UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________
Commission file number 0-17753
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)
Registrant's telephone number, including area code: (215) 546-6500
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Series A Convertible Preferred Stock, $.10 par value
(Title of class)
Common Stock, $.10 par value
(Title of class)
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 .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
Based upon the average of the highest bid and the lowest asked price for the
Registrant's Series A Convertible Preferred Stock and Common Stock recorded on
the National Association of Securities Dealers Automated Quotation System for
March 18, 1997, as of such date, the aggregate market value of the Registrant's
outstanding Series A Convertible Preferred Stock and Common Stock held by
non-affiliates of the Registrant was approximately $2,882,736 and $8,573,551,
respectively. As of March 18, 1997, the aggregate number of shares of the
Registrant's Series A Convertible Preferred Stock and Common Stock outstanding
was 427,072 and 1,244,793 shares, respectively.
<PAGE>
REGENT BANCSHARES CORP.
FORM 10-K
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
I. PART I.
Item 1. Business.......................................................................... 3
Item 2. Properties........................................................................ 6
Item 3. Legal Proceedings................................................................. 6
Item 4. Submission of Matters to a Vote of Security Holders............................... 8
II. PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters............. 9
Item 6. Selected Financial Data............................................................ 10
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.................................................................... 11
Item 8. Financial Statements and Supplementary Data........................................ 33
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................................. 66
III. PART III.
Item 10. Directors and Executive Officers of the Registrant................................. 68
Item 11. Executive Compensation............................................................. 71
Item 12. Securities Ownership of Certain Beneficial Owners and Management................... 73
Item 13. Certain Relationships and Related Transactions..................................... 77
IV. PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.................... 76
</TABLE>
<PAGE>
PART I
Item 1. Business.
Regent
Regent Bancshares Corp. ("Regent") is a one bank holding company
registered under the Bank Holding Company Act of 1956, as amended (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 Regent National Bank (the "Bank"), Regent's 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. Regent is regulated by the Board of Governors of the
Federal Reserve System. The executive offices of Regent are located at 1430
Walnut Street, Philadelphia, Pennsylvania 19102. Regent's telephone number is
(215) 546-6500.
The Bank
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 held by the Bank are insured by the Bank
Insurance Fund of the Federal Deposit Insurance Corporation (the "FDIC").
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 $2.1 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 mid-sized 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 Bank's officers and directors makes the
Bank particularly well-suited to serve the individualized needs of this market.
The Bank maintains one office at 1430 Walnut Street, Philadelphia, Pennsylvania
19102, where it conducts all of its banking activities. The Bank does not intend
to expand by opening new branches or competing for the retail consumer market
served by large banks in the region, but rather will pursue alternative means of
deposit generation.
At December 31, 1996, the Bank had $201.9 million in assets, $185.1
million in deposits and $85.1 million in net loans. The Bank's primary service
area for Community Reinvestment Act purposes is the Delaware Valley which
includes the greater Philadelphia metropolitan area and various counties in New
Jersey, Delaware and Maryland.
The federal and state laws and regulations that are applicable to bank
holding companies and banks give regulatory authorities extensive discretion in
connection with their supervisory and
-3-
<PAGE>
enforcement activities and generally have been promulgated to protect depositors
and deposit insurance funds and not for the purpose of protecting shareholders.
Any change in such regulations, whether by an applicable federal or state
regulatory authority or federal or state legislative bodies, could have a
significant impact on Regent and the Bank.
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 December 31, 1996, the
Bank's maximum legal lending limit was approximately $2.1 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, but does not provide, 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 limit.
As of December 31, 1996, Regent and the Bank had a total of 43
employees, which excludes 37 temporary employees involved in the collection of
automobile insurance premium finance ("IPF") receivables.
Competition
There is substantial competition among financial institutions in the Bank's
service area, although the Bank believes its relatively small size and emphasis
on personal service provide it with a competitive advantage. 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 of
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, than the Bank. 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 Bank's 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
-4-
<PAGE>
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 and regulatory changes
include increased customer awareness of product and service differences among
competitors and increased merger activity.
Recent Developments
In September 1996, Harvey Porter, for reasons of ill health, resigned
as Chief Executive Officer of Regent and as President and Chief Executive
Officer of the Bank. David W. Ring, Chairman of the Board, was appointed by
Regent's Board of Directors to serve as the Chief Executive Officer of Regent.
John J. Lyons, a professional banking consultant and the former President, Chief
Executive Officer and a director of Jupiter Tequesta National Bank and the
former President, Chief Executive Officer and Chairman of Monarch Savings Bank,
was appointed President, Chief Executive Officer and a director of the Bank on
an interim basis by the Bank's Board of Directors in September 1996.
On January 14, 1997, Regent and the Bank executed an agreement (the
"Termination Agreement") with Carnegie Bancorp. ("Carnegie") and its wholly
owned subsidiary, Carnegie Bank, N.A. ("CBNA"), terminating the Amended and
Restated Agreement and Plan of Merger, dated as of August 30, 1995, as amended
on October 2, 1996, whereby Regent was to merge with and into Carnegie with
Carnegie as the surviving corporation and the Bank was to merge with and into
CBNA with CBNA as the surviving bank. Regent requested execution of the
Termination Agreement because Regent's Board of Directors believed it to be in
the best interests of Regent's shareholders if Regent remains independent.
Pursuant to the Termination Agreement, Carnegie was reimbursed for $722 thousand
of merger-related expenses Carnegie had incurred, and, in connection therewith,
the Bank sold to Carnegie, with appropriate premium, $6.4 million of loan
participations and servicing rights to such loans and loan participations of
$27.8 million previously sold by the Bank to Carnegie.
Effective January 6, 1997 Joel E. Hyman became the Executive Vice
President, Treasurer and Chief Financial Officer of the Bank and Regent,
replacing Stephen H. Carroll. See "Directors and Executive Officers of
Registrant - Directors and Executive Officers" and "Executive Compensation."
In September 1996, the Bank discontinued the origination of IPF loans.
For each of the years ended December 31, 1996 and 1995, the Bank experienced net
losses resulting from a high level of provision for loan losses which was almost
entirely related to the net charge-offs of IPF receivables and the expenses
associated with managing the servicing and collection activities of the IPF
portfolio. During the first two months of 1997, the Bank has effected cash
collections of IPF receivables of approximately $3.1 million, of which $242
thousand represented recoveries of receivables charged-off by the Bank in 1996.
The Bank believes that it has no net credit exposure in connection with the
remaining IPF receivables and, based on the restructuring of the Bank's IPF
management, anticipates that the Bank will have additional cash collections of
IPF receivables during the remainder of 1997. Any such collections favorably
affect the Bank's 1997 results of operations.
-5-
<PAGE>
Item 2. Properties.
The Bank leases approximately 20,600 square feet of the first and
second floors and basement of 1430 Walnut Street and the third floor of 1426 and
1428 Walnut Street, Philadelphia, Pennsylvania. The space is occupied by both
Regent and the Bank and serves as the Bank's sole banking location.
The properties are leased at a rental expense of approximately $190
thousand per annum excluding taxes, insurance, utilities and janitorial services
through 1997, $210 thousand for 1998 and $87 thousand through May 1999. The
leases provide for two 5-year renewal options at then current market rental
rates. The leases for the 1430 and 1428 Walnut Street premises include a right
of first refusal to purchase the premises.
Item 3. Legal Proceedings.
As a result of the Bank's losses associated with the charge-offs of IPF
loans and the effect thereof on the Bank's capital, on October 10, 1996, the
Bank entered into an agreement (the "Regulatory Agreement") with the OCC
pursuant to 12 U.S.C. ss.1818(b).
Under the Regulatory Agreement, the Bank is required, subject to OCC
review or approval, to (i) adopt and implement an action plan to improve the
Bank by November 9, 1996, (ii) achieve and maintain capital levels specified in
the Regulatory Agreement at October 31, 1996 and December 31, 1996, (iii)
develop a three-year capital program by November 9, 1996 aimed at identifying
means for the Bank to maintain adequate capital levels and establishing
restrictions on the payment of dividends, (iv) continue the liquidation of the
Bank's IPF loans in accordance with procedures specified in the Regulatory
Agreement, (v) review the adequacy of the Bank's allowance for loan and lease
losses and establish a program for the maintenance of adequate allowances by the
Bank for loan and lease losses in compliance with OCC requirements, (vi) review
the Bank's liquidity on a weekly basis and take appropriate action to ensure
adequate sources of liquidity in relation to the Bank's needs and (vii) appoint
a committee of directors responsible for monitoring the Bank's compliance with
the terms of the Regulatory Agreement and reporting thereon to the OCC. The Bank
believes that it is currently in compliance in all material respects with all of
the provisions of the Regulatory Agreement, except that the Bank did not
maintain a Tier 1 capital ratio of 6.50% or greater at and after December 31,
1996. The Bank anticipates that it should be able to remain in compliance in all
material respects with the Regulatory Agreement. On February 26, 1997, the Bank
filed a revised capital plan with the OCC. On March 27, 1997, the OCC notified
the Bank of the OCC's acceptance of the Bank's revised capital plan. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations Regulatory Agreement."
Regent has instituted two lawsuits to recover damages caused to Regent
by individuals and entities which engaged in IPF business with Regent as
follows:
On December 24, 1996, Regent filed a complaint in the United States
District Court for the Eastern District of Pennsylvania, Regent National Bank v.
K-C Insurance Premium Finance Co., Inc., et al., Civil Action No. 96-CV-8615, in
which it asserted claims against K-C Insurance Premium
-6-
<PAGE>
Finance Co., Inc. ("K-C"), its principals, Alvin M. Chanin ("Chanin") and Antimo
S. Cesaro ("Cesaro"), Chanin's wife, Myra Chanin, and Cesaro's wife, Kimberly
Cesaro. The complaint alleges that K-C, Chanin and Cesaro submitted numerous
reports to Regent containing false information in order to obtain funds from
Regent unlawfully, as well as to induce Regent to devote resources to the IPF
business. The complaint also alleges that K-C, Chanin and Cesaro entered into a
Processing, Servicing, Marketing and Consulting Agreement (the "Servicing
Agreement") with Regent to provide a variety of services in connection with
Regent's IPF business and that K-C, Chanin and Cesaro engaged in numerous
violations of the Servicing Agreement. The complaint alleges that K-C, Chanin
and Cesaro participated, directly and indirectly, in a pattern of racketeering
through multiple acts of bank fraud which constituted violations of the
Racketeer Influenced and Corrupt Organization Act ("RICO"). The complaint
alleges that K-C, Chanin and Cesaro submitted false and fraudulent computer
records and financial statements which grossly overstated the profits generated
by the IPF business and substantially understated the losses by such business.
The complaint also alleges that, on or about April 12, 1996, Regent
entered into a certain Note and Business Loan Agreement (the "Loan Agreement")
with K-C, Chanin, Myra Chanin, Cesaro and Kimberly Cesaro pursuant to which K-C,
Chanin and Myra Chanin became obligated to Regent in the amount of $1.8 million
and Cesaro and Kimberly Cesaro became obligated to Regent in the amount of $180
thousand. The complaint further alleges that the parties to the Loan Agreement
have failed to repay Regent the sums due thereunder.
Regent is seeking damages in this action for $1.8 million under the
Loan Agreement and for damages in excess of $1 million as a result of harm
caused to Regent under the various other counts in this action.
On January 30, 1997, K-C, Chanin, Myra Chanin, Cesaro and Kimberly
Cesaro instituted an action against Regent in the Court of Common Pleas of
Philadelphia County, Number 2749. The Complaint consists of three counts:
(1) that Regent owes K-C 50% of the profits from the IPF business, as defined in
the Servicing Agreement; (2) a request for a declaratory judgment that the Loan
Agreement is not an enforceable contract because of mutual mistake or fraudulent
misrepresentations by Regent, alteration of the Note, duress, failure of
consideration or material breach of the Loan Agreement and (3) that Cesaro is
owed wages by Regent for an undefined portion of 1996. For the breach of the
Servicing Agreement, K-C is demanding amounts in excess of $100 thousand. No
specific amount is demanded for the unpaid wages.
On February 18, 1997, Regent filed preliminary objections to this
complaint with the Court of Common Pleas of Philadelphia County. The preliminary
objections request that the Court of Common Pleas dismiss the action since it
relates to the same facts and causes of action which are dealt with in the
complaint previously filed by Regent in the United States District Court for the
Eastern District of Pennsylvania. As of March 27, 1997, the Court of Common
Pleas had not ruled on Regent's preliminary objections.
On March 21, 1997, the United States District Court for the Eastern
District of Pennsylvania denied K-C's motion to dismiss and motion for expedited
discovery on Regent's RICO claim.
-7-
<PAGE>
On November 27, 1996, Regent filed a Complaint against Dealers Choice
Automotive Planning, Inc. ("DCAP"), an independent retail insurance broker which
engaged in IPF business with Regent and which was recruited to do business with
Regent by K-C, and an affiliate of DCAP, for breach of contract in the United
States District Court for the Eastern District of Pennsylvania, Regent National
Bank v. Dealers Choice Automotive Planning, Inc. and Payments, Inc., Civil
Action No. 96-CV-7930. The complaint alleges that DCAP and its affiliates
entered into a letter of understanding with Regent under which DCAP and its
affiliates agreed that the financing of all IPF contracts with Regent would be
with recourse. The complaint seeks damages for losses suffered by Regent as a
result of funding IPF agreements placed through DCAP. In the action, Regent
seeks damages in excess of $100 thousand.
The defendants have answered this complaint and have asserted that they
were misled by certain officers and directors of Regent by fraudulent
misrepresentations concerning the recourse provisions of the letter of
understanding. The answer also asserts that Regent owes money to the defendants
for failure to give 30 days written notice of the termination of the letter of
understanding. The answer claims punitive damages in the amount of $500 thousand
for the alleged misrepresentation and an amount of not less than $40 thousand
for the alleged termination without giving sufficient written notice. This
matter is in the initial phases of discovery.
In January 1997, the Bank settled litigation involving various mortgage
loans charged-off by the Bank in 1995, for which the Bank will recover $320
thousand, subject to court approval.
Regent and the Bank are subject to various other legal actions and
proceedings. In the opinion of management, after discussions with legal counsel,
the resolution of these matters is not expected to have a material adverse
effect on Regent's consolidated financial position or its consolidated results
of operations.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
-8-
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Regent's securities are traded on the Nasdaq Small-Cap Market under the
following symbols: Common Stock -- RBNK and Series A Convertible Preferred Stock
- -- RBNKP. As of March 25, 1997, there were approximately 194 holders of record
of Regent's Common Stock and 95 holders of record of Regent's Series A
Convertible Preferred Stock. The following table sets forth the low and high bid
prices for Regent's various securities as reported by National Quotation Bureau,
Inc. for each quarter during 1996 and 1995:
<TABLE>
<CAPTION>
Regent Series A
Convertible
Regent Preferred
Common Stock Stock
------------------------- -------------------------
Low Bid High Bid Low Bid High Bid
---------- -------- --------- ---------
<S> <C> <C> <C> <C>
1995:
First Quarter........................................... $ 5 3/4 $ 7 $ 5 3/4 $ 6 3/4
Second Quarter.......................................... 5 1/2 6 3/4 5 1/4 6 1/8
Third Quarter........................................... 6 11 5 1/4 11
Fourth Quarter.......................................... 10 1/2 11 10 11 1/4
1996:
First Quarter........................................... 10 1/2 12 1/4 10 1/2 12 1/4
Second Quarter.......................................... 7 1/4 11 1/2 7 1/2 11 3/4
Third Quarter........................................... 6 1/4 8 6 8
Fourth Quarter.......................................... 5 1/2 6 1/2 5 1/2 6
</TABLE>
These quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions.
Regent has never paid cash dividends on its Common Stock or Preferred
Stock, although Regent has paid stock dividends on its Common and Series A
Convertible Preferred Stock. Management of Regent intends to follow a policy of
retaining any earnings for the foreseeable future for the purpose of
strengthening its capital and reserves. The payment of dividends to Regent by
its wholly owned subsidiary, the Bank, is subject to certain restrictions,
pursuant to the Regulatory Agreement. See Note 3 to the Consolidated Financial
Statements. The payment of dividends by Regent is subject to prior written
approval by the FRBP. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Regulatory Agreement."
On September 11, 1996, four directors of Regent purchased an aggregate
of 148,148 shares of Common Stock of Regent (the "Shares") for a purchase price
of $6.75 per share, or an aggregate price of $1,000,000 in a private placement
that was exempt from registration under the Securities Act of 1933, as amended
(the "1933 Act"), pursuant to Section 4(2) thereof.
-9-
<PAGE>
Item 6. Selected Financial Data.
(In thousands, except for per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Interest income..................... $ 21,519 $ 21,160 $ 17,165 $ 15,112 $ 13,519
Interest expense................... 12,461 12,553 11,373 9,921 8,810
-------- -------- --------- -------- --------
Net interest income................. 9,058 8,607 5,792 5,191 4,709
Provision for loan losses........... 5,092 4,905 860 450 525
-------- -------- --------- -------- --------
Net interest income after provision
for loan losses.................... 3,966 3,702 4,932 4,741 4,184
Non-interest income................. 212 104 202 156 70
Non-interest expense................ 7,224 7,396 4,372 3,113 2,486
-------- -------- --------- -------- --------
Income (loss) before income taxes... (3,046) (3,590) 762 1,784 1,768
Income tax expense (benefit)........ (350) (463) 259 607 601
-------- -------- --------- -------- --------
Income (loss) before dividends on
preferred stock................... $ (2,696) $ (3,127) $ 503 $ 1,177 $ 1,167
======== ======== ========= ======== ========
Earnings (loss) per share:
Primary............................ $(2.42) $(3.41) $0.22 $0.71 $0.95
Fully diluted...................... N/A N/A N/A N/A 0.82
Book value per share--fully diluted. 4.58 6.55 7.98 8.88 8.38
Selected Financial Ratios:
Net interest margin................. 3.76% 3.56% 2.37% 2.49% 2.87%
Non-interest expenses to average
total assets...................... 2.94 3.00 1.74 1.44 1.47
Return on average total assets...... N/A N/A .20 .55 .70
Return on average shareholders' equity N/A N/A 3.89 9.29 10.33
Average shareholders' equity to average
total assets...................... 5.15 5.50 5.14 5.88 6.67
Non-performing assets to total assets 2.73 3.49(1) 1.68 1.04 2.11
Allowance for loan losses as a percentage
of period end loans and loans held for
sale............................... 3.60 5.47(2) 2.10 1.84 1.94
</TABLE>
Balance Sheet Data:
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Total assets........................... $201,904 $262,512 $243,450 $243,945 $204,800
Federal funds sold..................... 5,000 -- -- 6,000 --
Loans, net of unearned interest fees(3). 85,069 118,784 81,248 72,944 55,531
Investment securities.................. 105,553 138,722 156,664 156,166 140,226
Total deposits......................... 185,126 196,132 161,061 192,393 160,715
Total shareholders' equity............. 8,133 10,353 12,206 13,126 11,949
</TABLE>
- -------------------------
(1) Excluding the estimated levels of $4.5 million of loss exposure related
to IPF in the numerator and $16.8 million of IPF receivables in the
denominator, the ratio of nonperforming assets to total assets was
1.90% at year end 1995.
(2) Excluding $4.5 million of allowance for loan losses allocated to the
IPF portfolio in the numerator and $16.8 million of IPF receivables in
the denominator, the ratio of allowance for loan losses as a percentage
of period end loans and loans held for sale was 1.96% at year end 1995.
(3) Including mortgage loans held for sale.
-10-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Financial Overview
Regent recorded a net loss of $2.7 million, or $2.42 per share, for the
year ended December 31, 1996, compared to a net loss of approximately $3.1
million, or $3.41 per share, for the year ended December 31, 1995. As was the
case in 1995, the net loss for 1996 resulted from the high level of provision
for loan losses which was almost entirely related to the net charge-offs of
automobile insurance premium finance ("IPF") receivables and the expenses
associated with managing the servicing and collection activities of the IPF
portfolio. The modest improvement from 1995 to 1996 was largely attributable to
higher net interest income. For the quarter ended December 31, 1996, however,
Regent recorded net income of $376 thousand, or $.26 per share, compared to a
net loss for the 1995 fourth quarter of $3.5 million, or $3.31 per share. The
net income reported in the fourth quarter of 1996 resulted from lower operating
and credit-related expenses of the IPF portfolio included a benefit of $350
thousand, which represents a portion of Regent's deferred tax asset recognized
subject to the principles of Statement of Financial Accounting Standards No. 109
("FAS 109"). The activity level of the IPF portfolio has begun to diminish
significantly due to the cessation of new IPF business in September 1996 and the
substantial reduction in IPF receivables during the fourth quarter of 1996 and
the first quarter of 1997.
Total assets of $201.9 million at December 31, 1996 were substantially
lower than total assets of $262.5 million at December 31, 1995. The reduction in
Regent's asset size was the result of a curtailment of the Bank's residential
mortgage warehouse lending program, the sale of $34.2 million in loan
participations and a decrease in the Bank's mortgage-backed securities
portfolio. The reduction of $23.3 million in mortgage-backed securities resulted
from normal monthly principal prepayments and the sale of $19.4 million in
available-for-sale securities. Proceeds from the loan participations and
securities sales were used to reduce borrowings from the Federal Home Loan Bank
of Pittsburgh ("FHLB").
At December 31, 1996 and 1995, IPF receivables were $2.6 million and
$16.8 million, respectively. The IPF loans have repayment terms of nine months
and are secured by the unearned premium balance on the individual automobile
insurance policies. The IPF loans were serviced for the Bank by K-C Insurance
Premium Finance Co., Inc. (the "Servicer") under the Servicing Agreement
September 1, 1996. The Servicing Agreement provided, among other things, that
the Servicer was to solicit IPF loans, maintain compliance with applicable laws
and regulations and process and service the IPF loans including the collection
of repayments from borrowers and of unearned premium balances from insurers on
canceled insurance policies. Under the Servicing Agreement, the Bank received
all collections and paid the Servicer a fee equal to a specified initial per
loan charge plus one-half of pre-tax profits, as defined in the Servicing
Agreement, from the IPF loan portfolio. For the years ended December 31, 1996
and 1995, the Bank recorded interest and fee income from the IPF loan portfolio
of $3.3 million and $3.6 million, respectively, and paid the Servicer fees of
approximately $150 thousand and $1.3 million, respectively.
-11-
<PAGE>
During the preparation of Regent's consolidated financial statements
for the year ended December 31, 1995, management of the Bank became aware of
several matters which led to the belief that the Servicer may have reported
interest and fee income from IPF loans in default and may not have canceled
insurance policies securing defaulted loans or collected insurance premium
balances on such policies on a timely basis. As a result, management began the
process of estimating the ultimate expected loss that existed as of December 31,
1995, which amount was material to Regent's consolidated financial statements.
In order to assess the risk of loss on the IPF loan balance at December
31, 1995 and the amount thereof, the Bank identified delinquent IPF loans based
upon the payment history of the IPF loan portfolio during 1995 and through May
23, 1996.
During the period January 1, 1996 to May 23, 1996, the Bank applied all
cash receipts from delinquent IPF borrowers to the principal balances of such
delinquent loans as of December 31, 1995, and the Bank applied the proceeds of
the unearned premiums received from insurance companies except for those
applicable to accrued fees to the principal balances of delinquent IPF loans as
of December 31, 1995, thereby reducing the Bank's possible loss exposure on the
December 31, 1995 IPF loan balance to approximately $4.5 million. The $4.5
million loss exposure was recorded as part of the Bank's allowance for loan
losses at December 31, 1995.
The Bank determined that it had no loss exposure on IPF receivables at
December 31, 1996 based on the year-end carrying value of $2.6 million and the
subsequent, aggregate cash collections of more than $3 million in the first two
months of 1997. In the second, third and fourth quarters of 1996, net IPF loan
balances of $7.5 million that were past due 120 days or more were charged-off.
The Bank discontinued its IPF loan business in September 1996. Since then,
extensive collection efforts and the establishment of management and operational
control of the servicing operations by Bank personnel have reduced the IPF
receivables to the indicated level at December 31, 1996. An analysis of
subsequent cash collections through mid-March 1997 has confirmed management's
determination that no IPF loss exposure existed at year-end 1996. Therefore, all
of the December 31, 1996 allowance for loan losses is allocated to the non-IPF
portion of the Bank's loan portfolio.
In 1995, interest and fee income included accrued income on delinquent
IPF loans due to the Servicer's inability to place IPF loans on nonaccrual
status. However, the estimated uncollectible accrued income on IPF receivables
was considered in the determination of the allowance for loan losses at December
31, 1995. During the first three quarters of 1996, the Bank reduced the amount
of interest and fee income on IPF loans by approximately $1.3 million based on
management's estimate of the income inappropriately accrued per the Servicer's
records. For the full year 1996, interest and fees reported on IPF loans
approximated $3.3 million.
Regent recorded a net loss of $3.1 million, or $3.41 per share, for the
year ended December 31, 1995 compared to net income of $503 thousand, or $.22
per share, for the year ended December 31, 1994. The loss in 1995 compared to
1994 was primarily the result of an increase in the provision for loan losses of
$4 million that was attributable to delinquent IPF loans. In addition,
non-interest expenses were $3 million higher in 1995 than in 1994. An
improvement in net interest income of $2.8 million in 1995 partially offset the
increase in the provision for loan losses and in other expenses. The
-12-
<PAGE>
increases in other expenses and net interest income in 1995 were primarily
attributable to the IPF program.
Regulatory Agreement
As a result of the Bank's losses associated with the charge-offs of IPF
loans and the effect thereof on the Bank's capital, on October 10, 1996, the
Bank entered into the Regulatory Agreement with the OCC pursuant to 12 U.S.C.
ss.1818(b).
Under the Regulatory Agreement, the Bank is required, subject to OCC
review or approval, to (i) adopt and implement an action plan to improve the
Bank by November 9, 1996, (ii) achieve and maintain capital levels specified in
the Regulatory Agreement at October 31, 1996 and December 31, 1996, (iii)
develop a three-year capital program by November 9, 1996 aimed at identifying
means for the Bank to maintain adequate capital levels and establishing
restrictions on the payment of dividends, (iv) continue the liquidation of the
Bank's IPF loans in accordance with procedures specified in the Regulatory
Agreement, (v) review the adequacy of the Bank's allowance for loan and lease
losses and establish a program for the maintenance of adequate allowances by the
Bank for loan and lease losses in compliance with OCC requirements, (vi) review
the Bank's liquidity on a weekly basis and take appropriate action to ensure
adequate sources of liquidity in relation to the Bank's needs and (vii) appoint
a committee of directors responsible for monitoring the Bank's compliance with
the terms of the Regulatory Agreement and reporting thereon to the OCC. The Bank
believes that it is currently in compliance in all material respects with all of
the provisions of the Regulatory Agreement, except that the Bank did not
maintain a Tier 1 capital ratio of 6.50% or greater at and after December 31,
1996 and anticipates that, absent unforeseen circumstances, it should be able to
remain in compliance with the Regulatory Agreement in all material respects. On
February 26, 1997, the Bank filed a revised capital plan with the OCC. On March
27, 1997, the OCC notified the Bank of the OCC's acceptance of the Bank's
revised capital plan.
Based upon the Bank's unsatisfactory condition and the questionable
ability of Regent to continue to service its outstanding debt beyond September
30, 1996, the Federal Reserve Bank of Philadelphia (the "FRBP") formally
notified Regent in a letter dated September 6, 1996 of its determination that
Regent was in "troubled condition". As a consequence of such condition, Regent
must provide the FRBP with 30 days' notice prior to adding any members to its
board of directors or engaging any new senior executive officer. In addition to
the notice requirement, the FRBP has prohibited Regent, without prior written
FRBP approval, from declaring or paying any dividends, repurchasing or redeeming
any of its stock and incurring any additional debt, and required Regent to
submit to the FRBP by October 6, 1996 a written plan to service Regent's
outstanding subordinated debentures and to notify the FRBP immediately of any
material event that significantly impacts the financial condition of Regent and
the Bank. Regent has submitted to the FRB certain written undertakings from the
Bank's organizers to service the interest due on March 31, 1997 on Regent's
outstanding subordinated debentures in the event Regent does not otherwise have
sufficient funds to pay such interest when due.
-13-
<PAGE>
On March 31, 1997, Regent sold 16,364 shares of Series A Convertible
Preferred Stock for $6.50 per share to two accredited investors. Regent used the
proceeds from this sale to pay the interest on its subordinated debentures due
March 31, 1997.
Failure to make significant improvements in the condition of the Bank
and future regulatory determinations could result in additional formal or
informal enforcement actions against the Bank which would include restrictions
on the operations, growth and capital distributions, monitoring and periodic
review by the OCC, civil money penalties, mandatory asset dispositions,
conservatorships and other actions, many of which, by law, must be publicly
disclosed. If Regent or the Bank does not comply with any of the terms of any
order or agreement, the OCC may petition the appropriate court for an order to
enforce the terms thereof. If willful noncompliance were to continue, the OCC
could seek to take possession of the business and property of the Bank, subject
to providing notice and the holding of a hearing with the concurrence of the
Pennsylvania Attorney General, or could seek to terminate the deposit insurance
of the Bank.
In connection with the requirements of the Regulatory Agreement, the
Bank has taken steps to reduce its asset size and improve its capital position.
As previously indicated, the Bank has curtailed its residential mortgage
warehouse lending program, sold loan participations of $27.8 million and sold
$5.8 million of available-for-sale securities in September 1996. In addition,
Regent's and the Bank's equity capital was increased by $1 million through
capital contributions by certain directors. Further asset reductions occurred in
October 1996 through the additional sale of loan participations totaling $6.4
million and of available-for-sale securities of $3.6 million. Proceeds from the
asset sales were used to reduce FHLB borrowings. The Bank is currently executing
and implementing the various plans as required by the Regulatory Agreement.
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 was $8.1 million at December 31, 1996, or
$2.3 million, lower than shareholders' equity of $10.4 million at December 31,
1995. The decline was a result of the net loss for the year and a $525 thousand
decrease in the market value of securities designated as available-for-sale,
partially offset by a capital contribution of $1 million by certain directors of
Regent.
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.
-14-
<PAGE>
These standards 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, 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 of 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 December 31, 1996 and 1995 as well as the required minimum regulatory
capital ratios for Regent and the Bank. Since December 31, 1996, the Bank, as
previously discussed, has taken further steps to decrease the size of the Bank
and thereby improve the Bank's capital ratios.
<TABLE>
<CAPTION>
Required
Regulatory
Regent December 31, 1996 December 31, 1995 Minimum
- ------ ----------------- ----------------- -----------
<S> <C> <C> <C>
Risk-based capital:
Tier 1 capital......... 7.65% 7.00% 4.00%
Total capital.......... 9.39 8.98 8.00
Tier 1 leverage ratio..... 4.31 4.00 3.00-5.00
</TABLE>
<TABLE>
<CAPTION>
Required
Regulatory
The Bank December 31, 1996 December 31, 1995 Minimum
- -------- ----------------- ----------------- -----------
<S> <C> <C> <C>
Risk-based capital:
Tier 1 capital......... 9.95% 8.67% 4.00%
Total capital.......... 11.21 9.92 8.00
Tier 1 leverage ratio..... 5.65 4.94 3.00-5.00
</TABLE>
In addition to the risk-based requirements, regulations have been
adopted that establish a minimum Tier 1 leverage ratio of 3% (Tier 1 capital as
a percentage of average total assets for the most recent quarter). The 3% level
applies to only those banks that are given the highest composite rating under
the uniform bank rating (CAMELS) system of the federal banking regulatory
agencies, while all other banks are expected to have 3% plus an additional
cushion of at least 100 to 200 basis points. At December 31, 1996 and 1995,
Regent's Tier 1 leverage ratio was 4.31% and 4.00%, respectively. The Bank's
Tier 1 leverage ratio approximated 5.65% and 4.94% at December 31, 1996 and
1995, respectively, which is below the 6.50% ratio mandated by the Regulatory
Agreement.
As an institution whose deposits are insured by the FDIC, the Bank is
also subject to insurance assessments imposed by the FDIC. The actual assessment
to be paid by any FDIC-insured institution is based on the institution's
assessment risk classification which is determined on whether the institution is
considered "well capitalized," "adequately capitalized" or "undercapitalized" as
those terms are defined in
-15-
<PAGE>
corrective action provisions of the Federal Deposit Insurance Corporation
Improvement Act ("FDICIA"), and whether such institution is considered by its
bank supervisory agency to be financially sound or to have supervisory concerns.
As of the most recent examination of the Bank, conducted as of the
close of business on December 31, 1996, the Bank's capital levels meet or exceed
the minimum capital levels established by the OCC for "well capitalized" under
applicable federal banking regulations. However, the Bank is currently subject
to the Regulatory Agreement, described above, requiring the Bank to meet and
maintain a specific capital level. Under the federal banking regulations, a bank
that is subject to such an agreement may not be deemed to be "well capitalized"
regardless of its capital levels. As a result, the Bank is deemed to be
"adequately capitalized" and subject to the requirements under these
regulations.
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.
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, the FRBP 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 of up to 20 years at costs that may sometimes 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 securities portfolio with an
amortized cost of $94.3 million at December 31, 1996, $10.8 million were
adjustable rate and $83.5 million were fixed rate. The
-16-
<PAGE>
estimated weighted average life for the mortgage-backed securities portfolio at
December 31, 1996 approximated 5.4 years.
Interest Rate Sensitivity
The evaluation of interest rate sensitivity deals with 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 that
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.
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 in two ways. First, certificates of deposits, 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.
-17-
<PAGE>
<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................ $12,013 $ 653 $32,077 $43,248 $18,235 $106,226
Loans...................... 40,042 7,523 7,048 13,473 16,983 85,069
Other earning assets....... 5,084 -- -- -- -- 5,084
------- ------ ------- ------- ------- --------
Total Earning Assets....... 57,139 8,176 39,125 56,721 35,218 196,379
NOW and money market....... 3,583 -- 3,000 -- -- 6,583
Savings.................... 7,830 -- 40,000 -- -- 47,830
Certificates of deposit.... 34,293 46,819 11,917 25,285 1,413 119,727
FHLB advances.............. -- -- -- -- 203 203
Subordinated debt.......... -- -- 2,750 -- -- 2,750
Net non-interest bearing
source of funds.......... -- -- -- -- 19,286 19,286
------- ------ ------- ------- ------- --------
Total Sources of Funds..... 45,706 46,819 57,667 25,285 20,902 196,379
Period Gap................. 11,433 (38,643) (18,542) 31,436 14,316 --
Cumulative Gap............. 11,433 (27,210) (45,752) (14,316) -- --
Cumulative Gap as % of
total assets............. 5.8% (13.8)% (23.3)% (7.3)% -- --
</TABLE>
Investment Portfolio
The investment portfolio of Regent 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 FAS 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 Regent'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 prepayments of the residential mortgages
underlying these securities. The following table summarizes, by major category,
the market value and amortized cost of the mortgage-backed securities classified
as AFS and as HTM at December 31, 1996, 1995 and 1994.
-18-
<PAGE>
<TABLE>
<CAPTION>
1996 1995 1994
--------------------------- -------------------------- ---------------------------
Available Held to Available Held to Available Held to
for Sale Maturity for Sale Maturity for Sale Maturity
---------- -------- --------- -------- ---------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
GNMA......................... $ 0 $11,006 $ -- $12,746 $ -- $ 13,805
FHLMC........................ 7,583 30,851 16,738 37,519 11,962 50,079
FNMA......................... 10,967 18,467 28,160 22,484 18,156 37,216
Collateralized
mortgage obligations........ -- 14,758 -- 18,495 1,345 20,382
------- ------- ------- ------- ------- --------
Total...................... $18,550 $75,082 $44,898 $91,244 $31,463 $121,482
======= ======= ======= ======= ======= ========
</TABLE>
The following table sets forth the range of maturities of
mortgage-backed securities held to maturity at December 31, 1996 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
-------- -------------- --------------- -------
(in thousands, except percentages)
<S> <C> <C> <C> <C>
U.S. agencies
and corporations................ $ -- $43,730 $16,594 $60,324
Collateralized
mortgage obligations........... 1,858 12,900 -- 14,758
------ ------- ------- -------
Total........................ 1,858 56,630 16,594 75,082
====== ======= ======= =======
Weighted average yield............ 6.05% 6.16% 6.62% 6.26%
====== ======= ======= =======
</TABLE>
The following table sets forth the range of maturities of
mortgage-backed securities available for sale at December 31, 1996 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
------- -------------- --------------- -------
(in thousands, except percentages)
<S> <C> <C> <C> <C>
U.S. agencies
and corporations................. $10,808 $8,415 $ -- $19,223
======= ====== ======== =======
Weighted average yield............. 5.79% 6.20% -- 5.97%
======= ====== ========= =======
</TABLE>
-19-
<PAGE>
The following table sets forth those CMOs which have a carrying value
that exceeded 10% of the Bank's shareholders' equity at December 31, 1996. These
securities have an investment rating of AA or better.
<TABLE>
<CAPTION>
Carrying Value Market Value
-------------- ------------
(in thousands)
<S> <C> <C>
Bear Stearns Mortgage Securities Inc.
Series 1993-2 Class 7.......................................... $2,149 $2,047
Bear Stearns Mortgage Securities Inc.
Series 1993-2 Class 5 ......................................... 1,018 913
Bear Stearns Mortgage Securities Inc.
Series 1993-2 Class 6.......................................... 1,547 1,461
Bear Stearns Mortgage Securities Inc.
Series 1993-12 Class 1B........................................ 1,380 1,401
Bear Stearns Mortgage Securities Inc.
Series 1992-04................................................. 2,047 2,033
Capstead Securities Corp.
Series 1992-C-3................................................ 1,436 1,377
Resolution Trust Corporation
Series 1991-M6................................................. 1,205 1,156
Saxon Mortgage Security Corp.
Series 1993-04 Class 1A........................................ 2,256 2,219
</TABLE>
The Bank also makes investments in securities other than
mortgage-backed instruments. At December 31, 1996, the Bank had $10 million
invested in a FHLB callable security and $1.9 million invested in other
securities, which were primarily stock in the FHLB and in the FRBP.
Gross unrealized gains and losses on mortgage-backed securities held to
maturity at December 31, 1996 were $155 thousand and $2 million, respectively,
and gross unrealized gains and losses on mortgage-backed securities available
for sale at December 31, 1996 were $5 thousand and $678 thousand, respectively.
During the year ended December 31, 1996, available-for-sale securities totaling
$19.4 million were sold at a gain of $5 thousand. There were no realized
securities gains or losses during 1995 or 1994. 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
Total loans, consisting of loans held for the portfolio and mortgage
loans held for sale, amounted to $85.1 million at December 31, 1996, compared to
$118.8 million at December 31, 1995 and $81.2 million at December 31, 1994. The
decrease from year end 1995 outstanding loan balances to December 31, 1996
resulted primarily from the sale of $ 34.2 million in loan participations in
1996.
-20-
<PAGE>
The following table details the types of loans outstanding by category
as of December 31 for each of the past five years:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
------- -------- ------- ------- ------
(in thousands)
<S> <C> <C> <C> <C> <C>
Commercial & industrial................ $39,710 $ 49,006 $27,406 $23,294 $26,418
Real estate:
Construction......................... 9,421 4,430 1,455 2,219 2,635
Mortgages - residential.............. 16,550 18,926 29,253 17,359 18,975
Mortgages - commercial............... 15,985 16,168 13,550 5,700 7,002
Consumer............................... 3,827 18,573 4,410 358 448
------- -------- ------- ------- -------
Total gross loans................. 85,493 107,103 76,074 48,930 55,478
Net unearned interest fees........... (424) (1,193) (215) 218 54
------- -------- ------- ------- -------
Net loans............................ 85,069 105,910 75,859 49,148 55,532
======= ======= ======= ======= =======
Mortgage loans held for sale ......... -- 12,874 5,388 22,701 --
======= ======= ======= ======= =======
</TABLE>
Real estate loans are secured primarily by first mortgages on
commercial property in which the loan-to-value ratio is 75% or less and
residential properties with a loan-to-value ratio of 80% or less. Consumer loans
are collateralized primarily by unearned automobile insurance premiums.
