10-Q 1 w91652e10vq.txt FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2003 \ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2003 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ---------------- --------------- Commission File Number 0-26744 PATRIOT BANK CORP. -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) PENNSYLVANIA 232820537 -------------------------------------------------------------------------------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) High and Hanover Streets, Pottstown, Pennsylvania 19464-9963 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (610) 323-1500 -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Not Applicable -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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. [X] Yes [__] No APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 6,625,686 shares of common stock were outstanding as of November 12, 2003. 1 PATRIOT BANK CORP. AND SUBSIDIARIES INDEX

2 ITEM 1 FINANCIAL STATEMENTS Patriot Bank Corp. and Subsidiaries CONSOLIDATED BALANCE SHEETS (in thousands, except share data)

The accompanying notes are an integral part of these statements. 3 Patriot Bank Corp. and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME (in thousands, except for share data) (unaudited)

The accompanying notes are an integral part of these statements. 4 Patriot Bank Corp. and Subsidiaries CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (in thousands, unaudited)

The accompanying notes are an integral part of these statements. 5 Patriot Bank Corp. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands, unaudited)

6 Patriot Bank Corp. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (in thousands, unaudited) SUPPLEMENTAL DISCLOSURES (CONTINUED) On January 3, 2003, Patriot purchased the stock of Bonds & Paulus Associates, Inc. for $458,000 plus contingent consideration to be paid in shares of Patriot Bank Corp. common stock based upon future revenues of Bonds & Paulus. Of the $458,000, $115,000 was paid in cash and 22,810 shares of Patriot Bank Corp. common stock having a value of $343,000 were issued at closing. In conjunction with the acquisition of Bonds & Paulus Associates, Inc., liabilities were assumed as follows: Fair value of assets acquired $ 1,671.0 Cash paid (115.0) Stock issued (343.0) ----------- Liabilities assumed $ 1,213.0

On January 17, 2003, Patriot purchased the stock of Pension Benefits Inc. for $829,000 plus contingent consideration to be paid in shares of Patriot Bank Corp. common stock based upon future revenues of Pension Benefits, Inc. Of the $829,000, $414,500 was paid in cash and 27,338 shares of Patriot Bank Corp. common stock were issued at closing. In conjunction with the acquisition of Pension Benefits Inc., liabilities were assumed as follows: Fair value of assets acquired $ 2,114.0 Cash paid (414.5) Stock issued (414.5) ----------- Liabilities assumed $ 1,285.0

On September 5, 2003, Patriot purchased the stock of Tyler Wealth Counselors for $650,000 in cash. In conjunction with the acquisition of Tyler Wealth Counselors liabilities were assumed as follows: Fair value of assets acquired $ 687.0 Cash paid (650.0) Stock issued -- ----------- Liabilities assumed $ 37.0

The accompanying notes are an integral part of these statements. 7 PATRIOT BANK CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (UNAUDITED)

8 PATRIOT BANK CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) September 30, 2003 NOTE 1 - GENERAL The accompanying financial statements of Patriot Bank Corp. and Subsidiaries ("Patriot") include the accounts of the parent company, Patriot Bank Corp. and its wholly-owned subsidiaries, Patriot Bank, Patriot Investment Company and Patriot Advisors, Inc. All material intercompany balances and transactions have been eliminated in consolidation. These financial statements have been prepared in accordance with the instructions for Form 10-Q and therefore do not include certain information or footnotes necessary for the presentation of financial condition, results of operations, and cash flows in conformity with generally accepted accounting principles. However, in the opinion of management, the consolidated financial statements reflect all adjustments (which consist of normal recurring accruals) necessary for a fair presentation of the results for the unaudited periods. The results of operations for the three and nine-month periods ended September 30, 2003 are not necessarily indicative of the results which may be expected for the entire year. The consolidated financial statements should be read in conjunction with the annual report on Form 10-K for the year ended December 31, 2002. All share amounts, including earnings per share, have been restated to reflect the effect of the 10% stock dividend paid in April 2003. In December 2002, the FASB issued Statement No. 148, Accounting for Stock-Based Compensation--Transition and Disclosure. This statement amends FASB Statement No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of Statement 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The requirements of Statement No. 148 are effective for fiscal years ending after December 15, 2002, except for financial reports containing condensed financial statements for interim periods. Patriot continues to account for stock based compensation under APB No. 25. If Statement No. 123 would have been applied it would have had the following impact:

9 PATRIOT BANK CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) September 30, 2003 NOTE 2 - SECURITIES The amortized cost and estimated fair value of investment and mortgage-backed securities are as follows:

10 PATRIOT BANK CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) September 30, 2003 NOTE 3 - LOANS RECEIVABLE Loans receivable are summarized as follows:

NOTE 4 - DEPOSITS Deposits are summarized as follows:

11 PATRIOT BANK CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) September 30, 2003 NOTE 5 - EARNINGS PER SHARE The dilutive effect of stock options is excluded from basic earnings per share but included in the computation of diluted earnings per share.

NON-DILUTIVE OPTIONS. Patriot had 5,000 and 235,000 non-dilutive options at September 30, 2003 and 2002, respectively. 12 PATRIOT BANK CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) September 30, 2003 NOTE 6 - SEGMENT REPORTING The Company has four reportable segments: Banking, Mortgage Banking, Financial Advisors and Commercial Leasing. Banking operates a network of 16 community banking offices providing deposit and loan services to customers. Mortgage Banking originates and sells residential mortgages into the secondary market to generate fee income. Financial Advisors results for the three and nine-month period ended September 30, 2002, reflect only brokerage services. In January 2003, Patriot completed its acquisition of two companies and another acquisition in September 2003, which is disclosed in Note 13 - Business Combinations. As a result of these business combinations, Financial Advisors' now offers wealth and investment management, pension benefits, and insurance services in addition to brokerage services. The impact of these three acquisitions was $5,689,000 to total assets and $472,000 and $1,337,000 to other income for the three-month and nine-months periods ended 2003. Commercial Leasing originates small ticket leases. The following table highlights income statement and balance sheet information for each of the segments at or for the three and nine-month periods ended September 30, 2003 and 2002.

