<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 17, 1996
REGISTRATION NO. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
REGENT BANCSHARES CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW JERSEY 23-2440805
---------- ----------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
------------------------
1430 WALNUT STREET
PHILADELPHIA, PENNSYLVANIA 19102
(215) 546-6500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
HARVEY PORTER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
REGENT BANCSHARES CORP.
1430 WALNUT STREET
PHILADELPHIA, PENNSYLVANIA 19102
(215) 546-6500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
Copies to:
FREDERICK W. DREHER, ESQUIRE
DUANE, MORRIS & HECKSCHER
4200 ONE LIBERTY PLACE
PHILADELPHIA, PA 19103-7396
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 (the 'Securities Act'), check the following box. / /
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Section 462(b) under the Securities Act, please check the following
box and list the Securities Act registration number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Section 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PER UNIT(1) PRICE(1) FEE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.10 par value 344,387(1) shares $8.50 $2,927,289.50 $1,010
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents shares of common stock of the Registrant purchasable upon
exercise of the Company's issued and outstanding, publicly traded common
stock purchase warrants at a per share exercise price of $8.50 per share.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL THEREAFTER
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
REGENT BANCSHARES CORP.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION HEADING IN PROSPECTUS
- ----------------------- ---------------------
<S> <C> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus...................... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus.......................................... Inside Front Cover Page; Outside Back Cover Page
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges........................... Prospectus Summary; The Company
4. Use of Proceeds....................................... Use of Proceeds
5. Determination of Offering Price....................... The Offering
6. Dilution.............................................. *
7. Selling Security Holders.............................. *
8. Plan of Distribution.................................. Outside Front Cover Page; Prospectus Summary; The
Offering
9. Description of Securities to be Registered............ The Offering; Description of Regent Securities; Price
Range of Regent Common Stock and Related Shareholder
Matters; The Merger
10. Interests of Named Experts and Counsel................ *
11. Information with Respect to Registrant................ Outside Front Cover Page; Prospectus Summary; The
Company; The Offering; Capitalization; Price Range
of Regent Common Stock and Related Shareholder
Matters; Regent Financial Summary and Selected Per
Share Data; Management's Discussion and Analysis of
Financial Condition and Results of Operations;
Business; The Merger; Consolidated Financial
Statements
12. Incorporation of Certain Information by Reference..... Incorporation of Certain Documents by Reference
13. Disclosure of Commission Position on Indemnification
for Securities Act
Liabilities......................................... Disclosure of Commission Position on Indemnification
for Securities Act Liabilities
</TABLE>
- ------------------
* Omitted from Prospectus because item is inapplicable or answer is negative.
i
<PAGE>
SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED JANUARY 17, 1996
PROSPECTUS
344,387 SHARES
REGENT BANCSHARES CORP.
COMMON STOCK
------------------------------
Regent Bancshares Corp. ('Regent') has entered into an Amended and Restated
Agreement and Plan of Merger dated as of August 30, 1995 (the 'Merger
Agreement') among Carnegie Bancorp ('Carnegie'), Carnegie Bank, N.A. ('CBN'),
Carnegie's wholly owned national bank subsidiary, Regent and Regent National
Bank (the 'Bank'), Regent's wholly owned national bank subsidiary, providing for
the merger of Regent with and into Carnegie (the 'Merger') and for the merger of
the Bank with and into CBN (the 'Bank Merger'), which will then operate under
the name Carnegie Regent Bank, N.A. ('CRBN'). See 'The Merger.'
This Prospectus relates to the offer and sale by Regent of up to 344,387
shares (the 'Shares') of Regent common stock, par value $.10 per share (the
'Regent Common Stock'), that are purchasable upon exercise of warrants that are
currently traded publicly (the 'Regent Public Warrants'). As of the date of this
Prospectus, Regent has issued and outstanding 292,598 Regent Public Warrants,
each of which was exercisable until December 31, 1995 in whole or in part from
time to time to purchase 1.177 shares of Regent Common Stock at a per share
exercise price of $8.50 (the 'Warrant Price') and would again become exercisable
for a period of 30 days if the Merger Agreement is terminated. This offering is
being made solely to the holders of the Regent Public Warrants. See 'Description
of Regent Securities -- Regent Common Stock Warrants -- Regent Public Warrants.'
Upon consummation of the Merger, the holders of Regent securities will have
the right to receive Carnegie securities, as more fully described under 'The
Merger.' Regent Public Warrants that were not exercised prior to December 31,
1995 for the purchase of Shares of Regent Common Stock will be converted
automatically without any action on the part of the holder into Carnegie Common
Stock at the rate of one share of Carnegie Common Stock for Regent Public
Warrants representing in the aggregate the right to purchase 7.5 shares of
Regent Common Stock. See 'The Merger.' Each holder of Regent Public Warrants
will also be furnished a copy of the Joint Proxy Statement/Prospectus dated
__________________, 1996 of Regent and Carnegie, which contains a more detailed
explanation of the Merger and certain information relating to Carnegie and CBN.
Under the terms of the Regent Public Warrants, Regent is required to provide
each holder with a written notice of any merger, consolidation or sale of
substantially all of the assets of Regent at least 30 days prior to the date
such transaction is consummated. This Prospectus, therefore, also constitutes
notice to the holders of Regent Public Warrants that the Merger is intended to
be consummated on or about March , 1996 (the 'Effective Time'). The offering
of the Shares under this Prospectus will terminate as of the Effective Time. If
the Merger Agreement is terminated prior to consummation of the Merger, the
Regent Public Warrants may be exercised, and the offering of the Shares under
this Prospectus will continue, for a period of 30 days following the termination
date of the Merger Agreement.
The Regent Common Stock is traded in the over-the-counter market and prices
are quoted on the NASDAQ Small-Cap Market under the symbol 'RBNK,' and the
Regent Public Warrants are quoted on the NASDAQ Small-Cap Market under the
symbol 'RBNKW'. On January 5, 1996, the average of the bid and asked prices of
Regent's Common Stock was $11.50 per share. See 'Price Range of Regent Common
Stock and Related Shareholder Matters.'
------------------------------
<TABLE>
<CAPTION>
PRICE TO
WARRANT HOLDERS PROCEEDS TO REGENT
--------------- ------------------
<S> <C> <C>
Per Share............................................. $8.50 $8.50
Total (1)............................................. $2,927,289.50 $2,927,289.50
</TABLE>
(1) This total is based upon the exercise of all outstanding Regent Public
Warrants. There is no assurance, however, that any holders will exercise any
of their respective Regent Public Warrants prior to the termination of this
offering. There is no minimum number of outstanding Regent Public Warrants
that must be exercised in connection with this offering. No underwriting
discounts or commissions will be paid in connection with this offering.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
, 1996
[ RED HERRING LANGUAGE]
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
AVAILABLE INFORMATION
Regent is subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended (the 'Exchange Act'), and, in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the 'SEC'). This Prospectus, which
constitutes a part of a registration statement (the 'Registration Statement')
filed by Regent with the SEC under the Securities Act of 1933 (the 'Securities
Act'), omits certain of the information set forth in the Registration Statement.
Reference is hereby made to the Registration Statement and to the exhibits
thereto for further information with respect to Regent and the securities
offered hereby. Statements contained herein concerning the provisions of such
documents are necessarily summaries of such documents, and each statement is
qualified in its entirety by reference to the copy of the applicable document
filed with the SEC. The Registration Statement, including exhibits and schedules
filed therewith, and such reports, proxy statements and other information may be
inspected without charge at the public reference facilities maintained by the
SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549 and at the regional offices of the SEC located at Seven World Trade
Center, Suite 1300, New York, New York 10048 and 500 West Madison Street, Suite
1400, Northwestern Atrium Center, Chicago, Illinois 60661-2511. Copies of such
materials may be obtained from the Public Reference Section of the SEC, Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. Such reports, proxy statements and other information also may
be inspected at the office of the National Association of Securities Dealers,
Inc., 1735 K Street, N.W., Washington, DC 20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Regent's Annual Report on Form 10-K for the fiscal year ended December 31,
1994, Regent's Quarterly Reports on Form 10-Q for the fiscal quarters ended
September 30, 1995, June 30, 1995 and March 31, 1995 and Regent's Current Report
on Form 8-K dated August 30, 1995 (date of earliest event reported) have been
filed with the SEC and are incorporated herein by reference. Any statement
contained in a document incorporated by reference herein shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any accompanying prospectus supplement modifies
or supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
Regent will provide without charge to each person to whom a copy of this
Prospectus is delivered, upon the written or oral request of such person, a copy
of any of the documents incorporated by reference herein, except for the
exhibits to such documents (unless such exhibits are specifically incorporated
by reference in such documents). Such requests should be directed to Regent
Bancshares Corp., 1430 Walnut Street, Philadelphia, Pennsylvania 19102,
Attention: Stephen J. Carroll, Treasurer and Chief Financial and Accounting
Officer (telephone (215) 546-6500).
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements and notes thereto appearing
elsewhere or incorporated by reference in this Prospectus.
REGENT AND THE BANK
Regent, a New Jersey corporation, is a bank holding company. The Bank is a
federally chartered national bank. Regent provides banking services through the
Bank and does not engage in any activities other than banking activities. The
principal executive offices of Regent and the Bank are located at 1430 Walnut
Street, Philadelphia, Pennsylvania 19102. Regent's telephone number is (215)
546-6500.
3
<PAGE>
THE OFFERING
This Prospectus relates to the offer and sale by Regent of up to 344,387
Shares of Regent Common Stock that are purchasable upon exercise of the Regent
Public Warrants to the extent exercised prior to December 31, 1995 or within 30
days after termination of the Merger Agreement. As of the date of this
Prospectus, Regent has issued and outstanding 292,598 Regent Public Warrants,
each of which was exercisable prior to December 31, 1995 in whole or in part
from time to time to purchase 1.177 shares of Common Stock at the per Share
Warrant Price of $8.50 and would again become exercisable for a period of 30
days if the Merger Agreement is terminated. This offering is being made solely
to the holders of the Regent Public Warrants. See 'Description of Regent
Securities -- Regent Common Stock Warrants -- Regent Public Warrants.'
Regent has entered into the Merger Agreement among Carnegie, CBN, Regent
and the Bank providing for the Merger of Regent with and into Carnegie and for
the Bank Merger of the Bank with and into CBN. See 'The Merger.'
Upon consummation of the Merger, the holders of Regent securities will have
the right to receive Carnegie securities, as more fully described under 'The
Merger.' Regent Public Warrants that were not exercised prior to December 31,
1995 to purchase Shares of Regent Common Stock will be converted automatically
without any action of the part of the holders thereof into Carnegie Common Stock
at the rate of one share of Carnegie Common Stock for Regent Public Warrants
representing in the aggregate the right to purchase 7.5 shares of Regent Common
Stock. See 'The Merger.' Each holder of Regent Public Warrants will also be
furnished with a copy of the Joint Proxy Statement/Prospectus dated ______, 1996
of Regent and Carnegie, which contains a more detailed explanation of the Merger
and certain information relating to Carnegie and CNB.
Under the terms of the Regent Public Warrants, Regent is required to
provide each holder with a written notice of any merger, consolidation or sale
of substantially all of the assets of Regent at least 30 days prior to the date
such transaction is consummated. This Prospectus, therefore, also constitutes
notice to the holders of Regent Public Warrants that the Merger is intended to
be consummated on the Effective Time, i.e., March __, 1996. The offering of the
Shares under this Prospectus will terminate as of the Effective Time. If the
Merger Agreement is terminated prior to consummation of the Merger, the Regent
Public Warrants may be exercised, and the offering of the Shares under this
Prospectus will continue, for a period of 30 days following the termination date
of the Merger Agreement.
THE COMPANY
Regent, a bank holding company registered under the Bank Holding Company
Act of 1956 (the 'BHCA'), is regulated by the Board of Governors of the Federal
Reserve System (the 'FRB'). Regent was incorporated under the laws of the
Commonwealth of Pennsylvania on December 22, 1986 and on November 23, 1987 was
merged into a New Jersey corporation with the same name (and which was
incorporated on November 2, 1987), with the New Jersey corporation being the
surviving entity. Regent became a bank holding company on June 2, 1989 when it
completed the acquisition of all of the authorized capital stock of the Bank,
its only subsidiary. The Bank commenced operations on June 5, 1989. Regent
provides banking services through the Bank and does not engage in any activities
other than banking activities. The principal executive offices of Regent are
located at 1430 Walnut Street, Philadelphia, Pennsylvania 19102. Regent's
telephone number is (215) 546-6500.
The Bank, a federally chartered national bank, is regulated by the Office
of the Comptroller of the Currency (the 'OCC') and is a member of the Federal
Reserve System. The deposits of the Bank are insured by the Bank Insurance Fund
(the 'BIF') of the Federal Deposit Insurance Corporation (the 'FDIC').
THE OFFERING
This Prospectus relates to the offer and sale by Regent of up to 344,387
Shares of Regent Common Stock that are purchasable upon exercise of the Regent
Public Warrants. As of the date of this Prospectus, Regent has issued and
outstanding 292,598 Regent Public Warrants, each of which was exercisable prior
to December 31, 1995 in whole or in part from time to time to purchase 1.177
shares of Common Stock at the per Share Warrant Price of $8.50 and would be
exercisable for a period of 30 days if the Merger Agreement is terminated. This
offering is being made solely to the holders of the Regent Public Warrants. See
'Description of Regent Securities -- Regent Common Stock Warrants -- Regent
Public Warrants.'
Regent has entered into the Merger Agreement among Carnegie, CBN, Regent
and the Bank providing for the Merger of Regent with and into Carnegie and for
the Bank Merger of the Bank with and into CBN. See 'The Merger.'
Upon consummation of the Merger, the holders of Regent securities will have
the right to receive Carnegie securities, as more fully described under 'The
Merger.' Regent Public Warrants that have not been exercised for Shares of
Regent Common Stock will be converted automatically without any action on the
part of the holders thereof into Carnegie Common Stock at the rate of one share
of Carnegie Common Stock for Regent Public Warrants representing in the
aggregate the right to purchase 7.5 shares of Regent Common Stock. See 'The
Merger.' Each holder of Regent Public Warrants will also be furnished with a
copy of the Joint Proxy Statement/Prospectus dated __, 1996 of Regent and
Carnegie, which contains a more detailed explanation of the Merger and certain
information relating to Carnegie and CNB.
Under the terms of the Regent Public Warrants, Regent is required to
provide each holder with a written notice of any merger, consolidation or sale
of substantially all of the assets of Regent at least 30 days prior to the date
such transaction is consummated. This Prospectus, therefore, also constitutes
notice to the holders of Regent Public Warrants that the Merger is intended to
be consummated on the Effective Time, i.e., March __, 1996. The offering of the
Shares under this Prospectus will terminate as of the Effective Time. If the
Merger Agreement is terminated prior to consummation of the Merger, the Regent
Public Warrants may be exercised, and the offering of the Shares under this
Prospectus will continue, for a period of 30 days following the termination date
of the Merger Agreement.
4
<PAGE>
USE OF PROCEEDS
If all of the Regent Public Warrants are exercised, Regent's net proceeds
(after deduction of estimated offering expenses of approximately $25,000) are
estimated to be $2.9 million. Regent estimates, however, that the actual number
of Regent Public Warrants exercised in this offering will be below the maximum
number that may become exercisable. To the extent any Regent Public Warrants are
exercised, Regent intends to use the net proceeds of this offering for general
corporate purposes and to provide the Bank with additional equity capital.
PRICE RANGE OF REGENT COMMON STOCK
AND RELATED SHAREHOLDER MATTERS
Market prices for Regent Common Stock are reported on the NASDAQ SmallCap
Market. The table below sets forth for the periods indicated the high and low
closing prices per share of Regent Common Stock on the NASDAQ System as reported
in published financial sources. These quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions. For current price information, holders of Regent
Public Warrants are urged to consult publicly available sources.
<TABLE>
<CAPTION>
PRICE PER SHARE OF
REGENT COMMON STOCK
----------------------
HIGH LOW
----- ---
<S> <C> <C>
1993:
First Quarter............................................................................... $ 7 1/2 $ 5 1/8
Second Quarter.............................................................................. 8 5 5/8
Third Quarter............................................................................... 8 1/2 7
Fourth Quarter.............................................................................. 9 1/2 7
1994:
First Quarter............................................................................... 8 1/2 6 3/4
Second Quarter.............................................................................. 8 6 3/4
Third Quarter............................................................................... 8 7
Fourth Quarter.............................................................................. 8 1/2 6
1995:
First Quarter............................................................................... 7 5 3/4
Second Quarter.............................................................................. 6 3/4 5 1/2
Third Quarter............................................................................... 11 6
Fourth Quarter.............................................................................. 11 10
</TABLE>
On January 5, 1996, the most recent available date prior to printing this
Prospectus, the reported Nasdaq System closing bid and asked prices per share of
Regent Common Stock were $11.00 and $12.00 respectively.
Regent has never paid cash dividends on shares of Regent Common Stock.
5
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1995 (unaudited) and as adjusted to give effect to the exercise of
292,598 warrants to purchase an aggregate of 344,387 common shares at an
exercise price of $8.50 per share and the application of the net proceeds from
such exercise as described under 'Use of Proceeds'.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995
------------------------------
ACTUAL AS ADJUSTED
-------------- --------------
<S> <C> <C>
Shareholders' Equity
Preferred stock, $.10 par value, 5,000,000 shares authorized
Series A, 487,532 shares issued and outstanding; entitled to $4,875,320 in
involuntary liquidation.................................................. $ 48,753 $ 48,753
Series B, 4,270 shares issued and outstanding; entitled to $42,700 in
involuntary liquidation.................................................. 427 427
Series C, 3,515 shares issued and outstanding; entitled to $35,150 in
involuntary liquidation.................................................. 351 351
Series D, 4,775 shares issued and outstanding; entitled to $47,750 in
involuntary liquidation.................................................. 478 478
Series E, 99,273 shares issued and outstanding; entitled to $992,730 in
involuntary liquidation.................................................. 9,927 9,927
Common stock, $.10 par value, 10,000,000 shares authorized, 979,274 shares
issued and outstanding (1,323,661 shares issued and outstanding, as adjusted
for exercise)............................................................... 97,927 132,366
Capital surplus................................................................ 13,300,872 16,193,722
Retained earnings.............................................................. 546,308 546,308
Net unrealized loss on securities available for sale........................... (476,688) (476,688)
----------- -----------
Total Capitalization................................................ $13,528,355 $16,455,644
=========== ===========
</TABLE>
6
<PAGE>
REGENT FINANCIAL SUMMARY AND SELECTED PER SHARE DATA
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income................ $ 15,063 $ 12,771 $ 17,165 $ 15,112 $ 13,519 $ 11,163 $ 11,210
Interest expense............... 9,133 8,478 11,373 9,921 8,810 7,882 8,653
--------- --------- --------- --------- --------- --------- ---------
Net interest income............ 5,930 4,293 5,792 5,191 4,709 3,281 2,557
Provision for loan
losses....................... 320 35 860 450 525 525 460
--------- --------- --------- --------- --------- --------- ---------
Net interest income after
provision for loan losses.... 5,610 4,258 4,932 4,741 4,184 2,756 2,097
Non-interest income............ 74 173 202 156 70 55 43
Realized gain on sale of
securities................... -- -- -- -- -- 642 --
Unrealized loss on securities
held for
sale......................... -- -- -- -- -- -- (600)
Non-interest expense........... 5,116 2,877 4,372 3,113 2,486 2,026 1,804
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income
taxes and extraordinary
item......................... 568 1,554 762 1,784 1,768 1,427 (264)
Income tax expense............. 192 527 259 607 601 485 --
Extraordinary item --
utilization of net operating
loss carry forward........... -- -- -- -- -- 213 --
--------- --------- --------- --------- --------- --------- ---------
Net income (loss).............. $ 376 $ 1,027 $ 503 $ 1,177 $ 1,167 $ 1,155 $ (264)
========= ========= ========= ========= ========= ========= =========
arnings (loss) per share
Primary...................... $ .02 $ .80 $ .22 $ .71 $ .95 $ .57 $ (1.07)
Fully Diluted................ N/A .69 N/A N/A $ .82 N/A N/A
Cash Dividends................. -- -- -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
AT
SEPTEMBER 30, AT DECEMBER 31,
------------- ---------------------------------------------------------------
1995 1994 1993 1992 1991 1990
------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets..................... $ 256,583 $ 243,450 $ 243,945 $ 204,800 $ 132,416 $ 110,185
Federal funds sold............... -- -- 6,000 -- 7,300 9,562
Loans, net....................... 101,216 74,146 47,826 54,454 49,877 47,179
Investment securities............ 142,812 156,664 156,166 140,226 70,032 49,869
Deposits......................... 192,943 161,061 192,393 160,715 119,723 99,013
Shareholders' equity............. 13,528 12,206 13,126 11,949 10,782 9,627
Book value per share............. $ 8.57 $ 7.99 $ 8.88 $ 8.38 $ 7.56 $ 7.40
</TABLE>
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
GENERAL
Regent, the holding company for the Bank, recorded net income of $376
thousand, or $.02 per share, for the first nine months of 1995 compared to $1
million, or $.80 per share for the nine months ended September 30, 1994. The
decline in net income for the first nine months of 1995 compared to the
comparable period of 1994 was due principally to an increase in the provision
for loan losses of $285 thousand and an increase in other expenses of $2.2
million, which more than offset a $1.6 million increase in net interest income.
The higher provision for loan losses and a portion of the increase in other
expenses for the nine months ended September 30, 1995 were attributable to
irregularities in residential mortgage loans purchased in 1994 from two mortgage
banking companies, both of which filed for bankruptcy protection. The
year-to-date net income for 1995 was adversely affected by the associated
professional fees and settlement costs incurred in resolving legal matters
relating to the assignment of the residential mortgages to Regent. Expenses of
$188 thousand were also incurred in 1995 for professional services in connection
with the Merger. Salaries and employee benefits and costs incurred for the
expansion and servicing of a new consumer loan program also increased other
expenses for the nine months ended September 30, 1995. The increase in other
expenses was partially offset by a refund of premiums previously paid to the
FDIC totaling $107 thousand. The increase in net interest income was
attributable to an improvement in the net interest margin as a result of
increased lending volume. The net interest margin increased to 3.31% for the
first nine months of 1995 from 2.31% for the first nine months of 1994.
FINANCIAL CONDITION OF REGENT
CAPITAL ADEQUACY
Capital adequacy standards adopted by federal banking regulators make
capital more sensitive to differences in risk profiles among banking
organizations and consider off-balance-sheet exposures in determining capital
adequacy. Various levels of risk are assigned to different categories of assets
and off-balance-sheet activities.
These standards define capital as Tier I and Tier II capital. All banks are
required to have Tier I capital of at least 4% of risk-weighted assets and total
capital of 8% of risk-weighted assets. Tier I (Core) capital consists of common
shareholders' equity, non-cumulative preferred stock and retained earnings. Tier
II or total capital includes Tier I capital, cumulative preferred stock,
qualifying subordinated debt and the allowance for loan losses up to a maximum
1.25% of total risk-weighted assets. The following table presents the components
of Regent's assets and Tier I and II capital ratios at September 30, 1995 and
December 31, 1994:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994
--------------- --------------
<S> <C> <C>
Tier I Capital ............................. $ 14,005,043 $ 13,628,568
Allowance for possible loan losses ....... 1,706,324 1,387,754
Qualifying subordinated debt ............. 1,650,000 1,650,000
------------ ------------
Total Tier II capital ...................... $ 17,361,367 $ 16,666,322
------------ ------------
------------ ------------
Total Risk Adjusted Assets ................. $136,505,936 $111,020,356
------------ ------------
------------ ------------
Tier I Ratio ............................... 10.26% 12.28%
Tier II Ratio .............................. 12.72% 15.01%
</TABLE>
8
<PAGE>
In addition to the risk-based requirements, regulations have been adopted
that establish a minimum leverage capital ratio of 3% of Tier I capital to total
assets. The 3% level applies to only those banks that are given the highest
composite rating under the regulators' rating system while all other banks are
expected to have 3% plus an additional cushion of at least 100 to 200 basis
points. At September 30, 1995, and December 31, 1994, Regent's leverage ratio
was 5.5% and 5.6%, respectively.
Regent's objective is to maintain its strong capital base as well as
exceeding the requirements for the Bank to be classified as 'well capitalized,'
as defined by the FDIC. Management believes that Regent's capital ratios are in
excess of regulatory requirements, are adequate to support current and near term
growth, and that the Bank's ratios can be maintained above the level needed to
be considered 'well capitalized.'
ASSET AND LIABILITY MANAGEMENT
Asset and liability management is the process of maximizing net interest
income within the constraints of maintaining acceptable levels of liquidity,
interest rate risk and capital. To achieve this objective, policies and
procedures have been implemented that utilize a combination of selected
investments and funding sources with various maturity structures.
Liquidity: Liquidity represents the ability to generate funds at
reasonable rates to meet potential cash outflows from deposit customers who need
to withdraw funds or borrowers who need available credit. The primary source of
the Bank's liquidity has been the Bank's ability to generate deposits.