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 presents
the scheduled maturities of loans that are outstanding as of December 31, 1996:
<TABLE>
<CAPTION>
After 1
Within But Within After
1 Year 5 Years 5 Years Total
------ ------------- ------- -----
(in thousands)
<S> <C> <C> <C> <C>
Commercial & industrial................. $28,032 $10,156 $ 1,522 $39,710
Real estate:
Construction......................... 5,581 3,316 524 9,421
Mortgages - residential.............. 3,790 1,140 11,620 16,550
Mortgages - commercial............... 7,057 5,611 3,317 15,985
Consumer................................ 3,527 300 -- 3,827
------- ------- ------- -------
Total............................... $47,987 $20,523 $16,983 $85,493
======= ======= ======= =======
</TABLE>
-21-
<PAGE>
The table below provides a breakdown of loans as of December 31, 1996
that have either predetermined interest rates or floating rates:
<TABLE>
<CAPTION>
After 1
Within But Within After
1 Year 5 Years 5 Years Total
------ ---------- ------- -----
(in thousands)
<S> <C> <C> <C> <C>
Predetermined interest rates............ $ 7,817 $17,303 $16,983 $42,103
Floating rates.......................... 40,170 3,220 -- 43,390
------- ------- ------- -------
Total....................... $47,987 $20,523 $16,983 $85,493
======= ======= ======= =======
</TABLE>
Risk Elements
Risk elements unique to each particular loan category are as follows:
Commercial and Industrial
Risk factors inherent in commercial and industrial loans include
economic risk which may affect a borrower's ability to sustain and grow a
business; collateral risk in that an economic downturn may result in collateral
depreciation; interest rate risk in that rate changes may outpace business cash
flow and legal risk in properly documenting and perfecting collateralization.
The Bank monitors such loans annually with updated financial analyses.
Construction loans
Risk factors inherent in construction loans include economic risk which
may affect end purchase or use of the collateral; engineering risk which may
prevent completion of construction or result in added expense in build-out;
environmental risk in earth and water table movement; management risk in
correctly and completely monitoring construction and loan advances and legal
risk in properly documenting each advance and ensuring collateralization. The
Bank monitors such loans to review all advances and monitors all projects.
Residential mortgages
Risk factors inherent in residential mortgage lending include economic
risk which may affect a borrower's ability to maintain a job and financial
stability; collateral risk in that an economic downturn may result in collateral
depreciation; interest rate risk in that rate changes may outpace personal cash
flow; indeterminate risk in that personal factors - divorce, illness - may
affect credit stability; environmental risk in that collateral may be damaged or
destroyed by natural causes and legal risk in properly documenting and
perfecting collateralization. The Bank evaluates, among other things,
collateral, financial stability, credit stability, cash flow and interest rate
risk, and monitors such loans for indications of financial decline or collateral
devaluation.
-22-
<PAGE>
Commercial mortgages
Risk factors inherent in commercial mortgage lending include economic
risk which may affect lessees' ability to pay rent or a borrower's ability to
cash flow vacancies; collateral risk in that an economic downturn may result in
collateral depreciation; environmental risk in that collateral may be damaged or
destroyed by natural causes; interest rate risk in that rate changes may outpace
property cash flow and legal risk in properly documenting and perfecting
collateralization. Loans are underwritten to match lease terms, and large
tenants are subject to credit review. The Bank monitors such loans quarterly or
annually with updated inspections, lease analyses and financial analyses.
Consumer loans
Until September 1996, consumer loans consisted primarily of IPF loans
to individuals. These loans have repayment terms of nine months and are secured
by the insurance policy's unearned premium. Risk factors include economic risk
which may affect the borrower's ability to maintain a job and financial
stability; the financial strength and stability of the insurance company
underwriting the insurance and insurance agents that originate the loans; the
effectiveness of the internal control structure to cancel the insurance policies
on delinquent accounts in a timely and effective manner; collection efforts in
obtaining the canceled policy's unearned premium from the insurance company and
legal risk in properly documenting and perfecting the collateral.
Non-performing assets
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
$5.5 million, or 2.73%, of total assets at December 31, 1996, compared to $9.2
million, or 3.49%, of total assets at December 31, 1995. The decrease in
nonperforming assets during 1996 was virtually all attributable to the
elimination of nonperforming IPF receivables. Given the limitation of the
Servicer's records associated with the IPF loans, the Bank was unable to obtain
an accurate aging of such loans at December 31, 1995. Accordingly, for purposes
of determining the amount of the non-performing IPF loans at December 31, 1995,
the Bank estimated the loss exposure amount of $4.5 million. At December 31,
1996, the estimated loss exposure was zero due to aggressive collection efforts,
the write-off of IPF loans delinquent more than 120 days and the cessation of
originating new IPF loans in September 1996. The following table details the
Bank's non-performing assets at December 31, 1992 through 1996:
-23-
<PAGE>
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
(in thousands, except percentages)
<S> <C> <C> <C> <C> <C>
Non-accrual loans...................... $3,837 $3,568 $3,685 $2,123 $3,055
Accruing loans 90 days
or more past due..................... 977 1,094 394 420 315
Nonperforming IPF receivables.......... -- 4,500 -- -- --
------ ------ ------ ------ ------
Total non-performing loans............. 4,814 9,162 4,079 2,543 3,370
Other real estate owned................ 700 -- -- -- 953
------ ------ ------ ------ ------
Total non-performing assets............ $5,514 $9,162 $4,079 $2,543 $4,323
====== ====== ====== ====== ======
Non-performing loans to
period end loans and loans
held for sale........................ 5.66% 7.71% 5.01% 3.55% 6.07%
Non-performing assets
to total assets...................... 2.73 3.49 1.68 1.04 2.11
</TABLE>
Accrual of interest is discontinued on loans when management believes,
after considering economic and business conditions and collection efforts, that
the borrowers' financial condition is such that collection of interest and
principal is questionable. The non-accrual loans 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, 1996.
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Interest income not recognized due
to non-accrual status................................. $335 $355 $211
Interest income included in operating
income attributable to non-accrual status............. 16 79 37
</TABLE>
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.
Under the standard, the allowance for credit losses related to loans
that are impaired, as defined by FAS No. 114 and FAS No. 118, is evaluated based
on the present value of expected future cash flows discounted at the loan's
effective interest rate, at the loan's observable market price or at the fair
value of the collateral for certain collateral dependent loans. Commercial,
industrial and mortgage loans are evaluated for impairment on an individual
basis. Until September 1996, consumer loans were comprised primarily of IPF
loans. Prior to 1995, the allowance for credit losses related to these loans was
evaluated based on undiscounted cash flows or the fair value of the collateral
for collateral dependent loans.
-24-
<PAGE>
Factors influencing management's recognition of impairment include
decline in collateral value; lack of performance under contract loan agreement
terms, including evaluation of late payments or non-payment; lack of performance
under other creditors' agreements or obligations (i.e. non-payment of taxes or
non-payment of loans to other creditors); financial decline significantly
different from status at loan inception; litigation or bankruptcy of the
borrower and significant change in ownership or loss of guarantors to the
detriment of credit quality.
At December 31, 1996, the recorded investment in loans that are
considered to be impaired as defined by FAS No. 114 and FAS No. 118 was $3.8
million. The related allowance for credit losses for these impaired loans was
$648 thousand. The reserve evaluation was based on the fair value of the
collateral.
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 1992 to 1996 in the allowance for loan losses:
-25-
<PAGE>
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
--------- -------- -------- -------- --------
(in thousands except percentages)
<S> <C> <C> <C> <C> <C>
Balance, beginning of period........... $ 6,500.9 $1,713.4 $1,321.2 $1,077.6 $ 905.1
Charge-offs:
Commercial & industrial.............. 596.4 1.0 138.2 54.4 352.7
Real estate - construction........... -- -- 22.5 -- --
Real estate - commercial............. -- -- -- 190.0 --
Real estate - residential............ 452.4 127.7 355.4 -- --
IPF.................................. 8,966.7 -- -- -- --
Installment......................... -- -- 36.0 -- --
--------- -------- -------- -------- --------
Total charge-offs................. $10,015.5 $ 128.7 $ 552.1 $ 244.4 $ 352.7
--------- -------- -------- -------- --------
Recoveries:
Commercial & industrial.............. $ -- $ 1.2 $ 84.3 $ 3.6 $ .2
Real estate - commercial............. -- -- -- 34.4 --
Real estate - residential............ -- 2.0 -- -- --
IPF.................................. 1,482.2 -- -- -- --
Installment.......................... -- 8.0 -- -- --
--------- -------- -------- -------- --------
Total recoveries................ 1,482.2 11.2 84.3 38.0 .2
--------- -------- -------- -------- --------
Net (charge-offs) recoveries........... 8,533.3 117.5 467.9 206.4 352.5
--------- -------- -------- -------- --------
Provision charged to operations....... 5,092.2 4,905.0 860.0 450.0 525.0
--------- -------- -------- -------- --------
Balance, end of year................... $ 3,059.8 $6,500.9 $1,713.4 $1,321.2 $1,077.6
========= ======== ======== ======== ========
Net charge-offs as a % of average
loans and loans held for sale........ .90%(1) .13% .60% .37% .62%
Allowance for loan losses as a
% of period end loans and loans
held for sale........................ 3.60 5.47(2) 2.10 1.84 1.94
</TABLE>
(1) Excluding IPF net charge-offs.
(2) Excluding $4.5 million of allowance for loan losses allocated to the
IPF portfolio in the numerator and $16.8 million of IPF receivables in
the denominator, the ratio of allowance for loan losses as a percentage
of period end loans and loans held for sale was 1.96% at year end 1995.
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 the underlying collateral. Prior
to 1995, management generally did not allocate the loan loss reserve across the
various loan categories. In 1995, in connection with the adoption of FAS No. 114
and FAS No. 118, management began formally allocating the reserve to specific
loan categories. The following table sets forth the allocation of the Bank's
allowance for loan losses for each of the five years ended December 31, 1996:
-26-
<PAGE>
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------------------- -------------------- -------------------- ------------------- --------------------
% of % of % of % of % of
Loans to Loans to Loans to Loans to Loans to
Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans
------ ----------- ------ ----------- ------ ----------- ------ ----------- ------ -----------
(in thousands, except percentages)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial &
industrial...... $1,027.1 46% $ 812.8 46% $ -- 36% $ -- 48% $ -- 48%
Real Estate:
Construction.... 106.2 11 98.9 4 -- 2 -- 5 -- 5
Mortgages-
residential.... 439.9 19 417.9 18 750.0 38 -- 35 -- 34
Mortgages-
commercial..... 127.5 19 -- 15 -- 18 -- 12 -- 13
IPF............. -- 3 4,500.0 15 -- -- -- -- -- --
Consumer ........ 9.5 2 -- 2 -- 6 -- -- -- --
Unallocated....... 1,349.6 N/A 671.3 N/A 963.4 N/A 1,321.3 N/A 1,077.6 N/A
-------- --- -------- --- -------- --- -------- --- -------- ---
$3,059.8 100% $6,500.9 100% $1,713.4 100% $1,321.3 100% $1,077.6 100%
======== === ======== === ======== === ======== === ======== ===
</TABLE>
Deposits
Total deposits at December 31, 1996 aggregated $185.1 million which was
lower than total deposits at December 31, 1995 of $196.1 million due primarily
to declines in demand and certificate of deposit balances. The average rate of
the components of average deposits at December 31, 1996, 1995 and 1994 follows.
<TABLE>
<CAPTION>
For the Year Ended December 31,
1996 1995 1994
----------------------- ----------------------- ---------------------
Average Average Average Average Average Average
Balance Rate (%) Balance Rate (%) Balance Rate (%)
------- -------- ------- -------- ------- --------
(in thousands, except percentages)
<S> <C> <C> <C> <C> <C> <C>
Demand...................... $ 10,705.2 -- $ 10,404.0 -- $ 12,651.3 --
NOW & money market ......... 7,453.7 3.33% 12,518.8 3.48% 11,981.3 2.82%
Savings..................... 49,870.7 4.88 53,283.1 4.86 100,708.5 5.37
Certificates of deposit .... 122,657.0 6.18 102,779.5 6.32 63,612.0 5.12
---------- ----- ---------- ----- ---------- ----
</TABLE>
Certificates of deposit of $100 thousand or more at December 31, 1996
of $11.9 million had the following maturities (in thousands):
Three months or less.......................... $ 3,717.5
Three months through six months............... 1,802.8
Six months through twelve months.............. 2,819.8
Over twelve months............................ 3,530.4
---------
Total..................................... $11,870.5
=========
-27-
<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 1996 and 1995, 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 years ended December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
Average Weighted
Amount Maximum Average
Balance Outstanding Outstanding Interest Average
Outstanding During at any Rate at Rate
12/31 the Period Month-End 12/31 Paid
----------- ----------- ----------- -------- -------
(in thousands, except percentages)
<C> <C> <C> <C> <C> <C>
1996: FHLB borrowings............... $ -- $26,587.7 $47,269.1 -- 5.55%
Federal funds purchased....... -- 110.0 1,000.0 -- 5.22
--------- ----
$26,697.7 5.55%
========= ====
1995: FHLB borrowings............... $33,443.8 $44,522.1 $66,155.2 6.02% 6.23%
Federal funds purchased....... -- 235.3 -- -- 5.69
--------- --------- ----
$33,443.8 $44,757.4 6.02 6.23%
========= ========= ====
1994: FHLB borrowings............... $63,037.4 $38,050.8 $63,037.4 6.32% 4.90%
Federal funds purchased....... -- 360.6 1,000.0 -- 4.52
--------- ---------- ----
$63,037.4 $38,411.4 6.32 4.90%
========= ========= ====
</TABLE>
Results of Operations
A net loss of $2.7 million, or $2.42 per share, was recorded in 1996
compared to a net loss of $3.1 million, or $3.41 per share, in 1995. The smaller
1996 loss compared to 1995 was attributable primarily to an increase in net
interest income, as gains on the sale of residential mortgages and
mortgage-backed securities available-for-sale were offset by a slightly higher
loan loss provision.
A net loss of $3.1 million, or $3.41 per share, was recorded in 1995
compared to net income in 1994 amounting to $503 thousand, or $.22 per share.
The loss in 1995 resulted from a higher provision for loan losses of $4 million,
due principally to delinquent IPF loans, and an increase in non-interest
expenses of $3 million which more than offset an increase in net interest income
of $2.8 million.
Net Interest Income
A key component of the Bank's results of operations is net interest
income which represents the difference between interest earned on loans,
securities and other interest earning assets and the interest
-28-
<PAGE>
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 for the year ended December 31, 1996 totaled $9.1
million, which was 6% higher than net interest income for the year-end 1995 of
$8.6 million. The 1995 to 1996 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
3.56% in 1995 to 3.76% in 1996. The higher margin reflected primarily a greater
percentage of interest income being derived from higher yielding loan activity.
In 1996, interest and fees on all loans represented 61% of total interest income
versus 53% in 1995.
Net interest income for the year ended December 31, 1995 totaled $8.6
million which was $2.8 million higher than net interest income for the
comparable 1994 period of $5.8 million. The 49% increase was attributable to an
improved net interest margin which offset a decline in the amount of average
interest earnings assets from $244.9 million in 1994 to $241.5 million in 1995.
The net interest margin rose to 3.56% in 1995 from 2.37% in 1994 and benefited
from the yields on earning assets rising faster than the cost of
interest-bearing liabilities. The yields on earning assets of 8.76% in 1995
compared to 7.01% in 1994 were higher primarily as a result of the significant
yield on the Bank's IPF loan portfolio which exceeds the yield on the Bank's
other lending activity. The average IPF loan balance in 1995 was $10.5 million
compared to $500 thousand in 1994. However, management believes that the yields
on IPF loans were higher in 1995, due in part, to the reporting by the Servicer
of interest and fees on defaulted IPF loans. This income on defaulted loans is
not readily determinable but is included in the IPF loan balance and, therefore,
has been considered in the provision for loan losses. The yields on earning
assets in 1995 also benefitted from lower amortization of securities portfolio
premiums, the higher prime lending rate that prevailed in 1995, and the
reinvestment of the cash flow from the mortgage-backed securities portfolio into
higher yielding lending activity. As a result of this reinvestment, a greater
percentage of interest income was derived from higher yielding lending activity
in 1995 versus 1994. For the year ended December 31, 1995, interest and fees on
loans represented 53% of total interest income compared to 37% for the same 1994
period while investment income decreased from 63% in 1994 to 47% in 1995.
The cost of interest-bearing liabilities decreased to 5.73% in 1996
from 5.80% in 1995 due to a reduction in the cost associated with certificates
of deposits. Average certificate of deposit balances represented 56% of 1996's
total average interest-bearing liabilities with an average rate paid of 6.18%
versus a cost of 6.32% in 1995 on balances which comprised 47% of total average
interest-bearing liabilities. The cost of interest-bearing liabilities was also
impacted by the lower rates paid on short term FHLB advances which decreased to
an average rate of 5.55% in 1996 from 6.23% in 1995.
The cost of interest-bearing liabilities increased to 5.80% in 1995
from 5.09% in 1994 and reflected a shift in funding sources from savings
balances to higher costing certificates of deposit. Average certificate of
deposit balances represented 47% of 1995's total average interest-bearing
liabilities with an average rate paid of 6.32% versus a cost of 5.12% in 1994 on
balances which comprised 28% of total average interest-bearing liabilities. The
cost of interest-bearing liabilities was
-29-
<PAGE>
also impacted by the higher rates paid on short term FHLB advances which rose to
an average rate of 6.23% in 1995 from 4.90% in 1994.
Provision for Loan Losses
A provision for loan losses of $5.1 million was recorded for the year
ended December 31, 1996 compared to $4.9 million in 1995. The increases in the
provisions compared to prior years were due to the charge-offs incurred in
connection with IPF loans.
Non-interest Expenses
Total non-interest expenses for the year ended December 31, 1996 were
$7.2 million, or 2%, lower than the $7.4 million of the previous year. Excluding
the servicing costs of IPF, operating expenses were 7% lower as lower
professional fees (mainly legal expenses) and a reduction in FDIC insurance
premiums more than offset higher staff expenses associated with new hires and
salary increases. IPF expenses increased by 9% due to the cost of servicing a
larger portfolio, on average, and the absorption by the Bank of all costs of
servicing the IPF portfolio from April 1996, which had been previously borne by
the Servicer.
Non-interest expenses for the year ended December 31, 1995 totaled $7.4
million compared to $4.4 million for the year ended December 31, 1994. The
increase in non-interest expenses in 1995 of $3 million compared to 1994 was
attributable to higher salaries and employee benefits of $237 thousand resulting
from higher staffing levels and benefit costs and from salary increases,
professional fees and settlement costs of $445 thousand incurred in resolving
legal matters relating to the assignment of residential mortgages to the Bank,
expenses of $266 thousand incurred for professional services in connection with
the proposed merger between Regent and Carnegie and the Bank and CBNA, pursuant
to a Merger Agreement which Merger Agreement was terminated on January 14, 1997,
audit expenses of $329 thousand, a substantial portion of which related to the
delinquent IPF loans, and an increase of $2 million in costs for the expansion
and servicing of the IPF program. The increase in other expenses was partially
offset by lower premiums and a refund of premiums previously paid to the FDIC
totaling $205 thousand.
Provision for Income Taxes
Regent recorded a tax benefit of $350 thousand for the year ended
December 31, 1996. Regent also received a federal income tax refund of $1.5
million in the first quarter of 1997, which represented the recovery of taxes
paid in prior years and had been previously accounted for in Regent's
Consolidated Statements of Operations. The tax benefit, which was recorded in
the fourth quarter of 1996, reflected the recognition of a portion of Regent's
net deferred tax asset under the principles of FAS 109. FAS 109 requires that
the tax benefit of net operating loss carryforwards and temporary timing
differences be recorded as an asset to the extent that management estimates that
such assets are "more likely than not" to be realized through the generation of
future taxable income. At December 31, 1996, Regent recorded a deferred tax
asset of $2.0 million and a valuation allowance against it of $1.6 million.
-30-
<PAGE>
Consolidated Average Balance Sheets and Rate/Yield Analysis
<TABLE>
<CAPTION>
1996 1995 1994
----------------------------- ----------------------------- -----------------------------
Average Income/ Rate/ Average Income/ Rate/ Average Income/ Rate/
Balance Expense Yield Balance Expense Yield Balance Expense Yield
------- ------- ----- ------- ------- ----- ------- ------- -----
(in thousands, except for percentages)
ASSETS
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Overnight investments(1) $ 1,475.8 $ 77.5 5.25% $ 236.4 $ 12.5 5.30% $ 283.6 $ 16.8 5.92%
Investment securities and
securities available for
sale ................... 123,449.0 8,220.6 6.66 148,559.4 9,986.2 6.72 166,476.8 10,833.8 6.51
Loans and loans held for
sale(2) ................ 115.859.9 13,221.1 11.41 92,743.7 11,160.8 12.03 78,103.5 6,313.9 8.08
---------- ---------- ----- ---------- --------- ----- ---------- --------- ----
Total interest-earning
assets ................. $240,784.7 $ 21,519.3 8.94% 241,539.5 $21,159.6 8.76% 244,863.9 $17,164.5 7.01%
========== ========== ===== ========= ========= ===== ========== ========= ====
Cash and due from banks ...... 4,480.4 4,476.9 4,141.2
Premises and equipment, net .. 753.3 643.4 687.6
Other assets ................. 3,409.4 2,806.5 3,123.1
Allowance for loan losses .... (3,581.7) (1,838.0) (1,382.6)
---------- --------- ----------
Total assets ........... $245,846.1 $247,628.3 $251,433.2
========== ========== ==========
LIABILITIES AND
SHAREHOLDERS'
EQUITY
Interest-bearing liabilities:
NOW ....................... $ 3,783.4 $ 91.1 2.41% $ 4,055.9 $ 102.1 2.52% $ 3,323.5 $ 82.7 2.49%
Savings ................... 49,870.7 2,433.2 4.88 53,283.1 2,588.8 4.86 100,708.5 5,411.6 5.37
Money market deposits ..... 3,670.3 157.0 4.28 8,462.9 333.5 3.94 8,657.8 254.6 2.94
Time deposits ............. 122,657.0 7,577.3 6.18 102,779.5 6,493.1 6.32 63,612.0 3,257.7 5.12
Short-term borrowings ..... 26,697.7 1,481.1 5.55 44,757.4 2,788.9 6.23 38,411.4 1,881.3 4.90
Long-term advances ........ 8,157.2 501.6 6.15 451.6 27.1 5.99 6,069.0 267.2 4.40
Subordinated debt ......... 2,750.0 220.2 8.00 2,750.0 219.6 7.99 2,712.5 217.6 8.02
---------- --------- ---- ---------- --------- ---------- ---------
Total interest-bearing
liabilities ............ 217,586.3 12,461.5 5.73% 216,540.4 12,553.0 5.80% 223,494.7 11,372.7 5.09%
---------- --------- ---- ---------- --------- ----
Demand deposits .............. 10,705.2 10,404.0 12,657.3
Other liabilities ............ 7,652.7 7,053.2 2,365.8
---------- ---------- ----------
Total liabilities ...... 235,944.2 233,997.5 238,517.9
----------
Shareholders' equity ......... 9,901.9 13,630.8 12,915.3
---------- ---------- ----------
Total liabilities and
shareholders' equity ... $245,846.1 $247,628.3 $251,433.2
========== ========== ==========
Net interest income and net
interest spread ........... $ 9,057.8 3.21% $ 8,606.6 2.96% $ 5,791.8 1.92%
========= ==== ========= ==== ========= ====
Net interest rate margin ..... 3.76% 3.56% 2.37%
==== ==== ====
</TABLE>
(1) Includes federal funds sold, money-market mutual funds and interest-bearing
deposits due from banks.
(2) For purpose of these computations, non-accruing loans are included in the
daily average loan amounts outstanding. Additionally, the yield on IPF
loans includes interest income on delinquent loans.
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
-31-
<PAGE>
affected by changes in the volume of earning assets and interest-bearing
liabilities. The following table sets forth for the years ended December 31,
1996 compared to December 31, 1995 and December 31, 1995 compared to December
31, 1994, the dollar amount of increase (decrease) in interest income and
interest expense resulting from changes in the volume of earning assets and
interest-bearing liabilities and from changes in yields and rates.
<TABLE>
<CAPTION>
1996 Compared to 1995 1995 Compared to 1994
------------------------------------ -------------------------------------
Net Increase Net Increase
Volume Rate (Decrease)(1) Volume Rate (Decrease)(1)
---------- -------- ------------- --------- -------- -------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Overnight investments(2)......... $ 65.1 $ (.1) $ 64.9 $ (2.6) $ (1.6) $ (4.2)
Investment securities............ (1,672.9) (92.6) (1,765.2) (1,195.4) 347.8 (847.6)
Loans and loans held for sale(3). 2,662.6 (602.3) 2,060.3 1,343.8 3,503.1 4,846.9
--------- ------- --------- --------- -------- ---------
Total Interest Income............ 1,054.7 (695.0) 359.7 145.8 3,849.3 3,995.1
--------- ------- --------- --------- -------- ---------
NOW accounts..................... (6.7) (4.3) (11.0) 18.4 1.0 19.4
Savings deposits................. (166.4) 10.8 (155.6) (2,345.5) (477.3) (2,822.8)
Money market deposits............ (202.9) 26.4 (176.5) (5.9) 84.8 78.9
Certificates of deposit.......... 1,230.8 (146.5) 1,084.3 2,345.5 889.9 3,235.4
Short-term borrowings............ (1,028.3) (279.5) (1,307.7) 339.1 592.1 931.2
Long-term advances............... 473.8 0.7 474.5 (322.2) 58.4 (263.8)
Subordinated debt................ 0.0 0.6 0.6 3.0 (1.0) 2.0
--------- ------- --------- --------- -------- ---------
Total Interest Expense........... 300.3 (391.8) (91.5) 32.4 1,147.9 1,180.3
--------- ------- --------- --------- -------- ---------
Net Interest Income.............. $ 754.4 $(303.2) $ 451.2 $ 113.4 $2,701.4 $ 2,814.8
========= ======= ========= ========= ======== =========
</TABLE>
(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 federal funds sold, money-market mutual funds and interest-bearing
deposits due from banks.
(3) Includes loan fees of approximately $1.5 and $1.0 million in 1996 and 1995,
respectively. A majority of such fees are associated with IPF loans.
Additionally, loan income includes interest on nonaccrual loans, to the
extent of interest paid of $19 and $79 thousand in 1996 and 1995,
respectively. Non-accruing loans are included in the daily average loan
amounts outstanding used to determine the changes in interest income
attributable to volume. Also includes interest income on delinquent IPF
loans.
-32-
<PAGE>
Item 8. Financial Statements and Supplementary Data.
- ------ --------------------------------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants..........................34
Report of Independent Certified Public Accountants..........................35
Consolidated Balance Sheets, December 31, 1996 and 1995.....................36
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994..........................................38
Consolidated Statements of Shareholders' Equity for the years
ended December 31, 1996, 1995 and 1994....................................39
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994..........................................40
Notes to Consolidated Financial Statements..................................41
-33-
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Shareholders and Board of Directors
of Regent Bancshares, Inc.
We have audited the accompanying consolidated balance sheet of Regent
Bancshares, Inc. (a New Jersey corporation) and subsidiary (the Bank) as of
December 31, 1996, and the related consolidated statements of operations,
shareholders' equity, and cash flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
As discussed in Note 3 to the consolidated financial statements, the
Bank's Tier 1 leverage ratio, as defined by the Office of the Comptroller of the
Currency (OCC), of 5.65% was below the 6.5% specified under the Regulatory
Agreement entered into between the Bank and the OCC. The Bank has filed, and the
OCC has accepted, a capital plan for attaining the required level of regulatory
capital.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Regent
Bancshares, Inc. and subsidiary as of December 31, 1996, and the consolidated
results of their operations and their consolidated cash flows for the year then
ended in conformity with generally accepted accounting principles.
GRANT THORNTON LLP
Philadelphia, Pennsylvania
March 27, 1997 (except for Note 18, as to which
the date is March 31, 1997)
-34-
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
of Regent Bancshares Corp.:
We have audited the accompanying consolidated balance sheet of Regent
Bancshares Corp. (a New Jersey corporation) and subsidiary as of December 31,
1995, and the related consolidated statements of operations, shareholders'
equity and cash flows for the year then ended and for the year 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.
As discussed in Note 3 and Note 5, the Bank recognized a loss from
operations for the year ended December 31, 1995 primarily as a result of a
substantial increase in the provision for loan losses associated with its
insurance premium finance loan portfolio. As a result, the Bank did not meet the
Tier 1 leveraged capital requirement established by the Office of the
Comptroller of the Currency (OCC) for the Bank under the OCC's discretionary
authority. Additionally, on a consolidated basis, the parent company's Tier 1
leveraged capital ratio amounts to 4%, which equals the minimum legal
requirement. Failure to meet minimum capital requirements can result in the
regulators initiating certain actions that, if undertaken, could have a direct
material effect on the Bank's financial statements. Such actions are presently
uncertain and, accordingly, no adjustments have been made in the accompanying
financial statements.
In our opinion, the 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, 1995, and the results of
their operations and their cash flows for the years ended December 31, 1995 and
1994, in conformity with generally accepted accounting principles.
As described in Note 2 of the consolidated financial statements, the
Company changed its method of accounting for investments in debt and equity
securities.
ARTHUR ANDERSEN LLP
Philadelphia, Pennsylvania
May 23, 1996
-35-
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
---------------------------------
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 4,409,674 $ 6,857,498
Overnight investments 5,083,790 308,563
------------ ------------
Cash and cash equivalents 9,493,464 7,166,061
Investment securities available for sale 30,469,710 47,477,880
Investment securities held to maturity (market value of $73,250,139 and
$89,895,504, respectively) 75,082,982 91,244,148
Mortgage loans held for sale -- 12,873,725
Loans, net of unearned interest fees 85,069,171 105,910,034
Less: Allowance for loan losses (3,059,773) (6,500,882)
------------ ------------
Net loans 82,009,398 99,409,152
------------ ------------
Accrued interest receivable 1,362,276 1,739,969
Premises and equipment, net 695,874 704,487
Prepaid expenses and other assets (including net deferred taxes of
$350,000 and $1,646,200, respectively) 2,790,522 1,896,639
------------ ------------
Total assets $201,904,226 $262,512,061
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand deposits $ 10,986,013 $ 12,621,000
Interest-bearing:
NOW and money market 6,583,384 7,623,514
Savings 47,830,169 50,602,549
Certificates of deposit 119,726,797 125,284,579
------------ ------------
Total deposits 185,126,363 196,131,642
Advances from Federal Home Loan Bank of Pittsburgh 202,621 43,655,302
Subordinated debentures 2,750,000 2,750,000
Accrued interest payable 4,792,911 5,310,396
Other liabilities 899,614 4,311,365
------------ ------------
Total liabilities 193,771,509 252,158,705
------------ ------------
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.10 par value, 5,000,000 shares authorized, Series A,
441,272 and 484,032 shares issued and outstanding; entitled
to $4,412,720 in involuntary liquidation 44,127 48,403
Series B, 3,820 and 4,270 shares issued and outstanding; entitled to
$38,200 in involuntary liquidation 382 427
Series C, 3,025 and 3,485 shares issued and outstanding; entitled to
$30,250 in involuntary liquidation 303 349
Series D, 3,280 and 3,790 shares issued and outstanding; entitled to
$32,800 in involuntary liquidation 328 379
Series E, 95,654 and 85,615 shares issued and outstanding; entitled to
$956,540 in involuntary liquidation 9,565 8,562
------------ ------------
54,705 58,120
</TABLE>
-36-
<PAGE>
CONSOLIDATED BALANCE SHEETS -- CONTINUED
<TABLE>
<CAPTION>
December 31,
----------------------------------
1996 1995
------------ ------------
<S> <C> <C>
Common stock, $.10 par value, 10,000,000 shares authorized,
1,228,283 and 997,615 shares issued and outstanding $ 122,828 $ 99,761
Additional paid-in capital 14,678,375 13,300,855
Accumulated deficit (6,049,921) (2,956,765)
Net unrealized loss on investment securities available for sale (673,270) (148,615)
------------ ------------
Total shareholders' equity 8,132,717 10,353,356
------------ ------------
Total liabilities and shareholders' equity $201,904,226 $262,512,061
============ ============
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
-37-
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Interest income:
Loans, including fees $13,221,139 $11,160,803 $ 6,313,866
Investment securities, including dividends 8,206,316 9,980,670 10,833,819
Overnight investments 91,803 18,100 16,793
----------- ----------- -----------
Total interest income 21,519,258 21,159,573 17,164,478
----------- ----------- -----------
Interest expense:
Deposits 10,258,596 9,517,438 9,006,507
Short-term borrowings 1,481,098 2,788,852 1,857,622
Long-term debt 721,776 246,661 508,531
----------- ----------- -----------
Total interest expense 12,461,470 12,552,951 11,372,660
----------- ----------- -----------
Net interest income 9,057,788 8,606,622 5,791,818
Provision for loan losses 5,092,156 4,905,000 860,000
----------- ----------- -----------
Net interest income after provision for loan losses 3,965,632 3,701,622 4,931,818
----------- ----------- -----------
Non-interest income:
Service charges on deposit accounts 102,898 82,565 102,452
Other 21,176 21,120 63,966
Net gains on sale of assets 88,617 303 35,465
----------- ----------- -----------
Total non-interest income 212,691 103,988 201,883
----------- ----------- -----------
Non-interest expense:
Salaries and employee benefits 2,103,998 1,686,979 1,449,481
Professional services 865,721 1,272,236 560,441
Rent 173,855 173,855 173,865
Other occupancy expense 183,685 161,730 118,460
Depreciation and amortization 250,661 183,699 157,301
FDIC assessment and other insurance 141,412 297,074 505,927
Litigation settlement -- 175,000 --
IPF servicing 2,323,491 2,132,104 168,235
Other 1,181,484 1,313,030 1,238,066
----------- ----------- -----------
Total non-interest expense 7,224,307 7,395,707 4,371,776
----------- ----------- -----------
Income (loss) before provision for income taxes (benefit) (3,045,984) (3,590,097) 761,925
Income tax expense (benefit) (350,000) (463,500) 259,100
----------- ----------- -----------
Income (loss) before dividends on preferred stock (2,695,984) (3,126,597) 502,825
Preferred stock dividends 141,650 487,408 287,222
----------- ----------- -----------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK $(2,837,634) $(3,614,005) $ 215,603
=========== =========== ===========
Net income (loss) per common share:
Primary $(2.42) $(3.41) $.22
Weighted average number of shares outstanding 1,170,564 1,059,312 989,611
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
-38-
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Net
unrealized
loss on
Retained investment
Preferred stock Common stock Additional earnings securities
---------------- ---------------- paid-in (accumulated available
Shares Amount Shares Amount capital deficit) for sale Total
------ ------ ------ ------ ---------- ------------ ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
Issuance of preferred
stock as dividends 51,452 5,145 -- -- 303,567 (308,712) -- --
Conversion of preferred
stock to common
stock (72,875) (7,287) 73,206 7,320 (33) -- -- --
Change in net unrealized
loss on investment
securities available
for sale 1,274,385 1,274,385
Net loss -- -- -- -- -- (3,126,597) -- (3,126,597)
------- ------- --------- -------- ----------- ----------- ---------- -----------
Balance, December 31,
1995 581,192 58,120 997,615 99,761 13,300,855 (2,956,765) (148,615) 10,353,356
Issuance of preferred
stock as dividends 48,144 4,814 -- -- 392,358 (397,172) -- --
Issuance of common
stock -- -- 148,148 14,815 985,185 -- -- 1,000,000
Conversion of preferred
stock to common
stock (82,285) (8,229) 82,520 8,252 (23) -- -- --
Change in net unrealized
loss on investment
securities available
for sale -- -- -- -- -- -- (524,655) (524,655)
Net loss -- -- -- -- -- (2,695,984) -- (2,695,984)
------- ------- --------- -------- ----------- ----------- ---------- -----------
Balance, December 31,
1996 547,051 $54,705 1,228,283 $122,828 $14,678,375 $(6,049,921) $ (673,270) $ 8,132,717
======= ======= ========= ======== =========== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
-39-
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
----------------------------------------------
1996 1995 1994
------------ ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(2,695,984) $(3,126,597) $ 502,825
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Provision for loan losses 5,092,156 4,905,000 860,000
Depreciation and amortization 250,661 183,699 157,301
Net amortization of premiums and accretion of
discounts on investment securities 1,345,299 643,853 1,248,214
(Decrease) increase in unearned interest/fees (768,777) 977,940 432,246
Decrease in accrued interest receivable 377,693 211,275 16,401
(Increase) decrease in prepaid expenses and other assets (893,882) (53,655) 826,797
(Decrease) increase in accrued interest payable (517,485) 3,070,328 654,283
(Decrease) increase in other liabilities (3,411,751) 2,155,378 1,970,534
Purchases of mortgage loans held for sale (48,696,036) (68,001,403) (301,014,991)
Proceeds from sales of mortgage loans held for sale 61,575,296 60,515,195 318,328,366
----------- ----------- ------------
Net cash provided by operating activities 11,657,190 1,481,013 23,981,976
----------- ----------- ------------
Cash flows from investing activities:
Net decrease (increase) in loans 13,076,375 (31,145,825) (27,612,611)
Purchase of investment securities available for sale (10,030,000) -- (47,491,857)
Principal collected on investment securities held to
maturity 15,619,113 13,058,648 34,666,263
Principal collected on investment securities available
for sale 6,343,098 5,197,586 8,974,915
Net decrease (increase) in U.S. Treasury bills with
maturities less than three months -- 124,672 (24,812)
Purchases of premises and equipment (242,048) (231,685) (186,066)
Proceeds from sale of investments available for sale 19,361,635 -- --
----------- ----------- ------------
Net cash provided by (used in) investing
activities 44,128,173 (12,996,604) (31,674,168)
----------- ----------- ------------
Cash flows from financing activities:
Net decrease in demand, NOW, savings and
money market deposits (5,447,497) (39,926,563) (14,323,062)
Net (decrease) increase in certificates of deposit (5,557,782) 74,996,733 (17,008,332)
Net(decrease) increase in advances from Federal Home Loan
Bank of Pittsburgh with original maturities of three
months or less (43,452,681) (9,193,560) 15,532,561
Advances from Federal Home Loan Bank of Pittsburgh
with maturities greater than three months -- 10,211,480 15,000,000
Maturities of advances from Federal Home Loan Bank
of Pittsburgh with maturities greater than three months -- (20,400,000) (1,600,000)
Proceeds from issuance of subordinated debentures -- -- 200,000
Capital contribution 1,000,000 -- --
----------- ----------- ------------
Net cash (used in) provided by financing
activities (53,457,960) 15,688,090 (2,198,833)
----------- ----------- ------------
Net increase (decrease) in cash and cash equivalents 2,327,403 4,172,499 (9,891,025)
Cash and cash equivalents, beginning of year 7,166,061 2,993,562 12,884,587
----------- ----------- ------------
Cash and cash equivalents, end of year $ 9,493,464 $ 7,166,061 $ 2,993,562
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
-40-
<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. The Bank serves the needs of its banking customers with particular
focus on small and medium-sized businesses, professionals and other individuals.
