As filed with the Securities and Exchange Commission on September 30, 1998.
Registration No. ________
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
PREMIER BANCORP, INC.
---------------------------------------------
(Name of small business issuer in its charter)
Pennsylvania
----------------------------
(State or jurisdiction of
incorporation or organization)
6022
-----------------------------
(Primary Standard Industrial Classification Code Number)
23-2921058
----------------------------
(I.R.S. Employer Identification No.)
379 North Main Street
Doylestown, Pennsylvania 18901
(215) 345-5100
--------------------------------------------------
(Address and telephone number of principal
executive offices and principal place of business)
John C. Soffronoff, President and CEO
PREMIER BANCORP, INC.
379 North Main Street
Doylestown, Pennsylvania 18901
(215) 345-5100
--------------------------------------
(Name, address and telephone number of agent for service)
With Copies To:
Nicholas Bybel, Jr., Esquire
SHUMAKER WILLIAMS, P.C.
P.O. Box 88
Harrisburg, Pennsylvania 17108
Approximate date of proposed sale to the public: September 30, 1998 or as
soon as practicable after the effective date of this Registration Statement.
<TABLE>
CALCULATION OF REGISTRATION FEE
<CAPTION>
Title of Each Class Proposed Maximum
of Securities Number of Units/ Offering Price
to be Registered Shares to be Registered Per Share(1)
<S> <C> <C>
Common Stock
$0.33 par value 500,000 $11.00
<CAPTION>
Title of Each Class Proposed Maximum Amount of
of Securities Aggregate Registration
to be Registered Offering Price(1) Fee
<S> <C> <C>
Common Stock
$0.33 par value $5,500,000 $1,622.50
<FN>
(1) Based upon the maximum offering price in accordance with Rule 457(o).
</FN>
</TABLE>
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said section 8(a),
may determine.
INDEX TO EXHIBITS FOUND ON PAGE 206
PAGE 1 OF 240 SEQUENTIALLY NUMBERED PAGES
<PAGE>
PROSPECTUS
PREMIER BANCORP, INC.
DOYLESTOWN, PENNSYLVANIA
500,000 SHARES OF COMMON STOCK
($0.33 per share par value)
SUBSCRIPTION PRICE: $11.00
OFFERING MINIMUM SUBSCRIPTION: 100 Shares
OFFERING MAXIMUM SUBSCRIPTION: 10,000 Shares
Premier Bancorp, Inc. (the "Company"), is a Pennsylvania business
corporation and a bank holding company registered under the provisions of the
Bank Holding Company Act of 1956, as amended. The Company is the parent company
of Premier Bank (the "Bank"). The Company is hereby offering shares of its
common stock, par value $0.33 per share (herein referred to as the "Shares" or
the "Common Stock") for $11.00 per share (the "Offering Price") in an offering
to the general public. The Shares are being offered by the Company's directors,
officers and employees on a "best-efforts" basis, with no required aggregate
minimum, on the terms and conditions set forth herein. The Company is offering
to the general public in a direct community offering up to a maximum of 500,000
Shares in the aggregate at the Offering Price (the "Offering"). The minimum and
maximum subscriptions for each subscriber in the Offering are 100 Shares and
10,000 Shares, respectively. No fractional Shares will be issued. All
subscriptions will be irrevocable by the subscriber. The Company reserves the
right, to accept subscriptions on a partial basis as well as to reject any
subscription in whole or in part and for any reason, in the event subscriptions
to purchase more than the maximum number of Shares are received. The Company
reserves the right, in its sole discretion, to waive any of the limitations set
forth herein. See PLAN OF DISTRIBUTION.
The Offering will commence on September 30, 1998 or as soon as practicable
after the effective date of this Registration Statement and will terminate at
5:00 p.m. on December 15, 1998, or such later date as shall be determined by the
Company, but in no event later than 5:00 p.m. on January 30, 1999, (the
"Offering Termination Date"). The Company reserves the right to withdraw the
Offering at any time and to terminate this Offering at any time. There is no
aggregate minimum number of Shares that must be sold in order to complete this
Offering.
In the event of a withdrawal or termination of the Offering or a rejection
of a subscription, any funds advanced but not accepted will be returned as
promptly as possible of the withdrawal, termination or rejection. Funds returned
will not include interest earned on funds advanced or be reduced to cover
expenses or charges.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, THE PENNSYLVANIA SECURITIES COMMISSION, OR ANY OTHER
STATE SECURITIES AUTHORITY. NONE OF THE AFOREMENTIONED HAS PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Price(1) Underwriting Discounts Proceeds to Company(3)(4)
and Commissions(2)
------- ---------------------- ------------------------
<S> <C> <C> <C>
Per Unit $11 $0 $5,447,000
Total - Maximum
(500,000 Shares) $5,500,000 $0 $5,447,000
Total - Minimum
(5) (0 Shares) $0 $0 $0
<FN>
(1) See DETERMINATION OF OFFERING PRICE.
(2) The Company has employed no underwriters or selling agents in connection
with the sale of the Shares offered hereby to which compensation would be
payable. The Company is offering the Shares to be sold in the Offering
through the efforts of its directors, officers and employees on a
best-efforts basis. None of these individuals will be entitled to receive
any discounts or commissions for selling such Shares, but each of them may
be reimbursed by the Company for reasonable expenses, if any, incurred in
connection with the sale of the Shares. No Company director, officer or
employee will receive any additional compensation for acting in connection
with the sale of the Shares.
(3) These amounts assume that a maximum of 500,000 Shares are sold. The Board
of Directors of the Company reserves the right to accept individual
subscriptions for less than 100 Shares and individual subscriptions for
more than 10,000 Shares.
(4) After deducting offering expenses incurred by the Company in connection
with the Offering estimated at $53,000.
(5) There is no aggregate minimum number of Shares that must be sold in order
to complete the Offering.
</FN>
</TABLE>
The date of this Prospectus is September 30, 1998.
THIS OFFERING INVOLVES A DEGREE OF RISK. Prior to subscribing for Shares
offered hereby, investors should carefully consider the matters set forth under
RISK FACTORS on Page 1.
ii
<PAGE>
THIS PROSPECTUS CONTAINS ESSENTIAL INFORMATION ABOUT THE COMPANY AND THE
SECURITIES BEING OFFERED HEREBY. PERSONS ARE ADVISED TO READ THIS PROSPECTUS
CAREFULLY PRIOR TO MAKING ANY DECISION TO PURCHASE THESE SECURITIES.
-------------------
NO AGENT, OFFICER OR DIRECTOR OF THE COMPANY OR ANY OTHER PERSON HAS
BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION
AND REPRESENTATIONS SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS IS NOT AN OFFER TO SELL OR A SOLICITATION TO BUY ANY
SECURITIES OTHER THAN THOSE SPECIFICALLY OFFERED HEREBY, NOR IS IT AN OFFER OR
SOLICITATION IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE
SUCH AN OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF. HOWEVER, THIS PROSPECTUS WILL BE AMENDED IN THE EVENT THAT
THERE ARE MATERIAL CHANGES, OF WHICH THE COMPANY IS AWARE, DURING THE COURSE OF
THE OFFERING.
-------------------
THE SHARES OF THE COMPANY'S COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS
ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION AND ARE
NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY. AN INVESTMENT IN THE SHARES OF THE COMPANY'S COMMON STOCK
IS NOT GUARANTEED BY A BANK NOR AN OBLIGATION OF A BANK.
-------------------
THE OFFERING OF SHARES PURSUANT TO THE OFFERING WILL EXPIRE AT 5:00 P.M.,
PREVAILING TIME, ON DECEMBER 15, 1998, UNLESS EXTENDED BY THE COMPANY TO A TIME
AND DATE NO LATER THAN 5:00 P.M. ON JANUARY 30, 1999. See TERMS OF THE OFFERING
- - Subscription Procedure.
iii
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"SEC") in Washington, D.C., a registration statement under the Securities Act of
1933, as amended, (the "Registration Statement") for the registration of its
Common Stock to be issued in this Offering. This Prospectus is a part of such
Registration Statement. Pursuant to the rules and regulations of the SEC, this
Prospectus omits certain information contained in the Registration Statement.
For additional information pertaining to the Company and the Bank and the
securities to be issued in the Offering, reference is made to such Registration
Statement, including the exhibits thereto. The Registration Statement and
exhibits may be examined during normal business hours at the offices of the
Securities and Exchange Commission, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, telephone number (202) 272-7450.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, accordingly, files
reports, proxy statements and other information with the SEC. Such reports,
proxy statements and other information filed with the Commission are available
for inspection and copying at the public reference facilities maintained by the
SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the SEC Regional Offices located at Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and at World Trade Center, Suite 1300, New
York, New York 10048. Copies of such documents may also be obtained from the
Public Reference Section of the SEC at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Company is an electronic filer
with the SEC. The SEC maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the SEC. The address of the SEC Web site is:
http://www.sec.gov.
Upon written or oral request of any person who receives a Prospectus, a
copy of any information incorporated by reference herein (not including the
exhibits to the information that is incorporated by reference, unless such
exhibits are specifically incorporated by reference) may be obtained, without
charge, from Bruce E. Sickel, Chief Financial Officer of Premier Bank and
Treasurer of Premier Bancorp, Inc., 379 North Main Street, Doylestown,
Pennsylvania 18901, (215) 345-5100.
FORWARD LOOKING STATEMENTS
Information contained in this Prospectus contains "forward looking
statements" which can be identified by the use of forward looking terminology
such as "believes," "expects," "may," "will," "should," "projected,"
"contemplates" or "anticipates" or the negative thereof or other variations
thereon or comparable terminology. No assurance can be given that the future
results covered by the forward looking statements will be achieved. Such
information also includes cautionary statements identifying important factors
with respect to such forward looking statements, including certain risks and
uncertainties with respect to such forward looking statements, that could cause
actual results to vary materially from the future results covered in such
forward looking statements. Other factors, such as the general state of the
economy, changes in the regulatory environment, the securities markets, general
business conditions and inflation, could also cause actual results to vary
materially from the future results covered in such forward looking statements.
iv
<PAGE>
PROSPECTUS SUMMARY
The following summary of this Prospectus is provided for your convenience
and is not intended to be complete. This summary is qualified in its entirety by
the detailed information set forth elsewhere in this Prospectus.
The Company
Premier Bancorp, Inc. (the "Company") is a bank holding company
headquartered in Doylestown, Pennsylvania and is the holding company for Premier
Bank (the "Bank"), a Pennsylvania chartered banking institution established in
1990. At June 30, 1998, the Company had total consolidated assets, deposits and
shareholders' equity of $207,710,593, $172,051,448 and $11,219,280,
respectively. See DESCRIPTION OF BUSINESS - Description of the Company.
The principal executive offices of the Company and the Bank are located at
379 North Main Street, Doylestown, Pennsylvania 18901 and the telephone number
is (215) 345-5100.
The Bank
The Bank is a community-oriented financial services provider where
consumers and small business customers can obtain a wide variety of products and
services, including: checking, savings, money market accounts as well as
certificates of deposit, residential mortgage loans, home equity loans and lines
of credit, personal lines of credit, working capital lines, and other commercial
loans. The Bank also offers other services such as electronic banking, cash
management services, safe deposit boxes, telephone banking and automated teller
services. The Bank places an emphasis on serving customer needs by providing
personal attention and service. The Bank's primary service areas are Bucks
County, Pennsylvania and the Lehigh Valley region. Specifically, the main office
of the Bank is located in Doylestown, the county seat of Bucks County. The Bank
conducts business from its main office and two other retail offices located in
Southampton, Bucks County and Easton, Northampton County. In addition, the Bank
has a loan origination office in Yardley, Bucks County. A fourth branch office
in Lower Makefield Township in Bucks County is expected to open during the
fourth quarter of 1998. See DESCRIPTION OF BUSINESS - Description of the Bank.
As of June 30, 1998, the Bank had $207,710,593 in assets, $172,051,448 in
deposits and $119,404,491 in net loans. The Bank is a member of the Federal
Reserve System and the Bank's deposits are insured by the Bank Insurance Fund
("BIF") of the Federal Deposit Insurance Corporation ("FDIC") to the fullest
extent provided by law.
As of June 30, 1998, the Bank had a ratio of Tier 1 capital to risk-based
assets of 8.16 percent, a ratio of total capital to risk-based assets of 10.39
percent and a leverage ratio of 5.49 percent. See MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION - Capital Adequacy
included in the Company's Quarterly Report on Form 10-QSB filed with the
Securities and Exchange Commission on August 14, 1998, SEC File Number 333-34243
and attached hereto as Annex B.
v
<PAGE>
THE OFFERING
Number of Shares of Common Stock
Authorized and Outstanding........ Common Stock, par value $0.33 per share;
30,000,000 shares authorized; 2,630,340
shares outstanding as of June 30, 1998.
Number of Shares Offered Hereby..... 500,000 Shares of Common Stock.
Offering Price...................... $11.00 per share for the Offering. See
DETERMINATION OF OFFERING
PRICE and MARKET FOR COMMON
STOCK AND RELATED
STOCKHOLDER MATTERS.
Use of Proceeds..................... The Company will use the net proceeds for
general corporate purposes, including
investments in or advances to the Bank to
increase the Bank's capital position.
A portion of the net proceeds may be
downstreamed to the Bank in order for
the Bank to exercise its options to
purchase two of the Bank's facilities.
See USE OF PROCEEDS.
Offering....... .................... The Company is offering up to 500,000
Shares, directly to the public. There is
a minimum required subscription of 100
Shares in the Offering. There also is a
maximum subscription of 10,000 Shares in
the Offering. See TERMS OF THE OFFERING -
Subscription Procedure.
Expiration of Offering.............. The Offering will expire at 5:00 p.m.,
prevailing time, on December 15, 1998,
and may be extended to a time and date no
later than 5:00 p.m. on January 30, 1999.
See TERMS OF THE OFFERING - Subscription
Procedure.
Rejection of Subscriptions.......... The Company reserves the right to reject
any subscription, in whole or in part,
for any reason including for the reason
that the Company has already accepted
subscriptions for 500,000 Shares and for
the reason that the
vi
<PAGE>
Company believes that other subscribers
will be more likely to direct business
to the Bank. See PLAN OF DISTRIBUTION
and TERMS OF THE OFFERING.
Dilution and Effect of Offering on
Book Value of Common Stock........ As of June 30, 1998, the Company had
2,630,340 shares of Common Stock issued
and outstanding. As of June 30, 1998 the
Company had total equity capital of
$11,219,280 and a book value of $4.27 per
share. In the event all 500,000 Shares
of Common Stock offered hereby are sold
at the Offering Price of $11.00 per
Share, the capital of the Company will
increase, after payment of anticipated
expenses associated with the Offering,
by an aggregate of approximately
$5,447,000. The book value per share
will increase by $1.05 per share to
$5.32; however, there will be an
immediate dilution of book value to
investors of $5.68 per share. There
can be no assurance, however, that all
or any Shares will be sold in the
Offering. An existing shareholder who
does not purchase shares in the Offering
will experience a dilution in his/her
stock ownership because such
shareholder's comparative percentage of
the issued and outstanding Common Stock
of the Company will be reduced.
vii
<PAGE>
SUMMARY OF CONSOLIDATED FINANCIAL DATA
The following is a summary of consolidated financial data for the Company
at and for each of the indicated two years ended December 31, 1997 and 1996,
respectively, and at and for the six month periods ended June 30, 1998 and 1997.
The following financial data is qualified by reference to the more detailed
information contained in the consolidated financial statements and notes thereto
included elsewhere herein. See INDEX TO CONSOLIDATED FINANCIAL STATEMENTS.
Results for the quarters ended June 30, 1998 and 1997, respectively, are not
necessarily indicative of the results of operations that may be expected for the
entire year.
viii
<PAGE>
<TABLE>
SELECTED FINANCIAL INFORMATION
(in 000's except per share data and percentages)
<CAPTION>
At or For the 6 Month Period At or For the Year
Ended June 30 Ended December 31
---------------------- -------------------------
<S> <C> <C> <C> <C>
1998 1997 1997 1996
---- ---- ---- ----
INCOME STATEMENT DATA:
Total Interest Income 7,639 6,244 13,448 10,103
Total Interest Expense 4,266 3,472 7,532 5,543
----- ----- ----- -----
Net Interest Income 3,373 2,772 5,916 4,560
Provision for Loan Losses 235 175 400 350
Total Non-Interest Income 107 77 150 208
Total Non-Interest Expense 2,108 1,807 3,735 2,887
----- ----- ----- -----
Net Income Before
Income Taxes 1,137 867 1,931 1,531
Provision for
Income Taxes 376 280 590 435
--- --- --- ---
Net Income 761 587 1,341 1,096
PER SHARE AND SHARE DATA (1):
Net Income 0.29 0.23 0.51 0.42
Cash Dividends Declared 0.26 0.21 0.49 0.40
Book Value at End of Period 4.27 3.65 3.97 3.43
Average Basic Shares 2,630 2,604 2,606 2,604
Average Diluted Shares 2,908 2,734 2,752 2,706
BALANCE SHEET DATA:
Loans, Net of
Unearned Income 120,945 97,359 108,533 82,910
Investment Securities
Available For Sale 62,730 58,554 62,434 52,900
Investment Securities
Held to Maturity 11,672 13,539 15,170 13,888
Total Assets 207,711 178,018 193,523 153,687
Deposits 172,051 135,157 143,603 118,093
Borrowings 21,244 27,834 36,343 23,641
Shareholders' Equity 11,219 9,501 10,434 8,943
AVERAGE BALANCE SHEET DATA:
Loans, Net of
Unearned Income 113,942 88,113 95,146 68,594
Investment Securities 73,496 65,142 69,352 55,007
Interest Earning Assets 191,629 154,664 166,293 125,545
Total Assets 198,562 160,083 172,198 129,510
Deposits 158,611 122,452 131,773 102,179
Borrowings 26,370 26,359 28,447 17,003
Shareholders' Equity 10,678 9,009 9,392 8,228
PERFORMANCE RATIOS:
Return on Average Assets 0.77% 0.73% 0.78% 0.85%
Return on Average
Stockholders' Equity 14.25% 13.03% 14.28% 13.32%
Net Interest Margin (2) 3.43% 3.46% 3.44% 3.52%
Efficiency Ratio (3) 60.51% 62.55% 61.57% 60.55%
Number of Full Service
Branches 3 3 3 2
ASSET QUALITY RATIOS:
Allowance for Loan Losses
to Nonperforming Loans 446.91% 179.97% 209.64% 88.75%
Allowance for Loan Losses
to Total Loans 1.27% 1.16% 1.25% 1.16%
Nonperforming Assets to
Total Assets 0.55% 1.11% 0.67% 0.96%
Net Charge-offs to
Average Loans 0.05% 0.00% 0.00% 0.19%
CAPITAL RATIOS:
Stockholders' Equity to
Total Assets 5.40% 5.34% 5.39% 5.82%
Tier 1 Risk-Based Capital 8.16% 8.86% 8.60% 9.84%
Total Risk-Based Capital 10.39% 11.32% 10.97% 10.90%
Tier 1 Leverage 5.49% 5.67% 5.51% 5.80%
<FN>
(1) Per share information for all periods has been restated to reflect a
3-for-1 stock split effective December 31, 1997, and the holding company
formation effective November 17, 1997, which increased total shares
outstanding to 2,630,340.
(2) Net interest income divided by average assets.
(3) Non-interest expense divided by the sum of net interest income and
non-interest income.
</FN>
</TABLE>
ix
<PAGE>
PREMIER BANCORP, INC.
Premier Bancorp, Inc. (the "Company") is a bank holding company registered
under the provisions of the Bank Holding Company Act of 1956, as amended. The
Company was incorporated under the business corporation law of the Commonwealth
of Pennsylvania on July 15, 1997 and reorganized on November 17, 1997 as a
one-bank holding company. It is headquartered in Doylestown, Pennsylvania. The
Company has one subsidiary, Premier Bank (the "Bank").
The Company's and the Bank's principal executive offices are located at 379
North Main Street, Doylestown, Pennsylvania 18901; telephone number: (215)
345-5100. For further information about the Company, the Bank, its officers and
directors, and their operations, see the captions entitled DIRECTORS, EXECUTIVE
OFFICERS, PROMOTERS AND CONTROL PERSONS, MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, and DESCRIPTION OF BUSINESS
appearing elsewhere in this Prospectus.
RISK FACTORS
Investment in the Common Stock involves a degree of risk. There is no
assurance of receiving any specific rate of return on the Common Stock. Money
invested in the purchase of the Common Stock, unlike money deposited with the
Bank, is not and will not be insured by the FDIC. Funds invested in Common Stock
will not earn interest. In considering an investment in the Common Stock,
prospective investors should carefully consider the following factors among
others described in this Prospectus.
Dependence on Key Personnel.
-----------------------------
The business success of the Company and the Bank has depended, and will
continue to depend, to a great extent upon the services of John C. Soffronoff,
Bruce E. Sickel and John J. Ginley as officers and/or Directors of the Bank and
Company. In order to mitigate this risk, the Company, the Bank and these three
individual executive officers (the "Executives") entered into Change of Control
Agreements. The Agreements define certain severance benefits that will be paid
by the Company and the Bank to the Executives in the event of a change of
control. The Bank employs approximately forty-seven (47) full-time equivalent
employees. The loss of key personnel by the Company or the Bank would have a
material adverse effect upon the future prospects of the Company and the Bank.
However, the Company has instituted the Premier Bank Stock Incentive Plan to
encourage key employees and directors to maintain their relationship with the
Company or Bank, as the case may be.
Dividend Restrictions.
-----------------------
The Bank's current dividend policy is to retain earnings, and not pay
dividends, to support the Bank's growth. The Bank's future dividend policy will
depend on a number of factors, including, among other things, statutory
restrictions, operating results, financial position, business conditions and the
discretion of the Bank's Board of Directors. Further, the ability of the Company
to pay cash dividends is dependent upon the ability of the Bank to pay
dividends. See MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Dividends.
<PAGE>
Offering Price Arbitrarily Determined.
-----------------------------------------
The Offering Price of the Common Stock has been determined by the Board of
Directors after analyses based largely on market conditions and current
shareholders' equity per share. The Offering Price bears no necessary
relationship to the Company's present and future earnings potential or trading
prices for the Common Stock. See DILUTION.
Absence of Public Trading Market.
----------------------------------
The Common Stock is traded on a limited basis, in the local
over-the-counter market, primarily in Doylestown, Easton and the surrounding
areas. While the Company intends to comply with regulatory requirements
necessary for brokerage firms to make an active market in the Common Stock, no
assurance can be given that a liquid market for the Common Stock will develop
or, if developed, be maintained.
Control; Market Illiquidity.
-----------------------------
The Company's directors and principal officers and their associates
beneficially own in the aggregate, l,766,474 shares of Common Stock,
representing 54.6% of the total outstanding shares of Common Stock. Moreover,
the risks associated with the substantial percentage ownership by these persons
will exist regardless of the number of Shares purchased by these persons in the
Offering. For example, even if these persons purchase no Shares in the Offering
and the maximum number of Shares is sold, the collective percentage ownership by
this group would be diluted by approximately 7.1 percent. The ownership of a
substantial percentage of the outstanding Common Stock by a limited number of
shareholders can adversely affect the liquidity of the market for the Common
Stock since only a limited number of shares are widely dispersed and likely to
change hands. Stock prices in an illiquid market tend to increase and decrease
in a more volatile manner than stock prices in a liquid market, since prices for
a relatively small number of shares can have a significant impact on the prices
quoted for the Common Stock. The Company is unable to estimate the number of
shares of Common Stock that may be offered and sold in the future by any of its
shareholders. Such sales will depend upon a number of factors, including the
market price for the Common Stock and the circumstances applicable to each
shareholder. The offer and sale of a substantial amount of Common Stock in the
public market is likely to have an adverse impact on the market price of the
Common Stock.
Indemnification Provisions for Directors.
-------------------------------------------
The Company's by-laws contain provisions limiting the liability of
directors of the Company in connection with any actions they take as directors.
Such provisions can have, as one significant effect, the loss to the Company and
shareholders of a cause of action against the directors for monetary damages.
Causes of action for self-dealing, willful misconduct or recklessness and claims
for non-monetary relief, however, are generally unaffected by such provisions.
The restriction on monetary liability can discourage derivative litigation
seeking such relief and, in the case of claims having merit, could reduce the
recovery by the Company of monetary damages. One of the significant effects of
the indemnification provisions in the by-laws is to authorize indemnification
against judgments and settlements in a derivative suit. As a result, damages
assessed for a director that would be paid to the Company would be at least
reduced by the indemnification amounts owed by the Company to such persons. The
Company, accordingly, will not receive any net benefit from such awards or
settlement amounts and could incur a loss after indemnification payments are
made. Management believes, however, that these provisions are appropriate
because any such possible economic loss to the Company could be offset by a
possible reduction in the cost to the Company of defending baseless litigation,
which also could be discouraged by the same provisions of the by-laws.
2
<PAGE>
Anti-takeover Provisions.
--------------------------
The Company's articles of incorporation and by-laws, as well as the
applicable provisions of Pennsylvania corporation law and federal and state
banking law, contain a number of provisions that can be deemed to have an
anti-takeover purpose or effect. The overall effect of these provisions can be
to deter a future non-negotiated takeover offer that a majority of the
shareholders might possibly view to be in their best interests as the offer
might include a substantial premium over the market price for the Company's
Common Stock at that time. See DESCRIPTION OF SECURITIES - Anti-takeover
Provisions.
Possible Lost Opportunity Cost of Investing in the Offering.
-------------------------------------------------------------
It should be noted that persons who subscribe for Shares pursuant to the
Offering may experience lost opportunity costs in the event their subscriptions
to purchase Shares are rejected or in the event of a delay in the completion of
the Offering. No interest will be earned on any subscription price paid nor
refunded on any subscription price rejected by the Company.
Intense Competition.
---------------------
The Company and the Bank operate in a highly competitive banking
environment. In Pennsylvania generally, larger banks dominate the commercial
banking industry. In addition to commercial banks, the Company and the Bank also
compete with other financial institutions, such as, savings and loan
associations, credit unions, money market funds, mutual funds, stock brokerage
firms, insurance companies, as well as other institutions in obtaining lendable
funds and in making loans. Also, future competitors, including new commercial
banks, may enter the Bank's market area. The Company's and Bank's strategy is to
attract customers by providing personalized services and to utilize the
directors' business and personal contacts within the community. There can be no
assurance that the Company and the Bank can successfully continue to pursue this
strategy. The Company and the Bank cannot predict the effect of competition on
its ability to continue to gain market acceptance and to operate profitably. See
DESCRIPTION OF BUSINESS - Description of the Bank.
Economic Conditions and Related Uncertainties.
-----------------------------------------------
Commercial banking, which is the Company's primary source of income, is
affected, directly and indirectly, by local, regional, national and
international economic and political conditions, and by governmental monetary
and fiscal policies. Conditions such as inflation, recession, unemployment,
volatile interest rates, tight money supply, scarce natural resources, real
estate values, international conflicts and other factors beyond the Company's
and the Bank's control can adversely affect the potential profitability of the
Company and the Bank. Future rising interest rates, while increasing the income
yield on the Company's and the Bank's earning assets, can adversely affect loan
demand and, consequently, the profitability of the Company and the Bank. Future
decreases in interest rates can adversely affect the Company's and the Bank's
profitability because any such decrease can reduce the return the Company and
the Bank earn on their assets. Economic downturns, particularly in the Bank's
primary service area, could result not only in decreased loan demand but an
increase in the delinquency of those loans which are outstanding. The trading
prices of the Common Stock may fluctuate in response to market forces which
bears no direct relationship to the financial or other performance of the
Company. Management does not expect any one particular factor to affect the
Company's and the Bank's success or failure. See DESCRIPTION OF BUSINESS.
3
<PAGE>
Government Regulations.
------------------------
The Company and the Bank are subject to extensive governmental supervision,
regulation and control. Future legislation and governmental policy could
adversely affect the commercial banking industry and the operations of the
Company and the Bank. See DESCRIPTION OF BUSINESS - Supervision and Regulation
The Company, and Supervision and Regulation - The Bank.
Possible Change of Regulations.
-------------------------------
The Company's and the Bank's organization and operations are strictly
regulated and supervised by a variety of state and federal regulatory bodies in
accordance with applicable statutes and regulations. Prospective investors
should be aware that the statutes and regulations governing financial
institutions in general, and the commercial banking industry in particular, are
in a state of continuous change and have been modified substantially during
recent years. Such governing laws can be anticipated to continue to be the
subject of modification and management of the Company and the Bank (the
"Management") cannot predict what effect any such future modifications will have
on the operations of the Company and Bank. See DESCRIPTION OF BUSINESS
Supervision and Regulation - The Company, and Supervision and Regulation - The
Bank.
Year 2000
---------
The Year 2000 issue is created by the potential inability of computer
systems to use more than two digits in the data field for the year, thus making
them unable to identify years after 1999 with accuracy. If the Bank does not
resolve problems related to the Year 2000 issue, computer systems may
incorrectly compute payment, interest or delinquency information. In addition,
because payment and other important data systems are linked by computer, if the
banks with which the Company or the Bank conducts ongoing operations do not
resolve this potential problem in time, the Company or the Bank may experience
significant data processing delays, mistakes or failures. These delays, mistakes
or failures may have a significant adverse impact on the financial condition and
results of operations of the Company and the Bank.
The Company outsources much of its data processing to third party
processors including all of its deposit and loan accounting functions. These
third party processors are working on the necessary programming changes to
prepare their systems for the Year 2000 and will absorb most of the direct
programming costs. The Company is monitoring the progress of its processors and
plans to test their systems for compliance in late 1998. The Company does not
expect to incur significant incremental direct expenses related to the Year
2000, provided that its third party processors are able to make the necessary
software modifications. Failure of third party computer systems relative to the
Year 2000 would have a material adverse impact on the Company's ability to
conduct its business. In addition, the Company cannot guarantee that the
inability of its loan customers to adequately address the Year 2000 issue will
not have a material adverse effect on the Company. Costs associated with the
Year 2000 problem are expected to be expensed as incurred in accordance with
generally accepted accounting principles.
The Year 2000 issue creates risk for the Company from unforeseen problems
in its own computer systems and from third parties with whom the Company
transacts business. The impact
4
<PAGE>
on the overall economy from failures of other companies and industries to
successfully address this problem nationally and internationally is unknown.
Concentrations of Credit Risk
-----------------------------
The Bank's loan portfolio represents loans principally made in the Bucks
and Northampton County areas in Pennsylvania which are secured by both
residential and commercial real estate. Accordingly, the Bank's primary
concentration of credit risk is related to the real estate market in the Bucks
and Northampton County areas. The ultimate collectibility of this portion of the
Bank's portfolio is susceptible to changes in local market conditions, and
therefore, dependent upon the local economic environment. In addition, loan
concentrations are also considered to exist when there are amounts loaned or
committed to be loaned to a multiple number of borrowers engaged in similar
activities which would cause their ability to meet contractual obligations to be
similarly impacted by economic or other conditions. Though the Bank views many
of its loans as made to individuals or, secured by residential real estate, the
Bank's loan portfolio contains many borrowers who are employed in various
professions such as, the medical, dental, legal and real estate professions.
PBI Capital Trust Securities
----------------------------
On August 11, 1998, the Company issued $10.0 million of 8.57% Capital
Securities (the "Capital Securities") due August 15, 2028. The Capital
Securities were issued by the Company's subsidiary, PBI Capital Trust (the
"Trust"), a statutory business trust created under the laws of Delaware. The
Company is the sole owner of the Trust. The Trust used the proceeds from the
Capital Securities to acquire $10.0 million in 8.57% Junior Subordinated
Deferrable Interest Debentures issued by the Company. The Junior Subordinated
Debentures are the sole assets of the Trust, and payments under the Junior
Subordinated Debentures are the sole revenue of the Trust. The Company will use
the net proceeds from the sale of the Junior Subordinated Debentures for general
corporate purposes, which may include, investments in and advances to its
subsidiary, the Bank, repurchases of common stock of the Company, branch
expansion, the purchase of certain branch facilities being leased and funding
loans. The precise amount and timing of the application of the net proceeds used
for such corporate purposes depends on the funding requirements and the
availability of other funds to the Company and the Bank. At present, the
majority of the net proceeds have temporarily been invested in short-term
interest bearing securities. Proceeds from the Capital Securities provide the
Company with additional Tier I and Tier II capital. The annual interest expense
for the Capital Securities is $875,000.
USE OF PROCEEDS
The net proceeds to the Company, if the maximum amount of Shares are sold,
are estimated to be $5,447,000 after deducting expenses incurred by the Company
in connection with the Offering, estimated at $53,000. The net proceeds will be
used for general corporate purposes, including investments in or advances to the
Bank to increase the Bank's capital position. A portion of the net proceeds of
the Offering may be downstreamed to the Bank in order for the Bank to exercise
its options to purchase two of its facilities. The leases on each of these two
facilities expire in 1998 and the Board of Directors will make a determination
at that time as to whether to use any funds from this Offering.
DETERMINATION OF OFFERING PRICE
There is no established public market for the Common Stock being registered
and offered for sale. The Offering Price has been determined by the Board of
Directors after analyses based largely on market conditions and current
shareholders' equity per share and bears no necessary relationship to the
Company's present and future earnings potential or trading prices for the Common
Stock. During the second quarter of 1998, based on information known to
Management, the Common Stock traded at a high and low price of $11.00 and $9.00
per share, respectively. See MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.
5
<PAGE>
DILUTION
The net tangible book value of the Company at June 30, 1998 was $11,219,280
or $4.27 per share of Common Stock. Net tangible book value per share represents
the amount of total tangible assets less total liabilities, divided by the
number of shares of Common Stock outstanding. Without taking into account any
changes in such tangible book value after June 30, 1998, as a result of normal
operating income and expenses, the pro forma net tangible book value at June 30,
1998, giving effect to the sale of all 500,000 Shares offered hereby and after
payment of anticipated expenses associated with the Offering of approximately
$53,000, would have been approximately $5.32. This figure represents an
immediate increase in net tangible book value of $1.05 per share to existing
shareholders who do not purchase any Shares of Common Stock offered hereby.
Dilution represents the difference between the Offering Price per share and
the net tangible book value per share after the sale of the Shares offered
hereby. The following table sets forth the present book value per share prior to
and after the Offering, the change in book value, the dilution expressed in
dollars and percentages and the results thereof, if 25%, 50%, 75% and 100% of
the Shares of Common Stock offered hereby are sold.
Book Value(1)
- --------------- -----------------------------------------------------------
Prior to After the Aggregate Change
Percentage of Offering Offering Increase in Equity in Book
Offering Sold (per share) (per share) (000's) Value (1)
- --------------- -----------------------------------------------------------
25% $ 4.27 $ 4.55 $ 1,322 6.71%
50% $ 4.27 $ 4.83 $ 2,677 13.27%
75% $ 4.27 $ 5.09 $ 4,072 19.29%
100% $ 4.27 $ 5.32 $ 5,447 24.82%
Dilution(2)(3)
----------------------------------------
Dollar Amount
(per share) (1) Percentage
-----------------------------------------
$ 6.45 58.64%
$ 6.17 56.09%
$ 5.91 53.73%
$ 5.68 51.64%
- --------------------------
(1) Rounded to the nearest cent or hundredths of a percent.
(2) Dilution is the difference between the Offering Price per share and the net
tangible book value per share after the sale of the Shares offered hereby.
(3) Includes offering expenses estimated at approximately $53,000.
PLAN OF DISTRIBUTION
The Company is offering hereby, on a best-efforts basis, 500,000 shares of
Common Stock for a price of $11.00 per Share, (the "Offering Price"), for an
aggregate amount of $5,500,000. The Shares are being offered to the general
public (the "Offering"). It should be noted, however, that because the Offering
is made on a best-efforts basis there can be no assurance that all, or any, of
the shares of Common Stock offered hereby will be sold. No minimum number of
Shares must be sold by the Company in order to close the Offering.
The Company is offering the Common Stock through the efforts of the
Company's and the Bank's directors, officers and employees. None of those
individuals will be entitled to receive any discount, commission or additional
compensation for selling such Common Stock, but each may be reimbursed by the
Company for reasonable expenses, if any, incurred in connection with the sale of
6
<PAGE>
the Common Stock. The Company intends to satisfy the safe harbor provisions of
Rule 3a4-1 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), to ensure that the Company's and Bank's directors, officers and employees
will not be deemed "brokers", as defined in the Exchange Act, in connection with
the Offering.
The Offering to the general public will commence on September 30, 1998 or
as soon as practicable after the effective date of this Registration Statement.
The minimum and maximum subscriptions in the Offering for each subscriber are
100 and 10,000 Shares, respectively. The Company reserves the right to waive any
restrictions if, in its sole discretion, it deems it appropriate to do so. The
Offering will terminate at 5:00 p.m. on December 15, 1998, or such later date as
shall be determined by the Company, but in no event later than 5:00 p.m. on
January 30, 1999 (the "Offering Termination Date"). The Company reserves the
right to withdraw the Offering at any time or to terminate the Offering after it
has accepted subscriptions for 500,000 Shares of Common Stock.
In the event of a withdrawal or termination of the Offering or a rejection
of a subscription, any funds advanced but not accepted will be returned as
promptly as possible after the withdrawal, termination or rejection. Funds
returned will not include interest earned on funds advanced or be reduced to
cover expenses or charges.
TERMS OF THE OFFERING
Subscriptions for the Shares offered hereby in the Offering are made by
completion and tender of an "Offering Subscription Agreement" and a check or
money order made payable to "Premier Bancorp, Inc." for the subscription price
of $11.00 per Share multiplied by the number of shares being subscribed, unless
the subscriber authorizes withdrawal from a checking or savings account or
certificate of deposit at the Bank. Any applicable penalty for early withdrawal
will be waived by the Bank.
A complete description of the subscription procedure for the Offering is
set forth below.
Subscription Procedure.
- -----------------------
Persons who wish to purchase Shares must submit a completed Offering
Subscription Agreement together with the full amount of the subscription price
($11.00 per Share multiplied by the number of shares being subscribed), unless
the subscriber authorizes withdrawal from a checking or savings account or
certificate of deposit held at the Bank. Any applicable penalty for early
withdrawal will be waived by the Bank. The Offering will expire on or before
5:00 p.m., prevailing time on December 15, 1998 unless the Offering is
terminated earlier or extended.
The Offering Subscription Agreement together with the full amount of the
aggregate subscription price must be mailed to Premier Bancorp, Inc., 379 North
Main Street, Doylestown, Pennsylvania 18901, Attn: John C. Soffronoff,
President, unless the subscriber authorizes withdrawal from a checking or
savings account or certificate of deposit held at the Bank. Any applicable
penalty for early withdrawal will be waived. The form of Offering Subscription
Agreement (or a facsimile) may
7
<PAGE>
be used for this purpose. The subscription price must be paid in United States
dollars by check or money order drawn to the order of "Premier Bancorp, Inc.".
An Offering Subscription Agreement will be considered if:
(1) properly filled in, dated, signed and received before the Offering
Termination Date; and
(2) accompanied by payment in full by check or money order, unless the
subscriber authorizes withdrawal from a checking or savings account or
certificate of deposit held at the Bank. Any applicable penalty for
early withdrawal will be waived.
Funds which accompany the Offering Subscription Agreement pursuant to the
Offering will be negotiated and deposited by the Company into one of the
Company's bank accounts until the Offering Subscription Agreement is accepted by
the Company. With respect to any rejected subscriptions, all refunds, without
interest or deduction, will be mailed to subscribers as promptly as possible
after rejection. Certificates for Shares duly subscribed and paid for will be
issued promptly after the acceptance of the Offering Subscription Agreements by
the Company.
Expiration of the Offering will be at 5:00 p.m. on December 15, 1998,
unless the Company extends the Offering to a time and date no later than 5:00
p.m. on January 30, 1999.
IN DETERMINING WHICH SUBSCRIPTIONS TO ACCEPT IN THE OFFERING, IN WHOLE OR
IN PART, THE COMPANY MAY TAKE INTO ACCOUNT A SUBSCRIBER'S POTENTIAL TO DO
BUSINESS WITH, OR TO DIRECT CUSTOMERS TO, THE BANK. THE COMPANY RESERVES THE
RIGHT TO REJECT, IN WHOLE OR IN PART, IN ITS SOLE DISCRETION, ANY SUBSCRIPTION
FOR ANY REASON IN THE OFFERING.
UNLESS WAIVED BY THE COMPANY, SUBSCRIBERS MUST PURCHASE AT LEAST ONE
HUNDRED (100) SHARES AND CANNOT PURCHASE MORE THAN TEN THOUSAND (10,000) SHARES
UNDER THE OFFERING.
IF THERE IS AN OVER-SUBSCRIPTION FOR THE SHARES OFFERED PURSUANT TO THE
OFFERING, THE COMPANY MAY ACCEPT SAID SUBSCRIPTIONS ON A PRO RATA BASIS.
8
<PAGE>
LEGAL PROCEEDINGS
In the opinion of Management, there are no proceedings pending to which the
Company or the Bank is a party or to which their property is subject, which, if
determined adversely to the Company or the Bank, would be material in relation
to the Company's and the Bank's capital, liquidity, financial condition, or
results of operations. There are no proceedings pending other than ordinary
routine litigation incident to the business of the Company and the Bank. In
addition, no material proceedings are pending or are known to be threatened or
contemplated against the Company or the Bank by government authorities.
[This Space Intentionally Left Blank.]
9
<PAGE>
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS
Directors of the Company and of the Bank
- ----------------------------------------
The following table contains certain information with respect to the
Company's Class 1 Directors (whose term expires in 1999), Class 2 Directors
(whose term expires in 2000) and Class 3 Directors (whose term expires in 2001).
Each of the Class 1, 2 and 3 Directors also serves as a Director of the Bank.
Age as of Principal Occupation for Past Director Since
September Five Years and Position Company/
Name 1, 1998 Held with Company Bank
---- ------- ----------------- ----
Class 1 Directors
- -----------------
Michael Perrucci 45 Partner - Florio & Perrucci 1997/1992
(2)
Gerald Schatz 63 Chairman - Wordsworth Academy, Play 1997/1992
(4) and Learn Centers, and Wyncote Academy
Bruce E. Sickel 38 Senior Vice President/Chief Financial 1997/1992
(4) Officer of the Bank and Treasurer of the
Company
Thomas P. Stitt 54 Attorney At Law 1997/1993
(4)
John A. Zebrowski 56 President - J.A.Z. Associates 1997/1992
(2) (Plastic Resins Sales)
Brian R. Rich 39 President - Jack Rich, Inc. 1997/1993
(2)
Ezio U. Rossi 68 Retired, Former Owner - 1997/1994
(4) Arctic Foods, Inc.
Daniel E. Cohen 54 Partner - Laub, Seidel, Cohen & Hof 1997/1992
(1)(3) (Law Firm)
Class 2 Directors
- ------------------
Thomas E. Mackell 53 Surgeon 1997/1992
(4)
Neil Norton 53 President - Norton Oil Company 1997/1992
(2)
Helen Beth
Garofalo-Vilcek 40 Real Estate Broker 1997/1992
(2)
George H. Wetherill 61 Owner - GH Wetherill Opticians 1997/1992
(3) and GH Wetherill Hearing Aid
Associates
10
<PAGE>
Age as of Principal Occupation for Past Director Since
September Five Years and Position Company/
Name 1, 1998 Held with Company Bank
---- ------- ----------------- ----
Irving N. Stein 48 Vice President - 1997/1992
(4) Keystone Motors, Inc.
Class 3 Directors
- -----------------
Thomas M. O'Mara 45 Owner - Master Gardener 1997/1992
(1)(4)
Richard F. Ryon 48 Partner - Richard B. Ryon Insurance 1997/1993
(4)
John C. Soffronoff 51 President/Chief Executive Officer of 1997/1992
(3)(4) the Company and the Bank
Peter A. Cooper 40 President - Lexus of the Lehigh Valley 1997/1992
(1)(4)
Clark S. Frame 48 Chairman of the Board 1997/1992
(1)(3)(4)
Barry J. Miles, Sr. 49 Vice Chairman of the Board 1997/1992
(1)(2)(3)
Daniel A. Nesi 61 Surgeon 1997/1992
(1)(3)
- ------------------
(1) Member of the Executive Committee. This Committee met 3 times during 1997.
(2) Member of the Audit/Compliance Committee. This Committee serves as a direct
link between the Board and the Independent Auditors, enabling the Board to
discharge its responsibility to oversee Management's financial control and
reporting system. The Committee also provides oversight for the Bank's
regulatory compliance program. The Committee met 1 time during 1997.
(3) Member of the Loan Committee. This Committee reviews and approves loans in
accordance with the established loan policy, as exists from time to time.
The Committee met 39 times during 1997.
(4) Member of the Investment/Asset/Liability Management Committee ("ALCO").
This Committee reviews the operating results of the Bank, its interest rate
sensitivity, investment portfolio and performance verses the annual budget.
The Committee met 4 times during 1997.
11
<PAGE>
Management of the Company and the Bank
- --------------------------------------
The following table sets forth selected information about the principal
officers of the Company and the Bank, each of whom is elected by the Board of
Directors and each of whom holds office at the discretion of the Board of
Directors:
<TABLE>
<CAPTION>
Management of the Company and the Bank
- --------------------------------------
Position with Held Position with
Name the Company(1) Since the Bank
- ---- -------------- ----- --------
<S> <C> <C> <C>
Clark S. Frame Chairman of the Board 1997 Chairman of the Board
Barry J. Miles, Sr. Vice Chairman 1997 Vice Chairman
of the Board of the Board
John C. Soffronoff President, Chief 1997 President, Chief
Executive Officer, Executive Officer,
Member of the Member of the
Board of Directors Board of Directors
John J. Ginley Senior Vice President, 1997 Senior Vice President,
Secretary Chief Loan Officer,
Secretary
Bruce E. Sickel Senior Vice President, 1997 Senior Vice President,
Chief Financial Officer, Chief Financial Officer,
Treasurer, Member of Treasurer, Member of the
the Board of Directors Board of Directors
<CAPTION>
Management of the Company and the Bank
- --------------------------------------
Number of Shares Age as of
Held Beneficially September 1,
Name Since Owned(2) 1998
- ---- ----- ---------------- -------------
<S> <C> <C> <C>
Clark S. Frame 1992 167,420(3) 48
Barry J. Miles, Sr. 1992 62,763(3) 49
John C. Soffronoff 1992 42,570(3) 51
John J. Ginley 1992 42,882(4) 55
Bruce E. Sickel 1992 44,415(3) 38
- --------------
<FN>
(1) The Company has no employees.
(2) For the definition of "Beneficial Ownership", see footnotes to the section
"Beneficial Ownership by Directors and Officers", infra, at page 15.
(3) For details regarding the Beneficial Ownership of this individual, see
table and footnotes to "Beneficial Ownership by Directors and Officers",
infra, at page 15.
