As filed with the Securities and Exchange Commission on August 13, 1997
Registration No. 333-28999
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
REGENT BANCSHARES CORP.
(Exact name of registrant as specified in its charter)
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New Jersey 6712 23-2440805
- ------------------------------- ---------------------------- -------------------
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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1430 Walnut Street
Philadelphia, Pennsylvania 19102
(215) 546-6500
-------------------------------------------
(Address, including zip code, and telephone
number, including area code, of registrant's
principal executive offices)
------------
Robert B. Goldstein, President and Chief Executive Officer
Regent Bancshares Corp.
1430 Walnut Street
Philadelphia, Pennsylvania 19102
(215) 546-6500
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(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------
Copy to:
Frederick W. Dreher, Esquire
Duane, Morris & Heckscher LLP
4200 One Liberty Place
Philadelphia, PA 19103-7396
(215) 979-1234
------------
Approximate date of commencement of proposed sale to the public: From
time to time after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
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The registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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[CONVERSION]
SUBJECT TO COMPLETION, DATED AUGUST 13, 1997
PROSPECTUS
REGENT BANCSHARES CORP.
564,726 Shares of Common Stock
This Prospectus relates to 564,726 shares (the "Shares") of Common
Stock (the "Regent Common Stock"), $.10 par value, of Regent Bancshares Corp.
("Regent") to be issued upon the conversion of an aggregate of 562,974
outstanding shares of Regent Series A, Series B, Series C, Series D and Series E
Convertible Preferred Stock, each with a par value of $.10 per share
(collectively, the "Regent Preferred Stock"). The Regent Common Stock to be
issued upon the conversion of Regent Series A and Series E Preferred Stock will
be issued on a share for share basis, and the Regent Common Stock to be issued,
upon the conversion of Regent Series B, Series C and Series D Preferred Stock
will be issued on the basis of 1.177 shares of Regent Common Stock for each such
share of Regent Preferred Stock. Regent will receive no cash proceeds from the
conversion of Regent Preferred Stock into Regent Common Stock.
Regent Common Stock is traded on the Nasdaq Small-Cap market under the
symbol RBNK and the closing bid price of Regent Common Stock on August 11, was
$11 1/8. See "Regent Stock Informa tion."
The shares of Regent Common Stock offered hereby involve a high degree of risk.
See "Risk Factors" beginning on page 11.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
No underwriters will be used in connection with the distribution of the
Regent Common Stock. No dealer, salesman or other person has been authorized to
give any information or to make any representations other than those contained
in this Prospectus in connection with the offering made by this Prospectus, and
information or representations not herein contained, if given or made, must not
be relied upon as having authorized by Regent or the Bank. This Prospectus does
not constitute an offer to sell or the solicitation of an offer to buy any of
the securities offered hereby by Regent in any state to any person to whom it is
unlawful to make such an offer or solicitation. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that the information contained herein is correct as of any date
subsequent to the date hereof.
The date of this Prospectus is , 1997
----------------------
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[RESALE]
SUBJECT TO COMPLETION, DATED AUGUST 13, 1997
PROSPECTUS
REGENT BANCSHARES CORP.
1,586,659 Shares of Common Stock
This Prospectus relates to 1,586,659 shares (the "Shares") of Common
Stock (the "Regent Common Stock"), $.10 par value, of Regent Bancshares Corp.
("Regent") to be issued in exchange for 1,120,000 outstanding shares of common
stock of Regent National Bank (the "Bank"), par value $1.00 per share (the "Bank
Common Stock"), issued in a private placement in April 1997 (the "Bank
Offering"). The Shares may be sold from time to time by the holders thereof or
by pledgees, donees, transferees or other successors in interest to such
holders, at public or private sale at prevailing market prices, prices related
to prevailing market prices, negotiated prices or fixed prices and, in the case
of sales through brokers, upon payment of normal broker commissions. Regent will
receive no cash proceeds from the sale of any Regent Common Stock offered
hereunder.
Regent Common Stock is traded on the Nasdaq Small-Cap market under the
symbol RBNK and the closing bid price of Regent Common Stock on August 11, was
$11 1/8. See "Regent Stock Information."
The shares of Regent Common Stock offered hereby involve a high degree of risk.
See "Risk Factors" beginning on page 11.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
No underwriters will be used in connection with the distribution of the
Regent Common Stock. No dealer, salesman or other person has been authorized to
give any information or to make any representations other than those contained
in this Prospectus in connection with the offering made by this Prospectus, and
information or representations not herein contained, if given or made, must not
be relied upon as having authorized by Regent or the Bank. This Prospectus does
not constitute an offer to sell or the solicitation of an offer to buy any of
the securities offered hereby by Regent in any state to any person to whom it is
unlawful to make such an offer or solicitation. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that the information contained herein is correct as of any date
subsequent to the date hereof.
The date of this Prospectus is , 1997
----------------------
<PAGE>
TABLE OF CONTENTS
Page
----
Prospectus Summary.............................................. 1
Risk Factors.................................................... 11
Capitalization.................................................. 15
Regent Stock Information........................................ 17
Selected Consolidated Financial Data............................ 19
Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 21
Business........................................................ 54
Supervision and Regulation...................................... 60
Management...................................................... 66
Principal Stockholders.......................................... 74
Selling Stockholders............................................ 77
Certain Transactions............................................ 79
Plan of Distribution............................................ 80
Description of Capital Stock.................................... 83
Interests of Named Experts and Counsel.......................... 90
Available Information........................................... 90
Index to Consolidated Financial Statements...................... 92
(i)
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements appearing elsewhere in this Prospectus. See "Risk Factors" for
certain information that investors should consider prior to acquiring the
Shares.
Regent
Regent is a one bank holding company registered under the Bank Holding
Company Act of 1956, as amended (the "BHCA"). Regent was incorporated under the
laws of the Commonwealth of Pennsylvania on December 22, 1986 and on November
23, 1987 was merged into a New Jersey corporation with the same name (and which
was incorporated on November 2, 1987), with the New Jersey corporation being the
surviving entity. Regent became a bank holding company on June 2, 1989 when it
completed the acquisi tion of all of the authorized capital stock of the Bank,
Regent's only subsidiary. The Bank commenced operations on June 5, 1989.
Regent provides banking services through the Bank and does not engage
in any activities other than banking activities. Regent is regulated by the
Board of Governors of the Federal Reserve System. The executive offices of
Regent are located at 1430 Walnut Street, Philadelphia, Pennsylvania 19102.
Regent's telephone number is (215) 546-6500.
The Bank
The Bank, a federally-chartered national bank, is regulated by the
Office of the Comptroller of the Currency (the "OCC") and is a member of the
Federal Reserve System. The deposits held by the Bank are insured by the Bank
Insurance Fund (the "BIF") of the Federal Deposit Insurance Corporation (the
"FDIC") to the maximum permitted by current law.
The Bank was wholly owned by Regent from June 5, 1989 to April 16,
1997. On April 16, 1997, Regent sold 1,120,000 newly issued shares of the Bank's
Common Stock at $8.50 per share, an aggregate of $9,520,000, in a private
placement (the "Bank Offering"). As a result, Regent currently owns
approximately 53% of the Bank's outstanding Common Stock. Regent anticipates
that the exchange of the Bank Common Stock for Regent Common Stock will occur
promptly following the effectiveness of the registration statement of which this
Prospectus forms a part for the resale of the Regent Common Stock issued in
exchange for the Bank Common Stock. Upon consummation of the exchange, the Bank
will again be wholly owned by Regent. See "Plan of Distribution" and "The Bank
Offering."
The Bank engages in the commercial banking business, serving the
banking needs of its customers with a particular focus on small and medium-sized
businesses, professionals and other individuals, with an emphasis on the
origination of loans in the $100 thousand to $3.0 million range. The Bank's
strategy in providing its services is to attempt to respond to each customer's
needs and assure that a customer will deal regularly with the same officer of
the Bank. The small and mid-sized business and entrepreneurial market in the
Bank's service area is large and the Bank believes it can offer the flexibility,
speed and personal attention necessary to serve this large market. The banking
and broad business experience of the Bank's officers and directors makes the
Bank particularly well-suited to serve the individualized needs of this market.
The Bank maintains one office at 1430 Walnut Street, Philadelphia, Pennsylvania
19102, where it conducts all of its banking activities. The Bank currently does
not intend to expand by opening
-1-
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new branches or competing for the retail consumer market served by large banks
in the region, but rather will pursue alternative means of deposit generation.
At June 30, 1997, the Bank had $212.1 million in assets, $174.3 million
in deposits and $75.8 million in net loans. The Bank's primary service area for
Community Reinvestment Act ("CRA") purposes is the Delaware Valley which
includes the greater Philadelphia metropolitan area and various counties in New
Jersey, Delaware and Maryland. Reference is made to the map on the next page.
The federal and state laws and regulations that are applicable to bank
holding companies and banks give regulatory authorities extensive discretion in
connection with their supervisory and enforcement activities and generally have
been promulgated to protect depositors and deposit insurance funds and not for
the purpose of protecting stockholders. Any change in such regulations, whether
by an applicable federal or state regulatory authority or federal or state
legislative bodies, could have a significant impact on Regent and the Bank. See
"Supervision and Regulation."
The Bank offers a wide range of deposit products, including checking
accounts, interest-bearing NOW accounts, insured money market accounts,
certificates of deposit, savings accounts and Individual Retirement Accounts.
A broad range of credit facilities is offered by the Bank to the
businesses and residents of its service area, including commercial loans, home
improvement loans, mortgage loans and home equity lines of credit. At June 30,
1997, the Bank's legal lending limit was approximately $3.3 million per
borrower.
In addition, the Bank offers safe deposit boxes, travelers' checks,
money orders, direct deposit of payroll and Social Security checks, and access
to one or more regional or national automated teller networks as well as
international services through correspondent institutions. The Bank is also
empowered to offer, but does not provide, trust services. The Bank has the power
to act as executor of wills and as a trustee for Individual Retirement Accounts,
minors and other fiduciaries. Other trust services are provided through
correspondent institutions. The Bank has established relationships with
correspondent banks and other financial institutions in order to provide other
services requested by its customers, including requesting correspondent banks to
participate in loans where the loan amount exceeds the Bank's policies or legal
lending limit.
As of July 15, 1997, Regent and the Bank had a total of 32 employees,
excluding temporary employees engaged in the collection of automobile insurance
premium finance ("IPF") receivables.
There is intense competition among financial institutions in the Bank's
service area, although the Bank believes its relatively small size and emphasis
on personal service provide it with a competitive advantage. The Bank competes
with new and established local commercial banks, as well as numerous regionally
based commercial banks. There is also competition from out of state financial
institutions, thrifts and mutually owned savings banks and savings and loan
associations. As of the date hereof, the Bank had attracted, and believes it
will continue to attract, its customers from the deposit base of such existing
banks and financial institutions and from growth in the Delaware Valley. Many of
such banks and financial institutions are well-established and well-capitalized,
allowing them to do more advertising and promotion and to provide a greater
range of services, including trust services, than the Bank. The Bank's strategy
has been and will continue to be emphasizing personalized service, offering
competitive rates to depositors
-2-
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[GRAPHIC OMITTED]
In the printed version of this document there appears a map depicting
sections of Pennsylvania, New Jersey, Delaware and Maryland.
Regent Bancshares Corp.
Serving the Wealthy & Populous Delaware Valley
Median
1996 Household
Population Income
Pennsylvania
Philadelphia 1,498,085 $29,575
Montgomery 709,047 $52,815
Bucks 577,401 $51,846
Delaware 547,788 $46,770
Lancaster 449,868 $39,876
Chester 405,497 $59,444
Berks 351,468 $37,588
Lehigh 299,809 $39,818
Northampton 257,883 $40,667
New Jersey
Camden 507,206 $41,957
Ocean 465,948 $39,757
Burlington 401,107 $52,887
Mercer 330,871 $51,359
Gloucester 245,892 $47,319
Atlantic 234,758 $36,556
Cumberland 138,573 $36,535
Cape May 98,897 $35,042
Salem 64,485 $43,108
Delaware
New Castle 472,708 $46,586
Kent 123,130 $36,429
Maryland
Cecil 79,235 $40,265
NATIONAL AVERAGE $36,153
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and making use of commercial and personal ties of the Bank's stockholders,
directors, officers and staff to Delaware Valley businesses and residents.
In recent years, intense market demands, economic pressures and
significant legislative and regulatory action have eroded traditional banking
industry classifications which were once clearly defined and have increased
competition among banks, as well as between banks and other financial
institutions. As a result, banks and other financial institutions have had to
diversify their services, generally increase interest paid on deposits and
become more cost effective. These events have resulted in increasing homogeneity
in the financial services offered by banks and other financial institutions.
Some of the effects on banks and other financial institutions of these market
dynamics and legislative and regulatory changes include increased customer
awareness of product and service differences among competitors and increased
merger activity.
The Bank Offering; the Exchange of Regent Common Stock for Bank Common Stock
As a result of the Bank's losses for the year ended December 31, 1995
and through the first nine months of 1996 and the resulting undercapitalization
of the Bank, on October 10, 1996, the Bank entered into a written agreement (the
"Regulatory Agreement") with the OCC pursuant to 12 U.S.C. ss.1818(b). The
Regulatory Agreement required, among other things, that the Bank achieve and
maintain a Tier I capital ratio of 6.50% or greater on and after December 31,
1996. At December 31, 1996, the Bank's Tier I capital ratio was 5.65%, and as a
result the Bank was no longer in compliance with the Regulatory Agreement. At
the direction of the OCC, in February 1997 the Bank filed a revised capital plan
with the OCC, the principal element of which was the raising of additional
capital for the Bank through the sale of Common Stock of the Bank. Regent's and
the Bank's Boards of Directors determined to proceed with the Bank Offering
rather than raising capital through the sale of securities by Regent because
such Boards of Directors believed Bank Common Stock would be more saleable than
Regent Common Stock or Regent Preferred Stock, the Bank Offering could be
completed more quickly and the Bank could more quickly achieve compliance with
the Regulatory Agreement. On March 27, 1997, the OCC notified the Bank of the
OCC's acceptance of the Bank's revised capital plan. On April 8, 1997, the Bank
commenced the Bank Offering. On April 16, 1997, the Bank sold 1,120,000 shares
of the Bank's Common Stock for net cash proceeds of approximately $8.9 million.
See "Description of Capital Stock -- The Bank Common Stock" for a description of
the rights of holders of Bank Common Stock. As a result of the Bank Offering,
the Bank's Tier I capital ratio increased to approximately 10.12% on a pro forma
basis as of March 31, 1997. As a result, the OCC terminated the Regulatory
Agreement on June 25, 1997.
The Bank Common Stock sold in the Bank Offering is mandatorily
exchangeable for Regent Common Stock at the rate of 1.41666 shares of Regent
Common Stock for each share of Bank Common Stock at any time after (i) the
average of the closing bid price of 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 the Bank Common Stock has been registered
under the Securities Act of 1933, as amended (the "1933 Act"). Regent, the Bank
and each of the holders of the Bank Common Stock issued in the Bank Offering
have agreed to enter into an agreement (the "Waiver Agreement"), whereby each of
such holders will waive the condition precedent to the exchange relating to the
bid price of Regent Common Stock which agreement will permit such exchange of
Regent Common Stock for Bank Common Stock to occur immediately following the
effectiveness of the registration statement of which this Prospectus forms a
part. See "Plan of Distribution -- The Bank Offering" for information concerning
the exchange
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<PAGE>
procedures that will be utilized in connection with the exchange of Regent
Common Stock for Bank Common Stock.
The Preferred Stock Offering; the Conversion
On June 1, 1989, Regent completed a public offering that included
530,000 shares of Regent's Series A Preferred Stock. Subsequently thereto,
Regent has paid annual dividends on the Regent Series A Preferred Stock at the
rate of one share of Regent Preferred Stock for each ten outstanding shares of
Regent Series A Preferred Stock. Payment of this annual dividend was effected by
the issuance of Regent Series B Preferred Stock in 1990, Regent Series C
Preferred Stock in 1991, Regent Series D Preferred Stock in 1992 and Regent
Series E Preferred Stock in 1993 and subsequent years. In addition, Regent sold
16,364 shares of Regent Series A Preferred Stock in March 1997 in a private
placement.
All of the Regent Preferred Stock is redeemable at any time at the
option of Regent upon not less than 30 days notice at a price of $10.00 per
share plus declared but unpaid dividends. All of the Regent Preferred Stock is
also convertible into Regent Common Stock at any time at the option of the
holder thereof at the rate of one share of Regent Common Stock for each share of
Regent Series A Preferred Stock or Regent Series E Preferred Stock and at the
rate of 1.177 shares of Regent Common Stock for each share of Regent Series B
Preferred Stock, Regent Series C Preferred Stock or Regent Series D Preferred
Stock.
Since Regent Common Stock has traded at a price in excess of the $10.00
per share redemption price at all times since late April 1997, Regent's Board of
Directors has determined to call for redemption during the fourth quarter of
1997 all of the Regent Preferred Stock with the expectation that substantially
all of the holders of Regent Preferred Stock will exercise their right to
convert their Regent Preferred Stock into Regent Common Stock in order to avoid
the diminution in value that would occur if they received the redemption price
of $10.00 per share in cash and paid any applicable taxes thereon compared to
the current market value of the Regent Common Stock they would receive upon
conversion. No fractional shares of Regent Common Stock are issuable upon the
conversion of Regent Preferred Stock into Regent Common Stock and, in lieu
thereof, an adjustment in cash will be made based upon the last reported sale
price of the Regent Common Stock on the date of conversion.
See "Description of Capital Stock -- Regent Preferred Stock" for a
description of the rights of holders of Regent Preferred Stock, including
information relating to the conversion of Regent Preferred Stock into Regent
Common Stock and the procedures that will be utilized upon the redemption of
Regent Preferred Stock. Under the Certificates of Designation applicable to the
Regent Preferred Stock, holders of Regent Preferred Stock will be furnished with
not less than 30 days prior written notice of the date of redemption of the
Regent Preferred Stock and, during such 30-day period, such holders will
continue to have the right to convert Regent Preferred Stock into Regent Common
Stock. Any Regent Preferred Stock not converted into Regent Common Stock prior
to the redemption date will thereafter represent only the right to receive in
cash the redemption price of $10.00 per share plus any declared but unpaid
dividends.
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The Offering
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Regent Common Stock offered............................... 2,151,385 shares, of which 1,586,659 shares
may be resold by the holders thereof after being
issued in exchange for the Bank Common Stock
sold in the Bank Offering and 564,726 shares
issuable upon conversion of the Regent Preferred
Stock
Conversion rate for Regent Preferred Stock................ One share of Regent Common Stock for each share
of Regent Series A or Series E Preferred Stock
and 1.177 shares of Regent Common Stock for each
share of Regent Series B, Series C or Series D
Preferred Stock
Regent Common Stock to be outstanding
after the offering(1)................................ 3,423,918 shares
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(1) Based on the number of shares of Regent Common Stock outstanding on
June 30, 1997. Assumes that all of the Shares offered hereby are
exchanged and converted as described herein. Excludes an aggregate of
297,000 shares of Regent Common Stock which at June 30, 1997 were (i)
reserved for issuance pursuant to the exercise of outstanding options
granted under Regent's 1997 Equity Incentive Plan (the "Plan") and (ii)
25,000 shares of Regent Common Stock reserved for issuance upon the
exercise of options that may be granted under the Plan in the future.
Recent Developments
Under the management of Robert B. Goldstein, who took office as Chief
Executive Officer of Regent and the Bank on April 14, 1997, a number of
important developments have occurred which, in the opinion of management of
Regent, establish the foundation for the resumption of profitable operations by
Regent commencing with the third quarter of 1997. These developments are as
follows:
o On April 16, 1997, the Bank completed the Bank Offering, which
resulted in $8.9 million of new capital for the Bank and
increased the Bank's Tier 1 capital ratio to approximately
10.1% as of that date.
o 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.
o Since June 25, 1997, the Bank has satisfied the OCC criteria
for a "well-capitalized" institution.
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<PAGE>
o During the second quarter of 1997, the Bank entered into
agreements to sell the Bank's non-performing and non-earning
assets of approximately $8.3 million for $6.3 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 assets and non-earning will be completed during
August 1997. After a related $2.0 million charge against its
allowance for loan losses in the second quarter of 1997, the
Bank's allowance was $1.4 million at June 30, 1997.
o 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 six
months ended June 30, 1997. The personnel reduction will
result in annual savings of approximately $600 thousand to the
Bank.
o Regent recognized $900 thousand of its deferred tax asset of
approximately $1.6 million in the second quarter of 1997 in
accordance with Statement of Financial Accounting Standards
No. 109 since it is more likely than not that Regent will have
sufficient projected tax liability in the foreseeable future.
o Regent's total assets at June 30, 1997 were $212 million, an
increase from total assets of $192 million at March 31, 1997.
o Regent's total loans at June 30, 1997 were $77.2 million, an
increase from total loans of $75 million at March 31, 1997.
On the basis of unaudited financial information at June 30, 1997 that
includes all adjustments, consisting only of normal recurring accruals which
Regent considers necessary for a fair presentation of its results of operations
for the six months ended June 30, 1997 and 1996, capsule financial information
is as follows (in thousands):
<TABLE>
<CAPTION>
Six Months Ended June 30,
------------------------------------
1997 1996
---- ----
(unaudited)
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Statement of Operations Data:
Interest income........................................... $ 7,879 $ 11,123
Interest expense.......................................... 4,842 6,591
-------- --------
Net interest income..................................... 3,037 4,532
Provision for loan losses................................. 100 4,050
Non-interest income:
Service charges and other income........................ 68 56
Gains on sales of assets................................ 568 83
Non-interest expense:
Salaries and benefits................................... 1,591 956
Professional services................................... 1,370 431
Occupancy............................................... 284 299
IPF servicing........................................... 551 1,091
Other................................................... 826 596
-------- -------
Total............................................... 4,622 3,373
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<PAGE>
Loss before income tax benefit............................ (1,049) (2,752)
Income tax (benefit)...................................... (900) --
Income (loss) before preferred stock
dividends and minority interest......................... (149) (2,752)
Loss before minority interest............................. (360) (2,828)
Net loss.................................................. (393) (2,828)
June 30, 1997 December 31, 1996
-------------- -----------------
(unaudited)
Balance Sheet Data:
Cash and due from banks................................... $ 3,681 $ 4,410
Overnight investments..................................... 5,247 5,084
Investment securities available for sale.................. 50,474 30,470
Investment securities held to maturity.................... 69,854 75,083
Loans, net of unearned interest and fees.................. 77,220 85,069
Allowance for loan losses................................. (1,371) (3,060)
Accrued income receivable................................. 1,416 1,362
Premises and equipment, net............................... 642 696
Prepaid expenses and other assets......................... 4,939 2,790
-------- --------
Total................................................. $212,102 $201,904
======== ========
Demand deposits........................................... $ 12,076 $ 10,986
NOW and money market deposits............................. 6,608 6,583
Savings deposits.......................................... 42,063 47,830
Certificates of deposit................................... 113,593 119,727
Advances from Federal Home Loan Bank...................... 12,697 203
Subordinated debentures................................... 2,750 2,750
Accrued interest payable.................................. 3,769 4,792
Other liabilities......................................... 1,363 900
Minority interest......................................... 8,932 ---
Shareholders' equity...................................... 8,251 8,133
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Total................................................. $212,102 $201,904
======== ========
Six Months Ended June 30,
------------------------------------
1997 1996
---- ----
(unaudited)
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Other Selected Data:
Per share data:
Loss before minority interest........................... $(.18) $(2.56)
Book value at period end*............................... 5.00 3.92
Weighted average shares outstanding (in thousands)...... 2,023 1,105
Financial ratios:
Net interest margin..................................... 3.17% 3.52%
Return on average assets................................ (.15) (2.10)
Return on average equity................................ N/A N/A
Tier 1 capital (Bank only).............................. 10.32 6.37
- ----------
* Reflects exchange of Regent Common Stock for Bank Common Stock to occur
promptly after the Registration Statement of which this Prospectus is a
part becomes effective.
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Risk Factors
The shares of Regent Common Stock offered hereby involve a high degree
of risk, including the Bank's recent history of losses, the Bank's recent
history of significant undercapitalization, the adverse impact on the Bank's
future net interest income of the actions taken by the Bank to improve its
regulatory capital ratios, the ability of Regent to achieve profitable results
of operations, the risks attendant to the expansion of the Bank's business, the
adequacy of the Bank's allowance for loan losses, the supervision and regulation
to which the Bank is subject, the intense competition the Bank faces, the effect
of prevailing economic conditions on the Bank and the restrictions on the
payment of dividends by the Bank. See "Risk Factors."
-9-
<PAGE>
Summary Consolidated Financial Data
(in thousands, except for per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
------------------ ------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Interest income..................... $ 3,999 $ 5,343 $ 21,519 $ 21,160 $ 17,165 $ 15,112 $ 13,519
Interest expense.................... 2,409 3,287 12,461 12,553 11,373 9,921 8,810
------- ------- -------- -------- -------- -------- --------
Net interest income................. 1,590 2,056 9,058 8,607 5,792 5,191 4,709
Provision for loan losses........... (200) 175 5,092 4,905 860 450 525
------- ------- -------- -------- -------- -------- --------
Net interest income after provision
for loan losses.................... 1,790 1,881 3,966 3,702 4,932 4,741 4,184
Non-interest income................. 578 28 212 104 202 156 70
Non-interest expense................ 2,548 1,546 7,224 7,396 4,372 3,113 2,486
------- ------- -------- -------- -------- -------- --------
Income (loss) before provision for
income taxes...................... (180) 363 (3,046) (3,590) 762 1,784 1,768
Income tax expense (benefit)........ -- 145 (350) (463) 259 607 601
------- ------- -------- -------- -------- -------- --------
Income (loss) before dividends on
preferred stock................... (180) 218 (2,696) (3,127) 503 1,177 1,167
Preferred stock dividends........... 83 145 142 487 287 516 317
------- ------- -------- -------- -------- -------- --------
Net income (loss) applicable to
common stock...................... $ (264) $ 73 $ (2,838) $ (3,614) $ 216 $ 661 $ 850
======= ======= ======== ======== ======== ======== ========
Earnings (loss) per share:
Primary............................ $ (.20) $ .05 $(2.42) $(3.41) $0.22 $0.71 $0.95
Fully diluted...................... N/A N/A N/A N/A N/A N/A 0.82
Book value per share-fully diluted.. 4.43 6.51 4.58 6.55 7.98 8.88 8.38
Selected Financial Ratios:
Net interest margin................. 3.36% 3.21% 3.76% 3.56% 2.37% 2.49% 2.87%
Non-interest expense to average
total assets...................... 3.77(1) 2.34 2.94 3.00 1.74 1.44 1.47
Return on average total assets...... (.37) .33 N/A N/A .20 .55 .70
Return on average shareholders' equity (8.97) 8.44 N/A N/A 3.89 9.29 10.33
Average shareholders' equity to average
total assets...................... 4.16 3.91 4.03 5.50 5.14 5.88 6.67
Non-performing assets to total assets
at period end..................... 2.08 2.98 2.73 3.49 1.68 1.04 2.11
Allowance for loan losses as a percentage
of period end loans and loans held for
sale............................... 3.02 4.65 3.60 5.47 2.10 1.84 1.94
</TABLE>
Balance Sheet Data:
<TABLE>
<CAPTION>
At March 31, At December 31,
------------ ---------------------------------------------------------------
1997 1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Total assets........................... $192,739 $201,904 $262,512 $243,450 $243,945 $204,800
Federal funds sold..................... 7,600 5,000 -- -- 6,000 --
Loans, net of unearned interest and fees(2) 75,192 85,069 118,784 81,248 72,944 55,531
Investment securities.................. 103,980 105,553 138,722 156,664 156,166 140,226
Deposits............................... 177,156 185,126 196,132 161,061 192,393 160,715
Subordinated debentures................ 2,750 2,750 2,750 2,750 2,550 ---
Shareholders' equity................... 7,963 8,133 10,353 12,206 13,126 11,949
</TABLE>
(1) Excludes $722 thousand of merger-related expenses paid to Carnegie Bancorp
("Carnegie").
(2) Including mortgage loans held for sale.
-10-
<PAGE>
RISK FACTORS
Regent and the Bank experienced significant losses in the years ended
December 31, 1995 and 1996 and for the six months ended June 30, 1997 due
primarily to an increase in the provision for loan losses that was attributable
to delinquent loans. For these and other reasons, shares of Regent Common Stock
involve a high degree of risk. The following factors should be considered
carefully in evaluating an acquisition of Regent Common Stock.
Recent Operating Losses and Resultant Undercapitalization
For the six months ended June 30, 1997, Regent had a net loss of $393
thousand, compared to a net loss of $2.8 million for the six months ended June
30, 1996. For the year ended December 31, 1995, Regent had a net loss of $3.1
million, and for the year ended December 31, 1996, Regent had a net loss of $2.7
million. These losses resulted primarily from charge-offs of loans 120 or more
days past due and increases in the reserve for potential loan losses on the
loans that remained outstanding. As a result of the Bank's losses and its
resultant undercapitalization, on October 10, 1996, the Bank entered into the
Regulatory Agreement with the OCC pursuant to 12 U.S.C. ss.1818(b). See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for information relating to the Regulatory Agreement.
On April 16, 1997, the Bank completed the Bank Offering, as a result of
which the Bank's Tier 1 leverage ratio increased to approximately 10.12% as of
that date. On June 25, 1997, the OCC terminated the Regulatory Agreement and the
Bank now meets the OCC's requirements for a well-capitalized institution. See
"Capitalization" and "Supervision and Regulation."
Remaining Regulatory Restrictions
The Federal Reserve Bank of Philadelphia (the "FRBP") formally notified
Regent, in a letter dated September 6, 1996, of its determination that Regent
was in "troubled condition." As a consequence of such condition, Regent must
provide the FRBP with 30 days' notice prior to adding any members to its board
of directors or engaging any new senior executive officers. In addition to the
notice requirement, the FRBP has prohibited Regent, without prior written FRBP
approval, from declaring or paying any dividends, repurchasing or redeeming any
of its stock and incurring any additional debt, and required Regent to notify
the FRBP immediately of any material event that significantly impacts the
financial condition of Regent and the Bank. However, the regulatory restrictions
will remain in effect unless and until the FRBP determines that it is
appropriate to remove the restrictions. See "Supervision and Regulation."
Adverse Impact on Net Interest Income
During 1997, the Bank's net interest income has been and will continue
to be adversely affected by the sale in 1996 of approximately $34.2 million in
loans to Carnegie Bank, N.A. and the run-off of the IPF portfolio in the
approximate amount of $10 million as well as by the Bank's higher than average
level of non-performing assets as of December 31, 1996. Regent reported a net
loss for the first six months of 1997 of $393 thousand compared to a net loss
for the first six months of 1996 of $2.8 million. The loss for the first six
months of 1997 was primarily related to 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
-11-
<PAGE>
income from $139 thousand in the first six months of 1996 to $568 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.
Regulatory Capital Requirements; Recent Undercapitalization
Section 38 of the Federal Deposit Insurance Act (the "FDIA"), as
amended by the Federal Deposit Insurance Corporation Improvement Act ("FDICIA"),
effective December 1991, and the regulations of the FDIC implementing the prompt
corrective action provisions of FDICIA, effective December 1992, require that
the federal banking agencies establish five capital levels for insured
depository institutions --"well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" and "critically
undercapitalized" -- and requires or permits such agencies to take certain
supervisory actions as an insured institution's capital level falls. From June
30, 1996 through April 16, 1997, the Bank was significantly undercapitalized.
See "Supervision and Regulation." At June 30, 1997, the Bank had a ratio of
Total capital 19.58%. A bank is designated as "well capitalized" if it has a
ratio of Total capital of 10% or greater. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
There can be no assurance that the Bank will remain "well capitalized"
or that it will not be subject to additional capital requirements in the future,
either as a result of regulations, guidelines and policies of general
applicability or individual regulatory capital requirements that are applied to
the Bank. Pursuant to Section 18 of the FDIA, federal banking agencies are
required to review their capital standards for insured depository institutions
biennially to determine whether those standards require sufficient capital to
facilitate prompt corrective action to prevent or minimize loss to the deposit
insurance funds. Regulatory authorities could also limit the ability of
companies such as Regent and the Bank to include certain deferred income tax
assets permitted under generally accepted accounting principles for regulatory
capital and regulatory reporting purposes. See "Supervision and Regulation."
Reliance on New Management
Since January 1, 1997, Regent has retained a new President and Chief
Executive Officer, who also has been retained as the Bank's new Chairman of the
Board and Chief Executive Officer, and a new Executive Vice President and Chief
Financial Officer, and the Bank has retained a new Executive Vice President and
Chief Lending Officer. In addition, Barbara H. Teaford, formerly Executive Vice
President of Regent and the Bank, has become the Bank's new President. Although
Regent's new President and Chief Executive Officer and new Executive Vice
President and Chief Financial Officer and the Bank's Executive Vice President
and Chief Credit Officer have extensive experience in commercial banking, none
of them has had prior experience in Regent's market area. Regent's future
results of operations will be substantially dependent on its new management
personnel. See "Management."
Extensive Regulation
The federal and state laws and regulations that are applicable to bank
holding companies and banks give regulatory authorities extensive discretion in
connection with their supervisory and enforcement activities and generally have
been promulgated to protect depositors and deposit insurance funds and not for
the purpose of protecting stockholders. Any change in such regulations, whether
by an applicable federal or state regulatory authority or federal or state
legislative bodies, could have a significant impact on Regent and the Bank. See
"Supervision and Regulation."
-12-
<PAGE>
Impact of Economic Conditions
Prevailing economic conditions, as well as government policies and
regulations concerning, among other things, monetary and fiscal affairs,
significantly affect the operations of financial institutions such as Regent and
the Bank. In particular, because the Bank's lending and deposit-taking
activities are conducted primarily in the greater Philadelphia area, economic
conditions in that area may affect Regent's financial condition and results of
operations. See "Business."
The Bank's net interest income, which is the difference between the
interest income received on its interest-earning assets, including loans and
investment securities, and the interest expense incurred in connection with its
interest-bearing liabilities, including deposits and borrowings, can be
significantly affected by changes in market interest rates. The Bank actively
monitors its assets and liabilities in an effort to minimize the effects of
changes in interest rates, primarily by altering the mix and maturity of the
Bank's loans, investments and funding sources.
Ability to Achieve Profitability
Regent's ability to achieve profitability will depend on its ability to
attract additional deposits, locate sound loan and investment opportunities,
expand the services from which it realizes fee income and identify potential
acquisition candidates. In addition, Regent's ability to achieve profitability
also depends on the ability of its officers and key employees to manage growth
effectively, to attract and retain skilled employees and to expand the
capabilities of Regent's management information systems. Accordingly, there can
be no assurance that Regent will be successful in managing its growth and the
failure to do so would adversely affect Regent's financial condition and results
of operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Adequacy of Allowance for Loan Losses
Regent attempts to maintain an allowance for loan losses at a
sufficient level to provide for potential losses in the Bank's loan portfolio.
The amount of the allowance for loan losses is periodically determined by
management based upon consideration of several factors, including an ongoing
review of the quality, mix and size of the overall loan portfolio, historical
loan loss experience, an evaluation of non-performing loans, an assessment of
economic conditions and their related effects on the existing portfolio and the
amount and quality of collateral securing loans. However, there is no precise
method of predicting loan losses and there can be no assurance that the
allowance for loan losses will be sufficient to absorb future loan losses.
In addition, Regent is seeking to increase rapidly and substantially
the size of its loan portfolio. It is not possible to predict how newly
originated loans will perform. If loan losses exceed the allowance for loan
losses or if new management's view of the risk inherent in the lending function
changes, these changes could have an adverse impact on Regent's results of
operations and financial condition.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Risk Elements."
-13-
<PAGE>
No Dividends Paid in the Past or Currently Anticipated; Dividend Restrictions
Because dividends from the Bank are currently Regent's sole source of
income, any restrictions on the Bank's ability to pay dividends will act as a
restriction on Regent's ability to pay dividends. Under the National Bank Act
and the regulations of the OCC applicable to the Bank, the Bank may not pay
dividends in a given year in excess of the Bank's net profits, as defined, for
that year plus the Bank's retained net profits for the preceding two years
without prior permission from the OCC. For the two years ended December 31, 1996
and for the six months ended June 30, 1997, the Bank had no net profits and
therefore is currently legally prohibited from paying dividends without the
permission of the OCC. In addition, unless a national bank's capital surplus
equals or exceeds the stated capital for its common stock, no dividends may be
declared unless the Bank makes transfers from retained earnings to capital
surplus.
Unless the Bank has sufficient net profits or obtains the permission of
the OCC, as to either of which no assurance can be given, the Bank will not be
permitted to pay a dividend to Regent to fund the interest payment of $106
thousand due on Regent's subordinated debentures on September 30, 1997, and
Regent will have to seek alternative sources of funds to make this payment, such
as the private placement of Regent securities.
Regent has never paid cash dividends on its Common Stock and does not
intend to pay cash dividends on its Common Stock for the foreseeable future. The
payment of dividends by Regent is subject to the prior written approval of the
FRBP pursuant to the terms of the FRBP's September 6, 1996 letter to Regent. See
"Regent Stock Information -- Dividend Policy."
Intense Competition
Intense competition exists in all of the major areas in which Regent
and the Bank currently engage in business, particularly for deposits and
creditworthy borrowers. Regent and the Bank face competition from various
financial and non-financial businesses, many of which have substantially greater
resources and capital than do Regent and the Bank. Particularly intense
competition exists for loans and deposits. See "Business -- Competition."
Control by Management
The executive officers, directors and 5% or greater stockholders of
Regent currently own approximately 33.2% of the Regent Common Stock outstanding
and will own approximately 26.4% of the Regent Common Stock outstanding after
giving effect to the exchange of all of the Bank Common Stock issued in the Bank
Offering for Regent Common Stock and the conversion of all outstanding shares of
Regent Preferred Stock into Regent Common Stock. Accordingly, such persons will
have significant control over the election of the members of Regent's Board of
Directors and any other matter submitted to a vote of Regent's stockholders. See
"Principal Stockholders."
Effect of Future Issuances of Securities
In order to have sufficient capital to facilitate its growth strategy
or to fund potential future acquisitions, Regent may have to issue additional
securities in the future. If Regent's assets increase in accordance with
management's strategy, additional capital could be needed to support those new
assets
-14-
<PAGE>
within two to three years. Regent cannot predict the effect, if any, that future
issuances of securities will have on the market price of Regent Common Stock,
which could be adversely affected.
Anti-takeover Provisions
As a New Jersey corporation, Regent is subject to the New Jersey
Shareholders Protection Act which prohibits certain business combinations
between Regent and any holder of 10% or more of Regent's outstanding Common
Stock. See "Description of Securities -- Anti-takeover Provisions."
Forward-Looking Statements
All statements contained in this Prospectus that are not historical
facts are based on current expectations. These statements are forward-looking
(as defined in the Private Securities Litigation Reform Act of 1995) in nature
and involve a number of risks and uncertainties. Actual results may vary
materially, as discussed in this "Risk Factors" section. The factors that could
cause actual results to vary materially include: the ability of the Bank to
achieve profitable operations and the adequacy of its allowance for loan losses,
general business and economic conditions in the Bank's primary lending and
deposit-taking areas, future interest rate fluctuations, competition from
various financial and non-financial businesses, the ability of Regent and the
Bank to comply with current regulatory provisions and any future changes in such
provisions, the ability of the Bank to generate loan growth and to improve its
net interest margin and other risks that may be described from time to time in
the reports that Regent is required to file with the Securities and Exchange
Commission (the "Commission"). Regent cautions potential investors not to place
undue reliance on any such forward-looking statements.
CAPITALIZATION
The following table sets forth the actual consolidated capitalization
of Regent at June 30, 1997 and as adjusted to give effect to the issuance of
1,586,659 shares of Regent Common Stock in exchange for 1,120,000 shares of Bank
Common Stock and the issuance of 564,726 shares of Regent Common Stock upon
conversion of the 562,974 outstanding shares of Regent Preferred Stock.
-15-
<PAGE>
<TABLE>
<CAPTION>
As Adjusted to
Actual at Reflect the Issuance
June 30, 1997 of 2,151,385 Shares
------------- --------------------
<S> <C> <C>
Shareholders' Equity:
Series A Convertible Preferred Stock, par value
$.10 per share, 1,000,000 shares authorized,
421,764 shares issued and outstanding........................ $ 42,176 $ 0
Series B Convertible Preferred Stock, par value
$.10 per share, 500,000 shares authorized,
3,690 shares issued and outstanding.......................... 369 0
Series C Convertible Preferred Stock, par value
$.10 per share, 500,000 shares authorized,
2,925 shares issued and outstanding.......................... 292 0
Series D Convertible Preferred Stock, par value
$.10 per share, 500,000 shares authorized,
3,280 shares issued and outstanding.......................... 328 0
Series E Convertible Preferred Stock, par value
$.10 per share, 500,000 shares authorized,
131,315 shares issued and outstanding........................ 13,131 0
Regent Common Stock, par value $.10 per share:
10,000,000 shares authorized, 1,272,533 shares issued and
outstanding and 3,423,918 shares issued and outstanding as
adjusted to reflect issuance of the Regent Common Stock
offered hereby(1)............................................ 127,253 342,392
Additional paid-in capital....................................... 14,778,725 23,518,970
Deficit.......................................................... (6,231,754) (6,231,754)
Net unrealized loss on securities available-for- sale............ (479,965) (479,965)
---------- -----------
Total shareholders' equity(2).................................... $8,250,555 $17,149,643
========== ===========
Capital Ratios:
Shareholders' equity to total assets....................... 3.88% 8.09%
Tier 1 capital to risk-adjusted assets..................... 7.85 15.85
Total capital to risk-adjusted assets...................... 9.08 17.08
Tier 1 leverage ratio...................................... 4.42 8.92
</TABLE>
- ---------------
(1) Excludes 380,000 shares of Regent Common Stock reserved for issuance
under the Plan. At June 30, 1997, options had been granted to executive
officers, directors and employees of the Bank or Regent to purchase an
aggregate of 297,000 shares of Regent Common Stock at $6.75 per share,
and 25,000 shares were reserved for issuance upon the exercise of
options that may be granted under the Plan in the future. See
"Management -- 1997 Equity Incentive Plan."
(2) Before minority interest. It is Regent's intention to eliminate the
minority interest in the third quarter of 1997 by the exchange of
Regent Common Stock for Bank Common Stock. See "Plan of Distribution --
The Bank Offering."
The following table sets forth the capital ratios of Regent and the
Bank as of June 30, 1997, as well as the minimum required regulatory capital for
Regent and the Bank.
Required
Regent June 30, 1997 Regulatory Minimum
- ------ ------------- ------------------
Risk-based capital:
Tier I capital..................... 7.85% 4.00%
Total capital...................... 9.08 8.00
Leverage ratio........................ 4.42 3.00-5.00
-16-
<PAGE>
Required
The Bank June 30, 1997 Regulatory Minimum
- -------- ------------- ------------------
Risk-based capital:
Tier I capital..................... 18.35% 4.00%
Total capital...................... 19.58 8.00
Leverage ratio........................ 10.32 3.00-5.00
Both Regent and the Bank are subject to minimum capital requirements
promulgated by the Federal Reserve Bank (the "FRB") and the OCC, their
respective primary regulators. See "Supervision and Regulation."
REGENT STOCK INFORMATION
Regent's Common Stock and Series A Convertible Preferred Stock are
traded on the Nasdaq Small-Cap Market under the following symbols: Common Stock
- --RBNK and Series A Convertible Preferred Stock -- RBNKP. The last reported bid
price for Regent Common Stock on August 11, 1997 was $10 7/8, respectively. The
following table sets forth the high and low bid prices for Regent's Common Stock
and Series A Convertible Preferred Stock for each quarter during 1996 and 1995
and the first three quarters of 1997 through August 11, 1997 as reported by the
National Quotation Bureau, Inc.:
<TABLE>
<CAPTION>
Regent Regent Series A Convertible
Common Stock Preferred Stock
--------------------- ---------------------------
Low Bid High Bid Low Bid High Bid
------- -------- ------- --------
<S> <C> <C> <C> <C>
1995:
First Quarter................................. $ 5 3/4 $ 7 $ 5 3/4 $ 6 3/4
Second Quarter................................ 5 1/2 6 3/4 5 1/4 6 1/8
Third Quarter................................. 6 11 5 1/4 11
Fourth Quarter................................ 10 1/2 11 10 11 1/4
1996:
First Quarter................................. 10 1/2 12 1/4 10 1/2 12 1/4
Second Quarter................................ 7 1/4 11 1/2 7 1/2 11 3/4
Third Quarter................................. 6 1/4 8 6 8
Fourth Quarter................................ 5 1/2 6 1/2 5 1/2 6
1997:
First Quarter................................. 5 1/2 6 7/8 5 1/4 6 1/2
Second Quarter................................ 6 5/8 10 3/4 6 1/2 10 1/2
Third Quarter (through August 11, 1997)....... 10 3/8 11 5/8 10 1/4 11 1/8
</TABLE>
These quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions.