The Bank offers a wide variety of deposit products, including checking accounts,
interest-bearing NOW accounts, insured money market accounts, certificates of
deposit, savings accounts and Individual Retirement Accounts.
2. Summary of Significant Accounting Policies
Basis of Financial Statement Presentation
The accounting and reporting policies of Regent and the Bank conform
with generally accepted accounting principles and predominant practices within
the banking industry. All intercompany balances and transactions have been
eliminated.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. These estimates and assumptions also affect reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. Significant estimates implicit in these financial
statements are as follows.
The estimates that are particularly susceptible to significant change
in the near term relate to the allowance for loan losses, other real estate
owned and the valuation allowance on the deferred tax asset.
The evaluation of the adequacy of the allowance for loan losses
includes an analysis of historical loss rates, by category, applied to current
loan totals. However, actual losses may be higher or lower than historical
trends, which vary. Actual losses on specified problem loans, which also are
provided for in the evaluation, may vary from estimated loss percentages, which
are established based upon a limited number of potential loss classifications.
Other real estate owned is carried at market based upon estimates
derived through appraisals and other sources, less estimated selling costs.
However, realization of sales proceeds may ultimately be higher or lower than
those estimates.
-41-
<PAGE>
Financial Instruments
The Financial Accounting Standards Board (FASB) issued FAS No. 107,
"Disclosures about Fair Value of Financial Instruments," which requires all
entities to disclose the estimated fair value of their assets and liabilities
considered to be financial instruments. Financial instruments requiring
disclosure consist primarily of investment securities, loans and deposits.
Investment Securities
Regent adopted FAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," on January 1, 1994. This standard requires investments
in securities to be classified in one of three categories: held to maturity,
available for sale or trading. Investment securities that management has both
the ability and intent to hold to maturity are carried at amortized cost.
Investment securities that management believes may be sold prior to maturity due
to changes in interest rates, prepayment risk and liquidity requirements or
other factors, are classified as available for sale. Net unrealized gains and
losses for such securities, net of tax effect, are required to be recognized as
a separate component of shareholders' equity and excluded from the determination
of net income. Regent does not engage in securities trading. Securities
transactions are accounted for on a settlement date basis. Prior to the adoption
of FAS No. 115, investment securities that were principally debt securities were
stated at cost and adjusted for amortization of premiums and accretion of
discounts computed by the interest method. Gains or losses on disposition of
investment securities are based on the net proceeds and the adjusted carrying
amount of the securities sold, using the specific identification method.
Mortgage Loans Held for Sale
Mortgage loans held for sale are carried at the lower of aggregate cost
or market value. Regent adopted FAS No. 122, "Accounting for Mortgage Servicing
Rights" on January 1, 1996. This statement requires capitalization of the cost
of the rights to service mortgage loans when originated mortgages are sold and
servicing is retained. This statement also requires the capitalized mortgage
servicing rights to be amortized in proportion to and over the period of
estimated net servicing income. In addition, the mortgage servicing rights must
be periodically evaluated for impairment based on their fair value. There was no
material financial statement impact upon adoption of this standard.
Loans and Allowance for Loan Losses
Loans receivable that management has the intent and ability to hold for
the foreseeable future or until maturity or pay-off are reported at their
outstanding principal adjusted for any charge-offs, the allowance for loan
losses, and any deferred fees or costs on originated loans and unamortized
premiums or discounts on purchased loans. Loans are stated at the amount of
unpaid principal and are net of unearned discount, unearned loan fees and an
allowance for loan losses. The allowance for loan losses is established through
a provision for loan losses charged to expense. Loan principal considered to be
uncollectible by management is charged against the allowance for loan losses.
The allowance is an amount that management believes will be adequate to absorb
possible losses on existing loans that may become uncollectible based upon an
evaluation of known and inherent risks in the loan portfolio. The evaluation
takes into consideration such factors as changes in the nature and size of the
loan portfolio, overall
-42-
<PAGE>
portfolio quality, specific problem loans, and current and future economic
conditions which may affect the borrowers' ability to pay. The evaluation
details historical losses by loan category, the resulting loss rates for which
are projected at current loan total amounts. Loss estimates for specified
problem loans are also detailed.
Interest income is accrued as earned on a simple interest basis.
Accrual of interest is discontinued on a loan when management believes, after
considering economic and business conditions and collection efforts, that the
borrower's financial condition is such that collection of interest is doubtful.
When a loan is placed on such non-accrual status, all accumulated accrued
interest receivable applicable to periods prior to the current year may be
charged off to the allowance for loan losses. Interest which had accrued in the
current year may be reversed out of current period income. The charge-off or
reversal of accrued interest will only occur if such interest is deemed
uncollectible. Payments received subsequent to the non-accrual classification
are applied as a reduction of principal in accordance with both regulatory
guidelines and generally accepted accounting principles. Loans 90 days or more
past due and still accruing interest must have both principal and accruing
interest adequately secured and must be in the process of collection.
Regent adopted FAS No. 114, "Accounting by Creditors for Impairment of
a Loan," as amended by FAS No. 118, "Accounting by Creditors for Impairments of
a Loan - Income Recognition and Disclosures," on January 1, 1995. This standard
requires that a creditor measure impairment based on the present value of
expected future cash flows discounted at the loan's effective interest rate,
except that as a practical expedient, a creditor may measure impairment based on
a loan's observable market price, or the fair value of the collateral if the
loan is collateral dependent. Regardless of the measurement method, a creditor
must measure impairment based on the fair value of the collateral when the
creditor determines that foreclosure is probable. Because Regent already
recognized such reductions of value through its provision for loan losses, the
adoption of FAS No. 114, as amended by FAS No. 118, did not have a material
impact on its financial condition or results of operations.
Other Real Estate Owned
Other real estate owned, consisting of property acquired by foreclosure
or deed in lieu of foreclosure and repossessed assets, is initially recorded at
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 selling
costs. Costs relating to the development and improvement of the property are
capitalized, if recoverable, whereas those related to holding the property are
charged to expense.
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 of the assets. Leasehold
improvements are amortized using the straight-line method over the lesser of
their estimated useful lives or the term of their respective leases.
Regent adopted FAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" on January 1,
1996. This standard provides guidance on when to recognize and how to measure
impairment losses of long-lived assets and certain identifiable intangibles
-43-
<PAGE>
and how to value long-lived assets to be disposed of. The adoption of this new
statement did not have a material impact on Regent's financial position or
results of operations.
Federal Income Taxes
Regent accounts for its income taxes in accordance with FAS No. 109,
"Accounting for Income Taxes". Under the liability method specified by FAS No.
109, deferred tax assets and liabilities are determined based on the difference
between the carrying values on the financial statements and the tax bases of
assets and liabilities as measured by the enacted tax rates which will be in
effect when these differences reverse. Deferred tax expense is the result of
changes in deferred tax assets and liabilities. The principal types of accounts
resulting in differences between assets and liabilities for financial statement
and tax return purposes are net operating loss carryforwards, loan loss
reserves, deferred loan fees, net unrealized gains or losses on securities
available for sale and accumulated depreciation.
Earnings (Loss) Per Common Share
Earnings (loss) per common share for all periods presented is based on
the weighted average number of common shares outstanding after consideration of
preferred stock dividends and common stock equivalents. Included in common stock
equivalents, for the purposes of primary earnings per share, are stock options
and warrants and the Series B, Series C, Series D and Series E Convertible
Preferred Stock. Series A Convertible Preferred Stock is included in the
computation of fully-diluted earnings per share only. The weighted average
number of common shares attributable to common stock equivalents for the years
ended December 31, 1996, 1995 and 1994, respectively, were as follows: 103,394;
99,203 and 89,339. Fully diluted earnings per common share is not presented
since such presentation is anti-dilutive.
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 income (loss) 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.
Regent adopted FAS No. 123, "Accounting for Stock-Based Compensation,"
on January 1, 1996. FAS No. 123 contains a fair value-based method for valuing
stock-based compensation that entities may use, which measures compensation cost
at the grant date based on the fair value of the award. Compensation is then
recognized over the service period, which is usually the vesting period.
Alternatively, the standard permits entities to continue accounting for employee
stock options and similar equity instruments under Accounting Principles Board
(APB) Opinion No. 25, "Accounting for Stock Issued to Employees." Entities that
continue to account for stock options using APB Opinion No. 25 are required to
make pro forma disclosures of net income and net income per share, as if the
fair value-based method of accounting defined in FAS No. 123 had been applied.
Regent's stock option plans are accounted for under APB No. 25. During the years
ended December 31, 1996 and 1995, there were no stock options granted. At
December 31, 1996, there were no stock options outstanding.
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
-44-
<PAGE>
The FASB issued FAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," as amended by FAS No. 127,
which provides accounting guidance on transfers of financial assets, servicing
of financial assets and extinguishment of liabilities. This statement is
effective for transfers of financial assets, servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996. Adoption of
this new statement is not expected to have a material impact on Regent's
consolidated financial position or results of operations.
Advertising costs
Regent expenses advertising costs as incurred.
Employee benefits plans
Regent has certain employee benefit plans covering substantially all
employees. Regent accrues such costs as incurred.
Statements of cash flows
Cash and cash equivalents are defined as cash on hand, cash items in
the process of collection, amounts due from banks, federal funds sold with an
original maturity of three months or less and money market mutual fund holdings.
Cash paid for interest was approximately $12.2 million in 1996, $9.5 million
thousand in 1995 and $9.1 million thousand in 1994. Cash paid for income taxes
was $0 in 1996 and approximately $100 thousand in 1995 and $510 thousand in
1994. The value of preferred stock issued as dividends was approximately $397
thousand in 1996, $309 thousand in 1995 and $396 thousand in 1994. Conversion of
preferred stock to common stock was valued at approximately $8 thousand in 1996,
$7 thousand in 1995 and $4 thousand in 1994.
Reclassifications
Certain 1995 and 1994 financial information has been reclassified to
conform to the 1996 presentation.
3. Capital Adequacy and Regulatory Matters
Regent and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have
a direct material effect on Regent's consolidated financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, both Regent and the Bank must meet specific capital guidelines that
involve quantitative measures of Regent's and the Bank's assets, liabilities and
certain off-balance-sheet items as calculated under regulatory accounting
practices. Regent's and the Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
-45-
<PAGE>
Quantitative measures established by regulations to ensure capital
adequacy require Regent and the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as
defined) to average assets (as defined).
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------ ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996
Total capital (to risk-weighted
assets):
Regent Bancshares Corp. $10,816,000 9.39% $9,534,080 8.00% $11,917,600 10.00%
Regent National Bank 13,012,000 11.21 9,250,720 8.00 11,603,400 10.00
Tier 1 capital (to risk-weighted assets):
Regent Bancshares Corp. 8,806,000 7.65 4,767,040 4.00 7,150,560 6.00
Regent National Bank 11,547,000 9.95 4,625,360 4.00 6,988,040 6.00
Tier 1 capital (to average assets):
Regent Bancshares Corp. 8,806,000 4.31 8,179,000 4.00 10,223,750 5.00
Regent National Bank 11,547,000 5.65 8,176,440 4.00 10,220,550 5.00
As of December 31, 1995
Total capital ( to risk-weighted
assets):
Regent Bancshares Corp. 13,478,577 8.98 12,010,280 8.00 15,012,850 10.00
Regent National Bank 14,861,883 9.92 11,984,655 8.00 14,980,818 10.00
Tier 1 capital (to risk-weighted assets):
Regent Bancshares Corp. 10,501,971 7.00 6,005,140 4.00 9,007,710 6.00
Regent National Bank 12,985,277 8.67 5,992,327 4.00 8,988,491 6.00
Tier 1 capital (to average assets):
Regent Bancshares Corp. 10,501,971 4.00 10,501,971 4.00 13,125,603 5.00
Regent National Bank 12,985,277 4.94 10,514,394 4.00 13,142,993 5.00
</TABLE>
As a result of the Bank's reported losses, which primarily resulted
from the provision for loan losses associated with IPF loans and the effect
thereof on the Bank's capital, on October 10, 1996, the Bank's Board of
Directors signed the Regulatory Agreement with the OCC to correct certain
deficiencies described in supervisory letters dated August 9, 1996 and August
29, 1996.
Under the Regulatory Agreement, the Bank is required to develop and
implement an action plan, develop a three-year capital program, which includes
the attainment and maintenance of a Tier 1 leverage ratio of 6.50% as of
December 31, 1996, continue the liquidation of the Bank's IPF portfolio,
establish a program for the maintenance of an adequate allowance for loan and
lease losses, increase
-46-
<PAGE>
the liquidity of the Bank and appoint a Special Compliance Committee to monitor
the compliance with the Regulatory Agreement.
As of the most recent examination of the Bank, conducted as of the
close of business on December 31, 1996, the Bank's capital levels meet or exceed
the minimum capital levels established by the OCC for "well capitalized" under
applicable federal banking regulations. However, the Bank is currently subject
to the Regulatory Agreement, described above, requiring the Bank to meet and
maintain a specific capital level. Under the federal banking regulations, a bank
that is subject to such an agreement may not be deemed to be "well capitalized"
regardless of its capital levels. As a result, the Bank is deemed to be
"adequately capitalized" and subject to the requirements under these
regulations. At December 31, 1996, the Bank's Tier 1 leverage ratio as defined
by the OCC, of 5.65% was below the 6.50% specified in the Regulatory Agreement.
The Bank believes that it is currently in compliance in all material respects
with all of the provisions of the Regulatory Agreement, except that the Bank did
not maintain a Tier 1 capital ratio of 6.50% or greater at and after December 1,
1996. The Bank anticipates that it should be able to remain in compliance with
the Regulatory Agreement in all material respects.
As of December 31, 1995, the OCC categorized the Bank as "well
capitalized" under applicable federal banking regulations. However, following an
examination of the Bank, in 1995, the OCC exercised its discretionary authority
to increase the Tier 1 leverage capital ratio for the Bank to 6.5%. The Bank's
capital levels as of December 31, 1995 resulted in the Bank being "adequately
capitalized" under applicable banking regulations and the Tier 1 leverage ratio
was 4.94% (unaudited) which was below the 6.5% ratio established by the OCC for
the Bank. Additionally, on a consolidated basis, Regent's Tier 1 leverage ratio
amounted to 4% (unaudited) which equaled the minimum legal requirement.
Failure to meet minimum capital requirements can result in the
regulators initiating certain actions that, if undertaken, could have a direct
material effect on the Bank's financial statements. Such actions are uncertain
and may expose the Bank to regulatory sanctions that may include restrictions on
operations and growth and mandatory asset dispositions. However, on February 26,
1997, the Bank submitted to the OCC a revised capital plan to bring the Bank
into compliance with the capital ratios specified in the Regulatory Agreement.
On March 27, 1997, the OCC notified the Bank of the OCC's acceptance of the
Bank's revised plan.
Additionally, based upon the Bank's unsatisfactory condition and the
questionable ability of Regent to continue to service its outstanding debt
beyond September 30, 1996, the FRBP formally notified Regent in a letter dated
September 6, 1996 of its determination that Regent was in "troubled condition."
As a consequence of such condition, Regent must provide the FRBP with 30 days'
notice prior to adding any members to its board of directors or engaging any new
senior executive officer. In addition to the notice requirement, the FRBP has
prohibited Regent, without prior written FRBP approval, from declaring or paying
any dividends, repurchasing or redeeming any of its stock and incurring any
additional debt, and required Regent to submit to the FRBP by October 6, 1996 a
written plan to service Regent's outstanding subordinated debentures and to
notify FRBP immediately of any material event that significantly impacts the
financial condition of Regent and the Bank. Regent has submitted to the FRBP
certain written undertakings from the Bank's organizers to service the interest
-47-
<PAGE>
due on March 31, 1997 on Regent's outstanding subordinated debentures in the
event Regent does not otherwise have sufficient funds to pay such interest when
due. As discussed in Note 18, Regent, with the approval of the FRBP, sold 16,364
shares of Series A Convertible Preferred Stock for $6.50 per share. Regent used
the proceeds from this sale to pay the interest due on its subordinated
debentures on March 31, 1997.
Dividends that may be paid by a subsidiary bank to the parent company
are subject to certain legal limitations. The payment of dividends is prohibited
under the Regulatory Agreement.
4. Investment Portfolio
Investment securities available for sale at December 31, 1996 and 1995
are as follows:
<TABLE>
<CAPTION>
December 31, 1996
-------------------------------------------------------------------------------------------
Estimated
Principal Unamortized Unearned Amortized Unrealized Unrealized market
balance premiums discounts cost gains losses value
----------- ---------- -------- ----------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. Agencies $10,000,000 $ -- $ -- $10,000,000 $ -- $ -- $10,000,000
FHLMC 7,720,448 226,175 -- 7,946,623 -- 364,019 7,582,604
FNMA 10,845,299 431,369 -- 11,276,668 4,917 314,168 10,967,417
----------- ---------- ------- ----------- -------- -------- -----------
$28,565,747 $ 657,544 $ -- 29,223,291 4,917 678,187 28,550,021
=========== ========== =======
Other securities 1,919,689 -- -- 1,919,689
----------- -------- -------- -----------
$31,142,980 $ 4,917 $678,187 $30,469,710
=========== ======== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
-------------------------------------------------------------------------------------------
Estimated
Principal Unamortized Unearned Amortized Unrealized Unrealized market
balance premiums discounts cost gains losses value
----------- ---------- -------- ----------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
FHLMC $16,455,698 $ 488,656 $ -- $16,944,354 $ 76,032 $282,443 $16,737,943
FNMA 27,616,256 648,089 85,694 28,178,651 203,692 222,395 28,159,948
----------- ---------- ------- ----------- -------- -------- -----------
$44,071,954 $1,136,745 $85,694 45,123,005 279,724 504,838 44,897,891
=========== ========== =======
Other securities 2,579,989 -- -- 2,579,989
----------- -------- -------- -----------
$47,702,994 $279,724 $504,838 $47,477,880
=========== ======== ======== ===========
</TABLE>
-48-
<PAGE>
Mortgage-backed securities held to maturity at December 31, 1996 and 1995 are as
follows:
<TABLE>
<CAPTION>
December 31, 1996
-------------------------------------------------------------------------------------------
Estimated
Principal Unamortized Unearned Amortized Unrealized Unrealized market
balance premiums discounts cost gains losses value
----------- ---------- -------- ----------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
GNMA $10,518,401 $ 487,408 $ -- $11,005,809 $ -- $ 376,215 $10,629,594
FHLMC 29,933,643 1,107,506 189,873 30,851,276 154,825 609,202 30,396,899
FNMA 17,696,771 770,786 -- 18,467,557 -- 462,086 18,005,471
Collateralized
mortgage
obligations 14,316,481 446,403 4,544 14,758,340 -- 540,165 14,218,175
----------- ---------- -------- ----------- -------- ---------- -----------
$72,465,296 $2,812,103 $194,417 $75,082,982 $154,825 $1,987,668 $73,250,139
=========== ========== ======== =========== ======== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
-------------------------------------------------------------------------------------------
Estimated
Principal Unamortized Unearned Amortized Unrealized Unrealized market
balance premiums discounts cost gains losses value
----------- ---------- -------- ----------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
GNMA $12,181,546 $ 564,753 $ -- $12,746,299 $ -- $ 201,824 $12,544,475
FHLMC 36,346,310 1,396,248 224,131 37,518,427 266,284 450,214 37,334,497
FNMA 21,534,711 949,376 -- 22,484,087 3,819 345,769 22,142,137
Collateralized
mortgage
obligations 17,947,058 555,146 6,869 18,495,335 -- 620,940 17,874,395
----------- ---------- -------- ----------- -------- ---------- -----------
$88,009,625 $3,465,523 $231,000 $91,244,148 $270,103 $1,618,747 $89,895,504
=========== ========== ======== =========== ======== ========== ===========
</TABLE>
As permitted by a special report of the FASB entitled "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities," at the end of 1995 the Bank transferred securities
previously classified as held-to-maturity to available-for-sale that had an
amortized cost of approximately $16.6 million and an unrealized gain of
approximately $45 thousand, net of tax. There are no trading account securities,
and all other securities have been classified as held to maturity.
During the year ended December 31, 1996, available-for-sale securities
totaling $19.4 million were sold at a gain of $5 thousand. There were no
realized securities gains or losses during 1995 or 1994.
Expected maturities of mortgage-backed securities will differ from
contractual maturities because borrowers may have the right to call or 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 serve as collateral for any
transactions executed under these arrangements. The maximum level of funds
available under the "Flexline Commitment" from the FHLB at December 31, 1996 was
-49-
<PAGE>
$12.5 million. 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 latter arrangement at
December 31, 1995 required that investment securities of approximately $49
million be pledged as collateral. There were no such borrowings at December 31,
1996.
The amortized cost and estimated market value of debt securities at
December 31, 1996, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
Estimated
Amortized market
cost value
----------- -----------
Held to maturity:
Due in one year or less $ -- $ --
Due after one year through five years 44,008,503 43,217,318
Due after five years through ten years -- --
Due after ten years 16,316,139 15,814,646
Collateralized mortgage obligations 14,758,340 14,218,175
----------- -----------
$75,082,982 $73,250,139
=========== ===========
Available for sale:
Due in one year or less $10,807,773 $10,384,742
Due after one year through five years 18,415,518 18,165,279
----------- -----------
$29,223,291 $28,550,021
=========== ===========
5. Loans
A summary of the loan portfolio as of December 31, 1996 and 1995
follows:
1996 1995
----------- ------------
Commercial & industrial $39,710,035 $ 49,006,081
Real estate:
Construction 9,421,352 4,430,425
Mortgages - residential 16,550,311 18,925,609
Mortgages - commercial 15,984,598 16,168,009
Consumer 3,826,739 18,572,551
----------- -------------
85,493,035 107,102,675
Net unearned interest fees (423,864) (1,192,641)
----------- ------------
$85,069,171 $105,910,034
=========== ============
The balance of impaired loans was $3.8 and $3.6 million at December 31,
1996 and 1995, respectively. Regent has identified a loan as impaired when it is
probable that interest and principal will not be collected according to the
contractual terms of the loan agreements. The allowance for loan
-50-
<PAGE>
loss associated with impaired loans was $648 and $712 thousand at December 31,
1996 and 1995, respectively. Income recognized on impaired loans during 1996 and
1995 was $16 and $79 thousand, respectively. Interest which would have been
accrued on impaired loans during 1996 and 1995 was $335 and $355 thousand,
respectively. Regent's policy for interest income recognition on impaired loans
is to recognize income on restructured loans under the accrual method. Regent
recognizes income on non-accrual loans under the cash basis when the loans are
both current and the collateral on the loan is sufficient to cover the
outstanding obligation to Regent; if these factors do not exist, Regent will not
recognize income.
Non-accrual loans were $3.8 million, $3.6 million and $3.7 million at
December 31, 1996, 1995 and 1994, respectively. Interest income of approximately
$211 thousand was not recognized as operating income due to the non-accrual
status of loans during 1994. At December 31, 1996 and 1995, loans totalling $977
thousand and $1,094 thousand, respectively, were past due 90 days or more and
continue to accrue interest income.
At December 31, 1996 and 1995, there were $2,288 and $3,845 thousand
respectively, of loans outstanding to directors, principal shareholders and
executive officers and their affiliated interests. During 1996, new loans of
$1,202 thousand were made to such persons and repayments totalled $2,759
thousand. Such loans were made in the ordinary course of business at the Bank's
normal credit terms and did not present more than a normal risk of collection at
origination. Subsequent to December 31, 1996 a loan in the amount of $705
thousand to a director of Regent became delinquent.
At December 31, 1996 and December 31, 1995, IPF receivables were $2.6
million and $16.8 million, respectively. The IPF loans have repayments terms of
nine months and are secured by the unearned premium balance on the individual
automobile insurance policies. The IPF loans were serviced for the Bank by the
Servicer under a Servicing Agreement through September 1, 1996. The Servicing
Agreement provided, among other things, that the Servicer was to solicit IPF
loans, including the collection of repayments from borrowers and of unearned
premium balances from insurers on canceled insurance policies. Under the
Servicing Agreement, the Bank received all collections and paid the Servicer a
fee equal to a specified initial per loan charge plus one-half of pre-tax
profits, as defined in the Servicing Agreement, from the IPF loan Portfolio. For
the years ended December 31, 1996 and 1995, the Bank recorded interest and fee
income from the IPF loan portfolio of $3.3 million and $3.6 million,
respectively, and paid the Servicer fees of approximately $150 thousand and $1.3
million, respectively.
During the preparation of Regent's consolidated financial statements
for the year ended December 31, 1995, management of the Bank became aware of
several matters which led to the belief that the Servicer may have reported
interest and fee income from IPF loans in default and may not have canceled
insurance policies securing defaulted loans or collected insurance premium
balances on such policies on a timely basis. As a result, management began the
process of estimating the ultimate expected loss that existed as of December 31,
1995, which amount was material to Regent's consolidated financial statements.
In order to assess the risk of loss on the IPF loan balance at December
31, 1995 and the amount thereof, the Bank identified delinquent IPF loans based
upon the payment history of the IPF loan portfolio during 1995 and through May
23, 1996.
-51-
<PAGE>
During the period January 1, 1996 to May 23, 1996, the Bank applied all
cash receipts from delinquent IPF borrowers to the principal balances of such
delinquent loans as of December 31, 1995, and the Bank applied the proceeds of
the unearned premiums received from insurance companies except for those
applicable to accrued fees to the principal balances of delinquent IPF loans as
of December 31, 1995, thereby reducing the Bank's possible loss exposure on the
December 31, 1995 IPF loan balance to approximately $4.5 million. The $4.5
million loss exposure was recorded as part of the Bank's allowance for loan
losses and no IPF loans were charged-off at December 31, 1995.
The Bank determined that it has no loss exposure on IPF receivables at
December 31, 1996 based on the year-end carrying value of $2.6 million and the
subsequent, aggregate cash collection of more than $3 million in the first two
months of 1997. In the second, third and fourth quarters of 1996, net IPF loan
balances of $7.5 million that were past due 120 days or more were charged-off.
The Bank discontinued its IPF loan business in September 1996. Since then,
extensive collection efforts and the establishment of management and operational
control of the servicing operations by Bank personnel have reduced the IPF
receivables to the indicated level at December 31, 1996. An analysis of
subsequent cash collections through mid-March 1997 has confirmed management's
determination that no IPF loss exposure existed at year-end 1996. Therefore, all
of the December 31, 1996 allowance for loan losses is allocated to the non-IPF
portion of the Bank's loan portfolio.
During late 1994, two of the mortgage banking companies which Regent
has used to fund individual residential mortgages 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 of 1994, which
includes an additional provision for loan losses of $825 thousand.
A summary of the activity in the allowance for loan losses for the
years ended December 31, 1996, 1995 and 1994 follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Balance, beginning of year $ 6,500,882 $ 1,713,372 $ 1,321,225
Provision charged to operating income 5,092,156 4,905,000 860,000
Loans charged off (10,015,476) (128,719) (552,143)
Recoveries of loans previously charged off 1,482,211 11,229 84,290
------------ ----------- -----------
Balance, end of year $ 3,059,773 $ 6,500,882 $ 1,713,372
============ =========== ===========
</TABLE>
-52-
<PAGE>
6. Premises and Equipment
A summary of premises and equipment as of December 31, 1996 and 1995
follows:
<TABLE>
<CAPTION>
Estimated
Useful Lives 1996 1995
------------ ---------- ----------
<S> <C> <C> <C>
Furniture and fixtures 3-7 years $1,044,690 $ 855,188
Leasehold improvements 5-20 years 686,336 597,146
---------- ----------
1,731,026 1,452,334
Less: Accumulated depreciation (1,035,152) (747,847)
----------- ----------
Premises and equipment, net $ 695,874 $ 704,487
========== ==========
</TABLE>
7. Certificates of Deposit
At December 31, 1996, 1995, and 1994, certificates of deposit
outstanding with a face value greater than or equal to approximately $100
thousand totalled approximately $11.9 million, $12.4 million thousand and $7.6
million, respectively. Interest expense for the years then ended relating to
those certificates was approximately $426 thousand, $467 thousand and $144
thousand, respectively.
At December 31, 1996, the scheduled maturities of certificates of
deposit were as follows:
1997 $ 81,112
1998 11,917
1999 4,040
2000 21,245
2001 and thereafter 1,413
--------
$119,727
========
8. Advances from Federal Home Loan Bank of Pittsburgh
A summary of the advances from the FHLB at December 31, 1996 and 1995
follows:
December 31, 1996
----------------------------------
Interest
Amount Maturity Rate
-------- -------- ----
Long-term $202,621 06/07/10 6.70%
--------
Total advances $202,621
========
-53-
<PAGE>
December 31, 1995
-------------------------------------
Interest
Amount Maturity Rate
-------- -------- ----
Short-term $20,500,000 11/01/96 6.05%
2,943,822 08/12/96 6.16
5,000,000 01/08/96 5.93
5,000,000 01/23/96 5.93
-----------
Total short-term 33,443,822
-----------
Long-term 5,000,000 12/20/00 6.02
3,000,000 12/20/01 6.17
2,000,000 12/20/02 6.22
211,480 06/07/10 6.70
-----------
Total long-term 10,211,480
-----------
Total advances $43,655,302
===========
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.
9. 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.
Also see Note 3 discussing restrictions on interest payments.
10. Income Taxes
The provision (benefit) for income taxes for the years ended December
31, 1996, 1995 and 1994 is comprised as follows:
1996 1995 1994
----------- --------- ---------
Current $(1,569,700) $ 481,100 $ 484,900
Deferred 1,219,700 (944,600) (225,800)
----------- --------- ---------
$ (350,000) $(463,500) $ 259,100
=========== ========= =========
-54-
<PAGE>
The effective tax rates are reconciled to the statutory federal rates
for the years ended December 31, 1996, 1995 and 1994 as follows:
1996 1995 1994
---- ---- ----
Federal statutory rate (34.0)% (34.0)% 34.0%
Merger expenses (2.6) 3.0 --
Increase in valuation allowance
for deferred tax assets 23.7 18.1 --
Other 1.4 -- --
---- ---- ----
Effective tax rate (11.5)% (12.9)% 34.0%
==== ==== ====
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. The tax effect of
significant temporary differences is as follows:
1996 1995
---------- ----------
Allowance for loan losses $1,154,404 $2,180,300
Net operating loss carryover 579,959 --
Accumulated depreciation 737 36,700
Unrealized loss on investment
securities available for sale 230,584 76,500
Other 73,580 73,100
---------- ----------
Total gross assets 2,039,264 2,366,600
---------- ----------
Deferred loan costs 86,580 70,400
---------- ----------
Total gross liabilities 86,580 70,400
---------- ----------
Net deferred tax asset 1,952,684 2,296,200
Valuation allowance 1,602,684 650,000
---------- ----------
$ 350,000 $1,646,200
========== ==========
The deferred tax asset is included in other assets on the consolidated
balance sheets. Regent has increased the valuation allowance to reduce the net
deferred tax asset to an amount expected to be realized based upon future
taxable income. The net operating loss carryforwards of approximately $1.7
million, if unused, would expire in 2011.
-55-
<PAGE>
11. Commitments and Contingencies
Lease Commitments
Approximate future minimum lease payments under non-cancellable
operating leases as of December 31, 1996 are as follows:
1997 $190,000
1998 210,000
1999 (expiring May 31) 87,000
--------
Total minimum payments required $487,000
========
Regent incurred rent expense of approximately $174 thousand for each of
the years ended December 31, 1994 to 1996. The leases provide for two 5-year
renewal options at their current market rental rates. The leases for the 1430
and 1428 Walnut Street premises include a right of refusal to purchase the
premises. The leases also require Regent to pay its pro rata share of all
operating expenses such as maintenance, insurance, taxes, etc.
Legal Proceedings
Regent is subject to various legal actions and proceedings. In January
1997, the Bank settled litigation involving the 1994 bankruptcy of a mortgage
banking company for which the Bank funded individual residential mortgages, and
because of which the Bank charged-off various mortgage loans in 1995. The Bank
will recover $320 thousand. This settlement awaits court approval. It is
possible that claims may be made against the Bank as the result of transactions
with the debtor. Management considers the possibility of such claims to be
remote and, if made, without merit.
Regent has instituted two lawsuits to recover damages caused to Regent
by individuals and entities which engaged in IPF business with Regent as
follows:
On December 24, 1996, Regent filed a complaint in the United States
District Court for the Eastern District of Pennsylvania, Regent National Bank v.
K-C Insurance Premium Finance Co., Inc., et al., Civil Action No. 96-CV-8615, in
which it asserted claims against K-C, its principals, Chanin and Cesaro,
Chanin's wife, Myra Chanin, and Cesaro's wife, Kimberly Cesaro. The complaint
alleges that K-C, Chanin and Cesaro submitted numerous reports to Regent
containing false information in order to obtain funds from Regent unlawfully, as
well as to induce Regent to devote resources to the IPF portfolio. The complaint
also alleges that K-C, Chanin and Cesaro entered into the Servicing Agreement
with Regent to provide a variety of services in connection with Regent's IPF
business and that K-C, Chanin and Cesaro engaged in numerous violations of the
Servicing Agreement. The complaint alleges that K-C, Chanin and Cesaro
participated, directly and indirectly, in a pattern of racketeering through
multiple acts of bank fraud which constituted violations of RICO. The complaint
alleges that K-C, Chanin and Cesaro submitted false and fraudulent computer
records and financial
-56-
<PAGE>
statements which grossly overstated the profits generated by the IPF business
and substantially understated the losses of such business.
The complaint also alleges that, on or about April 12, 1996, Regent
entered into the Loan Agreement with K-C, Chanin, Myra Chanin, Cesaro and
Kimberly Cesaro pursuant to which K-C, Chanin and Myra Chanin became obligated
to Regent in the amount of $18 million and Cesaro and Kimberly Cesaro became
obligated to Regent in the amount of $180 thousand. The complaint further
alleges that the parties to the Loan Agreement have failed to repay Regent the
sums due thereunder.
Regent is seeking damages in this action for $1.8 million under the
Loan Agreement and for damages in excess of $1 million as a result of harm
caused to Regent under the various other counts in this action.
On January 30, 1997, K-C, Chanin, Myra Chanin, Cesaro and Kimberly
Cesaro instituted an action against Regent in the Court of Common Pleas of
Philadelphia County, Number 2749. The Complaint consists of three counts: (1)
that Regent owes K-C 50% of the profits from the IPF business, as defined in the
Servicing Agreement; (2) a request for a declaratory judgment that the Loan
Agreement is not an enforceable contract because of mutual mistake or fraudulent
misrepresentations by Regent, alteration of the Note, duress, failure of
consideration or material breach of the Loan Agreement and (3) that Cesaro is
owed wages by Regent for an undefined portion of 1996. For the breach of the
Servicing Agreement, K-C is demanding amounts in excess of $100 thousand. No
specific amount is demanded for the unpaid wages.
On February 18, 1997, Regent filed preliminary objections to this
complaint with the Court of Common Pleas of Philadelphia County. The preliminary
objections request the Court of Common Pleas to dismiss the action since it
relates to the same facts and causes of action which are dealt with in the
complaint previously filed by Regent in the United States District Court for the
Eastern District of Pennsylvania. As of March 27, 1997, the Court of Common
Pleas had not ruled on Regent's preliminary objections.
There are various motions pending in the action in the United States
District Court for the Eastern District of Pennsylvania relating to the request
by K-C for expedited discovery on Regent's RICO claim. Those motions are pending
and undecided.
On November 27, 1996, Regent filed a complaint against DCAP, an
independent retail insurance broker which engaged in IPF business with Regent
and which was recruited to do business with Regent by K-C, and an affiliate of
DCAP, for breach of contract in the United States District Court for the Eastern
District of Pennsylvania, Regent National Bank v. Dealers Choice Automotive
Planning, Inc. and Payments, Inc., Civil Action No. 96-CV-7930. The complaint
alleges that DCAP and its affiliates entered into a letter of understanding with
Regent under which DCAP and its affiliates agreed that the financing of all IPF
contracts with Regent would be with recourse. The complaint seeks damages for
losses suffered by Regent as a result of funding IPF agreements placed through
DCAP. In the action, Regent seeks damages in excess of $100 thousand.
-57-
<PAGE>
The defendants have answered this complaint and have asserted that they
were misled by certain officers and directors of Regent by fraudulent
misrepresentations concerning the recourse provisions of the letter of
understanding. The answer also asserts that Regent owes money to the defendants
for failure to give 30 days written notice of the termination of the letter of
understanding. The answer claims punitive damages in the amount of $500 thousand
for the alleged misrepresentation and an amount of not less than $40 thousand
for the alleged termination without giving sufficient written notice. This
matter is in the initial phases of discovery.
Regent and the Bank are subject to various other legal actions and
proceedings. In the opinion of management, after discussions with legal counsel,
the resolution of these matters is not expected to have a material adverse
effect on Regent's consolidated financial position or its consolidated results
of operations.
Employment Agreements
Regent has entered into employment agreements with two of its executive
officers. Such agreements provide for, among other things, base compensation,
and one of the agreements has a change-of-control provision. Annual compensation
under these agreements is $220 thousand from 1997 through 1999.
12. Significant Group Concentrations of Risk
Approximately 49% and 37% of the total loans outstanding at December
31, 1996 and 1995, 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.
13. Related Parties
Regent incurred professional fees of approximately $866 thousand,
$1,272 thousand and $560 thousand in 1996, 1995 and 1994, respectively. Included
in these amounts were approximately $87 thousand, $187 thousand and $270
thousand in 1996, 1995 and 1994, respectively, of fees paid to law firms that
have partners who are members of the Board of Directors of Regent or the Bank.
Regent paid insurance premiums of approximately $114 thousand, $90
thousand and $79 thousand during 1996, 1995 and 1994, 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 $78 thousand, $87 thousand
and $81 thousand during 1996, 1995 and 1994, respectively, to a bank consulting
firm whose president is also a member of the Board of Directors of Regent.
In 1994, the Bank entered into an agreement with a company owned by an
advisory director to provide processing, servicing, marketing and consulting
services to the Bank in connection with the
-58-
<PAGE>
Bank's automobile premium finance lending program. The Bank incurred expenses of
$1.3 million in 1995 and $62 thousand in 1994 related to this agreement.
14. 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 Bank
uses the same credit policies in making commitments as it does for on-
balance-sheet instruments.
Regent had outstanding commitments to originate variable and fixed rate
loans aggregating approximately $7.6 million and $4 million at December 31, 1996
and 1995, respectively. 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. Regent
evaluates each customer's creditworthiness on a case-by-case basis. The amount
of collateral obtained, if deemed necessary by Regent upon the extension of
credit, is based on management's credit evaluation of the counterparty.
Collateral for most commercial commitments varies but may include accounts
receivable; inventory; property, plant and equipment; and income-producing
commercial properties. Collateral for secured consumer commitments consists of
liens on residential real estate.
Commitments under outstanding standby letters of credit were $150
thousand and $305 thousand at December 31, 1996 and 1995, respectively. Standby
letters of credit are instruments issued by the Bank which guarantee the
beneficiary payment by the Bank in the event of default by the Bank's customer
in the non-performance of an obligation of service. Most standby letters of
credit are extended for one-year periods. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending loan
facilities to customers. The Bank holds collateral supporting those commitments
for which collateral is deemed necessary primarily in the form of certificates
of deposit and liens on real estate.
Commitments under lines of credit exist as the borrower has not used
the full amount of the approved line of credit. Collateral for most commitments
under commercial lines of credit varies but may include accounts receivable;
inventory; property, plant and equipment and income-producing commercial
properties. Amounts available for use under existing lines of credit were $10.2
million and $18 million at December 31, 1996 and 1995, respectively.
-59-
<PAGE>
15. Shareholders' Equity
In September 1996, four directors of Regent purchased an aggregate of
148,148 of Common Stock of Regent for a purchase price of $6.75 per share, or an
aggregate price of $1 million.
