<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 March 31,1997 Commission File Number 0-16637
BROAD NATIONAL BANCORPORATION
- ---------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
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)
</TABLE>
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 April 30, 1997:
Common Stock, $1.00 par value - 4,584,688
1
<PAGE>
BROAD NATIONAL BANCORPORATION
Index to Form 10-Q Financial Information
For the Three Months Ended March 31,1997
---------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART 1 - FINANCIAL INFORMATION 3
- -----------------------------------------------------
Consolidated Statements of Condition
as of March 31, 1997 and December 31, 1996 4
Consolidated Statements of Income for the
Three Month Periods Ended March 31, 1997 and 1996 5
Consolidated Statements of Cash Flows for the Three
Month Periods Ended March 31, 1997 and 1996 7
Notes to Consolidated Financial Statements 8
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
</TABLE>
PART 2 - OTHER INFORMATION 20
- --------------------------
Items 1 to 3 Not Applicable or Negative
<TABLE>
<CAPTION>
<S> <C>
Item 4 20
Item 5 Not Applicable or Negative
Item 6 21
Signatures 22
Exhibit 1 - Computation of Net Income
per Common Share 23
Exhibit 2 - Independent Auditor's Review Report of Interim
Financial Information 24
Exhibit 27 - Financial Data Schedule 25
</TABLE>
2
<PAGE>
BROAD NATIONAL BANCORPORATION
PART 1 - FINANCIAL INFORMATION
The following consolidated financial statements of Broad National Bancorporation
as of March 31, 1997 and December 31, 1996 as well as the three month periods
ended March 31, 1997 and 1996 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, 1996.
The results of operations for the periods presented are not necessarily an
indication of the results which can be expected for 1997.
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 24 for their report on this limited review.
3
<PAGE>
BROAD NATIONAL BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
(IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
---- ----
ASSETS
- --------------------------------------------------------------
<S> <C> <C>
CASH AND DUE FROM BANKS $ 19,415 $ 19,782
FEDERAL FUNDS SOLD 42,875 57,075
- -------------------------------------------------------------- -------- --------
CASH AND CASH EQUIVALENTS 62,290 76,857
- -------------------------------------------------------------- -------- --------
SECURITIES HELD-TO-MATURITY
(aggregate market value $89,367)
and $89,482, respectively) 91,139 90,170
SECURITIES AVAILABLE-FOR-SALE 76,250 69,044
LOANS, Net of deferred loan fees 291,387 287,116
LESS -
Allowance for possible loan losses 8,908 8,531
- -------------------------------------------------------------- -------- --------
NET LOANS 282,479 278,585
- -------------------------------------------------------------- -------- --------
PREMISES AND EQUIPMENT, net 8,831 8,888
ACCRUED INTEREST RECEIVABLE 3,748 3,351
OTHER ASSETS 6,897 6,720
- -------------------------------------------------------------- -------- --------
TOTAL ASSETS $531,634 $533,615
- -------------------------------------------------------------- -------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS
Non-interest bearing demand $ 97,499 $100,945
Savings and interest bearing demand 212,882 217,250
Time deposits less than $100,000 87,900 85,714
Time deposits of $100,000 or more 83,604 81,164
- -------------------------------------------------------------- -------- --------
Total Deposits 481,885 485,073
SHORT-TERM BORROWINGS 1,000 1,000
ACCRUED TAXES, INTEREST AND OTHER LIABILITIES 9,855 9,184
- -------------------------------------------------------------- -------- --------
TOTAL LIABILITIES 492,740 495,257
- -------------------------------------------------------------- -------- --------
SHAREHOLDERS' EQUITY:
Common stock, $1 par value, authorized
5,500,000 shares; issued 4,677,188 shares 4,677 4,677
Capital surplus 26,589 26,589
Retained earnings 8,200 7,004
Common stock in treasury, at cost: 22,500 shares (291) (58)
at 3/31/97 and 5,000 shares at 12/31/96
Unrealized gain (loss) on securities available-for-sale, net (281) 146
- -------------------------------------------------------------- -------- --------
TOTAL SHAREHOLDERS' EQUITY 38,894 38,358
- -------------------------------------------------------------- -------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $531,634 $533,615
- -------------------------------------------------------------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
BROAD NATIONAL BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
3 MONTH PERIOD ENDED
--------------------
MARCH 31
<S> <C> <C>
1997 1996
------ ------
(Unaudited)
INTEREST INCOME
Interest and fees on loans $6,413 $5,789
Interest on securities held to maturity
Taxable 1,428 905
Tax exempt 13 17
Interest on securities available - for - sale 1,098 884
Interest on federal funds sold 730 509
- ---------------------------------------------------- ------ ------
TOTAL INTEREST INCOME 9,682 8,104
- ---------------------------------------------------- ------ ------
INTEREST EXPENSE:
Interest on savings & interest bearing
demand deposits 1,150 1,199
Interest on time certificates of
deposit of $100,000 or more 1,209 284
Interest on other time deposits 1,150 1,112
Interest on short-term borrowings 12 18
- ---------------------------------------------------- ------ ------
TOTAL INTEREST EXPENSE 3,521 2,613
- ---------------------------------------------------- ------ ------
NET INTEREST INCOME 6,161 5,491
- ---------------------------------------------------- ------ ------
PROVISION FOR POSSIBLE LOAN LOSSES 450 225
- ---------------------------------------------------- ------ ------
INTEREST INCOME AFTER PROVISION FOR
POSSIBLE LOAN LOSSES 5,711 5,266
- ---------------------------------------------------- ------ ------
NON-INTEREST INCOME
Service charges on deposit accounts 1,616 855
Other income 272 217
Gain on sale of securities available - for - sale 5 0
- ---------------------------------------------------- ------ ------
TOTAL NON-INTEREST INCOME 1,893 1,072
- ---------------------------------------------------- ------ ------
NON-INTEREST EXPENSES:
Salaries and wages 2,030 2,031
Employee benefits 641 534
Occupancy expense 475 474
Furniture and equipment expense 259 290
Data processing fees 291 268
Legal fees 192 195
Professional fees 253 141
Postage, delivery and communication 172 164
FDIC and OCC assessments 44 28
Other real estate expense (income) (82) 9
Other expenses 415 566
- ---------------------------------------------------- ------ ------
TOTAL NON-INTEREST EXPENSES 4,690 4,700
- ---------------------------------------------------- ------ ------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
BROAD NATIONAL BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
(Unaudited)
3 MONTH PERIOD ENDED
MARCH 31
<TABLE>
<CAPTION>
1997 1996
---- ----
(Unaudited)
<S> <C> <C>
INCOME BEFORE INCOME TAXES 2,914 1,638
PROVISION FOR INCOME TAXES 1,253 601
- --------------------------------------- ------ ------
NET INCOME $1,661 $1,037
- ------------------------------------------------------------
NET INCOME APPLICABLE TO COMMON STOCK $1,661 $1,037
- ------------------------------------------------------------
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING
PRIMARY 4,812,997 4,325,517 (1)
ASSUMING FULL DILUTION 4,850,695 4,758,481 (1)
- --------------------
NET INCOME PER COMMON SHARE
PRIMARY EARNINGS PER COMMON SHARE $0.35 $0.24 (1)
FULLY DILUTED EARNINGS PER COMMON
SHARE $0.34 $0.22 (1)
</TABLE>
(1) Restated to reflect the effect of the 10% stock dividend declared September
19, 1996.
See accompanying notes to consolidated financial statements.