Supplementing the deposit base, liquidity is available from the investment
portfolio, which consists primarily of mortgage-backed securities issued by U.S.
Government agencies and corporations. These securities enhance liquidity not
only by their marketability, but they also provide monthly principal and
interest payments.
The liquidity position is also strengthened by the establishment of credit
facilities with other banks and the Federal Home Loan Bank of Pittsburgh (FHLB).
Investment securities are required to be pledged as collateral for transactions
executed under these facilities and provide for an availability of funds on an
overnight basis. The FHLB also provides for borrowings on a fixed or floating
rate basis with specified maturities up to 20 years at costs that would be less
expensive than through the Bank's deposit generation process.
Investment Portfolio: The investment portfolio, consisting principally of
mortgage-backed securities, is coordinated with the liquidity and interest rate
sensitivity position of the Bank. With an emphasis on minimizing credit, capital
and market risk, the investment portfolio is considered an extension of loans
with the objectives of enhancing liquidity and earning a fair return. The
investments in mortgage-backed securities consist of a combination of adjustable
and fixed rate securities with an emphasis on investments with relatively short
weighted average lives. Of the total mortgage-backed portfolio with an amortized
cost of $140.9 million at September 30, 1995, $22.1 million were adjustable rate
and $118.8 million were fixed rate. The estimated weighted average life for the
mortgage-backed securities portfolio at September 30, 1995 approximated 5.4
years.
Interest Rate Sensitivity: Interest rate sensitivity is closely related to
liquidity since each is directly affected by the maturity of assets and
liabilities. Interest rate sensitivity also deals with exposure to fluctuations
in interest rates and its effect on net interest income. It is management's
objective to maintain stability in the growth of net interest income by
appropriately mixing interest sensitive assets and liabilities. One tool used by
management to gauge interest rate sensitivity is a gap analysis which
categorizes assets and liabilities on the basis of maturity date, the date of
next repricing, and the applicable amortization schedule. This analysis
summarizes the matching or mismatching of rate sensitive assets versus rate
sensitive liabilities according to specified time periods. In conjunction with
the 'gap' analysis, computer simulations are used to evaluate net interest
income volatility under varying rate and volume projections over selected future
timeframes.
9
<PAGE>
The blending of fixed and floating rate loans and investments to match the
repricing and maturity characteristics of the various funding sources is a
continuous process in an attempt to minimize fluctuations in net interest
income. An effective tool used by the Bank in this process has been the
availability and flexibility of the various FHLB advance programs, which enable
the Bank to lock in spreads when appropriate and provide an effective method of
matching fixed rate assets with a fixed rate funding source.
The Bank's objective is to structure its balance sheet, as outlined in the
following Interest Sensitivity table, to minimize any significant fluctuation in
net interest income. The distribution in the table is based on a combination of
maturities, repricing frequencies and prepayment patterns. Floating rate assets
and liabilities are distributed based on the repricing frequency of the
instrument while fixed rate instruments are based on maturities. Mortgage-backed
securities are distributed in accordance with their repricing frequency and
estimated prepayment speeds. Deposit liabilities are distributed according to
repricing opportunities for NOW and money market accounts, maturities for
certificates of deposit and expected retention rates and interest sensitivity
for savings deposits.
<TABLE>
<CAPTION>
0 TO 3 4 TO 12 1 TO 3 3 TO 5 AFTER 5
MONTHS MONTHS YEARS YEARS YEARS TOTAL
--------- --------- --------- --------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Mortgage-backed securities................ $ 7,578 $ 23,342 $ 52,883 $ 52,364 $ 4,054 $ 140,221
Other securities.......................... 2,195 -- -- -- 395 2,590
Mortgage loans held for sale.............. 4,071 -- -- -- -- 4,071
Loans..................................... 45,307 22,380 6,016 8,969 21,812 104,484
--------- --------- --------- --------- --------- -----------
Total Earning Assets.................... $ 59,151 $ 45,722 $ 58,899 $ 61,333 $ 26,261 $ 251,366
========= ========= ========= ========= ========= ===========
NOW and money market...................... $ 10,861 $ -- $ -- $ -- $ -- $ 10,861
Savings................................... -- -- 24,059 24,059 -- 48,118
Certificates of deposit................... 13,647 58,379 22,336 23,939 52 118,353
FHLB advances............................. 37,928 -- -- -- 213 38,141
Subordinated debt......................... -- -- 2,750 -- -- 2,750
Net non-interest bearing source of
funds................................... -- -- -- -- 33,143 33,143
--------- --------- --------- --------- --------- -----------
Total Sources of Funds.................. $ 62,436 $ 58,379 $ 49,145 $ 47,998 $ 33,408 $ 251,366
========= ========= ========= ========= ========= ===========
Period Gap................................ (3,285) (12,657) 9,754 13,335 (7,147)
========= ========= ========= ========= =========
Cumulative Gap............................ (3,285) (15,942) (6,188) 7,147 --
========= ========= ========= ========= =========
Cumulative Gap as % of total assets....... (1.3%) (6.2%) (2.4%) 2.8% -- --
</TABLE>
10
<PAGE>
INVESTMENT PORTFOLIO
The investment portfolio of Regent includes investments classified as
held-to-maturity and available-for-sale and consists of mortgage-backed
securities and non-marketable equity securities. The mortgage-backed securities
portfolio is comprised principally of securities issued by U.S. Government
agencies and corporations, which represented 86% of the total mortgage-backed
portfolio at September 30, 1995. The remaining 14% consisted of collateralized
mortgage obligations of private issuers. The table below summarizes by major
category the amortized cost and market values of investment securities
classified as held-to-maturity and available-for-sale at September 30, 1995:
<TABLE>
<CAPTION>
HELD-TO-MATURITY AVAILABLE-FOR-SALE
---------------------------------- --------------------------------
AMORTIZED COST MARKET VALUE AMORTIZED COST MARKET VALUE
---------------- ---------------- -------------- --------------
<S> <C> <C> <C> <C>
GNMA ............................................... $ 13,096,578 $ 12,663,480 $ -- $ --
FHLMC .............................................. 45,209,954 44,526,145 11,447,000 11,095,255
FNMA ............................................... 34,225,820 33,379,852 17,958,752 17,588,669
Collateralized mortgage obligations ................ 19,005,398 19,005,482 -- --
Non-marketable equity securities ................... -- -- 2,589,808 2,589,808
------------ ------------ ------------ ------------
$111,537,750 $109,574,959 $ 31,995,560 $ 31,273,732
============ ============ ============ ============
</TABLE>
LENDING
Total loans, consisting of loans held for the portfolio and mortgage loans
held for sale, amounted to $108.6 million at September 30, 1995 compared to
$81.5 million at December 31, 1994. The increase of $27.1 million primarily
reflected higher commercial loan activity and consumer loans, which, represented
the expansion of a specialized installment loan program that finances automobile
insurance premiums. The following table details the types of loans outstanding
by category as of September 30, 1995 and December 31, 1994:
<TABLE>
<S> <C> <C> <C> <C>
SEPTEMBER 30, 1995 DECEMBER 31, 1994
--------------------------- -------------------------
AMOUNT % AMOUNT %
---------------- --------- -------------- ---------
Commercial & industrial.................................... $ 42,607,801 41% $27,406,523 36%
Real estate:
Construction.......................................... 3,910,321 4% 1,455,110 2%
Mortgages-residential................................. 27,336,353 26% 29,252,959 38%
Mortgages-commercial.................................. 13,970,415 13% 13,550,216 18%
Consumer................................................... 16,658,627 16% 4,409,532 6%
------------ --------- ---------- ---------
Total Loans..................................... 104,483,517 100% 76,074,340 100%
=== ===
Less:
Unearned interest and fees............................ (1,353,823) (214,701)
------------ -----------
$103,129,694 $75,859,639
============ ===========
Mortgage loans held for sale............................... $ 4,071,033 $ 5,387,517
============= ===========
</TABLE>
11
<PAGE>
To meet its asset/liability objectives and to control its interest rate
sensitivity exposure, the Bank's strategy is to originate loans with floating
rates and with maturities less than five years. The following table presents the
scheduled maturities of loans that are outstanding as of September 30, 1995:
<TABLE>
<CAPTION>
AFTER 1
WITHIN BUT WITHIN AFTER
1 YEAR 5 YEARS 5 YEARS TOTAL
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Predetermined interest rates.... $23,294,114 $13,628,774 $ 21,811,169 $ 58,734,057
Floating rate .................. 24,829,188 16,868,983 4,051,289 45,749,460
----------- ----------- ------------ ------------
$48,123,302 $30,497,757 $ 25,862,458 $104,483,517
=========== =========== ============ ============
</TABLE>
RISK ELEMENTS
The level of non-performing assets, consisting of non-accrual loans, loans
past due ninety days or more, and other real estate owned amounted to $3.4
million or 1.34% of total assets at September 30, 1995 compared to $4.1 million
or 1.68% of total assets at December 31, 1994. The reduction of $650 thousand in
non-performing assets resulted primarily from lower non-accrual loans as several
large non-accruing loans were fully repaid in the 1995 second quarter. The
following table details the non-performing assets as of September 30, 1995 and
December 31, 1994:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995 DECEMBER 31, 1994
------------------ -----------------
<S> <C> <C>
Non-accrual loans ........................................... $2,884,193 $3,685,804
Accruing loans 90 days or more past due ..................... 545,510 393,681
Restructured loans .......................................... -- --
---------- ----------
Total non-performing loans ............................. 3,429,703 4,079,485
Other real estate owned ..................................... -- --
---------- ----------
Total non-performing assets ............................ $3,429,703 $4,079,485
========== ==========
Non-performing loans to period end loans and loans held for
sale ...................................................... 3.16% 5.01%
Non-performing assets to total assets ....................... 1.34% 1.68%
Non-performing assets to loans, loans held for sale and other
real estate owned ......................................... 3.16% 5.01%
</TABLE>
Accrual of interest is discontinued on loans when management believes,
after considering economic and business conditions and collection efforts, that
the borrower's financial condition is such that collection of interest and
principal is doubtful. The non-accrual loans are primarily secured by various
types of real estate. Interest income not recognized due to non-accrual status
was $248.6 thousand for the nine months ended September 30, 1995. No interest
income was included in operating income attributable to non-accrual loans in the
same nine-month period.
Other real estate owned represents property acquired by foreclosure or deed
in lieu of foreclosure. These assets are initially reported at the lower of the
related loan balance or the fair value of the property.
12
<PAGE>
As part of the quarterly review of the risk elements of the portfolio, an
evaluation is also made of the adequacy of the allowance for loan losses. In
making an assessment of the quality of the loan portfolio and the adequacy of
the allowance for loan losses, management takes into consideration such elements
as general economic conditions, industry trends, the volume of delinquencies,
specific credit review, the value of underlying collateral, and other pertinent
information. Based on this evaluation, the allowance for loan losses is adjusted
by the provision which is charged against income. The following table summarizes
the activity for the nine months ended September 30, 1995 and 1994:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
------------------ ------------------
<S> <C> <C>
Balance, beginning of period ............................... $ 1,713,372 $1,321,225
----------- ----------
Charge-offs:
Commercial & industrial ............................... 340 15,909
Real estate -- construction ........................... -- 22,492
Real estate -- residential ............................ 127,679 --
----------- ----------
128,019 38,401
----------- ----------
Recoveries:
Commercial & industrial ............................... 567 81,602
Consumer .............................................. 8,000 --
----------- ----------
Total recoveries ................................ 8,567 81,602
----------- ----------
Net (charge-offs) recoveries ............................... (119,452) 43,201
----------- ----------
Provision charged to operations ............................ 320,000 35,000
----------- ----------
Balance, end of period ..................................... $ 1,913,920 $1,399,426
=========== ==========
Allowance for loan losses as a % of year-end loans and loans
held for sale ............................................ 1.76% 1.73%
</TABLE>
DEPOSITS
Total deposits at September 30, 1995 aggregated $192.9 million which was
$31.9 million higher than the December 31, 1994 balance of $161 million. This
increase was attributable to higher certificate of deposit balances of $68.1
million which offset the decline in statement savings balances of $35.2 million.
As illustrated in the table below, the mix of deposits has shifted to a greater
reliance on certificates of deposit as a funding source.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995 DECEMBER 31, 1994
--------------------------- ---------------------------
BALANCE % BALANCE %
------------ ---- ------------ ----
<S> <C> <C> <C> <C>
Demand ................... $ 15,611,907 8% $ 13,641,796 8%
NOW ...................... 3,618,720 2% 4,201,594 3%
Savings .................. 48,117,623 25% 83,335,372 52%
Money Market ............. 7,241,841 4% 9,594,864 6%
Certificates of deposit .. 118,353,183 61% 50,287,846 31%
------------ ---- ------------ ----
$192,943,274 100% $161,061,472 100%
============ ==== ============ ====
</TABLE>
13
<PAGE>
SHORT-TERM BORROWINGS
Short-term borrowings are used to supplement the deposit base of the Bank,
to support asset growth, to fund specific loan programs, and as a tool in the
Bank's asset/liability management process. During 1995 and 1994, the Bank has
utilized its credit facilities with its correspondent banks and with the FHLB.
The borrowings from the FHLB are secured by the Bank's investments in
mortgage-backed securities.
The following table summarizes the Bank's short-term borrowing activity for
the nine months ended September 30, 1995 and 1994:
<TABLE>
<CAPTION>
AVERAGE
BALANCE OUTSTANDING
OUTSTANDING DURING THE AVERAGE
SEPTEMBER 30 PERIOD RATE PAID
-------------- ---------------- -----------
<S> <C> <C> <C>
1995: FHLB borrowings ............... $37,926,981 $46,341,779 6.25%
Federal funds purchased........ -- 280,952 5.92%
----------- -----------
$37,926,981 $46,622,731 6.25%
=========== ===========
1994: FHLB borrowings ............... $43,970,817 $34,696,515 4.42%
Federal funds purchased ....... -- 128,276 3.46%
----------- -----------
$43,970,817 $34,824,791 4.41%
=========== ===========
</TABLE>
RESULTS OF OPERATIONS
Net income for the nine months ended September 30, 1995 amounted to $376
thousand, or $.02 per share, compared to the $1 million, or $.80 per share,
earned in the first nine months of 1994. The lower 1995 year-to-date results
were attributable to increases in the provision for loan losses and other
expenses. The nine-month net income total, however, benefitted from higher net
interest income.
14
<PAGE>
NET INTEREST INCOME
Net interest income for the nine months ended September 30, 1995 totaled
$5.9 million which was $1.6 million, or 38%, higher than net interest income in
the comparable 1994 period of $4.3 million. The year-to-date increase was
attributable to an improved net interest margin which reflected the yields on
earning assets rising faster than the cost of interest bearing liabilities. The
net interest margin rose from 2.31% for the first nine months of 1994 to 3.31%
for the same nine-month period in 1995. The yields on earning assets were higher
as a result of lower amortization of securities portfolio premiums and the
higher prime lending rate which has prevailed in 1995. Additionally, a greater
percentage of interest income was derived from higher yielding loan activity.
For the nine months ended September 30, 1995, interest and fees on loans
represented 50% of total interest income versus 36% in the same 1994 period.
Offsetting the benefits of the improved net interest margin, however, was a
reduction of $10 million in the amount of average earning assets. The following
is a rate/yield analysis for the nine months ended September 30, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
AVERAGE INCOME/ RATE/ AVERAGE INCOME/ RATE/
BALANCE EXPENSE YIELD BALANCE EXPENSE YIELD
----------- ----------- --------- ----------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest Earning Assets:
Federal funds sold ..................... $ -- $ -- --% $ 379 $ 10 3.37%
Securities ............................. 151,650 7,581 6.66% 170,097 8,150 6.39%
Loans .................................. 86,881 7,482 11.36% 78,078 4,611 7.79%
-------- ------- ----- ------- ------
Total ............................ $238,531 $15,063 8.42% $248,554 $12,771 6.85%
======== ======= ======== =======
Interest Bearing Liabilities:
NOW accounts ........................... $ 4,185 $ 78 2.49% $ 3,200 $ 60 2.50%
Statement savings ...................... 55,014 2,000 4.86% 102,943 4,129 5.36%
Money market ........................... 9,008 258 3.83% 8,011 175 2.93%
Time deposits .......................... 96,228 4,450 6.18% 66,904 2,542 5.08%
Short-term borrowings .................. 46,622 2,180 6.25% 34,825 1,149 4.41%
Long-term advances ..................... 93 3 6.51% 7,129 261 4.88%
Subordinated debt ...................... 2,750 164 7.98% 2,701 162 8.03%
-------- ------- ------- ------
Total ............................ 213,900 9,133 5.71% 225,713 8,478 5.02%
-------- ------- ------- ------
Non-Interest Bearing Sources of
Funds ..................................... 24,631 22,841
-------- -------
$238,531 $248,554
======== =======
Net Interest Income/Spread .................. $ 5,930 2.71% $ 4,293 1.83%
======= ===== ====== =====
Net Interest Margin ......................... 3.31% 2.31%
===== =====
</TABLE>
PROVISION FOR LOAN LOSSES
A provision for loan losses of $320 thousand was recorded for the nine
months ended September 30, 1995 compared to $35 thousand in the same period in
1994. The increase in the provision was due to the non-accrual loans that
occurred as a result of collectibility concerns for certain residential mortgage
loans purchased from two mortgage banking companies, as well as a commercial
loan extended to one of these companies.
OTHER EXPENSES
Total other expenses for the nine months ended September 30, 1995 were $5.1
million, or 78%, over the comparable 1994 period total of $2.9 million. The
primary factors that increased other expenses for the nine-month period ended
September 30, 1995 were higher salaries and employee
15
<PAGE>
benefit costs, professional fees, processing and operating costs for the
insurance premium finance lending program, costs incurred in connection with
resolving legal matters relating to the assignment of residential mortgage loans
to the Bank and Merger related expenses. Salaries and employee benefit expenses
increased by $157.7 thousand for the first three quarters and were attributable
to higher staffing levels and benefit costs and to salary increases.
Professional services increased by $508.5 thousand for the nine months ended
September 30, 1995 principally due to legal expenses incurred in connection with
the workout of the irregularities involving residential mortgage loans. In
addition, legal, accounting and advisory expenses of $188 thousand were incurred
relating to Regent's proposed merger with Carnegie. Expenses of $1.3 million
were recorded in the nine months ended September 30, 1995 which did not occur in
the comparable 1994 period for the processing and operating of the installment
loan program for automobile insurance premium financing. An expense of $175
thousand was also recorded in 1995 for the settlement of legal matters in
connection with the assignment of certain residential mortgage loans to Regent.
The carrying value of an asset received in satisfaction of a borrower's debt was
reduced by $50 thousand. Offsetting these increases in other expenses was a
refund of $107 thousand received from the FDIC applicable to insurance premiums
previously paid.
PROVISION FOR INCOME TAXES
For the nine months ended September 30, 1995, income tax expense was $191.8
thousand versus $526.9 thousand for the same period in 1994. The lower provision
in 1995 reflects the decrease in pre-tax profits as the effective tax rate for
both periods was 34%.
COMPARISON-YEAR ENDED DECEMBER 31, 1994
TO YEAR ENDED DECEMBER 31, 1993
AND YEAR ENDED DECEMBER 31, 1993
TO YEAR ENDED DECEMBER 31, 1992
FINANCIAL OVERVIEW
Regent, the holding company for the Bank, recorded net income of $503
thousand, or $.22 per share, in 1994 compared to the net income of $1.2 million,
or $.71 per share, earned in 1993. In 1993, the Bank introduced a new lending
program directed to the mortgage banking industry. As an alternative to a
warehouse credit line, the Bank participates in the funding of individual
residential mortgage loans originated by mortgage bankers. During late 1994, two
of the mortgage banking companies involved in this program experienced financial
difficulties and subsequently filed for bankruptcy protection. At or about the
same time, the Bank learned that irregularities occurred in the origination
process at the mortgage banking companies which negatively impacted the
underlying real estate collateral of certain loans that had been funded. As a
result of these conditions, the Bank recorded charges totaling $1.1 million on a
pre-tax basis ($1.08 per common share) in the fourth quarter, which included an
additional provision for loan losses of $825 thousand. Management of the Bank is
aggressively pursuing the recovery of a substantial portion of these charges
through insurance claims and other courses of action. Such recoveries, if
realized, will be recorded in future periods when received. Offsetting the
effects of this non-recurring incident was an increase in net interest income of
$600 thousand, which resulted from a higher level of average earning assets.
Total assets at December 31, 1994 were $243.5 million which was comparable
to December 31, 1993 total assets of $243.9 million. While the overall asset
size remained relatively the same, the asset mix changed as lending activity
increased by 14%. Total loans and mortgage loans held for sale increased to
$81.5 million at year end 1994 from $71.6 million at December 31, 1993. The rise
in loans was attributable to higher commercial activity and a new installment
lending program. A continuing emphasis has been placed on loan growth by
reinvesting the cash flow from the mortgage-backed securities portfolio into the
commercial and installment programs but reducing residential mortgage activity.
16
<PAGE>
Funding sources changed significantly in 1994, particularly in the latter
half of the year. The Bank increased its borrowings from the FHLB as a
significant portion of deposit balances were withdrawn and reinvested into
higher yielding U.S. Treasury securities. As a result, the Bank's statement
savings and certificate of deposit balances decreased by 18% and 25%,
respectively. The decrease in total deposits of $31.3 million was funded by
borrowings from the FHLB at rates comparable to the rates paid by the Bank on
deposits.
In 1993, net income was $1.18 million, or $.71 per share, while net income
in 1992 was $1.17 million, or $.95 per share. The 1% increase in net income from
1992 to 1993 was attributable to an increase in net interest income and a lower
provision for loan losses. The $482 thousand increase in net interest income
resulted primarily from a higher amount of interest earning assets,
specifically, mortgage-backed securities, while the overall improvement in loan
quality enabled the provision for loan losses to be reduced by $75 thousand. Net
interest income, although increasing in 1993 versus 1992, was reduced by a
charge of $400 thousand for additional securities premium amortization recorded
in the 1993 fourth quarter. This additional premium amortization recognized the
acceleration in prepayments which occurred from the heavy volume of mortgage
refinancings. Offsetting these increases to earnings, however, were other
expenses being higher by 25%. The results of operations and per share
information is summarized in the following table:
<TABLE>
<CAPTION>
% INCREASE (DECREASE)
--------------------------
1994 1993 1992 1994 TO 1993 1993 TO 1992
------------- ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net interest income ................. $5,791,818 $5,191,442 $4,709,404 12% 10%
Provision for loan losses .......... 860,000 450,000 525,000 91% (14%)
Other income ....................... 201,883 155,650 70,297 30% 121%
Other expenses ..................... 4,371,776 3,113,483 2,486,145 40% 25%
---------- ---------- ----------
Pre-tax income ..................... 761,925 1,783,609 1,768,556 (57%) 1%
Income taxes ....................... 259,100 606,500 601,700 (57%) 1%
Net Income ......................... $502,825 $1,177,109 $1,166,856 (57%) 1%
========== ========== ==========
Earnings per share:
Primary ......................... $ .22 $ .71 $ .95
Fully diluted ................... -- -- .82
</TABLE>
FINANCIAL CONDITION
CAPITAL ADEQUACY
Economic conditions and the regulatory environment have placed an
increasing emphasis on the capital strength of financial institutions. Capital
strength is a primary determinant in a financial institution's ability to grow,
make acquisitions and protect against any unforeseen loss or adverse economic
condition. An evaluation of capital strength assesses how an institution's
inherent risks impact its ongoing financial net worth and focuses particularly
on asset quality, interest rate sensitivity, earnings and liquidity.
Total shareholders' equity at December 31, 1994 was $12.2 million or $920
thousand lower than shareholders' equity of $13 million at December 31, 1993.
The decrease was a result of recording a net unrealized loss on securities
available for sale of $1.4 million which exceeded Regent's net income of $503
thousand. No cash dividends were paid in 1994 or 1993 as it is management's
intention to retain its earnings for the foreseeable future in order to maintain
its capital strength and allow for growth.
Capital adequacy standards adopted by federal banking regulators make
capital more sensitive to differences in risk profiles among banking
organizations and consider off-balance-sheet exposures in determining capital
adequacy. Various levels of risk are assigned to different categories of assets
and off-balance sheet activities.
17
<PAGE>
These standards define capital as Tier I and Tier II capital. All banks are
required to have Tier I capital of at least 4% of risk-weighted assets and total
capital of at least 8% of risk-weighted assets. Tier I(Core) capital consists of
common shareholders' equity, non-cumulative preferred stock, and retained
earnings and excludes the effects of unrealized gains or losses on securities
available for sale. Tier II or total capital includes Tier I capital, cumulative
preferred stock, qualifying subordinated debt, and the allowance for possible
loan losses of up to a maximum of 1.25% of total risk-weighted assets. The
following table presents the components of Regent's assets and Tier I and II
capital ratios at December 31, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
---------------- ----------------
<S> <C> <C>
Tier I: Equity Capital............................................. $ 13,628,567 $ 13,125,743
Less:............................................................ -- (6,401)
---------------- ----------------
Total Tier I Capital.......................................... 13,628,567 13,119,342
Tier II: Allowance for possible loan losses........................ 1,387,754 1,321,225
Qualifying subordinated debt....................................... 1,650,000 2,040,000
---------------- ----------------
Total Tier II capital......................................... $ 16,666,321 $ 16,480,567
---------------- ----------------
---------------- ----------------
Total Risk Adjusted Assets......................................... $ 111,020,356 $ 105,924,683
---------------- ----------------
---------------- ----------------
Tier I Ratio....................................................... 12.28% 12.39%
Tier II Ratio...................................................... 15.01% 15.56%
</TABLE>
In addition to the risk-based requirements, regulations have been adopted
that establish a minimum leverage capital ratio of 3% of Tier I capital to total
assets. The 3% level applies to only those banks that are given the highest
composite rating under the regulators rating system while all other banks are
expected to have 3% plus an additional cushion of at least 100 to 200 basis
points. At December 31, 1994 and 1993, Regent's leverage ratio was 5.6% and
5.4%, respectively.
