U. S. 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, 1999
[ ] TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from .............. to ..............
Commission file number: 333-34243
PREMIER BANCORP, INC.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Pennsylvania 23-2921058
------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
379 North Main Street, Doylestown, PA 18901
-------------------------------------------
(Address of principal executive offices)
(215) 345-5100
--------------------------
(Issuer's telephone number)
N/A
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 2,915,603 as of July 31,
1999.
Transitional Small Business Disclosure format (check one):
Yes No X
--- ---
<PAGE>
PART I - Financial Information
Item 1 -- Financial Statements
PREMIER BANCORP, INC.
CONSOLIDATED FINANCIAL STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
June 30, 1999
(Unaudited) December 31, 1998
------------- -----------------
(Dollars in thousands)
<S> <C> <C>
Assets
Cash and due from banks $ 6,669 $ 4,765
Federal funds sold 2,991 1
Interest-bearing deposits 500 134
-------- --------
Cash and cash equivalents 10,160 4,900
Investment securities:
Held to maturity (fair value $7,023 in 1999 and $5,479 in 1998) 7,130 5,492
Available for sale (amortized cost $112,560 in 1999 and $94,493 in 1998) 108,645 93,888
Loans held for sale -- 1,627
Loans receivable (net of allowance for loan losses of $2,144 in 1999
and $1,805 in 1998) 164,534 138,100
Accrued interest receivable 1,974 1,785
Premises and equipment 3,339 1,638
Other real estate owned -- 200
Deferred taxes 1,951 826
Other assets 693 737
-------- --------
Total assets $298,426 $249,193
======== ========
Liabilities, minority interest in subsidiaries and shareholders' equity
Deposits $216,948 $191,226
Borrowings 48,661 29,936
Accrued interest payable 2,516 1,531
Other liabilities 5,103 3,233
Subordinated debt 1,500 1,500
-------- --------
Total liabilities 274,728 227,426
Corporation obligated mandatorily redeemable capital securities of subsidiary
trust holding solely junior subordinated debentures of the Corporation 10,000 10,000
Shareholders' equity
Common stock- $0.33 par value; 30,000,000 shares authorized; issued and
outstanding 2,915,603 at June 30, 1999 and 2,635,340 at December 31, 1998 972 879
Additional paid-in capital 9,940 7,147
Retained earnings 5,371 4,140
Accumulated other comprehensive loss (2,585) (399)
-------- --------
Total shareholders' equity 13,698 11,767
-------- --------
Total liabilities, minority interest in subsidiaries and shareholders' equity $298,426 $249,193
======== ========
</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,
1999 1998 1999 1998
---------- ---------- ---------- ---------
(Dollars in thousands; except per share data)
<S> <C> <C> <C> <C>
Interest income:
Loans $ 3,416 $ 2,672 $ 6,610 $ 5,171
Federal funds sold and interest-bearing deposits 31 70 38 110
Investments:
Taxable 1,562 1,032 2,940 2,106
Tax-exempt 251 133 500 252
---------- ---------- ---------- ----------
Total interest income 5,260 3,907 10,088 7,639
---------- ---------- ---------- ----------
Interest expense:
Deposits 2,139 1,876 4,130 3,540
Borrowings 582 301 1,040 726
---------- ---------- ---------- ----------
Total interest expense 2,721 2,177 5,170 4,266
---------- ---------- ---------- ----------
Net interest income 2,539 1,730 4,918 3,373
Provision for loan losses 185 121 352 235
---------- ---------- ---------- ----------
Net interest income after loan loss provision 2,354 1,609 4,566 3,138
Non-interest income:
Service charges and other fees 46 47 96 91
Loss, net, on sale of investment
securities available for sale (11) (33) (58) (6)
Gain on sale of loans held for sale 20 17 60 22
---------- ---------- ---------- ----------
Total non-interest income 55 31 98 107
Non-interest expense:
Salaries and employee benefits 691 502 1,374 1,051
Occupancy 101 100 208 199
Data processing 158 120 319 212
Professional services 53 71 99 140
Marketing 68 39 134 99
Minority interest in expense of subsidiaries 218 -- 430 -
Other 262 227 483 407
---------- ---------- ---------- ----------
Total non-interest expense 1,551 1,059 3,047 2,108
---------- ---------- ---------- ----------
Income before income tax 858 581 1,617 1,137
Income tax expense 198 195 386 376
---------- ---------- ---------- ----------
Net income $ 660 $ 368 $ 1,231 $ 761
========== ========== ========== ==========
Earnings per share:
Basic $ 0.23 $ 0.15 $ 0.44 $ 0.29
Diluted 0.21 0.13 0.39 0.26
Weighted average number of shares outstanding:
Basic 2,913,617 2,630,340 2,826,222 2,630,340
Diluted 3,218,974 2,913,403 3,133,850 2,908,341
</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, 1999 1998
- --------------------------------- ------- ------
(Dollars in thousands)
<S> <C> <C>
Operating activities:
Net income $ 1,231 $ 761
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation expense 168 110
Provision for loan losses 352 235
Amortization of premiums and discounts on investment securities held to maturity 6 8
Amortization of premiums and discounts on investment securities available for sale 71 96
Loss on sale of investment securities available for sale 58 6
Gain on sale of loans held for sale (60) (22)
Originations of loans held for sale (5,881) (3,300)
Proceeds from sale of loans held for sale 7,568 2,917
Increase in accrued interest receivable (189) (34)
Decrease in other assets 44 105
Increase in deferred loan fees 44 41
Increase in accrued interest payable 985 541
Increase (decrease) in other liabilities 1,894 (489)
------- ------
Net cash provided by operating activities 6,291 975
------- ------
Investing activities:
Proceeds from sale of investment securities available for sale 10,043 59,131
Repayment of investment securities available for sale 2,285 6,340
Purchase of investment securities available for sale (30,524) (65,832)
Repayment of investment securities held to maturity 355 4,489
Purchase of investment securities held to maturity (1,999) (999)
Net increase in loans receivable (26,831) (12,758)
Proceeds from sale of other real estate owned 200 81
Purchases of premises and equipment (1,869) (86)
------- ------
Net cash used in investing activities (48,340) (9,634)
------- ------
Financing activities:
Net increase in deposits 25,722 28,448
Net increase (decrease) in borrowings less than 90 days 18,725 (20,098)
Increase in borrowings greater than 90 days -- 5,000
Proceeds from the issuance of common stock, net 2,850 --
Proceeds from exercised stock options 12 --
------- ------
Net cash provided by financing activities 47,309 13,350
------- ------
Increase in cash and cash equivalents: 5,260 4,691
Cash and cash equivalents
Beginning of period 4,900 4,393
------- ------
End of period $10,160 $9,084
======= ======
Composed of:
Cash and due from banks $ 6,669 $3,908
Federal funds sold 2,991 5,107
Interest-bearing deposits 500 69
------- ------
Total cash and cash equivalents $10,160 $9 084
======= ======
Supplemental disclosures:
Cash payments for:
Interest expense $ 4,185 $3,725
Taxes 475 500
Supplemental disclosure of noncash activities:
Change in unrealized loss on investment securities available for sale $(3,310) $ (75)
Change in deferred tax asset related to investment securities available for sale 1,124 26
Tax effect of exercised stock options 24 --
Transfer of loans to other real estate owned -- 297
</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
We were incorporated under the laws of the Commonwealth of Pennsylvania on
July 15, 1997. We were reorganized as the one-bank holding company of Premier
Bank (the Bank) on November 17, 1997. Through our principal subsidiary bank,
Premier Bank, we provide a wide range of financial services to individual and
corporate customers through our branch banking system located in Bucks and
Northampton Counties in Pennsylvania, all of which is managed as one operating
segment. Premier Bank is a Pennsylvania chartered commercial bank and member of
the Federal Reserve Bank of Philadelphia (the FRB) and the Federal Deposit
Insurance Corporation (the FDIC). The Bank competes with other financial
institutions and other financial services companies with respect to services
offered and customers. We are regulated by certain federal agencies and are
periodically examined by them.
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. The
consolidated financial statements include the accounts of Premier Bancorp, Inc.
and our wholly owned subsidiaries, Premier Bank and PBI Capital Trust. All
significant intercompany accounts and transactions have been eliminated in the
consolidated financial statements. Certain previously reported amounts have been
reclassified to conform to current presentation standards. These
reclassifications had no effect on net income. The results of operations for the
three and six months ended June 30, 1999 and 1998 are not necessarily indicative
of the results that may be expected for the entire fiscal year.
3. 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 and the carrying value of other real estate owned, if any.
4. Earnings Per Share
Basic earnings per share is calculated on the basis of weighted average
number of shares outstanding. Options to purchase 675,669 and 677,349 shares of
common stock were outstanding at June 30, 1999 and 1998, respectively. Diluted
earnings per common share includes dilutive common stock equivalents as computed
under the treasury stock method using average common stock prices.
