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, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from .............. to ..............
Commission file number: 1-15513
PREMIER BANCORP, INC.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Pennsylvania 23-2921058
------------------------------ ----------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
379 North Main Street, Doylestown, PA 18901
-------------------------------------------
(Address of principal executive offices)
(215) 345-5100
------------------------------------------------
(Issuer's telephone number, including area code)
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: 3,105,248 shares of $0.33
par value common stock issued and outstanding as of July 31, 2000.
Transitional Small Business Disclosure format (check one):
Yes No X
--- ---
1
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 -- Financial Statements
PREMIER BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
------------- -----------------
(Dollars in thousands, except share data)
<S> <C> <C>
Assets
Cash and due from banks $ 9,415 $ 4,646
Federal funds sold 7,166 3,436
Interest-bearing deposits 703 409
--------- ---------
Cash and cash equivalents 17,284 8,491
Investment securities:
Held to maturity (fair value $6,306
in 2000 and $6,842 in 1999) 6,675 6,881
Available for sale (amortized cost
$102,375 in 2000 and $104,486 in 1999) 94,648 97,076
Loans receivable (net of allowance for loan losses
of $2,780 in 2000 and $2,511 in 1999) 211,453 196,121
Accrued interest receivable 2,279 2,174
Premises and equipment 4,134 3,807
Deferred taxes 3,450 3,342
Other assets 705 768
--------- ---------
Total assets $ 340,628 $ 318,660
========= =========
Liabilities, minority interest in subsidiary and
shareholders' equity
Deposits $ 269,645 $ 237,481
Borrowings 40,301 52,537
Accrued interest payable 3,564 2,364
Other liabilities 2,034 2,131
Subordinated debt 1,500 1,500
--------- ---------
Total liabilities 317,044 296,013
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 3,105,248
at June 30, 2000 and 3,078,914 at
December 31, 1999 1,025 1,016
Additional paid-in capital 11,792 11,662
Retained earnings 5,867 4,860
Accumulated other comprehensive loss (5,100) (4,891)
--------- ---------
Total shareholders' equity 13,584 12,647
--------- ---------
Total liabilities minority interest in subsidiary
and shareholders' equity $ 340,628 $ 318,660
--------- ---------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
2
<PAGE>
PREMIER BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended For the six months ended
--------------------------------- ---------------------------------
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
------------- ------------- ------------- -------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Interest income:
Loans $ 4,623 $ 3,416 $ 8,966 $ 6,610
Federal funds sold and interest-bearing deposits 89 31 216 38
Investments:
Taxable 1,592 1,562 3,198 2,940
Tax-exempt 221 251 442 500
----------- ----------- ----------- -----------
Total interest income 6,525 5,260 12,822 10,088
Interest expense:
Deposits 3,055 2,139 5,702 4,130
Borrowings 599 582 1,432 1,040
----------- ----------- ----------- -----------
Total interest expense 3,654 2,721 7,134 5,170
----------- ----------- ----------- -----------
Net interest income 2,871 2,539 5,688 4,918
Provision for loan losses 125 185 275 352
----------- ----------- ----------- -----------
Net interest income after loan loss provision 2,746 2,354 5,413 4,566
Non-interest income:
Service charges and other fees 66 46 117 96
Loss, net, on sale of investment
securities available for sale -- (11) -- (58)
Gain on sale of loans held for sale 10 20 17 60
----------- ----------- ----------- -----------
Total non-interest income 76 55 134 98
Non-interest expense:
Salaries and employee benefits 879 691 1,924 1,374
Occupancy 143 101 291 208
Data processing 187 158 418 319
Professional services 98 53 204 99
Marketing 89 68 250 134
Minority interest in expense of subsidiary 218 218 436 430
Other 392 262 697 483
----------- ----------- ----------- -----------
Total non-interest expense 2,006 1,551 4,220 3,047
----------- ----------- ----------- -----------
Income before income tax 816 858 1,327 1,617
Income tax expense 212 198 320 386
----------- ----------- ----------- -----------
Net income $ 604 $ 660 $ 1,007 $ 1,231
=========== =========== =========== ===========
Earnings per share:
Basic $ 0.19 $ 0.22 $ 0.33 $ 0.42
Diluted $ 0.18 $ 0.20 $ 0.29 $ 0.37
Weighted average number of shares outstanding:
Basic 3,100,328 3,059,298 3,089,621 2,967,533
Diluted 3,424,441 3,379,923 3,435,729 3,290,543
</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, 2000 1999
--------------------------------- -------- --------
(In thousands)
<S> <C> <C>
Operating activities:
Net income $ 1,007 $ 1,231
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation expense 213 168
Provision for loan losses 275 352
Write-off of capitalized costs related to branch expansion 68 --
Amortization of premiums and discounts on
investment securities held to maturity 4 6
Amortization of premiums and discounts on
investment securities available for sale 58 71
Loss on sale of investment securities available for sale -- 58
Gain on sale of loans held for sale (17) (60)
Originations of loans held for sale (2,469) (5,881)
Proceeds from sale of loans held for sale 2,486 7,568
Increase in accrued interest receivable (105) (189)
Decrease in other assets 62 44
Increase in deferred loan fees 55 44
Increase in accrued interest payable 1,200 985
(Decrease) increase in other liabilities (34) 1,894
-------- --------
Net cash provided by operating activities 2,803 6,291
-------- --------
Investing activities:
Proceeds from sale of investment securities available for sale -- 10,043
Repayment of investment securities available for sale 2,103 2,285
Purchase of investment securities available for sale (50) (30,524)
Repayment of investment securities held to maturity 202 355
Purchase of investment securities held to maturity -- (1,999)
Net increase in loans receivable (15,661) (26,831)
Proceeds from the sale of other real estate owned -- 200
Purchases of premises and equipment (608) (1,869)
-------- --------
Net cash used in investing activities (14,014) (48,340)
-------- --------
Financing activities:
Net increase in deposits 32,164 25,722
Net (decrease) increase in borrowings less than 90 days (2,236) 18,725
Repayment of borrowings greater than 90 days (10,000) --
Proceeds from common stock offering -- 2,850
Proceeds from exercised common stock options 76 12
-------- --------
Net cash provided by financing activities 20,004 47,309
-------- --------
Increase in cash and cash equivalents 8,793 5,260
Cash and cash equivalents:
Beginning of period 8,491 4,900
-------- --------
End of period $ 17,284 $ 10,160
======== ========
Supplemental disclosures:
Cash payments for:
Interest expense $ 5,934 $ 4,185
Taxes 190 475
Supplemental disclosure of noncash activities:
Change in the estimated fair value of investment securities
available for sale (317) (3,310)
Change in deferred tax asset related to investment securities
available for sale 108 1,124
Change in taxes payable related to exercised common stock options (63) (24)
</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. was incorporated under the laws of the Commonwealth
of Pennsylvania on July 15, 1997. We reorganized as the one-bank holding company
of Premier Bank on November 17, 1997. Premier Bancorp, Inc., through our
subsidiary bank, Premier Bank, provides 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 we manage as one
operating segment. Premier Bank is a Pennsylvania chartered commercial bank and
member of the Federal Reserve Bank of Philadelphia and the Federal Deposit
Insurance Corporation. The bank 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, 2000 and 1999 are not necessarily indicative
of the results that may be expected for the entire fiscal year. These quarterly
financial statements should be read in conjunction with the audited consolidated
financial statements and notes thereto for the year ended December 31, 1999.
