SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] Annual report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31,
1995, or
[ ] Transition report under Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period
from ____________ to ____________.
Commission File Number 0-14555.
FIRST LEESPORT BANCORP, INC.
(Name of Small Business Issuer in its Charter)
Pennsylvania 23-2354007
(State or Other Juris- (I.R.S. Employer
diction of Incorporation) Identification No.)
133 North Centre Avenue,
Leesport, Pennsylvania 19533
(Address of Principal Executive Offices)
Registrant's Telephone Number: (610) 926-2161
Securities registered under Section 12(b) of the Exchange Act:
Name of Each Exchange
Title of Each Class on Which Registered
NONE NONE
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $5.00 Par Value
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. ___.
Check if there is no disclosure of delinquent filers in response
to Item 405 of Regulation S-B contained herein, and no disclosure
will be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
Issuer's revenues for year ended December 31, 1995: $11,993,000.
As of March 22, 1996, the aggregate market value of the Common
Stock (based upon the average sales price on such date) of the
Registrant held by nonaffiliates was $18,741,680.
Number of Shares of Common Stock Outstanding at March 8, 1996:
1,191,171.
Portions of the registrant's definitive Proxy Statement prepared
in connection with its Annual Meeting of Stockholders to be held
on April 9, 1996 are incorporated in Part III hereof.
<PAGE>
PART I
Item 1. Business.
The Company.
First Leesport Bancorp, Inc. (the "Company") is a
Pennsylvania business corporation headquartered at 133 North
Centre Avenue, Leesport, Pennsylvania 19533. The Company was
organized as a bank holding company on January 1, 1986, with The
First National Bank of Leesport (the "Bank") as a wholly-owned
subsidiary of the Company. Presently, the Company functions
primarily as the holder of all the common stock of the Bank.
Although it does not have any present plans to do so, the Company
may acquire other subsidiaries in the future.
The Bank.
The Bank was incorporated under the laws of the United
States of America as a national bank in 1909. Since its
inception, the Bank has operated as a banking institution doing
business in Berks County, Pennsylvania. At December 31, 1995, the
Bank had total assets of $152.4 million, total stockholders'
equity of $16.2 million, and total deposits of $133.4 million.
The Bank currently has the equivalent of 78 full-time employees.
The Bank engages in a full service commercial and consumer
banking business, including such services as accepting deposits
in the form of time, demand and savings accounts. Such time
deposits include certificates of deposit, individual retirement
accounts, and club accounts. The savings accounts include money
market accounts, NOW plus accounts, and the traditional regular
savings accounts. In addition to accepting deposits, the Bank
makes both secured and unsecured commercial and consumer loans,
finances commercial transactions, makes construction and mortgage
loans, including home equity loans, issues credit cards, and
rents safe deposit facilities. The Bank also provides small
business loans and student loans. The Bank purchases certain of
the data processing services that it requires from Bisys, Inc., a
company based in Cherry Hill, New Jersey.
The Bank's main office is located at 133 North Centre
Avenue, Leesport, Pennsylvania. The Bank also provides services
to its customers through four full service offices located in
Blandon, Wyomissing Hills, Wernersville, and Reading,
Pennsylvania. All offices, except the Wernersville office,
provide drive-in facilities and automated teller machines. (See
"Properties.") The Bank also operates a loan production office
in Wyomissing, Pennsylvania.
Supervision and Regulation.
Securities Regulation
The Company is under the jurisdiction of the Securities and
Exchange Commission and of state securities commissions for
matters relating to the offering and sale of its securities. In
addition, the Company is subject to the Securities and Exchange
Commission's rules and regulations relating to periodic
reporting, proxy solicitation, and insider trading.
Bank Holding Company Regulation
The Company is registered as a bank holding company and is
subject to the regulations of the Federal Reserve Board under the
Bank Holding Company Act of 1956, as amended ("BHCA"). Bank
holding companies are required to file periodic reports with and
are subject to examination by the Federal Reserve Board. The
Federal Reserve Board has issued regulations under the BHCA that
require a bank holding company to serve as a source of financial
and managerial strength to its subsidiary banks. As a result,
the Federal Reserve Board, pursuant to such regulations, may
require the Company to stand ready to use its resources to
provide adequate capital funds to the Bank during periods of
financial stress or adversity.
The BHCA prohibits the Company from acquiring direct or
indirect control of more than 5% of the outstanding shares of any
class of voting stock or substantially all of the assets of any
bank or merging or consolidating with another bank holding
company without prior approval of the Federal Reserve Board.
Additionally, the BHCA prohibits the Company from engaging in or
from acquiring ownership or control of more than 5% of the
outstanding shares of any class of voting stock of any company
engaged in a nonbanking business unless such business is
determined by the Federal Reserve Board to be so closely related
to banking as to be a proper incident thereto. Under the BHCA,
the Federal Reserve Board has the authority to require a bank
holding company to terminate any activity or relinquish control
of a nonbank subsidiary (other than a nonbank subsidiary of a
bank) upon the Federal Reserve Board's determination that such
activity or control constitutes a serious risk to the financial
soundness and stability of any bank subsidiary of the bank
holding company.
Capital Adequacy Standards
Bank holding companies are required to comply with the
Federal Reserve Board's risk-based capital guidelines.
Currently, the required minimum ratio of total capital to risk-
weighted assets (including certain off-balance sheet activities,
such as standby letters of credit) is 8%. At least half of the
total capital is required to be Tier 1 capital, consisting
principally of common shareholders' equity, noncumulative
perpetual preferred stock, and minority interests in the equity
accounts of consolidated subsidiaries, less certain intangible
assets. The remainder ("Tier 2 capital") may consist of a
limited amount of subordinated debt and intermediate-term
preferred stock, certain hybrid capital instruments and other
debt securities, perpetual preferred stock, and a limited amount
of the general loan loss allowance. In addition to the risk-
based capital guidelines, the Federal Reserve Board requires each
bank holding company to comply with the leverage ratio, under
which the bank holding company must maintain a minimum level of
Tier 1 capital to average total consolidated assets of 3% for
those bank holding companies which have the highest regulatory
examination ratings and are not contemplating or experiencing
significant growth or expansion. All other bank holding
companies are expected to maintain a leverage ratio of at least
4% to 5%.
The risk-based capital guidelines are required to take
adequate account of interest rate risk, concentration of credit
risk, and risks of nontraditional activities. In August of 1995,
the Federal banking agencies, including the Federal Reserve Board
and the OCC, issued a rule modifying their existing risk-based
capital standards to provide for consideration of interest rate
risk when assessing the capital adequacy of an institution. This
new rule implements the first step of a two-step process by
explicitly including a bank's exposure to declines in the value
of its capital due to changes in interest rates as one factor
that the banking agencies will consider in evaluating a bank's
capital adequacy. The new rule does not establish a measurement
framework for assessing a bank's interest rate risk exposure
level. Examiners will use data collected by the banking agencies
to determine the adequacy of an individual bank's capital in
light of interest rate risk. Examiners will also consider
historical financial performance, earnings exposure to interest
rate movements and the adequacy of internal interest rate risk
management, among other things. This case-by-case approach for
assessing a bank's capital adequacy for interest rate risk is
transitional. The second step of the banking agencies' interest
rate risk regulation will be to establish an explicit minimum
capital charge for interest rate risk, based on measured levels
of interest rate risk exposure. The banking agencies will
implement this second step at some future date. The Corporation
is unable to predict the form in which these future regulations
will ultimately be adopted or the effect the new or anticipated
regulations would have on the operations and capital adequacy of
the Bank.
The federal bank regulators also adopted final rules
relating to concentration of credit risk and risks of
non-traditional activities effective on January 17, 1995. The
agencies declined to adopt a quantitative test for concentrations
of credit risk and, instead, provided that such risk would be
considered in addition to other risks in assessing an
institution's overall capital adequacy. Institutions with higher
concentration of credit risk will be required to maintain greater
levels of capital. Similarly, the federal banking agencies
incorporated the evaluation of the risks of nontraditional
activities into the overall assessment of capital adequacy. The
agencies also indicated that rules regarding specific types of
nontraditional activities will be promulgated from time to time.
Prompt Corrective Action
As required by the Federal Deposit Insurance Act, each
federal banking agency has specified the levels at which an
insured institution will be considered "well capitalized,"
"adequately capitalized," "undercapitalized," "significantly
undercapitalized" and "critically undercapitalized." Under these
regulations, a bank will be considered "well capitalized" if it
has (i) a total risk-based capital ratio of 10% or greater,
(ii) a Tier 1 risk-based capital ratio of 6% or greater, (iii) a
leverage ratio of 5% or greater and (iv) is not subject to any
order or written directive to meet and maintain a specific
capital level. An "adequately capitalized" bank is defined under
the regulations as one that has (i) a total risk-based capital
ratio of 8% or greater, (ii) a Tier 1 risk-based capital ratio of
4% or greater, (iii) a leverage ratio of 4% or greater (or 3% or
greater in the case of a bank with the highest composite
regulatory examination rating) and (iv) does not meet the
definition of a well capitalized bank. A bank will be considered
(A) "undercapitalized" if it has (i) a total risk-based capital
ratio of less than 8%, (ii) a Tier 1 risk-based capital ratio of
less than 4% or (iii) a leverage ratio of less than 4% (or 3% in
the case of a bank with the highest regulatory examination
rating); (B) "significantly undercapitalized" if the bank has
(i) a total risk-based capital ratio of less than 6%, (ii) a
Tier 1 risk-based capital ratio of less than 3% or (iii) a
leverage ratio of less than 3%; and (C) "critically
undercapitalized" if the bank has a ratio of tangible equity to
total assets of equal to or less than 2%. The applicable federal
bank regulator for a depository institution could, under certain
circumstances, reclassify a "well capitalized" institution as
"adequately capitalized" or require an "adequately capitalized"
or "undercapitalized" institution to comply with supervisory
actions as if it were in the next lower category. Such a
reclassification could be made if the regulatory agency
determines that the institution is in an unsafe or unsound
condition (which could include unsatisfactory examination
ratings).
Undercapitalized institutions, including significantly and
critically undercapitalized institutions, are required to submit
capital restoration plans to the appropriate federal banking
regulator and are subject to restrictions on operations,
including prohibitions on branching, engaging in new activities,
paying management fees, making capital distributions such as
dividends, and growing without regulatory approval. Moreover,
companies controlling undercapitalized depository institutions
will be required to guarantee their subsidiaries' compliance with
the capital restoration plan up to an amount equal to the lesser
of 5% of such an institution's assets or the amount of the
capital deficiency when such an institution first fails to meet
the plan. Loans to undercapitalized institutions from the
Federal Reserve Banks are generally restricted.
