a) Upon the occurrence of a Change in Control, followed at any time during
the term of this Agreement by the voluntary or involuntary termination of
Executive's employment, other than for Termination for Cause, the Holding
Company shall be obligated to pay Executive, or in the event of his subsequent
death, his beneficiary or beneficiaries, or his estate, as the case may be, a
sum equal to two (2) times Executive's average annual compensation for the five
most recent taxable years that Executive has been employed by the Bank or such
lesser number of years in the event that Executive shall have been employed by
the Bank for less than five years. Such annual compensation shall include Base
Salary, commissions, bonuses, contributions on behalf of Executive to any
pension and profit sharing plan, severance payments, director or committee fees
and fringe benefits paid or to be paid to the Executive during such years. At
the election of Executive which election is to be made prior to a Change in
Control, such payment shall be made in a lump sum. In the event that no election
is made, payment to Executive will be made on a monthly basis in approximately
equal installments during the remaining term of this Agreement.
(b) Upon the occurrence of a Change in Control of the Bank or the Holding
Company followed at any time during the term of this Agreement by Executive's
termination of employment, other than for Termination for Cause, the Holding
Company shall cause to be continued life, medical and disability coverage
substantially identical to the coverage maintained by the Bank for Executive
prior to his severance, except to the extent such coverage may be changed in its
application to all Bank employees. Such coverage and payments shall cease upon
expiration of twenty-four (24) full calendar months following the Date of
Termination.
(c) Notwithstanding the preceding paragraphs of this Section 3, in the
event that:
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(i) the aggregate payments or benefits to be made or afforded
to Executive, which are deemed to be parachute payments as defined in
Section 28OG of the Internal Revenue Code of 1986, as amended (the
"Code") or any successor thereof, (the "Termination Benefits") would be
deemed to include an "excess parachute payment" under Section 28OG of
the Code; and
(ii) if such Termination Benefits were reduced to an amount
(the "Non-Triggering Amount"), the value of which is one dollar ($1.00)
less than an amount equal to three (3) times Executive's "base amount,"
as determined in accordance with said Section 28OG and the
NonTriggering Amount less the product of the marginal rate of any
applicable state and federal income tax and the Non Triggering Amount
would be greater than the aggregate value of the Termination Benefits
(without such reduction) minus (i) the amount of tax required to be
paid by the Executive thereon by Section 4999 of the Code and further
minus (ii) the product of the Termination Benefits and the marginal
rate of any applicable state and federal income tax, then the
Termination Benefits shall be reduced to the Non-Triggering Amount. The
allocation of the reduction required hereby among the Termination
Benefits shall be determined by the Executive.
4. NOTICE OF TERMINATION.
(a) Any purported termination by the Holding Company, or by Executive shall
be communicated by Notice of Termination to the other party hereto. For purposes
of this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in detail the facts and circumstances claimed to provide a
basis for termination of Executive's employment under the provision so
indicated.
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(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of Termination for Cause, shall not be less than
thirty (30) days from the date such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination shall be the
date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and
provided further that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Holding Company, will
continue to pay Executive his full compensation in effect when the notice giving
rise to the dispute was given (including, but not limited to his current annual
salary) and continue him as a participant in all compensation, benefit and
insurance plans in which he was participating when the notice of dispute was
given, until the dispute is finally resolved in accordance with this Agreement.
Amounts paid under this Section 4(c) are in addition to all other amounts due
under this Agreement and shall not be offset against or reduce any other amounts
due under this Agreement.
5. SOURCE OF PAYMENTS.
It is intended by the parties hereto that all payments provided in this
Agreement shall be paid in cash or check from the general funds of the Holding
Company. Further, the Holding Company guarantees such payment and provision of
all amounts and benefits due hereunder to Executive and, if such amount and
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benefits due from the Bank are not timely paid or provided by the Bank, such
amounts and benefits shall be paid and provided by the Holding Company.
6. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior agreement between the Holding Company and Executive,
except that this Agreement shall not affect or operate to reduce any benefit or
compensation inuring to Executive of a kind elsewhere provided. No provision of
this Agreement shall be interpreted to mean that Executive is subject to
receiving fewer benefits than those available to him without reference to this
Agreement.
Nothing in this Agreement shall confer upon Executive the right to continue
in the employ of the Holding Company or shall impose on the Holding Company any
obligation to employ or retain Executive in its employ for any period.
7. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive, the Holding Company and their respective successors and assigns.
8
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8. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future or as to any act other than that
specifically waived.
9. EFFECT OF ACTION UNDER BANK AGREEMENT.
Notwithstanding any provision herein to the contrary, to the extent that
payments and benefits are paid to or received by Executive under the Bank
Agreement between Executive and Bank, the amount of such payments and benefits
paid by the Bank will be subtracted from any amount due simultaneously to
Executive under similar provisions of this Agreement.
10. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
11. HEADINGS FOR REFERENCE ONLY.
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The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement. In addition, references herein to the
masculine shall apply to both the masculine and the feminine.
12. GOVERNING LAW.
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of Delaware.
13. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by Executive within fifty
(50) miles from the location of the Holding Company, in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction; provided,
however, that Executive shall be entitled to seek specific performance of his
right to be paid until theDate of Termination during the pendency of any dispute
or controversy arising under or in connection with this Agreement.
14. PAYMENT OF LEGAL FEES.
All reasonable legal fees paid or incurred by Executive pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the Holding Company if Executive is successful pursuant to a
legal judgment, arbitration or settlement.
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15. INDEMNIFICATION.
The Holding Company shall provide Executive (including his heirs, executors
and administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, or in lieu thereof, shall indemnify
Executive (and his heirs, executors and administrators) to the fullest extent
permitted under Delaware law and as provided in the Holding Company's
certificate of incorporation against all expenses and liabilities reasonably
incurred by him in connection with or arising out of any action, suit or
proceeding in which he may be involved by reason of his having been a director
or officer of the Holding Company (whether or not he continues to be a director
or officer at the time of incurring such expenses or liabilities), such expenses
and liabilities to include, but not be limited to, judgments, court costs and
attorneys' fees and the cost of reasonable settlements.
16. SUCCESSOR TO THE HOLDING COMPANY.
The Holding Company shall require any successor or assignee, whether direct
or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank or the Holding Company,
expressly and unconditionally to assume and agree to perform the Holding
Company's obligations under this Agreement, in the same manner and to the same
extent that the Holding Company would be required to perform if no such
succession or assignment had taken place.
SIGNATURES
IN WITNESS WHEREOF, Patriot Bank Corp. has caused this Amended and Restated
Agreement to be executed by its duly authorized officer, and Executive has
signed this Amended and
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Restated Agreement, on the _________ day of ___________________, 1997.
ATTEST: PATRIOT BANK CORP.
______________________________ By: __________________________
Joseph W. Major President
and Chief Operating
Officer
WITNESS:
- ----------------------------- ------------------------------
Paulette A. Strunk
12
Exhibit 10.5
PATRIOT BANK CORP.
CHANGE IN CONTROL AGREEMENT
AS AMENDED AND RESTATED
This AGREEMENT as amended and restated effective May 23, 1997, was first
made effective as of December 1, 1995, by and between Patriot Bank Corp. (the
"Holding Company"), a corporation organized under the laws of the State of
Delaware, with its office at High and Hanover Streets, Pottstown, Pennsylvania
and Robert G. Philips ("Executive"). The term "Bank" refers to Patriot Bank, the
wholly-owned subsidiary of the Holding Company or any successor thereto.
WHEREAS, the Holding Company recognizes the substantial contribution
Executive has made to the Holding Company and wishes to protect his position
therewith for the period provided in this Agreement; and
WHEREAS, Executive has agreed to serve in the employ of the Holding Company
or an affiliate thereof.
NOW, THEREFORE, in consideration of the contribution and responsibilities
of Executive, and upon the other terms and conditions hereinafter provided, the
parties hereto agree as follows:
1. TERM OF AGREEMENT.
The period of this Agreement shall be deemed to have commenced as of the
date first above written and shall continue for a period of twenty-four (24)
full calendar months thereafter. Commencing on the date of the execution of this
Agreement, the term of this Agreement shall be extended for one day each day
until such time as the board of directors of the Holding Company
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(the "Board") or Executive elects not to extend the term of the Agreement by
giving written notice to the other party in accordance with Section 8 of this
Agreement, in which case the term of this Agreement shall be fixed and shall end
on the third anniversary of the date of such written notice.
2. CHANGE IN CONTROL.
(a) Upon the occurrence of a Change in Control of the Holding Company (as
herein defined) followed at any time during the term of this Agreement by the
termination of Executive's employment, the provisions of Section 3 shall apply.
Upon the occurrence of a Change in Control, Executive shall have the right to
elect to voluntarily terminate his employment at any time during the term of
this Agreement following any demotion, loss of title, office or significant
authority, reduction in annual compensation or material reduction in benefits,
or relocation of his principal place of employment by more than 20 miles from
its location immediately prior to the Change in Control unless such termination
is because of death or termination for Cause.
(b) For purposes of this Agreement, a "Change in Control" of the Bank or
Holding Company shall mean an event of a nature that: (i) would be required to
be reported in response to Item I of the current report on Form 8-K, as in
effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"); or (ii) results in a
Change in Control of the Bank or the Holding Company within the meaning of the
Change in Bank Control Act and the Rules and Regulations promulgated by the
Federal Deposit Insurance Corporation ("FDIC") at 12 C.F.R. ss.303.4(a) with
respect to the Bank and the Board of Governors of the Federal Reserve System
("FRB") at 12 C.F.R. ss.225.41(b) with respect to the Holding Company, as in
effect on the date hereof; or
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(iii) results in a transaction requiring prior FRB approval under the Bank
Holding Company Act of 1956 and the regulations promulgated thereunder by the
FRB at 12 C.F.R. ss.225.11, as in effect on the date hereof except for the
Holding Company's acquisition of the Bank; or (iv) without limitation such a
Change in Control shall be deemed to have occurred at such time as (A) any
"person" (as the term is used in Sections 13(d) and 14(d) of the Exchange Act)
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of voting securities of the Bank or the
Holding Company representing 20% or more of the Bank's or the Holding Company's
outstanding voting securities or right to acquire such securities except for any
voting securities of the Bank purchased by the Holding Company and any voting
securities purchased by any employee benefit plan of the Bank or the Holding
Company, or (B) individuals who constitute the Board on the date hereof (the
"Incumbent Board") cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director subsequent to the date
hereof whose election was approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board, or whose nomination for election by
the Holding Company's stockholders was approved by the same Nominating Committee
serving under an Incumbent Board, shall be, for purposes of this clause (B),
considered as though he were a member of the Incumbent Board, (C) a plan of
reorganization, merger, consolidation, sale of all or substantially all the
assets of the Bank or the Holding Company or similar transaction occurs in which
the Bank or Holding Company is not the resulting entity; provided, however, that
such an event listed above will be deemed to have occurred or to have been
effectuated upon the receipt of all required regulatory approvals not including
the lapse of any statutory waiting periods, (D) a proxy statement shall be
distributed soliciting proxies from shareholders of the Holding Company, by
someone other than the current management of
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the Holding Company, seeking stockholder approval of a plan of reorganization,
merger or consolidation of the Holding Company or Bank or similar transaction
with one or more corporations as a result of which the outstanding shares of the
class of securities then subject to the plan or transaction are exchanged for or
converted into cash or property or securities not issued by the Bank or the
Holding Company, or (E) a tender offer is made for 20% or more of the voting
securities of the Bank or the Holding Company.
(c) Executive shall not have the right to receive termination benefits
pursuant to Section 3 hereof upon Termination for Cause. The term "Termination
for Cause" shall mean termination because of Executive's personal dishonesty,
incompetence, willful misconduct, any breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties, willful violation
of any law, rule, regulation (other than traffic violations or similar offenses)
or final cease and desist order, or any material breach of this Agreement.
Notwithstanding the foregoing, Executive shall not be deemed to have been
Terminated for Cause unless and until there shall have been delivered to him a
copy of a resolution duly adopted by the affirmative vote of not less than
three-fourths of the members of the Board at a meeting of the Board called and
held for that purpose (after reasonable notice to Executive and an opportunity
for him, together with counsel, to be heard before the Board), finding that in
the good faith opinion of the Board, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail.
Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause. During the period beginning on the date
of the Notice of Termination for Cause pursuant to Section 8 hereof through the
Date of Termination, stock options and related limited rights granted to
Executive under any stock option plan shall not be exercisable nor shall
4
<PAGE>
any unvested awards granted to Executive under any stock benefit plan of the
Bank, the Holding Company or any subsidiary or affiliate thereof, vest. At the
Date of Termination, such stock options and related limited rights and any such
unvested awards shall become null and void and shall not be exercisable by or
delivered to Executive at any time subsequent to such Termination for Cause.
3. TERMINATION BENEFITS.
(a) Upon the occurrence of a Change in Control, followed at any time during
the term of this Agreement by the voluntary or involuntary termination of
Executive's employment, other than for Termination for Cause, the Holding
Company shall be obligated to pay Executive, or in the event of his subsequent
death, his beneficiary or beneficiaries, or his estate, as the case may be, a
sum equal to two (2) times Executive's average annual compensation for the five
most recent taxable years that Executive has been employed by the Bank or such
lesser number of years in the event that Executive shall have been employed by
the Bank for less than five years. Such annual compensation shall include Base
Salary, commissions, bonuses, contributions on behalf of Executive to any
pension and profit sharing plan, severance payments, director or committee fees
and fringe benefits paid or to be paid to the Executive during such years. At
the election of Executive which election is to be made prior to a Change in
Control, such payment shall be made in a lump sum. In the event that no election
is made, payment to Executive will be made on a monthly basis in approximately
equal installments during the remaining term of this Agreement.
(b) Upon the occurrence of a Change in Control of the Bank or the Holding
Company followed at any time during the term of this Agreement by Executive's
termination of employment, other
5
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than for Termination for Cause, the Holding Company shall cause to be continued
life, medical and disability coverage substantially identical to the coverage
maintained by the Bank for Executive prior to his severance, except to the
extent such coverage may be changed in its application to all Bank employees.
Such coverage and payments shall cease upon expiration of twenty-four (24) full
calendar months following the Date of Termination.
(c) Notwithstanding the preceding paragraphs of this Section 3, in the
event that:
(i) the aggregate payments or benefits to be made or afforded
to Executive, which are deemed to be parachute payments as defined in
Section 28OG of the Internal Revenue Code of 1986, as amended (the
"Code") or any successor thereof, (the "Termination Benefits") would be
deemed to include an "excess parachute payment" under Section 28OG of
the Code; and
(ii) if such Termination Benefits were reduced to an amount
(the "Non-Triggering Amount"), the value of which is one dollar ($1.00)
less than an amount equal to three (3) times Executive's "base amount,"
as determined in accordance with said Section 28OG and the
NonTriggering Amount less the product of the marginal rate of any
applicable state and federal income tax and the Non Triggering Amount
would be greater than the aggregate value of the Termination Benefits
(without such reduction) minus (i) the amount of tax required to be
paid by the Executive thereon by Section 4999 of the Code and further
minus (ii) the product of the Termination Benefits and the marginal
rate of any applicable state and federal income tax, then the
Termination Benefits shall be reduced to the Non-Triggering Amount. The
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<PAGE>
allocation of the reduction required hereby among the Termination
Benefits shall be determined by the Executive.
4. NOTICE OF TERMINATION.
(a) Any purported termination by the Holding Company, or by Executive shall
be communicated by Notice of Termination to the other party hereto. For purposes
of this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in detail the facts and circumstances claimed to provide a
basis for termination of Executive's employment under the provision so
indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of Termination for Cause, shall not be less than
thirty (30) days from the date such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination shall be the
date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and
provided further that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Holding Company, will
continue to pay Executive his full compensation in effect when the notice giving
rise to the dispute
7
<PAGE>
was given (including, but not limited to his current annual salary) and continue
him as a participant in all compensation, benefit and insurance plans in which
he was participating when the notice of dispute was given, until the dispute is
finally resolved in accordance with this Agreement. Amounts paid under this
Section 4(c) are in addition to all other amounts due under this Agreement and
shall not be offset against or reduce any other amounts due under this
Agreement.
5. SOURCE OF PAYMENTS.
It is intended by the parties hereto that all payments provided in this
Agreement shall be paid in cash or check from the general funds of the Holding
Company. Further, the Holding Company guarantees such payment and provision of
all amounts and benefits due hereunder to Executive and, if such amount and
benefits due from the Bank are not timely paid or provided by the Bank, such
amounts and benefits shall be paid and provided by the Holding Company.
6. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior agreement between the Holding Company and Executive,
except that this Agreement shall not affect or operate to reduce any benefit or
compensation inuring to Executive of a kind elsewhere provided. No provision of
this Agreement shall be interpreted to mean that Executive is subject to
receiving fewer benefits than those available to him without reference to this
Agreement.
Nothing in this Agreement shall confer upon Executive the right to continue
in the employ of the Holding Company or shall
8
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impose on the Holding Company any obligation to employ or retain Executive in
its employ for any period.
7. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive, the Holding Company and their respective successors and assigns.
8. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future or as to any act other than that
specifically waived.
9. EFFECT OF ACTION UNDER BANK AGREEMENT.
9
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Notwithstanding any provision herein to the contrary, to the extent that
payments and benefits are paid to or received by Executive under the Bank
Agreement between Executive and Bank, the amount of such payments and benefits
paid by the Bank will be subtracted from any amount due simultaneously to
Executive under similar provisions of this Agreement.
10. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
11. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement. In addition, references herein to the
masculine shall apply to both the masculine and the feminine.
12. GOVERNING LAW.
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of Delaware.
13. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration,
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conducted before a panel of three arbitrators sitting in a location selected by
Executive within fifty (50) miles from the location of the Holding Company, in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction; provided, however, that Executive shall be entitled to seek
specific performance of his right to be paid until theDate of Termination during
the pendency of any dispute or controversy arising under or in connection with
this Agreement.
14. PAYMENT OF LEGAL FEES.
All reasonable legal fees paid or incurred by Executive pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the Holding Company if Executive is successful pursuant to a
legal judgment, arbitration or settlement.
15. INDEMNIFICATION.
The Holding Company shall provide Executive (including his heirs, executors
and administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, or in lieu thereof, shall indemnify
Executive (and his heirs, executors and administrators) to the fullest extent
permitted under Delaware law and as provided in the Holding Company's
certificate of incorporation against all expenses and liabilities reasonably
incurred by him in connection with or arising out of any action, suit or
proceeding in which he may be involved by reason of his having been a director
or officer of the Holding Company (whether or not he continues to be a director
or officer at the time of incurring such expenses or liabilities), such expenses
and liabilities to include, but not
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be limited to, judgments, court costs and attorneys' fees and the cost of
reasonable settlements.
16. SUCCESSOR TO THE HOLDING COMPANY.
The Holding Company shall require any successor or assignee, whether direct
or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank or the Holding Company,
expressly and unconditionally to assume and agree to perform the Holding
Company's obligations under this Agreement, in the same manner and to the same
extent that the Holding Company would be required to perform if no such
succession or assignment had taken place.
SIGNATURES
IN WITNESS WHEREOF, Patriot Bank Corp. has caused this Amended and Restated
Agreement to be executed by its duly authorized officer, and Executive has
signed this Amended and Restated Agreement, on the _________ day of
___________________, 1997.
ATTEST: PATRIOT BANK CORP.
______________________________ By: __________________________
Joseph W. Major President
and Chief Operating
Officer
WITNESS:
- ----------------------------- ------------------------------
Robert G. Philips
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Exhibit 10.6
PATRIOT BANK
EMPLOYMENT AGREEMENT
AS AMENDED AND RESTATED
This AGREEMENT as amended and restated effective May 23, 1997 was first
made effective as of December 1, 1995, by and among Patriot Bank (the "Bank"), a
commercial bank, with its principal administrative office at High and Hanover
Streets, Pottstown, Pennsylvania, Patriot Bank Corp., a corporation organized
under the laws of the State of Delaware, the holding company for the Bank (the
"Holding Company"), and Joseph W. Major ("Executive").
WHEREAS, the Bank wishes to assure itself of the services of Executive for
the period provided in this Agreement; and
WHEREAS, Executive is willing to serve in the employ of the Bank on a
full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, Executive agrees to
serve as President and Chief Executive Officer of the Bank. Executive shall
render administrative and management services to the Bank such as are
customarily performed by persons situated in a similar executive capacity.
During said period, Executive also agrees to serve, if elected, as an officer
and director of the Holding Company or any subsidiary of the Bank.
2. TERMS AND DUTIES.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
for a period of sixty (60) full calendar months thereafter. Commencing with the
Effective Date, the term of this Agreement shall be extended for one day each
day until such time as the Board of Directors of the Bank (the "Board") or the
Executive elects not to extend the term of the Agreement further by giving
written notice to the other party in accordance with Section 9 of this
Agreement, in which case the term of this Agreement shall be fixed and shall end
on the fifth anniversary of the date of such written notice.
(b) During the period of Executive's employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and
reasonable leaves of absence, Executive shall devote substantially all his
business time, attention, skill, and efforts to the faithful performance of his
duties hereunder including activities and services related to the
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organization, operation and management of the Bank and participation in
community and civic organizations; provided, however, that, with the approval of
the Board, as evidenced by a resolution of such Board, from time to time,
Executive may serve, or continue to serve, on the boards of directors of, and
hold any other offices or positions in, companies or organizations, which,
in-such Board's judgment, will not present any conflict of interest with the
Bank, or materially affect the performance of Executive's duties pursuant to
this Agreement.
(c) Notwithstanding anything herein to the contrary, (i) Executive's
employment with the Bank may be terminated by the Bank or the Executive during
the term of this Agreement, subject to the terms and conditions of this
Agreement; and (ii) nothing in this Agreement shall mandate or prohibit a
continuation of Executive's employment following the expiration of the term of
this Agreement upon such terms and conditions as the Board and Executive may
mutually agree.
(d) Upon the termination of Executive's employment with the Bank, the
daily extensions provided pursuant to Section 2(a), shall cease (if such
extensions have not previously ceased), and, if such termination is under
circumstances described in Section 4(a), the term "remaining term of the
Agreement" in Section 4(b) shall mean the period of time commencing from the
date of such termination and ending the last day of the employment period
computed with reference to all extensions prior to such termination.
3. COMPENSATION AND REIMBURSEMENT.
(a) The Bank shall pay Executive as compensation a salary of One Hundred
and Twenty-five Thousand Dollars ($125,000.00) per year ("Base Salary"). Base
Salary shall include any amounts of compensation deferred by Executive under any
qualified or unqualified plan maintained by the Bank. Such Base Salary shall be
payable weekly. During the period of this Agreement, Executive's Base Salary
shall be reviewed at least annually; the first such review will be made no later
than one year from the date of this Agreement. Such review shall be conducted by
the Board or by a Committee of the Board, delegated such responsibility by the
Board. The Committee or the Board may increase Executive's Base Salary. Any
increase in Base Salary shall become the "Base Salary" for purposes of this
Agreement. In addition to the Base Salary provided in this Section 3(a), the
Bank shall also provide Executive, at no premium cost to Executive, with all
such other benefits as are provided uniformly to permanent full-time employees
of the Bank.
