U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended MARCH 31, 1996
Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from ______________ to ______________
Commission file number 0-2456
CARNEGIE BANCORP
- - --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
NEW JERSEY 22-3257100
- - ------------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
619 ALEXANDER ROAD, PRINCETON, NEW JERSEY 08540
- - --------------------------------------------------------------------------------
(Address of principal executive offices)
(609) 520-0601
- - --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
- - --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceeding 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
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
COMMON STOCK, NO PAR - 1,843,318 SHARES OUTSTANDING AS OF MAY 7, 1996
INDEX
CARNEGIE BANCORP AND SUBSIDIARY
PART I. FINANCIAL INFORMATION PAGE NO.
- - ----------------------------- --------
Item 1. Financial Statements
Consolidated Condensed Balance Sheets at
March 31, 1996 (Unaudited) and December 31, 1995 3
Consolidated Condensed Statements of Income for the
Three months ended March 31, 1996 and 1995 (Unaudited) 4
Consolidated Condensed Statements of Cash Flows for the
Three months ended March 31, 1996 and 1995 (Unaudited) 5
Notes to Consolidated Condensed Financial Statements 6 - 10
Item 2. Management's Discussion and Analysis of Financial Condition 11 - 18
and Results of Operations
PART II. OTHER INFORMATION
- - --------------------------
Item 1. Legal Proceedings 19
Item 2. Changes in Securities 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
a. Exhibit 27 - Financial Data Schedule 19
b. Reports on Form 8-K 19
SIGNATURES 20
(2)
CARNEGIE BANCORP AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
MARCH 31,
1996 DECEMBER 31,
(UNAUDITED) 1995
----------- ------------
ASSETS (000's omitted)
Cash and cash equivalents:
Cash and due from banks .............................................. $ 9,593 $ 10,207
Federal funds sold ................................................... 5,950 --
-------- --------
Total cash and cash equivalents ................................... 15,543 10,207
-------- --------
Investment Securities:
Available for sale ................................................... 52,871 70,577
Held to maturity (market value $11,318 at March 31, 1996) ............ 11,573 --
-------- --------
Total investment securities ....................................... 64,444 70,577
-------- --------
Loans, net of allowance for loan losses of $1,821 at March 31, 1996
and $1,754 at December 31, 1995 ...................................... 180,252 162,587
Premises and equipment, net ............................................ 3,961 3,722
Other real estate owned ................................................ 328 --
Accrued interest receivable and other assets ........................... 3,767 3,469
-------- --------
Total Assets ...................................................... $268,295 $250,562
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing demand deposits ................................. $ 40,546 $ 40,944
Interest bearing deposits:
Savings deposits ................................................... 85,841 70,430
Other time deposits ................................................ 54,784 54,327
Certificates of deposit $100,000 and over .......................... 54,511 44,500
-------- --------
Total deposits ................................................... 235,682 210,201
-------- --------
Short term borrowings .................................................. 10,000 17,500
Accrued interest payable and other liabilities ......................... 833 1,067
-------- --------
Total liabilities ................................................ 246,515 228,768
-------- --------
Commitments and contingencies
Stockholders' equity:
Common stock, no par value, authorized 5,000,000 shares;
issued and outstanding 1,754,441 at March 31, 1996
and December 31, 1995 .............................................. 8,772 8,772
Capital surplus ...................................................... 10,869 10,869
Undivided profits .................................................... 2,109 1,713
Net unrealized holding gains on securities available for sale ........ 30 440
-------- --------
Total stockholders' equity ....................................... 21,780 21,794
-------- --------
Total Liabilities and
Stockholders' Equity ........................................ $268,295 $250,562
======== ========
See notes to consolidated condensed financial statements.