Regulation of the Bank
The operations of the Bank are subject to federal and state
statutes applicable to banks chartered under the banking laws of
the United States, to members of the Federal Reserve System, and
to banks whose deposits are insured by the FDIC. The Bank's
operations are also subject to regulations of the OCC, the Board,
and the FDIC.
The primary supervisory authority of the Bank is the OCC,
which regularly examines banks in such areas as reserves, loans,
investments, management practices, and other aspects of
operations. These examinations are designed for the protection
of the Bank's depositors rather than the Company's shareholders.
The Bank must furnish annual and quarterly reports to the OCC,
which has the regulatory authority to prevent a national bank
from engaging in an unsafe or unsound practice in conducting its
business.
Federal banking laws and regulations govern, among other
things, the scope of the Bank's business, the investments the
Bank may make, the reserves against deposits the Bank must
maintain, the types and terms of loans the Bank may make and the
collateral it may take, the activities of the Bank with respect
to mergers and consolidations, and the establishment of branches.
Under the National Bank Act, as amended, the Bank is not
permitted to pay dividends in an amount greater than its
"undivided profits then on hand." In addition, approval of the
OCC is required if the total of all dividends declared by the
Bank in one year would exceed the Bank's "net profits" for the
current year plus its retained profits for the two preceding
years. Pursuant to OCC regulations, the Bank is prohibited from
considering the allowance for loan and lease losses as an element
of either "undivided profits then on hand" or "net profits" when
calculating dividend-paying capacity. The prompt corrective
action rules, described above, also limit the ability of a bank
which is not classified as well capitalized or adequately
capitalized to pay dividends.
A subsidiary bank of a bank holding company, such as the
Bank, is subject to certain restrictions imposed by the Federal
Reserve Act on any extensions of credit to the bank holding
company or its subsidiaries, on investments in the stock or other
securities of the bank holding company or its subsidiaries, and
on taking such stock or securities as collateral for loans. The
Federal Reserve Act and Federal Reserve Board regulations also
place certain limitations and reporting requirements on
extensions of credit by a bank to the principal stockholders of
its parent holding company, among others, and to related
interests of such principal stockholders. In addition, such act
and regulations may affect the terms upon which any person
becoming a principal stockholder of a holding company may obtain
credit from banks with which the subsidiary bank maintains a
correspondent relationship.
FDIC Insurance Assessments
The FDIC has implemented a risk-related premium schedule for
all insured depository institutions that results in the
assessment of premiums based on capital and supervisory measures.
Under the risk-related premium schedule, the FDIC assigns, on a
semiannual basis, each institution to one of three capital groups
(well-capitalized, adequately capitalized or undercapitalized)
and further assigns such institution to one of three subgroups
within a capital group. The institution's subgroup assignment is
based upon the FDIC's judgment of the institution's strength in
light of supervisory evaluations, including examination reports,
statistical analyses and other information relevant to gauging
the risk posed by the institution. Only institutions with a
total capital to risk-adjusted assets ratio of 10.00% or greater,
a Tier 1 capital to risk-adjusted assets ratio of 6.0% or greater
and a Tier 1 leverage ratio of 5.0% or greater, are assigned to
the well-capitalized group.
In August 1995 the FDIC adopted an amendment to the Bank
Insurance Fund ("BIF") risk-based assessment schedule that lowers
the deposit insurance assessment rate for most commercial banks
and other depository institutions with deposits insured by BIF to
$.04 per $100 of insured deposits. On November 14, 1995 the FDIC
further reduced the BIF assessment rates to a range of $.00 per
$100 of insured deposits (subject to a minimum annual premium of
$2,000) for those institutions with the least risk, to $0.27 for
every $100 of insured deposits for institutions deemed to have
the highest risk, beginning January 1, 1996. At the same time,
the FDIC voted to retain the existing assessment rates of $.23
for every $100 of deposits for the members of Savings Association
Insurance Fund (the "SAIF"), in the lowest risk-based premium
category and $0.31 for every $100 of insured deposits for members
of SAIF in the highest risk-based premium category. The Bank is
a member of the BIF.
Environmental Laws
Environmentally related hazards have become a source of high
risk and potential liability for financial institutions relating
to their loans. Environmentally contaminated properties owned by
an institution's borrowers may result in a drastic reduction in
the value of the collateral securing the institution's loans to
such borrowers, high environmental clean up costs to the borrower
affecting its ability to repay the loans, the subordination of
any lien in favor of the institution to a state or federal lien
securing clean up costs, and liability to the institution for
clean up costs if it forecloses on the contaminated property or
becomes involved in the management of the borrower. The Company
is not aware of any borrower who is currently subject to any
environmental investigation or clean up proceeding which is
likely to have a material adverse affect on the financial
condition or results of operations of the Company.
Interstate Banking
The Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994 (the "Interstate Banking Law"), amended various
federal banking laws to provide for nationwide interstate
banking, interstate bank mergers and interstate branching. The
interstate banking provisions allow, effective September 29,
1995, for the acquisition by a bank holding company of a bank
located in another state. Interstate bank mergers and branch
purchase and assumption transactions will be allowed effective
June 1, 1997; however, states may "opt-out" of the merger and
purchase and assumption provisions by enacting a law which
specifically prohibits such interstate transactions. States may,
in the alternative, enact legislation to allow interstate merger
and purchase and assumption transactions prior to June 1, 1997.
States may also enact legislation to allow for de novo interstate
branching by out of state banks. In July of 1995, Pennsylvania
adopted "opt in" legislation permitting transactions which result
in interstate branching and de novo interstate branching at the
present time.
Governmental Monetary Policies.
As a national bank, the Bank is a member bank of the Federal
Reserve System. In addition to the effect of general economic
conditions, the earnings of the Bank can be affected by the
fiscal and monetary policies of the Federal Reserve System, which
attempts to regulate the national money supply in order to
mitigate recessionary and inflationary pressures. The techniques
used by the Federal Reserve system include setting the reserve
requirements of member banks and establishing the discount rate
on member bank borrowings. The Federal Reserve System also
conducts open market operations in United States Government
securities.
The policies of the Federal Reserve System have a direct
impact on the level of bank loans and deposits and the interest
rates charged and paid thereon. While the impact of current
economic trends and of the policies of the Federal Reserve System
and other regulatory authorities upon the future business and
earnings of the Bank cannot be accurately predicted, such trends
and policies can materially affect the revenues and income of
commercial banks.
Competition.
The banking industry in the Bank's service area is extremely
competitive. The Bank's market area is the primary trade area of
Berks County, Pennsylvania. The Bank competes not only with
other commercial banks, but also with other financial
institutions such as savings banks, savings and loan
associations, money market funds, mortgage companies, leasing
companies, finance companies, insurance companies, stock
brokerage firms and a variety of financial service companies.
Competition is based on both the price and quality of services
offered by competing financial institutions.
In addition to the Bank, there are 13 other commercial
banks, 4 savings associations, and several credit unions that
maintain offices in Berks County. Most of the banks and savings
and loans in Berks County are larger than the Bank.
The Company expects the operating environment for financial
institutions to become increasingly competitive. Similarly, the
manner in which banking institutions conduct their operations may
change materially as the activities in which bank holding
companies and their banking and nonbanking subsidiaries are
permitted to engage expands, and funding and investment
alternatives continue to broaden, although the long-range effects
of these changes cannot be predicted with reasonable certainty at
this time. These changes most likely will narrow the differences
and intensify competition between and among commercial banks,
thrift institutions and other financial institutions such as
credit unions, mutual funds, and insurance companies.
Item 2. Properties.
The only real estate owned by the Company is a single-family
home located adjacent to the Bank's main office. The Company's
principal office is located in the main office of the Bank at
133 North Centre Avenue, Leesport, Pennsylvania. The Company
does not reimburse the Bank for use of the property.
Listed below are the locations of properties held by the
Bank in fee. Such properties are not subject to any mortgage,
lien or encumbrance.
Property
Location Address
1. Leesport 133-141 North Centre Avenue,
Leesport, Pennsylvania
2. Blandon Route 222, Maidencreek Township,
Blandon, Pennsylvania
3. Wyomissing Hills State Hill Road,
Wyomissing Hills, Pennsylvania
4. Reading Rockland Street
Reading, Pennsylvania
Each of these Bank offices provides drive-in facilities and
automated teller machines. The Bank leases the premises of its
Wernersville branch, which does not have a drive-up facility or
an automated teller machine. The Bank also leases space occupied
by its loan production office in Wyomissing, Pennsylvania.
Item 3. Legal Proceedings.
A certain amount of litigation arises in the ordinary course
of the business of the Company and the Bank. In the opinion of
the management of the Company, there are no proceedings pending
to which the Company or the Bank is a party or to which its
property is subject, that, if determined adversely to the Company
or the Bank, would be material in relation to the Company's
stockholders' equity or financial condition, nor are there any
proceedings pending other than ordinary routine litigation
incident to the business of the Company and the Bank. In
addition, no material proceedings are pending or are known to be
threatened or contemplated against the Company or the Bank by
governmental authorities.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders
during the fourth quarter of the Company's fiscal year ended
December 31, 1995.
PART II
Item 5. Market For Common Equity and Related Stockholder
Matters.
As of December 31, 1995, there were 605 record holders of
the Company's Common Stock. The market price of the Company's
Common Stock for each quarter in 1995 and 1994 and the dividends
declared on the Company's Common Stock for each quarter in 1995
and 1994 are set forth below.
Market Value of Common Stock
The Company's Common Stock is traded in the NASDAQ Small
Capitalization Market under the symbol "FLPB."
The following table sets forth the high and low bid and
asked information of the Company's common stock to the extent
available, as reported by NASDAQ.
<TABLE>
<CAPTION>
1995 1994
Bid Asked Bid Asked
__________________________ ___________________________
Qtr High Low High Low Qtr High Low High Low
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1st 15.5 15 18 17 1st 17.5 17 20 19.5
2nd 15 15 17 17 2nd 16.5 16.5 18.5 18.5
3rd 15.25 15 17 17 3rd 16.5 15.5 18.5 18
4th 15.25 15 16.5 16.5 4th 16 15 18 18
</TABLE>
The bid quotations reflect interdealer quotations, do not
include retail mark ups, mark downs or commissions, and may not
necessarily represent actual transactions. The bid information
as stated is, to the knowledge of management of the Company, the
best approximate value at the time indicated.
Dividend Information
Dividends on the Common Stock of First Leesport Bancorp,
Inc. are payable on the 15th of January, April, July, and
October.
_____________________________________
Dividends Declared
1995 1994
1st Qtr. $.11 $.10
2nd Qtr. .11 .10
3rd Qtr. .11 .11
4th Qtr. .12 .11
The Company derives substantially all of its income from
dividends paid to it by the Bank.
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
The following discussion and analysis should be read in
conjunction with the financial statements included in this
report. It is intended to assist the reader in understanding and
evaluating the financial position of the Company.
