As filed with the Securities and Exchange Commission on June 11, 1997
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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REGENT BANCSHARES CORP.
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(Exact name of registrant as specified in its charter)
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<S> <C> <C>
New Jersey 6712 23-2440805
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(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
1430 Walnut Street
Philadelphia, Pennsylvania 19102
(215) 546-6500
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(Address, including zip code, and telephone
number, including area code, of registrant's
principal executive offices)
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Robert B. Goldstein, President and Chief Executive Officer
Regent Bancshares Corp.
1430 Walnut Street
Philadelphia, Pennsylvania 19102
(215) 546-6500
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(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copy to:
Frederick W. Dreher, Esquire
Duane, Morris & Heckscher LLP
4200 One Liberty Place
Philadelphia, PA 19103-7396
(215) 979-1234
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Approximate date of commencement of proposed sale to the public: From
time to time after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
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<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=====================================================================================================================
Proposed Proposed
Title of maximum maximum
securities Amount to be offering aggregate Amount of
to be registered registered price per share offering price registration fee
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, 2,179,697 $10.75(1) $23,431,743(1) $7,100.53
$.10 par value shares
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</TABLE>
(1) Pursuant to paragraph (c) of Rule 457, the proposed maximum offering
price per share and the proposed maximum aggregate offering price have
been computed on the basis of the average of the high and low sales
prices of the Common Stock of Regent Bancshares Corp. on the Nasdaq
Small-Cap Market on June 10, 1997.
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The registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 11, 1997
PROSPECTUS
REGENT BANCSHARES CORP.
2,179,697 Shares of Common Stock
This Prospectus relates to 1,586,659 shares (the "Shares") of Common
Stock (the "Regent Common Stock"), $.10 par value, of Regent Bancshares Corp.
("Regent") to be issued in exchange for 1,120,000 outstanding shares of common
stock of Regent National Bank (the "Bank"), par value $1.00 per share (the "Bank
Common Stock"), issued in a private placement in April 1997 (the "Bank
Offering") and 593,038 shares of Regent Common Stock to be issued upon the
conversion of an aggregate of 591,253 outstanding shares of Regent Series A,
Series B, Series C, Series D and Series E Convertible Preferred Stock, each with
a par value of $.10 per share (collectively, the "Regent Preferred Stock"). The
Regent Common Stock to be issued in exchange for Bank Common Stock will be
issued at the rate of 1.41666 shares of Regent Common Stock for each share of
Bank Common Stock. The Regent Common Stock to be issued upon the conversion of
Regent Series A and Series E Preferred Stock will be issued on a share for share
basis, and the Regent Common Stock to be issued, upon the conversion of Regent
Series B, Series C and Series D Preferred Stock will be issued on the basis of
1.177 shares of Regent Common Stock for each such share of Regent Preferred
Stock. Regent will receive no cash proceeds from the exchange of Bank Common
Stock for Regent Common Stock or the conversion of Regent Preferred Stock into
Regent Common Stock.
Regent Common Stock is traded on the Nasdaq Small-Cap market under the
symbol RBNK and the closing bid price of Regent Common Stock on June 10, 1997
was $10.375. See "Regent Stock Information."
The shares of Regent Common Stock offered hereby involve a high degree of risk.
See "Risk Factors" beginning on page 6.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
No underwriters will be used in connection with the distribution of the
Regent Common Stock. No dealer, salesman or other person has been authorized to
give any information or to make any representations other than those contained
in this Prospectus in connection with the offering made by this Prospectus, and
information or representations not herein contained, if given or made, must not
be relied upon as having authorized by Regent or the Bank. This Prospectus does
not constitute an offer to sell or the solicitation of an offer to buy any of
the securities offered hereby by Regent in any state to any person to whom it is
unlawful to make such an offer or solicitation. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that the information contained herein is correct as of any date
subsequent to the date hereof.
The date of this Prospectus is ______________________, 1997
<PAGE>
TABLE OF CONTENTS
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Page
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Prospectus Summary ........................................................ 1
Risk Factors .............................................................. 6
Capitalization ............................................................ 10
Regent Stock Information .................................................. 11
Selected Consolidated Financial Data ...................................... 13
Management's Discussion and Analysis of Financial
Condition and Results of Operations ..................................... 15
Business .................................................................. 47
Supervision and Regulation ................................................ 53
Management ................................................................ 57
Principal Stockholders .................................................... 65
Certain Transactions ...................................................... 67
Plan of Distribution ...................................................... 68
Description of Capital Stock .............................................. 69
Interests of Named Experts and Counsel .................................... 74
Available Information ..................................................... 74
Index to Consolidated Financial Statements ................................ 76
(i)
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements appearing elsewhere in this Prospectus. See "Risk Factors" for
certain information that investors should consider prior to acquiring the
Shares.
Regent
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 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 (the "BIF") 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 currently 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 March 31, 1997, the Bank had $192.7 million in assets, $177.2
million in deposits and $72.9 million in net loans. The Bank's primary service
area for Community Reinvestment Act ("CRA") purposes is the Delaware Valley
which includes the greater Philadelphia metropolitan area and various counties
in New Jersey, Delaware and Maryland. Reference is made to the map on the next
page.
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<PAGE>
GRAPHIC OMITTED
In the printed version of this document there appears a map depicting
sections of Pennsylvania, New Jersey, Delaware and Maryland.
Regent Bancshares Corp.
Serving the Wealthy & Populous Delaware Valley
Median
1996 Household
Population Income
Pennsylvania
Philadelphia 1,498,085 $29,575
Montgomery 709,047 $52,815
Bucks 577,401 $51,846
Delaware 547,788 $46,770
Lancaster 449,868 $39,876
Chester 405,497 $59,444
Berks 351,468 $37,588
Lehigh 299,809 $39,818
Northampton 257,883 $40,667
New Jersey
Camden 507,206 $41,957
Ocean 465,948 $39,757
Burlington 401,107 $52,887
Mercer 330,871 $51,359
Gloucester 245,892 $47,319
Atlantic 234,758 $36,556
Cumberland 138,573 $36,535
Cape May 98,897 $35,042
Salem 64,485 $43,108
Delaware
New Castle 472,708 $46,586
Kent 123,130 $36,429
Maryland
Cecil 79,235 $40,265
NATIONAL AVERAGE $36,153
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<PAGE>
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 stockholders. 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. See
"Supervision and Regulation."
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 is offered by the Bank to the
businesses and residents of its service area, including commercial loans, home
improvement loans, mortgage loans and home equity lines of credit. At April 30,
1997, the Bank's legal lending limit was approximately $3.3 million per
borrower, after giving effect to the receipt of $9.1 million in net proceeds
from the private placement of 1,120,000 shares of Bank Common Stock in the Bank
Offering on April 16, 1997.
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 March 31, 1997, Regent and the Bank had a total of 45 employees,
excluding temporary employees engaged in the collection of automobile insurance
premium finance ("IPF") receivables.
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 stockholders, directors, officers and staff to
Delaware Valley businesses and residents.
In recent years, intense market demands, economic pressures and
significant legislative and regulatory action have eroded traditional banking
industry classifications which were once clearly defined and have increased
competition among banks, as well as between banks and other financial
institutions. As a result, banks and other financial institutions have had to
diversify their services, generally increase
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<PAGE>
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.
The Offering
Regent Common Stock offered.... 2,179,697 shares, of which 1,586,659 shares are
being issued in exchange for the Bank Common
Stock sold in the Bank Offering and 593,038
shares are being issued upon conversion of the
Regent Preferred Stock
Exchange rate for Bank
Common Stock................... 1.41666 shares of Regent Common Stock for one
share of Bank Common Stock
Conversion rate for Regent
Preferred Stock................ One share of Regent Common Stock for one share
of Regent Series A or Series E Preferred Stock
and 1.177 shares of Regent Common Stock for one
share of Regent Series B, Series C or Series D
Preferred Stock
Regent Common Stock to be
outstanding after the
offering(1).................... 3,424,490 shares
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(1) Based on the number of shares of Regent Common Stock outstanding on
April 30, 1997. Assumes that all of the Shares offered hereby are
exchanged and converted as described herein. Excludes an aggregate of
345,000 shares of Regent Common Stock which at April 30, 1997 were (i)
reserved for issuance pursuant to the exercise of outstanding options
granted under Regent's 1997 Equity Incentive Plan (the "Plan") and (ii)
35,000 shares of Regent Common Stock reserved for issuance upon the
exercise of options that may be granted under the Plan in the future.
RISK FACTORS
The shares of Regent Common Stock offered hereby involve a high degree
of risk. See "Risk Factors."
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<PAGE>
Summary Consolidated Financial Data
(in thousands, except for per share data)
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<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
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1997 1996 1996 1995 1994 1993 1992
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(unaudited)
Statement of Operations Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income..................... $ 3,999 $ 5,343 $ 21,519 $ 21,160 $ 17,165 $ 15,112 $ 13,519
Interest expense.................... 2,409 3,287 12,461 12,553 11,373 9,921 8,810
------ -------- --------- --------- -------- --------- ---------
Net interest income................. 1,590 2,056 9,058 8,607 5,792 5,191 4,709
Provision for loan losses........... (200) 175 5,092 4,905 860 450 525
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Net interest income after provision
for loan losses.................... 1,790 1,881 3,966 3,702 4,932 4,741 4,184
Non-interest income................. 578 28 212 104 202 156 70
Non-interest expense............... 2,548 1,546 7,224 7,396 4,372 3,113 2,486
------ -------- --------- --------- -------- --------- ---------
Income (loss) before provision for
income taxes...................... (180) 363 (3,046) (3,590) 762 1,784 1,768
Income tax expense (benefit)........ --- 145 (350) (463) 259 607 601
------ -------- --------- --------- -------- --------- ---------
Income (loss) before dividends on
preferred stock................... (180) 218 (2,696) (3,127) 503 1,177 1,167
Preferred stock dividends........... 83 145 142 487 287 516 317
------ -------- --------- --------- -------- --------- ---------
Net income (loss) applicable to
common stock...................... $ (264) $ 73 $ (2,838) $ (3,614) $ 216 $ 661 $ 850
======== ========= ========= ========= ======== ========== =========
Earnings (loss) per share:
Primary............................ $ (.20) $ .05 $(2.42) $(3.41) $0.22 $0.71 $0.95
Fully diluted...................... N/A N/A N/A N/A N/A N/A 0.82
Book value per share-fully diluted.. 4.43 6.51 4.58 6.55 7.98 8.88 8.38
Selected Financial Ratios:
Net interest margin................. 3.36% 3.21% 3.76% 3.56% 2.37% 2.49% 2.87%
Non-interest expense to average
total assets...................... 3.77(1) 2.34 2.94 3.00 1.74 1.44 1.47
Return on average total assets...... (.37) .33 N/A N/A .20 .55 .70
Return on average shareholders'
equity............................ (8.97) 8.44 N/A N/A 3.89 9.29 10.33
Average shareholders' equity to
average total assets.............. 4.16 3.91 4.03 5.50 5.14 5.88 6.67
Non-performing assets to total
assets at period end.............. 2.08 2.98 2.73 3.49 1.68 1.04 2.11
Allowance for loan losses as a
percentage of period end loans and
loans held for sale................ 3.02 4.65 3.60 5.47 2.10 1.84 1.94
Balance Sheet Data:
<CAPTION>
At March 31, At December 31,
------------ --------------------------------------------------------------
1997 1996 1995 1994 1993 1992
------------ ---------- ---------- ---------- ---------- -------
(unaudited)
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Total assets........................... $192,739 $201,904 $262,512 $243,450 $243,945 $204,800
Federal funds sold..................... 7,600 5,000 -- -- 6,000 --
Loans, net of unearned interest
and fees (2)......................... 75,192 85,069 118,784 81,248 72,944 55,531
Investment securities.................. 103,980 105,553 138,722 156,664 156,166 140,226
Deposits............................... 177,156 185,126 196,132 161,061 192,393 160,715
Subordinated debentures................ 2,750 2,750 2,750 2,750 2,550 --
Shareholders' equity................... 7,963 8,133 10,353 12,206 13,126 11,949
</TABLE>
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(1) Excludes $722 thousand of merger-related expenses paid to Carnegie Bancorp.
(2) Including mortgage loans held for sale.
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<PAGE>
RISK FACTORS
Regent and the Bank experienced significant losses in the years ended
December 31, 1995 and 1996 and the three months ended March 31, 1997 due
primarily to an increase in the provision for loan losses that was attributable
to delinquent loans and the Bank is currently under stringent supervision by
the OCC. For these and other reasons, shares of Regent Common Stock involve a
high degree of risk. The following factors should be considered carefully in
evaluating an acquisition of Regent Common Stock.
Regulatory Agreement
For the three months ended March 31, 1997, Regent had a net loss of
$180,421, compared to net income of $217,792 for the three months ended March
31, 1996. For the year ended December 31, 1995, Regent had a net loss of $3.1
million, and for the year ended December 31, 1996, Regent had a net loss of $2.7
million. These losses resulted primarily from charge-offs of IPF loans 120 or
more days past due and increases in the reserve for potential loan losses on the
IPF loans that remain outstanding. In September 1996, the Bank discontinued
making IPF loans. As a result of the Bank's losses and the effect thereof on the
Bank's capital, on October 10, 1996, the Bank entered into a written agreement
(the "Regulatory Agreement") with the OCC pursuant to 12 U.S.C. ss.1818(b).
The Regulatory Agreement required that the Bank, subject to OCC review
or approval, (i) adopt and implement an action plan to improve the Bank by
November 9, 1996, (ii) achieve capital levels specified in the Regulatory
Agreement at October 31, 1996 and December 31, 1996, (iii) de velop 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 and anticipates that, absent unforeseen
circumstances, it will 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, the principal element of which was the receipt of
additional capital for the Bank from the sale of shares of Bank Common Stock. On
March 27, 1997, the OCC notified the Bank of the OCC's acceptance of the Bank's
revised capital plan. On April 16, 1997, the Bank completed the sale of
1,120,000 shares of its Common Stock at a price of $8.50 per share in the Bank
Offering, as a result of which the Bank's Tier 1 leverage ratio increased to
approximately 10.12%.
Based upon the Bank's unsatisfactory condition in the summer of 1996
and the questionable ability of Regent to continue to service its outstanding
subordinated debentures 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 officers. In addition to the
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<PAGE>
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 addi tional 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 sold 16,364 shares of Regent Series A Convertible Preferred Stock at
$6.50 per share to two accredited investors on March 31, 1997 in order to obtain
sufficient funds to pay such interest when due on March 31, 1997.
Financial Condition and Operations
Regent experienced significant financial and operational problems in
1996 and 1995. Regent reported net losses of $2.7 million, or $2.42 per share,
and $3.1 million, or $3.41 per share, for the years ended December 31, 1996 and
1995, respectively. For the quarter ended March 31, 1997, Regent reported a net
loss of $263,566, or $.20 per share. The losses were primarily the result of a
provision for loan losses of $5.1 million and $4.9 million, respectively, that
were attributable to delinquent IPF receivables. In addition, direct
non-interest expense attributable to IPF represented $2.3 and $2.1 million in
1996 and 1995, respectively, which approximated 30% of total non-interest
expense in both years. The Bank discontinued origination of IPF receivables in
September 1996. Management of both Regent and the Bank remain committed to
devoting substantial time and resources to the collection of the remaining IPF
receivables.
During 1997, the Bank's net interest income has been and will continue
to be adversely affected by the sale in 1996 of approximately $34.2 million in
loans to Carnegie Bank, N.A. and the run-off of the IPF portfolio in the
approximate amount of $10 million as well as by the Bank's higher than average
level of non-performing assets as of December 31, 1996. Regent reported a net
loss for the first quarter of 1997 of $180 thousand versus net income for the
first quarter of 1996 of $218 thousand. The loss for the first quarter of 1997
was primarily related to a reduction in interest income from $5.3 million for
the first quarter of 1996 to $4.0 million for the first quarter of 1997, which
was 25% lower due to a strategically planned decrease in the Bank's earning
assets of 27% that was necessary to improve the Bank's regulatory capital
ratios. The positive effect on the Bank's earnings of the $200 thousand
negative provision for loan losses in the first quarter of 1997 compared to a
provision of $175 thousand in the first quarter of 1996 and the increase in
noninterest income from $28 thousand in the first quarter of 1996 to $578
thousand for the first quarter of 1997 was more than offset by an increase in
noninterest expense to $2.5 million in the first quarter of 1997 from $1.5
million for the first quarter of 1996.
Total assets of $192.7 million at March 31, 1997 were approximately 5%
lower than the $201.9 million at December 31, 1996, as loans decreased from
$85.1 million at December 31, 1996 to $75.2 million at March 31, 1997. Total
deposits declined to $177.2 million at March 31, 1997 from $185.1 million at
year-end 1996.
Regulatory Capital Requirements
Section 38 of the Federal Deposit Insurance Act (the "FDIA"), as
amended by the Federal Deposit Insurance Corporation Improvement Act
("FDICIA"), effective December 1991, and the regulations of the FDIC
implementing the prompt corrective action provisions 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.
See "Supervision And Regulation." At March 31, 1997, the Bank had a Tier 1
leverage ratio of 5.90%, which increased to 10.12% as of April 16, 1997, as a
result of the Bank's receipt of the net proceeds of the Bank Offering. A bank is
designated as "well capitalized" if it has a ratio of Total capital of 10% or
greater, "adequately capitalized" if the ratio is 8% or greater and
"undercapitalized" if it has a ratio of less than 8%. See, however, "Risk
Factors -- Regulatory Agreement." A ratio of less than 6% results in a
designation of a bank as "significantly undercapitalized" and a combined ratio
that is equal to or less than 2% results in a designation of a bank as
"critically undercapitalized." At March 31, 1997, despite the Bank's 12.77%
Total capital ratio, the existence of the Regulatory Agreement requires that the
Bank be designated as "adequately capitalized." See "Management's Discussion
and Analysis of Financial Condition and Results of Operations." The foregoing
powers and authorities are in addition to the existing powers of the federal
banking agencies to deal with undercapitalized institutions.
There can be no assurance that Regent or 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. Pursuant
to Section 18 of the FDIA, federal banking agencies are required to review their
capital standards for insured depository institutions biennially to determine
whether those standards require sufficient capital to facilitate prompt
corrective action to prevent or minimize loss to the deposit insurance funds.
Regulatory authorities could also limit the ability of companies such as Regent
and the Bank to include certain deferred income tax assets permitted under
generally accepted accounting principles for regulatory capital and regulatory
reporting purposes. See "Supervision and Regulation."
New Management
Since January 1, 1997, Regent has retained a new President and Chief
Executive Officer, who also has been retained as the Bank's new Chairman of the
Board and Chief Executive Officer, and a new Executive Vice President and Chief
Financial Officer, and the Bank has retained a new Executive Vice President and
Chief Lending Officer. In addition, Barbara H. Teaford, formerly Executive Vice
President of Regent and the Bank, has become the Bank's new President. Although
Regent's new President and Chief Executive Officer and new Executive Vice
President and Chief Financial Officer and the Bank's Executive Vice President
and Chief Lending Officer have extensive experience in commercial banking, none
of them has had prior experience in Regent's market area. Regent's future
results of operations will be substantially dependent on its new management
personnel.
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 stockholders. 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. See
"Supervision and Regulation."
-7-
<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 Regent
and the Bank. In particular, because the Bank's lending and deposit-taking
activities are conducted primarily in the greater Philadelphia area, economic
conditions in that area may affect Regent's financial condition and results of
operations.
The Bank'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 borrowings, can be signifi-
cantly affected by changes in market interest rates. The Bank 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 the Bank's loans,
investments and funding sources.
Dividends
Because dividends from the Bank are currently Regent's sole source of
income, any restrictions on the Bank's ability to pay dividends will act as a
restriction on Regent's ability to pay dividends. 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. Under
the National Bank Act and the regulations of the OCC applicable to the Bank, the
Bank may not pay dividends in a given year in excess of the Bank's net profits,
as defined, for that year plus the Bank's retained net profits for the preceding
two years without prior permission from the OCC. However, the payment of
dividends by the Bank is currently prohibited by the Regulatory Agreement. In
addition, unless a national bank's capital surplus equals or exceeds the stated
capital for its common stock, no dividends may be declared unless the Bank makes
transfers from retained earnings to capital surplus.
Regent has never paid cash dividends on its Common Stock and does not
intend to pay cash dividends on its Common Stock for the foreseeable future. See
"Regent Stock Information -- Dividend Policy."
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
The executive officers, directors and 5% or greater stockholders of
Regent currently own approximately 33.2% of the Regent Common Stock and will
own approximately 26.4% of the Regent Common Stock outstanding after giving
effect to the exchange of all of the Bank Common Stock issued in the Bank
Offering for Regent Common Stock and the conversion of all outstanding shares of
Regent Preferred Stock into Regent Common Stock. Accordingly, such persons will
have significant
-8-
<PAGE>
control over the election of the members of Regent's Board of Directors and any
other matter submitted to a vote of Regent's stockholders. See "Principal
Stockholders."
Forward-Looking Statements
All statements contained in this Prospectus that are not historical
facts are based on current expectations. These statements are forward-looking
(as defined in the Private Securities Litigation Reform Act of 1995) in nature
and involve a number of risks and uncertainties. Actual results may vary
materially, as discussed in this "Risk Factors" section. The factors that could
cause actual results to vary materially include: the ability of the Bank to
comply with the Regulatory Agreement to which it is subject, the ability of the
Bank to collect outstanding receivables arising from overdue IPF loans, general
business and economic conditions in the Bank's primary lending and
deposit-taking areas, future interest rate fluctuations, competition from
various financial and non-financial businesses, the ability of Regent and the
Bank to comply with current regulatory provisions and any future changes in such
provisions, the ability of the Bank to generate loan growth and to improve its
net interest margin and other risks that may be described from time to time in
the reports that Regent is required to file with the Securities and Exchange
Commission (the "Commission"). Regent cautions potential investors not to place
undue reliance on any such forward-looking statements.
CAPITALIZATION
The following table sets forth the actual consolidated capitalization
of Regent at March 31, 1997 and as adjusted to give effect to the exchange of
1,586,659 shares of Regent Common Stock for 1,120,000 shares of Bank Common
Stock and the issuance of 593,038 shares of Regent Common Stock upon conversion
of the 591,253 outstanding shares of Regent Preferred Stock and an additional
44,343 shares of Series E Convertible Preferred Stock to be issued on June 30,
1997 as a dividend on the 443,436 outstanding shares of Series A Convertible
Preferred Stock.
-9-
<PAGE>
<TABLE>
<CAPTION>
As Adjusted to
Actual at Reflect the Issuance
March 31, 1997 of 2,179,697 Shares
-------------- -------------------
<S> <C> <C>
Shareholders' Equity:
Series A Convertible Preferred Stock, par value
$.10 per share, 1,000,000 shares authorized,
443,436 shares issued and outstanding .................. $ 44,344 $ 0
Series B Convertible Preferred Stock, par value
$.10 per share, 500,000 shares authorized,
3,790 shares issued and outstanding .................... 379 0
Series C Convertible Preferred Stock, par value
$.10 per share, 500,000 shares authorized,
3,025 shares issued and outstanding .................... 303 0
Series D Convertible Preferred Stock, par value
$.10 per share, 500,000 shares authorized,
3,280 shares issued and outstanding .................... 328 0
Series E Convertible Preferred Stock, par value
$.10 per share, 500,000 shares authorized,
93,379 shares issued and outstanding ................... 9,338(2) 0
Regent Common Stock, par value $.10 per share:
10,000,000 shares authorized, 1,244,793 shares
issued and outstanding and 3,424,490 shares
issued and and outstanding as adjusted to
reflect issuance of the Regent Common Stock
offered hereby(1) ...................................... 124,479 342,449
Additional paid-in capital ................................. 14,783,103 24,185,426
Deficit .................................................... (6,230,342) (6,695,943)
Net unrealized loss on securities available-for- sale ...... (769,334) (769,334)
------------ ------------
Total shareholders' equity ................................. $ 7,962,598 $ 17,062,598
============ ============
Capital Ratios:
Shareholders' equity to total assets ..................... 4.13% 8.80%
Tier 1 capital to risk-adjusted assets ................... 8.80 17.64
Total capital to risk-adjusted assets .................... 10.62 19.45
Tier 1 leverage ratio .................................... 4.51 8.79
</TABLE>
- ---------------
(1) Excludes 380,000 shares of Regent Common Stock reserved for issuance
under the Plan. At April 30, 1997, options had been granted to
executive officers, directors and employees of the Bank or Regent to
purchase an aggregate of 320,000 shares of Regent Common Stock at
$6.75 per share, and 60,000 shares were reserved for issuance upon the
exercise of options that may be granted under the Plan in the future.
See "Management - 1997 Equity Incentive Plan."
(2) Does not reflect 44,343 shares of Series E Convertible Preferred Stock
to be issued on June 30, 1997 as a dividend on the 443,436 outstanding
shares of Series A Convertible Preferred Stock.
REGENT STOCK INFORMATION
Regent's Common Stock and Series A Convertible Preferred Stock are
traded on the Nasdaq Small-Cap Market under the following symbols: Common Stock
- -- RBNK and Series A Convertible Preferred Stock -- RBNKP. The last reported
high and low bid price for Regent Common Stock on June 10, 1997 were $10.50 and
$10.375, respectively. The following table sets forth the high and low bid
prices for Regent's Common Stock and Series A Convertible Preferred Stock for
each quarter during 1996 and 1995 and the first two quarters of 1997 through
June 10, 1997 as reported by National Quotation Bureau, Inc.:
<TABLE>
<CAPTION>
Regent Regent Series A Convertible
Common Stock Preferred Stock
------------ ---------------
Low Bid High Bid Low Bid High Bid
------- -------- ------- --------
1995:
<S> <C> <C> <C> <C>
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
1997:
First Quarter................................. 5 1/2 6 7/8 5 1/4 6 1/2
Second Quarter (through June 10, 1997)........ 6 5/8 10 1/2 6 1/2 10 1/2
</TABLE>
These quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions.
Dividend Policy
Regent has never paid cash dividends on Regent Common Stock or Regent
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. In determining the amount of dividends,
if any, Regent's Board of Directors will consider, in its discretion, the
earnings, capital requirements and financial condition of Regent as well as
other relevant factors. The payment of dividends to Regent by its wholly owned
subsidiary, the Bank, is subject to certain restrictions, pursuant to federal
banking law, and the Bank is currently prohibited by the Regulatory Agreement
from paying any dividends. In addition to the Regulatory Agreement, the Bank is
subject to certain limitations on the amount of cash dividends that it may pay
under the National Bank Act, which provides that in a given year a bank may not
pay dividends in excess of its net profits, as defined in the National Bank Act,
for that year plus a bank's retained net profits for the preceding two years
without the prior permission of the OCC. In addition, unless a national bank's
capital surplus equals or exceeds the stated capital for its common stock, no
dividends may be declared unless a bank makes transfers from retained earnings
to capital surplus. As of March 31, 1997, the Bank had no funds legally
available for the payment of dividends. 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."
-10-
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table summarizes certain selected consolidated financial
data and other informa tion of Regent for the periods indicated. The selected
consolidated financial data for the four fiscal years ended December 31, 1995
are derived from the Consolidated Financial Statements of Regent audited by
Arthur Andersen LLP, independent certified public accountants, whose report
thereon is included elsewhere in this Prospectus and for the fiscal year ended
December 31, 1996 are derived from the Consolidated Financial Statements of
Regent audited by Grant Thornton LLP, independent certified public accountants.
