================================================================================
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: September 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 (IRS Employer
of incorporation or organization) Identification Number)
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)
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 October 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
(Unaudited)
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
Assets
Cash and due from banks $ 2,945,909 4,307,164
Federal funds sold 2,200,000 --
Interest-bearing deposits 157,270 85,823
Investment securities:
Held to maturity (fair value $9,880,118 in 1998 and
$15,099,965 in 1997) 9,854,181 15,169,638
Available for sale (amortized cost of $84,182,403 in 1998
and $62,355,084 in 1997) 83,535,485 62,434,137
Loans held for sale 487,096 197,944
Loans receivable (net of allowance for loan losses of $1,655,184
in 1998 and $1,360,148 in 1997) 128,298,723 107,172,526
Accrued interest receivable 1,869,126 1,451,899
Premises and equipment 1,214,744 1,174,769
Real estate owned 730,000 638,286
Deferred taxes 651,736 404,906
Other assets 613,104 486,348
-------------- ------------
Total assets $ 232,557,374 193,523,440
============== ============
Liabilities, minority interest in subsidiaries and shareholders' equity
Deposits $ 174,405,400 143,603,202
Borrowings 27,655,218 34,842,740
Accrued interest payable 1,980,465 1,346,123
Other liabilities 5,881,026 1,797,538
Subordinated debt 1,500,000 1,500,000
-------------- ------------
Total liabilities 211,422,109 183,089,603
Corporation-obligated mandatorily redeemable capital
securities of subsidiary trust holding solely junior
subordinated debentures of the Corporation 10,000,000 --
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 3,565,450 2,384,881
Accumulated other comprehensive (loss) income (426,966) 52,175
-------------- ------------
Total shareholders' equity 11,135,265 10,433,837
-------------- ------------
Total liabilities, minority interest in subsidiaries and
shareholders' equity $ 232,557,374 193,523,440
============== ============
</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 nine months
ended September 30, ended September 30,
-------------------------- --------------------------
1998 1997 1998 1997
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Interest income:
Loans $2,850,854 2,296,748 8,022,003 6,308,320
Federal funds sold and interest-bearing deposits 36,099 26,000 145,982 63,227
Investments:
Taxable 1,254,583 1,138,209 3,360,173 3,206,072
Tax-exempt 139,553 58,663 391,920 185,961
---------- --------- ---------- ----------
Total interest income 4,281,089 3,519,620 11,920,078 9,763,580
---------- --------- ---------- ----------
Interest expense:
Deposits 1,950,520 1,584,788 5,490,416 4,294,753
Borrowings 351,875 408,633 1,078,113 1,171,000
---------- --------- ---------- ----------
Total interest expense 2,302,395 1,993,421 6,568,529 5,465,753
---------- --------- ---------- ----------
Net interest income 1,978,694 1,526,199 5,351,549 4,297,827
Provision for loan losses 120,000 105,000 355,000 280,000
---------- --------- ---------- ----------
Net interest income after loan loss provision 1,858,694 1,421,199 4,996,549 4,017,827
Non-interest income:
Service charges and other fees 41,082 38,648 132,026 108,177
Gain, on sale of investment
securities available for sale, net 74,812 12,964 69,108 20,708
Gain on sale of loans held for sale 10,644 4,860 31,968 4,860
---------- --------- ---------- ----------
Total non-interest income 126,538 56,472 233,102 133,745
Non-interest expense:
Salaries and employee benefits 586,151 471,411 1,637,037 1,289,490
Occupancy 104,469 97,476 303,847 299,373
Data processing 120,088 99,198 332,540 287,022
Professional services 82,660 82,709 222,430 211,171
Marketing 55,000 23,120 154,082 134,460
Other 293,943 184,761 700,214 544,119
Minority interest in expense of subsidiaries 123,432 -- 123,432 --
---------- --------- ---------- ----------
Total non-interest expense 1,365,743 958,675 3,473,582 2,765,635
---------- --------- ---------- ----------
Income before income tax 619,489 518,996 1,756,069 1,385,937
Income tax expense 200,000 160,000 575,500 440,000
---------- --------- ---------- ----------
Net income $ 419,489 358,996 1,180,569 945,937
========== ========= ========== ==========
Earnings per share:
Basic $ 0.16 0.14 0.45 0.36
Diluted 0.14 0.13 0.40 0.35
Weighted average number of shares outstanding:
Basic 2,630,340 2,604,303 2,630,340 2,604,303
Diluted 2,939,386 2,757,662 2,918,689 2,737,631
</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 nine months ended September 30, 1998 1997
- --------------------------------------- ------------- ------------
<S> <C> <C>
Operating activities:
Net income $ 1,180,569 $ 945,937
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation expense 162,070 128,222
Provision for loan losses 355,000 280,000
Writedown of real estate owned 77,460 --
Amortization of organization cost -- 24,000
Amortization of premiums and discounts on investment
securities held to maturity 13,336 12,496
Amortization of premiums and discounts on investment
securities available for sale 126,724 170,897
Gain on sale of investment securities available for sale (69,108) (20,708)
Gain on sale of loans held for sale (31,968) (4,860)
Originations of loans held for sale (5,008,100) (1,147,554)
Proceeds from sale of loans held for sale 4,750,916 1,002,002
Increase in accrued interest receivable (417,227) (303,333)
Increase in other assets (126,756) (554,845)
Increase in deferred loan fees 77,516 69,504
Increase in accrued interest payable 634,342 503,323
Increase (decrease) in other liabilities 4,083,488 (491,143)
------------- ------------
Net cash provided by operating activities 5,808,262 613,938
------------- ------------
Investing activities:
Proceeds from sale of investment securities available for sale 74,503,245 18,900,322
Repayment on investment securities available for sale 7,643,374 10,182,093
Purchase of investment securities available for sale (104,031,553) (37,318,168)
Repayment on investment securities held to maturity 6,801,183 529,459
Purchase of investment securities held to maturity (1,499,062) --
Net increase in loans receivable (21,808,714) (20,144,477)
Proceeds from sale of real estate owned 80,826 325,533
Purchases of premises and equipment (202,045) (795,619)
------------- ------------
Net cash used in investing activities (38,512,746) (28,320,857)
------------- ------------
Financing activities:
Net increase in deposits 30,802,198 22,695,645
Net (decrease) increase in borrowings less than 90 days (12,187,522) 5,426,550
Proceeds from borrowings greater than 90 days 5,000,000 34,000,000
Repayment of borrowings greater than 90 days -- (33,750,000)
Proceeds from issuance of subordinated debt -- 1,500,000
Proceeds from issuance of capital securities 10,000,000 --
------------- ------------
Net cash provided by financing activities 33,614,676 29,872,195
------------- ------------
Increase in cash and cash equivalents 910,192 2,165,276
Cash and cash equivalents:
Beginning of period 4,392,987 2,330,389
------------- ------------
End of period 5,303,179 4,495,665
============= ============
Composed of:
Cash and due from banks 2,945,909 3,744,883
Federal funds sold 2,200,000 618,000
Interest-bearing deposits 157,270 132,782
------------- ------------
Total cash and cash equivalents $ 5,303,179 4,495,665
============= ============
Cash payments for:
Interest expense $ 5,934,188 $ 4,962,430
Taxes $ 700,000 $ 650,000
Supplemental disclosure of noncash activities:
Change in unrealized net gain on securities available for sale (479,141) 57,667
Change in deferred tax asset related to securities available for sale 246,830 (29,706)
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 Bank Insurance Fund of
the Federal Deposit Insurance Corporation to the extent provided by law.
