SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarter ended March 31, 2000
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OR
(x) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ___________
Commission File 333-78445
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PENNSYLVANIA COMMERCE BANCORP, INC.
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(Exact name of small business issuer as specified in its charter)
Pennsylvania 25-1834776
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(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) Number)
100 Senate Avenue, P.O. Box 8599, Camp Hill, PA 17001-8599
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(Address of principal executive offices)
(717) 975-5630
------------------------------
(Issuer's telephone number)
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 ___
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:
1,651,350 Common shares outstanding at 4/27/00
- ----------------------------------------------
Transitional Small Business Disclosure Format (check one): Yes __ No X
<PAGE>
PENNSYLVANIA COMMERCE BANCORP, INC.
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets (Unaudited).............................3
March 31, 2000, and December 31, 1999
Consolidated Statements of Income (Unaudited).......................4
Three months ended March 31, 2000 and March 31, 1999
Consolidated Statement of Stockholders' Equity (Unaudited).........5
Three months ended March 31, 2000 and March 31, 1999
Consolidated Statements of Cash Flows (Unaudited)...................6
Three months ended March 31, 2000, and March 31, 1999
Notes to Consolidated Financial Statements (Unaudited)..............7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...........................................9
Item 3. Quantitative and Qualitative Disclosures about Market Risk.........17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..................................................18
Item 6a. Exhibits
Exhibit 11.........................................................18
Exhibit 27.........................................................18
Item 6b. Reports on Form 8-K................................................18
Signatures.........................................................19
2
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<TABLE>
<CAPTION>
Pennsylvania Commerce Bancorp, Inc. Consolidated Balance Sheets (Unaudited)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
March 31, December 31,
( in thousands, except share amounts) 2000 1999
- -------------------------------------------------------------------------------------------------------------------------------
Assets Cash and due from banks $ 15,396 $ 27,490
Federal funds sold 3,875 0
------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 19,271 27,490
Securities, available for sale at fair value 83,510 84,652
Securities, held to maturity at cost
(fair value 2000: $32,363; 1999: $27,877 ) 33,528 29,039
Loans, held for sale
(fair value 2000: $2,242; 1999: $5,380 ) 2,209 5,301
Loans receivable :
Real estate:
Commercial mortgage 107,171 101,550
Construction and land development 23,302 18,458
Residential mortgage 37,223 34,681
Tax-exempt 834 342
Commercial business 24,536 21,228
Consumer 23,175 22,764
Lines of credit 18,511 17,082
------------------------------------------------------------------------------------------------------------
234,752 216,105
Less: Allowance for loan losses 3,098 2,841
------------------------------------------------------------------------------------------------------------
Net loans receivable 231,654 213,264
Premises and equipment, net 14,584 14,408
Accrued interest receivable 2,024 2,105
Other assets 3,157 2,654
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Total assets $ 389,937 $ 378,913
- -------------------------------------------------------------------------------------------------------------------------------
Liabilities Deposits :
Noninterest-bearing $ 75,698 $ 69,495
Interest-bearing 290,605 279,051
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Total deposits 366,303 348,546
Accrued interest payable 629 567
Other liabilities 1,702 1,122
Other borrowed money 0 8,300
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Total liabilities 368,634 358,535
- -------------------------------------------------------------------------------------------------------------------------------
Stockholders' Preferred stock - Series A noncumulative;
Equity $10.00 par value; 1,000,000 shares authorized;
40,000 shares issued and outstanding 400 400
Common stock - $1.00 par value; 10,000,000 shares authorized;
issued and outstanding - 2000: 1,651,349; 1999: 1,644,523 1,651 1,644
Surplus 18,275 18,196
Retained earnings 3,890 3,137
Accumulated other comprehensive income (loss) (2,913) (2,999)
------------------------------------------------------------------------------------------------------------
Total stockholders' equity 21,303 20,378
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Total liabilities and stockholders' equity $ 389,937 $ 378,913
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</TABLE>
See accompanying notes .
3
<PAGE>
<TABLE>
<CAPTION>
Pennsylvania Commerce Bancorp, Inc.