Regent's Consolidated Financial Statements as of December 31, 1996 and for the
year ended December 31, 1996 and Grant Thornton LLP's report thereon are
included elsewhere in this Prospectus. The balance sheet data as of March 31,
1997 and the statement of operations data for the three months ended March 31,
1997 and 1996 are derived from unaudited financial statements. The unaudited
financial statements include all adjustments, consisting only of normal
recurring approvals, which Regent considers necessary for a fair presentation of
its financial position and its results of operations for those periods. Regent's
results of operations for the three months ended March 31, 1997 are not
necessarily indicative of the results of operations that may be expected for the
year ending December 31, 1997. The selected consolidated financial data
presented below should be read in conjunction with the Consolidated Financial
Statements and the Notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the other financial
information included elsewhere in this Prospectus. All information is in
thousands, except per share data.
-11-
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
----------------------- -----------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- --------
(unaudited)
Statement of Operations Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income ........................... $ 3,999 $ 5,343 $ 21,519 $ 21,160 $ 17,165 $ 15,112 $ 13,519
Interest expense .......................... 2,409 3,287 12,461 12,553 11,373 9,921 8,810
-------- -------- -------- -------- -------- -------- --------
Net interest income ....................... 1,590 2,056 9,058 8,607 5,792 5,191 4,709
Provision for loan losses ................. (200) 175 5,092 4,905 860 450 525
-------- -------- -------- -------- -------- -------- --------
Net interest income after provision
for loan losses .......................... 1,790 1,881 3,966 3,702 4,932 4,741 4,184
Non-interest income ....................... 578 28 212 104 202 156 70
Non-interest expense ...................... 2,548 1,546 7,224 7,396 4,372 3,113 2,486
-------- -------- -------- -------- -------- -------- --------
Income (loss) before provision for
income taxes ............................ (180) 363 (3,046) (3,590) 762 1,784 1,768
Income tax expense (benefit) .............. -- 145 (350) (463) 259 607 601
-------- -------- -------- -------- -------- -------- --------
Income (loss) before dividends on
preferred stock ......................... (180) 218 (2,696) (3,127) 503 1,177 1,167
Preferred stock dividends ................. 83 145 142 487 287 516 317
-------- -------- -------- -------- -------- -------- --------
Income(loss) applicable to common
stock ................................... $ (264) $ 73 $ (2,838) $ (3,614) $ 216 $ 661 $ 850
======== ======== ======== ======== ======== ======== ========
Earnings (loss) per share:
Primary .................................. $ (.20) $ .05 $ (2.42) $ (3.41) $ 0.22 $ 0.71 $ 0.95
Fully diluted ............................ N/A N/A N/A N/A N/A N/A 0.82
Book value per share-fully diluted ........ 4.43 6.51 4.58 6.55 7.98 8.88 8.38
Selected Financial Ratios:
Net interest margin ....................... 3.36% 3.21% 3.76% 3.56% 2.37% 2.49% 2.87%
Non-interest expense to average
total assets ............................ 3.77(1) 2.34 2.94 3.00 1.74 1.44 1.47
Return on average total assets ............ (.37) .33 N/A N/A .20 .55 .70
Return on average shareholders' equity .... (8.97) 8.44 N/A N/A 3.89 9.29 10.33
Average shareholders' equity to average
total assets ............................ 4.16 3.91 4.03 5.50 5.14 5.88 6.67
Non-performing assets to total assets
at period end ........................... 2.08 2.98 2.73 3.49 1.68 1.04 2.11
Allowance for loan losses as a percentage
of period end loans and loans held for
sale ..................................... 3.02 4.65 3.60 5.47 2.10 1.84 1.94
<CAPTION>
Balance Sheet Data:
At March 31, At December 31,
----------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Total assets ............................................... $192,739 $201,904 $262,512 $243,450 $243,945 $204,800
Federal funds sold ......................................... 7,600 5,000 -- -- 6,000 --
Loans, net of unearned interest and fees (2)................ 75,192 85,069 118,784 81,248 72,944 55,531
Investment securities ...................................... 103,980 105,553 138,722 156,664 156,166 140,226
Deposits ................................................... 177,156 185,126 196,132 161,061 192,393 160,715
Subordinated debentures .................................... 2,750 2,750 2,750 2,750 2,550 --
Shareholders' equity ....................................... 7,963 8,133 10,353 12,206 13,126 11,949
</TABLE>
- ----------------
(1) Excludes $722 thousand of merger-related expenses paid to Carnegie Bancorp.
(2) Including mortgage loans held for sale.
-12-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three Months Ended March 31, 1997 Compared to Three Months Ended March 31, 1996
Financial Overview
Regent, the holding company for the Bank, reported a net loss for the
first quarter of 1997 of $180 thousand versus net income for the comparable
quarter of 1996 of $218 thousand. The loss for the first quarter of 1997 was
primarily related to a reduction in interest income from $5.3 million for the
first quarter of 1996 to $4.0 million for the first quarter of 1997, which was
25% lower due to a strategically planned decrease in the Bank's earning assets
of 27% that was necessary to improve the Bank's regulatory capital ratios. The
positive effect on the Bank's earnings of the $200 thousand negative provision
for loan losses in the first quarter of 1997 compared to a provision of $175
thousand in the first quarter of 1996 and the increase in noninterest income
from $28 thousand in the first quarter of 1996 compared to $578 thousand in the
first quarter of 1997 was more than offset by an increase in noninterest expense
to $2.5 million in the first quarter of 1997 from $1.5 million for the first
quarter of 1996.
Total assets of $192.7 million at March 31, 1997 were approximately 5%
lower than the $201.9 million at December 31, 1996, as loans decreased from
$85.1 million at December 31, 1996 to $75.2 million at March 31, 1997. Total
deposits declined to $177.2 million at March 31, 1997 from $185.1 million at
year-end 1996.
A number of major events took place during the first quarter of 1997.
First, on January 6, 1997, Joel E. Hyman became Executive Vice President, Chief
Financial Officer and Treasurer of Regent and the Bank. Second, on January 14,
1997, Regent and Carnegie Bancorp ("Carnegie") announced the mutual termination
of the Amended and Restated Agreement and Plan of Merger ("the Merger
Agreement"), which had provided for the merger of the two holding companies and
their subsidiary banks, due to changes in their respective strategic focus.
Pursuant to the termination of the Merger Agreement, Carnegie was reimbursed for
$722 thousand of merger-related expenses Carnegie had incurred, and, in
connection therewith, the Bank sold to Carnegie Bank, N.A., 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
Bank, N.A. The reimbursement of Carnegie is reported as professional services on
the Consolidated Statements of Operations and the premium paid by Carnegie Bank,
N.A. is included in the net gain on sale of assets on the Consolidated State-
ments of Operations. Third, on March 31, 1997, Regent sold 16,364 shares of
Series A Convertible Preferred Stock for $6.50 per share in a private placement
to two accredited investors. Regent used the proceeds from this sale to pay the
interest on its subordinated debentures due March 31, 1997.
In April 1997, two additional developments of significance occurred.
First, on April 14, 1997, Robert B. Goldstein became President, Chief Executive
Officer and a Director of Regent and Chairman, Chief Executive Officer and a
Director of the Bank. Mr. Goldstein succeeded John J. Lyons who had served as
the Bank's President and Chief Executive Officer on an interim basis since
September 1996 following the resignation of Harvey Porter due to ill health. In
addition, Barbara H. Teaford, formerly Executive Vice President and Secretary of
Regent and the Bank, became President of the Bank and Amanda V. Perkins became
Executive Vice President and Chief Lending Officer of the
-13-
<PAGE>
Bank. Second, on April 16, 1997, the Bank completed the Bank Offering in a
private placement for which Keefe, Bruyette & Woods, Inc. served as the Bank's
Placement Agent. The Bank Common Stock issued in the Bank Offering is
exchangeable for Regent Common Stock at the rate of 1.41666 shares of Regent
Common Stock for each share of Bank Common Stock at the discretion of Regent at
any time after (i) the average of the closing bid price for Regent Common Stock
has equaled or exceeded $12 per share for 15 consecutive trading days and (ii)
the Regent Common Stock issuable in exchange for Bank Common Stock has been
registered under the Securities Act of 1993, as amended (the "Act"). The net
proceeds of approximately $9.1 million from the Bank Offering were used to
restore the Bank's capital so that the Bank resumed compliance with certain
ratios that the Bank has agreed to maintain pursuant to the Regulatory Agreement
dated October 10, 1996 between the OCC and the Bank.
The Bank had cash collections of approximately $3.4 million during the
first quarter of 1997 from the IPF business, which was the original source of
the Bank's losses and increased expense in 1995 and 1996. These collections
eliminated the year end 1996 receivable of $2.6 million, increased the payable
for estimated customer refunds and resulted in approximately $300 thousand in
recoveries to the allowance for losses. As the collection activities of this
discontinued IPF business wind down in the second quarter of 1997, additional
cash receipts are expected to have a favorable effect on the Bank's financial
results.
Financial Condition
Capital Adequacy
Total shareholders' equity was approximately $8.0 million at March 31,
1997 versus $8.1 million at December 31, 1996. This decline was due to the net
loss of $180 thousand for the first quarter of 1997 and an increase in the net
unrealized loss on available-for-sale securities from $673 thousand at December
31, 1996 to $769 thousand at March 31, 1997, which was partially offset by the
issuance of $106 thousand of Series A Convertible Preferred Stock.
Capital adequacy standards adopted by federal banking regulators define
capital as Tier 1 and Tier 2 capital. All banks are required to have Tier 1
capital of at least 4% of risk-weighted assets and total capital of at least 8%
of risk-weighted assets. Tier 1 capital consists of common shareholders' equity,
non-cumulative preferred stock and retained earnings and excludes the effects of
unrealized gains or losses on securities available for sale. Tier 2 or Total
capital includes Tier 1 capital, cumulative preferred stock, qualifying
subordinated debt and the allowance for possible loan losses up to a maximum of
1.25% of total risk-weighted assets.
The following table sets forth the capital ratios of Regent and the
Bank as of March 31, 1997 and December 31, 1996 as well as the required minimum
regulatory capital ratios. Pursuant to the Regulatory Agreement, the Bank was
required to achieve and maintain a Tier 1 leverage ratio of 6.50% at December
31, 1996, which level was not achieved. However, with the aforementioned
private placement of Bank Common Stock on April 16, 1997, the proforma Tier 1
leverage ratio at March 31, 1997 was approximately 10.12% versus a reported
ratio of 5.90%. The proforma ratio indicates that the Bank would have been in
compliance with the capital requirement of the Regulatory Agreement had the
private placement been consummated on March 31, 1997 and management expects,
absent unforeseen circumstances, that the Bank will be able to maintain a Tier 1
leverage ratio that will continue to be in compliance with the Regulatory
Agreement.
Required
Regulatory
Regent March 31, 1997 December 31, 1996 Minimum
- ------ -------------- ----------------- -------
Risk-based capital:
Tier 1 capital............. 8.80% 7.65% 4.00%
Total capital.............. 10.62 9.39 8.00
Tier 1 leverage ratio......... 4.51 4.31 3.00-5.00
Required
Regulatory
The Bank March 31, 1997 December 31, 1996 Minimum
- -------- -------------- ----------------- -------
Risk-based capital:
Tier 1 capital............. 11.51% 9.95% 4.00%
Total capital.............. 12.77 11.21 8.00
Tier 1 leverage ratio......... 5.90 5.65 3.00-5.00
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 Federal Home Loan Bank of
Pittsburgh (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 the costs of the
Bank's deposit generation process.
-14-
<PAGE>
Investment Portfolio
The investment portfolio, consisting principally of mortgage-backed
securities, is coordinated with the liquidity and interest rate sensitivity
position of the Bank. With an emphasis on minimizing credit, capital and market
risk, the investment portfolio is considered an extension of loans with the
objectives of enhancing liquidity and earning a fair return. The investments in
mortgage-backed securities consist of a combination of adjustable and fixed rate
securities with an emphasis on investments with relatively short weighted
average lives. Of the total mortgage-backed securities portfolio with an
amortized cost of $92.7 million at March 31, 1997, $16.4 million were adjustable
rate and $76.3 million were fixed rate. The estimated weighted average life for
the mortgage-backed securities portfolio at March 31, 1997 approximated 5.9
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
-15-
<PAGE>
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 environ ments.
<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 ....................... $ 11,328 $ 256 $ 20,876 $ 28,858 $ 43,431 $104,749
Loans ............................. 37,146 7,683 9,453 12,442 8,468 75,192
Other earning assets .............. 8,980 -- -- -- -- 8,980
-------- -------- -------- -------- -------- --------
Total earning assets .............. $ 57,454 $ 7,939 $ 30,329 $ 41,300 $ 51,899 $188,921
NOW and money market .............. $ 4,089 $ -- $ 3,000 $ -- $ -- $ 7,089
Savings ........................... 3,755 -- 40,000 -- -- 43,755
Certificates of deposit ........... 20,302 44,340 39,876 12,026 -- 116,544
FHLB advances ..................... -- -- -- -- 200 200
Subordinated debt ................. -- -- 2,750 -- -- 2,750
Net non-interest bearing
source of funds ............... -- -- -- -- 18,583 18,583
-------- -------- -------- -------- -------- --------
Total sources of funds ............ $ 28,146 $ 44,340 $ 85,626 $ 12,026 $ 18,783 $188,921
-------- -------- -------- -------- -------- --------
Period Gap ........................ 29,308 (36,401) (55,297) 29,274 33,116
Cumulative Gap .................... 29,308 (7,093) (62,390) (33,116)
Cumulative Gap as % of
total earning assets ............ 15.5% (3.8%) (33.0%) (17.5%)
</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 Statement of Financial Accounting Standards No. 115
("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 compo nent 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 AFS and HTM portfolios at March 31,
1997.
-16-
<PAGE>
<TABLE>
<CAPTION>
Held-to-Maturity Available-for-Sale
---------------------------------- -------------------------------
Amortized Cost Market Value Amortized Cost Market Value
-------------- ------------ -------------- ------------
(in thousands)
<S> <C> <C> <C> <C>
U.S. Agencies ...................................... $ -- $ -- $12,000 $11,898
Mortgage-backed securities:
GNMA ............................................. 10,800 10,383 -- --
FHLMC ............................................ 29,779 29,165 7,664 7,409
FNMA ............................................. 17,860 17,231 11,053 10,641
Collateralized mortgage
obligations ...................................... 14,238 14,076 -- --
Non-marketable equity
securities ....................................... -- -- 1,355 1,355
------- ------- ------- -------
Total ........................................... $72,677 $70,855 $32,072 $31,303
======= ======= ======= =======
</TABLE>
The following table sets forth the range of maturities of debt
securities held to maturity at March 31, 1997 based on the weighted average life
of the securities for each classification and the weighted average yield for
each maturity period:
<TABLE>
<CAPTION>
Within 1 After 1 But After 5 But
Year Within 5 Years Within 10 Years Total
---- -------------- --------------- -----
(in thousands, except percentages)
<S> <C> <C> <C> <C>
Mortgage-backed securities........ $ 42 $25,269 $33,128 $58,439
Collateralized mortgage
obligations..................... 1,359 3,414 9,464 14,238
------- --------- --------- --------
Total........................ $1,401 $28,683 $42,592 $72,677
====== ======= ======= =======
Weighted Average Yield............ 6.19% 6.49% 7.37% 7.01%
</TABLE>
The following table sets forth the range of maturities of debt
securities available for sale at March 31, 1997 based on the amortized cost, the
weighted average life of the securities for each classification and the
weighted average yield for each maturity period:
<TABLE>
<CAPTION>
Within 1 After 1 But After 5 But
Year Within 5 Years Within 10 Years Total
---- -------------- --------------- -----
<S> <C> <C> <C> <C>
U.S. Agencies..................... $ --- $12,000 $ --- $12,000
Mortgage-backed securities........ 288 2,829 15,601 18,717
----- ------- ------- -------
Total.......................... $ 288 $14,829 $15,601 $30,717
===== ======= ======= =======
Weighted Average Yield............ 5.90% 6.14% 6.52% 6.37%
</TABLE>
The following table sets forth those CMOs which have a carrying value
that exceeded 10% of Regent's shareholders' equity at March 31, 1997. These
securities have an investment rating of AA or better.
-17-
<PAGE>
Carrying Value Market Value
-------------- ------------
(in thousands)
Bear Stearns Mortgage Securities Inc.
Series 1993-2 Class 7................ $2,149 $2,047
Bear Stearns Mortgage Securities Inc.
Series 1993-2 Class 5................ 1,667 1,667
Bear Stearns Mortgage Securities Inc.
Series 1993-2 Class 6................ 1,529 1,529
Bear Stearns Mortgage Securities Inc.
Series 1993-12 Class 1B.............. 1,209 1,168
Bear Stearns Mortgage Securities Inc.
Series 1992-04....................... 2,038 2,038
Capstead Securities Corp.
Series 1992-C-3...................... 1,376 1,312
Resolution Trust Corporation
Series 1991-M6....................... 1,177 1,177
Saxon Mortgage Security Corp.
Series 1993-04 Class 1A.............. 2,154 2,154
Gross unrealized gains and losses on mortgage-backed securities held to
maturity at March 31, 1997 were $102 thousand and $2.0 million, respectively,
and gross unrealized gains and losses on securities available for sale at March
31, 1997 were $3 and $772 thousand. There were no sales of mortgage-backed
securities in the first quarter of 1997. 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 amounted to $75.2 million at March 31, 1997 compared to
$85.1 million at December 31, 1996. The decrease of 12% from year end 1996
resulted primarily from the runoff of the IPF receivables and prepayment and
principal amortization from the commercial portfolio.
The following table sets forth the types of loans outstanding by
category as of March 31, 1997 and December 31, 1996 (dollars in thousands):
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
-------------- -----------------
Amount % Amount %
------ --- ------ ---
<S> <C> <C> <C> <C>
Commercial and industrial .......................... $ 40,944 54% $ 46,041 54%
Real estate:
Construction ..................................... 9,137 12 9,421 11
Mortgages-residential ............................ 9,456 13 10,219 12
Mortgages-commercial ............................. 15,169 20 15,985 19
Consumer ........................................... 911 1 3,827 4
-------- -------- -------- --------
Total gross loans ............................... 75,617 100% 85,493 100%
======== ========
Less:
Net unearned interest and fees ................... (425) (424)
-------- --------
Net loans ........................................ $ 75,192 $ 85,069
======== ========
</TABLE>
-18-
<PAGE>
To meet its asset/liability objectives and to control its interest rate
sensitivity exposure, the Bank's strategy is to originate loans with floating
rates and with maturities of less than five years. The following table provides
a breakdown of loans as of March 31, 1997 that have either predetermined
interest rates or floating rates:
<TABLE>
<CAPTION>
Within 1 After 1 But After 5 But
Year Within 5 Years Within 10 Years Total
---------- -------------- --------------- ------------
(in thousands)
<S> <C> <C> <C> <C>
Predetermined interest rates...... $ 3,393 $18,412 $ 8,468 $ 30,273
Floating rates.................... 41,861 3,483 --- 45,344
-------- --------- ----------- ---------
Total......................... $45,254 $21,895 $ 8,468 $ 75,617
======= ======= ======= ========
</TABLE>
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
$4.0 million, or 2.08%, of total assets at March 31, 1997, compared to $5.5
million, or 2.73%, of total assets at December 31,1996. The decrease in
non-performing assets in the 1997 first quarter was attributable to loan
charge-offs of $892 thousand in non-accruing loan balances, the sale of
repossessed properties and principal payments on seriously delinquent loans. The
following table sets forth the Bank's non-performing assets at March 31, 1997
and December 31, 1996:
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
-------------- -----------------
(in thousands, except percentages)
<S> <C> <C>
Non-accrual loans ...................................... $3,911 $3,837
Accruing loans 90 days or more past due ................ -- 977
------ ------
Total non-performing loans .......................... 3,911 4,814
Other real estate owned ................................ 96 700
------ ------
Total non-performing assets ......................... $4,007 $5,514
====== ======
Non-performing loans to period end loans ............... 5.20% 5.66%
Non-performing assets to total assets at period end .... 2.08 2.73
</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. No interest income was included in operating
income attributable to non-accrual loans in the first quarter of 1997.
Other real estate owned represents property acquired by foreclosure or
deed in lieu of foreclosure and repossessed assets. These assets are initially
reported at the lower of the related loan balance or the fair value of the
property. Management continues to evaluate the carrying value in relation to its
fair value less the estimated costs to sell.
At March 31, 1997, the recorded investment in loans that are considered
to be impaired was $3.9 million. The related allowance for credit losses for
these impaired loans was $866 thousand. The reserve evaluation was based on the
fair value of the collateral.
-19-
<PAGE>
As part of the quarterly review of the risk elements of the portfolio,
an evaluation is also made of the adequacy of the allowance for loan losses. In
making an assessment of the quality of the loan portfolio and the adequacy of
the allowance for loan losses, management takes into consideration such elements
as general economic conditions, industry trends, the volume of delinquencies,
specific credit review, the value of underlying collateral and other pertinent
information. Based on this evaluation, the allowance for loan losses is adjusted
by the provision which is charged against income. The following table
summarizes the activity in the allowance for loan losses for the three months
ended March 31, 1997 and 1996:
Three Months Ended March 31,
1997 1996
----------- -----------
Balance, beginning of period ................... $ 3,059,773 $ 6,500,882
Charge-offs:
Commercial and industrial .................... 695,143 413,961
Real estate - residential .................... 197,051 335,000
----------- -----------
Total charge-offs ......................... 892,194 748,961
=========== ===========
Recoveries:
Consumer ..................................... 306,932 --
----------- -----------
Total recoveries ......................... 306,932 --
----------- -----------
Net (charge-offs) recoveries ................... (585,262) (748,961)
----------- -----------
Provision (credited) charged to operations ..... (200,000) 175,000
----------- -----------
Balance, end of period ......................... $ 2,274,511 $ 5,926,921
=========== ===========
Annualized net charge-offs as a % of average
loans and loans held for sale ............. 2.97% 2.49%
Allowance for loan losses as a % of
period end loans and loans held for sale .. 3.02 4.65
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. The
following table sets forth the allocation of the Bank's allowance for loan
losses at March 31, 1997:
Amount
------
Commercial and industrial........................... $1,160,450
Real Estate:
Mortgages - residential........................... 333,550
Mortgages - commercial........................... 29,040
Unallocated......................................... 751,471
----------
$2,274,511
==========
Deposits
Total deposits at March 31, 1997 aggregated $177.2 million which was
comparable to total deposits at December 31, 1996 of $185.1 million. As
illustrated in the table below, the composition of deposits at March 31, 1997
has remained relatively consistent compared to the composition of deposits at
December 31, 1996 (dollars in thousands).
-20-
<PAGE>
March 31, 1997 December 31,1996
-------------------- --------------------
Balance % Balance %
-------- --- -------- ---
Demand ......................... $ 9,768 5% $ 10,986 6%
NOW and money market ........... 7,089 4 6,583 4
Savings ........................ 43,755 25 47,830 26
Certificates of deposit ........ 116,544 66 119,727 64
-------- --- -------- ---
$177,156 100% $185,126 100%
======== === ======== ===
Short-term Borrowings
Short-term borrowings are used to supplement the deposit base of the
Bank, to support asset growth, to fund specific loan programs and as a tool in
the Bank's asset/liability management process. During the first quarter of 1997
and 1996, the Bank 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 three months ended March 31, 1997 and 1996:
<TABLE>
<CAPTION>
Average Weighted
Amount Maximum Average
Balance Outstanding Outstanding Interest Average
Outstanding During at any Rate at Rate
3/31 the Period Month-End 3/31 Paid
----------- ----------- ------------- ---- ----
(in thousands, except percentages)
<C> <C> <C> <C> <C> <C>
1997: FHLB borrowings ........... $ -- $ 300,000 $ 1,000,000 -- 5.36%
1996: FHLB borrowings ........... $34,427,866 $35,178,650 $37,277,083 5.81% 6.22
Federal funds purchased.. -- 87,912 -- -- 6.17
----------- -----------
$34,427,866 $35,266,562 6.22
=========== ===========
</TABLE>
Results of Operations
Regent, the holding company for the Bank, reported a net loss for the
first quarter of 1997 of $180 thousand versus net income for the comparable
quarter of 1996 of $218 thousand. The loss for the first quarter of 1997 was
primarily related to a reduction in interest income from $5.3 million for the
first quarter of 1996 to $4.0 million for the first quarter of 1997, which was
25% lower due to a strategically planned decrease in the Bank's earning assets
of 27% that was necessary to improve the Bank's regulatory capital ratios. The
positive effect on earnings of the $200 thousand negative provision for loan
losses in the first quarter of 1997 compared to a provision of $175 thousand in
the first quarter of 1996 and the increase in noninterest income from $28
thousand in the first quarter of 1996 compared to $578 thousand in the first
quarter of 1997 was more than offset by an increase in noninterest expense to
$2.5 million in the first quarter of 1997 from $1.5 million in the first quarter
of 1996.
-21-
<PAGE>
Net Interest Income
Net interest income for the first quarter of 1997 was $1.6 million, a
23% decrease from $2.1 million for the first quarter of 1996. The net interest
margin for the first quarter of 1997 increased to 3.36% from 3.21% for the
comparable period of 1996. Included in interest income is interest and fees on
IPF receivables, which accounted for 6% and 14% of interest income in the first
quarter of 1997 and 1996, respectively. Excluding these high-yielding assets
from the net interest margin because of the cessation of new IPF business
originations in September 1996, the estimated net interest margin for the first
quarters of 1997 and 1996 assuming IPF receivables yielded the same as
investment securities would have been 2.80% and 2.50%, respectively. The net
interest income and net interest margin are lower than management deems
reasonable for comparably sized institutions. Improvement is expected with
increased loan volume, higher relative levels of demand and savings deposits and
the benefit from the new capital invested in the Bank in April 1997.
The following table sets forth a rate/yield analysis for the three
months ended March 31, 1997 and 1996:
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------------------------------------------------------------
1997 1996
Average Income/ Rate/ Average Income/ Rate
Balance Expense Yield Balance Expense Yield
-------- -------- ----- -------- -------- -----
(in thousands, except for percentages)
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C>
Securities ............................ $109,514 $ 1,857 6.78% $136,875 $ 2,280 6.66%
Loans ................................. 78,798 2,142 10.87 120,545 3,063 10.22
-------- -------- ----- -------- -------- -----
Total ............................ $188,312 $ 3.999 8.55% $257,420 $ 5,343 8.30%
======== ======== ===== ======== ======== =====
Interest-bearing liabilities:
NOW accounts .......................... $ 3,861 $ 23 2.44% $ 3,965 $ 23 2.33%
Savings ............................... 45,860 552 4.88 49,671 603 4.87
Money market deposits ................. 3,482 37 4.36 3,712 36 3.89
Time deposits ......................... 114,524 1,737 6.14 124,112 1,917 6.20
Short-term borrowings ................. 300 4 5.36 35,266 547 6.22
Long-term advances .................... 201 3 6.70 10,209 107 4.12
Subordinated debt ..................... 2,750 53 7.75 2,750 54 7.75
-------- -------- ----- -------- -------- -----
Total ............................ $170,978 $ 2,409 5.71% $229,685 $ 3,287 5.74%
======== ======== ===== ======== ======== =====
Non-interest bearing
sources of funds ...................... $ 17,334 $ 27,735
-------- --------
Net interest income and
net interest spread ................... $ 1,590 2.84% $ 2,056 2.56%
======== ==== ======== =====
Net interest rate margin .................. 3.36% 3.21%
==== =====
</TABLE>
Provision for Loan Losses
Management evaluated the allowance for loan losses at March 31, 1997
and determined that it could be reduced by $200 thousand; this reduction was
accounted for as a negative provision for loan losses. This negative provision
compares with a $175 thousand expense reported in the first quarter of 1996.