(4) Includes an option held by Mr. Ginley to purchase 12,282 shares.
</FN>
</TABLE>
Family Relationships
- --------------------
Dr. David C. Frame, a principal owner, is the brother of Mr. Clark S.
Frame. See SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT -
Principal Owners.
12
<PAGE>
Involvement in Certain Legal Proceedings
- ----------------------------------------
None of the Company's or Bank's directors or officers have been involved in
any disclosable legal proceedings such as those involving: (1) a bankruptcy
petition; (2) a criminal conviction; (3) any order, judgment or decree of any
court of competent jurisdiction limiting his or her involvement in any type of
business, securities or banking activities; or (4) a violation of federal or
state securities or commodities law.
EXECUTIVE COMPENSATION
Shown below is information concerning the annual compensation for services
in all capacities to the Company and the Bank for the fiscal years ended
December 31, 1997, 1996 and 1995 of the Chief Executive Officer and the other
most highly compensated executive officers of the Company and the Bank to the
extent such persons' annual salary and bonus exceeded $100,000.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Annual Compensation
---------------------------------------------
<S> <C> <C> <C> <C>
(a) (b) (c) (d) (e)
Other
Annual
Compen-
Salary Bonus sation
Name and Principal Position Year ($)(1) ($) $
--------------------------- ---- ------ --- ------
John C. Soffronoff, President and 1997 104,382 20,000 --
Chief Executive Officer of the 1996 98,193 10,000 --
Company and the Bank 1995 95,333 10,000 --
John J. Ginley, Senior 1997 116,493 20,000 --
Vice President, Chief Loan Officer, 1996 110,276 10,000 --
Secretary of the Bank and Senior 1995 107,059 10,000 --
Vice President and Secretary of the
Company
Bruce E. Sickel, Senior Vice 1997 90,475 20,000 --
President, Chief Financial Officer, 1996 86,643 10,000 --
Treasurer of the Bank and Senior 1995 84,209 11,500 --
Vice President, Chief Financial
Officer, and Treasurer of the Company
<CAPTION>
Long-Term Compensation
-----------------------
<S> <C> <C> <C> <C>
Awards Payouts
----- -------
(f) (g) (h) (i)
Securities
Restricted Underlying All other
Stock Options/ LTIP(3) Compen-
Award(s) SARs(2) Payouts sation
Name and Principal Position ($) (#) ($) ($)
--------------------------- ------ ----- ------- --------
John C. Soffronoff, President and -- -- -- 11,427(4)
Chief Executive Officer of the -- -- -- 11,305
Company and the Bank -- -- -- 14,191
John J. Ginley, Senior Vice President, -- -- -- 8,739(5)
Chief Loan Officer, Secretary -- -- -- 8,552
of the Bank and Senior Vice -- -- -- 4,800
President and Secretary of the
Company
Bruce E. Sickel, Senior Vice -- -- -- 2,055(6)
President, Chief Financial -- -- -- 1,671
Officer, Treasurer of the -- -- -- --
Bank and Senior Vice President,
Chief Financial Officer,
and Treasurer of the Company
<FN>
(1) Yearly salary adjustments are made on or about April 24 of each year.
(2) Stock appreciation rights ("SARs").
(3) Long-term incentive plans ("LTIPs").
(4) Includes the use of a car, allowance of $4,800 for each of 1997, 1996 and
1995 and 40l(k) Plan contributions in 1997 and 1996 of $3,575 and $3,390,
respectively. Also includes payment of country club dues in 1997, 1996 and
1995 of $3,052, $3,115 and $9,391, respectively.
(5) Includes 401(k) Plan contributions of $3,939 and $3,752 in each of 1997 and
1996, and a car allowance of $4,800 for each of 1997, 1996 and 1995.
(6) Includes 401(k) Plan contribution.
</FN>
</TABLE>
13
<PAGE>
Compensation of Directors
- -------------------------
Directors who attended at least seventy-five percent (75%) of all Board
meetings, received stock options under the Bank Stock Option Plan for attendance
at Board and committee meetings in accordance with the following formula:
Options for thirty (30) shares per Board meeting and thirty (30) shares per
committee meeting. There was no cash compensation paid to Directors in 1997 for
attendance at meetings.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
Principal Owners
- ----------------
The following table sets forth, as of September 18, 1998, the name and
address of each person who owns of record or who is known by the Board of
Directors to be the beneficial owner of more than five percent (5%) of the
Company's outstanding Common Stock, the number of shares beneficially owned by
such person and the percentage of the Company's outstanding Common Stock so
owned.
Percent of Outstanding
Common Stock
Name and Address Shares Beneficially Owned (1) Beneficially Owned
- ---------------- ------------------------- ------------------
David C. Frame(2) 173,091 (3) 5.39%
c/o Premier Bancorp, Inc.
379 North Main Street
Doylestown, Pennsylvania
Clark S. Frame(2) 167,420 (4) 5.18%
c/o Premier Bancorp, Inc.
379 North Main Street
Doylestown, Pennsylvania
- ---------------
(1) For the definition of beneficial ownership, see footnote 1 to the table,
following.
(2) Dr. David C. Frame is the brother of Mr. Clark S. Frame.
(3) Includes an option to purchase 26,235 shares.
(4) Includes an option to purchase 23,760 shares.
14
<PAGE>
Beneficial Ownership By Directors and Officers
- ----------------------------------------------
The following table sets forth, as of September 18, 1998, the amount and
percentage of the Common Stock of the Company beneficially owned by each
director and all officers and directors of the Company as a group. This
information has been furnished by the individual reporting persons.
Name of Individual Amount and Nature of Percent
or Identity Of Group Beneficial Ownership (1)(2) of Class (23)
- -------------------- ---------------------------- -------------
Class 1 Directors
- -----------------
Michael Perrucci 74,600 (3) 2.31%
Gerald Schatz 115,954 (4) 3.58%
Bruce E. Sickel 44,415 (5) 1.37%
Thomas P. Stitt 71,265 (6) 2.20%
John A. Zebrowski 92,633 (7) 2.86%
Brian R. Rich 101,204 (8) 3.13%
Ezio U. Rossi 124,752 (9) 3.86%
Daniel E. Cohen 104,922 (10) 3.24%
Class 2 Directors
- -----------------
Thomas E. Mackell 75,513 (11) 2.33%
Neil Norton 87,333 (12) 2.70%
Helen Beth Garofalo-Vilcek 41,934 (13) 1.30%
George H. Wetherill 77,661 (14) 2.40%
Irving N. Stein 69,441 (15) 2.15%
Class 3 Directors
- ------------------
Thomas M. O'Mara 54,069 (16) 1.67%
Richard F. Ryon 93,890 (17) 2.90%
John C. Soffronoff 42,570 (18) 1.32%
Peter A. Cooper 111,948 (19) 3.46%
Clark S. Frame 167,420 (20) 5.18%
Barry J. Miles, Sr. 62,763 (21) 1.64%
Daniel A. Nesi 106,905 (22) 3.30%
All Officers and Directors
as a Group (21 persons)(24) 1,766,474 54.6%
- --------------
(1) The securities "beneficially owned" by an individual are determined in
accordance with the definitions of "beneficial ownership" set forth in the
regulations of the Federal Reserve and the SEC and may include securities
owned by or for the individual's spouse and minor children and any other
relative who has the same home, as well as securities as to which the
individual has or shares voting or investment power or has the right to
acquire beneficial ownership within sixty (60) days after September 18,
1998. Beneficial ownership may be disclaimed as to certain of the
securities.
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<PAGE>
(2) Unless otherwise indicated, all shares are legally owned by the reporting
person individually or jointly with a spouse.
(3) Includes an option held by Mr. Perrucci to purchase 32,010 shares.
(4) Includes an option held by Mr. Schatz to purchase 25,983 shares.
(5) Includes an option held by Mr. Sickel to purchase 24,585 shares.
(6) Includes 55,700 shares for which Mr. Stitt is trustee and an option to
purchase 10,155 shares.
(7) Includes an option held by Mr. Zebrowski to purchase 22,950 shares.
(8) Includes an option held by Mr. Rich to purchase 20,289 shares.
(9) Includes an option held by Mr. Rossi to purchase 21,627 shares.
(10) Includes an option held by Mr. Cohen to purchase 44,730 shares.
(11) Includes an option held by Mr. Mackell to purchase 25,155 shares.
(12) Includes an option held by Mr. Norton to purchase 40,935 shares.
(13) Includes an option held by Ms. Garofalo-Vilcek to purchase 13,635 shares.
(14) Includes an option held by Mr. Wetherill to purchase 26,958 shares.
(15) Includes an option held by Mr. Stein to purchase 21,615 shares.
(16) Includes an option held by Mr. O'Mara to purchase 20,343 shares.
(17) Includes an option held by Mr. Ryon to purchase 15,615 shares.
(18) Includes an option held by Mr. Soffronoff to purchase 22,770 shares.
(19) Includes an option held by Mr. Cooper to purchase 50,865 shares.
(20) Includes an option held by Mr. Frame to purchase 23,760 shares.
(21) Includes an option held by Mr. Miles to purchase 19,683 shares.
(22) Includes an option held by Mr. Nesi to purchase 40,695 shares.
(23) Percentages assume that all options exercisable within sixty (60) days of
September 18, 1998 have been exercised. Therefore, on a pro forma basis,
3,234,789 shares would be outstanding.
(24) Includes an option held by Mr. John J. Ginley, Senior Vice President of the
Bank, to purchase 12,282 shares.
DESCRIPTION OF SECURITIES
Common Stock
- ------------
The Company is authorized to issue 30,000,000 shares of Common Stock, par
value $0.33 per share ("Shares" or "Common Stock"), of which approximately
2,630,340 Shares are outstanding as of September 18, 1998. The remaining
(approximately 27,369,660) authorized but unissued Shares may be issued by the
Board of Directors without further shareholder approval. Issuance of these
Shares could cause a dilution of the book value of the Common Stock and of the
voting power of present shareholders.
As of September 18, 1998 there were Four Hundred Sixty-Six (466)
shareholders of record. The holders are entitled to one vote per share on all
matters presented to them and have cumulative voting rights in the election of
directors.
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The Common Stock has no contractual or non-contractual preemptive,
subscription or conversion rights or redemption or repurchase provisions. The
Common Stock is nonassessable and requires no sinking fund. Each shareholder is
entitled to receive dividends that may be declared by the Board of Directors and
to share pro rata in the event of dissolution or liquidation. For information
concerning dividend restrictions, see caption entitled MARKET FOR COMMON STOCK
AND RELATED STOCKHOLDER MATTERS.
Anti-takeover Provisions
- ------------------------
The Company's articles of incorporation, as amended, and by-laws contain
provisions that may be deemed to be "anti-takeover" in nature. These provisions,
as described below, may serve to entrench current Management by enabling it to
retain its current position and placing it in a better position to resist
changes that the shareholders may want to make if dissatisfied with the conduct
of the Company's Management and business. Two of these provisions are the
authorization of 30,000,000 Shares, described above, and the absence of
preemptive rights for shareholders to subscribe for additional Shares on a pro
rata basis.
The ability to issue additional Common Stock and the absence of preemptive
rights to Common Stock were authorized for the purpose of providing the Board of
Directors of the Company with as much flexibility as possible to issue
additional Shares, without further shareholder approval, for proper corporate
purposes including financing, acquisitions, stock dividends, stock splits,
employee incentive plans and other similar purposes. The ability to issue
additional Shares may, however, also be used by the Board of Directors to deter
future attempts to gain control over the Company.
Other provisions that could be considered anti-takeover in nature are the
provisions in the Company's amended articles of incorporation requiring the
affirmative vote of either the holders of at least sixty-six and two-thirds
percent (66-2/3%) of the outstanding Shares to approve any merger,
consolidation, liquidation or dissolution of the Company or the sale of all or
substantially all of its assets. Further, the articles of incorporation require
approval by the affirmative vote of the holders of sixty-six and two-thirds
percent (66-2/3%) of the outstanding Shares in order to amend this provision
contained within the articles of incorporation. The provisions discussed above
were included in the articles of incorporation in order to ensure that any
extraordinary corporate transaction is effected only if it receives a clear
mandate from the shareholders. These provisions, however, could give the Board
of Directors a veto power over certain transactions regardless of whether it is
desired by or beneficial to a majority of the shareholders and thereby assist
the Board of Directors in retaining its present position. Also, these provisions
could give the holders of a minority of the Company's outstanding Shares a veto
power over this type of transaction even if the Board of Directors and/or a
majority of the shareholders believes such transaction to be desirable and
beneficial. Absent such provisions in the articles of incorporation, the
affirmative vote of a majority of the directors and at least a majority of the
Shares outstanding would generally be required to approve a merger,
consolidation, liquidation, dissolution or the sale of all or substantially all
of the assets of the Company, and at least a majority of the Shares would be
required to approve an amendment to the articles of incorporation. The Company's
by-laws can be amended or repealed in whole or in part, by a majority vote of
the members of the Board of Directors or by the affirmative vote of the
17
<PAGE>
holders of sixty-six and two-thirds percent (66-2/3%) of the outstanding Shares
entitled to vote thereon.
The Company elects directors for staggered terms of office (a classified
board). The Board of Directors believes that a classified board, consisting of
three classes, helps ensure continuity and stability of corporate leadership and
policy. In addition, a classified board moderates the pace of any change in
control of the Board of Directors by extending the time required to elect a
majority of the directors to at least two successive annual meetings. Since the
extension of time also tends to discourage a tender offer or takeover bid, this
provision may also be deemed to be anti-takeover in nature. Further, a
classified board makes it more difficult for a majority of the shareholders to
change the composition of the Board of Directors even though this may be
considered desirable by them.
The final major provision considered to be anti-takeover in nature which is
applicable to the Company is in the Company's articles of incorporation and
enables the Board of Directors to oppose an offer to acquire the Company on the
basis of factors other than short-term economic benefits to shareholders.
Consideration may be given to certain other constituencies such as: the impact
the acquisition of the Company would have on the community; the effect of the
acquisition upon shareholders, employees, depositors and customers; and the
reputation and business practices of the tender offeror. This provision was
included in the articles of incorporation to emphasize the ability of the Board
of Directors to recognize, pursuant to state law, the interests of these various
constituent groups.
The overall effect of these provisions: (1) may result in the Company being
less attractive to a potential acquirer; (2) may be to deter a future
non-negotiated takeover offer that a majority of the shareholders might possibly
view to be in their best interests as the offer might include a substantial
premium over the market price of the Company's Common Stock at that time; and
(3) may result in shareholders receiving less for their shares than otherwise
might be available in the event of a takeover attempt. As stated above, these
provisions may have the effect of entrenching current Management against the
wishes of the shareholders.
STATEMENT AS TO INDEMNIFICATION
Pennsylvania law and the by-laws of the Company provide for broad
indemnification of officers and directors of the Company against liabilities and
expenses incurred by such persons in legal proceedings. In addition, the by-laws
of the Company limit, under certain conditions, the liability of directors from
monetary damages in connection with any actions they take as directors. Such
provisions can have, as one significant effect, the loss to the Company and
shareholders of a cause of action against the directors for monetary damages.
Causes of action for self-dealing, willful misconduct or recklessness and claims
for non-monetary relief, however, could be unaffected by such provisions. The
restriction on monetary liability can discourage derivative litigation seeking
such relief and, in the case of claims having merit, could reduce the recovery
by the Company of monetary damages. One of the significant effects of the
indemnification provisions in the by-laws is to authorize indemnification
against judgments and settlements in a derivative suit. As a result,
18
<PAGE>
damages assessed for a director that would be paid to the Company would be at
least reduced by the indemnification amounts owed by the Company to such
persons. The Company, accordingly, would not receive any net benefit from such
awards or settlement amounts and could incur a loss after indemnification
payments are made.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling the
Company pursuant to the foregoing provisions, the Company has been informed that
in the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable.
CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS
Except as disclosed below, there have been no material transactions between
the Company and the Bank, nor any material transactions or proposed material
transactions, with any director or executive officer of the Company or the Bank,
or any associate of any of the foregoing persons during the past two years. The
Bank maintains a policy of not extending or granting credit to any director,
officer, employee or any member of their immediate family. In 1996, a loan was
made to an individual prior to that individual's election to the Board of
Directors of the Company and the Bank. This loan was made in the ordinary course
of business on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other customers. Also, this loan did not involve a more than normal risk of
collectability or present any other unfavorable features. The outstanding loan
balance was repaid in January 1998 and no further extensions of credit will be
issued to any director, officer or employee until such time as the Bank's policy
is changed.
The Bank's offices in Doylestown and Easton are owned by Norbuck Associates
("Norbuck"), a Pennsylvania limited partnership consisting of several directors
of the Bank. The leases with Norbuck have an initial term expiring December 31,
1998. Rent paid to Norbuck in 1997 and 1996 was $117,368 and $113,954,
respectively.
DESCRIPTION OF BUSINESS
Description of the Company
- --------------------------
Premier Bancorp, Inc., a Pennsylvania business corporation, is a bank
holding company registered with and supervised by the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board"). The Company was
incorporated on July 15, 1997 under the business corporation law of the
Commonwealth of Pennsylvania and reorganized on November 17, 1997 for the
purpose of becoming a one-bank holding company. Since commencing operations, the
Company's business has consisted primarily of managing and supervising the Bank
and its principal source of income has been revenues generated by the Bank. The
Company has one wholly-owned subsidiary, the Bank.
The principal executive office of the Company is located at 379 North Main
Street, Doylestown, Bucks County, Pennsylvania 18901. The telephone number of
the Company is (215) 345-5100.
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Supervision and Regulation - The Company
- -----------------------------------------
The Company is subject to the provisions of the Bank Holding Company Act of
1956, as amended (the "Bank Holding Company Act"), and to supervision by the
Federal Reserve Board. The Bank Holding Company Act requires the Company to
secure the prior approval of the Federal Reserve Board before it owns or
controls, directly or indirectly, more than five percent (5%) of the voting
shares or substantially all of the assets of any institution, including another
bank. The Bank Holding Company Act prohibits acquisition by the Company of more
than five percent (5%) of the voting shares of, or interest in, all or
substantially all of the assets of any bank located outside of Pennsylvania
unless such acquisition is specifically authorized by the laws of the state in
which such bank is located.
A bank holding company is prohibited from engaging in or acquiring direct
or indirect control of more than five percent (5%) of the voting shares of any
company engaged in non-banking activities unless the Federal Reserve Board, by
order or regulation, has found such activities to be so closely related to
banking or managing or controlling banks as to be a proper incident thereto. In
making this determination, the Federal Reserve Board considers whether the
performance of these activities by a bank holding company would offer benefits
to the public that outweigh possible adverse effects.
The Company is required to file an annual report with the Federal Reserve
Board and any additional information that the Federal Reserve Board may require
pursuant to the Bank Holding Company Act. The Federal Reserve Board may also
make examinations of the Company and any or all of its subsidiaries. Further,
under Section 106 of the 1970 amendments to the Bank Holding Company Act and the
Federal Reserve Board's regulations, a bank holding company and its subsidiaries
are prohibited from engaging in certain tie-in arrangements in connection with
any extension of credit or provision of credit or provision of any property or
services. The so-called "anti-tie in" provisions state generally that a bank may
not extend credit, lease, sell property or furnish any service to a customer on
the condition that the customer not obtain other credit or service from a
competitor of the bank, its bank holding company or any subsidiary of its bank
holding company.
Federal law also prohibits acquisitions of control of a bank holding
company without prior notice to certain federal bank regulators. Control is
defined for this purpose as the power, directly or indirectly, to direct the
management or policies of the bank or bank holding company or to vote 25% or
more of any class of voting securities of the bank holding company. A person or
group holding revocable proxies to vote 25% or more of the stock of a bank or
its holding company would presumably be deemed to control the institution for
purposes of this federal law.
Subsidiary banks of a bank holding company are subject to certain
restrictions imposed by the Federal Reserve Act on any extensions of credit to
the bank holding company or any of its subsidiaries, on investments in the stock
or other securities of the bank holding company and on taking of such stock or
securities as collateral for loans to any borrower.
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<PAGE>
Permitted Activities
- ---------------------
The Federal Reserve Board permits bank holding companies to engage in
activities so closely related to banking or managing or controlling banks as to
be a proper incident thereto. The Company does not at this time engage in any of
the permissible activities described below, nor does the Company have any
current plans to engage in these activities in the foreseeable future.
While the types of permissible activities are subject to a variety of
limitations and to change by the Federal Reserve Board, the principal activities
that presently may be conducted by a bank holding company and may in the future
be engaged by the Company are: (1) making, acquiring or servicing loans and
other extensions of credit for its own account or for the account of others,
such as would be made by consumer finance, credit card, mortgage, commercial
finance and factoring companies; (2) operating as an industrial bank or similar
entity in the manner authorized by state law so long as the institution does not
both accept demand deposits and make commercial loans; (3) operating as a trust
company in the manner authorized by federal or state law so long as the
institution does not make certain types of loans or investments or accept
deposits, except as may be permitted by the Federal Reserve Board; (4) acting as
an investment or financial advisor to investment companies and other persons;
(5) leasing personal and real property or acting as agent, broker or advisor in
leasing property; (6) making equity and debt investments in corporations or
projects designed primarily to promote community welfare; (7) providing to
others financially oriented data processing or bookkeeping services; (8) acting
as an insurance agent or broker in relation to insurance for itself and its
subsidiaries or for insurance directly related to extensions of credit; (9)
acting as underwriter for credit life insurance and credit accident and health
insurance; (10) providing courier services of a limited character; (11)
providing management consulting advice to nonaffiliated banks and nonbank
depository institutions; (12) selling money orders, travelers' checks and United
States savings bonds; (13) performing appraisals of real estate; (14) acting as
intermediary for the financing of commercial or industrial income-producing real
estate by arranging for the transfer of the title, control and risk of such a
real estate project to one or more investors; (15) providing securities
brokerage services, related securities credit activities and incidental
activities such as offering custodial services, individual retirement accounts
and cash management services, if the securities brokerage services are
restricted to buying and selling securities solely as agent for the account of
customers and do not include securities underwriting or dealing or investment
advice or research services; (16) underwriting and dealing in obligations of the
United States, general obligations of states and their political subdivisions
and other obligations such as bankers' acceptances and certificates of deposit;
(17) providing general information, advisory services and statistical
forecasting with respect to foreign exchange markets; (18) acting as a futures
commission merchant in the execution and clearance on major commodity exchanges
of futures contracts and options on futures contracts for bullion, foreign
exchange, government securities, certificates of deposit and other money market
instruments; (19) performing personal property appraisals that require expertise
regarding all types of personal and business property, including intangible
property such as corporate securities; (20) providing commodity trading and
futures commission merchant advice; (21) providing consumer financial counseling
to individuals on consumer-oriented financial management matters, including debt
consolidation, mortgage applications, bankruptcy, budget management, real estate
tax shelters, tax planning, retirement and estate planning, insurance and
general investment management, so long as this activity does not include the
sale of specific
21
<PAGE>
products or investments; (22) providing tax planning and preparation advice to
corporations and individuals; (23) providing check guaranty services to
subscribing merchants; (24) operating a collection agency and credit bureau; and
(25) acquiring and operating thrift institutions, including savings and loan
associations, building and loan associations and FDIC-insured savings banks.
Certain Provisions of Pennsylvania Banking Law
- -----------------------------------------------
Under the Pennsylvania Banking Code of 1965, as amended, (the "Code"), the
Company has been permitted since March 4, 1990 to control an unlimited number of
banks. However, the Company would be required under the Bank Holding Company Act
to obtain the prior approval of the Federal Reserve Board before it could
acquire all or substantially all of the assets of any bank, or acquire ownership
or control of any voting shares of any bank other than the Bank, if, after such
acquisition, it would own or control more than five percent (5%) of the voting
shares of such bank. The Bank Holding Company Act does not permit the Federal
Reserve Board to approve the acquisition by the Company or any subsidiary of any
voting shares of, or interest in, all or substantially all of the assets of, any
bank located outside the Commonwealth of Pennsylvania, unless the acquisition is
specifically authorized by the laws of the state in which that bank is located.
Since 1995, the Pennsylvania Banking Code has authorized full interstate
banking and branching. Specifically, the law authorizes interstate bank mergers
and reciprocal interstate branching into Pennsylvania by interstate banks, and
permits Pennsylvania institutions to branch into other states with the prior
approval of the Department of Banking. Overall, this law is likely to continue
to have the effect of increasing consolidation and competition and promoting
geographic diversification in the banking industry. For a further discussion of
interstate banking and branching, see the section entitled Supervision and
Regulation - The Bank below.
Legislation and Regulatory Changes
- ----------------------------------
From time to time, legislation is enacted which has the effect of
increasing the cost of doing business, limiting or expanding permissible
activities or affecting the competitive balance between banks and other
financial institutions. Proposals to change the laws and regulations governing
the operations and taxation of banks, bank holding companies and other financial
institutions are frequently made in Congress, and before various bank regulatory
agencies. No prediction can be made as to the likelihood of any major changes or
the impact such changes might have on the Company and its subsidiary, the Bank.
Certain changes of potential significance to the Company which have been enacted
recently and others which are currently under consideration by Congress or
various regulatory or professional agencies are discussed in the section
entitled Supervision and Regulation - The Bank.
The Federal Reserve Board, which has primary supervisory authority over the
Bank, regularly examines banks in such areas as reserves, loans, investments,
management practices, and other aspects of operations. These examinations are
designed for the protection of the Bank's depositors rather than the Bank's
shareholders. The Bank must furnish annual and quarterly reports to the Federal
Reserve Board, which has the authority under the Financial Institutions
Supervisory Act to prevent the Bank from engaging in an unsafe or unsound
practice in conducting its business.
22
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Federal and state banking laws and regulations govern, among other things,
the scope of the Bank's business, the investments the Bank may take, the
reserves against deposits the Bank must maintain, the types and terms of loans
the Bank may make and the collateral it may take, the activities of the Bank
with respect to mergers and consolidations, and the establishment of branches.
Pennsylvania law permits statewide branching.
The Bank is required to comply with the Federal Reserve Boards risk-based
capital guidelines. The guidelines require all United States banks and bank
holding companies to maintain a minimum risk-based capital ratio of 8.00% (of
which at least 4% must be "Tier 1 Capital," consisting principally of common
shareholders' equity, noncumulative perpetual preferred stock, a limited amount
of cumulative perpetual preferred stock, and minority interests in the equity
accounts of consolidated subsidiaries, less certain intangible assets). The
remainder ("Tier 2 capital") may consist of a limited amount of subordinated
debt and intermediate-term preferred stock, certain hybrid capital instruments
and other debt securities, perpetual preferred stock, and a limited amount of
the general loan loss allowance.
The federal banking agencies have specified, by regulation, the levels at
which an insured institution is considered "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized," or
"critically undercapitalized." Under these regulations, an institution is
considered "well capitalized" if it has a total risk-based capital ratio of 10%
or greater, a Tier 1 risk-based capital ratio of 6% or greater, a leverage ratio
of 5% or greater, and is not subject to any order or written directive to meet
and maintain a specific capital level. At June 30, 1998, Management believed
that the Company was in compliance with these regulatory standards to be
classified as "well capitalized." Assets are assigned to five risk categories,
with higher levels of capital required for the categories perceived as
representing greater risk. The required capital ratios represent equity and (to
the extent permitted) non-equity capital as a percentage of total risk-weighted
assets. The risk-based capital rules are designed to make regulatory capital
requirements more sensitive to differences in risk profiles among banks and bank
holding companies and to minimize disincentives for holding liquid assets.
The Bank is subject to FDIC deposit insurance assessments. The FDIC has
adopted a riskrelated premium assessment system for both the Bank Insurance Fund
("BIF") for banks and the Savings Association Insurance Fund ("SAIF") for
savings association. Under this system, FDIC insurance premiums are assessed
based on capital and supervisory measures.
Under the risk-related premium assessment system, the FDIC, on a
semi-annual basis, assigns each institution to one of three capital groups (well
capitalized, adequately capitalized, or undercapitalized) and further assigns
such institution to one of three subgroups within a capital group corresponding
to the FDIC's judgment of its strength based on supervisory evaluations,
including examination reports, statistical analysis, and other information
relevant to gauging the risk posed by the institution. Only institutions with a
total risk-based capital to risk-adjusted assets ratio of 10% or greater, a Tier
1 capital to risk-adjusted assets ratio of 6% or greater, and a Tier 1 leverage
ratio of 5% or greater, are assigned to the well-capitalized group. As of June
30, 1998, the Bank was assigned to the well-capitalized group.
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<PAGE>
Pending Legislation
- -------------------
Various congressional bills and other proposals have proposed a sweeping
overhaul of the banking system, including provisions for: limitations on deposit
insurance coverage; changing the timing and method financial institutions use to
pay for deposit insurance; expanding the power of banks by removing the
restrictions on bank underwriting activities; tightening the regulation of bank
derivatives activities; allowing commercial enterprises to own banks; and
permitting bank holding companies to own affiliates that engage in securities,
mutual funds and insurance activities.
Management has no way of anticipating whether any of these measures will be
enacted or if enacted, their impact on the Company's financial position and
reported results of operation. As a consequence of the extensive regulation of
commercial banking activities in the United States, the Company's and the Bank's
business is particularly susceptible to being affected by federal and state
legislation and regulations that may increase the costs of doing business.
Effects of Inflation
- --------------------
Inflation has some impact on the Company's and the Bank's operating costs.
Unlike many industrial companies, however, substantially all of the Bank's
assets and liabilities are monetary in nature. As a result, interest rates have
a more significant impact on the Company's and the Bank's performance than the
general level of inflation. Over short periods of time, interest rates may not
necessarily move in the same direction or in the same magnitude as prices of
goods and services.
Monetary Policy
- ---------------
The earnings of the Company and the Bank are affected by domestic economic
conditions and the monetary and fiscal policies of the United States Government
and its agencies. An important function of the Federal Reserve System is to
regulate the money supply and interest rates. Among the instruments used to
implement those objectives are open market operations in United States
government securities and changes in reserve requirements against member bank
deposits. These instruments are used in varying combinations to influence
overall growth and distribution of bank loans, investments and deposits, and
their use may also affect rates charged on loans or paid for deposits.
The Bank is a member of the Federal Reserve System and, therefore, the
policies and regulations of the Federal Reserve Board have a significant effect
on its deposits, loans and investment growth, as well as the rate of interest
earned and paid, and are expected to affect the Bank's operations in the future.
The effect of such policies and regulations upon the future business and
earnings of the Company and the Bank cannot be predicted.
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<PAGE>
Environmental Regulation
- -------------------------
There are several federal and state statutes which regulate the obligations
and liabilities of financial institutions pertaining to environmental issues. In
addition to the potential for attachment of liability resulting from its own
actions, a bank may be held liable under certain circumstances for the actions
of its borrowers, or third parties, when such actions result in environmental
problems on properties that collateralize loans held by the bank. Further, the
liability has the potential to far exceed the original amount of the loan issued
by the Bank. Currently, neither the Company nor the Bank is a party to any
pending legal proceeding pursuant to any environmental statute, nor is the
Company and the Bank aware of any circumstances which may give rise to liability
under any such statute.
Year 2000
---------
The Year 2000 issue is created by the potential inability of computer
systems to use more than two digits in the data field for the year, thus making
them unable to identify years after 1999 with accuracy. If a bank does not
resolve problems related to the Year 2000 issue, computer systems may
incorrectly compute payment, interest or delinquency information and may be
unable to process transactions in addition to other items. In addition, because
payment and other important data systems are linked by computer, if the banks
with which the Company or the Bank conducts ongoing operations do not resolve
this potential problem in time, the Company or the Bank may experience
significant data processing delays, mistakes or failures. These delays, mistakes
or failures may have a significant adverse impact on the financial condition and
results of operations of the Company and the Bank.
The Company out sources much of its data processing to third party
processors including all of its deposit and loan accounting functions. These
third party processors are working on the necessary programming changes to
prepare their systems for the Year 2000 and will absorb most of the direct
programming costs. The Company is monitoring the progress of its processors and
plans to test their systems for compliance in late 1998. The Company does not
expect to incur significant incremental direct expenses related to the Year
2000, provided that its third party processors are able to make the necessary
software modifications. Failure of third party computer systems relative to the
Year 2000 would have a material adverse impact on the Company's ability to
conduct its business. In addition, the Company cannot guarantee that the
inability of its loan customers to adequately address the Year 2000 issue will
not have a material adverse effect on the Company. Costs associated with the
Year 2000 problem are expected to be expensed as incurred in accordance with
generally accepted accounting principles.
The Year 2000 issue creates risk for the Company from unforeseen problems
in its own computer systems and from third parties with whom the Company
transacts business. The impact on the overall economy from failures of other
companies and industries to successfully address this problem nationally and
internationally is unknown.
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Description of the Bank
- -----------------------
The Bank was organized in 1990 as a Pennsylvania chartered banking
institution and is a member of the Federal Reserve System. The Bank commenced
operations on April 24, 1992. Customers' deposits held by the Bank are insured
by the FDIC to the maximum extent permitted by law. The Bank's legal
headquarters are located at 379 North Main Street, Doylestown, Bucks County,
Pennsylvania 18901.
As of June 30, 1998, the Bank had total assets of $207,710,593; total
shareholders' equity of $11,219,280; and total liabilities of $196,491,313 of
which $172,051,448 represents total deposits.
The Bank is a community-oriented financial services provider where
consumers and small business customers can obtain a wide variety of products and
services, including: checking, savings, money market accounts as well as
certificates of deposit, residential mortgage loans, home equity loans and lines
of credit, personal lines of credit, working capital lines, and other commercial
loans. The Bank also offers other services such as electronic banking, cash
management services, safe deposit boxes, telephone banking and automated teller
services. The Bank places an emphasis on serving customer needs by providing
personal attention and service. The Bank's primary service areas are Bucks
County, Pennsylvania and the Lehigh Valley region. Specifically, the main office
of the Bank is located in Doylestown, the county seat of Bucks County. The Bank
conducts business from its main office and two other retail offices located in
Southampton, Bucks County and Easton, Northampton County. In addition, the Bank
has a loan origination office in Yardley, Bucks County. A fourth branch office
in Lower Makefield Township in Bucks County is expected to open during the
fourth quarter of 1998.
The Bank's primary market area includes Doylestown, Pennsylvania and the
surrounding Bucks County and Greater Delaware Valley communities, as well as
Northampton County and parts of the Lehigh Valley, which is serviced from the
Bank's Easton office. Within this market area, the banking business is highly
competitive. The Bank actively competes with regionally-based commercial banks,
many of which have greater assets, capital and lending limits. The Bank also
competes with savings banks, savings and loan associations, money market funds,
mutual funds, insurance companies, stock brokerage firms, regulated small loan
companies, credit unions and with the issuers of commercial paper and other
securities. However, the Bank is generally competitive with all financial
institutions in its service area with respect to interest rates paid on time and
savings deposits, service charges on deposit accounts, interest rates charged on
loans, the convenience of banking facilities, location and hours of operation
and relative lending limits.
Lending Activities
- ------------------
The Bank offers a variety of loan products to its customers, including
loans secured by real estate, commercial and consumer loans. It is the Bank's
general policy to grant a majority of its loans in its primary trade area. This
trade area includes Doylestown, Pennsylvania and the surrounding Bucks County
and Greater Delaware Valley communities as well as Northampton County and parts
of the Lehigh Valley. The Bank's lending objectives are as follows: (1) to
26
<PAGE>
establish a diversified loan portfolio composed of commercial loans, mortgage
loans, consumer loans and all other loan types; (2) to provide a satisfactory
rate of return to its shareholders by properly pricing loans to include the cost
of funds, administrative costs, bad debts, local economic conditions,
competition, customer relationships, the term of the loan, credit risk,
collateral quality, and a reasonable profit margin; and, (3) to provide
protection for its depositors by maintaining a predetermined level of loans to
deposits to ensure liquidity. The Bank recognizes that the lending of money is a
community responsibility which involves a degree of credit risk and therefore
manages such risk through portfolio diversification, underwriting policies and
procedures, and loan monitoring practices.
The Bank makes loans for its portfolio to both commercial entities and
individual consumers. The types of loans offered include: (1) loans for
businesses and individuals on a short term or seasonal basis; (2) loans to
individuals for consumer purchases; (3) loans secured by marketable stocks and
bonds providing adequate margins for market fluctuations; (4) short term working
capital loans secured by the assignment of accounts receivable and inventory;
(5) automobile loans; and (6) second liens on commercial and residential real
estate. Loans of these types will be considered desirable by the Bank provided
such loans meet the test of sound credit.
The Bank has adopted the following loan-to-value ("LTV") ratios, in
accordance with standards adopted by its bank supervisory agencies:
Loan Category Loan-to-Value Limit
------------- -------------------
Commercial 70%
-----
Consumer 85%
-----
Real estate - farmland 80%
-----
Real estate - construction 80%
-----
Real estate - residential 90%
-----
Real estate - multifamily 75%
-----
Real estate - commercial 70%
-----
Concentrations of Credit Risk
- ------------------------------
The Bank's loan portfolio represents loans principally made in the Bucks
and Northampton County areas in Pennsylvania which are secured by both
residential and commercial real estate. Accordingly, the Bank's primary
concentration of credit risk is related to the real estate market in the Bucks
and Northampton County areas. The ultimate collectibility of this portion of the
Bank's portfolio is susceptible to changes in local market conditions, and
therefore, dependent upon the local economic environment. In addition, loan
concentrations are also considered to exist when there are amounts loaned or
committed to be loaned to a multiple number of borrowers engaged in similar
activities which would cause their ability to meet contractual obligations to be
similarly impacted by economic or other conditions. Though the Bank views many
of its loans as made to
27
<PAGE>
individuals or, secured by residential real estate, the Bank's loan portfolio
contains many borrowers who are employed in various professions such as, the
medical, dental, legal and real estate professions.
Employees
- ---------
As of September 18, 1998, the Bank has approximately forty-seven (47)
full-time equivalent employees and a total of fifty-four (54) employees.
Supervision and Regulation - The Bank
- -------------------------------------
The Bank is subject to supervision, regulation and examination by the
Pennsylvania Department of Banking, the FDIC and the Federal Reserve Board. In
addition, the Bank is subject to a variety of local, state and federal laws that
affect its operation.
The laws of Pennsylvania applicable to the Bank include, among other
things, provisions that: (1) require the maintenance of certain reserves against
deposits; (2) limit the type and amount of loans that may be made and the
interest that may be charged thereon; (3) restrict investments and other
activities; and (4) limit the payment of dividends. The amount of funds that the
Bank may lend to a single borrower is limited generally under Pennsylvania law
to fifteen percent (15%) of the aggregate of its capital, surplus, undivided
profits, loan loss reserves and capital securities of the Bank (all as defined
by statute and by regulation).
Applicable Pennsylvania law also requires that a bank obtain the approval
of the Department of Banking prior to effecting any merger where the surviving
bank would be a Pennsylvania-chartered bank. In reviewing any such merger
application, the Department of Banking considers, among other things, whether
the merger would be consistent with adequate and sound banking practices and in
the public interest on the basis of several factors, including the potential
effect of the merger on competition and the convenience and needs of the area
primarily to be served by the bank resulting from the merger.
Federal law also prohibits acquisitions of control of a bank without prior
notice to certain federal bank regulators. "Control" is defined for this purpose
as the power, directly or indirectly, to direct the management or policies of a
bank or to vote twenty-five percent (25%) or more of any class of voting
securities of a bank.
As a subsidiary bank of a bank holding company, the Bank is subject to
certain restrictions imposed by the Federal Reserve Act on any extensions of
credit to the bank holding company or its subsidiaries, on investments in the
stock or other securities of the bank holding company or its subsidiaries, and
on taking such stock or securities as collateral for loans. The Federal Reserve
Act and Federal Reserve Board regulations also place certain limitations and
reporting requirements on extensions of credit by the Bank to principal
shareholders of its parent holding company, among
28
<PAGE>
others, and to related interests of such principal shareholders. In addition,
such legislation and regulations may affect the terms upon which any person
becoming a principal shareholder of a holding company may obtain credit from
banks with which the subsidiary bank maintains a correspondent relationship.
Riegle-Neal Interstate Banking and Branching Efficiency Act
- -----------------------------------------------------------
Since September of 1995, the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Interstate Banking and Branch Act") has permitted
interstate banking. Bank holding companies, pursuant to an amendment to the Bank
Holding Company Act, can acquire a bank located in any state, as long as the
acquisition does not result in the bank holding company controlling more than
10% of the deposits in the United States, or 30% of the deposits in the target
bank's state. The law permits states to waive the concentration limits and
require that the target institution be in existence for up to five years before
it can be acquired by an out-of-state bank or bank holding company. Interstate
branching and merging of existing banks has been permitted since 1997 if the
bank is adequately capitalized and demonstrates good management. The Interstate
Banking and Branch Act also amends the International Banking Act to allow a
foreign bank to establish and operate a federal branch or agency upon approval
of the appropriate federal and state banking regulator. A national bank can move
across state lines as long as the relocation does not exceed thirty miles, and
also retain as branches the offices located in the original state.
Federal Deposit Insurance Act
- -----------------------------
Under the Federal Deposit Insurance Act ("FDIA"), the FRB possesses the
power to prohibit institutions regulated by it (such as the Bank) from engaging
in any activity that would be an unsafe and unsound banking practice or would
otherwise be in violation of the law. Moreover, the Financial Institutions
Regulatory and Interest Rate Control Act of 1978 ("FIRA") generally expanded the
circumstances under which officers or directors of a bank may be removed by the
institution's federal supervisory agency, restricts lending by a bank to its
executive officers, directors, principal shareholders or related interests
thereof and restricts management personnel of a bank from serving as directors
or in other management positions with certain depository institutions whose
assets exceed a specified amount or which have an office within a specified
geographic area, and restricts management personnel from borrowing from another
institution that has a correspondent relationship with their bank. Additionally,
FIRA requires that no person may acquire control of a bank unless the
appropriate federal supervisory agency has been given sixty (60) days prior
written notice and within that time has not disapproved the acquisition or
otherwise extended the period for disapproval. Control for purposes of FIRA,
means the power, directly or indirectly, to direct the management or policies or
to vote twenty-five percent (25%) or more of any class of outstanding stock of a
financial institution or its respective holding company. A person or group
holding revocable proxies to vote twenty-five percent (25%) or more of the
outstanding common stock of a financial institution or bank holding company,
such as the Company, would presumably be deemed to control the institution for
purposes of FIRA.
29
<PAGE>
Financial Institutions Reform, Recovery and Enforcement Act
- -----------------------------------------------------------
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") was enacted in August of 1989. This law was enacted primarily to
improve the supervision of savings associations by strengthening capital,
accounting and other supervisory standards. In addition, FIRREA reorganizes the
FDIC by creating two deposit insurance funds to be administered by the FDIC: the
Savings Association Insurance Fund and the Bank Insurance Fund. Customers'
deposits held by the Bank are insured under the Bank Insurance Fund. FIRREA also
regulates real estate appraisal standards and the supervisory/enforcement powers
and penalty provisions in connection with the regulation of the Bank.
Garn-St. Germain Depository Institutions Act
- --------------------------------------------
The Garn-St. Germain Depository Institutions Act of 1982 ("Garn-St.
Germain") removed certain restrictions on a bank's lending powers and
liberalized its depository capabilities. Garn-St. Germain also amended FIRA (see
above) by eliminating the statutory limits on lending by a bank to its executive
officers, directors, principal shareholders or related interests thereof and by
relaxing certain reporting requirements. Garn-St. Germain, however, also
tightened FIRA provisions respecting management interlocks and correspondent
bank relationships involving a bank's management personnel.
Community Reinvestment Act
- --------------------------
Under the Community Reinvestment Act of 1977, as amended ("CRA"), the FRB
is required to assess the record of all financial institutions regulated by it
to determine if these institutions are meeting the credit needs of the community
(including low and moderate income neighborhoods) which they serve and to take
this record into account in its evaluation of any application made by any of
such institutions for, among other things, approval of a branch or other deposit
facility, office relocation, a merger or an acquisition of bank shares. The
Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA")
amended the CRA to require, among other things, that the FRB make publicly
available the evaluation of a bank's record of meeting the credit needs of its
entire community, including low and moderate income neighborhoods. This
evaluation will include a descriptive rating ("outstanding", "satisfactory",
"needs to improve" or "substantial noncompliance") and a statement describing
the basis for the rating. These ratings are publicly disclosed.
In April, 1995, regulations revised CRA with an emphasis on performance
over process and documentation. Under the revised rules, the fire-point rating
scale is still utilized; however, the twelve (12) assessment factors have been
replaced with a three-prong test. A bank's compliance is determined by a
three-prong test whereby examiners assign a numerical score for a bank's
performance in each of three (3) areas: lending, service and investment. The
area of lending is weighted to increase its importance in the application of the
test. The rule became effective July 1, 1995.
30
<PAGE>
Under the new regulation, banks will enjoy a reduction in compliance
burden. Specifically, banks are not required to keep extensive documentation to
prove that directors have participated in drafting and review of CRA policies. A
formal CRA statement does not have to be prepared. The efforts banks make to
market in low and moderate income communities do not have to be documented, nor
will banks have to justify the basis for their community delineation or the
methods utilized to determine the credit needs of the community.
Bank Secrecy Act
- ----------------
Under the Bank Secrecy Act ("BSA"), banks and other financial institutions
are required to report to the Internal Revenue Service currency transactions of
more than $10,000 or multiple transactions of which the Bank is aware in any one
day that aggregate in excess of $10,000. Civil and criminal penalties are
provided under the BSA for failure to file a required report, for failure to
supply information required by the BSA or for filing a false or fraudulent
report.
Competitive Equality Banking Act
- --------------------------------
An omnibus federal banking bill, known as the Competitive Equality Banking
Act ("CEBA"), was signed into law in August of 1987. Included in the legislation
were measures: (1) imposing certain restrictions on transactions between banks
and their affiliates; (2) expanding the powers available to federal bank
regulators in assisting failed and failing banks; (3) limiting the amount of
time banks may hold certain deposits prior to making such funds available for
withdrawal and any interest thereon; and (4) requiring that any adjustable rate
mortgage loan secured by a lien on a one-to-four family dwelling include a
limitation on the maximum rate at which interest may accrue on the principal
balance during the term of such loan. The Bank does not believe that this
legislation will have a material adverse effect on its anticipated operations or
its competitive position.
Federal Deposit Insurance Corporation Improvement Act
- -----------------------------------------------------
Capital Categories
------------------
In December of 1991 the Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA") became law. Under FDICIA, institutions must be
classified, based on their risk-based capital ratios into one of five defined
categories, as illustrated below (well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized).
Total Tier 1
Risk- Risk- Tier 1 Capital Under
Based Based Leverage an Order or
Ratio Ratio Ratio Directive
------ ----- -------- -----------
CAPITAL CATEGORY
Well capitalized >10.0 >6.0 >5.0 No
- - -
Adequately capitalized > 8.0 >4.0 >4.0*
- - -
Undercapitalized < 8.0 <4.0 <4.0*
Significantly
undercapitalized < 6.0 <3.0 <3.0
Critically
undercapitalized <2.0
-
*3.0 for those banks having the highest available regulatory rating.