Regent's objective is to maintain its strong capital base as well as
exceeding the requirements for the Bank to be classified as 'well capitalized',
as defined by the FDIC. Management believes that the Bank's capital ratios are
in excess of regulatory requirements, are adequate to support current and near
term growth, and that the Bank's ratios can be maintained above the level needed
to be considered 'well capitalized.'
ASSET AND LIABILITY MANAGEMENT
Asset and liability management is the process of maximizing net interest
income within the constraints of maintaining acceptable levels of liquidity,
interest rate risk and capital. To achieve this objective, policies and
procedures have been implemented that utilize a combination of selected
investments and funding sources with various maturity structures.
LIQUIDITY
Liquidity represents the ability to generate funds at reasonable rates to
meet potential cash outflows from deposit customers who need to withdraw funds
or borrowers who need available credit. The primary source of the Bank's
liquidity has been the Bank's ability to generate deposits.
Supplementing the deposit base, liquidity is available from the investment
portfolio, which consists primarily of mortgage-backed securities issued by U.S.
Government agencies and corporations. These securities enhance liquidity not
only by their marketability, but they also provide monthly principal and
interest payments.
The liquidity position is also strengthened by the establishment of credit
facilities with other banks and the FHLB. Investment securities are required to
be pledged as collateral for transactions executed under these facilities and
provide for an availability of funds on an overnight basis. The FHLB also
provides for borrowings on a fixed or floating rate basis with specified
maturities up to 20 years at costs that would be less expensive than through the
Bank's deposit generation process.
18
<PAGE>
INVESTMENT PORTFOLIO
The investment portfolio, consisting principally of mortgage-backed
securities, is coordinated with the liquidity and interest rate sensitivity
position of the Bank. With an emphasis on minimizing credit, capital and market
risk, the investment portfolio is considered an extension of loans with the
objectives of enhancing liquidity and earning a fair return. The investments in
mortgage-backed securities consist of a combination of adjustable and fixed rate
securities with an emphasis on investments with relatively short weighted
average lives. Of the total mortgage-backed portfolio with a carrying value of
$155.1 million at December 31, 1994, $17.9 million were adjustable rate and
$137.2 million were fixed rate. The estimated weighted average life for the
mortgage-backed securities portfolio at December 31, 1994 approximated 6.9
years.
INTEREST RATE SENSITIVITY
Interest rate sensitivity is closely related to liquidity since each is
directly affected by the maturity of assets and liabilities. Interest rate
sensitivity also deals with exposure to fluctuations in interest rates and its
effect on net interest income. It is management's objective to maintain
stability in the growth of net interest income by appropriately mixing interest
sensitive assets and liabilities. One tool used by management to gauge interest
rate sensitivity is a gap analysis which categorizes assets and liabilities on
the basis of maturity date, the date of next repricing and the applicable
amortization schedule. This analysis summarizes the matching or mismatching of
rate sensitive assets versus rate sensitive liabilities according to specified
time periods. In conjunction with the 'gap' analysis, computer simulations are
used to evaluate net interest income volatility under varying rate and volume
projections over selected future timeframes.
The blending of fixed and floating rate loans and investments to match the
repricing and maturity characteristics of the various funding sources is a
continuous process in an attempt to minimize fluctuations in net interest
income. An effective tool used by the Bank in this process has been the
availability and flexibility of the various FHLB advance programs, which enable
the Bank to lock-in spreads when appropriate and provide an effective method of
matching fixed rate assets with a fixed rate funding source.
The Bank's objective is to structure its balance sheet, as outlined in the
following Interest Sensitivity table, to minimize any significant fluctuation in
net interest income. The distribution in the table is based on a combination of
maturities, repricing frequencies and prepayment patterns. Floating rate assets
and liabilities are distributed based on the repricing frequency of the
instrument while fixed rate instruments are based on maturities. Mortgage-backed
securities are distributed in accordance with their repricing frequency and
estimated prepayment speeds. Deposit liabilities are distributed according to
repricing opportunities for NOW and money market accounts, maturities for
certificates of deposit and expected retention rates and interest sensitivity
for savings deposits.
19
<PAGE>
<TABLE>
<CAPTION>
0 TO 3 4 TO 12 1 TO 3 3 TO 5 AFTER 5
MONTHS MONTHS YEARS YEARS YEARS TOTAL
---------- ---------- ---------- ---------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Mortgage-backed securities............ $ 8,459 $ 11,386 $ 46,512 $ 73,744 $ 15,000 $ 155,101
Other securities...................... 3,323 -- -- -- 396 3,719
Mortgage loans held for sale.......... 5,388 -- -- -- -- 5,388
Loans................................. 34,220 9,236 5,151 4,961 22,506 76,074
---------- ---------- ---------- ---------- --------- -----------
Total Earning Assets............. $ 51,390 $ 20,622 $ 51,663 $ 78,705 $ 37,902 $ 240,282
---------- ---------- ---------- ---------- --------- -----------
---------- ---------- ---------- ---------- --------- -----------
NOW and money market.................. $ 13,796 $ -- $ -- $ -- $ -- $ 13,796
Savings............................... 27,778 -- 27,779 27,779 -- 83,336
Certificates of Deposit............... 7,785 23,806 3,073 15,572 52 50,288
FHLB advances......................... 57,637 5,400 -- -- -- 63,037
Subordinated debt..................... -- -- -- 2,750 -- 2,750
Net non-interest bearing sources of
funds............................... -- -- -- -- 27,075 27,075
---------- ---------- ---------- ---------- --------- -----------
Total Sources of Funds........... $ 106,996 $ 29,206 $ 30,852 $ 46,101 $ 27,127 $ 240,282
---------- ---------- ---------- ---------- --------- -----------
---------- ---------- ---------- ---------- --------- -----------
Period Gap............................ $ (55,606) $ (8,584) $ 20,811 $ 32,604 $ 10,775
---------- ---------- ---------- ---------- ---------
---------- ---------- ---------- ---------- ---------
Cumulative Gap........................ $ (55,606) $ (64,190) $ (43,379) $ (10,775) $ --
---------- ---------- ---------- ---------- ---------
---------- ---------- ---------- ---------- ---------
Cumulative Gap as % of total assets... (22.8%) (26.3%) (17.8%) (4.4%) $ --
---------- ---------- ---------- ---------- ---------
---------- ---------- ---------- ---------- ---------
</TABLE>
INVESTMENT PORTFOLIO
The investment portfolio of Regent includes investments classified as
held-to-maturity and available-for-sale and consists of mortgage-backed
securities and non-marketable equity securities. The mortgage-backed securities
portfolio is comprised principally of securities issued by U.S. Government
agencies and corporations, which represented 86% of the total mortgage-backed
portfolio. The remaining 14% consisted of collateralized mortgage obligations of
private issuers. The table below summarizes by major category the amortized cost
of the mortgage-backed securities available-for-sale and the carrying values of
mortgage-backed securities held-to-maturity at December 31, 1994, 1993 and 1992.
Prior to the adoption of SFAS 115 for 1994, the Bank was not required to
segregate its investment portfolio between securities available-for-sale and
securities held-to-maturity:
<TABLE>
<CAPTION>
1994
--------------------------------
AVAILABLE HELD TO
FOR SALE MATURITY 1993 1992
-------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
GNMA....................................... $ -- $ 13,804,916 $ 130,375 $ 394,959
FHLMC...................................... 12,686,878 50,078,849 77,343,996 84,493,606
FNMA....................................... 19,523,444 37,215,590 49,120,901 30,467,362
Collateralized mortgage
obligations.............................. 1,408,502 20,383,071 27,178,202 21,987,039
-------------- ---------------- ---------------- ----------------
$ 33,618,824 $ 121,482,426 $ 153,773,474 $ 137,342,966
-------------- ---------------- ---------------- ----------------
-------------- ---------------- ---------------- ----------------
</TABLE>
20
<PAGE>
The following table details the range of maturities of the total
mortgage-backed securities portfolio as of December 31, 1994 based on the
weighted average life of the securities for each classification and the weighted
average yield for each maturity period:
<TABLE>
<CAPTION>
WITHIN AFTER 1 BUT AFTER 5 BUT
1 YEAR WITHIN 5 YEARS WITHIN 10 YEARS TOTAL
------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
U.S. agencies and corporations............... $ 1,320,924 $ 118,863,857 $ 13,124,896 $ 133,309,677
Collateralized mortgage obligations.......... 1,620,412 16,887,853 3,283,308 21,791,573
------------- ---------------- ---------------- ----------------
$ 2,941,336 $ 135,751,710 $ 16,408,204 $ 155,101,250
------------- ---------------- ---------------- ----------------
------------- ---------------- ---------------- ----------------
Weighted Average Yield....................... 8.04% 5.90% 7.13%
</TABLE>
The following table sets forth those collateralized mortgage obligations
which have a carrying value that exceeded 10% of Regent's shareholders' equity
at December 31, 1994. These securities have an investment rating of AA or
better.
<TABLE>
<CAPTION>
CARRYING VALUE MARKET VALUE
-------------- -------------
<S> <C> <C>
Bear Stearns Mortgage Securities Inc.
Series 1993-2 Class 7.............................................. $ 2,818,466 $ 2,818,397
Bear Stearns Mortgage Securities Inc.
Series 1993-2 Class 5.............................................. 2,836,237 2,836,153
Bear Stearns Mortgage Securities Inc.
Series 1993-2 Class 6.............................................. 1,938,015 1,938,026
Bear Stearns Mortgage Securities Inc.
Series 1993-12 Class 1B............................................ 1,956,763 1,956,720
Bear Stearns Mortgage Securities Inc.
Series 1992-04..................................................... 1,874,806 1,718,713
Capstead Securities Corp.
Series 1992-C-3.................................................... 1,871,913 1,871,848
ML Trust XII............................................................ 1,344,502 1,344,502
Resolution Trust Corporation
Series 1991-M6..................................................... 1,562,992 1,373,562
Saxon Mortgage Security Corp.
Series 1993-04 Class 1A............................................ 2,833,843 2,833,911
</TABLE>
Regent also makes investments in securities other than mortgage-backed
instruments and these are classified in the consolidated balance sheet as
investment securities. The following table summarizes the carrying values of
investment securities at December 31, 1994, 1993 and 1992:
<TABLE>
<CAPTION>
1994 1993 1992
----------- ------------- -------------
<S> <C> <C> <C>
U.S. Treasury bills................................................... $ 124,672 $ 99,860 $ 124,763
Non-marketable equity securities:
Federal Reserve Bank................................................ -- 300,000 300,000
FHLB................................................................ -- 1,972,200 2,100,000
Other................................................................. -- 20,275 36,528
----------- ------------- -------------
$ 124,672 $ 2,392,335 $ 2,561,291
----------- ------------- -------------
----------- ------------- -------------
</TABLE>
Non-marketable equity securities in the previous table classified as investment
securities in 1993 and 1992 have been reclassified as available-for-sale at
December 31, 1994.
LENDING
Total loans, consisting of loans held for the portfolio and mortgage loans
held for sale, amounted to $81.5 million at December 31, 1994 compared to $71.6
million at December 31, 1993 and $55.5 million at December 31, 1992. The 14%
increase in 1994 activity resulted primarily from higher commercial and
industrial and commercial real estate balances, and a specialized installment
loan
21
<PAGE>
program that finances automobile insurance premiums. The growth of loans held
for the portfolio of $27.1 million offset the curtailment of the residential
mortgage participation program which was unfavorably affected by the bankruptcy
of two mortgage banking companies. The participation program generated mortgage
loans held for sale of $22.7 million at December 31, 1993 versus $5.4 million at
December 31, 1994 and have commitments to be sold within a period of
approximately 15 to 30 days.
The mix of the loans held for the portfolio has shifted as real estate
loans comprised 58% of the loans outstanding at December 31, 1994 compared to
52% at year end 1993. The increase in the residential mortgage balances, as well
as the increase in the overall percentage of real estate loans, was the result
of retaining in the portfolio approximately $9.0 million in mortgages purchased
from the two bankrupt mortgage companies due to the expiration of purchase
commitments by investors. The underlying collateral for real estate loans is
primarily located in the Bank's market area and a significant portion is secured
by residential property. The following table details the types of loans
outstanding at December 31 for each of the past five years:
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Commercial &
industrial................... $ 27,406,523 $ 23,293,946 $ 26,418,088 $ 26,227,429 $ 25,616,983
Real estate:
Construction................. 1,455,110 2,218,795 2,634,900 5,181,425 5,541,377
Mortgage--residential........ 29,252,959 17,358,843 18,974,537 12,483,927 12,005,360
Mortgage--commercial......... 13,550,216 5,700,298 7,001,507 6,651,876 4,508,119
Consumer....................... 4,409,532 357,700 448,204 225,837 122,254
-------------- -------------- -------------- -------------- --------------
$ 76,074,340 $ 48,929,582 $ 55,477,236 $ 50,770,494 $ 47,794,093
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
Mortgage loans held for sale... $ 5,387,517 $ 22,700,892 $ -- $ -- $ --
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
</TABLE>
To meet its asset/liability objectives and to control its interest rate
sensitivity exposure, the Bank's strategy is to originate loans with floating
rates and with maturities less than five years. The following table presents the
scheduled maturities of loans that are outstanding as of December 31, 1994:
<TABLE>
<CAPTION>
WITHIN AFTER 1 BUT
1 YEAR WITHIN 5 YEARS AFTER 5 YEARS TOTAL
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Commercial & industrial........................ $ 15,721,244 $ 10,752,613 $ 932,666 $ 27,406,523
Real estate:
Construction.............................. 1,388,927 66,183 -- 1,455,110
Mortgages--residential.................... 5,185,794 7,080,850 16,986,315 29,252,959
Mortgages--commercial..................... 2,558,065 4,432,180 6,559,971 13,550,216
Consumer....................................... 4,272,625 136,907 -- 4,409,532
-------------- -------------- -------------- --------------
$ 29,126,655 $ 22,468,733 $ 24,478,952 $ 76,074,340
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
The table below provides a breakdown of loans as of December 31, 1994 that
have either predetermined interest rates or floating rates:
<TABLE>
<CAPTION>
WITHIN AFTER 1 BUT
1 YEAR WITHIN 5 YEARS AFTER 5 YEARS TOTAL
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Predetermined interest rates................... $ 9,428,888 $ 10,111,775 $ 22,506,430 $ 42,047,093
Floating rate.................................. 19,697,767 12,356,958 1,972,522 34,027,247
-------------- -------------- -------------- --------------
$ 29,126,655 $ 22,468,733 $ 24,478,952 $ 76,074,340
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
22
<PAGE>
RISK ELEMENTS
The level of non-performing assets, consisting of non-accrual loans,
accruing loans past due 90 days or more and other real estate owned, amounted to
$4.0 million, or 1.68%, of total assets at December 31, 1994, compared to $2.5
million, or 1.04%, at December 31, 1993. The appreciable increase was directly
attributable to the residential mortgage and commercial lending transactions
involving the two bankrupt mortgage companies. Excluding the effects of the
mortgage activity, the level of non-performing assets relating to the commercial
lending portfolio has remained relatively the same over the past year. The
following table details the non-performing assets at December 31, 1990 through
1994:
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
------------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Non-accrual loans....................... $ 3,685,804 $ 2,123,202 $ 3,055,220 $ 1,296,505 $ 915,400
Accruing loans 90 days or more past
due................................... 393,681 420,237 314,759 489,291 --
Restructured loans...................... -- -- -- -- --
------------- ------------- ------------- ------------- -----------
Total non-performing loans.............. 4,079,485 2,543,439 3,369,979 1,785,796 915,400
Other real estate owned................. -- -- 953,304 988,000 --
------------- ------------- ------------- ------------- -----------
Total non-performing assets............. $ 4,079,485 $ 2,543,439 $ 4,323,283 $ 2,773,796 $ 915,400
------------- ------------- ------------- ------------- -----------
------------- ------------- ------------- ------------- -----------
Non-performing loans to period end loans
and loans held for sale............... 5.01% 3.55% 6.07% 3.52% 1.92%
Non-performing assets to total assets... 1.68% 1.04% 2.11% 2.09% .83%
Non-performing assets to loans, loans
held for sale and other real estate
owned................................. 5.01% 3.55% 7.66% 5.36% 1.92%
</TABLE>
Accrual of interest is discontinued on loans when management believes,
after considering economic and business conditions and collection efforts, that
the borrower's financial condition is such that collection of interest and
principal is doubtful. The non-accrual loans at December 31, 1994, 1993 and 1992
are primarily secured by various types of real estate. The table below shows the
effect on interest income of placing loans on non-accrual status for each of the
three years ended December 31, 1994.
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Interest income not recognized due to non-accrual status........ $ 211,032 $ 198,500 $ 261,374
Interest income included in operating income attributable to
non-accrual loans............................................. $ 36,800 $ 79,900 $ 219,015
</TABLE>
Other real estate owned consists of property acquired by foreclosure or
deed in lieu of foreclosure. These assets are initially reported at the lower of
the related loan balance or the fair value of the property. Management continues
to evaluate the carrying value in relation to its fair value less the estimated
costs to sell.
23
<PAGE>
As part of the quarterly review of the risk elements of the portfolio, an
evaluation is also made of the adequacy of the allowance for loan losses. In
making an assessment of the quality of the loan portfolio and the adequacy of
the allowance for loan losses, management takes into consideration such elements
as general economic conditions, industry trends, the volume of delinquencies,
specific credit review, the value of underlying collateral and other pertinent
information. Based on this evaluation, the allowance for loan losses is adjusted
by the provision which is charged against income. The following table summarizes
the activity from 1990 through 1994 in the allowance for loan losses:
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
------------- ------------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, beginning of year................ $ 1,321,225 $ 1,077,635 $ 905,139 $ 575,000 $ 115,000
------------- ------------- ------------- ----------- -----------
Charge-offs
Commercial & industrial................. 138,158 54,377 352,727 60,535 --
Real estate -- construction............. 22,492 -- -- 100,000 --
Real estate -- commercial............... -- 190,000 -- 40,000 --
Real estate -- residential.............. 355,493 -- -- -- --
Installment............................. 36,000 -- -- -- --
------------- ------------- ------------- ----------- -----------
Total charge-offs......................... 552,143 244,377 352,727 200,535 --
------------- ------------- ------------- ----------- -----------
Recoveries:
Commercial & industrial................. 84,290 3,641 223 -- --
Real estate -- commercial............... -- 34,326 -- 5,674 --
------------- ------------- ------------- ----------- -----------
Total recoveries........................ 84,290 37,967 223 5,674 --
------------- ------------- ------------- ----------- -----------
Net charge-offs........................... 467,853 206,410 352,504 194,861 --
------------- ------------- ------------- ----------- -----------
Provision charged to operations........... 860,000 450,000 525,000 525,000 460,000
------------- ------------- ------------- ----------- -----------
Balance, end of year...................... $ 1,713,372 $ 1,321,225 $ 1,077,635 $ 905,139 $ 575,000
------------- ------------- ------------- ----------- -----------
------------- ------------- ------------- ----------- -----------
Net charge-offs as a % of average loans
and loans held for sale................. .60% .37% .62% .41% --%
Allowance for loan losses as a % of
year-end loans and loans held for
sale.................................... 2.10% 1.84% 1.94% 1.78% 1.20%
</TABLE>
The allowance for loan losses has increased by 30% from $1.3 million at
December 31, 1993 to $1.7 million at December 31, 1994. The higher allowance for
loan losses at year end 1994 was due to the increase in non-accrual loans that
occurred as a result of collectibility concerns for certain residential mortgage
loans purchased from two mortgage banking companies as well as a commercial loan
extended to one of these companies.
Management believes that those loans identified as non-performing are
adequately secured and the allowance for loan losses is sufficient in relation
to the potential risk of loss that has been identified in the loan portfolio.
Management has allocated the allowance based on an assessment of risks within
the loan portfolio and the estimated value of underlying collateral. The
following table sets forth the allocation of the Bank's allowance for loan
losses for each of the five years ended December 31, 1994.
24
<PAGE>
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
---------------------- ---------------------- ---------------------- ---------------------- ---------
% OF % OF % OF % OF
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT
--------- ----------- --------- ----------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial &
industrial..... $ -- --% $ -- --% $ -- --% $ -- --% $ 144,000
Real estate-
mortgages...... 750,000 44% -- -- -- -- 100,000 11% 431,000
Consumer......... -- -- -- -- -- -- -- -- --
Unallocated...... 963,372 56% 1,321,225 100% 1,077,635 100% 805,139 89% --
--------- --- --------- --- --------- --- --------- --- ---------
$1,713,372 100% $1,321,225 100% $1,077,635 100% $ 905,139 100% $ 575,000
--------- --- --------- --- --------- --- --------- --- ---------
--------- --- --------- --- --------- --- --------- --- ---------
<CAPTION>
% OF
TOTAL
-----------
Commercial &
industrial..... 25%
Real estate-
mortgages...... 75%
Consumer......... --
Unallocated...... --
---
100%
---
---
<CAPTION>
</TABLE>
DEPOSITS
Total deposits at December 31, 1994 aggregated $161.1 million, $31.3
million lower than at December 31, 1993. In the latter half of 1994, significant
deposit outflow occurred as many depositors reinvested maturing certificates of
deposit and available savings balances into higher yielding U.S. Treasury
securities. In an unusual occurrence, which lasted for several months in 1994
and into 1995, Treasury securities were yielding higher returns than comparable
products being offered at the Bank and other financial institutions. Despite the
decrease in total deposits, the mix of deposit balances at December 31, 1994,
1993 and 1992, as illustrated in the table below, has shifted so that the Bank
is less reliant on certificates of deposit as a funding source. Increases in
core deposit balances, including demand, NOW and money market accounts, has
enabled the Bank to be slightly less dependent on higher costing certificates of
deposit.
<TABLE>
<CAPTION>
% OF % OF % OF
1994 TOTAL 1993 TOTAL 1992 TOTAL
---------------- ----------- ---------------- ----------- ---------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Demand............................... $ 13,641,796 8% $ 13,801,979 7% $ 7,921,435 5%
NOW.................................. 4,201,594 3% 2,833,806 1% 2,558,456 2%
Savings.............................. 83,335,372 52% 101,700,163 53% 83,741,777 52%
Money Market......................... 9,594,864 6% 6,760,740 4% 6,691,253 4%
Certificates of Deposit.............. 50,287,846 31% 67,296,178 35% 59,802,109 37%
---------------- ----- ---------------- ----- ---------------- -----
$ 161,061,472 100% $ 192,392,866 100% $ 160,715,030 100%
---------------- ----- ---------------- ----- ---------------- -----
---------------- ----- ---------------- ----- ---------------- -----
</TABLE>
Certificates of deposit of $100 thousand or more at December 31, 1994 of
$7.6 million had the following maturities:
<TABLE>
<S> <C>
Three months or less......................................................... $ 2,241,000
Three months through six months.............................................. 1,063,000
Six months through twelve months............................................. 2,224,000
Over twelve months........................................................... 2,118,000
-------------
$ 7,646,000
-------------
-------------
</TABLE>
SHORT-TERM BORROWINGS
Short-term borrowings are used to supplement the deposit base of the Bank,
to support asset growth, to fund specific loan programs, and as a tool in the
Bank's asset/liability management process. During 1994, 1993 and 1992, the Bank
utilized its credit facilities with its correspondent banks and with the FHLB.
The borrowings under these facilities are secured by the Bank's mortgage-backed
25
<PAGE>
securities. The following table summarizes the Bank's short-term borrowing
activity for 1994, 1993 and 1992:
<TABLE>
<CAPTION>
MAXIMUM
OUTSTANDING OUTSTANDING INTEREST INTEREST
OUTSTANDING DURING AT ANY RATE AT RATE FOR
AT 12/31 THE YEAR MONTH-END 12/31 THE YEAR
-------------- -------------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
1994: FHLB borrowings..................... $ 63,037,382 $ 38,050,845 $ 63,037,382 6.32% 4.90%
Federal funds purchased............. -- 360,602 1,000,000 -- 4.52%
-------------- --------------
$ 63,037,382 $ 38,411,447 6.32% 4.90%
-------------- --------------
-------------- --------------
1993: FHLB borrowings..................... $ 23,704,821 $ 20,466,112 $ 27,500,000 3.46% 3.36%
Federal funds purchased............. -- 138,630 2,800,000 -- 3.17%
-------------- --------------
$ 23,704,821 $ 20,604,742 3.46% 3.35%
-------------- --------------
-------------- --------------
1992: FHLB borrowings..................... $ 23,500,000 $ 15,525,559 $ 40,000,000 3.16% 3.58%
Federal funds purchased............. -- 172,541 2,000,000 -- 3.32%
-------------- --------------
$ 23,500,000 $ 15,698,100 3.16% 3.57%
-------------- --------------
-------------- --------------
</TABLE>
RESULTS OF OPERATIONS
Net income for 1994 amounted to $503 thousand, or $.22 per share, compared
to $1.2 million, or $.71 per share, in 1993. The decrease in 1994 profitability
resulted from a higher provision for loan losses of $410 thousand and higher
other expenses of $1.3 million, but benefitted from an increase in net interest
income of $600 thousand.