-22-
<PAGE>
Non-interest Income
Total non-interest income was approximately $578 thousand, $545
thousand of which was due to a net gain on sales of assets. Service charges and
other fees were approximately 17% higher in the first quarter of 1997 versus a
year earlier due to relatively small, nonrecurring items. Net gain on sale of
assets included a $722 thousand gain on the sale of loans and loan
participations to Carnegie offset by losses incurred on the disposition of
repossessed properties.
Non-interest Expense
Total non-interest expense for the first quarter of 1997 was $2.5
million, a 65% increase from $1.5 million in the first quarter of 1996.
Excluding the aforementioned reimbursement to Carnegie for merger-related
expenses, the increase would have been 18%. This increase in 1997 versus 1996
was primarily attributable to a temporary duplication of salaries of new senior
management while the former officers were being paid pursuant to contractual
agreements, some additions to the lending and credit staff and an increase in
FDIC insurance costs. These increases were partially offset by lower costs for
servicing and collecting the IPF receivables.
Provision for Income Taxes
There was no income tax expense in the first quarter of 1997, as the
Bank continued to maintain a valuation allowance on its deferred tax asset of
approximately $1.6 million. A tax expense of $145 thousand was reported in the
first quarter of 1996.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
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 the
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. 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 had 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
-23-
<PAGE>
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 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 a Processing, Servicing,
Marketing and Consulting Agreement (the "Servicing Agreement") until 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.
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 ex cept 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 $3.0 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
-24-
<PAGE>
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 expense was $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 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).
The Regulatory Agreement required that the Bank, subject to OCC review
or approval, (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 FRBP formally notified Regent in
-25-
<PAGE>
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.
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 $1.0 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.
-26-
<PAGE>
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.
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
- ------ ----------------- ----------------- -------
Risk-based capital:
<S> <C> <C> <C>
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
<CAPTION>
Required
Regulatory
The Bank December 31, 1996 December 31, 1995 Minimum
- -------- ----------------- ----------------- -------
Risk-based capital:
<S> <C> <C> <C>
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
-27-
<PAGE>
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 corrective action provisions of the 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 "ade-
quately 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
-28-
<PAGE>
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 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 environ-
ments.
-29-
<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 HTM or AFS which are accounted for and
reported based on the guidelines contained in FAS 115. 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 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 classi
fied as AFS and as HTM at December 31, 1996, 1995 and 1994.
-30-
<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 ............................... $ -- $ 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>
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.
-31-
<PAGE>
Carrying Value Market Value
-------------- ------------
(in thousands)
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
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.
-32-
<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 and 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 and 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:
After 1
Within But Within After
1 Year 5 Years 5 Years Total
------- ------- ------- -------
(in thousands)
Commercial and 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
======= ======= ======= =======
-33-
<PAGE>
The table below provides a breakdown of loans as of December 31, 1996
that have either predetermined interest rates or floating rates:
After 1
Within But Within After
1 Year 5 Years 5 Years Total
------- ------- ------- -------
(in thousands)
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
======= ======= ======= =======
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.
-34-
<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:
-35-
<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.
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:
<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 and 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 and 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.
-36-
<PAGE>
(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:
<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)
Commercial and
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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>
Demand........................... $ 10,705.2 --- $ 10,404.0 --- $12,651.3 ---
NOW and 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>
-37-
<PAGE>
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
=========
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>
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-inter-
est expenses of $3 million which more than offset an increase in net interest
income of $2.8 million.
-38-
<PAGE>
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 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
-39-
<PAGE>
28% of total average interest-bearing liabilities. The cost of interest-bearing
liabilities was 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 Expense
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 Consoli-
dated 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.
-40-
<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.
-41-
<PAGE>
Volume and Rate Variance Analysis
Net interest income is affected by changes in the average interest rate
earned on earning assets and the average interest rate paid on interest-bearing
liabilities. In addition, net interest income is 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.
-42-
<PAGE>
BUSINESS
Regent
Regent is a one bank holding company registered under the BHCA. Regent
was incorporated under the laws of the Commonwealth of Pennsylvania on December
22, 1986 and on November 23, 1987 was merged into a New Jersey corporation with
the same name (and which was incorporated on November 2, 1987), with the New
Jersey corporation being the surviving entity. Regent became a bank holding
company on June 2, 1989 when it completed the acquisition of all of the
authorized capital stock of the Bank, 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 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 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 individ uals, 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 currently 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 March 31, 1997, the Bank had $192.7 million in assets, $177.2
million in deposits and $72.9 million in net loans. The Bank's primary service
area for CRA 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 enforcement activities and generally have
been promulgated to protect depositors and deposit insurance funds and not for
the purpose of protecting stockholders. 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. See
"Supervision and Regulation."
-43-
<PAGE>
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 Indi vidual 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 April 30, 1997, the
Bank's maximum legal lending limit was approximately $3.3 million per borrower,
after giving effect to the receipt of $9.1 million in net proceeds from the
private placement of 1,120,000 shares of Bank Common Stock in the Bank Offering
on April 16, 1997.
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 March 31, 1997, Regent and the Bank had a total of 45 employees,
excluding temporary employees engaged in the collection of 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 stockholders, directors, officers and staff to Delaware Valley
businesses and residents.
In recent years, intense market demands, economic pressures and
significant legislative and regulatory action have eroded traditional banking
industry classifications which were once clearly defined and have increased
competition among banks, as well as between banks and other financial
institutions. As a result, banks and other financial institutions have had to
diversify their services, generally increase interest paid on deposits and
become more cost effective. These events have resulted in increasing homogeneity
in the financial services offered by banks and other financial institutions.
Some of the effects on banks and other financial institutions of these market
dynamics and legislative and regulatory changes include increased customer
awareness of product and service differences among competitors and increased
merger activity.
-44-
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.
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 the Regulatory Agreement.
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. 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., in which it asserted claims
against K-C Insurance Premium 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 the Servicing Agreement with
Regent to provide a variety of
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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 of $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 June 1, 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.
On November 27, 1996, Regent filed a complaint in the United States
District Court for the Eastern District of Pennsylvania, Regent National Bank v.
Dealers Choice Automotive Planning, Inc. and Payments, Inc. 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.
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 com-
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<PAGE>
plaint 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.
Change in Accountants
Pursuant to the Regulatory Agreement, the Bank retained a forensic
accounting firm to investigate 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 report 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
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<PAGE>
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 Notes 3 and 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."
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 Arthur Andersen's resignation, Arthur 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
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<PAGE>
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 leverage 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.
SUPERVISION AND REGULATION
Bank holding companies and banks are extensively regulated under both
federal and state law. These laws and regulations are intended to protect
depositors, not stockholders. To the extent that the following information
describes statutory and regulatory provisions, it is qualified in its entirety
by reference to the particular statutory and regulatory provisions. Any change
in the applicable laws or regulations may have a material effect on the business
and prospects of Regent or the Bank.
General - Recent Regulatory Enactments
On September 30, 1996, the Deposit Insurance Funds Act of 1996 (the
"Deposit Act") became law. The primary purpose of the Deposit Act is to
recapitalize the Savings Association Insurance Fund of the FDIC (the "SAIF") by
charging all SAIF member institutions a one-time special assessment. The Deposit
Act will lead to equalization of the deposit insurance assessments between banks
and SAIF-insured institutions, and will also separate out from insurance
assessments payments required for debt service and principal repayment on bonds
issued by the Federal Finance Corporation ("FICO") in the mid-1980s to fund a
portion of the thrift bailout. Under the Deposit Act, BIF-insured institutions
will, for the first time, be required to pay a portion of the obligations owed
under the FICO bonds. The rate of contribution between SAIF and BIF member
institutions will not be equal, and it is currently anticipated that SAIF
institutions will be required to pay 6.4 basis points on assessed deposits while
BIF institutions will only be required to pay 1.3 basis points on assessed
deposits. This disparity will stay in effect until such time as the federal
thrift and commercial bank charters are merged and the deposit insurance funds
are thereafter merged. Under the Deposit Act, this may occur by January 1, 1999.
At that time, all federally insured institutions should have the same total FDIC
assessment.
On September 29, 1994, the Riegle-Neal Interstate Banking and Branching
Efficiency Act (the "Interstate Act") was enacted. The Interstate Act generally
enhances the ability of bank holding companies to conduct their banking
business across state borders. The Interstate Act has two main provisions. The
first provision generally provides that, commencing on September 29, 1995, bank
holding companies may acquire banks located in any state regardless of the
provisions of state law. These acquisitions are subject to certain restrictions,
including caps on the total percentage of deposits that a bank holding company
may control both nationally and in any single state. Pennsylvania law currently
allows interstate acquisitions by bank holding companies whose home state has
"reciprocal" legislation which would allow acquisitions by Pennsylvania-based
bank holding companies.
The second major provision of the Interstate Act permits banks located in
different states to merge and continue to operate as a single institution in
more than one state. States may, by legislation passed before June 1, 1997, opt
out of the interstate bank merger provisions of the Interstate Act.
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<PAGE>
A final provision of the Interstate Act permits banks located in one state
to establish new branches in another state without obtaining a separate bank
charter in that state, but only if the state in which the branch is located has
adopted legislation specifically allowing interstate de novo branching.
Bank Holding Company Regulation
General
As a bank holding company registered under the BHCA, Regent is subject to
the regulation and supervision of the Federal Reserve Board (the "FRB"). Regent
is required to file with the FRB annual reports and other information regarding
its business operations and those of its subsidiaries. Under the BHCA, Regent's
activities and those of its subsidiaries are limited to banking, managing or
controlling banks, furnishing services to or performing services for its
subsidiaries or engaging in any other activity which the FRB determines to be
so closely related to banking or managing or controlling banks as to be properly
incident thereto.
The BHCA requires, among other things, the prior approval of the FRB in any
case where a bank holding company proposes to (i) acquire all or substantially
all of the assets of any other bank, (ii) acquire direct or indirect ownership
or control of more than 5% of the outstanding voting stock of any bank (unless
it owns a majority of such bank's voting shares) or (iii) merge or consolidate
with any other bank holding company. The FRB will not approve any acquisition,
merger or consolidation that would have a substantially anti-competitive effect,
unless the anti-competitive impact of the proposed transaction is clearly
outweighed by a greater public interest in meeting the convenience and needs of
the community to be served. The FRB also considers capital adequacy and other
financial and managerial resources and future prospects of the companies and
the banks concerned, together with the convenience and needs of the community to
be served, when reviewing acquisitions or mergers.
In addition, the BHCA prohibits a bank holding company, with certain
limited exceptions, from (i) acquiring or retaining direct or indirect ownership
or control of more than 5% of the outstanding voting stock of any company which
is not a bank or bank holding company or (ii) engaging directly or indirectly in
activities other than those of banking, managing or controlling banks, or
performing services for its subsidiaries; unless such non-banking business is
determined by the FRB to be so closely related to banking or managing or
controlling banks as to be properly incident thereto. In making such
determinations, the FRB is required to weigh the expected benefits to the
public, such as greater convenience, increased competition or gains in
efficiency, against the possible adverse effects, such as undue concentration of
resources, decreased or unfair competition, conflicts of interest or unsound
banking practices.
There are a number of obligations and restrictions imposed on bank holding
companies and their depository institution subsidiaries by law and regulatory
policy that are designed to minimize potential loss to the depositors of such
depository institutions and the FDIC insurance funds in the event the depository
institution becomes in danger of default. Under a policy of the FRB with respect
to bank holding company operations, a bank holding company is required to serve
as a source of financial strength to its subsidiary depository institutions and
to commit resources to support such institutions in circumstances where it
might not do so absent such policy. The FRB also has the authority under the
BHCA to require a bank holding company to relinquish control of a non-bank
subsidiary
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<PAGE>
upon the FRB's determination that such activity or control constitutes a serious
risk to the financial soundness and stability of any bank subsidiary of the bank
holding company.
Capital Adequacy Guidelines for Bank Holding Companies
In January 1989, the FRB adopted risk-based capital guidelines for bank
holding companies. The risk-based capital guidelines are designed to make
regulatory capital requirements more sensitive to differences in risk profile
among banks and bank holding companies, to account for off-balance sheet
exposure and to minimize disincentives for holding liquid assets. Under these
guidelines, assets and off-balance sheet items are assigned to broad risk
categories each with appropriate weights. The resulting capital ratios represent
capital as a percentage of total risk-weighted assets and off-balance sheet
items.
The minimum ratio of total capital to risk-weighted assets (including
certain off-balance sheet activities, such as standby letters of credit) is 8%.
At least 4% of the total capital is required to be "Tier 1 Capital," consisting
of common shareholders' equity, noncumulative perpetual preferred stock and a
limited amount of cumulative perpetual preferred stock, less certain goodwill
items and other intangible assets. The remainder ("Tier 2 Capital") may consist
of (i) the allowance for loan losses of up to 1.25% of risk-weighted assets,
(ii) excess of qualifying perpetual preferred stock, (iii) hybrid capital
instruments, (iv) perpetual debt, (v) mandatory convertible securities and (vi)
subordinated debt and intermediate-term preferred stock up to 50% of Tier 1
Capital. Total capital is the sum of Tier 1 and Tier 2 capital less reciprocal
holdings of other banking organizations' capital instruments, investments in
unconsolidated subsidiaries and any other deductions as determined by the FRB
(determined on a case by case basis or as a matter of policy after formal
rule-making).
Bank holding company assets are given risk-weights of 0%, 20%, 50% and
100%. In addition, certain off-balance sheet items are given similar credit
conversion factors to convert them to asset equivalent amounts to which an
appropriate risk-weight will apply. These computations result in the total
risk-weighted assets. Most loans are assigned to the 100% risk category, except
for performing first mortgage loans fully secured by residential property which
carry a 50% risk-weighting. Most investment securities (including, primarily,
general obligations of states or other political subdivisions of the United
States) are assigned to the 20% category, except for municipal or state revenue
bonds, which have a 50% risk-weight, and direct obligations of the U.S. Treasury
or obligations backed by the full faith and credit of the U.S. Government, which
have a 0% risk-weight. In converting off-balance sheet items, direct credit
substitutes, including general guarantees and standby letters of credit backing
financial obligations, are given a 100% risk-weighting. Transaction-related
contingencies such as bid bonds, standby letters of credit backing nonfinancial
obligations and undrawn commitments (including commercial credit lines with an
initial maturity or more than one year) have a 50% risk-weighting. Short-term
commercial letters of credit have a 20% risk-weighting and certain short-term
unconditionally cancelable commitments have a 0% risk-weighting.
In addition to the risk-based capital guidelines, the FRB has adopted a
minimum Tier 1 capital (leverage) ratio, under which a bank holding company must
maintain a minimum level of Tier 1 capital to average total consolidated assets
of at least 3% in the case of a bank holding company that has the highest
regulatory examination rating and is not contemplating significant growth or
expansion. All other bank holding companies are expected to maintain a leverage
ratio of at least 100 to 200 basis points above the stated minimum.
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<PAGE>
Bank Regulation
The Bank is a national bank subject to the supervision of, and regular
examination by, the OCC, as well as to the supervision of the FDIC. The FDIC
insures the deposits of the Bank to the current maximum allowed by law through
the BIF.
The operations of the Bank are subject to state and federal statutes
applicable to banks which are members of the Federal Reserve System and to the
regulations of the FRB, the FDIC and the OCC. Such statutes and regulations
relate to required reserves against deposits, investments, loans, mergers and
consolidations, issuance of securities, payment of dividends, establishment of
branches and other aspects of the Bank's operations. Various consumer laws and
regulations also affect the operations of the Bank, including state usury laws,
laws relating to fiduciaries, consumer credit and equal credit and fair credit
reporting. Under the provisions of the Federal Reserve Act, the Bank is subject
to certain restrictions on any extensions of credit to Regent or, with certain
exceptions, other affiliates, on investments in the stock or other securities
of national banks, and on the taking of such stock or securities as collateral.
These regulations and restrictions may limit Regent's ability to obtain funds
from the Bank for its cash needs, including funds for acquisitions, and the
payment of dividends, interest and operating expenses. Further, the Bank is
prohibited from engaging in certain tying arrangements in connection with any
extension of credit, lease or sale of property. For example, the Bank may not
generally require a customer to obtain other services from the Bank or Regent,
and may not require the customer to promise not to obtain other services from a
competitor, as a condition to an extension of credit. The Bank also is subject
to certain restrictions imposed by the Federal Reserve Act on extensions of
credit to executive officers, directors, principal stockholders or any related
interest of such persons. Extensions of credit (i) must be made on
substantially the same terms (including interest rates and collateral) as, and
following credit underwriting procedures that are not less stringent than those
prevailing at the time for, comparable transactions with persons not covered
above and who are not employees and (ii) must not involve more than the normal
risk of repayment or present other unfavorable features. In addition, extensions
of credit to such persons beyond limits set by FRB regulations must be approved
by the Board of Directors. The Bank also is subject to certain lending limits
and restrictions on overdrafts to such persons. A violation of these
restrictions may result in the assessment of substantial civil monetary
penalties on the Bank or any officer, director, employee, agent or other person
participating in the conduct of the affairs of the Bank or the imposition of a
cease and desist order.
As an institution whose deposits are insured by the FDIC, the Bank also is
subject to insurance assessments imposed by the FDIC. Under current law, as
amended by FDICIA, the insurance assessment to be paid by BIF-insured
institutions is as specified in schedules issued by the FDIC from time to time.
The amount of the assessment is determined in part to allow for a minimum BIF
reserve ratio of 1.25% of estimated insured deposits (or such higher ratio as
the FDIC may determine in accordance with the statute). In November 1995, the
FDIC determined that the BIF had reached the statutorily required reserve ratio
and adopted a proposal to establish a new assessment rate schedule for BIF
members of 0 to 31 basis points, with those institutions at the low end of the
assessment schedule paying only the statutorily mandated $2,000 annual
insurance premium. The actual assessment to be paid by each BIF member is based
on the institution's assessment risk classification, which is determined on
whether the institution is considered "well capitalized," "adequately
capitalized" or "under-capitalized," as those terms have been defined in
applicable federal regulations adopted to implement the prompt corrective action
provisions of FDICIA, and whether such institution is considered by its
supervisory agency to be financially sound or to have supervisory concerns.
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<PAGE>
Inasmuch as the Bank is located in Pennsylvania, certain matters relating
to interstate banking are governed by Pennsylvania law. In July 1995,
Pennsylvania enacted legislation by which it "opted in" to the Interstate Act.
Prior to adopting this legislation, Pennsylvania law permitted interstate
acquisitions by bank holding companies only when home states had "reciprocal"
legislation that allowed acquisitions by Pennsylvania based bank holding
companies. Under the Interstate Act, the provisions requiring reciprocal
authorization have been eliminated. The new legislation, however, retained the
requirement of approval by the Pennsylvania Department of Banking with respect
to any acquisition of a national bank located in Pennsylvania, regardless of the
location of the acquiror. The Pennsylvania legislation also conditioned the
authorization for interstate branching into Pennsylvania by an out-of-state bank
to those situations in which a Pennsylvania-chartered institution would be
permitted to establish a branch in such other state.
MANAGEMENT
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:
<TABLE>
<CAPTION>
Name Age Position with Regent
---- --- --------------------
<S> <C> <C>
David W. Ring 81 Chairman of the Board and a Director
since 1986; Chief Executive Officer
from September 1996 to April 1997.
Robert B. Goldstein 56 President, Chief Executive Officer and
a Director since April 1997; Chairman
and Chief Executive Officer of the Bank
since April 1997
Abraham L. Bettinger 61 Vice Chairman of the Board and a
Director since 1986
O. Francis Biondi 64 Director since 1986
Joel E. Hyman 48 Executive Vice President, Chief Financial
Officer and Treasurer since January 1997
John J. Lyons 57 Director since May 1997; President and Chief
Executive Officer of the Bank from Sep-
tember 1996 to April 1997; director of
the Bank from September 1996 to May 1997
John W. Rose 47 Director since May 1997
</TABLE>
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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 of Regent and a Director of Regent and the Bank. From December 1986
until April 1997, Mr. Ring also served as Chairman of the Board of the Bank. In
addition, from September 1996 until April 1997, Mr. Ring served as Chief
Executive Officer of Regent. Mr. Ring was formerly a consultant to, and a
director of, Larami Corporation, a toy manufacturer, a director and a
controlling stockholder 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. Goldstein became Chairman, Chief Executive Officer and a Director of
the Bank and President, Chief Executive Officer and a Director of Regent in
April 1997. Mr. Goldstein is serving in these positions pursuant to an
Employment Agreement, dated April 7, 1997, among Regent, the Bank and Mr.
Goldstein which provides for an initial term of three years, such term to extend
automatically for additional periods of one year unless terminated by one of the
parties. See "Executive Compensation" and "Employment Agreements" for
information regarding the compensation of Mr. Goldstein. Mr. Goldstein succeeded
John J. Lyons who served as the Bank's President and Chief Executive Officer on
an interim basis until April 1997 following the resignation of Harvey Porter as
the Bank's President and Chief Executive Officer in September 1996. Mr.
Goldstein has been engaged in commercial banking for over 30 years. From
November 30, 1993 until immediately prior to his employment by Regent and the
Bank, Mr. Goldstein served as President and Chief Executive Officer and a
director of Lafayette American Bank in Bridgeport, Connecticut. Mr. Goldstein
served as Vice Chairman of the Board of National Community Banks, Inc. in West
Paterson, New Jersey from January 1992 to November 1993 and as President and a
director of Crossland Savings Bank in Brooklyn, New York from March 1991 to
January 1992. From 1974 to 1991, Mr. Goldstein served as Senior Vice President
and then Executive Vice President of First Interstate Bank of Texas in Houston,
Texas. Mr. Goldstein is a director of HUBCO, Inc., a bank holding company in
Mahwah, New Jersey.
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 the Bank since 1986.
Mr. Bettinger also served as Vice Chairman of the Board of Directors of Regent
from 1986 to April 1997. 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. See "Certain
Transactions." 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.
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 performed professional
services for Regent during 1996. See "Certain Transactions." From 1974 to 1983,
he was a director and a controlling stockholder 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.
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Mr. Lyons has been a director of Regent since May 1997. Mr. Lyons is a
professional banking consultant and served as President and Chief Executive
Officer of the Bank on an interim basis from September 1996 until April 1997
when Mr. Goldstein took office. Mr. Lyons was a director of the Bank from
September 1996 until May 1997. Mr. Lyons is the former President, Chief
Executive Officer and a director of Monarch Savings Bank and of Jupiter
Tequesta National Bank. Mr. Lyons is also a director of Bisys Group, Inc.
Mr. Rose has been a director of Regent since May 1997. Mr. Rose has served
as Executive Vice President of F.N.B. Corporation, a multi-bank holding company
located in Hermitage, Pennsylvania, since March 1995. Since May 1996, Mr. Rose
has been a general partner and head of the investment committee of Castle Creek
Capital Partners Fund, a fund that invests in turnaround banking situations.
Since January 1992, Mr. Rose has been President and Owner of McAllen Capital
Partners, an investment banking firm that specialized in bank turnaround
investments and which has been inactive since the formation of Castle Creek
Capital Partners Fund. From May 1988 to January 1992, Mr. Rose was President of
Livingston Financial Group, an investor in turnaround opportunities in community
banks.
Executive Officers
On January 21, 1997, Joel E. Hyman became the Executive Vice President,
Chief Financial Officer and Treasurer of the Bank and Regent. See "Executive
Compensation" and "Employment Agreements." From 1993 to 1996, Mr. Hyman served
as Executive Vice President, Chief Financial Officer and Treasurer of Farmers &
Mechanics Bank 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 thereto, he served in various officer-level capacities in the
Financial Division of Connecticut Bank & Trust Co. in Hartford, Connecticut from
1977 to 1990.
On April 14, 1997, Amanda V. Perkins began serving as Executive Vice
President and Chief Lending Officer of the Bank. The Bank does not have an
employment agreement with Ms. Perkins. From November 30, 1993 until immediately
prior to her engagement by the Bank, Ms. Perkins served as Executive Vice
President and Chief Credit Officer of Lafayette American Bank in Bridgeport,
Connecticut. Prior thereto, Ms. Perkins was Senior Vice President and Deputy
Chief Credit Officer of National Community Bank in West Paterson, New Jersey
from January 1992 to November 1993.
Barbara H. Teaford has served as President of Regent since April 1997 and,
prior thereto, had served as the Executive Vice President and a director of
Regent since 1986. She had 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.
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<PAGE>
Executive Compensation
The following table sets forth the compensation for the years ended
December 31, 1996, 1995 and 1994 of (i) each person who served at any time
during 1996 as the chief executive officer of Regent and (ii) each other
executive officer of Regent and the Bank whose salary exceeded $100,000 in the
year ended December 31, 1996. No bonuses were paid to executive officers during
1996.
Summary Compensation Table
Annual Compensation
----------------------------
Name and Principal Position Year Salary($)
- --------------------------- ---- ---------
John J. Lyons, President and Chief 1996 $ 51,923
Executive Officer of the Bank (1)
Harvey Porter, President and Chief 1996 $159,872
Executive Officer of Regent and 1995 175,672
the Bank (2) 1994 164,479
David W. Ring, Chief Executive 1996 $ 55,500
Officer of Regent (3) 1995 65,000
1994 65,000
Barbara H. Teaford, Executive Vice 1996 $110,692
President and Secretary of Regent 1995 118,939
and the Bank (4) 1994 109,300
- ----------
(1) Mr. Lyons served as President and Chief Executive Officer of the Bank from
September 1996 until April 14, 1997 when Mr. Goldstein became Chairman and
Chief Executive Officer of the Bank. Mr. Lyons was compensated at the rate
of $180,000 per year.
(2) Includes salary payment to Mr. Porter after his resignation in September
1996 for reasons of ill health. Mr. Porter will receive salary payments of
$10,433 per month from the Bank through September 1997.
(3) Mr. Ring served as Chief Executive Officer of Regent from September 1996
until April 14, 1997 when Mr. Goldstein became President and Chief
Executive Officer of Regent.
(4) Mrs. Teaford became President of the Bank on April 14, 1997.
There is no other annual compensation or long-term compensation that is
required to be disclosed in the foregoing table.
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<PAGE>
Employment Agreements
Compensation for Mr. Goldstein is paid pursuant to an employment agreement,
the initial term of which is three years, and thereafter automatically extends
on each anniversary of the effective date of his employment for successive
one-year periods, subject to prior written notice of termination by Mr.
Goldstein or the Bank, in each case no later than 90 days prior to the
expiration of the then current term. Mr. Goldstein will receive an annual base
salary of $200,000, which increases 15% each year, an annual bonus ranging from
25% to 50% of his annual base salary depending upon achievement of specified
performance objectives, a signing bonus of $50,000, options to purchase 150,000
shares of Regent Common Stock and various other benefits, including the use of a
Mercedes Benz E420 automobile and a housing allowance of $4,000 per month to
assist Mr. Goldstein in establishing a residence in the Greater Philadelphia
area. Mr. Goldstein is also entitled to change in control benefits of 2.99 times
his annual salary and bonus in the event that, during the 270 days prior to or
the 180 days subsequent to a Change in Control of Regent, or of the Bank if the
Bank is a successor to Regent, Mr. Goldstein (i) resigns for Good Reason or
within 180 days after a Change in Control, (ii) is terminated without Cause or
(iii) dies or becomes subject to a Permanent Disability, in each case as such
capitalized term is defined in the agreement. The agreement with Mr. Goldstein
provides for the continued payment of Mr. Goldstein's salary and provision of
life, health and disability coverage for Mr. Goldstein and his eligible
dependents for the lesser of the initial term of his employment, as provided in
the agreement, or three years, in the event that the Bank terminates Mr.
Goldstein's employment other than for Cause, as defined in the agreement.
