<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1995 Commission File Number 0-16637
BROAD NATIONAL BANCORPORATION
- ----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEW JERSEY 22-2395057
- ------------------------------ --------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
905 Broad Street, Newark NJ 07102
- ------------------------------ --------------------------------
(Address of principal executive offices) (Zip Code)
Registrant telephone number, including area code (201) 624-2300
--------
N/A
- ---------------------------------------------------------------------------
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.
YES X NO
------ ------
Number of shares outstanding of Broad National Bancorporation class of Common
Stock, as of October 31, 1995:
Common Stock, $1.00 par value 3,016,214
1
<PAGE>
BROAD NATIONAL BANCORPORATION
Index to Form 10-Q Financial Information
For the Three Months and Nine Months Ended September 30, 1995
-------------------------------------------------------------
PAGE
----
PART 1 - FINANCIAL INFORMATION 3
- ------------------------------
Consolidated Statements of Condition
as of September 30, 1995 and December 31, 1994 4
Consolidated Statements of Income for the
Three Month and Nine Month Periods Ended
September 30, 1995 and 1994 5
Consolidated Statements of Cash Flows for the Nine
Month Periods Ended September 30, 1995 and 1994 7
Notes to Consolidated Financial Statements 8
Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART 2 - OTHER INFORMATION 20
- --------------------------
Items 1 to 5 Not Applicable or Negative
Item 6 20
Signatures 21
Exhibit I - Computation of Net Income
per Common Share 22
Exhibit II - Independent Auditor's Review Report of
Interim Financial Information 23
2
<PAGE>
BROAD NATIONAL BANCORPORATION
PART 1 - FINANCIAL INFORMATION
The following consolidated financial statements of Broad National Bancorporation
as of September 30, 1995 and December 31, 1994 as well as the three month and
nine month periods ended September 30, 1995 and 1994 have been prepared by Broad
National Bancorporation without audit, and reflect all normal, recurring
adjustments and disclosures which are, in the opinion of management, necessary
for a fair statement of results for the interim periods presented. These
statements have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been omitted. For further clarification and
understanding, these interim statements should be read in conjunction with the
annual report on Form 10-K of Broad National Bancorporation for the year ended
December 31, 1994.
The results of operations for the periods presented are not necessarily an
indication of the results which can be expected for 1995.
The registrant's independent public accountants, KPMG Peat Marwick LLP, have
performed a limited review of these interim statements in accordance with the
standards for such reviews promulgated by the American Institute of Certified
Public Accountants. See page 23 for their report on this limited review.
3
<PAGE>
BROAD NATIONAL BANCORPORATION
CONSOLIDATED STATEMENTS OF CONDITION
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
- ------
CASH AND DUE FROM BANKS $ 26,549 $ 24,485
FEDERAL FUNDS SOLD 54,800 13,810
SECURITIES HELD-TO-MATURITY
(aggregate market value $92,999)
and $84,188, respectively) 94,049 89,789
SECURITIES AVAILABLE-FOR-SALE 25,091 21,144
LOANS, Net of unearned income & deferred loan fees 263,338 267,048
LESS -
Allowance for possible loan losses 7,583 7,602
- ----------------------------------------------------------------------------------
NET LOANS 255,755 259,446
- ----------------------------------------------------------------------------------
PREMISES AND EQUIPMENT, net 9,497 9,526
ACCRUED INTEREST RECEIVABLE 2,966 2,860
OTHER ASSETS 6,345 7,570
- ----------------------------------------------------------------------------------
TOTAL ASSETS $475,052 $428,630
- ----------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS
Non-interest bearing demand $ 96,137 $100,289
Savings and interest bearing demand 231,120 215,789
Time deposits less than $100,000 84,866 61,567
Time deposits of $100,000 or more 21,571 13,821
- ----------------------------------------------------------------------------------
Total Deposits 433,694 391,466
SHORT-TERM BORROWINGS 1,457 177
ACCRUED TAXES, INTEREST AND OTHER LIABILITIES 6,533 6,721
- ----------------------------------------------------------------------------------
TOTAL LIABILITIES 441,684 398,364
- ----------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY:
Preferred stock-1985 class, $10 par value,
authorized and outstanding 17,124
(preference on liquidation of $651) 171 171
8 1/2% Cumulative Convertible Preferred Stock-1992
class, $1 par value, authorized 690,000 shares,
outstanding 585,675 shares at 9/30/95
and 653,375 shares at 12/31/94
(preference on liquidation of $6,489) 586 653
Common stock, $1 par value, authorized
5,500,000; outstanding 3,015,070 shares at 9/30/95
and 2,882,592 shares at 12/31/94 3,015 2,883
Capital surplus 23,166 23,213
Retained earnings 6,480 4,062
Unrealized loss on securities available for sale, net ( 50) ( 716)
- ----------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 33,368 30,266
- ----------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $475,052 $428,630
- ----------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
BROAD NATIONAL BANCORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
3 MONTH PERIOD ENDED 9 MONTH PERIOD ENDED
-------------------- ---------------------
SEPTEMBER 30 SEPTEMBER 30
1995 1994 1995 1994
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $6,079 $5,342 $18,296 $16,103
Interest and dividends on investments -
Taxable 1,695 1,578 4,960 4,176
Exempt from federal income taxes 16 8 39 19
Interest on federal funds sold 710 586 1,604 1,434
- --------------------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME 8,500 7,514 24,899 21,732
- --------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on savings & interest bearing
demand deposits 1,218 1,322 3,705 3,804
Interest on time certificates of
