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 June 30, 1997
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ________________
Commission File Number 0-17753
REGENT BANCSHARES CORP.
-----------------------
(Exact name of registrant as specified in its charter)
New Jersey 23-2440805
---------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1430 Walnut Street, Philadelphia, PA 19102
------------------------------------ -----
(Address of principal executive offices) (Zip Code)
(215) 546-6500
--------------
(Registrant's telephone number, including area code)
Not Applicable
--------------
(Former name and address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No __
The number of shares of the Registrant's Common Stock and Series A
Convertible Preferred Stock outstanding at June 30, 1997 was 1,272,533 and
421,764, respectively.
<PAGE>
Part I. FINANCIAL INFORMATION
REGENT BANCSHARES CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 3,680,733 $ 4,409,674
Overnight investments 5,246,950 5,083,790
------------- -------------
Cash and cash equivalents 8,927,683 9,493,464
Investment securities available-for-sale 50,473,885 30,469,710
Investment securities held-to-maturity
(market value of $68,769,403 and
$73,250,139, respectively) 69,853,764 75,082,982
Loans, net of unearned interest and fees 77,219,986 85,069,171
Less: Allowance for loan losses (1,370,810) (3,059,773)
------------- -------------
Net loans 75,849,176 82,009,398
------------- -------------
Accrued interest receivable 1,416,249 1,362,276
Premises and equipment, net 642,291 695,874
Prepaid expenses and other assets 4,938,844 2,790,522
------------- -------------
Total Assets $ 212,101,892 $ 201,904,226
============= =============
LIABILITIES, MINORITY INTEREST
AND SHAREHOLDERS' EQUITY
Deposits:
Demand deposits $ 12,075,985 $ 10,986,013
Interest bearing:
NOW and money market 6,608,396 6,583,384
Savings 42,062,805 47,830,169
Certificates of deposit 113,593,363 119,726,797
------------- -------------
Total deposits 174,340,549 185,126,363
Advances from Federal Home Loan Bank of Pittsburgh 12,697,173 202,621
Subordinated debentures 2,750,000 2,750,000
Accrued interest payable 3,769,346 4,792,911
Other liabilities 1,362,485 899,614
------------- -------------
Total liabilities 194,919,553 193,771,509
------------- -------------
Commitments and contingencies
Minority interest 8,931,784 --
Shareholders' equity:
Preferred stock, $.10 par value, 5,000,000 shares
authorized Series A, 421,764 and 441,272 shares
issued and outstanding;
entitled to $4,217,640 in involuntary liquidation 42,176 44,127
Series B, 3,690 and 3,820 shares issued and outstanding;
entitled to $36,900 in involuntary liquidation 369 382
Series C, 2,925 and 3,025 shares issued and outstanding;
entitled to $29,250 in involuntary liquidation 292 303
Series D, 3,280 and 3,280 shares issued and outstanding;
entitled to $32,800 in involuntary liquidation 328 328
Series E, 131,315 and 95,654 shares issued and outstanding;
entitled to $1,313,150 in involuntary liquidation 13,131 9,565
Common stock, $.10 par value, 10,000,000 shares authorized,
1,272,533 and 1,228,283 shares issued and outstanding 127,523 122,828
</TABLE>
(continued on next page)
See notes to consolidated financial statements.
-2-
<PAGE>
(CONTINUED) REGENT BANCSHARES CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------------- -------------
(Unaudited)
<S> <C> <C>
Additional paid-in capital 14,778,725 14,678,375
Accumulated deficit (6,231,754) (6,049,921)
Net unrealized loss on securities available-for-sale (479,965) (673,270)
------------- -------------
Total Shareholders' Equity 8,250,555 8,132,717
------------- -------------
Total Liabilities, Minority Interest
and Shareholders' Equity $212,101,892 $201,904,226
============= =============
</TABLE>
See notes to consolidated financial statements.
-3-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1997 1996 1997 1996
------------ ------------ ------------ ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Interest income:
Loans, including fees $ 1,923,552 $ 3,643,011 $ 4,065,854 $ 6,706,294
Investment securities, including dividends 1,957,040 2,136,724 3,813,347 4,416,228
------------ ------------ ------------ ------------
Total interest income 3,880,592 5,779,735 7,879,201 11,122,522
Interest expense:
Deposits 2,353,760 2,630,337 4,700,946 5,209,374
Short-term borrowings 26,712 410,869 34,108 957,929
Long-term debt 53,135 263,064 107,306 423,588
------------ ------------ ------------ ------------
Total interest expense 2,433,607 3,304,270 4,842,360 6,590,891
------------ ------------ ------------ ------------
Net interest income 1,446,985 2,475,465 3,036,841 4,531,631
Provision for loan losses 300,000 3,875,000 100,000 4,050,000
------------ ------------ ------------ ------------
Net interest income after provision
for loan losses 1,146,985 (1,399,535) 2,936,841 481,631
Non-interest income:
Service charges on deposit accounts 22,185 22,967 42,678 45,947
Other 13,648 5,455 25,716 10,201
Net gain on sales of assets 22,880 82,797 567,993 82,797
------------ ------------ ------------ ------------
Total non-interest income 58,713 111,219 636,387 138,945
Non-interest expense:
Salaries and employee benefits 822,910 457,719 1,591,542 956,440
Professional services 332,393 221,544 1,370,405 431,429
Occupancy 162,170 155,747 283,996 298,727
Insurance 141,733 32,240 272,742 47,832
IPF servicing 230,729 678,342 551,041 1,091,136
Other 384,479 280,893 552,639 546,921
------------ ------------ ------------ ------------
Total non-interest expense 2,074,414 1,826,485 4,622,365 3,372,485
------------ ------------ ------------ ------------
Loss before income tax benefit (808,719) (3,114,801) (1,049,137) (2,751,909)
Income tax benefit (900,000) (145,100) (900,000) --
------------ ------------ ------------
Income (loss) before dividends on preferred stock
and minority interest 31,284 (2,969,701) (149,137) (2,751,909)
Preferred stock dividends (127,814) 68,913 (210,959) (75,687)
------------ ------------ ------------ ------------
Loss applicable to common stock (96,530) (2,900,788) (360,096) (2,827,596)
------------ ------------ ------------ ------------
Minority interest (32,696) -- (32,696) --
Net loss (129,226) (2,900,788) (392,792) (2,827,596)
Loss per common share $ (.04) $ (2.61) $ (.18) $ (2.56)
Weighted average number of shares outstanding 2,693,934 1,111,020 2,023,308 1,105,517
</TABLE>
See notes to consolidated financial statements.
