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 June 30, 2000,
or
( ) Transition report pursuant to Section 13 or 15(d) of the
Exchange Act for the Transition Period from
_________________ to _________________.
No. 0-14555
(Commission File Number)
FIRST LEESPORT BANCORP, INC.
(Exact name of Registrant as specified in its charter)
PENNSYLVANIA 23-2354007
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) 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.
Number of Shares Outstanding
as of July 31, 2000
COMMON STOCK ($5.00 Par Value) 1,853,005
(Title of Class) (Outstanding Shares)
First Leesport Bancorp, Inc. (the "Company") may from time
to time make written or oral "forward-looking statements,"
including statements contained in the Company's filings with the
Securities and Exchange Commission (including this Quarterly
Report on Form 10-Q and the exhibits hereto and thereto), in its
reports to stockholders and in other communications by the
Company, which are made in good faith by the Company pursuant to
the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995.
These forward-looking statements include statements with
respect to the Company's beliefs, plans, objectives, goals,
expectations, anticipations, estimates and intentions, that are
subject to significant risks and uncertainties, and are subject
to change based on various factors (some of which are beyond the
Company's control). The words "may," "could," "should," would,
"believe," "anticipate," "estimate," "expect," intend, "plan"
and similar expressions are intended to identify forward-looking
statements. The following factors, among others, could cause
the Company's financial performance to differ materially from
the plans, objectives, expectations, estimates and intentions
expressed in such forward-looking statements: the strength of
the United States economy in general and the strength of the
local economies in which the Company conducts operations; the
effects of, and changes in, trade, monetary and fiscal policies
and laws, including interest rate policies of the Board of
Governors of the Federal Reserve System; inflation, interest
rate, market and monetary fluctuations; the timely development
of and acceptance of new products and services of the Company
and the perceived overall value of these products and services
by users, including the features, pricing and quality compared
to competitors' products and services; the willingness of users
to substitute competitors' products and services for the
Company's products and services; the success of the Company in
gaining regulatory approval of its products and services, when
required; the impact of changes in financial services' laws and
regulations (including laws concerning taxes, banking,
securities and insurance); technological changes; acquisitions;
changes in consumer spending and saving habits; and the success
of the Company at managing the risks involved in the foregoing.
The Company cautions that the foregoing list of important
factors is not exclusive. The Company does not undertake to
update any forward-looking statement, whether written or oral,
that may be made from time to time by or on behalf of the
Company.
Part I - FINANCIAL INFORMATION
Item 1 - Financial Statements
FIRST LEESPORT BANCORP, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED, CONDENSED BALANCE SHEETS
(Amounts in thousands, except share data)
June 30, December 31,
2000 1999
ASSETS
Cash and Due from Banks $ 13,478 $ 15,376
Interest-bearing Deposits in Other
Banks 919 489
Total Cash and Balances Due from
Banks 14,397 15,865
Fed Funds Sold 1,767 0
Securities Available for Sale 78,001 72,165
Loans, Net of Unearned Income 277,035 253,194
Less: Allowance for Loan Losses (3,153) (2,954)
Net Loans 273,882 250,240
Bank Premises and Equipment 7,845 7,599
Other Real Estate Owned 336 150
Accrued Interest Receivable and Other
Assets 17,137 12,599
TOTAL ASSETS $393,365 $358,618
LIABILITIES:
DEPOSITS:
Non-interest Bearing $ 36,972 $ 30,941
Interest Bearing 253,891 238,403
TOTAL DEPOSITS 290,863 269,344
Federal Funds Purchased and
Securities Sold Under Agreements
to Repurchase 33,257 28,175
Long-term Debt 32,500 31,000
Mandatory Redeemable Capital
Securities Of Subsidiary Trust 5,000 0
Accrued Interest Payable 1,781 1,675
Other Liabilities 3,675 2,822
TOTAL LIABILITIES 367,076 333,016
Stockholders' Equity
Common Stock, $5.00 Par Value per
Share; Authorized 10,000,000
shares, Issued 1,858,919 shares
in 2000, 1,836,677 shares in 1999 9,295 9,295
Surplus 4,996 4,988
Retained Earnings 14,257 13,571
Accumulated Other Comprehensive
Income (Loss) (2,184) (2,134)
Treasury Stock; 5,900 shares in 2000
9,060 shares in 1999 at cost (75) (118)
TOTAL STOCKHOLDERS' EQUITY 26,289 25,602
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $393,365 $358,618
The accompanying notes are an integral part of these condensed
financial statements.
