<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 June 30, 2000
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: 6,194,707 shares of common
stock were outstanding as of August 14, 2000.
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 June 30, 2000
and December 31, 1999
Consolidated Statements of Income for the Three-Month and Six-Month
Periods ended June 30, 2000 and 1999
Consolidated Statements of Stockholders' Equity for the
Periods ended June 30, 2000 and December 31, 1999
Consolidated Statements of Cash Flows for the Six-Month
Periods ended June 30, 2000 and 1999
Consolidated Statements of Comprehensive (Loss) Income for the
Three-Month and Six-Month Periods ended June 30, 2000 and 1999
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>
June 30, December 31,
------------------------------
2000 1999
------------------------------
(unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 3,280 $ 4,919
Interest-earning deposits in other financial institutions 11,869 3,242
----------- -----------
Total cash and cash equivalents 15,149 8,161
Investment and mortgage-backed securities available for sale 86,460 87,334
Investment and mortgage-backed securities held to maturity (market value of
$312,040 and $330,754 at June 30, 2000
and December 31, 1999, respectively) 325,727 348,047
Loans held for sale 11,059 4,972
Loans and leases receivable, net of provision for credit loss of $6,159 and
$6,082 at June 30, 2000 and December 31, 1999, respectively 684,276 621,978
Premises and equipment, net 8,948 11,376
Accrued interest receivable 5,029 4,845
Real estate and other property owned 74 193
Cash surrender value life insurance 16,102 15,700
Goodwill 13,882 14,189
Other assets 9,714 12,648
----------- -----------
Total assets $ 1,176,420 $ 1,129,443
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 647,333 $ 502,002
FHLB advances 334,689 412,692
Securities sold under repurchase agreements 115,715 137,103
Trust preferred debt securities 19,000 19,000
Advances from borrowers for taxes and insurance 6,213 4,761
Other liabilities 2,363 4,117
----------- -----------
Total liabilities 1,125,313 1,079,675
----------- -----------
Preferred stock, $.01 par value, 2,000,000 shares authorized, none
Issued at June 30, 2000 and December 31, 1999, respectively -- --
Common stock, no par value, 10,000,000 shares authorized, 6,555,490
and 6,555,490 issued at June 30, 2000 and December 31, 1999, respectively -- --
Paid in capital 58,153 58,117
Common stock acquired by ESOP, 377,930 and 385,643 shares at amortized cost
at
June 30, 2000 and December 31, 1999, respectively (2,098) (2,141)
Common stock acquired by MRP, 84,698 and 108,794 shares at amortized
cost at June 30, 2000 and December 31, 1999, respectively (458) (638)
Retained earnings 6,433 4,737
Treasury stock, 360,783 and 369,991 at cost at June 30, 2000
and December 31, 1999, respectively (4,088) (4,172)
Accumulated other comprehensive loss (6,835) (6,135)
----------- -----------
Total stockholders' equity 51,107 49,768
----------- -----------
Total liabilities and stockholders' equity $ 1,176,420 $ 1,129,443
=========== ===========
</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)
<TABLE>
<CAPTION>
Three-Month Period Ended Six-Month Period Ended
June 30,
------------------------------------------------------
2000 1999 2000 1999
-------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest-earning deposits $ 168 $ 53 $ 229 $ 156
Investment and mortgage-backed securities 7,148 7,499 14,392 14,684
Loans and leases 13,933 11,004 27,122 21,677
-------- -------- -------- --------
Total interest income 21,249 18,556 41,743 36,517
-------- -------- -------- --------
INTEREST EXPENSE
Deposits 7,581 5,093 13,478 10,014
Short-term borrowings 4,108 3,090 8,521 6,102
Long-term borrowings 3,673 4,369 7,544 8,710
-------- -------- -------- --------
Total interest expense 15,362 12,552 29,543 24,826
-------- -------- -------- --------
Net interest income before provision for
credit losses 5,887 6,004 12,200 11,691
Provision for credit losses (300) (300) (600) (600)
-------- -------- -------- --------