(3)
CARNEGIE BANCORP AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited)
DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA THREE MONTHS ENDED
MARCH 31,
--------------------
1996 1995
-------- ---------
Interest income:
Loans, including fees ......................... $4,252 $3,495
Federal funds sold ............................ 10 21
Investment securities:
Taxable ..................................... 839 472
Tax-exempt .................................. 243 241
------ ------
Total interest income ..................... 5,344 4,229
------ ------
Interest expense:
Savings deposits .............................. 677 896
Other time deposits ........................... 849 265
Certificates of deposit $100,000 and over ..... 491 491
Borrowed funds ................................ 310 47
------ ------
Total interest expense .................... 2,327 1,699
------ ------
Net interest income ....................... 3,017 2,530
Provision for loan losses ....................... 172 92
------ ------
Net interest income after provision
for loan losses ......................... 2,845 2,438
------ ------
Non-interest income:
Service fees on deposits ...................... 90 100
Other fees and commissions .................... 81 60
Investment securities gains ................... 195 --
Investment securities losses .................. (67) --
------ ------
Total non-interest income ................. 299 160
------ ------
Non-interest expense:
Salaries and wages ............................ 862 573
Employee benefits ............................. 214 202
Occupancy expense ............................. 327 209
Furniture and equipment ....................... 211 109
Other ......................................... 666 741
------ ------
Total non-interest expense ................ 2,280 1,834
------ ------
Income before income taxes ................ 864 764
Income tax expense .............................. 258 212
------ ------
Net Income ................................ $606 $552
====== ======
Per Common Share:
Net income--primary ........................ $0.30 $0.30
Net income--fully diluted .................. $0.30 $0.30
Weighted average shares outstanding (in thousands):
Primary .................................... 1,999 1,817
Fully Diluted .............................. 1,999 1,817
(4)
CARNEGIE BANCORP AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
THREE MONTHS ENDED
MARCH 31,
-------------------------
1996 1995
---------- ----------
(000's omitted)
Cash flows from operating activities:
Net income ................................................ $ 606 $ 552
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ......................... 207 89
Provision for loan losses ............................. 172 92
Accretion of investment discount ...................... (4) (6)
Amortization of investment premium .................... 141 39
Gain on sale of investment securities ................. (195) --
Loss on sale of investment securities ................. 67 --
Increase in accrued interest receivable and
other assets ........................................ (375) (464)
Increase (decrease) in accrued interest payable
and other liabilities ............................... (234) 439
-------- --------
Net cash provided by operating activities ....... 385 741
-------- --------
Cash flows from investing activities:
Proceeds from sale of securities available-for-sale ....... 18,999 1,093
Proceeds from maturities and principal paydowns of
investment securities ................................... 1,291 216
Purchase of securities available-for-sale ................. (3,004) (1,166)
Purchase of securities held-to-maturity ................... (11,823) --
Net increase in loans made to customers ................... (17,839) (8,091)
Cash collected on previously charged-off loans ............ 2 2
Additions to premises and equipment ....................... (446) (869)
-------- --------
Net cash used in investing activities ........... (12,820) (8,815)
-------- --------
Cash flows from financing activities:
Net increase in deposits .................................. 25,481 13,960
Net decrease in short term borrowings ..................... (7,500) --
Net proceeds from common stock issued on
exercise of options and warrants ........................ -- 250
Cash paid for dividends ................................... (210) (208)
-------- --------
Net cash provided by financing activities ....... 17,771 14,002
-------- --------
Net change in cash and cash equivalents ..................... 5,336 5,928
Cash and cash equivalents as of beginning of year ........... 10,207 6,815
-------- --------
Cash and cash equivalents as of end of period ............... $ 15,543 $ 12,743
======== ========
Supplemental disclosures:
Cash paid during the period for:
Interest .................................................. $ 2,315 $ 1,506
Income taxes .............................................. $ 0 $ 273
See notes to consolidated condensed financial statements.
(5)
CARNEGIE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)
NOTE A--BASIS OF PRESENTATION
Carnegie Bancorp ("the Company"), a bank holding company, was incorporated on
October 6, 1993 with authorized capital of 5,000,000 shares of no par common
stock. On April 12, 1994 the Company acquired 100 percent of the shares of
Carnegie Bank, N.A. ("the Bank"). The transaction was accounted for in a manner
similar to that of a pooling of interests.