-4-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Six Months Ended June 30,
1997 1996
------------ ------------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss (income) $ (149,137) $ (251,909)
Adjustments to reconcile net income (loss)
to net cash (used in) provided by
operating activities:
Provision for loan losses 100,000 1,550,000
Depreciation and amortization 144,324 117,900
Net amortization of premiums and accretion
of discounts on investment securities 196,795 451,917
Net gain on sales of assets (567,993) (82,797)
Increase (decrease) in unearned interest and fees (669,213) 1,336,946
Decrease (increase )in accrued interest receivable (53,973) (17,413)
Decrease (increase) in prepaid expenses
and other assets (878,448) (94,368)
Decrease (increase) in accrued interest payable (1,023,565) (1,032,189)
Decrease (increase) in other liabilities 862,871 (1,580,994)
Purchases of mortgage loans held for sale -- (32,478,981)
Proceeds from sales of mortgage loans
held for sale -- 36,948,272
------------ ------------
Net cash used in (provided by)
operating activities (2,038,339) 4,866,114
Cash flows from investing activities:
Net decrease (increase) in loans 5,791,650 (23,370,923)
Sale of investment securities available-
for-sale 12,565,838 --
Purchase of investment securities available-
for-sale (33,217,707) --
Principal collected on investment securities
held-to-maturity 5,259,221 8,136,873
Principal collected on investment securities
available-for-sale 471,977 3,745,680
Purchases of premises and equipment (40,741) (208,963)
Net cash used in (provided by) investing activities (9,219,761) (11,697,333)
Cash flows from financing activities:
Net (decrease) increase in demand, NOW,
savings and money market deposits (4,652,380) (985,629)
Net increase (decrease) in certificates of deposit (6,133,434) --
Net increase (decrease) in advances from Federal
Home Loan Bank of Pittsburgh with original
maturities of three months or less 12,500,000 3,781,103
Net increase (decrease) in advances from Federal
Home Loan Bank of Pittsburgh with original
maturities greater than three months (5,448) --
Proceeds from sale of preferred stock 106,336 --
</TABLE>
(Continued on next page)
See notes to consolidated financial statements
-5-
<PAGE>
(CONTINUED) REGENT BANCSHARES CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Six Months Ended June 30,
1997 1996
------------ ------------
(unaudited)
<S> <C> <C>
Proceeds from sale of common stock to
minority shareholders 8,931,784 --
------------ ------------
Net cash (used in) provided by financing activities 10,746,888 2,795,474
------------ ------------
Net decrease (increase) in cash and cash equivalents (511,212) (4,035,745)
Cash and cash equivalents, beginning of year 9,493,464 6,918,680
------------ ------------
Cash and cash equivalents, end of period $ 8,982,252 $ 2,882,935
============ ============
</TABLE>
See notes to consolidated financial statements.
-6-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
Notes to Consolidated Financial Statements
1. In the opinion of Regent Bancshares Corp. ("Regent"), the accompanying
unaudited, consolidated financial statements contain all adjustments,
including normal recurring accruals, necessary to present fairly the
financial position of Regent and its wholly owned subsidiary, Regent
National Bank (the "Bank"), as of June 30, 1997, and the results of their
operations and cash flows for the six months ended June 30, 1997 and 1996.
2. Results of operations for the three and six months ended June 30, 1997 are
not necessarily indicative of the results to be expected for the full year.
3. Loss per common share for all periods presented is based on the weighted
average number of common shares outstanding, and common stock equivalents,
after consideration of preferred stock dividends. Common Stock equivalents
include the Series B, Series C, Series D and Series E Convertible Preferred
Stock and, in 1996, outstanding stock options and warrants and, in 1997,
the 1,586,659 shares of Common Stock to be issued in August 1997 in
exchange for 1,120,000 shares of common stock of the Bank held by minority
shareholders. For the six months ended June 30, 1997 and 1996, the weighted
average number of common shares included 776,270 shares and 127,315 shares,
respectively, attributable to common stock equivalents.
Fully diluted earnings per share for the three and six months ended June
30, 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.
-7-
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Overview
Regent reported a net loss for the first six months of 1997 of $393
thousand compared to a net loss for the first six months of 1996 of $2.8
million. The improvement was primarily attributable to a $3.9 million decrease
in the provision for loan losses. Partially offsetting this was a reduction in
net interest income from $4.5 million for the first six months of 1996 to $3.0
million for the first six months of 1997. The increase in noninterest income
from $139 thousand in the first six months of 1996 to $636 thousand for the
first six months of 1997 was more than offset by an increase in noninterest
expense to $4.6 million in the first six months of 1997 from $3.4 million for
the first six months of 1996. Regent recorded a tax benefit of $900 thousand,
representing a portion of its deferred tax asset of approximately $1.6 million
in the three months ended June 30, 1997 in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS
109").
Total assets of $212.1 million at June 30, 1997 were 10% higher than the
$192.7 million at March 31, 1997 and 5% higher than the $201.9 million at
December 31, 1996. Loans at June 30, 1997 were $77.2 million, compared to $75.2
million at March 31, 1997 and $85.1 million at December 31, 1996. Total deposits
were $174.3 million at June 30, 1997, compared to $177.2 million at March 31,
1997 and $185.1 million at December 31, 1996.
A number of major events took place during the first six months of 1997.
First, 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 (the "Bank Offering")
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 resale of the Regent Common Stock issuable in exchange
for Bank Common Stock has been registered under the Securities Act of 1993, as
amended. The net proceeds of approximately $8.9 million from the Bank Offering
were used to 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. On June 25, 1997,
as a result of the Bank Offering and other improvements in the financial
condition and operations of the Bank, the OCC terminated the Regulatory
Agreement and the Bank is now "well-capitalized" under applicable OCC
guidelines.
Second, during the second quarter of 1997, the Bank entered into agreements
to sell substantially all of the Bank's non-performing and other problem loans
of approximately $8.3 million. At June 30, 1997, the Bank had completed the sale
of $3.3 million of these assets, and the sale of the remainder of those
non-performing and other problem loans will be completed during the third
quarter. After a related $2.0 million charge against the Bank's allowance for
loan losses in the second quarter of 1997, the Bank's allowance for loan losses
was $1.4 million at June 30, 1997, or 1.77% of total loans.