(b) The Bank will provide Executive with employee benefit plans,
arrangements and perquisites substantially equivalent to those in which
Executive was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, and the Bank will not,
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without Executive's prior written consent, make any changes in such plans,
arrangements or perquisites which would materially adversely affect Executive's
rights or benefits thereunder; except to the extent such changes are made
applicable to all Bank employees on a non-discriminatory basis. Without limiting
the generality of the foregoing provisions of this Subsection (b), Executive
shall be entitled to participate in or receive benefits under any employee
benefit plans including but not limited to, retirement plans, supplemental
retirement plans, pension plans, profit-sharing plans, health-and-accident
plans, medical coverage or any other employee benefit plan or arrangement made
available by the Bank in the future to its senior executives and key management
employees, subject to and on a basis consistent with the terms, conditions and
overall administration of such plans and arrangements. Executive shall be
entitled to incentive compensation and bonuses as provided in any plan of the
Bank in which Executive is eligible to participate. Nothing paid to the
Executive under any such plan or arrangement will be deemed to be in lieu of
other compensation to which the Executive is entitled under this Agreement.
(c) In addition to the Base Salary provided for by paragraph (a) of this
Section 3 and other compensation provided for by paragraph (b) of this Section
3, the Bank shall pay or reimburse Executive for all reasonable travel and other
reasonable expenses incurred by Executive performing his obligations under this
Agreement and may provide such additional compensation in such form and such
amounts as the Board may from time to time determine. The Executive shall be
provided at his option, with an automobile expense allowance or the use of a
recent model automobile which will be owned or leased by the Bank or the Holding
Company, as may be mutually agreed upon by the Executive and the Bank. All
reasonable expenses associated therewith shall be borne by the Bank.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
The provisions of this Section shall in all respects be subject to the
terms and conditions stated in Section 7.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the provisions
of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Bank or the Holding Company of Executive's full-time
employment hereunder for any reason other than a Change in Control, as defined
in Section 5(a) hereof, or Termination for Cause, as defined in Section 7
hereof, (ii) Executive's resignation from the Bank's employ upon any (A) failure
to elect or reelect or to appoint or reappoint Executive as President and Chief
Executive Officer, unless consented to by the Executive, (B) a material change
in Executive's function, duties, or responsibilities, which change would cause
Executive's position to become one of lesser responsibility, importance, or
scope from
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the position and attributes thereof described in Section 1, above, unless
consented to by Executive, (C) a relocation of Executive's principal
place of employment by more than 20 miles from its location at the effective
date of this Agreement, unless consented to by the Executive, (D) a material
reduction in the benefits and perquisites to the Executive from those being
provided as of the effective date of this Agreement, unless consented to by the
Executive, (E) a liquidation or dissolution of the Bank or Holding Company, or
(F) breach of this Agreement by the Bank. Upon the occurrence of any event
described in clauses (A), (B), (C), (D), (E) or (F), above, Executive shall have
the right to elect to terminate his employment under this Agreement by
resignation upon not less than thirty (30) days prior written notice given
within six (6) full months after the event giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8, the Bank shall be obligated to pay
Executive, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be a sum equal to the sum of. (i)
the amount of the remaining payments (or benefits) that the Executive would have
earned if he had continued his employment with the Bank during the remaining
unexpired term of this Agreement based on the Executive's Base Salary at the
Date of Termination; and (ii) the amount equal to the annual contributions that
would have been made on Executive's behalf to any employee benefit plans of the
Bank or the Holding Company during the remaining term of this Agreement based on
contributions made (on an annualized basis) at the Date of Termination At the
election of the Executive, which election is to be made within thirty (30) days
of the Executive's Date of Termination, such payments shall be made in a lump
sum or paid monthly during the remaining term of the Agreement. In the event
that no election is made, payment to Executive will be made on a monthly basis
in approximately equal installments during the remaining term of the Agreement.
Such payments shall not be reduced in the event the Executive obtains other
employment following termination of employment.
(c) Upon the occurrence of an Event of Termination, the Bank will cause
to be continued life, medical, dental and disability coverage substantially
identical to the coverage maintained by the Bank or the Holding Company for
Executive prior to his termination at no premium cost to the Executive, except
to the extent such coverage may be changed in its application to all Bank or
Holding Company employees. Such coverage shall cease upon the expiration of the
remaining term of this Agreement.
5. CHANGE IN CONTROL.
(a) No benefit shall be payable under this Section 5 unless there shall
have been Change in Control of the Bank or the Holding Company. For purposes of
this Agreement, a "Change in Control" of the Bank or Holding Company shall mean
an event of a
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nature that: (i) would be required to be reported in response to Item I
of the current report on Form 8-K, as in effect on the date hereof, pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"); or (ii) results in a Change in Control of the Bank or the
Holding Company within the meaning of the Change in Bank Control Act and the
Rules and Regulations promulgated by the Federal Deposit Insurance Corporation
("FDIC") at 12 C.F.R. ss.303.4(a) with respect to the Bank and the Board of
Governors of the Federal Reserve System ("FRB") at 12 C.F.R. ss.225.41(b) with
respect to the Holding Company, as in effect on the date hereof, or (iii)
results in a transaction requiring prior FRB approval under the Bank Holding
Company Act of 1956 and the regulations promulgated thereunder by the FRB at 12
C.F.R. ss.225.11, as in effect on the date hereof except for the Holding
Company's acquisition of the Bank; or (iv) without limitation such a Change in
Control shall be deemed to have occurred at such time as (A) any "person" (as
the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of voting securities of the Bank or the Holding Company
representing 20% or more of the Bank's or the Holding Company's outstanding
voting securities or right to acquire such securities except for any voting
securities of the Bank purchased by the Holding Company and any voting
securities purchased by any employee benefit plan of the Bank or the Holding
Company, or (B) individuals who constitute the Boarct on the date hereof (the
"Incumbent Board") cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director subsequent to the date
hereof whose election was approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board, or whose nomination for election by
the Holding Company's stockholders was approved by the same Nominating Committee
serving under an Incumbent Board, shall be, for purposes of this clause (B),
considered as though he were a member of the Incumbent Board, (C) a plan of
reorganization, merger, consolidation, sale of all or substantially all the
assets of the Bank or the Holding Company or similar transaction occurs in which
the Bank or Holding Company is not the resulting entity; provided, however, that
such an event listed above will be deemed to have occurred or to have been
effectuated upon the receipt of all required regulatory approvals not including
the lapse of any statutory waiting periods, (D) a proxy statement shall be
distributed soliciting proxies from shareholders of the Holding Company, by
someone other than the current management of the Holding Company, seeking
stockholder approval of a plan of reorganization, merger or consolidation of the
Holding Company or Bank or similar transaction with one or more corporations as
a result of which the outstanding shares of the class of securities then subject
to the plan or transaction are exchanged for or converted into cash or property
or securities not issued by the Bank or the Holding Company, or (E) a tender
offer is made for 20% or more of the voting securities of the Bank or the
Holding Company.
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(b) If a Change in Control has occurred pursuant to Section 5(a) or the
Board has determined that a Change in Control has occurred, Executive shall be
entitled to the benefits provided in paragraphs (c), and (d) of this Section 5
upon his subsequent termination of employment at any time during the term of
this Agreement due to: (1) Executive's dismissal or (2) Executive's voluntary
resignation following any demotion, loss of title, office or significant
authority or responsibility, material reduction in annual compensation or
benefits or relocation of his principal place of employment by more than 20
miles from its location immediately prior to the Change in Control, unless such
termination is because of his death, disability, retirement or Termination for
Cause.
(c) Upon Executive's entitlement to benefits pursuant to
Section 5(b), the Bank shall pay Executive, or in the event of his subsequent
death, his beneficiary or beneficiaries, or his estate, as the case may be, a
sum equal to the greater of.- (1) the payments due for the remaining term of the
Agreement; or (2) five (5) times Executive's average annual compensation for the
five (5) most recent taxable years that Executive has been employed by the Bank
or such lesser number of years in the event that Executive shall have been
employed by the Bank for less than five (5) years. Such average annual
compensation shall include Base Salary, commissions, bonuses, contributions on
Executive's behalf to any pension and/or profit sharing plan, severance
payments, retirement payments, directors or committee fees, fringe benefits paid
or to be paid to the Executive in any such years. At the election of the
Executive, which election is to be made within thirty (30) days of the Date of
Termination, such payment shall be made in a lump sum or paid in equal monthly
installments during the thirty-six (36) months following the Date of
Termination. In the event that no election is made, payment to the Executive
will be made in approximately equal installments on a monthly basis over a
period of thirty-six (36) months following the Executive's termination. Such
payments shall not be reduced in the event Executive obtains other employment
following termination of employment.
(d) Upon the Executive's entitlement to benefits pursuant to Section
5(b), the Bank will cause to be continued life, medical, dental and disability
coverage substantially identical to the coverage maintained by the Bank for
Executive prior to his severance at no premium cost to the Executive, except to
the extent that such coverage may be changed in its application for all Bank
employees on a non-discriminatory basis. Such coverage and payments shall cease
upon the expiration of sixty (60) months following the Date of Termination.
6. CHANGE OF CONTROL RELATED PROVISIONS
(a) In each calendar year that Executive is entitled to receive payments
or benefits under the provisions of his Employment Agreement with the Holding
Company and this Employment
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Agreement, the Holding Company shall determine if an excess parachute
payment (as defined in Section 4999 of the Internal Revenue Code of 1986, as
amended, and any successor provision thereto, (the "Code")) exists. Such
determination shall be made after taking any reductions permitted pursuant to
Section 28OG of the Code and the regulations thereunder. Any amount determined
to be an excess parachute payment after taking into account such reductions
shall be hereafter referred to as the "Initial Excess Parachute Payment". As
soon as practicable after a Change in Control, the Initial Excess Parachute
Payment shall be determined. Upon the Date of Termination following a Change in
Control, the Holding Company shall pay Executive, subject to applicable
withholding requirements under applicable city, state or federal law an amount
equal to:
(1) twenty (20) percent of the Initial Excess Parachute Payment (or such
other amount equal to the tax imposed under Section 4999 of the Code;
and
(2) such additional amount (tax allowance) as may be necessary to
compensate Executive for the payment by Executive of city, state and
federal income and excise taxes on the payment provided under clause
(1) and on any payments under this Clause (2). In computing such tax
allowance, the payment to be made under Clause (1) shall be multiplied
by the "gross up percentage" ("GUP"). The GUP shall be determined as
follows:
Tax Rate
GUP = _______________
I- Tax Rate
The "Tax Rate" for purposes of computing the GUP shall be the sum of
the highest marginal federal, state and city income and
employment-related tax rates, including any applicable excise tax
rates, applicable to the Executive in the year in which the payment
under Clause (1) is made.
(b) Notwithstanding the foregoing, if it shall subsequently be
determined in a final judicial determination or a final administrative
settlement to which Executive is a party that the excess parachute payment as
defined in Section 4999 of the Code, reduced as described above, is more than
the Initial Excess Parachute Payment (such different amount being hereafter
referred to as the "Determinative Excess Parachute Payment") then the Holding
Company's independent accountants shall determine the amount (the "Adjustment
Amount") the Holding Company must pay to the Executive in order to put the
Executive in the same position as the Executive would have been if the Initial
Excess Parachute Payment had been equal to the Determinative Excess Parachute
Payment. In determining the Adjustment Amount, independent accountants of the
Holding Company shall take into account any
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and all taxes (including any penalties and interest) paid by or for
Executive or refunded to Executive or for Executive's benefit. As soon as
practicable after the Adjustment Amount has been so determined, the Holding
Company shall pay the Adjustment Amount to Executive. In no event however, shall
Executive make any payment under this paragraph to the Holding Company.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of a
material loss to the Holding Company or the Bank caused by Executive's personal
dishonesty, willful misconduct, any breach of fiduciary duty involving personal
profit, intentional failure to perform stated duties, willful violation of any
law, rule or regulation (other than traffic violations or similar offenses) or
final cease-and-desist order or material breach of any provision of this
Agreement. Notwithstanding the foregoing, Executive shall not be deemed to have
been Terminated for Cause unless and until there shall have been delivered to
him a Notice of Termination which shall include a copy of a resolution duly
adopted by the affirmative vote of not less than three-fourths of the members of
the Board at a meeting of the Board called and held for that purpose (after
reasonable notice to Executive and an opportunity for him, together with
counsel, to be heard before the Board), finding that in the good faith opinion
of the Board, Executive was guilty of conduct justifying Termination for Cause
and specifying the particulars thereof in detail. The Executive shall not have
the right to receive compensation or other benefits for any period after the
Date of Termination for Cause. During the period beginning on the date of the
Notice of Termination for Cause pursuant to Section 8 hereof through the Date of
Termination for Cause, stock options and related limited rights granted to
Executive under any stock option plan shall not be exercisable nor shall any
unvested awards granted to Executive under any stock benefit plan of the Bank,
the Holding Company or any subsidiary or affiliate thereof, vest. At the Date of
Termination for Cause, such stock options and related limited rights and any
such unvested awards shall become null and void and shall not be exercisable by
or delivered to Executive at any time subsequent to such Termination for Cause.
8. NOTICE.
(a) Any purported termination by the Bank or by Executive shall be
communicated by Notice of Termination to the other party hereto. For purposes of
this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
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(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of a Termination for Cause, shall not be less
than thirty days from the date such Notice of Termination is given) provided,
however, that if a dispute exists regarding the Executive's termination, the
"Date of Termination" shall be determined in accordance with Section 8(c) of
this Agreement.
(c) If, within thirty (30) days after any Notice of Termination is
given, the party receiving such Notice of Termination notifies the other party
that a dispute exists concerning the termination, the Date of Termination shall
be the date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and
provided further that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Bank will continue to pay
Executive his Base Salary in effect when the notice giving rise to the dispute
was given until the earlier of. (1) the resolution of the dispute in accordance
with this Agreement or (2) the expiration of the remaining term of this
Agreement as determined as of the Date of Termination. Amounts paid under this
Section are in addition to all other amounts due under this Agreement and shall
not be offset against or reduce any other amounts due under this Agreement.
9. POST-TERMINATION OBLIGATIONS.
(a) All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Bank.
(b) Executive shall, upon reasonable notice, furnish such information
and assistance to the Bank as may reasonably be required by the Bank in
connection with any litigation in which it or any of its subsidiaries or
affiliates is, or may become, a party.
10. NONDISCLOSURE OF BANK BUSINESS.
Executive recognizes and acknowledges that the knowledge of the business
activities and plans for business activities of the Bank and affiliates thereof,
as it may exist from time to time, is a valuable, special and unique asset of
the business of the Bank. Executive will not, during or after the term of his
employment, disclose any knowledge of the past, present, planned or considered
business activities of the Bank or affiliates thereof to any person, firm,
corporation, or other entity for any
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reason or purpose whatsoever. Notwithstanding the foregoing, Executive
may disclose any knowledge of banking, financial and/or economic principles,
concepts or ideas which are not solely and exclusively derived from the business
plans and activities of the Bank. In the event of a breach or threatened breach
by Executive of the provisions of this Section, the Bank will be entitled to an
injunction restraining Executive from disclosing, in whole or in part, the
knowledge of the past, present, planned or considered business activities of the
Bank or affiliates thereof, or from rendering any services to any person, firm,
corporation, other entity to whom such knowledge, in whole or in part, has been
disclosed or is threatened to be disclosed. Nothing herein will be construed as
prohibiting the Bank from pursuing any other remedies available to the Bank for
such breach or threatened breach, including the recovery of damages from
Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash
or check from the general funds of the Bank. The Holding Company, however,
unconditionally guarantees payment and provision of all amounts and benefits due
hereunder to Executive and, if such amounts and benefits due from the Bank are
not timely paid or provided by the Bank, such amounts and benefits shall be paid
or provided by the Holding Company.
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the Amended and Restated Employment Agreement dated
May 23, 1997, between Executive and the Holding Company, such compensation
payments and benefits paid by the Holding Company will be subtracted from any
amounts due simultaneously to Executive under similar provisions of this
Agreement. Payments pursuant to this Agreement and the Holding Company Agreement
shall be allocated in proportion to the services rendered and time expended on
such activities by Executive as determined by the Holding Company and the Bank
on a quarterly basis.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior employment agreement between the Bank or any
predecessor of the Bank and Executive, except that this Agreement shall not
affect or operate to reduce any benefit or compensation inuring to Executive of
a kind elsewhere provided. No provision of this Agreement shall be interpreted
to mean that Executive is subject to receiving fewer benefits than those
available to him without reference to this Agreement.
13. NO ATTACHMENT.
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(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Bank and their respective successors and assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
15. LIMITATION ON PAYMENTS.
Any payments made to Executive pursuant to this Agreement, or otherwise,
are subject to and conditioned upon compliance with 12 U.S.C. ss.1828(k) and 12
C.F.R. Pt. 359.
16. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
17. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
18. GOVERNING LAW.
The validity, interpretation, performance and enforcement of this
Agreement shall be governed by the laws of the State of
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Delaware, but only to the extent not superseded unless otherwise
specified herein.
19. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by Executive within fifty
(50) miles from the location of the Bank, in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however, that
Executive shall be entitled to seek specific performance of his right to be paid
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
In the event any dispute or controversy arising under or in connection
with Executive's termination is resolved in favor of Executive, whether by
judgment, arbitration or settlement, Executive shall be entitled to the payment
of all back-pay, including salary, bonuses and any other cash compensation,
fringe benefits and any compensation and benefits due Executive under this
Agreement.
20. PAYMENT OF COSTS AND LEGAL FEES.
In the event any dispute or controversy arising under or in connection
with Executive's termination is resolved in Executive's favor, whether by
judgment, arbitration or settlement, Executive shall be entitled to the payment
of (i) all reasonable legal fees paid or incurred by Executive in resolving such
dispute or controversy, and (ii) any back-pay, including salary, bonuses and any
other cash compensation, fringe benefits and any compensation and benefits due
Executive under this Agreement.
21. INDEMNIFICATION.
The Institution shall provide Executive (including his heirs, executors
and administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense and shall indemnify Executive (and his
heirs, executors and administrators) to the fullest extent permitted under
Pennsylvania law against all expenses and liabilities reasonably incurred by him
in connection with or arising out of any action, suit or proceeding in which he
may be involved by reason of his having been a director or officer of the
Institution (whether or not he continues to be a director or officer at the time
of incurring such expenses or liabilities), such expenses and liabilities to
include, but not be limited to, judgments, court costs and attorneys' fees and
the cost of reasonable settlements.
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22. SUCCESSOR TO THE BANK.
The Bank shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank or the Holding Company,
expressly and unconditionally to assume and agree to perform the Bank's
obligations under this Agreement, in the same manner and to the same extent that
the Bank would be required to perform if no such succession or assignment had
taken place.
SIGNATURES
IN WITNESS WHEREOF, Patriot Bank and Patriot Bank Corp. have caused this
Amended and Restated Agreement to be executed and their seals to be affixed
hereunto by their duly authorized officers and directors, and Executive has
signed this Agreement, on the ________ day of _____________________, 1998.
ATTEST: PATRIOT BANK
By
- -------------------------- --------------------------------
Secretary Gary N. Gieringer for the
Entire Board of Directors
ATTEST: PATRIOT BANK CORP.
(Guarantor)
By
- -------------------------- --------------------------------
Secretary Gary N. Gieringer for the
Entire Board of Directors
WITNESS:
By
- -------------------------- --------------------------------
Joseph W. Major
13
Exhibit 10.7
PATRIOT BANK
EMPLOYMENT AGREEMENT
AS AMENDED AND RESTATED
This AGREEMENT as amended and restated effective May 23, 1997 was first
made effective as of December 1, 1995, by and among Patriot Bank (the "Bank"), a
commercial bank, with its principal administrative office at High and Hanover
Streets, Pottstown, Pennsylvania, Patriot Bank Corp., a corporation organized
under the laws of the State of Delaware, the holding company for the Bank (the
"Holding Company"), and Gary N. Gieringer ("Executive").
WHEREAS, the Bank wishes to assure itself of the services of Executive for
the period provided in this Agreement; and
WHEREAS, Executive is willing to serve in the employ of the Bank on a
full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, Executive agrees to serve
as the Chairman of the Board of Directors of the Bank. Executive shall render
administrative and management services to the Bank such as are customarily
performed by persons situated in a similar executive capacity. During said
period, Executive also agrees to serve, if elected, as an officer and director
of the Holding Company or any subsidiary of the Bank.
2. TERMS AND DUTIES.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
for a period of sixty (60) full calendar months thereafter. Commencing with the
Effective Date, the term of this Agreement shall be extended for one day each
day until such time as the Board of Directors of the Bank (the "Board") or the
Executive elects not to extend the term of the Agreement further by giving
written notice to the other party in accordance with Section 9 of this
Agreement, in which case the term of this Agreement shall be fixed and shall end
on the fifth anniversary of the date of such written notice.
(b) During the period of Executive's employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and
reasonable leaves of absence, Executive shall devote substantially all his
business time,
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attention, skill, and efforts to the faithful performance of his duties
hereunder including activities and services related to the organization,
operation and management of the Bank and participation in community and civic
organizations; provided, however, that, with the approval of the Board, as
evidenced by a resolution of such Board, from time to time, Executive may serve,
or continue to serve, on the boards of-directors of, and hold any other offices
or positions in, companies or organizations, which, in such Board's judgment,
will not present any conflict of interest with the Bank, or materially affect
the performance of Executive's duties pursuant to this Agreement.
(c) Notwithstanding anything herein to the contrary, (i) Executive's
employment with the Bank may be terminated by the Bank or the Executive during
the term of this Agreement, subject to the terms and conditions of this
Agreement; and (ii) nothing in this Agreement shall mandate or prohibit a
continuation of Executive's employment following the expiration of the term of
this Agreement upon such terms and conditions as the Board and Executive may
mutually agree.
(d) Upon the termination of Executive's employment with the Bank, the
daily extensions provided pursuant to Section 2(a), shall cease (if such
extensions have not previously ceased), and, if such termination is under
circumstances described in Section 4(a), the term "remaining term of the
Agreement" in Section 4(b) shall mean the period of time commencing from the
date of such termination and ending the last day of the employment period
computed with reference to all extensions prior to such termination.
3. COMPENSATION AND REIMBURSEMENT.
(a) The Bank shall pay Executive as compensation a salary of One Hundred
and Seventy-six Thousand Dollars ($176,000.00) per year ("Base Salary"). Base
Salary shall include any amounts of compensation deferred by Executive under any
qualified or unqualified plan maintained by the Bank. Such Base Salary shall be
payable weekly. During the period of this Agreement, Executive's Base Salary
shall be reviewed at least annually; the first such review will be made no later
than one year from the date of this Agreement. Such review shall be conducted by
the Board or by a Committee of the Board, delegated such responsibility by the
Board. The Committee or the Board may increase Executive's Base Salary. Any
increase in Base Salary shall become the "Base Salary" for purposes of this
Agreement. In addition to the Base Salary provided in this Section 3(a), the
Bank shall also provide Executive, at no premium cost to Executive, with all
such other benefits as are provided uniformly to permanent full-time employees
of the Bank.