FINANCIAL CONDITION
The Company's total resources increased by $10,535,000 in
1995, an increase of 7.4%, growing to $152,402,000. Each of the
three major components of the Company's Balance Sheet, that is,
Securities, Loans, and Deposits, all realized significant growth
during the past year. This is particularly satisfying in that the
three banking facilities opened during 1994 were all established
with growth in mind. Both the Phoebe Berks Office and the
Rockland Plaza Office provided new sources of funds for the Bank
through expanded market areas, and created the growth in
deposits. The Loan Production Center provided a more convenient
outlet for the investment of those funds into the various
segments of the loan portfolio, and did in fact lead to a very
active year within that part of the Bank. Excess funds were
pumped into the securities portfolio to bolster the Bank's
interest income during a year of declining interest margins.
Cash and balances due from our correspondent banks decreased
by $357,000 during 1995 as excess funds were used to fund both
loan growth and investment growth. As a percentage of total
assets, cash and balances due from banks decreased from 3.7% at
December 31, 1994 to 3.2% at December 31, 1995. The management of
excess funds has become an increasingly important part of the
process by which the Balance Sheet is managed. Interest-bearing
deposits at other banks increased by 41.4% during 1995 and at
December 31,1995 totaled $215,000.
Securities totaled $37,849,000 at the end of 1995, up 10.5%
or $3,605,000 from the total of $34,244,000 at the end of 1994.
As a percentage of total assets, securities remained stable at
24%, however, a substantial change was effected late in the year
that impacted the Bank's ability to react to changes in interest
rates. Financial Accounting Standard No. 115 required the Company
to allocate securities into one of three categories early in
1994. They were held-to-maturity, available-for-sale, and
trading. Late in 1995, the Financial Accounting Standards Board
(FASB) revisited the issue of allocation and permitted, for a
limited time, and under specific guidelines, the transfer of
securities between categories. At that time, the Company's Board
of Directors approved a change in how securities are allocated.
As a result of that action, all securities are now
categorized as available-for-sale. With this in mind, the Company
must recognize any changes in the fair value of its investment
securities in the Balance Sheet. As of the end of 1995, this
adjustment amounted to an unrealized, pre-tax gain of $761,000.
At the end of 1994, this adjustment amounted to an unrealized
pre-tax loss of $391,000.
The Company's ability to react to interest rate changes is
dramatically improved by this action as an additional $22,846,000
in securities is now available for re-pricing if market
conditions warrant such a significant action. The ability to sell
these securities also provides an additional option for
management with regard to liquidity management.
Growth within the investment portfolio came primarily from
increases in U.S. Government Agency issues. Callable bonds with
terms ranging from one to three years were purchased throughout
1995 to provide returns somewhat higher than those available
through U.S. Treasury Notes. The Company continues to invest in
only bank-qualified securities and does not own any derivative
products at this time.
Net loans increased by 7.2% or $7,029,000 throughout 1995
and ended the year at $104,092,000. Actual loan originations
(including loans sold) totalled an impressive $16,454,000 for the
year. Mortgages sold to Federal National Mortgage Association,
which the Bank continues to service, grew to $13,500,000 at year-
end 1995, up from $4,073,000 at year-end 1994. These sales
resulted in increased liquidity, less interest rate risk, and
additional sources of income.
Gains on sales of these loans and income earned for
servicing these loans totalled $73,000 for 1995. The Company
expects to increase these volumes throughout 1996.
Commercial loans and installment loans also increased during
1995 with commercial loans growing by $3,169,000 or 10.9% and
installment loans growing by $303,000 or 2.0%. Repositioning many
of the lending staff members during late 1995 was done to
strategically locate commercial lenders closer to the marketplace
that represents the greatest opportunity for growth. This
strategy worked very well with the mortgage staff in 1994.
The allowance for possible loan losses was impacted also
during 1995 to reflect the growth within the portfolio as well as
to recognize those specific loans requiring allocations. As a
percentage of the entire loan portfolio, the allowance
represented 1.15% at year-end 1994 and 1.12% at year-end 1995.
Throughout 1995, the provision for loan losses totalled $270,000.
On-going assessments of problem credits, quarterly reviews, and
management discussions, are designed to detect potential problems
within the loan portfolio, and management feels the level of the
allowance is adequate as of the end of 1995. During 1995 the
Company adopted FASB Statement No. 114 which did not have a
material impact on net income. See Note 13 to the financial
statements for additional discussion of concentration of credit
risk.
Net premises and equipment decreased throughout 1995 as the
effects of depreciation combined with fewer capital expenditures
in 1995 to lower that amount to $3,314,000 from $3,477,000, a
decrease of $163,000 or 4.7%. Those investments in technology and
equipment made during 1995 amounted to $105,000 while total
depreciation amounted to $268,000. Some of the investments made
in technology and equipment were made late in 1995 and, although
part of 1995's achievements, the effects of these investments
will not be totally reflected in these financial statements.
The deposit portfolio increased by $16,025,000 or 13.6%
during 1995 and ended the year at $133,438,000. Small shifts away
from interest on checking accounts, insured money market
accounts, and savings accounts amounted to $4,184,000 or 7.7% of
those totals, but were more than offset by the total increase to
time deposits, including both large certificates of over
$100,000, and regular retail-type certificates. Taken as a
whole, time deposits increased by 42.9%, or $20,190,000, and now
total $67,244,000.
Growth in this portion of the portfolio was attributed to
special promotions earlier in the year including the grand
opening at the Rockland Plaza Office and an anniversary
celebration at the Wyomissing Hills Office. As part of these
promotions interest rate bonuses were offered on certificates, so
this growth did not come without cost.
Also included within the total time deposit growth are
individual retirement account certificates of deposit which carry
higher than average yields because of their specific account
characteristics. At the end of the year, these certificates
totaled $14,277,000.
With the increase in available funds earlier in the year,
all of the federal funds purchased outstanding at the end of 1994
were repaid during the first half of 1995. At the end of 1995
only $1,000,000 remained outstanding to the Federal Home Loan
Bank of Pittsburgh, with a maturity date in February of 1996.
Stockholders' Equity increased by $1,676,000, or 11.5%
during 1995 and ended the year at $16,277,000. This total
includes $916,000 in retained net income after dividend payments,
and an unrealized gain, net of taxes, of $806,000 for available-
for-sale securities.
The Bank's capital to assets ratio, or leverage ratio,
remains exceptionally strong at 10.3%, well in excess of the
regulatory minimum of 3.0%. One of management's challenges in the
future will be to provide satisfactory returns given the high
levels of capital.
RESULTS OF OPERATIONS
Net income for 1995 amounted to $1,452,000 compared with
$1,416,000 for 1994, an increase of $36,000 or 2.6%. Expressed as
earnings per share, 1995 yielded $1.22 in income per share
compared with $1.19 for 1994.
Total interest income for 1995 was $11,534,000, an increase
of $1,411,000 or 13.9% over 1994's total of $10,123,000. Within
this total, income on investments and federal funds sold
increased by $229,000 or 11.4%. Active management of the
portfolio resulted in this increase with $171,000 of the total
being attributed to improved yields within the portfolio and
$48,000 being attributed to the increased volume. The overall
average yield on investments increased from 5.4% in 1994 to 5.9%
in 1995 even with the general decline in interest rates
throughout the marketplace.
Interest and fees on loans increased by $1,182,000 or 14.6%
from $8,110,000 for 1994 to $9,292,000 for 1995. The average
yield on the total loan portfolio remained stable at 9.0%. The
majority of the increase, $1,134,000 is attributed to increased
volume within the portfolio, while only $67,000 is attributed to
improved yields within specific loan categories.
Interest expense increased dramatically, 34.3% or
$1,341,000, to $5,252,000 for 1995 from $3,911,000 for 1994. Of
this increase, $493,000 can be attributed to increased costs on
deposits, primarily associated with promotional events early in
1995, and $847,000 is attributed to the increased volume within
the deposit portfolio. The average cost of deposits, including
non-interest bearing deposits, increased from 3.3% in 1994 to
4.0% in 1995. Management has targeted the resulting decline in
the interest margin as one of the keys to the Bank's master
strategy to address both growth and profitability moving forward.
Net interest income increased by $70,000, or 1.1% during
1995, ending the year at $6,282,000. The provision for loan
losses taken from current earnings amounted to $270,000 for 1995
compared with $168,000 for 1994, an increase of $102,000 or
60.7%. The growth of the loan portfolio combined with regular
reviews of the loan portfolio throughout the year necessitated
this increase.
Net interest income after the provision for loan losses
decreased slightly, 0.5% or $32,000, from $6,044,000 for 1994 to
$6,012,000 for 1995.
Other income improved by $69,000 or 17.7% from 1994 to 1995
growing from $390,000 to $459,000, respectively as additional
sources of income were generated throughout the year. Service
charges on deposits increased by 12.6% or $32,000 from 1994's
total of $253,000 to 1995's total of $285,000. Growth in deposit
accounts and a reevaluation of the charges associated with
deposit accounts contributed to this increase.
Losses on securities transactions were recognized during
1995 in the amount of $34,000. Included within 1995's loss were
transactions designed to minimize federal income taxes while
improving overall investment portfolio yields.
Other operating income, including commissions collected on
the sales of loan-product insurance and fees for preparing loan
documentation increased by $44,000, or 48.4% during the year
increasing from $91,000 for 1994 to $135,000 for 1995. Income
generated through the mortgage banking function, for example,
sales of loans through Federal National Mortgage Association,
generated additional income of $73,000 for 1995 compared with
$46,000 for 1994, an increase of $27,000 or 58.7%.
Other expenses decreased to $4,602,000 during 1995 from
$4,643,000 for 1994, a decrease of $41,000, or 0.9%. The
reduction in insurance paid on deposits contributed significantly
to this decrease. Additional steps are underway as management
has targeted specific projects to help control non-interest
expenses. Federal deposit insurance premiums decreased by
$117,000 during 1995 and will be assessed at the statutory
minimum of $2,000 for the first six months of 1996. The Company
will adopt FASB Statement No. 122 on January 1, 1996. See Note 1
to the financial statements for additional discussion.
Salaries and benefits decreased during 1995 by $66,000 or
2.9% even with the increased staff needed to service the Bank's
new offices. The outsourcing of specific tasks contributed to
this decrease, and additional savings are expected as the
attractiveness of outsourcing is explored further.
Net occupancy expenses, and furniture and equipment
expenses, as expected, increased during 1995. These types of
expenses, combined, amounted to $677,000 for 1995 compared with
$579,000 for 1994, an increase of $98,000 or 16.9%. Depreciation
on buildings and equipment amounted to $268,000 for 1995 within
this total compared with $250,000 for 1994. Real estate taxes
also increased during 1995, growing from $44,000 in 1994 to
$67,000 in 1995. Building and equipment lease expenses for 1995
amounted to $65,000 which compares to $29,000 for 1994.
