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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: March 31, 1998
Commission file number (To be assigned)
PREMIER BANCORP, INC.
- --------------------------------------------------------------------------------
(Exact Name of Small Business Issue as Specified In Its Charter)
Pennsylvania 23-232921058
------------ ------------
(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 April 30,1998.
Transitional Small business Disclosure format: YES NO X
--- ---
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<PAGE>
PART I
Item 1 -- Financial Statements
PREMIER BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
-------------- -----------------
(Unaudited)
<S> <C> <C>
Assets
Cash and due from banks $ 3,983,924 4,307,164
Federal funds sold 5,341,000 --
Interest-bearing deposits 435,841 85,823
Investment securities:
Held to maturity (fair value $11,911,845 in 1998 and $15,099,965 in 1997) 11,920,110 15,169,638
Available for sale (amortized cost $64,609,743 in 1998 and $62,355,084 in 1997) 64,614,205 62,434,137
Loans held for sale 1,382,803 197,944
Loans receivable (net of allowance for loan losses of $1,420,084 in 1998
and $1,360,148 in 1997) 111,828,457 107,172,526
Accrued interest receivable 1,601,416 1,451,899
Premises and equipment 1,199,900 1,174,769
Real estate owned 807,460 638,286
Deferred taxes 430,267 404,906
Other assets 779,184 486,348
------------ ------------
Total Assets $204,324,567 193,523,440
============ ============
Liabilities and shareholders' equity
Deposits $163,394,341 143,603,202
Borrowings 24,722,423 34,842,740
Accrued interest payable 1,545,058 1,346,123
Other liabilities 2,403,433 1,797,538
Subordinated debt 1,500,000 1,500,000
------------ ------------
Total liabilities 193,565,255 183,089,603
Shareholders' equity
Common stock- $0.33 par value; 30,000,000 shares authorized;
2,630,340 shares issued and outstanding in 1998 and 1997 876,780 876,780
Additional paid-in capital 7,120,001 7,120,001
Retained Earnings 2,759,586 2,384,881
Accumulated other comprehensive income 2,945 52,175
------------ ------------
Total shareholders' equity 10,759,312 10,433,837
------------ ------------
Total liabilities and shareholders' equity $204,324,567 193,523,440
============ ============
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
2
<PAGE>
PREMIER BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended March 31, 1998 1997
--------- ---------
<S> <C> <C>
Interest income:
Loans $2,499,472 1,907,795
Federal funds sold and interest bearing deposits 39,745 8,877
Investments:
Taxable 1,074,138 1,024,003
Tax-exempt 118,802 69,390
---------- ----------
Total interest income 3,732,157 3,010,065
---------- ----------
Interest expense:
Deposits 1,664,203 1,314,456
Borrowings 425,157 359,120
---------- ----------
Total interest expense 2,089,360 1,673,576
---------- ----------
Net interest income 1,642,797 1,336,489
Provision for loan losses 114,000 75,000
---------- ----------
Net interest income after loan loss provision 1,528,797 1,261,489
Non-interest income:
Service charges and other fees 43,414 36,301
Gain, net, on sale of investment securities available for sale 27,206 3,559
Gain on sale of loans held for sale 5,337 --
---------- ----------
Total non-interest income 75,957 39,860
Non-interest expense:
Salaries and employee benefits 549,014 403,733
Occupancy 98,644 102,726
Data processing 91,793 95,376
Professional services 69,097 63,282
Marketing 60,082 51,340
Other 179,919 156,487
---------- ----------
Total non-interest expense 1,048,549 872,944
---------- ----------
Income before income tax 556,205 428,405
Income tax expense 181,500 135,000
---------- ----------
Net income $ 374,705 293,405
========== ==========
Earnings per share:
Basic $ 0.14 0.11
Diluted 0.13 0.11
Weighted average number of shares outstanding:
Basic 2,630,340 2,604,303
Diluted 2,880,733 2,726,035
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
3
<PAGE>
PREMIER BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended March 31, 1998 1997
------------ ------------
<S> <C> <C>
Operating activities:
Net income $ 374,705 293,405
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation expense 37,146 34,280
Provision for loan losses 114,000 75,000
Amortization of organization cost -- 18,000
Amortization of premiums and discounts on investment securities held to maturity 4,503 3,799
Amortization of premiums and discounts on investment securities available for sale 57,661 50,087