The consolidated condensed financial statements included herein have been
prepared without audit pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. The accompanying consolidated condensed financial statements
reflect all adjustments which are, in the opinion of management, necessary to a
fair statement of the results for the interim periods presented. Such
adjustments are of a normal recurring nature. These consolidated condensed
financial statements should be read in conjunction with the audited financial
statements and the notes thereto as of and for the year ended December 31, 1995.
The results for the three months ended March 31, 1996 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1996.
Income per common share is computed by dividing net income by the weighted
average number of common shares and common share equivalents (when dilutive)
outstanding during each period after giving retroactive effect to stock
dividends declared. The common share equivalents of options and warrants in the
computation of primary earnings per share is computed utilizing the Treasury
Stock method. For purposes of this computation, the average market price of
common stock during each three-month quarter included in the period being
reported upon, is used, when dilutive. The ending market price of common stock
is used, however, for fully diluted income per share if the ending price is
higher than the average price.
The consolidated condensed financial statements include the accounts of the
Company and Carnegie Bank, N.A., its wholly-owned subsidiary. All significant
inter-company accounts and transactions have been eliminated.
NOTE B--INVESTMENT SECURITIES
Effective January 1, 1994 the Company adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," ("SFAS 115"). SFAS 115 requires that an enterprise classify its
investments in debt securities as either securities held to maturity (carrying
amount equals amortized cost), securities available for sale (carrying amount
equals estimated fair value; unrealized gains and losses recorded in a separate
component of stockholders' equity, net of taxes) or trading securities (carrying
amount equals estimated fair value; unrealized gains and losses included in the
determination of net income).
The Company has evaluated all of its investments in debt securities and has
classified them as either held to maturity or available for sale. Any security
which is a U.S. Government security,
(6)
CARNEGIE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)
Continued
U.S. Government agency security, an agency mortgage-backed security, or an
obligation of a state or political subdivision may be placed in the
held-to-maturity category if acquired with the intent and ability to maintain
the security in the portfolio until maturity. Premiums and discounts on these
securities are amortized or accreted on a basis that approximates the effective
yield method. Realized gains and losses from the sale of securities available
for sale are determined on a specific identification cost basis.
Management determines the appropriate classification of securities at the time
of purchase. At March 31, 1996 and December 31, 1995, a majority of the
Company's investment securities was classified as available for sale. Due to
this classification, the Company's stockholders' equity will be affected by
changing interest rates which affect the market price of the Company's
securities available for sale. At March 31, 1996, no investment securities were
classified as trading securities.
The following tables present the book and market values of the Company's
investment securities portfolio as of March 31, 1996 and December 31, 1995.
INVESTMENT SECURITIES PORTFOLIO
MARCH 31, 1996
------------------------------------------
SECURITIES HELD SECURITIES AVAILABLE
TO MATURITY FOR SALE
------------------ ----------------------
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
--------- ------- --------- -------
(Dollars in thousands)
U. S. government .................. $ -- $ -- $ 6,485 $ 6,417
Mortgage-backed agencies .......... 11,573 11,318 28,791 28,632
States & political subdivisions ... -- -- 12,377 12,717
Other securities .................. -- -- 5,170 5,105
------- ------- ------- -------
Total investment securities ... $11,573 $11,318 $52,823(1) $52,871
======= ======= ======= =======
(1) Net unrealized gains of $30 thousand, net of a tax provision of $18
thousand, were reported as an increase to stockholders' equity at March 31,
1996.