31
<PAGE>
Prompt Corrective Action
- ------------------------
In the event an institution's capital deteriorates to the undercapitalized
category or below, FDICIA prescribes an increasing amount of regulatory
intervention, including: (1) the institution of a capital restoration plan and a
guarantee of the plan by a parent institution; and (2) the placement of a hold
on increases in assets, number of branches or lines of business. If capital has
reached the significantly or critically undercapitalized levels, further
material restrictions can be imposed, including restrictions on interest payable
on accounts, dismissal of management and (in critically undercapitalized
situations) appointment of a receiver. For well capitalized institutions, FDICIA
provides authority for regulatory intervention where the institution is deemed
to be engaging in unsafe or unsound practices or receives a less than
satisfactory examination report rating for asset quality, management, earnings
or liquidity. All but well capitalized institutions are prohibited from
accepting brokered deposits without prior regulatory approval.
Operational Controls
- --------------------
Under FDICIA, financial institutions are subject to increased regulatory
scrutiny and must comply with certain operational, managerial and compensation
standards to be developed by Federal Reserve Board regulations. FDICIA also
requires the regulators to issue new rules establishing certain minimum
standards to which an institution must adhere including standards requiring a
minimum ratio of classified assets to capital, minimum earnings necessary to
absorb losses and minimum ratio of market value to book value for publicly held
institutions. Additional regulations are required to be developed relating to
internal controls, loan documentation, credit underwriting, interest rate
exposure, asset growth and excessive compensation, fees and benefits.
Real Estate Loans
- -----------------
FDICIA also requires that banking agencies reintroduce loan-to-value
("LTV") ratio regulations which were previously repealed by Garn-St. Germain.
LTV's will limit the amount of money a financial institution may lend to a
borrower, when the loan is secured by real estate, to no more than a percentage
to be set by regulation of the value of the real estate.
Truth-In-Savings
- ----------------
A separate subtitle within FDICIA, called the "Bank Enterprise Act of
1991", requires "truthin-savings" on consumer deposit accounts so that consumers
can make meaningful comparisons between the competing claims of banks with
regard to deposit accounts and products. Under this provision, the Bank is
required to provide information to depositors concerning the terms of their
deposit accounts, and in particular, to disclose the annual percentage yield.
There are some operational costs of complying with the Truth-In-Savings law.
Management believes that full implementation of FDICIA has had no material
impact on liquidity, capital resources or reported results of operation.
32
<PAGE>
Economic Development, Agency, Fiduciary and Lender Environmental
- ----------------------------------------------------------------
Liability Protection Act
- -------------------------
In 1995, the Pennsylvania General Assembly enacted the Economic Development
Agency, Fiduciary and Lender Environmental Liability Protection Act which, among
other things, provides protection to lenders from environmental liability and
remediation costs under the environmental laws for releases and contamination
caused by others. A lender who engages in activities involved in the routine
practices of commercial lending, including, but not limited to, the providing of
financial services, holding of security interests, workout practices,
foreclosure or the recovery of funds from the sale of property shall not be
liable under the environmental acts or common law equivalents to the
Pennsylvania Department of Environmental Resources or to any other person by
virtue of the fact that the lender engages in such commercial lending practice.
A lender, however, will be liable if it its employees or agents directly cause
an immediate release or directly exacerbate a release of regulated substance on
or from the property, or knowingly and willfully compelled the borrower to
commit an action which caused such release or violation of an environmental act.
The Economic Development Agency, Fiduciary and Lender Environmental Liability
Protection Act, however, does not limit federal liability which still exists
under certain circumstances.
From time to time, various types of federal and state legislation have been
proposed that could result in additional regulation of, and restrictions on, the
business of the Bank. It cannot be predicted whether any such legislation will
be adopted or how such legislation would affect the business of the Bank. As a
consequence of the extensive regulation of commercial banking activities in the
United States, the Bank's business is particularly susceptible to being affected
by federal and state legislation and regulations that may increase the costs of
doing business.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Attached as Annex A and Annex B, respectively, are copies of the Company's
most recent Annual Report on Form 10-KSB for the year ended December 31, 1997,
and Quarterly Report on Form 10-QSB for the quarter ended June 30, 1998. Annexes
A and B contain selected financial information with prior year comparisons and
Management's Discussion and Analysis of the Company's financial condition and
results of operations for the relevant periods. Information for the interim
period is not necessarily indicative of results that will occur for the
remainder of 1998.
Year 2000
- ---------
The following section contains forward-looking statements which involve
risks and uncertainties. The Company's actual impact of the Year 2000 Issue
could materially differ from that which is anticipated in these forward-looking
statements as a result of certain factors identified below.
The "Year 2000 Issue" is the result of some computer programs having been
written using two digits rather than four to define the applicable year. The
Company recognizes that the Bank's operating, processing and accounting
operations are computer reliant and could be affected by the Year 2000 Issue.
Any systems that have date-sensitive software or date-sensitive hardware may
recognize a date using "00" as the Year 1900 rather than the Year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send statements, or engage in similar normal business activities.
The Company outsources much of its data processing to third party vendors
including all of its deposit and loan accounting functions. The Company is
working with its third party vendors in order to assess its Year 2000 readiness.
These third party vendors are working on the necessary programming changes to
prepare their systems for the Year 2000 and will absorb most of the direct
programming costs. The Company is monitoring the progress of its vendors and
plans to test their systems for Year 2000 compliance in late 1998. Based upon
the initial assessment, Management presently believes that with planned
modifications to existing software and hardware and planned conversions to new
software and hardware, the Bank's third party vendors are taking the appropriate
steps to ensure critical systems will function properly. The Company does not
expect to incur significant incremental direct expenses related to the Year
2000, provided that its third party vendors are successful in their efforts.
Failure of third party systems relative to the Year 2000 would have a material
adverse impact on the Company's ability to conduct its business.
For significant vendors, the Company will validate that they are Year 2000
compliant by March 31, 1999 or make plans to switch to a new vendor or system
that is compliant. For insignificant vendors, the Company will not necessarily
validate that they are Year 2000 compliant. However, for any insignificant
vendor who responds that they will not be compliant by March 31, 1999, the
Company will seek a new vendor or system that is compliant.
The costs of the projects and the date on which the Company plans to
complete both the Year 2000 modifications and systems conversions are based on
Management's best estimates and were derived utilizing numerous assumptions
including success by third party processors in modification of their software.
However, there can be no guarantee that these estimates will be achieved and
actual results could differ materially from those plans. The Company will
utilize both internal and external resources to reprogram, or replace, and test
its new software and hardware for Year 2000 modifications. Based on certain
preliminary estimates, the Company believes that its expenses related to
upgrading its systems and software for Year 2000 issues will not be material.
While the Company currently has no reason to believe that the cost of addressing
such issues will materially
33
<PAGE>
affect the Bank's products, services or ability to compete effectively, no
assurance can be made that the Company or the third party vendors on which it
relies will become Year 2000 compliant in a successful and timely fashion.
Nevertheless, the Company does not believe that the cost of addressing the Year
2000 issues will be a material event or uncertainty that would cause reported
financial information not to be necessarily indicative of future operating
results or financial conditions, nor does it believe that the costs or the
consequences of incomplete or untimely resolution of its Year 2000 issues
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.
Based upon current assessments, the total cost of the Year 2000 and systems
conversion projects is estimated at $150,000. Of the total project cost,
approximately $75,000 is attributable to the purchase of new software and
hardware which will be capitalized and will upgrade certain systems to current
technology as well as ready the systems for Year 2000. Of the remaining balance,
$25,000 has already been expensed with the remainder to be expensed as incurred
over the next twelve months. These costs are not expected to have a material
effect on the results of operations of the Company.
The Bank has a Year 2000 Committee which reports to the Board of Directors
on a monthly basis and is charged with the responsibility of identifying Year
2000 issues and implementing plans and actions to mitigate these issues
including developing a contingency plan using the guidelines outlined in the
Federal Financial Institutions Examinations Council's "The Effect of 2000 on
Computer Systems." Individual contingency plans concerning specific software and
hardware issues are being formulated for the specific departments of the Bank
and will be updated as necessary.
The Year 2000 Issue also affects certain of the Bank's customers,
particularly in the areas of access to funds and additional expenditures to
achieve compliance. The Bank has engaged in a program of contacting its
commercial customers regarding the customers' awareness of the Year 2000 Issue.
The Company cannot guarantee that the inability of loan customers to adequately
correct the Year 2000 Issue will not have an adverse effect on the Company.
As a bank holding company, the Company and its subsidiary, the Bank, are
subject to the regulation and oversight of various banking regulators. Their
oversight includes the provision of specific timetables, programs and guidance
regarding Year 2000 issues. Regulatory examination or the holding company and
its subsidiary's Year 2000 programs are conducted and, reports are submitted by
the Company to the regulators on a periodic basis.
PBI Capital Trust Securities
- ----------------------------
On August 11, 1998, the Company issued $10.0 million of 8.57% Capital
Securities (the "Capital Securities") due August 15, 2028. The Capital
Securities were issued by the Company's subsidiary, PBI Capital Trust (the
"Trust"), a statutory business trust created under the laws of Delaware. The
Company is the sole owner of the Trust. The Trust used the proceeds from the
Capital Securities to acquire $10.0 million in 8.57% Junior Subordinated
Deferrable Interest Debentures issued by the Company. The Junior Subordinated
Debentures are the sole assets of the Trust, and payments under the Junior
Subordinated Debentures are the sole revenue of the Trust. The Company will use
the net proceeds from the sale of the Junior Subordinated Debentures for general
corporate purposes, which may include investments in and advances to its
subsidiary, the Bank, repurchases of common stock of the Company, branch
expansion, the purchase of certain branch facilities being leased and funding
loans. The precise amount and timing of the application of the net proceeds used
for such corporate purposes depends on the funding requirements and the
availability of other funds to the Company and the Bank. At present, the
majority of the net proceeds have temporarily been invested in short-term
interest bearing securities. Proceeds from the Capital Securities provide the
Company with additional Tier I and Tier II capital. The annual interest expense
for the Capital Securities is $875,000.
DESCRIPTION OF PROPERTY
The Bank leases its main office located at 379 North Main Street,
Doylestown, Pennsylvania and its branch offices located in Easton, and
Southampton, Pennsylvania. In addition, the Bank leases its loan production
office in Yardley, Pennsylvania. Rental expense on operating leases amounted to
approximately $180,797 and $143,175 for the years ended December 31, 1997 and
1996, respectively. All leases have options for renewal. Required minimum annual
rentals due on non-cancelable leases expiring after one year approximate
$238,680 in the aggregate at December 31, 1997. Future minimum annual rental
payments due on non-cancelable leases for each of the years 1998 through 2002
are approximately $183,101, $59,670, $59,670, $59,670 and $59,670, respectively.
The Bank's leases on its Doylestown and Easton offices expire in 1998 and the
Bank expects to exercise its option to purchase these properties during the
fiscal year 1998. If funds from this Offering are not used to exercise these
purchase options, other funds, including retained earnings, may be used.
Management considers that its facilities are adequate for its business. A parcel
of land was purchased in September 1997 for approximately $250,000 for the
construction of the Lower Makefield branch.
The Company and the Bank's main office is located at 379 North Main Street,
Doylestown, Pennsylvania. This office is a two story building consisting of
approximately 5,000 square feet and is currently being leased. The Bank also
conducts full service commercial banking business from two other leased retail
office buildings located in Southampton, Bucks County, Pennsylvania and, 2201
Northampton Street, (Wilson Borough) Easton, Pennsylvania (the "Easton Branch").
The
34
<PAGE>
Bank also has a loan origination office in Yardley, Bucks County, Pennsylvania
which is comprised of approximately 674 square feet.
The Bank is currently in the process of constructing its fourth full
service location in Lower Makefield Township, Pennsylvania. This site will be a
two story structure comprising approximately 5,000 square feet. This location is
owned by the Bank and is expected to open during the fourth quarter of 1998. The
Bank will close its Yardley loan origination office as soon as possible
following the opening of this facility.
The leases for its Doylestown main office and its Easton Branch expire in
December 1998. These facilities are leased from a partnership consisting of
several of the Company's directors. The Bank has a purchase option on the
properties which it plans to execute.
MARKET FOR COMMON STOCK
AND RELATED STOCKHOLDER MATTERS
Market Information
- ------------------
The Common Stock is the Company's only class of stock issued and
outstanding. The common stock is not actively traded. There were 30,000,000
shares of common stock authorized at both December 31, 1997 and 1996. The total
number of shares outstanding at December 31, 1997 and 1996 was 2,630,340 and
2,604,303, respectively. The number of shares outstanding as of June 30, 1998
was 2,630,340. The Common Stock issued and outstanding is traded on a limited
basis in the local over-the-counter market, primarily in the Company's immediate
geographic area. The table below reports the highest and lowest bid information
per share of the Common Stock known to Management which has been restated for
all periods to reflect a three-for-one stock split on December 31, 1997 at which
time the par value was changed from $1.00 to $.33 per share.
1998 1997 1996
Quarter High Low High Low High Low
- ------- ---- --- ---- --- ---- ---
First 9.00 9.00 5.33 5.00 4.25 3.33
Second 11.00 10.00 5.50 5.50 4.58 4.58
Third 11.00 9.00 5.67 5.67 5.00 5.00
Fourth --- --- 6.00 6.00 5.00 4.67
Shareholders
- ------------
As of September 18, 1998, the Company has approximately 466 shareholders of
record.
35
<PAGE>
Dividends
- ---------
The Bank maintains a philosophy of retaining earnings to fund the Bank's
growth. Therefore, the Bank has never paid a cash dividend and has no plans to
do so for the foreseeable future. Any decision to pay a cash dividend in the
future must necessarily depend upon earnings, financial condition, appropriate
legal restrictions and other factors relevant at the time the Board of Directors
of the Company considers dividend policy. Cash available for dividend
distribution to shareholders of the Company must initially come from dividends
paid by the Bank to the Company. Therefore, the restrictions on the Bank's
dividend payments are directly applicable to the Company.
Under the Pennsylvania Business Corporation Law of 1988, as amended
("BCL"), the Company may not pay a dividend if, after giving effect thereto: (1)
the Company would be unable to pay its debts as they become due or (2) the
Holding Company's total assets would be less than its total liabilities plus an
amount needed to satisfy any preferential rights of shareholders. Total assets
and liabilities shall be determined by the Board of Directors, which may base
its determination on such factors as it considers relevant, including without
limitation: (i) the book value of the assets and liabilities of the Company, as
reflected on its books and records; and (ii) unrealized appreciation and
depreciation of the assets of the Company.
LEGAL OPINION
Shumaker Williams, P.C., special counsel to the Company, has delivered an
opinion with respect to certain issues concerning the legality of the Shares
being offered pursuant to the Offering.
EXPERTS
The consolidated financial statements of the Company and its subsidiary, as
of December 31, 1997 and 1996 and for the years then ended attached to this
Prospectus as Annex A, have been so included in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, and upon the
authority of such firm as experts in accounting and auditing.
36
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT
Incorporated by reference to the Company's Annual Report on Form 10-KSB, filed
with the Securities and Exchange Commission on March 27, 1998, SEC File Number
333-34243 and attached hereto as Annex A.
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheet for Years Ended December 31, 1997 and 1996 Attached
hereto as Annex A.
Statements of Income for Years Ended December 31, 1997, 1996 and 1995
Attached hereto as Annex A.
Statements of Stockholders' Equity for Years Ended December 31, 1997,
1996 and 1995 Attached hereto as Annex A.
Statements of Cash Flows for Years Ended December 31, 1997, 1996 and
1995 Attached hereto as Annex A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Attached hereto as Annex A.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Statements of Financial Condition as of June 30, 1998 and December
31,1997 Attached hereto as Annex B.
Statements of Income for the 3 and 6 Months Ended June 30, 1998 and
1997
Attached hereto as Annex B.
Statements of Cash Flows for the Six Months Ended June 30, 1998 and
1997 Attached hereto as Annex B.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, JUNE 30, 1998
(UNAUDITED)
Attached hereto as Annex B.
37
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
AVAILABLE INFORMATION...............................
PROSPECTUS SUMMARY .................................
The Company.......................................
The Bank..........................................
The Offering......................................
Summary of Consolidated Financial Data
Selected Financial Information....................
PREMIER BANCORP, INC................................
RISK FACTORS........................................
USE OF PROCEEDS.....................................
DETERMINATION OF OFFERING PRICE
DILUTION............................................
PLAN OF DISTRIBUTION................................
TERMS OF THE OFFERING...............................
LEGAL PROCEEDINGS...................................
DIRECTORS, EXECUTIVE OFFICERS,
PROMOTERS AND CONTROL PERSONS
EXECUTIVE COMPENSATION..............................
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND
MANAGEMENT.........................................
DESCRIPTION OF SECURITIES...........................
STATEMENT AS TO INDEMNIFICATION
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS......................................
DESCRIPTION OF BUSINESS.............................
Description of the Company........................
Supervision and Regulation-The Company
Effects of Inflation..............................
Monetary Policy...................................
Environmental Regulation..........................
Year 2000.........................................
Description of the Bank...........................
Lending Activities................................
Supervision and Regulation-The Bank
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS..........................
DESCRIPTION OF PROPERTY.............................
MARKET FOR COMMON STOCK AND
RELATED STOCKHOLDER MATTERS
LEGAL OPINION.......................................
EXPERTS.............................................
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS.........................................
500,000 Shares
Common Stock
at
$11.00 per share
PREMIER BANCORP, INC.
------------------------------
Prospectus dated
September 30, 1998
------------------------------
38
<PAGE>
ANNEX A
ANNUAL REPORT OF PREMIER BANCORP, INC.
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934, FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997, OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934, FOR THE TRANSITION PERIOD FROM _______________ TO
--------------- .
COMMISSION FILE NUMBER (To be assigned)
__________PREMIER BANCORP, INC.__________
(Exact name of Registrant as specified in its charter)
PENNSYLVANIA 23-232921058
- ---------------------------------------------------------- -------------------
(State or other jurisdiction of incorporation or (I.R.S. Employer
organization) Identification No.)
379 NORTH MAIN STREET, DOYLESTOWN, PENNSYLVANIA 18901
- ------------------------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (215) 345-5100
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None
Common Stock, $0.33 par value
---------------------------------
(Title of class)
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. YES __X__ . NO ____ .
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB [X]
The Registrant's revenues for the year ended December 31, 1997 were
$13,598,619.
As of March 16, 1998, 2,630,340 shares of Common Stock of the Registrant
were outstanding and the aggregate market value of the Common Stock of the
Registrant, held by non-affiliates was $12,333,126.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Registrant's 1998 Annual Meeting of
Shareholders are incorporated by reference into Part III of this report.
<PAGE>
PREMIER BANCORP, INC.
FORM 10-KSB
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I
Item 1 Business.................................................... 1
Item 2 Properties.................................................. 4
Item 3 Legal Proceedings........................................... 5
Item 4 Submission of Matters to a Vote of Security Holders......... 5
PART II
Item 5 Market for Registrant's Common Stock and Related Stockholder
Matters................................................... 5
Item 6 Management's Discussion and Analysis of Financial Condition
and Results of Operation.................................. 6
Item 7 Financial Statements and Supplementary Data.................25
Item 8 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure..................................48
<PAGE>
PART III
Item 9 Directors and Executive Officers of the Registrant..........48
Item 10 Executive Compensation......................................48
Item 11 Security Ownership of Certain Beneficial Owners and
Management.............................................. 48
Item 12 Certain Relationships and Related Transactions............. 48
PART IV
Item 13 Exhibits, Financial Statement Schedules and Reports on Form
8-K...................................................... 49
Signatures................................................. 50
</TABLE>
<PAGE>
PART I
ITEM 1 -- BUSINESS
Premier Bancorp, Inc. (the "Company") was incorporated under the laws of
the Commonwealth of Pennsylvania on July 15, 1997. It was reorganized as a one
bank holding company of Premier Bank (the "Bank") on November 17, 1997. The
Company is registered with the Federal Reserve Board as a bank holding company
under the Bank Holding Company Act of 1956, as amended, and conducts its
business through its wholly-owned subsidiary, Premier Bank. The principal
business of the Company, through the Bank, is commercial banking and consists
of, among other things, attracting deposits from the general public and using
these funds in making loans secured by real estate, commercial loans, and
consumer loans, and purchasing investment securities.
The Company was organized for the purpose of becoming the holding company
<PAGE>
of the Bank, pursuant to a Plan of Reorganization approved by the Bank's
shareholders on October 9, 1997. In accordance with the terms of the Plan of
Reorganization, each share of the Bank's common stock previously outstanding was
automatically converted into one share of the Company's common stock and the
Bank became a wholly owned subsidiary of the Company. The Company's primary
asset is its investment in the Bank. The holding company is subject to
regulation and examination by the Board of Governors of the Federal Reserve
System (the "Federal Reserve").
At December 31, 1997 the holding company does not own or lease any property
and has no paid employees.
PREMIER BANK
The Bank was organized in 1990 as a Pennsylvania state-chartered banking
institution and member of the Federal Reserve and Federal Deposit Insurance
Corporation (the "FDIC"). The Bank commenced operations on April 24, 1992. The
Bank is a community-oriented financial services provider where consumers and
small business customers can obtain a wide variety of products and services
usually associated with larger financial institutions. The Bank places an
emphasis on serving customer needs by providing personal attention and service.
For consumers, the Bank provides deposit products which include checking,
savings, and money market accounts as well as certificates of deposit. The Bank
offers numerous credit products but specializes in lending to small commercial
establishments and professionals. Other credit products include residential
mortgage loans, home equity loans and lines of credit, personal lines of credit,
and other consumer loans. The Bank also offers other services such as safe
deposit boxes, telephone banking and automated teller services.
For small businesses, the Bank offers various deposit and transaction
services including business checking and savings accounts, electronic banking
and cash management services. The Bank offers a full array of short-term and
adjustable rate lending products including loans secured by real estate and
other assets, working capital lines and other commercial loans.
The Bank is subject to regulation and examination by the Federal Reserve
Bank of Philadelphia (the "Fed"), the Commonwealth of Pennsylvania and the FDIC.
The Bank's deposits are insured by the FDIC to the extent provided by law.
<PAGE>
The Bank and Company's main office is located at 379 North Main Street,
Doylestown, Pennsylvania. The Bank conducts business from its main office and
two other retail offices located in Southampton, Bucks County and Easton,
Northampton County. The Bank also has a loan origination office in Yardley,
Bucks County. The Bank plans to open a fourth branch office (the "Yardley
branch") in Lower Makefield Township, Bucks County, Pennsylvania. The
Pennsylvania Department of Banking approved the Bank's application for the
Yardley branch on July 16, 1997.
The Bank had 34 full-time employees and 12 part-time employees, at December
31, 1997.
1
<PAGE>
As of December 31, 1997, the Company, on a consolidated basis, had total
assets of $193,523,440, total gross loans of $108,857,509, total deposits of
$143,603,202, and total shareholders' equity of $10,433,837.
MARKET AREA
The Bank's primary market area is Doylestown, Pennsylvania and its
surrounding Bucks County and Greater Delaware Valley communities. The Bank also
services Northampton County and parts of the Lehigh Valley from its Easton
office. The Bank is not dependent upon a single customer, or a few customers,
the loss of which would have a material adverse effect on the Bank.
LENDING ACTIVITIES
The Bank offers a variety of loan products to its customers, including
loans secured by real estate, commercial, and consumer loans. The Bank's gross
loans totaled $108,857,509 and $83,084,586 at December 31, 1997 and 1996,
respectively. The portfolio represented approximately 56.3% and 54.1% of the
Company's total assets at December 31, 1997 and 1996, respectively.
<PAGE>
Loans secured by real estate totaled $98,975,380 and $75,487,851 at
December 31, 1997 and 1996, respectively, and represented 91% of total loans in
both years. Loans secured by residential properties amounted to $26,603,120 and
$22,756,292 while loans secured by commercial real estate totaled $72,372,260
and $52,731,559, respectively, at December 31, 1997 and 1996.
Other loans not secured by real estate include commercial and consumer
loans. Commercial loans were $9,084,458 and $6,861,611, and consumer loans
$797,671 and $735,124, respectively, at December 31, 1997 and 1996.
INVESTMENT ACTIVITIES
At December 31, 1997 and 1996, the Company's investment portfolio, in the
aggregate amount of $77,603,775 and $66,787,274, consisted primarily of U.S.
government agency obligations and mortgage-backed securities, and state and
municipal securities. Subject to applicable limits, the Company is permitted to
invest in equity securities which include stock in the Federal Home Loan Bank
(the "FHLB"), the Fed, and Atlantic Central Bankers Bank, the Bank's principal
correspondent bank. Investment securities available for sale are recorded at
fair value with the unrealized holding gain or loss, net of taxes, included in
shareholders' equity, while investment securities held to maturity are recorded
at amortized cost. At December 31, 1997 and 1996, the carrying value of the
available for sale portfolio was $62,434,137 and $52,899,668 and the balance of
the held to maturity portfolio was $15,169,638 and $13,887,606, respectively.
The Company views its investment portfolio as a source of earnings and
liquidity. Decisions on maturity and type of investment are dictated by the
Bank's investment and balance sheet management policies as approved annually by
the Board of Directors. The final decision regarding the specific selection of
investments for the Bank's portfolio are made by the Chief Financial Officer.
The Asset Liability Committee considers the Bank's financial performance
objectives and interest rate sensitivity in setting investment guidelines and
strategy.
SOURCES OF FUNDS
The Bank offers a variety of deposit products including checking accounts,
savings, money market accounts, and certificates of deposit. Deposits in the
<PAGE>
Bank are insured up to $100,000 by the FDIC. In addition, the Bank uses short
and long-term advances from the FHLB and overnight borrowings from Atlantic
Central Bankers Bank as sources of funds.
2
<PAGE>
COMPETITION
The Bank competes actively for loans and deposits with other financial
services companies including: other commercial banks, savings banks, savings and
loan associations, insurance companies, securities brokerage firms, credit
unions, finance companies, mutual funds, money market funds, and certain
government agencies. Competition among financial institutions is based upon a
number of factors, including, but not limited to, the quality of services
rendered, interest rates offered on deposit accounts, interest charged on loans,
service charges, the convenience of banking facilities, location and hours of
operation and, in case of loans to larger commercial borrowers, relative lending
limits.
Many of these competitors are significantly larger than Premier Bank and
have substantially greater financial resources, personnel and locations from
which to conduct business. In addition, the Bank is subject to regulation (See
"Supervision and Regulation") while certain competitors are not. Generally,
barriers of entry into the industry are considered low.
SUPERVISION AND REGULATION
Holding Company Regulation
As a registered holding company under the Bank Holding Company Act, (the
"BHCA"), the Company is regulated by the Federal Reserve Board (the "FRB"). The
Company is also subject to the provisions of section 115 of the Pennsylvania
Banking Code of 1965.
As a bank holding company, the Company is required to file with the FRB an
<PAGE>
annual report and such additional information regarding the holding company and
its subsidiary bank as required pursuant to the BHCA. The FRB may also make
examinations of the holding company and its subsidiary. The FRB possesses
cease-and-desist powers over bank holding companies and their non-bank
subsidiaries where their actions would constitute an unsafe or unsound practice
or violation of law.
In addition to the restrictions imposed by the BHCA relating to a bank
holding company's ability to acquire control of additional banks, the BHCA
generally prohibits a bank holding company from (i) acquiring a direct or
indirect interest in, or control of 5% or more of the outstanding voting shares
of any company, and (ii) engaging directly or indirectly in activities other
than that of banking, managing or controlling banks or furnishing services to
subsidiaries. However, a bank holding company may engage in, and may own shares
of companies engaged in, certain activities deemed by the FRB to be closely
related to banking or managing or controlling banks.
Bank Regulation
The Bank is a state-chartered bank, member of the Federal Reserve System
and is FDIC insured. The Federal Reserve Board, the FDIC, and federal and state
law extensively regulate various aspects of the banking business, including but
not limited to, permissible types and amounts of loans, investment and other
activities, capital adequacy, branching, interest rates on loans and the safety
and soundness of banking practices.
Federal Reserve Board Requirements
Regulation D of the FRB imposes reserve requirements on all depository
institutions, including the Bank, that maintain transaction accounts or
non-personal time and savings accounts. These reserves may be in the form of
cash or non-interest bearing deposits with the Philadelphia Federal Reserve
Bank. Under current Regulation D, the Bank must establish reserves equal to 3.0%
of the first $44.9 million of net transaction accounts and 10.0% of the
remainder. The reserve requirement on non-personal savings and time deposits
with an original maturity of less than 18 months is 3.0%. Cash and due from
banks are used as a deduction against the reserve. At December 31, 1997 and
1996, the Bank met applicable FRB reserve requirements which were $751,000 and
$414,000, respectively.
3
<PAGE>
Environmental Laws
Neither the Company nor the Bank anticipate that compliance with
environmental laws and regulations will have any material effect on capital,
expenditures, earnings, or on its competitive position. However, environmentally
related hazards have become a source of high risk and potentially unlimited
liability for financial institutions. Environmentally contaminated properties
owned by an institution's borrowers may result in a drastic reduction in the
value of the collateral securing the institution's loans to such borrowers, high
environmental clean up costs to the borrower affecting its ability to repay the
loans, the subordination of any lien in favor of the institution to a state or
federal lien securing clean up costs, and liability to the institution for clean
up costs if it forecloses on the contaminated property or becomes involved in
the management of the borrower. To minimize this risk, the Bank may require an
environmental examination of and report with respect to the property of any
borrower or prospective borrower if circumstances affecting the property
indicate a potential for contamination, taking into consideration a potential
loss to the institution in relation to the borrower. Such examination must be
performed by an engineering firm experienced in environmental risk studies and
acceptable to the institution, and the cost of such examinations and reports are
the responsibility of the borrower. These costs may be substantial and may deter
prospective borrowers from entering into a loan transaction with the Bank. The
Company is not aware of any borrower who is currently subject to any
environmental investigation or clean up proceeding that is likely to have a
material adverse effect on the financial condition or results of operations of
the Bank.
In 1995, the Pennsylvania General Assembly enacted the Economic Development
Agency, Fiduciary and Lender Environmental Liability Protection Act which, among
other things, provides protection to lenders from environmental liability and
remediation costs under the environmental laws for releases and contamination
caused by others. A lender who engages in activities involved in the routine
<PAGE>
practices of commercial lending, including, but not limited to, the providing of
financial services, holding of security interests, workout practices,
foreclosure or the recovery of funds from the sale of property shall not be
liable under the environmental acts or common law equivalents to the
Pennsylvania Department of Environmental Resources or to any other person by
virtue of the fact that the lender engages in such commercial lending practice.
A lender, however, will be liable if it, its employees or agents, directly cause
an immediate release or directly exacerbate a release of regulated substance on
or from the property, or knowingly and willfully compelled the borrower to
commit an action which caused such release or violation of an environmental act.
The Economic Development Agency, Fiduciary and Lender Environmental Liability
Protection Act, however, does not limit federal liability which still exists
under certain circumstances.
The required statistical information for Item 1 can be found in "Item 6
- -Management's Discussion and Analysis of Financial Condition and Results of
Operations" of this report.
ITEM 2 -- PROPERTIES
The Bank and Company's main office is located at 379 North Main Street,
Doylestown, Pennsylvania. The Bank conducts business from its main office and
two other retail offices located in Southampton, Bucks County and Easton,
Northampton County. The Bank also has a loan origination office in Yardley,
Bucks County. The Bank is in the process of opening a fourth branch office (the
"Yardley branch") in Lower Makefield Township, Bucks County, Pennsylvania. The
Pennsylvania Department of Banking approved the Bank's application for the
Yardley branch on July 16, 1997.
The Bank leases all facilities from which it currently operates. The leases
on its Doylestown and Easton offices expire in 1998. The Bank expects to
exercise its option to purchase these properties during the fiscal year 1998.
Management considers that its facilities are adequate for its business. A parcel
of land was purchased for the construction of the Yardley branch in September
1997.
4
<PAGE>
The following table details the Bank's properties:
<TABLE>
<CAPTION>
<S> <C>
1) Doylestown, Pa................... Main office and branch -- leased
requiring rental payments of $69,799 per
year
2) Easton, Pa....................... Branch -- leased requiring rental
payments of $49,304 per year
3) Southampton, Pa.................. Branch and operations center -- leased
requiring rental payments of $59,670
per year
4) Yardley, Pa...................... Loan origination office -- leased
requiring rental payments of $10,188 per
year
5) Lower Makefield Township, Pa..... Land for future branch -- owned
</TABLE>
ITEM 3 -- LEGAL PROCEEDINGS
As of December 31, 1997, there were no material pending legal proceedings,
other than ordinary routine litigation incidental to the business, to which the
Company or its subsidiary are a party or by which any of their property is in
the subject.
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5 -- MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS
The common stock of the Company is not actively traded. There were
<PAGE>
30,000,000 shares of common stock authorized at both December 31, 1997 and 1996.
The total number of shares outstanding as of December 31, 1997 and 1996 was
2,630,340 and 2,604,303, respectively. The Company had 476 shareholders of
record as of March 16, 1998. There is no other class of common stock authorized
or outstanding. The Company effected a three-for-one stock split on December 31,
1997 at which time the par value was changed from $1.00 to $.33 per share.
During 1997 and 1996, the price range of the common stock known by management to
have traded was $5.00 to $6.00 per share and $3.64 to $5.00 per share,
respectively. The Company is restricted as to the amount of dividends that it
can pay holders of its common stock by virtue of the restrictions on the Bank's
ability to pay dividends to the Company. See Note 20 to the 1997 Consolidated
Financial Statements elsewhere herein. No dividends have been declared or paid.
All information has been retroactively restated to give effect to the stock
split in 1997.
5
<PAGE>
SELECTED FINANCIAL AND OTHER DATA
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1997 1996
- - -------------------------------- ------------ ------------
<S> <C> <C>
Income and Expense
Interest income.................... ...... $ 13,448,692 10,103,117
Interest expense........................... 7,532,471 5,543,472
------------ ------------
Net interest income.................. ..... 5,916,221 4,559,645
Provision for loan losses.................. 400,000 350,000
Non-interest income........................ 149,927 208,131
Non-interest expense....................... 3,735,191 2,886,679
------------ ------------
Income before income taxes................. 1,930,957 1,531,097
Income tax expense.................... .... 590,000 435,462
------------ ------------
Net income................................. $ 1,340,957 1,095,635
============ ============
<PAGE>
Per Share Data
Basic earnings per share.................. $ 0.51 0.42
Diluted earnings per share................ 0.49 0.40
Book value................................ 3.97 3.43
Average common shares outstanding......... $ 2,606,473 2,604,303
Balance Sheet at Year-End
Loans, net of unearned income............. $108,532,674 82,909,836
Investment securities held to maturity. .. 15,169,638 13,887,606
Investment securities available for sale.. 62,434,137 52,899,668
Other earning assets...................... 85,823 206,313
Total assets.............................. 193,523,440 153,686,788
Deposits.................................. 143,603,202 118,093,242
Other interest bearing liabilities........ 36,342,740 23,640,568
Shareholders' equity...................... $ 10,433,837 8,942,793
Selected Financial Ratios
Net interest margin................. ..... 3.44% 3.52%
Return on average assets.................. 0.78% 0.85%
Return on average shareholders' equity.... 14.28% 13.32%
Average shareholders' equity to average assets. 5.45% 6.35%
</TABLE>
ITEM 6 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Premier Bancorp, Inc. (the "Company") is a Pennsylvania business
corporation and registered bank holding company headquartered in Doylestown,
Bucks County, Pennsylvania. The Company was incorporated on July 15, 1997 and
reorganized on November 17, 1997 at the direction of the Board of Directors of
Premier Bank as a one bank holding company of Premier Bank (the "Bank").
Currently the primary business of the Company is the operation of its
wholly-owned subsidiary, Premier Bank.
Premier Bank is a Pennsylvania chartered commercial bank and member of the
Federal Reserve Bank of Philadelphia (the "Fed") and the Federal Deposit
Insurance Corporation (the "FDIC"). The Bank was organized in 1990 and started
<PAGE>
operations on April 24, 1992. The Bank's principal business has been, and
continues to be, gathering deposits from customers within its market area, and
investing
6
<PAGE>
those deposits, primarily in loans, mortgage-backed securities, and obligations
of U.S. government agencies and government sponsored entities ("GSE's"). The
Bank's revenues are derived principally from interest on its loan and securities
portfolios. The Bank's primary sources of funds are: deposits, repayments,
prepayments and maturities of loans; repayments, prepayments and maturities of
mortgage-backed and investment securities, and, borrowed funds. The Bank
currently has three full service Pennsylvania banking offices: Doylestown,
Easton and Southampton. The Bank also has a loan production office in Yardley,
Pennsylvania. The Bank faces significant competition from other financial
services companies many of which are larger organizations with more resources
and locations than the Bank.
The Company's consolidated results of operations are dependent primarily on
net interest income, which is the difference between the interest income earned
on its interest-earning assets, such as loans and securities, and the interest
expense paid on its interest-bearing liabilities, such as deposits and other
borrowed money. The Company also generates non-interest income such as service
charges and other fees. The Company's non-interest expenses primarily consist of
employee compensation and benefits, occupancy expenses, marketing, data
processing fees and other operating expenses. As a Bank, the Company is subject
to losses from its loan portfolio if borrowers fail to meet their obligations.
The Company's results of operations are also significantly affected by general
economic and competitive conditions, particularly changes in market interest
rates, government policies, changes in accounting standards and actions of
regulatory agencies.
The intention of this section is to provide the reader with a better
understanding of the consolidated results of operations and financial condition
of Premier Bancorp, Inc. and its wholly owned subsidiary, Premier Bank, for the
<PAGE>
years 1997 and 1996. The results of operations and financial condition discussed
herein are presented on a consolidated basis and the consolidated entity is
referred to herein as "PBI". PBI's consolidated financial condition and results
of operations consist almost entirely of Premier Bank's financial condition and
results of operations. This section should be read in conjunction with the
financial statements and notes beginning on page 27. Current performance may not
be indicative of future performance.
In addition to historical information, this management discussion and
analysis 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 this section entitled "Management
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. The
Company undertakes no obligation to publicly revise or update these
forward-looking statements to reflect events or circumstances that arise after
the date hereof. Readers should carefully review the risk factors described in
other documents the Company files from time to time with the Securities and
Exchange Commission, including Quarterly Reports on Form 10-QSB to be filed by
the Company in 1998, and any Current Reports on Form 8-K filed by the Company.
The following factors are among the factors that could cause actual results
to differ materially from the forward-looking statements: general economic
conditions, including their impact on capital expenditures; business conditions
in the banking industry; the regulatory environment; rapidly changing technology
and evolving banking industry standards, Year 2000 issues, competitive factors,
including increased competition with community, regional and national financial
institutions; new service and products offerings by competitors and price
pressures; and like items.
7
<PAGE>
The following table indicates certain key average balance sheet amounts and
their corresponding earnings/expenses and rates.
AVERAGE BALANCES, RATES AND INTEREST INCOME AND EXPENSE SUMMARY
<TABLE>
<CAPTION>
1997 1996
----------------------------- -----------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
--------- ---------- --------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-bearing
deposits.... $ 298,644 14,334 4.80% $ 762,313 41,325 5.42%
Fed funds sold... 1,496,408 82,081 5.49% 1,182,305 62,133 5.26%
Investment securities
available for sale
Taxable... .. .50,572,153 3,384,850 6.69% 35,252,588 2,348,307 6.66%
Tax-exempt(1). .5,030,358 276,573 5.50% 4,844,426 262,381 5.42%
Investment securities
held to
maturity... 13,749,072 937,551 6.82% 14,910,194 1,001,579 6.72%
------------ -------- ------ ---------- ----------- ----
Total investment
securities....69,351,583 4,598,974 6.63% 55,007,208 3,612,267 6.57%
Loans, net of
unearned
income(2)... 95,146,116 8,753,303 9.20% 68,593,534 6,387,392 9.31%
------------ ----------- ---- ---------- ----------- ----
Total earning
assets...... 166,292,751 13,448,692 8.09% 125,545,360 10,103,117 8.05%
Cash and due
from banks... 2,777,906 1,978,163
Allowance for
loan losses.... (1,142,571) (829,894)
Other assets.. 4,269,907 2,816,642
------------ ------------
Total assets.... $172,197,993 $129,510,271
============ ============
Liabilities and
shareholders'
equity
Interest
checking..... $ 8,829,154 224,223 2.54% $ 6,178,914 150,795 2.44%
<PAGE>
<CAPTION>
1997 1996
----------------------------- -----------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
--------- ---------- --------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Money market
deposit
accounts 1,535,182 38,930 2.54% 1,374,314 34,544 2.51%
Savings
accounts 42,107,494 1,648,694 3.92% 36,286,047 1,508,194 4.16%
Time deposits 69,725,010 3,984,653 5.71% 51,165,128 2,894,233 5.66%
------------ ----------- ---- ------------ --------- -----
Total
interest-bearing
deposits.... 122,196,840 5,896,500 4.83% 95,004,403 4,587,766 4.83%
Short-term
borrowings... 24,007,462 1,355,255 5.65% 17,003,164 955,706 5.62%
Long-term
borrowings... 2,972,603 161,567 5.44% -- -- --
Subordinated
debt......... 1,467,123 119,149 8.12% -- -- --
------------ ----------- ---- ------------ ----------- ----
Total
interest-bearing
liabilities... 150,644,028 7,532,471 5.00% 112,007,567 5,543,472 4.95%
Non-interest
bearing
deposits.. 9,576,018 7,174,913
Other
liabilities.. 2,586,024 2,100,022
Shareholders'
equity....... 9,391,923 8,227,769
------------ ------------
Total liabilities
and shareholders'
equity...... $172,197,993 $129,510,271
============ ============
Net interest
income/rate
spread.... 5,916,221 3.09% 4,559,645 3.10%
=========== ==== =========== ====
Net interest margin(3) 3.44% 3.52%
Average interest
earning assets
as a percentage of
average
interest-bearing
liabilities 110.39% 112.09%
</TABLE>
- --------------------
(1) Interest income on tax-exempt investment securities has not been presented
on a tax equivalent basis.
(2) Includes non-accrual loans of $511,903 and $651,165 on average in 1997 and
1996, respectively.
(3) Net interest margin is calculated as net interest income divided by average
total assets.
<PAGE>
8
MANAGEMENT STRATEGY
The Bank's primary management strategy for 1998 and beyond is to increase
its loan and deposit market shares in the communities it serves and to expand
its branch network to new markets as deemed appropriate. This is accomplished
principally through aggressive pricing, direct marketing efforts of Bank
personnel and use of the media. The Bank plans to open its fourth branch
location (the "Yardley branch") in 1998 in Lower Makefield Township, Bucks
County, Pennsylvania.
The Bank also attempts to maximize its earnings, given its current level of
capital, by borrowing funds and purchasing investment securities (See "Capital
Leverage Strategy"). Management uses appropriate portfolio and asset/liability
management techniques to manage the effects of interest rate volatility on the
Bank's profitability and capital and to maintain asset quality for loans and
investments.
RESULTS OF OPERATIONS
The Company reported net income of $1,340,957 or $.49 diluted earnings per
share for the year ended December 31, 1997. This represents an increase of
$245,322 or 22.4% from the net income of $1,095,635 or $.40 diluted earnings per
share reported in 1996. Return on average assets and return on average
shareholders' equity were .78% and 14.28%, respectively, in 1997 compared with
.85% and 13.32% in 1996.
Results for 1997 reflect a higher net interest income of $5,916,221 in
comparison with $4,559,645 for 1996 resulting principally from growth in
interest earning assets. Results for 1997 also include $400,000 in provision for
loan losses in comparison with $350,000 for 1996. Non-interest income amounted
to $149,927, a decrease of $58,204 from the $208,131 earned in 1996. The
decrease in non-interest income in 1997 as compared with 1996 is primarily due
<PAGE>
to lower gains on sales of loans held for sale and losses on the sale of real
estate owned. Non-interest expense amounted to $3,735,191 for 1997, an $848,512
increase over the $2,886,679 reported in 1996. The increase in non-interest
expense in 1997 is primarily due to the opening of the Bank's third branch in
Southampton, Bucks County, Pennsylvania (Southampton branch) in February 1997,
and an increase in lending and operations personnel in conjunction with the
continued growth of the institution.
NET INTEREST INCOME
The Company's profitability, like that of most community financial
institutions, is dependent to a large extent upon its net interest income. Net
interest income depends upon the relative amounts of interest earning assets and
interest-bearing liabilities and the interest rates earned or paid on them and,
the amount of earning assets funded by non-interest-bearing deposits,
liabilities and shareholders' equity. Net interest income is the Company's
primary source of operating income.
The net interest rate spread is the difference between average rates
received on earning assets and average rates paid on interest-bearing
liabilities. Net interest rate margin is net interest income divided by average
assets. Interest rates received and paid on loan and deposit products
respectively, are generally heavily influenced by the overall interest rate
environment and by competition.
Net interest income for 1997 increased $1,356,576 or 29.8% to $5,916,221.
The increase in net interest income is primarily a function of asset growth
rather than rate changes. The increase in net interest income was due to the
$40,747,391 or 32.5% increase in average earning assets combined with a 4 basis
point increase in rate. Average investments and average loans increased
$14,344,375 and $26,552,582, respectively. The average yield on investments was
up 6 basis points while the average rate on loans declined 11 basis points in
1997. On the liability side, average interest-bearing deposits increased
$27,192,437 or 28.6% with no change in average rate while non-interest bearing
deposits increased $2,401,105 or 33.5%. Average borrowings increased $11,444,024
with a corresponding rate increase of 13 basis points in 1997.
9
<PAGE>
The Rate-Volume Analysis table below highlights the impact of changing
rates and volumes on total interest income and interest expense.
