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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, 1997
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, 20,496,019 shares outstanding as
of March 31, 1997.
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<PAGE>
Part 1
Item 1
<TABLE>
<CAPTION>
COLLECTIVE BANCORP, INC. AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED FINANCIAL CONDITION
March 31 June 30
1997 1996
--------------- ---------------
<S> <C> <C>
ASSETS (Dollar amounts in thousands except per share data)
Cash $ 65,936 $ 65,084
Federal funds sold 19,595 3,646
Securities purchased under agreement to resell 35,000 -
--------------- ---------------
Total cash and cash equivalents 120,531 68,730
Loans held for sale, at amortized cost, market
value of $3,774 and $5,231 3,600 5,186
Securities available for sale, at market value 235,951 162,284
Investment securities, at amortized cost, market
value of $302,573 and $271,650 307,534 276,171
Loans receivable 2,876,031 2,561,041
Less allowance for loan losses (13,461) (12,891)
--------------- ---------------
Loans receivable, net 2,862,570 2,548,150
Mortgage-backed securities, at amortized cost,
market value of $1,727,576 and $1,896,831 1,860,461 1,973,642
Real estate acquired in settlement of loans, net 4,165 5,427
Land, office buildings and equipment, net 41,096 39,239
Other assets 44,810 42,335
Core deposit premium 9,980 8,191
Goodwill 26,890 16,116
--------------- ---------------
Total assets $5,517,588 $5,145,471
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand deposits, non-interest bearing $ 140,083 $ 95,792
Demand deposits, interest bearing 602,199 508,295
Savings and investment accounts 863,144 845,199
Savings certificates 1,893,233 1,805,101
--------------- ---------------
Total deposits 3,498,659 3,254,387
Short-term borrowings 1,573,385 1,467,633
Long-term borrowings 5,486 5,815
Advance payments by borrowers for taxes and insurance 25,536 26,852
Other liabilities 28,367 26,480
--------------- ---------------
Total liabilities 5,131,433 4,781,167
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Stockholders' Equity:
Common stock, par value $.01 per share;
authorized - 37,000,000 shares;
issued - 20,496,019 shares in March 1997 and 20,418,641
shares in June 1996; outstanding - 20,446,519
shares in March 1997
and 20,374,141 shares in June 1996 205 204
Preferred stock, par value $.01 per share;
authorized - 2,500,000 shares; none outstanding - -
Additional paid-in capital 60,490 59,699
Treasury stock, at cost; 49,500 shares in March 1997
and 44,500 shares in June 1996 (1,230) (1,093)
ESOP debt (5,008) (5,816)
Unrealized appreciation on available for sale securities,
net of tax 1,311 1,090
Retained earnings, substantially restricted 330,387 310,220
--------------- ---------------
Total stockholders' equity 386,155 364,304
--------------- ---------------
Total liabilities and stockholders' equity $5,517,588 $5,145,471
=============== ===============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COLLECTIVE BANCORP, INC. AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED OPERATIONS
Three Months Ended Nine Months Ended
March 31 March 31
1997 1996 1997 1996
--------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
(Dollar amounts in thousands except per share data)
INTEREST INCOME:
Interest on mortgage loans $51,736 $43,738 $150,078 $130,404
Interest on other loans 4,154 3,812 11,870 12,140
Interest on mortgage-backed securities 32,754 34,841 99,439 106,171
Interest and dividends on investments 7,110 6,056 20,711 17,558
--------------- ---------------- --------------- ----------------
Total interest and dividend income 95,754 88,447 282,098 266,273
--------------- ---------------- --------------- ----------------
INTEREST EXPENSE:
Interest on deposits 35,521 32,103 105,614 99,131
Interest on borrowed funds 20,275 20,127 60,672 62,699
--------------- ---------------- --------------- ----------------
Total interest expense 55,796 52,230 166,286 161,830
--------------- ---------------- --------------- ----------------
NET INTEREST INCOME BEFORE PROVISION
FOR LOAN LOSSES 39,958 36,217 115,812 104,443
PROVISION FOR LOAN LOSSES 1,010 410 2,554 1,099
--------------- ---------------- --------------- ----------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 38,948 35,807 113,258 103,344
--------------- ---------------- --------------- ----------------
OTHER INCOME:
Loan servicing 1,063 1,239 3,021 3,167
Gain (Loss) on sale of loans and securities 266 (162) 375 1,032
Financial service fees and other income 3,328 2,453 9,492 7,390
--------------- ---------------- --------------- ----------------
Total other income 4,657 3,530 12,888 11,589
--------------- ---------------- --------------- ----------------
Total income before other expense 43,605 39,337 126,146 114,933
