U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: SEPTEMBER 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 October 31, 2000.
Transitional Small Business Disclosure format (check one): Yes /__/ No /X/
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
PREMIER BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------ -----------------
(Dollars in thousands, except share data)
Assets
Cash and due from banks $ 5,919 $ 4,646
Federal funds sold 17,181 3,436
Interest-bearing deposits 926 409
-------- --------
Cash and cash equivalents 24,026 8,491
Investment securities:
Held to maturity (fair value
$5,987 in 2000 and $6,842 in 1999) 6,283 6,881
Available for sale (amortized
cost $101,033 in 2000 and
$104,486 in 1999) 93,965 97,076
Loans receivable (net of allowance
for loan losses of $2,905 in 2000
and $2,511 in 1999) 223,666 196,121
Loans held for sale 297 --
Accrued interest receivable 2,712 2,174
Premises and equipment 4,577 3,807
Deferred taxes 3,226 3,342
Other assets 733 768
-------- --------
Total assets $359,485 $318,660
======== ========
Liabilities, minority interest in
subsidiary and shareholders' equity
Deposits $291,129 $237,481
Borrowings 36,670 52,537
Accrued interest payable 4,115 2,364
Other liabilities 1,483 2,131
Subordinated debt 1,500 1,500
Total liabilities 334,897 296,013
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 September 30, 2000
and 3,078,914 at December 31, 1999 1,025 1,016
Additional paid-in capital 11,792 11,662
Retained earnings 6,436 4,860
Accumulated other comprehensive loss (4,665) (4,891)
-------- --------
Total shareholders' equity 14,588 12,647
-------- --------
Total liabilities, minority interest
in subsidiary and shareholders' equity $359,485 $318,660
-------- --------
The accompanying notes are an integral part of the consolidated
financial statements.
1
<PAGE>
<TABLE>
<CAPTION>
PREMIER BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the three months ended For the nine months ended
September 30, 2000 September 30, 1999 September 30, 2000 September 30, 1999
------------------ ------------------ ------------------ ------------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Interest income:
Loans $ 4,887 $ 3,767 $ 13,853 $ 10,377
Federal funds sold and
interest-bearing deposits 102 33 318 71
Investments:
Taxable 1,580 1,704 4,778 4,644
Tax-exempt 221 238 663 738
Total interest income 6,790 5,742 19,612 15,830
Interest expense:
Deposits 3,335 2,231 9,037 6,361
Borrowings 615 753 2,047 1,793
---------- ---------- ---------- ----------
Total interest expense 3,950 2,984 11,084 8,154
Net interest income 2,840 2,758 8,528 7,676
Provision for loan losses 125 199 400 551
Net interest income after
loan loss provision 2,715 2,559 8,128 7,125
Non-interest income:
Service charges and other fees 88 46 205 142
Loss, net, on sale of
investment securities available
for sale -- (42) -- (100)
Gain on sale of loans
held for sale 1 14 18 74
---------- ---------- ---------- ----------
Total non-interest income 89 18 223 116
Non-interest expense:
Salaries and employee
benefits 991 849 2,915 2,223
Occupancy 163 105 454 313
Data processing 205 157 623 476
Professional services 69 57 273 156
Marketing 66 66 316 200
Minority interest in
expense of subsidiary 218 218 655 648
Other 337 269 1,033 752
---------- ---------- ---------- ----------
Total non-interest expense 2,049 1,721 6,269 4,768
---------- ---------- ---------- ----------
Income before income tax 755 856 2,082 2,473
Income tax expense 186 211 506 597
---------- ---------- ---------- ----------
Net income $ 569 $ 645 $ 1,576 $ 1,876
========== ========== ========== ==========
Earnings per share:
Basic $ 0.18 $ 0.21 $ 0.51 $ 0.63
Diluted $ 0.17 $ 0.19 $ 0.46 $ 0.56
Weighted average number of
shares outstanding:
Basic 3,105,248 3,063,396 3,094,868 2,999,839
Diluted 3,333,965 3,381,163 3,401,846 3,321,101
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
2
<PAGE>
PREMIER BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 1999
---- ----
(In thousands)
Operating activities:
Net income $ 1,576 $ 1,876
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation expense 327 258
Provision for loan losses 400 551
Write-off of capitalized costs related to
branch expansion 68 --
Amortization of premiums and discounts on
investment securities held to maturity 6 9
Amortization of premiums and discounts on
investment securities available for sale 87 104
Loss on sale of investment securities
available for sale -- 100
Gain on sale of loans held for sale (18) (74)
Originations of loans held for sale (3,670) (8,342)
Proceeds from sale of loans held for sale 3,388 9,780
Increase in accrued interest receivable (535) (587)
Decrease (increase) in other assets 35 (11)
Increase in deferred loan fees 126 102
Increase in accrued interest payable 1,861 1,229
Decrease in other liabilities (695) (677)
-------- --------
Net cash provided by operating activities 2,956 4,318
-------- --------
Investing activities:
Proceeds from sale of investment securities
available for sale -- 12,373
Repayment of investment securities available
for sale 3,416 3,425
Purchase of investment securities available
for sale (50) (34,407)
Repayment of investment securities held to
maturity 592 497
Purchase of investment securities held