deposit of $100,000 or more 285 114 769 323
Interest on other time deposits 1,166 485 2,818 1,452
Interest on short-term borrowings 21 1 152 5
- --------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 2,690 1,922 7,444 5,584
- --------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 5,810 5,592 17,455 16,148
- --------------------------------------------------------------------------------------------------------------
PROVISION FOR POSSIBLE LOAN LOSSES 120 100 340 300
- --------------------------------------------------------------------------------------------------------------
INTEREST INCOME AFTER PROVISION FOR
POSSIBLE LOAN LOSSES 5,690 5,492 17,115 15,848
- --------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME
Service charges on deposit accounts 923 903 2,609 2,583
Other income 243 176 667 523
Gain (loss) on sale of loans held for sale 10 8 16 (299)
Loss on sale of securities available-for-sale 0 0 0 (48)
- --------------------------------------------------------------------------------------------------------------
TOTAL NON-INTEREST INCOME 1,176 1,087 3,292 2,759
- --------------------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSES:
Salaries and wages 2,057 1,906 6,000 5,501
Employee benefits 568 505 1,701 1,595
Occupancy expense 518 446 1,482 1,472
Furniture and equipment expense 250 318 915 986
Data processing fees 269 288 824 899
Legal fees 168 275 418 35
Professional fees 167 190 580 621
Postage, delivery and communication 151 121 464 436
FDIC and OCC assessments 2 290 498 863
Other real estate expense 29 44 53 134
Other expenses 511 751 1,871 2,114
- --------------------------------------------------------------------------------------------------------------
TOTAL NON-INTEREST EXPENSES 4,690 5,134 14,806 14,656
- --------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
BROAD NATIONAL BANCORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
3 MONTH PERIOD ENDED 9 MONTH PERIOD ENDED
-------------------- ---------------------
SEPTEMBER 30 SEPTEMBER 30
1995 1994 1995 1994
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
INCOME BEFORE INCOME TAXES 2,176 1,445 5,601 3,951
PROVISION FOR INCOME TAXES 897 (479) 2,341 186
- ----------------------------------------------------------------------------------------------
NET INCOME $ 1,279 $ 1,924 $ 3,260 $ 3,765
- ----------------------------------------------------------------------------------------------
NET INCOME APPLICABLE TO COMMON STOCK $ 1,140 $ 1,770 $ 2,843 $ 3,302
- ----------------------------------------------------------------------------------------------
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING (1)
PRIMARY 3,050,450 2,886,350 2,961,026 2,878,480
ASSUMING FULL DILUTION 4,293,554 4,258,687 4,228,388 4,258,327
- ----------------------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE (1)
PRIMARY EARNINGS PER COMMON SHARE $ 0.37 $ 0.61 $ 0.96 $ 1.14
FULLY DILUTED EARNINGS PER COMMON SHARE $ 0.30 $ 0.45 $ 0.77 $ 0.89
</TABLE>
(1) 1994 PER COMMON SHARE DATA HAS BEEN RESTATED TO REFLECT THE 5% STOCK
DIVIDEND DISTRIBUTED IN DECEMBER 1994.
See accompanying notes to consolidated financial statements.
6
<PAGE>
BROAD NATIONAL BANCORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTH PERIOD ENDED SEPTEMBER 30
1995 1994
---------- ----------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 3,260 $ 3,765
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 877 948
Amortization of securities premium net 331 637
Amortization of deferred points and fees
and deferral of loan origination costs (436) (194)
Provision for possible loan losses 340 300
Deferred tax (benefit) provision 1,231 (1,027)
Increase (decrease) in accrued taxes
interest, and other liabilities (188) 156
(Gain) Loss on sale of loans held for sale (16) 299
Loss on sale of securities available for sale 0 48
Loss on sale of other real estate owned 9 0
Write down of other real estate owned 0 114
( Increase) in accrued interest receivable (106) (185)
Other Net (175) (775)
- ------------------------------------------------------------------------------------
Net cash provided by operating activities $ 5,127 $ 4,086
- ------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of other real estate owned $ 166 $ 588
Net (increase) decrease in loan balances 2,246 (13,171)
Proceeds from sale of loans held for sale 1,226 14,034
Proceeds from maturities of securities
held-to-maturity 5,907 18,522
Proceeds from the sale of securities available-for-sale 0 6,665
Proceeds from maturities of securities
available-for-sale 1,034 5,847
Purchase of securities available for sale (4,009) (2,026)
Purchase of securities held-to-maturity (10,461) (39,844)
Capital expenditures (848) (1,053)
- ------------------------------------------------------------------------------------
Net cash (used in) investing activities $ (4,739) $(10,438)
- ------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in certificates of deposit $ 31,049 $ (4,332)
Net increase in demand deposit, savings
and interest bearing demand accounts 11,179 13,450
Net increase in short-term borrowings 1,280 115
Dividends paid (842) (612)
- ------------------------------------------------------------------------------------
Net cash provided by financing activities 42,666 $ 8,621
- ------------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS $ 43,054 $ 2,269
CASH AND CASH EQUIVALENTS, beginning of period 38,295 62,342
- ------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of period $ 81,349 $ 64,611
- ------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for
Interest $ 6,453 $ 5,616
Taxes $ 2,894 $ 702
- ------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
BROAD NATIONAL BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(Unaudited)
(1) Principles of consolidation -
The consolidated financial statements include the accounts of Broad
National Bancorporation, its wholly owned subsidiary Broad National Bank
and the Bank's wholly owned subsidiaries BNB Investment Corporation, Broad
National Realty Corporation and Bronatoreo, Inc. All intercompany accounts
and transactions have been eliminated.
