UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934, for the Quarterly Period Ended: June 30, 1998
-------------
Commission file number: 333-34243
---------
PREMIER BANCORP, INC.
----------------------------------------------------------------
(Exact Name of Small Business Issue as Specified In Its Charter)
Pennsylvania 23-2921058
- ------------------------------- ------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
379 North Main Street, Doylestown, PA 18901
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 345-5100
--------------
N/A
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the past 12 months (or for such shorter periods that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock, as of the latest practicable date:
2,630,340 shares of Issuer's Common Stock, par value $.33 per share, issued and
outstanding as of July 31, 1998.
Transitional Small business Disclosure format: YES NO X
--- ---
<PAGE>
PART I
Item 1 -- Financial Statements
PREMIER BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------- -----------------
(Unaudited)
<S> <C> <C>
Assets
Cash and due from banks $ 3,907,790 $ 4,307,164
Federal funds sold 5,107,000 --
Interest-bearing deposits 69,479 85,823
Investment securities:
Held to maturity
(fair value $11,677,261 in 1998 and $15,099,965 in 1997) 11,672,126 15,169,638
Available for sale
(amortized cost of $62,613,700 in 1998 and $62,355,084 in 1997) 62,729,666 62,434,137
Loans held for sale 602,098 197,944
Loans receivable (net of allowance for loan losses of $1,540,719
in 1998 and $1,360,148 in 1997) 119,404,491 107,172,526
Accrued interest receivable 1,486,267 1,451,899
Premises and equipment 1,150,666 1,174,769
Real estate owned 807,460 638,286
Deferred taxes 392,356 404,906
Other assets 381,194 486,348
------------ ------------
Total assets $207,710,593 $193,523,440
============ ============
Liabilities and shareholders' equity
Deposits $172,051,448 $143,603,202
Borrowings 19,744,318 34,842,740
Accrued interest payable 1,886,971 1,346,123
Other liabilities 1,308,576 1,797,538
Subordinated debt 1,500,000 1,500,000
------------ ------------
Total liabilities 196,491,313 183,089,603
Shareholders' equity
Common stock- $0.33 par value; 30,000,000 shares authorized;
2,630,340 shares issued and outstanding in 1998 and 1997 876,780 876,780
Additional paid-in capital 7,120,001 7,120,001
Retained earnings 3,145,961 2,384,881
Accumulated other comprehensive income 76,538 52,175
------------ ------------
Total shareholders' equity 11,219,280 10,433,837
------------ ------------
Total liabilities and shareholders' equity $207,710,593 $193,523,440
============ ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
2
<PAGE>
PREMIER BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30, ended June 30,
1998 1997 1998 1997
----------- --------- --------- ---------
<S> <C> <C> <C> <C>
Interest income:
Loans $2,671,677 $2,103,777 $5,171,149 $4,011,572
Federal funds sold and interest bearing deposits 70,138 28,350 109,883 37,227
Investments:
Taxable 1,031,452 1,032,378 2,105,590 2,125,771
Tax-exempt 133,565 69,390 252,367 69,390
---------- ---------- ---------- ----------
Total interest income 3,906,832 3,233,895 7,638,989 6,243,960
---------- ---------- ---------- ----------
Interest expense:
Deposits 1,875,693 1,395,509 3,539,896 2,709,965
Borrowings 301,081 403,247 726,238 762,367
---------- ---------- ---------- ----------
Total interest expense 2,176,774 1,798,756 4,266,134 3,472,332
---------- ---------- ---------- ----------
Net interest income 1,730,058 1,435,139 3,372,855 2,771,628
Provision for loan losses 121,000 100,000 235,000 175,000
---------- ---------- ---------- ----------
Net interest income after loan loss provision 1,609,058 1,335,139 3,137,855 2,596,628
Non-interest income:
Service charges and other fees 47,530 33,228 90,944 69,529
(Loss) gain, net, on sale of investment
securities available for sale (32,910) 4,186 (5,704) 7,744
Gain on sale of loans held for sale 15,987 -- 21,324 --
---------- ---------- ---------- ----------
Total non-interest income 30,607 37,414 106,564 77,273
Non-interest expense:
Salaries and employee benefits 501,872 414,346 1,050,886 818,079
Occupancy 100,734 99,171 199,378 201,897
Data processing 120,659 92,448 212,452 187,824
Professional services 70,673 65,180 139,770 128,462
Marketing 39,000 60,000 99,082 111,340
Other 226,352 202,871 406,271 359,358
---------- ---------- ---------- ----------
Total non-interest expense 1,059,290 934,016 2,107,839 1,806,960
---------- ---------- ---------- ----------
Income before income tax 580,375 438,537 1,136,580 866,941
Income tax expense 194,000 145,000 375,500 280,000
---------- ---------- ---------- ----------
Net income $ 386,375 $ 293,537 $ 761,080 $ 586,941
========== ========== ========== ==========
Earnings per share:
Basic $ 0.15 $ 0.11 $ 0.29 $ 0.23
Diluted 0.13 0.11 0.26 0.21
Weighted average number of shares outstanding:
Basic 2,630,340 2,604,303 2,630,340 2,604,303
Diluted 2,913,403 2,749,351 2,908,341 2,733,633
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
PREMIER BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the six months ended June 30. 1998 1997
- --------------------------------- ---- ----
Operating activities:
<S> <C> <C>
Net income $ 761,080 $ 586,941
Adjustments to reconcile net income to cash provided by operating
activities:
Depreciation expense 110,399 77,065
Provision for loan losses 235,000 175,000
Amortization of organization cost -- 24,000
Amortization of premiums and discounts on investment
securities held to maturity 7,985 8,424
Amortization of premiums and discounts on investment
securities available for sale 95,551 101,235
Loss (gain) on sale of securities available for sale 5,704 (7,745)
Gain on sale of loans held for sale (21,324) --
Originations of loans held for sale (3,299,600) --
Proceeds from sale of loans held for sale 2,916,770 --
Increase in accrued interest receivable (34,368) (150,110)
(Decrease) increase in other assets 105,154 (109,374)
Increase in deferred loan fees 41,314 53,354
Increase in accrued interest payable 540,848 346,631
(Decrease) increase in other liabilities (488,961) 2,169,627
------------ -------------
Net cash provided by operating activities 975,552 3,275,048
------------ -------------
Investing activities:
Proceeds from sale of securities available for sale 59,131,300 12,294,226
Repayment on securities available for sale 6,340,398 4,177,826
Purchase of securities available for sale (65,831,569) (22,264,4675)
Repayment on securities held to maturity 4,488,589 340,058
Purchase of securities held to maturity (999,062) --
Net increase in loans receivable (12,758,280) (15,466,025)
Proceeds from sale of real estate owned 80,826 --
Purchases of premises and equipment (86,296) (517,390)
------------ -------------
Net cash used in investing activities (9,634,094) (21,435,772)
------------ -------------
Financing activities:
Net increase in deposits 28,448,246 17,063,688
Net (decrease) increase in borrowings less than 90 days (20,098,422) 5,443,209
Proceeds from borrowings greater than 90 days 5,000,000 19,000,000
Repayment of borrowings greater than 90 days -- (21,750,000)
Proceeds from subordinated debt -- 1,500,000
------------ -------------
Net cash provided by financing activities 13,349,824 21,256,897
------------ -------------
Increase in cash and cash equivalents 4,691,282 3,096,173
Cash and cash equivalents:
Beginning of period 4,392,987 2,330,389
------------ -------------
End of period $ 9,084,269 $ 5,426,562
============ =============
Composed of:
Cash and due from banks 3,907,790 5,135,485
Federal funds sold 5,107,000 56,000
Interest bearing deposits 69,479 235,077
------------ -------------
Total cash and cash equivalents $ 9,084,269 $ 5,426,562
============ =============
Cash payments for:
Interest expense $ 3,725,287 $ 3,125,701
Taxes 500,000 500,000
Supplemental disclosure of noncash activities:
Change in unrealized net gain on securities available for sale 24,363 (29,210)
Change in deferred tax asset related to securities available for sale (12,550) 15,048
Transfer of loans to real estate owned 297,064 963,819
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
PREMIER BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization
Premier Bancorp, Inc. (the "Company") was incorporated under the laws
of the Commonwealth of Pennsylvania on July 15, 1997. It was reorganized as a
registered one-bank holding company of Premier Bank (the "Bank") on November 17,
1997. The principal business of the Company through the Bank, is commercial
banking and consists of, among other things, attracting deposits from the
general public and using these funds in making loans secured by real estate,
commercial loans, and consumer loans, and purchasing investment securities. The
Bank was organized in 1990 as a Pennsylvania state-chartered banking institution
and commenced operations on April 24, 1992. The Bank is a member of the Federal
Reserve System. The Bank's deposits are insured by the Federal Deposit Insurance
Corporation.