to maturity -- (1,999)
Net increase in loans receivable (28,071) (44,207)
Proceeds from sale of other real estate owned -- 200
Purchases of premises and equipment (1,165) (2,182)
-------- --------
Net cash used in investing activities (25,278) (66,300)
-------- --------
Financing activities:
Net increase in deposits $ 53,648 $ 28,029
Net (decrease) increase in borrowings less
than 90 days (5,867) 21,981
Increase in borrowings greater than 90 days -- 10,000
Repayment of borrowings greater than 90 days (10,000) --
Proceeds from common stock offering -- 2,850
Proceeds from exercised stock options 76 29
-------- --------
Net cash provided by financing activities 37,857 62,889
-------- --------
Increase in cash and cash equivalents 15,535 907
Cash and cash equivalents:
Beginning of period 8,491 4,900
-------- --------
End of period $ 24,026 $ 5,807
======== ========
Composed of:
Cash and due from banks 5,919 5,136
Federal funds sold 17,181 366
Interest bearing deposits 926 305
-------- --------
Total cash and cash equivalents $ 24,026 $ 5,807
======== ========
Supplemental disclosures:
Cash payments for:
Interest expense $ 9,333 $ 6,925
Taxes 425 775
Supplemental disclosure of noncash activities:
Change in the estimated fair value of
investment securities available for sale $ 342 $ (4,102)
Change in deferred tax asset related to
securities available for sale (116) 1,396
Change in accrued taxes related to the
exercise of stock options (63) 39
Transfer of loans to other real estate owned -- 864
The accompanying notes are an integral part of the consolidated financial
statements.
3
<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 interim unaudited consolidated financial statements
were prepared in conformity with generally accepted accounting principles
and in accordance with instructions for quarterly reports for 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. 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 nine months ended September 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 included in our annual report on Form 10-KSB 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 648,327 and 688,359 shares of common stock were outstanding at
September 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 excluded from
the calculation of earnings per diluted common share for the three and nine
months ended September 30, 2000.
4
<PAGE>
PREMIER BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a reconciliation of the numerators and denominators of
the basic and diluted earnings per share calculations.
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000
---------------------------------------------
(Dollars in thousands, except per share data)
Per Share
Net income Shares Amount
---------- --------- ---------
Basic earnings per share $ 569 3,105,248 $ 0.18
Effect of dilutive stock options -- 228,717 (0.01)
---------- --------- ---------
Earnings per diluted share $ 569 3,333,965 $ 0.17
========== ========= =========
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
---------------------------------------------
(Dollars in thousands, except per share data)
Per Share
Net income Shares Amount
---------- --------- ---------
Basic earnings per share $ 645 3,063,396 $ 0.21
Effect of dilutive stock options -- 317,767 (0.02)
---------- --------- ---------
Earnings per diluted share $ 645 3,381,163 $ 0.19
========== ========= =========
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(Dollars in thousands, except per share data)
Per Share
Net income Shares Amount
---------- --------- ---------
Basic earnings per share $1,576 3,094,868 $ 0.51
Effect of dilutive stock options -- 306,978 (0.05)
---------- --------- ---------
Earnings per diluted share $1,576 3,401,846 $ 0.46
========== ========= =========
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(Dollars in thousands, except per share data)
Per Share
Net income Shares Amount
---------- --------- ---------
Basic earnings per share $ 1,876 2,999,839 $ 0.63
Effect of dilutive stock options -- 321,262 (0.07)
---------- --------- ---------
Earnings per diluted share $ 1,876 3,321,101 $ 0.56
========== ========= =========
5
<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.
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
2000 1999 2000 1999
------ ----- ------ -------
(Dollars in thousands)
Net income $ 569 $ 645 $1,576 $ 1,876
Other comprehensive income
(loss), net of tax:
Unrealized gains (losses) on
securities available for sale:
Unrealized holding gains
(losses) during the period 435 (551) 226 (2,752)
Reclassification adjustment for
losses included in net income -- 28 -- 43
------ ----- ------ --------
Other comprehensive income (loss) 435 (523) 226 (2,709)
------ ----- ------ --------
Comprehensive income (loss) $1,004 $ 122 $1,802 $ (833)
====== ===== ====== ========
6
<PAGE>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
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 seven full-service Pennsylvania
banking offices in Doylestown, Easton, Southampton, Floral Vale, Bethlehem,
Montgomeryville and Bensalem and, a limited service branch in the Heritage
Towers Retirement Community in Doylestown. The Bethlehem office opened on
December 17, 1999. The Heritage Towers branch opened on July 26, 2000.