13 PATRIOT BANK CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) September 30, 2003 NOTE 7 - ACCOUNTING FOR GOODWILL AND OTHER INTANGIBLE ASSETS A summary of non-amortizing and amortizing intangible assets is as follows:

Aggregate amortization expense for the three and nine-month periods ended September 30 is as follows:

The estimated amortization expense of intangible assets for each of the five succeeding fiscal years is as follows:

The changes in the carrying amount of goodwill reported by segment are as follows:

14 PATRIOT BANK CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) September 30, 2003 NOTE 8 - ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS In June 2001, the FASB issued Statement No. 143, Accounting for Asset Retirement Obligations. This Statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. It applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and (or) the normal operation of a long-lived asset, except for certain obligations of lessees. As used in this Statement, a legal obligation is an obligation that a party is required to settle as a result of an existing or enacted law, statute, ordinance, or written or oral contract or by legal construction of a contract under the doctrine of promissory estoppel. This Statement requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. It is effective for financial statements issued for fiscal years beginning after June 15, 2002. The adoption of this statement did not have an impact on Patriot's earnings, financial condition, or equity. NOTE 9 - REPORTING GAINS AND LOSSES FROM EXTINGUISHMENT OF DEBT In April 2002, the FASB issued Statement No. 145, Reporting Gains and Losses from Extinguishment of Debt. This Statement rescinds FASB Statement No. 4, Reporting Gains and Losses from Extinguishment of Debt, and an amendment of that statement, FASB Statement No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. This Statement amends FASB Statement No. 13, Accounting for Leases, to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications. It is effective for financial statements issued for fiscal years beginning after May 15, 2002, and interim periods within those fiscal years. The adoption of this statement did not have an impact on Patriot's earnings, financial condition, or equity. NOTE 10 - ACCOUNTING FOR COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES In June 2002, the FASB issued Statement No. 146, Accounting for Costs Associated with Exit or Disposal Activities. This statement requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. This Statement 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The adoption of this Statement did not have an impact on Patriot's earnings, financial condition, or equity. NOTE 11 - AMENDMENTS OF STATEMENT 133 ON DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES In April 2003, the FASB issued SFAS No. 149, "Amendments of Statement 133 on Derivative Instruments and Hedging Activities", which establishes accounting and reporting standards for derivative instruments, including derivatives embedded in other contracts and hedging activities. This Statement amends Statement No. 133 for decisions made by the FASB as part of its Derivatives Implementation Group process. This Statement also amends Statement No. 133 to incorporate clarifications of the definition of a derivative. This Statement is effective for contracts entered into or modified and hedging relationships designated after June 30, 2003. The adoption of this Statement did not have an impact on Patriot's earnings, financial condition, or equity. NOTE 12 - ACCOUNTING FOR CERTAIN FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity". This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Some of the provisions of this Statement are consistent with the current definition of liabilities in FASB Concepts Statement No. 6, "Elements of Financial Statements". The remaining provisions of this Statement are consistent with the Board's proposal to revise that definition to encompass certain obligations that a reporting entity can or must settle by issuing its own equity shares, depending on the nature of the relationship established between the holder and the issuer. Effective for financial instruments entered into or modified after May 31, 2003 and otherwise, is effective at the beginning of the first interim period after June 15, 2003. The adoption of this Statement did not have an impact on Patriot's earnings, financial condition, or equity. 15 PATRIOT BANK CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) September 30, 2003 NOTE 13 - BUSINESS COMBINATIONS WEALTH MANAGEMENT FIRM ACQUISITION. On January 3, 2003, Patriot completed the acquisition of Bonds & Paulus Associates, Inc. (Bonds & Paulus), a wealth management firm headquartered in Chester County, Pennsylvania. Founded in 1993, Bonds & Paulus is a registered investment advisory firm, providing investment advisory and financial planning services to high net-worth individuals and families. Bonds & Paulus was merged into Patriot Advisors, a subsidiary of Patriot Bank Corp. that provides a full range of wealth and investment management services. The acquisition was accounted for as a purchase. Bonds & Paulus was purchased for $458,000 plus contingent consideration to be paid in shares of Patriot Bank Corp. common stock based upon future revenues of Bonds & Paulus. Of the $458,000, $115,000 was paid in cash and 22,810 shares of Patriot Bank Corp. common stock having a value of $343,000 were issued at closing. Based upon current revenue, the total purchase price will approximate $1,300,000. Goodwill arising from the transaction totaled $1,209,000. An additional $343,000 of intangible assets acquired were assigned to customer lists subject to amortization and having a 15-year weighted-average useful life. PENSION BENEFITS SERVICE PROVIDER ACQUISITION. On January 17, 2003, Patriot completed the acquisition of Pension Benefits, Inc., a pension benefits service provider headquartered in West Chester, Pennsylvania. Founded in 1986, Pension Benefits Inc. is a third party administrator and a registered investment advisory firm, providing comprehensive retirement plan solutions to businesses. Pension Benefits, Inc. was merged into Patriot Advisors, a subsidiary of Patriot Bank Corp. The acquisition was accounted for as a purchase. Pension Benefits, Inc. was purchased for $829,000 plus contingent consideration to be paid in shares of Patriot Bank Corp. common stock based upon future revenues of Pension Benefits, Inc. Of the $829,000, $414,500 was paid in cash and 27,338 shares of Patriot Bank Corp. common stock were issued at closing. Based upon current revenue, the total purchase price will approximate $1,600,000. Goodwill arising from the transaction totaled $1,431,000. An additional $442,000 of intangible assets acquired were assigned to customer lists subject to amortization and having a 15-year weighted-average useful life. TYLER WEALTH COUNSELORS ACQUISITION. On September 5, 2003, Patriot completed the acquisition of Tyler Wealth Counselors, a wealth management firm headquartered in Chester County, Pennsylvania. Tyler Wealth Counselors is a registered investment advisory firm, providing investment advisory and financial planning services to individuals and families. Tyler Wealth Counselors was merged into Patriot Advisors, a subsidiary of Patriot Bank Corp. that provides a full range of wealth and investment management services. The acquisition was accounted for as a purchase. Tyler Wealth Counselors was purchased for $650,000 in cash. Supplemental pro forma information that discloses the results of operations for Patriot Bank Corp. and its subsidiaries for the three and nine-month periods ended September 30, 2003 to the same period in 2002 is provided below. The pro forma information assumes the business combinations of Bonds & Paulus Associates, Inc., Pension Benefits, Inc. and Tyler Wealth Counselors had been completed as of the beginning of each period and illustrates the impact on Patriot's non-interest income, net income and EPS for each period.