FIRST LEESPORT BANCORP, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED, CONDENSED STATEMENTS OF INCOME
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
<S> <C> <C> <S> <C>
INTEREST INCOME
Interest & Fees on Loans $5,455 $4,386 $10,583 $8,409
Interest on Securities:
Taxable 1,071 881 2,011 1,774
Tax-Exempt 266 222 529 441
Interest on Federal Funds Sold 31 60 49 70
TOTAL INTEREST INCOME 6,823 5,549 13,172 10,694
INTEREST EXPENSE
Interest on Deposits 2,805 2,447 5,569 4,739
Interest on Borrowed Funds 1,209 525 2,151 981
TOTAL INTEREST EXPENSE 4,014 2,972 7,720 5,720
NET INTEREST INCOME 2,809 2,577 5,452 4,974
Provision for Loan Losses 237 248 474 495
Net Interest Income after the
Provision for Loan Losses 2,572 2,329 4,978 4,479
OTHER INCOME
Customer Service Fees 143 74 266 183
Mortgage Banking Activities 70 43 134 85
Commissions on Investment Sales 235 0 472 0
Commissions on Insurance Sales 1,030 871 1,946 1,696
Other Income 255 200 1,138 348
Realized Gain on Sale of
Securities 0 0 5 40
TOTAL OTHER INCOME 1,733 1,227 3,489 2,351
OTHER EXPENSES
Salaries and Benefits 1,899 1,362 3,712 2,693
Occupancy Expense 243 176 472 347
Furniture and Equipment Expense 208 185 401 362
Computer Services 289 146 544 277
Other Operating Expenses 759 881 1,705 1,620
TOTAL OTHER EXPENSES 3,398 2,750 6,834 5,299
Income Before Income Taxes 907 806 1,633 1,532
Federal Income Taxes 248 225 391 393
NET INCOME $ 659 $ 581 $ 1,242 $1,139
EARNINGS PER SHARE DATA
Averages Shares Outstanding 1,851,164 1,836,677 1,850,523 1,836,677
Basic Earnings Per Share $0.36 $0.32 $0.67 $0.62
Diluted Earnings Per Share 0.36 0.32 0.67 0.62
Cash Dividends Paid Per Share 0.15 0.14 0.30 0.26
</TABLE>
The accompanying notes are an integral part of these condensed
financial statements.
FIRST LEESPORT BANCORP, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED, STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in thousands)
Six Months Ended
June 30, 2000 June 30, 1999
Net Income $1,242 $ 1,139
Other Comprehensive Income
(Loss), net of tax:
Unrealized gains (losses) on
Securities arising during
the period, net of tax
expense (benefit):
2000 - ($18); 1999 - ($863) (53) (1,675)
Less: Reclassification adjust-
ments For gains included in
net income, Net of tax
expense (benefit):
2000 - 2; 1999 - 14 3 26
Other Comprehensive Income
(Loss) (50) (1,649)
Comprehensive Income $1,192 $ (510)
The accompanying notes are an integral part of these condensed
financial statements.