5
<PAGE>
PREMIER BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Earnings Per Share (continued)
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share calculations.
For the three months ended June 30, 1999
--------------------------------------------
(Dollars in thousands; except per share data)
Net Per share
income Shares Amount
------ --------- -------
Basic earnings per share $ 660 2,913,617 $ 0.23
Effect of dilutive stock options -- 305,357 (0.02)
------ --------- ------
Diluted earnings per share $ 660 3,218,974 $ 0.21
====== ========= ======
For the three months ended June 30, 1998
--------------------------------------------
(Dollars in thousands; except per share data)
Net Per share
income Shares Amount
------ --------- -------
Basic earnings per share $ 386 2,630,340 $ 0.15
Effect of dilutive stock options -- 283,063 (0.02)
------ --------- ------
Diluted earnings per share $ 386 2,913,403 $ 0.13
====== ========= ======
For the six months ended June 30, 1999
--------------------------------------------
(Dollars in thousands; except per share data)
Net Per share
income Shares Amount
------ --------- -------
Basic earnings per share $1,231 2,826,222 $ 0.44
Effect of dilutive stock options -- 307,628 (0.05)
------ --------- ------
Diluted earnings per share $1,231 3,133,850 $ 0.39
====== ========= ======
For the six months ended June 30, 1998
--------------------------------------------
(Dollars in thousands; except per share data)
Net Per share
income Shares Amount
------ --------- -------
Basic earnings per share $ 761 2,630,340 $ 0.29
Effect of dilutive stock options -- 278,001 (0.03)
------ --------- ------
Diluted earnings per share $ 761 2,908,341 $ 0.26
====== ========= ======
6
<PAGE>
PREMIER BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Comprehensive Income (Loss)
The following table displays net income and the components of other
comprehensive income (loss) to arrive at total comprehensive income (loss). For
us, the only component of other comprehensive income (loss) is the change in the
estimated fair value of investment securities available for sale.
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30, ended June 30,
-------------------- ------------------
1999 1998 1999 1998
------- ----- -------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Net income $ 660 $ 386 $ 1,231 $761
Other comprehensive (loss) income, net of tax:
Unrealized (losses) gains on securities available for sale:
Unrealized holding (losses) gains during the period (1,871) 52 (2,224) 20
Reclassification adjustment for losses included in net income 7 22 38 4
------- ---- ------- ----
Other comprehensive (loss) income (1,864) 74 (2,186) 24
------- ---- ------- ----
Comprehensive (loss) income $(1,204) $460 $ (955) $785
======= ==== ======= ====
</TABLE>
6. Capital Securities
On August 11, 1998, our subsidiary, PBI Capital Trust (the Trust)
issued $10,000,000 of 8.57% capital securities due August 15, 2028. The Trust is
a statutory business trust created under the laws of Delaware. We are the sole
owner of the Trust. The Trust used the proceeds from the capital securities to
acquire $10,000,000 in 8.57% Junior Subordinated Deferrable Interest Debentures
issued by us. The Junior Subordinated Debentures are the sole assets of the
Trust, and payments under the Junior Subordinated Debentures are the sole
revenue of the Trust. We are using the proceeds from the sale of the Junior
Subordinated Debentures for general corporate purposes, including, but not
limited to, investments in and advances to our subsidiary, Premier Bank,
repurchases of our common stock, branch expansion, and funding loans. The
precise amount and timing of the application of the net proceeds used for such
corporate purposes depends on the funding requirements and the availability of
other funds to us and the Bank. Proceeds from the capital securities provide us
with additional Tier I and Tier II capital.
At June 30, 1999, we were required to maintain a reserve account equal to
one year's expense on our capital securities. This reserve is required at all
times except during times that the ratio of our total unsecured debt to
shareholders' equity is equal to or less than 70% and the Bank has the capacity
to pay dividends in an amount equal to or greater than two times the amount of
interest payable on the junior subordinated debentures for a one-year period. At
June 30, 1999, we were required to maintain a reserve account since our
unsecured debt to equity ratio exceeded 70%. This reserve account was invested
in available for sale investment securities with an estimated fair market value
of $950,000 at June 30, 1999.
Capital securities are reported in the Consolidated Statements of Financial
Condition under the caption "Corporation-obligated mandatorily redeemable
capital securities of subsidiary trust holding solely junior subordinated
debentures of the Corporation". Expenses related to the capital securities are
included in the "Non-interest expense" section of the Consolidated Statements of
Income under the caption "Minority interest in expense of subsidiaries".
7
<PAGE>
PREMIER BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Common Stock Offering
On December 22, 1998, we commenced an offering of common stock at $11.00
per share. This offering expired on March 31, 1999. We issued 272,416 shares
during this offering with net proceeds totaling $2,850,000. We will use the net
proceeds of the stock offering for general corporate purposes, including
investments in or advances to the Bank to increase the Bank's capital position
in order to raise lending limits and increase lending activity. In addition,
these proceeds may be used to support the continuing development of the Bank's
franchise through branch expansion and possible expansion into related
businesses. At June 30, 1999, 2,915,603 shares of common stock were issued and
outstanding.
8
<PAGE>
Item 2 -- Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
We are a Pennsylvania business corporation and a registered bank holding
company headquartered in Doylestown, Bucks County, Pennsylvania. We were
incorporated on July 15, 1997 and reorganized on November 17, 1997 as the
one-bank holding company of Premier Bank. Each outstanding share of Premier Bank
common stock was converted into one share of Premier Bancorp, Inc. stock under
the Plan of Reorganization approved by the Bank's shareholders. Our primary
business is the operation of our wholly owned subsidiary, Premier Bank, which is
managed as a single business segment.
Premier Bank was organized in 1990 as a Pennsylvania chartered banking
institution and began operations on April 24, 1992. The Bank is a
community-oriented financial services provider whose business primarily consists
of attracting retail deposits from the general public and small businesses and
originating commercial and consumer loans in its market area. The Bank also
invests in securities such as mortgage-backed securities, obligations of U.S.
government agencies and government sponsored entities, corporate bonds and state
and municipal bonds.
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.
Currently, the Bank has four full-service Pennsylvania banking offices:
Doylestown, Easton, Southampton and Floral Vale. The Bank opened the Floral Vale
branch on February 19, 1999. The Bank also has a loan production office in
Southampton, 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.
Our consolidated results of operations are dependent primarily on net
interest income, which is the difference between the interest income earned on
our interest-earning assets, such as loans and securities, and the interest
expense paid on our interest-bearing liabilities, such as deposits and borrowed
money. We also generate non-interest income such as service charges and other
fees. Our non-interest expenses primarily consist of employee compensation and
benefits, occupancy expenses, marketing, data processing costs and other
operating expenses. The Bank is subject to losses from its loan portfolio if
borrowers fail to meet their obligations. Our results of operations are
significantly affected by general economic and competitive conditions,
particularly changes in market interest rates, government policies and actions
of regulatory agencies.
The following is management's discussion and analysis of the significant
changes in the results of operations for the three and six months ended June 30,
1999 as compared to the same periods in 1998 and changes in financial condition
from December 31, 1998 to June 30, 1999. Current performance may not be
indicative of future performance. This discussion should be read in conjunction
with the 1998 Annual Report on Form 10-KSB.
In addition to historical information, this management discussion and
analysis contains forward-looking statements. Forward-looking statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those projected. We caution readers not to place undue
reliance on these forward-looking statements, which reflect management's
analysis only as of this date. We are not obligated to publicly revise or update
these forward-looking statements to reflect events or circumstances that arise
after this date. Readers should carefully review the risk factors described in
other documents we file from time to time with the Securities and Exchange
Commission, including annual reports on Form 10-KSB, quarterly reports on Form
10-QSB and any current reports on Form 8-K.
Management Strategy
Our primary strategy is to increase loan and deposit market shares in the
communities we serve and to expand our branch network to new markets as deemed
appropriate. We plan to accomplish this growth principally through aggressive
pricing and marketing. The Bank opened its fourth branch office in Lower
Makefield Township, Bucks County, Pennsylvania (the Floral Vale branch) in
February 1999.
We also try to maximize earnings, given our current level of capital and
interest rate sensitivity, by borrowing funds and purchasing investment
securities as discussed in "Capital Leverage Strategy", below. Management
continually monitors the quality of our loan and investment portfolios. In
9
<PAGE>
addition, we use various asset/liability modeling techniques to measure and
manage the impact of interest rate changes on our net interest income and
capital.