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Three Months
Ended March 31,
-------------------------
(in thousands, except per share amounts) 2000 1999
- --------------------------------------------------------------------------------------------------------------------
Interest Loans receivable, including fees :
Income Taxable $ 4,865 $ 3,778
Tax - exempt 10 5
Securities :
Taxable 1,943 1,672
Tax - exempt 2 0
Federal funds sold 18 126
-------------------------------------------------------------------------------------------------
Total interest income 6,838 5,581
- --------------------------------------------------------------------------------------------------------------------
Interest Deposits 2,826 2,281
Expense Other 37 3
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Total interest expense 2,863 2,284
-------------------------------------------------------------------------------------------------
Net interest income 3,975 3,297
Provision for loan losses 255 180
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Net interest income after provision for loan losses 3,720 3,117
- --------------------------------------------------------------------------------------------------------------------
Noninterest Service charges and other fees 976 787
Income Other 107 77
Gain on sale of securities available for sale 0 1
Other real estate (net) 0 1
Gain on sale of loans 112 228
-------------------------------------------------------------------------------------------------
Total noninterest income 1,195 1,094
- --------------------------------------------------------------------------------------------------------------------
Noninterest Salaries and employee benefits 1,714 1,392
Expenses Occupancy 417 414
Furniture and equipment 247 222
Advertising and marketing 420 345
Data processing 197 224
Postage and supplies 159 139
Audits , regulatory fees and assessments 84 57
Other 502 493
-------------------------------------------------------------------------------------------------
Total noninterest expenses 3,740 3,286
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Income before income taxes 1,175 925
Provision for federal income taxes 402 316
-------------------------------------------------------------------------------------------------
Net income $ 773 $ 609
- --------------------------------------------------------------------------------------------------------------------
Net income per common share : Basic $ 0.46 $ 0.36
Diluted 0.43 0.33
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
4
<PAGE>
<TABLE>
<CAPTION>
Pennsylvania Commerce Bancorp, Inc. Consolidated Statement of Stockholders' Equity (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulated
Other
Preferred Common Retained Comprehensive
( in thousands ) Stock Stock Surplus Earnings Income (Loss) Total
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<S> <C> <C> <C> <C> <C> <C>
Balance : December 31, 1998 $ 400 $ 1,557 $ 16,728 $ 1,546 $ 214 $ 20,445
Comprehensive income:
Net income -- -- -- 609 -- 609
Change in unrealized gains
(losses) on securities, net of
reclassification adjustment -- -- -- -- (447) (447)
--------
Total comprehensive income 162
Dividends declared on preferred stock -- -- -- (20) -- (20)
Common stock issued under stock
option plans -- -- -- -- -- --
Common stock issued under employee
stock purchase plan -- -- -- -- -- --
Proceeds from issuance of common
stock in connection with dividend
reinvestment and stock purchase plan -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Balance : March 31, 1999 400 1,557 16,728 2,135 (233) 20,587
===================================================================================================================================
- -----------------------------------------------------------------------------------------------------------------------------------
Accumulated
Other
Preferred Common Retained Comprehensive
( in thousands ) Stock Stock Surplus Earnings Income (Loss) Total
- -----------------------------------------------------------------------------------------------------------------------------------
Balance : December 31, 1999 $ 400 $ 1,644 $ 18,196 $ 3,137 $ (2,999) $ 20,378
Comprehensive income:
Net income -- -- -- 773 -- 773
Change in unrealized gains
(losses) on securities, net of
reclassification adjustment -- -- -- -- 86 86
--------
Total comprehensive income 859
Dividends declared on preferred stock -- -- -- (20) -- (20)
Common stock issued under stock
option plans -- 4 21 -- -- 25
Common stock issued under employee
stock purchase plan -- -- 3 -- -- 3
Proceeds from issuance of common
stock in connection with dividend
reinvestment and stock purchase plan -- 3 55 -- -- 58
- -----------------------------------------------------------------------------------------------------------------------------------
Balance : March 31, 2000 400 1,651 18,275 3,890 (2,913) 21,303
===================================================================================================================================
</TABLE>
See accompanying notes.
5
<PAGE>
<TABLE>
<CAPTION>
Pennsylvania Commerce Bancorp, Inc. Consolidated Statements of Cash Flows (Unaudited)
- -------------------------------------------------------------------------------------------------------------------------------
Three Months Ended
March 31,
( in thousands ) 2000 1999
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating
Activities Net income $ 773 $ 609
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 255 180
Provision for depreciation and amortization 270 281
Deferred income taxes (127) (75)
Amortization of securities premiums and accretion of discounts, net 52 95
Net (gain) on sale of securities available for sale 0 (1)
Net proceeds from sale of loans 8,325 18,360
Loans originated for sale (5,135) (14,830)
Gain on sales of loans and other real estate owned (111) (229)
Stock granted under stock purchase plan 3 0
Increase (decrease) in accrued interest receivable and other assets (339) 277
Increase in accrued interest payable and other liabilities 642 2,475
------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 4,608 7,142
- -------------------------------------------------------------------------------------------------------------------------------
Investing
Activities Securities held to maturity :
Proceeds from principal repayments and maturities 460 671
Purchases (4,955) (6,109)
Securities available for sale :
Proceeds from principal repayments and maturities 1,226 5,845
Proceeds from sales 0 5,357
Purchases 0 (9,112)
Proceeds from sale of loans receivable 376 0
Net increase in loans receivable (19,008) (11,993)
Purchases of premises and equipment (446) (456)
------------------------------------------------------------------------------------------------------------
Net cash (used) by investing activities (22,347) (15,797)
- -------------------------------------------------------------------------------------------------------------------------------
Financing
Activities Net increase in demand deposits, interest checking,
money market and savings deposits 26,765 9,543
Net increase (decrease) in time deposits (9,008) 5,435
Increase (Decrease) in borrowed money (8,300) 0
Proceeds from common stock options exercised 25 0
Proceeds from common stock purchase and dividend reinvestment plans 58 0
Cash dividends on preferred stock (20) (20)
------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 9,520 14,958
------------------------------------------------------------------------------------------------------------
(Decrease) increase in cash and cash equivalents (8,219) 6,303
Cash and cash equivalents at beginning of year 27,490 23,875
------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 19,271 $ 30,178
------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
6
<PAGE>
PENNSYLVANIA COMMERCE BANCORP, INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
(Unaudited)
Note 1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Pennsylvania
Commerce Bancorp, Inc. ("the Company") and it's wholly-owned subsidiary Commerce
Bank/Harrisburg, N.A. ("the Bank"). All material intercompany accounts and
transactions have been eliminated. Currently, the only asset of the Company is
its investment in the Bank.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included and are of a normal,
recurring nature. Operating results for the three month period ended March 31,
2000, are not necessarily indicative of the results that may be expected for the
year ended December 31, 2000.