FIRST LEESPORT BANCORP, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Six Months Ended
June 30, 2000 June 30, 1999
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Income $ 1,242 $ 1,139
Provision for loan losses 474 495
Provision for depreciation and
amortization 507 297
Net amortization (accretion) of
securities premiums and discounts (35) 23
Amortization of mortgage servicing
rights 11 0
Increase in cash surrender value of
life insurance (157) 0
Proceeds from issuance of common
stock 52 0
Realized gains and losses on sale
of securities and loans (136) (40)
Realized gain on sale of property
and equipment (245) 0
Increase in accrued interest
receivable and other assets 1,272 (1,441)
Increase (decrease) in accrued
interest payable and other
liabilities 907 260
NET CASH PROVIDED BY OPERATING
ACTIVITIES $ 3,892 $ 733
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from principal
repayments and maturities
of securities $ 2,106 $ 8,583
Net (increase) in federal funds
sold (1,767) 28
Proceeds from sales of securities 599 6,840
Purchase of securities (8,501) 17,870)
Loans originated for sale (4,352 0
Loans made to customers, net of
repayments (23,854) (38,022)
Purchases of bank premises and
equipment (654) (862)
Purchase of life insurance
policies (3,317) 0
Proceeds from sale of premises
and equipment 287 0
Proceeds from sales of loans 4,483 0
NET CASH USED IN INVESTING
ACTIVITIES $(34,970) $(41,303)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net increase in deposits 21,519 32,020
Net increase (decrease) in federal
funds purchased and repurchase
agreements 5,082 2,091
Net repayments of short-term
borrowings 0 4,300
Proceeds from long-term debt 1,500 5,000
Proceeds from issuance of capital
securities 5,000 0
Dividends paid (555) (580)
NET CASH PROVIDED BY FINANCING
ACTIVITIES $ 32,546 $ 42,831
Increase (decrease) in cash and
cash equivalents $ 1,468 $ 2,261
Cash and cash equivalents:
Beginning $ 15,865 $ 6,765
Ending $ 17,333 $ 9,026
The accompanying notes are an integral part of these condensed
financial statements.
FIRST LEESPORT BANCORP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. The unaudited consolidated financial statements
contained herein have been prepared in accordance with the
instructions to Form 10-Q of Regulation S-X. All significant
intercompany accounts and transactions have been eliminated.
The accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted
accounting principles for interim financial information.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management
all adjustments (including normal recurring adjustments)
considered necessary for a fair presentation of the results for
the interim periods have been included.
2. The results of operations for the three and six month
periods ended June 30, 2000 are not necessarily indicative of
the results to be expected for the full year.
3. For further information, refer to the Consolidated
Financial Statements and Footnotes included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1999.
4. Basic earnings per share represents income available to
shareholders divided by the weighted-average number of common
shares outstanding during the period. Diluted earnings per
share reflects additional common shares that would have been
outstanding if dilutive potential common shares (stock options)
had been issued, as well as any adjustments to income that would
result from the assumed issuance. The effect of stock options
was not dilutive for all periods presented. The Company paid a
5% stock dividend on January 15, 2000. All prior period per
share data has been restated to reflect the effect of this stock
dividend.
5. On July 1, 1999 the Company completed the acquisition
of Merchants of Shenandoah Ban-Corp, a single-bank holding
company for Merchants Bank of Pennsylvania. This acquisition
was treated as a pooling of interests for financial accounting
purposes. The consolidated financial statements give
retroactive effect to the merger. The consolidated statement of
income and the consolidated statement of cash flows for the
period ended June 30, 1999 are presented as if the combining
companies had been consolidated for that period.
6. On October 1, 1999, the Registrant acquired Johnson
Financial Group, Inc. ("JFG"), a registered investment advisor.
The Registrant issued a total of 13,379 shares of its common
stock (adjusted for the 5% stock dividend effected in
January 2000) to the four individual shareholders of JFG in
exchange for all of the outstanding capital stock of JFG.
Shares of common stock of the Registrant issued in the
transaction were issued in reliance upon the exemption from
registration contained in Section 4(2) of the Securities Act of
1933, as amended, and are "restricted securities" within the
meaning of Rule 144 under such Act. On October 1, 1999, the
Registrant also acquired KRJ & Associates, an affiliate of JFG.
No shares of common stock of the Registrant were issued in
connection with the acquisition of KRJ & Associates. This
acquisition was treated as a purchase for financial accounting
purposes.
7. In the ordinary course of business, the Company enters
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.
8. The Financial Accounting Standards Board issued
Statement No. 133, "Accounting for Derivative Instruments and
Hedging Activities", in June 1998 which was amended by Statement
No. 137 and Statement No. 138. The Company is required to adopt
the Statement on January 1, 2001. The adoption of the Statement
is not expected to have a significant impact on the Company.
