SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number 0-17753
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 No.)
1430 Walnut Street, Philadelphia, PA 19102
(Address of principal executive offices) (Zip Code)
(215) 546-6500
------------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
------------------------------------------------------
(Former name and address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No ___
The number of shares of the Registrant's Common Stock and Series A
Convertible Preferred Stock outstanding at September 30, 1997 was 3,117,958 and
224,553, respectively.
<PAGE>
Part I. FINANCIAL INFORMATION
REGENT BANCSHARES CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------ -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 3,898,237 $ 4,409,674
Overnight investments 2,001,183 5,083,790
------------- -------------
Cash and cash equivalents 5,899,420 9,493,464
Investment securities available-for-sale 64,882,508 30,469,710
Investment securities held-to-maturity (market value of
$66,361,168 and $73,250,139, respectively) 66,901,793 75,082,982
Loans, net of unearned interest and fees 85,590,777 85,069,171
Less: Allowance for loan losses (1,423,010) (3,059,773)
------------- -------------
Net loans 84,167,767 82,009,398
------------- -------------
Accrued interest receivable 1,461,705 1,362,276
Premises and equipment, net 582,408 695,874
Prepaid expenses and other assets 2,961,549 2,790,522
------------- -------------
Total Assets $ 226,857,150 $ 201,904,226
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand deposits $ 12,268,257 $ 10,986,013
Interest bearing:
NOW and money market 7,686,962 6,583,384
Savings 40,630,456 47,830,169
Certificates of deposit 107,096,046 119,726,797
------------- -------------
Total deposits 167,681,721 185,126,363
Advances from Federal Home Loan Bank of Pittsburgh 34,195,578 202,621
Subordinated debentures 2,750,000 2,750,000
Accrued interest payable 4,250,586 4,792,911
Other liabilities 226,180 899,614
------------- -------------
Total Liabilities 209,104,065 193,771,509
------------- -------------
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.10 par value, 5,000,000 shares authorized
Series A, 224,553 and 441,272 shares issued and outstanding;
entitled to $2,245,530 in involuntary liquidation 22,455 44,127
Series B, 3,150 and 3,820 shares issued and outstanding;
entitled to $31,500 in involuntary liquidation 315 382
Series C, 2,655 and 3,025 shares issued and outstanding;
entitled to $26,550 in involuntary liquidation 266 303
Series D, 2,550 and 3,280 shares issued and outstanding;
entitled to $25,550 in involuntary liquidation 255 328
Series E, 71,523 and 95,654 shares issued and outstanding;
entitled to $715,230 in involuntary liquidation 7,152 9,565
Common stock, $.10 par value, 10,000,000 shares authorized,
3,117,958 and 1,228,283 shares issued and outstanding 311,796 122,828
(continued on next page)
See notes to consolidated financial statements.
-2-
<PAGE>
(Continued) REGENT BANCSHARES CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<CAPTION>
September 30, 1997 December 31, 1996
------------------ -----------------
(Unaudited)
<S> <C> <C>
Additional paid-in capital 23,898,183 14,678,375
Accumulated deficit (6,363,438) (6,049,921)
Net unrealized loss on securities available-for-sale (123,899) (673,270)
------------- -------------
Total Shareholders' Equity 17,753,085 8,132,717
------------- -------------
Total Liabilities and Shareholders' Equity $ 226,857,150 $ 201,904,226
============= =============
</TABLE>
See notes to consolidated financial statements.
-3-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------ -------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Interest income:
Loans, including fees $ 1,955,663 $ 3,786,961 $ 6,021,517 $ 10,493,255
Investment securities, including dividends 2,186,347 2,018,363 5,999,694 6,434,591
------------ ------------ ------------ ------------
Total interest income 4,142,010 5,805,324 12,021,211 16,927,846
Interest expense:
Deposits 2,312,424 2,534,942 7,013,370 7,744,316
Short-term borrowings 316,329 506,891 350,437 1,464,820
Long-term debt 52,683 211,087 159,989 634,675
------------ ------------ ------------ ------------
Total interest expense 2,681,436 3,252,920 7,523,796 9,843,811
------------ ------------ ------------ ------------
Net interest income 1,460,574 2,552,404 4,497,415 7,084,035
Provision for loan losses -- 1,025,000 100,000 5,075,000
------------ ------------ ------------ ------------
Net interest income after provision
for loan losses 1,460,574 1,527,404 4,397,415 2,009,035
Non-interest income:
Service charges on deposit accounts 33,721 24,421 76,399 70,368
Other 18,540 4,765 44,256 14,966
Net gain on sales of assets 26,275 6,871 594,268 89,668
------------ ------------ ------------ ------------
Total non-interest income 78,536 36,057 714,923 138,945
Non-interest expense:
Salaries and employee benefits 589,371 513,746 2,180,913 1,470,186
Professional services 108,335 202,330 1,478,740 633,759
Occupancy 176,710 177,098 460,706 475,825
Insurance 98,066 43,005 370,808 90,837
IPF servicing 15,847 632,871 566,888 1,724,007
Other 249,376 314,802 802,015 861,724
------------ ------------ ------------ ------------
Total non-interest expense 1,237.705 1,883,852 5,860,070 5,256,338
------------ ------------ ------------ ------------
Income (loss) before income tax benefit 301,405 (320,391) (747,732) (3,072,301)
Income tax benefit -- -- (900,000) --
------------ ------------
Income (loss) before dividends on preferred stock 301,408 (320,391) 152,268 (3,072,301)
Preferred stock dividends (127,815) (25,118) (338,774) (100,805)
------------ ------------ ------------ ------------
Net income (loss) $ 173,590 $ (345,509) $ (186,506) $ (3,173,106)
============ ============ ============ ============
Income (loss) per common share $ .06 $ (.30) $ (.07) $ (2.83)
============ ============ ============ ============
Weighted average number of shares outstanding 3,061,380 1,157,290 2,350,289 1,122,027
</TABLE>
See notes to consolidated financial statements.