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 nine months ended September 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 subsidiaries: Premier Bank and PBI Capital
Trust. 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, the realizability of deferred tax assets and the carrying value
of real estate owned.
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 September 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.
(continued)
5
<PAGE>
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 September 30, 1998
---------------------------------------------
Per share
Net income Shares Amount
---------- --------- ---------
<S> <C> <C> <C>
Basic earnings per share $ 419,489 2,630,340 0.16
Effect of dilutive stock options -- 309,046 (0.02)
---------- --------- ---------
Diluted earnings per share $ 419,489 2,939,386 0.14
========== ========= =========
</TABLE>
<TABLE>
<CAPTION>
For the three months ended September 30, 1997
---------------------------------------------
Per share
Net income Shares Amount
---------- --------- ---------
<S> <C> <C> <C>
Basic earnings per share $ 358,996 2,604,303 0.14
Effect of dilutive stock options -- 153,359 (0.01)
---------- --------- ---------
Diluted earnings per share $ 358,996 2,757,662 0.13
========== ========= =========
</TABLE>
<TABLE>
<CAPTION>
For the nine months ended September 30, 1998
--------------------------------------------
Per share
Net income Shares Amount
---------- --------- ---------
<S> <C> <C> <C>
Basic earnings per share $1,180,569 2,630,340 0.45
Effect of dilutive stock options -- 288,349 (0.05)
---------- --------- ---------
Diluted earnings per share $1,180,569 2,918,689 0.40
========== ========= =========
</TABLE>
<TABLE>
<CAPTION>
For the nine months ended September 30, 1997
--------------------------------------------
Per share
Net income Shares Amount
---------- --------- ---------
<S> <C> <C> <C>
Basic earnings per share $ 945,937 2,604,303 0.36
Effect of dilutive stock options -- 133,328 (0.01)
---------- --------- ---------
Diluted earnings per share $ 945,937 2,737,631 0.35
========== ========= =========
</TABLE>
(continued)
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 estimated fair value of investment securities available for sale.
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, ended September 30,
------------------------- ------------------------
1998 1997 1998 1997
--------- ------- -------- ---------
<S> <C> <C> <C> <C>
Net income $ 419,489 358,996 1,180,569 945,937
--------- ------- --------- ---------
Other comprehensive income, net of tax:
Unrealized gains on securities:
Unrealized holding (losses) gains during the period (454,128) 50,610 (433,530) 71,333
Less: Reclassificadon adjustment for gains included
in net income (49,376) (8,556) (45,611) (13,667)
--------- ------- --------- ---------
Other comprehensive (loss) income (503,504) 42,054 (479,141) 57,666
--------- ------- --------- ---------
Comprehensive (loss) income $ (84,015) 401,050 701,428 1,003,603
========= ======= ========= =========
</TABLE>
7. Capital Securities
On August 11, 1998, the Company's recently formed subsidiary, PBI Capital
Trust (the "Trust") issued $10.0 million of 8.57% Capital Securities due August
15, 2028. The Trust is 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 is
using 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. 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 been temporarily invested in
investment securities available for sale. Proceeds from the Capital Securities
provide the Company with additional Tier I and Tier II capital.
These Capital Securities are reported in the Consolidated Statements of
Financial Condition under the caption "Corporation-obligated mandatorily
redeemable capital securities of subsidiary trust holding solely junior
subordinated debentures of the Corporation".
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
Bank Insurance Fund of the Federal Deposit Insurance Corporation to the fullest
extent provided by law. 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 subsidiaries: Premier Bank and PBI Capital Trust. 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 on Form 10-QSB for the
three and nine months ended September 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. For example,
risks and uncertainties can arise with changes in: general economic conditions,
including their impact on capital expenditures; business conditions in the
financial services industry; the regulatory environment; rapidly changing
technology and competition with community, regional and national financial
institutions; new service and product offerings by competitors and price
pressures; the inability of the Company to accurately estimate the cost of
systems preparation for the Year 2000 compliance; and similar items. 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 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 (which have
been annualized).
Average Balances, Rates and Interest Income and Expense Summary
<TABLE>
<CAPTION>
For the three months ended September 30, 1998 1997
---------------------------------------- -------------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------------- ---------- -------- ------------ --------- -------
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-bearing deposits $ 215,513 2,549 4.69% $ 279,799 3,191 4.52%
Federal funds sold 2,246,957 33,550 5.92% 1,635,967 22,809 5.53%
Investment securities available for sale
Taxable 63,804,182 1,077,370 6.70% 54,898,914 906,908 6.55%
Tax-exempt (1) 10,777,289 139,553 5.14% 4,222,052 58,663 5.51%
Investment securities held to maturity
(taxable) 10,587,228 177,213 6.64% 13,693,251 231,301 6.70%
------------ --------- ---- ------------ --------- ----
Total investment securities 85,168,699 1,394,136 6.49% 72,814,217 1,196,872 6.52%
Loans, net of unearned income (2)(3) 125,793,770 2,850,854 8.99% 98,947,292 2,296,748 9.21%
------------ --------- ---- ------------ --------- ----
Total earning assets 213,424,939 4,281,089 7.96% 173,677,275 3,519,620 8.04%
Cash and due from banks 3,326,896 2,888,721
Allowance for loan losses (1,602,181) (1,189,274)
Other assets 4,547,290 4,449,705
------------ ------------
Total assets $219,696,944 $179,826,427
============ ============
Liabilities, minority interest in
subsidiaries and shareholders' equity
Interest checking $ 13,110,597 86,439 2.62% $ 9,379,573 60,350 2.55%
Money market deposit accounts 1,775,661 11,483 2.57% 1,763,664 11,380 2.56%
Savings accounts 52,249,804 508,737 3.86% 41,836,812 410,468 3.89%
Time deposits 92,363,018 1,343,861 5.77% 76,366,480 1,102,590 5.73%
------------ --------- ---- ------------ --------- ----
Total interest-bearing deposits 159,499,080 1,950,520 4.85% 129,346,529 1,584,788 4.86%
Short-term borrowings 8,500,323 116,828 5.45% 26,267,536 373,052 5.63%
Long-term borrowings 15,000,000 205,338 5.43% 326,087 4,542 5.53%
Total borrowing; 23,500,323 322,166 5.44% 26,593,623 377,594 5.63%
Subordinated debt 1,500,000 29,709 7.86% 1,500,000 31,039 8.21%
------------ --------- ---- ------------ --------- ----
Total interest-bearing liabilities 184,499,403 2,302,395 4.95% 157,440,152 1,993,421 5.02%
Non interest bearing-deposits 14,610,542 9,949,797
Capital securities 5,543,478 --
Other liabilities 3,759,391 2,861,382
Shareholders' equity 11,284,130 9,575,096
Total liabilities, minority interest in
subsidiaries and shareholders' equity $219,696,944 $179,826,427
============ ============
Net interest income/rate spread 1,978,694 3.01% 1,526,199 3.02%
========= ==== ========= ====
Net interest margin 3.68% 3.49%
Average interest-earning assets as a percentage
of average interest-bearing liabilities 115.68% 110.31%
</TABLE>
- -----------------
(1) Interest income on tax-exempt investment securities has not been presented
on a tax equivalent basis.