2. Basis of Financial Statement Presentation
The accompanying unaudited consolidated financial statements were
prepared in accordance with instructions for quarterly reports on Form 10-QSB
and, therefore, do not include information or footnotes necessary for a complete
presentation of financial condition, results of operations, shareholders' equity
and cash flows in conformity with generally accepted accounting principles.
However, the financial statements reflect all adjustments, which in the opinion
of management are necessary for fair statement of financial results and that all
adjustments are of a normal recurring nature. The results of operations for the
three and six months ended June 30, 1998 and 1997 are not necessarily indicative
of the results, which may be expected for the entire fiscal year.
3. Principles of Consolidation
The consolidated financial statements include the accounts of Premier
Bancorp, Inc. and its wholly owned subsidiary, Premier Bank. All material
intercompany balances and transactions have been eliminated.
4. Use of Estimates
In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from such estimates. Material estimates that are particularly
susceptible to significant change in the near term include the determination of
the allowance for loan losses.
5. Earnings Per Share
Earnings per share was calculated in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share". Basic
earnings per share was calculated on the basis of weighted average number of
shares after giving retroactive effect to the three-to-one stock split
distributed on December 31, 1997. Options to purchase 677,349 and 662,169 shares
of common stock were outstanding at June 30, 1998 and 1997, respectively. The
dilutive effect of such options using the treasury stock method was included in
the computation of diluted earnings per share.
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 June 30, 1998
----------------------------------------
Per share
Net income Shares Amount
---------- --------- ---------
<S> <C> <C> <C>
Basic earnings per share $ 386,375 2,630,340 0.15
Effect of dilutive stock options -- 283,063 (0.02)
---------- --------- ---------
Diluted earnings per share $ 386,375 2,913,403 0.13
========== ========= =========
For the three months ended June 30, 1997
----------------------------------------
Per share
Net income Shares Amount
---------- --------- ---------
Basic earnings per share $ 293,537 2,604,303 0.11
Effect of dilutive stock options -- 145,048 --
---------- --------- ---------
Diluted earnings per share 293,537 2,749,351 0.11
========== ========= =========
For the six months ended June 30, 1998
--------------------------------------
Per share
Net income Shares Amount
---------- --------- ---------
Basic earnings per share $ 761,080 2,630,340 0.29
Effect of dilutive stock options -- 278,001 (0.03)
---------- --------- ---------
Diluted earnings per sham 761,080 2,908,341 0.26
========== ========= =========
For the six months ended June 30, 1997
--------------------------------------
Per share
Net income Shares Amount
---------- --------- ---------
Basic earnings per share $ 586,941 2,604,303 0.23
Effect of dilutive stock options -- 129,330 (0.02)
---------- --------- ---------
Diluted earnings per share $ 586,941 2,733,633 0.21
========== ========= =========
</TABLE>
6
<PAGE>
PREMIER BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
6. Comprehensive Income
On January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income". The following table displays net income and the
components of other comprehensive income to arrive at total comprehensive
income. For the Company, the only component of other comprehensive income is the
change in the fair value of investment securities available for sale.
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30, ended June 30,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income $386,375 $293,537 $761,080 $586,941
-------- -------- -------- --------
Other comprehensive income, net of tax:
Unrealized gains on securities:
Unrealized holding gains (losses) during the period 51,872 181,940 20,598 (24,098)
Less: Reclassification adjustment for gains (losses)
included in net income 21,721 (2,763) 3,765 (5,112)
-------- -------- -------- --------
Other comprehensive income 73,593 179,177 24,363 (29,210)
-------- -------- -------- --------
Comprehensive income $459,968 $472,714 $785,443 $557,731
======== ======== ======== ========
</TABLE>
7. Capital Securities
On August 11, 1998, the Company issued $10.0 million of 8.57% Capital
Securities due August 15, 2028. The Capital Securities were issued by the
Company's recently formed subsidiary, PBI Capital Trust (the "Trust"), a
statutory business trust created under the laws of Delaware. The Company is the
sole owner of the Trust. The Trust will use the proceeds from the Capital
Securities to acquire $10.0 million in 8.57% Junior Subordinated Deferrable
Interest Debentures to be issued by the Company. The Junior Subordinated
Debentures will be the sole assets of the Trust, and payments under the Junior
Subordinated Debentures will be the sole revenue of the Trust. The Company plans
to use the proceeds from the sale of the Junior Subordinated Debentures for
general corporate purposes, including, but not limited to, investments in and
advances to its subsidiary, Premier Bank, repurchases of common stock of the
Company, branch expansion, the purchase of certain branch facilities being
leased and funding loans. Proceeds from the Capital Securities will provide the
Company with additional Tier I and Tier II capital.
7
<PAGE>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
Premier Bancorp, Inc. (the "Company") is a Pennsylvania business
corporation and registered bank holding company headquartered in Doylestown,
Bucks County, Pennsylvania. The Company was incorporated on July 15, 1997 and
reorganized on November 17, 1997 at the direction of the Board of Directors of
Premier Bank as a one-bank holding company of Premier Bank (the "Bank").
Currently the primary business of the Company is the operation of its wholly
owned subsidiary, Premier Bank.
Premier Bank is a Pennsylvania chartered commercial bank and member of
the Federal Reserve Bank of Philadelphia. The Bank's deposits are insured by the
Federal Deposit Insurance Corporation. The Bank was organized in 1990 and
started operations on April 24, 1992. The Bank's principal business has been,
and continues to be, gathering deposits from customers within its market area,
and investing those deposits, primarily in loans, mortgage-backed securities,
corporate bonds, and obligations of U.S. government agencies and government
sponsored entities. The Bank's revenues are derived principally from interest on
its loan and securities portfolios. The Bank's primary sources of funds are:
deposits, repayments, prepayments and maturities of loans, repayments,
prepayments and maturities of mortgage-backed and investment securities and
borrowed funds. The Bank currently has three full service Pennsylvania banking
offices: Doylestown, Easton, and Southampton. The Bank also has a loan
production office in Yardley, Pennsylvania. The Bank faces significant
competition from other financial services companies, many of which are larger
organizations with more resources and locations than the Bank.
The following is management's discussion and analysis of the
significant changes in the results of operations, capital resources and
liquidity presented in the accompanying consolidated financial statements for
Premier Bancorp, Inc. and its wholly owned subsidiary, Premier Bank. The
Company's consolidated financial condition and results of operations consist
almost entirely of the Bank's financial condition and results of operations.
