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 September 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 November 1, 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 shareholders 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 SUBSIDIARIES
UNAUDITED CONSOLIDATED, CONDENSED BALANCE SHEETS
(Amounts in thousands)
Sept 30 Dec 31
ASSETS 2000 1999
Cash and Due from Banks $ 7,639 $ 15,376
Interest-bearing Deposits in Other Banks 901 489
Total Cash and Balances Due from Banks 8,540 15,865
Securities Available for Sale 76,272 72,165
Loans, Net of Unearned Income 280,090 253,194
Less: Allowance for Loan Losses (3,373) (2,954)
Net Loans 276,717 250,240
Bank Premises and Equipment 8,147 7,599
Other Real Estate Owned 276 196
Goodwill, net of Amortization 4,524 4,702
Accrued Interest Receivable
and Other Assets 12,164 7,851
TOTAL ASSETS $386,640 $358,618
======== ========
LIABILITIES
DEPOSITS
Non-interest Bearing $ 32,938 $ 30,941
Interest Bearing 253,189 238,403
Total Deposits 286,127 269,344
Federal Funds Purchased 18,600 23,567
Securities Sold Under Agreements
to Repurchase 12,704 4,608
Long-term Debt 32,500 31,000
Mandatory Redeemable Capital Securities
Of Subsidiary Trust 5,000 0
Accrued Interest Payable 1,715 1,675
Other Liabilities 2,931 2,822
TOTAL LIABILITIES 359,577 333,016
SHAREHOLDERS' EQUITY
Common Stock, $5.00 Par Value per Share;
Authorized 10,000,000 shares,
Issued 1,858,474 Shares in 2000,
1,858,919 shares in 1999 9,292 9,295
Surplus 4,999 4,988
Retained Earnings 14,477 13,571
Accumulated Other Comprehensive
Income (Loss) (1,630) (2,134)
Treasury Stock; 5,469 shares in 2000
8,629 shares in 1999, at cost (75) (118)
TOTAL SHAREHOLDERS' EQUITY 27,063 25,602
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $386,640 $358,618
======== ========
The accompanying notes are an integral part of these condensed
financial statements.
FIRST LEESPORT BANCORP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED, CONDENSED STATEMENTS OF INCOME
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Sept 30, 2000 Sept 30, 1999 Sept 30, 2000 Sept 30, 1999
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $5,701 $4,867 $16,284 $13,306
Interest on Securities:
Taxable 1,044 881 2,882 2,610
Tax-Exempt 203 211 732 652
Dividend Income 67 46 199 90
Interest on Federal Funds Sold 39 9 129 50
TOTAL INTEREST INCOME 7,054 6,014 20,226 16,708
INTEREST EXPENSE
Interest on Deposits 3,193 2,603 8,762 7,344
Interest on Short-term
Borrowings 391 269 1,354 544
Interest on Long-term Debt 647 319 1,835 1,023
TOTAL INTEREST EXPENSE 4,231 3,191 11,951 8,911
NET INTEREST INCOME 2,823 2,823 8,275 7,797
Provision for Loan Losses 308 505 782 1,000
Net Interest Income after
Provision for Loan Losses 2,515 2,318 7,493 6,797
OTHER INCOME
Customer Service Fees 173 118 439 347
Mortgage Banking Activities 60 65 194 213
Commissions on Insurance Sales 1,010 820 2,956 2,516
Brokerage and Investment Advisory
Fees 308 0 781 0
Loss on Sale of Residential
Mortgages (203) (63) (203) (63)
Other Income 172 207 837 445
Realized Gain on Sale of
Securities 50 2 55 42
TOTAL OTHER INCOME 1,570 1,149 5,059 3,500
OTHER EXPENSES
Salaries and Benefits 1,892 1,755 5,604 4,448
Occupancy Expense 202 202 674 552
Furniture and Equipment Expense 208 177 609 536
Computer Services 231 338 775 655
Goodwill Amortization 65 58 205 163
Other Real Estate Expenses 43 23 187 171
Other Operating Expenses 934 1,093 2,355 2,420
TOTAL OTHER EXPENSES 3,575 3,646 10,409 8,945
Income (Loss) Before Income Taxes 510 (179) 2,143 1,352
Federal Income Taxes 67 (74) 458 318
NET INCOME (LOSS) $ 443 $ (105) $ 1,685 $ 1,034
EARNINGS PER SHARE DATA
Averages Shares Outstanding 1,853,005 1,836,822 1,851,610 1,836,726
Basic Earnings (Loss) Per Share $0.24 $(0.06) $0.91 $0.56
Diluted Earnings (Loss) Per
Share 0.24 (0.06) 0.91 0.56
Cash Dividends Paid Per Share 0.15 0.14 0.45 0.40
</TABLE>
The accompanying notes are an integral part of these condensed
financial statements.