RATE VOLUME ANALYSIS OF CHANGES IN NET INTEREST INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1997 VS. 1996
-------------------------------- --------------------------------
VOLUME RATE TOTAL
---------- ------- ---------
<S> <C> <C> <C>
Interest income
Fed funds sold...................... $ 17,127 2,821 19,948
Interest-bearing deposits........... (22,711) (4,280) (26,991)
Investment securities held to
maturity.......................... (78,985) 14,957 (64,028)
Investment securities available for
sale.............................. 1,020,708 30,027 1,050,735
Loans............................... 2,446,355 (80,444) 2,365,911
---------- ------- ---------
Total interest income................... 3,382,494 (36,919) 3,345,575
---------- ------- ---------
Interest expense
Interest checking................... 67,078 6,350 73,428
Money market accounts............... 4,077 309 4,386
Savings............................. 231,659 (91,159) 140,500
Time................................ 1,060,365 30,055 1,090,420
Short-term borrowings............... 395,384 4,165 399,549
Long-term borrowings................ 161,567 -- 161,567
Subordinated debt................... 119,149 -- 119,149
---------- ------- ---------
Total interest expense.................. 2,039,279 (50,280) 1,988,999
---------- ------- ---------
Net interest income..................... $1,343,215 13,361 1,356,576
========== ======= =========
<PAGE>
RATE VOLUME ANALYSIS OF CHANGES IN NET INTEREST INCOME
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1996 VS. 1995
-------------------------------- --------------------------------
VOLUME RATE TOTAL
---------- ------- ---------
<S> <C> <C> <C>
Interest income
Fed funds sold...................... $ (45,079) (12,399) (57,478)
Interest-bearing deposits........... 36,525 (748) 35,777
Investment securities held to
maturity.......................... 380,372 23,762 404,134
Investment securities available for
sale.............................. 1,101,355 725 1,102,080
Loans............................... 1,711,574 (94,131) 1,617,443
---------- ------- ---------
Total interest income................... 3,184,747 (82,791) 3,101,956
---------- ------- ---------
Interest expense
Interest checking................... 35,567 (13,125) 22,442
Money market accounts............... (11,622) (7,010) (18,632)
Savings............................. 494,672 (68,651) 426,021
Time................................ 786,957 23,732 810,689
Short-term borrowings............... 638,532 (20,705) 617,827
Long-term borrowings................ -- -- --
Subordinated debt................... -- -- --
---------- ------- ---------
Total interest expense.................. 1,944,106 (85,759) 1,858,347
---------- ------- ---------
Net interest income..................... 1,240,641 2,968 1,243,609
========== ======= =========
<PAGE>
</TABLE>
Variances which were not specifically attributed to volume or rate were
allocated proportionately between volume and rate. Non-performing assets are
treated as a change due to rate.
INTEREST INCOME
Total interest income increased $3,345,575 or 33.1% in 1997 to $13,448,692.
Higher average earning asset balances contributed $3,382,494 to interest income
while changes in interest rates on earning assets negatively impacted interest
income by $36,919. Higher average investment and loan balances added $2,446,355
and $941,723, respectively, to interest income in 1997. Lower yields on loans
and interest bearing deposits negatively impacted total interest income by
$80,444 and $4,280, respectively. The yield on earning assets increased 4 basis
points to 8.09% with the average yields on fed funds sold, and investment
securities increasing 23 basis points, and 6 basis points, respectively, during
1997. The yield on interest bearing deposits and loans decreased 62 basis points
and 11 basis points, respectively, during the year.
Non-accrual loans of $497,734 in 1997 and $870,961 in 1996 resulted in the
non-recognition of $51,900 and $80,434 in interest income for the respective
periods. Non-accrual loans are included in the impact of rate changes.
INTEREST EXPENSE
Total interest expense increased $1,988,999 or 35.9% in 1997 to $7,532,471.
A $38,636,461 or 34.5% increase in average interest-bearing liabilities to
$150,644,028 resulted in an increase in interest expense of $2,039,279. Interest
rates on total interest-bearing deposits were unchanged from 1996 at 4.83%.
While the overall rate paid on interest-bearing deposits did not change, the
deposit mix and the rates paid on the different products did change. Average
interest checking accounts increased $2,650,240 or 42.9% to $8,829,154 while the
corresponding rate increased 10 basis points. Average money market balances were
basically unchanged while the average rate increased 3 basis points to 2.54%.
Average savings accounts increased $5,821,447 or 16.0% to $42,107,494 while the
rate declined 24 basis points to 3.92%. The average balance and rate on time
deposits increased $18,559,882 or 36.3% to $69,725,010 and 5 basis points,
respectively. The interest rate on short-term
<PAGE>
10
borrowings was basically unchanged while the average balance increased
$7,004,298 or 41.2% to $24,007,462. Interest expense of $161,567 and $119,149 on
long-term borrowings and subordinated debt, respectively, issued in 1997 were
treated as changes in volume as there were no such borrowings in 1996. Long-term
borrowings are subject to repricing every six months and mature in the year
2002. The subordinated debt reprices annually and matures in the year 2012. The
subordinated debt, which qualifies as Tier II capital, was issued for the
purpose of funding the Bank's growth and maintenance of certain regulatory
capital ratios.
INTEREST RATE SENSITIVITY
As a financial institution, the Company is subject to interest rate risk.
Fluctuations in interest rates will ultimately impact both the level of income
and expense recorded on a large portion of the Bank's assets and liabilities,
and the market value of all interest-earning assets and interest-bearing
liabilities, other than those which possess a short term to maturity. Since all
of the Company's interest-bearing liabilities and virtually all of the Company's
interest-earning assets are located at the Bank, all significant interest rate
risk management procedures are performed at the Bank level. Based upon the
Bank's nature of operations, the Bank is not directly subject to foreign
currency exchange or commodity price risk. At December 31, 1997, the Company
does not have any hedging transactions in place such as interest rate swaps,
caps or floors.
The Bank analyzes interest rate risk/sensitivity through the use of gap
analysis and simulation models. Interest rate risk/sensitivity management seeks
to minimize the effect of interest rate changes on net interest income through
periods of changing interest rates. The Asset/Liability Management Committee
(ALCO) is responsible for managing interest rate risk and for evaluating the
impact of changing interest rate conditions on net interest income and net
income.
<PAGE>
Gap analysis measures the difference between volumes of rate sensitive
assets and liabilities and quantifies these repricing differences for various
time intervals. Static gap analysis describes interest rate sensitivity at a
point in time. However, it alone does not accurately measure the magnitude of
changes in net interest income since changes in interest rates do not impact all
categories of assets and liabilities equally or simultaneously nor does it
consider future growth. Interest rate sensitivity analysis also involves
assumptions on certain categories of assets and deposits. For purposes of
interest rate sensitivity analysis, assets and liabilities are stated at either
their contractual maturity, estimated likely call date, or earliest repricing
opportunity. Mortgage-backed securities and amortizing loans are scheduled based
on their anticipated cash flow including estimated prepayments.
Savings accounts, including passbook, statement savings, money market, and
interest checking accounts, do not have a stated maturity or repricing term and
can be withdrawn or repriced at any time. This may impact PBI's margin if more
expensive alternative sources of deposits are required to fund loans or deposit
runoff. Management projects the repricing characteristics of these accounts
based on historical performance and assumptions that it believes reflect their
rate sensitivity.
A positive gap results when the amount of interest rate sensitive assets
exceeds interest rate sensitive liabilities and generally means the institution
will benefit during periods of rising interest rates. A negative gap results
when the amount of interest rate sensitive liabilities exceeds interest rate
sensitive assets and generally means the institution will benefit during periods
of falling interest rates.
11
<PAGE>
The following table depicts the Bank's year end 1997 gap analysis given
management assumptions:
<TABLE>
INTEREST RATE SENSITIVITY
<CAPTION>
WITHIN 4 TO 6 7 MONTHS 1 TO 3
DECEMBER 31, 1997 3 MONTHS MONTHS TO 1 YEAR YEARS
----------------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Assets
Interest-bearing
deposits............. $ 85,823 -- -- --
Investment
securities........... 16,592,070 5,797,034 15,208,052 10,300,848
Loans.................. 32,637,098 1,972,926 6,950,728 28,437,980
----------- ---------- ---------- -----------
Total rate sensitive
assets................. 49,314,991 7,769,960 22,158,780 38,738,828
=========== ========== ========== ===========
Total cumulative
assets................. 49,314,991 57,084,951 79,243,731 117,982,559
Liabilities
Interest checking,
money market and
savings accounts..... 2,322,663 1,741,994 3,483,989 34,839,892
Time deposits.......... 14,264,074 10,078,857 25,808,896 22,530,489
Short-term
borrowings........... 14,094,429 97,429 194,858 779,432
Long-term borrowings... -- -- -- --
Subordinated debt...... 1,500,000 -- -- --
----------- ---------- ---------- -----------
Total rate sensitive
liabilities............ 32,181,166 11,918,280 29,487,743 58,149,813
=========== ========== ========== ===========
Total cumulative
liabilities............ 32,181,166 44,099,446 73,587,189 131,737,002
Gap during period........ $17,133,825 (4,148,320) (7,328,963) (19,410,985)
Cumulative gap........... $17,133,825 12,985,505 5,656,542 (13,754,443)
Cumulative gap as a
percentage of earning
assets................. 9.20% 6.97% 3.04% (7.39)%
<CAPTION>
3 TO 5 AFTER
DECEMBER 31, 1997 YEARS 5 YEARS TOTAL
----------------- ----------- ---------- ----------
<S> <C> <C> <C>
Assets
Interest-bearing
deposits............. -- -- 85,823
Investment
securities........... 5,453,892 24,251,879 77,603,775
Loans.................. 27,353,839 11,180,103 108,532,674
----------- ----------- -----------
Total rate sensitive
assets................. 32,807,731 35,431,982 186,222,272
=========== =========== ===========
Total cumulative
assets................. 150,790,290 186,222,272
Liabilities
Interest checking,
money market and
savings accounts..... 11,613,299 4,064,654 58,066,491
Time deposits.......... 1,251,043 26,032 73,959,391
Short-term
borrowings........... 779,432 3,897,160 19,842,740
Long-term borrowings... 15,000,000 -- 15,000,000
Subordinated debt...... -- -- 1,500,000
----------- ----------- -----------
Total rate sensitive
liabilities............ 28,643,774 7,987,846 168,368,622
=========== =========== ===========
Total cumulative
liabilities............ 160,380,776 168,368,622
Gap during period........ 4,163,957 27,444,136
Cumulative gap........... (9,590,486) 17,853,650
Cumulative gap as a
percentage of earning
assets................. (7.39)% (5.15)% 9.59%
</TABLE>
Due to the Bank's high growth rate to date, PBI also uses computer based
simulation models to assess the impact of changes in interest rates on net
interest income. The model incorporates management's business plan assumptions
and related asset and liability yields, deposit sensitivity and the size,
composition and maturity or repricing characteristics of the balance sheet. The
assumptions are based on what management believes at that time to be the most
likely interest rate environment. Management also evaluates the impact of higher
and lower interest rates.
Actual results may differ from simulated results due to various factors
including time, magnitude and frequency of interest rate changes, the
relationship or spread between various rates, loan pricing and deposit
sensitivity, and asset/liability strategies. Based on management's estimate of
balance sheet growth and composition and interest rates for the next year, net
interest income in 1998 is expected to increase compared with 1997 net interest
income.
CAPITAL ADEQUACY
A strong capital position is fundamental to support the continued growth
and profitability of the institution. In addition, the Bank is subject to
various regulatory capital requirements as issued by banking regulatory
authorities. Regulatory capital is defined in terms of Tier I capital
(shareholders' equity excluding unrealized gains or losses on available for sale
securities and certain intangible assets), Tier II capital (which includes a
portion of the allowance for loan losses and certain other instruments including
subordinated debt), and total capital (Tier I plus Tier II). Risk-based capital
ratios are expressed as a percentage of risk-weighted assets. Risk-weighted
assets are determined by assigning various weights to all assets and off-balance
sheet arrangements, such as letters of credit and loan commitments, based on
associated risk. Regulators have also adopted minimum Tier I leverage ratio
standards, which measure the ratio of Tier I capital to total assets.
At December 31, 1997, the Bank believes it was in compliance with all
applicable regulatory capital requirements to be classified as "well
capitalized" pursuant to the FDIC regulations. PBI plans to remain "well
capitalized" and manages the Bank accordingly.
12
<PAGE>
The following table depicts the Bank's capital components and ratios along
with the "adequately" and "well" capitalized criteria as defined by the
regulators.
<TABLE>
CAPITAL COMPONENTS
<CAPTION>
DECEMBER 31, 1997 1996
- ------------- ------------ -----------
<S> <C> <C>
Tier I
Shareholders' equity........................ $ 10,328,646 8,942,793
Intangible assets.... .................... -- (24,000)
Net unrealized security gains. ........... (52,175) (6,799)
------------ -----------
Total Tier I.............................. 10,276,471 8,911,994
============ ===========
Tier II
Allowable portion of the allowance for
loan losses.............................. 1,360,148 960,672
Allowable portion of subordinated debt....... 1,500,000 --
------------ -----------
Total Tier II................................ 2,860,148 960,672
============ ===========
Total capital................................ 13,136,619 9,872,666
Risk-weighted assets......................... $120,736,000 90,600,000
</TABLE>
CAPITAL RATIOS
<TABLE>
<CAPTION>
<PAGE>
ACTUAL ACTUAL "ADEQUATELY" "WELL"
DECEMBER 31, 1997 1996 CAPITALIZED RATIOS CAPITALIZED RATIOS
- ------------- ------ ------ ------------------ ------------------
<S> <C> <C> <C> <C>
Total risk-based
capital/
risk-weighted
assets........ 10.88% 10.90% 8.00% 10.00%
Tier I capital/
risk-weighted
assets......... 8.51% 9.84% 4.00% 6.00%
Tier I capital/
average assets
(leverage
ratio)....... 5.45% 5.80% 4.00% 5.00%
</TABLE>
The future dividend policy of the Company is subject to the discretion of
the Board of Directors and will depend upon a number of factors, including
future earnings, financial conditions, cash needs, and general business
conditions. Holders of common stock will be entitled to receive dividends as and
when declared by the Board of Directors out of funds legally available for that
purpose. The Company is restricted as to the amount of dividends that it can pay
holders of its common stock by virtue of the restrictions on the Bank's ability
to pay dividends to the Company. Payment of dividends by the Bank is subject to
the regulatory restrictions set forth in the Pennsylvania Banking Code of 1965,
the Federal Reserve Act and the Federal Deposit Insurance Corporation Act.
The Pennsylvania Banking Code of 1965 provides that cash dividends may be
declared and paid only out of accumulated net earnings which are $2,384,881 at
December 31, 1997. Cash dividends must be approved by the Federal Reserve Board
if the total of all cash dividends declared by the Bank in any calendar year,
including the proposed cash dividend, exceeds the total of the Bank's net
profits for that year plus its retained net profits from the preceding two years
less any required transfers to surplus or a fund for the retirement of preferred
stock, if any. The Federal Deposit Insurance Corporation Act generally prohibits
all payments of dividends by any bank which is in default of any assessment of
the FDIC. As of December 31, 1997 and 1996, the Bank was not in default of any
FDIC assessments.
As a practical matter, the Company has not nor plans to pay cash dividends
in the foreseeable future. All earnings are being retained to help finance the
continued growth of the institution. The growth rate of the institution
continues to exceed returns on equity. If this trend continues, the Company will
need additional capital. The formation of the holding company in November 1997
<PAGE>
was largely for the purpose of providing additional capital raising alternatives
which the Company will
13
<PAGE>
consider in 1998 and beyond. In January 1997, the Bank issued $1,500,000 in
subordinated debt to supplement its Tier II and total capital ratios in order to
remain "well capitalized".
LIQUIDITY
Liquidity represents an institution's ability to generate cash or otherwise
obtain funds at reasonable rates to satisfy commitments to borrowers and demands
of depositors. The Company's primary sources of funds are deposits, proceeds
from principal and interest payments on loans, mortgage-backed securities and
investments, and borrowings. While maturities and scheduled amortization of
loans and investments are a predictable source of funds, deposit flows, loan
prepayments and mortgage-backed securities prepayments are influenced by
interest rates, economic conditions and competition.
The primary asset deployment activities of the Bank are the origination of
loans secured by real estate, and the purchase of mortgage-backed and other
securities. During the year ended December 31, 1997, the Bank's loan portfolio
grew $26,737,265 as compared to an increase of $22,588,404 for the year ended
December 31, 1996. Purchases of mortgage-backed and other securities totaled
$54,644,870 for the year ended December 31, 1997 compared to $60,402,105 for the
year ended December 31, 1996. These activities were funded primarily by deposit
growth and borrowings, principal repayments on loans and mortgage-backed
securities, and by sales and calls of investments. Principal repayments on
mortgage-backed securities totaled $11,673,262 during the year ended December
31, 1997, compared to $10,085,629 for the year ended December 31, 1996.
Investment securities which were called and repaid by the issuer totaled
$3,000,000 and $2,000,000, respectively, during the fiscal years ended December
31, 1997 and 1996.
<PAGE>
In addition, the Bank uses overnight fed funds and interest-bearing
deposits in other banks to absorb daily excess liquidity. Conversely, overnight
fed funds may be purchased to satisfy daily liquidity needs. Fed funds are sold
or purchased overnight through a correspondent bank which diversifies the
holdings to an approved group of commercial banks throughout the country.
Deposits increased $25,509,960 and $25,286,040 during the years ended
December 31, 1997 and 1996, respectively. Deposit flows are affected by the
level of interest rates, the interest rates and products offered by local
competitors, and other factors. Certificates of deposit which are scheduled to
mature in one year or less from December 31, 1997 totaled $50,447,768. Based
upon the Company's current pricing strategy and deposit retention experience,
management believes that a significant portion of such deposits will remain with
the Company. Net borrowings increased $12,702,172 during the fiscal year ended
December 31, 1997, with the majority of this growth in borrowings from the FHLB
of Pittsburgh. As part of its master credit agreement, the FHLB maintains a
blanket lien against all assets of the Bank.
Shareholders' equity increased $1,491,044 during the year ended December
31, 1997. The increase was principally attributed to net income of $1,340,957.
Stock options exercised in December 1997 contributed $105,192 to capital.
The Bank is required to maintain a minimum average daily balance of liquid
assets and short-term liquid assets as a percentage of net withdrawable deposit
accounts plus short-term borrowings as defined by the Federal Reserve Board. The
reserve balance maintained in accordance with such requirement was $751,000 as
of December 31, 1997. The Bank was also required to maintain $300,000 on deposit
with its correspondent bank at year end 1997.
The Bank monitors its liquidity position on a daily basis. Excess
short-term liquidity is invested in overnight federal funds sales through its
primary correspondent bank. In the event that the Bank should require funds
beyond its ability to generate them internally, additional sources of funds are
available through the use of one of the following: $2,000,000 unsecured fed
funds line of credit with Atlantic Central Bankers Bank or, the Bank's
$58,704,000 borrowing limit at the FHLB of Pittsburgh. The Bank could also sell
or borrow against investment securities. At December 31, 1997, the Bank had
14
<PAGE>
$27,500,000 in borrowings outstanding at the FHLB of Pittsburgh. The Bank had a
remaining unused borrowing capacity from the FHLB of Pittsburgh of $31,204,000.
In 1998 the Bank plans to exercise the purchase options on its leases for
both its Doylestown and Easton offices. Also, the Bank plans to construct its
Yardley branch on land already owned. Such capital expenditures will aggregate
approximately $2,000,000 in 1998.
CAPITAL LEVERAGE STRATEGY
The Bank intends to maintain its classification as a "well capitalized"
bank as defined by its regulators. Current capital levels exceed all such
regulatory requirements. A portion of this "excess" capital has been temporarily
deployed through the use of a capital leverage strategy whereby the Bank invests
in high quality mortgage-backed securities, municipal, corporate and U.S.
government agency securities ("leverage assets") funded by short and
intermediate term borrowings principally from the FHLB of Pittsburgh. The
capital leverage strategy generates additional earnings for the Company by
virtue of a positive interest rate spread between the yield on the leverage
assets and the cost of the borrowings. This positive spread is created because
the average term to maturity of the leverage assets exceeds that of the
borrowings used to fund their purchase. The net interest income earned on the
leverage strategy would be expected to decline in a rising interest rate
environment. To date, the capital leverage strategy has been undertaken in
accordance with limits established by the Board of Directors, aimed at enhancing
profitability under moderate levels of interest rate exposure.
INVESTMENT SECURITIES
Investment policies, approved annually by PBI's Board of Directors, include
strict standards regarding permissible investment categories, credit quality,
maturity intervals and investment concentrations. The purchasing of specific
investment securities, within such standards, is left to the judgment of
management. At December 31, 1997 and 1996, 84.1% and 87.0%, respectively, of
PBI's investment securities were either issued by U.S. government sponsored
<PAGE>
enterprises ("GSE's") or agencies.
Investment securities are classified at the time of purchase by one of
three purposes: trading, available for sale (AFS) or held to maturity (HTM). To
date, the Bank has not purchased any securities for trading purposes. The Bank
usually classifies securities, in particular mortgage-backed securities, as AFS
to provide management the flexibility to sell certain securities and adjust its
balance sheet in response to changing market conditions.
Investments Held to Maturity
Investment securities held to maturity are recorded at amortized cost and
are purchased with the intent and ability to hold to maturity. The majority of
securities included in this portfolio are U.S. government agency bonds with
short term call options embedded. The call options minimize the price
appreciation potential of bonds in a declining interest rate environment. In
exchange for such call provisions, the Bank receives a higher yield on its
investment. In a rising rate environment, calls would generally not be exercised
leaving the Bank with below market investments in its portfolio.
Investments Available for Sale
The Bank usually classifies its investment securities purchased as AFS.
This affords management the flexibility to sell securities in response to
changes in market interest rates and related prepayment risk or in response to
liquidity needs. The AFS portfolio is primarily comprised of mortgage-backed
securities issued by GSE's (FNMA, FHLMC, GNMA) and municipal securities. During
1998 the Bank has also added high quality corporate bonds to its AFS portfolio.
The AFS portfolio also includes certain equity investments which are required of
the Bank as members of the FHLB, Fed, and Atlantic Central Bankers Bank. These
equity securities are reported at cost which approximates fair value.
15
<PAGE>
AFS securities are reported at fair value, with unrealized gains and
losses, net of tax effects, reported as a separate component of shareholders'
equity, with no income statement effect. If interest rates rise, the value of
the investment portfolio would be expected to decrease. If interest rates fall,
the value of the investment portfolio would be expected to increase.
Accordingly, changes in interest rates will impact the valuation of the AFS
portfolio which will change reported shareholders' equity. The effects on
shareholders' equity caused by these unrealized gains and losses in its AFS
portfolio are excluded for regulatory capital purposes.
The tables below depict details of the Bank's investment portfolio:
INVESTMENT SECURITIES
<TABLE>
<CAPTION>
1997
--------------------------------------------------
HELD TO MATURITY AVAILABLE FOR SALE
------------------------ -----------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST FAIR VALUE COST FAIR VALUE
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. government agency
obligations.............. $11,985,870 11,956,250 -- --
Mortgage-backed
securities............... 3,183,768 3,143,715 50,131,927 50,121,230
State and municipal
securities............... -- -- 10,326,107 10,402,857
Equity securities......... -- -- 1,780,050 1,793,050
Other debt securities..... -- -- 117,000 117,000
----------- ---------- ---------- ----------
Total..................... $15,169,638 15,099,965 62,355,084 62,434,137
=========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
1996
--------------------------------------------------
HELD TO MATURITY AVAILABLE FOR SALE
------------------------ -----------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST FAIR VALUE COST FAIR VALUE
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. government
agency obligations..... $ 9,977,441 9,830,313 -- --
Mortgage-backed securities. 3,910,165 3,846,986 44,212,778 44,190,049
State and municipal
securities............... -- -- 6,662,286 6,695,319
Equity securities......... -- -- 1,897,300 1,897,300
Other debt securities..... -- -- 117,000 117,000
----------- ---------- ---------- ----------
Total................... $13,887,606 13,677,299 52,889,364 52,899,668
=========== ========== ========== ==========
</TABLE>
16
<PAGE>
INVESTMENT SECURITIES MATURITIES AND WEIGHTED AVERAGE YIELDS
<TABLE>
<CAPTION>
UNDER OVER 10
DECEMBER 31, 1997 1 YEAR 1-5 YEARS 5-10 YEARS YEARS TOTAL
- ------------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
INVESTMENT
SECURITIES
AVAILABLE FOR SALE
Mortgage-backed
securities:
Fair value.... $8,136,630 19,403,808 11,968,055 10,612,737 50,121,230
Weighted
average yield.. 7.07% 7.07% 7.05% 7.09% 7.07%
State and
municipal
securities:
Fair value... -- -- -- 10,402,857 10,402,857
Weighted average yield -- -- -- 5.32% 5.32%
Equity securities:
Fair value.... -- -- -- 1,793,050 1,793,050
Weighted average yield..-- -- -- 6.16% 6.16%
Other debt securities:
<PAGE>
Fair value.... 2,000 15,000 100,000 -- 117,000
Weighted average
yield....... 2.00% 3.00% 7.50% -- 6.83%
---------- ---------- ---------- ---------- ----------
TOTAL FAIR VALUE..$8,138,630 19,418,808 12,068,055 22,808,644 62,434,137
========== ========== ========== ========== ==========
WEIGHTED AVERAGE
YIELD......... 7.07% 7.07% 7.05% 6.21% 6.75%
INVESTMENT
SECURITIES HELD
TO MATURITY
U.S. government
agency obligations:
Amortized cost.. $ -- 1,000,000 2,985,870 8,000,000 11,985,870
Weighted average yield...-- 5.96% 6.46% 7.38% 7.03%
Mortgage-backed
securities:
Amortized cost.. 1,184,645 1,891,861 106,990 272 3,183,768
Weighted average
yield......... 6.41% 6.45% 7.12% 6.91% 6.46%
---------- ---------- ---------- ---------- ----------
TOTAL AMORTIZED
COST.......... $1,184,645 2,891,861 3,092,860 8,000,272 15,169,638
========== ========== ========== ========== ==========
WEIGHTED
AVERAGE YIELD... 6.41% 6.28% 6.48% 7.38% 6.93%
</TABLE>
LOANS
Loans are the most significant component of earning assets. Inherent within
the lending function is the evaluation and acceptance of credit risk and
interest rate risk along with the opportunity cost of alternative deployment of
funds. PBI manages credit risk associated with its lending activities through
portfolio diversification, underwriting policies and procedures, and loan
monitoring practices. PBI's commercial lending activity is focused on small
businesses and professionals within the local community. More than 90% of the
loan portfolio is collateralized at least in part by real estate as shown by the
following table:
LOAN PORTFOLIO
<TABLE>
<CAPTION>
DECEMBER 31, 1997 % OF TOTAL 1996 % OF TOTAL
- ------------ ------------ ---------- ----------- ----------
<S> <C> <C> <C> <C>
Real estate-farmland..... $ 500,000 0.46% $ -- --%
Real estate-construction. 1,188,288 1.09% 1,952,730 2.35%
Real estate-residential.. 22,965,889 21.10% 19,665,913 23.67%
Real estate-multi-family. 1,948,943 1.79% 1,137,649 1.37%
Real estate-commercial.... 72,372,260 66.48% 52,731,559 63.47%
Commercial................ 9,084,458 8.35% 6,861,611 8.26%
Consumer installment...... 797,671 0.73% 735,124 0.88%
------------ ------ ----------- ------
Total..................... $108,857,509 100.00% $83,084,586 100.00%
============ ====== =========== ======
</TABLE>
17
<PAGE>
LOAN MATURITIES AND INTEREST SENSITIVITY
<TABLE>
<CAPTION>
UNDER 1-5 OVER
DECEMBER 31, 1997 1 YEAR YEARS 5 YEARS TOTAL
- ------------------ ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Real estate-farmland........ $ 500,000 -- -- 500,000
Real estate-construction.... 1,188,288 -- -- 1,188,288
Real estate-residential..... 8,812,860 12,242,768 1,910,261 22,965,889
Real estate-multi-family.... 206,527 1,195,095 547,321 1,948,943
Real estate-commercial...... 12,140,767 54,317,415 5,914,078 72,372,260
Commercial.................. 3,657,673 4,966,674 460,111 9,084,458
Consumer installment........ 343,577 454,094 -- 797,671
----------- ---------- ---------- -----------
Total....................... $26,849,692 73,176,046 8,831,771 108,857,509
=========== ========== ========== ===========
</TABLE>
The following shows the amount of loans due after one year that have fixed,
variable or adjustable interest rates at December 31, 1997:
<PAGE>
Loans with fixed predetermined interest rates $69,003,743
Loans with variable or adjustable interest rates $13,004,074
The Bank's real estate loan portfolio, which is concentrated primarily
within the greater Lehigh and Delaware Valleys (Eastern Pennsylvania), is
subject to risks associated with the local economy.
The Bank continues to pursue new commercial banking relationships and to
develop new products to meet the credit needs of the community. The production
of commercial loans is directly related to the number of lenders. Accordingly,
the Bank continues to hire commercial loan officers and plans to add more as
future opportunities exist.
NON-PERFORMING ASSETS
Non-performing assets are defined as accruing loans past due 90 days or
more, non-accruing loans, restructured loans, and other real estate owned.
Non-performing assets represented .67% and .96% of total assets at December 31,
1997 and 1996, respectively.
Non-accrual loans are those on which the accrual of interest has ceased.
Loans are placed on non-accrual status immediately if, in the opinion of
management, collection is doubtful. Interest accrued, but not collected at the
date a loan is placed on non-accrual status, is reversed and charged against
interest income. Subsequent cash receipts are applied either to the outstanding
principal or recorded as interest income, depending on management's assessment
of ultimate collectibility of principal and interest.
Included in the loan portfolio are non-accruing loans of $497,734 and
$870,961 at December 31, 1997 and 1996, respectively. If interest had been
accrued throughout the period on these loans, interest income for the years
ended December 31, 1997 and 1996, would have increased approximately $51,900 and
$80,434, respectively. There was no interest income on these loans included in
net income in 1997. In 1996, $10,101 in interest income was recorded on
non-accrual loans.
Other real estate owned totaled $638,286 at December 31, 1997 and $389,253
at December 31, 1996. This real estate is recorded at the fair value of the
property less estimated costs to sell.
18
<PAGE>
NON-PERFORMING ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, 1997 1996
- ------------- ---------- ---------
<S> <C> <C>
Loans past due 90 days or more and accruing
Real estate-construction........................ $ 146,492 210,623
Consumer installment............................ 4,576 820
---------- ---------
Total loans past due 90 days or
more and accruing... 151,068 211,443
Loans accounted for on a non-accrual basis
Real estate-construction........................ 299,200 299,200
Commercial...................................... 191,534 571,761
Consumer installment............................ 7,000 --
---------- ---------
Total non-accrual loans...................... 497,734 870,961
Real estate owned............................... 638,286 389,253
---------- ---------
Total non-performing assets.................. $1,287,088 1,471,657
========== =========
Total as a percentage of total assets............. 0.67% 0.96%
</TABLE>
ALLOWANCE FOR LOAN LOSSES
The determination of an appropriate level of the allowance for loan losses
is based upon an analysis of the risk inherent in PBI's loan portfolio. Each
loan is assigned a specific loan loss reserve using a scoring system. This
scoring system takes into consideration collateral type and value, loan to value
<PAGE>
ratios, the borrower's risk rating and other factors. Borrower risk ratings are
determined by loan officers at the inception of each loan and are subject to
on-going analysis and update. Homogeneous loans, comprised primarily of home
equity and non-real estate secured consumer loans, are analyzed in the
aggregate. Since the Bank is less than six years old with a limited history for
loan losses, management also uses peer group analysis to gauge the overall
reasonableness of its loan loss reserves.
In addition, regulatory authorities, as an integral part of their
examinations, periodically review the allowance for loan losses. They may
require additions to the allowance based upon their judgments about information
available to them at the time of examination.
While the allowance is determined and calculated based on specific loans or
loan categories, the total allowance is considered available for losses in the
entire loan portfolio. While PBI believes that its allowance is adequate to
cover losses in the loan portfolio, there remain inherent uncertainties
regarding future economic events and their potential impact on asset quality.
A loan is considered impaired, based on current information and events, if
it is probable that PBI will be unable to collect the scheduled payments of
principal or interest when due according to the contractual terms of the loan
agreement. The measurement of impaired loans is generally based on the present
value of expected future cash flows discounted at the effective interest rate,
except that all collateral-dependent loans are measured for impairment based on
the fair value of the collateral. At December 31, 1997 and 1996, the recorded
investment in loans for which impairment has been recognized totaled $497,734
and $870,961, respectively, of which $497,734 and $507,140 related to loans with
a corresponding valuation allowance of $50,823 and $126,785, respectively. Most
of the loans identified as impaired are collateral-dependent.
PROVISION FOR LOAN LOSSES
The provision for loan losses represents the amount necessary to be charged
to operations to bring the allowance for loan losses to a level considered
adequate in relation to the risk of inherent losses in the loan portfolio.
Actual loan losses, net of recoveries, serve to reduce the allowance. The
provision was $400,000 in 1997 compared to $350,000 in 1996. Gross charge-offs
for 1997 were $524 versus $127,641 for 1996. Charge-offs in 1996 included
$125,000 pertaining to one borrower.
19
<PAGE>
ALLOWANCE FOR LOAN LOSS ALLOCATION
<TABLE>
<CAPTION>
DECEMBER 31, 1997 1996
- ------------- ------------------------ ----------------------
% OF LOANS % OF LOANS
TO TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
---------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Balance at end of period
applicable to:
Real estate-farmland..... $ 5,026 0.46% $ -- --
Real estate-construction... 37,297 1.09% 94,901 2.35%
Real estate-residential.... 271,697 21.10% 201,055 23.67%
Real estate-multi-family... 18,785 1.79% 12,690 1.37%
Real estate commercial..... 875,503 66.48% 559,291 63.47%
Commercial................. 141,718 8.35% 75,866 8.26%
Consumer installment....... 10,122 0.73% 16,869 0.88%
---------- ------- -------- ------
Total......................$1,360,148 100.00% $960,672 100.00%
========== ======= ======== ======
</TABLE>
ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 1996
- ----------------------- ------------ ----------
<S> <C> <C>
Balance, January 1................................ $ 960,672 738,313
Charge-offs:
Real estate-commercial.......................... -- 125,000
Consumer installment............................ 524 2,641
------------ ----------
Total charge-offs................................. 524 127,641
Provision for loan losses......................... 400,000 350,000
------------ ----------
Balance, December 31.............................. $ 1,360,148 960,672
============ ==========
Total gross loans
Average......................................... $ 95,403,549 68,770,995
Year-end........................................ 108,857,509 83,084,586
Ratios
Charge-offs to:
Average loans.................................. -- 0.19%
Loans at year-end.............................. -- 0.15%
Allowance for loan losses...................... 0.04% 13.29%
Provision for loan losses...................... 0.13% 36.47%
Allowance for loan losses to:
Total gross loans at year-end.................. 1.25% 1.16%
Non-performing loans........................... 209.64% 88.75%
</TABLE>
DEPOSITS
The Bank, a traditional community-based bank, is largely dependent upon its
base of competitively priced core deposits to provide a stable funding source.
The Bank has retained and grown its customer base since inception through a
combination of price, quality service, convenience, and a stable and experienced
staff. Core deposits, which exclude time deposits greater than $100,000, were
$129,528,602 or 90.2% of total deposits at December 31, 1997. Total time
deposits as of December 31, 1997 were $73,959,391 or 51.5% of total deposits, of
which $23,511,623 mature after one year. Depending on market conditions,
management prices its time deposits in an effort to lengthen the maturities of
deposit liabilities beyond one year. Over the twelve month period ending
<PAGE>
December 31, 1997, the Bank experienced a strong retention rate on maturing
certificates of deposit.
20
<PAGE>
PBI primarily attracts deposits from within its market area by offering
various deposit products, including demand deposits, interest checking accounts,
money market accounts, savings accounts and time deposits. Recently financial
institutions have been challenged to increase core deposits. Record performance
by the U.S. stock markets and the proliferation of mutual funds have absorbed
much of the domestic savings dollars.
Total deposits increased 21.6% to $143,603,202 at December 31, 1997, from
$118,093,242 at year end 1996. An analysis of the change in average deposits
provides a more meaningful measure of deposit change. Average total deposits
increased $29,593,542 or 29.0% in 1997 and $28,812,824 or 39.3% in 1996. Average
non-interest-bearing deposits increased $2,401,105 or 33.5% to $9,576,018 in
1997 and $2,092,237 or 41.2% in 1996 to $7,174,913. Non-interest-bearing
deposits are an important source of funds for a bank because they lower the
bank's overall deposit costs. Average interest checking accounts increased
$2,650,240 or 42.9% in 1997 to $8,829,154 and $1,421,137 or 29.9% in 1996 to
$6,178,914. Average time deposits increased $18,559,882 or 36.3% in 1997 and
$13,916,606 or 37.4% in 1996, while average money market accounts increased
$160,868 or 11.7% in 1997 and decreased $434,664 or 24.0% in 1996. The yield on
PBI's money market accounts was basically unchanged during 1997. To date, money
market accounts have not been a significant source of funds for the Bank. Time
deposits are generally more sensitive to rising rates as financial institutions
are more likely to increase rates on these deposits as opposed to non-maturity
deposits. Additional deposit growth will be accomplished through deposit
promotions, business development programs and continued branch expansion.
AVERAGE DEPOSITS BY MAJOR CLASSIFICATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 1996
- ----------------------- ------------------- -------------------
BALANCE RATE BALANCE RATE
------------ ---- ------------ ----
<S> <C> <C> <C> <C>
Non-interest-bearing deposits...... $ 9,576,018 -- $ 7,174,913 --
Interest checking.................. 8,829,154 2.54% 6,178,914 2.44%
Money market deposit accounts...... 1,535,182 2.54% 1,374,314 2.51%
Savings accounts................... 42,107,494 3.92% 36,286,047 4.16%
Time deposits...................... 69,725,010 5.71% 51,165,128 5.66%
------------ ---- ------------ ----
Total............................ $131,772,858 4.45% $102,179,316 4.46%
============ ==== ============ ====
</TABLE>
MATURITY OF TIME DEPOSITS OF $100,000 OR MORE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
- ----------------------- ------------
<S> <C>
Three months or less.......................... $ 5,810,476
Over three through six months................. 1,770,437
Over six through twelve months................ 2,884,071
Over twelve months............................ 3,609,616
------------
Total $ 14,074,600
============
</TABLE>
At year end 1997 time deposits greater than $100,000 included $3,000,000 of
public funds deposits from one municipality which was secured by investment
securities.
21
<PAGE>
NON-INTEREST INCOME COMPARISON
<TABLE>
<CAPTION>
CHANGE
-----------------
1997 1996 AMOUNT %
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Service charges and other fees......... $148,113 126,700 21,413 16.90%
Gain (loss) on sale of investment
securities
available for sale..................... 14,818 (5,582) 20,400 365.46%
Gain on sale of loans held for sale..... 20,500 87,013 (66,513) (76.44%)
Loss on sale of real estate owned.......(33,504) -- (33,504) --
-------- -------- ------- -------
Total non-interest income.......... $149,927 208,131 (58,204) (27.97%)
======== ======== ======= =======
</TABLE>
Total non-interest income was $149,927 in 1997, a $58,204 decrease from the
$208,131 earned in 1996. Income from the sale of loans held for sale was $66,513
lower in 1997. The Bank was engaged in the sale of residential loans for only
five months in 1997 as compared to a full year in 1996. In both years the Bank
engaged outside companies to originate residential mortgages on its behalf and
arrange for the sale of loans with correspondents. In 1997, the Bank also sold
three foreclosed commercial properties with a carrying value of $714,786 for a
loss of $33,504. There were no sales of real estate owned in 1996. Service
charges and other fees increased $21,413 and relate principally to monthly
account maintenance and overdraft charges on deposit transaction accounts. This
increase is a reflection of the 37.3% growth in transaction accounts from
$17,551,169 at December 31, 1996 to $24,092,307 at December 31, 1997. The
Company had net gains of $14,818 from the sale of investment securities
available for sale in 1997 as compared to a net loss of $5,582 in 1996.
NON-INTEREST EXPENSE COMPARISON
<TABLE>
<CAPTION>
CHANGE
---------------
1997 1996 AMOUNT %
---------- ---------- ------- ------
<S> <C> <C> <C> <C>
Salaries and employee benefits.... $1,784,876 1,346,300 438,576 32.6%
Occupancy costs................... 400,196 282,375 117,821 41.7%
Data processing................... 381,840 270,477 111,363 41.2%
Professional services............. 282,449 221,923 60,526 27.3%
Marketing......................... 163,975 170,834 (6,859) (4.0%)
Amortization of organization costs. 24,000 72,000 (48,000) (66.7%)
FDIC insurance premiums............ 14,774 2,000 12,774 638.7%
Pennsylvania shares tax............. 70,526 63,706 6,820 10.7%
Other............................... 612,555 457,064 155,491 34.0%
---------- ---------- ------- -----
Total non-interest expense......... $3,735,191 2,886,679 848,512 29.4%
========== ========== ======= =====
</TABLE>
Total non-interest expense increased $848,512 or 29.4% in 1997 to
$3,735,191 from $2,886,679 in 1996. Much of this increase is directly related to
the opening of the Bank's third full service branch in Southampton in February
1997, an increase in the lending and operations staff, and enhancements to
computer systems. Salaries and benefits expense for 1997 increased $438,576 or
32.6 %, to $1,784,876 from $1,346,300 in 1996 and included the addition of seven
full time equivalent employees. Occupancy expense increased $117,821 or 41.7% in
1997 to $400,196 from $282,375 in 1996. This increase is primarily due to the
additional rent and depreciation of leasehold improvements for the Southampton
location and relocation of the operations center to this facility.
Data processing expense was $381,840 in 1997 and $270,477 in 1996, an
increase of $111,363 or 41.2%. In May 1996, the Bank converted to a different
provider of outsourced data processing. The new system is more expensive and
requires higher cost computer networking and related communications expenses
which were incurred for the full year of 1997. Other data processing cost
increases relate to higher item processing and statement rendering costs
associated with the growth in deposits. Additional expenditures were also
incurred in 1997 as they relate to the relocation of the computer network to the
Southampton operations center, equipping a new branch location, depreciation of
new computer equipment and software, and outsourced network consulting.
22
<PAGE>
Professional services include legal, accounting and consulting expense.
These costs increased $60,526 or 27.3% in 1997, to $282,449. This was partially
due to the increased legal and other expenses related to the formation of the
bank holding company in November 1997. Amortization of the Bank's start-up costs
was completed in April 1997, as compared with a full year's expense in 1996. The
FDIC insurance premium increased to $14,774 in 1997 from $2,000 in 1996, an
increase of $12,774.
Other expenses consist primarily of furniture and equipment expense, loan
and real estate owned expense, employee travel and entertainment, stationary,
supplies and postage. Other expense increased $155,491 to $612,555 in 1997 from
$457,064 in 1996. A portion of this increase is attributed to $41,742 in expense
to maintain real estate owned. Increases of $32,110, $26,754, and $15,823 in
furniture and fixtures, stationary and postage expense, respectively, are
attributed to the growth of the institution.
In 1998, the Bank plans to open its fourth branch, the Yardley branch. This
new branch is expected to increase overhead expenses by approximately $400,000
annually. The actual timing of the branch opening will determine the impact on
overhead expenses in 1998.
INCOME TAXES
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect of a change in
tax rates on deferred tax assets and liabilities is recognized in income in the
period that includes the enactment date.
Applicable income taxes and effective tax rates were $590,000 or 30.6 % for
1997 compared to $435,462 or 28.4% for 1996. The increase in the effective tax
<PAGE>
rate in 1997 is principally due to a decrease in the percentage of income
derived from non-taxable loans and investments, and the end of certain tax
deductible expenses relating to the formation of the Bank in 1992.
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and notes thereto presented herein have been
prepared in accordance with generally accepted accounting principles, which
generally require the measurement of financial position and operating results in
terms of historical dollars without considering the changes in the relative
purchasing power of money over time due to inflation. The impact of inflation is
reflected in the increased cost of the Bank's operations. Unlike industrial
companies, nearly all of the assets and liabilities of the Bank are monetary in
nature. As a result, interest rates have a greater impact on the Bank's
performance than do the effects of general levels of inflation. Interest rates
do not necessarily move in the same direction or to the same extent as the price
of goods and services.
YEAR 2000
Management is aware of the issues associated with the programming code in
existing computer systems as the millennium (Year 2000) approaches. The
inability of computer systems to properly recognize date sensitive information
when the year changes to 2000 could result in major system failure or
miscalculation.
The Year 2000 issue creates risk for the Company from unforeseen problems
in its own computer systems and from third parties with whom the Company
transacts business. There is also unknown impact on the overall economy from
failures of other companies and industries to successfully address this problem
both nationally and internationally.
23
<PAGE>
The Company outsources much of its data processing to third party
processors including all of its deposit and loan accounting functions. These
third party processors are working on the necessary programming changes to
prepare their systems for the Year 2000 and will absorb most of the direct
programming costs. The Company is monitoring the progress of its processors and
plans to test their systems for Year 2000 compliance in late 1998. The Company
does not expect to incur significant incremental direct expenses related to the
Year 2000, provided that its third party processors are successful in their
efforts. Failure of third party computer systems relative to the Year 2000 would
have a material adverse impact on the Company's ability to conduct its business.
Costs associated with the Year 2000 problem are expected to be expensed as
incurred in compliance with generally accepted accounting principles.
RECENT ACCOUNTING PRONOUNCEMENTS
Reporting Comprehensive Income
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement No. 130, "Reporting Comprehensive Income." This statement establishes
standards for the reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements. Statement No.
130 requires that the components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. This Statement does not require a specific format for that
financial statement, but requires that an enterprise display an amount
representing comprehensive income for the period in that financial statement.
Statement No. 130 is effective for fiscal years beginning after December 15,
1997. The impact of this Statement on the Company would be to require additional
disclosures in the Company's financial statements.
Operating Segment Disclosure
In June 1997, the FASB issued Statement No. 131, "Disclosures About
Segments of an Enterprise and Related Information." Statement No. 131
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports issued to shareholders. It also establishes standards
for related disclosures about products and services, geographic areas and major
customers. Statement No. 131 is effective for periods beginning after December
<PAGE>
15, 1997. The impact, if any, of the Statement on the Company would be to
require additional disclosures in the Company's financial statements.
Employers' Disclosures about Pension and Other Postretirement Benefits
In February 1998, the FASB issued Statement No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits," which amends the
disclosure requirements of Statement No. 87, "Employers' Accounting for
Pensions," Statement No. 88, "Employers' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination Benefits," and
Statement No. 106, "Employers' Accounting for Postretirement Benefits Other than
Pensions." Statement No. 132 is applicable to all entities. This Statement
standardizes the disclosure requirements of Statement Nos. 87 and 106 to the
extent practicable and recommends a parallel format for presenting information
about pensions and other postretirement benefits. Statement No. 132 only
addresses disclosure and does not change any of the measurement recognition
provisions of Statement Nos. 87, 88, and 106. This Statement is effective for
fiscal years beginning after December 15, 1997. Restatement of comparative
period disclosures is required unless the information is not readily available,
in which case the notes to the financial statements shall include all available
information and a description of information not available. The impact, if any,
of this Statement on the Company would be to require additional disclosures in
the Company's financial statements.
