<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________________ to _______________________
Commission File Number 0-26744
PATRIOT BANK CORP.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 232820537
- --------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
High and Hanover Streets, Pottstown, Pennsylvania 19464-9963
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(610) 323-1500
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. |X| Yes |_| No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: 6,185,499 shares of
common stock were outstanding as of November 12, 1999.
1
<PAGE> 2
PATRIOT BANK CORP. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
PART I FINANCIAL INFORMATION
Item 1 FINANCIAL STATEMENTS (Unaudited)
Consolidated Balance Sheets at September 30, 1999
and December 31, 1998
Consolidated Statements of Income for the Three-Month and Nine-Month
Periods ended September 30, 1999 and 1998
Consolidated Statements of Stockholders' Equity for the
Periods ended September 30, 1999 and December 31, 1998
Consolidated Statements of Cash Flows for the Nine-Month Period ended
September 30, 1999 and 1998
Consolidated Statements of Comprehensive Income for the
Three-Month and Nine-Month Periods ended September 30, 1999 and 1998
Notes to Consolidated Financial Statements
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Item 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
PART II OTHER INFORMATION
Items 1 through 6
SIGNATURES
</TABLE>
2
<PAGE> 3
Patriot Bank Corp. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
<TABLE>
<CAPTION>
September 30, December 31,
- -------------------------------------------------------------------------------------------------------------------------------
1999 1998
- -------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 5,097 $ 1,044
Interest-earning deposits in other financial institutions 10,873 29,443
----------- -----------
Total cash and cash equivalents 15,970 30,487
Investment and mortgage-backed securities available for sale 194,737 386,380
Investment and mortgage-backed securities held to maturity (market value of
$245,693 and $29,909 at September 30, 1999
and December 31, 1998, respectively) 250,235 29,639
Loans held for sale 7,181 5,576
Loans and leases receivable, net of provision for credit loss of $6,006 and
$4,087 at September 30, 1999 and December 31, 1998, respectively 586,458 504,993
Premises and equipment, net 16,691 10,259
Accrued interest receivable 4,604 4,114
Real estate and other property owned 433 58
Cash surrender value of life insurance 15,511 --
Goodwill and other intangible assets 14,118 2,267
Other assets 8,732 6,988
----------- -----------
Total assets $ 1,114,670 $ 980,761
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 477,135 $ 377,796
FHLB advances 414,694 360,198
Securities sold under repurchase agreements 142,547 170,123
Trust preferred debt securities 19,000 19,000
Advances from borrowers for taxes and insurance 3,727 4,747
Other liabilities 4,863 6,637
----------- -----------
Total liabilities 1,061,966 938,501
----------- -----------
Preferred stock, $.01 par value, 2,000,000 shares authorized, none
Issued at September 30, 1999 and December 31, 1998, respectively -- --
Common stock, no par value, 10,000,000 shares authorized, 6,555,490
and 7,034,927 issued at September 30, 1999 and December 31, 1998, respectively -- --
Paid in capital 58,089 60,404
Common stock acquired by ESOP, 392,070 and 404,925 shares at amortized cost
at
September 30, 1999 and December 31, 1998, respectively (2,177) (2,285)
Common stock acquired by MRP, 120,843 and 154,116 shares at amortized
cost at September 30, 1999 and December 31, 1998, respectively (727) (971)
Retained earnings 6,912 4,220
Treasury stock, 369,991 and 2,122,309 at cost at September 30, 1999
and December 31, 1998, respectively (4,197) (22,963)
Accumulated other comprehensive (loss) income (5,196) 3,855
----------- -----------
Total stockholders' equity 52,704 42,260
----------- -----------
Total liabilities and stockholders' equity $ 1,114,670 $ 980,761
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
Patriot Bank Corp. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except for share data)
(unaudited)
<TABLE>
<CAPTION>
Three-Month Period Ended Nine-month Period Ended
September 30,
- ------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest-earning deposits $ 44 $ 54 $ 200 $ 232
Investment and mortgage-backed securities 7,453 6,990 22,137 20,525
Loans 11,607 8,675 33,284 25,654
-------- -------- -------- --------
Total interest income 19,104 15,719 55,621 46,411
-------- -------- -------- --------
INTEREST EXPENSE
Deposits 5,222 4,543 15,236 12,872
Short-term borrowings 3,354 4,217 9,456 12,921
Long -term borrowings 4,424 3,042 13,134 8,296
-------- -------- -------- --------
Total interest expense 13,000 11,802 37,826 34,089
-------- -------- --------
Net interest income before provision for
credit losses 6,104 3,917 17,795 12,322
Provision for credit losses 300 325 900 875
-------- -------- -------- --------
Net interest income after provision for
credit losses 5,804 3,592 16,895 11,447
-------- -------- -------- --------
NON-INTEREST INCOME
Service fees, charges and other operating income 1,191 405 2,903 978
Loss on sale of real estate acquired through
Foreclosure (4) -- (3) --
Gain on sale of investment and mortgage-backed
securities available for sale 365 189 722 1,604
Mortgage banking gains 222 250 488 455
-------- -------- -------- --------
Total non-interest income 1,774 841 4,110 3,037
-------- -------- -------- --------
NON-INTEREST EXPENSE
Salaries and employee benefits 2,796 1,902 7,723 6,631
Office occupancy and equipment 956 549 3,012 1,550
Professional services 378 135 625 464
Federal deposit insurance premiums 56 52 166 143
Data processing 27 39 92 93
Advertising 238 96 538 481
Deposit processing 154 102 437 299
Goodwill amortization 256 -- 705 --