-8-
<PAGE>
Third, during June 1997, the Bank's management determined that the Bank
could reduce its full-time personnel level from 45 persons to 32 persons, a
reduction of approximately 29%, without disrupting customer service or
diminishing new business development efforts. The costs of approximately $110
thousand incurred in connection with the personnel reduction are reflected in
the Bank's results of operations for the three months ended June 30, 1997. The
personnel reduction will result in annualized savings of approximately $600
thousand to the Bank.
Fourth, 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 terms 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
Bank, N.A. 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 sales of assets on the Consolidated Statements of
Operations.
Finally, during the first six months of 1997, Regent's new management team
took office as 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, Barbara H. Teaford, formerly Executive Vice President and Secretary of
Regent and the Bank, became President of the Bank, Joel E. Hyman became
Executive Vice President, Chief Financial Officer and Treasurer of Regent and
the Bank and Amanda V. Perkins became Executive Vice President and Chief Credit
Officer of the Bank.
Financial Condition
Capital Adequacy
Total shareholders' equity at June 30, 1997 was approximately $8.25 million
compared to $8.13 million at December 31, 1996. This change is due to the
issuance of $106 thousand of Series A Convertible Preferred Stock and a decrease
of $193 thousand in the unrealized loss on securities available-for-sale which
was partially offset by a $149 thousand net loss for the first six months of
1997 and the exclusion of a minority interest of $32 thousand in the Bank.
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 June 30, 1997 and December 31, 1996 as well as the required minimum
regulatory capital ratios.
-9-
<PAGE>
<TABLE>
<CAPTION>
Required
Regulatory
Regent June 30, 1997 December 31, 1996 Minimum
- ------ ------------- ----------------- -------
<S> <C> <C> <C>
Risk-based capital:
Tier 1 capital ................. 7.93% 7.65% 4.00%
Total capital .................. 9.67 9.39 8.00
Tier 1 leverage ratio ............. 4.42 4.31 3.00-5.00
</TABLE>
<TABLE>
<CAPTION>
Required
Regulatory
The Bank June 30, 1997 December 31, 1996 Minimum
- -------- ------------- ----------------- -------
<S> <C> <C> <C>
Risk-based capital:
Tier 1 capital ............... 18.35% 9.95% 4.00%
Total capital ................ 19.58 11.21 8.00
Tier 1 leverage ratio ........... 10.32 5.65 3.00-5.00
</TABLE>
On June 25, 1997, as a result of the Bank Offering and other improvements
in the financial condition and operations of the Bank, the OCC terminated the
Regulatory Agreement that had been in effect between the Bank and the OCC since
October 10, 1996. In addition, the Bank was notified that it had satisfied the
OCC criteria for a "well-capitalized" institution. Among other things, this
designation will be significant in lowering the BIF insurance premiums of the
Bank beginning in 1998.
Asset and Liability Management
Asset and liability management is the process of maximizing net interest
income within the constraints of maintaining acceptable levels of liquidity,
interest rate risk and capital. To achieve this objective, the Bank has
implemented policies and procedures that utilize a combination of selected
investments and funding sources with various maturity structures.
Liquidity
Liquidity represents the ability to generate funds at reasonable rates to
meet potential cash outflows from deposit customers who need to withdraw funds
or borrowers who need available credit. The primary source of the Bank's
liquidity has been the Bank's ability to generate deposits.
Supplementing the deposit base, liquidity is available from the investment
portfolio, which consists primarily of mortgage-backed securities issued by U.S.
Government agencies and corporations. These securities enhance liquidity not
only by their marketability, but also by providing monthly principal and
interest payments.
The liquidity position is also strengthened by the establishment of credit
facilities with other banks, the Federal Reserve Bank of Philadelphia (the
"FRBP") and the 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
-10-
<PAGE>
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 and callable federal agencies, is coordinated with the liquidity and
interest rate sensitivity position of the Bank. The objectives of the portfolio
are to enhance liquidity and earn a reasonable return. The investments in
mortgage-backed securities consist of a combination of adjustable and fixed rate
securities. Of the total mortgage-backed securities portfolio with an amortized
cost of $79.8 million at June 30, 1997, $15.6 million were adjustable rate and
$64.2 million were fixed rate. The estimated weighted average life for the fixed
rate mortgage-backed securities at June 30, 1997 was 6.8 years. The callable
federal agencies aggregated $23 million at June 30, 1997, with an average
expected life (based on estimated call dates) of 1.4 years.
Interest Rate Sensitivity
The evaluation of interest rate sensitivity deals with the exposure of net
interest income to fluctuations in interest rates. It is management's objective
to maintain stability in the growth of net interest income by appropriately
mixing interest sensitive assets and liabilities. One tool used by management to
gauge interest rate sensitivity is a gap analysis which categorizes assets and
liabilities on the basis of maturity date, the date of next repricing and the
applicable amortization schedule. This analysis summarizes the matching or
mismatching of rate sensitive assets versus rate sensitive liabilities according
to specified time periods, and provides management with an indication of how
interest income may be impacted by changing rate scenarios. For example, an
institution with more interest sensitive assets than interest sensitive
liabilities is said to have a positive gap. In this example, as interest rates
rise, a greater volume of assets is repriceable than liabilities. The net result
may be an increase in the net interest margin. Conversely, in a declining rate
environment, the net interest margin may decline. In addition to the gap
analysis, computer simulations are used to evaluate more specifically the impact
of a change in interest rates on liquidity, interest rate spreads/margins and
operating results. The simulation model is a more effective tool than an
analysis since the simulation analysis is more dynamic. The simulation is
particularly beneficial as it can better evaluate the effects of prepayment
speeds on the Bank's portfolio of mortgage-backed securities and the impact
prepayments would have on the Bank's liquidity and profitability. Using the
result of the simulation analysis, the Bank strives to control its interest rate
risk exposure so that its net interest income does not fluctuate by more than 5%
assuming that interest rates increase or decrease by 200 basis points over time.
The blending of fixed and floating rate loans and investments to match the
repricing and maturity characteristics of the various funding sources is a
continuous process in an attempt to minimize fluctuations in net interest
income. An effective tool used by the Bank in this process has been the
availability and flexibility of the various FHLB advance programs, which enable
the Bank to lock in spreads when appropriate and provide an effective method of
matching fixed rate assets with a fixed rate funding source.
