UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-17515
COLLECTIVE BANCORP, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-2942769
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
716 West White Horse Pike
Cologne , New Jersey 08213
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (609) 625-1110
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 [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common stock, par value $.01 per share, 20,407,332 shares outstanding as
of March 31, 1996.
<PAGE>
Part I
Item 1
COLLECTIVE BANCORP, INC. AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED FINANCIAL CONDITION
<TABLE>
<CAPTION>
March 31 June 30
1996 1995
-------------- --------------
<S> <C> <C>
ASSETS (Dollar amounts in thousands)
Cash $ 57,282 $ 66,256
Federal funds sold 3,680 3,717
-------------- --------------
Total cash and cash equivalents 60,962 69,973
Trading securities, at market value - 13,328
Loans held for sale, at amortized cost (market
value of $8,010 and $5,836) 8,009 5,815
Securities available for sale, at market value 145,923 113,635
Investment securities, at amortized cost (market
value of $271,093 and $317,221) 273,457 315,879
Loans receivable, net 2,438,936 2,373,706
Mortgage-backed securities, at amortized cost
(market value of $1,934,300 and $2,027,783) 2,019,040 2,100,344
Real estate acquired in settlement of loans, net 4,632 6,476
Land, office buildings and equipment, net 39,170 39,313
Other assets 43,069 43,072
Core deposit premium 8,786 10,873
Goodwill 16,613 18,103
-------------- --------------
Total assets $5,058,597 $5,110,517
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand deposits, non-interest bearing $ 86,167 $ 76,705
Demand deposits, interest bearing 474,966 451,350
Savings and investment accounts 834,906 833,041
Savings certificates 1,747,317 1,916,727
-------------- --------------
Total deposits 3,143,356 3,277,823
Federal Home Loan Bank advances - 395,000
Other borrowed funds 1,509,051 1,052,920
Payable to brokers for securities purchased - 7,600
Advance payments by borrowers for taxes and insurance 23,693 29,462
Other liabilities 26,049 19,920
-------------- --------------
Total liabilities 4,702,149 4,782,725
-------------- --------------
Stockholders' equity:
Common stock, par value $.01 per share; authorized - 37,000,000
shares; issued - 20,412,332 shares in March 1996 and 20,356,768
shares in June 1995; outstanding - 20,407,332 shares in March
1996 and 20,356,768 shares in June 1995 204 204
Preferred stock, par value $.01 per share;
authorized-2,500,000 shares; none outstanding - -
Additional paid-in capital 59,653 59,299
Treasury stock, at cost; 5,000 shares (132) -
ESOP debt (6,085) (6,892)
Securities valuation 2,154 2,136
Retained earnings, substantially restricted 300,654 273,045
-------------- --------------
Total stockholders' equity 356,448 327,792
-------------- --------------
Total liabilities and stockholders' equity $5,058,597 $5,110,517
============== ==============
</TABLE>
2
<PAGE>
COLLECTIVE BANCORP, INC. AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31 March 31
1996 1995 1996 1995
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
(Dollar amounts in thousands except per share data)
INTEREST AND DIVIDEND INCOME:
Interest on mortgage loans $43,738 $37,486 $130,404 $105,095
Interest on other loans 3,812 4,925 12,140 13,782
Interest on mortgage-backed securities 34,841 36,705 106,171 110,867
Interest and dividends on investments 6,056 6,744 17,558 17,914
-------------- -------------- -------------- --------------
Total interest and dividend income 88,447 85,860 266,273 247,658
-------------- -------------- -------------- --------------
INTEREST EXPENSE:
Interest on deposits 32,103 29,706 99,131 83,014
Interest on Federal Home Loan Bank
advances and other borrowed funds 20,127 22,990 62,699 57,542
-------------- -------------- -------------- --------------
Total interest expense 52,230 52,696 161,830 140,556
-------------- -------------- -------------- --------------
Net interest income before provision for loan losses 36,217 33,164 104,443 107,102
Provision for loan losses 410 - 1,099 240
-------------- -------------- -------------- --------------
Net interest income after provision for loan losses 35,807 33,164 103,344 106,862