(2) Includes nonaccrual loans of $283,280 and $502,701 on average for the three
months ended September 30, 1998 and 1997, respectively.
(3) Includes tax-exempt loans of $1,325,043 and $1,442,378 on average for the
three months ended September 30, 1998 and 1997, respectively. These loans
have not been presented on a tax-equivalent basis.
9
<PAGE>
The following table sets forth, for the periods indicated, certain key average
balance sheet amounts and their corresponding earnings/expenses and rates (which
have been annualized).
Average Balances, Rates and Interest Income and Expense Summary
<TABLE>
<CAPTION>
For the three months ended September 30, 1998 1997
---------------------------------------- -------------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------------- ---------- -------- ------------ --------- -------
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-bearing deposits $ 294,760 8,762 3.97% 274,116 9,602 4.68%
Federal funds sold 3,313,645 137,220 5.54% 1,306,022 53,625 5.49%
Investment securities available for sale
Taxable 54,858,957 2,731,612 6.66% 53,304,187 2,678,048 6.72%
Tax-exempt (1) 10,039,402 391,920 5.22% 4,444,841 185,961 5.59%
Investment securities held to maturity
(taxable) 12,509,533 628,561 6.72% 9,978,397 528,024 7.07%
------------- ---------- ------ ------------ --------- ------
Total investment securities 77,407,892 3,752,093 6.48% 67,727,425 3,392,033 6.70%
Loans, net of unearned income (2)(3) 117,936,290 8,022,003 9.09% 91,764,146 6,308,320 9.19%
------------- ---------- ------ ------------ --------- ------
Total earning assets 198,952,587 11,920,078 8.01% 161,071,709 9,763,580 8.10%
Cash and due from banks 3,332,355 2,646,588
Allowance for loan losses (1,498,162) (1,091,428)
Other assets 4,832,077 4,109,754
------------- ------------
Total assets $ 205,618,857 166,736,623
============= ============
Liabilities, minority interest in subsidiaries
and shareholders' equity
Interest checking $ 12,362,205 240,120 2.60% 8,415,883 159,053 2.53%
Money market deposit accounts 1,746,337 33,360 2.55% 1,445,284 27,294 2.52%
Savings accounts 49,260,177 1,425,432 3.87% 41,528,731 1,221,459 3.93%
Time deposits 87,632,858 3,791,504 5.78% 67,745,583 2,886,947 5.70%
------------- ---------- ------ ------------ --------- ------
Total interest-bearing deposits 151,001,577 5,490,416 4.86% 119,135,481 4,294,753 4.82%
Short-term borrowings 9,408,382 381,373 5.42% 25,377,674 1,077,680 5.68%
Long-term borrowings 15,000,000 608,497 5.42% 109,890 4,542 5.53%
Total borrowings 24,408,382 989,870 5.42% 25,487,564 1,082,222 5.68%
Subordinated debt 1,500,000 88,243 7.87% 1,456,044 88,778 8.15%
------------- ---------- ------ ------------ --------- ------
Total interest-bearing liabilities 176,909,959 6,568,529 4.96% 146,079,089 5,465,753 5.00%
Non interest-bearing deposits 12,788,689 8,993,193
Capital securities 1,868,132 --
Other liabilities 3,191,366 2,464,381
Shareholders' equity 10,860,711 9,199,960
------------- ------------
Total liabilities, minority interest in
subsidiaries and shareholders' equity $ 205,618,857 166,736,623
============= ============
Net interest income/rate spread 5,351,549 3.05% 4,297,827 3.10%
========== ====== ========= ====
Net interest margin 3.60% 3.57%
Averalp interest-earning assets as a percentage
of average interest-bearing liabilities 112.46% 110.26%
</TABLE>
- -------------------
(1) Interest income on tax-exempt investment securities has not been presented
on a tax equivalent basis.
(2) Includes nonaccrual loans of $249,042 and $517,294 on average for the nine
months ended September 30, 1998 and 1997, respectively.
(3) Includes tax-exempt loans of $1,356,353 and $1,471,761 on average for the
nine months ended September 30, 1998 and 1997, respectively. These loans
have not been presented on a tax-equivalent basis.
10
<PAGE>
Growth Trend
Total assets have grown in excess of 30% in each of the past five years
from $38,336,413 at December 31, 1993 to $232,557,374 at September 30, 1998.
During this same period, total deposits and total loans grew in excess of 20%
each year. Total loans have grown from $26,982,780 at December 31, 1993 to
$130,356,257 at September 30, 1998. The Company's lending strategy continues to
be focused on providing personal attention and credit solutions for small
businesses and professionals. New loan officers have been and continue to be
hired to grow the loan portfolio. Total deposits have grown from $33,103,423 at
December 31, 1993 to $174,405,400 at September 30, 1998. To date, deposits have
grown as a result of aggressive pricing, direct marketing and branch expansion.
The Southampton branch was opened in February 1997 with total deposits exceeding
$23 million at September 30, 1998. By year end 1998, the Company expects to open
its fourth branch (the "Yardley branch") in Lower Makefield Township, Bucks
County, Pennsylvania. To support the Company's past and future plans for growth,
new operations personnel and improved computer systems have also been added
throughout the years.
The discussion that follows compares the financial results for the three
and nine months ended September 30, 1998 to the same periods in 1997. The change
in financial results over the past year are described mostly in terms of the
overall growth of the Company as discussed above.
Results of Operations
For the three months ended September 30, 1998, the Company reported net
income of $419,489 or $.14 diluted earnings per share. This represents an
increase of $60,493 or 16.9% from the $358,996 or $.13 diluted earnings per
share reported for the same period in 1997. Return on average assets was .76%
and .79% for the three months ended September 30, 1998 and 1997, respectively.
Return on average equity was 14.75% and 14.87% for the three months ended
September 30, 1998 and 1997, respectively. Net interest income and non-interest
expenses for the three months ended September 30, 1998 were higher than the
comparable period in 1997 and reflect the overall growth of the institution. The
provision for loan losses was $120,000 in 1998 in comparison with $105,000 for
1997. Non-interest income totaled $126,538, an increase of $70,066 from the
$56,472 earned in 1997. The increase in non-interest income is primarily due to
higher gains on the sale of investment securities available for sale.
Non-interest expense amounted to $1,365,743 for 1998, a $407,068 increase over
the $958,675 reported in 1997. Salaries and benefits increased $114,740 in 1998
in conjunction with the overall growth of the institution. The number of full
time equivalent employees has increased from 40 at September 30, 1997 to 47 at
September 30, 1998. In addition, non-interest expense for the three months ended
September 30,1998 includes $123,432 in minority interest in expense of
subsidiaries related to the Capital Securities issued on August 11, 1998 and
$77,460 in write-downs on real estate owned.
