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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT UNDER SECTION 13 OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE
FISCAL YEAR ENDED DECEMBER 31, 1999
Commission File Number 0-14555
FIRST LEESPORT BANCORP, INC._____________
(Exact name of Registrant as specified in its Charter)
Pennsylvania 23-2354007
(State or Other Juris- (I.R.S. Employer
diction of Incorporation) Identification No.)
133 North Centre Avenue
Leesport, Pennsylvania 19533
(Address of Principal Executive Offices)
(610) 926-2161
Registrant's Telephone Number:
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $5.00 Par Value
(Title of Class)
The Registrant has (1) filed all reports required to be filed by
Section 13 or 15(d) of the 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. ___
Indicate by checkmark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of March 22, 2000, the aggregate market value of the Common
Stock (based upon the average sales price on such date) of the
Registrant held by nonaffiliates was $29,314,000.
Number of Shares of Common Stock Outstanding at March 22, 2000:
1,849,859.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement prepared
in connection with its Annual Meeting of Stockholders to be held
on April 18, 2000 are incorporated in Part III hereof.
INDEX
PAGE
PART I
Item 1. Business..........................................2
Item 2. Properties.......................................11
Item 3. Legal Proceedings................................12
Item 4. Submission of Matters to a Vote of Security
Holders..........................................12
Item 4A. Executive Officers of the Registrant.............12
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters......................13
Item 6. Selected Financial Data..........................15
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations.......................................19
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk................................42
Item 8. Financial Statements and Supplementary Data......42
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure.......................................70
PART III
Item 10. Directors and Executive Officers of the
Registrant.......................................71
Item 11. Executive Compensation...........................71
Item 12. Security Ownership of Certain Beneficial
Owners and Management............................71
Item 13. Certain Relationships and Related
Transactions.....................................71
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K..........................72
SIGNATURES...................................................75
PART I
FORWARD LOOKING STATEMENTS
Except for historical information, this report may be
deemed to contain "forward looking" statements. First Leesport
Bancorp, Inc. (the "Company") desires to avail itself of the
Safe Harbor provisions of the Private Securities Litigation
Reform Act of 1995 (the "Reform Act") and is including this
cautionary statement for the express purpose of availing itself
of the protection afforded by the Reform Act.
Examples of forward looking statements include, but are not
limited to (a) projections of or statements regarding future
earnings, net interest income, other income, earnings or loss
per share, asset mix and quality, growth prospects, capital
structure and other financial terms, (b) statements of plans and
objectives of the Company or its management or Board of
Directors, (c) statements of future economic performance, and
(d) statements of assumptions, such as economic conditions in
the Company's market areas, underlying other statements and
statements about the Company or its businesses. Such forward
looking statements can be identified by the use of forward
looking terminology such as "believes," "expects," "may,"
"intends," "will," "should," "anticipates," or the negative of
any of the foregoing or other variations thereon or comparable
terminology, or by discussion of strategy.
No assurance can be given that the future results covered
by the forward-looking statements will be achieved. Such
statements are subject to risks, uncertainties, and other
factors which could cause actual results to differ materially
from future results expressed or implied by such forward-looking
statements. Important factors that could impact the Company's
operating results include, but are not limited to, (i) the
effects of changing economic conditions in the Company's market
areas and nationally, (ii) credit risks of commercial, real
estate, consumer and other lending activities, (iii) significant
changes in interest rates, (iv) changes in federal and state
banking laws and regulations which could impact the Company's
operations, (v) funding costs, and (vi) other external
developments which could materially affect the Company's
business and operations.
Item 1. Business
The Company
First Leesport Bancorp, Inc. (the "Company") is a
Pennsylvania business corporation headquartered at 133 North
Centre Avenue, Leesport, Pennsylvania 19533. The Company was
organized as a bank holding company on January 1, 1986. The
Company offers a wide array of financial services through its
various subsidiaries. The Company's executive offices are
located at 133 North Center Avenue, Leesport, Pennsylvania
19533.
The Banks
The Company currently has two banking subsidiaries (the
"Banks"): The First National Bank of Leesport ("FNBL"), a
national bank, and Merchants Bank of Pennsylvania ("MBP"), a
Pennsylvania state bank. FNBL was incorporated under the laws
of the United States of America as a national bank in 1909.
Since its inception, FNBL has operated as a banking institution,
doing business in Berks County, Pennsylvania. MBP was acquired
in 1999 as a result of the merger between the Company and
Merchants of Shenandoah Ban-Corp. MBP operates in Schuylkill
and Luzerne Counties, Pennsylvania.
At December 31, 1999, the Company had total assets of
$359 million, total stockholders' equity of $26 million, and
total deposits of $269 million. The Company currently has the
equivalent of 162 full-time employees.
The Company's and FNBL's main office is located at
133 North Centre Avenue, Leesport, Pennsylvania. FNBL also
provides services to its customers through six full service
offices located in Blandon, Bern, Wyomissing Hills, Breezy
Corner, Hamburg, and Reading, Pennsylvania and a limited service
facility in Wernersville, Pennsylvania. All offices, except the
Wernersville office, provide automated teller machines. Each
office except the Wernersville and Breezy Corner branches
provide drive-in facilities. MBP's main office is located at
101 North Main Street, Shenandoah, Pennsylvania. MBP also has
two branch offices located in Luzerne County, Pennsylvania; one
in Drums and the other in Hazle Township. (See "Properties.")
The Banks engage in a full service commercial and consumer
banking business, including such services as accepting deposits
in the form of time, demand and savings accounts. Such time
deposits include certificates of deposit, individual retirement
accounts, Roth IRA accounts, and club accounts. The savings
accounts include money market accounts, NOW accounts and the
traditional regular savings and demand accounts. In addition to
accepting deposits, the Banks make both secured and unsecured
commercial and consumer loans, finance commercial transactions,
provide equipment lease and accounts receivable financing, make
construction and mortgage loans, including home equity loans,
issue credit cards, and rent safe deposit facilities. The Banks
also provide small business loans and student loans. The Banks
purchase a majority of the data processing services that they
require from Bisys, Inc., a company based in Cherry Hill, New
Jersey.
Subsidiary Activities
The Company has three wholly owned subsidiaries in addition
to the Banks: Essick & Barr, Inc., a Berks County based general
insurance agency ("Essick & Barr") which was acquired in 1998 as
a subsidiary of FNBL; First Leesport Wealth Management, Inc.
("FLWM"), an investment advisory business which was acquired in
1999, and First Leesport Investment Group, Inc. ("FLIG"), a
securities brokerage business, which was formed in 1999 in order
to purchase KRJ & Associates' brokerage business. Both FLIG and
FLWM are headquartered at 560 Van Reed Road, Suite 308,
Wyomissing, Pennsylvania and collectively had 8 employees at
December 31, 1999. Essick & Barr offers a full line of personal
and commercial property and casualty insurance as well as group
insurance for businesses, employee benefit plans, and life
insurance. Headquartered in Leesport, Pennsylvania with a sales
office at 108 South Fifth Street, Reading, Pennsylvania,
Essick & Barr employed approximately 31 full-time employees at
December 31, 1999.
Supervision and Regulation
Securities Regulation
The Company is under the jurisdiction of the Securities and
Exchange Commission and of state securities commissions for
matters relating to the offering and sale of its securities. In
addition, the Company is subject to the Securities and Exchange
Commission's rules and regulations relating to periodic
reporting, proxy solicitation, and insider trading.
General
The Company is registered as a bank holding company and is
subject to supervision and regulation by the Board of Governors
of the Federal Reserve System under the Bank Holding Act of
1956, as amended. As a bank holding company, the Company's
activities and those of its bank subsidiaries are limited to the
business of banking and activities closely related or incidental
to banking. Bank holding companies are required to file
periodic reports with and are subject to examination by the
Federal Reserve Board. The Federal Reserve Board has issued
regulations under the Bank Holding Company Act that require a
bank holding company to serve as a source of financial and
managerial strength to its subsidiary banks. As a result, the
Federal Reserve Board, pursuant to such regulations, may require
the Company to stand ready to use its resources to provide
adequate capital funds to its bank subsidiaries during periods
of financial stress or adversity.
The Bank Holding Company Act prohibits the Company from
acquiring direct or indirect control of more than 5% of the
outstanding shares of any class of voting stock, or
substantially all of the assets of, any bank, or from merging or
consolidating with another bank holding company, without prior
approval of the Federal Reserve Board. Additionally, the Bank
Holding Company Act prohibits the Company from engaging in or
from acquiring ownership or control of more than 5% of the
outstanding shares of any class of voting stock of any company
engaged in a non-banking business, unless such business is
determined by the Federal Reserve Board to be so closely related
to banking as to be a proper incident thereto. The types of
businesses that are permissible for bank holding companies to
own have been expanded by recent federal legislation; see
discussion below.
As a Pennsylvania bank holding company for purposes of the
Pennsylvania Banking Code, the Company is also subject to
regulation and examination by the Pennsylvania Department of
Banking.
Regulation of FNBL and MBP
FNBL is a national bank and a member of the Federal Reserve
System, and its deposits are insured (up to applicable limits)
by the Federal Deposit Insurance Corporation (the "FDIC"). FNBL
is subject to regulation and examination by the Office of the
Comptroller of the Currency, and to a much lesser extent, the
Federal Reserve Board and the FDIC. The Community Reinvestment
Act requires FNBL to help meet the credit needs of the entire
community where FNBL operates, including low and moderate income
neighborhoods. FNBL's rating under the Community Reinvestment
Act, assigned by the Comptroller of the Currency pursuant to an
examination of FNBL, is important in determining whether FNBL
may receive approval for, or utilize certain streamlined
procedures in, applications to engage in new activities.
MBP is a state chartered bank and its deposits are insured
(up to applicable limits) by the Federal Deposit Insurance
Corporation (the "FDIC"). MBP is subject to regulation and
examination by the Federal Reserve Board and the Pennsylvania
Department of Banking, and to a lesser extent by the FDIC. The
Community Reinvestment Act requires MBP to help meet the credit
needs of the entire community where MBP operates, including low
and moderate income neighborhoods. MBP's rating under the
Community Reinvestment Act, assigned by the Federal Reserve
Board pursuant to an examination of MBP, is important in
determining whether MBP may receive approval for, or utilize
certain streamlined procedures in, applications to engage in new
activities.
FNBL and MBP are also subject to requirements and
restrictions under federal and state law, including requirements
to maintain reserves against deposits, restrictions on the types
and amounts of loans that may be granted and the interest that
may be charged thereon, and limitations on the types of
investments that may be made and the types of services that may
be offered. Various consumer laws and regulations also affect
the operations of FNBL and MBP. In addition to the impact of
regulation, commercial banks are affected significantly by the
actions of the Federal Reserve Board as it attempts to control
the money supply and credit availability in order to influence
the economy.
Capital Adequacy Guidelines
Bank holding companies are required to comply with the
Federal Reserve Board's risk-based capital guidelines. The
required minimum ratio of total capital to risk-weighted assets
(including certain off-balance sheet activities, such as standby
letters of credit) is 8%. At least half of the total capital is
required to be "Tier 1 capital," consisting principally of
common shareholders' equity, less certain intangible assets.
The remainder ("Tier 2 capital") may consist of certain
preferred stock, a limited amount of subordinated debt, certain
hybrid capital instruments and other debt securities, and a
limited amount of the general loan loss allowance. The risk-
based capital guidelines are required to take adequate account
of interest rate risk, concentration of credit risk, and risks
of nontraditional activities.
In addition to the risk-based capital guidelines, the
Federal Reserve Board requires a bank holding company to
maintain a leverage ratio of a minimum level of Tier 1 capital
(as determined under the risk-based capital guidelines) equal to
3% of average total consolidated assets for those bank holding
companies which have the highest regulatory examination ratings
and are not contemplating or experiencing significant growth or
expansion. All other bank holding companies are required to
maintain a ratio of at least 1% to 2% above the stated minimum.
As Federal Reserve member banks, the Banks are subject to
almost identical capital requirements also adopted by the
Federal Reserve Board. In addition to Federal Reserve capital
requirements, the Pennsylvania Department of Banking also
requires state chartered banks such as MBP to maintain a 6%
leverage capital level and 10% risk based capital, defined
substantially the same as the federal regulations. FNBL is
subject to almost identical capital requirements adopted by the
Comptroller's Office.
Prompt Corrective Action Rules
The federal banking agencies have regulations defining the
levels at which an insured institution would be considered "well
capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized" and "critically
undercapitalized." The applicable federal bank regulator for a
depository institution could, under certain circumstances,
reclassify a "well-capitalized" institution as "adequately
capitalized" or require an "adequately capitalized" or
"undercapitalized" institution to comply with supervisory
actions as if it were in the next lower category. Such a
reclassification could be made if the regulatory agency
determines that the institution is in an unsafe or unsound
condition (which could include unsatisfactory examination
ratings). The Company and the Banks each satisfy the criteria
to be classified as "well capitalized" within the meaning of
applicable regulations.
Regulatory Restrictions on Dividends
FNBL may not, under the National Bank Act, declare a
dividend without approval of the Comptroller of the Currency,
unless the dividend to be declared by the Bank's Board of
Directors does not exceed the total of: (i) the Bank's net
profits for the current year to date, plus (ii) its retained net
profits for the preceding two years, less any required transfers
to surplus. In addition, FNBL can only pay dividends to the
extent that its retained net profits (including the portion
transferred to surplus) exceed its bad debts. Dividend payments
by MBP to the Company are subject to the Pennsylvania Banking
Code, the Federal Deposit Insurance Act, and the regulations of
the Federal Reserve. Under the Banking Code, no dividends may
be paid except from "accumulated net earnings" (generally,
retained earnings). The Federal Reserve Board, the Comptroller
and the FDIC have formal and informal policies which provide
that insured banks and bank holding companies should generally
pay dividends only out of current operating earnings, with some
exceptions. The Prompt Corrective Action Rules, described
above, further limit the ability of banks to pay dividends,
because banks which are not classified as well capitalized or
adequately capitalized may not pay dividends.
Under these policies and subject to the restrictions
applicable to the Banks, the Banks could declare, during 2000,
without prior regulatory approval, aggregate dividends of
approximately $3.4 million.
FDIC Insurance Assessments
The FDIC has implemented a risk-related premium schedule
for all insured depository institutions that results in the
assessment of premiums based on capital and supervisory
measures. Under the risk-related premium schedule, the FDIC
assigns, on a semiannual basis, each depository institution to
one of three capital groups (well-capitalized, adequately
capitalized or undercapitalized) and further assigns such
institution to one of three subgroups within a capital group.
The institution's subgroup assignment is based upon the FDIC's
judgment of the institution's strength in light of supervisory
evaluations, including examination reports, statistical analyses
and other information relevant to measuring the risk posed by
the institution. Only institutions with a total capital to
risk-adjusted assets ratio of 10% or greater, a Tier 1 capital
to risk-based assets ratio of 6% or greater, and a Tier 1
leverage ratio of 5% or greater, are assigned to the well-
capitalized group. As of December 31, 1999, each Bank was well
capitalized for purposes of calculating insurance assessments.
The Bank Insurance Fund is presently fully funded at more
than the minimum amount required by law. Accordingly, the 2000
Bank Insurance Fund assessment rates range from zero for those
institutions with the least risk, to $0.27 for every $100 of
insured deposits for institutions deemed to have the highest
risk. The Banks are in the category of institutions that
presently pay nothing for deposit insurance. The FDIC adjusts
the rates every six months.