As used in this report, the term "Company" relates to Broad National
Bancorporation and its subsidiaries on a consolidated basis; the term
"Bancorporation" relates to Broad National Bancorporation (parent company
only); and the term "Bank" relates to Broad National Bank and its
subsidiaries on a consolidated basis.
(2) Net income per share -
Primary net income per common share is computed by dividing net income,
less dividends on preferred stock, by the weighted average number of common
shares outstanding during each period adjusted for stock options. Fully
diluted per common share amounts are computed by dividing net income by the
weighted average number of common shares outstanding adjusted for shares
issuable upon conversion of preferred stock and stock options.
All 1994 share and per share amounts have been restated to reflect the 5%
stock dividend distributed in December 1994.
(3) Legal Fees
Legal fees for the 9 months ended September 30, 1994 include a one-time
recovery of $875,000 of legal expenses in conjunction with a previously
announced settlement of claims made under the Company's insurance policy
for reimbursement of losses and expenses arising from alleged loan
irregularities discovered in February 1991.
8
<PAGE>
BROAD NATIONAL BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(Unaudited)
(4) Accounting by Creditors for the Impairment of a Loan
Effective January 1, 1995 the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 114, "Accounting by Creditors for
Impairment of a Loan" and its subsequent amendment SFAS No. 118,
"Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures." Adoption of SFAS No. 114, as amended, prescribes the
recognition criteria for loan impairment and the measurement methods for
certain impaired loans and loans whose terms are modified in troubled debt
restructurings and amends SFAS No. 5, "Accounting for Contingencies," and
SFAS No. 15, "Accounting by Debtors and Creditors for Troubled Debt
Restructurings."
SFAS No. 114, as amended, addresses the accounting for impaired loans and
specifies how allowance for credit losses related to these impaired loans
should be determined. SFAS No. 114 sets forth measurement methods for
estimating the portion of total loans attributable to impaired loans. It
does not address the overall adequacy of the allowance for loan losses, but
focuses instead on the allowance for estimated credit losses on impaired
loans. It is the Company's responsibility to ensure that the overall
allowance for loan losses is adequate to cover all estimated credit losses
in the loan portfolio. At September 30, 1995, SFAS No. 114 impaired loans
totaled $7,070,000 and the related allowance for loan losses was $860,000.
The September 30, 1995 impaired loans consisted of non-accrual loans and
loans internally classified as substandard or below and in each instance
above an established dollar threshold. All loans below the established
dollar threshold are considered homogeneous and are considered in the
Bank's normal credit evaluation process. The average recorded investment in
impaired loans for the first nine months of 1995 was $4,725,000. Income
recognized on these loans during the first nine months of 1995 is not
considered material. Since the Company sufficiently evaluates the adequacy
of the allowance for loan losses, the impact of adopting SFAS No. 114, as
amended, did not have an effect on the allowance for loan losses or the
existing income recognition and charge-off policies for non-performing
loans.
(5) Reclassification -
Certain amounts in the consolidated financial statements presented for
prior periods have been reclassified to conform with the 1995 presentation.
9
<PAGE>
BROAD NATIONAL BANCORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1995
- ----------------------------------------------
SUMMARY
-------
The Company reported third quarter 1995 net income of $1,279,000 or $0.30 per
fully diluted common share. This compares to net income of $1,924,000 or $0.45
per fully diluted common share for the third quarter of 1994, which included a
$1,100,000 tax benefit resulting from a reduction in the Comany's valuation
allowance relative to the Company's deferred tax asset.
For the nine months ended September 30, 1995, the Company reported net income of
$3,260,000 or $0.77 per fully diluted common share, compared to net income of
$3,765,000 or $0.89 per fully diluted common share for the comparable 1994
period. Net income for the 1994 nine-month period included total tax benefits
of $1,500,000 as well as a one-time recovery of $875,000 ($578,000 tax effected)
of legal expenses in conjunction with an insurance settlement.
The 1994 per share data have been restated to reflect the effect of the 5% stock
dividend distributed in December 1994.
The Company's annualized return or average assets and annualized return on
average shareholder's equity were .96% and 13.47%, respectively, for the first
nine months of 1995 compared to annualized returns of 1.11% and 17.83%,
respectively, for the same 1994 period.
10
<PAGE>
BROAD NATIONAL BANCORPORATION
RESULTS OF OPERATIONS
- ---------------------
Net Interest Income
- -------------------
Net interest income, the primary source of earnings for the Company, is the
difference between interest and fees earned on loans and other earning assets,
and interest paid on deposits and other interest bearing liabilities. Earning
assets include loans, investment securities and federal funds sold. Interest
bearing liabilities include savings, interest bearing demand and time deposits,
and short-term borrowings.