Regent's net income totaled $1.18 million in 1993 compared to $1.17 million
in 1992. The increase of 1% in 1993's earnings was the result of higher net
interest income and a lower provision for loan losses which offset an increase
in other expenses. On a per share basis, Regent earned $.71 in 1993 versus $.95
in 1992. Although net income increased by 1%, primary earnings per share
decreased by 25% as a result of an increase in the amount of common stock
equivalents included in the number of average shares outstanding. In addition,
the charge for the preferred stock dividend was higher in 1993 due to an
increase in the value of the preferred stock dividend.
NET INTEREST INCOME
A key component of Regent's profitability is net interest income which
represents the difference between interest earned on loans, securities and other
interest earning assets and the interest paid on deposits, borrowings and debt
instruments. Net interest income is coordinated with the asset/liability
management process and emphasizes maintaining acceptable levels of liquidity,
interest rate risk, and capital.
Net interest income of $5.8 million in 1994 was $600 thousand, or 12%,
higher than net interest income in 1993 of $5.2 million. The increase was
attributable to higher average balances in the investment securities and lending
portfolios, which offset a drop in yield on earning assets. The total investment
securities portfolio balance at year end 1994 was comparable to year end 1993
totals but the average 1994 balance was higher. The average balance of $14.1
million was higher because a significant amount of securities were purchased
late in 1993 and early in 1994. For the remainder of 1994, the securities
decreased as the monthly cash flow from the mortgage-backed securities was
reinvested into loans. The lending portfolio increase benefitted from the
expansion of the commercial loan area and the heavy volume generated by the
mortgage participation program. Of the $21.9 million increase in average loan
balances, approximately $17.5 million was attributable to the mortgage
participation program and $3.5 million to commercial activity. Reflecting the
emphasis on increased lending activity, income earned from loans represented 37%
of total interest income in 1994 versus 29% in 1993 while investment income
decreased from 71% in 1993 to 63% in 1994.
26
<PAGE>
Although the funding sources changed significantly at year end 1994
reflecting the effects of the Treasury market on retail deposit outflows in the
fourth quarter, average balances showed less drastic changes throughout the
year. Average savings balances increased by $8.6 million while average balances
of FHLB advances were higher by $13.9 million. The increase in average FHLB
advances corresponded to the increase in mortgage participations which were
required to be funded by FHLB advances.
The overall cost of funds remained relatively unchanged in 1994 at 5.09%
versus 5.11% in 1993. The lower yield on earning assets in 1994, however,
reduced the net interest rate spread from 2.13% in 1993 to 1.92% in 1994. The
net interest margin, net interest income divided by total average earning
assets, displayed a corresponding decrease from 2.49% in 1993 to 2.37% in 1994.
Net interest income of $5.2 million in 1993 was $482 thousand, or 10%,
higher than net interest income of $4.7 million in 1992. The increase was
attributable primarily to higher average mortgage-backed securities and loan
balances. Offsetting this benefit, however, was the additional premium
amortization taken on the mortgage-backed securities portfolio of $400 thousand.
This additional amortization was necessary to recognize the significant amount
of prepayments in the 1993 fourth quarter as a result of the heavy volume of
residential mortgage refinancings. Although the Bank was able to reduce its cost
of funds in 1993, it was not enough to offset a decline in earning asset yields
which were impacted by an overall decline in interest rates, the reinvestment of
the securities portfolio cash flow into lower yielding instruments, and the
additional premium amortization. Thus, the net interest rate spread of 2.13% in
1993 was lower than the net interest rate spread of 2.45% in 1992 and the net
interest margin similarly dropped from 2.87% in 1992 to 2.49% in 1993.
PROVISION FOR LOAN LOSSES
The Bank recorded a provision for loan losses of $860 thousand in 1994,
$450 thousand in 1993 and $525 thousand in 1992. The increase in the 1994
provision was due to the increase in non-accrual loans that occurred as a result
of collectibility concerns for certain residential mortgage loans purchased from
two mortgage banking companies, as well as a commercial loan extended to one of
these companies. The provision in 1993 was lower than 1992 as a result of the
decrease in the level of net charge-offs and non-performing loans.
OTHER EXPENSES
Total other expenses for 1994 were $4.3 million, or 40%, over 1993's total
of $3.1 million. The primary factors that increased other expenses were
personnel expenses, professional fees, FDIC premiums, state and local taxes,
depreciation, advertising, costs incurred in the start-up and processing of a
new installment lending program, the write-down of the carrying value of an
asset received in satisfaction of a borrower's debt and the write-off of an
accounts receivable balance from a mortgage banking company. Salaries and
related payroll taxes and employee benefits increased by $377 thousand and were
attributable to salary increases, additional employees and higher benefit costs.
Professional services were higher by $123 thousand due to a rise in legal costs
relating to the workout of problem loans and additional audit work performed by
independent accountants. FDIC premiums increased by $69 thousand based on the
higher level of deposit balances during the year. The carrying value of an asset
received in satisfaction of a borrowers debt was reduced by $132 thousand, and
the Bank wrote-off the balance of a receivable of $113 thousand from one of the
bankrupt mortgage companies. Expenses were incurred in the fourth quarter for
the start-up, processing and operational costs associated with a new installment
loan program amounting to $168 thousand. An advertising campaign initiated for
lending and deposit activity in 1994 increased advertising expenses by $48
thousand. The purchase of additional work stations and an upgrade in computer
capabilities increased depreciation expense by $39 thousand, and state and local
taxes were higher by $27 thousand.
Other expenses for 1993 totaled $3.1 million, which were 25% higher than
1992's total expenses of $2.5 million. The primary factors contributing to the
$627 thousand increase were higher personnel expenses, FDIC premiums, legal
costs, capital shares tax payment and data processing expenses.
27
<PAGE>
Salaries and employee benefits increased by $236 thousand due to salary
increases, larger staff and higher benefit costs. Legal costs were higher by
$132 thousand and were attributable to services relating to the workout of
problem loans. A larger deposit base resulted in a higher FDIC assessment of
approximately $85 thousand. The Pennsylvania capital shares tax paid in 1993 was
$34 thousand higher than 1992's payment. An increase in the number of deposit
and loan accounts and related transaction costs increased data processing
expenses by $18 thousand. Assessments imposed by the OCC based on asset size
increased by $18 thousand while consulting fees were higher by $30 thousand due
to an increase in fees and the use of a consulting firm to assist with the
analysis of the Bank's asset and liability structure and interest rate risk.
PROVISION FOR INCOME TAXES
The provision for income taxes for 1994 was $259 thousand versus $607
thousand in 1993 and $602 thousand in 1992. The change in the income tax
provision over the three year period reflected the variances in pre-tax income
as the effective rate for all three periods was 34%.
CONSOLIDATED AVERAGE BALANCE SHEETS AND RATE/YIELD ANALYSIS
<TABLE>
<CAPTION>
1994 1993 1992
---------------------------------- ---------------------------------- ----------------------------------
AVERAGE INCOME/ RATE/ AVERAGE INCOME/ RATE/ AVERAGE INCOME/ RATE/
BALANCE EXPENSE YIELD BALANCE EXPENSE YIELD BALANCE EXPENSE YIELD
---------- --------- --- ---------- --------- --- ---------- --------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning
assets:
Federal funds
sold............. $ 283,562 $ 9,562 3.37% $ 195,890 $ 6,898 3.52% $ 805,738 $ 32,010 3.97%
Investment
securities and
securities
available for
sale............. 166,476,790 10,841,050 6.51% 152,419,875 10,713,146 7.03% 106,369,054 8,689,377 8.17%
Loans and loans
held for sale.... 78,103,505 6,313,866 8.08% 56,161,328 4,392,116 7.82% 56,813,029 4,797,689 8.44%
----------- ---------- ----------- ---------- ----------- ---------
Total interest-
earning
assets......... 244,863,857 17,164,478 7.01% 208,777,093 15,112,160 7.24% 163,987,821 13,519,076 8.24%
----------- ---------- ---- ----------- ---------- ---- ----------- --------- ----
Cash and due from
banks.............. 4,141,245 3,971,327 2,541,165
Premises and
equipment, net..... 687,614 611,634 644,425
Other assets........ 3,123,073 3,361,232 3,179,725
Allowance for loan
losses............. (1,382,633) (1,220,348) (1,013,654)
=========== ============ ============
Total assets..... $251,433,156 $215,500,938 $169,339,482
=========== ============ ============
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing
liabilities:
NOW................ $3,323,519 $ 82,609 2.49% $2,762,220 $ 76,117 2.76% $2,367,974 $ 83,921 3.54%
Savings............ 100,708,463 5,411,613 5.37% 92,098,667 5,038,442 5.47% 61,129,763 3,543,651 5.80%
Money market
deposits......... 8,657,771 254,607 2.94% 6,347,863 199,892 3.15% 9,224,565 343,565 3.72%
Time deposits...... 63,612,009 3,257,678 5.12% 61,994,112 3,400,630 5.49% 61,379,121 4,154,564 6.77%
Short-term
borrowings....... 38,411,447 1,881,337 4.90% 20,604,742 691,121 3.35% 15,698,100 560,943 3.57%
Long-term
advances......... 6,069,041 267,204 4.40% 10,000,000 486,060 4.86% 2,227,993 123,028 5.52%
Subordinated
debt............. 2,712,466 217,612 8.02% 357,356 28,456 7.96% -- -- --
---------- --------- ---------- --------- ---------- --------- ----
Total
interest-bearing
liabilities.... 223,494,716 11,372,660 5.09% 194,164,960 9,920,718 5.11% 152,027,516 8,809,672 5.79%
----------- ---------- --- ----------- --------- --- ----------- --------- ----
Demand deposits..... 12,657,347 6,775,803 4,346,919
Other liabilities... 2,365,832 1,896,274 1,668,943
---------- ----------- ----------
Total
liabilities.... 238,517,895 202,837,037 158,043,378
Shareholders'
equity............. 12,915,261 12,663,901 11,296,104
---------- ----------- ----------
Total liabilities
and
shareholders'
equity....... $251,433,156 $215,500,938 $169,339,482
============ ============ ============
Net interest income
and net interest
spread............. $5,791,818 1.92% $5,191,442 2.13% $4,709,404 2.45%
========== ==== ========== ==== ========== ====
Net interest rate
margin............. 2.37% 2.49% 2.87%
==== ==== ====
</TABLE>
28
<PAGE>
VOLUME AND RATE VARIANCE ANALYSIS
Net interest income is affected by changes in the average interest
rate earned on earning assets and the average interest rate paid on
interest-bearing liabilities. In addition, net interest income is the affected
by changes in the volume of earning assets and interest-bearing liabilities. The
following table sets forth for the years ended December 31, 1994 compared to
December 31, 1993, and December 31, 1993 to December 31, 1992, the dollar amount
of increase (decrease) in interest income and interest expense from changes in
the volume of earning assets and interest-bearing liabilities and from changes
in yields and rates.
<TABLE>
<CAPTION>
1994 COMPARED TO 1993 1993 COMPARED TO 1992
------------------------------------- --------------------------------------
NET INCREASE NET INCREASE
VOLUME RATE (DECREASE)(1) VOLUME RATE (DECREASE)(1)
----------- ---------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Federal funds sold................ $ 2,943 $ (279) $ 2,664 $ (21,834) $ (3,278) $ (25,112)
Investment secunties and
securities available for sale... 630,188 (502,284) 127,904 2,986,862 (963,093) 2,023,769
Loans and loans held for sale
(2)............................. 1,526,746 395,004 1,921,750 (388,153) (17,420) (405,573)
----------- ---------- ------------ ----------- ----------- ------------
Total Interest Income............. 2,159,877 (107,559) 2,052,318 2,576,875 (983,791) 1,593,084
----------- ---------- ------------ ----------- ----------- ------------
NOW accounts...................... 12,540 (6,048) 6,492 23,220 (31,024) (7,804)
Savings deposits.................. 460,689 (87,518) 373,171 1,681,590 (186,799) 1,494,791
Money market deposits............. 66,862 (12,147) 54,715 (96,071) (47,602) (143,673)
Certificates of deposit........... 92,564 (235,516) (142,952) 42,067 (796,001) (753,934)
Short-term borrowngs.............. 776,630 413,586 1,190,216 161,953 (31,775) 130,178
Long-term advances................ (348,586) 129,730 (218,856) 412,425 (49,393) 363,032
Subordinated debt................. 188,941 215 189,156 28,456 -- 28,456
----------- ---------- ------------ ----------- ----------- ------------
Total Interest Expense............ 1,249,640 202,302 1,451,942 2,253,640 (1,142,594) 1,111,046
----------- ---------- ------------ ----------- ----------- ------------
Net Interest Income............... $ 910,237 $ (309,861) $ 600,376 $ 323,235 $ 158,803 $ 482,038
----------- ---------- ------------ ----------- ----------- ------------
----------- ---------- ------------ ----------- ----------- ------------
<FN>
- ------------------
(1) The change in interest due to both rate and volume has been reflected in
volume and rate changes in proportion to the relationship of the absolute
dollar amounts of the change in each.
(2) Includes net loan fees of $21,697 and net loan costs of $40,112 in 1993 and
interest on non-accrual loans to the extent of interest paid of $36,860 and
$79,900 in 1994 and 1993, respectively.
</FN>
</TABLE>
29
<PAGE>
BUSINESS
BUSINESS OF REGENT AND THE BANK
Regent is a one bank holding company registered under the BHCA. Regent was
incorporated under the laws of the Commonwealth of Pennsylvania on December 22,
1986 and on November 23, 1987 was merged into a New Jersey corporation with the
same name (and which was incorporated on November 2, 1987), with the New Jersey
corporation being the surviving entity. Regent became a bank holding company on
June 2, 1989 when it completed the acquisition of all of the authorized capital
stock of the Bank, its only subsidiary. The Bank commenced operations on June 5,
1989. Regent provides banking services through the Bank and does not engage in
any activities other than banking activities. The principal executive offices of
Regent are located at 1430 Walnut Street, Philadelphia, Pennsylvania 19102.
Regent's telephone number is (215) 546-6500.
The Bank, a federally-chartered national bank, is regulated by the OCC and
is a member of the Federal Reserve System. The deposits held by the Bank are
insured by the BIF of the FDIC.
For a discussion of the federal regulations applicable to Regent as a bank
holding company and the Bank as a national bank, see 'Supervision and
Regulation.'
The Bank conducts all its banking activities through its office located at
1430 Walnut Street, Philadelphia, Pennsylvania 19102, offering a broad range of
commercial and private banking services. At September 30, 1995, the Bank had
total deposits of $192.9 million and had total loans and loans held for sale
outstanding of $107.2 million. Although the Bank's primary service area for
Community Reinvestment Act purposes is Center City Philadelphia, it also
services the Delaware Valley which consists of Philadelphia, Montgomery, Bucks,
Chester, Delaware, Berks, Lancaster, Northampton and Lehigh Counties in
Pennsylvania; New Castle and Kent Counties in Delaware; Cecil County in
Maryland; and Camden, Burlington, Salem, Atlantic, Ocean, Mercer, Cumberland and
Cape May Counties in New Jersey (the 'Delaware Valley').
The Bank engages in the commercial banking business, serving the banking
needs of its customers with a particular focus on small and medium-sized
businesses, professionals and other individuals, with an emphasis on the
origination of loans in the $100 thousand to $2.5 million range. The Bank's
strategy in providing its services is to attempt to respond to each customer's
needs and assure that a customer will deal regularly with the same officer of
the Bank. The small and midsized business and entrepreneurial market in the
Bank's service area is large and the Bank believes it can offer the flexibility,
speed and personal attention necessary to serve this large market. The banking
and broad business experience of the officers and directors makes the Bank
particularly well-suited to serve the individualized needs of this market.
The Bank offers a wide range of deposit products, including checking
accounts, interest-bearing NOW accounts, insured money market accounts,
certificates of deposit, savings accounts and Individual Retirement Accounts.
A broad range of credit facilities are offered to the businesses and
residents of its service area, including commercial loans, home improvement
loans, mortgage loans, and home equity lines of credit. At September 30, 1995,
the Bank's maximum legal lending limit was $2.7 million per borrower.
In addition, the Bank offers safe deposit boxes, travelers' checks, money
orders, direct deposit of payroll and Social Security checks, and access to one
or more regional or national automated teller networks as well as international
services through correspondent institutions. The Bank is also empowered to offer
trust services. The Bank has the power to act as executor of wills and as a
trustee for Individual Retirement Accounts, minors and other fiduciaries. Other
trust services are provided through correspondent institutions. The Bank has
established relationships with correspondent banks and other financial
institutions in order to provide other services requested by its customers,
including requesting correspondent banks to participate in loans where the loan
amount exceeds the Bank's policies or legal lending limits.
30
<PAGE>
There is substantial competition among financial institutions in the Bank's
service area. The Bank competes with new and established local commercial banks,
as well as numerous regionally based commercial banks. There is also competition
from out of state financial institutions, thrifts and mutually owned savings
banks and savings and loan associations. As of the date hereof, the Bank had
attracted, and believes it will continue to attract its customers from the
deposit base of such existing banks and financial institutions and from growth
in the Delaware Valley. Many such banks and financial institutions are
well-established and well-capitalized, allowing them to do more advertising and
promotion and to provide a greater range of services, including trust services.
The Bank's strategy has been and will continue to be emphasizing personalized
services, offering competitive rates to depositors and making use of commercial
and personal ties of the shareholders, directors, officers and staff to Delaware
Valley businesses and residents.
In recent years, intense market demands, economic pressures and significant
legislative and regulatory action have eroded traditional banking industry
classifications which were once clearly defined and have increased competition
among banks, as well as between banks and other financial institutions. As a
result, banks and other financial institutions have had to diversify their
services, generally increase interest paid on deposits and become more cost
effective. These events have resulted in increasing homogeneity in the financial
services offered by banks and other financial institutions. Some of the effects
on banks and other financial institutions of these market dynamics and
legislative regulatory changes include increased customer awareness of product
and service differences among competitors and increased merger activity.
As of September 30, 1995, Regent and the Bank had a total of 38 employees.
SUPERVISION AND REGULATION
Bank holding companies and banks are extensively regulated under both
federal and state law. These laws and regulations are intended to protect
depositors, not shareholders. To the extent that the following information
describes statutory and regulatory provisions, it is qualified in its entirety
by reference to the particular statutory and regulatory provisions. Any change
in the applicable laws or regulations may have a material effect on the business
and prospects of Regent.
GENERAL -- RECENT REGULATORY ENACTMENTS
On September 29, 1994, the Riegle-Neal Interstate Banking and Branching
Efficiency Act (the 'Interstate Act') was enacted. The Interstate Act generally
enhances the ability of bank holding companies to conduct their banking business
across state borders. The Interstate Act has two main provisions. The first
provision generally provides that, commencing on September 29, 1995, bank
holding companies may acquire banks located in any state regardless of the
provisions of state law. These acquisitions are subject to certain restrictions,
including caps on the total percentage of deposits that a bank holding company
may control both nationally and in any single state.
The second major provision of the Interstate Act permits, beginning on June
1, 1997, banks located in different states to merge and continue to operate as a
single institution in more than one state. States may, by legislation passed
before June 1, 1997, opt out of the interstate bank merger provisions of the
Interstate Act. In addition, states may elect to opt in and allow interstate
bank mergers prior to June 1, 1997.
A final provision of the Interstate Act permits banks located in one state
to establish new branches in another state without obtaining a separate bank
charter in that state, but only if the state in which the branch is located has
adopted legislation specifically allowing interstate de novo branching.
In July 1995, Pennsylvania enacted legislation by which it 'opted in' to
the Interstate Act. Prior to adopting this legislation, Pennsylvania law
permitted interstate acquisitions by bank holding companies whose home states
had 'reciprocal' legislation that allowed acquisitions by Pennsylvania based
bank holding companies. Under the Interstate Act, the provisions requiring
reciprocal authorization have been eliminated. The new legislation, however,
retained the requirement of
31
<PAGE>
approval by the Pennsylvania Department of Banking with respect to any
acquisition of a national bank located in Pennsylvania, regardless of the
location of the acquiror. The Pennsylvania legislation also conditioned the
authorization for interstate branching into Pennsylvania by an out-of-state bank
if a Pennsylvania chartered institution would be permitted to establish a branch
in such other state. Although it is impossible to predict the impact of the
Interstate Act at this time, it will most likely enhance competition in the
Pennsylvania marketplace as bank holding companies located outside of
Pennsylvania become freer to acquire institutions located in Pennsylvania. The
ability to operate acquired Pennsylvania banks as part of an existing bank
charter rather than as a separately chartered institution may make interstate
banking more cost-efficient, and may lead to additional acquisitions in
Pennsylvania by out-of-state institutions.
The Federal Deposit Insurance Corporation Improvement Act of 1991
('FDICIA') was enacted in December 1991. FDICIA was primarily designed to
provide additional financing for the FDIC by increasing its borrowing ability.
The FDIC was given the authority to increase deposit insurance premiums to repay
any such borrowing. In addition, FDICIA identifies capital standard categories
for financial institutions: well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized. FDICIA imposes progressively more restrictive constraints on
operations, management and capital distributions depending on the category in
which an institution is classified. Pursuant to FDICIA, undercapitalized
institutions must submit recapitalization plans, and a holding company
controlling a failing institution must guarantee such institution's compliance
with its plan. As of September 30, 1995, the Bank was deemed 'well capitalized'
under the regulations of the FDIC implementing FDICIA.
FDICIA also requires the various regulatory agencies to prescribe certain
non-capital standards for safety and soundness relating generally to operations
and management, asset quality and executive compensation and permits regulatory
action against a financial institution that does not meet such standards. The
federal bank regulatory agencies have proposed regulations implementing these
provisions, but have not yet formally adopted these standards.
BANK HOLDING COMPANY REGULATION
General. As a bank holding company registered under the BHCA, Regent is
subject to the regulation and supervision of the FRB. Regent is required to file
with the FRB annual reports and other information regarding its business
operations and those of its subsidiaries. Under the BHCA, Regent's activities
and those of its subsidiaries are limited to banking, managing or controlling
banks, furnishing services to or performing services for its subsidiaries or
engaging in any other activity which the FRB determines to be so closely related
to banking or managing or controlling banks as to be properly incident thereto.
The BHCA requires, among other things, the prior approval of the FRB in any
case where a bank holding company proposes to (i) acquire all or substantially
all of the assets of any other bank, (ii) acquire direct or indirect ownership
or control of more than 5% of the outstanding voting stock of any bank (unless
it owns a majority of such bank's voting shares) or (iii) merge or consolidate
with any other bank holding company. The FRB will not approve any acquisition,
merger, or consolidation that would have a substantially anti-competitive
effect, unless the anti-competitive impact of the proposed transaction is
clearly outweighed by a greater public interest in meeting the convenience and
needs of the community to be served. The FRB also considers capital adequacy and
other financial and managerial resources and future prospects of the companies
and the banks concerned, together with the convenience and needs of the
community to be served, when reviewing acquisitions or mergers.
Additionally, the BHCA prohibits a bank holding company, with certain
limited exceptions, from (i) acquiring or retaining direct or indirect ownership
or control of more than 5% of the outstanding voting stock of any company which
is not a bank or bank holding company, or (ii) engaging directly or indirectly
in activities other than those of banking, managing or controlling banks, or
performing services for its subsidiaries; unless such non-banking business is
determined by the FRB to be so closely related to banking or managing or
controlling banks as to be properly incident thereto. In
32
<PAGE>
making such determinations, the FRB is required to weigh the expected benefits
to the public, such as greater convenience, increased competition or gains in
efficiency, against the possible adverse effects, such as undue concentration of
resources, decreased or unfair competition, conflicts of interest, or unsound
banking practices.
There are a number of obligations and restrictions imposed on bank holding
companies and their depository institution subsidiaries by law and regulatory
policy that are designed to minimize potential loss to the depositors of such
depository institutions and the FDIC insurance funds in the event the depository
institution becomes in danger of default. Under a policy of the FRB with respect
to bank holding company operations, a bank holding company is required to serve
as a source of financial strength to its subsidiary depository institutions and
to commit resources to support such institutions in circumstances where it might
not do so absent such policy. The FRB also has the authority under the BHCA to
require a bank holding company to terminate any activity or to relinquish
control of a non-bank subsidiary upon the FRB's determination that such activity
or control constitutes a serious risk to the financial soundness and stability
of any bank subsidiary of the bank holding company.