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. Stock Dividend
On February 17, 2000, the company declared a 5% common stock dividend to
shareholders of record as of February 29, 2000 that was paid on March 10, 2000.
The number of shares and per share amounts have been restated to reflect this
event as of the earliest date presented in this Form 10-QSB.
5. Earnings Per Share
Basic earnings per share is calculated on the basis of the weighted average
number of shares outstanding after giving retroactive effect to the 5% common
stock dividend declared on February 17, 2000. Options to purchase 700,325 and
709,452 shares of common stock were outstanding at June 30, 2000 and 1999,
respectively. Earnings per diluted common share include dilutive common stock
equivalents as computed under the treasury stock method using average common
stock prices. Options to purchase 51,998 shares of common stock were
anti-dilutive and
5
<PAGE>
PREMIER BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Earnings Per Share (continued)
excluded from the calculation of earnings per diluted common share for the three
and six months ended June 30, 2000.
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, 2000
---------------------------------------------
(Dollars in thousands, except per share data)
Per share
Net income Shares Amount
---------- ---------- ---------
<S> <C> <C> <C>
Basic earnings per share $ 604 3,100,328 $ 0.19
Effect of dilutive stock options -- 324,113 (0.01)
---------- ---------- --------
Earnings per diluted share $ 604 3,424,441 $ 0.18
========== ========== ========
For the three months ended June 30, 1999
---------------------------------------------
(Dollars in thousands, except per share data)
Per share
Net income Shares Amount
---------- ---------- ---------
Basic earnings per share $ 660 3,059,298 $ 0.22
Effect of dilutive stock options -- 320,625 (0.02)
---------- --------- --------
Earnings per diluted share $ 660 3,379,923 $ 0.20
========== ========= ========
For the six months ended June 30, 2000
---------------------------------------------
(Dollars in thousands, except per share data)
Per share
Net income Shares Amount
---------- ---------- ---------
Basic earnings per share $1,007 3,089,621 $ 0.33
Effect of dilutive stock options -- 346,108 (0.04)
---------- --------- --------
Earnings per diluted share $1,007 3,435,729 $ 0.29
========== ========= ========
For the six months ended June 30, 1999
---------------------------------------------
(Dollars in thousands, except per share data)
Per share
Net income Shares Amount
---------- ---------- ---------
Basic earnings per share $1,231 2,967,533 $ 0.42
Effect of dilutive stock options -- 323,010 (0.05)
---------- --------- --------
Earnings per diluted share $1,231 3,290,543 $ 0.37
========== ========= ========
</TABLE>
6
<PAGE>
PREMIER BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. 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,
--------------------- ---------------------
2000 1999 2000 1999
------- ------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Net income $ 604 $ 660 $ 1,007 $ 1,231
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on investment securities available for sale:
Unrealized holding gains (losses) during the period 65 (1,871) (209) (2,224)
Reclassification adjustment for losses included in net income -- 7 -- 38
------- ------- ------- -------
Other comprehensive income (loss) 65 (1,864) (209) (2,186)
------- ------- ------- -------
Comprehensive income (loss) $ 669 $(1,204) $ 798 $ (955)
======= ======= ======= =======
</TABLE>
7
<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. common 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 we manage as a single business segment.
Premier Bank was organized in 1990 as a Pennsylvania chartered commercial
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 five full-service Pennsylvania banking offices in
Doylestown, Easton, Southampton, Floral Vale and Bethlehem, a limited service
branch in the Heritage Towers Retirement Community in Doylestown and a loan
production office in Colmar. The Bethlehem branch opened on December 17, 1999.
The Heritage Towers branch opened on July 26, 2000. The bank plans to open its
Montgomeryville and Bensalem branches in the third quarter of 2000. 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. We are subject to losses from our 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.
Our performance in 2000 will be challenged by the growth in overhead
expenses related to our franchise expansion into new markets and the increasing
competition for deposits and loans in our current interest rate environment.
Therefore, these items may negatively impact our results of operations for 2000.
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,
2000 as compared to the same periods in 1999 and changes in financial condition
from December 31, 1999 to June 30, 2000. Current performance may not be
indicative of future performance. This discussion should be read in conjunction
with our 1999 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.