Dividend Policy
Regent has never paid cash dividends on Regent Common Stock or Regent
Preferred Stock, although Regent has paid stock dividends on its Common and
Series A Convertible Preferred Stock. Management of Regent intends to follow a
policy of retaining any earnings for the foreseeable future for
-17-
<PAGE>
the purpose of strengthening its capital and reserves. In determining the amount
of dividends, if any, Regent's Board of Directors will consider, in its
discretion, the earnings, capital requirements and financial condition of Regent
as well as other relevant factors. The payment of dividends by Regent is subject
to prior written approval by the FRBP.
The payment of dividends to Regent by the Bank is subject to certain
restrictions pursuant to federal banking law. In addition, the Bank is subject
to certain limitations on the amount of cash dividends that it may pay under the
National Bank Act, which provides that in a given year a bank may not pay
dividends in excess of its net profits, as defined in the National Bank Act, for
that year plus a bank's retained net profits for the preceding two years without
the prior permission of the OCC. For the two years ended December 31, 1996 and
for the six months ended June 30, 1997, the Bank had no net profits and
therefore is currently legally prohibited from paying dividends. In addition,
unless a national bank's capital surplus equals or exceeds the stated capital
for its common stock, no dividends may be declared unless a bank makes transfers
from retained earnings to capital surplus. See Note 3 to the Consolidated
Financial Statements. See "Management's Discussion and Analysis of Financial
Condition and Results of Opera tions."
-18-
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table summarizes certain selected consolidated financial
data and other information of Regent for the periods indicated. The selected
consolidated financial data for the four fiscal years ended December 31, 1995
are derived from the Consolidated Financial Statements of Regent audited by
Arthur Andersen LLP, independent certified public accountants, whose report
thereon is included elsewhere in this Prospectus and for the fiscal year ended
December 31, 1996 are derived from the Consolidated Financial Statements of
Regent audited by Grant Thornton LLP, independent certified public accountants.
Regent's Consolidated Financial Statements as of December 31, 1996 and for the
year ended December 31, 1996 and Grant Thornton LLP's report thereon are
included elsewhere in this Prospectus. The balance sheet data as of March 31,
1997 and the statement of operations data for the three months ended March 31,
1997 and 1996 are derived from unaudited financial statements. The unaudited
financial statements include all adjustments, consisting only of normal
recurring approvals, which Regent considers necessary for a fair presentation of
its financial position and its results of operations for those periods. Regent's
results of operations for the three months ended March 31, 1997 are not
necessarily indicative of the results of operations that may be expected for the
year ending December 31, 1997. The selected consolidated financial data
presented below should be read in conjunction with the Consolidated Financial
Statements and the Notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the other financial
information included elsewhere in this Prospectus. All dollar amounts are in
thousands, except per share data.
-19-
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
------------------ ------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Interest income..................... $ 3,999 $ 5,343 $21,519 $21,160 $17,165 $15,112 $13,519
Interest expense.................... 2,409 3,287 12,461 12,553 11,373 9,921 8,810
-------- -------- -------- -------- ------- ------- -------
Net interest income................. 1,590 2,056 9,058 8,607 5,792 5,191 4,709
Provision for loan losses........... (200) 175 5,092 4,905 860 450 525
-------- -------- -------- -------- ------- ------- -------
Net interest income after provision
for loan losses.................... 1,790 1,881 3,966 3,702 4,932 4,741 4,184
Non-interest income................. 578 28 212 104 202 156 70
Non-interest expense................ 2,548 1,546 7,224 7,396 4,372 3,113 2,486
-------- -------- -------- -------- ------- ------- -------
Income (loss) before provision for
income taxes...................... (180) 363 (3,046) (3,590) 762 1,784 1,768
Income tax expense (benefit)........ -- 145 (350) (463) 259 607 601
-------- -------- -------- -------- ------- ------- -------
Income (loss) before dividends on
preferred stock................... (180) 218 (2,696) (3,127) 503 1,177 1,167
Preferred stock dividends........... 83 145 142 487 287 516 317
-------- -------- -------- -------- ------- ------- -------
Income (loss) applicable to common stock $ (264) $ 73 $ (2,838) $(3,614) $ 216 $ 661 $ 850
======== ======== ======== ======== ======= ======= =======
Earnings (loss) per share:
Primary............................ $ (.20) $ .05 $(2.42) $(3.41) $0.22 $0.71 $0.95
Fully diluted...................... N/A N/A N/A N/A N/A N/A 0.82
Book value per share-fully diluted.. 4.43 6.51 4.58 6.55 7.98 8.88 8.38
Selected Financial Ratios:
Net interest margin................. 3.36% 3.21% 3.76% 3.56% 2.37% 2.49% 2.87%
Non-interest expense to average
total assets...................... 3.77(1) 2.34 2.94 3.00 1.74 1.44 1.47
Return on average total assets...... (.37) .33 N/A N/A .20 .55 .70
Return on average shareholders' equity (8.97) 8.44 N/A N/A 3.89 9.29 10.33
Average shareholders' equity to average
total assets...................... 4.16 3.91 4.03 5.50 5.14 5.88 6.67
Non-performing assets to total assets
at period end..................... 2.08 2.98 2.73 3.49 1.68 1.04 2.11
Allowance for loan losses as a percentage
of period end loans and loans held for
sale............................... 3.02 4.65 3.60 5.47 2.10 1.84 1.94
</TABLE>
Balance Sheet Data:
<TABLE>
<CAPTION>
At March 31, At December 31,
------------ ----------------------------------------------------------------
1997 1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Total assets................................. $192,739 $201,904 $262,512 $243,450 $243,945 $204,800
Federal funds sold........................... 7,600 5,000 -- -- 6,000 --
Loans, net of unearned interest and fees(2).. 75,192 85,069 118,784 81,248 72,944 55,531
Investment securities........................ 103,980 105,553 138,722 156,664 156,166 140,226
Deposits..................................... 177,156 185,126 196,132 161,061 192,393 160,715
Subordinated debentures...................... 2,750 2,750 2,750 2,750 2,550 --
Shareholders' equity................... ..... 7,963 8,133 10,353 12,206 13,126 11,949
</TABLE>
(1) Excludes $722 thousand of merger-related expenses paid to Carnegie.
(2) Including mortgage loans held for sale.
-20-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three Months Ended March 31, 1997 Compared to Three Months Ended March 31, 1996
Financial Overview
Regent, the holding company for the Bank, reported a net loss for the
first quarter of 1997 of $180 thousand versus net income for the comparable
quarter of 1996 of $218 thousand. The loss for the first quarter of 1997 was
primarily related to a reduction in interest income from $5.3 million for the
first quarter of 1996 to $4.0 million for the first quarter of 1997, which was
25% lower due to a strategically planned decrease in the Bank's earning assets
of 27% that was necessary to improve the Bank's regulatory capital ratios. The
positive effect on the Bank's earnings of the $200 thousand negative provision
for loan losses in the first quarter of 1997 compared to a provision of $175
thousand in the first quarter of 1996 and the increase in noninterest income
from $28 thousand in the first quarter of 1996 compared to $578 thousand in the
first quarter of 1997 was more than offset by an increase in noninterest expense
to $2.5 million in the first quarter of 1997 from $1.5 million for the first
quarter of 1996.
Total assets of $192.7 million at March 31, 1997 were approximately 5%
lower than the $201.9 million at December 31, 1996, as loans decreased from
$85.1 million at December 31, 1996 to $75.2 million at March 31, 1997. Total
deposits declined to $177.2 million at March 31, 1997 from $185.1 million at
year-end 1996.
A number of major events took place during the first quarter of 1997.
First, on January 6, 1997, Joel E. Hyman became Executive Vice President, Chief
Financial Officer and Treasurer of Regent and the Bank. Second, on January 14,
1997, Regent and Carnegie announced the mutual termination of the Amended and
Restated Agreement and Plan of Merger ("the Merger Agreement"), which had
provided for the merger of the two holding companies and their subsidiary banks,
due to changes in their respective strategic focus. Pursuant to the termination
of the Merger Agreement, Carnegie was reimbursed for $722 thousand of
merger-related expenses Carnegie had incurred, and, in connection therewith, the
Bank sold to Carnegie Bank, N.A., with appropriate premium, $6.4 million of loan
participations and servicing rights to such loans and loan participations of
$27.8 million previously sold by the Bank to Carnegie Bank, N.A. The
reimbursement of Carnegie is reported as professional services on the
Consolidated Statements of Operations and the premium paid by Carnegie Bank,
N.A. is included in the net gain on sale of assets on the Consolidated
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 14, 1997, Robert B. Goldstein became President, Chief Executive
Officer and a Director of Regent and Chairman, Chief Executive Officer and a
Director of the Bank. Mr. Goldstein succeeded John J. Lyons who had served as
the Bank's President and Chief Executive Officer on an interim basis since
September 1996 following the resignation of Harvey Porter due to ill health. In
addition, Barbara H. Teaford, formerly Executive Vice President and Secretary of
Regent and the Bank, became President of the Bank and Amanda V. Perkins became
Executive Vice President and Chief Lending Officer of the Bank. Second, on April
16, 1997, the Bank completed the Bank Offering in a private placement for which
Keefe, Bruyette &
-21-
<PAGE>
Woods, Inc. served as the Bank's Placement Agent. The Bank Common Stock issued
in the Bank Offering is exchangeable for Regent Common Stock at the rate of
1.41666 shares of Regent Common Stock for each share of Bank Common Stock at the
discretion of Regent at any time after (i) the average of the closing bid price
for Regent Common Stock has equaled or exceeded $12 per share for 15 consecutive
trading days and (ii) the Regent Common Stock issuable in exchange for Bank
Common Stock has been registered under the 1933 Act. The net proceeds of
approximately $8.9 million from the Bank Offering were used to restore the
Bank's capital so that the Bank resumed compliance with certain ratios that the
Bank has agreed to maintain pursuant to the Regulatory Agreement dated October
10, 1996 between the OCC and the Bank.
The Bank had cash collections of approximately $3.4 million during the
first quarter of 1997 from the IPF business, which was the original source of
the Bank's losses and increased expense in 1995 and 1996. These collections
eliminated the year end 1996 receivable of $2.6 million, increased the payable
for estimated customer refunds and resulted in approximately $300 thousand in
recoveries to the allowance for losses. As the collection activities of this
discontinued IPF business wind down in the second quarter of 1997, additional
cash receipts are expected to have a favorable effect on the Bank's financial
results.
Financial Condition
Capital Adequacy
Total shareholders' equity was approximately $8.0 million at March 31,
1997 versus $8.1 million at December 31, 1996. This decline was due to the net
loss of $180 thousand for the first quarter of 1997 and an increase in the net
unrealized loss on available-for-sale securities from $673 thousand at December
31, 1996 to $769 thousand at March 31, 1997, which was partially offset by the
issuance of $106 thousand of Series A Convertible Preferred Stock.
Capital adequacy standards adopted by federal banking regulators define
capital as Tier 1 and Tier 2 capital. All banks are required to have Tier 1
capital of at least 4% of risk-weighted assets and total capital of at least 8%
of risk-weighted assets. Tier 1 capital consists of common shareholders' equity,
non-cumulative preferred stock and retained earnings and excludes the effects of
unrealized gains or losses on securities available for sale. Tier 2 or Total
capital includes Tier 1 capital, cumulative preferred stock, qualifying
subordinated debt and the allowance for possible loan losses up to a maximum of
1.25% of total risk-weighted assets.
The following table sets forth the capital ratios of Regent and the
Bank as of March 31, 1997 and December 31, 1996 as well as the required minimum
regulatory capital ratios. Pursuant to the Regulatory Agreement, the Bank was
required to achieve and maintain a Tier 1 leverage ratio of 6.50% at December
31, 1996, which level was not achieved. However, with the aforementioned private
placement of Bank Common Stock on April 16, 1997, the proforma Tier 1 leverage
ratio at March 31, 1997 was approximately 10.12% versus a reported ratio of
5.90%. The proforma ratio indicates that the Bank would have been in compliance
with the capital requirement of the Regulatory Agreement had the private
placement been consummated on March 31, 1997 and management expects, absent
unforeseen circumstances, that the Bank will be able to maintain a Tier 1
leverage ratio that will continue to be in compliance with the Regulatory
Agreement.
-22-
<PAGE>
Required
Regulatory
Regent March 31, 1997 December 31, 1996 Minimum
- ------ -------------- ----------------- -------
Risk-based capital:
Tier 1 capital....... 8.80% 7.65% 4.00%
Total capital........ 10.62 9.39 8.00
Tier 1 leverage ratio... 4.51 4.31 3.00-5.00
Required
Regulatory
The Bank March 31, 1997 December 31, 1996 Minimum
- -------- -------------- ----------------- -------
Risk-based capital:
Tier 1 capital....... 11.51% 9.95% 4.00%
Total capital........ 12.77 11.21 8.00
Tier 1 leverage ratio... 5.90 5.65 3.00-5.00
Asset and Liability Management
Asset and liability management is the process of maximizing net
interest income within the constraints of maintaining acceptable levels of
liquidity, interest rate risk and capital. To achieve this objective, the Bank
has implemented policies and procedures that utilize a combination of selected
investments and funding sources with various maturity structures.
Liquidity
Liquidity represents the ability to generate funds at reasonable rates
to meet potential cash outflows from deposit customers who need to withdraw
funds or borrowers who need available credit. The primary source of the Bank's
liquidity has been the Bank's ability to generate deposits.
Supplementing the deposit base, liquidity is available from the
investment portfolio, which consists primarily of mortgage-backed securities
issued by U.S. Government agencies and corporations. These securities enhance
liquidity not only by their marketability, but they also provide monthly
principal and interest payments.
The liquidity position is also strengthened by the establishment of
credit facilities with other banks, the FRBP and the Federal Home Loan Bank of
Pittsburgh (the "FHLB"). Investment securities are required to be pledged as
collateral for transactions executed under these facilities and provide for an
availability of funds on an overnight basis. The FHLB also provides for
borrowings on a fixed or floating rate basis with specified maturities of up to
20 years at costs that may sometimes be less expensive than the costs of the
Bank's deposit generation process.
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
-23-
<PAGE>
of adjustable and fixed rate securities with an emphasis on investments with
relatively short weighted average lives. Of the total mortgage-backed securities
portfolio with an amortized cost of $92.7 million at March 31, 1997, $16.4
million were adjustable rate and $76.3 million were fixed rate. The estimated
weighted average life for the mortgage-backed securities portfolio at March 31,
1997 approximated 5.9 years.
Interest Rate Sensitivity
The evaluation of interest rate sensitivity deals with exposure of net
interest income to fluctuations in interest rates. It is management's objective
to maintain stability in the growth of net interest income by appropriately
mixing interest sensitive assets and liabilities. One tool used by management to
gauge interest rate sensitivity is a gap analysis which categorizes assets and
liabilities on the basis of maturity date, the date of next repricing and the
applicable amortization schedule. This analysis summarizes the matching or
mismatching of rate sensitive assets versus rate sensitive liabilities according
to specified time periods, and provides management with an indication of how
interest income may be impacted by changing rate scenarios. For example, an
institution with more interest sensitive assets than interest sensitive
liabilities is said to have a positive gap. In this example, as interest rates
rise, a greater volume of assets is repriceable than liabilities. The net result
may be an increase in the net interest margin. Conversely, in a declining rate
environment, the net interest margin may decline. In addition to the gap
analysis, computer simulations are used to evaluate more specifically the impact
of a change in interest rates on liquidity, interest rate spreads/margins and
operating results. The simulation model is a more effective tool than an
analysis since the simulation analysis is more dynamic. The simulation is
particularly beneficial as it can better evaluate the effects of prepayment
speeds on the Bank's portfolio of mortgage-backed securities and the impact that
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, to minimize any significant
fluctuation in net interest income. The distribution in the table is based on a
combination of maturities, repricing frequencies and prepayment patterns.
Floating rate assets and liabilities are distributed based on the repricing
frequency of the instrument while fixed rate instruments are based on
maturities. Mortgage-backed securities are distributed in accordance with their
repricing frequency and estimated prepayment speeds. Deposit liabilities are
distributed in two ways. First, certificates of deposit, FHLB advances and
subordinated debt are distributed based on existing maturity dates. Second,
non-maturity deposits such as NOWs and Savings are divided into a core
component, which is not considered interest-sensitive within a year, and a
volatile component, which is placed in the 0-3 month time category. This
determination is based on a multi-year history in varying interest rate
environments.
-24-
<PAGE>
<TABLE>
<CAPTION>
0 to 3 4 to 12 1 to 3 3 to 5 After
Months Months Years Years 5 Years Total
------ ------- ------ ------ ------- -----
(in thousands, except percentages)
<S> <C> <C> <C> <C> <C> <C>
Investments.................... $ 11,328 $ 256 $ 20,876 $ 28,858 $ 43,431 $104,749
Loans ......................... 37,146 7,683 9,453 12,442 8,468 75,192
Other earning assets........... 8,980 -- -- -- -- 8,980
-------- -------- --------- -------- -------- --------
Total earning assets........... $ 57,454 $ 7,939 $ 30,329 $ 41,300 $ 51,899 $188,921
NOW and money market........... $ 4,089 $ -- $ 3,000 $ -- $ -- $ 7,089
Savings........................ 3,755 -- 40,000 -- -- 43,755
Certificates of deposit....... 20,302 44,340 39,876 12,026 -- 116,544
FHLB advances.................. -- -- --- -- 200 200
Subordinated debt.............. -- -- 2,750 -- -- 2,750
Net non-interest bearing
source of funds............ -- -- --- -- 18,583 18,583
-------- -------- --------- -------- -------- --------
Total sources of funds......... $ 28,146 $ 44,340 $ 85,626 $ 12,026 $ 18,783 $188,921
-------- -------- --------- -------- -------- --------
Period Gap..................... 29,308 (36,401) (55,297) 29,274 33,116
Cumulative Gap................. 29,308 ( 7,093) (62,390) (33,116)
Cumulative Gap as % of
total earning assets......... 15.5% (3.8%) (33.0%) (17.5%)
</TABLE>
Investment Portfolio
The investment portfolio of Regent includes debt securities and
non-marketable equities classified as held-to-maturity ("HTM") or
available-for-sale ("AFS") which are accounted for and reported based on the
guidelines contained in Statement of Financial Accounting Standards No. 115
("FAS 115"), "Accounting for Certain Investments in Debt and Equity Securities."
The HTM portfolio contains investments which Regent has the intention and
ability to hold until maturity and is accounted for at amortized cost. The AFS
portfolio contains securities and equities that may be sold if circumstances
warrant and are accounted for at market value with net unrealized gains or
losses reported as a 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.
-25-
<PAGE>
<TABLE>
<CAPTION>
Held-to-Maturity Available-for-Sale
------------------------------- -------------------------------
Amortized Cost Market Value Amortized Cost Market Value
-------------- ------------ -------------- ------------
(in thousands)
<S> <C> <C> <C> <C>
U.S. Agencies.................. $ -- $ -- $12,000 $11,898
Mortgage-backed securities:
GNMA......................... 10,800 10,383 -- --
FHLMC........................ 29,779 29,165 7,664 7,409
FNMA......................... 17,860 17,231 11,053 10,641
Collateralized mortgage
obligations.................. 14,238 14,076 -- --
Non-marketable equity
securities................... -- -- 1,355 1,355
------- ------- ------- -------
Total....................... $72,677 $70,855 $32,072 $31,303
======= ======= ======= =======
</TABLE>
The following table sets forth the range of maturities of debt
securities held to maturity at March 31, 1997 based on the weighted average life
of the securities for each classification and the weighted average yield for
each maturity period:
<TABLE>
<CAPTION>
Within 1 After 1 But After 5 But
Year Within 5 Years Within 10 Years Total
-------- -------------- --------------- -----
(in thousands, except percentages)
<S> <C> <C> <C> <C>
Mortgage-backed securities........ $ 42 $25,269 $33,128 $58,439
Collateralized mortgage
obligations..................... 1,359 3,414 9,464 14,238
------- ------- --------- --------
Total........................ $1,401 $28,683 $42,592 $72,677
======= ======= ======= =======
Weighted Average Yield............ 6.19% 6.49% 7.37% 7.01%
</TABLE>
The following table sets forth the range of maturities of debt
securities available for sale at March 31, 1997 based on the amortized cost, the
weighted average life of the securities for each classification and the
weighted average yield for each maturity period:
<TABLE>
<CAPTION>
Within 1 After 1 But After 5 But
Year Within 5 Years Within 10 Years Total
-------- -------------- --------------- -----
(in thousands, except percentages)
<S> <C> <C> <C> <C>
U.S. Agencies..................... $ -- $12,000 $ -- $12,000
Mortgage-backed securities........ 288 2,829 15,601 18,717
------- ------- ------- -------
Total.......................... $ 288 $14,829 $15,601 $30,717
======= ======= ======= =======
Weighted Average Yield............ 5.90% 6.14% 6.52% 6.37%
</TABLE>
The following table sets forth those CMOs which have a carrying value
that exceeded 10% of Regent's shareholders' equity at March 31, 1997. These
securities have an investment rating of AA or better.
-26-
<PAGE>
Carrying Value Market Value
-------------- ------------
(in thousands)
Bear Stearns Mortgage Securities Inc.
Series 1993-2 Class 7............... $2,149 $2,047
Bear Stearns Mortgage Securities Inc.
Series 1993-2 Class 5............... 1,667 1,667
Bear Stearns Mortgage Securities Inc.
Series 1993-2 Class 6............... 1,529 1,529
Bear Stearns Mortgage Securities Inc.
Series 1993-12 Class 1B............. 1,209 1,168
Bear Stearns Mortgage Securities Inc.
Series 1992-04...................... 2,038 2,038
Capstead Securities Corp.
Series 1992-C-3..................... 1,376 1,312
Resolution Trust Corporation
Series 1991-M6...................... 1,177 1,177
Saxon Mortgage Security Corp.
Series 1993-04 Class 1A............. 2,154 2,154
Gross unrealized gains and losses on mortgage-backed securities held to
maturity at March 31, 1997 were $102 thousand and $2.0 million, respectively,
and gross unrealized gains and losses on securities available for sale at March
31, 1997 were $3 and $772 thousand. There were no sales of mortgage-backed
securities in the first quarter of 1997. Unrealized losses on the securities
generally are the result of higher market interest rates on the securities than
the book yield at which the securities are carried on the Bank's financial
statements.
Lending
Total loans amounted to $75.2 million at March 31, 1997 compared to
$85.1 million at December 31, 1996. The decrease of 12% from year end 1996
resulted primarily from the runoff of the IPF receivables and prepayment and
principal amortization from the commercial portfolio.
The following table sets forth the types of loans outstanding by
category as of March 31, 1997 and December 31, 1996 (dollars in thousands):
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
------------------------- ------------------------
Amount % Amount %
------ --- ------ ---
<S> <C> <C> <C> <C>
Commercial and industrial...................... $ 40,944 54% $ 46,041 54%
Real estate:
Construction................................. 9,137 12 9,421 11
Mortgages-residential........................ 9,456 13 10,219 12
Mortgages-commercial......................... 15,169 20 15,985 19
Consumer....................................... 911 1 3,827 4
-------- ---- -------- ---
Total gross loans........................... 75,617 100% 85,493 100%
==== ===
Less:
Net unearned interest and fees............... (425) ( 424)
-------- --------
Net loans.................................... $ 75,192 $ 85,069
======== ========
</TABLE>
-27-
<PAGE>
To meet its asset/liability objectives and to control its interest rate
sensitivity exposure, the Bank's strategy is to originate loans with floating
rates and with maturities of less than five years. The following table provides
a breakdown of loans as of March 31, 1997 that have either predetermined
interest rates or floating rates:
<TABLE>
<CAPTION>
Within 1 After 1 But After 5 But
Year Within 5 Years Within 10 Years Total
---------- -------------- --------------- -----
(in thousands)
<S> <C> <C> <C> <C>
Predetermined interest rates...... $ 3,393 $18,412 $ 8,468 $ 30,273
Floating rates.................... 41,861 3,483 -- 45,344
-------- ------- ------- --------
Total......................... $45,254 $21,895 $ 8,468 $ 75,617
======== ======= ======= ========
</TABLE>
Non-performing Assets
The level of non-performing assets consisting of non-accrual loans,
accruing loans past due 90 days or more and other real estate owned amounted to
$4.0 million, or 2.08%, of total assets at March 31, 1997, compared to $5.5
million, or 2.73%, of total assets at December 31, 1996. The decrease in
non-performing assets in the 1997 first quarter was attributable to loan
charge-offs of $892 thousand in non-accruing loan balances, the sale of
repossessed properties and principal payments on seriously delinquent loans. The
following table sets forth the Bank's non-performing assets at March 31, 1997
and December 31, 1996:
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
-------------- -----------------
(in thousands, except percentages)
<S> <C> <C>
Non-accrual loans..................................... $ 3,911 $ 3,837
Accruing loans 90 days or more past due............... -- 977
-------- --------
Total non-performing loans......................... 3,911 4,814
Other real estate owned............................... 96 700
-------- --------
Total non-performing assets........................ $ 4,007 $ 5,514
======== ========
Non-performing loans to period end loans.............. 5.20% 5.66%
Non-performing assets to total assets at period end... 2.08 2.73
</TABLE>
Accrual of interest is discontinued on loans when management believes,
after considering economic and business conditions and collection efforts, that
the borrowers' financial 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 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.
-28-
<PAGE>
As part of the quarterly review of the risk elements of the portfolio,
an evaluation is also made of the adequacy of the allowance for loan losses. In
making an assessment of the quality of the loan portfolio and the adequacy of
the allowance for loan losses, management takes into consideration such elements
as general economic conditions, industry trends, the volume of delinquencies,
specific credit review, the value of underlying collateral and other pertinent
information. Based on this evaluation, the allowance for loan losses is adjusted
by the provision which is charged against income. The following table summarizes
the activity in the allowance for loan losses for the three months ended March
31, 1997 and 1996:
Three Months Ended March 31,
--------------------------
1997 1996
---- ----
Balance, beginning of period..................... $3,059,773 $6,500,882
Charge-offs:
Commercial and industrial...................... 695,143 413,961
Real estate - residential...................... 197,051 335,000
---------- ----------
Total charge-offs........................... 892,194 748,961
========== ==========
Recoveries:
Consumer....................................... 306,932 --
---------- ----------
Total recoveries............................ 306,932 --
---------- ----------
Net (charge-offs) recoveries..................... (585,262) (748,961)
---------- ----------
Provision (credited) charged to operations....... (200,000) 175,000
---------- ----------
Balance, end of period........................... $2,274,511 $5,926,921
========== ==========
Annualized net charge-offs as a % of average
loans and loans held for sale............... 2.97% 2.49%
Allowance for loan losses as a % of
period end loans and loans held for sale........ 3.02 4.65
Management believes that those loans identified as non-performing are
adequately secured and the allowance for loan losses is sufficient in relation
to the potential risk of loss that has been identified in the loan portfolio.
Management has allocated the allowance based on an assessment of risks within
the loan portfolio and the estimated value of the underlying collateral. The
following table sets forth the allocation of the Bank's allowance for loan
losses at March 31, 1997:
Amount
------
Commercial and industrial........................... $1,160,450
Real Estate:
Mortgages - residential........................... 333,550
Mortgages - commercial............................ 29,040
Unallocated......................................... 751,471
----------
$2,274,511
Deposits
Total deposits at March 31, 1997 aggregated $177.2 million which was
comparable to total deposits at December 31, 1996 of $185.1 million. As
illustrated in the table below, the composition of deposits at March 31, 1997
has remained relatively consistent compared to the composition of deposits at
December 31, 1996 (dollars in thousands).
-29-
<PAGE>
<TABLE>
<CAPTION>
March 31, 1997 December 31,199
-------------------- ------------------
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:
<TABLE>
<CAPTION>
Average Weighted
Amount Maximum Average
Balance Outstanding Outstanding Interest Average
Outstanding During at any Rate at Rate
3/31 the Period Month-End 3/31 Paid
----------- ----------- ----------- -------- -------
(in thousands, except percentages)
<S> <C> <C> <C> <C> <C>
1997: FHLB borrowings............... $ -- $ 300,000 $ 1,000,000 -- 5.36%
1996: FHLB borrowings............... $34,427,866 $35,178,650 $37,277,083 5.81% 6.22
Federal funds purchased....... -- 87,912 -- -- 6.17
----------- -----------
$34,427,866 $35,266,562 6.22
=========== ===========
</TABLE>
Results of Operations
Regent, the holding company for the Bank, reported a net loss for the
first quarter of 1997 of $180 thousand versus net income for the comparable
quarter of 1996 of $218 thousand. The loss for the first quarter of 1997 was
primarily related to a reduction in interest income from $5.3 million for the
first quarter of 1996 to $4.0 million for the first quarter of 1997, which was
25% lower due to a strategically planned decrease in the Bank's earning assets
of 27% that was necessary to improve the Bank's regulatory capital ratios. The
positive effect on earnings of the $200 thousand negative provision for loan
losses in the first quarter of 1997 compared to a provision of $175 thousand in
the first quarter of 1996 and the increase in noninterest income from $28
thousand in the first quarter of 1996 compared to $578 thousand in the first
quarter of 1997 was more than offset by an increase in noninterest expense to
$2.5 million in the first quarter of 1997 from $1.5 million in the first quarter
of 1996.
-30-
<PAGE>
Net Interest Income
Net interest income for the first quarter of 1997 was $1.6 million, a
23% decrease from $2.1 million for the first quarter of 1996. The net interest
margin for the first quarter of 1997 increased to 3.36% from 3.21% for the
comparable period of 1996. Included in interest income is interest and fees on
IPF receivables, which accounted for 6% and 14% of interest income in the first
quarter of 1997 and 1996, respectively. Excluding these high-yielding assets
from the net interest margin because of the cessation of new IPF business
originations in September 1996, the estimated net interest margin for the first
quarters of 1997 and 1996 assuming IPF receivables yielded the same as
investment securities would have been 2.80% and 2.50%, respectively. The net
interest income and net interest margin are lower than management deems
reasonable for comparably sized institutions. Improvement is expected with
increased loan volume, higher relative levels of demand and savings deposits and
the benefit from the new capital invested in the Bank in April 1997.
The following table sets forth a rate/yield analysis for the three
months ended March 31, 1997 and 1996:
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------------------------------------------------
1997 1996
---------------------------------- -------------------------------
Average Income/ Rate/ Average Income/ Rate
Balance Expense Yield Balance Expense Yield
------- ------- ----- ------- ------- -----
(in thousands, except for percentages)
<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 10.87 120,545 3,063 10.22
-------- ------- ----- -------- ------- -----
Total..................... $188,312 $ 3,999 8.55% $257,420 $ 5,343 8.30%
======== ======= ===== ======== ======= =====
Interest-bearing liabilities:
NOW accounts................... $ 3,861 $ 23 2.44% $ 3,965 $ 23 2.33%
Savings........................ 45,860 552 4.88 49,671 603 4.87
Money market deposits.......... 3,482 37 4.36 3,712 36 3.89
Time deposits.................. 114,524 1,737 6.14 124,112 1,917 6.20
Short-term borrowings.......... 300 4 5.36 35,266 547 6.22
Long-term advances............. 201 3 6.70 10,209 107 4.12
Subordinated debt.............. 2,750 53 7.75 2,750 54 7.75
-------- ------- ----- -------- ------- -----
Total..................... $170,978 $ 2,409 5.71% $229,685 $ 3,287 5.74%
======== ======= ===== ======== ======= =====
Non-interest bearing
sources of funds............... $ 17,334 $ 27,735
-------- --------
Net interest income and
net interest spread............ $ 1,590 2.84% $ 2,056 2.56%
======= ===== ========= =====
Net interest rate margin........... 3.36% 3.21%
===== =====
</TABLE>
Provision for Loan Losses
Management evaluated the allowance for loan losses at March 31, 1997
and determined that it could be reduced by $200 thousand; this reduction was
accounted for as a negative provision for loan losses. This negative provision
compares with a $175 thousand expense reported in the first quarter of 1996.
-31-
<PAGE>
Non-interest Income
Total non-interest income was approximately $578 thousand, $545
thousand of which was due to a net gain on sales of assets. Service charges and
other fees were approximately 17% higher in the first quarter of 1997 versus a
year earlier due to relatively small, nonrecurring items. Net gain on sale of
assets included a $722 thousand gain on the sale of loans and loan
participations to Carnegie offset by losses incurred on the disposition of
repossessed properties.
Non-interest Expense
Total non-interest expense for the first quarter of 1997 was $2.5
million, a 65% increase from $1.5 million in the first quarter of 1996.
Excluding the aforementioned reimbursement to Carnegie for merger-related
expenses, the increase would have been 18%. This increase in 1997 versus 1996
was primarily attributable to a temporary duplication of salaries of new senior
management while the former officers were being paid pursuant to contractual
agreements, some additions to the lending and credit staff and an increase in
FDIC insurance costs. These increases were partially offset by lower costs for
servicing and collecting the IPF receivables.
Provision for Income Taxes
There was no income tax expense in the first quarter of 1997, as the
Bank continued to maintain a valuation allowance on its deferred tax asset of
approximately $1.6 million. A tax expense of $145 thousand was reported in the
first quarter of 1996.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Financial Overview
Regent recorded a net loss of $2.7 million, or $2.42 per share, for the
year ended December 31, 1996, compared to a net loss of approximately $3.1
million, or $3.41 per share, for the year ended December 31, 1995. As was the
case in 1995, the net loss for 1996 resulted from the high level of the
provision for loan losses which was almost entirely related to the net
charge-offs of IPF receivables and the expenses associated with managing the
servicing and collection activities of the IPF portfolio. The modest improvement
from 1995 to 1996 was largely attributable to higher net interest income. For
the quarter ended December 31, 1996, however, Regent recorded net income of $376
thousand, or $.26 per share, compared to a net loss for the 1995 fourth quarter
of $3.5 million, or $3.31 per share. The net income reported in the fourth
quarter of 1996 resulted from lower operating and credit-related expenses of the
IPF portfolio included a benefit of $350 thousand, which represents a portion of
Regent's deferred tax asset recognized subject to the principles of SFAS No.
109, "Accounting for Income Taxes ("FAS 109"). The activity level of the IPF
portfolio had begun to diminish significantly due to the cessation of new IPF
business in September 1996 and the substantial reduction in IPF receivables
during the fourth quarter of 1996 and the first quarter of 1997.
Total assets of $201.9 million at December 31, 1996 were substantially
lower than total assets of $262.5 million at December 31, 1995. The reduction in
Regent's asset size was the result of a curtailment of the Bank's residential
mortgage warehouse lending program, the sale of $34.2 million in loan
participations and a decrease in the Bank's mortgage-backed securities
portfolio. The reduction of $23.3
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<PAGE>
million in mortgage-backed securities resulted from normal monthly principal
prepayments and the sale of $19.4 million in available-for-sale securities.
Proceeds from the loan participations and securities sales were used to reduce
borrowings from the FHLB.
At December 31, 1996 and 1995, IPF receivables were $2.6 million and
$16.8 million, respectively. The IPF loans have repayment terms of nine months
and are secured by the unearned premium balance on the individual automobile
insurance policies. The IPF loans were serviced for the Bank by K-C Insurance
Premium Finance Co., Inc. ("K-C" or the "Servicer") under a Processing,
Servicing, Marketing and Consulting Agreement (the "Servicing Agreement") until
September 1, 1996. The Servicing Agreement provided, among other things, that
the Servicer was to solicit IPF loans, maintain compliance with applicable laws
and regulations and process and service the IPF loans including the collection
of repayments from borrowers and of unearned premium balances from insurers on
canceled insurance policies. Under the Servicing Agreement, the Bank received
all collections and paid the Servicer a fee equal to a specified initial per
loan charge plus one-half of pre-tax profits, as defined in the Servicing
Agreement, from the IPF loan portfolio. For the years ended December 31, 1996
and 1995, the Bank recorded interest and fee income from the IPF loan portfolio
of $3.3 million and $3.6 million, respectively, and paid the Servicer fees of
approximately $150 thousand and $1.3 million, respectively.
During the preparation of Regent's consolidated financial statements
for the year ended December 31, 1995, management of the Bank became aware of
several matters which led to the belief that the Servicer may have reported
interest and fee income from IPF loans in default and may not have canceled
insurance policies securing defaulted loans or collected insurance premium
balances on such policies on a timely basis. As a result, management began the
process of estimating the ultimate expected loss that existed as of December 31,
1995, which amount was material to Regent's consolidated financial statements.
In order to assess the risk of loss on the IPF loan balance at December
31, 1995 and the amount thereof, the Bank identified delinquent IPF loans based
upon the payment history of the IPF loan portfolio during 1995 and through May
23, 1996.
During the period January 1, 1996 to May 23, 1996, the Bank applied all
cash receipts from delinquent IPF borrowers to the principal balances of such
delinquent loans as of December 31, 1995, and the Bank applied the proceeds of
the unearned premiums received from insurance companies except for those
applicable to accrued fees to the principal balances of delinquent IPF loans as
of December 31, 1995, thereby reducing the Bank's possible loss exposure on the
December 31, 1995 IPF loan balance to approximately $4.5 million. The $4.5
million loss exposure was recorded as part of the Bank's allowance for loan
losses at December 31, 1995.
The Bank determined that it had no loss exposure on IPF receivables at
December 31, 1996 based on the year-end carrying value of $2.6 million and the
subsequent, aggregate cash collections of more than $3.0 million in the first
two months of 1997. In the second, third and fourth quarters of 1996, net IPF
loan balances of $7.5 million that were past due 120 days or more were
charged-off. The Bank discontinued its IPF loan business in September 1996.
Since then, extensive collection efforts and the establishment of management and
operational control of the servicing operations by Bank personnel have reduced
the IPF receivables to the indicated level at December 31, 1996. An analysis of
subsequent cash collections through mid-March 1997 has confirmed management's
determination that no IPF loss exposure existed at year-end 1996. Therefore, all
of the December 31, 1996 allowance for loan losses is allocated to the non-IPF
portion of the Bank's loan portfolio.
-33-
<PAGE>
In March of 1996, Regent discovered that its interest and fee income
for the year ended December 31, 1995 included accrued income on delinquent IPF
loans. The audit of Regent's financial statements for the year ended December
31, 1995 also pointed out flaws in the reports generated by the data processing
system used by the Servicer of the IPF loans. That system generated reports of
loan delinquencies that did not conform to normal bank reporting categories.
These system deficiencies, plus the extensive transaction volume, resulted in
the lack of credible data from which the Servicer could place IPF loans on
nonaccrual status with any degree of accuracy. Reference is made to "Business --
Legal Proceedings" for information concerning the litigation instituted by
Regent and the Bank to recover from the Servicer the losses incurred by Regent
and the Bank as a result of the Servicer's violations of the Servicing
Agreement. See also "Business -- Change in Accountants" for information
concerning the claims being considered by Regent and the Bank against its former
principal accounting firm in connection with services rendered, including the
design of the IPF data processing system, to Regent and the Bank by such firm
during 1994, 1995 and 1996.
During the first three quarters of 1996, the Bank reduced the amount of
interest and fee income on IPF loans by approximately $1.3 million based on
management's estimate of the income inappropriately accrued per the Servicer's
records. For the full year 1996, interest and fees reported on IPF loans
approximated $3.3 million.
Regent recorded a net loss of $3.1 million, or $3.41 per share, for the
year ended December 31, 1995 compared to net income of $503 thousand, or $.22
per share, for the year ended December 31, 1994. The loss in 1995 compared to
1994 was primarily the result of an increase in the provision for loan losses of
$4 million that was attributable to delinquent IPF loans. In addition,
non-interest expense was $3 million higher in 1995 than in 1994. An improvement
in net interest income of $2.8 million in 1995 partially offset the increase in
the provision for loan losses and in other expenses. The increases in other
expenses and net interest income in 1995 were primarily attributable to the IPF
program.
Regulatory Agreement
As a result of the Bank's losses associated with the charge-offs of IPF
loans and the effect thereof on the Bank's capital, on October 10, 1996, the
Bank entered into the Regulatory Agreement with the OCC pursuant to 12 U.S.C.
ss.1818(b).
The Regulatory Agreement required that the Bank, among other things,
subject to OCC review or approval, (i) adopt and implement an action plan to
improve the Bank, (ii) achieve and maintain capital levels specified in the
Regulatory Agreement, (iii) develop a three-year capital program aimed at
identifying means for the Bank to maintain adequate capital levels and
establishing restrictions on the payment of dividends, (iv) continue the
liquidation of the Bank's IPF loans in accordance with procedures specified in
the Regulatory Agreement, (v) review the adequacy of the Bank's allowance for
loan and lease losses and establish a program for the maintenance of adequate
allowances by the Bank for loan and lease losses in compliance with OCC
requirements and (vi) review the Bank's liquidity on a weekly basis and take
appropriate action to ensure adequate sources of liquidity in relation to the
Bank's needs. On February 26, 1997, the Bank filed a revised capital plan with
the OCC. On March 27, 1997, the OCC notified the Bank of the OCC's acceptance of
the Bank's revised capital plan. On June 25, 1997, the OCC terminated the
Regulatory Agreement as result of the Bank's receipt of the proceeds of the Bank
Offering and other improvements in the Bank.
-34-
<PAGE>
Based upon the Bank's unsatisfactory condition and the questionable
ability of Regent to continue to service its outstanding debt beyond September
30, 1996, the FRBP formally notified Regent in a letter dated September 6, 1996
of its determination that Regent was in "troubled condition". As a consequence
of such condition, Regent must provide the FRBP with 30 days' notice prior to
adding any members to its board of directors or engaging any new senior
executive officer. In addition to the notice requirement, the FRBP has
prohibited Regent, without prior written FRBP approval, from declaring or paying
any dividends, repurchasing or redeeming any of its stock and incurring any
additional debt, and required Regent to submit to the FRBP by October 6, 1996 a
written plan to service Regent's outstanding subordinated debentures and to
notify the FRBP immediately of any material event that significantly impacts the
financial condition of Regent and the Bank. Regent has submitted to the FRBP
certain written undertakings from the Bank's organizers to service the interest
due on March 31, 1997 on Regent's outstanding subordinated debentures in the
event Regent does not otherwise have sufficient funds to pay such interest when
due.
On March 31, 1997, Regent sold 16,364 shares of Series A Convertible
Preferred Stock for $6.50 per share to two accredited investors. Regent used the
proceeds from this sale to pay the interest on its subordinated debentures due
March 31, 1997.
Future regulatory determinations could result in additional formal or
informal enforcement actions against the Bank which would include restrictions
on the operations, growth and capital distributions, monitoring and periodic
review by the OCC, civil money penalties, mandatory asset dispositions,
conservatorships and other actions, many of which, by law, must be publicly
disclosed. If Regent or the Bank does not comply with any of the terms of any
order or agreement, the OCC may petition the appropriate court for an order to
enforce the terms thereof. If willful noncompliance were to continue, the OCC
could seek to take possession of the business and property of the Bank, subject
to providing notice and the holding of a hearing with the concurrence of the
Pennsylvania Attorney General, or could seek to terminate the deposit insurance
of the Bank.
In order to comply with the requirements of the Regulatory Agreement,
the Bank took steps to reduce its asset size and improve its capital position.
As previously indicated, the Bank has curtailed its residential mortgage
warehouse lending program, sold loan participations of $27.8 million and sold
$5.8 million of available-for-sale securities in September 1996. In addition,
Regent's and the Bank's equity capital was increased by $1.0 million through
capital contributions by certain directors. Further asset reductions occurred in
October 1996 through the sale of additional loan participations totaling $6.4
million and of available-for-sale securities of $3.6 million. Proceeds from the
asset sales were used to reduce FHLB borrowings.
Financial Condition
Capital Adequacy
Economic conditions and the regulatory environment have placed an
increasing emphasis on the capital strength of financial institutions. Capital
strength is a primary determinant in a financial institution's ability to grow,
make acquisitions and protect against any unforeseen loss or adverse economic
condition. An evaluation of capital strength assesses how an institution's
inherent risks impact its ongoing financial net worth and focuses particularly
on asset quality, interest rate sensitivity, earnings and liquidity.