Such financial condition and results of operations are not intended to be
indicative of future performance. This discussion should be read in conjunction
with the 1997 Annual Report.
In addition to historical information, this report for the three and
six months ended June 30, 1998 contains forward-looking statements. The
forward-looking statements contained herein are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
projected in the forward-looking statements. Readers are cautioned not to place
undue reliance on these forward-looking statements, which reflect management's
analysis only as of the date hereof. The Company undertakes no obligation to
publicly revise or update these forward-looking statements to reflect events or
circumstances that arise after the date hereof. Readers should carefully review
the risk factors described in other documents the Company files from time to
time with the Securities and Exchange Commission, including the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1997, Quarterly Reports on
Form 10-QSB filed by the Company in 1998, and any Current Reports on Form 8-K
filed by the Company.
Management Strategy
The Bank's primary strategy for 1998 and beyond is to increase its loan
and deposit market shares in the communities it serves and to expand its branch
network to new markets as deemed appropriate. The Bank plans to open its fourth
branch location in Lower Makefield Township, Bucks County, Pennsylvania (the
"Yardley branch") by year end 1998.
8
<PAGE>
The following table sets forth, for the periods indicated, certain key balance
sheet amounts and their corresponding earnings/expenses and rates.
Average Balances, Rates and Interest Income and Expense Summary
<TABLE>
<CAPTION>
For the three months ended June 30, 1998 1997
----------------------------------- -----------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
--------- --------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest bearing deposits $ 383,441 4,937 5.16% $ 305,171 3,978 5.23%
Federal funds sold 4,918,473 65,201 5.32% 1,768,593 24,372 5.53%
Investment securities available
for sale
Taxable 50,602,401 831,025 6.59% 46,812,838 809,229 6.93%
Tax-exempt (1) 10,254,543 133,566 5.22% 4,147,892 57,909 5.60%
Investment securities held to maturity 12,084,748 200,426 6.65% 13,902,302 234,630 6.77%
------------ ---------- ---- ------------ --------- ----
Total investment securities 72,941,692 1,165,017 6.41% 64,863,032 1,101,768 6.81%
Loans, net of unearned income (2) 117,810,689 2,671,677 9.10% 92,155,692 2,103,777 9.16%
------------ ---------- ---- ------------ --------- ----
Total earning assets 196,054,295 3,906,832 7.99% 159,092,488 3,233,895 8.15%
Cash and due from banks 3,252,296 2,951,003
Allowance for loan losses (1,480,866) (1,083,639)
Other assets 5,082,746 4,150,055
------------ ------------
Total assets $202,908,471 $165,109,907
============ ============
Liabilities and shareholders equity
Interest checking 12,738,288 81,996 2.58% $ 8,527,521 53,844 2.53%
Money market deposit accounts 1,696,960 10,794 2.55% 1,289,081 7,940 2.47%
Savings accounts 49,421,696 475,280 3.86% 41,247,134 397,581 3.87%
Time deposits 90,657,426 1,307,623 5.79% 65,937,547 936,144 5.69%
------------ --------- ---- ------------ --------- ----
Total interest bearing deposits 154,514,370 1,875,693 4.87% 117,001,283 1,395,509 4.78%
Short-term borrowings 5,210,926 69,003 5.31% 26,103,234 372,876 5.73%
Long-term borrowings 15,000,000 202,693 5.42% -- -- --
Subordinated debt 1,500,000 29,385 7.86% 1,500,000 30,371 8 12%
------------ --------- ---- ------------ --------- ----
Total interest bearing liabilities 176,225,296 2,176,774 4.95% 144,604,517 1,798,756 4.99%
Non interest bearing deposits 12,682,422 9,178,843
Other liabilities 3,135,636 240,278
Shareholders' equity 10,865,117 9,086,269
------------ ------------
Total liabilities and shareholders' equity $202,908,471 $165,109,907
============ ============
Net interest income/rate spread 1,730,058 3.04% 1,435,139 3.16%
========= ==== ========= ====
Net interest margin 3.42% 3.49%
Average interest earning assets as a percentage
of average interest bearing liabilities 111.25% 110.02%
</TABLE>
- ----------------------------
(1) Interest income on tax-exempt investment securities has not been presented
on a tax equivalent basis.
(2) Includes non-accrual loans of $180,701 and $506,107 on average for the three
months ended June 30, 1998 and 1997.
9
<PAGE>
The following table sets forth, for the periods indicated, certain key average
balance sheet amounts and their corresponding earnings/expenses and rates.
Average Balances, Rates and Interest Income and Expense Summary
<TABLE>
<CAPTION>
For the six months ended June 30, 1998 1997
----------------------------------- -----------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
--------- --------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest bearing deposits $ 335,041 6,202 3.73% $ 271,227 6,411 4.77
Federal funds sold 3,855,829 103,681 5.42% 1,138,315 30,816 5.46
Investment securities available for sale
Taxable 50,347,675 1,654,240 6.63% 46,536,955 1,595,783 6.91
Tax-exempt (1) 9,664,345 252,369 5.27% 4,558,081 127,299 5.63
Investment securities held to maturity 13,483,820 451,348 6.75% 14,046,837 472,079 6.78
------------ --------- ---- ------------ --------- -----
Total investment securities 73,495,840 2,357,957 6.47% 65,141,873 2,195,161 6.80
Loans, net of unearned income (2) 113,942,432 5,171,149 9.15% 88,113,044 4,011,572 9.18
------------ --------- ---- ------------ --------- -----
Total earning assets 191,629,142 7,638,989 8.04% 154,664,459 6,243,960 8.14
Cash and due from banks 3,412,765 2,526,167
Allowance for loan losses (1,445,291) (1,041,694)
Other assets 4,965,388 3,934,309
------------ ------------
Total assets $198,562,004 $160,083,241
============ ============
Liabilities and shareholders' equity
Interest checking $ 11,981,808 153,690 2.59% $ 7,926,052 98,703 2.51
Money market deposit accounts 1,731,432 21,877 2.55% 1,283,456 15,914 2.50
Savings accounts 47,740,588 916,695 3.87% 41,372,136 810,990 3.95
Time deposits 85,228,578 2,447,644 5.79% 63,363,690 1,784,358 5.68
------------ --------- ---- ------------ --------- -----
Total interest bearing deposits 146,682,406 3,539,896 4.87% 113,945,334 2,709,965 4.80
Short-term borrowings 9,869,937 264,544 5.41% 24,925,369 704,628 5.70
Long-term borrowings 15,000,000 40,159 5.42% -- -- --
Subordinated debt 1,500,000 58,535 7.87% 1,433,702 57,739 8.12
------------ --------- ---- ------------ --------- -----
Total interest bearing liabilities 173,052,343 4,266,134 4.97% 140,304,405 3,472,332 4.99
Non interest bearing deposits 11,928,856 8,506,962
Other liabilities 2,902,645 2,262,591
Shareholders' equity 10,678,160 9,009,283
------------ ------------
Total liabilities and shareholders' equity $198,562,004 $160,083,241
============ ============
Net interest income/rate spread 3,372,855 3.07% 2,771,628 3.15
========= ===== ========= =====
Net interest margin 3.43% 3.49
Average interest earning assets as a
percentage of average interest bearing
liabilities 110.73% 110.23%
</TABLE>
- ------------------------
(1) Interest income on tax-exempt investment securities has not been presented
on a tax equivalent basis.
