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,
1996, 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, 1996: $12,907,000.
As of March 24, 1997, the aggregate market value of the Common
Stock (based upon the average sales price on such date) of the
Registrant held by nonaffiliates was $22,327,940.
Number of Shares of Common Stock Outstanding at March 8, 1997:
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 8, 1997 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, 1996, the
Bank had total assets of $162 million, total stockholders' equity
of $17 million, and total deposits of $138 million. The Bank
currently has the equivalent of 79 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.
General
The Company is registered as a bank holding company and
is subject to supervision and regulation by the Board of
Governors of the Federal Reserve System (the "Federal Reserve
Board") under the Bank Holding Act of 1956, as amended (the
"BHCA"). As a bank holding company, the Company's activities and
those of its bank subsidiary are limited to the business of
banking and activities closely related or incidental to banking.
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 its bank subsidiary 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 from 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 non-banking 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.
As a Pennsylvania bank holding company for purposes of
the Pennsylvania Banking Code, the Company is also subject to
regulation and examination by the Pennsylvania Department of
Banking.
The Bank is a national bank and a member of the Federal
Reserve System and its deposits are insured (up to applicable
limits) by the Federal Deposit Insurance Corporation (the
"FDIC"). The Bank is subject to regulation and examination by
the Office of the Comptroller of the Currency (the "OCC"), and to
a much lesser extent, the Federal Reserve Board and the FDIC.
The Bank is also subject to requirements and restrictions under
federal and state law, including requirements to maintain
reserves against deposits, restrictions on the types and amounts
of loans that may be granted and the interest that may be charged
thereon, and limitations on the types of investments that may be
made and the types of services that may be offered. Various
consumer laws and regulations also affect the operations of the
Bank. In addition to the impact of regulation, commercial banks
are affected significantly by the actions of the Federal Reserve
Board as it attempts to control the money supply and credit
availability in order to influence the economy.
Capital Adequacy Guidelines
Bank holding companies are required to comply with the
Federal Reserve Board's risk-based capital guidelines. 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, less certain intangible assets. The
remainder ("Tier 2 capital") may consist of certain preferred
stock, a limited amount of subordinated debt, certain hybrid
capital instruments and other debt securities, and a limited
amount of the general loan loss allowance. 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 addition to the risk-based capital guidelines, the
Federal Reserve Board requires a bank holding company to maintain
a leverage ratio of a minimum level of Tier 1 capital (as
determined under the risk-based capital guidelines) equal to 3%
of average total consolidated assets 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 required to
maintain a ratio of at least 1% to 2% above the stated minimum.
The Bank is subject to almost identical capital requirements
adopted by the OCC.
Prompt Corrective Action Rules
The Federal banking agencies have regulations defining
the levels at which an insured institution would be considered
"well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized" and "critically
undercapitalized." 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). The Company and the Bank each satisfy the criteria to
be classified as "well capitalized" within the meaning of
applicable regulations.
Regulatory Restrictions on Dividends
The Bank may not, under the National Bank Act, declare
a dividend without approval of the Comptroller of the Currency,
unless the dividend to be declared by the Bank's Board of
Directors does not exceed the total of: (i) the Bank's net
profits for the current year to date, plus (ii) its retained net
profits for the preceding two current years, less any required
transfers to surplus. In addition, the Bank can only pay
dividends to the extent that its retained net profits (including
the portion transferred to surplus) exceed its bad debts. The
Federal Reserve Board, the OCC and the FDIC have formal and
informal policies which provide that insured banks and bank
holding companies should generally pay dividends only out of
current operating earnings, with some exceptions. The Prompt
Corrective Action Rules, described above, further limit the
ability of banks to pay dividends, because banks which are not
classified as well capitalized or adequately capitalized may not
pay dividends.
Under these policies and subject to the restrictions
applicable to the Bank, the Bank could declare, during 1997,
without prior regulatory approval, aggregate dividends of
approximately $2.1 million, plus net profits earned to the date
of such dividend declaration.
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 depository 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 measuring the risk posed by the
institution. Only institutions with a total capital to
risk-adjusted assets ratio of 10% or greater, a Tier 1 capital to
risk-based assets ratio of 6% or greater, and a Tier 1 leverage
ratio of 5% or greater, are assigned to the well-capitalized
group. As of December 31, 1996, the Bank was well capitalized
for purposes of calculating insurance assessments.
The Bank Insurance Fund ("BIF") is presently fully
funded at more than the minimum amount required by law.
Accordingly, the 1997 BIF assessment rates range from zero for
those institutions with the least risk, to $0.27 for every $100
of insured deposits for institutions deemed to have the highest
risk. The Bank is in the category of institutions that presently
pay nothing for deposit insurance. The FDIC adjusts the rates
every six months.
While the Bank presently pays no premiums for deposit
insurance, it is subject to assessments to pay the interest on
Financing Corporation ("FICO") bonds. FICO was created by
Congress to issue bonds to finance the resolution of failed
thrift institutions. Prior to 1997, only thrift institutions
were subject to assessments to raise funds to pay the FICO bonds.
On September 30, 1996, as part of the omnibus budget act,
Congress enacted the Deposit Insurance Funds Act of 1996, which
recapitalized the Savings Association Insurance Fund ("SAIF") and
provided that commercial banks would be subject to 1/5 of the
assessment to which thrifts are subject for FICO bond payments
through 1999. Beginning in 2000, commercial banks and thrifts
will be subject to the same assessment for FICO bonds. The FICO
assessment for the Bank (and all commercial banks) for the first
six months of 1997 is $.0065 for each $100 of deposits.
New Legislation
The Deposit Insurance Funds Act of 1996 was a part of
the larger Economic Growth and Regulatory Paperwork Reduction Act
of 1996 ("EGRPRA"). EGRPRA is a lengthy Act that amends many
different bank regulatory and consumer protection statutes.
While EGRPRA does not contain any major changes to banking law
(except for the FDIC and FICO assessments discussed above), it
does contain a number of smaller provisions that are beneficial
to the banking industry. In particular, certain routine
regulatory application requirements and procedures have been
reduced or eliminated, making it easier and less expensive for
banks to comply with regulatory requirements. While the changes
effected by EGRPRA are welcome, the direct effect on the Company
and the Bank are expected to be minimal.
