SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to __________
Commission File Number 0-17753
REGENT BANCSHARES CORP.
-----------------------
(Exact name of registrant as specified in its charter)
New Jersey 23-2440805
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1430 Walnut Street, Philadelphia, PA 19102
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(215) 546-6500
--------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
------------------------------------------------------------------------------
(Former name and address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ___
The number of shares of the Registrant's Common Stock and Series A
Convertible Preferred Stock outstanding at March 31, 1997 was 1,244,793 and
443,436, respectively.
<PAGE>
Part I. FINANCIAL INFORMATION
REGENT BANCSHARES CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
-------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 3,707,526 $ 4,409,674
Overnight investments 8,980,028 5,083,790
------------- -------------
Cash and cash equivalents 12,687,554 9,493,464
Investment securities available for sale 31,302,835 30,469,710
Investment securities held to maturity (market value of
$70,885,151 and $73,250,139, respectively) 72,676,922 75,082,982
Loans, net of unearned interest and fees 75,192,000 85,069,171
Less: Allowance for loan losses (2,274,511) (3,059,773)
------------- -------------
Net loans 72,917,489 82,009,398
------------- -------------
Accrued interest receivable 1,521,721 1,362,276
Premises and equipment, net 628,512 695,874
Prepaid expenses and other assets 1,003,889 2,790,522
------------- -------------
Total assets $ 192,738,922 $ 201,904,226
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand deposits $ 9,767,455 $ 10,986,013
Interest bearing:
NOW and money market 7,088,984 6,583,384
Savings 43,754,891 47,830,169
Certificates of deposit 116,544,449 119,726,797
------------- -------------
Total deposits 177,155,779 185,126,363
Advances from Federal Home Loan Bank of Pittsburgh 200,312 202,621
Subordinated debentures 2,750,000 2,750,000
Accrued interest payable 3,665,146 4,792,911
Other liabilities 1,005,087 899,614
------------- -------------
Total liabilities 184,776,324 193,771,509
------------- -------------
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.10 par value, 5,000,000 shares authorized
Series A, 443,436 and 441,272 shares issued and outstanding;
entitled to $4,434,360 in involuntary liquidation 44,344 44,127
Series B, 3,790 and 3,820 shares issued and outstanding;
entitled to $37,900 in involuntary liquidation 379 382
Series C, 3,025 and 3,025 shares issued and outstanding;
entitled to $30,250 in involuntary liquidation 303 303
Series D, 3,280 and 3,280 shares issued and outstanding;
entitled to $32,800 in involuntary liquidation 328 328
Series E, 95,654 and 95,654 shares issued and outstanding;
entitled to $955,640 in involuntary liquidation 9,565 9,565
Common stock, $.10 par value, 10,000,000 shares authorized,
1,244,793 and 1,228,283 shares issued and outstanding 124,479 122,828
Additional paid-in capital 14,783,103 14,678,375
Accumulated deficit (6,230,342) (6,049,921)
Net unrealized loss on securities available for sale (769,334) (673,270)
------------- -------------
Total shareholders' equity 7,962,598 8,132,717
------------- -------------
Total Liabilities & Shareholders' Equity $ 192,738,922 $ 201,904,226
============= =============
</TABLE>
See notes to consolidated financial statements.
-2-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1997 1996
---- ----
(unaudited)
<S> <C> <C>
Interest income:
Loans, including fees $ 2,142,302 $ 3,063,283
Investment securities, including dividends 1,856,307 2,279,504
----------- -----------
Total interest income 3,998,609 5,342,787
Interest expense:
Deposits 2,347,186 2,579,037
Short-term borrowings 3,968 547,060
Long-term debt 57,599 160,524
----------- -----------
Total interest expense 2,408,753 3,286,621
----------- -----------
Net interest income 1,589,856 2,056,166
Provision for loan losses (200,000) 175,000
----------- -----------
Net interest income after provision for loan losses 1,789,856 1,881,166
Non-interest income:
Service charges on deposit accounts 20,493 22,980
Other 12,068 4,746
Net gain on sales of assets 545,113 --
----------- -----------
Total non-interest income 577,674 27,726
Non-interest expense:
Salaries and employee benefits 768,632 498,721
Professional services 1,038,012 209,885
Rent 10,526 43,464
Other occupancy expense 41,511 43,616
Depreciation and amortization 69,789 55,900
FDIC assessment and other insurance 131,009 15,592
IPF servicing 320,312 412,794
Other 168,160 266,028
----------- -----------
Total non-interest expense 2,547,951 1,546,000
----------- -----------
Income (loss) before provision for income taxes (180,421) 362,892
Income tax expense 0 145,100
----------- -----------
Income (loss) before dividends on preferred stock (180,421) 217,792
Preferred stock dividends 83,145 144,600
----------- -----------
Net income (loss) applicable to common stock (263,566) 73,192
----------- -----------
Net income (loss) per common share $ (.20) $ .05
Weighted average number of shares outstanding 1,343,604 1,357,980
</TABLE>
See notes to consolidated financial statements.