DECEMBER 31, 1995
------------------------------------------
SECURITIES HELD SECURITIES AVAILABLE
TO MATURITY FOR SALE
------------------ ----------------------
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
--------- ------- --------- -------
(Dollars in thousands)
U. S. government .................. $ -- $ -- $10,499 $10,565
Mortgage-backed agencies .......... -- -- 36,843 36,811
States & political subdivisions ... -- -- 19,075 19,805
Other securities .................. -- -- 3,451 3,396
------- ------- ------- -------
Total investment securities ... $ 0 $ 0 $69,868(2) $70,577
======= ======= ======= =======
(2) Net unrealized gains of $440 thousand, net of a tax provision of $269
thousand, were reported as an increase to stockholders' equity at December
31, 1995.
(7)
CARNEGIE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)
Continued
In November 1995, the Financial Accounting Standards Board ("FASB") issued a
special report entitled "A Guide to Implementation of Statement 115 on
Accounting for Certain Investments in Debt and Equity Securities," herein
referred to as "Special Report." The Special Report gave the Company a one-time
opportunity to reconsider its ability and intent to hold securities to maturity,
and allowed the Company to transfer securities from held-to-maturity to other
categories without tainting its remaining held-to-maturity securities.
Management evaluated all securities held-to-maturity and concluded that it is
the intent of management to hold these securities for an indefinite period of
time or to utilize these securities for tactical asset/liability purposes and
sell them from time to time to effectively manage interest rate exposure and
resultant prepayment risk and liquidity needs. Accordingly, on December 29,
1995, the Company moved all of its securities classified as held-to-maturity
with a carrying value, fair value and unrealized gain of $22,876,000,
$23,644,000 and $768,000, respectively, to available for sale. During the first
quarter of 1996, securities totaling $11,823,000 were classified as
held-to-maturity on the date of purchase.
NOTE C--LOANS AND ALLOWANCE FOR LOAN LOSSES
The following table summarizes the components of the loan portfolio as of March
31, 1996 and December 31, 1995.
LOAN PORTFOLIO BY TYPE OF LOAN
MARCH 31, 1996 DECEMBER 31, 1995
------------------ -------------------
AMOUNT % AMOUNT %
-------- ------- -------- ------
(Dollars in thousands)
Commercial and financial .......... $ 51,882 28.5% $ 44,432 27.0%
Real estate construction .......... 15,093 8.3% 12,483 7.6%
Residential mortgage .............. 22,325 12.3% 21,788 13.3%
Commercial mortgage ............... 84,489 46.4% 77,701 47.3%
Installment ....................... 8,284 4.5% 7,937 4.8%
-------- ----- -------- -----
$182,073 100.0% $164,341 100.0%
======== ===== ======== =====
The following table represents activity in the allowance for loan losses for the
three month period ended March 31, 1996 and 1995.
ALLOWANCE FOR LOAN LOSSES
THREE MONTHS ENDED
MARCH 31,
---------------------
1996 1995
------- -------
(Dollars in thousands)
Balance--beginning of period ............... $1,754 $1,400
Charge-offs ................................ (107) 0
Recoveries ................................. 2 2
------ ------
Net (charge-offs) recoveries ............... (105) 2
Provision for loan losses .................. 172 92
------ ------
Balance--end of period ..................... $1,821 $1,494
====== ======
(8)
CARNEGIE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)
Continued
NOTE D--RECENTLY ISSUED ACCOUNTING STANDARDS
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of.
FASB has issued SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of", effective in fiscal years
beginning after December 15, 1995. The Company's adoption of this pronouncement
did not have a material impact on its consolidated financial statements.
Accounting for Mortgage Servicing Rights and Excess Servicing Receivables and
for Securitization of Mortgage Loans.
FASB has issued SFAS No. 122, "Accounting for Mortgage Servicing Rights and
Excess Servicing Receivables and for Securitization of Mortgage Loans",
effective in fiscal years beginning after December 15, 1995. Retroactive
capitalization of mortgage servicing rights retained in transactions in which a
mortgage banking enterprise originates mortgage loans and sells or securitizes
those loans before the adoption of this pronouncement is prohibited. The
Company's adoption of this pronouncement did not have a material impact on its
consolidated financial statements.