-35-
<PAGE>
Total shareholders' equity was $8.1 million at December 31, 1996, or
$2.3 million lower than shareholders' equity of $10.4 million at December 31,
1995. The decline was a result of the net loss for the year and a $525 thousand
decrease in the market value of securities designated as available-for-sale,
partially offset by a capital contribution of $1 million by certain directors of
Regent.
Capital adequacy standards adopted by federal banking regulators make
capital more sensitive to differences in risk profiles among banking
organizations and consider off-balance sheet exposures in determining capital
adequacy. Various levels of risk are assigned to different categories of assets
and off-balance sheet activities.
These standards define capital as Tier 1 and Tier 2 capital. All banks
are required to have Tier 1 capital of at least 4% of risk-weighted assets and
total capital of at least 8% of risk-weighted assets. Tier 1 capital consists of
common shareholders' equity, non-cumulative preferred stock and retained
earnings and excludes the effects of unrealized gains or losses on securities
available for sale. Tier 2 or Total capital includes Tier 1 capital, cumulative
preferred stock, qualifying subordinated debt, and the allowance for possible
loan losses of up to a maximum of 1.25% of total risk-weighted assets.
The following table sets forth the capital ratios of Regent and the
Bank as of December 31, 1996 and 1995 as well as the required minimum regulatory
capital ratios for Regent and the Bank. Since December 31, 1996, the Bank, as
previously discussed, has taken further steps to decrease the size of the Bank
and thereby improve the Bank's capital ratios.
<TABLE>
<CAPTION>
Required
Regulatory
Regent December 31, 1996 December 31, 1995 Minimum
- ------ ----------------- ----------------- -------
<S> <C> <C> <C> <C>
Risk-based capital:
Tier 1 capital......... 7.65% 7.00% 4.00%
Total capital.......... 9.39 8.98 8.00
Tier 1 leverage ratio..... 4.31 4.00 3.00-5.00
Required
Regulatory
The Bank December 31, 1996 December 31, 1995 Minimum
- -------- ----------------- ----------------- -------
Risk-based capital:
Tier 1 capital......... 9.95% 8.67% 4.00%
Total capital.......... 11.21 9.92 8.00
Tier 1 leverage ratio..... 5.65 4.94 3.00-5.00
</TABLE>
In addition to the risk-based requirements, regulations have been
adopted that establish a minimum Tier 1 leverage ratio of 3% (Tier 1 capital as
a percentage of average total assets for the most recent quarter). The 3% level
applies to only those banks that are given the highest composite rating under
the uniform bank rating ("CAMELS") system of the federal banking regulatory
agencies, while all other banks are expected to have 3% plus an additional
cushion of at least 100 to 200 basis points. At December 31, 1996 and 1995,
Regent's Tier 1 leverage ratio was 4.31% and 4.00%, respectively. The Bank's
Tier 1 leverage ratio approximated 5.65%
-36-
<PAGE>
and 4.94% at December 31, 1996 and 1995, respectively, which is below the 6.50%
ratio mandated by the Regulatory Agreement.
As an institution whose deposits are insured by the FDIC to the maximum
permitted by current law, the Bank is also subject to insurance assessments
imposed by the FDIC. The actual assessment to be paid by any FDIC-insured
institution is based on the institution's assessment risk classification which
is determined on whether the institution is considered "well capitalized,"
"adequately capitalized" or "undercapitalized" as those terms are defined in
corrective action provisions of the FDICIA, and whether such institution is
considered by its bank supervisory agency to be financially sound or to have
supervisory concerns.
As of the most recent examination of the Bank, conducted as of the
close of business on December 31, 1996, the Bank's capital levels meet or exceed
the minimum capital levels established by the OCC for "well capitalized" under
applicable federal banking regulations. However, as long as the Bank is subject
to the Regulatory Agreement, described above, requiring the Bank to meet and
maintain a specific capital level, it may not be deemed to be "well capitalized"
under the federal banking regulations regardless of its capital levels. As a
result, the Bank is deemed to be "adequately capitalized" and subject to the
requirements under these regulations.
Asset and Liability Management
Asset and liability management is the process of maximizing net
interest income within the constraints of maintaining acceptable levels of
liquidity, interest rate risk and capital. To achieve this objective, the Bank
has implemented policies and procedures that utilize a combination of selected
investments and funding sources with various maturity structures.
Liquidity
Liquidity represents the ability to generate funds at reasonable rates
to meet potential cash outflows from deposit customers who need to withdraw
funds or borrowers who need available credit. The primary source of the Bank's
liquidity has been the Bank's ability to generate deposits.
Supplementing the deposit base, liquidity is available from the
investment portfolio, which consists primarily of mortgage-backed securities
issued by U.S. Government agencies and corporations. These securities enhance
liquidity not only by their marketability, but also by providing monthly
principal and interest payments.
The liquidity position is also strengthened by the establishment of
credit facilities with other banks, the FRBP and the FHLB. Investment securities
are required to be pledged as collateral for transactions executed under these
facilities and provide for an availability of funds on an overnight basis. The
FHLB also provides for borrowings on a fixed or floating rate basis with
specified maturities of up to 20 years at costs that may sometimes be less
expensive than through the Bank's deposit generation process.
Investment Portfolio
The investment portfolio, consisting principally of mortgage-backed
securities, is coordinated with the liquidity and interest rate sensitivity
position of the Bank. With an emphasis on minimizing credit, capital and market
risk, the investment portfolio is considered an extension of loans with the
objectives of enhancing
-37-
<PAGE>
liquidity and earning a fair return. The investments in mortgage-backed
securities consist of a combination of adjustable and fixed rate securities with
an emphasis on investments with relatively short weighted average lives. Of the
total mortgage-backed securities portfolio with an amortized cost of $94.3
million at December 31, 1996, $10.8 million were adjustable rate and $83.5
million were fixed rate. The estimated weighted average life for the
mortgage-backed securities portfolio at December 31, 1996 approximated 5.4
years.
Interest Rate Sensitivity
The evaluation of interest rate sensitivity deals with exposure of net
interest income to fluctuations in interest rates. It is management's objective
to maintain stability in the growth of net interest income by appropriately
mixing interest sensitive assets and liabilities. One tool used by management to
gauge interest rate sensitivity is a gap analysis which categorizes assets and
liabilities on the basis of maturity date, the date of next repricing and the
applicable amortization schedule. This analysis summarizes the matching or
mismatching of rate sensitive assets versus rate sensitive liabilities according
to specified time periods, and provides management with an indication of how
interest income may be impacted by changing rate scenarios. For example, an
institution with more interest sensitive assets than interest sensitive
liabilities is said to have a positive gap. In this example, as interest rates
rise, a greater volume of assets is repriceable than liabilities. The net result
may be an increase in the net interest margin. Conversely, in a declining rate
environment, the net interest margin may decline. In addition to the gap
analysis, computer simulations are used to evaluate more specifically the impact
of a change in interest rates on liquidity, interest rate spreads/margins and
operating results. The simulation model is a more effective tool than an
analysis since the simulation analysis is more dynamic. The simulation is
particularly beneficial as it can better evaluate the effects of prepayment
speeds on the Bank's portfolio of mortgage-backed securities and the impact that
would have on the Bank's liquidity and profitability. Using the result of the
simulation analysis, the Bank strives to control its interest rate risk exposure
so that its net interest income does not fluctuate by more than 5% assuming that
interest rates increase or decrease by 200 basis points over time.
The blending of fixed and floating rate loans and investments to match
the repricing and maturity characteristics of the various funding sources is a
continuous process in an attempt to minimize fluctuations in net interest
income. An effective tool used by the Bank in this process has been the
availability and flexibility of the various FHLB advance programs, which enable
the Bank to lock in spreads when appropriate and provide an effective method of
matching fixed rate assets with a fixed rate funding source.
The Bank's objective is to structure its balance sheet, as outlined in
the following Interest Sensitivity table, to minimize any significant
fluctuation in net interest income. The distribution in the table is based on a
combination of maturities, repricing frequencies and prepayment patterns.
Floating rate assets and liabilities are distributed based on the repricing
frequency of the instrument while fixed rate instruments are based on
maturities. Mortgage-backed securities are distributed in accordance with their
repricing frequency and estimated prepayment speeds. Deposit liabilities are
distributed in two ways. First, certificates of deposits, FHLB advances and
subordinated debt are distributed based on existing maturity dates. Second,
non-maturity deposits such as NOWs and Savings are divided into a core
component, which is not considered interest-sensitive within a year, and a
volatile component, which is placed in the 0-3 month time category. This
determination is based on a multi-year history in varying interest rate
environments.
-38-
<PAGE>
<TABLE>
<CAPTION>
0 to 3 4 to 12 1 to 3 3 to 5 After
Months Months Years Years 5 Years Total
------ ------- ------ ------ ------- ------
(in thousands, except percentages)
<S> <C> <C> <C> <C> <C> <C>
Investments........................ $12,013 $ 653 $32,077 $43,248 $18,235 $106,226
Loans.............................. 40,042 7,523 7,048 13,473 16,983 85,069
Other earning assets............... 5,084 -- --- --- -- 5,084
------- --------- ------- ------- ------- --------
Total Earning Assets............... 57,139 8,176 39,125 56,721 35,218 196,379
NOW and money market............... 3,583 -- 3,000 -- -- 6,583
Savings............................ 7,830 -- 40,000 -- -- 47,830
Certificates of deposit............ 34,293 46,819 11,917 25,285 1,413 119,727
FHLB advances...................... -- -- -- -- 203 203
Subordinated debt.................. -- -- 2,750 -- -- 2,750
Net non-interest bearing
source of funds.................. -- -- -- -- 19,286 19,286
------- --------- ------- ------- ------- --------
Total Sources of Funds............. 45,706 46,819 57,667 25,285 20,902 196,379
Period Gap......................... 11,433 (38,643) (18,542) 31,436 14,316
Cumulative Gap..................... 11,433 (27,210) (45,752) (14,316)
Cumulative Gap as % of
total assets..................... 5.8% (13.8)% (23.3)% (7.3)%
</TABLE>
Investment Portfolio
The investment portfolio of Regent includes debt securities and
non-marketable equities classified HTM or AFS which are accounted for and
reported based on the guidelines contained in FAS 115. The HTM portfolio
contains investments which Regent has the intention and ability to hold until
maturity and is accounted for at amortized cost. The AFS portfolio contains
securities and equities that may be sold if circumstances warrant and are
accounted for at market value with net unrealized gains or losses reported as a
component of shareholders' equity.
The HTM portfolio consists of mortgage-backed securities issued by U.S.
agencies and corporations and CMOs of private issuers. The AFS portfolio
consists of U.S. agency debt, mortgage-backed securities issued by U.S. agencies
and corporations and non-marketable equities, principally issued by the FRBP and
the FHLB.
The portfolios are structured to provide a consistent level of interest
income and to generate monthly cash flow to enhance Regent's ability to manage
its liquidity needs. Although the stated maturities of mortgage-backed
securities and CMOs may be as long as 30 years, the average life of these
securities is expected to be considerably shorter due to the effects of normal
amortization of principal and prepayments of the residential mortgages
underlying these securities. The following table summarizes, by major category,
the market value and amortized cost of the mortgage-backed securities classified
as AFS and as HTM at December 31, 1996, 1995 and 1994.
-39-
<PAGE>
<TABLE>
<CAPTION>
1996 1995 1994
----------------------- ----------------------- ------------------------
Available Held to Available Held to Available Held to
for Sale Maturity for Sale Maturity for Sale Maturity
--------- -------- --------- -------- --------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
GNMA......................... $ -- $11,006 $ -- $12,746 $ -- $ 13,805
FHLMC........................ 7,583 30,851 16,738 37,519 11,962 50,079
FNMA......................... 10,967 18,467 28,160 22,484 18,156 37,216
Collateralized
mortgage obligations........ -- 14,758 -- 18,495 1,345 20,382
------- ------- ------- ------- ------- --------
Total...................... $18,550 $75,082 $44,898 $91,244 $31,463 $121,482
======= ======= ======= ======= ======= ========
</TABLE>
The following table sets forth the range of maturities of
mortgage-backed securities held to maturity at December 31, 1996 based on the
weighted average life of the securities for each classification and the weighted
average yield for each maturity period:
<TABLE>
<CAPTION>
Within 1 After 1 But After 5 But
Year Within 5 Years Within 10 Years Total
-------- -------------- --------------- -----
(in thousands, except percentages)
<S> <C> <C> <C> <C>
U.S. agencies
and corporations...................... $ -- $43,730 $16,594 $60,324
Collateralized
mortgage obligations................... 1,858 12,900 -- 14,758
------ ------- ------- -------
Total............................... 1,858 56,630 16,594 75,082
====== ======= ======= =======
Weighted average yield................... 6.05% 6.16% 6.62% 6.26%
====== ======= ======= =======
</TABLE>
The following table sets forth the range of maturities of
mortgage-backed securities available for sale at December 31, 1996 based on the
amortized cost, the weighted average life of the securities for each
classification and the weighted average yield for each maturity period:
<TABLE>
<CAPTION>
Within 1 After 1 But After 5 But
Year Within 5 Years Within 10 Years Total
-------- -------------- --------------- -----
(in thousands, except percentages)
<S> <C> <C> <C> <C>
U.S. agencies
and corporations...................... $10,808 $8,415 $ -- $19,223
======= ======= ======= =======
Weighted average yield................... 5.79% 6.20% -- 5.97%
======= ======= ======= =======
</TABLE>
The following table sets forth those CMOs which have a carrying value
that exceeded 10% of the Bank's shareholders' equity at December 31, 1996. These
securities have an investment rating of AA or better.
-40-
<PAGE>
Carrying Value Market Value
-------------- ------------
(in thousands)
Bear Stearns Mortgage Securities Inc.
Series 1993-2 Class 7................ $2,149 $2,047
Bear Stearns Mortgage Securities Inc.
Series 1993-2 Class 5 ............... 1,018 913
Bear Stearns Mortgage Securities Inc.
Series 1993-2 Class 6................ 1,547 1,461
Bear Stearns Mortgage Securities Inc.
Series 1993-12 Class 1B.............. 1,380 1,401
Bear Stearns Mortgage Securities Inc.
Series 1992-04....................... 2,047 2,033
Capstead Securities Corp.
Series 1992-C-3...................... 1,436 1,377
Resolution Trust Corporation
Series 1991-M6....................... 1,205 1,156
Saxon Mortgage Security Corp.
Series 1993-04 Class 1A.............. 2,256 2,219
The Bank also makes investments in securities other than
mortgage-backed instruments. At December 31, 1996, the Bank had $10 million
invested in a FHLB callable security and $1.9 million invested in other
securities, which were primarily stock in the FHLB and in the FRBP.
Gross unrealized gains and losses on mortgage-backed securities held to
maturity at December 31, 1996 were $155 thousand and $2 million, respectively,
and gross unrealized gains and losses on mortgage-backed securities available
for sale at December 31, 1996 were $5 thousand and $678 thousand, respectively.
During the year ended December 31, 1996, available-for-sale securities totaling
$19.4 million were sold at a gain of $5 thousand. There were no realized
securities gains or losses during 1995 or 1994. Unrealized losses on the
securities generally are the result of higher market interest rates on the
securities than the book yield at which the securities are carried on the Bank's
financial statements.
Lending
Total loans, consisting of loans held for the portfolio and mortgage
loans held for sale, amounted to $85.1 million at December 31, 1996, compared to
$118.8 million at December 31, 1995 and $81.2 million at December 31, 1994. The
decrease from year end 1995 outstanding loan balances to December 31, 1996
resulted primarily from the sale of $ 34.2 million in loan participations in
1996.
-41-
<PAGE>
The following table details the types of loans outstanding by category
as of December 31 for each of the past five years:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial and industrial.............. $39,710 $49,006 $27,406 $23,294 $26,418
Real estate:
Construction......................... 9,421 4,430 1,455 2,219 2,635
Mortgages-residential................ 16,550 18,926 29,253 17,359 18,975
Mortgages-commercial................. 15,985 16,168 13,550 5,700 7,002
Consumer............................... 3,827 18,573 4,410 358 448
------- -------- ------- ------- -------
Total gross loans................. 85,493 107,103 76,074 48,930 55,478
Net unearned interest and fees....... (424) (1,193) (215) 218 54
------- -------- ------- ------- -------
Net loans............................ $85,069 $105,910 $75,859 $49,148 $55,532
======= ======== ======= ======= =======
Mortgage loans held for sale ......... $ -- $ 12,874 $ 5,388 $22,701 $ --
======= ======== ======= ======= =======
</TABLE>
Real estate loans are secured primarily by first mortgages on
commercial property in which the loan-to-value ratio is 75% or less and
residential properties with a loan-to-value ratio of 80% or less. Consumer loans
are collateralized primarily by unearned automobile insurance premiums.
To meet its asset/liability objectives and to control its interest rate
sensitivity exposure, the Bank's strategy is to originate loans with floating
rates and with maturities of less than five years. The following table presents
the scheduled maturities of loans that are outstanding as of December 31, 1996:
<TABLE>
<CAPTION>
After 1
Within But Within After
1 Year 5 Years 5 Years Total
-------- ---------- ------- -----
(in thousands)
<S> <C> <C> <C> <C>
Commercial and industrial............... $28,032 $10,156 $ 1,522 $39,710
Real estate:
Construction......................... 5,581 3,316 524 9,421
Mortgages-residential................ 3,790 1,140 11,620 16,550
Mortgages-commercial................. 7,057 5,611 3,317 15,985
Consumer................................ 3,527 300 -- 3,827
------- ------- ------- -------
Total............................... $47,987 $20,523 $16,983 $85,493
======= ======= ======= =======
</TABLE>
-42-
<PAGE>
The table below provides a breakdown of loans as of December 31, 1996
that have either pre determined interest rates or floating rates:
<TABLE>
<CAPTION>
After 1
Within But Within After
1 Year 5 Years 5 Years Total
-------- ---------- ------- -----
(in thousands)
<S> <C> <C> <C> <C>
Predetermined interest rates............ $ 7,817 $17,303 $16,983 $42,103
Floating rates.......................... 40,170 3,220 -- 43,390
------- ------- ------- -------
Total....................... $47,987 $20,523 $16,983 $85,493
======= ======= ======= =======
</TABLE>
Risk Elements
Risk elements unique to each particular loan category are as follows:
Commercial and Industrial
Risk factors inherent in commercial and industrial loans include
economic risk which may affect a borrower's ability to sustain and grow a
business; collateral risk in that an economic downturn may result in collateral
depreciation; interest rate risk in that rate changes may outpace business cash
flow and legal risk in properly documenting and perfecting collateralization.
The Bank monitors such loans annually with updated financial analyses.
Construction loans
Risk factors inherent in construction loans include economic risk which
may affect end purchase or use of the collateral; engineering risk which may
prevent completion of construction or result in added expense in build-out;
environmental risk in earth and water table movement; management risk in
correctly and completely monitoring construction and loan advances and legal
risk in properly documenting each advance and ensuring collateralization. The
Bank monitors such loans to review all advances and monitors all projects.
Residential mortgages
Risk factors inherent in residential mortgage lending include economic
risk which may affect a borrower's ability to maintain a job and financial
stability; collateral risk in that an economic downturn may result in collateral
depreciation; interest rate risk in that rate changes may outpace personal cash
flow; indeterminate risk in that personal factors - divorce, illness - may
affect credit stability; environmental risk in that collateral may be damaged
or destroyed by natural causes and legal risk in properly documenting and
perfecting collateralization. The Bank evaluates, among other things,
collateral, financial stability, credit stability, cash flow and interest rate
risk, and monitors such loans for indications of financial decline or
collateral devaluation.
-43-
<PAGE>
Commercial mortgages
Risk factors inherent in commercial mortgage lending include economic
risk which may affect lessees' ability to pay rent or a borrower's ability to
cash flow vacancies; collateral risk in that an economic downturn may result in
collateral depreciation; environmental risk in that collateral may be damaged or
destroyed by natural causes; interest rate risk in that rate changes may outpace
property cash flow and legal risk in properly documenting and perfecting
collateralization. Loans are underwritten to match lease terms, and large
tenants are subject to credit review. The Bank monitors such loans quarterly or
annually with updated inspections, lease analyses and financial analyses.
Consumer loans
Until September 1996, consumer loans consisted primarily of IPF loans
to individuals. These loans have repayment terms of nine months and are secured
by the insurance policy's unearned premium. Risk factors include economic risk
which may affect the borrower's ability to maintain a job and financial
stability; the financial strength and stability of the insurance company
underwriting the insurance and insurance agents that originate the loans; the
effectiveness of the internal control structure to cancel the insurance
policies on delinquent accounts in a timely and effective manner; collection
efforts in obtaining the canceled policy's unearned premium from the insurance
company and legal risk in properly documenting and perfecting the collateral.
Non-performing assets
The level of non-performing assets consisting of non-accrual loans,
accruing loans past due 90 days or more and other real estate owned amounted to
$5.5 million, or 2.73%, of total assets at December 31, 1996, compared to $9.2
million, or 3.49%, of total assets at December 31, 1995. The decrease in
nonperforming assets during 1996 was virtually all attributable to the
elimination of nonperforming IPF receivables. Given the limitation of the
Servicer's records associated with the IPF loans, the Bank was unable to obtain
an accurate aging of such loans at December 31, 1995. Accordingly, for purposes
of determining the amount of the non-performing IPF loans at December 31, 1995,
the Bank estimated the loss exposure amount of $4.5 million. At December 31,
1996, the estimated loss exposure was zero due to aggressive collection efforts,
the write-off of IPF loans delinquent more than 120 days and the cessation of
originating new IPF loans in September 1996. The following table details the
Bank's non-performing assets at December 31, 1992 through December 31, 1996:
-44-
<PAGE>
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(in thousands, except percentages)
<S> <C> <C> <C> <C> <C>
Non-accrual loans...................... $3,837 $3,568 $3,685 $2,123 $3,055
Accruing loans 90 days
or more past due..................... 977 1,094 394 420 315
Nonperforming IPF receivables.......... -- 4,500 -- -- --
------ ------ ------ ------ ------
Total non-performing loans............. 4,814 9,162 4,079 2,543 3,370
Other real estate owned................ 700 -- -- --- 953
------ ------ ------ ------ ------
Total non-performing assets............ $5,514 $9,162 $4,079 $2,543 $4,323
====== ===== ====== ====== ======
Non-performing loans to
period end loans and loans
held for sale........................ 5.66% 7.71% 5.01% 3.55% 6.07%
Non-performing assets
to total assets...................... 2.73 3.49 1.68 1.04 2.11
</TABLE>
Accrual of interest is discontinued on loans when management believes,
after considering economic and business conditions and collection efforts, that
the borrowers' financial condition is such that collection of interest and
principal is questionable. The non-accrual loans are primarily secured by
various types of real estate. The table below shows the effect on interest
income of placing loans on non-accrual status for each of the three years ended
December 31, 1996.
1996 1995 1994
---- ---- ----
(in thousands)
Interest income not recognized due
to non-accrual status......................... $335 $355 $211
Interest income included in operating
income attributable to non-accrual status..... 16 79 37
Other real estate owned represents property acquired by foreclosure or
deed in lieu of foreclosure and repossessed assets. These assets are initially
reported at the lower of the related loan balance or the fair value of the
property. Management continues to evaluate the carrying value in relation to its
fair value less the estimated costs to sell.
Under the standard, the allowance for credit losses related to loans
that are impaired, as defined by SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan," ("FAS No. 114), as amended by SFAS No. 118 "Accounting by
Creditors for Impairment of a Loan -- Income Recognition and Disclosure"("FAS
No. 118"), is evaluated based on the present value of expected future cash flows
discounted at the loan's effective interest rate, at the loan's observable
market price or at the fair value of the collateral for certain collateral
dependent loans. Commercial, industrial and mortgage loans are evaluated for
impairment on an individual basis. Until September 1996, consumer loans were
comprised primarily of IPF loans. Prior to 1995, the allowance for credit
losses related to these loans was evaluated based on undiscounted cash flows or
the fair value of the collateral for collateral dependent loans.
-45-
<PAGE>
Factors influencing management's recognition of impairment include
decline in collateral value; lack of performance under contract loan agreement
terms, including evaluation of late payments or non-payment; lack of performance
under other creditors' agreements or obligations (i.e. non-payment of taxes or
non-payment of loans to other creditors); financial decline significantly
different from status at loan inception; litigation or bankruptcy of the
borrower and significant change in ownership or loss of guarantors to the
detriment of credit quality.
At December 31, 1996, the recorded investment in loans that are
considered to be impaired as defined by FAS No. 114 and FAS No. 118 was $3.8
million. The related allowance for credit losses for these impaired loans was
$648 thousand. The reserve evaluation was based on the fair value of the
collateral.
As part of the quarterly review of the risk elements of the portfolio,
an evaluation is also made of the adequacy of the allowance for loan losses. In
making an assessment of the quality of the loan portfolio and the adequacy of
the allowance for loan losses, management takes into consideration such elements
as general economic conditions, industry trends, the volume of delinquencies,
specific credit review, the value of underlying collateral and other pertinent
information. Based on this evaluation, the allowance for loan losses is adjusted
by the provision which is charged against income. The following table
summarizes the activity from 1992 to 1996 in the allowance for loan losses:
-46-
<PAGE>
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(in thousands, except percentages)
<S> <C> <C> <C> <C> <C>
Balance, beginning of period........... $ 6,500.9 $1,713.4 $1,321.2 $1,077.6 $ 905.1
Charge-offs:
Commercial and industrial............ 596.4 1.0 138.2 54.4 352.7
Real estate - construction......... -- -- 22.5 -- --
Real estate - commercial............. -- -- -- 190.0 --
Real estate - residential............ 452.4 127.7 355.4 -- --
IPF.................................. 8,966.7 -- -- -- --
Installment......................... -- -- 36.0 -- --
--------- -------- -------- -------- --------
Total charge-offs................. $10,015.5 $ 128.7 $ 552.1 $ 244.4 $ 352.7
--------- -------- -------- -------- --------
Recoveries:
Commercial and industrial............ $ -- $ 1.2 $ 84.3 $ 3.6 $ .2
Real estate - commercial............. -- -- -- 34.4 --
Real estate - residential............ -- 2.0 -- -- --
IPF.................................. 1,482.2 -- -- -- --
Installment.......................... -- 8.0 -- -- --
--------- -------- -------- -------- --------
Total recoveries.................. 1,482.2 11.2 84.3 38.0 .2
--------- -------- -------- -------- --------
Net (charge-offs) recoveries........... 8,533.3 117.5 467.9 206.4 352.5
--------- -------- ------- -------- --------
Provision charged to operations....... 5,092.2 4,905.0 860.0 450.0 525.0
--------- -------- -------- -------- --------
Balance, end of year................... $ 3,059.8 $6,500.9 $1,713.4 $1,321.2 $1,077.6
========= ======== ======== ======== ========
Net charge-offs as a % of average
loans and loans held for sale........ .90%(1) .13% .60% .37% .62%
Allowance for loan losses as a
% of period end loans and loans
held for sale........................ 3.60 5.47(2) 2.10 1.84 1.94
</TABLE>
(1) Excluding IPF net charge-offs.
(2) Excluding $4.5 million of allowance for loan losses allocated to the
IPF portfolio in the numerator and $16.8 million of IPF receivables in
the denominator, the ratio of allowance for loan losses as a percentage
of period end loans and loans held for sale was 1.96% at year end 1995.
Management believes that those loans identified as non-performing are
adequately secured and the allowance for loan losses is sufficient in relation
to the potential risk of loss that has been identified in the loan portfolio.
Management has allocated the allowance based on an assessment of risks within
the loan portfolio and the estimated value of the underlying collateral. Prior
to 1995, management generally did not allocate the loan loss reserve across the
various loan categories. In 1995, in connection with the adoption of FAS No. 114
and FAS No. 118, management began formally allocating the reserve to specific
loan categories. The following table sets forth the allocation of the Bank's
allowance for loan losses for each of the five years ended December 31, 1996:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------------------- -------------------- -------------------- ------------------- --------------------
% of % of % of % of % of
Loans to Loans to Loans to Loans to Loans to
Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans
------ ----------- ------ ----------- ------ ----------- ------ ----------- ------ -----------
(in thousands, except percentages)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and
industrial...... $1,027.1 46% $ 812.8 46% $ -- 36% $ -- 48% $ -- 48%
-47-
<PAGE>
Real Estate:
Construction.... 106.2 11 98.9 4 -- 2 -- 5 -- 5
Mortgages-
residential.... 439.9 19 417.9 18 750.0 38 -- 35 -- 34
Mortgages-
commercial..... 127.5 19 -- 15 -- 18 -- 12 -- 13
IPF............. --- 3 4,500.0 15 -- --- -- -- -- --
Consumer ........ 9.5 2 -- 2 -- 6 -- -- -- --
Unallocated....... 1,349.6 N/A 671.3 N/A 963.4 N/A 1,321.3 N/A 1,077.6 N/A
-------- ---- -------- --- -------- --- -------- --- -------- ---
$3,059.8 100% $6,500.9 100% $1,713.4 100% $1,321.3 100% $1,077.6 100%
======== ==== ======== ==== ======== === ======== === ======== ===
</TABLE>
Deposits
Total deposits at December 31, 1996 aggregated $185.1 million which was
lower than total deposits at December 31, 1995 of $196.1 million due primarily
to declines in demand and certificate of deposit balances. The average rate of
the components of average deposits at December 31, 1996, 1995 and 1994 follows.
<TABLE>
<CAPTION>
For the Year Ended December 31,
------------------------------------------------------------------------------
1996 1995 1994
----------------------- ---------------------- ---------------------
Average Average Average Average Average Average
Balance Rate (%) Balance Rate (%) Balance Rate (%)
------- -------- ------- -------- ------- --------
(in thousands, except percentages)
<S> <C> <C> <C> <C> <C> <C>
Demand........................... $ 10,705.2 -- $ 10,404.0 -- $ 12,651.3 --
NOW and money market ............ 7,453.7 3.33% 12,518.8 3.48% 11,981.3 2.82%
Savings.......................... 49,870.7 4.88 53,283.1 4.86 100,708.5 5.37
Certificates of deposit ......... 122,657.0 6.18 102,779.5 6.32 63,612.0 5.12
</TABLE>
Certificates of deposit of $100 thousand or more at December 31, 1996
of $11.9 million had the following maturities (in thousands):
Three months or less............................. $3,717.5
Three months through six months.................. 1,802.8
Six months through twelve months................. 2,819.8
Over twelve months............................... 3,530.4
---------
Total................. $11,870.5
=========
Short-term Borrowings
Short-term borrowings are used to supplement the deposit base of the
Bank, to support asset growth, to fund specific loan programs and as a tool in
the Bank's asset/liability management process. During 1996 and 1995, the Bank
has utilized its credit facilities with its correspondent banks and with the
FHLB. The borrowings from the FHLB are secured by the Bank's investments in
mortgage-backed securities.
The following table summarizes the Bank's short-term borrowing activity
for the years ended December 31, 1996, 1995 and 1994:
-48-
<PAGE>
<TABLE>
<CAPTION>
Average Weighted
Amount Maximum Average
Balance Outstanding Outstanding Interest Average
Outstanding During at any Rate at Rate
12/31 the Period Month-End 12/31 Paid
----------- ----------- ---------- -------- -------
(in thousands, except percentages)
<S> <C> <C> <C> <C> <C>
1996: FHLB borrowings............... $ -- $26,587.7 $47,269.1 -- 5.55%
Federal funds purchased....... -- 110.0 1,000.0 -- 5.22
--------- ----
$26,697.7 5.55%
========= ====
1995: FHLB borrowings............... $33,443.8 $44,522.1 $66,155.2 6.02% 6.23%
Federal funds purchased....... --- 235.3 -- -- 5.69
--------- --------- ---- ----
$33,443.8 $44,757.4 6.02 6.23%
========= ========= ====
1994: FHLB borrowings............... $63,037.4 $38,050.8 $63,037.4 6.32% 4.90%
Federal funds purchased....... -- 360.6 1,000.0 -- 4.52
--------- --------- ---- ----
$63,037.4 $38,411.4 6.32 4.90%
========= ========= ====
</TABLE>
Results of Operations
A net loss of $2.7 million, or $2.42 per share, was recorded in 1996
compared to a net loss of $3.1 million, or $3.41 per share, in 1995. The smaller
1996 loss compared to 1995 was attributable primarily to an increase in net
interest income, as gains on the sale of residential mortgages and
mortgage-backed securities available-for-sale were offset by a slightly higher
loan loss provision.
A net loss of $3.1 million, or $3.41 per share, was recorded in 1995
compared to net income in 1994 amounting to $503 thousand, or $.22 per share.
The loss in 1995 resulted from a higher provision for loan losses of $4 million,
due principally to delinquent IPF loans, and an increase in non-interest
expenses of $3 million which more than offset an increase in net interest income
of $2.8 million.
Net Interest Income
A key component of the Bank's results of operations is net interest
income which represents the difference between interest earned on loans,
securities and other interest earning assets and the interest paid on deposits,
borrowings and debt instruments. Net interest income is coordinated with the
asset/liability management process and emphasizes maintaining acceptable levels
of liquidity, interest rate risk and capital.
Net interest income for the year ended December 31, 1996 totaled $9.1
million, which was 6% higher than net interest income for the year-end 1995 of
$8.6 million. The 1995 to 1996 increase was attributable to an improved net
interest margin which reflected the yields on earning assets rising faster than
the cost of interest-bearing liabilities. The net interest margin rose from
3.56% in 1995 to 3.76% in 1996. The higher margin reflected primarily a greater
percentage of interest income being derived from higher yielding loan activity.
In 1996, interest and fees on all loans represented 61% of total interest income
versus 53% in 1995.
Net interest income for the year ended December 31, 1995 totaled $8.6
million which was $2.8 million higher than net interest income for the
comparable 1994 period of $5.8 million. The 49% increase
-49-
<PAGE>
was attributable to an improved net interest margin which offset a decline in
the amount of average interest earnings assets from $244.9 million in 1994 to
$241.5 million in 1995. The net interest margin rose to 3.56% in 1995 from 2.37%
in 1994 and benefited from the yields on earning assets rising faster than the
cost of interest-bearing liabilities. The yields on earning assets of 8.76% in
1995 compared to 7.01% in 1994 were higher primarily as a result of the
significant yield on the Bank's IPF loan portfolio which exceeds the yield on
the Bank's other lending activity. The average IPF loan balance in 1995 was
$10.5 million compared to $500 thousand in 1994. However, management believes
that the yields on IPF loans were higher in 1995, due in part, to the reporting
by the Servicer of interest and fees on defaulted IPF loans. This income on
defaulted loans is not readily determinable but is included in the IPF loan
balance and, therefore, has been considered in the provision for loan losses.
The yields on earning assets in 1995 also benefitted from lower amortization of
securities portfolio premiums, the higher prime lending rate that prevailed in
1995, and the reinvestment of the cash flow from the mortgage-backed securities
portfolio into higher yielding lending activity. As a result of this
reinvestment, a greater percentage of interest income was derived from higher
yielding lending activity in 1995 versus 1994. For the year ended December 31,
1995, interest and fees on loans represented 53% of total interest income
compared to 37% for the same 1994 period while investment income decreased from
63% in 1994 to 47% in 1995.
The cost of interest-bearing liabilities decreased to 5.73% in 1996
from 5.80% in 1995 due to a reduction in the cost associated with certificates
of deposit. Average certificate of deposit balances represented 56% of 1996's
total average interest-bearing liabilities with an average rate paid of 6.18%
versus a cost of 6.32% in 1995 on balances which comprised 47% of total average
interest-bearing liabilities. The cost of interest-bearing liabilities was also
impacted by the lower rates paid on short term FHLB advances which decreased to
an average rate of 5.55% in 1996 from 6.23% in 1995.
The cost of interest-bearing liabilities increased to 5.80% in 1995
from 5.09% in 1994 and reflected a shift in funding sources from savings
balances to higher costing certificates of deposit. Average certificate of
deposit balances represented 47% of 1995's total average interest-bearing
liabilities with an average rate paid of 6.32% versus a cost of 5.12% in 1994 on
balances which comprised 28% of total average interest-bearing liabilities. The
cost of interest-bearing liabilities was also impacted by the higher rates paid
on short term FHLB advances which rose to an average rate of 6.23% in 1995 from
4.90% in 1994.
Provision for Loan Losses
A provision for loan losses of $5.1 million was recorded for the year
ended December 31, 1996 compared to $4.9 million in 1995. The increases in the
provision compared to prior years were due to the charge-offs incurred in
connection with IPF loans.
Non-interest Expense
Total non-interest expense for the year ended December 31, 1996 were
$7.2 million, or 2%, lower than the $7.4 million of the previous year. Excluding
the servicing costs of IPF, operating expenses were 7% lower as lower
professional fees (mainly legal expenses) and a reduction in FDIC insurance
premiums more than offset higher staff expenses associated with new hires and
salary increases. IPF expenses increased by 9% due to the cost of servicing a
larger portfolio, on average, and the absorption by the Bank of all costs of
servicing the IPF portfolio from April 1996, which had been previously borne by
the Servicer.
-50-
<PAGE>
Non-interest expense for the year ended December 31, 1995 totaled $7.4
million compared to $4.4 million for the year ended December 31, 1994. The
increase in non-interest expense in 1995 of $3 million compared to 1994 was
attributable to higher salaries and employee benefits of $237 thousand resulting
from higher staffing levels and benefit costs and from salary increases,
professional fees and settlement costs of $445 thousand incurred in resolving
legal matters relating to the assignment of residential mortgages to the Bank,
expenses of $266 thousand incurred for professional services in connection with
the proposed merger between Regent and Carnegie and the Bank and CBNA, pursuant
to a Merger Agreement which Merger Agreement was terminated on January 14, 1997,
audit expenses of $329 thousand, a substantial portion of which related to the
delinquent IPF loans, and an increase of $2 million in costs for the expansion
and servicing of the IPF program. The increase in other expenses was partially
offset by lower premiums and a refund of premiums previously paid to the FDIC
totaling $205 thousand.
Provision for Income Taxes
Regent recorded a tax benefit of $350 thousand for the year ended
December 31, 1996. Regent also received a federal income tax refund of $1.5
million in the first quarter of 1997, which represented the recovery of taxes
paid in prior years and had been previously accounted for in Regent's
Consolidated Statements of Operations. The tax benefit, which was recorded in
the fourth quarter of 1996, reflected the recognition of a portion of Regent's
net deferred tax asset under the principles of FAS 109. FAS 109 requires that
the tax benefit of net operating loss carryforwards and temporary timing
differences be recorded as an asset to the extent that management estimates that
such assets are "more likely than not" to be realized through the generation of
future taxable income. At December 31, 1996, Regent recorded a deferred tax
asset of $2.0 million and a valuation allowance against it of $1.6 million.
-51-
<PAGE>
Consolidated Average Balance Sheets and Rate/Yield Analysis
<TABLE>
<CAPTION>
\
1996 1995 1994
---------------------------- ---------------------------- -----------------------------
Average Income/ Rate/ Average Income/ Rate/ Average Income/ Rate/
Balance Expense Yield Balance Expense Yield Balance Expense Yield
------- ------- ----- ------- ------- ----- ------- ------- -----
(in thousands, except percentages)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Overnight investments(1)....... $1,475.8 $77.5 5.25% $236.4 $12.5 5.30% $283.6 $16.8 5.92%
Investment securities and
securities available for
sale........................ 123,449.0 8,220.6 6.66 148,559.4 9,986.2 6.72 166,476.8 10,833.8 6.51
Loans and loans held for
sale (2).................... 115.859.9 13,221.1 11.41 92,743.7 11,160.8 12.03 78,103.5 6,313.9 8.08
---------- --------- ----- ---------- --------- ----- -------- --------- ----
Total interest-earning
assets...................... $240,784.7 $21,519.3 8.94% 241,539.5 $21,159.6 8.76% 244,863.9 $17,164.5 7.01%
========== ========= ===== ========== ========= ===== ========= ========= ====
Cash and due from banks........... 4,480.4 4,476.9 4,141.2
Premises and equipment, net....... 753.3 643.4 687.6
Other assets...................... 3,409.4 2,806.5 3,123.1
Allowance for loan losses......... (3,581.7) (1,838.0) (1,382.6)
---------- ---------- ----------
Total assets................ $245,846.1 $247,628.3 $251,433.2
========== ========== ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
NOW............................ $ 3,783.4 $ 91.1 2.41% $ 4,055.9 $ 102.1 2.52% $ 3,323.5 $ 82.7 2.49%
Savings........................ 49,870.7 2,433.2 4.88 53,283.1 2,588.8 4.86 100,708.5 5,411.6 5.37
Money market deposits.......... 3,670.3 157.0 4.28 8,462.9 333.5 3.94 8,657.8 254.6 2.94
Time deposits.................. 122,657.0 7,577.3 6.18 102,779.5 6,493.1 6.32 63,612.0 3,257.7 5.12
Short-term borrowings.......... 26,697.7 1,481.1 5.55 44,757.4 2,788.9 6.23 38,411.4 1,881.3 4.90
Long-term advances............. 8,157.2 501.6 6.15 451.6 27.1 5.99 6,069.0 267.2 4.40
Subordinated debt.............. 2,750.0 220.2 8.00 2,750.0 219.6 7.99 2,712.5 217.6 8.02
---------- --------- ----- ---------- --------- ----- ---------- --------- ----
Total interest-bearing
liabilities................. 217,586.3 12,461.5 5.73% 216,540.4 12,553.0 5.80% 223,494.7 11,372.7 5.09%
---------- --------- ----- ---------- --------- ----- ---------- --------- ----
Demand deposits................... 10,705.2 10,404.0 12,657.3
Other liabilities................. 7,652.7 7,053.2 2,365.8
---------- ---------- ----------
Total liabilities........... 235,944.2 233,997.5 238,517.9
----------
Shareholders' equity.............. 9,901.9 13,630.8 12,915.3
---------- ---------- ----------
Total liabilities and
shareholders' equity........ $245,846.1 $247,628.3 $251,433.2
========== ========== ==========
Net interest income and net
interest spread................ $ 9,057.8 3.21% $ 8,606.6 2.96% $ 5,791.8 1.92%
========== ==== ========= ==== ========= ====
Net interest rate margin.......... 3.76% 3.56% 2.37%
==== ==== ====
</TABLE>
(1) Includes federal funds sold, money-market mutual funds and interest-bearing
deposits due from banks.
(2) For purpose of these computations, non-accruing loans are included in the
daily average loan amounts outstanding. Additionally, the yield on IPF
loans includes interest income on delinquent loans.
-52-
<PAGE>
Volume and Rate Variance Analysis
Net interest income is affected by changes in the average interest rate
earned on earning assets and the average interest rate paid on interest-bearing
liabilities. In addition, net interest income is affected by changes in the
volume of earning assets and interest-bearing liabilities. The following table
sets forth for the years ended December 31, 1996 compared to December 31, 1995
and December 31, 1995 compared to December 31, 1994, the dollar amount of
increase (decrease) in interest income and interest expense resulting from
changes in the volume of earning assets and interest-bearing liabilities and
from changes in yields and rates.
<TABLE>
<CAPTION>
1996 Compared to 1995 1995 Compared to 1994
-------------------------------------------- -------------------------------------------
Net Increase Net Increase
Volume Rate (Decrease)(1) Volume Rate (Decrease)(1)
------ ---- ------------- ------ ---- -------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Overnight investments(2)......... $ 65.1 $ (.1) $ 64.9 $ (2.6) $ (1.6) $ (4.2)
Investment securities............ (1,672.9) (92.6) (1,765.2) (1,195.4) 347.8 (847.6)
Loans and loans held for sale (3) 2,662.6 (602.3) 2,060.3 1,343.8 3,503.1 4,846.9
---------- --------- ---------- ---------- --------- ---------
Total Interest Income............ 1,054.7 (695.0) 359.7 145.8 3,849.3 3,995.1
---------- --------- ---------- ---------- --------- --------
NOW accounts..................... (6.7) (4.3) (11.0) 18.4 1.0 19.4
Savings deposits................. (166.4) 10.8 (155.6) (2,345.5) (477.3) (2,822.8)
Money market deposits............ (202.9) 26.4 (176.5) (5.9) 84.8 78.9
Certificates of deposit.......... 1,230.8 (146.5) 1,084.3 2,345.5 889.9 3,235.4
Short-term borrowings............ (1,028.3) (279.5) (1,307.7) 339.1 592.1 931.2
Long-term advances............... 473.8 0.7 474.5 (322.2) 58.4 (263.8)
Subordinated debt................ 0.0 0.6 0.6 3.0 (1.0) 2.0
---------- --------- ----------- ---------- --------- ---------
Total Interest Expense........... 300.3 (391.8) (91.5) 32.4 1,147.9 1,180.3
---------- --------- ---------- ---------- --------- ---------
Net Interest Income.............. $ 754.4 $ (303.2) $ 451.2 $ 113.4 $ 2,701.4 $ 2,814.8
========== ========= ========= ========== ========= =========
</TABLE>
(1) The change in interest due to both rate and volume has been reflected
in volume and rate changes in proportion to the relationship of the
absolute dollar amounts of the change in each.
