U. S. 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, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM .............. TO ..............
COMMISSION FILE NUMBER: 1-15513
PREMIER BANCORP, INC.
---------------------
(Exact name of Registrant as specified in its charter)
PENNSYLVANIA 23-2921058
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
379 NORTH MAIN STREET, DOYLESTOWN, PA 18901
-------------------------------------------
(Address of principal executive offices)
(215) 345-5100
-------------------------------
(Registrant's telephone number)
N/A
------------------------------------------
(Former name, former address and former
fiscal year, if changed since last report)
Check whether the Registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the preceding 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
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the Registrant's classes
of common stock, as of the latest practicable date: 3,452,273 shares of $0.33
par value common stock issued and outstanding as of April 30, 2002.
PART I - FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
PREMIER BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
MARCH 31, DECEMBER 31,
2002 2001
--------- ---------
(Dollars in thousands,
except share data)
ASSETS:
Cash and due from banks $ 16,864 $ 14,383
Short-term investments 25,176 14,137
Interest-bearing deposits 1,198 1,084
--------- ---------
Cash and cash equivalents 43,238 29,604
Investment securities:
Held to maturity (fair value $500 in 2002 and $500 in 2001) 500 500
Available for sale (amortized cost $101,962 in 2002 and $102,399 in 2001) 97,646 97,851
Loans receivable (net of allowance for loan losses of $4,102 in 2002
and $3,817 in 2001) 334,154 310,876
Loans held for sale 479 127
Other real estate owned 475 475
Premises and equipment 4,511 4,598
Accrued interest receivable 2,813 2,939
Deferred income taxes 2,808 2,887
Other assets 1,033 712
--------- ---------
Total assets $ 487,657 $ 450,569
========= =========
LIABILITIES, MINORITY INTEREST IN SUBSIDIARY AND SHAREHOLDERS' EQUITY:
Deposits $ 391,244 $ 358,282
Borrowings 52,233 49,605
Accrued interest payable 3,757 4,554
Other liabilities 6,095 5,019
Subordinated debt 3,500 3,500
--------- ---------
Total liabilities 456,829 420,960
Corporation-obligated mandatorily redeemable capital securities of subsidiary
trust holding solely junior subordinated debentures of the corporation 10,000 10,000
Shareholders' equity:
Preferred stock- no par value; 20,000,000 shares authorized; none issued and
outstanding -- --
Common stock- $0.33 par value; 30,000,000 shares authorized; issued and
outstanding 3,367,466 at March 31, 2002 and 3,242,215 at December 31, 2001 1,111 1,070
Additional paid-in capital 12,308 12,085
Retained earnings 10,257 9,455
Accumulated other comprehensive loss (2,848) (3,001)
--------- ---------
Total shareholders' equity 20,828 19,609
--------- ---------
Total liabilities, minority interest in subsidiary and shareholders' equity $ 487,657 $ 450,569
========= =========
The accompanying notes are an integral part of the
consolidated financial statements.
2
PREMIER BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS
ENDED MARCH 31,
---------------------------
2002 2001
----------- -----------
(In thousands, except
per share data)
Interest income:
Loans $ 5,992 $ 5,269
Short-term investments and interest-bearing deposits 103 143
Investments:
Taxable 1,222 1,400
Tax-exempt 247 202
----------- -----------
Total interest income 7,564 7,014
Interest expense:
Deposits 3,327 3,889
Borrowings 519 219
----------- -----------
Total interest expense 3,846 4,108
----------- -----------
Net interest income 3,718 2,906
Provision for loan losses 285 100
----------- -----------
Net interest income after loan loss provision 3,433 2,806
Non-interest income:
Service charges and other deposit-related fees 94 69
Loss, net, on sale of investment securities available for sale (38) (36)
Gain on sale of loans held for sale 13 5
Other fees 67 68
----------- -----------
Total non-interest income 136 106
Non-interest expense:
Salaries and employee benefits 1,257 1,075
Occupancy 200 196
Data processing 255 239
Professional services 64 80
Marketing 66 121
Minority interest in expense of subsidiary 218 218
Other 424 364
----------- -----------
Total non-interest expense 2,484 2,293
----------- -----------
Income before income tax 1,085 619
Income tax expense 283 155
----------- -----------
Net income $ 802 $ 464
=========== ===========
Earnings per common share:
Basic $ 0.24 $ 0.15
Diluted $ 0.23 $ 0.14
Weighted average number of common shares outstanding:
Basic 3,277,115 3,172,708
Diluted 3,429,582 3,366,671
The accompanying notes are an integral part of the
consolidated financial statements.
3
PREMIER BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS
ENDED MARCH 31,
---------------------
2002 2001
-------- --------
(In thousands)
OPERATING ACTIVITIES:
Net income $ 802 $ 464
Adjustments to reconcile net income to cash provided by (used in) operating
activities:
Depreciation expense 120 134
Provision for loan losses 285 100
Amortization of premiums and discounts on investment securities available 36 40
for sale
Loss on sales of investment securities available for sale 38 36
Gain on sales of loans held for sale (13) (5)
Originations of loans held for sale (2,390) (1,087)
Proceeds from sales of loans held for sale 2,051 827
Decrease (increase) in accrued interest receivable 126 (280)
Increase in other assets (321) (980)
Increase in deferred loan fees 227 48
(Decrease) increase in accrued interest payable (797) 373
Increase (decrease) in other liabilities 1,090 (1,840)
-------- --------
Net cash provided by (used in) operating activities 1,254 (2,170)
-------- --------
INVESTING ACTIVITIES:
Proceeds from sales of investment securities available for sale 16,230 11,243
Repayment of investment securities available for sale 3,488 1,706
Purchases of investment securities available for sale (19,355) (5,958)
Repayment of investment securities held to maturity -- 369
Net increase in loans receivable (23,790) (10,322)
Purchases of premises and equipment (33) (95)
-------- --------
Net cash used in investing activities (23,460) (3,057)
-------- --------
FINANCING ACTIVITIES:
Net increase in deposits 32,962 11,118
Net increase in borrowings less than 90 days 2,628 1,692
Proceeds from exercised stock options 250 241
-------- --------
Net cash provided by financing activities 35,840 13,051
-------- --------
Increase in cash and cash equivalents 13,634 7,824
Cash and cash equivalents:
Beginning of period 29,604 8,026
-------- --------
End of period $ 43,238 $ 15,850
======== ========
SUPPLEMENTAL DISCLOSURES:
Cash payments for:
Interest expense $ 4,643 $ 3,735
Taxes 650 50
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
Change in the estimated fair value of investment securities available for sale $ 232 $ 741
Change in deferred tax asset related to investment securities available for (79) (252)
sale
Tax effect of exercised stock options 14 165
The accompanying notes are an integral part of the
consolidated financial statements.
4
PREMIER BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Organization
Premier Bancorp, Inc. (PBI) is a Pennsylvania business corporation and a
registered financial holding company headquartered in Doylestown, Bucks County,
Pennsylvania. PBI was incorporated on July 15, 1997 and reorganized on November
17, 1997 as the one-bank holding company of Premier Bank. PBI's primary business
is the operation of its wholly-owned subsidiary, Premier Bank, which is managed
as a single business segment.
Premier Bank provides a full range of banking services to individual and
corporate customers through its branch banking system located in Bucks,
Montgomery and Northampton Counties in Pennsylvania. Premier Bank is a
Pennsylvania chartered commercial bank and a member of the Federal Reserve Bank
of Philadelphia and the Federal Deposit Insurance Corporation. Premier Bank
competes with other financial institutions and other financial services
companies with respect to customers and services offered.
Both PBI and Premier Bank are regulated and periodically examined by
certain federal and state agencies.
2. Basis of Financial Statement Presentation
The accompanying unaudited consolidated financial statements of PBI have
been prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. The consolidated financial
statements include the accounts of Premier Bancorp, Inc. and its wholly-owned
subsidiaries: Premier Bank, PBI Capital Trust, Lenders Abstract, LLC and Premier
Bank Insurance Services, LLC. In the opinion of management, the accompanying
unaudited financial statements contain all material adjustments, including
elimination of all significant intercompany accounts and transactions, necessary
to present fairly PBI's financial position, results of operations and cash flows
for the periods indicated, and have been prepared in a manner consistent with
the audited financial statements as of December 31, 2001. These results of
operations for the three months ended March 31, 2002 and 2001 are not
necessarily indicative of the results that may be expected for the full fiscal
year. These financial statements should be read in conjunction with the audited
financial statements and the footnotes for the fiscal year ended December 31,
2001 included in PBI's annual report on Form 10-KSB filed with the Securities
and Exchange Commission.
3. Use of Estimates
In preparing the consolidated financial statements in accordance with
accounting principles generally accepted in the United States as applied to the
banking industry, management is required to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from such estimates. Material
estimates that are particularly susceptible to significant change in the near
term include the determination of the allowance for loan losses.
4. Derivative Financial Instruments
PBI and its subsidiaries have limited involvement with derivative financial
instruments and currently use them only in relation to Premier Bank's Index
Powered(SM) Certificate of Deposit (IPCD) product. The IPCD, which was
introduced in the first quarter of 2001, contains an embedded derivative feature
that provides a potential return to the depositor based upon a formula that is
dependent on the return of the Standard & Poor's 500 (R) Index. This innovative
5-year term deposit product allows the customer to receive a return that is
based on an equity market index in place of a stated interest rate but, like
other traditional certificates of deposit, is insured by the FDIC to the extent
provided by law.