Compensation for Mrs. Teaford is paid pursuant to an 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 Mrs. 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 Joel E. Hyman, who became Executive Vice President, Chief
Financial Officer and Treasurer of Regent and the Bank in January 1997, is paid
pursuant to an employment agreement dated as of January 21, 1997 among Regent,
the Bank and Mr. Hyman, the initial term of which is three years, and thereafter
automatically extends on each anniversary of his employment for successive
one-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 expiration of the then
current term. The agreement provides for an initial annual salary at the rate of
$110,000, options to purchase 25,000 shares of Regent Common Stock and various
other benefits. Mr. Hyman is also entitled to change in control benefits of 2.99
times his annual salary plus any discretionary bonus paid during the preceding
12 months in the event that, during the 270 days prior to or the 180 days
subsequent to a Change in Control of Regent, or of the Bank if the Bank is a
successor to Regent, Mr. Hyman resigns for Good Reason, is terminated without
Cause or dies or becomes subject to Permanent Disability, in each case as such
capitalized term is defined in the agreement. The agreement with Mr. Hyman
provides for the continuation of Mr. Hyman's salary and employee benefits for
the term of employment in the event that the Bank terminates Mr. Hyman's
employment other than for Cause, as defined in the agreement.
During the year ended December 31, 1996, Regent did not grant any stock
options to any executive officer named in the Summary Compensation Table, nor
did any such officer exercise any op-
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<PAGE>
tions held during 1996. At December 31, 1996, no executive officer named in
the Summary Compensation Table held any stock option or warrant to purchase any
securities of Regent.
1997 Equity Incentive Plan
The Board of Directors of Regent adopted the Plan on March 26, 1997 and the
holders of Regent Common Stock and Series A Stock adopted the Plan on May 28,
1997. The purpose of the Plan is to further the growth, development and
financial success of Regent and the Bank by enhancing the ability of Regent and
the Bank to attract and retain highly qualified directors, officers, employees
and consultants, to compensate them for their services to Regent and the Bank,
as the case may be, and, in so doing, to strengthen the alignment of the
interests of such individuals with the interests of Regent's stockholders
through ongoing ownership of Regent's Common Stock.
The Plan provides for the grant of non-qualified stock options (the
"Options") to purchase an aggregate of 380,000 shares of Regent Common Stock to
directors, officers, employees and consultants of Regent and/or the Bank. The
number of persons who are eligible to participate in the Plan is currently 15.
The following table sets forth grants of Options made under the Plan as of
April 30, 1997;
NEW PLAN BENEFITS
<TABLE>
<CAPTION>
Exercise Price Number of Shares
Name and Position Per Share Underlying Options
----------------- --------- ------------------
<S> <C> <C>
Robert B. Goldstein, President and Chief $6.75 150,000
Executive Officer of Regent; Chairman
of the Board and Chief Executive
Officer of the Bank
Joel E. Hyman, Executive Vice President, 6.75 25,000
Chief Financial Officer and Treasurer
of Regent and the Bank
Executive Officers as a Group(1) 6.75 175,000
Non-Executive Director Group 6.75 50,000
Non-Executive Officer Employee 6.75 45,000
Group
</TABLE>
- --------------
(1) In addition to the grants shown in the foregoing table, Options to purchase
an aggregate of 75,000 shares of Regent Common Stock at a per share
exercise price of $6.75 have been reserved for grant to Barbara H.
Teaford, Amanda V. Perkins and certain other Bank officers, subject to the
satisfaction of certain conditions precedent.
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<PAGE>
Appropriate adjustments to outstanding Options and to the number or kind of
shares subject to the Plan are provided for in the event of a stock split,
reverse stock split, stock dividend, share combination or reclassification and
certain other types of corporate transactions involving Regent, including a
merger or a sale of all or substantially all of the assets of Regent.
The Plan is currently administered by the Board of Directors of Regent. The
Board of Directors of Regent may, from time to time, appoint a committee to
administer the Plan. The Board of Directors or such committee (collectively, the
"Board") has the power to determine the persons to whom Options will be granted,
the number of Options to be granted, the timing of such grant and the terms of
exercise of such Options, interpret the Plan, decide all questions of fact
arising in its application and make all other determinations necessary or
advisable for the administration of the Plan.
Options
The exercise price of Options granted under the Plan will be set by the
Board and may not be less than 100% of the fair market value per share of Regent
Common Stock on the date that the Option is granted, but in no event less than
the par value of the Common Stock.
Options will be evidenced by written agreements in such form not
inconsistent with the Plan as the Board shall approve from time to time. Each
agreement will state the period or periods of time within which the Option may
be exercised. The Board may accelerate the exercisability of any Options upon
such circumstances and subject to such terms and conditions as the Board deems
appropriate. Unless the Board accelerates exercisability, or the terms of an
employment agreement among Regent, the Bank and the particular individual
provide otherwise, no Option that is unexercisable at the time of the optionee's
termination of service as a director, officer, employee or consultant of Regent
or the Bank may thereafter become exercisable. No Option may be exercised after
five years from the date of grant. If an Option expires or is canceled for any
reason without having been fully exercised or vested, the number of shares
subject to such Option that had not been purchased or become vested may again be
made subject to an Option under the Plan.
The option price must be paid in full at the time of exercise unless
otherwise determined by the Board. Payment must be made in cash, in shares of
Regent Common Stock valued at their then fair market value, or a combination
thereof, as determined in the discretion of the Board. It is the policy of the
Board that any taxes required to be withheld must also be paid at the time of
exercise. The Board may, in its discretion, allow an optionee to enter into an
agreement with Regent's transfer agent or a brokerage firm of national standing
whereby the optionee will simultaneously exercise the Option and sell the shares
acquired thereby and either Regent's transfer agent or the brokerage firm
executing the sale will remit to Regent from the proceeds of sale the exercise
price of the shares as to which the Option has been exercised as well as the
required amount of withholding.
Amendment or Termination
The Plan will remain in effect until all Options granted under the Plan
have been satisfied by the issuance of shares, except that no Options may be
granted under the Plan after March 25, 2007. The Board may terminate, modify,
suspend or amend the Plan at any time, subject to any required stockholder
approval or any stockholder approval that the Board may deem to be advisable for
any
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<PAGE>
reason, such as for the purpose of obtaining or retaining any statutory or
regulatory benefits under tax, securities or other laws or satisfying any
applicable stock exchange listing requirements. No modification, amendment or
termination of the Plan will alter or impair any rights or obligations under any
outstanding Option without the consent of the optionee. No Option may be granted
during any period of suspension nor after termination of the Plan.
Federal Income Tax Consequences
The Plan is not a qualified plan under Section 401(a) of the Code and the
Options are not intended to qualify as incentive stock options within the
meaning of Section 422 of the Code. The following description, which is based
on existing laws, sets forth generally certain of the federal income tax
consequences of Options granted under the Plan. This description may differ from
the actual tax consequences of participation in the Plan.
An optionee will not recognize income for federal income tax purposes upon
the receipt of a Option, nor will Regent be entitled to any deduction on account
of such grant. Such optionee will recognize ordinary taxable income for federal
income tax purposes at the time of exercise of the Option in the amount by
which the fair market value of such shares then exceeds the option price times
the number of shares acquired. When the optionee disposes of the shares acquired
upon exercise of the Option, the optionee will generally recognize capital gain
or loss equal to the difference between (i) the amount received upon disposition
of the shares and (ii) the sum of the option price and any amount included in
the optionee's income when the Option was exercised. Such gain will be long-term
or short-term depending upon whether the shares were held for at least one year
after the date of exercise.
Under current law, any gain realized by an optionee, other than long-term
capital gain, is taxable at a maximum federal income tax rate of 39.6%.
Long-term capital gain is taxable generally at a maximum federal income tax rate
of 28%.
Regent generally will be entitled to a tax deduction, subject to the
provisions of Section 162(m) of the Code, in connection with Options under the
Plan in an amount equal to the ordinary income realized by the optionee at the
same time and in the same amount as the optionee is considered to have realized
compensation by reason of exercise of the Option.
On April 16, 1997, Regent, granted Options to certain officers, employees
and directors under the Plan, including the following directors and executive
officers: John J. Lyons, 50,000 shares; Robert B. Goldstein, 150,000 shares and
Joel E. Hyman, 25,000 shares. The Options granted under the Plan will vest in
three equal annual installments beginning on the first anniversary after the
date of grant. The exercise price of such Options is $6.75 per share, the
closing price of Regent Common Stock on the date of grant.
Director Compensation
Regent pays its non-employee directors an annual retainer of $7,500, and
the Bank pays its non-employee directors an annual retainer of $3,600 and a fee
of $350 for each Board meeting of the Bank attended.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth as of May 31, 1997 the amount and percentage
of the outstanding Regent Common Stock and Regent Series A Convertible Preferred
Stock ("Series A Stock"), Regent's only voting securities, beneficially owned by
(i) each person who is known by Regent to own beneficially more than 5% of the
outstanding Regent Common Stock or the outstanding Series A Stock, (ii) each
director of Regent, (iii) each executive officer named in the Summary
Compensation Table and (iv) all executive officers and directors of Regent as a
group.
<TABLE>
<CAPTION>
Common Stock Series A Stock
----------------------------------- ---------------------------------
Amount and Nature Amount and Nature
of Beneficial Percent of Beneficial Percent
Name and Address Ownership(1) of Class(1) Ownership of Class
- ---------------- ------------ ----------- --------- --------
<S> <C> <C> <C> <C>
Abraham L. Bettinger 82,750(2) 6.6% 4,500(3) 1.0%
845 3rd Avenue
New York, NY 10022
O. Francis Biondi 132,125(4) 10.5 8,433 1.8
P.O. Box 1347
Wilmington, DE 19801-1347
Harvey Porter 123,808(5) 9.9 11,833(6) 2.6
c/o Regent National Bank
1430 Walnut Street
Philadelphia, PA 19102
David W. Ring 164,308(7) 13.1 12,433 2.7
c/o Regent National Bank
1430 Walnut Street
Philadelphia, PA 19102
Barbara H. Teaford 82,375(8) 6.6 7,600 1.7
c/o Regent National Bank
1430 Walnut Street
Philadelphia, PA 19102
Robert B. Goldstein -- (9) -- -- --
John J. Lyons 200(10) * -- --
John W. Rose -- (11) -- -- --
All Directors and Executive Officers
as a Group (9 persons) 593,748(12) 33.2 52,981 11.9
</TABLE>
- -------------
* Less than 1%.
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<PAGE>
(1) Includes shares currently issued and outstanding and shares issuable upon
conversion of Series A Stock and Regent Series E Convertible Preferred
Stock ("Series E Stock"). Each share of Series A Stock and Series E Stock
is convertible into one share of Regent Common Stock.
(2) Includes 44,131 shares and 150 shares into which shares of Series E Stock
are convertible owned by the Trustees of Bettinger & Leech, Inc. Profit
Sharing Plan of which Mr. Bettinger is a Trustee; 13,658 shares owned by
the Trustees of Bettinger & Leech, Inc. Money Purchase Plan of which Mr.
Bettinger is a Trustee; 7,099 shares and 300 shares into which shares of
Series E Stock are convertible owned by Bettinger & Leech Financial Corp.
of which Mr. Bettinger is a principal and 17,412 shares owned by Bettinger
& Leech, Inc. 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.
(4) Includes 11,166 shares owned by Mr. Biondi's wife as to which Mr. Biondi
disclaims beneficial ownership; 9,771 shares owned by O. Francis Biondi,
Trustee for Mary Biondi, daughter; 9,772 shares owned by O. Francis Biondi,
Trustee for O. Francis Biondi, Jr., son and 3,372 shares into which shares
of Series E Stock owned by Mr. Biondi are convertible.
(5) Of these shares, 44,840 shares are owned jointly by Mr. Porter and his wife
and 65,952 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. Also includes 290
shares and 893 shares into which shares of Series E Stock owned by Mr.
Porter and his wife, respectively, are convertible. Mr. Porter and his wife
share voting and investment power with respect to all shares owned jointly.
(6) 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.
(7) Includes 4,972 shares into which shares of Series E Stock owned by Mr. Ring
are convertible.
(8) 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 3,040 shares
into which shares of Series E Stock owned by Mr. and Mrs. Teaford are
convertible.
(9) Mr. Goldstein has an option to purchase 150,000 shares at $6.75 per share,
none of which options is currently exercisable or included in the table.
In addition, the table does not reflect the ownership by Mr. Goldstein and
his wife of 59,000 shares of Common Stock ("Bank Common Stock") of the
Bank, which are exchangeable for Regent Common Stock, at the discretion of
Regent, following the satisfaction of certain conditions currently not
satisfied, at the rate of 1.41666 shares of Regent Common Stock for each
share of Bank Common Stock held.
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<PAGE>
(10) Mr. Lyons has an option to purchase 50,000 shares at $6.75 per share, none
of which options are currently exercisable or included in the table. In
addition, the table does not reflect the ownership by Mr. Lyons and his
wife of an aggregate of 29,412 shares of Bank Common Stock, which are
exchangeable for Regent Common Stock, at the discretion of Regent, follow-
ing the satisfaction of certain conditions not currently satisfied, at the
rate of 1.41666 shares of Regent Common Stock for each share of Bank Common
Stock held.
(11) The table does not reflect the ownership by Castle Creek Capital Partners
Fund-I, of which Mr. Rose is a general partner, of 110,000 shares of Bank
Common Stock, which are exchangeable for Regent Common Stock, at the
discretion of Regent, following the satisfaction of certain conditions not
currently satisfied, at the rate of 1.41666 shares of Regent Common Stock
for each share of Bank Common Stock held.
(12) Includes 52,981 shares of Regent Common Stock into which shares of Series A
Stock owned by such persons are convertible and 16,446 shares of Regent
Common Stock into which shares of Series E Stock owned by such persons are
convertible. Such persons, in the aggregate, hold options to purchase
225,000 shares at $6.75 per share, none of which is currently exercisable
or included in the table. In addition, the table does not reflect the
ownership by such persons of an aggregate of 216,059 shares of Bank Common
Stock, which are exchangeable for Regent Common Stock, at the discretion of
Regent, following the satisfaction of certain conditions not currently
satisfied, at the rate of 1.41666 shares of Regent Common Stock for each
share of Bank Common Stock held.
The 1,120,000 shares of Bank Common Stock sold in the Bank Offering are
exchangeable in the aggregate for 1,586,659 shares of Regent Common Stock, which
will represent approximately 46.3% of the 3,424,490 shares of Regent Common
Stock outstanding after the exchange of all of the outstanding Bank Common Stock
for Regent Common Stock and the conversion of all outstanding shares of Regent
Preferred Stock into Regent Common Stock.
CERTAIN TRANSACTIONS
On October 7, 1996, in connection with the Bank's capital plan required by
the Regulatory Agreement with the OCC, Regent sold an aggregate of 148,148
shares of Regent Common Stock at $6.75 per share to four Regent Directors in a
private placement pursuant to Section 4(2) of the Act as follows: Harvey Porter
(37,037 shares), David W. Ring (59,259 shares), Abraham L. Bettinger (14,185
shares) and O. Francis Biondi (37,037 shares). The aggregate net proceeds of $1
million from this sale were contributed to the capital of the Bank.
Stephen D. Teaford, the husband of Barbara H. Teaford, the President of the
Bank, is a partner in the law firm of Duane, Morris & Heckscher LLP, to which
Regent and the Bank paid legal fees of approximately $403,000 in 1996.
During 1996, Regent paid insurance premiums of approximately $114,000 to
Harry David Zutz Insurance, Inc., of which firm Harry D. Zutz, a director of
Regent from 1989 to May 28, 1997 and a director of the Bank, is Chairman of the
Board and a principal stockholder.
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<PAGE>
During 1996, Regent paid legal fees of approximately $87,000 to the law
firm of Morris, Nichols, Arsht & Tunnell, of which firm, O. Francis Biondi, a
director of Regent, has been a senior partner for many years.
During 1996, Regent paid consulting fees of approximately $78,000 to
Bettinger & Leech, Inc., of which firm Abraham L. Bettinger, a director of
Regent, is a principal.
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.
Such loans were made in the ordinary course of the Bank's business, were made on
substantially the same 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, except for the Funston loan described below.
Lance T. Funston, a director of Regent from 1986 to May 28, 1997, and his
wife are indebted to the Bank pursuant to a loan the outstanding principal
amount of which was approximately $701 thousand at May 31, 1997. The Funstons'
borrowing originated at $850,000 in November 1989 as a secured term loan for
business purposes. The loan is secured by a second mortgage lien against their
personal residence for which 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.
On March 31, 1997, Joel E. Hyman, Executive Vice President, Chief Financial
Officer and Treasurer of Regent and the Bank, and his wife jointly purchased
8,182 shares of Regent Series A Stock for an aggregate purchase price of
$53,183.
On April 16, 1997, the Bank sold 1,120,000 shares of Bank Common Stock at a
price of $8.50 per share in the Bank Offering for which Keefe, Bruyette & Woods,
Inc. served as the Bank's Placement Agent. The purchasers included Robert B.
Goldstein, Chairman of the Board, Chief Executive Officer and a Director of the
Bank and President, Chief Executive Officer and a Director of Regent since April
14, 1997, and his wife, who purchased 59,000 shares of Bank Common Stock for an
aggregate purchase price of $501,500; John J. Lyons, President and Chief
Executive Officer from September 1996 until April 14, 1997, a Director of the
Bank from September 1996 until May 28, 1997 and a Director of Regent since May
28, 1997 , and his wife, who purchased an aggregate of 29,412 shares of Bank
Common Stock for an aggregate purchase price of $250,002; Joel E. Hyman,
Executive Vice President, Chief Financial Officer and Treasurer of Regent and
the Bank, and his wife, who purchased an aggregate of 17,647 shares of Bank
Common Stock for an aggregate purchase price of $150,000 and Castle Creek
Capital Partners Fund-I, of which John W. Rose, a Director of Regent, is a
general partner, which purchased 110,000 shares of Bank Common Stock for an
aggregate purchase price of $935,000.
PLAN OF DISTRIBUTION
Of the 2,179,697 shares of Regent Common Stock being registered hereby
1,586,659 shares are issuable to the holders of Bank Common Stock who purchased
their shares in the Bank Offering and 593,038 shares are issuable to the holders
of Regent Preferred Stock upon the conversion thereof into
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<PAGE>
shares of Regent Common Stock. The Bank Common Stock sold in the Bank Offering
was offered to accredited investors subject to a mandatory exchange for Regent
Common Stock, at the discretion of Regent, at any time after (i) the average of
the closing bid price for Regent Common Stock has equaled or exceeded $12 per
share for 15 consecutive trading days and (ii) Regent Common Stock issuable in
exchange for the Bank Common Stock has been registered under the Act. The rate
of exchange of Regent Common Stock for Bank Common Stock is 1.41666 shares of
Regent Common Stock for one share of Bank Common Stock. The exchange ratio was
established based upon the book value of the Bank Common Stock at April 1, 1997,
the market price of Regent Common Stock on such date, the market's ability to
absorb Regent's securities, the volume of trading of Regent Common Stock and
other relevant factors, including consultation with Keefe, Bruyette & Woods,
Inc., Regent 's and the Bank's financial advisor.
Shares of Regent Series A and Series E Stock are convertible into shares of
Regent Common Stock on a share-for-share basis and each share of Series B,
Series C and Series D Convertible Preferred Stock is convertible into 1.177
shares of Regent Common Stock.
Regent will not receive any cash proceeds from the offering of the shares
of Regent Common Stock that are issued in exchange for Bank Common Stock or upon
conversion of Regent Preferred Stock.
The estimated costs of the offering made hereby is $100,000, which cost
shall be borne by Regent.
DESCRIPTION OF CAPITAL STOCK
General
The following description of the terms of Regent's capital stock does not
purport to be a complete description and is subject to and qualified in its
entirety by reference to Regent's Certificate of Incorporation, the Certificate
of Designation relating to the Regent Preferred Stock and the provisions of New
Jersey law. Regent is authorized pursuant to its Certificate of Incorporation to
issue 15,000,000 shares of capital stock, of which 10,000,000 shares are Regent
Common Stock and 5,000,000 shares are Regent Preferred Stock.
Regent Common Stock
Regent is authorized to issue up to 10,000,000 shares of Regent Common
Stock, $.10 par value per share, of which 1,244,793 shares were outstanding as
of the close of business on March 31, 1997. Each outstanding share of Regent
Common Stock is entitled to one vote, either in person or by proxy, on all
matters that may be voted upon by the owners thereof at meetings of Regent's
stockholders. Holders of Regent Common Stock do not have cumulative voting
rights with respect to elections of directors of Regent.
The holders of Regent Common Stock (i) have equal and ratable rights to
dividends from funds legally available therefor, when, as and if declared by the
Board of Directors of Regent, (ii) are entitled to share ratably in all of the
assets of Regent available for distribution to holders of Regent Common
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<PAGE>
Stock upon liquidation, dissolution or winding up of the affairs of Regent;
and (iii) do not have preemptive or redemption provisions applicable thereto.
See "Regent Stock Information -- Dividend Policy."
Regent Preferred Stock
Regent is authorized to issue up to 5,000,000 shares of Regent Preferred
Stock, par value $.10 per share, in one or more series, with such designations
and such relative voting, dividend, liquidation, conversion and other rights,
preferences and limitations as shall be set forth in the Certificates of Des-
ignation relating thereto as adopted by Regent's Board of Directors.
As of March 31, 1997, the five series of Regent Preferred Stock, par value
$.10 per share, created by the Board of Directors of Regent and the number of
authorized and outstanding shares, respectively, of each such series was as
follows: (i) 1,000,000 authorized shares of Series A Stock of which 443,436
shares were outstanding; (ii) 500,000 authorized shares of Series B Convertible
Preferred Stock ("Series B Stock") of which 3,790 shares were outstanding; (iii)
500,000 authorized shares of Series C Convertible Preferred Stock ("Series C
Stock") of which 3,025 shares were outstanding; (iv) 500,000 authorized shares
of Series D Convertible Preferred Stock ("Series D Stock") of which 3,280 shares
were outstanding and (v) 500,000 authorized shares of Series E Stock of which
93,379 shares were outstanding.
The following is a brief description of the terms of the Regent Preferred
Stock, which does not purport to be complete and is subject to and qualified in
its entirety by reference to Regent's Certificate of Incorporation, the
Certificates of Designation relating to the Regent Preferred Stock and New
Jersey law.
Dividends
The holders of Series A Stock are entitled to receive preferred stock
dividends, payable annually in shares of Series E Stock, in that amount as is
equal to 10% of the number of shares of Series A Stock owned at the respective
record dates. The holders of Series A Stock received stock dividends paid in
shares of Series B Stock in 1990, Series C Stock in 1991, Series D Stock in 1992
and Series E Stock in 1993 and subsequent years.
The holders of Regent Preferred Stock are also entitled to receive cash
dividends on a noncumulative basis when, as and if declared by the Board of
Directors of Regent. See "Regent Stock Information -- Dividend Policy."
Optional Redemption
The outstanding shares of Regent Preferred Stock are redeemable in whole or
in part at the option of Regent at a price of $10 per share plus any accrued but
unpaid dividends.
If less than all of the outstanding shares of Regent Preferred Stock not
previously called for redemption are to be redeemed, Regent will select those to
be redeemed pro rata or by lot or in such other manner as the Board of Directors
of Regent may determine. There is no mandatory redemption or sinking fund
obligation with respect to the Regent Preferred Stock.
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<PAGE>
In the event that Regent exercises its right of redemption, notice of
redemption must be mailed at least 30 days but not more than 60 days before the
redemption date to each holder of record of shares of Regent Preferred Stock to
be redeemed at the address thereof as shown on the books of Regent. On and
after the redemption date, dividends cease (except for any declared but unpaid
dividends) on shares of Regent Preferred Stock called for redemption and all
rights of the holders of such shares terminate except the right to receive the
redemption price, unless Regent defaults in the payment of the redemption
price.
Conversion Rights
The shares of Regent Preferred Stock are convertible, at the option of the
holder at any time prior to the close of business on the date fixed for any
redemption called by Regent (unless Regent shall default in making the payment
due upon redemption), as follows: (i) each outstanding share of Series A Stock
and Series E Stock is convertible into one share of Regent Common Stock and (ii)
each outstanding share of Series B, Series C and Series D Stock is convertible
into 1.177 shares of Regent Common Stock.
The conversion rate is subject to adjustment in the manner provided in
Regent's Certificate of Incorporation and in the Certificates of Designation
relating to Regent's Preferred Stock in the event of: (i) payment of certain
stock dividends, stock split-ups or combinations or other similar
recapitalizations or (ii) the issuance of certain rights or warrants to holders
of Regent Common Stock entitling them to subscribe for or purchase Regent Common
Stock at a price less than the then current market price therefor, as defined in
Regent's Certificate of Incorporation and in the Certificates of Designation
relating to Regent's Preferred Stock, at the time of issuance. No adjustment in
the conversion rate is required unless it would result in at least a 1%
increase or decrease in that rate; however, any adjustment not made is carried
forward.
In case of any consolidation or merger of Regent with or into any other
corporation or any sale or transfer of all or substantially all of the assets of
Regent, Regent or any successor corporation is required to make provision so
that any holder of Regent Preferred Stock will be entitled, after the occurrence
of any such event, to receive on conversion the consideration that the holder of
Regent Preferred Stock would have received had the holder converted the Regent
Preferred Stock into Regent Common Stock immediately prior to the occurrence
of the event.
Voting Rights
The holders of Series A Stock have full non-cumulative voting rights, share
for share, with Regent Common Stock and any other class or series of Regent's
stock which at any time may have general voting power with Regent Common Stock
concerning any matter submitted to a vote of stockholders.
The approval of the holders of at least two-thirds of the shares of Series
A Stock then outstanding is required to amend, alter or repeal any of the
provisions of Regent's Certificate of Incorporation or the Certificate of
Designation relating to the Series A Stock or to authorize any reclassification
of Series A Stock, in either case so as to affect adversely the preferences,
special rights or powers of Series A Stock, either directly or indirectly or
through a merger or consolidation with any corporation, or to authorize any
capital stock of Regent ranking, either as to the payment of dividends or upon
liqui-
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<PAGE>
dation, dissolution or winding up of Regent, prior to the Series A Stock.
The approval of the holders of at least a majority of the outstanding shares of
Series A Stock, voting as a class, is required to increase the authorized
number of shares of Series A Stock or to create, or increase the authorized
number of shares of, any other class of stock of Regent ranking on a parity with
the Series A Stock as to dividends or upon liquidation, dissolution, or winding
up of Regent.
The holders of shares of Series B Stock, Series C Stock, Series D Stock and
Series E Stock are not entitled to any voting rights on any matter, except as
required by applicable law.
Liquidation Rights
The holders of Regent Preferred Stock are entitled to receive $10 per share
(plus any accrued and unpaid dividends) before any distribution is made to
holders of Regent Common Stock or any other junior stock of Regent in the event
of the dissolution, liquidation or winding up of Regent. If, in any such event,
the assets of Regent distributable among the holders of Regent Preferred Stock
or any capital stock of Regent ranking on par with the Regent Preferred Stock
are insufficient to permit full payment of such liquidation preference, the
holders of Regent Preferred Stock and of any capital stock of Regent ranking on
a par with Regent Preferred Stock will be entitled to ratable distribution of
Regent's available assets in accordance with the respective amounts that would
be payable to such holders if the liquidation preferences payable in respect of
such shares were paid in full. A consolidation, merger or sale of all or
substantially all of the assets of Regent is not considered a liquidation,
dissolution or winding up for this purpose.