Net interest income after provision for
credit losses 5,587 5,704 11,600 11,091
-------- -------- -------- --------
NON-INTEREST INCOME
Service fees, charges and other operating income 1,199 991 2,420 1,712
Loss on sale of real estate acquired through
foreclosure (3) 1 (3) 1
Gain on sale of investment and mortgage-backed
securities available for sale -- 72 -- 357
Mortgage banking gains 584 138 870 266
-------- -------- -------- --------
Total non-interest income 1,780 1,202 3,287 2,336
-------- -------- -------- --------
NON-INTEREST EXPENSE
Salaries and employee benefits 2,667 2,537 5,351 4,927
Office occupancy and equipment 1,316 946 2,729 2,056
Professional services 355 117 480 247
Federal deposit insurance premiums 26 55 51 110
Data processing 81 26 129 65
Advertising 227 135 303 300
Deposit processing 164 161 319 283
Goodwill amortization 275 252 550 449
Office supplies & postage 190 147 406 305
MAC expense 146 123 296 194
Other operating expense 277 593 692 885
-------- -------- -------- --------
Total non-interest expense 5,724 5,092 11,306 9,821
-------- -------- -------- --------
Income before income taxes 1,643 1,814 3,581 3,606
Income taxes 337 443 787 931
-------- -------- -------- --------
Net income $ 1,306 $ 1,371 $ 2,794 $ 2,675
======== ======== ======== ========
Earnings per share - basic $ 0.22 $ 0.24 $ 0.48 $ 0.47
======== ======== ======== ========
Earnings per share - diluted $ 0.22 $ 0.23 $ 0.47 $ 0.45
======== ======== ======== ========
Dividends per share $ 0.09 $ 0.08 $ 0.17 $ 0.16
======== ======== ======== ========
</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 (Loss) Total
---------- --------- --------- -------- -------- ------ ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1999 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
Release and amortization
of MRP 48 53 -- 359 -- -- -- 412
Release of ESOP shares 26 118 144 -- -- -- -- 262
Purchase ESPP shares 7 -- -- -- -- 68 -- 68
Change in unrealized gains
on securities available
for sale, net of taxes -- -- -- -- -- -- (9,990)
Net income -- -- -- -- 2,200 -- -- 2,200
Cash dividends paid -- -- -- -- (1,683) -- -- (1,683)
------- -------- -------- -------- -------- -------- -------- --------
BALANCE AT DECEMBER 31, 1999 5,691 $ 58,117 $ (2,141) $ (638) $ 4,737 $ (4,172) $ (6,135) $ 49,768
------- -------- -------- -------- -------- -------- -------- --------
Amortization of MRP shares 24 -- -- 180 -- -- -- 180
Amortization of ESOP shares 8 36 43 -- -- -- -- 79
Purchase ESPP shares 9 -- -- -- -- 84 -- 84
Change in unrealized gains
on securities available
for sale, net of taxes -- -- -- -- -- -- (700) (700)
Net income -- -- -- -- 2,794 -- -- 2,794
Cash dividends paid -- -- -- -- (1,098) -- -- (1,098)
------- -------- -------- -------- -------- -------- -------- --------
BALANCE AT JUNE 30, 2000 5,732 $ 58,153 $ (2,098) $ (458) $ 6,433 $ (4,088) $ (6,835) $ 51,107
======= ======== ======== ======== ======== ======== ======== ========
</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>
Six-Months Period Ended June 30,
--------------------------------
2000 1999
------------ ----------
<S> <C> <C>
Operating activities
Net Income $ 2,794 $ 2,675
Adjustments to reconcile net income to net cash
provided by operating activities
Amortization and accretion of
Deferred loan origination fees (242) 89
Premiums and discounts (1,451) (1,288)
MRP shares 180 213
Goodwill 550 449
Provision for credit losses 600 600
Release of ESOP shares 79 134
Gain on sale of securities available for sale -- (357)
Loss (gain) on sale of real estate owned 3 (1)
Charge-off real estate owned 16 113
Depreciation of premises and equipment 882 1,023
Mortgage loans originated for sale (60,691) (24,810)
Mortgage loans sold 54,604 26,701
Decrease (increase) in deferred income taxes 104 (1,996)
Increase in cash surrender value of life insurance (402) (264)
Increase (decrease) in accrued interest receivable (184) 152
Decrease in other assets 3,421 7,074
Decrease in other liabilities (1,670) (2,912)
--------- ---------
Net Cash (used by) provided by operating activities (1,407) 7,595