5
PREMIER BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Derivative Financial Instruments (continued)
Premier Bank entered into derivative contracts with the Federal Home Loan
Bank of Pittsburgh (FHLB) in order to offset the risks associated with the
variable cost of the IPCD. Under the terms of these derivative contracts,
Premier Bank will receive an amount equal to the amount to be paid to the IPCD
depositor in exchange for a periodic payment stream expressed as a rate of
interest.
The derivative contracts with the FHLB and the derivatives embedded in the
IPCD are accounted for in accordance with Financial Accounting Standards Board
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities", as amended. Accordingly, PBI carries these derivatives at fair
value in the Consolidated Balance Sheets and recognizes any changes in fair
value in current period earnings. We obtain the fair value estimates for these
derivatives from a third party financial institution.
The notional amount of derivative contracts was $14,854,000 and $10,905,000
at March 31, 2002 and December 31, 2001, respectively. The fair value of
derivatives is included in "Other liabilities" and approximated $2,614,000 and
$2,055,000 at March 31, 2002 and December 31, 2001, respectively. During the
first quarter of 2002, approximately $19,000 was recorded in other income for
net changes in the fair value of derivatives compared to $7,000 in expense for
the first quarter of 2001. The fair value adjustments are due to changes in
prevailing interest rates and the resulting valuations of future payments due
the FHLB. These valuation adjustments will cumulatively net to zero at the
maturity of the contracts.
5. Earnings Per Common Share
Basic earnings per common share is calculated on the basis of the weighted
average number of common shares outstanding. Diluted earnings per common share
includes dilutive common stock equivalents as computed under the treasury stock
method using average common stock prices for the respective period. Options to
purchase 395,463 and 571,697 shares of common stock were outstanding at March
31, 2002 and 2001, respectively, and to the extent dilutive, were included in
the computation of earnings per diluted common share. Options to purchase 51,998
shares of common stock were anti-dilutive for both the first quarter of 2002 and
2001, and were excluded from the calculation of earnings per diluted common
share for the respective periods.
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per common share calculations.
FOR THE THREE MONTHS ENDED MARCH 31, 2002
-------------------------------------------------
(Dollars in thousands, except per share data)
Per share
Net income Shares Amount
---------- --------- ---------
Basic earnings per common share $ 802 3,277,115 $ 0.24
Effect of dilutive common stock options -- 152,467 (0.01)
---------- --------- ---------
Earnings per diluted common share $ 802 3,429,582 $ 0.23
========== ========= =========
FOR THE THREE MONTHS ENDED MARCH 31, 2001
-------------------------------------------------
(Dollars in thousands, except per share data)
Per share
Net income Shares Amount
---------- --------- ---------
Basic earnings per common share $ 464 3,172,708 $ 0.15
Effect of dilutive common stock options -- 193,963 (0.01)
---------- --------- ---------
Earnings per diluted common share $ 464 3,366,671 $ 0.14
========== ========= =========
6
PREMIER BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Comprehensive Income
The following table displays net income and the components of other
comprehensive income to arrive at total comprehensive income. The only component
of other comprehensive income is the change in the estimated fair value of
investment securities available for sale.
FOR THE THREE MONTHS ENDED MARCH 31, 2002 2001
-------- --------
(Dollars in thousands)
Net income $ 802 $ 464
Other comprehensive income, net of tax:
Unrealized gains on investment securities available for sale:
Unrealized holding gains during the period 128 465
Less: Reclassification adjustment for losses included in net income 25 24
-------- --------
Other comprehensive income, net of tax 153 489
-------- --------
Comprehensive income $ 955 $ 953
======== ========
7. Preferred Stock
On March 28, 2002, the shareholders of PBI approved an amendment to the
Articles of Incorporation to authorize 20,000,000 shares of preferred stock.
Articles of Amendment were filed with the Pennsylvania Department of State on
March 29, 2002. Currently, PBI's board of directors intends to raise
approximately $10,000,000 from the issuance of Series A Perpetual Non-Cumulative
Preferred Stock in an underwritten public offering commencing in the second
quarter of 2002.
Earnings per common share will be impacted if dividends are paid on
preferred stock.
7
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is management's discussion and analysis of the significant
changes in the results of operations for the three months ended March 31, 2002
as compared to the same period in 2001 and changes in the balance sheet from
December 31, 2001 to March 31, 2002. Current performance may not be indicative
of future performance. This discussion should be read in conjunction with PBI's
2001 Annual Report on Form 10-KSB.
Management has made forward-looking statements in this Quarterly Report on
Form 10-Q. These forward-looking statements may be subject to risks and
uncertainties. Forward-looking statements include the information concerning
possible or assumed future results of operations of Premier Bancorp, Inc. and
its subsidiaries, Premier Bank, PBI Capital Trust, Lenders Abstract, LLC and
Premier Bank Insurance Services, LLC. When words such as "believes", "expects",
"anticipates" or similar expressions occur in this Form 10-Q, management is
making forward-looking statements.
Shareholders should note that many factors, some of which are discussed
elsewhere in this Form 10-Q, could affect the future financial results of
Premier Bancorp, Inc. and its subsidiaries, both individually and collectively,
and could cause those results to differ materially from those expressed in the
forward-looking statements contained in this From 10-Q. These factors include
but are not limited to the following:
o operating, legal and regulatory risks, such as continued levels of
loan quality and origination volumes, continued relationships with
major customers, and technological changes;
o economic, political and competitive forces affecting Premier Bank's
business, such as changes in economic conditions, especially in the
bank's market area, interest rate fluctuations, competitive product
and pricing pressures within the bank's market, personal and corporate
bankruptcies, monetary policy and inflation;
o our ability to grow internally or through acquisitions; and
o the risk that management's analyses of these risks and forces could be
incorrect and or that the strategies developed to address them could
be unsuccessful.
Management cautions readers not to place undue reliance on these
forward-looking statements that reflect its analysis only as of this date.
Management is not obliged to publicly revise or update these forward-looking
statements to reflect events or circumstances that arise after this date.
Readers should carefully review the risk factors described in other documents
that we file from time to time with the Securities and Exchange Commission,
including Annual Reports on Form 10-K and any current reports on Form 8-K.
GENERAL
Premier Bancorp, Inc. (PBI) is a Pennsylvania business corporation and a
registered financial holding company headquartered in Doylestown, Bucks County,
Pennsylvania. We were incorporated on July 15, 1997 and reorganized on November
17, 1997 as the one-bank holding company of Premier Bank. Our primary business
is the operation of our wholly-owned subsidiary, Premier Bank, which we manage
as a single business segment.
Premier Bank was organized in 1990 as a Pennsylvania chartered banking
institution and began operations on April 24, 1992. The bank is a financial
services provider whose business primarily consists of attracting retail
deposits from the general public and originating loans to small to mid-sized
businesses and their owners. The bank also invests in securities such as
mortgage-backed securities, obligations of U.S. government agencies and
government sponsored entities, corporate bonds and municipal bonds.
Premier Bank's revenues are derived principally from interest on its loan
and securities portfolios. The bank's primary sources of funds are deposits,
repayments of loans and investment securities, and borrowed funds. Premier Bank
has seven full-service Pennsylvania banking offices: Doylestown, Easton,
Southampton, Bethlehem, Floral Vale, Bensalem and Montgomeryville. The bank also
operates a limited service branch in the Heritage Towers Retirement Community in
Doylestown. Premier Bank faces significant competition from other financial
services companies, many of which are larger organizations with more resources
and locations.
Our consolidated results of operations are dependent primarily on net
interest income, which is the difference between the interest income earned on
interest-earning assets, such as loans and securities, and the interest expense
paid on interest-bearing liabilities, such as deposits and borrowed money. We
also generate non-interest income such as service charges on deposit products,
fees from sales of title insurance and other fees. Our non-interest
8
expenses primarily consist of employee compensation and benefits, occupancy
expenses, marketing, data processing costs and other operating expenses. The
bank is subject to losses from its loan and investment portfolios if
borrowers/issuers fail to meet their obligations or if the market value of the
securities declines. Our results of operations are also significantly affected
by general economic and competitive conditions, particularly changes in market
interest rates, government policies and actions of regulatory agencies.
MANAGEMENT'S STRATEGY
Premier Bank's lending activities are specialized in small to mid-sized
businesses and professionals. The bank seeks to fund these activities by
developing a stable core deposit base catering primarily to retail and small to
mid-sized business depositors. Premier Bank has a strong commitment to highly
personalized customer service. To support its growth, without compromising
personalized service, Premier Bank has made significant investments in
experienced personnel and has incurred significant costs related to branch
office expansion.
Since Premier Bank's 1992 inception, it has grown to seven full-service
Pennsylvania banking offices. The bank opened its fifth office in Bethlehem,
Northampton County, in December 1999 and a limited service office in the
Heritage Towers Retirement Community in Doylestown in July 2000. The bank opened
its sixth and seventh Pennsylvania full-service offices in Bensalem and
Montgomeryville in October 2000.
In conjunction with its branch expansion, Premier Bank added significantly
to its commercial lending staff in 1999 in order to grow the loan portfolio and
shift assets toward loans and away from investments. However, investment
securities can be added to a portfolio quickly as a means to generate additional
earnings. Therefore, the bank may buy or sell investment securities from time to
time depending on market conditions, business trends, liquidity and capital
levels.