9. Segment Information - The Company's insurance
operations and investment operations are managed separately from
the traditional banking and related financial services that the
Company also offers. The insurance operation provides
commercial, individual and group benefit plans and personal
coverage. The investment operation provides individual
financial and estate planning, investment advice and services,
corporate and small business pension and retirement plan
services.
<TABLE>
<CAPTION>
Banking
and
Financial Insurance Investment
Services Services Services Total
<S> <C> <C> <C> <C>
Three months ended June 30, 2000
Revenues from external customers $ 7,329 $ 992 $235 $ 8,556
Income before income taxes 784 126 (3) 907
Six months ended June 30, 2000
Revenues from external customers 14,300 1,889 472 16,661
Income before income taxes 1,446 195 (8) 1,633
Three months ended June 30, 1999
Revenues from external customers 5,898 878 0 6,776
Income before income taxes 584 222 0 806
Six months ended June 30, 1999
Revenues from external customers 11,336 1,710 0 13,046
Income before income taxes 1,068 464 0 1,532
</TABLE>
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
In addition to historical information, this report contains
forward-looking statements. The forward-looking statements
contained herein are subject to certain risks and uncertainties
that could cause actual results to differ materially from those
projected in the forward-looking statements. Important factors
that might cause such a difference include, but are not limited
to, changing economic conditions in the Company's market area
and increasing interest rates. Readers are cautioned not to
place undue reliance on these forward-looking statements, which
reflect management's analysis only as of the date of this
report. The Company undertakes no obligation to publicly revise
or update these forward-looking statements to reflect events or
circumstances that arise after the date of this report.
The financial statements for 1999 have been restated to
reflect the impact of the acquisition of Merchants of Shenandoah
Ban-Corp on July 1, 1999 which was accounted for under the
pooling of interests method of accounting.
Results of Operations
Net income for the quarter ended June 30, 2000 was
$659,000, an increase of 13.4% over the $581,000 for the same
period in 1999. For the first six months, net income was
$1,242,000 or 9.0% over the $1,139,000 reported for the first
six months of 1999. Basic and diluted earnings per share were
$.35 and $.67 in 2000 compared to $.32 and $.62 for the second
quarter and six months of 1999. Net income excluding
amortization of goodwill was $724,000 for the second quarter and
$1,382,000 for six months of 2000 and $610,000 for the second
quarter and $1,244,000 for six months of 1999.
The improvement in net income for the second quarter of
2000 was a result of increased net interest income and fee
income, and included a one-time gain of $70,000 from the sale of
newly originated commercial loans that are guaranteed by the
Small Business Administration. The first quarter included a
one-time gain of $245,000 from the sale of a bank-owned
financial services facility. This financial services facility
will be relocated to a nearby site in the near future.
The following are the key ratios for the periods:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Return on average assets .69% .75% 0.66% 0.75%
Return on average
stockholders' equity 10.10% 8.77% 9.54% 8.69%
Dividend payout ratio 47.65% 43.63% 44.72% 42.25%
Average stockholders' equity
to average assets 6.81% 8.51% 6.96% 8.68%
</TABLE>
Net Interest Income
Net interest income is a primary source of revenue for the
Company. Net interest income results from the difference
between the interest and fees earned on loans and investments
and the interest paid on deposits to customers and other non-
deposit sources of funds, such as repurchase agreements and
short and long-term borrowed funds. Net interest margin is the
difference between the gross (tax-effected) yield on earning
assets and the cost of interest bearing funds as a percentage of
earning assets. All discussion of net interest income is on a
fully taxable equivalent basis.
Net interest income was $2,809,000, an increase of 9.0% for
the second quarter of 2000 compared to the second quarter of
1999. For the first six months, net interest income was
$5,452,000, an increase of 9.61% over the six months of 1999.
