-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MwdE2/f9PRHa7l3p1bAL5Vh6M2GAj1Wvaefo5H1O0G13Xq1883YajJo+27TwyfnS DWHLc4Igvtf/mE6IBbM/ow== 0000950159-01-500113.txt : 20010516 0000950159-01-500113.hdr.sgml : 20010516 ACCESSION NUMBER: 0000950159-01-500113 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PENNSYLVANIA COMMERCE BANCORP INC CENTRAL INDEX KEY: 0001085706 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 251834776 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-78445 FILM NUMBER: 1639143 BUSINESS ADDRESS: STREET 1: 100 SENATE AVE CITY: CAMP HILL STATE: PA ZIP: 17001-8599 BUSINESS PHONE: 7179755630 MAIL ADDRESS: STREET 1: 100 SENATE AVE CITY: CAMP HILL STATE: PA ZIP: 17001-8599 10-Q 1 pacb3-01q.txt PENNSYLVANIA COMMERCE BANCORP FORM 10-Q 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 quarter ended March 31, 2001 -------------- OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File 333-78445 --------- PENNSYLVANIA COMMERCE BANCORP, INC. --------------------------------------------------------- (Exact name of small business issuer as specified in its charter) Pennsylvania 25-1834776 - ----------------------------------- --------------------------------- (State or other jurisdiction of (IRS Employer Identification incorporation or organization) Number) 100 Senate Avenue, P.O. Box 8599, Camp Hill, PA 17001-8599 -------------------------------------------------------------- (Address of principal executive offices) (717) 975-5630 ---------------------------------------------- (Issuer's telephone number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 1,761,295 Common shares outstanding at 4/30/01 - ------------------------------------------------ Transitional Small Business Disclosure Format (check one): Yes No X --- --- PENNSYLVANIA COMMERCE BANCORP, INC. INDEX Page PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Consolidated Balance Sheets (Unaudited)...............................3 March 31, 2001, and December 31, 2000 Consolidated Statements of Income (Unaudited).........................4 Three months ended March 31, 2001 and March 31, 2000 Consolidated Statement of Stockholders' Equity (Unaudited)...........5 Three months ended March 31, 2001 and March 31, 2000 Consolidated Statements of Cash Flows (Unaudited).....................6 Three months ended March 31, 2001, and March 31, 2000 Notes to Consolidated Financial Statements (Unaudited)................7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............................................9 Item 3. Quantitative and Qualitative Disclosures about Market Risk...........17 PART II. OTHER INFORMATION Item 1. Legal Proceedings....................................................18 Item 6a. Exhibits Exhibit 11...........................................................18 Item 6b. Reports on Form 8-K..................................................18 Signatures...........................................................19 2 Pennsylvania Commerce Bancorp, Inc. and Subsidiaries Consolidated Balance Sheets (Unaudited)
- ----------------------------------------------------------------------------------------------------------------------------- March 31, December 31, ( in thousands, except share amounts) 2001 2000 - ----------------------------------------------------------------------------------------------------------------------------- Assets Cash and due from banks $ 18,868 $ 16,849 Federal funds sold 25,500 22,800 ---------------------------------------------------------------------------------------------------------- Cash and cash equivalents 44,368 39,649 Securities, available for sale at fair value 90,776 92,921 Securities, held to maturity at cost (fair value 2001: $61,516; 2000: $33,661 ) 61,357 33,812 Loans, held for sale (fair value 2001: $6,583; 2000: $5,409 ) 6,567 5,329 Loans receivable : Real estate: Commercial mortgage 128,912 127,931 Construction and land development 32,465 30,776 Residential mortgage 42,794 41,314 Tax-exempt 2,751 2,786 Commercial business 36,030 31,490 Consumer 31,380 30,691 Lines of credit 26,621 25,264 ---------------------------------------------------------------------------------------------------------- 300,953 290,252 Less: Allowance for loan losses 3,977 3,732 ---------------------------------------------------------------------------------------------------------- Net loans receivable 296,976 286,520 Premises and equipment, net 17,090 16,637 Accrued interest receivable 2,527 2,936 Other assets 2,362 2,282 ---------------------------------------------------------------------------------------------------------- Total assets $ 522,023 $ 480,086 ============================================================================================================================= Liabilities Deposits : Noninterest-bearing $ 94,251 $ 85,577 Interest-bearing 391,921 361,006 ---------------------------------------------------------------------------------------------------------- Total deposits 486,172 446,583 Accrued interest payable 999 834 Other liabilities 1,545 1,001 Long term debt 5,000 5,000 ---------------------------------------------------------------------------------------------------------- Total liabilities 493,716 453,418 - ----------------------------------------------------------------------------------------------------------------------------- Stockholders' Preferred stock - Series A noncumulative; Equity $10.00 par value; 1,000,000 shares authorized; 40,000 shares issued and outstanding 400 400 Common stock - $1.00 par value; 10,000,000 shares authorized; issued and outstanding - 2001: 1,759,910; 2000: 1,749,045 1,760 1,749 Surplus 21,036 20,861 Retained earnings 5,237 4,334 Accumulated other comprehensive income (loss) (126) (676) ---------------------------------------------------------------------------------------------------------- Total stockholders' equity 28,307 26,668 ---------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 522,023 $ 480,086 ============================================================================================================================= See accompanying notes . 3
Pennsylvania Commerce Bancorp, Inc. and Subsidiaries Consolidated Statements of Income (Unaudited)