Proposed legislation is introduced in almost every
legislative session that would dramatically affect the regulation
of the banking industry. Whether or not such legislation will
ever be enacted and what effect it may have on the Company and
the Bank cannot be estimated at this time.
Interstate Banking
Prior to the passage of the Riegle-Neal Interstate
Banking and Branching Efficiency Act of 1994 (the "Interstate
Banking Act"), the BHCA prohibited a bank holding company located
in one state from acquiring a bank located in another state,
unless such an acquisition by an out-of-state bank holding
company was specifically authorized by the law of the state where
the bank to be acquired was located. Similarly, interstate
branching by a single bank was generally prohibited by the
McFadden Act. The Interstate Banking Act permits an adequately
capitalized and adequately managed bank holding company to
acquire a bank in another state whether or not the law of that
other state permits the acquisition, subject to certain deposit
concentration caps and approval by the Federal Reserve Board. In
addition, beginning on June 1, 1997, under the Interstate Banking
Act, a bank can engage in interstate expansion by merging with a
bank in another state, unless the other state affirmatively opts
out of the legislation before that date. A state may also opt
into the legislation earlier than June 1, 1997 if it wishes to do
so. The Interstate Banking Act also permits de novo interstate
branching as of June 1, 1997, but only if a state affirmatively
opts in by adopting appropriate legislation. Pennsylvania,
Delaware, Maryland, and New Jersey, as well as other states,
adopted "opt in" legislation which allows such transactions prior
to the June 1, 1997 federal effective date.
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 14 other commercial
banks, 3 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 2228 State Hill Road,
Wyomissing Hills, Pennsylvania
4. Reading 1210 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, 1996.
PART II
Item 5. Market For Common Equity and Related Stockholder
Matters.
As of December 31, 1996, there were 592 record holders of
the Company's Common Stock. The market price of the Company's
Common Stock for each quarter in 1996 and 1995 and the dividends
declared on the Company's Common Stock for each quarter in 1996
and 1995 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>
1996 1995
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 14 17.25 16 1st 15.5 15 18 17
2nd 14.75 14.75 16.75 16 2nd 15 15 17 17
3rd 15 14.25 16.5 15.75 3rd 15.25 15 17 17
4th 16.75 14.5 18.5 15.75 4th 15.25 15 16.5 16.5
</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
1996 1995
1st Qtr. $.12 $.11
2nd Qtr. .12 .11
3rd Qtr. .12 .11
4th Qtr. .13 .12
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 assets increased to $162,023,000 at
December 31, 1996. This figure represents an increase of 6.3% or
$9,621,000 from the $152,402,000 total at December 31, 1995. The
majority of this growth came from the loan portfolio which
increased by $5,681,000 accounting for 59.1% of the total growth.
Also increasing was the Securities portfolio, which increased by
$1,841,000 and accounted for 19.1% of the total growth.
Cash and due from banks, including interest-bearing deposits
with other institutions, amounted to $5,199,000 at the end of
1996 compared with $5,043,000 at the end of 1995, a change of
$156,000 or 3.1%. An effort to utilize as much excess funding as
possible resulted in this small increase compared with the
overall asset growth noted above. This effort resulted in the
percentage of average earning assets to total assets remaining
stable at 93% from 1995 to 1996. Management is aware of and
manages the impact that non-earning assets have on overall
performance.
Securities, all classified as available for sale, increased
by $1,841,000 or 4.9% between the two dates, with all of this
growth in U.S. Government Agency securities. Maturity and/or
call dates on these issues are spread over the next five years.
The municipal securities within the portfolio were maintained at
or near their 1995 levels. This segment of the portfolio is used
to help manage the Company's tax liability throughout the year.
The Company continues to invest only in bank-qualified securities
and does not own any derivative products at this time.
Net loans amounted to $109,773,000 at December 31, 1996
compared with $104,092,000 at December 31, 1995, an increase of
$5,681,000 or 5.5%. Within this portfolio, residential mortgages
continues to provide the bulk of new loans booked. Mortgages,
including commercial and construction mortgages, make up
approximately 57% of the entire loan portfolio. In addition, the
Bank services an additional $19,013,000 in residential mortgages
which have been sold to FNMA.
Commercial loans make up 30.0% of the loan portfolio. They,
too, increased during 1996, growing from $32,353,000 at year-end
1995 to $32,915,000 at year-end 1996.
The allowance for loan losses amounted to $1,105,000 at
December 31, 1996, down from $1,179,000 at December 31, 1995.
This amount, representing 1.00% of total loans, is somewhat less
than the 1.12% of loans at December 31, 1995. Ongoing management
action to control and limit the amount of credit risk to which
the Bank is exposed reduced the amount of problem loans
outstanding at year-end, and the reduction in the allowance as a
percentage of total loans reflects this action. Management feels
that the balance in the allowance for loan losses is sufficient
to meet the credit risk issues outstanding at this time.
There was very little change in premises and equipment
throughout the year. Minor building renovation projects offset
the cost of depreciation, and the net increase for the year was
only $14,000.
Other assets increased by $2,082,000, a total of 138.5%,
growing from $1,503,000 to $3,585,000 between December 31, 1995
and December 31, 1996, respectively. This category includes the
value of life insurance policies purchased by the Bank to fund
deferred compensation arrangements with certain board members and
senior officers. The cash value of these policies at the end of
the year was $1,589,000. Absent this amount, total other assets
increased by $489,000.
Total deposits increased by $4,099,000 or 3.1% from
$133,438,000 at December 31, 1995 to $137,537,000 at December 31,
1996. The majority of this growth, $2,953,000 was in interest-
bearing deposits. Within the interest-bearing deposit types,
certificates of deposit increased by $1,302,000 while demand and
savings-types of deposits increased by $1,651,000.
Non-interest bearing deposits grew from $15,791,000 at
December 31, 1995 to $16,937,000 at December 31, 1996, an
increase of $1,146,000 or 7.3%. Time deposits with balances
greater than $100,000 continue to represent less than 4% of total
deposits.
Other funding sources, including federal funds purchased and
other borrowed funds, increased by $5,700,000 between the two
dates, while $1,000,000 of long-term debt was repaid during the
year. The net increase in these types of funding was $4,700,000.