-4-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1997 1996
------------ ------------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss (income) $ 152,268 $ (3,072,301)
Adjustments to reconcile net income (loss)
to net cash (used in) provided by
operating activities:
Provision for loan losses 100,000 5,075,000
Depreciation and amortization 333,862 202,400
Net amortization of premiums and accretion
of discounts on investment securities 118,836 658,322
Net gain on sales of assets (594,268) (89,668)
Increase (decrease) in unearned interest and fees (629,498) 336,341
Decrease (increase) in accrued interest receivable (99,429) 224,974
Decrease (increase) in prepaid expenses
and other assets 423,241 (188,906)
Decrease in accrued interest payable (542,325) (813,955)
Decrease in other liabilities (273,434) (2,449,159)
Purchase of mortgage loans held for sale -- (47,337,077)
Proceeds from sales of mortgage loans
held for sale -- 57,378,856
------------ ------------
Net cash used in (provided by)
operating activities (1,010,747) 9,924,827
Cash flows from investing activities:
Net decrease (increase) in loans (2,028,872) 733,742
Sale of investment securities available-
for-sale 51,685,924 5,765,666
Purchase of investment securities available-
for-sale (87,303,862) --
Principal collected on investment securities
held-to-maturity 7,828,577 11,894,989
Principal collected on investment securities
available-for-sale 2,040,950 5,394,500
Purchases of premises and equipment (110,198) (231,004)
------------ ------------
Net cash (used in) provided by investing activities (27,887,481) 23,557,893
Cash flows from financing activities:
Net decrease in demand, NOW,
savings and money market deposits (4,813,791) (2,372,142)
Net decrease in certificates of deposit (12,630,751) (5,771,377)
Net increase in advances from Federal
Home Loan Bank of Pittsburgh with original
maturities greater than three months 23,992,957 --
Net increase (decrease) in advances from Federal
Home Loan Bank of Pittsburgh with original
maturities of three months or less 10,000,000 (27,535,668)
Proceeds from sale of preferred stock 106,336 --
(Continued on next page)
See notes to consolidated financial statements
-5-
<PAGE>
(Continued) REGENT BANCSHARES CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOW
<CAPTION>
Nine Months Ended September 30,
1997 1996
------------ ------------
(unaudited)
<S> <C> <C>
Proceeds from sale of common stock 8,811,560 --
Capital contribution -- 1,000,000
------------ ------------
Net cash provided by (used in) financing activities 25,466,341 (34,629,187)
------------ ------------
Net decrease in cash and cash equivalents (3,431,887) (1,196,467)
Cash and cash equivalents, beginning of year 9,493,464 6,918,680
------------ ------------
Cash and cash equivalents, end of period $ 6,061,577 $ 5,722,213
============ ============
</TABLE>
See notes to consolidated financial statements.
-6-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
1. In the opinion of Regent Bancshares Corp. ("Regent"), the accompanying
unaudited, consolidated financial statements contain all adjustments,
including normal recurring accruals, necessary to present fairly the
consolidated financial position of Regent and its wholly owned subsidiary,
Regent National Bank (the "Bank") as of September 30, 1997 and the results
of their consolidated operations and cash flows for the nine months ended
September 30, 1997 and 1996.
2. Results of operations for the three and nine months ended September 30,
1997 are not necessarily indicative of the results to be expected for the
full year.
3. Income (loss) per common share for all periods presented is based on the
weighted average 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 and, in 1996, outstanding stock options and
warrants and, in 1997, the 1,586,659 shares of Common Stock issued in
August 1997 in exchange for 1,120,000 shares of common stock of the Bank
held by shareholders other than Regent. For the nine months ended September
30, 1997 and 1996, the weighted average number of common shares included
639,369 shares and 115,837 shares, respectively, attributable to common
stock equivalents.
Fully diluted earnings per share for the three and nine months ended
September 30, 1997 and 1996 are not presented because they are
anti-dilutive.
4. Certain balance sheet reclassifications have been made to data for
September 30, 1996 and December 31, 1996 to conform to the current
presentation.
5. In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share," which is required to be adopted for the year
ending December 31, 1997. Under the new requirements for calculating
primary earnings per share, the dilutive effect of stock options will be
excluded. The impact of Statement No. 128 on the calculation of Regent's
earnings per share is not expected to be material.
In June 1997, the FASB issued two additional Statements. SFAS No. 130,
"Reporting Comprehensive Income," establishes standards for reporting and
display of comprehensive income and its components (revenues, expenses,
gains and losses) in a full set of general-purpose financial statements.
This Statement is effective for fiscal years beginning after December
15,1997; earlier application is permitted. Regent has elected not to adopt
this Statement prior to its effective date and has not determined which
financial statement will be utilized to display comprehensive income. The
second Statement, SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," requires that a public business
enterprise report financial and descriptive information about its
reportable operating segments. This Statement becomes effective for fiscal
-7-
<PAGE>
years beginning after December 15, 1997; earlier application is permitted.