The net interest margin was 3.41% compared to 3.75% for the
second quarter of 1999 and 3.39% compared to 3.64% for the six
month period of 1999. Average interest earning assets were
$348.1 million for the second quarter of 2000, a $58.0 million
or 20.0% increase over the second quarter of 1999. For the
first six months, average interest earning assets were $341.1
million, a $58.1 million or 20.5% increase over the first six
months 1999. The average yield on earning assets for the second
quarter of 2000 was 8.02%, an increase of 35 basis points
compared to the second quarter of 1999. For the first six
months, average yield on earning assets was 7.92%, an increase
of 31 basis points over the six months of 1999. Average loans
outstanding increased 21.0% or $46.3 million over the second
quarter of 1999. For the first six months, average loans
outstanding increased 24.4% or $51.7 million over the same
period of 1999. The category of loans that increased most
substantially compared to the previous year was commercial
loans, which increased by $42.1 million or 47.3% for the second
quarter, and $42.8 million or 51.7% for the six months of 1999.
The increase in the yield on average earning assets from
the 1999 period to 2000 was offset by the increase in the
average cost of interest-bearing deposits, which increased from
4.47% in the second quarter 1999 to 4.60% in 2000. For the
first six months, the average cost of interest bearing deposits
increased from 4.46% in 1999 to 4.60% in 2000. The cost on
borrowed funds for the second quarter increased from 5.62% in
1999 to 7.60% in 2000. For the first six months, the cost of
borrowed funds increased from 5.11% in 1999 to 6.86% in 2000.
Average interest bearing liabilities for the second quarter
increased by $51.0 million or 19.9% over 1999. Average interest
bearing liabilities for the first six months increased by $53.5
million or 21.3% over 1999. Average short-term borrowings,
including repos increased by $19.3 million for the second
quarter over 1999, and by $17.5 million for the first six months
over 1999. Average long-term debt outstanding increased by
$13.0 million for the second quarter over 1999, and by $10.0
million for the first six months over 1999.
The following are the key net interest margin ratios:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Yield on average earning assets 8.02% 7.67% 7.92% 7.61%
Cost of supporting liabilities 4.61% 3.92% 4.53% 3.97%
Net interest margin 3.41% 3.75% 3.39% 3.64%
</TABLE>
Provision and Allowance for Loan Losses
The provision for loan losses for the quarter ended
June 30, 2000 was $237,000 compared to $248,000 for the second
quarter of 1999. For the first six months, the provision for
loan losses was $474,000 compared to $495,000 for the six months
of 1999. The Company performs a review of the credit quality of
its loan portfolio on a quarterly basis to determine the
adequacy of the allowance for loan losses. The allowance is an
amount that management believes to be adequate to provide for
losses that can be reasonably anticipated. Management's periodic
evaluation of the adequacy of the allowance is based on past
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 change.
The following table shows the activity in the Company's
allowance for loan losses:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Loans outstanding at end of period
(net of unearned income) $277,035 $233,309 $277,035 $233,309
Average balance of loans outstanding
during the period 269,064 222,009 263,341 211,649
Balance of allowance for loan losses,
beginning of period 3,090 2,174 2,954 2,129
Loans charged-off:
Commercial, financial and agricultural 40 (6) 108 128
Real estate - mortgage 129 54 168 82
Consumer 15 53 39 123
Total loans charged-off 184 101 315 333
Recoveries of loans previously charged-off
Commercial, financial and agricultural (4) (46) (6) (67)
Real estate - mortgage (3) ( 2) (5) (3)
Consumer (5) ( 14) (29) (22)
Total recoveries (12) (62) (40) (92)
Net loans charged-off 172 39 275 241
Provision for loan losses 237 248 474 495
Balance, end of period $ 3,153 $ 2,383 $3,153 $2,383
Net charge-offs to average loans .06% .02% 0.10% 0.11%
Allowance for loan losses to loans outstanding 1.14% 1.02% 1.14% 1.02%
</TABLE>
The following table summarizes the Company's non-performing
assets:
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
(Amounts in thousands)
<S> <C> <C>
Non-accrual loans
Real estate - mortgage $ 391 $ 797
Consumer 0
Commercial, financial and agricultural 776 1,192
Total 1,167 1,989
Loans past due 90 days or more and still accruing interest
Real estate - mortgage 28 363
Consumer 24 86
Commercial, financial and agricultural 236 226
Total 288 675
Troubled debt restructurings 1,059 1,084
Total non-performing loans 2,514 3,748
Other real estate owned 336 150
Total non-performing assets $2,850 $3,898
Non-performing loans to total loans .91% 1.48%
Non-performing assets to total loans plus OREO 1.03% 1.54%
</TABLE>
Other Income
Other income for the three months ended June 30, 2000
totaled $1.733 million, an increase of $506,000 over 1999. For
the first six months, other income totaled $3.489 million, an
increase of $1.137 million over 1999. Included in the results
for the 2000 period is a one-time gain on sale of Bank-owned
real estate of $245,000 and a one-time gain on sale of SBA loans
of $70,000.