FIRST LEESPORT BANCORP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED, STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in thousands)
Nine Months Ended
Sept 30, 2000 Sept 30, 1999
Net Income $1,685 $ 1,034
Other Comprehensive Income (Loss),
net of tax:
Unrealized gains (losses) on
securities arising during the
period, net of tax expense
(benefit): 2000 - $278;
1999 - ($1,477) 540 (2,231)
Less: Reclassification
adjustments for gains included
in net income, net of tax
expense: 2000 - $19;
1999 - $14 (36) (28)
Other Comprehensive Income (Loss) 504 (2,259)
Comprehensive Income $2,189 $(1,225)
The accompanying notes are an integral part of these condensed
financial statements.
FIRST LEESPORT BANCORP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Amounts in thousands, except per share data)
Nine Months Ended
Sept 30, 2000 Sept 30, 1999
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Income $ 1,685 $ 1,034
Adjustments to Reconcile Net Income
to Net Cash Provided By
Operating Activities:
Provision for loan losses 782 1,000
Provision for depreciation and
amortization 743 428
Net amortization (accretion) of
securities premiums and
discounts (45) 34
Amortization of mortgage servicing
rights 16 15
Increase in cash surrender value of
life insurance (220) (70)
Realized gains and losses on sale
of securities 55 42
Loans originated for sale (6,796) (5,585)
Proceeds from sales of loans 6,634 5,641
Realized gain on sale of bank premises
and equipment (246) 0
Increase in accrued interest
receivable and other assets (694) (677)
Increase (decrease) in accrued
interest payable and other
liabilities 149 (891)
NET CASH PROVIDED BY OPERATING
ACTIVITIES $2,063 $ 971
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from principal repayments
and maturities of securities $ 3,004 $ 15,295
Net (increase) in federal funds
sold 0 (650)
Proceeds from sales of securities 7,160 9,283
Purchase of securities (14,171) (20,192)
Loans made to customers, net of
repayments (26,896) (56,704)
Purchases of bank premises and
equipment (1,217) (1,295)
Purchase of life insurance policies (3,317) 0
Proceeds from sale of premises
and equipment 416 0
NET CASH USED IN INVESTING
ACTIVITIES $(35,021) $(54,263)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net increase in deposits 16,783 35,709
Net increase in federal
funds purchased and repurchase
agreements 3,129 13,446
Net proceeds from short-term
borrowings 0 4,300
Proceeds from long-term debt 1,500 0
Proceeds from issuance of common
stock 54 0
Proceeds from issuance of capital
securities 5,000 0
Dividends paid (833) (757)
NET CASH PROVIDED BY FINANCING
ACTIVITIES $25,633 $52,698
Decrease in cash and
cash equivalents ($7,325) ($594)
Cash and cash equivalents:
Beginning $ 15,865 $ 6,765
Ending $ 8,540 $ 6,171
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. For comparative
purposes, prior years' consolidated financial statements
have been reclassified to conform with report classifica-
tions of the current year.
2. The results of operations for the three and nine month
periods ended September 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 September 22, 2000, the charters of the wholly owned
banking subsidiaries of the Company, the First National Bank
of Leesport and Merchants Bank of Pennsylvania, were merged
into a single charter under the name Leesport Bank.
6. 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 have been restated to give retroactive effect to
the merger. The consolidated statement of income and the
consolidated statement of cash flows for the period ended
September 30, 1999 are presented as if the combining
companies had been consolidated for that period.
7. 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.
8. 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.
9. 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.
10. In September 2000, the Financial Accounting Standards Board
issued Statement No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities." This statement replaces FASB No. 125, of the
same name. It revises the standards for securitizations
and other transfers of financial assets and collateral and
requires certain disclosures, but carries over most of the
provisions of FASB No. 125 without reconsideration. FASB
No. 140 is effective for transfers and servicing of
financial assets and extinguishments of liabilities
occurring after March 31, 2001. The statement is effective
for recognition and reclassification of collateral and for
disclosures relating to securitization transactions and
collateral for fiscal years ending after December 15, 2000.