- ---------------------------------------------------------------------------------------------------------------------- Three Months Ended March 31, ----------------------------- (in thousands, except per share amounts) 2001 2000 - ---------------------------------------------------------------------------------------------------------------------- Interest Loans receivable, including fees : Income Taxable $ 6,483 $ 4,865 Tax - exempt 37 10 Securities : Taxable 2,307 1,943 Tax - exempt 14 2 Federal funds sold 302 18 --------------------------------------------------------------------------------------------------- Total interest income 9,143 6,838 - ---------------------------------------------------------------------------------------------------------------------- Interest Deposits 4,169 2,826 Expense Other borrowed money 0 37 Long-term debt 138 0 --------------------------------------------------------------------------------------------------- Total interest expense 4,307 2,863 --------------------------------------------------------------------------------------------------- Net interest income 4,836 3,975 Provision for loan losses 285 255 --------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 4,551 3,720 - ---------------------------------------------------------------------------------------------------------------------- Noninterest Service charges and other fees 1,345 976 Income Other operating income 126 107 Gain on sale of securities available for sale 52 0 Gain on sale of loans 204 112 --------------------------------------------------------------------------------------------------- Total noninterest income 1,727 1,195 - ---------------------------------------------------------------------------------------------------------------------- Noninterest Salaries and employee benefits 2,298 1,714 Expenses Occupancy 515 417 Furniture and equipment 339 247 Advertising and marketing 390 420 Data processing 311 197 Postage and supplies 212 159 Audits, regulatory fees and assessments 99 84 Other 730 502 --------------------------------------------------------------------------------------------------- Total noninterest expenses 4,894 3,740 --------------------------------------------------------------------------------------------------- Income before income taxes 1,384 1,175 Provision for federal income taxes 461 402 --------------------------------------------------------------------------------------------------- Net income $ 923 $ 773 ====================================================================================================================== Net income per common share: Basic $ 0.51 $ 0.44 Diluted 0.47 0.40 ====================================================================================================================== See accompanying notes . 4
Pennsylvania Commerce Bancorp, Inc. and Subsidiaries Consolidated Statement of Stockholders' Equity (Unaudited)
- ---------------------------------------------------------------------------------------------------------------------------------- Accumulated Other Preferred Common Retained Comprehensive ( in thousands ) Stock Stock Surplus Earnings Income (Loss) Total - ---------------------------------------------------------------------------------------------------------------------------------- Balance : December 31, 1999 $ 400 $ 1,644 $ 18,196 $ 3,137 $ (2,999) $ 20,378 Comprehensive income: Net income - - - 773 - 773 Change in unrealized gains (losses) on securities, net of reclassification adjustment - - - - 86 86 --------- Total comprehensive income 859 Dividends declared on preferred stock - - - (20) - (20) Common stock issued under stock option plans - 4 21 - - 25 Common stock issued under employee stock purchase plan - - 3 - - 3 Proceeds from issuance of common stock in connection with dividend reinvestment and stock purchase plan - 3 55 - - 58 - --------------------------------------------------------------------------------------------------------------------------------- March 31, 2000 $ 400 $ 1,651 $ 18,275 $ 3,890 $ (2,913) $ 21,303 =================================================================================================================================
Accumulated Other Preferred Common Retained Comprehensive ( in thousands ) Stock Stock Surplus Earnings Income (Loss) Total - --------------------------------------------------------------------------------------------------------------------------------- Balance : December 31, 2000 $ 400 $ 1,749 $ 20,861 $ 4,334 $ (676) $ 26,668 Comprehensive income: Net income - - - 923 - 923 Change in unrealized gains (losses) on securities, net of reclassification adjustment - - - - 550 550 --------- Total comprehensive income 1,473 Dividends declared on preferred stock - - - (20) - (20) Common stock issued under stock option plans - 9 44 - - 53 Income tax benefit of stock options exercised - - 59 - - 59 Common stock issued under employee stock purchase plan - - 3 - - 3 Proceeds from issuance of common stock in connection with dividend reinvestment and stock purchase plan - 2 69 - - 71 5% common stock dividend and cash paid in lieu of fractional shares - - 12 (12) - - - --------------------------------------------------------------------------------------------------------------------------------- March 31, 2001 $ 400 $ 1,760 $ 21,048 $ 5,225 $ (126) $ 28,307 ================================================================================================================================= See accompanying notes . 5