Regent has elected not to adopt this Statement prior to its effective date
and has not determined if it has any reportable segments.
-8-
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Overview
Regent reported net income before preferred stock dividends for the first
nine months of 1997 of $152 thousand compared to a net loss of $3.1 million for
the first nine months of 1996. For the third quarter of 1997, Regent reported
net income before preferred stock dividends of $301 thousand versus a net loss
of $320 thousand for the comparable period of 1996. The improvement in Regent's
performance in the third quarter of 1997 is a direct result of actions taken in
the second quarter of 1997. As previously disclosed, many barriers to
profitability were eliminated during that quarter with the receipt of new
capital, the sale of problem assets, the reduction of 30% of Regent's full-time
positions and the write-off of miscellaneous items. In the third quarter of
1997, the resumption of loan and transaction account growth, the moderate
improvement in fee income, the reduced level of operating expenses and the
control of credit quality began to build a more solid basis for increasing
future profitability.
Total assets at September 30, 1997 were $226.9 million, which was 7.0%
greater than at June 30, 1997 and a 12.4% increase from the total at December
31, 1996. Total loans at September 30, 1997 were $85.6 million, which was 10.9%
and 0.6% higher than at June 30, 1997 and at December 31, 1996, respectively.
Total deposits were $167.7 million at September 30, 1997, a decrease of 3.8% and
9.4% from the levels at June 30, 1997 and December 31, 1996, respectively, as a
result of a management decision to reduce the Bank's reliance on expensive,
promotion-driven, time deposits. Shareholders' equity was $17.8 million at
September 30, 1997, which was more than two times the level at December 31,
1996. Shareholders' equity at June 30, 1997 of $8.3 million did not include the
minority interest of $8.9 million in Bank common stock that was exchanged for
Regent common stock on August 27, 1997.
As a result of improved operating results, several regulatory matters were
favorably resolved. As of mid-September 1997, advances from the Federal Home
Loan Bank of Pittsburgh (the "FHLB") will not bear any interest cost above
posted rates and will not require specific collateral delivery. In addition, at
September 30, 1997, the Office of the Comptroller of the Currency (the "OCC")
removed a prior restriction and gave permission for the Bank to declare and make
periodic dividend payments to Regent for corporate purposes, such as the payment
of interest on subordinated debt. Finally, it is expected that the Bank will not
be required to pay any FDIC insurance premiums beginning in 1998.
Financial Condition
Capital Adequacy
Total shareholders' equity at September 30, 1997 was approximately $17.75
million compared to $8.13 million at December 31, 1996. This change is due to
net proceeds of $8.81 million from issuance of shares of common stock, the
issuance of $106 thousand of Series A Convertible Preferred Stock, a decrease of
$549 thousand in the unrealized loss on securities and $152 thousand of net
income for the first nine months of 1997.
Capital adequacy standards adopted by federal banking regulators define
capital as Tier 1 and Tier 2 capital. All banks are required to have Tier 1
capital of at least 4% of risk-weighted assets and total capital of at least 8%
of risk-weighted assets. Tier 1 capital consists of common shareholders' equity,
-9-
<PAGE>
non-cumulative preferred stock and retained earnings and excludes the effects of
unrealized gains or losses on securities available-for-sale. Tier 2 or Total
capital includes Tier 1 capital, cumulative preferred stock, qualifying
subordinated debt and the allowance for possible loan losses up to a maximum of
1.25% of total risk-weighted assets.
The following table sets forth the capital ratios of Regent and the Bank as
of September 30, 1997 and December 31, 1996 as well as the required minimum
regulatory capital ratios.
<TABLE>
<CAPTION>
Required
Regulatory
Regent September 30, 1997 December 31, 1996 Minimum
- ------ ------------------ ----------------- -------
<S> <C> <C> <C>
Risk-based capital:
Tier 1 capital......... 14.64% 7.65% 4.00%
Total capital.......... 16.25 9.39 8.00
Tier 1 leverage ratio..... 8.27 4.31 4.00
</TABLE>
<TABLE>
<CAPTION>
Required
Regulatory
The Bank September 30, 1997 December 31, 1996 Minimum
- -------- ------------------ ----------------- -------
<S> <C> <C> <C>
Risk-based capital:
Tier 1 capital......... 16.84% 9.95% 4.00%
Total capital.......... 18.02 11.21 8.00
Tier 1 leverage ratio..... 9.52 5.65 4.00
</TABLE>
On June 25, 1997, as a result of the sale of Common Stock of the Bank and
other improvements in the financial condition and operations of the Bank, the
OCC terminated the Regulatory Agreement that had been in effect between the Bank
and the OCC since October 10, 1996. In addition, the Bank was notified that it
had satisfied the OCC criteria for a "well-capitalized" institution. Among other
things, this designation will eliminate the requirement that the Bank pay FDIC
insurance premiums beginning in 1998.
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, the Bank has
implemented policies and procedures 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.
-10-
<PAGE>
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 also by providing monthly principal and
interest payments.
The liquidity position is also strengthened by the establishment of credit
facilities with other banks, the Federal Reserve Bank of Philadelphia (the
"FRBP") and the FHLB. The FHLB also provides for borrowings on a fixed or
floating rate basis with specified maturities of up to 20 years at costs that
may be more or less expensive than the costs of the Bank's deposit generation
process.