This statement is to be applied prospectively with certain
exceptions. Other than these exceptions, earlier or
retroactive application of its accounting provisions is not
permitted. The adoption of the statement is not expected to
have a significant impact on the Company.
11. 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, retirement and estate planning, investment advice
and services, corporate and small business pension and
retirement planning services.
<TABLE>
<CAPTION>
Banking
and
Financial Insurance Investment
Services Services Services Total
<S> <C> <C> <C> <C>
Three months ended September 30, 2000
Revenues from external customers $ 7,306 $1,010 $308 $ 8,624
Income before income taxes 277 170 63 510
Nine months ended September 30, 2000
Revenues from external customers 21,548 $2,956 $781 $25,285
Income before income taxes 1,666 422 55 2,143
Three months ended September 30, 1999
Revenues from external customers 6,441 820 0 7,261
Income before income taxes (271) 92 0 (179)
Nine months ended September 30, 1999
Revenues from external customers 17,791 2,516 0 20,307
Income before income taxes 810 542 0 1,352
</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 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 three months ended September 30, 2000
was $443,000 compared to a net loss of $105,000 for the three
months ended September 30, 1999. Net income for the third
quarter of 2000 was negatively affected by a loss of $102,000,
net of tax, that was incurred as a result of the sale of
$6.4 million of fixed rate residential mortgage loans and
$6.3 million of municipal investment securities. The 1999
results were negatively affected by charges of $617,000, net of
taxes, for non-recurring merger expenses related to the
acquisition of Merchants of Shenandoah Bancorp. Net income per
common share, basic and diluted, was $.24 and $.91 for the three
and nine month periods ended September 30, 2000. Net income for
the nine months ended September 30, 1999 was $.56 per share,
basic and diluted, and a loss of $.06 per share was recognized
in the third quarter of 1999.
Net income before goodwill amortization was $508,000 and
$1,890,000 for the three and nine month periods ended
September 30, 2000. Net income before goodwill amortization for
the nine months ended September 30, 1999 was $1,197,000.
The following are the key ratios for each period:
Three Months Ended Nine Months Ended
September 30 September 30
2000 1999 2000 1999
Return on average assets 0.45% N/M 0.59% 0.44%
Return on average
shareholders' equity 6.62% N/M 8.56% 5.23%
Dividend payout ratio 62.73% N/M 49.46% 73.21%
Average shareholders'
equity to average
assets 6.86% 8.07% 6.92% 8.47%
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 for the three months ended
September 30, 2000 was $2.96 million, a 3.5% increase over the
$2.86 million reported for the third quarter of 1999. For the
first nine months of 2000, net interest income was $8.73 million
compared to $7.89 million for 1999, an increase of 10.6%. The
net interest margin for the three and nine month periods of 2000
was 3.30% and 3.36%, respectively, compared to 3.60% for the
third quarter of 1999 and 3.63% for the nine month period of
1999. Average interest earning assets for the third quarter of
2000 were $357.8 million, a $40 million or 13% increase over the
third quarter of 1999. For the nine months ended September 30,
2000 average interest earning assets totaled $347 million, a
$52 million or 18% increase over the 1999 period.
The following are the key net interest margin ratios:
Three Months Ended Nine Months Ended
September 30 September 30
2000 1999 2000 1999
Yield on average earning
assets 8.00% 7.67% 7.96% 7.61%
Cost of supporting
liabilities 4.70% 4.07% 4.60% 3.98%
Net interest margin 3.30% 3.60% 3.36% 3.63%
Provision and Allowance for Loan Losses
The provision for loan losses for the quarter ended
September 30, 2000 was $308,000 compared to $505,000 for the
third quarter of 1999. For the first nine months of 2000, the
provision for loan losses was $782,000 compared to $1,000,000
for the same period of 1999. Additions to the allowance are
made based upon quality factors existing at that time. 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 allowance at September 30, 2000 was $3.37 million or
1.20% of outstanding loans compared to $2.84 million or 1.13% of
loans at September 30, 1999. At September 30, 2000 there was a
total of $28,000 of the allowance that was unallocated to
specific outstanding balances compared to $344,000 at December
31, 1999.