(2) Includes non-accrual loans of $231,640 and $524,712 on average for the six
months ended June 30, 1998 and 1997.
10
<PAGE>
Results of Operations
For the three months ended June 30, 1998, the Company reported net income
of $386,375 or $.13 diluted earnings per share. This represents an increase of
$92,838 or 31.6% from the $293,537 or $.11 diluted earnings per share reported
for the same period in 1997. Net interest income and non-interest expenses were
higher in 1998 and reflect the overall growth of the institution. The provision
for loan losses was $121,000 in 1998 in comparison with $100,000 for 1997.
Non-interest income totaled $30,607, a decrease of $6,807 from the $37,414
earned in 1997. The decrease in non-interest income is primarily due to $32,910
in losses on the sale of investment securities available for sale in 1998 as
compared to gains of $4,186 in 1997. The losses on the sale of investment
securities available for sale in 1998 were partially offset by $15,987 in gains
of the sale of loans held for sale and a $14,302 increase in service charges and
other fees. Non-interest expense amounted to $1,059,290 for 1998, a $125,274
increase over the $934,016 reported in 1997. Salaries and benefits increased
$87,526 in 1998 in conjunction with the overall growth of the institution.
For the six months ended June 30, 1998, the Company reported net income of
$761,080 or $.26 diluted earnings per share. This represents an increase of
$174,139 or 29.7% from the $586,941 or $.21 diluted earnings per share reported
for the same period in 1997. Net interest income, non-interest income and
non-interest expenses were higher in 1998 and reflect the overall growth of the
institution. The provision for loan losses was $235,000 in 1998 in comparison
with $175,000 for 1997. Non-interest income totaled $106,564; an increase of
$29,291 from the $77,273 earned in 1997. The increase in non-interest income is
primarily due to gains on the sale of loans held for sale and higher service
charges in 1998. Non-interest expense amounted to $2,107,839 for 1998, a
$300,879 increase over the $1,806,960 reported in 1997. Salaries and benefits
increased $232,807 in 1998 due to the addition of new lending and operations
personnel.
Net interest income
Historically, the Company's earnings have depended primarily upon the
Bank's net interest income, which is the difference between interest earned on
interest-earning assets and interest paid on interest-bearing liabilities.
Interest rates received and paid on loans and deposit products are heavily
influenced by the overall interest rate environment and by competition.
The net interest rate spread is the difference between average rates
received on interest-earning assets and average rates paid on interest-bearing
liabilities. Net interest margin is net interest income divided by average
assets.
For the three months ended June 30, 1998, net interest income was $294,919
higher than the same period in 1997. This increase was primarily a function of
asset growth. Average earning assets grew $36,961,807 with a 16 basis point
decrease in rate. Average investments and average loans increased $8,078,660 and
$25,654,997, respectively. The average yield on investments and average yield on
loans dropped 40 basis points and 6 basis points, respectively. The overall rate
paid on interest bearing liabilities improved 4 basis points. While deposit
costs were higher in 1998, the rate on borrowings improved. Average interest
bearing deposits increased $37,513,087 combined with a 9 basis point increase in
rate. Approximately two thirds of this deposit growth was concentrated in higher
costing time deposits. Non-interest bearing deposits increased $3,503,579 or
38.2%. Average borrowings decreased $5,892,308 with a rate decrease of 30 basis
points.
For the six months ended June 30, 1998, net interest income was $601,227 or
21.7% higher than the same period in 1997. This increase was primarily a
function of asset growth as average earning assets grew $36,964,683 with a 10
basis point decrease in rate. Average investments and average loans increased
$8,353,967 and $25,829,388, respectively. The average yield on investments and
average yield on loans dropped 33 basis points and 3 basis points, respectively.
The overall rate paid on interest bearing liabilities
11
<PAGE>
improved 2 basis points. While deposit costs were higher in 1998 the rate on
borrowings improved. Average interest bearing deposits increased $32,737,072
combined with a 7 basis point increase in rate, as most of the growth was
concentrated in higher costing time deposits. Non-interest bearing deposits
increased $3,421,894 or 40.2%. Average borrowings were relatively flat while the
rate decreased 28 basis points.
Capital Adequacy
At June 30, 1998, management believes that the Company was in compliance
with all applicable regulatory requirements to be classified as "well
capitalized" pursuant to FDIC regulations. The Company plans to remain well
capitalized and manages the Bank accordingly. On August 11, 1998, $10.0 million
in Capital Securities were issued by the Company's recently formed subsidiary,
PBI Capital Trust. Proceeds from the Capital Securities will provide the Company
with additional Tier I and Tier II capital.
The Company's total risked-based capital decreased from 10.97% as of
December 31, 1997 to 10.39% as of June 30, 1998. The decrease in the total risk
based capital-to-risk weighted assets ratio was attributable to a larger
concentration of assets in the 100% risk-weighted category. The majority of
loans originated continue to be secured by commercial property, which require a
100% risk-weighting. In addition, $10.0 million in corporate bonds were added to
the investment portfolio in 1998. Corporate bonds require a 100%
risk-weighting. The Company's Tier I-to-risk-weighted assets ratio decreased
from 8.60% at December 31, 1997 to 8.16% at June 30, 1998 for the same reasons
as mentioned above.
The Company's Tier I-to-average assets ratio of 5.49% at June 30, 1998 was
relatively unchanged from 5.51% at December 31, 1997.
The Bank is subject to similar capital requirements. At June 30, 1998 the
Bank's capital exceeded all regulatory requirements and the Bank remains
classified as "well capitalized".
Capital Components
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------- -----------------
<S> <C> <C>
Tier I
Shareholders' equity $ 11,153,298 10,328,646
Net unrealized security gains (76,538) (52,175)
------------ -----------
Total Tier I Capital $ 11,076,760 10,276,471
============ ===========
Tier II
Allowable portion of the allowance for loan losses $ 1,540,719 1,360,148
Allowable portion of subordinated debt 1,500,000 1,500,000
------------ -----------
Total Tier II Capital $ 3,040,719 2,860,148
============ ===========
Total Capital $ 14,117,479 13,136,619
Risk-weighted assets 136,489,000 120,736,000
</TABLE>
12
<PAGE>
The table below depicts the Bank's capital components and ratios along with
the "adequately" and "well" capitalized criteria as defined by the regulators.
Capital Ratios
<TABLE>
<CAPTION>
Actual Actual "Adequately" "Well"
June 30, 1998 December 31, 1997 Capitalized Capitalized
------------- ----------------- ------------ -----------
<S> <C> <C> <C> <C>
Total risk-based capital/risk-weighted asset 10.33% 10.88% 8.00% 10.00%
Tier I capital/risk-weighted asset 8.10% 8.51% 4.00% 6.00%
Tier I capital/average asset (leverage ratio) 5.46% 5.45% 4.00% 5.00%
</TABLE>
Liquidity
Liquidity represents an institution's ability to generate cash or otherwise
obtain funds at reasonable rates to satisfy commitments to borrowers and demands
of depositors. The Company's primary sources of funds are deposits, proceeds
from principal and interest payments on loans, mortgage-backed securities and
investments, and borrowings. While maturities and scheduled amortization of
loans and investments are a predictable source of funds, deposit flows, loan
prepayments and mortgage-backed securities prepayments are influenced by
interest rates, economic conditions and competition.