Investment Portfolio
The investment portfolio, consisting principally of mortgage-backed
securities and callable federal agencies, is coordinated with the liquidity and
interest rate sensitivity position of the Bank. The objectives of the portfolio
are to enhance liquidity and earn a reasonable return. The investments in
mortgage-backed securities consist of a combination of adjustable and fixed rate
securities. Of the total mortgage-backed securities portfolio with an amortized
cost of $86.4 million at September 30, 1997, $15.0 million was adjustable rate
and $71.4 million was fixed rate. The estimated weighted average life for the
fixed rate mortgage-backed securities was 6.5 years at September 30, 1997. The
callable federal agencies aggregated $20.2 million at September 30, 1997, with
an average expected life, based on estimated call dates, of 1.9 years.
Interest Rate Sensitivity
The evaluation of interest rate sensitivity deals with the exposure of net
interest income to fluctuations in interest rates. 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, and provides management with an indication of how
interest income may be impacted by changing rate scenarios. For example, an
institution with more interest sensitive assets than interest sensitive
liabilities is said to have a positive gap. In this example, as interest rates
rise, a greater volume of assets is repriceable than liabilities. The net result
may be an increase in the net interest margin. Conversely, in a declining rate
environment, the net interest margin may decline. In addition to the gap
analysis, computer simulations are used to evaluate more specifically the impact
of a change in interest rates on liquidity, interest rate spreads/margins and
operating results. The simulation model is a more effective tool than an
analysis since the simulation analysis is more dynamic. The simulation is
particularly beneficial as it can better evaluate the effects of prepayment
speeds on the Bank's portfolio of mortgage-backed securities and the impact
prepayments would have on the Bank's liquidity and profitability. Using the
result of the simulation analysis, the Bank strives to control its interest rate
risk exposure so that its net interest income does not fluctuate by more than 5%
assuming that interest rates increase or decrease by 200 basis points over time.
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.
-11-
<PAGE>
The Bank's objective is to structure its balance sheet, as outlined in the
following Interest Sensitivity table as of September 30, 1997, 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 in two ways. First, certificates of deposit, FHLB advances and
subordinated debt are distributed based on existing maturity dates. Second,
non-maturity deposits such as NOWs and Savings are divided into a core
component, which is not considered interest-sensitive within a year, and a
volatile component, which is placed in the 0-3 month time category. This
determination is based on a multi-year history in varying interest rate
environments.
<TABLE>
<CAPTION>
0 to 3 4 to 12 1 to 3 3 to 5 After
Months Months Years Years 5 Years Total
------ ------ ----- ----- ------- -----
(in thousands, except percentages)
<S> <C> <C> <C> <C> <C> <C>
Investments.................. $ 22,455 $ 1,992 $ 29,208 $ 34,953 $ 43,300 $131,908
Loans ....................... 33,906 8,600 6,727 19,914 16,740 85,887
Other earning assets......... 2,001 --- --- --- --- 2,001
-------- -------- -------- -------- -------- --------
Total earning assets... $ 58,362 $ 10,592 $ 35,935 $ 54,867 $ 60,040 $219,796
-------- -------- -------- -------- -------- --------
NOW and money market......... $ 4,687 $ --- $ 3,000 $ --- $ --- $ 7,687
Savings...................... 2,030 --- 38,600 --- --- 40,630
Certificates of deposit..... 17,802 45,717 38,200 5,377 --- 107,096
FHLB advances................ 10,000 --- --- --- 24,196 34,196
Subordinated debt............ --- 2,750 --- --- --- 2,750
Net non-interest bearing
source of funds.......... --- --- --- --- 27,437 27,437
-------- -------- -------- -------- -------- --------
Total sources of funds. $ 34,519 $ 48,467 $ 79,800 $ 5,377 $ 51,633 $219,796
-------- -------- -------- -------- -------- --------
Period Gap................... 23,843 (37,875) (43,865) 49,490 8,407
Cumulative Gap............... 23,843 (14,032) (55,144) (8,407) ---
Cumulative Gap as % of
total assets............... 10.5% (6.4%) (25.1%) (3.7%)
</TABLE>
Investment Portfolio
The investment portfolio of the Bank includes debt securities and
non-marketable equities classified as held-to-maturity ("HTM") or
available-for-sale ("AFS") which are accounted for and reported based on the
guidelines contained in Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." The HTM
portfolio contains investments which Regent has the intention and ability to
hold until maturity and is accounted for at amortized cost. The AFS portfolio
contains securities and equities that may be sold if circumstances warrant and
are accounted for at market value with net unrealized gains or losses reported
as a component of shareholders' equity.
The HTM portfolio consists of mortgage-backed securities issued by U.S.
agencies and corporations and collateralized mortgage obligations ("CMOs") of
private issuers. The AFS portfolio consists of U.S. agency debt, mortgage-backed
securities issued by U.S. agencies and corporations and non-marketable equities,
principally issued by the FRBP and the FHLB.
The portfolios are structured to provide a consistent level of interest
income and to generate monthly cash flow to enhance the Bank's ability to manage
its liquidity needs. Although the stated maturities of mortgage-backed
securities and CMOs may be as long as 30 years, the average life of these
securities is expected to be considerably shorter due to the effects of normal
amortization of principal and
-12-
<PAGE>
prepayments of the residential mortgages underlying these securities. The
following table summarizes, by major category, the market value and amortized
cost of the Bank's AFS and HTM portfolios at September 30, 1997.