Gain on sale of securities available for sale (27,206) (3,559)
Gain on sale of loans held for sale (5,337) --
Increase in accrued interest receivable (149,517) (128,572)
(Increase) decrease in other assets (292,836) 14,202
Increase (decrease) in deferred loan fees 31,932 (7,340)
Increase in accrued interest payable 198,935 144,428
Increase (decrease) in other liabilities 605,895 (1,162,989)
------------ ------------
Net cash provided by operating activities 949,881 (669,259)
------------ ------------
Investing activities:
Proceeds from sale of securities available for sale 23,340,500 7,822,873
Repayment on securities available for sale 3,536,000 2,029,474
Purchase of securities available for sale (29,161,614) (10,217,464)
Repayment on securities held to maturity 4,244,087 132,693
Purchase of securities held to maturity (999,062) --
Net increase in loans receivable (5,051,863) (4,494,534)
Originations of loans held for sale (2,041,000) --
Proceeds from sale of loans held for sale 861,478 --
Proceeds from sale of real estate owned 80,826 --
Purchases of premises and equipment (62,277) (388,595)
------------ ------------
Net cash used in investing activities (5,252,925) (5,115,553)
------------ ------------
Financing activities:
Net increase in deposits $ 19,791,139 698,587
Net (decrease) increase in borrowings less than 90 days (15,120,317) 4,308,730
Proceeds from borrowings greater than 90 days 5,000,000 --
Proceeds from subordinated debt -- 1,500,000
------------ ------------
Net cash provided by financing activities 9,670,822 6,507,317
------------ ------------
Increase in cash and cash equivalents 5,367,778 722,505
Cash and cash equivalents:
Beginning of period 4,392,987 2,330,389
------------ ------------
End of period 9,760,765 3,052,894
============ ============
Composed of:
Cash and due from banks 3,983,924 2,132,593
Federal funds sold 5,341,000 869,000
Interest bearing deposits 435,841 51,301
------------ ------------
Total cash and cash equivalents $ 9,760,765 3,052,894
============ ============
Cash payments for:
Interest expense $ 1,890,425 1,529,148
Taxes 300,000 260,000
Supplemental disclosure of noncash activities:
Change in unrealized net gain on securities available for sale (49,230) (208,387)
Change in deferred tax asset related to securities available for sale 25,361 107,352
Transfer of loans to real estate owned 297,064 963,819
Charge-offs against the allowance for loan losses 54,064 --
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
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 and Federal Deposit Insurance Corporation.
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 month periods ended March 31, 1998 and 1997 are not necessarily indicative
of the results which may be expected for the entire fiscal year.
3. Principles of Consolidation
The consolidated financial statements include the accounts of Premier
Bancorp, Inc. and its wholly owned subsidiary, Premier Bank. All material
intercompany balances and transactions have been eliminated.
4. Use of Estimates
In preparing the consolidated financial statements, management is required
to make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from such estimates. Material estimates that are particularly susceptible to
significant change in the near term include the determination of the allowance
for loan losses.
5
<PAGE>
PREMIER BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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 677,202 and 662,172 shares of common
stock were outstanding at March 31, 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.
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share calculations.
For the three months ended March 31, 1998
-----------------------------------------
Per share
Net income Shares Amount
---------- --------- ---------
Basic earnings per share $ 374,705 2,630,340 0.14
Effect of dilutive stock options -- 250,393 (0.01)
--------- --------- -------
Diluted earnings per share $ 374,705 2,880,733 0.13
========= ========= =======
For the three months ended March 31, 1997
-----------------------------------------
Per share
Net income Shares Amount
--------- --------- -------
Basic earnings per share $ 293,405 2,604,303 0.11
Effect of dilutive stock options -- 121,732 --
--------- --------- -------
Diluted earnings per share $ 293,405 2,726,035 0.11
========= ========= =======
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 components of other comprehensive income are
those related to SFAS No. 115 available for sale securities.