Limitation of Liability
Article VIII of Regent's By-laws requires that Regent indemnify its
officers and directors, including former officers and directors, and permits
Regent to indemnify its employees and agents, to the full extent permitted by
the New Jersey Business Corporation Act (the "NJBCA") and to pay and advance
expenses for matters covered by indemnification to the full extent permitted by
the NJBCA.
Section 14A:3-5 of the NJBCA gives a corporation the power, without a
specific authorization in its certificate of incorporation or by-laws, to
indemnify a director, officer, employee or agent (collectively, an "Agent")
against expenses and liabilities incurred in connection with certain
proceedings, involving the Agent by reason of his or her being or having been
such an Agent, provided that with regard to a proceeding other than one by or in
the right of the corporation, the Agent must have acted in good faith and in a
manner the Agent reasonably believed to be in or not opposed to the best inter-
ests of the corporation and, with respect to any criminal proceeding, such Agent
had no reasonable cause to believe his or her conduct was unlawful. The
termination of a proceeding by judgment, order, settlement, conviction or upon
plea of nolo contendere or its equivalent does not of itself create a pre-
sumption that any such Agent failed to meet the applicable standards of conduct.
The indemnification provided by the NJBCA does not exclude any rights to which
an Agent may be entitled under a certificate of incorporation, by-law,
agreement, vote of stockholders or otherwise. No indemnification, other than
that required when an Agent is successful on the merits or otherwise in any of
the above proceedings, shall be allowed if such indemnification would be
inconsistent with a provision of the certificate of incorporation, a by-law or a
resolution of the board of directors or of the stockholders, an agreement or
other proper corporate action in effect at the time of the accrual of the
alleged cause of action which
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<PAGE>
prohibits, limits or otherwise conditions the exercise of indemnification powers
by the corporation or the rights of indemnification to which an Agent may be
entitled.
Regent provides liability insurance for each director and officer for
certain losses arising from claims or charges made against them while acting in
their capacities as directors or officers of Regent up to an aggregate of $5
million inclusive of defense costs, expenses and charges.
In addition, as permitted by the NJBCA, Article Seventh of Regent's
Certificate of Incorporation provides that no director of Regent shall incur
personal liability to Regent or its stockholders for damages for breach of any
duty owed to Regent or its stockholders; provided, however, that this provision
does not eliminate or limit the liability of a director for (i) any breach of
the director's duty of loyalty to Regent or its stockholders; (ii) acts or
omissions not in good faith or which involve a knowing violation of law or
(iii) any transaction from which the director derived an improper personal
benefit.
The employment agreements among Regent, the Bank and each of Robert B.
Goldstein and Joel E. Hyman (individually, the "Executive") include a provision
providing for indemnification to the fullest extent permitted by law, for any
and all liabilities to which the Executive or his estate may be subject as a
result of, in connection with or arising out of his service as an employee, an
officer or a director of Regent or the Bank under such employment agreement or
his service as an employee, officer or director of another enterprise at the
request of Regent or the Bank, as well as the costs and expenses, including
attorneys' fees, of any legal action brought or threatened to be brought against
the Executive or Regent or the Bank as a result of, in connection with or
arising out of such employment. In addition, each employment agreement further
provides that Regent and the Bank will advance professional fees and
disbursements to the Executive in connection with any such legal action,
provided that the Executive delivers to Regent and the Bank his undertaking to
repay any expenses so advanced in the event it is ultimately determined that the
Executive is not entitled to indemnification against such expenses. Expenses
reasonably incurred by the Executive in successfully establishing the right to
indemnification or advancement of expenses, in whole or in part, under such
employment agreements, shall also be indemnified by Regent and the Bank. The
Executive is also entitled to the full protection of any insurance policies
which Regent or the Bank may elect to maintain generally for the benefit of
their respective directors and officers. The rights granted under such
employment agreements survive the termination of such agreements.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers or persons controlling Regent pursuant to the
foregoing provisions, Regent has been informed that in the opinion of the
Commission, such indemnification is against public policy as expressed in the
Act and is therefore unenforceable.
Transfer Agent
The transfer agent and registrar for Regent's Common Stock and Preferred
Stock is Continental Stock Transfer & Trust Company, 2 Broadway, New York, NY
10004.
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<PAGE>
INTERESTS OF NAMED EXPERTS AND COUNSEL
The consolidated financial statements of Regent and its subsidiary, Regent
National Bank, and the related consolidated statements of operations,
shareholders' equity and cash flows, have been audited and reported on by
Arthur Andersen LLP, independent certified public accountants, for the four
years ended December 31, 1995 and by Grant Thornton LLP, independent certified
public accountants, for the year ended December 31, 1996, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firms as experts in giving said reports.
The validity of the issuance of the shares of Regent Common Stock
registered hereby will be passed upon for Regent by Duane, Morris & Heckscher
LLP, Philadelphia, Pennsylvania. Stephen D. Teaford, a partner in the law firm
of Duane, Morris & Heckscher LLP, is the husband of Barbara H. Teaford, the
President of the Bank. As of April 24, 1997, partners of the law firm of Duane,
Morris & Heckscher LLP owned 85,375 shares of Regent's Common Stock, 15,782
shares of Series A Stock and 3,040 shares of Series E Stock.
AVAILABLE INFORMATION
Regent is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "1934 Act"), and in accordance therewith files reports
and other information with the Commission. Certain information, as of particular
dates, concerning the directors and officers of Regent, their remuneration and
certain other benefits, the principal holders of Regent's securities and any
material interest of such persons in transactions with Regent is disclosed in
reports filed with the Commission. Such reports and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the following Regional Offices of the Commission: Suite 1400, Citicorp Center,
500 West Madison Street, Chicago, Illinois 60661 and Suite 1300, Seven World
Trade Center, New York, New York 10048. Copies of such material can also be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission also
maintains a Web site that contains reports, proxy information statements and
other information regarding registrants at the following address:
(http://www.sec.gov). Regent Common Stock is quoted on the Nasdaq Small-Cap
Market. Reports, proxy statements and other information concerning Regent can be
inspected at the offices of the Nasdaq Stock Market, 1735 K Street, N.W.,
Washington, D.C. 20006.
Regent furnishes its stockholders with annual reports containing financial
statements and an opinion thereon expressed by Regent's independent auditors and
with quarterly reports for the first three quarters of each year containing
unaudited financial information.
Regent has filed with the Commission, Washington, D.C. 20549, a
Registration Statement under the Act with respect to the shares of Common Stock
offered hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules thereto. For
further information with respect to Regent and the Common Stock offered hereby,
reference is made to such Registration Statement and exhibits. Statements
contained in this Prospectus as to the contents of any contract or other
document referred to herein are not necessarily complete and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each statement being qualified in all
respects by such reference. A copy of
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<PAGE>
the Registration Statement may be inspected without charge at the offices of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of all or
any part thereof may be obtained from the Commission upon the payment of certain
fees prescribed by the Commission.
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<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Certified Public Accountants.................... 77
Report of Independent Certified Public Accountants.................... 78
Consolidated Balance Sheets as of December 31, 1996
and 1995 and as of March 31, 1997 (Unaudited)...................... 79
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994 and for the three months
ended March 31, 1997 and 1996 (Unaudited).......................... 80
Consolidated Statements of Shareholders' Equity for the years
ended December 31, 1996, 1995 and 1994 and for the
three months ended March 31, 1997 and 1996 (Unaudited)............. 81
Consolidated Statements of Cash Flow for the years ended
December 31, 1996, 1995 and 1994 and for the three months
ended March 31, 1997 and 1996 (Unaudited).......................... 82
Notes to Consolidated Financial Statements............................ 83
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<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 (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, 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 Corp. 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)
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<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
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<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
March 31, 1997 1996 1995
-------------- ------------ --------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 3,707,526 $ 4,409,674 $ 6,857,498
Overnight investments 8,980,028 5,083,790 308,563
------------- ------------- -------------
Cash and cash equivalents 12,687,554 9,493,464 7,166,061
Investment securities available for sale 31,302,835 30,469,710 47,477,880
Investment securities held to maturity (market value of
$70,885,151, $73,250,139 and $89,895,504, respectively) 72,676,922 75,082,982 91,244,148
Mortgage loans held for sale -- -- 12,873,725
Loans, net of unearned interest and fees 75,192,000 85,069,171 105,910,034
Less: Allowance for loan losses (2,274,511) (3,059,773) (6,500,882)
------------- ------------- -------------
Net loans 72,917,489 82,009,398 99,409,152
------------- ------------- -------------
Accrued interest receivable 1,521,721 1,362,276 1,739,969
Premises and equipment, net 628,512 695,874 704,487
Prepaid expenses and other assets 1,003,889 2,790,522 1,896,639
------------- ------------- -------------
Total assets $ 192,738,922 $ 201,904,226 $ 262,512,061
============= ============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand deposits $ 9,767,455 $ 10,986,013 $ 12,621,000
Interest bearing:
NOW and money market 7,088,984 6,583,384 7,623,514
Savings 43,754,891 47,830,169 50,602,549
Certificates of deposit 116,544,449 119,726,797 125,284,579
------------- ------------- -------------
Total deposits 177,155,779 185,126,363 196,131,642
Advances from Federal Home Loan Bank of Pittsburgh 200,312 202,621 43,655,302
Subordinated debentures 2,750,000 2,750,000 2,750,000
Accrued interest payable 3,665,146 4,792,911 5,310,396
Other liabilities 1,005,087 899,614 4,311,365
------------- ------------- -------------
Total liabilities 184,776,324 193,771,509 252,158,705
------------- ------------- -------------
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.10 par value, 5,000,000 shares authorized Series A,
443,436, 441,272 and 484,032 shares issued and out-
standing; entitled to $4,434,360 in involuntary liquidation 44,344 44,127 48,403
Series B, 3,790, 3,820 and 4,270 shares issued and outstanding;
entitled to $37,900 in involuntary liquidation 379 382 427
Series C, 3,025, 3,025 and 3,485 shares issued and outstanding;
entitled to $30,250 in involuntary liquidation 303 303 349
Series D, 3,280, 3,280 and 3,790 shares issued and outstanding;
entitled to $32,800 in involuntary liquidation 328 328 379
Series E, 93,379, 95,654 and 85,615 shares issued and outstanding;
entitled to $955,640 in involuntary liquidation 9,338 9,565 8,562
Common stock, $.10 par value, 10,000,000 shares authorized,
1,244,793, 1,228,283 and 997,615 shares issued
and outstanding 124,479 122,828 99,761
Additional paid-in capital 14,783,103 14,678,375 13,300,855
Accumulated deficit (6,230,342) (6,049,921) (2,956,765)
Net unrealized loss on securities available for sale (769,334) (673,270) (148,615)
------------- ------------- -------------
Total shareholders' equity 7,962,598 8,132,717 10,353,356
------------- ------------- -------------
Total liabilities and shareholders' equity $ 192,738,922 $ 201,904,226 $ 262,512,061
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
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<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months
Ended March 31, Year Ended December 31,
---------------------------- --------------------------------------------
1997 1996 1996 1995 1994
------------ ------------- ------------ ------------- ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Interest income:
Loans, including fees $ 2,142,302 $ 3,063,283 $ 13,221,139 $ 11,160,803 $ 6,313,866
Investment securities, including dividends 1,856,307 2,279,504 8,298,119 9,998,770 10,850,612
------------ ------------ ------------ ------------ ------------
Total interest income 3,998,609 5,342,787 21,519,258 21,159,573 17,164,478
Interest expense:
Deposits 2,347,186 2,579,037 10,258,596 9,517,438 9,006,507
Short-term borrowings 3,968 547,060 1,481,098 2,788,852 1,857,622
Long-term debt 57,599 160,524 721,776 246,661 508,531
------------ ------------ ------------ ------------ ------------
Total interest expense 2,408,753 3,286,621 12,461,470 12,552,951 11,372,660
------------ ------------ ------------ ------------ ------------
Net interest income 1,589,856 2,056,166 9,057,778 8,606,622 5,791,818
Provision for loan losses (200,000) 175,000 5,092,156 4,905,000 860,000
------------ ------------ ------------ ------------ ------------
Net interest income after
provision for loan losses 1,789,856 1,881,166 3,965,632 3,701,622 4,931,818
Non-interest income:
Service charges on deposit accounts 20,493 22,980 102,898 82,565 102,452
Other 12,068 4,746 21,176 21,120 63,966
Net gain on sales of assets 545,113 -- 88,617 303 35,465
------------ ------------ ------------ ------------ ------------
Total non-interest income 577,674 27,726 212,691 103,988 201,883
Non-interest expense:
Salaries and employee benefits 768,632 498,721 2,103,998 1,686,979 1,449,481
Professional services 1,038,012 209,885 865,721 1,272,236 560,441
Rent 10,526 43,464 173,855 173,855 173,865
Other occupancy expense 41,511 43,616 183,685 161,730 118,460
Depreciation and amortization 69,789 55,900 250,661 183,699 157,301
FDIC assessment and other insurance 131,009 15,592 141,412 297,074 505,927
Litigation settlement -- -- -- 175,000 --
IPF servicing 320,312 412,794 2,323,491 2,132,104 168,235
Other 168,160 266,028 1,181,484 1,313,030 1,238,066
------------ ------------ ------------ ------------ ------------
Total non-interest expense 2,547,951 1,546,000 7,224,307 7,395,707 4,371,776
------------ ------------ ------------ ------------ ------------
Income (loss) before provision for
income taxes (benefit) (180,421) 362,892 (3,045,984) (3,590,097) 761,925
Income tax expense (benefit) -- 145,100 (350,000) (463,500) 259,100
------------ ------------ ------------ ------------ ------------
Income (loss) before dividends on preferred stock (180,421) 217,792 (2,695,984) (3,126,597) 502,825
Preferred stock dividends 83,145 144,600 141,650 487,408 287,222
------------ ------------ ------------ ------------ ------------
Net income (loss) applicable to common stock (263,566) 73,192 (2,837,634) (3,614,005) 215,603
------------ ------------ ------------ ------------ ------------
Net income (loss) per common share $ (.20) $ .05 $ (2.42) $ (3.41) $ .22
Weighted average number of shares outstanding 1,343,604 1,357,980 1,170,564 1,059,312 989,611
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
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<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Net
unrealized
loss on
Retained investment
Additional earnings securities
Preferred Stock Common Stock 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 gain
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
Issuance of preferred stock 16,364 1,636 -- -- 104,730 -- -- 106,366
Conversion of preferred stock
to common stock (16,505) (1,649) 16,510 1,651 (2) -- -- --
Change in net unrealized loss
on investment securities
available for sale -- -- -- -- -- -- (96,064) (96,064)
Net loss -- -- -- -- -- ( 180,421) -- (180,421)
------- ------- --------- -------- ----------- ----------- --------- ----------
Balance (Unaudited),
March 31, 1997 546,910 $54,692 1,244,793 $124,479 $14,783,103 $(6,230,342) $(769,334) $7,962,598
======= ======= ========= ======== =========== =========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
-81-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Three Months
Ended March 31, Year Ended December 31,
--------------- -----------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (180,421) $ 217,792 $ (2,695,984) $ (3,126,597) $ 502,825
Adjustments to reconcile net income (loss)
to net cash (used in) provided by
operating activities:
Provision for loan losses (200,000) 175,000 5,092,156 4,905,000 860,000
Depreciation and amortization 69,789 55,900 250,661 183,699 157,301
Net amortization of premiums and accretion of
discounts on investment securities 96,799 212,411 1,345,299 643,853 1,248,214
Net gain on sales of assets (545,113) -- -- -- --
Increase (decrease) in unearned interest and fees (500,825) 140,580 (768,777) 977,940 432,246
(Increase) decrease in accrued interest receivable (159,446) 19,921 377,693 211,275 16,401
(Increase) decrease in prepaid expenses and
other assets 2,331,484 (430,281) (893,882) (53,655) 826,797
Increase (decrease) in accrued interest payable (1,127,765) (991,488) (517,485) 3,070,328 654,283
Increase (decrease) in other liabilities 505,473 160,068 (3,411,751) 2,155,378 1,970,534
Purchases of mortgage loans held for sale -- (12,614,352) (48,696,036) (68,001,403) (301,014,991)
Proceeds from sales of mortgage loans held
for sale -- 11,746,388 61,575,296 60,515,195 318,328,366
----------- ------------ ------------ ------------ -------------
Net cash provided by (used in)
operating activities 289,975 (1,308,061) 11,657,190 1,481,013 23,981,976
----------- ------------ ------------ ------------ -------------
Cash flows from investing activities:
Net decrease (increase) in loans 8,882,317 (8,785,571) 13,076,375 (31,145,825) (27,612,611)
Purchase of investment securities
available for sale (2,000,000) -- (10,030,000) -- (47,491,857)
Principal collected on investment
securities held to maturity 3,290,037 3,829,555 15,619,113 13,058,648 34,666,263
Principal collected on investment
securities available for sale 597,928 1,735,844 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 -- (138,179) (242,048) (231,685) (186,066)
Proceeds from sale of investments
available for sale -- -- 19,361,635 -- --
----------- ------------ ------------ ------------ -------------
investing activities 10,770,282 (3,358,351) 44,128,173 (12,996,604) (31,674,168)
----------- ------------ ------------ ------------ -------------
Cash flows from financing activities:
Net (decrease)increase in demand, NOW,
savings and money market deposits (4,788,236) 224,833 (5,447,497) (39,926,563) (14,323,062)
Net (decrease)increase in certificates
of deposit (3,182,348) 466,280 (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 -- 981,884 (43,452,681) (9,193,560) 15,532,561
Net (decrease) increase in advances from Federal
Home Loan Bank of Pittsburgh with original
maturities greater than three months (1,949) -- -- (10,188,520) 13,400,000
Proceeds from sale of preferred stock 106,366 -- -- -- --
Proceeds from issuance of subordinated debentures -- -- -- -- 200,000
Capital contribution -- -- 1,000,000 -- --
----------- ------------ ------------ ------------ -------------
Net cash (used in) provided by
financing activities (7,866,167) 1,672,997 (53,457,960) 15,688,090 (2,198,833)
----------- ------------ ------------ ------------ -------------
Net increase (decrease) in cash and
cash equivalents 3,194,090 (2,993,415) 2,327,403 4,172,499 (9,891,025)
Cash and cash equivalents, beginning of year 9,493,464 7,166,061 7,166,061 2,993,562 12,884,587
----------- ------------ ------------ ------------ -------------
Cash and cash equivalents, end of period $12,687,554 $ 4,172,646 $ 9,493,464 $ 7,166,061 $ 2,993,562
=========== ============ ============ ============ =============
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
-82-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
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.
Interim Financial Information
The consolidated financial statements and disclosures included herein for
the three months ended March 31, 1997 and 1996 are unaudited. These financial
statements and disclosures have been prepared by Regent in accordance with
generally accepted accounting principles and include all adjustments,
-83-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
consisting of adjustments of a normal and recurring nature, which in the opinion
of management, are necessary for a fair presentation of Regent's financial
position and the results of its operations and cash flows for these periods.
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
-84-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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 Impairment of a
Loan-Income Recognition and Disclosure" 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 the
fair value of the property at the date acquired. These assets are subsequently
carried at the lower of this new basis or the fair value less estimated 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.
-85-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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 A, Series B, Series C, Series D and Series E
Convertible Preferred Stock. 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. For
the three months ended March 31, 1997 and 1996, the weighted average number of
common shares includes 106,118 and 340,802 shares, respectively, attributable to
common stock equivalents. 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.
-86-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
In February 1997, the FASB issued FAS No. 128, "Earnings Per Share," which
is required to be adopted for the year ending December 31,1997. Under the new
requirements for calculating primary earnings per share, the dilutive effect of
stock options will be excluded. The impact of FAS No. 128 on the calculation of
Regent's earnings per share is not expected to be material.
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
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 benefit 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 in
1995 and $9.1 million 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
-87-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 1996, 1995 and 1994 financial information has been reclassified to
conform to the current 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.
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).
-88-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<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 March 31, 1997 (Unaudited):
Total capital (to risk-weighted assets):
Regent Bancshares Corp. $10,535,482 10.62% $7,941,040 8.00% $9,926,300 10.00%
Regent National Bank 12,669,620 12.77 7,935,840 8.00 9,919,800 10.00
Tier I capital (to risk-weighted assets):
Regent Bancshares Corp. 8,731,932 8.80 3,970,520 4.00 5,955,780 6.00
Regent National Bank 11,416,870 11.51 3,967,920 4.00 5,951,880 6.00
Tier I capital (to average assets):
Regent Bancshares Corp. 8,731,932 4.51 7,746,204 4.00 9,682,755 5.00
Regent National Bank 11,416,870 5.90 7,745,080 4.00 9,681,350 5.00
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>
-89-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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 6.50% ratio established by the OCC for
the Bank. Additionally, on a consolidated basis, Regent's Tier 1 leverage ratio
amounted to 4.00% (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.
-91-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
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 to two
accredited investors. Regent used the proceeds from this sale to pay the
interest due on its subordinated debentures on March 31, 1997.
-91-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 March 31, 1997 (unaudited),
December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
March 31, 1997
--------------
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 $12,000,000 $ -- $ -- $12,000,000 $ -- $101,760 $17,898,240
FHLMC 7,488,268 176,176 -- 7,664,444 2,757 258,658 7,408,543
FNMA 10,691,554 361,383 -- 11,052,937 -- 411,673 10,641,264
----------- -------- ---------- ----------- -------- --------- -----------
$30,179,822 $537,559 $ -- 30,717,381
=========== ======== ========== ===========
Other securities 1,354,788 -- -- 1,354,788
----------- --------- --------- -----------
$32,072,169 $2,757 $772,091 $31,302,835
=========== ========= ========= ===========
</TABLE>
<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>
-92-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Mortgage-backed securities held to maturity at March 31, 1997 (unaudited),
December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
March 31, 1997
--------------
Estimated
Principal Unamortized Unearned Amortized Unrealized Unrealized market
balance premiums discounts cost gains losses value
------- -------- --------- ---- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
(unaudited)
GNMA $10,406,638 $ 393,760 $ -- $10,800,398 $ 2,280 $ 419,353 $10,383,325
FHLMC 24,071,359 888,625 180,886 24,779,098 99,658 713,787 29,164,969
FNMA 17,296,513 562,813 -- 17,859,326 628,384 17,230,942
Collateralized
mortgage
obligations 13,779,861 462,220 3,481 14,238,100 -- 162,185 14,075,915
----------- ---------- -------- ----------- -------- ---------- -----------
$70,554,371 $2,307,418 $184,867 $72,676,922 $101,938 $1,923,709 $70,855,151
=========== ========== ======== =========== ======== ========= ===========
</TABLE>
<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
-93-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
$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
March 31, 1997 and 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.
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
----------------------------------- -------------------------------
Estimated Estimated
Amortized cost market value Amortized cost market value
-------------- ------------ -------------- ------------
(unaudited)
<S> <C> <C> <C> <C>
Held to maturity:
Due in one year or less $ 1,251,249 $ 1,212,188 $ -- $ --
Due after one year through five years 28,683,539 27,845,803 44,008,503 43,217,318
Due after five years through ten years 17,625,026 17,381,725 -- --
Due after ten years 10,879,008 10,339,520 16,316,139 15,814,646
Collateralized mortgage obligations 14,238,100 14,075,915 14,758,340 14,218,175
------------ ------------ ------------ ------------
$72,676,922 $70,855,151 $75,082,982 $73,250,139
========== ========== ========== ==========
Available for sale:
Due in one year or less $ 287,502 $ 275,242 $10,807,773 $10,384,742
Due after one year through five years 14,828,579 14,629,840 18,415,518 18,165,279
Due after five years through ten years 10,734,309 10,367,162 29,223,291 28,550,021
Due after ten years 4,867,000 4,676,603
----------- -----------
$30,717,381 $29,948,047
=========== ===========
</TABLE>
-94-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. Loans
A summary of the loan portfolio as of March 31, 1997, December 31, 1996
and December 31, 1995 follows (dollars in thousands):
<TABLE>
<CAPTION>
March 31, December 31, December 31,
1997 1996 1995
--------- ------------ ------------
(unaudited)
<S> <C> <C> <C>
Commercial and industrial $ 40,944 $ 46,041 $ 49,006
Real estate:
Construction 9,137 9,421 4,430
Mortgages - residential 9,456 10,219 18,926
Mortgages - commercial 15,169 15,985 16,168
Consumer 911 3,827 18,573
------------- ---------- ----------
75,617 85,493 107,103
Net unearned interest and fees (425) (424) (1,193)
------------- ----------- -----------
$ 75,192 $ 85,069 $105,910
========= ======== =======
</TABLE>
The balance of impaired loans was $3.9 million at March 31, 1997 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 loss associated with impaired loans was $866 thousand at
March 31, 1997 and $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 the quarter ended March 31, 1997 was $84 thousand and
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. 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 totaling $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 totaled $2,759
thousand. Such loans were made in the ordinary course of business at the Bank's
-88-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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 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.
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.
-89-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
three months ended March 31, 1997 and 1996 and the years ended December 31,
1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
March 31, December 31,
----------------------------------------- --------------------------
1997 1996 1996 1995 1994
---------- ---------- ------------ ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Balance, beginning of period $3,059,773 $6,500,882 $ 6,500,882 $ 1,713,372 $ 1,321,225
Provision charged (credited)
to operations (200,000) 175,000 5,092,156 4,905,000 860,000
Loans charged off (892,199) (748,961) (10,015,476) (128,719) (552,143)
Recoveries of loans previously
charged off 306,932 --- 1,482,211 11,229 84,290
---------- ---------- ------------ ----------- -----------
Balance, end of period $2,274,511 $5,926,921 $ 3,059,773 $ 6,500,882 $ 1,713,372
========== ========== ============ =========== ===========
</TABLE>
6. Premises and Equipment
A summary of premises and equipment as of March 31, 1997, December 31,
1996 and 1995 follows:
<TABLE>
<CAPTION>
Estimated March 31, December 31, December 31,
Useful Lives 1997 1996 1995
------------ ---------- ------------ ------------
(unaudited)
<S> <C> <C> <C> <C>
Furniture and fixtures 3-7 years $1,044,501 $1,044,690 $ 855,188
Leasehold improvements 5-20 years 686,336 686,336 597,146
----------- ---------- ----------
1,730,837 1,731,026 1,452,334
Less: Accumulated depreciation 1,102,324 (1,035,152) (747,847)
----------- ------------ -----------
Premises and equipment, net $ 628,513 $ 695,874 $ 704,487
========= =========== ==========
</TABLE>
-90-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 totaled
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
(in thousands) 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 March 31, 1997, December 31,
1996 and 1995 follows:
March 31, 1997
-----------------------------------
Interest
Amount Maturity Rate
-------- -------- ----
(unaudited)
Long-term $200,312 06/07/10 6.70%
--------
Total advances $200,312
========
December 31, 1996
-----------------------------------
Interest
Amount Maturity Rate
-------- -------- ----
Long-term $202,621 06/07/10 6.70%
--------
Total advances $202,621
========
-91-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 three months ended March
31, 1997 and 1996 and the years ended December 31, 1996, 1995 and 1994 is
comprised as follows:
<TABLE>
<CAPTION>
Three Months
Ended March 31, Year Ended December 31,
------------------------ ----------------------------------------
1997 1996 1996 1995 1994
---------- --------- ----------- ----------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Current $ --- $(50,000) $(1,569,700) $ 481,100 $ 484,900
Deferred --- 195,000 1,219,700 (944,600) (225,800)
------------- ---------- ------------ ----------- ------------
$ --- $ 145,000 $ (350,000) $ (463,500) $ 259,100
=========== ======== =========== ========== ===========
</TABLE>
-92-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The effective tax rates are reconciled to the statutory federal rates for
the years ended December 31, 1996, 1995 and 1994 as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
----------------------- ---------------------------------------
1997 1996 1996 1995 1994
------- ------ ------ ------ -----
(unaudited)
<S> <C> <C> <C> <C> <C>
Federal statutory rate (34.0)% 34.0% (34.0)% (34.0)% 34.0%
Merger expenses -- 6.0 (2.6) 3.0 --
Increase in valuation allowance
for deferred tax assets 29.9 -- 23.7 18.1 --
Other -- -- 1.4 -- --
----- ---- ----- ----- ----
Effective tax rate 0.0% 40.0% (11.5) % (12.9)% 34.0%
===== ==== ===== ===== ====
</TABLE>
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:
<TABLE>
<CAPTION>
March 31, December 31,
----------- ----------------------------------
1997 1996 1995
----------- --------- -----------
(unaudited)
<S> <C> <C> <C>
Allowance for loan losses $818,824 $1,154,404 $ 2,180,300
Net operating loss carryover 943,525 579,959 --
Accumulated depreciation 13,200 737 36,700
Unrealized loss on investment securities
available for sale -- 230,584 76,500
Other 73,580 73,580 73,100
----------- ----------- -----------
Total gross assets 1,849,129 2,039,264 2,366,600
----------- ----------- -----------
Deferred loan costs 73,111 86,580 70,400
----------- ----------- -----------
Total gross liabilities 73,111 86,580 70,400
----------- ----------- -----------
Net deferred tax asset 1,776,018 1,952,684 2,296,200
Valuation allowance 1,426,018 1,602,684 650,000
----------- ----------- -----------
$ 350,000 $ 350,000 $ 1,646,200
=========== =========== ===========
</TABLE>
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. Of the tax net operating loss carryforwards of approximately
$2.7 million, $1.7 million and $1.0 million would expire in 2011 and 2012,
respectively, if unused.