--------------- ---------------- --------------- ----------------
OTHER EXPENSE:
Compensation and employee benefits 7,900 7,463 22,592 21,377
Occupancy expense 2,966 2,806 8,444 8,036
Advertising 345 380 1,012 915
Deposit insurance 491 1,521 3,269 4,572
SAIF recapitalization assessment - - 16,653 -
Computer services 1,119 1,113 3,242 3,667
Loan expense 735 732 2,240 2,347
Real estate operations (33) 326 82 495
Amortization of intangibles 1,627 1,178 4,302 3,578
Other expenses 3,194 2,787 8,977 7,890
--------------- ---------------- --------------- ----------------
Total other expense 18,344 18,306 70,813 52,877
--------------- ---------------- --------------- ----------------
INCOME BEFORE INCOME TAXES 25,261 21,031 55,333 62,056
INCOME TAXES 9,264 7,508 19,857 22,215
--------------- ---------------- --------------- ----------------
NET INCOME $15,997 $13,523 $35,476 $39,841
=============== ================ =============== ================
PER SHARE DATA:
Primary and fully diluted net income per share $0.78 $0.66 $1.73 $1.95
Dividends per common share $0.25 $0.20 $0.75 $0.60
Average primary shares outstanding 20,510,349 20,457,753 20,473,728 20,446,517
Average fully diluted shares outstanding 20,514,570 20,457,780 20,500,714 20,448,803
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COLLECTIVE BANCORP, INC. AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
Unrealized
Appreciation
Additonal on Available
Common Paid-In Treasury ESOP for Sale Retained
Stock Capital Stock Debt Securities Earnings Total
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<S> <C> <C> <C> <C> <C> <C> <C>
(Dollar amounts in thousands except per share data)
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)
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BALANCE JUNE 30, 1996 204 59,699 (1,093) (5,816) 1,090 310,220 364,304
Net income fiscal year to date - - - - - 35,476 35,476
Stock options exercised 1 548 - - - - 549
Dividends on common
stock - $.75 per share - - - - - (15,309) (15,309)
Purchase of treasury stock - - (137) - - - (137)
ESOP debt repayment - - - 808 - - 808
ESOP shares released - 243 - - - - 243
Securities valuation - - - - 221 - 221
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BALANCE MARCH 31, 1997 $205 $60,490 $(1,230) $(5,008) $1,311 $330,387 $386,155
===========================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COLLECTIVE BANCORP, INC. AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED CASH FLOWS
Nine Months Ended
March 31
-------------------------------
1997 1996
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<S> <C> <C>
(Dollar amounts in thousands)
OPERATING ACTIVITIES:
Interest received $ $
284,073 262,163
Interest paid (165,042) (159,794)
Operating expenses (71,072) (52,273)
Sales of trading securities - 13,328
Loan fees 3,299 3,721
Other income received 12,888 11,791
Income taxes paid (21,024) (16,075)
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Net cash provided by operating activities 43,122 62,861
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INVESTING ACTIVITIES:
Loan originations (633,880) (412,467)
Purchases of loans (659) (17,224)
Purchases of mortgage-backed securities (64) (14,042)
Repayment of loan principal 339,465 269,403
Repayment of mortgage-backed security principal 120,327 99,181
Sales of loans held for sale 41,520 98,367
Purchases of investment securities (109,253) (294,630)
Sales of investment securities available for sale 48,060 -
Purchases of mortgage-backed securities available for sale (36,177) (90,854)
Sales of mortgage-backed securities available for sale 7,018 55,157
Repayment of principal on mortgage-backed securities available for sale 14,860 13,020
Maturities of investment securities 41,211 318,960
Net decrease in real estate owned 1,893 1,844
Net change in loans maturing in 3 months or less 5,000 (6,500)
Purchase of Continental Bancorporation (25,703) -
Cash obtained from Continental Bancorporation acquisition 11,264 -
Other investing, net 2,265 1,846
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Net cash (used for) provided by investing activities (172,853) 22,061
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FINANCING ACTIVITIES:
Net change in deposits 114,452 (134,467)
Net change in short-term borrowings 87,126 61,938
Net change in long-term borrowings (1,421) (807)
Net decrease in advance payments by borrowers
for taxes and insurance (1,408) (5,769)
Dividends paid (15,326) (12,222)
Other financing, net (1,891) (2,606)
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Net cash provided by (used for) financing activities 181,532 (93,933)
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 51,801 (9,011)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 68,730 69,973
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ $ 60,962
120,531
============= =============