-3-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1997 1996
---- ----
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (180,421) $ 217,792
Adjustments to reconcile net income (loss) to net cash (used in)
provided by operating activities:
Provision for loan losses (200,000) 175,000
Depreciation and amortization 69,789 55,900
Net amortization of premiums and accretion of
discounts on investment securities 96,799 212,411
Net gain on sales of assets (545,113) --
Increase (decrease) in unearned interest and fees (500,825) 140,580
Increase (decrease) in accrued interest receivable (159,446) 19,921
Increase (decrease) in prepaid expenses and other assets 2,331,484 (430,281)
Increase in accrued interest payable (1,127,765) (991,488)
Increase in other liabilities 505,473 160,068
Purchases of mortgage loans held for sale -- (12,614,352)
Proceeds from sales of mortgage loans held for sale -- 11,746,388
------------ ------------
Net cash provided by (used in) operating activities 289,975 (1,308,061)
Cash flows from investing activities:
Net decrease (increase) in loans 8,882,317 (8,785,571)
Purchase of investment securities available for sale (2,000,000) --
Principal collected on investment securities held to maturity 3,290,037 4,076,936
Principal collected on investment securities available for sale 597,928 1,735,844
Purchases of premises and equipment -- (138,179)
------------ ------------
Net cash provided by (used in) investing activities 10,770,282 (3,110,970)
Cash flows from financing activities:
Net (decrease)increase in demand, NOW,
savings and money market deposits (4,788,236) 224,833
Net (decrease)increase in certificates of deposit (3,182,348) 466,280
Net increase in advances from Federal Home Loan Bank
of Pittsburgh with original maturities of three months or less -- 981,884
Net decrease in advances from Federal Home Loan Bank
of Pittsburgh with original maturities greater than three months (1,949) --
Proceeds from sale of preferred stock 106,366 --
------------ ------------
Net cash (used in) provided by financing activities (7,866,167) 1,672,997
------------ ------------
Net increase (decrease) in cash and cash equivalents 3,194,090 (2,746,034)
Cash and cash equivalents, beginning of year 9,493,464 6,918,680
------------ ------------
Cash and cash equivalents, end of period $ 12,687,554 $ 4,172,646
============ ============
</TABLE>
See notes to consolidated financial statements.
-4-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
1. In the opinion of Regent Bancshares Corp. ("Regent"), the accompanying
unaudited, consolidated financial statements contain all adjustments,
including normal recurring accruals, necessary to present fairly the
financial position of Regent and its wholly owned subsidiary, Regent
National Bank (the "Bank"), as of March 31, 1997, and the results of
their operations and cash flows for the three months ended March 31,
1997 and 1996.
2. Results of operations for the three months ended March 31, 1997 are not
necessarily indicative of the results to be expected for the full year.
3. Earnings per common share for all periods presented is based on the
weighted average number of common shares outstanding, and common stock
equivalents, after consideration of preferred stock dividends. Common
stock equivalents include the Series A, Series B, Series C, Series D
and Series E Convertible Preferred Stock and, for the three months
ended March 31, 1996, outstanding stock options and warrants. 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 share for the three months ended March 31,
1997 and 1996 are not presented because they are anti-dilutive.
4. Certain balance sheet reclassifications have been made to data for
December 31,1996 to conform to the current presentation.