16 PATRIOT BANK CORP. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS In addition to historical information, this discussion and analysis of Patriot Bank Corp. and Subsidiaries (Patriot) contains forward-looking statements. The forward-looking statements contained herein are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. Important factors that might cause such a difference include, but are not limited to those discussed in the "Management's Discussion and Analysis of Financial Condition and Results of Operations". Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date hereof. Patriot undertakes no obligation to publicly revise or update these forward-looking statements to reflect events or circumstances that arise after the date hereof. SUMMARY. Patriot reported diluted earnings per share of $.32 and net income of $2,139,000 for the three-month period ended September 30, 2003 compared to diluted earnings per share of $.29 and net income of $2,012,000 for the three month period ended September 30, 2002. Diluted earnings per share for the nine-month period ending September 30, 2003 was $.95 and net income of $6,389,000 compared with $.85 and net income of $5,832,000 for the nine-month period ended September 30, 2002. Return on average equity was 13.53%, for the three-month period ended September 30, 2003 compared to 12.06%, for the three-month period ended September 30, 2002. During the third quarter of 2003, Patriot's internal control process uncovered what is believed to be a defalcation perpetrated by a mid-level supervisory employee within Patriot's credit card operation. The defalcation includes an alleged theft and the alleged falsification and destruction of accounting records as well as the concealment of credit card delinquencies and bankruptcies. The total amount of the alleged theft is approximately $982,000. The company maintains an insurance policy that management and its legal counsel believe covers the majority of the alleged theft. Additionally, Patriot recorded an after-tax charge of $367,000 related to the deductible on that insurance policy and losses and operating expenses associated with the falsification and destruction of accounting records. The alleged defalcation included the concealment of approximately $475,000 of unsecured customer bankruptcies, which, since they were not material to any prior period, were charged off during the third quarter through Patriot's loan loss reserve. The alleged defalcation also included the concealment of approximately $350,000 of delinquent credit card receivables, which are now being subjected to normal collection procedures. Additional charge-offs may result from these delinquent accounts. NET INTEREST INCOME. Net interest income for the three and nine-month periods ended September 30, 2003 was $7,717,000 and $22,919,000 compared to $7,621,000 and $21,663,000 for the same periods in 2002. The increase in net interest income was primarily due to the decreases in market rates paid on Patriot's funding sources outpacing decreases in the rates earned on interest earning assets. As a result, Patriot's net interest margin has expanded. Patriot's net interest margin (net interest income as a percentage of average interest-earning assets) for the three and nine-month periods ended September 30, 2003 was 3.63% and 3.60% compared to 3.50% and 3.29% for the same periods in 2002. Interest on loans and leases was $10,455,000 and $32,227,000 for the three and nine-month periods ended September 30, 2003 compared to $12,281,000 and $37,212,000 for the same periods in 2002. The average balance of loans was $594,723,000 with an average yield of 7.22% for the nine-month period ended September 30, 2003 compared to an average balance of $639,368,000 with an average yield of 7.75% for the same period in 2002. The decrease in average balance is primarily due to Patriot allowing residential mortgages to run-off, offset by growth in consumer and commercial loans. During the nine-month period ended September 30, 2003, the residential mortgage loan portfolio decreased $47,327,000 while Patriot's other loan and lease portfolios increased $29,879,000. The decrease in average yield is primarily a result of a decrease in market rates. Interest on Patriot's investment portfolio (investment and mortgage-backed securities) was $3,839,000 and $12,088,000 for the three and nine-month periods ended September 30, 2003 compared to $4,295,000 and $13,076,000 for the same periods in 2002. The average balance of the investment portfolio was $333,838,000 with an average yield of 5.65% for the nine-month period ended September 30, 2003 compared to an average balance of $296,462,000 with an average yield of 6.50% for the same period in 2002. The increase in average balance is primarily due to Patriot investing funds from the repayment of residential mortgage loans. The decrease in average yield is related to new security purchases at lower yields as well as general decreases in market rates on adjustable rate securities. Some of these security purchases have been tax beneficial securities so even though Patriot's yield may be lower, Patriot's tax expense is lower as well. Interest on total deposits was $3,135,000 and $9,513,000 for the three and nine-month periods ended September 30, 2003 compared to $3,341,000 and $11,239,000 for the same periods in 2002. The average balance of total deposits was $581,592,000 with an average cost of 2.16% for the nine-month period ended September 30, 2003 compared to an average balance of $521,330,000 with an average cost of 2.86% for the same period in 2002. The increase in average balance is primarily the result of aggressive marketing of money market and transaction-based deposit accounts through new and existing branches. The overall decrease in the average cost on deposits was primarily the result of a decrease in market rates, a reduction in higher costing certificate of deposit accounts and emphasis placed on lower cost core deposit accounts. 17 PATRIOT BANK CORP. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Interest on borrowings was $3,445,000 and $11,896,000 for the three-month and nine-month periods ended September 30, 2003 compared to $5,621,000 and $17,453,000 for the same periods in 2002. The average balance of borrowings was $339,858,000 with an average cost of 4.62% for the nine-month period ended September 30, 2003 compared to an average balance of $411,321,000 with a cost of 5.60% for the same period in 2002. The decrease in average balance was primarily due to borrowings being replaced with branch deposit growth. The decrease in the cost of borrowings was the result of a decrease in interest rates and the result of restructured borrowed funds with a higher cost of funds. During the nine-month period of 2003, Patriot prepaid $55,000,0000 in FHLB borrowings and restructured $72,000,000 in FHLB borrowings. PROVISION FOR CREDIT LOSSES. The provision for credit losses was $900,000 and $2,900,000 for the three-month and nine-month periods ended September 30, 2003 compared to $1,200,000 and $2,875,000 for the same period in 2002. Net charge-offs for the three and nine-month periods-ended September 30, 2003, were $1,433,000 and $3,013,000. The combination of these items represented a decrease of $533,000 and $113,000 to the allowance for credit losses for the three and nine-month periods-ended September 30, 2003, which totaled $6,809,000 at September 30, 2003. Patriot's total loans consist of four distinct portfolios, each of which is monitored and analyzed separately. The allowance for credit losses is based on management's ongoing evaluation of the loan portfolios and reflects an amount considered by management to be its best estimate of the amount necessary to absorb known and inherent losses in the portfolios. Management considers a variety of factors when establishing the allowance, such as the impact of current economic conditions, diversification of the portfolios, delinquency statistics, results of loan review and related classifications, and historic loss rates. In addition, certain individual loans which management has identified as problematic are specifically provided for, based upon an evaluation of the borrower's perceived ability to pay, the estimated adequacy of the underlying collateral and other relevant factors. In addition, regulatory authorities, as an integral part of their examinations, periodically review the allowance for credit losses. They may require additions to the allowance based upon their judgements about information available to them at the time of examination. Although provisions have been established and segmented by type of loan, based upon management's assessment of their differing inherent loss characteristics, the entire allowance for losses on loans is available to absorb further loan losses in any category. Management uses significant estimates to determine the allowance for credit losses. Because the allowance for credit losses is dependent, to a great extent, on conditions that may be beyond Patriot's control, management's estimate of the allowance necessary to absorb credit losses and actual credit losses could differ. RESIDENTIAL MORTGAGE LOANS. The residential mortgage loan portfolio is seasoned because Patriot has been in the mortgage lending business for many years, but has sold substantially all new mortgage originations in the past three years. Patriot's mortgage loans are generally well collateralized and historically Patriot has experienced minimal losses on these loans. Because of Patriot's consistent history in mortgage lending and the long-term nature of this portfolio, Patriot predominately relies upon an internal regression analysis that uses historical data to estimate losses inherent in the portfolio. CONSUMER LOANS. Consumer loans consist mostly of home equity loans and home equity lines of credit. The consumer loan portfolio also is mature as Patriot has been in the consumer lending business for many years. As with mortgage lending, Patriot predominantly uses an internal regression analysis that uses historical data to estimate losses inherent in the portfolio. During the third quarter Patriot uncovered an employee defalcation involving its credit card portfolio. One of the components of the defalcation was the manipulation of delinquency reports distributed to Patriot's collection department. As such Patriot charged-off $475,000 in credit card balances during the third quarter of 2003 and is in the process of working out $350,000 in current delinquencies that may lead to additional charge-offs in the fourth quarter. This elevated charge-off level, which management believes to be an aberration, should not have a material effect on the required levels of reserve for the total loan portfolio. COMMERCIAL LOANS. Patriot entered the commercial lending business in 1996 and has grown the portfolio into a substantial portion of total loans. Patriot uses historical data to prepare regression models to monitor trends of charge-offs and recoveries and establish appropriate allowance levels. Compared to December 31, 2002, the level of non-performing assets in the commercial lending portfolio decreased from $3,893,000 to $2,933,000 at September 30, 2003. Patriot closely monitors local economic and business trends relative to its commercial lending portfolio to estimate the effect those trends may have on losses. Patriot's commercial loan portfolio contains some loans that are substantially larger than the loans within its other portfolios. The loss associated with an individual loan could have a significant impact on the allowance and charge-off levels at Patriot. Therefore, Patriot closely monitors these loans and specifically reserves for individual loans that exhibit weakness. 