UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________
Commission file number 0-17753
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REGENT BANCSHARES CORP.
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(Exact name of registrant as specified in its charter)
New Jersey 23-2440805
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1430 Walnut Street, Philadelphia, PA 19102
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (215) 546-6500
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Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 par value
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
On March 23, 1998, the aggregate market value (based on the closing sales price
on that date on the Nasdaq Small-Cap Market) of the voting stock held by
non-affiliates of the registrant was $39,215,374.
Indicate the number of shares outstanding of each of the registrant's shares of
common stock, as of the latest practicable date: 3,409,222 shares of Common
Stock outstanding on March 23, 1998.
DOCUMENTS INCORPORATED BY REFERENCE:
None.
<PAGE>
REGENT BANCSHARES CORP.
FORM 10-K
INDEX
Page
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I. PART I.
Item 1. Business..................................................... 3
Item 2. Properties................................................... 6
Item 3. Legal Proceedings............................................ 6
Item 4. Submission of Matters to a Vote of Security Holders.......... 6
II. PART II.
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters........................................ 9
Item 6. Selected Financial Data......................................10
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................11
Item 8. Financial Statements and Supplementary Data..................30
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure...................................57
III. PART III.
Item 10. Directors and Executive Officers of the Registrant...........58
Item 11. Executive Compensation.......................................60
Item 12. Securities Ownership of Certain Beneficial Owners and
Management.................................................64
Item 13. Certain Relationships and Related Transactions...............67
IV. PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K................................................69
<PAGE>
PART I
Item 1. Business.
Regent
Regent Bancshares Corp. ("Regent") is a one bank holding company
incorporated on November 2, 1987 under New Jersey law and registered under the
Bank Holding Company Act of 1956, as amended (the "BHCA"). Regent became a bank
holding company on June 2, 1989 when it completed the acquisition of all of the
authorized capital stock of Regent National Bank (the "Bank"), Regent's only
subsidiary. The Bank commenced operations on June 5, 1989. Regent provides
banking services through the Bank and does not engage in any activities other
than banking activities. Regent is regulated by the Board of Governors of the
Federal Reserve System (the "FRB"). The executive offices of Regent are located
at 1430 Walnut Street, Philadelphia, Pennsylvania 19102. Regent's telephone
number is (215) 546-6500.
Recent Developments
On March 18, 1998, Regent and the Bank entered into an Agreement and Plan
of Merger as amended and restated on March 27, 1998 (the "Merger Agreement")
with JeffBanks, Inc. ("JBI") and a wholly owned subsidiary of JBI, JeffBanks
Acquisitioncorp. V, Inc. ("JBI Merger Sub") pursuant to which Regent will merge
(the "Merger") with and into JBI Merger Sub with Regent as the surviving
corporation followed by the merger of Regent with and into JBI with JBI as the
surviving corporation and the Bank will merge (the "Bank Merger") with and into
Jefferson Bank ("Jefferson") with Jefferson as the surviving bank. The Merger
and the Bank Merger are subject to approval by the shareholders of Regent and
JBI as well as various regulatory approvals, including approval by the Office of
the Comptroller of the Currency (the "OCC"), the FRB and the Pennsylvania
Department of Banking.
The Merger Agreement provides that, upon consummation of the Merger, each
outstanding share of Common Stock of Regent will be converted into the right to
receive .303 of a share of Common Stock of JBI, and that each outstanding and
unexercised option to purchase Common Stock of Regent will be automatically
converted into an option to purchase that number of shares of JBI Common Stock
as equals the number of shares of Regent's Common Stock purchasable pursuant to
such option multiplied by .303 at an exercise price equal to the exercise price
of the Regent option divided by .303.
On March 18, 1998, Regent also entered into a Stock Option Agreement as
amended and restated on March 27, 1998 (the "Option Agreement") with JBI whereby
JBI was granted an option to purchase up to 678,340 shares of Regent's Common
Stock at $14.39 per share under certain circumstances.
For further information regarding the terms and conditions of the Merger
Agreement and the Stock Option Agreement, reference is made to the copies of
such agreements filed as exhibits to Regent's Form 8-K Report dated March 18,
1998 and incorporated herein by reference.
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On November 21, 1997, Regent completed the redemption of all then
outstanding shares of its Series A through Series E Convertible Preferred Stock.
Prior to the redemption, the holders of 548,194 shares of Preferred Stock (97%)
elected to convert their Preferred Stock into Common Stock in lieu of receiving
the redemption price of $10 per share. The number of shares of Common Stock
outstanding at December 31, 1997 was 3.4 million versus 1.2 million at year end
1996.
On December 31, 1997, the Bank reclassified its $63.5 million portfolio of
securities "held to maturity" as "available for sale." The principal benefit of
this action is that the Bank's entire balance sheet can now be actively managed
as part of the asset/liability management process, which is dedicated to
generating a consistent stream of net interest income. On January 15, 1998, the
Bank sold $35 million of the investment portfolio in an effort to minimize the
impact on future earnings of significant prepayments on mortgage-backed
securities and reinvested the proceeds into other debt securities. The net gain
from the restructuring of the portfolio was not material. Additional
restructuring may occur from time to time as circumstances warrant.
The Bank
The Bank, as a 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 Federal Deposit Insurance Corporation (the "FDIC").
The Bank engages in the commercial banking business, serving the banking
needs of its customers with a particular focus on small and medium-sized
businesses, professionals and other individuals, with an emphasis on the
origination of loans in the $100 thousand to $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.
At December 31, 1997, the Bank had $225.6 million in assets, $152.0 million
in deposits and $95.1 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.
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
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depositors and deposit insurance funds and not for the purpose of protecting
shareholders. Any change in such regulations, whether by an applicable federal
or state regulatory authority or federal or state legislative bodies, could have
a significant impact on Regent and the Bank.
The Bank offers a wide range of deposit products, including checking
accounts, interest-bearing NOW accounts, insured money market accounts,
certificates of deposit, savings accounts and Individual Retirement Accounts.
A broad range of credit facilities are offered to the businesses and
residents of the Bank's service area, including commercial loans, home
improvement loans, mortgage loans and home equity lines of credit. At December
31, 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 December 31, 1997, Regent and the Bank had a total of 33 employees.
Competition
There is substantial competition among financial institutions in the Bank's
service area, although the Bank believes its relatively small size and emphasis
on personal service provide it with a competitive advantage. The Bank competes
with new and established local commercial banks, as well as numerous regionally
based commercial banks. There is also competition from out of state financial
institutions, thrifts and mutually owned savings banks and savings and loan
associations. The Bank attracts, and believes it will continue to attract, its
customers from the deposit base of such existing banks and financial
institutions and from growth in the Delaware Valley. Many of such banks and
financial institutions are well-established and well-capitalized, allowing them
to do more advertising and promotion and to provide a greater range of
services, including trust services, than the Bank. The Bank's strategy has been
and will continue to be emphasizing personalized services, offering competitive
rates to depositors and making use of commercial and personal ties of the Bank's
shareholders, directors, advisory board members, 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
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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 differ ences
among competitors and increased merger activity.
Item 2. Properties.
The Bank leases approximately 20,600 square feet of the first and second
floors and basement of 1430 Walnut Street and the third floor of 1426 and 1428
Walnut Street, Philadelphia, Pennsylvania. The space is occupied by both Regent
and the Bank and serves as the Bank's sole banking location.
The properties are leased at a rental expense of approximately $210
thousand per annum, excluding taxes, insurance, utilities and janitorial
services through 1998 and $87 thousand through May 1999. The leases provide for
two 5-year renewal options at then current market rental rates. The leases for
the 1430 and 1428 Walnut Street premises include a right of first refusal to
purchase the premises.
Item 3. Legal Proceedings.
The response to this Item is incorporated by reference to the discussion
under "Legal Proceedings" in Note 13 to the Consolidated Financial Statements
included in Item 8 of this Form 10-K Report.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Executive Officers of Regent and the Bank
Name Age Position
---- --- --------
Robert B. Goldstein 57 President and Chief Executive Officer of Regent
and Chairman and Chief Executive Officer of the
Bank since April 1997
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<PAGE>
Barbara H. Teaford 50 President of the Bank since April 1997;
Executive Vice President of Regent from 1986 to
April 1997; Secretary of Regent since 1990 and
Executive Vice President of the Bank from 1986
to April 1997
Joel E. Hyman 49 Executive Vice President, Treasurer and Chief
Financial Officer of Regent and the Bank since
January 1997
Amanda V. Perkins 40 Executive Vice President and Chief Credit
Officer of the Bank since April 1997
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 Part III, Item 11 of this Form 10-K Annual Report 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 a
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.
Barbara H. Teaford has served as President of the Bank 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. See
Part III, Item 11 of this Form 10-K Annual Report. 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
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organizations, including the Pennsylvania Horticultural Society and the
Settlement Music School.
On January 21, 1997, Joel E. Hyman became the Executive Vice President,
Treasurer and Chief Financial Officer of the Bank and Regent. See Part III, Item
11 of this Form 10-K Annual Report. From 1993 to 1996, Mr. Hyman served as
Executive Vice President, Chief Financial Officer and Treasurer of Farmers &
Mechanics Bank located in Middletown, Connecticut until that bank was acquired
by Citizens Financial Group. From 1990 to 1993, Mr. Hyman served as Senior Vice
President, Chief Financial Officer and Treasurer of Tolland Bank in Vernon,
Connecticut. Prior thereto, he served in various officer-level capacities in the
Financial Division of Connecticut Bank & Trust Co., 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 Part III, Item 11 of this
Form 10-K Annual Report. From November 30, 1993 until immediately prior to her
employment 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.
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<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Regent's Common Stock is traded on the Nasdaq Small-Cap Market under the
symbol RBNK. As of January 3, 1998, there were approximately 209 holders of
record of Regent's Common Stock. The following table sets forth the low and high
bid prices for Regent's Common Stock as reported by National Quotation Bureau,
Inc. for each quarter during 1996 and 1997:
Low Bid High Bid
------- --------
1996:
First Quarter.................... $10 1/2 $12 1/4
Second Quarter................... 7 1/4 11 1/2
Third Quarter.................... 6 1/4 8
Fourth Quarter................... 5 1/2 6 1/2
1997:
First Quarter.................... 5 1/2 6 7/8
Second Quarter................... 6 5/8 10 3/4
Third Quarter.................... 10 3/8 11 3/4
Fourth Quarter................... 11 7/8 14
These quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions.
Regent has never paid cash dividends on its Common Stock. Management of
Regent intends to follow a policy of retaining any earnings for the foreseeable
future for the purpose of strengthening its capital and reserves. See Note 3 to
the Consolidated Financial Statements included in Item 8 hereof for information
on certain restrictions applicable to the payment of dividends by the Bank to
Regent.
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Item 6. Selected Financial Data.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(In thousands, except for per share data and percentages)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Interest income ..................... $ 16,260 $ 21,519 $ 21,160 $ 17,165 $ 15,112
Interest expense .................... 10,231 12,461 12,553 11,373 9,921
-------- -------- -------- -------- --------
Net interest income ................. 6,029 9,058 8,607 5,792 5,191
Provision for loan losses ........... 100 5,092 4,905 860 450
-------- -------- -------- -------- --------
Net interest income after provision
for loan losses .................... 5,929 3,966 3,702 4,932 4,741
Non-interest income ................. 811 212 104 202 156
Non-interest expense ................ 7,123 7,224 7,396 4,372 3,113
-------- -------- -------- -------- --------
Income (loss) before income taxes ... (383) (3,046) (3,590) 762 1,784
Income tax expense (benefit) ........ (1,375) (350) (463) 259 607
-------- -------- -------- -------- --------
Income (loss) before dividends on
preferred stock ................... $ 992 $ (2,696) $ (3,127) $ 503 $ 1,177
======== ======== ======== ======== ========
Basic income (loss) per share (1) .. $ 0.26 $ (2.66) $ (3.41) $ 0.22 $ 0.71
Book value per share ............... 5.32 4.58 6.55 7.98 8.88
Selected Financial Ratios:
Net interest margin ................. 3.00% 3.76% 3.56% 2.37% 2.49%
Non-interest expense to average
total assets ...................... 3.44(2) 2.94 3.00 1.74 1.44
Return on average total assets ...... .48 N/A N/A .20 .55
Return on average shareholders'
equity ............................ 6.84 N/A N/A 3.89 10.33
Average shareholders' equity to
average total assets .............. 7.01 4.03 5.50 5.14 5.88
Non-performing assets to total
assets............................. .24 2.73 3.49(3) 1.68 1.04
Allowance for possible loan losses as
a percentage of period end loans
and loans held for sale ........... 1.44 3.60 5.47(4) 2.10 1.84
</TABLE>
Balance Sheet Data:
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Total assets................................. $225,619 $201,904 $262,512 $243,450 $243,945
Federal funds sold........................... 3,000 5,000 --- --- 6,000
Loans, net of unearned interest/fees (5)..... 95,051 85,069 118,784 81,248 72,944
Investment securities........................ 121,014 105,553 138,722 156,664 156,166
Total deposits............................... 151,997 185,126 196,132 161,061 192,393
Total shareholders' equity................... 18,143 8,133 10,353 12,206 13,126
</TABLE>
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(1) Earnings per share for all periods presented have been restated for the
effects of Regent's adoption of Statement of Financial Accounting Standards
No. 128, "Earnings Per Share" in December 1997.
(2) Excluding $722,000 paid to Carnegie Bank, N.A. for merger-related expenses
following the termination of a merger agreement, the ratio of non-interest
expense to average total assets for 1997 would have been 3.09%.
(3) Excluding the estimated levels of $4.5 million of loss exposure related to
IPF in the numerator and $16.8 million of automobile insurance premium
finance ("IPF") receivables in the denominator, the ratio of nonperforming
assets to total assets was 1.90% at year end 1995.
(4) Excluding $4.5 million of the allowance for possible 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 possible loan losses as a
percentage of period end loans and loans held for sale was 1.96% at year
end 1995.
(5) Including mortgage loans held for sale.
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Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
All statements contained in this Form 10-K Annual Report that are not
historical facts are based on current expectations. Such 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. The factors that could cause actual results to vary
materially include: the ability of the Bank to maintain profitable operations,
the adequacy of the Bank's allowance for possible 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 remain in
compliance with current regulatory provisions and any future changes in such
provisions, the ability of the Bank to continue to generate loan growth and to
improve its net interest margin and other risks that may be described from time
to time in the reports Regent is required to file with the Securities and
Exchange Commission (the "Commission"). Undue reliance should not be placed on
any such forward-looking statements.
Financial Overview
Regent reported net income, before dividends on preferred stock, of $992
thousand, or $.26 per basic share, for the year ended December 31, 1997,
compared to a net loss of $2.70 million, or $2.66 per basic share, for the year
ended December 31, 1996. The results for 1997 and 1996 include $1.375 million
and $350 thousand, respectively, of tax benefits recognized under Statement of
Financial Accounting Standards No. 109 ("FAS 109") "Accounting for Income
Taxes." The improved results for 1997 compared to 1996 are attributable to many
actions taken by the Regent management team that took office in early 1997 to
minimize earnings risks and build core profitability, including: the
recapitalization of Regent, the reduction of the Bank's workforce, the sale of
nonperforming and other problem loans, the establishment of an aggressive new
business development program for loans and core deposits, the revision of the
Bank's funding strategy, the achievement of significant control over operating
expenses and the creation of a new service charge and fee schedule. In addition,
Regent's capital structure was significantly simplified during 1997 with the
conversion of a substantial portion of outstanding Preferred Stock into Common
Stock and the redemption of all remaining outstanding shares of Preferred Stock.
