- --------------------------------------------------------------------------------
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 December 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 ________
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, 20,440,808 shares outstanding as of
December 31, 1996.
================================================================================
<PAGE>
PART 1
Item 1
COLLECTIVE BANCORP, INC. AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31 June 30
1996 1996
--------------- ----------------
<S> <C> <C>
ASSETS (Dollar amounts in thousands)
Cash $ 105,327 $ 65,084
Federal funds sold 52,096 3,646
--------------- ----------------
Total cash and cash equivalents 157,423 68,730
Loans held for sale, at amortized cost, market
value of $7,705 and $5,231 7,670 5,186
Securities available for sale, at market value 222,044 162,284
Investment securities, at amortized cost, market
value of $294,057 and $271,650 296,384 276,171
Loans receivable, net 2,851,705 2,548,150
Mortgage-backed securities, at amortized cost,
market value of $1,803,021 and $1,896,831 1,874,818 1,973,642
Real estate acquired in settlement of loans, net 5,108 5,427
Land, office buildings and equipment, net 41,642 39,239
Other assets 48,836 42,335
Core deposit premium 10,779 8,191
Goodwill 27,515 16,116
--------------- ----------------
Total assets $5,543,924 $5,145,471
=============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand deposits, non-interest bearing $ 136,678 $ 95,792
Demand deposits, interest bearing 584,776 508,295
Savings and investment accounts 858,121 845,199
Savings certificates 1,973,339 1,805,101
--------------- ----------------
Total deposits 3,552,914 3,254,387
Borrowed funds 1,565,607 1,473,448
Advance payments by borrowers for
taxes and insurance 22,778 26,852
Other liabilities 26,363 26,480
--------------- ----------------
Total liabilities 5,167,662 4,781,167
--------------- ----------------
Stockholders' Equity:
Common stock, par value $.01 per share; authorized - 37,000,000
shares; issued - 20,440,808 shares in December 1996 and
20,418,641 shares in June 1996; outstanding - 20,391,308
shares in December 1996 and 20,374,141 shares
in June 1996 204 204
Preferred stock, par value $.01 per share;
authorized - 2,500,000 shares; none outstanding - -
Additional paid-in capital 60,135 59,699
Treasury stock, at cost; 49,500 shares in December 1996
and 44,500 shares in June 1996 (1,230) (1,093)
ESOP debt (5,277) (5,816)
Unrealized appreciation on available for sale securities,
net of tax 2,922 1,090
Retained earnings, substantially restricted 319,508 310,220
--------------- ----------------
Total stockholders' equity 376,262 364,304
--------------- ----------------
Total liabilities and stockholders' equity $5,543,924 $5,145,471
=============== ================
</TABLE>
2
<PAGE>
COLLECTIVE BANCORP, INC. AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31 December 31
1996 1995 1996 1995
------------- ------------- ------------- -------------
(Dollar amounts in thousands except per share data)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest on mortgage loans $50,972 $43,792 $98,342 $86,666
Interest on other loans 4,099 4,185 7,715 8,328
Interest on mortgage-backed securities 33,078 35,166 66,685 71,330
Interest and dividends on investments 7,397 5,815 13,601 11,502
------------- ------------ ------------- ------------
Total interest and dividend income 95,546 88,958 186,343 177,826
------------- ------------- ------------- -------------
INTEREST EXPENSE:
Interest on deposits 35,976 33,750 70,093 67,029
Interest on Federal Home Loan Bank
advances and other borrowed funds 20,593 20,688 40,397 42,571
------------- ------------- ------------- -------------
Total interest expense 56,569 54,438 110,490 109,600
------------- ------------- ------------- -------------
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES 38,977 34,520 75,853 68,226
PROVISION FOR LOAN LOSSES 829 403 1,544 690
------------- ------------- ------------- -------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 38,148 34,117 74,309 67,536
------------- ------------- ------------- -------------
OTHER INCOME:
Loan servicing 952 979 1,958 1,928
Gain on sale of loans and securities 76 560 108 1,195
Financial service fees and other income 3,098 2,471 6,166 4,936
------------- ------------- ------------- -------------
Total other income 4,126 4,010 8,232 8,059