The following table shows the activity in the Company's
allowance for loan losses:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Loans outstanding at end of period
(net of unearned income) $280,090 $250,937 $280,090 $250,937
Average balance of loans outstanding
during the period 278,006 235,325 268,229 219,541
Balance of allowance for loan losses,
beginning of period 3,153 2,383 2,954 2,129
Loans charged-off:
Commercial, financial and agricultural 48 0 156 128
Real estate - mortgage 52 1 220 83
Consumer 16 58 55 181
Total loans charged-off 116 59 431 392
Recoveries of loans previously charged-off
Commercial, financial and agricultural 0 (1) (6) (68)
Real estate - mortgage (21) (2) (26) (5)
Consumer (7) (6) (36) (28)
Total recoveries (28) (9) (68) (101)
Net loans charged-off 88 50 363 291
Provision for loan losses 308 505 782 1,000
Balance, end of period $ 3,373 $ 2,838 $ 3,373 $ 2,838
Net charge-offs to average loans .03% .02% 0.13% 0.13%
Allowance for loan losses to loans
outstanding 1.20% 1.13% 1.20% 1.13%
</TABLE>
The following table summarizes the Company's non-performing
assets:
September 30, 2000 December 31, 1999
(Amounts in thousands)
Non-accrual loans
Real estate - mortgage $ 337 $ 797
Consumer 0 0
Commercial, financial
and agricultural 741 1,192
Total 1,078 1,989
Loans past due 90 days
or more and still
accruing interest
Real estate - mortgage 164 363
Consumer 29 86
Commercial, financial
and agricultural 331 226
Total 523 675
Troubled debt restructurings 1,030 1,084
Total non-performing loans 2,631 3,748
Other real estate owned 276 150
Total non-performing assets $2,907 $3,898
Non-performing loans to
total loans .94% 1.48%
Non-performing assets to
total loans plus OREO 1.04% 1.54%
Other Income
Other income for the three months ended September 30, 2000
totaled $1.57 million, an increase of $421,000 or 37% over 1999.
For the nine months of 2000, other income totaled
$5.059 million, an increase of $1.559 million or 45% compared to
1999. Included in the 2000 results are broker and investment
advisory fees totaling $308,000 in the three month period and
$781,000 for the nine month period. These fees were provided by
the broker/dealer and investment advisory subsidiary of the
Company, First Leesport Investment Group and First Leesport
Wealth Management. No similar income was recognized in the same
periods of 1999 as these subsidiaries were acquired in October
1999. An increase in commissions earned on insurance sales
provided $190,000 of additional fee income during the third
quarter of 2000 as compared to 1999 and additional fee income of
$440,000 for the nine month period of 2000 as compared to 1999.
A gain of $245,000 is included in the year-to-date non-interest
income from the sale of a Bank financial services facility
during the first quarter of 2000.
A sale of $6.4 million of residential mortgage loans was
completed during the third quarter of 2000. This sale resulted
in a loss before federal income taxes of $203,000. A total of
$6.5 million of available for sale investment securities were
sold during the quarter at a net gain of $50,000 before tax.
Both transactions were performed for the purpose of improving
the Company's liquidity and reducing its long-term exposure to
movements in interest rates.
Other Expense
Other expense for the three months ended September 30, 2000
was $3.58 million compared to $3.65 million for 1999. Other
expense for the first nine months of 2000 was $10.41 million
compared to $8.95 million for 1999. Expenses for the three and
nine months of 1999 included approximately $814,000 of costs
related to the acquisition of Merchants of Shenandoah Bancorp in
July of 1999. Salary and benefits expense for the three months
ended September 30, 2000 increased to $1.89 million from
$1.76 million for 1999. Approximately $270,000 of non-recurring
salary expense related to the merger was incurred during the
1999 period. Salary and benefits expense for the first nine
months of 2000 increased to $5.60 million from $4.45 million in
1999. The increase from the 1999 period resulted from the
addition of 12 full-time equivalent employees since
September 30, 1999, the majority of which represent personnel
associated with the acquisition of the Company's investment
subsidiaries in October 1999. A 4% overall merit increase has
been applied to base salaries as compared to the 1999 periods.
Occupancy and equipment expense for the third quarter of
2000 was up by $31,000 or 8% over the same quarter of 1999. For
the first nine months of 2000, occupancy and equipment expense
was $1,283,000, a $195,000 or 18% increase over 1999. This
increase was attributable primarily to two new financial service
centers opened during the latter part of 1999.
Increases in the cost of data processing services and
marketing expenses also contributed to the increase in other
expense during the first nine months of 2000. The cost of the
Company's primary data processing operations provided by a third
party during the first nine months of 2000 increased by $246,000
compared to the same period of 1999. Total marketing and
advertising expenses increased by $53,000 compared to the first
nine months of 1999.