Total assets of $225.6 million at December 31, 1997 were 11.7% higher than
total assets of $201.9 million at December 31, 1996, notwithstanding the sale of
$4.0 million of loans sold to Carnegie in January 1997 and the sale of $6.5
million of non-performing loans to private investors in the second quarter of
1997. In particular, loans grew at an annualized rate of 44% in the fourth
quarter of 1997, due to new business development efforts implemented by
management. See "Loans." In addition, at December 31, 1997 the Bank reclassified
its $63.5 million portfolio of "held-to-maturity" securities to
"available-for-sale" so that the Bank's entire balance sheet can now be actively
managed as part of the asset/liability management process. A planned
restructuring of a portion of the portfolio was executed during mid-January 1998
to mitigate the impact on future earnings of significant prepayments on
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mortgage-backed securities ("MBS"). See "Investment Securities." Total deposits
decreased by 18% from $185.1 million at year end 1996 to $152.0 million at year
end 1997 as part of a strategic restructuring of the deposit mix away from
costly time and savings deposits to core transaction accounts. See "Deposits."
The 1996 net loss resulted from the provision for loan losses related to
the net charge-offs of IPF receivables and the expenses associated with managing
the servicing and collection activities of that portfolio. The cessation of
writing new IPF business in September 1996 resulted in a rapid runoff of these
short-term loans in late 1996 and early 1997 with the last contract maturing in
June 1997. At December 31, 1997 and 1996, IPF receivables were $0 and $2.6
million, respectively. For the years ended December 31, 1997 and 1996, the Bank
recorded interest and fee income from the IPF portfolio of less than $300
thousand and $3.3 million, respectively.
Regent recorded a net loss, before dividends on preferred stock, of $2.7
million, or $2.66 per basic share, for the year ended December 31, 1996,
compared to a net loss of approximately $3.13 million, or $3.41 per basic share,
for the year ended December 31, 1995, both of which were related to the net
charge-offs of IPF receivables and the expenses associated with managing the
servicing and collection activities of that portfolio. The modest improvement in
1996 compared to 1995 was largely attributable to higher net interest income and
the recognition of $350 thousand in tax benefits.
Regulatory Agreement
In October 1996, due to the losses associated with the charge-offs of IPF
receivables and the effect thereof on the Bank's capital adequacy, the Bank
entered into a Regulatory Agreement with the OCC pursuant to 12 U.S.C.
ss.1818(b). On June 25, 1997, as a result of the sale of Common Stock of the
Bank and other improvements in the financial condition and operations of the
Bank, the OCC terminated the Regulatory Agreement. In addition, at September 30,
1997, the OCC removed a prior restriction and gave permission for the Bank to
declare and make periodic dividend payments to Regent for corporate purposes,
such as the payment of interest on subordinated debt. The Bank was also notified
that it had satisfied the OCC criteria for a "well-capitalized" institution.
Among other results, under current law this designation eliminates the
requirement that the Bank pay FDIC insurance premiums in 1998.
Financial Condition
Capital Adequacy
Capital adequacy is a primary determinant of a financial institution's
ability to grow, make acquisitions and protect against any unforeseen loss or
adverse economic condition. An evaluation of capital adequacy 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.
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Total shareholders' equity was $18.1 million at December 31, 1997, compared
to $8.1 million at December 31, 1996. This change is due to net proceeds of $8.7
million from the issuance of shares of Common Stock, the issuance of $106
thousand of Series A Convertible Preferred Stock, the redemption of $143
thousand in Preferred Stock, a decrease of $301 thousand in the unrealized loss
on securities and $992 thousand in net income in 1997.
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.
Reference is made to the table in Note 3 to the Consolidated Financial
Statements included in Item 8 hereof for information regarding the capital
ratios of Regent and the Bank as of December 31, 1997 and 1996 as well as the
required minimum regulatory capital ratios for Regent and the Bank.
As an institution whose deposits are insured by the FDIC, the Bank is also
subject to insurance assessments imposed by the FDIC. The actual assessment to
be paid by any FDIC-insured institution is based on the institution's assessment
risk classification which is determined on whether the institution is considered
"well capitalized," "adequately capitalized" or "undercapitalized" as those
terms are defined in corrective action provisions of the Federal Deposit
Insurance Corporation Improvement Act, and whether such institution is
considered by its bank supervisory agency to be financially sound or to have
supervisory concerns. At December 31, 1997, the Bank satisfied the OCC criteria
for a "well-capitalized" institution, and, as a result, under current law the
Bank is not required to pay FDIC insurance premiums commencing January 1, 1998.
Asset and Liability Management
Asset and liability management is the process of maximizing net interest
income within the constraints of maintaining acceptable levels of liquidity,
interest rate risk and capital. To achieve this objective, the Bank has
implemented policies and procedures that utilize a combination of selected
investments and funding sources with various maturity structures to complement
the loan portfolio and deposit base.
-13-
<PAGE>
Liquidity
Liquidity represents the ability to generate funds to meet potential cash
outflows from deposit customers who need to withdraw funds or borrowers who need
available credit.
Supplementing the Bank's deposit base, liquidity is available from the
investment portfolio, which consists primarily of debt securities and MBS issued
by U.S. Government agencies and corporations. The marketability of these
securities enhances liquidity and the MBS portfolio provides monthly principal
and interest cash flows.
The liquidity position is also strengthened by the existence of overnight
credit facilities with other banks, the Federal Home Loan Bank of Pittsburgh
(the "FHLB") and the Federal Reserve Bank of Philadelphia (the "FRBP"). 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
comparable maturities of Bank time deposits.
Investment Portfolio
The investment portfolio, consisting principally of MBS and debt
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 MBS portfolio
consists of a combination of adjustable and fixed rate securities with an
emphasis on investments with relatively short weighted average lives. Of the
total MBS portfolio with an amortized cost of $101.5 million at December 31,
1997, $19.8 million were adjustable rate and $81.7 million were fixed rate. The
weighted average life for the MBS portfolio at December 31, 1997 approximated
4.4 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 simulations are a more effective tool than a gap analysis
since the simulation analyses are more dynamic. The simulation analyses are
-14-
<PAGE>
particularly beneficial as they can better evaluate the effects of varying
prepayment speeds on the income likely to be generated by the Bank's MBS
portfolio. Using the results of the simulation analyses, the Bank strives to
control its interest rate risk exposure so that its net interest income does not
fluctuate beyond a reasonable range.
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 match effectively fixed rate assets with a fixed rate funding
source.
The distribution as of December 31, 1997 in the following 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, based on recent prepayment
experience, and callable Federal agency securities are distributed based on
their likely call dates. 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 determi nation is based on a multi-year
history in varying interest rate environments.
<TABLE>
<CAPTION>
0 to 3 4 to 12 1 to 3 3 to 5 After
Months Months Years Years 5 Years Total
-------- -------- -------- -------- -------- --------
(in thousands, except percentages)
<S> <C> <C> <C> <C> <C> <C>
Investments ............ $ 20,008 $ 7,445 $ 20,004 $ 38,930 $ 35,227 $121,614
Loans .................. 35,040 9,074 10,837 19,059 21,361 95,371
Other earning assets ... 3,036 -- -- -- -- 3,036
-------- -------- -------- -------- -------- --------
Total Earning Assets ... 58,084 16,519 30,841 57,989 56,588 220,021
NOW and money market ... 3,590 -- 3,000 -- -- 6,590
Savings ................ 10,000 -- 23,749 -- -- 33,749
Certificates of deposit 16,216 44,359 36,021 3,205 -- 99,801
FHLB advances .......... 14,000 -- -- 34,000 193 48,193
Subordinated debt ...... -- 2,750 -- -- -- 2,750
Net non-interest bearing
sources of funds ..... -- -- -- -- 28,938 28,938
-------- -------- -------- -------- -------- --------
Total Sources of
Funds ................ 43,806 47,109 62,770 37,205 29,131 220,021
Period Gap ............. 14,278 (30,590) (31,929) 20,784 27,457 --
Cumulative Gap ......... 14,278 (16,312) (48,241) (27,457) -- --
Cumulative Gap as % of
total assets ......... 6.3% (7.2)% (21.4)% (12.2)% -- --
</TABLE>
-15-
<PAGE>
Investment Portfolio
Under the guidelines contained in Statement of Financial Accounting
Standards No. 115 ("FAS 115"), "Accounting for Certain Investments in Debt and
Equity Securities", a bank may maintain a portfolio of securities classified as
held-to-maturity ("HTM") or available-for-sale ("AFS"). The HTM portfolio would
contain investments that the Bank has the intention and ability to hold until
maturity and which are accounted for at amortized cost. The AFS portfolio would
consist of securities that may be sold if circumstances warrant and are
accounted for at market value with net tax-effected unrealized gains and losses
reported as a component of shareholders' equity.
The AFS portfolio of Regent was actively managed throughout 1997. At
December 31, 1996, Regent's investment portfolio represented nearly 52% of
Regent's total assets and, at December 31, 1997, nearly 54% of Regent's total
assets. As such, sophisticated portfolio management practices were applied to
evaluating each security and the overall composition of the portfolio. Due to
the significant weighting of the MBS portfolio and collateralized mortgage
obligations ("CMOs"), particular attention was paid to the duration, prepayment
history and market value of each security to determine the risk to future
earnings from potential prepayments in a relatively low rate environment.
Management's ability to manage the portfolio actively in accordance with the
Bank's asset/liability process was somewhat limited because more than 70% of the
total portfolio was classified as HTM at December 31, 1996. All purchases
throughout 1997 were classified as AFS and, at December 31, 1997, management
reclassified the entire $63.5 million HTM portfolio as AFS. The consequences of
the reclassification are that, under FAS 115, management may not designate
future securities purchases as HTM and all net tax-effected unrealized gains and
losses on the entire portfolio will be reported as a component of shareholders'
equity. It is not believed that either consequence will have an adverse effect
on shareholder value.
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 MBS 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 of the debt
securities classified as AFS and the market value and amortized cost of the debt
securities classified as AFS and as HTM at December 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
1997 1996 1995
-------------------- --------------------- ---------------------
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>
U.S. agencies ............. $ 16,993 $ -- $ 10,000 $ -- $ -- $ --
Mortgage-backed securities:
GNMA ..................... 9,959 -- -- 11,006 -- $ 12,746
FHLMC .................... 36,498 -- 7,583 30,851 16,738 37,519
FNMA ..................... 29,315 -- 10,967 18,467 28,160 22,484
CMOs ..................... 25,148 -- -- 14,758 -- 18,495
-------- ------ -------- -------- -------- --------
Total ................. $117,913 $ -- $ 28,550 $ 75,082 $ 44,898 $ 91,244
======== ====== ======== ======== ======== ========
</TABLE>
-16-
<PAGE>
The following table sets forth the range of maturities of the AFS portfolio
at December 31, 1997, based on the amortized cost, the weighted average life of
the debt 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...................... $ -- $ -- $16,972 $ 16,972
Mortgage-backed securities......... 2,366 32,519 41,267 76,152
CMOs............................... -- 16,467 8,923 25,390
------ ------- ------- --------
Total.......................... $2,366 $48,986 $67,162 $118,514
====== ======= ======= ========
Weighted average yield............. 7.27% 6.71% 6.96% 6.87%
</TABLE>
Gross unrealized gains and losses on the AFS portfolio at December 31, 1997
were $419 thousand and $1.02 million, respectively. During the year ended
December 31, 1997, AFS securities totaling $85.4 million were sold at a net gain
of $72 thousand. Unrealized losses on 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.
Loans
Total loans, consisting of loans held for the portfolio and mortgage loans
held for sale, amounted to $95.1 million at December 31, 1997, $85.1 million at
December 31, 1996, $118.8 million at December 31, 1995, $81.2 million at
December 31, 1994 and $71.8 million at December 31, 1993. 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. The increase in 1997
reflected renewed management emphasis on increasing the Bank's loan portfolio.
The following table details the types of loans outstanding by category as
of December 31 for each of the past five years:
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------- ------- -------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C>
Commercial and industrial ... $41,249 $46,041 $ 49,006 $27,406 $23,294
Real estate:
Construction .............. 11,813 9,421 4,430 1,455 2,219
Mortgages-residential ..... 8,259 10,219 18,926 29,253 17,359
Mortgages-commercial ...... 32,689 15,985 16,168 13,550 5,700
Consumer .................... 1,361 3,827 18,573 4,410 358
------- ------- -------- ------- -------
Total gross loans ...... 95,371 85,493 107,103 76,074 48,930
Net unearned interest/fees (320) (424) (1,193) (215) 218
------- ------- -------- -------- -------
Net loans ................. $95,051 $85,069 $105,910 $75,859 $49,148
======= ======= ======== ======= =======
Mortgage loans held for sale $ -- $ -- $ 12,874 $ 5,388 $22,701
======= ======= ======== ======= =======
</TABLE>
-17-
<PAGE>
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.
To meet its asset/liability objectives and to control its interest rate
sensitivity exposure, the Bank's strategy is to originate a significant
proportion of 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, 1997:
<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>
Commercial and industrial.............. $18,179 $18,090 $ 4,980 $41,249
Real estate:
Construction........................ 4,496 3,504 3,813 11,813
Mortgages-residential............... 1,214 1,213 5,832 8,259
Mortgages-commercial................ 707 13,426 18,556 32,689
Consumer............................... 653 467 241 1,361
-------- ------- -------- --------
Total.............................. $25,249 $36,700 $33,422 $95,371
======= ======= ======= =======
</TABLE>
The table below provides a breakdown of loans as of December 31, 1997 that
have either predetermined interest rates or floating interest 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....... $ 3,041 $25,843 $26,555 $55,439
Floating interest rates............ 22,208 10,857 6,867 39,932
------- ------- ------- -------
Total......................... $25,249 $36,700 $33,422 $95,371
======= ======= ======= =======
</TABLE>
The Bank is primarily a commercial lender to businesses and professionals
located principally in the greater Philadelphia metropolitan area. The essential
lending products include: term loans, commercial lines of credit and letters of
credit, commercial mortgages and loans to executives and professionals.
The Bank targets entrepreneurial commercial customers with sales volumes of
up to $40 million on an annual basis. The Bank has conservative underwriting
standards and utilizes all of the following criteria in its basic underwriting
methodology:
o Although the Bank has a legal lending limit of approximately $3.3
million, the Bank keeps loan exposures small and within strict
geographic boundaries within its market area.
-18-
<PAGE>
o The Bank's loan portfolio is generally secured with almost no
uncollateralized loan exposures.
o Virtually all loans are personally guaranteed by principal owners of
the businesses and companies with which the Bank does business. There
is almost no non-recourse paper in the portfolio.
o As a principal line of business, the Bank also purchases
participations from other community banks within the Bank's market
area.
Asset Quality
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, totaled $534
thousand, or .24% of total assets at December 31, 1997 compared to $5.5 million,
or 2.73% of total assets at December 31, 1996. The decrease was directly
attributable to the sale, in the second quarter of 1997, of $6.5 million of
non-performing and other problem loans to several private parties after a brief
bidding process. The sale of the assets resulted in a $1.9 million charge-off
against the allowance for possible loan losses. The following table details the
Bank's non-performing assets at December 31 of the following years:
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ------ ------ ------ ------
(in thousands, except percentages)
<S> <C> <C> <C> <C> <C>
Non-accrual loans ........... $496 $3,837 $3,568 $3,685 $2,123
Accruing loans 90 days
or more past due .......... 8 977 1,094 394 420
Nonperforming IPF receivables -- -- 4,500 -- --
---- ------ ------ ------ ------
Total non-performing loans .. 504 4,814 9,162 4,079 2,543
Other real estate ........... 30 700 -- -- --
---- ------ ------ ------ ------
Total non-performing assets . $534 $5,514 $9,162 $4,079 $2,543
==== ====== ====== ====== ======
Non-performing loans to
period end loans and loans
held for sale ............. .52% 5.66% 7.71% 5.01% 3.55%
Non-performing assets
to total assets ........... .24 2.73 3.49 1.68 1.04
</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 the three years from 1995 to
1997.
-19-
<PAGE>
1997 1996 1995
---- ---- ----
(in thousands)
Interest income not recognized due
to non-accrual status ......................... $58 $335 $355
Interest income included in operating
income attributable to non-accrual status...... -- 16 79
Other real estate 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. Included in other assets at December 31,
1997 is a $1.1 million receivable representing the sale of a portfolio of
previously non-performing truck leases to a servicer who has been and will
continue to remit collections to the Bank per the sales agreement.
The allowance for possible loan losses related to loans that are impaired,
as defined by Statement of Financial Accounting Standards No. 114 ("FAS 114"),
"Accounting by Creditors for Impairment of a Loan," and Statement of Financial
Accounting Standards No. 118 ("FAS 118"), "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures," 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.