--------- ---------
Investing activities
Loan originations and principal payments on loans, net (62,772) (12,102)
Proceeds from the sale of securities - available for sale -- 6,182
Proceeds from the maturity of securities - available for sale 1,896 41,353
Proceeds from the maturity of securities - held to maturity 22,320 22,772
Purchase of securities - available for sale (425) (80,995)
Purchase of bank owned life insurance -- (15,000)
Proceeds from sale of real estate owned 223 5
Purchase of premises and equipment (1,235) (1,618)
Proceeds from sale of premises and equipment 2,431 25
Cash received in business combination -- 9,769
Net cash used in by investing activities (37,562) (29,609)
--------- ---------
Financing activities
Net increase in deposits 144,994 9,627
(Repayment of) proceeds from short term borrowings (167,490) 3,581
Repayment of long term borrowings (1,901) (53)
Proceeds from long term borrowings 70,000 --
Increase (decrease) in advances from
borrowers for taxes and insurance 1,452 1,574
Cash paid for dividends (1,098) (893)
Purchase of Treasury Stock -- (4,808)
--------- ---------
Net cash provided by financing activities 45,957 9,028
--------- ---------
Net increase (decrease) in cash and cash equivalents 6,988 (12,986)
Cash and cash equivalents at beginning of year 8,161 30,487
--------- ---------
Cash and cash equivalents at of the six month period $ 15,149 $ 17,501
========= =========
Supplemental Disclosures
Cash paid for interest on deposits $ 13,148 $ 9,762
========= =========
Cash paid for income taxes $ 1,054 $ 1,068
========= =========
Transfers from loans to real estate owned $ 123 $ 142
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 7
Patriot Bank Corp. and Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME LOSS
(in thousands, unaudited)
<TABLE>
<CAPTION>
Three-Month Period Ended Six-Month Period Ended
------------------------ -----------------------
June 30,
-----------------------------------------------------
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net income $ 1,306 $ 1,371 $ 2,794 $ 2,675
Other comprehensive income, net of tax
Unrealized gains on securities
Unrealized holding (losses) gains arising during the period (44) (4,347) (700) (5,715)
Less: Reclassification adjustment for gains included
in net income -- (48) -- (236)
------- ------- ------- -------
Comprehensive income (loss) $ 1,262 $(3,024) $ 2,094 $(3,276)
======= ======= ======= =======
</TABLE>
7
<PAGE> 8
PATRIOT BANK CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 2000
Note 1 - General
The accompanying financial statements of Patriot Bank Corp. and Subsidiaries
("Patriot") include the accounts of the parent company, Patriot Bank Corp. and
its wholly-owned subsidiaries, Patriot Bank and Patriot Investment Company. All
material intercompany balances and transactions have been eliminated in
consolidation. These financial statements have been prepared in accordance with
the instructions for Form 10-Q and therefore do not include certain information
or footnotes necessary for the presentation of financial condition, results of
operations, and cash flows in conformity with generally accepted accounting
principles. However, in the opinion of management, the consolidated financial
statements reflect all adjustments (which consist of normal recurring accruals)
necessary for a fair presentation of the results for the unaudited periods. The
results of operations for the three-month period ended June 30, 2000 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, 1999.
8
<PAGE> 9
PATRIOT BANK CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 2000
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>
June 30, 2000 December 31, 1999
---------------------------------------------------------------------------------------------
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
Corporate debt securities $ 17,334 $ -- $ 1,761 $ 15,573 $ 17,361 $ 73 $ 771 $ 16,663
FHLMC Preferred Stock 44,969 -- 467 44,502 44,966 797 1,151 44,612
FHLB Stock 21,235 -- -- 21,235 20,835 -- -- 20,835
Equity securities 6,300 -- 1,150 5,150 6,305 -- 1,081 5,224