In June 1995, July 1994 and July 1993, Regent issued 51,452, 51,912 and
52,967 shares, respectively, of Series E Convertible Preferred Stock, and in May
1992, 1991 and 1990, Regent issued 52,996 shares of Series D Convertible
Preferred Stock, 52,996 shares of Series C Convertible Preferred Stock 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 51,452, 51,912 and 52,967 shares issued of Series E Convertible
Preferred Stock of approximately $309 thousand, $396 thousand and $430 thousand,
respectively, the 52,996 shares issued of Series D Convertible Preferred Stock
of approximately $358 thousand, the 52,996 shares issued of Series C Convertible
Preferred Stock of approximately $265 thousand and the 52,998 shares of Series B
Convertible Preferred Stock of approximately $490 thousand has been charged to
retained earnings. Each share of Series B, C and D Convertible Preferred 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.
The Series B through Series D Convertible Preferred Stock and the
Series E Convertible Preferred Stock are redeemable in whole or in part at the
option of Regent, at a price of $8.50 and $10.00 per share, respectively, plus
declared but unpaid dividends.
In connection with outstanding convertible preferred stock,
approximately 550 thousand shares have been reserved for issuance upon
conversion.
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 Common Stock on a share-for-share basis. The Series A
Convertible Preferred Stock is redeemable at Regent's option at $10 per share
plus declared but unpaid dividends. Holders of the Regent Series A Preferred
Stock are entitled to receive a $10 per share liquidation preference before any
payment is made to common stockholders.
Also, prior to and in connection with Regent's 1989 public offering,
Regent issued warrants that were exercisable for the purchase of an aggregate of
50,022 and 147,124 shares of Regent Common Stock at an exercise price of $8.50
and $10.20 per share, respectively, at December 31, 1995, and issued options to
organizers of 274,241 and 264,825, at $8.50 per share, in December 1995 and
1994. The warrants and options expired on November 30, 1996.
Regent established the 1989 Stock Option Plan which provided for the
granting of 211,860 incentive and nonqualified stock options to certain
officers, directors, founders and key employees. At December 31, 1995 and 1994,
options for 171,362 and 151,539 shares, respectively, were outstanding at $8.50
per share. No options were granted, exercised or terminated during 1995 or 1994.
During 1996, no options were granted or exercised. At December 31, 1996, all
options under this plan had expired.
-60-
<PAGE>
16. Fair Value of Financial Instruments
FAS No. 107 requires disclosure of the estimated fair value of an
entity's assets and liabilities considered to be financial instruments. For
Regent, as for most financial institutions, the majority of its assets and
liabilities are considered financial instruments as defined in FAS No. 107.
However, many such instruments lack an available trading market, as
characterized by a willing buyer and seller engaging in an exchange transaction.
Also, it is Regent's general practice and intent to hold its financial
instruments to maturity and not to engage in trading or sales activities, except
for certain loans. Therefore, Regent had to use significant estimations and
present value calculations to prepare this disclosure.
Changes in the assumptions or methodologies used to estimate fair
values may materially affect the estimated amounts. Also, management is
concerned that there may not be reasonable comparability between institutions
due to the wide range of permitted assumptions and methodologies in the absence
of active markets. This lack of uniformity gives risk to a high degree of
subjectivity in estimating financial instrument fair values.
Estimated fair values have been determined by Regent using the best
available data and an estimation methodology suitable for each category of
financial instruments. The estimation methodologies used for the estimated fair
values are outlined below.
Cash and Cash Equivalents
The carrying amounts for cash and cash equivalents investments
approximate the fair values of those assets.
Mortgage-Backed 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.
-61-
<PAGE>
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 Regent for debt with similar terms and
remaining maturities are used to estimate fair value.
Off-Balance-Sheet Instruments
The fair value of commitments to extend credit is estimated using the
fees currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of the
counterparties. For fixed rate loan commitments, excluding those committed for
sale to the secondary market, fair value also considers the difference between
current levels of interest rates and the committed rates. The fair value of
financial guarantees written and letters of credit is based on fees currently
charged for similar agreements or on the estimated cost to terminate them or
otherwise settle the obligations with the counterparties. It is management's
belief that the fair value estimate of commitments to extend credit approximates
carrying value at December 31, 1996 and 1995, because most mature within one
year, do not present any unanticipated credit concerns and bear market interest
rates.
-62-
<PAGE>
The estimated fair value of Regent's financial instruments at December
31, 1996 and 1995 follows:
<TABLE>
<CAPTION>
1996 1995
-------------------- --------------------
Carrying Fair Carrying Fair
amount value amount value
-------- ----- -------- -----
(Dollars in thousands)
Financial assets:
<S> <C> <C> <C> <C>
Cash and overnight investments $ 9,493 $ 9,493 $ 7,166 $ 7,166
Investment securities available for sale 30,470 30,470 47,478 47,478
Mortgage-backed securities held to maturity 75,083 73,250 91,244 89,895
Loans, net 82,009 81,975 99,409 98,450
Mortgage loans held for sale -- -- 12,874 13,271
Financial liabilities:
Deposits 185,126 186,338 196,132 198,196
Advances from FHLB 203 203 43,655 43,709
Subordinated debentures 2,750 2,750 2,750 2,895
</TABLE>
17. Regent Bancshares Corp. (Parent Company Only) Financial Information
Condensed Balance Sheets
December 31,
---------------------------
1996 1995
----------- -----------
ASSETS
Cash $ 100 $ 100
Other investment securities 51,082 247,381
Other assets 11,350 72,931
Investment in subsidiary 10,873,903 12,836,662
----------- -----------
Total assets $10,936,435 $13,157,074
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Other liabilities $ 53,719 $ 53,718
Subordinated debentures 2,750,000 2,750,000
Shareholders' equity 8,132,716 10,353,356
----------- -----------
Total liabilities and shareholders' equity $10,936,435 $13,157,074
=========== ===========
-63-
<PAGE>
Condensed Statements of Operations
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------
1996 1995 1994
----------- ----------- ---------
<S> <C> <C> <C>
Dividend from subsidiary $ -- $ 250,000 $ 250,000
Interest income 9,214 7,360 4,312
----------- ----------- ---------
Total income 9,214 257,360 254,312
----------- ----------- ---------
Expenses:
Interest 220,191 219,606 217,612
Other 46,903 75,501 43,363
----------- ----------- ---------
Total expenses 267,094 295,107 260,975
----------- ----------- ---------
Pretax loss (257,880) (37,747) (6,663)
Income tax benefit -- (97,800) (87,300)
----------- ----------- ---------
Income (loss) before equity in undistributed
net income (loss) of subsidiary (257,880) 60,053 80,637
Equity in undistributed net income (loss)
of subsidiary (2,438,104) (3,186,650) 422,188
----------- ----------- ---------
Net income (loss) $(2,695,984) $(3,126,597) $ 502,825
=========== =========== =========
</TABLE>
-64-
<PAGE>
<TABLE>
<CAPTION>
Condensed Statements of Cash Flows
Year ended December 31,
-----------------------------------------
1996 1995 1994
------------ ------------ --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(2,695,984) $(3,126,597) $502,825
Adjustments to reconcile net income (loss) to net
cash (used in) provided by operating activities:
Decrease (increase) in other assets 61,581 53,181 (80,819)
Equity in undistributed net income (loss) of subsidiary 2,438,104 3,186,650 (422,188)
Increase in other liabilities -- -- 26,883
----------- ----------- --------
Net cash (used in) provided by operating activities (196,299) 113,234 26,701
----------- ----------- --------
Cash flows from investing activities:
Decrease (increase) in investment securities 196,299 (113,234) (26,701)
Increase in investment in subsidiary -- -- (200,000)
----------- ----------- --------
Net cash provided by (used in) investing activities 196,299 (113,234) (226,701)
----------- ----------- --------
Cash flows from financing activities:
Issuance of subordinated debentures -- -- 200,000
----------- ----------- --------
Net cash provided by financing activities -- -- 200,000
----------- ----------- --------
Net change in cash -- -- --
Cash, beginning of year 100 100 100
----------- ----------- --------
Cash, end of year $ 100 $ 100 $ 100
=========== =========== ========
</TABLE>
18. Subsequent Events
On August 30, 1995, with the approval of the Board of Directors, Regent
and the Bank entered into an Agreement and Plan of Merger (the Agreement) with
Carnegie and its wholly-owned subsidiary, CBNA which provided that Regent would
be merged with and into Carnegie, and CBNA would be merged with and into the
Bank.
On January 14, 1997, Regent and the Bank executed an agreement (the
"Termination Agreement") with Carnegie and CBNA, terminating the Agreement.
Regent requested execution of the Termination Agreement because Regent's Board
of Directors believed it to be in the best interests of Regent's shareholders if
Regent remains independent. Pursuant to the Termination Agreement, Carnegie was
reimbursed for $722 thousand of merger-related expenses Carnegie had incurred,
and, in connection therewith, the Bank sold to Carnegie, with appropriate
premium, $6.4 million of loan participations and servicing rights to such loans.
Loan participations of $27.8 million were previously sold by the Bank to
Carnegie.
On March 31, 1997, Regent sold 16,364 shares of Series A Convertible
Preferred Stock for $6.50 per share to two accredited investors, one of whom is
an officer at the Bank and the other of
-65-
<PAGE>
whom serves as legal counsel to the Bank. Regent used the proceeds from this
sale to pay the interest on its subordinated debentures due March 31, 1997.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Pursuant to the Regulatory Agreement, the Bank retained a forensic
accounting firm to investigate, among other aspects of the IPF business
relationship, whether there is any basis upon which it or Regent should assert a
claim against Arthur Andersen LLP ("Arthur Andersen") in connection with
services rendered by Arthur Andersen to Regent and the Bank in 1994, 1995 and
1996. Thereafter, Arthur Andersen indicated to Regent that the existence of the
investigation raised an issue as to the independence of Arthur Andersen in the
conduct of Arthur Andersen's examination of Regent's financial statements for
future periods unless Regent and the Bank waived any such claim. Because of
Regent's concern that Arthur Andersen might resign, Regent's management, with
the concurrence of Regent's Audit Committee, began to interview public
accounting firms that could serve as Regent's certifying accountant in the event
Arthur Andersen were to resign.
On December 17, 1996, Regent notified Arthur Andersen that Regent and
the Bank did not have sufficient information on which to base a decision on
whether or not to waive any claim against Arthur Andersen and thereby eliminate
any issues as to the independence of Arthur Andersen. On December 31, 1996,
Arthur Andersen submitted its resignation as Regent's independent public
accountants, and the resignation of Arthur Andersen was accepted by Regent's
Audit Committee effective as of such date.
Arthur Andersen's reports on the financial statements of Regent for the
fiscal years ended December 31, 1994 and December 31, 1995 contained no adverse
opinions or disclaimers of opinions and were not qualified or modified as to
uncertainty, audit scope or accounting principles. Arthur Andersen's report
dated March 22, 1995 on the consolidated financial statements of Regent for the
fiscal year ended December 31, 1994 was qualified as to an uncertainty related
to a dispute that arose in bankruptcy proceedings of a mortgage banking company
which Regent had engaged in business transactions. This uncertainty was resolved
during 1995 and, as a result, Arthur Andersen's report dated May 23, 1996 on
Regent's consolidated financial statements for the year ended December 31, 1995
did not include a reference to this matter. Also, Arthur Andersen's report dated
May 23, 1996 on Regent's consolidated financial statements for the year ended
December 31, 1995 contained the following "emphasis-of-the-matter" paragraph:
"As discussed in Note 2, the Bank recognized a loss from operations for
the year ended December 31, 1995 primarily as a result of a substantial increase
in the provision for loan losses associated with its insurance premium finance
loan portfolio. As a result, the Bank did not meet the Tier 1 leveraged capital
requirement established by the Office of the Comptroller of the Currency (OCC)
for the Bank under the OCC's discretionary authority. Additionally, on a
consolidated basis, the parent company's Tier 1 leveraged capital ratio amounts
to 4% which equals the minimum legal requirement. Failure to meet minimum
capital requirements can result in the regulators initiating certain actions
that, if undertaken, could have a direct material effect on the Bank's financial
statements.
-66-
<PAGE>
Such actions are presently uncertain, and, accordingly, no adjustments have been
made in the accompanying financial statements."
During the fiscal years ended December 31, 1994 and December 31, 1995,
and the subsequent interim periods preceding Arthur Andersen's resignation,
Arthur Andersen advised Regent of the following matters:
(i) In connection with the audit of Regent's consolidated
financial statements for the year ended December 31, 1995, Arthur Andersen
advised Regent that certain accounting controls were not adequate with respect
to Regent's IPF loan portfolio. As a result, Arthur Andersen advised Regent of
the need for Arthur Andersen to significantly expand the scope of its audit
procedures related to the IPF loan portfolio. Arthur Andersen concluded, as a
result of its audit, that Regent's reserve for possible loan losses was not
adequate and proposed an adjustment to increase the reserve at December 31,
1995. Management of Regent disagreed with Arthur Andersen's proposed reserve
increase. Arthur Andersen informed Regent that failure to resolve this issue
would cause it to modify its opinion on Regent's consolidated financial
statements as of December 31, 1995; however, this was not necessary as
management agreed to increase the reserve for possible loan losses related to
the IPF loan portfolio.
The Audit Committee of Regent's Board of Directors discussed
this matter with Arthur Andersen and Regent authorized Arthur Andersen to
respond fully to the inquiries of the successor accountant concerning this
matter.
(ii) Arthur Andersen has advised Regent that it has come to
Arthur Andersen's attention as a result of discussions with Regent's management
and internal audit personnel that Regent's financial statements for the third
quarter of 1996, included in Regent's Form 10-Q Report filed on November 14,
1996, reflect a significant adjustment representing management's estimate of
erroneous charge-offs of seriously delinquent IPF loans due to mispostings of
return premium checks by the IPF loan Servicer on similar delinquent IPF
accounts, thereby creating credit balances of $1,244,000 in the aggregate on all
charged-off IPF accounts. Since September 30, 1996, Regent had no unprocessed
claims for the return of these credit balances. To the extent Regent receives
valid claims for refunds of these credit balances, Regent will make appropriate
refunds thereof. At the time of Andersen's resignation, Andersen had not
completed its analysis of this adjustment, and had not reached any conclusion as
to the appropriateness of this adjustment. However, the amount of such
adjustment is material to the third quarter 1996 financial statements and
Regent's compliance with certain minimum capital requirements as of September
30, 1996 and the determination of the Bank's compliance with the Tier 1
leveraged capital requirement established by the OCC for the Bank as of October
31, 1996, and agreed to by the Bank's Board of Directors.
Effective December 31, 1996, Regent, with the approval of Regent's
Audit Committee, retained the firm of Grant Thornton LLP to serve as Regent's
certifying accountant.
-67-
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
Directors and Executive Officers
The executive officers of Regent, each of whom serves at the discretion
of the Board of Directors except as noted below, and the directors of Regent are
as follows:
Name Age Position with Regent
---- --- --------------------
David W. Ring 81 Chairman of the Board and a Director
since 1986; Chief Executive Officer
since September 1996
Harvey Porter 65 Chief Executive Officer from 1986
until September 1996; President
and a Director since 1986
John J. Lyons 57 President, Chief Executive Officer and a
Director of the Bank since September 1996
Abraham L. Bettinger 61 Vice Chairman of the Board and a
Director since 1986
Barbara H. Teaford 49 Executive Vice President and a Director
since 1986; Secretary since March 1990
Leonard S. Dwares 62 Assistant Treasurer and a Director since 1986
O. Francis Biondi 64 Director since 1986
Lance T. Funston 54 Director since 1986
Edward Parnes, Ph.D. 75 Director since 1986
Robert J. Reichlin 71 Director since 1986
Joel E. Hyman 48 Executive Vice President, Chief Financial
Officer and Treasurer since January 1997
Harry D. Zutz 79 Director since 1989
The following is a brief listing of the principal occupation, and
certain other affiliations of each executive officer and director of Regent.
Mr. Ring is presently, and has been since December 1986, the Chairman
of the Board and a director of Regent and the Bank. From September 1996, Mr.
Ring has also served as Chief Executive Officer of Regent. He has also been the
Chairman of the Board of the Bank since its inception. He was
-68-
<PAGE>
formerly a consultant to, and a director of, Larami Corporation, a toy
manufacturer, a director and a control shareholder of the First National Bank of
Wilmington and a director of Integrity Holding Co., its one-bank holding
company. Mr. Ring was a director of the Port Corporation of Philadelphia and was
formerly a director and Corporate Vice President of Tasty Baking Co.
Mr. Porter served as Chief Executive Officer of Regent and the Bank
from 1986 to September 1996 when he resigned from these positions for health
reasons. Mr. Porter continues to serve as President of Regent, a position be has
held since 1986. Mr. Porter has been a director of Regent and the Bank since
1986.
Mr. Lyons is a professional banking consultant and has served as
President, Chief Executive Officer and a director of the Bank on an interim
basis since September 1996. Mr. Lyons was the former President, Chief Executive
Officer and a director of Monarch Savings Bank and Jupiter Tequesta National
Bank.
Mr. Bettinger has been a director of Regent and the Bank since 1986,
and has served as Vice Chairman of the Board of Directors of Regent and the Bank
since 1986. Mr. Bettinger is the President of Bettinger & Leech, Inc., a bank
consulting firm, and Chairman of Bettinger & Leech Financial Corp. Bettinger &
Leech, Inc. has acted as a consultant to the Bank from the commencement of
operations in June 1989 through February 28, 1997. Regent paid consulting fees
of $68 thousand to Bettinger & Leech, Inc. during 1996 and reimbursed expenses
of $11 thousand. After February 28, 1997, Mr. Bettinger will no longer provide
consulting services to the Bank. From 1973 to 1981, Mr. Bettinger was a Senior
Vice President of Keefe, Bruyette & Woods, Inc., a bank consulting and
investment banking firm, where he headed the firm's bank consulting activities.
Mr. Bettinger was formerly a Vice President of Manufacturers Hanover Trust
Company.
Mrs. Teaford has been the Executive Vice President and a director of
Regent since 1986. She has also been the Executive Vice President and a director
of the Bank since its inception, and the Secretary of Regent since 1990. From
1985 through 1987, Mrs. Teaford was Vice President and manager of the Southern
Asset Based Lending District of The Philadelphia National Bank. From 1984 to
1985, she was a Vice President in the Regional Corporate Banking Division and
from 1981 to 1984, she was a Commercial Officer and Assistant Vice President in
the Large Corporate Banking Division, both with The Philadelphia National Bank.
From 1982 to 1986, she was a director and Secretary of the Board of Directors of
the Central National Bank of Greencastle, Indiana. Mrs. Teaford is a member of
the Board of Directors of a number of charitable and civic organizations,
including the Pennsylvania Horticultural Society and the Settlement Music
School.
On January 21, 1997 Mr. Hyman became the Executive Vice President,
Treasurer and Chief Financial Officer of the Bank and Regent. From 1993 to 1996,
Mr. Hyman served as Executive Vice President, Chief Financial Officer and
Treasurer of Farmers & Mechanics Bank located in Middletown, Connecticut until
that bank was acquired by Citizens Financial Group. From 1990 to 1993, Mr. Hyman
served as Senior Vice President, Chief Financial Officer and Treasurer of
Tolland Bank in Vernon, Connecticut. Prior to that, he served in various
officer-level capacities in the Financial Division of Connecticut Bank & Trust
Co., Hartford, Connecticut from 1977 to 1990.
-69-
<PAGE>
Mr. Dwares is presently the Assistant Treasurer and a Director of
Regent. He has been a Director since 1986 and the Assistant Treasurer since
1990. Prior to becoming the Assistant Treasurer, he acted as the Treasurer of
Regent from 1986 to 1990. Mr. Dwares is currently President and principal
shareholder of Leonard S. Dwares & Co., P.A., certified public accountants. Mr.
Dwares was formerly a director of The First National Bank of Wilmington and a
member of its audit committee. He is a Chartered Financial Consultant.
Mr. Biondi has been a director of Regent since its inception. He has
been a senior partner with the law firm of Morris, Nichols, Arsht & Tunnell of
Wilmington, Delaware for more than five years, which firm was paid $87 thousand
by Regent for professional services during 1996. From 1974 to 1983, he was a
director and a control shareholder of The First National Bank of Wilmington and
Integrity Holding Co., its one-bank holding company. Mr. Biondi is a former
member of the State of Delaware Council on Banking, former President of the
Delaware Bar Association and former City Solicitor of Wilmington, Delaware.
Mr. Funston is the President and Chief Executive Officer of TelAmerica
Media Inc., a firm specializing in the telemarketing of various consumer
products. Mr. Funston previously served as an Assistant to the Director of the
Federal Deposit Insurance Corporation and was formerly an assistant to a member
of the Board of Governors of the Federal Reserve System.
Dr. Parnes is the Executive Director of Philadelphia Mental Health
Clinic and the President of Walnut Mortgage Co. and Boulevard Hotel Corporation.
He is also an Assistant Clinical Professor at Hahnemann Medical College and the
Hospital of the University of Pennsylvania.
Mr. Reichlin is the President of Zuckerman-Honickman, Inc., a
distributor of glass and plastic containers. He is also the Vice President of
Vanguard of Pennsylvania, a manufacturer of plastic bottles, the Chairman of the
Board of Vanguard Plastics of California, also a manufacturer of plastic
bottles, and Treasurer of Delta Industries, a distributor of bottles and
sprayers. Mr. Reichlin is a Trustee of Albert Einstein Medical Center and a
member of its executive committee. He is also a former President of The Locust
Club.
Mr. Zutz is Chairman of the Board of Harry David Zutz Insurance, Inc.
and Professional Liability Insurance, Inc., regional insurance agencies with
offices in Wilmington, Delaware and London, England. Harry David Zutz Insurance,
Inc., acting as insurance agent, has obtained various types of insurance for
Regent since its inception in June 1989. Regent paid insurance premiums of
approximately $114 thousand to Harry David Zutz Insurance, Inc. during 1996. Mr.
Zutz is a member of Lloyds of London and a former director of the Bank of
Delaware. He is also involved with various real estate interests.
Audit and Compensation Committees
Leonard S. Dwares, a director of Regent and the Bank, and Nelson L.
Mishkin, a director of the Bank, serve as the Audit Committee and the
Compensation Committee of the Board of Directors of the Bank. Regent is solely a
holding company and has no business activities other than those conducted by the
Bank. Officers of Regent are not, in such capacities, separately compensated by
Regent, except
-70-
<PAGE>
for Mr. Ring who receives an annual salary of $35 thousand for serving as
Chairman of Regent. The Audit Committee acts as a liaison between the Bank's
internal accounting staff and its independent accountants and reports to the
Board of Directors of the Bank with respect to financial reporting, financial
practices and the adequacy of internal controls. The Compensation Committee
considers and makes recommendations to the Board of the Bank with respect to
appropriate levels of compensation for the officers and other executives of the
Bank. Regent has no nominating committee. Messrs. Dwares and Mishkin, along with
John J. Lyons, constitute the Compliance Committee of the Bank appointed
pursuant to the Regulatory Agreement.
Section 16(a) Reporting Delinquencies
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") requires that the officers and directors of a corporation, such as Regent,
which has a class of equity securities registered under Section 12 of the
Exchange Act, as well as persons who own more than 10% of a class of equity
securities of such a corporation, file reports of their ownership of such
securities, as well as monthly statements of changes in such ownership, with the
corporation, the Securities and Exchange Commission (the "SEC") and Nasdaq.
Based upon written representations received by Regent from its officers and
directors, and Regent's review of the monthly statements of ownership changes
filed with Regent by its officers and directors during 1996, Regent believes
that all such filings required during 1996 were made on a timely basis.
Item 11. Executive Compensation.
Executive Compensation
The following table sets forth the compensation for the years ended
December 31, 1996, 1995 and 1994 of the chief executive officer and of each
other executive officer of Regent and the Bank whose salary in 1996 exceeded
$100 thousand. No bonuses were paid to executive officers during 1996.
Summary Compensation Table
--------------------------
Annual
Compensation
Name and Principal Position Year Salary($)
- --------------------------- ---- ---------
Harvey Porter, President and 1996 159,872
Chief Executive Officer of Regent 1995 175,672
and the Bank (1) 1994 164,479
David W. Ring, Chief Executive Officer 1996 11,250
of Regent (2)
John J. Lyons, President and Chief 1996 51,923
Executive Officer of the Bank (3)
-71-
<PAGE>
Barbara H. Teaford, Executive 1996 110,692
Vice President 1995 118,939
1994 109,300
- ---------------
(1) Includes salary payments to Mr. Porter after his resignation in September
1996 for reasons of ill health as Chief Executive Officer of Regent and
Chief Executive Office and President of the Bank. Mr. Porter will receive
salary payments of $10 thousand per month from the Bank through September
1997.
(2) Mr. Ring succeeded Mr. Porter as Chief Executive Officer of Regent in
September 1996.
(3) Mr. Lyons became President, Chief Executive Officer and a director of the
Bank in September 1996 and is compensated at the rate of $180 thousand per
year.
There is no other annual compensation or long-term compensation that is
required to be disclosed in the foregoing table.
Compensation for Ms. Teaford is paid pursuant to employment agreement,
the current term of which expires in May 1998, and thereafter automatically
extends for successive one-year periods, subject to prior written notice of
termination by Ms. Teaford or Regent, in each case, no later than 90 days prior
to expiration of the then current term. The agreement with Mrs. Teaford requires
continuation of compensation for one year to the executive's spouse, issue or
estate in the event of death, but does not provide for severance payments.
Compensation for Mr. Hyman is paid pursuant to an employment agreement,
the initial term of which expires on January 21, 1999, and thereafter
automatically extends for successive two-year periods, subject to prior written
notice of termination by Mr. Hyman or the Bank, in each case, no later than 90
days prior to the anniversary date of the agreement, except that if a
change-in-control of the Bank or Regent, as defined in the agreement, occurs
during the term of the agreement, the term of Mr. Hyman's employment thereafter
shall be for a period of two years beginning on the date such change-in-control
is consummated, and shall renew automatically for a new two-year period
beginning on the date of such change-in-control, subject to prior written notice
of termination by Mr. Hyman or the Bank, in each case, no later than 90 days
prior to the anniversary date of the change-in-control. The agreement provides
for an initial annual salary at the rate of $110 thousand. In the event of a
change-of-control, the agreement with Mr. Hyman provides for the continued
payment of Mr. Hyman's salary and employee benefit expenses for the full
remaining term of the agreement, as such term may have been extended by the
occurrence of a change-of-control, if Mr. Hyman is removed from his positions,
is assigned duties which are in substantial part at a level of responsibility
lower than his level of responsibility before the change-of-control or is
required to perform duties in substantial part at a location in excess of 30
miles from Philadelphia, Pennsylvania, and the Bank's successor entity does not
remedy the condition within 30 days after it receives written notice thereof.
As of December 31, 1996, the Bank had outstanding loans to various
officers, directors, and advisory directors of Regent and the Bank and their
families and various entities of which such persons are directors and officers.
Except as noted in "Certain Relationships and Related Transactions" such loans
were made in the ordinary course of the Bank's business, were made on
substantially the same
-72-
<PAGE>
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with unrelated third parties, and did not involve
more than the normal risk of collectibility or present other unfavorable
features.
Item 12. Securities Ownership of Certain Beneficial Owners and Management.
Securities Ownership of Management and Principal Shareholders
The following table sets forth certain information as to security
ownership, as of December 31, 1996, with respect to (a) each person who is known
by Regent's Board of Directors to own beneficially more than 5% of outstanding
Regent Common Stock or Series A Convertible Preferred Stock, Regent's only
voting securities, (b) each of Regent's directors, (c) each person named in the
Summary Compensation Table and (d) all of Regent's executive officers and
directors as a group.
<TABLE>
<CAPTION>
Series A Convertible
Common Stock Preferred Stock
---------------------------- ---------------------------
Amount and Amount and
Nature of Nature of
Beneficial Percent Beneficial Percent
Name and Address Ownership(1) of Class Ownership of Class
------------ -------- ---------- --------
<S> <C> <C> <C> <C>
Abraham L. Bettinger 82,400(2) 7.8% 4,500(3) 1.0%
845 3rd Avenue
New York, NY 10022
O. Francis Biondi 131,282(4) 12.5% 8,433 1.8%
P.O. Box 1347
Wilmington, DE 19801-1347
Leonard S. Dwares 1,676(5) * 200 *
Lance T. Funston 46,090(6) 4.4% 26,400 5.7%
2044 Spruce Street
Philadelphia, PA 19103
Edward Parnes, PhD. 14,795(7) 1.4% 2,000 *
Harvey Porter and
Anna Porter 126,623(8) 12.0% 11,833(9) 2.6%
c/o Regent National Bank
1430 Walnut Street
Philadelphia, PA 19102
-73-
<PAGE>
Robert J. Reichlin 12,971(10) 1.2% 5,000 1.1%
David W. Ring 163,065(11) 15.5% 12,433 2.7%
c/o Regent National Bank
1430 Walnut Street
Philadelphia, PA 19102
Barbara H. Teaford and
Stephen D. Teaford 82,375(12) 7.8% 7,600 1.7%
c/o Regent National Bank
1430 Walnut Street
Philadelphia, PA 19102
Harry D. Zutz 9,411(13) * -- --
John J. Lyons 200 * -- --
All Directors and
Executive Officers
as a Group(10 persons) 627,980(14) 59.6% 79,999 17.4%
</TABLE>
- ---------------
* Less than 1%
(1) Includes shares of Regent Common Stock currently issued and outstanding and
shares of Regent Common Stock that may be issued upon conversion of Regent
Series A and Regent Series E Convertible Preferred Stock within 60 days of
December 31, 1996. For the purposes of this table, each share of Regent
Series A and Regent Series E Convertible Preferred Stock is treated as
convertible into one share of Regent Common Stock. The persons listed in
the table do not own any shares of Regent Series B, Regent Series C or
Regent Series D Convertible Preferred Stock.
(2) Includes 37,837 shares of Regent Common Stock, and 450 shares of Regent
Common Stock into which shares of Regent Series E Convertible Preferred
Stock are convertible, owned by the Trustees of Bettinger & Leech, Inc.
Profit Sharing Plan of which Mr. Bettinger is a Trustee; 10,695 shares of
Regent Common Stock, and 900 shares of Regent Common Stock into which
shares of Regent Series E Convertible Preferred Stock are convertible,
owned by the Trustees of Bettinger & Leech, Inc. Money Purchase Plan of
which Mr. Bettinger is a Trustee; and 13,203 shares of Regent Common Stock
owned by Bettinger & Leech Financial Corp. of which Mr. Bettinger is a
principal. Mr. Bettinger shares voting and investment power with respect to
these shares.
(3) Includes 1,500 shares owned by the Bettinger & Leech, Inc. Profit Sharing
Plan and 3,000 shares owned by Bettinger & Leech Financial Corp.
-74-
<PAGE>
(4) Includes 11,166 shares of Regent Common Stock owned by Mr. Biondi's wife in
which Mr. Biondi disclaims beneficial ownership; 9,772 shares of Regent
Common Stock owned by O. Francis Biondi, Trustee for Mary Biondi, daughter;
9,771 shares of Regent Common Stock owned by O. Francis Biondi, Trustee for
O. Francis Biondi, Jr., son; and 2,529 shares of Regent Common Stock into
which shares of Regent Series E Convertible Preferred Stock owned by Mr.
Biondi are convertible.
(5) Includes 60 shares of Regent Common Stock into which shares of Regent
Series E Convertible Preferred Stock owned by Mr. Dwares are convertible.
(6) Mr. Funston and his wife own all of the shares set forth in this table as
joint tenants with right of survivorship, and share voting and investment
power with respect to all such shares. Includes 7,920 shares of Regent
Common Stock into which shares of Regent Series E Convertible Preferred
Stock owned by Mr. Funston are convertible.
(7) Includes 600 shares of Regent Common Stock into which shares of Regent
Series E Convertible Preferred Stock owned by Mr. Parnes are convertible.
(8) Of these shares, 46,200 shares are owned jointly by Mr. Porter and his wife
and 68,590 shares are owned by Mr. Porter's wife as trustee of Trust Under
Deed dated 2/28/94 for the benefit of Mr. Porter's wife. Mr. Porter and his
wife share voting and investment power with respect to all shares owned
jointly.
(9) Of these shares, 2,900 shares are owned jointly by Mr. Porter and his wife
and 8,933 shares are owned by Mr. Porter's wife as trustee of Trust Under
Deed dated 2/28/94 for the benefit of Mr. Porter's wife. Mr. Porter and his
wife share voting and investment power with respect to all shares owned
jointly.
(10) Includes 2,942 shares of Regent Common Stock owned by Zuckerman-Honickman,
Inc., of which Mr. Reichlin is President.
(11) Includes 3,729 shares of Regent Common Stock into which shares of Regent
Series E Convertible Preferred Stock owned by Mr. Ring are convertible.
(12) Mrs. Teaford and her husband, Stephen D. Teaford, own all of the shares set
forth in this table as tenants by the entireties and share voting and
investment power with respect to all such shares; includes 2,280 shares of
Regent Common Stock into which shares of Regent Series E Convertible
Preferred Stock owned by Mr. and Mrs. Teaford are convertible.
(13) Includes 2,942 shares of Regent Common Stock owned by H.D. Zutz Insurance,
Inc. Profit Sharing Plan of which Mr. Zutz is a Trustee and shares voting
and investment power.
(14) Includes 18,628 shares of Regent Common Stock into which shares of Regent
Series E Convertible Preferred Stock owned by such persons are convertible.
-75-
<PAGE>
Item 13. Certain Relationships and Related Transactions.
On October 7, 1996 in connection with Regent's capital plan required by
the Regulatory Agreement with the OCC, Regent sold an aggregate of 148,148
shares of Regent Common Stock in a private placement pursuant to Section 4(2) of
the Act to Harvey Porter, David W. Ring, Abraham Bettinger and O. Francis
Biondi, four directors of Regent, for a purchase price of $6.75 per share, or an
aggregate of $1 million. Mr. Porter purchased 37,037 shares; Mr. Ring purchased
59,259 shares; Mr. Bettinger purchased 14,815 shares; and Mr. Biondi purchased
37,037 shares.
Stephen D. Teaford, the husband of Barbara H. Teaford, the Executive
Vice President of the Bank, is a partner in the law firm of Duane, Morris &
Heckscher to which Regent and the Bank paid legal fees in the amount of
approximately $403 thousand in 1996.
Regent director Lance T. Funston and his wife are indebted to the Bank
pursuant to a loan which became delinquent subsequent to December 31, 1996, at
which time the amount of the loan was approximately $705 thousand. The Funstons'
borrowing originated at $850 thousand in November 1989 as a secured term loan
for business purposes. The loan is secured by a second mortgage lien against
their personal residence where equity available to the Bank (based on a 1994 MAI
Appraisal) exceeded $1.2 million. The interest rate, collateral margin and
balance requirements conform to normal Bank standards.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
The Index to the Financial Statements filed under Item 8 is as follows:
(a) Financial statements, financial statement schedules and
exhibits filed:
(1) Consolidated Financial Statements:
Page
Report of Independent Certified Public Accountants ........ 34
Report of Independent Certified Public Accountants ........ 35
Consolidated Balance Sheets, December 31, 1996
and 1995................................................. 36
Consolidated Statements of Operations for the years
ended December 31, 1996, 1995 and 1994................... 38
Consolidated Statements of Shareholders' Equity
for the years ended December 31, 1996, 1995
and 1994................................................. 39
Consolidated Statements of Cash Flows for the
years ended December 1996, 1995 and 1994................. 40
Notes to Consolidated Financial Statements................. 41
(2) Financial Statement Schedules:
-76-
<PAGE>
Schedules are omitted for the reason that they are not required
or are not applicable, or the required information is shown in
the consolidated financial statements or notes thereto.
(3) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibits Reference
- ----------- ----------------------- ---------
<S> <C> <C>
3(a) Certificate of Incorporation (New Jersey) (a)
3(b) By-laws of Registrant (a)
4(a) Form of Registrant's Common Stock (a)
Certificate
4(b) Form of Preferred Stock Certificate (a)
4(c) Series A Preferred Stock Designation (a)
4(d) Series B Preferred Stock Designation (a)
4(e) Series C Preferred Stock Designation (a)
4(f) Series D Preferred Stock Designation (a)
4(g) Series E Preferred Stock Designation (a)
10(a) Employment Agreement between Regis- (b)
trant and Barbara H. Teaford dated May
24, 1989
10(b) Employment Agreement between Regis- filed herewith
trant and Joel E. Hyman dated January 21,
1997, effective January 6, 1997
10(c) Lease Agreement dated August 4, 1988 for the (a)
premises located at 1430 Walnut Street, Phila-
delphia, PA 19102
10(d) Lease Agreement dated December 15, 1995 for the filed herewith
premises located at 1426 Walnut Street, Phila-
delphia, PA 19102
10(e) Amendment, dated as of October 2, 1996, (c)
to the Amended and Restated Agreement and
-77-
<PAGE>
Plan of Merger dated as of August 30, 1995
among Carnegie Bancorp, Carnegie Bank, N.A.,
Regent Bancshares Corp. and Regent National Bank.
10(f) Agreement between Regent National Bank (c)
and the Office of the Comptroller of the
Currency, and Addendum thereto, dated
October 10, 1996
10(g) Agreement, dated as of January 14, 1997, among (d)
Carnegie Bancorp, Carnegie Bank, N.A., Regent
Bancshares Corp. and Regent National Bank relating to
the termination of the Amended and Restated Agreement
and Plan of Merger dated as of August 30, 1995, as
amended October 2, 1996.
10(h) Subscription Agreement of Abraham Bettinger, filed herewith
dated October 7, 1996 for 14,815 shares of the
Registrant's Common Stock
10(i) Subscription Agreement of O. Francis Biondi, filed herewith
dated October 7, 1996 for 37,037 shares of the
Registrant's Common Stock.
10(j) Subscription Agreement of Harvey Porter, dated filed herewith
October 7, 1996 for 37,037 shares of the Regis-
trant's Common Stock
10(k) Subscription Agreement of David W. Ring, dated filed herewith
October 7, 1996 for 59,259 shares of the Registrant's
Common Stock
21 Subsidiaries of Registrant (a)
27 Financial Data Schedule filed herewith
</TABLE>
- --------------
(a) Such exhibit is hereby incorporated by reference to the like-described
exhibit in the Registration Statement of the Registrant, as amended,
Registration No. 33-27299.
(b) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Registrant's Form 10-K for the fiscal year ended December 31,
1989.
(c) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Registrant's Form 8-K Report filed with the SEC on October 18,
1996.
(d) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Registrant's Form 8-K Report filed with the SEC on January 23,
1996.
-78-
<PAGE>
(b) Reports on Form 8-K
Registrant filed a Report on Form 8-K on October 18, 1996 under Item 5
to report an agreement, dated October 10, 1996, between Regent National Bank and
the Office of the Comptroller of the Currency and an Amendment, dated October 2,
1996, to the Amended and Restated Agreement and Plan of Merger, dated as of
August 30, 1995, among Registrant, Regent National Bank, Carnegie Bancorp and
Carnegie Bank, N.A.