The table on the following page sets forth the Company's consolidated average
balance of assets, liabilities, and shareholders' equity as well as the amount
of interest income or interest expense and the average rate for each category of
interest-earning assets and interest-bearing liabilities. Non-accrual loans are
included in average loans, and interest on loans includes loan fees which were
not material. Non-taxable income from investment securities and loans is
presented on a tax-equivalent basis assuming a 34% tax rate.
NOTES TO NET INTEREST INCOME TABLE
(1) Interest income for investments in states and political subdivisions
include tax equivalent adjustments at 34% tax rate.
(2) Average rates reflect the tax equivalent adjusted yields on nontaxable
investments and loans.
(3) Represents the difference between interest earned and interest paid,
divided by total interest-earning assets.
(4) Annualized.
11
<PAGE>
NET INTEREST INCOME
Nine Months Ended September 30
(Dollars in Thousands)
<TABLE>
<CAPTION>
1995 1994
---------------------------- ----------------------------
Average Interest Average Average Interest Average
Balance and Fees Rate (4) Balance and Fees Rate (4)
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Federal Funds Sold $ 36,264 $ 1,604 5.83% $ 48,790 $ 1,434 3.88%
-------- -------- ------- -------- -------- -------
Investment Securities
U.S. Treasury 23,502 1,062 6.03% 20,871 724 4.63%
U. S. Government Agencies 86,255 3,866 5.98% 83,774 3,414 5.43%
States and political subdivisions (1) 1,608 74 6.14% 1,110 48 5.77%
Other Bonds 547 17 4.14% 386 19 6.56%
-------- -------- ------- -------- -------- -------
Total Investment Securities 111,912 5,019 5.98% (2) 106,141 4,205 5.28 (2)
-------- -------- ------- -------- -------- -------
Loans
Mortgage 135,854 9,269 9.10% 124,457 8,206 8.82%
Installment 35,394 2,573 9.72% 36,962 2,221 8.03%
Commercial 93,995 6,381 9.08% 98,452 5,600 7.60%
State and political subdivisions (1) 1,165 111 12.70% 1,304 115 11.76%
-------- -------- ------- -------- -------- -------
Total Loans 266,408 18,334 9.20% 261,175 16,142 8.26%
-------- -------- ------- -------- -------- -------
Total interest earning assets 414,584 $ 24,957 8.05% (2) 416,106 $ 21,781 7.00% (2)
-------- -------- ------- -------- -------- -------
Less - Allowance for possible loan losses 7,532 10,341
All other assets 46,853 46,222
-------- --------
Total Assets $453,905 $451,987
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Time Deposits
Savings and interest bearing
demand deposits $221,813 $ 3,705 2.23% $251,868 $ 3,804 2.02%
Certificate of Deposits
Under $100,000 75,980 2,818 4.96% 64,370 1,452 3.02%
Over $100,000 20,145 769 5.10% 12,927 323 3.34%
-------- -------- ------- -------- -------- -------
Total Time Deposits 317,938 7,292 3.07% 329,165 5,579 2.27%
Short term borrowings 3,342 152 6.00% 310 5 2.13%
-------- -------- ------- -------- -------- -------
Total Interest Bearing Liabilities 321,280 $ 7,444 3.10% 329,475 $ 5,584 2.27%
-------- -------- ------- -------- -------- -------
Other liabilities 6,455 4,072
Demand deposits 93,816 90,281
Shareholders' equity 32,354 28,159
-------- --------
Total liabilities and
shareholders' equity $453,905 $451,987
-------- --------
NET INTEREST INCOME; NET INTEREST SPREAD $ 17,513 4.95% $ 16,197 4.73%
NET INTEREST MARGIN $5.65% (3) 5.20% (3)
</TABLE>
12
<PAGE>
Rate/Volume Analysis Of Net Interest Income
- -------------------------------------------
The effect of changes in average balance and rate from the corresponding prior
period on interest income, interest expense and net interest income for the nine
months ended September 30, 1995 is set forth below. The effect of a change in
average balance has been determined by applying the average rate for the earlier
period to the change in average balance for the later period, as compared with
the earlier period. The effect of a change in the average rate has been
determined by applying the average balance for the earlier period to the change
in average rate for the later period, as compared with the earlier period. The
variances attributable to simultaneous balance and rate changes have been
allocated in proportion to the relationship of the dollar amount of change in
each category.
<TABLE>
<CAPTION>
Increase (Decrease) Due to a
Change in the
---------------------------------------------
Average Balance Average Rate Total
----------------- -------------- ---------
(Dollars in Thousands)
<S> <C> <C> <C>
Interest Earned on:
Loans $ 417 $1,775 $2,192
Investment securities 239 575 814
Federal funds sold (454) 624 170
------- ------ -------
Total interest income $ 202 $2,974 $3,176
------- ------ -------
Interest paid on:
Savings and interest
bearing demand deposits $(1,304) $1,205 $ (99)
Certificates of deposit:
Under $100,000 1,067 299 1,366
Over $100,000 231 215 446
Short term borrowings 124 23 147
------- ------ -------
Total Interest expense $ 118 $1,742 $1,860
------- ------ -------
Change in net interest income $ 84 $1,232 $1,316
Percent increase in net interest ------- ------ -------
income over the prior period 8.12%
-------
</TABLE>
Total tax equivalent interest income of $24,957,000 for the first nine months of
1995 represents an increase of $3,176,000 or 14.6% over total tax equivalent
interest income of $21,781,000 for the comparable 1994 period. This improvement
is primarily due to an increase of 105 basis points in the average rate earned
on interest earning assets, which in turn resulted from a rising interest rate
environment. The average rates earned on federal funds sold, investment
securities and loans during the first nine months of 1995 increased 195 basis
points, 70 basis points and 94 basis points, respectively. These higher average
rates resulted in an increase of $2,974,000 in total tax equivalent interest
income for the 1995 nine month period as compared to the same period in 1994.