Capital Adequacy Guidelines for Bank Holding Companies. In January 1989,
the FRB adopted risk-based capital guidelines for bank holding companies. The
risk-based capital guidelines are designed to make regulatory capital
requirements more sensitive to differences in risk profile among banks and bank
holding companies, to account for off-balance sheet exposure and to minimize
disincentives for holding liquid assets. Under these guidelines, assets and
off-balance sheet items are assigned to broad risk categories each with
appropriate weights. The resulting capital ratios represent capital as a
percentage of total risk-weighted assets and off-balance sheet items.
The minimum ratio of total capital to risk-weighted assets (including
certain off-balance sheet activities, such as standby letters of credit) is 8%.
At least 4% of the total capital is required to be 'Tier I Capital,' consisting
of common shareholders' equity, noncumulative perpetual preferred stock, and a
limited amount of cumulative perpetual preferred stock, less certain goodwill
items and other intangible assets. The remainder ('Tier II Capital') may consist
of (a) the allowance for loan losses of up to 1.25% of risk-weighted assets, (b)
excess of qualifying perpetual preferred stock, (c) hybrid capital instruments,
(d) perpetual debt, (e) mandatory convertible securities and (f) subordinated
debt and intermediate-term preferred stock up to 50% of Tier I capital. Total
capital is the sum of Tier I and Tier II capital less reciprocal holdings of
other banking organizations' capital instruments, investments in unconsolidated
subsidiaries and any other deductions as determined by the FRB (determined on a
case by case basis or as a matter of policy after formal rule-making).
Bank holding company assets are given risk-weights of 0%, 20%, 50% and
100%. In addition, certain off-balance sheet items are given similar credit
conversion factors to convert them to asset equivalent amounts to which an
appropriate risk-weight will apply. These computations result in the total
risk-weighted assets. Most loans are assigned to the 100% risk category, except
for performing first mortgage loans fully secured by residential property which
carry a 50% risk-weighting. Most investment securities (including, primarily,
general obligations of states or other political subdivisions of the United
States) are assigned to the 20% category, except for municipal or state revenue
bonds, which have a 50% risk-weight, and direct obligations of the U.S. Treasury
or obligations backed by the full faith and credit of the U.S. Government, which
have a 0% risk-weight. In converting off-balance sheet items, direct credit
substitutes, including general guarantees and standby letters of credit backing
financial obligations, are given a 100% risk-weighting. Transaction-related
contingencies such as bid bonds, standby letters of credit backing nonfinancial
obligations, and undrawn commitments (including commercial credit lines with an
initial maturity or more than one year) have a 50% risk-weighting. Short-term
commercial letters of credit have a 20% risk-weighting and certain short-term
unconditionally cancelable commitments have a 0% risk-weighting.
In addition to the risk-based capital guidelines, the FRB has adopted a
minimum Tier I capital (leverage) ratio, under which a bank holding company must
maintain a minimum level of Tier I capital to average total consolidated assets
of at least 3% in the case of a bank holding company that has the highest
regulatory examination rating and is not contemplating significant growth or
expansion. All
33
<PAGE>
other bank holding companies are expected to maintain a leverage ratio of at
least 100 to 200 basis points above the stated minimum.
BANK REGULATION
The Bank is a national bank subject to the supervision of, and regular
examination by, the OCC, as well as to the supervision of the FDIC. The FDIC
insures the deposits of the Bank to the current maximum allowed by law through
the BIF.
The operations of the Bank are subject to state and federal statutes
applicable to banks which are members of the Federal Reserve System and to the
regulations of the FRB, the FDIC and the OCC. Such statutes and regulations
relate to required reserves against deposits, investments, loans, mergers and
consolidations, issuance of securities, payment of dividends, establishment of
branches, and other aspects of the Bank's operations. Various consumer laws and
regulations also affect the operations of the Bank, including state usury laws,
laws relating to fiduciaries, consumer credit and equal credit and fair credit
reporting. Under the provisions of the Federal Reserve Act, the Bank is subject
to certain restrictions on any extensions of credit to Regent or, with certain
exceptions, other affiliates, on investments in the stock or other securities of
national banks, and on the taking of such stock or securities as collateral.
These regulations and restrictions may limit Regent's ability to obtain funds
from the Bank for its cash needs, including funds for acquisitions, and the
payment of dividends, interest and operating expenses. Further, the Bank is
prohibited from engaging in certain tying arrangements in connection with any
extension of credit, lease or sale of property or furnishing of services. For
example, the Bank may not generally require a customer to obtain other services
from the Bank or Regent, and may not require the customer to promise not to
obtain other services from a competitor, as a condition to an extension of
credit. Regent also is subject to certain restrictions imposed by the Federal
Reserve Act on extensions of credit to executive officers, directors, principal
shareholders or any related interest of such persons. Extensions of credit (i)
must be made on substantially the same terms (including interest rates and
collateral) as, and following credit underwriting procedures that are not less
stringent than those prevailing at the time for, comparable transactions with
persons not covered above and who are not employees and (ii) must not involve
more than the normal risk of repayment or present other unfavorable features. In
addition, extensions of credit to such persons beyond limits set by FRB
regulations must be approved by the Board of Directors. The Bank also is subject
to certain lending limits and restrictions on overdrafts to such persons. A
violation of these restrictions may result in the assessment of substantial
civil monetary penalties on the Bank or any officer, director, employee, agent
or other person participating in the conduct of the affairs of the Bank or the
imposition of a cease and desist order.
As an institution whose deposits are insured by the FDIC, the Bank also is
subject to insurance assessments imposed by the FDIC. Under current law, as
amended by FDICIA, the insurance assessment to be paid by BIF insured
institutions is as specified in schedules issued by the FDIC from time to time.
The amount of the assessment is determined in part to allow for a minimum BIF
reserve ratio of 1.25% of estimated insured deposits (or such higher ratio as
the FDIC may determine in accordance with the statute). In November 1995, the
FDIC determined that the BIF had reached the statutorily required reserve ratio
and adopted a proposal to establish a new assessment rate schedule for BIF
members of 0 to 27 basis points. The actual assessment to be paid by each BIF
member is based on the institution's assessment risk classification, which is
determined on whether the institution is considered 'well capitalized,'
'adequately capitalized,' or 'under-capitalized,' as those terms have been
defined in applicable federal regulations adopted to implement the prompt
corrective action provision of FDICIA, and whether such institution is
considered by its supervising agency to be financially sound or to have
supervisory concerns.
PROPERTIES OF REGENT AND THE BANK
The Bank leases approximately 15,600 square feet of the first and second
floors and basement of 1430 Walnut Street, Philadelphia, Pennsylvania. The space
is occupied by both Regent and the Bank and serves as the Bank's sole banking
location. The first floor contains a banking lobby. The vault,
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together with additional lobby and storage space is located in the basement.
Executive, administrative, and loan offices are located on the second floor. At
September 30, 1995, approximately 90% of the Bank's leased total square footage
was occupied.
The property is leased with a rental expense of approximately $190,000 per
annum excluding taxes, insurance, utilities and janitorial services through May
1999. The lease provides for two 5-year renewal options at the then current
market rental rates, plus a right of first refusal to purchase the premises.
LEGAL PROCEEDINGS OF REGENT
The Bank and Shareholders Funding, Inc. (the 'Debtor') are parties to a
Participation Agreement pursuant to which the Bank purchased 100% participations
in mortgage loans originated by the Debtor. The Debtor filed for bankruptcy
protection in November 1994, in the proceeding known as In Re: Shareholders
Funding, Inc., Debtor, pending in the United States Bankruptcy Court for the
Eastern District of Pennsylvania, Case No. 94-17215 SR. At approximately the
same time, James Beck (the president of the Debtor) filed an individual petition
for bankruptcy protection. Pursuant to a Motion for Relief from Stay filed on
February 24, 1995, the Bank requested, among other relief, that the court order
the Debtor to execute assignments of notes and mortgages to the Bank with
respect to approximately $7.6 million of mortgages that the Bank had purchased
and that the Debtor was obligated to resell but had failed to resell as a result
of its financial difficulties. The Debtor and the trustee objected to the Bank's
request, alleging that the mortgages may be the property of Debtor and that the
funds advanced by the Bank of approximately $7.6 million might represent
unsecured loans to the Debtor.
The parties conducted discovery in connection with the pending Motion for
Relief from Stay, including document productions and interrogatories.
Ultimately, the trustee, the creditors' committee and the Bank agreed that a
potential claim existed against the Debtor's accounting firm and the pursuit of
that claim would be beneficial to all parties. Accordingly, the Bank, the
creditors' committee and the trustee agreed to a settlement. As part of the
settlement, the Bank's Motion for Relief from Stay was granted and the trustee
and the creditors' committee will not object to the Bank's unsecured claim. The
fixed portion of the Bank's claim has been agreed to in the amount of
approximately $1.73 million; the contingent portion of the claim has been
limited to approximately $740 thousand. As part of the settlement, the Bank
agreed to pay to the trustee $175 thousand, which is part of the Bank's fixed
claim and may be used to pay all or part of the costs and expenses of the
administration of the estate and the Bank will lend the trustee up to $175
thousand, to pay counsel fees in litigation against the Debtor's accountant by
the trustee. If those counsel fees exceed $175 thousand, counsel has agreed to
continue the litigation on a contingency fee basis. The Bank will lend up to an
additional $50 thousand to pay the fees and expenses of professionals (other
than attorneys) retained by the trustee in connection with the claim against the
Debtor's accounting firm. Lastly, the Bank may make a third loan to the trustee
in an amount not to exceed $75 thousand for additional expenses of professionals
other than attorneys in connection with the litigation against the Debtor's
accountants. The loans will bear interest at the Bank's prime rate plus one
percent per annum. The Bank will make such loans available to the trustee only
after the expense has been approved by the Bank after receipt of a financial
plan which is in form and substance satisfactory to the Bank and only after the
expense is due and owing. The indebtedness will be evidenced by notes. The
disbursement of any proceeds of the claim against the Debtor's accountants will
be disbursed as follows: first, to the payment of any administrative claims of
the trustee, the committee and/or any professionals employed by the trustee or
the committee, provided that such claims arose directly out of the litigation
against the Debtor's accountants; and second, to the payment of the Bank's
post-petition loans. As security for the full and timely payment of such
indebtedness and all other obligations of the trustee to the Bank, the trustee
granted to the Bank a continuing first lien on and security interest in the
trustee's right, title and interest in the collateral of the Debtor, subject
only to those security interests that were duly perfected on the date of the
settlement. If the litigation against the Debtor's accountant is not successful,
repayment of such indebtedness will be paid from the assets of the Debtor's
estate, to the extent such assets are available
35
<PAGE>
prior to the distribution to the general creditors, but after payment of
administrative expenses. The motion to approve the stipulation relating to the
settlement above has been filed with the Court and was approved during a hearing
on September 27, 1995. The Bankruptcy Court issued an Order approving the
settlement on October 4, 1995. The Bank's payment to the trustee of $175,000, as
part of the settlement, has been charged to earnings in the three months ended
September 30, 1995. Management believes the Bank's loan commitments in
connection with litigation against the Debtor's accountants, which aggregate
$225,000 plus an additional $75,000 which is subject to certain conditions, are
recoverable based upon its current assessment of the outcome of this litigation.
Regent and the Bank are subject to various other legal actions and
proceedings, none of which is material.
THE MERGER
Regent has entered into the Merger Agreement among Carnegie, CBN, Regent
and the Bank providing for the Merger of Regent with and into Carnegie and for
the Bank Merger of the Bank with and into CBN.
At the Effective Time of the Merger, Regent will be merged with and into
Carnegie and holders of Regent securities will be entitled to receive Carnegie
Common Stock, Carnegie Series A Convertible Preferred Stock and newly issued
options to purchase Carnegie Common Stock (the 'New Options') as follows:
(a) each share of Regent Common Stock will be converted into 0.75
shares of Carnegie Common Stock;
(b) each share of Regent Series A Convertible Preferred Stock will be
converted into one share of Carnegie Series A Convertible Preferred Stock
which will be convertible into 0.75 shares of Carnegie Common Stock;
(c) each share of Regent Series B, Series C and Series D Convertible
Preferred Stock will be called for redemption in accordance with its terms
at $10.00 per share not later than 30 days prior to the anticipated
Effective Time of the Merger, unless theretofore converted in accordance
with its terms into 1.177 shares of Regent Common Stock each of which would
be converted in the Merger into 0.75 shares of Carnegie Common Stock;
(d) each share of Regent Series E Convertible Preferred Stock will be
called for redemption in accordance with its terms at $10.00 per share not
later than 30 days prior to the anticipated Effective Time of the Merger,
unless theretofore converted in accordance with its terms into one share of
Regent Common Stock which would be converted in the Merger into 0.75 shares
of Carnegie Common Stock;
(e) outstanding options to purchase an aggregate of 274,241 shares of
Regent Common Stock held by the organizers of Regent will be converted into
New Options to purchase an aggregate of 174,750 shares of Carnegie Common
Stock;
(f) outstanding warrants to purchase an aggregate of 50,022 shares of
Regent Common Stock held by the organizers of Regent will be converted into
an aggregate of 12,168 shares of Carnegie Common Stock;
(g) outstanding options to purchase an aggregate of 147,124 shares of
Regent Common Stock held by the underwriter of Regent's initial public
offering will be converted into an aggregate of 7,483 shares of Carnegie
Common Stock; and
(h) all other outstanding options and warrants to purchase Regent
Common Stock will be converted into Carnegie Common Stock at the rate of
one share of Carnegie Common Stock for options and warrants representing in
the aggregate the right to purchase 7 1/2 shares of Regent Common Stock.
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<PAGE>
The exchange rate set forth above, as well as the rate at which Carnegie
Series A Convertible Preferred Stock can be converted into Carnegie Common Stock
following the Merger is subject to adjustment upon the occurrence of certain
capital adjustments of Carnegie, including the declaration of a stock dividend,
a stock split or other recapitalization.
Consummation of the Merger is subject to various conditions, including the
approval and adoption of the Merger Agreement by the affirmative vote of a
majority of the votes cast by the holders of Regent Common Stock and Regent
Series A Preferred Stock at a special meeting of the holders thereof (the
'Regent Special Meeting'), approval and adoption of the Merger Agreement by the
affirmative vote of a majority of the votes cast by the holders of Carnegie
Common Stock voting at a special meeting of Carnegie Shareholders and various
approvals of the OCC and the FRB. The Regent Special Meeting and the Carnegie
Special Meeting will each be held on ________ __, 1996.
DESCRIPTION OF REGENT SECURITIES
Regent is authorized pursuant to its Certificate of Incorporation to issue
15,000,000 shares of capital stock, of which 10,000,000 shares are common stock
and 5,000,000 shares are series preferred stock.
Regent Common Stock. Regent is authorized to issue up to 10,000,000 shares
of common stock, $.10 par value per share, ('Regent Common Stock') of which
996,235 shares were outstanding as of December 29, 1995. Each outstanding share
of Regent Common Stock is entitled to one vote, either in person or by proxy, on
all matters that may be voted upon by the owners thereof at meetings of the
shareholders. Holders of Regent Common Stock do not have cumulative voting
rights with respect to elections of directors of Regent.
The holders of Regent Common Stock (i) have equal ratable rights to
dividends from funds legally available therefor, when, as and if declared by the
Board of Directors of Regent, (ii) are entitled to share ratably in all of the
assets of Regent available for distribution to holders of Regent Common Stock
upon liquidation, dissolution or winding up of the affairs of Regent and (iii)
do not have preemptive or redemption provisions applicable thereto.
Since dividends from the Bank are currently Regent's sole source of income,
any restrictions on the Bank's ability to pay dividends will act as a
restriction on Regent's ability to pay dividends. Under the National Bank Act
and the regulations of the OCC applicable to the Bank, the Bank may not pay
dividends in excess of the Bank's net profits, as defined, for that year plus
the Bank's retained net profits for the preceding two years. In addition, unless
a national bank's capital surplus equals or exceeds the stated capital for its
common stock, no dividends may be declared unless the Bank makes transfers from
retained earnings to capital surplus.
Regent Preferred Stock. Regent is authorized to issue up to 5,000,000
shares of preferred stock, par value $.10 per share, in one or more series, with
such designations and such relative voting, dividend, liquidation, conversion
and other rights, preferences and limitations as shall be set forth in
resolutions providing for the issuance thereof adopted by the Board of
Directors.
As of December 29, 1995, the five series of preferred stock of Regent
created by the Board of Directors of Regent and the number authorized and
outstanding shares, respectively, of each such series are as follows: (i)
1,000,000 authorized shares of Series A Convertible Preferred Stock, $.10 par
value per share, ('Regent Series A Convertible Preferred Stock') of which
484,032 shares are outstanding; (ii) 500,000 authorized shares of Series B
Convertible Preferred Stock, $.10 par value per share, ('Regent Series B
Convertible Preferred Stock') of which 4,270 shares are outstanding; (iii)
500,000 authorized shares of Series C Convertible Preferred Stock, $.10 par
value per share, ('Regent Series C Convertible Preferred Stock') of which 3,505
shares are outstanding; (iv) 500,000 authorized shares of Series D Convertible
Preferred Stock, $.10 par value per share, ('Regent Series D Convertible
Preferred Stock') of which 3,880 shares are outstanding and (v) 500,000
authorized shares of Series E Convertible Preferred Stock, $.10 par value per
share, ('Regent Series E Convertible Preferred Stock') of which 90,548 shares
are outstanding. Regent Series A Convertible
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<PAGE>
Preferred Stock through Regent Series E Convertible Preferred Stock are
sometimes hereinafter collectively referred to as 'Regent Preferred Stock' and
Regent Series B Convertible Preferred Stock through Regent Series E Convertible
Preferred Stock are sometimes hereinafter collectively referred to as 'Regent
Series B through Series E Convertible Preferred Stock.'
The following is a brief description of the terms of the Regent Preferred
Stock, which does not purport to be complete and is subject to and qualified in
its entirety by reference to Regent's Certificate of Incorporation.
Dividends. The holders of Regent Series A Convertible Preferred Stock are
entitled to receive preferred stock dividends, payable annually, equal to 10% of
the shares of Regent Series A Convertible Preferred Stock owned at the
respective record dates, computed on the basis of one share of Regent Series B
through Series E Convertible Preferred Stock, as the case may be, for every ten
shares of Regent Series A Convertible Preferred Stock. The holders of Regent
Series A Convertible Preferred Stock received stock dividends paid in shares of
Regent Series B Convertible Preferred Stock in 1990, Regent Series C Convertible
Preferred Stock in 1991, Regent Series D Convertible Preferred Stock in 1992 and
Regent Series E Convertible Preferred Stock in 1993 and the years following.
The holders of Regent Preferred Stock are also entitled to receive cash
dividends on a noncumulative basis when, as and if declared by the Board of
Directors of Regent.
Optional Redemption. The outstanding shares of Regent Preferred Stock are
redeemable in whole or in part at the option of Regent at a price of $10 per
share plus any declared but unpaid dividends.
If less than all of the outstanding shares of Regent Preferred Stock not
previously called for redemption are to be redeemed, Regent will select those to
be redeemed pro rata or by lot or in such other manner as the Board of Directors
of Regent may determine. There is no mandatory redemption or sinking fund
obligation with respect to the Regent Preferred Stock.
In the event that Regent exercises its redemption option, notice of
redemption must be mailed at least 30 days but not more than 60 days before the
redemption date to each holder of record of shares of Regent Preferred Stock to
be redeemed at the address shown on the books of Regent. On and after the
redemption date, dividends cease (except for any declared but unpaid dividends)
on shares of Regent Preferred Stock called for redemption and all rights of the
holders of such shares terminate except the right to receive the redemption
price (unless Regent defaults in the payment of the redemption price).
Conversion Rights. The shares of Regent Preferred Stock are convertible, at
the option of the holder at any time prior to the close of business on the date
fixed for any redemption called by Regent (unless Regent shall default in making
the payment due upon redemption), as follows: (i) each outstanding share of
Regent Series A Convertible Preferred Stock and Regent Series E Convertible
Preferred Stock is currently convertible into one share of Regent Common Stock
and (ii) each outstanding share of Regent Series B, Series C and Series D
Convertible Preferred Stock is currently convertible into 1.177 shares of Regent
Common Stock.
The conversion rate is subject to adjustment in the manner provided in
Regent's Certificate of Incorporation in the event of: (i) payment of certain
stock dividends, stock split-ups or combinations or other similar
recapitalizations or (ii) the issuance of certain rights or warrants to holders
of Regent Common Stock entitling them to subscribe for or purchase Regent Common
Stock at a price less than the then current market price therefor, as determined
by the terms of Regent's Certificate of Incorporation, at the time of issuance.
No adjustment in the conversion rate is required unless it would result in at
least a 1% increase or decrease in that rate; however, any adjustment not made
is carried forward.
In case of any consolidation or merger of Regent with or into any other
corporation or any sale or transfer of substantially all the assets of Regent,
Regent or any successor corporation is required to make provision that any
holder of Regent Preferred Stock will be entitled, after the occurrence of any
such event, to receive on conversion the consideration that the holder of Regent
Preferred Stock would
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<PAGE>
have received had the holder converted the Regent Preferred Stock into Regent
Common Stock immediately prior to the occurrence of the event.
Voting Rights. The holders of Regent Series A Convertible Preferred Stock
have full non-cumulative voting rights, share for share, with Regent Common
Stock and any other class or series of Regent's stock which at any time may have
general voting power with Regent Common Stock concerning any matter being voted
upon.
The approval of the holders of at least two-thirds of the shares of Regent
Series A Convertible Preferred Stock then outstanding is required to amend,
alter or repeal any of the provisions of Regent's Certificate of Incorporation
(or any certificate providing for terms of capital stock of Regent) or to
authorize any reclassification of Regent Series A Convertible Preferred Stock,
in either case so as to affect adversely the preferences, special rights or
powers of Regent Series A Convertible Preferred Stock, either directly or
indirectly or through a merger or consolidation with any corporation, or to
authorize any capital stock of Regent ranking, either as to the payment of
dividends or upon liquidation, dissolution or winding up of Regent, prior to the
Regent Series A Convertible Preferred Stock. The approval of the holders of at
least a majority of the outstanding shares of Regent Series A Convertible
Preferred Stock, voting as a class, is required to increase the authorized
number of shares of preferred stock or to create, or increase the authorized
number of shares of, any other class of stock of Regent ranking on a parity with
the Regent Series A Convertible Preferred Stock as to dividends or upon
liquidation, dissolution, or winding up of Regent.
The holders of shares of Regent Series B through Series E Convertible
Preferred Stock are not entitled to any voting rights on any matter, except as
required by applicable law.
Liquidation Rights. The holders of Regent Preferred Stock are entitled to
receive $10 per share (plus any declared and unpaid preferred stock dividends)
before any distribution is made to holders of Regent Common Stock or any other
junior stock of Regent in the event of the dissolution, liquidation or winding
up of Regent. If in any such event the assets of Regent distributable among the
holders of Regent Preferred Stock or any capital stock of Regent ranking on par
with the Regent Preferred Stock are insufficient to permit full payment, the
holders of Regent Preferred Stock and of the capital stock of Regent ranking on
a par with Regent Preferred Stock will be entitled to ratable distribution of
the available assets in accordance with the respective amounts that would be
payable to such holders if all amounts payable in respect of such shares were
paid in full. A consolidation, merger or sale of all or substantially all of the
assets of Regent is not considered a liquidation, dissolution or winding up for
this purpose.
REGENT COMMON STOCK WARRANTS
Regent Public Warrants. Regent has issued and outstanding 292,598 Regent
Public Warrants as of the date of this Prospectus. Each Regent Public Warrant,
which was exercisable prior to December 31, 1995 in whole or in part from time
to time, entitles the holder thereof to purchase 1.177 shares of Regent Common
Stock, for an aggregate of 344,387 shares of Regent Common Stock, at a purchase
price of $8.50 per share. The Regent Public Warrants would again become
exercisable for a period of 30 days after termination of the Merger Agreement if
the Merger Agreement were terminated. Of these Regent Public Warrants, Regent
has issued and outstanding to Harvey Porter, O. Francis Biondi, David W. Ring,
Abraham L. Bettinger, Barbara H. Teaford and Leonard S. Dwares (the
'Organizers') warrants to purchase an aggregate of 50,022.5 shares of Regent
Common Stock at an exercise price of $8.50 (the 'Regent Organizer Warrants').
Regent Underwriter Warrants. In connection with Regent's 1989 public
offering, Regent issued warrants to purchase Units consisting of one share of
Regent Common Stock and a warrant to purchase one-half share of Regent Common
Stock to Regent's managing underwriter, Hopper Soliday & Co. Inc. and its
designee (the 'Regent Underwriter Warrants'). The Regent Underwriter Warrants
are exercisable for the purchase of an aggregate of 147,124 shares of Regent
Common Stock at an exercise price of $10.20 per share.