8
<PAGE>
Management's 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
appropriate. We plan to accomplish this growth principally through pricing and
marketing. The bank opened its fourth branch office in Lower Makefield Township,
Bucks County, Pennsylvania (the Floral Vale branch) in February 1999 and its
fifth branch in Bethlehem, Northampton County, Pennsylvania on December 17,
1999. We opened a limited service branch in the Heritage Towers Retirement
Community in Doylestown in July 2000. The bank plans to open two additional
Pennsylvania offices in Montgomeryville and Bensalem in the third quarter of
2000.
We also try to maximize earnings, given our current level of capital and
interest rate sensitivity, by borrowing funds and purchasing investment
securities. Management continually monitors the quality of our loan and
investment portfolios. In 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.
9
<PAGE>
The following table sets forth, for the periods indicated, certain key
average balance sheet amounts and their corresponding earnings/expenses and
rates (which have been annualized).
Average Balances, Rates and Interest Income and Expense Summary
<TABLE>
<CAPTION>
For the three months ended June 30, 2000 1999
----------------------------------- --------------------------------- ----------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
-------- -------- ------- ------- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-bearing deposits $ 266 $ 5 7.56% $ 433 $ 6 5.56%
Federal funds sold 5,294 84 6.38% 2,199 25 4.56%
Investment securities available for sale
Taxable (1) 84,996 1,480 7.00% 85,717 1,441 6.74%
Tax-exempt (1)(2) 17,858 335 7.54% 20,096 381 7.60%
Investment securities held to maturity 6,864 112 6.56% 6,974 112 6.44%
-------- ------ ---- -------- ------ ----
Total investment securities 109,718 1,927 7.06% 112,787 1,934 6.88%
Loans, net of unearned income (3)(4) 212,476 4,634 8.77% 159,864 3,437 8.62%
-------- ------ ---- -------- ------ ----
Total earning assets 327,754 6,650 8.16% 275,283 5,402 7.87%
Cash and due from banks 5,646 4,445
Allowance for loan losses (2,732) (2,039)
Other assets (5) 8,014 6,890
-------- --------
Total assets $338,682 $284,579
======== ========
Liabilities, minority interest in subsidiary
and shareholders' equity
Interest checking $ 22,222 139 2.52% $ 17,514 114 2.61%
Money market deposit accounts 3,440 39 4.56% 1,569 10 2.56%
Savings accounts 51,347 448 3.51% 55,648 476 3.43%
Time deposits 167,149 2,429 5.84% 116,295 1,539 5.31%
-------- ------ ------------------ ------ ----
Total interest-bearing deposits 244,158 3,055 5.03% 191,026 2,139 4.49%
Short-term borrowings 37,521 567 6.08% 28,827 354 4.93%
Long-term borrowings -- -- -- 15,000 201 5.37%
-------- ------ ---- -------- ------ ----
Total borrowings 37,521 567 6.08% 43,827 555 5.08%
Subordinated debt 1,500 32 8.58% 1,500 27 7.22%
-------- ------ ---- -------- ------ ----
Total interest-bearing liabilities 283,179 3,654 5.19% 236,353 2,721 4.62%
Non-interest-bearing deposits 22,103 18,303
Other liabilities 5,158 4,166
Capital securities 10,000 10,000
Shareholders' equity (6) 18,242 15,757
-------- -------
Total liabilities, minority interest in
subsidiary and shareholders' equity $338,682 $284,579
======== ========
Net interest income / rate spread $2,996 2.97% $2,681 3.25%
====== ====== ====== ====
Net interest margin (7) 3.68% 3.91%
Average interest-earning assets as a percentage
of average interest-bearing liabilities 115.74% 116.47%
</TABLE>
-------------
(1) Excludes the SFAS 115 valuation allowance on investment securities
available for sale.
(2) 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.
(3) Includes non-accrual loans of $888,000 on average for the three months
ended June 30, 1999. We had no non-accrual loans for the three months ended
June 30, 2000.
(4) Includes tax-exempt loans of $1,097,000 and $1,227,000 on average for the
three months ended June 30, 2000 and 1999, respectively. Tax-exempt yields
were adjusted to a tax-equivalent basis using a 34% rate.
(5) Excludes the deferred tax asset related to the SFAS 115 valuation allowance
on investment securities available for sale.
(6) Excludes the SFAS 115 valuation allowance on investment securities
available for sale, net of tax.
(7) Net interest margin is calculated as net interest income divided by average
interest-earning assets.
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 six months ended June 30, 2000 1999
--------------------------------- -------------------------------- ---------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
-------- -------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-bearing deposits $ 386 $ 12 6.25% $ 359 $ 8 4.49%
Federal funds sold 6,890 204 5.95% 1,320 30 4.58%
Investment securities available for sale
Taxable (1) 85,476 2,973 6.99% 81,392 2,739 6.79%
Tax-exempt (1)(2) 17,859 670 7.54% 19,921 758 7.67%
Investment securities held to maturity 6,970 225 6.49% 6,310 201 6.42%
-------- ------- ---- -------- ------- ------
Total investment securities 110,305 3,868 7.05% 107,623 3,698 6.93%
Loans, net of unearned income (3)(4) 207,497 8,987 8.71% 153,237 6,633 8.73%
-------- ------- ---- -------- ------- ------
Total earning assets 325,078 13,071 8.09% 262,539 10,369 7.96%
Cash and due from banks 5,529 4,244
Allowance for loan losses (2,654) (1,958)
Other assets (5) 7,858 6,714
-------- --------
Total assets $335,811 $271,539
======== ========
Liabilities, minority interest in subsidiary
and shareholders' equity
Interest checking $ 21,643 273 2.54% $ 16,715 217 2.62%
Money market deposit accounts 2,235 45 4.05% 1,724 22 2.57%
Savings accounts 51,825 901 3.50% 55,321 942 3.43%
Time deposits 157,705 4,483 5.72% 111,301 2,949 5.34%
-------- ------- ---- -------- ------- ----
Total interest-bearing deposits 233,408 5,702 4.91% 185,061 4,130 4.50%
Short-term borrowings 46,415 1,368 5.93% 24,196 585 4.88%
Long-term borrowings -- -- -- 15,000 402 5.40%
-------- ------- ---- -------- ------- ----
Total borrowings 46,415 1,368 5.93% 39,196 987 5.08%
Subordinated debt 1,500 64 8.58% 1,500 53 7.13%
-------- ------- ---- -------- ------- ----
Total interest-bearing liabilities 281,323 7,134 5.10% 225,757 5,170 4.62%
Non-interest-bearing deposits 21,654 17,516
Other liabilities 4,835 3,719
Capital securities 10,000 10,000
Shareholders' equity (6) 17,999 14,547
-------- --------
Total liabilities, minority interest in
subsidiary and shareholders' equity $335,811 $271,539
======== ========
Net interest income / rate spread $ 5,937 2.99% $ 5,199 3.34%
======= ==== ======= ====
Net interest margin (7) 3.67% 3.99%
Average interest-earning assets as a percentage
of average interest-bearing liabilities 115.55% 116.29%
</TABLE>
-------------
(1) Excludes the SFAS 115 valuation allowance on investment securities
available for sale.