Total average interest earning assets for the first nine months of 1995 were
$1,522,000 lower than the comparable 1994 period, primarily as the result of a
decline of $12,526,000 in the average balance of federal funds sold. This
decline was partially offset by increased average balances of investment
securities and loans of $5,771,000 and $5,233,000, respectively. The increase
in investment securities and loan average balances contributed to a net increase
of an additional $202,000 in total tax equivalent interest income.
Total interest expense of $7,444,000 for the nine month period ended September
30,1995 was $1,860,000 or 33.3% higher than the comparable prior year period.
The increase in interest expense is primarily due to the
13
<PAGE>
increase in the average rates paid on deposits, and to a lesser extent due to
the change in the mix of interest bearing liabilities. The average rate paid
for interest bearing liabilities during the first nine months of 1995 was 83
basis points higher than the year-ago period, with the largest increase in rates
reflected in certificates of deposit and short-term borrowings. Average rates
on certificates of deposit under $100,000 were 194 basis points higher than the
comparable prior year period, while average rates on certificates of deposit
over $100,000 were 176 basis points higher than the comparable prior year
period. The average rate on short-term borrowings during the first nine months
of 1995 was 387 basis points higher than the same period in 1994. The increase
in the average rate paid on all interest bearing liabilities was responsible for
an increase of $1,742,000 in total interest expense. Additionally, increases in
the average balances of relatively higher cost certificates of deposit and
short-term borrowings contributed to an additional $118,000 increase in total
interest expense for the first nine months of 1995 as compared to the same
period in 1994.
Tax equivalent net interest income for the first nine months of 1995 increased
by $1,316,000 over the first nine months of 1994, and the net interest margin
for the first nine months of 1995 was 45 basis points higher than the same
period in 1994. The increase is primarily attributable to the fact that average
rates earned on interest earning assets increased more quickly and to a greater
degree than rates paid on interest bearing liabilities.
PROVISION FOR POSSIBLE LOAN LOSSES
- ----------------------------------
In determining the provision for possible loan losses, management considers
historical loan loss experience, changes in composition and volume of the
portfolio, the level and composition of non-performing loans, the adequacy of
the allowance for possible loan losses, and prevailing economic conditions. The
provision for possible loan losses was $120,000 for the third quarter of 1995
and $340,000 for the first nine months of 1995, compared to $100,000 and
$300,000, respectively, for the comparable 1994 periods. Actual net loan
charge-offs for the first nine months of 1995 were $359,000 or 0.18%
(annualized) of average total loans, as compared to net loan charge-offs of
$3,645,000 or 1.86% (annualized) of average total loans for the comparable 1994
period. 1994 charge-offs included approximately $2,696,000 related to the sale
of $5,654,000 of troubled loans during the second quarter of 1994, and 1994
recoveries included $500,000 received in conjunction with a previously announced
insurance settlement.
NON-INTEREST INCOME AND NON-INTEREST EXPENSES
- ---------------------------------------------
Total non-interest income of $3,292,000 for the first nine months of 1995 was
$533,000 or 19.3% higher than the comparable 1994 period. $144,000 of this
increase is attributable to other income. The remainder of the improvement is
attributable to the fact that non-interest income for the first nine months of
1994 was negatively impacted as the result of losses of $299,000 on the sale of
loans held for sale and $48,000 on the sale of securities available for sale.
Total non-interest expense of $14,806,000 for the nine months of 1995 was
$150,000 or 1% higher than the comparable 1994 period. Salaries and wages are
$499,000 higher for 1995 as compared to 1994. This increase is attributable in
part to an increase of approximately $100,000 in incentive salary programs as
well as payments of approximately $60,000 to selected
14
<PAGE>
employees during the third quarter of 1995 as part of an early retirement
program. The remaining increase is primarily attributable to merit increases.
Employee benefits expense is $106,000 higher for 1995 as compared to 1994.
During the third quarter of 1995 the Company incurred an additional $150,000 of
pension expense related to an early retirement program for selected employees.
This increase in pension expense has been partially offset by a decrease in
hospital and medical benefit expenses. Legal fees are $383,000 higher for 1995
as compared to 1994. 1994 legal fees included the $875,000 recovery of legal
expenses received in conjunction with the previously announced settlement of
claims made under the Company's insurance policy. FDIC and OCC assessments are
$365,000 lower for 1995 as compared to 1994 as the result of the reduction of
the FDIC assessment during the third quarter of 1995.
FINANCIAL CONDITION
- -------------------
Loans
Total loans, net of unearned income and deferred loan fees, of $263,338,000 at
September 30, 1995 represent a decrease of $3,710,000 or 1.4% from the December
31, 1994 balance of $267,048,000. The most significant components of the
decline in loan balances were a reduction of approximately $9,800,000 in
commercial loans which was partially offset by a $5,500,000 increase in
commercial mortgages. The overall decline in loan balances is primarily
attributable to the absence of qualified loan demand. For the first nine months
of 1995, average loans of $266,408,000 represented approximately 64.3% of total
average interest-earning assets, as compared to approximately 62.8% of total
average interest-earning assets for the 1994 nine month period.