-------- -------- -------- -------- -------- -------- -------- --------
Total securities available
for sale $ 89,838 $ -- $ 3,378 $ 86,460 $ 89,467 $ 870 $ 3,003 $ 87,334
======== ======== ======== ======== ======== ======== ======== ========
HELD TO MATURITY:
Investment securities
U.S. Treasury and
government agency
Securities $ 76,191 $ 4,241 $ 11,410 $ 69,022 $ 74,246 $ -- $ 7,455 $ 66,791
Corporate debt securities 1,000 1 -- 1,001 1,501 -- 1 1,500
Mortgage-backed securities
FHLMC 3,803 28 65 3,766 4,272 32 12 4,292
Fannie Mae 51,669 2,624 3,283 51,010 54,809 26 3,162 51,673
GNMA 4,089 11 102 3,998 4,528 44 3 4,569
Collateralized mortgage
Obligations
FHLMC 101,938 1,333 4,531 98,740 114,178 690 4,059 110,809
Fannie Mae 76,715 991 3,408 74,298 82,489 227 3,501 79,215
Other 8,025 1 90 7,936 9,732 -- 32 9,700
CMBS 2,297 32 60 2,269 2,292 -- 87 2,205
-------- -------- -------- -------- -------- -------- -------- --------
Total securities held to $325,727 $ 9,262 $ 22,949 $312,040 $348,047 $ 1,019 $ 18,312 $330,754
maturity ======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
9
<PAGE> 10
Note 3 - Loans Receivable
Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
June 30 December 31,
--------------------------
2000 1999
--------- ---------
(in thousands)
<S> <C> <C>
Mortgage loan portfolio
Secured by real estate $ 306,108 $ 293,852
Construction 12,152 10,481
Consumer loan portfolio
Home equity 67,166 69,785
Consumer 8,618 9,081
Commercial loan portfolio
Commercial 235,446 189,189
Commercial leases 62,062 57,808
--------- ---------
Total loans receivable 691,552 630,196
Less deferred loan origination fees (1,117) (2,136)
Allowance for credit losses (6,159) (6,082)
--------- ---------
Total loans receivable, net $ 684,276 $ 621,978
========= =========
</TABLE>
Note 4 - Deposits
Deposits are summarized as follows:
<TABLE>
<CAPTION>
June 30, December 31,
-------------------------
Deposit type 2000 1999
-------- --------
(in thousands)
<S> <C> <C>
NOW $ 27,339 $ 34,635
Money market 100,778 86,705
Savings accounts 34,208 37,193
Non-interest-bearing demand 36,883 30,760
-------- --------
Total demand, transaction, money
market and savings deposits 199,208 189,293
Certificates of deposits 448,125 312,709
-------- --------
Total deposits $647,333 $502,002
======== ========
</TABLE>
10
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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 Three-Months Ended June 30, 2000 For Six-Months Ended June 30, 2000
-------------------------------------- ------------------------------------------
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 $1,306 5,814 $0.22 $2,794 5,810 $0.48
EFFECT OF DILUTIVE SECURITIES
Dilutive Options - 146 -- -- 196 (.01)
------ ----- ----- ------ ----- -----
DILUTED EPS
Net income available to common
Stockholders plus assumed conversions $1,306 5,960 $0.22 $2,794 6,006 $0.47
====== ====== ===== ====== ====== =====
</TABLE>
<TABLE>
<CAPTION>
For Three-Months Ended June 30, 1999 For Six-Months Ended June 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 $1,371 5,772 $0.24 $2,675 5,674 $0.47
EFFECT OF DILUTIVE SECURITIES
Dilutive Options -- 185 (.01) -- 207 (.02)
------ ----- ----- ------ ----- -----
DILUTED EPS
Net income available to common
Stockholders plus assumed conversions $1,371 5,957 $0.23 $2,675 5,881 $0.45
====== ====== ===== ====== ====== =====
</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-six 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. In the fourth quarter of 1999 Patriot's ownership of Zip
was reduced to an insignificant percentage that will cause Patriot to only
report results for that segment for the third and fourth quarters of 1999.
Patriot currently holds a $5 million in debenture at the applicable Federal rate
from Zip that will allow Patriot to convert 5 million warrants to shares in the
event of ZIP having an IPO.
The following table highlights income statement and balance sheet
information for each of the segments at or for the three-month and six-month
periods ending June 30, 2000 and 1999 (in thousands).