Accounting for Stock-Based Compensation.
Issued in October, 1995, SFAS No. 123, "Accounting for Stock-Based
Compensation", establishes financial accounting and reporting standards for
stock-based employee compensation plans. SFAS No. 123 gives companies the option
of adopting a fair value based method of accounting for stock-based employee
compensation or to continue to account for stock-based employee compensation as
prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"). The Company has elected to continue to account for stock-based
employee compensation in accordance with APB 25, as such, SFAS No. 123
requires pro forma disclosures of net income and earnings per share as if the
fair value based method of accounting for stock-based awards had been applied.
Under the fair value based method, compensation cost is recorded based on the
value of the award at the grant date and is recognized over the service period.
SFAS No. 123 is effective for fiscal years beginning after December 15, 1995,
but must include disclosure of the effects of all awards granted in fiscal years
that begin after December 15, 1994. Since SFAS No. 123 is a disclosure
requirement only, its adoption did not have any effect on either the Company's
financial condition or its results of operations. During 1995, the Company
awarded to directors options to purchase up to 161,700 shares of the Company's
common stock (as adjusted for subsequent stock dividends), and awarded to
employees options to purchase up to 12,106 shares of the Company's common stock
(as adjusted for subsequent stock dividends). Both awards are subject to
stockholder approval at the annual meeting of shareholders to be held May 29,
1996.
NOTE E--RECLASSIFICATIONS
Certain amounts in the financial statements presented for prior periods have
been reclassified to conform with the 1996 presentation.
(9)
CARNEGIE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)
Continued
NOTE F--SUBSEQUENT EVENTS
The Board of Directors declared both a stock dividend and a cash dividend in
April, 1996. Stockholders of record on April 24, 1996 will receive a 5% stock
dividend on May 15, 1996 and stockholders of record on May 20, 1996 will receive
a $.12 per share cash dividend, payable on June 19, 1996. Weighted average
shares outstanding and earnings per share have been adjusted to reflect the
stock dividend.
NOTE G--MERGER DELAY
On April 12, 1996 Carnegie Bancorp announced that its Special Meeting of
Shareholders to vote upon the proposed merger between Carnegie and Regent
Bancshares Corp., tentatively scheduled for mid-May, has been postponed because
Regent has not yet completed its financial statements for the year ended
December 31, 1995. The audit of Regent's financial statements has been delayed
because of inadequate information from a company servicing the automobile
insurance premium financing portion of Regent's loan portfolio. Carnegie cannot
yet determine the impact, if any, on the proposed merger.
(10)
CARNEGIE BANCORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This financial review presents Management's discussion and analysis of financial
condition and results of operations. It should be read in conjunction with the
consolidated condensed financial statements and the accompanying notes.
FINANCIAL CONDITION
Total assets at March 31, 1996 increased by $17.7 million, or 7.1%, to $268.3
million compared to $250.6 million at December 31, 1995. Total assets averaged
$256.5 million in the first three months of 1996, a $31.8 million increase, or
14.2%, from the 1995 full year average of $224.7 million. Average loans
increased $22.8 million to $170.6 million in the first three months of 1996, or
15.4%, from the 1995 full year average of $147.8 million. Average investment
securities increased by $12.3 million, or 21.2% to $70.4 million; average
Federal funds sold decreased by $7.2 million, or 90.0% to $811 thousand; and the
average of all other assets increased by $2.1 million, or 15.6% to $15.6 million
during the first three months of 1996 compared to the full year 1995 averages.
These increases in average assets were funded primarily by a $12.6 million, or
6.3% increase in average deposits and a $17.5 million, or 357.1% increase in
average short-term borrowed funds, in addition to the reduction in average
Federal funds sold, during the first three months of 1996 compared to the full
year 1995 averages. Management has found the cost of the short term borrowings
to be lower than other available sources of funds.