For the nine months ended September 30, 1998, the Company reported net
income of $1,180,569 or $.40 diluted earnings per share. This represents an
increase of $234,632 or 24.8% from the $945,937 or $.35 diluted earnings per
share reported for the same period in 1997. Return on average assets was .77%
and .76% for the nine months ended September 30, 1998 and 1997, respectively.
Return on average equity was 14.53% and 13.75% for the nine months ended
September 30, 1998 and 1997, respectively. Net interest income, non-interest
income and non-interest expenses for the nine months ended September 30, 1998
were higher than the comparable period in 1997 and reflect the overall growth of
the institution. The provision for loan losses was $355,000 in 1998 in
comparison with $280,000 for 1997. Non-interest income totaled $233,102, an
increase of $99,357 from the $133,745 earned in 1997. Service charges, gains on
the sale of investment securities available for sale and gains on the sale of
loans held for sale increased $23,849, $48,400 and $27,108, respectively in
1998. Non-interest expense amounted to $3,473,582 for 1998, a $707,947 increase
over the $2,765,635 reported in 1997. Salaries and benefits increased $347,547
in 1998 due to the hiring of new lending and operations personnel. Data
processing costs were $45,518 higher in 1998 due to an increase in the deposit
transactions and improved computer systems. Other expenses were $156,095 higher
in 1998 and include $77,460 in write-downs on real estate owned and $38,514 in
printing and filing costs for new shareholder/regulatory reporting. In addition,
non-interest expense for the nine months ended September 30,1998 includes
$123,432 in minority interest in expense of subsidiaries related to the Capital
Securities issued on August 11, 1998.
11
<PAGE>
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. Interest
rates have generally moved lower during 1998.
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
interest-earning assets.
For the three months ended September 30, 1998, net interest income was
$452,495 higher than the same period in 1997. This increase was primarily a
function of asset growth. The net interest margin was 3.68% for the three months
ended September 30, 1998 as compared to 3.49% for the same period in 1997. While
the net interest spread was relatively unchanged during the three months ended
September 30, 1998 as compared to 1997, the increase in net interest margin is
attributed to the higher ratio of interest-earning assets to interest-bearing
liabilities. For the three months ended September 30, 1998 the ratio of
interest-earning assets to interest-bearing liabilities was 115.68% as compared
to 110.31% for the same period in 1997. Average earning assets grew $39,747,664
with an 8 basis point decrease in rate. Average investments and average loans
increased $12,354,482 and $26,846,478, respectively. The average yield on
investments and average yield on loans dropped 3 basis points and 22 basis
points, respectively, for the three months ended September 30, 1998. The overall
rate paid on interest bearing liabilities decreased 7 basis points. While the
average rate on borrowings and subordinated debt decreased 19 basis points and
35 basis points, respectively, average deposit costs were relatively unchanged.
Average interest bearing deposits increased $30,152,551 while average borrowings
decreased $3,093,300. Non-interest bearing deposits increased $4,660,745 or
46.8%.
For the nine months ended September 30, 1998, net interest income was
$1,053,722 or 24.5% higher than the same period in 1997. This increase was
primarily a function of asset growth as average earning assets grew $37,880,878
with a 9 basis point decrease in rate. The net interest margin was 3.60% for the
nine months ended September 30, 1998 as compared to 3.57% for the same period in
1997. The net interest margin increased due to the higher ratio of
interest-earning assets to interest-bearing liabilities, despite a 5 basis point
decrease in the net interest spread. For the nine months ended September 30,
1998 the ratio of interest-earning assets to interest-bearing liabilities was
112.46% as compared to 110.26% for the same period in 1997. Average investments
and average loans increased $9,680,467 and $26,172,144, respectively, for the
nine months ended September 30, 1998. The average yield on investments and
average yield on loans dropped 22 basis points and 10 basis points,
respectively. The overall rate paid on interest bearing liabilities decreased 4
basis points. While deposit costs were higher in 1998 the rate on borrowings and
subordinated debt decreased 26 basis points and 28 basis points, respectively.
Average interest bearing deposits increased $31,866,096 with a 4 basis point
increase in rate, as most of the growth was concentrated in higher costing time
deposits. Non-interest bearing deposits increased $3,795,496 or 42.2%. Average
borrowings decreased $1,079,182.
Non-interest income
Total non-interest income was $126,538 for the three months ended September
30, 1998 as compared to the $56,472 earned for the same period in 1997. The
increase is principally due to higher gains on the sale of investment securities
available for sale.
Total non-interest income was $233,102 for the nine months ended September
30, 1998 as compared to the $133,745 earned for the same period in 1997. Service
charges, gains on the sale of investment securities available for sale and gains
on the sale of loans held for sale increased $23,849, $48,400 and $27,108,
respectively.
12
<PAGE>
Non-interest expense
For the three months ended September 30, 1998, non-interest expenses were
$1,365,743 as compared to $958,675 during the same period in 1997. The $407,068
increase in non-interest expense relates principally to $114,740 in higher
salary costs due to an increase in the number of employees and the overall
growth of the institution; $123,432 in minority interest in expense of
subsidiaries related to the Capital Securities issued in August 1998, and
$77,460 in write-downs on real estate owned.
For the nine months ended September 30, 1998, non-interest expenses were
$3,473,582 or $707,947 higher than the $2,765,635 reported during the same
period in 1997. Salaries and benefits increased $347,547 in 1998 due to the
addition of new lending and operations personnel. Data processing costs were
$45,518 higher in 1998 principally due to growth of the institution and variable
costs associated with item processing and account volumes. Other expenses were
$156,095 higher in 1998 and include $77,460 in write-downs on real estate owned
and $38,514 in printing and filing costs for new shareholder/regulatory
reporting. In addition, 1998 results include $123,432 in minority interest in
expense of subsidiaries related to the Capital Securities issued on August 11,
1998.
Income tax expense
Income tax expense for the quarter ended September 30, 1998 was $200,000 as
compared to $160,000 for the quarter ended September 30, 1997. For the nine
months ended September 30, 1998, income tax expense totaled $575,500 as compared
to $440,000 for the same period in 1997. The tax provision for the three and
nine months ended September 30, 1998 increased due to the increase in taxable
earnings.
The effective tax rate for the three months ended September 30, 1998 was
32.3% as compared to 30.8% for the same period in 1997. The effective tax rate
for the nine months ended September 30, 1998 was 32.8% as compared to 31.2% for
the same period in 1997. The effective tax rate for the three and nine months
ended September 30, 1997 was higher than the comparable period in 1998, in part,
due to the deduction of remaining deferred organization costs in 1997. Deferred
organization costs were deducted for tax purposes over a 5 year period ending in
1997.
Financial Condition
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 and
corporate bonds, as AFS to provide management the flexibility to sell certain
securities and adjust its balance sheet in response to capital levels and/or
changes in market conditions. The carrying values for AFS and HTM securities
were $83,535,485 and $9,854,181, respectively, as of September 30, 1998. During
1998, management sold certain mortgage-backed securities in reaction to higher
than expected prepayments triggered by generally falling interest rates.