(2) 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.
(3) Includes non-accrual loans of $39,000 and $973,000 on average for the six
months ended June 30, 2000 and 1999, respectively.
(4) Includes tax-exempt loans of $1,112,000 and $1,243,000 on average for the
six months ended June 30, 2000 and 1999, respectively. Tax-exempt yields
were adjusted to a tax-equivalent basis using a 34% rate.
(5) Excludes the deferred tax asset related to the SFAS 115 valuation allowance
on investment securities available for sale.
(6) Excludes the SFAS 115 valuation allowance on investment securities
available for sale, net of tax.
(7) Net interest margin is calculated as net interest income divided by average
interest-earning assets.
11
<PAGE>
Results of Operations
For the three months ended June 30, 2000, we reported net income of
$604,000 or $.18 per diluted share. This represents a decrease of $56,000 or 8%
decrease from the net income of $660,000 or $.20 per diluted share reported for
the same period in 1999. Net income for the second quarter of 2000 was lower
than net income for the second quarter of 1999, primarily due to an increase in
overhead expenses despite higher net interest income. Our overhead expenses
increased $455,000 or 29% during the second quarter of 2000 compared to the same
period in 1999. The increase in overhead expenses relates primarily to the
expansion of our franchise. We opened our Bethlehem branch and a loan production
office in Colmar during the fourth quarter of 1999. In addition, we began
recording occupancy expenses related to our Montgomeryville office, which is
expected to open in the third quarter of 2000. The second quarter of 2000 also
included a one-time charge of $68,000 related to the write-off of improvements
for a proposed branch site in Bensalem. The Bensalem branch was relocated to
another site and is expected to open in the third quarter of 2000. Return on
average assets and return on average shareholders' equity were .73% and 18.93%,
respectively, for the three months ended June 30, 2000 compared to .93% and
18.10% for the same period in 1999. Return on average equity, exclusive of the
unrealized loss on investment securities available for sale was 13.32% for the
three months ended June 30, 2000 compared to 16.80% for the same period in 1999.
For the six months ended June 30, 2000, we reported net income of
$1,007,000 or $.29 per diluted share. This represents a decrease of $224,000 or
18% compared to net income of $1,231,000 or $.37 per diluted share reported for
the same period in 1999. Net income for 2000 was lower than 1999 primarily due
to an increase in overhead expenses related to the expansion of our franchise
and non-recurring charges related to two discontinued internet banking
initiatives and the write-off of improvements for a proposed branch site. Return
on average assets and return on average shareholders' equity were .61% and
16.03%, respectively, for the six months ended June 30, 2000 compared to .92%
and 18.08% for the same period in 1999. Return on average equity, exclusive of
the unrealized loss on investment securities available for sale was 11.25% for
the six months ended June 30, 2000 compared to 17.06% for the same period in
1999.
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, 2000, net interest income, on a
tax-equivalent basis, was $315,000 higher than the same period in 1999. This
increase was primarily a function of asset growth, which was offset in part by a
lower net interest rate spread and a lower ratio of interest-earning assets to
interest-bearing liabilities. Average interest-earning assets grew $52,471,000
or 19% from $275,283,000 at June 30, 1999 to $327,754,000 at June 30, 2000.
Average loan balances increased by $52,612,000 while average investment balances
decreased by $3,069,000. The ratio of average interest-earning assets to average
interest-bearing liabilities decreased from 116.47% at June 30, 1999 to 115.74%
at June 30, 2000. During 1999 and continuing through the second quarter of 2000,
overall interest rates moved higher. During this period, our liabilities
repriced faster than our assets narrowing our net interest rate spread and
margin. Our net interest rate spread decreased 28 basis points from 3.25% at
June 30, 1999 to 2.97% at June 30, 2000 as the increase in the average rate on
interest-bearing liabilities more than offset the increase in the average yield
of interest-earning assets. The 57 basis point increase in rate on average
interest-bearing liabilities is primarily due to certificate of deposit
promotions and repricing of short-term borrowings and subordinated debt. Our net
interest margin decreased 23 basis points from 3.91% at June 30, 1999 to 3.68%
at June 30, 2000.
For the six months ended June 30, 2000, net interest income, on a
tax-equivalent basis, was $738,000 higher than the same period in 1999. This
increase was primarily a function of asset growth, which was offset in part by a
lower net interest rate spread and a lower ratio of interest-earning assets to
interest-bearing liabilities. Average interest-earning assets grew $62,539,000
or 24% from $262,539,000 at June 30, 1999 to $325,078,000 at June 30, 2000.
Average investment and average loan balances increased $2,682,000 and
$54,260,000, respectively. The ratio of average interest-earning assets to
average interest-bearing liabilities decreased from 116.29% at June 30, 1999
12
<PAGE>
to 115.55% at June 30, 2000. During 1999 and continuing through the second
quarter of 2000, overall interest rates moved higher. During this period, our
liabilities repriced faster than our assets narrowing our net interest rate
spread and margin. Our net interest rate spread decreased 35 basis points from
3.34% at June 30, 1999 to 2.99% at June 30, 2000 as the increase in the average
rate on interest-bearing liabilities more than offset the increase in the
average yield on interest-earning assets. Our net interest margin decreased 32
basis points from 3.99% at June 30, 1999 to 3.67% at June 30, 2000.