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<PAGE>
The exercise price and the number of shares purchasable under the Regent
Underwriter Warrants are subject to adjustment in the event of any subdivision,
combination or reclassification of Regent Common Stock. In the event of a
merger, consolidation or sale of substantially all of the assets of Regent,
Regent is required to make adequate provision whereby the holders of the Regent
Underwriter Warrants thereafter have the right to purchase such shares of stock,
securities or assets that would have been received in exchange of shares of
Regent Common Stock purchasable under the Regent Underwriter Warrants in such
transaction had the Regent Underwriter Warrants been exercised immediately prior
to the consummation of such transaction. Regent is required to provide each
holder of the Regent Underwriter Warrants with a written notice of any such
merger, consolidation or sale at least 15 days prior to the date such
transaction is consummated.
Regent Put Option Warrants. In connection with the 10% stock dividends
issued in the form of Regent Series B Convertible Preferred Stock, Regent Series
C Convertible Preferred Stock and Regent Series D Convertible Preferred Stock,
the Organizers had the obligation to purchase such shares from the recipients at
$10 per share. Regent issued to each Organizer who was required to purchase any
such dividend shares a warrant to purchase one-half of a share of Regent Common
Stock at $8.50 per share for each share purchased. In connection with such
purchases, the Organizers received warrants to purchase an aggregate of 76,148
shares of Regent Common Stock (the 'Regent Put Option Warrants'). The exercise
price and number of shares of Regent Common Stock purchasable under Regent Put
Option Warrants are subject to appropriate adjustment in the event of a stock
dividend, stock split-up, combination or similar reclassification of the Regent
Common Stock.
Regent Stock Options. The Organizers currently hold options to purchase an
aggregate of 274,241 shares of Regent Common Stock exercisable at a purchase
price of $8.50 per share (the 'Regent Organizer Options'). In addition, options
to purchase an aggregate of 171,362 shares of Regent Common Stock at a purchase
price of $8.50 per share are held by employees and directors of Regent under
Regent's 1989 Employee Stock Option Plan (the 'Regent Plan Options'). The
exercise price of, and number of shares of Regent Common Stock purchasable under
the Regent Organizer Options and the Regent Plan Options are subject to
appropriate adjustment in the event of a stock dividend, stock split-up,
combination or similar reclassification of the Regent Common Stock. Under the
terms of the option agreements for the Regent Plan Options, such options
terminate upon any merger or consolidation of Regent.
EXTENSION OF EXPIRATION DATE OF ALL REGENT OPTIONS AND WARRANTS
The expiration date of the outstanding options and warrants of Regent
described in this section that would have expired before the anticipated
Effective Time of the Merger has been extended by the Board of Directors of
Regent from their current expiration date to the earlier of (a) the Effective
Time of the Merger, during which period such warrants may not be exercised for
the purchase of Regent Common Stock but shall represent only the right to
receive Carnegie Common Stock as provided in the Merger Agreement or (b) the
latter of (i) 30 days following the termination of the Merger Agreement during
which period such warrants may be exercised for the purchase of Regent Common
Stock in accordance with their respective terms, or (ii) the stated expiration
date of such option or warrant.
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LEGAL MATTERS
The validity of the issuance of the Shares offered hereby will be passed
upon by Duane, Morris & Heckscher, Philadelphia, Pennsylvania.
EXPERTS
The consolidated audited financial statements of Regent and its subsidiary
included in this Prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in accounting and auditing.
DISCLOSURE OF COMMISSION POSITION
ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Article VIII of Regent's Bylaws provides that Regent shall indemnify every
director and officer of Regent, including any former directors and officers, and
may indemnify any employees or agent, to the full extent permitted by the New
Jersey Business Corporation Act ('NJBCA'). Regent is also required to pay and
advance expenses to such directors and officers for matters covered by such
indemnification to the full extent permitted under the NJBCA. Section 14A:3-5 of
NJBCA gives a corporation the power, without a specific authorization in its
certificate of incorporation or by-laws, to indemnify a director, officer,
employee or agent (a 'corporate agent') against expenses and liabilities
incurred in connection with certain proceedings, involving the corporate agent
by reason of his being or having been such a corporate agent, provided that with
regard to a proceeding other than one by or in the right of the corporation, the
corporate agent must have acted in good faith and in the manner reasonably
believed to be in or not opposed to the best interests of the corporation and,
with respect to any criminal proceeding, such corporate agent had no reasonable
cause to believe his conduct was unlawful. In such proceeding, the termination
of a proceeding by judgment, order, settlement, conviction or upon plea of nolo
contendere or its equivalent does not of itself create a presumption that any
such corporate agent failed to meet the above applicable standards of conduct.
The indemnification provided by NJBCA does not exclude any rights to which a
corporate agent may be entitled under a certificate of incorporated, by-law,
agreement, vote of shareholders or otherwise. No indemnification, other than
that required when a corporate agent is successful on the merits or otherwise in
any of the above proceedings, shall be allowed if such indemnification would be
inconsistent with a provision of the certificate of incorporation, a by-law or a
resolution of the board of directors or of the shareholders, an agreement or
other proper corporate action in effect at the time of the accrual of the
alleged cause of action which prohibits, limits or otherwise conditions the
exercise of indemnification power by the corporation or the rights of
indemnification to which a corporate agent may be entitled.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of Regent
pursuant to the foregoing provisions, or otherwise, Regent has been advised that
in the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Public Accountants.................................................................. F-2
Consolidated Balance Sheets as of December 31, 1994 and 1993.............................................. F-3
Consolidated Statements of Income for the Years Ended
December 31, 1994, 1993 and 1992........................................................................ F-4
Consolidated Statements of Changes in Shareholders' Equity for the Years Ended
December 31, 1994, 1993 and 1992........................................................................ F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1994, 1993 and 1992........................................................................ F-6
Notes to Consolidated Financial Statements................................................................ F-7
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheet as of September 30, 1995....................................................... F-22
Consolidated Statements of Income for the Nine Months Ended
September 30, 1995 and 1994............................................................................. F-23
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1995 and 1994............................................................................. F-24
Notes to Unaudited Consolidated Financial Statements...................................................... F-25
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
of Regent Bancshares Corp. and Subsidiary:
We have audited the accompanying consolidated balance sheets of Regent
Bancshares Corp. (a New Jersey corporation) and subsidiary as of December 31,
1994 and 1993, and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Regent
Bancshares Corp. and subsidiary as of December 31, 1994 and 1993, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1994, in conformity with generally accepted
accounting principles.
As more fully discussed in Note 12, a dispute has arisen in the bankruptcy
proceedings of a mortgage banking company for which the Bank previously funded
individual residential mortgages regarding legal ownership of mortgages in which
the Bank acquired a 100% beneficial interest as participant. As more fully
discussed in Note 20, subsequent to March 22, 1995, the date of our original
report, this dispute was settled; however, there continue to be pending claims
and other possible claims which may be made against the Bank by other creditors
associated with the Bank's transactions with the mortgage banking company.
Management believes that these claims are without merit; however, the ultimate
outcome of these matters is not presently determinable and, accordingly, no
adjustments have been made in the accompanying consolidated financial
statements.
As described in Note 2 of the consolidated financial statements, the Company
changed its method of accounting for investments in debt and equity securities.
/s/ Arthur Andersen LLP
Philadelphia, Pa.,
March 22, 1995
(except with respect to the
matters discussed in Note 20,
as to which the date is
December 15, 1995)
F-2
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------
1994 1993
------------- -------------
<S> <C> <C>
ASSETS
Cash and due from banks............................................................. $ 2,802,177 $ 6,719,903
Federal funds sold.................................................................. -- 6,000,000
Investment securities available for sale............................................ 35,056,688 --
Investment securities............................................................... 124,672 2,392,335
Mortgage-backed securities held to maturity (market value of $113,189,677 and
$154,656,304, respectively)....................................................... 121,482,427 153,773,474
Mortgage loans held for sale........................................................ 5,387,517 22,700,892
Loans, net of unearned interest and loan costs...................................... 75,859,639 49,147,127
Less: Allowance for loan losses................................................... (1,713,372) (1,321,225)
------------- -------------
Net loans....................................................................... 74,146,267 47,825,902
------------- -------------
Accrued interest receivable......................................................... 1,951,244 1,967,645
Premises and equipment, net......................................................... 656,501 621,335
Prepaid expenses and other assets
(including net deferred taxes of $1,358,100 and $399,300, respectively)........... 1,842,984 1,943,182
------------- -------------
Total assets...................................................................... $ 243,450,477 $ 243,944,668
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing.............................................................. $ 13,641,796 $ 13,801,979
Interest bearing:
NOW and money market............................................................ 13,796,458 9,594,546
Savings......................................................................... 83,335,372 101,700,163
Certificates of deposit......................................................... 50,287,846 67,296,178
------------- -------------
Total deposits................................................................ 161,061,472 192,392,866
Advances from Federal Home Loan Bank of Pittsburgh.................................. 63,037,382 34,104,821
Subordinated debentures............................................................. 2,750,000 2,550,000
Accrued interest payable............................................................ 2,240,068 1,585,785
Other liabilities................................................................... 2,155,987 185,453
------------- -------------
Total liabilities................................................................... 231,244,909 230,818,925
------------- -------------
Commitments and Contingencies
Shareholders' equity:
Preferred stock, $.10 par value, 5,000,000 shares authorized, Series A, 515,678
and 529,700 shares issued and outstanding; entitled to $5,156,780 in involuntary
liquidation..................................................................... 51,568 52,970
Series B, 4,650 and 4,970 shares issued and outstanding; entitled to $46,500 in
involuntary liquidation......................................................... 465 497
Series C, 4,036 and 4,672 shares issued and outstanding; entitled to $40,360 in
involuntary liquidation......................................................... 404 467
Series D, 4,886 and 5,076 shares issued and outstanding; entitled to $48,860 in
involuntary liquidation......................................................... 488 508
Series E, 73,365 and 42,915 shares issued and outstanding; entitled to $733,650 in
involuntary liquidation......................................................... 7,337 4,292
------------- -------------
60,262 58,734
Common stock, $.10 par value -- 10,000,000 shares authorized, 924,409 and 887,594
issued and outstanding............................................................ 92,441 88,759
Capital surplus..................................................................... 12,997,321 12,606,702
Retained earnings................................................................... 478,544 371,548
Net unrealized loss on investment securities available for sale..................... (1,423,000) --
------------- -------------
Total shareholders' equity........................................................ 12,205,568 13,125,743
------------- -------------
Total liabilities and shareholders' equity........................................ $ 243,450,477 $ 243,944,668
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
Interest income:
Loans, including fees............................................. $ 6,313,866 $ 4,392,116 $ 4,797,689
Investment securities held for sale............................... -- 50,454 485,374
Investment securities and securities available for sale........... 10,841,050 10,662,692 8,204,003
Federal funds sold................................................ 9,562 6,898 32,010
------------- ------------- -------------
Total interest income.......................................... 17,164,478 15,112,160 13,519,076
------------- ------------- -------------
Interest expense:
Deposits.......................................................... 9,006,507 8,715,081 8,125,701
Short-term borrowings............................................. 1,857,622 691,121 560,943
Long-term debt.................................................... 508,531 514,516 123,028
------------- ------------- -------------
Total interest expense......................................... 11,372,660 9,920,718 8,809,672
------------- ------------- -------------
Net interest income............................................ 5,791,818 5,191,442 4,709,404
Provision for loan losses........................................... 860,000 450,000 525,000
------------- ------------- -------------
Net interest income after provision for loan losses............... 4,931,818 4,741,442 4,184,404
------------- ------------- -------------
Other income:
Service charges on deposit accounts............................... 102,452 85,581 58,417
Other............................................................. 99,431 70,069 11,880
------------- ------------- -------------
Total other income............................................. 201,883 155,650 70,297
------------- ------------- -------------
Other expenses:
Salaries and employee benefits.................................... 1,449,481 1,072,102 835,890
Professional services............................................. 560,441 436,956 276,142
Rent.............................................................. 173,865 173,959 173,855
Other occupancy expense........................................... 118,460 105,334 97,832
Depreciation and amortization..................................... 157,301 127,562 109,336
FDIC assessment and other insurance............................... 505,927 424,914 359,233
Other............................................................. 1,406,301 772,656 633,857
------------- ------------- -------------
Total other expenses........................................... 4,371,776 3,113,483 2,486,145
------------- ------------- -------------
Income before provision for income taxes............................ 761,925 1,783,609 1,768,556
Provision for income taxes.......................................... 259,100 606,500 601,700
------------- ------------- -------------
NET INCOME.......................................................... 502,825 1,177,109 1,166,856
Preferred stock dividends........................................... 287,222 516,457 316,600
------------- ------------- -------------
Earnings for common stock........................................... $ 215,603 $ 660,652 $ 850,256
------------- ------------- -------------
------------- ------------- -------------
Earnings per common share:
Primary........................................................... $ .22 $ .71 $ .95
Fully diluted..................................................... -- -- .82
Weighted average number of shares outstanding....................... 989,611 927,482 894,876
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
NET UNREALIZED
LOSS
RETAINED ON INVESTMENT
PREFERRED STOCK COMMON STOCK EARNINGS SECURITIES
-------------------- -------------------- CAPITAL (ACCUMULATED AVAILABLE
SHARES AMOUNT SHARES AMOUNT SURPLUS DEFICIT) FOR SALE TOTAL
--------- --------- --------- --------- ---------- ----------- ---------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1991.... 687,801 $ 68,781 662,627 $ 66,263 $11,568,580 $(921,846) $ -- $10,781,778
Issuance of preferred stock as
dividends................... -- -- -- -- (27,705) 27,705 --
Issuance of common stock as
dividends................... -- -- 7,354 735 181,702 (182,437) --
Conversion of preferred stock
to common stock............. (103,796) (10,381) 106,710 10,671 (290) -- --
Net income.................... -- -- -- -- -- 1,166,856 1,166,856
--------- --------- --------- --------- ---------- ----------- ---------------- ----------
Balance, December 31, 1992.... 584,005 58,400 776,691 77,669 11,722,287 90,278 -- 11,948,634
Issuance of preferred stock as
dividends................... 52,967 5,297 -- -- 425,084 (430,381) --
Issuance of common stock as
dividends................... -- -- 57,287 5,729 459,729 (465,458) --
Conversion of preferred stock
to common stock............. (49,639) (4,963) 53,616 5,361 (398) -- --
Net income.................... -- -- -- -- -- 1,177,109 1,177,109
--------- --------- --------- --------- ---------- ----------- ---------------- ----------
Balance, December 31, 1993.... 587,333 58,734 887,594 88,759 12,606,702 371,548 -- 13,125,743
Issuance of preferred stock as
dividends................... 51,912 5,191 -- -- 390,638 (395,829) --
Conversion of preferred stock
to common stock............. (36,630) (3,663) 36,815 3,682 (19) -- --
Net unrealized loss on
investment securities
available for sale.......... -- -- -- -- -- -- (1,423,000) (1,423,000)
Net income.................... -- -- -- -- -- 502,825 502,825
--------- --------- --------- --------- ---------- ----------- ---------------- ----------
Balance, December 31, 1994.... 602,615 $ 60,262 924,409 $ 92,441 $12,997,321 $ 478,544 $ (1,423,000) $12,205,568
--------- --------- --------- --------- ---------- ----------- ---------------- ----------
--------- --------- --------- --------- ---------- ----------- ---------------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................................ $ 502,825 $ 1,177,109 $ 1,166,856
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses........................................... 860,000 450,000 525,000
Depreciation and amortization....................................... 157,301 127,562 109,336
Net amortization of premiums and accretion of discounts on
investment securities and investment securities available for
sale.............................................................. 1,248,214 1,116,244 600,307
Loss on sale of other real estate................................... -- 10,800 --
Interest reinvested on certificates of deposit...................... 1,636,628 2,048,218 2,589,282
Increase (decrease) in unearned interest/net deferred loan fees..... 432,246 (163,450) (42,104)
Decrease (increase) in accrued interest receivable.................. 16,401 (37,282) (634,572)
Decrease (increase) in prepaid expenses and other assets............ 826,797 (1,443,393) (299,119)
Increase (decrease) in accrued interest payable..................... 654,283 143,416 (178,504)
Increase (decrease) in other liabilities............................ 1,970,534 (8,831) (96,769)
------------ ------------ ------------
Total adjustments................................................. 7,802,404 2,243,284 2,572,857
------------ ------------ ------------
Net cash provided by operating activities........................... 8,305,229 3,420,393 3,739,713
------------ ------------ ------------
Cash flows from investing activities:
Net (increase) decrease in loans...................................... (27,612,611) 6,341,244 (5,059,246)
Decrease (increase) in mortgage loans held for sale................... 17,313,375 (22,700,892) --
Purchase of investment securities..................................... (47,491,857) (77,808,413) (108,718,219)
Principal collected on mortgage-backed and investment securities and
investment securities available for sale............................ 43,614,477 60,727,658 37,873,988
Net (increase) decrease in U.S. Treasury bills........................ (24,812) 24,903 49,750
Net decrease (increase) in Federal funds sold......................... 6,000,000 (6,000,000) 7,300,000
Purchases of premises and equipment................................... (186,066) (106,691) (69,728)
Proceeds from sale of other real estate owned......................... -- 942,504 322,355
------------ ------------ ------------
Net cash used in investing activities................................. (8,387,494) (38,579,687) (68,301,100)
------------ ------------ ------------
Cash flows from financing activities:
Net (decrease) increase in demand, NOW, savings and money market
deposits............................................................ (14,323,062) 24,183,767 52,199,897
Net (decrease) increase in certificates of deposit.................... (18,644,960) 5,445,851 (13,796,827)
Net increase in advances from Federal Home Loan Bank of Pittsburgh.... 28,932,561 3,604,821 30,500,000
Proceeds from issuance of subordinated debentures..................... 200,000 2,550,000 --
------------ ------------ ------------
Net cash (used in) provided by financing activities................. (3,835,461) 35,784,439 68,903,070
------------ ------------ ------------
Net (decrease) increase in cash and cash equivalents.................... (3,917,726) 625,145 4,341,683
Cash and cash equivalents, beginning of year............................ 6,719,903 6,094,758 1,753,075
------------ ------------ ------------
Cash and cash equivalents, end of year.................................. $ 2,802,177 $ 6,719,903 $ 6,094,758
------------ ------------ ------------
------------ ------------ ------------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest.............................................................. $ 9,081,749 $ 7,729,084 $ 6,398,894
Income taxes.......................................................... 510,000 930,000 782,000
Supplemental schedule of non-cash investing and financing activity:
Issuance of preferred stock as dividends.............................. $ 395,829 $ 430,381 $ --
Issuance of common stock as dividends................................. -- 465,458 182,437
Addition of other real estate owned................................... -- -- 287,659
Conversion of preferred stock to common stock......................... 3,663 4,963 10,381
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
REGENT BANCSHARES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Regent Bancshares Corp. ('Regent') is a bank holding company organized
under the laws of the State of New Jersey and engages in commercial banking
business through its wholly-owned subsidiary, Regent National Bank (the Bank), a
nationally chartered bank insured by the Federal Deposit Insurance Corporation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies of Regent and its subsidiary conform to generally
accepted accounting principles. The more significant accounting policies are
summarized below.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Regent and
the Bank. All material intercompany accounts and transactions have been
eliminated in consolidation.
INVESTMENT PORTFOLIO
The Financial Accounting Standards Board issued a pronouncement that
required Regent to change its method of accounting for certain investments in
debt securities beginning January 1, 1994. Held-to-maturity securities are to be
recorded at amortized cost; trading securities are to be recorded at fair value,
with unrealized gains and losses included in income; and available-for-sale
securities are to be recorded at fair value, with unrealized gains and losses
excluded from income and reported as a separate component of shareholders'
equity. At January 1, 1994, mortgage-backed and non-marketable equity securities
with a fair value of approximately $43,903,000 were classified as available for
sale and the related unrealized gains, net of applicable income taxes, were
$171,000. At December 31, 1994, mortgage-backed and non-marketable equity
securities with a fair value of $35,056,688 have been recorded as available for
sale in the accompanying consolidated balance sheet and related unrealized
losses, net of applicable income taxes, of $1,423,000, have been recorded as a
reduction to shareholders' equity. There are no trading account securities and
all other securities have been classified as held to maturity.
Mortgage-backed securities and other investment securities classified as
held-to-maturity are acquired as investments with the intent and ability to
maintain the securities in the portfolio until maturity. These securities are
stated at cost adjusted for amortization of premiums and accretion of discounts,
using a method that approximates the effective yield method.
Investment securities at December 31, 1994 primarily include U.S. Treasury
bills while the balance at December 31, 1993 includes U.S. Treasury bills and
non-marketable equity investments in the Federal Reserve Bank of Philadelphia
and the Federal Home Loan Bank of Pittsburgh (FHLB). These securities are stated
at cost which approximates fair market value.
Gains and losses on the sale of all securities are computed using the
specific identification basis and are recorded on a trade date basis.
During 1993, the actual prepayments of mortgage-backed securities differed
from the estimated prepayments previously assumed in the calculation of the
premium amortization as a result of declining interest rates. Regent adjusted
the amortization based on the actual prepayments and in consideration of
anticipated future prepayments. This additional amortization totalled $400,000
and is included in the consolidated statements of income as a reduction of
interest income from investment securities.
MORTGAGE LOANS HELD FOR SALE
Mortgage loans held for sale are carried at the lower of aggregate cost or
market as determined by outstanding commitments from investors. At December 31,
1993, the Bank has amounts receivable of approximately $972,000 from certain
brokers that originate mortgage loans for the Bank. These
F-7
<PAGE>
REGENT BANCSHARES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
amounts receivable are included as prepaid expenses and other assets in the
accompanying consolidated balance sheets.
LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans are stated at the amount of the unpaid principal balance, net of
unearned interest and deferred loan fees/costs. Interest on loans is recognized
on the daily principal amount outstanding.
Accrual of interest is discontinued on loans when management believes,
after considering economic and business conditions and collection efforts, that
the borrower's financial condition is such that collection of interest and
principal is doubtful. Non-accrual loans are restored to accrual status when
there has been a sustained period of repayment performance and all principal and
interest that is contractually due is reasonably assured of repayment.
The allowance for loan losses is maintained at a level believed adequate by
management to provide for potential losses based upon an evaluation of known and
inherent risks attendant with the loan portfolio. Management's determination of
the adequacy of the allowance is based on the risk characteristics of the
portfolio, past loan loss experience, local economic conditions, and other
relevant factors. The allowance is increased by provisions for loan losses
charged against income. The provision is based on management's estimates, and
actual losses may vary from the current estimates. These estimates are reviewed
periodically, and, as adjustments become necessary, they are reported in
earnings in the periods in which they become reasonably estimable.
OTHER REAL ESTATE OWNED
Other real estate owned consisting of property acquired by foreclosure or
deed in lieu of foreclosure is initially recorded at the lower of the related
loan balance or the fair value of the property at the date acquired. These
assets are subsequently carried at the lower of this new basis or the fair value
less estimated costs to sell. Costs relating to the development and improvement
of the property are capitalized, whereas those related to holding the property
are charged to expense.
The Financial Accounting Standards Board has issued a pronouncement that
requires Regent to change its method of accounting for impairment of certain
loans beginning January 1, 1995. Certain impaired loans must be measured based
on the present value of expected future cash flows discounted at the loan's
effective interest rate or, as a practical expedient, at the loan's observable
market price or the fair value of the collateral if the loan is collateral
dependent. Loans foreclosed in-substance will no longer be accounted for as
foreclosed property; rather, a loan for which foreclosure is probable will
continue to be accounted for as a loan until actual foreclosure has occurred.
Management is evaluating the provisions of this pronouncement, and, while the
effect has not been quantified, management believes that it will not have a
material effect on the Company's consolidated financial position or results of
operations.
LOAN ORIGINATION FEES AND COSTS
Loan origination fees, net of certain direct loan origination costs of
closed loans, are deferred and amortized over the life of the related loans as
an adjustment to yield.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation of furniture and fixtures is computed using the
straight-line method over the estimated useful lives which range from 3 to 10
years. Leasehold improvements are amortized using the straight-
F-8
<PAGE>
REGENT BANCSHARES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
line method over the lesser of their estimated useful lives or the term of their
respective leases. Repairs and maintenance are expensed as incurred, and
renewals and betterments are capitalized.
FEDERAL INCOME TAXES
Effective January 1, 1993, Regent adopted Statement of Financial Accounting
Standards No. 109, 'Accounting for Income Taxes' (SFAS No. 109). The statement
requires the recording of deferred taxes based on the estimated future tax
effects of differences between the financial statement and income tax bases of
assets and liabilities using the enacted marginal tax rate. Deferred income tax
expense or credits are based on the changes in the asset or liability from
period to period. Prior to January 1, 1993, deferred income tax expenses or
credits were recorded to reflect the tax consequences of timing differences
between the recording of income and expenses for financial reporting purposes
and for purposes of filing federal income tax returns at income tax rates in
effect when the differences arose.
EARNINGS PER COMMON SHARE
Earnings per common share for all periods presented is based on the
weighted average number of common shares outstanding after consideration of
preferred stock dividends. Common stock equivalents include the Series B, Series
C, Series D and Series E Convertible Preferred Stock. The weighted average
number of common shares attributable to common stock equivalents includes
89,339, 60,238, and 63,918 shares for the years ended December 31, 1994, 1993
and 1992. The earnings per common share does not assume the exercise of stock
options or warrants as common stock equivalents since such exercise would be
antidilutive.