All outstanding debt at year-end 1996 is due to the Federal Home
Loan Bank of Pittsburgh (FHLB) and matures in 1997. The Bank has
additional borrowing capacity from the FHLB under a $6,000,000
line of credit which expires in March, 1997.
Stockholders' Equity increased by $844,000 from $16,277,000
at December 31, 1995 to $17,121,000 at December 31, 1996.
Contributing to this increase was net income of $1,709,000 while
a decrease in the net unrealized appreciation on available for
sale securities impacted the total by $281,000. These factors,
combined with dividends paid by the Bank, resulted in book values
per share of $14.37 at December 31, 1996 compared with $13.67 at
December 31, 1995, an increase of 5.2%.
Bank capital remains extremely strong with the Bank's
leverage ratio at 10.35% at December 31, 1996 compared with
10.34% at December 31, 1995. Management has targeted this ratio
for improvement over the coming year as a high leverage ratio
generally results in lower returns on total equity. In addition,
the Bank's total risk-based capital ratio at 17.59% as of
December 31, 1996 signifies that the Bank can absorb more risk
within its asset base.
RESULTS OF OPERATIONS
Net income for 1996 amounted to $1,709,000 compared with
$1,452,000 for 1995, an increase of $257,000 or 17.7%. Within
this total, net interest income after the provision for loan
losses increased from $6,012,000 for 1995 to $6,666,000 for 1996,
an increase of $654,000 or 10.9%.
Contributing to this increase, total interest income grew by
$806,000 from $11,534,000 to $12,340,000. Interest and fees on
loans contributed $622,000 to this increase while total interest
on securities increased by $266,000. Increased volumes of loans
and investment securities are credited with this increase as the
actual yield on earning assets increased by only .02% from 8.20%
for the year ended December 31, 1995 to 8.22% for the year ended
December 31, 1996.
The general overall flattening of interest rates throughout
the year combined with an extremely competitive marketplace
contributed to this factor.
Interest expense, including interest on borrowed funds,
increased by $212,000 from $5,252,000 for the year ended
December 31, 1995 to $5,464,000 for the year ended December 31,
1996. This 4.0% increase resulted from increased volumes as
well, since the Company's overall cost of funds actually
decreased from 4.51% to 4.42% between the two periods.
The provision for loan losses in 1996 was $210,000 compared
with $270,000 for 1995. This reduction in the provision,
combined with loan growth and collection activities, resulted in
a decrease in the percentage of the allowance compared with total
loans.
Total other income increased by $108,000 or 23.5% from
$459,000 for 1995 to $567,000 for 1996. Included within this
total is income from mortgage banking activities which remained
relatively stable between the two years, while customer service
fees increased by $26,000, or 9.1%. Also within this total,
other income increased, growing from $135,000 for the year in
1995 to $182,000 for the year in 1996, an increase of $47,000.
Of this increase, $16,000 came from increased fees for preparing
loan documentation.
Total other expenses increased by 8.9% or $409,000 from
$4,602,000 for the year ended December 31, 1995 to $5,011,000 for
the year ended December 31, 1996.
Contributing to this increase, salaries and benefits
increased by $167,000 or 7.5% growing from $2,239,000 to
$2,406,000 between 1995 and 1996, respectively.
Net occupancy expense and depreciation of furniture and
equipment combined, increased by $38,000 or 5.6% from $677,000 in
1995 to $715,000 in 1996. There were no major building
expansions or equipment replacements during the year.
FDIC Insurance premiums on deposit accounts decreased by
$135,000 to $2,000 due to a decrease in insurance premiums
resulting from the recapitalization of the Bank Insurance Fund.
This cost, included in other expenses, is expected to increase to
approximately $20,000 in 1997 as the rate is increased to $.0129
per $100 of deposits from the statutory minimum assessed in 1996.
Other real estate expenses increased dramatically from
$39,000 in 1995 to $161,000 in 1996 as a number of properties
were disposed of during the year. This action, combined with the
activity in the allowance for loan losses account, helped to
strengthen the loan portfolio as the problem credits were removed
from the Bank's books.
Advertising and marketing expenses increased from $180,000
to $263,000 between the two periods, an increase of $83,000 or
46.1% as the Bank increased its promotional efforts.
Income before federal income taxes increased from $1,869,000
in 1995 to $2,222,000 in 1996, an increase of $353,000. This,
combined with an increase in income taxes from $417,000 in 1995
to $513,000 in 1996, resulted in net income of $1,709,000 in 1996
compared with $1,452,000 in 1995. The effective tax rate for the
two years was 23.1% and 22.3%, respectively. The tax rate is
substantially below the statutory tax rate of 34% principally
because of tax-exempt income from loans and securities.
Net income, expressed on a per share basis, amounted to
$1.43 per share in 1996 compared with $1.22 per share in 1995.
As a result of the strong earnings, the board of directors
increased the quarterly dividend amount from $0.12 per share to
$0.13 per share during the fourth quarter of 1996. The dividend
payable on January 15, 1997 will reflect that 8.3% increase. As
a percentage of net income, the dividend payout ratio at 1996 was
34.2% compared with 36.9% at 1995.
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 36% of the total loan portfolio is subject to
rate changes within one year. In addition, over 20% of the
securities 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. See Note 12 to the financial statements for a
discussion of regulatory capital requirements.
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)
<TABLE>
<CAPTION>
1996 vs. 1995 1995 vs. 1994
Increase (Decrease) Due To: Increase (Decrease) Due To:
----------------------------- -----------------------------
Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- ---
<S> <C> <C> <C> <C> <C> <C>
Interest Earning Assets:
Investments $ 195 $ 71 $ 266 $ 49 $ 180 $ 299
Fed Funds Sold and interest
Bearing Bank Balances (75) (7) (82) - - -
Loans 745 (123) 622 1,101 81 1,182
------ ------ ------ ------ ------ ------
Net Change in Interest Income 865 (59) 806 1,150 261 1,411
------ ------ ------ ------ ------ ------
Interest Bearing Liabilities:
Deposits 314 (56) 258 707 481 1,188
Other Borrowed Funds (20) (26) (46) 142 11 153
------ ------ ------ ------ ------ ------
Net Change in Interest Expense 294 (82) 212 849 492 1,341
------ ------ ------ ------ ------ ------
Increase (Decrease) in Net
Interest Income $ 571 $ 23 $ 594 $ 301 $ (231) $ 70
====== ====== ====== ====== ====== ======
</TABLE>
_________________
(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 1996 and 1995.