6
<PAGE>
BROAD NATIONAL BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED MARCH 31
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,661 $ 1,037
Adjustments to reconcile
net income to net cash
provided by (used in)
operating activities:
Depreciation and
amortization 308 298
Amortization of
securities premium net 179 187
Amortization of deferred
points and fees
and deferral of loan origination cost (100) (65)
Provision for possible loan losses 450 225
Deferred tax benefit (220) (305)
Increase (decrease) in
accrued taxes, interest, and other
liabilities 671 (8,248)
Gain on sale of securities available - for - sale (5) 0
Gain on sale of other real estate owned (123) 0
Increase in accrued interest receivable (397) (437)
Other assets, net 54 250
- --------------------------- --- ---
Net cash provided by (used in) operating
activities $ 2,478 $ (7,058)
- --------------------------- ----- ------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from the sale of other real estate
owned $ 333 $ 0
Net increase in loan balances (4,245) (6,077)
Proceeds from maturities of
securities held-to-maturity 4,700 2,281
Proceeds from maturities of
securities available-for-sale 2,585 5,013
Purchase of securities held-to-maturity (5,752) (10,093)
Proceeds from the sale of securities
available - for - sale 6,196 0
Purchase of securities available-for-sale (16,725) (17,607)
Capital expenditures (251) (266)
- --------------------------- ------- ------
Net cash used in investing activities $(13,159) $(26,749)
- --------------------------- ------ ------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net increase in certificates of deposit $ 4,626 $ 3,743
Net decrease in demand deposit, savings
and interest bearing demand accounts (7,814) (6,038)
Net increase in short-term borrowings 0 490
Redemption of preferred stock 0 (12)
Purchase of Treasury Stock (233) 0
Dividends paid (465) (332)
- --------------------------- ------- -------
Net cash used in
financing activities $(3,886) $ (2,149)
------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS $(14,567) $(35,956)
CASH AND CASH EQUIVALENTS, beginning of period 76,857 87,110
-------- -------
CASH AND CASH EQUIVALENTS, end of period $ 62,290 $ 51,154
- --------------------------- -------- -------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for Interest $ 3,299 $ 2,870
Taxes $ 761 $ 128
- --------------------------- ------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
BROAD NATIONAL BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(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 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 stock options.
(3) Stock buy back program:
On November 21, 1996, the Board of Directors of the Company authorized
the repurchase of up to 100,000 of its outstanding common shares.
At March 31, 1997, the Company had repurchased 22,500 shares of common
stock a cost of $290,625.
On April 23, 1997, the Company repurchased an additional 70,000
shares of common stock at a cost of $1,102,500.
(4) Reclassification -
Certain amounts in the consolidated financial statements presented for
prior periods have been reclassified to conform with the 1997 presentation.
8
<PAGE>
BROAD NATIONAL BANCORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997
- ---------------------------------
SUMMARY
-------
The Company reported net income of $1,661,000 or $0.34 per fully diluted common
share for the first quarter of 1997 compared to net income of $1,037,000 or
$0.22 per fully diluted common share for the first quarter of 1996. Per share
data for the first quarter of 1996 has been restated to reflect the effect of
the 10% stock dividend declared September 19, 1996.
Total assets of $531,634,000 at March 31,1997 represent a decrease of $1,981,000
or 0.4% from the December 31, 1996 balance of $533,615,000. Total deposits
declined $3,188,000 or 0.7% from $485,073,000 at December 31, 1996 to
$481,885,000 at March 31, 1997.
Total shareholders'equity increased $536,000 during the first three months of
1997 as the result of net income of $1,661,000, reduced by dividends declared of
$465,000, the repurchase of 17,500 shares of stock as treasury shares at a cost
of $233,000 and a net decrease of $427,000 in the unrealized gain (loss) on
securities available - for - sale, due to the change in the interest rate
environment.
The Company's annualized return on average assets and annualized return on
average shareholders' equity were 1.24% and 17.17%, respectively, for the first
three months of 1997, compared to annualized returns of .89% and 11.91%,
respectively, for the comparable 1996 period.
