SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X Quarterly Report pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 for
the Quarterly Period Ended March 31, 1999,
or
Transition report pursuant to Section 13 or
15(d) of the Exchange Act for the
Transition Period from _________________
to _________________.
Commission file number 0-14555
FIRST LEESPORT BANCORP, INC.
(Exact name of Small Business Issuer as
specified in its charter)
PENNSYLVANIA
(State or other jurisdiction of
incorporation or organization)
23-2354007
(I.R.S. Employer Identification No.)
133 North Centre Avenue
Leesport, Pennsylvania 19533
(Address of principal executive offices) (Zip Code)
(610) 926-2161
(Registrant's telephone number, including area code)
Check whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange
Act during the past 12 months (or for such shorter period
that the Registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past
90 days.
Yes [X] No [ ]
State the number of shares outstanding of each of the
issuer's classes of common equity, as of the latest
practicable date.
Class Outstanding at May 1, 1999
Common Stock ($5.00 par value) 1,264,655 Shares
<PAGE>
<TABLE>
Part I - FINANCIAL INFORMATION
Item 1 - Financial Statements
FIRST LEESPORT BANCORP, INC. AND SUBSIDIARY
UNAUDITED, CONSOLIDATED, CONDENSED BALANCE SHEETS
(Amounts in thousands)
<CAPTION>
Mar.31 Dec.31
ASSETS 1999 1998
______ ______
<S> <C> <C>
Cash and Due from Banks $ 4,123 $ 4,403
Interest-bearing Deposits in Other Banks 223 272
______ ______
Total Cash and Balances Due from Banks 4,346 4,675
Federal Funds Sold 0 0
Securities Available for Sale 50,239 50,753
Loans, Net of Unearned Income 180,499 162,533
Less: Allowance for Loan Losses (1,798) (1,756)
_______ _______
Net Loans 178,701 160,777
Bank Premises and Equipment, Net 6,136 5,606
Other Real Estate Owned 285 360
Accrued Interest Receivable and Other Assets 10,161 9,404
_______ _______
Total Assets 249,868 231,575
LIABILITIES
Deposits:
Non-interest Bearing $ 24,327 $ 21,889
Interest Bearing 169,685 161,384
_______ _______
Total Deposits 194,012 183,273
Federal Funds Purchased 6,796 5,509
Other Borrowed Funds 5,000 5,700
Long-term Debt 20,500 12,500
Accrued Interest Payable 1,116 980
Other Liabilities 1,999 3,024
_______ _______
Total Liabilities 229,423 210,986
STOCKHOLDERS' EQUITY
Common Stock, $5.00 Par Value per Share;
Authorized 2,000,000 Shares, Issued 1,273,284
Shares $ 6,366 $ 6,366
Surplus 4,417 4,417
Retained Earnings 9,517 9,245
Net Unrealized Appreciation on
Securities Available for Sale, Net of Taxes 263 679
Treasury Stock, 8,629 Shares at Cost (118) (118)
_______ _______
Total Stockholders' Equity 20,445 20,589
_______ _______
Total Liabilities and Stockholders' Equity 249,868 231,575
<FN>
The accompanying notes are an integral part of these
condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
FIRST LEESPORT BANCORP, INC. AND SUBSIDIARY
UNAUDITED, CONSOLIDATED, CONDENSED STATEMENTS OF
INCOME
(Amounts in thousands, except per share data)
<CAPTION>
Three Months
Ended Mar.31
1999 1998
______ ______
<S> <C> <C>
INTEREST INCOME
Interest & Fees on Loans $ 3,343 $ 2,660
Interest on Federal Funds Sold 2 22
Interest on Securities:
Taxable 649 412
Tax-exempt 130 137
_____ _____
TOTAL INTEREST INCOME 4,124 3,231
INTEREST EXPENSE
Interest on Deposits 1,893 1,539
Interest on Borrowed Funds 385 105
_____ _____
TOTAL INTEREST EXPENSE 2,278 1,644
_____ _____
NET INTEREST INCOME 1,846 1,587
Provision for Loan Losses 235 90
Net Interest Income after _____ _____
Provision for Loan Losses 1,611 1,497
OTHER INCOME
Customer Service Fees 86 61
Mortgage Banking Activities 42 60
Commissions on Insurance Sales 825 0
Other Income 127 120
Realized Gain on Sale of Securities 0 32
___ ___
TOTAL OTHER INCOME 1,080 273
OTHER EXPENSES
Salaries and Benefits 1,080 660
Occupancy Expense 143 117
Furniture and Equipment Expense 137 95
Computer Services 131 176
Other Operating Expenses 611 490
_____ _____
TOTAL OTHER EXPENSES 2,102 1,538