Federal Income Taxes
The effective federal income tax rate for the Company for
the nine months ended September 30, 2000 was 21.3% compared to
23.5% for 1999. The effective tax rate for 2000 was lower than
the rate for 1999 as a result of an increase in the 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 September 30, 2000 were
$387 million, an increase of approximately $28 million since
December 31, 1999 and an annualized growth rate of 10% Total
loans outstanding increased by $3.1 million during the third
quarter of 2000, and have grown by $26.9 million since
December 31, 1999. During the third quarter of 2000, the sale of
$6.4 million of residential mortgage loans was completed. A
total of $6.5 million of available for sale investment
securities were sold during the quarter at a net gain of $50,000
before tax. Both transactions were performed for the purpose of
improving the Company's liquidity and reducing its exposure to
movements in interest rates. Excluding the effect of the loan
sale during the quarter, total loans grew at an annualized
growth rate of 14% for the quarter, and have increased at an
annualized growth rate of 18% year to date in 2000.
Deposits increased by $17 million or at an 8% annualized
growth rate since December 31, 1999. Deposit growth has been
flat during the third quarter of 2000 as a significant portion
of the Company's loan growth during the quarter was funded by
the funds made available from the sale of the residential
mortgage loans and through normal maturities and cash flows from
the investment portfolio. Short and long-term borrowings also
remained flat during the quarter. Since year-end 1999
borrowings have increased by $9.6 million. Repurchase agreements
with customers, which are included in short term borrowings,
increased during the same period by $8.1 million. Additionally,
in the first quarter of 2000 the Company issued $5 million of
mandatory redeemable securities of its capital trust, more
commonly referred to as trust preferred securities.
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.
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, including goodwill, 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
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.
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 September 30, 2000 was 7.54%
compared to 7.70% at June 30, 2000 and to 6.61% at December 31,
1999. The increase in this ratio compared to year end resulted
primarily from the issuance of $5 million of mandatory
redeemable capital securities and, to a lesser extent, from
normally retained earnings. The mandatory redeemable securities
are included for regulatory purposes as Tier I capital with
certain limiting restrictions. At September 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.
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%.
The Company is not aware of any pending recommendations by
regulatory authorities that would have a material impact on the
Company's capital resources. An adequate capital base is
important for continued growth and expansion in addition to
providing an added protection against unexpected losses.
The following table sets forth the Company's capital
ratios:
<TABLE>
<CAPTION>
To Be Well
For 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 September 30, 2000:
Total capital (to risk-weighted
assets):
First Leesport Bancorp $32,491 12.09% $ 21,508 8.00% $ 26,885 10.00%
Leesport Bank 31,048 11.54 21,518 8.00 26,898 10.00
Tier I capital (to risk-weighted
assets):
First Leesport Bancorp 29,143 10.84 10,754 4.00 16,131 6.00
Leesport Bank 27,686 10.29 10,759 4.00 16,139 6.00
Tier I capital (to average assets):
First Leesport Bancorp 29,143 7.54 15,462 4.00 19,328 5.00
Leesport Bank 27,686 7.22 15,342 4.00 19,177 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 is affected by an environment in which
interest rates may be volatile and in which deposit customers
have the opportunity to invest in liquid, interest rate-
sensitive deposits. The banking industry has adapted to
managing its interest rate risk in 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 financing 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 repayments. The Bank can also 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.
During the third quarter of 2000, the Company completed a
sale of $6.4 million of residential mortgage loans. This sale
served to improve the Company's liquidity as the funds received
from this sale were not immediately reinvested into other
earning assets. At September 30, 2000 total borrowed funds were
$63.8 million or 17% of total assets. These borrowings included
$18.6 million of overnight federal funds purchased, $12.7
million of repurchase agreements with customers, $31.0 million
of term borrowing with the Federal Home Loan Bank, and
$1.5 million of term debt with other financial institutions. The
FHLB borrowings have final maturities ranging from October 2000
through December 2009 at interest rates from 4.72% to 6.32%.
The term borrowings with other financial institutions have a
maturity of March 2005 at interest rates from 8.50% to 9.00%.
At September 30, 2000, the Company had a maximum borrowing
capacity with the Federal Home Loan Bank of approximately
$99 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 -
None
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: November 14, 2000 By /s/Raymond H. Melcher, Jr.
Raymond H. Melcher, Jr.
Chairman, President and
Chief Executive Officer
Dated: November 14, 2000 By /s/ Kurt A. Phillips
Kurt A. Phillips
Treasurer and Chief
Accounting Officer