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 $76,000 for the three months ended June 30,
2000 compared to $55,000 for the same period in 1999. The increase is
principally due to an increase in service charges on deposits. In addition, 1999
results include $11,000 in losses on the sale of investment securities available
for sale while no gains or losses on investment sales were recorded in 2000.
Gains on the sale of loans held for sale were $10,000 lower in 2000 as loan
originations and sales slowed considerably due to higher interest rates.
Total non-interest income was $134,000 for the six months ended June 30,
2000 compared to $98,000 for the same period in 1999. The increase is
principally due to $58,000 in losses realized on the sale of investment
securities available for sale during the six months ended June 30, 1999 compared
to no gains or losses on investment sales in 2000. 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. Service charges and
other fees were $21,000 higher during the six months ended June 30, 2000
compared to the same period in 1999. Gains on the sale of loans held for sale
were $43,000 lower in 2000 as loan originations and sales slowed considerably
due to higher interest rates.
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 subsidiary". We expect overhead expenses to
continue to trend higher in 2000 as we continue to grow and expand our branch
network.
For the three months ended June 30, 2000, non-interest expenses were
$2,006,000, an increase of $455,000 or 29%, compared to the $1,551,000 recorded
during the same period in 1999. Overhead continues to increase due to the growth
of the institution, which includes the opening of our Bethlehem branch and
Colmar loan production office in the fourth quarter of 1999. In addition, 2000
results include expenses related to our Montgomeryville office, which is
expected to open in the third quarter of 2000. Salaries and benefits were
$188,000 or 27% higher in 2000 compared to 1999. This increase is principally
due to an increase in the number of employees and merit increases. The number of
full-time equivalent employees grew from 55 at June 30, 1999 to 72 at June 30,
2000. Professional services, occupancy and data processing costs increased
$45,000, $42,000 and $29,000, respectively. Other expenses, which consist
primarily of furniture and equipment expense, employee travel, meals and
entertainment, stationery, supplies, postage, and various administrative
expenses, increased $130,000. This increase is primarily due to a one-time
charge of $68,000 for the write-off of improvements related to a proposed branch
in Bensalem, which has since been relocated, and the overall growth of the
institution.
For the six months ended June 30, 2000, non-interest expenses were
$4,220,000, an increase of $1,173,000 or 39%, compared to the $3,047,000
recorded during the same period in 1999. Overhead expenses increased due to the
continued growth of our franchise. In addition, 2000 results include one-time
charges of $115,000 related to two separate discontinued internet banking
initiatives and $68,000 for the write-off of improvements related to a proposed
branch in Bensalem. This branch site was relocated and is expected to open in
the third quarter of 2000. Salaries and benefits were $550,000 or 40% higher in
2000 compared to 1999. This increase is principally due to an increase in the
number of employees and merit increases. Data processing costs increased $99,000
principally due to the growth of the institution, variable costs associated with
item processing and account volumes, and new services. Professional services
were $105,000 higher due to the outsourcing of our internal audit and loan
review function as well as approximately $20,000 in expenses related to
discontinued internet banking initiatives. Marketing expenses
13
<PAGE>
were $116,000 higher in 2000 and included $32,000 related to a discontinued
advertising program designed to generate deposits from communities outside of
our market area. Other expenses increased $214,000 in 2000. This increase is
principally due to the $68,000 in improvements to a proposed new branch location
and the overall growth of the institution.
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
believes is adequate to provide for known and inherent 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 decreased from $185,000 during the three
months ended June 30,1999 to $125,000 during the same period in 2000. The
provision for loan losses also decreased from $352,000 during the six months
ended June 30, 1999 to $275,000 during the same period in 2000. The decrease is
primarily due to a slower rate of loan growth in 2000 compared to 1999. Total
loans grew 3% during the three months ended June 30, 2000 compared to 9% for the
same period in 1999. During the six months ended June 30, 2000 total loans grew
8% compared to 19% for the same period in 1999. The ratio of the allowance for
loan losses to total loans at June 30, 2000 and December 31, 1999 were 1.29% and
1.26%, respectively.
Income tax expense
We recorded a $212,000 or 26.0% tax provision for the three months ended
June 30, 2000 compared to $198,000 or 23.1% for the same period in 1999. We
recorded a $320,000 or 24.1% tax provision for the six months ended June 30,
2000 compared to $386,000 or 23.9% for the same period in 1999. The effective
tax rates for the three and six months ended June 30, 2000 were higher than the
comparable periods in 1999 due principally to a lower level of tax-exempt
income.
Financial Condition
Consolidated assets grew $21,968,000 or 7% during the six months ended June
30, 2000. Cash balances, federal funds sold and total loans grew $4,769,000,
$3,730,000 and $15,655,000, respectively. Asset growth was primarily funded by a
$32,164,000 increase in deposits. Most of this deposit growth was due to the
promotion of a 23-month certificate of deposit product that totaled $26,849,000
at June 30, 2000. The bank also promoted a new personal cash management money
market account that totaled $5,666,000 at June 30, 2000. Borrowings decreased by
$12,236,000 from $52,537,000 at December 31, 1999 to $40,301,000 at June 30,
2000. Shareholders' equity grew by $937,000 from $12,647,000 at December 31,
1999 to $13,584,000 at June 30, 2000. This increase was attributable to
$1,007,000 in earnings and $139,000 from exercised stock options, which were
offset, in part, by $209,000 in unrealized losses on investments available for
sale.
14
<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, we have not purchased any securities for trading purposes. We usually
classify securities, in particular mortgage-backed securities and corporate
bonds, as AFS to provide us 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
$94,648,000 and $6,675,000, respectively, as of June 30, 2000. Total investments
decreased by $2,634,000 from $103,957,000 at December 31, 1999 to $101,323,000
at June 30, 2000.