In addition to historical information, this Form 10-Q Report contains
forward-looking statements. The forward-looking statements contained herein are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those projected in the forward-looking statements.
Important factors that might cause such differences include, but are not limited
to, those discussed in the section entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations". Readers are
cautioned not to place undue reliance on these forward-looking statements, which
reflect management's analysis only as of the date hereof. The Company undertakes
no obligation to publicly revise or update these forward-looking statements to
reflect events or circumstances that arise after the date hereof. Readers should
carefully review the risk factors described in other documents the Company files
from time to time with the Securities and Exchange Commission.
For further information, refer to the financial statements and footnotes thereto
included in the Pennsylvania Commerce Bancorp, Inc., Annual Report for the year
ended December 31, 1999.
Note 2. SIGNIFICANT ACCOUNTING POLICIES
Stock Dividends and Per Share Data
On January 21, 2000, the Board of Directors declared a 5% stock dividend on
common stock outstanding, paid on February 18, 2000, to stockholders of record
on February 4, 2000. Payment of the stock dividend resulted in the issuance of
78,342 additional common shares and cash of $3,250 in lieu of fractional shares.
The effect of the 5% common stock dividend has been recorded as of December 31,
1999.
Recently Issued FASB Statement
In July 1999, the Financial Accounting Standards Board issued Statement No. 137,
"Accounting
7
<PAGE>
for Derivative Instruments and Hedging Activities - Deferral of the Effective
Date of FASB Statement No. 133 - an amendment of FASB Statement No. 133."
Statement No. 137 delays the effective date required for adoption of Statement
No. 133 by one year. Therefore, the Company is required to adopt the statement
on January 1, 2001. The adoption of the statement is not expected to have a
significant impact on the financial condition or results of operations of the
Company.
Note 3. COMMITMENTS AND CONTINGENCIES
The Company is subject to certain legal proceedings and claims arising in the
ordinary course of business. It is management's opinion that the ultimate
resolution of these claims will not have a material adverse effect on the
Company's financial position and results of operations.
Future Branch Facilities
The Company entered into an agreement to purchase the parcel of land at 1120
Carlisle Road, Camp Hill, Pennsylvania, and is currently constructing a
full-service branch office on this land.
The Company has entered into a land lease for the premises located on lot #2, in
Palmyra Shopping Center, on Route #422 in Palmyra, Pennsylvania. The Company
intends to construct a full-service branch office on this land in the year 2000.
The land lease commenced September 13, 1999 and has an initial term of 20 years.
In addition, the Company has an option to renew the land lease for four
additional 5-year terms. Initial annual rent payments equal $60,000 and will
commence on the opening of the branch for business. Rent is subject to change on
terms set forth in the lease agreement.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations analyzes the major elements of the Company's balance sheets and
statements of income. This section should be read in conjunction with the
Company's financial statements and accompanying notes.
OVERVIEW
Net income for the quarter increased 27% to $773,000 as compared to $609,000 for
the first quarter of 1999 and total revenues increased by 18% to $5.2 million
for the quarter. Diluted net income per common share increased 30% to $0.43 from
$0.33 per share in the first quarter a year ago (after adjusting for a 5% common
stock dividend paid in February 2000). At March 31, 2000, the Company had total
assets of $389.9 million, total loans (including loans held for sale) of $236.9
million, and total deposits of $366.3 million.
RESULTS OF OPERATIONS
Net Interest Income and Net Interest Margin
The largest source of the Company's income is net interest income. Net interest
income is the difference between interest income earned on assets and interest
expense incurred on liabilities used to fund those assets. Interest earning
assets primarily include loans and securities. The principal source of funding
for such assets is deposits.
Interest income increased by $1.3 million, or 22%, over the first quarter of
1999. Interest earning assets averaged $343.7 million for the first quarter of
2000 as compared to $295.3 million for the same period in 1999. Approximately
$44.9 million, or 93%, of this increase was in average loans outstanding. The
yield on earning assets for the first quarter of 2000 was 8.00%, an increase of
34 basis points from the comparable period in 1999.