Allowance for Possible Loan Losses
The following table summarizes the activity in the allowance for possible loan
losses for the periods presented. Also presented are certain key ratios
regarding the allowance.
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
September 30, 1995 September 30,1994
------------------ -----------------
(Dollars In Thousands)
<S> <C> <C>
Balance, beginning of period $ 7,602 $ 11,252
Provision charged to operations 340 300
Loans charged off (1,459) (4,455)
Recoveries of charged-off loans 1,100 810
-------- --------
Balance, end of period $ 7,583 $ 7,907
-------- --------
Average gross loans outstanding
during period..................... $266,408 $261,175
-------- --------
Total gross loans at period end.... $263,338 $261,235
-------- --------
Net loans charged-off. $ 359 $ 3,645
-------- --------
Ratio of net loans charged-off to
average loans outstanding
during period (Annualized)..... 0.18% 1.86%
----- -----
Allowance for possible loan losses as
a percentage of total gross loans.. 2.88% 3.03%
----- -----
</TABLE>
15
<PAGE>
The amount of allowance applicable to non-classified loans was $3,886,000 and
$4,621,000 at September 30, 1995 and December 31, 1994, respectively.
Asset Quality
Non-performing assets consist of (I)non-performing loans, which include non-
accrual loans and loans past due 90 days or more as to interest or principal
payments but not placed on non-accrual status; (ii) loans that have been
renegotiated due to a weakening in the financial position of the borrower
(restructured loans) and (iii) other real estate owned ("OREO"), net of
reserves.
The following table reflects the components of non-performing assets at
September 30, 1995 and December 31, 1994:
<TABLE>
<CAPTION>
September 30, 1995 December 31, 1994
------------------- ------------------
(Dollars In Thousands)
<S> <C> <C>
Past due 90 days or more:
Mortgage....................... $ 2,000 $ 1,388
Commercial..................... 1,740 714
Installment.................... 43 23
------- -------
Total....................... $ 3,783 $ 2,125
------- -------
Non-accrual loans:
Mortgage....................... $ 4,194 $ 4,357
Commercial..................... 3,470 3,222
Installment.................... 6 2
------- -------
Total....................... $ 7,670 $ 7,581
------- -------
Total non-performing loans....... $11,453 $ 9,706
Restructured loans (excluding
amounts classified as
non-performing loans) 5,239 5,445
Other real estate owned,
net of reserve................. 927 400
------- -------
Total non-performing assets. $17,619 $15,551
------- -------
Non-performing loans as a
percent of total gross loans 4.35% 3.63%
------- -------
Non-performing loans as a
percent of total assets....... 2.41% 2.26%
------- -------
Non-performing assets as a
percent of loans and other
real estate owned.............. 6.67% 5.81%
------- -------
Allowance for possible loan
losses......................... $ 7,583 $ 7,602
------- -------
Allowance for possible loan
losses as a percent of
non-performing loans........... 66.21% 78.32%
------- -------
</TABLE>
In addition to the non-performing and restructured loans as of September 30,
1995, the Company had classified an additional $4,916,000 as substandard
16
<PAGE>
loans. A loan loss reserve has been allocated to such loans in accordance with
the Company's policies.
The level of non-performing loans and assets is heavily dependent upon local
economic conditions. The September 30, 1995 total non-performing assets of
$17,619,000 represents an increase of $2,068,000 or 13.3% over the total at
December 31, 1994. There can be no assurance that non-performing assets will
not continue to increase.
Investment Securities and Federal Funds Sold
Federal funds sold of $54,800,000 at September 30, 1995 represent an increase of
$40,990,000 over the balance at December 31, 1994. Average Federal Funds sold
of $36,264,000 during the first nine months of 1995 represented 8.7% of total
average interest earning assets, as compared to 11.7% during the first nine
months of 1994.
Total average investment securities of $111,912,000 for the first nine months of
1995 represent 27% of total average interest-earning assets, as compared to
25.5% for the comparable 1994 period.
Total investment securities, which include securities classified as held-to-
maturity and available-for-sale, of $119,140,000 at September 30, 1995 represent
an increase of $8,207,000 or 7.4% over the balance at December 31, 1994. There
were no sales of securities available-for-sale during the first nine months of
1995. During the first nine months of 1994 the Company incurred a loss of
$48,000 on the sale of approximately $6,700,000 of securities available-for-
sale.
Deposits
The September 30, 1995 total deposit balance of $433,694,000 represents an
increase of $42,228,000 or 10.8% over total deposits of $391,466,000 at December
31, 1994. The major portion of this increase is represented by time deposits
which were $31,049,000 or 41.2% higher at September 30,1995 than at December 31,
1994. This increase resulted primarily from the bank's effort during the second
quarter of 1995 to offer more competitive rates in order to increase its deposit
base and reduce its short-term borrowings which it had relied upon during the
first quarter of 1995.
Short Term Borrowings
Short-term borrowings represent federal funds purchased and securities sold
under agreements to repurchase. The majority of these instruments have terms
ranging from one to thirty days. These balances increased $1,280,000 to
$1,457,000 at September 30, 1995 from the December 31, 1994 balance of $177,000.