------------- ------------- ------------- -------------
Total income before other expense 42,274 38,127 82,541 75,595
------------- ------------- ------------- -------------
OTHER EXPENSE:
Compensation and employee benefits 7,658 6,935 14,691 13,914
Occupancy expense 2,843 2,552 5,479 5,230
Advertising 343 281 668 536
Deposit insurance 1,287 1,627 2,778 3,051
SAIF recapitalization assessment - - 16,653 -
Computer services 1,104 1,312 2,123 2,554
Loan expense 729 900 1,505 1,615
Real estate operations 33 192 114 169
Amortization of intangibles 1,627 1,195 2,675 2,399
Other expenses 3,006 2,625 5,783 5,103
------------- ------------- ------------- -------------
Total other expense 18,630 17,619 52,469 34,571
------------- ------------- ------------- -------------
INCOME BEFORE INCOME TAXES 23,644 20,508 30,072 41,024
INCOME TAXES 8,544 7,387 10,594 14,706
------------- ------------- ------------- -------------
NET INCOME $15,100 $13,121 $19,478 $26,318
============= ============= ============= =============
PER SHARE DATA:
Primary and fully diluted net income per share $0.74 $0.64 $0.95 $1.29
Dividends per common share $0.25 $0.20 $0.50 $0.40
Average primary shares outstanding 20,477,282 20,451,792 20,455,061 20,444,689
Average fully diluted shares outstanding 20,488,767 20,451,792 20,485,565 20,449,014
</TABLE>
3
<PAGE>
COLLECTIVE BANCORP, INC. AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unrealized
Appreciation
Additonal on Available
Common Paid-In Treasury ESOP for Sale Retained
Stock Capital Stock Debt Securities Earnings Total
-------------------------------------------------------------------------------------------
(Dollar amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE JUNE 30, 1995 $204 $59,299 - $(6,892) $2,136 $273,045 $327,792
Net income for the year - - - - - 54,500 54,500
Stock options exercised - 279 - - - - 279
Dividends on common
stock - $.85 per share - - - - - (17,325) (17,325)
Purchase of treasury stock - - $(1,093) - - - (1,093)
ESOP debt repayment - - - 1,076 - - 1,076
ESOP shares released - 121 - - - - 121
Securities valuation - - - - (1,046) - (1,046)
-------------------------------------------------------------------------------------------
BALANCE JUNE 30, 1996 204 59,699 (1,093) (5,816) 1,090 310,220 364,304
Net income fiscal year to date - - - - - 19,478 19,478
Stock options exercised - 297 - - - - 297
Dividends on common
stock - $.50 per share - - - - - (10,190) (10,190)
Purchase of treasury stock - - (137) - - - (137)
ESOP debt repayment - - - 539 - - 539
ESOP shares released - 139 - - - - 139
Securities valuation - - - - 1,832 - 1,832
-------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1996 $204 $60,135 $(1,230) $(5,277) $2,922 $319,508 $376,262
===========================================================================================
</TABLE>
4
<PAGE>
COLLECTIVE BANCORP, INC. AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
December 31
--------------------------------
1996 1995
-------------- --------------
(Dollar amounts in thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Interest received $ 187,447 $ 176,711
Interest paid (109,283) (107,165)
Operating expenses (51,885) (31,761)
Sales of trading securities 13,328
-
Loan fees 2,390 2,792
Other income received 8,232 8,260
Income taxes paid (14,389) (13,046)
-------------- --------------
Net cash provided by operating activities 22,512 49,119
-------------- --------------
INVESTING ACTIVITIES:
Loan originations (477,165) (269,510)
Purchases of loans (659) (16,686)
Purchases of mortgage-backed securities (16) -
Repayment of loan principal 217,215 172,924
Repayment of mortgage-backed security principal 105,314 77,479
Sales of loans held for sale 26,480 61,833
Purchases of investment securities (54,842) (184,886)
Sale of investment securities available for sale 18,906 -
Purchases of mortgage-backed securities available for sale (22,094) (56,601)
Sales of mortgage-backed securities available for sale 7,018 55,157
Repayment of principal on mortgage-backed securities available for sale 8,445 7,961
Maturities of investment securities 38,130 270,960
Net decrease in real estate owned 950 1,257
Net change in loans maturing in 3 months or less (7,800) (10,025)
Pruchase of Continental Bancorporation (25,703) -
Cash obtained from acquisition 11,264 -
Other investing, net (3,633) (9,825)
-------------- --------------