Interest expense for the first quarter of 2000 increased by $579,000, or 25%,
compared to the first quarter of 1999. This increase was primarily attributable
to an increase in the level of average interest-bearing liabilities from $242.7
million during the first quarter of 1999 to $283.2 million during the first
quarter of 2000. Average savings deposits increased $20.9 million over first
quarter a year ago, average public funds deposits increased $13.9 million and
average non interest bearing demand deposits increased by $8.5 million, while
average time deposits (excluding public funds) decreased slightly by $2.3
million. The average rate paid on these liabilities for the first quarter of
2000 was 4.07%, an increase of 25 basis points from the comparable period in
1999. The Company's aggregate cost of funds was 3.35% for the first quarter of
2000, an increase of 21 basis points over the prior year.
Net interest income for the first quarter of 2000 increased by $678,000, or 21%,
over the same period in 1999. Changes in net interest income are frequently
measured by two statistics: net interest rate spread and net interest margin.
Net interest rate spread is the difference between the average rate earned on
earning assets and the average rate incurred on interest-bearing liabilities.
Net interest margin represents the difference between interest income, including
net loan fees earned, and interest expense, reflected as a percentage of average
earning assets. The Company's
9
<PAGE>
net interest rate spread increased to 3.93% during the first quarter of 2000
from 3.84% during the same period of the previous year. The net interest margin
increased by 12 basis points from 4.52% for the first quarter 1999 to 4.64%
during the first quarter of 2000.
Noninterest Income
Noninterest income for the first quarter of 2000 increased by $101,000, or 9%,
from the same period in 1999. Recurring core noninterest income increased by 19%
from $907,000 in the first quarter of 1999 to $1.1 million for the same period
in 2000. The increase is attributable to service charges and fees associated
with servicing a higher volume of deposit accounts and visa check card
transactions.
Included in noninterest income for the first three months of 2000 is
nonrecurring income of $101,000 as a result of a $88,000 gain on the sale of
student loans and $13,000 income from the sale of Small Business Administration
loans. Included in noninterest income for the first three months of 1999 is
nonrecurring income of $187,000, comprised of a $106,000 gain on the sale of
student loans, net securities gains of $1,000, a $1,000 gain (net of expense)
from the sale of Other Real Estate Owned (OREO), and $79,000 income from the
sale of Small Business Administration loans.
Noninterest Expenses
For the first quarter of 2000, noninterest expenses increased by $454,000, or
14%, over the same period in 1999. Staffing levels and related expenses
increased as a result of servicing more deposit and loan customers and
processing a higher volume of transactions. A comparison of noninterest expense
for certain categories for the three months ended March 31, 2000, and March 31,
1999, is presented in the following paragraphs.
Salary expenses and employee benefits, which represent the largest component of
noninterest expenses, increased by $322,000, or 23%, for the first quarter of
2000 over the first quarter of 1999. This increase is consistent with increases
in staff levels necessary to handle Company growth from first quarter 1999 to
first quarter 2000.
Occupancy and furniture & equipment expenses of $664,000 were $28,000, or 4%,
higher for the first quarter of 2000 than for the three months ended March 31,
1999.
Advertising and marketing expenses totaled $420,000 for the three months ended
March 31, 2000, an increase of $75,000, or 22%, over the first quarter of 1999.
This increase was primarily the result of increased advertising efforts in each
of the Company's markets. These markets will continue to expand as the branch
network grows.
Data processing expenses of $197,000 for the first quarter of 2000 were $27,000,
or 12%, less than the first quarter of 1999. The majority of the decrease was
due to a combination of a refund of $19,000 received for the first quarter check
card processing fees and decreased data processing services and proof supplies
of $5,000.
Postage and supplies expense of $159,000 represented a $20,000, or 14%, increase
from the first quarter of the prior year. This was due to increased usage of
stationery and supplies, and postage related to growth in volume of customers
and customer transactions.
Audits and regulatory fees increased by $27,000, or 47%, from $57,000 for the
first quarter of
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1999 to $84,000 for the first quarter of 2000. This increase is a result of
higher Federal Deposit Insurance Corporation (FDIC) and Office of the
Comptroller of the Currency (OCC) assessments, both of which are calculated on
levels of deposits. Another contributing factor for the increase is the
additional requirements for reporting necessary for a Bank Holding Company,
which was formed on July 1, 1999.
One key measure used to monitor progress in controlling overhead expenses is the
ratio of net noninterest expenses to average assets. Net noninterest expenses
equal noninterest expenses (excluding other real estate expenses) less
noninterest income (exclusive of nonrecurring gains), divided by average assets.
This ratio equaled 3.16% for the three months ended March 31, 2000, slightly
less than 3.17% for the three months ended March 31, 1999. Another productivity
measure is the operating efficiency ratio. This ratio expresses the relationship
of noninterest expenses (excluding other real estate expenses) to net interest
income plus noninterest income (excluding nonrecurring gains). For the quarter
ended March 31, 2000, the operating efficiency ratio was 73.8% compared to 77.9%
for the similar period in 1999.