While the Banks presently pay no premiums for deposit
insurance, they are subject to assessments to pay the interest
on Financing Corporation bonds. The Financing Corporation was
created by Congress to issue bonds to finance the resolution of
failed thrift institutions. Prior to 1997, only thrift
institutions were subject to assessments to raise funds to pay
the Financing Corporation bonds. On September 30, 1996, as part
of the omnibus budget act, Congress enacted the Deposit
Insurance Funds Act of 1996, which recapitalized the Savings
Association Insurance Fund and provided that commercial banks
would be subject to 1/5 of the assessment to which thrifts are
subject for Financing Corporation bond payments through 1999.
Beginning in 2000, commercial banks and thrifts are subject to
the same assessment for Financing Corporation bonds. The FDIC
sets the Financing Corporation assessment rate every quarter.
The Financing Corporation assessment for each Bank (and all
other banks) for the first quarter of 2000 is an annual rate of
$.0212 for each $1,000 of deposits.
New Legislation
Landmark legislation in the financial services area was
signed into law by the President on November 12, 1999. The
Gramm-Leach-Bliley Act dramatically changes certain banking laws
that have been in effect since the early part of the 20th
century. The most radical changes are that the separation
between banking and the securities businesses mandated by the
Glass-Steagall Act has now been removed, and the provisions of
any state law that prohibits affiliation between banking and
insurance entities have been preempted. Accordingly, the new
legislation now permits firms engaged in underwriting and
dealing in securities, and insurance companies, to own banking
entities, and permits bank holding companies (and in some cases,
banks) to own securities firms and insurance companies. The
provisions of federal law that preclude banking entities from
engaging in non-financially related activities, such as
manufacturing, have not been changed. For example, a
manufacturing company cannot own a bank and become a bank
holding company, and a bank holding company cannot own a
subsidiary that is not engaged in financial activities, as
defined by the regulators.
The new legislation creates a new category of bank holding
company called a "financial holding company." In order to avail
itself of the expanded financial activities permitted under the
new law, a bank holding company must notify the Federal Reserve
that it elects to be a financial holding company. A bank
holding can make this election if it, and all its bank
subsidiaries, are well capitalized, well managed, and have at
least a satisfactory Community Reinvestment Act rating, each in
accordance with the definitions prescribed by the Federal
Reserve and the regulators of the subsidiary banks. Once a bank
holding company makes such an election, and provided that the
Federal Reserve does not object to such election by such bank
holding company, the financial holding company may engage in
financial activities (i.e, securities underwriting, insurance
underwriting, and certain other activities that are financial in
nature as to be determined by the Federal Reserve) by simply
giving a notice to the Federal reserve within thirty days after
beginning such business or acquiring a company engaged in such
business. This makes the regulatory approval process to engage
in financial activities much more streamlined than it was under
prior law.
The Company believes it qualifies to become a financial
holding company, but has not yet determined whether or not it
will file to become treated as one. The Federal Reserve has
only recently promulgated rules implementing these provisions of
the new legislation, and the Corporation may wait to see what
the experience of other companies is under the new rules before
it makes an election.
The new law also permits certain financial activities to be
undertaken by a subsidiary of a national bank. Because MBP is
not a national bank, these provisions do not apply to MBP.
Generally, for financial activities that are conducted as a
principal, such as an underwriter or dealer holding an
inventory, a national bank must be one of the 100 largest
national banks in the United States and have debt that is rated
investment grade. National banks that are not one of the 100
largest national banks in the United States are not authorized
under the new law to conduct financial activities as a
principal. However, such smaller national banks may own a
securities broker or an insurance agency and certain other
financial agency entities under the new law. Under prior law,
national banks could only own an insurance agency if it was
located in a town of fewer than 5,000 residents, or under
certain other conditions. Under the new law, there is no longer
any restriction on where the insurance agency subsidiary of a
national bank is located or does business. As a Pennsylvania
bank, MBP is permitted under Pennsylvania law to own and operate
an insurance agency without restriction, and could also own and
operate a securities brokerage.
In addition to the foregoing provisions of the new law that
make major changes to the federal banking laws, the new
legislation also makes a number of additions and revisions to
numerous federal laws that affect the business of banking. For
example, there is now a federal law on privacy with respect to
customer information held by banks. The federal banking
regulators are authorized to adopt rules regarding privacy for
customer information. Banks must establish a disclosure policy
for non-public customer information, disclose the policy to
their customers, and give their customers the opportunity to
object to non-public information being disclosed to a third
party. Also, the Community Reinvestment Act has been amended
by the new law to provide that small banks (those under $250
million in assets) that previously received an "outstanding" on
their last CRA exam will not have to undergo another CRA exam
for five years, or for four years if their last exam was
"satisfactory." In addition, any CRA agreement entered into
between a bank and a community group must be disclosed, with
both the bank and the group receiving any grants from the bank
detailing the amount of funding provided and what it was used
for. The new law also requires a bank's policy on fees for
transactions at ATM machines by non-customers to be
conspicuously posted on the ATM. A number of other provisions
affecting other general regulatory requirements for banking
institutions were also adopted.
It is too early to tell what effect the Gramm-Leach-Bliley
Act may have on the Company and the Banks. The intent and scope
of the act is positive for the financial industry, and is an
attempt to modernize federal banking laws and make U.S.
institutions competitive with those from other countries. While
the legislation makes significant changes in U.S. banking law,
such changes may not directly affect the Company's business
unless it decides to avail itself of new opportunities available
under the new law. The Company does not expect any of the
provisions of the new Act to have a material adverse effect on
existing operations, or to significantly increase costs.
Separately from the Gramm-Leach-Bliley Act, Congress is
often considering some financial industry legislation. The
Company cannot predict how any new legislation, or new rules
adopted by the federal banking agencies, may affect its business
in the future.
Competition
The financial services industry in the Company's service
areas is extremely competitive. FNBL's market area is the
primary trade area of Berks County, Pennsylvania and MBP's
market area is Schuylkill and Luzerne Counties, Pennsylvania.
The Company competes not only with other commercial banks, but
also with other financial institutions such as savings banks,
savings and loan associations, money market funds, mortgage
companies, leasing companies, finance companies, insurance
companies, stock brokerage firms and a variety of financial
service companies. Competition is based on both the price and
quality of services offered by competing financial institutions.
The Company expects the operating environment for financial
institutions to become increasingly competitive. Similarly, the
manner in which banking institutions conduct their operations
may change materially as the activities in which bank holding
companies and their banking and nonbanking subsidiaries are
permitted to engage expands, and funding and investment
alternatives continue to broaden, although the long-range
effects of these changes cannot be predicted with reasonable
certainty at this time. These changes most likely will narrow
the differences and intensify competition between and among
commercial banks, thrift institutions and other financial
institutions such as credit unions, mutual funds, and insurance
companies.
Item 2. Properties
The only real estate owned by the Company is a single-
family home located adjacent to FNBL's main office. The
Company's principal office is located in the main office of FNBL
at 133 North Centre Avenue, Leesport, Pennsylvania. The Company
does not reimburse FNBL for use of the property.
Listed below are the locations of properties owned by the
Banks. Such properties are not subject to any mortgage, lien or
encumbrance.
Property
Location Address
1. Leesport 133-141 North Centre Avenue,
Leesport, Pennsylvania
2. Blandon Route 222, Maidencreek Township,
Blandon, Pennsylvania
3. Wyomissing Hills 2228 State Hill Road,
Wyomissing Hills, Pennsylvania
4. Reading 1210 Rockland Street
Reading, Pennsylvania
5. Hamburg 801 South Fourth Street
Hamburg, Pennsylvania
6. Bern Township 409 West Leesport Road
Leesport, Pennsylvania
7. Shenandoah 101 North Main Street
Shenandoah, Pennsylvania
8. Drums Rittenhouse Place
Drums, Pennsylvania
Each of these bank offices provides drive-in facilities and
automated teller machines. FNBL leases the premises of its
Wernersville branch, which does not have a drive-up facility or
an automated teller machine. FNBL also leases the property at
which its Breezy Corner branch is located in Ruscombmanor
Township, Berks County, Pennsylvania and leases administrative
space in Wyomissing, Pennsylvania. MBP leases a branch facility
in Hazle Township, Luzerne County, Pennsylvania.
Essick & Barr owns its office at 108 South Fifth Street,
Reading, Pennsylvania.
FLIG and FLWM operate from leased office space located at
560 Van Reed Road, Suite 308, Wyomissing, Pennsylvania.
Item 3. Legal Proceedings
A certain amount of litigation arises in the ordinary
course of the business of the Company, and the Company's
subsidiaries. In the opinion of the management of the Company,
there are no proceedings pending to which the Company, or the
Company's subsidiaries are a party or to which their property is
subject, that, if determined adversely to the Company or its
subsidiaries, would be material in relation to the Company's
stockholders' equity or financial condition, nor are there any
proceedings pending other than ordinary routine litigation
incident to the business of the Company and its subsidiaries.
In addition, no material proceedings are pending or are known to
be threatened or contemplated against the Company or its
subsidiaries by governmental authorities.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders
during the fourth quarter of the Company's fiscal year ended
December 31, 1999.
Item 4A. Executive Officers of the Registrant
Certain information, as of January 31, 2000 including
principal occupation during the past five years, relating to
each executive officer of the Company is set forth below:
Percent of
Shares of Total
Position Common Shares Principal Occupation
Name, Address, and Position Held Stock Out- for
Held with the Company Age Since Owned standing Past 5 Years
RAYMOND H. MELCHER, JR. 48 1998 13,182(1) * Chairman, President
Wyomissing, Pennsylvania and Chief Executive
Chairman, President and Officer of the Company
Chief Executive Officer since January 1, 2000;
prior thereto,
President and Chief
Executive Officer of
the Company
since June 1998; prior
thereto President and
Chief Executive Officer
of Security National
Bank of Pottstown from
November 1994
ANTHONY R. CALI 56 1987 69 * President and Chief
President and Chief Executive Officer of
Executive Officer, Merchants Bank of
Merchants Bank of Pennsylvania
Pennsylvania
FREDERICK P. HENRICH 40 1986 94(2) * Treasurer of the
Wernersville, Pennsylvania Company since January
Treasurer 1986
CHARLES J. HOPKINS 49 1998 54,385 2.9% President and CEO of
Wyomissing, Pennsylvania Essick & Barr, Inc.
President and Chief since 1992
Executive Officer of
Essick & Barr, Inc.
MICHAEL D. HUGHES 48 1998 23,099(3) 1.2% Senior Vice President
Reading, Pennsylvania of Essick & Barr, Inc.
Senior Vice President of since 1992
Essick & Barr, Inc.
KEITH W. JOHNSON, CFP 48 1991 13,840(4) * President and Chief
Fleetwood, Pennsylvania Executive Officer of
President & Chief First Leesport
Executive Officer Investment Group, Inc.
First Leesport Investment and First Leesport
Group, Inc. and First Wealth Management Inc.
Leesport Wealth
Management, Inc.
JAMES E. KIRKPATRICK 38 1998 538(2) * Senior Vice President
Sinking Spring, Pennsylvania of Commercial Banking
Sr. Vice President of since December 1998;
Commercial Banking prior thereto Vice
President of Commercial
Lending at Pennsylvania
National Bank from 1993
M. JANE LAUSER 55 1989 237(5) * Vice President of the
Leesport, Pennsylvania Bank since May 1989
Sr. Vice President of
Operations
and Information
Systems
KURT A. PHILLIPS 43 1999 200(2) * Senior Vice President
Lebanon, Pennsylvania and Chief Financial
Senior Vice President and Officer of the Company
Chief Financial Officer since December 27,
1999; prior thereto,
Senior Vice President,
Fulton Financial
Corporation from March
1998; prior thereto,
Executive Vice
President and Chief
Financial Officer of
Lebanon Valley National
Bank
JENETTE L. ECK 37 1998 5(2) * Secretary of the
Centerport, Pennsylvania Company since 1998,
Secretary of the Company Executive Assistant of
the Company since 1996
All executive officers as 105,649 5.6%
a group (10 persons)
__________________
* Less than 1% of the outstanding shares of common stock.
(1) Includes 1,491 shares owned jointly with his spouse, 1,711
shares owned by his spouse and 100 shares owned jointly
with his son.
(2) All shares owned jointly with his spouse.
(3) Includes 527 shares owned jointly with his spouse.
(4) Includes 4,147 shares owned by his spouse, 105 shares owned
jointly with spouse and 534 shares owned by his children.
(5) Includes 181 shares owned jointly with her spouse, and
56 shares owned jointly with her son.
PART II
Item 5. Market For Common Equity and Related Stockholder
Matters.
As of December 31, 1999, there were 872 record holders of
the Company's Common Stock. The market price of the Company's
Common Stock for each quarter in 1999 and 1998 and the dividends
declared on the Company's Common Stock for each quarter in 1999
and 1998 are set forth below.
Market Value of Common Stock
The Company's Common Stock is traded in the NASDAQ Small
Capitalization Market under the symbol "FLPB."
The following table sets forth the high and low bid and
asked information of the Company's common stock to the extent
available, as reported by NASDAQ.
1999 1998
Bid Asked Bid Asked
Qtr High Low High Low Qtr High Low High Low
1st $21.63 $20.00 $22.25 $20.75 1st $24.88 $23.00 $26.00 $24.00
2nd 20.38 20.13 21.00 20.25 2nd 28.12 25.00 28.50 25.75
3rd 20.13 18.50 20.63 19.00 3rd 27.75 24.00 29.25 25.25
4th 16.75 16.00 19.00 18.00 4th 24.75 23.00 25.75 24.00
The bid quotations reflect interdealer quotations, do not
include retail mark ups, mark downs or commissions, and may not
necessarily represent actual transactions. The bid information
as stated is, to the knowledge of management of the Company, the
best approximate value at the time indicated.
Dividend Information
Dividends on the Common Stock of First Leesport Bancorp,
Inc. are payable on the 15th of January, April, July, and
October.
Dividends Declared
1999 1998
1st Qtr. $.124 $.124
2nd Qtr. .138 .124
3rd Qtr. .138 .124
4th Qtr. .143 .124
The Company derives substantially all of its income from
dividends paid to it by the Banks and its subsidiaries.
Item 6. Selected Financial Data.
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The selected consolidated financial and other data and
management's discussion and analysis set forth below is derived
in part from, and should be read in conjunction with, the
Consolidated Financial Statements and Notes thereto, contained
elsewhere herein.
At December 31,
1999 1998 1997 1996 1995
(in thousands)
Selected Financial Data:
Total assets $358,618 $289,945 $235,567 $220,152 $212,143
Investment securities available for
sale 72,165 72,202 60,939 63,788 61,891
Investment securities held to
maturity 0 423 0 0 0
Loans, net of unearned income 253,194 195,287 157,107 139,144 134,015
Allowance for loan losses 2,954 2,129 1,837 1,419 1,521
Deposits 269,344 228,984 196,308 187,246 184,951
Short-term borrowings 28,175 12,667 8,000 5,700 0
Long-term debt 31,000 16,000 0 1,600 2,710
Stockholders' equity 25,602 27,826 25,139 23,456 22,423
For Year Ended December 31,
1999 1998 1997 1996 1995
(in thousands, except per share data)
Selected Operating Data:
Interest Income $22,910 $18,548 $17,042 $16,391 $15,561
Interest Expense 12,363 9,491 7,991 7,403 7,252
Net interest income before provision
for loan losses 10,547 9,057 9,051 8,988 8,309
Provision for loan losses 1,270 620 543 298 315
Net interest income after provision
for loan losses 9,277 8,437 8,508 8,690 7,994
Non-interest income 4,665 1,149 904 739 637
Non-interest expense 12,087 7,758 6,843 6,626 6,265
Income before income taxes 1,855 1,828 2,569 2,803 2,365
Income taxes 454 317 562 637 543
Net income 1,401 1,511 2,007 2,166 1,822
Earnings per share - basic $ 0.76 $ 0.86 $ 1.14 $ 1.45 $ 1.22
Earnings per share - diluted 0.76 0.86 1.14 1.45 1.22
Cash Dividends per share 0.54 0.49 0.49 0.49 0.43
Return on average assets .43 .55 .88 1.00 .88
Return on average shareholders' equity 5.11 5.85 8.37 9.51 8.50
Dividend payout ratio 69.45 55.53 39.26 34.12 37.12
Average equity to average assets 8.41 9.40 10.51 10.52 10.35
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The Company is a multi-bank holding company. FNBL and MBP
are wholly-owned subsidiaries of the Company. Essick & Barr,
FLIG and FLWM are wholly-owned non-bank subsidiaries.