Pennsylvania Commerce Bancorp, Inc. and Subsidiaries Consolidated Statements of Cash Flows (Unaudited) - ------------------------------------------------------------------------------------------------------------------------------ Three Months Ended March 31, ( in thousands ) 2001 2000 - ------------------------------------------------------------------------------------------------------------------------------ Operating Activities Net income $ 923 $ 773 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 285 255 Provision for depreciation and amortization 343 270 Deferred income taxes (112) (127) Amortization of securities premiums and accretion of discounts, net 45 52 Net gain on sale of securities available for sale (52) 0 Proceeds from sale of loans 12,286 8,325 Loans originated for sale (13,400) (5,135) Gain on sales of loans and other real estate owned (204) (111) Stock granted under stock purchase plan 3 3 Decrease (increase) in accrued interest receivable and other assets 216 (339) Increase in accrued interest payable and other liabilities 709 642 ----------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 1,042 4,608 - ------------------------------------------------------------------------------------------------------------------------------ Investing Activities Securities held to maturity : Proceeds from principal repayments and maturities 1,133 460 Purchases (28,681) (4,955) Securities available for sale : Proceeds from principal repayments and maturities 5,515 1,226 Proceeds from sales 7,497 0 Purchases (10,023) 0 Proceeds from sale of loans receivable 3,282 376 Net increase in loans receivable (13,943) (19,008) Purchases of premises and equipment (796) (446) ----------------------------------------------------------------------------------------------------------- Net cash (used) by investing activities (36,016) (22,347) - ------------------------------------------------------------------------------------------------------------------------------ Financing Activities Net increase in demand deposits, interest checking, money market and savings deposits 18,063 26,765 Net increase (decrease) in time deposits 21,526 (9,008) (Decrease) in borrowed money 0 (8,300) Proceeds from common stock options exercised 53 25 Proceeds from common stock purchase and dividend reinvestment plans 71 58 Cash dividends on preferred stock (20) (20) ----------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 39,693 9,520 ----------------------------------------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents 4,719 (8,219) Cash and cash equivalents at beginning of year 39,649 27,490 ----------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 44,368 $19,271 =========================================================================================================== See accompanying notes . 6
PENNSYLVANIA COMMERCE BANCORP, INC. NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS March 31, 2001 (Unaudited) Note 1. BASIS OF PRESENTATION The consolidated financial statements include the accounts of Pennsylvania Commerce Bancorp, Inc. ("the Company") and its wholly owned subsidiaries Commerce Bank/Harrisburg, N.A. ("the Bank") and Commerce Capital Harrisburg Trust I. All material 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 considered necessary for a fair presentation have been included and are of a normal, recurring nature. Operating results for the three month period ended March 31, 2001, are not necessarily indicative of the results that may be expected for the year ended December 31, 2001. 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 the annual report and Form 10-K and the exhibits thereto), in its reports to stockholders and in other communications by the Company, which are made in good faith by the Company pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements with respect to the Company's beliefs, plans, objectives, goals, expectations, anticipations, estimates, and intentions, that are subject to significant risks and uncertainties and are subject to change based on various factors (some of which are beyond the Company's control). The words may, could, should, would, believe, anticipate, estimate, expect, intend, plan, and similar expressions are intended to identify forward-looking statements. The following factors, among others could cause the Company's financial performance to differ materially from that 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 policy, including interest rate policies of the Board of the Federal Reserve System; inflation; interest rate, market and monetary fluctuations; the timely development of competitive new products and services by the Company and the acceptance of such products and services by customers; the willingness of customers to substitute competitors' products and services and vice versa; the impact of changes in financial services laws and regulations (including laws concerning taxes, banking, securities, and insurance); technological changes; future acquisitions; the expense savings and revenue enhancements from acquisitions being less than expected; the growth and profitability of the Company's noninterest or fee income being less than expected; unanticipated regulatory or judicial proceedings; changes in consumer spending and saving habits; and the success of the Company at managing the risks involved in the foregoing. 7 The Company cautions that the foregoing list of important factors is not exclusive. The Company does not undertake to update any forward-looking statements, whether written or oral, that may be made from time to time by or on behalf of the Company. For further information, refer to the financial statements and footnotes thereto included in the Pennsylvania Commerce Bancorp, Inc., Annual Report for the year ended December 31, 2000. Note 2. SIGNIFICANT ACCOUNTING POLICIES Stock Dividends and Per Share Data On January 19, 2001, the Board of Directors declared a 5% stock dividend on common stock outstanding, paid on February 16, 2001, to stockholders of record on February 2, 2001. Payment of the stock dividend resulted in the issuance of 83,492 additional common shares and cash of $6,403 in lieu of fractional shares. The effect of the 5% common stock dividend has been recorded as of December 31, 2000. Recently Issued FASB Statements In June 1998, the Financial Accounting Standards Board issued Statement No. 133 (as amended by Statement Nos. 137 and 138), "Accounting for Derivative Instruments and Hedging Activities". This statement and its amendments establish accounting and reporting standards for derivative instruments and hedging activities, including certain derivative instruments embedded in other contracts, and require that an entity recognize all derivatives as assets or liabilities in the balance sheet and measure them at fair value. The Statement requires that changes in the fair value of derivatives be recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designed as part of a hedge transaction and, if it is, the type of hedge transaction. The Company adopted the Statement on January 1, 2001. The adoption of the statement did not have a significant impact on the financial condition or results of operations of the Company. 