In addition to the ongoing expansion of the bank's traditional business,
management continuously reviews and considers new products and services to offer
customers. These new products and services are largely intended to generate and
increase fee income. In December 2000, PBI organized Lenders Abstract, LLC to
generate fee income from the sales of title insurance policies. Substantially
all of Lenders Abstract, LLC's business to date has been derived from Premier
Bank's customers. During the three months ended March 31, 2002, Lenders
Abstract, LLC generated $40,000 in fee income.
In March 2002, the bank organized Premier Bank Insurance Services, LLC to
further expand its diversification of products and services. This subsidiary
will primarily sell long-term health care insurance policies on an agency basis.
Although the limited liability company was organized and we have applied to the
Pennsylvania Department of Insurance and Pennsylvania Department of Banking to
obtain all necessary regulatory approvals, the subsidiary has not yet commenced
operations. Management expects to receive all necessary approvals and commence
business in the second quarter of 2002.
Recent changes to federal banking laws allow financial institutions to
engage in a broader range of activities than previously permitted. These
legislative changes may serve to increase both opportunity as well as
competition.
9
RESULTS OF OPERATIONS
We reported net income of $802,000 or $.23 earnings per common share on a
diluted basis for the three months ended March 31, 2002. This represents an
increase of $338,000 or 73% from the net income of $464,000 or $.14 earnings per
common share on a diluted basis reported for the same period in 2001. Net
interest income was $812,000 higher in 2002 compared to 2001 due to a
$94,127,000 or 27% increase in average interest-earning assets. Loans accounted
for $80,903,000 of the growth in average interest-earning assets. As a result of
this loan growth, a $285,000 loan loss provision was recorded for the three
months ended March 31, 2002, which was $185,000 higher than the provision
recorded in the first quarter of 2001. Overhead expenses were $191,000 or 8%
higher for the three months ended March 31, 2002 compared to the same period in
2001. Overhead expenses continue to trend higher due in part to the overall
growth of the company.
Return on average assets and return on average shareholders' equity on an
annualized basis were .71% and 15.85%, respectively, for the three months ended
March 31, 2002 compared to .52% and 11.01%, respectively, for the same period in
2001. Return on average shareholders' equity, exclusive of the unrealized loss
on investment securities available for sale, on an annualized basis, was 14.06%
for the three months ended March 31, 2002 compared to 9.35% for the same period
in 2001.
Net interest income
Net interest income is the most significant component of our operating
income. Net interest income depends upon the levels of interest-earning assets
and interest-bearing liabilities and the difference or "spread" between the
respective yields earned and rates paid. The interest rate spread is influenced
by the overall interest rate environment, the composition and characteristics of
interest-earning assets and interest-bearing liabilities, and by competition.
The interest rate spread is also influenced by differences in the maturity and
repricing of assets versus the liabilities that fund them. During the past year,
the bank aggressively grew its loan portfolio. Much of this growth was funded by
deposit generation, mostly interest checking products. We face strong
competition for both loans and deposits, which places pressure on the net
interest margin.
During 2001 the Federal Reserve cut the targeted federal funds rate an
unprecedented eleven times for a total of 4.75% to a rate of 1.75%. These cuts
lowered the rates on the bank's existing prime rate based loans and new loans.
The magnitude of the Federal Reserve rate cuts increases the likelihood that
customers with higher fixed rate loans will seek to renegotiate lower interest
rates or prepay their loans. It is difficult to predict the extent or timing of
such refinancing activity. However, management expects that the yield on the
bank's loan portfolio will decline as this activity occurs. It is unknown to
what extent the lower asset yields will be offset by lower cost of funds. The
yield on average loans during the first quarter of 2002 was 7.52% compared with
8.80% for the first quarter of 2001 due in part to new loans originated and
existing loans repricing in the lower rate environment compared to the prior
comparable period. The rate on average interest-bearing liabilities declined
from 5.51% for the first quarter of 2001 to 3.98% for the first quarter of 2002
due in part to the change in rate on and mix of deposit products. See the
section entitled "Interest Rate Sensitivity."
For the three months ended March 31, 2002, net interest income, on a
tax-equivalent basis, was $845,000 higher than the same period in 2001. This
increase was primarily a function of interest-earning asset growth and a lower
yield on average interest-bearing liabilities. These favorable items were offset
in part by a lower rate on average interest-earning assets and a lower ratio of
average interest-earning assets to average interest-bearing liabilities.
Average interest-earning assets grew $94,127,000 or 27% from $351,087,000
for the three months ended March 31, 2001 to $445,214,000 for the three months
ended March 31, 2002. Average loan balances and average investments increased
$80,903,000 and $1,709,000, respectively. The ratio of average interest-earning
assets to average interest-bearing liabilities decreased from 116.10% for the
three months ended March 31, 2001 to 113.69% for the three months ended March
31, 2002. The yield on average interest-earning assets and the rate on average
interest-bearing liabilities decreased 121 basis points and 153 basis points,
respectively, due to the decline in overall interest rates in 2001. The decrease
in rate on average interest-bearing liabilities is mostly due to the repricing
of certificates of deposit in the lower interest rate environment. Borrowings
and subordinated debt also repriced lower in 2002.
10
The net interest margin on a tax equivalent basis increased 3 basis points
from 3.49% at March 31, 2001 to 3.52% at March 31, 2002. The net interest rate
spread increased 32 basis points from 2.72% at March 31, 2001 to 3.04% at March
31, 2002.
11
The following table sets forth, for the periods indicated, certain average
balance sheet amounts and their corresponding earnings/expenses and rates (which
have been annualized).
AVERAGE BALANCES, RATES AND INTEREST INCOME AND EXPENSE SUMMARY
FOR THE THREE MONTHS ENDED MARCH 31,
---------------------------------------------------------------------------
2002 2001
----------------------------------- ------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
-------- -------- ------- -------- --------- -------
(Dollars in thousands)
Assets:
Short-term investments $ 17,655 $ 85 1.95% $ 10,239 $ 137 5.43%
Interest-bearing deposits 4,497 18 1.62% 398 6 6.11%
Investment securities available for sale
Taxable (1) 78,620 1,215 6.27% 74,911 1,305 7.07%
Tax-exempt (1) (2) 19,757 375 7.70% 16,508 306 7.52%
Investment securities held to maturity 500 7 5.68% 5,749 95 6.70%
-------- -------- ------- -------- --------- -------
Total investment securities 98,877 1,597 6.55% 97,168 1,706 7.12%
Loans, net of unearned income (3) (4) 324,185 6,010 7.52% 243,282 5,278 8.80%
-------- -------- ------- -------- --------- -------
Total interest-earning assets 445,214 7,710 7.02% 351,087 7,127 8.23%
Cash and due from banks 12,471 6,283
Allowance for loan losses (3,904) (3,072)
Other assets (5) 9,989 9,304
-------- --------
Total assets $463,770 $363,602
======== ========
Liabilities, minority interest in subsidiary
and shareholders' equity:
Interest checking $ 77,736 535 2.79% $ 25,214 157 2.53%
Money market deposit accounts 16,718 95 2.30% 17,351 197 4.60%
Savings accounts 45,704 251 2.23% 42,794 369 3.50%
Time deposits 201,620 2,446 4.92% 199,216 3,166 6.45%
-------- -------- ------- -------- --------- -------
Total interest-bearing deposits 341,778 3,327 3.95% 284,575 3,889 5.54%
Short-term borrowings 16,311 31 0.77% 16,324 191 4.75%
Long-term borrowings 30,000 439 5.93% - - -
Subordinated debt 3,500 49 5.68% 1,500 28 7.57%
-------- -------- ------- -------- --------- -------
Total interest-bearing liabilities 391,589 3,846 3.98% 302,399 4,108 5.51%
Non interest-bearing deposits 29,334 25,015
Other liabilities 9,721 6,053
Capital securities 10,000 10,000
Shareholders' equity (6) 23,126 20,135
-------- --------
Total liabilities, minority interest in
subsidiary and shareholders' equity $463,770 $363,602
======== ========
Net interest income/rate spread $ 3,864 3.04% $ 3,019 2.72%
======== ==== ========= ====
Net interest margin (7) 3.52% 3.49%
Average interest-earning assets as a
percentage of average
interest-bearing liabilities 113.69% 116.10%
----------
(1) Excludes the SFAS 115 valuation allowance on investment securities
available for sale.
(2) Interest income on tax-exempt investment securities was presented on a
tax-equivalent basis. Tax-exempt yields were adjusted to a tax equivalent
basis using a 34% rate.
(3) Includes non-accrual loans of $2,690,000 on average for the three months
ended March 31, 2002. There were no non-accrual loans during the three
months ended March 31, 2001.
(4) Includes tax-exempt loans of $2,263,000 and $981,000 on average for the
three months ended March 31, 2002 and 2001, respectively. Tax-exempt yields
were adjusted to a tax-equivalent basis using a 34% rate.
(5) Excludes the deferred tax asset related to the SFAS 115 valuation allowance
on investment securities available for sale.
(6) Excludes the SFAS 115 valuation allowance on investment securities
available for sale, net of tax.
(7) Net interest margin is calculated as net interest income divided by average
interest-earning assets.
12
Non-interest income
Non-interest income consists primarily of service charges on deposits, fees
from sales of title insurance policies and gains (losses) on the sale of
investment securities available for sale and loans held for sale.