The Bank's objective is to structure its balance sheet, as outlined in the
following Interest Sensitivity table as of June 30, 1997, to minimize any
significant fluctuation in net interest income. The distribution in the table is
based on a combination of maturities, repricing frequencies and prepayment
patterns. Floating rate assets and liabilities are distributed based on the
repricing frequency of the instrument while fixed rate instruments are based on
maturities. Mortgage-backed securities are distributed
-11-
<PAGE>
in accordance with their repricing frequency and estimated prepayment speeds.
Deposit liabilities are distributed in two ways. First, certificates of deposit,
FHLB advances and subordinated debt are distributed based on existing maturity
dates. Second, non-maturity deposits such as NOWs and Savings are divided into a
core component, which is not considered interest-sensitive within a year, and a
volatile component, which is placed in the 0-3 month time category. This
determination is based on a multi-year history in varying interest rate
environments.
<TABLE>
<CAPTION>
0 to 3 4 to 12 1 to 3 3 to 5 After
Months Months Years Years 5 Years Total
-------- -------- -------- -------- -------- --------
(in thousands, except percentages)
<S> <C> <C> <C> <C> <C> <C>
Investments ............ $ 13,565 $ 2,000 $ 29,451 $ 27,383 $ 48,409 $120,808
Loans .................. 38,852 7,554 5,447 16,423 9,200 77,476
Other earning assets ... 5,247 -- -- -- -- 5,247
-------- -------- -------- -------- -------- --------
Total earning assets ... $ 57,664 $ 9,554 $ 34,898 $ 43,806 $ 57,609 $203,531
NOW and money market ... $ 3,608 $ -- $ 3,000 $ -- $ -- $ 6,608
Savings ................ 2,063 -- 40,000 -- -- 42,063
Certificates of deposit 19,744 -- 49,015 6,586 -- 113,593
FHLB advances .......... 12,500 -- -- -- 197 12,697
Subordinated debt ...... -- -- 2,750 -- -- 2,750
Net non-interest bearing
source of funds .... -- -- -- -- 25,820 25,820
-------- -------- -------- -------- -------- --------
Total sources of funds.. $ 37,915 $ 38,248 $ 94,765 $ 6,586 $ 26,017 $203,531
-------- -------- -------- -------- -------- --------
Period Gap ............. 19,749 (28,694) (59,867) 37,220 31,592
Cumulative Gap ......... 19,749 (8,945) (68,812) (31,592) --
Cumulative Gap as % of
total assets ......... 9.3% (4.2%) (32.4%) (14.9%)
</TABLE>
Investment Portfolio
The investment portfolio of the Bank includes debt securities and
non-marketable equities classified as held-to-maturity ("HTM") or
available-for-sale ("AFS") which are accounted for and reported based on the
guidelines contained in Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." The HTM
portfolio contains investments which Regent has the intention and ability to
hold until maturity and is accounted for at amortized cost. The AFS portfolio
contains securities and equities that may be sold if circumstances warrant and
are accounted for at market value with net unrealized gains or losses reported
as a component of shareholders' equity.
The HTM portfolio consists of mortgage-backed securities issued by U.S.
agencies and corporations and collateralized mortgage obligations ("CMOs") of
private issuers. The AFS portfolio consists of U.S. agency debt, mortgage-backed
securities issued by U.S. agencies and corporations and non-marketable equities,
principally issued by the FRBP and the FHLB.
The portfolios are structured to provide a consistent level of interest
income and to generate monthly cash flow to enhance the Bank's ability to manage
its liquidity needs. Although the stated maturities of mortgage-backed
securities and CMOs may be as long as 30 years, the average life of these
securities is expected to be considerably shorter due to the effects of normal
amortization of principal and prepayments of the residential mortgages
underlying these securities. The following
-12-
<PAGE>
table summarizes, by major category, the market value and amortized cost of the
Bank's AFS and HTM portfolios at June 30, 1997.
<TABLE>
<CAPTION>
Held-to-Maturity Available-for-Sale
---------------- ------------------
Amortized Cost Market Value Amortized Cost Market Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Agencies ............. $ -- $ -- $23,036,854 $23,078,950
Mortgage-backed securities:
GNMA .................... 10,571,470 10,330,536 -- --
FHLMC ................... 28,340,841 28,081,305 13,009,870 12,767,834
FNMA .................... 17,116,964 16,724,479 10,817,158 10,537,134
Collateralized mortgage
obligations ............. 13,824,489 13,633,083 2,735,180 2,735,180
Non-marketable equity
securities .............. -- -- 1,354,788 1,354,788
----------- ----------- ----------- -----------
Total .................. $69,853,764 $68,769,403 $50,453,850 $50,473,885
=========== =========== =========== ===========
</TABLE>
The following table sets forth the range of maturities of the Bank's debt
securities held-to-maturity at June 30, 1997 based on the weighted average life
of the securities for each classification and the weighted average yield for
each maturity period:
<TABLE>
<CAPTION>
Within 1 After 1 But After 5 But
Year Within 5 Years Within 10 Years Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Mortgage-backed securities $ -- $22,517,344 $33,210,079 $55,727,423
Collateralized mortgage
obligations ............ 933,354 3,356,071 9,836,556 14,126,342
----------- ----------- ----------- -----------
Total ................. $ 933,354 $25,873,415 $43,046,995 $69,853,764
=========== =========== =========== ===========
Weighted Average Yield ... 6.29% 6.47% 7.28% 6.85%
</TABLE>
The following table sets forth the range of maturities of the Bank's debt
securities available-for-sale at June 30, 1997 based on the amortized cost, the
weighted average life of the securities for each classification and the weighted
average yield for each maturity period:
<TABLE>
<CAPTION>
Within 1 After 1 But After 5 But
Year Within 5 Years Within 10 Years Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Agencies ............ $10,054,568 $ 9,990,470 $ 2,991,816 $23,036,854
Mortgage-backed securities -- 7,214,590 16,612,438 23,827,028
Collateralized mortgage
obligations ............ -- -- 2,735,180 2,735,180
----------- ----------- ----------- -----------
Total ................. $10,054,568 $17,205,060 $22,339,436 $49,599,062
=========== =========== =========== ===========
Weighted Average Yield ... 5.48% 6.81% 6.70% 6.65%
</TABLE>
The following table sets forth those CMOs of the Bank that have a carrying
value that exceeded 10% of Regent's shareholders' equity at June 30, 1997. These
securities have an investment rating of AA or better.