(2) Includes federal funds sold, money-market mutual funds and
interest-bearing deposits due from banks.
(3) Includes loan fees of approximately $1.5 and $1.0 million in 1996 and
1995, respectively. A majority of such fees are associated with IPF
loans. Additionally, loan income includes interest on nonaccrual loans,
to the extent of interest paid of $19 and $79 thousand in 1996 and
1995, respectively. Non-accruing loans are included in the daily
average loan amounts outstanding used to determine the changes in
interest income attributable to volume. Also includes interest income
on delinquent IPF loans.
-53-
<PAGE>
BUSINESS
Regent
Regent is a one bank holding company registered under the BHCA. Regent
was incorporated under the laws of the Commonwealth of Pennsylvania on December
22, 1986 and on November 23, 1987 was merged into a New Jersey corporation with
the same name (and which was incorporated on November 2, 1987), with the New
Jersey corporation being the surviving entity. Regent became a bank holding
company on June 2, 1989 when it completed the acquisition of all of the
authorized capital stock of the Bank, Regent's only subsidiary. The Bank
commenced operations on June 5, 1989.
Regent provides banking services through the Bank and does not engage
in any activities other than banking activities. Regent is regulated by the
Board of Governors of the Federal Reserve System. The executive offices of
Regent are located at 1430 Walnut Street, Philadelphia, Pennsylvania 19102.
Regent's telephone number is (215) 546-6500.
The Bank
The Bank, a federally-chartered national bank, is regulated by the OCC
and is a member of the Federal Reserve System. The deposits held by the Bank are
insured by the Bank Insurance Fund of the FDIC to the maximum permitted by
current law.
The Bank was wholly owned by Regent from June 5, 1989 to April 16,
1997. On April 16, 1997, Regent sold 1,120,000 newly issued shares of the Bank's
Common Stock for $8.50 per share in the Bank Offering. As a result, Regent
currently owns approximately 53% of the Bank's outstanding Common Stock. Regent
anticipates that the exchange of the Bank Common Stock for Regent Common Stock
will occur promptly following the effectiveness of the Registration Statement of
which this Prospectus forms a part. Upon consummation of the exchange, the Bank
will again be wholly owned by Regent. See "Plan of Distribution -- The Bank
Offering."
The Bank engages in the commercial banking business, serving the
banking needs of its customers with a particular focus on small and medium-sized
businesses, professionals and other individuals, with an emphasis on the
origination of loans in the $100 thousand to $3.0 million range. The Bank's
strategy in providing its services is to attempt to respond to each customer's
needs and assure that a customer will deal regularly with the same officer of
the Bank. The small and mid-sized business and entrepreneurial market in the
Bank's service area is large and the Bank believes it can offer the flexibility,
speed and personal attention necessary to serve this large market. The banking
and broad business experience of the Bank's officers and directors makes the
Bank particularly well-suited to serve the individualized needs of this market.
The Bank maintains one office at 1430 Walnut Street, Philadelphia, Pennsylvania
19102, where it conducts all of its banking activities. The Bank currently does
not intend to expand by opening new branches or competing for the retail
consumer market served by large banks in the region, but rather will pursue
alternative means of deposit generation.
At June 30, 1997, the Bank had $212.1 million in assets, $174.3 million
in deposits and $75.8 million in net loans. The Bank's primary service area for
CRA purposes is the Delaware Valley which includes the greater Philadelphia
metropolitan area and various counties in New Jersey, Delaware and Maryland.
-54-
<PAGE>
The federal and state laws and regulations that are applicable to bank
holding companies and banks give regulatory authorities extensive discretion in
connection with their supervisory and enforcement activities and generally have
been promulgated to protect depositors and deposit insurance funds and not for
the purpose of protecting stockholders. Any change in such regulations, whether
by an applicable federal or state regulatory authority or federal or state
legislative bodies, could have a significant impact on Regent and the Bank. See
"Supervision and Regulation."
The Bank offers a wide range of deposit products, including checking
accounts, interest-bearing NOW accounts, insured money market accounts,
certificates of deposit, savings accounts and Individual Retirement Accounts.
A broad range of credit facilities are offered to the businesses and
residents of its service area, including commercial loans, home improvement
loans, mortgage loans and home equity lines of credit. At June 30, 1997, the
Bank's maximum legal lending limit was approximately $3.3 million per borrower.
In addition, the Bank offers safe deposit boxes, travelers' checks,
money orders, direct deposit of payroll and Social Security checks, and access
to one or more regional or national automated teller networks as well as
international services through correspondent institutions. The Bank is also
empowered to offer, but does not provide, trust services. The Bank has the power
to act as executor of wills and as a trustee for Individual Retirement Accounts,
minors and other fiduciaries. Other trust services are provided through
correspondent institutions. The Bank has established relationships with
correspondent banks and other financial institutions in order to provide other
services requested by its customers, including requesting correspondent banks to
participate in loans where the loan amount exceeds the Bank's policies or legal
lending limit.
As of July 15, 1997, Regent and the Bank had a total of 32 employees,
excluding temporary employees engaged in the collection of IPF receivables.
Competition
There is intense competition among financial institutions in the Bank's
service area, although the Bank believes its relatively small size and emphasis
on personal service provide it with a competitive advantage. The Bank competes
with new and established local commercial banks, as well as numerous regionally
based commercial banks. There is also competition from out of state financial
institutions, thrifts and mutually owned savings banks and savings and loan
associations. As of the date hereof, the Bank had attracted, and believes it
will continue to attract, its customers from the deposit base of such existing
banks and financial institutions and from growth in the Delaware Valley. Many of
such banks and financial institutions are well-established and well-capitalized,
allowing them to do more advertising and promotion and to provide a greater
range of services, including trust services, than the Bank. The Bank's strategy
has been and will continue to be emphasizing personalized service, offering
competitive rates to depositors and making use of commercial and personal ties
of the Bank's stockholders, directors, officers and staff to Delaware Valley
businesses and residents.
In recent years, intense market demands, economic pressures and
significant legislative and regulatory action have eroded traditional banking
industry classifications which were once clearly defined and have increased
competition among banks, as well as between banks and other financial
institutions. As a result, banks and other financial institutions have had to
diversify their services, generally increase
-55-
<PAGE>
interest paid on deposits and become more cost effective. These events have
resulted in increasing homogeneity in the financial services offered by banks
and other financial institutions. Some of the effects on banks and other
financial institutions of these market dynamics and legislative and regulatory
changes include increased customer awareness of product and service differences
among competitors and increased merger activity.
Properties
The Bank leases approximately 20,600 square feet of the first and
second floors and basement of 1430 Walnut Street and the third floor of 1426 and
1428 Walnut Street, Philadelphia, Pennsylvania. The space is occupied by both
Regent and the Bank and serves as the Bank's sole banking location.
The properties are leased at a rental expense of approximately $190
thousand per annum excluding taxes, insurance, utilities and janitorial services
through 1997, $210 thousand for 1998 and $87 thousand through May 1999. The
leases provide for two 5-year renewal options at then current market rental
rates. The leases for the 1430 and 1428 Walnut Street premises include a right
of first refusal to purchase the premises.
Legal Proceedings
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 , 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.
-56-
<PAGE>
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.
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 at least $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.
-57-
<PAGE>
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
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 which 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.
-58-
<PAGE>
In January 1997, the Bank settled litigation involving various mortgage
loans charged-off by the Bank in 1995, for which the Bank will recover $320
thousand, subject to court approval.
Regent and the Bank are subject to various other legal actions and
proceedings. In the opinion of management, after discussions with legal counsel,
the resolution of these matters is not expected to have a material adverse
effect on Regent's consolidated financial position or its consolidated results
of operations.
Change in Accountants
Pursuant to the Regulatory Agreement, the Bank retained a forensic
accounting firm to investigate whether there is any basis upon which it or
Regent should assert a claim against Arthur Andersen LLP ("Arthur Andersen") in
connection with services rendered by Arthur Andersen to Regent and the Bank in
1994, 1995 and 1996. Thereafter, Arthur Andersen indicated to Regent that the
existence of the investigation raised an issue as to the independence of Arthur
Andersen in the conduct of Arthur Andersen's examination of Regent's financial
statements for future periods unless Regent and the Bank waived any such claim.
Because of Regent's concern that Arthur Andersen might resign, Regent's
management, with the concurrence of Regent's Audit Committee, began to interview
public accounting firms that could serve as Regent's certifying accountant in
the event Arthur Andersen were to resign.
On December 17, 1996, Regent notified Arthur Andersen that Regent and
the Bank did not have sufficient information on which to base a decision on
whether or not to waive any claim against Arthur Andersen and thereby eliminate
any issues as to the independence of Arthur Andersen. On December 31, 1996,
Arthur Andersen submitted its resignation as Regent's independent public
accountants, and the resignation of Arthur Andersen was accepted by Regent's
Audit Committee effective as of such date.
Arthur Andersen's report on the financial statements of Regent for the
fiscal years ended December 31, 1994 and December 31, 1995 contained no adverse
opinions or disclaimers of opinions and were not qualified or modified as to
uncertainty, audit scope or accounting principles. Arthur Andersen's report
dated March 22, 1995 on the consolidated financial statements of Regent for the
fiscal year ended December 31, 1994 was qualified as to an uncertainty related
to a dispute that arose in bankruptcy proceedings of a mortgage banking company
which Regent had engaged in business transactions. This uncertainty was resolved
during 1995 and, as a result, Arthur Andersen's report dated May 23, 1996 on
Regent's consolidated financial statements for the year ended December 31, 1995
did not include a reference to this matter. Also, Arthur Andersen's report dated
May 23, 1996 on Regent's consolidated financial statements for the year ended
December 31, 1995 contained the following "emphasis-of-the-matter" paragraph:
"As discussed in Notes 3 and 5, the Bank recognized a loss from
operations for the year ended December 31, 1995 primarily as a result of a
substantial increase in the provision for loan losses associated with its
insurance premium finance loan portfolio. As a result, the Bank did not meet the
Tier 1 leveraged capital requirement established by the Office of the
Comptroller of the Currency (OCC) for the Bank under the OCC's discretionary
authority. Additionally, on a consolidated basis, the parent company's Tier 1
leveraged capital ratio amounts to 4% which equals the minimum legal
requirement. Failure to meet minimum capital requirements can result in the
regulators initiating certain actions that, if undertaken, could have a direct
material effect on the Bank's financial statements. Such actions are presently
uncertain, and, accordingly, no adjustments have been made in the accompanying
financial statements."
-59-
<PAGE>
During the fiscal years ended December 31, 1994 and December 31, 1995,
and the subsequent interim periods preceding Arthur Andersen's resignation,
Arthur Andersen advised Regent of the following matters:
(i) In connection with the audit of Regent's consolidated
financial statements for the year ended December 31, 1995, Arthur Andersen
advised Regent that certain accounting controls were not adequate with respect
to Regent's IPF loan portfolio. As a result, Arthur Andersen advised Regent of
the need for Arthur Andersen to significantly expand the scope of its audit
procedures related to the IPF loan portfolio. Arthur Andersen concluded, as a
result of its audit, that Regent's reserve for possible loan losses was not
adequate and proposed an adjustment to increase the reserve at December 31,
1995. Management of Regent disagreed with Arthur Andersen's proposed reserve
increase. Arthur Andersen informed Regent that failure to resolve this issue
would cause it to modify its opinion on Regent's consolidated financial
statements as of December 31, 1995; however, this was not necessary as
management agreed to increase the reserve for possible loan losses related to
the IPF loan portfolio.
The Audit Committee of Regent's Board of Directors discussed
this matter with Arthur Andersen and Regent authorized Arthur Andersen to
respond fully to the inquiries of the successor accountant concerning this
matter.
(ii) Arthur Andersen has advised Regent that it has come to
Arthur Andersen's attention as a result of discussions with Regent's management
and internal audit personnel that Regent's financial statements for the third
quarter of 1996, included in Regent's Form 10-Q Report filed on November 14,
1996, reflect a significant adjustment representing management's estimate of
erroneous charge-offs of seriously delinquent IPF loans due to mispostings of
return premium checks by the IPF loan Servicer on similar delinquent IPF
accounts, thereby creating credit balances of $1,244,000 in the aggregate on all
charged-off IPF accounts. Since September 30, 1996, Regent had no unprocessed
claims for the return of these credit balances. To the extent Regent receives
valid claims for refunds of these credit balances, Regent will make appropriate
refunds thereof. At the time of Arthur Andersen's resignation, Arthur Andersen
had not completed its analysis of this adjustment, and had not reached any
conclusion as to the appropriateness of this adjustment. However, the amount of
such adjustment is material to the third quarter 1996 financial statements and
Regent's compliance with certain minimum capital requirements as of September
30, 1996 and the determination of the Bank's compliance with the Tier 1 leverage
capital requirement established by the OCC for the Bank as of October 31, 1996,
and agreed to by the Bank's Board of Directors.
Effective December 31, 1996, Regent, with the approval of Regent's
Audit Committee, retained the firm of Grant Thornton LLP to serve as Regent's
certifying accountant.
SUPERVISION AND REGULATION
Bank holding companies and banks are extensively regulated under both
federal and state law. These laws and regulations are intended to protect
depositors, not stockholders. To the extent that the following information
describes statutory and regulatory provisions, it is qualified in its entirety
by reference to the particular statutory and regulatory provisions. Any change
in the applicable laws or regulations may have a material effect on the business
and prospects of Regent or the Bank.
-60-
<PAGE>
General - Recent Regulatory Enactments
On September 30, 1996, the Deposit Insurance Funds Act of 1996 (the
"Deposit Act") became law. The primary purpose of the Deposit Act is to
recapitalize the Savings Association Insurance Fund of the FDIC (the "SAIF") by
charging all SAIF member institutions a one-time special assessment. The Deposit
Act will lead to equalization of the deposit insurance assessments between banks
and SAIF-insured institutions, and separates from insurance assessments payments
required for debt service and principal repayment on bonds issued by the Federal
Finance Corporation ("FICO") in the mid-1980s to fund a portion of the thrift
bailout. Under the Deposit Act, BIF-insured institutions are required to pay a
portion of the obligations owed under the FICO bonds. The rate of contribution
between SAIF and BIF member institutions is not equal, and SAIF institutions are
required to pay 6.3 basis points on assessed deposits while BIF institutions are
only required to pay 1.26 basis points on assessed deposits. This disparity will
stay in effect until such time as the federal thrift and commercial bank
charters are merged and the deposit insurance funds are thereafter merged. Under
the Deposit Act, this may occur by January 1, 1999. At that time, all federally
insured institutions should have the same total FDIC assessment.
On September 29, 1994, the Riegle-Neal Interstate Banking and Branching
Efficiency Act (the "Interstate Act") was enacted. The Interstate Act generally
enhances the ability of bank holding companies to conduct their banking business
across state borders. The Interstate Act has two main provisions. The first
provision generally provides that, commencing on September 29, 1995, bank
holding companies may acquire banks located in any state regardless of the
provisions of state law. These acquisitions are subject to certain restrictions,
including caps on the total percentage of deposits that a bank holding company
may control both nationally and in any single state.
Pennsylvania "opted in" to the Interstate Act of 1994. Notwithstanding
the Interstate Act, current Pennsylvania law requires prior written approval of
the Department of Banking (the "Department") for out of state banks and bank
holding companies, but not national banks, to acquire banks in Pennsylvania. If
an out-of-state bank or bank holding company wishes to establish a de novo
branch in Pennsylvania, then it must obtain prior written approval of the
Department and, in addition, meet a reciprocity requirement. This requirement
mandates that the initial bank's home state permit a Pennsylvania bank to
establish a branch in that state on substantially the same terms and conditions.
A Pennsylvania bank, with the exception of national banks, requires the prior
written approval of the Department to maintain branches in another state."
The second major provision of the Interstate Act permits banks located
in different states to merge and continue to operate as a single institution in
more than one state. A final provision of the Interstate Act permits banks
located in one state to establish new branches in another state without
obtaining a separate bank charter in that state, but only if the state in which
the branch is located has adopted legislation specifically allowing interstate
de novo branching.
Bank Holding Company Regulation
General
As a bank holding company registered under the BHCA, Regent is subject
to the regulation and supervision of the FRB. Regent is required to file with
the FRB annual reports and other information regarding its business operations
and those of its subsidiaries. Under the BHCA, Regent's activities and
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those of its subsidiaries are limited to banking, managing or controlling banks,
furnishing services to or performing services for its subsidiaries or engaging
in any other activity which the FRB determines to be so closely related to
banking or managing or controlling banks as to be properly incident thereto.
The BHCA requires, among other things, the prior approval of the FRB in
any case where a bank holding company proposes to (i) acquire all or
substantially all of the assets of any other bank, (ii) acquire direct or
indirect ownership or control of more than 5% of the outstanding voting stock of
any bank (unless it owns a majority of such bank's voting shares) or (iii) merge
or consolidate with any other bank holding company. The FRB will not approve any
acquisition, merger or consolidation that would have a substantially
anti-competitive effect, unless the anti-competitive impact of the proposed
transaction is clearly outweighed by a greater public interest in meeting the
convenience and needs of the community to be served. The FRB also considers
capital adequacy and other financial and managerial resources and future
prospects of the companies and the banks concerned, together with the
convenience and needs of the community to be served, when reviewing acquisitions
or mergers.
In addition, the BHCA prohibits a bank holding company, with certain
limited exceptions, from (i) acquiring or retaining direct or indirect ownership
or control of more than 5% of the outstanding voting stock of any company which
is not a bank or bank holding company or (ii) engaging directly or indirectly in
activities other than those of banking, managing or controlling banks, or
performing services for its subsidiaries; unless such non-banking business is
determined by the FRB to be so closely related to banking or managing or
controlling banks as to be properly incident thereto. In making such
determinations, the FRB is required to weigh the expected benefits to the
public, such as greater convenience, increased competition or gains in
efficiency, against the possible adverse effects, such as undue concentration of
resources, decreased or unfair competition, conflicts of interest or unsound
banking practices.
There are a number of obligations and restrictions imposed on bank
holding companies and their depository institution subsidiaries by law and
regulatory policy that are designed to minimize potential loss to the depositors
of such depository institutions and the FDIC insurance funds in the event the
depository institution becomes in danger of default. Under a policy of the FRB
with respect to bank holding company operations, a bank holding company is
required to serve as a source of financial strength to its subsidiary depository
institutions and to commit resources to support such institutions in
circumstances where it might not do so absent such policy. The FRB also has the
authority under the BHCA to require a bank holding company to relinquish control
of a non-bank subsidiary upon the FRB's determination that such activity or
control constitutes a serious risk to the financial soundness and stability of
any bank subsidiary of the bank holding company.
Capital Adequacy Guidelines for Bank Holding Companies
In January 1989, the FRB adopted risk-based capital guidelines for bank
holding companies. The risk-based capital guidelines are designed to make
regulatory capital requirements more sensitive to differences in risk profile
among banks and bank holding companies, to account for off-balance sheet
exposure and to minimize disincentives for holding liquid assets. Under these
guidelines, assets and off-balance sheet items are assigned to broad risk
categories each with appropriate weights. The resulting capital ratios represent
capital as a percentage of total risk-weighted assets and off-balance sheet
items.
The minimum ratio of total capital to risk-weighted assets (including
certain off-balance sheet activities, such as standby letters of credit) is 8%.
At least 4% of the total capital is required to be "Tier
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1 Capital," consisting of common shareholders' equity, noncumulative perpetual
preferred stock and a limited amount of cumulative perpetual preferred stock,
less certain goodwill items and other intangible assets. The remainder ("Tier 2
Capital") may consist of (i) the allowance for loan losses of up to 1.25% of
risk-weighted assets, (ii) excess of qualifying perpetual preferred stock, (iii)
hybrid capital instruments, (iv) perpetual debt, (v) mandatory convertible
securities and (vi) subordinated debt and intermediate-term preferred stock up
to 50% of Tier 1 Capital. Total capital is the sum of Tier 1 and Tier 2 capital
less reciprocal holdings of other banking organizations' capital instruments,
investments in unconsolidated subsidiaries and any other deductions as
determined by the FRB (determined on a case by case basis or as a matter of
policy after formal rule-making).
Bank holding company assets are given risk-weights of 0%, 20%, 50% and
100%. In addition, certain off-balance sheet items are given similar credit
conversion factors to convert them to asset equivalent amounts to which an
appropriate risk-weight will apply. These computations result in the total
risk-weighted assets. Most loans are assigned to the 100% risk category, except
for performing first mortgage loans fully secured by residential property which
carry a 50% risk-weighting. Most investment securities (including, primarily,
general obligations of states or other political subdivisions of the United
States) are assigned to the 20% category, except for municipal or state revenue
bonds, which have a 50% risk-weight, and direct obligations of the U.S. Treasury
or obligations backed by the full faith and credit of the U.S. Government, which
have a 0% risk-weight. In converting off-balance sheet items, direct credit
substitutes, including general guarantees and standby letters of credit backing
financial obligations, are given a 100% risk-weighting. Transaction-related
contingencies such as bid bonds, standby letters of credit backing nonfinancial
obligations and undrawn commitments (including commercial credit lines with an
initial maturity or more than one year) have a 50% risk-weighting. Short-term
commercial letters of credit have a 20% risk-weighting and certain short-term
unconditionally cancelable commitments have a 0% risk-weighting.
In addition to the risk-based capital guidelines, the FRB has adopted a
minimum Tier 1 capital (leverage) ratio, under which a bank holding company must
maintain a minimum level of Tier 1 capital to average total consolidated assets
of at least 3% in the case of a bank holding company that has the highest
regulatory examination rating and is not contemplating significant growth or
expansion. All other bank holding companies are expected to maintain a leverage
ratio of at least 100 to 200 basis points above the stated minimum.
Bank Regulation
The Bank is a national bank subject to the supervision of, and regular
examination by, the OCC, as well as to the supervision of the FDIC. The FDIC
insures the deposits of the Bank to the current maximum allowed by law through
the BIF.
The operations of the Bank are subject to state and federal statutes
applicable to banks which are members of the Federal Reserve System and to the
regulations of the FRB, the FDIC and the OCC. Such statutes and regulations
relate to required reserves against deposits, investments, loans, mergers and
consolidations, issuance of securities, payment of dividends, establishment of
branches and other aspects of the Bank's operations. Various consumer laws and
regulations also affect the operations of the Bank, including state usury laws,
laws relating to fiduciaries, consumer credit and equal credit and fair credit
reporting. Under the provisions of the Federal Reserve Act (the "FRA"), the Bank
is subject to certain restrictions on any extensions of credit to Regent or,
with certain exceptions, other affiliates, on investments
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in the stock or other securities of national banks, and on the taking of such
stock or securities as collateral. These regulations and restrictions may limit
Regent's ability to obtain funds from the Bank for its cash needs, including
funds for acquisitions, and the payment of dividends, interest and operating
expenses. Further, the Bank is prohibited from engaging in certain tying
arrangements in connection with any extension of credit, lease or sale of
property. For example, the Bank may not generally require a customer to obtain
other services from the Bank or Regent, and may not require the customer to
promise not to obtain other services from a competitor, as a condition to an
extension of credit. The Bank also is subject to certain restrictions imposed by
the FRA on extensions of credit to executive officers, directors, principal
stockholders or any related interest of such persons. Extensions of credit (i)
must be made on substantially the same terms (including interest rates and
collateral) as, and following credit underwriting procedures that are not less
stringent than those prevailing at the time for, comparable transactions with
persons not covered above and who are not employees and (ii) must not involve
more than the normal risk of repayment or present other unfavorable features. In
addition, extensions of credit to such persons beyond limits set by FRB
regulations must be approved by the Board of Directors. The Bank also is subject
to certain lending limits and restrictions on overdrafts to such persons. A
violation of these restrictions may result in the assessment of substantial
civil monetary penalties on the Bank or any officer, director, employee, agent
or other person participating in the conduct of the affairs of the Bank or the
imposition of a cease and desist order.
As an institution whose deposits are insured by the FDIC, the Bank also
is subject to insurance assessments imposed by the FDIC. Under current law, as
amended by FDICIA, the insurance assessment to be paid by BIF-insured
institutions is as specified in schedules issued by the FDIC from time to time.
The amount of the assessment is determined in part to allow for a minimum BIF
reserve ratio of 1.25% of estimated insured deposits (or such higher ratio as
the FDIC may determine in accordance with the statute). The most recent
assessment rate schedule for BIF members ranges from 0 to 27 basis points, with
those institutions at the low end of the assessment schedule paying only the
statutorily mandated $2,000 annual insurance premium. The actual assessment to
be paid by each BIF member is based on the institution's assessment risk
classification, which is determined on whether the institution is considered
"well capitalized," "adequately capitalized" or "under-capitalized," as those
terms have been defined in applicable federal regulations adopted to implement
the prompt corrective action provisions of FDICIA, and whether such institution
is considered by its supervisory agency to be financially sound or to have
supervisory concerns.
Governmental Monetary Policy
Bank profitability is principally dependent upon interest rate
differentials. In general, the difference between the interest paid by a bank on
its deposits and other borrowings and the interest received by a bank on loans
and securities held in its investment portfolio comprise the major portion of a
bank's earnings. Thus, the earnings and growth of the Bank is subject to the
influence of general economic conditions and the monetary and fiscal policies of
the United States Government and its agencies, including the OCC, the FRB and
the FDIC. An important function of the FRB is to regulate the money supply,
credit conditions and interest rates in order to mitigate recessionary and
inflationary pressures. Among the instruments of monetary policy used to
implement these objectives are open market transactions in United States
Government securities and changes in reserve requirements against bank deposits.
These instruments are used in varying combinations to influence overall growth
and distribution of credit, bank loans, investments and deposits. Their use may
also affect interest rates charged on loans or paid on deposits.
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The FRB requires all depository institutions, such as the Bank, to
maintain reserves against their net transaction accounts (primarily NOW, Super
NOW and checking accounts) and non-personal time deposits. As of the date of
this Offering Circular, reserves of 3% must be maintained against net
transaction accounts of $49.3 million or less, except that no reserves are
required against the first $4.4 million of net transaction accounts, and
reserves of 10% must be maintained against net transaction accounts in excess of
$49.3 million. No reserves are currently required against non-personal time
deposits. The balances maintained to meet the reserve requirements imposed by
the FRB may be used to satisfy applicable liquidity requirements. Because
required reserves must be maintained in the form of vault cash or a
noninterest-bearing account at a Federal Reserve Bank, however, the effect of
the reserve requirements is to reduce an institution's interest-earning assets.
The monetary policies and regulations of the United States Government
and its agencies have had a significant effect on the operations of commercial
banks in the past and are expected to continue to do so in the future. The
effects of such policies upon the future business, earnings and growth of the
Bank cannot be predicted.
Restrictions on Changes in Control
Section 112 of the Pennsylvania Banking Code of 1965, as amended,
provides that no person or group shall acquire or propose to acquire, without
the prior approval of the Department, more than 10% of the outstanding shares of
any bank, including a national bank located in Pennsylvania. Section 112 exempts
from its application and approval requirements (i) transactions by persons
already controlling the bank in question, (ii) mergers subject to the approval
of the OCC, (iii) certain transactions by broker-dealers on a national
securities exchange or in the over-the-counter market and (iv) such other
transactions as the Department exempts by regulation.
Purchasers of shares of the Bank's Common Stock may also be subject to
the Change in Bank Control Act of 1978 (the "CBCA"), which provides in pertinent
part, subject to certain exemptions, that acquisitions by any person or group of
persons who would thereafter have the power to vote 25% or more of any class of
voting securities of an insured bank or to control or direct the management or
policies of such a bank require prior written notice to the FDIC and may not be
made if the FDIC makes a timely objection to such purchase. The FDIC has
established the power to vote 10% or more of any class of voting securities as
generating a rebuttable presumption of control. Notices of proposed changes in
control must be filed with the FDIC 60 days prior to the transaction giving rise
to the change in control. During the 60 days after receiving a completed notice
of a proposed change in control, or during the following 30 days if the FDIC
extends the period, the FDIC may issue a notice of disapproval.
The BHCA also requires that certain regulatory approvals be obtained in
the event that any "company" (as defined) seeks to acquire 25% or more of a
bank's common stock or sufficient shares of a bank's common stock to enable it
to "control" the bank, or in the event that any bank holding company acquires 5%
or more of a bank's common stock.
The combined effect of the CBCA and the BHCA could limit the ability of
any person to purchase shares in the offering being made hereby if such person's
shares would constitute either 10% or more, or 25% or more, of the Bank's
outstanding shares. The Bank reserves the right to refuse to make any sales of
shares in this offering which would have the effect of permitting a stockholder
to
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reach or exceed the 10% threshold in the absence of any necessary and
appropriate regulatory approval in form and substance satisfactory to the Bank
in its reasonable discretion.
MANAGEMENT
Directors and Executive Officers
The executive officers of Regent, each of whom serves at the discretion
of the Board of Directors except as noted below, and the directors of Regent are
as follows:
<TABLE>
<CAPTION>
Name Age Position with Regent
---- --- --------------------
<S> <C> <C>
David W. Ring 81 Chairman of the Board and a Director
since 1986; Chief Executive Officer
from September 1996 to April 1997.
Robert B. Goldstein 56 President, Chief Executive Officer and
a Director since April 1997; Chairman
and Chief Executive Officer of the Bank
since April 1997
Abraham L. Bettinger 61 Vice Chairman of the Board and a Director
since 1986
O. Francis Biondi 64 Director since 1986
Joel E. Hyman 48 Executive Vice President, Chief Financial
Officer and Treasurer since January 1997
John J. Lyons 57 Director since May 1997; President and Chief
Executive Officer of the Bank from
September 1996 to April 1997; director of
the Bank from September 1996 to May 1997
John W. Rose 47 Director since May 1997
</TABLE>
The following is a brief listing of the principal occupation, and
certain other affiliations of each executive officer and director of Regent.
Mr. Ring is presently, and has been since December 1986, the Chairman
of the Board of Regent and a Director of Regent and the Bank. From December 1986
until April 1997, Mr. Ring also served as Chairman of the Board of the Bank. In
addition, from September 1996 until April 1997, Mr. Ring served as Chief
Executive Officer of Regent. Mr. Ring was formerly a consultant to, and a
director of, Larami Corporation, a toy manufacturer, a director and a
controlling stockholder of The First National Bank of Wilmington and a director
of Integrity Holding Co., its one-bank holding company. Mr. Ring was a director
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of the Port Corporation of Philadelphia and was formerly a director and
Corporate Vice President of Tasty Baking Co.
Mr. Goldstein became Chairman, Chief Executive Officer and a Director
of the Bank and President, Chief Executive Officer and a Director of Regent in
April 1997. Mr. Goldstein is serving in these positions pursuant to an
Employment Agreement, dated April 7, 1997, among Regent, the Bank and Mr.
Goldstein which provides for an initial term of three years, such term to extend
automatically for additional periods of one year unless terminated by one of the
parties. See "Employment Agreements" for information regarding the compensation
of Mr. Goldstein. Mr. Goldstein succeeded John J. Lyons who served as the Bank's
President and Chief Executive Officer on an interim basis until April 1997
following the resignation of Harvey Porter as the Bank's President and Chief
Executive Officer in September 1996. Mr. Goldstein has been engaged in
commercial banking for over 30 years. From November 30, 1993 until immediately
prior to his employment by Regent and the Bank, Mr. Goldstein served as
President and Chief Executive Officer and a director of Lafayette American Bank
in Bridgeport, Connecticut. Mr. Goldstein served as Vice Chairman of the Board
of National Community Banks, Inc. in West Paterson, New Jersey from January 1992
to November 1993 and as President and a director of Crossland Savings Bank in
Brooklyn, New York from March 1991 to January 1992. From 1974 to 1991, Mr.
Goldstein served as Senior Vice President and then Executive Vice President of
First Interstate Bank of Texas in Houston, Texas.
Mr. Bettinger has been a Director of Regent and the Bank since 1986,
and has served as Vice Chairman of the Board of Directors of the Bank since
1986. Mr. Bettinger also served as Vice Chairman of the Board of Directors of
Regent from 1986 to April 1997. Mr. Bettinger is the President of Bettinger &
Leech, Inc., a bank consulting firm, and Chairman of Bettinger & Leech Financial
Corp. Bettinger & Leech, Inc. has acted as a consultant to the Bank from the
commencement of operations in June 1989 through February 28, 1997. See "Certain
Transactions." From 1973 to 1981, Mr. Bettinger was a Senior Vice President of
Keefe, Bruyette & Woods, Inc., a bank consulting and investment banking firm,
where he headed the firm's bank consulting activities. Mr. Bettinger was
formerly a Vice President of Manufacturers Hanover Trust Company.
Mr. Biondi has been a director of Regent since its inception. He has
been a senior partner with the law firm of Morris, Nichols, Arsht & Tunnell of
Wilmington, Delaware for more than five years, which firm performed professional
services for Regent during 1996. See "Certain Transactions." From 1974 to 1983,
he was a director and a controlling stockholder of The First National Bank of
Wilmington and Integrity Holding Co., its one-bank holding company. Mr. Biondi
is a former member of the State of Delaware Council on Banking, former President
of the Delaware Bar Association and former City Solicitor of Wilmington,
Delaware.
Mr. Lyons has been a director of Regent since May 1997. Mr. Lyons is a
professional banking consultant and served as President and Chief Executive
Officer of the Bank on an interim basis from September 1996 until April 1997
when Mr. Goldstein took office. Mr. Lyons was a director of the Bank from
September 1996 until May 1997. Mr. Lyons is the former President, Chief
Executive Officer and a director of Monarch Savings Bank and of Jupiter Tequesta
National Bank. Mr. Lyons is also a director of Bisys Group, Inc.
Mr. Rose has been a director of Regent and the Bank since May 1997. Mr.
Rose has served as Executive Vice President of F.N.B. Corporation, a multi-bank
holding company located in Hermitage, Pennsylvania, since March 1995. Since May
1996, Mr. Rose has been a general partner and head of the
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investment committee of Castle Creek Capital Partners Fund, a fund that invests
in turnaround banking situations. Since January 1992, Mr. Rose has been
President and Owner of McAllen Capital Partners, an investment banking firm that
specialized in bank turnaround investments and which has been inactive since the
formation of Castle Creek Capital Partners Fund. From May 1988 to January 1992,
Mr. Rose was President of Livingston Financial Group, an investor in turnaround
opportunities in community banks.
David W. Ring, Robert B. Goldstein, Abraham L. Bettinger and John W.
Rose also serve as directors of the Bank. The other directors of the Bank are
Barbara H. Teaford, Leonard S. Dwares, Nelson C. Mishkin, Robert J. Reichlin,
Edward Parnes and Harry D. Zutz. Certain information about Barbara H. Teaford
appears under "Management -- Executive Officers." Certain information about the
directors of the Bank other than Mrs. Teaford and Messrs. Ring, Goldstein,
Bettinger and Rose is as follows:
Leonard S. Dwares, age 62, has for more than the past five years been
President and principal shareholder of Leonard S. Dwares & Co. P.A., certified
public accountants. Mr. Dwares served as a director of Regent and the Bank from
inception through May 1997. Mr. Dwares was formerly a director of The First
National Bank of Wilmington and a member of its audit committee. Mr. Dwares is a
Chartered Financial Consultant.
Nelson C. Mishkin, age 53, has been a partner of the accounting firm of
Gable, Peritz, Mishkin & Co. since 1976. Mr. Mishkin has been a director of the
Bank since 1993. Mr. Mishkin is a member of the American and Pennsylvania
Institutes of Certified Public Accountants.
Edward Parnes, Ph.D., age 75, has for more than the past five years
been the Executive Director of the Philadelphia Mental Health Clinic and the
President of Walnut Mortgage Co. and Boulevard Hotel Corporation. Dr. Parnes was
a director of Regent from its inception through May 1997.
Robert J. Reichlin, age 71, is the President of Zuckerman-Honickman,
Inc., a distributor of glass and plastic containers. He is also the Vice
President of Vanguard of Pennsylvania, a manufacturer of plastic bottles, the
Chairman of the Board of Directors of Vanguard Plastics of Pennsylvania, a
manufacturer of plastic bottles, and the Treasurer of Delta Industries, a
distributor of bottles and sprayers. Mr. Reichlin is a trustee of Albert
Einstein Medical Center and a member of its executive committee. Mr. Reichlin is
also a past President of The Locust Club. Mr. Reichlin served as a director of
Regent from inception through May 1997.
Harry David Zutz, age 79, has been for many years the Chairman of the
Board of Harry David Zutz Insurance, Inc. and Professional Liability Insurance,
Inc., regional insurance agencies with officers in Wilmington, Delaware and
London, England. See "Certain Transactions." Mr. Zutz is a member of Lloyds of
London and a former director of the Bank of Delaware. Mr. Zutz served as a
director of Regent from inception through May 1997.
The Coordinating Committee
Since May 1997, Regent and the Bank have maintained a Coordinating
Committee, which consists of two directors of Regent, O. Francis Biondi and John
J. Lyons, who are not directors of the Bank, and two directors of the Bank,
Nelson C. Mishkin and Harry David Zutz, who are not directors of Regent, to
review and approve all matters involving actual or potential conflicts of
interest between Regent and the Bank. The decisions of the Coordinating
Committee are binding on Regent and the Bank. In order for
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a Regent-Bank transaction to be approved, Regent's Coordinating Committee
members must conclude that the transaction is fair and equitable to Regent and
the Bank's Coordinating Committee members must conclude that the transaction is
fair and equitable to the Bank.
Director Compensation
Regent pays its non-employee directors an annual retainer of $7,500,
and the Bank pays its non-employee directors an annual retainer of $3,600 and a
fee of $350 for each Board meeting of the Bank attended.
Executive Officers
On January 21, 1997, Joel E. Hyman became the Executive Vice President,
Chief Financial Officer and Treasurer of the Bank and Regent. See "Employment
Agreements." From 1993 to 1996, Mr. Hyman served as Executive Vice President,
Chief Financial Officer and Treasurer of Farmers & Mechanics Bank in Middletown,
Connecticut until that bank was acquired by Citizens Financial Group. From 1990
to 1993, Mr. Hyman served as Senior Vice President, Chief Financial Officer and
Treasurer of Tolland Bank in Vernon, Connecticut. Prior thereto, he served in
various officer-level capacities in the Financial Division of Connecticut Bank &
Trust Co. in Hartford, Connecticut from 1977 to 1990.
On April 14, 1997, Amanda V. Perkins began serving as Executive Vice
President and Chief Credit Officer of the Bank. See "Employment Agreements."
From November 30, 1993 until immediately prior to her engagement by the Bank,
Ms. Perkins served as Executive Vice President and Chief Credit Officer of
Lafayette American Bank in Bridgeport, Connecticut. Prior thereto, Ms. Perkins
was Senior Vice President and Deputy Chief Credit Officer of National Community
Bank in West Paterson, New Jersey from January 1992 to November 1993.
Barbara H. Teaford has served as President of Regent since April 1997
and, prior thereto, had served as the Executive Vice President and a director of
Regent since 1986. She had also been the Executive Vice President and a director
of the Bank since its inception, and the Secretary of Regent since 1990. From
1985 through 1987, Mrs. Teaford was Vice President and manager of the Southern
Asset Based Lending District of The Philadelphia National Bank. From 1984 to
1985, she was a Vice President in the Regional Corporate Banking Division and,
from 1981 to 1984, she was a Commercial Officer and Assistant Vice President in
the Large Corporate Banking Division, both with The Philadelphia National Bank.
From 1982 to 1986, she was a director and Secretary of the Board of Directors of
the Central National Bank of Greencastle, Indiana. Mrs. Teaford is a member of
the Board of Directors of a number of charitable and civic organizations,
including the Pennsylvania Horticultural Society and the Settlement Music
School.
Executive Compensation
The following table sets forth the compensation for the years ended
December 31, 1996, 1995 and 1994 of (i) each person who served at any time
during 1996 as the chief executive officer of Regent and (ii) each other
executive officer of Regent and the Bank whose salary exceeded $100,000 in the
year ended December 31, 1996. No bonuses were paid to executive officers during
1996.
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Summary Compensation Table
Annual Compensation
--------------------------
Name and Principal Position Year Salary($)
John J. Lyons, President and Chief 1996 $ 51,923
Executive Officer of the Bank (1)
Harvey Porter, President and Chief 1996 $ 159,872
Executive Officer of Regent and 1995 175,672
the Bank (2) 1994 164,479
David W. Ring, Chief Executive 1996 $ 55,500
Officer of Regent (3) 1995 65,000
1994 65,000
Barbara H. Teaford, Executive Vice 1996 $ 110,692
President and Secretary of Regent 1995 118,939
and the Bank (4) 1994 109,300
(1) Mr. Lyons served as President and Chief Executive Officer of the Bank
from September 1996 until April 14, 1997 when Mr. Goldstein became
Chairman and Chief Executive Officer of the Bank. Mr. Lyons was
compensated at the rate of $180,000 per year.
(2) Includes salary payment to Mr. Porter after his resignation in
September 1996 for reasons of ill health. Mr. Porter will receive
salary payments of $10,433 per month from the Bank through September
1997.
(3) Mr. Ring served as Chief Executive Officer of Regent from September
1996 until April 14, 1997 when Mr. Goldstein became President and Chief
Executive Officer of Regent.
(4) Mrs. Teaford became President of the Bank on April 14, 1997.
There is no other annual compensation or long-term compensation that is
required to be disclosed in the foregoing table.
Employment Agreements
Compensation for Mr. Goldstein is paid pursuant to an employment
agreement, the initial term of which is three years, and thereafter
automatically extends on each anniversary of the effective date of his
employment, which will commence for this purpose upon the receipt of all
approvals of his employment required under applicable federal banking
regulations, for successive one-year periods, subject to prior written notice of
termination by Mr. Goldstein or the Bank, in each case no later than 90 days
prior to the expiration of the then current term. Mr. Goldstein will receive an
annual base salary of $200,000, which increases 15% each year, an annual bonus
ranging from 25% to 50% of his annual base salary depending upon achievement of
specified performance objectives, a signing bonus of $50,000, options to
purchase 150,000 shares of Regent Common Stock and various other benefits,
including the use of a Mercedes Benz 420E automobile and a housing allowance of
$4,000 per month to assist Mr. Goldstein in establishing a residence in the
Greater Philadelphia area. Mr. Goldstein is also entitled to change in control
benefits of 2.99 times his annual salary and bonus in the event that, during the
270 days prior to or the 180 days
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subsequent to a Change in Control of Regent, or of the Bank if the Bank is a
successor to Regent, Mr. Goldstein (i) resigns for Good Reason or within 180
days after a Change in Control, (ii) is terminated without Cause or (iii) dies
or becomes subject to a Permanent Disability, in each case as such capitalized
term is defined in the agreement. The agreement with Mr. Goldstein provides for
the continued payment of Mr. Goldstein's salary and provision of life, health
and disability coverage for Mr. Goldstein and his eligible dependents for the
lesser of the initial term of his employment, as provided in the agreement, or
three years, in the event that the Bank terminates Mr. Goldstein's employment
other than for Cause, as defined in the agreement.
Compensation for Mrs. Teaford is paid pursuant to an employment
agreement, the current term of which expires in May 1998, and thereafter
automatically extends for successive one-year periods, subject to prior written
notice of termination by Mrs. Teaford or Regent, in each case, no later than 90
days prior to expiration of the then current term. The agreement with Mrs.
Teaford requires continuation of compensation for one year to the executive's
spouse, issue or estate in the event of death, but does not provide for
severance payments. See "1997 Equity Incentive Plan."
Compensation for Joel E. Hyman, who became Executive Vice President,
Chief Financial Officer and Treasurer of Regent and the Bank in January 1997 and
for Amanda V. Perkins, who became Executive Vice President and Chief Credit
Officer of the Bank in April 1997, is paid pursuant to an employment agreement
dated as of January 21, 1997 among Regent, the Bank and Mr. Hyman and an
employment agreement dated as of April 14, 1997 among Regent, the Bank and Ms.