Total non-interest income was $136,000 for the three months ended March 31,
2002 compared to $106,000 for the same period in 2001. In 2001, our fee income
included a $50,000 non-recurring fee related to a loan pay-off. Excluding this
non-recurring 2001 fee, non-interest income increased $80,000 or 143% in the
first quarter of 2002 compared to the first quarter of 2001. Of this increase,
$25,000 pertained to service charges and activities related to deposit accounts
which have grown considerably in the past year. An additional $30,000 in other
fees was earned during the three months ended March 31, 2002 compared to the
same period in 2001 primarily due to greater volume of sales of title insurance
policies by Lender's Abstract, LLC. Other non-interest income in 2002 also
included $19,000 in fair value adjustments related to Premier Bank's IPCD.
During the first quarter of 2002, we recorded $38,000 in net losses on the
sale of investment securities available for sale compared to $36,000 in net
losses during the first quarter of 2001. The level of gains or losses on
investment sales is primarily dependent upon the volume of transactions, the
types of securities sold, timing and the interest rate environment, among other
factors.
Non-interest expense
For the three months ended March 31, 2002, non-interest expenses were
$2,484,000 or $191,000 higher than the $2,293,000 recorded during the same
period in 2001. Overhead expenses increased principally due to the continued
growth of the company.
Salaries and benefits were $182,000 higher in the first quarter of 2002, an
increase of 17%, compared to the same period in 2001. This increase was
principally due to an increase in the number of employees and salary
adjustments. The number of full-time equivalent employees grew from 78 at March
31, 2001 to 83 at March 31, 2002. Professional services and marketing expenses
were $71,000 lower, in the aggregate, for the first quarter of 2002, compared to
the first quarter of 2001. Advertising expenses were reduced because deposit
growth exceeded expectations. Other expenses consist primarily of furniture and
equipment expense, employee travel, meals and entertainment, stationery,
supplies, postage and Board of Directors' fees. The $60,000 or 16% increase in
other expenses is principally attributed to the growth of the institution.
Provision for loan losses
The provision for loan losses represents the amount necessary to be charged
to operations to bring the allowance for loan losses to a level that represents
management's best estimate of known and inherent losses in the bank's loan
portfolio. The amount of the provision for loan losses and the amount of the
allowance for loan losses is subject to ongoing analysis of the loan portfolio
which considers current economic conditions, actual loss experience, the current
risk profile of the portfolio, delinquency statistics, and the composition of
loan types within the portfolio. There were no net charge-offs for the three
months ended March 31, 2002 compared to $4,000 in net charge-offs during the
same period in 2001. The bank's loan portfolio is relatively immature given its
recent growth rates. Therefore, charge-off and non-performing trends may not be
indicative of future performance.
The provision for loan losses increased from $100,000 in the first quarter
of 2001 to $285,000 in the first quarter of 2002. This increase is primarily due
to greater loan growth during the first quarter of 2002 compared to the same
period in 2001. Total gross loans grew $23,790,000 or 8% during the first
quarter of 2002 compared to $10,318,000 or 4% during the same period in 2001.
The loan loss allowance as a percentage of total loans was 1.21% at March 31,
2002 and 1.25% at March 31, 2001.
13
Income tax expense
We recorded a $283,000 tax provision representing an effective tax rate of
26.1% for the three months ended March 31, 2002 compared to $155,000 or 25.0%
for the same period in 2001. The effective tax rate was higher in 2002
principally due to a lower ratio of tax-exempt interest to total pre-tax income.
FINANCIAL CONDITION
Consolidated assets grew $37,088,000 or 8% during the three months ended
March 31, 2002 to $487,657,000. Cash and cash equivalents and total gross loans
grew $13,634,000 and $23,790,000, respectively, during the three months ended
March 31, 2002. Asset growth was primarily funded by a $32,962,000 increase in
deposits for the first quarter of 2002. Most of the deposit growth was
concentrated in interest checking products. Shareholders' equity increased
$1,219,000 from $19,609,000 at December 31, 2001 to $20,828,000 at March 31,
2002. This increase was attributable to $802,000 in earnings, a $153,000
improvement in the estimated fair value of investment securities available for
sale, net of tax, and $264,000 from the exercise of common stock options.
Investment securities
Investment policies dictate permissible investment categories, credit
quality, maturity intervals and investment concentrations. Management is
responsible for making the specific investment purchases within these standards.
The carrying value of investment securities at March 31, 2002 totaled
$98,146,000 or 20% of total assets. At March 31, 2002 approximately 50% of the
investment portfolio was comprised of mortgage-backed securities that amortize
and provide monthly cash flow. Corporate bonds and municipal bonds comprised 29%
and 18% of the investment portfolio, respectively. At March 31, 2002,
approximately 81% of the investment portfolio was fixed rate.
Management buys and sells investment securities from time to time depending
on market conditions, business trends, liquidity, and capital levels. Investment
purchases provide a way to add assets quickly and generate additional earnings.
The bank generally earns a positive interest spread by assuming interest rate
risk and using deposits and/or borrowings to purchase securities with longer
maturities.
Management classifies investment securities at the time of purchase by one
of three categories: trading, available for sale (AFS) or, held to maturity
(HTM). To date, management has not purchased any securities for trading
purposes. Management classifies most securities as AFS even though it has no
immediate intent to sell them. The AFS designation affords management the
flexibility to sell securities and adjust the balance sheet in response to
capital levels, liquidity needs and/or changes in market conditions. Securities
AFS are marked to market in the Consolidated Balance Sheets with an adjustment
to equity, net of tax, that is presented in the caption "Accumulated other
comprehensive income (loss)."
At March 31, 2002, the AFS portfolio had an estimated market depreciation
of $4,316,000 before tax and an equity adjustment of $2,848,000, net of tax.
This represents a $153,000 improvement in the estimated fair value of securities
AFS, net of tax, over the prior year-end. The market depreciation is largely
concentrated in the bank's corporate bond portfolio, which had an unrealized
loss of $3,333,000 at March 31, 2002. At March 31, 2002, the corporate bond
portfolio amounted to $28,892,000 or 29% of the total investment portfolio.
Approximately 59% of corporate bonds are fixed rate and 41% are variable rate at
March 31, 2002.
Following the issuance of PBI's $10,000,000 of capital securities in August
1998, management began investing in similar type securities issued by other
banking companies. These investments were classified as corporate bonds.
Management believes that the market valuations of certain corporate bonds were
discounted beyond the effects of interest rate changes because they were issued
by non-rated or below investment grade rated companies. The carrying value of
non-rated or below investment grade rated corporate bonds was $12,793,000 at
March 31, 2002.
Management evaluated the credit quality of corporate bond issuers prior to
purchasing these securities and monitors them on an ongoing basis. Management
believes that the credit quality of the corporate bond portfolio is sound and
that the company will ultimately be repaid. Therefore, management views the
unrealized loss in the market value of the corporate bonds as temporary. If, at
some future date, management believes that this loss is other than temporary or
that the recovery of the unrealized loss on corporate bonds is not probable, we
will recognize the loss through earnings, which would reduce regulatory capital.
14
Corporate bonds are classified as available for sale allowing us the
flexibility to sell them and adjust the portfolio as future conditions change.
During the first quarter of 2002, $5,900,000 of fixed rate corporate bonds were
sold while $2,000,000 of variable rate corporate bonds were purchased.
INVESTMENT PORTFOLIO
MARCH 31, 2002
---------------------------------------------------
HELD TO MATURITY AVAILABLE FOR SALE
------------------------- -----------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST FAIR VALUE COST FAIR VALUE
--------- ---------- --------- ----------
(In thousands)
Mortgage-backed securities $ -- $ -- $ 49,479 $ 49,202
Municipal securities -- -- 18,125 17,419
Equity securities -- -- 2,023 2,023
Corporate bonds -- -- 32,225 28,892
Other debt securities 500 500 110 110
-------- -------- -------- --------
Total $ 500 $ 500 $101,962 $ 97,646
======== ======== ======== ========
DECEMBER 31, 2001
--------------------------------------------------
HELD TO MATURITY AVAILABLE FOR SALE
------------------------- ----------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST FAIR VALUE COST FAIR VALUE
--------- ---------- --------- ----------
(In thousands)
Mortgage-backed securities $ -- $ -- $ 43,286 $ 43,365
Municipal securities -- -- 20,796 20,031
Equity securities -- -- 2,023 2,023
Corporate bonds -- -- 36,184 32,322
Other debt securities 500 500 110 110
-------- -------- -------- --------
Total $ 500 $ 500 $102,399 $ 97,851
======== ======== ======== ========
Loans
Gross loans increased $23,790,000 or 8% from $316,066,000 at December 31,
2001 to $339,856,000 at March 31, 2002.
We originate a wide variety of loans primarily to small to mid-sized
businesses and professionals. Our policies as well as applicable laws and
regulations require risk analysis and ongoing portfolio and credit management.
The majority of our loan portfolio is collateralized, at least in part, by real
estate in the greater Delaware and Lehigh Valleys of Pennsylvania and New
Jersey. Real estate values are typically subject to risks associated with the
general economy, among other matters.
Inherent within the lending function is the evaluation and acceptance of
credit risk and interest rate risk. We manage credit risk through portfolio
diversification, underwriting policies and procedures, and loan monitoring
practices. We manage interest rate risk using various asset/liability modeling
techniques and analyses. Most loans are adjustable rate that reset in intervals
of five years or less. When possible, the bank also originates variable rate
loans.