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 SFAS No. 125 of the same name. It revises the standards of securitizations and other transfers of financial assets and collateral and requires certain disclosures, but carries over most of the provisions of SFAS No. 125 without reconsideration. SFAS 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 provision is not permitted. The adoption of the Statement did not have significant impact on the Company. Note 3. COMMITMENTS AND CONTINGENCIES The Company is subject to certain routine legal proceedings and claims arising in the ordinary course of business. It is management's opinion that the ultimate resolution of these claims will not have a material adverse effect on the Company's financial position and results of operations. 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL ------------------------------------------------- CONDITION AND RESULTS OF OPERATIONS ----------------------------------- Management's Discussion and Analysis of Financial Condition and Results of Operations analyzes the major elements of the Company's balance sheets and statements of income. This section should be read in conjunction with the Company's financial statements and accompanying notes. OVERVIEW Net income for the quarter increased 19% to $923,000 as compared to $773,000 for the first quarter of 2000 and total revenues increased by 27% to $6.6 million for the quarter. Diluted net income per common share increased 17% to $0.47 from $0.40 per share in the first quarter a year ago (after adjusting for a 5% common stock dividend paid in February 2001). At March 31, 2001, the Company had total assets of $522.0 million, total loans (including loans held for sale) of $307.5 million, and total deposits of $486.2 million. RESULTS OF OPERATIONS Average Balances and Average Interest Rates Interest earning assets averaged $459.9 million for the first quarter of 2001 as compared to $343.7 million for the same period in 2000. Approximately $73.9 million, or 64%, of this increase was in average loans outstanding and $41.2 million, or 35%, was in average securities and federal funds sold. The yield on earning assets for the first quarter of 2001 was 8.03%, an increase of 3 basis points over the comparable period in 2000. The growth in interest earning assets was funded primarily by an increase in the average balance of deposits of $112.9 million. Interest-bearing liabilities increased from $283.2 million during the first quarter of 2000 to $386.9 million during the first quarter of 2001. Average savings deposits increased $24.0 million over first quarter a year ago, average public funds deposits increased $33.6 million and average time deposits increased by $37.9 million. Also, average non-interest bearing demand deposits increased by $14.1 million. The average rate paid on these liabilities for the first quarter of 2001 was 4.51%, an increase of 44 basis points from the comparable period in 2000. The Company's aggregate cost of funding sources was 3.80% for the first quarter of 2001, an increase of 45 basis points over the prior year. This is the result of an increase in the average rate paid on total interest bearing deposits as well as the issuance of long-term debt, which bears interest at a higher rate than the Company's deposits. Net Interest Income and Net Interest Margin Net interest income is the difference between interest income earned on assets and interest expense incurred on liabilities used to fund those assets. Interest earning assets primarily include loans and securities. Liabilities used to fund such assets include deposits and borrowed funds. Changes in net interest income and margin result from the interaction between the volume and composition of earning assets, related yields and associated funding costs. Interest income increased by $2.3 million, or 34%, over the first quarter of 2000. Interest expense for the first quarter of 2001 increased by $1.4 million, or 50%, compared to the first quarter of 2000. 9 Net interest income for the first quarter of 2001 increased by $861,000, or 22%, over the same period in 2000. Changes in net interest income are frequently measured by two statistics: net interest rate spread and net interest margin. Net interest rate spread is the difference between the average rate earned on earning assets and the average rate incurred on interest-bearing liabilities. Net interest margin represents the difference between interest income, including net loan fees earned, and interest expense, reflected as a percentage of average earning assets. The Company's net interest rate spread was 3.52% during the first quarter of 2001 compared to 3.93% during the same period of the previous year. The net interest margin decreased by 41 basis points from 4.64% for the first quarter 2000 to 4.23% during the first quarter of 2001. Noninterest Income Noninterest income for the first quarter of 2001 increased by $532,000, or 45%, from the same period in 2000. Recurring core noninterest income increased by 36% from $1.1 million in the first quarter of 2000 to $1.5 million for the same period in 2001. The increase is attributable to service charges and fees associated with servicing a higher volume of deposit accounts and transactions. Included in noninterest income for the first three months of 2001 is nonrecurring income of $234,000, as a result of a $102,000 gain on the sale of student loans, an $80,000 gain from the sale of a Small Business Administration loan, and a $52,000 gain on the sale of securities available for sale. Included in noninterest income for the first three months of 2000 is nonrecurring income of $101,000, comprised of an $88,000 gain on the sale of student loans and a $13,000 gain from the sale of Small Business Administration loans. Noninterest Expenses For the first quarter of 2001, noninterest expenses increased by $1.2 million, or 