Office supplies and postage 159 85 464 253
MAC expense 121 67 315 139
Other operating expense 620 84 1,505 542
-------- -------- -------- --------
Total non-interest expense 5,761 3,111 15,582 10,595
-------- -------- -------- --------
Income before income taxes 1,817 1,322 5,423 3,889
Income taxes 410 282 1,341 881
-------- -------- -------- --------
Net income $ 1,407 $ 1,040 $ 4,082 $ 3,008
======== ======== ======== ========
Earnings per share - basic $ 0.24 $ 0.21 $ 0.71 $ 0.60
======== ======== ======== ========
Earnings per share - diluted $ 0.24 $ 0.20 $ 0.69 $ 0.57
======== ======== ======== ========
Dividends per share $ 0.08 $ 0.07 $ 0.23 $ 0.20
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
Patriot Bank Corp. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, unaudited)
<TABLE>
<CAPTION>
Accumulated
Other
Number of Paid-in Retained Treasury Comprehensive
Shares Capital ESOP MRP Earnings Stock Income Total
------ ------- ---- --- -------- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1998 4,811 $ 59,982 $ (2,428) $ (1,285) $ 1,680 $(16,071) $ 4,655 $ 46,533
Common stock issued 2 46 -- -- 46
Common stock acquired by
MRP (2) -- -- (46) -- -- -- (46)
Treasury stock purchased (538) -- -- -- -- (6,892) --
Stock split 25% -- -- -- -- -- -- -- --
Release and amortization
of MRP 48 156 -- 360 -- -- -- 516
Release of ESOP shares 26 220 143 -- -- -- -- 363
Change in unrealized gains
on securities available
for sale, net of taxes -- -- -- -- -- -- (800) (800)
Net income -- -- -- -- 4,055 -- -- 4.055
Cash dividends paid -- -- -- -- (1,515) -- -- (1,515)
------- -------- -------- -------- -------- -------- -------- --------
BALANCE AT DECEMBER 31, 1998 4,347 $ 60,404 $ (2,285) $ (971) $ 4,220 $(22,963) $ 3,855 $ 42,260
------- -------- -------- -------- -------- -------- -------- --------
Common stock issued 3 26 -- -- 26
Common stock acquired by
MRP (3) -- -- (26) -- -- -- (26)
Treasury stock purchased (377) -- -- -- -- (4,808) -- (4.808)
Treasury stock retired -- (23,531) -- -- -- 23,531 -- --
Common stock issued for
business combination 1,640 21,047 -- -- -- -- -- 21,047
Amortization of MRP shares 36 53 -- 270 -- -- -- 323
Amortization of ESOP shares 19 90 108 -- -- -- -- 198
Purchase of ESPP shares 7 -- -- -- -- 43 -- 43
Change in unrealized gains
on securities available
for sale, net of taxes -- -- -- -- -- -- (9,051) (9,051)
Net income -- -- -- -- 4,082 -- -- 4,082
Cash dividends paid -- -- -- -- (1,390) -- -- (1,390)
------- -------- -------- -------- -------- -------- -------- --------
BALANCE AT SEPTEMBER 30, 1999 5,672 $ 58,089 $ (2,177) $ (727) $ 6,912 $ (4,197) $ (5,196) $ 52,704
======= ======== ======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
Patriot Bank Corp. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
-------------
1999 1998
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 4,082 $ 3,008
Adjustments to reconcile net income to net cash provided (used) by operating activities
Amortization and accretion of
Deferred loan origination fees 76 (96)
Premiums and discounts (2,032) (769)
MRP shares 323 270
Goodwill 705 --
Provision for credit losses 900 875
Release of ESOP shares 198 278
Gain on sale of securities (722) (1,604)
Loss on sale of real estate owned 3 --
Charge off real estate owned 118 90
Depreciation of premises and equipment 1,280 626
Mortgage loans originated for sale (44,660) (34,999)
Mortgage loans sold 43,055 32,167
Increase in deferred income taxes (1,054) (588)
Increase in cash surrender value of life insurance (465)
Decrease in accrued interest receivable 245 115
Decrease (increase) in other assets 7,000 (3,321)
(Decrease) increase in other liabilities (2,391) 1,308
-------- --------
Net Cash provided by (used by) operating activities 6,661 (2,640)
-------- --------
INVESTING ACTIVITIES
Loan originations & principal payments on loans, net (33,773) (27,987)
Proceeds from the sale of securities - available for sale 7,424 5,652
Proceeds from the maturity of securities - available for sale 40,804 107,488
Proceeds from the maturity of securities - held to maturity 47,080 23,947
Purchase of securities - available for sale (96,304) (159,508)
Purchase of cash surrender value of life insurance (15,046) --
Proceeds from sale of real estate owned 7 --
Purchase of premises and equipment (3,473) (1,588)
Proceeds from sale of premises and equipment 25 --
Cash received in business combinations 9,704 --
-------- --------
Net cash used in investing activities (43,552) (51,996)
-------- --------
FINANCING ACTIVITIES
Net increase in deposits 4,674 70,212
Proceeds from (Repayment of) short term borrowings 25,000 (111,589)
Proceeds from long term borrowings -- 160,000
Repayment of long term borrowings (80) (50,000)
(Decrease) in advances from borrowers for taxes and insurance (1,022) (1,064)
Cash paid for dividends (1,390) (1,107)
Purchase of treasury stock (4,808) (3,389)
-------- --------
Net cash provided by in financing activities 22,374 63,063
-------- --------
Net (decrease) increase in cash and cash equivalents (14,517) 8,427
Cash and cash equivalents at beginning of year 30,487 9,014
-------- --------
Cash and cash equivalents at end of year $ 15,970 $ 17,441
======== ========
SUPPLEMENTAL DISCLOSURES
Cash paid for interest on deposits $ 14,946 $ 12,862
======== ========
Cash paid for income taxes $ 1,068 $ 537
======== ========
Transfer securities from available for sale to held to maturity $267,676 $ --
======== ========
Non-cash assets received in business combinations $108,312 $ --
======== ========
Transfers from loans to real estate owned $ 492 $ 17
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 7
Patriot Bank Corp. and Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands, unaudited)
<TABLE>
<CAPTION>
Three-Month Period Ended Nine-month Period Ended
- ----------------------------------------------------------------------------------------------------------------------