-------------- -------------- -------------- --------------
OTHER INCOME:
Loan servicing 1,239 946 3,167 2,952
(Loss) Gain on sale of loans and securities (162) (17) 1,032 (308)
Financial service fees and other income 2,453 2,211 7,390 6,331
-------------- -------------- -------------- --------------
Total other income 3,530 3,140 11,589 8,975
-------------- -------------- -------------- --------------
Total income before other expense 39,337 36,304 114,933 115,837
-------------- -------------- -------------- --------------
OTHER EXPENSE:
Compensation and employee benefits 7,463 7,081 21,377 20,369
Occupancy expense 2,806 2,525 8,036 7,440
Advertising 380 221 915 878
Deposit insurance 1,521 1,731 4,572 5,021
Computer services 1,113 1,148 3,667 3,323
Loan expense 732 563 2,347 1,861
Real estate operations 326 (79) 495 (739)
Amortization of intangibles 1,178 1,005 3,578 3,063
Other expenses 2,787 2,610 7,890 7,572
-------------- -------------- -------------- --------------
Total other expense 18,306 16,805 52,877 48,788
-------------- -------------- -------------- --------------
INCOME BEFORE INCOME TAXES 21,031 19,499 62,056 67,049
INCOME TAXES 7,508 6,549 22,215 23,132
-------------- -------------- -------------- --------------
NET INCOME $13,523 $12,950 $39,841 $43,917
============== ============== ============== ==============
PER SHARE DATA:
Primary and fully diluted net income per share $0.66 $0.63 $1.95 $2.14
Dividends per common share $0.20 $0.15 $0.60 $0.45
Average primary shares outstanding 20,457,753 20,563,121 20,446,517 20,567,836
Average fully diluted shares outstanding 20,457,780 20,563,121 20,448,803 20,567,836
</TABLE>
3
<PAGE>
COLLECTIVE BANCORP, INC. AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additonal
Common Paid-In Treasury ESOP Securities Retained
Stock Capital Stock Debt Valuation Earnings Total
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
(Dollar amounts in thousands except per share data)
BALANCE JUNE 30, 1994 $203 $58,618 - $(7,800) - $228,707 $279,728
Net income for the year 57,542 57,542
Stock options exercised 1 681 682
Dividends on common
stock - $.65 per share (13,204) (13,204)
ESOP debt repayment 908 908
Securities valuation $2,136 2,136
----------------------------------------------------------------------------------------
BALANCE JUNE 30, 1995 204 59,299 - (6,892) 2,136 273,045 327,792
Net income fiscal year to date 39,841 39,841
Stock options exercised 354 354
Dividends on common
stock - $.60 per share (12,232) (12,232)
Purchase of treasury shares $(132) (132)
ESOP debt repayment 807 807
Securities valuation 18 18
----------------------------------------------------------------------------------------
BALANCE MARCH 31, 1996 $204 $59,653 $(132) $(6,085) $2,154 $300,654 $356,448
========================================================================================
</TABLE>
4
<PAGE>
COLLECTIVE BANCORP, INC. AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
March 31
---------------------------------
1996 1995
--------------- ---------------
<S> <C> <C>
(Dollar amounts in thousands)
OPERATING ACTIVITIES:
Interest received $ 262,163 $ 236,219
Interest paid (159,794) (140,175)
Operating expenses (52,273) (49,352)
Sale of trading securities 13,328 -
Loan fees 3,721 6,562
Other income received 11,791 8,974
Income taxes paid (16,075) (14,293)
--------------- ---------------
Net cash provided by operating activities 62,861 47,935
--------------- ---------------
INVESTING ACTIVITIES:
Loan originations (412,467) (526,283)
Purchases of loans (17,224) (86,748)
Purchases of mortgage-backed securities (14,042) (128,306)
Repayment of loan principal 269,403 217,654
Repayment of mortgage-backed security principal 99,181 135,937
Sale of loans receivable 98,367 25,923
Purchases of investment securities (294,630) (120,648)
Sale of investment securities available for sale - 18,961
Purchases of mortgage-backed securities available for sale (90,854) (16,339)
Sale of mortgage-backed securities available for sale 55,157 108,305
Repayment of principal on mortgage-backed securities available for sale 13,020 17,966
Maturities of investment securities 318,960 7,502
Net decrease in real estate owned 1,844 1,578