Factors influencing management's recognition of impairment include decline
in collateral value, lack of performance under 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, 1997, the recorded investment in loans that are considered
to be impaired as defined by FAS 114 and FAS 118 was $496 thousand. The related
allowance for possible loan losses for these impaired loans was $74 thousand.
The reserve evaluation was based on the fair value of the collateral. The
average investment in impaired loans was $1.8 million and $3.1 million in 1997
and 1996, respectively.
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 possible loan
losses. In making an assessment of the quality of the loan portfolio and the
adequacy of the allowance for possible 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 possible loan losses is adjusted by the provision which is charged
-20-
<PAGE>
against income. The following table summarizes the activity from 1993 to 1997 in
the allowance for possible loan losses:
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
-------- -------- --------- -------- --------
(in thousands except percentages)
<S> <C> <C> <C> <C> <C>
Balance, beginning of period............. $3,059.8 $ 6,500.9 $1,713.4 $1,321.2 $1,077.6
======== ========= ======== ======== ========
Charge-offs:
Commercial and industrial.............. $1,297.0 $ 596.4 $ 1.0 $ 138.2 $ 54.4
Real estate - construction............. -- -- -- 22.5 --
Real estate - commercial............... 618.4 -- -- -- 190.0
Real estate - residential.............. 495.8 452.4 127.7 355.4 --
IPF.................................... -- 8,966.7 -- -- --
Installment........................... 9.7 -- -- 36.0 --
Leases................................. 452.3 -- -- -- --
-------- --------- -------- -------- --------
Total charge offs...................... $2,873.2 $10,015.5 $ 128.7 $ 552.1 $ 244.4
-------- --------- -------- -------- --------
Recoveries:
Commercial and industrial.............. $ -- $ -- $ 1.2 $ 84.3 $ 3.6
Real estate - commercial............... -- -- -- -- 34.4
Real estate - residential.............. 320.0 -- 2.0 -- --
IPF.................................... 756.9 1,482.2 -- -- --
Installment............................ 3.5 -- 8.0 -- --
-------- --------- -------- -------- --------
Total recoveries.................. 1,080.4 1,482.2 11.2 84.3 38.0
-------- --------- -------- -------- --------
Net charge-offs.......................... (1,792.8) (8,533.3) (117.5) (467.9) (206.4)
-------- --------- --------- -------- --------
Provision charged to operations......... 100.0 5,092.2 4,905.0 860.0 450.0
-------- --------- -=------ -------- --------
Balance, end of year..................... $1,367.0 $ 3,059.8 $6,500.9 $1,713.4 $1,321.2
======== ========= ======== ======== ========
Net charge-offs as a % of average
loans and loans held for sale.......... 2.22%(1) .90%(2) .13% .60% .37%
Allowance for possible loan losses as
a % of period end loans and loans
held for sale.......................... 1.44 3.60 5.47(3) 2.10 1.84
</TABLE>
- ----------
(1) Excluding charge-offs of $1.9 million associated with the loan sale in the
second quarter of 1997, there would have been a net recovery of .13%.
(2) Excluding IPF net charge-offs.
(3) Excluding $4.5 million of the allowance for possible loan losses allocated
to the IPF portfolio in the numerator and $16.8 million of IPF receivables
in the denominator, the ratio of the allowance for possible 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 possible 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 114 and FAS 118,
-21-
<PAGE>
management began formally allocating the reserve to specific loan categories.
The following table sets forth the allocation of the Bank's allowance for
possible loan losses for each of the five years ended December 31, 1997:
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------------------- -------------------- -------------------- -------------------- ---------------------
% of % of % of % of % of
Loans to Loans to Loans to Loans to Loans to
Total Total Total Total Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------ -------- -------- -------- -------- -------- -------- -------- -------- --------
(in thousands, except percentages)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and
industrial...... $101.2 43% $1,027.1 54% $ 812.8 46% $ -- 36% $ -- 48%
Real Estate:
Construction.... 249.3 12 106.2 11 98.9 4 -- 2 -- 5
Mortgages-
residential.... 39.2 9 439.9 12 417.9 18 750.0 38 -- 35
Mortgages-
commercial..... 130.8 34 127.5 19 -- 15 -- 18 -- 12
IPF............. -- -- -- 2 4,500.0 15 -- -- -- --
Consumer ......... -- 2 9.5 2 -- 2 -- 6 -- --
Unallocated....... 846.5 N/A 1,349.6 N/A 671.3 N/A 963.4 N/A 1,321.3 N/A
--------- --- -------- --- -------- --- -------- --- -------- ---
$1,367.0 100% $3,059.8 100% $6,500.9 100% $1,713.4 100% $1,321.3 100%
======== === ======== === ======== === ======== === ======== ===
</TABLE>
Deposits
Total deposits at December 31, 1997 were $152.0 million, 18% lower than
total deposits of $185.1 million at December 31, 1996. Important decisions were
made to address the high-cost of funding that existed at the beginning of 1997.
Management focused on the disproportionate level of time deposits relative to
total deposits and the need to build a larger base of core transaction accounts.
As such, time deposit rates were maintained at competitive, but not excessively
high, levels and retention of maturing deposits was reasonably good. In
addition, new business development efforts aimed at generating new loan activity
also included a focus on establishing new deposit relationships. In the latter
part of 1997, the Bank introduced a simple, convenient escrow deposit product
designed to meet the needs of real estate management companies and law firms in
a co-venture arrangement with a third party. Finally, as of the beginning of
1998, the Bank eliminated the 5.00% annual percentage yield guarantee on
statement savings accounts. That product was replaced with two alternative
savings products, the rates on which are lower than the statement savings
accounts and tiered based on average deposit size. While some attrition did
occur following the announcement of the changes, the majority of the funds
stayed in the new savings products or was reinvested in time deposits.
<TABLE>
<CAPTION>
For the Year Ended December 31,
----------------------------------------------------------------------------
1997 1996 1995
---------------------- ---------------------- -----------------------
Average Average Average Average Average Average
Balance Rate (%) Balance Rate (%) Balance Rate (%)
---------- -------- ---------- -------- ---------- --------
(in thousands, except percentages)
<S> <C> <C> <C>
Demand.............................. $ 9,577.7 -- $ 10,705.2 -- $ 10,404.0 --
NOW and money market ............... 7,253.1 2.89 7,453.7 3.33 12,518.8 3.48
Savings............................. 42,328.7 4.87 49,870.7 4.88 53,283.1 4.86
Certificates of deposit ............ 110,671.6 6.22 122,657.0 6.18 102,779.5 6.32
</TABLE>
-22-
<PAGE>
Certificates of deposit of $100 thousand or more at December 31, 1997 had
the following maturities (in thousands):
Three months or less......................................... $ 2,439
Three months through six months.............................. 892
Six months through twelve months............................. 3,774
Over twelve months........................................... 3,933
-------
Total.................................................... $11,038
=======
Borrowings
Borrowings supplement the deposit base of the Bank in supporting the asset
base, the asset growth and asset/liability management strategies. The Bank has
regularly used its credit facility with the FHLB, the borrowings from which are
secured by a blanket lien on the assets of the Bank. During 1997, the
aforementioned decline in deposits and the growth in the balance sheet required
borrowings of $48 million from year end 1996 to year end 1997. Of the year end
1997 total, $36 million of the borrowings were fixed rate advances with
five-year maturities and conversion options, at the discretion of the FHLB, into
floating rate advances after 6 month or 1 year intervals. Such advances are
putable by the Bank, with no penalty. The remainder were overnight advances. In
January 1998, the overnight advances were replaced by other fixed rate advances
with similar conversion features. Such advances are substantially less expensive
than comparable maturity retail time deposits and are generally used to fund
commercial loans with similar average lives.
The following table summarizes the Bank's borrowing activity for the years
ended December 31, 1997, 1996 and 1995:
<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>
1997: FHLB borrowings................ $48,193.1 $15,429.1 $48,193.1 5.52% 5.60%
Federal funds purchased........ -- -- -- -- --
--------- --------- --------- ---- -----
$48,193.1 $15,429.1 $48,193.1 5.52% 5.60%
========= ========= ========= ==== ====
1996: FHLB borrowings................ $ 203 $34,634.9 $47,269.1 6.70% 5.55%
Federal funds purchased........ -- 110.0 1,000.0 -- 5.22
--------- --------- ---------- ---- ----
$ 203 $34,744.9 $48,269.1 6.70% 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 $66,155.2 6.02% 6.23%
========= ========= ========= ==== ====
</TABLE>
-23-
<PAGE>
Results of Operations
Regent reported net income, before dividends on preferred stock, of $992
thousand, or $.26 per basic share, for year ended December 31, 1997 compared to
a net loss, before dividends on preferred stock, of $2.70 million, or $2.66 per
basic share, for the year ended December 31, 1996. The improved results in 1997
were attributable to the elimination of the substantial provision for possible
loan losses and other operating costs associated with the IPF business and the
recognition of $1.38 million in deferred tax benefits, which more than offset
the lower net interest income attendant to the smaller asset size of the Bank in
1997 compared to 1996.
The net loss of $2.70 million for the year ended December 31, 1996 was
moderately lower than the net loss of $3.13 million for the year ended December
31, 1995. The smaller loss in 1996 was attributable to an increase in net
interest income, as gains on sale of residential mortgages available-for-sale
were offset by a higher loan loss provision.
Net Interest Income
Net interest income for the year ended December 31, 1997 was $6.0 million,
which was 33% lower than the $9.1 million reported for the prior year. The
reasons for the decrease are directly related to the reduced level of average
earning assets. This decrease occurred as part of Regent's effort to improve its
capital ratios by curtailing its mortgage warehousing lending program, selling
$34.2 million of loan participations to its then-proposed merger partner
Carnegie Bancorp in late 1996 and ceasing to write new IPF loans after September
1996. Overall, earning assets were 17% lower in 1997 than in 1996 and loans were
31% lower.
Following the recapitalization of the Bank in April 1997, contemporaneously
with the arrival of the new management team, and the revitalization of
commercial business development activities in the second and third quarters of
1997, loan balances and total earning assets have resumed a strong growth
pattern. In the fourth quarter of 1997 loans grew at an annualized pace of 44%,
ending the year at $95.1 million.
An analysis of net interest income also requires a review of asset
composition. In 1996, 13% of average loans and 13% of interest income was
related to high-yielding, high-risk, IPF receivables. Following the
discontinuation of this business in September 1996, the receivables decreased
quickly due to paydowns and charge-offs. In 1997, IPF loans and income were less
than 1% of average loans and interest income.
Regent's net interest margin was 3.00% in 1997 versus 3.76% in 1996. While
the cost of interest-bearing liabilities was unchanged at 5.73%, the yield on
earning assets declined to 8.09% in 1997 from 8.94% in 1996 due to the reasons
cited above. In the fourth quarter of 1997, the net interest margin was 2.88%
and represents a more normalized base. Improvements in the margin in 1998 are
expected to occur as the proportion of loans to earning assets increases, the
cost of interest-bearing liabilities decreases and non-interesting bearing
deposits continue to grow. The overall interest-sensitivity profile of the
balance sheet at year end 1997 is considered to be moderate. See "Asset and
Liability Management."
-24-
<PAGE>
Non-interest Income
Non-interest income is comprised of three major categories: service
charges, miscellaneous fees and net gains (losses) on sales of assets. Service
charges were 16% higher in 1997 than in 1996. During 1997, the Bank began to
reevaluate its service charge structure, with a thorough analysis of its
competitive environment, cost structure and customer base. Before any changes
were put into effect, the Bank established more stringent waiver criteria. As a
result, service charges in the second half of 1997 were 83% higher than in the
first half of 1997. In the first quarter of 1998, the Bank modified its fee
structure for the first time in three years by changing some fees and adding new
ones. The additional revenue to be generated from this new fee structure is
uncertain. These efforts will continue as the competitive environment and the
Bank's array of products evolve.
Miscellaneous fees, which vary significantly, were more than twice as high
in 1997 as in 1996. The Bank is considering the addition of other fee-generating
products, such as payroll services, which meet the needs of its customer base.
Net gains on asset sales of $640 thousand in 1997 were higher than prior
years and accounted for 79% of the Bank's non-interest income in 1997. The net
gains on asset sales were comprised of the following: $711 thousand related to
the gain on the sale of loans and loan participations to Carnegie Bank, N.A.,
$143 thousand of losses incurred in the disposition of problem loans and
repossessed properties and $72 thousand in gains resulting from the sale of
securities.
Provision for Possible Loan Losses
A provision for possible loan losses of $100 thousand was recorded for the
year ended December 31, 1997 compared to $5.1 million for the prior year. The
determination of the provision for possible loan losses is dependent on
management's assessment of the adequacy of the allowance for possible loan
losses. No provision for possible loan losses was incurred in the second half of
1997. See "Asset Quality." The large provision in 1996 related directly to the
charge-offs incurred in connection with IPF loan portfolio.
Non-interest Expense
Total non-interest expense declined modestly from $7.2 million in 1996 to
$7.1 million in 1997. However, the composition of expenses in the two years was
very dissimilar, and the rate at which non-interest expense was incurred in the
latter half of 1997 was substantially lower than the rate earlier in the year.
Non-interest expense in 1996 included substantial operating, legal and
consulting expenses related to the IPF business. Non-interest expense in 1997
included non-recurring items, including: 1) the final costs of discontinuing the
IPF business and winding down the existing portfolio; 2) the 1997 first quarter
cost of $722 thousand to reimburse Carnegie Bancorp for merger-related expenses
following the termination of a merger agreement; 3) duplicative costs of certain
executive salaries associated with the arrival of a new management team pending
the expiration of previously existing employment agreements of former
management; 4) severance costs associated with
-25-
<PAGE>
the elimination of 30% of the Bank's full-time positions in the second quarter
of 1997; 5) increased FDIC insurance premiums related to the deterioration of
the financial condition of the Bank in late 1996; 6) consulting and legal costs
incurred in the sale of problem assets in the second quarter of 1997 and 7)
heavier than normal advertis ing and marketing expenses associated with new
business development efforts.
Expenses in the third and fourth quarter were more normal at an annualized
running rate of about $5 million, or 2.5% of average assets. Even this level
contained approximately $320 thousand of annualized FDIC insurance premiums that
will not be required under current law commencing in January 1998 due to the
improved financial condition of the Bank.
Provision for Income Taxes
Regent recorded a tax benefit of $1.375 million for the year ended December
31, 1997. The tax benefit, which was recorded in the second and fourth quarters
of the year, reflected the recognition of Regent's net deferred tax asset that
was recorded as of year end 1996, consistent with 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.