15
LOAN PORTFOLIO
MARCH 31, 2002 DECEMBER 31, 2001
--------------------------- -------------------------
AMOUNT % OF TOTAL AMOUNT % OF TOTAL
-------- ---------- -------- ----------
(Dollars in thousands)
Real estate-farmland $ 209 0.06% $ 214 0.07%
Real estate-construction 8,564 2.52% 15,911 5.03%
Real estate-residential 31,569 9.29% 30,188 9.55%
Real estate-multifamily 18,091 5.33% 15,011 4.75%
Real estate-commercial 233,244 68.63% 208,412 65.94%
Commercial 47,146 13.87% 45,238 14.31%
Consumer 1,033 0.30% 1,092 0.35%
-------- ------- -------- ---------
Total loans 339,856 100.00% 316,066 100.00%
====== ======
Less:
Deferred loan fees (1,600) (1,373)
Allowance for loan losses (4,102) (3,817)
-------- --------
Total loans, net $334,154 $310,876
======== ========
Allowance for loan losses
The allowance for loan losses reflects management's best estimate of
losses, both known and inherent, in the existing loan portfolio. Management's
judgment is based on the evaluation of individual loans, past experience, the
assessment of current economic conditions, and other relevant factors. The
provision for loan losses charged to operating expenses represents the amount
necessary to maintain an appropriate allowance. Loan losses are charged directly
against the allowance for loan losses when loans are deemed to be uncollectible.
Recoveries on previously charged-off loans are added to the allowance when
received.
Estimates are used to determine the allowance for loan losses. A variety of
factors are considered in establishing these estimates including current
economic conditions, diversification of the loan portfolio, delinquency
statistics, borrowers' perceived financial and managerial strengths, the
adequacy of underlying collateral, if collateral dependent, or present value of
future cash flows, and other relevant factors. Each commercial loan is assigned
a specific loan loss reserve using a scoring system. This scoring system takes
into consideration collateral type and value, loan to value ratios, the
borrower's risk rating, and other factors previously described. Borrower risk
ratings are determined by loan officers at the inception of each loan and are
subject to on-going analysis and update by an independent loan reviewer.
Homogeneous loans, comprised primarily of home equity and non-real estate
secured consumer loans, are analyzed in the aggregate.
Because the bank is only ten years old with a limited history of loan
losses, management also uses peer group analysis to gauge the overall
reasonableness of loan loss reserves. While management calculates the allowance
based on specific loans or loan categories, it considers the total allowance
available for losses in the entire loan portfolio. Changes in economic
conditions and the financial condition of borrowers can occur quickly, and as a
result, impact management's estimates.
We maintained an unallocated loan loss reserve at March 31, 2001 based on a
shift in risk ratings following the hiring of an independent loan reviewer in
the second quarter of 1999. This unallocated reserve was based on the assumption
that additional risk factors would be identified and further changes to risk
ratings would be made as this independent review process was consistently
applied to the entire commercial loan portfolio over an extended period of time.
We adjusted our loan scoring system in 2001 to reflect current economic
conditions and trends in risk ratings over the past several years. As a result,
there are no unallocated loan loss reserves at March 31, 2002 or December 31,
2001.
Regulatory authorities, as an integral part of their examinations,
periodically review the allowance for loan losses. They may require additions to
the allowance based upon their judgment and information available to them at the
time of examination.
16
Management considers the allowance for loan losses to be appropriate. To
comply with industry reporting requirements, management allocated the allowance
for loan losses by loan categories in the table below. Management does not
intend to imply that actual future charge-offs will necessarily follow this
allocation or that any portion of the allowance is restricted.
ALLOWANCE FOR LOAN LOSS ALLOCATION
MARCH 31, 2002 DECEMBER 31, 2001 MARCH 31, 2001
---------------------- ---------------------- ----------------------
% LOANS TO % LOANS TO % LOANS TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
------ ----------- ------ ----------- ------ -----------
(Dollars in thousands)
Balance at end of period
applicable to:
Real estate-farmland $ 2 0.06% $ 2 0.07% $ 2 0.09%
Real estate-construction 74 2.52% 115 5.03% 38 2.43%
Real estate-residential 275 9.29% 266 9.55% 236 10.62%
Real estate-multi-family 121 5.33% 103 4.75% 69 4.82%
Real estate-commercial 2,551 68.63% 2,338 65.94% 1,516 68.29%
Commercial 1,069 13.87% 982 14.31% 687 13.63%
Consumer 10 0.30% 11 0.35% 13 0.12%
Unallocated -- -- -- -- 567 --
------ ----------- ------ ----------- ------ -----------
Total $4,102 100.00% $3,817 100.00% $3,128 100.00%
====== =========== ====== =========== ====== ===========
At March 31, 2002, the allowance for loan losses totaled $4,102,000 or
1.21% of total loans compared to 1.21% and 1.25% at December 31, 2001 and March
31, 2001, respectively.
17
The following table sets forth the activity in the allowance for loan
losses and certain key ratios for the periods indicated. The bank's loan
portfolio is relatively immature given its recent growth rates. Therefore,
current charge-off and non-performing asset trends may not be indicative of
future performance.
ALLOWANCE FOR LOAN LOSSES
FOR THE THREE FOR THE FOR THE THREE
MONTHS ENDED YEAR ENDED MONTHS ENDED
MARCH 31, 2002 DECEMBER 31, 2001 MARCH 31, 2001
-------------- ----------------- --------------
(Dollars in thousands)
Balance at beginning of period $ 3,817 $ 3,032 $ 3,032
Charge-offs
Real estate-commercial -- 29 --
Commercial -- 4 4
-------- -------- --------
Total charge-offs -- 33 4
Recoveries -- -- --
-------- -------- --------
Net charge-offs -- 33 4
Provision for loan losses 285 818 100
-------- -------- --------
Balance at end of period $ 4,102 $ 3,817 $ 3,128
======== ======== ========
Total gross loans:
Average $325,803 $271,318 $244,168
End of period $339,856 $316,066 $249,763
Ratios:
Net charge-offs to:
Average loans -- 0.01% --
Loans at end of period -- 0.01% --
Allowance for loan losses -- 0.86% 0.13%
Provision for loan losses -- 4.03% 4.00%
Allowance for loan losses to:
Total gross loans at end of period 1.21% 1.21% 1.25%
Non-performing loans 156.03% 142.05% N/M(1)
----------
(1) N/M stands for "not meaningful". There were no non-performing loans at
March 31, 2001.
18
Non-performing assets
Non-performing assets are defined as accruing loans past due 90 days or
more, non-accruing loans, restructured loans and other real estate owned.
Non-performing assets represented .64% and .70% of total assets at March 31,
2002 and December 31, 2001, respectively.
NON-PERFORMING ASSETS
MARCH 31, 2002 DECEMBER 31, 2001
-------------- -----------------
(Dollars in thousands)
Loans past due 90 days or more and accruing $ -- $ --
Non-accrual loans 2,629 2,687
Other real estate owned 475 475
------ ------
Total non-performing assets $3,104 $3,162
====== ======
Ratio of non-performing loans to total loans 0.77% 0.85%
Ratio of non-performing assets to total assets 0.64% 0.70%
At March 31, 2002 and December 31, 2001, three unrelated borrowers with
loan balances of $2,629,000 and $2,687,000, respectively, in the aggregate were
classified as non-accrual. The non-accrual loan total was substantially
comprised of one borrower totaling $2,218,000 and $2,330,000 at March 31, 2002
and December 31, 2001, respectively. This borrower's enterprise failed and we
placed the relationship on non-accrual in November 2001. We expect repayment
from liquidation of collateral and other sources.
The average balance of non-accrual loans was $2,690,000 for the three
months ended March 31, 2002. There was no interest income recognized on
non-accrual/impaired loans during the three months ended March 31, 2002 and
2001. Total interest income that would have been recognized on non-accrual loans
was $62,000 and $0 for the three months ended March 31, 2002 and 2001,
respectively.
Loans held for sale
We use an outside company to originate and sell residential mortgages on
our behalf. The balance of loans held for sale was $479,000 at March 31, 2002
compared to $127,000 at December 31, 2001. The increase in loans held for sale
relates to the timing of residential mortgage loan originations versus their
sale.
We sold $2,038,000 and $822,000 of residential mortgages during the three
months ended March 31, 2002 and March 31, 2001, respectively. Residential
mortgage originations and sales are significantly influenced by the interest
rate environment.
Deferred taxes
Deferred taxes decreased $79,000 in the first quarter of 2002 taxes from
$2,887,000 at December 31, 2001 to $2,808,000 at March 31, 2002. This decrease
relates to the change in the estimated fair value of investment securities
available for sale.
Other assets
The $321,000 increase in other assets from $712,000 at December 31, 2001 to
$1,033,000 at March 31, 2002 was primarily due to an increase in normal prepaid
operating expenses.
19
Deposits
We are largely dependent upon our base of competitively priced core
deposits to provide a stable source of funding. The bank has retained and grown
its customer base since inception through a combination of price, quality
service, customer confidence, convenience, a stable and experienced staff and
through expansion of our network of offices. Core deposits, which exclude time
deposits of $100,000 and greater, grew $32,446,000 or 11% during the three
months ended March 31, 2002 to $336,726,000. This growth was primarily generated
by the Golden Checking product, which is an interest-bearing checking account.