Other operating expenses and computer processing expenses
increased by a modest $27,000 or 2.0% between 1994 and 1995.
Management has recognized that additional measures to control
operating costs are needed and is intent on doing just that.
Income before taxes increased by $78,000, or 4.4% from
$1,791,000 for 1994 to $1,869,000 for 1995. The associated
applicable income taxes increased from $375,000 in 1994 to
$417,000 in 1995, an increase of $42,000.
LIQUIDITY AND RATE SENSITIVITY
Through the years, the banking industry has adapted to an
environment in which interest rates have fluctuated dramatically
and in which depositors have been provided with liquid, rate
sensitive investment options. The industry utilizes a process
know as asset/liability management as a means of managing this
adaptation.
Asset/liability management is intended to provide for
adequate liquidity and interest rate sensitivity by matching
interest rate sensitive assets and liabilities and coordinating
maturities and repricing characteristics on assets and
liabilities.
Approximately 40% of the total loan portfolio is subject to
rate changes within one year. In addition, over 30% of the
investment portfolio is scheduled to reprice within one year.
Offsetting these rate sensitive assets are deposits repricing
within one year. At the present time, the Bank's one-year gap is
negative and signifies a decrease in net interest income in a
rising rate environment. Throughout the year, the Bank attempts
to structure its rate sensitivity position to minimize the risk
to earnings in changing rate environments.
Adequate liquidity means having the ability to obtain
sufficient cash to meet all current and projected needs promptly
and at a reasonable cost. These needs include deposit
withdrawals, liability runoffs, and increased loan demand. The
principal sources of liquidity are cash and due from banks, money
market investments, and all unpledged investment securities
maturing within one year. Maturing loans and loan payments are
other sources of liquidity as well as sales of loans into the
secondary market.
Other sources of liquidity are the federal funds market and
the discount window of the Federal Reserve Bank. The Bank also
maintains membership in the Federal Home Loan Banking System as
an alternate source of liquidity. In view of all the factors
involved, management believes that liquidity is adequate to meet
all anticipated needs.
CAPITAL ADEQUACY
Federal bank regulatory agencies have established certain
capital related criteria that must be met by banks and bank
holding companies. The measurements, which incorporate the
varying degrees of risk contained within the Bank's Balance Sheet
and the exposure to off-balance sheet commitments, were
established to provide a framework for comparing different
institutions because of each institution's concentration of
resources.
The Company is not aware of any pending recommendations by
regulatory authorities which would have a material impact on the
Company's capital, resources, or liquidity if they were
implemented, nor is the Company under any agreements with any
regulatory authorities.
Changes in Interest Income and Interest Expense
The following table sets forth certain information regarding
changes in interest income and interest expense of the Bank for
the periods indicated. For each category of interest-earning
asset and interest-bearing liability, information is provided on
changes attributable to (1) changes in volume (changes in volume
multiplied by old rate), and (2) changes in rate (changes in rate
multiplied by average volume).
ANALYSIS OF CHANGES IN INTEREST INCOME(1)
Year Ended December 31,
1995 1994
(Amounts in thousands)
LOANS:
CHANGES IN VOLUME $1,101 $ 461
CHANGES IN RATE 81 (387)
TOTAL $1,182 $ 74
====== =====
SECURITIES:
CHANGES IN VOLUME $ 49 $ 290
CHANGES IN RATE 180 (12)
TOTAL $ 229 $ 278
====== =====
TOTALS:
CHANGES IN VOLUME $1,150 $ 751
CHANGES IN RATE 261 (399)
TOTAL $1,411 $ 352
====== =====
ANALYSIS OF CHANGES IN INTEREST EXPENSE(1)
Year Ended December 31,
1995 1994
(Amounts in thousands)
DEPOSITS:
CHANGES IN VOLUME $ 707 $ 182
CHANGES IN RATE 481 (278)
TOTAL $1,188 $ (96)
====== =====
OTHER BORROWED FUNDS:
CHANGES IN VOLUME $ 142 $ 6
CHANGES IN RATE 11 75
TOTAL $ 153 $ 81
====== =====
TOTALS:
CHANGES IN VOLUME $ 849 $ 188
CHANGES IN RATE 492 (203)
TOTAL $1,341 $ (15)
====== =====
_________________
(1) The change in interest income and interest expense
attributable to changes in both volume and rate, which
cannot be segregated, has been allocated proportionately to
the change due to volume and the change due to rate. Loan
fees have been included in the change in interest income
totals presented. Nonaccrual loans have been included in
average loan balances.
Risk Elements
The following table presents a summary of nonperforming
loans and renegotiated loans for 1995 and 1994.
NONPERFORMING LOANS
(In Thousands)
As of December 31,
1995 1994
Nonaccrual loans
Real Estate $ 110 $ 53
Consumer 6 23
Commercial 820 1,019
Total $ 936 $1,095
====== ======
Loans past due 90 days or more
and still accruing interest
Real Estate $ 260 $ 53
Consumer 74 184
Commercial 0 278
Total loans past due
90 days or more $ 334 $ 515
====== ======
Troubled debt restructurings
Real Estate $ 0 $ 57
Consumer 0 0
Commercial 1,404 1,006
Total troubled debt
restructurings $1,404 $1,063
====== ======
Amount of interest on loans which
would have been recorded at
original rates $ 83 $ 66
Amount of interest which was
reflected in income 2 19
Interest income not recognized on
total nonaccrual loans $ 81 $ 47
====== ======
The Bank generally places a loan on non-accrual after the
loan is more than 90 days past due.
<PAGE>
Allowance for Loan Losses
The following tables set forth an analysis of the Company's
allowance for loan losses for 1995 and 1994 and the allocation of
the allowance.
Analysis of the Allowance for Loan Losses
(In Thousands Except Ratios)
December 31,
1995 1994
Balance, Beginning of Year $ 1,124 $ 1,092
Charge-Offs
Commercial 112 116
Real estate 29 0
Consumer 188 89
Total 329 205
Recoveries
Commercial 37 16
Real estate 0 7
Consumer 77 46
Total 114 69
Net Charge-Offs 115 136
Provision Charged to Operations 270 168
Balance, End of Year $ 1,179 $ 1,124
======== =======
Average Loans $101,352 $89,884
======== =======
Ratio of Net Charge-Offs to
Average Loans 0.11% 0.15%
Ratio of Allowance Balance to
Loans, End of Year 1.12% 1.14%
The allowance for loan losses is maintained at a level
considered adequate to provide for losses that can be reasonably
anticipated. The allowance is increased by provisions charged to
operating expenses and reduced by net charge-offs. The Bank
makes continuous credit reviews of the loan portfolio and
considers current economic conditions, review of specific problem
loans and other factors in determining the adequacy of the
allowance balance.
<TABLE>
<CAPTION> Allocation of Allowance for Loan Losses
(In Thousands)
December 31,
1995 1994
Percent of Loans Percent of Loans
in Category to in Category to
Amount Total Loans Amount Total Loans
<S> <C> <C> <C> <C>
Commercial $ 177 30.7% $ 175 29.7%
Real Estate 99 54.5% 65 54.7%
Consumer 161 14.8% 177 15.6%
Total Allocated 437 100% 417 100%
Unallocated 742 -- 707 --
TOTAL $1,179 100% $1,124 100%
====== ====== ====== ======
</TABLE>
Loan Maturities
The rate at which outstanding loans of the Bank at
December 31, 1995 are maturing by major category is indicated by
the table below.
<TABLE>
<CAPTION>
Maturities of Outstanding Loans
(In Thousands)
Within After One After
One But Within Five
Year Five Years Years Total
<S> <C> <C> <C> <C>
Real Estate $ 7,060 $ 8,315 $41,932 $ 57,307
Consumer 5,655 7,325 2,632 15,612
Commercial 19,092 12,278 982 32,352
Total $31,807 $27,918 $45,546 $105,271
======= ======= ======= ========
</TABLE>
Excluding the loans maturing within one year listed above,
$10,272,000 or 9.75% of the loan portfolio is sensitive to
interest rate changes.
Maturity of Certificates of Deposit of $100,000 or More
The following table sets forth the amounts of the Bank's
certificates of deposit of $100,000 or more by maturity date.
December 31, 1995
(In Thousands)
Three Months or Less $2,004
Over Three Through Six Months 1,287
Over Six Through Twelve Months 343
Over Twelve Months 973
TOTAL $4,607
======
Securities Portfolio Maturities and Yields
The following table sets forth information about the
maturities and weighted average yield on the Company's securities
portfolio. Floating rate, immediately repriceable items are
included in the first column, and yields are not reported on a
tax equivalent basis.
<TABLE>
<CAPTION>
Year ended December 31, 1995
(In Thousands)
Due in After 1 After 5
1 Year Year to Years to After
or Less 5 Years 10 Years 10 Years Total
________________________________________________
<S> <C> <C> <C> <C> <C>
Obligations of the U.S. $7,770 $6,159 $7,748 $2,210 $23,887
Treasury and other U.S. 5.68% 6.04% 6.17% 6.52% 6.01%
Government Agencies and
Corporations
________________________________________________
State and Municipal $1,505 $7,665 $1,837 $800 $11,807
Obligations 6.52% 5.51% 5.28% 7.72% 5.75%
________________________________________________
Other Securities $200 $200 $850 $905 $2,155
6.67% 6.64% 7.37% 6.25% 6.76%
________________________________________________
</TABLE>
<PAGE>
Securities Portfolio
The following table sets forth the book value of the
Company's investment securities at its last two fiscal year ends:
As of December 31,
1995 1994
(In Thousands)
U.S. Treasuries $12,066 $12,386
U.S. Government Agencies 11,821 8,118
State and Political Subdivisions 11,807 11,165
Other Investments and Equity
Securities 2,155 2,575
$37,849 $34,244
======= =======
For purposes of the above table, in 1994 securities
available for sale are reflected at fair value and securities
held to maturity are reflected at amortized cost. In 1995, all
securities are classified as available for sale and are reflected
at fair value.
<PAGE>
Average Balances, Rates and Net Yield
The following table sets forth the average daily balances of
major categories of interest earning assets and interest bearing
liabilities, the average rate paid thereon, and the net interest
margin for each of the periods indicated.