The financial statements have been restated to reflect the
impact of the acquisition of Merchants of Shenandoah Ban-Corp on
July 1, 1999, which was accounted for under the pooling of
interests method of accounting. Merchants of Shenandoah Ban-
Corp was a single-bank holding company acting as the parent
company of Merchants Bank of Pennsylvania. Merchants Bank of
Pennsylvania is a $60,000,000 bank with three full-service
offices, one in Shenandoah, Pennsylvania, one in Drums,
Pennsylvania, and one just outside of Hazleton, Pennsylvania.
Merchants Bank is a state-chartered institution and will retain
its separate banking charter for the immediate future.
The costs of acquiring Merchants of Shenandoah Ban-Corp,
including legal and professional expenses, system conversion
costs, and investment banking activities, amounted to $544,000
before income tax considerations. In addition to the
consolidation, the reorganization of the banks resulted in three
retirement packages and their associated costs. These
transactions added $270,000 to the acquisition costs noted
above. The after tax cost of these merger, conversion and
reorganization expenses amounted to $617,000. These costs were
expensed during the third quarter of 1999.
The Company expanded into the securities sales business
with its October 1, 1999 acquisition of two Wyomissing,
Pennsylvania-based brokerage and financial management companies
- -- Johnson Financial Group, Inc., and KRJ & Associates. As part
of the acquisition, these companies were reorganized into First
Leesport Investment Group, Inc., and First Leesport Wealth
Management, Inc., respectively. This acquisition, combined with
the purchase of Essick & Barr, Inc., of Reading, Pennsylvania,
in December of 1998, provides the company with a full array of
financial products and services for its customers and
affiliates.
During the year, The First National Bank of Leesport opened
a full-service office in Bern Township, Berks County,
Pennsylvania, and Merchants Bank of Pennsylvania opened a full-
service office in the Maplewood Industrial Park near Hazleton,
Pennsylvania.
Financial Condition
The Company's total assets increased to $358,618,000 at
December 31, 1999, representing a growth rate of 24.0% from
$289,945,000 at December 31, 1998.
Cash and Investment Securities
Cash and balances due from banks increased dramatically as
both of the Company's Banks maintained higher than normal levels
of cash at the end of 1999. Concerns about the effects of the
Year 2000 on computer systems dictated that additional cash
reserves be maintained by the Banks. There were no significant
problems realized by the Company as a result of the Year 2000.
Cash and due from banks amounted to $15,376,000 at the end of
1999 compared with only $6,019,000 at the end of 1998, an
increase of 155.4%. Interest bearing balances with other banks
decreased to $489,000 at December 31, 1999 from $746,000 at
December 31, 1998.
Securities decreased slightly to $72,165,000 at
December 31, 1999 from $72,625,000 at December 31, 1998.
Securities are used to supplement loan growth as necessary and
to help manage the Company's level of liquid assets. Currently,
all of the Company's securities are carried as available for
sale.
Loans
Loans increased to $253,194,000 by the end of 1999 from
$195,287,000 at the end of 1998, an increase of $57,907,000 or
29.7%. Management has targeted the loan portfolio as a key to
its continuing growth. A significant increase in the volume of
commercial loans during 1999 underscores that focus as the
commercial portfolio increased to $107,140,000 at December 31,
1999 from $68,141,000 at December 31, 1998, an increase of
$38,999,000 or 57.2%. Loans secured by residential real estate,
which include home equity lending products, increased to
$125,102,000 from $105,908,000 between the two dates, an
increase of $19,194,000 or 18.1 %, as continuing efforts to
increase the levels of consumer lending have been successful.
Non-performing loans, consisting of loans on non-accrual
status and loans past due 90 days or more and still accruing
interest, increased to $2,664,000 at December 31, 1999, up from
$2,365,000 at December 31, 1998. Generally, loans that are more
than 90 days past due are placed on non-accrual status. As a
percentage of total loans, non-performing loans represented
1.05% at December 31, 1999, down from 1.21% at December 31,
1998. The allowance for loan losses at year-end improved to
110.9% of non-performing loans at December 31, 1999 compared to
90.0% at December 31, 1998.
Bank Premises and Equipment
Bank premises and equipment increased during 1999 to
$7,599,000 from $6,398,000 at the end of 1998. This increased
growth is due to two new retail-banking facilities, the purchase
of the Essick & Barr Insurance building, and additional computer
networking and communications equipment. The banking offices
located in Bern Township, Berks County, Pennsylvania, and in the
Hanboldt Industrial Park in Hazle Township, Luzerne County,
Pennsylvania, are branch offices of The First National Bank of
Leesport and Merchants Bank of Pennsylvania, respectively. The
Hazle Township building is a leased facility. These additions
bring the total number of full-service retail banking facilities
for The First National Bank of Leesport to eight in addition to
a limited-service facility at Phoebe Berks Village,
Wernersville, Berks County, Pennsylvania. The number of full-
service retail banking facilities for Merchants Bank of
Pennsylvania increased to three with the above addition. The
networked computer system links all of the Company's facilities
together electronically and allows for the sharing of customer
files, company-wide communications and improved workflow.
Other Assets
Other assets, which include accrued interest receivable,
increased to $12,749,000 at December 31, 1999 from $10,349,000
at December 31, 1998. Included in this total are the intangible
assets recorded as a result of the Company's investment in
Essick & Barr, Inc., First Leesport Investment Group, Inc., and
First Leesport Wealth Management, Inc. At December 31, 1999,
these intangibles totaled $4,873,000. Another significant
component of Other Assets includes the cash surrender value of
certain life insurance policies used to fund deferred
compensation plans for selected board members and senior
officers. The value of these policies at the end of 1999 was
$2,284,000.
Deposits and Borrowings
Total deposits increased by $40,360,000 or 17.6%, growing
from $228,984,000 at December 31, 1998 to $269,344,000 at
December 31, 1999. Various promotional efforts associated with
the grand opening of the Bern Township Office helped to generate
this growth, primarily from increases in certificates of deposit
and money market deposits.
Non-interest bearing deposits increased to $30,941,000 at
December 31, 1999 from $26,053,000 at December 31, 1998, an
increase of $4,888,000 or 18.8%. Management continues to
promote growth in these types of deposits, which include the
Free Checking product, as a method to help reduce the overall
cost of the Company's funds. Interest bearing deposits
increased by $35,472,000 or 17.5%, growing from $202,931,000 at
December 31, 1998 to $238,403,000 at December 31, 1999. Growth
in certificates of deposit and money market deposits provided
this increase.
Federal funds purchased and funds borrowed from the Federal
Home Loan Bank are used to supplement deposit growth. During
1999, the level of borrowed funds outstanding, including federal
funds purchased and securities sold under agreements to
repurchase, increased significantly. Total borrowed funds
amounted to $59,175,000 at December 31, 1999 compared with
$28,667,000 at December 31, 1998, an increase of $30,508,000 or
106.4%.
Capital
The Company's Common Stock, Surplus and Retained Earnings
increased by $676,000 during 1999. Total Stockholders' Equity
includes accumulated other comprehensive income, which includes
an adjustment for the fair value of the Company's securities.
This amount attempts to identify the impact to equity in the
unlikely event that the Company's entire securities portfolio
would be liquidated under current economic conditions. The
amounts and types of securities held by the Company at the end
of 1999 combined with current interest rates would have resulted
in a decrease in equity, net of taxes, of $2,134,000. This
compares with an increase to equity of $766,000 at the end of
1998.
The purchase of First Leesport Investment Group, Inc., and
First Leesport Wealth Management, Inc., during 1999 resulted in
the issuance of additional stock by the Company. Retained
Earnings, after the payment of dividends, combined with that
issuance provided the $676,000 increase in Stockholders' Equity,
exclusive of the comprehensive loss.
Results of Operations
Net income for 1999 was $1,401,000 or $.76 per share
compared to $1,511,000 or $.86 per share for 1998 and $2,007,000
or $1.14 per share for 1997. Net income for 1999 and 1998 was
affected by merger expenses and goodwill incurred through the
acquisition of Merchants of Shenandoah Ban-Corp and the
insurance and investment subsidiaries of the Company. The year
1999 in particular was punctuated by a significant increase in
other income as a result of the fee generating effects of the
non-banking subsidiaries. Improvement of 16.5% in net interest
income was recognized in 1999 primarily as a result of 26.9%
growth in average interest earning assets. The table below
shows the after-tax net income after adjustments for certain
items that are considered non-recurring and the effect of
goodwill amortization.
1999 1998 1997
Net income (as reported) $1,401 $1,511 $2,007
One-time merger expense,
net of taxes 617 0 0
Goodwill amortization 228 17 0
Adjusted net income 2,246 1,528 2,007
Percent increase (decrease)
from prior year 47.0% (23.9%)
Adjusted net income per share $ 1.22 $ .87 $ 1.14
Percent increase (decrease)
from prior year 40.2% (23.7%)
Merger expenses of $544,000 represent primarily
professional services rendered in connection with the mergers
executed in 1999. Certain employment situations were resolved
during 1999 that resulted in additional expenses of $270,000
being incurred.
Return on average assets was 0.43% for 1999, 0.55% for 1998
and 0.88% for 1997. After adjustment for non-recurring expenses
and goodwill amortization discussed above, return on average
assets would have been 0.70% for 1999, 0.55% for 1998 and 0.88%
for 1997.
Return on average stockholders' equity was 5.11% for 1999,
5.85% for 1998 and 8.37% for 1997. After adjustment for non-
recurring expenses and goodwill amortization discussed above,
return on average stockholders' equity would have been 8.31% for
1999, 5.92% for 1998 and 8.37% for 1997.
Net Interest Income
Net interest income is a primary source of revenue for the
Company. This income results from the difference between the
interest and fees earned on loans and investments and the
interest paid on deposits to customers and other non-deposit
sources of funds, such as repurchase agreements and borrowings
from the Federal Home Loan Bank. Net interest margin is the
difference between the gross (tax-effected) yield on earning
assets and the cost of interest bearing funds as a percentage of
earning assets. All discussion of net interest income is on a
fully taxable equivalent basis.
Net interest income for 1999 was $11,102,000, a 17%
increase over 1998. Net interest income for 1997 was
$9,532,000. Average earning assets increased by $60,609,000 or
25% from 1998 to 1999. The net interest margin was 3.71% in
1999 and 3.99% in 1998. The primary growth in earning assets
for 1998 and 1999 was in average loans outstanding. Average
commercial loans outstanding increased by 52% in 1999 and
average deposits increased by 20%. The return on interest
earning assets decreased by 13 basis points from 1998 to 1999
while the cost of supporting liabilities increased by 16 basis
points.
Provision and Allowance for Loan Losses
The provision for loan losses for 1999 was $1,270,000
compared to $620,000 in 1998 and $543,000 in 1997. The Company
performs a review of the credit quality of its loan portfolio on
a quarterly basis to determine the adequacy of the allowance for
possible loan losses. The Company experienced significant
growth in the loan portfolio of 29.7% in 1999 and 22.6% in 1998.
The allowance for loan losses at December 31, 1999 was
$2,954,000 or 1.2% of outstanding loans compared to $2,129,000
or 1.1% of outstanding loans at December 31, 1998. The
allowance for loan losses is an amount that management believes
to be adequate to absorb potential losses in the loan portfolio.
Additions to the allowance are charged through the provision for
loan losses. Management considers various factors in assessing
the adequacy of the loan loss allowance, including charge-off
history, risk assessments of certain individual credits,
adequacy of collateral, risk characteristics in the loan
portfolio, and local and national economic conditions.
Other Income
The Company's primary source of other income for 1999 was
commissions and other revenue generated through sales of
insurance products through its insurance subsidiary, Essick &
Barr, Inc. Revenues from insurance operations totaled
$3,296,000 in 1999 compared to $152,000 in 1998 and $0 in 1997.
Revenues generated from the Company's investment subsidiaries,
First Leesport Investment Group, Inc., and First Leesport Wealth
Management, Inc., totaled $187,000 in 1999 compared to $0 in
1998 and 1997.
The Company also relies on several other sources for its
other income, including sales of newly originated mortgage loans
and service charges on deposit accounts. The income recognized
from mortgage banking activities was $198,000 in 1999, $342,000
in 1998 and $329,000 in 1997. Income from deposit service
charges was $503,000 in 1999, $397,000 in 1998 and $415,000 in
1997. Other income includes other fees and commissions on bank
products and services and amounted to $429,000 for 1999,
$200,000 for 1998 and $160,000 for 1997.
Other Expenses
Total other expenses for 1999 were $12,087,000, a
$4,329,000 increase over 1998. Total other expenses for 1997
were $6,843,000.
Total salaries and employee benefits expense for 1999 was
$5,856,000, a 55.4% increase over the $3,768,000 reported for
1998. Total salary and benefits expense for 1997 was
$3,411,000. Salary and benefit costs associated with the
insurance and investment subsidiaries totaled approximately
$1,896,000 in 1999 and $99,000 in 1998 compared to $0 for 1997.
The remainder of the increase in salary and benefits expenses
resulted from annual merit salary increases and additional
personnel costs associated with constructing the professional
infrastructure to manage the Company as it retooled for the
future. Total occupancy expense increased by 27.2% in 1999 to
$754,000 and had increased by 11.9% in 1998. Total equipment
expense increased by 24.1% in 1999 to $799,000 from $644,000 in
1998. Total equipment expense had increased by 45.4% in 1998.
Occupancy and equipment expense increased in both 1999 and 1998
as the result of the addition of two new banking facilities in
1999 and two new facilities in 1998.
The expense related to other real estate owned totaled
$210,000 in 1999, $105,000 in 1998 and $43,000 in 1997. The
expense for 1999 included $55,000 of costs associated with
carrying and writing down a single rental property acquired
during the year.
Marketing and advertising expenses were $422,000 in 1999,
$338,000 in 1998 and $329,000 in 1997. The increase in
marketing expense reflects the Company's efforts to increase
awareness of its various product offerings and the costs
associated with its new branch openings.
Expense incurred by the Company to receive professional
services totaled $420,000 in 1999 compared to $231,000 in 1998
and $282,000 in 1997. Total merger expenses were $544,000 in
1999, and the cost of reorganizing the Banks' management team
resulted in additional personnel costs amounting to $270,000 in
1999.
Interest Rate Sensitivity
Through the years, the banking industry has adapted to an
environment in which interest rates have fluctuated dramatically
and in which depositors have been provided with liquid, rate
sensitive investment options. The industry utilizes a process
known as asset/liability management as a means of managing this
adaptation.
Asset/liability management is intended to provide for
adequate liquidity and interest rate sensitivity by matching
interest rate sensitive assets and liabilities and coordinating
maturities and repricing characteristics on assets and
liabilities.
Interest rate risk management involves managing the extent
to which interest-sensitive assets and interest-sensitive
liabilities are matched. Interest rate sensitivity is the
relationship between market interest rates and earnings
volatility due to the repricing characteristics of assets and
liabilities. The Company's net interest income is affected by
changes in the level of market interest rates. In order to
maintain consistent earnings performance, the Company seeks to
manage, to the extent possible, the repricing characteristics of
its assets and liabilities.