The bank has maintained the rate payable on this account at an annual percentage
yield of 3.05% despite the falling rate environment. As prevailing interest
rates declined, Golden Checking accounts increased $42,323,000 in the first
quarter of 2002 and the bank's deposit mix, although still heavily concentrated
in time deposits, shifted significantly toward non-maturity interest checking
products. Interest checking accounts at March 31, 2002 were $101,065,000 or 26%
of total deposits compared to $58,826,000 or 16% of total deposits at December
31, 2001. Total time deposits at March 31, 2002 were $194,734,000 or 50% of
total deposits compared to $208,057,000 or 58% of total deposits at December 31,
2001. Approximately $62,286,000 of time deposits will mature after one year.
Total deposits increased $32,962,000 or 9% during the three months ended
March 31,2002 to $391,244,000. Total average deposits increased $61,522,000 or
20% from $309,590,000 at March 31, 2001 to $371,112,000 at March 31, 2002.
Non-interest-bearing deposits are an important source of funds for a bank
because they lower overall deposit costs. The average balance of these accounts
increased $4,319,000 or 17% during the three months ended March 31, 2002
compared to the same period in 2001. The interest rates offered on most deposit
products were lowered in 2001 and the first quarter of 2002 in response to
overall market conditions. Management expects the certificate of deposit
portfolio to continue to reprice lower in 2002, as higher rate accounts mature.
The growth of mutual funds over the past decade has made it increasingly
difficult for financial institutions to attract deposits. The continued flow of
cash into mutual funds, much of which is made through tax deferred investment
vehicles such as 401(k) plans, as well as a generally strong economy, have,
until recently, fueled high returns for these investments, and in particular,
certain equity funds. In 2001 and, continuing to date, the returns of the
domestic equity markets have been weak and volatile as the U.S. economy was
generally sluggish. These conditions improved the environment for deposit
acquisition for financial institutions as investors sought the relative safety
of FDIC insured deposits, despite a low interest rate environment.
We plan to continue to grow deposits through promotions, business
development programs, maturation of existing branches and branch expansion. In
October 2000, Premier Bank opened its sixth and seventh Pennsylvania branches in
Montgomeryville and Bensalem, respectively. The bank also opened a limited
service branch at Heritage Towers in Doylestown, Pennsylvania in July 2000. In
addition, Premier Bank introduced the IPCD product in the first quarter of 2001.
The IPCD product contains an embedded derivative feature that provides a
potential return to the depositor based on a formula that is dependent on the
return of the Standard & Poor's 500(R) Index. This innovative deposit product
allows a customer to receive a return that is based on an equity market index in
place of a stated interest rate but, like other traditional certificates of
deposit, is insured by the FDIC to the extent provided by law. As of March 31,
2002, the bank generated $14,854,000 in IPCD deposits with an initial term of
five years. Approximately $12,345,000 of IPCD balances at March 31, 2002 are
from institutional depositors. These depositors generally require us to obtain
letters of credit guaranteeing the principal amounts of IPCD's in excess of FDIC
insured levels. As of March 31, 2002, Premier Bank maintained $10,500,000 in
letters of credit from the FHLB for this purpose. The amount of IPCD product,
net of embedded derivatives, included in total deposits in the Consolidated
Balance Sheet at March 31, 2002 was $12,329,000. See the section entitled
"Derivative Financial Instruments."
20
DEPOSITS BY MAJOR CLASSIFICATION
MARCH 31, 2002 DECEMBER 31, 2001
------------------------------- ---------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
INTEREST % OF INTEREST % OF
RATE AMOUNT TOTAL RATE AMOUNT TOTAL
-------- ------ ----- --------- ------ -----
(Dollars in thousands)
Interest checking 2.83% $ 101,065 25.83% 2.69% $ 58,826 16.42%
Money market 2.30% 16,985 4.34% 2.32% 16,997 4.74%
Savings 2.24% 46,651 11.93% 2.25% 44,059 12.30%
Time 4.65% 194,734 49.77% 5.31% 208,057 58.07%
---- ------- ----- ---- ------- -----
Total interest-bearing deposits 3.71% 359,435 91.87% 4.27% 327,939 91.53%
==== ====
Non interest-bearing deposits 31,809 8.13% 30,343 8.47%
--------- ------ --------- ------
Total deposits $ 391,244 100.00% $ 358,282 100.00%
========= ====== ========= ======
Borrowings
Borrowings increased $2,628,000 from $49,605,000 at December 31, 2001 to
$52,233,000 at March 31, 2002.
Included in borrowings are customer repurchase agreements of $22,233,000
and $19,605,000 at March 31, 2002 and December 31, 2001, respectively. The
balance in customer repurchase agreements fluctuates daily because it is
dependent on the level of available funds in depositor accounts. Customer
repurchase agreements are collateralized by investment securities in an amount
equal to or exceeding such borrowings. The bank controls these pledged
securities.
Borrowings also included $30,000,000 in long-term advances from the FHLB at
both March 31, 2002 and December 31, 2001.
The weighted average interest rate on borrowings was 3.68% and 3.83% at
March 31, 2002 and December 31, 2001, respectively.
Other liabilities
Other liabilities increased $1,076,000 from $5,019,000 at December 31, 2001
to $6,095,000 at March 31, 2002. This increase relates principally to a
$1,086,000 increase in normal operating accounts and a $559,000 increase in the
balance of derivatives related to our IPCD product. These increases were
partially offset by a $132,000 decrease in accrued compensation expenses and a
$381,000 decrease in federal income taxes payable.
CAPITAL ADEQUACY
Capital is fundamental to support our continued growth. In addition, PBI
and Premier Bank are subject to various regulatory capital requirements.
Regulatory capital is defined in terms of Tier 1 capital (shareholders' equity
plus the allowable portion of the minority interest in equity of subsidiaries,
minus unrealized gains or plus unrealized losses on available for sale
securities, and minus certain intangible assets), Tier 2 capital (which includes
a portion of the allowance for loan losses, minority interest in equity of
subsidiaries and subordinated debt), and total capital (Tier 1 plus Tier 2).
Risk-based capital ratios are expressed as a percentage of risk-weighted assets.
Risk-weighted assets are determined by assigning various weights to all assets
and off-balance sheet financial instruments, such as letters of credit and loan
commitments, based on associated risk. Regulators have also adopted minimum Tier
1 leverage ratio standards, which measure the ratio of Tier 1 capital to total
average quarterly assets.
At March 31, 2002, management believes that PBI and Premier Bank are "well
capitalized" and in compliance with all regulatory capital requirements.
However, our asset growth rate continues to exceed our returns on shareholders'
equity. This trend is expected to continue and will require us to obtain
additional capital during the second quarter of 2002 to maintain our "well
capitalized" status and our growth rate.
21
On March 28, 2002, PBI's shareholders approved an amendment to our Articles
of Incorporation that authorizes the board of directors to issue up to
20,000,000 shares of preferred stock. Management intends to raise $10,000,000
from the issuance of Series A Preferred Stock in an underwritten public
offering, which we expect to commence in the second quarter of 2002. The
securities to be sold may only be sold pursuant to a prospectus. Neither we nor
our underwriter is offering to sell nor are we soliciting offers to buy the
securities in any jurisdiction where the offer or sale is not permitted.
Management makes no assurances that it will be able to raise such financing
during the second quarter on acceptable terms, if at all.
The tables below depict our capital components and ratios along with the
"adequately" and "well" capitalized criteria as defined by FDIC regulations.
CAPITAL COMPONENTS
MARCH 31, DECEMBER 31,
2002 2001
-------- --------
(Dollars in thousands)
Tier 1
Shareholders' equity $ 20,828 $ 19,609
Allowable portion of minority interest in equity of subsidiary 7,891 7,537
Net unrealized losses on investment securities available for sale 2,848 3,001
-------- --------
Total Tier 1 Capital $ 31,567 $ 30,147
======== ========
Tier 2
Allowable portion of minority interest in equity
of subsidiary $ 2,109 $ 2,463
Allowable portion of the allowance for loan losses 4,102 3,817
Allowable portion of subordinated debt 3,500 3,500
-------- --------
Total Tier 2 Capital $ 9,711 $ 9,780
======== ========
Total Capital $ 41,278 $ 39,927
Risk-weighted assets $398,647 $375,981
CAPITAL RATIOS
"ADEQUATELY "WELL
CAPITALIZED" CAPITALIZED"
MARCH 31, 2002 DECEMBER 31, 2001 RATIOS RATIOS
-------------- ----------------- ------ ------
Total risk-based capital/risk-weighted assets 10.35% 10.62% 8.00% 10.00%
Tier 1 capital/risk-weighted assets 7.92% 8.02% 4.00% 6.00%
Tier 1 capital/average assets (leverage ratio) 6.81% 6.83% 4.00% 5.00%
22
INTEREST RATE SENSITIVITY
We are subject to the interest rate risk inherent in our lending, investing
and financing activities. Fluctuations in interest rates will impact both the
interest income/expense and market value of all interest-earning assets and
interest-bearing liabilities, other than those with a short term to maturity.
The primary objective in managing interest rate risk is to minimize the
adverse impact of changes in interest rates on our net interest income while
creating an asset/liability structure that maximizes earnings. The Asset
Liability Management Committee actively monitors and manages our interest rate
exposure using gap analysis and simulation models. Simulation models require
significant assumptions about future business trends and interest rates.