(b) The Bank will provide Executive with employee benefit plans,
arrangements and perquisites substantially equivalent to those in which
Executive was participating or
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otherwise deriving benefit from immediately prior to the beginning of the term
of this Agreement, and the Bank will not, without Executive's prior written
consent, make any changes in such plans, arrangements or perquisites which would
materially adversely affect Executive's rights or benefits thereunder; except to
the extent such changes are made applicable to all Bank employees on a
non-discriminatory basis. Without limiting the generality of the foregoing
provisions of this Subsection (b), Executive shall be entitled to participate in
or receive benefits under any employee benefit plans including but not limited
to, retirement plans, supplemental retirement plans, pension plans,
profit-sharing plans, health-and-accident plans, medical coverage or any other
employee benefit plan or arrangement made available by the Bank in the future to
its senior executives and key management employees, subject to and on a basis
consistent with the terms, conditions and overall administration of such plans
and arrangements. Executive shall be entitled to incentive compensation and
bonuses as provided in any plan of the Bank i n which Executive is eligible to
participate. Nothing paid to the Executive under any such plan or arrangement
will be deemed to be in lieu of other compensation to which the Executive is
entitled under this Agreement.
(c) In addition to the Base Salary provided for by paragraph (a) of this
Section 3 and other compensation provided for by paragraph (b) of this Section
3, the Bank shall pay or reimburse Executive for all reasonable travel and other
reasonable expenses incurred by Executive performing his obligations under this
Agreement and may provide such additional compensation in such form and such
amounts as the Board may from time to time determine. The Executive shall be
provided at his option, with an automobile expense allowance or the use of a
recent model automobile which will be owned or leased by the Bank or the Holding
Company, as may be mutually agreed upon by the Executive and the Bank. All
reasonable expenses associated therewith shall be borne by the Bank.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
The provisions of this Section shall in all respects be subject to the
terms and conditions stated in Section 7.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the provisions
of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Bank or the Holding Company of Executive's full-time
employment hereunder for any reason other than a Change in Control, as defined
in Section 5(a) hereof, or Termination for Cause, as defined in Section 7
hereof, (11) Executive's resignation from the Bank's employ upon any (A) failure
to elect or reelect or to appoint or reappoint Executive as the Chairman of the
Board of Directors of the Bank, unless consented to by the
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Executive, (B) a material change in Executive's function, duties, or
responsibilities, which change would cause Executive's position to become one of
lesser responsibility, importance, or scope from the position and attributes
thereof described in Section 1, above, unless consented to by Executive, (C) a
relocation of Executive's principal place of employment by more than 20 miles
from its location at the effective date of this Agreement, unless consented to
by the Executive, (D) a material reduction in the benefits and perquisites to
the Executive from those being provided as of the effective date of this
Agreement, unless consented to by the Executive, (E) a liquidation or
dissolution of the Bank or Holding Company, or (F) breach of this Agreement by
the Bank. Upon the occurrence of any event described in clauses (A), (B), (C),
(D), (E) or (F), above, Executive shall have the right to elect to terminate his
employment under this Agreement by resignation upon not less than thirty (30)
days prior written notice given within six (6) full months after the event
giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8, the Bank shall be obligated to pay
Executive, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be a sum equal to the sum of. (i)
the amount of the remaining payments (or benefits) that the Executive would have
earned if he had continued his employment with the Bank during the remaining
unexpired term of this Agreement based on the Executive's Base Salary at the
Date of Termination; and (ii) the amount equal to the annual contributions that
would have been made on Executive's behalf to any employee benefit plans of the
Bank or the Holding Company during the remaining term of this Agreement based on
contributions made (on an annualized basis) at the Date of Termination At the
election of the Executive, which election is to be made within thirty (30) days
of the Executive's Date of Termination, such payments shall be made in a lump
sum or paid monthly during the remaining term of the Agreement. In the event
that no election is made, payment to Executive will be made on a monthly basis
in approximately equal installments during the remaining term of the Agreement.
Such payments shall not be reduced in the event the Executive obtains other
employment following termination of employment.
(c) Upon the occurrence of an Event of Termination, the Bank will cause
to be continued life, medical, dental and disability coverage substantially
identical to the coverage maintained by the Bank or the Holding Company for
Executive prior to his termination at no premium cost to the Executive, except
to the extent such coverage may be changed in its application to all Bank or
Holding Company employees. Such coverage shall cease upon the expiration of the
remaining term of this Agreement.
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5. CHANGE IN CONTROL.
(a) No benefit shall be payable under this Section 5 unless there shall
have been Change in Control of the Bank or the Holding Company. For purposes of
this Agreement, a "Change in Control" of the Bank or Holding Company shall mean
an event of a nature that: (i) would be required to be reported in response to
Item I of the current report on Form 8-K, as in effect on the date hereof,
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"); or (ii) results in a Change in Control of the Bank
or the Holding Company within the meaning of the Change in Bank Control Act and
the Rules and Regulations promulgated by the Federal Deposit Insurance
Corporation ("FDIC") at 12 C.F.R. ss.303.4(a) with respect to the Bank and the
Board of Governors of the Federal Reserve System ("FRB") at 12 C.F.R.
ss.225.41(b) with respect to the Holding Company, as in effect on the date
hereof; or (iii) results in a transaction requiring prior FRB approval under the
Bank Holding Company Act of 1956 and the regulations promulgated thereunder by
the FRB at 12 C.F.R. ss.225.11, as in effect on the date hereof except for the
Holding Company's acquisition of the Bank; or (iv) without limitation such a
Change in Control shall be deemed to have occurred at such time as (A) any
"person" (as the term is used in Sections 13(d) and 14(d) of the Exchange Act)
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of voting securities of the Bank or the
Holding Company representing 20% or more of the Bank's or the Holding Company's
outstanding voting securities or right to acquire such securities except for any
voting securities of the Bank purchased by the Holding Company and any voting
securities purchased by any employee benefit plan of the Bank or the Holding
Company, or (B) individuals who constitute the Board on the date hereof (the
"Incumbent Board") cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director subsequent to the date
hereof whose election was approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board, or whose nomination for election by
the Holding Company's stockholders was approved by the same Nominating Committee
serving under an Incumbent Board, shall be, for purposes of this clause (B),
considered as though he were a member of the Incumbent Board, (C) a plan of
reorganization, merger, consolidation, sale of all or substantially all the
assets of the Bank or the Holding Company or similar transaction occurs in which
the Bank or Holding Company is not the resulting entity; provided, however, that
such an event listed above will be deemed to have occurred or to have been
effectuated upon the receipt of all required regulatory approvals not including
the lapse of any statutory waiting periods, (D) a proxy statement shall be
distributed soliciting proxies from shareholders of the Holding Company, by
someone other than the current management of the Holding Company, seeking
stockholder approval of a plan of reorganization, merger or consolidation of the
Holding Company or Bank or similar transaction with one or more corporations as
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a result of which the outstanding shares of the class of securities then subject
to the plan or transaction are exchanged for or converted into cash or property
or securities not issued by the Bank or the Holding Company, or (E) a tender
offer is made for 20% or more of the voting securities of the Bank or the
Holding Company.
(b) If a Change in Control has occurred pursuant to Section 5(a) or the
Board has determined that a Change in Control has occurred, Executive shall be
entitled to the benefits provided in paragraphs (c), and (d) of this Section 5
upon his subsequent termination of employment at any time during the term of
this Agreement due to: (1) Executive's dismissal or (2) Executive's voluntary
resignation following any demotion, loss of title, office or significant
authority or responsibility, material reduction in annual compensation or
benefits or relocation of his principal place of employment by more than 20
miles from its location immediately prior to the Change in Control, unless such
termination is because of his death, disability, retirement or Termination for
Cause.
(c) Upon Executive's entitlement to benefits pursuant to Section 5(b),
the Bank shall pay Executive, or in the event of his subsequent death, his
beneficiary or beneficiaries, or his estate, as the case may be, a sum equal to
the greater of.- (1) the payments due for the remaining term of the Agreement;
or (2) five (5) times Executive's average annual compensation for the five (5)
most recent taxable years that Executive has been employed by the Bank or such
lesser number of years in the event that Executive shall have been employed by
the Bank for less than five (5) years. Such average annual compensation shall
include Base Salary, commissions, bonuses, contributions on Executive's behalf
to any pension and/or profit sharing plan, severance payments, retirement
payments, directors or committee fees, fringe benefits paid or to be paid to the
Executive in any such years. At the election of the Executive, which election is
to be made within thirty (30) days of the Date of Termination, such payment
shall be made in a lump sum or paid in equal monthly installments during the
thirty-six (36) months following the Date of Termination. In the event that no
election is made, payment to the Executive will be made in approximately equal
installments on a monthly basis over a period of thirty-six (36) months
following the Executive's termination. Such payments shall not be reduced in the
event Executive obtains other employment following termination of employment.
(d) Upon the Executive's entitlement to benefits pursuant to Section
5(b), the Bank will cause to be continued life, medical, dental and disability
coverage substantially identical to the coverage maintained by the Bank for
Executive prior to his severance at no premium cost to the Executive, except to
the extent that such coverage may be changed in its application for all Bank
employees on a non-discriminatory basis.
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Such coverage and payments shall cease upon the expiration of sixty (60) months
following the Date of Termination.
6. CHANGE OF CONTROL RELATED PROVISIONS
(a) In each calendar year that Executive is entitled to receive payments
or benefits under the provisions of his Employment Agreement with the Holding
Company and this Employment Agreement, the Holding Company shall determine if an
excess parachute payment (as defined in Section 4999 of the Internal Revenue
Code of 1986, as amended, and any successor provision thereto, (the "Code"))
exists. Such determination shall be made after taking any reductions permitted
pursuant to Section 28OG of the Code and the regulations thereunder. Any amount
determined to be an excess parachute payment after taking into account such
reductions shall be hereafter referred to as the "Initial Excess Parachute
Payment". As soon as practicable after a Change in Control, the Initial Excess
Parachute Payment shall be determined. Upon the Date of Termination following a
Change in Control, the Holding Company shall pay Executive, subject to
applicable withholding requirements under applicable city, state or federal law
an amount equal to:
(i) twenty (20) percent of the Initial Excess Parachute Payment (or
such other amount equal to the tax imposed under Section 4999 of the Code; and
(ii) such additional amount (tax allowance) as may be necessary to
compensate Executive for the payment by Executive of city, state and federal
income and excise taxes on the payment provided under clause (1) and on any
payments under this Clause (2). In computing such tax allowance, the payment to
be made under Clause (1) shall be multiplied by the "gross up percentage"
("GUP"). The GUP shall be determined as follows:
Tax Rate
GUP = --------------
1 - Tax Rate
The "Tax Rate" for purposes of computing the GUP shall be the sum of the highest
marginal federal, state and city income and employment-related tax rates,
including any applicable excise tax rates, applicable to the Executive in the
year in which the payment under Clause (1) is made.
(b) Notwithstanding the foregoing, if it shall subsequently be
determined in a final judicial determination or a final administrative
settlement to which Executive is a party that the excess parachute payment as
defined in Section 4999 of the Code, reduced as described above, is more than
the Initial Excess Parachute Payment (such different amount being hereafter
referred to as the "Determinative Excess Parachute Payment") then the Holding
Company's independent accountants shall determine the
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amount (the "Adjustment Amount") the Holding Company must pay to the Executive
in order to put the Executive in the same position as the Executive would have
been if the Initial Excess Parachute Payment had been equal to the Determinative
Excess Parachute Payment. In determining the Adjustment Amount, independent
accountants of the Holding Company shall take into account any and all taxes
(including any penalties and interest) paid by or for Executive or refunded to
Executive or for Executive's benefit. As soon as practicable after the
Adjustment Amount has been so determined, the Holding Company shall pay the
Adjustment Amount to Executive. In no event however, shall Executive make any
payment under this paragraph to the Holding Company.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of a
material loss to the Holding Company or the Bank caused by Executive's personal
dishonesty, willful misconduct, any breach of fiduciary duty involving personal
profit, intentional failure to perform stated duties, willful violation of any
law, rule or regulation (other than traffic violations or similar offenses) or
final cease-and-desist order or material breach of any provision of this
Agreement. Notwithstanding the foregoing, Executive shall not be deemed to have
been Terminated for Cause unless and until there shall have been delivered to
him a Notice of Termination which shall include a copy of a resolution duly
adopted by the affirmative vote of not less than three-fourths of the members of
the Board at a meeting of the Board called and held for that purpose (after
reasonable notice to Executive and an opportunity for him, together with
counsel, to be heard before the Board), finding that in the good faith opinion
of the Board, Executive was guilty of conduct justifying Termination for Cause
and specifying the particulars thereof in detail. The Executive shall not have
the right to receive compensation or other benefits for any period after the
Date of Termination for Cause. During the period beginning on the date of the
Notice of Termination for Cause pursuant to Section 8 hereof through the Date of
Termination for Cause, stock options and related limited rights granted to
Executive under any stock option plan shall not be exercisable nor shall any
unvested awards granted to Executive under any stock benefit plan of the Bank,
the Holding Company or any subsidiary or affiliate thereof, vest. At the Date of
Termination for Cause, such stock options and related limited rights and any
such unvested awards shall become null and void and shall not be exercisable by
or delivered to Executive at any time subsequent to such Termination for Cause.
8. NOTICE.
(a) Any purported termination by the Bank or by Executive shall be
communicated by Notice of Termination to the other party hereto. For purposes of
this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the
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specific termination provision in this Agreement relied upon and shall set forth
in reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provision so indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of a Termination for Cause, shall not be less
than thirty days from the date such Notice of Termination is given) provided,
however, that if a dispute exists regarding the Executive's termination, the
"Date of Termination" shall be determined in accordance with Section 8(c) of
this Agreement.
(c) If, within thirty (30) days after any Notice of Termination is
given, the party receiving such Notice of Termination notifies the other party
that a dispute exists concerning the termination, the Date of Termination shall
be the date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and
provided further that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Bank will continue to pay
Executive his Base Salary in effect when the notice giving rise to the dispute
was given until the earlier of. (1) the resolution of the dispute in accordance
with this Agreement or (2) the expiration of the remaining term of this
Agreement as determined as of the Date of Termination. Amounts paid under this
Section are in addition to all other amounts due under this Agreement and shall
not be offset against or reduce any other amounts due under this Agreement.
9. POST-TERMINATION OBLIGATIONS.
(a) All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Bank.
(b) Executive shall, upon reasonable notice, furnish such information
and assistance to the Bank as may reasonably be required by the Bank in
connection with any litigation in which it or any of its subsidiaries or
affiliates is, or may become, a party.
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10. NONDISCLOSURE OF BANK BUSINESS.
Executive recognizes and acknowledges that the knowledge of the business
activities and plans for business activities of the Bank and affiliates thereof,
as it may exist from time to time, is a valuable, special and unique asset of
the business of the Bank. Executive will not, during or after the term of his
employment, disclose any knowledge of the past, present, planned or considered
business activities of the Bank or affiliates thereof to any person, firm,
corporation, or other entity for any reason or purpose whatsoever.
Notwithstanding the foregoing, Executive may disclose any knowledge of banking,
financial and/or economic principles, concepts or ideas which are not solely and
exclusively derived from the business plans and activities of the Bank. In the
event of a breach or threatened breach by Executive of the provisions of this
Section, the Bank will be entitled to an injunction restraining Executive from
disclosing, in whole or in part, the knowledge of the past, present, planned or
considered business activities of the Bank or affiliates thereof, or from
rendering any services to any person, firm, corporation, other entity to whom
such knowledge, in whole or in part, has been disclosed or is threatened to be
disclosed. Nothing herein will be construed as prohibiting the Bank from
pursuing any other remedies available to the Bank for such breach or threatened
breach, including the recovery of damages from Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash
or check from the general funds of the Bank. The Holding Company, however,
unconditionally guarantees payment and provision of all amounts and benefits due
hereunder to Executive and, if such amounts and benefits due from the Bank are
not timely paid or provided by the Bank, such amounts and benefits shall be paid
or provided by the Holding Company.
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the Amended and Restated Employment Agreement dated
May 23, 1997, between Executive and the Holding Company, such compensation
payments and benefits paid by the Holding Company will be subtracted from any
amounts due simultaneously to Executive under similar provisions of this
Agreement. Payments pursuant to this Agreement and the Holding Company Agreement
shall be allocated in proportion to the services rendered and time expended on
such activities by Executive as determined by the Holding Company and the Bank
on a quarterly basis.
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12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior employment agreement between the Bank or any
predecessor of the Bank and Executive, except that this Agreement shall not
affect or operate to reduce any benefit or compensation inuring to Executive of
a kind elsewhere provided. No provision of this Agreement shall be interpreted
to mean that Executive is subject to receiving fewer benefits than those
available to him without reference to this Agreement.
13. NO ATTACHMENT.
Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(a) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Bank and their respective successors and assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
15. LIMITATION ON PAYMENTS.
Any payments made to Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
ss.1828(k) and 12 C.F.R. Pt. 359.
16. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision
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and part thereof shall to the full extent consistent with law continue in full
force and effect.
17. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
18. GOVERNING LAW.
The validity, interpretation, performance and enforcement of this Agreement
shall be governed by the laws of the State of Delaware, but only to the extent
not superseded unless otherwise specified herein.
19. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by Executive within fifty
(50) miles from the location of the Bank, in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however, that
Executive shall be entitled to seek specific performance of his right to be paid
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
In the event any dispute or controversy arising under or in connection
with Executive's termination is resolved in favor of Executive, whether by
judgment, arbitration or settlement, Executive shall be entitled to the payment
of all back-pay, including salary, bonuses and any other cash compensation,
fringe benefits and any compensation and benefits due Executive under this
Agreement.
20. PAYMENT OF COSTS AND LEGAL FEES.
In the event any dispute or controversy arising under or in connection
with Executive's termination is resolved in Executive's favor, whether by
judgment, arbitration or settlement, Executive shall be entitled to the payment
of (i) all reasonable legal fees paid or incurred by Executive in resolving such
dispute or controversy, and (ii) any back-pay, including salary, bonuses and any
other cash compensation, fringe benefits and any compensation and benefits due
Executive under this Agreement.
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21. INDEMNIFICATION.
The Institution shall provide Executive (including his heirs, executors
and administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense and shall indemnify Executive (and his
heirs, executors and administrators) to the fullest extent permitted under
Pennsylvania law against all expenses and liabilities reasonably incurred by him
in connection with or arising out of any action, suit or proceeding in which he
may be involved by reason of his having been a director or officer of the
Institution (whether or not he continues to be a director or officer at the time
of incurring such expenses or liabilities), such expenses and liabilities to
include, but not be limited to, judgments, court costs and attorneys' fees and
the cost of reasonable settlements.
22. SUCCESSOR TO THE BANK.
The Bank shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank or the Holding Company,
expressly and unconditionally to assume and agree to perform the Bank's
obligations under this Agreement, in the same manner and to the same extent that
the Bank would be required to perform if no such succession or assignment had
taken place.
SIGNATURES
IN WITNESS WHEREOF, Patriot Bank and Patriot Bank Corp. have caused this
Amended and Restated Agreement to be executed and their seals to be affixed
hereunto by their duly authorized officers and directors, and Executive has
signed this Agreement, on the 23rd day of May, 1997.
ATTEST: PATRIOT BANK
- ----------------------- By:------------------------------------
Joseph W. Major for the Entire
Board of Directors
SEAL
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ATTEST: PATRIOT BANK CORP.
(Guarantor)
- ----------------------- By:------------------------------------
Joseph W. Major for the Entire
Board of Directors
SEAL
WITNESS:
- ------------------------- -----------------------------------
Robert G. Phillips
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Exhibit 10.8
PATRIOT BANK
EMPLOYMENT AGREEMENT
AS AMENDED AND RESTATED
This AGREEMENT as amended and restated effective May 23, 1997 was first
made effective as of December 1, 1995, by and among Patriot Bank (the "Bank"), a
commercial bank, with its principal administrative office at High and Hanover
Streets, Pottstown, Pennsylvania, Patriot Bank Corp., a corporation organized
under the laws of the State of Delaware, the holding company for the Bank (the
"Holding Company"), and Richard A. Elko ("Executive").
WHEREAS, the Bank wishes to assure itself of the services of Executive for
the period provided in this Agreement; and
WHEREAS, Executive is willing to serve in the employ of the Bank on a
full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained.
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, Executive agrees to serve as
Executive Vice President and Chief Financial Officer of the Bank. Executive
shall render administrative and management services to the Bank such as are
customarily performed by persons situated in a similar executive capacity.
During said period, Executive also agrees to serve, if elected, as an officer
and director of the Holding Company or any subsidiary of the Bank.
2. TERMS AND DUTIES.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
for a period of sixty (60) full calendar months thereafter. Commencing with the
Effective Date, the term of this Agreement shall be extended for one day each
day until such time as the Board of Directors of the Bank (the "Board") or the
Executive elects not to extend the term of the Agreement further by giving
written notice to the other party in accordance with Section 9 of this
Agreement, in which case the term of this Agreement shall be fixed and shall end
on the fifth anniversary of the date of such written notice.
(b) During the period of Executive's employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and
reasonable leaves of absence, Executive shall devote substantially all his
business time,
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attention, skill, and efforts to the faithful performance of his duties
hereunder including activities and services related to the organization,
operation and management of the Bank and participation in community and civic
organizations; provided, however, that, with the approval of the Board, as
evidenced by a resolution of such Board, from time to time, Executive may serve,
or continue to serve, on the boards of directors of, and hold any other offices
or positions in, companies or organizations, which, in such Board's judgment,
will not present any conflict of interest with the Bank, or materially affect
the performance of Executive's duties pursuant to this Agreement.
(c) Notwithstanding anything herein to the contrary, (i) Executive's
employment with the Bank may be terminated by the Bank or the Executive during
the term of this Agreement, subject to the terms and conditions of this
Agreement; and (ii) nothing in this Agreement shall mandate or prohibit a
continuation of Executive's employment following the expiration of the term of
this Agreement upon such terms and conditions as the Board and Executive may
mutually agree.
(d) Upon the termination of Executive's employment with the Bank, the daily
extensions provided pursuant to Section 2(a), shall cease (if such extensions
have not previously ceased), and, if such termination is under circumstances
described in Section 4(a), the term "remaining term of the Agreement" in Section
4(b) shall mean the period of time commencing from the date of such termination
and ending the last day of the employment period computed with reference to all
extensions prior to such termination.
3. COMPENSATION AND REIMBURSEMENT.
(a) The Bank shall pay Executive as compensation a salary of One Hundred
and Ten Thousand Dollars ($110,000.00) per year ("Base Salary"). Base Salary
shall include any amounts of compensation deferred by Executive under any
qualified or unqualified plan maintained by the Bank. Such Base Salary shall be
payable weekly. During the period of this Agreement, Executive's Base Salary
shall be reviewed at least annually; the first such review will be made no later
than one year from the date of this Agreement. Such review shall be conducted by
the Board or by a Committee of the Board, delegated such responsibility by the
Board. The Committee or the Board may increase Executive's Base Salary. Any
increase in Base Salary shall become the "Base Salary" for purposes of this
Agreement. In addition to the Base Salary provided in this Section 3(a), the
Bank shall also provide Executive, at no premium cost to Executive, with all
such other benefits as are provided uniformly to permanent full-time employees
of the Bank.