The Bensalem office opened on October 12, 2000 and the Montgomeryville
office opened on October 19, 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. Like
most financial institutions, 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 has been impacted 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.
The following is management's discussion and analysis of the
significant changes in the results of operations for the three and nine
months ended September 30, 2000 as compared to the same periods in 1999 and
changes in financial condition from December 31, 1999 to September 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.
7
<PAGE>
MANAGEMENT'S STRATEGY
Our lending activities are specialized towards small and medium sized
businesses, professionals and individuals. In order to fund our lending
activities, and allow for increased contact with our customers, we are
establishing a branch office system to develop a stable core deposit base
catering primarily to retail and business depositors. We have a strong
commitment to highly personalized customer service. To support our growth,
without compromising our personalized service, we have made significant
investments in experienced personnel and have incurred significant costs
related to our branch office expansion.
Since the 1992 opening of Premier Bank, we have grown to seven full
service Pennsylvania banking offices. In the past 12 months we opened our
fifth office in Bethlehem, Northampton County, in December 1999. We opened a
limited service office in the Heritage Towers Retirement Community in
Doylestown in July 2000. We opened our sixth and seventh Pennsylvania full
service offices in Bensalem and Montgomeryville in October 2000. New
branches normally do not contribute to net income for many months after
opening.
In addition to the ongoing expansion of our traditional business, we
continuously review and consider new products and services to offer our
customers. These new products and services are largely intended to
generate and increase fee income. Recent changes to federal banking laws
allow financial institutions to engage in a broader range of activities
than previously permitted. These legislative changes may serve to increase
both opportunity as well as competition.
8
<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).
<TABLE>
<CAPTION>
AVERAGE BALANCES, RATES AND INTEREST INCOME AND EXPENSE SUMMARY
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 1999
-------------------------- --------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
-------- -------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Assets
Interest-bearing deposits $ 434 $ 7 6.42% $ 417 $ 4 3.81%
Federal funds sold 6,118 95 6.18% 2,134 29 5.39%
Investment securities available for sale
Taxable (1) 83,773 1,474 7.00% 93,092 1,588 6.77%
Tax-exempt (1)(2) 17,858 335 7.46% 19,080 361 7.51%
Investment securities held to maturity 6,531 106 6.47% 7,211 116 6.38%
-------- ------ ----- -------- ------ -----
Total investment securities 108,162 1,915 7.04% 119,383 2,065 6.86%
Loans, net of unearned income (3)(4) 221,817 4,897 8.78% 174,282 3,778 8.60%
-------- ------ ----- -------- ------ -----
Total earning assets 336,531 6,914 8.17% 296,216 5,876 7.87%
Cash and due from banks 5,995 4,537
Allowance for loan losses (2,852) (2,229)
Other assets (5) 8,353 7,467
-------- --------
Total assets $348,027 $305,991
======== ========
Liabilities, minority interest
in subsidiaries and
shareholders' equity
Interest checking $ 21,492 138 2.55% $ 19,287 124 2.55%
Money market deposit accounts 8,130 105 5.14% 1,212 8 2.62%
Savings accounts 45,047 393 3.47% 56,008 482 3.41%
Time deposits 175,441 2,699 6.12% 122,254 1,617 5.25%
-------- -------- ----- -------- ------ -----
Total interest-bearing deposits 250,110 3,335 5.30% 198,761 2,231 4.45%
Short-term borrowings 36,712 583 6.32% 44,768 590 5.23%
Long-term borrowings -- -- -- 10,000 136 5.40%
-------- -------- ----- -------- ------ -----
Total borrowings 36,712 583 6.32% 54,768 726 5.26%
Subordinated debt 1,500 32 8.49% 1,500 27 7.14%
-------- -------- ----- -------- ------ -----
Total interest-bearing liabilities 288,322 3,950 5.45% 255,029 2,984 4.64%
Non-interest-bearing deposits 25,141 19,692
Other liabilities 5,641 4,860
Capital securities 10,000 10,000
Shareholders' equity (6) 18,923 16,410
-------- --------
Total liabilities, minority interest in
subsidiaries and shareholders' equity $348,027 $305,991
======== ========
Net interest income/rate spread $2,964 2.72% $2,892 3.23%
====== ===== ====== =====
Net interest margin (7) 3.50% 3.87%
Average interest-earning assets
as a percentage of average
interest-bearing liabilities 116.72% 116.15%
</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 $329,000 and $267,000 on average for
the three months ended September 30, 2000 and September 30, 1999.
(4) Includes tax-exempt loans of $1,059,000 and $1,201,000 on average
for the three months ended September 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.
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).