The Company also recognized approximately $235,000 for the
second quarter and $472,000 for the six month period of
commission and fee income from its broker and investment
advisory subsidiary, a revenue source that was not included in
the Company's results for the same period of last year. The
fees and commissions from the Company's insurance operations
increased by $160,000 or 18.4% for the second quarter and by
$250,000 or 14.7% for the six month period of 2000.
Other Expense
Other expense for the three months ended June 30, 2000 was
$3.398 million compared to $2.75 million for 1999. Other
expense for the first six months was $6.834 million compared to
$5.299 million over 1999. Salary and benefits expense for the
second quarter of 2000 increased to $1.90 million from $1.36
million for 1999. Salary and benefits expense for the first six
months increased to $3.71 million in 2000 from $2.69 million for
1999. This increase from the 1999 period resulted from the
addition of 27 full-time equivalent employees or a 19% increase
in staff since June 30, 1999, and a 4% overall merit increase
applied to base salaries during the past twelve months. The
addition of the investment subsidiary caused an addition of 8
full-time equivalent employees and a $270,000 addition to salary
and benefits expense. The remaining additions to staff have
been made to establish the infrastructure to effectively manage
the Company going forward. Occupancy and equipment expense for
the second quarter of 2000 was $451,000, a $91,000 or 25.3%
increase over 1999. For the first six months, occupancy and
equipment expense was $873,000, a $164,000 or 23.1% increase
over 1999. This increase was attributable primarily to the
addition of two new financial service centers opened during
1999. Expenses related to the holding of other real estate
owned totaled $143,000 for 2000 compared to $148,000 for the
first six months of 1999. The 2000 expense includes write-downs
of two specific properties totaling approximately $70,000.
Increases in computer services and marketing expenses, and the
additional goodwill amortization resulting from the acquisition
of the Company's investment subsidiary in October 1999 also
contributed to the increase in other expense during the first
six months of 2000. Goodwill amortization of $140,000 was
recorded in 2000 compared to $105,000 in the first six months of
1999.
Federal Income Taxes
The effective federal income tax rate for the Company for
the quarter ended June 30, 2000 was 27.4% compared to 27.8% for
1999. For the first six months of 2000 the effective federal
income tax rate was 23.9% compared to 25.7% for 1999. The
effective tax rate for 2000 was lower than the rate for 1999 as
a result of an increased amount of non-taxable interest income
and an increase in tax-advantaged income from increases in the
cash surrender values and insurance proceeds from bank-owned
life insurance assets.
Financial Condition
The total assets of the Company at June 30, 2000 were $393
million, an increase of approximately $35 million since
December 31, 1999, and an annualized rate of growth of 19.4% for
the first six months of 2000. Total loans increased at an
annual rate of 21.0% for the second quarter or $13.8 million
since March 31st and an annual growth rate of 18.8% or $23.8
million since December 31, 1999. A significant portion of the
growth in loans occurred in the commercial loan portion of the
portfolio. The increase in loan balances was funded by an
increase of $21.5 million in deposits since December 31, 1999, a
16.0% annual growth rate, and an increase of approximately $2.1
million in overnight funds purchased. A significant portion of
the growth in deposits occurred in time deposits which increased
by $12.3 million since March 31st or 36.7%, and by $16.3 million
or 25.1% since December 31, 1999.