(b) The Bank will provide Executive with employee benefit plans,
arrangements and perquisites substantially equivalent to those in which
Executive was participating or
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otherwise deriving benefit from immediately prior to the beginning of the term
of this Agreement, and the Bank will not, without Executive's prior written
consent, make any changes in such plans, arrangements or perquisites which would
materially adversely affect Executive's rights or benefits thereunder; except to
the extent such changes are made applicable to all Bank employees on a
non-discriminatory basis. Without limiting the generality of the foregoing
provisions of this Subsection (b), Executive shall be entitled to participate in
or receive benefits under any employee benefit plans including but not limited
to, retirement plans, supplemental retirement plans, pension plans,
profit-sharing plans, health-and-accident plans, medical coverage or any other
employee benefit plan or arrangement made available by the Bank in the future to
its senior executives and key management employees, subject to and on a basis
consistent with the terms, conditions and overall administration of such plans
and arrangements. Executive shall be entitled to incentive compensation and
bonuses as provided in any plan of the Bank in which Executive is eligible to
participate. Nothing paid to the Executive under any such plan or arrangement
will be deemed to be in lieu of other compensation to which the Executive is
entitled under this Agreement.
(c) In addition to the Base Salary provided for by paragraph (a) of this
Section 3 and other compensation provided for by paragraph (b) of this Section
3, the Bank shall pay or reimburse Executive for all reasonable travel and other
reasonable expenses incurred by Executive performing his obligations under this
Agreement and may provide such additional compensation in such form and such
amounts as the Board may from time to time determine. The Executive shall be
provided at his option, with an automobile expense allowance or the use of a
recent model automobile which will be owned or leased by the Bank or the Holding
Company, as may be mutually agreed upon by the Executive and the Bank. All
reasonable expenses associated therewith shall be borne by the Bank.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
The provisions of this Section shall in all respects be
subject to the terms and conditions stated in Section 7.
(a) Upon the occurrence of an Event of Termination (as herein
defined) during the Executive's term of employment under this Agreement, the
provisions of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Bank or the Holding Company of Executive's full-time
employment hereunder for any reason other than a Change in Control, as defined
in Section 5(a) hereof, or Termination for Cause, as defined in Section 7
hereof, (ii) Executive's resignation from the Bank's employ upon any (A) failure
to elect or reelect or to appoint or reappoint Executive as Executive Vice
President and Chief Financial Officer, unless consented to by the
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Executive, (B) a material change in Executive's function, duties, or
responsibilities, which change would cause Executive's position to become one of
lesser responsibility, importance, or scope from the position and attributes
thereof described in Section 1, above, unless consented to by Executive, (C) a
relocation of Executive's principal place of employment by more than 20 miles
from its location at the effective date of this Agreement, unless consented to
by the Executive, (D) a material reduction in the benefits and perquisites to
the Executive from those being provided as of the effective date of this
Agreement, unless consented to by the Executive, (E) a liquidation or
dissolution of the Bank or Holding Company, or (F) breach of this Agreement by
the Bank. Upon the occurrence of any event described in clauses (A), (B), (C),
(D), (E) or (F), above, Executive shall have the right to elect to terminate his
employment under this Agreement by resignation upon not less than thirty (30)
days prior written notice given within six (6) full months after the event
giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8, the Bank shall be obligated to pay
Executive, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be a sum equal to the sum of. (i)
the amount of the remaining payments (or benefits) that the Executive would have
earned if he had continued his employment with the Bank during the remaining
unexpired term of this Agreement based on the Executive's Base Salary at the
Date of Termination; and (ii) the amount equal to the annual contributions that
would have been made on Executive's behalf to any employee benefit plans of the
Bank or the Holding Company during the remaining term of this Agreement based on
contributions made (on an annualized basis) at the Date of Termination At the
election of the Executive, which election is to be made within thirty (30) days
of the Executive's Date of Termination, such payments shall be made in a lump
sum or paid monthly during the remaining term of the Agreement. In the event
that no election is made, payment to Executive will be made on a monthly basis
in approximately equal installments during the remaining term of the Agreement.
Such payments shall not be reduced in the event the Executive obtains other
employment following termination of employment.
(c) Upon the occurrence of an Event of Termination, the Bank will cause to
be continued life, medical, dental and disability coverage substantially
identical to the coverage maintained by the Bank or the Holding Company for
Executive prior to his termination at no premium cost to the Executive, except
to the extent such coverage may be changed in its application to all Bank or
Holding Company employees. Such coverage shall cease upon the expiration of the
remaining term of this Agreement.
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5. CHANGE IN CONTROL.
(a) No benefit shall be payable under this Section 5 unless there shall
have been Change in Control of the Bank or the Holding Company. For purposes of
this Agreement, a "Change in Control" of the Bank or Holding Company shall mean
an event of a nature that: (i) would be required to be reported in response to
Item I of the current report on Form 8-K, as in effect on the date hereof,
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"); or (ii) results in a Change in Control of the Bank
or the Holding Company within the meaning of the Change in Bank Control Act and
the Rules and Regulations promulgated by the Federal Deposit Insurance
Corporation ("FDIC") at 12 C.F.R. ss.303.4(a) with respect to the Bank and the
Board of Governors of the Federal Reserve System ("FRB") at 12 C.F.R.
ss.225.41(b) with respect to the Holding Company, as in effect on the date
hereof, or (iii) results in a transaction requiring prior FRB approval under the
Bank Holding Company Act of 1956 and the regulations promulgated thereunder by
the FRB at 12 C.F.R. ss.225.11, as in effect on the date hereof except for the
Holding Company's acquisition of the Bank; or (iv) without limitation such a
Change in Control shall be deemed to have occurred at such time as (A) any
"person" (as the term is used in Sections 13(d) and 14(d) of the Exchange Act)
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of voting securities of the Bank or the
Holding Company representing 20% or more of the Bank's or the Holding Company's
outstanding voting securities or right to acquire such securities except for any
voting securities of the Bank purchased by the Holding Company and any voting
securities purchased by any employee benefit plan of the Bank or the Holding
Company, or (B) individuals who constitute the Board on the date hereof (the
"Incumbent Board") cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director subsequent to the date
hereof whose election was approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board, or whose nomination for election by
the Holding Company's stockholders was approved by the same Nominating Committee
serving under an Incumbent Board, shall be, for purposes of this clause (B),
considered as though he were a member of the Incumbent Board, (C) a plan of
reorganization, merger, consolidation, sale of all or substantially all the
assets of the Bank or the Holding Company or similar transaction occurs in which
the Bank or Holding Company is not the resulting entity; provided, however, that
such an event listed above will be deemed to have occurred or to have been
effectuated upon the receipt of all required regulatory approvals not including
the lapse of any statutory waiting periods, (D) a proxy statement shall be
distributed soliciting proxies from shareholders of the Holding Company, by
someone other than the current management of the Holding Company, seeking
stockholder approval of a plan of reorganization, merger or consolidation of the
Holding Company or Bank or similar transaction with one or more corporations as
a
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result of which the outstanding shares of the class of securities then subject
to the plan or transaction are exchanged for or converted into cash or property
or securities not issued by the Bank or the Holding Company, or (E) a tender
offer is made for 20% or more of the voting securities of the Bank or the
Holding Company.
(b) If a Change in Control has occurred pursuant to Section 5(a) or the
Board has determined that a Change in Control has occurred, Executive shall be
entitled to the benefits provided in paragraphs (c), and (d) of this Section 5
upon his subsequent termination of employment at any time during the term of
this Agreement due to: (1) Executive's dismissal or (2) Executive's voluntary
resignation following any demotion, loss of title, office or significant
authority or responsibility, material reduction in annual compensation or
benefits or relocation of his principal place of employment by more than 20
miles from its location immediately prior to the Change in Control, unless such
termination is because of his death, disability, retirement or Termination for
Cause.
(c) Upon Executive's entitlement to benefits pursuant to Section 5(b), the
Bank shall pay Executive, or in the event of his subsequent death, his
beneficiary or beneficiaries, or his estate, as the case may be, a sum equal to
the greater of. (1) the payments due for the remaining term of the Agreement; or
(2) five (5) times Executive's average annual compensation for the five (5) most
recent taxable years that Executive has been employed by the Bank or such lesser
number of years in the event that Executive shall have been employed by the Bank
for less than five (5) years. Such average annual compensation shall include
Base Salary, commissions, bonuses, contributions on Executive's behalf to any
pension and/or profit sharing plan, severance payments, retirement payments,
directors or committee fees, fringe benefits paid or to be paid to the Executive
in any such years. At the election of the Executive, which election is to be
made within thirty (30) days of the Date of Termination, such payment shall be
made in a lump sum or paid in equal monthly installments during the thirty-six
(36) months following the Date of Termination. In the event that no election is
made, payment to the Executive will be made in approximately equal installments
on a monthly basis over a period of thirty-six (36) months following the
Executive's termination. Such payments shall not be reduced in the event
Executive obtains other employment following termination of employment.
(d) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Bank will cause to be continued life, medical, dental and disability
coverage substantially identical to the coverage maintained by the Bank for
Executive prior to his severance at no premium cost to the Executive, except to
the extent that such coverage may be changed in its application for all Bank
employees on a non-discriminatory basis.
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Such coverage and payments shall cease upon the expiration of sixty (60) months
following the Date of Termination.
6. CHANGE OF CONTROL RELATED PROVISIONS.
(a) In each calendar year that Executive is entitled to receive payments or
benefits under the provisions of his Employment Agreement with the Holding
Company and this Employment Agreement, the Holding Company shall determine if an
excess parachute payment (as defined in Section 4999 of the Internal Revenue
Code of 1986, as amended, and any successor provision thereto, (the "Code"))
exists. Such determination shall be made after taking any reductions permitted
pursuant to Section 28OG of the Code and the regulations thereunder. Any amount
determined to be an excess parachute payment after taking into account such
reductions shall be hereafter referred to as the "Initial Excess Parachute
Payment". As soon as practicable after a Change in Control, the Initial Excess
Parachute Payment shall be determined. Upon the Date of Termination following a
Change in Control, the Holding Company shall pay Executive, subject to
applicable withholding requirements under applicable city, state or federal law
an amount equal to:
(i) twenty (20) percent of the Initial Excess Parachute Payment (or
such other amount equal to the tax imposed under Section 4999 of the Code; and
(ii) such additional amount (tax allowance) as may be necessary to
compensate Executive for the payment by Executive of city, state and federal
income and excise taxes on the payment provided under clause (1) and on any
payments under this Clause (2). In computing such tax allowance, the payment to
be made under Clause (1) shall be multiplied by the "gross up percentage"
("GUP"). The GUP shall be determined as follows:
Tax Rate
GUP = --------------
1 - Tax Rate
The "Tax Rate" for purposes of computing the GUP shall be the sum of the highest
marginal federal, state and city income and employment-related tax rates,
including any applicable excise tax rates, applicable to the Executive in the
year in which the payment under Clause (1) is made.
(b) notwithstanding the foregoing, if it shall subsequently be determined
in a final judicial determination or a final administrative settlement to which
Executive is a party that the excess parachute payment as defined in Section
4999 of the Code, reduced as described above, is more than the Initial Excess
Parachute Payment (such different amount being hereafter referred to as the
"Determinative Excess Parachute Payment") then the Holding Company's independent
accountants shall determine the
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amount (the "Adjustment Amount") the Holding Company must pay to the Executive
in order to put the Executive in the same position as the Executive would have
been if the Initial Excess Parachute Payment had been equal to the Determinative
Excess Parachute Payment. In determining the Adjustment Amount, independent
accountants of the Holding Company shall take into account any and all taxes
(including any penalties and interest) paid by or for Executive or refunded to
Executive or for Executive's benefit. As soon as practicable after the
Adjustment Amount has been so determined, the Holding Company shall pay the
Adjustment Amount to Executive. In no event however, shall Executive make any
payment under this paragraph to the Holding Company.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of a
material loss to the Holding Company or the Bank caused by Executive's personal
dishonesty, willful misconduct, any breach of fiduciary duty involving personal
profit, intentional failure to perform stated duties, willful violation of any
law, rule or regulation (other than traffic violations or similar offenses) or
final cease-and-desist order or material breach of any provision of this
Agreement. Notwithstanding the foregoing, Executive shall not be deemed to have
been Terminated for Cause unless and until there shall have been delivered to
him a Notice of Termination which shall include a copy of a resolution duly
adopted by the affirmative vote of not less than three-fourths of the members of
the Board at a meeting of the Board called and held for that purpose (after
reasonable notice to Executive and an opportunity for him, together with
counsel, to be heard before the Board), finding that in the good faith opinion
of the Board, Executive was guilty of conduct justifying Termination for Cause
and specifying the particulars thereof in detail. The Executive shall not have
the right to receive compensation or other benefits for any period after the
Date of Termination for Cause. During the period beginning on the date of the
Notice of Termination for Cause pursuant to Section 8 hereof through the Date of
Termination for Cause, stock options and related limited rights granted to
Executive under any stock option plan shall not be exercisable nor shall any
unvested awards granted to Executive under any stock benefit plan of the Bank,
the Holding Company or any subsidiary or affiliate thereof, vest. At the Date of
Termination for Cause, such stock options and related limited rights and any
such unvested awards shall become null and void and shall not be exercisable by
or delivered to Executive at any time subsequent to such Termination for Cause.
8. NOTICE.
(a) Any purported termination by the Bank or by Executive shall be
communicated by Notice of Termination to the other party hereto. For purposes of
this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the
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specific termination provision in this Agreement relied upon and shall set forth
in reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provision so indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of a Termination for Cause, shall not be less
than thirty days from the date such Notice of Termination is given) provided,
however, that if a dispute exists regarding the Executive's termination, the
"Date of Termination" shall be determined in accordance with Section 8(c) of
this Agreement.
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination shall be the
date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and
provided further that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Bank will continue to pay
Executive his Base Salary in effect when the notice giving rise to the dispute
was given until the earlier of. (1) the resolution of the dispute in accordance
with this Agreement or (2) the expiration of the remaining term of this
Agreement as determined as of the Date of Termination. Amounts paid under this
Section are in addition to all other amounts due under this Agreement and shall
not be offset against or reduce any other amounts due under this Agreement.
9. POST-TERMINATION OBLIGATIONS.
(a) All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Bank.
(b) Executive shall, upon reasonable notice, furnish such information and
assistance to the Bank as may reasonably be required by the Bank in connection
with any litigation in which it or any of its subsidiaries or affiliates is, or
may become, a party.
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10. NONDISCLOSURE OF BANK BUSINESS.
Executive recognizes and acknowledges that the knowledge of the business
activities and plans for business activities of the Bank and affiliates thereof,
as it may exist from time to time, is a valuable, special and unique asset of
the business of the Bank. Executive will not, during or after the term of his
employment, disclose any knowledge of the past, present, planned or considered
business activities of the Bank or affiliates thereof to any person, firm,
corporation, or other entity for any reason or purpose whatsoever.
Notwithstanding the foregoing, Executive may disclose any knowledge of banking,
financial and/or economic principles, concepts or ideas which are not solely and
exclusively derived from the business plans and activities of the Bank. In the
event of a breach or threatened breach by Executive of the provisions of this
Section, the Bank will be entitled to an injunction restraining Executive from
disclosing, in whole or in part, the knowledge of the past, present, planned or
considered business activities of the Bank or affiliates thereof, or from
rendering any services to any person, firm, corporation, other entity to whom
such knowledge, in whole or in part, has been disclosed or is threatened to be
disclosed. Nothing herein will be construed as prohibiting the Bank from
pursuing any other remedies available to the Bank for such breach or threatened
breach, including the recovery of damages from Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Bank. The Holding Company, however,
unconditionally guarantees payment and provision of all amounts and benefits due
hereunder to Executive and, if such amounts and benefits due from the Bank are
not timely paid or provided by the Bank, such amounts and benefits shall be paid
or provided by the Holding Company.
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the Amended and Restated Employment Agreement dated
May 23, 1997, between Executive and the Holding Company, such compensation
payments and benefits paid by the Holding Company will be subtracted from any
amounts due simultaneously to Executive under similar provisions of this
Agreement. Payments pursuant to this Agreement and the Holding Company Agreement
shall be allocated in proportion to the services rendered and time expended on
such activities by Executive as determined by the Holding Company and the Bank
on a quarterly basis.
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12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the Bank or any
predecessor of the Bank and Executive, except that this Agreement shall not
affect or operate to reduce any benefit or compensation inuring to Executive of
a kind elsewhere provided. No provision of this Agreement shall be interpreted
to mean that Executive is subject to receiving fewer benefits than those
available to him without reference to this Agreement.
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Bank and their respective successors and assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
15. LIMITATION ON PAYMENTS.
Any payments made to Executive pursuant to this Agreement, or otherwise,
are subject to and conditioned upon compliance with 12 U.S.C. ss.1828(k) and 12
C.F.R. Pt. -')59.
16. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and
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part thereof shall to the full extent consistent with law continue in full force
and effect.
17. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
18. GOVERNING LAW.
The validity, interpretation, performance and enforcement of this Agreement
shall be governed by the laws of the State of Delaware, but only to the extent
not superseded unless otherwise specified herein.
19. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by Executive within fifty
(50) miles from the location of the Bank, in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however, that
Executive shall be entitled to seek specific performance of his right to be paid
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
In the event any dispute or controversy arising under or in connection with
Executive's termination is resolved in favor of Executive, whether by judgment,
arbitration or settlement, Executive shall be entitled to the payment of all
back-pay, including salary, bonuses and any other cash compensation, fringe
benefits and any compensation and benefits due Executive under this Agreement.
20. PAYMENT OF COSTS AND LEGAL FEES.
In the event any dispute or controversy arising under or in connection with
Executive's termination is resolved in Executive's favor, whether by judgment,
arbitration or settlement, Executive shall be entitled to the payment of (i) all
reasonable legal fees paid or incurred by Executive in resolving such dispute or
controversy, and (ii) any back-pay, including salary, bonuses and any other cash
compensation, fringe benefits and any compensation and benefits due Executive
under this Agreement.
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21. INDEMNIFICATION.
The Institution shall provide Executive (including his heirs, executors and
administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense and shall indemnify Executive (and his
heirs, executors and administrators) to the fullest extent permitted under
Pennsylvania law against all expenses and liabilities reasonably incurred by him
in connection with or arising out of any action, suit or proceeding in which he
may be involved by reason of his having been a director or officer of the
Institution (whether or not he continues to be a director or officer at the time
of incurring such expenses or liabilities), such expenses and liabilities to
include, but not be limited to, judgments, court costs and attorneys' fees and
the cost of reasonable settlements.
22. SUCCESSOR TO THE BANK.
The Bank shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank or the Holding Company,
expressly and unconditionally to assume and agree to perform the Bank's
obligations under this Agreement, in the same manner and to the same extent that
the Bank would be required to perform if no such succession or assignment had
taken place.
SIGNATURES
IN WITNESS WHEREOF, Patriot Bank and Patriot Bank Corp. have caused this
Amended and Restated Agreement to be executed and their seals to be affixed
hereunto by their duly authorized officers and directors, and Executive has
signed this Agreement, on the 23rd day of May, 1997.
ATTEST: PATRIOT BANK
_________________________ By____________________________
Secretary Gary N. Gieringer for the
Entire Board of Directors
ATTEST: PATRIOT BANK CORP.
(Guarantor)
_________________________ By____________________________
Secretary Gary N. Gieringer for the
Entire Board of Directors
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WITNESS:
- -------------------------- ------------------------------
Richard A. Elko
14
Exhibit 10.9
PATRIOT BANK
CHANGE IN CONTROL AGREEMENT
AS AMENDED AND RESTATED
This AGREEMENT as amended and restated effective May 23, 1997, was first
made effective as of December 1, 1995, by and between Patriot Bank (the "Bank"),
a commercial bank, with its principal administrative office at High and Hanover
Streets, Pottstown, Pennsylvania, Paulette A. Strunk ("Executive"), and Patriot
Bank Corp. (the "Holding Company"), a corporation organized under the laws of
the State of Delaware which is the holding company of the Bank.
WHEREAS, the Bank recognizes the substantial contribution Executive has
made to the Bank and wishes to protect Executive's position therewith for the
period provided in this Agreement; and
WHEREAS, Executive has agreed to serve in the employ of the Bank.
NOW, THEREFORE, in consideration of the contribution and responsibilities
of Executive, and upon the other terms and conditions hereinafter provided, the
parties hereto agree as follows:
1. TERM OF AGREEMENT.
The term of the Patriot Bank Change in Control Agreement (the "Agreement")
shall be deemed to have commenced as of the date first above written and shall
continue for a period of twenty-four (24) full calendar months thereafter.
Commencing on the first anniversary date of this Agreement and continuing at
each anniversary date thereafter, the Board of Directors of the Bank ("Board")
may extend the Agreement for an additional year. The Board will review the
Agreement and Executive's performance annually for purposes of determining
whether to extend the
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Agreement, and the results thereof shall be included in the minutes of the
Board's meeting.
2. CHANGE IN CONTROL.
(a) Upon the occurrence of a Change in Control of the Bank or
the Holding Company (as herein defined) followed at any time during the term of
this Agreement by the termination of Executive's employment, other than for
Cause, as defined in Section 2(c) hereof, the provisions of Section 3 shall
apply. Upon the occurrence of a Change in Control, Executive shall have the
right to elect to voluntarily terminate his employment at any time during the
term of this Agreement following any demotion, loss of title, office or
significant authority, reduction in his annual compensation or benefits, or
relocation of his principal place of employment by more than 20 miles from its
location immediately prior to the Change in Control.
(b) For purposes of this Plan, a "Change in Control" of the Bank or
Holding Company shall mean an event of a nature that: (i) would be required to
be reported in response To Item I of the current report on Form 8-K, as in
effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"); or (ii) results in a
Change in Control of the Bank or the Holding Company within the meaning of the
Change in Bank Control Act and the Rules and Regulations promulgated by the
Federal Deposit Insurance Corporation ("FDIC") at 12 C.F.R. ss.303.4(a) with
respect to the Bank and the Board of Governors of the Federal Reserve System
("FRB") at 12 C.F.R. ss.225.41(b) with respect to the Holding Company, as in
effect on the date hereof, or (iii) results in a transaction requiring prior FRB
approval under the Bank Holding Company Act of 1956 and the regulations
promulgated thereunder by the FRB at 12 C.F.R. ss.225.11, as in effect on the
date hereof except for the Holding Company's acquisition of the Bank; or (iv)
without limitation such a Change in Control shall
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be deemed to have occurred at such time as (A) any "person" (as the term is used
in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of voting securities of the Bank or the Holding Company representing
20% or more of the Bank's or the Holding Company's outstanding voting securities
or right to acquire such securities except for any voting securities of the Bank
purchased by the Holding Company and any voting securities purchased by any
employee benefit plan of the Bank or the Holding Company, or (B) individuals who
constitute the Board on the date hereof (the "Incumbent Board") cease for any
reason to constitute at least a majority thereof, provided that any person
becoming a director subsequent to the date hereof whose election was approved by
a vote of at least three-quarters of the directors comprising the Incumbent
Board, or whose nomination for election by the Holding Company's stockholders
was approved by the same Nominating Committee serving under an Incumbent Board,
shall be, for purposes of this clause (B), considered as though he were a member
of the Incumbent Board, (C) a plan of reorganization, merger, consolidation,
sale of all or substantially all the assets of the Bank or the Holding Company
or similar transaction occurs in which the Bank or Holding Company is not the
resulting entity; provided, however, that such an event listed above will be
deemed to have occurred or to have been effectuated upon the receipt of all
required regulatory approvals not including the lapse of any statutory waiting
periods, (D) a proxy statement shall be distributed soliciting proxies from
shareholders of the Holding Company, by someone other than the current
management of the Holding Company, seeking stockholder approval of a plan of
reorganization, merger or consolidation of the Holding Company or Bank or
similar transaction with one or more corporations as a result of which the
outstanding shares of the class of securities then subject to the plan or
transaction are exchanged for or converted into cash or property or securities
not issued by the Bank or the Holding Company, or (E) a tender offer is made for
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20% or more of the voting securities of the Bank or the Holding Company.