<TABLE>
<CAPTION>
For the three-month period ended June 30, 2000 For the six-month period ended June 30, 2000
---------------------------------------------- --------------------------------------------
PB PCLC ZIP Total PB PCLC ZIP Total
-- ---- --- ----- -- ---- --- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net interest income $ 5,341 $ 546 $-- $ 5,887 $ 11,162 $ 1,038 $-- $ 12,200
Other income 1,417 363 -- 1,780 2,736 551 -- 3,287
Total net income 1,092 214 -- 1,306 2,511 283 -- 2,794
Total assets 1,113,173 63,247 -- 1,176,420 1,113,173 63,247 -- 1,176,420
Total loans and leases 622,214 62,062 -- 684,276 622,214 62,062 -- 684,276
</TABLE>
<TABLE>
<CAPTION>
For the three-month period ended June 30, 1999 For the six-month period ended June 30, 1999
---------------------------------------------- -----------------------------------------------
PB PCLC ZIP Total PB PCLC ZIP Total
-- ---- --- ----- -- ---- --- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net interest income $ 5,611 $ 393 $-- $ 6,004 $ 10,889 $ 802 $-- $ 11,691
Other income 1,057 145 -- 1,202 2,056 280 -- 2,336
Total net income 1,329 42 -- 1,371 2,614 61 -- 2,675
Total assets 1,050,318 51,787 -- 1,102,105 1,050,318 51,787 -- 1,102,105
Total loans and leases 516,299 49,127 -- 565,426 516,299 49,127 -- 565,426
</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
and SFAS No. 138 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 June 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 is have
been included in Patriot;s consolidated statement of income from the date of
acquisition. The transaction added $6,712,000 of goodwill which is being
amortized over 15 years and $4,508,000 of core deposit intangibles to Patriot's
balance sheet which is being 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 November 6, 1998, Patriot acquired Keystone Financial Leasing
Company (KFL). KFL is a small-ticket commercial leasing company which had total
assets of $43,327,000 including lease receivables of $42,764,000 at the date of
acquisition. KFL was purchased for $6,258,000 in cash plus contingent
consideration based upon future revenues of KFL. The acquisition was accounted
for as a purchase. Goodwill arising from the transaction totaled $2,267,000 and
is being amortized over 15 years.
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 $.22 and net income
of $1,306,000 for the three-month period ended June 30, 2000 compared to diluted
earnings per share of $.23 and net income of $1,371,000 for the three month
period ended June 30, 1999. Diluted earnings per share for the six-month period
ending June 30, 2000 was $.47 and net income of $2,794,000 compared with $.45
and net income of $2,675,000 for the six-month period ended June 30, 1999.
Return on average equity was 10.46%, for the three-month period ended June 30,
2000 compared to 9.49%, for the three-month period ended June 30, 1999.
NET INTEREST INCOME. Net interest income for the three-month and six-month
periods ended June 30, 2000 was $5,887,000 and $12,200,000 compared to
$6,004,000 and $11,691,000 for the same periods in 1999. The decrease during the
second quarter is primarily due to the impact of general increases in market
rates on Patriot's funding sources compressing Patriot's net interest margin.
Patriot's net interest margin (net interest income as a percentage of average
interest-earning assets) was 2.36% for the six-month period ended June 30, 2000
compared to 2.38% for the same period in 1999. The increase in margin is
primarily due to the acquisitions and the growth of Patriot's commercial loan
portfolio.
Interest on loans and leases was $13,933,000 and $27,122,000 for the
three-month and six-month periods ended June 30, 2000 compared to $11,004,000
and 21,677,000 for the same periods in 1999. The average balance of loans was
$656,564,000 with an average yield of 8.27% for the six-month period ended June
30, 2000 compared to an average balance of $551,682,000 with an average yield of
7.89% for the same period in 1999. The increase in average balance is due to
strong growth in the originations of commercial loans and leases. The increase
in average yield is primarily a result of a greater volume of higher yielding
commercial loans and leases.
Interest on Patriot's investment portfolio (investment and mortgage-backed
securities) was $7,148,000 and $14,392,000 for the three-month and six-month
periods ended June 30, 2000 compared to $7,499,000 and $14,684,000 for the same
periods in 1999. The average balance of the investment portfolio was
$424,545,000 with an average yield of 7.11% for the six-month period ended June
30, 2000 compared to an average balance of $462,284,000 with an average yield of
6.62% for the same period in 1999. The decrease in average balance is primarily
due to Patriot allowing the investment portfolio to amortize down so it can be
replaced with commercial assets. The increase in average yield is related to
increases in yields in the market.
Interest on total deposits was $7,581,000 and $13,478,000 for the three-month
and six-month periods ended June 30, 2000 compared to $5,093,000 and $10,014,000
for the same periods in 1999. The average balance of total deposits was
$557,857,000 with an average cost of 4.84% for the six-month period ended June
30, 2000 compared to an average balance of $458,103,000 with an average cost of
4.40% for the same period in 1999. The increase in average balance is primarily
the result of aggressive marketing of certificates of deposit, money market and
other transaction-based deposit accounts, and an increase in Patriot's jumbo
deposit program. The increase in average yield was the result of general
increases in interest rates and growth in the jumbo deposit program.
Interest on borrowings was $7,781,000 and $16,065,000 for the three-month
and six-month periods ended June 30, 2000 compared to $7,459,000 and $14,812,000
for the same periods in 1999. The average balance of borrowings was $541,502,000
with an average cost of 5.93% for the six-month period ended June 30, 2000
compared to an average balance of $553,558,000 with a cost of 5.37% for the same
period in 1999. The decrease in average balance was due to growth in Patriot's
deposit based products. The increase in the cost of borrowings was the result of
a general increase in interest rates.