Capital Leverage Strategy
We plan to remain "well capitalized" as defined by Bank regulations and
manage our business accordingly. Current capital levels exceed the regulatory
requirement for "well capitalized" classification. A portion of the capital in
excess of required amounts has been deployed through the use of a capital
leverage strategy whereby the Bank invests in high quality mortgage-backed
securities, municipal and corporate bonds and U.S. government agency securities,
together, called leverage assets, funded by short and intermediate term
borrowings principally from the Federal Home Loan Bank of Pittsburgh and reverse
repurchase agreements. The capital leverage strategy generates additional
earnings by virtue of a positive interest rate spread between the yield on the
leverage assets and the cost of the borrowings. This positive spread is created
because the average term to maturity of the leverage assets exceeds that of the
borrowings used to fund their purchase. The net interest income earned on the
leverage strategy would be expected to decline in a rising interest rate
environment. The capital leverage strategy has been undertaken in accordance
with the limits established by the Board of Directors for enhancing
profitability under moderate levels of interest rate risk.
10
<PAGE>
The following table sets forth, for the periods indicated, certain key
average balance sheet amounts and their corresponding earnings/expenses and
rates (which have been annualized).
Average Balances, Rates and Interest Income and Expense Summary
<TABLE>
<CAPTION>
For the three months ended June 30, 1999 1998
------------------------------ -----------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
-------- -------- ----- -------- -------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-bearing deposits $ 433 $ 6 5.56% $ 383 $ 5 5.24%
Federal funds sold 2,199 25 4.56% 4,918 65 5.30%
Investment securities available for sale
Taxable 84,801 1,465 6.93% 50,552 831 6.59%
Tax-exempt(1) 20,096 380 7.58% 10,255 203 7.94%
Investment securities held to maturity 6,172 97 6.33% 12,119 200 6.63%
-------- ------ ---- -------- ------ ----
Total investment securities 111,069 1,942 7.01% 72,926 1,234 6.79%
Loans, net of unearned income (2)(3)(4) 160,224 3,428 8.58% 118,238 2,685 9.11%
-------- ------ ---- -------- ------ ----
Total earning assets 273,925 5,401 7.91% 196,465 3,989 8.14%
Cash and due from banks 4,445 3,190
Allowance for loan losses (2,039) (1,481)
Other assets 7,114 4,657
-------- --------
Total assets $283,445 $202,831
======== ========
Liabilities, minority interest in subsidiaries
and shareholders' equity
Interest checking $ 17,514 114 2.61% 12,738 82 2.58%
Money market deposit accounts 1,569 10 2.56% 1,697 11 2.60%
Savings accounts 55,648 476 3.43% 49,422 475 3.86%
Time deposits 116,295 1,539 5.31% 90,657 1,308 5.79%
-------- ------ ---- -------- ------ ----
Total interest-bearing deposits 191,026 2,139 4.49% 154,514 1,876 4.87%
Short-term borrowings 28,827 354 4.93% 5,211 69 5.31%
Long-term borrowings 15,000 201 5.37% 15,000 203 5.43%
-------- ------ ---- -------- ------ ----
Total borrowings 43,827 555 5.08% 20,211 272 5.40%
Subordinated debt 1,500 27 7.22% 1,500 29 7.55%
-------- ------ ---- -------- ------ ----
Total interest-bearing liabilities 236,353 2,721 4.62% 176,225 2,177 4.95%
Non-interest-bearing deposits 18,303 12,620
Other liabilities 4,166 3,136
Capital securities 10,000 --
Shareholders' equity 14,623 10,850
-------- --------
Total liabilities, minority interest in
subsidiaries and shareholders' equity $283,445 $202,831
======== ========
Net interest income/rate spread $2,680 3.29% $1,812 3.19%
====== ==== ====== ====
Net interest margin(5) 3.92% 3.70%
Average interest-earning assets as a percentage
of average interest-bearing liabilities 115.90% 111.49%
</TABLE>
- -------------
(1) Interest income on tax-exempt investment securities was presented on a
tax-equivalent basis. Tax-exempt yields were adjusted to a tax-equivalent
basis using a 34% rate.
(2) Includes non-accrual loans of $888,000 and $181,000 on average for the
three months ended June 30, 1999 and 1998, respectively.
(3) Includes tax-exempt loans of $1,227,000 and $1,356,000 on average for the
three months ended June 30, 1999 and 1998, respectively. Tax-exempt
yields were adjusted to a tax-equivalent basis using a 34% rate.
(4) Includes loans held for sale of $360,000 and $427,000 on average for the
three months ended June 30, 1999 and 1998, respectively.
(5) Net interest margin is calculated as net interest income divided by average
interest-earning assets.
11
<PAGE>
The following table sets forth, for the periods indicated, certain key
average balance sheet amounts and their corresponding earnings/expenses and
rates (which have been annualized).
Average Balances, Rates and Interest Income and Expense Summary
<TABLE>
<CAPTION>
For the six months ended June 30, 1999 1998
-------------------------------- ----------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
-------- -------- ------- ------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-bearing deposits $ 359 $ 8 4.49% $ 335 $ 6 3.61%
Federal funds sold 1,320 30 4.58% 3,856 104 5.44*
Investment securities available for sale
Taxable 81,966 2,801 6.89% 50,315 1,654 6.63%
Tax-exempt(1) 19,921 758 7.67% 9,664 382 7.97%
Investment securities held to maturity 4,493 139 6.25% 13.484 452 6.76%
-------- ------ ---- -------- ------ ----
Total investment securities 106,380 3,698 7.01% 73,463 2,488 6.83%
Loans, net of unearned income (2)(3)(4) 153,706 6,633 8.70% 114.308 5.197 9.17%
-------- ------ ---- -------- ------ ----
Total earning assets 261,765 10,369 7.99% 191,962 7,795 8.19%
Cash and due from banks 4,244 3,347
Allowance for loan losses (1,958) (1,445)
Other assets 6,668 4,599
-------- --------
Total assets $270,719 $198,463
======== ========
Liabilities, minority interest in subsidiaries
and shareholders' equity
Interest checking $ 16,715 217 2.62% $ 11,982 154 2.59%
Money market deposit accounts 1,724 22 2.57% 1,731 22 2.56%
Savings accounts 55,321 942 3.43% 47,741 916 3.87%
Time deposits 111,301 2,949 5.34% 85,228 2,448 5.79%
-------- ------ ---- -------- ------ ----
Total interest-bearing deposits 185,061 4,130 4.50% 146,682 3,540 4.87%
Short-term borrowings 24,196 585 4.88% 9,870 265 5.41%
Long-term borrowings 15,000 402 5.40% 15,000 402 5.40%
-------- ------ ---- -------- ------ ----
Total borrowings 39,196 987 5.08% 24,870 667 5.41%
Subordinated debt 1.500 53 7.13% 1,500 59 7.93%
-------- ------ ---- -------- ------ ----
Total interest-bearing liabilities 225,757 5,170 4.62% 173,052 4,266 4.97%
Non-interest-bearing deposits 17,516 11,863
Other liabilities 3,719 2,903
Capital securities 10,000 --
Shareholders' equity 13,727 10,645
-------- --------
Total liabilities, minority interest in
subsidiaries and shareholders" equity $270,719 $198,463
======== ========
Net interest income/rate spread $5,199 3.37% $3,529 3.22%
====== ==== ====== ====
Net interest margin(5) 4.01% 3.71%
Average interest-earning assets as a percentage
of average interest-bearing liabilities 115.95% 110.93%
</TABLE>
- -------------
(1) Interest income on tax-exempt investment securities was presented on a
tax-equivalent basis. Tax-exempt yields were adjusted to a tax-equivalent
basis using a 34% rate.
(2) Includes non-accrual loans of $973,000 and $232,000 on average for the
six months ended June 30, 1999 and 1998, respectively.
(3) Includes tax-exempt loans of $1,243,000 and $1,372,000 on average for the
six months ended June 30, 1999 and 1998, respectively. Tax-exempt yields
were adjusted to a tax-equivalent basis using a 34% rate.
(4) Includes loans held for sale of $469,000 and $366,000 on average for the
six months ended June 30, 1999 and 1998, respectively.
(5) Net interest margin is calculated as net interest income divided by average
interest-earning assets.
12
<PAGE>
Growth Trend
Total assets grew in excess of 25% in each of the past five years from
$38,336,000 at December 31, 1993 to $249,193,000 at December 31, 1998. During
this same period, total loans and total deposits grew in excess of 25% and 20%,
respectively, each year. This pattern of growth continued through the first half
of 1999. Total assets grew to $298,426,000 at June 30, 1999 or by 20% compared
to year-end 1998. Loans and deposits totaled $167,166,000 and $216,948,000,
respectively, at June 30, 1999. This represents a 19% and 13% growth rate for
loans and deposits, respectively, compared to year-end 1998 balances. We
continue to focus our lending activity on small businesses and professionals
within the local community. As in the past, we will continue to hire new loan
officers to grow our loan portfolio. We increased deposits through aggressive
pricing, direct marketing and branch expansion. In February 1999, the Bank
opened its fourth branch (the Floral Vale branch) in Lower Makefield Township,
Bucks County, Pennsylvania. New personnel have been hired and improvements to
our computer systems have been made to support our growth initiatives.