One major objective of the Company when managing the rate
sensitivity of its assets and liabilities is to stabilize net
interest income. The management of and authority to assume
interest rate risk is the responsibility of the Company's
Asset/Liability Committee ("ALCO"), which is comprised of senior
management and Board members. ALCO meets quarterly to monitor
the ratio of interest sensitive assets to interest sensitive
liabilities. The process to review interest rate risk
management is a regular part of management of the Company. In
addition, there is an annual process to review the interest rate
risk policy with the Board of Directors which includes limits on
the impact to earnings from shifts in interest rates.
To manage the interest sensitivity position, an
asset/liability model called "gap analysis" is used to monitor
the difference in the volume of the Company's interest sensitive
assets and liabilities that mature or reprice within given
periods. A positive gap (asset sensitive) indicates that more
assets reprice during a given period compared to liabilities,
while a negative gap (liability sensitive) has the opposite
effect.
At December 31, 1999, the Company maintained a negative one
year cumulative gap. The effect of this gap position provided a
negative mismatch of assets and liabilities which can expose the
Company to interest rate risk during a period of rising interest
rates.
Interest Sensitivity Gap at December 31, 1999
3 to
0-3 12 months 1-3 years Over 3 years
Interest bearing deposits $ 489 $ 0 $ 0 $ 0
Investment securities(1),(2) 19,005 5,354 5,003 42,803
Loans(2) 57,634 30,914 92,470 72,176
Total rate sensitive assets 77,128 36,268 97,473 114,979
Interest bearing deposits(3) 44,882 10,062 26,832 26,892
Time deposits 30,214 52,755 37,169 9,597
Federal funds purchased 23,567 0 0 0
Short-term borrowed funds 4,608 0 0 0
Long-term borrowed funds 0 11,000 5,000 15,000
Total rate sensitive liabilities 103,271 73,817 69,001 51,489
Interest sensitivity gap (26,143) (37,549) 28,472 63,490
Cumulative gap (26,143) (63,692) (35,220) 28,270
Cumulative gap to total assets (7.3%) (17.8%) (9.8%) 7.9%
_____________________
(1) Gross of unrealized gains/losses on available for sale
securities.
(2) Investments and loans are included in the earlier of the
period in which interest rates were next scheduled to
adjust or the period in which they are due.
(3) Demand and savings accounts were generally subject to
immediate withdrawal. However, management considers a
certain amount of such accounts to be core accounts
having significantly longer effective maturities
based on the retention experiences of such deposits in
changing interest rate environments.
Upon reviewing the current interest sensitivity scenario,
decreasing interest rates could positively effect net income
because the Company is liability sensitive. In a rising
interest rate environment, net income could be negatively
affected because more liabilities than assets will reprice
during a given period.
Certain shortcomings are inherent in the method of analysis
presented in the above table. Although certain assets and
liabilities may have similar maturities or period of repricing,
they may react in different degrees to changes in market
interest rates. The interest rates on certain types of assets
and liabilities may fluctuate in advance of changes in market
interest rates, while interest rates on other types of assets
and liabilities may lag behind changes in market interest rates.
Certain assets, such as adjustable-rate mortgages, have features
which restrict changes in interest rates on a short-term basis
and over the life of the asset. In the event of a change in
interest rates, prepayment and early withdrawal levels may
deviate significantly from those assumed in calculating the
table. The ability of many borrowers to service their
adjustable-rate debt may decrease in the event of an interest
rate increase.
The Company has also measured its sensitivity to interest
rate movements through simulations of the effects of rate
changes upon its net interest income. Interest rate shocks of
100 and 200 basis points upward and downward were applied to the
Company's interest earning assets and interest bearing
liabilities as of December 31, 1999. The results of these
simulations indicates that approximately 4 percent of the
Company's net interest income was at risk for the upward shock
of 100 basis points and approximately 9% of net interest income
was at risk for the upward shock of 200 basis points. Downward
shocks of 100 and 200 basis points were expected to have
marginal positive effects upon the Company's net interest
income.
Capital
Federal bank regulatory agencies have established certain
capital-related criteria that must be met by banks and bank
holding companies. The measurements which incorporate the
varying degrees of risk contained within the Banks' Balance
Sheets and exposure to off-balance sheet commitments were
established to provide a framework for comparing different
institutions. See Note 13 of the financial statements for a
discussion of regulatory capital requirements.
The Company is not aware of any pending recommendations by
regulatory authorities that would have a material impact on the
Company's capital, resources, or liquidity if they were
implemented, nor is the Company under any agreements with any
regulatory authorities.
The adequacy of the Company's capital is reviewed on an
ongoing basis with regard to size, composition and quality of
the Company's resources. An adequate capital base is important
for continued growth and expansion in addition to providing an
added protection against unexpected losses.
An important indicator in the banking industry is the
leverage ratio, defined as the ratio of common stockholders'
equity less intangible assets, to average quarterly assets less
intangible assets. The leverage ratio at December 31, 1999 was
6.61% compared to 8.25% at December 31, 1998. This decrease is
primarily the result of the increase in average assets in 1999.
For 1999 and 1998, the ratios were above minimum regulatory
guidelines.
As required by the federal banking regulatory authorities,
guidelines have been adopted to measure capital adequacy. Under
the guidelines, certain minimum ratios are required for core
capital and total capital as a percentage of risk-weighted
assets and other off-balance sheet instruments. For the
Company, Tier I capital consists of common stockholders' equity
less intangible assets, and Tier II capital includes the
allowable portion of the allowance for possible loan losses,
currently limited to 1.25% of risk-weighted assets. By
regulatory guidelines, the separate component of equity for
unrealized appreciation or depreciation on available for sale
securities is excluded from Tier I Capital.
The following table sets forth the Company's capital
ratios.
December 31,
1999 1998
(Dollars in thousands)
Tier I
Common stockholders' equity
(excluding unrealized gains(losses)
on securities) $ 27,736 $ 27,060
Intangible assets (4,718) (4,502)
Tier II
Allowable portion of allowance for
loan losses 2,954 2,129
Risk-based capital $ 25,972 $ 24,687
Risk adjusted assets (including off-
balance sheet exposures) $237,573 $178,245
Tier I risk-based capital ratio 9.69% 12.66%
Total risk-based capital ratio 10.93% 13.85%
Leverage ratio 6.61% 8.25%
Regulatory guidelines require that Tier I capital and total
risk-based capital to risk-adjusted assets must be at least 4.0%
and 8.0%, respectively.
Liquidity and Funds Management
Liquidity management ensures that adequate funds will be
available to meet anticipated and unanticipated deposit
withdrawals, debt servicing payments, investment commitments,
commercial and consumer loan demand and ongoing operating
expenses. Funding sources include principal repayments on loans
and investment securities, sales of loans, growth in core
deposits, short- and long-term borrowings and repurchase
agreements. Regular loan payments are a dependable source of
funds, while the sale of loans and investment securities,
deposit flows, and loan prepayments are significantly influenced
by general economic conditions and level of interest rates.
At December 31, 1999, the Company maintained $15.9 million
in cash and cash equivalents primarily consisting of cash and
due from banks. In addition, the Company had $72.2 million in
securities available for sale. The combined total of
$88.0 million represented 24.5% of total assets at December 31,
1999. The Company believes that its liquidity is adequate.
The Company considers its primary source of liquidity to be
its core deposit base, which includes noninterest bearing and
interest-bearing demand deposits, savings, and time deposits
under $100,000. This funding source has grown steadily over the
years and consists of deposits from customers throughout the
branch network. The Company will continue to promote the growth
of deposits through its branch offices. At December 31, 1999,
approximately 72% of the Company's assets were funded by core
deposits acquired within its market area. An additional 7% of
the assets were funded by the Company's equity. These two
components provide a substantial and stable source of funds.
Changes in Interest Income and Interest Expense
The following table sets forth certain information
regarding changes in interest income and interest expense of the
Company for the periods indicated. For each category of
interest-earning asset and interest-bearing liability,
information is provided on changes attributable to (1) changes
in volume (changes in volume multiplied by old rate), and
(2) changes in rate (changes in rate multiplied by average
volume).
ANALYSIS OF CHANGES IN INTEREST INCOME(1)(2)(3)
1999/1998 Increase (Decrease) 1998/1997 Increase (Decrease)
Due to Change in Due to Change in
Volume Rate Net Volume Rate Net
Interest-bearing deposits
in other banks and
federal funds sold $ (18) $ (28) $ (46) $ 37 $ 9 $ 46
Securities (taxable) 181 61 242 182 (63) 119
Securities (tax-exempt) 64 31 95 23 (25) (2)
Loans 5,063 (931) 4,132 1,816 (460) 1,356
Total Interest Income 5,290 (867) 4,423 2,058 (539) 1,519
Short-term borrowed funds 733 (145) 588 (50) (63) (113)
Long-term borrowed funds 720 (50) 670 452 0 454
Interest-bearing demand
deposits 33 524 557 (2) 127 125
Savings deposits 191 91 282 125 162 285
Time deposits 1,006 (231) 775 628 121 749
Total Interest Expense 2,683 189 2,872 1,153 347 1,500
Increase (Decrease)
in Net Interest Income $2,607 $(1,056) $1,551 $ 905 $(886) $ 19
_________________
(1) Loan fees have been included in the change in interest
income totals presented. Nonaccrual loans have been
included in average loan balances.
(2) Changes due to both volume and rates have been allocated in
proportion to the relationship of the dollar amount change
in each.
(3) Interest income on loans and investments is presented on a
taxable equivalent basis.
Average Balances, Rates and Net Yield
The following table sets forth the average daily balances
of major categories of interest earning assets and interest
bearing liabilities, the average rate paid thereon, and the net
interest margin for each of the periods indicated.
1999 1998 1997
Interest Interest Interest
Average Income % Average Income % Average Income %
Balances (Expense) Rate Balances (Expense) Rate Balances (Expense) Rate
Interest bearing
deposits in other
banks and federal
funds sold $ 1,598 $ 82 5.13% $ 2,348 $ 128 5.45% $ 1,624 $ 82 5.05%
Securities (taxable) 54,281 3,608 6.65 51,044 3,366 6.59% 48,918 3,247 6.64%
Securities (tax-
exempt)(1) 16,722 1,345 8.04 15,551 1,250 8.04% 15,102 1,252 8.29%
Loans(2) 227,241 18,430 8.11 170,290 14,298 8.40% 151,295 12,942 8.55%
Total interest
earning
assets $299,842 $23,465 7.83% $239,233 $19,042 7.96% $216,939 $17,523 8.08%
Interest bearing
liabilities
Short-term
borrowings $ 20,349 $1,062 5.22% $ 7,829 $ 474 6.05% $ 9,343 $ 544 5.82%
Interest bearing
demand deposits 46,092 1,554 3.37 33,483 997 2.98% 33,554 887 2.64%
Savings deposits 50,068 1,303 2.60 42,266 1,021 2.42% 36,662 782 2.08%
Time deposits 127,315 7,320 5.75 112,863 6,545 5.80% 100,237 5,735 5.72%
Long-term debt 21,806 1,124 5.15 8,559 454 5.30% 698 43 6.16%
Total interest
bearing
liabilities $265,630 $12,363 4.65% $205,000 $ 9,491 4.63% $180,494 $ 7,991 4.43%
Noninterest bearing
deposits $30,689 $ 24,032 $ 21,351
Interest rate spread 3.18 3.33% 3.65%
Net interest margin $11,102 3.71% $ 9,551 3.99% $ 9,532 4.39%
(1) Rates on loans and investment securities are reported on a
tax-equivalent basis.
(2) Nonaccrual loans have been included in average loan
balances.
Risk Elements
The following table is a summary of nonperforming loans and
renegotiated loans for the years presented.
NONPERFORMING LOANS
(In Thousands)
As of December 31,
1999 1998 1997 1996 1995
Nonaccrual loans
Real estate $ 797 $ 721 $ 959 $ 253 $ 621
Consumer 0 23 45 4 6
Commercial 1,192 232 458 517 1,049
Total $1,989 $ 976 $1,462 $ 774 $1,676
Loans past due
90 days or more
and still accruing
interest
Real estate $ 363 $ 454 $ 593 $ 263 $ 541
Consumer 86 110 127 147 82
Commercial 226 825 234 74 5
Total loans past
due 90 days or
more $ 675 $1,389 $ 954 $ 484 $ 628
Troubled debt
restructurings
Real estate $ 0 $ 0 $ 0 $ 0 $ 0
Consumer 0 0 0 0 0
Commercial 1,084 387 0 0 0
Total troubled
debt
restructurings $1,084 $ 387 $ 0 $ 0 $ 0
Total non-performing
loans $3,748 $2,752 $2,416 $1,258 $2,304
The Bank generally places a loan on non-accrual after the
loan is more than 90 days past due.
The following summary shows the impact on interest income
of nonaccrual and restructured loans for the year ended
December 31, 1999 (in thousands):
Amount of interest income on loans which would have
been recorded under original terms $252
Interest income reported during the period 127
Allowance for Loan Losses
The following table details the allocation of the allowance
for loan losses to the various loan categories. The allocation
is made for analytical purposes and is not necessarily
indicative of the categories in which future credit losses may
occur. The total allowance is available to absorb losses from
any segment of loans.
Allocation of Allowance for Loan Losses
(In Thousands)
December 31,
1999 1998 1997 1996 1995
Percent Percent Percent Percent Percent
of of of of of
Total Total Total Total Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
Commercial $2,000 42.3% $1,028 27.1% $ 309 34.3% $ 254 29.7% $ 228 30.7%
Real Estate 196 47.4 741 59.9% 591 50.2% 137 56.0% 128 54.5%
Consumer 414 10.3 350 13.0% 145 15.5% 229 14.3% 208 14.8%
Total Allocated 2,610 100.0 2,119 100.0% 1,045 100.0% 620 100.0% 564 100.0%
Unallocated 344 - 10 -- 792 -- 799 -- 957 --
TOTAL $2,954 100.0 $2,129 100.0% $1,837 100.0% $1,419 100.0% $1,521 100.0%
The following tables set forth an analysis of the Company's
allowance for loan losses for the years presented and the
allocation of the allowance.
Analysis of the Allowance for Loan Losses
(In Thousands Except Ratios)
December 31,
1999 1998 1997 1996 1995
Balance, Beginning of
Year $ 2,129 $ 1,837 $ 1,419 $ 1,521 $ 1,498
Charge-Offs
Commercial 164 59 24 331 182
Real Estate 136 181 36 44 29
Consumer 268 184 132 113 209
Total 568 424 192 488 420
Recoveries
Commercial 80 31 8 20 38
Real Estate 6 13 20 17 6
Consumer 37 52 39 51 84
Total 123 96 67 88 128
Net Charge-Offs 445 328 125 400 292
Provision Charged to
Operations 1,270 620 543 298 315
Balance, End of Year $ 2,954 $ 2,129 $ 1,837 $ 1,419 $ 1,521
Average Loans, Net $227,241 $170,290 $151,295 $138,551 $131,237
Ratio of Net Charge-
Offs to Average Loans .20% .19% .08% .22% .24%
Ratio of Allowance
to Loans, End of Year 1.18% 1.10% 1.15% 1.01% 1.20%
The allowance for loan losses is maintained at a level
considered adequate to provide for losses that can be reasonably
anticipated. The allowance is increased by provisions charged
to operating expenses and reduced by net charge-offs. The Bank
performs continuous credit reviews of the loan portfolio and
considers current economic conditions, review of specific
problem loans and other factors in determining the adequacy of
the allowance balance.