Additionally, the average balance of short term borrowings was $3,342,000 during
the first nine months of 1995, as the bank drew down certain of its lines of
credit to supplement its liquidity management program during the first quarter
of 1995. This resulted in an increase of $147,000 in interest expense for the
first nine months of 1995 as compared to the prior year period.
Liquidity of the Bank
The Bank actively monitors its liquidity position to ensure that it has
sufficient funds to provide for cash outflows without incurring losses from
17
<PAGE>
the premature liquidation of assets or the unexpected acquisition of costly
liabilities. The Bank's cash outflows encompass interest paid to depositors and
other creditors, deposit withdrawals, and disbursements to acquire assets and
pay general operating costs. The Bank obtains cash from customers in the form
of interest and principal payments on loans, fees paid for services, and from
new deposits. Investment maturities also provide a source of cash.
Many different measurements of liquidity are used in the banking industry. The
ratios of cash and cash equivalents (including federal funds sold) and short-
term securities to total assets and net loans to total deposits are among some
of the more commonly used indicators. These measurements are set forth below as
of September 30, 1995 and December 31, 1994.
<TABLE>
<CAPTION>
September 30, 1995 December 31, 1994
------------------- ------------------
<S> <C> <C>
Cash and cash equivalents
and securities maturing in
one year to total assets 20.6% 9.2%
Net loans to total deposits 59.0% 66.3%
</TABLE>
To assist in the management of its liquidity, the bank has available $4,000,000
in lines of credit for federal funds and $20,000,000 in lines of credit for
repurchase agreements. As discussed under "SHORT TERM BORROWINGS", the bank
drew down certain lines of credit during the first quarter of 1995. However,
none of these lines were in use during the second or third quarters of 1995.
In summary, managing the Bank's liquidity position involves a significant degree
of analytical estimation and other objective factors. Although customer demand
for funds, in the form of loans or deposit withdrawals, is largely dependent on
general economic factors outside of the Bank's control, management believes that
its present liquidity structure is adequate to meet such needs.
Liquidity of Bancorporation
Bancorporation's ability to meet its cash requirements, including dividend
payments, is generally dependent upon the declaration and payment of dividends
by the Bank to Bancorporation. Under Federal law, the approval of the
Comptroller of the Currency is required for the payment of dividends in any
calendar year by Broad National Bank to Broad National Bancorporation if the
total of all dividends declared in any calendar year exceeds the net income for
that year combined with the retained net income for the preceding two calendar
years. As of December 31, 1994, retained earnings of the Bank of $7,165,000
were available for payment of dividends to the parent company without regulatory
approval. Additionally, at September 30, 1995 Bancorporation had $303,000 of
cash for the purpose of paying operating costs and dividends. However, a change
in circumstances, such as changes in regulatory requirements or in the Bank's
financial condition, could result in the Bank's inability to pay dividends to
Bancorporation or could result in Bancorporation being required by regulatory
authorities to utilize its funds to increase the Bank's capital. In such event,
Bancorporation may not have sufficient cash for operations or to make dividend
payments and may be required to seek other sources of capital and liquidity, if
available.
18
<PAGE>
INTEREST RATE SENSITIVITY
Management of interest rate sensitivity involves matching the maturity and
repricing dates of interest-earning assets with interest-bearing liabilities in
an effort to reduce the impact of fluctuating net interest margins and to
promote consistent growth of net interest income during periods of changing
interest rates.
Interest rate sensitivity is measured as the difference between the volume of
assets and liabilities from the Company's existing portfolio that are subject to
repricing in a future period of time. These differences, known as interest
sensitivity gaps, are usually calculated cumulatively for blocks of time.
Companies that are asset sensitive (a positive gap) have more assets than
liabilities subject to early repricing and these banks benefit in periods of
rising interest rates, but suffer as rates decrease. Companies that are
liability sensitive (a negative gap) benefit in periods of declining rates, but
suffer as rates increase.
At September 30, 1995 the Company maintained negative sensitivity gaps of 55:1,
51:1 and 53:1 at the cumulative 3 month, 6 month and 12 month periods. The
negative gap would generally indicate that (I) an increase in interest rates
would result in a decrease in net interest income for the Bank as the level of
interest paid on interest-bearing liabilities would increase more quickly than
the level of interest received on earning assets or (ii) a decrease in interest
rates should result in an increase in net interest income for the Bank as the
level of interest paid on interest-bearing liabilities would decrease more
quickly than the level of interest received on earning assets.
Management will continue to monitor the interst rate sensitivities of assets and
liabilities in an effort to minimize interest rate exposure and maintain a
relatively stable net interest spread.
Capital Adequacy
Total shareholder's equity increased $3,102,000 during the first nine months of
1995 as the result of net income of $3,260,000, reduced by dividends of
$843,000, and increased by a net decrease in unrealized securities losses of
$666,000 and the issuance of $19,000 of common stock resulting from the exercise
of stock options.
At September 30, 1995, the Company had total capital equal to 11.78% of risk-
based assets which included tier one capital equal to 10.51% of risk-based
assets. These compare to minimum regulatory capital requirements of 8% and 4%,
respectively. At September 30, 1995, the Company had tier one capital equal to
7.03% of adjusted total assets. This compares to a minimum regulatory capital
requirement of 4% to 5%.
At September 30, 1995, the Bank had total capital equal to 11.71% of risk-based
assets, which included tier one capital equal to 10.44% of risk-based assets.