18 PATRIOT BANK CORP. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) COMMERCIAL LEASES. Patriot entered the commercial leasing business in 1998 principally through the acquisition of Keystone Financial Leasing (KFL). Patriot's leasing portfolio has approximately a 3-year life. Patriot performs an internal regression analysis on this portfolio using historical data (including KFL data). Patriot also closely monitors regional and national economic business trends relative to its commercial leasing portfolio to estimate the effect those trends may have on losses. During 2002, Patriot experienced an increase in the level of charge-offs in the commercial leasing portfolio. Patriot attributes the increase to a general weakness in the overall economy, relatively low previous year charge-offs and higher delinquency trends in certain sectors of the portfolio. In response to the elevated charge-offs, Patriot enhanced its policies, procedures and resources related to the credit administration of the leasing portfolio. The result of these enhancements has been a steady improvement in delinquencies, and non-performing and charged-off leases in the latter part of 2002 and the first quarter of 2003. Compared to December 31, 2002, the level of non-performing assets in the commercial leasing portfolio decreased from $1,012,000 to $572,000 at September 30, 2003. Patriot's percentage of loan loss reserves to total loans increased from 1.11% at December 31, 2002, to 1.13% at September 30, 2003, which correlates to Patriot's growth in its higher risk commercial loan portfolio. During the first nine months of 2003, Patriot's overall loan and lease portfolios decreased from $611,295,000 at December 31, 2002, to $593,955,000. The decrease in the loan portfolios was attributed to the run-off of residential mortgage loans, which was offset by growth in Patriot's other loan and lease portfolios. At September 30, 2003, Patriot had $9,639,000 in loans and leases, which were 30 days or more delinquent and represented 1.59% of Patriot's total loan and lease portfolio compared to $9,845,000 or 1.58% at December 31, 2002. Based on the growth in the commercial loan portfolio and offset by credit quality improvement in the leasing portfolio, management determined a provision of $2,900,000 was necessary to adequately address the losses inherent in Patriot's loan and lease portfolios. Patriot believes that the allowance provides for known and inherent credit losses at September 30, 2003. NON-INTEREST INCOME. Total non-interest income was $3,095,000 and $8,828,000 for the three-month and nine-month periods ended September 30, 2003 compared to $1,985,000 and $5,449,000 for the same periods in 2002. The increase in non-interest income was derived from three sources: Non-Interest income from the gains on the sale of loans and leases was $469,000 and $1,918,000 for the three and nine-month periods ended September 30, 2003 compared to $425,000 and $1,221,000 for the same period in 2002. This increase was primarily due to mortgage banking gains associated with higher volumes. Gains recognized on the sale of the guaranteed portion of Small Business Administration loans contributed to this increase as well. Patriot Advisors, a division of Patriot Bank Corp., provided $552,000 and $1,532,000 in non-interest income during the three and nine-month periods ended September 30, 2003 compared to $53,000 and $265,000 for the same period in 2002. This increase in Patriot Advisors' non-interest income can be attributed to the acquisitions of Bonds & Paulus Associates, Inc. and Pension Benefits, Inc. which occurred during the first quarter of 2003 as well as the acquistion of Tyler Wealth Counselors, which occurred during the third quarter of 2003. Non-Interest income from service fees on deposits was $898,000 and $2,678,000 for the three and nine-month periods ended September 30, 2003 compared to $709,000 and $1,957,000 for the same period in 2002. The increase in service fees on deposits was a result of the implementation of an overdraft privilege product which was implemented during the third quarter of 2002. During the nine-month period of 2003, Patriot prepaid $55,000,0000 in FHLB borrowings. During the first and second quarters in 2003, Patriot recorded a $588,000 and $136,000 loss, respectively, representing the prepayment penalties for repaying these advances early. In conjunction with these transactions, Patriot sold $30,859,000 of securities and recognized $556,000 and $376,000 of investment gains during the first and second quarters in 2003, respectively. Overall, the combination of these transactions allowed Patriot to improve its interest rate risk profile. NON-INTEREST EXPENSE. Total non-interest expense was $7,289,000 and $20,949,000 for the three and nine-month periods ended September 30, 2003 compared to $5,901,000 and $16,721,000 for the same periods in 2002. Of this increase in non-interest expense, $1,036,000 and $3,041,000 for the three and nine-month periods in 2003, was primarily due to higher compensation costs associated with increases in staffing. Patriot's three acquisitions during the first nine months of 2003 as well as service requirements associated with branch deposit and commercial lending growth caused the increases in staffing. Other non-interest expenses such as occupancy and equipment, advertising, deposit processing and office supplies and postage were also higher during the three and nine-month 19 PATRIOT BANK CORP. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) periods in 2003 as compared to the same periods in 2002, which can be attributed to normal recurring expenses associated with Patriot's three acquisitions during 2003 and the addition of 2 new branches in 2003. INCOME TAX PROVISION. The income tax provision was $484,000 and $1,509,000 for the three-month and nine-month periods ended September 30, 2003 compared to $493,000 and $1,684,000 for the same periods in 2002. The effective tax rate was 18.45% and 19.11% for the three-month and nine-month periods ended September 30, 2003 compared to 19.68% and 22.41% for the same periods in 2002. The decrease in the effective tax rate was due to greater tax exempt income from tax-beneficial securities. FINANCIAL CONDITION LOAN AND LEASE PORTFOLIO. Patriot's primary portfolio loan products are commercial loans, small-ticket commercial leases, fixed-rate and adjustable-rate residential mortgage loans and home equity loans and lines of credit. Patriot also offers residential construction loans and other consumer loans. Patriot has sold substantially all new residential mortgage (fixed and adjustable rate) originations since 2000. At September 30, 2003, Patriot's total loan portfolio was $593,955,000, compared to $611,295,000 at December 31, 2002. The decrease in the loan portfolio was primarily the result of Patriot allowing residential mortgages to run-off, offset by an emphasis placed on increasing commercial and consumer lending relationships. CASH AND CASH EQUIVALENTS. Cash and cash equivalents at September 30, 2003 were $19,132,000 compared to $16,839,000 at December 31, 2002. The increase in cash balances was primarily due to timing differences. SECURITIES. Investment securities consist of US Treasury and government agency securities, and corporate debt and equity securities. Mortgage-backed securities consist of securities generally issued by either the FHLMC, FNMA or the Government National Mortgage Association ("GNMA"). Collateralized Mortgage Obligations ("CMOs") consist of securities issued by the FHLMC, FNMA or private issuers. Total investment and mortgage-backed securities at September 30, 2003 were $334,627,000 compared to $315,868,000 at December 31, 2002. The increase in investment and mortgage-backed securities was primarily due to the purchase of $154,361,000 of available for sale securities offset by investment amortization and maturities. The funding source for these purchases was principally residential mortgage loan prepayments. DEPOSITS. Deposits are primarily attracted from within Patriot's market area through the offering of various deposit instruments, including checking accounts, money market accounts, savings accounts, certificates of deposit and retirement savings plans. Patriot also solicits brokered deposits from various sources. Total deposits at September 30, 2003 were $623,988,000 compared to $519,120,000 at December 31, 2002. Of this increase, $99,846,000 was related to an increase in core deposits and $5,022,000 was related to growth in certificates of deposits. FHLB ADVANCES AND FEDERAL FUNDS. Patriot utilizes borrowings as a source of funds for its growth strategy and its asset/liability management. Patriot is eligible to obtain advances