9
<PAGE>
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
10
<PAGE>
NET INTEREST INCOME
Three Months Ended March 31
(Dollars in Thousands)
<TABLE>
<CAPTION>
1997 1996
------- --------
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 $56,369 $730 5.18% $38,458 $509 5.24%
------- -------- ------- -------- -------- -------
Investment Securities
Securities held-to-
maturity 89,724 1,447 6.46 62,659 931 5.94
Securities
available-for-sale 71,653 1,098 6.12 60,528 884 5.84
------- -------- ------- -------- -------- -------
Total investment
- ----------------
securities 161,377 2,545 6.31(2) 123,187 1,815 5.89 (2)
---------- ------- -------- ------- -------- -------- -------
Loans
Mortgage $168,660 3,847 9.12 160,677 3,390 8.43
Installment 40,112 890 9.00 35,163 821 9.39
Commercial 78,457 1,676 8.66 72,914 1,556 8.68
State and political
subdivisions (1) 14 -- -- 1,072 33 11.29
------- -------- ------- -------- -------- -------
Total Loans 287,243 6,413 9.05 269,826 5,800 8.65
------- -------- ------- -------- -------- -------
Total interest
earning assets 504,989 $ 9,688 7.78%(2) 431,471 $ 8,124 7.57%(2)
------- -------- ------- -------- -------- -------
Less - Allowance for
possible loan losses 8,693 7,510
All other assets 46,092 44,105
-------- --------
Total Assets $542,388 $468,066
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest Bearing Deposits
Savings and
interest bearing
demand deposits $212,042 $1,150 2.20% $221,892 $1,199 2.17%
Time Deposits
Under $100,000 90,852 1,150 5.13 86,696 1,112 5.16
Over $100,000 92,606 1,209 5.30 23,067 284 4.95
------- -------- ------- -------- -------- -------
Total Interest
Bearing Deposits 395,500 3,509 3.60 331,655 2,595 3.15
Short term borrowings 1,000 12 4.80 1,364 18 5.22
------- -------- ------- -------- -------- -------
Total Interest
Bearing Liabilities 396,500 $3,521 3.60% 333,019 $2,613 3.16%
------- -------- ------- -------- -------- -------
Other liabilities 10,118 8,163
Demand deposits 97,532 91,879
Shareholders' equity 39,238 35,005
-------- --------
Total liabilities and
shareholders'
equity $542,388 $468,066
-------- --------
NET INTEREST INCOME;
NET INTEREST SPREAD $ 6,167 4.18% $ 5,511 4.41%
NET INTEREST MARGIN 4.95% (3) 5.14% (3)
</TABLE>
11
<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
three months ended March 31, 1997 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 $ 373 $240 $ 613
Investment securities 593 137 730
Federal funds sold 234 (13) 221
------ ---- -------
Total interest income $1,200 $364 $1,564
------ ---- -------
Interest paid on:
Savings and interest
bearing demand deposits $ (66) $ 17 $ (49)
Certificates of deposit:
Under $100,000 53 (15) 38
Over $100,000 849 76 925
Short term borrowings (5) (1) (6)
------ ---- -------
Total Interest expense $ 831 $ 77 $ 908
------ ---- -------
Change in net interest income $ 369 $287 $ 656
Percent increase in net interest ------ ---- -------
income over the prior period 11.90%
-------
</TABLE>
Total tax equivalent interest income of $9,688,000 for the first three months of
1997 represents an increase of $1,564,000 or 19.3% over total tax equivalent
interest income of $8,124,000 for the comparable 1996 period. This improvement
is primarily due to an increase of $73,518,000 in the average balance of total
interest earning assets for the first quarter of 1997 as compared to the first
quarter of 1996. This increase in the average balance of interest earning
assets resulted in a $1,200,000 increase in total tax equivalent interest
income. Additionally, an increase of 21 basis points in the average rate earned
on interest earning assets contributed $364,000 to the increase in total tax
equivalent interest income. A change occurred in the mix of interest earning
assets for the first quarter of 1997 as compared to the first quarter of 1996.
Higher yielding loans declined to 56.9% of total average interest earning assets
for the first quarter of 1997 from 62.5% of total average interest earning
assets for the comparable 1996 period. Relatively lower yielding federal funds
sold and investments securities represented a combined 43.1% of total average
interest earing assets for the first three months of 1997 as compared to 37.5%
of total average interest earning assets for the first quarter of 1996.
12
<PAGE>
Total interest expense of $3,521,000 for the first quarter of 1997 was $908,000
or 34.7% higher than the comparable prior year period. An increase of
$63,481,000 in the average balance of total interest bearing liabilities is the
primary reason for this increase, resulting in an additional $831,000 of
interest expense for the first quarter of 1997 as compared to the first quarter
of 1996. The most significant growth in the average balance of total interest
bearing liabilities occurred in time deposits over $100,000, which average
balance was $69,539,000 higher for the first quarter of 1997 than for the first
quarter of 1996. This growth originated from new or expanded relationships with
municipal government units within markets served by the bank.