For the three months ended March 31, 1998 1997
--------- ---------
Net income $ 374,705 293,405
--------- ---------
Other comprehensive income, net of tax:
Unrealized gains on securities:
Unrealized holding gains during the period (31,274) (206,038)
Less: Reclassification adjustment for gains
included in net income (17,956) (2,349)
--------- ---------
Other comprehensive income (49,230) (208,387)
--------- ---------
Comprehensive income $ 325,475 85,018
========= =========
6
<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 and the Federal Deposit Insurance
Corporation. The Bank was organized in 1990 and started operations on April 24,
1992. The Bank's principal business has been, and continues to be, gathering
deposits from customers within its market area, and investing those deposits,
primarily in loans, mortgage-backed securities, corporate bonds, and obligations
of U.S. government agencies and government sponsored entities. The Bank's
revenues are derived principally from interest on its loan and securities
portfolios. The Bank's primary sources of funds are: deposits, repayments,
prepayments and maturities of loans; repayments, prepayments and maturities of
mortgage-backed and investment securities and borrowed funds. The Bank currently
has three full service Pennsylvania banking offices: Doylestown, Easton, and
Southampton. The Bank also has a loan production office in Yardley,
Pennsylvania. The Bank faces significant competition from other financial
services companies, many of which are larger organizations with more resources
and locations than the Bank.
The following is management's discussion and analysis of the significant
changes in the results of operations, capital resources and liquidity presented
in the accompanying consolidated financial statements for Premier Bancorp, Inc.
and its wholly owned subsidiary, Premier Bank. The Company's consolidated
financial condition and results of operations consist almost entirely of the
Bank's financial condition and results of operations. Such financial condition
and results of operations are not intended to be indicative of future
performance. This discussion should be read in conjunction with the 1997 Annual
Report.
In addition to historical information, this report for the three months
ended March 31, 1998 contains forward-looking statements. The forward looking
statements contained herein are subject to certain risks and uncertainties that
could cause actual results to differ materially from those projected in the
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which reflect management's analysis only as of
the date hereof. The Company undertakes no obligation to publicly revise or
update these forward looking statements to reflect events or circumstances that
arise after the date hereof. Readers should carefully review the risk factors
described in other documents the Company files from time to time with the
Securities and Exchange Commission, including the Quarterly Reports on Form
10-QSB filed by the Company in 1998, and any Current Reports on Form 8-K filed
by the Corporation.
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.
7
<PAGE>
The following table indicates certain key average balance sheet amounts and
their corresponding earnings/expenses and rates.
Average Balances, Rates and Interest Income and Expense Summary
<TABLE>
<CAPTION>
For the three months ended March 31, 1998 1997
---------------------------------------- ---------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
----------- --------- ---- ---------- --------- ----
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-bearing deposits $ 286,103 1,264 1.79% 236,906 2,433 4.17%
Fed funds sold 2,781,378 38,481 5.61% 501,033 6,444 5.22%
Investment securities available for sale
Taxable 50,127,726 823,217 6.66% 46,301,574 786,556 6.89%
Tax-exempt (1) 9,067,588 118,802 5.31% 4,972,829 69,390 5.66%
Investment securities held to maturity 14,860,830 250,921 6.85% 14,149,409 237,447 6.81%
------------- --------- ---- ----------- --------- ----
Total investment securities 74,056,144 1,192,940 6.53% 65,423,812 1,093,393 6.78%
Loans, net of unearned income (2) 110,031,195 2,499,472 9.21% 84,025,479 1,907,795 9.21%
------------- --------- ---- ----------- --------- ----
Total earning assets 187,154,820 3,732,157 8.09% 150,187,230 3,010,065 8.13%
Cash and due from banks 3,575,016 2,096,609
Allowance for loan losses (1,409,321 (999,283)
Other assets 4,846,728 3,716,168
------------- -----------
Total assets $ 194,167,243 155,000,724
============= ===========
Liabilites and shareholders' equity
Interest checking $ 11,216,921 71,685 2.59% 7,317,900 44,860 2.49%
Money market deposit accounts 1,766,286 11,084 2.54% 1,277,768 7,974 2.53%
Savings accounts 46,040,801 441,413 3.89% 41,498,528 413,411 4.04%
Time deposits 79,739,408 1,140,021 5.80% 60,761,234 848,211 5.66%
------------- --------- ---- ----------- --------- ----
Total interest-bearing deposits 138,763,416 1,664,203 4.86% 110,855,430 1,314,456 4.81%
Short-term borrowings 14,580,715 195,543 5.44% 18,734,416 256,443 5.55%
Long-term borrowings 15,000,000 200,465 5.42% 5,000,000 75,310 6.11%
Subordinated debt 1,500,000 29,149 7.88% 1,366,667 27,367 8.12%
------------- --------- ---- ----------- --------- ----
Total interest bearing liabilities 169,844,131 2,089,360 4.99% 135,956,513 1,673,576 4.99%
Non interest bearing deposits 11,935,394 8,454,800
Other liabilities 1,898,593 1,657,969
Shareholders' equity 10,489,125 8,931,442
------------- -----------
Total liabilites and shareholders' equity $ 194,167,243 155,000,724
============= ===========
Net interest income/rate spread 1,642,797 3.10% 1,336,489 3.14%
========= ==== ========= ====
Net interest margin 3.43% 3.50%
Average interest earning assets as a percentage
of average interest bearing liabilities 110.19% 110.47%
</TABLE>
- ----------
(1) Interest income on tax-exempt investment securities has not been presented
on a tax equivalent basis.