-79-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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/ David W. Ring
--------------------------------
David W. Ring, President and a
Director (Principal Executive
Officer)
Date: April 7, 1997
By: /s/ Joel E. Hyman
--------------------------------
Joel E. Hyman, Chief Financial
Officer and Treasurer
Date: April 7, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ David W. Ring President, Chairman of April 7, 1997
- --------------------------------- the Board and Director
David W. Ring
/s/ Abraham Bettinger Vice Chairman of the April 7, 1997
- --------------------------------- Board and Director
Abrham Bettinger
/s/ O. Francis Biondi Director April 7, 1997
- ---------------------------------
O. Francis Biondi
- --------------------------------- Executive Vice President
Barbara H. Teaford and Director
/s/ Leonard S. Dwares Director April 7, 1997
- ---------------------------------
Leonard S. Dwares
/s/ Harvey Porter Director April 7, 1997
- ---------------------------------
Harvey Porter
-80-
<PAGE>
- --------------------------------- Director
Lance T. Funston
- --------------------------------- Director
Edward Parnes
/s/ Robert Reichlin Director April 7, 1997
- ---------------------------------
Robert Reichlin
- --------------------------------- Director
Harry D. Zutz
</TABLE>
-81-
<PAGE>
EXHIBIT INDEX
-------------
(Pursuant to Item 601 of Regulation S-K)
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibits Reference
- ----------- ----------------------- ---------
<S> <C> <C>
3(a) Certificate of Incorporation (New Jersey) (a)
3(b) By-laws of Registrant (a)
4(a) Form of Registrant's Common Stock (a)
Certificate
4(b) Form of Preferred Stock Certificate (a)
4(c) Series A Preferred Stock Designation (a)
4(d) Series B Preferred Stock Designation (a)
4(e) Series C Preferred Stock Designation (a)
4(f) Series D Preferred Stock Designation (a)
4(g) Series E Preferred Stock Designation (a)
10(a) Employment Agreement between Regis- (b)
trant and Barbara H. Teaford dated May
24, 1989
10(b) Employment Agreement between Regis- filed herewith
trant and Joel E. Hyman dated January 21,
1997, effective January 6, 1997
10(c) Lease Agreement dated August 4, 1988 for the (a)
premises located at 1430 Walnut Street, Phila-
delphia, PA 19102
10(d) Lease Agreement dated December 15, 1995 for the filed herewith
premises located at 1426 Walnut Street, Phila-
delphia, PA 19102
10(e) Amendment, dated as of October 2, 1996, (c)
to the Amended and Restated Agreement and
Plan of Merger dated as of August 30, 1995
among Carnegie Bancorp, Carnegie Bank, N.A.,
Regent Bancshares Corp. and Regent National Bank.
-82-
<PAGE>
10(f) Agreement between Regent National Bank (c)
and the Office of the Comptroller of the
Currency, and Addendum thereto, dated
October 10, 1996
10(g) Agreement, dated as of January 14, 1997, among (d)
Carnegie Bancorp, Carnegie Bank, N.A., Regent
Bancshares Corp. and Regent National Bank relating to
the termination of the Amended and Restated Agreement
and Plan of Merger dated as of August 30, 1995, as
amended October 2, 1996.
10(h) Subscription Agreement of Abraham Bettinger, filed herewith
dated October 7, 1996 for 14,815 shares of the
Registrant's Common Stock
10(i) Subscription Agreement of O. Francis Biondi, filed herewith
dated October 7, 1996 for 37,037 shares of the
Registrant's Common Stock.
10(j) Subscription Agreement of Harvey Porter, dated filed herewith
October 7, 1996 for 37,037 shares of the Regis-
trant's Common Stock
10(k) Subscription Agreement of David W. Ring, dated filed herewith
October 7, 1996 for 59,259 shares of the Registrant's
Common Stock
21 Subsidiaries of Registrant (a)
27 Financial Data Schedule filed herewith
</TABLE>
- -----------------
(a) Such exhibit is hereby incorporated by reference to the like-described
exhibit in the Registration Statement of the Registrant, as amended,
Registration No. 33-27299.
(b) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Registrant's Form 10-K for the fiscal year ended December 31,
1989.
(c) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Registrant's Form 8-K Report filed with the SEC on October 18,
1996.
(d) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Registrant's Form 8-K Report filed with the SEC on January 23,
1996.
-83-
<PAGE>
EMPLOYMENT AGREEMENT
This Agreement is made and entered into as of this 6th day of January,
1997, by and between Regent National Bank, a national banking association
located in Philadelphia, Pennsylvania ("Employer") and Joel E. Hyman, a
resident of South Windsor, Connecticut ("Employee").
WITNESSETH:
WHEREAS, Employer desires to secure the services of Employee on the terms
herein set forth; and
WHEREAS, Employee is willing to enter into this Agreement on such terms;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto, intending to be legally bound hereby, do
mutually covenant and agree as follows:
1. Definitions.
(a) Termination for "Cause," as used in this Agreement, shall include,
but not be limited to, termination of Employee's employment because of
Employee's disloyalty, dishonesty, failure to perform his duties in a diligent,
enthusiastic and competent fashion or activities constituting misfeasance or
malfeasance under federal, state or local law.
(b) "Permanent Disability," shall mean a physical and/or mental
condition such that Employee is unable to perform those duties that he would
otherwise be expected to continue to perform and the nonperformance of such
duties has continued for a period of not less than six months. In order to
terminate Employee's employment on account of permanent disability, Employer
must provide written notice to Employee of its decision to terminate him for
such reason not less than 30 days before the date of such termination.
(c) A "Person" shall include a natural person, a corporation or any
other entity. When two or more persons act as a partnership, limited
partnership, syndicate, association, joint venture or other group for the
purpose of controlling Employer or Employer's parent, Regent Bancshares Corp.
("Regent"), whether through acquiring, holding or disposing of common stock of
Employer or of Regent, or otherwise, such partnership, limited partnership,
syndicate, association, joint venture or other group shall be considered a
Person.
(d) A "Change-in-Control" of Employer or Regent shall be deemed to have
occurred with respect to Employer or Regent if any Person, as defined herein,
has acquired control of Employer or Regent. A Person has control if:
<PAGE>
(i) the Person acquires or agrees to acquire all or substantially
all of the assets and business of Employer or Regent;
(ii) the Person controls in any manner the election of a majority
of the Board of Directors of Employer or of Regent such that the persons who
constitute a majority of the members of the Board of Directors of Regent or of
Employer on the date of this Agreement and persons nominated by them after the
date hereof but before the event that constitutes a Change-in-Control no longer
constitute a such majority;
(iii) the Board of Directors of Employer determines, in its sole
discretion, that a Person, directly or indirectly, exercises a controlling
influence over the management or policies of Employer or Regent; or
(iv) A Person, directly, indirectly or acting through one or more
other Persons, beneficially owns or has the power to vote 25% or more of the
voting common stock of Employer or Regent.
Beneficial ownership shall be determined under Rule 13d-3 of the provisions of
the Securities Exchange Act of 1934, as amended, as such Rule exists at the time
the parties hereto execute this Agreement.
2. Employment.
Employer hereby employs Employee as the [Executive Vice President,] Chief
Financial Officer and Treasurer of Employer and of Regent and Employee accepts
such employment and agrees to serve in such capacity upon the terms and
conditions hereinafter set forth.
3. Term of Employment.
Subject to the provisions of Section 7 hereof, the term of Employee's
employment hereunder shall be for a period of two years beginning on the date
hereof (the "Commencement Date") and the term of his employment shall renew
automatically for a new two-year period beginning on each anniversary of the
Commencement Date unless at least 90 days before an anniversary date of the
Commencement Date either party provides written notice to the other stating that
the term of Employee's employment hereunder shall not be so extended.
Notwithstanding the foregoing, and subject to the provisions of Section 7
hereof, if a Change-in-Control of Employer or Regent occurs during the term of
this Agreement, the term of Employee's employment thereafter shall be for a
period of two years beginning on the date such Change-in-Control is consummated,
and the term of Employee's employment hereunder shall renew automatically for a
new two-year period beginning on each anniversary of the date of the Change-in-
Control, unless at least 90 days before an anniversary date of the
Change-in-Control either party provides written notice to the other stating that
the term of Employee's employment hereunder shall not be so extended.
-2-
<PAGE>
If at any time after the date such a Change-in-Control occurs, Employee is
removed from the position of [Executive Vice President,] Chief Financial Officer
and Treasurer of Employer and Regent or Employee is assigned duties which are in
substantial part at a level of responsibility lower than his level of
responsibility before the Change-in-Control, or Employee is required to perform
duties in substantial part at a location in excess of 30 miles from
Philadelphia, Pennsylvania, Employer's successor entity shall, within 30 days
following written notice by Employee that such a condition exists, either remedy
such condition or permit Employee to terminate his employment, and Employer's
successor entity shall continue to pay Employee's then current base salary and
employee benefit expenses, as defined in Sections 5(a) and 5(d) hereof, for the
full remaining term of this Agreement, as such term may have been extended by
the occurrence of the Change-in-Control.
4. Duties of Employee.
Throughout the term of his employment hereunder, Employee shall perform all
duties assigned or delegated to him under the By-Laws of Employer or from time
to time by the Board of Directors, Chairman of the Board, President or Chief
Executive Officer of Employer consistent with his position as [Executive Vice
President,] Chief Financial Officer and Treasurer of Employer and of Regent, and
shall perform all acts and services customarily associated with such positions
in the banking industry, devoting his full time, best efforts and attention to
the advancement of the interest and business of Employer and of Regent.
Throughout the term of his employment hereunder, Employee shall not engage in or
be concerned with any other duties or pursuits which are competitive or
inconsistent with the interest and business of Employer and of Regent, in
accordance with Employer's policies applicable to all employees.
5. Compensation and Benefits.
(a) Base Salary. Employer shall pay to Employee as compensation
for the services to be rendered by him hereunder a base salary at the annual
rate of $110,000 or such larger sum as Employer may from time to time determine
as appropriate in its sole discretion. Such base salary shall be payable in
accordance with the normal payroll practices of Employer. Employer shall review
Employee's performance at least annually, at which time Employee's base salary
may be maintained or increased as Employer reasonably determines appropriate in
its sole discretion.
(b) Relocation Expenses. In connection with Employee's relocation
from South Windsor, Connecticut to the Philadelphia, Pennsylvania area, Employer
agrees (i) to reimburse Employee for the period from Employee's commencement of
employment hereunder until the earlier of Employee's move to the Philadelphia,
Pennsylvania area or June 30, 1997 for the costs of a housekeeping suite at the
Warwick Hotel in Philadelphia, Pennsylvania and one parking space at 1500 Locust
Street, Philadelphia, Pennsylvania and (ii) to pay Employee $1,200 per month for
each of the first three months of Employee's
-3-
<PAGE>
employment hereunder as reimbursement for expenses to be incurred for travel
between South Windsor, Connecticut and Philadelphia, Pennsylvania. Employer
also agrees to reimburse Employee on a tax-adjusted basis for the expenses
reasonably incurred by Employee in relocating his principal residence from South
Windsor, Connecticut to the Philadelphia, Pennsylvania area, including the
closing costs of selling Employee's residence in South Windsor, Connecticut,
moving expenses for Employee's household effects, animals and automobiles and
the closing costs of purchasing a residence in the Philadelphia, Pennsylvania
area provided, however, that if Employee leaves the employ of Employer during
the first two years of Employee's employment hereunder, Employee shall, not
later than 30 days after Employee's leaving, reimburse Employer for the
unamortized portion of such relocation expenses using a straight-line
amortization schedule.
(c) Additional Compensation. In addition to the base salary
stated in Section 5(a) hereof, upon Employee signing this Agreement, Employer
shall pay to Employee additional cash compensation in the amount of $25,000
(the "Additional Compensation"). If Employee voluntarily terminates his
employment with Employer during the two-year period beginning on the date
hereof, and if such termination is not in accordance with Section 7(b)(iii)
hereof, or because of Employee's death or Permanent Disability, Employee or his
estate, as the case may be, shall pay to Employer not later than 30 days after
the date of such termination, an amount equal to the product of (i) the amount
of the Additional Compensation, as reduced by all federal, state and local
income and employment taxes paid on the Additional Compensation by Employee to
such date and (ii) a fraction, the numerator of which is the number of days
between the day after such termination and the date which is two years after the
date hereof, and the denominator of which is 730. If Employer terminates
Employee for Cause during the two-year period beginning on the date hereof, not
later than 30 days after the date of such termination, Employee shall pay to
Employer the full amount of such Additional Compensation in (i) above.
(d) Other Benefits. Throughout the term of Employee's
employment hereunder:
(i) Employee shall be entitled to participate, subject to
the terms and conditions of such programs, in any and all of Employer's existing
and future employee benefit programs applicable and available to all of
Employer's officers which (A) are not qualified under the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and (B) are qualified under
ERISA provided Employee's participation shall commence only on such date as is
in compliance with ERISA;
(ii) Employee shall be entitled to participate, subject to
the terms and conditions of such programs, in any and all present and future
incentive programs sponsored, conducted or otherwise administered by Employer
and made available by Employer to all of Employer's officers; and
-4-
<PAGE>
(iii) As determined by the Board of Directors of Employer,
Employee may be permitted to participate, subject to the terms and conditions of
such programs, in such other employee benefit and incentive programs that are
not available or applicable to all of Employer's officers or employees.
6. Vacation.
Employee shall be entitled, for each year of his employment under this
Agreement, to a vacation of not less than five weeks during which time his
compensation shall be paid in full. Employer and Employee shall mutually agree
as to the scheduling of Employee's vacation. The time during which Employee
performs services as a member of the faculty of the Consumer Bankers Association
("CBA") Graduate School of Retail Bank Management, or any other nationally-
known school in lieu of the CBA school, shall not be construed as use of
vacation time, up to a maximum of five working days per year.
7. Termination.
(a) Employer may terminate the employment of Employee (i) for Cause or
(ii) on account of his death or Permanent Disability.
(b) Employee may terminate his employment with Employer: (i) in
accordance with Section 3 hereof; (ii) on account of his death or Permanent
Disability; (iii) if during the term of his employment hereunder Employer or its
successor entity removes Employee from the position of [Executive Vice
President,] Chief Financial Officer and Treasurer of Employer and of Regent or
assigns him duties which are in substantial part at a level of responsibility
lower than Employee's prior level of responsibility, by providing written notice
to Employer if such a condition is not remedied by Employer within 30 days
following written notice by Employee to Employer of his claim that such a
condition exists, which notice shall specify in detail the reasons for such
claim or (iv) Employee gives Employer at least 90 days' written notice in the
manner provided for herein for the giving of notices, which shall not prejudice
any remedy which either party may have either at law, in equity or under this
Agreement.
(c) This Agreement shall terminate on the date on which neither
Employer nor Employee is obligated to the other pursuant to any provision of
this Agreement; provided, however that the provisions of Section 9 hereof shall
be unaffected by any termination of this Agreement and shall remain in full
force and effect after such termination.
8. Confidential Information.
Employee understands that in the course of his employment by Employer,
Employee will receive confidential information concerning the business of
Employer and Regent, and which Employer and Regent desire to protect. Employee
agrees that he will not at any time during or after the period of his employment
by Employer reveal to
-5-
<PAGE>
anyone outside Employer, or use for his own benefit, any such information that
has been designated as confidential by Employer or Regent or understood by
Employee to be confidential, without specific written authorization by Employer.
9. Binding Effect; Merger or Liquidation of Employer, Etc.
This Agreement shall bind and inure to the benefit of (i) Employer and
any successor or assign of Employer or of substantially all of its business and
(ii) Employee, his heirs and personal representatives. The parties hereto
recognize and acknowledge that at a future date Employer may undergo a change in
control or liquidate, but it is expressly agreed that any such change will not
render the covenants and agreements contained herein (or in any other
instruments entered into by and between the parties hereto) any less binding or
unenforceable in any manner whatsoever.
10. Notice.
Any notice or request permitted or required under this Agreement shall
be deemed sufficient when, if given to Employer, it shall be addressed to:
Regent National Bank, 1430 Walnut Street, Philadelphia, Pennsylvania 19102,
Attention: Chairman of the Board; and if given to Employee, it shall be
addressed to: 34 Pleasant Valley Road, South Windsor, Connecticut 06074; and in
either case by certified or registered mail. Any party may in accordance with
the provision of this Section 10 give written notice of a change of address, in
which event following the other party's receipt of such notice all such notices
and requests shall thereafter be given as above provided at such changed
address.
11. Arbitration.
Any dispute which may arise between the parties hereto shall be
submitted to binding arbitration in accordance with the Rules of the American
Arbitration Association; provided that any such dispute shall first be submitted
to the Board of Directors of Employer in an effort to resolve such dispute
without resort to arbitration, and provided, further, that Employer's Board of
Directors shall have a period of 60 days within which to respond to Employee's
submitted dispute, and if Employer's Board of Directors fails to respond within
said time, and/or Employee's dispute is not resolved, the matter may then be
submitted for arbitration.
12. Severability.
The invalidity or unenforceability of any term, phrase, clause,
paragraph, restriction, covenant, agreement or other provision hereof shall in
no way affect the validity or enforceability of any other provision, or any part
thereof, but this Agreement shall be construed as if such invalid or
unenforceable term, phrase, clause, paragraph, restriction, covenant, agreement
or other provision had never been contained herein unless the deletion of such
term, phrase, clause, paragraph, restriction, covenant, agreement or other
provision would
-6-
<PAGE>
result in such a material change as to cause the covenants and agreements
contained herein to be unreasonable or would materially and adversely frustrate
the objectives of the parties as expressed in this Agreement.
13. Applicable Law.
This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, Employer, by its duly authorized representative,
and Employee have executed this Agreement as of the day and year first above
written.
REGENT NATIONAL BANK
By: /s/ John J. Lyons
--------------------------
John J. Lyons, President
Witness:
/s/ Kristen Evan /s/ Joel E. Hyman
- --------------------------- -------------------------------
Joel E. Hyman
-7-
LEASE AGREEMENT
1. Parties THIS AGREEMENT, MADE THE 15th day of December one thousand
nine hundred and ninety five (1995), by and between EDWARD M.
PAUL & COMPANY AGENT FOR CYNWYD INVESTMENTS (hereinafter
called Lessor), of the one part, and REGENT BANCSHARES INC.,
INCORPORATED IN THE STATE OF NEW JERSEY, with offices located
at 1430 Walnut Street, Philadelphia, PA 19102 (hereinafter
called Lessee), of the other part.
2. Premises WITNESSETH THAT: Lessor does hereby demise and let unto Lessee
all that certain 3rd floor of the building situate and known
as 1426 Walnut Street in the City of Philadelphia, State of
Pennsylvania, to be used and occupied as offices for banking
3. Term and related services and for no other purpose, for the term of
3 years 5 months beginning the 1st day of January, one
thousand nine hundred and ninety six (1996), and ending the
31st day of May, one thousand nine hundred and ninety nine
4. Minimum (1999), for the minimum term rental of SIXTY EIGHT THOUSAND
Rent THREE HUNDRED THIRTY THREE DOLLARS AND FORTY SEVEN CENTS
(Dollars) ($68,333.47), lawful money of the United States of
America, payable in monthly installments in advance during the
said term of this lease, or any renewal hereof, in sums of as
hereinafter set forth in paragraph 30, provided, however, the
commencement date* on the 1st day of each month, rent to begin
from the 1st day of January, 1996, the first installment to be
paid at the time of signing this lease. *see paragraph 33b
5. Inability to give possession. If Lessor is unable to give Lessee
possession of the demised premises, as herein provided, by reason of the holding
over of a previous occupant, or by reason of any cause beyond the control of the
Lessor, the Lessor shall not be liable in damages to the Lessee therefor, and
during the period that the Lessor is unable to give possession, all rights and
remedies of both parties hereunder shall be suspended.
6. Additional Rent. (a) Damages for Default. Lessee agrees to pay as rent
in addition to the minimum rental herein reserved any and all sums which may
become due by reason of the failure of Lessee to comply with all the covenants
of this lease and pay any and all damages, costs and expenses which the Lessor
may suffer or incur by reason of any default of the Lessee or failure on his
part to comply with the covenants of this lease, and each of them, and also any
and all damages of the demised premises caused by any act or neglect of the
Lessee.
*(b) Taxes. Lessee further agrees to pay as rent in addition to the
minimum rental herein reserved all taxes assessed or imposed upon the demised
premises and/or the building of which the demised premises is a part during the
term of this lease, in excess of and over and above those assessed or imposed at
the time of making this lease. The amount due hereunder on account of such taxes
shall be apportioned for that part of the first and last calendar years covered
by the term hereof. The same shall be paid by Lessee to Lessor on or before the
first day of July of each and every year. *SEE par. 40
*(c) Fire Insurance Premiums. Lessee further agrees to pay to Lessor as
additional rent all increase or increases in fire insurance premiums upon the
demised premises and/or the building of which the demised premises is a part,
due to an increase in the rate of fire insurance in excess of the rate on the
demised premises at the time of making this lease, if said increase is caused by
any act or neglect of the Lessee or the nature of the Lessee's business. *see
paragraph 40
**(d) Water Rent. (purposely striken) **see par. 38
(e) Sewer Rent. Lessee further agrees to pay as additional rent, if
there is a metered water connection to said premises, all sewer rental or
charges for use of sewers, sewage system, and sewage treatment works servicing
the demised premises in excess of the yearly minimum of such sewer charges,
immediately when the same become due.
7. Place of Payment. All rents shall be payable without prior notice or
demand at the office of Lessor in Edward M. Paul & Company, 1420 Walnut Street,
Philadelphia, PA 19102 or at such other place as Lessor may from time to time
designate by notice in writing.
8. Affirmative Covenants of Lessee. Lessee covenants and agrees that he
will without demand
(a) Payment of Rent. Pay the rent and all other charges herein reserved
as rent on the days and times and at the place that the same are made payable,
without fail, and if Lessor shall at any time or times accept said rent or rent
charges after the same shall have become due and payable, such acceptance shall
not excuse delay upon subsequent occasions, or constitute or be construed as a
waiver of any of Lessor's rights. Lessee agrees that any charge or payment
herein reserved, included or agreed to be treated or collected as rent and/or
any other charges or taxes, expenses, or costs herein agreed to be paid by the
Lessee may be proceeded for and recovered by the Lessor by distraint or other
process in the same manner as rent due and in arrears.
*(b) Cleaning, Repairing, etc. Keep the demised premises clean and free
from all ashes, dirt and other refuse matter; replace all glass windows, doors,
etc., broken; keep all waste and drain pipes open; repair all damage to plumbing
and to the premises in general; keep the same in good order and repair as they
now are, reasonable wear and tear and damage by accidental fire or other
casualty not occurring through negligence of Lessee or those employed by or
acting for Lessee alone excepted. The Lessee agrees to surrender the demised
premises in the same condition in which Lessee has herein agreed to keep the
same during the continuance of this lease. *see paragraph 37
(c) Requirements of Public Authorities. Comply with any requirements of
any of the constituted public authorities, and with the terms of any State or
Federal statute or local ordinance or regulation applicable to Lessee or his use
of the demised premises, and save Lessor harmless from penalties, fines, costs
or damages resulting from failure to do so.
(d) Fire. Use every reasonable precaution against fire.
(e) Rules and Regulations. Comply with rules and regulations of Lessor
promulgated as hereinafter provided.
(f) Surrender of Possession. Peaceably deliver up and surrender
possession of the demised premises to the Lessor at the expiration or sooner
termination of this lease, promptly delivering to Lessor at his office all keys
for the demised premises.
(g) Notice of Fire, etc. Give to Lessor prompt written notice of any
accident, fire, or damage occurring on or to the demised premises.
(h) Condition of Pavement. (purposely striken)
(i) Agency on Removal. The Lessee agrees that if, with the permission in
writing of Lessor, Lessee shall vacate or decide at any time during the term of
this lease, or any renewal thereof, to vacate the herein demised premises prior
to the expiration of this lease, or any renewal hereof, Lessee will not cause or
allow any other agent to represent Lessee in any sub-letting or reletting of the
demised premises other than an agent approved by the Lessor and that should
Lessee do so or attempt to do so, the Lessor may remove any signs that may be
placed on or about the demised premises by such other agent without any
liability to Lessor or to said agent, the Lessee assuming all responsibility for
such action. EDWARD M. PAUL & CO. shall be the only authorized agent in leasing
or reletting of the demised premises
9. Negative Covenants of Lessee. Lessee covenants and agrees that he will
do none of the following things without the consent in writing of Lessor first
had and obtained:
(a) Use of Premises. Occupy the demised premises in any other manner or
for any other purpose than as above set forth.
*(b) Assignment and Subletting. Assign, mortgage or pledge this lease or
under-let or sub-lease the demised premises, or any part thereof, or permit any
other person, firm or corporation to occupy the demised premises, or any part
thereof; nor shall any assignee or sub-lessee assign, mortgage or pledge this
lease or such sub-lease, without an additional written consent by the Lessor,
and without such consent no such assignment, mortgage or pledge shall be valid.
If the Lessee becomes embarrassed or insolvent, or makes an assignment for the
benefit of creditors, or if a petition in bankruptcy is filed by or against the
Lessee or a bill in equity or other proceeding for the appointment of a receiver
for the Lessee is filed, or if the real or personal property of the Lessee shall
be sold or levied upon by any Sheriff, Marshall or Constable, the same shall be
a violation of this covenant. *See paragraph 41
Approve by Initialing /s/ HP
<PAGE>
RIDER attached to and made a part of Lease Agreement dated the 15th day of
December, 1995 by and between EDWARD M. PAUL & COMPANY AGENT FOR CYNWYD
INVESTMENTS, LESSOR AND REGENT BANCSHARES, INC., Incorporated in the State of
New Jersey, with offices located at 1430 Walnut Street, Philadelphia, PA 19102,
LESSEE for all that certain 3rd Floor of the building situate and known as 1426
Walnut Street, Philadelphia, PA.
30. The minimum annual rent and monthly rent shall be as follows:
FROM TO ANNUAL RENT MONTHLY RENT
- -------------------------------------------------------------------------------
January 1, 1996 December 31, 1998 $20,000.00 $1,666.67
From the period from January 1, 1999 thru May 31, 1999 Lessee shall pay
$8,333.35 payable in equal monthly installments of $1,666.67 per month.
Said sums shall be payable on the first day of each month in advance without
prior notice or demand and without any deduction or setoff whatsoever for the
term of the lease or any renewals thereof. In the event of renewals the monthly
rental shall not be less than $1,666.67 per month.
31. Anything herein contained to the contrary notwithstanding, provided Lessee
is not in default under any terms and conditions of the Lease Agreement, Lessee
is given the right and privilege of extending the Lease Agreement for an
additional five years commencing June 1, 1999 thru May 31, 2004 by serving
written notice to that effect sent by Registered Mail, Return Receipt Requested,
sent on or before December 31, 1998 of their desire to extend the Lease
Agreement with the understanding that Lessee agrees to pay the per annum rental
of TWENTY-THREE THOUSAND DOLLARS ($23,000.00) payable in equal monthly
installments of ONE THOUSAND NINE HUNDRED SIXTEEN DOLLARS AND SIXTY SEVEN CENTS
($1,916.67) each on the first day of each month in advance. Lessee is given the
further right and privilege of extending the lease agreement for an additional
five years provided Lessee has exercised their previous option commencing June
1, 2004 thru May 31, 2009 by serving written notice to that effect sent by
Registered Mail, Return Receipt Requested, sent on or before December 31, 2003
of their desire to extend the Lease Agreement with the understanding that Lessee
agrees to pay the per annum rental of TWENTY-SIX THOUSAND FOUR HUNDRED FIFTY
DOLLARS ($26,450.00) per annum in equal monthly installments of TWO THOUSAND TWO
HUNDRED FOUR DOLLARS AND SEVENTEEN CENTS ($2,204.17) each on the first day of
each month in advance. In the event of renewals, the monthly rent shall not be
less than $2,204.17 per month.
32. Anything herein contained to the contrary notwithstanding, Lessee agrees to
pay as additional rent each and every month of the Lease Agreement, the
obligation of the use and occupancy tax that shall become due pursuant to the
laws of the City of Philadelphia. Lessee agrees to pay an adjusted amount, if,
as, and when notified of any change in the use and occupancy tax rate or
assessment. As a condition of Lessor entering into this Lease Agreement lessee
shall provide its Philadelphia Business Tax Account Number.
Said number is: 545-18-46.
33. a. Lessor agrees, at Lessor's sole cost and expense, immediately upon the
full execution of the Lease Agreement to proceed with due diligence to complete
the renovations necessary for Lessee's occupancy, in accordance with the plans
and specifications which plans and specifications are to be identified as
Exhibit A attached hereto and made a part hereof. Any and all guarantees
installed in accordance with the renovation shall be made available to the
Lessee. With the understanding that the Lessee shall keep and maintain said
equipment in good order and repair returning the same at the termination of the
lease, reasonable wear and tear excepted.
Approve by Initialing /s/ HP
2
<PAGE>
RIDER attached to and made a part of Lease Agreement dated the 15th day of
December, 1995 by and between EDWARD M. PAUL & COMPANY AGENT FOR CYNWYD
INVESTMENTS, LESSOR AND REGENT BANCSHARES, INC., Incorporated in the State of
New Jersey, with offices located at 1430 Walnut Street, Philadelphia, PA 19102,
Lessee for all that certain 3rd Floor of the building situate and known as 1426
Walnut Street, Philadelphia, PA.
33. (cont.) b. Anything herein contained to the contrary notwithstanding, the
term of the Lease shall be for 3 years and 5 months commencing January 1, 1996
provided that the Lessor shall have substantially completed, except for minor
details not affecting the Lessee's ability to use the demised premises, the
renovations as provided for in accordance with the terms of this Lease on or
before said date. In the event the premises is not ready for the Lessee's
occupancy, Lessee agrees to wait until March 1, 1996 in that eventuality. It is
further agreed and understood that all terms and conditions of this Lease
Agreement shall be extended to the date of occupancy and Lessee shall pay the
pro rata rental as of the date the premises is ready for occupancy.
34. Anything herein contained to the contrary notwithstanding, Lessee is hereby
given the right and privilege of erecting such signs upon the demised premises
as they deem necessary for the requirements of their office, with the further
agreement and understanding that such signs will comply with all laws and
requirements of the constituted lawful authorities and with the further
agreement and understanding that the Lessee assumes all liability and
responsibility for damages to persons and property including the building itself
in the erection, maintenance and removal of the said signs. Lessee agrees to
remove the said signs at the termination of the Lease prior to vacating the
premises, repairing all damage resulting therefrom.
35. Lessee agrees to maintain Public Liability and Property Damage Insurance
covering the demised premises, with single limit Public Liability of
$1,000,000.00 and Property Damage Insurance with limits of $1,000,000.00 in the
names of the Lessor and Lessee as their interest may appear. Lessee shall
increase the amount of coverage once every five years, if not before, to reflect
the amount of inflation that occurs. Lessee will deliver to Lessor, prior to the
commencement of this Lease, a Certificate of Insurance evidencing such coverage.
Lessee further covenants and agrees at least ten days prior to the expiration,
cancellation or lapsing of any insurance policy to deliver to the Lessor
Certificates of Insurance evidencing the issuance or renewals of said insurance,
with the further agreement and understanding that failure on the part of the
Lessee to do so, shall entitle the Lessor to place said insurance, the cost of
which shall be borne by the Lessee, and paid to the Lessor, as additional rent,
promptly upon demand.
36. Lessee acknowledges that the electric servicing the demised premises is
delivered by sub-meter, provided by the Lessor. Lessee agrees to pay as
additional rent to the Lessor, the amount consumed as metered at the same rate
as is charged by the Philadelphia Electric Company payable within 10 days of
receipt of said invoice as additional rent.
37. Lessee agrees to notify the Lessor in writing whenever leaks occur in the
roof and the skylights not caused by the negligence of the Lessee. Upon receipt
of written notice from the Lessee, Lessor agrees to proceed with due diligence
to repair at his own cost and expense, any leaks in the roof and skylights,
provided such repairs are not made necessary by any act or neglect on the part
of the Lessee. In no event, however, shall Lessor be liable to Lessee for any
loss or damage due to, or alleged to be due to, any leaks from the said roof of
the building of which the herein demised premises is a part during the term of
this Lease or any renewals thereof unless the Lessor shall have failed to repair
the roof within a reasonable time weather conditions permitting.
Approve by Initialing /s/ HP
3
<PAGE>
RIDER attached to and made a part of Lease Agreement dated the 1st day of
December, 1995 by and between EDWARD M. PAUL & COMPANY AGENT FOR CYNWYD
INVESTMENTS, LESSOR AND REGENT BANCSHARES, INC., Incorporated in the State of
New Jersey, with offices located at 1430 Walnut Street, Philadelphia, PA 19102,
LESSEE for all that certain 3rd Floor of the building situate and known as 1426
Walnut Street, Philadelphia, PA.
38. Anything herein contained to the contrary notwithstanding, Lessee
acknowledges that there is a separate sub-water meter servicing the demised
premises and Lessee agrees to pay, as additional rent the amount of water and
sewer consumed on said meter including the monthly minimum service charge
associated with the pipe diameter and/or water meter size. Said amount shall be
due and payable within 10 days of receipt of said invoice as additional rent.
39. Anything herein contained to the contrary notwithstanding Lessee shall
receive free rent for the period from January 1, 1996 through December 31, 1997.
Lessee shall, however, pay to Lessor upon execution of this Lease, $44,550.00
which sum Lessor shall apply to the cost of tenant improvements as specified in
Paragraph 47, Exhibit A and B, as well as Exhibit C.
40. Anything therein contained to the contrary notwithstanding in lieu of
paragraph 6B and 6C, (insurance and real estate taxes) Lessee further agrees to
pay fifteen (15%) percent of all real estate taxes, including Center City
District Taxes, and fifteen (15%) percent of any and all fire insurance premiums
with extended coverage or any additional insurance coverage made necessary in
order to maintain replacement cost or actual cash value insurance as the case
may be of the insurance premium commencing January 1, 1998 or two years after
commencement, whichever is later. Such amounts shall be due and payable as
additional rent within 10 days of receipt and shall be pro rated for the first
and last year of the Lease Agreement. Notwithstanding the above, in the event
the Lessee is the sole cause of any rate change, Lessee shall be obligated to
pay the additional costs if, as, and when such change shall occur.
41. Notwithstanding paragraph 9 of the lease, the Lessee may assign or sublet
all or part of the leased premises without consent of the Lessor with the
further agreement and understanding that Lessee shall not be relieved of its
responsibility under the Lease Agreement in the event such subletting shall
occur. Lessee shall have the right to sublet to any subsidiary of Regent
Bancshares, Inc. and/to KC Insurance Premium Finance Co., Inc. or its subsidiary
or affiliate without notice.
42. Anything herein contained to the contrary notwithstanding Lessee shall be
obligated to pay an additional ONE HUNDRED DOLLARS ($100.00) as a late payment
should the rental remain unpaid for more than fifteen (15) days after the date
for which it was due, with the further agreement and understanding that the
Lessee will pay a late payment penalty fee of one and one half percent (1-1/2%)
monthly interest rate for the outstanding rental due if not paid within fifteen
(15) days.
43. There exists in Pennsylvania a Real Estate Recovery Fund, administered by
the State Real Estate Commission, the purpose of which is to protect consumers
from improper conduct by persons in the real estate business. Anyone who gets a
judgment in a suit against a broker for fraud, misrepresentation or deceit, and
who is unable to collect the amount of judgment by the usual legal procedures,
may apply for payment from the Fund by meeting certain prescribed requirements.
Further information can be obtained by telephoning the Real Estate Commission at
(717) 783-7198 (not a free number).
44. All notices to be given to the Lessee shall be addressed to:
Regent Bancshares Inc.
1430 Walnut Street
Philadelphia, PA 19102
45. Lessor shall be responsible for the repair and maintenance of the elevator.
Approve by Initialing /s/ HP
4
<PAGE>
RIDER attached to and made a part of Lease Agreement dated the 15th day of
December, 1995 by and between EDWARD M. PAUL & COMPANY AGENT FOR CYNWYD
INVESTMENTS, LESSOR AND REGENT BANCSHARES, INC., Incorporated in the State of
New Jersey, with offices located at 1430 Walnut Street, Philadelphia, PA 19102,
LESSEE for all that certain 3rd Floor of the building situate and known as 1426
Walnut Street, Philadelphia, PA.
46. Lessor shall be responsible for the repair and maintenance of the sidewalk
in front and back and shall be responsible for snow and ice removal.
47. In addition to the items described on the Richmond Roofing Proposal dated
November 6, 1995, attached hereto and marked Exhibit "A", Lessor shall perform
the following renovations at its expense in accordance with the plans and specs
attached hereto as Exhibit "B":
a. Front area: install adequate fluorescent ceiling lighting;
and
b. Middle area: install adequate fluorescent ceiling lighting;
and
c. Rear area: install drop ceiling and adequate fluorescent
ceiling lighting; and
d. In all areas: provide adequate heat and air conditioning and
sufficient electrical power in accordance with the specs;
and
e. Provide access doors, stairs, etc., from 1426 Walnut Street
building at office next to lunchroom to 1428-30 Walnut
Street building in accordance with fire and building code.
48. Within ten (10) days after request by Lessor, Lessee agrees to deliver an
estoppel certificate to any proposed mortgagee or purchaser, or to Lessor,
certifying (if such be the case) that this Lease is in full force and effect and
that there are no defenses or offsets thereto, or stating those claimed by
Lessee. Upon commencement of the terms hereof, Lessor and Lessee shall execute a
statement setting forth the commencement date and the expiration date for the
initial term.
49. Lessee agrees to subordinate this lease to any institutional first mortgage,
underlying or master lease now or hereafter placed upon the land of which the
demised premises is a part, and to all advances made or hereafter to be made
upon the security thereto. The word "mortgage" as used herein includes
mortgages, deeds of trust or similar instruments and the word mortgage,
underlying or master lease shall include such modifications, consolidations,
extensions, renewals, replacements or substitutes thereof. Provided, however,
that if Lessee is not in default of this lease, its tenancy will not be
disturbed shall continue in full force and effect. As a condition to this lease
Lessor shall obtain a subordination, non-disturbance attornment agreement in
satisfactory form, from the holders of any and all of the above mortgages or
underlying or master leases presently in effect, and Lessee agrees to enter into
any such agreement with the holders of any and all mortgages or underlying or
master leases hereafter coming into effect.
50. Anything herein contained to the contrary notwithstanding, Lessor may cancel
this lease and regain possession of the demised premises any time on or after
May 31, 1999, in the event of a bona fide sale or agreement for the sale or in
the event that the building of which the demised premises is a part and the
adjacent building thereto are razed for the purpose of erecting a new building
on the property of which the demised premises forms a part, Lessor shall have
the right by serving written notice to the Lessee of Lessor's intention so to
terminate, one hundred eighty (180) days prior to such termination date, and
Lessee agrees to surrender and give up complete and full possession of the
herein demised premises upon the date mentioned in such notice. If the Lessee
shall fail to do so, Lessor shall have the right to enter an amicable action and
confession of judgment in as provided in this Lease and may employ any and all
other remedies contained in this Lease, and/or provided by law.
Approve by Initialing /s/ HP
5
<PAGE>
RIDER attached to and made a part of Lease Agreement dated the 15th day of
December, 1995 by and between EDWARD M. PAUL & COMPANY AGENT FOR CYNWYD
INVESTMENTS, LESSOR AND REGENT BANCSHARES, INC., Incorporated in the State of
New Jersey, with offices located at 1430 Walnut Street, Philadelphia, PA 19102,
LESSEE for all that certain 3rd Floor of the building situate and known as 1426
Walnut Street, Philadelphia, PA.
51. Anything herein contained to contrary notwithstanding, in the event Lessor
chooses to terminate the Lease Agreement on or before the first sixty (60)
months of occupancy of the Lease Agreement, Lessor shall give notice to the
Lessee by Registered Mail, Return Receipt Requested sent one hundred eighty
(180) days prior to the desired termination date, which date of termination
shall not be before May 30, 1999, and Lessor shall provide an early termination
fee of TWENTY FIVE THOUSAND DOLLARS ($25,000.00), which payment shall be paid to
the Lessee within ten (10) days after the date of removal by the Lessee, as
authorized by the Lessor, provided Lessee has vacated the premises without any
outstanding financial obligations due at the date of vacating.