Net change in loans maturing in three months or less (6,500) -
Other investing, net 1,846 (3,951)
--------------- ---------------
Net cash provided by (used for) investing activities 22,061 (348,449)
--------------- ---------------
FINANCING ACTIVITIES:
Net change in deposits (134,467) 83,345
Net change in Federal Home Loan Bank advances (395,000) (103,000)
Net change in other borrowed funds 456,131 332,234
Net decrease in advance payments by borrowers
for taxes and insurance (5,769) (11,848)
Dividends paid (12,222) (9,122)
Other financing, net (2,606) 427
--------------- ---------------
Net cash (used for) provided by financing activities (93,933) 292,036
--------------- ---------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (9,011) (8,478)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 69,973 70,950
--------------- ---------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 60,962 $ 62,472
=============== ===============
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED
BY OPERATING ACTIVITIES:
Net income $ 39,841 $ 43,917
Net change in trading securities 13,328
-
Amortization and accretion of deferred charges and credits, net (2,166) (2,395)
Amortization of intangibles 3,578 3,063
Accrued income and expense 14,067 8,408
Deferred income and expense (11,347) (9,137)
Provision for loan and real estate owned losses 1,239 345
Depreciation and amortization 3,514 3,095
ESOP debt repayment 807 639
--------------- ---------------
Net cash provided by operations $ 62,861 $ 47,935
=============== ===============
</TABLE>
5
<PAGE>
COLLECTIVE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The unaudited interim consolidated financial statements of Collective
Bancorp, Inc. and subsidiary ("Collective") included herein should be read
in conjunction with the audited financial statements for the year ended
June 30, 1995 included in Collective's 1995 Annual Report and incorporated
by reference in the Form 10-K for that year. The unaudited interim
financial statements reflect all adjustments which are, in the opinion of
management, necessary for a fair presentation of the results for the
periods presented. Such adjustments consist only of normal recurring
accruals. The results of operations for the three and nine-month periods
ended March 31, 1996 are not necessarily indicative of the results to be
expected for the fiscal year ending June 30, 1996.
2. Legislation pending in Congress would impose a one-time assessment,
currently estimated at between 75 and 85 basis points, on the amount of
deposits held as of March 31, 1995 by Savings Association Insurance Fund
("SAIF")-member institutions, including Collective Bank, a wholly-owned
subsidiary of Collective, to recapitalize the SAIF to the required level of
1.25% of insured deposits. If the assessment is made at the 85 basis point
proposed rate, the effect on Collective Bank would be a pre-tax charge of
approximately $22 million, or $14 million after tax (36% assumed tax rate).
Certain proposed legislation also would require the recapitalized SAIF to
be merged with the Bank Insurance Fund into a new Deposit Insurance Fund no
later than January 1, 1998, provided the thrift charter has been eliminated
by that date. The elimination of the thrift charter, by requiring thrifts,
including Collective Bank, to convert to state or national commercial bank
charters, would be effected via separate legislation enacted by the end of
calendar 1997.
The proposed legislation would repeal Section 593 of the Internal Revenue
Code for taxable years beginning after December 31, 1995. Section 593
allows certain thrift institutions, including Collective Bank, to use a
percentage-of-taxable income bad debt accounting method, if more favorable
than the specific charge-off method, for Federal income tax purposes. Since
1993, Collective has used the percentage-of-taxable income method in its
income tax returns. Therefore, elimination of the availability of such
method could cause Collective's effective income tax rate to increase,
thereby negatively impacting net income.
Management cannot predict whether such proposals, or similar legislation,
will be enacted, or if enacted, the ultimate effect on Collective's
financial condition or results of operations, except as indicated above.