(2) Includes non-accrual loans of $283,145 and $543,524 on average for the
three months ended March 31, 1998 and 1997.
Results of Operations
The Company reported net income of $374,705 or $.13 diluted earnings per
share for the three months ended March 31, 1998. This represents an increase of
$81,300 or 27.7% from the $293,405 or $.11 diluted earnings per share reported
in 1997. Results for the first quarter of 1998 include net interest income of
$1,642,797 principally from loan growth. Results for 1998 also include $114,000
in provision for loan losses in comparison with $75,000 for 1997. Non-interest
income totaled $75,957, an increase of $36,097 from the $39,860 earned in 1997.
The increase in non-interest income in 1998 as compared to 1997 is primarily due
to higher gains on the sale of investment securities available for sale.
Non-interest expense amounted to $1,048,549 for 1998, a $175,605 increase over
the $872,944 reported in 1997. Salaries and benefits increased $145,281 in 1998
in conjunction with the overall growth of the institution, specifically the
opening of the Southampton branch in February 1997. The number of full-time
equivalent employees grew to 44 at March 31, 1998 as compared to 36 at March 31,
1997.
8
<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.
The net interest rate spread is the difference between average rates
received on interest-earning assets and average rates paid on interest-bearing
liabilities. Net interest margin is net interest income divided by average
assets.
Net interest income for 1998 increased $306,308 or 22.9% to $1,642,797.
This increase was primarily a function of asset growth. The increase in net
interest income was due to the $36,967,590 increase in average earning assets
offset partially by a 4 basis point decrease in rate. Average investments and
average loans increased $8,632,332 and $26,005,716, respectively. The average
yield on investments dropped 25 basis points while the yield on loans was
unchanged at 9.21%. While the overall rate paid on interest bearing liabilities
was unchanged at 4.99% the mix and rates paid on the different components did
change. Average interest bearing deposits increased $27,907,986 combined with a
5 basis point increase in rate while non-interest bearing deposits increased
$3,480,594 or 41.2%. Average borrowings increased $5,979,632 with a rate
decrease of 25 basis points.
Capital Adequacy
At March 31, 1998 the Company believes that it 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.
The Company's total risked-based capital decreased from 10.97% as of
December 31, 1997 to 10.24% as of March 31, 1998. The decrease in the total risk
based capital -to-risk weighted assets ratio for the three months and quarter
ended March 31, 1998, was attributable to a larger concentration of assets in
the 100% risk-weighted category. The majority of loans originated continue to be
secured by commercial property which require a 100% risk-weight. In addition,
$8.9 million in corporate bonds were added to the investment portfolio during
the first quarter of 1998. Corporate bonds require a 100% risk-weight.
Management's investment strategy for the first quarter of 1998 was aimed at
enhancing portfolio yields while preserving the Company's "well capitalized"
classification. Interest rates, which principally dictate the pricing of
mortgage loans, generally fell sharply in late 1997 and through the first
quarter of 1998 accelerating prepayments of mortgage-backed securities. The
Company actively sold mortgage-backed securities during the first quarter of
1998 in reaction to higher than expected prepayments. These mortgage-backed
securities were sold and replaced partially by variable rate corporate bonds and
lower coupon mortgage-backed securities to mitigate prepayment risk. The
Company's Tier I-to-risk-weighted assets ratio decreased from 8.60% at December
31, 1997 to 8.05% at March 31, 1998 for the same reasons as mentioned above.
The Company's Tier I-to-average assets ratio of 5.54% at March 31, 1998 was
relatively unchanged from 5.51% at December 31, 1997.
The Bank is subject to similar capital requirements. At March 31, 1998 the
Bank's capital exceeded all regulatory requirements and the Bank remains
classified as "well capitalized".
9
<PAGE>
The table below depicts the Bank's capital components and ratios along with the
"adequately" and "well" capitalized criteria as defined by the regulators.