<TABLE>
<CAPTION>
Held-to-Maturity Available-for-Sale
Amortized Cost Market Value Amortized Cost Market Value
-------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
U.S. agencies..................$ --- $ --- $19,393,907 $19,705,107
Mortgage-backed securities:
GNMA......................... 10,335,038 10,205,942 --- ---
FHLMC........................ 27,421,291 27,383,639 17,431,158 17,212,028
FNMA......................... 16,323,110 16,077,373 14,861,977 14,653,095
Collateralized mortgage
obligations.................. 12,822,354 12,694,214 10,994,227 10,987,140
Non-marketable equity
securities................... --- --- 2,325,139 2,325,139
----------- ----------- ----------- -----------
Total....................... $66,901,793 $66,361,168 $65,006,407 $64,882,509
=========== =========== =========== ===========
</TABLE>
The following table sets forth the range of maturities of the Bank's debt
securities held-to-maturity at September 30, 1997 based on the weighted average
life of the securities for each classification and the weighted average yield
for each maturity period:
<TABLE>
<CAPTION>
Within 1 After 1 But After 5 But
Year Within 5 Years Within 10 Years Total
---------------- -------------- --------------- -----------
<S> <C> <C> <C> <C>
Mortgage-backed securities........ $ --- $26,129,908 $27,949,531 $54,079,439
Collateralized mortgage
obligations..................... --- 3,049,640 9,772,714 12,822,354
---------------- ----------- ----------- -----------
Total.......................... $ --- $29,179,548 $37,722,245 $66,901,793
================ =========== =========== ===========
Weighted Average Yield............ --- 6.57% 7.22% 6.94%
</TABLE>
The following table sets forth the range of maturities of the Bank's debt
securities available-for-sale at September 30, 1997 based on the amortized cost,
the weighted average life of the securities for each classification and the
weighted average yield for each maturity period:
<TABLE>
<CAPTION>
Within 1 After 1 But After 5 But
Year Within 5 Years Within 10 Years Total
----------- -------------- --------------- ---------
<S> <C> <C> <C> <C>
U.S. agencies..................... $ 162,157 $ --- $19,231,750 $19,343,907
Mortgage-backed securities........ --- 12,697,242 19,595,892 32,293,134
Collateralized mortgage
obligations..................... 1,523,653 --- 2,048,677 10,994,227
----------- ----------- ----------- -----------
Total.......................... $ 1,685,810 $20,119,139 $40,876,319 $62,681,268
=========== =========== =========== ===========
Weighted Average Yield............ 8.48% 7.00% 7.13% 7.12%
</TABLE>
The following table sets forth those CMOs of the Bank that have a carrying
value that exceeded 10% of Regent's shareholders' equity at September 30, 1997.
These securities have an investment rating of AA or better.
-13-
<PAGE>
Carrying Value Market Value
-------------- ------------
(in thousands)
PNC
Series 1997 6 A2...................... $ 2,065 $ 2,065
Continental
Home Equity Loan Series 96-3 A5 SEQ... 2,049 2,049
Bear Stearns Mortgage Securities Inc.
Series 1993-2 Class 7................. 2,077 2,077
Bear Stearns Mortgage Securities Inc.
Series 1992-04........................ 2,011 2,006
Saxon Mortgage Security Corp.
Series 1993-04 Class 1A............... 2,018 1,982
Bank of America
Series 1997-1 A9...................... 5,357 5,357
Gross unrealized gains and losses on the Bank's mortgage-backed securities
held to maturity at September 30, 1997 were $243 thousand and $785 thousand,
respectively, and gross unrealized gains and losses on securities available for
sale at September 30, 1997 were $341 and $465 thousand. Unrealized losses on the
securities generally are the result of higher market interest rates on the
securities than the book yield at which the securities are carried on the Bank's
financial statements.
Lending
The Bank's total loans amounted to $85.6 million at September 30, 1997
compared to $85.1 million at December 31, 1996. The small increase from year end
1996 resulted primarily from the runoff of the automobile insurance premium
finance ("IPF") receivables, prepayments and principal amortization from the
commercial portfolio and the sale of $6.4 million in loans to Carnegie Bank,
N.A., which were offset by new loan originations.
The following table sets forth the types of the Bank's loans outstanding by
category as of September 30, 1997 and December 31, 1996:
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------ -----------------
Amount % Amount %
------ - ------ -
(in thousands, except percentages)
<S> <C> <C> <C> <C>
Commercial and industrial........................ $39,587 46% $ 46,041 54%
Real estate:
Construction................................... 11,242 13 9,421 11
Mortgages-residential.......................... 8,066 9 10,219 12
Mortgages-commercial........................... 26,175 31 15,985 19
Consumer......................................... 817 1 3,827 4
------- ---- --------- ----
Total gross loans............................. 85,887 100% 85,493 100%
==== ====
Less:
Net unearned interest and fees................. (296) (424)
------- --------
Net loans...................................... $85,591 $ 85,069
======= ========
</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 of less than five years. The following table provides
a breakdown of the Bank's loans as of September 30, 1997 that have either
predetermined interest rates or floating rates:
-14-
<PAGE>
<TABLE>
<CAPTION>
Within 1 After 1 But After 5 But
Year Within 5 Years Within 10 Years Total
---------- -------------- --------------- ------------
(in thousands)
<S> <C> <C> <C> <C>
Predetermined interest rates...... $ 3,570 $23,718 $19,708 $46,996
Floating rates.................... 36,412 2,020 459 38,891
-------- ------- ------- -------
Total......................... $39,982 $25,738 $20,167 $85,887
======= ======= ======= =======
</TABLE>
Non-performing Assets
The level of non-performing assets consisting of non-accrual loans,
accruing loans past due 90 days or more and foreclosed properties, amounted to
$644 thousand, or .28% of total assets, at September 30, 1997, compared to $5.5
million, or 2.73% of total assets, at December 31,1996. At June 30, 1997, total
non-performing assets were $349 thousand. The substantial reduction in
non-performing assets by the end of the second quarter occurred when the Bank
entered into agreements to sell $6.5 million of nonaccruing and other problem
loans to several private parties after a brief bidding process. The sale of the
assets resulted in a $2.0 million charge-off against the allowance for loan
losses. The following table sets forth the Bank's non-performing assets at
September 30, 1997 and December 31, 1996.