<TABLE>
<CAPTION>
AVERAGE BALANCES, RATES AND INTEREST INCOME AND EXPENSE SUMMARY
FOR THE NINE MONTHS ENDED SEPTEMBER 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 $ 402 $ 19 6.31% $ 379 $ 12 4.23%
Federal funds sold 6,631 299 6.02% 1,594 59 4.95%
Investment securities available for sale
Taxable (1) 84,928 4,447 6.99% 85,660 4,327 6.75%
Tax-exempt (1)(2) 17,859 1,005 7.52% 19,921 1,118 7.50%
Investment securities held to maturity 6,799 331 6.50% 6,005 317 7.06%
-------- ------- ----- -------- ------- -----
Total investment securities 109,586 5,783 7.05% 111,586 5,762 6.90%
Loans, net of unearned income (3)(4) 212,305 13,883 8.73% 160,640 10,411 8.67%
-------- ------- ----- -------- ------- -----
Total earning assets 328,924 19,984 8.12% 274,199 16,244 7.92%
Cash and due from banks 5,685 4,343
Allowance for loan losses (2,721) (2,049)
Other assets (5) 8,025 6,656
-------- --------
Total assets $339,913 $283,149
======== ========
Liabilities, minority interest
in subsidiaries
and shareholders' equity
Interest checking $ 21,592 411 2.54% $ 17,581 341 2.59%
Money market deposit accounts 4,214 150 4.75% 1,552 30 2.58%
Savings accounts 49,549 1,294 3.49% 55,553 1,424 3.43%
Time deposits 163,660 7,182 5.86% 114,992 4,566 5.31%
-------- ------- ----- -------- ------- -----
Total interest-bearing deposits 239,015 9,037 5.05% 189,678 6,361 4.48%
Short-term borrowings 43,157 1,951 6.04% 34,444 1,311 5.09%
Long-term borrowings - - - 10,000 402 5.37%
-------- ------- ----- -------- ------- -----
Total borrowings 43,157 1,951 6.04% 44,444 1,713 5.15%
Subordinated debt 1,500 96 8.55% 1,500 80 7.13%
-------- ------- ----- -------- ------- -----
Total interest-bearing liabilities 283,672 11,084 5.22% 235,622 8,154 4.63%
Non-interest-bearing deposits 22,825 18,249
Other liabilities 5,106 4,103
Capital securities 10,000 10,000
Shareholders' equity (6) 18,310 15,175
-------- --------
Total liabilities, minority interest in
subsidiaries and shareholders' equity $339,913 $283,149
======== --------
Net interest income/rate spread $ 8,900 2.90% $ 8,090 3.29%
======= ===== ======= =====
Net interest margin (7) 3.61% 3.94%
Average interest-earning
assets as a percentage
of average interest-bearing
liabilities 115.95% 116.37%
</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 $137,000 and $735,000 on average for
the nine months ended September 30, 2000 and 1999, respectively.
(4) Includes tax-exempt loans of $1,094,000 and $1,229,000 on average
for the nine months ended September 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>
RESULTS OF OPERATIONS
For the three months ended September 30, 2000, we reported net income
of $569,000 or $.17 per diluted share. This represents a decrease of
$76,000 or 12% decrease from the net income of $645,000 or $.19 per diluted
share reported for the same period in 1999. Net income for the third
quarter of 2000 was lower than net income for the third quarter of 1999
primarily due to an increase in overhead expenses despite higher net
interest income. Our overhead expenses increased $328,000 or 19% during
the third 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 incurring
occupancy expenses related to our Montgomeryville office, which opened in
October 2000. Return on average assets and return on average shareholders'
equity were .66% and 16.21%, respectively, for the three months ended
September 30, 2000 compared to .84% and 18.88% for the same period in 1999.
Return on average equity, exclusive of the unrealized loss on investment
securities available for sale was 11.96% for the three months ended
September 30, 2000 compared to 15.59% for the same period in 1999.
For the nine months ended September 30, 2000, we reported net income of
$1,576,000 or $.46 per diluted share. This represents a decrease of
$300,000 or 16% compared to net income of $1,876,000 or $.56 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 ($115,000) and the write-off of
improvements for a proposed branch site ($68,000). Return on average
assets and return on average shareholders' equity were .63% and 16.10%,
respectively, for the nine months ended September 30, 2000 compared to .89%
and 18.28% for the same period in 1999. Return on average equity,
exclusive of the unrealized loss on investment securities available for
sale was 11.50% for the nine months ended September 30, 2000 compared to
16.53% 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. The spread is also influenced by differences in the maturity
and repricing of assets versus the liabilties that fund them.
For the three months ended September 30, 2000, net interest income, on
a tax-equivalent basis, was $72,000 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. Average interest-earning assets
grew $40,315,000 or 14% from $296,216,000 at September 30, 1999 to
$336,531,000 at September 30, 2000. Average loan balances increased by
$47,535,000 while average investment balances decreased by $11,221,000.