The discussion that follows compares the financial results for the three
and six months ended June 30, 1999 to the same periods in 1998. The change in
financial results over the past year are described mostly in terms of our
growth.
Results of Operations
For the three months ended June 30, 1999, we reported diluted earnings per
share of $.21, an increase of 62% from the $.13 reported for the same period in
1998. Net income of $660,000 for the three months ended June 30, 1999 was
$274,000 or 71% higher than the $386,000 reported for the same period in 1998.
Return on average assets was .93% for the three months ended June 30, 1999
compared to .76% for the same period in 1998. Return on average equity,
exclusive of the unrealized gain/loss on investment securities available for
sale was 16.80% for the three months ended June 30, 1999 compared to 14.29% for
the same period in 1998. Earnings in 1999 were higher than 1998 primarily due to
the continued growth in interest-earning assets, which outpaced the growth in
interest-bearing liabilities.
For the six months ended June 30, 1999, we reported diluted earnings per
share of $.39, an increase of 50% from the $.26 reported for the same period in
1998. Net income of $1,231,000 for the six months ended June 30, 1999 was
$470,000 or 62% higher than the $761,000 reported for the same period in 1998.
Return on average assets was .92% for the six months ended June 30, 1999
compared to .77% for the same period in 1998. Return on average equity,
exclusive of the unrealized gain/loss on investment securities available for
sale was 17.06% for the six months ended June 30, 1999 compared to 14.46% for
the same period in 1998. Earnings in 1999 were higher than 1998 primarily due to
the continued growth in interest-earning assets, which outpaced the growth in
interest-bearing liabilities.
Net interest income
Net interest income is our most significant component of operating income.
Net interest income depends upon the levels of interest-earning assets and
interest-bearing liabilities and the difference or "spread" between the
respective yields earned and rates paid. The interest rate spread is influenced
by the overall interest rate environment and by competition.
For the three months ended June 30, 1999, net interest income, on a
tax-equivalent basis, was $868,000 higher than the same period in 1998. This
increase was primarily a function of asset growth and a higher ratio of
interest-earning assets to interest-bearing liabilities. Average
interest-earning assets grew $77,460,000 or 39% from $196,465,000 at June 30,
1998 to $273,925,000 at June 30, 1999. Average investment and average loan
balances increased $38,143,000 and $41,986,000, respectively. The ratio of
average interest-earning assets to average interest-bearing liabilities
increased from 111.49% at June 30, 1998 to 115.90% at June 30, 1999. This
increase had a positive impact on net interest income and net interest margin.
The net interest margin improved 22 basis points from 3.70% at June 30, 1998 to
3.92% at June 30, 1999. The net interest rate spread improved 10 basis points
from 3.19% at June 30, 1998 to 3.29% at June 30, 1999. Overall interest rates
moved lower during the later part of 1998 and remained relatively unchanged
through the first quarter of 1999. During the second quarter of 1999 overall
interest rates moved higher. The 23 basis point decrease in average yield on
13
<PAGE>
interest-earning assets was more than offset by the 33 basis point decrease in
the average rate on interest-bearing liabilities.
For the six months ended June 30, 1999, net interest income, on a
tax-equivalent basis, was $1,670,000 higher than the same period in 1998. This
increase was primarily a function of asset growth and a higher ratio of
interest-earning assets to interest-bearing liabilities. Average
interest-earning assets grew $69,803,000 or 36% from $191,962,000 at June 30,
1998 to $261,765,000 at June 30, 1999. Average investment and average loan
balances increased $32,917,000 and $39,398,000, respectively. The ratio of
average interest-earning assets to average interest-bearing liabilities
increased from 110.93% at June 30, 1998 to 115.95% at June 30, 1999. This
increase had a positive impact on net interest income and net interest margin.
The growth in interest-earning assets was funded, in part, by the proceeds from
our capital securities issued in August 1998. The net interest margin improved
30 basis points from 3.71% at June 30, 1998 to 4.01% at June 30, 1999. The net
interest rate spread improved 15 basis points from 3.22% at June 30, 1998 to
3.37% at June 30, 1999. Overall interest rates moved lower during the later part
of 1998 and were relatively unchanged during the first quarter of 1999. During
the second quarter of 1999 overall interest rates moved higher. The 20 basis
point decrease in average yield on interest-earning assets was more than offset
by the 35 basis point decrease in the average rate on interest-bearing
liabilities.
Non-interest income
Non-interest income consists primarily of service charges on deposits and
gains/losses on the sale of investment securities available for sale and loans
held for sale.
Total non-interest income was $55,000 for the three months ended June 30,
1999 compared to $31,000 for the same period in 1998. The change is principally
due to the fact that net losses on the sale of investment securities available
for sale totaled $11,000 for the three months ended June 30, 1999 compared to
$33,000 for the same period in 1998. The level of gains or losses on investment
sales is dependent upon the volume of transactions, the types of securities
sold, timing and the interest rate environment.
Total non-interest income was $98,000 for the six months ended June 30,
1999 compared to $107,000 for the same period in 1998. The change is principally
due to the amount of losses realized on the sale of investment securities
available for sale during the six months ended June 30, 1999 compared to 1998.
Net losses on investment sales in 1999 related primarily to corporate bonds. The
level of gains or losses on investment sales is dependent upon the volume of
transactions, the types of securities sold, timing and the interest rate
environment. Net losses on investment sales were partially offset by a $38,000
increase in gains on the sale of loans held for sale due to increased lending
activity. The volume of loan originations and sales is largely dependent on
interest rates and the volume of real estate transactions. The volume of loan
originations and sales increased in 1999 due to the addition of one mortgage
solicitor and lower interest rates during the first quarter of the year. As
rates moved higher in the second quarter of 1999, originations and sales of
loans slowed considerably.
Non-interest expense
Non-interest expense consists primarily of general overhead necessary for
operations including employee compensation and benefits, data processing,
occupancy and other expenses. Expenses related to the capital securities issued
in August 1998 are also included in non-interest expense under the caption
"Minority interest in expense of subsidiaries".
For the three months ended June 30, 1999, non-interest expenses were
$1,551,000 or $492,000 higher than the $1,059,000 recorded during the same
period in 1998. Overhead continues to increase due to the growth of the
institution which includes the opening of our Floral Vale branch in February
1999. Salaries and benefits were $189,000 or 38% higher in 1999 compared to
1998. This increase is principally due to an increase in the number of employees
and salary adjustments. The number of full-time equivalent employees grew from
44 at June 30, 1998 to 55 at June 30, 1999. Second quarter 1999 results also
include $218,000 in minority interest in expense of subsidiaries related to the
capital securities. Data processing costs increased $38,000 principally due to
the growth of the institution, variable costs associated with item processing
and account volumes and new services.
14
<PAGE>
For the six months ended June 30, 1999, non-interest expenses were
$3,047,000 or $939,000 higher than the $2,108,000 recorded during the same
period in 1998. Salaries and benefits were $323,000 or 31% higher in 1999
compared to 1998. This increase is principally due to an increase in the number
of employees and salary adjustments. In addition, 1999 results include $430,000
in minority interest in expense of subsidiaries related to the capital
securities issued in August 1998. Data processing costs increased $107,000
principally due to the growth of the institution, variable costs associated with
item processing and account volumes, and new services.
Provision for loan losses
The provision for loan losses represents the amount necessary to be charged
to operations to bring the allowance for loan losses to a level that management
deems adequate to provide for potential losses. The amount of the provision for
loan losses and the amount of the allowance for loan losses is subject to
ongoing analysis of the loan portfolio which considers current economic
conditions, actual loss experience, the current risk profile of the portfolio,
and the composition of loan types within the portfolio.
The provision for loan losses increased from $121,000 during the three
months ended June 30, 1998 to $185,000 during the same period in 1999. The
provision for loan losses also increased from $235,000 during the six months
ended June 30, 1998 to $352,000 during the same period in 1999. The increase is
primarily due to the overall increase in the size of the loan portfolio.
Income tax expense
We recorded a $198,000 or 23.1% tax provision for the three months ended
June 30, 1999 compared to $195,000 or 33.6% for the same period in 1998. We
recorded a $386,000 or 23.9% tax provision for the six months ended June 30,
1999 compared to $376,000 or 33.1% for the same period in 1998. The effective
tax rates for the three and six months ended June 30, 1999 were lower than the
comparable periods in 1998 due principally to a higher level of tax-exempt
securities.