PROVISION FOR CREDIT LOSSES. The provision for credit losses was $300,000 and
$600,000 for the three-month and six-month periods ended June 30, 2000
identical to the same periods in 1999. Patriot continues to have excellent
asset quality with low levels of delinquencies and low level of non-performing
assets. At June 30, 2000 Patriot's non-performing assets were .22% of total
assets and all loans 30 days or more delinquent were .63% of total loans.
14
<PAGE> 15
NON-INTEREST INCOME. Total non-interest income was $1,780,000 and $3,287,000
for the three-month and six-month periods ended June 30, 2000 compared to
$1,202,000 and $2,336,000 for the same periods in 1999. 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 an increase
in mortgage banking gains of $584,000 and $870,000 for the three-month and
six-month periods ended June 30, 2000 compared to $138,000 and $266,000 for the
same periods in 1999 as well as growth in other areas such as loan and deposit
fees, ATM fees, and income from bank owned life insurance.
NON-INTEREST EXPENSE. Total non-interest expense was $5,724,000 and
$11,306,000 for the three-month and six-month periods ended June 30, 2000
compared to $5,092,000 and $9,821,000 for the same periods in 1999. 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 First
Lehigh and Patriot's newly opened retail offices on Tilghman St. in Allentown,
Pennsylvania and in Exeter Township, Pennsylvania, and growth in the mortgage
banking operations.
In response to the impact of rising rates on net interest income, Patriot's
management team is focusing its efforts on analyzing and improving fee income
and operating expenses. During the second quarter Patriot's management team
implemented substantial changes to its business plan including reductions in
staffing and benefits costs, increased efficiency through automation, and a
reengineering of the Mortgage Banking operations.
INCOME TAX PROVISION. The income tax provision was $337,000 and $787,000 for
the three-month and six-month periods ended June 30, 2000 compared to $443,000
and $931,000 for the same periods in 1999. The effective tax rate was 20.51% and
21.97% for three-month and six-month periods ended June 30, 2000 compared to
24.42% and 25.80% for the same periods in 1999. The decrease 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 June 30, 2000
Patriot's total loan portfolio was $684,276,000, compared to a total loan
portfolio of $621,978,000 at December 31, 1999. The increase in the loan
portfolio was primarily the result of aggressive marketing of commercial loans
and leases. During the six-month period ended June 30, 2000, Patriot originated
total loans and leases of $212,846,000, compared to total loans and leases
originated of $126,744,000 for the same period in 1999. Commercial loan and
lease originations for the six-month period ended June 30, 2000 were
$106,255,000 compared to $70,429,000 for the same period in 1999.
CASH AND CASH EQUIVALENTS. Cash and cash equivalents at June 30, 2000 were
$15,149,000 compared to $8,161,000 at December 31, 1999. The increase 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 June 30, 2000 were
$412,187,000 compared to $435,381,000 at December 31, 1999. The decrease in
investment and mortgage-backed securities is primarily due to normal investment
amortization.
OTHER ASSETS. Premises and equipment at June 30, 2000 was $8,948,000 compared
to $11,376,000 at December 31, 1999. The decrease in premises and equipment is
primarily associated with normal depreciation coupled with the sale of a closed
branch office and the corporate headquarters building acquired from First
Lehigh. Accrued interest receivable at June 30, 2000 was $5,029,000 compared to
$4,845,000 at December 31, 1999. Real estate owned at June 30, 2000 was $74,000
compared to $193,000 at December 31, 1999. Bank owned life insurance policy with
a cash surrender value at June 30, 2000 of $16,102,000 compared to $15,700,000
at December 31, 1999. Goodwill at June 30, 2000 was $13,882,000 compared to
$14,189,000 at December 31, 1999. Other assets at June 30, 2000 were $9,714,000
compared to $12,648,000 at December 31, 1999.
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 June 30, 2000 were $647,333,000 compared to $502,002,000 at
December 31, 1999. The increase in balance is primarily attributed to
$105,000,000 in growth in Patriot's Jumbo CD program.
15
<PAGE> 16
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 June 30, 2000 were $469,404,000
compared to $568,795,000 at December 31, 1999. The decrease is primarily
associated with funding being provided by growth in deposits.