52. Lessor and Lessee hereby mutually waive all rights of subrogation and rights
of recovery against each other, their agents, servants and employees for any and
all losses occurring to the demised premises during the terms of this lease (or
any renewal or extension thereof) whether or not caused by the negligence of
Lessor or Lessee, their agents, servants or employees or whether or not Lessor
or Lessee, their agents, servants or employees shall, in any way, have
contributed to such loss.
53. Lessor agrees to pay EDWARD M. PAUL & COMPANY their heirs or assigns a
brokerage commission of five percent (5%) of the gross rental collected during
the term of this Lease and any renewals or extensions thereof for their services
in negotiating this Lease for the owner, their heirs, executors, administrators
or assigns. For the purposes of this paragraph renewals, and extensions shall
include new leases entered into with this Lessee, their successors or assigns
even if the new lease shall substantially change the term and conditions. It is
further agreed and understood that should the Lessee or any related or successor
entity purchase the demised premises during the term of this lease or any
renewals thereof, Lessor their heirs or assigns further agrees to pay EDWARD M.
PAUL & COMPANY a sales commission of five percent (5%) of the gross sale price
at settlement.
APPROVED:
EDWARD M. PAUL & COMPANY
REGENT BANCSHARES, INC. /s/ Edward M. Paul
-----------------------------------
/s/ Harvey Porter
- -----------------------------
BY: President
CYNWYD INVESTMENTS
/s/
-----------------------------------
/s/ Stephen Carroll
- -----------------------------
ATTEST
6
<PAGE>
Exhibit "B"
-----------
RICHMOND ROOFING Roofers License
3139 Prospect Ave. PHILA./C61083
Trevose, PA 19047
(215) 357-6920
Proposal
- --------------------------------------------------------------------------------
PROPOSAL SUBMITTED TO PHONE DATE
CYNWYD INVESTMENTS FAX - 610-664-1976 November 6, 1995
- --------------------------------------------------------------------------------
STREET JOB
725 CONSHOHOCKEN STATE ROAD PROPOSAL #95-78
- --------------------------------------------------------------------------------
CITY, STATE, AND ZIP CODE JOB LOCATION
BALA CYNWYD, PA 19004 1426 WALNUT STREET - 3RD FLOOR
- --------------------------------------------------------------------------------
We hereby submit specifications and estimates for
REAR AREA
REMOVAL ALL PARTITIONS
CLEAN AND PATCH CEILING AND PAINT
CLEAN AND PATCH FLOOR
INSTALL NEW UNISEX BATHROOM
INSTALL NEW HANDICAP BATHROOM
PATCH CEILING IN BATHROOM
ALL REQUIRED PLUMBING AND ELECTRICAL WORK INCLUDED AS PER CODE
$40,000.00
- --------------------------------------------------------------------------------
We propose
hereby to furnish material and labor, complete in accordance with above
specifications, for the sum of
FORTY THOUSAND DOLLARS ($40,000.00)
- --------------------------------------------------------------------------------
Payment to be made as follows:
TO BE DETERMINED UPON ACCEPTANCE OF PROPOSAL
- --------------------------------------------------------------------------------
Authorized Signature: /s/
------------------------------------------------
Note: This proposal may be withdrawn if not accepted within ____ days.
Acceptance of Proposal
The above prices, specifications and conditions are satisfactory and are hereby
accepted. You are authorized to do the work as specified. Payment will be made
as stated above.
Signature
-----------------------------------
Date of acceptance Signature
----------- -----------------------------------
"NOTICE"
ALL MATERIAL IS GUARANTEED TO BE AS SPECIFIED. ALL WORK IS TO BE COMPLETED IN A
WORKMANLIKE MANNER ACCORDING TO STANDARD PRACTICES. ANY ALTERATION OR DEVIATION
FROM ABOVE SPECIFICATIONS INVOLVING EXTRA COSTS WILL BE EXECUTED UPON WRITTEN
ORDERS, AND WILL BECOME AN EXTRA CHARGE OVER AND ABOVE THE ESTIMATE. ALL
AGREEMENTS CONTINGENT UPON STRIKES, ACCIDENTS OR DELAYS BEYOND OUR CONTROL.
OWNER TO CARRY FIRE, TORNADO AND OTHER NECESSARY INSURANCE. OUR WORKERS ARE
FULLY COVERED BY WORKMEN'S COMPENSATION INSURANCE.
Approve by Initialing /s/ HP
7
<PAGE>
Exhibit "B"
-----------
RICHMOND ROOFING Roofers License
3139 Prospect Ave. PHILA./C61083
Trevose, PA 19047
(215) 357-6920
Proposal
- --------------------------------------------------------------------------------
PROPOSAL SUBMITTED TO PHONE DATE
CYNWYD INVESTMENTS FAX - 610-664-1976 November 6, 1995
- --------------------------------------------------------------------------------
STREET JOB
725 CONSHOHOCKEN STATE ROAD PROPOSAL #95-76
- --------------------------------------------------------------------------------
CITY, STATE, AND ZIP CODE JOB LOCATION
BALA CYNWYD, PA 19004 1426 WALNUT STREET - 3RD FLOOR
- --------------------------------------------------------------------------------
We hereby submit specifications and estimates for
FRONT AREA -
TAKE DOWN 1 WALL
INSTALL NEW PARTITION FRONT SPACE WHERE 1/2 PARTITION NOW EXISTS
INSTALL NEW WALL AND SILLS ALONG FRONT WINDOWS
CLOSE OFF DOOR WAY TO CREATE TWO OFFICES
TAKE DOWN WALLS LEADING INTO MIDDLE AREA
INSTALL NEW WALL AT ELECTRICAL BOX NEXT TO STEPS
INSTALL SUSPENDED CEILING
INSTALL GLUE DOWN CARPET
PATCH SKYLIGHT AND WALLS WHERE NEEDED
SCRAPE WHERE NEEDED
PAINT WITH CONTRACTOR WHITE PAINT
CONTINUED......
- --------------------------------------------------------------------------------
We propose
hereby to furnish material and labor, complete in accordance with above
specifications, for the sum of
( )
- --------------------------------------------------------------------------------
Payment to be made as follows:
- --------------------------------------------------------------------------------
Authorized Signature:
------------------------------------------------
Note: This proposal may be withdrawn if not accepted within ____ days.
Acceptance of Proposal
The above prices, specifications and conditions are satisfactory and are hereby
accepted. You are authorized to do the work as specified. Payment will be made
as stated above.
Signature
-----------------------------------
Date of acceptance Signature
----------- -----------------------------------
"NOTICE"
ALL MATERIAL IS GUARANTEED TO BE AS SPECIFIED. ALL WORK IS TO BE COMPLETED IN A
WORKMANLIKE MANNER ACCORDING TO STANDARD PRACTICES. ANY ALTERATION OR DEVIATION
FROM ABOVE SPECIFICATIONS INVOLVING EXTRA COSTS WILL BE EXECUTED UPON WRITTEN
ORDERS, AND WILL BECOME AN EXTRA CHARGE OVER AND ABOVE THE ESTIMATE. ALL
AGREEMENTS CONTINGENT UPON STRIKES, ACCIDENTS OR DELAYS BEYOND OUR CONTROL.
OWNER TO CARRY FIRE, TORNADO AND OTHER NECESSARY INSURANCE. OUR WORKERS ARE
FULLY COVERED BY WORKMEN'S COMPENSATION INSURANCE.
Approve by Initialing /s/ HP
8
<PAGE>
Exhibit "B"
-----------
RICHMOND ROOFING Roofers License
3139 Prospect Ave. PHILA./C61083
Trevose, PA 19047
(215) 357-6920
Proposal
- --------------------------------------------------------------------------------
PROPOSAL SUBMITTED TO PHONE DATE
CYNWYD INVESTMENTS FAX - 610-664-1976 November 6, 1995
- --------------------------------------------------------------------------------
STREET JOB
725 CONSHOHOCKEN STATE ROAD PROPOSAL #95-77
- --------------------------------------------------------------------------------
CITY, STATE, AND ZIP CODE JOB LOCATION
BALA CYNWYD, PA 19004 1426 WALNUT STREET - 3RD FLOOR
- --------------------------------------------------------------------------------
We hereby submit specifications and estimates for
MIDDLE AREA
REMOVE BENCHES
INSTALL SUSPENDED CEILING
INSTALL GLUE DOWN CARPETING
WIDEN DOORWAY INTO REAR AREA
INSTALL NEW DOOR AND FRAME
PATCH SKYLIGHTS AND WALLS WHERE NEEDED
SCRAPE WHERE NEEDED
PAINT WITH CONTRACTOR WHITE PAINT
CONTINUED......
- --------------------------------------------------------------------------------
We propose
hereby to furnish material and labor, complete in accordance with above
specifications, for the sum of
( )
- --------------------------------------------------------------------------------
Payment to be made as follows:
- --------------------------------------------------------------------------------
Authorized Signature:
------------------------------------------------
Note: This proposal may be withdrawn if not accepted within ____ days.
Acceptance of Proposal
The above prices, specifications and conditions are satisfactory and are hereby
accepted. You are authorized to do the work as specified. Payment will be made
as stated above.
Signature
-----------------------------------
Date of acceptance Signature
----------- -----------------------------------
"NOTICE"
ALL MATERIAL IS GUARANTEED TO BE AS SPECIFIED. ALL WORK IS TO BE COMPLETED IN A
WORKMANLIKE MANNER ACCORDING TO STANDARD PRACTICES. ANY ALTERATION OR DEVIATION
FROM ABOVE SPECIFICATIONS INVOLVING EXTRA COSTS WILL BE EXECUTED UPON WRITTEN
ORDERS, AND WILL BECOME AN EXTRA CHARGE OVER AND ABOVE THE ESTIMATE. ALL
AGREEMENTS CONTINGENT UPON STRIKES, ACCIDENTS OR DELAYS BEYOND OUR CONTROL.
OWNER TO CARRY FIRE, TORNADO AND OTHER NECESSARY INSURANCE. OUR WORKERS ARE
FULLY COVERED BY WORKMEN'S COMPENSATION INSURANCE.
Approve by Initialing /s/ HP
9
<PAGE>
Exhibit "C"
-----------
RICHMOND ROOFING Roofers License
3139 Prospect Ave. PHILA./C61083
Trevose, PA 19047
(215) 357-6920
Proposal
- --------------------------------------------------------------------------------
PROPOSAL SUBMITTED TO PHONE DATE
REGENT BANK November 30, 1995
- --------------------------------------------------------------------------------
STREET JOB
1426 WALNUT STREET -- 3RD FLOOR PROPOSAL #95-83
- --------------------------------------------------------------------------------
CITY, STATE, AND ZIP CODE JOB LOCATION
PHILADELPHIA, PA 1426 WALNUT STREET
- --------------------------------------------------------------------------------
We hereby submit specifications and estimates for
WORK TO BE COMPLETED IN BATHROOM ABOVE CONTRACT PRICE
INSTALL NEW SOIL PIPE TO RECEIVE NEW TOILETS
INSTALL 2 ADDITIONAL COMMERCIAL TOILETS IN BATHROOM AREA
INSTALL METAL PARTITIONS, DOORS AND HARDWARE FOR ADDITIONAL TOILETS
TOTAL: $4,500.00 (this amount or less)
- --------------------------------------------------------------------------------
We propose
hereby to furnish material and labor, complete in accordance with above
specifications, for the sum of
FOUR THOUSAND FIVE HUNDRED DOLLARS ($4,500.00)
- --------------------------------------------------------------------------------
Payment to be made as follows:
TO BE DETERMINED UPON ACCEPTANCE OF PROPOSAL
- --------------------------------------------------------------------------------
Authorized Signature: /s/
------------------------------------------------
Note: This proposal may be withdrawn if not accepted within 0 days.
Acceptance of Proposal
The above prices, specifications and conditions are satisfactory and are hereby
accepted. You are authorized to do the work as specified. Payment will be made
as stated above.
Signature /s/ Harvey Porter
-----------------------------------
Date of acceptance 11/30/95 Signature /s/ Kristen Evan
----------- -----------------------------------
"NOTICE"
ALL MATERIAL IS GUARANTEED TO BE AS SPECIFIED. ALL WORK IS TO BE COMPLETED IN A
WORKMANLIKE MANNER ACCORDING TO STANDARD PRACTICES. ANY ALTERATION OR DEVIATION
FROM ABOVE SPECIFICATIONS INVOLVING EXTRA COSTS WILL BE EXECUTED UPON WRITTEN
ORDERS, AND WILL BECOME AN EXTRA CHARGE OVER AND ABOVE THE ESTIMATE. ALL
AGREEMENTS CONTINGENT UPON STRIKES, ACCIDENTS OR DELAYS BEYOND OUR CONTROL.
OWNER TO CARRY FIRE, TORNADO AND OTHER NECESSARY INSURANCE. OUR WORKERS ARE
FULLY COVERED BY WORKMEN'S COMPENSATION INSURANCE.
Approve by Initialing /s/ HP
10
<PAGE>
(2) This lease and the term hereby created shall determine and become
absolutely void without any right on the part of the Lessee to save the
forfeiture by payment of any sum due or by other performance of any condition,
term or covenant broken; whereupon, Lessor shall be entitled to recover damages
for such breach in an amount equal to the amount of rent reserved for the
balance of the term of this lease, less the fair rental value of the said
demised premises, for the residue of said term.
15. Further Remedies of Lessor. In the event of any default as above set
forth in Section 14, the Lessor, or anyone acting on Lessor's behalf, at
Lessor's option:
(a) may without notice or demand enter the demised premises, breaking
open locked doors if necessary to effect entrance, without liability to action
for prosecution or damages for such entry or for the manner thereof, for the
purpose of distraining or levying and for any other purposes, and take
possession of and sell all goods and chattels at auction, on three days' notice
served in person on the Lessee or left on the premises, and pay the said Lessor
out of the proceeds, and even if the rent be not due and unpaid, should the
Lessee at any time remove or attempt to remove goods and chattels from the
premises without leaving enough thereon to meet the next periodical payment,
Lessee authorizes the Lessor to follow for a period of ninety days after such
removal, take possession of and sell at auction, upon like notice, sufficient of
such goods to meet the proportion of rent accrued at the time of such removal;
and the Lessee hereby releases and discharges the Lessor, and his agents, from
all claims, actions, suits, damages, and penalties, for or by reason or on
account of any entry, distrain, levy, appraisement or sale; and/or
(b) may enter the premises, and without demand proceed by distress and
sale of the goods there found to levy the rent and/or other charges herein
payable as rent, and all costs and officers' commissions, including watchmen's
wages and sums chargeable to Lessor, and further including a sum equal to 5% of
the amount of the levy as commissions to the constable or other person making
the levy, shall be paid by the Lessee, and in such case all costs, officers'
commission and other charges shall immediately attach and become part of the
claim of Lessor for rent, and any tender of rent without said costs, commission
and charges made after the issue of a warrant of distress shall not be
sufficient to satisfy the claim of the Lessor. Lessee hereby expressly waives in
favor of Lessor the benefit of all laws now made or which may hereafter be made
regarding any limitation as to the goods upon which, or the time within which,
distress is to be made after removal of goods, and further relieves the Lessor
of the obligations of proving or identifying such goods, it being the purpose
and intent of this provision that all goods of Lessee, whether upon the demised
premises or not, shall be liable to distress for rent. Lessee waives in favor of
Lessor all rights under the Act of Assembly of April 6, 1951, P.L. 69, and all
supplements and amendments thereto that have been or may hereafter be passed,
and authorizes the sale of any goods distrained for rent at any time after five
days from said distraint without any appraisement and/or condemnation thereof.
(c) The Lessee further waives the right to issue a Writ of Replevin
under the Pennsylvania Rules of Civil Procedure, No. 1071 &c. and Laws of the
Commonwealth of Pennsylvania, or under any other law previously enacted and now
in force, or which may be hereafter enacted, for the recovery of any articles,
household goods, furniture, etc., seized under a distress for rent or levy upon
an execution for rent, damages or otherwise; all waivers hereinbefore mentioned
are hereby extended to apply to any such action; and/or
(d) may lease said premises or any part or parts thereof to such person
or persons as may in Lessor's discretion seem best and the Lessee shall be
liable for any loss of rent for the balance of the then current term.
16. Confession of Judgment. If rent and/or any charges hereby reserved as
rent shall remain unpaid on any day when the same ought to be paid, Lessee
hereby empowers any Prothonotary, Clerk of Court or attorney of any Court of
Record to appear for Lessee in any and all actions which may be brought for rent
and/or the charges, payments, costs and expenses reserved as rent, or agreed to
be paid by the Lessee and/or to sign for Lessee an agreement for entering in any
competent Court an amicable action or actions for the recovery of rent or other
charges, payments, costs or expenses, and in said suits or in said amicable
action or actions to confess judgment against Lessee for all or any part of the
rent specified in this lease and then unpaid including, at Lessor's option, the
rent for the entire unexpired balance of the term of this lease, and/or other
charges, payments, costs and expenses reserved as rent or agreed to be paid by
the Lessee, and for interest and costs together with any attorney's commission
of 5%. Such authority shall not be exhausted by one exercise thereof, but
judgment may be confessed as aforesaid from time to time as often as any of said
rent and/or other charges, payments, costs and expenses, reserved as rent shall
fall due or be in arrears, and such powers may be exercised as well after the
expiration of the original term and/or during any extension or renewal of this
lease.
17. Ejectment. When this lease shall be determined by condition broken,
either during the original term of this lease or any renewal or extension
thereof, and also when and as soon as the term hereby created or any extension
thereof shall have expired, it shall be lawful for any attorney as attorney for
Lessee and all persons claiming under Lessee for the recovery by Lessor of
possession of the herein demised premises, for which this lease shall be his
sufficient warrant, whereupon, if Lessor so desires, a writ of Execution or of
Possession may issue forthwith, without any prior writ or proceedings
whatsoever, and provided that if for any reason after such action shall have
been commenced the same shall be determined and the possession of the premises
hereby demised remain in or be restored to Lessee, Lessor shall have the right
upon any subsequent default or defaults, or upon the termination of this lease
as hereinbefore set forth, to bring one or more amicable action or actions as
hereinbefore set forth to recover possession of the said premises.
18. Affidavit of Default. In any amicable action of ejectment and/or for
rent in arrears, Lessor shall first cause to be filed in such action an
affidavit made by him or someone acting for him setting forth the facts
necessary to authorize the entry of judgment, of which facts such affidavit
shall be conclusive evidence and if a true copy of this lease (and of the truth
of the copy such affidavit shall be sufficient evidence) be filed in such
action, it shall not be necessary to file the original as a warrant of attorney,
any rule of Court, custom or practice to the contrary notwithstanding.
19. Waivers by Lessee of Errors, Right of Appeal, Stay, Exemption,
Inquisition. Lessee expressly agrees that any judgment, order or decree entered
against him by or in any Court or Magistrate by virtue of the powers of attorney
contained in this lease, or otherwise, shall be final, and that he will not take
an appeal, certiorari, writ of error, exception or objection to the same, or
file a motion or rule to strike off or open or to stay execution of the same,
and releases to Lessor and to any and all attorneys who may appear for Lessee
all errors in the said proceedings, and all liability therefor. Lessee expressly
waives the benefits of all laws, now or hereafter in force, exempting any goods
on the demised premises, or elsewhere from distraint, levy or sale in any legal
proceedings taken by the Lessor to enforce any rights under this lease. Lessee
further waives the right of inquisition on any real estate that may be levied
upon to collect any amount which may become due under the terms and conditions
of this lease, and does hereby voluntarily condemn the same and authorizes the
Prothonotary or Clerk of Court to issue a Writ of Execution or other process
upon Lessee's voluntary condemnation, and further agrees that the said real
estate may be sold on a Writ of Execution or other process. If proceedings shall
be commenced by Lessor to recover possession under the Acts of Assembly, either
at the end of the term or sooner termination of this lease, or for nonpayment of
rent or any other reason Lessee specifically waives the right to the three
months' notice and/or the fifteen or thirty days' notice required by the Act of
April 6, 1951, P. L. 69, and agrees that five days' notice shall be sufficient
in either or any other case.
20. Right of Assignee of Lessor. The right to enter judgment against Lessee
and to enforce all of the other provisions of this lease hereinabove provided
for may, at the option of any assignee of this lease, be exercised by any
assignee of the Lessor's right, title and interest in this lease in his, her or
their own name, notwithstanding the fact that any or all assignments of
11
<PAGE>
the said right, title and interest may not be executed and/or witnessed in
accordance with the Act of Assembly of May 28, 1715, 1 Sm. L. 90, and all
supplements and amendments thereto that have been or may hereafter be passed and
Lessee hereby expressly waives the requirements of said Act of Assembly and any
and all laws regulating the manner and/or form in which such assignments shall
be executed and witnessed.
21. Remedies Cumulative. All of the remedies hereinbefore given to Lessor
and all rights and remedies given to him by law and equity shall be cumulative
and concurrent. No determination of this lease or the taking or recovering of
the premises shall deprive Lessor of any of his remedies or actions against the
Lessee for rent due at the time or which, under the terms hereof, would in the
future become due as if there has been no determination, or for any and all sums
due at the time or which, under the terms hereof, would in the future become due
as if there had been no determination, nor shall the bringing of any action for
rent or breach of covenant, or the resort to any other remedy herein provided
for the recovery of rent be construed as a waiver of the right to obtain
possession of the premises.
22. Condemnation. In the event that the premises demised or any part
thereof is taken or condemned for a public or quasi-public use, this lease
shall, as to the part so taken, terminate as of the date title shall vest in the
condemnor, and rent shall abate in proportion to the square feet of leased space
taken or condemned or shall cease if the entire premises be so taken. In either
event the Lessee waives all claims against the Lessor by reason of the complete
or partial taking of the demised premises, and it is agreed that the Lessee
shall not be entitled to any notice whatsoever of the partial or complete
termination of this lease by reason of the aforesaid.
23. Subordination. This Agreement of Lease and all its terms, covenants and
provisions are and each of them is subject and subordinate to any lease or other
arrangement or right to possession, under which the Lessor is in control of the
demised premises, to the rights of the owner or owners of the demised premises
and of the land or buildings of which the demised premises are a part, to all
rights of the Lessor's landlord and to any and all mortgages and other
encumbrances now or hereafter placed upon the demised premises or upon the land
and/or the buildings containing the same; and Lessee expressly agrees that if
Lessor's tenancy, control, or right to possession shall terminate either by
expiration, forfeiture or otherwise, then this lease shall thereupon immediately
terminate and the Lessee shall, thereupon, give immediate possession; and Lessee
hereby waives any and all claims for damages or otherwise by reason of such
termination as aforesaid.
24. Termination of Lease. It is hereby mutually agreed that either party
hereto may terminate this lease at the end of said term by giving to the other
party written notice thereof at lease 90 days prior thereto, but in default of
such notice, this lease shall continue upon the same terms and conditions in
force immediately prior to the expiration of the term hereof as are herein
contained for a further period of one year and so on from year to year unless or
until terminated by either party hereto, giving the other 90 days written notice
for removal previous to expiration of the then current term; PROVIDED, however,
that should this lease be continued for a further period under the terms
hereinabove mentioned, any allowances given Lessee on the rent during the
original term shall not extend beyond such original term, and further provided,
however, that if Lessor shall have given such written notice prior to the
expiration of any term hereby created, of his intention to change the terms and
conditions of this lease, and Lessee shall not within fifteen days from such
notice notify Lessor of Lessee's intention to vacate the demised premises at the
end of the then current term, Lessee shall be considered as Lessee under the
terms and conditions mentioned in such notice for a further term as above
provided, or for such further term as may be stated in such notice. In the event
that Lessee shall give notice, as stipulated in this lease, of intention to
vacate the demised premises at the end of the present term, or any renewal or
extension thereof, and shall fail or refuse so to vacate the same on the date
designated by such notice, then it is expressly agreed that Lessor shall have
the option either (a) to disregard the notice so given as having no effect, in
which case all the terms and conditions of this lease shall continue thereafter
with full force precisely as if such notice had not been given, or (b) Lessor
may, at any time within thirty days after the present term or any renewal or
extension thereof, as aforesaid, give the said Lessee ten days' written notice
of his intention to terminate the said lease; whereupon the Lessee expressly
agrees to vacate said premises at the expiration of the said period of ten days
specified in said notice. All powers granted to Lessor by this lease may be
exercised and all obligations imposed upon Lessee by this lease shall be
performed by Lessee as well during any extension of the original term of this
lease as during the original term itself.
25. Notices. All notices required to be given by Lessor to Lessee shall be
sufficiently given by leaving the same upon the demised premises, but notices
given by Lessee to Lessor must be given by registered mail, and as against
Lessor, the only admissible evidence that notice has been given by Lessee shall
be a registry return receipt signed by Lessor or his agent.
26. Lease Contains All Agreements. It is expressly understood and agreed by
and between the parties hereto that this lease and the riders attached hereto
and forming a part hereof set forth all the promises, agreements, conditions and
understandings between Lessor or his Agents and Lessee relative to the demised
premises, and that there are no promises, agreements, conditions or
understandings, either oral or written, between them other than are herein set
forth. It is further understood and agreed that, except as herein otherwise
provided, no subsequent alteration, amendment, change or addition to this lease
shall be binding upon Lessor or Lessee unless reduced to writing and signed by
them.
Approve by Initialing /s/ HP
SUBSCRIPTION AGREEMENT
Regent Bancshares Corp.
1530 Walnut Street
Philadelphia, PA 19103
Re: Private Placement of Shares of Common
Stock (the "Shares") of Regent Bancshares Corp. ("Regent")
Gentlemen:
The undersigned member of the Board of Directors of Regent understands
that Regent National Bank (the "Bank") will enter into a supervisory agreement
(the "Agreement") with the Office of the Comptroller of the Currency (the "OCC")
because of the OCC's supervisory concerns about the condition of the Bank as
described in the OCC's supervisory letters of August 9 and August 30, 1996 to
the Bank, and the letter dated September 6, 1996 from the Federal Reserve Bank
of Philadelphia (the "FRBP") to Regent, copies of which are attached hereto. As
part of the Agreement, Regent will agree to implement a capital plan. Part of
that capital plan will involve the commitment of Regent to raise not less than
$1,000,000 in new capital from members of its Board of Directors by the sale of
the Shares at a price of $6.75 per Share, the closing sale price (the "Purchase
Price") of Regent's Common Stock on October 7, 1996. Subsequent to the offering
of the Shares, Regent may, subject to compliance with applicable state and
federal securities and banking laws, offer each stockholder of Regent of record
at the close of business on August 30, 1996 the right to purchase Shares on such
terms and conditions as Regent's Board of Directors may subsequently determine
in its discretion.
Risk Factors
The Bank experienced significant losses in the year ended December 31,
1995 and the first six months of 1996 due primarily to an increase in the
provision for loan losses that was attributable to delinquent loans and is
currently under stringent supervision by the OCC. For these and other reasons, a
purchase of the Shares involves significant risks. In determining whether or not
to purchase the Shares offered hereby, prospective investors should carefully
consider the following risk factors in addition to the other information set
forth herein.
Regulatory Action
The Bank will become subject to the Agreement with the OCC as a result
of the recent losses experienced by Regent and the Bank attributable to an
increase in the provision for loan losses of $4.5 million for the year ended
December 31, 1995 and $3.9 million for the six months ended June 30, 1996 that
resulted from delinquent automobile insurance premium finance ("IPF") loans to
individuals. It is also possible that Regent will become subject to a
supervisory agreement with the FRBP. The Bank's IPF loans, which have repayment
terms of nine months and are secured by the unearned premium balance on the
individual automobile insurance policies, were administered until September 1,
1996 by an external servicing company (the "Servicer") pursuant to a Processing,
Servicing, Marketing and Consulting Agreement which provided that the Servicer,
among other things, was to process and service the IPF loans, including the
collection of repayments from borrowers and of unearned premium balances from
insurers
<PAGE>
on cancelled insurance policies, in exchange for a servicing fee. During the
preparation of Regent's consolidated financial statements for the year ended
December 31, 1995, management of the Bank became aware of several matters which
indicated that the Servicer may have reported interest and fee income from IPF
loans in default and may not have cancelled insurance policies securing
defaulted loans nor collected insurance premium balances on such policies on a
timely basis. After applying all cash receipts from delinquent IPF borrowers to
the principal balances of such delinquent loans, and the proceeds of the
unearned premiums received from insurance companies applicable to principal and
interest to the principal balances of delinquent IPF loans, the Bank still had
to recognize a significant loan loss reserve in its December 31, 1995 and June
30, 1996 financial statements. It is also possible that the Bank will have to
recognize additional losses on the IPF loans.
Both Regent and the Bank are subject to minimum capital requirements
promulgated by the Board of Governors of the Federal Reserve System (the "FRB")
and the OCC, their respective primary regulators. As an institution whose
deposits are insured by the Federal Deposit Insurance Corporation ("FDIC") the
Bank is subject to the Federal Deposit Insurance Act ("FDIA"), as amended by the
Federal Deposit Insurance Corporation Improvement Act ("FDICIA"), effective
December 1991. FDICIA and the regulations of the FDIC implementing the prompt
corrective action provision of FDICIA, effective December 1992, require that the
federal banking agencies establish five capital levels for insured depository
institutions -- "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" and "critically
undercapitalized" -- and requires or permits such agencies to take certain
supervisory actions as an insured institution's capital level falls.
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 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.
At December 31, 1995, the Bank's Tier I and Tier II ratios were 8.67%
and 9.92%, respectively. The increased loan loss reserve attributable to the IPF
loan portfolio caused the Bank's Tier I leverage ratio at December 31, 1995 and
June 30, 1996 to be 4.94% and 3.94%, respectively. The legal minimum leverage
capital ratio for the Bank is 3% of Tier I capital to total assets plus an
additional cushion of at least 100 to 200 basis points. However, pursuant to a
Commitment Letter, dated June 2, 1995, agreed to by Regent's Board of Directors,
the Bank is required to maintain at all times a minimum Tier 1 leverage ratio
equal to or greater than 6.5%. The Bank's failure to meet the minimum Tier I
leverage ratio requirements prompted informal action and examination by the
OCC. As a result of the examination and based upon the problems associated with
the IPF loan portfolio, the sizeable credit loss exposure, and the resultant
negative financial repercussions caused by what the OCC characterized as
inadequate and ineffective risk management practices associated with the IPF
loans, the OCC downgraded the Bank's composite rating from "well capitalized" to
"undercapitalized" on August 9, 1996. The OCC also cited the Bank with
Violations of Law due to the inaccuracy of the Bank's December 31, 1995 and
March 31, 1996 Reports of Condition and Income, although it was only after such
reports were filed that management of the Bank discovered the extent of the
potential losses from the IPF portfolio.
-2-
<PAGE>
In an effort to prevent further regulatory action, management and the
Board submitted a plan of action to the OCC, which provides for sale or, in the
absence of a sale, termination of funding for the IPF loan portfolio, which the
Bank implemented effective September 3, 1996, and the continued collection of
delinquent loans, and a revised capital plan which management believes will be
acceptable. The capital plan includes an undertaking to reduce total assets of
the Bank by up to 20% and, thereby increase its capital ratios, sell $10 to $12
million in securities, commence the sale of readily saleable assets, possible
recovery of a portion of the estimated losses from the IPF loans with the aid of
an expanded collection staff and a new collection manager to provide the Bank
with accurate, reliable and auditable data with respect to the IPF loans, the
sale of a portion of the IPF loan portfolio and an equity investment of up to
$1,000,000 by the Organizers of the Bank, if necessary to meet the 6.5% Tier I
leverage capital ratio by December 31, 1996.
The Bank's continued inability to demonstrate the adequacy of its loan
loss reserve for IPF loans, including continuing financial and administrative
weaknesses, negative earnings performance, eroding capital base, volatile
liquidity profile and continued serious and undue risks posed by the IPF
business, and the deficiencies in the Bank's past-due reporting for IPF loans
prompted the OCC, upon subsequent examination, to take further action resulting
in the Agreement and to further downgrade the Bank's composite rating from a "3"
to a "4" on August 29, 1996.
On October 10, 1996, the Bank, acting by and through its Board of
Directors, entered into a written agreement pursuant to 12 U.S.C. ss. 1818(b)(1)
(the "Regulatory Agreement") with the OCC. The Bank believes that it is
currently in compliance with all of the provisions of the Regulatory Agreement
in all material respects and anticipates that, absent unforeseen circumstances,
it will be able to remain in compliance with the Regulatory Agreement in all
material respects. Under the Regulatory Agreement, the Bank is required, subject
to OCC review or approval, to (i) adopt and implement by November 9, 1996 an
action plan to improve the Bank, (ii) achieve capital levels specified in the
Regulatory Agreement at October 31, 1996 and December 31, 1996, (iii) by
November 9, 1996 develop a three-year capital program aimed at identifying means
for the Bank to maintain adequate capital levels and establishing restrictions
on the payment of dividends, (iv) continue the liquidation of the Bank's IPF
Loans in accordance with specified procedures, (v) review the adequacy of the
Bank's allowance for loan and lease losses and establish a program for the
maintenance of adequate allowances by the Bank for loan and lease losses in
compliance with OCC requirements, (vi) review the Bank's liquidity on a weekly
basis and take appropriate action to ensure adequate sources of liquidity in
relation to the Bank's needs, and (vii) appoint a committee of directors
responsible for monitoring the Bank's compliance with the terms of the
Regulatory Agreement and reporting thereon to the OCC.
Based upon the Bank's unsatisfactory condition and the questionable
ability of Regent to continue to service its outstanding debt beyond September
30, 1996, the FRBP formally notified Regent, in a letter dated September 6,
1996, of its determination that Regent is in "troubled condition." As a
consequence of such condition, Regent must provide the FRBP with 30 days' notice
prior to adding any members to its board of directors or engaging any new senior
executive officers. In addition to the notice requirement, the FRBP has
prohibited Regent, without prior written FRBP approval, from declaring or paying
any dividends, repurchasing or redeeming any of its stock and incurring any
additional debt, and has required Regent to submit to the FRBP by October 6,
1996 a written plan to service Regent's outstanding debt and to immediately
notify the FRBP of any material event that significantly impacts the financial
condition of Regent and the Bank. The FRBP has requested that the Bank's
organizers submit written undertakings to contribute sufficient capital to
Regent to enable Regent to pay the interest on Regent's outstanding subordinated
debentures in the event Regent does not otherwise have sufficient funds to pay
such interest when due.
-3-
<PAGE>
Failure to make significant improvements in the condition of the Bank
and future regulatory determinations could result in additional formal or
informal enforcement actions against the Bank which would include restrictions
on the operations, growth and capital distributions, monitoring and periodic
review by the OCC, civil money penalties, mandatory asset dispositions,
conservatorships and other actions, many of which, by law, must be publicly
disclosed. If Regent or the Bank does not comply with any of the terms of any
order or agreement, the OCC may petition the appropriate court for an order to
enforce the terms thereof. If wilful noncompliance were to continue, the OCC
could seek to take possession of the business and property of the Bank, subject
to providing notice and the holding of a hearing with the concurrence of the
Pennsylvania Attorney General, or could seek to terminate the deposit insurance
of the Bank.
The use of proceeds from the sale of the Shares in this offering will
probably not be sufficient to insure compliance with the Bank's Tier I leverage
ratio requirements without significant additional collections of the outstanding
IPF loan balances and sales of a portion of the Bank's assets. In addition,
there can be no assurance that Regent and the Bank will not be subject to
additional capital requirements in the future, either as a result of
regulations, guidelines and policies of general applicability or individual
regulatory capital requirements that are applied to Regent or the Bank.
Financial Condition and Operations
Regent experienced significant financial and operational problems in
the year ended December 31, 1995 and for the six months ended June 30, 1996.
Regent reported net losses after related tax benefits of approximately
$3,126,000 for the year ended December 31, 1995 including a net loss after
related tax benefits reported by the Bank of approximately $2,937,000 and a net
loss of $2,751,909 for the six months ended June 30, 1996, thereby reducing
capital amounts and ratios. These losses were primarily due to an increase in
the provision for loan losses of $4.5 million at December 31, 1995 and a
charge-off of $5.8 million and an increase in the provision for loan losses by
$3.9 million in the second quarter of 1996 due to high levels of delinquent IPF
loans.
At June 30, 1996 and December 31, 1995, a substantial portion of the
Bank's consumer loans, $15.9 million and $16.8 million (net of $1,261,000 and
$930,000 of unearned interest, respectively), consisted of IPF loans. The Bank
determined its loss exposure on IPF loans at June 30, 1996 based on an aged
delinquency report provided by the Servicer. As of June 30, 1996 IPF loans that
were past due 120 days or more were charged-off and IPF loans that were past due
90 days to 120 days totaled $578,000. Management of both Regent and the Bank
remain committed to devoting substantial time and resources to the
identification, collection and work-out of the delinquent IPF loans.
Regulation
The federal and state laws and regulations that are applicable to bank
holding companies and banks give regulatory authorities extensive discretion in
connection with their supervisory and enforcement activities and generally have
been promulgated to protect depositors and deposit insurance funds and not for
the purpose of protecting shareholders. Any change in such regulations, whether
by an applicable federal or state regulatory authority or federal or state
legislative bodies, could have a significant impact on Regent and the Bank.
-4-
<PAGE>
Economic Conditions
Prevailing economic conditions, as well as government policies and
regulations concerning, among other things, monetary and fiscal affairs,
significantly affect the operations of financial institutions such as the Bank.
In particular, because the Bank's lending and deposit-taking activities are
conducted primarily in the Philadelphia area of Pennsylvania, economic
conditions in this area may affect the Bank's financial condition and results of
operations.
Regent's net interest income, which is the difference between the
interest income received on its interest-earning assets, including loans and
investment securities, and the interest expense incurred in connection with its
interest-bearing liabilities, including deposits and borrowing, can be
significantly affected by changes in market interest rates. Regent actively
monitors its assets and liabilities in an effort to minimize the effects of
changes in interest rates, primarily by altering the mix and maturity of
Regent's loans, investments and funding sources.
Dividends
The OCC has in the past permitted the Bank to pay dividends to Regent,
thereby allowing Regent to meet its debt service requirements under outstanding
subordinated debentures. There can be no assurances that the OCC will continue
to permit the Bank to continue paying dividends for such purposes. Management
believes that, as of June 30, 1996, Regent's liquid assets are sufficient to
permit it to meet its debt service obligations under the subordinated debentures
and other operating costs in 1996. It is possible that Regent will be unable to
meet its obligations under the subordinated debentures after 1996 if the Bank
has not restored its Tier I leverage capital ratio to at least 6.5% by December
31, 1996.
Rights in Liquidation of Senior Preferred Stock
In the event of a liquidation of Regent or similar event, before any
distribution or payment is made upon any Common Stock, the holders of all series
of Regent Preferred Stock will be entitled to receive $10.00 per share plus
accrued and unpaid dividends thereon. In the event that Regent's assets to be
distributed upon any such liquidation are insufficient to permit payment of the
full liquidation value to holders of the Regent Series Preferred Stock, the
assets will be distributed ratably among such holders based on the respective
liquidation preferences thereof.
Competition
Vigorous competition exists in all of the major areas in which Regent
and the Bank currently engage in business. Regent and the Bank face competition
from various financial and non-financial businesses, many of which have
substantially greater resources and capital than do Regent and the Bank.
Particularly intense competition exists for loans and deposits.
Control by Management
As of June 30, 1996, management of Regent owned approximately 42.9% of
Regent's outstanding Common Stock and 16.6% of its Series A Preferred Stock and
have significant control in all matters submitted to the vote of shareholders,
including the election of directors. Therefore, after this offering, management
acting alone, will have the ability generally to influence strongly the policies
of Regent.