LENDING ACTIVITY
Total loans at March 31, 1996 were $182.1 million, a 10.8%, or $17.8 million
increase from December 31, 1995. Average loans increased by $22.8 million, or
15.4%, to $170.6 million in the first three months of 1996 compared to the 1995
full year average. Changes in the composition of the average loan portfolio
during the period included increases of $21.0 million in commercial loans and
commercial mortgages, $2.1 million in residential mortgages and home equity
loans and a decrease of $251 thousand in other installment loans. The 17.6%
increase in commercial loans and commercial mortgages is principally
attributable to the greater penetration of the marketplace and an improvement in
the general economic environment in New Jersey. Management intends to continue
to pursue quality loans in all lending categories within our market area.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses was $1.8 million, or 1.00% of total loans at March
31, 1996 compared to $1.8 million, or 1.07% of total loans at December 31, 1995.
The balance of non-performing loans, which includes non-accrual loans and
excludes accruing loans past due 90 days or more of $950 thousand, was $3.9
million, or 2.1% of total loans at March 31, 1996. This compares to
non-performing loans, excluding accruing loans past due 90 days or more of $298
thousand at December 31, 1995, of $4.0 million, or 2.5% of total loans.
(11)
The majority of the Company's loans are collateralized by real estate and
personal guarantees. The Company took ownership through foreclosure, real estate
collateralizing a loan for $328 thousand during the first quarter of 1996. Asset
quality is a major corporate objective and management believes that the total
allowance for loan losses is adequate to absorb potential losses in the loan
portfolio.
INVESTMENT SECURITIES ACTIVITY
Average investment securities increased by $12.3 million in the first three
months of 1996 compared to the 1995 full year average. Strong deposit growth
during 1995 was primarily used to fund loan growth, and secondarily to increase
the investment securities portfolio.
During the first three months of 1996, proceeds from the sale of securities
available-for-sale amounted to $19.0 million, resulting in $128 thousand gain on
the sales, and was offset by the purchase of $14.8 million in securities, of
which $11.8 million were classified as held-to-maturity. During the first three
months of 1995, proceeds from the sale of securities available-for-sale were
$1.1 million, and the Company purchased $1.2 million of securities. Proceeds
resulting from the cash flows of maturities and principal paydowns on
mortgage-backed securities amounted to $1.3 million for the first three months
of 1996 compared to $216 thousand for the first three months of 1995. The
increase of $1.1 million in principle paydowns on mortgage-backed securities was
the result of increased volume in the Company's mortgage-backed securities
portfolio in 1996 compared to 1995.
At March 31, 1996 net unrealized gains in the Company's available-for-sale
securities portfolio amounted to $48 thousand and net unrealized losses in the
held-to-maturity securities portfolio amounted to $255 thousand. Net unrealized
gains of $30 thousand, net of a tax provision of $18 thousand, were reported as
an increase to stockholders' equity at March 31, 1996.
DEPOSITS
Average total deposits increased by $12.6 million, or 6.3%, to $211.7 million
for the three months ended March 31, 1996 compared to the 1995 full year average
of $199.1 million. Changes in the average deposit mix include a $.5 million, or
1.4% decrease in certificates of deposit over $100 thousand; a $3.6 million, or
5.6% decrease in money market deposit accounts; a $10.9 million, or 21.8%
increase in consumer certificates of deposit; a $.6 million, or 17.6% increase
in regular savings; a $.4 million, or 3.1% increase in NOW account deposits; and
a $4.8 million, or 14.9% increase in non-interest bearing demand deposits.
During the first three months of 1996, the Company primarily utilized growth in
certificates of deposit over $100 thousand and money market account deposits as
funding sources for loan growth. The Company has found the cost of these
deposits to be lower than other available sources of funds. Deposits are
obtained primarily from the market areas which the Company serves. As of March
31, 1996 the Company did not have any brokered deposits and neither solicited
nor offered premiums for such deposits.