-93-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. Commitments and Contingencies
Lease Commitments
Approximate future minimum lease payments under non-cancelable 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,
-94-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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
-95-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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 was also a member of the Board of
Directors of Regent.
-96-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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
-97-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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 $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.
-98-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
-99-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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 the fixed rate loan commitments, excluding those committed
-100-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
The estimated fair value of Regent's financial instruments at December 31,
1996 and 1995 follows:
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
------------------------ -------------------------
Carrying Fair Carrying Fair
amount value amount value
-------- ------- -------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Financial assets:
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>
-101-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. Regent Bancshares Corp. (Parent Company Only) Financial Information
Condensed Balance Sheets
<TABLE>
<CAPTION>
December 31,
--------------------------------
1996 1995
----------- -----------
<S> <C> <C>
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
=========== ===========
</TABLE>
-102-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
-103-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Condensed Statements of Cash Flow
<TABLE>
<CAPTION>
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,
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<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 whom serves as legal counsel to the
Bank. Regent used the proceeds from this sale to pay the interest due on its
subordinated debentures on March 31, 1997.
-105-
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
SEC filing fee..................................... $ 7,100.53
Legal fees and expenses............................ 50,000.00
Accountants' fees and expenses..................... 25,000.00
Blue Sky fees and expenses......................... 10,000.00
Transfer agent and registrar fee................... 5,000.00
Miscellaneous...................................... 2,899.47
-----------
Total......................................... $100,000.00
===========
Item 14. Indemnification of Directors and Officers.
Article VIII of Regent's By-laws requires Regent to indemnify its
officers and directors, including former officers and directors, and permits
Regent to indemnify its employees and agents, to the full extent permitted by
the New Jersey Business Corporation Act (the "NJBCA") and to pay and advance
expenses for matters covered by indemnification to the full extent permitted by
the NJBCA.
Section 14A:3-5 of the NJBCA gives a corporation the power, without a
specific authorization in its certificate of incorporation or by-laws, to
indemnify a director, officer, employee or agent (collectively, an "Agent")
against expenses and liabilities incurred in connection with certain pro-
ceedings, involving the Agent by reason of his or her being or having been such
an Agent, provided that with regard to a proceeding other than one by or in the
right of the corporation, the Agent must have acted in good faith and in a
manner the Agent reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to any criminal proceeding, such
Agent had no reasonable cause to believe his or her conduct was unlawful. The
termination of a proceeding by judgment, order, settlement, conviction or upon
plea of nolo contendere or its equivalent does not of itself create a
presumption that any such Agent failed to meet the applicable standards of
conduct. The indemnification provided by the NJBCA does not exclude any rights
to which an Agent may be entitled under a certificate of incorporation, by-law,
agreement, vote of stockholders or otherwise. No indemnification, other than
that required when an Agent is successful on the merits or otherwise in any of
the above proceedings, shall be allowed if such indemnification would be
inconsistent with a provision of the certificate of incorporation, a by-law or a
resolution of the board of directors or of the stockholders, an agreement or
other proper corporate action in effect at the time of the accrual of the
alleged cause of action which prohibits, limits or otherwise conditions the
exercise of indemnification powers by the corporation or the rights of
indemnification to which an Agent may be entitled.
Regent provides liability insurance for each director and officer for
certain losses arising from claims or charges made against them while acting in
their capacities as directors or officers of Regent up to an aggregate of $5
million inclusive of defense costs, expenses and charges.
II-1
<PAGE>
In addition, as permitted by the NJBCA, Article Seventh of Regent's
Certificate of Incorporation provides that no director of Regent shall incur
personal liability to Regent or its stockholders for damages for breach of any
duty owed to Regent or its stockholders; provided, however, that this provision
does not eliminate or limit the liability of a director for (i) any breach of
the director's duty of loyalty to Regent or its stockholders; (ii) acts or
omissions not in good faith or which involve a knowing violation of law or
(iii) any transaction from which the director derived an improper personal
benefit.
The employment agreements among Regent, Regent National Bank (the
"Bank") and each of Robert B. Goldstein and Joel E. Hyman (individually, the
"Executive") include a provision providing for indemnification, to the fullest
extent permitted by law, for any and all liabilities to which the Executive or
his estate may be subject as a result of, in connection with or arising out of
his service as an employee, an officer or a director of Regent or the Bank under
such employment agreement or his service as an employee, officer or director of
another enterprise at the request of Regent or the Bank, as well as the costs
and expenses, including attorneys' fees, of any legal action brought or
threatened to be brought against the Executive or Regent or the Bank as a result
of, in connection with or arising out of such employment. In addition, each
employment agreement further provides that Regent and the Bank will advance
professional fees and disbursements to the Executive in connection with any such
legal action, provided that the Executive delivers to Regent and the Bank his
undertaking to repay any expenses so advanced in the event it is ultimately
determined that the Executive is not entitled to indemnification against such
expenses. Expenses reasonably incurred by the Executive in successfully
establishing the right to indemnification or advancement of expenses, in whole
or in part, pursuant to such employment agreements, must also be indemnified by
Regent and the Bank. The Executive is also entitled to the full protection of
any insurance policies which Regent or the Bank may elect to maintain generally
for the benefit of their respective directors and officers. The rights granted
under the employment agreements survive the termination of such employment
agreements.
Item 15. Recent Sales of Unregistered Securities.
On September 11, 1996, four directors of Regent purchased an aggregate
of 148,148 shares of Regent Common Stock for a purchase price of $6.75 per
share, or an aggregate price of $1,000,000, in a transaction that was exempt
from registration under the Securities Act of 1933, as amended (the "Securities
Act"), pursuant to Section 4(2) thereof. The proceeds of this private placement
were contributed to the capital of the Bank.
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 whom serves as legal counsel to the
Bank, in a transaction that was exempt from registration under the Securities
Act pursuant to Section 4(2) thereof. Regent used the proceeds from this sale to
pay the interest on its subordinated debentures due March 31, 1997.
II-2
<PAGE>
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibits Reference
<S> <C> <C>
3(a) Certificate of Incorporation (a)
3(b) By-laws of Registrant (a)
4(a) Form of Registrant's Common Stock (a)
Certificate
4(b) Form of Registrant's Preferred Stock Certificate (a)
4(c) Certificate of Designation for Registrant's (a)
Series A Convertible Preferred Stock
4(d) Certificate of Designation for Registrant's (a)
Series B Convertible Preferred Stock
4(e) Certificate of Designation for Registrant's (a)
Series C Convertible Preferred Stock
4(f) Certificate of Designation for Registrant's (a)
Series D Convertible Preferred Stock
4(g) Certificate of Designation for Registrant's (a)
Series E Convertible Preferred Stock
5 Opinion of Duane, Morris & Heckscher LLP filed herewith
10(a) Employment Agreement between Regis- (b)
trant and Barbara H. Teaford dated May
24, 1989
10(b) Lease Agreement dated August 4, 1988 for the (a)
premises located at 1430 Walnut Street, Phila-
delphia, PA 19102
10(c) Lease Agreement dated December 15, 1995 for the (d)
premises located at 1426 Walnut Street, Phila-
delphia, PA 19102
10(d) Amended and Restated Agreement and Plan of Merger (c)
dated as of August 30,1995 among Carnegie Bancorp,
Carnegie Bank, N.A., Registrant and Regent National Bank
II-3
<PAGE>
10(f) Amendment, dated as of October 2, 1996, (e)
to the Amended and Restated Agreement and
Plan of Merger dated as of August 30, 1995 among
Carnegie Bancorp, Carnegie Bank, N.A., Registrant and
Regent National Bank.
10(g) Subscription Agreement between Registrant (d)
and Abraham Bettinger, dated October 7, 1996
relating to the purchase of 14,815 shares of
Registrant's Common Stock
10(h) Subscription Agreement between Registrant (d)
and O. Francis Biondi, dated October 7, 1996
relating to the purchase of 37,037 shares of
Registrant's Common Stock
10(i) Subscription Agreement between Registrant (d)
and of Harvey Porter, dated October 7, 1996
relating to the purchase of 37,037 shares of
Registrant's Common Stock
10(j) Subscription Agreement between Registrant (d)
and of David W. Ring, dated October 7, 1996
relating to the purchase of 59,259 shares of
Registrant's Common Stock
10(k) Agreement between Regent National Bank (e)
and the Office of the Comptroller of the
Currency, and Addendum thereto, dated
October 10, 1996
10(l) Agreement, dated as of January 14, 1997, among (f)
Carnegie Bancorp, Carnegie Bank, N.A., Registrant 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(m) Employment Agreement among Registrant, Regent (d)
National Bank and Joel E. Hyman, dated as of
January 21, 1997
10(n) Employment Agreement among Registrant, Regent filed herewith
National Bank and Robert B. Goldstein, dated as of
April 7, 1997
10(o) Registrant's 1997 Equity Incentive Plan filed herewith
II-4
<PAGE>
10(p) Subscription Agreement between Registrant and filed herewith
Joel E. Hyman dated March 31, 1997 relating to the
purchase of 8,182 shares of Registrant's Series A
Convertible Preferred Stock
10(q) Subscription Agreement between Registrant and filed herewith
Frederick W. Dreher dated March 31, 1997 relating
to the purchase of 8,182 shares of Registrant's
Series A Convertible Preferred Stock
21 Subsidiaries of Registrant (a)
23(a) Consent of Duane, Morris & Heckscher LLP (included in
their opinion filed as Exhibit 5)
23(b) Consent of Grant Thornton LLP filed herewith
23(c) Consent of Arthur Andersen LLP filed herewith
(24) Power of Attorney (incorporated by reference to Page
II-7 of Part II of this Registration Statement)
</TABLE>
(a) Such exhibit is hereby incorporated by reference to the like-described
exhibit in the Registration Statement No. 33-27299 of Registrant as
amended and declared effective on May 24, 1989.
(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 Securities and
Exchange Commission on September 20, 1995.
(d) 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, 1996.
(e) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Registrant's Form 8-K Report filed with the Securities and
Exchange Commission on October 18, 1996.
(f) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Registrant's Form 8-K Report filed with the Securities and
Exchange Commission on January 23, 1997.
(b) Financial Statement Schedules:
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.
II-5
<PAGE>
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement, or
the most recent post-effective amendment thereof, which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered, if the total
dollar value of securities offered would not exceed that
which was registered, and any deviation from the low or
high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than a
20% change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in
the effective registration statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein and the
offering of such securities at that time shall be deemed to be the initial
bonafide offering thereof; and
(3) to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities, other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding, is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement or Amendment thereto to
be signed on its behalf by the undersigned, thereunto duly authorized, in
Philadelphia, Pennsylvania on the 28th day of May, 1997.
REGENT BANCSHARES CORP.
By: /s/ Robert B. Goldstein
---------------------------------
Robert B. Goldstein, President and
Chief Executive Officer
Know all men by these presents, that each person whose signature
appears below constitutes and appoints Robert B. Goldstein and Joel E. Hyman,
and each or either of them, as such person's true and lawful attorneys-in-fact
and agents, with full power of substitution, for him, and in his name, place and
stead, in any and all capacities, to sign any or all amendments or
post-effective amendments to this Registration Statement, and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or either of them or their substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Capacity Date
---------- -------- ----
<S> <C> <C>
/s/ David W. Ring Chairman of the Board May 28, 1997
- -----------------------------------
David W. Ring
/s/ Robert B. Goldstein President, Chief Executive Officer and May 28, 1997
- --------------------------------- a Director (Principal Executive Officer)
Robert B. Goldstein
/s/ Joel E. Hyman Executive Vice President, Chief May 28, 1997
- ----------------------------------- Financial Officer and Treasurer (Princi-
Joel E. Hyman pal Financial and Accounting Officer)
/s/ Abraham L. Bettinger Director May 28, 1997
- -------------------------------
Abraham L. Bettinger
/s/ O. Francis Biondi Director May 28, 1997
- ----------------------------------
O. Francis Biondi
/s/ John J. Lyons Director May 28, 1997
- ------------------------------------
John J. Lyons
/s/ John W. Rose Director May 28, 1997
- -----------------------------------
John W. Rose
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
(Pursuant to Item 601 of Regulation S-K)
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description of Exhibits Page
<S> <C> <C>
3(a) Certificate of Incorporation (a)
3(b) By-laws of Registrant (a)
4(a) Form of Registrant's Common Stock (a)
Certificate
4(b) Form of Registrant's Preferred Stock Certificate (a)
4(c) Certificate of Designation for Registrant's (a)
Series A Convertible Preferred Stock
4(d) Certificate of Designation for Registrant's (a)
Series B Convertible Preferred Stock
4(e) Certificate of Designation for Registrant's (a)
Series C Convertible Preferred Stock
4(f) Certificate of Designation for Registrant's (a)
Series D Convertible Preferred Stock
4(g) Certificate of Designation for Registrant's (a)
Series E Convertible Preferred Stock
5 Opinion of Duane, Morris & Heckscher LLP filed herewith
10(a) Employment Agreement between Regis- (b)
trant and Barbara H. Teaford dated May
24, 1989
10(b) Lease Agreement dated August 4, 1988 for the (a)
premises located at 1430 Walnut Street, Phila-
delphia, PA 19102
10(c) Lease Agreement dated December 15, 1995 for the (e)
premises located at 1426 Walnut Street, Phila-
delphia, PA 19102
II-8
<PAGE>
10(d) Amended and Restated Agreement and Plan of Merger (c)
dated as of August 30,1995 among Carnegie Bancorp,
Carnegie Bank, N.A., Registrant and Regent National Bank
10(f) Amendment, dated as of October 2, 1996, (e)
to the Amended and Restated Agreement and
Plan of Merger dated as of August 30, 1995 among
Carnegie Bancorp, Carnegie Bank, N.A., Registrant and
Regent National Bank.
10(g) Subscription Agreement between Registrant (d)
and Abraham Bettinger, dated October 7, 1996
relating to the purchase of 14,815 shares of
Registrant's Common Stock
10(h) Subscription Agreement between Registrant (d)
and O. Francis Biondi, dated October 7, 1996
relating to the purchase of 37,037 shares of
Registrant's Common Stock
10(i) Subscription Agreement between Registrant (d)
and of Harvey Porter, dated October 7, 1996
relating to the purchase of 37,037 shares of
Registrant's Common Stock
10(j) Subscription Agreement between Registrant (d)
and of David W. Ring, dated October 7, 1996
relating to the purchase of 59,259 shares of
Registrant's Common Stock
10(k) Agreement between Regent National Bank (e)
and the Office of the Comptroller of the
Currency, and Addendum thereto, dated
October 10, 1996
10(l) Agreement, dated as of January 14, 1997, among (f)
Carnegie Bancorp, Carnegie Bank, N.A., Registrant 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(m) Employment Agreement among Registrant, Regent (d)
National Bank and Joel E. Hyman, dated as of
January 21, 1997
II-9
<PAGE>
10(n) Employment Agreement among Registrant, Regent filed herewith
National Bank and Robert B. Goldstein, dated as of
April 7, 1997
10(o) Registrant's 1997 Equity Incentive Plan filed herewith
10(p) Subscription Agreement between Registrant and filed herewith
Joel E. Hyman dated March 31, 1997 relating to the
purchase of 8,182 shares of Registrant's Series A
Convertible Preferred Stock
10(q) Subscription Agreement between Registrant and filed herewith
Frederick W. Dreher dated March 31, 1997 relating
to the purchase of 8,182 shares of Registrant's
Series A Convertible Preferred Stock
21 Subsidiaries of Registrant (a)
23(a) Consent of Duane, Morris & Heckscher LLP (included in
their opinion filed as Exhibit 5)
23(b) Consent of Grant Thornton LLP filed herewith
23(c) Consent of Arthur Andersen LLP filed herewith
(24) Power of Attorney (incorporated by reference to Page
II-7 of Part II of this Registration Statement)
</TABLE>
(a) Such exhibit is hereby incorporated by reference to the like-described
exhibit in the Registration Statement No. 33-27299 of Registrant as
amended and declared effective on May 24, 1989.
(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 Securities and
Exchange Commission on September 20, 1995.
(d) 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, 1996.
(e) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Registrant's Form 8-K Report filed with the Securities and
Exchange Commission on October 18, 1996.
(f) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Registrant's Form 8-K Report filed with the Securities and
Exchange Commission on January 23, 1997.
II-10
EXHIBIT 5
[DUANE MORRIS & HECKSCHER LLP LETTERHEAD]
June 11, 1997
The Board of Directors of
Regent Bancshares Corp.
1430 Walnut Street
Philadelphia, PA 19102
Gentlemen:
We have acted as counsel to Regent Bancshares Corp. ("Regent") in
connection with the preparation and filing with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, of a registration
statement on Form S-1 (the "Registration Statement") relating to the issuance by
Regent of an aggregate of 2,179,697 shares (the "Shares") of Common Stock, $.10
par value (the "Common Stock") of Regent upon the conversion of 591,253
outstanding shares of Series Convertible Preferred Stock of Regent in accordance
with the terms thereof and in exchange for 1,120,000 outstanding shares of
common stock of Regent National Bank not owned by Regent.
As counsel to Regent, we have supervised all corporate proceedings in
connection with the preparation and filing of the Registration Statement. We
have also examined Regent's Certificate of Incorporation and By-laws as amended
to date, the Articles of Association and By-laws of Regent National Bank as
amended to date, Regent's minutes and other proceedings and records relating to
the authorization, sale and issuance of the Shares, minutes and other
proceedings of Regent National Bank and such other documents and matters of law
as we have deemed necessary or appropriate in order to render this opinion.
Based upon the foregoing, it is our opinion that the Shares, when issued in
exchange for shares of common stock, $1.00 par value, of Regent National Bank or
upon conversion of shares of Series Convertible Preferred Stock, $.10 par
value, of Regent, will be duly authorized, legally and validly issued and
outstanding and fully paid and nonassessable.
<PAGE>
Page 2
June 11, 1997
We hereby consent to the use of this opinion in the Registration Statement,
and we further consent to the reference to our name in the Prospectus under the
caption "Interest of Named Experts and Counsel."
Sincerely,
/s/ Frederick W. Dreher
-----------------------------------
Frederick W. Dreher
for DUANE, MORRIS & HECKSCHER LLP
FWD:PFS
cc: Joel E. Hyman
<PAGE>
EXHIBIT 10(n)
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement") dated as of April 7, 1997 among
Regent National Bank, a national banking association located at 1430 Walnut
Street, Philadelphia, Pennsylvania 19102 (the "Bank"), Regent Bancshares Corp.,
a New Jersey corporation having its principal place of business at 1430 Walnut
Street, Philadelphia, Pennsylvania 19102 ("Regent") and Robert B. Goldstein, an
individual residing at 2 Canterbury Close, Westport, Connecticut 06880 (the
"Executive").
WITNESSETH:
WHEREAS, the Bank is a wholly owned subsidiary of Regent;
WHEREAS, the Bank and Regent (collectively, the "Employers") desire to
employ the Executive, and the Executive desires to be employed by the Employers,
all in accordance with the terms and subject to the conditions set forth herein;
and
WHEREAS, the parties are entering into this Agreement to set forth and
confirm their respective rights and obligations with respect to the Executive's
employment by the Employers;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto, intending to be legally bound hereby,
mutually agree as follows:
1. Employment and Term. (a) Effective on the later of April 14, 1997 or the
date of receipt of all approvals (or the waiver thereof) required for the
Executive's assumption of the Position (as hereinafter defined) pursuant to
Section 914 of the Financial Institutions Reform, Recovery and Enforcement Act
of 1989 and, unless waived by the Executive, required under applicable federal
banking regulations in order for the Employers to make the payments provided for
in paragraphs 1 through 3 hereof (the "Effective Date"), (i) the Bank shall
employ the Executive, and the Executive shall be employed by the Bank, as the
Chairman of the Board and Chief Executive Officer of the Bank and (ii) Regent
shall employ the Executive, and the Executive shall be employed by Regent, as
the President and Chief Executive Officer of Regent (with all such positions
described in clauses (i) and (ii) hereof being collectively referred to herein
as the "Position"), in accordance with the terms and subject to the conditions
set forth herein for a term (the "Initial Term") which shall commence on the
Effective Date and, subject to paragraphs 1(b), 1(c) and 1(d) hereof, shall
terminate, notwithstanding the provisions of paragraph 1(e)(i) hereof, on the
third anniversary of the Effective Date, provided that, if the Effective Date
shall not have occurred by June 30, 1997, this Agreement shall terminate as of
June 30, 1997. Regent and the Bank shall be jointly and severally liable to the
Executive with respect to (i) all liabilities of the Bank to the Executive
hereunder and (ii) all liabilities of Regent to the Executive hereunder;
provided, however, that Regent shall not be responsible for any liability of the
Bank to the Executive to the
<PAGE>
extent that such liability has been discharged by the Bank, and the Bank shall
not be responsible for any liability of Regent to the Executive to the extent
that such liability has been discharged by Regent.
(b) Unless written notice in accordance with this paragraph 1
terminating the Executive's employment hereunder is given by either the
Employers or the Executive not less than 90 days in advance of the termination
date of this Agreement, this Agreement shall be automatically extended for
successive terms of one year (each, a "Renewal Term"). The Initial Term and each
Renewal Term are collectively referred to herein as the "Term," and, unless
otherwise provided herein or agreed by the parties hereto, all of the terms and
conditions of this Agreement shall continue in full force and effect throughout
the Term and, with respect to those terms and conditions that apply after the
Term, after the Term.
(c) Notwithstanding paragraph 1(b) hereof, the Employers, by action of
their Boards of Directors (the "Boards") and effective as specified in a written
notice thereof to the Executive in accordance with the terms hereof, shall have
the right to terminate the Executive's employment hereunder at any time during
the Term hereof, but only for Cause (as defined herein) or on account of the
Executive's death or Permanent Disability (as defined herein) as of the date of
such death or Permanent Disability.
(i) "Cause" shall mean (A) the Executive's willful and continued
failure substantially to perform his material duties with the Employers, or the
commission by the Executive of any activities constituting a violation or
breach under any material federal, state or local law or regulation applicable
to the activities of the Bank or Regent, in each case, after notice thereof from
the Employers to the Executive and a reasonable opportunity for the Executive to
cease such failure, breach or violation in all material respects (B) fraud,
breach of corporate opportunity, dishonesty, misappropriation or other
intentional material damage to the property or business of the Bank or Regent by
the Executive, (C) the Executive's repeated absences other than for physical or
mental impairment or illness, (D) the Executive's admission or conviction of, or
plea of nolo contendere to, any felony that, in the reasonable judgment of the
Boards, adversely affects the Bank's or Regent's reputation or the Executive's
ability to carry out his obligations under this Agreement or (E) the Executive's
non-compliance with the provisions of paragraphs 2(b) or 6(b) hereof after
notice thereof from the Employers to the Executive and a reasonable opportunity
for the Executive to cure such non-compliance. Notwithstanding the foregoing,
the Employers may not terminate the Executive's employment hereunder for Cause
unless the Executive is given (A) written notice, in accordance with the By-laws
of the Employers, of a special meeting of the Boards to consider the termination
of the Executive's employment hereunder for Cause and (B) the opportunity for
the Executive to address such special meeting.
(ii) "Permanent Disability" shall mean a physical or mental
disability such that the Executive is substantially unable to perform those
duties that he would otherwise be expected to continue
-2-
<PAGE>
to perform and the nonperformance of such duties has continued for a period of
150 consecutive days, provided, however, that in order to terminate the
Executive's employment hereunder on account of Permanent Disability, the
Employers must provide the Executive with written notice of the Boards' good
faith determination to terminate the Executive's employment hereunder for reason
of Permanent Disability not less than 30 days prior to such termination which
notice shall specify the date of termination. Until the specified effective date
of termination by reason of Permanent Disability, the Executive shall continue
to receive compensation at the rates set forth in paragraph 3 hereof. No
termination of this Agreement because of the Permanent Disability of the
Executive shall impair any rights of the Executive under any disability
insurance policy maintained by the Employers at the commencement of the
aforesaid 150-day period.
(d) The Executive shall have the right to terminate his employment
hereunder at any time during the Term hereof for Good Reason or in the event a
Change in Control occurs. As used herein:
(i) "Good Reason" shall mean the Executive's Position or the scope
of the Executive's authority, duties or responsibilities are materially
diminished without the Executive's written consent, excluding for this purpose
any action not taken by the Employers in bad faith and which is remedied by the
Employers promptly following written notice thereof from the Executive to the
Employers; (B) a material breach by either Employer of its respective
obligations to the Executive under this Agreement which breach is not cured in
all material respects to the reasonable satisfaction of the Executive within 30
days (except in the case of a payment default for which the cure period shall be
10 days), in each case following written notice thereof from the Executive to
the Employers, (C) any termination of the Executive's employment hereunder
without Cause or (D) any failure of the shareholders of Regent to elect the
Executive as a director of Regent but only if such failure occurs because the
members of the Boards did not vote all shares of Regent Common Stock and Regent
Preferred Stock beneficially owned by them for the election of the Executive;
and
(ii) "Change of Control" shall mean (A) the acquisition of shares
of Regent (or of the Bank if the Bank is a successor to Regent) by any "person"
or "group" (as such terms are used in Rule 13d-3 under the Securities Exchange
Act of 1934 as now or hereafter amended) in a transaction or series of
transactions, but excluding any exchange of Common Stock of the Bank for Common
Stock of Regent, that result in such person or group directly or indirectly
first owning beneficially more than 35% of Regent's Common Stock (or of the Bank
if the Bank is a successor to Regent) after the date of this Agreement, (B) the
consummation of a merger or other business combination after which the holders
of voting capital stock of Regent and the Bank do not collectively own 50% or
more of the voting capital stock of the entity surviving such merger or other
business combination or the sale, lease, exchange or other transfer in a
transaction or series of transactions of all or substantially all of the assets
of the Bank, but excluding therefrom the sale and reinvestment of the Bank's
investment portfolio or (C) as the result of or in connection
-3-
<PAGE>
with any cash tender offer or exchange offer, merger or other business
combination, sale of assets or contested election of directors or any
combination of the foregoing transactions (a "Transaction"), other than a
Transaction between the Bank and Regent, the persons who constituted a majority
of the members of the Boards on the Effective Date and persons whose election as
members of the Boards was approved by such members then still in office or whose
election was previously so approved after the Effective Date, but before the
event that constitutes a Change of Control, no longer constitute such a majority
of the members of the Boards then in office. A Transaction constituting a
Change in Control shall only be deemed to have occurred upon the closing of the
Transaction.