6
<PAGE>
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General Financial Institution Legislation and Regulation
Collective's primary subsidiary, Collective Bank (the "Bank"), is subject to
extensive regulation, supervision and examination by the Office of Thrift
Supervision ("OTS"), as its chartering authority and primary federal regulator,
and by the Federal Deposit Insurance Corporation ("FDIC"), which insures its
deposits up to applicable limits. Such regulation and supervision establish a
comprehensive framework of activities in which an institution can engage and are
intended primarily for the protection of the insurance fund and depositors. The
regulatory structure also gives the regulatory authorities extensive discretion
in connection with their supervisory and enforcement activities. Any change in
such regulation, whether by the OTS, FDIC or the Congress, could have a material
impact on the Bank and its operations. See Note 2 to the consolidated financial
statements.
Assets
Total assets decreased $52 million during the nine months ended March 31, 1996.
The decline, primarily in interest-earning assets, resulted from accelerated
repayments of certain investment securities, and repayments of mortgage-backed
securities, partially offset by growth in loans receivable. The net repayment
proceeds were used to pay maturing certificates of deposit.
Cash and cash equivalents decreased $9 million from the amount held on June 30,
1995 because cash used in financing activities exceeded cash provided by
operating and investing activities.
Trading securities decreased $13 million during the nine months ended March
31, 1996 as the fiscal 1995 year-end inventory was sold.
The increase in securities available for sale consisted of $11 million in
Federal National Mortgage Association ("FNMA") preferred stock and $21 million
in mortgage-backed securities. The newly-acquired mortgage-backed securities
were classified as available for sale for interest-rate risk management
purposes.
Investment securities decreased $42 million from the amount held on June 30,
1995. The decrease resulted primarily from maturities and repayments of U.S.
agency securities, partially offset by an increased investment in Federal Home
Loan Bank ("FHLB") stock required because of increased borrowings (reverse
repurchase agreements) from the FHLB. Many of the U.S. agency securities were
redeemed as the issuing agencies exercised call options during the current
period. Loans receivable, net increased $65 million as loan originations and
purchases exceeded loan repayments. The decrease in mortgage-backed securities
of $81 million was comprised of principal repayments of $99 million less
purchases of $14 million and discount accretion of $4 million. The decrease
occurred as Collective continued its strategy of relying more on loans and less
on collateralized mortgage obligations ("CMO's") as investment vehicles.
Collective has the positive intent and ability to hold its investment and
mortgage-backed securities portfolios to maturity under all foreseeable economic
conditions. Therefore, it is not expected that any gains or losses will be
realized from sales of securities from Collective's held-to-maturity portfolios.
In recent years, since authoritative guidance and/or accounting standards have
been developed for the definitive classification of securities, Collective has
not sold securities from its held-to-maturity portfolios. Collective has always
been able to satisfy its liquidity needs from the cash flows from operating and
financing activities, and there is no present indication that Collective will
not be able to do so in the future. Unrealized gains or losses in Collective's
held-to-maturity securities portfolios are primarily a function of the
interest-rate environment at any given point in time and, therefore, are only
temporary in nature. If presently unforeseen economic conditions should result
in the sale of those securities at some future date, any realized gain or loss
will be determined by their market value when sold.
7
<PAGE>
Liabilities
Deposits decreased $134 million during the nine months ended March 31, 1996. The
decrease was comprised of a decrease in certificates of deposit ("CD's") of $169
million, offset in part by increases in demand deposits and savings and
investment accounts of $33 million and $2 million, respectively.
During the nine months ended March 31, 1996, Collective continued its effort to
retain maturing deposits through the use of special products, such as 8, 9, 12,
18 and 24-month CD's at attractive rates. During that period, deposits in those
categories increased by $161 million. Offsetting those increases were reductions
in other retail CD's of $213 million as customers transferred funds to the
special product offerings or withdrew funds. During the nine-month period,
Collective sustained a $117 million reduction in CD's in excess of $100,000
("jumbo CD's") because of maturities near the end of December 1995 and March
1996. Collective had offered attractive rates on jumbo CD's during those six and
nine-month periods as a less expensive source of funds compared to short-term
borrowings.