<TABLE>
<CAPTION>
For the Year Ended For the Year Ended
December 31, 1995 December 31, 1994
(in thousands, except rates)
Interest Interest
Average Income/ Average Average Income/ Average
Balance Expense Rate Balance Expense Rate
<S> <C> <C> <C> <C> <C> <C>
U.S. Gov't Securities $ 12,133 $ 680 5.60% $11,908 $ 643 5.40%
U.S. Gov't Agencies 9,057 586 6.47% 7,883 410 5.20%
Municipal Obligations* 11,382 654 5.75% 10,969 654 5.96%
Other Investments 2,782 187 6.72% 2,008 145 7.22%
Investments 35,354 2,107 5.91% 32,768 1,852 5.65%
Interest-bearing
Deposits 180 11 6.16% 172 7 3.90%
Federal Funds Sold 2,108 124 5.89% 4,059 154 3.80%
Real Estate Loans 56,396 4,992 8.85% 47,089 4,317 9.17%
Consumer Loans 15,347 1,436 9.36% 14,146 1,434 10.14%
Commercial Loans 30,754 2,864 9.31% 28,649 2,359 8.23%
Total Loans 102,497 9,292 9.07% 89,884 8,110 9.02%
Earning Assets $140,139 $11,534 8.23% $126,883 $10,123 7.98%
======== ======= ======== =======
Money Market Accounts $ 26,723 $ 735 2.75% $ 30,283 $ 720 2.38%
Savings Deposit 24,185 597 2.47% 25,987 682 2.62%
Time Deposits 60,847 3,642 5.98% 45,544 2,384 5.23%
Interest-bearing
Deposits 111,755 4,974 4.45% 101,814 3,786 3.72%
Other Borrowed Funds 4,624 278 6.06% 2,266 125 5.52%
Interest-bearing
Liabilities $116,379 $ 5,252 4.52% $104,080 $3,911 3.76%
======== ======= ======== ======
Noninterest-bearing
Deposits $ 15,167 $ 14,465
NET INTEREST MARGIN $6,282 4.44% $6,212 4.90%
====== ======
____________________________________________________________________________________
<FN>
*Rates on Municipal Obligations are not reported on a tax-equivalent basis.
</TABLE>
<PAGE>
Dividends and Stockholders' Equity
The Company increased its dividends in 1995 to $0.45 per
share from $0.42 per share in 1994. Despite the increase in the
Company's net income from 1994 to 1995, the Company's dividend
payout ratio increased from 35.33% in 1994 to 36.89% in 1995.
The Company's ratio of average shareholders' equity to average
assets for the year ended December 31, 1995 was 10.35%
Item 7. Financial Statements.
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
First Leesport Bancorp, Inc.
Leesport, Pennsylvania
We have audited the accompanying consolidated balance sheets
of First Leesport Bancorp, Inc. and its wholly-owned subsidiary,
The First National Bank of Leesport, as of December 31, 1995 and
1994, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years
in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of First Leesport Bancorp, Inc. and its
wholly-owned subsidiary, The First National Bank of Leesport, as
of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in
the period ended December 31, 1995 in conformity with generally
accepted accounting principles.
As described in Note 1 to the consolidated financial
statements, effective January 1, 1994, the Company changed its
method of accounting for investments in debt and equity
securities.
BEARD & COMPANY, INC.
Reading, Pennsylvania
January 19, 1996
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31, 1995 1994
(In Thousands)
ASSETS
<S> <C> <C>
Cash and due from banks $ 4,828 $ 5,185
Interest-bearing deposits in other banks 215 152
Total cash and cash equivalents 5,043 5,337
Federal funds sold 601 -
Securities available for sale 37,849 14,998
Securities held to maturity, fair value
1994 $ 18,432 - 19,246
Loans, net of allowance for loan losses
1995 $ 1,179; 1994 $ 1,124 104,092 97,063
Bank premises and equipment, net 3,314 3,477
Accrued interest receivable and other assets 1,503 1,746
Total assets $152,402 $141,867
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand, non-interest bearing $ 15,791 $ 15,772
Demand, interest bearing 27,140 28,162
Savings 23,263 26,425
Time, $ 100,000 and over 4,607 1,174
Time, other 62,637 45,880
Total deposits 133,438 117,413
Federal funds purchased - 5,493
Other borrowed funds - 2,000
Long-term debt 1,000 1,000
Accrued interest payable and other
liabilities 1,687 1,360
Total liabilities 136,125 127,266
STOCKHOLDERS' EQUITY
Common stock, par value $ 5 per share;
authorized 2,000,000 shares; issued
1,200,000 shares 6,000 6,000
Surplus 3,000 3,000
Retained earnings 6,896 5,980
Net unrealized appreciation
(depreciation) on securities
available for sale, net of taxes 502 (258)
Treasury stock, at cost 8,829 shares (121) (121)
Total stockholders' equity 16,277 14,601
Total liabilities and stockholders'
equity $152,402 $141,867
======== ========
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31, 1995 1994 1993
(In Thousands, Except
Per Share Amounts)
<S> <C> <C> <C>
Interest income:
Loans receivable, including fees $ 9,292 $ 8,110 $ 8,036
Securities:
Taxable 1,464 1,205 1,015
Tax-exempt 654 654 600
Other 124 154 120
Total interest income 11,534 10,123 9,771
Interest expense:
Deposits 4,974 3,786 3,882
Borrowings 278 125 44
Total interest expense 5,252 3,911 3,926
Net interest income 6,282 6,212 5,845
Provision for loan losses 270 168 100
Net interest income after
provision for loan losses 6,012 6,044 5,745
Other income:
Customer service fees 285 253 251
Mortgage banking activities 73 46 45
Other income 135 91 111
Net realized loss on sale of
securities (34) - -
Total other income 459 390 407
Other expenses:
Salaries and employee benefits 2,239 2,305 2,211
Occupancy 411 329 252
Equipment 266 250 220
Federal deposit insurance premiums 137 254 240
Computer services 270 242 229
Taxes other than income 147 130 120
Other operating expenses 1,132 1,133 954
Total other expenses 4,602 4,643 4,226
Income before income taxes 1,869 1,791 1,926
Federal income taxes 417 375 461
Net income $ 1,452 $ 1,416 $ 1,465
======== ======== ========
Net income per share of common stock $ 1.22 $ 1.19 $ 1.23
======== ======== ========
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31, 1995, 1994 and 1993
Net Unrealized
Appreciation
(Depreciation)
On Securities
Common Retained Available Treasury
Stock Surplus Earnings For Sale Stock
(In Thousands)
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992 $ 4,000 $ 2,010 $ 7,042 $ - $ (121)
Net income - - 1,465 - -
Cash dividends, $.38 per share - - (453) - -
Issuance of common stock in
connection with a stock
split effected in the form
of a stock dividend 2,000 (2,000) - - -
Balance, December 31, 1993 6,000 10 8,054 - (121)
Adjustment to beginning balance
for change in accounting
method, net of taxes - - - 361 -
Net income - - 1,416 - -
Cash dividends, $ .42 per share - - (500) - -
Transfer of retained earnings
to surplus - 2,990 (2,990) - -
Net change in unrealized
appreciation (depreciation)
on securities available for
sale, net of taxes - - - (619) -
Balance, December 31, 1994 6,000 3,000 5,980 (258) (121)
Net income - - 1,452 - -
Cash dividends, $.45 per share - - (536) - -
Net change in unrealized
appreciation (depreciation)
on securities available for
sale, net of taxes - - - 760 -
Balance, December 31, 1995 $ 6,000 $ 3,000 $ 6,896 $ 502 $ (121)
======= ======= ======= ======= =======
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31, 1995 1994 1993
(In Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,452 $ 1,416 $ 1,465
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 270 168 100
Provision for depreciation and amortization 268 250 203
Net amortization of investment security
premiums and discounts 61 32 116
Loans originated for sale (9,697) (2,398) (1,886)
Proceeds from sales of loans 9,750 2,428 1,926
Gain on sale of securities and loans (19) (30) (40)
(Increase) in accrued interest receivable
and other assets (149) (83) (70)
Increase (decrease) in accrued interest
payable and other liabilities 315 160 (135)
Net cash provided by operating activities 2,251 1,943 1,679
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of securities available for sale 2,579 - -
Proceeds from maturities of securities available
for sale 1,697 1,073 -
Proceeds from principal repayments and maturities
of securities held to maturity 3,324 5,260 7,443
Purchase of securities available for sale (3,173) (5,029) -
Purchase of securities held to maturity (6,975) (7,613) (8,217)
Net (increase) decrease in federal funds sold (601) 5,123 (2,986)
Loans made to customers, net of principal collected (7,299) (11,199) (4,106)
Purchases of bank premises and equipment (105) (1,596) (387)
Net cash used in investing activities (10,553) (13,981) (8,253)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 16,025 5,587 6,509
Net increase (decrease) in federal funds purchased (5,493) 5,493 -
Proceeds (repayment) of other borrowed funds (2,000) 2,000 -
Proceeds from long-term debt - - 1,000
Dividends paid (524) (488) (453)
Net cash provided by financing activities 8,008 12,592 7,056
Increase (decrease) in cash and cash
equivalents (294) 554 482
Cash and cash equivalents:
January 1 5,337 4,783 4,301
December 31 $ 5,043 $ 5,337 $ 4,783
======== ======== ========
Cash payments for:
Interest $ 5,071 $ 3,878 $ 3,963
======== ======== ========
Income taxes $ 415 $ 348 $ 505
======== ======== =========
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
1. SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation:
The consolidated financial statements include the accounts
of First Leesport Bancorp, Inc. ("the Company"), a bank
holding company, and its wholly-owned subsidiary, The First
National Bank of Leesport ("the Bank"). All significant
intercompany accounts and transactions have been eliminated.
Nature of operations:
The Bank operates under a national bank charter and provides
full banking services. As a national bank, the Bank is
subject to regulation of the Office of the Comptroller of
the Currency and the Federal Deposit Insurance Corporation.
The bank holding company is subject to regulation of the
Federal Reserve Bank. The area served by the Bank is
principally Berks County, Pennsylvania.
Estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent 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 those estimates.
Presentation of cash flows:
For purposes of reporting cash flows, cash and cash
equivalents include cash and due from banks and interest-
bearing deposits in other banks.
Securities:
The Financial Accounting Standards Board issued Statement
No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" in May 1993. The Bank adopted the
provisions of the new standard for investments held as of or
acquired after January 1, 1994. The January 1, 1994 balance
of stockholders' equity was increased by $ 361,000 (net of
$ 186,000 in deferred income taxes) to reflect the net
unrealized appreciation on securities classified as
available for sale previously carried at amortized cost.
Management determines the appropriate classification of debt
securities at the time of purchase and re-evaluates such
designation as of each balance sheet date.
Available for sale securities consist of bonds, notes,
debentures and certain equity securities not classified as
trading securities nor as held to maturity securities.
Unrealized appreciation (depreciation), net of tax, on
available for sale securities are reported as a net amount
in a separate component of stockholders' equity until
realized. Gains and losses on the sale of available for sale
securities are determined using the specific-identification
method. Premiums and discounts are recognized in interest
income using the interest method over the period to
maturity. Equity securities are principally comprised of
stock in the Federal Reserve Bank and the Federal Home Loan
Bank.