Tax equivalent net interest income for the first three months of 1997 was
$656,000 or 11.90% higher than for the first three months of 1996. This
increase is primarily attributable to the increase in the average balance of
interest earning assets. However, the change in the mix of interest earning
assets, with a larger percentage of interest earning assets in relatively lower
yielding investments and federal funds sold, contributed to the decline in the
net interest margin for the first quarter of 1997 as compared to the first
quarter of 1996.
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 $450,000 for the first quarter of 1997
compared to $225,000 for the comparable 1996 period. The increased provision for
possible loan losses is primarily due to the increase in loans outstanding.
Actual net loan charge-offs for the first three months of 1997 were $73,000 or
0.10% (annualized) of average total loans, as compared to net loan charge-offs
of $181,000 or 0.28% (annualized) of average total loans for the comparable 1996
period.
NON-INTEREST INCOME AND NON-INTEREST EXPENSES
- ---------------------------------------------
Total non-interest income of $1,893,000 for the first quarter of 1997 was
$821,000 or 76.6% higher than the comparable 1996 period. This increase is
primarily attributable to the service charges on deposit accounts which were
$761,000 or 89% higher for the first quarter of 1997 as compared to the first
quarter of 1996. This increase results from a more consistent collection of fee
income for services provided.
Total non - interest expense of $4,690,000 for the first three months of 1997
was $10,000 lower than the comparable 1996 period.
Employee benefits expense was $107,000 or 20% higher for the first quarter of
1997 as compared to the first quarter of 1996. Most of this increase is
attributable to increased claims for hospital and medical insurance.
Professional fees of $253,000 for the first quarter of 1997 were $112,000 or
79.4% higher than for the first quarter of 1996. The largest single
13
<PAGE>
component of the increase were costs of approximately $55,000 associated with a
funds management project which was completed and expensed during the first
quarter of 1997.
A non - recurring gain of $123,000 from the sale of a property classified as
other real estate owned resulted in an improvement of $91,000 in other real
estate expense for the first quarter of 1997 as compared to the first quarter of
1996.
Other non - interest expenses of $415,000 for the first quarter of 1997 were
$151,000 or 26.7% lower than for the first quarter of 1996. The most
significant factor contributing to this decrease was insurance expense, which
was approximately $60,000 lower for the first quarter of 1997 as compared to the
first quarter of 1996.
FINANCIAL CONDITION
- -------------------
Loans
Total loans, net of deferred loan fees, of $291,387,000 at March 31, 1997
represent an increase of $4,271,000 or 1.5% from the December 31, 1996 balance
of $287,116,000. The most significant component of the increase in loan balances
was an increase of $4,915,000 or 3.9% in commercial mortgages. For the first
three months of 1997, average loans of $287,243,000 represented 56.9% of total
average interest earning assets, as compared to 62.5% of total average interest
earning assets for the first three months of 1996.
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>
Three Months Three Months
Ended Ended
March 31, 1997 March 31, 1996
-------------- ---------------
(Dollars In Thousands)
<S> <C> <C>
Balance, beginning of period $ 8,531 $ 7,402
Provision charged to operations 450 225
Loans charged off (245) (403)
Recoveries of charged-off loans 172 222
-------- --------
Balance, end of period $ 8,908 $ 7,446
-------- --------
Average gross loans outstanding
during period..................... $287,243 $269,826
-------- --------
Total gross loans at period end.... $291,664 $273,598
-------- --------
Net loans charged-off $ 73 $ 181
-------- --------
Ratio of net loans charged-off to
average loans outstanding
during period (annualized)...... 0.10% 0.28%
----- ------
Allowance for possible loan losses as
a percentage of total gross loans.. 3.05% 2.72%
----- ------
</TABLE>
14
<PAGE>
The amount of allowance applicable to non-classified loans was $6,094,000 and
$5,819,000 at March 31, 1997 and December 31, 1996, 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 March
31, 1997 and December 31, 1996:
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
--------------- ------------------
(Dollars In Thousands)
<S> <C> <C>
Past due 90 days or more:
Mortgage....................... $ 260 $ 1,068
Commercial..................... 243 247
Installment.................... 7 34
------- -------
Total.......................... $ 510 $ 1,349
------- -------
Non-accrual loans:
Mortgage....................... $ 2,173 $ 2,800
Commercial..................... 5,335 5,584
Installment.................... 3 0
------- -------
Total....................... $ 7,511 $ 8,384
------- -------
TOTAL NON-PERFORMING LOANS....... $ 8,021 $ 9,733
Restructured loans (excluding
amounts classified as
non-performing loans) 3,914 3,934
Other real estate owned,
net of reserve................. 875 841
------- -------
TOTAL NON-PERFORMING ASSETS. $12,810 $14,508
------- -------
Non-performing loans as a
percent of total gross loans 2.75% 3.39%
------- -------
Non-performing loans as a
percent of total assets....... 1.51% 1.82%
------- -------
Non-performing assets as a
percent of loans and other
real estate owned.............. 4.38% 5.03%
------- -------
Allowance for possible loan
losses......................... $ 8,908 $ 8,531
------- -------
Allowance for possible loan
losses as a percent of
non-performing loans........... 111.06% 87.65%
------- -------
</TABLE>
In addition to the non-performing and restructured loans as of March 31, 1997
and December 31, 1996, the Company had classified an additional $3,028,000 and
$3,088,000, respectively, as substandard loans. A loan loss
15
<PAGE>
reserve has been allocated to such loans in accordance with the Company's
policies.