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------ -----------------
(in thousands, except percentages)
<S> <C> <C>
Non-accrual loans........................................ $ 548 $ 3,837
Accruing loans 90 days or more past due.................. 64 977
---------- ----------
Total non-performing loans............................ 612 4,814
Other real estate owned.................................. 32 700
---------- ----------
Total non-performing assets........................... $ 644 $5,514
======== ======
Non-performing loans to loans............................ .72% 5.66%
Non-performing assets to total assets.................... .28 2.73
Non-performing assets to loans and
other real estate owned................................ .75 6.43
</TABLE>
Accrual of interest is discontinued on loans when management believes,
after considering economic and business conditions and collection efforts, that
the borrowers' financial conditions are such that collection of interest and
principal is questionable. The non-accrual loans are primarily secured by
various types of real estate. No interest income was included in the Bank's
operating income attributable to non-accrual loans in the first nine months of
1997.
Other real estate owned represents property acquired by foreclosure or deed
in lieu of foreclosure and repossessed assets. 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.
At September 30, 1997, the Bank's recorded investment in loans that are
considered to be impaired was $548 thousand. The related allowance for loan
losses was $82 thousand based on the fair value of the underlying collateral. At
December 31, 1996, the Bank's recorded investment in loans that are considered
to be impaired was $3.8 million. The related credit allowance for these impaired
loans was $648 thousand. The reserve evaluation was based on the fair value of
the collateral.
-15-
<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 in the Bank's allowance for loan losses for the nine months ended
September 30, 1997 and September 30, 1996:
<TABLE>
<CAPTION>
September 30, 1997 September 30, 1996
------------------ ------------------
<S> <C> <C>
Balance, beginning of period................................. $3,059,773 $6,500,882
Charge-offs:
Commercial and industrial.................................. 2,303,312 414,193
Real estate - residential.................................. 495,777 447,192
Consumer................................................... 9,657 7,474,692
---------- ----------
Total charge-offs....................................... $2,808,746 $8,336,077
========== ==========
Recoveries:
Real estate................................................ $ 320,000 $ ---
Consumer.................................................. 75,982 1,240,335
----------- ----------
Total recoveries....................................... 1,071,982 1,240,335
----------- ----------
Net charge-offs.............................................. 1,736,764 (7,095,742)
----------- ----------
Provision charged to operations.............................. 100,000 5,075,000
------------ ----------
Balance, end of period....................................... $1,423,009 $4,480,140
========== ==========
Annualized net charge-offs as a % of average
loans and loans held for sale.............................. 2.42% 4.38%
Allowance for loan losses as a % of
period end loans and loans held for sale.................... 1.67 7.55
</TABLE>
Management believes that those loans identified as non-performing are
adequately secured and the Bank's 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 Bank's loan portfolio and the estimated value of the underlying
collateral. The following table sets forth the allocation of the Bank's
allowance for loan losses at September 30, 1997:
Amount
------
Commercial and industrial........................... $ 500,919
Real estate:
Mortgages - residential........................... 21,361
Mortgages - commercial............................ ---
Unallocated......................................... 900,729
----------
$1,423,009
Deposits
The Bank's total deposits at September 30, 1997 aggregated $167.7 million
compared to total deposits at June 30, 1997 of $174.3 million and at December
31, 1996 of $185.1 million. As illustrated in the table below, the composition
of the Bank's deposits at September 30, 1997 has remained relatively consistent
compared to the composition of its deposits at December 31, 1996, although
transaction account
-16-
<PAGE>
balances represent 2% more than they did at year-end 1996. Savings deposits have
declined as customers have drawn down balances for normal purposes and
alternative investments. Time deposits have decreased as high-yielding funds
deposited in past years have been withdrawn to move to alternative investments.
<TABLE>
<CAPTION>
September 30, 1997 December 31,1996
-------------------- -----------------------
Balance % Balance %
------- - ------- -
(in thousands, except percentages)
<S> <C> <C> <C> <C>
Demand............................. $ 12,268 7% $ 10,986 6%
NOW and money market............... 7,687 5 6,583 4
Savings............................ 40,631 24 47,830 26
Certificates of deposit............ 107,096 64 119,727 64
-------- ---- --------- ----
$167,682 100% $ 185,126 100%
======== ==== ========= ====
</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 the first nine months of
1997 and 1996, the Bank utilized its credit facilities with the FHLB and,
in 1996, with correspondent banks. The borrowings from the FHLB at September
30,1997 are secured by a blanket lien on the Bank's assets, consistent with
high-quality member banks.