-13-
<PAGE>
<TABLE>
<CAPTION>
Carrying Value Market Value
-------------- ------------
(in thousands)
<S> <C> <C>
Bear Stearns Mortgage Securities Inc.
Series 1993-2 Class 7............................................. $ 2,093 $ 2,093
Bear Stearns Mortgage Securities Inc.
Series 1993-2 Class 5............................................. 1,652 1,652
Bear Stearns Mortgage Securities Inc.
Series 1993-2 Class 6............................................. 1,503 1,503
Bear Stearns Mortgage Securities Inc.
Series 1993-12 Class 1B........................................... 933 909
Bear Stearns Mortgage Securities Inc.
Series 1992-04.................................................... 2,025 2,020
Capstead Securities Corp.
Series 1992-C-3................................................... 1,331 1,290
Resolution Trust Corporation
Series 1991-M6.................................................... 1,139 1,139
Saxon Mortgage Security Corp.
Series 1993-04 Class 1A........................................... 2,108 2,058
GE Capital Mortgage
Series 1-A6....................................................... 2,735 2,735
</TABLE>
Gross unrealized gains and losses on the Bank's mortgage-backed securities
held to maturity at June 30, 1997 were $156 thousand and $1.2 million,
respectively, and gross unrealized gains and losses on securities available for
sale at June 30, 1997 were $44 and $524 thousand. There were no sales of
mortgage-backed securities in the first six months 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
The Bank's total loans amounted to $77.2 million at June 30, 1997 compared
to $85.1 million at December 31, 1996. The decrease of 9% from year end 1996
resulted primarily from the runoff of the IPF receivables, prepayments and
principal amortization from the commercial portfolio and the sale of $6.4
million in loans to Carnegie Bank, N.A.
The following table sets forth the types of the Bank's loans outstanding by
category as of June 30, 1997 and December 31, 1996 (dollars in thousands):
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
Amount % Amount %
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Commercial and industrial ...... $ 41,819 54% $ 46,041 54%
Real estate:
Construction ................. 9,349 12 9,421 11
Mortgages-residential ........ 9,103 12 10,219 12
Mortgages-commercial ......... 16,354 21 15,985 19
Consumer ....................... 851 1 3,827 4
-------- -------- -------- --------
Total gross loans ........... 77,476 100% 85,493 100%
======== ========
Less:
Net unearned interest and fees (256) (424)
-------- --------
Net loans .................... $ 77,220 $ 85,069
======== ========
</TABLE>
-14-
<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 the Bank's loans as of June 30, 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...... $ 2,941 $20,194 $10,528 $33,663
Floating rates.................... 40,378 3,435 -- 43,813
-------- ------- ------- -------
Total......................... $43,319 $23,629 $10,528 $77,476
======== ======= ======= =======
</TABLE>
Non-performing Assets
The level of non-performing assets consisting of non-accrual loans,
accruing loans past due 90 days or more and foreclosed properties, amounted to
$349 thousand, or .16% of total assets, at June 30, 1997, compared to $5.5
million, or 2.73% of total assets, at December 31,1996. At March 31, 1997, total
non-performing assets were $4.0 million. The virtual elimination of
non-performing assets by the end of the second quarter occurred when the Bank
entered into agreements to sell $8.3 million of nonaccruing and other problem
loans to several private parties after a brief bidding process. As of June 30,
1997, $3.3 million of such sales were completed, with the remainder of the
closings expected to occur early in the third quarter. The sale of the loans
resulted in a $2.0 million charge-off against the allowance for loan losses and
the transfer of sold but unclosed balances to assets held for sale. The
following table sets forth the Bank's non-performing assets at June 30, 1997 and
December 31, 1996.
June 30, 1997 December 31, 1996
------------- -----------------
(in thousands, except percentages)
Non-accrual loans .......................... $ 316 $3,837
Accruing loans 90 days or more past due .... -- 977
------ ------
Total non-performing loans .............. 316 4,814
Other real estate owned .................... 33 700
------ ------
Total non-performing assets ............. $ 349 $5,514
====== ======
Non-performing loans to loans .............. .41% 5.66%
Non-performing assets to total assets ...... .16 2.73
Non-performing assets to loans and
other real estate owned .................. .45 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 conditions are such that collection of interest and
principal is questionable. The non-accrual loans are primarily secured by
various types of real estate. No interest income was included in the Bank's
operating income attributable to non-accrual loans in the first six months of
1997.
Other real estate owned represents property acquired by foreclosure or deed
in lieu of foreclosure and repossessed assets. These assets are initially
reported at the lower of the related loan balance or the fair value of the
property. Management continues to evaluate the carrying value in relation to its
fair value less the estimated costs to sell.
-15-
<PAGE>
At June 30, 1997, the Bank's recorded investment in loans that are
considered to be impaired was $316 thousand. The related allowance for loan
losses was $46 thousand based on the fair value of the underlying 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 Bank's allowance for loan losses for the six months ended
June 30, 1997 and June 30, 1996:
June 30, 1997 June 30, 1996
------------- -------------
Balance, beginning of period ............... $ 3,059,773 $ 6,500,882
Charge-offs:
Commercial and industrial ................ 2,293,728 414,008
Real estate - residential ................ 494,287 335,000
Consumer ................................. -- 5,836,865
----------- -----------
Total charge-offs ..................... 2,788,015 6,585,873
=========== ===========
Recoveries:
Real estate .............................. 320,000 --
Consumer ................................. 679,055 --
----------- -----------
Total recoveries ..................... 999,055 --
----------- -----------
Net charge-offs ............................ (1,788,960) (6,585,873)
----------- -----------
Provision charged to operations ............ 100,000 4,050,000
----------- -----------
Balance, end of period ..................... 1,370,813 3,965,009
=========== ===========
Annualized net charge-offs as a % of average
loans and loans held for sale ............ 4.62% 10.60%
Allowance for loan losses as a % of
period end loans and loans held for sale .. 1.77 3.00
Management believes that those loans identified as non-performing are
adequately secured and the Bank's allowance for loan losses is sufficient in
relation to the potential risk of loss that has been identified in the loan
portfolio. Management has allocated the allowance based on an assessment of
risks within the Bank's loan portfolio and the estimated value of the underlying
collateral. The following table sets forth the allocation of the Bank's
allowance for loan losses at June 30, 1997:
Amount
Commercial and industrial........................... $ 328,405
Real Estate:
Mortgages - residential........................... 151,148
Mortgages - commercial............................ --
Unallocated......................................... 891,260
----------
$1,370,813
==========
-16-
<PAGE>
Deposits
The Bank's total deposits at June 30, 1997 aggregated $174.3 million which
was comparable to total deposits at March 31, 1997 of $177.2 million and at
December 31, 1996 of $185.1 million. As illustrated in the table below, the
composition of the Bank's deposits at June 30, 1997 has remained relatively
consistent compared to the composition of its deposits at December 31, 1996
(dollars in thousands).