5. In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings Per Share," which is required to be
adopted for the year ended December 31, 1997. Under the new
requirements for calculating primary earnings per share, the dilutive
effect of stock options will be excluded. The impact of Statement No.
128 on the calculation of Regent's earnings per share is not expected
to be material.
-5-
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
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
23% 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 in the
same period to $75.2 million at March 31, 1997 from $85.1 million at December
31, 1996. 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, 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. The
reimbursement of Carnegie is reported as professional services on the
Consolidated Statements of Operations and the premium paid by Carnegie is
included in the net gain on sale of assets on the Consolidated Statements 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 7, 1997, Robert B. Goldstein became President and 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 Bank. Second, on April
16, 1997, the Bank sold 1,120,000 shares of Bank Common Stock at a price of
$8.50 per share in a private placement for which Keefe, Bruyette & Woods, Inc.
served as the Bank's Placement Agent. The Bank Common Stock 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. The net proceeds of approximately $9.1 million
from this private placement were used to
-6-
<PAGE>
restore the Bank's capital so that the Bank was in compliance with certain
ratios that the Bank has agreed to maintain pursuant to a written agreement (the
"Regulatory Agreement") dated October 10, 1996 between the Office of the
Comptroller of the Currency (the "OCC") and the Bank.
The Bank had cash collections of approximately $3.4 million during the
first quarter of 1997 from the automobile insurance premium finance ("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 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.
<TABLE>
<CAPTION>
Required
Regulatory
Regent March 31, 1997 December 31, 1996 Minimum
- ------ -------------- ----------------- ----------
<S> <C> <C> <C>
Risk-based capital:
Tier 1 capital......... 8.80% 7.65% 4.00%
Total capital.......... 10.61 9.39 8.00
Tier 1 leverage ratio..... 4.51 4.31 3.00-5.00
</TABLE>
-7-
<PAGE>
<TABLE>
<CAPTION>
Required
Regulatory
The Bank March 31, 1997 December 31, 1996 Minimum
- -------- -------------- ----------------- -------
<S> <C> <C> <C>
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
</TABLE>
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 Federal Reserve Bank of Philadelphia
(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.
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
-8-
<PAGE>
date, the date of next repricing and the applicable amortization schedule. This
analysis summarizes the matching or mismatching of rate sensitive assets versus
rate sensitive liabilities according to specified time periods, and provides
management with an indication of how interest income may be impacted by changing
rate scenarios. For example, an institution with more interest sensitive assets
than interest sensitive liabilities is said to have a positive gap. In this
example, as interest rates rise, a greater volume of assets is repriceable than
liabilities. The net result may be an increase in the net interest margin.
Conversely, in a declining rate environment, the net interest margin may
decline. In addition to the gap analysis, computer simulations are used to
evaluate more specifically the impact of a change in interest rates on
liquidity, interest rate spreads/margins and operating results. The simulation
model is a more effective tool than an analysis since the simulation analysis is
more dynamic. The simulation is particularly beneficial as it can better
evaluate the effects of prepayment speeds on the Bank's portfolio of
mortgage-backed securities and the impact that would have on the Bank's
liquidity and profitability. Using the result of the simulation analysis, the
Bank strives to control its interest rate risk exposure so that its net interest
income does not fluctuate by more than 5% assuming that interest rates increase
or decrease by 200 basis points over time.
The blending of fixed and floating rate loans and investments to match
the repricing and maturity characteristics of the various funding sources is a
continuous process in an attempt to minimize fluctuations in net interest
income. An effective tool used by the Bank in this process has been the
availability and flexibility of the various FHLB advance programs, which enable
the Bank to lock in spreads when appropriate and provide an effective method of
matching fixed rate assets with a fixed rate funding source.
The Bank's objective is to structure its balance sheet, as outlined in
the following Interest Sensitivity table, to minimize any significant
fluctuation in net interest income. The distribution in the table is based on a
combination of maturities, repricing frequencies and prepayment patterns.
Floating rate assets and liabilities are distributed based on the repricing
frequency of the instrument while fixed rate instruments are based on
maturities. Mortgage-backed securities are distributed in accordance with their
repricing frequency and estimated prepayment speeds. Deposit liabilities are
distributed in two ways. First, certificates of deposits, FHLB advances and
subordinated debt are distributed based on existing maturity dates. Second,
non-maturity deposits such as NOWs and Savings are divided into a core
component, which is not considered interest-sensitive within a year, and a
volatile component, which is placed in the 0-3 month time category. This
determination is based on a multi-year history in varying interest rate
environments.