The Bank's primary asset deployment activities are the origination of loans
secured by real estate, and the purchase of mortgage-backed and other
securities. During the six months ended June 30, 1998, the Bank's loan portfolio
grew $12,758,843 as compared to an increase of $15,466,025 for the same period
in 1997. Purchases of mortgage-backed and other securities totaled $66,830,631
for the six months ended June 30, 1998 as compared to $22,264,467 for the six
months ended June 30, 1997. These activities were funded primarily by deposit
growth and borrowings, principal repayments on loans and mortgage-backed
securities and by sales and calls of investments. Proceeds from the sale of
investment securities totaled $59,131,300 and $12,294,226 for the six months
ended June 30, 1998 and June 30, 1997, respectively. The Bank sold $41,967,104
in mortgage-backed securities in 1998 in reaction to higher than expected
prepayments caused by generally lower and falling interest rates. Principal
repayments on mortgage-backed securities totaled $6,828,987 for the six months
ended June 30, 1998 and $4,517,884 for the six months ended June 30, 1997.
Investment securities which were called and repaid by the issuer totaled
$4,000,000 in 1998. There were no securities called in 1997.
Deposits increased $28,448,246 during the six months ended June 30, 1998 as
compared to $17,063,688 during the same period in 1997. Deposit flows are
affected by the level of interest rates, the interest rates and products offered
by local competitors, and other factors. The Bank offered a premium rate for
nine-month certificates of deposit in February 1998, which accounted for
approximately $11.6 million of the increase in deposits in 1998. An additional
$7.5 million in public funds deposits was raised in May 1998. Borrowings
decreased $15,098,422 during the six months ended June 30, 1998 and increased
$4,193,209 during the six months ended June 30, 1997. In January 1997, the Bank
issued $1,500,000 in subordinated debt to supplement its Tier II and total
capital ratios in order to remain "well capitalized". The subordinated debt
matures on January 12, 2012 but can be prepaid.
The Bank monitors it liquidity position on a daily basis. Excess short-term
liquidity is invested in overnight federal funds sales through its correspondent
bank, Atlantic Central Bankers Bank. Conversely, overnight federal funds may be
purchased to satisfy daily liquidity needs. Additional sources of funds are
available through use of one of the following: $2,000,000 unsecured federal
funds line of credit with Atlantic Central Bankers Bank or, the Bank's
$56,434,000 borrowing limit at the Federal Home Loan Bank of Pittsburgh (the
"FHLB"). The Bank could also sell or borrow against investment securities. At
June 30, 1998, the Bank had $15,000,000 in borrowings outstanding at the FHLB.
13
<PAGE>
Investment Securities
Investment securities are classified at the time of purchase by one of
three purposes: trading, available for sale (AFS) or held to maturity (HTM). To
date the Bank has not purchased any securities for trading purposes. The Bank
usually classifies securities, in particular mortgage-backed securities, as AFS
to provide management the flexibility to sell certain securities and adjust its
balance sheet in response to capital needs and/or changes in market conditions.
The carrying values for AFS and HTM securities were $62,729,666 and $11,672,126,
respectively, as of June 30, 1998. During the first half of 1998, management
sold certain mortgage-backed securities in reaction to higher than expected
prepayments. Proceeds from the 1998 security sales were $59,131,300 with net
losses of $5,704 recorded. Investment purchases totaled $66,830,631 and were
concentrated in fixed rate GNMA securities and variable rate corporate bonds.
<TABLE>
<CAPTION>
June 30, 1998
-----------------------------------------------------
Held to Maturity Available for Sale
------------------------- ------------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
----------- ---------- ------------------------
<S> <C> <C> <C> <C>
U.S. government agency obligations $ 8,986,156 9,006,880 -- --
Mortgage-backed securities 2,685,970 2,670,381 39,981,747 39,989,258
State and municipal securities -- -- 10,539,130 10,624,418
Corporate bonds -- -- 9,947,773 9,957,940
Equity securities -- -- 2,030,050 2,043,050
Other debt securities -- -- 115,000 115,000
----------- ---------- ---------- ----------
Total $11,672,126 11,677,261 62,613,700 62,729,666
=========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
-----------------------------------------------------
Held to Maturity Available for Sale
------------------------- ------------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
----------- ---------- ------------------------
<S> <C> <C> <C> <C>
U.S. government agency obligations $11,985,870 11,956,250 -- --
Mortgage-backed securities 3,183,768 3,143,715 50,131,927 50,121,230
State and municipal securities -- -- 10,326,107 10,402,857
Equity securities -- -- 1,780,050 1,793,050
Other debt securities -- -- 117,000 117,000
----------- ---------- ---------- ----------
Total $15,169,638 15,099,965 62,355,084 62,434,137
=========== ========== ========== ==========
</TABLE>
14
<PAGE>
Loans
Loans are the most significant components of earning assets. Inherent with
the lending function is the evaluation and acceptance of credit risk and
interest rate risk along with the opportunity cost of alternative deployment of
funds. The Company manages credit risk associated with its lending activities
through portfolio diversification, underwriting policies and procedures, and
loan monitoring practices. Commercial lending activity continues to be focused
on small businesses and professionals within the local community. More than 90%
of the loan portfolio is collateralized at least in part by real estate as shown
by the following table:
<TABLE>
<CAPTION>
June 30, 1998 % of Total December 31, 1997 % of Total
------------- ---------- ----------------- ----------
<S> <C> <C> <C> <C>
Real estate-farmland $ 500,000 0.41% 500,000 0.46%
Real estate-construction 1,471,760 1.21% 1,188,288 1.09%
Real estate-residential 23,064,494 19.01% 22,965,889 21.10%
Real estate-multifamily 3,767,739 3.11% 1,948,943 1.79%
Real estate-commercial 80,316,423 66.21% 72,372,260 66.48%
Consumer 974,369 0.80% 797,671 0.73%
Commercial 11,216,574 9.25% 9,084,458 8.35%
------------ ====== ------------ ------
Total Loans $121,311,359 100.00% 108,857,509 100.00%
Unearned income 366,149 ====== 324,835 ======
Allowance for loan losses 1,540,719 1,360,148
------------ ------------
Total loans, net $119,404,491 107,172,526
============ ============
</TABLE>
The Bank's real estate portfolio, which is concentrated primarily within
the greater Lehigh and Delaware Valleys (Eastern Pennsylvania), is subject to
risks associated with the local economy.
Allowance for Loan Losses
The allowance for loan losses is determined and calculated based on
specific loans or loan categories. Each loan is assigned a specific loan loss
reserve using a scoring system. This scoring system takes into consideration
collateral type and value, loan to value ratios, the borrower's risk rating,
delinquency, general economic conditions and other factors. Borrowers risk
ratings are determined by loan officers at the inception of each loan and are
subject to on-going analysis and update. Homogeneous loans, comprised primarily
of home equity and non-real estate secured consumer loans, are analyzed in the
aggregate. Since the Bank is only six years old with a limited history for loan
losses, management also uses peer group analysis to gauge the overall
reasonableness of its loan loss reserves. While management believes that its
allowance is considered adequate to cover losses in the loan portfolio, there
remain inherent uncertainties regarding future economic events and their
potential impact on asset quality.
In addition, regulatory authorities, as an integral part of their
examinations, periodically review the allowance for loan losses. They may
require additions to the allowance based upon their judgements about information
available to them at the time of examination.
At June 30, 1998, the Bank had $1,540,719 in its allowance for loan losses,
representing 1.27% of outstanding loans receivable as compared to 1.25% and
1.16% at December 31, 1997 and June 30, 1997, respectively.
15
<PAGE>
The following table sets forth the activity in the allowance for loan losses and
certain key ratios for the periods indicated.