Capital Components
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
-------------- -----------------
<S> <C> <C>
Tier I
Shareholders' equity $ 10,662,714 10,328,646
Intangible assets -- --
Net unrealized security gains (2,945) (52,175)
------------- -------------
Total Tier I Capital 10,659,769 10,276,471
============= =============
Tier II
Allowable portion of the allowance for loan losses 1,420,084 1,360,148
Allowable portion of subordinated debt 1,500,000 1,500,000
------------- -------------
Total Tier II Capital 2,920,084 2,860,148
============= =============
Total Capital 13,579,853 13,136,619
Risk-weighted assets 133,547,000 120,736,000
</TABLE>
Capital Ratios
<TABLE>
<CAPTION>
Actual Actual "Adequately" "Well"
March 31, December 31, Capitalized Capitalized
1998 1997 Ratios Ratios
---------------- ---------------- --------------- -----------------
<S> <C> <C> <C> <C>
Total risk-based capital/risk-weighted assets 10.17% 10.88% 8.00% 10.00%
Tier I capital/risk-weighted assets 7.98% 8.51% 4.00% 6.00%
Tier I capital/average assets (leverage ratio) 5.49% 5.45% 4.00% 5.00%
</TABLE>
Liquidity
Liquidity represents an institution's ability to generate cash or otherwise
obtain funds at reasonable rates to satisfy commitments to borrowers and demands
of depositors. The Company's primary sources of funds are deposits, proceeds
from principal and interest payments on loans, mortgage-backed securities and
investments, and borrowings. While maturities and scheduled amortization of
loans and investments are a predictable source of funds, deposit flows, loan
prepayments and mortgage-backed securities prepayments are influenced by
interest rates, economic conditions and competition.
The Bank's primary asset deployment activities are the origination of loans
secured by real estate, and the purchase of mortgage-backed and other
securities. During the three months ended March 31, 1998, the Bank's loan
portfolio grew $5,051,863 as compared to an increase of $4,494,534 for the three
months ended March 31, 1997. Purchases of mortgage-backed and other securities
totaled $30,160,676 for the three months ended March 31, 1998 as compared to
$10,217,464 for the three months ended March 31, 1997. These activities were
funded primarily by deposit growth and borrowings, principal repayments on loans
and mortgage-backed securities, and by sales and calls of investments. Proceeds
from the sale of investment securities totaled $23,340,500 and $7,822,873 for
the three months ended March 31, 1998 and March 31, 1997, respectively. The Bank
actively sold $16,576,495 in mortgage-backed securities in the first quarter of
1998 in reaction to higher than expected prepayments. Principal repayments on
mortgage-backed securities totaled $3,780,000 for the three months ended March
31, 1998 and $2,162,167 for the three months ended March 31, 1997. Investment
securities which were called and repaid by the issuer totaled $4,000,000 during
the three months ended March 31, 1998. There were no securities called during
the three months ended March 31, 1997.
10
<PAGE>
Deposits increased $19,791,139 during the three months ended March 31, 1998
as compared to $698,587 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 the
majority of the increase in deposits for the first quarter of 1998. Results for
1997 reflect only one month's operation for the Southampton branch which opened
at the end of February 1997. Net borrowings decreased $10,120,317 during the
three months ended March 31, 1998 and increased $4,308,730 during the three
months ended March 31, 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.
The Bank monitors it liquidity position on a daily basis. Excess short-term
liquidity is invested in overnight federal funds sales through it 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
$58,704,000 borrowing limit at the Federal Home Loan Bank of Pittsburgh. The
Bank could also sell or borrow against investment securities.
Investment Securities
Investment securities are classified at the time of purchase by one of
three purposes: trading, available for sale (AFS) or held to maturity (HTM). To
date the Bank has not purchased any securities for trading purposes. The Bank
usually classifies securities, in particular mortgage-backed securities, as AFS
to provide management the flexibility to sell certain securities and adjust its
balance sheet in response to capital needs and/or changes in market conditions.
The carrying values for AFS and HTM securities were $64,614,205 and $11,920,110,
respectively, as of March 31, 1998.
During the first quarter of 1998, management actively sold certain
mortgage-backed securities in reaction to higher than expected prepayments.
Proceeds from security sales were $23,340,500 including gains of $27,206.
Investment purchases totaled $30,160,676 and were concentrated in fixed rate
GNMA securities and variable rate corporate bonds.