Loan Portfolio
The following table sets forth the Company's loan
distribution at December 31:
1999 1998 1997 1996 1995
Commercial, financial,
agricultural $110,826 $ 71,941 $ 35,349 $ 37,782 $ 29,368
Real estate
construction 374 1,741 2,092 1,618 696
Real estate mortgage 120,094 103,106 97,667 82,044 79,884
Consumer 21,900 18,499 21,999 17,700 24,067
$253,194 $195,287 $157,107 $139,144 $134,015
Loan Maturities
The following table shows the maturity of loans outstanding
at December 31, 1999.
Maturities of Outstanding Loans
(In Thousands)
Within After One After
One But Within Five
Year Five Years Years Total
Commercial, Financial
and Agricultural $22,447 $30,656 $58,097 $111,200
Maturity of Certificates of Deposit of $100,000 or More
The following table sets forth the amounts of the Bank's
certificates of deposit of $100,000 or more by maturity date.
December 31, 1999
(In Thousands)
Three Months or Less $ 4,464
Over Three Through Six Months 5,066
Over Six Through Twelve Months 2,160
Over Twelve Months 852
TOTAL $12,542
Securities Portfolio Maturities and Yields
The following table sets forth information about the
maturities and weighted average yield on the Company's
securities portfolio. Floating rate, immediately repriceable
items are included in the first column, and yields are not
reported on a tax equivalent basis.
Amortized Cost at
December 31, 1999
(In Thousands)
Due in After 1 After 5
1 Year Year to Years to After
or Less 5 Years 10 Years 10 Years Total
Obligations of the $15,534 $ 7,317 $ 700 $ 5,800 $29,351
U.S. Treasury and 6.67% 6.48% 6.75% 6.81%
6.71%
other U.S. Govern-
ment Agencies and
Corporations
State and Municipal $ 963 $ 6,353 $11,371 $ 867 $19,554
Obligations 5.19% 5.28% 5.79% 5.51% 5.52%
Other Securities $ 599 $ 1,752 $ 1,452 $ 3,951 $ 7,754
6.46% 4.59% 7.02% 6.45% 6.53%
Mortgage Backed $18,739 $18,739
6.63% 6.63%
Securities Portfolio
The following table sets forth the carrying value of the
Company's investment securities at its last three fiscal year
ends:
As of December 31,
1999 1998 1997
(In Thousands)
U.S. Treasuries $ 6,532 $10,038 $11,985
U.S. Government Agencies 39,337 41,882 40,258
State and Political Subdivisions 18,681 16,759 14,896
Other Securities and Equity
Securities 7,615 3,946 3,886
$72,165 $72,625 $71,025
For purposes of the above table, all securities are classified
as available for sale and are reflected at fair value, except
$428,000 of state and political subdivision obligations that
were classified as held to maturity at December 31, 1998.
Average Deposits and Average Rates by Major Classification
The following table sets forth the average balances of the
Bank's deposits and the average rates paid for the years
presented.
1999 1998 1997
Amount Rate Amount Rate Amount Rate
(Dollars in thousands)
Non-interest bearing
demand $ 30,689 $ 24,032 $ 21,351
Interest bearing
demand 46,092 3.37% 33,483 2.98% 33,554 2.64%
Savings deposits 50,068 2.60% 42,266 2.42% 36,622 2.08%
Time Deposits 127,315 5.75% 112,863 5.80% 100,237 5.72%
Total $254,164 $212,644 $191,764
Other Borrowed Funds
Short-term borrowings at December 31, 1999 consisted of
overnight borrowings from the FHLB under a repurchase agreement,
and repurchase agreements with customers. The borrowings are
collateralized by certain qualifying assets of the Bank.
Federal funds purchased by the Banks were $23,567,000 and
$12,209,000 at December 31, 1999, and 1998 respectively. The
federal funds purchased typically mature in one day.
Information concerning the short-term borrowings is
summarized as follows at December 31:
1999 1998 1997
Federal funds purchased:
Average balance during the
Year $10,789 $ 1,420 $ 2,261
Rate 5.39% 6.03% 6.12%
Securities sold under agreements
to repurchase:
Average balance during the
year 1,989 313 1,701
Rate 4.98% 4.96% 5.57%
Short-term borrowings:
Average balance during the
year 0 13,651 5,267
Rate - 5.71% 5.91%
Maximum month end balance of
short-term borrowings during
the year $30,044 $ 5,709 $ 8,047
Dividends and Stockholders' Equity
The Company paid cash dividends in 1999 at $0.54 per share,
and $.49 per share in 1998. The Company's dividend payout ratio
increased from 55.5% in 1998 to 69.5% in 1999. The Company's
ratio of average stockholders' equity to average assets for the
year ended December 31, 1999 was 8.41%.
Years ended December 31,
1999 1998 1997
Return on assets .43% 0.55% 0.88%
Return on equity 5.11% 5.85% 8.37%
Dividend payout ratio 69.45% 55.53% 39.26%
Equity to assets ratio 7.14% 9.60% 10.31%
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk.
The discussion concerning the effects of interest rate
changes on the Company's estimated net interest income for the
year ending December 31, 1999 set forth under "Management's
Discussion and Analysis of financial Condition and Results of
Operations - Interest Rate Sensitivity" in Item 7 hereof, is
incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
First Leesport Bancorp, Inc.
Leesport, Pennsylvania
We have audited the accompanying consolidated balance
sheets of First Leesport Bancorp, Inc., and its wholly-owned
subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended
December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on
our audits.
The consolidated financial statements as of December 31,
1998 and for each of the two years in the period then ended have
been restated to reflect the pooling of interests with Merchants
of Shenandoah Ban-Corp (Merchants) as described in Note 2 to the
consolidated financial statements. We did not audit the 1998 or
1997 financial statements of Merchants, which statements reflect
total assets constituting 20% of consolidated assets as of
December 31, 1998, and net interest income constituting 23% and
24% of consolidated net interest income for the years ended
December 31, 1998 and 1997, respectively. Those statements were
audited by other auditors whose report has been furnished to us
and our opinion, insofar as it relates to the amounts included
for Merchants as of December 31, 1998 and for the years ended
December 31, 1998 and 1997, is based solely on the report of the
other auditors.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of other
auditors, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of First Leesport Bancorp, Inc. and its wholly-owned
subsidiaries as of December 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows
for each of three years in the period ended December 31, 1999 in
conformity with generally accepted accounting principles.
Reading, Pennsylvania /s/ Beard & Company, Inc.
January 21, 2000
FIRST LEESPORT BANCORP, INC. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
1999 1998
(In Thousands, Except
Per Share Data)
ASSETS
Cash and due from banks $ 15,376 $ 6,019
Interest-bearing deposits in other banks 489 746
Total cash and cash equivalents 15,865 6,765
Federal funds sold - 650
Securities held to maturity, fair value
$430 in 1998 - 423
Securities available for sale 72,165 72,202
Loans, net of allowance for loan losses,
$2,954 in 1999; $2,129 in 1998 250,240 193,158
Bank premises and equipment, net 7,599 6,398
Accrued interest receivable and other
assets 12,749 10,349
Total assets $358,618 $289,945
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Non-interest bearing $ 30,941 $ 26,053
Interest bearing 238,403 202,931
Total deposits 269,344 228,984
Securities sold under agreements
to repurchase 4,608 458
Federal funds purchased 23,567 5,509
Short-term borrowings - 6,700
Long-term debt 31,000 16,000
Accrued interest payable and
other liabilities 4,497 4,468
Total liabilities 333,016 262,119
STOCKHOLDERS' EQUITY
Common stock, par value $5 per share
authorized 10,000,000 shares; issued
1,858,919 shares in 1999;
1,757,845 shares in 1998 9,295 8,789
Surplus 4,988 3,760
Retained earnings 13,571 14,629
Accumulated other comprehensive
income (loss) (2,134) 766
Treasury stock, at cost, 9,060 shares (118) (118)
Total stockholders' equity 25,602 27,826
Total liabilities and
Stockholders' equity $358,618 $289,945
See Notes to Consolidated Financial Statements.
FIRST LEESPORT BANCORP, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,
1999 1998 1997
(In Thousands,
Except Per Share Amounts)
Interest income:
Loans, including fees $18,346 $14,229 $12,887
Securities:
Taxable 3,608 3,366 3,247
Tax-exempt 874 825 826
Other 82 128 82
Total interest income 22,910 18,548 17,042
Interest expense:
Deposits 10,177 8,563 7,404
Other borrowed funds 1,062 474 587
Long-term debt 1,124 454 -
Total interest expense 12,363 9,491 7,991
Net interest income 10,547 9,057 9,051
Provision for loan losses 1,270 620 543
Net interest income after
provision for loan losses 9,277 8,437 8,508
Other income:
Customer service fees 503 397 415
Mortgage banking activities 198 342 329
Commissions on insurance sales 3,296 152 -
Broker and investment advisory
commissions and fees 187 - -
Other income 429 200 160
Net realized gains on sales of
securities 52 58 -
Total other income 4,665 1,149 904
Other expenses:
Salaries and employee benefits 5,856 3,768 3,411
Occupancy 754 593 530
Equipment 799 644 443
Taxes, other than federal income 263 242 230
Marketing and advertising 422 338 329
Professional services 420 231 282
Merger costs 544 - -
Restructuring costs 270 - -
Other expenses 2,759 1,942 1,618
Total other expenses 12,087 7,758 6,843
Income before federal
income taxes 1,855 1,828 2,569
Federal income taxes 454 317 562
Net income $ 1,401 $ 1,511 $ 2,007
Basic and diluted earnings per
share $ 0.76 $ 0.86 $ 1.14
See Notes to Consolidated Financial Statements.
FIRST LEESPORT BANCORP, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1999, 1998 and 1997
Accumulated
Other
Common Retained Comprehensive Treasury
Stock Surplus Earnings Income (Loss) Stock Total
(In Thousands, Except Per Share Data)
Balance, December 31, 1996 $8,423 $2,343 $12,738 $ 73 $(121) $23,456
Comprehensive income:
Net income - - 2,007 - - 2,007
Change in net unrealized gains
(losses) on securities available
for sale, net of reclassification
adjustment - - - 435 - 435
Minimum pension liability adjustment - - - 29 - 29
Total comprehensive income 2,471
Cash dividends declared $.49 per share - - (788) - - (788)
Balance, December 31, 1997 8,423 2,343 13,957 537 (121) 25,139
Comprehensive income:
Net income - - 1,511 - - 1,511
Change in net unrealized gains
(losses) on securities available
for sale, net of reclassification
adjustment - - - 229 - 229
Total comprehensive income 1,740
Issuance of common stock in connection
with acquisition 366 1,414 - - - 1,780
Issuance of treasury stock - 3 - - 3 6
Cash dividends declared $.49 per share - - (839) - - (839)
Balance, December 31, 1998 8,789 3,760 14,629 766 (118) 27,826
Comprehensive income:
Net income - - 1,401 - - 1,401
Change in net unrealized gains
(losses) on securities available
for sale, net of reclassification
adjustment - - - (2,900) - (2,900)
Total comprehensive loss (1,499)
Issuance of common stock in connection
with acquisition 64 191 - 255
Issuance of common stock in connection
with a 5% stock dividend and cash
paid in lieu of fractional shares 442 1,037 (1,486) - - (7)
Cash dividends declared $.54 per share - - (973) - - (973)
Balance, December 31, 1999 $9,295 $4,988 $13,571 $ 2,134 $(118) $25,602
See Notes to Consolidated Financial Statements.
FIRST LEESPORT BANCORP, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
1999 1998 1997
(In Thousands)
Cash flows form operating activities
Net income $ 1,401 $ 1,511 $ 2,007
Adjustments to reconcile net income
to net cash provided by operating
activities:
Provision for loan losses 1,270 620 543
Provision for depreciation and
amortization 888 584 380
Deferred income taxes (463) (36) (46)
Net amortization of securities
premiums and discounts 27 86 71
Amortization of mortgage servicing
rights 37 42 13
Net cash provided by loans held for
sale 111 260 252
Gain on sales of securities and loans (348) (319) (252)
Change in assets and liabilities,
net of effects from acquisitions:
(Increase) decrease in accrued
interest receivable and other
assets 47 (955) (715)
Increase in accrued interest
payable and other liabilities 34 806 181
Net cash provided by operating
activities 3,004 2,599 2,434
Cash flows from investing activities
Proceeds from sales of securities
available for sale 15,449 1,946 38
Proceeds from principal repayments
and maturities of securities
available for sale 12,295 19,648 11,159
Proceeds from maturities and calls
of securities held to maturity - 590 -
Purchase of securities available
for sale (31,650) (33,513) (7,735)
Net cash used in acquisitions (523) (1,715) -
Net (increase) decrease in federal
funds sold 650 (318) 821
Loans made to customers, net of
principal collected (58,150) (36,208) (19,030)
Purchases of bank premises and
equipment (1,861) (2,192) (817)
Net cash used in investing
activities (63,790) (51,762) (15,564)
Cash flows from financing activities
Net increase in deposits 40,360 32,676 9,062
Net increase in federal funds
purchased 18,058 1,695 3,814
Net proceeds (repayment) of
short-term borrowings (2,550) (842) 2,300
Repayment of long-term debt - - (1,600)
Proceeds from long-term debt 15,000 16,000 -
Issuance of treasury stock - 6 -
Cash dividends paid (982) (829) (788)
Net cash provided by financing
activities 69,886 48,706 12,788
Increase (decrease) in cash
and cash equivalents 9,100 (457) (342)
Cash and cash equivalents:
January 1 6,765 7,222 7,564
December 31 $ 15,865 $ 6,765 $ 7,222
Cash payments for:
Interest $ 12,222 $ 9,407 $ 7,909
Federal income taxes $ 756 $ 526 $ 818
See Notes to Consolidated Financial Statements.
FIRST LEESPORT BANCORP, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation:
The consolidated financial statements include the accounts
of First Leesport Bancorp, Inc. ("the Company"), a multi-bank
holding company, and its wholly-owned subsidiaries, The First
National Bank of Leesport and Merchants Bank of Pennsylvania
("the Banks"), including the First National Bank of Leesport's
wholly-owned subsidiaries, Essick & Barr, Inc. ("Essick &
Barr"), First Leesport Investment Group ("FLIG") and First
Leesport Wealth Management ("FLWM"). All significant
intercompany accounts and transactions have been eliminated.
Nature of operations:
The Banks provide full banking services. Essick & Barr
provides personal and commercial insurance coverage through
several insurance companies. FLIG and FLWM provide investment
advisory and brokerage services. The Company and the Banks are
subject to the regulations of various federal and state agencies
and undergo periodic examinations by various regulatory
authorities. The area served by the Banks and related
subsidiaries is principally Berks, Luzerne and Schuylkill
counties in Pennsylvania.
Estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent 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 those estimates.
Presentation of cash flows:
For purposes of reporting cash flows, cash and cash
equivalents include cash and due from banks and interest-bearing
demand deposits in other banks.
Securities:
Debt securities that the Company has the positive intent
and ability to hold to maturity are classified as securities
held to maturity and are reported at amortized cost.
Securities classified as available for sale are those
securities that the Company intends to hold for an indefinite
period of time but not necessarily to maturity. Any decision to
sell a security classified as available for sale would be based
on various factors, including significant movement in interest
rates, changes in maturity mix of the Banks' assets and
liabilities, liquidity needs, regulatory capital considerations
and other similar factors. Securities available for sale are
carried at fair value. Unrealized gains and losses are reported
in other comprehensive income, net of the related deferred tax
effect. Realized gains or losses, determined on the basis of
the cost of the specific securities sold, are included in
earnings. Premiums and discounts are recognized in interest
income using a method which approximates the interest method
over the period to maturity.