STOCKHOLDERS' EQUITY. Total stockholders' equity was $51,107,000 at June 30,
2000 compared to $49,768,000 at December 31, 1999. The increase in balance is
primarily due to earnings offset by dividends to shareholders' and decreases in
accumulated other comprehensive income.
YEAR 2000 ISSUES
Year 2000 issues result from the inability of many computer programs or
computerized equipment to accurately calculate, store or use data for the year
2000 or later. These potential shortcomings could result in a system failure or
miscalculations causing disruptions of operations, 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. While lingering concern exists about certain dates during
the Year 2000, the most significant date, January 1, 2000, has passed without
incident. As of the date of this filing Patriot has not experienced any
significant Year 2000 problems relating to its internal or third party computer
systems. Nor has Patriot experienced any issues regarding ability of commercial
customers to meet debt service as a result of Year 2000 issues. Patriot incurred
costs related to year 2000 compliance and testing amounting to $144,000 and will
continue to monitor systems for problems in the future, however the costs
related to that process are not expected to be significant.
16
<PAGE> 17
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 six-month period ended June 30, 2000, significant liquidity was
provided by growth in deposits and maturities investment and mortgage-backed
securities. The funds provided by these activities were invested in new loans
and the repayment of borrowings.
At June 30, 2000, Patriot had outstanding loan commitments of
$70,085,000. 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 June 30, 2000 totaled $345,566,000.
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 1% to 2%,
(100 to 200) basis points. At December 31, 1999, 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 June 30, 2000:
<TABLE>
<CAPTION>
To Be To Be
Actual Adequacy Capitalized Well Capitalized
------ -------------------- ----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
As of June 30, 2000
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk weighted assets)
Patriot Bank Corp. $68,152 10.03% $54,346 8% $67,932 10%
Patriot 71,272 10.66% 54,783 8% 68,479 10%
Tier I capital (to risk-weighted assets)
Patriot Bank Corp. 61,951 9.12% 27,173 4% 40,759 6%
Patriot 65,112 9.71% 27,392 4% 41,087 6%
Tier I capital (to average assets)
Patriot Bank Corp. 61,951 5.37% 46,166 4% 57,707 5%
Patriot 65,112 5.69% 46,375 4% 57,969 5%
</TABLE>
17
<PAGE> 18
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 June 30, 2000, 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
$352,687,000 representing a one-year cumulative "gap," as defined above, as a
percentage of total assets of negative 29.98%.
18
<PAGE> 19
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at June 30, 2000, 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 June 30,
2000, 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 June 30, 2000
----------------
3 Months 3 Months to 6 Months to 1 Year to
or Less 6 Months 1 Year 3 Years
----------- ----------- ----------- -----------
(In thousands)
<S> <C> <C> <C> <C>
INTEREST EARNING ASSETS(1):
Interest earning deposits $ 11,869 $ -- $ -- $ --
Investment and mortgage-backed 121,106 12,841 16,455 28,776
securities, net (2)(5)
Loans receivable, net(3)(5) 122,156 40,453 69,630 100,051
----------- ----------- ----------- -----------
Total interest-earning assets 255,131 53,294 86,085 128,827
Non-interest-earning assets -- -- -- --
----------- ----------- ----------- -----------
Total assets 255,131 53,294 86,085 128,827
----------- ----------- ----------- -----------
INTEREST-BEARING LIABILITIES:
Money market and passbook savings 12,522 12,522 25,044 47,368
accounts(6)
Demand and NOW accounts (6) 2,585 2,585 5,170 10,340
Certificates of deposit 123,377 52,806 169,383 85,731
Borrowings 230,216 50,000 60,987 56,323
----------- ----------- ----------- -----------
Total interest-bearing liabilities 368,700 117,913 260,584 199,762
Non-interest-bearing
liabilities 8,575 8,575
Equity -- -- -- --
----------- ----------- ----------- -----------
Total liabilities and equity 368,700 117,913 260,584 199,762
----------- ----------- ----------- -----------
Interest sensitivity gap(4) $ (113,569) $ (64,619) $ (174,499) $ (70,935)
----------- ----------- ----------- -----------
Cumulative interest sensitivity gap $ (113,569) $ (178.188) $ (352,687) $ (423,622)
----------- ----------- ----------- -----------