Net cash (used for) provided by investing activities (158,190) 100,038
-------------- --------------
FINANCING ACTIVITIES:
Net change in deposits 168,708 (88,029)
Net change in Federal Home Loan Bank advances (18,648) (395,000)
Net change in other borrowed funds 91,089 360,485
Net decrease in advance payments by borrowers
for taxes and insurance (4,165) (8,495)
Dividends paid (10,210) (8,145)
Other financing, net (2,403) (1,195)
-------------- --------------
Net cash provided by (used for) financing activities 224,371 (140,379)
-------------- --------------
Net increase in cash and cash equivalents 88,693 8,778
Cash and cash equivalents, beginning of period 68,730 69,973
-------------- --------------
Cash and cash equivalents, end of period $ 157,423 $ 78,751
============== ==============
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED
BY OPERATING ACTIVITIES:
Net income $ 19,478 $ 26,318
Net change in trading securities 13,328
-
Amortization and accretion of deferred charges and credits, net 290 (409)
Amortization of intangibles 2,901 2,399
Accrued income and expense 3,113 9,578
Deferred income and expense (7,790) (5,631)
Provision for loan and real estate owned losses 1,588 660
Depreciation and amortization 2,394 2,338
ESOP debt repayment 538 538
-------------- --------------
Net cash provided by operations $ 22,512 $ 49,119
============== ==============
</TABLE>
Note: Certain reclassifications have been made to the Statement of Consolidated
Cash Flows for the six months ended December 31, 1995 to conform to the 1996
presentation.
5
<PAGE>
COLLECTIVE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The unaudited interim consolidated financial statements of Collective
Bancorp, Inc. and subsidiaries ("Collective") included herein should be
read in conjunction with the audited financial statements for the year
ended June 30, 1996 included in Collective's 1996 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 six-month periods
ended December 31, 1996 are not necessarily indicative of the results to be
expected for the fiscal year ending June 30, 1997.
2. In connection with the enactment of the Deposit Insurance Funds Act of 1996
("DIFA") on September 30, 1996, Collective Bank, a wholly-owned subsidiary
of Collective Bancorp, Inc., was required to pay a one-time special
assessment of $16.653 million to the Federal Deposit Insurance Corporation
("FDIC") to capitalize the Savings Association Insurance Fund ("SAIF") to
its required reserve ratio. The special assessment rate of 65.7 cents per
$100 was applied to SAIF-assessable deposits held as of March 31, 1995. The
assessment was paid in November 1996.
DIFA also requires the Financing Corporation ("FICO") bond obligation to be
shared by insured depository institutions pro rata beginning in the year
2000. For the transition period from January 1, 1997 to December 31, 1999,
banks will pay on their Bank Insurance Fund ("BIF") deposit base one-fifth
of the assessment rate imposed upon thrifts. During this period, the FICO
assessment rates are estimated to be 1.3 basis points for banks and 6.4
basis points for thrifts, such as Collective Bank. From 2000 to 2019, when
the FICO bonds are retired, the FICO assessment rate is estimated to run
under 2.5 basis points per $100 of each institution's insured deposit base.
DIFA directs the Treasury Department to present a report to Congress by
March 31, 1997 regarding the development of a common charter for all
depository institutions. The report is to include a recommendation for
legislative and administrative action. DIFA requires that the BIF and the
SAIF be merged into a single new fund (the Deposit Insurance Fund) on
January 1, 1999, provided "no insured depository institution is a savings
association on that date".
3. On August 20, 1996, the Small Business Job Protection Act of 1996 ("SBJPA")
was enacted, which included a repeal of the thrift bad debt reserve method
(percentage-of-taxable income method) under section 593 of the Internal
Revenue Code. The repeal is effective for Collective's 1997 fiscal year.
Since 1993, Collective has used the percentage-of-taxable method in its
income tax returns. Effective July 1, 1996, Collective was required to
change from the reserve method to the specific charge-off method to
calculate its bad debt deduction. The change in bad debt tax accounting
methods has not had, nor is it expected to have, a material impact on
Collective's results of operations.