24
<PAGE>
ITEM 7 -- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(a) The following audited consolidated financial statements and related
documents are set forth in this Annual Report on Form 10-KSB on the following
pages:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. 26
Consolidated Balance Sheets................................. 27
Consolidated Statements of Income........................... 28
Consolidated Statements of Changes in Shareholders'
Equity.................................................... 29
Consolidated Statements of Cash Flows....................... 30
Notes to Consolidated Financial Statements.................. 31
</TABLE>
(b) SUMMARY OF QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
QUARTERS ENDING 1997
----------------------------------------------
DEC 31 SEPT 30 JUNE 30 MARCH 31
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Interest income................ $3,685,112 3,519,620 3,233,895 3,010,065
Interest expense............... 2,066,718 1,993,421 1,798,756 1,673,576
---------- --------- --------- ---------
Net interest income............ 1,618,394 1,526,199 1,435,139 1,336,489
Provision for loan losses...... 120,000 105,000 100,000 75,000
Non-interest income............ 16,183 56,471 37,414 39,859
Non-interest expense........... 969,556 958,675 934,016 872,944
---------- --------- --------- ---------
Income before income tax........ 545,021 518,995 438,537 428,404
Income tax expense.............. 150,000 160,000 145,000 135,000
---------- --------- --------- ---------
Net income...................... $ 395,021 358,995 293,537 293,404
========== ========= ========= =========
Basic earnings per share........ 0.15 0.14 0.11 0.11
</TABLE>
<TABLE>
<CAPTION>
QUARTERS ENDING 1996
----------------------------------------------
DEC 31 SEPT 30 JUNE 30 MARCH 31
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Interest income................ $2,825,961 2,622,530 2,406,058 2,248,568
Interest expense............... 1,558,278 1,453,354 1,311,562 1,220,278
---------- --------- --------- ---------
Net interest income............ 1,267,683 1,169,176 1,094,496 1,028,290
Provision for loan losses...... 210,000 62,500 37,500 40,000
Non-interest income............ 41,188 52,604 42,119 72,220
Non-interest expense........... 784,005 738,858 703,254 660,562
---------- --------- --------- ---------
Income before income tax....... 314,866 420,422 395,861 399,948
Income tax expense............. 52,711 141,000 124,000 117,751
---------- --------- --------- ---------
Net income..................... $ 262,155 279,422 271,861 282,197
========== ========= ========= =========
Basic earnings per share....... 0.10 0.11 0.10 0.11
</TABLE>
25
<PAGE>
[KMPG Peat Marwick LLP Logo]
1600 Market Street
Philadelphia, PA 19103-7212
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Premier Bancorp, Inc.
We have audited the accompanying consolidated balance sheets of Premier Bancorp,
Inc. and subsidiary as of December 31, 1997 and 1996, and the related
consolidated statements of income, shareholders' equity, and cash flows for the
years then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Premier Bancorp,
Inc. and subsidiary as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
[KMPG Peat Marwick LLP Logo]
February 26, 1998
26
<PAGE>
PREMIER BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1997 1996
- ------------- ------------ ------------
<S> <C> <C>
Assets
Cash and due from banks........................ $ 4,307,164 2,124,076
Interest-bearing deposits...................... 85,823 206,313
Investment securities:
Held to maturity (fair value
$15,099,965 in 1997 and
$13,677,299 in 1996)...................... 15,169,638 13,887,606
Available for sale (amortized cost
$62,355,084 in 1997
and $52,889,364 in 1996).................. 62,434,137 52,899,668
Loans held for sale............................ 197,944 --
Loans receivable (net of allowance for loan losses
of $1,360,148 in 1997 and $960,672 in 1996).... 107,172,526 81,949,164
Accrued interest receivable...................... 1,451,899 1,115,650
Premises and equipment......................... 1,174,769 467,073
Real estate owned.............................. 638,286 389,253
Deferred taxes................................. 404,906 298,281
Other assets................................... 486,348 325,704
Organizational costs........................... -- 24,000
------------ ------------
Total assets................................... $193,523,440 153,686,788
============ ============
Commitments and contingencies (Note 15)
Liabilities and Shareholders' Equity
Deposits....................................... $143,603,202 118,093,242
Borrowings..................................... 34,842,740 23,640,568
Accrued interest payable....................... 1,346,123 1,036,884
Other liabilities.............................. 1,797,538 1,973,301
Subordinated debt.............................. 1,500,000 --
------------ ------------
Total liabilities.............................. 183,089,603 144,743,995
Shareholders' equity
Common stock -- $0.33 par value;
30,000,000 shares authorized; 2,630,340 and
2,604,303 shares issued and
outstanding in 1997 and 1996................. 876,780 868,128
Additional paid-in capital..................... 7,120,001 7,023,942
Retained Earnings.............................. 2,384,881 1,043,924
Unrealized net gain on securities
available for sale............................ 52,175 6,799
------------ ------------
Total shareholders' equity..................... 10,433,837 8,942,793
------------ ------------
Total liabilities and shareholders' equity..... $193,523,440 153,686,788
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
27
<PAGE>
PREMIER BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1997 1996
- --------------------------------- ----------- -----------
<S> <C> <C>
Interest income:
Loans....................................... $ 8,753,303 6,387,392
Federal funds sold and interest bearing
deposits.................................. 96,415 103,458
Investments:
Taxable.................................. 4,322,401 3,349,885
Tax-exempt............................... 276,573 262,382
----------- -----------
Total interest income......................... 13,448,692 10,103,117
----------- -----------
Interest expense:
Deposits.................................... 5,896,500 4,587,766
Borrowings.................................. 1,635,971 955,706
----------- -----------
Total interest expense........................ 7,532,471 5,543,472
----------- -----------
Net interest income........................... 5,916,221 4,559,645
Provision for loan losses..................... 400,000 350,000
----------- -----------
Net interest income after loan loss provision.. 5,516,221 4,209,645
Non-interest income:
Service charges and other fees............... 148,113 126,700
Gain (loss) net, on sale of investment
securities held
for sale.................................. 14,818 (5,582)
Gain on sale of loans held for sale.......... 20,500 87,013
Loss on sale of real estate owned............ (33,504) --
----------- -----------
Total non-interest income...................... 149,927 208,131
Non-interest expense:
Salaries and employee benefits............... 1,784,876 1,346,300
Occupancy.................................... 400,196 282,375
Data processing.............................. 381,840 270,477
Professional services........................ 282,449 221,923
Marketing.................................... 163,975 170,834
Amortization of organization costs........... 24,000 72,000
Pennsylvania shares tax...................... 70,526 63,706
Other........................................ 627,329 459,064
----------- -----------
Total non-interest expense..................... 3,735,191 2,886,679
----------- -----------
Income before income tax....................... 1,930,957 1,531,097
Income tax expense............................. 590,000 435,462
----------- -----------
Net income..................................... $ 1,340,957 1,095,635
=========== ===========
Earnings per share:
Basic........................................ $ 0.51 0.42
Diluted...................................... 0.49 0.40
Weighted average number of shares outstanding:
Basic....................................... 2,606,473 2,604,303
Diluted..................................... 2,752,462 2,705,831
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
28
<PAGE>
PREMIER BANCORP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
-------------------------------------------------------------------
UNREALIZED
NET GAIN (LOSS)
ADDITIONAL RETAINED ON SECURITIES TOTAL
COMMON PAID-IN EARNINGS AVAILABLE SHAREHOLDERS'
STOCK CAPITAL (DEFICIT) FOR SALE EQUITY
-------- ---------- --------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Balance,
December
31, 1995 $868,128 7,023,942 (51,711) (9,349) 7,831,010
Change in
unrealized
net gain
on
securities
available
for sale -- -- -- 16,148 16,148
Net income
for year ended
December
31, 1996 -- -- 1,095,635 -- 1,095,635
-------- --------- --------- ------ ----------
Balance,
December
31, 1996 868,128 7,023,942 1,043,924 6,799 8,942,793
======== ========= ========= ====== ==========
Change in
unrealized
net gain
on securities
available for
sale -- -- -- 45,376 45,376
Net income
for year ended
December 31,
1997 -- -- 1,340,957 -- 1,340,957
Fractional
shares
redeemed (27) (454) -- -- (481)
Stock issued
for options
exercised 8,679 96,513 -- -- 105,192
-------- --------- --------- ------ ----------
Balance,
December
31, 1997 $876,780 7,120,001 2,384,881 52,175 10,433,837
======== ========= ========= ====== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
29
<PAGE>
PREMIER BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1997 1996
- --------------------------------- ------------ ------------
<S> <C> <C>
Operating activities:
Net income........................................ $ 1,340,957 1,095,635
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation expense............................ 174,031 119,941
Provision for loan losses....................... 400,000 350,000
Writedowns and losses on sale of real estate owned 33,504 --
Amortization of organization cost................. 24,000 72,000
Amortization of premiums and discounts on investment
securities held to maturity...................... 10,694 20,594
Amortization of premiums and discounts on investment
securities available for sale.................... 203,083 229,949
(Gain) loss on sale of securities available for sale.(14,818) 5,582
Gain on sale of loans held for sale..................(20,500) (87,013)
Increase in accrued interest receivable.............(336,249) (289,512)
Increase in deferred tax asset......................(130,000) (23,650)
(Increase) decrease in other assets.................(160,644) 79,606
Increase in deferred loan fees...................... 150,085 21,314
Increase in accrued interest payable................ 309,239 54,258
(Increase) decrease in other liabilities............(149,471) 625,235
Loss on sale of equipment........................... -- 7,563
------------ ------------
Net cash provided by operating activities............ 1,833,911 2,281,502
------------ ------------
Investing activities:
Proceeds from sale of securities available
for sale ........................................ 29,024,898 29,732,585
Repayment on securities available for sale......... 10,965,988 9,225,645
Purchase of securities available for sale........ (49,644,870) (54,420,855)
Repayment on securities held to maturity........... 3,707,274 2,859,984
Purchase of securities held to maturity............ (5,000,000) (5,981,250)
Net increase in loans receivable...................(26,737,265) (22,588,404)
Originations of loans held for sale................ (2,329,594) (6,284,725)
Proceeds from sale of loans held for sale.......... 2,152,150 7,334,638
Proceeds from sale of premises and equipment....... -- 1,350
Proceeds from sale of real estate owned............ 681,282 --
Purchases of premises and equipment................ (881,727) (293,653)
------------ ------------
Net cash used in investing activities................(38,061,864) (40,414,685)
----------- ------------
Financing activities:
Net increase in deposits......................... 25,509,960 25,286,040
Net increase in borrowings less than 90 days..... 1,202,172 7,614,454
Increase in borrowings greater than 90 days...... 15,000,000 5,000,000
Repayment of borrowings greater than 90 days..... (5,000,000) --
Proceeds from subordinated debt.................. 1,500,000 --
Proceeds from exercised stock options............ 78,900 --
Redemption of fractional shares of common stock.. (481) --
------------ ------------
Net cash provided by financing activities.......... 38,290,551 37,900,494
------------ ------------
Increase in cash and cash equivalents.............. 2,062,598 (232,689)
Cash and cash equivalents:
Beginning of period.............................. 2,330,389 2,563,078
------------ ------------
End of year..................................... 4,392,987 2,330,389
============ ============
Composed of:
Cash and due from banks......................... 4,307,164 2,124,076
Interest bearing deposits....................... 85,823 206,313
------------ ------------
Total cash and cash equivalents................... $ 4,392,987 2,330,389
============ ============
Supplemental disclosures:
Cash payments for:
Interest expense.............................. $ 7,223,232 5,489,214
Taxes......................................... 800,000 442,882
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
30
<PAGE>
PREMIER BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Premier Bancorp, Inc. ("PBI") was incorporated under the laws of the
Commonwealth of Pennsylvania on July 15, 1997. In accordance with this
reorganization, each share of the Bank's common stock previously outstanding was
automatically converted into one share of the Company's common stock. The
Company was reorganized as a one bank holding company of Premier Bank (the
"Bank") on November 17, 1997. Premier Bancorp, Inc. through its subsidiary bank,
Premier Bank, provides a full range of banking services to individual and
corporate customers through its branch banking system located in Bucks and
Northampton Counties in Pennsylvania. Premier Bank is a Pennsylvania chartered
<PAGE>
commercial bank and member of the Federal Reserve Bank of Philadelphia (the
"Fed") and the Federal Deposit Insurance Corporation (the "FDIC"). The Bank is
subject to competition from other financial institutions and other financial
services companies with respect to these services and customers. PBI is also
subject to the regulations of certain federal agencies and undergoes periodic
examinations by such regulatory authorities.
Basis of Financial Statement Presentation
The consolidated financial statements include the accounts of PBI and its
wholly owned subsidiary, Premier Bank. Such statements have been prepared in
accordance with generally accepted accounting principles and general practice
within the banking industry. All significant intercompany accounts and
transactions have been eliminated in the consolidated financial statements.
Certain previously reported amounts have been reclassified to conform to current
presentation standards. These reclassifications had no effect on net income.
Use of Estimates
In preparing the consolidated financial statements, management is required
to make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from such estimates. Material estimates that are particularly susceptible to
significant change in the near term include the determination of the allowance
for loan losses.
Investment Securities
Debt and equity securities are classified as either held to maturity
securities ("HTM") or as available for sale ("AFS") securities. Investment
securities that PBI has the positive intent and ability to hold to maturity can
be classified as held to maturity securities and reported at amortized cost.
Investment securities not classified as held to maturity nor held for the
purpose of trading in the near term are classified as available for sale
securities and reported at fair value, with unrealized gains and losses, net of
tax, excluded from earnings and reported as a separate component of
shareholders' equity. The Bank does not engage in any trading activities.
Management determines the appropriate classification of securities at the time
of purchase.
AFS securities include securities that management intends to use as part of
its asset/liability management strategy and that may be sold in response to
changes in market interest rates and related changes in the securities'
prepayment risk or to meet liquidity needs. The majority of the Company's
investment portfolio is classified as available for sale.
Premiums and discounts on debt securities are recognized in interest income
using a constant yield method. Gains and losses on sales of investment
securities are computed on the specific identification basis and included in
non-interest income based on trade date.
Equity securities are limited to stocks owned in the Federal Reserve Bank
of Philadelphia, the Federal Home Loan Bank of Pittsburgh (the "FHLB") and
Atlantic Central Bankers Bank.
31
<PAGE>
PREMIER BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Loans
Loans are stated at the principal amount outstanding, net of deferred loan
fees and costs. Interest income is accrued on the principal amount outstanding.
Loan origination fees and related direct costs are deferred and amortized to
income over the term of the respective loan and loan commitment period as a
yield adjustment.
Non-accrual loans are those on which the accrual of interest has ceased.
Commercial loans are generally placed on non-accrual status if, in the opinion
<PAGE>
of management, collection is doubtful, or when principal or interest is past due
90 days or more. Interest accrued, but not collected at the date a loan is
placed on non-accrual status, is reversed and charged against interest income.
Subsequent cash receipts are applied either to the outstanding principal or
recorded as interest income, depending on management's assessment of ultimate
collectibility of principal and interest. Loans are returned to an accrual
status when the borrower's ability to make periodic principal and interest
payments has returned to normal (i.e. -- brought current with respect to
principal or interest or restructured) and the paying capacity of the borrower
and the underlying collateral is deemed sufficient to cover principal and
interest. Consumer loans are not automatically placed on non-accrual status when
principal or interest payments are 90 days past due, but; in most instances, are
charged-off when deemed uncollectible or after reaching 120 days past due.
Residential mortgages held for sale are carried at the lower of aggregate
cost or market value. Gains and losses on residential mortgages held for sale
are included in non-interest income. The servicing of such loans is released to
the purchaser upon sale.
Allowance for Loan Losses
The provision for loan losses charged to operating expense reflects the
amount deemed appropriate by management to produce an adequate reserve to meet
the present and foreseeable risk characteristics of the existing loan portfolio.
Management's judgment is based on the evaluation of individual loans, past
experience, the assessment of current economic conditions, and other relevant
factors. Loan losses are charged directly against the allowance for loan losses
and recoveries on previously charged-off loans are added to the allowance.
Significant estimates are made by management in determining the allowance
for loan losses. Consideration is given to a variety of factors in establishing
these estimates including current economic conditions, diversification of the
loan portfolio, delinquency statistics, borrowers' perceived financial and
managerial strengths, the adequacy of underlying collateral, if collateral
dependent, or present value of future cash flows, and other relevant factors.
Since the allowance for loan losses is dependent, to a great extent, on
conditions that may be beyond PBI's control, it is at least reasonably possible
that management's estimates of the allowance for loan losses, and actual results
could differ in the near term.
<PAGE>
In addition, regulatory authorities, as an integral part of their
examinations, periodically review the allowance for loan losses. They may
require additions to the allowance based upon their judgments about information
available to them at the time of examination.
Recognition of impairment in the performance of a loan is required when it
is probable that all amounts, including both principal and interest, will not be
collected in accordance with the loan agreement. Impaired loans are measured
based on the present value of expected future cash flows discounted at the
loan's effective interest rate or at the loan's observable market price or the
fair value of the collateral if the loan is collateral dependent. Impairment
criteria are applied to the loan portfolio exclusive of smaller homogeneous
loans such as consumer loans which are evaluated collectively for impairment.
32
<PAGE>
PREMIER BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation
and amortization. Depreciation and amortization are calculated on a
straight-line basis over the estimated useful lives of the assets as follows:
leasehold improvements -- lesser of useful life or lease term, equipment -- 5 to
10 years, and software -- 5 years. Expenditures for maintenance and repairs are
charged to operations as incurred. Gains or losses upon disposition are
reflected in earnings as realized. Land is carried at cost.
Real Estate Owned
<PAGE>
Other real estate owned is comprised of properties acquired through
foreclosure proceedings or acceptance of a deed in lieu of foreclosure. Other
real estate owned is recorded at the lower of the carrying value of the loan or
the fair value of the property, net of estimated selling costs. Costs relating
to the development or improvement of the properties are capitalized while
holding expenses related to the operation and maintenance of properties are
expensed as incurred. Gains and losses upon disposition are reflected in
earnings as realized.
Income Taxes
PBI and its subsidiary file a consolidated Federal income tax return and
the amount of income tax expense or benefit is computed and allocated on a
separate return basis. To provide for income taxes, PBI uses the asset and
liability method under which deferred tax assets and liabilities are recognized
for the future tax consequences attributable to the difference between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect of a change in tax rates on deferred tax assets and liabilities is
recognized in income in the period which includes the enactment date.
Stock Options
PBI accounts for its stock option plan in accordance with the provisions of
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees", and related interpretations. As such , compensation expense is
recorded on the date of grant only if the current market price of the underlying
stock exceeded the exercise price. On January 1, 1996, PBI adopted Statement No.
123, "Accounting for Stock-Based Compensation", which permits entities to
recognize as expense over the vesting period, the fair value of all stock-based
awards on the date of grant. Alternatively, Statement No. 123 also allows
entities to continue to apply the provisions of APB Opinion No. 25 and provide
pro forma net income and pro forma earnings per share disclosures for stock
option grants made in 1995 and future years as if the fair-value based method
defined in Statement No. 123 had been applied. PBI has elected to continue to
apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure
provisions of Statement No. 123.
<PAGE>
Earnings Per Share
In February 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement No. 128, "Earnings Per Share". Statement No. 128 was designed
to simplify the computation of earnings per share and requires disclosure of
"basic earnings per share" and, if applicable, "diluted earnings per share".
Restatement of all prior period earnings per share data is required upon
adoption. The Statement, which was adopted on December 31, 1997, did not have a
material impact on the reported earnings per share of the Company.
33
<PAGE>
PREMIER BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Basic earnings per share is calculated on the basis of the weighted average
number of shares outstanding, after giving retroactive effect to the
three-for-one stock split effected on December 31, 1997. Diluted earnings per
common share includes dilutive common stock equivalents as computed under the
treasury stock method using average common stock prices over the fiscal year.
Statement of Cash Flows
Cash and cash equivalents for purposes of this statement consist of cash
and due from banks, interest-bearing deposits, and overnight fed funds sold.
Reporting Comprehensive Income
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income". This statement establishes standards for the reporting and display of
comprehensive income and its components in a full set of general-purpose
<PAGE>
financial statements. Statement No. 130 requires that the components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. This Statement does not
require a specific format for that financial statement, but requires that an
enterprise display an amount representing comprehensive income for the period in
that financial statement. Statement No. 130 is effective for fiscal years
beginning after December 15, 1997. The impact of this Statement, if any, on the
Company would be to require additional disclosures in the Company's financial
statements.
Operating Segment Disclosure
In June 1997, the FASB issued Statement No. 131, "Disclosures About
Segments of an Enterprise and Related Information." Statement No. 131
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports issued to shareholders. It also establishes standards
for related disclosures about products and services, geographic areas and major
customers. Statement No. 131 is effective for periods beginning after December
15, 1997. The impact, if any, of the Statement on the Company would be to
require additional disclosures in the Company's financial statements.
Employers' Disclosures about Pension and Other Postretirement Benefits
In February 1998, the FASB issued Statement No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits," which amends the
disclosure requirements of Statement 87, "Employers' Accounting for Pensions",
Statement No. 88, "Employers' Accounting for Settlements and Curtailments of
Defined Benefit Pension Plans and for Termination Benefits", and Statement No.
106, "Employers' Accounting for Postretirement Benefits Other than Pensions".
Statement No. 132 is applicable to all entities. This Statement standardizes the
disclosure requirements of Statement Nos. 87 and 106 to the extent practicable
and recommends a parallel format for presenting information about pensions and
other postretirement benefits. Statement No. 132 only addresses disclosure and
does not change any of the measurement recognition provisions of Statement Nos.
87, 88, and 106. This Statement is effective for fiscal years beginning after
December 15, 1997. Restatement of comparative period disclosures is required
unless the information is not readily available, in which case the notes to the
<PAGE>
financial statements shall include all available information and a description
of information not available. The impact, if any, of this Statement on the
Company would be to require additional disclosures in the Company's financial
statements.
34
<PAGE>
PREMIER BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- STOCK SPLIT
On December 31, 1997, PBI effected a three-for-one stock split to
shareholders of record as of December 31, 1997 which changed the par value from
$1.00 to $.33 per share. The number of shares and per share amounts have been
restated to reflect this event.
NOTE 3 -- CASH AND DUE FROM BANKS
The Bank is required to maintain certain daily average reserve balances in
accordance with Federal Reserve Board and Atlantic Central Bankers Bank
requirements. The reserve balances maintained in accordance with such
requirements as of December 31, 1997 were $751,000 and $300,000, respectively.
NOTE 4 -- INVESTMENT SECURITIES
The amortized cost and estimated fair values of investment securities at
December 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR CARRYING
DECEMBER 31, 1997 COST GAINS LOSSES VALUE VALUE
- ----------------- ----------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
HELD TO MATURITY
Mortgage-backed
securities.... $ 3,183,768 384 (40,437) 3,143,715 3,183,768
U.S. government
agency
obligations... 11,985,870 1,250 (30,870) 11,956,250 11,985,870
----------- ------- -------- ---------- ----------
15,169,638 1,634 (71,307) 15,099,965 15,169,638
AVAILABLE FOR SALE
Mortgage-backed
securities.... 50,131,927 113,350 (124,047) 50,121,230 50,121,230
State and municipal
securities.... 10,326,107 80,394 (3,644) 10,402,857 10,402,857
Equity securities 1,780,050 13,000 -- 1,793,050 1,793,050
Other debt
securities..... 117,000 -- -- 117,000 117,000
---------- ------- -------- ---------- ----------
62,355,084 206,744 (127,691) 62,434,137 62,434,137
----------- ------- -------- ---------- ----------
TOTAL
INVESTMENT
SECURITIES.... $77,524,722 208,378 (198,998) 77,534,102 77,603,775
=========== ======= ======== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR CARRYING
DECEMBER 31, 1996 COST GAINS LOSSES VALUE VALUE
- ----------------- ---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
HELD TO MATURITY
Mortgage-backed
securities.....$ 3,910,165 -- (63,179) 3,846,986 3,910,165
U.S. government
agency
obligations.. 9,977,441 -- (147,128) 9,830,313 9,977,441
----------- ------- -------- ---------- ----------
13,887,606 -- (210,307) 13,677,299 13,887,606
AVAILABLE FOR
SALE
Mortgage-backed
securities... 44,212,778 84,412 (107,141) 44,190,049 44,190,049
State and municipal
securities.. 6,662,286 37,967 (4,934) 6,695,319 6,695,319
Equity securities.1,897,300 -- -- 1,897,300 1,897,300
Other debt
securities..... 117,000 -- -- 117,000 117,000
----------- ------- -------- ---------- ----------
52,889,364 122,379 (112,075) 52,899,668 52,899,668
----------- ------- -------- ---------- ----------
TOTAL INVESTMENT
SECURITIES... $66,776,970 122,379 (322,382) 66,576,967 66,787,274
=========== ======= ======== ========== ==========
</TABLE>
35
<PAGE>
PREMIER BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- INVESTMENT SECURITIES -- (CONTINUED)
The amortized cost and estimated fair value of debt securities AFS and HTM
by contractual maturity at December 31, 1997 are shown in the following table.
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without penalties.
<TABLE>
<CAPTION>
INVESTMENT SECURITIES INVESTMENT SECURITIES
HELD TO MATURITY AVAILABLE FOR SALE
------------------------ -----------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST FAIR VALUE COST FAIR VALUE
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Due in one year or less... $ 1,184,645 1,169,742 8,140,367 8,138,630
Due after one year through
five years............... 2,891,860 2,861,810 19,422,949 19,418,808
Due after five years through ten
years................... 3,092,861 3,075,644 12,070,609 12,068,055
Due after 10 years........ 8,000,272 7,992,769 22,721,159 22,808,644
----------- ---------- ---------- ----------
Total.... ................ $15,169,638 15,099,965 62,355,084 62,434,137
=========== ========== ========== ==========
</TABLE>
Proceeds from sales of investment securities AFS are as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Proceeds....................................... $29,024,898 29,732,585
Gross gains.................................... 69,028 54,632
Gross losses................................... 54,210 60,214
</TABLE>
NOTE 5 -- LOANS
<TABLE>
<CAPTION>
1997 1996
------------ ----------
<S> <C> <C>
Real estate-farmland........................... $ 500,000 --
Real estate-construction....................... 1,188,288 1,952,730
Real estate-residential........................ 22,965,889 19,665,913
Real estate-multifamily........................ 1,948,943 1,137,649
Real estate-commercial......................... 72,372,260 52,731,559
Consumer....................................... 797,671 735,124
Commercial..................................... 9,084,458 6,861,611
------------ ----------
Total loans.................................... 108,857,509 83,084,586
Unearned income................................ 324,835 174,750
Allowance for loan losses...................... 1,360,148 960,672
------------ ----------
Total loans, net............................... $107,172,526 81,949,164
============ ==========
</TABLE>
<PAGE>
Loans secured by real estate totaled $98,975,380 and $75,487,851 at
December 31, 1997 and 1996, respectively, and represented 91% of total loans in
both years. Real estate commercial loans include all loans collateralized at
least in part by commercial real estate. These loans are generally for
commercial real estate investment transactions.
At December 31, 1997, the recorded investment in loans for which impairment
has been recognized totaled $497,734 and $870,961, respectively, of which
$497,734 and $507,140 related to loans with a corresponding valuation allowance
of approximately $50,823 and $126,785. Most of the loans identified as impaired
are collateral-dependent. For the years ended December 31, 1997 and 1996, the
average recorded investment in impaired loans was approximately $502,792 and
$651,165.
36
<PAGE>
PREMIER BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- LOANS -- (CONTINUED)
No interest income was recognized on these loans in 1997. In 1996, $10,101 of
interest income was recorded on impaired loans. Included within the loan
portfolio are loans on non-accrual status of $497,734 and $870,961 at December
31, 1997 and 1996, respectively. If interest had been accrued throughout the
period, interest income for the years ended December 31, 1997, and 1996, would
have increased approximately $51,900 and $80,434, respectively. There was no
interest income on these loans included in net income in 1997. In 1996, $10,101
in interest income was recorded on non-accrual loans.
PBI generally lends in the Greater Philadelphia region with a majority of
its borrowers living in communities surrounding its three branches. To a large
extent PBI makes loans collateralized at least in part by real estate.
Accordingly, its lending activities could be affected by changes in the general
economy, the regional economy, or real estate values.
<PAGE>
NOTE 6 -- ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses is shown below:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 1996
- - ------------ ---------- --------
<S> <C> <C>
Balance at beginning of year................... $ 960,672 738,313
Charge-offs.................................... (524) (127,641)
Provision for loan losses...................... 400,000 350,000
---------- --------
Balance at end of year......................... $1,360,148 960,672
========== ========
</TABLE>
NOTE 7 -- PREMISES AND EQUIPMENT
Premises and equipment, stated at cost less accumulated depreciation and
amortization, are summarized below:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 1996
- - ------------ ---------- -------
<S> <C> <C>
Land............................................ $ 254,761 --
Leasehold improvements.......................... 372,883 104,865
Furniture, fixtures and equipment............... 980,128 621,180
---------- -------
Book value...................................... 1,607,772 726,045
Accumulated depreciation and amortization....... 433,003 258,972
---------- -------
Net book value.................................. $1,174,769 467,073
========== =======
</TABLE>
<PAGE>
Depreciation and amortization expense on premises and equipment amounted to
$174,031 and $119,941, for the years ended December 31, 1997, and 1996,
respectively.
The Company leases all facilities from which it currently operates. Rental
expense on operating leases amounted to approximately $180,797 and $143,175 for
the years ended December 31, 1997 and 1996, respectively. Most leases have
options for renewal. Required minimum annual rentals due on non-cancelable
leases expiring after one year approximate $238,680 in the aggregate at December
31, 1997. Future minimum annual rental payments due on non-cancelable leases for
each of the years 1998 through 2002 are approximately $183,101, $59,670,
$59,670, $59,670 and $59,670, respectively.
37
<PAGE>
PREMIER BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- DEPOSITS
<TABLE>
<CAPTION>
DECEMBER 31, 1997 1996
- ------------- ---------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
INTEREST % OF INTEREST % OF
RATE AMOUNT TOTAL RATE AMOUNT TOTAL
---- ------------ ------ ---- ------------ ------
Interest
checking.. 2.62% $ 10,847,705 7.56% 2.52% $ 7,341,202 6.22%
Money market 2.57% 1,667,282 1.16% 2.56% 1,441,254 1.22%
Savings..... 3.90% 45,551,504 31.72% 4.16% 41,055,794 34.77%
Time........ 5.66% 73,959,391 51.50% 5.58% 59,486,279 50.37%
---- ------------ ------ ---- ------------ ------
Total
interest
bearing
deposits... 4.76% 132,025,882 91.94% 4.80% 109,324,529 92.58%
==== ====
Non-interest
bearing
deposits.. 11,577,320 8.06% 8,768,713 7.42%
------------ ------ ------------ ------
Total
deposits. $143,603,202 100.00% $118,093,242 100.00%
============ ====== ============ ======
</TABLE>
Time deposits of less than $100,000 by date of maturity are as follows:
<TABLE>
<CAPTION>
<S> <C>
1998........................................... $39,982,784
1999........................................... 15,211,325
2000........................................... 3,702,313
2001........................................... 514,937
2002........................................... 471,381
2003 and thereafter............................ 2,051
-----------
$59,884,791
===========
</TABLE>
Time deposits of $100,000 or more by date of maturity are as follows:
<TABLE>
<CAPTION>
<S> <C>
1998........................................... $10,464,984
1999........................................... 2,888,738
2000........................................... 519,365
2001........................................... --
2002........................................... 201,513
2003 and thereafter............................ --
-----------
$14,074,600
===========
</TABLE>
Accrued interest payable on deposits amounted to $1,231,662 and $946,105 at
December 31, 1997 and 1996, respectively.
Interest expense on deposits is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 1996
- - ------------ ---------- ---------
<S> <C> <C>
Interest checking............................. $ 224,223 150,797
Money Market.................................. 54,087 47,835
Savings....................................... 1,648,694 1,508,191
Time.......................................... 3,969,496 2,880,943
---------- ---------
Total interest expense on deposits............ $5,896,500 4,587,766
========== =========
</TABLE>
38
<PAGE>
PREMIER BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- BORROWINGS
<TABLE>
<CAPTION>
DECEMBER 31, 1997 1996
- ------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE
----------- ---- ----------- ----
Short-term:
Securities sold under agreement to
repurchase (1).............. $18,345,740 5.54% $2l,973,568 5.70%
Other (2)..................... 1,497,000 6.31% 1,667,000 6.44%
----------- ---- ----------- ----
19,842,740 5.59% 23,640,568 5.75%
Long-term:
Federal Home Loan Bank
advances (3)................. 15,000,000 5.42% -- --
----------- ---- ----------- ----
Total borrowings.............. $34,842,740 5.52% $23,640,568 5.75%
=========== ==== =========== ====
</TABLE>
- ------------------
(1) At December 31, 1997 securities sold under agreement to repurchase consisted
of $12,500,000 in borrowings from the Federal Home Loan Bank (the "FHLB")
which mature within 90 days and $5,845,740 in borrowings from customers
which mature overnight. At December 31, 1996 borrowings from the FHLB and
customers were $21,100,000 and $873,568, respectively. All borrowings from
the FHLB are secured by a blanket lien against all of the Bank's assets.
(2) Other consists of overnight borrowings from Atlantic Central Bankers Bank.
(3) Long-term FHLB advances are detailed as follows:
<TABLE>
<CAPTION>
1997 INTEREST
DECEMBER 31, AMOUNT DUE RATE
- ------------- ----------- -------- --------
<S> <C> <C> <C>
Issued 9/25/97............... $ 5,000,000 9/25/02 5.45%
Issued 10/17/97.............. 5,000,000 10/17/02 5.47%
Issued 11/19/97.............. 5,000,000 11/19/02 5.34%
-----------
$15,000,000
===========
</TABLE>
The above long-term advances are subject to repricing every six months at
which time the issuer may convert the borrowing to a variable rate if current
rates are higher. Should the issuer convert the borrowing, the Company may
prepay the debt without penalty.
Accrued interest on borrowings amounted to $114,461 and $90,779 at December
31, 1997 and 1996, respectively.
<TABLE>
<CAPTION>
DECEMBER 31, 1997 1996
- - ------------ ----------- ----------
<S> <C> <C>
Short-term:
Average balance outstanding.................... $24,007,462 17,003,164
Maximum amount outstanding at any month-end
during the period............................ 31,329,745 17,940,711
Weighted average interest rate during the
period....................................... 5.65% 5.62%
</TABLE>
At December 31, 1997, the Bank has a $2,000,000 unsecured fed funds line of
credit with Atlantic Central Bankers Bank and a $58,704,000 borrowing limit at
the FHLB. At December 31, 1997, the Bank had unused borrowing capacity of
$503,000 and $31,204,000 from Atlantic Central Bankers Bank and the FHLB,
respectively.
39
PREMIER BANCORP, INC.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 -- SUBORDINATED DEBT
On January 9, 1997, the Bank borrowed $1,500,000 from Pennsylvania National
Bank and Trust Company for the purpose of funding its continued growth and to
assist in the maintenance of certain regulatory capital ratios. The loan is
unsecured and matures on January 12, 2012. The term note carries an annually
adjustable rate based upon the one-year Treasury index plus 240 basis points. At
December 31, 1997 the interest rate on the subordinated debt was 8.01%. The note
requires monthly interest payments for the first ten years with principal
payments beginning in the eleventh year with full amortization by the maturity
date.
NOTE 11 -- EARNINGS PER SHARE
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share calculations.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
-------------------------------------
PER SHARE
NET INCOME SHARES AMOUNT
----------- ---------- ----------
<S> <C> <C> <C>
Basic earnings per share................ $1,340,957 2,606,473 $0.51
Effect of dilutive stock options........ -- 145,989 --
---------- --------- -----
Diluted earnings per share.............. $1,340,957 2,752,462 $0.49
========== ========= =====
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
-------------------------------------
PER SHARE
NET INCOME SHARES AMOUNT
----------- ---------- ----------
<S> <C> <C> <C>
Basic earnings per share............... $1,095,635 2,604,303 $0.42
Effect of dilutive securities:
Stock options........................ -- 101,528 --
---------- --------- -----
Diluted earnings per share............. $1,095,635 2,705,831 $0.40
========== ========= =====
</TABLE>
Earnings per share was calculated on the basis of weighted average number
of shares after giving retroactive effect to the three-to-one stock split
distributed on December 31, 1997. Options to purchase 662,172 and 476,739 shares
of common stock were outstanding at December 31, 1997 and 1996, respectively.
The dilutive effect of such options using the treasury method was included in
the computation of diluted earnings per share.
NOTE 12 -- INCOME TAXES
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 1996
- - ----------------------- -------- --------
<S> <C> <C>
Current tax expense............................... $720,000 459,112
Deferred income tax benefit....................... (130,000) (23,650)
-------- --------
Income tax expense................................ $590,000 435,462
======== ========
</TABLE>
40
<PAGE>
PREMIER BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12 -- INCOME TAXES -- (CONTINUED)
At December 31, 1997 and 1996, the tax effects of temporary differences
that represent the significant portion of deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 1996
- - ----------------------- -------- --------
<S> <C> <C>
Deferred tax assets:
Allowance for possible loan loss................ $439,812 303,812
Start-up and organization costs................. 8,217 13,600
Other........................................... 7,509 5,004
-------- --------
Deferred tax assets............................... 455,538 322,416
Deferred tax liabilities:
Unrealized net gain on securities available for
sale......................................... (26,878) (3,503)
Depreciation.................................... (23,754) (20,632)
-------- --------
Net deferred tax asset............................ $404,906 298,281
======== ========
</TABLE>
The realizability of deferred tax assets is dependent upon a variety of
factors, including the generation of future taxable income, the existence of
taxes paid and recoverable, the reversal of deferred tax liabilities and tax
planning strategies. Based upon these and other factors, management believes it
is more likely than not that PBI will realize the benefits of these deferred tax
assets.
<PAGE>
A reconciliation of income tax expense in the accompanying statements of
operations with the amount computed by applying the statutory federal income tax
rate to earnings before income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 1996
- - ----------------------- -------- --------
<S> <C> <C>
Tax expense at 34% rate........................... $656,525 520,573
Interest from tax exempt loans and investments.... (109,117) (89,784)
Other, net........................................ 42,592 4,673
-------- --------
Income tax expense................................ $590,000 435,462
======== ========
</TABLE>
NOTE 13 -- EMPLOYEE BENEFIT PLANS
PBI maintains a defined contribution savings plan covering substantially
all employees. The plan allows eligible employees to make contributions by
salary reduction pursuant to the provisions of 401(k) of the Internal Revenue
Code. Discretionary matching contributions by the Bank expensed in the financial
statements for 1997 and 1996 were $33,702 and $26,818, respectively.
NOTE 14 -- STOCK OPTIONS
In connection with its initial stock offering, the Bank issued options to
purchase common stock to certain incorporators, directors, officers, and
institutional investors. The options are exercisable at a price of $3.03 per
share and expire April 23, 2002. The options are transferable and contain
certain customary anti-dilution clauses in the case of certain events. At
December 31, 1997 and 1996, 437,307 and 463,344 options were issued and
outstanding, respectively.
In addition, the Bank adopted, in 1995, a stock option program whereby up
to 300,000 options may be granted to employees or directors based on a
discretionary incentive program. The exercise price of options granted under
<PAGE>
this program are to be at the fair value of common stock as of the grant date.
Options expire ten years from the date of grant with vesting periods, if any,
determined by the Board of Directors. In January 1996, 13,395 options were
granted under this program at an exercise price of $3.67 per share and were
immediately vested. In January 1997, 211,470 options were granted
41
<PAGE>
PREMIER BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 14 -- STOCK OPTIONS -- (CONTINUED)
under this plan at an exercise price of $5.00 per share of which 130,470 were
immediately vested and 81,000 subject to a four year vesting period.
Stock option activity during the periods indicated is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE RANGE OF
OPTIONS PRICE EXERCISE PRICE
--------- --------- --------------
<S> <C> <C> <C>
December 31, 1995....................... 463,344 $3.03 3.03
Granted............................... 13,395 3.67 --
------- ----- ---------
December 31, 1996....................... 476,739 3.05 3.03-3.67
Granted............................... 211,470 5.00
Exercised............................. (26,037) 3.03
------- ----- ---------
December 31, 1997....................... 662,172 $3.67 3.03-5.00
======= ===== =========
</TABLE>
At December 31, 1997, the number of options exercisable was 581,172. The
weighted average exercise price of those options was $3.49 per share and the
weighted average remaining contractual life of outstanding options was 5.5
years.
In January 1998, 15,030 incentive options were granted under the 1995 plan
at an exercise price of $6.00 per share expiring January 2008.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation", provides an alternative method of accounting for
stock-based compensation arrangements. This method is based on the fair value of
the stock-based compensation determined by an option pricing model utilizing
various assumptions regarding the underlying attributes of the options and PBI's
stock, rather than the existing method of accounting for stock-based
compensation which is provided in Accounting Principles Board Opinion No. 25
(APB No. 25), "Accounting for Stock Issued to Employees." The Financial
Accounting Standards Board encourages entities to adopt the fair value based
method, but does not require the adoption of this method.
PBI applies APB No. 25 and related Interpretations in accounting for the
Plan. The fair value of each option grant using the Black-Scholes option pricing
model was $3.45 and $1.91 in 1997 and 1996, respectively. The following
assumptions were used for grants in 1997 and 1996: no dividends for both years;
risk-free interest rates of 6.40% and 6.72% for 1997 and 1996 options,
respectively; and expected lives of ten years for both years. Had compensation
cost for the Plan been determined consistent with Statement No. 123, PBI's net
income and earnings per share would have been reduced to the pro forma amounts
indicated as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 1996
- - ------------ ---------- ----------
<S> <C> <C>
Net income
As reported................................... $1,340,957 1,095,635
Pro forma..................................... 890,835 1,070,007
Basic earnings per share
As reported................................... 0.51 0.42
Pro forma..................................... 0.34 0.41
Diluted earnings per share
As reported................................... 0.49 0.40
Pro forma..................................... 0.32 0.40
</TABLE>
42
<PAGE>
PREMIER BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 15 -- COMMITMENTS AND CONTINGENCIES
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Bank is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and stand-by
letters of credit. Those instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the
statement of financial condition. The contract or notional amounts of those
instruments reflect the extent of involvement the Bank has in particular classes
of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
stand-by letters of credit is represented by the contractual or notional amount
of those instruments.
Financial instruments whose contract amounts represent credit risk at
December 31, 1997 and 1996 are as follows:
<PAGE>
<TABLE>
<CAPTION>
CONTRACT OR NOTIONAL AMOUNT
----------------------------
1997 1996
------------ ----------
<S> <C> <C>
Commitments to extend credit.................... $10,994,649 7,592,000
Stand-by letters of credit...................... 1,160,062 1,073,000
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any conditions established in the contract. The Bank
evaluates each customer's creditworthiness on a case-by-case basis. The amount
of collateral obtained, if deemed necessary, by the Bank upon extension of
credit is based on management's credit evaluation of the counter-party.
Collateral held varies but may include inventory, property, plant and equipment,
and income producing commercial properties. The commitments at December 31, 1997
were principally to originate commercial loans and other loans secured by real
estate.
Stand-by letters of credit are conditional commitments issued by the Bank
to guarantee the performance of a customer to a third party. Most guarantees
extend for one year or less. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loan facilities to
customers.
The amount of collateral received on loan commitments and on stand-by
letters of credit is dependent upon the individual transaction and the
creditworthiness of the customer.
CONCENTRATIONS OF CREDIT RISK
The Bank's loan portfolio represents loans principally made in the Bucks
and Northampton County areas in Pennsylvania which are secured by both
residential and commercial real estate. Accordingly, the Bank's primary
concentration of credit risk is related to the real estate market in the Bucks
and Northampton County areas. The ultimate collectibility of this portion of the
Bank's portfolio is susceptible to changes in local market conditions, and
<PAGE>
therefore, dependent upon the local economic environment. In addition, loan
concentrations are also considered to exist when there are amounts loaned or
committed to be loaned to a multiple number of borrowers engaged in similar
activities which would cause their ability to meet contractual obligations to be
similarly impacted by economic or other conditions. Though the Bank views many
of its loans as made to individuals or, secured by residential real estate, the
Bank's loan portfolio contains many borrowers who are employed in various
professions such as, the medical, dental, legal and real estate professions.
43
<PAGE>
PREMIER BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 15 -- COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
LEGAL PROCEEDINGS
As of December 31, 1997, there were no material pending legal proceedings,
other than ordinary routine litigation incidental to the business, to which the
Company or its subsidiary are a party or by which any of their property is in
the subject.
NOTE 16 -- RELATED PARTY TRANSACTIONS
As a matter of policy, the Bank does not extend credit to employees,
officers or directors. The following table presents the amount due from one of
the Bank's directors. This loan was made prior to this individual's election to
the Board of Directors. This loan was made in the ordinary course of business on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons. Also,
this loan did not involve a more than normal risk of collectibility or present
any other unfavorable features.
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Balance, December 31, 1996............................... $ 316,158
Repayments............................................... ( 18,744)
---------
Balance, December 31, 1997............................... $ 297,414
=========
</TABLE>
The outstanding loan balance was repaid in January 1998.
The Bank's offices in Doylestown and Easton are owned by Norbuck Associates
(Norbuck), a Pennsylvania limited partnership consisting of several directors of
the Bank. The leases with Norbuck have an initial term expiring December 31,
1998. Rent paid to Norbuck in 1997 and 1996 was $117,368 and $113,954,
respectively.
NOTE 17 -- DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
PBI is required to disclose estimated fair values for its financial
instruments, whether or not recognized in the balance sheet. For PBI, as for
most financial institutions, substantially all of its assets and liabilities are
considered financial instruments.
Estimates of fair value are made at a specific point in time, based upon,
where available, relevant market prices and information about the financial
instrument. Such estimates do not include any premium or discount that could
result from offering for sale at one time the Company's entire holdings of a
particular financial instrument. For a substantial portion of the Company's
financial instruments, no quoted market exists. Therefore, estimates of fair
value are necessarily based on a number of significant assumptions regarding the
amount and timing of estimated future cash flows which are discounted to reflect
varying degrees of risk. Given the uncertainties surrounding these assumptions,
the reported fair values may not represent actual values of financial
instruments that could have been realized as of year-end or that will be
realized in the future. Use of different assumptions or methodologies is likely
to result in significantly different fair value estimates.
<PAGE>
The fair value of non-interest bearing demand deposits, interest checking
accounts, money market accounts and savings accounts is equal to the carrying
amount because these deposits have no stated maturity. This approach to
estimating fair value excludes the significant benefit that results from the
low-cost funding provided by such deposit liabilities, as compared to
alternative sources of funding. As a consequence the values below may distort
the actual fair value of a banking organization that is a going concern.