At March 31, 1997, the recorded investment in loans that are considered to be
impaired under SFAS 114 was $9,989,000 for which the related allowance for
credit losses is $470,000. The impaired loan portfolio is primarily collateral
dependent, as defined by SFAS 114. The change in the allowance for impaired
loans during the first quarter of 1997 represented a recovery of $30,000. The
average recorded investment in impaired loans during the first quarter of 1997
was approximately $10,049,000. For the first quarter of 1997, the Company
recognized cash basis interest income on these impaired loans of $55,279.
The level of non-performing loans and assets is heavily dependent upon local
economic conditions. The March 31, 1997 total non-performing assets of
$12,810,000 represents a decrease of $1,698,000 or 11.7% from the total at
December 31, 1996. There can be no assurance that the level of the Company's
non-performing assets will not increase in the future.
Investment Securities and Federal Funds Sold
Federal funds sold of $42,875,000 at March 31, 1997 represent a decrease of
$14,200,000 from the balance at December 31, 1996. Most of this decline is
attributable to the transfer of funds into the investment portfolio. Average
Federal Funds sold of $56,369,000 during the first three months of 1997
represented 11.1% of total average interest earning assets, as compared to 8.9%
during the first three months of 1996.
Total average investment securities of $161,377,000 for the first three months
of 1997 represent 32% of total average interest-earning assets, as compared to
28.6% for the comparable 1996 period.
Total investment securities, which include securities classified as held-to-
maturity and available-for-sale, of $167,389,000 at March 31, 1997 represent an
increase of $8,175,000 or 5.1% over the balance at December 31, 1996. During
the first quarter of 1997, securities available-for-sale of $6,196,000 were sold
and a net gain of $5,000 was realized from the sale. There were no sales of
securities available-for-sale during the first three months of 1996.
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 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.
16
<PAGE>
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 March 31, 1997 and December 31, 1996.
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
--------------- ------------------
<S> <C> <C>
Cash and cash equivalents
and securities maturing in
one year to total assets 12.4% 14.9%
Net loans to total deposits 58.6% 57.4%
</TABLE>
To assist in the management of its liquidity, the bank has available $26,000,000
in lines of credit for federal funds. However, none of these lines were in use
during the first quarter of 1997.
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, 1996, retained earnings of the Bank of $6,942,000
were available for payment of dividends to the parent company without regulatory
approval. Additionally, at March 31, 1997 Bancorporation had $423,000 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.
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.
17
<PAGE>
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 generally benefit in
periods of rising interest rates, but generally suffer as rates decrease.
Companies that are liability sensitive (a negative gap) generally benefit in
periods of declining rates, but generally suffer as rates increase.
At March 31, 1997 the Company maintained negative sensitivity gaps of 52:1, 50:1
and 58:1 at the cumulative 3 month, 6 month and 12 month periods. In a rising
rate environment, a liability sensitive gap position generally indicates that
increases in the cost of interest bearing liabilities will outpace increases in
income from interest earning assets. This risk can be reduced by various
strategies, including the management of liability costs and the investment of
asset maturities and cash flows in such a way as to insulate net interest income
from the effects of changes in interest rates.