31%, over the same period in 2000. Staffing levels and related expenses increased as a result of servicing more deposit and loan customers and processing a higher volume of transactions. Staffing and occupancy expenses also increased as a result of opening three branch offices in June 2000, October 2000, and March 2001, respectively. A comparison of noninterest expense for certain categories for the three months ended March 31, 2001, and March 31, 2000, is presented in the following paragraphs. Salary expenses and employee benefits, which represent the largest component of noninterest expenses, increased by $584,000, or 34%, for the first quarter of 2001 over the first quarter of 2000. This increase is consistent with increases in staff levels necessary to handle Company growth from first quarter 2000 to first quarter 2001, including the additional staff of the branch offices opened in June 2000, October 2000, and March 2001. Occupancy expenses of $515,000 were $98,000, or 24%, higher for the first quarter of 2001 than for the three months ended March 31, 2000. Increased occupancy expenses primarily are a result of the two branch offices opened in 2000 and one branch opened in 2001. The Bank also opened a loan production office in Carlisle, PA on January 2, 2001. The Bank leases the office space and constructed leasehold improvements at its own expense. Furniture and equipment expenses of $339,000 were $92,000, or 37%, higher for the first quarter of 2001 than the three months ended March 31, 2000. This increase was the result of higher levels of depreciation costs for furniture and equipment incurred with the addition of the two branch offices opened in 2000 and the Carlisle loan production office as well as the upgrade of computer equipment at all Commerce locations during the fourth quarter of 2000 and the first quarter of 2001. 10 Advertising and marketing expenses totaled $390,000 for the three months ended March 31, 2001, a decrease of $30,000 from the first quarter of 2000. Data processing expenses of $311,000 were $114,000, or 58%, higher in the first quarter of 2001 than the three months ended March 31, 2000. The increase was due to a combination of increased costs associated with processing additional transactions (due to growth in number of accounts) and an increase in data processing support costs. Postage and supplies expense of $212,000 represented a $53,000, or 33%, increase over the first quarter of the prior year. This was due to a combination of increased usage of supplies with the addition of three new branches and due to growth in the volume of customers and customer transaction statements. Audits and regulatory fees increased by $15,000, or 18%, from $84,000 for the first quarter of 2000 to $99,000 for the first quarter of 2001. This increase is a result of higher Federal Deposit Insurance Corporation (FDIC) and Office of the Comptroller of the Currency (OCC) assessments. Both assessment calculations, which are based upon deposit size, continue to increase as the Company's deposit balances grow. Other noninterest expenses increased by $228,000, or 45%, for the three-month period ended March 31, 2001, as compared to the same period in 2000. The increase includes higher loan expenses due to an increase in loan volume, increased costs associated with the Bank's telephone banking product, telephone service for four new locations, checkbook printing, customer relations and higher provisions for non-credit related losses. It also includes costs associated with processing coin for Penny Arcade Coin counters, installed in first and second quarters of 2000, which is offered at no charge to all customers and non-customers. One key measure used to monitor progress in controlling overhead expenses is the ratio of net noninterest expenses to average assets. Net noninterest expenses equal noninterest expenses (excluding other real estate expenses) less noninterest income (exclusive of nonrecurring gains), divided by average assets. This ratio equaled 2.72% for the three months ended March 31, 2001, less than the 3.16% reported for the three months ended March 31, 2000. Another productivity measure is the operating efficiency ratio. This ratio expresses the relationship of noninterest expenses (excluding other real estate expenses) to net interest income plus noninterest income (excluding nonrecurring gains). For the quarter ended March 31, 2001, the operating efficiency ratio was 77.2% compared to 73.8% for the similar period in 2000. Provision for Federal Income Taxes The provision for federal income taxes was $461,000 for the first quarter of 2001 as compared to $402,000 for the same period in 2000. The effective tax rate, which is the ratio of income tax expense to income before income taxes, was 33.3% for the first three months of 2001 and 34.2% for the same period in 2000. Net Income and Net Income Per Share Net income for the first quarter of 2001 was $923,000, an increase of $150,000, or 19%, over the $773,000 recorded in the first quarter of 2000. The increase was due to an increase in net interest income of $861,000, an increase in noninterest income of $532,000, offset partially by an increase in noninterest expenses of $1.2 million, an increase of $30,000 in the provision for loan losses, and a increase of $59,000 in the provision for income taxes. 