44
<PAGE>
PREMIER BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 17 -- DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS -- (CONTINUED)
The estimated fair values and carrying amounts are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
-------------------------- -----------------------
ESTIMATED CARRYING ESTIMATED CARRYING
FAIR VALUE AMOUNT FAIR VALUE AMOUNT
------------ ----------- ----------- ---------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and due from banks...$ 4,307,164 4,307,164 2,124,076 2,124,076
Interest-bearing deposits. 85,823 85,823 206,313 206,313
Investment securities:
Available for sale...... 62,434,137 62,434,137 52,899,668 52,899,668
Held to maturity........ 15,099,965 15,169,638 13,677,299 13,887,606
Loans held for sale....... 199,344 197,944 -- --
Net loans................. 108,225,722 107,172,526 83,824,718 81,949,164
Accrued interest receivable. 1,451,899 1,451,899 1,115,650 1,115,650
------------ ----------- ----------- -----------
Total financial assets... $191,804,054 190,819,131 153,847,724 152,182,477
============ =========== =========== ===========
FINANCIAL LIABILITIES:
Deposits with no stated
maturities............ $ 69,643,811 69,643,811 58,606,963 58,606,963
Deposits with stated
maturities............. 76,482,989 73,959,391 59,592,618 59,486,279
Borrowings.............. 33,629,286 34,842,740 24,646,883 23,640,568
Subordinated debt....... 1,500,000 1,500,000 -- --
Accrued interest payable.. 1,346,123 1,346,123 1,036,884 1,036,884
------------ ----------- ----------- -----------
Total financial
liabilities............ $182,602,209 181,292,065 143,883,348 142,770,694
============ =========== =========== ===========
</TABLE>
The following methods and assumptions were used to estimate the fair value
of each major classification of financial instruments at December 31, 1997 and
1996.
Cash and due from banks and Federal funds sold: Current carrying amounts
approximate estimated fair value.
Investment securities: Current quoted market prices were used to determine
fair value.
Loans: Fair values were estimated using the present value of the estimated
cash flows, using interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality.
Deposit liabilities: The fair value of deposits with no stated maturity
(i.e. demand deposits, interest checking accounts, money market accounts and
savings accounts) are by definition, equal to the amount payable on demand at
the reporting date (i.e. their carrying amounts). Deposits with a stated
maturity (time deposits) have been valued using the present value of cash flows
discounted at rates approximating the current market for similar deposits.
Borrowings: Borrowings have been valued using the present value of cash
flows discounted at rates approximating the current market for similar
liabilities.
Off-balance-sheet instruments: Off-balance-sheet instruments are primarily
comprised of loan commitments which are generally priced at market at the time
of funding. Fees on commitments to extend credit and standby letters of credit
are deemed to be immaterial and these instruments are expected to be settled at
face value or expire unused. It is impractical to assign any fair value to these
instruments. At December 31, 1997 and 1996 loan commitments were $10,994,649 and
$7,592,000, respectively. Stand-by letters of credit were $1,160,062 and
$1,073,000 at December 31, 1997 and 1996, respectively.
45
<PAGE>
PREMIER BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 18 -- PARENT COMPANY FINANCIAL INFORMATION
CONDENSED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
DECEMBER 31, 1997 1996
- ------------- ----------- ----------
<S> <C> <C>
Assets
Cash on deposit with subsidiary.................. $ 78,900 --
Investment in subsidiary......................... 10,328,645 8,942,793
Other............................................ 26,292 --
----------- ----------
Total assets................................... $10,433,837 8,942,793
=========== ==========
Liabilities and shareholders' equity:
Shareholders' equity:
Common stock..................................... $ 7,996,781 7,892,070
Retained Earnings................................ 2,384,881 1,043,924
Unrealized gains on securities available for sale... 52,175 6,799
----------- ----------
Total shareholders' equity..................... 10,433,837 8,942,793
----------- ----------
Total liabilities and shareholders' equity....... $10,433,837 8,942,793
=========== ==========
CONDENSED STATEMENT OF OPERATIONS
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1997 1996
- - -------------------------------- ----------- ----------
<S> <C> <C>
Equity in undistributed income of subsidiary..... $ 1,340,957 1,095,635
----------- ----------
Other............................................ 693 --
----------- ----------
Total income..................................... 1,341,650 1,095,635
----------- ----------
Interest Expense................................. 513 --
Other expenses................................... 180 --
----------- ----------
Total expense.................................... 693 --
----------- ----------
Income before taxes.............................. 1,340,957 1,095,635
Income tax expense............................... -- --
----------- ----------
Net income........................................ $ 1,340,957 1,095,635
=========== ==========
CONDENSED STATEMENTS OF CASH FLOWS
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1997 1996
- - -------------------------------- ----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income.........................................$ 1,340,957 1,095,635
Deduct items not affecting cash flows:
Equity in undistributed income of subsidiary... (1,340,957) (1,095,635)
----------- ----------
Net cash provided from operating activities...... -- --
Cash flows from financing activities:
Proceeds from exercised stock options............ 78,900 --
----------- ----------
Net cash provided from financing activities...... 78,900 --
----------- ----------
Net increase in cash and cash equivalents........ 78,900 --
Cash and cash equivalents at beginning of year... -- --
----------- ----------
Cash and cash equivalensts at end of year........ $ 78,900 --
=========== ==========
</TABLE>
46
<PAGE>
PREMIER BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 19 -- REGULATORY RESTRICTIONS
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory and possibly additional discretionary actions by
regulators that if undertaken, could have a direct material effect on the Bank's
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Bank must meet specific capital
guidelines that involve quantitative measures of the Bank's assets, liabilities,
and certain off-balance sheet items as calculated under accounting practices.
The Bank's capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.
<PAGE>
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain certain minimum amounts and ratios to be considered
adequately capitalized (set forth in the table below). Management believes that
the Bank meets, as of December 31, 1997 and 1996, all capital adequacy
requirements to which it is subject. As of September 30, 1996, the most recent
notification from the Federal Reserve Bank categorized the Bank as well
capitalized under the regulatory framework for prompt corrective action
provisions of Section 3b of the Federal Deposit Insurance Act. There are no
calculations or events since that notification that management believes have
changed the Bank's category. To be categorized as well capitalized, the Bank
must maintain minimum ratios as set forth in the table below.
The Bank's actual capital amounts and ratios are also presented in the
table.
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED
FOR CAPITAL UNDER THE CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISION
------------------- ------------------- ---------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
----------- ----- ----------- ----- ------------ ------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total capital
to risk-weighted
assets $13,136,619 10.88% $ 9,658,880 8.00% $12,073,600 10.00%
Tier 1
capital
to
risk-weighted
assets 10,276,471 8.51% 4,829,440 4.00% 7,244,160 6.00%
Tier 1
capital
to average
assets 10,276,471 5.45% 7,536,161 4.00% 9,420,201 5.00%
As of December 31, 1996:
Total
capital
to
risk-weighted
assets $ 9,872,666 10.90% $ 7,248,000 8.00% $ 9,060,000 10.00%
Tier I
capital
to
risk-weighted
assets 8,911,994 9.84% 3,624,000 4.00% 5,436,000 6.00%
Tier I
capital to
average assets 8,911,994 5.80% 6,146,512 4.00% 7,683,139 5.00%
</TABLE>
NOTE 20 -- DIVIDEND POLICY
The future dividend policy of the Company is subject to the discretion of
the Board of Directors and will depend upon a number of factors, including
future earnings, financial conditions, cash needs, and general business
conditions. Holders of common stock will be entitled to receive dividends as and
when declared by the Board of Directors out of funds legally available for that
purpose. The Company is restricted as to the amount of dividends that it can pay
holders of its common stock by virtue of the restrictions on the Bank's ability
to pay dividends to the Company. Payment of dividends by the Bank is subject to
the regulatory restrictions set forth in the Pennsylvania Banking Code of 1965,
the Federal Reserve Act and the Federal Deposit Insurance Corporation Act.
The Pennsylvania Banking Code of 1965 provides that cash dividends may be
declared and paid only out of accumulated net earnings which are $2,384,881 at
December 31, 1997. Cash dividends must be approved by the Federal Reserve Board
if the total of all cash dividends declared by the Bank in any calendar year,
including the proposed cash dividend, exceeds the total of the Bank's net
profits for that year plus its retained net profits from the preceding two years
less any required transfers to surplus or a fund for the retirement of preferred
stock, if any. The Federal Deposit Insurance Corporation Act generally prohibits
all payments of dividends by any bank which is in default of any assessment of
the FDIC. As of December 31, 1997 and 1996, the Bank was not in default of any
FDIC assessments.
47
<PAGE>
ITEM 8 -- CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None
PART III
ITEM 9 -- DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item, relating to directors, executive
officers, and control persons is set forth in the sections captioned
"Information as to Nominees and Directors" of the Registrant's definitive Proxy
<PAGE>
Statement to be used in connection with the 1998 Annual Meeting of Shareholders,
which pages are incorporated herein by reference.
ITEM 10 -- EXECUTIVE COMPENSATION
The information required by Item 10 is incorporated by reference to the
information appearing under the caption "Executive Compensation" in the Proxy
Statement to be used in connection with the 1998 Annual Meeting of Shareholders.
ITEM 11 -- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 11 is incorporated by reference to the
information appearing under the caption "Beneficial Ownership by Officers,
Directors and Nominees" in the Proxy Statement to be used in connection with the
1998 Annual Meeting of Shareholders.
ITEM 12 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 12 is incorporated by reference to the
information appearing under the caption "Certain Transactions" in the Proxy
Statement to be used in connection with the 1998 Annual Meeting of Shareholders.
48
<PAGE>
PART IV
ITEM 13 -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. The consolidated financial statements listed on the index set forth in
Item 8 of this Annual Report on Form 10-KSB are filed as part of this
Annual Report.
2. Financial Statement Schedules All schedules are omitted because they are
either not applicable, the data are not significant or the required
information is shown in the financial statements or the notes thereto or
elsewhere herein.
3. Exhibits
The following exhibits are incorporated by reference herein or annexed to
this Form 10-KSB:
3.1 Articles of Incorporation (Incorporated by reference to Exhibit 3i to
the Company's Registration Statement No. 333-34243 on Form S-4 filed
with the Securities and Exchange Commission on August 22, 1997)
3.2 By-Laws (Incorporated by reference to Exhibit 3ii to the Company's
Registration Statement No. 333-34243 on Form S-4 filed with the
Securities and Exchange Commission on August 22, 1997)
10.1 Premier Bank's 1995 Incentive Stock Option Plan (Incorporated by
reference to Exhibit 99.6 to the Company's Registration Statement No.
333-34243 on Form S-4 filed with the Securities and Exchange
Commission on August 22, 1997)
21.1 Subsidiaries of the Registrant
23.1 Consent of Auditors
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
49
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report be signed on
its behalf by the undersigned, thereunto duly authorized.
PREMIER BANCORP, INC.
SIGNATURE TITLE DATE
- --------- ----- ----
By: /s/ JOHN C. SOFFRONOFF President, Chief Executive Officer, March 27, 1998
- --------------------------- (Principal Executive Officer), Director
John C. Soffronoff
By: /s/ BRUCE E. SICKEL Chief Financial Officer, (Principal March 27, 1998
- - ------------------------- Financial Officer), Director
Bruce E. Sickel
By: /s/ JOANNE M. CALIBEO Controller (Principal Accounting March 27, 1998
- ---------------------------- Officer)
Joanne M. Calibeo
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report is signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
By: /s/ JOHN C. SOFFRONOFF President, Chief Executive Officer, March 27, 1998
- -------------------------- (Principal Executive Officer), Director
John C. Soffronoff
By: /s/ CLARK S. FRAME Chairman of the Board, Director March 27, 1998
- ----------------------------
Clark S. Frame
By: /s/ BRUCE E. SICKEL Chief Financial Officer, (Principal March 27, 1998
- -------------------------- Financial Officer), Director
Bruce E. Sickel
By: /s/ BARRY J. MILES Director March 27, 1998
- ---------------------------
Barry J. Miles
By: /s/ DANIEL E. COHEN Director March 27, 1998
- --------------------------
Daniel E. Cohen
By: /s/ PETER A. COOPER Director March 27, 1998
- - ------------------------
Peter A. Cooper
By: /s/ HELEN BETH GAROFALO VILCEK Director March 27, 1998
- - ----------------------------------
Helen Beth Garofalo Vilcek
By: /s/ DR. THOMAS E. MACKEL Director March 27, 1998
- - ----------------------------------
Dr. Thomas E. Mackel
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
By: /s/ DR. DANIEL A. NESI Director March 27, 1998
- - ----------------------------------
Dr. Daniel A. Nesi
By: /s/ NEIL NORTON Director March 27, 1998
- - ----------------------------------
Neil Norton
By: /s/ THOMAS M. O'MARA Director March 27, 1998
- - ----------------------------------
Thomas M. O'Mara
By: /s/ MICHAEL PERRUCCI Director March 27, 1998
- - ----------------------------------
Michael Perrucci
By: /s/ BRIAN R. RICH Director March 27, 1998
- - ----------------------------------
Brian R. Rich
By: /s/ RICHARD F. RYON Director March 27, 1998
- - ----------------------------------
Richard F. Ryon
By: /s/ GERALD SCHATZ Director March 27, 1998
- - ----------------------------------
Gerald Schatz
By: /s/ IRVING N. STEIN Director March 27, 1998
- - ----------------------------------
Irving N. Stein
By: /s/ THOMAS P. STITT Director March 27, 1998
- ----------------------------------
Thomas P. Stitt
By: /s/ GEORGE H. WETHERILL Director March 27, 1998
- - ----------------------------------
George H. Wetherill
By: /s/ JOHN A. ZEBROWSKI Director March 27, 1998
- - ----------------------------------
John A. Zebrowski
By: /s/ EZIO ROSSI Director March 27, 1998
- - ----------------------------------
Ezio Rossi
</TABLE>
51
<PAGE>
CORPORATE INFORMATION
Annual Meeting
The Annual Meeting of Shareholders of Premier Bancorp, Inc. will be held at
The Barley Sheaf Bed and Breakfast Inn, Route 202, Holicong, PA on May 14, 1998,
at 9:00 a.m.
Transfer Agent
Registrar and Transfer Company
10 Commerce Drive
Cranford, NJ 07016-3572
(800) 368-5948
Form 10-KSB
A copy of Premier Bancorp Inc.'s Annual Report on Form 10-KSB, as filed
with the Securities and Exchange Commission, is available, without charge to
shareholders, by writing John C. Soffronoff, Premier Bancorp, Inc., 379 North
Main Street, Doylestown, PA 18901-0818. The Annual Report and other Company
reports are also filed electronically through the Electronic Data Gathering,
Analysis, and Retrieval System ("EDGAR") which performs automated collection,
validation, indexing, acceptance, and forwarding of submissions to the
Securities and Exchange Commission (SEC) and is accessible by the public using
the Internet at http://www.sec.gov./edgarhp.htm.
Directors of Premier Bancorp, Inc.
<TABLE>
<S> <C>
Mario Andretti* Brian R. Rich
Daniel E. Cohen Ezio U. Rossi
Peter A. Cooper Richard F. Ryon
Clark S. Frame Gerald Schatz
David C. Frame* Bruce E. Sickel
Thomas E. Mackell John C. Soffronoff
Barry J. Miles, Sr. Irving N. Stein
Daniel A. Nesi Thomas P. Stitt
Neil W. Norton HelenBeth Garofalo Vilcek
Thomas M. O'Mara George H. Wetherill
Michael J. Perucci John A. Zebrowski
</TABLE>
- - ------------------
*Director Emeritus
Officers of Premier Bancorp, Inc.
Clark S. Frame, Chairman of the Board
Barry J. Miles, Sr., Vice Chairman
John C. Soffronoff, President and Chief Executive Officer
Bruce E. Sickel, Treasurer, Senior Vice President and Chief Financial
Officer
John J. Ginley, Secretary, Senior Vice President and Senior Lending Officer
Executive Management of Premier Bank
<PAGE>
John C. Soffronoff, President and Chief Executive Officer
Bruce E. Sickel, Senior Vice President and Chief Financial Officer
John J. Ginley, Senior Vice President and Senior Lending Officer
<PAGE>
Officers of Premier Bank
Anthony Betz, Vice President and Loan Officer -- Easton
Joanne M. Calibeo, Controller
Edward A. Grosik, Vice President and Loan Officer -- Yardley
James P. DeBow, Vice President and Loan Officer -- Southampton
Rose M. DeLaurentis, Vice President and Loan Officer -- Southampton
Suzanne Hartshorne, Vice President and Loan Officer -- Doylestown
Mark Mann, Vice President and Loan Officer -- Doylestown
James A. Miller, Vice President and Loan Officer -- Yardley
Karen D. Moffat, Vice President and Branch Manager -- Doylestown
Stephen A. Patterson, Vice President and Loan Officer -- Easton
Michelle A. Pedersen, Vice President and Loan Officer -- Doylestown
David Grow, Assistant Vice President and Branch Manager -- Easton
Dale O. Smith, Assistant Vice President and Branch Manager -- Southampton
Office Locations
Main Office
379 North Main Street
Doylestown, PA 18901
(215) 345-5100
Karen D. Moffat, Branch Manager
Christopher A. Nardo, Assistant Branch Manager
Easton Office
2201 Northampton Street
Easton, PA 18042
(610) 258-5100
David Grow, Branch Manager
Southampton Office
Southampton Shopping Center
516 Second Street Pike
Southampton, PA 18966
(215) 322-5400
Dale O. Smith, Branch Manager
Elaine Lydon, Assistant Branch Manager
Commercial Loan Office
90 West Afton Avenue, Suite 203
Yardleyville Square
Yardley, PA 19067
(215) 493-9474
<PAGE>
EXHIBIT 3.1
ARTICLES OF INCORPORATION
Incorporated by reference to Exhibit 3i to the Company's Registration
Statement No. 333-34243 on Form S-4 filed with the Securities and Exchange
Commission on August 22, 1997.
<PAGE>
EXHIBIT 3.2
BYLAWS
Incorporated by reference to Exhibit 3ii to the Company's Registration
Statement No. 333-34243 on Form S-4 filed with the Securities and Exchange
Commission on August 22, 1997.
<PAGE>
EXHIBIT 10.1
PREMIER BANK'S 1995 INCENTIVE STOCK OPTION PLAN
Incorporated by reference to Exhibit 99.6 to the Company's Registration
Statement No. 333-34243 on Form S-4 filed with the Securities and Exchange
Commission on August 22, 1997.
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES
<TABLE>
<CAPTION>
NAME STATE OF INCORPORATION
- - ---- ----------------------
<S> <C>
Premier Bank Pennsylvania
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF AUDITORS
The Board of Directors
Premier Bancorp, Inc.
We consent to incorporation by reference in the registration statement (No.
333-34243) on Form S-4 of Premier Bancorp, Inc., of our report dated February
26, 1998, relating to the consolidated balance sheets of Premier Bancorp, Inc.
and subsidiary as of December 31, 1997 and 1996, and the related consolidated
statements of income, shareholders' equity, and cash flows for the years then
ended, which report appears in the December 31, 1997, annual report on Form
10-KSB of Premier Bancorp, Inc.
/s/ KPMG Peat Marwick LLP
March 25, 1998
<PAGE>
Article 9
FINANCIAL DATA SCHEDULE FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
PERIOD-TYPE 12-MOS 12-MOS
FISCAL-YEAR-END DEC-31-1997 DEC-31-1996
PERIOD-END DEC-31-1997 DEC-31-1996
CASH 4,307,164 2,124,076
INT-BEARING-DEPOSITS 85,823 206,313
FED-FUNDS-SOLD 0 0
TRADING-ASSETS 0 0
INVESTMENTS-HELD-FOR-SALE 62,434,137 52,899,668
INVESTMENTS-CARRYING 15,169,638 13,887,606
INVESTMENTS-MARKET 15,099,965 13,677,299
LOANS 108,532,674 82,909,836
ALLOWANCE 1,360,148 960,672
TOTAL-ASSETS 193,523,440 153,686,788
DEPOSITS 143,603,202 118,093,242
SHORT-TERM 19,842,740 23,640,568
LIABILITIES-OTHER 3,143,661 3,010,185
LONG-TERM 16,500,000 0
PREFERRED-MANDATORY 0 0
PREFERRED 0 0
COMMON 7,996,781 7,892,070
OTHER-SE 2,437,056 1,050,723
TOTAL-LIABILITIES-AND-EQUITY 193,523,440 153,686,788
INTEREST-LOAN 8,753,303 6,387,392
INTEREST-INVEST 4,598,974 3,612,267
INTEREST-OTHER 96,415 103,458
INTEREST-TOTAL 13,448,692 10,103,117
INTEREST-DEPOSIT 5,896,500 4,587,766
INTEREST-EXPENSE 7,532,471 5,543,472
INTEREST-INCOME-NET 5,916,221 4,559,645
LOAN-LOSSES 400,000 350,000
SECURITIES-GAINS 14,818 (5,582)
EXPENSE-OTHER 3,735,191 2,886,679
INCOME-PRETAX 1,930,957 1,531,097
INCOME-PRE-EXTRAORDINARY 1,930,957 1,531,097
EXTRAORDINARY 0 0
CHANGES 0 0
NET-INCOME 1,340,957 1,095,635
EPS-PRIMARY .51 .42
EPS-DILUTED .49 .40
YIELD-ACTUAL 3.09 3.10
LOANS-NON 497,734 870,961
LOANS-PAST 151,068 211,443
LOANS-TROUBLED 0 0
LOANS-PROBLEM 497,734 870,961
ALLOWANCE-OPEN 960,672 738,313
CHARGE-OFFS 524 127,641
RECOVERIES 0 0
ALLOWANCE-CLOSE 1,360,148 960,672
ALLOWANCE-DOMESTIC 1,360,148 960,672
ALLOWANCE-FOREIGN 0 0
ALLOWANCE-UNALLOCATED 0 0
<PAGE>
ANNEX B
QUARTERLY REPORT AS OF JUNE 30, 1998 OF PREMIER BANCORP, INC.
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934, for the Quarterly Period Ended: June 30, 1998
-------------
Commission file number: 333-34243
---------
PREMIER BANCORP, INC.
----------------------------------------------------------------
(Exact Name of Small Business Issue as Specified In Its Charter)
Pennsylvania 23-2921058
- - ------------------------------- ----------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
379 North Main Street, Doylestown, PA 18901
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 345-5100
--------------
N/A
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
<PAGE>
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 past 12 months (or for such shorter periods that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
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:
2,630,340 shares of Issuer's Common Stock, par value $.33 per share, issued and
outstanding as of July 31, 1998.
Transitional Small business Disclosure format: YES NO X
--- ---
<PAGE>
PART I
Item 1 -- Financial Statements
PREMIER BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------- -----------------
(Unaudited)
<S> <C> <C>
Assets
Cash and due from banks $ 3,907,790 $ 4,307,164
Federal funds sold 5,107,000 --
Interest-bearing deposit 69,479 85,823
Investment securities:
Held to maturity
(fair value $11,677,261 in 1998
and $15,099,965 in 1997) 11,672,126 15,169,638
Available for sale
(amortized cost of $62,613,700 in
1998 and $62,355,084 in 1997) 62,729,666 62,434,137
Loans held for sale 602,098 197,944
Loans receivable (net of allowance for
loan losses of $1,540,719
in 1998 and $1,360,148 in 1997) 119,404,491 107,172,526
Accrued interest receivable 1,486,267 1,451,899
Premises and equipment 1,150,666 1,174,769
Real estate owned 807,460 638,286
Deferred taxes 392,356 404,906
Other assets 381,194 486,348
------------ ------------
Total assets $207,710,593 $193,523,440
============ ============
Liabilities and shareholders' equity
Deposits $172,051,448 $143,603,202
Borrowings 19,744,318 34,842,740
Accrued interest payable 1,886,971 1,346,123
Other liabilities 1,308,576 1,797,538
Subordinated debt 1,500,000 1,500,000
------------ ------------
Total liabilities 196,491,313 183,089,603
Shareholders' equity
Common stock- $0.33 par value;
30,000,000 shares authorized;
2,630,340 shares issued and
outstanding in 1998 and 1997 876,780 876,780
Additional paid-in capital 7,120,001 7,120,001
Retained earnings 3,145,961 2,384,881
Accumulated other comprehensive income 76,538 52,175
----------- ------------
Total shareholders' equity 11,219,280 10,433,837
------------ ------------
Total liabilities and shareholders'
equity $207,710,593 $193,523,440
============ ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
2
<PAGE>
PREMIER BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30, ended June 30,
1998 1997 1998 1997
----------- --------- --------- ---------
<S> <C> <C> <C> <C>
Interest income:
Loans $2,671,677 $2,103,777 $5,171,149 $4,011,572
Federal funds
sold and interest
bearing deposits 70,138 28,350 109,883 37,227
Investments:
Taxable 1,031,452 1,032,378 2,105,590 2,125,771
Tax-exempt 133,565 69,390 252,367 69,390
---------- ---------- ---------- ----------
Total interest
income 3,906,832 3,233,895 7,638,989 6,243,960
---------- ---------- ---------- ----------
Interest expense:
Deposits 1,875,693 1,395,509 3,539,896 2,709,965
Borrowings 301,081 403,247 726,238 762,367
---------- ---------- ---------- ----------
Total interest
expense 2,176,774 1,798,756 4,266,134 3,472,332
---------- ---------- ---------- ----------
Net interest
income 1,730,058 1,435,139 3,372,855 2,771,628
Provision
for loan losses 121,000 100,000 235,000 175,000
---------- ---------- ---------- ----------
Net interest
income after
loan loss
provision 1,609,058 1,335,139 3,137,855 2,596,628
<PAGE>
Non-interest income:
Service charges
and other fees 47,530 33,228 90,944 69,529
(Loss) gain,
net, on sale
of investment
securities
available for
sale (32,910) 4,186 (5,704) 7,744
Gain on sale
of loans held
for sale 15,987 -- 21,324 --
---------- ---------- ---------- ----------
Total non-interest
income 30,607 37,414 106,564 77,273
Non-interest expense:
Salaries and
employee benefits 501,872 414,346 1,050,886 818,079
Occupancy 100,734 99,171 199,378 201,897
Data processing 120,659 92,448 212,452 187,824
Professional
services 70,673 65,180 139,770 128,462
Marketing 39,000 60,000 99,082 111,340
Other 226,352 202,871 406,271 359,358
---------- ---------- ---------- ----------
Total
non-interest
expense 1,059,290 934,016 2,107,839 1,806,960
---------- ---------- ---------- ----------
Income
before
income tax 580,375 438,537 1,136,580 866,941
Income tax
expense 194,000 145,000 375,500 280,000
---------- ---------- ---------- ----------
Net income $ 386,375 $ 293,537 $ 761,080 $ 586,941
========== ========== ========== ==========
Earnings per share:
Basic $ 0.15 $ 0.11 $ 0.29 $ 0.23
Diluted 0.13 0.11 0.26 0.21
Weighted average number of shares outstanding:
Basic 2,630,340 2,604,303 2,630,340 2,604,303
Diluted 2,913,403 2,749,351 2,908,341 2,733,633
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
PREMIER BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the six months ended June 30. 1998 1997
- ---------------------------------- ---- ----
Operating activities:
<S> <C> <C>
Net income $ 761,080 $ 586,941
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation expense 110,399 77,065
Provision for loan losses 235,000 175,000
Amortization of organization cost -- 24,000
Amortization of premiums and discounts
on investment
securities held to maturity 7,985 8,424
Amortization of premiums and
discounts on investment
securities available for sale 95,551 101,235
Loss (gain) on sale of securities
available for sale 5,704 (7,745)
Gain on sale of loans held for sale (21,324) --
Originations of loans held for sale (3,299,600) --
Proceeds from sale of loans held for sale 2,916,770 --
Increase in accrued interest receivable (34,368) (150,110)
(Decrease) increase in other assets 105,154 (109,374)
Increase in deferred loan fees 41,314 53,354
Increase in accrued interest payable 540,848 346,631
(Decrease) increase in other liabilities (488,961) 2,169,627
------------ -------------
Net cash provided by operating activities 975,552 3,275,048
------------ -------------
<PAGE>
Investing activities:
Proceeds from sale of securities
available for sale 59,131,300 12,294,226
Repayment on securities available for sale 6,340,398 4,177,826
Purchase of securities available for sale (65,831,569) (22,264,4675)
Repayment on securities held to maturity 4,488,589 340,058
Purchase of securities held to maturity (999,062) --
Net increase in loans receivable (12,758,280) (15,466,025)
Proceeds from sale of real estate owned 80,826 --
Purchases of premises and equipment (86,296) (517,390)
------------ -------------
Net cash used in investing activities (9,634,094) (21,435,772)
------------ -------------
Financing activities:
Net increase in deposits 28,448,246 17,063,688
Net (decrease) increase in
borrowings less than 90 days (20,098,422) 5,443,209
Proceeds from borrowings greater than 90 days 5,000,000 19,000,000
Repayment of borrowings greater than 90 days -- (21,750,000)
Proceeds from subordinated debt -- 1,500,000
------------ -------------
Net cash provided by financing activities 13,349,824 21,256,897
------------ -------------
Increase in cash and cash equivalents 4,691,282 3,096,173
Cash and cash equivalents:
Beginning of period 4,392,987 2,330,389
------------ -------------
End of period $ 9,084,269 $ 5,426,562
============ =============
Composed of:
Cash and due from banks 3,907,790 5,135,485
Federal funds sold 5,107,000 56,000
Interest bearing deposit 69,479 235,077
------------ -------------
Total cash and cash equivalents $ 9,084,269 $ 5,426,562
============ =============
Cash payments for:
Interest expense $ 3,725,287 $ 3,125,701
Taxes 500,000 500,000
Supplemental disclosure of noncash activities:
Change in unrealized net gain on securities
available for sale 24,363 (29,210)
Change in deferred tax asset related to
securities available for sale (12,550) 15,048
Transfer of loans to real estate owned 297,064 963,819
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
PREMIER BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization
Premier Bancorp, Inc. (the "Company") was incorporated under the laws
of the Commonwealth of Pennsylvania on July 15, 1997. It was reorganized as a
registered one-bank holding company of Premier Bank (the "Bank") on November 17,
1997. The principal business of the Company through the Bank, is commercial
banking and consists of, among other things, attracting deposits from the
general public and using these funds in making loans secured by real estate,
commercial loans, and consumer loans, and purchasing investment securities. The
Bank was organized in 1990 as a Pennsylvania state-chartered banking institution
and commenced operations on April 24, 1992. The Bank is a member of the Federal
Reserve System. The Bank's deposits are insured by the Federal Deposit Insurance
Corporation.
<PAGE>
2. Basis of Financial Statement Presentation
The accompanying unaudited consolidated financial statements were
prepared in accordance with instructions for quarterly reports on Form 10-QSB
and, therefore, do not include information or footnotes necessary for a complete
presentation of financial condition, results of operations, shareholders' equity
and cash flows in conformity with generally accepted accounting principles.
However, the financial statements reflect all adjustments, which in the opinion
of management are necessary for fair statement of financial results and that all
adjustments are of a normal recurring nature. The results of operations for the
three and six months ended June 30, 1998 and 1997 are not necessarily indicative
of the results, which may be expected for the entire fiscal year.
3. Principles of Consolidation
The consolidated financial statements include the accounts of Premier
Bancorp, Inc. and its wholly owned subsidiary, Premier Bank. All material
intercompany balances and transactions have been eliminated.
4. Use of Estimates
In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from such estimates. Material estimates that are particularly
susceptible to significant change in the near term include the determination of
the allowance for loan losses.
5. Earnings Per Share
Earnings per share was calculated in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share". Basic
earnings per share was calculated on the basis of weighted average number of
shares after giving retroactive effect to the three-to-one stock split
distributed on December 31, 1997. Options to purchase 677,349 and 662,169 shares
of common stock were outstanding at June 30, 1998 and 1997, respectively. The
dilutive effect of such options using the treasury stock method was included in
the computation of diluted earnings per share.
<PAGE>
5
PREMIER BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
5. Earnings Per Share (continued)
The following is a reconciliation of the numerators and denominators of
the basic and diluted earnings per share calculations.
<TABLE>
<CAPTION>
For the three months ended June 30, 1998
----------------------------------------
Per share
Net income Shares Amount
---------- --------- ---------
<S> <C> <C> <C>
Basic earnings per share $ 386,375 2,630,340 0.15
Effect of dilutive stock options -- 283,063 (0.02)
---------- --------- ---------
Diluted earnings per share $ 386,375 2,913,403 0.13
========== ========= =========
For the three months ended June 30, 1997
----------------------------------------
Per share
Net income Shares Amount
---------- --------- ---------
Basic earnings per share $ 293,537 2,604,303 0.11
Effect of dilutive stock options -- 145,048 --
---------- --------- ---------
Diluted earnings per share 293,537 2,749,351 0.11
========== ========= =========
<PAGE>
For the six months ended June 30, 1998
--------------------------------------
Per share
Net income Shares Amount
---------- --------- ---------
Basic earnings per share $ 761,080 2,630,340 0.29
Effect of dilutive stock options -- 278,001 (0.03)
---------- --------- ---------
Diluted earnings per share 761,080 2,908,341 0.26
========== ========= =========
For the six months ended June 30, 1997
--------------------------------------
Per share
Net income Shares Amount
---------- --------- ---------
Basic earnings per share $ 586,941 2,604,303 0.23
Effect of dilutive stock options -- 129,330 (0.02)
---------- --------- ---------
Diluted earnings per share $ 586,941 2,733,633 0.21
========== ========= =========
</TABLE>
6
<PAGE>
PREMIER BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
6. Comprehensive Income
On January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income". The following table displays net income and the
components of other comprehensive income to arrive at total comprehensive
income. For the Company, the only component of other comprehensive income is the
change in the fair value of investment securities available for sale.
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30, ended June 30,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income $386,375 $293,537 $761,080 $586,941
-------- -------- -------- --------
Other comprehensive
income, net of tax:
Unrealized gains
on securities:
Unrealized holding
gains (losses)
during the
period 51,872 181,940 20,598 (24,098)
Less:
Reclassification
adjustment for gains
(losses)included
in net income 21,721 (2,763) 3,765 (5,112)
-------- -------- -------- --------
Other
comprehensive
income 73,593 179,177 24,363 (29,210)
-------- -------- -------- --------
Comprehensive
income $459,968 $472,714 $785,443 $557,731
======== ======== ======== ========
</TABLE>
<PAGE>
7. Capital Securities
On August 11, 1998, the Company issued $10.0 million of 8.57% Capital
Securities due August 15, 2028. The Capital Securities were issued by the
Company's recently formed subsidiary, PBI Capital Trust (the "Trust"), a
statutory business trust created under the laws of Delaware. The Company is the
sole owner of the Trust. The Trust will use the proceeds from the Capital
Securities to acquire $10.0 million in 8.57% Junior Subordinated Deferrable
Interest Debentures to be issued by the Company. The Junior Subordinated
Debentures will be the sole assets of the Trust, and payments under the Junior
Subordinated Debentures will be the sole revenue of the Trust. The Company plans
to use the proceeds from the sale of the Junior Subordinated Debentures for
general corporate purposes, including, but not limited to, investments in and
advances to its subsidiary, Premier Bank, repurchases of common stock of the
Company, branch expansion, the purchase of certain branch facilities being
leased and funding loans. Proceeds from the Capital Securities will provide the
Company with additional Tier I and Tier II capital.
7
<PAGE>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
Premier Bancorp, Inc. (the "Company") is a Pennsylvania business
corporation and registered bank holding company headquartered in Doylestown,
Bucks County, Pennsylvania. The Company was incorporated on July 15, 1997 and
reorganized on November 17, 1997 at the direction of the Board of Directors of
Premier Bank as a one-bank holding company of Premier Bank (the "Bank").
Currently the primary business of the Company is the operation of its wholly
owned subsidiary, Premier Bank.
Premier Bank is a Pennsylvania chartered commercial bank and member of the
Federal Reserve Bank of Philadelphia. The Bank's deposits are insured by the
Federal Deposit Insurance Corporation. The Bank was organized in 1990 and
started operations on April 24, 1992. The Bank's principal business has been,
and continues to be, gathering deposits from customers within its market area,
and investing those deposits, primarily in loans, mortgage-backed securities,
corporate bonds, and obligations of U.S. government agencies and government
sponsored entities. The Bank's revenues are derived principally from interest on
its loan and securities portfolios. The Bank's primary sources of funds are:
deposits, repayments, prepayments and maturities of loans, repayments,
prepayments and maturities of mortgage-backed and investment securities and
borrowed funds. The Bank currently has three full service Pennsylvania banking
offices: Doylestown, Easton, and Southampton. The Bank also has a loan
production office in Yardley, Pennsylvania. The Bank faces significant
competition from other financial services companies, many of which are larger
organizations with more resources and locations than the Bank.
The following is management's discussion and analysis of the significant
changes in the results of operations, capital resources and liquidity presented
in the accompanying consolidated financial statements for Premier Bancorp, Inc.
and its wholly owned subsidiary, Premier Bank. The Company's consolidated
financial condition and results of operations consist almost entirely of the
Bank's financial condition and results of operations. Such financial condition
and results of operations are not intended to be indicative of future
performance. This discussion should be read in conjunction with the 1997 Annual
Report.
In addition to historical information, this report for the three and
six months ended June 30, 1998 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. Readers are cautioned not to place
undue reliance on these forward-looking statements, which reflect management's
analysis only as of the date hereof. The Company undertakes no obligation to
publicly revise or update these forward-looking statements to reflect events or
circumstances that arise after the date hereof. Readers should carefully review
the risk factors described in other documents the Company files from time to
time with the Securities and Exchange Commission, including the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1997, Quarterly Reports on
<PAGE>
Form 10-QSB filed by the Company in 1998, and any Current Reports on Form 8-K
filed by the Company.
Management Strategy
The Bank's primary strategy for 1998 and beyond is to increase its loan
and deposit market shares in the communities it serves and to expand its branch
network to new markets as deemed appropriate. The Bank plans to open its fourth
branch location in Lower Makefield Township, Bucks County, Pennsylvania (the
"Yardley branch") by year end 1998.
8
<PAGE>
The following table sets forth, for the periods indicated, certain key balance
sheet amounts and their corresponding earnings/expenses and rates.
Average Balances, Rates and Interest Income and Expense Summary
<TABLE>
<CAPTION>
For the three months ended June 30, 1998
----------------------------------
Average Average
Balance Interest Rate
--------- --------- --------
<S> <C> <C> <C>
Assets
Interest bearing deposits $ 383,441 4,937 5.16%
Federal funds sold 4,918,473 65,201 5.32%
Investment securities available
for sale
Taxable 50,602,401 831,025 6.59%
Tax-exempt (1) 10,254,543 133,566 5.22%
Investment securities held to maturity 12,084,748 200,426 6.65%
------------ ---------- ----
Total investment securities 72,941,692 1,165,017 6.41%
Loans, net of unearned income (2) 117,810,689 2,671,677 9.10%
----------- ---------- ----
<PAGE>
Total earning assets 196,054,295 3,906,832 7.99%
Cash and due from banks 3,252,296
Allowance for loan losses (1,480,866)
Other assets 5,082,746
------------
Total assets $202,908,471
============
Liabilities and shareholders equity
Interest checking 12,738,288 81,996 2.58%
Money market deposit accounts 1,696,960 10,794 2.55%
Savings accounts 49,421,696 475,280 3.86%
Time deposits 90,657,426 1,307,623 5.79%
------------ --------- ----
Total interest bearing deposits 154,514,370 1,875,693 4.87%
Short-term borrowings 5,210,926 69,003 5.31%
Long-term borrowings 15,000,000 202,693 5.42%
Subordinated debt 1,500,000 29,385 7.86%
------------ --------- ----
Total interest bearing liabilities 176,225,296 2,176,774 4.95%
Non interest bearing deposits 12,682,422
Other liabilities 3,135,636
Shareholders' equity 10,865,117
------------
Total liabilities and shareholders'
equity $202,908,471
============
Net interest income/rate spread 1,730,058 3.04%
========= ====
Net interest margin 3.42%
Average interest earning assets
as a percentage of average interest
bearing liabilities 111.25%
For the three months ended June 30, 1997
-----------------------------------
Average Average
Balance Interest Rate
--------- --------- --------
<S> <C> <C> <C>
Assets
Interest bearing deposits $ 305,171 3,978 5.23%
Federal funds sold 1,768,593 24,372 5.53%
Investment securities available
for sale
Taxable 46,812,838 809,229 6.93%
Tax-exempt (1) 4,147,892 57,909 5.60%
Investment securities held to maturity 13,902,302 234,630 6.77%
------------ --------- ----
Total investment securities 64,863,032 1,101,768 6.81%
Loans, net of unearned income (2) 92,155,692 2,103,777 9.16%
------------ --------- ----
Total earning assets 159,092,488 3,233,895 8.15%
Cash and due from banks 2,951,003
Allowance for loan losses (1,083,639)
Other assets 4,150,055
------------
Total assets $165,109,907
============
Liabilities and shareholders equity
Interest checking $ 8,527,521 53,844 2.53%
Money market deposit accounts 1,289,081 7,940 2.47%
Savings accounts 41,247,134 397,581 3.87%
Time deposits 65,937,547 936,144 5.69%
------------ --------- ----
Total interest bearing deposits 117,001,283 1,395,509 4.78%
Short-term borrowings 26,103,234 372,876 5.73%
Long-term borrowings -- -- --
Subordinated debt 1,500,000 30,371 8 12%
------------ --------- ----
Total interest bearing liabilities 144,604,517 1,798,756 4.99%
Non interest bearing deposits 9,178,843
Other liabilities 240,278
Shareholders' equity 9,086,269
------------
Total liabilities and shareholders'
equity $165,109,907
============
Net interest income/rate spread 1,435,139 3.16%
========= ====
Net interest margin 3.49%
Average interest earning assets as a percentage 110.02%
of average interest bearing liabilities
</TABLE>
- -----------------------------
(1) Interest income on tax-exempt investment securities has not been presented
on a tax equivalent basis.
(2) Includes non-accrual loans of $180,701 and $506,107 on average for the three
months ended June 30, 1998 and 1997.
9
<PAGE>
The following table sets forth, for the periods indicated, certain key average
balance sheet amounts and their corresponding earnings/expenses and rates.
Average Balances, Rates and Interest Income and Expense Summary
<TABLE>
<CAPTION>
For the six months ended June 30, 1998
-----------------------------------
Average Average
Balance Interest Rate
--------- --------- -------
<S> <C> <C> <C>
Assets
Interest bearing deposits $ 335,041 6,202 3.73%
Federal funds sold 3,855,829 103,681 5.42%
Investment securities available for sale
Taxable 50,347,675 1,654,240 6.63%
Tax-exempt (1) 9,664,345 252,369 5.27%
Investment securities held to maturity 13,483,820 451,348 6.75%
------------ --------- ----
Total investment securities 73,495,840 2,357,957 6.47%
Loans, net of unearned income (2) 113,942,432 5,171,149 9.15%
------------ --------- ----
Total earning assets 191,629,142 7,638,989 8.04%
Cash and due from banks 3,412,765
Allowance for loan losses (1,445,291)
Other assets 4,965,388
------------
Total assets $198,562,004
============
Liabilities and shareholders' equity
Interest checking $ 11,981,808 153,690 2.59%
Money market deposit accounts 1,731,432 21,877 2.55%
Savings accounts 47,740,588 916,695 3.87%
Time deposits 85,228,578 2,447,644 5.79%
------------ --------- ----
Total interest bearing deposits 146,682,406 3,539,896 4.87%
Short-term borrowings 9,869,937 264,544 5.41%
Long-term borrowings 15,000,000 40,159 5.42%
Subordinated debt 1,500,000 58,535 7.87%
------------ --------- ----
Total interest bearing liabilities 173,052,343 4,266,134 4.97%
<PAGE>
Non interest bearing deposits 11,928,856
Other liabilities 2,902,645
Shareholders' equity 10,678,160
------------
Total liabilities and shareholders' equity $198,562,004
============
Net interest income/rate spread 3,372,855 3.07%
========= =====
Net interest margin 3.43%
Average interest earning assets as a
percentage of average interest bearing
liabilities 110.73%
<CAPTION>
For the six months ended June 30, 1997
-----------------------------------
Average Average
Balance Interest Rate
--------- --------- -------
<S> <C> <C> <C> <C> <C>
Assets
Interest bearing deposits $ 271,227 6,411 4.77
Federal funds sold 1,138,315 30,816 5.46
Investment securities available for sale
Taxable 46,536,955 1,595,783 6.91
Tax-exempt (1) 4,558,081 127,299 5.63
Investment securities held to maturity 14,046,837 472,079 6.78
----------- --------- -----
Total investment securities 65,141,873 2,195,161 6.80
Loans, net of unearned income (2) 88,113,044 4,011,572 9.18
------------ --------- -----
Total earning assets 154,664,459 6,243,960 8.14
Cash and due from banks 2,526,167
Allowance for loan losses (1,041,694)
Other assets 3,934,309
------------
Total assets $160,083,241
============
Liabilities and shareholders' equity
Interest checking $ 7,926,052 98,703 2.51
Money market deposit accounts 1,283,456 15,914 2.50
Savings accounts 41,372,136 810,990 3.95
Time deposits 63,363,690 1,784,358 5.68
------------ --------- -----
Total interest bearing deposits 113,945,334 2,709,965 4.80
Short-term borrowings 24,925,369 704,628 5.70
Long-term borrowings -- -- --
Subordinated debt 1,433,702 57,739 8.12
------------ --------- -----
Total interest bearing liabilities 140,304,405 3,472,332 4.99
Non interest bearing deposits 8,506,962
Other liabilities 2,262,591
Shareholders' equity 9,009,283
------------
Total liabilities and shareholders' equity $160,083,241
============
Net Interest income/rate spread 2,771,628 3.15
========= =====
Net interest margin 3.49
Average interest earning assets as a
percentage of average interest bearing
liabilities 110.23%
- ------------------------
(1) Interest income on tax-exempt investment securities has not been presented
on a tax equivalent basis.
(2) Includes non-accrual loans of $231,640 and $524,712 on average for the six
months ended June 30, 1998 and 1997.
</TABLE>
10
<PAGE>
Results of Operations
For the three months ended June 30, 1998, the Company reported net income
of $386,375 or $.13 diluted earnings per share. This represents an increase of
$92,838 or 31.6% from the $293,537 or $.11 diluted earnings per share reported
for the same period in 1997. Net interest income and non-interest expenses were
higher in 1998 and reflect the overall growth of the institution. The provision
for loan losses was $121,000 in 1998 in comparison with $100,000 for 1997.
Non-interest income totaled $30,607, a decrease of $6,807 from the $37,414
earned in 1997. The decrease in non-interest income is primarily due to $32,910
in losses on the sale of investment securities available for sale in 1998 as
compared to gains of $4,186 in 1997. The losses on the sale of investment
<PAGE>
securities available for sale in 1998 were partially offset by $15,987 in gains
of the sale of loans held for sale and a $14,302 increase in service charges and
other fees. Non-interest expense amounted to $1,059,290 for 1998, a $125,274
increase over the $934,016 reported in 1997. Salaries and benefits increased
$87,526 in 1998 in conjunction with the overall growth of the institution.