-26-
<PAGE>
Consolidated Average Balance Sheets and Rate/Yield Analysis
<TABLE>
<CAPTION>
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>
ASSETS
Interest-earning assets:
Overnight investments(1) ........... $ 3,476.8 $ 199.9 5.75% $ 1,475.8 $ 82.6 5.60%
Investment securities and securities
available for sale ............... 117,119.7 7,946.2 6.78 123,449.0 8,215.5 6.65
Loans and loans held for sale (2) .. 80,479.3 8,113.8 10.08 115,859.9 13,221.1 11.41
---------- --------- ----- ---------- --------- -----
Total interest-earning assets .... $201,075.8 $16,259.9 8.09% $240,784.7 $21,519.2 8.94%
---------- --------- ----- ---------- --------- -----
Cash and due from banks .............. 3,403.5 4,480.4
Premises and equipment, net .......... 625.1 753.3
Other assets ......................... 3,934.3 3,409.4
Allowance for possible loan losses ... (2,056.8) (3,581.7)
---------- ----------
Total assets ..................... $206,981.9 $245,846.1
========== ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
NOW ................................ $ 4,444.7 $ 97.4 2.19% $ 3,783.4 $ 91.1 2.41%
Savings ............................ 42,328.7 2,062.4 4.87 49,870.7 2,433.2 4.88
Money market deposits .............. 2,808.4 112.4 4.00 3,670.3 157.0 4.28
Time deposits ...................... 110,671.6 6,881.1 6.22 122,657.0 7,577.3 6.18
Borrowings ......................... 15,429.1 863.3 5.60 34,854.9 1,982.7 5.70
Subordinated debt .................. 2,750.0 213.7 7.77 2,750.0 220.2 8.00
---------- --------- ---------- ---------
Total interest-bearing liabilities . 178,432.5 $10,230.3 5.73% 217,586.3 $12,461.5 5.73%
--------- ---------
Demand deposits ...................... 9,577.7 10,705.2
Other liabilities .................... 4,461.5 7,652.7
---------- ----------
Total liabilities ................ 192,471.7 235,944.2
---------- ----------
Shareholders' equity ................. 14,510.2 9,901.9
---------- ----------
Total liabilities and
shareholders' equity ............. $206,981.9 $245,846.1
========== ==========
Net interest income and net
interest spread .................... $ 6,029.6 2.35% $ 9,057.7 3.21%
========= ===== ========= =====
Net interest rate margin ............. 3.00% 3.76%
===== =====
<CAPTION>
1995
--------------------------------
Average Income/ Rate/
Balance Expense Yield
---------- --------- -----
<S> <C> <C> <C>
ASSETS
Interest-earning assets:
Overnight investments(1) ........... $ 236.4 $ 10.7 4.53%
Investment securities and securities
available for sale ............... 148,559.4 9,988.0 6.72
Loans and loans held for sale (2) .. 92,743.7 11,160.8 12.03
---------- ---------
Total interest-earning assets .... $241,539.5 $21,159.5 8.76%
---------- ---------
Cash and due from banks .............. 4,476.9
Premises and equipment, net .......... 643.4
Other assets ......................... 2,806.5
Allowance for possible loan losses ... (1,838.0)
----------
Total assets ..................... $247,628.3
==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
NOW ................................ $ 4,055.9 $ 102.1 2.52%
Savings ............................ 53,283.1 2,588.8 4.86
Money market deposits .............. 8,462.9 333.5 3.94
Time deposits ...................... 102,779.5 6,493.1 6.32
Borrowings ......................... 45,209.0 2,816.0 6.23
Subordinated debt .................. 2,750.0 219.6 7.99
---------- --------- -----
Total interest-bearing liabilities . 216,540.4 $12,553.0 5.80%
---------- ---------
Demand deposits ...................... 10,404.0
Other liabilities .................... 7,053.2
----------
Total liabilities ................ 233,997.5
----------
Shareholders' equity ................. 13,630.8
----------
Total liabilities and
shareholders' equity ............. $247,628.3
==========
Net interest income and net
interest spread .................... $ 8,606.5 2.96%
========= =====
Net interest rate margin ............. 3.56%
=====
</TABLE>
- ----------
(1) Includes federal funds sold and interest-bearing deposits due from banks.
(2) For purpose of these computations, non-accruing loans are included in the
daily average loan amounts outstanding. Additionally, the yield on IPF
loans includes interest income on delinquent loans.
Volume and Rate Variance Analysis
Net interest income is affected by changes in the average interest rate
earned on earning assets and the average interest rate paid on interest-bearing
liabilities. In addition, net interest income is affected by changes in the
volume of earning assets and interest-bearing liabilities. The following table
sets forth for the years ended December 31, 1997 compared to December 31, 1996
and December 31, 1996 compared to December 31, 1995, the
-27-
<PAGE>
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>
1997 Compared to 1996 1996 Compared to 1995
------------------------------------- ---------------------------------------
Net Increase Net Increase
Volume Rate (Decrease)(1) Volume Rate Decrease)(1)
--------- --------- ------------- --------- ------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Overnight investments(2) .......... $ 112.2 $ 17.9 $ 130.1 $ 58.7 $ (1.5) $ 57.2
Investment securities ............. (427.5) 145.3 (282.2) (1,674.4) (83.5) (1,757.9)
Loans and loans held for sale (3) . (3,696.9) (1,410.3) (5,107.2) 2,662.6 (602.3) 2,060.3
--------- --------- --------- --------- ------- ---------
Total Interest Income ............. (4,012.2) (1,247.1) (5,259.3) 1,046.9 (687.0) 359.7
--------- --------- --------- --------- ------- ---------
NOW accounts ...................... 15.0 (8.7) 6.3 (6.7) (4.3) (11.0)
Savings deposits .................. (367.5) (3.3) (370.8) (166.4) 10.8 (155.6)
Money market deposits ............. (35.0) (9.6) (44.6) (202.9) 26.4 (176.5)
Certificates of deposit ........... (744.9) 48.8 (696.1) 1,230.8 (146.5) 1,084.3
Borrowings ........................ (1,087.5) (31.9) (1,119.3) (604.3) (228.9) (833.2)
Subordinated debt ................. -- (6.5) (6.5) -- 0.6 0.6
--------- --------- --------- --------- ------- ---------
Total Interest Expense ............ (2,319.9) (11.2) (2,231.1) 250.5 (341.9) (91.5)
--------- --------- --------- --------- ------- ---------
Net Interest Income ............... $(1,707.0) $(1,321.2) $(3,028.2) $ 754.4 $(303.2) $ 451.2
========= ========= ========= ========= ======= =========
</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 $500 thousand and $1.5 million in 1997
and 1996, respectively. A majority of such fees were associated with IPF
loans. In addition, loan income in 1996 includes interest of $16 thousand
on nonaccrual loans. 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.
Year 2000
The Year 2000 issue exists because many computer systems and applications
currently use two-digit date fields to designate a year. Beginning in year 2000,
date-sensitive systems could recognize the year 2000 as 1900, or not at all.
This inability to recognize or properly treat the Year 2000 may cause systems to
process incorrectly critical financial and operational information.
An internal study is currently underway to determine the scope and full
costs to ensure that the Bank's systems will continue to meet its internal needs
and those of its customers. The Bank will begin to incur expenses during 1998
and 1999 to resolve the Year
-28-
<PAGE>
2000 issue; however, such expenses, which are not expected to be material,
cannot reasonably be estimated at this time.
The Bank's current operating system will not be supported by its vendor
after December 31, 1998. The new system under consideration with the current
vendor is Year 2000 compliant. Should the Bank choose a new vendor(s) for data
processing and item processing services, the Bank will not consider systems for
installation that are not Year 2000 compliant. The Bank has contacted all of its
vendors to determine their levels of Year 2000 compliance. The Bank has
established a schedule whereby the majority of the reprogramming will be
completed and testing will be underway by December 31, 1998 and will continue
into 1999. The Bank is establishing a contingency plan for replacement of
vendors and their products which are not Year 2000 compliant.
-29-
<PAGE>
Item 8. Financial Statements and Supplementary Data.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Public Accountants.................................... 31
Consolidated Balance Sheets as of December 31, 1997 and 1996................ 32
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995.......................................... 34
Consolidated Statements of Changes in Shareholders' Equity for the years
ended December 31, 1997, 1996 and 1995.................................... 35
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995.......................................... 36
Notes to Consolidated Financial Statements.................................. 37
-30-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
of Regent Bancshares Corp.:
We have audited the accompanying consolidated balance sheets of Regent
Bancshares Corp. (a New Jersey corporation) and subsidiary as of December 31,
1997 and 1996, and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. 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.
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, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ ARTHUR ANDERSEN LLP
Roseland, New Jersey
January 20, 1998
(except for Note 22, as to
which the date is March 27, 1998)
-31-
<PAGE>
REGENT BANCSHARES CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
as of December 31,
---------------------------------
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 2,343,163 $ 4,409,674
Overnight investments 3,036,068 5,083,790
------------- -------------
Cash and cash equivalents 5,379,231 9,493,464
Investment securities available for sale, at market 121,013,552 30,469,710
Investment securities held to maturity, at amortized
cost (market value of $73,250,139) -- 75,082,982
Loans, net of unearned fees 95,051,225 85,069,171
Less: Allowance for possible loan losses (1,366,974) (3,059,773)
------------- -------------
Net loans 93,684,251 82,009,398
------------- -------------
Accrued interest receivable 1,402,093 1,362,276
Premises and equipment, net 529,373 695,874
Prepaid expenses and other assets (including deferred
taxes of $1,941,200 and $ 350,000, respectively) 3,609,356 2,790,522
------------- -------------
Total assets $ 225,617,856 $ 201,904,226
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand deposits $ 11,856,620 $ 10,986,013
Interest-bearing:
NOW and money market 6,589,991 6,583,384
Savings 33,749,462 47,830,169
Certificates of deposit 99,800,707 119,726,797
------------- -------------
Total deposits $ 151,996,780 185,126,363
Advances from Federal Home Loan Bank of Pittsburgh 48,193,150 202,621
Subordinated debentures 2,750,000 2,750,000
Accrued interest payable 4,382,651 4,792,911
Other liabilities 152,541 899,614
------------- -------------
Total liabilities $ 207,475,122 $ 193,771,509
------------- -------------
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.10 par value, 5,000,000 shares authorized,
Series A, 441,272 shares issued and outstanding;
entitled to $4,412,720 in involuntary liquidation -- 44,127
Series B, 3,820 shares issued and outstanding;
entitled to $38,200 in involuntary liquidation -- 382
Series C, 3,025 shares issued and outstanding;
entitled to $30,250 in involuntary liquidation -- 303
Series D, 3,280 shares issued and outstanding;
entitled to $32,800 in involuntary liquidation -- 328
Series E, 95,654 shares issued and outstanding;
entitled to $956,540 in involuntary liquidation -- 9,565
------------- -------------
-- 54,705
</TABLE>
-32-
<PAGE>
REGENT BANCSHARES CORP.
CONSOLIDATED BALANCE SHEETS -- CONTINUED
<TABLE>
<CAPTION>
as of December 31,
---------------------------------
1997 1996
------------- -------------
<S> <C> <C>
Common stock, $.10 par value, 10,000,000 shares authorized,
3,409,222 and 1,228,283 shares issued and outstanding $ 340,922 $ 122,828
Additional paid-in capital 23,698,385 14,678,375
Accumulated deficit (5,524,397) (6,049,921)
Net unrealized loss on investment securities available
for sale, net of tax in 1997 (372,176) (673,270)
------------- -------------
Total shareholders' equity 18,142,734 8,132,717
------------- -------------
Total liabilities and shareholders' equity $ 225,617,856 $ 201,904,226
============= =============
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
-33-
<PAGE>
REGENT BANCSHARES CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Interest income:
Loans, including fees $ 8,113,840 $ 13,221,139 $ 11,160,803
Investment securities, including dividends 7,946,128 8,215,529 9,988,029
Overnight investments 199,908 82,590 10,741
------------ ------------ ------------
Total interest income 16,259,876 21,519,258 21,159,573
------------ ------------ ------------
Interest expense:
Deposits 9,153,632 10,258,596 9,517,438
Short-term borrowings 850,135 1,481,098 2,788,852
Long-term debt 226,908 721,776 246,661
------------ ------------ ------------
Total interest expense 10,230,675 12,461,470 12,552,951
------------ ------------ ------------
Net interest income 6,029,201 9,057,788 8,606,622
Provision for possible loan losses 100,000 5,092,156 4,905,000
------------ ------------ ------------
Net interest income after
provision for possible loan losses 5,929,201 3,965,632 3,701,622
------------ ------------ ------------
Non-interest income:
Service charges on deposit accounts 119,600 102,898 82,565
Other 51,523 21,176 21,423
Net gains on sale of assets 640,032 88,617 303
------------ ------------ ------------
Total non-interest income 811,155 212,691 103,988
------------ ------------ ------------
Non-interest expense:
Salaries and employee benefits 2,764,836 2,103,998 1,686,979
Professional services 1,614,263 865,721 1,272,236
Occupancy 650,922 608,201 519,284
FDIC assessment and other insurance 470,253 141,412 297,074
IPF servicing 566,888 2,323,491 2,132,104
Data processing 177,011 211,603 171,604
Other 879,071 969,881 1,316,426
------------ ------------ ------------
Total non-interest expense 7,123,244 7,224,307 7,395,707
------------ ------------ ------------
Loss before benefit for income taxes (382,888) (3,045,984) (3,590,097)
Income tax benefit (1,375,000) (350,000) (463,500)
------------ ------------ ------------
Net income (loss) 992,112 (2,695,984) (3,126,597)
Preferred stock dividends 466,588 141,650 487,408
------------ ------------ ------------
Net income (loss) available to common shareholders $ 525,524 $ (2,837,634) $ (3,614,005)
============ ============ ============
Net income (loss) per basic share $ 0.26 $ (2.66) $ (3.80)
Weighted average number of shares outstanding 2,005,331 1,068,523 952,193
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
-34-
<PAGE>
REGENT BANCSHARES CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Net
unrealized
loss on
Retained investment
Additional earnings securities
Preferred stock Common stock paid-in (accumulated available
Shares Amount Shares Amount capital deficit) for sale Total
------- -------- ------- -------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 602,615 $ 60,262 924,409 $ 92,441 $12,997,321 $ 478,544 $(1,423,000) $12,205,568
Issuance of preferred stock
as dividends 51,452 5,145 -- -- 303,567 (308,712) -- --
Conversion of preferred stock
to common stock (72,875) (7,287) 73,206 7,320 (33) -- -- --
Change in net unrealized loss
on investment securities
available for sale -- -- -- -- -- -- 1,274,385 1,274,385
Net loss -- -- -- -- -- (3,126,597) -- (3,126,597)
-------- ------- --------- -------- ----------- ----------- --------- -----------
Balance, December 31, 1995 581,192 58,120 997,615 99,761 13,300,855 (2,956,765) (148,615) 10,353,356
Issuance of preferred stock
as dividends 48,144 4,814 -- -- 392,358 (397,172) -- --
Issuance of common stock -- -- 148,148 14,815 985,185 -- -- 1,000,000
Conversion of preferred stock
to common stock (82,285) (8,229) 82,520 8,252 (23) -- -- --
Change in net unrealized loss
on investment securities
available for sale -- -- -- -- -- -- (524,655) (524,655)
Net loss -- -- -- -- -- (2,695,984) -- (2,695,984)
-------- ------- --------- -------- ----------- ----------- --------- -----------
Balance, December 31, 1996 547,051 54,705 1,228,283 122,828 14,678,375 (6,049,921) (673,270) 8,132,717
Issuance of preferred stock 16,634 1,636 -- -- 104,730 -- -- 106,366
Issuance of preferred stock
as dividends 43,770 4,377 -- -- 462,211 (466,588) -- --
Conversion of preferred stock
to common stock (590,650) (59,065) 592,108 59,211 (146) -- -- --
Redemption of preferred stock (16,531) (1,653) 2,200 220 (141,882) -- -- (143,315)
Exchange of Bank common stock
for Regent common stock -- -- 1,586,631 158,663 8,595,097 -- -- 8,753,760
Change in net unrealized loss
on investment securities
available for sale, net of taxes -- -- -- -- -- -- 301,094 301,094
Net income -- -- -- -- -- 992,112 -- 992,112
-------- ------- --------- -------- ----------- ----------- --------- -----------
Balance, December 31, 1997 0 $ 0 3,409,222 $340,922 $23,698,385 $(5,524,397) $(372,176) $18,142,734
======== ======= ========= ======== =========== =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
-35-
<PAGE>
REGENT BANCSHARES CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------
1997 1996 1995
------------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 992,112 $ (2,695,984) $ (3,126,597)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Provision for possible loan losses 100,000 5,092,156 4,905,000
Depreciation and amortization 298,326 250,661 183,699
Deferred tax provision (benefit) (1,387,100) 1,219,700 (944,600)
Net amortization of premiums and accretion
of discounts on investment securities (38,790) 1,345,299 643,853
Net gain on sales of assets (640,032) (88,617) --
Increase (decrease) in unearned interest/fees 605,128 (768,777) 977,940
(Increase) decrease in accrued interest receivable (39,817) 377,693 211,275
Increase (decrease) in prepaid expenses and other assets 1,207,494 (2,024,965) 890,945
(Decrease) increase in accrued interest payable (410,260) (517,485) 3,070,328
(Decrease) increase in other liabilities (347,071) (3,411,751) 2,155,378
Purchases of mortgage loans held for sale -- (48,696,036) (68,001,403)
Proceeds from sales of mortgage loans held for sale -- 61,575,296 60,515,195
------------- ------------ ------------
Net cash provided by operating activities 339,990 11,657,190 1,481,013
------------- ------------ ------------
Cash flows from investing activities:
Net (increase) decrease in loans (11,513,690) 13,076,375 (31,145,825)
Sale of investment securities available for sale 85,440,872 19,361,635 --
Purchase of investment securities available for sale (117,604,988) (10,030,000) --
Principal collected on investment securities held
to maturity 11,287,472 15,619,113 13,058,648
Principal collected on investment securities
available for sale 4,490,180 6,343,098 5,197,586
Net decrease in U.S. Treasury bills with
maturities less than three months -- -- 124,672
Purchases of premises and equipment (131,825) (242,048) (231,685)
------------- ------------ ------------
Net cash (used in) provided by investing activities (28,031,978) 44,128,173 (12,996,604)
------------- ------------ ------------
Cash flows from financing activities:
Net decrease in demand, NOW, savings and
money market accounts (13,203,493) (5,447,497) (39,926,563)
Net (decrease) increase in certificates of deposit (19,926,090) (5,557,782) 74,996,733
Net increase (decrease) in advances from Federal Home
Loan Bank of Pittsburgh with original maturities
greater than three months 33,990,529 -- (20,400,000)
Net increase (decrease) in advances from Federal Home
Loan Bank of Pittsburgh with original maturities of
three months or less 14,000,000 (43,452,681) (9,193,560)
Proceeds from sale of preferred stock 106,366 -- --
Redemption of preferred stock (143,315) -- --
Proceeds from issuance of common stock 8,753,760 1,000,000 --
------------- ------------ ------------
Net cash provided by (used in) financing activities 23,577,755 (53,457,960) 15,688,090
------------- ------------ ------------
(Decrease) increase in cash and cash equivalents (4,114,223) 2,327,403 4,172,499
Cash and cash equivalents, beginning of year 9,493,464 7,166,061 2,993,562
------------- ------------ ------------
Cash and cash equivalents, end of year $ 5,379,231 $ 9,493,464 $ 7,166,061
============= ============ ============
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
-36-
<PAGE>
REGENT BANCSHARES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business
Regent Bancshares Corp. ("Regent") is a bank holding company organized
under the laws of the State of New Jersey and engages in the 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.