11 Basic earnings per common share, after adjusting for a 5% common stock dividend paid in February 2001, increased to $0.51 per common share for the first quarter of 2001 compared to $0.44 for the same period in 2000. Diluted earnings per common share were $0.47 for the first quarter of 2001 and $0.40 for the same period in 2000. Return on Average Assets and Average Equity Return on average assets (ROA) measures the Company's net income in relation to its total average assets. The Company's annualized ROA for the first quarter of 2001 was 0.75% as compared to 0.83% for the first quarter of 2000. For purposes of calculating ROA, average assets have been adjusted to exclude gross unrealized appreciation or depreciation on securities available for sale. Return on average equity (ROE) indicates how effectively the Company can generate net income on the capital invested by its stockholders. ROE is calculated by dividing net income by average stockholders' equity. For purposes of calculating ROE, average stockholders' equity includes the effect of unrealized appreciation or depreciation, net of income taxes, on securities available for sale. The annualized ROE for the first quarter of 2001 was 13.60%, as compared to 14.92% for the first quarter of 2000. FINANCIAL CONDITION Securities During the first three months of 2001, securities available for sale decreased by $2.1 million (net of unrealized appreciation) from $92.9 million at December 31, 2000 to $90.8 million at March 31, 2001. This resulted from the purchase of $10.0 million in mortgage-backed securities, trust preferred debt securities, and AAA Whole Loan CMO securities, offset by $5.5 million in principal repayments, and $7.4 million of securities sold. The portfolio also had an unrealized gain of $833,000 in the quarter. During the first quarter, Bank management implemented a small portfolio restructuring strategy in response to the dramatic decrease in interest rates during the quarter. Management sold $7.4 million of 7.00% and 7.50% coupon mortgage-backed securities (MBS's) and replaced these with 6.00% and 6.50% coupon MBS's to partially mitigate the Bank's risk to prepayments on the higher coupon securities. The sale of these securities resulted in a net pre-tax gain of $52,180. The securities available for sale portfolio is comprised of U.S. Treasury Notes, U.S. Government agency securities, mortgage-backed securities, and AAA Whole Loan CMO securities, trust preferred debt securities, and equity securities. The weighted average life of the securities available for sale portfolio was 7.9 years at March 31, 2001 with a weighted average yield of 6.81%. During the first three months of 2001, securities held to maturity increased from $33.8 million to $61.4 million primarily as a result of the purchase of $28.7 million in securities, offset by principal repayments of $1.1 million. The securities held in this portfolio include U.S. Government agency securities, tax-exempt municipal bonds, AAA Whole Loan CMO securities, trust preferred debt securities, corporate debt securities, and mortgage-backed securities. The weighted average life of the securities held to maturity portfolio was 8.2 years at March 31, 2001 with a weighted average yield of 6.73%. 12 Federal funds sold increased by $2.7 million during the first three months of 2001. Total securities and federal funds sold aggregated $177.6 million at March 31, 2001, and represented 34% of total assets. The average yield on the combined securities portfolio for the first three months of 2001 was 6.66%, as compared to 6.67% for the similar period of 2000. The average yield earned on federal funds sold during the first three months of 2001 was 5.43%, down 36 basis points from 5.79% earned during the first three months of 2000. The decrease in the yield on federal funds sold is a result of one 50 basis point increase and three 50 basis point decreases in this rate by the Federal Reserve Bank between March 31, 2000 and March 31, 2001. Loans Held for Sale Loans held for sale are comprised of student loans, Small Business Administration loans, and residential mortgage loans which the Company originates with the intention of selling in the future. During the first three months of 2001, total loans held for sale increased by $1.3 million from $5.3 million at December 31, 2000, to $6.6 million at March 31, 2001. The increase was the result of the sale of $6.8 million of student loans and the sale of $5.3 million of residential loans, offset by originations of $13.4 million in new loans held for sale. Loans held for sale represented 1% of total assets at December 31, 2000 and at March 31, 2001. Loans Receivable During the first three months of 2001, total loans receivable increased by $10.7 million from $290.3 million at December 31, 2000, to $301.0 million at March 31, 2001. Loans receivable represented 62% of total deposits and 58% of total assets at March 31, 2001, as compared to 65% and 60%, respectively, at December 31, 2000. Loan and Asset Quality and Allowance for Loan Losses Total nonperforming assets (nonperforming loans and other real estate, excluding loans past due 90 days or more and still accruing interest) at March 31, 2001, were $1.1 million, or 0.22%, of total assets as compared to $875,000, or 0.18%, of total assets at December 31, 2000. Other real estate owned totaled $42,000 at March 31, 2001 and as of December 31, 2000. The summary table on the following page presents information regarding nonperforming loans and assets as of March 31, 2001 and 2000 and December 31, 2000. 13
Nonperforming Loans and Assets - ---------------------------------------------------------------------------------------- (dollars in thousands) March 31, December 31, March 31, 2001 2000 2000 - ---------------------------------------------------------------------------------------- Nonaccrual loans: Commercial $ 299 $ 300 $ 120 Consumer 8 162 230 Real estate: Construction 0 0 0 Mortgage 794 371 212 - ---------------------------------------------------------------------------------------- Total nonaccrual loans 1,101 833 562 Restructured loans 0 0 0 - ---------------------------------------------------------------------------------------- Total nonperforming loans 1,101 833 562 Other real estate 42 42 12 - ---------------------------------------------------------------------------------------- Total nonperforming assets 1,143 875 574 - ---------------------------------------------------------------------------------------- Loans past due 90 days or more 0 0 0 - ---------------------------------------------------------------------------------------- Total nonperforming assets and Loans past due 90 days or more $1,143 $ 875 $ 574 - ---------------------------------------------------------------------------------------- Nonperforming loans to total loans 0.37% 0.29% 0.24% Nonperforming assets to total assets 0.22% 0.18% 0.15% ========================================================================================
The following table sets forth information regarding the Company's provision and allowance for loan losses.