Bonds, notes and debentures for which the Bank has the
positive intent and ability to hold to maturity are reported
at cost, adjusted for premiums and discounts that are
recognized in interest income using the interest method over
the period to maturity.
Loans receivable:
Loans generally are stated at their outstanding unpaid
principal balances net of an allowance for loan losses and
any deferred fees or costs. Interest income is accrued on
the unpaid principal balance. Loan origination fees net of
certain direct origination costs are deferred and recognized
as an adjustment of the yield (interest income) of the
related loans. The Bank is generally amortizing these
amounts over the contractual life of the loan.
A loan is generally considered impaired when it is probable
the Bank will be unable to collect all contractual principal
and interest payments due in accordance with the terms of
the loan agreement. The accrual of interest is generally
discontinued when the contractual payment of principal or
interest has become 90 days past due or management has
serious doubts about further collectibility of principal or
interest, even though the loan is currently performing. A
loan may remain on accrual status if it is in the process of
collection and is either guaranteed or well secured. When a
loan is placed on nonaccrual status, unpaid interest
credited to income in the current year is reversed and
unpaid interest accrued in prior years is charged against
the allowance for loan losses. Interest received on
nonaccrual loans generally is either applied against
principal or reported as interest income, according to
management's judgment as to the collectibility of principal.
Generally, loans are restored to accrual status when the
obligation is brought current, has performed in accordance
with the contractual terms for a reasonable period of time
and the ultimate collectibility of the total contractual
principal and interest is no longer in doubt.
Allowance for loan losses:
The allowance for loan losses is established through
provisions for loan losses charged against income. Loans
deemed to be uncollectible are charged against the allowance
for loan losses, and subsequent recoveries, if any, are
credited to the allowance.
Beginning in 1995, the Bank adopted Financial Accounting
Standards Board Statement No. 114, "Accounting by Creditors
for Impairment of a Loan", as amended by Statement No. 118.
Under the new standard, the 1995 allowance for loan losses
related to loans that are identified for evaluation in
accordance with Statement No. 114 is based on discounted
cash flows using the loan's initial effective interest rate
or the fair value of the collateral for certain collateral
dependent loans. Prior to 1995, the allowance for loan
losses related to these loans was based on undiscounted cash
flows or the fair value of the collateral for collateral
dependent loans.
The allowance for loan losses is maintained at a level
considered adequate to provide for losses that can be
reasonably anticipated. Management's periodic evaluation of
the adequacy of the allowance is based on the Bank's past
loan loss experience, known and inherent risks in the
portfolio, adverse situations that may affect the borrower's
ability to repay, the estimated value of any underlying
collateral, composition of the loan portfolio, current
economic conditions, and other relevant factors. This
evaluation is inherently subjective as it requires material
estimates that may be susceptible to significant change.
Loans held for sale:
Mortgage loans originated and intended for sale in the
secondary market are carried at the lower of cost or
estimated fair value. All sales are made without recourse.
There were no loans held for sale at December 31, 1995 and
1994.
Bank premises and equipment:
Bank premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed on the
straight-line and accelerated depreciation methods over
their estimated useful lives.
Income taxes:
Deferred taxes are provided on the liability method whereby
deferred tax assets are recognized for deductible temporary
differences and deferred tax liabilities are recognized for
taxable temporary differences. Temporary differences are
the differences between the reported amounts of assets and
liabilities in the financial statements and their tax basis.
Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than
not that some portion or all of the deferred tax assets will
not be realized. Deferred tax assets and liabilities are
adjusted through the provision for income taxes for the
effects of changes in tax laws and rates on the date of
enactment.
Off-balance sheet financial instruments:
In the ordinary course of business, the Bank has entered
into off-balance sheet financial instruments consisting of
commitments to extend credit, letters of credit and
commitments to sell loans. Such financial instruments are
recorded in the consolidated balance sheets when they become
receivable or payable.
Net income per share:
Net income per share of common stock has been computed on
the basis of the weighted average number of shares of common
stock outstanding, adjusted for stock dividends. The
weighted average number of shares outstanding was 1,191,171
in 1995, 1994 and 1993 respectively.
New accounting standards:
In 1995, the Financial Accounting Standards Board (FASB)
issued Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of", which establishes accounting and measurement standards
for the impairment of long-lived assets such as property and
equipment, certain identifiable intangibles and goodwill
related to those assets. The Bank is required to adopt the
Statement effective January 1, 1996 and the effect of its
implementation is not expected to have a material impact on
the Bank's financial position or results of operations.
In 1995, the FASB issued Statement No. 122, "Accounting for
Mortgage Servicing Rights", which amends Statement No. 65,
"Accounting for Certain Mortgage Banking Activities". The
Statement applies to all mortgage banking activities in
which a mortgage loan is originated or purchased and then
sold or securitized with the right to service the loan
retained by the seller. The total cost of the mortgage
loans is allocated between the mortgage servicing rights and
the mortgage loans based on their relative fair values. The
mortgage servicing rights are capitalized as assets and
amortized over the period of estimated net servicing income.
Additionally, they are subject to an impairment analysis
based on their fair value in future periods. The Statement
is effective for transactions in which mortgage loans are
sold or securitized beginning January 1, 1996 and its impact
on the Bank's financial position and results of operations
will be dependent upon the future volume of mortgage loans
sold with servicing rights retained.
2. RESTRICTIONS ON CASH AND DUE FROM BANK BALANCES
The Bank is required to maintain average reserve balances with
the Federal Reserve Bank. At December 31, 1995, the total of
these reserve balances approximated $ 599,000.
3. SECURITIES
The amortized cost of securities and their approximate fair
values at December 31 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 1995 Cost Appreciation Depreciation Value
(In Thousands)
<S> <C> <C> <C> <C>
Available for sale securities:
U.S. Treasury securities $ 11,894 $ 196 $ (24) $12,066
U.S. Government agencies 5,957 101 (3) 6,055
Mortgage-backed securities 5,642 133 (9) 5,766
Obligations of state and
political subdivisions 11,473 343 (9) 11,807
Corporate securities 1,246 39 (6) 1,279
Equity securities 876 - - 876
$ 37,088 $ 812 $ (51) $37,849
======== ======== ======== =======
<CAPTION>
December 31, 1994
<S> <C> <C> <C> <C>
Available for sale securities:
Mortgage-backed securities $ 1,449 $ - $ (91) $ 1,358
Obligations of state and
political subdivisions 11,347 149 (331) 11,165
Corporate securities 1,811 - (118) 1,693
Equity securities 782 - - 782
$ 15,389 $ 149 $ (540) $14,998
======== ======== ======== =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 1994 Cost Appreciation Depreciation Value
(In Thousands)
<S> <C> <C> <C> <C>
Held to maturity securities:
U.S. Treasury securities $ 12,386 $ 1 $ (574) $11,813
U.S. Government agencies 992 - (32) 960
Mortgage-backed securities 5,768 18 (228) 5,558
Corporate securities 100 1 - 101
$ 19,246 $ 20 $ (834) $18,432
======== ======== ======== =======
</TABLE>
In December 1995, the Bank reevaluated the appropriateness of all
securities held and transferred $ 22,846,000 of securities from
securities held to maturity to securities available for sale in
accordance with the Guide to Implementation of Statement No. 115
issued by the FASB. The securities were transferred at their
fair value on the date of transfer which was $ 266,000 greater
than the amortized cost of the securities. The transfer
represented the Bank's entire securities held to maturity
portfolio at the date of transfer.
The amortized cost and fair value of securities as of
December 31, 1995, by contractual maturity, are shown below.
Expected maturities may differ from contractual maturities
because the securities may be called or prepaid without penalty.
Amortized Fair
Cost Value
(In Thousands)
Due in one year or less $ 3,704 $ 3,709
Due after one year through five years 13,743 14,024
Due after five years through ten years 10,224 10,435
Due after ten years 2,899 3,039
Mortgage-backed securities 5,642 5,766
Equity securities 876 876
$37,088 $37,849
======= =======
Securities with an amortized cost of $ 1,757,000 and $ 2,098,000
at December 31, 1995 and 1994 respectively were pledged to secure
public deposits and for other purposes as required or permitted
by law.
Gross gains of $ 4,000 and gross losses of $ 38,000 were realized
on sales of securities available for sale in 1995.
<PAGE>
4. LOANS RECEIVABLE
The components of loans receivable at December 31, 1995 and 1994
were as follows:
1995 1994
(In Thousands)
Commercial $ 32,352 $ 29,183
Consumer 15,612 15,309
Real estate 57,307 53,695
105,271 98,187
Allowance for loan losses 1,179 1,124
$104,092 $97,063
======== =======
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
(In Thousands)
<S> <C> <C> <C>
Balance, beginning $ 1,124 $ 1,092 $1,100
Provision for loan losses 270 168 100
Loans charged off (329) (205) (177)
Recoveries 114 69 69
Balance, ending $ 1,179 $ 1,124 $1,092
======= ======= ======
</TABLE>
Information with respect to impaired loans as of and for the year
ended December 31, 1995 is as follows (in thousands):
Loans receivable for which there is a
related allowance for loan losses $ 772
Loans receivable for which there is no
related allowance for loan losses 33
Total impaired loans $ 805
======
Related allowance for loan losses $ 200
======
Average recorded balance of these impaired loans $ 888
======
Interest income recognized on these impaired loans $ -
======
At December 31, 1994, the Bank had nonaccrual loans of
$ 1,095,000 (including approximately $ 1,019,000 that would be
considered impaired under Statement No. 114). The Bank recorded
$ 19,000 of interest income on these loans in 1994. Interest
income that would have been recorded under the original terms of
the loan agreements amounted to $ 66,000 for the year ended
December 31, 1994.
5. MORTGAGE BANKING ACTIVITIES
Mortgage loans serviced for others are not included in the
accompanying balance sheets. The unpaid principal balance of
these loans as of December 31, 1995 and 1994 was $ 13,500,000 and
$ 4,073,000 respectively.
6. BANK PREMISES AND EQUIPMENT
Components of bank premises and equipment were as follows:
December 31,
1995 1994
(In Thousands)
Land and land improvements $ 706 $ 706
Bank buildings 3,376 3,360
Bank furniture and equipment 1,924 1,864
6,006 5,930
Less accumulated depreciation 2,692 2,453
$ 3,314 $ 3,477
======= =======
Certain bank facilities and equipment are leased under various
operating leases which commenced in 1994. Rental expense for
these leases was $ 65,000 and $ 29,000 respectively for the years
ended December 31, 1995 and 1994. Future minimum rental
commitments under noncancellable leases are as follows (in
thousands):
1996 $ 52
1997 46
1998 37
1999 17
$ 152
=====
<PAGE>
7. BORROWINGS
The Bank has a flexible line of credit commitment from the
Federal Home Loan Bank (FHLB) for borrowings up to approximately
10% of the Bank's assets. Amounts outstanding under this line
were $ -0- and $ 2,000,000 at December 31, 1995 and 1994
respectively. The interest rate on the amount outstanding at
December 31, 1994 was 6.16%.