For the six months ended June 30, 1998, the Company reported net income of
$761,080 or $.26 diluted earnings per share. This represents an increase of
$174,139 or 29.7% from the $586,941 or $.21 diluted earnings per share reported
for the same period in 1997. Net interest income, non-interest income and
non-interest expenses were higher in 1998 and reflect the overall growth of the
institution. The provision for loan losses was $235,000 in 1998 in comparison
with $175,000 for 1997. Non-interest income totaled $106,564; an increase of
$29,291 from the $77,273 earned in 1997. The increase in non-interest income is
primarily due to gains on the sale of loans held for sale and higher service
charges in 1998. Non-interest expense amounted to $2,107,839 for 1998, a
$300,879 increase over the $1,806,960 reported in 1997. Salaries and benefits
increased $232,807 in 1998 due to the addition of new lending and operations
personnel.
Net interest income
Historically, the Company's earnings have depended primarily upon the
Bank's net interest income, which is the difference between interest earned on
interest-earning assets and interest paid on interest-bearing liabilities.
Interest rates received and paid on loans and deposit products are heavily
influenced by the overall interest rate environment and by competition.
The net interest rate spread is the difference between average rates
received on interest-earning assets and average rates paid on interest-bearing
liabilities. Net interest margin is net interest income divided by average
assets.
For the three months ended June 30, 1998, net interest income was $294,919
higher than the same period in 1997. This increase was primarily a function of
asset growth. Average earning assets grew $36,961,807 with a 16 basis point
decrease in rate. Average investments and average loans increased $8,078,660 and
$25,654,997, respectively. The average yield on investments and average yield on
loans dropped 40 basis points and 6 basis points, respectively. The overall rate
<PAGE>
paid on interest bearing liabilities improved 4 basis points. While deposit
costs were higher in 1998, the rate on borrowings improved. Average interest
bearing deposits increased $37,513,087 combined with a 9 basis point increase in
rate. Approximately two thirds of this deposit growth was concentrated in higher
costing time deposits. Non-interest bearing deposits increased $3,503,579 or
38.2%. Average borrowings decreased $5,892,308 with a rate decrease of 30 basis
points.
For the six months ended June 30, 1998, net interest income was $601,227 or
21.7% higher than the same period in 1997. This increase was primarily a
function of asset growth as average earning assets grew $36,964,683 with a 10
basis point decrease in rate. Average investments and average loans increased
$8,353,967 and $25,829,388, respectively. The average yield on investments and
average yield on loans dropped 33 basis points and 3 basis points, respectively.
The overall rate paid on interest bearing liabilities
11
<PAGE>
improved 2 basis points. While deposit costs were higher in 1998 the rate on
borrowings improved. Average interest bearing deposits increased $32,737,072
combined with a 7 basis point increase in rate, as most of the growth was
concentrated in higher costing time deposits. Non-interest bearing deposits
increased $3,421,894 or 40.2%. Average borrowings were relatively flat while the
rate decreased 28 basis points.
Capital Adequacy
At June 30, 1998, management believes that the Company was in compliance
with all applicable regulatory requirements to be classified as "well
capitalized" pursuant to FDIC regulations. The Company plans to remain well
capitalized and manages the Bank accordingly. On August 11, 1998, $10.0 million
in Capital Securities were issued by the Company's recently formed subsidiary,
PBI Capital Trust. Proceeds from the Capital Securities will provide the Company
with additional Tier I and Tier II capital.
<PAGE>
The Company's total risked-based capital decreased from 10.97% as of
December 31, 1997 to 10.39% as of June 30, 1998. The decrease in the total risk
based capital-to-risk weighted assets ratio was attributable to a larger
concentration of assets in the 100% risk-weighted category. The majority of
loans originated continue to be secured by commercial property, which require a
100% risk-weighting. In addition, $10.0 million in corporate bonds were added to
the investment portfolio in 1998. Corporate bonds require a 100% risk-weighting.
The Company's Tier I-to-risk-weighted assets ratio decreased from 8.60% at
December 31, 1997 to 8.16% at June 30, 1998 for the same reasons as mentioned
above.
The Company's Tier I-to-average assets ratio of 5.49% at June 30, 1998 was
relatively unchanged from 5.51% at December 31, 1997.
The Bank is subject to similar capital requirements. At June 30, 1998 the
Bank's capital exceeded all regulatory requirements and the Bank remains
classified as "well capitalized".
<PAGE>
Capital Components
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------- -----------------
<S> <C> <C>
Tier I
Shareholders' equity $ 11,153,298 10,328,646
Net unrealized security gains (76,538) (52,175)
------------ -----------
Total Tier I Capital $ 11,076,760 10,276,471
============ ===========
Tier II
Allowable portion of the allowance
for loan losses $ 1,540,719 1,360,148
Allowable portion of subordinated debt 1,500,000 1,500,000
------------ -----------
Total Tier II Capital $ 3,040,719 2,860,148
============ ===========
Total Capital $ 14,117,479 13,136,619
Risk-weighted assets 136,489,000 120,736,000
</TABLE>
12
<PAGE>
The table below depicts the Bank's capital components and ratios along with
the "adequately" and "well" capitalized criteria as defined by the regulators.
Capital Ratios
<TABLE>
<CAPTION>
Actual Actual "Adequately" "Well"
June 30, 1998 December 31, 1997 Capitalized Capitalized
------------- ----------------- ------------ -----------
<S> <C> <C> <C> <C>
Total risk-based
capital/
risk-weighted
asset 10.33% 10.88% 8.00% 10.00%
Tier I
capital/
risk-weighted
asset 8.10% 8.51% 4.00% 6.00%
Tier I
capital/average
asset (leverage
ratio) 5.46% 5.45% 4.00% 5.00%
</TABLE>
Liquidity
Liquidity represents an institution's ability to generate cash or otherwise
obtain funds at reasonable rates to satisfy commitments to borrowers and demands
of depositors. The Company's primary sources of funds are deposits, proceeds
from principal and interest payments on loans, mortgage-backed securities and
investments, and borrowings. While maturities and scheduled amortization of
loans and investments are a predictable source of funds, deposit flows, loan
prepayments and mortgage-backed securities prepayments are influenced by
interest rates, economic conditions and competition.
The Bank's primary asset deployment activities are the origination of loans
secured by real estate, and the purchase of mortgage-backed and other
securities. During the six months ended June 30, 1998, the Bank's loan portfolio
grew $12,758,843 as compared to an increase of $15,466,025 for the same period
in 1997. Purchases of mortgage-backed and other securities totaled $66,830,631
for the six months ended June 30, 1998 as compared to $22,264,467 for the six
months ended June 30, 1997. These activities were funded primarily by deposit
growth and borrowings, principal repayments on loans and mortgage-backed
securities and by sales and calls of investments. Proceeds from the sale of
investment securities totaled $59,131,300 and $12,294,226 for the six months
ended June 30, 1998 and June 30, 1997, respectively. The Bank sold $41,967,104
in mortgage-backed securities in 1998 in reaction to higher than expected
<PAGE>
prepayments caused by generally lower and falling interest rates. Principal
repayments on mortgage-backed securities totaled $6,828,987 for the six months
ended June 30, 1998 and $4,517,884 for the six months ended June 30, 1997.
Investment securities which were called and repaid by the issuer totaled
$4,000,000 in 1998. There were no securities called in 1997.
Deposits increased $28,448,246 during the six months ended June 30, 1998 as
compared to $17,063,688 during the same period in 1997. Deposit flows are
affected by the level of interest rates, the interest rates and products offered
by local competitors, and other factors. The Bank offered a premium rate for
nine-month certificates of deposit in February 1998, which accounted for
approximately $11.6 million of the increase in deposits in 1998. An additional
$7.5 million in public funds deposits was raised in May 1998. Borrowings
decreased $15,098,422 during the six months ended June 30, 1998 and increased
$4,193,209 during the six months ended June 30, 1997. In January 1997, the Bank
issued $1,500,000 in subordinated debt to supplement its Tier II and total
capital ratios in order to remain "well capitalized". The subordinated debt
matures on January 12, 2012 but can be prepaid.
The Bank monitors it liquidity position on a daily basis. Excess short-term
liquidity is invested in overnight federal funds sales through its correspondent
bank, Atlantic Central Bankers Bank. Conversely, overnight federal funds may be
purchased to satisfy daily liquidity needs. Additional sources of funds are
available through use of one of the following: $2,000,000 unsecured federal
funds line of credit with Atlantic Central Bankers Bank or, the Bank's
$56,434,000 borrowing limit at the Federal Home Loan Bank of Pittsburgh (the
"FHLB"). The Bank could also sell or borrow against investment securities. At
June 30, 1998, the Bank had $15,000,000 in borrowings outstanding at the FHLB.
13
<PAGE>
Investment Securities
Investment securities are classified at the time of purchase by one of
three purposes: trading, available for sale (AFS) or held to maturity (HTM). To
date the Bank has not purchased any securities for trading purposes. The Bank
usually classifies securities, in particular mortgage-backed securities, as AFS
to provide management the flexibility to sell certain securities and adjust its
balance sheet in response to capital needs and/or changes in market conditions.
The carrying values for AFS and HTM securities were $62,729,666 and $11,672,126,
respectively, as of June 30, 1998. During the first half of 1998, management
sold certain mortgage-backed securities in reaction to higher than expected
prepayments. Proceeds from the 1998 security sales were $59,131,300 with net
losses of $5,704 recorded. Investment purchases totaled $66,830,631 and were
concentrated in fixed rate GNMA securities and variable rate corporate bonds.
<TABLE>
<CAPTION>
June 30, 1998
-----------------------------------------------------
Held to Maturity Available for Sale
------------------------- ------------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
----------- ---------- ------------------------
<S> <C> <C> <C> <C>
U.S. government
agency obligations $ 8,986,156 9,006,880 -- --
Mortgage-backed securities 2,685,970 2,670,381 39,981,747 39,989,258
State and municipal
securities -- -- 10,539,130 10,624,418
Corporate bonds -- -- 9,947,773 9,957,940
Equity securities -- -- 2,030,050 2,043,050
Other debt securities -- -- 115,000 115,000
----------- ---------- ---------- ----------
Total $11,672,126 11,677,261 62,613,700 62,729,666
=========== ========== ========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
December 31, 1997
-----------------------------------------------------
Held to Maturity Available for Sale
------------------------- ------------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
----------- ---------- ------------------------
<S> <C> <C> <C> <C>
U.S. government agency
obligations $11,985,870 11,956,250 -- --
Mortgage-backed
securities 3,183,768 3,143,715 50,131,927 50,121,230
State and municipal
securities -- -- 10,326,107 10,402,857
Equity securities -- -- 1,780,050 1,793,050
Other debt securities -- -- 117,000 117,000
----------- ---------- ---------- ----------
Total $15,169,638 15,099,965 62,355,084 62,434,137
=========== ========== ========== ==========
</TABLE>
14
<PAGE>
Loans
Loans are the most significant components of earning assets. Inherent with
the lending function is the evaluation and acceptance of credit risk and
interest rate risk along with the opportunity cost of alternative deployment of
funds. The Company manages credit risk associated with its lending activities
through portfolio diversification, underwriting policies and procedures, and
loan monitoring practices. Commercial lending activity continues to be focused
on small businesses and professionals within the local community. More than 90%
of the loan portfolio is collateralized at least in part by real estate as shown
by the following table:
<PAGE>
<TABLE>
<CAPTION>
June 30, 1998 % of Total December 31, 1997 % of Total
------------- ---------- ----------------- ----------
<S> <C> <C> <C> <C>
Real estate
- -farmland $ 500,000 0.41% 500,000 0.46%
Real estate
- -construction 1,471,760 1.21% 1,188,288 1.09%
Real estate
- -residential 23,064,494 19.01% 22,965,889 21.10%
Real estate
- -multifamily 3,767,739 3.11% 1,948,943 1.79%
Real estate
- -commercial 80,316,423 66.21% 72,372,260 66.48%
Consumer 974,369 0.80% 797,671 0.73%
Commercial 11,216,574 9.25% 9,084,458 8.35%
------------ ====== ------------ ------
Total Loans $121,311,359 100.00% 108,857,509 100.00%
Unearned income 366,149 ====== 324,835 ======
Allowance for
loan losses 1,540,719 1,360,148
------------ ------------
Total loans, net $119,404,491 107,172,526
============ ============
</TABLE>
The Bank's real estate portfolio, which is concentrated primarily within
the greater Lehigh and Delaware Valleys (Eastern Pennsylvania), is subject to
risks associated with the local economy.
Allowance for Loan Losses
The allowance for loan losses is determined and calculated based on
specific loans or loan categories. Each loan is assigned a specific loan loss
reserve using a scoring system. This scoring system takes into consideration
collateral type and value, loan to value ratios, the borrower's risk rating,
delinquency, general economic conditions and other factors. Borrowers risk
ratings are determined by loan officers at the inception of each loan and are
subject to on-going analysis and update. Homogeneous loans, comprised primarily
of home equity and non-real estate secured consumer loans, are analyzed in the
aggregate. Since the Bank is only six years old with a limited history for loan
<PAGE>
losses, management also uses peer group analysis to gauge the overall
reasonableness of its loan loss reserves. While management believes that its
allowance is considered adequate to cover losses in the loan portfolio, there
remain inherent uncertainties regarding future economic events and their
potential impact on asset quality.
In addition, regulatory authorities, as an integral part of their
examinations, periodically review the allowance for loan losses. They may
require additions to the allowance based upon their judgements about information
available to them at the time of examination.
At June 30, 1998, the Bank had $1,540,719 in its allowance for loan losses,
representing 1.27% of outstanding loans receivable as compared to 1.25% and
1.16% at December 31, 1997 and June 30, 1997, respectively.
15
<PAGE>
The following table sets forth the activity in the allowance for loan losses and
certain key ratios for the periods indicated.
<TABLE>
<CAPTION>
For the Six For the Year Ended For the Six
Months Ended December 31, Months Ended
June 30, 1998 1997 June 30, 1997
------------- ------------------ -------------
<S> <C> <C> <C>
Balance at beginning
of period $ 1,360,148 $ 960,672 $ 960,672
Charge-offs
Real estate -
residential 47,064 -- --
Consumer installment 7,928 524 --
------------ ------------ -----------
Total charge-offs 54,992 524 --
Recoveries
Consumer installment 563 -- --
------------ ------------ -----------
Net charge-offs 54,429 524 --
Provision for possible
loan losses 235,000 400,000 175,000
------------ ------------ -----------
Balance at end of
period 1,540,719 1,360,148 1,135,672
============ ============ ===========
Total gross loans:
Average 114,325,225 95,403,549 88,336,356
End of period 121,311,359 108,857,509 97,587,192
Ratios:
Net charge-offs to:
Average loans 0.05% -- --
Loans at end of period 0.04% -- --
Allowance for loan losses 3.53% 0.04% --
Provision for loan
losses 23.16% 0.13% --
Allowance for loan losses to:
Total gross loans at
end of period 1.27% 1.25% 1.16%
Non-performing loans 446.91% 209.64% 179.97%
</TABLE>
Charge-offs against the allowance for loan losses in 1998 totaled $54,992 of
which $47,064 related to one loan, which was transferred to real estate owned
during the first quarter of 1998.
16
<PAGE>
Non-Performing Assets
Non-performing assets are defined as accruing loans past due 90 days or
more, non-accruing loans, restructured loans and real estate owned.
Non-performing assets represented .55%, .67% and 1.11% of total assets at June
30, 1998, December 31, 1997 and June 30, 1997, respectively.
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997 June 30, 1997
------------- ----------------- -------------
<S> <C> <C> <C>
Loans past due 90
days or more and accruing
Real estate - residential $ 144,858 $ 146,492 $ 122,827
Consumer installment 956 4,576 3,482
---------- ---------- ----------
Total loans past due 90
days or more and accruing 145,814 151,068 126,309
Loans accounted for on a
non-accrual basis
Real estate - construction -- 299,200 299,200
Real estate - residential 25,000 -- --
Commercial real estate 173,934 191,534 205,542
Consumer installment -- 7,000 --
---------- ---------- ----------
Total non-accrual loans 198,934 497,734 504,742
Real estate owned 807,460 638,286 1,353,072
---------- ---------- ----------
Total non-performing assets $1,152,208 $1,287,088 $1,984,123
========== ========== ==========
Total as a percentage of
total assets 0.55% 0.67% 1.11%
</TABLE>
Total non-accrual loans decreased $298,800 from $497,734 at December 31, 1997 to
$198,934 at June 30, 1998. The decrease relates principally to the transfer of
one loan to real estate owned in January 1998.
<PAGE>
Real estate owned
Real estate owned increased $169,174 from $638,286 at December 31, 1997 to
$807,460 at June 30, 1998. At June 30, 1998, this balance included two
residential properties.
During the first quarter of 1998, the Company foreclosed on a loan secured
by residential property valued at $250,000 and sold an investment property for
$80,826. The loan, which was transferred to real estate owned in 1998, was
reported as non-accrual at December 31, 1997. In connection with the foreclosure
of this loan a $47,064 charge-off against the allowance for loan losses was
recorded. The balance of real estate owned was unchanged during the three months
ended June 30, 1998.
Deposits
The Bank, a traditional community-based bank, is largely dependent upon its
base of competitively priced core deposits to provide a stable funding source.
The Bank has retained and grown its customer base since inception through a
combination of price, quality service, convenience, and a stable and experienced
staff. The Bank primarily attracts deposits from within its market area.
Additional deposit growth will be accomplished through deposit promotions,
business development programs and continued branch expansion. The Bank expects
to open its fourth branch, the Yardley branch, by the end of 1998.
Total deposits as of June 30, 1998 were $172,051,448, representing an
increase of $28,448,246 from deposits of $143,603,202 at December 31, 1997. The
majority of this increase relates to the success of the Company's certificate of
deposit promotion, which was held in the month of February 1998. This promotion,
which offered a premium rate on nine-month certificates of deposits, generated
approximately
17
<PAGE>
$11,600,000 in funds. In addition, $7.5 million in public funds deposits was
raised in May 1998. These public funds mature in $2.5 million increments in
July, September, and December of 1998, respectively. Savings accounts increased
$3,460,047 or 7.6% to $49,011,551 at June 30, 1998 from $45,551,504 at December
31, 1997.
Core deposits, which exclude time deposits greater than $100,000 were
$151,801,309 or 88.23% of total deposits at June 30, 1998. Total time deposits
as of June 30, 1998 were $93,648,069 or 54.43% of total deposits, of which
$21,061,284 mature after one year.
<TABLE>
<CAPTION>
June 30, 1998
----------------------------------------
Weighted
Average
Interest % of
Rate Amount Total
-------- ------------ ------
<S> <C> <C> <C>
Interest checking 2.62% $ 12,637,057 7.35%
Money market 2.58% 1,680,802 0.97%
Savings 3.86% 49,011,551 28.49%
Time 5.79% 93,648,069 54.43%
---- ------------ ------
Total interest bearing deposits 4.90% 156,977,479 91.24%
Non-interest bearing deposits ==== 15,073,969 8.76%
------------ ------
Total deposits $172,051,448 100.00%
============ =======
<CAPTION>
December 31, 1997
----------------------------------------
Weighted
Average
Interest % of
Rate Amount Total
-------- ------------ ------
<S> <C> <C> <C>
Interest checking 2.62% $ 10,847,705 7.56%
Money market 2.57% 1,667,282 1.16%
Savings 3.90% 45,551,504 31.72%
Time 5.66% 73,959,391 51.50%
---- ------------ ------
Total interest bearing deposits 4.76% 132,025,882 91.94%
Non-interest bearing deposits ==== 11,577,320 8.06%
------------ ------
Total deposits $143,603,202 100.00%
============ ====== ============ ======
</TABLE>
<PAGE>
Borrowings
Borrowings decreased $15,098,422 from $34,842,740 at December 31, 1997 to
$19,744,318 at June 30, 1998. Excess liquidity provided by the time deposit
promotion in February 1998 and public funds in May 1998 enabled the Bank to
repay $12,500,000 in Federal Home Loan Bank ("FHLB") borrowings. The remaining
decrease relates to borrowings from customers and overnight fed funds.
<TABLE>
<CAPTION>
June 30, 1998 Dember 31, 1997
----------------------------- --------------------------
Weighted Weighted
Average Average
Amount Rate Amount Rate
----------- -------- ----------- --------
<S> <C> <C> <C> <C>
Short-term:
Securities sold
under agreement
to repurchase (1) $ 4,744,318 4.75% $18,345,740 5.54%
Other -- -- 1,497,000 6.31%
----------- ---- ----------- ----
4,744,318 4.75% 19,842,740 5.59%
----------- ---- ----------- ----
Long-term
Federal Home
Loan Bank
advances (2) 15,000,000 5.42% 15,000,000 5.42%
----------- ---- ----------- ----
Total borrowings $19,744,318 5.26% $34,842,740 5.52%
=========== ==== =========== ====
</TABLE>
(1) At June 30, 1998 securities sold under agreement to repurchase consisted of
$4,744,318 in borrowings from customers which mature overnight. At December 31,
1997 borrowings from the FHLB and customers were $12,500,000 and $5,845,740,
respectively. All borrowings from the FHLB are secured by a blanket lien against
the Bank's assets.
(2) Long-term FHLB advances mature in the year 2002. These advances are subject
to repricing every six months at which time the issuer may convert the borrowing
to a variable rate if current rates are higher. Should the issuer convert the
borrowing, the Company may prepay the debt without penalty.
18
<PAGE>
Loans held for sale
The Bank uses an outside company to originate and sell residential
mortgages on its behalf. The $404,154 increase in loans held for sale from
$197,944 at December 31, 1997 to $602,098 at June 30, 1998 relates to the timing
of loan originations versus their sale. Typically, these loans are sold within
30 days of their settlement.
Other Assets
The $105,154 decrease in other assets from $486,348 at December 31, 1997 to
$381,194 at June 30, 1998 relates primarily to a decrease in principal payments
due on FHLMC mortgage-backed securities as the Company reduced its holdings from
this agency.
Other Liabilities
The $488,962 decrease in other liabilities from $1,797,538 at December 31,
1997 to $1,308,576 at June 30, 1998 relates principally to a decrease in the
Company's own official checking accounts and federal income taxes payable. The
official checking account balance fluctuates daily in relation to when the
account is funded and when checks are presented for payment. Federal income
taxes payable were lower due to the final payment of 1997 taxes and the payment
of 1998 estimated taxes based on quarterly estimates of tax liabilities.
<PAGE>
Non-interest income
Total non-interest income was $30,607 for the three months ended June 30,
1998 as compared to the $37,414 earned for the same period in 1997. The decrease
is principally due to $32,910 in losses on the sale of investment securities
available for sale as compared to gains of $4,186 in 1997. The losses on sales
of investment securities in 1998 were partially offset by $15,987 in gains on
the sale of loans held for sale and a $14,302 increase in service charges and
other fees. During the first half of 1997 the Company was not engaged in the
sale of loans.
Total non-interest income was $106,564 for the six months ended June 30,
1998 as compared to the $77,273 earned for the same period in 1997. The increase
is principally due to $21,324 in gains on the sale of loans held for sale and a
$21,415 increase in service charges and other fees. During 1998 the Bank engaged
an outside company to originate and sell residential mortgages on its behalf.
The Bank was not engaged in the sale of residential mortgages during the six
months ended June 30, 1997.
Non-interest expense
For the three months ended June 30, 1998, non-interest expenses were
$1,059,290 as compared to $934,016 during the same period in 1997. Of this
amount, $501,872, or 47.4%, was attributable to salary and related employee
benefits as compared to $414,346 or 44.4% for the quarter ended June 30, 1997.
The $87,526 increase in salary and related benefits is attributable to the
overall growth of the institution which includes the opening of the Southampton
branch in February 1997 and additions to lending and operations personnel. Data
processing expenses increased $28,211 while marketing was down $21,000. Other
expenses, which consist primarily of furniture and equipment expense, loan and
real estate owned expense, employee travel and entertainment, stationery,
supplies and postage, totaled $226,352 for the three months ended June 30, 1998
as compared to $202,871 during the same period in 1997. Other expense increased
$23,481 due primarily to the growth of the Bank.
For the six months ended June 30, 1998, non-interest expenses were
$2,107,839 as compared to $1,806,960 during the same period in 1997. The
$300,879 increase in non-interest expense is principally due to a $232,807
increase in salary and benefits in conjunction with the overall growth of the
<PAGE>
Bank as mentioned above. Data processing and other expenses increased $24,628
and $46,913, respectively.
19
<PAGE>
Income tax expense
Income tax expense for the quarter ended June 30, 1998 was $194,000 as
compared to $145,000 for the quarter ended June 30, 1997. For the six months
ended June 30, 1998, income tax expense totaled $375,500 as compared to $280,000
for the same period in 1997. The tax provision for the three and six months
ended June 30, 1998 increased due to the increase in income before tax.
Year 2000
The Year 2000 issue creates risk for the Company from unforeseen problems
in its own computer systems and from third parties with whom the Company
transacts business. The impact on the overall economy from failures of other
companies and industries to successfully address this problem nationally and
internationally is unknown.
The Company outsources much of its data processing to third party
processors including all of its deposit and loan accounting functions. These
third party processors are working on the necessary programming changes to
prepare their systems for the Year 2000 and will absorb most of the direct
programming costs. The Company is monitoring the progress of its processors and
plans to test their systems for compliance in late 1998. The Company does not
expect to incur significant incremental direct expenses related to the Year
2000, provided that its third party processors are able to make the necessary
software modifications. Failure of third party computer systems relative to the
Year 2000 would have a material adverse Impact on the Company's ability to
conduct its business. In addition, the Company cannot guarantee that the
inability of its loan customers to adequately address the Year 2000 issue will
not have a material adverse effect on the Company. Costs associated with the
Year 2000 problem are expected to be expensed as incurred in accordance with
generally accepted accounting principles.
<PAGE>
Recent Accounting Pronouncements
Operating Segment Disclosure
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement No. 131, "Disclosures About Segments of an Enterprise and Related
Information". Statement No. 131 establishes standards for the way that public
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. Statement No. 131 is effective for fiscal
years beginning after December 15, 1997. The impact, if any, of this Statement
on the Company would be to require additional disclosures in the Company's
financial statements.
Employers' Disclosure about Pension and Other Postretirement Benefits
In February 1998, the FASB issued Statement No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits" which amends the
disclosure requirements of Statements No. 87, "Employers' Accounting for
Pensions", Statement No. 88 "Employers' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination Benefits," and
Statement No. 106, "Employers' Accounting for Postretirement Benefits Other than
Pensions". Statement No. 132 is applicable to all entities. This Statement
standardizes the disclosure requirements of Statements Nos. 87 and 106 to the
extent practicable and recommends a parallel format for presenting information
about pensions and other postretirement benefits. Statement No. 132 only
addresses disclosure and does not change any of the measurement recognition
provisions of Statement Nos. 87, 88 and 106. This Statement is effective for
fiscal years beginning after December 15, 1997. Restatement of comparative
period disclosures is required unless the information is not readily available,
in which case the notes to the financial statements shall include all available
information and a description of information not available.
20
<PAGE>
The impact, if any, of this Statement on the Company would be to require
additional disclosures in the Company's financial statements.
Derivative Instruments and Hedging Activities
In June 1998, the FASB issued Statement No. 133 "Accounting for Derivative
Instruments and Hedging Activities". This Statement standardizes the accounting
for derivative instruments, including certain derivative instruments imbedded in
other contracts, and those used for hedging activities, by requiring that an
entity recognize those items as assets or liabilities in the statement of
financial position and measure them at fair value. The Statement categorized
derivatives used for hedging purposes as either fair value hedges, cash flow
hedges, foreign currency fair value hedges, foreign currency cash flow hedges,
or hedges of net investments in foreign operations. The Statement generally
provides for matching of gain or loss recognition on the hedging instrument with
the recognition of the changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk, so long as the hedge is
effective. The Statement eliminates the accounting provisions outlined in
Statement 52, "Foreign Currency Translation", related to forward contracts, as
accounting for all foreign currency derivatives will be governed under Statement
No. 133. Prospective application of Statement No. 133 is required for all fiscal
years beginning after June 15, 1999, however earlier application is permitted.
Currently, the Company does not use any derivative instruments nor does it
engage in any hedging activities.
21
<PAGE>
PART 11 -- OTHER INFORMATION
Item 1 -- Legal Proceedings
Management is not aware of any litigation that would have a material adverse
effect on the consolidated financial position of the Company. There are no
proceedings pending other than the ordinary routine litigation incident to the
business of the Company and its subsidiary, Premier Bank. In addition, no
material proceedings are pending or are known to be threatened or contemplated
against the Company and the Bank by government authorities.
Item 2 -- Changes in Securities
Nothing to report.
Item 3 -- Defaults Upon Senior Securities
Nothing to report.
Item 4 -- Submission of Matters to a Vote of Security Holders
The Company's annual meeting of shareholders was held on May 14, 1998 for the
following purposes:
1. To elect eight class I directors for a term of one year (Daniel E. Cohen,
Michael Perrucci, Brian R. Rich, Ezio U. Rossi, Gerald Schatz, Bruce E.
Sickel, Thomas P. Stitt and John A. Zebrowski)
2. To elect five class 2 directors for a term of two years (Thomas E. Mackell,
Neil Norton, Irving N. Stein, HelenBeth Garofalo-Vilcek and George
Wetherill)
3. To elect seven class 2 directors for a term of three years (Peter A. Cooper,
Clark S. Frame, Barry J. Miles, Sr., Daniel A. Nesi, Thomas M. O'Mara,
Richard F. Ryon and John C. Soffronoff)
4. To ratify the appointment of KPMG Peat Marwick LLP as the Company's
independent auditors for the 1998 fiscal year.
<PAGE>
All proposals were adopted by the Company's shareholders as follows:
1. Election of class I directors
For Against Abstain
--------- ------- -------
Daniel E. Cohen 1,714,065 -- 1,980
Michael Perrucci 1,714,065 -- 1,980
Brian R. Rich 1,714,065 -- 1,980
Ezio U. Rossi 1,714,065 -- 1,980
Gerald Schatz 1,714,065 -- 1,980
Bruce E. Sickel 1,714,065 -- 1,980
Thomas P. Stitt 1,713,735 -- 2,310
John A. Zebrowski 1,713,735 -- 2,310
2. Election of class 2 directors
Thomas E. Mackell 1,713,903 -- 2,142
Neil Norton 1,713,903 -- 2,142
Irving N. Stein 1,713,903 -- 2,142
HelenBeth Garofalo--Vilcek 1,713,903 -- 2,142
George H. Wetherill 1,713,603 -- 2,442
22
Item 4 -- Submission of Matters to a Vote of Security Holders (continued)
<PAGE>
3. Election of class 3 directors
For Against Abstain
--------- ------- -------
Peter A. Cooper 1,715,415 -- 630
Clark S. Frame 1,715,415 -- 630
Barry J. Miles, Sr. 1,715,415 -- 630
Daniel A. Nesi 1,712,643 -- 3,402
Thomas M. O'Mara 1,715,415 -- 630
Richard F. Ryon 1,715,415 -- 630
John C. Soffronoff 1,715,415 -- 630
4. Proposal to ratify the selection of KPMG Peat Marwick LLP, Certified Public
Accountants, as the Company's independent auditors for the 1998 fiscal year.
For Against Abstain
--------- ------- -------
1,715,220 -- 825
Item 5 -- Other Information
On August 11, 1998, the Company issued $10.0 million of 8.57% Capital Securities
due August 15, 2028. The Capital Securities were issued by the Company's
recently formed subsidiary, PBI Capital Trust (the "Trust"), a statutory
business trust created under the laws of Delaware. The Company is the sole owner
of the Trust. The Trust will use the proceeds from the Capital Securities to
acquire $10.0 million in 8.57% Junior Subordinated Deferrable Interest
Debentures to be issued by the Company. The Junior Subordinated Debentures will
be the sole assets of the Trust, and payments under the Junior Subordinated
Debentures will be the sole revenue of the Trust. The Company plans to use the
proceeds from the sale of the Junior Subordinated Debentures for general
corporate purposes, including, but not limited to, investments in and advances
to its subsidiary, Premier Bank, repurchases of common stock of the Company,
branch expansion, the purchase of certain branch facilities being leased and
funding loans. Proceeds from the Capital Securities will provide the Company
with additional Tier I and Tier II capital.
Item 6 -- Exhibits and Reports on Form 8-K
<PAGE>
The following exhibits are incorporated by reference herein or annexed to this
Form 10-QSB:
3.1 Articles of Incorporation (Incorporated by reference to Exhibit 3i to
the Company's Registration Statement No. 333-34243 on Form S-4 filed
with the Securities and Exchange Commission on August 22, 1997).
3.2 By-Laws (Incorporated by reference to Exhibit 3ii to the Company's
Registration Statement No. 333-34243 on Form S-4 filed with the
Securities and Exchange Commission on August 22, 1997)
10.1 Premier Bank's 1995 Incentive Stock Option Plan (Incorporated by
reference to Exhibit 99.6 to the Company's Registration Statement No.
333-34243 on Form S-4 filed with the Securities and Exchange Commission
on August 22, 1997).
11.1 Statement re: Computation of per share earnings (Included as Note 5 of
this Form 10-QSB)
22.1 Submission of matters to a vote of security holders (included as Item 3
under Part II of this Form (10-QSB)
27.1 Financial Data Schedule (Exhibit 27)
23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Issuer
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Premier Bancorp, Inc.
<TABLE>
<CAPTION>
Signature Title Date
- ---------- ----- ----
<S> <C> <C>
By: /s/ John C. Soffronoff President, Chief Executive Officer, August 14, 1998
- --------------------------- (Principal Executive Officer),
John C. Soffronoff Director
By: /s/ Bruce E. Sickel Chief Financial Officer, (Principal August 14, 1998
- - -------------------------- Financial Officer), Director
Bruce E. Sickel
</TABLE>
24
<PAGE>
Index of Exhibits
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
3.1 Articles of Incorporation (Incorporated by reference *
to Exhibit 3i to the Company's Registration Statement
No. 333-34243 on Form S-4 filed with the Securities
and Exchange Commission on August 22, 1997).
3.2 By-Laws (Incorporated by reference to Exhibit 3ii to the Company's *
Registration Statement No. 333-34243 on Form S-4 filed with the
Securities and Exchange Commission on August 22, 1997).
10.1 Premier Bank's 1995 Incentive Stock Option Plan (Incorporated by *
reference to Exhibit 99.6 to the Company's Registration Statement No.
333-34243 on Form S-4 filed with the Securities and Exchange Commission
on August 22, 1997).
11.2 Statement re: Computation of per share earnings (Included as Note 5
of this Form 10-QSB) 6
22.2 Submission of matters to a vote of security holders
(included as Item 3 under Part II of this Form 10-QSB) 22
27.1 Financial Data Schedule (Exhibit 27) 26
* Incorporated by reference.
</TABLE>
25
TYPE EX-27
DESCRIPTION FINANCIAL DATA SCHEDULE
ARTICLE 9
PERIOD-TYPE 6-MOS
FISCAL-YEAR-END DEC-31-1998
PERIOD-END JUN-30-1998
CASH 3,907,790
INT-BEARING-DEPOSITS 69,479
FED-FUNDS-SOLD 5,107,000
TRADING-ASSETS 0
INVESTMENTS-HELD-FOR-SALE 62,729,666
INVESTMENTS-CARRYING 11,672,126
INVESTMENTS-MARKET 11,677,261
LOANS 120,945,210
ALLOWANCE 1,540,719
TOTAL-ASSETS 207,710,593
DEPOSITS 172,051,448
SHORT-TERM 4,744,318
LIABILITIES-OTHER 3,195,547
LONG-TERM 16,500,000
PREFERRED-MANDATORY 0
PREFERRED 0
COMMON 7,996,781
OTHER-SE 3,222,499
TOTAL-LIABILITIES-AND-EQUITY 207,710,593
INTEREST-LOAN 5,171,149
INTEREST-INVEST 2,357,957
INTEREST-OTHER 109,883
INTEREST-TOTAL 7,638,989
INTEREST-DEPOSIT 3,539,896
INTEREST-EXPENSE 4,266,134
INTEREST-INCOME-NET 3,372,855
LOAN-LOSSES 235,000
SECURITIES-GAINS (5,704)
EXPENSE-OTHER 2,107,839
INCOME-PRETAX 1,136,580
INCOME-PRE-EXTRAORDINARY 1,136,580
EXTRAORDINARY 0
CHANGES 0
NET-INCOME 761,080
EPS-PRIMARY 0.29
EPS-DILUTED 0.26
YIELD-ACTUAL 8.04
LOANS-NON 198,934
LOANS-PAST 145,814
LOANS-TROUBLED 0
LOANS-PROBLEM 198,934
ALLOWANCE-OPEN 1,360,148
CHARGE-OFFS 54,992
RECOVERIES 563
ALLOWANCE-CLOSE 1,540,719
ALLOWANCE-DOMESTIC 1,464,221
ALLOWANCE-FOREIGN 0
ALLOWANCE-UNALLOCATED 76,498
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Subchapter D of Chapter 17 of the Pennsylvania Business Corporation Law of
1988, as amended (15 Pa. C.S. ss.ss.1741-1750), provides that a business
corporation such as the Registrant shall have the power under certain
circumstances to indemnify its directors, officers, employees and agents against
certain expenses incurred by them in connection with any threatened, pending or
completed action, suit or proceeding. The Registrant's by-laws contain a number
of provisions that require the Registrant to indemnify these persons in
accordance with Pennsylvania law.
Item 25. Other Expenses of Issuance and Distribution.
Registration Fee $ 1,622.50
------------------
Legal Fees and Expenses 40,000.00
------------------
Accountants Fees 5,000.00
------------------
Printing Fees and Postage 4,000.00
------------------
Blue Sky Registration Filing Fees 1,500.00
------------------
Miscellaneous 877.50
------------------
$ 53,000.00
=================
Item 26. Recent Sales of Unregistered Securities.
Not Applicable
Item 27. Exhibits.
Exhibit
Number Description of Exhibit
------ ----------------------
3(i).1 Articles of Amendment of Premier Bancorp, Inc.
3(i).2 Amended and Restated Articles of Incorporation of Premier Bancorp,
Inc.
3(ii)By-laws of Premier Bancorp, Inc. Incorporated by reference to Exhibit
D to the Company's Proxy Statement/Prospectus included in the
Company's Registration Statement No. 333- 34243 on Form S-4, filed
with the SEC on August 22, 1997, and amended by PreEffective Amendment
No. 1, filed with the SEC on September 9, 1997.
5 Opinion of Shumaker Williams, P.C. of Camp Hill, Pennsylvania, Special
Counsel to Registrant.
R-1
<PAGE>
10.1 Change of Control Agreement between Premier Bank and John C.
Soffronoff.
10.2 Change of Control Agreement between Premier Bank and John J. Ginley.
10.3 Change of Control Agreement between Premier Bank and Bruce E. Sickel.
21 Subsidiary of Premier Bancorp, Inc.
23(i)Consent of Shumaker Williams, P.C. of Camp Hill, Pennsylvania,
Special Counsel to Registrant, (contained in Opinion Letter filed as
Exhibit 5).
23(ii) Consent of KPMG Peat Marwick LLP, Certified Public Accountants.
24 Power of Attorney given by the Officers and Directors of Premier
Bancorp, Inc. (included on Signature Page).
27 Financial Data Schedule.
99 Form of Subscription Agreement.
Item 28. Undertakings.
(a) Rule 415 Offering. The small business issuer will:
(1) File, during any period which it offers or sells securities,
a post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of
the Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered (if the
total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end
of the estimated maximum offering range may be reflected in the
form of prospects filed with the Commission pursuant to Rule
424(b) (ss.230.424(b) of this chapter) if, in the aggregate, the
change sin the volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement; and
R-2
<PAGE>
(iii) Include any additional or changed material information
on the plan of distribution.
(2) For determining liability under the Securities Act, treat
each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to
be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the offering.
(e) Request for acceleration of effective date (under Rule 461).
-----------------------------------------------------------
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to
directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that
in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against
such liabilities (other than the payment by the small
business issuer of expenses incurred or paid by a director,
officer or controlling person of the small business issuer
in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person
in connection with the securities being registered, the
small business issuer will, unless in the opinion of its
counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
Subchapter D of Chapter 17 of the Pennsylvania Business
Corporation Law of 1988, as amended (15 Pa. C.S.
ss.ss.1101-4162) ("BCL") provides that a business
corporation shall have the power under certain circumstances
to indemnify its directors, officers, employees and agents
against certain expenses incurred by them in connection with
any threatened, pending or completed action, suit or
proceeding.
Article 10 of the Bylaws of Premier Bancorp, Inc.
provides for the indemnification if its directors, officers,
employees and agents in accordance with, and to the maximum
extent permitted by, the provisions of Subchapter D of
Chapter 17 of the BCL.
R-3
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements of filing on Form SB-2 and authorized this
Registration Statement to be signed on its behalf by the undersigned, in the
City of Doylestown, State of Pennsylvania on September 29, 1998.
PREMIER BANCORP, INC.
By: /s/ John C. Soffronoff
---------------------------------
John C. Soffronoff, President and CEO
Principal Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John C. Soffronoff and Bruce E. Sickel, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this registration statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of the, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents or either of them, or their or his
substitutes, may lawfully do or cause to be done by virtue thereof.
In accordance with the requirements of the Securities Act of 1933, as
amended, this Registration Statement on Form SB-2 was signed by the following
persons in the capacities and on the dates indicated.
Signature Title Date
/s/ John C. Soffronoff Director, President and CEO September 29, 1998
- ---------------------- (Principal Executive Officer)
John C. Soffronoff
/s/ Clark S. Frame Director and Chairman of September 29, 1998
- --------------------- the Board
Clark S. Frame
R-4
<PAGE>
/s/ Bruce E. Sickel Director and CFO September 29, 1998
- -------------------- (Principal Financial Officer)
Bruce E. Sickel
Director and Vice September 29, 1998
- ---------------------- Chairman of the Board
Bary J. Miles, Sr.
/s/ Daniel E. Cohen Director September 29, 1998
- ----------------------
Daniel E. Cohen
/s/ Peter A. Cooper Director September 29, 1998
- ----------------------
Peter A. Cooper
Director September 29, 1998
- ------------------------
Helen Beth Garofalo-Vilcek
Director September 29, 1998
- -----------------------
Dr. Thomas E. Mackel
/s/ Daniel A. Nesi Director September 29, 1998
- -----------------------
Dr. Daniel A. Nesi
/s/ Neil Norton Director September 29, 1998
- ----------------------
Neil Norton
/s/ Thomas M. O'Mara Director September 29, 1998
- ----------------------
Thomas M. O'Mara
Director September 29, 1998
- ----------------------
Michael Perrucci
Director September 29, 1998
- ----------------------
Brian R. Rich
R-5
<PAGE>
/s/ Richard F. Ryan Director September 29, 1998
- ---------------------
Richard F. Ryan
/s/ Gerald Schatz Director September 29, 1998
- ---------------------
Gerald Schatz
Director September 29, 1998
- ---------------------
Irving N. Stein
Director September 29, 1998
- ---------------------
Thomas P. Stitt
Director September 29, 1998
- -----------------------
George H. Wetherill
/s/ John A. Zebrowski Director September 29, 1998
- -----------------------
John A. Zebrowski
/s/ Ezio U. Rossi Director September 29, 1998
- -----------------------
Ezio U. Rossi
R-6
<PAGE>
INDEX TO EXHIBITS
Page
Number In
Exhibit Sequential
Index Numbering
Number Description System
- ------ ----------- --------
3(i).1 Articles of Amendment of Premier Bancorp, Inc. 207
3(i).2 Amended and Restated Articles of Incorporation of 208
Premier Bancorp, Inc.
3(ii) By-laws of Premier Bancorp, Inc.
Incorporated by reference to Exhibit D
to the Company's Proxy Statement/Prospectus
included in the Company's Registration Statement No.
333-34243 on Form S-4, filed with the Securities and
Exchange Commission on August 22, 1997, and as
amended by Pre-Effective Amendment No. 1,
filed with the Securities and Exchange Commission on
September 9, 1997.
5 Opinion of Shumaker Williams, P.C., of Camp Hill, Pennsylvania 212
Special Counsel to Registrant
10.1 Change of Control Agreement between Premier Bank and 213
John C. Soffronoff
10.2 Change of Control Agreement between Premier Bank and 219
John J. Ginley
10.3 Change of Control Agreement between Premier Bank and 225
Bruce E. Sickel
21 Subsidiary of Premier Bancorp, Inc. 231
23(i) Consent of Shumaker Williams, P.C., Special Counsel 232
to Registrant, (contained in Opinion Letter filed as Exhibit 5)
23(ii) Consent of KPMG Peat Marwick LLP, 233
Certified Public Accountants
24 Power of Attorney given by the Officers and Directors 234
of Premier Bancorp, Inc. (included in Signature Page)
27 Financial Data Schedule 235
99 Form of Subscription Agreement 236
R-7
3(i).1 Articles of Amendment of Premier Bancorp, Inc.
<PAGE>
COMMONWEALTH OF PENNSYLVANIA
DEPARTMENT OF STATE
CORPORATION BUREAU
ARTICLES OF AMENDMENT -DOMESTIC BUSINESS CORPORATION
In compliance with the requirements of 15 Pa.C.S. Section 1915 (relating to
Articles of Amendment), the undersigned business corporation, desiring to amend
its Articles, does hereby certify and state that:
1. The Name of the Corporation is:
Premier Bancorp, Inc.
2. The Address, including street and number, of its Registered Office in
this Commonwealth is: (The Department of State is hereby authorized to
correct the following statement to conform to the records of the
Department):
379 North Main Street, Doylestown, Pennsylvania 18901
3. The Statute by or under which the Corporation was Incorporated is:
Business Corporation Law of 1988, 15 Pa.C.S. ss.1101 et. seq., as
amended.
4. The Date of its Incorporation is:
July 15, 1997
5. The Manner in which the Amendment was Adopted by the Corporation is:
The amendment was duly adopted by the Board of Directors of the
Corporation, pursuant to Section 1914(c)(3)(ii) of the Business
Corporation Law of 1988, as amended, at a meeting of the Board of
Directors duly called, convened and conducted on December 11, 1997.
6. The Amendment shall be effective at 12:01 a.m., prevailing time, on December
31, 1997.
7. The Amendment adopted by the Corporation set forth in full is:
5. The aggregate number of shares that the Corporation
shall have authority to issue is Thirty Million
(30,000,000) shares of Common Stock having a par
value of Thirty-three Cents ($0.33) per share.
<PAGE>
IN TESTIMONY WHEREOF, the undersigned Corporation has caused these Articles
of Amendment to be signed by a duly authorized officer thereof and its corporate
seal, duly attested by another such officer, to be hereunto affixed this 11th
day of December, 1997.