The ratio of average interest-earning assets to average interest-bearing
liabilities increased from 116.15% at September 30, 1999 to 116.72% at
September 30, 2000. During the third quarter 2000 we ran a 9-month
Certificate of Deposit (CD) promotion which helped increase CD balances by
$25.6 million. The increase in these higher cost deposits coupled with
loan growth of only $12 million during the quarter contributed to our net
interest rate spread decreasing 51 basis points from 3.23% at September
30, 1999 to 2.72% at September 30, 2000. Similarly, our net interest
margin decreased 37 basis points from 3.87% at September 30, 1999 to 3.50%
at September 30, 2000.
For the nine months ended September 30, 2000, net interest income, on a
tax-equivalent basis, was $810,000 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 average
interest-earning assets to average interest-bearing liabilities. Average
interest-earning assets grew $54,725,000 or 20% from $274,199,000 at
September 30, 1999 to $328,924,000 at September 30, 2000. Average loan
balances increased $51,665,000 while average investment balances decreased
$2,000,000. The ratio of average interest-earning assets to average
interest-bearing liabilities decreased from 116.37% at September 30, 1999 to
115.95% at September 30, 2000. During 1999 and continuing through the third
quarter of 2000, overall interest rates moved generally higher. During this
period, our average interest-bearing liabilities generally repriced faster
than our assets narrowing our net interest rate spread and margin. Our net
interest rate spread decreased 39 basis points from 3.29% at September 30,
1999 to 2.90% at September 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 33 basis
points from 3.94% at September 30, 1999
11
<PAGE>
to 3.61% at September 30, 2000. In addition to the recent interest rate
environment and the repricing characteristics of our portfolios, competition
for both loans and deposits have also contributed to shrinking spreads and
margins.
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 $89,000 for the three months ended
September 30, 2000 compared to $18,000 for the same period in 1999.
Results for 1999 include $42,000 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
$13,000 lower in 2000 as loan originations and sales slowed considerably
due to higher interest rates.
Total non-interest income was $223,000 for the nine months ended
September 30, 2000 compared to $116,000 for the same period in 1999. The
increase is principally due to $100,000 in losses realized on the sale of
investment securities available for sale during the nine months ended
September 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 $63,000
higher during the nine months ended September 30, 2000 compared to the same
period in 1999. Gains on the sale of loans held for sale were $56,000
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 the foreseeable future as
we continue to grow and expand our branch office network.
For the three months ended September 30, 2000, non-interest expenses
were $2,049,000, an increase of $328,000 or 19%, compared to the $1,721,000
recorded during the same period in 1999. Overhead continues to increase
due to the growth of the institution, which includes the opening of our new
offices. Salaries and benefits were $142,000 or 17% higher in 2000
compared to 1999. This increase is principally due to an increase in the
number of employees. The number of full-time equivalent employees grew
from 63 at September 30, 1999 to 75 at September 30, 2000. Professional
services, occupancy and data processing costs increased $12,000, $58,000
and $48,000, respectively. Other expenses, which consist primarily of
furniture and equipment expense, employee travel, meals and entertainment,
stationery, supplies, postage, and various administrative expenses,
increased $67,000. These overhead expense increases are primarily
attributed to the overall growth of the company.
For the nine months ended September 30, 2000, non-interest expenses
were $6,269,000, an increase of $1,501,000 or 31%, compared to the
$4,768,000 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 office. We relocated and opened
this office in October 2000. Salaries and benefits were $692,000 or 31%
higher in 2000 compared to 1999. This increase is principally due to an
increase in the number of employees. Data processing costs increased
$147,000 principally due to the growth of the institution, variable costs
associated with item processing and account volumes, and new services.
Professional services were $117,000 higher due to the outsourcing of our
internal audit and loan review functions as well as approximately $20,000
in expenses related to discontinued internet banking initiatives.
Marketing expenses 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
$281,000 in 2000. This increase is principally due to the $68,000 write
off of improvements to a proposed new branch location and the overall
growth of the institution.
12
<PAGE>
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, the composition of
loan types within the portfolio, and other relevant matters.
The provision for loan losses decreased from $199,000 during the three
months ended September 30,1999 to $125,000 during the same period in 2000.
The provision for loan losses also decreased from $551,000 during the
nine months ended September 30, 1999 to $400,000 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 6% during the three months ended
September 30, 2000 compared to 10% for the same period in 1999. During the
nine months ended September 30, 2000 total loans grew 14% compared to 31%
for the same period in 1999. The ratio of the allowance for loan losses to
total loans at September 30, 2000 and December 31, 1999 was 1.28% and
1.26%, respectively.
Income tax expense
We recorded a $186,000 or 24.6% tax provision for the three months
ended September 30, 2000 compared to $211,000 or 24.7% for the same period
in 1999. We recorded a $506,000 or 24.3% tax provision for the nine months
ended September 30, 2000 compared to $597,000 or 24.1% for the same period
in 1999.