These compare to minimum regulatory capital requirements of 8% and 4%,
respectively. At September 30, 1995, the Company had tier one capital equal to
6.98% of adjusted total assets. This compares to a minimum regulatory capital
requirement of 4% to 5%.
19
<PAGE>
6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Statement re: computation of per share earnings is part of this Form
10-Q as Exhibit I.
(b) No report on Form 8-K has been filed during the three month period ended
September 30, 1995.
20
<PAGE>
BROAD NATIONAL BANCORPORATION
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.
BROAD NATIONAL BANCORPORATION
-----------------------------
(registrant)
Date: November 10, 1995 /s/ Donald M. Karp
--------------------------
Donald M. Karp
Chairman and CEO
/s/ James Boyle
--------------------------
James Boyle
Treasurer
21
<PAGE>
BROAD NATIONAL BANCORPORATION
Computation of Net Income Per Share
(Unaudited)
<TABLE>
<CAPTION>
THREE-MONTH PERIOD NINE-MONTH PERIOD
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
1995 1994 (1) 1995 1994 (1)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
PRIMARY:
- -------
Average number of common
shares outstanding 2,984,679 2,875,707 2,919,513 2,875,347
Assumed exercise of options
outstanding 65,771 10,643 41,513 3,133
---------- ---------- ---------- ----------
Average number of common shares and
common share equivalents outstanding 3,050,450 2,886,350 2,961,026 2,878,480
---------- ---------- ---------- ----------
Net Income $1,279,040 $1,923,888 $3,260,024 $3,764,516
Less: Cumulative Preferred Dividends 139,097 154,336 417,291 463,008
---------- ---------- ---------- ----------
Net income available to common shareholders $1,139,943 $1,769,552 $2,842,733 $3,301,508
---------- ---------- ---------- ----------
Primary earnings per common share $0.37 $0.61 $0 .96 $ 1.14
========== ========== ========== ==========
FULLY DILUTED:
- --------------
Average number of common shares of
outstanding 2,984,679 2,875,707 2,919,513 2,875,347
Assumed exercise of options outstanding 79,569 16,865 79,569 16,865
Assumed conversion of preferred shares 1,229,306 1,366,115 1,229,306 1,366,115
---------- ---------- ---------- ----------
Adjusted average number of common shares 4,293,554 4,258,687 4,228,388 4,258,327
---------- ---------- ---------- ----------
Net Income $1,279,040 $1,923,888 $3,260,024 $3,764,516
---------- ---------- ---------- ----------
Fully diluted earnings per common share $0.30 $0.45 $0.77 $ 0.89
========== ========== ========== ==========
</TABLE>
(1) 1994 Per Common Share Data have been restated to reflect the 5% stock
dividend distributed in Decemeber 1994.
22
<PAGE>
Independent Auditors' Report
----------------------------
The Board of Directors
Broad National Bancorporation:
We have reviewed the accompanying consolidated condensed statement of condition
of Broad National Bancorporation and subsidiaries (the Company) as of September
30, 1995, and the related consolidated condensed statements of income and cash
flows for the three-month and nine-month periods ended September 30, 1995 and
1994. These consolidated condensed financial statements are the responsibility
of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated condensed financial statements referred
to above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated statement of condition of the Company as of December
31, 1994, and the related consolidated statements of income, shareholders'
equity, and cash flows for the year then ended (not presented herein); and in
our report dated January 30, 1995, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying consolidated statement of condition as of December 31, 1994, is
fairly presented, in all material respects, in relation to the consolidated
statement of condition from which it has been derived.
Broad National Bancorporation and subsidiaries adopted the provisions of the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" in 1994.
/s/ KPMG Peat Marwick LLP
Short Hills, New Jersey
November 10, 1995
23
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BROAD
NATIONAL BANCORPORATION'S FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1995 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 26,549
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 54,800
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 25,091
<INVESTMENTS-CARRYING> 94,049
<INVESTMENTS-MARKET> 92,999
<LOANS> 263,338
<ALLOWANCE> 7,583
<TOTAL-ASSETS> 475,052
<DEPOSITS> 433,694
<SHORT-TERM> 1,457
<LIABILITIES-OTHER> 6,533
<LONG-TERM> 0
<COMMON> 3,015
0
757
<OTHER-SE> 29,596
<TOTAL-LIABILITIES-AND-EQUITY> 475,052
<INTEREST-LOAN> 18,296
<INTEREST-INVEST> 4,999
<INTEREST-OTHER> 1,604
<INTEREST-TOTAL> 24,899
<INTEREST-DEPOSIT> 7,292
<INTEREST-EXPENSE> 7,444
<INTEREST-INCOME-NET> 17,455
<LOAN-LOSSES> 340
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 14,806
<INCOME-PRETAX> 5,601
<INCOME-PRE-EXTRAORDINARY> 5,601
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,260
<EPS-PRIMARY> 0.96
<EPS-DILUTED> 0.77
<YIELD-ACTUAL> 5.65
<LOANS-NON> 7,670
<LOANS-PAST> 3,783
<LOANS-TROUBLED> 5,239
<LOANS-PROBLEM> 4,916
<ALLOWANCE-OPEN> 7,602
<CHARGE-OFFS> 1,459
<RECOVERIES> 1,100
<ALLOWANCE-CLOSE> 7,583
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,886
</TABLE>