NONPERFORMING LOANS
(In Thousands)
As of December 31,
1996 1995
Nonaccrual loans
Real Estate $ 253 $ 110
Consumer 4 6
Commercial 517 820
Total $ 774 $ 936
====== ======
Loans past due 90 days or more
and still accruing interest
Real Estate $ 213 $ 260
Consumer 103 74
Commercial 1 0
Total loans past due
90 days or more $ 317 $ 334
====== ======
Troubled debt restructurings
Real Estate $ 0 $ 0
Consumer 0 0
Commercial 1,246 1,404
Total troubled debt
restructurings $1,246 $1,404
====== ======
Amount of interest on loans which
would have been recorded at
original rates $ 90 $ 83
Amount of interest which was
reflected in income 0 2
Interest income not recognized on
total nonaccrual loans $ 90 $ 81
====== ======
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 1996 and 1995 and the allocation of
the allowance.
Analysis of the Allowance for Loan Losses
(In Thousands Except Ratios)
December 31,
1996 1995
Balance, Beginning of Year $ 1,179 $ 1,124
Charge-Offs
Commercial 249 112
Real estate 0 29
Consumer 95 188
Total 344 329
Recoveries
Commercial 17 37
Real estate 0 0
Consumer 43 77
Total 60 114
Net Charge-Offs 284 215
Provision Charged to Operations 210 270
Balance, End of Year $ 1,105 $ 1,179
======== ========
Average Loans, Net $108,796 $101,352
======== ========
Ratio of Net Charge-Offs to
Average Loans 0.26% 0.21%
Ratio of Allowance Balance to
Loans, End of Year 1.00% 1.12%
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.
The following table details the allocation of the allowance
for loan losses to the various categories. The allocation is
made for analytical purposes and is not necessarily indicative of
the categories in which future credit losses may occur. The
total allowance is available to absorb losses from any segment of
loans.
<TABLE>
<CAPTION>
Allocation of Allowance for Loan Losses
(In Thousands)
December 31,
1996 1995
Percent of Loans Percent of Loans
in Category to in Category to
Amount Total Loans Amount Total Loans
<S> <C> <C> <C> <C>
Commercial $ 198 29.7% $ 177 30.7%
Real Estate 107 56.0% 99 54.5%
Consumer 178 14.3% 161 14.8%
Total Allocated 483 100% 437 100%
Unallocated 622 -- 742 --
TOTAL $1,105 100% $1,179 100%
====== ====== ====== ======
</TABLE>
Loan Maturities
The rate at which outstanding loans of the Bank at
December 31, 1996 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 $ 7,663 $ 9,026 $45,518 $ 62,207
Consumer 4,279 7,878 3,599 15,756
Commercial 16,893 14,573 1,449 32,915
Total $28,835 $31,477 $50,566 $110,878
======= ======= ======= ========
</TABLE>
Excluding the loans maturing within one year listed above,
$10,941,000 or 9.9% 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, 1996
(In Thousands)
Three Months or Less $2,680
Over Three Through Six Months 631
Over Six Through Twelve Months 612
Over Twelve Months 639
TOTAL $4,562
======
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>
December 31, 1996
(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. $6,234 $8,967 $6,328 $5,260 $26,789
Treasury and other U.S. 7.18% 6.42% 6.58% 7.19% 6.78%
Government Agencies and
Corporations
________________________________________________
State and Municipal $1,892 $7,531 $ 621 $ 860 $10,914
Obligations 5.92% 5.21% 6.39% 7.05% 5.54%
________________________________________________
Other Securities $ 0 $ 721 $ 382 $ 893 $ 1,987
0% 7.20% 7.30% 6.25% 6.79%
________________________________________________
</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,
1996 1995
(In Thousands)
U.S. Treasuries $10,205 $12,066
U.S. Government Agencies 16,584 11,821
State and Political Subdivisions 10,914 11,807
Other Investments and Equity
Securities 1,987 2,155
$39,690 $37,849
======= =======
For purposes of the above table, 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, 1996 December 31, 1995
(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 $ 10,766 $ 623 5.79% $ 12,133 $ 680 5.60%
U.S. Gov't Agencies 9,006 647 7.19% 9,057 586 6.47%
Municipal Obligations* 11,417 630 5.52% 11,382 654 5.75%
Other Investments 7,242 484 6.55% 2,782 198 7.12%
Investments 38,431 2,384 6.18% 35,354 2,118 5.99%
Interest-bearing deposits
and federal funds sold 939 42 4.47% 2,288 124 5.42%
Real Estate Loans 62,425 5,503 8.82% 56,396 4,992 8.85%
Consumer Loans 15,632 1,528 9.77% 15,347 1,436 9.36%
Commercial Loans 31,981 2,883 9.01% 30,754 2,864 9.31%
Total Loans $110,038 9,914 8.95% 102,497 9,292 9.07%
Earning Assets $149,408 $12,340 8.26% $140,139 $11,534 8.23%
======== ======= ======== =======
Money Market Accounts $ 27,709 $ 736 2.66% $ 26,723 $ 735 2.75%
Savings Deposit 24,719 526 2.13% 24,185 597 2.47%
Time Deposits 66,969 3,971 5.93% 60,847 3,642 5.98%
Interest-bearing Deposits $119,397 $ 5,232 4.40% 111,755 4,974 4.45%
Other Borrowed Funds 4,268 232 5.44% 4,624 278 6.06%
Interest-bearing
Liabilities $123,665 $ 5,464 4.42% $116,379 $ 5,252 4.52%
======== ======= ======== =======
Noninterest-bearing
Deposits $ 16,896 $ 15,167
NET INTEREST MARGIN $ 6,876 4.60% $ 6,282 4.44%
======= =======
</TABLE>
___________________
* Rates on Municipal Obligations are not reported on a tax-
equivalent basis.
Dividends and Stockholders' Equity
The Company increased its dividends in 1996 to $0.49 per
share from $0.45 per share in 1995. Despite the increase in the
dividends paid from 1995 to 1996, the Company's dividend payout
ratio decreased from 36.9% in 1995 to 34.2% in 1996 due to the
increase in the Company's net income. The Company's ratio of
average shareholders' equity to average assets for the year ended
December 31, 1996 was 10.4%.