Provision for Federal Income Taxes
The provision for federal income taxes was $402,000 for the first quarter of
2000 as compared to $316,000 for the same period in 1999. The effective tax
rate, which is the ratio of income tax expense to income before income taxes,
was 34% for the first three months of 1999 and 2000.
Net Income
Net income for the first quarter of 2000 was $773,000, an increase of $164,000,
or 27%, over the $609,000 recorded in the first quarter of 1999. The increase
was due to an increase in net interest income of $678,000, an increase in
noninterest income of $101,000, offset partially by an increase in noninterest
expenses of $454,000, an increase of $75,000 in the provision for loan losses,
and an increase of $86,000 in the provision for income taxes.
Basic earnings per common share, after adjusting for a 5% common stock dividend
paid in February 2000, increased to $0.46 per common share for the first quarter
of 2000 compared to $0.36 for the same period in 1999. Diluted earnings per
common share were $0.43 for the first quarter of 2000 and $0.33 for the same
period in 1999.
Return on Average Assets and Average Equity
Return on average assets (ROA) measures the Company's net income in relation to
its total average assets. The Company's annualized ROA for the first quarter of
2000 was 0.83% as compared to 0.77% for the first quarter of 1999. For purposes
of calculating ROA, average assets have been adjusted to exclude gross
unrealized appreciation or depreciation on securities available for sale.
Return on average equity (ROE) indicates how effectively the Company can
generate net income on the capital invested by its stockholders. ROE is
calculated by dividing net income by average stockholders' equity. For purposes
of calculating ROE, average stockholders' equity includes the effect of
unrealized appreciation or depreciation, net of income taxes, on securities
available for sale. The annualized ROE for the first quarter of 2000 was 14.92%,
as compared to 12.06% for the first quarter of 1999.
11
<PAGE>
FINANCIAL CONDITION
Securities
During the first three months of 2000, securities available for sale decreased
by $1.1 million (net of unrealized appreciation) from $84.6 million at December
31, 1999 to $83.5 million at March 31, 2000 primarily as a result of $1.2
million in principal repayments on mortgage-backed securities and U.S.
Government agency securities offset by an unrealized gain of $86,000 in the
portfolio.
The securities available for sale portfolio is comprised of U.S. Treasury Notes,
U.S. Government agency securities, mortgage-backed securities, trust preferred
debt securities, and equity securities. The weighted average life of the
securities available for sale portfolio was 5.8 years at March 31, 2000 with a
weighted average yield of 6.67%.
During the first three months of 2000, securities held to maturity increased
from $29.0 million to $33.5 million primarily as a result of the purchase of
$5.0 million in tax-exempt and mortgage-backed securities, offset by principal
repayments of $460,000. The securities held in this portfolio include U.S.
Government agency securities, tax-exempt, and mortgage-backed securities. The
weighted average life of the securities held to maturity portfolio was 6.5 years
at March 31, 2000 with a weighted average yield of 6.70%.
Federal funds sold increased by $3.9 million during the first three months of
2000 from $0 at December 31, 1999 to $3.9 million at March 31, 2000. Total
securities and federal funds sold aggregated $120.9 million at March 31, 2000,
and represented 31% of total assets.
The average yield on the combined securities portfolio for the first three
months of 2000 was 6.67%, as compared to 6.50% for the similar period of 1999.
The average yield earned on federal funds sold during the first three months of
2000 was 5.79%, up 109 basis points from 4.70% earned during the first three
months of 1999. The large increase in the yield on federal funds sold is a
result of five 25 basis point increases in this rate by the Federal Reserve Bank
between June 30, 1999 and March 21, 2000.
Loans Held for Sale
Loans held for sale are comprised of student loans and residential mortgage
loans that the Company originates with the intention of selling in the future.
During the first three months of 2000, total loans held for sale decreased by
$3.1 million from $5.3 million at December 31, 1999, to $2.2 million at March
31, 2000. The decrease was the result of the sale of $6.5 million of student
loans offset by originations of $3.4 million in new loans held for sale. Loans
held for sale represented 1% of total assets at December 31, 1999, which
remained unchanged at March 31, 2000.
Loans Receivable
During the first three months of 2000, total loans receivable increased by $18.6
million from $216.1 million at December 31, 1999, to $234.8 million at March 31,
2000. Loans receivable represented 64% of total deposits and 60% of total assets
at March 31, 2000, as compared to 62% and 57%, respectively, at December 31,
1999.
Loan and Asset Quality and Allowance for Loan Losses
Total nonperforming assets (nonperforming loans and other real estate, excluding
loans past due 90 days or more and still accruing interest) at March 31, 2000,
were $574,000, or 0.15%, of total assets
12
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as compared to $696,000, or 0.18%, of total assets at December 31, 1999. Other
real estate owned totaled $12,000 at March 31, 2000, the same as December 31,
1999.
The following summary presents information regarding nonperforming loans and
assets as of March 31, 2000 and 1999 and the year ended December 31, 1999.