The estimated fair value of our investment securities available for sale
declined $209,000 from an unrealized net loss of $4,891,000 at December 31, 1999
to an estimated unrealized net loss of $5,100,000 at June 30, 2000. The
estimated fair value of fixed rate securities moved lower during the first half
of 2000 due to higher interest rates. At June 30, 2000, the majority of the
unrealized loss on investment securities available for sale relates to our fixed
rate mortgaged-backed, municipal and corporate bond securities. At this time, we
plan to hold these investments realizing that it may be some time before market
conditions improve. Available for sale securities are recorded at fair value 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, 2000
----------------------------------------------------------------
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 $ 4,649 $ 5,000 $ 4,986
Mortgage-backed securities 1,178 1,157 47,892 45,404
State and municipal securities - - 17,858 16,046
Equity securities - - 1,933 1,933
Corporate bonds - - 29,577 26,164
Other debt securities 500 500 115 115
------- ------- -------- -------
Total $ 6,675 $ 6,306 $102,375 $94,648
======= ======= ======== =======
</TABLE>
<TABLE>
<CAPTION>
December 31, 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 $ 4,976 $ 5,000 $ 4,998
Mortgage-backed securities 1,384 1,366 50,010 47,250
State and municipal securities - - 17,860 15,802
Equity securities - - 1,883 1,883
Corporate bonds - - 29,618 27,028
Other debt securities 500 500 115 115
------- ------- -------- -------
Total $ 6,881 $ 6,842 $104,486 $97,076
======= ======= ======== =======
</TABLE>
15
<PAGE>
Loans
Gross loans increased $15,655,000 from $199,224,000 at December 31, 1999 to
$214,879,000 at June 30, 2000. The majority of our loan portfolio is
collateralized, at least in part, by real estate in the greater Lehigh and
Delaware Valleys of Pennsylvania. Real estate values are typically 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. We manage credit risk through portfolio
diversification, underwriting policies and procedures, and loan monitoring
practices. We manage interest rate risk within our asset/liability framework
using various modeling techniques and analyses. Most of our loans are either
fixed rate for a period of five years or less or variable rate.
Our commercial lending activity is generally focused on small businesses
and professionals within our markets.
Loan Portfolio
<TABLE>
<CAPTION>
June 30, 2000 % of Total December 31, 1999 % of Total
-------------- ---------- ----------------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Real estate-farmland $ 238 0.11% $ - -
Real estate-construction 5,347 2.49% 3,850 1.93%
Real estate-residential 23,002 10.71% 30,330 15.22%
Real estate-multi-family 12,643 5.88% 9,738 4.89%
Real estate-commercial 144,340 67.17% 127,885 64.19%
Commercial 27,468 12.78% 25,260 12.69%
Consumer 1,841 0.86% 2,161 1.08%
-------- ------ -------- ------
Total loans $214,879 100.00% $199,224 100.00%
====== ======
Less:
Unearned income 646 592
Allowance for loan losses 2,780 2,511
-------- --------
Total loans, net $211,453 $196,121
======== ========
</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 known and inherent losses 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 ten years old with a 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.
16
<PAGE>
During the second quarter of 2000, we changed the scoring system used to
calculate loan loss reserves on commercial loans. This change placed more
reliance on borrower risk ratings, which have been subject to an independent
review over the past year. As a result, the specific loan loss reserves
allocated to individual commercial loans were lowered creating an unallocated
reserve. The change in our loan loss reserve calculation is reflected in the
following table for all periods presented.
Allowance for Loan Loss Allocation
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999 June 30, 1999
Amount Percent Amount Percent Amount Percent
------- ------- ------- ------ ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at end of period
applicable to:
Real estate-farmland $ 2 0.07% $ -- -- $ -- --
Real estate-construction 38 1.37% 28 1.11% 10 0.47%
Real estate-residential 275 9.89% 366 14.58% 267 12.45%
Real estate-multi-family 68 2.45% 86 3.42% 118 5.50%
Real estate-commercial 1,287 46.29% 1,124 44.76% 970 45.24%
Commercial 673 24.21% 427 17.01% 274 12.78%
Consumer 14 0.50% 14 0.56% 13 0.61%
Unallocated 423 15.22% 466 18.56% 492 22.95%
------- ------ ------- ------ ------- ------
Total $ 2,780 100.00% $ 2,511 100.00% $ 2,144 100.00%
======= ====== ======= ====== ======= ======
</TABLE>
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, 2000, the allowance for loan losses totaled $2,780,000,
representing 1.29% of outstanding loans receivable compared to 1.26% and 1.28%
at December 31, 1999 and June 30, 1999, respectively.
17
<PAGE>
The following table sets forth the activity in the allowance for loan
losses and certain key ratios for the periods indicated. The loan portfolio is
relatively immature given recent growth rates and the age of the institution.
Therefore, current charge-off and non-performing asset trends may not be
indicative of future performance.
Allowance for Loan Losses
<TABLE>
<CAPTION>
For the six For the For the six
months ended year ended months ended
June 30, 2000 December 31, 1999 June 30, 1999
------------- ----------------- -------------
(Dollars in thousands)
<S> <C> <C> <C>
Balance at beginning of period $ 2,511 $ 1,805 $ 1,805
Charge-offs
Real estate-residential 6 -- --
Commercial -- 2 2
Consumer -- 11 11
--------- --------- ---------
Total charge-offs 6 13 13
Recoveries -- -- --
--------- --------- ---------
Net charge-offs 6 13 13
Provision for loan losses 275 719 352
--------- --------- ---------
Balance at end of period $ 2,780 $ 2,511 $ 2,144
========= ========= =========
Total gross loans:
Average $ 208,169 $ 168,363 $ 159,864
End of period $ 214,879 $ 199,224 $ 167,166
Ratios:
Net charge-offs to:
Average loans -- 0.01% 0.01%
Loans at end of period -- 0.01% 0.01%
Allowance for loan losses 0.22% 0.52% 0.61%
Provision for loan losses 2.18% 1.81% 3.69%
Allowance for loan losses to:
Total gross loans at end of period 1.29% 1.26% 1.28%
Non-performing loans (1) (1) 210.82%
</TABLE>
---------------
(1) Ratio is not meaningful since the allowance for loan losses exceeds the
amount of non-performing assets at June 30, 2000 and December 31, 1999 by
more than ten times.