Use of Estimates
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 include the allowance for possible loan losses, the carrying value of
other real estate, the valuation allowance for deferred tax assets and the fair
value of financial instruments.
Financial Instruments
Regent is required to disclose the estimated fair value of its assets and
liabilities considered to be financial instruments. Financial instruments, as
defined, consist primarily of cash and cash equivalents, investment securities,
loans, deposits and borrowed funds.
Investment Securities
Investments in securities are 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
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<PAGE>
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 recognized as a separate component of shareholders' equity.
Regent does not engage in securities trading. Securities transactions are
accounted for on a settlement date basis. 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.
Loans and Allowance for Possible Loan Losses
Loans are stated at the amount of unpaid principal and are net of unearned
loan fees and an allowance for possible loan losses. The allowance for possible
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 possible loan losses. The allowance is an amount that
management believes will be adequate to absorb possible losses on existing loans
that may become uncollectible based upon an evaluation of known and inherent
risks in the loan portfolio. The evaluation takes into consideration such
factors as changes in the nature and size of the loan portfolio, overall
portfolio quality, specific problem loans and current and future economic
conditions which may affect the borrowers' ability to pay. The evaluation
details historical losses by loan category, the resulting loss rates for which
are projected at current loan total amounts. Loss estimates for specified
problem loans are also detailed.
Interest income is accrued as earned on a simple interest basis. Interest
accrued but uncollected on loans for which the accrual of interest has been
discontinued is written off when an assessment of the borrower evidences that
such accrual is 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 evaluates loans for impairment. A loan is considered impaired when,
according to current information and events, it is unlikely that Regent will be
able to collect all amounts due according to the contractual terms of the loan
agreement. Regent measures 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 Regent 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, Regent measures
impairment based on the fair value of the collateral when Regent determines that
foreclosure is probable.
Other Real Estate
Other real estate includes loan collateral that has been formally
repossessed. All amounts have been transferred into and carried in other real
estate at the lower of the loan value or fair market value less estimated costs
to sell the underlying collateral. If, at the time of transfer, the recorded
balance was greater than the market value less the costs to sell, the difference
-38-
<PAGE>
is charged off against the allowance for possible loan losses. Any subsequent
write-downs are charged to current operations.
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.
Federal Income Taxes
Regent accounts for its income taxes under the liability method whereby
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 (benefit) 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.
Net Income (Loss) Per Basic Share
The Company adopted FAS No. 128, "Earnings per Share," in 1997. Basic net
income (loss) per common share is computed by dividing net income (loss) less
preferred stock dividends by the weighted average number of common shares
outstanding for the year. Diluted net income per common share reflects the
potential dilution that could occur from the exercise of stock options and other
convertible securities. All prior year income per share data has been restated.
Diluted earnings per share is not presented since such amounts are
anti-dilutive.
New Financial Accounting Standards
In June 1997, the FASB adopted two additional statements. FAS No. 130,
"Reporting Comprehensive Income," establishes standards for the reporting and
display of comprehensive income and its components (revenues, expenses, gains
and losses) in a full set of general-purpose financial statements. FAS No. 130
is effective for fiscal years beginning after December 15, 1997. Regent elected
not to adopt FAS No. 130 prior to its effective date and has not determined the
method it will utilize to display comprehensive income. The second Statement,
FAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," requires that a company report financial and descriptive
information about its reportable operating segments. FAS No. 131 is effective
for fiscal years beginning after December 15, 1997. Regent elected not to adopt
FAS No. 131 prior to its effective date and has not determined if it has any
reportable segments.
-39-
<PAGE>
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 $10.7 million in 1997, $12.2 million in
1996 and $9.5 million in 1995. Cash paid for income taxes was $0 in 1997 and
1996, and approximately $100 thousand in 1995. The value of preferred stock
issued as dividends was approximately $467 thousand in 1997, $397 thousand in
1996 and $309 thousand in 1995. Conversion of preferred stock to common stock
was valued at approximately $59 thousand in 1997, $8 thousand in 1996 and $7
thousand in 1995.
Reclassifications
Certain 1996 and 1995 financial information has been reclassified to
conform to the 1997 presentation.
3. Capital Adequacy and Regulatory Matters
Regent and the Bank are subject to various regulatory capital requirements
adminis tered 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 material
effect on Regent's consolidated financial statements. Under capital adequacy
guidelines, 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).
-40-
<PAGE>
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
--------------------- ---------------------- -----------------------
Amount Ratio Amount Ratio Amount Ratio
----------- ----- ---------- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997
Total capital (to risk-weighted assets):
Regent............................... $19,583,000 16.07% $9,746,000 8.00% $12,182,000 10.00%
Bank................................. 22,295,000 18.31 9,742,000 8.00 12,178,000 10.00
Tier 1 capital (to risk-weighted assets):
Regent............................... 18,216,000 14.95 4,873,000 4.00 7,309,000 6.00
Bank................................. 20,928,000 17.19 4,871,000 4.00 7,307,000 6.00
Tier 1 capital (to average assets):
Regent............................... 18,216,000 8.29 8,788,000 4.00 10,985,000 5.00
Bank................................. 20,928,000 9.53 8,786,000 4.00 10,982,000 5.00
As of December 31, 1996
Total capital (to risk-weighted assets):
Regent............................... $10,816,000 9.39% $9,534,080 8.00% $11,917,600 10.00%
Bank................................. 13,012,000 11.21 9,250,720 8.00 11,603,400 10.00
Tier 1 capital (to risk-weighted assets):
Regent............................... 8,806,000 7.65 4,767,040 4.00 7,150,560 6.00
Bank................................. 11,547,000 9.95 4,625,360 4.00 6,988,040 6.00
Tier 1 capital (to average assets):
Regent............................... 8,806,000 4.31 8,179,000 4.00 10,223,750 5.00
Bank................................. 11,547,000 5.65 8,176,440 4.00 10,220,550 5.00
</TABLE>
As a result of the Bank's reported losses in 1995 and 1996, which primarily
resulted from the provision for possible 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 entered into a Regulatory Agreement with the Office of the
Comptroller of the Currency (the "OCC") to correct certain deficiencies
described in supervisory letters dated August 9, 1996 and August 29, 1996.
Under the Regulatory Agreement, the Bank was required to develop and
implement an action plan, develop a three-year capital program, including 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 possible loan losses,
increase the liquidity of the Bank and appoint a Special Compliance Committee to
monitor the Bank's compliance with the Regulatory Agreement. On June 25, 1997,
as a result of the Bank's raising of approximately $8.7 million in net new
capital and other significant improvements in the Bank's financial and operating
condition, the OCC terminated the Regulatory Agreement.
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 absent prior written permission from the OCC. In
September 1997, the OCC granted the Bank permission
-41-
<PAGE>
to declare and make periodic dividend payments for corporate purposes, such as
the payment of interest on subordinated debt.
4. Investment Portfolio
Investment securities available for sale at December 31, 1997 and 1996 are
as follows:
<TABLE>
<CAPTION>
December 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......... $ 67,500,000 $ -- $50,528,070 $ 16,971,930 $ 21,393 $ -- $ 16,993,323
GNMA.................. 9,635,174 392,552 -- 10,027,726 41,705 110,523 9,958,908
FHLMC................. 35,785,051 1,084,742 319,821 36,549,972 252,940 305,045 36,497,867
FNMA.................. 28,810,294 851,152 86,899 29,574,546 37,242 296,841 29,314,947
CMOs.................. 24,944,557 468,926 23,860 25,389,622 65,765 306,919 25,148,468
------------ ---------- ----------- ------------ -------- ---------- ------------
$166,675,076 $2,797,372 $50,958,651 $118,513,796 $419,045 $1,019,328 $117,913,513
============ ========== ===========
Other securities...... 3,100,039 -- -- 3,100,039
------------ -------- ---------- ------------
$121,613,835 $419,045 $1,019,328 $121,013,552
============ ======== ========== ============
<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
=========== ======== ========== ============
<CAPTION>
Investment securities held to maturity at December 31, 1996:
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......... $ -- $ -- $ -- $ -- $ -- $ -- $ --
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
CMOs.................. 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>
At December 31, 1997, the Bank transferred to AFS all securities previously
classified as HTM that had an amortized cost of approximately $63.5 million and
a net unrealized loss of $454
-42-
<PAGE>
thousand. The Bank anticipates that securities purchased subsequent to December
31, 1997 will be classified as AFS.
During the year ended December 31, 1997, AFS securities totaling $85.4
million were sold at a net gain of $72 thousand. A planned restructuring of a
portion of the portfolio was executed during mid-January 1998 to mitigate the
impact on future earnings of significant prepayments on MBS.
Expected maturities of MBS 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 30 years.
The amortized cost and estimated market value of debt securities at
December 31, 1997, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
Estimated Amortized market cost value
Available for Sale:
Due in one year or less....................... $ 2,366,111 $ 2,348,966
Due after one year through five years......... 31,767,818 32,061,987
Due after five years through ten years........ 24,043,466 23,957,572
Due after ten years........................... 34,946,779 34,396,520
CMOs.......................................... 25,389,622 25,148,468
------------ ------------
$118,513,796 $117,913,513
============ ============
5. Loans
A summary of the loan portfolio as of December 31, 1997 and 1996 follows:
1997 1996
----------- ------------
Commercial and industrial ................. $ 41,249,570 $ 46,041,595
Real estate:
Construction............................ 11,813,286 9,421,352
Mortgages - residential................. 8,258,719 10,218,751
Mortgages - commercial.................. 32,688,667 15,984,598
Consumer .................................. 1,361,263 3,826,739
----------- -----------
95,371,504 85,493,035
Net unearned fees.......................... (320,279) (423,864)
------------ ------------
$ 95,051,225 $ 85,069,171
============ ============
The balance of impaired loans was $496 thousand and $3.8 million at
December 31, 1997 and 1996, respectively. Regent identifies a loan as impaired
when it is probable that interest and
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<PAGE>
principal will not be collected according to the contractual terms of the loan
agreement. The allowance for possible loan losses associated with impaired loans
was $74 thousand and $648 thousand at December 31, 1997 and 1996, respectively.
Income recognized on impaired loans during 1997 and 1996 was $0 and $16
thousand, respectively. Interest which would have been accrued on impaired loans
during 1997 and 1996 was $58 thousand and $335 thousand, respectively. Regent's
policy for interest income recognition on impaired loans is to recognize income
on restructured loans under the accrual method. Regent recognizes income on
non-accrual loans under the cash basis when the loans are both current and the
collateral on the loan is sufficient to cover the outstanding obligation to
Regent; if both these factors do not exist, Regent does not recognize income on
non-accrual loans.
Non-accrual loans were $496 thousand and $3.8 million at December 31, 1997
and 1996, respectively. At December 31, 1997 and 1996, loans totalling $0 and
$977 thousand, respectively, were past due 90 days or more and continued to
accrue interest income.
At December 31, 1997 the Bank had no loans outstanding to directors,
principal shareholders, executive officers or their affiliated interests
compared to $1.2 million at December 31, 1996 because, during 1997, certain
loans were sold by the Bank and certain borrowers ceased to be directors of the
Bank. 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. At December 31, 1996, the Bank had outstanding a non-accruing loan
of $692 thousand to a then director of the Bank and was engaged in restructuring
negotiations with such borrower.
6. Allowance for Possible Loan Losses
A summary of the activity in the allowance for possible loan losses for the
years ended December 31, 1997, 1996 and 1995 follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ----------- ----------
<S> <C> <C> <C>
Balance, beginning of year........................... $3,059,773 $ 6,500,882 $1,713,372
Provision charged to operating income................ 100,000 5,092,156 4,905,000
Loans charged off.................................... (2,873,199) (10,015,476) (128,719)
Recoveries of loans previously charged off........... 1,080,400 1,482,211 11,229
---------- ----------- ----------
Balance, end of year................................. $1,366,974 $ 3,059,773 $6,500,882
========== =========== ==========
</TABLE>
During 1996 and 1995, the increased level of provisions for possible loan
losses and charge-offs was the result of losses experienced by the Bank from its
IPF receivables. The increased level of losses was primarily the result of
inaccurate information reported to the Bank by the servicer of the IPF
portfolio. The Bank no longer underwrites IPF (automobile insurance premium
finance) receivables and, as of December 31, 1997, there was no IPF receivable
balance outstanding. Regent discontinued the writing of new IPF business in
September 1996 and the last outstanding IPF contract matured in June 1997.
During the years ended December 31, 1997, 1996 and 1995, the Bank recorded
interest and fee income from the IPF portfolio of $61 thousand, $3.3 million and
$3.6 million, respectively, and fees to the servicer of $-0-, $150 thousand and
$1.3 million, respectively.
-44-
<PAGE>
7. Significant Concentrations of Risk
Approximately 57% and 49% of the total loans outstanding at December 31,
1997 and 1996, 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.
8. Premises and Equipment
A summary of premises and equipment as of December 31, 1997 and 1996
follows:
<TABLE>
<CAPTION>
Estimated
Useful Lives 1997 1996
------------ ---------- ----------
<S> <C> <C> <C>
Furniture and fixtures.................... 3-7 years $1,166,135 $1,044,690
Leasehold improvements.................... 5-20 years 696,715 686,336
---------- ----------
1,862,850 1,731,026
Less: Accumulated depreciation............ (1,333,477) (1,035,152)
---------- -----------
Premises and equipment, net............... $ 529,373 $ 695,874
========== ==========
</TABLE>
9. Certificates of Deposit
At December 31, 1997 and 1996, certificates of deposit outstanding with a
face value greater than or equal to approximately $100 thousand totalled
approximately $11.0 million and $11.9 million, respectively.