June 30, 1997 December 31,1996
------------------ ------------------
Balance % Balance %
-------- --- -------- ---
Demand .................. $ 12,076 7% $ 10,986 6%
NOW and money market .... 6,608 4 6,583 4
Savings ................. 42,063 24 47,830 26
Certificates of deposit.. 113,593 65 119,727 64
-------- --- -------- ---
$174,340 100% $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 six months 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 six months ended June 30, 1997 and 1996:
<TABLE>
<CAPTION>
Average Weighted
Amount Maximum Average
Balance Outstanding Outstanding Interest Average
Outstanding During at any Rate at Rate
6/30 the Period Month-End 6/30 Paid
---- ---------- --------- ---- ----
<S> <C> <C> <C> <C> <C>
1997: FHLB borrowings............... $12,697,174 $ 1,205,518 $12,697,174 5.62% 5.71%
=========== =========== =========== ==== ====
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 5.81 6.22
=========== =========== ==== ====
</TABLE>
Results of Operations
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Regent reported net income before dividends on preferred stock and minority
interest of $31 thousand for the second quarter of 1997 compared to a net loss
of $3 million in the same quarter of 1996. For the first half of 1997, Regent
had a net loss of $149 thousand compared to a net loss of
-17-
<PAGE>
$2.8 million for the comparable period in 1996. The net income for the second
quarter of 1997 resulted from a pretax loss which was more than offset by a tax
benefit recognized in accordance with FAS 109. Various steps were taken by
Regent's new management during the quarter, such as the issuance of $9.5 million
of bank capital, the sale of non-performing loans and the elimination of
approximately 30% of the full-time positions in the Bank. As mentioned above,
one result of these actions was to cause the OCC to re-evaluate the Bank's
financial condition and terminate the Regulatory Agreement. Another result was
to better position Regent to achieve its goal of becoming a high-performance
financial institution by lowering the cost structure of the organization,
focusing employees on new business development activities and minimizing the
expense of costly workout and collection functions.
The reported results for the second quarter and first half of 1997 compare
favorably against those for 1996. In 1996, the large net losses were directly
attributable to charge-offs and expenses associated with the automobile
insurance premium finance ("IPF") business. The origination of new business in
this venture was terminated in September 1996, the risk of loss was eliminated
at year-end 1996 and the operation was shut down by June 30, 1997.
Net Interest Income
Net interest income for the second quarter of 1997 was $1.4 million, or 42%
below the level of the same quarter of 1996, and was $3.0 million for the first
half of 1997, or 33% below the comparable period of 1996. The reasons for these
declines are related to the unusual circumstances of 1996. First, the
high-yielding, and inordinately high-risk, IPF receivables distort the
comparison of net interest income and net interest margin. IPF receivables
averaged $22 million throughout the first half of 1996 and generated interest
income, based on a 20% gross yield, that approximated 17% of interest income. In
1997, there was virtually no IPF receivable outstanding and IPF interest income
was insignificant. Second, the participation of approximately $34 million of
commercial loans to Carnegie Bank, N.A. in the latter part of 1996, which became
a sale of loans as part of the termination of the merger agreement with
Carnegie, further lowered earning assets in early 1997 and, therefore, interest
income.
The reported net interest margin for the second quarter and first half of
1997 was 2.98% and 3.17%, respectively. These margins compare to margins for the
second quarter and first half of 1996 of 3.83% and 3.52%, respectively.
Management estimates that the exclusion of IPF income and the replacement
thereof with more normal yields would have lowered 1996 margins to the range of
2.70-2.75%.
The following table sets forth a rate/yield analysis for the six months
ended June 30, 1997 and 1996:
-18-
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1997 1996
---- ----
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 .............. $113,741 $ 3,810 6.71% $133,216 $ 4,417 6.63%
Loans ................... 77,432 4,069 10.59 124,311 6,706 10.82
-------- -------- ----- -------- -------- -----
Total .............. $191,173 $ 7,879 8.28% $257,527 $ 11,123 8.64%
======== ======== ===== ======== ======== =====
Interest-bearing liabilities:
NOW accounts ............ $ 4,129 $ 50 2.44% $ 3,854 $ 45 2.35%
Savings ................. 44,303 1,070 4.87 50,458 1,227 4.88
Money market deposits ... 3,072 66 4.33 3,881 80 4.13
Time deposits ........... 114,833 3,515 6.17 124,769 3,858 6.20
Short-term borrowings ... 1,006 28 5.51 34,527 958 5.56
Long-term advances ...... 200 6 6.70 10,208 314 6.17
Subordinated debt ....... 2,750 106 7.75 2,750 109 7.99
-------- -------- ----- -------- -------- -----
Total .............. $170,293 $ 4,842 5.73% $230,447 $ 6,591 5.74%
======== ======== ===== ======== ======== =====
Non-interest bearing
sources of funds ........ $ 20,880 $ 27,080
-------- --------
Net interest income and
net interest spread ..... $191,173 $ 3,037 2.55% $257,527 $ 4,532 2.90%
======== ======== ===== ======== ======== =====
Net interest rate margin........... 3.17% 3.52%
===== =====
</TABLE>
Noninterest income
Noninterest income is comprised of three major categories: service charges,
miscellaneous fees and gains/(losses) on sales of assets. Service charges, which
consist primarily of penalty fees on checking accounts, were little changed in
the second quarter of 1997 from the second quarter of 1996. Miscellaneous fees,
which vary significantly, ran above 1996 levels. Gains on asset sales, which are
also volatile based on various circumstances, were substantial in 1997 due to
the sale of commercial loans and servicing rights on previously sold loan
participations to Carnegie Bank, N.A. The 1996 gains were related to the sale of
residential mortgages.