Long-term debt consisted of an advance from the FHLB bearing
interest at 4.82% and which matures February 16, 1996. The
advance is collateralized by certain qualifying assets of the
Bank.
8. EMPLOYEE BENEFITS
The Bank has a noncontributory defined benefit pension plan
covering all employees who meet the eligibility requirements. To
be eligible, an employee must have completed 1,000 hours of
service in their first 12 months of employment or in any like
period thereafter. The Plan provides benefits based on years of
service and the employee's highest five-year average of
compensation. Benefits are subject to certain reductions if the
employee retires before reaching age 65. The Bank's funding
policy is to make the minimum annual contribution that is
required by applicable regulations, plus such amounts as the Bank
may determine to be appropriate from time to time.
Net pension cost for this plan consisted of the following
components:
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
(In Thousands)
<S> <C> <C> <C>
Service cost (benefits earned) $ 101 $ 93 $ 77
Interest cost on projected benefit
obligation 113 91 81
Actual return on plan assets (212) 29 (99)
Net amortization and deferral 104 (141) (17)
$ 106 $ 72 $ 42
====== ====== ======
</TABLE>
<PAGE>
The following table sets forth the Plan's funded status and
amounts recognized in the accompanying balance sheets:
<TABLE>
<CAPTION>
December 31,
1995 1994
(In Thousands)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits $ (1,161) $ (1,018)
======== ========
Accumulated benefits $ (1,183) $ (1,036)
======== ========
Projected benefits $ (1,610) $ (1,516)
Plan assets at fair value, principally
mutual funds 1,541 1,294
Plan assets under projected benefit obligation (69) (222)
Unrecognized prior service cost 30 32
Unrecognized net loss 285 407
Unrecognized transition asset (246) (269)
Accrued pension cost $ - $ (52)
======== ========
</TABLE>
Assumptions used by the Bank in the determination of pension plan
information consisted of the following:
<TABLE>
<CAPTION>
December 31,
1995 1994 1993
<S> <C> <C> <C>
Discount rate 7.00% 7.50% 6.50%
Rate of increase in compensation levels 4.50% 5.00% 4.50%
Expected long-term rate of return on
plan assets 8.00% 8.00% 9.00%
</TABLE>
The Bank has a 401(k) plan which covers employees who meet the
eligibility requirements of having worked 1,000 hours in a plan
year and have attained the age of 21. Participants are permitted
to contribute from 1% - 10% of compensation. The Bank matches
50% of the participant's contributions up to a maximum match of
3-1/2%. The expense related to this plan was $ 43,000, $ 42,000
and $ 33,000 for the years ended December 31, 1995, 1994 and 1993
respectively.
9. INCOME TAXES
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
(In Thousands)
<S> <C> <C> <C>
Current $ 375 $ 311 $ 479
Deferred 42 64 (18)
$ 417 $ 375 $ 461
===== ===== =====
</TABLE>
The income tax provision includes $(12,000) in 1995 of income
taxes (benefit) related to losses on the sale of securities of
$ 34,000.
Reconciliation of the statutory income tax expense computed at
34% to the income tax expense included in the consolidated
statements of income is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
(In Thousands)
<S> <C> <C> <C>
Federal income tax at statutory rate $ 636 $ 609 $ 655
Tax exempt interest (257) (262) (240)
Interest disallowance 30 24 24
Other 8 4 22
$ 417 $ 375 $ 461
====== ====== ======
</TABLE>
<PAGE>
Net deferred tax assets and liabilities consisted of the
following components as of December 31, 1995 and 1994:
1995 1994
(In Thousands)
Deferred tax assets:
Allowance for loan losses $ 262 $ 244
Deferred compensation 29 26
Accrued pension - 7
Deferred loan fees 127 169
Net unrealized depreciation on
securities available for sale - 133
Total deferred tax assets 418 579
Valuation allowance (23) (26)
Deferred tax assets, net of
valuation allowance 395 553
Deferred tax liabilities:
Bank premises and equipment (67) (47)
Securities (6) (9)
Net unrealized appreciation on
securities available for sale (259) -
Total deferred tax liabilities (332) (56)
Net deferred tax assets $ 63 $ 497
====== ======
10. TRANSACTIONS WITH EXECUTIVE OFFICERS AND DIRECTORS
The Bank has had banking transactions in the ordinary course of
business with its executive officers and directors and their
related interests on the same terms, including interest rates and
collateral, as those prevailing at the time for comparable
transactions with others. At December 31, 1995 and 1994, these
persons were indebted to the Bank for loans totaling $ 1,554,000
and $ 1,727,000 respectively. During 1995, $ 571,000 of new
loans were made and repayments totaled $ 744,000.
11. REGULATORY MATTERS AND STOCKHOLDERS' EQUITY
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and
possibly additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on the Bank's
financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must
meet specific capital guidelines that involve quantitative
measures of the Bank's assets, liabilities and certain off-
balance sheet items as calculated under regulatory accounting
practices. The Bank's capital amounts and classification are
also subject to qualitative judgments by the regulators about
components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios
(set forth below) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets, and of Tier I capital to
average assets. Management believes, as of December 31, 1995,
that the Bank meets all capital adequacy requirements to which it
is subject.
As of December 31, 1995, the more recent notification from the
Office of the Comptroller of the Currency categorized the Bank as
well capitalized under the regulatory framework for prompt
corrective action. There are no conditions or events since that
notification that management believes have changed the Bank's
category.
The Bank's actual capital ratios at December 31, 1995 and the
minimum ratios required for capital adequacy purposes and to be
well capitalized under the prompt corrective action provisions
are as follows:
<TABLE>
<CAPTION>
To Be Well
Capitalized
Under
Prompt
For Capital Corrective
Adequacy Action
Actual Purposes Provisions
<S> <C> <C> <C>
Total capital (to risk weighted assets) 17.48% 8.00% 10.00%
Tier I capital (to risk weighted assets) 16.26% 4.00% 6.00%
Tier I capital (to average assets) 10.34% 3.00%-5.00% 5.00%
</TABLE>
The approval of the Comptroller of the Currency is required if
the total of all dividends declared by a national bank in any
calendar year exceeds the Bank's net profits (as defined) for
that year combined with its retained net profits for the
preceding two calendar years. Under this formula, the Bank can
declare dividends in 1996 without approval of the Comptroller of
the Currency of approximately $ 1,878,000 plus an additional
amount equal to the Bank's net profit for 1996, up to the date of
any such dividend declaration. As of December 31, 1995, the
Company has declared a $ .12 per share cash dividend for
stockholders of record on January 2, 1996, payable January 15,
1996.
In March 1993, the Board of Directors reduced the par value of
its common stock from $ 10.00 per share to $ 5.00 per share and
declared a 3-for-1 stock split, which was effectuated in the form
of a stock dividend. A total of 800,000 shares were issued in
connection with the stock split.
12. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Bank is a party to financial instruments with off-balance
sheet risk in the normal course of business to meet the financing
needs of its customers. These financial instruments include
commitments to extend credit, letters of credit and commitments
to sell loans. Those instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amount
recognized in the balance sheets.
The Bank's exposure to credit loss in the event of nonperformance
by the other party to the financial instrument for commitments to
extend credit and letters of credit is represented by the
contractual amount of those instruments. The Bank uses the same
credit policies in making commitments and conditional obligations
as it does for on-balance sheet instruments.
A summary of the contractual amount of the Bank's financial
instrument commitments is as follows:
<TABLE>
<CAPTION>
December 31,
1995 1994
(In Thousands)
<S> <C> <C>
Commitments to extend credit $ 11,245 $ 12,916
Outstanding letters of credit 275 368
Commitments to sell loans - -
</TABLE>
Commitments to extend credit are agreements to lend to a customer
as long as there is no violation of any condition established in
the contract. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. Commitments
generally have fixed expiration dates or other termination
clauses and may require payment of a fee. The Bank evaluates
each customer's credit worthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by the Bank
upon extension of credit, is based on management's credit
evaluation. Collateral held varies but may include personal or
commercial real estate, accounts receivable, inventory and
equipment.
Outstanding letters of credit are conditional commitments issued
by the Bank to guarantee the performance of a customer to a third
party. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan
facilities to customers.
Commitments to sell loans are to the Federal National Mortgage
Association. These commitments are generally met through
mortgage originations in the normal course of business.
13. CONCENTRATIONS OF CREDIT RISK
The Bank grants commercial, residential and consumer loans to
customers primarily located in Berks County, Pennsylvania. The
concentrations of credit by type of loan are set forth in Note 4.
Although the Bank has a diversified loan portfolio, its debtors'
ability to honor these contracts is influenced by the region's
economy.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
FASB Statement No. 107, "Disclosures about Fair Value of
Financial Instruments", requires disclosure of fair value
information about financial instruments, whether or not
recognized in the balance sheet, for which it is practicable to
estimate that value. In cases where quoted market prices are not
available, fair values are based on estimates using present value
or other valuation techniques. Those techniques are
significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. In that
regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, could
not be realized in immediate settlement of the instrument.
Statement 107 excludes certain financial instruments and all
nonfinancial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not
represent the underlying value of the Bank.
The following methods and assumptions were used by the Bank in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents and federal funds sold:
The carrying amounts reported in the balance sheet for
cash and short-term instruments approximate those
assets' fair values.
Securities (including mortgage-backed securities):
Fair values for securities are based on quoted market
prices, where available. If quoted market prices are
not available, fair values are based on quoted market
prices of comparable instruments.
Loans receivable:
For variable-rate loans that reprice frequently and
with no significant change in credit risk, fair values
are based on carrying values. The fair values for
other loans (e.g., consumer loans and fixed rate
mortgage loans) are estimated using discounted cash
flow analyses, using interest rates currently being
offered for loans with similar terms to borrowers of
similar credit quality.
Deposit liabilities:
The fair values disclosed for demand deposits (e.g.,
interest and non-interest checking, passbook savings
and certain types of money market accounts) are, by
definition, equal to the amount payable on demand at
the reporting date (i.e., their carrying amounts). The
carrying amounts for variable-rate, fixed-term money
market accounts and certificates of deposits
approximate their fair values at the reporting date.
Fair values for fixed-rate certificates of deposit are
estimated using a discounted cash flow calculation that
applies interest rates currently being offered on
certificates to a schedule of aggregated expected
monthly maturities on time deposits.