<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 assets ........... 15.5% (3.8%) (33.0%) (17.5%)
</TABLE>
-9-
<PAGE>
Investment Portfolio
The investment portfolio of Regent includes debt securities and
non-marketable equities classified as held-to-maturity ("HTM") or
available-for-sale ("AFS") which are accounted for and reported based on the
guidelines contained in FAS 115, "Accounting for Certain Investments in Debt and
Equity Securities." The HTM portfolio contains investments which Regent has the
intention and ability to hold until maturity and is accounted for at amortized
cost. The AFS portfolio contains securities and equities that may be sold if
circumstances warrant and are accounted for at market value with net unrealized
gains or losses reported as a component of shareholders' equity.
The HTM portfolio consists of mortgage-backed securities issued by U.S.
agencies and corporations and collateralized mortgage obligations ("CMOs") of
private issuers. The AFS portfolio consists of U.S. agency debt, mortgage-backed
securities issued by U.S. agencies and corporations and non-marketable equities,
principally issued by the FRBP and the FHLB.
The portfolios are structured to provide a consistent level of interest
income and to generate monthly cash flow to enhance Regent's ability to manage
its liquidity needs. Although the stated maturities of mortgage-backed
securities and CMOs may be as long as 30 years, the average life of these
securities is expected to be considerably shorter due to the effects of normal
amortization of principal and prepayments of the residential mortgages
underlying these securities. The following table summarizes, by major category,
the market value and amortized cost of the AFS and HTM portfolios at March 31,
1997.
<TABLE>
<CAPTION>
Held-to-Maturity Available-for-Sale
--------------------------------- ---------------------------------
Amortized Cost Market Value Amortized Cost Market Value
-------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
U.S. Agencies ............. $ -- $ -- $12,000,000 $11,898,240
Mortgage-backed securities:
GNMA .................... 10,800,398 10,383,325 -- --
FHLMC ................... 29,779,098 29,164,969 7,664,444 7,408,543
FNMA .................... 17,859,326 17,230,942 11,052,937 10,641,264
Collateralized mortgage
obligations ............. 14,238,100 14,075,915 -- --
Non-marketable equity
securities .............. -- -- 1,354,788 1,354,788
----------- ----------- ----------- -----------
Total .................. $72,676,922 $70,855,151 $32,072,169 $31,302,835
=========== =========== =========== ===========
</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........ $ 41,771 $25,269,141 $33,127,910 $58,438,822
Collateralized mortgage
obligations..................... 1,359,479 3,414,398 9,464,223 14,238,100
---------- ----------- ----------- -----------
Total........................ $1,401,250 $28,683,539 $42,592,133 $72,676,922
========== =========== =========== ===========
Weighted Average Yield............ 6.19% 6.49% 7.37% 7.01%
</TABLE>
-10-
<PAGE>
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
-------- -------------- --------------- -----
(in thousands, except percentages)
<S> <C> <C> <C> <C>
U.S. Agencies ............ $ -- $12,000,000 $ -- $12,000,000
Mortgage-backed securities 287,502 2,828,579 15,601,300 18,717,381
----------- ----------- ----------- -----------
Total ................. $ 287,502 $14,828,579 $15,601,300 $30,717,381
=========== =========== =========== ===========
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.
<TABLE>
<CAPTION>
Carrying Value Market Value
-------------- ------------
(in thousands)
<S> <C> <C>
Bear Stearns Mortgage Securities Inc.
Series 1993-2 Class 7............................................. $2,149 $2,047
Bear Stearns Mortgage Securities Inc.
Series 1993-2 Class 5............................................. 1,667 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
</TABLE>
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 $776 and $770 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.
-11-
<PAGE>
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>
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:
-12-
<PAGE>
March 31, 1997 December 31, 1996
-------------- -----------------
(in thousands, except percentages)
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 loans ......... 5.20% 5.66%
Non-performing assets to total assets . 2.08 2.73
Non-performing assets to loans and
other real estate owned ............. 5.32 6.43
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.