<TABLE>
<CAPTION>
For the Six For the Year Ended For the Six
Months Ended December 31, Months Ended
June 30, 1998 1997 June 30, 1997
------------- ------------------ -------------
<S> <C> <C> <C>
Balance at beginning of period $ 1,360,148 $ 960,672 $ 960,672
Charge-offs
Real estate - residential 47,064 -- --
Consumer installment 7,928 524 --
------------ ------------ -----------
Total charge-offs 54,992 524 --
Recoveries
Consumer installment 563 -- --
------------ ------------ -----------
Net charge-offs 54,429 524 --
Provision for possible loan losses 235,000 400,000 175,000
------------ ------------ -----------
Balance at end of period 1,540,719 1,360,148 1,135,672
============ ============ ===========
Total gross loans:
Average 114,325,225 95,403,549 88,336,356
End of period 121,311,359 108,857,509 97,587,192
Ratios:
Net charge-offs to:
Average loans 0.05% -- --
Loans at end of period 0.04% -- --
Allowance for loan losses 3.53% 0.04% --
Provision for loan losses 23.16% 0.13% --
Allowance for loan losses to:
Total gross loans at end of period 1.27% 1.25% 1.16%
Non-performing loans 446.91% 209.64% 179.97%
</TABLE>
Charge-offs against the allowance for loan losses in 1998 totaled $54,992 of
which $47,064 related to one loan, which was transferred to real estate owned
during the first quarter of 1998.
16
<PAGE>
Non-Performing Assets
Non-performing assets are defined as accruing loans past due 90 days or
more, non-accruing loans, restructured loans and real estate owned.
Non-performing assets represented .55%, .67% and 1.11% of total assets at June
30, 1998, December 31, 1997 and June 30, 1997, respectively.
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997 June 30, 1997
------------- ----------------- -------------
<S> <C> <C> <C>
Loans past due 90 days or more and accruing
Real estate - residential $ 144,858 $ 146,492 $ 122,827
Consumer installment 956 4,576 3,482
---------- ---------- ----------
Total loans past due 90 days or more and accruing 145,814 151,068 126,309
Loans accounted for on a non-accrual basis
Real estate - construction -- 299,200 299,200
Real estate - residential 25,000 -- --
Commercial real estate 173,934 191,534 205,542
Consumer installment -- 7,000 --
---------- ---------- ----------
Total non-accrual loans 198,934 497,734 504,742
Real estate owned 807,460 638,286 1,353,072
---------- ---------- ----------
Total non-performing assets $1,152,208 $1,287,088 $1,984,123
========== ========== ==========
Total as a percentage of total assets 0.55% 0.67% 1.11%
</TABLE>
Total non-accrual loans decreased $298,800 from $497,734 at December 31, 1997
to $198,934 at June 30, 1998. The decrease relates principally to the transfer
of one loan to real estate owned in January 1998.
Real estate owned
Real estate owned increased $169,174 from $638,286 at December 31, 1997
to $807,460 at June 30, 1998. At June 30, 1998, this balance included two
residential properties.
During the first quarter of 1998, the Company foreclosed on a loan
secured by residential property valued at $250,000 and sold an investment
property for $80,826. The loan, which was transferred to real estate owned in
1998, was reported as non-accrual at December 31, 1997. In connection with the
foreclosure of this loan a $47,064 charge-off against the allowance for loan
losses was recorded. The balance of real estate owned was unchanged during the
three months ended June 30, 1998.
Deposits
The Bank, a traditional community-based bank, is largely dependent upon
its base of competitively priced core deposits to provide a stable funding
source. The Bank has retained and grown its customer base since inception
through a combination of price, quality service, convenience, and a stable and
experienced staff. The Bank primarily attracts deposits from within its market
area. Additional deposit growth will be accomplished through deposit promotions,
business development programs and continued branch expansion. The Bank expects
to open its fourth branch, the Yardley branch, by the end of 1998.
Total deposits as of June 30, 1998 were $172,051,448, representing an
increase of $28,448,246 from deposits of $143,603,202 at December 31, 1997. The
majority of this increase relates to the success of the Company's certificate of
deposit promotion, which was held in the month of February 1998. This promotion,
which offered a premium rate on nine-month certificates of deposits, generated
approximately
17
<PAGE>
$11,600,000 in funds. In addition, $7.5 million in public funds deposits was
raised in May 1998. These public funds mature in $2.5 million increments in
July, September, and December of 1998, respectively. Savings accounts increased
$3,460,047 or 7.6% to $49,011,551 at June 30, 1998 from $45,551,504 at December
31, 1997.
Core deposits, which exclude time deposits greater than $100,000 were
$151,801,309 or 88.23% of total deposits at June 30, 1998. Total time deposits
as of June 30, 1998 were $93,648,069 or 54.43% of total deposits, of which
$21,061,284 mature after one year.
<TABLE>
<CAPTION>
June 30, 1998 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 2.62% $ 12,637,057 7.35% 2.62% $ 10,847,705 7.56%
Money market 2.58% 1,680,802 0.97% 2.57% 1,667,282 1.16%
Savings 3.86% 49,011,551 28.49% 3.90% 45,551,504 31.72%
Time 5.79% 93,648,069 54.43% 5.66% 73,959,391 51.50%
---- ------------ ------ ---- ------------ ------
Total interest bearing deposits 4.90% 156,977,479 91.24% 4.76% 132,025,882 91.94%
Non-interest bearing deposits ==== 15,073,969 8.76% ==== 11,577,320 8.06%
------------ ------ ------------ ------
Total deposits $172,051,448 100.00% $143,603,202 100.00%
============ ====== ============ ======
</TABLE>
Borrowings
Borrowings decreased $15,098,422 from $34,842,740 at December 31, 1997
to $19,744,318 at June 30, 1998. Excess liquidity provided by the time deposit
promotion in February 1998 and public funds in May 1998 enabled the Bank to
repay $12,500,000 in Federal Home Loan Bank ("FHLB") borrowings. The remaining
decrease relates to borrowings from customers and overnight fed funds.
<TABLE>
<CAPTION>
June 30, 1998 Dember 31, 1997
----------------------------- --------------------------
Weighted Weighted
Average Average
Amount Rate Amount Rate
----------- -------- ----------- --------
<S> <C> <C> <C> <C>
Short-term:
Securities sold under agreement to repurchase (1) $ 4,744,318 4.75% $18,345,740 5.54%
Other -- -- 1,497,000 6.31%
----------- ---- ----------- ----
4,744,318 4.75% 19,842,740 5.59%
----------- ---- ----------- ----
Long-term
Federal Home Loan Bank advances (2) 15,000,000 5.42% 15,000,000 5.42%
----------- ---- ----------- ----
Total borrowings $19,744,318 5.26% $34,842,740 5.52%
=========== ==== =========== ====
</TABLE>
(1) At June 30, 1998 securities sold under agreement to repurchase consisted of
$4,744,318 in borrowings from customers which mature overnight. At December 31,
1997 borrowings from the FHLB and customers were $12,500,000 and $5,845,740,
respectively. All borrowings from the FHLB are secured by a blanket lien against
the Bank's assets.
(2) Long-term FHLB advances mature in the year 2002. These advances are subject
to repricing every six months at which time the issuer may convert the borrowing
to a variable rate if current rates are higher. Should the issuer convert the
borrowing, the Company may prepay the debt without penalty.
18
<PAGE>
Loans held for sale
The Bank uses an outside company to originate and sell residential
mortgages on its behalf. The $404,154 increase in loans held for sale from
$197,944 at December 31, 1997 to $602,098 at June 30, 1998 relates to the timing
of loan originations versus their sale. Typically, these loans are sold within
30 days of their settlement.