<TABLE>
<CAPTION>
March 31, 1998
-----------------------------------------------------------------------
Held to maturity Available for Sale
------------------------------- -------------------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. government agency obligations $ 8,985,541 8,998,780 -- --
Mortgage-backed securities 2,934,569 2,913,065 43,506,658 43,429,225
State and municipal securities -- -- 10,168,670 10,242,270
Corporate bonds 8,887,365 8,882,660
Equity securities -- -- 1,930,050 1,943,050
Other debt securities -- -- 117,000 117,000
----------- ----------- ----------- -----------
Total $11,920,110 11,911,845 64,609,743 64,614,205
=========== =========== =========== ===========
</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>
11
<PAGE>
Loans
Loans are the most significant components of earning assets. Inherent with
the lending function is the evaluation and acceptance of credit risk and
interest rate risk along with the opportunity cost of alternative deployment of
funds. The Company manages credit risk associated with its lending activities
through portfolio diversification, underwriting policies and procedures, and
loan monitoring practices. Commercial lending activity continues to be focused
on small businesses and professionals within the local community. More than 90%
of the loan portfolio is collateralized at least in part by real estate as shown
by the following table:
<TABLE>
<CAPTION>
March 31, 1998 % of Total December 31, 1997 % of Total
-------------- ----------- ----------------- ------------
<S> <C> <C> <C> <C>
Real estate-farmland $ 500,000 0.44% 500,000 0.46%
Real estate-construction 1,132,206 1.00% 1,188,288 1.09%
Real estate-residential 23,214,049 20.43% 22,965,889 21.10%
Real estate-multifamily 2,597,362 2.29% 1,948,943 1.79%
Real estate-commercial 75,969,650 66.87% 72,372,260 66.48%
Consumer 888,362 0.78% 797,671 0.73%
Commercial 9,303,679 8.19% 9,084,458 8.35%
------------ ------ ----------- ------
Total Loans $113,605,308 100.00% 108,857,509 100.00%
============ ====== ======
Unearned income 356,767 324,835
Allowance for loan losses 1,420,084 1,360,148
------------ -----------
Total loans, net $111,828,457 107,172,526
============ ===========
</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. 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.
As of March 31, 1998, the Bank had $1,420,084 in its allowance for loan
losses, representing 1.25% of outstanding loans receivable. The Bank added
$114,000 to the reserve during the three months ended March 31, 1998.
Charge-offs against the reserve totaled $54,164 for the first quarter of 1998.
The majority of the charge-offs relates to one loan which was transferred to
real estate owned during the first quarter of 1998.
As of December 31, 1997, the Bank had $1,360,148 in its allowance for loan
losses which represented 1.25% of outstanding loans receivable.
12
<PAGE>
Non-Performing Assets
Non-performing assets are defined as accruing loans past due 90 days or
more, non-accruing loans, restructured loans and real estate owned.
Non-performing assets represented .49% and .67% of total assets at March 31,
1998 and December 31, 1997, respectively.
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
-------------- -----------------
<S> <C> <C>
Loans past due 90 days or more and accruing
Real estate-construction $ -- 146,492
Consumer installment 20,913 4,576
---------- ----------
Total loans past due 90 days or more and accruing $ 20,913 151,068
Loans accounted for on a non-accrual basis
Real estate-construction $ -- 299,200
Commercial real estate 182,734 191,534
Consumer installment -- 7,000
---------- ----------
Total non-accrual loans $ 182,734 497,734
Real estate owned 807,460 638,286
---------- ----------
Total non-perfoming assets $1,011,107 1,287,088
========== ==========
Total as a percentage of total assets 0.49% 0.67%
</TABLE>
Total non-accrual loans decreased $315,000 from $497,734 at December 31, 1997 to
$182,734 at March 31, 1998. The decrease relates principally to the transfer of
one loan to real estate owned in January 1998.
Real estate owned
Real estate owned increased $169,174 from $638,286 at December 31, 1997 to
$807,460 at March 31, 1998. At March 31, 1998, this balance included two
residential properties.
During the first quarter of 1998, the Company foreclosed on a loan secured
by residential property valued at $250,000 and sold an investment property for
$80,826. The loan which was transferred to real estate owned in 1998 was
reported as non-accrual at December 31, 1997. In connection with the foreclosure
of this loan a $47,064 charge-off against the allowance for loan losses was
recorded.
Deposits
The Bank, a traditional community-based bank, is largely dependent upon its
base of competitively priced core deposits to provide a stable funding source.
The Bank has retained and grown its customer base since inception through a
combination of price, quality service, convenience, and a stable and experienced
staff. The Bank primarily attracts deposits from within its market area.