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED
BY OPERATING ACTIVITIES:
Net income $ 35,476 $ 39,841
Net change in trading securities - 13,328
Amortization and accretion of deferred charges and credits, net (92) (2,166)
Amortization of intangibles 4,302 3,578
Accrued income and expense 6,924 14,067
Deferred income and expense (10,713) (11,347)
Provision for loan and real estate owned losses 2,761 1,239
Depreciation and amortization 3,656 3,514
ESOP debt repayment 808 807
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Net cash provided by operations $ 43,122 $ 62,861
============= =============
</TABLE>
<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, 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 nine-month periods
ended March 31, 1997 are not necessarily indicative of the results to be
expected for the fiscal year ending June 30, 1997.
2. On February 27, 1997, Collective entered into an Agreement and Plan of
Merger with Summit Bancorp. ("Summit") pursuant to which Collective will be
merged with and into Summit and shares of Collective's common stock will be
converted into whole shares of Summit's common stock and cash in lieu of
fractional shares based on an exchange ratio of Summit common to Collective
common of .895. The merger is subject to approval by Collective's
stockholders and certain regulatory agencies. The merger is expected to be
consummated during the third calendar quarter of 1997.
3. 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 of SAIF-assessable deposits was applied 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 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 calculated on their Bank Insurance Fund ("BIF") deposit
base and 6.4 basis points for thrifts, such as Collective Bank calculated
on their SAIF 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".
4. 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 income 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
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.
5. 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 was 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 has not had, nor is it expected to
have, a material effect on Collective's results of operations or financial
position. Collective Bank of New Jersey was merged into Collective Bank in
February 1997.
<PAGE>
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General Financial Institution Legislation and Regulation
Collective's 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"), 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 Collective
Bank and its operations. See note 3 to the consolidated financial statements.
Assets
Total assets increased $372 million during the nine months ended March 31, 1997.
The net increase, primarily in interest-earning assets, was comprised of
increases in loans receivable, net of $314 million, cash and cash equivalents of
$52 million, securities available for sale of $74 million, investment securities
of $31 million and goodwill of $11 million and a decrease in mortgage-backed
securities of $113 million. All other assets combined increased $3 million.
Loans receivable, net increased because loan originations and purchases exceeded
loan repayments and sales by $254 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
Bancorporation ("Continental") acquisition increased loans receivable by $64
million. The elements of the increase were as follows (in millions):
<TABLE>
<CAPTION>
<S> <C>
Residential first mortgage $ 112
Commercial 123
Home equity 81
Construction 16
Other (18)
---------
Total $314
=========
</TABLE>
Collective's strategy to increase loans as a percentage of total earning assets
(from 51.4% at June 30, 1996 to 53.8% at March 31, 1997) 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.
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 primarily from the
addition of medium-term U.S. agency structured notes and Federal Home Loan Bank
of New York ("FHLB of NY") stock. The stock purchases were required because of
increased borrowings from the FHLB of NY and, to a lesser extent, asset growth.
<PAGE>
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 $350 million from June 30, 1996 to March 31, 1997
was comprised primarily of increases in deposits of $244 million and borrowings
of $105 million. Other liabilities increased $1 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>
<CAPTION>
<S> <C>
Non-interest bearing demand $ 44
Interest bearing demand 94
Savings and Investment Accounts 8
Savings certificates 88
-------
Total $ 244
=======
</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.
Certificates of deposit with maturities of twelve months and eighteen months
primarily comprised the increase in savings certificates as Collective
attractively priced these CD's to induce holders of shorter-term certificates
into longer-term maturities.