Capital Resources
Federal bank regulatory agencies have established certain
capital-related criteria that must be met by banks and bank
holding companies. The measurements that incorporate the
varying degrees of risk contained in the Banks' balance sheets
and exposure to off-balance sheet commitments were established
to provide a framework for comparing different institutions.
The Company is not aware of any pending recommendations by
regulatory authorities that 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.
The adequacy of the Company's capital is reviewed on an
ongoing basis with regard to size, composition and quality of
the Company's resources. An adequate capital base is important
for continued growth and expansion in addition to providing an
added protection against unexpected losses.
On March 23, 2000, the Company established First Leesport
Capital Trust I, in which the Company owns all of the common
equity. The Trust issued $5 million of mandatory redeemable
capital securities. These debentures are the sole asset of the
Trust. These securities must be redeemed in March 2030 and
May be redeemed earlier in the event that the interest expense
becomes non-deductible for federal income tax purposes or if the
treatment of these securities is no longer qualified as Tier I
capital for the Company. The securities carry an interest rate
of 10.875%.
An important indicator in the banking industry is the
leverage ratio, defined as the ratio of Tier I capital less
intangible assets, to average quarterly assets less intangible
assets. The leverage ratio at June 30, 2000 was 7.70% compared
to 7.97% at March 31,2000 and to 6.61% at December 31, 1999.
The increase in this ratio resulted primarily from the issuance
of $5 million of mandatory redeemable capital securities and, to
a much lesser extent, from normally retained earnings. The
mandatory redeemable securities are included for regulatory
purposes as Total I capital with certain limiting restrictions.
At June 30, 2000 the entire amount of these securities was
allowable to be included as Tier I capital for the Company. For
both periods, the capital ratios were above minimum regulatory
guidelines.
As required by federal banking regulatory authorities,
guidelines have been adopted to measure capital adequacy. Under
the guidelines, certain minimum ratios are required for core
capital and total capital as a percentage of risk-weighted
assets and other off-balance sheet instruments. For the
Company, Tier 1 capital consists of common stockholders' equity
plus mandatory redeemable capital securities less intangible
assets, and Tier II capital includes Tier I capital plus the
allowable portion of the allowance for loan losses, currently
limited to 1.25% of risk-weighted assets. By regulatory
guidelines, the separate component of equity for unrealized
appreciation or depreciation on available for sale securities is
excluded from Tier I and Tier II capital.
The following table sets forth the Company's capital
ratios:
The Company's and the Banks' actual capital amounts and
ratios are presented below.
<TABLE>
<CAPTION>
To Be Well
Per Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
(Amounts In Thousands)
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 2000:
Total capital (to risk-weighted assets):
First Leesport Bancorp $32,018 11.56% $22,149 8.00% $27,686 10.00%
The First National Bank of Leesport 25,715 11.15 18,448 8.00 23,061 10.00
Merchants Bank of Pennsylvania 4,897 12.29 3,189 8.00 3,986 10.00
Tier I capital (to risk-weighted assets):
First Leesport Bancorp 28,865 10.43 11,074 4.00 16,612 6.00
The First National Bank of Leesport 22,952 9.95 9,224 4.00 13,836 6.00
Merchants Bank of Pennsylvania 4,507 11.31 1,594 4.00 2,391 6.00
Tier I capital (to average assets):
First Leesport Bancorp 28,865 7.70 14,996 4.00 18,745 5.00
The First National Bank of Leesport 22,952 7.52 12,208 4.00 15,260 5.00
Merchants Bank of Pennsylvania 4,507 6.76 2,668 4.00 3,335 5.00
As of December 31, 1999:
Total capital (to risk-weighted assets):
First Leesport Bancorp $25,972 10.93% $19,006 8.00% $23,757 10.00%
The First National Bank of Leesport 20,719 10.25 16,453 8.00 20,566 10.00
Merchants Bank of Pennsylvania 4,317 11.56 2,979 8.00 3,724 10.00
Tier I capital (to risk-weighted assets):
First Leesport Bancorp 23,018 9.69 9,503 4.00 14,254 6.00
The First National Bank of Leesport 18,148 9.00 8,226 4.00 12,340 6.00
Merchants Bank of Pennsylvania 3,957 10.61 1,490 4.00 2,234 6.00
Tier I capital (to average assets):
First Leesport Bancorp 23,018 6.61 13,933 4.00 17,417 5.00
The First National Bank of Leesport 18,148 6.37 11,387 4.00 14,234 5.00
Merchants Bank of Pennsylvania 3,957 6.42 2,464 4.00 3,080 5.00
</TABLE>
Liquidity and Interest Rate Sensitivity
The banking industry has been required to adapt to an
environment in which interest rates May be volatile and in which
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 deposit generation, overnight federal
funds transactions with other financial institutions, investment
securities portfolio maturities and cash flows, and maturing
loans and loan payments. The Bank can also package and sell
residential mortgage loans into the secondary market. Other
sources of liquidity are term borrowings from the Federal Home
Loan Bank, and the discount window of the Federal Reserve Bank.