-5-
<PAGE>
Description of Shares
Regent is authorized to issue up to 10,000,000 shares of Common Stock,
$.10 par value per share. As of August 1, 1996, there were 1,026,978 shares of
Common Stock outstanding. Each outstanding share of 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 Common Stock do
not have cumulative voting rights with respect to elections of directors of
Regent.
The holders of 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 Common Stock upon liquidation,
dissolution or winding up of the affairs of Regent and (iii) do not have
preemptive or redemption provisions applicable thereto.
1. Subscription. The undersigned hereby irrevocably subscribes for
14,815 Shares at a price of $6.75 per share resulting in a total purchase price
of $100,000.
2. Tender of Purchase Price. In payment of the purchase price for the
Shares subscribed for by the undersigned pursuant to Section 1 hereof, the
undersigned tenders herewith a check in the amount of the Total Purchase Price
set forth in Section 1 hereof payable to "Regent Bancshares Corp."
3. Acceptance of Subscription. The undersigned understands and agrees
that this subscription is made subject to the condition that the Shares to be
issued and delivered on account of this subscription will be issued only in the
name of and delivered only to the undersigned.
4. Representations and Warranties of the Undersigned. The undersigned
understands that the Shares are being offered and sold under an exemption from
registration provided in Section 4(2) of the Securities Act of 1933, as amended
(the "Act"), and offering exemptions contained in the securities laws of other
jurisdictions; that the undersigned is purchasing the Shares without being
furnished any offering literature, prospectus or business plan; that this
transaction has not been examined by the United States Securities and Exchange
Commission or by any administrative agency charged with the administration of
the securities laws of any other jurisdiction; that all documents, records and
books pertaining to this investment requested by the undersigned have been made
available by Regent to the undersigned and the undersigned's representatives,
including his or her attorney, accountant and/or purchaser representative; and
that the books and records of Regent and the Bank have been and will be
available upon reasonable notice for inspection by investors during reasonable
business hours at Regent's offices. The undersigned hereby further represents
and warrants as follows:
(a) The undersigned understands that an investment in the Shares
is speculative in nature and involves a high degree of risk and is suitable only
for persons of substantial means who have no need for liquidity in their
investment, and the undersigned confirms that the undersigned has carefully
considered risks in evaluating whether to make an investment in the Shares.
(b) The undersigned confirms that the undersigned understands and
has fully considered for purposes of this investment that there are substantial
restrictions on the transferability of the Shares and that there will be no
public market for the Shares, and, accordingly, it probably will not be possible
for the undersigned to liquidate his investment in the Shares in the case of an
emergency or to use the Shares as collateral for a loan.
-6-
<PAGE>
(c) The undersigned confirms that the undersigned (i) is able to
bear the economic risk of this investment in the Shares, (ii) is able to hold
the Shares for an indefinite period of time, (iii) is able to afford a complete
loss of his or her investment, and (iv) has adequate means of providing for his
or her current needs and possible personal contingencies and has no need for
liquidity in his or her investment.
(d) The undersigned has, or the undersigned and the undersigned's
purchaser representative together have, such knowledge and experience in
financial and business matters that the undersigned is, or the undersigned and
such representative together are, capable of evaluating the merits and risks of
an investment in the Shares and of making an informed investment decision.
(e) The undersigned confirms that in making the decision to
purchase the Shares hereby the undersigned and the undersigned's representatives
have been given the opportunity to ask questions of and to receive answers from
Regent concerning Regent, the Bank and the Shares and to obtain any additional
information that Regent possesses or can acquire without unreasonable effort or
expense.
(f) The Shares hereby subscribed for are being acquired by the
undersigned in good faith solely for the undersigned's own personal account for
investment purposes only and are not being purchased with a view to or for
resale, distribution, subdivision or fractionalization thereof; the undersigned
has no contract, understanding, undertaking, agreement or arrangement, formal or
informal, with any person to sell, transfer or pledge the Shares to any person;
the undersigned has no current plans to enter into any such contract,
undertaking, agreement, understanding or arrangement; and the undersigned
understands that the legal consequences of the foregoing representations and
warranties are that the undersigned must bear the economic risk of an investment
in the Shares for an indefinite period of time because the Shares have not been
registered under the Act and therefore cannot be sold unless they are
subsequently registered under the Act (which Regent is not obligated to do and
has no current intention of doing) or an exemption from such registration is
available.
(g) The undersigned consents to the placement of a legend on the
certificates representing the Shares, which legend will be in substantially the
following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
JURISDICTION. THE SALE OR OTHER DISPOSITION OF THESE SECURITIES
IS PROHIBITED UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL
SATISFACTORY TO IT AND ITS COUNSEL THAT SUCH SALE OR OTHER
DISPOSITION MAY BE MADE WITHOUT REGISTRATION UNDER THE SECURITIES
ACT OF 1933 AND OTHER APPLICABLE STATUTES. BY ACQUIRING THE
SECURITIES REPRESENTED BY THIS CERTIFICATE, THE HOLDER HEREOF
REPRESENTS THAT HE WILL NOT SELL OR OTHERWISE DISPOSE OF THESE
SECURITIES WITHOUT REGISTRATION OR OTHER COMPLIANCE WITH THE
AFORESAID ACTS AND THE RULES AND REGULATIONS THEREUNDER.
(h) The information set forth in this Agreement regarding the
undersigned is true, correct and complete.
The foregoing representations, warranties and undertakings are made by
the undersigned with the intent that they be relied upon in determining the
undersigned's suitability as an investor in Regent, and the undersigned hereby
agrees that such representations and warranties shall survive his or her
purchase of the Shares.
-7-
<PAGE>
If more than one person is signing this Agreement, each representation,
warranty and undertaking made herein shall be a joint and several
representation, warranty or undertaking of each such person. If the undersigned
is a partnership, corporation, trust or other entity, the undersigned has
enclosed with this Agreement appropriate evidence of the authority of the
individual executing this Agreement to act on behalf of the undersigned.
5. Transferability. The undersigned agrees not to transfer or assign
this Agreement or any interest herein and further agrees that the assignment and
transfer of the Shares shall be effected only in accordance with this Agreement
and with all applicable laws.
6. Revocation. The undersigned agrees that he or she may not cancel,
terminate or revoke this Agreement or any agreement of the undersigned made
hereunder and that this Agreement shall be legally binding upon the
undersigned's heirs, executors, administrators, successors and assigns.
7. No Waiver of Rights. Notwithstanding any of the representations,
warranties, acknowledgments or agreements made herein by the undersigned, the
undersigned does not thereby or in any other manner waive any rights granted to
the undersigned under the applicable federal or state securities laws.
8. Indemnification. The undersigned acknowledges that he understands
the meaning of the representations made by him in this Agreement and hereby
agrees to indemnify Regent and the Bank and all persons deemed to be in control
of Regent and the Bank from and against any and all losses, costs, expenses,
damages and liabilities (including, without limitation, court costs and
attorneys' fees) arising out of or due to a breach by the undersigned of any
such representation. All such representations shall survive the delivery of this
Agreement and the purchase by the undersigned of the Shares.
9. Miscellaneous.
(a) All notices or other communications given hereunder shall be
in writing and shall be delivered personally or by overnight courier or mailed
by certified mail, return receipt requested, postage prepaid, to the parties
hereto at their respective addresses set forth herein.
(b) This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
(c) This Agreement constitutes the entire agreement among the
parties hereto with respect to the subject matter hereof and may be amended only
by a writing executed by the parties.
10. Other Information. Attached hereto are the following documents:
(a) Regent's Form 10-Q Report for the quarter ended June 30, 1996
as filed with the Securities and Exchange Commission on September 12, 1996.
(b) Regent's press release dated September 12, 1996.
(c) Regent's press release dated October 3, 1996.
-8-
<PAGE>
IN WITNESS WHEREOF, the undersigned, intending to be legally bound
hereby, has executed this Agreement as of the date set forth below.
Date: October 7, 1996 Richard A. Leech, Chairman
------------------------------------------
Subscriber's Name (please print)
Abraham L. Bettinger, President
------------------------------------------
Subscriber's Name (if more than one)
13-3076809 Richard A. Leech
- --------------------------------- ------------------------------------------
Social Security or Taxpayer Subscriber's Signature
Identification Number
/s/ Abraham L. Bettinger
- --------------------------------- ------------------------------------------
Social Security or Taxpayer Subscriber's Signature (if more than one)
Identification Number
Residence Address: Mailing Address, if different
from Residence Address:
845 3rd Avenue
- --------------------------------- ------------------------------------------
New York, NY 10022
- --------------------------------- ------------------------------------------
The foregoing subscription is accepted
with respect to all Shares subscribed
for.
REGENT BANCSHARES CORP.
Date: October 7, 1996 By:/s/ David W. Ring
---------------------------------------
David W. Ring, Chairman
Checks should be made payable to "Regent Bancshares Corp."
-9-
SUBSCRIPTION AGREEMENT
Regent Bancshares Corp.
1530 Walnut Street
Philadelphia, PA 19103
Re: Private Placement of Shares of Common
Stock (the "Shares") of Regent Bancshares Corp. ("Regent")
Gentlemen:
The undersigned member of the Board of Directors of Regent understands
that Regent National Bank (the "Bank") will enter into a supervisory agreement
(the "Agreement") with the Office of the Comptroller of the Currency (the "OCC")
because of the OCC's supervisory concerns about the condition of the Bank as
described in the OCC's supervisory letters of August 9 and August 30, 1996 to
the Bank, and the letter dated September 6, 1996 from the Federal Reserve Bank
of Philadelphia (the "FRBP") to Regent, copies of which are attached hereto. As
part of the Agreement, Regent will agree to implement a capital plan. Part of
that capital plan will involve the commitment of Regent to raise not less than
$1,000,000 in new capital from members of its Board of Directors by the sale of
the Shares at a price of $6.75 per Share, the closing sale price (the "Purchase
Price") of Regent's Common Stock on October 7, 1996. Subsequent to the offering
of the Shares, Regent may, subject to compliance with applicable state and
federal securities and banking laws, offer each stockholder of Regent of record
at the close of business on August 30, 1996 the right to purchase Shares on such
terms and conditions as Regent's Board of Directors may subsequently determine
in its discretion.
Risk Factors
The Bank experienced significant losses in the year ended December 31,
1995 and the first six months of 1996 due primarily to an increase in the
provision for loan losses that was attributable to delinquent loans and is
currently under stringent supervision by the OCC. For these and other reasons, a
purchase of the Shares involves significant risks. In determining whether or not
to purchase the Shares offered hereby, prospective investors should carefully
consider the following risk factors in addition to the other information set
forth herein.
Regulatory Action
The Bank will become subject to the Agreement with the OCC as a result
of the recent losses experienced by Regent and the Bank attributable to an
increase in the provision for loan losses of $4.5 million for the year ended
December 31, 1995 and $3.9 million for the six months ended June 30, 1996 that
resulted from delinquent automobile insurance premium finance ("IPF") loans to
individuals. It is also possible that Regent will become subject to a
supervisory agreement with the FRBP. The Bank's IPF loans, which have repayment
terms of nine months and are secured by the unearned premium balance on the
individual automobile insurance policies, were administered until September 1,
1996 by an external servicing company (the "Servicer") pursuant to a Processing,
Servicing, Marketing and Consulting Agreement which provided that the Servicer,
among other things, was to process and service the IPF loans, including the
collection of repayments from borrowers and of unearned premium balances from
insurers on cancelled insurance policies, in exchange for a servicing fee.
<PAGE>
During the preparation of Regent's consolidated financial statements
for the year ended December 31, 1995, management of the Bank became aware of
several matters which indicated that the Servicer may have reported interest and
fee income from IPF loans in default and may not have cancelled insurance
policies securing defaulted loans nor collected insurance premium balances on
such policies on a timely basis. After applying all cash receipts from
delinquent IPF borrowers to the principal balances of such delinquent loans, and
the proceeds of the unearned premiums received from insurance companies
applicable to principal and interest to the principal balances of delinquent IPF
loans, the Bank still had to recognize a significant loan loss reserve in its
December 31, 1995 and June 30, 1996 financial statements. It is also possible
that the Bank will have to recognize additional losses on the IPF loans.
Both Regent and the Bank are subject to minimum capital requirements
promulgated by the Board of Governors of the Federal Reserve System (the "FRB")
and the OCC, their respective primary regulators. As an institution whose
deposits are insured by the Federal Deposit Insurance Corporation ("FDIC") the
Bank is subject to the Federal Deposit Insurance Act ("FDIA"), as amended by the
Federal Deposit Insurance Corporation Improvement Act ("FDICIA"), effective
December 1991. FDICIA and the regulations of the FDIC implementing the prompt
corrective action provision of FDICIA, effective December 1992, require that the
federal banking agencies establish five capital levels for insured depository
institutions -- "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" and "critically
undercapitalized" -- and requires or permits such agencies to take certain
supervisory actions as an insured institution's capital level falls.
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 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.
At December 31, 1995, the Bank's Tier I and Tier II ratios were 8.67%
and 9.92%, respectively. The increased loan loss reserve attributable to the IPF
loan portfolio caused the Bank's Tier I leverage ratio at December 31, 1995 and
June 30, 1996 to be 4.94% and 3.94%, respectively. The legal minimum leverage
capital ratio for the Bank is 3% of Tier I capital to total assets plus an
additional cushion of at least 100 to 200 basis points. However, pursuant to a
Commitment Letter, dated June 2, 1995, agreed to by Regent's Board of Directors,
the Bank is required to maintain at all times a minimum Tier 1 leverage ratio
equal to or greater than 6.5%. The Bank's failure to meet the minimum Tier I
leverage ratio requirements prompted informal action and examination by the
OCC. As a result of the examination and based upon the problems associated with
the IPF loan portfolio, the sizeable credit loss exposure, and the resultant
negative financial repercussions caused by what the OCC characterized as
inadequate and ineffective risk management practices associated with the IPF
loans, the OCC downgraded the Bank's composite rating from "well capitalized" to
"undercapitalized" on August 9, 1996. The OCC also cited the Bank with
Violations of Law due to the inaccuracy of the Bank's December 31, 1995 and
March 31, 1996 Reports of Condition and Income, although it was only after such
reports were filed that management of the Bank discovered the extent of the
potential losses from the IPF portfolio.
In an effort to prevent further regulatory action, management and the
Board submitted a plan of action to the OCC, which provides for sale or, in the
absence of a sale, termination of funding for the IPF
-2-
<PAGE>
loan portfolio, which the Bank implemented effective September 3, 1996, and the
continued collection of delinquent loans, and a revised capital plan which
management believes will be acceptable. The capital plan includes an undertaking
to reduce total assets of the Bank by up to 20% and, thereby increase its
capital ratios, sell $10 to $12 million in securities, commence the sale of
readily saleable assets, possible recovery of a portion of the estimated losses
from the IPF loans with the aid of an expanded collection staff and a new
collection manager to provide the Bank with accurate, reliable and auditable
data with respect to the IPF loans, the sale of a portion of the IPF loan
portfolio and an equity investment of up to $1,000,000 by the Organizers of the
Bank, if necessary to meet the 6.5% Tier I leverage capital ratio by December
31, 1996.
The Bank's continued inability to demonstrate the adequacy of its loan
loss reserve for IPF loans, including continuing financial and administrative
weaknesses, negative earnings performance, eroding capital base, volatile
liquidity profile and continued serious and undue risks posed by the IPF
business, and the deficiencies in the Bank's past-due reporting for IPF loans
prompted the OCC, upon subsequent examination, to take further action resulting
in the Agreement and to further downgrade the Bank's composite rating from a "3"
to a "4" on August 29, 1996.
On October 10, 1996, the Bank, acting by and through its Board of
Directors, entered into a written agreement pursuant to 12 U.S.C. ss. 1818(b)(1)
(the "Regulatory Agreement") with the OCC. The Bank believes that it is
currently in compliance with all of the provisions of the Regulatory Agreement
in all material respects and anticipates that, absent unforeseen circumstances,
it will be able to remain in compliance with the Regulatory Agreement in all
material respects. Under the Regulatory Agreement, the Bank is required, subject
to OCC review or approval, to (i) adopt and implement by November 9, 1996 an
action plan to improve the Bank, (ii) achieve capital levels specified in the
Regulatory Agreement at October 31, 1996 and December 31, 1996, (iii) by
November 9, 1996 develop a three-year capital program aimed at identifying means
for the Bank to maintain adequate capital levels and establishing restrictions
on the payment of dividends, (iv) continue the liquidation of the Bank's IPF
Loans in accordance with specified procedures, (v) review the adequacy of the
Bank's allowance for loan and lease losses and establish a program for the
maintenance of adequate allowances by the Bank for loan and lease losses in
compliance with OCC requirements, (vi) review the Bank's liquidity on a weekly
basis and take appropriate action to ensure adequate sources of liquidity in
relation to the Bank's needs, and (vii) appoint a committee of directors
responsible for monitoring the Bank's compliance with the terms of the
Regulatory Agreement and reporting thereon to the OCC.
Based upon the Bank's unsatisfactory condition and the questionable
ability of Regent to continue to service its outstanding debt beyond September
30, 1996, the FRBP formally notified Regent, in a letter dated September 6,
1996, of its determination that Regent is in "troubled condition." As a
consequence of such condition, Regent must provide the FRBP with 30 days' notice
prior to adding any members to its board of directors or engaging any new senior
executive officers. In addition to the notice requirement, the FRBP has
prohibited Regent, without prior written FRBP approval, from declaring or paying
any dividends, repurchasing or redeeming any of its stock and incurring any
additional debt, and has required Regent to submit to the FRBP by October 6,
1996 a written plan to service Regent's outstanding debt and to immediately
notify the FRBP of any material event that significantly impacts the financial
condition of Regent and the Bank. The FRBP has requested that the Bank's
organizers submit written undertakings to contribute sufficient capital to
Regent to enable Regent to pay the interest on Regent's outstanding subordinated
debentures in the event Regent does not otherwise have sufficient funds to pay
such interest when due.
-3-
<PAGE>
Failure to make significant improvements in the condition of the Bank
and future regulatory determinations could result in additional formal or
informal enforcement actions against the Bank which would include restrictions
on the operations, growth and capital distributions, monitoring and periodic
review by the OCC, civil money penalties, mandatory asset dispositions,
conservatorships and other actions, many of which, by law, must be publicly
disclosed. If Regent or the Bank does not comply with any of the terms of any
order or agreement, the OCC may petition the appropriate court for an order to
enforce the terms thereof. If wilful noncompliance were to continue, the OCC
could seek to take possession of the business and property of the Bank, subject
to providing notice and the holding of a hearing with the concurrence of the
Pennsylvania Attorney General, or could seek to terminate the deposit insurance
of the Bank.
The use of proceeds from the sale of the Shares in this offering will
probably not be sufficient to insure compliance with the Bank's Tier I leverage
ratio requirements without significant additional collections of the outstanding
IPF loan balances and sales of a portion of the Bank's assets. In addition,
there can be no assurance that Regent and the Bank will not be subject to
additional capital requirements in the future, either as a result of
regulations, guidelines and policies of general applicability or individual
regulatory capital requirements that are applied to Regent or the Bank.
Financial Condition and Operations
Regent experienced significant financial and operational problems in
the year ended December 31, 1995 and for the six months ended June 30, 1996.
Regent reported net losses after related tax benefits of approximately
$3,126,000 for the year ended December 31, 1995 including a net loss after
related tax benefits reported by the Bank of approximately $2,937,000 and a net
loss of $2,751,909 for the six months ended June 30, 1996, thereby reducing
capital amounts and ratios. These losses were primarily due to an increase in
the provision for loan losses of $4.5 million at December 31, 1995 and a
charge-off of $5.8 million and an increase in the provision for loan losses by
$3.9 million in the second quarter of 1996 due to high levels of delinquent IPF
loans.
At June 30, 1996 and December 31, 1995, a substantial portion of the
Bank's consumer loans, $15.9 million and $16.8 million (net of $1,261,000 and
$930,000 of unearned interest, respectively), consisted of IPF loans. The Bank
determined its loss exposure on IPF loans at June 30, 1996 based on an aged
delinquency report provided by the Servicer. As of June 30, 1996 IPF loans that
were past due 120 days or more were charged-off and IPF loans that were past due
90 days to 120 days totaled $578,000. Management of both Regent and the Bank
remain committed to devoting substantial time and resources to the
identification, collection and work-out of the delinquent IPF loans.
Regulation
The federal and state laws and regulations that are applicable to bank
holding companies and banks give regulatory authorities extensive discretion in
connection with their supervisory and enforcement activities and generally have
been promulgated to protect depositors and deposit insurance funds and not for
the purpose of protecting shareholders. Any change in such regulations, whether
by an applicable federal or state regulatory authority or federal or state
legislative bodies, could have a significant impact on Regent and the Bank.
-4-
<PAGE>
Economic Conditions
Prevailing economic conditions, as well as government policies and
regulations concerning, among other things, monetary and fiscal affairs,
significantly affect the operations of financial institutions such as the Bank.
In particular, because the Bank's lending and deposit-taking activities are
conducted primarily in the Philadelphia area of Pennsylvania, economic
conditions in this area may affect the Bank's financial condition and results of
operations.
Regent's net interest income, which is the difference between the
interest income received on its interest-earning assets, including loans and
investment securities, and the interest expense incurred in connection with its
interest-bearing liabilities, including deposits and borrowing, can be
significantly affected by changes in market interest rates. Regent actively
monitors its assets and liabilities in an effort to minimize the effects of
changes in interest rates, primarily by altering the mix and maturity of
Regent's loans, investments and funding sources.
Dividends
The OCC has in the past permitted the Bank to pay dividends to Regent,
thereby allowing Regent to meet its debt service requirements under outstanding
subordinated debentures. There can be no assurances that the OCC will continue
to permit the Bank to continue paying dividends for such purposes. Management
believes that, as of June 30, 1996, Regent's liquid assets are sufficient to
permit it to meet its debt service obligations under the subordinated debentures
and other operating costs in 1996. It is possible that Regent will be unable to
meet its obligations under the subordinated debentures after 1996 if the Bank
has not restored its Tier I leverage capital ratio to at least 6.5% by December
31, 1996.
Rights in Liquidation of Senior Preferred Stock
In the event of a liquidation of Regent or similar event, before any
distribution or payment is made upon any Common Stock, the holders of all series
of Regent Preferred Stock will be entitled to receive $10.00 per share plus
accrued and unpaid dividends thereon. In the event that Regent's assets to be
distributed upon any such liquidation are insufficient to permit payment of the
full liquidation value to holders of the Regent Series Preferred Stock, the
assets will be distributed ratably among such holders based on the respective
liquidation preferences thereof.
Competition
Vigorous competition exists in all of the major areas in which Regent
and the Bank currently engage in business. Regent and the Bank face competition
from various financial and non-financial businesses, many of which have
substantially greater resources and capital than do Regent and the Bank.
Particularly intense competition exists for loans and deposits.
Control by Management
As of June 30, 1996, management of Regent owned approximately 42.9% of
Regent's outstanding Common Stock and 16.6% of its Series A Preferred Stock and
have significant control in all matters submitted to the vote of shareholders,
including the election of directors. Therefore, after this offering, management
acting alone, will have the ability generally to influence strongly the policies
of Regent.
-5-
<PAGE>
Description of Shares
Regent is authorized to issue up to 10,000,000 shares of Common Stock,
$.10 par value per share. As of August 1, 1996, there were 1,026,978 shares of
Common Stock outstanding. Each outstanding share of 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 Common Stock do
not have cumulative voting rights with respect to elections of directors of
Regent.
The holders of 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 Common Stock upon liquidation,
dissolution or winding up of the affairs of Regent and (iii) do not have
preemptive or redemption provisions applicable thereto.
10. Subscription. The undersigned hereby irrevocably subscribes for
37,037 Shares at a price of $6.75 per share resulting in a total purchase price
of $250,000.
11. Tender of Purchase Price. In payment of the purchase price for the
Shares subscribed for by the undersigned pursuant to Section 1 hereof, the
undersigned tenders herewith a check in the amount of the Total Purchase Price
set forth in Section 1 hereof payable to "Regent Bancshares Corp."
12. Acceptance of Subscription. The undersigned understands and agrees
that this subscription is made subject to the condition that the Shares to be
issued and delivered on account of this subscription will be issued only in the
name of and delivered only to the undersigned.
13. Representations and Warranties of the Undersigned. The undersigned
understands that the Shares are being offered and sold under an exemption from
registration provided in Section 4(2) of the Securities Act of 1933, as amended
(the "Act"), and offering exemptions contained in the securities laws of other
jurisdictions; that the undersigned is purchasing the Shares without being
furnished any offering literature, prospectus or business plan; that this
transaction has not been examined by the United States Securities and Exchange
Commission or by any administrative agency charged with the administration of
the securities laws of any other jurisdiction; that all documents, records and
books pertaining to this investment requested by the undersigned have been made
available by Regent to the undersigned and the undersigned's representatives,
including his or her attorney, accountant and/or purchaser representative; and
that the books and records of Regent and the Bank have been and will be
available upon reasonable notice for inspection by investors during reasonable
business hours at Regent's offices. The undersigned hereby further represents
and warrants as follows:
(a) The undersigned understands that an investment in the Shares
is speculative in nature and involves a high degree of risk and is suitable only
for persons of substantial means who have no need for liquidity in their
investment, and the undersigned confirms that the undersigned has carefully
considered risks in evaluating whether to make an investment in the Shares.
(b) The undersigned confirms that the undersigned understands and
has fully considered for purposes of this investment that there are substantial
restrictions on the transferability of the Shares and that there will be no
public market for the Shares, and, accordingly, it probably will not be possible
for the undersigned to liquidate his investment in the Shares in the case of an
emergency or to use the Shares as collateral for a loan.
-6-
<PAGE>
(c) The undersigned confirms that the undersigned (i) is able to
bear the economic risk of this investment in the Shares, (ii) is able to hold
the Shares for an indefinite period of time, (iii) is able to afford a complete
loss of his or her investment, and (iv) has adequate means of providing for his
or her current needs and possible personal contingencies and has no need for
liquidity in his or her investment.
(d) The undersigned has, or the undersigned and the undersigned's
purchaser representative together have, such knowledge and experience in
financial and business matters that the undersigned is, or the undersigned and
such representative together are, capable of evaluating the merits and risks of
an investment in the Shares and of making an informed investment decision.
(e) The undersigned confirms that in making the decision to
purchase the Shares hereby the undersigned and the undersigned's representatives
have been given the opportunity to ask questions of and to receive answers from
Regent concerning Regent, the Bank and the Shares and to obtain any additional
information that Regent possesses or can acquire without unreasonable effort or
expense.
(f) The Shares hereby subscribed for are being acquired by the
undersigned in good faith solely for the undersigned's own personal account for
investment purposes only and are not being purchased with a view to or for
resale, distribution, subdivision or fractionalization thereof; the undersigned
has no contract, understanding, undertaking, agreement or arrangement, formal or
informal, with any person to sell, transfer or pledge the Shares to any person;
the undersigned has no current plans to enter into any such contract,
undertaking, agreement, understanding or arrangement; and the undersigned
understands that the legal consequences of the foregoing representations and
warranties are that the undersigned must bear the economic risk of an investment
in the Shares for an indefinite period of time because the Shares have not been
registered under the Act and therefore cannot be sold unless they are
subsequently registered under the Act (which Regent is not obligated to do and
has no current intention of doing) or an exemption from such registration is
available.
(g) The undersigned consents to the placement of a legend on the
certificates representing the Shares, which legend will be in substantially the
following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
JURISDICTION. THE SALE OR OTHER DISPOSITION OF THESE SECURITIES
IS PROHIBITED UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL
SATISFACTORY TO IT AND ITS COUNSEL THAT SUCH SALE OR OTHER
DISPOSITION MAY BE MADE WITHOUT REGISTRATION UNDER THE SECURITIES
ACT OF 1933 AND OTHER APPLICABLE STATUTES. BY ACQUIRING THE
SECURITIES REPRESENTED BY THIS CERTIFICATE, THE HOLDER HEREOF
REPRESENTS THAT HE WILL NOT SELL OR OTHERWISE DISPOSE OF THESE
SECURITIES WITHOUT REGISTRATION OR OTHER COMPLIANCE WITH THE
AFORESAID ACTS AND THE RULES AND REGULATIONS THEREUNDER.
(h) The information set forth in this Agreement regarding the
undersigned is true, correct and complete.
The foregoing representations, warranties and undertakings are made by
the undersigned with the intent that they be relied upon in determining the
undersigned's suitability as an investor in Regent, and the undersigned hereby
agrees that such representations and warranties shall survive his or her
purchase of the Shares.
-7-
<PAGE>
If more than one person is signing this Agreement, each representation,
warranty and undertaking made herein shall be a joint and several
representation, warranty or undertaking of each such person. If the undersigned
is a partnership, corporation, trust or other entity, the undersigned has
enclosed with this Agreement appropriate evidence of the authority of the
individual executing this Agreement to act on behalf of the undersigned.
14. Transferability. The undersigned agrees not to transfer or assign
this Agreement or any interest herein and further agrees that the assignment and
transfer of the Shares shall be effected only in accordance with this Agreement
and with all applicable laws.
15. Revocation. The undersigned agrees that he or she may not cancel,
terminate or revoke this Agreement or any agreement of the undersigned made
hereunder and that this Agreement shall be legally binding upon the
undersigned's heirs, executors, administrators, successors and assigns.
16. No Waiver of Rights. Notwithstanding any of the representations,
warranties, acknowledgments or agreements made herein by the undersigned, the
undersigned does not thereby or in any other manner waive any rights granted to
the undersigned under the applicable federal or state securities laws.
17. Indemnification. The undersigned acknowledges that he understands
the meaning of the representations made by him in this Agreement and hereby
agrees to indemnify Regent and the Bank and all persons deemed to be in control
of Regent and the Bank from and against any and all losses, costs, expenses,
damages and liabilities (including, without limitation, court costs and
attorneys' fees) arising out of or due to a breach by the undersigned of any
such representation. All such representations shall survive the delivery of this
Agreement and the purchase by the undersigned of the Shares.
18. Miscellaneous.
(a) All notices or other communications given hereunder shall be
in writing and shall be delivered personally or by overnight courier or mailed
by certified mail, return receipt requested, postage prepaid, to the parties
hereto at their respective addresses set forth herein.
(b) This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
(c) This Agreement constitutes the entire agreement among the
parties hereto with respect to the subject matter hereof and may be amended only
by a writing executed by the parties.
10. Other Information. Attached hereto are the following documents:
(a) Regent's Form 10-Q Report for the quarter ended June 30, 1996
as filed with the Securities and Exchange Commission on September 12, 1996.
(b) Regent's press release dated September 12, 1996.
(c) Regent's press release dated October 3, 1996.
-8-
<PAGE>
IN WITNESS WHEREOF, the undersigned, intending to be legally bound
hereby, has executed this Agreement as of the date set forth below.
Date: October 7, 1996 O. Francis Biondi
---------------------------------------
Subscriber's Name (please print)
---------------------------------------
Subscriber's Name (if more than one)
###-##-#### /s/ O. Francis Biondi
- -------------------------------- ---------------------------------------
Social Security or Taxpayer Subscriber's Signature
Identification Number
- -------------------------------- ---------------------------------------
Social Security or Taxpayer Subscriber's Signature (if more than one)
Identification Number
Residence Address: Mailing Address, if different
from Residence Address:
406 Irving Drive
- -------------------------------- ---------------------------------------
Wilmington, DE 19802
- -------------------------------- ---------------------------------------
The foregoing subscription is accepted with respect to all Shares subscribed
for.
REGENT BANCSHARES CORP.
Date: October 7, 1996 By:/s/ David W. Ring
------------------------------------
David W. Ring, Chairman
Checks should be made payable to "Regent Bancshares Corp."
-9-
SUBSCRIPTION AGREEMENT
Regent Bancshares Corp.
1530 Walnut Street
Philadelphia, PA 19103
Re: Private Placement of Shares of Common
Stock (the "Shares") of Regent Bancshares Corp. ("Regent")
Gentlemen:
The undersigned member of the Board of Directors of Regent understands
that Regent National Bank (the "Bank") will enter into a supervisory agreement
(the "Agreement") with the Office of the Comptroller of the Currency (the "OCC")
because of the OCC's supervisory concerns about the condition of the Bank as
described in the OCC's supervisory letters of August 9 and August 30, 1996 to
the Bank, and the letter dated September 6, 1996 from the Federal Reserve Bank
of Philadelphia (the "FRBP") to Regent, copies of which are attached hereto. As
part of the Agreement, Regent will agree to implement a capital plan. Part of
that capital plan will involve the commitment of Regent to raise not less than
$1,000,000 in new capital from members of its Board of Directors by the sale of
the Shares at a price of $6.75 per Share, the closing sale price (the "Purchase
Price") of Regent's Common Stock on October 7, 1996. Subsequent to the offering
of the Shares, Regent may, subject to compliance with applicable state and
federal securities and banking laws, offer each stockholder of Regent of record
at the close of business on August 30, 1996 the right to purchase Shares on such
terms and conditions as Regent's Board of Directors may subsequently determine
in its discretion.
Risk Factors
The Bank experienced significant losses in the year ended December 31,
1995 and the first six months of 1996 due primarily to an increase in the
provision for loan losses that was attributable to delinquent loans and is
currently under stringent supervision by the OCC. For these and other reasons, a
purchase of the Shares involves significant risks. In determining whether or not
to purchase the Shares offered hereby, prospective investors should carefully
consider the following risk factors in addition to the other information set
forth herein.
Regulatory Action
The Bank will become subject to the Agreement with the OCC as a result
of the recent losses experienced by Regent and the Bank attributable to an
increase in the provision for loan losses of $4.5 million for the year ended
December 31, 1995 and $3.9 million for the six months ended June 30, 1996 that
resulted from delinquent automobile insurance premium finance ("IPF") loans to
individuals. It is also possible that Regent will become subject to a
supervisory agreement with the FRBP. The Bank's IPF loans, which have repayment
terms of nine months and are secured by the unearned premium balance on the
individual automobile insurance policies, were administered until September 1,
1996 by an external servicing company (the "Servicer") pursuant to a Processing,
Servicing, Marketing and Consulting Agreement which provided that the Servicer,
among other things, was to process and service the IPF loans, including the
collection of repayments from borrowers and of unearned premium balances from
insurers on cancelled insurance policies, in exchange for a servicing fee.
<PAGE>
During the preparation of Regent's consolidated financial statements
for the year ended December 31, 1995, management of the Bank became aware of
several matters which indicated that the Servicer may have reported interest and
fee income from IPF loans in default and may not have cancelled insurance
policies securing defaulted loans nor collected insurance premium balances on
such policies on a timely basis. After applying all cash receipts from
delinquent IPF borrowers to the principal balances of such delinquent loans, and
the proceeds of the unearned premiums received from insurance companies
applicable to principal and interest to the principal balances of delinquent IPF
loans, the Bank still had to recognize a significant loan loss reserve in its
December 31, 1995 and June 30, 1996 financial statements. It is also possible
that the Bank will have to recognize additional losses on the IPF loans.
Both Regent and the Bank are subject to minimum capital requirements
promulgated by the Board of Governors of the Federal Reserve System (the "FRB")
and the OCC, their respective primary regulators. As an institution whose
deposits are insured by the Federal Deposit Insurance Corporation ("FDIC") the
Bank is subject to the Federal Deposit Insurance Act ("FDIA"), as amended by the
Federal Deposit Insurance Corporation Improvement Act ("FDICIA"), effective
December 1991. FDICIA and the regulations of the FDIC implementing the prompt
corrective action provision of FDICIA, effective December 1992, require that the
federal banking agencies establish five capital levels for insured depository
institutions -- "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" and "critically
undercapitalized" -- and requires or permits such agencies to take certain
supervisory actions as an insured institution's capital level falls.
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 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.
At December 31, 1995, the Bank's Tier I and Tier II ratios were 8.67%
and 9.92%, respectively. The increased loan loss reserve attributable to the IPF
loan portfolio caused the Bank's Tier I leverage ratio at December 31, 1995 and
June 30, 1996 to be 4.94% and 3.94%, respectively. The legal minimum leverage
capital ratio for the Bank is 3% of Tier I capital to total assets plus an
additional cushion of at least 100 to 200 basis points. However, pursuant to a
Commitment Letter, dated June 2, 1995, agreed to by Regent's Board of Directors,
the Bank is required to maintain at all times a minimum Tier 1 leverage ratio
equal to or greater than 6.5%. The Bank's failure to meet the minimum Tier I
leverage ratio requirements prompted informal action and examination by the
OCC. As a result of the examination and based upon the problems associated with
the IPF loan portfolio, the sizeable credit loss exposure, and the resultant
negative financial repercussions caused by what the OCC characterized as
inadequate and ineffective risk management practices associated with the IPF
loans, the OCC downgraded the Bank's composite rating from "well capitalized" to
"undercapitalized" on August 9, 1996. The OCC also cited the Bank with
Violations of Law due to the inaccuracy of the Bank's December 31, 1995 and
March 31, 1996 Reports of Condition and Income, although it was only after such
reports were filed that management of the Bank discovered the extent of the
potential losses from the IPF portfolio.
In an effort to prevent further regulatory action, management and the
Board submitted a plan of action to the OCC, which provides for sale or, in the
absence of a sale, termination of funding for the IPF
-2-
<PAGE>
loan portfolio, which the Bank implemented effective September 3, 1996, and the
continued collection of delinquent loans, and a revised capital plan which
management believes will be acceptable. The capital plan includes an undertaking
to reduce total assets of the Bank by up to 20% and, thereby increase its
capital ratios, sell $10 to $12 million in securities, commence the sale of
readily saleable assets, possible recovery of a portion of the estimated losses
from the IPF loans with the aid of an expanded collection staff and a new
collection manager to provide the Bank with accurate, reliable and auditable
data with respect to the IPF loans, the sale of a portion of the IPF loan
portfolio and an equity investment of up to $1,000,000 by the Organizers of the
Bank, if necessary to meet the 6.5% Tier I leverage capital ratio by December
31, 1996.
The Bank's continued inability to demonstrate the adequacy of its loan
loss reserve for IPF loans, including continuing financial and administrative
weaknesses, negative earnings performance, eroding capital base, volatile
liquidity profile and continued serious and undue risks posed by the IPF
business, and the deficiencies in the Bank's past-due reporting for IPF loans
prompted the OCC, upon subsequent examination, to take further action resulting
in the Agreement and to further downgrade the Bank's composite rating from a "3"
to a "4" on August 29, 1996.
On October 10, 1996, the Bank, acting by and through its Board of
Directors, entered into a written agreement pursuant to 12 U.S.C. ss. 1818(b)(1)
(the "Regulatory Agreement") with the OCC. The Bank believes that it is
currently in compliance with all of the provisions of the Regulatory Agreement
in all material respects and anticipates that, absent unforeseen circumstances,
it will be able to remain in compliance with the Regulatory Agreement in all
material respects. Under the Regulatory Agreement, the Bank is required, subject
to OCC review or approval, to (i) adopt and implement by November 9, 1996 an
action plan to improve the Bank, (ii) achieve capital levels specified in the
Regulatory Agreement at October 31, 1996 and December 31, 1996, (iii) by
November 9, 1996 develop a three-year capital program aimed at identifying means
for the Bank to maintain adequate capital levels and establishing restrictions
on the payment of dividends, (iv) continue the liquidation of the Bank's IPF
Loans in accordance with specified procedures, (v) review the adequacy of the
Bank's allowance for loan and lease losses and establish a program for the
maintenance of adequate allowances by the Bank for loan and lease losses in
compliance with OCC requirements, (vi) review the Bank's liquidity on a weekly
basis and take appropriate action to ensure adequate sources of liquidity in
relation to the Bank's needs, and (vii) appoint a committee of directors
responsible for monitoring the Bank's compliance with the terms of the
Regulatory Agreement and reporting thereon to the OCC.