Allowance for Loan Losses - -------------------------------------------------------------------------------- (dollars in thousands) 3 Months Year Ending Ending December 31, March 31, 2000 2001 - -------------------------------------------------------------------------------- Balance at beginning of period $3,732 $2,841 Provisions charged to operating expenses 285 1,050 - -------------------------------------------------------------------------------- 4,017 3,891 Recoveries of loans previously charged-off: Commercial 1 6 Consumer 20 8 Real estate 0 0 - -------------------------------------------------------------------------------- Total recoveries 21 14 Loans charged-off: Commercial 50 1 Consumer 11 95 Real estate 0 77 - -------------------------------------------------------------------------------- Total charged-off 61 173 - -------------------------------------------------------------------------------- Net charge-offs 40 159 - -------------------------------------------------------------------------------- Balance at end of period $3,977 $3,732 - -------------------------------------------------------------------------------- Net charge-offs as a percentage of 0.01% 0.06% Average loans outstanding Allowance for loan losses as a percentage of Period-end loans 1.32% 1.29% ================================================================================
14 Deposits Total deposits at March 31, 2001, were $486.2 million, up $39.6 million, or 9%, over total deposits of $446.6 million at December 31, 2000. The average balances and weighted average rates paid on deposits for the first three months of 2001 and 2000 are presented in the following table.
- -------------------------------------------------------------------------------------------- Three Months Ended March 31, - -------------------------------------------------------------------------------------------- 2001 2000 - -------------------------------------------------------------------------------------------- Average Average Average Average (dollars in thousands) Balance Rate Balance Rate - -------------------------------------------------------------------------------------------- Demand deposits: Noninterest-bearing $ 79,389 $ 65,464 Interest-bearing (money market and checking) 91,332 2.99% 68,401 2.83% Savings 121,210 3.72 94,128 3.58 Time deposits 169,316 5.71 118,081 5.05 - -------------------------------------------------------------------------------------------- Total deposits $ 461,247 $ 346,074 ============================================================================================
Interest Rate Sensitivity The management of interest rate sensitivity seeks to avoid fluctuating net interest margins and to provide consistent net interest income through periods of changing interest rates. The Company's risk of loss arising from adverse changes in the fair value of financial instruments, or market risk, is composed primarily of interest rate risk. The primary objective of the Company's asset/liability management activities is to maximize net interest income while maintaining acceptable levels of interest rate risk. The Company's Asset/Liability Committee (ALCO) is responsible for establishing policies to limit exposure to interest rate risk, and to ensure procedures are established to monitor compliance with those policies. The guidelines established by ALCO are reviewed by the Company's Board of Directors. An interest rate sensitive asset or liability is one that, within a defined period, either matures or experiences an interest rate change in line with general market interest rates. Historically, the most common method of estimating interest rate risk was to measure the maturity and repricing relationships between interest-earning assets and interest-bearing liabilities at specific points in time (GAP), typically one year. Under this method, a company is considered liability sensitive when the amount of its interest-bearing liabilities exceeds the amount of its interest-earning assets within the one year horizon. However, assets and liabilities with similar repricing characteristics may not reprice at the same time or to the same degree. As a result, the Company's GAP does not necessarily predict the impact of changes in general levels of interest rates on net interest income. Management believes the simulation of net interest income in different interest rate environments provides a more meaningful measure of interest rate risk. Income simulation analysis captures not only the potential of all assets and liabilities to mature or reprice, but also the probability that they will do so. Income simulation also attends to the relative interest rate sensitivities of these items, and projects their behavior over an extended period of time. Finally, income simulation permits management to assess the probable effects on the balance sheet not only of changes in interest rates, but also of proposed strategies for responding to them. 15 The Company's income simulation model analyzes interest rate sensitivity by projecting net interest income over the next 24 months in a flat rate scenario versus net income in alternative interest rate scenarios. Management continually reviews and refines its interest rate risk management process in response to the changing economic climate. Currently, the Company's model projects a proportionate 200 basis point change during the next year, with rates remaining constant in the second year. The Company's ALCO policy has established that income sensitivity will be considered acceptable if overall net income volatility in a plus or minus 200 basis point scenario is within 15% of net income in a flat rate scenario in the first year and 30% using a two year planning window. At March 31, 2001, the Company's income simulation model indicates net income would increase 2.8% in the first year and 4.3% over a two year time frame if rates decreased as described above. The model projects that net income would decrease by 2.5% in the first year and decrease 1.5% over a two year time frame if rates increased as described above. All of these forecasts are within an acceptable level of interest rate risk per the policies established by ALCO. Management also monitors interest rate risk by utilizing a market value of equity model. The model assesses the impact of a change in interest rates on the market value of all the Company's assets and liabilities, as well as any off balance sheet items. The model calculates the market value of the Company's assets and liabilities in excess of book value in the current rate scenario, and then compares the excess of market value over book value given an immediate 200 basis point change in rates. The Company's ALCO policy indicates that the level of interest rate risk is unacceptable if the immediate 200 basis point change would result in the loss of 60% or more of the