At December 31, 1997, the scheduled maturities of certificates of deposit
were as follows:
<TABLE>
<CAPTION>
3 Months Over 3 Months Over 1 Year Over 3
or Less to 12 Months to 3 Years Years Total
-------- ------------- ----------- ------ -----
(in thousands)
<S> <C> <C> <C> <C> <C>
Less than $100,000 $13,777 $39,693 $32,428 $2,866 $88,764
$100,000 or more 2,439 4,666 3,593 339 11,037
------- ------- ------- ------ -------
$16,216 $44,359 $36,021 $3,205 $99,801
======= ======= ======= ====== =======
</TABLE>
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<PAGE>
10. Advances from Federal Home Loan Bank of Pittsburgh
A summary of the advances from the Federal Home Loan Bank of Pittsburgh
(the "FHLB") at December 31, 1997 and 1996 follows:
<TABLE>
<CAPTION>
December 31
------------------------------
1997 1996
----------- ------------
<S> <C> <C>
Balance outstanding $48,193,150 $202,621
Weighted average interest rate
at end of period 5.52% 6.70%
Average daily balance outstanding $15,429,102 $34,854,969
Weighted average interest rate 5.60% 5.55%
Highest month-end outstanding balance $48,193,150 $48,269,100
</TABLE>
11. Subordinated Debentures
Subordinated debentures consist of $2.75 million of 7-3/4% debentures due
September 30, 1998. These debentures are subordinated to rights of any senior
debt consisting of certain obligations to banks and other financial institutions
which may be incurred.
12. Income Taxes
The benefit for income taxes for the years ended December 31, 1997, 1996
and 1995 is as follows:
1997 1996 1995
------------ ----------- ----------
Federal:
Current.............. $ 12,000 $(1,569,700) $ 481,100
Deferred............. (1,387,100) 1,219,700 (944,600)
State...................... --- --- ---
----------- ----------- ----------
$(1,375,000) $ (350,000) $ (463,500)
========== ========== =========
A reconciliation of the effective tax rates to the statutory federal income
tax rates for the years ended December 31, 1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------- ---------------------- -----------------------
Amount % Amount % Amount %
----------- ----- ----------- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Federal statutory rate........... $ (130,200) (34.0)% $(1,035,600) (34.0)% $(1,220,600) (34.0)%
Merger expenses.................. -- -- (80,600) (2.6) 107,700 3.0
Increase (decrease) in
valuation allowance
for deferred tax assets........ (1,317,500) (344.1) (744,000) 24.4 650,000 18.1
Other............................ 72,700 19.0 22,200 .7 (600) --
Effective tax rate............... $(1,375,000) (359.1)% $(350,000) (11.5) % $(463,500) (12.9)%
========== ======= ========= ====== ======== ======
</TABLE>
-46-
<PAGE>
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>
1997 1996
---------- ---------
<S> <C> <C>
Allowance for possible loan losses ........................... $ 492,100 $1,101,500
Net operating loss carryover.................................. 1,180,000 574,100
Accumulated depreciation...................................... 84,500 700
Unrealized loss on investment securities available for sale... 204,100 230,600
Alternative minimum tax credit carryforward................... 73,600 73,600
Other......................................................... 4,700 4,200
Deferred loan costs........................................... (97,800) (86,600)
---------- ----------
1,941,200 1,898,100
---------- ----------
Valuation allowance........................................... -- 1,548,100
---------- ----------
Net deferred tax asset............................... $1,941,200 $ 350,000
========== ==========
</TABLE>
During 1997, Regent recorded a net benefit of $1.38 million primarily
representing the recognition of net operating loss ("NOL") carryforwards through
the reversal of a previously established deferred tax valuation allowance. The
realization of the deferred tax asset recorded at December 31, 1997 is based on
Regent's evaluation of income earned in the latter half of 1997 and management's
estimate of Regent's continued ability to remain profitable in future periods
such that realization of its NOL carryforwards can be reasonably expected. This
estimate will be impacted favorably or unfavorably by future results of
operations. Regent will periodically evaluate the realizability of its deferred
tax asset and will adjust the level of the valuation allowance if necessary.
At December 31, 1997, Regent had NOL carryforwards for federal tax purposes
of approximately $3.4 million and for state tax purposes of approximately $2.6
million which expire in varying amounts through 2011. In addition, at December
31, 1997 Regent had an alternative minimum tax credit carryforward approximating
$74 thousand.
13. Net Income (Loss) Per Common Share
A summary of the Basic Earnings Per Share for the years 1997, 1996 and 1995
follows:
<TABLE>
<CAPTION>
For the Year Ended December 31, 1997
---------------------------------------
Weighted
Average Per Share
Income Shares Amount
-------- --------- ---------
<S> <C> <C> <C>
Basic Earnings Per Share
Net income $992,112
Less: preferred stock dividends 466,588
--------
Net Income available to common shareholders $525,524 2,005,331 $.26
======== ========= ====
</TABLE>
-47-
<PAGE>
<TABLE>
<CAPTION>
For the Year Ended December 31, 1996
----------------------------------------
Weighted
Average Per Share
Income Shares Amount
-------- --------- ---------
<S> <C> <C> <C>
Basic Earnings Per Share
Net loss $(2,695,984)
Less: preferred stock dividends 141,650
-----------
Loss available to common shareholders $(2,837,634) 1,068,523 $(2.66)
=========== ========= ======
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended December 31, 1995
----------------------------------------
Weighted
Average Per Share
Income Shares Amount
-------- --------- ---------
<S> <C> <C> <C>
Basic Earnings Per Share
Net loss $(3,126,597)
Less: preferred stock dividends 487,408
-----------
Loss available to common shareholders $(3,614,005) 952,193 $(3.80)
=========== ======= ======
</TABLE>
14. Commitments and Contingencies
Lease Commitments
Approximate future minimum lease payments under non-cancellable operating
leases as of December 31, 1997 are as follows:
1998 $210,000
1999 (expiring May 31) 87,000
--------
Total minimum payments required $297,000
Regent incurred rent expense of approximately $174 thousand for each of the
years ended December 31, 1995 to 1997. The leases provide for two 5-year renewal
options at current market rental rates. The leases for the 1430 and 1428 Walnut
Street premises include a right of first 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
recovered $320 thousand. 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.
-48-
<PAGE>
During 1996, the Bank instituted two lawsuits to recover damages caused to
the Bank by individuals and entities which engaged in the IPF business with the
Bank. As of December 31, 1997, both lawsuits remained pending. The status of the
two lawsuits is set forth below:
On December 24, 1996, the Bank filed a complaint in the United States
District Court for the Eastern District of Pennsylvania in which it asserted
claims against K-C Insurance Premium Finance Co., Inc. ("K-C") and its
principals, Alvin M. Chanin ("Chanin") and Antimo S. Cesaro ("Cesaro"), Chanin's
wife, Myra Chanin, and Cesaro's wife, Kimberly Cesaro. During 1997, the
defendants filed various actions in the Court of Common Pleas of Philadelphia
County, all of which arose from the IPF business. Pursuant to a stipulation,
those claims were dismissed and reasserted as counter-claims in the federal
court action. Certain claims brought by the defendants as counterclaims were
dismissed pursuant to a November 13, 1997 Order.
On December 17, 1997, Judge Kelly (United States District Court for the
Eastern District of Pennsylvania) granted the defendant's motion for partial
summary judgment on Counts I and II of the Bank's complaint for RICO and RICO
conspiracy, and granted the defendants' motion to dismiss the remaining counts
of the complaint without prejudice and directed the Bank to transfer the
remaining counts to a Pennsylvania Court of Common Pleas. Thus, on January 23,
1998, the Bank filed the necessary papers to transfer the matter to the Court of
Common Pleas of Philadelphia County. The litigation will continue in that court.
On December 19, 1997, Chanin, Myra Chanin, Cesaro and Kimberly Cesaro filed an
action in the Court of Common Pleas of Philadelphia County against Duane, Morris
& Heckscher LLP and certain individual attorneys at Duane, Morris & Heckscher
LLP and the Bank and a former officer of the Bank and current director of
Regent. The counts of the complaint are the following: Count I, Wrongful Use of
Civil Proceedings; Count II, Abuse of Process; Count III, Loss of Consortium and
Count IV, Intentional Infliction of Emotional Distress.
On November 27, 1996, the Bank filed a complaint against Dealers Choice
Automotive Planning, Inc. ("DCAP"), an independent retail insurance broker
which engaged in IPF business with the Bank and which was recruited to do
business with the Bank by K-C, and an affiliate of DCAP for breach of contract
in the United States District Court for the Eastern District of Pennsylvania.
The defendants answered this complaint and asserted that they were misled by
certain officers and directors of the Bank by fraudulent misrepre sentations
concerning the recourse provisions of the letter of understanding. During
December 1997, the defendants' counterclaims against the officers and directors
of the Bank were dismissed. Discovery in this matter is not yet complete. The
defendants filed an action against the Bank and the officers and directors of
Regent in the Supreme Court of the State of New York, County of New York. This
action has been stayed pending the outcome of the action in the United States
District Court for the Eastern District of Pennsylvania.
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
-49-
<PAGE>
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 employment agreements with each of its executive officers. Such
agreements provide for, among other things, base compensation, and three of the
agree ments have a change-of-control provision. Annual base compensation under
these agreements, three of which extend automatically on an annual basis for an
additional term of one year, is approximately $565 thousand.
15. Related Parties
Regent incurred professional fees of approximately $1.6 million, $866
thousand and $1.3 million in 1997, 1996 and 1995, respectively. Included in
these amounts were approximately $1 thousand, $87 thousand and $187 thousand in
1997, 1996 and 1995, 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 $106 thousand, $114
thousand and $90 thousand during 1997, 1996 and 1995, respectively, to an
insurance brokerage agency whose president was a member of the Board of
Directors of Regent until May 1997 and who is a director of the Bank.
Regent paid consulting fees of approximately $78 thousand and $87 thousand
during 1996 and 1995, respectively, to a bank consulting firm whose president
was a member of the Board of Directors of Regent during those years. No such
fees were paid in 1997.
16. 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 instru ments 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 consoli dated 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 $9.3 million and $7.6 million at December 31,
1997 and 1996, respectively. Commitments to extend credit are agreements to lend
to a customer as long as
-50-
<PAGE>
there is no violation of any condition established in the commitment agreement.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since a portion of the commitments are
expected to expire without being drawn upon, the total commitments do not
necessarily represent future cash requirements. Regent evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by Regent upon the extension of credit, is based on
management's credit evaluation of the counterparty. Collateral for most
commercial commitments varies but may include accounts receivable; inventory;
property, plant and equipment and income-producing commercial properties.
Collateral for secured consumer commitments consists of liens on residential
real estate.
Commitments under outstanding standby letters of credit were $1.1 million
and $150 thousand at December 31, 1997 and 1996, 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 or 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 $11.0
million and $10.2 million at December 31, 1997 and 1996, respectively.
17. Shareholders' Equity
In September 1996, four directors of Regent purchased an aggregate of
148,148 shares of Common Stock of Regent for a purchase price of $6.75 per
share, or an aggregate price of $1 million.
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 of Regent and the Bank and the other of whom serves as legal counsel
to Regent and the Bank. Regent used the proceeds from this sale to pay the
interest on its subordinated debentures due March 31, 1997.
On April 16, 1997, the Bank sold 1,120,000 shares of the Bank's Common
Stock (the "Bank Offering") for net cash proceeds of approximately $8.7 million.
The Bank Common Stock sold in the Bank Offering was mandatorily redeemable 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 equaled or exceeded $12.00 per share for 15
consecutive trading days and (ii) the resale of the Regent
-51-
<PAGE>
Common Stock issuable in exchange for the Bank Common Stock had been registered
under the Securities Act of 1933, which registration became effective on August
14, 1997. On August 15, 1997, Regent, the Bank and each of the holders of Bank
Common Stock issued in the Bank Offering waived the condition precedent to the
exchange relating to the bid price of Regent Common Stock. By August 31, 1997,
Regent had issued an aggregate of 1,586,639 shares of Regent Common Stock in
exchange for all of the Bank Common Stock issued in the Bank Offering and the
Bank had again become the wholly owned subsidiary of Regent.
On October 10, 1997, Regent called for redemption on November 18, 1997 all
of its outstanding shares of Series A through Series E Convertible Preferred
Stock. Prior to the redemption date, the holders of 590,650 shares of Preferred
Stock converted such shares in accordance with the terms thereof into an
aggregate of 592,108 shares of Regent Common Stock and on the redemption date
14,332 shares of Preferred Stock were redeemed at $10.00 per share, an aggregate
of $143,315.
18. Stock Options
Regent adopted an equity incentive plan in 1997 (the "1997 Plan") for key
employ ees, officers, directors and consultants. Under the 1997 Plan, 380,000
shares of Regent Common Stock have been reserved for issuance upon the exercise
of stock options granted and to be granted. During the years ended December 31,
1996 and 1995, no stock options were granted.
Information regarding activity in Regent's 1997 Plan is presented below:
<TABLE>
<CAPTION>
Weighted Average
Number of Shares Exercise Price Per Share
---------------- ------------------------
<S> <C> <C>
Outstanding at December 31, 1996 -- --
Granted 1997 327,000 $6.84
Exercised 1997 --
Forfeited 1997 11,000
-------
Outstanding at December 31, 1997 316,000 $6.84
</TABLE>
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 plan is accounted for under APB No. 25.
-52-
<PAGE>
The fair value of each option granted was estimated on the date of grant
using the Black-Scholes option-pricing model. The 1997 grants had the following
common assump tions: dividend yield of 0%, expected life of 5 years and
volatility of 32.13%. The 1997 option grants assumed a risk free interest rate
of 6.76%. Had 1997 compensation costs for Regent's plans been determined based
on the fair value at the grant date for awards under these plans consistent with
the method of SFAS No. 123, the impact on Regent's financial results as of
December 31, 1997 would have been a $119,000 reduction of net income or $.06 per
share. There were no options granted in 1996 or 1995.
19. Fair Value of Financial Instruments
FAS 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. Therefore, Regent had to
use significant estimations and present value calculations to prepare this
disclosure.
Changes in the assumptions or methodologies used to estimate fair values
may materially affect the estimated amounts. Also, management is concerned that
there may not be reasonable comparability between institutions due to the wide
range of permitted assumptions and methodologies in the absence of active
markets. This lack of uniformity gives risk to a high degree of subjectivity in
estimating financial instrument fair values.
Estimated fair values have been determined by Regent using the best
available data and an estimation methodology suitable for each category of
financial instruments. The estimation methodologies used for the estimated fair
values are outlined below.
Cash and Cash Equivalents
The carrying amounts for cash and cash equivalents investments approximate
the fair values of those assets.
Mortgage-Backed and Investment Securities
Fair values are based on quoted market prices, if available. If quoted
market prices are not available, then fair values are based on quoted market
prices of comparable instruments.
Loans
For floating rate loans that reprice frequently and with no significant
change in credit risk, fair values are based on carrying values. The fair values
of certain mortgage loans are based on quoted market prices of similar loans
sold in conjunction with securitization transactions. The fair values for fixed
rate commercial real estate, and commercial and industrial loans are
-53-
<PAGE>
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
Deposit Liabilities
The fair value of demand deposits, NOW and savings accounts, and money
market deposits is the amount payable on demand at the reporting date. Fair
values for fixed rate certificates of deposit are estimated using discounted
cash flows based on rates currently offered for deposits of similar remaining
maturities.
Advances from FHLB
The carrying amount of short-term advances approximates their fair values.
Rates currently available for advances with similar terms and remaining
maturities are used to estimate the fair value of long-term advances.
Subordinated Debentures
Rates currently available to Regent for debt with similar terms and
remaining maturities are used to estimate fair value.