<TABLE>
<CAPTION>
Nonperforming Loans and Assets
(dollars in thousands) March 31, December 31, March 31,
2000 1999 1999
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nonaccrual loans:
Commercial $120 $119 $263
Consumer 230 244 44
Real estate:
Construction 0 0 30
Mortgage 212 321 132
- -------------------------------------------------------------------------------------
Total nonaccrual loans 562 684 469
Restructured loans 0 0 0
- -------------------------------------------------------------------------------------
Total nonperforming loans 562 684 469
Other real estate 12 12 12
- -------------------------------------------------------------------------------------
Total nonperforming assets 574 696 481
- -------------------------------------------------------------------------------------
Loans past due 90 days or more 0 20 77
- -------------------------------------------------------------------------------------
Total nonperforming assets and
Loans past due 90 days or more $574 $716 $558
- -------------------------------------------------------------------------------------
Nonperforming loans to total loans 0.24% 0.32% 0.26%
Nonperforming assets to total assets 0.15% 0.18% 0.14%
- -------------------------------------------------------------------------------------
</TABLE>
The following table sets forth information regarding the Company's provision and
allowance for loan losses.
<TABLE>
<CAPTION>
Allowance for Loan Losses
(dollars in thousands) March 31, December 31,
2000 1999
- -------------------------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of period $ 2,841 $ 2,232
Provisions charged to operating expenses 255 762
- -------------------------------------------------------------------------------------
3,096 2,994
Recoveries of loans previously charged-off:
Commercial 3 8
Consumer 5 4
Real estate 0 1
- -------------------------------------------------------------------------------------
Total recoveries 8 13
Loans charged-off:
Commercial 0 150
Consumer 6 10
Real estate 0 6
- -------------------------------------------------------------------------------------
Total charged-off 6 166
- -------------------------------------------------------------------------------------
Net charge-offs (recoveries) (2) 153
- -------------------------------------------------------------------------------------
Balance at end of period $ 3,098 $ 2,841
- -------------------------------------------------------------------------------------
Net charge-offs (recoveries) as a percentage of
Average loans outstanding 0.00% 0.08%
Allowance for loan losses as a percentage of
Period-end loans 1.32% 1.31%
- -------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
Deposits
Total deposits at March 31, 2000, were $366.3 million, up $17.8 million, or 5%,
over total deposits of $348.5 million at December 31, 1999. The average balances
and weighted average rates paid on deposits for the first three months of 2000
and 1999 are presented in the following table.
- -------------------------------------------------------------------------------
Three months Ended March 31,
2000 1999
- -------------------------------------------------------------------------------
Average Average Average Average
(dollars in thousands) Balance Rate Balance Rate
- -------------------------------------------------------------------------------
Demand deposits:
Noninterest-bearing $ 65,464 $ 56,993
Interest-bearing (money 68,401 2.83% 54,274 2.34%
market and checking)
Savings 94,128 3.58 73,235 2.74
Time deposits 118,081 5.05 114,961 5.08
- -------------------------------------------------------------------------------
Total deposits $ 346,074 $ 299,463
- -------------------------------------------------------------------------------
Interest Rate Sensitivity
The management of interest rate sensitivity seeks to avoid fluctuating net
interest margins and to provide consistent net interest income through periods
of changing interest rates.
The Company's risk of loss arising from adverse changes in the fair value of
financial instruments, or market risk, is composed primarily of interest rate
risk. The primary objective of the Company's asset/liability management
activities is to maximize net interest income while maintaining acceptable
levels of interest rate risk. The Company's Asset/Liability Committee (ALCO) is
responsible for establishing policies to limit exposure to interest rate risk,
and to ensure procedures are established to monitor compliance with those
policies. The guidelines established by ALCO are reviewed by the Company's Board
of Directors.
An interest rate sensitive asset or liability is one that, within a defined
period, either matures or experiences an interest rate change in line with
general market interest rates. Historically, the most common method of
estimating interest rate risk was to measure the maturity and repricing
relationships between interest-earning assets and interest-bearing liabilities
at specific points in time (GAP), typically one year. Under this method, a
company is considered liability sensitive when the amount of its
interest-bearing liabilities exceeds the amount of its interest-earning assets
within the one year horizon. However, assets and liabilities with similar
repricing characteristics may not reprice at the same time or to the same
degree. As a result, the Company's GAP does not necessarily predict the impact
of changes in general levels of interest rates on net interest income.
Management believes the simulation of net interest income in different interest
rate environments provides a more meaningful measure of interest rate risk.
Income simulation analysis captures not only the potential of all assets and
liabilities to mature or reprice, but also the probability that they will do so.
Income simulation also attends to the relative interest rate sensitivities of
these items, and projects their behavior over an extended period of time.
Finally, income simulation permits management to assess the probable effects on
the balance sheet not only of changes in interest rates, but also of proposed
strategies for responding to them.
14
<PAGE>
The Company's income simulation model analyzes interest rate sensitivity by
projecting net interest income over the next 24 months in a flat rate scenario
versus net income in alternative interest rate scenarios. Management continually
reviews and refines its interest rate risk management process in response to the
changing economic climate. Currently, the Company's model projects a
proportionate 200 basis point change during the next year, with rates remaining
constant in the second year.