Proceeds from 1998 security sales were $74,503,245 with net gains of $69,108
recorded. Investment purchases totaled $105,530,615 and were concentrated in
fixed rate GNMA securities and corporate bonds.
The estimated fair value of the Company's investment securities available
for sale declined $725,971 from an unrealized net gain of $79,053 at December
31, 1997 to an estimated unrealized loss of $646,918 at September 30, 1998.
Following the issuance of the Company's own $10 million of Capital Securities in
August 1998, the Company and the Bank invested in similar type securities issued
by other banking companies which are classified as Corporate Bonds. The
Corporate Bond investments included $20 million of fixed rate securities which
were made to generally offset the costs of the Company's own issue.
Additionally, the Company invested $18 million in floating rate Corporate Bonds
to provide a variable rate element to its portfolio. Although the Bank has no
immediate plans to sell these securities, it has chosen to classify these
securities as available for sale pursuant to SFAS 115 which allows management
the flexibility to sell the securities and adjust its portfolio as future
conditions change. Available for
13
<PAGE>
sale securities are marked to market on the balance sheet with an adjustment to
equity, net of tax, and presented in the caption "Accumulated other
comprehensive income".
In late August and throughout September 1998 global financial markets
experienced high volatility following certain highly publicized events such as
Russia defaulting on its debt and the rippling effects on certain money
management funds ("Hedge Funds"). These events had a negative impact on non-U.S.
Government bond and credit markets as there was an overall "flight to quality"
of U.S. Treasury Bonds. Corporate bond prices were deeply discounted by the
markets and consequently, the Company's portfolio experienced an unrealized loss
in value. The Company believes that the credit quality of its corporate bond
portfolio is strong and therefore, the unrealized loss is deemed temporary. The
Company evaluates the credit worthiness of the issuer prior to investing in such
securities. Approximately 70% of the issuers are investment grade as rated by
Moody's Investors Service. The Company monitors market conditions closely and
adjusts its portfolio as it considers necessary.
<TABLE>
<CAPTION>
September 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 $ 6,987,666 7,030,000 -- --
Mortgage-backed securities 2,366,515 2,350,118 30,643,852 30,839,242
State and municipal securities -- -- 11,428,665 11,724,773
Corporate bonds -- -- 38,994,286 37,842,870
Equity securities -- -- 3,000,600 3,013,600
Other debt securities 500,000 500,000 115,000 115,000
----------- ---------- ---------- ----------
Total 9,854,181 9,880,118 84,182,403 83,535,485
=========== ========== ========== ==========
</TABLE>
<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. Approximately
90% of the loan portfolio is collateralized at least in part by real estate as
shown by the following table:
<TABLE>
<CAPTION>
September 30, 1998 % of Total December 31, 1997 % of Total
------------------ ---------- ----------------- ----------
<S> <C> <C> <C> <C>
Real estate-farmland $ -- -- 500,000 0.46%
Real estate-construction 2,038,921 1.57% 1,188,288 1.09%
Real estate-residential 23,715,561 18.19% 22,965,889 21.10%
Real estate-multifamily 5,217,174 4.00% 1,948,943 1.79%
Real estate-commercial 85,084,787 65.27% 72,372,260 66.48%
Consumer 1,060,699 0.81% 797,671 0.73%
Commercial 13,239,115 10.16% 9,084,458 8.35%
------------ ------ ----------- ------
Total Loans $130,356,257 100.00% 108,857,509 100.00%
Unearned income 402,350 324,835
Allowance for loan losses 1,655,184 1,360,148
------------ -----------
Total loans, net $128,298,723 107,172,526
============ ===========
</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 and considers various factors, including
current economic conditions, actual loss experience and the current risk profile
of the portfolio which is based, in part, on the composition of loan types
within the portfolio. Each commercial 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 and other factors as mentioned above. Borrowers risk ratings are
determined by loan officers at the inception of each loan and are subject to
ongoing 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
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 judgments about information
available to them at the time of examination.
At September 30, 1998, the Bank had $1,655,184 in its allowance for loan
losses, representing 1.27% of outstanding loans receivable as compared to 1.25%
and 1.21% at December 31, 1997 and September 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 Nine For the Nine
Months Ended For the Year Ended Months Ended
September 30, 1998 December 31, 1997 September 30, 1997
------------------ ------------------ ------------------
<S> <C> <C> <C>
Balance at beginning of period $ 1,360,148 960,672 960,672
Charge-offs
Real estate-residential 60,064 -- --
Consumer installment 7,928 524 524
------------ ----------- ------------
Total charge-offs 67,992 524 524
Recoveries
Consumer installment 8,028 -- --
------------ ----------- ------------
Net charge-offs 59,964 524 524
Provision for possible loan losses 355,000 400,000 280,000
------------ ----------- ------------
Balance at end of period 1,655,184 1,360,148 1,240,148
============ =========== ============
Total gross loans:
Average 118,334,741 95,403,549 92,004,276
End of period 130,356,257 108,857,509 102,265,120
Ratios:
Net charge-offs to:
Average loans 0.05% -- --
Loans at end of period 0.05% -- --
Allowance for loan losses 3.62% 0.04% 0.04%
Provision for loan losses 16.89% 0.13% 0.19%
Allowance for loan losses to:
Total gross loans at end of period 1.27% 1.25% 1.21%
Non-performing loans 135.16% 209.64% 241.59%
Non-performing assets 84.68% 105.68% 80.48%
</TABLE>
Charge-offs against the allowance for loan losses in 1998 totaled $67,992 of
which $47,064 related to one loan which was transferred to real estate owned
during the first quarter of 1998. Because the Bank's loan portfolio is
relatively immature given its recent growth rates, current charge-off and
non-performing asset trends may not be indicative of future performance.
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 .
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997 September 30, 1997
------------------ ----------------- ------------------
<S> <C> <C> <C>
Loans past due 90 days or more and accruing
Real estate residential $ 131,755 146,492 --
Consumer installment 252 4,576 12,175
------------ --------- ----------
Total loans past due 90 days or more and accruing 132,007 151,068 12,175
Loans accounted for on a non-accrual basis
Real estate-construction -- 299,200 299,200
Real estate-residential 25,000 -- --
Real estate-multi family 898,890 -- --
Commercial real estate 168,714 191,534 201,942
Consumer installment -- 7,000 --
------------ --------- ----------
Total non-accrual loans 1,092,604 497,734 501,142
Real estate owned 730,000 638,286 1,027,539
------------ --------- ----------
Total non-performing assets $ 1,954,611 1,287,088 1,540,856
============ ========= ==========
Total as a percentage of total assets 0.84% 0.67% 0.83%
</TABLE>
Total nonaccrual loans increased $594,870 from $497,734 at December 31, 1997 to
$1,092,604 at September 30, 1998. The increase relates principally to the
placement of one multi-family real estate loan in the amount of $898,890 on
nonaccrual in September 1998. In addition, a loan in the amount of $297,064 and
secured by residential property was transferred to real estate owned in January
1998. A $47,064 charge-off against the loan loss reserve was recorded concurrent
with this transfer.
Real estate owned
Real estate owned increased $91,714 from $638,286 at December 31, 1997 to
$730,000 at September 30, 1998. At September 30, 1998, this balance included two
residential properties carried at $250,000 and $480,000, respectively.