September 30,
- ----------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $ 1,407 $ 1,040 $ 4,082 $ 3,008
Other comprehensive income, net of tax
Unrealized gains on securities
Unrealized holding (losses) gains arising during the period (2,859) 1,964 (8,574) 2,030
Less: Reclassification adjustment for gains included
in net income (241) (123) (477) (1,059)
------- ------- ------- -------
Comprehensive (loss) income $(1,693) $ 2,881 $(4,969) $ 3,979
======= ======= ======= =======
</TABLE>
7
<PAGE> 8
PATRIOT BANK CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
September 30, 1999
Note 1 - General
The accompanying consolidated financial statements of Patriot Bank Corp. and
Subsidiaries ("Patriot") include the accounts of the parent company, Patriot
Bank Corp. and its wholly-owned subsidiaries, Patriot Bank and Patriot
Investment Company. All material intercompany balances and transactions have
been eliminated in consolidation. These consolidated financial statements have
been prepared in accordance with the instructions for Form 10-Q and therefore do
not include certain information or footnotes necessary for the presentation of
financial condition, results of operations, and cash flows in conformity with
generally accepted accounting principles. However, in the opinion of management,
the consolidated financial statements reflect all adjustments (which consist of
normal recurring accruals) necessary for a fair presentation of the results for
the unaudited periods. The results of operations for the three-month and
nine-month periods ended September 30, 1999 are not necessarily indicative of
the results which may be expected for the entire year. The consolidated
financial statements should be read in conjunction with the annual report on
Form 10-K for the year ended December 31, 1998.
8
<PAGE> 9
PATRIOT BANK CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
September 30, 1999
Note 2 - Investment And Mortgage-Backed Securities
The amortized cost and estimated fair value of investment and mortgage-backed
securities are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
September 30, 1999 December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
cost gain loss value cost gain loss value
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AVAILABLE FOR SALE:
Investment securities
U.S. Treasury and
government agency
Securities $ 53,617 $ 81 $ 4,095 $ 49,603 $ 40,568 $ 176 $ 45 $ 40,699
Corporate debt 20,361 394 330 20,425 19,102 1,705 92 20,715
Securities
FHLMC Preferred Stock 44,964 -- 12 44,952 34,959 1,831 -- 36,790
FHLB Stock 21,235 -- -- 21,235 18,607 -- -- 18,607
Equity securities 9,863 952 1,642 9,173 7,257 1,528 203 8,582
Mortgage-backed
securities
FHLMC -- -- -- -- 6,122 52 17 6,157
Fannie Mae 49,591 5 2,604 46,992 43,554 171 255 43,470
GNMA 62 5 -- 67 7,114 97 5 7,206
Colateralized mortgage
Obligations
FHLMC -- -- -- -- 104,751 1,505 -- 106,256
Fannie Mae -- -- -- -- 89,855 668 1,229 89,294
Other 2,325 -- 35 2,290 8,560 44 -- 8,604
-------- -------- -------- -------- -------- -------- -------- --------
Total securities available
for
Sale $202,018 $ 1,437 $ 8,718 $194,737 $380,449 $ 7,777 $ 1,846 $386,380
======== ======== ======== ======== ======== ======== ======== ========
HELD TO MATURITY:
Investment securities
U.S. Treasury and
Government agency
Securities $ 23,694 $ -- $ 1,279 $ 22,415 $ 900 $ 8 $ -- $ 908
Corporate debt securities 1,501 16 -- 1,517 1,502 58 -- 1,560
Mortgage-backed
Securities
FHLMC 4,574 30 15 4,589 -- -- -- --
Fannie Mae 9,555 27 144 9,438 -- -- -- --
GNMA 4,777 28 5 4,800 -- -- -- --
Colateralized mortgage
Obligations
FHLMC 111,879 883 2,407 110,355 1,176 14 -- 1,190
Fannie Mae 82,951 280 1,986 81,245 7,509 8 -- 7,517
Other 11,304 42 12 11,334 18,552 185 3 18,734
-------- -------- -------- -------- -------- -------- -------- --------
Total securities held to maturity $250,235 $ 1,306 $ 5,848 $245,693 $ 29,639 $ 273 $ 3 $ 29,909
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
During the second quarter of 1999, Patriot transferred $267,676,000 in
investment securities, principally consisting of agency mortgage-backed and CMO
securities from the available for sale portfolio to the held to maturity
portfolio to reflect Patriot's intentions to hold the securities to maturity.
9
<PAGE> 10
Note 3 - Loans Receivable
Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
September 30, December 31,
- ----------------------------------------------------------------------------------------------
1999 1998
- ----------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Mortgage loan portfolio
Secured by real estate $288,290 $300,232
Construction 7,038 5,267
Consumer loan portfolio
Home equity 69,609 64,807
Consumer 9,367 4,336
Commercial loan portfolio
Commercial 166,136 92,367
Commercial leases 54,325 44,301
-------- --------
Total loans receivable 594,765 511,310
Less deferred loan origination fees (2,301) (2,230)
Allowance for credit losses (6,006) (4,087)
-------- --------
Total loans receivable, net $586,458 $504,993
======== ========
</TABLE>
Note 4 - Deposits
Deposits are summarized as follows:
<TABLE>
<CAPTION>
September 30, December 31,
- ----------------------------------------------------------------------------------------------
Deposit type 1999 1998
- ----------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
NOW $ 24,759 $ 23,961
Money market 87,729 74,613
Savings accounts 39,669 22,416
Non-interest-bearing demand 32,032 13,402
--------- ---------
Total demand, transaction, money
market and savings deposits 184,189 134,392
Certificates of deposits 292,946 243,404
--------- ---------
Total deposits $ 477,135 $ 377,796
========= =========
</TABLE>
10
<PAGE> 11
NOTE 5 - EARNINGS PER SHARE
The dilutive effect of stock options is excluded from basic earnings
per share but included in the computation of diluted earnings per share.