Other Assets
The $105,154 decrease in other assets from $486,348 at December 31,
1997 to $381,194 at June 30, 1998 relates primarily to a decrease in principal
payments due on FHLMC mortgage-backed securities as the Company reduced its
holdings from this agency.
Other Liabilities
The $488,962 decrease in other liabilities from $1,797,538 at December
31, 1997 to $1,308,576 at June 30, 1998 relates principally to a decrease in the
Company's own official checking accounts and federal income taxes payable. The
official checking account balance fluctuates daily in relation to when the
account is funded and when checks are presented for payment. Federal income
taxes payable were lower due to the final payment of 1997 taxes and the payment
of 1998 estimated taxes based on quarterly estimates of tax liabilities.
Non-interest income
Total non-interest income was $30,607 for the three months ended June
30, 1998 as compared to the $37,414 earned for the same period in 1997. The
decrease is principally due to $32,910 in losses on the sale of investment
securities available for sale as compared to gains of $4,186 in 1997. The losses
on sales of investment securities in 1998 were partially offset by $15,987 in
gains on the sale of loans held for sale and a $14,302 increase in service
charges and other fees. During the first half of 1997 the Company was not
engaged in the sale of loans.
Total non-interest income was $106,564 for the six months ended June
30, 1998 as compared to the $77,273 earned for the same period in 1997. The
increase is principally due to $21,324 in gains on the sale of loans held for
sale and a $21,415 increase in service charges and other fees. During 1998 the
Bank engaged an outside company to originate and sell residential mortgages on
its behalf. The Bank was not engaged in the sale of residential mortgages during
the six months ended June 30, 1997.
Non-interest expense
For the three months ended June 30, 1998, non-interest expenses were
$1,059,290 as compared to $934,016 during the same period in 1997. Of this
amount, $501,872, or 47.4%, was attributable to salary and related employee
benefits as compared to $414,346 or 44.4% for the quarter ended June 30, 1997.
The $87,526 increase in salary and related benefits is attributable to the
overall growth of the institution which includes the opening of the Southampton
branch in February 1997 and additions to lending and operations personnel. Data
processing expenses increased $28,211 while marketing was down $21,000. Other
expenses, which consist primarily of furniture and equipment expense, loan and
real estate owned expense, employee travel and entertainment, stationery,
supplies and postage, totaled $226,352 for the three months ended June 30, 1998
as compared to $202,871 during the same period in 1997. Other expense increased
$23,481 due primarily to the growth of the Bank.
For the six months ended June 30, 1998, non-interest expenses were
$2,107,839 as compared to $1,806,960 during the same period in 1997. The
$300,879 increase in non-interest expense is principally due to a $232,807
increase in salary and benefits in conjunction with the overall growth of the
Bank as mentioned above. Data processing and other expenses increased $24,628
and $46,913, respectively.
19
<PAGE>
Income tax expense
Income tax expense for the quarter ended June 30, 1998 was $194,000 as
compared to $145,000 for the quarter ended June 30, 1997. For the six months
ended June 30, 1998, income tax expense totaled $375,500 as compared to $280,000
for the same period in 1997. The tax provision for the three and six months
ended June 30, 1998 increased due to the increase in income before tax.
Year 2000
The Year 2000 issue creates risk for the Company from unforeseen
problems in its own computer systems and from third parties with whom the
Company transacts business. The impact on the overall economy from failures of
other companies and industries to successfully address this problem nationally
and internationally is unknown.
The Company outsources much of its data processing to third party
processors including all of its deposit and loan accounting functions. These
third party processors are working on the necessary programming changes to
prepare their systems for the Year 2000 and will absorb most of the direct
programming costs. The Company is monitoring the progress of its processors and
plans to test their systems for compliance in late 1998. The Company does not
expect to incur significant incremental direct expenses related to the Year
2000, provided that its third party processors are able to make the necessary
software modifications. Failure of third party computer systems relative to the
Year 2000 would have a material adverse Impact on the Company's ability to
conduct its business. In addition, the Company cannot guarantee that the
inability of its loan customers to adequately address the Year 2000 issue will
not have a material adverse effect on the Company. Costs associated with the
Year 2000 problem are expected to be expensed as incurred in accordance with
generally accepted accounting principles.
Recent Accounting Pronouncements
Operating Segment Disclosure
In June 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement No. 131, "Disclosures About Segments of an Enterprise and
Related Information". Statement No. 131 establishes standards for the way that
public enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. Statement No. 131
is effective for fiscal years beginning after December 15, 1997. The impact, if
any, of this Statement on the Company would be to require additional disclosures
in the Company's financial statements.
Employers' Disclosure about Pension and Other Postretirement Benefits
In February 1998, the FASB issued Statement No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits" which amends the
disclosure requirements of Statements No. 87, "Employers' Accounting for
Pensions", Statement No. 88 "Employers' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination Benefits," and
Statement No. 106, "Employers' Accounting for Postretirement Benefits Other than
Pensions". Statement No. 132 is applicable to all entities. This Statement
standardizes the disclosure requirements of Statements Nos. 87 and 106 to the
extent practicable and recommends a parallel format for presenting information
about pensions and other postretirement benefits. Statement No. 132 only
addresses disclosure and does not change any of the measurement recognition
provisions of Statement Nos. 87, 88 and 106. This Statement is effective for
fiscal years beginning after December 15, 1997. Restatement of comparative
period disclosures is required unless the information is not readily available,
in which case the notes to the financial statements shall include all available
information and a description of information not available.
20
<PAGE>
The impact, if any, of this Statement on the Company would be to require
additional disclosures in the Company's financial statements.
Derivative Instruments and Hedging Activities
In June 1998, the FASB issued Statement No. 133 "Accounting for
Derivative Instruments and Hedging Activities". This Statement standardizes the
accounting for derivative instruments, including certain derivative instruments
imbedded in other contracts, and those used for hedging activities, by requiring
that an entity recognize those items as assets or liabilities in the statement
of financial position and measure them at fair value. The Statement categorized
derivatives used for hedging purposes as either fair value hedges, cash flow
hedges, foreign currency fair value hedges, foreign currency cash flow hedges,
or hedges of net investments in foreign operations. The Statement generally
provides for matching of gain or loss recognition on the hedging instrument with
the recognition of the changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk, so long as the hedge is
effective. The Statement eliminates the accounting provisions outlined in
Statement 52, "Foreign Currency Translation", related to forward contracts, as
accounting for all foreign currency derivatives will be governed under Statement
No. 133. Prospective application of Statement No. 133 is required for all fiscal
years beginning after June 15, 1999, however earlier application is permitted.
Currently, the Company does not use any derivative instruments nor does it
engage in any hedging activities.
21
<PAGE>
PART 11 -- OTHER INFORMATION
Item 1 -- Legal Proceedings
Management is not aware of any litigation that would have a material adverse
effect on the consolidated financial position of the Company. There are no
proceedings pending other than the ordinary routine litigation incident to the
business of the Company and its subsidiary, Premier Bank. In addition, no
material proceedings are pending or are known to be threatened or contemplated
against the Company and the Bank by government authorities.
Item 2 -- Changes in Securities
Nothing to report.
Item 3 -- Defaults Upon Senior Securities
Nothing to report.
Item 4 -- Submission of Matters to a Vote of Security Holders
The Company's annual meeting of shareholders was held on May 14, 1998 for the
following purposes:
1. To elect eight class I directors for a term of one year (Daniel E. Cohen,
Michael Perrucci, Brian R. Rich, Ezio U. Rossi, Gerald Schatz, Bruce E.