FINANCIAL CONDITION
Consolidated assets grew $40,825,000 or 13% during the nine months
ended September 30, 2000. Cash balances, federal funds sold and total
loans grew $1,273,000, $13,745,000 and $28,064,000, respectively. Asset
growth was funded by a $53,648,000 increase in deposits. Most of this
deposit growth was due to the promotion of the 9-month certificate of
deposit product at a special rate that totaled $32,257,000 at September 30,
2000. Borrowings decreased by $15,867,000 from $52,537,000 at December 31,
1999 to $36,670,000 at September 30, 2000. Shareholders' equity grew by
$1,941,000 from $12,647,000 at December 31, 1999 to $14,588,000 at
September 30, 2000. This increase was attributable to $1,576,000 in
earnings, $139,000 from exercised stock options and a $226,000 reduction in
estimated unrealized losses on investments available for sale.
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 $93,965,000 and $6,283,000, respectively,
as of September 30, 2000. Total investments decreased by $3,709,000 from
$103,957,000 at December 31, 1999 to $100,248,000 at September 30, 2000.
The estimated fair value of our investment securities available for
sale increased $342,000 from an unrealized net loss of $7,410,000 at
December 31, 1999 to an estimated unrealized net loss of $7,068,000 at
September 30, 2000. At September 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".
13
<PAGE>
INVESTMENT PORTFOLIO
SEPTEMBER 30, 2000
----------------------------------------------
HELD TO MATURITY AVAILABLE FOR SALE
-------------------- ----------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST FAIR VALUE COST FAIR VALUE
--------- ---------- --------- ----------
(Dollars in thousands)
U.S. government agency obligations $4,997 $4,713 $ 5,000 $ 4,979
Mortgage-backed securities 786 774 46,571 44,823
State and municipal securities - - 17,857 16,314
Equity securities - - 1,933 1,933
Corporate bonds - - 29,557 25,801
Other debt securities 500 500 115 115
--------- ---------- --------- ----------
Total $6,283 $5,987 $101,033 $93,965
========= ========== ========= ==========
DECEMBER 31, 1999
----------------------------------------------
HELD TO MATURITY AVAILABLE FOR SALE
-------------------- ----------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST FAIR VALUE COST FAIR VALUE
--------- ---------- --------- ----------
(Dollars in thousands)
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
========= ========== ========= ==========
Loans held for sale
We use an outside company to originate and sell residential mortgages
on our behalf. The $297,000 increase 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. Loans held for sale totaled
$297,000 at September 30, 2000.
Loans
We originate a wide variety of loans principally to small and medium
size businesses, professionals and individuals. Company policies and
applicable laws and regulations require risk analysis as well as ongoing
portfolio and credit management. We manage our credit risk through lending
limit constraints, credit review, approval policies and, ongoing internal
monitoring. 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.
In addition to credit risk, inherent with the lending function is the
interest rate risk. 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.
Gross loans increased $28,064,000 from $199,224,000 at December 31,
1999 to $227,288,000 at September 30, 2000. Loan production has been
augmented as we have added to our lending staff in conjunction with our
branch office expansion.
14
<PAGE>
LOAN PORTFOLIO
SEPTEMBER DECEMBER
30, 2000 % OF TOTAL 31, 1999 % OF TOTAL
--------- ---------- -------- ----------
(Dollars in thousands)
Real estate-farmland $ 235 0.10% $ - -
Real estate-construction 5,345 2.35% 3,850 1.93%
Real estate-residential 23,826 10.49% 30,330 15.22%
Real estate-multi-family 13,621 5.99% 9,738 4.89%
Real estate-commercial 153,171 67.39% 127,885 64.19%
Commercial 1,631 0.72% 25,260 12.69%
Consumer 29,459 12.96% 2,161 1.08%
-------- ------- -------- -------
Total loans $227,288 100.00% $199,224 100.00%
======= =======
Less:
Unearned income 717 592
Allowance for loan losses 2,905 2,511
-------- --------
Total loans, net $223,666 $196,121
======== ========
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, among
others. 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.
While management believes it uses the best information available to
determine the allowance for loan losses, unforeseen market conditions could
result in adjustments to the allowance, and net income could be
significantly affected, if circumstances differ substantially from the
assumptions used in determining the allowance.
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 loan 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.