(e) (i) If (A) the Employers terminate the Executive's employment
hereunder for any reason other than for Cause or fail to renew this Agreement
for any reason other than for Cause and such termination or failure occurs as of
a date that is within 270 days preceding or within 180 days after the
consummation of a Change in Control (such 270-day period and such 180-day period
being hereinafter collectively referred to as a "Change in Control Period"),
(B) this Agreement is terminated as a result of the death or Permanent
Disability of the Executive effective as of a date within a Change of Control
Period, (C) the Executive terminates his employment hereunder for Good Reason
effective as of a date within a Change in Control Period or (D) the Executive
terminates his employment hereunder within 180 days after the consummation of a
Change in Control, the Employers shall pay to the Executive or his Estate
promptly after the event giving rise to such payment occurs an amount equal to
the sum of (x) (1) the Executive's Base Salary (as defined herein) accrued
through the date of termination of the Executive's employment hereunder, (2) any
Bonus (as defined herein) required to be paid to the Executive pursuant to
paragraph 3(b) hereof, (3) any amount in respect of excise taxes required to be
paid to the Executive pursuant to paragraph 2(f) hereof and (4) the present
value of all other rights and benefits available to the Executive under employee
compensation and benefit arrangements of Regent or the Bank in which the
Executive was a participant on the effective date of termination, determined in
accordance with the terms and conditions of such arrangements, with such
payments, rights and benefits described in clauses (x)(1), (x)(2), (x)(3) and
(x)(4) hereof being collectively referred to herein as the "Accrued Obligations"
and (y) a severance payment equal to 2.99 times the sum of (1) the Executive's
annual Base Salary as of the effective date of termination of the Executive's
employment hereunder and (2) the maximum Bonus earned by the Executive pursuant
to paragraph 3(b) hereof for the year in which such termination is effective.
(ii) If (A) the Employers terminate the Executive's employment
hereunder for any reason other than for Cause effective as of a date that is not
within a Change in Control Period or (B) the Executive terminates his employment
hereunder for Good Reason effective as of a date that is not within a Change in
Control Period, the Employers shall pay the Executive an amount equal to the sum
of (w) the Accrued Obligations, (x) the amount of Base Salary the Executive
would have received had he remained employed hereunder during the period (the
-4-
<PAGE>
"Subsequent Period") from the date of his termination through the later of April
13, 2000 if such termination occurs during the first two years of the Initial
Term or the first April 13 occurring at least 90 days after the date of such
termination if such termination occurs after the first two years of the Initial
Term, (y) if the date of such termination occurs during the First Year (as
defined herein), the sum of $50,000 less the amount of Bonus (up to $50,000), if
any, payable to the Executive with respect to the First Year and (z) an amount
equal to the aggregate premiums that would be payable by the Executive to
maintain in effect throughout the Subsequent Period (assuming no increase in
insurance premium rates) the same medical, health, disability and life insurance
coverage provided to the Executive by the Employers immediately prior to the
date of such termination.
(iii) If (A) the Employers terminate the Executive's employment
hereunder for Cause, (B) the Executive terminates his employment hereunder for
any reason other than Good Reason, his death or Permanent Disability or (C)
this Agreement is terminated as a result of the death or Permanent Disability of
the Executive effective as of a date that is not within a Change in Control
Period, the sole obligation of the Employers shall be to pay the Accrued
Obligations to the Executive.
(f) Excise Taxes. In the event that the independent public accountants
of either of the Employers or the Internal Revenue Service determines that any
payment, coverage or benefit provided to the Executive pursuant hereto is
subject to the excise tax imposed by Section 4999 of the Internal Revenue Code
of 1986, as amended (the "Code") or any successor provision thereof or any
interest or penalties incurred by the Executive with respect to such excise tax
(such excise tax, together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), the Employers, within 30 days
thereafter, shall pay to the Executive, in addition to any other payment,
coverage or benefit due and owing hereunder, an amount determined by multiplying
the rate of Excise Tax then imposed by Section 4999 by the amount of the "excess
parachute payment" received by the Executive, determined without regard to any
payments made to the Executive pursuant to this paragraph 2(f), and dividing the
product so obtained by the amount obtained by subtracting the aggregate local,
state and federal income and FICA and health insurance taxes applicable to the
receipt by the Executive of the "excess parachute payment" and taking into
account the deductibility for federal income tax purposes of the payment of
state and local income taxes thereon (as affected by those provisions of the
Code which act to reduce the deductibility of itemized deductions), from the
amount obtained by subtracting from 1.00 the rate of Excise Tax then imposed by
Section 4999 of the Code, it being the intention of the parties hereto that the
Executive's net after tax position (after taking into account any interest or
penalties imposed with respect to such taxes) upon the receipt of the payments
provided for by this Agreement be no less advantageous to the Executive than the
net after tax position to the Executive that would have obtained had Sections
280G and 4999 of the Code not been applicable to such payment.
-5-
<PAGE>
(g) Any notice of termination of this Agreement by the Employers to the
Executive or by the Executive to the Employers shall be given in accordance with
the provisions of paragraph 10 hereof.
(h) The Employers agree to reimburse the Executive for the reasonable
fees and expenses of the Executive's attorneys and for court and related costs
in any proceeding to enforce the provisions of this Agreement in which the
Executive is successful on the merits.
2. Duties of the Executive. (a) Subject to the ultimate control and
discretion of the Boards, the Executive shall serve in the Position and perform
all duties and services commensurate with the Position. Throughout the Term, the
Executive shall perform all duties reasonably assigned or delegated to him under
the By-laws of the Bank and Regent or from time to time by the Boards consistent
with the Position. Except for travel normally incidental and reasonably
necessary to the business of the Bank and Regent and the duties of the Executive
hereunder, the duties of the Executive shall be performed in the greater
Philadelphia, Pennsylvania metropolitan area.
(b) The Executive shall devote substantially all of the Executive's
business time and attention to the performance of the Executive's duties
hereunder and, during the term of his employment hereunder, the Executive shall
not engage in any other business enterprise which requires any significant
amount of the Executive's personal time or attention, unless granted the prior
permission of the Boards. The foregoing provision shall not prevent the
Executive's purchase, ownership or sale of any interest in, or the Executive's
engaging (but not to exceed an average of five hours per week) in, any business
which does not compete with the business of the Bank or Regent, the Executive's
taking actions permitted by paragraph 6(b) hereof or the Executive's involvement
in charitable or community activities, provided, that the time and attention
which the Executive devotes to such business and charitable or community
activities does not materially interfere with the performance of his duties
hereunder and that a material portion of the time devoted by the Executive to
charitable or community activities are devoted to charitable or community
activities within the Bank's market area.
(c) The Executive shall be entitled to 30 days of vacation leave during
each calendar year with full compensation, and to be taken at such time or
times, as the Executive and the Bank shall mutually determine. Unused days of
vacation may not be carried over from year to year or received in cash.
3. Compensation. For all services to be rendered by the Executive
hereunder:
(a) Base Salary. The Employers shall pay the Executive a base salary
(the "Base Salary") at an annual rate of (i) Two Hundred Thousand Dollars
($200,000) during the first 12 months of the Initial Term (the "First Year"),
(ii) Two Hundred and Thirty Thousand Dollars ($230,000) during the second 12
months of the Initial Term (the "Second Year"), (iii) Two Hundred and Sixty-Four
Thousand Five
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Hundred Dollars ($264,500) during the third 12 months of the Initial Term (the
"Third Year") and (iv) during each Renewal Term, not less than Two Hundred and
Sixty-Four Thousand Five Hundred Dollars ($264,500), plus such other
compensation as may, from time to time, be determined by the Employers. Such
salary and other compensation shall be payable in accordance with the Employers'
normal payroll practices as in effect from time to time.
(b) Annual Bonus. The Employers agree that during the Initial Term, the
Executive shall receive an annual bonus (the "Bonus") payable in cash equal to a
percentage of his annual Base Salary upon satisfaction of the objectives
specified in this paragraph 3(b) for the period specified. After the Initial
Term, the Executive shall receive, upon satisfaction of Board-approved
objectives, such Bonuses as may be fixed by the Boards.
(i) For the First Year, the Executive shall be entitled to receive a
Bonus equal to:
(A) 25% of the Executive's annual Base Salary for the First
Year if either (x) (i) the written agreement (the "Regulatory Agreement"), dated
October 10, 1996, between the Bank and the Office of the Comptroller of the
Currency (the "OCC") is terminated by the OCC not later than March 31, 1998 and
(ii) the OCC field examiner shall have recommended (the "Recommendation") that
the Bank's CAMEL rating be increased to not less than 2 as of the conclusion of
the OCC's examination of the Bank most recently preceding March 31, 1998 or (y)
Regent's consolidated return on average stockholders' equity ("Regent's ROE")
for the twelve-month period ending March 31, 1998, equals or exceeds 10%; or
(B) 50% of the Executive's annual Base Salary for the First
Year if either (x) (i) the Regulatory Agreement is terminated by the OCC not
later than March 31, 1998, (ii) the Recommendation has been made and (iii)
Regent's ROE for the twelve-month period ending March 31, 1998 equals or exceeds
10%, or (y) the Market Value (as defined herein) of the outstanding Common Stock
of Regent plus any outstanding Common Stock of the Bank that is by its terms
exchangeable for Common Stock of Regent as of March 31, 1998 equals or exceeds
$22.5 million, or if the Bank realizes its deferred tax asset of $1.3 million
during the twelve-month period ending March 31, 1998, $23.8 million; or
(C) zero if none of the objectives set forth in the foregoing
clauses (i)(A) or (i)(B) are satisfied.
(ii) For the Second Year, the Executive shall be entitled to receive
a Bonus equal to:
(A) 25% of the Executive's annual Base Salary for the Second
Year if Regent's ROE for the twelve-month period ending March 31, 1999 equals
13%, and if Regent's ROE for the twelve-month period ending March 31, 1999
exceeds 13%, an additional bonus equal to 5% of the Executive's annual Base
Salary for the Second Year, but not to exceed 50% of such annual Base Salary for
the Second
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Year, for every 0.5% increment by which Regent's ROE for the twelve-month period
ending March 31, 1999 exceeds 13%; or
(B) 50% of the Executive's annual Base Salary for the Second
Year if the Market Value of the outstanding Common Stock of Regent plus the
outstanding Common Stock of the Bank that by its terms is exchangeable for
Common Stock of Regent as of March 31, 1999 equals or exceeds $28.5 million, or
if the Bank realized its deferred tax asset of $1.3 million during the
twelve-month period ending March 31, 1998, $29.8 million; or
(C) zero if none of the objectives set forth in the foregoing
clauses (ii)(A) or (ii)(B) are satisfied.
(iii) For the Third Year, the Executive shall be entitled to receive
a Bonus equal to:
(A) 25% of the Executive's annual Base Salary for the Third
Year if Regent's ROE for the twelve-month period ending March 31, 2000 is equal
to 13%, and if Regent's ROE for the twelve-month period ending March 31, 2000
exceeds 13%, an additional bonus of 5% of the Executive's annual Base Salary for
the Third Year, but not to exceed 50% of such annual Base Salary, for every 0.5%
increment by which Regent's ROE for the twelve-month period ending March 31,
2000 exceeds 13%; or
(B) 50% of the Executive's annual Base Salary for the Third
Year if the Market Value of the outstanding Common Stock of Regent plus the
outstanding Common Stock of the Bank that by its terms is exchangeable for
Common Stock of Regent as of March 31, 2000 equals or exceeds $35 million, or if
the Bank realized its deferred tax asset of $1.3 million during the twelve-month
period ending March 31, 1998, $36.3 million; or
(C) zero if none of the objectives set forth in the foregoing
clauses (iii)(A) or (iii)(B) are satisfied.
(iv) In the event this Agreement is terminated for any reason during
the First Year on any date other than the last day of the First Year, (A) the
Executive's eligibility for a Bonus pursuant to paragraph 3(b)(i) hereof shall
be determined by (x) substituting the date of termination for March 31, 1998
each time that such date appears in paragraph 3(b)(i) hereof and (y) determining
the status of the Regulatory Agreement and the Recommendation and the Market
Value as of the date of such termination; and (B) if the Executive is eligible
for such Bonus, the amount of such Bonus shall be the amount determined pursuant
to paragraph 3(b)(i) hereof multiplied by a fraction, the numerator of which
shall be the number of days from April 1, 1997 through the date of such
termination and the denominator of which shall be 365.
(v) In the event this Agreement is terminated for any reason during
the Second Year on any date other than the last day of the Second Year, (A) the
Executive's eligibility for a Bonus pursuant to paragraph 3(b)(ii) hereof shall
be determined by (x) substituting
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the phrase "Regent's ROE, calculated on an annualized basis, for the period
commencing on April 1, 1998 and ending on the date of termination of the
Executive's employment hereunder" for the phrase "Regent's ROE for the
twelve-month period ending March 31, 1999" each time that such phrase appears in
paragraph 3(b)(ii) hereof and (y) analyzing the Market Value as of the date of
such termination; and (B) if the Executive is eligible for such Bonus, the
amount of such Bonus shall be the amount determined pursuant to paragraph
3(b)(ii) hereof multiplied by a fraction, the numerator of which shall be the
number of days from April 1, 1998 through the date of such termination and the
denominator of which shall be 365.
(vi) In the event that this Agreement is terminated for any reason
during the Third Year on any date other than the last day of the Third Year,
then (A) the Executive's eligibility for a Bonus pursuant to paragraph 3(b)(iii)
hereof shall be determined by (x) substituting the phrase "Regent's ROE,
calculated on an annualized basis, for the period commencing on April 1, 1999
and ending on the date of termination of the Executive's employment hereunder"
for the phrase "Regent's ROE for the twelve-month period ending March 31, 2000"
each time that such phrase appears in paragraph 3(b)(iii) hereof and (y)
analyzing the Market Value as of the date of such termination; and (B) if the
Executive is eligible for such Bonus, the amount of such Bonus shall be the
amount determined pursuant to paragraph 3(b)(iii) hereof multiplied by a
fraction, the numerator of which shall be the number of days from April 1, 1999
through the date of such termination and the denominator of which shall be 365.
(vii) The "Market Value" of one share of Common Stock of Regent as
of any date shall mean the average of the closing bid price of one share of
Common Stock of Regent for the 20 consecutive business days ending no more than
five business days before the date in question, as adjusted for any stock
dividends, split, combination or reclassification that took effect during such
20-business day period, or, in case no sales took place on any day in question,
the average of the last bid and asked prices on such day, in either case on the
principal national securities exchange on which the Common Stock of Regent is
listed or admitted to trading, which shall include the Nasdaq National Market
System ("Nasdaq NMS"), or if the Common Stock of Regent is not listed or
admitted for trading on any such exchange or Nasdaq NMS on any day in question,
then such price as shall be equal to the last bid price quoted on the National
Association of Securities Dealers Automated Quotations System ("Nasdaq") on
such day, or, if, on any day in question, the Common Stock of Regent shall not
be quoted on Nasdaq, then such price shall be equal to the last reported bid
price on such day as reported by the National Quotation Bureau, Inc. ("NQB") or
any similar reputable quotation and reporting service if such quotation is not
reported by NQB; provided, however, that if the Common Stock of Regent is not
traded in such manner that the quotations referred to in this clause (vii) are
available for the period required hereunder, the "Market Value" shall mean the
product of the book value per share of Common Stock of Regent as of such date
multiplied by 1.5%. Any computation of Market Value for purposes of this
paragraph 3(b) shall be determined on the assumption that all shares of Common
Stock of the Bank issued in the
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Private Placement (as defined herein) shall have been exchanged for Common Stock
of Regent.
(viii) Any Bonus payable to the Executive pursuant to paragraphs
3(b)(i), 3(b)(ii) or 3(b)(iii) hereof shall be paid by the Employers to the
Executive within 30 days following the last day of the First Year, the Second
Year or the Third Year, as the case may be. Any Bonus payable to the Executive
pursuant to paragraphs 3(b)(iv), 3(b)(v) or 3(b)(vi) hereof shall be paid by the
Employers to the Executive within 30 days following the date of termination of
the Executive's employment hereunder.
(c) Additional Bonus. In addition to the base salary stated in
paragraph 3(a) hereof, upon the Effective Date, the Employers shall pay to the
Executive additional cash compensation in the amount of $50,000 (the "Additional
Compensation"). If the Executive voluntarily terminates his employment with the
Employers during the first year of the Initial Term otherwise than because of
Good Reason, a Change in Control or the Executive's death or Permanent
Disability, the Executive or his estate, as the case may be, shall pay to the
Employers 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 or
payable on the Additional Compensation by or on behalf of the Executive and (ii)
a fraction, the numerator of which is the number of days between the day after
such termination and the date which is one year after the date hereof, and the
denominator of which is 365. If the Employers terminate the Executive's
employment hereunder for Cause during the First Year, not later than 30 days
after the date of such termination, the Executive shall pay to the Employers
the full amount of such Additional Compensation.
(d) Stock Options. Upon the later of the Effective Date or the date on
which the Bank shall have received not less than $6,000,000 in gross proceeds
from a private placement (the "Private Placement") of Common Stock of the Bank
for which Keefe, Bruyette & Woods, Inc. shall have acted as the Bank's placement
agent, Regent shall grant the Executive options, which shall be non-qualified
stock options, to purchase an aggregate of 150,000 shares of Regent's Common
Stock exercisable at the closing bid price of one share of Regent Common Stock
as reported by Nasdaq on the date of such grant. Such options shall have the
following principal terms:
(i) Such options shall be exercisable for a period of five years
from the date hereof in installments as follows:
(a) 50,000 shares on or after the first anniversary of the
Effective Date;
(b) 50,000 shares on or after the second anniversary of the
Effective Date; and
(c) 50,000 shares on or after the tenth business day preceding the
third anniversary of the Effective Date;
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(ii) the options shall become immediately exercisable and remain
exercisable for the remainder of their term in the event of (A) a Change in
Control, (B) a termination of this Agreement by the Employers without Cause or
(C) a termination of this Agreement by the Executive for Good Reason;
(iii) the options shall terminate immediately in the event of a
termination of this Agreement by the Employers for Cause or (B) a termination of
this Agreement by the Executive without Good Reason;
(iv) the options shall remain exercisable until the earlier of the
expiration of their term or three years after the termination of this Agreement
by the Employers because of the Executive's death or Permanent Disability and
the options shall become immediately exercisable if such termination occurs
during the 270 days preceding consummation of a Change in Control;
(v) the options shall be transferable by gift to members of the
Executive's family or to entities controlled by such family members or by will
or by the laws of descent and distribution;
(vi) the options shall be subject to customary anti-dilution
adjustments as to the exercise price and the number of shares purchasable in the
event Regent issues its Common Stock at a price less than the then prevailing
market value thereof, as determined by Keefe, Bruyette & Woods, Inc.;
(vii) if Regent adopts an option plan for its employees that
provides for terms more favorable to the optionees thereunder than the term of
the options to be granted to the Executive, then, in such event, the term of the
options to be granted to the Executive shall be amended so that the terms
thereof incorporate such more favorable terms of such option plan; and
(viii) promptly following the grant of the options contemplated
hereby to the Executive, Regent shall file a Form S-8 registration statement
with respect thereto with the Securities and Exchange Commission and shall use
its best efforts to cause such registration statement to remain effective for as
long as any of the options granted to the Executive remain exercisable.
(e) Housing Allowance. In connection with the Executive's establishment
of a residence in the Philadelphia, Pennsylvania area, the Employers agree to
reimburse the Executive up to $4,000 per month for housing expenses during the
Term.
(f) Other Benefits. From and after the date hereof and throughout the
Term:
(i) the Employers shall provide the Executive with an automobile at
the Employers' sole cost and expense. Such automobile shall be owned or leased
by Regent or the Bank and shall be a Mercedes-Benz E420 or a substantially
equivalent automobile acceptable to the Executive and shall be replaced every
two years or every
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60,000 miles, whichever first occurs. The Employers shall bear all gas,
insurance, repairs, maintenance and other operating expenses for the automobile.
To the extent any of such benefits are taxable to the Executive, the Executive
shall be solely responsible for such taxes.
(ii) The Employers will pay the annual dues for the Executive's
membership in tennis and fitness clubs up to an annual maximum of $10,000. In
addition, the Employers shall pay any reasonable club usage charges related to
the Employers' business upon submission by the Executive of appropriate
verifying information. The Employers shall also pay any bond, admission or
initiation fee which may be required for membership, up to a maximum of $5,000,
provided however that upon refund to the Executive of all or any portion of such
bond, admission or initiation fee, the refunded amount shall be promptly
remitted by the Executive to the Employers to the extent such bond or fee had
been paid by the Employers. The Employers shall also provide the Executive with
access to luncheon and dinner clubs reasonably designated by the Executive in
the Philadelphia, Pennsylvania area for the purpose of enabling the Executive to
entertain customers of the Employers, and the Employers shall pay any reasonable
club usage charges related to the Employers' business upon submission by the
Executive of appropriate verifying information.
(iii) The compensation provided for in this paragraph 3 shall be in
addition to such rights as the Executive may have, during the Executive's
employment hereunder or thereafter, to participate in and receive benefits from
or under any benefit plans the Employers may in their discretion establish for
their employees or executives.
4. Expenses. The Employers shall promptly reimburse the Executive for (a)
all reasonable expenses paid or incurred by the Executive in connection with the
performance of the Executive's duties and responsibilities hereunder, upon
presentation of expense vouchers or other appropriate documentation therefor,
(b) all reasonable expenses incurred by the Executive since February 1, 1997 in
establishing a residence in the Philadelphia, Pennsylvania area, including,
without limitation, travel, moving and relocation expenses, (c) professional
fees and disbursements, up to a maximum of $7,500, incurred by the Executive in
connection with the preparation, negotiation and execution of this Agreement,
(d) all reasonable professional expenses, such as licenses and dues and
professional educational expenses, paid or incurred by the Executive during the
Term and (e) the costs of a personal computer, fax machine and home security
system for the Executive's residence in the Philadelphia, Pennsylvania area.
5. Indemnification. The Employers shall indemnify the Executive, to the
fullest extent permitted by law, for any and all liabilities to which the
Executive or his Estate may be subject as a result of, in connection with or
arising out of his service as an employee, an officer or a director of the
Employers hereunder or his service as an employee, officer or director of
another enterprise at the request of Regent or the Bank, as well as the costs
and expenses (including
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attorneys' fees) of any legal action brought or threatened to be brought against
him or the Employers as a result of, in connection with or arising out of such
employment. The Employers will advance professional fees and disbursements to
the Executive in connection with any such legal action, provided the Executive
delivers to the Employers his undertaking to repay any expenses so advanced in
the event it is ultimately determined that the Executive is not entitled to
indemnification against such expenses. Expenses reasonably incurred by the
Executive in successfully establishing the right to indemnification or
advancement of expenses, in whole or in part, pursuant to this paragraph 5,
shall also be indemnified by the Employers. The Executive shall be entitled to
the full protection of any insurance policies which the Employers may elect to
maintain generally for the benefit of their respective directors and officers.
The rights granted under this paragraph 5 shall survive the termination of this
Agreement.
6. Confidential Information. (a) The Executive understands that in the
course of his employment by the Employers, the Executive will receive
confidential information concerning the business of the Employers, and which the
Employers desire to protect. The Executive agrees that he will not at any time
during or after the period of his employment by the Employers reveal to anyone
outside the Bank or Regent, or use for his own benefit, any such information
that has been designated as confidential by the Employers or understood by the
Executive to be confidential, without specific written authorization by the
Employers. Upon termination of this Agreement at the request of the Employers,
the Executive shall promptly deliver to the Employers any and all written
materials, records and documents, including all copies thereof, made by the
Executive or coming into his possession during the Term and retained by the
Executive containing or concerning confidential information of the Employers and
all other written materials furnished to and retained by the Executive by the
Employers for his use during the Term, including all copies thereof, whether of
a confidential nature or otherwise.
(b) During the Executive's employment with the Employers, the Executive
shall not be engaged as an officer, director or employee of, or in any way be
associated in a management or ownership capacity with, any corporation or other
entity that has its corporate headquarters within a 50-mile radius of
Philadelphia, Pennsylvania and conducts a business in competition with the
business of the Bank or Regent during the Term, provided, however, that the
Executive may own not more than 4.99% of the outstanding securities, or
equivalent equity interests, of any class of any corporation or other entity
which is in competition with the business of the Bank or Regent, which
securities are listed on a national securities exchange or traded in the
over-the-counter market.
7. Representation and Warranty of the Executive. The Executive represents
and warrants that he is not under any obligation, contractual or otherwise, to
any other firm or corporation, which would prevent his entry into the employ of
the Employers or his performance of the terms of this Agreement.
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8. Entire Agreement; Amendment. This Agreement contains the entire
agreement between the Employers and the Executive with respect to the subject
matter hereof, and may not be amended, waived, changed, modified or discharged
except by an instrument in writing executed by the parties hereto.
9. Assignability. The services of the Executive hereunder are personal in
nature, and neither this Agreement nor the rights or obligations of the
Employers hereunder may be assigned by the Employers, whether by operation of
law or otherwise, without the Executive's prior written consent. This Agreement
shall be binding upon, and inure to the benefit of, the Employers and their
permitted successors and assigns hereunder. This Agreement shall not be
assignable by the Executive, but shall inure to the benefit of the Executive's
heirs, executors, administrators and legal representatives.
10. Notice. Any notice which may be given hereunder shall be in writing and
be deemed given when hand delivered and acknowledged or, if mailed, one day
after mailing by registered or certified mail, return receipt requested, to
either party hereto at their respective addresses stated above, or at such other
address as either party may by similar notice designate, provided that a
photocopy of such notice is dispatched at the same time as the notice is mailed.
Copies of such notices also shall be sent to the Employers' counsel, attention:
Frederick W. Dreher, Esq., Duane, Morris & Heckscher, 4200 One Liberty Place,
Philadelphia, Pennsylvania 19103-7396 (telecopier no.: 215-979-1213) and to the
Executive's counsel, attention: Peter H. Ehrenberg, Esq., Lowenstein, Sandler,
Kohl, Fisher & Boylan, 65 Livingston Avenue, Roseland, NJ 07068-1791 (telecopier
no.: 201-992-5820), as the case may be.
11. Specific Performance. The parties agree that irreparable damage would
occur in the event that any of the provisions of paragraph 6 hereof were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of paragraph 6 hereof and to enforce
specifically the terms and provisions of paragraph 6 hereof, this being in
addition to any other remedy to which any party is entitled at law or in equity.
12. No Third Party Beneficiaries. Nothing in this Agreement, express or
implied, is intended to confer upon any person or entity other than the parties
(and the Executive's heirs, executors, administrators and legal representatives
and the permitted transferees of the options to be granted to the Executive) any
rights or remedies of any nature under or by reason of this Agreement.
13. Successor Liability. The Employers shall require any subsequent
successor, whether direct or indirect, by purchase, merger, consolidation or
otherwise, to all or substantially all of the business and/or assets of the
Employers to assume expressly and agree to perform this Agreement in the same
manner and to the same extent that the Employers would be required to perform it
if no such succession had taken place.