Additional deposit growth will be accomplished through deposit promotions,
business development programs and continued branch expansion. The Bank expects
to open its fourth branch, the Yardley branch, by the end of 1998.
Total deposits as of March 31, 1998 were $163,394,341, representing an
increase of $19,791,139 from deposits of $143,603,202 at December 31, 1997. The
majority of this increase relates to the success of the Company's certificate of
deposit promotion which was held in the month of February 1998. This promotion,
which offered a premium rate on nine-month certificates of deposits, generated
approximately $11,600,000 in funds. Savings accounts increased $5,021,602 or 11%
to $50,573,106 at March 31, 1998 from $45,551,504 at December 31, 1997.
13
<PAGE>
Core deposits, which exclude time deposits greater than $100,000 were
$149,319,741 or 91.4% of total deposits at March 31, 1998. Total time deposits
as of March 31, 1998 were $86,791,810 or 53.12% of total deposits, of which
$23,512,606 mature after one year.
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
-------------------------------------- -------------------------------------
Weighted Weighted
Average Average
Interest % of Interest % of
Rate Amount Total Rate Amount Total
---- ------ ----- ---- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Interest checking 2.58% $ 11,835,279 7.25% 2.62% 10,847,705 7.56%
Money market 2.59% 1,855,213 1.13% 2.57% 1,667,282 1.16%
Savings 3.86% 50,573,106 30.95% 3.90% 45,551,504 31.72%
Time 5.79% 86,791,810 53.12% 5.66% 73,959,391 51.50%
---- ------------- ------ ---- ----------- ------
Total interest bearing deposits 4.85% 151,055,408 92.45% 4.76% 132,025,882 91.94%
==== ====
Non-interest bearing deposits 12,338,933 7.55% 11,577,320 8.06%
------------- ------ ----------- ------
Total deposits $ 163,394,341 100.00% 143,603,202 100.00%
============= ====== =========== ======
</TABLE>
Borrowings
Borrowings decreased $10,120,317 from $34,842,740 at December 31, 1997 to
$24,722,423 at March 31, 1998. Excess liquidity provided by the time deposit
promotion in February 1998 enabled the Bank to repay $7,500,000 in Federal Home
Loan Bank ("FHLB") borrowings. The remaining decrease relates to borrowings from
customers which mature overnight.
<TABLE>
<CAPTION>
March 31, 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 (1) $ 9,722,423 5.16% 18,345,740 5.54%
Other -- -- 1,497,000 6.31%
-------------- ------------ -------------- -------------
9,722,423 5.16% 19,842,740 5.59%
Long-term:
Federal Home Loan Bank advances (2) 15,000,000 5.42% 15,000,000 5.42%
-------------- ------------ -------------- -------------
Total borrowings $ 24,722,423 5.32% 34,842,740 5.52%
============== ============ ============== =============
</TABLE>
- ---------------
(1) At March 31, 1998 securities sold under agreement to repurchase consisted of
$5,000,000 in borrowings from the FHLB which mature within 90 days and
$4,722,423 in borrowings from customers which mature overnight. At December 31,
1997 borrowings from the FHLB and customers were $12,500,000 and $5,845,740,
respectively. All borrowings from the FHLB are secured by a blanket lien against
the Bank's assets.
(2) Long-term FHLB advances mature in the year 2002. These advances are subject
to repricing every six months at which time the issuer may convert the borrowing
to a variable rate if current rates are higher. Should the issuer convert the
borrowing, the Company may prepay the debt without penalty.
Other Assets
The $292,836 increase in other assets from $486,348 at December 31, 1997 to
$779,184 at March 31, 1998 relates primarily to an increase in principal
payments due on mortgage-backed securities due to higher prepayments.
14
<PAGE>
Other Liabilities
The $605,895 increase in other liabilities from $1,797,538 at December 31,
1997 to $2,403,433 at March 31, 1998 relates principally to an increase in the
Company's own official checking accounts. This account balance fluctuates daily
in relation to when the account is funded and when checks are presented for
payment.
Non-interest income
Total non-interest income was $75,957 for the three months ended March 31,
1998 as compared to the $39,860 earned for the same period in 1997. The increase
is principally due to an additional $23,647 in gains on the sale of investment
securities available for sale in 1998 as compared to 1997. Other increases
include $7,113 for service charges on deposits and $5,337 for gains on the sale
of loans held for sale.