Management will continue to monitor the interest rate sensitivities of assets
and liabilities in an effort to minimize interest rate exposure and maintain a
relatively stable net interest spread.
Capital Adequacy
At March 31, 1997, the Company had total capital equal to 12.68% of risk-based
assets which included tier one capital equal to 11.41% of risk-based assets.
These compare to minimum regulatory capital requirements of 8% and 4%,
respectively. At March 31, 1997, the Company had tier one capital equal to
7.06% of adjusted total assets. This compares to a minimum regulatory capital
requirement of 4% to 5%.
At March 31, 1997, the Bank had total capital equal to 12.5% of risk-based
assets, which included tier one capital equal to 11.23% of risk-based assets.
These compare to minimum regulatory capital requirements of 8% and 4%,
respectively. At March 31, 1997, the Company had tier one capital equal to
6.95% of adjusted total assets. This compares to a minimum regulatory capital
requirement of 4% to 5%.
Recent Accounting Developments
Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS
128") establishes standards for computing and presenting earnings per share
(EPS) and applies to entities with publicly held common stock or potential
common stock. SFAS 128 replaces the presentation of primary EPS with a
presentation of basic EPS and requires dual presentation of basic and diluted
EPS on the face of the income statement for all entities with complex capital
structures and requires a reconciliation of the numerator and denominator of the
basic EPS computation to the numerator and denominator of the diluted EPS
computation. SFAS 128 is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods; earlier application
is not permitted and requires restatement of all prior-period EPS data
presented.
18
<PAGE>
The pro forma basic EPS for the first quarter of 1997 and 1996 were $0.36 and
$0.24 per share, respectively. The diluted EPS is not expected to be materially
different from the fully diluted earnings per share disclosed in the income
statement.
19
<PAGE>
BROAD NATIONAL BANCORPORATION
PART 2 - OTHER INFORMATION
- --------------------------
4. Submission of Matters to a Vote of Security Holders
(a) The annual shareholders meeting of Broad National Bancorporation was
held on April 17, 1997.
(b) The Directors elected at this meeting were:
<TABLE>
<CAPTION>
Affirmative Withheld
Votes Authority
----------- ---------
<S> <C> <C>
Mr. Licinio Cruz 3,955,336 28,762
Mr. John A. Dorman 3,955,236 28,862
Mr. Arthur Fischman 3,954,058 30,040
Mr. John J. Iannuzzi 3,955,336 28,762
Mr. Donald M. Karp 3,955,236 28,862
Mr. James J. Lazarus 3,955,336 28,762
Mr. Edward J. Lenihan 3,951,723 32,375
Mr. Stanley J. Lesnik 3,951,952 32,146
Ms. Catherine McFarland 3,955,221 28,877
Mr. Louis J. Owen 3,955,107 28,991
Mr. A. Harold Schwartz 3,955,336 28,762
Mr. Hubert Williams 3,952,448 31,650
</TABLE>
(c) A 1996 Broad National Bancorporation Incentive Stock Option Plan was
approved by holders of shares of common stock, as follows :
FOR 2,863,986
---------
AGAINST 356,506
----------
ABSTAIN 69,442
----------
There were 942,396 broker non-votes with respect to approval of a
1996 Broad National Bancorporation Incentive Stock Option Plan.
(d) A 1996 Broad National Bancorporation Directors Non-Statutory Stock
Option Plan was approved by holders of shares of common stock, as
follows :
FOR 2,767,536
---------
AGAINST 509,917
---------
ABSTAIN 12,481
---------
20
<PAGE>
There were 942,396 broker non-votes with respect to approval of a
1996 Broad National Bancorporation Directors Non-Statutory Stock
Option Plan.
(e) An amendment to the Corporation's Certificate of Incorporation to
increase the number of authorized shares of the Corporation's
capital stock from 7,020,000 shares to 11,520,000 shares and to
increase the number of authorized shares of the Corporation's common
stock, $1.00 par value, from 5,500,000 to 10,000,000 shares, was
approved by holders of shares of common stock as follows:
FOR 3,638,616
---------
AGAINST 247,682
---------
ABSTAIN 59,805
---------
There were 233,731 broker non-votes with respect to approval of
the amendment to the Corporation's Certificate of Incorporation to
increase the number of authorized shares of the Corporation's
capital stock and common stock.