_____ _____
Income Before Income Taxes 589 232
Federal Income Taxes 152 33
_____ _____
NET INCOME 437 199
EARNINGS PER SHARE DATA
Based on Average Shares Outstanding
Basic Earnings per Share $ 0.35 $ 0.17
Dividends $ 0.13 $ 0.13
<FN>
The accompanying notes are an integral part of these
condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
FIRST LEESPORT BANCORP, INC. AND SUBSIDIARY
UNAUDITED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in thousands)
<CAPTION>
Three Months Ended March 31,
1999 1998
_____ _____
<S> <C> <C>
Net Income $ 437 $ 199
Other comprehensive income, net of tax:
Unrealized (losses) on securities
Arising during the period, net of tax
1999 - $279; 1998 - $43. (416) (63)
Less: Reclassification adjustments for
Gains included in net income 0 (21)
____ ____
Other comprehensive income (416) (84)
____ ____
Comprehensive income $ 21 $ 115
<FN>
The accompanying notes are an integral part of these
condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
FIRST LEESPORT BANCORP, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Amounts in thousands, except per share data)
<CAPTION>
Three Months Ended March 31,
1999 1998
______ ______
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 437 $ 199
Provision for loan losses 235 90
Provision for depreciation and amortization 124 96
Net amortization (accretion) of securities
premiums and discounts (4) (5)
Realized gain on sale of securities 0 (32)
Loans originated for sale 0 (3,741)
Proceeds from sales of loans 0 3,809
(Gain) on sales of loans 0 (68)
(Increase) Decrease in accrued interest receivable
and other assets (682) 68
Increase (Decrease) in accrued interest payable
and other liabilities (889) 858
NET CASH PROVIDED BY OPERATING ACTIVITIES (1,509) 1,206
CASH FLOWS FROM INVESTING ACTIVITIES
Available-for-sale securities:
Proceeds from principal repayments and maturities
of securities 3,710 2,408
Proceeds from sales of securities 0 1,008
Purchase of securities (3,190) (2,243)
Net (Increase) decrease in federal funds sold 0 (3,290)
Loans made to customers, net of principal collected(17,966) (3,653)
Purchases of bank premises and equipment (530) (197)
NET CASH USED IN INVESTING ACTIVITIES (17,982) (5,967)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 10,739 10,960
Net decrease in federal funds purchased 1,287 (3,814)
Net repayments of short-term borrowings (700) (3,000)
Proceeds from long-term debt 8,000 0
Dividends paid (164) (155)
NET CASH PROVIDED BY FINANCING ACTIVITIES 19,162 3,991
Decrease in cash and cash equivalents (329) (770)
Cash and cash equivalents: Beginning 4,675 5,556
Ending 4,346 4,786
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS:
Interest paid $1,976 $ 1,743
Income taxes paid 100 0
<FN>
The accompanying notes are an integral part of these
condensed financial statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. The financial information included herein is unaudited,
however, such information reflects all adjustments
(consisting solely of normal recurring adjustments) which
are, in the opinion of management, necessary for a fair
statement of the results for the interim periods. All
significant intercompany accounts and transactions have been
eliminated.
2. The results of operations for the three-month period
ended March 31, 1999 are not necessarily indicative of the
results to be expected for the full year.
3. There were no loans held for sale at March 31, 1999.
<PAGE>
Item 2
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Financial Condition
The company's assets increased to $249,868,000 at March 31,
1999 from $231,575,000 at December 31, 1998, an increase of
$18,293,000 or 7.9% as the company continues to focus on
accelerated growth. A seventh full-service office was opened
during the period, and efforts to integrate the operations of
Essick & Barr, the company's insurance agency purchased in
December 1998, were begun. In addition, a significant amount
of reorganization within the lending division took place
during the period.