Stockholders' Equity
The increase in stockholders' equity during the nine months ended March 31, 1997
resulted primarily from increased retained earnings. The increase in retained
earnings was comprised of net income of $35.5 million less dividends of $15.3
million.
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 March 31, 1997, Collective Bank was in
compliance with that regulation and at that date had an overall liquidity ratio
of 5.72% and a short-term ratio of 2.56%.
<PAGE>
At March 31, 1997, capital resources were sufficient to meet outstanding loan
origination commitments of $96 million and commitments on unused lines of credit
of $143 million. Loans originated or purchased during the nine months ended
March 31, 1997 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 March 31, 1997, Collective Bank exceeded
those requirements as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Tangible Capital: (In Thousands) Percent
Actual $ 358,303 6.52%
Required 82,471 1.50
------------------ ------------
Excess $ 275,832 5.02%
------------------ ------------
Core Capital:
Actual $ 358,303 6.52%
Required 164,941 3.00
------------------ ------------
Excess $ 193,362 3.52%
------------------ ------------
Risk-based Capital:
Actual $ 367,638 16.48%
Required 178,427 8.00
------------------ ------------
Excess $ 189,211 8.48%
------------------ ------------
</TABLE>
Collective Bank is 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 March 31, 1997
Compared to Three Months Ended March 31, 1996
Net income for the three months ended March 31, 1997 increased $2.474 million
compared to net income for the quarter ended March 31, 1996. The increase in net
income was comprised of a $3.741 million increase in net interest income before
provision for loan losses, a $600,000 increase in the provision for loan losses,
a $1.127 million increase in other income, a $38,000 increase in other expense
and a $1.756 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
2.78% for the 1996 period to 2.81% for the 1997 period, combined with an
increase in average interest-earning assets of $382 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 2.97% for the 1996 period to 2.99% for the 1997 period. The
increase in net interest spread resulted from an increase in the yield on
interest-earning assets of 5 basis points which was partially offset by a 2
basis point increase in the cost of funds. The increase in yield occurred
because loans, which are the highest-yielding category of interest-earning
assets, increased from 49.5% of average earning assets in the 1996 quarter to
54.3% in the 1997 quarter. The largest increase in loan assets occurred in the
commercial loan category which generally bears higher interest rates than other
types of loans.
<PAGE>
The increase in cost of funds during the 1997 quarter primarily resulted from a
greater reliance on jumbo certificates of deposit than in the 1996 quarter. The
average balance of jumbo CD's was $132 million higher in 1997. The cost of
borrowings also was slightly higher in the 1997 quarter because of a 25 basis
point increase in the federal funds rate in March 1997.
Collective's net interest income tends to increase in periods of declining
interest rates because its shorter-term interest-bearing liabilities generally
reprice faster than its longer-term interest-earning assets. (See the "Maturity
and Rate Sensitivity Analysis", page 13.) Conversely, Collective's net interest
income tends to decrease in periods of rising interest rates. Substantially
higher long-term interest rates in the 1997 quarter compared to the 1996 period
more than offset the marginally higher short-term rates in 1997 resulting in a
steeper yield curve which contributed to the increased net interest spread and
margin in the 1997 quarter.
Although Collective's classified asset ratio decreased from 0.44% at March 31,
1996 to 0.33% at March 31, 1997, the loan loss provision was higher during the
1997 quarter because of increased general loss provisions for the growing loan
portfolio, particularly the commercial loan segment.
Gain on sale of loans and securities increased from a loss of $162,000 in the
1996 period to a gain of $266,000 in the 1997 quarter because of the sale of
securitized Small Business Administration ("SBA") loans acquired in the
Continental acquisition. 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.
Other expense was virtually unchanged because increases resulting from the
Continental acquisition and other asset growth were offset by reduced deposit
insurance premiums resulting from the Deposit Insurance Funds Act of 1996. (See
note 3 to the consolidated financial statements, page 6.) Collective's ratio of
operating expenses to assets was 1.22% in the 1997 quarter compared to 1.32% for
the 1996 period.
The increase in income taxes resulted from the increased pre-tax income. The
effective income tax rate was 36.7% for the three months ended March 31, 1997
compared to 35.7% for the three months ended March 31, 1996. The effective tax
rate increased in the 1997 quarter because of the Continental acquisition. The
intangible asset amortization resulting from the acquisition is not deductible
for income tax purposes. Also, Continental's income was taxed at a higher rate
than Collective Bank's income by the State of New Jersey.