The following table summarizes the Bank's short-term borrowing activity for
the nine months ended September 30, 1997 and 1996:
<TABLE>
<CAPTION>
Average Weighted
Amount Maximum Average
Balance Outstanding Outstanding Interest Average
Outstanding During at any Rate at Rate
9/30 the Period Month-End 9/30 Paid
---- ---------- --------- ---- ----
<S> <C> <C> <C> <C> <C>
1997: FHLB borrowings............... $34,195,578 $ 8,207,964 $34.105.589 5.58% 5.51%
=========== =========== =========== ====== ======
1996: FHLB borrowings............... $ 5,914,743 $35,132,791 $47,269,068 5.89 5.53
Federal funds purchased.. --- 145,073 1,000,000 --- 5.21
------------ ------------ -----------
$ 5,914,743 $35,277,864 $48,269,068 6.25%
============ =========== =========== =====
</TABLE>
Results of Operations
Nine months ended September 30, 1997 compared to nine months ended September 30,
1996
Regent reported net income before dividends on preferred stock of $301
thousand for the third quarter of 1997 compared to a net loss of $320 thousand
in the third quarter of 1996. For the first nine months of 1997, Regent had net
income of $152 thousand compared to a net loss of $3.1 million for the
comparable period of 1996.
-17-
<PAGE>
The reported results compare favorably against those of 1996. In 1996,
large net losses were directly attributable to charge-offs and expenses
associated with the IPF business. The origination of new IPF business was
terminated in September 1996, the risk of future loss was eliminated at year-end
1996 and the operation was shut down by June 30, 1997.
Net Interest Income
Net interest income for the third quarter of 1997 was $1.45 million, or 43%
below the level of the same quarter of 1996, and was $4.5 million for the first
nine months of 1997, or 37% below the comparable period of 1996. The reason for
this decline is related to the unusual circumstances of 1996. The high-yielding,
and inordinately high-risk, IPF receivables distort the comparison of net
interest income and net interest margin. IPF receivables averaged $21 million
throughout the first nine months of 1996 and generated interest income, based on
a 20% gross yield, that approximated 17% of interest income. In 1997, virtually
no IPF receivables were outstanding and IPF interest income was insignificant.
In addition, the participation of approximately $34 million of commercial loans
to Carnegie Bank, N.A. in the latter part of 1996, which became a sale of loans
as part of the termination of the merger agreement with Carnegie, further
lowered earning assets in early 1997 and, therefore, interest income.
The reported net interest margin for the third quarter and first nine
months of 1997 was 2.81% and 3.04%, respectively. These margins compare to
levels of 3.83% and 3.70% for the comparable periods in 1996, respectively.
Management estimates that the exclusion of IPF income and the replacement
thereof with more normal yielding assets would have lowered 1996 margins to the
range of 2.70% to 2.75%.
The following table sets forth a rate/yield analysis for the nine months
ended September 30, 1997 and 1996:
<TABLE>
<CAPTION>
Nine Months Ended September 30,
----------------------------------------------------------------------
1997 1996
------------------------------- -------------------------------
Average Income Rate/ Average Income/ Rate
Balance Expense Yield Balance Expense Yield
------- ------- ----- ------- ------- -----
(in thousands, except for percentages)
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C>
Securities..................... $118,616 $ 5,994 6.73% $129,424 $ 6,435 6.63%
Loans.......................... 78,354 6,022 10.27 125,253 10,493 11.16
-------- ------- ----- -------- -------- -----
Total..................... $196,970 $12,016 8.14% $254,677 $16,928 8.85%
======== ======= ===== ======== ======= =====
Interest-bearing liabilities:
NOW accounts................... $ 4,320 $ 73 2.28% $ 3,807 $ 68 2.38%
Savings........................ 43,286 1,579 4.88 50,647 1,852 4.87
Money market deposits.......... 2,878 90 4.21 3,798 121 4.24
Time deposits.................. 113,609 5,271 6.20 123,385 5,703 6.16
Short-term borrowings.......... 8,009 341 5.69 35,278 1,465 5.53
Long-term advances............. 199 10 6.70 10,207 470 6.13
Subordinated debt.............. 2,750 159 7.75 2,750 165 7.98
-------- -------- ----- -------- --------
Total..................... $175,051 $ 7,523 5.75% $229,872 $ 9,849 5.70%
======== ======== ===== ======== ======== =====
Non-interest bearing
sources of funds............... $ 21,919 $24,875
-------- -------
Net interest income and
net interest spread............ $196,970 $ 4,493 2.40% $254,747 $ 7,084 3.15%
======== ======= ===== ======== ======= =====
Net interest rate margin........... 3.04% 3.70%
===== =====
</TABLE>
-18-
<PAGE>
Noninterest Income
Noninterest income is comprised of three major categories: service charges,
miscellaneous fees and gains/(losses) on sales of assets. Service charges, which
consist primarily of penalty fees on checking accounts, were 38% higher in the
third quarter of 1997 than the comparable quarter of 1996 and 52% higher than
the second quarter of 1997. The principal reasons for the increase were the more
diligent assessment of fees and closer review of waiver activity. Miscellaneous
fees, which vary significantly, were substantially higher on a quarterly and
year-to-date basis. Gains on asset sales, which are volatile based on market
circumstances, were higher in the third quarter of 1997 and consistent with the
second quarter of 1997. Net gains resulting from selective restructuring of the
available-for-sale investment portfolio are not considered as a normal component
of ongoing profitability. Year-to-date gains are substantially higher than in
prior periods due to the first quarter 1997 sale of commercial loans and
servicing rights on previously sold loan participations to Carnegie Bank, N.A.