Off-Balance-Sheet Instruments
The fair value of commitments to extend credit is estimated using the fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of the
counterparties. For fixed rate loan commitments, excluding those committed for
sale to the secondary market, fair value also considers the difference between
current levels of interest rates and the committed rates. The fair value of
financial guarantees written and letters of credit is based on fees currently
charged for similar agreements or on the estimated cost to terminate them or
otherwise settle the obligations with the counterparties. It is management's
belief that the fair value estimate of commitments to extend credit approximates
carrying value at December 31, 1997 and 1996, 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,
1997 and 1996 follows:
<TABLE>
<CAPTION>
1997 1996
---------------------- ---------------------
Carrying Fair Carrying Fair
amount value amount value
-------- --------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Financial assets:
Cash and overnight investments.............. $ 5,379 $ 5,379 $ 9,493 $ 9,493
Investment securities available for sale.... 121,014 121,014 30,470 30,470
Investment securities held to maturity...... -- -- 75,083 73,250
Loans, net.................................. 93,684 94,372 82,009 81,975
Financial liabilities:
Deposits.................................... $151,997 $152,672 $185,126 $186,338
Advances from FHLB.......................... 48,193 48,193 203 203
Subordinated debentures..................... 2,750 2,750 2,750 2,750
</TABLE>
54
<PAGE>
20. Regent Bancshares Corp. (Parent Company Only) Financial Information
Condensed Balance Sheets
<TABLE>
<CAPTION>
As of December 31,
---------------------------------
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Cash $ 100 $ 100
Other investment securities 56,126 51,082
Other assets 34,200 11,350
Investment in the Bank 20,856,025 10,873,903
----------- -----------
Total assets $20,946,451 $10,936,435
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Other liabilities $ 53,717 $ 53,718
Subordinated debentures 2,750,000 2,750,000
Shareholders' equity 18,142,734 8,132,717
----------- -----------
Total liabilities and shareholders' equity $20,946,451 $10,936,435
=========== ===========
</TABLE>
Condensed Statements of Operations
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------
1997 1996 1995
-------- ----------- -----------
<S> <C> <C> <C>
Dividend from subsidiary $272,177 $ -- $ 250,000
Interest income 6,379 9,214 7,360
-------- ----------- -----------
Total income 278,556 9,214 257,360
-------- ----------- -----------
Expenses:
Interest 213,708 220,191 219,606
Other -- 46,903 75,501
-------- ----------- -----------
Total expenses 213,708 267,094 295,107
-------- ----------- -----------
Pretax income (loss) 64,848 (257,880) (37,747)
Income tax benefit -- -- (97,800)
-------- ----------- -----------
Income (loss) before equity in undistributed
net income (loss) of subsidiary 64,848 (257,880) 60,053
Equity in undistributed net income (loss)
of subsidiary 927,264 (2,438,104) (3,186,650)
-------- ----------- -----------
Net income (loss) $992,112 $(2,695,984) $(3,126,597)
======== =========== ===========
</TABLE>
-55-
<PAGE>
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------
1997 1996 1995
--------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 992,112 $(2,695,984) $(3,126,597)
Adjustments to reconcile net income (loss)
to net cash (used in) provided by
operating activities:
(Increase) decrease in other assets (22,855) 61,581 53,181
Equity in undistributed net (income) loss
of subsidiary (927,264) 2,438,104 3,186,650
--------- ----------- -----------
Net cash (used in) provided by
operating activities (42, 003) (196,299) 113,234
--------- ----------- -----------
Cash flows from investing activities:
(Increase) decrease in investment securities (5,044) 196,299 (113,234)
--------- ----------- -----------
Net cash provided by (used in)
investing activities (5,044) 196,299 (113,234)
--------- ----------- -----------
Cash flows from financing activities:
Advances from subsidiary -- -- --
Issuance of preferred stock 106,366 -- --
Redemption of preferred stock (143,315) -- --
--------- ----------- -----------
Net cash used in financing activities (36,949) -- --
--------- ----------- -----------
Net change in cash -- -- --
Cash, beginning of year 100 100 100
--------- ----------- -----------
Cash, end of year $ 100 $ 100 $ 100
========= =========== ===========
</TABLE>
21. Termination of Merger Agreement
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 "Merger Agreement')
with Carnegie Bancorp ("Carnegie") and its wholly owned subsidiary, Carnegie
Bank, N.A. ("CBNA"), which provided that Regent would merge with and into
Carnegie and that CBNA would merge with and into the Bank.
On January 14, 1997, Regent and the Bank executed an agreement (the
"Termination Agreement") with Carnegie and CBNA terminating the Merger
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. Pursuant to the Termination Agreement, Regent reimbursed Carnegie
for $722 thousand of merger-related expenses Carnegie had incurred which are
included in professional fees in the accompanying financial statements. In
connection therewith, the Bank sold to CBNA, with appropriate premium, $6.4
million of loan participations and servicing rights to such loans and to $27.8
million of loan participations previously sold to CBNA by the Bank. Net gains
resulting from these transactions are included in net gains on the sale of
assets in the accompanying financial statements.
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<PAGE>
22. Subsequent Event.
On March 18, 1998, Regent and the Bank entered into an Agreement and Plan
of Merger as amended and restated on March 27, 1998 (the "Merger Agreement")
with JeffBanks, Inc. ("JBI") and a wholly owned subsidiary of JBI, JeffBanks
Acquisitioncorp. V, Inc. ("JBI Merger Sub") pursuant to which Regent will merge
(the "Merger") with and into JBI Merger Sub with Regent as the surviving
corporation followed by the merger of Regent with and into JBI with JBI as the
surviving corporation and the Bank will merge (the "Bank Merger") with and into
Jefferson Bank ("Jefferson") with Jefferson as the surviving bank. The Merger
and the Bank Merger are subject to approval by the shareholders of Regent and
JBI as well as various regulatory approvals, including approval by the OCC, the
Board of Governors of the Federal Reserve System and the Pennsylvania Department
of Banking.
The Merger Agreement provides that, upon consummation of the Merger, each
outstanding share of Common Stock of Regent will be converted into the right to
receive .303 of a share of Common Stock of JBI, and that each outstanding and
unexercised option to purchase Common Stock of Regent will be automatically
converted into an option to purchase that number of shares of JBI Common Stock
as equals the number of shares of Regent's Common Stock purchasable pursuant to
such option multiplied by .303 at an exercise price equal to the exercise price
of the Regent option divided by .303.
On March 18, 1998, Regent also entered into a Stock Option Agreement as
amended and restated on March 27, 1998 (the "Option Agreement") with JBI whereby
JBI was granted an option to purchase up to 678,340 shares of Regent's Common
Stock at $14.39 per share under certain circumstances.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
The response to this Item is incorporated by reference to Regent's Form 8-K
Report dated September 24, 1997.
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<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
The names of the directors of Regent, together with certain information
regarding them, are as follows:
Name Age
---- ---
David W. Ring 82
Robert B. Goldstein 57
Abraham L. Bettinger 62
O. Francis Biondi 65
John J. Lyons 58
John W. Rose 48
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 the founder and formerly the President
and Chief Executive Officer of Larami Corporation, a toy manufacturer, a
director and a controlling stockholder of The First National Bank of Wilmington
and a director of Integrity Holding Co., its one-bank holding company. Mr. Ring
was a director of the Port Corporation of Philadelphia and was formerly a
director and Corporate Vice President of Tasty Baking Co.
Mr. Goldstein became Chairman, Chief Executive Officer and a Director of
the Bank and President, Chief Executive Officer and a Director of Regent in
April 1997. Mr. Goldstein is serving in these positions pursuant to an
Employment Agreement, dated April 7, 1997, among Regent, the Bank and Mr.
Goldstein which provides for an initial term of three years, such term to extend
automatically for additional periods of one year unless terminated by one of the
parties. Mr. Goldstein succeeded John J. Lyons, who served as the Bank's
President and Chief Executive Officer on a 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 since its inception. [ 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 from 1986 to April 1997.
Mr. Bettinger also served as Vice Chairman of the
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<PAGE>
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. 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 currently serves as President and Chief
Executive Officer of Gateway American Bank of Florida, Fort Lauderdale, Florida.
Mr. Lyons 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 also been a general partner and head of the investment
committee of Castle Creek Capital Partners Fund, LP, 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, LP. From May 1988 to January
1992, Mr. Rose was President of Livingston Financial Group, an investor in
turnaround opportunities in community banks. Mr. Rose is also a director of
Western Bancorp.
The response to this Item with respect to the executive officers of Regent
and the Bank is incorporated by reference to Part I of this Form 10-K Report.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires that the officers and directors of a corporation, such as Regent, which
has a class of equity securities registered under Section 12 of the Exchange
Act, as well as persons who own more than 10% of a class of equity securities of
such a corporation, file reports of their ownership of such securities, as well
as monthly statements of changes in such ownership, with the corporation and the
Commission. Based upon written representations received by Regent from its
officers and
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<PAGE>
directors, and Regent's review of the monthly statements of ownership changes
filed with Regent by its officers, directors and 10% or greater shareholders
during 1997, Regent believes that all such filings required during 1997 were
made on a timely basis, with the exception of Abraham L. Bettinger, who failed
to file on a timely basis one Form 4 report relating to the sale of 11,000
shares of Common Stock.
Item 11. Executive Compensation.
Summary Compensation Table
The following table sets forth the compensation for the years ended
December 31, 1997, 1996 and 1995 of (i) each person who served at any time
during 1997 as the chief executive officer of Regent or the Bank and (ii) the
four other highest paid executive officers of Regent and the Bank in the year
ended December 31, 1997.
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
------------------------------------------- ----------------------
Name and Other Annual Securities Underlying
Principal Position Year Salary($) Bonus($)(1) Compensation($) Options(#)
------------------ ---- -------- ----------- --------------- ----------------------
<S> <C> <C>
David W. Ring, Chief Executive 1997 32,500 -- -- --
Officer of Regent (2) 1996 55,500 -- -- --
1995 65,000 -- -- --
Robert B. Goldstein, President 1997 138,462 50,000 54,555(4) 150,000
and Chief Executive Officer 1996 -- -- -- --
of Regent and Chairman of 1995 -- -- -- --
the Board and Chief Executive
Officer of the Bank (3)
John J. Lyons, President and 1997 55,385 -- 10,396(6) 50,000
Chief Executive Officer 1996 51,923 -- -- --
of the Bank (5) 1995 -- -- -- --
Barbara H. Teaford, President 1997 103,661 -- -- 25,000
of the Bank (7) 1996 110,692 -- -- --
1995 118,939 -- -- --
Joel E. Hyman, Executive Vice 1997 99,931 25,000 17,848(9) 25,000
President, Chief Financial 1996 -- -- -- --
Officer and Treasurer of 1995 -- -- -- --
Regent and the Bank (8)
Amanda V. Perkins, Executive 1997 76,154 25,000 49,999(11) 25,000
Vice President and Chief 1996 -- -- -- --
Credit Officer of the Bank (10) 1995 -- -- -- --
</TABLE>
- ----------
(1) Represents a signing bonus paid to the individual upon the commencement of
employment with the Bank in 1997.
-60-
<PAGE>
(2) 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.
(3) Mr. Goldstein became President and Chief Executive Officer of Regent and
Chairman of the Board and Chief Executive Officer of the Bank on April 14,
1997.
(4) Includes $36,856 in housing expenses for which Mr. Goldstein was reimbursed
by Regent and $17,528 of expenses associated with an automobile leased by
Regent for Mr. Goldstein's use.
(5) 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.
(6) Includes $6,646 in housing expenses for which Mr. Lyons was reimbursed by
Regent and $3,750 in directors fees.
(7) Ms. Teaford served as Executive Vice President and Secretary of Regent
until April 14, 1997 when she became President of the Bank.
(8) Mr. Hyman became Executive Vice President, Chief Financial Officer and
Treasurer of Regent and the Bank on January 21, 1997.
(9) Includes $10,568 in housing expenses and $5,680 in relocation and
automobile expenses for which Mr. Hyman was reimbursed by Regent.
(10) Ms. Perkins became Executive Vice President and Chief Credit Officer of the
Bank on April 14, 1997.
(11) Includes $31,000 in relocation expenses and $9,998 in housing and
automobile expenses for which Ms. Perkins was reimbursed by Regent.
The following table sets forth information with respect to options granted
under Regent's 1997 Equity Incentive Plan (the "1997 Plan") to the persons named
in the Summary Compensation Table during the fiscal year ended December 31,
1997.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Percent Total
Number of Securities Options Granted
Underlying to Employees Exercise Expiration
Name Options Granted (#) in Fiscal Year Price ($/sh) Date
- ------------------- ------------------- ---------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Robert B. Goldstein 150,000(1) 45.9% 6.75 4/15/02
John J. Lyons 50,000(1) 15.3 6.75 4/15/02
Barbara H. Teaford 25,000(2) 7.6 6.75 10/21/02
Joel E. Hyman 25,000(1) 7.6 6.75 4/15/02
Amanda V. Perkins 25,000(1) 7.6 6.75 4/15/02
</TABLE>
- ---------------
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<PAGE>
(1) This option is exercisable in three equal cumulative annual installments
commencing April 16, 1998.
(2) This option is exercisable in three equal cumulative annual installments
commencing October 22, 1998.
No executive officer named in the Summary Compensation Table exercised any
options during 1997.
The following table sets forth information at December 31, 1997 with
respect to the value of unexercised options held on December 31, 1997 by the
persons named in the Summary Compensation Table.
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year End Option Values
<TABLE>
<CAPTION>
Number of Securities Number of Securities
Shares Underlying In-the-Money
Acquired Options at Fiscal Year End Options at Fiscal Year End
on Value ---------------------------- ----------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ------------------- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C>
Robert B. Goldstein -- -- -- 150,000 $ -- $1,087,500
John J. Lyons -- -- -- 50,000 -- 362,500
Barbara H. Teaford -- -- -- 25,000 -- 181,250
Joel E. Hyman -- -- -- 25,000 -- 181,250
Amanda V. Perkins -- -- -- 25,000 -- 181,250
</TABLE>
The following table sets forth information with respect to options granted
under Regent's 1997 Plan to the persons named in the Summary Compensation Table
between January 1, 1998 and March 25, 1998.
<TABLE>
<CAPTION>
Percent of
Total Options
Number of Securities Granted to
Underlying Employees in Exercise Expiration
Name Options Granted (#) Fiscal Year Price ($/sh) Date
- ------------------ -------------------- -------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Barbara H. Teaford 10,000(1) 18% 14.38 1/28/03
Joel E. Hyman 10,000(1) 18% 14.38 1/28/03
Joel E. Hyman 5,000(1) 9% 13.63 2/25/03
Amanda V. Perkins 10,000(1) 18% 14.38 1/28/03
</TABLE>
- ---------------
(1) This option is currently exercisable as to 50% of the shares covered
thereby, is exercisable on and after the first anniversary of the date of
grant as to an additional 25% of the shares covered thereby and is
exercisable on and after the second anniversary of the date of grant as to
all of the shares covered thereby.
Employment Agreements
Compensation for Mr. Goldstein is paid pursuant to an employment agreement,
the initial three-year term of which commenced in April 1997, and thereafter
automatically
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<PAGE>
extends on each anniversary of the date of his employment for successive
one-year periods, subject to prior written notice of termination by Mr.
Goldstein or Regent, in each case no later than 90 days prior to the expiration
of the then current term. Mr. Goldstein is entitled to receive an annual base
salary of $200,000, which increases 15% each year, and an annual bonus ranging
from 25% to 50% of his annual base salary depending upon achievement of
specified performance objectives. Mr. Goldstein received a signing bonus of
$50,000, options to purchase 150,000 shares of Common Stock and various other
benefits, including the use of an 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 also is entitled to change in control benefits
of 2.99 times his annual salary and bonus in the event that, during the 270 days
prior to or the 180 days subsequent to a Change in Control of Regent, Mr.
Goldstein resigns for Good Reason, is terminated without Cause or 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 Regent terminates Mr. Goldstein's employment other than
for Cause, as defined in the agreement.
Compensation for Mrs. Teaford is paid pursuant to an employment agreement,
the current term of which expires in May 1998, and thereafter automatically
extends for successive one-year periods, subject to prior written notice of
termination by Mrs. Teaford or Regent, in each case no later than 90 days prior
to expiration of the then current term. The agreement with Mrs. Teaford requires
continuation of compensation for one year to the executive's spouse, issue or
estate in the event of death, but does not provide for severance payments.
Compensation for Joel E. Hyman, who became Executive Vice President, Chief
Financial Officer and Treasurer of Regent and the Bank in January 1997, 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 agreements 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
Regent, 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 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, the officer resigns
for Good Reason, is terminated without Cause or dies
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<PAGE>
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 Regent terminates their respective employment other
than for Cause, as defined in the agreements.