Sickel, Thomas P. Stitt and John A. Zebrowski)
2. To elect five class 2 directors for a term of two years (Thomas E. Mackell,
Neil Norton, Irving N. Stein, HelenBeth Garofalo-Vilcek and George
Wetherill)
3. To elect seven class 2 directors for a term of three years (Peter A. Cooper,
Clark S. Frame, Barry J. Miles, Sr., Daniel A. Nesi, Thomas M. O'Mara,
Richard F. Ryon and John C. Soffronoff)
4. To ratify the appointment of KPMG Peat Marwick LLP as the Company's
independent auditors for the 1998 fiscal year.
All proposals were adopted by the Company's shareholders as follows:
1. Election of class I directors
For Against Abstain
--------- ------- -------
Daniel E. Cohen 1,714,065 -- 1,980
Michael Perrucci 1,714,065 -- 1,980
Brian R. Rich 1,714,065 -- 1,980
Ezio U. Rossi 1,714,065 -- 1,980
Gerald Schatz 1,714,065 -- 1,980
Bruce E. Sickel 1,714,065 -- 1,980
Thomas P. Stitt 1,713,735 -- 2,310
John A. Zebrowski 1,713,735 -- 2,310
2. Election of class 2 directors
Thomas E. Mackell 1,713,903 -- 2,142
Neil Norton 1,713,903 -- 2,142
Irving N. Stein 1,713,903 -- 2,142
HelenBeth Garofalo--Vilcek 1,713,903 -- 2,142
George H. Wetherill 1,713,603 -- 2,442
22
<PAGE>
Item 4 -- Submission of Matters to a Vote of Security Holders (continued)
3. Election of class 3 directors
For Against Abstain
--------- ------- -------
Peter A. Cooper 1,715,415 -- 630
Clark S. Frame 1,715,415 -- 630
Barry J. Miles, Sr. 1,715,415 -- 630
Daniel A. Nesi 1,712,643 -- 3,402
Thomas M. O'Mara 1,715,415 -- 630
Richard F. Ryon 1,715,415 -- 630
John C. Soffronoff 1,715,415 -- 630
4. Proposal to ratify the selection of KPMG Peat Marwick LLP, Certified Public
Accountants, as the Company's independent auditors for the 1998 fiscal year.
For Against Abstain
--------- ------- -------
1,715,220 -- 825
Item 5 -- Other Information
On August 11, 1998, the Company issued $10.0 million of 8.57% Capital Securities
due August 15, 2028. The Capital Securities were issued by the Company's
recently formed subsidiary, PBI Capital Trust (the "Trust"), a statutory
business trust created under the laws of Delaware. The Company is the sole owner
of the Trust. The Trust will use the proceeds from the Capital Securities to
acquire $10.0 million in 8.57% Junior Subordinated Deferrable Interest
Debentures to be issued by the Company. The Junior Subordinated Debentures will
be the sole assets of the Trust, and payments under the Junior Subordinated
Debentures will be the sole revenue of the Trust. The Company plans to use the
proceeds from the sale of the Junior Subordinated Debentures for general
corporate purposes, including, but not limited to, investments in and advances
to its subsidiary, Premier Bank, repurchases of common stock of the Company,
branch expansion, the purchase of certain branch facilities being leased and
funding loans. Proceeds from the Capital Securities will provide the Company
with additional Tier I and Tier II capital.
Item 6 -- Exhibits and Reports on Form 8-K
The following exhibits are incorporated by reference herein or annexed to this
Form 10-QSB:
3.1 Articles of Incorporation (Incorporated by reference to Exhibit 3i to
the Company's Registration Statement No. 333-34243 on Form S-4 filed
with the Securities and Exchange Commission on August 22, 1997).
3.2 By-Laws (Incorporated by reference to Exhibit 3ii to the Company's
Registration Statement No. 333-34243 on Form S-4 filed with the
Securities and Exchange Commission on August 22, 1997)
10.1 Premier Bank's 1995 Incentive Stock Option Plan (Incorporated by
reference to Exhibit 99.6 to the Company's Registration Statement No.
333-34243 on Form S-4 filed with the Securities and Exchange Commission
on August 22, 1997).
11.1 Statement re: Computation of per share earnings (Included as Note 5 of
this Form 10-QSB)
22.1 Submission of matters to a vote of security holders (included as Item 3
under Part II of this Form (10-QSB)
27.1 Financial Data Schedule (Exhibit 27)
23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Issuer
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Premier Bancorp, Inc.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
By: /s/ John C. Soffronoff President, Chief Executive Officer, August 14, 1998
- -------------------------- (Principal Executive Officer), Director
John C. Soffronoff
By: /s/ Bruce E. Sickel Chief Financial Officer, (Principal August 14, 1998
- -------------------------- Financial Officer), Director
Bruce E. Sickel
</TABLE>
24
<PAGE>
Index of Exhibits
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
3.1 Articles of Incorporation (Incorporated by reference to Exhibit 3i to the *
Company's Registration Statement No. 333-34243 on Form S-4 filed with the
Securities and Exchange Commission on August 22, 1997).
3.2 By-Laws (Incorporated by reference to Exhibit 3ii to the Company's *
Registration Statement No. 333-34243 on Form S-4 filed with the
Securities and Exchange Commission on August 22, 1997).
10.1 Premier Bank's 1995 Incentive Stock Option Plan (Incorporated by
reference to Exhibit 99.6 to the Company's Registration Statement No. *
333-34243 on Form S-4 filed with the Securities and Exchange Commission
on August 22, 1997).
11.2 Statement re: Computation of per share earnings (Included as Note 5 of 6
this Form 10-QSB)
22.2 Submission of matters to a vote of security holders (included as Item 3 22
under Part II of this Form 10-QSB)
27.1 Financial Data Schedule (Exhibit 27) 26
* Incorporated by reference.
</TABLE>
25
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 3,907,790
<INT-BEARING-DEPOSITS> 69,479
<FED-FUNDS-SOLD> 5,107,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 62,729,666
<INVESTMENTS-CARRYING> 11,672,126
<INVESTMENTS-MARKET> 11,677,261
<LOANS> 120,945,210
<ALLOWANCE> 1,540,719
<TOTAL-ASSETS> 207,710,593
<DEPOSITS> 172,051,448
<SHORT-TERM> 4,744,318
<LIABILITIES-OTHER> 3,195,547
<LONG-TERM> 16,500,000
0
0
<COMMON> 7,996,781
<OTHER-SE> 3,222,499
<TOTAL-LIABILITIES-AND-EQUITY> 207,710,593
<INTEREST-LOAN> 5,171,149
<INTEREST-INVEST> 2,357,957
<INTEREST-OTHER> 109,883
<INTEREST-TOTAL> 7,638,989
<INTEREST-DEPOSIT> 3,539,896
<INTEREST-EXPENSE> 4,266,134
<INTEREST-INCOME-NET> 3,372,855
<LOAN-LOSSES> 235,000
<SECURITIES-GAINS> (5,704)
<EXPENSE-OTHER> 2,107,839
<INCOME-PRETAX> 1,136,580
<INCOME-PRE-EXTRAORDINARY> 1,136,580
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 761,080
<EPS-PRIMARY> 0.29
<EPS-DILUTED> 0.26
<YIELD-ACTUAL> 8.04
<LOANS-NON> 198,934
<LOANS-PAST> 145,814
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 198,934
<ALLOWANCE-OPEN> 1,360,148
<CHARGE-OFFS> 54,992
<RECOVERIES> 563
<ALLOWANCE-CLOSE> 1,540,719
<ALLOWANCE-DOMESTIC> 1,464,221
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 76,498
</TABLE>