Nine Months Ended March 31, 1997
Compared to Nine Months Ended March 31, 1996
Net income for the nine months ended March 31, 1997 decreased $4.365 million
compared to net income for the nine months ended March 31, 1996. Without the
SAIF recapitalization assessment (see note 3 to the consolidated financial
statements), which reduced net income by $10.500 million, net income would have
been $45.976 million for the 1997 period, an increase of $6.135 million over the
1996 period. The actual decrease in net income was comprised of a $11.369
million increase in net interest income, a $1.455 million increase in the
provision for loan losses, a $1.299 million increase in other income, a $17.936
million increase in other expense and a $2.358 million decrease in income taxes.
<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
2.70% for the 1996 period to 2.79% for the 1997 period, combined with an
increase in average interest-earning assets of $301 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 2.89% for the 1996 period to 2.98% for the 1997 period. The
increase in net interest spread resulted from a 9 basis point decrease in the
cost of funds. The overall yield on interest-earning assets was the same for
both the 1997 and 1996 periods. Although the yields on loans, mortgage-backed
securities and investment securities all were slightly lower in 1997, the lower
yields were offset by the fact that loans made up a greater portion of average
interest-earning assets in the 1997 period. Loans, which are the
highest-yielding component of interest-earning assets, increased from 49.4% of
earning assets in the 1996 period to 53.3% in the 1997 period. The lower cost of
funds in the 1997 period resulted from a 23 basis point reduction in the cost of
borrowings compared to 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 35 basis points
lower in the 1997 period than it was in the 1996 period. The average cost of
deposits was 4.08% for the 1997 period compared to 4.09% for the 1996 period. A
steeper yield curve in the nine-month period ended March 31, 1997, when compared
to the 1996 period, contributed to the increased net interest spread and margin
in the 1997 period.
Although Collective's classified asset ratio decreased from 0.44% at March 31,
1996 to 0.33% at March 31, 1997, the loan loss provision was higher during the
1997 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 $1.032 million in the 1996
period to $375,000 in the 1997 period. Because longer-term interest rates were
higher in the 1997 period than in the comparable 1996 period, the percentage of
residential first mortgage loan origination's that met the criteria for
long-term investment increased from 85% in the 1996 period to 94% in the 1997
period. Another contributing factor was that 76% of such originations were
adjustable rate loans in the 1997 period compared to 18% in 1996. All adjustable
rate loan originations are placed in the held-to-maturity portfolio. Therefore,
sales of securitized loans decreased from $55 million in 1996 to $7 million in
1997. Most of the gain in the 1997 period resulted from the sale of securitized
SBA loans acquired in the Continental acquisition (see page 11). 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 acquisition, partially offset by the reduced
deposit insurance premiums, previously discussed. Collective's ratio of
operating expenses to assets was 1.23% in the 1997 period, excluding the SAIF
assessment, compared to 1.28% for the 1996 period.
The decrease in income taxes resulted from the reduced pre-tax income. The
effective income tax rate was 35.9% for the nine months ended March 31, 1997
compared to 35.8% for the nine months ended March 31, 1996. The effective rate
for the 1997 period was reduced because the marginal tax benefit rate for the
SAIF assessment deduction was higher than Collective's effective tax rate
without such deduction. However, such benefit was more than offset by factors
resulting from the Continental acquisition (see page 11).
<PAGE>
<TABLE>
<CAPTION>
COLLECTIVE BANCORP, INC. AND SUBSIDIARY
MATURITY AND RATE SENSITIVITY ANALYSIS (1)
March 31, 1997
--------------- -------------- --------------- ---------------
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 $ 694,742 $ 649,403 $147,298 $ 1,491,443
Fixed rate mortgages 187,314 (2) 561,026 449,636 1,197,976
Mortgage-backed securities 419,110 (3) 1,198,015 363,501 1,980,626
Consumer and other commercial loans 138,217 34,920 3,614 176,751
Federal funds sold 19,595 - - 19,595
Repurchase agreements 35,000 - - 35,000
Investment securities 423,181 (4) - 139 423,320
--------------- -------------- --------------- ---------------
Total rate sensitive assets 1,917,159 2,443,364 964,188 5,324,711
--------------- -------------- --------------- ---------------
Liabilities:
Fixed maturity deposits $ 1,424,508 $ 453,876 $ 14,847 $ 1,893,233
Demand deposits, interest bearing - 602,199 - 602,199
Money market demand accounts 302,810 - - 302,810
Passbook accounts 100,320 236,405 223,609 560,334
Borrowings 1,573,385 5,486 - 1,578,871
--------------- -------------- --------------- ---------------
Total rate sensitive liabilities 3,401,023 1,297,968 238,456 4,937,447
--------------- -------------- --------------- ---------------
Dollar gap (5) $(1,483,864) $1,145,396 $725,732 $ 387,264
=============== ============== =============== ===============
<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 $3,600 of loans classified as held for sale.