Short-term borrowings:
The carrying amounts of federal funds purchased and
other short-term borrowings approximate their fair
values.
Long-term debt:
The fair values of the Bank's long-term debt (other
than deposits) are estimated using discounted cash flow
analyses, based on the Bank's current incremental
borrowing rates for similar types of borrowing
arrangements.
Accrued interest receivable and payable:
The carrying amount of accrued interest receivable and
accrued interest payable approximates its fair value.
Off-balance sheet instruments:
Fair values for the Bank's off-balance sheet
instruments (lending commitments, letters of credit)
are based on fees currently charged to enter into
similar agreements, taking into account the remaining
terms of the agreements and the counterparties' credit
standing.
The estimated fair values of the Bank's financial instruments
based on the assumptions disclosed on the preceding page at
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Carrying Estimated
(In Thousands) Amount Fair Value
<S> <C> <C>
Financial Assets:
Cash and cash equivalents $ 5,043 $ 5,043
Federal funds sold 601 601
Securities 37,849 37,849
Loans receivable, net 104,092 105,369
Accrued interest receivable 1,127 1,127
Financial Liabilities:
Deposits 133,438 134,708
Long-term debt 1,000 1,000
Accrued interest payable 762 762
Off-Balance Sheet Financial Instruments:
Commitments to extend credit - -
Standby letters of credit - -
</TABLE>
<PAGE>
15. FIRST LEESPORT BANCORP, INC. (PARENT COMPANY ONLY) FINANCIAL INFORMATION
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1995 1994
(In Thousands)
ASSETS
<S> <C> <C>
Cash $ 162 $ 171
Investment in bank subsidiary 16,175 14,436
Premises and equipment 73 76
$16,410 $14,683
======= =======
LIABILITY AND STOCKHOLDERS' EQUITY
LIABILITY, other $ 133 $ 82
STOCKHOLDERS' EQUITY 16,277 14,601
$16,410 $14,683
======= =======
<CAPTION>
STATEMENTS OF INCOME
Years Ended December 31,
1995 1994 1993
(In Thousands)
<S> <C> <C> <C>
Dividends from bank subsidiary $ 536 $ 572 $ 525
Other income 38 33 33
Other expenses (101) (88) (86)
473 517 472
Equity in undistributed net income of
bank subsidiary 979 899 993
Net income $ 1,452 $ 1,416 $ 1,465
======= ======= =======
<CAPTION>
STATEMENTS OF CASH FLOWS
Years Ended December 31,
1995 1994 1993
(In Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,452 $ 1,416 $ 1,465
Depreciation and amortization 3 4 4
Undistributed earnings of bank
subsidiary (979) (899) (993)
Increase (decrease) in other
liability 39 (20) (15)
Net cash provided by operating
activities 515 501 461
CASH FLOWS USED IN FINANCING ACTIVITIES
Cash dividends paid (524) (488) (453)
Increase (decrease) in cash (9) 13 8
Cash:
Beginning 171 158 150
Ending $ 162 $ 171 $ 158
======= ======= =======
</TABLE>
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act.
The name, age, principal occupation, business experience
during the past five years, and other information with respect to
each director and executive officer of the Company is set forth
on pages 5, 6 and 9 of the Company's Proxy Statement dated
March 6, 1996, prepared in connection with the Company's Annual
Meeting of Stockholders to be held on April 9, 1996 (the "Proxy
Statement"), and such information is incorporated herein by
reference thereto.
Item 10. Executive Compensation.
Information with respect to the compensation of executive
officers and directors of the Company is set forth on pages 8 and
10 of the Proxy Statement and is incorporated herein by reference
thereto.
Item 11. Security Ownership of Certain Beneficial Owners and
Management.
Information relating to those persons who, to the knowledge
of the Company's management, may be deemed to be the beneficial
owners, either directly or indirectly, of 5% or more of the
shares of the outstanding Common Stock of the Company as of
February 28, 1996, is set forth on page 12 of the Proxy Statement
and is incorporated herein by reference thereto.
Information relating to beneficial ownership of shares of
the Company's Common Stock owned by each director, nominee, and
executive officer and by all directors and executive officers, as
a group, as of February 28, 1996, is set forth on pages 5, 6, and
9 of the Proxy Statement and is incorporated herein by reference
thereto.
Item 12. Certain Relationships and Related Transactions.
Information relating to business relationships and
transactions between the Company and members of management or
their affiliates is set forth on page 11 of the Proxy Statement
and is incorporated herein by reference thereto.
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits.
The Exhibits required in response to this item are as
follows:
Exhibit No. Description
3.1 Articles of Incorporation of First Leesport
Bancorp, Inc. (Incorporated herein by
reference to Exhibit 3.1 to Registrant's
annual report on Form 10-K for the year ended
December 31, 1989.)
3.2 By-laws of First Leesport Bancorp, Inc.
(Incorporated herein by reference to
Exhibit 3.2 to Registrant's annual report
on Form 10-K for the year ended December 31,
1989.)
10.1 Contract between the First National Bank of
Leesport and Bisys (formerly Automatic Data
Processing, Inc.) (Incorporated herein by
reference to Exhibit 10.1 to Registration
Statement on Form 10 of Registrant.)
10.2 The First National Bank of Leesport Pension
Plan. (Incorporated herein by reference to
Exhibit 10.2 to Registrant's annual report on
Form 10-KSB for the year ended December 31,
1992.)*
10.3 Severance Agreement between the First
National Bank of Leesport and John T.
Connelly (Incorporated herein by reference to
Exhibit 10.3 to Registrant's annual report on
Form 10-K for the year ended December 31,
1990.)*
10.4 The First National Bank of Leesport 401(k)
Retirement Savings Plan (Incorporated herein
by reference to Exhibit 10.4 to Registrant's
annual report on Form 10-K for the year ended
December 31, 1990.)*
10.5 Lease Agreement for Wernersville branch
(Incorporated herein by reference to
Exhibit 10.5 to Registrant's annual report
on Form 10-KSB for the year ended
December 31, 1995.).
10.6 Lease Agreement for Wyomissing, Pennsylvania
loan production office (Incorporated herein
by reference to Exhibit 10.6 to
Registrant's annual report on Form 10-KSB for
the year ended December 31, 1995.).
11 No statement setting forth the computation of
per share earnings is included because,
pursuant to Instruction (b)(11) to Item 601
of Regulation S-B, such computation is
reflected clearly in the financial statements
set forth in response to Item 7 of this
Report.
21 Subsidiaries of First Leesport Bancorp, Inc.
27.1 Financial Data Schedule (included herein)
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during
the quarter ended December 31, 1995.
________________________________________________________________
* Denotes a management contract or compensatory plan or
arrangement.
<PAGE>
Signatures
In accordance with Section 13 or 15(d) of the Exchange Act,
the registrant has caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
March 12, 1996 FIRST LEESPORT BANCORP, INC.
By John T. Connelly
John T. Connelly, President
In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
John T. Connelly President and Chief March 13, 1996
John T. Connelly Executive Officer,
Director
Frederick P. Henrich Treasurer, Chief March 13, 1996
Frederick P. Henrich Financial Officer,
and Chief Accounting
Officer
Louis D. Bruno Director March 12, 1996
Louis D. Bruno
Joseph M. Fabrizio Director March 12, 1996
Joseph M. Fabrizio
Richard L. Henry Director March 12, 1996
Richard L. Henry
William Keller Director March 12, 1996
William Keller
Michael D. Mathias Director March 12, 1996
Michael D. Mathias
Harry J. O'Neill, III Director March 12, 1996
Harry J. O'Neill III
Director March __, 1996
Karen A. Rightmire
Alfred J. Weber Director March 12, 1996
Alfred J. Weber
Daniel W. Weist Director March 12, 1996
Daniel W. Weist
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
3.1 Articles of Incorporation of First Leesport
Bancorp, Inc. (Incorporated herein by
reference to Exhibit 3.1 to Registrant's
annual report on Form 10-K for the year ended
December 31, 1989.)
3.2 By-laws of First Leesport Bancorp, Inc.
(Incorporated herein by reference to
Exhibit 3.2 to Registrant's annual report
on Form 10-K for the year ended December 31,
1989.)
10.1 Contract between the First National Bank of
Leesport and Bisys (formerly Automatic Data
Processing, Inc.) (Incorporated herein by
reference to Exhibit 10.1 to Registration
Statement on Form 10 of Registrant.)
10.2 The First National Bank of Leesport Pension
Plan. (Incorporated herein by reference to
Exhibit 10.2 to Registrant's annual report on
Form 10-KSB for the year ended December 31,
1992.)*
10.3 Severance Agreement between the First
National Bank of Leesport and John T.
Connelly (Incorporated herein by reference to
Exhibit 10.3 to Registrant's annual report on
Form 10-K for the year ended December 31,
1990.)*
10.4 The First National Bank of Leesport 401(k)
Retirement Savings Plan (Incorporated herein
by reference to Exhibit 10.4 to Registrant's
annual report on Form 10-K for the year ended
December 31, 1990.)*
10.5 Lease Agreement for Wernersville branch
(Incorporated herein by reference to
Exhibit 10.5 to Registrant's annual report
on Form 10-KSB for the year ended
December 31, 1995.).
10.6 Lease Agreement for Wyomissing, Pennsylvania
loan production office (Incorporated herein
by reference to Exhibit 10.6 to
Registrant's annual report on Form 10-KSB for
the year ended December 31, 1995.).
11 No statement setting forth the computation of
per share earnings is included because,
pursuant to Instruction (b)(11) to Item 601
of Regulation S-B, such computation is
reflected clearly in the financial statements
set forth in response to Item 7 of this
Report.
21 Subsidiaries of First Leesport Bancorp, Inc.
27.1 Financial Data Schedule (included herein)
________________________________________________________________
* Denotes a management contract or compensatory plan or
arrangement.
EXHIBIT 21
SUBSIDIARIES
Name Jurisdiction of Incorporation
The First National Bank United States of America
of Leesport (national bank)
HayCorp, Inc. Pennsylvania
<TABLE> <S> <C>
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 4,828
<INT-BEARING-DEPOSITS> 215
<FED-FUNDS-SOLD> 601
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<LOANS> 105,271
<ALLOWANCE> (1,179)
<TOTAL-ASSETS> 152,402
<DEPOSITS> 133,438
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,687
<LONG-TERM> 1,000
6,000
0
<COMMON> 0
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<SECURITIES-GAINS> (34)
<EXPENSE-OTHER> 4,602
<INCOME-PRETAX> 1,869
<INCOME-PRE-EXTRAORDINARY> 1,452
<EXTRAORDINARY> 0
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<YIELD-ACTUAL> 4.44
<LOANS-NON> 936
<LOANS-PAST> 334
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</TABLE>