Financial Condition
Consolidated assets grew $49,233,000 or 20% during the six months ended
June 30, 1999. Gross loans and investments grew $26,818,000 and $16,395,000,
respectively. Asset growth was funded by a $25,722,000 and $18,725,000 increase
in deposits and borrowings, respectively. Shareholders' equity grew by
$1,931,000 to $13,698,000 at June 30, 1999. This increase was attributable to
$2,850,000 in net proceeds from our common stock offering, $36,000 from
exercised stock options and $1,231,000 in earnings, which were offset, in part,
by $2,186,000 in unrealized losses on investments available for sale.
15
<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 and
corporate bonds, as AFS to provide management the flexibility to sell securities
and adjust the balance sheet in response to capital levels, liquidity needs
and/or changes in market conditions. The carrying values for AFS and HTM
securities were $108,645,000 and $7,130,000, respectively, as of June 30, 1999.
Total investments grew $16,395,000 to $115,775,000 at June 30, 1999 of which
approximately 85% are fixed rate.
The estimated fair value of our investment securities available for sale
declined $3,310,000 from an unrealized loss of $605,000 at December 31, 1998 to
an estimated unrealized loss of $3,915,000 at June 30, 1999. The estimated fair
value of fixed rate securities moved sharply lower during the first half of 1999
due to higher interest rates. The 30 year treasury yield increased 87 basis
points from 5.09% at December 31, 1998 to 5.96% at June 30, 1999. Available for
sale securities are marked to market on the balance sheet with an adjustment to
equity, net of tax, and presented in the caption "Accumulated other
comprehensive loss".
Investment Portfolio
<TABLE>
<CAPTION>
June 30. 1999
---------------------------------------------------
Held to Maturity Available for Sale
----------------------- ------------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
--------- ---------- --------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
U.S. government agency obligations $4,997 $4,900 $ 3,000 $ 3,001
Mortgage-backed securities 1,633 1,623 52,303 50,419
State and municipal securities -- -- 19,212 18,593
Corporate bonds -- -- 33,681 32,255
Equity securities -- -- 4,249 4,262
Other debt securities 500 500 115 115
------ ------ -------- --------
Total $7,130 $7,023 $112,560 $108,645
====== ====== ======== ========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
---------------------------------------------------
Held to Maturity Available for Sale
----------------------- ------------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
--------- ---------- --------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
U.S. government agency obligations $2,998 $2,993 $ -- $ --
Mortgage-backed securities 1,994 1,986 35,411 35,463
State and municipal securities -- -- 18,533 18,702
Equity securities -- -- 3,745 3,758
Corporate bonds -- -- 36,689 35,850
Other debt securities 500 500 115 115
------ ------ -------- --------
Total $5,492 $5,479 $ 94,493 $ 93,888
====== ====== ======== ========
</TABLE>
16
<PAGE>
Loans held for sale
The Bank uses an outside company to originate and sell residential
mortgages on its behalf. The $1,627,000 decrease in loans held for sale relates
to the timing of loan originations versus their sale. Typically, these loans are
sold within 30 days of their settlement. At June 30, 1999, there were no loans
outstanding pending sale.
Loans
Gross loans increased $26,818,000 from $140,348,000 at December 31, 1998 to
$167,166,000 at June 30, 1999. The majority of the loan portfolio is
collateralized, at least in part, by real estate in the greater Lehigh and
Delaware Valleys. Real estate values are subject to risks associated with the
general economy, among other matters.
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. We manage credit risk associated with our
lending activities through portfolio diversification, underwriting policies and
procedures, and loan monitoring practices. Interest rate risk is managed within
our asset/liability framework using various modeling techniques and analyses.
The majority of the Bank's loans are fixed rate for a period of five years or
less.
The Bank's commercial lending activity is focused on small businesses and
professionals within the local community. Lenders will continue to be hired to
meet the credit needs of the community.
Loan Portfolio
<TABLE>
<CAPTION>
June 30,1999 % of Total December 31, 1998 % of Total
------------ ---------- ----------------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Real estate-construction $ 1,754 1.05% $ 2,161 1.54%
Real estate-residential 31,339 18.75% 30,770 21.92%
Real estate-multi-family 6,517 3.90% 5,135 3.66%
Real estate-commercial 105,222 62.94% 86,008 61.28%
Commercial 21,299 12.74% 14,434 10.29%
Consumer 1,035 0.62% 1.840 1.31%
-------- ------ -------- ------
Total loans $167,166 100.00% $140,348 100.00%
======== ====== ======== ======
Unearned income 488 443
Allowance for loan losses 2,144 1,805
-------- --------
Total loans, net $164,534 $138,100
======== ========
</TABLE>
Allowance for loan losses
We maintain an allowance for loan losses and charge losses to this
allowance when such losses are considered probable. The allowance for loan
losses is maintained at a level which management considers adequate to provide
for potential losses based upon known and inherent risks in the loan portfolio.
Management's evaluation includes such factors as current economic conditions,
actual loss experience and the current risk profile of the loan portfolio. Each
commercial loan is assigned a specific loan loss reserve using a scoring system.
This scoring system takes into consideration collateral type and value, loan to
value ratios, the borrower's risk rating, delinquency and other factors
previously described. Borrowers' risk ratings are determined by loan officers at
the inception of each loan and are subject to ongoing analysis and update by
loan officers and an independent loan reviewer. Homogeneous loans, comprised
primarily of home equity and non-real estate secured consumer loans, are
analyzed in the aggregate. Since the Bank is less than eight years old with a
17
<PAGE>
limited history for loan losses, management also uses peer group analysis to
gauge the overall reasonableness of our loan loss reserves. While the allowance
is determined and calculated based on specific loans or loan categories, the
total allowance is considered available for losses in the entire loan portfolio.
Changes in economic conditions and the financial condition of borrowers can
occur quickly and, as a result, impact management's estimates.
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 judgment about information
available to them at the time of examination.
At June 30, 1999, the Bank had $2,144,000 in its allowance for loan losses,
representing 1.28% of outstanding loans receivable compared to 1.29% and 1.27%
at December 31, 1998 and June 30, 1998, respectively.
The following table sets forth the activity in the allowance for loan
losses and certain key ratios for the periods indicated.
Allowance for Loan Losses
<TABLE>
<CAPTION>
For the six For the year For the six
months ended ended months ended
June 30, 1999 December 31, 1998 June 30, 1998
------------- ----------------- -------------
(Dollars in thousands)
<S> <C> <C> <C>
Balance at beginning of period $ 1,805 $ 1,360 $ 1,360
Charge-offs
Real estate-residential -- 60 47
Commercial 2 -- --
Consumer 11 8 8
------- -------- -------
Total charge-offs 13 68 55
Recoveries
Consumer -- 8 1
------- -------- -------
Net charge-offs 13 60 54
Provision for loan losses 352 505 235
------- -------- -------
Balance at end of period $ 2,144 $ 1,805 $ 1,541
======= ======== =======
Total gross loans:
Average 159,864 122,526 114,325
End of period 167,166 140,348 121,311
Ratios:
Net charge-offs to:
Average loans 0.01% 0.05% 0 05%
Loans at end of period 0.01% 0.04% 0 04%
Allowance for loan losses 0.61% 3.32% 3.50%
Provision for loan losses 3.69% 11.88% 22.98%
Allowance for loan losses to:
Total gross loans at end of period 1.28% 1.29% 1.27%
Non-performing loans 210.82% 106.74% 446.67%
</TABLE>
Charge-offs against the allowance for loan losses in 1999 totaled $13,000.
Because the Bank's loan portfolio is relatively immature given its recent growth
rates, current charge-off and non-performing asset trends may not be indicative
of future performance.
18
<PAGE>
Non-performing assets
Non-performing assets are defined as accruing loans past due 90 days or
more, non-accruing loans, restructured loans and other real estate owned.
Non-Performing Assets
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
(Dollars in thousands)
<S> <C> <C>
Loans past due 90 days or more and accruing
Real estate-residential $ 130 $ 605
Commercial 1 6
------ ------
Total loans past due 90 days or more and accruing 131 611
Loans accounted for on a non-accrual basis
Real estate-residential 21 25
Real estate-multi-family 865 890
Real estate-commercial -- 165
------ ------
Total non-accrual loans 886 1,080
Other real estate owned -- 200
------ ------
Total non-performing assets $1,017 $1,891
====== ======
Ratio of non-performing loans to total loans 0.61% 1.20%
Ratio of non-performing assets to total assets 0.34% 0.76%
</TABLE>
Total non-accrual loans decreased $194,000 from $1,080,000 at December 31,
1998 to $886,000 at June 30, 1999. The decrease relates principally to the
repayment in full of one commercial real estate loan in the amount of $162,000
in March 1999. Non-accrual multi-family real estate loans at June 30, 1999
include one loan in the amount of $865,000, which is secured by an apartment
building. The apartment building was acquired by the Bank at sheriff's sale and
transferred to other real estate owned in July 1999.