(3) Includes $120,165 of mortgage-backed securities classified as
available for sale.
(4) Includes $115,786 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
<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, 1997 Edward J. McColgan
Vice Chairman & Chief Financial Officer
BERNARD H. BERKMAN
Date May 15, 1997 Bernard H. Berkman
Executive Vice President &
Chief Accounting Officer
<TABLE>
<CAPTION>
COLLECTIVE BANCORP, INC.
COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
Three Months Ended Nine Months Ended
March 31 March 31
PRIMARY 1997 1996 1997 1996
- -------
------------------------------------ ------------------------------------
<S> <C> <C> <C> <C>
EARNINGS:
Net income................................... $15,997,440 $13,523,486 $35,475,680 $39,841,366
==================================== ====================================
SHARES:
Weighted average number of
common shares outstanding.................. 20,252,963 20,185,571 20,211,210 20,162,006
Assuming exercise of options reduced by the
number of shares which could have
been purchased with the proceeds from
exercise of such options(1)................ 257,386 272,182 262,518 284,511
------------------------------------ ------------------------------------
Weighted average number of common
shares outstanding as adjusted............. 20,510,349 20,457,753 20,473,728 20,446,517
==================================== ====================================
Primary earnings per share of
common stock................................. $0.78 $0.66 $1.73 $1.95
==================================== ====================================
ASSUMING FULL DILUTION
EARNINGS:
Net income................................... $15,997,440 $13,523,486 $35,475,680 $39,841,366
==================================== ====================================
SHARES:
Weighted average number of
common shares outstanding.................. 20,252,963 20,185,571 20,211,210 20,162,006
Assuming exercise of options reduced by the
number of shares which could have
been purchased with the proceeds from
exercise of such options(2)................ 261,607 272,209 289,504 286,797
------------------------------------ ------------------------------------
Weighted average number of common
shares outstanding as adjusted............. 20,514,570 20,457,780 20,500,714 20,448,803
==================================== ====================================
Fully diluted earnings per share of
common stock................................. $0.78 $0.66 $1.73 $1.95
==================================== ====================================
<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 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
Statement of Consolidated Financial Condition as of March 31, 1997 (Unaudited)
and the Statement of Consolidated Operations for the nine months ended March 31,
1997 (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-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 65936
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 54595
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 239551
<INVESTMENTS-CARRYING> 2167995
<INVESTMENTS-MARKET> 2030149
<LOANS> 2862570
<ALLOWANCE> 0
<TOTAL-ASSETS> 5517588
<DEPOSITS> 3498659
<SHORT-TERM> 1573384
<LIABILITIES-OTHER> 53903
<LONG-TERM> 5487
0
0
<COMMON> 205
<OTHER-SE> 385950
<TOTAL-LIABILITIES-AND-EQUITY> 5517588
<INTEREST-LOAN> 161948
<INTEREST-INVEST> 120150
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 282098
<INTEREST-DEPOSIT> 105614
<INTEREST-EXPENSE> 60672
<INTEREST-INCOME-NET> 115812
<LOAN-LOSSES> 2554
<SECURITIES-GAINS> 375
<EXPENSE-OTHER> 70813
<INCOME-PRETAX> 55333
<INCOME-PRE-EXTRAORDINARY> 35476
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35476
<EPS-PRIMARY> 1.73
<EPS-DILUTED> 1.73
<YIELD-ACTUAL> 7.25
<LOANS-NON> 20374
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 12891
<CHARGE-OFFS> 1984
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 13461
<ALLOWANCE-DOMESTIC> 13461
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