Net loan growth provided almost all of the increase in
assets, growing by $17,924,000 between December 31, 1998 and
March 31, 1999. The additions to the lending staff, along
with an expanded array of loan products and a concentrated
effort to build the portfolio, helped increase these
balances. A very aggressive campaign to promote home equity
loans has also yielded significant growth in the consumer
loan portfolio.
With this 11.1% increase in net loans to $178,701,000 from
$160,777,000, the allowance for loan losses as a percentage
of total loans has fallen to 1.00% at March 31, 1999 from
1.08% at December 31, 1998. Although management feels the
balance in the allowance is adequate at this time, due to the
anticipated additional growth in the loan portfolio along
with the need to increase the overall level of the reserve,
additional provisions throughout 1999 are expected to bring
the current year's contribution to $1,000,000. The allowance
for loan losses is reviewed throughout each month.
Investment securities decreased by $514,000 between December
31, 1998 and March 31, 1999 due to maturities and calls. No
securities were sold during that period. The monies from
these maturities and calls were used to fund the strong loan
demand noted above.
Bank premises and equipment increased to $6,136,000 at March
31, 1999 compared with $5,606,000 at December 31, 1998, an
increase of $530,000 or 9.5%. This increase came primarily
from the opening of the Bank's seventh full-service office on
Route 183 in Bern Township, Berks County, Pennsylvania.
Accrued interest receivable and other assets increased to
$10,161,000 from $9,404,000 between the two dates, an
increase of $757,000 or 8.0%. Included in this increase is
the purchase of EBFS, an employee benefits and financial
planning company that was closely associated with Essick &
Barr.
Total deposits increased to $194,012,000 at March 31, 1999
from $183,273,000 at December 31, 1998, an increase of
$10,739,000 or 5.9%. Within this increase, non-interest
bearing deposits increased by $2,438,000 or 11.1% reflecting
management's focus on reducing the Bank's overall cost of
funds. Interest bearing deposits, including certificates of
deposit, increased by $8,301,000 or 5.1% growing from
$161,384,000 at December 31, 1998 to $169,685,000 at March
31, 1999.
With loan growth outpacing deposit growth, additional funds
were required from the Bank's correspondent banking
institutions to fund the loan advances. Total borrowed funds
increased to $32,296,000 at March 31, 1999 from $23,709,000
at December 31, 1998, an increase of $8,587,000 or 36.2%.
Stockholders' Equity decreased to $20,445,000 from
$20,589,000, a decrease of $144,000. Within this decrease,
net unrealized appreciation on securities available for sale
actually declined by $416,000. Offsetting this decrease was
an increase in retained earnings of $272,000.
Results of Operations
Three-Month Periods Ended March 31, 1999 and 1998
Total interest income for the three months ended March 31,
1999 amounted to $4,124,000 compared with $3,231,000 from the
same period in 1998, an increase of $893,000 or 27.6%. The
tremendous increase in net loans outstanding between the two
periods contributed to this improvement.
Total interest expense increased by $634,000 from $1,644,000
for the first quarter of 1998 to $2,278,000 for the first
quarter of 1999.
Funding for the loan growth noted above generated a
significant increase in interest on borrowed funds which
increased to $385,000 from $105,000 for the three months
ended March 31, 1999 from the same period in 1998.
Net interest income increased by $259,000 or 16.3%, growing
to $1,846,000 from $1,587,000 between the two periods.
Management is pleased with this growth given the general
decline in interest rates between the two periods.
The provision for loan losses was increased dramatically as
the volume of loan growth, in addition to the general level
of reserves, required additional amounts be set aside from
current earnings. The provision for loan losses for the first
three months of 1999 amounted to $235,000 compared with only
$90,000 for the same period in 1998, an increase of $145,000
or 161.1%.
Net interest income after the provision increased by a more
modest $114,000 or only 7.6% between the first quarter of
1998 and the first quarter of 1999.