During the first quarter of 1998, the Company foreclosed on a non accruing
loan secured by residential property valued at $250,000 and sold an investment
property for $80,826. During the third quarter of 1998, a $77,460 write-down was
taken on the $480,000 property. This property was subsequently sold in October
1998 with no resulting gain or loss on the sale.
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 at September 30, 1998 were $174,405,400, representing an
increase of $30,802,198 from deposits of $143,603,202 at December 31, 1997. The
majority of this increase relates to the success of the
17
<PAGE>
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 $11,600,000 in funds. In
addition, $6.5 million in public funds were on deposit at September 30, 1998
with $2.5 million and $4.0 million maturing in October 1998 and December 1998,
respectively. Savings accounts increased $6,487,515 or 14.2% to $52,039,019 at
September 30, 1998 from $45,551,504 at December 31, 1997.
Core deposits, which exclude time deposits greater than $100,000 were
$155,350,774 or 89.07% of total deposits at September 30, 1998. Total time
deposits at September 30, 1998 were $93,870,711 or 53.82% of total deposits, of
which $21,049,411 mature after one year.
Borrowings
Borrowings decreased $7,187,522 from $34,842,740 at December 31, 1997 to
$27,655,218 at September 30, 1998. Borrowings from the Federal Home Loan Bank
("FHLB") and retail repurchase agreements decreased $2,500,000 and $3,190,522,
respectively. The remaining decrease relates to overnight federal funds.
At September 30, 1998 securities sold under agreement to repurchase
consisted of $10,000,000 in borrowings from the FHLB maturing in 30 days and
$2,655,218 in retail repurchase agreements maturing overnight. At December 31,
1997 borrowings from the FHLB and retail 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.
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.
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
-------------------------- -------------------------
Weighted Weighted
Average Average
Amount Rate Amount Rate
----------- -------- ---------- --------
<S> <C> <C> <C> <C>
Short-term:
Securities sold under agreement to repurchase $12,655,218 5.28% 18,345,740 5.54%
Other -- -- 1,497,000 6.31%
----------- ---- ---------- ----
12,655,218 5.28% 19,842,740 5.59%
Long-term:
Federal Home Loan Bank advances 15,000,000 5.42% 15,000,000 5.42%
----------- ---- ---------- ----
Total borrowings $27,655,218 5.36% 34,842,740 5.52%
=========== ==== ========== ====
</TABLE>
18
<PAGE>
Loans held for sale
The Bank uses an outside company to originate and sell residential
mortgages on its behalf. The $289,152 increase in loans held for sale from
$197,944 at December 31, 1997 to $487,096 at September 30, 1998 relates to the
timing of loan originations versus their sale. Typically, these loans are sold
within 30 days of their settlement.
Deferred taxes
The $246,830 increase in deferred taxes from $404,906 at December 31, 1997
to $651,736 at September 30, 1998 relates principally to the change in the
estimated fair market value of investment securities available for sale.
Other assets
The $126,756 increase in other assets from $486,348 at December 31, 1997 to
$613,104 at September 30, 1998 relates primarily to the capitalization and
deferral of $332,420 in costs related to the Capital Securities issued in August
1998. These deferred costs were partially offset by a $220,121 decrease in
principal payments due on FHLMC mortgage-backed securities as the Company
reduced its holdings in this agency.
Other Liabilities
The $4,083,488 increase in other liabilities from $1,797,538 at December
31, 1997 to $5,881,026 at September 30, 1998 relates primarily to the accrual of
$4,000,000 in security purchases. These purchases settled in October 1998.
Capital Adequacy
At September 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 provide the Company with
additional Tier I and Tier II capital. The Capital Securities, which represent
the minority interest in equity accounts of subsidiaries, are limited to 25% of
Tier I capital. As the Company's equity grows, a greater portion of the Capital
Securities will count towards Tier I capital.
Several large capital expenditures are planned for the remainder of 1998
through 1999. These include the purchase of the Doylestown and Easton branches,
which are currently leased, and the completion of the Yardley branch
construction. These expenditures are estimated to cost $2.0 million.
19
<PAGE>
The tables below depict the Company's capital components and ratios along with
the "adequately" and "well" capitalized criteria as defined by the regulators.
At September 30, 1998, the Company exceeded all regulatory requirements and is
classified as "well capitalized".
<TABLE>
<CAPTION>
Capital Components
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
Tier I
Shareholders' equity $ 11,135,265 10,433,837
Allowable portion of minority interest in equity of subsidiaries 3,850,000
Net unrealized security losses (gains) 426,966 (52,175)
------------ ------------
Total Tier I Capital $ 15,412,231 10,381,662
============ ============
Tier II
Allowable portion of the allowance for loan losses $ 1,655,184 1,360,148
Allowable portion of minority interest in equity of subsidiaries 6,150,000 --
Allowable portion of subordinated debt 1,500,000 1,500,000
------------ ------------
Total Tier II Capital $ 9,305,184 2,860,148
============ ============
Total Capital $ 24,717,415 13,241,810
Risk-weighted assets 175,717,000 120,736,000
</TABLE>
Capital Ratios
<TABLE>
<CAPTION>
Actual Actual Adequately Well
September 30, 1998 December 31, 1997 Capitalized Capitalized
------------------ ----------------- ----------- -----------
<S> <C> <C> <C> <C>
Total risk-based capital/risk-weighted assets 14.07% 10.97% 8.00% 10.00%
Tier I capital/risk-weighted assets 8.77% 8.60% 4.00% 6.00%
Tier I capital/average assets (leverage ratio) 7.02% 5.51% 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 securities,
corporate bonds and other securities. During the nine months ended September 30,
1998, the Bank's loan portfolio grew $21,808,714 as compared to an increase of
$20,144,477 for the same period in 1997. Purchases of mortgage-backed and other
securities totaled $105,530,615 for the nine months ended September 30, 1998 as
compared to $37,318,168 for the nine months ended September 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. In addition, the $10.0 million in proceeds from the Capital
Securities issued in August 1998 were temporarily invested in investments
available for sale. Proceeds from the sale of investment securities totaled
$74,503,245 and $18,900,322 for the nine months ended September 30,
20
<PAGE>
1998 and September 30, 1997, respectively. The Bank sold $55,444,887 in
mortgage-backed securities in 1998 in reaction to higher than expected
prepayments caused by generally lower and falling interest rates. Principal
repayments on mortgage-backed securities totaled $8,444,557 for the nine months
ended September 30, 1998 and $10,711,552 for the nine months ended September 30,
1997. Investment securities which were called and repaid by the issuer totaled
$6,000,000 in 1998. There were no securities called in 1997.
Deposits increased $30,802,198 during the nine months ended September 30,
1998 as compared to $22,695,645 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. In addition,
$6,500,000 in public funds are also included in total deposits at September 30,
1998. Borrowings decreased $7,187,522 during the nine months ended September 30,
1998 and increased $5,676,550 during the nine months ended September 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 with the
written approval of the Federal Reserve Bank of Philadelphia. On August 11,
1998, the Company's recently formed subsidiary, PBI Capital Trust, issued
$10,000,000 of 8.57% Capital Securities due August 15, 2028. Proceeds from the
Capital Securities provide the Company with additional Tier I and Tier II
capital.