In view of all factors involved, the Bank's management believes
that liquidity is being maintained at an adequate level.
At June 30, 2000, the Company had a total of $70.8 million
or 18% of total assets in borrowed funds. These borrowings
included $15.1 million of overnight federal funds purchased,
$12.1 million of repurchase agreements with customers, $37.1
million of term borrowing with the Federal Home Loan Bank having
final maturities ranging from August, 2000 through December,
2009 at interest rates from 4.72% to 6.81% and other long term
borrowings of $6.5 million. At June 30, 2000 the Company had a
maximum borrowing capacity with the Federal Home Loan Bank of
approximately $99 million and outstanding borrowings of $52.2
million.
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. With the exception of the
majority of residential mortgage loans, loans generally are
written having terms that 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.
Item 3 - Quantitative and Qualitative Disclosures about
Market Risk
There have been no material changes in the Company's
assessment of its sensitivity to market risk since its
presentation in the 1999 annual report on Form 10-K filed with
the SEC.
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 -
At the annual meeting of shareholders held on April 18,
2000, shareholders of the Company approved the First Leesport
Bancorp, Inc. Non-Employee Director Compensation Plan, which
requires directors of the Company to receive at least 65% of
their total directors' fees in the form of common stock,
approved the First Leesport Bancorp, Inc. Employee Stock
Purchase Plan, which permits employees to purchase common stock
through payroll deductions, and ratified the appointment of
Beard & Company, Inc., as the Company's independent auditors for
the year ending December 31, 2000. The Company's shareholders
also elected Edward L. Barrett, James H. Burton, Keith W.
Johnson, Andrew J. Kuzneski, Jr. and Harry J. O'Neill, III as
Class III directors of the Company to serve until 2003. The
votes cast in such matters were as follows:
Abstentions/
For Against Broker Non-Votes
Non-Employee Director
Compensation Plan 1,115,477 87,441 59,336
Employee Stock Purchase
Plan 1,176,708 37,792 47,756
Ratification of Beard &
Company, Inc. as
independent auditors 1,335,395 7,289 36,285
The votes cast in the election with respect to each
individual nominee were as follows:
For Withheld
Edward C. Barrett 1,364,931 14,577
James H. Burton 1,364,931 14,577
Keith W. Johnson 1,364,931 14,577
Andrew J. Kuzneski, Jr. 1,363,125 16,383
Harry J. O'Neill, III 1,363,449 16,055
The terms of office of the following directors of the
Company continued after the annual meeting of shareholders:
Anthony R. Cali, John T. Connelly, Richard L. Henry, Charles J.
Hopkins, William J. Keller, Raymond H. Melcher, Jr., Roland C.
Moyer, Jr., Karen A. Rightmire, and Alfred J. Weber.
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K - None
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: August 14, 2000 By /s/Raymond H. Melcher, Jr.
Raymond H. Melcher, Jr.
Chairman, President and Chief
Executive Officer
Dated: August 14, 2000 By /s/ Kurt A. Phillips
Kurt A. Phillips
Treasurer and Chief Accounting
Officer