Supplementing the interest margin, other income amounted to
$1,080,000 for the first quarter of 1999 compared with only
$273,000 for the first quarter of 1998, an increase of
$807,000 or 295.6%. This increase includes the contribution
of $825,000 in commissions on insurance sales from Essick &
Barr. Absent this income, the company's other income actually
decreased by $18,000 between the two periods. Gains on sales
of securities provided $32,000 during the first quarter of
1998, which was not duplicated during the same period in
1999.
Other expenses increased by $564,000 or 36.7% between the
first quarter of 1998 and the first quarter of 1999, growing
to $2,102,000 from $1,538,000. Included within this increase
are the costs associated with the Essick & Barr subsidiary.
Salaries and wages increased to $1,080,000 from $660,000 as
part of this consolidation.
Occupancy expenses and furniture and equipment expenses also
increased between the two periods, but contributing to this
increase were the costs associated with two additional
offices opened since the first quarter of 1998. Other
operating expenses, which include administrative expenses
from Essick & Barr, increased to $611,000 from $490,000
between the two periods.
Income before taxes increased by $357,000 or 153.9% from the
first quarter of 1998 to the first quarter of 1999, growing
to $589,000 from $232,000. The associated increase in income
taxes generated federal income tax expense of $152,000 for
the first quarter of 1999 compared with only $33,000 for the
first quarter of 1998.
Net income increased to $437,000 for the three months ended
March 31, 1999 from $199,000 for the three months ended March
31, 1998, an increase of $238,000 or 119.6%. Expressed as
earnings per share, net income amounted to $0.35 per share
and $0.17 per share respectively. Dividends paid remained
constant at $0.13 per share for each of the quarters.
Year 2000
The Bank and insurance agency have completed their critical
systems testing at this point with two minor systems still
requiring already-made corrections to be validated. The Bank
expects to incur expenses of approximately $15,000 and
capital expenditures of approximately $20,000 in 1999 in
conjunction with these Year 2000 preparations.
The Bank's Year 2000 committee, which was established in
1996, was charged with assessing the impact, identifying
affected equipment, resolving problems, and testing the
solutions. The Bank also worked very closely with its data
processing provider, Bisys, of Cherry Hill, New Jersey, to
identify and resolve potential problems associated with the
date change.
Liquidity and Interest Rate Sensitivity
The banking industry has been required to adapt to an
environment in which interest rates have been volatile and
deposit deregulation has provided customers with the
opportunity to invest in liquid, interest rate-sensitive
deposits. The banking industry has adapted to this
environment by using a process known as asset/liability
management.
Adequate liquidity means the ability to obtain sufficient
cash to meet all current and projected needs promptly and at
a reasonable cost. These needs include deposit withdrawal,
liability runoff 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 another source of liquidity. The Bank can also package
and sell residential mortgage loans in the secondary market.
Other sources of liquidity are the federal funds market, term
borrowings from the Federal Home Loan Banking System, and the
discount window of the Federal Reserve Banking System. In
view of all factors involved, the
Bank's management believes that liquidity is being maintained
at an adequate level.
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 on assets and liabilities.
Approximately 25%% of the commercial loan portfolio is
sensitive to interest rate changes. Other loans are written
for relatively short terms and, except for the majority of
residential mortgage loans, provide for a readjustment of the
interest rate at specified times during the term of the loan.
In addition, interest rates offered for all types of deposit
instruments are reviewed weekly and are established on a
basis consistent with funding needs and maintaining a
desirable spread between cost and return. The Bank does not
use reverse repurchase agreements, interest rate swaps, or
other derivative products in its asset/liability management
practices at this time.
The Bank's one-year interest sensitivity gap is negative
$34,801,000
representing a larger pool of repricing deposits than earning
assets. In a rising rate environment, the cost to maintain
this pool of funds will rise resulting in a smaller net
interest margin.