Year ended December 31
1996 1995
Return on assets 1.08% .99%
Return on equity 10.36% 9.41%
Dividend payment ratio 34.17% 36.91%
Equity to assets ratio 10.42% 10.52%
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, 1996 and
1995, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years
in the period ended December 31, 1996. 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, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in
the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
BEARD & COMPANY, INC.
Reading, Pennsylvania
January 10, 1997
<PAGE>
<TABLE>
<CAPTION>
December 31, 1996 1995
(In Thousands)
<S> <C> <C>
ASSETS
Cash and due from banks $ 5,087 $ 4,828
Interest-bearing deposits in other banks 112 215
Total cash and cash equivalents 5,199 5,043
Federal funds sold 448 601
Securities available for sale 39,690 37,849
Loans, net of allowance for loan losses
1996 $1,105; 1995 $1,179 109,773 104,092
Bank premises and equipment, net 3,328 3,314
Accrued interest receivable and other assets 3,585 1,503
Total assets $162,023 $152,402
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Non-interest bearing $ 16,937 $ 15,791
Interest bearing 120,600 117,647
Total deposits 137,537 133,438
Other borrowed funds 5,700 -
Long-term debt - 1,000
Accrued interest payable and other
liabilities 1,665 1,687
Total liabilities 144,902 136,125
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 8,021 6,896
Net unrealized appreciation
on securities
available for sale, net of taxes 221 502
Treasury stock, at cost 8,829 shares (121) (121)
Total stockholders' equity 17,121 16,277
Total liabilities and stockholders'
equity $162,023 $152,402
======== ========
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31, 1996 1995 1994
(In Thousands, Except
Per Share Amounts)
<S> <C> <C> <C>
Interest income:
Loans receivable, including fees $ 9,914 $ 9,292 $ 8,110
Securities:
Taxable 1,754 1,464 1,205
Tax-exempt 630 654 654
Other 42 124 154
Total interest income 12,340 11,534 10,123
Interest expense:
Deposits 5,232 4,974 3,786
Borrowings 232 278 125
Total interest expense 5,464 5,252 3,911
Net interest income 6,876 6,282 6,212
Provision for loan losses 210 270 168
Net interest income after
provision for loan losses 6,666 6,012 6,044
Other income:
Customer service fees 311 285 253
Mortgage banking activities 74 73 46
Other income 182 135 91
Net realized loss on sale of
securities - (34) -
Total other income 567 459 390
Other expenses:
Salaries and employee benefits 2,406 2,239 2,305
Occupancy 424 411 329
Equipment 291 266 250
Computer services 289 270 242
Taxes other than income 151 147 130
Foreclosed real estate 161 39 56
Marketing and advertising 263 180 172
Other operating expenses 1,026 1,050 1,159
Total other expenses 5,011 4,602 4,643
Income before income taxes 2,222 1,869 1,791
Federal income taxes 513 417 375
Net income $ 1,709 $ 1,452 $ 1,416
======= ======== ========
Net income per share of common stock $ 1.43 $ 1.22 $ 1.19
======= ======== ========
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31, 1996, 1995 and 1994
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, 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)
Net income - - 1,709 - -
Cash dividends, $.49 per share - - ( 584) - -
Net change in unrealized
appreciation (depreciation)
on securities available for
sale, net of taxes - - - (281) -
Balance, December 31, 1996 $6,000 $3,000 $8,021 $ 221 $ (121)
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31, 1996 1995 1994
(In Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,709 $ 1,452 $ 1,416
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 210 270 168
Provision for depreciation and amortization 295 268 250
Net amortization (accretion) of investment
security premiums and discounts (18) 61 32
Net Cash provided by loans held for sale 36 53 30
Gain on sale of securities and loans (36) (19) (30)
Increase in accrued interest receivable
and other assets (151) (149) (83)
Increase (decrease) in accrued interest
payable and other liabilities (34) 315 160
Net cash provided by operating activities 2,011 2,251 1,943
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of securities available for sale - 2,579 -
Proceeds from principal repayments and maturities
of securities available for sale 7,404 1,697 1,073
Proceeds from principal repayments and maturities
of securities held to maturity - 3,324 5,260
Purchase of securities available for sale (9,654) (3,173) (5,029)
Purchase of securities held to maturity - (6,975) (7,613)
Purchase of life insurance (1,785) - -
Net (increase) decrease in federal funds sold 153 (601) 5,123
Loans made to customers, net of principal collected (5,891) (7,299) (11,199)
Purchases of bank premises and equipment (309) (105) (1,596)
Net cash used in investing activities (10,082) (10,553) (13,981)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 4,099 16,025 5,587
Net increase (decrease) in federal funds purchased - (5,493) 5,493
Proceeds (repayment) of other borrowed funds 5,700 (2,000) 2,000
Repayment of long-term debt (1,000) - -
Dividends paid (572) (524) (488)
Net cash provided by financing activities 8,227 8,008 12,592
Increase (decrease) in cash and cash
equivalents 156 (294) 554
Cash and cash equivalents:
January 1 5,043 5,337 4,783
December 31 $ 5,199 $ 5,043 $5,337
======= ======== ======
Cash payments for:
Interest $ 5,423 $ 5,071 $3,878
======= ======== ======
Income taxes $ 530 $ 415 $ 348
======= ======== ======
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 by the Office of the Comptroller of
the Currency and the Federal Deposit Insurance Corporation.
The bank holding company is subject to regulation by 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 (FASB) 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.
Securities classified as available for sale are those
securities that the Bank intends to hold for an indefinite
period of time but not necessarily to maturity. Any
decision to sell a security classified as available for sale
would be based on various factors, including significant
movement in interest rates, changes in maturity mix of the
Bank's assets and liabilities, liquidity needs, regulatory
capital considerations and other similar factors.
Securities available for sale are carried at fair value.
Unrealized appreciation or depreciation is reported as
increases or decreases in stockholders' equity, net of the
related deferred tax effect. Realized gains or losses,
determined on the basis of the cost of the specific
securities sold, are included in earnings. Premiums and
discounts are recognized in interest income using a method
which approximates the interest method over the period to
maturity.