The SBJPA also provided for the recapture of a thrift's post-1987 excess
bad debt reserve resulting from the use of the reserve method for
calculating the bad debt deduction. Pre-1988 excess bad debt reserves are
not subject to recapture. The recaptured amount must be taken into taxable
6
<PAGE>
income ratably over a six-year period commencing with the thrift's tax year
beginning in 1996. The timing of the recapture may be delayed for a one or
two-year period provided the residential loan requirement is met.
Collective expects to meet the residential loan requirement for its 1996
and 1997 tax years. Therefore, its estimated tax liability of approximately
$5.5 million, resulting from the recapture, will be payable over a six-year
period commencing with Collective's 1999 fiscal year. The excess bad debt
reserve recapture is not expected to have a material impact on Collective's
results of operations or financial position because Collective has recorded
deferred income tax provisions on its excess bad reserves since 1987.
4. On October 1, 1996, Collective acquired the outstanding capital stock of
Continental Bancorporation for $25.7 million in cash pursuant to an
agreement entered into on May 21, 1996. Simultaneously with the
acquisition, Continental Bancorporation was liquidated and its subsidiary,
Continental Bank of New Jersey ("Continental") became a subsidiary of
Collective. Continental's name was changed subsequently to Collective Bank
of New Jersey. Collective Bank of New Jersey is a state-chartered,
BIF-insured commercial bank with total assets of $161.3 million and
deposits of $129.5 million on the date of acquisition. The acquisition was
accounted for by the purchase method. It is not expected to have a material
effect on Collective's results of operations or financial position.
7
<PAGE>
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General Financial Institution Legislation and Regulation
With the acquisition of Collective Bank of New Jersey, Collective Bancorp, Inc.
became a bank holding company subject to regulation, supervision and examination
by the Board of Governors of the Federal Reserve System..
Collective's primary subsidiary, Collective 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"). Collective Bancorp's other
subsidiary, Collective Bank of New Jersey, is subject to extensive regulation,
supervision and examination by the State of New Jersey as its chartering
authority, and by the FDIC, as its primary federal regulator. The deposits of
both Collective Bank and Collective Bank of New Jersey are insured by the FDIC
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 Federal Reserve, OTS, FDIC, State of New Jersey
or the Congress, could have a material impact on Collective and its operations.
See notes 2 and 3 to the consolidated financial statements.
Assets
Total assets increased $398 million during the six months ended December 31,
1996. The net increase, primarily in interest-earning assets, was comprised of
increases in loans receivable, net of $304 million, cash of $87 million,
securities available for sale of $60 million and investment securities of $20
million and a decrease in mortgage-backed securities of $99 million. All other
assets combined increased $26 million.
Loans receivable, net increased because loan originations and purchases exceeded
loan repayments and sales by $240 million. The increase occurred as Collective
continued its strategy of relying more on loans and less on collateralized
mortgage obligations ("CMO's") as investment vehicles. Also, the Continental
acquisition increased loans receivable by $64 million. The elements of the
increase were as follows (in millions):
<TABLE>
<S> <C>
Residential first mortgage $121
Commercial 115
Home equity 61
Construction 20
Other (13)
---------
$304
=========
</TABLE>
Collective's strategy to increase loans as a percentage of total earning assets
(increased from 51.4% at June 30, 1996 to 53.9% at December 31, 1996) was
implemented through more aggressive advertising and marketing initiatives
combined with more competitive pricing. The growth in Collective's loan
portfolio was funded primarily by deposit growth, CMO principal repayments and
borrowings.
8
<PAGE>
Cash and cash equivalents increased because cash provided by operating and
financing activities exceeded cash used in investing activities.
The increase in securities available for sale resulted from the Continental
acquisition and the increase in investment securities resulted primarily from
the addition of medium-term U.S. agency structured notes.
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.
Liabilities
The increase in liabilities of $386 million from June 30, 1996 to December 31,
1996 was comprised primarily of increases in deposits of $298 million and
borrowings of $92 million. Other liabilities decreased $4 million. The increase
in deposits resulted from more aggressive marketing and pricing initiatives as
Collective sought to fund asset growth with lower cost deposits rather than
borrowings. Also, the Continental acquisition added deposits of $129 million.