Total borrowings increased $61 million during the nine months ended March 31,
1996 as Collective sought alternative sources of funding to offset the deposit
outflows. FHLB advances decreased $395 million and other borrowed funds
increased $456 million during the period. The shift in the source of borrowed
funds occurred because reverse repurchase agreements became a more attractive
borrowing vehicle to Collective than FHLB advances. Advance payments by
borrowers for taxes and insurance decreased $6 million during the nine months
ended March 31, 1996 primarily from annual tax payments in December 1995 on
certain out-of-state mortgage loans. The increase in other liabilities of $6
million from June 30, 1995 to March 31, 1996 is attributable to additional
accrued interest on borrowings and an increase in accrued and deferred income
taxes.
Stockholders' Equity
Retained earnings increased $28 million during the period primarily as a result
of net earnings of $40 million, less dividends on common stock of $12 million.
Liquidity and Capital Resources
The Bank is required by regulation to maintain certain levels of liquidity.
Regulations currently in effect require the Bank to maintain liquid assets of
not less than 5% of its net withdrawable deposits and short-term borrowings, of
which at least 1% must be short-term liquid assets. Throughout the nine months
ended March 31, 1996, the Bank was in compliance with that regulation and at
that date had an overall liquidity ratio of 6.97% and a short-term ratio of
4.19%.
8
<PAGE>
At March 31, 1996, capital resources were sufficient to meet outstanding loan
origination commitments of $124 million and commitments on unused lines of
credit of $102 million. Loans originated or purchased during the nine months
ended March 31, 1996 were funded from normal sources including investment
security maturities, amortization of the existing loan and mortgage-backed
securities portfolios, and borrowings. The Bank is subject to capital
requirements mandated by the Financial Institutions Reform, Recovery and
Enforcement Act ("FIRREA"). Under FIRREA, thrift institutions must have tangible
capital equal to 1.5% of tangible assets, core capital equal to 3% of adjusted
tangible assets and risk-based capital equal to 8% of risk-weighted assets. At
March 31, 1996, the Bank exceeded those requirements as follows:
<TABLE>
<CAPTION>
(In Thousands) Percent
<S> <C> <C>
Tangible Capital:
Actual $ 336,368 6.68%
Required 75,495 1.50%
----------- ------
Excess $ 260,873 5.18%
----------- ------
Core Capital:
Actual $ 336,368 6.68%
Required 150,990 3.00%
----------- ------
Excess $ 185,378 3.68%
----------- ------
Risk-based Capital:
Actual $ 342,766 17.83%
Required 153,822 8.00%
----------- -------
Excess $ 188,944 9.83%
----------- -------
</TABLE>
Three Months Ended March 31, 1996
Compared to Three Months Ended March 31, 1995
Net income for the three months ended March 31, 1996 increased $573,000 compared
to net income for the three months ended March 31, 1995. The increase in net
income was comprised of a $3.053 million increase in net interest income before
provision for loan losses, a $410,000 increase in the provision for loan losses,
a $390,000 increase in other income, a $1.501 million increase in other expense,
and a $959,000 increase in income taxes.
The increase in net interest income resulted from an increase in net interest
spread (the difference between the weighted average yield on interest-earning
assets and the weighted average rate paid on interest-bearing liabilities) from
2.61% for the 1995 period to 2.78% for the 1996 period, combined with an
increase in average interest-earning assets of $120 million. The combination of
the increases in net interest spread and interest-earning assets caused net
interest margin (net interest income divided by average interest-earning assets)
to rise from 2.77% for the 1995 period to 2.97% for the 1996 period. The
increase in net interest spread consisted of a 1 basis point increase in the
yield on interest-earning assets coupled with a 16 basis point decrease in the
cost of funds. The improvement in yield on interest-earning assets occurred
because Collective obtained a higher yield on the portion of the proceeds from
investment security and mortgage-backed security repayments that was reinvested
in loans receivable. The reinvestment occurred primarily in the first mortgage,
commercial, and home equity loan categories. The cost of funds decreased in the
1996 period compared to the 1995 period because of lower short-term interest
rates. Although the cost of deposits was 11 basis points higher in the 1996
period (because of the movement of deposits into higher-costing special deposit
products) this increase was more than offset by a 69 basis point decrease in the
cost of borrowings. Contributing to the lower cost of borrowings was the
shifting of FHLB advances to lower-costing reverse repurchase agreements. The
average balance of FHLB advances, costing 5.98%, was $304 million in the 1995
quarter. In the 1996 quarter, those advances were replaced by dollar rolls and
reverse repurchase agreements costing 71 basis points less.