from the FHLB upon the security of certain loan portfolios, mortgage-backed securities, and investment securities, provided certain standards related to creditworthiness have been met. FHLB advances are made pursuant to several different credit programs, each of which has its own interest rate and range of maturities. The maximum amount that the FHLB will advance to member institutions fluctuates from time to time in accordance with the policies of the FHLB. Patriot also uses Federal Funds as a funding source. Federal Funds are transactions that are typically between financial institutions and are short-term unsecured borrowings. Total FHLB advances and federal funds borrowed at September 30, 2003 were $249,455,000 compared to $368,173,000 at December 31, 2002. The decrease in FHLB advances and federal funds was associated with the repayment of short-term FHLB advances. During the nine-month period in 2003, Patriot prepaid $55,000,0000 in FHLB borrowings and restructured $72,000,000 in FHLB borrowings, which allowed Patriot to improve its interest rate risk profile. On June 20, 2003, the Company entered into three pay variable receive fixed interest rate swaps to hedge changes in the fair value of designated fixed rate FHLB advances. The notional amount of these contracts totals $72 million and mature on May 29, 2008. The company has agreed to pay 3 month LIBOR plus a spread, with quarterly reset, and to receive a fixed rate equal to the rate paid on the individual FHLB advances. Since the terms of interest rate swaps mirror those of the hedged items, FHLB advances, the Company has adopted the short cut method, as prescribed in SFAS No. 133, to account for these transactions. Therefore, no hedge ineffectiveness was recognized in earnings related to these fair value hedges. 20 PATRIOT BANK CORP. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) REPURCHASE AGREEMENTS. Patriot uses repurchase agreements as a funding source. Repurchase agreements are generally short-term obligations collateralized by government agency and other securities. Total repurchase agreements at September 30, 2003 were $46,270,000 compared to $14,210,000 at December 31, 2002. The increase in repurchase agreements was primarily due to the addition of $32,896,000 of brokered repurchase agreements offset by a decrease in customer repurchase agreements. The increase in repurchase agreements replaced FHLB advances that were repaid during the first nine months of 2003. OTHER LIABILITIES. Other Liabilities at September 30, 2003 were $6,220,000 compared to $4,987,000 at December 31, 2002. The increase in other liabilities was primarily attributable to the accrual of contingent consideration associated with the purchase of Bonds and Paulus Associates, Inc. and Pension Benefits Inc. SHAREHOLDERS' EQUITY. Total shareholders' equity was $63,471,000 at September 30, 2003 compared to $65,945,000 at December 31, 2002. The decrease was primarily the result of a decrease in accumulated other comprehensive income, cash dividends paid to shareholders, and the repurchase of shares of Patriot Bank Corp. common stock offset by net income. 21 PATRIOT BANK CORP. AND SUBSIDIARIES CRITICAL ACCOUNTING POLICIES ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LEASES The allowance for credit losses on loans and leases is based on management's ongoing evaluation of the loan portfolio and reflects an amount considered by management to be its best estimate of the amount necessary to absorb known and inherent losses in the portfolio. Management considers a variety of factors when establishing the allowance, such as the impact of current economic conditions, diversification of the portfolio, delinquency statistics, results of loan review and related classifications, and historic loss rates. In addition, certain individual loans which management has identified as problematic are specifically provided for, based upon an evaluation of the borrower's perceived ability to pay, the estimated adequacy of the underlying collateral and other relevant factors. In addition, regulatory authorities, as an integral part of their examinations, periodically review the allowance for credit losses. They may require additions to the allowance based upon their judgements about information available to them at the time of examination. Although provisions have been established and segmented by type of loan, based upon management's assessment of their differing inherent loss characteristics, the entire allowance for credit losses on loans and leases is available to absorb further loan losses in any category. Management uses significant estimates to determine the allowance for credit losses. Because the allowance for credit losses is dependent, to a great extent, on conditions that may be beyond Patriot's control, management's estimate of the amount necessary to absorb credit losses and actual credit losses could differ. Patriot's current judgement is that the allowance for credit losses on loans and leases is appropriate at September 30, 2003. INCOME TAXES Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, as well as operating loss carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance would be established against deferred tax assets when in the judgement of management, it is more likely than not that such deferred tax assets will not become available. At September 30, 2003, based on management's evaluation of the likelihood of realization, no valuation allowance has been established. Because the judgement about the level of future taxable income is dependent to a great extent on matters that may, at least in part, be beyond Patriot's control, it is possible that management's judgement about the need for a valuation allowance for deferred taxes could change in the future. REAL ESTATE OWNED (REO) AND OTHER REPOSSESSED PROPERTY Real estate owned is defined to include real estate Patriot acquires through foreclosure. REO is recorded on Patriot's books at the lower of Patriot's carrying value in the loan or the fair value of the property as of the date of transfer to REO less estimated disposal costs. Any excess at the date of transfer of the recorded investment in the loan over the fair market value less estimated disposal costs is charged against Patriot's allowance for credit losses on loans and leases. Other repossessed property consists of mostly leased equipment returned to Patriot at the end of the lease. The off-lease equipment is recorded on Patriot's books at the lower of Patriot's carrying value in the lease or the fair value of the equipment as of the date of transfer to other repossessed property less estimated disposal costs. Any excess at the date of transfer of the recorded investment in the lease over the fair market value less estimated disposal costs is taken as a loss on Patriot's books. Additionally, valuation of REO and other repossessed property is dependent to a great extent on current economic, market and geographic conditions that are beyond Patriot's control. It is possible that management's estimates included in the valuation of REO and other repossessed property could change in the future. Patriot's current judgement is that the valuation of REO and other repossessed property is appropriate at September 30, 2003. 22 PATRIOT BANK CORP. AND SUBSIDIARIES LIQUIDITY AND CAPITAL RESOURCES LIQUIDITY. Patriot's primary sources of funds are deposits, principal and interest payments on loans, principal and interest payments on investment and mortgage-backed securities, FHLB advances, Federal Funds and repurchase agreements. While maturities and scheduled amortization of loans and investment and mortgage-backed securities are predictable sources of funds, deposit inflows and loan and mortgage-backed security prepayments are greatly influenced by economic conditions, general interest rates and competition. Therefore, Patriot manages its balance sheet to provide adequate liquidity based upon various economic, interest rate and competitive assumptions and in light of profitability measures. During the first nine months of 2003, $130,526,000 of liquidity was provided from the repayment and sale of securities. Additional liquidity of $104,868,000 was provided by deposit growth, $32,060,000 by short-term repurchase agreements and $12,562,000 from the repayment of loans. These funds were used to purchase $154,361,000 of investment securities, repay $117,731,000 of borrowings and fund $11,007,000 and $16,721,000 of commercial and consumer loans, net of prepayments, respectively. At September 30, 2003, Patriot had outstanding loan commitments of $68,246,000. Patriot anticipates that it will have sufficient funds available to meet its loan commitments. Certificates of deposit that are scheduled to mature in one year or less from September 30, 2003, totaled $140,151,000. Based upon historical experience, Patriot expects that substantially all of the maturing certificates of deposit will be retained at maturity, excluding brokered certificates in the amount of $25,841,000. CAPITAL RESOURCES. Federal Reserve regulations currently require companies to maintain a minimum leverage capital ratio of not less than 3% of tier 1 capital to total adjusted assets, a tier 1 capital ratio of not less than 4% of risk-adjusted assets, and a minimum risk-based total capital ratio (based upon credit risk) of not less than 8%. The Federal Reserve requires a minimum leverage capital requirement of 3% for institutions rated composite 1 under the CAMELS rating system. For all other institutions, the minimum leverage capital requirement is 3% plus at least an additional 1% to 2% (100 to 200 basis points). A bank is considered "well capitalized" if it maintains a minimum leverage capital ratio of not less than 5% of tier 1 capital to total adjusted assets, a tier 1 capital ratio of not less than 6% of risk adjusted assets, and a minimum risk-based total capital ratio (based upon credit risk) of not less than 10%. At September 30, 2003, Patriot Bank's and Patriot Bank Corp.'s capital ratios exceeded all requirements to be considered well capitalized. The following table sets forth the capital ratios of Patriot Bank Corp., Patriot Bank and the current regulatory requirements at September 30, 2003:

23 PATRIOT BANK CORP. AND SUBSIDIARIES ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK MANAGEMENT OF INTEREST RATE RISK. The principal objective of Patriot's interest rate risk management function is to evaluate the interest rate risk included in certain on and off balance sheet accounts, determine the level of risk appropriate given Patriot's business focus, operating environment, capital and liquidity requirements and performance objectives, and manage the risk consistent with Board approved guidelines. Through such management, Patriot seeks to reduce the vulnerability of its net interest income to changes in interest rates. Patriot's Board of Directors has established an Asset/Liability Committee, which is responsible for reviewing its asset/liability and interest rate position and making decisions involving asset/liability considerations. The Asset/Liability Committee meets regularly and reports trends and Patriot's interest rate risk position to the Board of Directors. The Company uses three complementary methods to analyze and measure interest rate risk as part of the overall management of interest rate risk. They are income simulation modeling, estimates of economic value of equity, and static gap analysis. The combination of these three methods provides a reasonably comprehensive summary of the level of interest rate risk of the Company when exposed to time factors and changes in interest rate environments. Income simulation modeling is utilized in measuring Patriot's interest rate risk and managing its interest rate sensitivity. Income simulation considers not only the impact of changing market interest rates on forecasted net interest income, but also other factors such as yield curve relationships, the volume and mix of assets and liabilities, customer preferences and general market conditions. Through the use of income simulation modeling the company has calculated an estimate of net interest income for the year ending September 30, 2004, based upon the assets, liabilities and off-balance sheet financial instruments in existence at September 30, 2003. Patriot has also estimated changes to that estimated net interest income based upon interest rates rising or falling in monthly increments ("rate ramps"). Rate ramps assume that all interest rates increase or decrease in monthly increments evenly throughout the period modeled, with a floor of 25bp. The following table reflects the estimated percentage change in estimated net interest income for the year ending September 30, 2004 resulting from changes in interest rates.