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
$43,329,000 borrowing limit at the Federal Home Loan Bank of Pittsburgh (the
"FHLB"). The Bank could also sell or borrow against certain investment
securities. At September 30, 1998, the Bank had $25,000,000 in borrowings
outstanding at the FHLB.
Year 2000 Issues
The following section contains forward-looking statements which involve
risks and uncertainties. The actual impact on the Company of the Year 2000 issue
could materially differ from that which is anticipated in the forward-looking
statements as a result of certain factors identified below.
The "Year 2000 Problem" (Y2K) arose because many existing computer programs
use only the last two digits to refer to a year. Therefore, these computer
programs do not properly recognize a year that begins with "20" instead of the
familiar "19". If not corrected, many computer applications could fail or create
erroneous results by or at the year 2000. This could cause entire system
failures, miscalculations, and disruptions of normal business operations
including, among other things, a temporary inability to process transactions,
generate statements, compute payments, interest or delinquency, or engage in
similar daily business activities. The extent of the potential impact of the
Year 2000 Problem is not yet known, and if not timely corrected, it could affect
the global economy.
The Bank is subject to the regulation and oversight of various banking
regulators, whose oversight includes the provision of specific timetables,
programs and guidance regarding Year 2000 issues. Regulatory examination of the
Bank's Year 2000 programs are conducted on a quarterly basis and reports are
submitted by the Bank to the banking regulators on a periodic basis. In
addition, oral reports are currently provided on a monthly basis to the Board of
Directors.
Company's State of Readiness
Management is committed to ensuring that the Company's daily operations
suffer little or no impact from the century date change. The Company has applied
due diligence throughout the Y2K process, following the guidelines contained in
the series of Federal Financial Institutions Examinations Council's Interagency
Guidelines. The guidelines identify the following phases: awareness, assessment,
renovation or remediation, testing or validation and implementation.
21
<PAGE>
Based on an ongoing assessment, the Company has determined that it will be
required to modify or replace portions of its software so that its computer
systems will properly use dates beyond December 31, 1999. The Company presently
believes that as a result of modifications to existing software and hardware and
conversions to new software, the Year 2000 Problem can be mitigated. However, if
such modifications and conversions are not made, or are not completed on a
timely basis, the Year 2000 Problem could have a material adverse impact on the
operations of the Company.
Management has initiated an enterprise-wide program to prepare the
Company's computer systems and applications for the Year 2000. The Company has
developed a comprehensive inventory of all PC based applications, third-party
relationships, environmental systems, proprietary programs and non-computer
related systems (such as postage meters and fax machines). The Company
recognizes that the Bank's operating, processing and accounting operations are
computer reliant and could be affected by the Y2K issue and has developed a plan
to make the systems Y2K ready and to conduct testing on them by March 1999. As
of September 30, 1998, approximately 80% of the Company's systems were Year 2000
ready, with all systems expected to be ready by March 1999.
The Company has acquired its mission-critical system which supports the
Company's core business processes from a highly regarded third-party vendor.
This vendor began in 1997 and completed by October 1998 renovations to its
systems to make them Y2K ready. The remediated software was placed into daily
production in September 1998. Beginning in November 1998, the Bank, along with
other clients of this vendor, will begin comprehensive testing of the system's
Y2K readiness. Such testing is anticipated to be completed in January 1999.
However, because most computer systems are, by their very nature,
interdependent, it is possible that noncompliant third-party computers could
impact the Company's computer systems. The Company could be adversely affected
by the Y2K problem if it or unrelated parties fail to successfully address the
problem. The Company has taken steps to communicate with the unrelated parties
with whom it deals to coordinate Year 2000 compliance. Additionally, we are
dependent on external suppliers, such as, wire transfer systems, telephone
systems, electric companies, and other utility companies for continuation of
service. The Company is also assessing the impact, if any, the century date
change may have on its credit risk.
The Company has initiated communications with all of its significant
vendors, suppliers and large commercial customers to determine the extent to
which the Company is vulnerable to those third-parties' failure to remedy their
own Year 2000 Problems. The Y2K Project Manager has available each vendors' Y2K
readiness efforts which includes their remediation plan, renovation approach,
testing methodologies and target dates. In the event that any of the Company's
significant vendors, suppliers and large commercial customers do not
successfully achieve Year 2000 compliance in a timely manner, the Company's
business or operations could be adversely affected. If significant suppliers
fail to meet Year 2000 operating requirements, the Company intends to engage
alternative suppliers. 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 1999,
the Company will seek a new vendor or system that is compliant. The Bank has
surveyed its large commercial customers as to their Y2K preparedness. At the
present time, in excess of 95% of these surveys have been returned. Respondents
have acknowledged their awareness of Y2K issues and currently believe that these
issues will not materially affect their financial condition, liquidity, or
results of operations. The extent to which customers are Y2K compliant is
considered in the Bank's decision to extend credit.
Costs of Year 2000
As of September 30, 1998, $31,000 has been expended as Year 2000 costs.
Management expects to spend a total of $150,000 for the entire project. Of the
total project's cost, approximately $75,000 is attributable to the purchase of
new software which will be capitalized. The remaining $75,000 will be expensed
as incurred over the next 15 months. The estimated Year 2000 project costs
22
<PAGE>
include the costs and time associated with the impact of third-parties' Year
2000 issues, and are based on presently available information. The total cost of
the project is being funded through operating cash flows. The Company continues
to evaluate appropriate courses of corrective action, including replacement of
certain systems whose associated costs would be recorded as assets and
amortized. Accordingly, the Company does not expect the amounts required to be
expensed over the next 15 months to have a material effect on the financial
position or results of operations. The Company believes that the cost of
addressing the Y2K issues will not be a material event or uncertainty that would
cause reported financial information not to be necessarily indicative of future
operating results or financial conditions. However, if compliance is not
achieved in a timely manner by the Company or any of its significant related
third-parties, be it a supplier of services or customer, the Y2K issue could
possibly have a material effect on the Company's operations and financial
position. The Company believes that the costs or the consequences of incomplete
or untimely resolution of its Year 2000 issues do not represent a known material
event or uncertainty that is reasonably likely to affect its future financial
results, or cause its reported financial information not to be necessarily
indicative of future operating results or future financial condition.
The cost of the projects and the date on which the Company plans to
complete both Year 2000 modifications and systems conversions are based on
management's best estimates, which were derived utilizing numerous assumptions
of future events including the continued availability of certain resources,
third-party modification plans and other factors. However, there can be no
guarantee that these estimates will be achieved and actual results could differ
materially from those plans. Specific factors that might cause such material
differences include, but are not limited to, the availability and cost of
personnel trained in this area, the ability to locate and correct all relevant
computer codes, and similar uncertainties.
Risks of Year 2000
At present, management believes it's progress in remedying the Company's
systems, programs and applications and installing Y2K compliant upgrades is on
target. The Y2K computer problem creates risk for the Company from unforeseen
problems in its own computer systems and from third-party vendors who provide
the majority of mainframe and PC based computer applications. Failure of
third-party systems relative to the Y2K issue could have a material impact on
the Company's ability to conduct business.