The 1996 gains were related to the sale of residential mortgages.
Provision for Loan Losses
The provision for loan losses is determined after management has evaluated
the allowance for loan losses. Following the sale of problem loans and a $300
thousand provision expense in the second quarter of 1997, management determined
that the allowance for loan losses was adequate at September 30, 1997 and no
provision expense was charged to earnings. At September 30, 1997, the allowance
represented 1.67% of total loans and 232% of nonperforming loans. The provisions
throughout 1996 related solely to the IPF portfolio issues previously discussed.
Noninterest Expense
Total noninterest expense in the third quarter of 1997 was $1.24 million,
or 34% lower than the comparable quarter of 1996. On an annualized basis, this
level of expense represents approximately 2.20% of average assets and generally
equals the level of operating expenses of Regent at this time.
The expenses for the first two quarters of 1997 and all of 1996 included
substantial amounts for the operation and resolution of the IPF portfolio, the
staff expenses for at least 13 positions that were eliminated at the end of the
second quarter of 1997, redundant salaries of some executive officers during the
management transition that began in the fourth quarter of 1996, higher FDIC
insurance costs consistent with the financial condition of the Bank and the
one-time charge of $722 thousand in the first quarter of 1997 to reimburse
Carnegie for merger-related expenses following the termination of the merger
agreement.
Provision for Income Taxes
With the improvement of a number of aspects of the Bank's financial
condition, management determined that the recognition of a portion of the $1.6
million deferred tax asset on the books at December 31, 1996 was appropriate,
and Regent recorded a tax benefit of $900 thousand in the second quarter of 1997
in accordance with the principles of FAS 109. Such recognition is consistent
with FAS 109 if the Bank is "more likely than not" to incur a tax liability in
the near future. The remainder of the deferred tax asset will be recognized when
a pattern of profitability is well-established.
-19-
<PAGE>
Forward-Looking Statements
All statements contained in this Form 10-Q Report that are not historical
facts are based on current expectations. These statements are forward-looking
(as defined in the Private Securities Litigation Reform Act of 1995) in nature
and involve a number of risks and uncertainties. Actual results may vary
materially because of various factors. The factors that could cause actual
results to vary materially include the ability of the Bank to achieve and
maintain profitable operations, the adequacy of the Bank's allowance for loan
losses, general business and economic conditions in the Bank's primary lending
and deposit-taking areas, future interest rate fluctuations, competition from
various financial and non-financial businesses, the ability of Regent and the
Bank to comply with current regulatory provisions and any future changes in such
provisions, the ability of the Bank to generate loan growth and to improve its
net interest margin and other risks that may be described from time to time in
the reports Regent is required to file with the Securities and Exchange
Commission. Regent cautions potential investors not to place undue reliance on
any such forward-looking statements.
-20-
<PAGE>
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
27 -- Financial Data Schedule
(b) Reports on Form 8-K:
Registrant filed the following Current Reports on
Form 8-K during the quarter ended September 30, 1997:
1. Registrant filed a Report on Form 8-K dated
July 2, 1997 that reported, under Item 5,
the termination on June 25, 1997 of the
written agreement between Regent National
Bank and the Office of the Comptroller of
the Currency.
2. Registrant filed a Report on Form 8-K dated
September 22, 1997 that reported, under Item
5, Registrant's completion of the exchange
of 1,586,631 shares of Registrant's common
stock for 1,120,000 shares of Regent
National Bank's common stock which was
issued in a private placement in April 1997.
-21-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
REGENT BANCSHARES CORP.
By: /s/ Joel E. Hyman
----------------------------------------
Joel E. Hyman, Executive Vice President,
Chief Financial Officer and Treasurer
Dated: November 14, 1997
-22-
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 3,898,000
<INT-BEARING-DEPOSITS> 501,000
<FED-FUNDS-SOLD> 1,500,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 64,882,000
<INVESTMENTS-CARRYING> 131,908,000
<INVESTMENTS-MARKET> 131,243,000
<LOANS> 85,591,000
<ALLOWANCE> 1,423,000
<TOTAL-ASSETS> 226,857,000
<DEPOSITS> 167,682,000
<SHORT-TERM> 34,000,000
<LIABILITIES-OTHER> 4,476,000
<LONG-TERM> 2,949,000
0
30,000
<COMMON> 318,000
<OTHER-SE> 8,068,000
<TOTAL-LIABILITIES-AND-EQUITY> 226,857,000
<INTEREST-LOAN> 6,021,000
<INTEREST-INVEST> 6,000,000
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 12,021,000
<INTEREST-DEPOSIT> 7,013,000
<INTEREST-EXPENSE> 7,524,000
<INTEREST-INCOME-NET> 4,497,000
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 26,000
<EXPENSE-OTHER> 5,860,000
<INCOME-PRETAX> 152,000
<INCOME-PRE-EXTRAORDINARY> 152,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (186,000)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> 0
<YIELD-ACTUAL> 3.04
<LOANS-NON> 548,000
<LOANS-PAST> 64,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,060,000
<CHARGE-OFFS> 2,809,000
<RECOVERIES> 1,072,000
<ALLOWANCE-CLOSE> 1,423,000
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 901,000
</TABLE>