9
<PAGE>
Collective's net interest income tends to decrease in periods of rising interest
rates because its interest-bearing liabilities generally reprice faster than its
interest-earning assets. (See the "Maturity and Rate Sensitivity Analysis", page
12.) Collective's net interest income also tends to decrease in periods when
there is a relatively flat yield curve. (The yield curve is a reflection of the
difference between long-term interest rates, represented by the 30-year U.S.
Treasury Bond, and short-term interest rates, represented by the 3-month U.S.
Treasury Bill.) Conversely, Collective's net interest income tends to increase
in periods of falling interest rates and in periods when there is a relatively
steep yield curve because the difference between the yields Collective receives
on its longer-term loans and securities and the rates it pays on its
shorter-term deposits and borrowings increases. During the 1996 quarter, the
yield curve expanded 61 basis points compared to a compression of 61 basis
points during the 1995 quarter, which had a positive impact on Collective's net
interest income.
The provision for loan losses increased because of growth in the loan portfolio
and increased loan payment delinquencies. Average delinquencies were
approximately $9 million higher in the 1996 quarter than they were in the 1995
quarter.
The $390,000 increase in other income was comprised of increases in loan
servicing and financial service fee income. The increase in loan servicing
income resulted from growth in the volume of loans serviced for others as
Collective continued to sell, with servicing retained, a substantial portion of
its loan originations as part of its interest-rate risk management activity. The
increase in fee income consisted primarily of non-sufficient fund charges as
Collective continued its campaign to charge and collect more deposit account
fees.
Other expense increased primarily because of asset growth. The ratio of
operating expense to average assets was 1.33% in the 1996 quarter compared to
1.28% in the 1995 quarter.
The increase in income taxes resulted from higher pre-tax income. The effective
income tax rate was 36% in the 1996 quarter compared to 34% in the 1995 period.
Nine Months Ended March 31, 1996
Compared to Nine Months Ended March 31, 1995
Net income for the nine months ended March 31, 1996 decreased $4.076 million
compared to net income for the nine months ended March 31, 1995. The decrease in
net income was comprised of a $2.659 million decrease in net interest income
before provision for loan losses, a $859,000 increase in the provision for loan
losses, a $2.614 million increase in other income, a $4.089 million increase in
other expense, and a $917,000 decrease in income taxes.
10
<PAGE>
The decrease in net interest income resulted from a decrease in net interest
spread from 2.95% for the 1995 period to 2.70% for the 1996 period, partially
offset by an increase of $238 million in average interest-earning assets. The
combination of decreased net interest spread and increased interest-earning
assets caused the net interest margin to decrease from 3.09% in the 1995 period
to 2.89% for the 1996 period. The decrease in net interest spread was comprised
of a 15 basis point increase in the yield on interest-earning assets combined
with a 40 basis point increase in the cost of funds. The increase in cost of
funds resulted from a 46 basis point increase in the cost of deposits and a 29
basis point increase in the cost of borrowings. The improvement in yield on
interest-earning assets occurred because the portion of the proceeds from
investment security and mortgage-backed security repayments that was reinvested
in loans receivable resulted in a higher yield on those reinvested funds. The
reinvestment occurred primarily in the first mortgage, commercial and home
equity loan categories. The increase in cost of funds resulted from the shifting
of CD's to higher-costing special product CD's discussed under Liabilities
herein, increased average balances and increased cost of jumbo CD's, and an
increased amount and cost of borrowings compared to the 1995 period. During the
nine months ended March 31, 1996, the average balance of jumbo CD's was $91
million compared to $44 million in the 1995 period. The cost of those deposits
was 5.42% in the 1996 period compared to 4.58% in 1995. Despite the increased
cost of jumbo CD's, their cost remained below that of borrowings and, during the
1996 period, management chose to use lower costing jumbo CD's as a source of
funds rather than higher costing borrowings whenever possible. The average cost
of deposits was 4.09% in the 1996 period compared to 3.63% in 1995 and the
average balance of deposits was $168 million higher in 1996. The average cost of
borrowings was 5.55% in the 1996 period compared to 5.26% in the 1995 period and
the average balance of borrowings was $36 million higher in the 1996 period. The
increase in average interest-earnings assets was comprised of increases in
virtually all loan categories, but primarily in first mortgage loans. Those
increases were funded largely by increased deposits and the increased borrowings
(reverse repurchase agreements) referred to above.