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14. Mitigation. The Executive shall not be required to mitigate the amount
of any payment provided for in this Agreement by seeking other employment or
otherwise, nor shall the amount of any payment or benefit provided for in this
Agreement be reduced by any compensation earned by the Executive as the result
of employment by another employer or by retirement benefits payable after the
termination of this Agreement, except that the Employers shall not be required
to provide the Executive and his eligible dependents with medical insurance
coverage as long as the Executive and his eligible dependents are receiving
comparable medical insurance coverage from another employer.
15. 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 Boards in an effort to resolve such dispute without resort to
arbitration, and provided, further, that the Boards shall have a period of 60
days within which to respond to Executive's submitted dispute, and if the Boards
fail to respond within said time, or the Executive's dispute is not resolved,
the matter may then be submitted for arbitration.
16. Waiver of Breach. The failure at any time to enforce or exercise any
right under any of the provisions of this Agreement or to require at any time
performance by the other parties of any of the provisions hereof shall in no way
be construed to be a waiver of such provisions or to affect either the validity
of this Agreement or any part hereof, or the right of any party hereafter to
enforce or exercise its rights under each and every provision in accordance with
the terms of this Agreement.
17. No Attachment. Except as required by law, no right to receive payments
under this Agreement shall be subject to anticipation, commutation, alienation,
sale, assignment, encumbrance, charge, pledge or hypothecation or to execution,
attachment, levy or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to effect any such action shall be null, void
and of no effect; provided, however, that nothing in this paragraph 17 shall
preclude the assumption of such rights by executors, administrators or other
legal representatives of the Executive or his estate and their assigning any
rights hereunder to the person or persons entitled hereto.
18. 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 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.
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19. Survival of Benefits. Any provision of this Agreement which provides a
benefit to the Executive and which by the express terms hereof does not
terminate upon the expiration of the Term shall survive the expiration of the
Term and shall remain binding upon the Employers until such time as such
benefits are paid in full to the Executive or his Estate.
20. Construction. This Agreement shall be governed by and construed in
accordance with the internal laws of the Commonwealth of Pennsylvania, without
giving effect to principles of conflict of laws. All headings in this Agreement
have been inserted solely for convenience of reference only, are not to be
considered a part of this Agreement and shall not affect the interpretation of
any of the provisions of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
REGENT BANCSHARES CORP.
By: /s/ David W. Ring
-------------------------------
David W. Ring,
Chairman of the Board
REGENT NATIONAL BANK
By: /s/ John J. Lyons
-------------------------------
John J. Lyons,
President
/s/ Robert B. Goldstein
-----------------------------------
Robert B. Goldstein
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EXHIBIT 10(o)
REGENT BANCSHARES CORP.
1997 EQUITY INCENTIVE PLAN
Regent Bancshares Corp., a New Jersey corporation and bank holding company
("Regent"), hereby sets forth the Regent Bancshares Corp. 1997 Equity Incentive
Plan (the "Plan"). The Plan provides for the grant of non-qualified stock
options ("Options") to officers, directors, employees and consultants of Regent
or its subsidiary, Regent National Bank, a national banking association (the
"Bank").
1. Purpose. The purpose of the Plan is to further the growth, development
and financial success of Regent and the Bank by providing additional incentives
to officers, directors, employees and consultants of Regent and of the Bank,
which will enable them to participate directly in the growth of the value of the
capital stock of Regent. Regent intends that the Plan will facilitate securing,
retaining and motivating officers, directors, employees and consultants of high
caliber and potential. To accomplish these purposes, the Plan provides a means
whereby officers, directors, employees and consultants of Regent and of the Bank
may receive Options to purchase shares of Regent's Common Stock, par value $.10
per share (the "Common Stock").
2. Administration.
(a) Administration by the Board. The Plan shall be administered by the
Board of Directors of Regent (the "Board"), which, in its discretion, may
appoint a committee (the "Committee") of at least two non-employee directors of
Regent, as that term is defined in Rule 16b-3(b)(3)(i) of the Securities
Exchange Act of 1934 (the "1934 Act"), to administer the Plan in lieu of the
Board, subject to the ultimate authority of the Board to administer the Plan. If
the Board appoints a Committee, the Board, from time to time, may increase the
size of the Committee and appoint additional members thereof, remove members
(with or without cause) and appoint new members in substitution therefor, fill
vacancies, however caused, or remove all members of the Committee and thereafter
directly administer the Plan.
(b) Authority of the Board. The Board shall have full and final authority,
in its sole discretion, to interpret the provisions of the Plan and to decide
all questions of fact arising in its application and to make all other
determinations necessary or advisable for the administration of the Plan. All
decisions, determinations and interpretations of the Board shall be final and
binding on all holders of Options granted under the Plan and their successors in
interest. The Board shall determine the officers, directors, employees or
consultants to whom Options are to be granted, the type, amount, size, and terms
of each such grant and the time or times when Options are to be exercisable.
Members of the Board shall not receive any compensation for their services in
administering the Plan, but all expenses and liabilities they incur in
connection with the adminis tration of the Plan shall be borne by Regent. No
member of the Board or of the Committee shall be personally liable for any
action, determination or interpretation made in good faith with respect
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<PAGE>
to the Plan, and all members of the Board and of the Committee shall be fully
protected and indemnified by Regent in respect to any such action, determination
or interpretation.
3. Grant of Options.
(a) Limitations. The number of shares of Common Stock available under the
Plan for issuance pursuant to Options is 380,000 shares of Common Stock in the
aggregate. Such shares may be authorized and unissued shares or shares issued
and subsequently reacquired by Regent. Except as otherwise provided herein, any
shares subject to an Option that for any reason expires or is terminated
unexercised as to such shares shall again be available under the Plan.
(b) Eligibility To Receive Options. Officers, directors, employees and
consultants of Regent and of the Bank shall be eligible to receive Options under
the Plan as determined by the Board in its sole discretion.
(c) Type of Options. Grants may be made at any time and from time to time
by the Board in the form of Options to purchase shares of Common Stock. Options
granted hereunder are not intended to qualify as incentive stock options within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code") or any amendment or substitute thereto.
(d) Option Agreements. Options for the purchase of Common Stock shall be
evidenced by written agreements in such form not inconsistent with the Plan as
the Board shall approve from time to time. The Options granted hereunder may be
evidenced by a single agreement or by multiple agreements, as determined by the
Board in its sole discretion. Each option agreement shall contain in substance
the following terms and conditions:
(i) Exercise Price. Each option agreement shall set forth the exercise
price of the Common Stock purchasable upon the exercise of the Option evidenced
thereby. The exercise price of the Common Stock subject to an Option shall be
not less than 100% of the fair market value of such stock on the date the Option
is granted, as determined by the Board but in no event less than the par value
of such stock. For this purpose, fair market value on any date shall mean the
closing price of the Common Stock as reported in The Wall Street Journal or, if
not so reported, as otherwise reported by the National Association of Securities
Dealers Automated Quotation System ("Nasdaq"), or if the Common Stock is not
reported by Nasdaq, the fair market value shall be as determined by the Board.
(ii) Exercise Term. Each Option shall state the period or periods of
time within which the Option may be exercised, in whole or in part, as
determined by the Board, provided that no Option shall be exercisable after five
years from the date of grant thereof. The Board shall have the power to permit
an acceleration of exercise terms upon such circumstances and subject to such
terms and conditions as the Board deems appropriate in its sole discretion.
(iii) Substitution of Options. Options may be granted under the Plan
from time to time in substitution for stock options held by officers, directors,
employees or consultants of other financial institutions or corporations who are
about to become, and who do concurrently with the
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<PAGE>
grant of such options become, officers, directors, employees or consultants of
Regent or of the Bank as a result of a merger or consolidation of such financial
institution or corporation with Regent or the Bank, or the acquisition by Regent
or the Bank of the assets of such financial institution or corporation or the
acquisition by Regent or the Bank of stock of such financial institution or
corporation. The terms and conditions of the substitute Options so granted may
vary from the terms and conditions set forth in this Section 3 to such extent as
the Board at the time of grant may deem appropriate to conform, in whole or in
part, to the provisions of the stock options in substitution for which Options
are granted.
4. Date of Grant. The date on which an Option shall be deemed to have been
granted under the Plan shall be the date of the Board's authorization of the
Option or such later date as may be determined by the Board at the time the
Option is authorized. Notice of the determination shall be given to each
individual to whom an Option is so granted within a reasonable time after the
date of such grant.
5. Manner of Exercise. Options may be exercised in whole or in part, from
time to time, by giving written notice of exercise to the Chief Financial
Officer of Regent, specifying the number of shares to be purchased. The exercise
price of the shares with respect to which an Option is exercised shall be
payable in full with the notice of exercise in cash, Common Stock at fair market
value or a combination thereof, as the Board may determine from time to time and
subject to such terms and conditions as may be prescribed by the Board for such
purpose. The Board may also, in its discretion and subject to prior notification
to Regent by an optionee, permit an optionee to enter into an agreement with
Regent's transfer agent or a brokerage firm of national standing whereby the
optionee will simultaneously exercise the Option and sell the shares acquired
thereby through Regent's transfer agent or such a brokerage firm and either
Regent's transfer agent or the brokerage firm executing the sale will remit to
Regent from the proceeds of sale the exercise price of the shares as to which
the Option has been exercised. Regent shall not be re quired to issue fractional
shares on exercise of an Option.
6. Rights upon Termination of Service. In the event an optionee ceases to
be an officer, director, employee or consultant of Regent or the Bank for any
reason other than death, total disability (within the meaning of Section
72(m)(7) of the Code) or retirement, the optionee shall have the right to
exercise the Option during its term within a period of three months after such
termination to the extent that the Option was exercisable at the time of
termination, or within such other period, and subject to such other or different
terms and conditions, as may be specified by the Board in a written agreement
evidencing an Option. In the event that an optionee dies, retires or becomes
totally disabled prior to the expiration of his or her Option and without having
fully exercised such Option, the optionee or the optionee's successor in
interest shall have the right to exercise the Option during its term within a
period of one year after such termination due to death, retirement or total
disability to the extent that the Option was exercisable at the time of such
termination or within such other period, and subject to such other or different
terms and conditions, as may be specified by the Board in a written agreement
evidencing an Option. As used in this Section 6, "retirement" means a
termination of employment by reason of an optionee's retirement at or after the
optionee's earliest permissible retirement date pursuant to and in accordance
with Regent's regular retirement plan or personnel practices.
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<PAGE>
7. General Restrictions. Each Option granted under the Plan shall be
subject to the requirement that if at any time the Board shall determine that
(i) the listing, registration or qualification of the shares of Common Stock
subject or related thereto upon any securities exchange or under any state or
federal law, or (ii) the consent or approval of any government regulatory body,
or (iii) the satisfaction of any tax withholding obligation or (iv) an agreement
by the recipient of an Option with respect to the disposition of shares of
Common Stock is necessary or desirable as a condition of or in connection with
the granting of such Option or the issuance or purchase of shares of Common
Stock thereunder, such Option shall not be consummated in whole or in part
unless such listing, registration, qualification, consent, approval or agreement
shall have been effected or obtained free of any conditions not acceptable to
the Board.
8. Rights of a Stockholder. The recipient of any Option under the Plan,
unless otherwise provided by the Plan, shall have no rights as a stockholder
unless and until certificates for shares of Common Stock are issued and
delivered to such recipient.
9. Right to Terminate Employment. Nothing contained in the Plan or in any
option agreement entered into pursuant to the Plan shall confer upon any
optionee the right to continue in the employment or service of Regent or the
Bank or affect any right that Regent or the Bank may have to terminate the
service or employment of such optionee.
10. Withholding. Whenever Regent proposes or is required to issue or
transfer shares of Common Stock under the Plan, Regent shall have the right to
require the recipient to remit to Regent an amount sufficient to satisfy any
federal, state or local withholding tax requirements prior to the delivery of
any certificate or certificates for such shares. If and to the extent authorized
by the Board, in its sole discretion, an optionee may make an election, by means
of a form of election to be prescribed by the Board, to have shares of Common
Stock that are acquired upon exercise of an Option withheld by Regent or to
tender other shares of Common Stock of Regent owned by the optionee to Regent at
the time of exercise of an Option to pay the amount of tax that would otherwise
be required by law to be withheld by Regent as a result of any exercise of an
Option. Any such election shall be irrevocable and shall be subject to
termination by Regent, in its sole discretion, at any time. Any securities so
withheld or tendered will be valued by the Board at the fair market value
thereof as of the date of exercise.
11. Assignability. Options under the Plan shall be assignable and
transferable by the recipient thereof to the extent that the agreement
evidencing such Option expressly so indicates. Regent shall not be required to
recognize any such transfer or assignment until written notice thereof, signed
by the holder of the Option, is delivered to Regent. Unless otherwise
transferred or assigned, the Option shall be exercisable only by the recipient
or by the recipient's guardian or legal representative during the life of the
recipient.
12. Non-Uniform Determinations. Determinations by the Board under the Plan
(including, without limitation, determinations of the persons to receive
Options, the form, amount and timing of such grants, the terms and provisions of
Options, and the agreements evidencing same) need not be uniform and may be made
selectively among persons who receive, or are eligible to receive, grants of
Options under the Plan whether or not such persons are similarly situated.
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<PAGE>
13. Adjustments.
(a) Changes in Capitalization. Subject to any required action by the
stockholders of Regent, the number of shares of Common Stock covered by each
outstanding Option and the number of shares of Common Stock that have been
authorized for issuance under the Plan but as to which no Options have yet been
granted or which have been returned to the Plan upon cancellation or expiration
of an Option, as well as the price per share of Common Stock covered by each
such outstanding Option, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock, or any other increase or decrease in the number of issued
shares of Common Stock effected without receipt of consider ation by Regent;
provided, however, that conversion of any securities convertible into or
exchangeable for Common Stock of Regent shall not be deemed to have been
"effected without receipt of consideration." Such adjustment shall be made by
the Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein or in an agreement evidencing an
Option, no issuance by Regent of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number of shares of Common
Stock subject to an Option or the exercise price thereof.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of Regent, all outstanding Options will terminate
immediately prior to the consumma tion of such proposed action, unless otherwise
provided by the Board. The Board may, in the exercise of its discretion in such
instances, declare that any Option shall terminate as of a date fixed by the
Board and give each Option holder the right to exercise his or her Option as to
all or any part of the shares of Common Stock covered by the Option, including
shares as to which the Option would not otherwise then be exercisable.
(c) Sale or Merger. In the event of a proposed sale of all or
substantially all of the assets of Regent, or the merger of Regent with or into
another corporation, the Board, in the exercise of its sole discretion, may take
such action as it deems desirable, including, but not limited to: (i) causing an
Option to be assumed or an equivalent option to be substituted by the successor
corporation or a parent or subsidiary of such successor corporation, (ii)
providing that each Option holder shall have the right to exercise his or her
Option as to all of the shares of Common Stock covered by the Option, including
shares as to which the Option would not otherwise then be exercisable or (iii)
declaring that an Option shall terminate at a date fixed by the Board, provided
that the Option holder is given notice thereof and opportunity to exercise the
then exercisable portion of his or her Option prior to such date.
14. Rights Upon Change in Control. In the event of a Change of Control of
Regent, the Board may, in its absolute discretion and upon such terms and
conditions as it deems appropriate, provide, by resolution adopted prior to such
Change in Control, that at some time prior to the effective date of such Change
in Control, that all Options granted pursuant to the Plan shall become
immediately exercisable as to all of the shares covered thereby, notwithstanding
any other
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<PAGE>
provision contained herein or in the option agreements. As used herein, "Change
of Control" shall mean (a) the acquisition of shares of Regent (or of the Bank
if the Bank is a successor to Regent) by any "person" or "group" (as such terms
are used in Rule 13d-3 under the 1934 Act as now or hereafter amended) in a
transaction or series of transactions, but excluding any exchange of common
stock of the Bank for Common Stock of Regent, that result in such person or
group directly or indirectly first owning beneficially more than 35% of Regent's
Common Stock (or of the Bank if the Bank is a successor to Regent) after May 28,
1997, (b) the consummation of a merger or other business combination after which
the holders of voting capital stock of Regent and the Bank do not collectively
own 50% or more of the voting capital stock of the entity surviving such merger
or other business combination or the sale, lease, exchange or other transfer in
a transaction or series of transactions of all or substantially all of the
assets of the Bank, but excluding therefrom the sale and reinvestment of the
Bank's investment portfolio or (c) as the result of or in connection with any
cash tender offer or exchange offer, merger or other business combination, sale
of assets or contested election of directors or any combination of the foregoing
transactions (a "Transaction"), other than a Transaction between the Bank and
Regent, the persons who constituted a majority of the members of the Boards of
Directors of Regent and the Bank on May 28, 1997 and persons whose election as
members of the Boards of Directors of Regent and the Bank was approved by such
members then still in office or whose election was previously so approved after
May 28, 1997, but before the event that constitutes a Change of Control, no
longer constitute such a majority of the members of the Boards of Directors of
Regent and the Bank then in office. A Transaction constituting a Change in
Control shall only be deemed to have occurred upon the closing of the
Transaction.
15. Amendment, Suspension or Termination of the Plan. The Plan may be
wholly or partially amended or otherwise modified, suspended or terminated at
any time or from time to time by the Board, subject to any required stockholder
approval or any stockholder approval that the Board may deem advisable for any
reason, such as for the purpose of obtaining or retaining any statutory or
regulatory benefits under tax, securities or other laws or satisfying any
applicable stock exchange or automated quotation system listing requirements.
The Board may not, without the consent of the holder of an Option, alter or
impair any Option previously granted under the Plan, except as specifically
authorized herein.
16. Reservation of Shares. Regent, during the term of the Plan, will at all
times reserve and keep available such number of shares of Common Stock as shall
be sufficient to satisfy the requirements of the Plan. The inability of Regent
to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by Regent's counsel to be necessary to the lawful issuance
and sale of any shares hereunder, shall relieve Regent of any liability for the
failure to issue or sell such shares as to which such requisite authority shall
not have been obtained.
17. Effect on Other Plans. Participation in the Plan shall not affect an
optionee's eligibility to participate in any other benefit or incentive plan of
Regent or the Bank. Any Options granted pursuant to the Plan shall not be used
in determining the benefits provided under any other plan of Regent or of the
Bank unless specifically provided.
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<PAGE>
18. Duration of the Plan. The Plan shall remain in effect until all Options
granted under the Plan have been satisfied by the issuance of shares or expired,
but no Option shall be granted after March 25, 2007.
19. Forfeiture for Dishonesty. Notwithstanding anything to the contrary in
the Plan, if the Board finds, by a majority vote, after full consideration of
the facts presented on behalf of both Regent and any optionee, that an optionee
has been engaged in fraud, embezzlement, theft, commission of a felony or
dishonest conduct in the course of such optionee's employment, service or
retention by Regent or the Bank that damaged Regent or the Bank or that the
optionee has disclosed confidential information of Regent or the Bank, such
optionee shall forfeit all unexercised Options and all exercised Options under
which Regent has not yet delivered the certificates, provided that Regent shall
return to the optionee any exercise price theretofore paid by the optionee to
Regent. The decision of the Board in interpreting and applying the provisions of
this Section 19 shall be final. No decision of the Board, however, shall affect
the finality of the discharge or termination of such optionee by Regent or by
the Bank in any manner.
20. No Prohibition on Corporate Action. No provision of the Plan shall be
construed to prevent Regent or the Bank, or any officer or director of Regent or
the Bank, from taking any action deemed by Regent, the Bank or such officer or
director to be appropriate or in the best interest of Regent or of the Bank,
whether or not such action could have an adverse effect on the Plan or any
Options granted hereunder, and no optionee or optionee's successor in interest
shall have any claim against Regent or the Bank, or any officer or director of
Regent or the Bank or member of the Committee as a result of the taking of such
action.
21. Indemnification. With respect to the administration of the Plan, Regent
shall indemnify each present and future member of the Board and the Committee
against, and each member of the Board and the Committee shall be entitled,
without further action on such member's part, to indemnity from Regent for all
expenses, including the amount of judgments and the amount of approved
settlements made with a view to the curtailment of costs of litigation, other
than amounts paid to Regent itself, reasonably incurred by the member in
connection with or arising out of any action, suit or proceeding in which the
member may be involved by reason of his or her being or having been a member of
the Board or of the Committee, whether or not he or she continues to be such
member at the time of incurring such expenses; provided, however, that such
indemnity shall not include any expenses incurred by any such member of the
Board or of the Committee (a) in respect of matters as to which he or she shall
be finally adjudged in any such action, suit or proceeding to have been guilty
of gross negligence or willful misconduct in the performance of his or her duty
as such member of the Board or such Committee or (b) in respect of any matter in
which any settlement is effected for an amount in excess of the amount approved
by Regent on the advice of its legal counsel; and provided further that no right
of indemnification under the provisions set forth herein shall be available to
or enforceable by any such member of the Board or of the Committee unless,
within 60 days after institution of any such action, suit or proceeding, he or
she shall have offered Regent in writing the opportunity to defend such action,
suit or proceeding at its own expense. The foregoing right of indemnification
shall inure to the benefit of the heirs, executors or administrators of each
such member
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<PAGE>
of the Board and of the Committee and shall be in addition to all other rights
to which such member may be entitled as a matter of law, contract or otherwise.
22. Miscellaneous Provisions.
(a) Compliance with Plan Provisions. No optionee or other person shall have
any right with respect to the Plan, the Common Stock reserved for issuance under
the Plan or in any Option until a written option agreement shall have been
executed on behalf of Regent and by the optionee and all the terms, conditions
and provisions of the Plan and the Option applicable to such optionee, and each
person claiming under or through such optionee, have been met.
(b) Approval of Counsel. In the discretion of the Board, no shares of
Common Stock, other securities or property of Regent or other forms of payment
shall be issued hereunder with respect to any Option unless counsel for Regent
shall be satisfied that such issuance will be in compliance with applicable
federal, state, local and foreign legal, securities exchange and other
applicable requirements.
(c) Effects of Acceptance. By accepting any Option under the Plan, each
optionee and each person claiming under or through such optionee shall be
conclusively deemed to have indicated his or her acceptance and ratification of,
and consent to, any action taken under the Plan by Regent or its officers, the
Board or the Committee.
(d) Compliance with Rule 16b-3. To the extent that Rule 16b-3 under the
1934 Act applies to Options granted under the Plan, it is the intention of
Regent that the Plan comply in all respects with the requirements of Rule 16b-3,
that any ambiguities or inconsistencies in construction of the Plan be
interpreted to give effect to such intention and that, if the Plan shall not so
comply, whether on the date of adoption or by reason of any later amendment to
or interpretation of Rule 16b-3, the provisions of the Plan shall be deemed to
have been automatically amended so as to bring the provisions of the Plan into
full compliance with such Rule.
23. Stockholder Approval. No Option may be exercised until the Plan shall
have been approved by the affirmative vote of the holders of a majority of the
shares of Regent's outstanding Common Stock and Series A Convertible Preferred
Stock present or represented and entitled to vote at a duly convened meeting of
stockholders.
24. Titles. Titles are provided herein for convenience of reference only
and are not to serve as a basis for interpretation or construction of the Plan.
Date of adoption by the Board of Directors: March 26, 1997
Date of adoption by the stockholders: May 28, 1997
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<PAGE>
EXHIBIT 10(p)
March 31, 1997
Regent Bancshares Corp.
1430 Walnut Street
Philadelphia, PA 19102
Attention: John J. Lyons
President
Dear Mr. Lyons:
The purpose of this letter is to evidence the agreement between Regent
Bancshares Corp. ("Regent") and the undersigned pursuant to which the
undersigned is on the date hereof purchasing 8,182 shares of Regent Series A
Convertible Preferred Stock (the "Shares") from Regent at a price of $6.50 per
share, an aggregate of $53,183, which funds are transmitted herewith.
In connection with this purchase, the undersigned represents and warrants
to Regent as follows: (i) the undersigned understands the high degree of risk
involved in an investment in the Shares and has carefully considered the risks
involved in making an investment in the Shares; (ii) the undersigned understands
the restrictions on the transferability of the Shares; (iii) the undersigned is
able to bear the economic risk of an investment in the Shares, is able to hold
the Shares for an indefinite period of time, is able to afford a complete loss
of his investment and has adequate means of providing for his current needs and
possible personal contingencies and has had no need for liquidity in his
investment; (iv) the undersigned has such knowl edge and experience in financial
and business matters that the under signed is capable of evaluating the merits
and risks of an investment in the Shares and of making an informed investment
decision; (v) the undersigned has been given the opportunity to ask questions of
and to receive answers from Regent concerning Regent, Regent National Bank and
the Shares and to obtain any additional information that Regent possesses or can
acquire without unreasonable effort or expense;
<PAGE>
John J. Lyons
Page 2
March 31, 1997
(vi) the Shares are being acquired in good faith by the undersigned solely for
his own personal account for investment purposes only and are not being
purchased with a view to or for resale, distribution, subdivision or
fractionalization thereof in a manner that would violate applicable provisions
of the Securities Act of 1933, as amended (vii) also having the undersigned
consents to the placement of a restrictive legend on the certificates
representing the Shares.
Sincerely,
/s/ Joel E. Hyman
-----------------------------------
Joel E. Hyman
JEH:sh
<PAGE>
EXHIBIT 10(q)
March 31, 1997
Regent Bancshares Corp.
1430 Walnut Street
Philadelphia, PA 19102
Attention: John J. Lyons
President
Dear Mr. Lyons:
The purpose of this letter is to evidence the agreement between Regent
Bancshares Corp. ("Regent") and the undersigned pursuant to which the
undersigned is on the date hereof purchasing 8,182 shares of Regent Series A
Convertible Preferred Stock (the "Shares") from Regent at a price of $6.50 per
share, an aggregate of $53,183, which funds are transmitted herewith.
In connection with this purchase, the undersigned represents and warrants
to Regent as follows: (i) the undersigned understands the high degree of risk
involved in an investment in the Shares and has carefully considered the risks
involved in making an investment in the Shares; (ii) the undersigned understands
the restrictions on the transferability of the Shares; (iii) the undersigned is
able to bear the economic risk of an investment in the Shares, is able to hold
the Shares for an indefinite period of time, is able to afford a complete loss
of his investment and has adequate means of providing for his current needs and
possible personal contingencies and has had no need for liquidity in his
investment; (iv) the undersigned has such knowledge and experience in financial
and business matters that the undersigned is capable of evaluating the merits
and risks of an investment in the Shares and of making an informed investment
decision; (v) the undersigned has been given the opportunity to ask questions of
and to receive answers from Regent concerning Regent, Regent National Bank and
the Shares and to obtain any additional information that Regent possesses or can
acquire without unreasonable effort or expense;
<PAGE>
(vi) the Shares are being acquired in good faith by the undersigned solely for
his own personal account for investment purposes only and are not being
purchased with a view to or for resale, distribution, subdivision or
fractionalization thereof in a manner that would violate applicable provisions
of the Securities Act of 1933, as amended and (iii) having the undersigned
consents to the placement of a restrictive legend on the certificates
representing the Shares.
Sincerely,
/s/ Frederick W. Dreher
-----------------------------------
Frederick W. Dreher
FWD:sh
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated March 27, 1997 (except for Note 18, as to which
the date is March 31, 1997), accompanying the consolidated financial statements
of Regent Bancshares Corp. and Subsidiary appearing in the Annual Report on Form
10-K for the year ended December 31, 1996 which is included in this Registration
Statement. We consent to the incorporation by reference in the Registration
Statement of the aforementioned report and to the use of our name as it appears
under the caption "Experts."
GRANT THORNTON LLP
Philadelphia, Pennsylvania
June 11, 1997
<PAGE>
[Letterhead of Arthur Andersen LLP]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated May 23, 1996 (and to all references to our Firm) included in or made a
part of this registration statement.
ARTHUR ANDERSEN LLP
Philadelphia, PA
June 11, 1997