Premises and equipment
Premises and equipment increased $1,701,000 from $1,638,000 at December 31,
1998 to $3,339,000 at June 30, 1999. In January 1999, the Bank exercised its
option to purchase the Doylestown and Easton buildings for $1,251,000 in the
aggregate. The remainder of the increase relates primarily to the Floral Vale
branch, which opened in February 1999.
Other real estate owned
There was no property classified as other real estate owned at June 30,
1999. There was one 1-4 family residential property in the amount of $200,000 at
December 31, 1998. This property was sold in April 1999 with no gain or loss
recorded on the sale.
Deferred taxes
The $1,125,000 increase in deferred taxes from $826,000 at December 31,
1998 to $1,951,000 at June 30, 1999 relates to the change in the estimated fair
market value of investment securities available for sale.
19
<PAGE>
Deposits
Premier 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. Competition for deposits is increasing as our competitors now extend
beyond traditional banking institutions and into a variety of financial services
companies such as insurance companies, securities brokerage firms and mutual
funds. Many of our competitors are significantly larger and have greater
financial resources, personnel and locations to conduct business. In addition,
the internet provides a low cost distribution channel to financial services
companies that is not constrained by geography.
Core deposits, which exclude time deposits greater than $100,000 grew
$13,279,000 or 7.55% during the six months ended June 30, 1999 to $189,167,000.
Most of this growth occurred in time deposits. Total time deposits at June 30,
1999 were $120,702,000 or 56% of total deposits, of which $45,638,000 mature
after one year. Depending on market conditions, management generally prices its
time deposits to extend maturities beyond one year.
During the six months ended June 30, 1999 total deposits grew $25,722,000
or 13% to $216,948,000. Future deposit growth will be accomplished through
deposit promotions, business development programs and continued branch
expansion. The Bank opened its fourth branch in February 1999.
Deposits by Major Classification
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
-------------------------------- -------------------------------
Weighted Weighted
Average Average
Interest % of Interest % of
Rate Amount Total Rate Amount Total
-------- -------- ------ -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Interest checking 2.53% $ 17,873 8.24% 2.62% $ 16,432 8.59%
Money market 2.56% 1,111 0.50% 2.57% 1,580 0.83%
Savings 3.41% 55,399 25.54% 3.44% 54,082 28.28%
Time 5.30% 120,702 55.64% 5.46% 100,107 52.35%
---- -------- ------ ---- -------- -----
Total interest-bearing deposits 4.49% 195,085 89.92% 4.53% 172,201 90.05%
==== ====
Non-interest-bearing deposits 21,863 10.08% 19,025 9.95%
-------- ------ -------- ------
Total deposits $216,948 100.00% $191,226 100.00%
======== ====== ======== ======
</TABLE>
Borrowings
Borrowings increased $18,725,000 from $29,936,000 at December 31, 1998 to
$48,661,000 at June 30, 1999. At June 30, 1999 securities sold under agreement
to repurchase consisted of $15,000,000 in borrowings from the FHLB maturing
within 90 days; $14,250,000 in borrowings from a securities broker maturing
within 90 days, and $4,411,000 in retail repurchase agreements maturing
overnight. At December 31, 1998 borrowings from the FHLB and retail customers
were $11,000,000 and $3,936,000, respectively.
All borrowings from the FHLB are secured by a blanket lien against all of
the Bank's assets. In addition, the FHLB amended its policies in 1998 to require
its borrowers who exceed 50% of their maximum borrowing capacity to deliver
certain securities to them as collateral. As of June 30, 1999 the Bank delivered
$23,826,000 in investments as collateral to the FHLB under this new policy. In
addition, $15,026,000 in investment securities are held by a securities broker
as collateral against Bank borrowings. Customer repurchase agreements are
collateralized by investment securities in an amount equal to or exceeding such
borrowings.
Long-term FHLB advances totaling $15,000,000 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 Bank may prepay the debt without penalty.
20
<PAGE>
Borrowings
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------------ ------------------
Weighted Weighted
Average Average
Amount Rate Amount Rate
------- -------- ------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Securities sold under agreement to repurchase $33,661 4.90% $14,936 4.74%
Long term FHLB advances 15,000 5.42% 15,000 5.42%
------- ---- ------- ----
$48,661 5.06% $29,936 5.08%
======= ==== ======= ====
</TABLE>
Other liabilities
Other liabilities increased $1,870,000 from $3,233,000 at December 31, 1998
to $5,103,000 at June 30, 1999. This increase relates principally to a
$2,000,000 accrual for the purchase of a mortgage-backed security. This trade
settled in July 1999.
Capital Adequacy
At June 30, 1999, we believe that we are in compliance with all applicable
regulatory requirements to be classified as "well capitalized" pursuant to FDIC
regulations. We plan to remain well capitalized and manage the Bank accordingly.
During the past twelve months we completed two capital raising initiatives.
On August 11, 1998, our subsidiary, PBI Capital Trust, issued $10,000,000
in capital securities. Proceeds from the capital securities provide us with
additional Tier I and Tier II capital. The capital securities, which represent
the minority interest in equity accounts of subsidiaries, are limited to 25% of
Tier I capital. As our equity grows, a greater portion of the capital securities
will count towards Tier I capital.
On December 22, 1998, we commenced an offering of common stock at $11.00
per share. This offering expired on March 31, 1999. We issued 272,416 shares
during this offering with net proceeds totaling $2,850,000. We will use the net
proceeds of the stock offering for general corporate purposes, including
investments in or advances to the Bank, which increase the Bank's capital
position and loan to one borrower lending limits. In addition, these proceeds
may be used to support the continuing development of the Bank's franchise
through possible expansion into related businesses.
21
<PAGE>
The tables below depict our capital components and ratios along with the
"adequately" and "well" capitalized criteria as defined by FDIC regulations. At
June 30, 1999, we exceeded all regulatory requirements and are classified as
"well capitalized".
Capital Components
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
(Dollars in thousands)
<S> <C> <C>
Tier I
Shareholders' equity $ 13,698 $ 11,767
Allowable portion of minority interest in equity
of subsidiaries 5,400 4,000
Net unrealized security losses 2,585 399
-------- --------
Total Tier I Capital $ 21,683 $ 16,166
======== ========
Tier II
Allowable portion of minority interest in equity
of subsidiaries $ 4,600 $ 6,000
Allowable portion of the allowance for loan losses 2,144 1,805
Allowable portion of subordinated debt 1,500 1,500
-------- --------
Total Tier II Capital $ 8,244 $ 9,305
======== ========
Total Capital $ 29,927 $ 25,471
Risk-weighted assets 212,215 185,263
</TABLE>
Capital Ratios
<TABLE>
<CAPTION>
"Adequately" "Well"
Actual Actual Capitalized Capitalized
June 30, 1999 December 31, 1998 Ratios Ratios
------------- ----------------- ------------ -----------
<S> <C> <C> <C> <C>
Total risk-based capital/risk-weighted assets 14.10% 13.75% 8.00% 10.00%
Tier I capital/risk-weighted assets 10.22% 8.73% 4.00% 6.00%
Tier I capital/average assets (leverage ratio) 7.65% 6.75% 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. Our 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.
For the six months ended June 30, 1999, operating and financing activities
provided cash and cash equivalents of $6,291,000 and $47,309,000, respectively,
while investing activities used $48,340,000. The cash provided by financing
activities resulted from an increase in deposits and borrowings and the issuance
of common stock. Deposits and borrowings grew $25,722,000 and $18,725,000,
respectively, while net proceeds from the common stock offering totaled
$2,850,000. This cash was primarily used for loan originations and the purchase
of mortgage-backed and other securities. For the six months ended June 30, 1999,
loans and investments grew $26,831,000 and $19,840,000, respectively.
22
<PAGE>
For the six months ended June 30, 1998, operating and financing activities
provided cash and cash equivalents of $975,000 and $13,350,000, respectively,
while investing activities used $9,634,000. The cash provided by financing
activities resulted from a $28,448,000 increase in deposits which was partially
offset by a decrease in borrowings. Cash totaling $69,960,000 was also provided
by the sales and repayment of investment securities. Together, this cash was
primarily used for loan originations, the purchase of corporate bonds,
mortgage-backed and other securities and the repayment of borrowings. For the
six months ended June 30, 1998, loans grew $12,758,000 while borrowings
decreased by $15,098,000. Investment balances grew $3,129,000 as purchases were
mostly offset by investment sales and repayments.
The Bank monitors its 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: $4,000,000 unsecured
federal funds line of credit with Atlantic Central Bankers Bank or, the Bank's
$38,000,000 borrowing limit at the Federal Home Loan Bank of Pittsburgh (the
FHLB). The Bank could also sell or borrow against certain investment securities.