The deposit increase occurred in the following categories (in millions):
<TABLE>
<S> <C>
Non-interest bearing demand $ 41
Interest bearing demand 76
Savings and Investment Accounts 13
Savings certificates 168
-------
$298
=======
</TABLE>
The increase in non-interest bearing demand deposits consisted of commercial
checking accounts, and the increase in interest bearing demand deposits was
comprised of cash management accounts, primarily with municipalities. Municipal
jumbo certificates of deposit (in excess of $100,000) comprised the increase in
savings certificates.
Stockholders' Equity
The increase in retained earnings during the six months ended December 31, 1996
was comprised of net income of $19.5 million less dividends of $10.2 million.
9
<PAGE>
Liquidity and Capital Resources
Collective Bank is required by regulation to maintain certain levels of
liquidity. Regulations currently in effect require Collective 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 three months ended December 31, 1996, Collective Bank was in
compliance with that regulation and at that date had an overall liquidity ratio
of 5.34% and a short-term ratio of 2.40%. Collective Bank of New Jersey has no
regulatory liquidity requirement.
At December 31, 1996, capital resources were sufficient to meet outstanding loan
origination commitments of $107 million and commitments on unused lines of
credit of $71 million. Loans originated or purchased during the six months ended
December 31, 1996 were funded from normal sources including investment security
maturities, amortization of the existing loan and mortgage-backed securities
portfolios and borrowings.
Collective 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 December 31, 1996, Collective Bank
exceeded those requirements as follows:
<TABLE>
<S> <C> <C>
Tangible Capital: (In Thousands) Percent
Actual $ 336,078 6.26%
Required 80,593 1.50
--------------- ------------
Excess $ 255,485 4.76%
--------------- ------------
Core Capital:
Actual $ 336,078 6.26%
Required 161,186 3.00
--------------- ------------
Excess $ 174,892 3.26%
--------------- ------------
Risk-based Capital:
Actual $ 343,708 16.00%
Required 171,869 8.00
--------------- ------------
Excess $ 171,839 8.00%
--------------- ------------
</TABLE>
Collective Bancorp, Inc. and Collective Bank of New Jersey exceeded their FDIC
regulatory capital requirements as follows:
<TABLE>
<S> <C> <C>
(In Thousands) Percent
Collective Bancorp, Inc:
Tier I Risk-Based Capital:
Actual $ 334,910 14.66%
Required 91,353 4.00
--------------- ------------
Excess $ 243,557 10.66%
--------------- ------------
</TABLE>
10
<PAGE>
<TABLE>
<S> <C> <C>
Total Risk-Based Capital:
Actual $ 349,076 15.28%
Required 182,706 8.00
--------------- ------------
Excess $ 166,370 7.28%
--------------- ------------
Tier I Leverage Ratio
Actual $ 334,910 6.16%
Required 217,574 4.00
--------------- ------------
Excess $ 117,336 2.16%
--------------- ------------
Collective Bank of New Jersey:
Tier I Risk-Based Capital:
Actual $ 8,505 11.67%
Required 2,915 4.00
--------------- ------------
Excess $ 5,590 7.67%
--------------- ------------
Total Risk-Based Capital:
Actual $ 9,631 13.22%
Required 5,829 8.00
--------------- ------------
Excess $ 3,802 5.22 %
--------------- ------------
Tier I Leverage Ratio:
Actual $ 8,505 5.75%
Required 5,921 4.00
--------------- ------------
Excess $ 2,584 1.75%
--------------- ------------
</TABLE>
Collective Bancorp, Inc., Collective Bank and Collective Bank of New Jersey are
considered well-capitalized (the highest capital category) under the Prompt
Corrective Action regulations resulting from the Federal Deposit Insurance
Corporation Improvement Act of 1991.