<TABLE>
<CAPTION>
For Nine-Months Ended September 30, 1999 For Three-Months Ended September 30, 1999
---------------------------------------- -----------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------ ----------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS
Net Income available to common
Stockholders $4,082 5,713 $ 0.71 $1,407 5,789 $ 0.24
EFFECT OF DILUTIVE SECURITIES
Dilutive Options -- 200 (.02) -- 185 --
------ ----- -------- ------ ----- --------
DILUTED EPS
Net income available to common
Stockholders plus assumed conversions $4,082 5,913 $ 0.69 $1,407 5,974 $ 0.24
====== ====== ======== ====== ====== ========
</TABLE>
<TABLE>
<CAPTION>
For Nine-Months Ended September 30, 1998 For Three-Months Ended September 30, 1998
---------------------------------------- -----------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------ ----------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS
Net Income available to common
Stockholders $3,008 4,989 $ 0.60 $1,040 4,948 $ 0.21
EFFECT OF DILUTIVE SECURITIES
Dilutive Options -- 321 (.03) -- 300 (.01)
------ ------ -------- ------ ------ --------
DILUTED EPS
Net income available to common
Stockholders plus assumed conversions $3,008 5,310 $ 0.57 $1,040 5,248 $ 0.20
====== ====== ======== ====== ====== ========
</TABLE>
11
<PAGE> 12
Note 6 - Segment Reporting
The Company has three reportable segments: Patriot Bank ("PB"), Patriot
Commercial Leasing Corporation ("PCLC") and BankZip.Com ("ZIP") . PB operates a
community banking network with twenty-one community banking offices providing
deposits and loan services to customers. PCLC is a small ticket leasing company
headquartered in Exton PA. ZIP is a new internet initiative launched in the
third quarter of 1999.
BankZip.com will provides community banks with access to a quick,
cost-effective and proactive Internet strategy. The Company anticipates
advancing approximately $5 million to fund the BankZip.com initiative during the
fourth quarter of 1999 and is approaching other potential investors and sources
of capital. BankZip.com expects to recognize significant expenses during its
initial start up phase. Although the amount and timing of these expenses are
dependent on numerous factors, these expenses will affect the Company's net
income in the fourth quarter and may continue during the year 2000.
The following table highlights income statement and balance sheet
information for each of the segments at or for the three and nine-month periods
ending September 30, 1999 and 1998 (in thousands).
<TABLE>
<CAPTION>
For the three-month period ended September 30, 1999 For the nine-month period ended September 30, 1999
--------------------------------------------------- --------------------------------------------------
PB PCLC ZIP Total PB PCLC ZIP Total
-- ---- --- ----- -- ---- --- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net interest income $ 5,648 $ 456 $ -- $ 6,105 $ 15,536 $ 1,259 $ -- $ 17,795
Other income 1,519 255 -- 1,774 3,576 534 -- 4,110
Total net income 1,485 132 (210) 1,407 3,919 373 (210) 4,082
Total assets 1,057,416 57,254 -- 1,114,670
Total loans and leases 532,133 54,325 -- 586,458
</TABLE>
<TABLE>
<CAPTION>
For the three-month period ended September 30, 1998 For the nine-month period ended September 30, 1998
--------------------------------------------------- --------------------------------------------------
PB PCLC ZIP Total PB PCLC ZIP Total
-- ---- --- ----- -- ---- --- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net interest income $ 3,894 $ 23 $-- $ 3,917 $ 12,264 $ 58 $-- $ 12,322
Other income 832 9 -- 841 3,028 9 -- 3,037
Total net income 1,064 (24) -- 1,040 3,032 (24) -- 3,008
Total assets 918,736 1,993 -- 920,729
Total loans and leases 448,590 1,437 -- 450,027
</TABLE>
12
<PAGE> 13
Note 7 - Accounting for Derivative Instruments and Hedging Activities
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities." This statement as amended by SFAS No. 137
in June 1999 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, (collectively referred to as derivatives) and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. The accounting for changes in the fair value of a derivative
depends on the intended use of the derivative and the resulting designation. If
certain conditions are met, a derivative may be specifically designated as (a) a
hedge of certain exposure to changes in the fair value of a recognized asset or
liability or an unrecognized firm commitment; (b) a hedge of the exposure to
variable cash flows of a forecasted transaction; or (c) a hedge of foreign
currency exposure. SFAS No. 133, as amended, is effective for all fiscal
quarters of fiscal years beginning after December 15, 2000. Earlier adoption is
permitted. Patriot has not yet determined the impact, if any, of this statement,
including if applicable, its provisions for the potential reclassifications of
certain investment securities, on earnings, financial condition or equity.