(c) Executive shall not have the right to receive termination benefits
pursuant to Section 3 hereof upon Termination for Cause. The term "Termination
for Cause" shall mean termination because of Executive's personal dishonesty,
incompetence, willful misconduct, any breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties, willful violation
of any law, rule, or regulation (other than traffic violations or similar
offenses) or final cease-and-desist order, or material breach of any provision
of this Agreement. Notwithstanding the foregoing, Executive shall not be deemed
to have been Terminated for Cause unless and until there shall have been
delivered to him a Notice of Termination which shall include a copy of a
resolution duly adopted by the affirmative vote of not less than a majority of
the members of the Board at a meeting of the Board called and held for that
purpose (after reasonable notice to Executive and an opportunity for him,
together with counsel, to be heard before the Board), finding that in the good
faith opinion of the Board, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail. The
Executive shall not have the right to receive compensation or other benefits for
any period after the Date of Termination for Cause. During the period beginning
on the date of the Notice of Termination for Cause pursuant to Section 8 hereof
through the Date of Termination for Cause, stock options and related limited
rights granted to Executive under any stock option plan shall not be exercisable
nor shall any unvested awards granted to Executive under any stock benefit plan
of the Bank, the Holding Company or any subsidiary or affiliate thereof, vest.
At the Date of Termination for Cause, such stock options and related limited
rights and any such unvested awards shall become null and void and shall not be
exercisable by or delivered to Executive at any time subsequent to such
Termination for Cause.
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3. TERMINATION BENEFITS.
(a) Upon the occurrence of a Change in Control, followed at any time
during the term of this Agreement by termination of the Executive's employment
due to: (1) Executive's dismissal or (2) Executive's voluntary termination
pursuant to Section 2(a), unless such termination is due to Termination for
Cause, the Bank and the Holding Company shall pay Executive, or in the event of
his subsequent death, his beneficiary or beneficiaries, or his estate, as the
case may be, a sum equal to two (2) times Executive's average annual
compensation for the five most recent taxable years that Executive has been
employed by the Bank or such lesser number of years in the event that Executive
shall have been employed by the Bank for less than five years. Such average
annual compensation shall include Base Salary, commissions, bonuses,
contributions on Executive's behalf to any pension and/or profit sharing plan,
severance payments, retirement payments, directors or committee fees, fringe
benefits paid or to be paid to the Executive in any such year and payment of any
expense items without accountability or business purpose or that do not meet the
Internal Revenue Service requirements for deductibility by the Bank; provided
however, that any payment under this provision and subsection 3(b) below shall
not exceed three (3) times the Executive's average annual compensation. At the
election of Executive, which election is to be made prior to a Change in
Control, such payment shall be made in a lump sum. In the event that no election
is made, payment to Executive will be made on a monthly basis in approximately
equal installments during the remaining term of this Agreement.
(b) Upon the occurrence of a Change in Control of the Bank or the
Holding Company followed at any time during the term of this Agreement by
Executive's voluntary or involuntary termination of employment, other than for
Termination for Cause, the Bank shall cause to be continued life, medical and
disability coverage substantially identical to the coverage maintained by
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the Bank or Holding Company for Executive prior to his severance, except to the
extent such coverage may be changed in its application to all Bank or Holding
Company employees on a nondiscriminatory basis. Such coverage and payments shall
cease upon the expiration of twenty-four (24) full calendar months from the Date
of Termination.
(c) Notwithstanding the preceding paragraphs of this Section 3, in no
event shall the aggregate payments or benefits to be made or afforded to
Executive under said paragraphs (the "Termination Benefits") constitute an
"excess parachute payment" under Section 28OG of the Code or any successor
thereto, and in order to avoid such a result Termination Benefits will be
reduced, if necessary, to an amount (the "Non-Triggering Amount"), the value of
which is one dollar ($1.00) less than an amount equal to three (3) times
Executive's "base amount," as determined in accordance with said Section 280G.
The allocation of the reduction required hereby among the Termination Benefits
provided by the preceding paragraphs of this Section 3 shall be determined by
Executive.
4. NOTICE OF TERMINATION.
(a) Any purported termination by the Bank or by Executive in
connection with a Change in Control shall be communicated by Notice of
Termination to the other party hereto. For purposes of this Agreement, a "Notice
of Termination" shall mean a written notice which shall indicate the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provision so indicated.
(b) "Date of Termination" shall mean the date specified in the Notice
of Termination (which, in the instance of
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Termination for Cause, shall not be less than thirty (30) days from the date
such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of
Termination is given, the party receiving such Notice of Termination notifies
the other party that a dispute exists concerning the termination, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal therefrom having expired and no appeal having been perfected)
and provided further that the Date of Termination shall be extended by a notice
of dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute in connection with a Change in
Control, in the event the Executive is terminated for reasons other than
Termination for Cause the Bank will continue to pay Executive his full
compensation in effect when the notice giving rise to the dispute was given
(including, but not limited to his annual salary) and continue him as a
participant in all compensation, benefit and insurance plans in which he was
participating when the notice of dispute was given, until the earlier of. (1)
the resolution of the dispute in accordance with this Agreement or (2) the
expiration of the remaining term of this Agreement as determined as of the Date
of Termination.
5. SOURCE OF PAYMENTS.
It is intended by the parties hereto that all payments provided in this
Agreement shall be paid in cash or check from the general funds of the Bank.
Further, the Holding Company guarantees such payment and provision of all
amounts and benefits due hereunder to Executive and, if such amounts and
benefits due from the Bank are not timely paid or provided by the Bank, such
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amounts and benefits shall be paid or provided by the Holding Company.
6. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS.
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior agreement between the Bank and Executive, except
that this Agreement shall not affect or operate to reduce any benefit or
compensation inuring to Executive of a kind elsewhere provided. No provision of
this Agreement shall be interpreted to mean that Executive is subject to
receiving fewer benefits than those available to him without reference to this
Agreement.
Nothing in this Agreement shall confer upon Executive the right to
continue in the employ of Bank or shall impose on the Bank any obligation to
employ or retain Executive in its employ for any period.
7. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive, the Bank and their respective successors and assigns.
8. MODIFICATION AND WAIVER.
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(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have
been waived, nor shall there be any estoppel against the enforcement of any
provision of this Agreement, except by written instrument of the party charged
with such waiver or estoppel. No such written waiver shall be deemed a
continuing waiver unless specifically stated therein, and each such waiver shall
operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future or as to any act
other than that
9. REGULATORY PROVISION
Any payments made to Executive pursuant to this Agreement, or otherwise,
are subject to and conditioned upon compliance with 12 U.S.C. ss.1828(k) and any
rules and regulations promulgated thereunder.
10. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
11. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement. In addition, references to the
masculine shall apply equally to the feminine.
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12. GOVERNING LAW.
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of Delaware but only to the
extent not preempted by Federal law.
13. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by Executive within fifty
(50) miles from the location of the Bank's main office, in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction; provided,
however, that Executive shall be entitled to seek specific performance of his
right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
14. PAYMENT OF COSTS AND LEGAL FEES.
All reasonable costs and legal fees paid or incurred by Executive
pursuant to any dispute or question of interpretation relating to this Agreement
shall be paid or reimbursed by the Bank (which payments are guaranteed by the
Holding Company pursuant to Section 5 hereof) if Executive is successful on the
merits pursuant to a legal judgment, arbitration or settlement.
15. INDEMNIFICATION.
The Bank shall provide Executive (including his heirs, executors and
administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, or in lieu thereof, shall indemnify
Executive (and his heirs, executors and administrators) as permitted under
federal
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law against all expenses and liabilities reasonably incurred by him in
connection with or arising out of any action, suit or proceeding in which he may
be involved by reason of his having been a director or officer of the Bank
(whether or not he continues to be a director or officer at the time of
incurring such expenses or liabilities), such expenses and liabilities to
include, but not be limited to, judgments, court costs and attorneys' fees and
the cost of reasonable settlements.
16. SUCCESSOR TO THE BANK
The Bank shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank, expressly and
unconditionally to assume and agree to perform the Bank's obligations under this
Agreement, in the same manner and to the same extent that the Bank would be
required to perform if no such succession or assignment had taken place.
SIGNATURES
IN WITNESS WHEREOF, Patriot Bank and Patriot Bank Corp. have caused this
Amended and Restated Agreement to be executed by their duly authorized officers,
and Executive has signed this Amended and Restated Agreement, on the ________
day of ________ 1998.
ATTEST: PATRIOT BANK
- --------------------------- By:------------------------------
Joseph W. Major
President and Chief Executive
Officer
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SEAL
ATTEST: PATRIOT BANK CORP.
(Guarantor)
- --------------------------- By:------------------------------
Joseph W. Major
President and Chief Operating
Officer
SEAL
WITNESS:
- --------------------------- By:------------------------------
Paulette A. Strunk
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Exhibit 10.10
PATRIOT BANK
CHANGE IN CONTROL AGREEMENT
AS AMENDED AND RESTATED
This AGREEMENT as amended and restated effective May 23, 1997, was first
made effective as of December 1, 1995, by and between Patriot Bank (the "Bank"),
a commercial bank, with its principal administrative office at High and Hanover
Streets, Pottstown, Pennsylvania, Robert G. Phillips ("Executive"), and Patriot
Bank Corp. (the "Holding Company"), a corporation organized under the laws of
the State of Delaware which is the holding company of the Bank.
WHEREAS, the Bank recognizes the substantial contribution Executive has
made to the Bank and wishes to protect Executive's position therewith for the
period provided in this Agreement; and
WHEREAS, Executive has agreed to serve in the employ of the Bank.
NOW, THEREFORE, in consideration of the contribution and responsibilities
of Executive, and upon the other terms and conditions hereinafter provided, the
parties hereto agree as follows:
1. TERM OF AGREEMENT.
The term of the Patriot Bank Change in Control Agreement (the "Agreement")
shall be deemed to have commenced as of the date first above written and shall
continue for a period of twenty-four (24) full calendar months thereafter.
Commencing on the first anniversary date of this Agreement and continuing at
each anniversary date thereafter, the Board of Directors of the Bank ("Board")
may extend the Agreement for an additional year. The Board will review the
Agreement and Executive's performance annually for purposes of determining
whether to extend the Agreement, and the results thereof shall be included in
the minutes of the Board's meeting.
2. CHANGE IN CONTROL.
(a) Upon the occurrence of a Change in Control of the Bank or the
Holding Company (as herein defined) followed at any time during the term of this
Agreement by the termination of Executive's employment, other than for Cause, as
defined in Section 2(c) hereof, the provisions of Section 3 shall apply. Upon
the occurrence of a Change in Control, Executive shall have the right to elect
to voluntarily terminate his employment at any time during the term of this
Agreement following any demotion, loss of title, office or significant
authority, reduction in his annual compensation or benefits, or relocation of
his principal
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place of employment by more than 20 miles from its location immediately prior to
the Change in Control.
(b) For purposes of this Plan, a "Change in Control" of the Bank or
Holding Company shall mean an event of a nature that: (i) would be required to
be reported in response-to Item I of the current report on Form 8-K, as in
effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"); or (ii) results in a
Change in Control of the Bank or the Holding Company within the meaning of the
Change in Bank Control Act and the Rules and Regulations promulgated by the
Federal Deposit Insurance Corporation ("FDIC") at 12 C.F.R. ss.303.4(a) with
respect to the Bank and the Board of Governors of the Federal Reserve System
("FRB") at 12 C.F.R. ss.225.41(b) with respect to the Holding Company, as in
effect on the date hereof, or (iii) results in a transaction requiring prior FRB
approval under the Bank Holding Company Act of 1956 and the regulations
promulgated thereunder by the FRB at 12 C.F.R. ss.225.11, as in effect on the
date hereof except for the Holding Company's acquisition of the Bank; or (iv)
without limitation such a Change in Control shall be deemed to have occurred at
such time as (A) any "person" (as the term is used in Sections 13(d) and 14(d)
of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of voting securities of
the Bank or the Holding Company representing 20% or more of the Bank's or the
Holding Company's outstanding voting securities or right to acquire such
securities except for any voting securities of the Bank purchased by the Holding
Company and any voting securities purchased by any employee benefit plan of the
Bank- or the Holding Company, or (B) individuals who constitute the Board on the
date hereof (the "Incumbent Board") cease for any reason to constitute at least
a majority thereof, provided that any person becoming a director subsequent to
the date hereof whose election was approved by a vote of at least three-quarters
of the directors comprising the Incumbent Board, or whose nomination for
election by the Holdine, Company's stockholders was approved by the same
Nominating Committee serving under an Incumbent Board, shall be, for purposes of
this clause (B), considered as though he were a member of the Incumbent Board,
(C) a plan of reorganization, merger, consolidation, sale of all or
substantially all the assets of the Bank or the Holding Company or similar
transaction occurs in which the Bank or Holding Company is not the resulting
entity; provided, however, that such an event listed above will be deemed to
have occurred or to have been effectuated upon the receipt of all required
regulatory approvals not including the lapse of any statutory waiting periods,
(D) a proxy statement shall be distributed soliciting proxies from shareholders
of the Holding Company, by someone other than the current management of the
Holding Company, seeking stockholder approval of a plan of reorganization,
merger or consolidation of the Holding Company or Bank or similar transaction
with one or more corporations as a result of which the outstanding shares of the
class of securities
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then subject to the plan or transaction are exchanged for or converted into cash
or property or securities not issued by the Bank or the Holding Company, or (E)
a tender offer is made for 20% or more of the voting securities of the Bank or
the Holding Company.
(c) Executive shall not have the right to receive termination benefits
pursuant to Section 3 hereof upon Termination for Cause. The term "Termination
for Cause" shall mean termination because of Executive's personal dishonesty,
incompetence, willful misconduct, any breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties, willful violation
of any law, rule, or regulation (other than traffic violations or similar
offenses) or final cease-and-desist order, or material breach of any provision
of this Agreement. Notwithstanding the foregoing, Executive shall not be deemed
to have been Terminated for Cause unless and until there shall have been
delivered to him a Notice of Termination which shall include a copy of a
resolution duly adopted by the affirmative vote of not less than a majority of
the members of the Board at a meeting of the Board called and held for that
purpose (after reasonable notice to Executive and an opportunity for him,
together with counsel, to be heard before the Board), finding that in the good
faith opinion of the Board, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail. The
Executive shall not have the right to receive compensation or other benefits for
any period after the Date of Termination for Cause. During the period beginning
on the date of the Notice of Termination for Cause pursuant to Section 8 hereof
through the Date of Termination for Cause, stock options and related limited
rights granted to Executive under any stock option plan shall not be exercisable
nor shall any unvested awards granted to Executive under any stock benefit plan
of the Bank, the Holding Company or any subsidiary or affiliate thereof, vest.
At the Date of Termination for Cause, such stock options and related limited
rights and any such unvested awards shall become null and void and shall not be
exercisable by or delivered to Executive at any time subsequent to such
Termination for Cause.
3. TERMINATION BENEFITS.
(a) Upon the occurrence of a Change in Control, followed at any time
during the term of this Agreement by termination of the Executive's employment
due to: (1) Executive's dismissal or (2) Executive's voluntary termination
pursuant to Section 2(a), unless such termination is due to Termination for
Cause, the Bank and the Holding Company shall pay Executive, or in the event of
his subsequent death, his beneficiary or beneficiaries, or his estate, as the
case may be, a sum equal to two (2) times Executive's average annual
compensation for the five most recent taxable years that Executive has been
employed by the Bank or such lesser number of years in the event that Executive
shall have been employed by the Bank for less than five
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years. Such average annual compensation shall include Base Salary, commissions,
bonuses, contributions on Executive's behalf to any pension and/or profit
sharing plan, severance payments, retirement payments, directors or committee
fees, fringe benefits paid or to be paid to the Executive in any such year and
payment of any expense items without accountability or business purpose or that
do not meet the Internal Revenue Service requirements for deductibility by the
Bank; provided however, that any payment under this provision and subsection
3(b) below shall not exceed three (3) times the Executive's average annual
compensation. At the election of Executive, which election is to be made prior
to a Change in Control, such payment shall be made in a lump sum. In the event
that no election is made, payment to Executive will be made on a monthly basis
in approximately equal installments during the remaining term of this Agreement.
(b) Upon the occurrence of a Change in Control of the Bank or the
Holding Company followed at any time during the term of this Agreement by
Executive's voluntary or involuntary termination of employment, other than for
Termination for Cause, the Bank shall cause to be continued life, medical and
disability coverage substantially identical to the coverage maintained by the
Bank or Holding Company for Executive prior to his severance, except to the
extent such coverage may be changed in its application to all Bank or Holding
Company employees on a nondiscriminatory basis. Such coverage and payments shall
cease upon the expiration of twenty-four (24) full calendar months from the Date
of Termination.
(c) Notwithstanding the preceding paragraphs of this Section 3, in no
event shall the aggregate payments or benefits to be made or afforded to
Executive under said paragraphs (the "Termination Benefits") constitute an
"excess parachute payment" under Section 28OG of the Code or any successor
thereto, and in order to avoid such a result Termination Benefits will be
reduced, if necessary, to an amount (the "Non-Triggering Amount"), the value of
which is one dollar ($1.00) less than an amount equal to three (3) times
Executive's "base amount," as determined in accordance with said Section 280G.
The allocation of the reduction required hereby among the Termination Benefits
provided by the preceding paragraphs of this Section 3 shall be determined by
Executive.
4. NOTICE OF TERMINATION.
(a) Any purported termination by the Bank or by Executive in connection
with a Change in Control shall be communicated by Notice of Termination to the
other party hereto. For purposes of this Agreement, a "Notice of Termination"
shall mean a written notice which shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of
Executive's employment under the provision so indicated.
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(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the instance of Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of Termination is
given, the party receiving such Notice of Termination notifies the other party
that a dispute exists concerning the termination, the Date of Termination shall
be the date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and
provided further that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute in connection with a Change in
Control, in the event the Executive is terminated for reasons other than
Termination for Cause the Bank will continue to pay Executive his full
compensation in effect when the notice giving rise to the dispute was given
(including, but not limited to his annual salary) and continue him as a
participant in all compensation, benefit and insurance plans in which he was
participating when the notice of dispute was given, until the earlier of: (1)
the resolution of the dispute in accordance with this Agreement or (2) the
expiration of the remaining term of this Agreement as determined as of the Date
of Termination.
5. SOURCE OF PAYMENTS.
It is intended by the parties hereto that all payments provided in this
Agreement shall be paid in cash or check from the general funds of the Bank.
Further, the Holding Company guarantees such payment and provision of all
amounts and benefits due hereunder to Executive and, if such amounts and
benefits due from the Bank are not timely paid or provided by the Bank, such
amounts and benefits shall be paid or provided by the Holding Company.
6. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior agreement between the Bank and Executive, except that
this Agreement shall not affect or operate to reduce any benefit or compensation
inuring to Executive of a kind elsewhere provided. No provision of this
Agreement shall be interpreted to mean that Executive is subject to receiving
fewer benefits than those available to him without reference to this Agreement.
Nothing in this Agreement shall confer upon Executive the right to continue
in the employ of Bank or shall impose on
5
<PAGE>
the Bank any obligation to employ or retain Executive in its employ for any
period.
7. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive, the Bank and their respective successors and assigns.
8. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future or as to any act other than that
specifically waived.
9. REGULATORY PROVISION.
Any payments made to Executive pursuant to this Agreement, or otherwise,
are subject to and conditioned upon compliance with 12 U.S.C. ss.1828(k) and any
rules and regulations promulgated thereunder.
10. SEVERABILITY.
If, for any reason, any provision of this Agreement. or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
6
<PAGE>
11. HEADINGS FOR PREFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement. In addition, references to the
masculine shall apply equally to the feminine.
12. GOVERNING LAW.
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of Delaware but only to the
extent not preempted by Federal law.
13. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by Executive within fifty
(50) miles from the location of the Bank's main office, in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction; provided,
however, that Executive shall be entitled to seek specific performance of his
right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
14. PAYMENT OF COSTS AND LEGAL FEES.
All reasonable costs and legal fees paid or incurred by Executive pursuant
to any dispute or question of interpretation relating to this Agreement shall be
paid or reimbursed by the Bank (which payments are guaranteed by the Holding
Company pursuant to Section 5 hereof) if Executive is successful on the merits
pursuant to a legal judgment, arbitration or settlement.
15. INDEMNIFICATION.
(a) The Bank shall provide Executive (including his heirs, executors
and administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, or in lieu thereof, shall indemnify
Executive (and his heirs, executors and administrators) as permitted under
federal law against all expenses and liabilities reasonably incurred by him in
connection with or arising out of any action, suit or proceeding in which he may
be involved by reason of his having been a director or officer of the Bank
(whether or not he continues to be a director or officer at the time of
incurring such expenses or liabilities), such expenses and liabilities to
include, but not be limited to, judgments, court costs and attorneys' fees and
the cost of reasonable settlements.
7
<PAGE>
16. SUCCESSOR TO THE BANK.
The Bank shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank, expressly and
unconditionally to assume and agree to perform the Bank's obligations under this
Agreement, in the same manner and to the same extent that the Bank would be
required to perform if no such succession or assignment had taken place.
SIGNATURES
IN WITNESS WHEREOF, Patriot Bank and Patriot Bank Corp. have caused this
Amended and Restated Agreement to be executed by their duly authorized officers,
and Executive has signed this Amended and Restated Agreement, on the ______ day
of ______________, 1997.
ATTEST: PATRIOT BANK
- ----------------------- By:-----------------------------------
Joseph W. Major
President and Chief Executive
Officer
SEAL
ATTEST: PATRIOT BANK CORP.
(Guarantor)
- ----------------------- By:-----------------------------------
Joseph W. Major
President and Chief Operating
Officer
SEAL
WITNESS:
- ------------------------- ----------------------------
Robert G. Phillips
8
<PAGE>
Exhibit 21.0
Subsidiaries of Patriot Bank Corp.
----------------------------------
Subsidiary Jurisdiction of Organization
---------- ----------------------------
Patriot Bank Pennsylvania
Patriot Investment Company Delaware
Marathon Management Company, Pennsylvania
Inc.
Patriot Financial Center, Inc. Pennsylvania
Patriot Commercial Leasing Pennsylvania
Co., Inc.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated January 21, 1998 accompanying the consolidated
financial statements incorporated by reference or included in the Annual Report
of Patriot Bank Corp. and Subsidiaries on Form 10-K for the year ended December
31, 1997. We hereby consent to the incorporation by reference of said report in
the Registration Statement of Patriot Bank Corp. and Subsidiaries on Form S-8
(File No. 333-13981, effective October 11, 1996).
Philadelphia, Pennsylvania
March 19, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0001000235
<NAME> Patriot Bank Corp.