Contingency Plans
The Company is in the process of obtaining back-up service providers,
working up contingency plans and assessing the potential adverse risks to the
Company. The Company's contingency plans involve the use of manual labor to
compensate for the loss of certain automated computer systems and inconveniences
caused by disruption in command systems.
A contingency plan will be developed for mission-critical and required
mainframe and PC based applications, third-party relationships, environmental
systems, proprietary programs and non-computer related systems. This contingency
plan will identify scheduled completion dates, test dates and trigger dates.
A business resumption contingency plan is currently under development with
a target completion date of June 1999. The resumption contingency plan will
calculate a risk factor for each core business line and/or product. Based upon
the calculated risk factor, such business resumption contingency plan will be
designed and tested.
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.
23
<PAGE>
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. 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 certain foreign currency exposures. 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. 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. The Company has not yet determined the
impact, if any, of this Statement, including its provisions for the potential
reclassifications of investment securities, on earnings, financial condition or
equity.
Accounting for Mortgage-backed Securities Retained after the Securitization of
Mortgage Loans Held for Sale by a Mortgage Banking Enterprise
In October 1998, the FASB issued Statement No. 134, "Accounting for
Mortgage-backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise". This Statement requires that
after the securitization of a mortgage loan held for sale, an entity engaged in
mortgage banking activities classify any retained mortgage-backed securities
based on the ability and intent to sell or hold those investments, except that a
mortgage banking enterprise must classify as trading any retained
mortgage-backed securities that it commits to sell before or during the
securitization process. This Statement is effective for the first fiscal quarter
beginning after December 15, 1998 with earlier adoption permitted. This
Statement provides a one-time opportunity for an enterprise to reclassify, based
on the ability and intent on the date of adoption of this Statement,
mortgage-backed securities and other beneficial interests retained after
securitization of mortgage loans held for sale from the trading category, except
for those with commitments in place. The Company has not yet determined the
impact, if any, of this Statement, including, if applicable, its provisions for
the potential reclassifications of certain investment securities, on earnings,
financial condition or equity.
24
<PAGE>
PART II -- 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 subsidiaries, Premier Bank and PBI Capital
Trust. In addition, no material proceedings are pending or are known to be
threatened or contemplated against the Company and its subsidiaries 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
Nothing to report.
Item 5 -- Other Information
On August 11, 1998, the Company's recently formed subsidiary, PBI Capital
Trust (the "Trust"), issued $10.0 million of 8.57% Capital Securities due August
15, 2028. The Trust is 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 to be 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 is using 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. 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 been temporarily
invested in investment securities available for sale. Proceeds from the Capital
Securities provide the Company with additional Tier I and Tier II capital.
These Capital Securities are reported in the Consolidated Statements of
Financial Condition under the caption "Corporation-obligated mandatorily
redeemable capital securities of subsidiary trust holding solely junior
subordinated debentures of the Corporation".
25
<PAGE>
Item 6 -- Exhibits and Reports on Form 8-K
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 as amended on September 9, 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).
10.2 Change of Control Agreement between Premier Bank and John C. Soffronoff
(Exhibit 10.2)
10.3 Change of Control Agreement between Premier Bank and John J. Ginley
(Exhibit 10.3)
10.4 Change of Control Agreement between Premier Bank and Bruce E. Sickel
(Exhibit 10.4)
11.1 Statement re: Computation of per share earnings (Included as Note 5 of this
Form 10-QSB)
27.1 Financial Data Schedule (Exhibit 27)
26
<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, November 12, 1998
--------------------------- (Principal Executive Officer), Director
John C. Soffronoff
By: /s/ Bruce E. Sickel Chief Financial Officer, (Principal November 12, 1998
--------------------------- Financial Officer), Director
Bruce E. Sickel
</TABLE>
27
<PAGE>
INDEX OF EXHIBITS
<TABLE>
<S> <C> <C>
Page
----
*
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 as amended on
September 9, 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).
10.2 Change of Control Agreement between Premier Bank and John C. Soffronoff
(Exhibit 10.2) 29
10.3 Change of Control Agreement between Premier Bank and John J. Ginley
(Exhibit 10.3) 35
10.4 Change of Control Agreement between Premier Bank and Bruce E. Sickel
(Exhibit 10.4) 41
11.1 Statement re: Computation of per share earnings (Included as Note 5 of this
Form 10-QSB) 6
27.1 Financial Data Schedule (Exhibit 27) 47
</TABLE>
- ----------------
* Incorporated by reference.
28
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.
2
<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.
3
<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.
4
<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.
5
<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:
6
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.
2
<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.
3
<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.
4
<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.
5
<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:
6
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.
2
<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.
3
<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.
4
<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.
5
<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:
6
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-END> SEP-30-1998 SEP-30-1997
<CASH> 2,945,909 3,744,883
<INT-BEARING-DEPOSITS> 157,270 132,782
<FED-FUNDS-SOLD> 2,200,000 618,000
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 83,535,485 61,072,605
<INVESTMENTS-CARRYING> 9,854,181 13,345,651
<INVESTMENTS-MARKET> 9,880,118 13,172,364
<LOANS> 129,953,907 102,020,867
<ALLOWANCE> 1,655,184 1,240,148
<TOTAL-ASSETS> 232,557,374 184,574,767
<DEPOSITS> 174,405,400 140,788,887
<SHORT-TERM> 12,655,218 29,317,118
<LIABILITIES-OTHER> 7,861,491 3,022,365
<LONG-TERM> 16,500,000 1,500,000
0 0
0 0
<COMMON> 7,996,781 7,892,070
<OTHER-SE> 3,138,484 2,054,327
<TOTAL-LIABILITIES-AND-EQUITY> 232,557,374 184,574,767
<INTEREST-LOAN> 8,022,003 6,308,320
<INTEREST-INVEST> 3,752,093 3,392,033
<INTEREST-OTHER> 145,982 63,227
<INTEREST-TOTAL> 11,920,078 9,763,580
<INTEREST-DEPOSIT> 5,490,416 4,294,753
<INTEREST-EXPENSE> 6,568,529 5,465,753
<INTEREST-INCOME-NET> 5,351,549 4,297,827
<LOAN-LOSSES> 355,000 280,000
<SECURITIES-GAINS> 69,108 20,708
<EXPENSE-OTHER> 3,473,582 2,765,635
<INCOME-PRETAX> 1,756,069 1,385,937
<INCOME-PRE-EXTRAORDINARY> 1,756,069 1,385,937
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,180,569 945,937
<EPS-PRIMARY> 0.45 0.36
<EPS-DILUTED> 0.40 0.35
<YIELD-ACTUAL> 8.01 8.10
<LOANS-NON> 1,092,604 501,142
<LOANS-PAST> 132,007 12,175
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 1,092,604 501,142
<ALLOWANCE-OPEN> 1,360,148 960,672
<CHARGE-OFFS> 67,992 524
<RECOVERIES> 8,028 0
<ALLOWANCE-CLOSE> 1,655,184 1,240,148
<ALLOWANCE-DOMESTIC> 1,602,580 1,199,665
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 52,604 40,483
</TABLE>