Gap analysis measures the difference between volumes of interest
rate-sensitive assets and liabilities and quantifies these repricing differences
for various time intervals. Static gap analysis depicts interest sensitivity at
a point in time. However, it alone does not accurately measure the magnitude of
changes in net interest income because changes in interest rates do not always
impact assets and liabilities at the same time or in the same magnitude.
Furthermore, gap analysis does not consider future growth, changes in asset and
liability composition or market conditions.
A positive gap results when the amount of interest rate-sensitive assets
exceeds interest rate-sensitive liabilities repricing within the relevant time
period and, generally means that the institution will benefit during periods of
rising interest rates. A negative gap results when the amount of interest
rate-sensitive liabilities exceeds interest rate-sensitive assets repricing
within the relevant time period and, generally means that the institution will
benefit during periods of falling interest rates. As depicted in the table
below, we have a cumulative negative gap within the one and three-year time
intervals.
WITHIN 4 TO 6 7 MONTHS 1 TO 3 3 TO 5 AFTER
MARCH 31, 2002 3 MONTHS MONTHS TO 1 YEAR YEARS YEARS 5 YEARS TOTAL
--------- --------- --------- --------- --------- --------- ---------
(Dollars in thousands)
Assets
Short-term investments $ 25,176 $ -- $ -- $ -- $ -- $ -- $ 25,176
Interest-bearing deposits 1,198 -- -- -- -- -- 1,198
Investment securities 20,840 2,547 3,508 9,009 4,985 57,257 98,146
Loans, net of deferred fees 66,165 13,333 20,829 105,841 123,088 9,000 338,256
--------- --------- --------- --------- --------- --------- ---------
Total interest rate-sensitive assets $ 113,379 $ 15,880 $ 24,337 $ 114,850 $ 128,073 $ 66,257 $ 462,776
========= ========= ========= ========= ========= ========= =========
Total cumulative assets $ 113,379 $ 129,259 $ 153,596 $ 268,446 $ 396,519 $ 462,776
========= ========= ========= ========= ========= =========
Liabilities
Interest checking, money market
and savings accounts $ 6,588 $ 4,941 $ 9,882 $ 98,821 $ 32,940 $ 11,529 $ 164,701
Time deposits 70,308 24,235 37,905 38,232 23,962 92 194,734
Short-term borrowings 22,233 -- -- -- -- -- 22,233
Long-term borrowings -- -- -- -- -- 30,000 30,000
Subordinated debt 2,000 -- 1,500 -- -- -- 3,500
--------- --------- --------- --------- --------- --------- ---------
Total interest rate-sensitive
liabilities $ 101,129 $ 29,176 $ 49,287 $ 137,053 $ 56,902 $ 41,621 $ 415,168
========= ========= ========= ========= ========= ========= =========
Total cumulative liabilities $ 101,129 $ 130,305 $ 179,592 $ 316,645 $ 373,547 $ 415,168
========= ========= ========= ========= ========= =========
Gap during period $ 12,250 $ (13,296) $ (24,950) $ (22,203) $ 71,171 $ 24,636 $ 47,608
========= ========= ========= ========= ========= ========= =========
Cumulative gap $ 12,250 $ (1,046) $ (25,996) $ (48,199) $ 22,972 $ 47,608
========= ========= ========= ========= ========= =========
Cumulative gap as a percentage of:
Interest-earning assets 2.65% (0.23%) (5.62%) (10.42%) 4.96% 10.29%
Total assets 2.51% (0.21%) (5.33%) (9.88%) 4.71% 9.76%
23
We use two different simulation models to measure and monitor interest rate
risk. One model is a licensed software program that is run internally and
incorporates all of management's assumptions including future growth. The other
is a program developed by an outside consulting firm utilizing data we supply
(the "consulting model"), and considers only the existing composition and
characteristics of the balance sheet without giving effect to anticipated future
growth and interest rate changes. Although management has and expects to
continue to grow interest-sensitive assets and liabilities, its assumptions
about future growth and interest rates are excluded from the consulting model.
Management believes that this approach provides a more conservative measure of
our interest rate risk because assumed growth at current market interest rates
tends to lessen the effects of rate changes in simulation models in the
short-term.
Actual results may differ from simulated results due to various factors
including the time and magnitude of interest rate changes, changes in customer
behavior, effects of competition, and other factors. These variables influence
the interest-rate spread and product mix. The consulting model predicts a base
net interest income amount that is larger than that actually earned in the past
12 months or last fiscal year. This is principally the result of an actual
increase in earning assets over the past year, which created a larger starting
point for the next 12-month projection. Past experience drives many of the
assumptions used in the models. Actual results could vary substantially if our
future performance differs from past experience.
The table below summarizes estimated changes in net interest income over a
twelve-month period beginning April 1, 2002, under alternate interest rate
scenarios using the consulting model described above.
NET INTEREST
CHANGE IN INTEREST RATES INCOME DOLLAR CHANGE PERCENT CHANGE
-------------------------------------------------------------------------------------------------------
(Dollars in thousands)
+200 Basis Points $ 16,182 $(620) -3.69%
+100 Basis Points 16,500 (302) -1.80%
Flat Rate 16,802 - -
-100 Basis Points 16,995 193 1.15%
-200 Basis Points 16,999 197 1.17%
Simulation models require assumptions about certain categories of assets
and liabilities. The models schedule existing assets and liabilities by their
contractual maturity, estimated likely call date, or earliest repricing
opportunity. Mortgage-backed securities and amortizing loans are scheduled based
on their anticipated cash flow including estimated prepayments. For investment
securities, we use a third party service to provide cash flow estimates in the
various rate environments. Savings accounts, including passbook, statement
savings, money market, and interest checking accounts, do not have a stated
maturity or repricing term and can be withdrawn or repriced at any time. This
may impact the margin if more expensive alternative sources of deposits are
required to fund loans or deposit runoff. Management projects the repricing
characteristics of these accounts based on historical performance and
assumptions that it believes reflect their rate sensitivity. The consulting
model reinvests all maturities, repayments and prepayments for each type of
asset or liability into the same product for a new like term. As a result, the
mix of interest-earning assets and interest bearing-liabilities is held
constant.
LIQUIDITY
Liquidity represents an institution's ability to generate cash or otherwise
obtain funds at reasonable rates to satisfy commitments to borrowers and demands
of depositors. Our primary sources of funds are deposits, proceeds from
principal and interest payments on loans and investments, sales of investment
securities AFS and borrowings. While maturities and scheduled amortization of
loans and investments are a predictable source of funds, deposit flows, loan
prepayments and mortgage-backed securities prepayments are influenced by
interest rates, economic conditions, and competition. Deposit growth within the
banking industry has been generally slow due to strong competition from a
variety of financial services companies. Competition for deposits may require
banks to increase rates on deposits or expand their branch office networks to
adequately grow deposits in the future.
24
For the three months ended March 31, 2002, cash and cash equivalents
increased $13,634,000. Operating and financing activities provided cash and cash
equivalents of $1,254,000 and $35,840,000, respectively, while investing
activities used $23,460,000. The cash provided by financing activities was
primarily from an increase in deposits and borrowings. Deposits and borrowings
increased by $32,962,000 and $2,628,000, respectively. Other significant sources
of cash included principal repayments on loans and mortgage-backed securities
and sales and calls of investment securities. Together, this cash was used to
finance loan growth of $23,790,000.
For the three months ended March 31, 2001, cash and cash equivalents
increased $7,824,000. Operating and investing activities used cash and cash
equivalents of $2,170,000 and $3,057,000, respectively, while financing
activities provided $13,051,000. The cash provided by financing activities was
primarily from an increase in deposits and borrowings. The $11,118,000 increase
in deposits was primarily in time deposits and money market accounts. Cash was
also provided by the sale of fixed rate investment securities AFS. Together,
this cash was primarily used for loan originations and the purchase of variable
rate mortgage-backed securities. For the three months ended March 31, 2001,
loans grew $10,322,000 while investments decreased $7,360,000, exclusive of the
change in unrealized losses on investment securities AFS.
We monitor our liquidity position on a daily basis. We use overnight
federal funds and interest-bearing deposits in other banks to absorb daily
excess liquidity. Conversely, overnight federal funds may be purchased to
satisfy daily liquidity needs. Federal funds are sold or purchased through a
correspondent bank, which diversifies the holdings to an approved group of
commercial banks throughout the country. If the bank requires funds beyond its
ability to generate them internally, additional sources of funds are available
through use of a $6,000,000 unsecured federal funds line of credit with its
correspondent bank, and its $72,823,000 borrowing limit at the FHLB. The bank
could also sell or borrow against certain investment securities. At March 31,
2002, the bank had available borrowing capacity of $32,323,000 and $6,000,000
with the FHLB and a correspondent bank, respectively.
DERIVATIVE FINANCIAL INSTRUMENTS
We have limited involvement with derivative financial instruments and
currently use them only in relation to Premier Bank's Index Powered (SM)
Certificate of Deposit (IPCD) product. The IPCD, which was introduced in the
first quarter 2001, contains an embedded derivative feature that provides a
potential return to the depositor based on a formula that is dependent on the
return of the Standard & Poor's 500(R) Index. This innovative 5-year term
deposit product allows the customer to receive a return that is based on an
equity market index in place of a stated interest rate but, like other
traditional certificates of deposit, is insured in its principal amount by the
FDIC to the extent provided by law.
We entered into derivative contracts with the FHLB in order to offset the
risks associated with the variable cost of the IPCD. Under the terms of these
derivative contracts, Premier Bank will receive an amount equal to the amount to
be paid to the IPCD depositor, in exchange for a periodic payment stream
expressed as a rate of interest.