<MULTIPLIER> 1,000
<CURRENCY> U.S.$
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1,000
<CASH> 2,597
<INT-BEARING-DEPOSITS> 6,417
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 343,125
<INVESTMENTS-CARRYING> 62,516
<INVESTMENTS-MARKET> 62,817
<LOANS> 422,209
<ALLOWANCE> (2,512)
<TOTAL-ASSETS> 851,500
<DEPOSITS> 289,528
<SHORT-TERM> 385,684
<LIABILITIES-OTHER> 7,138
<LONG-TERM> 218,773
0
0
<COMMON> 56
<OTHER-SE> 46,477
<TOTAL-LIABILITIES-AND-EQUITY> 851,500
<INTEREST-LOAN> 27,008
<INTEREST-INVEST> 23,048
<INTEREST-OTHER> 193
<INTEREST-TOTAL> 50,249
<INTEREST-DEPOSIT> 13,405
<INTEREST-EXPENSE> 35,807
<INTEREST-INCOME-NET> 14,442
<LOAN-LOSSES> 915
<SECURITIES-GAINS> 438
<EXPENSE-OTHER> 11,158
<INCOME-PRETAX> 4,699
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,373
<EPS-PRIMARY> .78
<EPS-DILUTED> .74
<YIELD-ACTUAL> 2.14
<LOANS-NON> 777
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,830
<CHARGE-OFFS> 276
<RECOVERIES> 43
<ALLOWANCE-CLOSE> 2,512
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,512
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0001000235
<NAME> Patriot Bank Corp.
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1.000
<CASH> 1,997
<INT-BEARING-DEPOSITS> 4,856
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 159,148
<INVESTMENTS-CARRYING> 72,710
<INVESTMENTS-MARKET> 72,722
<LOANS> 280,184
<ALLOWANCE> (1,830)
<TOTAL-ASSETS> 529,165
<DEPOSITS> 239,514
<SHORT-TERM> 145,595
<LIABILITIES-OTHER> 4,939
<LONG-TERM> 86,000
0
0
<COMMON> 47
<OTHER-SE> 53,070
<TOTAL-LIABILITIES-AND-EQUITY> 529,165
<INTEREST-LOAN> 18,429
<INTEREST-INVEST> 11,049
<INTEREST-OTHER> 116
<INTEREST-TOTAL> 29,594
<INTEREST-DEPOSIT> 9,895
<INTEREST-EXPENSE> 17,502
<INTEREST-INCOME-NET> 12,092
<LOAN-LOSSES> 305
<SECURITIES-GAINS> (28)
<EXPENSE-OTHER> 9,198
<INCOME-PRETAX> 3,226
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,975
<EPS-PRIMARY> .39
<EPS-DILUTED> .39
<YIELD-ACTUAL> 3.01
<LOANS-NON> 568,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,702
<CHARGE-OFFS> 177
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 1,830
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,855
</TABLE>
PATRIOT BANK CORP.
High & Hanover Streets
Pottstown, Pennsylvania 19464
(610) 323-1500
March 20, 1998
Fellow Stockholders:
You are cordially invited to attend the annual meeting of stockholders (the
"Annual Meeting") of Patriot Bank Corp. and subsidiaries (the "Company"), which
will be held on April 23, 1998, at 2:00 p.m., Eastern Standard Time, at
Brookside, Prospect and Adams Streets, Pottstown, Pennsylvania.
The attached notice of the annual meeting and the proxy statement describe the
formal business to be transacted at the annual meeting. Directors and officers
of the Company, as well as a representative of Grant Thornton LLP, the Company's
independent auditors for 1997, will be present at the Annual Meeting to respond
to any questions that our stockholders may have regarding the business to be
transacted.
The Board of Directors of the Company has determined that the matters to be
considered at the Annual Meeting are in the best interests of the Company and
its stockholders. For the reasons set forth in the proxy statement, the Board
unanimously recommends that you vote "FOR" each of the nominees as directors
specified under Proposal 1 and "FOR" Proposals 2 and 3.
Please sign and return the enclosed proxy card promptly. Your cooperation is
appreciated because a majority of the common stock must be represented, either
in person or by proxy, to constitute a quorum for the conduct of business.
On behalf of the Board of Directors and all of the employees of the Company, we
thank you for your continued interest and support.
Sincerely yours,
/s/ Gary N. Gieringer
-------------------------------------
Gary N. Gieringer
Chairman of the Board and
Chief Executive Officer
/s/ Joseph W. Major
-------------------------------------
Joseph W. Major
President, Chief
Operating Officer and Director
<PAGE>
PATRIOT BANK CORP.
High & Hanover Streets
Pottstown, Pennsylvania 19464
(610) 323-1500
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held on April 23, 1998
------------------------
NOTICE IS HEREBY GIVEN that the annual meeting of stockholders (the "Annual
Meeting") of Patriot Bank Corp. (the "Company") will be held on April 23, 1998,
at 2:00 p.m., Eastern Standard Time, at Brookside, Prospect and Adams Streets,
Pottstown, Pennsylvania.
The purpose of the Annual Meeting is to consider and vote upon the
following matters:
1. The election of two directors for terms of three years each or
until their successors are elected and qualified;
2. The approval of the Employee Stock Purchase Plan of the Company;
3. The ratification of the appointment of KPMG Peat Marwick LLP as
independent auditors of the Company for the fiscal year ending December 31,
1998; and
4. Such other matters as may properly come before the meeting and at
any adjournments thereof, including whether or not to adjourn the meeting.
The Board of Directors has established March 10, 1998, as the record date
for the determination of stockholders entitled to receive notice of and to vote
at the Annual Meeting and at any adjournments thereof. Only recordholders of the
common stock of the Company as of the close of business on such record date will
be entitled to vote at the Annual Meeting or any adjournments thereof. In the
event there are not sufficient votes for a quorum or to approve or ratify any of
the foregoing proposals at the time of the Annual Meeting, the Annual Meeting
may be adjourned in order to permit further solicitation of proxies by the
Company. A list of stockholders entitled to vote at the Annual Meeting will be
available at Patriot Bank, High & Hanover Streets, Pottstown, Pennsylvania
19464, for a period of ten days prior to the Annual Meeting and will also be
available at the Annual Meeting itself.
By Order of the Board of Directors
/s/ Paulette A. Strunk
-------------------------------------
PAULETTE A. STRUNK
Secretary
Pottstown, Pennsylvania
March 20, 1998
<PAGE>
PATRIOT BANK CORP.
------------------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
APRIL 23, 1998
------------------------
SOLICITATION AND VOTING OF PROXIES
This proxy statement is being furnished to stockholders of Patriot Bank
Corp. (the "Company") in connection with the solicitation by the Board of
Directors ("Board of Directors" or "Board") of proxies to be used at the annual
meeting of stockholders (the "Annual Meeting"), to be held on April 23, 1998 at
2:00 p.m. at Brookside, Prospect and Adams Streets, Pottstown, Pennsylvania and
at any adjournments thereof. The 1997 Annual Report to Stockholders, including
consolidated financial statements for the fiscal year ended December 31, 1997,
accompanies this proxy statement, which is first being mailed to recordholders
on or about March 20, 1998.
Regardless of the number of shares of common stock owned, it is important
that recordholders of a majority of the shares be represented by proxy or
present in person at the Annual Meeting. Stockholders are requested to vote by
completing the enclosed proxy card and returning it signed and dated in the
enclosed postage-paid envelope. Stockholders are urged to indicate their vote in
the spaces provided on the proxy card. Proxies solicited by the Board of
Directors of the Company will be voted in accordance with the directions given
therein. Where no instructions are indicated, signed proxy cards will be voted
FOR the election of the nominees for director named in this proxy statement, FOR
approval of the Employee Stock Purchase Plan, and FOR the ratification of KPMG
Peat Marwick LLP as independent auditors of the Company for the fiscal year
ending December 31, 1998.
Other than the matters set forth on the attached Notice of Annual Meeting
of Stockholders, the Board of Directors knows of no additional matters that will
be presented for consideration at the Annual Meeting. Execution of a proxy,
however, confers on the designated proxy holders discretionary authority to vote
the shares in accordance with their best judgment on such other business, if
any, that may properly come before the Annual Meeting and at any adjournments
thereof, including whether or not to adjourn the Annual Meeting.
A proxy may be revoked at any time prior to its exercise by filing a
written notice of revocation with the Secretary of the Company, by delivering to
the Company a duly executed proxy bearing a later date, or by attending the
Annual Meeting and voting in person. However, if you are a stockholder whose
shares are not registered in your own name, you will need appropriate
documentation from your recordholder to vote personally at the Annual Meeting.
The cost of solicitation of proxies on behalf of management will be borne
by the Company. Proxies may also be solicited personally or by telephone by
directors, officers and other employees of the Company without additional
compensation therefor. The Company will also request persons, firms and
corporations holding shares in their names, or in the name of their nominees,
which are beneficially owned by others, to send proxy material to and obtain
proxies from such beneficial owners, and will reimburse such holders for their
reasonable expenses in doing so.
VOTING SECURITIES
The securities which may be voted at the Annual Meeting consist of shares
of common stock of the Company ("Common Stock"), with each share entitling its
owner to one vote on all matters to be voted on at the Annual Meeting, except as
described below. There is no cumulative voting for the election of directors.
1
<PAGE>
The close of business on March 10, 1998 has been fixed by the Board of
Directors as the record date (the "Record Date") for the determination of
stockholders of record entitled to notice of and to vote at the Annual Meeting
and at any adjournments thereof. The total number of shares of Common Stock
outstanding on the Record Date was 4,355,876 shares.
As provided in the Company's Certificate of Incorporation, recordholders of
Common Stock who beneficially own in excess of 10% of the outstanding shares of
Common Stock (the "Limit") are not entitled to any vote in respect of the shares
held in excess of the Limit. A person or entity is deemed to beneficially own
shares owned by an affiliate of, as well as, by persons acting in concert with,
such person or entity. The Company's Certificate of Incorporation authorizes the
Board of Directors (i) to make all determinations necessary to implement and
apply the Limit, including determining whether persons or entities are acting in
concert, and (ii) to demand that any person who is reasonably believed to
beneficially own stock in excess of the Limit to supply information to the
Company to enable the Board of Directors to implement and apply the Limit.
The presence, in person or by proxy, of the holders of at least a majority
of the total number of shares of Common Stock entitled to vote (after
subtracting any shares in excess of the Limit pursuant to the Company's
Certificate of Incorporation) is necessary to constitute a quorum at the Annual
Meeting. In the event there are not sufficient votes for a quorum or to approve
or ratify any proposal at the time of the Annual Meeting, the Annual Meeting may
be adjourned in order to permit the further solicitation of proxies.
As to the election of directors, the proxy card being provided by the Board
of Directors enables a stockholder to vote "FOR" the election of the nominees
proposed by the Board of Directors, or to "WITHHOLD" authority to vote for one
or more of the nominees being proposed. Under Delaware law and the Company's
bylaws, directors are elected by a plurality of votes cast, without regard to
either (i) broker non-votes, or (ii) proxies as to which authority to vote for
one or more of the nominees being proposed is withheld.
As to the approval of the Employee Stock Purchase Plan and the approval of
KPMG Peat Marwick LLP as independent auditors of the Company and all other
matters that may properly come before the Annual Meeting, by checking the
appropriate box, you may: (i) vote "FOR" the item; (ii) vote "AGAINST" the item;
or (iii) "ABSTAIN" from voting on such item. Under the Company's bylaws, unless
otherwise required by law, all such matters shall be determined by a majority of
the votes cast, without regard to either (a) broker non-votes, or (b) proxies
marked "ABSTAIN" as to that matter.
Proxies solicited hereby will be returned to the Company's transfer agent,
Registrar and Transfer Company, and will be tabulated by inspectors of election
designated by the Board of Directors, who will not be employed by, or a director
of, the Company or any of its affiliates. After the final adjournment of the
Annual Meeting, the proxies will be returned to the Company for safekeeping.
2
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information as to those persons believed by
management to be beneficial owners of more than 5% of the Company's outstanding
shares of Common Stock on the Record Date or as disclosed in certain reports
regarding such ownership filed by such persons with the Company and with the
Securities and Exchange Commission ("SEC"), in accordance with Sections 13(d)
and 13(g) of the Securities Exchange Act of 1934, as amended ("Exchange Act").
Other than those persons listed below, the Company is not aware of any person,
as such term is defined in the Exchange Act, that owns more than 5% of the
Company's Common Stock as of the Record Date.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT
TITLE OF CLASS BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
- -------------- ------------------- -------------------- --------
<S> <C> <C> <C>
Common Stock Patriot Bank 441,414(1) 10.1%
Employee Stock Ownership
Plan ("ESOP")
High & Hanover Streets
Pottstown, Pennsylvania 19464
Common Stock Peter B. Cannell & Co., Inc. 344,788(2) 7.9%
645 Madison Avenue
New York, NY 10022
Common Stock Brandes Investment 299,780(3) 6.9%
12750 High Bluff Drive
San Diego, CA 92130
</TABLE>
- ------------------
(1) Shares of Common Stock were acquired by the ESOP in the conversion. The ESOP
Committee of the Board of Directors administers the ESOP. CoreStates
Financial Corp., as successor to Meridian Trust Company, has been appointed
as the corporate trustee for the ESOP ("ESOP Trustee"). The ESOP Trustee,
subject to its fiduciary duty, must vote all allocated shares held in the
ESOP in accordance with the instructions of the participants. At March 10,
1998, 84,557 shares had been allocated under the ESOP and 356,857 shares
remain unallocated. With respect to unallocated shares, such unallocated
shares will be voted by the ESOP Trustee in a manner calculated to most
accurately reflect the instructions received from participants regarding the
allocated stock so long as such vote is in accordance with the provisions of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA").
(2) Based upon an amendment to Schedule 13G filed on January 28, 1998.
(3) Based upon an amendment to Schedule 13G filed on February 10, 1998.
PROPOSALS TO BE VOTED ON AT THE MEETING
PROPOSAL 1. ELECTION OF DIRECTORS
The Board of Directors of the Company currently consists of seven (7)
directors and is divided into three classes. Each of the seven members of the
Board of Directors of the Company also presently serves as a director of the
Bank. Directors are elected for staggered terms of three years each, with the
term of office of only one of the three classes of directors expiring each year.
Directors serve until their successors are elected and qualified.
The two nominees proposed for election at this Annual Meeting are Larry V.
Thren and James B. Elliott. No person being nominated as a director is being
proposed for election pursuant to any agreement or understanding between any
such person and the Company.
In the event that any such nominee is unable to serve or declines to serve
for any reason, it is intended that the proxies will be voted for the election
of such other person as may be designated by the present Board of Directors. The
Board of Directors has no reason to believe that any of the persons named will
be unable or unwilling to serve. Unless authority to vote for the nominee is
withheld, it is intended that the shares represented by the enclosed proxy card,
if executed and returned, will be voted FOR the election of the nominees
proposed by the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE ELECTION OF THE
NOMINEES NAMED IN THIS PROXY STATEMENT.
3
<PAGE>
INFORMATION WITH RESPECT TO THE NOMINEES AND CONTINUING DIRECTORS
The following table sets forth, as of the Record Date, the names of the
nominees, continuing directors and Named Executive Officers (as defined below)
as well as their ages, a brief description of their recent business experience,
including present occupations and employment, certain directorships held by
each, the year in which each director became a director of the Bank, the year in
which their terms (or in the case of the nominees, their proposed terms) as
director of the Company expire. The table also sets forth the amount of Common
Stock and the percent thereof beneficially owned by each director and Named
Executive Officer and all directors and executive officers as a group as of the
Record Date.
<TABLE>
<CAPTION>
SHARES OF
EXPIRATION COMMON STOCK
NAME AND PRINCIPAL OCCUPATION DIRECTOR OF TERM AS BENEFICIALLY PERCENT
AT PRESENT AND FOR PAST FIVE YEARS AGE SINCE(1) DIRECTOR OWNED(2)(3)(4)(5) OF CLASS
- ---------------------------------- --- -------- ---------- ----------------- --------
<S> <C> <C> <C> <C> <C>
NOMINEES
Larry V. Thren 55 1992 2001 43,597 1.0%
Vice President of Human Resources and
Support Services, Pottstown Memorial
Medical Center since 1988.
James B. Elliott 57 1990 2001 32,171 *
Principal, Stratecon, Inc.
CONTINUING DIRECTORS
Gary N. Gieringer 57 1987 1999 83,733 1.9%
Chairman of the Board and Chief Executive
Officer of the Company since September
1995. Mr. Gieringer served as President
and Chief Executive Officer of the Bank
from 1987 until September 1995.
Leonard A. Huff 87 1951 1999 36,397 *
Retired industrial superintendent
John H. Diehl 80 1981 2000 45,837 1.1%
Retired insurance broker
Samuel N. Landis 73 1988 2000 65,197 1.5%
Retired general contractor
Joseph W. Major 42 1990 2000 100,527 2.3%
President and Chief Operating Officer of
the Company since September 1995.
President and Chief Executive Officer of
the Bank since April 1997 and prior
thereto President and Chief Operating
Officer of the Bank since September 1995.
Prior to his appointment at the Company
and the Bank, Mr. Major was a partner in
the law firm of Mauger & Major.
NAMED EXECUTIVE OFFICER WHO
IS NOT A DIRECTOR
Richard A. Elko 36 -- -- 38,904 *
Executive Vice President and Chief
Financial Officer of the Company and the
Bank since January 1996. Prior to his
appointment at the Company and the Bank,
Mr. Elko was Corporate Controller at
Sovereign Bancorp, Inc.
Stock Ownership of all Directors and -- -- -- 463,628(6) 10.4%
Executive Officers as a Group (10 persons)
</TABLE>
- ------------------
* Represents less than one percent of the outstanding Common Stock.
4
<PAGE>
(1) Includes years of service as a director of the Company's predecessor, the
Bank.
(2) Each person effectively exercises sole (or shares with spouse or other
immediate family member) voting or dispositive power as to shares reported
herein (except as noted).
(3) Includes 1,809 vested shares awarded to each outside director and 9,045,
9,045 and 2,400 vested shares awarded to Messrs. Gieringer, Major and Elko,
respectively, under the Patriot Bank Corp. 1996 Stock-Based Incentive Plan
(the "Incentive Plan"). Stock Awards granted under the Incentive Plan vest
in five equal annual installments commencing on June 7, 1997, the first
anniversary of the effective date of the stock award.
(4) Does not include 21,710 shares subject to options granted to each outside
director and 108,551, 108,551, and 65,130 shares subject to options granted
to Messrs. Gieringer, Major and Elko, respectively, under the Incentive
Plan. All options granted under the Incentive Plan become exercisable in
five equal annual installments commencing on June 7, 1997, the first
anniversary of the effective date of the grant.
(5) Does not include unvested stock awards granted under the Incentive Plan
which the holder has the right to vote. Under the Incentive Plan, 8,683
shares have been awarded to each outside director which have not yet vested,
and 43,419, 43,419, and 11,520 shares have been awarded to Messrs.
Gieringer, Major, and Elko, respectively, which have not yet vested.
(6) Does not include a total of 145,926 unvested shares awarded under the
Incentive Plan as to which voting may be directed.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD OF DIRECTORS.
The Board of Directors of the Company conducts its business through
meetings of the Board of Directors and through activities of its committees. The
Board of Directors of the Company meets monthly and may have additional meetings
as needed. During fiscal 1997, the Board of Directors of the Company held 14
meetings. All of the directors of the Company attended at least 75% of the total
number of the Company's Board meetings held and committee meetings on which such
directors served during fiscal 1997. The Board of Directors of the Company
maintains committees, the nature and composition of which are described below:
Audit Committee. The Audit Committee of the Company consists of Messrs.
Elliott, Diehl, Huff and Thren who are outside directors. The Audit Committee is
responsible for reporting to the Board on the general financial condition of the
Company and the results of the annual audit, and is responsible for ensuring
that the Company's activities are being conducted in accordance with applicable
laws and regulations. The Audit Committee met 4 times in fiscal 1997.
Nominating Committee. The Company's Nominating Committee for the 1998
Annual Meeting consists of the entire Board of Directors. The committee
considers and recommends the nominees for director to stand for election at the
Company's annual meeting of shareholders. The Company's Certificate of
Incorporation and bylaws provide for stockholder nominations of directors. These
provisions require such nominations to be made pursuant to timely notice in
writing to the Secretary of the Company. The shareholder's notice of nomination
must contain all information relating to the nominee which is required to be
disclosed by the Company's bylaws and by the Exchange Act. The Nominating
Committee met on January 22, 1998.
Compensation Committee. The Compensation Committee of the Company consists
of Messrs. Thren, Landis, Elliott, Gieringer, Major and Allen Wagner, Vice
President, Team Member Services, of the Bank. The Compensation Committee meets
to establish compensation and benefits for the executive officers and to review
the incentive compensation programs when necessary. The Compensation Committee
is also responsible for establishing certain guidelines and limits for
compensation for other salaried officers and employees of the Company. The
Compensation Committee met 5 times in fiscal 1997.
Executive Committee. The Executive Committee of the Company consists of
Messrs. Elliott, Gieringer, Major, Landis, and Thren. The Executive Committee is
responsible for conducting the business of the Company in the absence of the
entire Board. The Executive Committee met 8 times in 1997.
5
<PAGE>
Investment Committee. The Investment Committee of the Company consists of
Messrs. Elliott, Gieringer, Diehl, Landis, and Major, and Richard A. Elko, James
A. Bentley, Jr., Robert G. Phillips, Deborah L. Gibson, and Kevin R. Pyle. The
Investment Committee is responsible for oversight and direction of the Bank's
purchases of securities and the funding of such purchases. The Investment
Committee met 3 times in 1997.
Mergers and Acquisitions Committee. The Mergers and Acquisitions Committee
consists of Messrs. Thren, Gieringer, Elliott, Major, Diehl, Landis, and
Bentley. The Mergers and Acquisitions Committee is responsible for providing
guidance and direction for the consideration of potential merger and acquisition
opportunities. The Mergers and Acquisitions Committee was first created in 1998.
Legal Coordinating Committee. The Legal Coordinating Committee consists of
Messrs. Thren, Gieringer, Elliott, Major, Diehl, Landis, and Bentley. The Legal
Coordinating Committee is responsible for oversight and direction in dealing
with actual and potential legal issues, including pending and threatened claims
against the Company or the Bank. The Legal Coordinating Committee met 2 times in
1997.
Gary N. Gieringer, Chairman of the Board and Chief Executive Officer of the
Company, and Joseph W. Major, President and Chief Operating Officer of the
Company, are ex-officio members of all committees except the Audit Committee.
DIRECTORS' COMPENSATION
Directors' Fees. Non-employee directors are currently paid an annual
retainer of $16,000, plus an additional fee ranging from $2,000 to $6,000 to the
chairman of certain committees.
Incentive Plan. On June 7, 1996, stockholders approved the Patriot Bank
Corp 1996 Stock-Based Incentive Plan, under which all directors who are not also
employees of the Company are eligible to receive stock awards and options to
purchase Common Stock. Under the Incentive Plan, each outside director was
granted non-statutory options to purchase 27,137 shares of Common Stock at an
exercise price of $8.98, which was the fair market value of shares on the
effective date of the grant, as adjusted for subsequent stock dividends. Options
become exercisable in five (5) equal annual installments commencing one year
from the effective date of the grant.
EXECUTIVE COMPENSATION
The report of the Compensation Committee and the stock performance graph
shall not be deemed incorporated by reference by any general statement
incorporating by reference this proxy statement into any filing under the
Securities Act of 1933, as amended (the "Securities Act") or the Exchange Act,
except as to the extent that the Company specifically incorporates this
information by reference, and shall not otherwise be deemed filed under such
Acts.