LIQUIDITY
Liquidity is a measurement of the Company's ability to meet present and future
funding obligations and commitments. The Company adjusts the liquidity levels in
order to meet funding
(12)
needs for deposit outflows, repayment of borrowings, when applicable, and the
funding of loan commitments. The Company also adjusts its liquidity level as
appropriate to meet its asset/liability objectives. Principal sources of
liquidity are deposit generation, access to purchased funds including Federal
Home Loan Bank borrowings, maturities and repayments of loans and investment
securities, net interest income and fee income. Liquid assets (consisting of
cash, Federal funds sold and investment securities classified as
available-for-sale) comprised 25.5% and 32.2% of the Company's total assets at
March 31, 1996 and December 31, 1995, respectively.
As shown in the Consolidated Condensed Statements of Cash Flows, the Company's
primary source of funds from financing activities is through deposit growth.
Total deposits increased $25.5 million and $14.0 million, respectively for the
three months ended March 31, 1996 and 1995.
The Company also has several secondary sources of liquidity. Many of the
Company's loans are originated pursuant to underwriting standards which make
them readily marketable to other financial institutions or investors in the
secondary market. In addition, in order to meet liquidity needs on a temporary
basis, the Bank has lines of credit in the amount of $6.5 million for the
purchase of Federal funds with other financial institutions and may borrow funds
at the Federal Reserve discount window, subject to the Bank's ability to supply
collateral.
Effective March 1, 1995, Carnegie Bank, N.A. became a member of the Federal Home
Loan Bank of New York. An overnight line of credit in the amount of $12.4
million is in place at March 31, 1996. In addition, subject to certain
requirements, the Bank may also obtain longer term advances of up to 30% of the
Bank's assets.
The Company believes that its liquidity position is sufficient to provide funds
to meet future loan demand or the possible outflow of deposits, in addition to
being able to adapt to changing interest rate conditions.
CAPITAL RESOURCES
Stockholders' equity decreased by $14 thousand at March 31, 1996 compared to
December 31, 1995. The changes in stockholders' equity during the quarter ended
March 31, 1996 were comprised of net income of $606 thousand; the reduction of
net unrealized gains of $410 thousand (net of tax provision) in the Company's
portfolio of securities available-for-sale; and was further reduced by cash
dividends paid of $210 thousand.
During the first three months of 1996, the Company paid $210 thousand, or 34.7%
of net income in cash dividends compared to $208 thousand, or 37.7% for the same
period in 1995. The Company also declared a stock dividend in April, 1996 and a
cash dividend in May, 1996. Stockholders of record on April 24, 1996 will
receive a 5% stock dividend on May 15, 1996 and stockholders of record on May
20, 1996 will receive a $.12 per share cash dividend, payable on June 19, 1996.
On August 16, 1994 the Company issued, through a public offering, 690,000 units.
Each unit consisted of one share of common stock and one warrant to purchase one
share of common stock at an exercise price of $15.09 for a period of three years
from the date of issuance. As adjusted for the Company's 1995 5% stock dividend,
1996 5% stock dividend and exercised warrants, there are warrants to purchase
760,504 shares outstanding at March 31, 1996 at an exercise price of $13.69 per
share.
(13)
The Company's primary regulator, the Federal Reserve Bank (which regulates bank
holding companies), has issued guidelines classifying and defining bank holding
company capital into the following components: (1) Tier I Capital, which
includes tangible stockholders' equity for common stock and certain qualifying
perpetual preferred stock, and excludes net unrealized gains or losses on
available-for-sale securities and deferred tax assets that are dependent on
projected taxable income greater than one year in the future, and (2) Tier II
Capital (Total Capital), which includes a portion of the allowance for loan
losses, certain qualifying long-term debt and preferred stock that does not
qualify for Tier I Capital. The risk-based capital guidelines require financial
institutions to maintain specific defined credit risk factors (risk-based
assets). The minimum Tier I and the combined Tier I and Tier II capital to
risk-weighted assets ratios are 4.0% and 8.0%, respectively. The Federal Reserve
Bank also has adopted regulations which supplement the risk-based capital
guidelines to include a minimum leverage ratio of Tier I Capital to total assets
of 3.0% to 5.0%. Regulations have also been issued by the Bank's primary
regulator, the Office of the Comptroller of the Currency, establishing similar
ratios.