Note 8 - Business Combinations
On January 22, 1999, the Company consummated its acquisition of First
Lehigh Corporation (First Lehigh), the holding company of First Lehigh Bank. At
the time of the merger First Lehigh Bank was a commercial bank with $104,475,000
in total assets, $93,905,000 in total deposits, and five branches in Lehigh and
Carbon counties of Pennsylvania. Patriot issued 1,640,000 shares of common stock
for all of the outstanding common and preferred stock of First Lehigh. The
transaction had a total value of $21,047,000. The acquisition was accounted for
as a purchase, and accordingly the results of operations of First Lehigh will be
included in Patriot;s consolidated statement of income from the date of
acquisition. The transaction added $6,712,000 of goodwill which will be
amortized over 15 years and $4,508,000 of core deposit intangibles to Patriot's
balance sheet which will be amortized on an accelerated basis over a period of
5-20 years.
On June 28, 1999. The company acquired three offices of Ark Mortgage
Inc. The offices acquired are located in Fort Washington, Lancaster, and
Bethlehem. The purchase price was equal to $250,000 in cash less certain profits
on the acquired mortgage pipeline. The acquisition will be accounted for as a
purchase and will add approximately $170,000 of goodwill to Patriot's balance
sheet which will be amortized over a period of 15 years.
On August 16, 1999, the company completed the acquisition of Municipal
Capital Corporation, a brokerage for small ticket municipal leases. Municipal
Capital's principal product line is tax-exempt and taxable lease/purchase
obligations. The acquisition was accounted for as a purchase and added
approximately $150,000 of goodwill to Patriot's balance sheet which is being
amortized over a period of 15 years.
Note 9 - Subsequent Events
On November 8, 1999. The company entered into a 20 year sale leaseback
contract for seven of its owned offices. The contract calls for a purchase price
of $5,150,000, which approximates the book value of the assets.
13
<PAGE> 14
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.
GENERAL. Patriot reported diluted earnings per share of $.24 and net income
of $1,407,000 for the three-month period ended September 30, 1999. This
represents an increase of 19% over diluted earnings per share of $.20 and a 35%
increase over net income of $1,040,000 for the three month period ended
September 30, 1998. Diluted earnings per share for the nine-month period ending
September 30, 1999 was $.69 and net income of $4,082,000 compared with $.57 and
net income of $3,008,000 for the nine-month period ended September 30, 1998.
Return on average equity was 10.25%, for the three-month period ended September
30, 1999 compared to 9.13%, for the three-month period ended September 30, 1998.
NET INTEREST INCOME. Net interest income for the three-month and nine-month
periods ended September 30, 1999 was $6,104,000 and $17,795,000 compared to
$3,917,000 and $12,322,000 for the same periods in 1998. This increase is
primarily due to an increase in average balances associated with the
acquisitions of Keystone Financial Leasing Company (Keystone) and First Lehigh
Corporation (First Lehigh) and as Patriot has continued to grow its assets to
more fully utilize its capital. Patriot's net interest margin (net interest
income as a percentage of average interest-earning assets) was 2.42% for the
nine-month period ended September 30, 1999 compared to 1.90% for the same period
in 1998. The increase in margin is primarily due to the acquisitions and the
growth of Patriot's commercial loan and lease portfolios.
Interest on loans and leases was $11,607,000 and $33,284,000 for the
three-month and nine-month periods ended September 30, 1999 compared to
$8,675,000 and 25,654,000 for the same periods in 1998. The average balance of
loans was $560,313,000 with an average yield of 7.93% for the nine-month period
ended September 30, 1999 compared to an average balance of $448,254,000 with an
average yield of 7.73% for the same period in 1998. The increase in average
balance is due to the acquisitions of Keystone and First Lehigh and the
continued origination of commercial loans. The increase in average yield is
primarily a result of a greater volume of higher yielding commercial loans and
leases from both acquisitions coupled with Patriot's increased originations of
its own commercial loans.
Interest on Patriot's investment portfolio (investment and mortgage-backed
securities) was $7,453,000 and $22,137,000 for the three-month and nine-month
periods ended September 30, 1999 compared to $6,990,000 and $20,525,000 for the
same periods in 1998. The average balance of the investment portfolio was
$460,387,000 with an average yield of 6.69% for the nine-month period ended
September 30, 1999 compared to an average balance of $423,136,000 with an
average yield of 6.78% for the same period in 1998. The increase in average
balance was primarily due to investments acquired from First Lehigh. The
decrease in average yield is related to decreases in yields in the market.
Interest on total deposits was $5,222,000 and $15,236,000 for the three-month
and nine-month periods ended September 30, 1999 compared to $4,543,000 and
$12,872,000 for the same periods in 1998. The average balance of total deposits
was $464,875,000 with an average cost of 4.38% for the nine-month period ended
September 30, 1999 compared to an average balance of $361,903,000 with an
average cost of 4.98% for the same period in 1998. The increase in average
balance is primarily the result of $93,905,000 of new deposits from the
acquisition of First Lehigh coupled with aggressive marketing of money market
and other transaction-based deposit accounts. The decrease in average yield was
the result of a higher percentage of lower costing core deposits due to the
addition of approximately $50,000,000 in core deposits from the First Lehigh
acquisition coupled with general decreases in interest rates.
Interest on borrowings was $7,778,000 and $22,590,000 for the three-month
and nine-month periods ended September 30, 1999 compared to $7,259,000 and
$21,217,000 for the same periods in 1998. The average balance of borrowings was
$557,200,000 with an average cost of 5.40% for the nine-month period ended
September 30, 1999 compared to an average balance of $489,904,000 with a cost of
5.88% for the same period in 1998. The increase in average balance was due to
the use of borrowings to fund the growth in the balance sheet particularly for
the funding of the purchase Keystone Leasing Company. The decrease in the cost
of borrowings was the result of a general decrease in interest rates.