Non-interest expense
For the three months ended March 31, 1998, non-interest expenses were
$1,048,549 as compared to $872,944 during the same period in 1997. Of this
amount, $549,014, or 52.4%, was attributable to salary and related employee
benefits as compared to $403,733 or 46.2% during the first three months of
fiscal 1997. The $145,281 increase in salary and related benefits is
attributable to the overall growth of the institution which includes the opening
of the Southampton branch in February 1997.
Other expenses, which consist primarily of furniture and equipment expense,
loan and real estate owned expense, employee travel and entertainment,
stationery, supplies and postage, totaled $179,919 for the three months ended
March 31, 1998 as compared to $156,487 during the same period in 1997. Other
expense increased $59,432 due primarily to the growth of the Bank.
Income tax expense
Income tax expense for the quarter ended March 31, 1998 was $181,500 as
compared to $135,000 for the quarter ended March 31, 1997. The tax provision
increased due to the increase in income before tax.
Year 2000
The Year 2000 issue creates risk for the Company from unforeseen problems
in its own computer systems and from third parties with whom the Company
transacts business. There is also unknown impact on the overall economy from
failures of other companies and industries to successfully address this problem
nationally and internationally.
The Company outsources much of its data processing to third party
processors including all of its deposit and loan accounting functions. These
third party processors are working on the necessary programming changes to
prepare their systems for the Year 2000 and will absorb most of the direct
programming costs. The Company is monitoring the progress of its processors and
plans to test their systems for compliance in late 1998. The Company does not
expect to incur significant incremental direct expenses related to the Year
2000, provided that its third party processors are successful. Failure of third
party computer systems relative to the Year 2000 would have a material adverse
impact on the Company's ability to conduct its business. Costs associated with
the Year 2000 problem are expected to be expensed as incurred in accordance with
generally accepted accounting principles.
15
<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 subsidiary, Premier Bank. In addition, no
material proceedings are pending or are known to be threatened or contemplated
against the Company and the Bank by government authorities.
Item 2 -- Changes in Securities
Nothing to report.
Item 3 -- Defaults Upon Senior Securities
Nothing to report.
Item 4 -- Submission of Matters to a Vote of Security Holders
Nothing to report.
Item 5 -- Other Information
Nothing to report.
<TABLE>
<CAPTION>
Item 6 -- Exhibits and Reports on Form 8-K
<S> <C> <C> <C>
(a) Exhibits Filed
Exhibit Number Description Page Number
-------------- ------------------------------- -----------
27 Financial Data Schedule 18
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended March 31, 1998
</TABLE>
<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, May 14, 1998
- ------------------------- (Principal Executive Officer), Director
John C. Soffronoff
By:/s/ Bruce E. Sickel Chief Financial Officer, (Principal May 14, 1998
- ------------------------- Financial Officer), Director
Bruce E. Sickel
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 3,983,924
<INT-BEARING-DEPOSITS> 435,841
<FED-FUNDS-SOLD> 5,341,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 64,614,205
<INVESTMENTS-CARRYING> 11,920,110
<INVESTMENTS-MARKET> 11,911,845
<LOANS> 113,248,541
<ALLOWANCE> 1,420,084
<TOTAL-ASSETS> 204,324,567
<DEPOSITS> 163,394,341
<SHORT-TERM> 9,722,423
<LIABILITIES-OTHER> 3,948,491
<LONG-TERM> 16,500,000
0
0
<COMMON> 7,996,781
<OTHER-SE> 2,762,531
<TOTAL-LIABILITIES-AND-EQUITY> 204,324,567
<INTEREST-LOAN> 2,499,472
<INTEREST-INVEST> 1,192,940
<INTEREST-OTHER> 39,745
<INTEREST-TOTAL> 3,732,157
<INTEREST-DEPOSIT> 1,664,203
<INTEREST-EXPENSE> 425,157
<INTEREST-INCOME-NET> 1,642,797
<LOAN-LOSSES> 114,000
<SECURITIES-GAINS> 27,206
<EXPENSE-OTHER> 1,048,549
<INCOME-PRETAX> 556,205
<INCOME-PRE-EXTRAORDINARY> 374,705
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 374,705
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.13
<YIELD-ACTUAL> 8.13
<LOANS-NON> 182,734
<LOANS-PAST> 20,913
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 182,734
<ALLOWANCE-OPEN> 1,360,148
<CHARGE-OFFS> 54,064
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 1,420,084
<ALLOWANCE-DOMESTIC> 1,420,084
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 43,961
</TABLE>