Perkins, the initial term of each of which is three years, and thereafter
automatically extends on each anniversary of employment for successive one-year
periods, subject to prior written notice of termination by the officer or the
Bank, in each case no later than 90 days prior to the expiration of the then
current term. Each agreement provides for an initial annual salary at the rate
of $110,000, options to purchase 25,000 shares of Regent Common Stock and
various other benefits. Mr. Hyman and Ms. Perkins are each also entitled to
change in control benefits of 2.99 times their annual salary plus any
discretionary bonus paid during the preceding 12 months in the event that,
during the 270 days prior to or the 180 days subsequent to a Change in Control
of Regent, or of the Bank if the Bank is a successor to Regent, the officer
resigns for Good Reason, is terminated without Cause or dies or becomes subject
to Permanent Disability, in each case as such capitalized term is defined in the
agreements. The agreements with Mr. Hyman and Ms. Perkins provide for the
continuation of salary and employee benefits for the term of employment in the
event that the Bank terminates their respective employment other than for Cause,
as defined in the agreements.
During the three years ended December 31, 1996, Regent did not grant
any stock options to any executive officer named in the Summary Compensation
Table, nor did any such officer exercise any options held during 1996. At
December 31, 1996, no executive officer named in the Summary Compensation Table
held any stock option or warrant to purchase any securities of Regent.
1997 Equity Incentive Plan
The Board of Directors of Regent adopted the Plan on March 26, 1997 and
the holders of Regent Common Stock and Series A Stock adopted the Plan on May
28, 1997. The purpose of the Plan is to further the growth, development and
financial success of Regent and the Bank by enhancing the ability of Regent and
the Bank to attract and retain highly qualified directors, officers, employees
and consultants, to compensate them for their services to Regent and the Bank,
as the case may be, and, in so doing, to
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<PAGE>
strengthen the alignment of the interests of such individuals with the interests
of Regent's stockholders through ongoing ownership of Regent's Common Stock.
The Plan provides for the grant of non-qualified stock options (the
"Options") to purchase an aggregate of 380,000 shares of Regent Common Stock to
directors, officers, employees and consultants of Regent and/or the Bank. The
number of persons who are currently eligible to participate in the Plan is 15.
The following table sets forth grants of Options outstanding under the
Plan as of June 30, 1997;
NEW PLAN BENEFITS
<TABLE>
<CAPTION>
Exercise Price Number of Shares
Name and Position Per Share Underlying Options
- -------------------------------------------- -------------- ------------------
<S> <C> <C>
Robert B. Goldstein, President and Chief $6.75 150,000
Executive Officer of Regent; Chairman
of the Board and Chief Executive
Officer of the Bank
Joel E. Hyman, Executive Vice President, 6.75 25,000
Chief Financial Officer and Treasurer
of Regent and the Bank
Amanda V. Perkins, Executive Vice President 6.75 25,000
and Chief Credit Officer of the Bank
Executive Officers as a Group(1) 6.75 225,000
Non-Executive Director Group 6.75 50,000
Non-Executive Officer Employee Group 6.75 47,000
</TABLE>
- --------------------
(1) In addition to the grants shown in the foregoing table, Options to
purchase an aggregate of 25,000 shares of Regent Common Stock at a per
share exercise price of $6.75 have been reserved for grant to Barbara
H. Teaford, subject to the satisfaction of certain conditions
precedent.
Appropriate adjustments to outstanding Options and to the number or
kind of shares subject to the Plan are provided for in the event of a stock
split, reverse stock split, stock dividend, share combination or
reclassification and certain other types of corporate transactions involving
Regent, including a merger or a sale of all or substantially all of the assets
of Regent.
The Plan is currently administered by the Board of Directors of Regent.
The Board of Directors of Regent may, from time to time, appoint a committee to
administer the Plan. The Board of Directors or such committee (collectively, the
"Board") has the power to determine the persons to whom Options will be granted,
the number of Options to be granted, the timing of such grant and the terms of
exercise of such Options, interpret the Plan, decide all questions of fact
arising in its application and make all other determinations necessary or
advisable for the administration of the Plan.
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<PAGE>
Options
The exercise price of Options granted under the Plan is set by the
Board and may not be less than 100% of the fair market value per share of Regent
Common Stock on the date that the Option is granted, but in no event less than
the par value of the Common Stock.
Options are evidenced by written agreements in such form not
inconsistent with the Plan as the Board shall approve from time to time. Each
agreement states the period or periods of time within which the Option may be
exercised. The Board may accelerate the exercisability of any Options upon such
circumstances and subject to such terms and conditions as the Board deems
appropriate. Unless the Board accelerates exercisability, or the terms of an
employment agreement among Regent, the Bank and the particular individual
provide otherwise, no Option that is unexercisable at the time of the optionee's
termination of service as a director, officer, employee or consultant of Regent
or the Bank may thereafter become exercisable. No Option may be exercised after
five years from the date of grant. If an Option expires or is canceled for any
reason without having been fully exercised or vested, the number of shares
subject to such Option that had not been purchased or become vested may again be
made subject to an Option under the Plan.
The option price must be paid in full at the time of exercise unless
otherwise determined by the Board. Payment must be made in cash, in shares of
Regent Common Stock valued at their then fair market value, or a combination
thereof, as determined in the discretion of the Board. It is the policy of the
Board that any taxes required to be withheld must also be paid at the time of
exercise. The Board may, in its discretion, allow an optionee to enter into an
agreement with Regent's transfer agent or a brokerage firm of national standing
whereby the optionee will simultaneously exercise the Option and sell the shares
acquired thereby and either Regent's transfer agent or the brokerage firm
executing the sale will remit to Regent from the proceeds of sale the exercise
price of the shares as to which the Option has been exercised as well as the
required amount of withholding.
Amendment or Termination
The Plan will remain in effect until all Options granted under the Plan
have been satisfied by the issuance of shares, except that no Options may be
granted under the Plan after March 25, 2007. The Board may terminate, modify,
suspend or amend the Plan at any time, subject to any required stockholder
approval or any stockholder approval that the Board may deem to be advisable for
any reason, such as for the purpose of obtaining or retaining any statutory or
regulatory benefits under tax, securities or other laws or satisfying any
applicable stock exchange listing requirements. No modification, amendment or
termination of the Plan will alter or impair any rights or obligations under any
outstanding Option without the consent of the optionee. No Option may be granted
during any period of suspension nor after termination of the Plan.
Federal Income Tax Consequences
The Plan is not a qualified plan under Section 401(a) of the Code and
the Options are not intended to qualify as incentive stock options within the
meaning of Section 422 of the Code. The following description, which is based
on existing laws, sets forth generally certain of the federal income tax
consequences of Options granted under the Plan. This description may differ from
the actual tax consequences of participation in the Plan.
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<PAGE>
An optionee will not recognize income for federal income tax purposes
upon the receipt of the Option, nor will Regent be entitled to any deduction on
account of such grant. Such optionee will recognize ordinary taxable income for
federal income tax purposes at the time of exercise of the Option in the amount
by which the fair market value of such shares then exceeds the option price
times the number of shares acquired. When the optionee disposes of the shares
acquired upon exercise of the Option, the optionee will generally recognize
capital gain or loss equal to the difference between (i) the amount received
upon disposition of the shares and (ii) the sum of the option price and any
amount included in the optionee's income when the Option was exercised. Such
gain will be long-term or short-term depending upon whether the shares were held
for at least one year after the date of exercise.
Under current law, any gain realized by an optionee, other than
long-term capital gain, is taxable at a maximum federal income tax rate of
39.6%. Long-term capital gain is taxable generally at a maximum federal income
tax rate of 28%.
Regent generally will be entitled to a tax deduction, subject to the
provisions of Section 162(m) of the Code, in connection with Options under the
Plan in an amount equal to the ordinary income realized by the optionee at the
same time and in the same amount as the optionee is considered to have realized
compensation by reason of exercise of the Option.
On April 16, 1997, Regent, granted Options to certain officers,
employees and directors under the Plan, including the following directors and
executive officers: John J. Lyons, 50,000 shares; Robert B. Goldstein, 150,000
shares, Joel E. Hyman, 25,000 shares and Amanda V. Perkins, 25,000 shares. The
Options granted under the Plan will vest in three equal annual installments
beginning on the first anniversary after the date of grant. The exercise price
of such Options is $6.75 per share, the closing price of Regent Common Stock on
the date of grant.
PRINCIPAL STOCKHOLDERS
The following table sets forth as of June 30, 1997 the amount and
percentage of the outstanding Regent Common Stock and Regent Series A
Convertible Preferred Stock ("Series A Stock"), Regent's only voting securities,
beneficially owned by (i) each person who is known by Regent to own beneficially
more than 5% of the outstanding Regent Common Stock or the outstanding Series A
Stock, (ii) each director of Regent, (iii) each executive officer named in the
Summary Compensation Table and (iv) all executive officers and directors of
Regent as a group.
<TABLE>
<CAPTION>
Common Stock Series A Stock
---------------------------------- ------------------------------
Amount and Nature Amount and Nature
of Beneficial Percent of Beneficial Percent
Name and Address Ownership(1) of Class(1) Ownership of Class
- ---------------- ----------------- ----------- ----------------- --------
<S> <C> <C> <C> <C>
Abraham L. Bettinger 82,750(2) 6.6% 4,500(3) 1.0%
845 3rd Avenue
New York, NY 10022
O. Francis Biondi 132,125(4) 10.5 8,433 1.8
P.O. Box 1347
Wilmington, DE 19801-1347
</TABLE>
-74-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Harvey Porter 123,808(5) 9.9 11,833(6) 2.6
c/o Regent National Bank
1430 Walnut Street
Philadelphia, PA 19102
David W. Ring 164,308(7) 13.1 12,433 2.7
c/o Regent National Bank
1430 Walnut Street
Philadelphia, PA 19102
Barbara H. Teaford 82,375(8) 6.6 7,600 1.7
c/o Regent National Bank
1430 Walnut Street
Philadelphia, PA 19102
Robert B. Goldstein -- (9) -- -- --
John J. Lyons 200(10) * -- --
John W. Rose -- (11) -- -- --
All Directors and Executive Officers
as a Group (9 persons) 593,748(12) 33.2 52,981 11.9
</TABLE>
- -------------------
* Less than 1%.
(1) Includes shares currently issued and outstanding and shares issuable upon
conversion of Series A Stock and Regent Series E Convertible Preferred
Stock ("Series E Stock"). Each share of Series A Stock and Series E Stock
is convertible into one share of Regent Common Stock.
(2) Includes 44,131 shares and 150 shares into which shares of Series E Stock
are convertible owned by the Trustees of Bettinger & Leech, Inc. Profit
Sharing Plan of which Mr. Bettinger is a Trustee; 13,658 shares owned by
the Trustees of Bettinger & Leech, Inc. Money Purchase Plan of which Mr.
Bettinger is a Trustee; 7,099 shares and 300 shares into which shares of
Series E Stock are convertible owned by Bettinger & Leech Financial Corp.
of which Mr. Bettinger is a principal and 17,412 shares owned by Bettinger
& Leech, Inc. of which Mr. Bettinger is a principal. Mr. Bettinger shares
voting and investment power with respect to these shares.
(3) Includes 1,500 shares owned by the Bettinger & Leech, Inc. Profit Sharing
Plan and 3,000 shares owned by Bettinger & Leech Financial Corp.
(4) Includes 11,166 shares owned by Mr. Biondi's wife as to which Mr. Biondi
disclaims beneficial ownership; 9,771 shares owned by O. Francis Biondi,
Trustee for Mary Biondi, daughter; 9,772 shares owned by O. Francis
Biondi, Trustee for O. Francis Biondi, Jr., son and 3,372 shares into
which shares of Series E Stock owned by Mr. Biondi are convertible.
(5) Of these shares, 44,840 shares are owned jointly by Mr. Porter and his
wife and 65,952 shares are owned by Mr. Porter's wife as trustee of Trust
Under Deed dated 2/28/94 for the benefit of Mr. Porter's wife. Also
includes 290 shares and 893 shares into which shares of Series E Stock
owned by Mr. Porter and his wife, respectively, are convertible. Mr.
Porter and his wife share voting and investment power with respect to all
shares owned jointly.
-75-
<PAGE>
(6) Of these shares, 2,900 shares are owned jointly by Mr. Porter and his wife
and 8,933 shares are owned by Mr. Porter's wife as trustee of Trust Under
Deed dated 2/28/94 for the benefit of Mr. Porter's wife. Mr. Porter and
his wife share voting and investment power with respect to all shares
owned jointly.
(7) Includes 4,972 shares into which shares of Series E Stock owned by Mr.
Ring are convertible.
(8) Mrs. Teaford and her husband, Stephen D. Teaford, own all of the shares
set forth in this table as tenants by the entireties and share voting and
investment power with respect to all such shares; includes 3,040 shares
into which shares of Series E Stock owned by Mr. and Mrs. Teaford are
convertible.
(9) Mr. Goldstein has an option to purchase 150,000 shares at $6.75 per share,
none of which options is currently exercisable or included in the table.
In addition, the table does not reflect the ownership by Mr. Goldstein and
his wife of 59,000 shares of Common Stock ("Bank Common Stock") of the
Bank, which are exchangeable for Regent Common Stock, at the discretion of
Regent, at the rate of 1.41666 shares of Regent Common Stock for each
share of Bank Common Stock held.
(10) Mr. Lyons has an option to purchase 50,000 shares at $6.75 per share, none
of which options are currently exercisable or included in the table. In
addition, the table does not reflect the ownership by Mr. Lyons and his
wife of an aggregate of 29,412 shares of Bank Common Stock, which are
exchangeable for Regent Common Stock, at the discretion of Regent, at the
rate of 1.41666 shares of Regent Common Stock for each share of Bank
Common Stock held.
(11) The table does not reflect the ownership by Castle Creek Capital Partners
Fund-I, of which Mr. Rose is a general partner, of 110,000 shares of Bank
Common Stock, which are exchangeable for Regent Common Stock, at the
discretion of Regent, at the rate of 1.41666 shares of Regent Common Stock
for each share of Bank Common Stock held.
(12) Includes 52,981 shares of Regent Common Stock into which shares of
Series A Stock owned by such persons are convertible and 16,446 shares of
Regent Common Stock into which shares of Series E Stock owned by such
persons are convertible. Such persons, in the aggregate, hold options to
purchase 225,000 shares at $6.75 per share, none of which is currently
exercisable or included in the table. In addition, the table does not
reflect the ownership by such persons of an aggregate of 216,059 shares of
Bank Common Stock, which are exchangeable for Regent Common Stock, at the
discretion of Regent, at the rate of 1.41666 shares of Regent Common Stock
for each share of Bank Common Stock held.
The 1,120,000 shares of Bank Common Stock sold in the Bank Offering are
exchangeable in the aggregate for 1,586,659 shares of Regent Common Stock, which
will represent approximately 46.3% of the 3,424,490 shares of Regent Common
Stock outstanding after the exchange of all of the outstanding Bank Common Stock
for Regent Common Stock and the conversion of all outstanding shares of Regent
Preferred Stock into Regent Common Stock.
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<PAGE>
SELLING STOCKHOLDERS
The following table sets for information regarding the beneficial
ownership of Regent Common Stock by the persons who will receive Regent Common
Stock in exchange for the Bank Common Stock issued in the Bank Offering in April
1997, the number of shares that may be offered by each of such persons and the
number of shares to be owned by each such person upon the sale of all such
shares that may be offered hereunder:
<TABLE>
<CAPTION>
Regent Common Stock
To Be Beneficially
Regent Common Stock Owned If All Shares
Beneficially Owned Shares That That May Be Offered
on August 11, 1997 May Be Hereunder Are Sold
----------------------- Offered -------------------
Name Shares Percent* Hereunder Shares Percent
- ---------------------------------- ------ -------- ----------- ------ -------
<C> <C> <C> <C> <C> <C>
1994 Garden State Trust 6,693 * 6,693 0 0%
Basswood International Fund, Inc. 15,399 * 15,399 0 0%
Basswood Financial Partners, L.P. 62,078 1.8% 62,078 0 0%
Andrew Boas 10,624 * 10,624 0 0%
Boston Provident Partners, LP 84,999 2.5 84,999 0 0%
Arthur Calcagnini 14,166 * 14,166 0 0%
Donald P. & Joyce W. Calcagnini 29,749 * 29,749 0 0%
James A. & DeAnne P. Calcagnini 9,916 * 9,916 0 0%
Thomas J. & Elysee Calcagnini 1,699 * 1,699 0 0%
Castle Creek Capital Partners
Fund-I 155,832 4.6 155,832 0 0%
Mark Claster 10,624 * 10,624 0 0%
First Financial Fund, Inc. 84,999 2.5 84,999 0 0%
Jeffrey Goldenberg 16,999 * 16,999 0 0%
Robert B. and Candy K. Goldstein 83,582 2.4 83,582 0 0%
David Henle & Joan Henle 16,999 * 16,999 0 0%
Joel E. Hyman & Elizabeth A. Cook 8,332 * 8,332 0 0%
Merrill, Lynch, Pierce, Fenner and
Smith CUST FBO Joel E. Hyman IRA 16,667 * 16,667 0 0%
D.M. Knott Limited Partnership 42,499 1.2 42,499 0 0%
John D. Koizim & Martha Castillo 16,999 * 16,999 0 0%
</TABLE>
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<PAGE>
<TABLE>
<C> <C> <C> <C> <C> <C>
Roger Leifer 7,083 * 7,083 0 0%
Long View Partners B 42,499 1.2 42,499 0 0%
Sherry Kassick 34,873 1.0 34,873 0 0%
Brigette A. Lyons 849 * 849 0 0%
Stephens Inc. Custodian for
Brigette A. Lyons IRA 5,680 * 5,680 0 0%
John J. Lyons 14,499 * 14,499 0 0%
Stephens Inc. Custodian for
John J. Lyons 20,636 * 20,636 0 0%
Edwin Marks 21,249 * 21,249 0 0%
Mix Avenue, L.L.C. 42,499 1.2 42,499 0 0%
Mutual Discovery Fund 155,832 4.6 155,832 0 0%
William T. & Maureen M. O'Brien 2,266 * 2,266 0 0%
Dominick Palumbo 1,416 * 1,416 0 0%
Elise C. Palumbo 1,699 * 1,699 0 0%
Raymond J. Peach 14,166 * 14,166 0 0%
Rainbow Partners LP 297,498 8.6 297,498 0 0%
Einar Paul Robsham 83,333 2.4 83,333 0 0%
Paul Schmidt 42,499 1.2 42,499 0 0%
David W. Wallace 28,333 * 28,333 0 0%
Whitewood Financial Partners, L.P. 828 * 828 0 0%
Ellen Wolf 21,249 * 21,249 0 0%
Cohen & Wolf 401(K) Plan under
an Agr dtd 7/1/89 FBO Austin Wolf
Trustees: Austin K. Wolf / Martin
F. Wolf / Irving J. Kern 16,291 * 16,291 0 0%
The Robert R. Young Foundation 42,499 1.2 42,499 0 0%
</TABLE>
- ---------------
* Indicates less than 1%.
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<PAGE>
CERTAIN TRANSACTIONS
On October 7, 1996, in connection with the Bank's capital plan required
by the Regulatory Agreement with the OCC, Regent sold an aggregate of 148,148
shares of Regent Common Stock at $6.75 per share to four Regent Directors in a
private placement pursuant to Section 4(2) of the Act as follows: Harvey Porter
(37,037 shares), David W. Ring (59,259 shares), Abraham L. Bettinger (14,185
shares) and O. Francis Biondi (37,037 shares). On October 7, 1996, the closing
bid price of Regent Common Stock, as reported by Nasdaq was $6.75 per share. The
aggregate net proceeds of $1 million from this sale were contributed to the
capital of the Bank.
Stephen D. Teaford, the husband of Barbara H. Teaford, the President of
the Bank, is a partner in the law firm of Duane, Morris & Heckscher LLP, to
which Regent and the Bank paid legal fees of approximately $403,000 in 1996.
During 1996, Regent paid insurance premiums of approximately $114,000
to Harry David Zutz Insurance, Inc., of which firm Harry D. Zutz, a director of
Regent from 1989 to May 28, 1997 and a director of the Bank, is Chairman of the
Board and a principal stockholder.
During 1996, Regent paid legal fees of approximately $87,000 to the law
firm of Morris, Nichols, Arsht & Tunnell, of which firm, O. Francis Biondi, a
director of Regent, has been a senior partner for many years.
During 1996, Regent paid consulting fees of approximately $78,000 to
Bettinger & Leech, Inc., for asset and liability management strategies and
advice concerning Regent's securities portfolio. Abraham L. Bettinger, a
director of Regent, is a principal of that firm. Regent discontinued the
services of Bettinger & Leech, Inc. in February 1997. In the opinion of Regent,
the services of Bettinger & Leech, Inc. were provided to Regent on terms and
conditions no less favorable to Regent than those than could have been obtained
from an unaffiliated party.
As of December 31, 1996, the Bank had outstanding loans to various
officers, directors and advisory directors of Regent and the Bank and their
families and various entities of which such persons are directors and officers.
Such loans were made in the ordinary course of the Bank's business, were made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with unrelated third parties,
and did not involve more than the normal risk of collectibility or present other
unfavorable features, except for the Funston loan described below.
Lance T. Funston, a director of Regent from 1986 to May 28, 1997, and
his wife are indebted to the Bank pursuant to a loan the outstanding principal
amount of which was approximately $701 thousand at May 31, 1997. The Funstons'
borrowing originated at $850,000 in November 1989 as a secured term loan for
business purposes. The loan is secured by a second mortgage lien against their
personal residence for which equity available to the Bank (based on a 1994 MAI
Appraisal) exceeded $1.2 million. The interest rate, collateral margin and
balance requirements conform to normal Bank standards.
On March 31, 1997, Joel E. Hyman, Executive Vice President, Chief
Financial Officer and Treasurer of Regent and the Bank, and his wife jointly
purchased 8,182 shares of Regent Series A Stock for $6.50 per share, an
aggregate purchase price of $53,183. On March 31, 1997, the closing bid price of
Regent Series A Stock, as reported by the National Quotation Bureau, Inc., was
$6.75 per share.
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<PAGE>
On April 16, 1997, the Bank sold 1,120,000 shares of Bank Common Stock
at a price of $8.50 per share, the approximate book value per share of the Bank
Common Stock as of April 1, 1997, in the Bank Offering for which Keefe, Bruyette
& Woods, Inc. ("KBW") served as the Bank's Placement Agent. See "Plan of
Distribution -- The Bank Offering." The purchasers included Robert B. Goldstein,
Chairman of the Board, Chief Executive Officer and a Director of the Bank and
President, Chief Executive Officer and a Director of Regent since April 14,
1997, and his wife, who purchased 59,000 shares of Bank Common Stock for an
aggregate purchase price of $501,500; John J. Lyons, President and Chief
Executive Officer from September 1996 until April 14, 1997, a Director of the
Bank from September 1996 until May 28, 1997 and a Director of Regent since May
28, 1997 , and his wife, who purchased an aggregate of 29,412 shares of Bank
Common Stock for an aggregate purchase price of $250,002; Joel E. Hyman,
Executive Vice President, Chief Financial Officer and Treasurer of Regent and
the Bank, and his wife, who purchased an aggregate of 17,647 shares of Bank
Common Stock for an aggregate purchase price of $150,000 and Castle Creek
Capital Partners Fund-I, of which John W. Rose, a Director of Regent, is a
general partner, which purchased 110,000 shares of Bank Common Stock for an
aggregate purchase price of $935,000.
PLAN OF DISTRIBUTION
Of the 2,151,385 shares of Regent Common Stock being registered hereby
1,586,659 shares are issuable to the holders of Bank Common Stock who purchased
their shares in the Bank Offering and 564,726 shares are issuable to the holders
of Regent Preferred Stock upon the conversion thereof into shares of Regent
Common Stock. The Bank Common Stock sold in the Bank Offering was offered to
accredited investors subject to a mandatory exchange for Regent Common Stock, at
the discretion of Regent, at any time after (i) the average of the closing bid
price for Regent Common Stock has equaled or exceeded $12 per share for 15
consecutive trading days and (ii) Regent Common Stock issuable in exchange for
the Bank Common Stock has been registered under the Act.
Shares of Regent Series A and Series E Stock are convertible into
shares of Regent Common Stock on a share-for-share basis and each share of
Series B, Series C and Series D Convertible Preferred Stock is convertible into
1.177 shares of Regent Common Stock.
Regent will not receive any cash proceeds from the offering of the
shares of Regent Common Stock that are issued in exchange for Bank Common Stock
or upon conversion of Regent Preferred Stock.
The estimated costs of the offering, exclusive of any underwriting
selling discounts or commissions to be borne by a seller of the Regent Common
Stock offered hereby, made hereby is $100,000, which costs shall be borne by
Regent.
Resale of Regent Common Stock to be exchanged for the Bank Common Stock
issued in the Bank Offering
As a result of the Bank's losses for the year ended December 31, 1995
and through the first nine months of 1996 and the resulting undercapitalization
of the Bank, on October 10, 1996, the Bank entered into the Regulatory Agreement
with the OCC pursuant to 12 U.S.C. ss.1818(b). The Regulatory Agreement
required, among other things, that the Bank achieve and maintain a Tier I
capital ratio of 6.50% or greater on and after December 31, 1996. At December
31, 1996, the Bank's Tier I capital ratio was 5.65%, and as a result the Bank
was no longer in compliance with the Regulatory Agreement.
-80-
<PAGE>
In January 1997, Regent and the Bank retained the investment banking
firm of KBW to serve as financial adviser to Regent and the Bank and to assist
Regent and the Bank in raising sufficient capital in order to resume compliance
with the Regulatory Agreement. With the advice of KBW, Regent and the Bank
determined to proceed with the sale of Bank Common Stock exchangeable for Regent
Common Stock because Regent's and the Bank's Boards of Directors believed the
Bank Common Stock would be more saleable than Regent Common Stock or Regent
Preferred Stock in light of the outstanding Regent Preferred Stock and that a
sale of Bank Common Stock could be completed more quickly so that the Bank could
more quickly achieve compliance with the Regulatory Agreement.
At the direction of the OCC, in February 1997 the Bank filed a revised
capital plan with the OCC, the principal element of which was the sale of Common
Stock of the Bank. On March 27, 1997, the OCC notified the Bank of the OCC's
acceptance of the Bank's revised capital plan.
On April 8, 1997, the Bank commenced the offering of 1,000,000 shares
of Bank Common Stock at a price of $8.50 per share on a best efforts, 750,000
shares or none, basis in a private placement for which KBW served as the Bank's
placement agent. The offering was made to "accredited investors" as defined in
Regulation D under the 1933 Act. The minimum purchase was 10,000 shares, and the
maximum purchase was 200,000 shares. On April 3, 1997, the closing bid price for
one share of Regent Common Stock as reported by Nasdaq was $6.75 per share, and,
on that date, the approximate book value of one share of Bank Common Stock was
$8.35.
In considering the exchange rate of Regent Common Stock for Bank Common
Stock, Regent's Board of Directors took into account the current bid price of
Regent Common Stock in the over-the-counter market, the advice of KBW, the
relatively low commission payable to KBW, the minimal trading volume in Regent
Common Stock compared to the number of shares of Regent Common Stock that would
be issuable upon consummation of the exchange of Regent Common Stock for Bank
Common Stock, the substantial decline in prevailing prices in the United States
securities markets in early April 1997 and the critical need of the Bank to
obtain additional capital as promptly as practicable. Regent's Board of
Directors concluded that the appropriate price of Regent Common Stock to use in
determination of the exchange ratio, and a ratio that would be attractive to
potential investors, was $6.00 per share which, based on the $8.50 per share
offering price of the Bank Common Stock, resulted in the exchange ratio of
1.41666 shares of Regent Common Stock for each share of Bank Common Stock.
In the three days following the commencement of the offering of the
Bank Common Stock, KBW, as the Bank's placement agent, received subscriptions
aggregating $19 million of Bank Common Stock. As a result, the Bank determined
to increase the number of shares of Bank Common Stock offered from 1,000,000
shares to 1,120,000 shares. On April 16, 1997, the Bank accepted subscriptions
for 1,120,000 shares of Bank Common Stock from approximately 40 investors and
realized net proceeds of approximately $8.9 million from the Bank Offering. The
Bank paid KBW a fee of $150 thousand in cash for providing financial advice to
Regent and the Bank and also paid KBW a placement agent fee equal to 2% of the
gross proceeds from the sale of the Bank Common Stock. The purchasers of the
Bank Common Stock were institutional investors that invest in bank turnaround
situations, members of Regent's new management team and business associates of
Robert B. Goldstein.
The Bank Common Stock sold in the Bank Offering is mandatorily
exchangeable for Regent Common Stock at the rate of 1.41666 shares of Regent
Common Stock for each share of Bank Common Stock at any time after (i) the
average of the closing bid price of Regent Common Stock has equaled or
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exceeded $12 per share for 15 consecutive trading days and (ii) the resale of
the Regent Common Stock issuable in exchange for the Bank Common Stock has been
registered under the 1933 Act. Regent, the Bank and each of the holders of the
Bank Common Stock issued in the Bank Offering have agreed to enter into the
Waiver Agreement whereby each of such holders will agree to waive the condition
precedent to the exchange relating to the bid price of Regent Common Stock which
agreement will permit such exchange of Regent Common Stock for Bank Common Stock
to occur immediately following the effectiveness of the Registration Statement
of which this Prospectus forms a part.
The Company has been advised that the resale by any persons who
acquired Regent Common Stock in exchange for Bank Common Stock or by pledgees,
donees or transferees of or other successors in interest to such persons, may be
effected pursuant to this Prospectus from time to time in one or more
transactions (which may involve block transactions) on the Nasdaq Small-Cap
Market or such other exchange or market in which the Regent Common Stock may
from time to time be trading, in negotiated transactions or in a combination of
any such transactions. Such transactions may be effected by such persons at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices, at negotiated prices or at fixed prices. Such persons
may effect such transactions by selling Regent Common Stock to or through
broker-dealers, including purchases by a broker-dealer as principal and resale
by such broker-dealer for its account pursuant to this Prospectus. Such
broker-dealers will receive compensation in the form of discounts or commissions
from such persons and may receive commissions from the purchasers of Regent
Common Stock for whom such broker-dealers may act as agents (which discounts or
commissions from such persons or such purchasers, if in excess of those
customary for the types of transactions involved, will be disclosed in a
supplementary prospectus).
Any broker-dealer that participates with such persons in the
distribution of Regent Common Stock may be deemed to be an "underwriter" within
the meaning of the 1933 Act, and any commissions or discounts received by such
broker-dealer and any profit on the resale of Regent Common Stock by such
broker-dealer may be deemed to be underwriting discounts and commissions under
the 1933 Act.
Promptly following the effectiveness of the Registration Statement of
which this Prospectus is a part, and in accordance with the provisions of the
Waiver Agreement, Regent will send letters of transmittal and other appropriate
and customary exchange material to the holders of Bank Common Stock for use in
exchanging certificates representing Bank Common Stock for certificates
representing Regent Common Stock.
To effect a proper surrender and exchange of certificates representing
Bank Common Stock, such certificates must be surrendered to Regent with a
properly executed and completed letter of transmittal. Regent shall have
reasonable discretion to determine whether letters of transmittal have been
properly completed and executed and to disregard immaterial defects, and any
good faith determinations of Regent regarding such matters shall be binding and
conclusive.
Neither certificates for fractions of shares of Regent Common Stock nor
scrip certificates will be issued, and holders of certificates representing Bank
Common Stock who would otherwise be entitled to receive fractions of shares of
Regent Common Stock will have none of the rights with respect to such fractions
of shares that a holder of full shares of Regent Common Stock would possess in
respect of such full share, and will receive in lieu thereof cash representing
such fractional interest based upon the closing bid price of Regent Common Stock
on the date of this Prospectus.
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Holders of certificates representing Bank Common Stock should not
surrender such certificates until a letter of transmittal, instructions and
other exchange materials are received from Regent.
DESCRIPTION OF CAPITAL STOCK
General
The following description of the terms of Regent's capital stock does
not purport to be a complete description and is subject to and qualified in its
entirety by reference to Regent's Certificate of Incorporation, the Certificate
of Designation relating to the Regent Preferred Stock and the provisions of New
Jersey law. Regent is authorized pursuant to its Certificate of Incorporation to
issue 15,000,000 shares of capital stock, of which 10,000,000 shares are Regent
Common Stock and 5,000,000 shares are Regent Preferred Stock.
Regent Common Stock
Regent is authorized to issue up to 10,000,000 shares of Regent Common
Stock, par value $.10 per share, of which 1,272,533 shares were outstanding as
of the close of business on June 30, 1997. Each outstanding share of Regent
Common Stock is entitled to one vote, either in person or by proxy, on all
matters that may be voted upon by the owners thereof at meetings of Regent's
stockholders. Holders of Regent Common Stock do not have cumulative voting
rights with respect to elections of directors of Regent.
The holders of Regent Common Stock (i) have equal and ratable rights to
dividends from funds legally available therefor, when, as and if declared by the
Board of Directors of Regent, (ii) are entitled to share ratably in all of the
assets of Regent available for distribution to holders of Regent Common Stock
upon liquidation, dissolution or winding up of the affairs of Regent; and (iii)
do not have preemptive or redemption provisions applicable thereto. See "Regent
Stock Information -- Dividend Policy."
Regent Preferred Stock
Regent is authorized to issue up to 5,000,000 shares of Regent
Preferred Stock, par value $.10 per share, in one or more series, with such
designations and such relative voting, dividend, liquidation, conversion and
other rights, preferences and limitations as shall be set forth in the
Certificates of Designation relating thereto as adopted by Regent's Board of
Directors.
As of June 30, 1997, the five series of Regent Preferred Stock, par
value $.10 per share, created by the Board of Directors of Regent and the number
of authorized and outstanding shares, respectively, of each such series was as
follows: (i) 1,000,000 authorized shares of Series A Stock of which 421,764
shares were outstanding; (ii) 500,000 authorized shares of Series B Convertible
Preferred Stock ("Series B Stock") of which 3,690 shares were outstanding; (iii)
500,000 authorized shares of Series C Convertible Preferred Stock ("Series C
Stock") of which 2,925 shares were outstanding; (iv) 500,000 authorized shares
of Series D Convertible Preferred Stock ("Series D Stock") of which 3,280 shares
were outstanding and (v) 500,000 authorized shares of Series E Stock of which
131,315 shares were outstanding.
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On June 1, 1989, Regent completed a public offering that included
530,000 shares of Regent's Series A Stock. Subsequently thereto, Regent has paid
annual dividends on the Regent Series A Stock at the rate of one share of Regent
Preferred Stock for each ten outstanding shares of Regent Series A Stock.
Payment of this annual dividend was effected by the issuance of Regent Series B
Stock in 1990, Regent Series C Stock in 1991, Regent Series D Stock in 1992 and
Regent Series E Stock in 1993 and subsequent years. In addition, Regent sold
16,634 shares of Regent Series A Stock in March 1997 in a private placement.
All of the Regent Preferred Stock is redeemable at any time at the
option of Regent upon not less than 30 days notice at a price of $10.00 per
share plus declared but unpaid dividends. All of the Regent Preferred Stock is
also convertible into Regent Common Stock at any time at the option of the
holder thereof at the rate of one share of Regent Common Stock for each share of
Regent Series A Stock or Regent Series E Stock and at the rate of 1.177 shares
of Regent Common Stock for each share of Regent Series B Stock, Regent Series C
Stock or Regent Series D Stock.
Since Regent Common Stock has traded at a price in excess of the $10.00
per share redemption price at all times since late April 1997, Regent's Board of
Directors has determined to call for redemption during the fourth quarter of
1997 all of the Regent Preferred Stock with the expectation that substantially
all of the holders of Regent Preferred Stock will exercise their right to
convert their Regent Preferred Stock into Regent Common Stock in order to avoid
the diminution in value that would occur if they received the redemption price
of $10.00 per share in cash and paid any applicable taxes thereon compared to
the current market value of the Regent Preferred Stock they would receive upon
conversion.
Promptly following the effectiveness of the Registration Statement of
which this Prospectus forms a part, Regent intends to mail to each holder of
record of Regent Preferred Stock this Prospectus and a letter of transmittal
together with a letter advising such holder of the convertibility of the Regent
Preferred Stock, setting forth the recommendation of the Board of Directors of
Regent that each holder of Regent Preferred Stock convert his or her Regent
Preferred Stock into Regent Common Stock before the Regent Preferred Stock is
redeemed and explaining the procedure to be followed for the conversion of
Regent Preferred Stock into Regent Common Stock.
When Regent's Board of Directors determines to call the Regent
Preferred Stock for redemption, which is expected to occur not later than the
fourth quarter of 1997, Regent will provide not less than 30 days prior written
notice of the date fixed for redemption of the Regent Preferred Stock. The
holders of Regent Preferred Stock will have the right to convert their Regent
Preferred Stock into Regent Common Stock until the date fixed for redemption. On
and after the date fixed for redemption, Regent Preferred Stock will represent
only the right to receive in cash the redemption price of $10.00 per share plus
any declared but unpaid dividends.
To effect the conversion of certificates representing Regent Preferred
Stock into certificates representing Regent Common Stock, holders of Regent
Preferred Stock must deliver such certificates for surrender to Regent or its
transfer agent, together with a properly executed and completed letter of
transmittal. Regent shall have reasonable discretion to determine whether
letters of transmittal have been properly completed and executed and to
disregard immaterial defects, and any good faith determinations of Regent
regarding such matters shall be binding and conclusive.
The delivery of certificates of Regent Preferred Stock and letters of
transmittal may be delivered to either Regent or Regent's transfer agent as
follows:
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<TABLE>
Regent Transfer Agent
<S> <C>
Regent Bancshares Corp. Continental Stock Transfer & Trust Company
1430 Walnut Street 2 Broadway
Philadelphia, PA 19102 New York, NY 10004
Attention: Joel E. Hyman, Attention: William F. Seegraber,
Executive Vice President Vice President - Compliance
(215) 546-6500 (212) 212-509-4000 (extension 204)
</TABLE>
The method of delivery of certificates representing Regent Preferred Stock and
letters of transmittal is at the option and sole risk of the converting
stockholder, and the delivery will be deemed made only when received by Regent
or its transfer agent. If delivery is by mail, registered mail with return
receipt requested, properly insured, is recommended. In all cases, sufficient
time should be allowed to ensure timely delivery.
The following is a brief description of the terms of the Regent
Preferred Stock, which is subject to and qualified in its entirety by reference
to Regent's Certificate of Incorporation, the Certificates of Designation
relating to the Regent Preferred Stock and New Jersey law.
Dividends
The holders of Series A Stock are entitled to receive preferred stock
dividends, payable annually in shares of Series E Stock, in that amount as is
equal to 10% of the number of shares of Series A Stock owned at the respective
record dates. The holders of Series A Stock received stock dividends paid in
shares of Series B Stock in 1990, Series C Stock in 1991, Series D Stock in 1992
and Series E Stock in 1993 and subsequent years.
The holders of Regent Preferred Stock are also entitled to receive cash
dividends on a noncumulative basis when, as and if declared by the Board of
Directors of Regent. See "Regent Stock Information -- Dividend Policy."
Optional Redemption
The outstanding shares of Regent Preferred Stock are redeemable in
whole or in part at the option of Regent at a price of $10 per share plus any
accrued but unpaid dividends.
If less than all of the outstanding shares of Regent Preferred Stock
not previously called for redemption are to be redeemed, Regent will select
those to be redeemed pro rata or by lot or in such other manner as the Board of
Directors of Regent may determine. There is no mandatory redemption or sinking
fund obligation with respect to the Regent Preferred Stock.
In the event that Regent exercises its right of redemption, notice of
redemption must be mailed at least 30 days but not more than 60 days before the
redemption date to each holder of record of shares of Regent Preferred Stock to
be redeemed at the address thereof as shown on the books of Regent. On and after
the redemption date, dividends cease (except for any declared but unpaid
dividends) on shares of Regent Preferred Stock called for redemption and all
rights of the holders of such shares terminate except the right to receive the
redemption price, unless Regent defaults in the payment of the redemption price.
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Conversion Rights
The shares of Regent Preferred Stock are convertible, at the option of
the holder at any time prior to the close of business on the date fixed for any
redemption called by Regent (unless Regent shall default in making the payment
due upon redemption), as follows: (i) each outstanding share of Series A Stock
and Series E Stock is convertible into one share of Regent Common Stock and (ii)
each outstanding share of Series B, Series C and Series D Stock is convertible
into 1.177 shares of Regent Common Stock.
The conversion rate is subject to adjustment in the manner provided in
Regent's Certificate of Incorporation and in the Certificates of Designation
relating to Regent's Preferred Stock in the event of: (i) payment of certain
stock dividends, stock split-ups or combinations or other similar
recapitalizations or (ii) the issuance of certain rights or warrants to holders
of Regent Common Stock entitling them to subscribe for or purchase Regent Common
Stock at a price less than the then current market price therefor, as defined in
Regent's Certificate of Incorporation and in the Certificates of Designation
relating to Regent's Preferred Stock, at the time of issuance. No adjustment in
the conversion rate is required unless it would result in at least a 1% increase
or decrease in that rate; however, any adjustment not made is carried forward.
In case of any consolidation or merger of Regent with or into any other
corporation or any sale or transfer of all or substantially all of the assets of
Regent, Regent or any successor corporation is required to make provision so
that any holder of Regent Preferred Stock will be entitled, after the occurrence
of any such event, to receive on conversion the consideration that the holder of
Regent Preferred Stock would have received had the holder converted the Regent
Preferred Stock into Regent Common Stock immediately prior to the occurrence of
the event.
Voting Rights
The holders of Series A Stock have full non-cumulative voting rights,
share for share, with Regent Common Stock and any other class or series of
Regent's stock which at any time may have general voting power with Regent
Common Stock concerning any matter submitted to a vote of stockholders.
The approval of the holders of at least two-thirds of the shares of
Series A Stock then outstanding is required to amend, alter or repeal any of the
provisions of Regent's Certificate of Incorporation or the Certificate of
Designation relating to the Series A Stock or to authorize any reclassification
of Series A Stock, in either case so as to affect adversely the preferences,
special rights or powers of Series A Stock, either directly or indirectly or
through a merger or consolidation with any corporation, or to authorize any
capital stock of Regent ranking, either as to the payment of dividends or upon
liquidation, dissolution or winding up of Regent, prior to the Series A Stock.
The approval of the holders of at least a majority of the outstanding shares of
Series A Stock, voting as a class, is required to increase the authorized number
of shares of Series A Stock or to create, or increase the authorized number of
shares of, any other class of stock of Regent ranking on a parity with the
Series A Stock as to dividends or upon liquidation, dissolution, or winding up
of Regent.
The holders of shares of Series B Stock, Series C Stock, Series D Stock
and Series E Stock are not entitled to any voting rights on any matter, except
as required by applicable law.
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Liquidation Rights
The holders of Regent Preferred Stock are entitled to receive $10 per
share (plus any accrued and unpaid dividends) before any distribution is made to
holders of Regent Common Stock or any other junior stock of Regent in the event
of the dissolution, liquidation or winding up of Regent. If, in any such event,
the assets of Regent distributable among the holders of Regent Preferred Stock
or any capital stock of Regent ranking on par with the Regent Preferred Stock
are insufficient to permit full payment of such liquidation preference, the
holders of Regent Preferred Stock and of any capital stock of Regent ranking on
a par with Regent Preferred Stock will be entitled to ratable distribution of
Regent's available assets in accordance with the respective amounts that would
be payable to such holders if the liquidation preferences payable in respect of
such shares were paid in full. A consolidation, merger or sale of all or
substantially all of the assets of Regent is not considered a liquidation,
dissolution or winding up for this purpose.
The Bank Common Stock
The Bank's authorized capital stock consists of 3,000,000 shares of
Common Stock, par value $1.00 per share. At June 30, 1997, 2,375,000 shares of
Bank Common Stock were outstanding, of which 1,275,000 shares were held by
Regent and of which 1,100,000 shares were held in the aggregate by the 36
purchasers of Bank Common Stock in the Bank Offering. See "Principal
Stockholders" for certain information as to the Bank Common Stock held as of
June 30, 1997 by each director and each executive officer of Regent as well as
by other holders of more than 5% of the outstanding Regent Common Stock. With
the exception of Regent, there is no holder of more than 5% of the outstanding
Bank Common Stock.