PREMIER BANCORP, INC.
Attest:
/s/ John J. Ginley By: /s/ John C. Soffronoff
- ------------------------- -------------------------------
John J. Ginley, Secretary John C. Soffronoff, President
(CORPORATE SEAL)
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
PREMIER BANCORP, INC.
In compliance with the requirements of 15 Pa.C.S. Section 1306
(relating to Articles of Incorporation), the undersigned, desiring to be
incorporated as a business corporation, hereby state that:
1. The name of the Corporation is PREMIER BANCORP, INC.
2. The address, including street and number, if any, of this Corporation's
initial registered office in this Commonwealth is 379 North Main
Street, Doylestown, Pennsylvania 18901, and the county of venue is
Bucks.
3. The Corporation is incorporated under the provisions of the
Pennsylvania Business Corporation Law of 1988 (15 Pa.C.S. Section 1101
et seq.), as the same may be amended.
4. The purpose or purposes of the Corporation are to have unlimited power
to engage in and to do any lawful act concerning any or all business
for which corporations may be incorporated under the provisions of the
Pennsylvania Business Corporation Law of 1988, as the same may be
amended.
5. The aggregate number of shares that the Corporation shall have
authority to issue is Thirty Million (30,000,000) shares of Common
Stock having a par value of Thirty-three Cents ($0.33) per share.
6. The name and address, including street and number, if any, of each of
the Incorporators, and the number and class of shares subscribed to by
each Incorporator is:
Name Address
---- -------
John C. Soffronoff 379 North Main Street, Doylestown, PA 18901
Clark S. Frame 379 North Main Street, Doylestown, PA 18901
Bruce E. Sickel 379 North Main Street, Doylestown, PA 18901
Number and Class of Shares
--------------------------
1 Share of Common Stock
1 Share of Common Stock
1 Share of Common Stock
7. No merger, consolidation, liquidation or dissolution of the Corporation
nor any action that would result in the sale or other disposition of
all or substantially all of the assets of the Corporation shall be
valid unless first approved by the affirmative vote of at least
sixty-six and two-thirds percent (66 2/3%) of the outstanding shares of
Common Stock of the Corporation.
8. Cumulative voting rights shall exist with respect to the election of
directors.
9(a) The Board of Directors may, if it deems advisable, oppose a tender or
other offer for the Corporation's securities, whether the offer is in
cash or in the securities of a corporation or otherwise. When
considering whether to oppose an offer, the Board of Directors may, but
is not legally obligated to, consider any relevant, germane or
pertinent issue; by way of illustration, but
<PAGE>
not to be considered any limitation on the power of the Board of
Directors to oppose a tender or other offer for this Corporation's
securities, the Board of Directors may, but shall not be legally
obligated to, consider any or all of the following:
(i) Whether the offer price is acceptable based on the historical and
present operating results or financial condition of the
Corporation;
(ii) Whether a more favorable price could be obtained for this
Corporation's securities in the future;
(iii)The social and economic effects of the offer or transaction on
this Corporation and any of its subsidiaries, employees,
depositors, loan and other customers, creditors, shareholders and
other elements of the communities in which this Corporation and
any of its subsidiaries operate or are located;
(iv) The reputation and business practice of the offeror and its
management and affiliates as they would affect the shareholders,
employees, depositors and customers of the Corporation and its
subsidiaries and the future value of the Corporation's stock;
(v) The value of the securities (if any) which the offeror is
offering in exchange for the Corporation's securities, based on
an analysis of the worth of the Corporation or other entity whose
securities are being offered;
(vi) The business and financial conditions and earnings prospects of
the offeror, including, but not limited to, debt service and
other existing or likely financial obligations of the offeror,
and the possible affect of such conditions upon this Corporation
and any of its subsidiaries and the other elements of the
communities in which this Corporation and any of its subsidiaries
operate or are located;
(vii)Any antitrust or other legal and regulatory issues that are
raised by the offer.
(b) If the Board of Directors determines that an offer should be rejected,
it make take any lawful action to accomplish its purpose including,
but not limited to, any or all of the following: advising shareholders
not to accept the offer; litigation against the offeror; filing
complaints with all governmental and regulatory authorities; acquiring
the offeror corporation's securities; selling or otherwise issuing
authorized but unissued securities or treasury stock or granting
options with respect thereto; acquiring a company to create an
antitrust or other regulatory problem for the offeror; and obtaining a
more favorable offer from another individual or entity.
10. Articles 7, 8, 9 and 10 shall not be amended unless first approved by
the affirmative vote of the holders of at least sixty-six and
two-thirds percent (66 2/3%) of the outstanding shares of Common Stock
of the Corporation.
<PAGE>
IN TESTIMONY WHEREOF, the undersigned Corporation has caused these Amended
and Restated Articles of Incorporation to be signed by a duly authorized officer
thereof and its corporate seal, duly attested by another such officer, to be
hereunto affixed this 20th day of August, 1997.
PREMIER BANCORP, INC.
Attest:
/s/ John J. Ginley By: /s/ John C. Soffronoff
- ------------------------- -----------------------------
John J. Ginley, Secretary John C. Soffronoff, President
(CORPORATE SEAL)
By-laws of Premier Bancorp, Inc.
<PAGE>
Incorporated by reference to Exhibit D to the Company's Proxy
Statement/Prospectus included in the Company's Registration Statement No.
333-34243 on Form S-4, filed with the Securities and Exchange Commission
on August 22, 1997, and as amended by Pre-Effective Amendment No. 1,
filed with the Securities and Exchange Commission on September 9, 1997.
SHUMAKER WILLIAMS, P.C.
3425 SIMPSON FERRY ROAD
CAMP HILL, PENNSYLVANIA 17108
(717) 763-1121
September 30, 1998
Mr. John C. Soffronoff
President and CEO
PREMIER BANCORP, INC.
379 North Main Street
Doylestown, Pennsylvania 18901
Re: Premier Bancorp, Inc. (the "Company")
Registration of 500,000 shares of Common Stock
Par Value $0.33 per share
Our File No. 782-98
Dear Mr. Soffronoff:
We have acted as Special Counsel to Premier Bancorp, Inc. (the "Company")
and its wholly-owned subsidiary, Premier Bank (the "Bank"), in connection with
the registration of 500,000 shares of the common stock of the Company, par value
$0.33 per share (the "Common Stock").
We have assisted in preparing a registration statement on Form SB-2 (the
"Registration Statement") to be filed with the Securities and Exchange
Commission under the provisions and regulations of the Securities Act of 1933,
as amended, relating to the offering by the Company of a maximum of 500,000
shares of Common Stock. The Common Stock will be offered pursuant to, and on the
terms set forth in, a Prospectus, dated September 30, 1998 (the "Prospectus").
During the course of our engagement, we participated in conferences with
the directors and officers of the Company and the Bank, at which conferences the
contents of the Prospectus were reviewed and discussed. We also examined
financial data, letters and other documents made available to us by the Company
and the Bank. We have not, however, otherwise independently verified the
accuracy or completeness of the actual information in the Prospectus. We
therefore assume no responsibility for the accuracy, completeness or fairness of
the statements contained in the Prospectus, or the financial or statistical data
contained therein.
<PAGE>
As Special Counsel to the Company and the Bank, we reviewed the corporate
proceedings in connection with the preparation of the Prospectus and filing
thereof with the Securities and Exchange Commission. We also reviewed copies of
the Company's corporate minutes and other proceedings and records relating to
the authorization and issuance of the Common Stock, and such other documents and
matters of law which we deemed necessary in order to render this opinion.
This opinion is rendered pursuant to the requirements of Item 601(b)(5)(i)
of Regulation S-B of the Securities and Exchange Commission (17 C.F.R. Section
228.601(b)(5)(i)) for inclusion as an exhibit to the Registration Statement.
Based upon the foregoing, and in reliance thereon, it is our opinion that
the Common Stock offered pursuant to the Prospectus is duly and validly
authorized for issuance, and, when issued and delivered by the Company pursuant
to the terms set forth in the Prospectus, will be duly and validly issued, fully
paid and non-assessable.
We hereby consent to the use of this opinion in the Registration Statement
on Form SB-2, and we further consent to the reference to our name in the
Prospectus under the caption "Legal Opinion".
Very truly yours,
SHUMAKER WILLIAMS, P.C.
By: /s/ Nicholas Bybel, Jr.
----------------------------------
Nicholas Bybel, Jr.
JSM:88801
cc: Mr. Clark S. Frame
Chairman of the Board of Directors PREMIER BANCORP, INC.
CHANGE OF CONTROL AGREEMENT
THIS AGREEMENT is made as of this 12th day of March, 1998, between Premier
Bancorp, Inc., a Pennsylvania business corporation (the "Corporation"), Premier
Bank, a Pennsylvania commercial bank (the "Bank"), and John C. Soffronoff an
adult individual (the "Executive"), collectively (the "Parties") and,
individually, sometimes referred to herein as a ("Party.")
WHEREAS, the Corporation and the Bank employ the Executive as President and
Chief Executive Officer; and
WHEREAS, the Executive has provided valued service to the Corporation and
the Bank in the past; and
WHEREAS, in recognition of the valued past and present service of the
Executive, the Corporation and the Bank desire to provide incentive for
continued valued service and grants to the Executive the benefits set forth
herein upon the occurrence of a Change of Control (as defined herein); and
WHEREAS, the purpose of this Agreement is to define certain severance
benefits that will be paid by the Corporation and the Bank in the event of a
Change of Control (as defined herein). This Agreement is not intended to affect,
nor does it affect, the terms of the Executive's employment at will, in the
absence of a Change of Control (as defined herein) of the Corporation and the
Bank. Accordingly, although this Agreement will be a binding legal obligation of
the Corporation and the Bank upon its execution, the Agreement will become
operative only upon a Change in Control, as defined below.
NOW THEREFORE, in consideration of the Executive's service to the
Corporation and the Bank and of the mutual covenants, undertakings and
agreements set forth herein and intending to be legally bound hereby, the
Parties agree as follows:
1. TERM. The term of the Agreement shall commence on March 12, 1998, and
shall continue until either Party gives the other written notice of termination
of employment, with or without cause. Provided, however, that termination of the
Executive's employment by the Corporation or Bank during the period of time
between the execution of an agreement to effect a Change of Control (as defined
herein) and the actual Date of Change of Control (as defined herein) shall only
be "For Cause." This Section shall not affect the terms of the Executive's
employment at will.
For Cause shall be defined for the purpose of this section as the
occurrence of one of the following: (1) the willful failure by the Executive to
substantially perform his duties hereunder, after notice from the Corporation
and a failure to cure such violation within thirty (30) days of said notice; (2)
the willful engaging by the Executive in misconduct injurious to the Corporation
or Bank; (3) the dishonesty or gross negligence of the Executive in the
performance of his duties; (4) the breach of Executive's fiduciary duty
involving personal profit; (5) the violation of any law, rule or
<PAGE>
regulation governing banks or bank officers or any final cease and desist order
issued by a bank regulatory authority any of which materially jeopardizes the
business of the Corporation or Bank; or (6) conduct on the part of Executive
which brings public discredit to the Corporation or Bank.
If Executive's employment is terminated during the period of time between
the execution of an agreement to effect a Change of Control(as defined herein)
and the actual Date of the Change of Control (as defined herein) For Cause (as
defined herein), all rights of the Executive under this Agreement shall cease as
of the effective date of such termination, except that Executive (i) shall be
entitled to receive accrued salary through the date of such termination and (ii)
shall be entitled to receive the payments and benefits to which he is then
entitled under the employee benefit plans of the Employer or any affiliate
thereof as of the date of such termination.
2. DEFINITION OF CHANGE OF CONTROL. For purposes of this Agreement, the
term "Change of Control" shall mean a change of control (other than one
occurring by reason of an acquisition of the Corporation and/or the Bank by
Executive) of a nature that would be required to be reported in response to Item
6(e) of Schedule 14A of Regulation 14A or any successor rule or regulation
promulgated under the Securities Exchange Act of 1934, as amended (the "Act");
provided that, without limiting the foregoing, a Change of Control shall be
deemed to have occurred if:
(a) a merger or consolidation of the Corporation or purchase of substantially
all of the Corporation's assets by another "person" or group of "persons"
(as such term is defined or used in Sections 3, 13(d), and 14(d) of the
Act) and, as a result of such merger, consolidation or sale of assets, less
than a majority of the outstanding voting stock of the surviving, resulting
or purchasing person is owned, immediately after the transaction, by the
holders of the voting stock of the Corporation before the transaction;
(b) any "person" as defined above, other than the Corporation and/or the Bank,
the Executive or any "person" who on the date hereof is a director or
officer of the Corporation and/or the Bank, is or becomes the "beneficial
owner" (as defined in Rule 13d-3 and Rule 13d-5, or any successor rule or
regulation, promulgated under the Act), directly or indirectly, of
securities of the Corporation which represent twenty-five percent (25%) or
more of the combined voting power of the securities of the Corporation,
then outstanding; or
(c) during any period of two consecutive years during the term of this
Agreement and any extension thereof, individuals who at the beginning of
such period constitute the Board of Directors of the Corporation and/or the
Bank cease for any reason to constitute at least two-thirds thereof, unless
the election of each director who was not a director at the beginning of
such period has been approved in advance by directors representing at least
two-thirds of the directors then in office who were directors at the
beginning of the period.
<PAGE>
3. DEFINITION OF DATE OF CHANGE OF CONTROL. For purposes of this Agreement,
the "Date of Change of Control" shall be defined as the first date upon which
the events delineated in Subsections (a), (b) and (c) of Section 2 are
consummated or occur.
4. PAYMENTS UPON TERMINATION. If a Change of Control (as defined herein)
occurs, then the Executive shall be entitled to receive a lump sum payment equal
to two (2) times his current Annual Direct Salary, at the earliest of the
following events:
(a) If, between the execution of an agreement to effect a Change of Control (as
defined herein) and the actual Date of a Change of Control (as defined
herein) the Executive's employment with the Corporation and the Bank is
terminated, other than For Cause (as defined herein);
(b) If the Executive is not offered employment by the acquiring person or
entity as of the Date of Change of Control (as defined herein) in a
position having equivalent responsibilities, authority, compensation and
benefits as he received immediately prior to the Change of Control (as
defined herein);
(c) If, between the Date of the Change of Control (as defined herein) and six
(6) months after the Date of Change of Control (as defined herein), the
Executive is terminated from employment, for any reason whatsoever, by the
acquiring person or entity; or
(d) If, between three (3) and (6) months after the Date of Change of Control
(as defined herein), the Executive terminates his employment with the
acquiring person or entity.
If at the end of six (6) months after the Date of the Change of Control (as
defined herein), none of the events described above in Subsections (a), (b), (c)
or (d) of this Section have occurred, then the Executive shall no longer be
entitled to receive the Payments Upon Termination set forth in this Section, and
the Agreement shall thereafter be null and void.
Annual Direct Salary shall be defined herein as the fixed, gross, base
annual salary paid to the Executive at such time as the Corporation and the Bank
customarily pays its other senior officers and shall not include any benefits,
bonuses, incentives or other compensation.
This Agreement shall be null and void if the Payments Upon Termination
provided in Section 4 hereof cause the transaction effectuating the Change of
Control to not be accounted for as a pooling of interests for accounting
purposes by the United States Securities and Exchange Commission and such
pooling of interest accounting treatment is a condition to the consummation of
the Change of Control transaction mutually agreed upon by the Parties as part of
a definitive agreement for such transaction.
<PAGE>
5. NOTICE. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
John C. Soffronoff
P.O. Box 841
Doylestown, PA 18901
If to the Corporation:
Clark S. Frame, Chairman of the Board
Premier Bancorp, Inc.
379 North Main Street
P.O. Box 818
Doylestown, PA 18901-0818
If to the Bank:
Clark S. Frame, Chairman of the Board
Premier Bank
450 East Street
P.O. Box 818
Doylestown, PA 18901-0818
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
6. SUCCESSORS. This Agreement shall inure to the benefit of and be binding
upon the Executive, his personal representatives, heirs or assigns, and any of
their successors or assigns, provided, however, that the Executive may not
commute, anticipate, encumber, dispose or assign any payment herein except as
specifically set forth in paragraph 9 herein.
7. SEVERABILITY. If any provision of this Agreement is declared
unenforceable for any reason, the remaining provisions of this Agreement shall
be unaffected thereby and shall remain in full force and effect.
8. AMENDMENT. This Agreement may be amended or canceled only by mutual
agreement of the parties in writing.
9. PAYMENT OF MONEY DUE DECEASED EXECUTIVE. In the event of Executive's
death, any monies that may be due him from the Corporation and the Bank under
this Agreement as of the date of death or thereafter shall be paid to the person
designated by him in writing for this purpose, or, in the absence of any such
designation, to his estate.
<PAGE>
10. NO GUARANTEE OF EMPLOYMENT. Nothing in this Agreement shall constitute
or give rise to any guarantee or contract of employment of the Executive by the
Corporation and the Bank, and shall not give the Executive any right to be
employed by or retained in the employ of the Corporation and the Bank in any
position or capacity.
11. LIMITATION OF DAMAGES FOR BREACH OF AGREEMENT. In the event of a breach
of this Agreement by either the Corporation and the Bank or the Executive, each
hereby waives to the fullest extent permitted by law the right to assert any
claim against the others for punitive or exemplary damages. In no event shall
any party be entitled to the recovery of attorney's fees or costs.
12. LAW GOVERNING. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
13. ENTIRE AGREEMENT. This Agreement supersedes any and all prior
agreements, either oral or in writing, between the parties with respect to
payments upon termination after a Change of Control, and this Agreement contains
all the covenants and agreements between the parties with respect to same.
<PAGE>
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have caused this Agreement to be duly executed in their respective names
and, in the case of the Corporation and the Bank, by its authorized
representatives the day and year above mentioned.
ATTEST: PREMIER BANCORP, INC.
/s/ John J. Ginley By: /s/ Clark S. Frame
- --------------------- ----------------------------
John J. Ginley Clark S. Frame,
Chairman of the Board
ATTEST: PREMIER BANK
/s/ John J. Ginley By: /s/ Clark S. Frame
- ---------------------- -----------------------------
John J. Ginley Clark S. Frame,
Chairman of the Board
/s/ John J. Ginley By: /s/ John C. Soffronoff
- --------------------- -----------------------------
John J. Ginley John C.Soffronoff,
President & CEO
WITNESS:
CHANGE OF CONTROL AGREEMENT
THIS AGREEMENT is made as of this 12th day of March, 1998, between Premier
Bancorp, Inc., a Pennsylvania business corporation (the "Corporation"), Premier
Bank, a Pennsylvania commercial bank (the "Bank"), and John J. Ginley an adult
individual (the "Executive"), collectively (the "Parties") and, individually,
sometimes referred to herein as a ("Party.")
WHEREAS, the Corporation and the Bank employ the Executive as Senior Vice
President and Chief Lending Officer; and
WHEREAS, the Executive has provided valued service to the Corporation and
the Bank in the past; and
WHEREAS, in recognition of the valued past and present service of the
Executive, the Corporation and the Bank desire to provide incentive for
continued valued service and grants to the Executive the benefits set forth
herein upon the occurrence of a Change of Control (as defined herein); and
WHEREAS, the purpose of this Agreement is to define certain severance
benefits that will be paid by the Corporation and the Bank in the event of a
Change of Control (as defined herein). This Agreement is not intended to affect,
nor does it affect, the terms of the Executive's employment at will, in the
absence of a Change of Control (as defined herein) of the Corporation and the
Bank. Accordingly, although this Agreement will be a binding legal obligation of
the Corporation and the Bank upon its execution, the Agreement will become
operative only upon a Change in Control, as defined below.
NOW THEREFORE, in consideration of the Executive's service to the
Corporation and the Bank and of the mutual covenants, undertakings and
agreements set forth herein and intending to be legally bound hereby, the
Parties agree as follows:
1. TERM. The term of the Agreement shall commence on March 12, 1998, and
shall continue until either Party gives the other written notice of termination
of employment, with or without cause. Provided, however, that termination of the
Executive's employment by the Corporation or Bank during the period of time
between the execution of an agreement to effect a Change of Control (as defined
herein) and the actual Date of Change of Control (as defined herein) shall only
be "For Cause." This Section shall not affect the terms of the Executive's
employment at will.
For Cause shall be defined for the purpose of this section as the
occurrence of one of the following: (1) the willful failure by the Executive to
substantially perform his duties hereunder, after notice from the Corporation
and a failure to cure such violation within thirty (30) days of said notice; (2)
the willful engaging by the Executive in misconduct injurious to the Corporation
or Bank; (3)
<PAGE>
the dishonesty or gross negligence of the Executive in the performance of his
duties; (4) the breach of Executive's fiduciary duty involving personal profit;
(5) the violation of any law, rule or regulation governing banks or bank
officers or any final cease and desist order issued by a bank regulatory
authority any of which materially jeopardizes the business of the Corporation or
Bank; or (6) conduct on the part of Executive which brings public discredit to
the Corporation or Bank.
If Executive's employment is terminated during the period of time between
the execution of an agreement to effect a Change of Control (as defined herein)
and the actual Date of the Change of Control (as defined herein) For Cause (as
defined herein), all rights of the Executive under this Agreement shall cease as
of the effective date of such termination, except that Executive (i) shall be
entitled to receive accrued salary through the date of such termination and (ii)
shall be entitled to receive the payments and benefits to which he is then
entitled under the employee benefit plans of the Employer or any affiliate
thereof as of the date of such termination.
2. DEFINITION OF CHANGE OF CONTROL. For purposes of this Agreement, the
term "Change of Control" shall mean a change of control (other than one
occurring by reason of an acquisition of the Corporation and/or the Bank by
Executive) of a nature that would be required to be reported in response to Item
6(e) of Schedule 14A of Regulation 14A or any successor rule or regulation
promulgated under the Securities Exchange Act of 1934, as amended (the "Act");
provided that, without limiting the foregoing, a Change of Control shall be
deemed to have occurred if:
(a) a merger or consolidation of the Corporation or purchase of substantially
all of the Corporation's assets by another "person" or group of "persons"
(as such term is defined or used in Sections 3, 13(d), and 14(d) of the
Act) and, as a result of such merger, consolidation or sale of assets, less
than a majority of the outstanding voting stock of the surviving, resulting
or purchasing person is owned, immediately after the transaction, by the
holders of the voting stock of the Corporation before the transaction;
(b) any "person" as defined above, other than the Corporation and/or the Bank,
the Executive or any "person" who on the date hereof is a director or
officer of the Corporation and/or the Bank, is or becomes the "beneficial
owner" (as defined in Rule 13d-3 and Rule 13d-5, or any successor rule or
regulation, promulgated under the Act), directly or indirectly, of
securities of the Corporation which represent twenty-five percent (25%) or
more of the combined voting power of the securities of the Corporation,
then outstanding; or
(c) during any period of two consecutive years during the term of this
Agreement and any extension thereof, individuals who at the beginning of
such period constitute the Board of Directors of the Corporation and/or the
Bank cease for any reason to constitute at least two-thirds thereof, unless
the election of each director who was not a director at the beginning of
such period has been approved in advance by directors representing at least
two-thirds of the directors then in office who were directors at the
beginning of the period.
<PAGE>
3. DEFINITION OF DATE OF CHANGE OF CONTROL. For purposes of this Agreement,
the "Date of Change of Control" shall be defined as the first date upon which
the events delineated in Subsections (a), (b) and (c) of Section 2 are
consummated or occur.
4. PAYMENTS UPON TERMINATION. If a Change of Control (as defined herein)
occurs, then the Executive shall be entitled to receive a lump sum payment equal
to two (2) times his current Annual Direct Salary, at the earliest of the
following events:
(a) If, between the execution of an agreement to effect a Change of Control (as
defined herein) and the actual Date of a Change of Control (as defined
herein) the Executive's employment with the Corporation and the Bank is
terminated, other than For Cause (as defined herein);
(b) If the Executive is not offered employment by the acquiring person or
entity as of the Date of Change of Control (as defined herein) in a
position having equivalent responsibilities, authority, compensation and
benefits as he received immediately prior to the Change of Control (as
defined herein);
(c) If, between the Date of the Change of Control (as defined herein) and six
(6) months after the Date of Change of Control (as defined herein), the
Executive is terminated from employment, for any reason whatsoever, by the
acquiring person or entity; or
(d) If, between three (3) and (6) months after the Date of Change of Control
(as defined herein), the Executive terminates his employment with the
acquiring person or entity.
If at the end of six (6) months after the Date of the Change of Control (as
defined herein), none of the events described above in Subsections (a), (b), (c)
or (d) of this Section have occurred, then the Executive shall no longer be
entitled to receive the Payments Upon Termination set forth in this Section, and
the Agreement shall thereafter be null and void.
Annual Direct Salary shall be defined herein as the fixed, gross, base
annual salary paid to the Executive at such time as the Corporation and the Bank
customarily pays its other senior officers and shall not include any benefits,
bonuses, incentives or other compensation.
This Agreement shall be null and void if the Payments Upon Termination
provided in Section 4 hereof cause the transaction effectuating the Change of
Control to not be accounted for as a pooling of interests for accounting
purposes by the United States Securities and Exchange Commission and such
pooling of interest accounting treatment is a condition to the consummation of
the Change of Control transaction mutually agreed upon by the Parties as part of
a definitive agreement for such transaction.
<PAGE>
5. NOTICE. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
John J. Ginley
3021 Guilford Street
Philadelphia, PA 19152
If to the Corporation:
Clark S. Frame, Chairman of the Board
Premier Bancorp, Inc.
379 North Main Street
P.O. Box 818
Doylestown, PA 18901-0818
If to the Bank:
Clark S. Frame, Chairman of the Board
Premier Bank
450 East Street
P.O. Box 818
Doylestown, PA 18901-0818
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
6. SUCCESSORS. This Agreement shall inure to the benefit of and be binding
upon the Executive, his personal representatives, heirs or assigns, and any of
their successors or assigns, provided, however, that the Executive may not
commute, anticipate, encumber, dispose or assign any payment herein except as
specifically set forth in paragraph 9 herein.
7. SEVERABILITY. If any provision of this Agreement is declared
unenforceable for any reason, the remaining provisions of this Agreement shall
be unaffected thereby and shall remain in full force and effect.
8. AMENDMENT. This Agreement may be amended or canceled only by mutual
agreement of the parties in writing.
9. PAYMENT OF MONEY DUE DECEASED EXECUTIVE. In the event of Executive's
death, any monies that may be due him from the Corporation and the Bank under
this Agreement as of the date of death or thereafter shall be paid to the person
designated by him in writing for this purpose, or, in the absence of any such
designation, to his estate.
<PAGE>
10. NO GUARANTEE OF EMPLOYMENT. Nothing in this Agreement shall constitute
or give rise to any guarantee or contract of employment of the Executive by the
Corporation and the Bank, and shall not give the Executive any right to be
employed by or retained in the employ of the Corporation and the Bank in any
position or capacity.
11. LIMITATION OF DAMAGES FOR BREACH OF AGREEMENT. In the event of a breach
of this Agreement by either the Corporation and the Bank or the Executive, each
hereby waives to the fullest extent permitted by law the right to assert any
claim against the others for punitive or exemplary damages. In no event shall
any party be entitled to the recovery of attorney's fees or costs.
12. LAW GOVERNING. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
13. ENTIRE AGREEMENT. This Agreement supersedes any and all prior
agreements, either oral or in writing, between the parties with respect to
payments upon termination after a Change of Control, and this Agreement contains
all the covenants and agreements between the parties with respect to same.
<PAGE>
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have caused this Agreement to be duly executed in their respective names
and, in the case of the Corporation and the Bank, by its authorized
representatives the day and year above mentioned.
ATTEST: PREMIER BANCORP, INC.
/s/ John J. Ginley By: /s/ Clark S. Frame
- -------------------- ----------------------------
John J. Ginley Clark S. Frame, Chairman
of the Board
ATTEST: PREMIER BANK
/s/ John J. Ginley By: /s/ Clark S. Frame
- ------------------- ----------------------------
John J. Ginley Clark S. Frame, Chairman
of the Board
/s/ John C. Soffronoff By: /s/ John J. Ginley
- ----------------------- ----------------------------
John J. Ginley, Senior
Vice President &
Chief Lending Officer
WITNESS:
CHANGE OF CONTROL AGREEMENT
THIS AGREEMENT is made as of this 12th day of March, 1998, between Premier
Bancorp, Inc., a Pennsylvania business corporation (the "Corporation"), Premier
Bank, a Pennsylvania commercial bank (the "Bank"), and Bruce E. Sickel an adult
individual (the "Executive"), collectively (the "Parties") and, individually,
sometimes referred to herein as a ("Party.")
WHEREAS, the Corporation and the Bank employ the Executive as Senior Vice
President and Chief Financial Officer; and
WHEREAS, the Executive has provided valued service to the Corporation and
the Bank in the past; and
WHEREAS, in recognition of the valued past and present service of the
Executive, the Corporation and the Bank desire to provide incentive for
continued valued service and grants to the Executive the benefits set forth
herein upon the occurrence of a Change of Control (as defined herein); and
WHEREAS, the purpose of this Agreement is to define certain severance
benefits that will be paid by the Corporation and the Bank in the event of a
Change of Control (as defined herein). This Agreement is not intended to affect,
nor does it affect, the terms of the Executive's employment at will, in the
absence of a Change of Control (as defined herein) of the Corporation and the
Bank. Accordingly, although this Agreement will be a binding legal obligation of
the Corporation and the Bank upon its execution, the Agreement will become
operative only upon a Change in Control, as defined below.
NOW THEREFORE, in consideration of the Executive's service to the
Corporation and the Bank and of the mutual covenants, undertakings and
agreements set forth herein and intending to be legally bound hereby, the
Parties agree as follows:
1. TERM. The term of the Agreement shall commence on March 12, 1998, and
shall continue until either Party gives the other written notice of termination
of employment, with or without cause. Provided, however, that termination of the
Executive's employment by the Corporation or Bank during the period of time
between the execution of an agreement to effect a Change of Control (as defined
herein) and the actual Date of Change of Control (as defined herein) shall only
be "For Cause." This Section shall not affect the terms of the Executive's
employment at will.
For Cause shall be defined for the purpose of this section as the
occurrence of one of the following: (1) the willful failure by the Executive to
substantially perform his duties hereunder, after notice from the Corporation
and a failure to cure such violation within thirty (30) days of said notice; (2)
the willful engaging by the Executive in misconduct injurious to the Corporation
or Bank; (3)
<PAGE>
the dishonesty or gross negligence of the Executive in the performance of his
duties; (4) the breach of Executive's fiduciary duty involving personal profit;
(5) the violation of any law, rule or regulation governing banks or bank
officers or any final cease and desist order issued by a bank regulatory
authority any of which materially jeopardizes the business of the Corporation or
Bank; or (6) conduct on the part of Executive which brings public discredit to
the Corporation or Bank.
If Executive's employment is terminated during the period of time between
the execution of an agreement to effect a Change of Control(as defined herein)
and the actual Date of the Change of Control (as defined herein) For Cause (as
defined herein), all rights of the Executive under this Agreement shall cease as
of the effective date of such termination, except that Executive (i) shall be
entitled to receive accrued salary through the date of such termination and (ii)
shall be entitled to receive the payments and benefits to which he is then
entitled under the employee benefit plans of the Employer or any affiliate
thereof as of the date of such termination.
2. DEFINITION OF CHANGE OF CONTROL. For purposes of this Agreement, the
term "Change of Control" shall mean a change of control (other than one
occurring by reason of an acquisition of the Corporation and/or the Bank by
Executive) of a nature that would be required to be reported in response to Item
6(e) of Schedule 14A of Regulation 14A or any successor rule or regulation
promulgated under the Securities Exchange Act of 1934, as amended (the "Act");
provided that, without limiting the foregoing, a Change of Control shall be
deemed to have occurred if:
(a) a merger or consolidation of the Corporation or purchase of substantially
all of the Corporation's assets by another "person" or group of "persons"
(as such term is defined or used in Sections 3, 13(d), and 14(d) of the
Act) and, as a result of such merger, consolidation or sale of assets, less
than a majority of the outstanding voting stock of the surviving, resulting
or purchasing person is owned, immediately after the transaction, by the
holders of the voting stock of the Corporation before the transaction;
(b) any "person" as defined above, other than the Corporation and/or the Bank,
the Executive or any "person" who on the date hereof is a director or
officer of the Corporation and/or the Bank, is or becomes the "beneficial
owner" (as defined in Rule 13d-3 and Rule 13d-5, or any successor rule or
regulation, promulgated under the Act), directly or indirectly, of
securities of the Corporation which represent twenty-five percent (25%) or
more of the combined voting power of the securities of the Corporation,
then outstanding; or
(c) during any period of two consecutive years during the term of this
Agreement and any extension thereof, individuals who at the beginning of
such period constitute the Board of Directors of the Corporation and/or the
Bank cease for any reason to constitute at least two-thirds thereof, unless
the election of each director who was not a director at the beginning of
such period has been approved in advance by directors representing at least
two-thirds of the directors then in office who were directors at the
beginning of the period.
<PAGE>
3. DEFINITION OF DATE OF CHANGE OF CONTROL. For purposes of this Agreement,
the "Date of Change of Control" shall be defined as the first date upon which
the events delineated in Subsections (a), (b) and (c) of Section 2 are
consummated or occur.
4. PAYMENTS UPON TERMINATION. If a Change of Control (as defined herein)
occurs, then the Executive shall be entitled to receive a lump sum payment equal
to two (2) times his current Annual Direct Salary, at the earliest of the
following events:
(a) If, between the execution of an agreement to effect a Change of Control (as
defined herein) and the actual Date of a Change of Control (as defined
herein) the Executive's employment with the Corporation and the Bank is
terminated, other than For Cause (as defined herein);
(b) If the Executive is not offered employment by the acquiring person or
entity as of the Date of Change of Control (as defined herein) in a
position having equivalent responsibilities, authority, compensation and
benefits as he received immediately prior to the Change of Control (as
defined herein);
(c) If, between the Date of the Change of Control (as defined herein) and six
(6) months after the Date of Change of Control (as defined herein), the
Executive is terminated from employment, for any reason whatsoever, by the
acquiring person or entity; or
(d) If, between three (3) and (6) months after the Date of Change of Control
(as defined herein), the Executive terminates his employment with the
acquiring person or entity.
If at the end of six (6) months after the Date of the Change of Control (as
defined herein), none of the events described above in Subsections (a), (b), (c)
or (d) of this Section have occurred, then the Executive shall no longer be
entitled to receive the Payments Upon Termination set forth in this Section, and
the Agreement shall thereafter be null and void.
Annual Direct Salary shall be defined herein as the fixed, gross, base
annual salary paid to the Executive at such time as the Corporation and the Bank
customarily pays its other senior officers and shall not include any benefits,
bonuses, incentives or other compensation.
This Agreement shall be null and void if the Payments Upon Termination
provided in Section 4 hereof cause the transaction effectuating the Change of
Control to not be accounted for as a pooling of interests for accounting
purposes by the United States Securities and Exchange Commission and such
pooling of interest accounting treatment is a condition to the consummation of
the Change of Control transaction mutually agreed upon by the Parties as part of
a definitive agreement for such transaction.
<PAGE>
5. NOTICE. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
Bruce E. Sickel
103 Tanglebrook Drive
Holland, PA 18966
If to the Corporation:
Clark S. Frame, Chairman of the Board
Premier Bancorp, Inc.
379 North Main Street
P.O. Box 818
Doylestown, PA 18901-0818
If to the Bank:
Clark S. Frame, Chairman of the Board
Premier Bank
450 East Street
P.O. Box 818
Doylestown, PA 18901-0818
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
6. SUCCESSORS. This Agreement shall inure to the benefit of and be binding
upon the Executive, his personal representatives, heirs or assigns, and any of
their successors or assigns, provided, however, that the Executive may not
commute, anticipate, encumber, dispose or assign any payment herein except as
specifically set forth in paragraph 9 herein.
7. SEVERABILITY. If any provision of this Agreement is declared
unenforceable for any reason, the remaining provisions of this Agreement shall
be unaffected thereby and shall remain in full force and effect.
8. AMENDMENT. This Agreement may be amended or canceled only by mutual
agreement of the parties in writing.
9. PAYMENT OF MONEY DUE DECEASED EXECUTIVE. In the event of Executive's
death, any monies that may be due him from the Corporation and the Bank under
this Agreement as of the date of death or thereafter shall be paid to the person
designated by him in writing for this purpose, or, in the absence of any such
designation, to his estate.
<PAGE>
10. NO GUARANTEE OF EMPLOYMENT. Nothing in this Agreement shall constitute
or give rise to any guarantee or contract of employment of the Executive by the
Corporation and the Bank, and shall not give the Executive any right to be
employed by or retained in the employ of the Corporation and the Bank in any
position or capacity.
11. LIMITATION OF DAMAGES FOR BREACH OF AGREEMENT. In the event of a breach
of this Agreement by either the Corporation and the Bank or the Executive, each
hereby waives to the fullest extent permitted by law the right to assert any
claim against the others for punitive or exemplary damages. In no event shall
any party be entitled to the recovery of attorney's fees or costs.
12. LAW GOVERNING. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
13. ENTIRE AGREEMENT. This Agreement supersedes any and all prior
agreements, either oral or in writing, between the parties with respect to
payments upon termination after a Change of Control, and this Agreement contains
all the covenants and agreements between the parties with respect to same.
<PAGE>
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have caused this Agreement to be duly executed in their respective names
and, in the case of the Corporation and the Bank, by its authorized
representatives the day and year above mentioned.
ATTEST: PREMIER BANCORP, INC.
/s/ John J. Ginley By: /s/ Clark S. Frame
- ------------------------- -----------------------------
John J. Ginley Clark S. Frame, Chairman of
the Board
ATTEST: PREMIER BANK
/s/ John J. Ginley By: /s/ Clark S. Frame
- ------------------------- -----------------------------
Clark S. Frame, Chairman of
the Board
/s/ John J. Ginley By: /s/ Bruce E. Sickel
- ------------------------- -----------------------------
Bruce E. Sickel, Senior
Vice President &
Chief Financial Officer
WITNESS:
SUBSIDIARY STATE OF INCORPORATION
Premier Bank Pennsylvania
EXHIBIT 23(i)
Consent of Shumaker Williams, P.C. Special Counsel to Registrant,
(contained in Opinion Letter filed as Exhibit 5)
KPMG PEAT MARWICK LLP
1600 Market Street
Philadelphia, Pa 19103-7212
The Board of Directors
Premier Bancorp, Inc.:
We consent to the use of our report attached to the prospectus as Annex A and to
the reference to our firm under the heading"Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
- --------------------------
KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
September 25, 1998
EXHIBIT 24
Power of Attorney given by the Officers and Directors of
Premier Bancorp, Inc. (Included in Signature Page)
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 3,907,790
<INT-BEARING-DEPOSITS> 69,479
<FED-FUNDS-SOLD> 5,107,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 62,729,666
<INVESTMENTS-CARRYING> 11,672,126
<INVESTMENTS-MARKET> 11,677,261
<LOANS> 120,945,210
<ALLOWANCE> 1,540,719
<TOTAL-ASSETS> 207,710,593
<DEPOSITS> 172,051,448
<SHORT-TERM> 4,744,318
<LIABILITIES-OTHER> 3,195,547
<LONG-TERM> 16,500,000
0
0
<COMMON> 7,996,781
<OTHER-SE> 3,222,499
<TOTAL-LIABILITIES-AND-EQUITY> 207,710,593
<INTEREST-LOAN> 5,171,149
<INTEREST-INVEST> 2,357,957
<INTEREST-OTHER> 109,883
<INTEREST-TOTAL> 7,638,989
<INTEREST-DEPOSIT> 3,539,896
<INTEREST-EXPENSE> 4,266,134
<INTEREST-INCOME-NET> 3,372,855
<LOAN-LOSSES> 235,000
<SECURITIES-GAINS> (5,704)
<EXPENSE-OTHER> 2,107,839
<INCOME-PRETAX> 1,136,580
<INCOME-PRE-EXTRAORDINARY> 1,136,580
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 761,080
<EPS-PRIMARY> 0.29
<EPS-DILUTED> 0.26
<YIELD-ACTUAL> 8.04
<LOANS-NON> 198,934
<LOANS-PAST> 145,814
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 198,934
<ALLOWANCE-OPEN> 1,360,148
<CHARGE-OFFS> 54,992
<RECOVERIES> 563
<ALLOWANCE-CLOSE> 1,540,719
<ALLOWANCE-DOMESTIC> 1,464,221
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 76,498
</TABLE>
OFFERING SUBSCRIPTION AGREEMENT
PREMIER BANCORP, INC.
500,000 Shares
Common Stock
(Par value $0.33 Per Share)
Minimum Subscription: 100 Shares
Maximum Subscription: 10,000 Shares
Price Per Share: $11.00
Premier Bancorp, Inc.
379 North Main Street
Doylestown, Pennsylvania 18901-0816
Attn: John C. Soffronoff, President
Ladies and Gentlemen:
1. I(We) (the "Undersigned") subscribe for and agree to purchase the number
of shares of Common Stock of Premier Bancorp, Inc. (the "Company") in connection
with the Community Offering, upon the terms and conditions provided herein and
in the Company's Offering Circular dated September 30, 1998, and any supplements
thereto (the "Offering Circular") (capitalized terms used but not defined herein
are defined in the Offering Circular), as follows:
No. of Shares Price Per Share Purchase Price
(100 Share Minimum)
(10,000 Share Maximum)
________________ X $11.00 = ____________
2. Method of Payment (Check One)
______ Enclosed is the Undersigned's check, bank draft or money order
made payable, in United States currency, to the order of "Premier
Bancorp, Inc.", for the amount of the Purchase Price, as
reflected in Paragraph 1.
______ The Undersigned authorizes withdrawal from this (these)
account(s) at Premier Bank for the amount of the Purchase Price,
as reflected in Paragraph 1. (There is no penalty for early
withdrawal used for this payment.)
<PAGE>
===============================================================================
Account Number(s) Amount
$
$
$
Total Amount to be Withdrawn $
===============================================================================
3. Stock Registration (Please type or print the information requested
below.)
__________________________________________ Day Phone ( )___________
Name(s) in which stock is to be registered
Evening Phone( )____________
------------------------------------------
Name(s) in which stock is to be registered
------------------------------------------
Title, if applicable, of Subscriber
------------------------------------------
Title, if applicable, of Subscriber
------------------------------------------
Street Address of Subscirber
------------------------------------------
City County State Zip Code
-------------------------------------------------
Social Security or Tax I.D. Number of Subscriber
-------------------------------------------------
Social Security or Tax I.D. Number of Co-Subscriber
The manner of ownership shall be (check one):
[ ] Individual
[ ] Tenants by the entireties (each must sign) [ ] Joint Tenants with
right of survivorship (each must sign) [ ] Tenants in Common (each must
sign) [ ] In Partnership [ ] As custodian, trustee or agent for
______________ [ ] Corporation Street Address of Subscriber
4. The Company has the right to accept or reject, in whole or in part, for
any reason whatsoever, shares subscribed for herein.
5. This agreement shall not be revoked by the Undersigned. The Undersigned
understands that there is no aggregate minimum number of shares of Common Stock
that the Company must sell pursuant to the Offering. The Undersigned understands
and agrees that there shall be no refund of any portion of the Total Purchase
Price paid pursuant to this agreement unless and until the Company rejects the
Subscription, as described in paragraph 4, above.
2
<PAGE>
6. Any refund checks shall be made payable to and sent to the Undersigned
at the address specified above. All shares of Common Stock shall be registered
in the name(s) of, and sent to the address specified above.
7. This agreement shall be accepted and become an agreement binding on the
Company, only if and when executed in the name and on behalf of the Bank and
when notice of such execution and acceptance (which may be a copy or similar
counterpart hereof) is mailed to the Undersigned. This agreement is binding,
after acceptance by the Bank, upon the heirs, estate, legal representatives,
assigns and successors of the Undersigned and shall survive the death,
disability or dissolution of the Undersigned.
8. The Undersigned has/have received, read and understood the Company's
Offering Circular dated September 30, 1998, and any supplements thereto, and
understands that this representation does not constitute a waiver of any rights
under the Securities Act of 1933, the Securities Exchange Act of 1934 or under
the Pennsylvania Securities Act of 1972 and the rules and regulations adopted
thereunder. The Undersigned understand(s) that investment in the Common Stock
includes certain risks and the Undersigned has/have carefully read and
considered the matters set forth under the caption "Risk Factors" in the
Offering Circular. No information or representation that is either inconsistent
with or undisclosed in the Offering Circular has been received by the
Undersigned from representatives of the Company or anyone else. The Undersigned
acknowledges and understands that no Federal or State Agency has made any
finding or determination as to the fairness for public investment, nor any
recommendation or endorsement of the shares.
9. The Offering will terminate at 5:00 p.m. on December 15, 1998, or at
such later date as shall be determined by the Company, but in no event later
than 5:00 p.m. on January 30, 1999 (the "Offering Termination Date").
10. The Undersigned represent(s) that he/she/we is/are: (i) at least
eighteen (18) years of age; and (ii) a resident of the Commonwealth of
Pennsylvania.
11. The Undersigned represents that he/she/they is/are acquiring the shares
for his/her/their own account, solely for investment and not with a view to
resale or distribution.
12. The Undersigned agree(s) not to transfer or assign this agreement, or
any interest herein, including, but not limited to, the Common Stock purchased
hereunder, except in accordance with all applicable laws.
13. The Undersigned acknowledges that the shares of the Company's Common
Stock offered hereby are not deposits. These securities are not insured by the
Federal Deposit Insurance Corporation or any other governmental agency and are
subject to investment risk, including the possible loss of principal.
Furthermore, an investment in the shares of the Company's Common Stock hereby
offered is not guaranteed by the Company.
3
<PAGE>
14. If this agreement is executed on behalf of a corporation, partnership,
trust or other entity, the Undersigned has/have been duly authorized to execute
this agreement and all other instruments in connection with the purchase of the
Common Stock, and the signature(s) of the Undersigned is/are binding upon such
corporation, partnership, trust or other entity. The Company retains the right
to request the production of an appropriate certification for said
authorization.
15. The provisions of this agreement shall be construed and enforced
according to the laws of the Commonwealth of Pennsylvania. In the event there is
any conflict between the Offering Circular and this agreement, the terms set
forth in the Offering Circular and any supplements thereto shall be controlling.
16. This agreement constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof and may be amended only by a
writing executed by the party to be bound thereby.
Dated: _________________________________
-----------------------------------------
(Signature of Subscriber)
-----------------------------------------
(Print Name)
-----------------------------------------
(Signature of Co-Subscriber)
-----------------------------------------
(Print Name)
Accepted:
PREMIER BANCORP, INC.
By: ______________________________
(Authorized Signature)
------------------------------
(Date of Execution)