Based upon the Bank's unsatisfactory condition and the questionable
ability of Regent to continue to service its outstanding debt beyond September
30, 1996, the FRBP formally notified Regent, in a letter dated September 6,
1996, of its determination that Regent is in "troubled condition." As a
consequence of such condition, Regent must provide the FRBP with 30 days' notice
prior to adding any members to its board of directors or engaging any new senior
executive officers. In addition to the notice requirement, the FRBP has
prohibited Regent, without prior written FRBP approval, from declaring or paying
any dividends, repurchasing or redeeming any of its stock and incurring any
additional debt, and has required Regent to submit to the FRBP by October 6,
1996 a written plan to service Regent's outstanding debt and to immediately
notify the FRBP of any material event that significantly impacts the financial
condition of Regent and the Bank. The FRBP has requested that the Bank's
organizers submit written undertakings to contribute sufficient capital to
Regent to enable Regent to pay the interest on Regent's outstanding subordinated
debentures in the event Regent does not otherwise have sufficient funds to pay
such interest when due.
-3-
<PAGE>
Failure to make significant improvements in the condition of the Bank
and future regulatory determinations could result in additional formal or
informal enforcement actions against the Bank which would include restrictions
on the operations, growth and capital distributions, monitoring and periodic
review by the OCC, civil money penalties, mandatory asset dispositions,
conservatorships and other actions, many of which, by law, must be publicly
disclosed. If Regent or the Bank does not comply with any of the terms of any
order or agreement, the OCC may petition the appropriate court for an order to
enforce the terms thereof. If wilful noncompliance were to continue, the OCC
could seek to take possession of the business and property of the Bank, subject
to providing notice and the holding of a hearing with the concurrence of the
Pennsylvania Attorney General, or could seek to terminate the deposit insurance
of the Bank.
The use of proceeds from the sale of the Shares in this offering will
probably not be sufficient to insure compliance with the Bank's Tier I leverage
ratio requirements without significant additional collections of the outstanding
IPF loan balances and sales of a portion of the Bank's assets. In addition,
there can be no assurance that Regent and the Bank will not be subject to
additional capital requirements in the future, either as a result of
regulations, guidelines and policies of general applicability or individual
regulatory capital requirements that are applied to Regent or the Bank.
Financial Condition and Operations
Regent experienced significant financial and operational problems in
the year ended December 31, 1995 and for the six months ended June 30, 1996.
Regent reported net losses after related tax benefits of approximately
$3,126,000 for the year ended December 31, 1995 including a net loss after
related tax benefits reported by the Bank of approximately $2,937,000 and a net
loss of $2,751,909 for the six months ended June 30, 1996, thereby reducing
capital amounts and ratios. These losses were primarily due to an increase in
the provision for loan losses of $4.5 million at December 31, 1995 and a
charge-off of $5.8 million and an increase in the provision for loan losses by
$3.9 million in the second quarter of 1996 due to high levels of delinquent IPF
loans.
At June 30, 1996 and December 31, 1995, a substantial portion of the
Bank's consumer loans, $15.9 million and $16.8 million (net of $1,261,000 and
$930,000 of unearned interest, respectively), consisted of IPF loans. The Bank
determined its loss exposure on IPF loans at June 30, 1996 based on an aged
delinquency report provided by the Servicer. As of June 30, 1996 IPF loans that
were past due 120 days or more were charged-off and IPF loans that were past due
90 days to 120 days totaled $578,000. Management of both Regent and the Bank
remain committed to devoting substantial time and resources to the
identification, collection and work-out of the delinquent IPF loans.
Regulation
The federal and state laws and regulations that are applicable to bank
holding companies and banks give regulatory authorities extensive discretion in
connection with their supervisory and enforcement activities and generally have
been promulgated to protect depositors and deposit insurance funds and not for
the purpose of protecting shareholders. Any change in such regulations, whether
by an applicable federal or state regulatory authority or federal or state
legislative bodies, could have a significant impact on Regent and the Bank.
-4-
<PAGE>
Economic Conditions
Prevailing economic conditions, as well as government policies and
regulations concerning, among other things, monetary and fiscal affairs,
significantly affect the operations of financial institutions such as the Bank.
In particular, because the Bank's lending and deposit-taking activities are
conducted primarily in the Philadelphia area of Pennsylvania, economic
conditions in this area may affect the Bank's financial condition and results of
operations.
Regent's net interest income, which is the difference between the
interest income received on its interest-earning assets, including loans and
investment securities, and the interest expense incurred in connection with its
interest-bearing liabilities, including deposits and borrowing, can be
significantly affected by changes in market interest rates. Regent actively
monitors its assets and liabilities in an effort to minimize the effects of
changes in interest rates, primarily by altering the mix and maturity of
Regent's loans, investments and funding sources.
Dividends
The OCC has in the past permitted the Bank to pay dividends to Regent,
thereby allowing Regent to meet its debt service requirements under outstanding
subordinated debentures. There can be no assurances that the OCC will continue
to permit the Bank to continue paying dividends for such purposes. Management
believes that, as of June 30, 1996, Regent's liquid assets are sufficient to
permit it to meet its debt service obligations under the subordinated debentures
and other operating costs in 1996. It is possible that Regent will be unable to
meet its obligations under the subordinated debentures after 1996 if the Bank
has not restored its Tier I leverage capital ratio to at least 6.5% by December
31, 1996.
Rights in Liquidation of Senior Preferred Stock
In the event of a liquidation of Regent or similar event, before any
distribution or payment is made upon any Common Stock, the holders of all series
of Regent Preferred Stock will be entitled to receive $10.00 per share plus
accrued and unpaid dividends thereon. In the event that Regent's assets to be
distributed upon any such liquidation are insufficient to permit payment of the
full liquidation value to holders of the Regent Series Preferred Stock, the
assets will be distributed ratably among such holders based on the respective
liquidation preferences thereof.
Competition
Vigorous competition exists in all of the major areas in which Regent
and the Bank currently engage in business. Regent and the Bank face competition
from various financial and non-financial businesses, many of which have
substantially greater resources and capital than do Regent and the Bank.
Particularly intense competition exists for loans and deposits.
Control by Management
As of June 30, 1996, management of Regent owned approximately 42.9% of
Regent's outstanding Common Stock and 16.6% of its Series A Preferred Stock and
have significant control in all matters submitted to the vote of shareholders,
including the election of directors. Therefore, after this offering, management
acting alone, will have the ability generally to influence strongly the policies
of Regent.
-5-
<PAGE>
Description of Shares
Regent is authorized to issue up to 10,000,000 shares of Common Stock,
$.10 par value per share. As of August 1, 1996, there were 1,026,978 shares of
Common Stock outstanding. Each outstanding share of 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 Common Stock do
not have cumulative voting rights with respect to elections of directors of
Regent.
The holders of 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 Common Stock upon liquidation,
dissolution or winding up of the affairs of Regent and (iii) do not have
preemptive or redemption provisions applicable thereto.
19. Subscription. The undersigned hereby irrevocably subscribes for
37,037 Shares at a price of $6.75 per share resulting in a total purchase price
of $250,000.
20. Tender of Purchase Price. In payment of the purchase price for the
Shares subscribed for by the undersigned pursuant to Section 1 hereof, the
undersigned tenders herewith a check in the amount of the Total Purchase Price
set forth in Section 1 hereof payable to "Regent Bancshares Corp."
21. Acceptance of Subscription. The undersigned understands and agrees
that this subscription is made subject to the condition that the Shares to be
issued and delivered on account of this subscription will be issued only in the
name of and delivered only to the undersigned.
22. Representations and Warranties of the Undersigned. The undersigned
understands that the Shares are being offered and sold under an exemption from
registration provided in Section 4(2) of the Securities Act of 1933, as amended
(the "Act"), and offering exemptions contained in the securities laws of other
jurisdictions; that the undersigned is purchasing the Shares without being
furnished any offering literature, prospectus or business plan; that this
transaction has not been examined by the United States Securities and Exchange
Commission or by any administrative agency charged with the administration of
the securities laws of any other jurisdiction; that all documents, records and
books pertaining to this investment requested by the undersigned have been made
available by Regent to the undersigned and the undersigned's representatives,
including his or her attorney, accountant and/or purchaser representative; and
that the books and records of Regent and the Bank have been and will be
available upon reasonable notice for inspection by investors during reasonable
business hours at Regent's offices. The undersigned hereby further represents
and warrants as follows:
(a) The undersigned understands that an investment in the Shares
is speculative in nature and involves a high degree of risk and is suitable only
for persons of substantial means who have no need for liquidity in their
investment, and the undersigned confirms that the undersigned has carefully
considered risks in evaluating whether to make an investment in the Shares.
(b) The undersigned confirms that the undersigned understands and
has fully considered for purposes of this investment that there are substantial
restrictions on the transferability of the Shares and that there will be no
public market for the Shares, and, accordingly, it probably will not be possible
for the undersigned to liquidate his investment in the Shares in the case of an
emergency or to use the Shares as collateral for a loan.
-6-
<PAGE>
(c) The undersigned confirms that the undersigned (i) is able to
bear the economic risk of this investment in the Shares, (ii) is able to hold
the Shares for an indefinite period of time, (iii) is able to afford a complete
loss of his or her investment, and (iv) has adequate means of providing for his
or her current needs and possible personal contingencies and has no need for
liquidity in his or her investment.
(d) The undersigned has, or the undersigned and the undersigned's
purchaser representative together have, such knowledge and experience in
financial and business matters that the undersigned is, or the undersigned and
such representative together are, capable of evaluating the merits and risks of
an investment in the Shares and of making an informed investment decision.
(e) The undersigned confirms that in making the decision to
purchase the Shares hereby the undersigned and the undersigned's representatives
have been given the opportunity to ask questions of and to receive answers from
Regent concerning Regent, the Bank and the Shares and to obtain any additional
information that Regent possesses or can acquire without unreasonable effort or
expense.
(f) The Shares hereby subscribed for are being acquired by the
undersigned in good faith solely for the undersigned's own personal account for
investment purposes only and are not being purchased with a view to or for
resale, distribution, subdivision or fractionalization thereof; the undersigned
has no contract, understanding, undertaking, agreement or arrangement, formal or
informal, with any person to sell, transfer or pledge the Shares to any person;
the undersigned has no current plans to enter into any such contract,
undertaking, agreement, understanding or arrangement; and the undersigned
understands that the legal consequences of the foregoing representations and
warranties are that the undersigned must bear the economic risk of an investment
in the Shares for an indefinite period of time because the Shares have not been
registered under the Act and therefore cannot be sold unless they are
subsequently registered under the Act (which Regent is not obligated to do and
has no current intention of doing) or an exemption from such registration is
available.
(g) The undersigned consents to the placement of a legend on the
certificates representing the Shares, which legend will be in substantially the
following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
JURISDICTION. THE SALE OR OTHER DISPOSITION OF THESE SECURITIES
IS PROHIBITED UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL
SATISFACTORY TO IT AND ITS COUNSEL THAT SUCH SALE OR OTHER
DISPOSITION MAY BE MADE WITHOUT REGISTRATION UNDER THE SECURITIES
ACT OF 1933 AND OTHER APPLICABLE STATUTES. BY ACQUIRING THE
SECURITIES REPRESENTED BY THIS CERTIFICATE, THE HOLDER HEREOF
REPRESENTS THAT HE WILL NOT SELL OR OTHERWISE DISPOSE OF THESE
SECURITIES WITHOUT REGISTRATION OR OTHER COMPLIANCE WITH THE
AFORESAID ACTS AND THE RULES AND REGULATIONS THEREUNDER.
(h) The information set forth in this Agreement regarding the
undersigned is true, correct and complete.
The foregoing representations, warranties and undertakings are made by
the undersigned with the intent that they be relied upon in determining the
undersigned's suitability as an investor in Regent, and the undersigned hereby
agrees that such representations and warranties shall survive his or her
purchase of the Shares.
-7-
<PAGE>
If more than one person is signing this Agreement, each representation,
warranty and undertaking made herein shall be a joint and several
representation, warranty or undertaking of each such person. If the undersigned
is a partnership, corporation, trust or other entity, the undersigned has
enclosed with this Agreement appropriate evidence of the authority of the
individual executing this Agreement to act on behalf of the undersigned.
23. Transferability. The undersigned agrees not to transfer or assign
this Agreement or any interest herein and further agrees that the assignment and
transfer of the Shares shall be effected only in accordance with this Agreement
and with all applicable laws.
24. Revocation. The undersigned agrees that he or she may not cancel,
terminate or revoke this Agreement or any agreement of the undersigned made
hereunder and that this Agreement shall be legally binding upon the
undersigned's heirs, executors, administrators, successors and assigns.
25. No Waiver of Rights. Notwithstanding any of the representations,
warranties, acknowledgments or agreements made herein by the undersigned, the
undersigned does not thereby or in any other manner waive any rights granted to
the undersigned under the applicable federal or state securities laws.
26. Indemnification. The undersigned acknowledges that he understands
the meaning of the representations made by him in this Agreement and hereby
agrees to indemnify Regent and the Bank and all persons deemed to be in control
of Regent and the Bank from and against any and all losses, costs, expenses,
damages and liabilities (including, without limitation, court costs and
attorneys' fees) arising out of or due to a breach by the undersigned of any
such representation. All such representations shall survive the delivery of this
Agreement and the purchase by the undersigned of the Shares.
27. Miscellaneous.
(a) All notices or other communications given hereunder shall be
in writing and shall be delivered personally or by overnight courier or mailed
by certified mail, return receipt requested, postage prepaid, to the parties
hereto at their respective addresses set forth herein.
(b) This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
(c) This Agreement constitutes the entire agreement among the
parties hereto with respect to the subject matter hereof and may be amended only
by a writing executed by the parties.
10. Other Information. Attached hereto are the following documents:
(a) Regent's Form 10-Q Report for the quarter ended June 30, 1996
as filed with the Securities and Exchange Commission on September 12, 1996.
(b) Regent's press release dated September 12, 1996.
(c) Regent's press release dated October 3, 1996.
-8-
<PAGE>
IN WITNESS WHEREOF, the undersigned, intending to be legally bound
hereby, has executed this Agreement as of the date set forth below.
Date: October 7, 1996 Harvey Porter
------------------------------------------
Subscriber's Name (please print)
[as tenants by the entirety]
Anna C. Porter
------------------------------------------
Subscriber's Name (if more than one)
###-##-#### /s/ Harvey Porter
- ------------------------------- ------------------------------------------
Social Security or Taxpayer Subscriber's Signature
Identification Number
###-##-#### /s/ Anna C. Porter
- ------------------------------- ------------------------------------------
Social Security or Taxpayer Subscriber's Signature (if more than one)
Identification Number
Residence Address: Mailing Address, if different
from Residence Address:
16323 Port Dickenson Drive
- ------------------------------- ------------------------------------------
Jupiter, Florida 33477
- ------------------------------- ------------------------------------------
The foregoing subscription is accepted with respect to all Shares subscribed
for.
REGENT BANCSHARES CORP.
Date: October 7, 1996 By:/s/ David W. Ring
---------------------------------------
David W. Ring, Chairman
Checks should be made payable to "Regent Bancshares Corp."
-9-
SUBSCRIPTION AGREEMENT
Regent Bancshares Corp.
1530 Walnut Street
Philadelphia, PA 19103
Re: Private Placement of Shares of Common
Stock (the "Shares") of Regent Bancshares Corp. ("Regent")
Gentlemen:
The undersigned member of the Board of Directors of Regent understands
that Regent National Bank (the "Bank") will enter into a supervisory agreement
(the "Agreement") with the Office of the Comptroller of the Currency (the "OCC")
because of the OCC's supervisory concerns about the condition of the Bank as
described in the OCC's supervisory letters of August 9 and August 30, 1996 to
the Bank, and the letter dated September 6, 1996 from the Federal Reserve Bank
of Philadelphia (the "FRBP") to Regent, copies of which are attached hereto. As
part of the Agreement, Regent will agree to implement a capital plan. Part of
that capital plan will involve the commitment of Regent to raise not less than
$1,000,000 in new capital from members of its Board of Directors by the sale of
the Shares at a price of $6.75 per Share, the closing sale price (the "Purchase
Price") of Regent's Common Stock on October 7, 1996. Subsequent to the offering
of the Shares, Regent may, subject to compliance with applicable state and
federal securities and banking laws, offer each stockholder of Regent of record
at the close of business on August 30, 1996 the right to purchase Shares on such
terms and conditions as Regent's Board of Directors may subsequently determine
in its discretion.
Risk Factors
The Bank experienced significant losses in the year ended December 31,
1995 and the first six months of 1996 due primarily to an increase in the
provision for loan losses that was attributable to delinquent loans and is
currently under stringent supervision by the OCC. For these and other reasons, a
purchase of the Shares involves significant risks. In determining whether or not
to purchase the Shares offered hereby, prospective investors should carefully
consider the following risk factors in addition to the other information set
forth herein.
Regulatory Action
The Bank will become subject to the Agreement with the OCC as a result
of the recent losses experienced by Regent and the Bank attributable to an
increase in the provision for loan losses of $4.5 million for the year ended
December 31, 1995 and $3.9 million for the six months ended June 30, 1996 that
resulted from delinquent automobile insurance premium finance ("IPF") loans to
individuals. It is also possible that Regent will become subject to a
supervisory agreement with the FRBP. The Bank's IPF loans, which have repayment
terms of nine months and are secured by the unearned premium balance on the
individual automobile insurance policies, were administered until September 1,
1996 by an external servicing company (the "Servicer") pursuant to a Processing,
Servicing, Marketing and Consulting Agreement which provided that the Servicer,
among other things, was to process and service the IPF loans, including the
collection of repayments from borrowers and of unearned premium balances from
insurers on cancelled insurance policies, in exchange for a servicing fee.
During the preparation of Regent's
<PAGE>
consolidated financial statements for the year ended December 31, 1995,
management of the Bank became aware of several matters which indicated that the
Servicer may have reported interest and fee income from IPF loans in default and
may not have cancelled insurance policies securing defaulted loans nor collected
insurance premium balances on such policies on a timely basis. After applying
all cash receipts from delinquent IPF borrowers to the principal balances of
such delinquent loans, and the proceeds of the unearned premiums received from
insurance companies applicable to principal and interest to the principal
balances of delinquent IPF loans, the Bank still had to recognize a significant
loan loss reserve in its December 31, 1995 and June 30, 1996 financial
statements. It is also possible that the Bank will have to recognize additional
losses on the IPF loans.
Both Regent and the Bank are subject to minimum capital requirements
promulgated by the Board of Governors of the Federal Reserve System (the "FRB")
and the OCC, their respective primary regulators. As an institution whose
deposits are insured by the Federal Deposit Insurance Corporation ("FDIC") the
Bank is subject to the Federal Deposit Insurance Act ("FDIA"), as amended by the
Federal Deposit Insurance Corporation Improvement Act ("FDICIA"), effective
December 1991. FDICIA and the regulations of the FDIC implementing the prompt
corrective action provision of FDICIA, effective December 1992, require that the
federal banking agencies establish five capital levels for insured depository
institutions -- "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" and "critically
undercapitalized" -- and requires or permits such agencies to take certain
supervisory actions as an insured institution's capital level falls.
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 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.
At December 31, 1995, the Bank's Tier I and Tier II ratios were 8.67%
and 9.92%, respectively. The increased loan loss reserve attributable to the IPF
loan portfolio caused the Bank's Tier I leverage ratio at December 31, 1995 and
June 30, 1996 to be 4.94% and 3.94%, respectively. The legal minimum leverage
capital ratio for the Bank is 3% of Tier I capital to total assets plus an
additional cushion of at least 100 to 200 basis points. However, pursuant to a
Commitment Letter, dated June 2, 1995, agreed to by Regent's Board of Directors,
the Bank is required to maintain at all times a minimum Tier 1 leverage ratio
equal to or greater than 6.5%. The Bank's failure to meet the minimum Tier I
leverage ratio requirements prompted informal action and examination by the
OCC. As a result of the examination and based upon the problems associated with
the IPF loan portfolio, the sizeable credit loss exposure, and the resultant
negative financial repercussions caused by what the OCC characterized as
inadequate and ineffective risk management practices associated with the IPF
loans, the OCC downgraded the Bank's composite rating from "well capitalized" to
"undercapitalized" on August 9, 1996. The OCC also cited the Bank with
Violations of Law due to the inaccuracy of the Bank's December 31, 1995 and
March 31, 1996 Reports of Condition and Income, although it was only after such
reports were filed that management of the Bank discovered the extent of the
potential losses from the IPF portfolio.
In an effort to prevent further regulatory action, management and the
Board submitted a plan of action to the OCC, which provides for sale or, in the
absence of a sale, termination of funding for the IPF
-2-
<PAGE>
loan portfolio, which the Bank implemented effective September 3, 1996, and the
continued collection of delinquent loans, and a revised capital plan which
management believes will be acceptable. The capital plan includes an undertaking
to reduce total assets of the Bank by up to 20% and, thereby increase its
capital ratios, sell $10 to $12 million in securities, commence the sale of
readily saleable assets, possible recovery of a portion of the estimated losses
from the IPF loans with the aid of an expanded collection staff and a new
collection manager to provide the Bank with accurate, reliable and auditable
data with respect to the IPF loans, the sale of a portion of the IPF loan
portfolio and an equity investment of up to $1,000,000 by the Organizers of the
Bank, if necessary to meet the 6.5% Tier I leverage capital ratio by December
31, 1996.
The Bank's continued inability to demonstrate the adequacy of its loan
loss reserve for IPF loans, including continuing financial and administrative
weaknesses, negative earnings performance, eroding capital base, volatile
liquidity profile and continued serious and undue risks posed by the IPF
business, and the deficiencies in the Bank's past-due reporting for IPF loans
prompted the OCC, upon subsequent examination, to take further action resulting
in the Agreement and to further downgrade the Bank's composite rating from a "3"
to a "4" on August 29, 1996.
On October 10, 1996, the Bank, acting by and through its Board of
Directors, entered into a written agreement pursuant to 12 U.S.C. ss. 1818(b)(1)
(the "Regulatory Agreement") with the OCC. The Bank believes that it is
currently in compliance with all of the provisions of the Regulatory Agreement
in all material respects and anticipates that, absent unforeseen circumstances,
it will be able to remain in compliance with the Regulatory Agreement in all
material respects. Under the Regulatory Agreement, the Bank is required, subject
to OCC review or approval, to (i) adopt and implement by November 9, 1996 an
action plan to improve the Bank, (ii) achieve capital levels specified in the
Regulatory Agreement at October 31, 1996 and December 31, 1996, (iii) by
November 9, 1996 develop a three-year capital program aimed at identifying means
for the Bank to maintain adequate capital levels and establishing restrictions
on the payment of dividends, (iv) continue the liquidation of the Bank's IPF
Loans in accordance with specified procedures, (v) review the adequacy of the
Bank's allowance for loan and lease losses and establish a program for the
maintenance of adequate allowances by the Bank for loan and lease losses in
compliance with OCC requirements, (vi) review the Bank's liquidity on a weekly
basis and take appropriate action to ensure adequate sources of liquidity in
relation to the Bank's needs, and (vii) appoint a committee of directors
responsible for monitoring the Bank's compliance with the terms of the
Regulatory Agreement and reporting thereon to the OCC.
Based upon the Bank's unsatisfactory condition and the questionable
ability of Regent to continue to service its outstanding debt beyond September
30, 1996, the FRBP formally notified Regent, in a letter dated September 6,
1996, of its determination that Regent is in "troubled condition." As a
consequence of such condition, Regent must provide the FRBP with 30 days' notice
prior to adding any members to its board of directors or engaging any new senior
executive officers. In addition to the notice requirement, the FRBP has
prohibited Regent, without prior written FRBP approval, from declaring or paying
any dividends, repurchasing or redeeming any of its stock and incurring any
additional debt, and has required Regent to submit to the FRBP by October 6,
1996 a written plan to service Regent's outstanding debt and to immediately
notify the FRBP of any material event that significantly impacts the financial
condition of Regent and the Bank. The FRBP has requested that the Bank's
organizers submit written undertakings to contribute sufficient capital to
Regent to enable Regent to pay the interest on Regent's outstanding subordinated
debentures in the event Regent does not otherwise have sufficient funds to pay
such interest when due.
-3-
<PAGE>
Failure to make significant improvements in the condition of the Bank
and future regulatory determinations could result in additional formal or
informal enforcement actions against the Bank which would include restrictions
on the operations, growth and capital distributions, monitoring and periodic
review by the OCC, civil money penalties, mandatory asset dispositions,
conservatorships and other actions, many of which, by law, must be publicly
disclosed. If Regent or the Bank does not comply with any of the terms of any
order or agreement, the OCC may petition the appropriate court for an order to
enforce the terms thereof. If wilful noncompliance were to continue, the OCC
could seek to take possession of the business and property of the Bank, subject
to providing notice and the holding of a hearing with the concurrence of the
Pennsylvania Attorney General, or could seek to terminate the deposit insurance
of the Bank.
The use of proceeds from the sale of the Shares in this offering will
probably not be sufficient to insure compliance with the Bank's Tier I leverage
ratio requirements without significant additional collections of the outstanding
IPF loan balances and sales of a portion of the Bank's assets. In addition,
there can be no assurance that Regent and the Bank will not be subject to
additional capital requirements in the future, either as a result of
regulations, guidelines and policies of general applicability or individual
regulatory capital requirements that are applied to Regent or the Bank.
Financial Condition and Operations
Regent experienced significant financial and operational problems in
the year ended December 31, 1995 and for the six months ended June 30, 1996.
Regent reported net losses after related tax benefits of approximately
$3,126,000 for the year ended December 31, 1995 including a net loss after
related tax benefits reported by the Bank of approximately $2,937,000 and a net
loss of $2,751,909 for the six months ended June 30, 1996, thereby reducing
capital amounts and ratios. These losses were primarily due to an increase in
the provision for loan losses of $4.5 million at December 31, 1995 and a
charge-off of $5.8 million and an increase in the provision for loan losses by
$3.9 million in the second quarter of 1996 due to high levels of delinquent IPF
loans.
At June 30, 1996 and December 31, 1995, a substantial portion of the
Bank's consumer loans, $15.9 million and $16.8 million (net of $1,261,000 and
$930,000 of unearned interest, respectively), consisted of IPF loans. The Bank
determined its loss exposure on IPF loans at June 30, 1996 based on an aged
delinquency report provided by the Servicer. As of June 30, 1996 IPF loans that
were past due 120 days or more were charged-off and IPF loans that were past due
90 days to 120 days totaled $578,000. Management of both Regent and the Bank
remain committed to devoting substantial time and resources to the
identification, collection and work-out of the delinquent IPF loans.
Regulation
The federal and state laws and regulations that are applicable to bank
holding companies and banks give regulatory authorities extensive discretion in
connection with their supervisory and enforcement activities and generally have
been promulgated to protect depositors and deposit insurance funds and not for
the purpose of protecting shareholders. Any change in such regulations, whether
by an applicable federal or state regulatory authority or federal or state
legislative bodies, could have a significant impact on Regent and the Bank.
-4-
<PAGE>
Economic Conditions
Prevailing economic conditions, as well as government policies and
regulations concerning, among other things, monetary and fiscal affairs,
significantly affect the operations of financial institutions such as the Bank.
In particular, because the Bank's lending and deposit-taking activities are
conducted primarily in the Philadelphia area of Pennsylvania, economic
conditions in this area may affect the Bank's financial condition and results of
operations.
Regent's net interest income, which is the difference between the
interest income received on its interest-earning assets, including loans and
investment securities, and the interest expense incurred in connection with its
interest-bearing liabilities, including deposits and borrowing, can be
significantly affected by changes in market interest rates. Regent actively
monitors its assets and liabilities in an effort to minimize the effects of
changes in interest rates, primarily by altering the mix and maturity of
Regent's loans, investments and funding sources.
Dividends
The OCC has in the past permitted the Bank to pay dividends to Regent,
thereby allowing Regent to meet its debt service requirements under outstanding
subordinated debentures. There can be no assurances that the OCC will continue
to permit the Bank to continue paying dividends for such purposes. Management
believes that, as of June 30, 1996, Regent's liquid assets are sufficient to
permit it to meet its debt service obligations under the subordinated debentures
and other operating costs in 1996. It is possible that Regent will be unable to
meet its obligations under the subordinated debentures after 1996 if the Bank
has not restored its Tier I leverage capital ratio to at least 6.5% by December
31, 1996.
Rights in Liquidation of Senior Preferred Stock
In the event of a liquidation of Regent or similar event, before any
distribution or payment is made upon any Common Stock, the holders of all series
of Regent Preferred Stock will be entitled to receive $10.00 per share plus
accrued and unpaid dividends thereon. In the event that Regent's assets to be
distributed upon any such liquidation are insufficient to permit payment of the
full liquidation value to holders of the Regent Series Preferred Stock, the
assets will be distributed ratably among such holders based on the respective
liquidation preferences thereof.
Competition
Vigorous competition exists in all of the major areas in which Regent
and the Bank currently engage in business. Regent and the Bank face competition
from various financial and non-financial businesses, many of which have
substantially greater resources and capital than do Regent and the Bank.
Particularly intense competition exists for loans and deposits.
Control by Management
As of June 30, 1996, management of Regent owned approximately 42.9% of
Regent's outstanding Common Stock and 16.6% of its Series A Preferred Stock and
have significant control in all matters submitted to the vote of shareholders,
including the election of directors. Therefore, after this offering, management
acting alone, will have the ability generally to influence strongly the policies
of Regent.
-5-
<PAGE>
Description of Shares
Regent is authorized to issue up to 10,000,000 shares of Common Stock,
$.10 par value per share. As of August 1, 1996, there were 1,026,978 shares of
Common Stock outstanding. Each outstanding share of 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 Common Stock do
not have cumulative voting rights with respect to elections of directors of
Regent.
The holders of 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 Common Stock upon liquidation,
dissolution or winding up of the affairs of Regent and (iii) do not have
preemptive or redemption provisions applicable thereto.
28. Subscription. The undersigned hereby irrevocably subscribes for
59,259 Shares at a price of $6.75 per share resulting in a total purchase price
of $400,000.
29. Tender of Purchase Price. In payment of the purchase price for the
Shares subscribed for by the undersigned pursuant to Section 1 hereof, the
undersigned tenders herewith a check in the amount of the Total Purchase Price
set forth in Section 1 hereof payable to "Regent Bancshares Corp."
30. Acceptance of Subscription. The undersigned understands and agrees
that this subscription is made subject to the condition that the Shares to be
issued and delivered on account of this subscription will be issued only in the
name of and delivered only to the undersigned.
31. Representations and Warranties of the Undersigned. The undersigned
understands that the Shares are being offered and sold under an exemption from
registration provided in Section 4(2) of the Securities Act of 1933, as amended
(the "Act"), and offering exemptions contained in the securities laws of other
jurisdictions; that the undersigned is purchasing the Shares without being
furnished any offering literature, prospectus or business plan; that this
transaction has not been examined by the United States Securities and Exchange
Commission or by any administrative agency charged with the administration of
the securities laws of any other jurisdiction; that all documents, records and
books pertaining to this investment requested by the undersigned have been made
available by Regent to the undersigned and the undersigned's representatives,
including his or her attorney, accountant and/or purchaser representative; and
that the books and records of Regent and the Bank have been and will be
available upon reasonable notice for inspection by investors during reasonable
business hours at Regent's offices. The undersigned hereby further represents
and warrants as follows:
(a) The undersigned understands that an investment in the Shares
is speculative in nature and involves a high degree of risk and is suitable only
for persons of substantial means who have no need for liquidity in their
investment, and the undersigned confirms that the undersigned has carefully
considered risks in evaluating whether to make an investment in the Shares.
(b) The undersigned confirms that the undersigned understands and
has fully considered for purposes of this investment that there are substantial
restrictions on the transferability of the Shares and that there will be no
public market for the Shares, and, accordingly, it probably will not be possible
for the undersigned to liquidate his investment in the Shares in the case of an
emergency or to use the Shares as collateral for a loan.
-6-
<PAGE>
(c) The undersigned confirms that the undersigned (i) is able to
bear the economic risk of this investment in the Shares, (ii) is able to hold
the Shares for an indefinite period of time, (iii) is able to afford a complete
loss of his or her investment, and (iv) has adequate means of providing for his
or her current needs and possible personal contingencies and has no need for
liquidity in his or her investment.
(d) The undersigned has, or the undersigned and the undersigned's
purchaser representative together have, such knowledge and experience in
financial and business matters that the undersigned is, or the undersigned and
such representative together are, capable of evaluating the merits and risks of
an investment in the Shares and of making an informed investment decision.
(e) The undersigned confirms that in making the decision to
purchase the Shares hereby the undersigned and the undersigned's representatives
have been given the opportunity to ask questions of and to receive answers from
Regent concerning Regent, the Bank and the Shares and to obtain any additional
information that Regent possesses or can acquire without unreasonable effort or
expense.
(f) The Shares hereby subscribed for are being acquired by the
undersigned in good faith solely for the undersigned's own personal account for
investment purposes only and are not being purchased with a view to or for
resale, distribution, subdivision or fractionalization thereof; the undersigned
has no contract, understanding, undertaking, agreement or arrangement, formal or
informal, with any person to sell, transfer or pledge the Shares to any person;
the undersigned has no current plans to enter into any such contract,
undertaking, agreement, understanding or arrangement; and the undersigned
understands that the legal consequences of the foregoing representations and
warranties are that the undersigned must bear the economic risk of an investment
in the Shares for an indefinite period of time because the Shares have not been
registered under the Act and therefore cannot be sold unless they are
subsequently registered under the Act (which Regent is not obligated to do and
has no current intention of doing) or an exemption from such registration is
available.
(g) The undersigned consents to the placement of a legend on the
certificates representing the Shares, which legend will be in substantially the
following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
JURISDICTION. THE SALE OR OTHER DISPOSITION OF THESE SECURITIES
IS PROHIBITED UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL
SATISFACTORY TO IT AND ITS COUNSEL THAT SUCH SALE OR OTHER
DISPOSITION MAY BE MADE WITHOUT REGISTRATION UNDER THE SECURITIES
ACT OF 1933 AND OTHER APPLICABLE STATUTES. BY ACQUIRING THE
SECURITIES REPRESENTED BY THIS CERTIFICATE, THE HOLDER HEREOF
REPRESENTS THAT HE WILL NOT SELL OR OTHERWISE DISPOSE OF THESE
SECURITIES WITHOUT REGISTRATION OR OTHER COMPLIANCE WITH THE
AFORESAID ACTS AND THE RULES AND REGULATIONS THEREUNDER.
(h) The information set forth in this Agreement regarding the
undersigned is true, correct and complete.
The foregoing representations, warranties and undertakings are made by
the undersigned with the intent that they be relied upon in determining the
undersigned's suitability as an investor in Regent, and the undersigned hereby
agrees that such representations and warranties shall survive his or her
purchase of the Shares.
-7-
<PAGE>
If more than one person is signing this Agreement, each representation,
warranty and undertaking made herein shall be a joint and several
representation, warranty or undertaking of each such person. If the undersigned
is a partnership, corporation, trust or other entity, the undersigned has
enclosed with this Agreement appropriate evidence of the authority of the
individual executing this Agreement to act on behalf of the undersigned.
32. Transferability. The undersigned agrees not to transfer or assign
this Agreement or any interest herein and further agrees that the assignment and
transfer of the Shares shall be effected only in accordance with this Agreement
and with all applicable laws.
33. Revocation. The undersigned agrees that he or she may not cancel,
terminate or revoke this Agreement or any agreement of the undersigned made
hereunder and that this Agreement shall be legally binding upon the
undersigned's heirs, executors, administrators, successors and assigns.
34. No Waiver of Rights. Notwithstanding any of the representations,
warranties, acknowledgments or agreements made herein by the undersigned, the
undersigned does not thereby or in any other manner waive any rights granted to
the undersigned under the applicable federal or state securities laws.
35. Indemnification. The undersigned acknowledges that he understands
the meaning of the representations made by him in this Agreement and hereby
agrees to indemnify Regent and the Bank and all persons deemed to be in control
of Regent and the Bank from and against any and all losses, costs, expenses,
damages and liabilities (including, without limitation, court costs and
attorneys' fees) arising out of or due to a breach by the undersigned of any
such representation. All such representations shall survive the delivery of this
Agreement and the purchase by the undersigned of the Shares.
36. Miscellaneous.
(a) All notices or other communications given hereunder shall be
in writing and shall be delivered personally or by overnight courier or mailed
by certified mail, return receipt requested, postage prepaid, to the parties
hereto at their respective addresses set forth herein.
(b) This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
(c) This Agreement constitutes the entire agreement among the
parties hereto with respect to the subject matter hereof and may be amended only
by a writing executed by the parties.
10. Other Information. Attached hereto are the following documents:
(a) Regent's Form 10-Q Report for the quarter ended June 30, 1996
as filed with the Securities and Exchange Commission on September 12, 1996.
(b) Regent's press release dated September 12, 1996.
(c) Regent's press release dated October 3, 1996.
-8-
<PAGE>
IN WITNESS WHEREOF, the undersigned, intending to be legally bound
hereby, has executed this Agreement as of the date set forth below.
Date: October 7, 1996 David W. Ring
---------------------------------------
Subscriber's Name (please print)
---------------------------------------
Subscriber's Name (if more than one)
###-##-#### /s/ David W. Ring
- -------------------------------- ---------------------------------------
Social Security or Taxpayer Subscriber's Signature
Identification Number
- -------------------------------- ---------------------------------------
Social Security or Taxpayer Subscriber's Signature (if more than one)
Identification Number
Residence Address: Mailing Address, if different
from Residence Address:
- -------------------------------- ---------------------------------------
- -------------------------------- ---------------------------------------
The foregoing subscription is accepted with
respect to all Shares subscribed for.
REGENT BANCSHARES CORP.
Date: October 7, 1996 By:/s/ David W. Ring
-------------------------------
David W. Ring, Chairman
Checks should be made payable to "Regent Bancshares Corp."
-9-
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 4,410,000
<INT-BEARING-DEPOSITS> 84,000
<FED-FUNDS-SOLD> 5,000,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 30,470,000
<INVESTMENTS-CARRYING> 106,226,000
<INVESTMENTS-MARKET> 103,720,000
<LOANS> 85,069,000
<ALLOWANCE> 3,060,000
<TOTAL-ASSETS> 201,904,000
<DEPOSITS> 185,126,000
<SHORT-TERM> 0
<LIABILITIES-OTHER> 5,693,000
<LONG-TERM> 2,953,000
0
55,000
<COMMON> 123,000
<OTHER-SE> (673,000)
<TOTAL-LIABILITIES-AND-EQUITY> 201,904,000
<INTEREST-LOAN> 13,221,000
<INTEREST-INVEST> 8,206,000
<INTEREST-OTHER> 92,000
<INTEREST-TOTAL> 21,519,000
<INTEREST-DEPOSIT> 10,259,000
<INTEREST-EXPENSE> 12,461,000
<INTEREST-INCOME-NET> 9,058,000
<LOAN-LOSSES> 5,092,000
<SECURITIES-GAINS> 6,000
<EXPENSE-OTHER> 7,224,000
<INCOME-PRETAX> 3,046,000
<INCOME-PRE-EXTRAORDINARY> 3,046,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,838,000)
<EPS-PRIMARY> (2.42)
<EPS-DILUTED> 0
<YIELD-ACTUAL> 3.76
<LOANS-NON> 3,837,000
<LOANS-PAST> 977,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 6,501,000
<CHARGE-OFFS> 10,015,000
<RECOVERIES> 1,482,000
<ALLOWANCE-CLOSE> 3,060,000
<ALLOWANCE-DOMESTIC> 3,060,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,350,000
<PAGE>
</TABLE>