Cumulative interest sensitivity gap as a (9.65)% (15.15)% (29.98)% (36.01)%
percent of total assets ----------- ----------- ----------- -----------
Cumulative interest-earning assets as a 69.20% 63.38 % 52.80 % 55.27 %
percent of cumulative interest-bearing
liabilities
</TABLE>
<TABLE>
<CAPTION>
At June 30, 2000
----------------
3 Years to More than
5 Years 5 Years Total
----------- ----------- -----------
<S> <C> <C> <C>
INTEREST EARNING ASSETS(1):
Interest earning deposits $ -- $ -- $ 11,869
Investment and mortgage-backed 75,169 157,821 412,168
securities, net (2)(5)
Loans receivable, net(3)(5) 234,759 128,286 695,335
----------- ----------- -----------
Total interest-earning assets 309,928 286,107 1,119,372
Non-interest-earning assets -- 57,048 57,048
Total assets 309,928 343,155 1,176,420
----------- ----------- -----------
INTEREST-BEARING LIABILITIES:
Money market and passbook savings 19,361 18,169 134,986
accounts(6)
Demand and NOW accounts (6) 20,679 22,863 64,222
Certificates of deposit 12,782 4,046 448,125
Borrowings 31,826 40,053 469,405
----------- ----------- -----------
Total interest-bearing liabilities 84,648 85,131 1,116,738
Non-interest-bearing liabilities 8,575 8,575
Equity -- 51,107 51,107
----------- ----------- -----------
Total liabilities and equity 84,648 144,813 1,176,420
----------- ----------- -----------
Interest sensitivity gap(4) $ 225,280 $ 198,342 $--
----------- ----------- -----------
Cumulative interest sensitivity gap $ (198,342) $ --
----------- -----------
Cumulative interest sensitivity gap as a (16.86)% --%
percent of total assets ----------- -----------
Cumulative interest-earning assets as a 80.77 % 100.24 %
percent of cumulative interest-bearing
liabilities
</TABLE>
19
<PAGE> 20
(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 6% to 12%.
(6) Money market and savings accounts, and NOW accounts are assumed to have
decay rates between 11% and 50% annually and have been estimated based
upon a historic analysis of core deposit trends.
20
<PAGE> 21
ITEM 3. 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, 1999
set forth in "Managements Discussion an Analysis of Financial and Results of
Operations -- Management of Interest Rate Risk" in Item 2 hereof, is
incorporated herein by reference.
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 June 30, 2001, based upon
the assets, liabilities and off-balance sheet financial instruments in existence
at June 30, 2000. 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 June 30, 2000.
<TABLE>
<CAPTION>
Rate shock to interest rates % change
---------------------------------- -----------
<S> <C>
+2% (19.32%)
+1% (7.99%)
-1% 8.21%
-2% 14.56%
</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.
21
<PAGE> 22
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
The company held its Annual Meeting of Shareholders on April
27, 2000. At the said meeting 6,180,592 shares of Common Stock were eligible to
vote, of which 4,785,184 shares were present in person or by proxy. The
following matters were voted upon at the Annual Meeting and the number of
affirmative votes, negative votes and abstentions with respect to the matters
are as follows:
1. At the Annual Meeting, two directors were elected for three-year terms.
The nominees were Samuel N. Landis and Joseph W. Major.
<TABLE>
<CAPTION>
For % Withheld %
<S> <C> <C> <C> <C>
Samuel N. Landis 4,870,112 97.40 128,865 2.60
Joseph W. Major 4,785,874 95.70 213,103 4.30
</TABLE>
The names of each of the directors whose term of office continued after the
Annual Meeting and their respective term expirations are as follows:
<TABLE>
<S> <C>
Larry V. Thren 2001
James B. Elliot 2001
James A. Bentley Jr. 2002
Richard A. Elko 2002
</TABLE>
2. The ratification of the appointment of KPMG Peat Marwick LLP as
independent auditors of Patriot Bank Corp. for fiscal year ending December 31,
2000.
<TABLE>
<CAPTION>
For % Against % Abstain %
<S> <C> <C> <C> <C> <C>
4,978,780 99.60% 5,593 .10% 14,604 .30%
</TABLE>
22
<PAGE> 23
Item 5 OTHER INFORMATION
Not applicable.
Item 6 EXHIBITS AND REPORTS ON FORM 8-K.
(a) The Following exhibits are filed as part of this
report.
Exhibit 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.
23
<PAGE> 24
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 August 14, 2000
----------------- --------------------------------------
Joseph W. Major
President and Chief Executive Officer
Date August 14, 2000
---------------- --------------------------------------
James G. Blume
Executive Vice President and
Chief Financial Officer
24