Holders of Bank Common Stock are entitled to one vote for each share
held of record on each matter submitted to a vote at meetings of the Bank's
shareholders. Holders of Bank Common Stock do not have cumulative voting rights
with respect to elections of directors of the Bank.
The holders of Bank Common Stock (i) have equal and ratable rights to
dividends from funds legally available therefor, when, as and if declared by the
Board of Directors of the Bank, (ii) are entitled to share ratably in all of the
assets of the Bank available for distribution to holders of Bank Common Stock
upon liquidation, dissolution or winding up of the affairs of the Bank and (iii)
do not have preemptive or redemption provisions applicable thereto.
The Bank Common Stock issued in the Bank Offering is subject to a
mandatory exchange for Regent Common Stock, at the discretion of Regent, at any
time after (i) the average of the closing bid price for Regent Common Stock has
equaled or exceeded $12 per share for 15 consecutive trading days and (ii) the
resale of Regent Common Stock issuable in exchange for the Bank Common Stock has
been registered under the 1933 Act. See "Plan of Distribution -- The Bank
Offering" for further information regarding the exchange of Regent Common Stock
for Bank Common Stock.
Limitation of Liability
Article VIII of Regent's By-laws requires that Regent indemnify its
officers and directors, including former officers and directors, and permits
Regent to indemnify its employees and agents, to the full extent permitted by
the New Jersey Business Corporation Act (the "NJBCA") and to pay and advance
expenses for matters covered by indemnification to the full extent permitted by
the NJBCA.
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Section 14A:3-5 of the NJBCA gives a corporation the power, without a
specific authorization in its certificate of incorporation or by-laws, to
indemnify a director, officer, employee or agent (collectively, an "Agent")
against expenses and liabilities incurred in connection with certain
proceedings, involving the Agent by reason of his or her being or having been
such an Agent, provided that with regard to a proceeding other than one by or in
the right of the corporation, the Agent must have acted in good faith and in a
manner the Agent reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to any criminal proceeding, such
Agent had no reasonable cause to believe his or her conduct was unlawful. The
termination of a proceeding by judgment, order, settlement, conviction or upon
plea of nolo contendere or its equivalent does not of itself create a
presumption that any such Agent failed to meet the applicable standards of
conduct. The indemnification provided by the NJBCA does not exclude any rights
to which an Agent may be entitled under a certificate of incorporation, by-law,
agreement, vote of stockholders or otherwise. No indemnification, other than
that required when an Agent is successful on the merits or otherwise in any of
the above proceedings, shall be allowed if such indemnification would be
inconsistent with a provision of the certificate of incorporation, a by-law or a
resolution of the board of directors or of the stockholders, an agreement or
other proper corporate action in effect at the time of the accrual of the
alleged cause of action which prohibits, limits or otherwise conditions the
exercise of indemnification powers by the corporation or the rights of
indemnification to which an Agent may be entitled.
Regent provides liability insurance for each director and officer for
certain losses arising from claims or charges made against them while acting in
their capacities as directors or officers of Regent up to an aggregate of $5
million inclusive of defense costs, expenses and charges.
In addition, as permitted by the NJBCA, Article Seventh of Regent's
Certificate of Incorporation provides that no director of Regent shall incur
personal liability to Regent or its stockholders for damages for breach of any
duty owed to Regent or its stockholders; provided, however, that this provision
does not eliminate or limit the liability of a director for (i) any breach of
the director's duty of loyalty to Regent or its stockholders; (ii) acts or
omissions not in good faith or which involve a knowing violation of law or (iii)
any transaction from which the director derived an improper personal benefit.
The employment agreements among Regent, the Bank and each of Robert B.
Goldstein and Joel E. Hyman (individually, the "Executive") include a provision
providing for indemnification to the fullest extent permitted by law, for any
and all liabilities to which the Executive or his estate may be subject as a
result of, in connection with or arising out of his service as an employee, an
officer or a director of Regent or the Bank under such employment agreement or
his service as an employee, officer or director of another enterprise at the
request of Regent or the Bank, as well as the costs and expenses, including
attorneys' fees, of any legal action brought or threatened to be brought against
the Executive or Regent or the Bank as a result of, in connection with or
arising out of such employment. In addition, each employment agreement further
provides that Regent and the Bank will advance professional fees and
disbursements to the Executive in connection with any such legal action,
provided that the Executive delivers to Regent and the Bank his undertaking to
repay any expenses so advanced in the event it is ultimately determined that the
Executive is not entitled to indemnification against such expenses. Expenses
reasonably incurred by the Executive in successfully establishing the right to
indemnification or advancement of expenses, in whole or in part, under such
employment agreements, shall also be indemnified by Regent and the Bank. The
Executive is also entitled to the full protection of any insurance policies
which Regent or the Bank may elect to maintain generally for the benefit of
their respective directors and officers. The rights granted under such
employment agreements survive the termination of such agreements.
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Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers or persons controlling Regent pursuant to the
foregoing provisions, Regent has been informed that in the opinion of the
Commission, such indemnification is against public policy as expressed in the
Act and is therefore unenforceable.
Anti-takeover Provisions
Under the CBCA, a 60-day prior written notice must be submitted to the
FRB if any person or group acting in concert seeks to acquire 10% or more of any
class of outstanding voting securities of Regent, unless the FRB determines that
the action will not result in a change of control of Regent. Under the CBCA, the
FRB has 60 days within which to act on such notice taking into account certain
factors, including the financial and managerial resources of the acquiror, the
convenience and needs of the community served by the bank holding company and
its subsidiary banks and the antitrust effects of the acquisition.
Under the BHCA, a company is generally required to obtain the prior
approval of the FRB before it may obtain control of a bank holding company.
Control is generally described to mean the beneficial ownership of 25% or more
of all outstanding voting securities of a company.
Section 112 of the Pennsylvania Banking Code of 1965, as amended,
provides that no person or group shall acquire or propose to acquire, without
the prior approval of the Department, more than 10% of the outstanding shares of
any bank, including a national bank, such as the Bank, located in Pennsylvania.
Section 112 exempts from its application and approval requirements (i)
transactions by persons already controlling the bank, (ii) mergers subject to
the approval of the OCC, (iii) certain transactions by broker-dealers on a
national securities exchange or in the over-the-counter market and (iv) such
other transactions as the Department may exempt by regulation.
The New Jersey Shareholders Protection Act (the "Shareholders Act")
prohibits certain transactions involving an "interested shareholder" and a New
Jersey corporation, such as Regent. An "interested shareholder" is generally
defined as one who is the beneficial owner, directly or indirectly, of 10% or
more of the voting power of the outstanding stock of the corporation. The
Shareholders Act prohibits certain business combinations between an interested
shareholder and a New Jersey corporation subject to the Shareholders Act for a
period of five years after the date the interested shareholder acquired his
stock, unless such acquisition was approved by the corporation's board of
directors prior to the acquisition by the interested shareholder. After the
five-year period expires, the prohibition on business combinations with an
interested shareholder continues unless certain conditions are met. The
conditions include (i) that the business combination is approved by the board of
directors of the corporation to be acquired, (ii) that the business combination
is approved by a vote of two-thirds of the voting stock not owned by the
interested shareholder and (iii) that the shareholders of the corporation to be
acquired receive consideration in accordance with a fair price formula set forth
in the Shareholders Act.
The foregoing provisions as applicable to Regent and the Bank could
inhibit unsolicited offers to acquire Regent.
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Transfer Agent
The transfer agent and registrar for Regent's Common Stock and
Preferred Stock is Continental Stock Transfer & Trust Company, 2 Broadway, New
York, NY 10004.
INTERESTS OF NAMED EXPERTS AND COUNSEL
The consolidated financial statements of Regent and its subsidiary,
Regent National Bank, and the related consolidated statements of operations,
shareholders' equity and cash flows, have been audited and reported on by Arthur
Andersen LLP, independent certified public accountants, for the four years ended
December 31, 1995 and by Grant Thornton LLP, independent certified public
accountants, for the year ended December 31, 1996, as indicated in their reports
with respect thereto, and are included herein in reliance upon the authority of
said firms as experts in giving said reports.
The validity of the issuance of the shares of Regent Common Stock
registered hereby will be passed upon for Regent by Duane, Morris & Heckscher
LLP, Philadelphia, Pennsylvania. Stephen D. Teaford, a partner in the law firm
of Duane, Morris & Heckscher LLP, is the husband of Barbara H. Teaford, the
President of the Bank. As of June 30, 1997, partners of the law firm of Duane,
Morris & Heckscher LLP owned 85,375 shares of Regent's Common Stock, 15,782
shares of Series A Stock and 4,618 shares of Series E Stock.
AVAILABLE INFORMATION
Regent is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "1934 Act"), and in accordance therewith files reports
and other information with the Commission. Certain information, as of particular
dates, concerning the directors and officers of Regent, their remuneration and
certain other benefits, the principal holders of Regent's securities and any
material interest of such persons in transactions with Regent is disclosed in
reports filed with the Commission. Such reports and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the following Regional Offices of the Commission: Suite 1400, Citicorp Center,
500 West Madison Street, Chicago, Illinois 60661 and Suite 1300, Seven World
Trade Center, New York, New York 10048. Copies of such material can also be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission also
maintains a Web site that contains reports, proxy information statements and
other information regarding registrants at the following address:
(http://www.sec.gov). Regent Common Stock is quoted on the Nasdaq Small-Cap
Market. Reports, proxy statements and other information concerning Regent can be
inspected at the offices of the Nasdaq Stock Market, 1735 K Street, N.W.,
Washington, D.C. 20006.
Regent furnishes its stockholders with annual reports containing
financial statements and an opinion thereon expressed by Regent's independent
auditors and with quarterly reports for the first three quarters of each year
containing unaudited financial information.
Regent has filed with the Commission, Washington, D.C. 20549, a
Registration Statement under the Act with respect to the shares of Common Stock
offered hereby. This Prospectus does not contain all
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of the information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to Regent and the Common
Stock offered hereby, reference is made to such Registration Statement and
exhibits. Statements contained in this Prospectus as to the contents of any
contract or other document referred to herein represent materially complete
summaries of such contents. With respect to each such contract or other document
filed with, or incorporated by reference in, such Registration Statement,
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement for a more complete description of the
matter involved, and each statement shall be deemed qualified in all respects by
such reference. A copy of the Registration Statement may be inspected without
charge at the offices of the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549, and copies of all or any part thereof may be obtained from the
Commission upon the payment of certain fees prescribed by the Commission.
-91-
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Certified Public Accountants........................................................... 93
Report of Independent Certified Public Accountants........................................................... 94
Consolidated Balance Sheets as of December 31, 1996 and 1995
and as of March 31, 1997 (Unaudited)................................................................ 95
Consolidated Statements of Operations for the years ended December 31, 1996,
1995 and 1994 and for the three months
ended March 31, 1997 and 1996 (Unaudited)........................................................... 96
Consolidated Statements of Shareholders' Equity for the years ended December 31,
1996, 1995 and 1994 and for the three months
ended March 31, 1997 and 1996 (Unaudited)........................................................... 97
Consolidated Statements of Cash Flow for the years ended December 31, 1996, 1995
and 1994 and for the three months
ended March 31, 1997 and 1996 (Unaudited)........................................................... 98
Notes to Consolidated Financial Statements................................................................... 99
</TABLE>
-92-
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
of Regent Bancshares Corp.
We have audited the accompanying consolidated balance sheet of Regent
Bancshares Corp. (a New Jersey corporation) and subsidiary (the Bank) as of
December 31, 1996, and the related consolidated statements of operations,
shareholders' equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
As discussed in Note 3 to the consolidated financial statements, Bank's
Tier 1 leverage ratio, as defined by the Office of the Comptroller of the
Currency (OCC), of 5.65% was below the 6.5% specified under the Regulatory
Agreement entered into between the Bank and the OCC. The Bank has filed, and the
OCC has accepted, a capital plan for attaining the required level of regulatory
capital.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Regent
Bancshares Corp. and subsidiary as of December 31, 1996, and the consolidated
results of their operations and their consolidated cash flows for the year then
ended in conformity with generally accepted accounting principles.
GRANT THORNTON LLP
Philadelphia, Pennsylvania
March 27, 1997 (except for Note 18, as to which
the date is March 31, 1997)
-93-
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
of Regent Bancshares Corp.:
We have audited the accompanying consolidated balance sheet of Regent
Bancshares Corp. (a New Jersey corporation) and subsidiary as of December 31,
1995, and the related consolidated statements of operations, shareholders'
equity and cash flows for the year then ended and for the year ended December
31, 1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 3 and Note 5, the Bank recognized a loss from
operations for the year ended December 31, 1995 primarily as a result of a
substantial increase in the provision for loan losses associated with its
insurance premium finance loan portfolio. As a result, the Bank did not meet the
Tier 1 leveraged capital requirement established by the Office of the
Comptroller of the Currency (OCC) for the Bank under the OCC's discretionary
authority. Additionally, on a consolidated basis, the parent company's Tier 1
leveraged capital ratio amounts to 4%, which equals the minimum legal
requirement. Failure to meet minimum capital requirements can result in the
regulators initiating certain actions that, if undertaken, could have a direct
material effect on the Bank's financial statements. Such actions are presently
uncertain and, accordingly, no adjustments have been made in the accompanying
financial statements.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Regent
Bancshares Corp. and subsidiary as of December 31, 1995, and the results of
their operations and their cash flows for the years ended December 31, 1995 and
1994, in conformity with generally accepted accounting principles.
As described in Note 2 of the consolidated financial statements, the
Company changed its method of accounting for investments in debt and equity
securities.
ARTHUR ANDERSEN LLP
Philadelphia, Pennsylvania
May 23, 1996
-94-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------------------
March 31, 1997 1996 1995
-------------- ------------ ------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 3,707,526 $ 4,409,674 $ 6,857,498
Overnight investments 8,980,028 5,083,790 308,563
------------ ------------ ------------
Cash and cash equivalents 12,687,554 9,493,464 7,166,061
Investment securities available for sale 31,302,835 30,469,710 47,477,880
Investment securities held to maturity (market value of
$70,885,151, $73,250,139 and $89,895,504, respectively) 72,676,922 75,082,982 91,244,148
Mortgage loans held for sale --- --- 12,873,725
Loans, net of unearned interest and fees 75,192,000 85,069,171 105,910,034
Less: Allowance for loan losses (2,274,511) (3,059,773) (6,500,882)
------------ ------------ ------------
Net loans 72,917,489 82,009,398 99,409,152
------------ ------------ ------------
Accrued interest receivable 1,521,721 1,362,276 1,739,969
Premises and equipment, net 628,512 695,874 704,487
Prepaid expenses and other assets 1,003,889 2,790,522 1,896,639
------------ ------------ ------------
Total assets $192,738,922 $201,904,226 $262,512,061
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand deposits $ 9,767,455 $ 10,986,013 $ 12,621,000
Interest bearing:
NOW and money market 7,088,984 6,583,384 7,623,514
Savings 43,754,891 47,830,169 50,602,549
Certificates of deposit 116,544,449 119,726,797 125,284,579
------------ ------------ ------------
Total deposits 177,155,779 185,126,363 196,131,642
Advances from Federal Home Loan Bank of Pittsburgh 200,312 202,621 43,655,302
Subordinated debentures 2,750,000 2,750,000 2,750,000
Accrued interest payable 3,665,146 4,792,911 5,310,396
Other liabilities 1,005,087 899,614 4,311,365
------------ ------------ ------------
Total liabilities 184,776,324 193,771,509 252,158,705
------------ ------------ ------------
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.10 par value, 5,000,000 shares authorized
Series A, 443,436, 441,272 and 484,032 shares issued and
outstanding; entitled to $4,434,360 in involuntary liquidation 44,344 44,127 48,403
Series B, 3,790, 3,820 and 4,270 shares issued and outstanding;
entitled to $37,900 in involuntary liquidation 379 382 427
Series C, 3,025, 3,025 and 3,485 shares issued and outstanding;
entitled to $30,250 in involuntary liquidation 303 303 349
Series D, 3,280, 3,280 and 3,790 shares issued and outstanding;
entitled to $32,800 in involuntary liquidation 328 328 379
Series E, 93,379, 95,654 and 85,615 shares issued and outstanding;
entitled to $955,640 in involuntary liquidation 9,338 9,565 8,562
Common stock, $.10 par value, 10,000,000 shares authorized,
1,244,793, 1,228,283 and 997,615 shares issued
and outstanding 124,479 122,828 99,761
Additional paid-in capital 14,783,103 14,678,375 13,300,855
Accumulated deficit (6,230,342) (6,049,921) (2,956,765)
Net unrealized loss on securities available for sale (769,334) (673,270) (148,615)
------------ ------------ ------------
Total shareholders' equity 7,962,598 8,132,717 10,353,356
------------ ------------ ------------
Total liabilities and shareholders' equity $192,738,922 $201,904,226 $262,512,061
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
-95-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months
Ended March 31, Year Ended December 31,
------------------------- -----------------------------------------
1997 1996 1996 1995 1994
----------- ----------- ------------- ----------- ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Interest income:
Loans, including fees $ 2,142,302 $ 3,063,283 $13,221,139 $11,160,803 $ 6,313,866
Investment securities, including dividends 1,856,307 2,279,504 8,298,119 9,998,770 10,850,612
----------- ----------- ------------- ----------- ------------
Total interest income 3,998,609 5,342,787 21,519,258 21,159,573 17,164,478
Interest expense:
Deposits 2,347,186 2,579,037 10,258,596 9,517,438 9,006,507
Short-term borrowings 3,968 547,060 1,481,098 2,788,852 1,857,622
Long-term debt 57,599 160,524 721,776 246,661 508,531
----------- ----------- ------------- ----------- ------------
Total interest expense 2,408,753 3,286,621 12,461,470 12,552,951 11,372,660
----------- ----------- ------------- ----------- ------------
Net interest income 1,589,856 2,056,166 9,057,778 8,606,622 5,791,818
Provision for loan losses (200,000) 175,000 5,092,156 4,905,000 860,000
----------- ----------- ------------- ----------- ------------
Net interest income after
provision for loan losses 1,789,856 1,881,166 3,965,632 3,701,622 4,931,818
Non-interest income:
Service charges on deposit accounts 20,493 22,980 102,898 82,565 102,452
Other 12,068 4,746 21,176 21,120 63,966
Net gain on sales of assets 545,113 -- 88,617 303 35,465
----------- ----------- ------------- ----------- ------------
Total non-interest income 577,674 27,726 212,691 103,988 201,883
Non-interest expense:
Salaries and employee benefits 768,632 498,721 2,103,998 1,686,979 1,449,481
Professional services 1,038,012 209,885 865,721 1,272,236 560,441
Rent 10,526 43,464 173,855 173,855 173,865
Other occupancy expense 41,511 43,616 183,685 161,730 118,460
Depreciation and amortization 69,789 55,900 250,661 183,699 157,301
FDIC assessment and other insurance 131,009 15,592 141,412 297,074 505,927
Litigation settlement -- -- -- 175,000 --
IPF servicing 320,312 412,794 2,323,491 2,132,104 168,235
Other 168,160 266,028 1,181,484 1,313,030 1,238,066
----------- ----------- ------------- ----------- ------------
Total non-interest expense 2,547,951 1,546,000 7,224,307 7,395,707 4,371,776
----------- ----------- ------------- ----------- ------------
Income (loss) before provision for
income taxes (benefit) (180,421) 362,892 (3,045,984) (3,590,097) 761,925
Income tax expense (benefit) -- 145,100 (350,000) (463,500) 259,100
----------- ----------- ------------- ----------- ------------
Income (loss) before dividends on preferred stock (180,421) 217,792 (2,695,984) (3,126,597) 502,825
Preferred stock dividends 83,145 144,600 141,650 487,408 287,222
----------- ----------- ------------- ----------- ------------
Net income (loss) applicable to common stock (263,566) 73,192 (2,837,634) (3,614,005) 215,603
----------- ----------- ------------- ----------- ------------
Net income (loss) per common share $ (.20) $ .05 $ (2.42) $ (3.41) $ .22
Weighted average number of shares outstanding 1,343,604 1,357,980 1,170,564 1,059,312 989,611
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
-96-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Net
unrealized
loss on
Retained investment
Preferred Stock Common Stock Additional earnings securities
------------------ ------------------ paid-in (accumulated available
Shares Amount Shares Amount capital deficit) for sale Total
------ ------ ------ ------ ---------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 587,333 $58,734 887,594 $88,759 $12,606,702 $ 371,548 $ -- $13,125,743
Issuance of preferred stock
as dividends 51,912 5,191 -- -- 390,638 (395,829) -- --
Conversion of preferred stock
to common stock (36,630) (3,663) 36,815 3,682 (19) -- -- --
Net unrealized loss on
investment securities
available for sale -- -- -- -- -- -- (1,423,000) (1,423,000)
Net income -- -- -- -- -- 502,825 -- 502,825
------- -------- --------- ------- ----------- ---------- ----------- -----------
Balance, December 31, 1994 602,615 60,262 924,409 92,441 12,997,321 478,544 (1,423,000) 12,205,568
Issuance of preferred stock
as dividends 51,452 5,145 -- -- 303,567 (308,712) -- --
Conversion of preferred stock
to common stock (72,875) (7,287) 73,206 7,320 (33) -- -- --
Change in net unrealized gain
on investment securities
available for sale 1,274,385 1,274,385
Net loss -- -- -- -- -- (3,126,597) -- (3,126,597)
------- -------- --------- ------- ----------- ---------- ----------- -----------
Balance, December 31, 1995 581,192 58,120 997,615 99,761 13,300,855 (2,956,765) (148,615) 10,353,356
Issuance of preferred stock
as dividends 48,144 4,814 -- -- 392,358 (397,172) -- --
Issuance of common stock -- -- 148,148 14,815 985,185 -- -- 1,000,000
Conversion of preferred stock
to common stock (82,285) (8,229) 82,520 8,252 (23) -- -- --
Change in net unrealized loss
on investment securities
available for sale -- -- -- -- -- -- (524,655) (524,655)
Net loss -- -- -- -- -- (2,695,984) -- (2,695,984)
------- -------- --------- ------- ----------- ---------- ----------- -----------
Balance, December 31, 1996 547,051 54,705 1,228,283 122,828 14,678,375 (6,049,921) (673,270) 8,132,717
Issuance of preferred stock 16,364 1,636 -- -- 104,730 -- -- 106,366
Conversion of preferred stock
to common stock (16,505) (1,649) 16,510 1,651 (2) -- -- --
Change in net unrealized loss
on investment securities
available for sale -- -- -- -- -- -- (96,064) (96,064)
Net loss -- -- -- -- -- (180,421) -- (180,421)
------- -------- --------- ------- ----------- ---------- ----------- -----------
Balance (Unaudited),
March 31, 1997 546,910 $ 54,692 1,244,793 $ 124,479 $14,783,103 $(6,230,342) $(769,334) $7,962,598
======= ======== ========= ========= =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
-97-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Three Months
Ended March 31, Year Ended December 31,
--------------------------- -----------------------------------------
1997 1996 1996 1995 1994
---------- ------------ ------------ ----------- ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (180,421) $ 217,792 $ (2,695,984) $(3,126,597) $ 502,825
Adjustments to reconcile net income (loss)
to net cash (used in) provided by operating activities
Provision for loan losses (200,000) 175,000 5,092,156 4,905,000 860,000
Depreciation and amortization 69,789 55,900 250,661 183,699 157,301
Net amortization of premiums and accretion of
discounts on investment securities 96,799 212,411 1,345,299 643,853 1,248,214
Net gain on sales of assets (545,113) -- -- -- --
Increase (decrease) in unearned interest and fees (500,825) 140,580 (768,777) 977,940 432,246
(Increase) decrease in accrued interest receivable (159,446) 19,921 377,693 211,275 16,401
(Increase) decrease in prepaid expenses and
other assets 2,331,484 (430,281) (893,882) (53,655) 826,797
Increase (decrease) in accrued interest payable (1,127,765) (991,488) (517,485) 3,070,328 654,283
Increase (decrease) in other liabilities 505,473 160,068 (3,411,751) 2,155,378 1,970,534
Purchases of mortgage loans held for sale -- (12,614,352) (48,696,036) (68,001,403) (301,014,991)
Proceeds from sales of mortgage loans held
for sale -- 11,746,388 61,575,296 60,515,195 318,328,366
------------ ------------ ------------ ----------- ------------
Net cash provided by (used in)
operating activities 289,975 (1,308,061) 11,657,190 1,481,013 23,981,976
------------ ------------ ------------ ----------- ------------
Cash flows from investing activities:
Net decrease (increase) in loans 8,882,317 (8,785,571) 13,076,375 (31,145,825) (27,612,611)
Purchase of investment securities available for sale (2,000,000) -- (10,030,000) -- (47,491,857)
Principal collected on investment securities held
to maturity 3,290,037 3,829,555 15,619,113 13,058,648 34,666,263
Principal collected on investment securities
available for sale 597,928 1,735,844 6,343,098 5,197,586 8,974,915
Net decrease (increase) in U.S. Treasury bills
with maturities less than three months -- -- -- 124,672 (24,812)
Purchases of premises and equipment -- (138,179) (242,048) (231,685) (186,066)
Proceeds from sale of investments
available for sale -- -- 19,361,635 -- --
------------ ------------ ------------ ----------- ------------
Net cash provided by (used in) investing activities 10,770,282 (3,358,351) 44,128,173 (12,996,604) (31,674,168)
------------ ------------ ------------ ----------- ------------
Cash flows from financing activities:
Net (decrease) increase in demand, NOW,
savings and money market deposits (4,788,236) 224,833 (5,447,497) (39,926,563) (14,323,062)
Net (decrease) increase in certificates of deposit (3,182,348) 466,280 (5,557,782) 74,996,733 (17,008,332)
Net (decrease) increase in advances from Federal
Home Loan Bank of Pittsburgh with original
maturities of three months or less -- 981,884 (43,452,681) (9,193,560) 15,532,561
Net (decrease) increase in advances from Federal
Home Loan Bank of Pittsburgh with original
maturities greater than three months (1,949) -- -- (10,188,520) 13,400,000
Proceeds from sale of preferred stock 106,366 -- -- -- --
Proceeds from issuance of subordinated debentures -- -- -- -- 200,000
Capital contribution -- -- 1,000,000 -- --
------------ ------------ ------------ ----------- ------------
Net cash (used in) provided by financing activities (7,866,167) 1,672,997 (53,457,960) 15,688,090 (2,198,833)
------------ ------------ ------------ ----------- ------------
Net increase (decrease) in cash and
cash equivalents 3,194,090 (2,993,415) 2,327,403 4,172,499 (9,891,025)
Cash and cash equivalents, beginning of year 9,493,464 7,166,061 7,166,061 2,993,562 12,884,587
------------ ------------ ------------ ----------- ------------
Cash and cash equivalents, end of period $ 12,687,554 $ 4,172,646 $ 9,493,464 $ 7,166,061 $ 2,993,562
============ ============ ============ =========== ============
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
-98-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business
Regent Bancshares Corp. ("Regent") is a bank holding company organized
under the laws of the State of New Jersey and engages in commercial banking
business through its wholly owned subsidiary, Regent National Bank (the "Bank"),
a nationally-chartered bank insured by the Federal Deposit Insurance
Corporation. The Bank serves the needs of its banking customers with particular
focus on small and medium-sized businesses, professionals and other individuals.
The Bank offers a wide variety of deposit products, including checking accounts,
interest-bearing NOW accounts, insured money market accounts, certificates of
deposit, savings accounts and Individual Retirement Accounts.
2. Summary of Significant Accounting Policies
Basis of Financial Statement Presentation
The accounting and reporting policies of Regent and the Bank conform
with generally accepted accounting principles and predominant practices within
the banking industry. All intercompany balances and transactions have been
eliminated.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. These estimates and assumptions also affect reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. Significant estimates implicit in these financial
statements are as follows.
The estimates that are particularly susceptible to significant change
in the near term relate to the allowance for loan losses, other real estate
owned and the valuation allowance on the deferred tax asset.
The evaluation of the adequacy of the allowance for loan losses
includes an analysis of historical loss rates, by category, applied to current
loan totals. However, actual losses may be higher or lower than historical
trends, which vary. Actual losses on specified problem loans, which also are
provided for in the evaluation, may vary from estimated loss percentages, which
are established based upon a limited number of potential loss classifications.
Other real estate owned is carried at market based upon estimates
derived through appraisals and other sources, less estimated selling costs.
However, realization of sales proceeds may ultimately be higher or lower than
those estimates.
Interim Financial Information
The consolidated financial statements and disclosures included herein
for the three months ended March 31, 1997 and 1996 are unaudited. These
financial statements and disclosures have been prepared
-99-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
by Regent in accordance with generally accepted accounting principles and
include all adjustments, consisting of adjustments of a normal and recurring
nature, which in the opinion of management, are necessary for a fair
presentation of Regent's financial position and the results of its operations
and cash flows for these periods.
Financial Instruments
The Financial Accounting Standards Board (FASB) issued FAS No. 107,
"Disclosures about Fair Value of Financial Instruments," which requires all
entities to disclose the estimated fair value of their assets and liabilities
considered to be financial instruments. Financial instruments requiring
disclosure consist primarily of investment securities, loans and deposits.
Investment Securities
Regent adopted FAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," on January 1, 1994. This standard requires investments
in securities to be classified in one of three categories: held to maturity,
available for sale or trading. Investment securities that management has both
the ability and intent to hold to maturity are carried at amortized cost.
Investment securities that management believes may be sold prior to maturity due
to changes in interest rates, prepayment risk and liquidity requirements or
other factors, are classified as available for sale. Net unrealized gains and
losses for such securities, net of tax effect, are required to be recognized as
a separate component of shareholders' equity and excluded from the determination
of net income. Regent does not engage in securities trading. Securities
transactions are accounted for on a settlement date basis. Prior to the adoption
of FAS No. 115, investment securities that were principally debt securities were
stated at cost and adjusted for amortization of premiums and accretion of
discounts computed by the interest method. Gains or losses on disposition of
investment securities are based on the net proceeds and the adjusted carrying
amount of the securities sold, using the specific identification method.
Mortgage Loans Held for Sale
Mortgage loans held for sale are carried at the lower of aggregate cost
or market value. Regent adopted FAS No. 122, "Accounting for Mortgage Servicing
Rights" on January 1, 1996. This statement requires capitalization of the cost
of the rights to service mortgage loans when originated mortgages are sold and
servicing is retained. This statement also requires the capitalized mortgage
servicing rights to be amortized in proportion to and over the period of
estimated net servicing income. In addition, the mortgage servicing rights must
be periodically evaluated for impairment based on their fair value. There was no
material financial statement impact upon adoption of this standard.
Loans and Allowance for Loan Losses
Loans receivable that management has the intent and ability to hold for
the foreseeable future or until maturity or pay-off are reported at their
outstanding principal adjusted for any charge-offs, the
-100-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
allowance for loan losses, and any deferred fees or costs on originated loans
and unamortized premiums or discounts on purchased loans. Loans are stated at
the amount of unpaid principal and are net of unearned discount, unearned loan
fees and an allowance for loan losses. The allowance for loan losses is
established through a provision for loan losses charged to expense. Loan
principal considered to be uncollectible by management is charged against the
allowance for loan losses. The allowance is an amount that management believes
will be adequate to absorb possible losses on existing loans that may become
uncollectible based upon an evaluation of known and inherent risks in the loan
portfolio. The evaluation takes into consideration such factors as changes in
the nature and size of the loan portfolio, overall portfolio quality, specific
problem loans, and current and future economic conditions which may affect the
borrower's ability to pay. The evaluation details historical losses by loan
category, the resulting loss rates for which are projected at current loan total
amounts. Loss estimates for specified problem loans are also detailed.
Interest income is accrued as earned on a simple interest basis.
Accrual of interest is discontinued on a loan when management believes, after
considering economic and business conditions and collection efforts, that the
borrower's financial condition is such that collection of interest is doubtful.
When a loan is placed on such non-accrual status, all accumulated accrued
interest receivable applicable to periods prior to the current year may be
charged off to the allowance for loan losses. Interest which had accrued in the
current year may be reversed out of current period income. The charge-off or
reversal of accrued interest will only occur if such interest is deemed
uncollectible. Payments received subsequent to the non-accrual classification
are applied as a reduction of principal in accordance with both regulatory
guidelines and generally accepted accounting principles. Loans 90 days or more
past due and still accruing interest must have both principal and accruing
interest adequately secured and must be in the process of collection.
Regent adopted FAS No. 114, "Accounting by Creditors for Impairment of
a Loan," as amended by FAS No. 118, "Accounting by Creditors for Impairment of a
Loan-Income Recognition and Disclosure" on January 1, 1995. This standard
requires that a creditor measure impairment based on the present value of
expected future cash flows discounted at the loan's effective interest rate,
except that as a practical expedient, a creditor may measure impairment based on
a loan's observable market price, or the fair value of the collateral if the
loan is collateral dependent. Regardless of the measurement method, a creditor
must measure impairment based on the fair value of the collateral when the
creditor determines that foreclosure is probable. Because Regent already
recognized such reductions of value through its provision for loan losses, the
adoption of FAS No. 114, as amended by FAS No. 118, did not have a material
impact on its financial condition or results of operations.
Other Real Estate Owned
Other real estate owned, consisting of property acquired by foreclosure
or deed in lieu of foreclosure and repossessed assets, is initially recorded at
the fair value of the property at the date acquired. These assets are
subsequently carried at the lower of this new basis or the fair value less
estimated selling costs. Costs relating to the development and improvement of
the property are capitalized, if recoverable, whereas those related to holding
the property are charged to expense.
-101-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation
and amortization. Depreciation of furniture and fixtures is computed using the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are amortized using the straight-line method over the lesser of
their estimated useful lives or the term of their respective leases.
Regent adopted FAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" on January 1,
1996. This standard provides guidance on when to recognize and how to measure
impairment losses of long-lived assets and certain identifiable intangibles and
how to value long-lived assets to be disposed of. The adoption of this new
statement did not have a material impact on Regent's financial position or
results of operations.
Federal Income Taxes
Regent accounts for its income taxes in accordance with FAS No. 109,
"Accounting for Income Taxes." Under the liability method specified by FAS No.
109, deferred tax assets and liabilities are determined based on the difference
between the carrying values on the financial statements and the tax bases of
assets and liabilities as measured by the enacted tax rates which will be in
effect when these differences reverse. Deferred tax expense is the result of
changes in deferred tax assets and liabilities. The principal types of accounts
resulting in differences between assets and liabilities for financial statement
and tax return purposes are net operating loss carryforwards, loan loss
reserves, deferred loan fees, net unrealized gains or losses on securities
available for sale and accumulated depreciation.
Earnings (Loss) Per Common Share
Earnings (loss) per common share for all periods presented is based on
the weighted average number of common shares outstanding after consideration of
preferred stock dividends and common stock equivalents. Included in common stock
equivalents, for the purposes of primary earnings per share, are stock options
and warrants and the Series A, Series B, Series C, Series D and Series E
Convertible Preferred Stock. The weighted average number of common shares
attributable to common stock equivalents for the years ended December 31, 1996,
1995 and 1994, respectively, were as follows: 103,394, 99,203 and 89,339. For
the three months ended March 31, 1997 and 1996, the weighted average number of
common shares includes 106,118 and 340,802 shares, respectively, attributable to
common stock equivalents. Fully diluted earnings per common share is not
presented since such presentation is anti-dilutive.
Regent accrues on a quarterly basis the preferred stock dividend that
is payable annually each year. This accrual is considered only for purposes of
the income (loss) per common share calculation and is computed using the
estimated market price of the preferred stock at the financial reporting date.
The accrual is changed as necessary to reflect dividends declared and changes in
market price.
-102-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Regent adopted FAS No. 123, "Accounting for Stock-Based Compensation,"
on January 1, 1996. FAS No. 123 contains a fair value-based method for valuing
stock-based compensation that entities may use, which measures compensation cost
at the grant date based on the fair value of the award. Compensation is then
recognized over the service period, which is usually the vesting period.
Alternatively, the standard permits entities to continue accounting for employee
stock options and similar equity instruments under Accounting Principles Board
(APB) Opinion No. 25, "Accounting for Stock Issued to Employees." Entities that
continue to account for stock options using APB Opinion No. 25 are required to
make pro forma disclosures of net income and net income per share, as if the
fair value-based method of accounting defined in FAS No. 123 had been applied.
Regent's stock option plans are accounted for under APB No. 25. During the years
ended December 31, 1996 and 1995, there were no stock options granted. At
December 31, 1996, there were no stock options outstanding.
In February 1997, the FASB issued FAS No. 128, "Earnings Per Share,"
which is required to be adopted for the year ending December 31, 1997. Under the
new requirements for calculating primary earnings per share, the dilutive effect
of stock options will be excluded. The impact of FAS No. 128 on the calculation
of Regent's earnings per share is not expected to be material.
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
The FASB issued FAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," as amended by FAS No. 127,
which provides accounting guidance on transfers of financial assets, servicing
of financial assets and extinguishment of liabilities. This statement is
effective for transfers of financial assets, servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996. Adoption of
this new statement is not expected to have a material impact on Regent's
consolidated financial position or results of operations.
Advertising costs
Regent expenses advertising costs as incurred.
Employee benefit plans
Regent has certain employee benefit plans covering substantially all
employees. Regent accrues such costs as incurred.
Statements of cash flows
Cash and cash equivalents are defined as cash on hand, cash items in
the process of collection, amounts due from banks, federal funds sold with an
original maturity of three months or less and money market mutual fund holdings.
Cash paid for interest was approximately $12.2 million in 1996, $9.5 million in
1995 and $9.1 million in 1994. Cash paid for income taxes was $0 in 1996 and
approximately $100 thousand in 1995 and $510 thousand in 1994. The value of
preferred stock issued as dividends was
-103-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
approximately $397 thousand in 1996, $309 thousand in 1995 and $396 thousand in
1994. Conversion of preferred stock to common stock was valued at approximately
$8 thousand in 1996, $7 thousand in 1995 and $4 thousand in 1994.
Reclassifications
Certain 1996, 1995 and 1994 financial information has been reclassified
to conform to the current presentation.
3. Capital Adequacy and Regulatory Matters
Regent and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on Regent's consolidated financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, both Regent and the Bank must meet specific capital guidelines that
involve quantitative measures of Regent's and the Bank's assets, liabilities and
certain off-balance-sheet items as calculated under regulatory accounting
practices. Regent's and the Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulations to ensure capital
adequacy require Regent and the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as
defined) to average assets (as defined).
-104-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------ ----------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
As of March 31, 1997 (Unaudited):
Total capital (to risk-weighted assets):
<S> <C> <C> <C> <C> <C> <C>
Regent Bancshares Corp. $10,535,482 10.62% $7,941,040 8.00% $9,926,300 10.00%
Regent National Bank 12,669,620 12.77 7,935,840 8.00 9,919,800 10.00
Tier I capital (to risk-weighted assets):
Regent Bancshares Corp. 8,731,932 8.80 3,970,520 4.00 5,955,780 6.00
Regent National Bank 11,416,870 11.51 3,967,920 4.00 5,951,880 6.00
Tier I capital (to average assets):
Regent Bancshares Corp. 8,731,932 4.51 7,746,204 4.00 9,682,755 5.00
Regent National Bank 11,416,870 5.90 7,745,080 4.00 9,681,350 5.00
As of December 31, 1996:
Total capital (to risk-weighted assets):
Regent Bancshares Corp. 10,816,000 9.39 9,534,080 8.00 11,917,600 10.00
Regent National Bank 13,012,000 11.21 9,250,720 8.00 11,603,400 10.00
Tier 1 capital (to risk-weighted assets):
Regent Bancshares Corp. 8,806,000 7.65 4,767,040 4.00 7,150,560 6.00
Regent National Bank 11,547,000 9.95 4,625,360 4.00 6,988,040 6.00
Tier 1 capital (to average assets):
Regent Bancshares Corp. 8,806,000 4.31 8,179,000 4.00 10,223,750 5.00
Regent National Bank 11,547,000 5.65 8,176,440 4.00 10,220,550 5.00
As of December 31, 1995:
Total capital (to risk-weighted assets):
Regent Bancshares Corp. 13,478,577 8.98 12,010,280 8.00 15,012,850 10.00
Regent National Bank 14,861,883 9.92 11,984,655 8.00 14,980,818 10.00
Tier 1 capital (to risk-weighted assets):
Regent Bancshares Corp. 10,501,971 7.00 6,005,140 4.00 9,007,710 6.00
Regent National Bank 12,985,277 8.67 5,992,327 4.00 8,988,491 6.00
Tier 1 capital (to average assets):
Regent Bancshares Corp. 10,501,971 4.00 10,501,971 4.00 13,125,603 5.00
Regent National Bank 12,985,277 4.94 10,514,394 4.00 13,142,993 5.00
</TABLE>
As a result of the Bank's reported losses, which primarily resulted
from the provision for loan losses associated with IPF loans and the effect
thereof on the Bank's capital, on October 10, 1996, the Bank's Board of
Directors signed the Regulatory Agreement with the OCC to correct certain
deficiencies described in supervisory letters dated August 9, 1996 and August
29, 1996.
-105-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Under the Regulatory Agreement, the Bank is required to develop and
implement an action plan, develop a three-year capital program, which includes
the attainment and maintenance of a Tier 1 leverage ratio of 6.50% as of
December 31, 1996, continue the liquidation of the Bank's IPF portfolio,
establish a program for the maintenance of an adequate allowance for loan and
lease losses, increase the liquidity of the Bank and appoint a Special
Compliance Committee to monitor the compliance with the Regulatory Agreement.
As of the most recent examination of the Bank, conducted as of the
close of business on December 31, 1996, the Bank's capital levels meet or exceed
the minimum capital levels established by the OCC for "well capitalized" under
applicable federal banking regulations. However, the Bank is currently subject
to the Regulatory Agreement, described above, requiring the Bank to meet and
maintain a specific capital level. Under the federal banking regulations, a bank
that is subject to such an agreement may not be deemed to be "well capitalized"
regardless of its capital levels. As a result, the Bank is deemed to be
"adequately capitalized" and subject to the requirements under these
regulations. At December 31, 1996, the Bank's Tier 1 leverage ratio as defined
by the OCC of 5.65% was below the 6.50% specified in the Regulatory Agreement.
The Bank believes that it is currently in compliance in all material respects
with all of the provisions of the Regulatory Agreement, except that the Bank did
not maintain a Tier 1 capital ratio of 6.50% or greater at and after December 1,
1996. The Bank anticipates that it should be able to remain in compliance with
the Regulatory Agreement in all material respects.
As of December 31, 1995, the OCC categorized the Bank as "well
capitalized" under applicable federal banking regulations. However, following an
examination of the Bank in 1995, the OCC exercised its discretionary authority
to increase the Tier 1 leverage capital ratio for the Bank to 6.5%. The Bank's
capital levels as of December 31, 1995 resulted in the Bank being "adequately
capitalized" under applicable banking regulations and the Tier 1 leverage ratio
was 4.94% (unaudited) which was below the 6.50% ratio established by the OCC for
the Bank. Additionally, on a consolidated basis, Regent's Tier 1 leverage ratio
amounted to 4.00% (unaudited) which equaled the minimum legal requirement.
Failure to meet minimum capital requirements can result in the
regulators initiating certain actions that, if undertaken, could have a direct
material effect on the Bank's financial statements. Such actions are uncertain
and may expose the Bank to regulatory sanctions that may include restrictions on
operations and growth and mandatory asset dispositions. However, on February 26,
1997, the Bank submitted to the OCC a revised capital plan to bring the Bank
into compliance with the capital ratios specified in the Regulatory Agreement.
On March 27, 1997, the OCC notified the Bank of the OCC's acceptance of the
Bank's revised plan.
Additionally, based upon the Bank's unsatisfactory condition and the
questionable ability of Regent to continue to service its outstanding debt
beyond September 30, 1996, the FRBP formally notified Regent in a letter dated
September 6, 1996 of its determination that Regent was in "troubled condition."
As a consequence of such condition, Regent must provide the FRBP with 30 days'
notice prior to adding any members to its board of directors or engaging any new
senior executive officer. In addition to the notice requirement, the FRBP has
prohibited Regent, without prior written FRBP approval, from declaring or
-106-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
paying any dividends, repurchasing or redeeming any of its stock and incurring
any additional debt, and required Regent to submit to the FRBP by October 6,
1996 a written plan to service Regent's outstanding subordinated debentures and
to notify FRBP immediately of any material event that significantly impacts the
financial condition of Regent and the Bank. Regent has submitted to the FRBP
certain written undertakings from the Bank's organizers to service the interest
due on March 31, 1997 on Regent's outstanding subordinated debentures in the
event Regent does not otherwise have sufficient funds to pay such interest when
due. As discussed in Note 18, Regent, with the approval of the FRBP, sold 16,364
shares of Series A Convertible Preferred Stock for $6.50 per share to two
accredited investors. Regent used the proceeds from this sale to pay the
interest due on its subordinated debentures on March 31, 1997.