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 of Directors meeting attended.
Item 12. Securities Ownership of Certain Beneficial Owners and Management.
The following table sets forth as of March 25, 1998 the amount and
percentage of Regent's outstanding Common Stock owned beneficially by (i) each
person who is known by Regent to own beneficially more than 5% of its
outstanding Common Stock, (ii) each director, (iii) each executive officer named
in the Summary Compensation Table and (iv) all executive officers and directors
of Regent as a group.
<TABLE>
<CAPTION>
Shares Percent of
Beneficially Outstanding
Name and Address Owned(1)(2) Common Stock
- ---------------- ------------ ------------
<S> <C> <C>
Directors:
David W. Ring 165,551 4.9%
c/o Regent National Bank
1430 Walnut Street
Philadelphia, PA 19102
Robert B. Goldstein 133,582(3) 3.9
c/o Regent National Bank
1430 Walnut Street
Philadelphia, PA 19102
Abraham L. Bettinger 38,300(4) 1.1
845 Third Avenue
New York, NY 10022
O. Francis Biondi 132,968(5) 3.9
1201 North Market Street
P.O. Box 1347
Wilmington, DE 19801-1347
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
John J. Lyons 58,531(6) 1.7
c/o Gateway American Bank of Florida
1451 N.W. 62nd Street
Fort Lauderdale, FL 33309-1953
John W. Rose 110,000(7) 3.2
c/o F.N.B. Corporation
One F.N.B. Boulevard
Hermitage, PA 16148
Executive Officers:(8)
Barbara H. Teaford 95,988(9) 2.8
c/o Regent National Bank
1430 Walnut Street
Philadelphia, PA 19102
Joel E. Hyman 49,832(10) 1.5
c/o Regent National Bank
1430 Walnut Street
Philadelphia, PA 19102
Amanda V. Perkins 13,333(11) *
c/o Regent National Bank
1430 Walnut Street
Philadelphia, PA 19102
5% or More Holders:(12)
Rainbow Managers, LLC 297,498(13) 8.7
Suite 3108
375 Park Avenue
New York, NY 10152
All Directors and 798,085(14) 23.4
Executive Officers
as a Group (9 persons)
</TABLE>
- ----------
* Less than 1%.
(1) Information furnished by each individual named. This table includes shares
that are owned jointly, in whole or in part, with the person's spouse, or
individually by his or her spouse.
(2) Under the rules of the Securities and Exchange Commission (the
"Commission"), a person is deemed to be the beneficial owner of securities
if the person has, or shares, "voting power" which includes the power to
vote, or to direct the voting of, such securities or
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<PAGE>
"investment power" which includes the power to dispose, or to direct the
disposition, of such securities. Under these rules, more than one person
may be deemed the beneficial owner of the same securities. In addition,
under the rules of the Commission, a person is deemed to be the beneficial
owner of securities if the person has the right to acquire such securities
within 60 days from the date of this Proxy Statement pursuant to the
exercise of options or warrants.
(3) Of these shares, 83,582 shares are owned jointly by Mr. Goldstein and his
wife. Includes 50,000 shares which Mr. Goldstein may purchase pursuant to
an option to purchase 150,000 shares of Common Stock that is exercisable in
three equal cumulative annual installments commencing April 14, 1998.
(4) Includes 16,721 shares owned by the Trustees of Bettinger & Leech, Inc.
Profit Sharing Plan of which Mr. Bettinger is a Trustee; 6,197 shares owned
by the Trustees of Bettinger & Leech, Inc. Money Purchase Plan of which Mr.
Bettinger is a Trustee; 7,589 shares owned by Bettinger & Leech Financial
Corp. of which Mr. Bettinger is a principal and 7,793 shares owned by
Bettinger & Leech, Inc. of which Mr. Bettinger is a principal. Mr.
Bettinger disclaims beneficial ownership of 50% of these shares.
(5) Includes 11,166 shares owned by Mr. Biondi's wife as to which Mr. Biondi
disclaims beneficial ownership; 9,772 shares owned by O. Francis Biondi,
Trustee for Mary Biondi, daughter and 9,771 shares owned by O. Francis
Biondi, Trustee for O. Francis Biondi, Jr., son.
(6) Of these shares, 6,529 shares are owned by Mr. Lyons' wife. Includes 16,666
shares which Mr. Lyons may purchase pursuant to an option to purchase
50,000 shares of Common Stock that is exercisable in three equal cumulative
annual installments commencing April 14, 1998.
(7) The shares shown in the table are owned by Castle Creek Capital Partners
Fund, LP of which Mr. Rose is a general partner.
(8) Excludes executive officers listed under Directors.
(9) Of these shares, Mrs. Teaford and her husband, Stephen D. Teaford, own
82,655 shares set forth in the table as tenants by the entireties and share
voting and investment power with respect to such shares. Includes 5,000
shares which Mrs. Teaford may purchase pursuant to an option to purchase
10,000 shares of Common Stock that is currently exercisable as to 5,000
shares and becomes exercisable in two 2,500 share installments in 1999 and
2000, and 8,333 shares which Mrs. Teaford may purchase pursuant to an
option to purchase 25,000 shares of Common Stock that is exercisable in
three equal cumulative annual installments commencing April 14, 1998.
(10) Of these shares, 17,332 shares are owned jointly by Mr. Hyman and his wife
and 16,667 shares are owned by Mr. Hyman. Mr. Hyman and his wife share
voting and investment power with respect to all shares owned jointly.
Includes 7,500 shares which Mr. Hyman
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<PAGE>
may purchase pursuant to options to purchase 15,000 shares of Common Stock
that are currently exercisable as to 7,500 shares and becomes exercisable
in two 3,750 share installments in 1999 and 2000 and 8,333 shares which Mr.
Hyman may purchase pursuant to an option to purchase 25,000 shares of
Common Stock that is exercisable in three equal cumulative annual
installments commencing April 14, 1998.
(11) Includes 5,000 shares which Ms. Perkins may purchase pursuant to an option
to purchase 10,000 shares of Common Stock that is currently exercisable as
to 5,000 shares and becomes exercisable in two 2,500 share installments in
1999 and 2000 and 8,333 shares which Ms. Perkins may purchase pursuant to
an option to purchase 25,000 shares of Common Stock that is exercisable in
three equal cumulative annual installments commencing April 14, 1998.
(12) Excludes 5% or greater holders listed under Directors.
(13) Information based on a Schedule 13G of Rainbow Managers, LLC dated February
9, 1998.
(14) Includes an aggregate of 100,832 shares that persons included in the group
may purchase pursuant to currently exercisable options or options that are
exercisable within 60 days from the date of this Form 10-K Annual Report.
Item 13. Certain Relationships and Related Transactions.
During 1997, Regent paid insurance premiums of approximately $106,000 to
Harry David Zutz Insurance, Inc., of which firm Harry D. Zutz, a director of the
Bank, is Chairman of the Board and a principal stockholder.
As of December 31, 1997, the Bank had no outstanding loans to officers,
directors and advisory directors of Regent or the Bank or their families or
entities of which such persons are directors and officers.
On April 16, 1997, the Bank sold 1,120,000 shares of Bank Common Stock at a
price of $8.50 per share in a private placement for which Keefe, Bruyette &
Woods, Inc. served as the Bank's Placement Agent. The 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, Chief
Executive Officer and a Director of the Bank from September 1996 until April 14,
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, 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.
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<PAGE>
The Bank Common Stock issued in the private placement was 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 equaled or
exceeded $12.00 per share for 15 consecutive trading days and (ii) the resale of
the Regent Common Stock issuable in exchange for the privately placed Bank
Common Stock had been registered under the Securities Act.
On August 14, 1997, Regent's registration statement relating to the resale
of the 1,586,660 shares of Common Stock issuable in exchange for the privately
placed Bank Common Stock was declared effective by the Commission. Effective as
of August 15, 1997, Regent, the Bank and each of the holders of the privately
placed Bank Common Stock executed an agreement whereby each of such holders
waived the condition precedent to the exchange relating to the bid price of
Regent Common Stock. On August 20, 1997, Regent commenced the exchange of its
Common Stock for the privately placed Bank Common Stock, which exchange was
completed as of August 31, 1997.
On November 21, 1997, Regent completed the redemption of all outstanding
shares of its Series A through Series E Convertible Preferred Stock
(collectively, the "Preferred Stock"). Persons who converted their Preferred
Stock into Common Stock in accordance with the terms thereof included certain
directors and executive officers of Regent and the Bank.
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<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
The Index to the Financial Statements filed under Item 8 is as follows:
(a) Financial statements, financial statement schedules and exhibits
filed:
(1) Consolidated Financial Statements: Page
----
Report of Independent Public Accountants .......................... 31
Consolidated Balance Sheets as of December 31, 1997 and 1996....... 32
Consolidated Statements of Operations for the years
ended December 31, 1997, 1996 and 1995........................... 34
Consolidated Statements of Changes in Shareholders' Equity
for the years ended December 31, 1997, 1996 and 1995............. 35
Consolidated Statements of Cash Flows for the years
ended December 1997, 1996 and 1995............................... 36
Notes to Consolidated Financial Statements......................... 37
(2) 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.
(3) Exhibits
Reference is made to the Exhibit Index.
(b) Reports on Form 8-K
Registrant filed a Report on Form 8-K dated November 19, 1997 to
report under Item 5 the completion of the redemption on November 18, 1997 of all
outstanding shares of Regent's Series A through Series E Convertible Preferred
Stock.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
REGENT BANCSHARES CORP.
By: /s/ Robert B. Goldstein
------------------------------------
Robert B. Goldstein, President, Chief
Date: March 30, 1998 Executive Officer and a Director
By: /s/ Joel E. Hyman
------------------------------------
Joel E. Hyman, Executive Vice President,
Date: March 30, 1998 Chief Financial Officer and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
Signature Title Date
--------- ----- ----
Chairman of the Board
- ----------------------------- and a Director March __, 1998
David W. Ring
/s/ Robert B. Goldstein President, Chief Executive March 30, 1998
- ----------------------------- Officer and a Director
Robert B. Goldstein
Director March __, 1998
- -----------------------------
Abraham Bettinger
/s/ O. Francis Biondi Director March 30, 1998
- -----------------------------
O. Francis Biondi
/s/ John J. Lyons Director March 30, 1998
- -----------------------------
John J. Lyons
/s/ John W. Rose Director March 30, 1998
- -----------------------------
John W. Rose
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<PAGE>
EXHIBIT INDEX
(Pursuant to Item 601 of Regulation S-K)
Exhibit No. Description of Exhibits Reference
- ----------- ----------------------- ---------
3(a) Certificate of Incorporation (a)
3(b) By-laws of Registrant (a)
4(a) Form of Registrant's Common Certificate (a)
4(b) Form of Registrant's Preferred Stock Certificate (a)
4(c) Certificate of Designation for Registrant's (a)
Series A Convertible Preferred Stock
4(d) Certificate of Designation for Registrant's (a)
Series B Convertible Preferred Stock
4(e) Certificate of Designation for Registrant's (a)
Series C Convertible Preferred Stock
4(f) Certificate of Designation for Registrant's (a)
Series D Convertible Preferred Stock
4(g) Certificate of Designation for Registrant's (a)
Series E Convertible Preferred Stock
10(a)* Employment Agreement between Registrant (b)
and Barbara H. Teaford dated May 24, 1989
10(b) Lease Agreement dated August 4, 1988 for the premises (a)
located at 1430 Walnut Street, Philadelphia, PA 19102
10(c) Lease Agreement dated December 15, 1995 for the (e)
premises located at 1426 Walnut Street, Philadelphia,
PA 19102
10(d) Amended and Restated Agreement and Plan of Merger (c)
dated as of August 30,1995 among Carnegie Bancorp,
Carnegie Bank, N.A., Registrant and Regent National Bank
10(f) Amendment, dated as of October 2, 1996, to the Amended (e)
Amended and Restated Agreement and Plan of Merger
dated as of August 30, 1995 among Carnegie Bancorp,
Carnegie Bank, N.A., Registrant and Regent National Bank
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
10(g) Subscription Agreement between Registrant and (d)
Abraham Bettinger, dated October 7, 1996 relating to the
purchase of 14,815 shares of Registrant's Common Stock
10(h) Subscription Agreement between Registrant and (d)
O. Francis Biondi, dated October 7, 1996 relating to the
purchase of 37,037 shares of Registrant's Common Stock
10(i) Subscription Agreement between Registrant and (d)
Harvey Porter, dated October 7, 1996 relating to the
purchase of 37,037 shares of Registrant's Common Stock
10(j) Subscription Agreement between Registrant and (d)
David W. Ring, dated October 7, 1996 relating to the
purchase of 59,259 shares of Registrant's Common Stock
10(k) Agreement between Regent National Bank and the (e)
Office of the Comptroller of the Currency, and Addendum
thereto, dated October 10, 1996
10(l) Agreement, dated as of January 14, 1997, among (f)
Carnegie Bancorp, Carnegie Bank, N.A., Registrant and
Regent National Bank relating to the termination of
the Amended and Restated Agreement and Plan of Merger
dated as of August 30, 1995, as amended October 2,
1996
10(m)* Employment Agreement among Registrant, Regent National (d)
Bank and Joel E. Hyman, dated as of January 21, 1997
10(n)* Employment Agreement among Registrant, Regent National (g)
Bank and Robert B. Goldstein, dated as of April 7, 1997
10(o)* Registrant's 1997 Equity Incentive Plan (g)
10(p) Subscription Agreement between Registrant and (g)
Joel E. Hyman dated March 31, 1997 relating to
the purchase of 8,182 shares of Registrant's
Series A Convertible Preferred Stock
10(q) Subscription Agreement between Registrant and (g)
Frederick W. Dreher dated March 31, 1997 relating
to the purchase of 8,182 shares of Registrant's
Series A Convertible Preferred Stock
10(r)* Employment Agreement among Registrant, Regent National (g)
Bank and Amanda V. Perkins, dated as of April 14, 1997
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
10(s) Form of Waiver and Consent Agreement among Registrant, (g)
Regent National Bank and certain holders of Common Stock
of Regent National Bank
10(t) Amended and Restated Agreement and Plan of Merger (h)
effective as of March 18, 1998 among Regent Bancshares
Corp., Regent National Bank, JeffBanks, Inc. and JeffBanks
Acquisitioncorp. V, Inc.
10(u) Amended and Restated Stock Option Agreement effective (h)
as of March 18, 1998 among Regent Bancshares Corp. and
JeffBanks, Inc.
21 Subsidiaries of Registrant (a)
23(a) Consent of Arthur Andersen LLP filed herewith
(27) Financial Data Schedule filed herewith
</TABLE>
- ----------
* Exhibit constitutes a management contract or compensatory plan or
arrangement.
(a) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Registration Statement No. 33-27299 of Registrant as amended and
declared effective on May 24, 1989.
(b) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Registrant's Form 10-K for the fiscal year ended December 31,
1989.
(c) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Registrant's Form 8-K Report filed with the Securities and
Exchange Commission on September 20, 1995.
(d) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Registrant's Form 10-K for the fiscal year ended December 31,
1996.
(e) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Registrant's Form 8-K Report filed with the Securities and
Exchange Commission on October 18, 1996.
(f) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Registrant's Form 8-K Report filed with the Securities and
Exchange Commission on January 23, 1997.
(g) Such exhibit is hereby incorporated by reference to the like-described in
Registration Statement No. 333-28999 of Registrant as amended and declared
effective on August 14, 1997.
(h) Such exhibit is hereby incorporated by reference to the like-described
exhibit in Registrant's Form 8-K Report filed with the Securities and
Exchange Commission on March 31, 1998.
-73-
<PAGE>
EXHIBIT 23(a)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Regent Bancshares Corp.:
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated January 20, 1998 and to all references to our Firm
into this Form 10-K and into Regent Bancshares Corp.'s previously filed
Registration Statement No. 333-29117 on Form S-8.
/s/ Arthur Andersen LLP
--------------------------
ARTHUR ANDERSEN LLP
Roseland, New Jersey
March 30, 1998
-74-
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