Economic value of equity ("EVE") estimates the discounted present value of asset and liability cash flows. Discount rates are based upon market prices for comparable assets and liabilities. As part of this evaluation the Company has contracted with an independent consultant to perform an extensive core deposit analysis to appropriately estimate the discounted present value of the retail deposit franchise. Upward and downward rate shocks are used to measure volatility in relation to an unchanged interest rate environment. This method of measurement primarily evaluates the longer term repricing risks and options in the Company's balance sheet. The Company has established policy limits for upward and downward rate shocks of 20% of economic value of equity at risk for every 100 basis points of interest rate shock. Additionally the Company has a policy limit that the ratio of EVE adjusted equity to EVE adjusted assets will be maintained above a 5% ratio. The following table reflects the estimated economic value of equity at risk and the ratio of EVE adjusted equity to EVE adjusted assets at September 30, 2003, resulting from shocks to interest rates.

The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are "interest rate sensitive" and by monitoring an institution's interest rate sensitivity "gap." An asset or liability is said to be interest rate sensitive within a specific time period if it will mature or re-price within that time period. The interest rate sensitivity gap is defined as the difference 24 PATRIOT BANK CORP. AND SUBSIDIARIES ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (CONTINUED) between the amount of interest-earning assets maturing or re-pricing within a specific time period and the amount of interest-bearing liabilities maturing or repricing within that time period, as well as the impact of off balance sheet instruments maturing or repricing within that time period . The following table summarizes the amount of interest-earning assets, interest-bearing liabilities, and off-balance sheet instruments outstanding at September 30, 2003, which are anticipated, based upon certain assumptions, to re-price or mature in each of the future time periods shown. Loan amounts reflect principal balances expected to be repaid and/or re-priced as a result of contractual amortization and anticipated prepayments of adjustable-rate loans and fixed-rate loans and as a result of contractual rate adjustments on adjustable-rate loans. Estimated prepayment rates were applied to mortgage loans and mortgage-backed securities based upon industry expectations. Core deposit decay rates have been estimated based upon a historical analysis of core deposit trends. With the exceptions noted above, the amount of assets and liabilities shown which re-price or mature during a particular period were determined in accordance with the earlier of term to re-pricing or the contractual maturity of the asset or liability. The table sets forth the gap and cumulative gap as a percentage of total assets at September 30, 2003:

As shown above, the company has a positive cumulative gap (interest sensitive assets are greater than interest sensitive liabilities) within the next year, which generally indicates that an increase in rates may lead to an increase in net interest income and a decrease in rates may lead to a decrease in net interest income. Interest sensitivity gap analysis measures whether assets or liabilities may reprice but does not capture the ability to reprice based on market conditions or the magnitude of the change in the repricing on assets or liabilities. Thus indications based on a positive or negative gap position need to be analyzed in conjunction with other interest rate risk management tools. The Company's management believes that the assumptions and combination of methods utilized in evaluating estimated net interest income are reasonable; however, the interest rate sensitivity of the Company's assets, liabilities and off-balance sheet financial instruments as well as the estimated effect of changes in interest rates on estimated net interest income could vary substantially if different assumptions are used or actual experience differs from the experience on which the assumptions were based. 25 PATRIOT BANK CORP. AND SUBSIDIARIES ITEM 4. CONTROLS AND PROCEDURES. (a) Evaluation of Disclosure Controls and Procedures. Patriot's principal executive officer and principal financial officer have concluded that Patriot's disclosure controls and procedures (as defined in Rule 13a-14 under the Securities Exchange Act of 1934, as amended), based on their evaluation of these controls and procedures as of September 30, 2003, are effective. (b) Changes in Internal Controls. During the third quarter of 2003, Patriot's internal control process uncovered what is believed to be a defalcation perpetrated by a mid-level supervisory employee within Patriot's credit card operation. The defalcation includes an alleged theft and the alleged falsification and destruction of accounting records as well as the concealment of credit card delinquencies and bankruptcies. The total amount of the alleged theft is approximately $982,000. The company maintains an insurance policy which management believes covers the majority of the alleged theft, and as a result, Patriot has recorded an after-tax charge of $367,000 related to the deductible on that insurance policy and losses and operating expenses associated with the falsification and destruction of accounting records. The alleged defalcation included the concealment of approximately $475,000 of unsecured customer bankruptcies, which, since they were not material to any prior period, were charged off during the third quarter through Patriot's loan loss reserve. The alleged defalcation also included the concealment of approximately $350,000 of delinquent credit card receivables, which are now being subjected to normal collection procedures. Additional charge-offs may result from these delinquent accounts. Subsequent to the discovery of the alleged defalcation, Management has implemented staffing changes designed to improve the training of the individuals involved in the daily operations. Procedural changes were also implemented to enhance the segregation of duties, which strengthen the review, authorization and reconciliation process so that the probability of employee defalcations occurring in the future is reduced. The Chief Executive Officer and Chief Financial Officer believes that the corrective actions taken should be adequate to remedy the aforementioned control inadequacies. Except as discussed above, there have been no significant changes in Patriot's internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation of those controls. 26 PATRIOT BANK CORP. AND SUBSIDIARIES PART II OTHER INFORMATION Item 1 LEGAL PROCEEDINGS There are various claims and lawsuits in which Patriot is periodically involved incidental to Patriot's business, which in the aggregate involve amounts which are believed by management to be immaterial to the financial condition, equity, and results of operations of the Company. Item 2 CHANGES IN SECURITIES Not applicable. Item 3 DEFAULTS UPON SENIOR SECURITIES Not applicable. Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. Item 5 OTHER INFORMATION Not applicable. Item 6 EXHIBITS AND REPORTS ON FORM 8-K. (a) The following exhibits are filed as part of this report. - Exhibit 31.1 Section 302 CEO Certification - Exhibit 31.2 Section 302 CFO Certification - Exhibit 32.1 Section 906 CEO Certification - Exhibit 32.2 Section 906 CFO Certification (b) Reports filed on Form 8K -- On July 22, 2003, the registrant filed a Form 8-K announcing earnings for the second quarter of 2003. -- On July 25, 2003, the registrant filed a Form 8-K reporting the declaration of a cash dividend of 13 cents per share. -- On September 5, 2003, the registrant filed a Form 8-K reporting the acquisition of Tyler Wealth Counselors, Inc. 27 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PATRIOT BANK CORP. ------------------------------------- (Registrant) Date November 12, 2003 /s/ Richard A. Elko ------------------------------------- Richard A. Elko President and Chief Executive Officer Date November 12, 2003 /s/ James G. Blume ------------------------------------- James G. Blume Senior Vice President and Chief Financial Officer 28

PATRIOT BANK CORP 10-Q