Management recognizes the need to receive fair compensation for products
and services it provides to customers. As such, a review of the schedule of fees
and charges was undertaken in the second quarter and a revised schedule will be
implemented during the remainder of 1997.
Provision for Loan Losses
The provision for loan losses is determined after management has evaluated
the allowance for loan losses. The decision to sell $8.3 million of nonaccruing
and problem loans resulted in a $2 million gross charge-off against the
allowance, as described above, and the provision of $300 thousand was made to
replenish the allowance. At June 30, 1997, the allowance represented 1.77% of
total loans and 436% of nonperforming loans. The provision of $3.9 million in
the second quarter of 1996 related solely to the IPF portfolio issues previously
discussed.
-19-
<PAGE>
Noninterest Expense
Total noninterest expense in the second quarter of 1997 was $2.1 million,
or 14% above the level for the comparable quarter of 1996. Included in the
second quarter 1997 expenses were the severance costs associated with the
elimination of 13 full-time positions early in July 1997, the remaining payout
to the IPF workout staff, the acceleration of the expense for the contractual
payments to former Bank executives, the expected expenses for concluding the
sales of non-accruing loans and other miscellaneous, non-recurring charges. The
total of such charges was approximately $150 thousand.
The annual savings from the elimination of positions is expected to be
about $600 thousand. The shutdown of the IPF function, which cost $230 thousand
in the second quarter of 1997, will not recur. The sale of the problem loans is
expected to reduce substantially professional fees associated with the workout
process. Lastly, the improved financial condition of the Bank due to all of the
aforementioned actions is expected to lower some of the Bank's costs for
BIF-insurance and general corporate coverage.
Professional services for the first six months of 1997 included the
one-time charge of $722 thousand in the first quarter of 1997 to reimburse
Carnegie for merger-related expenses following the termination of the merger
agreement.
Provision for Income Taxes
Regent recorded a tax benefit of $900 thousand in the second quarter of
1997 in accordance with the principles of FAS 109. With the improvement of a
number of aspects of the Bank's financial condition, management determined that
the recognition of a portion of the $1.6 million deferred tax asset at December
31, 1996 was appropriate. Such recognition is appropriate under FAS 109 if the
Bank is "more likely than not" to incur a tax liability in the near future. The
remainder of the deferred tax asset will be recognized when a pattern of
profitability is well-established.
Forward-Looking Statements
All statements contained in the Form 10-Q Report that are not historical
facts are based on current expectations. These statements are forward-looking
(as defined in the Private Securities Litigation Reform Act of 1995) in nature
and involve a number of risks and uncertainties. Actual results may vary
materially because of various factors. The factors that could cause actual
results to vary materially include the ability of the Bank to achieve and
maintain profitable operations, the adequacy of the Bank's allowance for loan
losses, general business and economic conditions in the Bank's primary lending
and deposit-taking areas, future interest rate fluctuations, competition from
various financial and no-financial businesses, the ability of Regent and the
Bank to comply with current regulatory provisions and any future changes in such
provisions the ability of the Bank to generate loan growth and to improve its
net interest margin and other risks that may be described from time to time in
the reports Regent is required to file with the Securities and Exchange
Commission. Regent cautions potential investors not to place undue reliance on
any such forward-looking statements.
-20-
<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.
Regent has instituted two lawsuits to recover damages caused to Regent
by individuals and entities which engaged in IPF business with Regent as
follows:
Regent National Bank v. K-C Insurance Premium Finance Co., Inc., et al.
On December 24, 1996, Regent filed a complaint in the United States
District Court for the Eastern District of Pennsylvania, in which it asserted
claims, in the form of 11 counts, 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 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 May 8, 1997, the defendants filed an answer and counterclaim consisting
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 declaratory
judgment that the Loan Agreement is not an enforceable contract because of
mutual mistake for 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 breach of the Servicing Agreement, K-C is demanding amounts in excess of
$100 thousand. For the unpaid wages, no specific dollar amount is demanded.
-21-
<PAGE>
The discovery deadline in this case is September 22, 1997. The case goes to
the trial pool on October 14, 1997. The parties have exchanged self-executing
disclosures under the Federal Rules of Civil Procedure. As of July 25, 1997,
there were no motions pending.
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, docketed at January Term, 1997, No. 2749. The complaint consists of
three counts, identical to those counts brought in K-C's counterclaim in the
federal court action. After filing preliminary objections to the complaint, the
parties agreed, by stipulation, to stay this action pending resolution of the
federal court action.
On April 30, 1997, K-C and Chanin instituted an action against Regent in
the Court of Common Pleas of Philadelphia County, docketed at April Term, 1997,
No. 3411. The complaint consists of three counts, including counts for fraud,
conversion and invasion of privacy in connection with Regent's use of K-C's name
on payroll checks issued to former K-C employees. The damages sought are in
excess of $50 thousand. The Bank filed preliminary objections to the complaint
on May 20, 1997. Those objections are pending as of July 25, 1997.
On May 13, 1997, Cesaro instituted an action against Regent in the Court of
Common Pleas of Philadelphia County, docketed at May Term, 1997, No. 1281. The
complaint consists of three counts including fraud, conversion and invasion of
privacy, stemming from the appearance of Cesaro's stamped signature on payroll
checks to IPF employees subsequent to Cesaro's dismissal by Regent. Cesaro is
seeking damages in this action in excess of $50 thousand. The Bank filed
preliminary objections to the complaint on June 2, 1997. Those objections are
pending as of July 25, 1997.
On May 22, 1997, Kimberly Cesaro filed a complaint against the Bank in the
United States District Court for the Eastern District of Pennsylvania, docketed
at 96-CV-8615. The complaint consists of four counts: (1) that the Bank violated
the Equal Credit Opportunity Act ("ECOA") in obtaining Kimberly Cesaro's
signature on the Loan Agreement and related note; (2) that Regent's actions in
doing the same caused Kimberly Cesaro to undergo severe emotional distress and
has required "psychotropic medication" and the care of physicians for various
symptoms; (3) that Regent's actions have impaired Kimberly Cesaro's credit
standing and (4) that Regent's actions have amounted to a "slander of credit."