Loans receivable:
Loans that management has the intent and ability to hold for
the foreseeable future or until maturity or pay-off
generally are stated at their outstanding unpaid principal
balances, net of any deferred fees or costs on originated
loans or unamortized premiums or discounts on purchased
loans. 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.
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.
The allowance for loan losses related to impaired loans that
are identified for evaluation is based on discounted cash
flows using the loan's initial effective interest rate or
the fair value, less selling costs, of the collateral for
certain collateral dependent loans. By the time a loan
becomes probable of foreclosure, it has been charged down to
fair value, less estimated costs to sell.
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,
including the amounts and timing of future cash flows
expected to be received on impaired loans.
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, 1996 and
1995.
Foreclosed real estate:
Foreclosed assets, which are recorded in other assets,
include properties acquired through foreclosure or in full
or partial satisfaction of the related loan.
Foreclosed assets are initially recorded at fair value, net
of estimated selling costs, at the date of foreclosure.
After foreclosure, valuations are periodically performed by
management and the real estate is carried at the lower of
carrying amount or fair value, less estimated costs to sell.
Revenue and expenses from operations and changes in the
valuation allowance are included in foreclosed real estate
expenses.
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.
Advertising:
Advertising costs are expensed as incurred.
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. The weighted average number of shares
outstanding was 1,191,171 in 1996, 1995 and 1994,
respectively.
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, 1996 and 1995, the
total of these reserve balances approximated $702,000 and
$599,000, respectively.
3. SECURITIES
The amortized cost of available for sale securities and their
approximate fair values at December 31 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 1996 Cost Gains Losses Value
(In Thousands)
<S> <C> <C> <C> <C>
U.S. Treasury securities $10,186 $ 65 $ (46) $10,205
U.S. Government agencies 11,998 58 (95) 11,961
Mortgage-backed securities 4,510 123 (10) 4,623
Obligations of state and
political subdivisions 10,698 223 (7) 10,914
Corporate securities 1,070 24 - 1,094
Equity securities 893 - - 893
$39,355 $493 $(158) $39,690
======= ==== ==== =======
December 31, 1995
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
======== ======== ======== =======
</TABLE>
<PAGE>
Equity securities are comprised of stock in the Federal Reserve
Bank, the Federal Home Loan Bank, and Atlantic Central Bankers'
Bank.
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, 1996, 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 $ 8,119 $ 8,126
Due after one year through five years 22,185 22,315
Due after five years through ten years 2,361 2,389
Due after ten years 1,287 1,344
Mortgage-backed securities 4,510 4,623
Equity securities 893 893
$39,355 $39,690
======= =======
Securities with an amortized cost of $2,197,000 and $1,757,000 at
December 31, 1996 and 1995 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. There were no
sales of securities in 1996 and 1994.
<PAGE>
4. LOANS RECEIVABLE
The components of loans receivable at December 31, 1996 and 1995
were as follows:
1996 1995
(In Thousands)
Commercial $32,915 $ 32,353
Real estate construction 1,439 583
Commercial real estate 3,075 3,540
Residential real estate 57,693 53,183
Credit card 667 576
Consumer 15,089 15,036
110,878 105,271
Allowance for loan losses (1,105) (1,179)
$109,773 $104,092
======== ========
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994
(In Thousands)
<S> <C> <C> <C>
Balance, beginning $ 1,179 $ 1,124 $ 1,092
Provision for loan losses 210 270 168
Loans charged off (344) (329) (205)
Recoveries 60 114 69
Balance, ending $ 1,105 $ 1,179 $ 1,124
======= ======= =======
</TABLE>
The recorded investment in impaired loans, not requiring an
allowance for loan losses, was $-0- and $33,000 at December 31,
1996 and 1995 respectively. The recorded investment in impaired
loans requiring an allowance for loan losses was $517,000 and
$772,000 at December 31, 1996 and 1995 respectively. At
December 31, 1996 and 1995, the related allowance for loan losses
associated with those loans was $171,000 and $200,000
respectively. For the years ended December 31, 1996 and 1995,
the average recorded investment in these impaired loans was
$726,000 and $888,000 respectively, and the interest income
recognized on impaired loans was $2,000 and $-0- respectively.
5. LOAN SERVICING
Mortgage loans serviced for others are not included in the
accompanying consolidated balance sheets. The unpaid principal
balance of these loans as of December 31, 1996 and 1995 was
$19,013,000 and $13,500,000 respectively. Custodial escrow
balances maintained in connection with the foregoing loan
servicing and included in other liabilities were approximately
$100,000 and $62,000 at December 31, 1996 and 1995 respectively.
Mortgage servicing rights were not capitalized in 1996 because
they were not material.
<PAGE>
6. BANK PREMISES AND EQUIPMENT
Components of bank premises and equipment were as follows:
December 31,
1996 1995
(In Thousands)
Land and land improvements $ 706 $ 706
Bank buildings 3,590 3,376
Bank furniture and equipment 2,017 1,924
6,313 6,006
Less accumulated depreciation 2,985 2,692
$3,328 $ 3,314
====== =======
Certain bank facilities and equipment are leased under various
operating leases. Rental expense for these leases was $55,000
and $65,000 respectively for the years ended December 31, 1996
and 1995. Future minimum rental commitments under noncancellable
leases are as follows (in thousands):
1997 $ 46
1998 37
1999 17
$ 100
=====<PAGE>
7. DEPOSITS
The components of deposits at December 31, 1996 and 1995 were as
follows:
1996 1995
(In Thousands)
Demand, non-interest bearing $ 16,937 $ 15,791
Demand, interest-bearing 28,004 27,140
Savings 24,050 23,263
Time, $100,000 and over 4,562 4,607
Time, other 63,984 62,637
$137,537 $133,438
======== ========
At December 31, 1996, the scheduled maturities of time deposits
are as follows (in thousands):
1997 $42,113
1998 12,308
1999 6,558
2000 5,942
2001 1,625
$68,546
=======
<PAGE>
8. BORROWINGS
The Bank has a line of credit commitment from the Federal Home
Loan Bank (FHLB) for borrowings up to $6,000,000 which expires
March 25, 1997. No amounts were outstanding under this line at
December 31, 1996 and 1995.
Long-term debt at December 31, 1995 consisted of an advance from
the FHLB bearing interest at 4.82% and which matured February 16,
1996.