The Company's ALCO policy has established that income sensitivity will be
considered acceptable if overall net income volatility in a plus or minus 200
basis point scenario is within 15% of net income in a flat rate scenario in the
first year and 30% using a two year planning window. At March 31, 2000, the
Company's income simulation model indicates changes in net income in the first
year and over a two year time frame, respectively would be well within the
acceptable limits per the policies as established by the Company's ALCO if rates
increased or decreased as described above.
Management also monitors interest rate risk by utilizing a market value of
equity model. The model assesses the impact of a change in interest rates on the
market value of all the Company's assets and liabilities, as well as any off
balance sheet items. The model calculates the market value of the Company's
assets and liabilities in excess of book value in the current rate scenario, and
then compares the excess of market value over book value given an immediate 200
basis point change in rates. The Company's ALCO policy indicates that the level
of interest rate risk is unacceptable if the immediate 200 basis point change
would result in the loss of 60% or more of the excess of market value over book
value in the current rate scenario. At March 31, 2000, the market value of
equity model indicates an acceptable level of interest rate risk.
Liquidity
Liquidity management involves the ability to generate cash or otherwise obtain
funds at reasonable rates to support asset growth and reduce assets to meet
deposit withdrawals, to maintain reserve requirements, and to otherwise operate
the Company on an ongoing basis. Liquidity needs are generally met by converting
assets into cash or obtaining sources of additional funding, mainly deposits.
Liquidity sources from asset categories are provided primarily by cash and
federal funds sold, and the cash flow from the amortizing securities and loan
portfolios. The primary source of liquidity from liability categories is the
generation of additional core deposit balances.
Additionally, the Company has established secondary sources of liquidity
consisting of federal funds lines of credit, repurchase agreements, and
borrowing capacity at the Federal Home Loan Bank, which can be drawn upon if
needed. As of March 31, 2000, the total potential liquidity for the Company
through these secondary sources was $139 million. In view of the primary and
secondary sources as previously mentioned, management believes that the Company
is capable of meeting its anticipated liquidity needs.
Capital Adequacy
At March 31, 2000, stockholders' equity totaled $21.3 million, up 4.5% over
stockholders' equity
15
<PAGE>
of $20.4 million at December 31, 1999. Stockholders' equity at March 31, 2000
included $2.9 million in unrealized depreciation, net of income taxes, on
securities available for sale. Excluding this unrealized depreciation, gross
stockholders' equity increased by $839,000 from $23.4 million at December 31,
1999, to $24.2 million at March 31, 2000 due principally to retained net income.
Risk-based capital provides the basis for which all banks are evaluated in terms
of capital adequacy. The risk-based capital standards require all banks to have
Tier 1 capital of at least 4% and total capital, including Tier 1 capital, of at
least 8% of risk-adjusted assets. Tier 1 capital includes common stockholders'
equity and qualifying perpetual preferred stock together with related surpluses
and retained earnings. Total capital may be comprised of total Tier 1 capital
plus limited life preferred stock, qualifying debt instruments, and the
allowance for loan losses.
The table below provides a comparison of the Bank's risk-based capital ratios
and leverage ratios to the minimum regulatory requirements for the periods
indicated:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
=====================================================================================================
March 31, December 31, For Capital To Be Well Capitalized
2000 1999 Adequacy Under Prompt
Purposes Corrective Action
Provisions
- -----------------------------------------------------------------------------------------------------
Risk-Based Capital Ratios:
Tier 1 9.33% 9.91% 4.00% 6.00%
Total 10.52 11.12 8.00 10.00
Leverage Total 6.46 6.28 4.00 5.00
=====================================================================================================
</TABLE>
At March 31, 2000, the consolidated capital levels of the Company and of the
subsidiary bank (Commerce) met the definition of a "well capitalized"
institution.
Year 2000
Over the past two years, the Company has described and reported on the progress
of its plans to be ready for the Year 2000 date change. In 1999, the Company
completed all necessary remediation and testing of systems. As a result of the
detailed planning and implementation efforts, we are pleased to report the
Company experienced no disruptions in mission critical or non-mission critical
information and technology systems, and believe those systems successfully
responded to the Year 2000 date change. The Company is not aware of any problems
resulting from Year 2000 issues, either with its internal systems or the
products and services of third parties (including loan and deposit customers).
The total cost of the entire Year 2000 compliance process, including internal
and external personnel and any required hardware or software modifications was
approximately $100,000.
Forward-Looking Statements
The Company may, from time to time, make written or oral "forward-looking
statements, " including statements contained in the Company's filings with the
Securities and Exchange Commission (including the annual report and Form 10-K
and the exhibits hereto and thereto), in its reports to stockholders and in
other communications by the Company, which are made in good faith by
16
<PAGE>
the Company pursuant to the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995.