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
June 30, December 31,
2000 1999
-------- ------------
(Dollars in thousands)
Loans past due 90 days or more and accruing
Real estate-residential $-- $ 55
Commercial 1 1
--- ----
Total loans past due 90 days or more and accruing 1 56
Loans accounted for on a non-accrual basis
Real estate-residential -- 136
--- ----
Total non-accrual loans -- 136
--- ----
Total non-perfoming assets $ 1 $192
=== ====
Ratio of non-performing loans to total loans --- .10%
Ratio of non-performing assets to total assets --- .06%
Total loans past due 90 days and accruing decreased $55,000 from $56,000 at
December 31, 1999 to $1,000 at June 30, 2000 due to the repayment of one loan
secured by residential property.
We had no non-accrual loans at June 30, 2000 compared to $136,000 at
December 31, 1999. The decrease relates to the repayment of one loan secured by
residential property in February 2000.
Premises and equipment
Premises and equipment increased $327,000 from $3,807,000 at December 31,
1999 to $4,134,000 at June 30, 2000. The increase relates primarily to the
purchase of property adjacent to our Bethlehem branch for a parking lot and the
purchase of additional furniture and equipment to support our growth.
Deferred taxes
The $108,000 increase in deferred taxes from $3,342,000 at December 31,
1999 to $3,450,000 at June 30, 2000 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. During the six months ended June 30, 2000 total deposits grew
$32,164,000 or 14% to $269,645,000. Core deposits, which exclude time deposits
greater than $100,000 grew $29,607,000 or 15% during the six months ended June
30, 2000 to $230,844,000. Most of this growth occurred in time deposits due to
the promotion of a 23-month certificate of deposit product. This product
accounted for $26,849,000 of our total time deposits at June 30, 2000. Total
time deposits at June 30, 2000 were $168,540,000 or 63% of total deposits, of
which $54,225,000 mature after one year. Depending on market conditions,
management generally prices its time deposits to extend maturities beyond one
year.
The growth of mutual funds and other non-bank investment options over the
past decade has made it increasingly difficult for community-based financial
institutions like Premier Bank to attract deposits as many consumers in search
of higher returns have shifted their investment dollars into the stock market
and away from traditional bank deposit products.
We expect to continue to grow our deposits through promotions, business
development programs, maturation of existing branches and branch expansion. We
opened our Bethlehem branch in December 1999 and our Heritage Towers limited
service branch in July 2000. We expect to open two additional branches in the
third quarter of 2000.
Deposits by Major Classification
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
------------------------------- -------------------------------
Weighted Weighted
Average Average
Interest % of Interest % of
Rate Amount Total Rate Amount Total
-------- -------- ------ -------- ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest checking 2.52% $ 20,605 7.65% 2.56% $ 21,249 8.95%
Money market 4.97% 6,673 2.46% 2.55% 1,000 0.42%
Savings 3.51% 49,363 18.31% 3.41% 51,224 21.57%
Time 5.95% 168,540 62.50% 5.46% 144,532 60.86%
---- -------- ----- ---- -------- -------
Total interest bearing deposits 5.14% 245,181 90.93% 4.68% 218,005 91.80%
==== ====
Non-interest bearing deposits 24,464 9.07% 19,476 8.20%
-------- ----- -------- ------
Total deposits 4.68% $269,645 100.00% 4.30% $237,481 100.00%
==== ======== ====== ==== ======== ======
</TABLE>
Borrowings
Borrowings decreased $12,236,000 from $52,537,000 at December 31, 1999 to
$40,301,000 at June 30, 2000.
At June 30, 2000 borrowings consisted of securities sold under agreement to
repurchase as follows:
o $10,000,000 from the Federal Home Loan Bank maturing within 30 days;
o $14,081,000 from an investment bank maturing within 60 days;
o $16,220,000 from customers maturing overnight.
At December 31, 1999 borrowings consisted of securities sold under
agreement to repurchase as follows:
o $27,500,000 from the Federal Home Loan Bank maturing within 90 days;
o $18,734,000 from investment banks maturing within 60 days;
o $ 6,303,000 from customers maturing overnight.
20
<PAGE>
All borrowings from the FHLB are secured by a blanket lien against all of
the bank's assets. Repurchase agreements with investment banks were secured by
$15,054,000 in investment securities at June 30, 2000. Customer repurchase
agreements are collateralized by investment securities in an amount equal to or
exceeding such borrowings. The bank controls the securities pledged as
collateral for customer repurchase agreements.
Capital Adequacy
At June 30, 2000, 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 to manage the bank
accordingly.
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, 2000, we exceeded all regulatory requirements and are classified as
"well" capitalized.