The derivative contracts with the FHLB and the derivatives embedded in the
IPCD are accounted for in accordance with Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities", as amended. Accordingly, PBI
carries these derivatives at fair value in the Consolidated Balance Sheets and
recognizes any changes in fair value in current period earnings.
The notional amount of derivative contracts was $14,854,000 and $10,905,000
at March 31, 2002 and December 31, 2001, respectively. The fair value of
derivatives is included in "Other liabilities" and approximated $2,614,000 and
$2,055,000 at March 31, 2002 and December 31, 2001, respectively. During the
first quarter of 2002, approximately $19,000 was recorded in other income for
net changes in the fair value of derivatives compared to $7,000 in expense for
the first quarter of 2001. The fair value adjustments are due to changes in
prevailing interest rates and the resulting valuations of future payments due
the FHLB. These valuation adjustments will cumulatively net to zero at the
maturity of the contracts.
25
RECENT ACCOUNTING PRONOUNCEMENTS
Goodwill and Other Intangible Assets
In June 2001, the FASB issued Statement No. 142, "Goodwill and Other
Intangible Assets." The Statement addresses financial accounting and reporting
for acquired goodwill and other intangible assets and supersedes APB Opinion No.
17, "Intangible Assets." It addresses how intangible assets that are acquired
individually or with a group of other assets (but not those acquired in a
business combination) should be accounted for in financial statements upon their
acquisition. The Statement also addresses how goodwill and other intangible
assets should be accounted for after they have been initially recognized in the
financial statements.
The provisions of the Statement are required to be applied starting with
fiscal years beginning after December 15, 2001, except that goodwill and
intangible assets acquired after June 30, 2001, will be subject immediately to
the nonamortization and amortization provisions of the Statement. Early
application is permitted for entities with fiscal years beginning after March
15, 2001, provided that the first interim financial statements have not
previously been issued. The Statement is required to be applied at the beginning
of an entity's fiscal year and to be applied to all goodwill and other
intangible assets recognized in its financial statements at that date. There was
no impact on earnings, financial condition, or equity upon adoption of Statement
No. 142 on January 1, 2002.
Asset Retirement Obligations
In June 2001, the FASB issued Statement No. 143, "Accounting for Asset
Retirement Obligations." This Statement addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. It applies to legal
obligations associated with the retirement of long-lived assets that result from
the acquisition, construction, development and (or) the normal operation of a
long-lived asset, except for certain obligations of lessees. As used in this
Statement, a legal obligation is an obligation that a party is required to
settle as a result of an existing or enacted law, statute, ordinance, or written
or oral contract or by legal construction of a contract under the doctrine of
promissory estoppel. This Statement requires that the fair value of a liability
for an asset retirement obligation be recognized in the period in which it is
incurred if a reasonable estimate of fair value can be made. The associated
asset retirement costs are capitalized as part of the carrying amount of the
long-lived asset.
This Statement amends FASB Statement No. 19, "Financial Accounting and
Reporting by Oil and Gas Producing Companies," and it applies to all entities.
It is effective for financial statements issued for fiscal years beginning after
June 15, 2002. Earlier application is encouraged. There is no expected impact on
earnings, financial condition, or equity upon adoption of Statement No. 143.
Impairment or Disposal of Long-Lived Assets
In August 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This Statement addresses financial
accounting and reporting for the impairment or disposal of long-lived assets and
supersedes Statement No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." However, the Statement
retains the fundamental provisions of Statement No. 121 for (a) recognition and
measurement of the impairment of long-lived assets to be held and used and (b)
measurement of long-lived assets to be disposed of by sale.
This Statement supersedes the accounting and reporting provisions of APB
Opinion No. 30, "Reporting the Results of Operations-Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions," for the disposal of a segment of a business.
However, this Statement retains the requirement of Opinion No. 30 to report
discontinued operations separately from continuing operations and extends that
reporting to a component of an entity that either has been disposed of (by sale,
by abandonment, or in distribution to owners) or is classified as held for sale.
This Statement also amends ARB No. 51, "Consolidated Financial Statements," to
eliminate the exception to consolidation for a temporarily controlled
subsidiary.
The provisions of this Statement are effective for financial statements
issued for fiscal years beginning after December 15, 2001 and interim periods
within those fiscal years, with earlier application encouraged. The provisions
of this Statement generally are to be applied prospectively. There was no impact
on earnings, financial condition, or equity upon adoption of Statement No. 144
on January 1, 2002.
26
ITEM 3 -- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required herein is set forth in Item 2, above.
27
PART II -- OTHER INFORMATION
ITEM 1 -- LEGAL PROCEEDINGS
At March 31, 2002, there were no known material legal proceedings pending
against PBI, its subsidiaries or its property. In addition, no material
proceedings are known to be contemplated by government authorities against PBI,
its subsidiaries or its property.
ITEM 2 -- CHANGES IN SECURITIES AND USE OF PROCEEDS
On March 28, 2002, PBI's shareholders adopted an amendment to the Articles
of Incorporation. The amendment authorizes the board of directors to issue up to
20,000,000 shares of preferred stock in one or more classes or series as
determined by the board. The amendment and the Articles of Incorporation are
filed as Exhibit 4.1 to PBI's Registration Statement No. 333-87420 on Form S-2
filed with the SEC on May 2, 2002.
ITEM 3 -- DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PBI held a special meeting of shareholders on March 28, 2002. At the
meeting, the shareholders adopted an amendment to Article 5 of Premier Bancorp,
Inc.'s Amended and Restated Articles of Incorporation, authorizing 20,000,000
shares of preferred stock.
The vote tabulation with regard to the amendment is as follows:
1,820,411 FOR 40,978 AGAINST 7,782 ABSTAIN
ITEM 5 -- OTHER INFORMATION
None.
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are incorporated by reference herein or attached
to this Form 10-Q:
3(i) Articles of Incorporation. (Incorporated by reference to Exhibit
4.1 to PBI's Registration Statement No. 333-87420 on Form S-2
filed with the SEC on May 2, 2002.)
3(ii) By-Laws. (Incorporated by reference to Exhibit 3(ii) to PBI's
Quarterly Report on Form 10-QSB filed with the SEC on November 14,
2000 and amended on December 19, 2000.)
10.1 Premier Bank's 1995 Incentive Stock Option Plan. (Incorporated by
reference to Exhibit 99.6 to the Company's Registration Statement
No. 333-34243 on Form S-4 filed with the SEC on August 22,1997 and
amended on September 9, 1997.)
10.2 Change of Control Agreement between Premier Bancorp, Inc., Premier
Bank and John C. Soffronoff. (Incorporated by reference to Exhibit
10.2 to our Quarterly Report on Form 10-QSB filed with the SEC on
November 13, 1998.)
10.3 Change of Control Agreement between Premier Bancorp, Inc., Premier
Bank and John J. Ginley. (Incorporated by reference to Exhibit
10.3 to our Quarterly Report on Form 10-QSB filed with the SEC on
November 13, 1998.)
II-1
10.4 Change of Control Agreement between Premier Bancorp, Inc., Premier
Bank and Bruce E. Sickel. (Incorporated by reference to Exhibit
10.4 to our Quarterly Report on Form 10-QSB filed with the SEC on
November 13, 1998.)
11 Statement re: computation of per share earnings.
(b) Reports on Form 8-K
None.
II-2
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Premier Bancorp, Inc.
----------------------
Registrant
DATE SIGNATURE
---- ---------
May 2, 2002 /s/ John C. Soffronoff
----------------------
John C. Soffronoff
President, Chief Executive Officer, Director
(Principal Executive Officer)
May 2, 2002 /s/ Bruce E. Sickel
-------------------
Bruce E. Sickel
Chief Financial Officer, Director
(Principal Financial Officer)
II-3
INDEX OF EXHIBITS
Page
----
3(i) Amended and Restated Articles of Incorporation. (Incorporated by *
reference to Exhibit 4.1 to PBI's Registration Statement No. 333-87420 on
Form S-2 filed with the SEC on May 2, 2002.)
3(ii) By-Laws. (Incorporated by reference to Exhibit 3(ii) to PBI's Quarterly *
Report on Form 10-QSB filed with the SEC on November 14, 2000 and
amended on December 19, 2000.)
10.1 Premier Bank's 1995 Incentive Stock Option Plan. (Incorporated by *
reference to Exhibit 99.6 to PBI's Registration Statement No. 333-34243
on Form S-4 filed with the SEC on August 22,1997 and amended on September
9, 1997.)
10.2 Change of Control Agreement between Premier Bancorp, Inc., Premier Bank *
and John C. Soffronoff. (Incorporated by reference to Exhibit 10.2 to
PBI's Quarterly Report on Form 10-QSB filed with the SEC on November 13,
1998.)
10.3 Change of Control Agreement between Premier Bancorp, Inc., Premier Bank *
and John J. Ginley. (Incorporated by reference to Exhibit 10.3 to PBI's
Quarterly Report on Form 10-QSB filed with the SEC on November 13, 1998.)
10.4 Change of Control Agreement between Premier Bancorp, Inc., Premier Bank *
and Bruce E. Sickel. (Incorporated by reference to Exhibit 10.4 to PBI's
Quarterly Report on Form 10-QSB filed with the SEC on November 13, 1998.)
11 Statement re: computation of per share earnings.
* Incorporated by reference.
II-4