Other borrowed funds at December 31, 1996 consisted of short-term
borrowings from the FHLB under a line of credit arrangement which
mature in 1997, bearing interest at approximately 5.43%. The
borrowings are collateralized by certain qualifying assets of the
Bank.
9. 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 the 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,
1996 1995 1994
(In Thousands)
<S> <C> <C> <C>
Service cost (benefits earned) $ 96 $ 101 $ 93
Interest cost on projected benefit
obligation 112 113 91
Actual return on plan assets (151) (212) 29
Net amortization and deferral 15 104 (141)
$ 72 $ 106 $ 72
====== ====== ======
</TABLE>
<PAGE>
The following table sets forth the Plan's funded status and
amounts recognized in the accompanying balance sheets:
<TABLE>
<CAPTION>
December 31,
1996 1995
(In Thousands)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits $ (1,012) $ (1,161)
======== ========
Accumulated benefits $ (1,034) $ (1,183)
======== ========
Projected benefits $ (1,440) $ (1,610)
Plan assets at fair value, principally
mutual funds 1,512 1,541
Plan assets in excess of (less than)
projected benefit obligation 72 (69)
Unrecognized prior service cost 28 30
Unrecognized net loss 159 285
Unrecognized transition asset (223) (246)
Prepaid pension cost $ 36 $ -
======== ========
</TABLE>
Assumptions used by the Bank in the determination of pension plan
information consisted of the following:
<TABLE>
<CAPTION>
December 31,
1996 1995 1994
<S> <C> <C> <C>
Discount rate 7.00% 7.00% 7.50%
Rate of increase in compensation levels 4.50% 4.50% 5.00%
Expected long-term rate of return on
plan assets 8.00% 8.00% 8.00%
</TABLE>
The Bank has a 401(k) plan which covers employees who meet the
eligibility requirement 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, $43,000,
and $42,000 for the years ended December 31, 1996, 1995 and 1994
respectively.
The Bank has entered into deferred compensation agreements with
certain directors and a salary continuation plan for certain key
employees. At December 31, 1996 and 1995, the present value of
the future liability was $153,000 and $85,000 respectively. To
fund the benefits under these agreements, the Bank is the owner
and beneficiary of life insurance policies on the lives of the
directors and employees. These policies had an aggregate cash
surrender value of $1,589,000 and $9,000 at December 31, 1996 and
1995 respectively. For the years ended December 31, 1996, 1995
and 1994, $65,000, $2,300 and $2,000 respectively was charged to
expense in connection with these agreements.
10. INCOME TAXES
The components of income tax expense are as follows:
Years Ended December 31,
1996 1995 1994
(In Thousands)
Current $ 460 $ 375 $ 311
Deferred 53 42 64
$ 513 $ 417 $ 375
===== ===== =====
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:
Years Ended December 31,
1996 1995 1994
(In Thousands)
Federal income tax at statutory rate $ 755 $ 636 $ 609
Tax exempt interest (246) (257) (262)
Interest disallowance 29 30 24
Other (25) 8 4
$ 513 $ 417 $ 375
====== ====== ======
Net deferred tax assets and liabilities consisted of the
following components as of December 31, 1996 and 1995:
1996 1995
(In Thousands)
Deferred tax assets:
Allowance for loan losses $ 237 $ 262
Deferred compensation 28 6
Deferred loan fees 85 127
Total deferred tax assets 350 395
Deferred tax liabilities:
Prepaid pension (12)
Bank premises and equipment (66) (67)
Securities (3) (6)
Net unrealized appreciation on
securities available for sale (114) (259)
Total deferred tax liabilities (195) (332)
Net deferred tax assets $155 $ 63
====== ======
11. 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, 1996 and 1995, these
persons were indebted to the Bank for loans totaling $3,106,000
and $1,554,000 respectively. During 1996, $3,319,000 of new
loans were made; repayments totaled $2,307,000. Other changes
caused the December 31, 1995 balance of the loans outstanding to
increase by $540,000.
12. 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, 1996,
that the Bank meets all capital adequacy requirements to which it
is subject.
As of December 31, 1996, the most 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 amounts and ratios are also presented
below. The Corporation's capital amounts and ratios were not
materially different from those of the Bank.
<TABLE>
<CAPTION>
To Be Well
Capitalized
Under
Prompt
For Capital Corrective
Adequacy Action
Actual Purposes Provisions
Amount Ratio Amount Ratio Amount Ratio
(Dollar Amounts in Thousands)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total capital (to risk
weighted assets) $17,881 17.59% $8,133 8.00% $ 10,166 10.00%
Tier I capital (to risk
weighted assets) 16,776 16.50 4,066 4.00 6,100 6.00
Tier I capital (to
average assets) 16,776 10.35 6,483 4.00 8,104 5.00
As of December 31, 1995:
Total capital (to risk
weighted assets) $16,823 17.48% $7,698 8.00% $ 9,622 10.00%
Tier I capital (to risk
weighted assets) 15,644 16.26 3,849 4.00 5,773 6.00
Tier I capital (to
average assets) 15,644 10.34 6,052 4.00 7,565 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 1997 without approval of the Comptroller of
the Currency of approximately $2,114,000 plus an additional
amount equal to the Bank's net profit for 1997, up to the date of
any such dividend declaration. As of December 31, 1996, the
Company has declared a $.13 per share cash dividend for
stockholders of record on January 2, 1997, payable January 15,
1997.
13. 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,
1996 1995
(In Thousands)
<S> <C> <C>
Commitments to extend credit $14,799 $11,245
Outstanding letters of credit 441 275
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.
14. 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.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
Management uses its best judgment in estimating the fair value of
the Bank's financial instruments; however, there are inherent
weaknesses in any estimation technique. Therefore, for
substantially all financial instruments, the fair value estimates
herein are not necessarily indicative of the amounts the Bank
could have realized in a sales transaction on the dates
indicated. The estimated fair value amounts have been measured
as of their respective year ends and have not been re-evaluated
or updated for purposes of these consolidated financial
statements subsequent to those respective dates. As such, the
estimated fair values of these financial instruments subsequent
to the respective reporting dates may be different than the
amounts reported each year end.