Dividends that may be paid by a subsidiary bank to the parent company
are subject to certain legal limitations. The payment of dividends is prohibited
under the Regulatory Agreement.
4. Investment Portfolio
Investment securities available for sale at March 31, 1997 (unaudited),
December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
March 31, 1997
--------------------------------------------------------------------------------------------
Estimated
Principal Unamortized Unearned Amortized Unrealized Unrealized market
balance premiums discounts cost gains losses value
----------- ----------- --------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. Agencies $12,000,000 $ -- $ -- $12,000,000 $ -- $101,760 $17,898,240
FHLMC 7,488,268 176,176 -- 7,664,444 2,757 258,658 7,408,543
FNMA 10,691,554 361,383 -- 11,052,937 -- 411,673 10,641,264
----------- ---------- --------- ----------- ------- -------- -----------
$30,179,822 $ 537,559 $ -- 30,717,381
=========== ========= ========== ===========
Other securities 1,354,788 -- -- 1,354,788
----------- -- ---- -------- -----------
$32,072,169 $ 2,757 $772,091 $31,302,835
=========== ======= ======== ===========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
--------------------------------------------------------------------------------------------
Estimated
Principal Unamortized Unearned Amortized Unrealized Unrealized market
balance premiums discounts cost gains losses value
----------- ----------- --------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. Agencies $10,000,000 $ -- $ -- $10,000,000 $ -- $ -- $10,000,000
FHLMC 7,720,448 226,175 -- 7,946,623 -- 364,019 7,582,604
FNMA 10,845,299 431,369 -- 11,276,668 4,917 314,168 10,967,417
----------- ---------- --------- ----------- ------- -------- -----------
$28,565,747 $ 657,544 $ -- 29,223,291 4,917 678,187 28,550,021
=========== ========= ========
Other securities 1,919,689 -- -- 1,919,689
----------- -- ---- -------- -----------
$31,142,980 $ 4,917 $678,187 $30,469,710
=========== ======= ======== ===========
</TABLE>
-107-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
December 31, 1995
--------------------------------------------------------------------------------------------
Estimated
Principal Unamortized Unearned Amortized Unrealized Unrealized market
balance premiums discounts cost gains losses value
----------- ----------- --------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
FHLMC $16,455,698 $ 488,656 $ -- $16,944,354 $ 76,032 $ 282,443 $16,737,943
FNMA 27,616,256 648,089 85,694 28,178,651 203,692 222,395 28,159,948
----------- ----------- -------- ----------- --------- --------- -----------
$44,071,954 $ 1,136,745 $ 85,694 45,123,005 279,724 504,838 44,897,891
=========== =========== ========
Other securities 2,579,989 -- -- 2,579,989
----------- --------- --------- -----------
$47,702,994 $ 279,724 $ 504,838 $47,477,880
=========== ========= ========= ===========
</TABLE>
Mortgage-backed securities held to maturity at March 31, 1997 (unaudited),
December 31, 1996 and 1995 are as follows:
<TABLE>
March 31, 1997
--------------------------------------------------------------------------------------------
Estimated
Principal Unamortized Unearned Amortized Unrealized Unrealized market
balance premiums discounts cost gains losses value
----------- ----------- --------- ----------- ---------- ---------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
GNMA $10,406,638 $393,760 $ -- $10,800,398 $ 2,280 $ 419,353 $10,383,325
FHLMC 24,071,359 888,625 180,886 24,779,098 99,658 713,787 29,164,969
FNMA 17,296,513 562,813 -- 17,859,326 628,384 17,230,942
Collateralize
mortgage
obligations 13,779,861 462,220 3,481 14,238,100 -- 162,185 14,075,915
----------- ----------- -------- ----------- --------- ---------- -----------
$70,554,371 $2,307,418 $184,867 $72,676,922 $101,938 $1,923,709 $70,855,151
=========== =========== ======== =========== ========= ========== ===========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
--------------------------------------------------------------------------------------------
Estimated
Principal Unamortized Unearned Amortized Unrealized Unrealized market
balance premiums discounts cost gains losses value
----------- ----------- --------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
GNMA $10,518,401 $ 487,408 $ -- $11,005,809 $ -- $ 376,215 $10,629,594
FHLMC 29,933,643 1,107,506 189,873 30,851,276 154,825 609,202 30,396,899
FNMA 17,696,771 770,786 -- 18,467,557 -- 462,086 18,005,471
Collateralized
mortgage
obligations 14,316,481 446,403 4,544 14,758,340 -- 540,165 14,218,175
----------- ----------- -------- ----------- -------- ---------- -----------
$72,465,296 $2,812,103 $194,417 $75,082,982 $154,825 $1,987,668 $73,250,139
=========== =========== ======== =========== ======== ========== ===========
</TABLE>
-108-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
December 31, 1995
--------------------------------------------------------------------------------------------
Estimated
Principal Unamortized Unearned Amortized Unrealized Unrealized market
balance premiums discounts cost gains losses value
----------- ----------- --------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
GNMA $12,181,546 $ 564,753 $ -- $12,746,299 $ -- $ 201,824 $12,544,475
FHLMC 36,346,310 1,396,248 224,131 37,518,427 266,284 450,214 37,334,497
FNMA 21,534,711 949,376 -- 22,484,087 3,819 345,769 22,142,137
Collateralized
mortgage
obligations 17,947,058 555,146 6,869 18,495,335 -- 620,940 17,874,395
----------- ---------- -------- ----------- -------- ---------- -----------
$88,009,625 $3,465,523 $231,000 $91,244,148 $270,103 $1,618,747 $89,895,504
=========== ========== ======== =========== ======== ========== ===========
</TABLE>
As permitted by a special report of the FASB entitled "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities," at the end of 1995 the Bank transferred securities
previously classified as HTM to AFS that had an amortized cost of approximately
$16.6 million and an unrealized gain of approximately $45 thousand, net of tax.
There are no trading account securities, and all other securities have been
classified as HTM.
During the year ended December 31, 1996, available-for-sale securities
totaling $19.4 million were sold at a gain of $5 thousand. There were no
realized securities gains or losses during 1995 or 1994.
Expected maturities of mortgage-backed securities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without prepayment penalties. The contractual maturities of
these securities range from 10 to 40 years.
The Bank has established credit arrangements with financial
institutions. Mortgage-backed securities serve as collateral for any
transactions executed under these arrangements. The maximum level of funds
available under the "Flexline Commitment" from the FHLB at December 31, 1996 was
$12.5 million. Additionally, the Bank has the ability to borrow on a short- and
long-term basis from the FHLB an amount not exceeding 85% to 90% of the fair
market value of these securities. Borrowings under this latter arrangement at
December 31, 1995 required that investment securities of approximately $49
million be pledged as collateral. There were no such borrowings at December 31,
1996.
The amortized cost and estimated market value of debt securities at
March 31, 1997 and December 31, 1996, by contractual maturity, are shown below.
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
-109-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
---------------------------------- -------------------------------
Estimated Estimated
Amortized cost market value Amortized cost market value
-------------- ------------ -------------- ------------
(unaudited)
Held to maturity:
<S> <C> <C> <C> <C>
Due in one year or less $ 1,251,249 $ 1,212,188 $ -- $ --
Due after one year through five years 28,683,539 27,845,803 44,008,503 43,217,318
Due after five years through ten years 17,625,026 17,381,725 -- --
Due after ten years 10,879,008 10,339,520 16,316,139 15,814,646
Collateralized mortgage obligations 14,238,100 14,075,915 14,758,340 14,218,175
------------ ----------- ----------- ------------
$ 72,676,922 $70,855,151 $75,082,982 $73,250,139
============ =========== =========== ===========
Available for sale:
Due in one year or less $ 287,502 $ 275,242 $10,807,773 $10,384,742
Due after one year through five years 14,828,579 14,629,840 18,415,518 18,165,279
Due after five years through ten years 10,734,309 10,367,162 29,223,291 28,550,021
Due after ten years 4,867,000 4,676,603
------------ -----------
$ 30,717,381 $29,948,047
============ ===========
</TABLE>
5. Loans
A summary of the loan portfolio as of March 31, 1997, December 31, 1996
and December 31, 1995 follows (dollars in thousands):
<TABLE>
<CAPTION>
March 31, December 31, December 31,
1997 1996 1995
--------- ------------ ------------
(unaudited)
<S> <C> <C> <C>
Commercial and industrial $ 40,944 $ 46,041 $ 49,006
Real estate:
Construction 9,137 9,421 4,430
Mortgages - residential 9,456 10,219 18,926
Mortgages - commercial 15,169 15,985 16,168
Consumer 911 3,827 18,573
--------- -------- ---------
75,617 85,493 107,103
Net unearned interest and fees (425) (424) (1,193)
---------- -------- ---------
$ 75,192 $ 85,069 $ 105,910
======== ======== =========
</TABLE>
The balance of impaired loans was $3.9 million at March 31, 1997 and
$3.6 million at December 31, 1996 and 1995, respectively. Regent has identified
a loan as impaired when it is probable that interest and principal will not be
collected according to the contractual terms of the loan agreements. The
allowance for loan loss associated with impaired loans was $866 thousand at
March 31, 1997 and $648 and $712 thousand at December 31, 1996 and 1995,
respectively. Income recognized on impaired loans during 1996 and 1995 was $16
and $79 thousand, respectively. Interest which would have been accrued on
impaired loans during the quarter ended March 31, 1997 was $84 thousand and
during 1996 and 1995 was $335 and $355 thousand, respectively. Regent's policy
for interest income recognition on impaired loans is to recognize
-110-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
income on restructured loans under the accrual method. Regent recognizes income
on non-accrual loans under the cash basis when the loans are both current and
the collateral on the loan is sufficient to cover the outstanding obligation to
Regent; if these factors do not exist, Regent will not recognize income.
Non-accrual loans were $3.8 million, $3.6 million and $3.7 million at
December 31, 1996, 1995 and 1994, respectively. Interest income of approximately
$211 thousand was not recognized as operating income due to the non-accrual
status of loans during 1994. At December 31, 1996 and 1995, loans totaling $977
thousand and $1,094 thousand, respectively, were past due 90 days or more and
continue to accrue interest income.
At December 31, 1996 and 1995, there were $2,288 and $3,845 thousand
respectively, of loans outstanding to directors, principal shareholders and
executive officers and their affiliated interests. During 1996, new loans of
$1,202 thousand were made to such persons and repayments totaled $2,759
thousand. Such loans were made in the ordinary course of business at the Bank's
normal credit terms and did not present more than a normal risk of collection at
origination. Subsequent to December 31, 1996, a loan in the amount of $705
thousand to a director of Regent became delinquent.
At December 31, 1996 and December 31, 1995, IPF receivables were $2.6
million and $16.8 million, respectively. The IPF loans have repayment terms of
nine months and are secured by the unearned premium balance on the individual
automobile insurance policies. The IPF loans were serviced for the Bank by the
Servicer under a Servicing Agreement through September 1, 1996. The Servicing
Agreement provided, among other things, that the Servicer was to solicit IPF
loans, including the collection of repayments from borrowers and of unearned
premium balances from insurers on canceled insurance policies. Under the
Servicing Agreement, the Bank received all collections and paid the Servicer a
fee equal to a specified initial per loan charge plus one-half of pre-tax
profits, as defined in the Servicing Agreement, from the IPF loan Portfolio. For
the years ended December 31, 1996 and 1995, the Bank recorded interest and fee
income from the IPF loan portfolio of $3.3 million and $3.6 million,
respectively, and paid the Servicer fees of approximately $150 thousand and $1.3
million, respectively.
During the preparation of Regent's consolidated financial statements
for the year ended December 31, 1995, management of the Bank became aware of
several matters which led to the belief that the Servicer may have reported
interest and fee income from IPF loans in default and may not have canceled
insurance policies securing defaulted loans or collected insurance premium
balances on such policies on a timely basis. As a result, management began the
process of estimating the ultimate expected loss that existed as of December 31,
1995, which amount was material to Regent's consolidated financial statements.
-111-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In order to assess the risk of loss on the IPF loan balance at December
31, 1995 and the amount thereof, the Bank identified delinquent IPF loans based
upon the payment history of the IPF loan portfolio during 1995 and through May
23, 1996.
During the period January 1, 1996 to May 23, 1996, the Bank applied all
cash receipts from delinquent IPF borrowers to the principal balances of such
delinquent loans as of December 31, 1995, and the Bank applied the proceeds of
the unearned premiums received from insurance companies except for those
applicable to accrued fees to the principal balances of delinquent IPF loans as
of December 31, 1995, thereby reducing the Bank's possible loss exposure on the
December 31, 1995 IPF loan balance to approximately $4.5 million. The $4.5
million loss exposure was recorded as part of the Bank's allowance for loan
losses and no IPF loans were charged-off at December 31, 1995.
The Bank determined that it has no loss exposure on IPF receivables at
December 31, 1996 based on the year-end carrying value of $2.6 million and the
subsequent, aggregate cash collection of more than $3 million in the first two
months of 1997. In the second, third and fourth quarters of 1996, net IPF loan
balances of $7.5 million that were past due 120 days or more were charged-off.
The Bank discontinued its IPF loan business in September 1996. Since then,
extensive collection efforts and the establishment of management and operational
control of the servicing operations by Bank personnel have reduced the IPF
receivables to the indicated level at December 31, 1996. An analysis of
subsequent cash collections through mid-March 1997 has confirmed management's
determination that no IPF loss exposure existed at year-end 1996. Therefore, all
of the December 31, 1996 allowance for loan losses is allocated to the non-IPF
portion of the Bank's loan portfolio.
During late 1994, two of the mortgage banking companies which Regent
has used to fund individual residential mortgages experienced financial
difficulties and subsequently filed for bankruptcy protection. At or about the
same time, the Bank learned that irregularities occurred in the origination
process at the mortgage banking companies which negatively impacted the
underlying real estate collateral of certain loans that had been funded. As a
result of these conditions, the Bank recorded charges totaling $1.1 million on a
pre-tax basis ($1.08 per common share) in the fourth quarter of 1994, which
includes an additional provision for loan losses of $825 thousand.
A summary of the activity in the allowance for loan losses for the
three months ended March 31, 1997 and 1996 and the years ended December 31,
1996, 1995 and 1994 is as follows:
-112-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
March 31, December 31,
------------------------- ------------------------------------------
1997 1996 1996 1995 1994
---------- ---------- ------------ ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Balance, beginning of period $3,059,773 $6,500,882 $ 6,500,882 $ 1,713,372 $ 1,321,225
Provision charged (credited)
to operations (200,000) 175,000 5,092,156 4,905,000 860,000
Loans charged off (892,199) (748,961) (10,015,476) (128,719) (552,143)
Recoveries of loans previously
charged off 306,932 -- 1,482,211 11,229 84,290
---------- ---------- ------------ ----------- -----------
Balance, end of period $2,274,511 $5,926,921 $ 3,059,773 $ 6,500,882 $ 1,713,372
========== ========== ============ =========== ===========
</TABLE>
6. Premises and Equipment
A summary of premises and equipment as of March 31, 1997, December 31,
1996 and 1995 follows:
<TABLE>
<CAPTION>
Estimated March 31, December 31, December 31,
Useful Lives 1997 1996 1995
------------ --------- ------------ -----------
(unaudited)
<S> <C> <C> <C> <C>
Furniture and fixtures 3-7 years $1,044,501 $1,044,690 $ 855,188
Leasehold improvements 5-20 years 686,336 686,336 597,146
---------- ---------- ----------
1,730,837 1,731,026 1,452,334
Less: Accumulated depreciation 1,102,324 (1,035,152) (747,847)
---------- ------------ -----------
Premises and equipment, net $ 628,513 $ 695,874 $ 704,487
========== ========== ===========
</TABLE>
7. Certificates of Deposit
At December 31, 1996, 1995, and 1994, certificates of deposit outstanding
with a face value greater than or equal to approximately $100 thousand totaled
approximately $11.9 million, $12.4 million thousand and $7.6 million,
respectively. Interest expense for the years then ended relating to those
certificates was approximately $426 thousand, $467 thousand and $144 thousand,
respectively.
At December 31, 1996, the scheduled maturities of certificates of deposit
(in thousands) were as follows:
1997 $ 81,112
1998 11,917
1999 4,040
2000 21,245
2001 and thereafter 1,413
--------
$119,727
-113-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. Advances from Federal Home Loan Bank of Pittsburgh
A summary of the advances from the FHLB at March 31, 1997, December 31,
1996 and 1995 follows:
March 31, 1997
----------------------------------
Interest
Amount Maturity Rate
-------- -------- ----
(unaudited)
Long-term $200,312 06/07/10 6.70%
--------
Total advances $200,312
========
December 31, 1996
----------------------------------
Interest
Amount Maturity Rate
-------- -------- ----
Long-term $202,621 06/07/10 6.70%
--------
Total advances $202,621
========
December 31, 1995
------------------------------------
Interest
Amount Maturity Rate
-------- -------- ----
Short-term $20,500,000 11/01/96 6.05%
2,943,822 08/12/96 6.16
5,000,000 01/08/96 5.93
5,000,000 01/23/96 5.93
-----------
Total short-term 33,443,822
-----------
Long-term 5,000,000 12/20/00 6.02
3,000,000 12/20/01 6.17
2,000,000 12/20/02 6.22
211,480 06/07/10 6.70
-----------
Total long-term 10,211,480
-----------
Total advances $43,655,302
===========
Advances from the FHLB are collateralized by mortgage-backed securities
at an amount not exceeding 85% to 90% of the fair market value of these
securities.
9. Subordinated Debentures
Subordinated debentures consist of 7-3/4% notes due September 30, 1998.
These notes are subordinated to rights of any senior debt consisting of certain
obligations to banks and other financial institutions which may be incurred.
Also see Note 3 discussing restrictions on interest payments.
-114-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. Income Taxes
The provision (benefit) for income taxes for the three months ended March
31, 1997 and 1996 and the years ended December 31, 1996, 1995 and 1994 is
comprised as follows:
<TABLE>
<CAPTION>
Three Months
Ended March 31, Year Ended December 31,
---------------------------- ------------------------------------------
1997 1996 1996 1995 1994
------------ -------- ----------- ---------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Current $ -- $(50,000) $(1,569,700) $ 481,100 $ 484,900
Deferred -- 195,000 1,219,700 (944,600) (225,800)
------------ -------- ----------- ---------- -----------
$ -- $145,000 $ (350,000) $ (463,500) $ 259,100
============ ======== =========== ========== ===========
</TABLE>
The effective tax rates are reconciled to the statutory federal rates for
the years ended December 31, 1996, 1995 and 1994 as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
----------------------------- ----------------------------------------
1997 1996 1996 1995 1994
-------------- -------------- ------------ ------------ ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Federal statutory rate (34.0)% 34.0% (34.0)% (34.0)% 34.0%
Merger expenses -- 6.0 (2.6) 3.0 --
Increase in valuation allowance
for deferred tax assets 29.9 -- 23.7 18.1 --
Other -- -- 1.4 -- --
------- ------ -------- ------- ------
Effective tax rate 0.0% 40.0% (11.5)% (12.9)% 34.0%
======= ====== ======== ======= ======
</TABLE>
Deferred taxes are determined based on the estimated future tax effects
of differences between the financial statement and tax bases of assets and
liabilities given the provisions of the enacted tax laws. The tax effect of
significant temporary differences is as follows:
<TABLE>
<CAPTION>
March 31, December 31,
----------- ------------------------------
1997 1996 1995
----------- ---------- ----------
(unaudited)
<S> <C> <C> <C>
Allowance for loan losses $ 818,824 $1,154,404 $2,180,300
Net operating loss carryover 943,525 579,959 --
Accumulated depreciation 13,200 737 36,700
Unrealized loss on investment securities
available for sale --- 230,584 76,500
Other 73,580 73,580 73,100
---------- ---------- ----------
Total gross assets 1,849,129 2,039,264 2,366,600
---------- ---------- ----------
Deferred loan costs 73,111 86,580 70,400
----------- ---------- ----------
Total gross liabilities 73,111 86,580 70,400
----------- ---------- -----------
Net deferred tax asset 1,776,018 1,952,684 2,296,200
Valuation allowance 1,426,018 1,602,684 650,000
---------- ---------- ----------
$ 350,000 $ 350,000 $1,646,200
========== ========== ==========
</TABLE>
-115-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The deferred tax asset is included in other assets on the consolidated
balance sheets. Regent has increased the valuation allowance to reduce the net
deferred tax asset to an amount expected to be realized based upon future
taxable income. Of the tax net operating loss carryforwards of approximately
$2.7 million, $1.7 million and $1.0 million would expire in 2011 and 2012,
respectively, if unused.
11. Commitments and Contingencies
Lease Commitments
Approximate future minimum lease payments under non-cancelable operating
leases as of December 31, 1996 are as follows:
1997 $190,000
1998 210,000
1999 (expiring May 31) 87,000
--------
Total minimum payments required $487,000
========
Regent incurred rent expense of approximately $174 thousand for each of
the years ended December 31, 1994 to 1996. The leases provide for two 5-year
renewal options at their current market rental rates. The leases for the 1430
and 1428 Walnut Street premises include a right of refusal to purchase the
premises. The leases also require Regent to pay its pro rata share of all
operating expenses such as maintenance, insurance, taxes, etc.
Legal Proceedings
Regent is subject to various legal actions and proceedings. In January
1997, the Bank settled litigation involving the 1994 bankruptcy of a mortgage
banking company for which the Bank funded individual residential mortgages, and
because of which the Bank charged-off various mortgage loans in 1995. The Bank
will recover $320 thousand. This settlement awaits court approval. It is
possible that claims may be made against the Bank as the result of transactions
with the debtor. Management considers the possibility of such claims to be
remote and, if made, without merit.
Regent has instituted two lawsuits to recover damages caused to Regent
by individuals and entities which engaged in IPF business with Regent as
follows:
On December 24, 1996, Regent filed a complaint in the United States
District Court for the Eastern District of Pennsylvania, Regent National Bank v.
K-C Insurance Premium Finance Co., Inc., et al., Civil Action No. 96-CV-8615, in
which it asserted claims, in the form of 11 counts, against K-C, its principals,
Chanin and Cesaro, Chanin's wife, Myra Chanin, and Cesaro's wife, Kimberly
Cesaro.
-116-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The complaint alleges that K-C, Chanin and Cesaro submitted numerous reports to
Regent containing false information in order to obtain funds from Regent
unlawfully, as well as to induce Regent to devote resources to the IPF
portfolio. The complaint also alleges that K-C, Chanin and Cesaro entered into
the Servicing Agreement with Regent to provide a variety of services in
connection with Regent's IPF business and that K-C, Chanin and Cesaro engaged in
numerous violations of the Servicing Agreement. The complaint alleges that K-C,
Chanin and Cesaro participated, directly and indirectly, in a pattern of
racketeering through multiple acts of bank fraud which constituted violations of
RICO. The complaint alleges that K-C, Chanin and Cesaro submitted false and
fraudulent computer records and financial statements which grossly overstated
the profits generated by the IPF business and substantially understated the
losses of such business.
The complaint also alleges that, on or about April 12, 1996, Regent
entered into the Loan Agreement with K-C, Chanin, Myra Chanin, Cesaro and
Kimberly Cesaro pursuant to which K-C, Chanin and Myra Chanin became obligated
to Regent in the amount of $18 million and Cesaro and Kimberly Cesaro became
obligated to Regent in the amount of $180 thousand. The complaint further
alleges that the parties to the Loan Agreement have failed to repay Regent the
sums due thereunder.
Regent is seeking damages in this action for $1.8 million under the
Loan Agreement and for damages in excess of $1 million as a result of harm
caused to Regent under the various other counts in this action.
On January 30, 1997, K-C, Chanin, Myra Chanin, Cesaro and Kimberly
Cesaro instituted an action against Regent in the Court of Common Pleas of
Philadelphia County, Number 2749. The Complaint consists of three counts: (1)
that Regent owes K-C 50% of the profits from the IPF business, as defined in the
Servicing Agreement; (2) a request for a declaratory judgment that the Loan
Agreement is not an enforceable contract because of mutual mistake or fraudulent
misrepresentations by Regent, alteration of the Note, duress, failure of
consideration or material breach of the Loan Agreement and (3) that Cesaro is
owed wages by Regent for an undefined portion of 1996. For the breach of the
Servicing Agreement, K-C is demanding amounts in excess of $100 thousand. No
specific amount is demanded for the unpaid wages.
On February 18, 1997, Regent filed preliminary objections to this
complaint with the Court of Common Pleas of Philadelphia County. The preliminary
objections request the Court of Common Pleas to dismiss the action since it
relates to the same facts and causes of action which are dealt with in the
complaint previously filed by Regent in the United States District Court for the
Eastern District of Pennsylvania. As of March 27, 1997, the Court of Common
Pleas had not ruled on Regent's preliminary objections.
There are various motions pending in the action in the United States
District Court for the Eastern District of Pennsylvania relating to the request
by K-C for expedited discovery on Regent's RICO claim. Those motions are pending
and undecided.
-117-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On November 27, 1996, Regent filed a complaint against DCAP, an
independent retail insurance broker which engaged in IPF business with Regent
and which was recruited to do business with Regent by K-C, and an affiliate of
DCAP, for breach of contract in the United States District Court for the Eastern
District of Pennsylvania, Regent National Bank v. Dealers Choice Automotive
Planning, Inc. and Payments, Inc., Civil Action No. 96-CV-7930. The complaint
alleges that DCAP and its affiliates entered into a letter of understanding with
Regent under which DCAP and its affiliates agreed that the financing of all IPF
contracts with Regent would be with recourse. The complaint seeks damages for
losses suffered by Regent as a result of funding IPF agreements placed through
DCAP. In the action, Regent seeks damages in excess of $100 thousand.
The defendants have answered this complaint and have asserted that they
were misled by certain officers and directors of Regent by fraudulent
misrepresentations concerning the recourse provisions of the letter of
understanding. The answer also asserts that Regent owes money to the defendants
for failure to give 30 days written notice of the termination of the letter of
understanding. The answer claims punitive damages in the amount of $500 thousand
for the alleged misrepresentation and an amount of not less than $40 thousand
for the alleged termination without giving sufficient written notice.
This matter is in the initial phases of discovery.
Regent and the Bank are subject to various other legal actions and
proceedings. In the opinion of management, after discussions with legal counsel,
the resolution of these matters is not expected to have a material adverse
effect on Regent's consolidated financial position or its consolidated results
of operations.
Employment Agreements
Regent has entered into employment agreements with two of its executive
officers. Such agreements provide for, among other things, base compensation,
and one of the agreements has a change-of-control provision. Annual compensation
under these agreements is $220 thousand from 1997 through 1999.
12. Significant Group Concentrations of Risk
Approximately 49% and 37% of the total loans outstanding at December
31, 1996 and 1995, respectively, are real estate loans, and the collateral is
primarily located in the various counties surrounding Philadelphia. Regent is
able to decrease its credit exposure by an amount equal to the appraised value
of the collateral.
-118-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. Related Parties
Regent incurred professional fees of approximately $866 thousand, $1.3
million and $560 thousand in 1996, 1995 and 1994, respectively. Included in
these amounts were approximately $87 thousand, $187 thousand and $270 thousand
in 1996, 1995 and 1994, respectively, of fees paid to law firms that have
partners who are members of the Board of Directors of Regent or the Bank.
Regent paid insurance premiums of approximately $114 thousand, $90
thousand and $79 thousand during 1996, 1995 and 1994, respectively, to an
insurance brokerage agency whose president was also a member of the Board of
Directors of Regent.
Regent paid consulting fees of approximately $78 thousand, $87 thousand
and $81 thousand during 1996, 1995 and 1994, respectively, to a bank consulting
firm whose president is also a member of the Board of Directors of Regent.
In 1994, the Bank entered into an agreement with a company owned by an
advisory director to provide processing, servicing, marketing and consulting
services to the Bank in connection with the Bank's automobile premium finance
lending program. The Bank incurred expenses of $1.3 million in 1995 and $62
thousand in 1994 related to this agreement.
14. Financial Instruments with Off-Balance-Sheet Risk
Regent is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and letters of
credit which involve, to varying degrees, elements of credit and interest rate
risk that are not recognized in the consolidated balance sheets.
Exposure to credit loss in the event of non-performance by the other
party to the financial instrument for commitments to extend credit is
represented by the contractual or notional amount of those instruments. The Bank
uses the same credit policies in making commitments as it does for
on-balance-sheet instruments.
Regent had outstanding commitments to originate variable and fixed rate
loans aggregating approximately $7.6 million and $4 million at December 31, 1996
and 1995, respectively. Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition established in the
commitment agreement. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since a portion of the
commitments are expected to expire without being drawn upon, the total
commitments do not necessarily represent future cash requirements. Regent
evaluates each customer's creditworthiness on a case-by-case basis. The amount
of collateral obtained, if deemed necessary by Regent upon the extension of
credit, is based on management's credit evaluation of the counterparty.
Collateral for most commercial commitments
-119-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
varies but may include accounts receivable; inventory; property, plant and
equipment; and income-producing commercial properties. Collateral for secured
consumer commitments consists of liens on residential real estate.
Commitments under outstanding standby letters of credit were $150
thousand and $305 thousand at December 31, 1996 and 1995, respectively. Standby
letters of credit are instruments issued by the Bank which guarantee the
beneficiary payment by the Bank in the event of default by the Bank's customer
in the non-performance of an obligation of service. Most standby letters of
credit are extended for one-year periods. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending loan
facilities to customers. The Bank holds collateral supporting those commitments
for which collateral is deemed necessary primarily in the form of certificates
of deposit and liens on real estate.
Commitments under lines of credit exist as the borrower has not used
the full amount of the approved line of credit. Collateral for most commitments
under commercial lines of credit varies but may include accounts receivable;
inventory; property, plant and equipment and income-producing commercial
properties. Amounts available for use under existing lines of credit were $10.2
million and $18 million at December 31, 1996 and 1995, respectively.
15. Shareholders' Equity
In September 1996, four directors of Regent purchased an aggregate of
148,148 of Common Stock of Regent for a purchase price of $6.75 per share, or an
aggregate price of $1 million.
In June 1995, July 1994 and July 1993, Regent issued 51,452, 51,912 and
52,967 shares, respectively, of Series E Convertible Preferred Stock, and in May
1992, 1991 and 1990, Regent issued 52,996 shares of Series D Convertible
Preferred Stock, 52,996 shares of Series C Convertible Preferred Stock and
52,998 shares of Series B Convertible Preferred Stock, representing a 10% stock
dividend to holders of Series A Convertible Preferred Stock. The fair market
value of the 51,452, 51,912 and 52,967 shares issued of Series E Convertible
Preferred Stock of approximately $309 thousand, $396 thousand and $430 thousand,
respectively, the 52,996 shares issued of Series D Convertible Preferred Stock
of approximately $358 thousand, the 52,996 shares issued of Series C Convertible
Preferred Stock of approximately $265 thousand and the 52,998 shares of Series B
Convertible Preferred Stock of approximately $490 thousand has been charged to
retained earnings. Each share of Series B, C and D Convertible Preferred Stock
is convertible into 1.177 shares of common stock, and each share of Series E
stock is convertible into one share of common stock.
The Series B through Series D Convertible Preferred Stock and the
Series E Convertible Preferred Stock are redeemable in whole or in part at the
option of Regent, at a price of $10.00 per share, respectively, plus declared
but unpaid dividends.
-120-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In connection with outstanding convertible preferred stock,
approximately 550 thousand shares have been reserved for issuance upon
conversion.
In June 1989, Regent sold 530,000 shares of Series A Convertible
Preferred Stock. The preferred stock is convertible, at the option of the
holder, into Regent Common Stock on a share-for-share basis. The Series A
Convertible Preferred Stock is redeemable at Regent's option at $10 per share
plus declared but unpaid dividends. Holders of the Regent Series A Preferred
Stock are entitled to receive a $10 per share liquidation preference before any
payment is made to common stockholders.
Also, prior to and in connection with Regent's 1989 public offering,
Regent issued warrants that were exercisable for the purchase of an aggregate of
50,022 and 147,124 shares of Regent Common Stock at an exercise price of $8.50
and $10.20 per share, respectively, at December 31, 1995, and issued options to
organizers of 274,241 and 264,825, at $8.50 per share, in December 1995 and
1994. The warrants and options expired on November 30, 1996.
Regent established the 1989 Stock Option Plan which provided for the
granting of 211,860 incentive and nonqualified stock options to certain
officers, directors, founders and key employees. At December 31, 1995 and 1994,
options for 171,362 and 151,539 shares, respectively, were outstanding at $8.50
per share. No options were granted, exercised or terminated during 1995 or 1994.
During 1996, no options were granted or exercised. At December 31, 1996, all
options under this plan had expired.
16. Fair Value of Financial Instruments
FAS No. 107 requires disclosure of the estimated fair value of an
entity's assets and liabilities considered to be financial instruments. For
Regent, as for most financial institutions, the majority of its assets and
liabilities are considered financial instruments as defined in FAS No. 107.
However, many such instruments lack an available trading market, as
characterized by a willing buyer and seller engaging in an exchange transaction.
Also, it is Regent's general practice and intent to hold its financial
instruments to maturity and not to engage in trading or sales activities, except
for certain loans. Therefore, Regent had to use significant estimations and
present value calculations to prepare this disclosure.
Changes in the assumptions or methodologies used to estimate fair
values may materially affect the estimated amounts. Also, management is
concerned that there may not be reasonable comparability between institutions
due to the wide range of permitted assumptions and methodologies in the absence
of active markets. This lack of uniformity gives risk to a high degree of
subjectivity in estimating financial instrument fair values.
-121-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Estimated fair values have been determined by Regent using the best
available data and an estimation methodology suitable for each category of
financial instruments. The estimation methodologies used for the estimated fair
values are outlined below.
Cash and Cash Equivalents
The carrying amounts for cash and cash equivalents investments
approximate the fair values of those assets.
Mortgage-Backed and Investment Securities
Fair values are based on quoted market prices, if available. If quoted
market prices are not available, then fair values are based on quoted market
prices of comparable instruments.
Loans
For floating rate loans that reprice frequently and with no significant
change in credit risk, fair values are based on carrying values. The fair values
of certain mortgage loans are based on quoted market prices of similar loans
sold in conjunction with securitization transactions. The fair values for fixed
rate commercial real estate, and commercial and industrial loans are estimated
by discounting the future cash flows using the current rates at which similar
loans would be made to borrowers with similar terms and credit quality.
Mortgage Loans Held for Sale
Due to their short-term nature, the carrying amount of mortgage loans held
for sale approximates fair value.
Deposit Liabilities
The fair value of demand deposits, NOW and savings accounts, and money
market deposits is the amount payable on demand at the reporting date. Fair
values for fixed rate certificates of deposit are estimated using discounted
cash flows based on rates currently offered for deposits of similar remaining
maturities.
Advances from FHLB
The carrying amount of short-term advances approximates their fair values.
Rates currently available for advances with similar terms and remaining
maturities are used to estimate the fair value of long-term advances.
-122-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Subordinated Debentures
Rates currently available to Regent for debt with similar terms and
remaining maturities are used to estimate fair value.
Off-Balance-Sheet Instruments
The fair value of commitments to extend credit is estimated using the fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of the
counterparties. For the fixed rate loan commitments, excluding those committed
for sale to the secondary market, fair value also considers the difference
between current levels of interest rates and the committed rates. The fair value
of financial guarantees written and letters of credit is based on fees currently
charged for similar agreements or on the estimated cost to terminate them or
otherwise settle the obligations with the counterparties. It is management's
belief that the fair value estimate of commitments to extend credit approximates
carrying value at December 31, 1996 and 1995, because most mature within one
year, do not present any unanticipated credit concerns and bear market interest
rates.
The estimated fair value of Regent's financial instruments at December 31,
1996 and 1995 follows:
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
------------------------ ------------------------
Carrying Fair Carrying Fair
amount value amount value
-------- ------- -------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Financial assets:
Cash and overnight
investments $ 9,493 $ 9,493 $ 7,166 $ 7,166
Investment securities
available for sale 30,470 30,470 47,478 47,478
Mortgage-backed securities
held to maturity 75,083 73,250 91,244 89,895
Loans, net 82,009 81,975 99,409 98,450
Mortgage loans held
for sale -- -- 12,874 13,271
Financial liabilities:
Deposits 185,126 186,338 196,132 198,196
Advances from FHLB 203 203 43,655 43,709
Subordinated debentures 2,750 2,750 2,750 2,895
</TABLE>
-123-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. Regent Bancshares Corp. (Parent Company Only) Financial Information
Condensed Balance Sheets
<TABLE>
<CAPTION>
December 31,
---------------------------------
1996 1995
----------- ------------
<S> <C> <C>
ASSETS
Cash $ 100 $ 100
Other investment securities 51,082 247,381
Other assets 11,350 72,931
Investment in subsidiary 10,873,903 12,836,662
----------- ------------
Total assets $10,936,435 $13,157,074
=========== ===========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Other liabilities $ 53,719 $ 53,718
Subordinated debentures 2,750,000 2,750,000
Shareholders' equity 8,132,716 10,353,356
----------- ------------
Total liabilities and shareholders' equity $10,936,435 $13,157,074
=========== ===========
</TABLE>
Condensed Statements of Operations
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
1996 1995 1994
----------- ----------- ------------
<S> <C> <C> <C>
Dividend from subsidiary $ -- $ 250,000 $ 250,000
Interest income 9,214 7,360 4,312
----------- ----------- ------------
Total income 9,214 257,360 254,312
----------- ----------- ----------
Expenses:
Interest 220,191 219,606 217,612
Other 46,903 75,501 43,363
----------- ----------- -----------
Total expenses 267,094 295,107 260,975
----------- ----------- ----------
Pretax loss (257,880) (37,747) (6,663)
Income tax benefit --- (97,800) (87,300)
----------- ----------- -----------
Income (loss) before equity
in undistributed net income
(loss) of subsidiary (257,880) 60,053 80,637
Equity in undistributed net
income (loss) of subsidiary (2,438,104) (3,186,650) 422,188
----------- ----------- ----------
Net income (loss) $(2,695,984) $(3,126,597) $ 502,825
========== ========== ========
</TABLE>
-124-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
Condensed Statements of Cash Flow
Year Ended December 31,
---------------------------------------------
1996 1995 1994
----------- ----------- -----------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income (loss) $(2,695,984) $(3,126,597) $ 502,825
Adjustments to reconcile net
income (loss) to net cash
(used in) provided by
operating activities:
Decrease (increase) in other
assets 61,581 53,181 (80,819)
Equity in undistributed net
income (loss) of subsidiary 2,438,104 3,186,650 (422,188)
Increase in other liabilities --- -- 26,883
----------- ------------ -----------
Net cash (used in) provided
by operating activities (196,299) 113,234 26,701
----------- ----------- -----------
Cash flows from investing activities:
Decrease (increase) in
investment securities 196,299 (113,234) (26,701)
Increase in investment in
subsidiary -- -- (200,000)
----------- ----------- -----------
Net cash provided by
(used in) investing
activities 196,299 (113,234) (226,701)
----------- ----------- -----------
Cash flows from financing activities:
Issuance of subordinated
debentures -- -- 200,000
----------- ----------- -----------
Net cash provided by
financing activities -- -- 200,000
----------- ----------- -----------
Net change in cash -- -- ---
Cash, beginning of year 100 100 100
----------- ----------- -----------
Cash, end of year $ 100 $ 100 $ 100
=========== =========== ===========
</TABLE>
18. Subsequent Events
On August 30, 1995, with the approval of the Board of Directors, Regent
and the Bank entered into an Agreement and Plan of Merger (the Agreement) with
Carnegie and its wholly owned subsidiary, CBNA which provided that Regent would
be merged with and into Carnegie, and CBNA would be merged with and into the
Bank.
-125-
<PAGE>
REGENT BANCSHARES CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On January 14, 1997, Regent and the Bank executed an agreement (the
"Termination Agreement") with Carnegie and CBNA, terminating the Agreement.
Regent requested execution of the Termination Agreement because Regent's Board
of Directors believed it to be in the best interests of Regent's shareholders if
Regent remains independent. Pursuant to the Termination Agreement, Carnegie was
reimbursed for $722 thousand of merger-related expenses Carnegie had incurred,
and, in connection therewith, the Bank sold to Carnegie, with appropriate
premium, $6.4 million of loan participations and servicing rights to such loans.
Loan participations of $27.8 million were previously sold by the Bank to
Carnegie.
On March 31, 1997, Regent sold 16,364 shares of Series A Convertible
Preferred Stock for $6.50 per share to two accredited investors, one of whom is
an officer at the Bank and the other of whom serves as legal counsel to the
Bank. Regent used the proceeds from this sale to pay the interest due on its
subordinated debentures on March 31, 1997.
-126-
Item 15. Recent Sales of Unregistered Securities.
On September 11, 1996, four directors of Regent purchased an aggregate
of 148,148 shares of Regent Common Stock for a purchase price of $6.75 per share
in cash, or an aggregate price of $1,000,000, in a transaction that was exempt
from registration under the Securities Act of 1933, as amended (the "Securities
Act"), pursuant to Section 4(2) thereof. The proceeds of this private placement
were contributed to the capital of the Bank.
On March 31, 1997, Regent sold 16,364 shares of Series A Convertible
Preferred Stock for $6.50 per share in cash to two accredited investors, one of
whom is an officer at the Bank and the other of whom serves as legal counsel to
the Bank, in a transaction that was exempt from registration under the
Securities Act pursuant to Section 4(2) thereof. Regent used the proceeds from
this sale to pay the interest on its subordinated debentures due March 31, 1997.
On April 16, 1997, Regent National Bank, a theretofore wholly owned subsidiary
of Regent sold an aggregate of 1,120,000 shares of its common stock (the "Bank
Common Stock") to 36 institutional and accredited investors for $8.50 per share
in cash, an aggregate of $9.5 million, through Keefe, Bryette & Woods, Inc. as
agent for Regent National Bank. For its services as agent, Keefe, Bryette &
Woods received an engagement fee of $150,000 and 2% of the gross proceeds of the
sale of shares of Bank Common Stock. The Bank Common Stock was sold subject to
the condition that the Bank Common Stock was mandatorily exchangeable for Regent
Common Stock at the discretion of Regent at any time after the average of the
closing bid price of Regent Common Stock had equaled or exceeded $12 per share
for 15 consecutive trading days and the Regent Common Stock issuable in exchange
had been registered under the Securities Act. The sale of the Bank Common Stock
was exempt from registration under the Securities Act of 1933 pursuant to
Section 3(a)(2) thereof, and the right to receive Regent Common Stock in
exchange for Bank Common Stock and its issuance of Regent Common Stock in
exchange is exempt from registration under the Securities Act pursuant to
Section 4(2) thereof.
II-1
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits
Exhibit No. Description of Exhibits
- ----------- ----------------------------------------------------
10(r) Employment Agreement among Registrant,
Regent National Bank and Amanda V.
Perkins, dated as of April 14, 1997
10(s) Form of Waiver and Consent Agreement
among Registrant, Regent National Bank
and certain holders of Bank Common Stock
23(b) Consent of Grant Thornton LLP
23(c) Consent of Arthur Andersen LLP
(b) Financial Statement Schedules:
Schedules are omitted for the reason that they are
not required or are not applicable, or the required
information is shown in the consolidated financial
statements or notes thereto.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement or Amendment thereto to
be signed on its behalf by the undersigned, thereunto duly authorized, in
Philadelphia, Pennsylvania on the 11th day of August, 1997.
REGENT BANCSHARES CORP.
By:
---------------------------------
Robert B. Goldstein, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signatures Capacity Date
---------- -------- ----
<S> <C> <C>
Chairman of the Board August 11, 1997
- --------------------------------------
David W. Ring
President, Chief Executive Officer and August 11, 1997
- --------------------------------------
Robert B. Goldstein a Director (Principal Executive Officer)
Executive Vice President, Chief August 11, 1997
- --------------------------------------
Joel E. Hyman Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
* Director August 11, 1997
- --------------------------------------
Abraham L. Bettinger
* Director August 11, 1997
- --------------------------------------
O. Francis Biondi
* Director August 11, 1997
- --------------------------------------
John J. Lyons
* Director August 11, 1997
- --------------------------------------
John W. Rose
*By:
----------------------------------
Joel E. Hyman,
Attorney-in-Fact
</TABLE>
II-3
<PAGE>
EXHIBIT INDEX
(Pursuant to Item 601 of Regulation S-K)
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description of Exhibits Page
- ------- ------------------------------------------- ------------
<S> <C> <C>
10(r) Employment Agreement among Registrant,
Regent National Bank and Amanda V.