Compensation Committee Report on Executive Compensation. Under rules
established by the Securities and Exchange Commission ("SEC"), the Company is
required to provide certain data and information in regard to the compensation
and benefits provided to the Company's Chief Executive Officer and other
executive officers of the Company. The disclosure requirements for the Chief
Executive Officer and other executive officers include the use of tables and a
report explaining the rationale and considerations that led to fundamental
compensation decisions affecting those individuals. In fulfillment of this
requirement, the Compensation Committee (the "Committee"), at the direction of
the Board of Directors, has prepared the following report for inclusion in this
proxy statement.
Compensation Policies. The Compensation Committee of the Board has
established a policy for executive compensation, taking into account both
subjective performance criteria and certain specified objective performance
measures. The purpose of the policy is to: (i) provide compensation
opportunities which are competitive with other banking institutions; (ii)
support the Company's goal setting and strategic planning process; (iii)
motivate the executive management of the Company to achieve profit and other key
goals of the institution, including but not limited to the Company's commitment
to the communities it serves, to its employees, customers and investors; (iv)
motivate the
6
<PAGE>
executive management to operate the Company in a safe and sound manner, and in
compliance with all pertinent governmental and regulatory requirements; and (v)
minimize potential overhead by designating a portion of the annual compensation
of executives as variable rather than fixed.
During the course of 1997, the Company took into account a variety of
objective and subjective criteria in evaluating the performance of the executive
management of the Company. The Committee assessed in detail the various
challenges facing the Company, both from a historical capital and operational
standpoint, and the significant competitive pressures within the Company's
trading areas. In the course of this assessment of competitive salary ranges
among other similarly situated institutions, it was noted that competitive
executive compensation packages vary in relationship to these various subjective
and objective factors. A variety of resources were utilized which provided peer
data regarding executive compensation and financial performance of the company,
which included but was not limited to the "SNL Executive Compensation Review
1997" for both Commercial Banks and Thrifts, assessments which review executive
compensation and company performance for publicly traded banks and thrifts.
Comparisons were made with institutions located within Southeastern
Pennsylvania, the Middle Atlantic Trading area, and relative to National
averages. The peer groups considered in these analyses are not necessarily
comprised of the same institutions used in the peer group for the stock
performance graph. Additionally, the Company took into account executive
compensation plans of other local non-banking companies and institutions.
In establishing an Executive Compensation Plan for 1997, the Executive
Committee of the institution established certain specific objectives for
executive management, which included the creation and execution of a strategic
business plan, strengthening of senior management, and reaching certain
financial goals based on asset size, earnings per share, net income, return on
assets and return on equity.
Additionally, the Company utilized a number of subjective elements as part
of the decision making process regarding executive compensation. The individual
skills and talents of the executive managers of the Company, including but not
limited to experience, leadership ability, planning and organizational skills,
administrative talent, vision for the future, and work ethic were given
consideration in establishing executive compensation.
Compensation of the Chief Executive Officer and President. During the
course of 1997, Mr. Gieringer, as Chief Executive Officer and Chairman, and Mr.
Major, as President and Chief Operating Officer, satisfactorily accomplished all
of the objective performance criteria of the institution, and addressed a number
of other challenges facing the Company. In addition, the Company showed growth
in asset size and earnings, and continued to report asset quality superior to
the various peer groups considered. Consistent with these various objective and
subjective measures, the compensation Committee increased the salary level for
Mr. Gieringer to $236,000, and also paid a year-end bonus of $67,298. Mr.
Major's salary was increased to $200,000 a year, plus a year-end bonus of
$79,047.
The Compensation Committee specifically noted that the bonus elements of
compensation were partially subjective in nature, and in-part based upon
satisfactory accomplishment of the objective requirements of the Company in
1997. It furthermore concluded that the payment of this compensation package was
necessary in order to meet the aforestated policies of the Company and to
maintain the continuity and high performance of management. Based on the
aforementioned surveys, total compensation to Messrs. Gieringer and Major was in
the mid range of other institutions of similar asset size. Both Mr. Gieringer
and Mr. Major have employment contracts (see "Employment Contracts").
THE COMPENSATION COMMITTEE
Larry V. Thren Gary N. Gieringer
Samuel N. Landis Joseph W. Major
James B. Elliott Allen L. Wagner
7
<PAGE>
Stock Performance Graph. The following graph shows a comparison of total
stockholder return on the Company's Common Stock, based on the market price of
the Common Stock with the cumulative total return of companies on the Nasdaq
Stock Market (U.S.) Index, the NASDAQ Banking Index, and Media General Index for
Savings Institutions for the period beginning on November 4, 1995, the day the
Company's Common Stock began trading, through December 31, 1996. The graph was
derived from a very limited period of time, and, as a result, may not be
indicative of possible future performance of the Company's Common Stock. The
data was supplied by Media General Financial Services.
[GRAPHIC]
In the printed version of the document, a line graph
appears which depicts the following plot points:
Comparison of Cumulative Total Returns for Patriot Bank Corp. Common Stock,
the Nasdaq Stock Market Index, the NASDAQ Banking Index, and the MG Index for
Savings Institutions.
SUMMARY
<TABLE>
<CAPTION>
COMPANY 12/4/95 12/29/95 6/28/96 12/31/96 6/30/97 12/31/97
- ------- -------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Patriot Bank Corp.................... 100.00 128.81 127.61 162.06 210.97 312.78
Industry Index....................... 100.00 101.94 105.86 131.61 170.70 226.78
Broad Market......................... 100.00 99.63 111.96 120.46 135.26 147.77
NASDAQ Banking Index................. 100.00 148.96 157.33 196.62 245.92 332.17
</TABLE>
Notes:
A. The lines represent annual index levels derived from compounded
daily returns that include all dividends.
B. The indexes are reweighed daily, using the market capitalization on
the previous trading day.
C. If the fiscal year-end is not a trading day, the preceding trading
day is used.
D. The index level for all the series was set to $100.00 on 12/4/95,
the date on which the Company's stock was first publicly traded.
8
<PAGE>
Summary Compensation Table. The following table shows, for the years ended
December 31, 1997, 1996 and 1995, the cash compensation paid by the Company, as
well as certain other compensation paid or accrued for those years, to the
Chairman of the Board and Chief Executive Officer, President and Chief Operating
Officer, and Executive Vice President and Chief Financial Officer of the Company
("Named Executive Officers").
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
----------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
--------------------------------- --------------------- ----------------------
OTHER RESTRICTED
ANNUAL STOCK LTIP ALL OTHER
SALARY BONUS COMPENSATION AWARDS OPTIONS PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION(1) YEAR ($)(2) ($) ($)(3) ($)(4) (#)(5) ($)(6) ($)(7)
- ------------------------------ ---- -------- ------- ------------ ---------- -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gary N. Gieringer, Chairman of 1997 $208,308 $67,298 -- -- -- -- $56,876
the Board, Chief Executive 1996 $165,539 $72,436 -- $487,614 $113,074 -- $26,554
Officer and Director 1995 $158,650 $30,000 -- -- -- -- $ 4,620
Joseph W. Major 1997 $147,788 $79,047 -- -- -- -- $43,014
President, Chief Operating 1996 $105,385 $82,696 -- $487,614 $113,074 -- $22,226
Officer and Director 1995 $ 32,256 $12,500 -- -- -- -- --
Richard A. Elko 1997 $110,000 $55,649 -- -- -- -- $17,472
Executive Vice President and 1996 $ 95,457 $52,218 -- $129,375 $ 67,843 -- --
Chief Financial Officer 1995 -- -- -- -- -- -- --
</TABLE>
- ------------------
(1) Mr. Gieringer served as President, Chief Executive Officer and Director of
the Bank from 1987 until August 1995. In August 1995, Mr. Gieringer was
appointed as Chairman of the Board and Chief Executive Officer of the
Company and the Bank. Mr. Major was appointed as President and Chief
Operating Officer of the Company and the Bank in August 1995. Mr. Elko was
appointed as Executive Vice President and Chief Financial Officer in January
1996.
(2) Includes compensation deferred at the election of Messrs. Gieringer, Major,
and Elko through the Company's 401(k) Plan.
(3) There were no (a) perquisites over the lesser of $50,000 or 10% of the
individual's total salary and bonus for the last year, (b) payments of
above-market preferential earnings on deferred compensation, (c) payments of
earnings with respect to long-term incentive plans prior to settlement or
maturation, (d) tax payment reimbursements, or (e) preferential discounts on
stock.
(4) Pursuant to the Incentive Plan, Messrs. Gieringer, Major and Elko were
awarded 54,274, 54,274 and 14,400 shares (as adjusted by subsequent stock
dividends) of Common Stock, respectively, in fiscal 1996 which had a market
value on June 7, 1996, the date of grant, of $487,614, $487,614 and
$129,375. Stock Awards granted under the Incentive Plan vest in five equal
annual installments on each anniversary of the effective date of the stock
award. As of December 31, 1997, the market value of the 54,274, 54,274 and
14,400 shares was $1,153,323, $1,153,323 and $306,000, respectively.
(5) Includes shares subject to options granted to Messrs. Gieringer, Major and
Elko under the Stock Option Plan. All options granted under the Incentive
Plan become exercisable in five equal annual installments on each
anniversary of the effective date of the grant.
(6) For 1997, 1996, and 1995, the Company had no long-term incentive plans in
existence. Accordingly, there were no payments or awards under any long-term
incentive plan.
(7) Includes 2,133, 1,583, and 531 shares allocated to Messrs. Gieringer, Major,
and Elko, respectively, for fiscal 1997 pursuant to the ESOP with a market
value of $45,326, $33,639 and $11,284, respectively, and allocations of
1,624 shares to Mr. Gieringer ($21,924 market value) and 1,588 shares to Mr.
Major ($21,438 market value) for fiscal 1996 pursuant to the ESOP. Includes
$11,550, $9,375 and $6,188 in matching and discretionary contributions by
the Company to the Company's 401(k) plan during 1997 for Messrs. Gieringer,
Major, and Elko, respectively. Such contributions for Messrs. Gieringer and
Major were $4,620 and $788, respectively, for 1996.
EMPLOYMENT AGREEMENTS
The Bank and the Company have entered into employment agreements with
Messrs. Gieringer, Major and Elko, (individually, the "Executive"). These
employment agreements are intended to ensure that the Bank and the Company will
be able to maintain a stable and competent management base. The continued
success of the Bank and the Company depends to a significant degree on the
skills and competence of Messrs. Gieringer, Major and Elko.
The employment agreements provide for a five-year term for Messrs.
Gieringer, Major and Elko. The Bank employment agreements provide that,
commencing on the first anniversary date and continuing each anniversary date
thereafter, the Board of Directors may extend the agreement for an additional
year so that the remaining term shall be five years, unless written notice of
non-renewal is given by the Board of Directors after conducting a performance
evaluation of the Executive. The terms of the Company employment agreements
shall be extended on a daily basis unless written notice of non-renewal is given
by the Board of the Company. The agreements provide that the Executive's base
9
<PAGE>
salary will be reviewed annually. The current base salaries for Messrs.
Gieringer, Major and Elko are $236,000, $200,000 and $117,500, respectively. In
addition to the base salary, the agreements provide for, among other things,
participation in stock benefits plans and other fringe benefits applicable to
executive personnel. The agreements provide for termination by the Bank or the
Company for cause as defined in the agreements at any time. In the event the
Bank or the Company chooses to terminate the Executive's employment for reasons
other than for cause, or in the event of the Executive's resignation from the
Bank and the Company upon: (i) failure to re-elect the Executive to his current
offices; (ii) a material change in the Executive's functions, duties or
responsibilities; (iii) a relocation of the Executive's principal place of
employment by more than 20 miles; (iv) a material reduction in the benefits and
perquisites provided to the Executive; (v) liquidation or dissolution of the
Bank or the Company; or (vi) a breach of the agreement by the Bank or the
Company, the Executive or, in the event of death, his beneficiary would be
entitled to receive an amount equal to the remaining base salary payments due to
the Executive and the contributions that would have been made on the Executive's
behalf to any employee benefit plans of the Bank or the Company during the
remaining term of the agreement. The Bank and the Company would also continue
and pay for the Executive's life, health and disability coverage for the
remaining term of the Agreement.
Under the agreements, if voluntary or involuntary termination follows a
change in control of the Bank or the Company, the Executive or, in the event of
the Executive's death, his beneficiary, would be entitled to a severance payment
equal to the greater of: (i) the payments due for the remaining term of the
agreement; or (ii) five times the average of the five preceding taxable years'
annual compensation. The Bank and the Company would also continue the
Executive's life, health, and disability coverage for thirty-six months.
Notwithstanding that both agreements provide for a severance payment in the
event of a change in control, the Executive would only be entitled to receive a
severance payment under one agreement. Based solely on the Compensation reported
in the Summary Compensation Table for 1997 and excluding any benefits under any
employee plan which may be payable, following a change in control and
termination of employment Messrs. Gieringer, Major and Elko would receive
approximately $1,378,028, $1,134,177, and $828,245, respectively, in severance
payments in addition to other non-cash benefits provided for under the
agreements.
Payments under the agreements in the event of a change in control may
constitute some portion of an excess parachute payment under Section 280G of the
Internal Revenue Code (the "Code") for executive officers, resulting in the
imposition of an excise tax on the recipient and denial of the deduction for
such excess amounts to the Company and the Bank.
Payments to the Executive under the Bank's agreement will be guaranteed by
the Company in the event that payments or benefits are not paid by the Bank.
Payment under the Company's agreement would be made by the Company. All
reasonable costs and legal fees paid or incurred by the Executive pursuant to
any dispute or question of interpretation relating to the Agreements shall be
paid by the Bank or Company, respectively, if the Executive is successful
pursuant to a legal judgment, arbitration or settlement. The employment
agreements also provide that the Bank and Company shall indemnify the Executive
to the fullest extent allowable under federal and Delaware law, respectively.
Incentive Plan. On June 7, 1996, the stockholders approved the Patriot
Bank Corp. 1996 Stock-Based Incentive Plan ("Incentive Plan") under which all
employees of the Company are eligible to receive awards. The Company maintains
the Incentive Plan which provides discretionary awards to officers and key
employees as determined by a committee of non-employee directors. No options
were granted under the Incentive Plan to the Named Executive Officers for fiscal
1997.
The following table provides certain information with respect to the number
of shares of Common Stock represented by outstanding options held by the Named
Executive Officers at December 31, 1997. Also reported are the values for
"in-the-money" options which represent the positive spread between the exercise
price of any such options and the closing sale price of the Common Stock at
December 31, 1997.
10
<PAGE>
FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS/SARS IN-THE-MONEY OPTION/SARS
AT FISCAL YEAR END(#) AT FISCAL YEAR END($)
---------------------------------- ----------------------------------
NAME EXERCISABLE UNEXERCISABLE(1) EXERCISABLE UNEXERCISABLE(2)
- ---- ----------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C>
Gary N. Gieringer............. 27,137 108,551 $332,971 $1,331,921
Joseph W. Major............... 27,137 108,551 $332,971 $1,331,921
Richard A. Elko............... 16,282 65,130 $199,780 $ 799,145
</TABLE>
- ------------------
(1) The options in this table have an exercise price of $8.98 and become
exercisable at an annual rate of 20% on each June 7. The options will expire
ten (10) years from the date of grant.
(2) Based on market value of the underlying stock at the fiscal year end, minus
the exercise price. The market price on December 31, 1997 was $21.25.
Supplemental Retirement Plan. The Company maintains a non-qualified
Supplemental Retirement Plan for the benefit of certain executive officers and
directors. The Supplemental Retirement Plan ("SRP") has been adopted by the
Company to provide supplemental retirement benefits to selected executives and
directors of the Company. Benefits under the SRP vest on a seven year schedule
subject to acceleration upon a change in control. The SRP provides a defined
benefit payable in fifteen annual installments of an amount which is determined
at the discretion of the Board. The participants under the SRP as determined by
the Personnel Compensation/Benefits Committee are Messrs. Gieringer, Major,
Elliott and Thren. The SRP provides for an early start to payment of the
installments in the event of disability, death prior to retirement, retirement
or a change in control. The SRP is unfunded for purposes of its tax treatment,
however, the Company has entered into certain life insurance contracts, the
proceeds of which could be used to fund the SRP in the future.
TRANSACTIONS WITH CERTAIN RELATED PERSONS
The Company's current policy provides that all loans made by the Company to
its directors and officers are made in the ordinary course of business on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons and do not
involve more than the normal risk of collectibility or present other unfavorable
features.
PROPOSAL 2. APPROVAL OF EMPLOYEE STOCK PURCHASE PLAN
In December 1997, the Board of Directors of the Company adopted the 1998
Patriot Bank Corp. Employee Stock Purchase Plan (the "Plan"), subject to
shareholder approval. The Plan has an effective date of January 1, 1998. A copy
of the Plan is attached hereto as Exhibit A. The description of the Plan
contained herein is qualified in its entirety by reference to the terms of the
Plan.
SHARES RESERVED UNDER THE PLAN
The Plan provides eligible employees of the Company and its subsidiaries
with a means to purchase, through payroll deductions, shares of Company common
stock (the "Common Stock") at a discount. The total number of shares that may be
purchased under the Plan is 250,000, subject to adjustments under certain
circumstances such as stock splits, stock dividends, recapitalization, or other
changes in the outstanding Common Stock.
ELIGIBLE PARTICIPANTS
Full-time and part-time employees of the Company or any of its subsidiaries
are eligible to participate, on a purely voluntary basis, in the Plan if they
meet certain conditions. To be eligible, an employee's customary employment must
be greater than five months in a calendar year. The employee must also have
completed three months of employment with the Company. In addition, no employee
will be permitted to purchase Common Stock under the Plan at a rate which
exceeds $25,000 at the fair market value of such stock (determined at the time
the stock is purchased) for any calendar year. Approximately 158 employees would
have been eligible to participate as of January 1, 1998.
11
<PAGE>
MATERIAL FEATURES OF THE PLAN
The Plan will be administered by the Bank's Personnel Benefits and
Compensation Committee (the "Committee"). Eligible employees participate in the
Plan through exercising options to purchase Common Stock. Options may be granted
each quarter to eligible employees and will expire on the last day of each such
quarter unless they are exercised on that date. Common Stock will be purchased
through a participant's payroll deductions. Such deductions will be at a stated
dollar amount or stated percentage of compensation determined by the participant
and permitted by the Committee (but not less than $10.00 per pay period).
Participants may purchase Common Stock at a price set by the Committee between
85% and 100% of the fair market value of the Common Stock as of the last trading
day of each quarter. The price will initially be set at 90% of the fair market
value. The fair market value of the Common Stock is determined in relation to
market price in accordance with certain procedures set forth in the Plan. The
Company may be required to recognize as compensation expense for financial
accounting purposes an amount equal to the discount at which the shares are
purchased under the Plan if the discount from the fair market value of such
shares is in excess of 5%.
Each eligible employee who elects to participate in the Plan automatically
and without any act on his or her part will be deemed to have exercised his or
her option on the last trading day of each quarter if he or she is then
employed, to the extent that the amount withheld from his or her compensation
under the Plan is sufficient to purchase, at the option price, one or more
shares of Common Stock. Any balance remaining in an employee's account after
payment of the purchase price of those whole shares will be refunded or carried
over to the next quarter at the direction of the employee. All funds received or
held by the Company under the Plan are general assets of the Company, free of
any trust or other restriction, and may be used for any corporate purposes. No
interest on such funds will be credited to or paid to any participant under the
Plan.
An option granted under the Plan shall not be transferable and will expire
upon the employee's death.
A participant may withdraw from the Plan at any time and the entire amount
credited to his or her account will be refunded. If the participant terminates
employment, the entire amount credited to his or her account will be refunded.
NEW PLAN BENEFITS
It is not possible to determine how many eligible employees will
participate in the Plan in the future. Because the Plan was not in existence in
1997, no options were granted under the Plan.
TAX TREATMENT
The Plan is intended to qualify as an employee stock purchase plan within
the meaning of Section 423 of the Internal Revenue Code of 1986, as amended (the
"Code"). Under the Code, an employee who participates in an offering under the
Plan will not realize income at the time the offering commences or when the
shares purchased under the Plan are transferred to him or her. If an employee
disposes of such shares after two years from the date the offering of such
shares commences and after one year from the date of the transfer of such shares
to him or her, the employee will be required to include in income an amount
equal to the lesser of (i) the excess, if any, of the fair market value of such
shares at the time of disposition over the purchase price paid, and (ii) the
excess, if any, of the fair market value of such shares at the time the option
was granted over the option price (determined as though the option were
exercised on the date it was granted). The employee's basis in the shares
disposed of will be increased by an amount equal to the amount so includable in
his or her income as compensation, and any gain or loss computed with reference
to such adjusted basis which is recognized at the time of the disposition will
generally be long-term capital gain or loss. In such event, the Company (or the
subsidiary by which the employee is employed) will not be entitled to any
deduction from income.
If any employee disposes of the shares purchased under the Plan within such
two-year or one-year period, the employee will be required to include in income,
as compensation for the year in which such disposition occurs, an amount equal
to the excess of the fair market value of such shares on the date of purchase
over the purchase price. The employee's basis in such shares disposed of will be
increased by an amount equal to the amount includable in his or her income as
compensation, and any gain or loss
12
<PAGE>
computed with reference to such adjusted basis which is recognized at the time
of disposition will be capital gain or loss, either short-term, mid-term, or
long-term, depending on the holding period for such shares. In the event of a
disposition within such two-year or one-year period, the Company (or the
subsidiary by which the employee is employed) will be entitled to a deduction
from income equal to the amount the employee is required to include in income as
a result of such disposition.
PLAN ADMINISTRATION AND TERMINATION
The Plan provides for administration of the Plan by the Committee. The
Board of Directors of the Company may terminate or suspend the Plan at any time
and may amend it in any respect, except that the approval of the Company's
shareholders is required for any amendment to increase the number of shares
available for purchase under the Plan, materially change the benefits provided
under the Plan, or change the definition of a "subsidiary" company. Unless
earlier terminated, the Plan will continue in effect until options have been
granted for all 250,000 shares issuable under the Plan, except that if at the
end of any purchase period the aggregate funds available for purchase of Common
Stock would purchase a greater number of shares than is available for purchase,
the number of shares that would otherwise be purchased by each participant at
the end of the purchase period will be proportionately reduced in order to
eliminate the excess. The Plan would then automatically terminate after such
purchase period. Upon expiration or termination of the Plan, any amount not
applied toward the purchase of Common Stock will be refunded to the participant.
Adoption of this proposal requires an affirmative vote by the holders of a
majority of the shares of Common Stock voted at the Annual Meeting. Any shares
not voted (whether by abstention, nonvote or otherwise) will have no effect on
the approval of the Plan.
THE DIRECTORS RECOMMEND THAT THE SHAREHOLDERS VOTE "FOR" THE APPROVAL OF
THE 1998 PATRIOT BANK CORP. EMPLOYEE STOCK PURCHASE PLAN.
PROPOSAL 3. RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Company's independent auditors for the fiscal year ended December 31,
1997 were Grant Thornton LLP. The Company's Board of Directors has appointed
KPMG Peat Marwick LLP as independent auditors for the Company for the year
ending December 31, 1998, subject to ratification of such appointment by the
shareholders.
Representatives of Grant Thornton LLP will be present at the Annual
Meeting. They will be given an opportunity to make a statement if they desire to
do so and will be available to respond to appropriate questions from
stockholders present at the Annual Meeting. Representatives of KPMG Peat Marwick
LLP will not be present at the Annual Meeting.