These forward-looking statements include statements with respect to the
Company's beliefs, plans, objectives, goals, expectations, anticipations,
estimates, and intentions, that are subject to significant risks and
uncertainties and are subject to change based on various factors (some of which
are beyond the Company's control). The words may, could, should, would, believe,
anticipate, estimate, expect, intend, plan, and similar expressions are intended
to identify forward-looking statements. The following factors, among others
could cause the Company's financial performance to differ materially from that
expressed in such forward-looking statements: the strength of the United States
economy in general and the strength of the local economies in which the Company
conducts operations; the effects of, and changes in, trade, monetary and fiscal
policy, including interest rate policies of the Board of the Federal Reserve
System; inflation; interest rate, market and monetary fluctuations; the timely
development of competitive new products and services by the Company and the
acceptance of such products and services by customers; the willingness of
customers to substitute competitors' products and services and vice versa; the
impact of changes in financial services laws and regulations (including laws
concerning taxes, banking, securities, and insurance); technological changes;
future acquistions; the expense savings and revenue enhancements from
acquisitions being less than expected; the growth and profitability of the
Company's noninterest or fee income being less than expected; unanticipated
regulatory or judicial proceedings; changes in consumer spending and saving
habits; and the success of the Company at managing the risks involved in the
foregoing.
The Company cautions that the foregoing list of important factors is not
exclusive. The Company does not undertake to update any forward-looking
statements, whether written or oral, that may be made from time to time by or on
behalf of the Company.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company's exposure to market risk has not changed significantly since
December 31, 1999. The market risk principally includes interest rate risk,
which is discussed in the Management's Discussion and Analysis above.
17
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is also subject to certain legal proceedings and claims arising in
the ordinary course of business. It is management's opinion that the ultimate
resolution of these claims will not have a material adverse effect on the
Company's financial position and results of operations.
Item 6. Exhibits and Reports on Form 8-K
(a.) Exhibits
Computation of Net Income Per Share.............................Exhibit 11
Financial Data Schedule.........................................Exhibit 27
(b.) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended March 31,
2000.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Exhibit 11. Pennsylvania Commerce Bancorp, Inc.
Consolidated Computation of Net Income Per Share
- ---------------------------------------------------------------------------------------------------
For the Quarter Ended March 31, 2000
- ---------------------------------------------------------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
- ---------------------------------------------------------------------------------------------------
Basic Earnings Per Share
Net income $773,000
Preferred stock dividends (20,000)
--------
Income available to common stockholders 753,000 1,648,773 $0.46
- ---------------------------------------------------------------------------------------------------
Effect of Dilutive Securities
Stock Options 105,318
-------
Diluted Earnings Per Share
Income available to common stockholders plus
assumed conversions $753,000 1,756,667 $0.43
- ---------------------------------------------------------------------------------------------------
For the Quarter Ended March 31, 1999
- ---------------------------------------------------------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
- ---------------------------------------------------------------------------------------------------
Basic Earnings Per Share
Net income $609,000
Preferred stock dividends (20,000)
--------
Income available to common stockholders 589,000 1,635,244 $0.36
- ---------------------------------------------------------------------------------------------------
Effect of Dilutive Securities
Stock Options 133,784
-------
Diluted Earnings Per Share
Income available to common stockholders plus
assumed conversions $589,000 1,769,028 $0.33
- ---------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf be the
undersigned thereunto duly authorized.
PENNSYLVANIA COMMERCE BANCORP, INC.
(Registrant)
5/12/00 /s/ James T. Gibson
- ------------------------- --------------------------------------
(Date) James T. Gibson
President/CEO
5/12/00 /s/ Mark A. Zody
- ------------------------- --------------------------------------
(Date) Mark A. Zody
Executive Vice President
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0001085706
<NAME> PENNSYLVANIA COMMERCE BANCORP INC
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-30-2000
<CASH> 15,396
<INT-BEARING-DEPOSITS> 290,605
<FED-FUNDS-SOLD> 3,875
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 83,510
<INVESTMENTS-CARRYING> 33,528
<INVESTMENTS-MARKET> 32,363
<LOANS> 234,752
<ALLOWANCE> 3,098
<TOTAL-ASSETS> 389,937
<DEPOSITS> 366,303
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,331
<LONG-TERM> 0
0
400
<COMMON> 1,651
<OTHER-SE> 19,252
<TOTAL-LIABILITIES-AND-EQUITY> 389,937
<INTEREST-LOAN> 4,875
<INTEREST-INVEST> 1,963
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 6,838
<INTEREST-DEPOSIT> 2,826
<INTEREST-EXPENSE> 2,863
<INTEREST-INCOME-NET> 3,975
<LOAN-LOSSES> 255
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,740
<INCOME-PRETAX> 1,175
<INCOME-PRE-EXTRAORDINARY> 1,175
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 773
<EPS-BASIC> .46
<EPS-DILUTED> .43
<YIELD-ACTUAL> 8.00
<LOANS-NON> 562
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 185
<ALLOWANCE-OPEN> 2,841
<CHARGE-OFFS> 6
<RECOVERIES> 8
<ALLOWANCE-CLOSE> 3,098
<ALLOWANCE-DOMESTIC> 3,098
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