Earnings per common share assuming full dilution does not consider the
exercise of stock options or warrants since such exercise would be antidilutive.
The conversion of preferred stock and all common stock equivalents is considered
in the calculation. However, for the years ended December 31, 1994 and 1993, the
resulting calculation is antidilutive and is therefore not presented herein.
Regent accrues on a quarterly basis the preferred stock dividend that is payable
annually each year. This accrual is considered only for purposes of the earnings
per common share calculation and is computed using the estimated market price of
the preferred stock at the financial reporting date. The accrual is changed as
necessary to reflect dividends declared and changes in market price.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand and amounts due from banks. The statements of cash flows present
the net amounts of cash receipts and cash payments associated with loan and
deposit transactions.
3. RESTRICTED CASH BALANCES
The Bank is required to maintain reserves in the form of cash balances with
the Federal Reserve Bank against its deposit liabilities. Reserves of $250,000
and $59,000 were required to be held with the Federal Reserve Bank at December
31, 1994 and December 31, 1993.
F-9
<PAGE>
REGENT BANCSHARES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. INVESTMENT PORTFOLIO
Investment securities available for sale at December 31, 1994 are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1994
---------------------------------------------------------------------------------------------
ESTIMATED
PRINCIPAL UNAMORTIZED UNEARNED CARRYING UNREALIZED UNREALIZED MARKET
BALANCE PREMIUMS DISCOUNTS VALUE GAINS LOSSES VALUE
------------ ------------ ----------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
FHLMC................ $ 12,359,696 $ 327,182 $ -- $ 12,686,878 $ -- $ 725,000 $ 11,961,878
FNMA................. 18,916,479 637,645 30,680 19,523,444 -- 1,367,000 18,156,444
Collateralized
mortgage
obligations........ 1,409,300 -- 798 1,408,502 -- 64,000 1,344,502
------------ ------------ ----------- ------------ ----------- ----------- ------------
$ 32,685,475 $ 964,827 $ 31,478 33,618,824 -- 2,156,000 31,462,824
------------ ------------ -----------
------------ ------------ -----------
Non-marketable equity
securities......... 3,593,864 -- -- 3,593,864
------------ ----------- ----------- ------------
$ 37,212,688 $ -- $ 2,156,000 $ 35,056,688
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
</TABLE>
Mortgage-backed securities held to maturity at December 31, 1994 and 1993,
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1994
----------------------------------------------------------------------------------------------
ESTIMATED
PRINCIPAL UNAMORTIZED UNEARNED CARRYING UNREALIZED UNREALIZED MARKET
BALANCE PREMIUMS DISCOUNTS VALUE GAINS LOSSES VALUE
------------- ------------ --------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
GNMA............. $ 13,192,150 $ 612,766 $ -- $ 13,804,916 $ -- $ 1,423,375 $ 12,381,541
FHLMC............ 48,439,779 1,884,286 245,216 50,078,849 14,474 3,315,868 46,777,455
FNMA............. 36,072,650 1,203,708 60,768 37,215,590 -- 3,099,220 34,116,370
Collateralized
mortgage
obligations.... 19,781,772 614,957 13,657 20,383,072 -- 468,761 19,914,311
------------- ------------ --------- ------------- ----------- ----------- -------------
$ 117,486,351 $4,315,717 $ 319,641 $ 121,482,427 $ 14,474 $ 8,307,224 $ 113,189,677
------------- ------------ --------- ------------- ----------- ----------- -------------
------------- ------------ --------- ------------- ----------- ----------- -------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1993
----------------------------------------------------------------------------------------------
ESTIMATED
PRINCIPAL UNAMORTIZED UNEARNED CARRYING UNREALIZED UNREALIZED MARKET
BALANCE PREMIUMS DISCOUNTS VALUE GAINS LOSSES VALUE
------------- ------------ --------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
GNMA............. $ 121,510 $ 8,865 $ -- $ 130,375 $ -- $ 6,021 $ 124,354
FHLMC............ 74,802,377 2,800,385 258,766 77,343,996 817,632 378,978 77,782,650
FNMA............. 47,184,210 1,957,504 20,813 49,120,901 239,650 313,595 49,046,956
Collateralized
mortgage
obligations.... 26,484,270 825,144 131,212 27,178,202 696,570 172,428 27,702,344
------------- ------------ --------- ------------- ----------- ----------- -------------
$ 148,592,367 $5,591,898 $ 410,791 $ 153,773,474 $ 1,753,852 $ 871,022 $ 154,656,304
------------- ------------ --------- ------------- ----------- ----------- -------------
------------- ------------ --------- ------------- ----------- ----------- -------------
</TABLE>
In accordance with Regent's policy to hold all mortgage-backed securities
to maturity, there were no sales of mortgage-backed securities during 1994 or
1993.
Expected maturities of mortgage-backed securities will differ from
contractual maturities because borrowers may have the right to prepay
obligations with or without prepayment penalties. The contractual maturities of
these securities range from 10 to 40 years.
The Bank has established credit arrangements with financial institutions.
Mortgage-backed securities will serve as collateral for any transactions
executed under these arrangements. The
F-10
<PAGE>
REGENT BANCSHARES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. INVESTMENT PORTFOLIO -- (CONTINUED)
maximum level of funds available is approximately $11,000,000. Additionally, the
Bank has the ability to borrow on a short and long- term basis from the FHLB an
amount not exceeding 85% to 90% of the fair market value of these securities.
Borrowings under this arrangement at December 31, 1994 would require that
investment securities of approximately $71,000,000 be pledged as collateral.
Securities with a carrying value of $2,378,000 were pledged to secure public
deposits.
The carrying cost and market values of investment securities as of December
31, 1994 and 1993 follows
<TABLE>
<CAPTION>
1994 1993
------------------------ ----------------------------
CARRYING MARKET CARRYING MARKET
COST VALUE COST VALUE
----------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
U.S. Treasury bills...................................... $ 124,672 $ 124,672 $ 99,860 $ 99,860
Non-marketable equity investments........................ -- -- 2,292,475 2,292,475
----------- ----------- ------------- -------------
$ 124,672 $ 124,672 $ 2,392,335 $ 2,392,335
----------- ----------- ------------- -------------
----------- ----------- ------------- -------------
</TABLE>
5. LOANS
A summary of the loan portfolio as of December 31, 1994 and 1993 follows:
<TABLE>
<CAPTION>
1994 1993
-------------- --------------
<S> <C> <C>
Commercial & industrial loans...................................... $ 27,406,523 $ 23,293,946
Real estate:
Construction..................................................... 1,455,110 2,218,795
Mortgages -- residential......................................... 29,252,959 17,358,843
Mortgages -- commercial.......................................... 13,550,216 5,700,298
Consumer loans................................................... 4,409,532 357,700
-------------- --------------
76,074,340 48,929,582
Unearned interest/net deferred loan costs.......................... (214,701) 217,545
-------------- --------------
$ 75,859,639 $ 49,147,127
-------------- --------------
-------------- --------------
</TABLE>
Non-accrual loans were $3,685,804 and $2,123,202 at December 31, 1994 and
1993, respectively. Interest income of approximately $211,000, $198,500 and
$261,400 was not recognized as operating income due to the non-accrual status of
loans during 1994, 1993 and 1992, respectively. At December 31, 1994 and 1993,
loans totalling $393,681 and $420,237, respectively, were past due 90 days or
more and continue to accrue interest income.
In 1993, the Bank introduced a new lending program directed to the mortgage
banking industry. As an alternative to a warehouse credit line, the Bank
participates in the funding of individual residential mortgage loans originated
by the mortgage banker. During late 1994, two of the mortgage banking companies
involved in this program experienced financial difficulties and subsequently
filed for bankruptcy protection. At or about the same time, the Bank learned
that irregularities occured in the origination process at the mortgage banking
companies which negatively impacted the underlying real estate collateral of
certain loans that had been funded. As a result of these conditions, the Bank
recorded charges totaling $1,067,000 on a pre-tax basis ($1.08 per common share)
in the fourth quarter, which includes an additional provision for loan losses of
$825,000.
At December 31, 1994 and 1993, there were $3,539,143 and $3,530,597,
respectively, of loans outstanding to directors, principal shareholders and
executive officers and their affiliated interests. During 1994, new loans of
$1,989,159 were made and repayments totalled $1,980,613. Such loans are
F-11
<PAGE>
REGENT BANCSHARES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. LOANS -- (CONTINUED)
made in the ordinary course of business at the Bank's normal credit terms and do
not present more than a normal risk of collection.
6. ALLOWANCE FOR LOAN LOSSES
A summary of the activity in the allowance for loan losses for the years
ended December 31, 1994, 1993, and 1992 follows:
<TABLE>
<CAPTION>
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
Balance, beginning of year...................................... $ 1,321,225 $ 1,077,635 $ 905,139
Provision charged to operating income........................... 860,000 450,000 525,000
Loans charged-off............................................... (552,143) (244,377) (352,727)
Recoveries of loans previously charged-off...................... 84,290 37,967 223
------------- ------------- -------------
Balance, end of year............................................ $ 1,713,372 $ 1,321,225 $ 1,077,635
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
7. PREMISES AND EQUIPMENT
A summary of premises and equipment as of December 31, 1994 and 1993
follows:
<TABLE>
<CAPTION>
1994 1993
------------- -------------
<S> <C> <C>
Furniture and fixtures................................................ $ 731,132 $ 550,691
Leasehold improvements................................................ 490,160 484,535
------------- -------------
1,221,292 1,035,226
Less -- Accumulated depreciation and amortization..................... 564,791 413,891
------------- -------------
Premises and equipment, net........................................... $ 656,501 $ 621,335
------------- -------------
------------- -------------
</TABLE>
8. CERTIFICATES OF DEPOSIT
At December 31, 1994, 1993, and 1992, certificates of deposit outstanding
with a face value greater than or equal to $100,000 totalled approximately
$7,646,000, $7,374,000, and $9,057,000, respectively. Interest expense for the
years then ended relating to those certificates was approximately $143,900,
$212,800, and $429,000, respectively.
9. ADVANCES FROM FEDERAL HOME LOAN BANK OF PITTSBURGH
A summary of the advances from the FHLB at December 31, 1994 and 1993
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1994
---------------------------------------
INTEREST
AMOUNT MATURITY RATE
-------------- ---------- -----------
<S> <C> <C> <C>
Short-term:................................................. $ 34,637,382 11/2/95 6.61%
4,000,000 2/17/95 6.13%
4,000,000 2/27/95 6.18%
2,000,000 4/3/95 6.17%
5,000,000 5/26/95 5.88%
3,400,000 11/20/95 5.38%
5,000,000 12/18/95 5.89%
5,000,000 12/19/95 5.89%
--------------
Total Advances......................................... $ 63,037,382
--------------
--------------
</TABLE>
F-12
<PAGE>
REGENT BANCSHARES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. ADVANCES FROM FEDERAL HOME LOAN BANK OF PITTSBURGH -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1993
---------------------------------------
INTEREST
AMOUNT MATURITY RATE
-------------- ---------- -----------
<S> <C> <C> <C>
Short-term:................................................. $ 1,600,000 11/18/94 5.05%
22,104,821 12/31/94 3.35%
--------------
Total short-term....................................... 23,704,821
--------------
Long-term:.................................................. 2,000,000 4/3/95 6.17%
3,400,000 11/20/95 5.38%
5,000,000 5/26/95 3.44%
--------------
Total long-term........................................ 10,400,000
--------------
Total Advances................................... $ 34,104,821
--------------
--------------
</TABLE>
Advances from the FHLB are collateralized by mortgage-backed securities at
an amount not exceeding 85% to 90% of the fair market value of these securities.
10. SUBORDINATED DEBENTURES
Subordinated debentures consist of 7 3/4% notes due September 30, 1998.
These notes are subordinated to rights of any senior debt consisting of certain
obligations to banks and other financial institutions which may be incurred.
11. INCOME TAXES
As of January 1, 1993, Regent adopted the provisions of SFAS No. 109. The
cumulative effect of adopting this change was not material, and accordingly, has
been reflected in the consolidated statements of income as part of the income
tax provision for the year ended December 31, 1993. Prior year financial
statements have not been restated to reflect the new accounting method.
The provision for income taxes for the years ended December 31, 1994, 1993
and 1992 follows:
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Current.................................................... $ 484,900 $ 643,500 $ 652,700
Deferred................................................... (225,800) (37,000) (51,000)
----------- ----------- -----------
$ 259,100 $ 606,500 $ 601,700
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Regent's effective tax rate does not differ significantly from the federal
statutory rate of 34%.
Deferred taxes are determined based on the estimated future tax effects of
differences between the financial statement and tax bases of assets and
liabilities given the provisions of the enacted tax laws.
F-13
<PAGE>
REGENT BANCSHARES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. INCOME TAXES -- (CONTINUED)
The tax effect of significant temporary differences representing deferred tax
assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1993
------------- ------------
<S> <C> <C>
Loan loss reserve..................................................... $ 582,000 $ 449,200
Depreciation.......................................................... 11,900 3,100
Unrealized loss on investment securities available for sale........... 733,000 --
Other................................................................. 31,200 21,000
------------- ------------
Total gross assets............................................... 1,358,100 473,300
------------- ------------
Deferred loan fee..................................................... -- (74,000)
------------
Total gross liabilities.......................................... -- (74,000)
------------- ------------
Net deferred tax asset................................................ $ 1,358,100 $ 399,300
------------- ------------
------------- ------------
</TABLE>
Management of Regent believes that the existing net temporary differences
will reverse during periods in which Regent generates net taxable income. The
deferred tax asset is included in prepaid expense and other assets on the
consolidated balance sheets.
At December 31, 1994, an income tax receivable of $255,444 is recorded and
included in prepaid expenses and other assets in the accompanying consolidated
balance sheets.
12. COMMITMENTS AND CONTINGENCIES
Regent has a 10-year noncancelable lease agreement for its banking
facility. This agreement expires on May 31, 1999. Future minimum lease payments
as of December 31, 1994 in connection with the lease are:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31 AMOUNT
- ------------------------------------------------------------------------------- -----------
<S> <C>
1995........................................................................... $ 189,660
1996........................................................................... 189,660
1997........................................................................... 189,660
1998........................................................................... 189,660
1999........................................................................... 81,005
Thereafter..................................................................... --
-----------
Total minimum payments required........................................... $ 839,645
-----------
-----------
</TABLE>
Regent incurred rent expense of $173,865, $173,959 and $173,855 in 1994,
1993 and 1992, respectively. The lease has an initial term of ten years and
options to renew for two terms of five years each. Rental payments for the
option period commencing June 1, 1999, will be based upon fair market value. The
lease also requires Regent to pay its pro rata share of all operating expenses
such as maintenance, insurance, taxes, etc.
Regent is subject to various legal actions and proceedings. In the
bankruptcy proceeding of a mortgage banking company for which the Bank funded
individual residential mortgages, the Bank has requested the court to order the
debtor to execute assignments of notes and mortgages to the Bank with respect to
approximately $7,600,000 of mortgages which the Bank had purchased and which the
debtor was obligated to resell but had failed to resell as a result of its
financial difficulties. Such mortgages were recorded by the Bank as of December
31, 1994. The debtor has objected to the Bank's request, alleging that the
mortgages may be the property of the debtor and that the funds advanced by the
Bank of approximately $7,600,000 might represent unsecured loans to the debtor.
In this event, it is
F-14
<PAGE>
REGENT BANCSHARES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
management's belief that the Bank's claims in these proceedings represent a
substantial portion of all claims against the debtor. The Bank expects to
establish in these proceedings that in each case the Bank acquired ownership of
each mortgage and did not make a loan to the debtor, and intends to vigorously
oppose any argument by the debtor that the transactions should be characterized
as loans to the debtor. In the opinion of management, after discussion with
legal counsel, the resolution of these matters is not expected to have a
material adverse effect on Regent's consolidated financial condition or results
of operations.
13. SIGNIFICANT GROUP CONCENTRATIONS OF RISK
Approximately 58% and 52% of the total loans outstanding at December 31,
1994 and 1993, respectively, are real estate loans and the collateral is
primarily located in the various counties surrounding Philadelphia. Regent is
able to decrease its credit exposure by an amount equal to the appraised value
of the collateral.
14. RELATED PARTIES
Regent incurred professional fees of $560,441, $436,956 and $276,142 in
1994, 1993 and 1992, respectively. Included in these amounts were approximately
$270,000, $167,000 and $108,900 in 1994, 1993 and 1992, respectively, of fees
paid to law firms that have representatives who are members of the Board of
Directors of Regent or the Bank.
Regent paid insurance premiums of approximately $78,800, $79,700 and
$81,800 during 1994, 1993 and 1992, respectively, to an insurance brokerage
agency whose president is also a member of the Board of Directors of Regent.
Regent paid consulting fees of approximately $80,700, $76,300 and $56,900
during 1994, 1993 and 1992, respectively, to an investment consulting firm whose
president is also a member of the Board of Directors of Regent.
15. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
Regent is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and letters of
credit, which involve, to varying degrees, elements of credit and interest rate
risk that are not recognized in the consolidated balance sheets.
Exposure to credit loss in the event of non-performance by the other party
to the financial instrument for commitments to extend credit is represented by
the contractual or notional amount of those instruments. The Company uses the
same credit policies in making commitments as it does for on-balance-sheet
instruments.
Regent had outstanding loan origination commitments to originate variable
and fixed rate loans aggregating approximately $350,000 and $3,986,000 at
December 31, 1994 and 1993, respectively. These commitments expire at various
dates within 75 days subsequent to December 31, 1994, and 90 days subsequent to
December 31, 1993. Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition established in the
commitment agreement. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since a portion of the
commitments are expected to expire without being drawn upon, the total
commitments do not necessarily represent future cash requirements.
Commitments under outstanding standby letters of credit were $487,000 at
December 31, 1994 and $621,000 at December 31, 1993. Commitments under lines of
credit exist as the borrower has not
F-15
<PAGE>
REGENT BANCSHARES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK -- (CONTINUED)
used the full amount of the approved line of credit. Amounts available for use
under existing lines of credit were $6,807,000 and $3,850,000 at December 31,
1994 and 1993, respectively.
16. SHAREHOLDERS' EQUITY
Prior to the public offering of securities by Regent in 1989, the
organizers of Regent purchased 101,000 shares of common stock at $10 per share.
These shares contain warrants to purchase up to 59,438 shares of common stock at
$8.50 per share. The warrants expire on December 31, 1995. In addition, Regent
granted options to the organizers to purchase an aggregate of 264,825 shares of
common stock. These options are exercisable at a price of $8.50 per share and
expire on May 23, 1996.
In connection with the public offering, 500,196 units were purchased which
consisted of one share of Regent's common stock and one-half warrant. Each whole
warrant entitles the holder to purchase 1.177 shares of common stock at a price
of $8.50 per share and expires on December 31, 1995.
In April 1989, Regent established a Stock Option Plan which provides for
the granting of incentive and nonqualified stock options to certain officers,
directors, founders and key employees. Currently, a maximum of 211,860 shares of
Regent's common stock may be issued, with no more than 153,010 shares granted to
directors, founders and director/officers of the Bank and no more than 58,850
shares granted to nondirector/officers of the Bank. Options are granted at a
price not less than 100% of the fair market value of the common stock at date of
grant and must be exercised within five years from date of grant, with certain
restrictions. At December 31, 1994 and 1993, options for 151,539 shares, were
outstanding at $8.50 per share. No options were exercised during 1994 or 1993.
In June 1989, Regent sold 530,000 shares of Series A Convertible Preferred
Stock. The preferred stock is convertible, at the option of the holder, into
Regent's common stock on a share-for-share basis. The Series A Convertible
Preferred Stock is redeemable at Regent's option at $10.00 per share, plus
declared but unpaid dividends.
The Series B through Series E Convertible Preferred Stock is redeemable in
whole or in part at the option of Regent, at a price of $8.50 per share, plus
declared but unpaid dividends.
In July 1994 and 1993, Regent issued 51,912 and 52,967 shares,
respectively, of Series E, and in May 1992, 1991, and 1990, Regent issued 52,996
shares of Series D, 52,996 shares of Series C, and 52,998 shares of Series B
Convertible Preferred Stock, representing a 10% stock dividend to holders of
Series A Convertible Preferred Stock. The fair market value of the 51,912 and
52,967 shares issued of Series E stock of $395,829 and $430,381, respectively,
the 52,996 shares issued of Series D stock of $357,750, the 52,996 shares issued
of Series C stock of $264,980 and the 52,998 shares of Series B stock of
$490,250 has been charged to retained earnings (accumulated deficit). Each share
of Series B, C and D stock is convertible into 1.177 shares of common stock and
each share of Series E stock is convertible into one share of common stock.
In connection with the 10% stock dividend issued in the form of Series B
through Series D preferred stock, the organizers had the obligation to purchase
these shares from the recipients at $10 per share. Regent has issued to each
organizer who was required to purchase any share of the stock dividend a warrant
to purchase one-half of a share of common stock at $8.50 per share for each
share of preferred stock purchased. The warrants are exercisable for a period of
five years from the date of issue at a purchase price of $8.50 per share. In
connection with the issuance of the Series B, C and D Convertible Preferred
Stock, warrants for the purchase of 24,977, 25,319 and 25,852 shares,
respectively, have been issued to the organizers.
In July 1993 and May 1992, Regent paid 7% and 10% common stock dividends
resulting in the issuance of an additional 57,287 and 67,592 shares,
respectively, of common stock. In connection with
F-16
<PAGE>
REGENT BANCSHARES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. SHAREHOLDERS' EQUITY -- (CONTINUED)
preferred stock, options, and warrants, approximately 1,512,000 shares have been
reserved for issuance upon exercise or conversion in accordance with the
antidilution and adjustment provisions of the various issues. Per share data and
the weighted average number of shares outstanding for all periods presented in
the consolidated statements of income have been adjusted to reflect the payment
of the common stock dividend.
17. DIVIDEND AND LOAN LIMITATIONS
The dividends that may be paid by a subsidiary bank to the parent company
are subject to certain legal limitations. Under such limitations, $1,866,000 are
currently available for the payment of dividends by the Bank to Regent at
December 31, 1994.
Under current Federal Reserve regulations, the Bank is limited in the
amount it may loan to Regent, unless the loans are secured by specific
obligations. At December 31, 1994, the maximum amount available for transfer
from the Bank to Regent in the form of loans approximated 10% of consolidated
net assets.
18. REGENT BANCSHARES CORP. (PARENT COMPANY ONLY) FINANCIAL INFORMATION
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------
1994 1993
-------------- --------------
<S> <C> <C>
Cash.......................................................................... $ 100 $ 100
Other investment securities................................................... 134,147 107,446
Other assets.................................................................. 126,113 45,294
Investment in subsidiary...................................................... 14,748,926 15,549,739
-------------- --------------
Total assets................................................................ $ 15,009,286 $ 15,702,579
-------------- --------------
-------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Other liabilities............................................................. $ 53,718 $ 26,836
Subordinated debentures....................................................... 2,750,000 2,550,000
Shareholders' equity.......................................................... 12,205,568 13,125,743
-------------- --------------
Total liabilities and shareholders' equity.................................. $ 15,009,286 $ 15,702,579
-------------- --------------
-------------- --------------
</TABLE>
F-17
<PAGE>
REGENT BANCSHARES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
18. REGENT BANCSHARES CORP. (PARENT COMPANY ONLY) FINANCIAL
INFORMATION -- (CONTINUED)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------
1994 1993 1992
----------- ------------- -------------
<S> <C> <C> <C>
Dividend from subsidiary.......................................... $ 250,000 $ -- $ --
Interest income................................................... 4,312 3,896 6,288
----------- ------------- -------------
Total income.................................................... 254,312 3,896 6,288
----------- ------------- -------------
Expenses:
Interest........................................................ 217,612 28,456 --
Other........................................................... 43,363 43,177 45,230
----------- ------------- -------------
Total expenses......................................... 260,975 71,633 45,230
----------- ------------- -------------
(6,663) (67,737) (38,942)
Income tax benefit................................................ (87,300) (23,000) (13,300)
----------- ------------- -------------
Income (loss) before equity in undistributed net income of
subsidiary...................................................... 80,637 (44,737) (25,642)
Equity in undistributed net income of subsidiary.................. 422,188 1,221,846 1,192,498
----------- ------------- -------------
Net income........................................................ $ 502,825 $ 1,177,109 $ 1,166,856
----------- ------------- -------------
----------- ------------- -------------
</TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------
1994 1993 1992
----------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income...................................................... $ 502,825 $ 1,177,109 $ 1,166,856
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Increase in other assets..................................... (80,819) (23,257) (13,537)
Equity in undistributed net income of subsidiary............. (422,188) (1,221,846) (1,192,498)
Increase (decrease) in other liabilities..................... 26,883 26,836 (1,946)
----------- ------------- -------------
Total adjustments......................................... (476,124) (1,218,267) (1,207,981)
----------- ------------- -------------
Net cash provided by (used in) operating activities....... 26,701 (41,158) (41,125)
----------- ------------- -------------
Cash flows from investing activities:
Decrease (increase) in investment securities.................... (26,701) 41,158 25,909
Increase in investment in subsidiary............................ (200,000) (2,550,000) --
----------- ------------- -------------
Net cash (used in) provided by investing
activities................................................ (226,701) (2,508,842) 25,909
----------- ------------- -------------
Cash flows from financing activities:
Issuance of subordinated debentures............................. 200,000 2,550,000 --
----------- ------------- -------------
Net decrease in cash.............................................. -- -- (15,216)
Cash, beginning of year........................................... 100 100 15,316
----------- ------------- -------------
Cash, end of year................................................. $ 100 $ 100 $ 100
----------- ------------- -------------
----------- ------------- -------------
</TABLE>
F-18
<PAGE>
REGENT BANCSHARES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
19. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
CASH AND FEDERAL FUNDS SOLD: The carrying amounts for cash and federal
funds sold approximate the fair values of those assets.