Management determines the appropriate classification of
debt securities at the time of purchase and re-evaluates such
designation as of each balance sheet date.
Loans:
Loans that management has the intent and ability to hold
for the foreseeable future, or until maturity or pay-off,
generally are stated at their outstanding unpaid principal
balances, net of any deferred fees or costs on originated loans
or unamortized premiums or discounts on purchased loans.
Interest income is accrued on the unpaid principal balance.
Loan origination fees, net of certain direct origination costs,
are deferred and recognized as an adjustment of the yield
(interest income) of the related loans.
A loan is generally considered impaired when it is probable
that the Banks will be unable to collect all contractual
principal and interest payments due in accordance with the terms
of the loan agreement. The accrual of interest is generally
discontinued when the contractual payment of principal or
interest has become 90 days past due or management has serious
doubts about further collectibility of principal or interest,
even though the loan is currently performing. A loan may remain
on accrual status if it is in the process of collection and is
either guaranteed or well secured. When a loan is placed on
nonaccrual status, unpaid interest credited to income in the
current year is reversed and unpaid interest accrued in prior
years is charged against the allowance for loan losses.
Interest received on nonaccrual loans generally is either
applied against principal or reported as interest income,
according to management's judgment as to the collectibility of
principal. Generally, loans are restored to accrual status when
the obligation is brought current, has performed in accordance
with the contractual terms for a reasonable period of time and
the ultimate collectibility of the total contractual principal
and interest is no longer in doubt.
Allowance for loan losses:
The allowance for loan losses is established through
provisions for loan losses charged against income. Loans deemed
to be uncollectible are charged against the allowance for loan
losses, and subsequent recoveries, if any, are credited to the
allowance.
The allowance for loan losses related to impaired loans
that are identified for evaluation is based on discounted cash
flows using the loan's initial effective interest rate or the
fair value, less selling costs, of the collateral for certain
collateral dependent loans. By the time a loan becomes probable
of foreclosure, it has been charged down to fair value, less
estimated costs to sell.
The allowance for loan losses is maintained at a level
considered adequate to provide for losses that can be reasonably
anticipated. Management's periodic evaluation of the adequacy
of the allowance is based on the Banks' past loan loss
experience, known and inherent risks in the portfolio, adverse
situations that may affect the borrower's ability to repay, the
estimated value of any underlying collateral, composition of the
loan portfolio, current economic conditions, and other relevant
factors. This evaluation is inherently subjective as it
requires material estimates that may be susceptible to
significant change, including the amounts and timing of future
cash flows expected to be received on impaired loans.
Loans held for sale:
Mortgage loans originated and intended for sale in the
secondary market are carried at the lower of cost or estimated
fair value. All sales are made without recourse. There were no
loans held for sale at December 31, 1999 and 1998.
Foreclosed assets:
Foreclosed assets, which are recorded in other assets,
include properties acquired through foreclosure or in full or
partial satisfaction of the related loan.
Foreclosed assets are initially recorded at fair value, net
of estimated selling costs, at the date of foreclosure. After
foreclosure, valuations are periodically performed by management
and the real estate is carried at the lower of carrying amount
or fair value, less estimated costs to sell. Revenue and
expenses from operations and changes in the valuation allowance
are included in other expenses.
Bank premises and equipment:
Bank premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed on straight-
line and accelerated depreciation methods over the estimated
useful lives of the related assets.
Loan servicing:
Capitalized servicing rights are reported in other assets
and are amortized into noninterest income in proportion to, and
over the period of, the estimated future net servicing income of
the underlying financial assets. Servicing rights are evaluated
for impairment based upon the fair value of the rights as
compared to amortized cost. Fair value is determined using
prices for similar assets with similar characteristics, when
available, or based upon discounted cash flows using market
based assumptions. Impairment is recognized through a valuation
allowance to the extent that fair value is less than the
capitalized amount.
Goodwill:
Goodwill is the excess of the purchase price over the fair
value of net assets of the entity acquired through a business
combination that is recorded using the purchase method of
accounting. Goodwill is being amortized using the straight-line
method over periods ranging from 15 to 20 years and is
periodically reviewed for impairment.
Federal income taxes:
Deferred taxes are provided on the liability method whereby
deferred tax assets are recognized for deductible temporary
differences and deferred tax liabilities are recognized for
taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and
liabilities in the financial statements and their tax basis.
Deferred tax assets are reduced by a valuation allowance when,
in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted
through the provision for income taxes for the effects of
changes in tax laws and rates on the date of enactment.
Off-balance sheet financial instruments:
In the ordinary course of business, the Banks have entered
into off-balance sheet financial instruments consisting of
commitments to extend credit, letters of credit and commitments
to sell loans. Such financial instruments are recorded in the
consolidated balance sheets when they become receivable or
payable.
Advertising:
Advertising costs are expensed as incurred.
Earnings per share:
Basic earnings per share represents income available to
common stockholders divided by the weighted-average number of
common shares outstanding during the period. Diluted earnings
per share reflects additional common shares that would have been
outstanding if dilutive potential common shares (stock options)
had been issued, as well as any adjustments to income that would
result from the assumed issuance. The effect of stock options
was not dilutive for any periods presented. The weighted-
average number of shares of common stock outstanding, as
adjusted for a 5% stock dividend in 1999, was 1,840,049 in 1999,
1,764,270 in 1998 and 1,759,519 in 1997.
Comprehensive income:
Accounting principles generally require that recognized
revenue, expenses, gains and losses be included in net income.
Although certain changes in assets and liabilities, such as
unrealized gains and losses on available for sale securities and
minimum pension liability adjustments are reported as a separate
component of the equity section of the balance sheet, such
items, along with net income, are components of comprehensive
income.
The components of other comprehensive income and related
tax effects were as follows:
Years Ended December 31,
1999 1998 1997
(In Thousands)
Unrealized holding gains (losses)
on available for sale securities $(4,339) $ 401 $ 659
Less reclassification adjustment
for gains realized in income (52) (58) -
Net unrealized gains (losses) (4,391) 343 659
Tax effect 1,491 (114) (224)
(2,900) 229 435
Minimum pension liability
adjustment - - 29
Net of tax amount $ (2,900) $ 229 $ 464
Segment reporting:
The Banks act as independent community financial services
providers, and offer traditional banking and related financial
services to individual, business and government customers.
Through their branch and automated teller machine networks, the
Banks offer a full array of commercial and retail financial
services, including the taking of time, savings and demand
deposits; the making of commercial, consumer and mortgage loans;
and the providing of other financial services. Management does
not separately allocate expenses, including the cost of funding
loan demand, between the commercial, retail and mortgage banking
operations of the Banks. As such, discrete financial
information is not available and segment reporting would not be
meaningful. Results of investment advisory and brokerage
operations were not material to the consolidated financial
statements in 1999. See Note 17 for a discussion of insurance
operations.
New accounting standard:
The Financial Accounting Standards Board issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging
Activities", in June 1998. The effective date of this statement
was delayed by Statement No. 137 during 1999. The Company is
required to adopt the Statement on January 1, 2001. The
adoption of the Statement is not expected to have a significant
impact on the financial condition or results of operations of
the Company.
2. MERGER AND ACQUISITIONS
The consolidated financial statements give retroactive
effect to the pooling of interests merger of the Company and
Merchants of Shenandoah Ban-Corp (Merchants) as more fully
described below. As a result, the consolidated balance sheet as
of December 31, 1998 and the related consolidated statements of
income, stockholders' equity and cash flows for each of the
years in the three-year period ended December 31, 1999, are
presented as if the combining companies had been consolidated
for all periods presented. The consolidated statements of
stockholders' equity reflect the accounts of the Company as if
the common stock had been issued during all periods presented.
On July 1, 1999, Merchants' shareholders received 1.5854
shares of the Company's common stock for each outstanding share,
for a total of 484,561 shares. Cash was paid for fractional
share interests. The merger was accounted for as a pooling of
interests by the Company. Merger costs of approximately
$ 544,000 consisting primarily of professional fees and related
transaction costs have been expensed in connection with the
merger.
The results of operations of the separate entities for
periods prior to the combination were as follows:
Company Merchants Combined
(In Thousands)
For the period from January 1,
1999 to June 30, 1999
(unaudited):
Net interest income $3,898 $1,076 $4,974
Net income 885 254 1,139
For the year ended December 31,
1998:
Net interest income $6,983 $2,074 $9,057
Net income 1,024 487 1,511
For the year ended December 31,
1997:
Net interest income $ 6,838 $2,213 $9,051
Net income 1,448 559 2,007
On January 29, 1999 the Company acquired EBFS, a licensed
insurance agency and broker, through a payment of cash of
$ 250,000. The acquisition has been accounted for as a purchase
and results of operations of EBFS since the date of acquisition
are included in the consolidated financial statements.
On September 30, 1999, the Company acquired an investment
advisory firm and a brokerage firm that have been renamed First
Leesport Wealth Management and First Leesport Investment Group.
The Company issued 12,742 shares of its common stock and paid
cash of $ 250,000 in exchange for stock of one entity and assets
of a second entity. The acquisitions have been accounted for as
purchases and the results of operations of these two entities
since the date of acquisition are included in the consolidated
financial statements.
On December 7, 1998, the Company completed its acquisition
of Essick & Barr, Inc., an independent insurance agency. The
Company issued 73,284 shares of its common stock and paid cash
of $ 1,715,000 in exchange for all of the shares of common stock
of Essick & Barr, Inc. The acquisition has been accounted for
as a purchase and results of operations of Essick & Barr, Inc.,
since the date of acquisition, are included in the consolidated
financial statements.
3. RESTRICTIONS ON CASH AND DUE FROM BANKS
The Banks are required to maintain average reserve balances
with the Federal Reserve Bank. For the years 1999 and 1998, the
average of these daily reserve balances approximated $1,011,000
and $767,000, respectively.
4. SECURITIES
The amortized cost of securities and their approximate fair
values at December 31 were as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(In Thousands)
Available for sale:
December 31, 1999:
U.S. Treasury securities $ 6,526 $ 12 $ (6) $ 6,532
U.S. Government agency securities 22,825 - (1,323) 21,502
Mortgage-backed securities 18,739 94 (881) 17,952
Obligations of states and political
subdivisions 19,554 79 (952) 18,681
Corporate debt securities 3,803 - (209) 3,594
Equity securities 3,951 42 (89) 3,904
$75,398 $ 227 $(3,460) $72,165
December 31, 1998:
U.S. Treasury securities $ 9,846 $ 192 $ - $10,038
U.S. Government agency securities 26,253 237 (9) 26,481
Mortgage-backed securities 15,247 343 (80) 15,510
Obligations of states and political
subdivisions 15,962 422 (48) 16,336
Corporate debt securities 1,727 32 (4) 1,755
Equity securities 2,011 76 (5) 2,082
$71,046 $1,302 $ (146) $72,202
Securities held to maturity:
December 31, 1998
Obligations of states and
political subdivisions $ 423 $ 7 $ - $ 430
Equity securities are comprised of stock in the Federal
Reserve Bank, the Federal Home Loan Bank, Atlantic Central
Bankers' Bank and other bank stocks.
The amortized cost and fair value of securities as of
December 31, 1999, by contractual maturity, are shown below.
Expected maturities may differ from contractual maturities
because the securities may be called or prepaid without penalty.
Amortized Fair
Cost Value
(In Thousands)
Due in one year or less $17,096 $15,987
Due after one year through five years 15,422 14,930
Due after five years through ten years 13,523 13,177
Due after ten years 6,667 6,215
Mortgage-backed securities 18,739 17,952
Equity securities 3,951 3,904
$75,398 $72,165
Securities with an amortized cost of $ 27,325,000 and
$ 8,343,000 at December 31, 1999 and 1998, respectively, were
pledged to secure public deposits and for other purposes as
required or permitted by law.
Gross gains of $ 52,000 and $ 58,000 were realized on sales
of securities available for sale in 1999 and 1998, respectively.
There were no sales of securities in 1997.
5. LOANS
The components of loans at December 31, 1999 and 1998 were
as follows:
1999 1998
(In Thousands)
Residential real estate $120,094 $103,106
Commercial 82,139 46,577
Commercial secured by real estate 25,001 21,564
Consumer, net 16,892 15,697
Home equity 5,008 2,802
Other 4,060 5,541
Loans 253,194 195,287
Allowance for loan losses 2,954 2,129
Loans, net of allowance for loan loss $250,240 $193,158
Changes in the allowance for loan losses were as follows:
Years Ended December 31,
1999 1998 1997
(In Thousands)
Balance, beginning $2,129 $1,837 $1,419
Provision for loan losses 1,270 620 543
Loans charged off (568) (424) (192)
Recoveries 123 96 67
Balance, ending $2,954 $2,129 $1,837
The recorded investment in impaired loans, not requiring an
allowance for loan losses, was $ 669,000 at December 31, 1999
and $ -0- at December 31, 1998. The recorded investment in
impaired loans requiring an allowance for loan losses was
$ 589,000 and $ 545,000 at December 31, 1999 and 1998,
respectively. At December 31, 1999 and 1998, the related
allowance for loan losses associated with those loans was
$ 221,000 and $ 82,000, respectively. For the years ended
December 31, 1999, 1998 and 1997, the average recorded
investment in these impaired loans was $ 1,280,000, $ 556,000
and $ 1,009,000, respectively, and the interest income
recognized on impaired loans was $ 0, $ 0 and $ 42,000,
respectively.
6. LOAN SERVICING
Mortgage loans serviced for others are not included in the
accompanying consolidated balance sheets. The unpaid principal
balance of these loans as of December 31, 1999 and 1998 was
$ 16,701,000 and $ 35,960,000, respectively. Custodial escrow
balances maintained in connection with the foregoing loan
servicing and included in other liabilities were approximately
$ 117,000 and $ 234,000 at December 31, 1999 and 1998,
respectively.
The net carrying value of capitalized mortgage servicing
rights, included in other assets at December 31, 1999 and 1998
was $ 167,000 and $ 264,000, respectively. The carrying value
of mortgage servicing rights approximates its fair value.
Mortgage servicing rights of $ 170,000, $ 161,000 and $ 158,000
were capitalized and amortization of mortgage servicing rights
was $ 23,000, $ 42,000 and $ 13,000 in 1999, 1998 and 1997,
respectively. Mortgage servicing rights of $ 244,000 were sold
in 1999.
7. BANK AND PREMISES AND EQUIPMENT
Components of bank premises and equipment were as follows:
December 31,
1999 1998
(In Thousands)
Land and land improvements $ 1,595 $ 1,406
Buildings 7,013 6,119
Furniture and equipment 4,947 4,184
Bank premises and equipment 13,555 11,709
Less accumulated depreciation 5,956 5,311
Bank premises and equipment, net $ 7,599 $ 6,398
Certain facilities and equipment are leased under various
operating leases. Rental expense for these leases was $177,000,
$93,000 and $78,000 for the years ended December 31, 1999, 1998
and 1997, respectively. Future minimum rental commitments under
noncancellable leases were as follows (in thousands):
2000 $ 190
2001 177
2002 119
2003 86
2004 82
Thereafter 746
$1,400
8. DEPOSITS
The components of deposits at December 31, 1999 and 1998
were as follows:
1999 1998
(In Thousands)
Demand, non-interest bearing $ 30,941 $ 26,053
Demand, interest bearing 59,818 37,177
Savings 48,850 45,942
Time, $ 100,000 and over 12,542 11,924
Time, other 117,193 107,888
Total deposits $269,344 $228,984
At December 31, 1999, the scheduled maturities of time
deposits were as follows (in thousands):
2000 $ 82,957
2001 25,262
2002 11,909
2003 7,285
2004 2,322
$129,735
9. BORROWINGS
The Banks had federal funds purchased and other short-term
borrowings from the Federal Home Loan Bank at December 31, 1999
and 1998 in the amount of $ 23,567,000 and $ 12,209,000,
respectively. The December 31, 1999 balance outstanding matured
January 3, 2000, at interest rates from 4.06% to 5%.