15
<PAGE>
ALLOWANCE FOR LOAN LOSS ALLOCATION
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
2000 1999 1999
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ -------
(Dollars in thousands)
Balance at end of period
applicable to:
Real estate-farmland $ 2 0.07% $ - - % $ - - %
Real estate-construction 37 1.27% 28 1.11% 5 0.21%
Real estate-residential 265 9.12% 366 14.58% 309 13.19%
Real estate-multi-family 75 2.58% 86 3.42% 79 3.37%
Real estate-commercial 1,343 46.23% 1,124 44.76% 1,045 44.60%
Commercial 648 22.31% 427 17.01% 287 12.25%
Consumer 13 0.45% 14 0.56% 16 0.68%
Unallocated 522 17.97% 466 18.56% 602 25.70%
------ ------- ------ ------- ------ -------
Total $2,905 100.00% $2,511 100.00% $2,343 100.00%
====== ======= ====== ======= ====== =======
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 September 30, 2000, the allowance for loan losses totaled
$2,905,000, representing 1.28% of outstanding loans receivable compared to
1.26% and 1.28% at December 31, 1999 and September 30, 1999, respectively.
Based on the results of our loan review process and the current level of
non-performing loans, management believes the loan loss reserve to be
adequate as of September 30, 2000.
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.
16
<PAGE>
ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
FOR THE NINE FOR THE FOR THE NINE
MONTHS ENDED YEAR ENDED MONTHS ENDED
SEPTEMBER 30, 2000 DECEMBER 31, 1999 SEPTEMBER 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 400 719 551
-------- -------- --------
Balance at end of period $ 2,905 $ 2,511 $ 2,343
-------- -------- --------
Total gross loans:
Average $212,987 $168,363 $160,837
End of period $227,288 $199,224 $183,677
Ratios:
Net charge-offs to:
Average loans - 0.01% 0.01%
Loans at end of period - 0.01% 0.01%
Allowance for loan losses 0.21% 0.52% 0.55%
Provision for loan losses 1.50% 1.81% 2.36%
Allowance for loan losses to:
Total gross loans at
end of period 1.28% 1.26% 1.28%
Non-performing loans 690.02% (1) 230.38%
</TABLE>
_______________
(1) Ratio is not meaningful because the allowance for loan losses
exceeds the amount of non-performing assets at December 31, 1999 by more
than ten times.
17
<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
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
(Dollars in thousands)
Loans past due 90 days or more and accruing
Real estate-residential $ - $ 55
Commercial - 1
------ ------
Total loans past due 90 days or more
and accruing - 56
Loans accounted for on a non-accrual basis
Real estate-residential 421 136
------ ------
Total non-accrual loans 421 136
------ ------
Total non-perfoming assets $421 $192
====== ======
Ratio of non-performing loans to total loans 0.19% 0.10%
Ratio of non-performing assets to total assets 0.12% 0.06%
There were no loans past due 90 days or more and accruing at September
30, 2000 due to the repayment of one loan secured by residential property.
Total non-accrual loans increased $285,000 from $136,000 at December
31, 1999 to $421,000 at September 30, 2000. The increase relates to the
placement of one borrower on non-accrual status. This credit is secured by
residential properties.
Premises and equipment
Premises and equipment increased $770,000 from $3,807,000 at December
31, 1999 to $4,577,000 at September 30, 2000. The increase relates
primarily to the expenditures for our new branch office facilities
including additional furniture, fixtures and equipment. In October 2000 we
opened two new Pennsylvania offices; one in Montgomeryville and one in
Bensalem.
Deferred taxes
The $116,000 decrease in deferred taxes from $3,342,000 at December 31,
1999 to $3,226,000 at September 30, 2000 relates to the change in the
estimated fair market value of investment securities available for sale.
18
<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 nine months ended September 30,
2000 total deposits grew $53,648,000 or 23% to $291,129,000. Core
deposits, which exclude time deposits greater than $100,000 grew
$49,640,000 or 25% during the nine months ended September 30, 2000 to
$250,877,000. Most of this growth occurred in time deposits (certificates
of deposit or "CD") due to the promotions of a 9-month CD during the third
quarter of 2000 and a 23-month CD promoted during the first quarter of
2000. Total time deposits at September 30, 2000 were $194,140,000 or 67%
of total deposits, of which $65,847,000 mature after 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.
DEPOSITS BY MAJOR CLASSIFICATION
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------------- -------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
INTEREST % OF INTEREST % OF
RATE AMOUNT TOTAL RATE AMOUNT TOTAL
-------- ------ ----- -------- ------ -----
(Dollars in thousands)
Interest checking 2.51% $ 21,553 7.41% 2.56% $ 21,249 8.95%
Money market 5.26% 8,937 3.06% 2.55% 1,000 0.42%
Savings 3.50% 41,659 14.31% 3.41% 51,224 21.57%
Time 6.38% 194,140 66.69% 5.46% 144,532 60.86%
----- ------- ------ ----- ------- ------
Total interest
bearing deposits 5.58% 266,289 91.47% 4.68% 218,005 91.80%
Non-interest
bearing deposits 24,840 8.53% 19,476 8.20%
-------- ------- -------- -------
Total deposits 5.10% $291,129 100.00% 4.30% $237,481 100.00%
===== ======== ======= ===== ======== =======
Borrowings
Borrowings decreased $15,867,000 from $52,537,000 at December 31, 1999
to $36,670,000 at September 30, 2000.