<TABLE>
<CAPTION>
Capital Components
June 30, 2000 December 31, 1999
------------- -----------------
(Dollars in thousands)
<S> <C> <C>
Tier I
Shareholders' equity $ 13,584 $ 12,647
Allowable portion of minority interest in equity
of subsidiaries 6,230 5,846
Net unrealized security losses 5,100 4,891
-------- --------
Total Tier I Capital $ 24,914 $ 23,384
======== ========
Tier II
Allowable portion of minority interest in equity
of subsidiaries $ 3,770 $ 4,154
Allowable portion of the allowance for loan losses 2,780 2,511
Allowable portion of subordinated debt 1,500 1,500
-------- --------
Total Tier II Capital $ 8,050 $ 8,165
======== ========
Total Capital $ 32,964 $ 31,549
Risk-weighted assets $258,646 $241,357
</TABLE>
<TABLE>
<CAPTION>
Capital Ratios
"Adequately" "Well"
Capitalized Capitalized
June 30, 2000 December 31, 1999 Ratios Ratios
------------- ----------------- ------------ -----------
<S> <C> <C> <C> <C>
Total risk-based capital/risk-weighted assets 12.74% 13.07% 8.00% 10.00%
Tier I capital/risk-weighted assets 9.63% 9.69% 4.00% 6.00%
Tier I capital/average assets (leverage ratio) 7.48% 7.33% 4.00% 5.00%
</TABLE>
21
<PAGE>
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, 2000, operating and financing activities
provided cash and cash equivalents of $2,803,000 and $20,004,000, respectively,
while investing activities used $14,014,000. The cash provided by financing
activities resulted primarily from a $32,164,000 increase in deposits. This
increase in deposits was mostly due to the promotion of 23-month certificates of
deposit. This cash was primarily used for loan originations and the repayment of
borrowings. For the six months ended June 30, 2000, loans grew $15,661,000 while
borrowings decreased $12,236,000. Investments decreased $2,255,000, exclusive of
the change in unrealized losses on securities available for sale.
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.
The bank monitors its liquidity position on a daily basis. The bank uses
overnight federal funds and interest-bearing deposits in other banks to absorb
daily excess liquidity. Conversely, overnight federal funds may be purchased to
satisfy daily liquidity needs. If the bank requires funds beyond its ability to
generate them internally, additional sources of funds are available through use
of one of the following: $4,000,000 unsecured federal funds line of credit with
its correspondent bank; $34,600,000 borrowing limit at the Federal Home Loan
Bank of Pittsburgh; or the bank's $33,182,000 secured line of credit with the
Federal Reserve Bank of Philadelphia. The bank could also sell or borrow against
certain investment securities. At June 30, 2000, the bank had $10,000,000 in
borrowings outstanding at the Federal Home Loan Bank and $14,081,000 in reverse
repurchase agreements with investment banks.
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 has subsequently been amended. 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, as
amended, is required for all fiscal quarters of fiscal years beginning after
June 15, 2000, with earlier adoption 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. However, we currently have no derivatives covered by the Statement and
conduct no hedging activities.
22
<PAGE>
PART II - OTHER INFORMATION
Item 1 -- Legal Proceedings
At June 30, 2000, there were no material legal proceedings pending against
the company.
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 11, 2000 for the purpose
of electing five Class 2 directors for a term of three years (John J. Ginley,
Dr. Thomas E. Mackell, Neil W. Norton, Irving N. Stein and HelenBeth Garofalo
Vilcek).
All nominees for Class 2 director were elected by shareholders as follows:
<TABLE>
<CAPTION>
For Against Abstain
--------- ------- -------
<S> <C> <C>
John J. Ginley 2,149,481 - 87
Dr. Thomas E. Mackell 2,146,331 - 3,237
Neil W. Norton 2,143,502 - 6,066
Irving N. Stein 2,145,281 - 4,287
HelenBeth Garofalo Vilcek 2,144,651 - 4,917
</TABLE>
Item 5 -- Other Information
None.
Item 6 -- Exhibits and Reports on Form 8-K
(a) The following exhibits are incorporated by reference herein or attached to
this Form 10-QSB:
<TABLE>
<S> <C> <C>
3(i) 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 SEC on August 22,1997 and as amended on
September 9, 1997).
3(ii) By-Laws. (Incorporated by reference to Exhibit 3ii to the Company's Registration Statement No.
333-34243 on Form S-4 filed with the SEC on August 22,1997 and as amended on September 9, 1997).
10.1 Premier Bank's 1995 Incentive Stock Option Plan. (Incorporated by reference to Exhibit 99.6 to the
Company's Registration Statement No. 333-34243 on Form S-4 filed with the SEC on August 22,1997 and
as amended on September 9, 1997).
10.2 Change of Control Agreement between Premier Bank and John C. Soffronoff. (Incorporated by reference to
Exhibit 10.2 to the Company's Quarterly Report on Form 10-QSB filed with the SEC on November 13,
1998).
</TABLE>
23
<PAGE>
Item 6 -- Exhibits and Reports on Form 8-K (continued)
<TABLE>
<S> <C> <C>
10.3 Change of Control Agreement between Premier Bank and John J. Ginley. (Incorporated by reference to
Exhibit 10.3 to the Company's 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 the Company's Quarterly Report on Form 10-QSB filed with the SEC on November 13,
1998).
11. Statement re: Computation of per share earnings. (Included at Note 5 of this Form 10-QSB).
27.1 Financial Data Schedule.
27.2 Restated Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K
None.
24
<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 14, 2000 /s/ John C. Soffronoff
----------------------
John C. Soffronoff
President, Chief Executive Officer, Director
(Principal Executive Officer)
August 14, 2000 /s/ Bruce E. Sickel
-------------------
Bruce E. Sickel
Chief Financial Officer, Director
(Principal Financial Officer)
25
<PAGE>
Index of Exhibits
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
3(i) 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 and as amended
on September 9, 1997).
3(ii) 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 and as amended on September 9, 1997).
10.1 Premier Bank's 1995 Incentive Stock Option Plan. (Incorporated by reference to *
Exhibit 99.6 to the Company's Registration Statement No. 333-34243 on Form S-4
filed with the Securities and Exchange Commission on August 22,1997 and as
amended on September 9, 1997).
10.2 Change of Control Agreement between Premier Bank and John C. Soffronoff. *
(Incorporated by reference to Exhibit 10.2 to the Company's 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 the Company's 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 the Company's Quarterly Report on Form
10-QSB filed with the Securities Exchange Commission on November 13, 1998).
11 Statement re: Computation of per share earnings. (Included at Note 5 of this Form 10-QSB). 5
27.1 Financial Data Schedule. 34
27.2 Restated Financial Data Schedule. 35
</TABLE>
* Incorporated by reference.
26