MORTGAGE-BACKED SECURITIES AND INVESTMENT SECURITIES: Fair values are
based on quoted market prices, if available. If quoted market prices are not
available, then fair values are based on quoted market prices of comparable
instruments.
LOANS: For floating rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying values. The
fair values of certain mortgage loans are based on quoted market prices of
similar loans sold in conjunction with securitization transactions. The fair
values for fixed rate commercial real estate and commercial and industrial loans
are estimated by discounting the future cash flows using the current rates at
which similar loans would be made to borrowers with similar terms and credit
quality.
MORTGAGE LOANS HELD FOR SALE: Due to their short-term nature, the carrying
amount of mortgage loans held for sale approximates fair value.
DEPOSIT LIABILITIES: The fair value of demand deposits, NOW and savings
accounts, and money market deposits is the amount payable on demand at the
reporting date. Fair values for fixed rate certificates of deposit are estimated
using discounted cash flows based on rates currently offered for deposits of
similar remaining maturities.
ADVANCES FROM FHLB: The carrying amount of short-term advances
approximates their fair values. Rates currently available for advances with
similar terms and remaining maturities are used to estimate the fair value of
long-term advances.
SUBORDINATED DEBENTURES: Rates currently available to the Company for debt
with similar terms and remaining maturities are used to estimate fair value.
OFF-BALANCE-SHEET INSTRUMENTS: The carrying amount of off-balance-sheet
instruments approximates their fair value as these commitments are short-term
and are primarily variable rate agreements.
F-19
<PAGE>
REGENT BANCSHARES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
19. FAIR VALUE OF FINANCIAL INSTRUMENTS -- (CONTINUED)
The estimated fair value of the Company's financial instruments at December
31, 1994 follows:
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Financial assets:
Cash.................................................................... $ 2,802 $ 2,802
Investment securities................................................... 125 125
Mortgage-backed securities.............................................. 152,945 144,653
Loans, net.............................................................. 74,146 73,618
Mortgage loans held for sale............................................ 5,388 5,388
Financial liabilities:
Deposits................................................................ 161,061 160,678
Advances from FHLB...................................................... 63,037 62,951
Subordinated debentures................................................. 2,750 2,438
Off-Balance-Sheet Instruments:
(Notional amounts)
Commitments to extend credit............................................ 350 350
Letters of credit....................................................... 487 487
Commitments under lines of credit....................................... 6,807 6,807
</TABLE>
20. SUBSEQUENT EVENTS
On August 30, 1995, with the approval of the Board of Directors, the
Company and the Bank entered into an Agreement and Plan of Merger (the
Agreement) with Carnegie Bancorp (Carnegie) and its wholly-owned subsidiary,
Carnegie Bank, N.A. (CBN). Pursuant to the Agreement, the Company will be merged
with and into Carnegie (the merger), and the Bank will be merged with and into
CBN, which will conduct business under the name Carnegie Regent Bank, N.A. The
Agreement provides, among other things, that upon the merger (i), each Common
and Preferred Series A share of the Company will be converted into .75 common
shares and one Preferred Series A share of Carnegie, respectively, (ii) each
share of Preferred Series B,C,D and E of the Company will be called for
redemption at $10.00 per share unless previously converted into the Company's
common shares in accordance with its terms, and (iii) outstanding options and
warrants to purchase the Company's common stock will be converted into Carnegie
common stock or Carnegie options as further defined in the Agreement. To effect
the merger, the approval of a majority of voting shareholders of the Company and
Carnegie and receipt of all governmental and other required approvals, including
the approval of the Office of the Comptroller of the Currency and the Federal
Reserve Bank, is necessary. Additionally, the agreement provides that, to effect
the merger, the Company and Carnegie are subject to the satisfaction, or waiver,
of various conditions as more fully described in the Agreement.
In October, 1995, the U.S. Bankruptcy Court issued an order approving the
settlement of the matter discussed in Note 12. As part of the settlement, the
Bank's request to receive assignment of notes and mortgages of approximately
$7,600,000 was granted and the trustee and creditor's committee agreed not to
object to the Bank's unsecured claims against the debtor in the bankruptcy
proceedings. Additionally, the Bank agreed to pay the trustee $175,000 and will
lend the trustee up to an additional $175,000 to pay counsel fees in connection
with litigation by the trustee against a third party. The Bank also agreed to
make an additional loan up to $50,000 and a third loan of $75,000, (subject to
certain conditions), to pay fees and expenses of professionals (other than
attorneys) in connection with the claim against the third party. The loans will
bear interest at the Bank's prime rate plus one percent per annum, and will be
secured by a continuing first lien on, and security interest in
F-20
<PAGE>
REGENT BANCSHARES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
20. SUBSEQUENT EVENTS -- (CONTINUED)
(after administrative expenses, as defined), the trustee's right, title and
interest in the assets of the debtor's bankruptcy estate. The Bank's payment to
the trustee of $175,000, has been charged to expense in the three months ended
September 30, 1995. Management believes the Bank's loan commitments under the
settlement are recoverable based upon its current assessment of the outcome of
the litigation against the third party. The Bank's unsecured claims against the
debtor approximate $2.5 million, with recovery primarily dependent on successful
litigation against the third party.
There continues to be possible claims which may be made against the Bank by
other creditors associated with the Bank's transactions with the debtor. Such
claims have not been formally asserted to date. Additionally, in November 1995,
the agent that conducted a real estate settlement involving the refinancing of a
mortgage through the debtor, filed a lawsuit against the Bank seeking damages in
excess of $100,000 plus any and all damages sustained which are unspecified. The
lawsuit alleges, among other things, breach of contract and reliance on the Bank
as the debtor's warehouse lender. Management believes that these pending and
possible claims are without merit, and the Bank intends to vigorously defend
this and any future actions brought related to these matters. However, the
ultimate outcome of these matters is not presently determinable and,
accordingly, no adjustments have been made in the accompanying consolidated
financial statements.
In the opinion of management, after discussions with legal counsel, the
resolution of each of these matters is not expected to have a material adverse
effect on the Company's consolidated financial condition or results of
operations.
F-21
<PAGE>
20. SUBSEQUENT EVENTS -- (CONTINUED)
REGENT BANCSHARES CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
ASSETS 1995
----------------
<S> <C>
Cash and due from banks.............................................................. $ 4,929,325
Investment securities available for sale............................................. 31,273,732
Mortgage-backed securities held to maturity.......................................... 111,537,750
Mortgage loans held for sale......................................................... 4,071,033
Loans, net of unearned interest and loan costs....................................... 103,129,694
Less: Allowance for loan losses.................................................... (1,913,920)
----------------
Net loans.......................................................................... 101,215,774
Premises and equipment, net.......................................................... 665,981
Accrued interest receivable.......................................................... 1,694,470
Prepaid expenses and other assets.................................................... 1,195,037
----------------
Total Assets.................................................................... $ 256,583,102
----------------
----------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing............................................................... $ 15,611,907
Interest bearing:
NOW and money market............................................................ 10,860,561
Savings......................................................................... 48,117,623
Certificates of deposit......................................................... 118,353,183
----------------
Total Deposits.................................................................. 192,943,274
Advances from Federal Home Loan Bank of Pittsburgh................................... 38,140,585
Subordinated debentures.............................................................. 2,750,000
Accrued interest payable............................................................. 4,301,902
Other liabilities.................................................................... 4,918,986
----------------
Total Liabilities............................................................... 243,054,747
----------------
Commitments and Contingencies
Shareholders' Equity:
Preferred stock, $.10 par value, 5,000,000 shares authorized
Series A, 487,532 shares issued and outstanding; entitled to $4,875,320 in
involuntary liquidation....................................................... 48,753
Series B, 4,270 shares issued and outstanding; entitled to $42,700 in
involuntary liquidation....................................................... 427
Series C, 3,515 shares issued and outstanding; entitled to $35,150 in
involuntary liquidation....................................................... 351
Series D, 4,775 shares issued and outstanding; entitled to $47,750 in
involuntary liquidation....................................................... 478
Series E, 99,273 shares issued and outstanding; entitled to $992,730 in
involuntary liquidation....................................................... 9,927
Common Stock, $.10 par value, 10,000,000 shares authorized, 979,274 shares issued
and outstanding................................................................. 97,927
Capital surplus.................................................................... 13,300,872
Retained earnings.................................................................. 546,308
Net unrealized loss on securities available for sale............................... (476,688)
----------------
Total Shareholders' Equity...................................................... 13,528,355
----------------
Total Liabilities & Shareholders' Equity........................................... $ 256,583,102
----------------
----------------
</TABLE>
F-22
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
Interest Income:
Loans, including fees............................................................. $ 7,482,226 $ 4,611,396
Investment securities............................................................. 7,581,244 8,149,617
Federal funds sold................................................................ -- 9,562
------------- -------------
Total interest income.......................................................... 15,063,470 12,770,575
------------- -------------
Interest Expense:
Deposits.......................................................................... 6,785,615 6,906,112
Short-term borrowings............................................................. 2,179,974 1,149,306
Long-term debt.................................................................... 167,697 422,622
------------- -------------
Total interest expense......................................................... 9,133,286 8,478,040
------------- -------------
Net interest income............................................................ 5,930,184 4,292,535
Provision for loan losses........................................................... 320,000 35,000
------------- -------------
Net interest income after provision for loan losses............................ 5,610,184 4,257,535
------------- -------------
Other income:
Service charges on deposit accounts............................................... 56,160 91,365
Other 17,900 81,957
------------- -------------
Total other income............................................................. 74,060 173,322
------------- -------------
Other Expenses:
Salaries and employee benefits.................................................... 1,278,726 1,121,069
Professional services............................................................. 833,988 325,524
Rent.............................................................................. 130,391 131,708
Other occupancy expense........................................................... 123,464 87,863
Depreciation and amortization..................................................... 133,750 106,001
Insurance......................................................................... 238,921 372,360
Other............................................................................. 2,376,729 732,008
------------- -------------
Total other expenses........................................................... 5,115,969 2,876,533
------------- -------------
Income before income taxes.......................................................... 568,275 1,554,324
Provisions for income taxes......................................................... 191,800 526,900
------------- -------------
NET INCOME.......................................................................... 376,475 1,027,424
Preferred stock dividends........................................................... 360,147 236,610
------------- -------------
Earnings for common stock........................................................... $ 16,328 $ 790,814
------------- -------------
------------- -------------
Earnings per common share:
Primary:.......................................................................... $ .02 $ .80
Fully diluted..................................................................... -- $ .69
Weighted average number of shares................................................... 1,048,059 982,490
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-23
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOW
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
---------------- ----------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income................................................................... $ 376,475 $ 1,027,424
Adjustments to reconcile net income to net cash provided by operating
activities --
Provision for loan losses.................................................. 320,000 35,000
Depreciation and amortization.............................................. 133,750 106,001
Net amortization of premiums and discounts on investment securities and
investment securities available for sale................................ 468,635 1,087,132
Decrease in net deferred loan costs........................................ 1,139,122 157,345
(Increase) decrease in accrued interest receivable......................... 256,774 (174,106)
Decrease in other assets................................................... 647,947 290,595
Increase in accrued interest payable....................................... 2,061,834 742,706
Increase in other liabilities.............................................. 2,762,999 425,041
---------------- ----------------
Total adjustments....................................................... 7,791,061 2,669,714
---------------- ----------------
Net cash provided by operating activities............................... 8,167,536 3,697,138
---------------- ----------------
Cash Flows From Investing Activities:
Net increase in loans...................................................... (28,528,629) (10,372,934)
Net decrease in mortgage loans held for sale............................... 1,316,484 1,130,533
Purchases of mortgage-backed and investment securities..................... -- (46,483,957)
Principal collected on investment and mortgage-backed
securities.............................................................. 14,205,310 39,915,104
Net decrease in U.S. Treasury bills........................................ 124,672 99,860
Net decrease in federal funds sold......................................... -- 6,000,000
Purchases of premises and equipment........................................ (143,230) (168,701)
---------------- ----------------
Net cash used in investing activities................................... (13,025,393) (9,880,095)
---------------- ----------------
Cash Flows From Financing Activities:
Net (decrease) increase in total deposits.................................. 31,881,802 (3,512,558)
Net (decrease) increase in advances from Federal Home Loan Bank of
Pittsburgh.............................................................. (24,896,797) 9,865,996
Proceeds from issuance of subordinated debentures.......................... -- 200,000
---------------- ----------------
Net cash provided by financing activities............................... 6,985,005 6,553,438
---------------- ----------------
Net increase (decrease) in cash and cash equivalents......................... 2,127,148 370,481
Cash and cash equivalents, beginning of year................................. 2,802,177 6,719,903
---------------- ----------------
Cash and cash equivalents, end of period..................................... $ 4,929,325 $ 7,090,384
---------------- ----------------
---------------- ----------------
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest................................................................... $ 7,071,452 $ 7,735,334
Income taxes............................................................... 100,000 310,000
Supplemental Schedule of Non-Cash Investing and Financial Activity:
Issuance and declaration of preferred stock as dividends..................... $ 308,712 $ 395,829
Conversion of preferred stock to common stock................................ 5,486 4,297
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-24
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of Regent, the accompanying unaudited financial statements
contain all adjustments (including normal recurring accruals) necessary to
present fairly the financial position of Regent as of September 30, 1995 and
its results of operations for the nine months ended September 30, 1995 and
1994 and its cash flows for the nine months ended September 30, 1995 and
1994.
2. Results of operations for the nine months ended September 30, 1995 are not
necessarily indicative of the results to be expected for the full year.
3. Earnings per common share for all periods presented is based on the weighted
averaged number of common shares outstanding and common stock equivalents,
after consideration of preferred stock dividends. Common stock equivalents
include the Series B, Series C, Series D and Series E Convertible Preferred
Stock. For the nine months ended September 30, 1995 and 1994, the weighted
average number of common shares included 114,056 and 94,989 shares,
respectively, attributable to common stock equivalents. The earnings per
common share does not assume the exercise of stock options or warrants as
common stock equivalents since such exercise would be anti-dilutive. Fully
diluted earnings per share assumes the conversion of preferred stock.
However, for the nine months ended September 30, 1995, the resulting
calculation is anti-dilutive and is therefore not presented herein. For the
nine months ended September 30, 1994, 1,499,868 shares were used in the
calculation.
F-25
<PAGE>
---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY REGENT. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION IN
WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information............................... 2
Incorporation of Certain Documents by Reference..... 2
Prospectus Summary.................................. 3
The Company......................................... 4
The Offering........................................ 4
Use of Proceeds..................................... 5
Price Range of Common Stock and Related Shareholder
Matters........................................... 5
Capitalization...................................... 6
Regent Financial Summary and Selected Per Share
Data.............................................. 7
Management's Discussion and Analysis of Financial
Condition and Results of
Operations........................................ 8
Business............................................ 30
The Merger.......................................... 36
Description of Regent Securities.................... 37
Legal Matters....................................... 41
Experts............................................. 41
Disclosure of Commission Position on Indemnification
for Securities Act Liabilities.................... 41
Index to Consolidated Financial Statements.......... F-1
</TABLE>
UNTIL ________, 1996, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTION.
344,387 SHARES
REGENT BANCSHARES CORP.
COMMON STOCK
------------------------
PROSPECTUS
------------------------
____________, 1996
---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<CAPTION>
ITEM AMOUNT
- --------------------------------------------------------------------------------------- --------------
<S> <C>
Filing Fee -- Securities and Exchange Commission....................................... $ 1,010.00
Blue Sky filing fees and expenses (including legal fees)............................... 1,500.00*
Accounting fees and expenses........................................................... 3,000.00*
Legal fees and expenses................................................................ 10,000.00*
Printing and engraving................................................................. 8,500.00*
--------------
Miscellaneous.......................................................................... 990.00
--------------
Total................................................................................ $ 25,000.00
--------------
--------------
<FN>
- ------------------
*Estimated.
</FN>
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article VIII of the Registrant's Bylaws provides that the Registrant shall
indemnify every director and officer of Regent, including any former directors
and officers, and may indemnify any employee or agent, to the full extent
permitted by the New Jersey Business Corporation Act ('NJBCA'). The Registrant
is also required to pay and advance expenses to such directors and officers for
matters covered by such indemnification to the full extent permitted under the
NJBCA.
Section 14A:3-5 of NJBCA gives a corporation the power, without a specific
authorization in its certificate of incorporation or by-laws, to indemnify a
director, officer, employee or agent (a 'corporate agent') against expenses and
liabilities incurred in connection with certain proceedings, involving the
corporate agent by reason of his being or having been such a corporate agent,
provided that with regard to a proceeding other than one by or in the right of
the corporation, the corporate agent must have acted in good faith and in the
manner reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal proceeding, such corporate agent
had no reasonable cause to believe his conduct was unlawful. In such proceeding,
the termination of a proceeding by judgment, order, settlement, conviction or
upon plea of nolo contendere or its equivalent does not of itself create a
presumption that any such corporate agent failed to meet the above applicable
standards of conduct. The indemnification provided by NJBCA does not exclude any
rights to which a corporate agent may be entitled under a certificate of
incorporation, by-law, agreement, vote of shareholders or otherwise. No
indemnification, other than that required when a corporate agent is successful
on the merits or otherwise in any of the above proceedings, shall be allowed if
such indemnification would be inconsistent with a provision of the certificate
of incorporation, a by-law or a resolution of the board of directors or of the
shareholders, an agreement or other proper corporate action in effect at the
time of the accrual of the alleged cause of action which prohibits, limits or
otherwise conditions the exercise of indemnification power by the corporation or
the rights of indemnification to which a corporate agent may be entitled.
ITEM 16. EXHIBITS.
Exhibits:
The Exhibit Index is on Page II-5 of this Registration Statement.
ITEM 17. UNDERTAKINGS.
Registrant undertakes:
A. To file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to: (i) include any
prospectus required by Section 10(a)(3) of the Securities
II-1
<PAGE>
Act of 1933 (the 'Act'); (ii) reflect in the prospectus any facts or events
which, individually or together, represent a fundamental change in the
information in the registration statement; and notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range may
be reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent no
more than a 20% change in the maximum aggregate offering price set forth in the
'Calculation of Registration Fee' table in the effective registration statement;
and (iii) include any material information on the plan of distribution.
B. For the purpose of determining any liability under the Act, to treat
each post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
C. To file a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
D. Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of Registrant pursuant
to the foregoing provisions, or otherwise, Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by Registrant of expenses incurred or paid by a director,
officer or controlling person of Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
E. For determining any liability under the Act, to treat the information
omitted from the form of prospectus filed as part of this registration statement
in reliance upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1), or (4) or 497(h) under the Act as part of
this registration statement as of the time the Commission declared it effective.
F. For determining any liability under the Act, to treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement
and that offering of the securities at that time as the initial bona fide
offering of those securities.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe and does believe that it
meets all of the requirements for filing on Form S-2 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in Philadelphia, Pennsylvania, on January 16, 1996.
REGENT BANCSHARES CORP.
By: /s/ HARVEY PORTER
--------------------------------
Harvey Porter, President and
Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints each of
Harvey Porter and Stephen J. Carroll as such person's true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for such person and in such person's name, place and stead, in any and all
capacities, to sign any and all amendments to the registration statement, and to
file the same, with all exhibits thereof, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as such person might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or a substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------- ------------------------------------------- -----------------------
<S> <C> <C>
/s/ HARVEY PORTER President, Chief Executive Officer and a January 16, 1996
- ---------------------- Director (principal executive officer)
Harvey Porter
/s/ STEPHEN J. CARROLL Treasurer (principal financial and January 16, 1996
- ----------------------- accounting officer)
Stephen J. Carroll
/s/ DAVID W. RING Chairman of the Board of Directors January 16, 1996
- -----------------------
David W. Ring
/s/ ABRAHAM L. BETTINGER Vice Chairman of the Board and Director January 16, 1996
- -------------------------
Abraham L. Bettinger
/s/ BARBARA H. TEAFORD Executive Vice President and Director January 16, 1996
- -------------------------
Barbara H. Teaford
/s/ O. FRANCIS BIONDI Director January 16, 1996
- -------------------------
O. Francis Biondi
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------- ------------------------------------------- -----------------------
<S> <C> <C>
/s/ LEONARD S. DWARES Director January 16, 1996
- -------------------------
Leonard S. Dwares
Director January , 1996
- -------------------------
Lance T. Funston
Director January , 1996
- -------------------------
James J. Mooney
/s/ EDWARD PARNES Director January 16, 1996
- -------------------------
Edward Parnes
Director January , 1996
- -------------------------
Robert J. Reichlin
/s/ HARRY D. ZUTZ Director January 16, 1996
- -------------------------
Harry D. Zutz
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
(PURSUANT TO ITEM 601 OF REGULATION S-B)
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF EXHIBITS NUMBERED PAGE
- ----------- --------------------------------------------------------------------------------- -----------------------
<S> <C> <C>
3.1* Articles of Incorporation (Pennsylvania)
3.2* Certificate of Incorporation of Registrant (New Jersey)
3.3* Articles and Certificate of Merger (Pennsylvania)
3.4* Certificate of Merger (New Jersey)
3.5* By-laws of Registrant
4.1* Form of Registrant's Common Stock Certificate
4.2* Form of Preferred Stock Certificate
4.3* Series A Preferred Stock Designation
4.4* Series B Preferred Stock Designation
4.5* Series C Preferred Stock Designation
4.6* Series D Preferred Stock Designation
4.7* Series E Preferred Stock Designation
4.8*** Form of Warrant, as amended June 30, 1994
4.9** Warrant Agreement dated May 24, 1989, as amended
4.10** Warrants with Hopper Soliday & Co., Inc. and its designee
5.1 Opinion of Duane, Morris & Heckscher re legality of Common Stock being offered
hereby
10.1** Stock Option Plan
10.2* Form of Incentive Stock Option
10.3* Form of Non-Statutory Stock Option
10.4* Lease Agreement dated August 4, 1988 for the premises located at 1430 Walnut
Street, Philadelphia, PA
10.5** Employment Agreement dated May 24, 1989 by and between the Company and Harvey
Porter
10.6** Employment Agreement dated May 24, 1989 by and between the Company and Barbara H.
Teaford
10.7**** Agreement and Plan of Merger dated as of August 30, 1995 among Carnegie Bancorp,
Carnegie Bank, N.A., the Company and Regent National Bank
23.1 Consent of Independent Public Accountants
23.2 Consent of Duane, Morris & Heckscher (included as part of Exhibit 5)
<FN>
- ------------------
* Incorporated by reference to Form S-1 Registration Statement of Registrant,
as amended, Registration No. 33-27299.
** Incorporated by reference from Registrant's Form 10-K report for the fiscal
year ended December 31, 1989.
*** Incorporated by reference from Registrant's Form 10-Q request for the quarter ended
June 30, 1994.
**** Incorporated by reference from Registrant's Form 8-K current report dated August 30, 1995
(date of earliest event reported).
</FN>
</TABLE>
<PAGE>
EXHIBIT 5.1
January 16, 1996
The Board of Directors of
Regent Bancshares Corp.
1430 Walnut Street
Philadelphia, Pennsylvania 19102
Gentlemen:
We have acted as counsel to Regent Bancshares Corp. (the "Company") in
connection with the preparation and filing with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, of a registration
statement on Form S-2 (the "Registration Statement") relating to the offer and
sale by the Company of up to 344,387 shares (the "Shares") of common stock,
$.10 par value, of the Company.
As counsel to the Company, we have supervised all corporate proceedings
in connection with the preparation and filing of the Registration Statement. We
have also examined the Company's Certificate of Incorporation and By-laws, as
amended to date, the corporate minutes and other proceedings and records
relating to the authorization, sale and issuance of the Shares, and such other
documents and matters of law as we have deemed necessary or appropriate in
order to render this opinion. Based upon the foregoing, it is our opinion that
each of the Shares, when paid for, will be legally issued, fully paid and
nonassessable.
We hereby consent to the use of this opinion in the Registration Statement,
and we further consent to the reference to our name in the Prospectus under
the caption "Legal Matters."
Sincerely,
Duane, Morris & Heckscher
By: /s/ Frederick W. Dreher
--------------------------------------
A Partner
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report on the consolidated financial statements of Regent Bancshares Corp. as of
December 31, 1994 and 1993, and for each of the three years in the period ended
December 31, 1994, and to all references to our firm included in or made a part
of this Registration Statement.
ARTHUR ANDERSEN LLP
Philadelphia, PA
January 16, 1996