At June 30, 1999, the Bank had $30,000,000 in borrowings outstanding at the
FHLB. Borrowings against certain investment securities totaled $14,250,000 at
June 30, 1999.
Recent Accounting Pronouncements
Derivative instruments and hedging activities
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which was subsequently amended in June
1999. 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 generally provides for matching of gain or loss
recognition on the hedging instrument with the recognition of the changes in the
fair value of the hedged asset or liability that are attributable to the hedged
risk, so long as the hedge is effective. Prospective application of Statement
No. 133 is required for all fiscal years beginning after June 15, 2000, however
earlier application is permitted. We have not yet determined the impact, if any,
of this Statement, including its provisions for the potential reclassifications
of investment securities, on earnings, financial condition or equity.
Accounting for mortgage-backed securities retained after the securitization of
mortgage loans held for sale by a mortgage banking enterprise
In October 1998 the FASB issued Statement No. 134, "Accounting for
Mortgage-backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise". This Statement requires that
after the securitization of a mortgage loan held for sale, an entity engaged in
mortgage banking activities classify any retained mortgage-backed securities
based on the ability and intent to sell or hold those investments, except that a
mortgage banking enterprise must classify as trading any retained
mortgage-backed securities that it commits to sell before or during the
securitization process. This Statement is effective for the first quarter
beginning after December 15, 1998 with earlier adoption permitted. This
Statement provides a one-time opportunity for an enterprise to reclassify, based
on the ability and intent on the date of adoption of this Statement
mortgage-backed securities and other beneficial interests retained after
securitization of mortgage loans held for sale from the trading category, except
for those with commitments in place. There was no impact on earnings, financial
condition or equity from the adoption of this Statement since we do not engage
in the securitization of mortgage loans held for sale.
23
<PAGE>
Year 2000 Issues
The following section contains forward-looking statements that involve
risks and uncertainties. The actual impact on us of the Year 2000 issue could
materially differ from that which is anticipated in the forward-looking
statements as a result of certain factors identified below.
The "Year 2000 Problem" (Y2K) arose because many existing computer programs
use only the last two digits to refer to a year. Therefore, these computer
programs may not properly recognize a year that begins with "20" instead of the
familiar "19". If not corrected, many computer applications could fail or create
erroneous results by or at the year 2000. This could cause entire system
failures, miscalculations, and disruptions of normal business operations
including, among other things, a temporary inability to process transactions,
generate statements, compute payments, interest or delinquency, or engage in
similar daily business activities. The extent of the potential impact of the
Year 2000 Problem is not yet known, and if not timely corrected, it could affect
the global economy.
The Bank is subject to the regulation and oversight of various banking
regulators, whose oversight includes the provision of specific timetables,
programs and guidance regarding Year 2000 issues. Regulatory examinations of the
Bank's Year 2000 programs are conducted on a quarterly basis. Management reports
on the status of Y2K readiness to the Board of Directors on a monthly basis.
Company's state of readiness
Management is committed to ensuring that our daily operations suffer little
or no impact from the century date change. We have applied due diligence
throughout the Y2K process, following the guidelines contained in the series of
Federal Financial Institutions Examinations Council's Interagency Guidelines and
the SEC's Release No. 33-7558. The guidelines identify the following phases:
awareness, assessment, renovation or remediation, testing or validation and
implementation.
Based on an ongoing assessment, we identified certain systems that required
modification or replacement in order to use properly dates beyond December 31,
1999. We presently believe that as a result of modifications to existing
software and hardware and conversions to new software, the adverse effects of
the Year 2000 problem can be mitigated. However, if such modifications and
conversions are not adequate, or are not completed on a timely basis, the Year
2000 problem could have a material adverse impact on our operations.
Management initiated an enterprise-wide program to prepare our computer
systems and applications for the Year 2000. We have developed a comprehensive
inventory of all PC based applications, third-party relationships, environmental
systems, proprietary programs and non-computer-related systems (such as postage
meters and fax machines). We recognize that the Bank's operating, processing and
accounting operations are computer reliant and could be affected by the Y2K
issue and have developed a plan to make the systems Y2K ready. As of June 30,
1999, substantially all of our systems are believed to be Year 2000 ready. We
will continue to test and validate certain systems for Y2K readiness through the
third quarter of 1999.
We have acquired our mission-critical system, which supports our core
business processes, from a highly regarded third-party vendor. This vendor began
in 1997 and completed by October 1998 renovations to its systems to make them
Y2K ready. The remediated software was placed into daily production in October
1998. In November 1998, the Bank, along with other clients of this vendor, began
comprehensive testing of the system's Y2K readiness. Such testing was completed
in January 1999 with no significant Y2K related failures. However, because most
computer systems are, by their very nature, interdependent, it is possible that
noncompliant third-party computers could impact our computer systems. We could
be adversely affected by the Y2K problem if we or unrelated parties fail to
successfully address the problem. We have taken steps to communicate with the
unrelated parties that we deal with to coordinate Year 2000 compliance.
Additionally, we are dependent on external suppliers, such as, wire transfer
systems, telephone systems, electric companies, and other utility companies for
continuation of service. We are also assessing the impact, if any, the century
date change may have on our credit risk.
We communicated with all of our significant vendors, suppliers and large
commercial customers to determine the extent to which we are vulnerable to those
third-parties' failure to remedy their own Year 2000 problems. The Y2K Project
24
<PAGE>
Manager has available each vendors' Y2K readiness efforts which includes their
remediation plan, renovation approach, testing methodologies and target dates.
In the event that any of our significant vendors, suppliers and large commercial
customers do not successfully achieve Year 2000 compliance in a timely manner,
our business or operations could be adversely affected. If significant suppliers
fail to meet Year 2000 operating requirements, we intend to engage alternative
suppliers. For insignificant vendors, we will not necessarily validate that they
are Year 2000 compliant. However, for any insignificant vendor who has responded
that they will not be compliant by June 1999, we are seeking a new vendor or
system that is compliant. The Bank has surveyed its large commercial customers
as to their Y2K preparedness. Respondents have acknowledged their awareness of
Y2K issues and currently believe that these issues will not materially affect
their financial condition, liquidity, or results of operations. The extent to
which customers are Y2K compliant is considered in the Bank's decision to extend
credit.
Costs of year 2000
To date, approximately $53,000 has been expensed as Year 2000 costs.
Management expects to spend an additional $50,000 for this project which will be
expensed as incurred over the next six months. The estimated Year 2000 project
costs include the costs and time associated with the impact of third-parties'
Year 2000 issues and the development of contingency plans, and are based on
presently available information. The total cost of the project is being funded
through operating cash flows. We continue to evaluate appropriate courses of
corrective action, including replacement of certain systems whose associated
costs would be recorded as assets and amortized. Accordingly, we do not expect
the amounts required to be expensed over the next six months to have a material
effect on the financial position or results of operations. We believe that the
cost of addressing the Y2K issues will not be a material event or uncertainty
that would cause reported financial information not to be necessarily indicative
of future operating results or financial conditions. However, if compliance is
not achieved in a timely manner by us or any of our significant related
third-parties, be it a supplier of services or customer, the Y2K issue could
possibly have a material effect on our operations and financial position. We
believe that the costs or the consequences of incomplete or untimely resolution
of our Year 2000 issues do not represent a known material event or uncertainty
that is reasonably likely to affect our future financial results, or cause our
reported financial information not to be necessarily indicative of future
operating results or future financial condition.
The cost of the projects and the date on which we plan to complete both
Year 2000 modifications and systems conversions are based on management's best
estimates, which were derived utilizing numerous assumptions of future events
including the continued availability of certain resources, third-party
modification plans and other factors. However, there can be no guarantee that
these estimates will be achieved and actual results could differ materially from
those plans. Specific factors that might cause such material differences
include, but are not limited to, the availability and cost of personnel trained
in this area, the ability to locate and correct all relevant computer codes, and
similar uncertainties.
Risks of year 2000
At present, management believes its progress in remedying our systems,
programs and applications; installing Y2K compliant upgrades; and developing
contingency plans is on target. The Y2K computer problem creates risk for us
from unforeseen problems in our own computer systems and from third-party
vendors who provide the majority of mainframe and PC based computer
applications. Failure of third-party systems, especially electric and telephone
utilities, relative to the Y2K issue could have a material impact on our ability
to conduct business.
25
<PAGE>
Contingency plans
We have developed business resumption and contingency plans to mitigate
potential adverse Y2K risks. These plans involve the use of manual labor to
compensate for the loss of certain automated computer systems and inconveniences
caused by disruption in command systems. These plans address mission-critical
and PC based applications, third-party relationships, environmental systems,
proprietary programs and non-computer-related systems.
26
<PAGE>
PART II -- OTHER INFORMATION
Item 1 -- Legal Proceedings
At June 30, 1999, there were no material legal proceedings pending.