(f) KPMG Peat Marwick LLP was appointed as the Corporation's independent
auditors for the year ending December 31, 1997 by holders of shares of
common stock, as follows:
FOR 3,972,244
---------
AGAINST 6,736
---------
ABSTAIN 5,008
---------
6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Statements 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 March 31, 1997.
21
<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: May 14, 1997 /s/ Donald M. Karp
-------------------
Donald M. Karp
Chairman and CEO
/s/ James Boyle
-------------------
James Boyle
Treasurer
22
<PAGE>
BROAD NATIONAL BANCORPORATION
Computation of Net Income Per Share
(Unaudited)
<TABLE>
<CAPTION>
THREE-MONTH PERIOD
ENDED MARCH 31
<S> <C> <C>
1997 1996(1)
---------- ----------
PRIMARY:
- ---------------------------------------------
Average number of common shares outstanding 4,669,188 4,237,474
Assumed exercise of options outstanding 143,809 88,043
---------- ----------
Average number of common shares and
common share equivalents outstanding 4,812,997 4,325,517
---------- ----------
Net income available to common shareholders $1,661,150 $1,036,650
---------- ----------
Primary earnings per common share $ 0.35 $ 0.24
========== ==========
FULLY DILUTED:
- ---------------------------------------------
Average number of common shares outstanding 4,669,188 4,237,474
Assumed exercise of options outstanding 181,507 97,264
Assumed conversion of preferred shares 0 423,743
---------- ----------
Adjusted average number of common shares 4,850,695 4,758,481
---------- ----------
Net Income $1,661,150 $1,036,650
---------- ----------
Fully diluted earnings per common share $ 0.34 $ 0.22
========== ==========
</TABLE>
(1) Restated to reflect the effect of the 10% stock dividend declared September
19, 1996
23
<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 March 31,
1997, and the related consolidated condensed statements of income, and cash
flows for the three-month periods ended March 31, 1997 and 1996. 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, 1996, and the related consolidated statements of income, changes in
shareholders' equity, and cash flows for the year then ended (not presented
herein); and in our report dated January 15, 1997, 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, 1996, is fairly presented, in all material respects, in relation
to the consolidated statement of condition from which it has been derived.
/s/ KPMG Peat Marwick LLP
Short Hills, New Jersey
May 14, 1997
24
<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 MARCH 31, 1997
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 19,415
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 42,875
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 76,250
<INVESTMENTS-CARRYING> 91,139
<INVESTMENTS-MARKET> 89,367
<LOANS> 291,387
<ALLOWANCE> 8,908
<TOTAL-ASSETS> 531,634
<DEPOSITS> 481,885
<SHORT-TERM> 1,000
<LIABILITIES-OTHER> 9,855
<LONG-TERM> 0
0
0
<COMMON> 4,677
<OTHER-SE> 34,217
<TOTAL-LIABILITIES-AND-EQUITY> 531,634
<INTEREST-LOAN> 6,413
<INTEREST-INVEST> 2,539
<INTEREST-OTHER> 730
<INTEREST-TOTAL> 9,682
<INTEREST-DEPOSIT> 3,509
<INTEREST-EXPENSE> 3,521
<INTEREST-INCOME-NET> 6,161
<LOAN-LOSSES> 450
<SECURITIES-GAINS> 5
<EXPENSE-OTHER> 4,690
<INCOME-PRETAX> 2,914
<INCOME-PRE-EXTRAORDINARY> 2,914
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,661
<EPS-PRIMARY> 0.35
<EPS-DILUTED> 0.34
<YIELD-ACTUAL> 4.95
<LOANS-NON> 7,511
<LOANS-PAST> 510
<LOANS-TROUBLED> 3,914
<LOANS-PROBLEM> 3,028
<ALLOWANCE-OPEN> 8,531
<CHARGE-OFFS> 245
<RECOVERIES> 172
<ALLOWANCE-CLOSE> 8,908
<ALLOWANCE-DOMESTIC> 8,908
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 6,094
</TABLE>