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:
<TABLE>
<CAPTION>
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
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 4.60
</TABLE>
-13-
<PAGE>
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........................... $1,082,350
Real Estate:
Mortgages - residential........................... 333,550
Mortgages - commercial............................ 29,040
Unallocated......................................... 829,571
----------
$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).
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
----------------------- ----------------------
Balance % Balance %
------- --- ------- ---
<S> <C> <C> <C> <C>
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%
======== === ======== ===
</TABLE>
Short-term Borrowings
Short-term borrowings are used to supplement the deposit base of the
Bank, to support asset growth, to fund specific loan programs and as a tool in
the Bank's asset/liability management process. During the first 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:
-14-
<PAGE>
<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 12/31 Paid
----------- ------------ ------------ -------- --------
(in thousands, except percentages)
<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
23% 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.
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 4.47% 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:
-15-
<PAGE>
<TABLE>
<CAPTION>
Average Income Rate/ Average Income/ Rate
Balance Expense Yield Balance Expense Yield
------- ------- ----- ------- ------- -----
(in thousands, except for percentages)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Securities..................... $109,514 $ 1,857 6.78% $136,875 $ 2,280 6.66%
Loans.......................... 78,798 2,142 13.66 120,545 3,063 10.22
-------- --------- ----- -------- --------- -----
Total..................... $188,312 $ 3.999 9.66% $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 1,735 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 3.95% $ 2,056 2.56%
========= ==== ======== ====
Net interest rate margin........... 4.47% 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.
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.
-16-
<PAGE>
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.
-17-
<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.
Reference is made to Item 3 of Registrant's Form 10-K Report for the
year ended December 31, 1996 for a description of certain legal proceedings.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
27 -- Financial Data Schedule
(b) Reports on Form 8-K:
Registrant filed the following Current Reports on
Form 8-K during the quarter ended March 31, 1997:
1. Registrant filed a Form 8-K Current Report
on January 7, 1997 which under Item 4
reported a change in Registrant's certifying
accountant from Arthur Andersen LLP to Grant
Thornton LLP.
2. Registrant filed a Form 8-K Current Report
on January 23, 1997 which under Item 5
reported the termination of the Amended and
Restated Agreement and Plan of Merger dated
as of August 30, 1995, as amended on October
2, 1996 among Registrant, Regent National
Bank, Carnegie Bancorp and Carnegie Bank, N.A.
-18-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
REGENT BANCSHARES CORP.
By: /s/ Joel E. Hyman
---------------------------
Joel E. Hyman, Executive Vice President,
Chief Financial Officer and Treasurer
Dated: May 20, 1997
-19-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 3,707,000
<INT-BEARING-DEPOSITS> 1,380,000
<FED-FUNDS-SOLD> 7,600,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 31,303,000
<INVESTMENTS-CARRYING> 103,980,000
<INVESTMENTS-MARKET> 102,188,000
<LOANS> 75,192,000
<ALLOWANCE> 2,274,000
<TOTAL-ASSETS> 192,739,000
<DEPOSITS> 177,156,000
<SHORT-TERM> 0
<LIABILITIES-OTHER> 4,670,000
<LONG-TERM> 2,950,000
0
55,000
<COMMON> 124,000
<OTHER-SE> (769,000)
<TOTAL-LIABILITIES-AND-EQUITY> 192,739,000
<INTEREST-LOAN> 2,142,000
<INTEREST-INVEST> 1,856,000
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 2,998,000
<INTEREST-DEPOSIT> 2,347,000
<INTEREST-EXPENSE> 2,409,000
<INTEREST-INCOME-NET> 1,590,000
<LOAN-LOSSES> (200,000)
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,548,000
<INCOME-PRETAX> (180,000)
<INCOME-PRE-EXTRAORDINARY> (180,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (180,000)
<EPS-PRIMARY> (.20)
<EPS-DILUTED> 0
<YIELD-ACTUAL> 4.47
<LOANS-NON> 3,911,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,060,000
<CHARGE-OFFS> 892,000
<RECOVERIES> 307,000
<ALLOWANCE-CLOSE> 2,274,000
<ALLOWANCE-DOMESTIC> 2,274,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 830,000
</TABLE>