At September 30, 2000 borrowings consisted of securities sold under
agreement to repurchase as follows:
o $ 9,000,000 from the Federal Home Loan Bank maturing within 30 days;
o $14,081,000 from an investment bank maturing within 60 days;
o $13,589,000 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.
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 $14,866,000 in investment securities at September 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.
19
<PAGE>
CAPITAL ADEQUACY
At September 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 September 30, 2000, we exceeded all regulatory
requirements and are classified as "well" capitalized.
CAPITAL COMPONENTS
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
(Dollars in thousands)
Tier I
Shareholders' equity $ 14,588 $ 12,647
Allowable portion of minority
interest in equity
of subsidiary 6,420 5,846
Net unrealized security losses 4,665 4,891
-------- --------
Total Tier I Capital $ 25,673 $ 23,384
======== ========
Tier II
Allowable portion of minority
interest in equity
of subsidiary $ 3,580 $ 4,154
Allowable portion of the
allowance for loan losses 2,905 2,511
Allowable portion of
subordinated debt 1,500 1,500
-------- --------
Total Tier II Capital $ 7,985 $ 8,165
======== ========
Total Capital $ 33,658 $ 31,549
Risk-weighted assets $274,401 $241,357
CAPITAL RATIOS
<TABLE>
<CAPTION>
"ADEQUATELY" "WELL"
SEPTEMBER 30, DECEMBER 31, CAPITALIZED CAPITALIZED
2000 1999 RATIOS RATIOS
------------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Total risk-based capital/
risk-weighted assets 12.27% 13.07% 8.00% 10.00%
Tier I capital/risk-weighted assets 9.36% 9.69% 4.00% 6.00%
Tier I capital/average
assets (leverage ratio) 7.48% 7.33% 4.00% 5.00%
</TABLE>
20
<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 nine months ended September 30, 2000, operating and financing
activities provided cash and cash equivalents of $2,956,000 and
$37,857,000, respectively, while investing activities used $25,278,000.
The cash provided by financing activities resulted primarily from a
$53,648,000 increase in deposits. This increase in deposits was mostly due
to promotions of 9 and 23 month certificates of deposit. This cash was
primarily used for loan originations and the repayment of borrowings. For
the nine months ended September 30, 2000, loans grew $28,071,000 while
borrowings decreased $15,867,000. Investments decreased $4,051,000,
exclusive of the change in unrealized losses on securities available for
sale.
For the nine months ended September 30, 1999, operating and financing
activities provided cash and cash equivalents of $4,318,000 and
$62,889,000, respectively, while investing activities used $66,300,000.
The cash provided by financing activities resulted from an increase in
deposits and borrowings and the issuance of common stock. Deposits and
borrowings grew $28,029,000 and $31,981,000, 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.
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; $29,002,000
borrowing limit at the Federal Home Loan Bank of Pittsburgh. The bank
could also sell or borrow against certain investment securities. At
September 30, 2000, the bank had $9,000,000 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 September 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.
21
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Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
In September 2000, the FASB issued SFAS No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities." The statement supercedes and replaces the guidance in
Statement 125. It revises the standards for accounting for securitizations
and other transfers of financial assets and collateral and requires certain
disclosures, although it carries over most of Statement 125's provisions
without reconsideration. The Statement is effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring
after March 31, 2001 and for recognition and reclassification of collateral
and for disclosures relating to securitization transactions and collateral
for fiscal years ending December 15, 2000. This Statement is to be applied
prospectively with certain exceptions. Other than those exceptions, earlier
or retroactive application of its accounting provisions is not permitted.
We have not determined the impact, if any, of this statement on our
financial condition, results of operation, equity, or disclosure.
22
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 -- LEGAL PROCEEDINGS
At September 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
None.
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:
3(i) Articles of Incorporation.
3(ii) By-Laws.
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).
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).
23
<PAGE>
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
27.1 Financial Data Schedule.
27.2 Restated Financial Data Schedule.
(b) Reports on Form 8-K
None.
24
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act
of 1934, the registrant caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
PREMIER BANCORP, INC.
(Registrant)
DATE SIGNATURE
---- ---------
November 14, 2000 /s/ John C. Soffronoff
----------------------
John C. Soffronoff
President, Chief Executive Officer, Director
(Principal Executive Officer)
November 14, 2000 /s/ Bruce E. Sickel
-------------------
Bruce E. Sickel
Chief Financial Officer, Director
(Principal Financial Officer)
25
<PAGE>
INDEX OF EXHIBITS
Page
3(i) Articles of Incorporation. 27
3(ii) By-Laws. 30
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. 50
27.2 Restated Financial Data Schedule. 51
Incorporated by reference.
26