excess of market value over book value in the current rate scenario. At March 31, 2001, the market value of equity model indicates an acceptable level of interest rate risk. Liquidity Liquidity management involves the ability to generate cash or otherwise obtain funds at reasonable rates to support asset growth and reduce assets to meet deposit withdrawals, to maintain reserve requirements, and to otherwise operate the Company on an ongoing basis. Liquidity needs are generally met by converting assets into cash or obtaining sources of additional funding, mainly deposits. Liquidity sources from asset categories are provided primarily by cash and federal funds sold, and the cash flow from the amortizing securities and loan portfolios. The primary source of liquidity from liability categories is the generation of additional core deposit balances. Additionally, the Company has established secondary sources of liquidity consisting of federal funds lines of credit, repurchase agreements, and borrowing capacity at the Federal Home Loan Bank, which can be drawn upon if needed. As of March 31, 2001, the total potential liquidity for the Company through these secondary sources was $129 million. In view of the primary and secondary sources as previously mentioned, management believes that the Company is capable of meeting its anticipated liquidity needs. Capital Adequacy At March 31, 2001, stockholders' equity totaled $28.3 million, up 6.1% over stockholders' equity of $26.7 million at December 31, 2000. Stockholders' equity at March 31, 2001 included $126,000 unrealized losses, net of income taxes, on securities available for sale. Excluding this unrealized loss, gross stockholders' equity increased by $1.1 million from $27.3 million at December 31, 2000, to $28.4 million at March 31, 2001 due principally to retained net income. 16 On June 15, 2000, the Company issued $5.0 million of 11.00% Trust Capital Securities to Commerce Bancorp, Inc. through Commerce Harrisburg Capital Trust I, a newly formed Delaware business trust subsidiary of the Company. Proceeds of this offering were downstreamed to Commerce Bank/Harrisburg, N.A., the Company's wholly-owned banking subsidiary, to be used for additional capitalization purposes. All $5.0 million of the Trust Capital Securities qualify as Tier 1 capital for regulatory capital purposes. Risk-based capital provides the basis for which all banks are evaluated in terms of capital adequacy. The risk-based capital standards require all banks to have Tier 1 capital of at least 4% and total capital, including Tier 1 capital, of at least 8% of risk-adjusted assets. Tier 1 capital includes common stockholders' equity and qualifying perpetual preferred stock together with related surpluses and retained earnings. Total capital may be comprised of total Tier 1 capital plus limited life preferred stock, qualifying debt instruments, and the allowance for loan losses. The following table provides a comparison of the Company's risk-based capital ratios and leverage ratios to the minimum regulatory requirements for the periods indicated:
- ---------------------------------------------------------------------------------------------------------------------- To Be Well Capitalized Under Prompt March 31, December 31, For Capital Adequacy Corrective Action 2001 2000 Purposes Provisions - ---------------------------------------------------------------------------------------------------------------------- Risk-Based Capital Ratios: Tier 1 9.28% 9.90% 4.00% 6.00% Total 10.38 11.04 8.00 10.00 Leverage Total 6.73 6.92 4.00 5.00
At March 31, 2001, the consolidated capital levels of the Company and of the subsidiary bank (Commerce) met the definition of a "well capitalized" institution. Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company's exposure to market risk has not changed significantly since December 31, 2000. The market risk principally includes interest rate risk, which is discussed in the Management's Discussion and Analysis above. 17 PART II. OTHER INFORMATION Item 1. Legal Proceedings The Company is subject to certain routine legal proceedings and claims arising in the ordinary course of business. It is management's opinion the ultimate resolution of these claims will not have a material adverse effect on the Company's financial position and results of operations. Item 6. Exhibits and Reports on Form 8-K (a.) Exhibits Computation of Net Income Per Share...................................Exhibit 11 (b.) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended March 31, 2001. 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf be the undersigned thereunto duly authorized. PENNSYLVANIA COMMERCE BANCORP, INC. (Registrant) 5/11/01 /s/ James T. Gibson - ------------------------- ----------------------------------------- (Date) James T. Gibson President/CEO 5/11/01 /s/ Mark A. Zody - ------------------------- ----------------------------------------- (Date) Mark A. Zody Executive Vice President Chief Financial Officer 19 EX-11 2 pacbex11.txt EXHIBIT 11 Exhibit 11.
Pennsylvania Commerce Bancorp, Inc. Computation of Net Income Per Share - --------------------------------------------------------------------------------------------------- For the Quarter Ended March 31, 2001 - --------------------------------------------------------------------------------------------------- Income Shares Per Share Amount - --------------------------------------------------------------------------------------------------- Basic Earnings Per Share: Net income $923,000 Preferred stock dividends (20,000) -------- Income available to common stockholders 903,000 1,756,364 $0.51 - --------------------------------------------------------------------------------------------------- Effect of Dilutive Securities: Stock Options 178,783 --------- Diluted Earnings Per Share: Income available to common stockholders plus assumed conversions $903,000 1,935,147 $0.47 =================================================================================================== For the Quarter Ended March 31, 2000 - --------------------------------------------------------------------------------------------------- Income Shares Per Share Amount - --------------------------------------------------------------------------------------------------- Basic Earnings Per Share: Net income $773,000 Preferred stock dividends (20,000) -------- Income available to common stockholders 753,000 1,731,212 $0.44 - --------------------------------------------------------------------------------------------------- Effect of Dilutive Securities: Stock Options 110,584 --------- Diluted Earnings Per Share: Income available to common stockholders plus assumed conversions $753,000 1,841,796 $0.40 ===================================================================================================
-----END PRIVACY-ENHANCED MESSAGE-----