14
<PAGE> 15
PROVISION FOR CREDIT LOSSES. The provision for credit losses was $300,000 and
$900,000 for the three-month and nine-month periods ended September 30, 1999
compared to $325,000 and $875,000 for the same periods in 1998. The increase in
the provision is a reflection of the growth of Patriot's loan portfolio and the
origination of more commercial loans and leases offset somewhat by Patriot's
asset quality and low level of delinquencies and low level of non-performing
assets. At September 30, 1999 Patriot's non-performing assets were .16% of total
assets and all loans 30 days or more delinquent were .67% of total loans.
NON-INTEREST INCOME. Total non-interest income was $1,774,000 and $4,110,000
for the three-month and nine-month periods ended September 30,1999 compared to
$841,000 and $3,037,000 for the same periods in 1998. Non-interest income also
includes gains recognized on the sale of investment securities available for
sale. The increase in recurring other non-interest income was primarily due to
an increased emphasis on recurring non-interest income including loan and
deposit fees, ATM fees, mortgage banking gains, and income from bank owned life
insurance.
NON-INTEREST EXPENSE. Total non-interest expense was $5,761,000 and
$15,582,000 for the three-month and nine-month periods ended September 30, 1999
compared to $3,111,000 and $10,595,000 for the same periods in 1998. The
increase in non-interest expense was the result of increased salary and employee
benefit costs and occupancy and equipment costs, both related to the acquisition
of Keystone and First Lehigh and Patriot's expanded operations. Non-interest
expense in the nine-month period ended September 30, 1998 also included a
special non-recurring pre-tax charge of $961,000 related to the retirement of
Patriot's former Chairman.
INCOME TAX PROVISION. The income tax provision was $410,000 and $1,341,000
for the three-month and nine-month periods ended September 30, 1999 compared to
$282,000 and $881,000 for the same periods in 1998. The effective tax rate was
22.56% and 24.73% for three-month and nine-month periods ended September 30,
1999 compared to 21.33% and 22.65% for the same periods in 1998. The increase is
a result of the amortization of non-deductible goodwill offset somewhat by the
purchase of certain tax exempt investments.
FINANCIAL CONDITION
LOAN AND LEASE PORTFOLIO. Patriot's primary portfolio loan products are
commercial loans, small ticket commercial leases, fixed-rate and adjustable-rate
mortgage loans and home equity loans and lines of credit. Patriot also offers
residential construction loans and other consumer loans. At September 30, 1999
Patriot's total loan portfolio was $586,458,000, compared to a total loan
portfolio of $504,993,000 at December 31, 1998. The increase in the loan
portfolio was primarily the result of the loan portfolio acquired from First
Lehigh coupled with aggressive marketing of commercial loans and leases. During
the nine-month period ended September 30, 1999, Patriot originated total loans
and leases of $220,582,000, compared to total loans and leases originated of
$132,957,000 for the same period in 1998. Commercial loan and lease originations
for the nine-month period ended September 30, 1999 were $117,230,000 compared to
$42,727,000 for the same period in 1998.
CASH AND CASH EQUIVALENTS. Cash and cash equivalents at September 30, 1999
were $15,970,000 compared to $30,487,000 at December 31, 1998. The decrease in
cash balances is associated with timing differences in borrowing activity and
investment prepayments.
INVESTMENT AND MORTGAGE-BACKED SECURITIES. Investment securities consist
primarily of U.S. agency securities, mortgage-backed securities which are
generally insured or guaranteed by either FHLMC, FNMA or the GNMA and
collateralized mortgage obligations.
Total investment and mortgage-backed securities at September 30, 1999 were
$444,972,000 compared to $416,019,000 at December 31, 1998. The increase in
investment and mortgage-backed securities was primarily due to investments
acquired from First Lehigh Corp.. During the second quarter Patriot transferred
$267,676,000 in investment securities, principally consisting of agency
mortgage-backed and CMO securities. from an available for sale classification to
held to maturity to reflect Patriot's intentions to hold the securities to
maturity. The transaction recorded an unrealized loss on the transferred
securities of $561,000 net of tax, which continues to be reported as a component
of accumulated other comprehensive income and is being amortized over the
remaining lives of those securities as an adjustment to yield.
OTHER ASSETS. Premises and equipment at September 30, 1999 was $16,691,000
compared to $10,259,000 at December 31, 1998. The increase in premises and
equipment is primarily associated with the First Lehigh acquisition and the
construction of a new branch in Allentown PA. Accrued interest receivable at
September 30, 1999 was $4,604,000 compared to $4,114,000 at December 31, 1998.
The increase is consistent with the growth in the loan and investment
portfolios. Real estate owned at September 30, 1999 was $433,000 compared to
$58,000 at December 31, 1998. During the nine-month period ended September 30,
1999 Patriot purchased a bank owned life insurance policy with a cash surrender
value at September 30, 1999 of $15,511,000. Goodwill and other intangible assets
at September 30, 1999 was $14,118,000 compared to $2,267,000 at December 31,
1998. The increase in goodwill and other intangibles is associated with the
First Lehigh acquisition. Other assets at September 30, 1999 were $8,732,000
compared to $6,988,000 at December 31, 1998.
15
<PAGE> 16
DEPOSITS. Deposits are primarily attracted from within Patriot's market area
through the offering of various deposit instruments, including NOW accounts,
money market accounts, savings accounts, certificates of deposit and retirement
savings plans. Patriot also attracts jumbo certificates of deposit.