During the nine months ended March 31, 1996, the yield curve compressed
approximately 122 basis points from the 1995 period, which had a negative impact
on Collective's net interest income.
The provision for loan losses increased because of growth in the loan portfolio
and increased loan payment delinquencies. Average delinquencies were
approximately $5 million higher in the 1996 period than they were in the 1995
period.
The increase in other income was comprised of gain on sale of loans and fees
relating to deposit accounts. The increased gain on sale resulted from declining
longer-term interest rates and increased activity as Collective securitized and
sold a greater percentage of loans originated. Sales of securitized loans amount
to $98 million during the nine months ended March 31, 1996 compared to $43
million in the 1995 period. The percentage of loan originations that met
Collective's criteria for long-term investment decreased from 96% in the 1995
period to 85% in the current period. The decrease occurred because the
percentage of adjustable-rate loan originations decreased from 55% of total
originations in the 1995 period to 18% in the 1996 period. During the past
fourteen months, virtually all of Collective's conforming 30-year, fixed-rate
loan production was sold in the secondary market. The increase in fee income
consisted primarily of non-sufficient funds charges as Collective continued its
campaign to charge and collect more deposit account fees.
Other expense increased primarily because of asset growth. Despite that
increase, the ratio of operating expense to average assets was 1.28% in both the
1996 and 1995 periods.
The decrease in income taxes resulted from reduced pre-tax income. The effective
income tax rate was 36% in the 1996 period compared to 35% in the 1995 period.
The effective rate was lower in 1995 because of certain unanticipated income tax
refunds.
11
<PAGE>
COLLECTIVE BANCORP, INC. AND SUBSIDIARY
MATURITY AND RATE SENSITIVITY ANALYSIS (1)
<TABLE>
<CAPTION>
March 31, 1996
---------------- --------------- --------------- ----------------
1 Year 1 Year Over
or Less to 5 Years 5 Years Total
---------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Assets: (Dollar amounts in thousands)
Mortgage loans:
Balloon and adjustable rate
first mortgages $ 752,839 $ 347,593 $ 226,333 $ 1,326,765
Fixed rate mortgages 173,023 (2) 395,222 387,377 955,622
Mortgage-backed securities 399,669 (3) 1,205,424 512,934 2,118,027
Consumer and other
commercial loans 127,983 34,112 2,463 164,558
Federal funds sold 3,680 - - 3,680
Investment securities 319,964 (4) - 429 320,393
---------------- --------------- --------------- ----------------
Total rate sensitive assets $ 1,777,158 $ 1,982,351 $ 1,129,536 $ 4,889,045
================ =============== =============== ================
Liabilities:
Fixed maturity deposits $ 1,196,265 $ 532,554 18,498 1,747,317
NOW accounts - 474,966 - 474,966
Money market demand accounts 281,626 - - 281,626
Passbook accounts 98,507 233,715 221,058 553,280
Other borrowings 1,509,051 - - 1,509,051
---------------- --------------- --------------- ----------------
Total rate sensitive liabilities $ 3,085,449 $ 1,241,235 $ 239,556 $ 4,566,240
================ =============== =============== ================
Dollar gap (5) $(1,308,291) $ 741,116 $ 889,980 $ 322,805
================ =============== =============== ================
<FN>
(1) As presented in the above table, the Bancorp calculates interest rate
sensitivity information employing techniques developed by the Office of
Thrift Supervision.
(2) Includes $8,009 of loans classified as available for sale.