Three Months Ended December 31, 1996
Compared to Three Months Ended December 31, 1995
Net income for the three months ended December 31, 1996 increased $1.979 million
compared to net income for the quarter ended December 31, 1995. The increase in
net income was comprised of a $4.457 million increase in net interest income
before provision for loan losses, a $426,000 increase in the provision for loan
losses, a $116,000 increase in other income, a $1.011 million increase in other
expense and a $1.157 million 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
2.67% for the 1995 period to 2.81% for the 1996 period, combined with an
increase in average interest-earning assets of $379 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 2.86% for the 1995 period to 2.99% for the 1996 period. The
increase in net interest spread resulted from a 14 basis point decrease in the
cost of funds from 4.59% to 4.45% while the yield on interest-earning assets was
unchanged at 7.26%. The lower cost of funds in the 1996 quarter resulted
11
<PAGE>
primarily from a 30 basis point reduction in the cost of borrowings which
decreased from 5.61% in 1995 to 5.31% in 1996. Collective's borrowings are
primarily short- term and changes in the cost of its borrowings usually
correlate with changes in the federal funds rate. The federal funds rate was
approximately 45 basis points lower in the 1996 quarter than it was in the 1995
quarter. Another contributing factor to the lower cost of funds in 1996 was a
reduction in the cost of deposits from 4.13% to 4.07%. The decrease in the cost
of deposits resulted from lower short-term interest rates and a greater portion
of Collective's interest-bearing liabilities being lower costing checking
accounts. In the 1996 period checking accounts comprised 14.1% of total
interest-bearing liabilities compared to 12.2% during the 1995 quarter. The
increased ratio of checking accounts to total interest-bearing liabilities
primarily resulted from the Continental acquisition.
Collective's net interest income tends to increase in periods of declining
interest rates because its interest-bearing liabilities generally reprice faster
than its interest-earning assets. (See the "Maturity and Rate Sensitivity
Analysis", page 14.) Conversely, Collective's net interest income tends to
decrease in periods of rising interest rates. The lower short-term interest
rates discussed above, combined with a steeper yield curve, when compared to the
three months ended December 31, 1995, contributed to the increased net interest
spread and margin in the 1996 quarter.
Although Collective's classified asset ratio decreased from 0.45% at December
31, 1995 to 0.38% at December 31, 1996, the loan loss provision was higher
during the 1996 quarter because of increased general loss provisions for the
growing loan portfolio, particularly the commercial loan segment.
Gain on sale of loans and securities decreased from $560,000 in the 1995 period
to $76,000 in the 1996 period. Because longer-term interest rates were higher in
the 1996 quarter than they were in the comparable 1995 period, the percentage of
loan originations that met the criteria for long-term investment increased from
78% in the 1995 period to 91% in the 1996 quarter. Another contributing factor
was that 37% of total residential first mortgage loan originations were
adjustable rate loans in the 1996 period compared to 21% in 1995. All adjustable
rate loan originations are placed in the held-to-maturity portfolio. Therefore,
sales of loans and securitized loans decreased from $28 million in 1995 to $13
million in 1996. The increase in financial service fees and other income
resulted primarily from increased fee income from the growth in demand deposit
balances and a more aggressive strategy in charging and collecting fees related
to deposit accounts.
The increase in other expense resulted primarily from the acquisition of
Continental Bancorporation previously discussed and other asset growth.
Collective's ratio of operating expenses to assets was 1.24% in the 1996 quarter
compared to 1.28% for the 1995 period.
The increase in income taxes resulted from the increased pre-tax income. The
effective income tax rate was 36.1% for the three months ended December 31, 1996
compared to 36.0% for the three months ended December 31, 1995.
Six Months Ended December 31, 1996
Compared to Six Months Ended December 31, 1995
Net income for the six months ended December 31, 1996 decreased $6.840 million
compared to net income for the six months ended December 31, 1995. Without the
SAIF recapitalization assessment (See note 2 to the consolidated financial
statements), which reduced net income by $10.500 million, net income would have
been $29.978 million for the 1996 period, an increase of $3.660 million over the
1995 period. The actual decrease in net income was comprised of a $7.627 million
increase in net interest income, a $854,000 increase in the provision for loan
losses, a $173,000 increase in other income, a $17.898 million increase in other
expense and a $4.112 million decrease in income taxes.