Total deposits at September 30, 1999 were $477,135,000 compared to
$377,796,000 at December 31, 1998. The increase in balance is primarily
attributed to the acquisition of First Lehigh which added $93,905,000 of
deposits
BORROWINGS. Patriot utilizes borrowings as a source of funds for its asset
growth and its asset/liability management. Patriot is eligible to obtain
advances from the FHLB upon the security of the FHLB common stock it owns and
certain of its residential mortgages and mortgage-backed securities, provided
certain standards related to creditworthiness have been met. Patriot may also
utilize repurchase agreements to meet its liquidity needs. FHLB advances are
made pursuant to several different credit programs, each of which has its own
interest rate and range of maturities. The maximum amount that the FHLB will
advance to member institutions fluctuates from time to time in accordance with
the policies of the FHLB. Total borrowings at September 30, 1999 were
$576,241,000 compared to $549,321,000 at December 31, 1998.
STOCKHOLDERS' EQUITY. Total stockholders' equity was $52,704,000 at September
30, 1999 compared to $42,260,000 at December 31, 1998. The increase in balance
is primarily due to stock issued in the acquisition of First Lehigh Corp. and
net income in excess of dividends paid offset by the purchase of treasury stock
and decreases in the market values of investment and mortgage-backed securities
available for sale.
NEW BUSINESS INITIATIVE. During the third quarter of 1999, the Company
launched a new internet business initiative called BankZip.com. It is intended
to become a nationally branded marketing network that offers consumers the
speed, power and convenience of the Internet with the confidence of a local
community banking relationship, as well as surcharge-free ATMs. The "Zip" in
BankZip.com stems from zip code. After consumers enter their zip code at the
BankZip.com umbrella site, they will be automatically introduced to a
BankZip.com affiliate community banking site in their area and offered a full
portfolio of co-branded "BankZip" financial products and services supported by
centralized back office banking services. The look and feel of the affiliate's
site will be customized to retain the brand identity of the local community
bank, but at the same time gives community banks access to a nationally
recognized brand.
YEAR 2000 COMPLIANCE.
STATE OF READINESS. 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 believed to
be Year 2000 compliant. Management has substantially completed a comprehensive
program to analyze, test and proactively address all of Patriot's systems to
ensure Year 2000 compliance. Management has also substantially completed the
process of evaluating significant customer and vendor relationships as well as
liquidity, given the potential for concern among deposit customers resulting in
decreased deposit balances, to assess risks and make appropriate contingency
plans.
RISKS. Year 2000 issues result from the inability of many computer programs
or computerized equipment to accurately calculate, store or use data as the year
2000 approaches. Banking, by its nature, is a very data processing intensive
industry. These potential shortcomings could result in a system failure or
miscalculations causing disruptions of operation, including among other things,
a temporary inability to process transactions, track important customer
information, provide convenient access to this information, or engage in normal
business operations.
CONTINGENCY PLANS. Patriot believes that the consequences of incomplete or
untimely resolution of its Year 2000 issues do not represent a known material
event or uncertainty that is reasonably likely to affect its future financial
results, or cause its reported financial information not to be necessarily
indicative of future operating results or future financial condition. If
compliance is not achieved in a timely manner by Patriot or any of its
significant related third parties, be it a supplier of services or customer, the
Year 2000 issue could possibly have a material effect on Patriot's operations
and financial position. Contingency plans are also being developed in the event
of any unanticipated interruptions in Patriots' mission critical systems.
Business continuation plans for critical business applications are being
developed. These plans include adequate staffing on site during the Year 2000
date change to quickly repair any errant applications. In addition, in the event
of any problems the Company would follow its current computer outage business
continuation plans until such problems are corrected.
COST. The cost of the project and the date on which Patriot plans to complete
both Year 2000 modifications and system conversions are based on management's
best estimates, which were derived utilizing numerous assumptions of future
events including the continued availability of certain resources, third-party
modification plans and other factors. However, there can be no guarantee that
these estimates will be achieved and actual results could differ materially from
those plans. Specific factors that might cause such material differences
include, but are not limited to, the availability and cost of personnel trained
in this area, the ability to locate and correct all relevant computer codes, and
similar uncertainties. Management currently estimates the cost of its Year 2000
plan including performing tests, documenting results and making modifications
where necessary to be approximately $145,000 of which $92,000 has been expensed
prior to September 30, 1999.
16
<PAGE> 17
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.
17
<PAGE> 18
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 the nine-month period ended September 30, 1999, significant liquidity
was provided by maturities and sales of investment and mortgage-backed
securities, the acquisition of First Lehigh, and growth in deposits. The funds
provided by these activities were invested in new loans, investment and
mortgage-backed securities, and the purchase of treasury stock.
At September 30, 1999, Patriot had outstanding loan commitments of
$52,681,000. 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 September 30, 1999 totaled
$208,393,000. Based upon historical experience, Patriot expects that it will
have the ability to retain substantially all of the maturing certificates of
deposit at maturity. See "Year 2000 Compliance" for a discussion regarding the
possible impact of Year 2000 issues on Patriot's liquidity.
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 1% to 2%,
(100 to 200) basis points. At December 31, 1998, Patriot Bank's and Patriot Bank
Corp.'s capital ratios exceeded all requirements to be considered well
capitalized. The following table sets forth the capital ratios of Patriot Bank
Corp., Patriot Bank and the current regulatory requirements at September 30,
1999:
<TABLE>
<CAPTION>
To Be To Be
Actual Adequacy Capitalized Well Capitalized
------ -------------------- ----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
As of September 30, 1999
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk weighted assets)
Patriot Bank Corp. $67,973 11.48% $47,363 8% $59,204 10%
Patriot 61,347 10.47% 46,877 8% 58,596 10%
Tier I capital (to risk-weighted assets)
Patriot Bank Corp. 61,326 10.36% 23,681 4% 35,522 6%
Patriot 55,446 9.46% 23,439 4% 35,158 6%
Tier I capital (to average assets)
Patriot Bank Corp. 61,326 5.62% 43,648 4% 54,561 5%
Patriot 55,446 5.72% 38,758 4% 48,448 5%
</TABLE>
18
<PAGE> 19
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 September 30, 1999, 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
$154,654,000 representing a one-year cumulative "gap," as defined above, as a
percentage of total assets of negative 13.87%.