In addition, the Banks enter into agreements with customers
as part of cash management services where the Banks sell
securities to the customer overnight with the agreement to
repurchase them at par. Securities sold under agreements to
repurchase generally mature one day from the transaction date.
The securities underlying the agreements were under the Banks'
control. Securities sold to customers under agreements to
repurchase totaled $ 4,608,000 and $ 458,000 at December 31,
1999 and 1998, respectively.
Long-term debt consisted of the following at December 31,
1999 and 1998 (in thousands):
1999 1998
Notes with the Federal Home Loan Bank (FHLB):
Term Note Due October 2000 at 4.72% $ 1,000 $ 1,000
5 Year/2 Year Term Note Due December 2004, Fixed at 6.14% (1) 5,000 -
7 Year/2 Year Term Note Due April 2005, Fixed at 5.55% (1) 10,000 10,000
10 Year/5 Year Term Note Due September 2008, Fixed at 4.92% (1) 5,000 5,000
10 Year/5 Year Term Note Due February 2009, Fixed at 4.97% (1) 5,000 -
10 Year/5 Year Term Note Due December 2009, Fixed at 6.30% (1) 5,000 -
$31,000 $16,000
(1) These notes contain a convertible option which allows the
FHLB, at quarterly intervals, to change the note to an
adjustable-rate advance at three-month LIBOR (6% at
December 31, 1999) plus 14 to 16 basis points. If the note
is converted, the option allows the Bank to put the funds
back to the FHLB at par. The year/year refers to the
maturity of the note (in years) and the term until the
first convertible date.
Contractual maturities of long-term debt at December 31,
1999 were as follows (in thousands):
2000 $ 1,000
2001 to 2003 -
2004 5,000
Thereafter 25,000
$31,000
The Banks have a maximum borrowing capacity with the
Federal Home Loan Bank of approximately $ 117,437,000. Advances
from the Federal Home Loan Bank are secured by qualifying assets
of the Banks.
10. EMPLOYEE BENEFITS
The First National Bank of Leesport (Leesport) has a
noncontributory defined benefit pension plan covering all
employees who meet the eligibility requirements. To be
eligible, an employee must have completed 1,000 hours of service
in their first 12 months of employment or in any like period
thereafter. The Plan provides benefits based on years of
service and the employee's highest five-year average of
compensation. Benefits are subject to certain reductions if the
employee retires before reaching age 65. Leesport's funding
policy is to make the minimum annual contribution that is
required by applicable regulations, plus such amounts as
determined to be appropriate from time to time. Information
pertaining to the activity in the plan is as follows:
Years Ended
December 31,
1999 1998
(In Thousands)
Change in benefit obligation:
Benefit obligation at beginning of year $1,643 $1,689
Service cost 134 128
Interest cost 115 109
Change in assumptions (99) -
Plan amendments 132 -
Actuarial gain (35) (238)
Benefits paid (969) (45)
Benefit obligation at end of year 921 1,643
Change in plan assets:
Fair value of plan assets at beginning
of year 1,885 1,688
Actual return on plan assets 308 139
Employer contribution - 103
Benefits paid (969) (45)
Fair value of plan assets at end of year 1,224 1,885
Funded status 303 242
Unrecognized net actuarial gain (315) (23)
Unrecognized prior service cost 144 24
Unrecognized net transition asset (153) (176)
(Accrued) prepaid benefit cost $ (21) $ 67
Net pension cost for this plan consisted of the following
components:
Years Ended
December 31,
1999 1998 1997
(In Thousands)
Service cost (benefits earned) $ 134 $ 128 $ 101
Interest cost on projected
benefit obligation 115 109 100
Expected return on plan assets (150) (139) (123)
Net amortization and deferral (11) (17) (20)
$ 88 $ 81 $ 58
Assumptions used by Leesport in the determination of
pension plan information for 1999, 1998 and 1997 consisted of
the following: Discount rate - 6.5%, rate of increase in
compensation levels - 4.0%, expected long-term rate of return on
plan assets - 8.0%.
The Banks have defined contribution plans which cover
eligible employees. The expense related to these plans was
$88,000, $85,000 and $56,000 for the years ended December 31,
1999, 1998 and 1997, respectively.
The Company has entered into deferred compensation
agreements with certain directors and a salary continuation plan
for certain key employees. At December 31, 1999 and 1998, the
present value of the future liability for these plans was
$462,000 and $373,000, respectively. To fund the benefits under
these agreements, the Company is the owner and beneficiary of
life insurance policies on the lives of the directors and
employees. These policies had an aggregate cash surrender value
of $2,284,000 and $2,191,000 at December 31, 1999 and 1998,
respectively. For the years ended December 31, 1999, 1998 and
1997, $125,000, $112,000 and $102,000, respectively, was charged
to expense in connection with these agreements.
The Company has an Employee Stock Incentive Plan that
covers all officers and key employees of the Company and its
subsidiaries and is administered by a committee of the Board of
Directors. The Plan covers 210,000 shares of common stock. The
option price for options issued under the Plan must be at least
equal to 100% of the fair market value of the common stock on
the date of grant and shall not be less than the stock's par
value. Options granted under the Plan are exercisable over a
period not less than six months after the date of grant, but no
later than ten years after the date of grant in accordance with
the vesting period as determined by the Plan committee. Options
expire on the earlier of ten years after the date of grant,
three months from the participants' termination of employment or
one year from the date of the participants' death or disability.
The Company has an Independent Directors Stock Option Plan
that covers 52,500 shares of common stock. The Plan covers all
directors of the Company who are not employees. The option
price for options issued under the Plan will be equal to the
fair market value of the Company's common stock on the date of
grant. Options are exercisable from the date of grant and
expire on the earlier of ten years after the date of grant,
three months from the date the participant ceases to be a
director of the Company or twelve months from the date of the
participants' death or disability.
The Company has elected to follow Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees"
(APB 25) and related Interpretations in accounting for its
employee and director stock options. Under APB 25, because the
exercise price of the Company's stock options equals the market
price of the underlying stock on the date of grant, no
compensation expense is recognized.
Pro forma information regarding net income and earnings per
share is required by Financial Accounting Standards Board
Statement 123, "Accounting and Disclosure of Stock-Based
Compensation" (FASB 123), and has been determined as if the
Company had accounted for its stock options under the fair value
method of that statement. The fair value of options granted
during 1999 and 1998 was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-
average assumptions: risk-free interest rates of 4.71% to 6.27%;
volatility factors of the expected market price of the Company's
common stock of 12.77% to 16.25%; expected life of the options
of 7 years and a cash dividend yield of 2.2%.
For purposes of pro forma disclosures, the estimated fair
value of the options is amortized to expense over the options'
vesting period. Options granted during 1998 were subject to
stockholder approval which was obtained at the 1999 annual
stockholders' meeting. The Company's pro forma information
follows:
Years Ended
December 31,
1999 1998
(In Thousands,
Except Per Share Data)
Net income:
As reported $1,401 $1,511
Pro forma $1,305 $1,511
Earnings per share:
As reported, basic and diluted $ 0.76 $ 0.86
Pro forma, basic and diluted $ 0.71 $ 0.86
Stock option transactions under the Plans were as follows
(adjusted for the 5% stock dividend):
[/CAPTION]
Years Ended December 31,
1999 1998
Weighted- Weighted-
Average Average
Exercise Exercise
Options Price Options Price
Outstanding at the beginning of
the year 47,408 $23.32 - $ -
Granted 47,245 18.00 47,408 23.32
Exercised - - - -
Forfeited - - - -
Outstanding at the end of the year 94,653 $20.67 47,408 $23.32
Exercisable at December 31 9,480 $23.32 - $ -
Weighted-average fair value of
options granted during the year $ 5.29 $ 5.80
Options available for grant at December 31, 1999 were
167,847.
Stock options outstanding at December 31, 1999, were
exercisable at prices ranging from $16.31 to $25.95 a share.
The weighted-average remaining contractual life of the above
options is approximately 9 years.
11. FEDERAL INCOME TAXES
The components of federal income tax expense were as
follows:
Years Ended December 31,
1999 1998 1997
(In Thousands)
Current $ 917 $ 353 $ 608
Deferred (463) (36) (46)
$ 454 $ 317 $ 562
Reconciliation of the statutory federal income tax expense
computed at 34% to the federal income tax expense included in
the consolidated statements of income is as follows:
Years Ended December 31,
1999 1998 1997
(In Thousands)
Federal income tax at statutory rate $ 631 $ 622 $ 874
Tax exempt interest (351) (333) (317)
Interest disallowance 41 49 40
Bank owned life insurance (32) (38) (38)
Non-deductible goodwill 76 6 -
Non-deductible merger costs 81 - -
Other 8 11 3
$ 454 $ 317 $ 562
The federal income tax provision includes $18,000 and
$20,000 in 1999 and 1998, respectively, of federal income taxes
related to gains on the sale of securities of $52,000 and
$58,000.
Net deferred tax assets consisted of the following
components as of December 31, 1999 and 1998:
1999 1998
(In Thousands)
Deferred tax assets:
Allowance for loan losses $ 806 $ 525
Deferred compensation 157 103
Net unrealized loss on securities
available for sale 1,100 -
Other 42 -
Total deferred tax assets 2,105 628
Deferred tax liabilities:
Bank premises and equipment (86) (107)
Mortgage servicing rights (57) (94)
Net unrealized gains on securities
available for sale - (391)
Other (21) (23)
Total deferred tax liabilities (164) (615)
Net deferred tax assets $1,941 $ 13
12. TRANSACTIONS WITH EXECUTIVE OFFICERS AND DIRECTORS
The Banks have had banking transactions in the ordinary
course of business with their executive officers and directors
and their related interests on the same terms, including
interest rates and collateral, as those prevailing at the time
for comparable transactions with others. At December 31, 1999
and 1998, these persons were indebted to the Banks for loans
totaling $6,238,000 and $7,952,000, respectively. During 1999,
$2,678,000 of new loans were made and repayments totaled
$4,392,000.
13. REGULATORY MATTERS AND STOCKHOLDERS' EQUITY
The Banks are subject to various regulatory capital
requirements administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate
certain mandatory and possibly additional discretionary actions
by regulators that, if undertaken, could have a direct material
effect on their financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective
action, the Banks must meet specific capital guidelines that
involve quantitative measures of their assets, liabilities and
certain off-balance sheet items as calculated under regulatory
accounting practices. The Banks' capital amounts and
classification are also subject to qualitative judgments by the
regulators about components, risk-weightings and other factors.
Quantitative measures established by regulation to ensure
capital adequacy require the Banks to maintain minimum amounts
and ratios of total and Tier I capital (as defined in the
regulations) to risk-weighted assets, and of Tier I capital to
average assets. Management believes, as of December 31, 1999,
that the Banks meet all minimum capital adequacy requirements to
which they are subject.
As of December 31, 1999, the most recent notification from
the Banks' primary regulator categorized the Banks as adequately
capitalized under the regulatory framework for prompt corrective
action. There are no conditions or events since that
notification that management believes have changed their
category.
The Company's and the Banks' actual capital amounts and
ratios are presented below.
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
(Dollar Amounts In Thousands)
As of December 31, 1999:
Total capital (to risk-weighted assets):
First Leesport Bancorp $25,972 10.93% $>19,006 >8.00% $>23,757 >10.00%
The First National Bank of Leesport 20,719 10.25 >16,453 >8.00 >20,566 >10.00
Merchants Bank of Pennsylvania 4,317 11.56 > 2,979 >8.00 > 3,724 >10.00
Tier I capital (to risk-weighted assets):
First Leesport Bancorp 23,018 9.69 > 9,503 >4.00 >14,254 > 6.00
The First National Bank of Leesport 18,148 9.00 > 8,226 >4.00 >12,340 > 6.00
Merchants Bank of Pennsylvania 3,957 10.61 > 1,490 >4.00 > 2,234 > 6.00
Tier I capital (to average assets):
First Leesport Bancorp 23,018 6.61 >13,933 >4.00 >17,417 > 5.00
The First National Bank of Leesport 18,148 6.37 >11,387 >4.00 >14,234 > 5.00
Merchants Bank of Pennsylvania 3,957 6.42 > 2,464 >4.00 > 3,080 > 5.00
As of December 31, 1998:
Total capital (to risk-weighted assets):
First Leesport Bancorp $24,687 13.85% $>11,080 >8.00% $>17,825 >10.00%
The First National Bank of Leesport 16,977 11.46 >11,852 >8.00 >14,815 >10.00
Merchants Bank of Pennsylvania 7,256 24.00 > 2,418 >8.00 > 3,023 >10.00
Tier I capital (to risk-weighted assets):
First Leesport Bancorp 22,558 12.66 > 7,130 >4.00 >10,695 > 6.00
The First National Bank of Leesport 15,221 10.27 > 5,926 >4.00 > 8,889 > 6.00
Merchants Bank of Pennsylvania 6,883 22.80 > 1,209 >4.00 > 1,814 > 6.00
Tier I capital (to average assets):
First Leesport Bancorp 22,558 8.25 >10,937 >4.00 >13,672 > 5.00
The First National Bank of Leesport 15,221 7.04 > 8,643 >4.00 >10,803 > 5.00
Merchants Bank of Pennsylvania 6,883 12.00 > 2,299 >4.00 > 2,874 > 5.00
Federal and state banking regulations place certain
restrictions on dividends paid and loans or advances made by the
Banks to the Company. At December 31, 1999, the Banks had
approximately $3,380,000 available for payment of dividends to
the Company. Loans or advances are limited to 10 percent of the
Banks' capital stock and surplus on a secured basis.
As of December 31, 1999, the Company has declared a $.15
per share cash dividend for stockholders of record on January 3,
2000, payable January 17, 2000. The Company's Board of
Directors declared a five percent stock dividend in December
1999 to stockholders of record on January 3, 2000, payable on
January 17, 2000.
14. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Banks are party to financial instruments with off-
balance sheet risk in the normal course of business to meet the
financing needs of their customers. These financial instruments
include commitments to extend credit and letters of credit.
Those instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized
in the balance sheets.
The Banks' exposure to credit loss in the event of
nonperformance by the other party to the financial instrument
for commitments to extend credit and letters of credit is
represented by the contractual amount of those instruments. The
Banks use the same credit policies in making commitments and
conditional obligations as they do for on-balance sheet
instruments.
A summary of the contractual amount of the Banks' financial
instrument commitments was as follows:
December 31,
1999 1998
(In Thousands)
Commitments to grant loans $15,737 $ 7,564
Unfunded commitments under lines of credit 23,759 24,406
Outstanding letters of credit 550 347
Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition
established in the contract. Since many of the commitments are
expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash
requirements. Commitments generally have fixed expiration dates
or other termination clauses and may require payment of a fee.
The Banks evaluate each customer's credit worthiness on a case-
by-case basis. The amount of collateral obtained, if deemed
necessary by the Banks upon extension of credit, is based on
management's credit evaluation. Collateral held varies but may
include personal or commercial real estate, accounts receivable,
inventory and equipment.
Outstanding letters of credit are conditional commitments
issued by the Banks to guarantee the performance of a customer
to a third party. The credit risk involved in issuing letters
of credit is essentially the same as that involved in extending
loan facilities to customers.