12
<PAGE>
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
2.66% for the 1995 period to 2.78% for the 1996 period, combined with an
increase in average interest-earning assets of $260 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 2.84% for the 1995 period to 2.97% for the 1996 period. The
increase in net interest spread consisted of a 4 basis point decrease in the
yield on interest-earning assets coupled with a 16 basis point decrease in the
cost of funds. The decline in yield on interest-earning assets occurred because
Collective's yields on loans, mortgage-backed securities and investment
securities all were lower in the 1996 period compared to the 1995 period because
shorter-term interest rates were generally lower throughout the intervening
twelve-month period. A greater portion of Collective's loan originations during
that period were adjustable rate products which have a lower (teaser) rate
during the initial period to their first repricing. This was offset by rising
longer-term rates during the second half of the intervening period. The lower
cost of funds in the 1996 period resulted from a 39 basis point reduction in the
cost of borrowings compared to 1995. Collective's borrowings are primarily
short-term and changes in the cost of its borrowings usually correlate with
changes in the federal funds rate. The federal funds rate was approximately 45
basis points lower in the 1996 period than it was in the 1995 period. The
average cost of deposits was 4.08% for the 1996 period compared to 4.12% for the
1995 period also contributing to the lower cost of funds in 1996.
The lower short-term interest rates discussed above, combined with a steeper
yield curve, when compared to the six months ended December 31, 1995,
contributed to the increased net interest spread and margin in the 1996 period.
Although Collective's classified asset ratio decreased from 0.45% at December
31, 1995 to 0.38% at December 31, 1996, the loan loss provision was higher
during the 1996 period because of increased general loss provisions for the
growing loan portfolio, particularly the commercial loan segment.
Gain on sale of loans and securities decreased from $1.195 million in the 1995
period to $108,000 in the 1996 period. Because longer-term interest rates were
higher in the 1996 period than in the comparable 1995 period, the percentage of
residential first mortgage loan originations that met the criteria for long-term
investment increased from 75% in the 1995 period to 94% in the 1996 period.
Another contributing factor was that 51% of total loan originations were
adjustable rate loans in the 1996 period compared to 21% in 1995. All adjustable
rate loan originations are placed in the held-to-maturity portfolio. Therefore
sales of loans and securitized loans decreased from $62 million in 1995 to $26
million in 1996. The increase in financial service fees and other income
resulted primarily from increased fee income from the growth in demand deposit
balances and a more aggressive strategy in charging and collecting fees related
to deposit accounts.
The increase in other expense resulted primarily from the SAIF recapitalization
assessment and the Continental Bancorporation acquisition previously discussed.
Collective's ratio of operating expenses to assets was 1.24% in the 1996 period,
excluding the SAIF assessment, compared to 1.26% for the 1995 period.
The decrease in income taxes resulted from the reduced pre-tax income. The
effective income tax rate was 35.2% for the six months ended December 31, 1996
compared to 35.8% for the six months ended December 31, 1995. The lower
effective rate for the 1996 period resulted because the marginal tax benefit
rate for the SAIF assessment deduction was higher than Collective's effective
tax rate without such deduction.
13
<PAGE>
COLLECTIVE BANCORP, INC. AND SUBSIDIARY
MATURITY AND RATE SENSITIVITY ANALYSIS (1)
<TABLE>
<CAPTION>
December 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 $ 749,135 $ 592,455 $ 164,614 $ 1,506,204
Fixed rate mortgages 188,163 (2) 527,159 450,314 1,165,636
Mortgage-backed securities 402,122 (3) 1,199,589 387,706 1,989,417
Consumer and other commercial loans 147,486 37,876 2,173 187,535
Federal funds sold 52,096 - - 52,096
Investment securities 403,657 (4) - 172 403,829
--------------- --------------- --------------- ---------------
Total rate sensitive assets 1,942,659 2,357,079 1,004,979 5,304,717
--------------- --------------- --------------- ---------------
Liabilities:
Fixed maturity deposits $ 1,523,397 $ 434,395 $ 15,547 $ 1,973,339
Demand deposits, interest bearing - 584,776 - 584,776
Money market demand accounts 299,002 - - 299,002
Passbook accounts 97,493 237,147 224,479 559,119
FHLB advances - - 1,069 1,069
Other borrowings 1,559,260 5,278 - 1,564,538
--------------- --------------- --------------- ---------------
Total rate sensitive liabilities 3,479,152 1,261,596 241,095 4,981,843
--------------- --------------- --------------- ---------------
Dollar gap (5) $(1,536,493) $ 1,095,483 $ 763,884 $ 322,874
=============== =============== =============== ===============
<FN>
(1) As presented in the above table, Collective calculates interest rate
sensitivity information employing techniques developed by the Office of
Thrift Supervision.