19
<PAGE> 20
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at September 30, 1999, 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 September
30, 1999, 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 September 30, 1999
Interest-earning assets(1): 3 Months More than More More than More More than Total
or Less 3 Months than 6 1 Year to than 3 5 Years
to 6 Months 3 Years Year to
Months to 1 Year 5 Years
<S> <C> <C> <C> <C> <C> <C> <C>
Interest earning deposits $ 10,873 $ -0- $ -0- $ -0- $ -0- $ -0- $ 10,873
Investment and mortgage-backed securities, 82,110 22,503 27,046 42,428 135,897 134,988 444,972
net (2)(5)
Loans receivable, net(3)(5) 106,789 41,385 77,070 102,364 176,406 89,625 593,639
Total interest-earning assets 199,772 63,888 104,116 144,792 312,303 224,613 1,049,484
Non-interest-earning assets 65,186 65,186
Total assets $ 199,772 $ 63,888 $104,116 $ 144,792 $312,303 $ 289,799 $1,114,670
Interest-bearing liabilities:
Money market and passbook savings accounts(6) $ 11,577 $ 11,577 $ 23,155 $ 43,694 $ 5,659 $ 31,736 $ 127,398
Demand and NOW accounts 1,420 1,420 2,840 5,679 11,358 34,074 56,791
Certificate accounts 49,618 78,453 80,322 64,162 11,028 9,363 292,946
Borrowings 262,048 -0- -0- 50,000 170,000 94,193 576,241
Total interest-bearing liabilities 324,663 91,450 106,317 163,535 198,045 169,366 1,053,376
Non-interest-bearing liabilities 8,590 8,590
Equity 52,704 52,704
Total liabilities and equity $ 324,663 $ 91,450 $ 106,317 $ 163,535 $198,045 $ 230,660 $1,114,670
Interest sensitivity gap(4) (124,891) (27,562) $ (2,201) $ (18,743) $114,258 $ 59,139
Cumulative interest sensitivity gap $(124,891) (152,453) $(154,654) $(173,397) $(59,139) -0-
Cumulative interest sensitivity gap as a -11.20% -13.68% -13.87% -15.56% -5.31% 0.00%
percent of total assets
Cumulative interest-earning assets as a 61.53% 63.36% 70.40% 74.72% 93.31% 99.63%
percent of cumulative interest-bearing
liabilities
</TABLE>
20
<PAGE> 21
(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 9% to 24%.
(6) Money market and savings accounts, and NOW accounts are assumed to have
decay rates between 5% and 135% 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.
21
<PAGE> 22
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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 through September 30, 2000, based upon the
assets, liabilities and off-balance sheet financial instruments in existence at
September 30, 1999. 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 period ending September 30, 1999.
<TABLE>
<CAPTION>
Rate shock to interest rates % change
---------------------------------- -----------
<S> <C>
+2% (13.8%)
+1% (6.4%)
-1% 1.5%
-2% 2.8%
</TABLE>
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.
22
<PAGE> 23
PART II OTHER INFORMATION
Item 1 LEGAL PROCEEDINGS
There are various claims and lawsuits in which Patriot is
periodically involved incidental to the Patriot's business,
which in the aggregate involve amounts which are believed by
management to be immaterial to the financial condition,
equity, and results of operations of the Company.
Item 2 CHANGES IN SECURITIES
Not applicable.
Item 3 DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
Item 5 OTHER INFORMATION
Not applicable.
23
<PAGE> 24
Item 6 EXHIBITS AND REPORTS ON FORM 8-K.
(a) The Following exhibits are filed as part of this report.
Exhibit 27 Financial Data Schedule
(filed herewith)
(b) Reports filed on Form 8K
None
- -------------
* Incorporated herein by reference into this document from the exhibits to Form
S-1, Registration Statement, filed on September 1, 1995 as amended Registration
No. 33-96530.
24
<PAGE> 25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PATRIOT BANK CORP.
------------------------------------
(Registrant)
Date November 12, 1999 /s/ JOSEPH W. MAJOR
--------------------- -------------------------------------
Joseph W. Major
President and Chief Executive Officer
Date November 12, 1999 /s/ RICHARD A. ELKO
--------------------- -------------------------------------
Richard A. Elko
Executive Vice President and
Chief Financial Officer
25
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0001000235
<NAME> PATRIOT BANK CORP.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1,000
<CASH> 5,097
<INT-BEARING-DEPOSITS> 10,873
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
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<ALLOWANCE> (6,006)
<TOTAL-ASSETS> 1,114,670
<DEPOSITS> 477,135
<SHORT-TERM> 260,124
<LIABILITIES-OTHER> 4,863
<LONG-TERM> 316,118
0
0
<COMMON> 0
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<INTEREST-LOAN> 33,284
<INTEREST-INVEST> 22,137
<INTEREST-OTHER> 200
<INTEREST-TOTAL> 55,621
<INTEREST-DEPOSIT> 15,236
<INTEREST-EXPENSE> 37,826
<INTEREST-INCOME-NET> 17,795
<LOAN-LOSSES> 900
<SECURITIES-GAINS> 722
<EXPENSE-OTHER> 15,582
<INCOME-PRETAX> 5,423
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
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<EPS-BASIC> .60
<EPS-DILUTED> .57
<YIELD-ACTUAL> 2.42
<LOANS-NON> 1,314
<LOANS-PAST> 0
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<RECOVERIES> 76
<ALLOWANCE-CLOSE> 6,006
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 6,006
</TABLE>