(3) Includes $98,987 of mortgage-backed securities classified as available for sale.
(4) Includes $46,936 of securities classified as available for sale.
(5) Rate sensitive assets less rate sensitive liabilities.
</FN>
</TABLE>
Part II
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(11) Statement Re Computation of Per Share Earnings
(27) Financial Data Schedule
12
<PAGE>
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.
COLLECTIVE BANCORP, INC.
EDWARD J. MCCOLGAN
Date May 15, 1996 Edward J. McColgan
--------------
Vice Chairman & Chief Financial Officer
BERNARD H. BERKMAN
Date May 15, 1996 Bernard H. Berkman
------------
Executive Vice President & Chief Accounting Officer
13
COLLECTIVE BANCORP, INC.
COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31 March 31
PRIMARY 1996 1995 1996 1995
---------------------------------- -------------------------------
<S> <C> <C> <C> <C>
EARNINGS:
Net income $13,523,486 $12,950,190 $39,841,366 $43,916,721
================================== ===============================
SHARES:
Weighted average number of
common shares outstanding 20,185,571 20,292,000 20,162,006 20,277,000
Assuming exercise of options reduced by the
number of shares which could have
been purchased with the proceeds from exercise
of such options (1) 272,182 271,121 284,511 290,836
---------------------------------- -------------------------------
Weighted average number of common
shares outstanding as adjusted 20,457,753 20,563,121 20,446,517 20,567,836
================================== ===============================
Primary earnings per share of
common stock $0.66 $0.63 $1.95 $2.14
================================== ===============================
ASSUMING FULL DILUTION
EARNINGS:
Net income $13,523,486 $12,950,190 $39,841,366 $43,916,721
================================== ===============================
SHARES:
Weighted average number of
common shares outstanding 20,185,571 20,292,000 20,162,006 20,277,000
Assuming exercise of options reduced by the
number of shares which could have
been purchased with the proceeds from exercise
of such options (2) 272,209 271,121 286,797 290,836
---------------------------------- -------------------------------
Weighted average number of common
shares outstanding as adjusted 20,457,780 20,563,121 20,448,803 20,567,836
================================== ===============================
Primary earnings per share of
common stock $0.66 $0.63 $1.95 $2.14
================================== ===============================
<FN>
(1) Assumes the proceeds obtained from the exercise of options were used to
purchase common shares at the average market price during the quarter.
(2) Assumes the proceeds obtained from the exercise of stock options were used
to purchase common shares at the market price at the close of the quarter if
such price was higher than the average price during the quarter.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND> 1000
This schedule contains summary financial information extracted from the
Statements of Consolidated Financial Condition as of March 31, 1996 (Unaudited)
and the Statements of Consolidated Operations for the nine months ended March
31, 1996 (Unaudited) and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 57282
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3680
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 281466
<INVESTMENTS-CARRYING> 2292497
<INVESTMENTS-MARKET> 2205393
<LOANS> 2438936
<ALLOWANCE> 0
<TOTAL-ASSETS> 5058597
<DEPOSITS> 3143356
<SHORT-TERM> 1509051
<LIABILITIES-OTHER> 49742
<LONG-TERM> 0
0
0
<COMMON> 204
<OTHER-SE> 356244
<TOTAL-LIABILITIES-AND-EQUITY> 5058597
<INTEREST-LOAN> 142544
<INTEREST-INVEST> 123729
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 266273
<INTEREST-DEPOSIT> 99131
<INTEREST-EXPENSE> 62699
<INTEREST-INCOME-NET> 104443
<LOAN-LOSSES> 1099
<SECURITIES-GAINS> 1032
<EXPENSE-OTHER> 52877
<INCOME-PRETAX> 62056
<INCOME-PRE-EXTRAORDINARY> 62056
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39841
<EPS-PRIMARY> 1.95
<EPS-DILUTED> 1.95
<YIELD-ACTUAL> 7.22
<LOANS-NON> 26009
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 13230
<CHARGE-OFFS> 349
<RECOVERIES> 204
<ALLOWANCE-CLOSE> 13085
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