15. CONCENTRATIONS OF CREDIT RISK
The Banks grant commercial, residential and consumer loans
to customers primarily located in Berks, Schuylkill and Luzerne
Counties in Pennsylvania. The concentrations of credit by type
of loan are set forth in Note 5. Although the Banks have
diversified loan portfolios, their debtors' ability to honor
these contracts is influenced by the region's economy.
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
Management uses its best judgment in estimating the fair
value of the Company's financial instruments; however, there are
inherent weaknesses in any estimation technique. Therefore, for
substantially all financial instruments, the fair value
estimates herein are not necessarily indicative of the amounts
the Company could have realized in a sales transaction on the
dates indicated. The estimated fair value amounts have been
measured as of their respective year ends and have not been re-
evaluated or updated for purposes of these consolidated
financial statements subsequent to those respective dates. As
such, the estimated fair values of these financial instruments
subsequent to the respective reporting dates may be different
than the amounts reported at each year end.
The following information should not be interpreted as an
estimate of the fair value of the entire Company since a fair
value calculation is only provided for a limited portion of the
Company's assets and liabilities. Due to a wide range of
valuation techniques and the degree of subjectivity used in
making the estimates, comparisons between the Company's
disclosures and those of other companies may not be meaningful.
The following methods and assumptions were used to estimate the
fair values of the Company's financial instruments at
December 31, 1999 and 1998:
Cash and cash equivalents and federal funds sold:
The carrying amounts reported in the balance sheet for cash
and short-term instruments approximate those assets' fair
values.
Securities:
Fair values for securities are based on quoted market
prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of
comparable instruments.
Loans:
For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on
carrying values. The fair values for other loans (e.g.,
consumer loans and fixed rate mortgage loans) are estimated
using discounted cash flow analyses, using interest rates
currently being offered for loans with similar terms to
borrowers of similar credit quality.
Deposit liabilities:
The fair values disclosed for demand deposits (e.g.,
interest and non-interest checking, passbook savings and certain
types of money market accounts) are, by definition, equal to the
amount payable on demand at the reporting date (i.e., their
carrying amounts). Fair values for fixed-rate certificates of
deposit are estimated using a discounted cash flow calculation
that applies interest rates currently being offered on
certificates to a schedule of aggregated expected monthly
maturities on time deposits.
Short-term borrowings, securities sold under agreements to
repurchase and federal funds purchased:
The carrying amounts of these short-term borrowings
approximate their fair values.
Long-term debt:
The fair value of long-term debt is calculated based on the
discounted value of contractual cash flows, using rates
currently available for borrowings from the FHLB with similar
maturities.
Accrued interest receivable and payable:
The carrying amount of accrued interest receivable and
accrued interest payable approximates its fair value.
Off-balance sheet instruments:
Fair values for the Banks' off-balance sheet instruments
are based on fees currently charged to enter into similar
agreements, taking into account the remaining terms of the
agreements and the counterparties' credit standing.
The estimated fair values of the Company's financial
instruments at December 31, 1999 and 1998 were as follows:
1999 1998
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
(In Thousands)
Financial Assets:
Cash and cash equivalents $ 15,865 $ 15,865 $ 6,765 $ 6,765
Federal funds sold - - 650 650
Securities 72,165 72,165 72,625 72,632
Loans, net 250,240 250,490 193,158 198,509
Accrued interest receivable 2,019 2,019 1,903 1,903
Financial Liabilities:
Deposits 269,344 269,482 228,984 231,520
Securities sold under agreements to
repurchase 4,608 4,608 458 458
Federal funds purchased 23,567 23,567 5,509 5,509
Short-term borrowings - - 6,700 6,700
Long-term debt 31,000 31,799 16,000 15,985
Accrued interest payable 1,415 1,415 1,274 1,274
Off-Balance Sheet Financial Instruments:
Commitments to extend credit - - - -
Standby letters of credit - - - -
17. SEGMENT AND RELATED INFORMATION
The Company's insurance operations are managed separately
from the traditional banking and related financial services that
the Company also offers. This operation provides commercial
insurance, individual and group benefit plans and personal
coverage. The insurance operation was not material to the
consolidated financial statements of the Company in 1998.
Segment information for 1999 is as follows (in thousands):
Banking And
Financial
Services Insurance Total
Revenues from external customers $ 24,279 $ 3,296 $ 27,575
Income before federal income taxes 1,653 202 1,855
Total assets 356,610 2,008 358,618
Purchases of bank premises and equipment 1,503 358 1,861
Income before federal income taxes of the insurance
operations, as presented above, reflects referral and management
fees of approximately $614,000 that the insurance operation paid
to the Company and Banks during 1999.
18. FIRST LEESPORT BANCORP, INC. (PARENT COMPANY ONLY)
FINANCIAL INFORMATION
Balance Sheets
December 31,
1999 1998
(In Thousands)
ASSETS
Cash $ 453 $ 296
Investment in bank subsidiaries 24,860 27,008
Securities available for sale 1,874 715
Premises and equipment and other assets 122 88
Total assets $27,309 $28,107
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Other borrowed funds $ 1,010 $ -
Other liabilities 697 281
STOCKHOLDERS' EQUITY 25,602 27,826
Total liabilities and stockholders'
equity $27,309 $28,107
Statements of Income
Years Ended December 31,
1999 1998 1997
(In Thousands)
Dividends from bank subsidiaries $ 4,178 $1,223 $1,082
Other income 108 95 55
Other expenses (570) (194) (163)
Income before equity in
undistributed net income of
subsidiaries and income taxes 3,716 1,124 974
Income tax benefit (78) (34) (40)
Equity in undistributed net income
of bank subsidiaries (2,393) 353 993
Net income $ 1,401 $1,511 $2,007
Statements of Cash Flows
Years Ended December 31,
1999 1998 1997
(In Thousands)
CASH FLOWS PROVIDED BY OPERATING
ACTIVITIES
Net income $ 1,401 $1,511 $2,007
Depreciation 3 4 4
Undistributed earnings of bank
subsidiaries 2,393 (353) (993)
Increase in other liabilities 485 23 12
Increase in other assets (37) (7) (23)
Net cash provided by operating
activities 4,245 1,178 1,007
CASH FLOWS USED IN INVESTING
ACTIVITIES
Purchase of investment secur-
ities (1,416) (314) (223)
Investment in bank subsidiary (2,700) - -
Net cash used in investing
activities (4,116) (314) (223)
CASH FLOWS PROVIDED BY (USED IN)
FINANCING ACTIVITIES
Proceeds from borrowings 1,010 - -
Issuance of treasury stock - 6 -
Cash dividends paid (982) (829) (788)
Net cash provided by (used in)
financing activities 28 (823) (788)
Increase (decrease) in cash 157 41 (4)
Cash:
Beginning 296 255 259
Ending $ 453 $ 296 $ 255
Quarterly Data (Unaudited)
Year Ended December 31, 1999
Fourth Third Second First
Quarter Quarter Quarter Quarter
(In Thousands, Except Per Share Data)
Interest income $6,237 $6,014 $5,550 $5,144
Interest expense 3,487 3,191 2,973 2,747
Net interest income 2,750 2,823 2,577 2,397
Provision for loan losses 270 505 248 247
Net interest income after provision
for loan losses 2,480 2,318 2,329 2,150
Other income 1,271 1,149 1,226 1,125
Other expenses 3,248 3,646 2,750 2,549
Income (loss) before federal income
taxes (benefits) 503 (179) 805 726
Federal income taxes (benefits) 136 (74) 224 168
Net income (loss) $ 367 $ (105) $ 581 $ 558
Earnings per common share, basic and
diluted $ 20 $ (.06) $ .32 $ .30
Year Ended December 31, 1998
Fourth Third Second First
Quarter Quarter Quarter Quarter
(In Thousands, Except Per Share Data)
Interest income $5,227 $4,557 $4,579 $4,185
Interest expense 2,715 2,393 2,313 2,070
Net interest income 2,512 2,164 2,266 2,115
Provision for loan losses 210 150 163 97
Net interest income after
provision for loan losses 2,302 2,014 2,103 2,018
Other income 207 284 338 320
Other expenses 1,942 1,824 2,028 1,964
Income before federal income taxes 567 474 413 374
Federal income taxes 66 117 74 60
Net income $ 501 $ 357 $ 339 $ 314
Earnings per common share, basic and
diluted $ .28 $ .20 $ .19 $ .18
Merger and restructuring costs totaling $814,000 ($617,000
after tax) were expensed during the third quarter of 1999.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information relating to Directors and Executive
Officers of the Registrant is incorporated herein by reference
to the Registrant's Proxy Statement for the Annual meeting of
Stockholders to be held on April 18, 2000.
Item 11. Executive Compensation
The information relating to executive compensation and
directors' compensation is incorporated herein by reference to
the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on April 18, 2000, excluding the Stock
Performance Graph and Compensation Committee Report.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The information relating to security ownership of certain
beneficial owners and management is incorporated herein by
reference to the Registrant's Proxy Statement for the Annual
Meeting of Stockholders to be held on April 18, 2000.
Item 13. Certain Relationships and Related Transactions
The information relating to certain relationships and
related transactions is incorporated herein by reference to the
Registrant's proxy Statement for the Annual Meeting of
Stockholders to be held on April 18, 2000.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K
(a) 1. Financial Statements.
Consolidated financial statements are included under Item 8
of Part II of this Form 10-K.
(b) 2. Financial Statement Schedules.
Financial statement schedules are omitted because the
required information is either not applicable, not required or
is shown in the respective financial statements or in the notes
thereto.
3. Exhibits
Exhibit No. Description
3.1 Articles of Incorporation of First Leesport
Bancorp, Inc. (Incorporated herein by reference to
Exhibit 3.1 to Registrant's annual report on
Form 10-KSB for the year ended December 31, 1998).
3.2 By-laws of First Leesport Bancorp, Inc.
(Incorporated herein by reference to Exhibit 3.2
to Registrant's annual report on Form 10-KSB for
the year ended December 31, 1998).
10.1 Contract between the First National Bank of
Leesport and Bisys (Incorporated herein by
reference to Exhibit 10.1 to Registrant's annual
report on Form 10-KSB for the year ended
December 31, 1998).
10.2 Severance Agreement between the First National
Bank of Leesport and John T. Connelly
(Incorporated herein by reference to Exhibit 10.2
to Registrant's annual report on Form 10-KSB for
the year ended December 31, 1998).*
10.3 Employment Agreement between the First National
Bank of Leesport and Raymond H. Melcher, Jr.
(Incorporated herein by reference to Exhibit 10.4
to Registrant's annual report on Form 10-KSB for
the year ended December 31, 1998).*
10.4 Supplemental Executive Retirement Plan
(Incorporated herein by reference to Exhibit 10.1
to Registrant's Quarterly Report on Form 10-QSB
for the quarter ended June 30, 1996).*
10.5 Deferred Compensation Plan for Directors
(Incorporated herein by reference to Exhibit 10.2
to Registrant's Quarterly Report on Form 10-QSB
for the quarter ended June 30, 1996).*
10.6 Non-Employee Director Compensation Plan
(Incorporated by reference to Exhibit A to
Registrant's Definitive Proxy Statement on
Form 14A for the year ended December 31, 1999).*
10.7 1998 Employee Stock Incentive Plan (Incorporated
by reference to Exhibit 10.9 to Registrant's
Annual Report on Form 10-KSB for the year ended
December 31, 1998).*
10.8 1998 Independent Directors Stock Option Plan
(Incorporated by reference to Exhibit 10.10
to Registrant's Annual Report on Form 10-KSB for
the year ended December 31, 1998).*
10.9 Agreement and Plan of Merger dated January 12,
1999 by and between First Leesport Bancorp, Inc.
and Merchants of Shenandoah Ban-Corp(Incorporated
herein by reference to Exhibit 99.2 to
Registrant's Current Report on Form 8-K filed
January 22, 1999).
10.10 Employment Agreement dated September 17, 1998,
among First Leesport Bancorp, Inc., Essick & Barr,
Inc. and Charles J. Hopkins (Incorporated by
reference to Exhibit 10.12 to Registrant's
Annual Report on Form 10-KSB for the year ended
December 31, 1998).*
10.11 Employment Agreement dated September 17, 1998
among First Leesport Bancorp, Inc., Essick & Barr,
Inc. and Michael D. Hughes (Incorporated by
reference to Exhibit 10.13 to Registrant's
Annual Report on Form 10-KSB for the year ended
December 31, 1998).*
10.12 Employment Agreement dated October 1, 1999 among
First Leesport Bancorp, Inc., First Leesport
Investment Group, Inc., First Leesport Wealth
Management, Inc. and Keith W. Johnson.*
11 No statement setting forth the computation of per
share earnings is included because, pursuant to
Instruction (b)(11) to Item 601 of Regulation S-B,
such computation is reflected clearly in the
financial statements set forth in response to
Item 7 of this Report.
21 Subsidiaries of First Leesport Bancorp, Inc.
23.1 Consent of Beard & Company, Inc.
23.2 Consent of Stokes, Kelly & Hinds, LLC.
27.1 Financial Data Schedule.
27.2 Restated Financial Data Schedule
99 Report of Stokes, Kelly & Hinds, LLC.
_____________________
* Denotes a management contract or compensatory plan or
arrangement.
(b) Reports on Form 8-K.
The following report on Form 8-K was filed by the
Company during the quarter ended December 31, 1999:
First Leesport Bancorp, Inc. filed a Current
Report on Form 8-K on October 13, 1999 disclosing under Item 5
the acquisition of Johnson Financial Group, Inc., a registered
investment advisory firm, and the formation of First Leesport
Investment Group, Inc., to acquire the assets and operate the
full service brokerage business of KRJ & Associates.
Signatures
In accordance with Section 13 or 15(d) of the Exchange Act,
the registrant has caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
March 21, 2000 FIRST LEESPORT BANCORP, INC.
By /s/ Raymond H. Melcher, Jr.
Raymond H. Melcher, Jr.,
Chairman, President and
Chief Executive Officer
In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Raymond H. Melcher, Jr. Chairman, March 21, 2000
Raymond H. Melcher, Jr. President and Chief
Executive Officer,
Director
/s/ Kurt A. Phillips Chief Financial March 21, 2000
Kurt A. Phillips and Chief
Accounting Officer
Director
Edward C. Barrett
/s/ James H. Burton Director March 21, 2000
James H. Burton
/s/ Anthony R. Cali Director March 21, 2000
Anthony R. Cali
/s/ John T. Connelly Director March 21, 2000
John T. Connelly
/s/ Richard L. Henry Director March 21, 2000
Richard L. Henry
/s/ Charles J. Hopkins Director March 21, 2000
Charles J. Hopkins
/s/ Keith W. Johnson Director March 21, 2000
Keith W. Johnson
/s/ William J. Keller Director March 21, 2000
William J.Keller
Director
Andrew J. Kuzneski, Jr.
/s/ Roland C. Moyer, Jr. Director March 21, 2000
Roland C. Moyer, Jr.
/s/ Harry J. O'Neill, III _ Director March 21, 2000
Harry J. O'Neill III
/s/ Karen A. Rightmire_____ Director March 21, 2000
Karen A. Rightmire
/s/ Alfred J. Weber________ Director March 21, 2000
Alfred J. Weber
EXHIBIT INDEX
Exhibit No. Description
10.12 Employment Agreement dated October 1, 1999
among First Leesport Bancorp, Inc., First
Leesport Investment Group, Inc., First
Leesport Wealth Management, Inc. and
Keith W. Johnson.*
21 Subsidiaries of First Leesport Bancorp,
Inc.
23.1 Consent of Beard & Company, Inc.
23.2 Consent of Stokes, Kelly & Hinds, LLC.
27.1 Financial Data Schedule.
27.2 Restated Financial Data Schedule.
99 Report of Stokes, Kelly & Hinds, LLC.
87