Kimberly Cesaro is seeking damages for intentional infliction of emotional
distress, interference with respective business relations and slander of credit
in an amount of not less than $75 thousand. In addition, on her ECOA claim,
Kimberly Cesaro demands actual damages and punitive damages in an unspecified
amount as well as a declaratory judgment that the note and the loan documents
are void and unenforceable.
Regent filed a motion to dismiss the complaint on June 19, 1997. The motion
was granted and, on July 15, 1997, the complaint was dismissed. Counsel for
Kimberly Cesaro has indicated that a motion for reconsideration of the order of
dismissal will be filed.
On May 8, 1997, Laureen Pendelton, a former employee of K-C, filed a
complaint against Regent in the Court of Common Pleas of Philadelphia County,
docketed at May Term, No. 748. The complaint consists of three counts for fraud,
unjust enrichment and violations of the Pennsylvania wage payment and collection
law, arising from Regent's failure to provide employment benefits to the
-22-
<PAGE>
plaintiff similar to those provided to Regent employees. Pendelton is seeking
damages in an amount in excess of $50 thousand on each count. On June 27, 1997,
Regent removed the case to the United States District Court for the Eastern
District of Pennsylvania and on July 7, 1997, filed a motion to dismiss the
action that remains pending.
Regent National Bank v. Dealers Choice Automotive Planning, Inc. and
Payments, Inc.
On November 27, 1996, Regent filed a complaint in the United States
District Court for the Eastern District of Pennsylvania, 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 complaint seeks damages for
losses suffered by Regent as a result of funding IPF agreements placed through
DCAP. In the action, Regent seeks damages in excess of $100 thousand.
The defendants have answered this complaint and have asserted a third-party
action against individual officers and directors of Regent, (Harvey Porter,
Abraham L. Bettinger and Kristen M. Evan) alleging that they were misled by
those 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. Motions to dismiss have been filed by all third
party defendants and await disposition.
On March 20, 1997, DCAP filed a complaint against Regent, and several of
its present and former officers and directors, in New York Supreme Court, New
York County, docketed at No. 105311/97. The complaint consists of counts
including: (1) allegations that Regent breached its contract with DCAP and its
brokers in failing to service properly each customer who entered into a premium
financing agreement with Regent, resulting in the loss of future profits of at
least $1 million and additional consequential injuries in an amount of at least
$2 million; (2) allegations of negligence in Regent's performance of its
obligations to service the brokers' customers which resulted in injuries of at
least $2 million; (3) allegations of fraud on the part of the individual
defendants with respect to Regent's intentions regarding its servicing
obligations to the brokers' customers; (4) a request for an accounting on a
customer by customer basis for any and all refunds or charges against such
refunds and (5) a preliminary and permanent injunction barring Regent from
converting or otherwise dissipating unearned premium refunds. A motion to
dismiss the complaint was filed on May 12, 1997 and remains pending following a
hearing thereon on July 7, 1997.
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
-23-
<PAGE>
have a material adverse effect on Regent's consolidated financial position or
its consolidated results of operations.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) Registrant held its Annual Meeting of Shareholders
(the "Annual Meeting") on May 28, 1997.
(b) The names of the directors elected at the Annual Meeting,
together with the votes cast for such nominees as well as the votes against or
withheld as well as the number of abstentions and broker non-votes, is as
follows:
<TABLE>
<CAPTION>
Abstentions and
Name of Director Votes For Votes Withheld Broker Non-Votes
---------------- --------- -------------- ----------------
<S> <C> <C> <C>
David W. Ring 1,356,221 24,373 10,000
Robert B. Goldstein 1,377,671 2,923 10,000
Abraham L. Bettinger 1,376,683 3,911 10,000
O. Francis Biondi 1,356,371 24,223 10,000
John J. Lyons 1,337,671 2,923 10,000
John W. Rose 1,377,771 2,823 10,000
</TABLE>
(c) The only other action taken at the Annual Meeting was the
adoption of Registrant's 1997 Equity Incentive Plan (the "Plan"). 1,052,302
votes were cast for the Plan, 56,946 votes were cast against the Plan and there
were 281,346 abstentions and broker non-votes in respect of the Plan.
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 June 30, 1997:
1. Registrant filed a Report on Form 8-K dated
April 7, 1997 that reported under Item 5 the
commencement of the employment of Robert B.
Goldstein as Chief Executive Officer of
Regent and Regent National Bank (the "Bank")
and the sale on April 16, 1997 of 1,120,000
shares of Common Stock of the Bank in a
private placement for gross proceeds of
$9.5 million.
-24-
<PAGE>
2. Registrant filed a Report on Form 8-K dated
June 25, 1997 that reported under Item 5 the
termination of the written agreement dated
October 10, 1996 between the Bank and the
Office of the Comptroller of the Currency.
-25-
<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:
----------------------------------------
Joel E. Hyman, Executive Vice President,
Chief Financial Officer and Treasurer
Dated: August 14, 1997
-26-
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 3,680,733
<INT-BEARING-DEPOSITS> 516,950
<FED-FUNDS-SOLD> 4,730,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 50,474,000
<INVESTMENTS-CARRYING> 120,808,000
<INVESTMENTS-MARKET> 119,243,000
<LOANS> 77,220,000
<ALLOWANCE> 1,371,000
<TOTAL-ASSETS> 212,102,000
<DEPOSITS> 174,341,000
<SHORT-TERM> 12,500,000
<LIABILITIES-OTHER> 5,132,000
<LONG-TERM> 2,947,000
0
56,000
<COMMON> 128,000
<OTHER-SE> (480,000)
<TOTAL-LIABILITIES-AND-EQUITY> 212,102,000
<INTEREST-LOAN> 4,066,000
<INTEREST-INVEST> 3,813,000
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 7,879,000
<INTEREST-DEPOSIT> 4,701,000
<INTEREST-EXPENSE> 4,842,000
<INTEREST-INCOME-NET> 3,037,000
<LOAN-LOSSES> 100,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4,622,000
<INCOME-PRETAX> (149,000)
<INCOME-PRE-EXTRAORDINARY> (149,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (149,000)
<EPS-PRIMARY> (.18)
<EPS-DILUTED> 0
<YIELD-ACTUAL> 3.17
<LOANS-NON> 314,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,060,000
<CHARGE-OFFS> 2,788,000
<RECOVERIES> 999,000
<ALLOWANCE-CLOSE> 1,371,000
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 891,000
</TABLE>