KPMG Peat Marwick LLP was engaged on February 26, 1998 as the Company's
independent auditors for the year ending December 31, 1998. The Company's Audit
Committee selected KPMG Peat Marwick LLP after interviewing several independent
certified public accounting firms. The Company did not consult with KPMG Peat
Marwick LLP on any matter during the Company's two most recent fiscal years.
The Company did not have any disagreements with the Company's former
accountants on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure during the Company's last
two fiscal years or any subsequent interim period. The prior accountant's
reports on the Company's financial statements for the years ended December 31,
1996 and 1997 did not contain an adverse opinion or a disclaimer of opinion, nor
were such reports qualified or modified as to uncertainty, audit scope, or
accounting principles.
Unless marked to the contrary, the shares represented by the enclosed proxy
card will be voted FOR ratification of the appointment of KPMG Peat Marwick LLP
as the independent auditors of the Company.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR RATIFICATION OF THE
APPOINTMENT OF KPMG PEAT MARWICK LLP AS THE INDEPENDENT AUDITORS OF THE COMPANY.
13
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ADDITIONAL INFORMATION
SHAREHOLDER PROPOSALS
To be considered for inclusion in the Company's proxy statement and form of
proxy relating to the 1999 Annual Meeting of Stockholders, a stockholder
proposal must be received by the Secretary of the Company at the address set
forth on the Notice of Annual Meeting of Stockholders not later than November
24, 1998. Any such proposal will be subject to 17 C.F.R. ss.240.14a-8 of the
Rules and Regulations under the Exchange Act.
NOTICE OF BUSINESS TO BE CONDUCTED AT AN ANNUAL MEETING
The bylaws of the Company provide an advance notice procedure for a
stockholder to properly bring business before an Annual Meeting. The stockholder
must give written advance notice to the Secretary of the Company not less than
ninety (90) days before the date originally fixed for such meeting; provided,
however, that in the event that less than one hundred (100) days notice or prior
public disclosure of the date of the meeting is given or made to shareholders,
notice by the stockholder to be timely must be received not later than the close
of business on the tenth day following the date on which the Company's notice to
stockholders of the annual meeting date was mailed or such public disclosure was
made. The advance notice by stockholders must include the shareholder's name and
address, as they appear on the Company's record of shareholders, a brief
description of the proposed business, the reason for conducting such business at
the Annual Meeting, the class and number of shares of the Company's capital
stock that are beneficially owned by such stockholder and any material interest
of such stockholder in the proposed business. In the case of nominations to the
Board of Directors, certain information regarding the nominee must be provided.
Nothing in this paragraph shall be deemed to require the Company to include in
its proxy statement or the proxy relating to an annual meeting any stockholder
proposal which does not meet all of the requirements for inclusion established
by the SEC in effect at the time such proposal is received.
OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE MEETING
The Board of Directors knows of no business which will be presented for
consideration at the Meeting other than as stated in the Notice of Annual
Meeting of Stockholders. If, however, other matters are properly brought before
the Annual Meeting, it is the intention of the persons named in the accompanying
proxy to vote the shares represented thereby on such matters in accordance with
their best judgment.
Whether or not you intend to be present at the Annual Meeting, you are
urged to return your proxy card promptly. If you are then present at the Annual
Meeting and wish to vote your shares in person, your original proxy may be
revoked by voting at the Annual Meeting.
By Order of the Board of Directors
/s/ Paulette A. Strunk
-------------------------------------
PAULETTE A. STRUNK
Secretary
Pottstown, Pennsylvania
March 20, 1998
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER OR NOT
YOU PLAN TO ATTEND THE MEETING, YOU ARE REQUESTED TO SIGN, DATE AND
PROMPTLY RETURN THE ACCOMPANYING PROXY CARD IN THE
ENCLOSED POSTAGE-PAID ENVELOPE.
14
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EXHIBIT A
PATRIOT BANK CORP.
EMPLOYEE STOCK PURCHASE PLAN
(Effective January 1, 1998)
A-1
<PAGE>
ARTICLE I
PURPOSE AND SCOPE OF THE PLAN
Section 1.1 PURPOSE.
The Patriot Bank Corp. Employee Stock Purchase Plan is intended to
encourage employee participation in the ownership and economic progress of the
Company.
Section 1.2 DEFINITIONS.
Unless the context clearly indicates otherwise, the following terms have
the meaning set forth below:
"Bank" means Patriot Bank, a wholly-owned subsidiary of the Company.
"Board of Directors" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended, and as the same
may be further amended from time to time, and the Treasury Regulations
promulgated thereunder.
"Committee" means the Bank's Personnel Compensation/Benefits Committee
which shall administer the Plan as provided in Section 1.3.
"Common Stock" means the common stock of the Company.
"Company" means Patriot Bank Corp.
"Compensation" means an Employee's total salary or hourly pay, as the case
may be, including bonuses, commissions and any other payment in excess of normal
salary or hourly pay.
"Continuous Service" means the period of time, uninterrupted by a
termination of employment, that an Employee has been employed by the Company or
a Subsidiary, or both, immediately preceding an Offering Date. Such period of
time shall include any leave of absence permitted or required to be taken into
account by applicable Treasury Regulations.
"Employee" means any common law employee of the Company or a Subsidiary.
"Exercise Date" means March 31, June 30, September 30 and December 31 of
each Plan Year.
"Fair Market Value" of a share of Common Stock on any given date means the
closing sale price for such shares on that date as reported by the National
Association of Securities Dealers Automated Quotations or the Bloomberg
Financial Markets System. If a closing sale price for the Common Stock for the
given date is not reported, or if there is none, the Fair Market Value will be
equal to the closing sale price on the nearest trading day preceding such date.
Notwithstanding the foregoing, if, in the Board of Directors' judgment, there
are unusual circumstances or occurrences under which the otherwise determined
Fair Market Value of the Common Stock does not represent the actual fair value
thereof, then the Fair Market Value of such Common Stock shall be determined by
the Board of Directors on the basis of such prices or market quotations as it
shall deem appropriate and fairly reflective of the then fair value of such
Common Stock.
"Leave of Absence" means, for purposes of participation in the Plan, a
person who is on leave of absence who shall be deemed to be an employee for the
first ninety (90) days of such leave of absence and such Employee's employment
shall be deemed to have terminated at the close of business on the ninetieth
(90th) day of such leave of absence unless such Employee shall have returned to
regular employment prior to the close of business on such ninetieth (90th) day.
Termination by the Company of any Employee's leave of absence, other than
termination of such leave of absence on return to employment, shall terminate an
Employee's employment for all purposes under the Plan and shall terminate such
Employee's participation in the Plan and the right to purchase Common Stock
hereunder.
"Offering Date" means January 1, April 1, July 1 and October 1 of each Plan
Year.
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"Option Period" or "period" means the period beginning on an Offering Date
and ending on the next succeeding Exercise Date.
"Option Price" means the purchase price of a share of Common Stock
hereunder as provided in Section 3.1.
"Participant" means any Employee who (i) is eligible to participate in the
Plan under Section 2.1, and (ii) elects to participate.
"Plan" means the Patriot Bank Corp. Employee Stock Purchase Plan, as the
same may be amended from time to time.
"Plan Year" means the 12-consecutive-month period beginning on January 1
and ending on the following December 31.
"Stock Purchase Account" or "Account" means an account established and
maintained in the name of each Participant to record the dollar amounts and
shares of Common Stock accumulated on his behalf from time to time.
"Stock Purchase Agreement" means the form prescribed by the Committee which
must be executed by an Employee who elects to participate in the Plan. The
proper execution and filing of such form shall constitute the grant of an option
from time to time to the Employee in accordance with the terms of this Plan
document and the terms of such form.
"Subsidiary" means any corporation (other than the Company) in an unbroken
chain of corporations beginning with the Company if, at the beginning of an
Option Period, each of the corporations other than the last corporation in the
unbroken chain owns stock possessing 50 percent or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.
Section 1.3 ADMINISTRATION OF PLAN.
The Plan shall be administered by the Committee. Subject to direction by
the Board of Directors and the express provisions of this Plan document, the
Committee shall be authorized to prescribe, amend and rescind rules and
regulations relating to the Plan and the Committee's administration thereof; to
interpret the Plan; to fix the terms of an offering under the Plan; to fix the
rate of interest to be paid on balances in Stock Purchase Accounts, if
applicable; to prescribe the maximum percentage of payroll deductions permitted
for an Option Period; to restrict participation in the Plan consistent with any
requirement of law or regulation; and to make all other determinations necessary
to the administration of the Plan, including appointment of individuals to
facilitate the day-to-day operation thereof. The Committee's determinations as
to the interpretation and operation of the Plan shall be final and conclusive.
Section 1.4 EFFECTIVE DATE OF PLAN.
The effective date of the Plan is January 1, 1998.
Section 1.5 TERMINATION OF PLAN.
The Board of Directors shall have the right to terminate the Plan at any
time. Upon any such termination, the dollar amount and shares of Common Stock,
if any, in each Participant's Account shall be distributed.
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<PAGE>
ARTICLE II
PARTICIPATION
Section 2.1 ELIGIBILITY.
Each Employee, who on an Offering Date (i) will have at least three (3)
months of continuous service with the Company and/or a Subsidiary, and (ii) will
be an Employee whose customary employment is more than five (5) months in a
calendar year, may become a Participant by executing and filing with the
Committee a Stock Purchase Agreement prior to the earlier of such Offering Date
or five business days prior to the first pay day in the applicable Option
Period. An election to participate shall continue in effect until termination of
participation occurs in accordance with Article V.
Section 2.2 PAYROLL DEDUCTIONS.
Payment for shares of Common Stock purchased under the Plan shall be made
solely by authorized payroll deduction from each payment of Compensation in
accordance with instructions received from a Participant. Deductions from
payroll shall be expressed as a whole percentage of Compensation (determined on
the first day of each Option Period) no greater than the percentage set by the
Committee, or as a fixed dollar amount (as determined by the Committee), but
shall not be less than $10.00 per pay period. The Committee may fix a maximum
percentage. A Participant may not increase or decrease the percentage or dollar
amount of deduction during an Option Period. However, a Participant may change
the percentage or dollar amount of deduction for any subsequent Option Period by
filing notice thereof with the Committee prior to the date described in Section
2.1 for filing a Stock Purchase Agreement. Amounts deducted from a Participant's
Compensation pursuant to this section shall be credited to such Participant's
Account.
Section 2.3 TRANSFER OF PAYROLL DEDUCTIONS.
All payroll deductions withheld by a Subsidiary under the Plan shall be
immediately transferred to the Company.
Section 2.4 LEAVE OF ABSENCE.
If a Participant goes on a Leave of Absence, such Participant shall have
the right to elect (i) to withdraw the balance in his Stock Purchase Account,
(ii) discontinue contributions to the Plan but remain a Participant in the Plan,
or (iii) remain a Participant in the Plan during such Leave of Absence,
authorizing deductions to be made from payments by the Company to the
Participant during such Leave of Absence and undertaking to make cash payments
to the Plan at the end of each Payroll Period to the extent that amounts payable
by the Company to such Participant are insufficient to meet such Participant's
authorized Plan deductions.
ARTICLE III
PURCHASE OF SHARES
Section 3.1 OPTION PRICE.
The Option Price per share of the Common Stock sold to Participants
hereunder shall be set by the Committee prior to the Offering Date. Under the
Code, the Option Price shall not be less than 85%, nor more than 100%, of the
Fair Market Value of such share on each Exercise Date of an Option Period. The
Option Price on the Effective Date is 90% of the Fair Market Value of the Common
Stock on an Exercise Date.
Section 3.2 PURCHASE OF SHARES.
On each Exercise Date, the amount in a Participant's Account shall be
charged with the aggregate Option Price of the largest number of whole shares of
Common Stock which can be purchased with such amount. The balance, if any, in
such Account shall be carried forward to the next succeeding Offering Period.
Section 3.3 LIMITATIONS ON PURCHASE AND GRANT.
No Participant shall purchase Common Stock hereunder in any calendar year
having a Fair Market Value of more than $25,000, provided that any such purchase
shall not exceed the limitations
A-4
<PAGE>
imposed by Code Section 423(b)(8). Further, no Participant shall be granted the
right to purchase Common Stock hereunder if, by reason of such grant, such
Participant would be deemed to possess five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company or a
Subsidiary. For purposes of the preceding sentence, the rules of Code Section
424(d) shall apply and Common Stock which a Participant may purchase under
outstanding options shall be treated as stock owned by the Participant.
Section 3.4 MAXIMUM NUMBER OF SHARES PURCHASABLE PER OPTION PERIOD.
In addition to all other restrictions set forth herein, the maximum number
of shares of Common Stock that an Employee may purchase during each Option
Period shall be equal to the total amount of contributions that the Employee is
scheduled to make to the Plan during such Option Period (in accordance with the
terms of his effective Stock Purchase Agreement), divided by 50% of the per
share Fair Market Value determined on the first day of such Option Period.
Section 3.5 RESTRICTION ON TRANSFERABILITY.
Rights to purchase shares hereunder shall be exercisable only by the
Participant. Such rights shall not be transferable and shall expire upon a
Participant's death.
Section 3.6 DIVIDEND REINVESTMENT.
The Committee may, in its discretion, provide Participants with the
opportunity to have dividends on shares held in their Accounts reinvested
through (i) any dividend reinvestment plan that the Company may maintain from
time to time, or (ii) any other program or arrangement (including the treatment
of dividends as additional Participant contributions) that is permissible under
applicable law.
ARTICLE IV
PROVISIONS RELATING TO COMMON STOCK
Section 4.1 COMMON STOCK RESERVED.
Except as provided in Section 4.2, no more than 250,000 shares of the
Company's Common Stock may be sold pursuant to options granted under the Plan.
Section 4.2 ADJUSTMENT FOR CHANGES IN COMMON STOCK.
(i) In the event that the shares of Common Stock of the Company as
presently constituted, shall be changed into or exchanged for a different number
or kind of shares of stock or other securities of the Company or of another
corporation (whether by reason of merger, consolidation, recapitalization,
reclassification, split-up, combination of shares or otherwise) or if the number
of such shares of stock shall be increased through the payment of a stock
dividend, then subject to the provisions of subsection (iii) below, a majority
of the disinterested members of the Board of Directors may substitute for or add
to each share of stock of the Company which was theretofore appropriated, or
which thereafter may become subject to an offering under the Plan, the number
and kind of shares of stock or other securities into which each outstanding
share of the stock of the Company shall be so changed or for which each such
share shall be exchanged or to which such share shall be entitled, as the case
may be. Outstanding Stock Purchase Agreements shall also be deemed appropriately
amended as to price and other terms, as may be necessary to reflect the
foregoing events.
(ii) If there shall be any other change in the number or kind of the
outstanding shares of Common Stock of the Company, or of any stock or other
securities in which such stock shall have been changed or for which it shall
have been exchanged, and if a majority of the disinterested members of the Board
of Directors shall, in its sole discretion, determine that such change equitably
requires an adjustment in any offering which was theretofore made or which may
thereafter be made under the Plan, that such adjustment shall be made in
accordance with such determination.
(iii) An offering pursuant to the Plan shall not affect in any way the
right or power of the Company to make adjustments or reclassifications,
reorganizations or changes in its capital or business structure, to merge, to
consolidate, to dissolve, to liquidate or to sell or transfer all or any part of
its business or assets.
A-5
<PAGE>
Section 4.3 INSUFFICIENT SHARES.
If the aggregate funds available for the purchase of Common Stock on any
Exercise Date would cause an issuance of shares in excess of the number provided
for in Section 4.1 (as the same may be adjusted as provided in Section 4.2), (i)
the Committee shall proportionately reduce the number of shares which would
otherwise be purchased by each Participant in order to eliminate such excess,
and (ii) the Plan shall automatically terminate immediately after such Exercise
Date.
Section 4.4 CONFIRMATION OF PURCHASES; REGISTRATION OF SHARES.
Purchases of Common Stock hereunder shall be confirmed in writing to Plan
Participants. All shares purchased shall be credited to his Account, but shall
initially be registered in the name of the Company's nominee, as agent for Plan
Participants. Such nominee will hold a Participant's share certificates until
such time as his participation in the Plan terminates or he files a written
request with the Committee to have a certificate or certificates issued in his
name. Except in the case of death, any certificate issued to a Participant must
initially be issued in his name alone. Registration of any shares following the
death of a Participant will be subject to the same rules as are then applicable
to decedent shareholders generally.
Section 4.5 RIGHTS AS SHAREHOLDERS.
The shares of Common Stock purchased by a Participant on an Exercise Date
shall, for all purposes, be deemed to have been issued and sold at the close of
business on such Exercise Date. Participants for whom shares have been purchased
shall be entitled to all rights of a shareholder with respect to such shares,
including the right to receive dividends and the right to vote. The Company will
take such steps as may be necessary to ensure that such rights are enjoyed by
each Participant whose shares are held in nominee name.
Section 4.6 CORPORATE REORGANIZATIONS, LIQUIDATIONS, ETC.
In the event of any corporate merger, consolidation, acquisition of
property or stock, separation, reorganization or liquidation, provision may be
made for the substitution of a new option for an old option, or an assumption of
an old option, by an employer corporation or a corporation related to such
corporation. Any provision for such substitution or assumption shall be subject
to the limitations and provisions of Code Section 424.
ARTICLE V
TERMINATION OF PARTICIPATION
Section 5.1 VOLUNTARY WITHDRAWAL.
A Participant may withdraw from the Plan at any time by filing notice of
withdrawal with the Committee prior to an Exercise Date. Upon withdrawal, the
dollar amount and shares, if any, credited to his Stock Purchase Account shall
be distributed to him and no shares will be purchased on his behalf for the
applicable Option Period. Any Participant who withdraws from the Plan may again
become a Participant in accordance with Section 2.1.
Section 5.2 TERMINATION OF ELIGIBILITY.
If a Participant ceases to be employed by the Company or a Subsidiary
during an Option Period, his participation in the Plan shall thereupon
terminate. In such event, the dollar amount and shares, if any, in his Stock
Purchase Account shall be distributed to him (or in the case of death, to his
designated beneficiary(ies)) and no further shares will be purchased on his
behalf. For purposes of this section, an Employee's participation in the Plan
will not automatically terminate if he becomes an individual on a leave of
absence permitted or required to be taken into account by applicable Treasury
Regulations.
Section 5.3 NO INTEREST ON ACCOUNT BALANCES.
Unless otherwise provided by the Company's Board of Directors, no interest
shall be paid on the cash balance in a Participant's Stock Purchase Account
pending its investment.
A-6
<PAGE>
ARTICLE VI
GENERAL PROVISIONS
Section 6.1 TAX WITHHOLDING; INFORMATION RETURNS.
Each Employee who elects to participate in the Plan shall be deemed to have
consented to any income tax withholding that may hereafter be required by reason
of his participation in the Plan or the disposition of, or payment of any
dividends on, shares acquired by him under the Plan. The proper officers of the
Company and each Subsidiary shall prepare (or cause to be prepared) and, where
required, timely file (or cause to be filed) such tax information returns and
other notices as may be required by law from time to time.
Section 6.2 NOTICES.
Any notice which a Participant files pursuant to the Plan shall be made on
forms prescribed by the Committee and shall be effective when received by the
Committee.
Section 6.3 CONDITION OF EMPLOYMENT.
Neither the creation of the Plan, nor participation therein, shall be
deemed to create any right of continued employment or in any way affect the
right of the Company or a Subsidiary to terminate an Employee.
Section 6.4 AMENDMENT OF THE PLAN.
The Board of Directors may at any time, and from time to time, amend the
Plan in any respect, except, that without approval of the Company's
shareholders, no amendment may (i) increase the aggregate number of shares
permitted to be reserved by the Board of Directors under the Plan other than as
provided in Section 4.2, (ii) materially change the Plan benefits provided for
herein, (iii) change the definition of a Subsidiary, or (iv) materially change
the eligibility requirements for Employees. Any amendment of the Plan must be
made in accordance with applicable provisions of the Code.
Section 6.5 APPLICATION OF FUNDS.
All funds received by the Company by reason of a purchase of shares
hereunder may be used for any corporate purpose.
Section 6.6 LEGAL RESTRICTIONS.
The Company shall not be obligated to sell shares of Common Stock hereunder
if counsel to the Company determines that such sale would violate any applicable
law or regulation.
Section 6.7 GENDER.
Whenever used herein, use of any gender shall be applicable to all genders.
Section 6.8 NUMBER.
Whenever used herein, singular words shall include the plural, and vice
versa, as the context requires.
Section 6.9 GOVERNING LAW.
Except to the extent preempted by Federal law, the Plan and all rights and
obligations thereunder shall be construed and enforced in accordance with the
domestic internal law of the Commonwealth of Pennsylvania.
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<PAGE>
REVOCABLE PROXY
PATRIOT BANK CORP.
/x/ PLEASE MARK VOTES
AS IN THIS EXAMPLE
ANNUAL MEETING OF STOCKHOLDERS
April 23, 1998
2:00 p.m. Eastern Standard Time
The undersigned hereby appoints the official proxy committee of the Board of
Directors of Patriot Bank Corp. (the "Company"), each with full power of
substitution, to act as attorneys and proxies for the undersigned, and to vote
all shares of Common Stock of the Company which the undersigned is entitled to
vote only at the Annual Meeting of Stockholders, to be held on April 23, 1998,
at 2:00 p.m. Eastern Standard Time, at Brookside, Prospect and Adams Streets,
Pottstown, Pennsylvania, and at any and all adjournments thereof, as follows:
FOR VOTE WITHHELD
1. The election as directors of all nominees | | | |
listed (except as marked to the contrary | | | |
below)
Larry V. Thren and James B. Elliott
INSTRUCTION: To withhold your vote for
any individual nominee, write that nominee's
name on the line provided below:
- --------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. The approval of the Patriot Bank Corp. | | | | | |
1998 Employee Stock Purchase Plan. | | | | | |
FOR AGAINST ABSTAIN
3. The ratification of the appointment of KPMG | | | | | |
Peat Marwick LLP as independent auditors of | | | | | |
Patriot Bank Corp. for the fiscal year ending
December 31, 1998.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE "FOR" EACH OF THE LISTED
PROPOSALS.
-------------------------------
Please be sure to sign and date Date
this Proxy in the box below.
- -----------------------------------------------------------------------
- ----------Stockholder sign above--------Co-holder (if any) sign above---
- --------------------------------------------------------------------------------
Detach above card, sign, date and mail in postage paid envelope provided.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
This proxy is revocable and will be voted as directed, but if no
instructions are specified, this proxy will be voted FOR each of the
proposals listed. If any other business is presented at the Annual
Meeting, including whether or not to adjourn the meeting, this proxy
will be voted by those named in this proxy in their best judgment. At
the present time, the Board of Directors knows of no other business to
be presented at the Annual Meeting.
The undersigned acknowledges receipt from the Company prior to the
execution of this proxy of a Notice of Annual Meeting of Stockholders
and of a Proxy Statement dated March 20, 1998 and of the Annual Report
to Stockholders.
Please sign exactly as your name appears on this card. When
signing as attorney, executor, administrator, trustee or guardian,
please give your full title. If shares are held jointly, each holder may
sign but only one signature is required.
- --------------------------------------------------------------------------------
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY
IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
- --------------------------------------------------------------------------------