Item 2 -- Changes in Securities and Use of Proceeds
None.
Item 3 -- Defaults Upon Senior Securities
None.
Item 4 -- Submission of Matters to a Vote of Security Holders
Our annual meeting of shareholders was held on May 13, 1999 for the
following purposes:
1. To elect eight class 1 directors for a term of one year (Daniel E. Cohen,
Michael J. Perrucci, Brian R. Rich, Ezio U. Rossi, Gerald Schatz, Bruce E.
Sickel, Thomas P. Stitt and John A. Zebrowski).
2. To ratify the appointment of KPMG LLP as our independent auditors for the
1999 fiscal year.
All proposals were adopted by our shareholders as follows:
1. Election of Class 1 Directors
For Against Abstain
Daniel E. Cohen 2,040,860 - 1,750
Michael J. Perrucci 2,040,660 - 1,950
Brian R. Rich 2,040,860 - 1,750
Ezio U. Rossi 2,040,860 - 1,750
Gerald Schatz 2,040,860 - 1,750
Bruce E. Sickel 2,040,860 - 1,750
Thomas P. Stitt 2,040,660 - 1,950
John A. Zebrowski 2,040,860 - 1,750
Four class 2 directors (HelenBeth Garofolo-Vilcek, Dr. Thomas E. Mackell,
Neil Norton and Irving N. Stein) were not up for re-election at the May 13,
1999 meeting and continue to serve until 2000.
Seven class 3 directors (Peter A. Cooper, Clark S. Frame, Barry J. Miles,
Sr., Dr. Daniel A. Nesi, Thomas O'Mara, Richard F. Ryon and John C.
Soffronoff) were not up for re-election at the May 13, 1999 meeting and
continue to serve until 2001.
2. Proposal to ratify the selection of KPMG LLP, Certified Public Accountants,
as our independent Auditors for the 1999 fiscal year
For Against Abstain
--------- ------- -------
2,040,760 -- 1,850
Item 5 -- Other Information
None.
27
<PAGE>
Item 6 -- Exhibits and Reports on Form 8-K
The following exhibits are incorporated by reference herein or attached to this
Form 10-QSB:
3.1 Articles of Incorporation (Incorporated by reference to Exhibit 3i to our
Registration Statement No. 333-34243 on Form S-4 filed with the SEC on
August 22, 1997).
3.2 By-Laws (Incorporated by reference to Exhibit 3ii to our Registration
Statement No. 333-34243 on Form S-4 filed with the SEC on August
22, 1997 as amended on September 9, 1997).
10.1 Premier Bank's 1995 Incentive Stock Option Plan (Incorporated by
reference to Exhibit 99.6 to our Registration Statement No. 333-34243
on Form S-4 filed with the SEC on August 22, 1997).
10.2 Change of Control Agreement between Premier Bank and John C. Soffronoff
(Incorporated by reference to Exhibit 10.2 to our Quarterly Report on
Form 10-QSB filed with the SEC on November 13, 1998).
10.3 Change of Control Agreement between Premier Bank and John J. Ginley
(Incorporated by reference to Exhibit 10.3 to our Quarterly Report on
Form 10-QSB filed with the SEC on November 13, 1998).
10.4 Change of Control Agreement between Premier Bank and Bruce E. Sickel
(Incorporated by reference to Exhibit 10.4 to our Quarterly Report on
Form 10-QSB filed with the SEC on November 13, 1998).
11.1 Statement re: Computation of per share earnings (Included at Note 4 of
this Form 10-QSB).
27.1 Financial Data Schedule (Exhibit 27).
28
<PAGE>
Signatures
In accordance with the requirements of the Securities Exchange Act of 1934, we
caused this report to be signed on our behalf by the undersigned, thereunto duly
authorized.
Premier Bancorp, Inc.
Date Signature
August 12, 1999 /s/ John C. Soffronoff
-----------------------------------------
John C. Soffronoff
President, Chief Executive Officer, Director
(Principal Executive Officer)
August 12, 1999 /s/ Bruce E. Sickel
-----------------------------------------
Bruce E. Sickel
Chief Financial Officer, Director
(Principal Financial Officer)
29
<PAGE>
Index of Exhibits
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
3.1 Articles of Incorporation (Incorporated by reference to Exhibit 3i to *
our 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 our Registration *
Statement No. 333-34243 on Form S-4 filed with the Securities and Exchange
Commission on August 22, 1997 as amended on September 9, 1997).
10.1 Premier Bank's 1995 Incentive Stock Option Plan (Incorporated by reference to *
Exhibit 99.6 to our Registration Statement No. 333-34243 on Form S-4
filed with the Securities and Exchange Commission on August 22, 1997).
10.2 Change of Control Agreement between Premier Bank and John C. Soffronoff *
(Incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form
10-QSB filed with the Securities Exchange Commission on November 13, 1998).
10.3 Change of Control Agreement between Premier Bank and John J. Ginley *
(Incorporated by reference to Exhibit 10.3 to our Quarterly Report on Form
10-QSB filed with the Securities Exchange Commission on November 13, 1998).
10.4 Change of Control Agreement between Premier Bank and Bruce E. Sickel *
(Incorporated by reference to Exhibit 10.4 to our Quarterly Report on Form
10-QSB filed with the Securities Exchange Commission on November 13, 1998).
11.1 Statement re: Computation of per share earnings (Included at Note 4 of this Form 10-QSB). 5
27.1 Financial Data Schedule (Exhibit 27). 38
</TABLE>
- ----------
* Incorporated by reference.
30
<PAGE>
EXHIBIT 3.1
Articles of Incorporation (Incorporated by reference to Exhibit 3i to our
Registration Statement No. 333-34243 on Form S-4 filed with the Securities and
Exchange Commission on August 22, 1997).
31
<PAGE>
EXHIBIT 3.2
By-Laws (Incorporated by reference to Exhibit 3ii to our Registration Statement
No. 333-34243 on Form S-4 filed with the Securities and Exchange Commission on
August 22, 1997 as amended on September 9, 1997).
32
<PAGE>
EXHIBIT 10.1
Premier Bank's 1995 Incentive Stock Option Plan (Incorporated by reference to
Exhibit 99.6 to our Registration Statement No. 333-34243 on Form S-4 filed with
the Securities and Exchange Commission on August 22, 1997).
33
<PAGE>
EXHIBIT 10.2
Change of Control Agreement between Premier Bank and John C. Soffronoff
(Incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form
10-QSB filed with the Securities Exchange Commission on November 13, 1998).
34
<PAGE>
EXHIBIT 10.3
Change of Control Agreement between Premier Bank and John J. Ginley
(Incorporated by reference to Exhibit 10.3 to our Quarterly Report on Form
10-QSB filed with the Securities Exchange Commission on November 13, 1998).
35
<PAGE>
Exhibit 10.4
Change of Control Agreement between Premier Bank and Bruce E. Sickel
(Incorporated by reference to Exhibit 10.4 to our Quarterly Report on Form
10-QSB filed with the Securities Exchange Commission on November 13, 1998).
36
<PAGE>
EXHIBIT 11.1
Statement re: Computation of per share earnings (Included at Note 4 of this Form
10-QSB).
37
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 6,669
<INT-BEARING-DEPOSITS> 500
<FED-FUNDS-SOLD> 2,991
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 108,645
<INVESTMENTS-CARRYING> 7,130
<INVESTMENTS-MARKET> 7,023
<LOANS> 166,678
<ALLOWANCE> 2,144
<TOTAL-ASSETS> 298,426
<DEPOSITS> 216,948
<SHORT-TERM> 33,661
<LIABILITIES-OTHER> 7,619
<LONG-TERM> 16,500
0
0
<COMMON> 10,912
<OTHER-SE> 2,786
<TOTAL-LIABILITIES-AND-EQUITY> 288,426
<INTEREST-LOAN> 6,610
<INTEREST-INVEST> 3,440
<INTEREST-OTHER> 38
<INTEREST-TOTAL> 10,088
<INTEREST-DEPOSIT> 4,130
<INTEREST-EXPENSE> 5,170
<INTEREST-INCOME-NET> 4,918
<LOAN-LOSSES> 352
<SECURITIES-GAINS> (58)
<EXPENSE-OTHER> 3,047
<INCOME-PRETAX> 1,617
<INCOME-PRE-EXTRAORDINARY> 1,617
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,231
<EPS-BASIC> 0.44
<EPS-DILUTED> 0.39
<YIELD-ACTUAL> 7.77
<LOANS-NON> 886
<LOANS-PAST> 131
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,202
<ALLOWANCE-OPEN> 1,805
<CHARGE-OFFS> 13
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 2,144
<ALLOWANCE-DOMESTIC> 2,088
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 56
</TABLE>