(2) Includes $7,670 of loans classified as held for sale.
(3) Includes $114,599 of mortgage-backed securities classified as available for
sale.
(4) Includes $107,445 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
(b) Reports on Form 8-K
During the quarter ended December 31, 1996, Collective Bancorp, Inc. filed
a Form 8-K dated October 4, 1996 to report the completion of the
acquisition of Continental Bancorporation.
14
<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 February 14, 1997 Edward J. McColgan
Vice Chairman & Chief Financial Officer
BERNARD H. BERKMAN
Date February 14, 1997 -----------------------------------
Bernard H. Berkman
Executive Vice President & Chief Accounting Officer
15
EXHIBIT (11)
COLLECTIVE BANCORP, INC.
COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31 December 31
PRIMARY 1996 1995 1996 1995
----------------------------------- ---------------------------------------
<S> <C> <C> <C> <C>
EARNINGS:
Net income............................. $15,099,978 $13,120,557 $19,478,240 $26,317,881
=================================== =======================================
SHARES:
Weighted average number of
common shares outstanding............ 20,195,239 20,158,061 20,190,708 20,154,061
Assuming exercise of options reduced by the
number of shares which could have been
purchased with the proceeds from exercise
of such options(1).................... 282,043 293,731 290,628 290,628
----------------------------------- ---------------------------------------
Weighted average number of common
shares outstanding as adjusted....... 20,477,282 20,451,792 20,455,061 20,444,689
=================================== =======================================
Primary earnings per share of
common stock........................... $0.74 $0.64 $0.95 $1.29
=================================== =======================================
ASSUMING FULL DILUTION
EARNINGS:
Net income............................. $15,099,978 $13,120,557 $19,478,240 $26,317,881
=================================== =======================================
SHARES:
Weighted average number of
common shares outstanding............ 20,195,239 20,158,061 20,190,708 20,154,061
Assuming exercise of options reduced by the
number of shares which could have been
purchased with the proceeds from exercise
of such options(2)................... 293,528 293,731 294,857 294,953
----------------------------------- ---------------------------------------
Weighted average number of common
shares outstanding as adjusted....... 20,488,767 20,451,792 20,485,565 20,449,014
=================================== =======================================
Fully diluted earnings per share of
common stock........................... $0.74 $0.64 $0.95 $1.29
=================================== =======================================
<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>
This schedule contains summary financial information extracted from the
Statements of Consolidated Financial Condition as of December 31, 1996
(Unaudited) and the Statements of Consolidated Operations for the six months
ended December 31, 1996 (Unaudited) and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 105327
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 52096
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 229714
<INVESTMENTS-CARRYING> 2171202
<INVESTMENTS-MARKET> 2097078
<LOANS> 2851705
<ALLOWANCE> 0
<TOTAL-ASSETS> 5543924
<DEPOSITS> 3552914
<SHORT-TERM> 1565607
<LIABILITIES-OTHER> 49141
<LONG-TERM> 0
0
0
<COMMON> 204
<OTHER-SE> 376058
<TOTAL-LIABILITIES-AND-EQUITY> 5543924
<INTEREST-LOAN> 106057
<INTEREST-INVEST> 80286
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 186343
<INTEREST-DEPOSIT> 70093
<INTEREST-EXPENSE> 40397
<INTEREST-INCOME-NET> 75853
<LOAN-LOSSES> 1544
<SECURITIES-GAINS> 108
<EXPENSE-OTHER> 52469
<INCOME-PRETAX> 30072
<INCOME-PRE-EXTRAORDINARY> 19478
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19478
<EPS-PRIMARY> 0.95
<EPS-DILUTED> 0.95
<YIELD-ACTUAL> 7.24
<LOANS-NON> 22542
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 12891
<CHARGE-OFFS> 269
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 14166
<ALLOWANCE-DOMESTIC> 14166
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