Perkins, dated as of April 14, 1997
10(s) Form of Waiver and Consent Agreement
among Registrant, Regent National Bank
and certain holders of Bank Common Stock
23(b) Consent of Grant Thornton LLP
23(c) Consent of Arthur Andersen LLP
</TABLE>
<PAGE>
Exhibit 10(r)
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement") dated as of April 14, 1997
among Regent National Bank, a national banking association located at 1430
Walnut Street, Philadelphia, Pennsylvania 19102 (the "Bank"), Regent Bancshares
Corp., a New Jersey corporation having its principal place of business at 1430
Walnut Street, Philadelphia, Pennsylvania 19102 ("Regent") and Amanda V.
Perkins, an individual residing at 28A Goodhill Road, Weston, Connecticut 06883
(the "Executive").
WITNESSETH:
WHEREAS, the Bank is a wholly owned subsidiary of Regent;
WHEREAS, the Bank and Regent (collectively, the "Employers") desire to
employ the Executive, and the Executive desires to be employed by the Employers,
all in accordance with the terms and subject to the conditions set forth herein;
and
WHEREAS, the parties are entering into this Agreement to set forth and
confirm their respective rights and obligations with respect to the Executive's
employment by the Employers;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto, intending to be legally bound
hereby, mutually agree as follows:
1. Employment and Term. (a) Effective on the date hereof (the
"Effective Date"), the Employers shall employ the Executive, and the Executive
shall be employed by the Employers, as the Executive Vice President and Chief
Credit Officer of the Bank (the "Position"), in accordance with the terms and
subject to the conditions set forth herein for a term (the "Initial Term") which
shall commence on the Effective Date and, subject to paragraphs 1(b), 1(c) and
1(d) hereof, shall terminate, notwithstanding the provisions of paragraph
1(e)(i) hereof, on the third anniversary of the Effective Date (the "Term").
Regent and the Bank shall be jointly and severally liable to the Executive with
respect to all liabilities of the Bank to the Executive hereunder; provided,
however, that Regent shall not be responsible for any liability of the Bank to
the Executive to the extent that such liability has been discharged by the Bank,
and the Bank shall not be responsible for any liability of Regent to the
Executive to the extent that such liability has been discharged by Regent.
(b) Unless written notice in accordance with this paragraph 1
terminating the Executive's employment hereunder is given by either the
Employers or the Executive not less than 90 days in advance of each anniversary
date of this Agreement, on each anniversary date of this Agreement the
expiration date of the Term of this Agreement shall be automatically extended
for one year. Unless
<PAGE>
otherwise provided herein or agreed by the parties hereto, all of the terms and
conditions of this Agreement shall continue in full force and effect throughout
the Term and, with respect to those terms and conditions that apply after the
Term.
(c) Notwithstanding paragraph 1(b) hereof, the Employers, by
action of their Boards of Directors (the "Boards") and effective as specified in
a written notice thereof to the Executive in accordance with the terms hereof,
shall have the right to terminate the Executive's employment hereunder at any
time during the Term hereof, but only for Cause (as defined herein) or on
account of the Executive's death or Permanent Disability (as defined herein) as
of the date of such death or Permanent Disability.
(i) "Cause" shall mean (A) the Executive's willful
and continued failure substantially to perform her material duties with the
Employers, or the commission by the Executive of any activities constituting a
violation or breach under any material federal, state or local law or regulation
applicable to the activities of the Bank or Regent, in each case, after notice
thereof from the Employers to the Executive and a reasonable opportunity for the
Executive to cease such failure, breach or violation in all material respects
(B) fraud, breach of corporate opportunity, dishonesty, misappropriation or
other intentional material damage to the property or business of the Bank or
Regent by the Executive, (C) the Executive's repeated absences other than for
physical or mental impairment or illness, (D) the Executive's admission or
conviction of, or plea of nolo contendere to, any felony that, in the
reasonable judgment of the Boards, adversely affects the Bank's or Regent's
reputation or the Executive's ability to carry out her obligations under this
Agreement or (E) the Executive's non-compliance with the provisions of
paragraphs 2(b) or 6(b) hereof after notice thereof from the Employers to the
Executive and a reasonable opportunity for the Executive to cure such
non-compliance. Notwithstanding the foregoing, the Employers may not terminate
the Executive's employment hereunder for Cause unless the Executive is given (A)
written notice, in accordance with the By-laws of the Employers, of a special
meeting of the Boards to consider the termination of the Executive's employment
hereunder for Cause and (B) the opportunity for the Executive to address such
special meeting.
(ii) "Permanent Disability" shall mean a physical or
mental disability such that the Executive is substantially unable to perform
those duties that she would otherwise be expected to continue to perform and the
nonperformance of such duties has continued for a period of 150 consecutive
days, provided, however, that in order to terminate the Executive's employment
hereunder on account of Permanent Disability, the Employers must provide the
Executive with written notice of the Boards' good faith determination to
terminate the Executive's employment hereunder for reason of Permanent
Disability not less than 30 days prior to such termination which notice shall
specify the date of termination. Until the specified effective date of
termination by reason of Permanent Disability, the Executive shall continue to
receive compensation at the rates set forth in paragraph 3 hereof. No
termination of this Agreement because of the Permanent Disability of the
Executive shall impair any rights of the
-2-
<PAGE>
Executive under any disability insurance policy maintained by the Employers at
the commencement of the aforesaid 150-day period.
(d) The Executive shall have the right to terminate her
employment hereunder at any time during the Term hereof for Good Reason or in
the event a Change in Control occurs. As used herein:
(i) "Good Reason" shall mean (A) the Executive's
Position or the scope of the Executive's authority, duties or responsibilities
are materially diminished without the Executive's written consent, excluding for
this purpose any action not taken by the Employers in bad faith and which is
remedied by the Employers promptly following written notice thereof from the
Executive to the Employers; (B) a material breach by either Employer of its
respective obligations to the Executive under this Agreement which breach is not
cured in all material respects to the reasonable satisfaction of the Executive
within 30 days (except in the case of a payment default for which the cure
period shall be 10 days), in each case following written notice thereof from the
Executive to the Employers and (C) any termination of the Executive's employment
hereunder without Cause; and
(ii) "Change of Control" shall mean (A) the
acquisition of shares of Regent (or of the Bank if the Bank is a successor to
Regent) by any "person" or "group" (as such terms are used in Rule 13d-3 under
the Securities Exchange Act of 1934 as now or hereafter amended) in a
transaction or series of transactions, but excluding any exchange of Common
Stock of the Bank for Common Stock of Regent, that result in such person or
group directly or indirectly first owning beneficially more than 35% of Regent's
Common Stock (or of the Bank if the Bank is a successor to Regent) after the
date of this Agreement, (B) the consummation of a merger or other business
combination after which the holders of voting capital stock of Regent and the
Bank do not collectively own 50% or more of the voting capital stock of the
entity surviving such merger or other business combination or the sale, lease,
exchange or other transfer in a transaction or series of transactions of all or
substantially all of the assets of the Bank, but excluding therefrom the sale
and reinvestment of the Bank's investment portfolio or (C) as the result of or
in connection with any cash tender offer or exchange offer, merger or other
business combination, sale of assets or contested election of directors or any
combination of the foregoing transactions (a "Transaction"), other than a
Transaction between the Bank and Regent, the persons who constituted a majority
of the members of the Boards on the Effective Date and persons whose election as
members of the Boards was approved by such members then still in office or whose
election was previously so approved after the Effective Date, but before the
event that constitutes a Change of Control, no longer constitute such a majority
of the members of the Boards then in office. A Transaction constituting a Change
in Control shall only be deemed to have occurred upon the closing of the
Transaction.
(e) (i) If (A) the Employers terminate the Executive's
employment hereunder for any reason other than for Cause or fail to renew this
Agreement for any reason other than for Cause and such
-3-
<PAGE>
termination or failure occurs as of a date that is within 270 days preceding or
within 180 days after the consummation of a Change in Control (such 270-day
period and such 180-day period being hereinafter collectively referred to as a
"Change in Control Period"), (B) this Agreement is terminated as a result of the
death or Permanent Disability of the Executive effective as of a date within a
Change of Control Period, (C) the Executive terminates her employment hereunder
for Good Reason effective as of a date within a Change in Control Period or (D)
the Executive terminates her employment hereunder within 180 days after the
consummation of a Change in Control, the Employers shall pay to the Executive or
her Estate promptly after the event giving rise to such payment occurs an amount
equal to the sum of (x) (1) the Executive's Base Salary (as defined herein)
accrued through the date of termination of the Executive's employment hereunder,
(2) any amount in respect of excise taxes required to be paid to the Executive
pursuant to paragraph 2(f) hereof and (3) the present value of all other rights
and benefits available to the Executive under employee compensation and benefit
arrangements of Regent or the Bank in which the Executive was a participant on
the effective date of termination, determined in accordance with the terms and
conditions of such arrangements, with such payments, rights and benefits
described in clauses (x)(1), (x)(2) and (x)(3) hereof being collectively
referred to herein as the "Accrued Obligations" and (y) a severance payment
equal to 2.99 times the sum of (1) the Executive's annual Base Salary as of the
effective date of termination of the Executive's employment hereunder and (2)
the amount of any discretionary bonus paid by the Employers to the Executive
pursuant to paragraph 3(c) hereof within the 12 months preceding the effective
date of the termination of the Executive's employment hereunder.
(ii) If (A) the Employers terminate the Executive's employment
hereunder for any reason other than for Cause effective as of a date that is not
within a Change in Control Period or (B) the Executive terminates her employment
hereunder for Good Reason effective as of a date that is not within a Change in
Control Period, the Employers shall pay the Executive an amount equal to the sum
of (x) the Accrued Obligations, (y) the amount of Base Salary the Executive
would have received had she remained employed hereunder during the period (the
"Subsequent Period") from the date of her termination through the later of April
13, 2000 if such termination occurs during the first two years of the Initial
Term or the first April 13 occurring at least 90 days after the date of such
termination if such termination occurs after the first two years of the Initial
Term and (z) an amount equal to the aggregate premiums that would be payable by
the Executive to maintain in effect throughout the Subsequent Period (assuming
no increase in insurance premium rates) the same medical, health, disability and
life insurance coverage provided to the Executive by the Employers immediately
prior to the date of such termination.
(iii) If (A) the Employers terminate the Executive's employment
hereunder for Cause, (B) the Executive terminates her employment hereunder for
any reason other than Good Reason, her death or Permanent Disability or (C)
this Agreement is terminated as a result of
-4-
<PAGE>
the death or Permanent Disability of the Executive effective as of a date that
is not within a Change in Control Period, the sole obligation of the Employers
shall be to pay the Accrued Obligations to the Executive.
(f) Excise Taxes. In the event that the independent public
accountants of either of the Employers or the Internal Revenue Service
determines that any payment, coverage or benefit provided to the Executive
pursuant hereto is subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code") or any successor
provision thereof or any interest or penalties incurred by the Executive with
respect to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), the
Employers, within 30 days thereafter, shall pay to the Executive, in addition to
any other payment, coverage or benefit due and owing hereunder, an amount
determined by multiplying the rate of Excise Tax then imposed by Section 4999 by
the amount of the "excess parachute payment" received by the Executive,
determined without regard to any payments made to the Executive pursuant to this
paragraph 2(f), and dividing the product so obtained by the amount obtained by
subtracting the aggregate local, state and federal income and FICA and health
insurance taxes applicable to the receipt by the Executive of the "excess
parachute payment" and taking into account the deductibility for federal income
tax purposes of the payment of state and local income taxes thereon (as affected
by those provisions of the Code which act to reduce the deductibility of
itemized deductions), from the amount obtained by subtracting from 1.00 the rate
of Excise Tax then imposed by Section 4999 of the Code, it being the intention
of the parties hereto that the Executive's net after tax position (after taking
into account any interest or penalties imposed with respect to such taxes) upon
the receipt of the payments provided for by this Agreement be no less
advantageous to the Executive than the net after tax position to the Executive
that would have been obtained had Sections 280G and 4999 of the Code not been
applicable to such payment.
(g) Any notice of termination of this Agreement by the
Employers to the Executive or by the Executive to the Employers shall be given
in accordance with the provisions of paragraph 10 hereof.
(h) The Employers agree to reimburse the Executive for the
reasonable fees and expenses of the Executive's attorneys in connection with
the negotiation and execution of this Agreement and for the reasonable fees and
expenses of the Executive's attorneys and for court and related costs in any
proceeding to enforce the provisions of this Agreement in which the Executive is
successful on the merits.
2. Duties of the Executive. (a) Subject to the ultimate control and
discretion of the Boards, the Executive shall serve in the Position and perform
all duties and services commensurate with the Position. Throughout the Term, the
Executive shall perform all duties reasonably assigned or delegated to her under
the By-laws of the Bank and Regent or from time to time by the Boards consistent
with the Position. Except for travel normally incidental and reasonably
necessary to the business of the Bank and Regent and the duties
-5-
<PAGE>
of the Executive hereunder, the duties of the Executive shall be performed in
the greater Philadelphia, Pennsylvania metropolitan area.
(b) The Executive shall devote substantially all of the
Executive's business time and attention to the performance of the Executive's
duties hereunder and, during the term of her employment hereunder, the Executive
shall not engage in any other business enterprise which requires any significant
amount of the Executive's personal time or attention, unless granted the prior
permission of the Boards. The foregoing provision shall not prevent the
Executive's purchase, ownership or sale of any interest in, or the Executive's
engaging (but not to exceed an average of five hours per week) in, any business
which does not compete with the business of the Bank or Regent, the Executive's
taking actions permitted by paragraph 6(b) hereof or the Executive's involvement
in charitable or community activities, provided, that the time and attention
which the Executive devotes to such business and charitable or community
activities does not materially interfere with the performance of her duties
hereunder and that a material portion of the time devoted by the Executive to
charitable or community activities are devoted to charitable or community
activities within the Bank's market area.
(c) The Executive shall be entitled to 25 days of vacation
leave during each calendar year with full compensation, and to be taken at such
time or times, as the Executive and the Bank shall mutually determine. Unused
days of vacation may not be carried over from year to year or received in cash.
3. Compensation. For all services to be rendered by the Executive
hereunder:
(a) Base Salary. The Employers shall pay the Executive a base
salary (the "Base Salary") at an annual rate of One Hundred Ten Thousand Dollars
($110,000) during the Term, plus such other compensation as may, from time to
time, be determined by the Employers. The Employers shall review the Executive's
Base Salary at least annually, at which time the Executive's Base Salary may be
maintained or increased as the Employers reasonably determine as appropriate in
their sole discretion. Such salary and other compensation shall be payable in
accordance with the Employers' normal payroll practices as in effect from time
to time.
(b) Additional Compensation. In addition to the base salary
stated in paragraph 3(a) hereof, upon the execution of this Agreement, the
Employers shall pay to the Executive additional cash compensation in the amount
of $25,000 (the "Additional Compensation"). If the Executive voluntarily
terminates her employment with the Employers during the first year of the
Initial Term otherwise than because of Good Reason, a Change in Control or the
Executive's death or Permanent Disability, the Executive or her estate, as the
case may be, shall pay to the Employers not later than 30 days after the date of
such termination, an amount equal to the product of (i) the amount of the
Additional Compensation, as reduced by all federal, state and local income and
employment taxes paid or payable on the
-6-
<PAGE>
Additional Compensation by or on behalf of the Executive and (ii) a fraction,
the numerator of which is the number of days between the day after such
termination and the date which is one year after the date hereof, and the
denominator of which is 365. If the Employers terminate the Executive's
employment hereunder for Cause during the First Year, not later than 30 days
after the date of such termination, the Executive shall pay to the Employers
the full amount of such Additional Compensation.
(c) Annual Incentive Bonus Review. Commencing with the year
ended December 31, 1997 and for each year thereafter during the Term, the
Employers shall conduct an annual bonus review (a "bonus review") during the
three-month period following such year end, for the purpose of determining the
extent to which, if any, the Executive is entitled to a bonus for the services
performed during the preceding year. Such bonus review shall include, among
other relevant factors, the Employers' evaluation of whether the Executive has
met such goals as may be established for such year by mutual agreement of the
Employers and the Executive. The amount of bonus, if any, shall be determined in
the exclusive discretion of the Employers, and, if the Employers determine in
their discretion to pay a bonus, the bonus shall be paid not later than the last
day of such review period. In the event this Agreement is terminated by the
Employers for any reason other than Cause or by the Executive for any reason
other than Good Reason, her death or Permanent Disability prior to December 31
in any calendar year, the Employers shall conduct a bonus review within 90 days
after such review in which any performance goals for such year shall be
appropriately prorated.
(d) Stock Options. Upon the Effective Date, Regent shall grant
the Executive options, which shall be non-qualified stock options, to purchase
an aggregate of 25,000 shares of Regent's Common Stock exercisable at $6.75 per
share. Such options shall have the following principal terms:
(i) Such options shall be exercisable for a period
of five years from the date hereof in installments as follows:
(a) 8,333 shares on or after the first
anniversary of the Effective Date;
(b) 8,333 shares on or after the second
anniversary of the Effective Date; and
(c) 8,334 shares on or after the tenth
business day preceding the third anniversary of the Effective Date;
(ii) the options shall become immediately
exercisable and remain exercisable for the remainder of their term in the event
of (A) a Change in Control, (B) a termination of this Agreement by the Employers
without Cause or (C) a termination of this Agreement by the Executive for Good
Reason;
(iii) the options shall terminate immediately in the
event of a termination of this Agreement by the Employers for Cause
-7-
<PAGE>
or (B) a termination of this Agreement by the Executive without Good
Reason;
(iv) the options shall remain exercisable until the
earlier of the expiration of their term or three years after the termination of
this Agreement by the Employers because of the Executive's death or Permanent
Disability and the options shall become immediately exercisable if such
termination occurs during the 270 days preceding consummation of a Change in
Control;
(v) the options shall be transferable by gift to
members of the Executive's family or to entities controlled by such
family members or by will or by the laws of descent and distribution;
(vi) the options shall be subject to customary
anti-dilution adjustments as to the exercise price and the number of shares
purchasable in the event Regent issues its Common Stock at a price less than the
then prevailing market value thereof, as determined by Keefe, Bruyette & Woods,
Inc.;
(vii) if Regent adopts an option plan for its
employees that provides for terms more favorable to the optionees thereunder
than the terms of the options to be granted to the Executive, then, in such
event, the terms of the options to be granted to the Executive shall be amended
so that the terms thereof incorporate such more favorable terms of such option
plan; and
(viii) promptly following the grant of the options
contemplated hereby to the Executive, Regent shall file a Form S-8 registration
statement with respect thereto with the Securities and Exchange Commission and
shall use its best efforts to cause such registration statement to remain
effective for as long as any of the options granted to the Executive remain
exercisable or shares underlying such options are owned by the Executive.
(e) Relocation Expenses. In connection with the Executive's
relocation from Weston, Connecticut to the Philadelphia, Pennsylvania area, the
Employers agree (i) to reimburse the Executive for the period from the
Executive's commencement of employment hereunder until the Executive's move to
the Philadelphia, Pennsylvania area for the costs of a housekeeping suite at
the Warwick Hotel in Philadelphia, Pennsylvania and one parking space at 1500
Locust Street, Philadelphia, Pennsylvania and (ii) to pay the Executive $1,200
per month for each of the first three months of the Executive's employment
hereunder as reimbursement for expenses to be incurred for travel between
Weston, Connecticut and Philadelphia, Pennsylvania. The Employers also agree to
reimburse the Executive on a tax-adjusted basis for the expenses reasonably
incurred by the Executive in relocating her principal residence from Weston,
Connecticut to the Philadelphia, Pennsylvania area, including the closing costs
of selling the Executive's residence in Weston, Connecticut, moving expenses for
the Executive's household effects, animals and automobiles and the closing costs
of purchasing a residence in the Philadelphia, Pennsylvania area provided,
however, that if the Executive leaves the employ of the Employers during the
first year of
-8-
<PAGE>
the Executive's employment hereunder for other than Good Reason, the Executive's
death or Permanent Disability or the Executive's employment hereunder is
terminated by the Employers without Cause, the Executive shall, not later than
30 days after the Executive's leaving, reimburse the Employers for the
unamortized portion of such relocation expenses using a straight-line
amortization schedule.
(f) Automobile Allowance. Commencing on July 1, 1997, and
on the first day of each month thereafter during the Term, the Employers shall
provide the Executive with a monthly car allowance in the amount of $500.
(g) Other Benefits. From and after the date hereof and
throughout the Term, the compensation provided for in this paragraph 3 shall be
in addition to such rights as the Executive may have, during the Executive's
employment hereunder or thereafter, to participate in and receive benefits from
or under any benefit plans the Employers may in their discretion establish for
their employees or executives.
4. Expenses. The Employers shall promptly reimburse the Executive for
all reasonable expenses paid or incurred by the Executive in connection with the
performance of the Executive's duties and responsibilities hereunder, upon
presentation of expense vouchers or other appropriate documentation therefor.
5. Indemnification. The Employers shall indemnify the Executive, to
the fullest extent permitted by law, for any and all liabilities to which the
Executive or her Estate may be subject as a result of, in connection with or
arising out of her service as an employee, an officer or a director of the
Employers hereunder or her service as an employee, officer or director of
another enterprise at the request of Regent or the Bank, as well as the costs
and expenses (including attorneys' fees) of any legal action brought or
threatened to be brought against her or the Employers as a result of, in
connection with or arising out of such employment. The Employers will advance
professional fees and disbursements to the Executive in connection with any such
legal action, provided the Executive delivers to the Employers her undertaking
to repay any expenses so advanced in the event it is ultimately determined that
the Executive is not entitled to indemnification against such expenses. Expenses
reasonably incurred by the Executive in successfully establishing the right to
indemnification or advancement of expenses, in whole or in part, pursuant to
this paragraph 5, shall also be indemnified by the Employers. The Executive
shall be entitled to the full protection of any insurance policies which the
Employers may elect to maintain generally for the benefit of their respective
directors and officers. The rights granted under this paragraph 5 shall survive
the termination of this Agreement.
6. Confidential Information. (a) The Executive understands
that in the course of her employment by the Employers, the Executive will
receive confidential information concerning the business of the Employers, and
which the Employers desire to protect. The Executive agrees that she will not at
any time during or after the period of
-9-
<PAGE>
her employment by the Employers reveal to anyone outside the Bank or Regent, or
use for her own benefit, any such information that has been designated as
confidential by the Employers or understood by the Executive to be confidential,
without specific written authorization by the Employers. Upon termination of
this Agreement and if requested by the Employers, the Executive shall promptly
deliver to the Employers any and all written materials, records and documents,
including all copies thereof, made by the Executive or coming into her
possession during the Term and retained by the Executive containing or
concerning confidential information of the Employers and all other written
materials furnished to and retained by the Executive by the Employers for her
use during the Term, including all copies thereof, whether of a confidential
nature or otherwise.
(b) During the Executive's employment with the Employers, the
Executive shall not be engaged as an officer, director or employee of, or in
any way be associated in a management or ownership capacity with, any
corporation or other entity that has its corporate headquarters within a 50-mile
radius of Philadelphia, Pennsylvania and conducts a business in competition with
the business of the Bank or Regent during the Term, provided, however, that the
Executive may own not more than 4.99% of the outstanding securities, or
equivalent equity interests, of any class of any corporation or other entity
which is in competition with the business of the Bank or Regent, which
securities are listed on a national securities exchange or traded in the
over-the-counter market.
7. Representation and Warranty of the Executive. The Executive
represents and warrants that she is not under any obligation, contractual or
otherwise, to any other firm or corporation, which would prevent her entry into
the employ of the Employers or her performance of the terms of this Agreement.
8. Entire Agreement; Amendment. This Agreement contains the
entire agreement between the Employers and the Executive with respect to the
subject matter hereof, and may not be amended, waived, changed, modified or
discharged except by an instrument in writing executed by the parties hereto.
9. Assignability. The services of the Executive hereunder are personal
in nature, and neither this Agreement nor the rights or obligations of the
Employers hereunder may be assigned by the Employers, whether by operation of
law or otherwise, without the Executive's prior written consent. This Agreement
shall be binding upon, and inure to the benefit of, the Employers and their
permitted successors and assigns hereunder. This Agreement shall not be
assignable by the Executive, but shall inure to the benefit of the Executive's
heirs, executors, administrators and legal representatives.
10. Notice. Any notice which may be given hereunder shall be
in writing and be deemed given when hand delivered and acknowledged or, if
mailed, one day after mailing by registered or certified mail, return receipt
requested, to either party hereto at their respective addresses stated above, or
at such other address as either party may
-10-
<PAGE>
by similar notice designate, provided that a photocopy of such notice is
dispatched at the same time as the notice is mailed. Copies of such notices also
shall be sent to the Employers' counsel, attention: Frederick W. Dreher, Esq.,
Duane, Morris & Heckscher LLP, 4200 One Liberty Place, Philadelphia,
Pennsylvania 19103-7396 (telecopier no.: 215-979-1213) and to the Executive's
counsel, attention: Peter H. Ehrenberg, Esq., Lowenstein, Sandler, Kohl, Fisher
& Boylan, 65 Livingston Avenue, Roseland, NJ 07068-1791 (telecopier no.:
201-992-5820), as the case may be.
11. Specific Performance. The parties agree that irreparable damage
would occur in the event that any of the provisions of paragraph 6 hereof were
not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of paragraph 6 hereof and to
enforce specifically the terms and provisions of paragraph 6 hereof, this being
in addition to any other remedy to which any party is entitled at law or in
equity.
12. No Third Party Beneficiaries. Nothing in this Agreement, express or
implied, is intended to confer upon any person or entity other than the parties
(and the Executive's heirs, executors, administrators and legal representatives
and the permitted transferees of the options to be granted to the Executive) any
rights or remedies of any nature under or by reason of this Agreement.
13. Successor Liability. The Employers shall require any subsequent
successor, whether direct or indirect, by purchase, merger, consolidation or
otherwise, to all or substantially all of the business and/or assets of the
Employers to assume expressly and agree to perform this Agreement in the same
manner and to the same extent that the Employers would be required to perform it
if no such succession had taken place.
14. Mitigation. The Executive shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other employment
or otherwise, nor shall the amount of any payment or benefit provided for in
this Agreement be reduced by any compensation earned by the Executive as the
result of employment by another employer or by retirement benefits payable after
the termination of this Agreement, except that the Employers shall not be
required to provide the Executive and her eligible dependents with medical
insurance coverage as long as the Executive and her eligible dependents are
receiving comparable medical insurance coverage from another employer.
15. Arbitration. Any dispute which may arise between the parties hereto
related to this Agreement shall be submitted to binding arbitration in
accordance with the Rules of the American Arbitration Association; provided that
any such dispute shall first be submitted to the Boards in an effort to resolve
such dispute without resort to arbitration, and provided, further, that the
Boards shall have a period of 60 days within which to respond to Executive's
submitted dispute, and if the Boards fail to respond within said
-11-
<PAGE>
time, or the Executive's dispute is not resolved, the matter may then be
submitted for arbitration.
16. Waiver of Breach. The failure at any time to enforce or exercise
any right under any of the provisions of this Agreement or to require at any
time performance by the other parties of any of the provisions hereof shall in
no way be construed to be a waiver of such provisions or to affect either the
validity of this Agreement or any part hereof, or the right of any party
hereafter to enforce or exercise its rights under each and every provision in
accordance with the terms of this Agreement.
17. No Attachment. Except as required by law, no right to receive
payments under this Agreement shall be subject to anticipation, commutation,
alienation, sale, assignment, encumbrance, charge, pledge or hypothecation or to
execution, attachment, levy or similar process or assignment by operation of
law, and any attempt, voluntary or involuntary, to effect any such action shall
be null, void and of no effect; provided, however, that nothing in this
paragraph 17 shall preclude the assumption of such rights by executors,
administrators or other legal representatives of the Executive or her estate and
their assigning any rights hereunder to the person or persons entitled hereto.
18. Severability. The invalidity or unenforceability of any term,
phrase, clause, paragraph, restriction, covenant, agreement or other provision
hereof shall in no way affect the validity or enforceability of any other
provision, or any part thereof, but this Agreement shall be construed as if such
invalid or unenforceable term, phrase, clause, paragraph, restriction, covenant,
agreement or other provision had never been contained herein unless the deletion
of such term, phrase, clause, paragraph, restriction, covenant, agreement or
other provision would result in such a material change as to cause the covenants
and agreements contained herein to be unreasonable or would materially and
adversely frustrate the objectives of the parties as expressed in this
Agreement.
19. Survival of Benefits. Any provision of this Agreement which
provides a benefit to the Executive and which by the express terms hereof does
not terminate upon the expiration of the Term shall survive the expiration of
the Term and shall remain binding upon the Employers until such time as such
benefits are paid in full to the Executive or her Estate.
20. Construction. This Agreement shall be governed by and construed in
accordance with the internal laws of the Commonwealth of Pennsylvania, without
giving effect to principles of conflict of laws. All headings in this Agreement
have been inserted solely for convenience of reference only, are not to be
considered a part of this Agreement and shall not affect the interpretation of
any of the provisions of this Agreement.
-12-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
REGENT BANCSHARES CORP.
By: /s/ Robert B. Goldstein
-------------------------------
Robert B. Goldstein, President
and Chief Executive Officer
REGENT NATIONAL BANK
By: /s/ Robert B. Goldstein
-------------------------------
Robert B. Goldstein, Chairman
and Chief Executive Officer
/s/ Amanda V. Perkins
----------------------------------
Amanda V. Perkins
-13-
Exhibit 10(s)
WAIVER AND CONSENT AGREEMENT
This Waiver and Consent Agreement (this "Agreement") is entered into as of
August __, 1997 by and among Regent Bancshares Corp. ("Regent"), Regent National
Bank (the "Bank") and the persons listed on the signature pages hereto
(collectively, the "Holders") who purchased, in the aggregate, 1,120,000 shares
of common stock, par value $1.00 per share (the "Bank Common Stock"), of the
Bank in a private placement on April 16, 1997 for a purchase price of $8.50 per
share (the "Bank Offering").
WHEREAS, each of the Holders of Bank Common Stock received a Private
Placement Memorandum dated April 8, 1997 relating to the Bank Common Stock at or
prior to the time such Holder subscribed for its shares of Bank Common Stock;
WHEREAS, the Bank Common Stock was exempt from registration under the
Securities Act of 1933, as amended (the "1933 Act"), and there is an illiquid
public market therefor;
WHEREAS, the Private Placement Memorandum stated, and the Holders purchased
the Bank Common Stock with the understanding, that the Bank Common Stock sold in
the Bank Offering is mandatorily exchangeable, at the option of Regent, for
common stock, par value $.10 per share, of Regent (the "Regent Common Stock") at
the rate (the "Exchange Rate") of 1.41666 shares of Regent Common Stock for each
share of Bank Common Stock (the "Exchange") at any time after (i) the average of
the closing bid price of 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 the Bank Common Stock has been registered under the 1933 Act
(collectively, the "Conditions");
WHEREAS, the average of the closing bid price of Regent Common Stock on
Nasdaq for the 15 consecutive trading days to and including August __, 1997 was
____, so that based upon such average price, 1.41666 shares of Regent Common
Stock had a value of approximately $____ per share;
WHEREAS, on June 11, 1997, Regent filed with the Securities and Exchange
Commission (the "SEC") a registration statement on Form S-1 (the "Registration
Statement") that includes the Regent Common Stock issuable in exchange for the
Bank Common Stock and an amendment to such Registration Statement on July 31,
1997; and
WHEREAS, the Holders are of the opinion that it is in the best interests of
Regent that the exchange of Regent Common Stock for the Bank Common Stock be
consummated prior to September 30, 1997.
NOW, THEREFORE, in consideration of the premises set forth herein and other
valuable consideration, and intending to be legally bound hereby, Regent, the
Bank and the Holders agree as follows:
1. Waiver by the Holders. Effective as of the first business day following
the date (a) on which the Registration Statement shall have been declared
effective by the SEC and (b) Regent shall have received a counterpart of this
Agreement executed by each of the Holders, each Holder agrees
<PAGE>
with respect to the Bank Common Stock owned by it to waive the Condition to the
Exchange that Regent cannot determine to effect the Exchange unless the average
closing bid price of Regent Common Stock shall have equaled or exceeded $12 per
share for 15 consecutive days.
2. The Exchange Offer. Promptly following the Registration Statement having
been declared effective by the SEC, Regent will mail to each Holder a prospectus
(the "Prospectus") relating to the Exchange Offer and a letter of transmittal
(the "Letter of Transmittal") for use in exchanging certificates representing
Bank Common Stock for certificates representing Regent Common Stock.
3. Surrender of Certificates. To effect a proper surrender and exchange of
certificates representing Bank Common Stock for certificates representing Regent
Common Stock, each Holder, promptly following such Holder's receipt of the
Prospectus and the Letter of Transmittal, agrees to complete, execute and return
the Letter of Transmittal and the certificate representing such Holder's Bank
Common Stock to Regent. Regent shall have reasonable discretion to determine
whether Letters of Transmittal have been properly completed and executed and to
disregard immaterial defects. Any good faith determination of Regent regarding
such matters shall be binding and conclusive on the Bank and the Holders. The
terms and conditions of the Letters of Transmittal, the form in which is
included as Exhibit A to this Agreement, are hereby incorporated in this
Agreement by reference. By executing and delivering a Letter of Transmittal to
Regent, such Holder thereby assigns and transfers the shares of Bank Common
Stock to Regent and irrevocably appoints Regent as such Holder's
attorney-in-fact to cause the exchange of shares of Regent Common Stock for
shares of Bank Common Stock. The method of delivery of certificates representing
Bank Common Stock and the Letters of Transmittal is at the election and risk of
the Holder.
4. Delivery of Regent Common Stock. Regent hereby agrees to deliver to each
Holder, as soon as practicable after receipt from such Holder of a duly executed
Letter of Transmittal and the certificates representing the Bank Common Stock
held by such Holder, certificates representing that number of full shares of
Regent Common Stock equal to the number of shares of Bank Common Stock delivered
to Regent by such Holder multiplied by the Exchange Rate.
5. Representations of the Holders. Each of the Holders represents and
warrants to Regent that: (a) such Holder is the sole owner of the Bank Common
Stock held by it and has not assigned, transferred or pledged or agreed to
assign, transfer or pledge any of the shares of Bank Common Stock held by it or
any interest therein to any other person or entity, and that the shares of Bank
Common Stock held by such Holder are not subject to any lien, security interest
or other encumbrance whatsoever and (b) such Holder has full power to surrender
the certificates representing Bank Common Stock for the exchange as provided
herein and Regent will acquire good title to such shares. Each Holder further
acknowledges that all authority conferred hereby and by such Holder's Letter of
Transmittal will survive the death or incapacity of such Holder.
6. Fractional Shares. Certificates for fractions of shares of Regent Common
Stock or scrip certificates in lieu thereof will not be issued, and holders of
certificates representing Bank Common Stock who would otherwise be entitled to
receive a fraction of a share of Regent Common Stock will have none of the
rights with respect to such fraction of a share that a holder of full shares of
Regent Common Stock would possess in respect of such full share, and will
receive in lieu thereof cash representing such fractional interest based upon
the closing bid price of Regent Common Stock on the date of the Prospectus.
-2-
<PAGE>
7. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become a binding agreement when one or more counterparts have been signed
by each of the parties hereto.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
REGENT BANCSHARES CORP.
By:
------------------------------------
Robert B. Goldstein, President and
Chief Executive Officer
REGENT NATIONAL BANK
By:
------------------------------------
Robert B. Goldstein, Chairman of the
Board and Chief Executive Officer
HOLDERS:
ASTER & CO.
By:
------------------------------ ----------------------------------------
Name: Raymond J. Peach
Title:
FIRST FINANCIAL FUND, INC.
By:
------------------------------ ----------------------------------------
Name: Edwin Marks
Title:
- ---------------------------------- ----------------------------------------
Mark Claster Andrew Boas
LONG VIEW PARTNERS B
By:
- ---------------------------------- ------------------------------------
Paul Schmidt Name:
Title:
- ---------------------------------- ----------------------------------------
John D. Koizim, joint owner with Martha Castillo, joint owner with
Martha Castillo John D. Koizim
-3-
<PAGE>
THE ROBERT R. YOUNG FOUNDATION
By:
- ---------------------------------- ------------------------------------
David W. Wallace Name:
Title:
- ---------------------------------- ----------------------------------------
Joel E. Hyman, joint owner with Elizabeth A. Cook, joint owner with
Elizabeth A. Cook Joel E. Hyman
MERRILL, LYNCH, PIERCE, FENNER
AND SMITH, custodian f/b/o Joel E.
Hyman IRA
By:
------------------------------ ----------------------------------------
Name: Einar Paul Robsham
Title:
- ---------------------------------- ----------------------------------------
Robert B. Goldstein, tenant in Candy K. Goldstein, tenant in common
common with Candy K. Goldstein with Robert B. Goldstein
COHEN & WOLF 401(K) PLAN under an
Agreement dated 7/1/89 f/b/o
Austin Wolf
By:
- ---------------------------------- ------------------------------------
Ellen Wolf Name:
Title:
1994 GARDEN STATE TRUST WHITEWOOD FINANCIAL PARTNERS, L.P.
By: By:
------------------------------ ------------------------------------
Name: Name:
Title: Title:
BASSWOOD INTERNATIONAL FUND, INC. BASSWOOD FINANCIAL PARTNERS, L.P.
By: By:
------------------------------ ------------------------------------
Name: Name:
Title: Title:
MUTUAL DISCOVERY FUND
By:
- ---------------------------------- ------------------------------------
Roger Leifer Name:
Title:
-4-
<PAGE>
STEPHENS, INC., custodian for
Brigette A. Lyons IRA
By:
------------------------------ ----------------------------------------
Name: Brigette A. Lyons
Title:
STEPHENS, INC., custodian for
John J. Lyons
By:
- ---------------------------------- ------------------------------------
John J. Lyons Name:
Title:
RAINBOW PARTNERS, LP MIX AVENUE, L.L.C.
By: By:
------------------------------ ------------------------------------
Name: Name:
Title: Title:
- ---------------------------------- ----------------------------------------
Jeffrey Goldenberg David Henle, joint owner with Joan Henle
- ---------------------------------- ----------------------------------------
Joan Henle, joint owner with Dominick Palumbo
David Henle
D.M. KNOTT LIMITED PARTNERSHIP
By:
------------------------------ ----------------------------------------
Name: Donald P. Calcagnini, joint owner with
Title: Joyce W. Calcagnini
- ---------------------------------- ----------------------------------------
Joyce W. Calcagnini, joint owner Arthur Calcagnini
with Donald P. Calcagnini
- ---------------------------------- ----------------------------------------
James A. Calcagnini, joint owner DeAnne P. Calcagnini, joint owner with
with DeAnne P. Calcagnini James A. Calcagnini
- ---------------------------------- ----------------------------------------
Thomas J. Calcagnini, joint owner Elysee Calcagnini, joint owner with
with Elysee Calcagnini Thomas J. Calcagnini
- ---------------------------------- ----------------------------------------
William T. O'Brien, joint owner Maureen M. O'Brien, joint owner with
with Maureen M. O'Brien William T. O'Brien
-5-
<PAGE>
CASTLE CREEK CAPITAL PARTNERS BOSTON PROVIDENT PARTNERS, L.P.
FUND-I
By: By:
------------------------------ ------------------------------------
Name: Name:
Title: Title:
- ----------------------------------
Elise C. Palumbo
-6-
<PAGE>
EXHIBIT A
REGENT BANCSHARES CORP.
LETTER OF TRANSMITTAL
Name and Address of Registered Owner Certificate Numbers Shares
(as it appears on certificates)
Tax ID:
Shares Issued:
TOTAL SHARES
Certificates for Shares, Par Value $1.00 per share, of Regent National Bank
("Bank Common Stock") to accompany this Letter of Transmittal.
Send Letter of Transmittal and certificates for your Bank Common Stock to:
BY MAIL: BY HAND: BY OVERNIGHT CARRIER:
Regent Bancshares Corp. Regent Bancshares Corp. Regent Bancshares Corp.
1430 Walnut Street 1430 Walnut Street 1430 Walnut Street
Philadelphia, PA 19102 Philadelphia, PA 19102 Philadelphia, PA 19102
Attention: Joel E. Hyman Attention: Joel E. Hyman Attention: Joel E. Hyman
Ladies and Gentlemen:
As a result of the decision by Regent Bancshares Corp. to effect the exchange of
1.41666 shares, par value $.10 per share, of Regent Bancshares Corp. ("Regent
Common Stock") for each share of Bank Common Stock issued in a private placement
on April 16, 1997, the undersigned surrenders herewith the following
certificate(s) for Bank Common Stock in exchange for a certificate of Regent
Common Stock.
Please issue one certificate, unless otherwise instructed, for Regent Common
Stock, in exchange for the above mentioned Bank Common Stock, at the rate of
1.41666 shares of Regent Common Stock for each share of Bank Common Stock
surrendered. Forward such certificate(s) in the name(s) and to the address shown
above unless other instructions are indicated below.
- --------------------------------------------------------------------------------
This Letter of Transmittal must be signed by the registered owner(s) exactly as
the name(s) appear(s) on the certificate(s). The undersigned hereby acknowledges
receipt of a letter dated August __, 1997, from Regent Bancshares Corp.
accompanied by a Prospectus dated August __, 1997.
<PAGE>
<TABLE>
<S> <C>
=======================================================
---------------------------------
Dated
=======================================================
Taxpayer Identification or Social Security Number ---------------------------------
(TIN) CERTIFICATION: Under the penalties of Signature of Owner(s) or Agent
perjury, I certify that the information provided on
this Transmittal, including the information in the TIN ---------------------------------
box, is true, correct and complete. Failure to com- Signature of Owner(s) or Agent
plete and return this information will result in backup
withholding of 31% of payments due to you. ---------------------------------
Telephone No. (Include Area Code)
- ----------------------------------------------------------------------------------------------
</TABLE>
USE ONLY WHERE SPECIAL ISSUANCE REQUESTED (FOLLOW ENCLOSED INSTRUCTIONS)
Certificates will be issued in name shown on the face hereof, unless otherwise
instructed below. Signatures on this Letter of Transmittal must be guaranteed by
an eligible institution if special issuance is requested.
Issue to:
Name:
- --------------------------------
----------------------------------------
Address:
- -------------------------------- ----------------------------------------
Identification or Social Security Number
of Transferee
- --------------------------------
(Print)
USE ONLY WHERE SPECIAL DELIVERY REQUESTED
Certificates will be mailed to the address shown on the face hereof, unless the
Special Issuance Request above has been used, in which case to the address set
forth therein, unless otherwise instructed below.
Deliver / / BY MAIL / / AGAINST COUNTER RECEIPT to:
Name:
- --------------------------------
Address:
- --------------------------------
- --------------------------------
(Print)
<PAGE>
EXHIBIT INDEX
(Pursuant to Item 601 of Regulation S-K)
Sequentially
Exhibit Numbered
Number Description of Exhibits Page
- ------ ----------------------- ------------
10(r) Employment Agreement among Registrant,
Regent National Bank and Amanda V.
Perkins, dated as of April 14, 1997
10(s) Form of Waiver and Consent Agreement
among Registrant, Regent National Bank
and certain holders of Bank Common Stock
23(b) Consent of Grant Thornton LLP
23(c) Consent of Arthur Andersen LLP
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated March 27, 1997 (except for Note 18, as to which
the date is March 31, 1997), accompanying the consolidated financial statements
of Regent Bancshares Corp. and Subsidiary appearing in the Annual Report on Form
10-K for the year ended December 31, 1996 which is included in Amendment No. 2
to the Registration Statement (File No. 333-28999). We consent to the
incorporation by reference in the Registration Statement of the aforementioned
report and to the use of our name as it appears under the caption "Experts."
GRANT THORNTON LLP
Philadelphia, Pennsylvania
August 11, 1997
<PAGE>
[Letterhead of Arthur Andersen LLP]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated May 23, 1996 (and to all references to our firm) included in or made a
part of Amendment Number 2 to Form S-1 of Regent Bancshares Corporation
(Number 333-28999).
ARTHUR ANDERSEN LLP
Philadelphia, PA
August 11, 1997
<PAGE>