<PAGE>
<TABLE>
The following table shows the repricing periods of interest
earning assets and interest bearing liabilities as of March
31, 1999:
INTEREST RATE SENSITIVITY
(Amounts in thousands)
<CAPTION>
Repricing Period
Within One Year to Over
One Year Five Years Five Years Total
<S> <C> <C> <C> <C>
Interest Earning Assets:
Interest-bearing Balances 223 0 0 223
Federal Funds Sold 0 0 0 0
Securities 7,559 7,019 34,661 50,239
Net Loans 73,488 24,986 80,227 178,701
_______ _______ _______ _______
Total Interest Earning 81,270 32,005 115,888 229,163
Assets
Interest Earning Liabilities:
Total Interest-Bearing
Deposits 99,275 70,410 0 169,685
Other Borrowed Funds 16,796 15,500 0 32,296
________ _______ ______ ________
Total Interest Earning 116,071 85,910 0 201,981
Liabilities
________ _______ _______ _______
Rate Sensitivity Gap (34,801) (53,905) 115,888 27,182
________ _______ _______ ________
<FN>
</TABLE>
Capital Adequacy
The following table provides information about the capital of
the Bank as it relates to regulatory minimums as of selected
Balance Sheet dates:
<TABLE>
<CAPTION>
Actual Actual
Regulatory Mar.31, Dec. 31,
Minimum 1999 1998
<S> <C> <C> <C>
Tier I Capital to Risk-Adjusted Assets 4.00% 9.74% 10.27%
Total Capital to Risk-Adjusted Assets 8.00% 10.83% 11.46%
Leverage Ratio 3.00% 6.85% 7.04%
Regulatory guidelines require that Tier I capital and total
risk-based capital to risk-adjusted assets must be at least
4.0% and 8.0%, respectively. At March 31, 1999, the Company
was well capitalized under these guidelines.
</TABLE>
<PAGE>
Item 3 - Quantitative and Qualitative Disclosures about
Market Risk
There has been no material change in the Company's assessment
of its sensitivity to market risk since its resentation in
the 1998 annual report on Form 10-KSB filed with the SEC.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to Vote of Security Holders
None
Item 5. Other Information
The Board of Directors of First Leesport Bancorp,
Inc. at its March 9 , 1999 meeting declared a $0.13 per
share cash dividend to be paid April 15, 1999 to holders
of record on April 1, 1999.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K. The Registrant filed the following
Report on Form 8-k during the quarterly period ended March
31, 1999.
1. Report on Form 8-K dated January 12, 1999,
reporting, under Item 5, the entering into of a
definitive merger agreement with Merchants of
Shenandoah Ban-Corp, the parent company of
Merchants Bank of Pennsylvania.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act,
the Registrant caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
FIRST LEESPORT BANCORP, INC.
(Registrant)
Dated: May 17, 1999 By Raymond H. Melcher, Jr.
President and
Chief Executive Officer
Dated: May 17,1999 By Frederick P. Henrich
Treasurer and
Chief Accounting Officer
<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> QTR-1
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 4123
<INT-BEARING-DEPOSITS> 223
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 50239
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 180499
<ALLOWANCE> 1798
<TOTAL-ASSETS> 249868
<DEPOSITS> 194012
<SHORT-TERM> 11796
<LIABILITIES-OTHER> 3115
<LONG-TERM> 20500
<COMMON> 6366
0
0
<OTHER-SE> 14079
<TOTAL-LIABILITIES-AND-EQUITY> 249868
<INTEREST-LOAN> 3343
<INTEREST-INVEST> 779
<INTEREST-OTHER> 2
<INTEREST-TOTAL> 4124
<INTEREST-DEPOSIT> 1893
<INTEREST-EXPENSE> 2278
<INTEREST-INCOME-NET> 1846
<LOAN-LOSSES> 235
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2102
<INCOME-PRETAX> 589
<INCOME-PRE-EXTRAORDINARY> 589
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 437
<EPS-PRIMARY> .35
<EPS-DILUTED> .35
<YIELD-ACTUAL> 3.35
<LOANS-NON> 1083
<LOANS-PAST> 1085
<LOANS-TROUBLED> 2424
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1756
<CHARGE-OFFS> 218
<RECOVERIES> 25
<ALLOWANCE-CLOSE> 1798
<ALLOWANCE-DOMESTIC> 1763
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 35
</TABLE>