The following information should not be interpreted as an
estimate of the fair value of the entire corporation since a fair
value calculation is only provided for a limited portion of the
Bank's assets. Due to a wide range of valuation techniques and
the degree of subjectivity used in making the estimates,
comparisons between the Bank's disclosures and those of other
companies may not be meaningful. The following methods and
assumptions were used to estimate the fair values of the Bank's
financial instruments at December 31, 1996 and 1995:
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:
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). 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.
Other borrowings:
The carrying amounts of 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 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 at
December 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
(In Thousands)
<S> <C> <C> <C> <C>
Financial Assets:
Cash and cash equivalents $ 5,199 $ 5,199 $ 5,043 $ 5,043
Federal funds sold 448 448 601 601
Securities 39,690 39,690 37,849 37,849
Loans receivable, net 109,773 109,666 104,092 105,369
Accrued interest
receivable 1,183 1,183 1,127 1,127
Financial Liabilities:
Deposits 137,537 138,098 133,438 134,708
Other borrowed funds 5,700 5,700 - -
Long-term debt - - 1,000 1,000
Accrued interest payable 803 803 762 762
Off-Balance Sheet Financial
Instruments:
Commitments to extend
credit - - - -
Standby letters of credit - - - -
Commitments to sell loans - - - -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
16. FIRST LEESPORT BANCORP, INC. (PARENT COMPANY ONLY) FINANCIAL INFORMATION
BALANCE SHEETS
December 31,
1996 1995
(In Thousands)
ASSETS
<S> <C> <C>
Cash $ 168 $ 162
Investment in bank subsidiary 17,029 16,175
Premises and equipment 69 73
17,266 $16,410
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES, other $ 145 $ 133
STOCKHOLDERS' EQUITY 17,121 16,277
$17,266 $16,410
======= =======
<CAPTION>
STATEMENTS OF INCOME
Years Ended December 31,
1996 1995 1994
(In Thousands)
<S> <C> <C> <C>
Dividends from bank subsidiary $ 632 $ 536 $ 572
Other income 35 38 33
Other expenses (93) (101) (88)
574 473 517
Equity in undistributed net income of
bank subsidiary 1,135 979 899
Net income $ 1,709 $ 1,452 $ 1,416
======== ======= =======
<CAPTION>
STATEMENTS OF CASH FLOWS
Years Ended December 31,
1996 1995 1994
(In Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,709 $ 1,452 $ 1,416
Depreciation 4 3 4
Undistributed earnings of bank
subsidiary (1,135) (979) (899)
Increase (decrease) in other
liabilities - 39 (20)
Net cash provided by
operating activities 578 515 501
CASH FLOWS USED IN FINANCING ACTIVITIES
Cash dividends paid (572) (524) (488)
Increase (decrease) in cash 6 (9) 13
Cash:
Beginning 162 171 158
Ending $ 168 $ 162 $ 171
======= ======= =======
</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 7, 1997, prepared in connection with the Company's Annual
Meeting of Stockholders to be held on April 8, 1997 (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, 10
and 11 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, 1997, is set forth on page 13 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, 1997, 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 12 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.).
10.7 Supplemental Executive Retirement Plan
(Incorporated herein by reference to Exhibit 10.1
to Registrant's Quarterly Report on Form 10-QSB
for the quarter ended June 30, 1996).*
10.8 Deferred Compensation Plan for Directors
(Incorporated herein by reference to Exhibit 10.2
to Registrant's Quarterly Report on Form 10-QSB
for the quarter ended June 30, 1996).*
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, 1996.
________________________________________________________________
* 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 26, 1997 FIRST LEESPORT BANCORP, INC.
By /s/ 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.
/s/ John T. Connelly President and Chief March 26, 1997
John T. Connelly Executive Officer,
Director
/s/ Frederick P. Henrich Treasurer, Chief March 26, 1997
Frederick P. Henrich Financial Officer,
and Chief Accounting
Officer
/s/ Louis D. Bruno Director March 26, 1997
Louis D. Bruno
/s/ Joseph M. Fabrizio Director March 26, 1997
Joseph M. Fabrizio
Director March __, 1997
Richard L. Henry
Director March __, 1997
William Keller
Director March __, 1997
Michael D. Mathias
/s/ Harry J. O'Neill III Director March 26, 1997
Harry J. O'Neill III
/s/ Karen A. Rightmire Director March 26, 1997
Karen A. Rightmire
/s/ Alfred J. Weber Director March 26, 1997
Alfred J. Weber
/s/ Daniel W. Weist Director March 26, 1997
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.).
10.7 Supplemental Executive Retirement Plan
(Incorporated herein by reference to Exhibit 10.1
to Registrant's Quarterly Report on Form 10-QSB
for the quarter ended June 30, 1996).*
10.8 Deferred Compensation Plan for Directors
(Incorporated herein by reference to Exhibit 10.2
to Registrant's Quarterly Report on Form 10-QSB
for the quarter ended June 30, 1996).*
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>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 5,087
<INT-BEARING-DEPOSITS> 112
<FED-FUNDS-SOLD> 448
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 39,355
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 335
<LOANS> 110,878
<ALLOWANCE> (1,105)
<TOTAL-ASSETS> 162,023
<DEPOSITS> 137,537
<SHORT-TERM> 5,700
<LIABILITIES-OTHER> 1,665
<LONG-TERM> 0
0
0
<COMMON> 6,000
<OTHER-SE> 11,121
<TOTAL-LIABILITIES-AND-EQUITY> 162,023
<INTEREST-LOAN> 9,914
<INTEREST-INVEST> 2,384
<INTEREST-OTHER> 42
<INTEREST-TOTAL> 12,340
<INTEREST-DEPOSIT> 5,232
<INTEREST-EXPENSE> 232
<INTEREST-INCOME-NET> 6,876
<LOAN-LOSSES> 210
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 5,011
<INCOME-PRETAX> 2,222
<INCOME-PRE-EXTRAORDINARY> 2,222
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,709
<EPS-PRIMARY> 1.43
<EPS-DILUTED> 1.43
<YIELD-ACTUAL> 8.26
<LOANS-NON> 774
<LOANS-PAST> 317
<LOANS-TROUBLED> 1,246
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,179
<CHARGE-OFFS> 344
<RECOVERIES> 60
<ALLOWANCE-CLOSE> 1,105
<ALLOWANCE-DOMESTIC> 483
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 622
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