The following table summarizes the risk-based and leverage capital ratios for
the Company and the Bank at March 31, 1996, as well as the regulatory required
minimum and "wellcapitalized" capital ratios:
MARCH 31, 1996 REGULATORY REQUIREMENTS
---------------- --------------------------------
COMPANY BANK MINIMUM "WELL CAPITALIZED"
--------- ------ ----------- -----------------
Risk-based Capital:
Tier I capital ratio ... 10.93% 9.18% 4.00% 6.00%
Total capital ratio .... 11.84% 10.10% 8.00% 10.00%
Leverage ratio ............ 8.46% 7.11% 3.00%-5.00% 5.0% or greater
As noted in the above table, the Company's and the Bank's capital ratios exceed
the regulatory requirements of a "well-capitalized" institution.
RESULTS OF OPERATIONS for the three months ended March 31, 1996 compared to the
three months ended March 31, 1995
NET INCOME
The Company earned $606 thousand, or $0.30 net income per share on a primary
basis and fully diluted basis, for the three months ended March 31, 1996
compared to $552 thousand, or $0.30 for both primary and fully diluted net
income per share, for the three months ended March 31, 1995, an increase of $54
thousand, or 9.8%. The increase in net income was primarily due to a $487
thousand, or 19.2%, increase in net interest income, and a $139 thousand, or
86.9%, increase in non-interest income; these items were partially offset by a
higher loan loss provision which increased $80 thousand, or 87.0%, a $446
thousand, or 24.3% increase in non-interest expenses and a $46 thousand, or
21.7% increase in income tax provision.
(14)
NET INTEREST INCOME
Interest income on a fully tax-equivalent ("FTE") basis, which adjusts for the
tax-exempt status of income earned on certain investments to express such income
as if it were taxable, increased $488 thousand, or 18.5%, to $3.2 million for
the three months ended March 31, 1996 compared to $2.7 million for the same
period in 1995. The improvement in interest income was primarily due to volume
increases in the loan portfolio and investment securities portfolio, which
produced an increase in interest income on loans of $685 thousand and an
increase in interest income on investment securities of $367 thousand. Interest
income was further increased by $13 thousand due to rate increases and $60
thousand due to one additional day during the first quarter of 1996.
Interest expense increased $628 thousand, or 37.0%, for the three months ended
March 31, 1996 compared to the same prior year period. The increase in interest
expense was due to volume increases which accounted for $620 thousand, and an
increase of $27 thousand attributable to one additional day during the first
quarter of 1996, offset by a reduction in interest expense of $19 thousand due
to rate decreases.
The interest expense increase due to volume occurred primarily in consumer
certificates of deposit which accounted for $476 thousand, purchased funds
increases which accounted for $294 thousand, interest expense increases in other
deposits of $43 thousand and was offset by a reduction of $193 thousand due to
decreased money market account volume. The interest expense reduction due to
rates was due to generally lower market costs for funds, but was offset by an
increase in interest expense in consumer certificates of deposit amounting to
$100 thousand primarily attributable to promotional programs aimed at gaining
new customers.
The following tables titled "Consolidated Average Balance Sheets with Resultant
Interest and Average Rates" and "Analysis of Changes in Consolidated Net
Interest Income" present by category the major factors that contributed to the
changes in net interest income for the quarter ended March 31, 1996 compared to
the respective prior year period.
(15)
CARNEGIE BANCORP AND SUBSIDIARY
Consolidated Average Balance Sheets with Resultant Interest and Average Rates
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1996 MARCH 31, 1995
----------------------------------------- -----------------------------------------
AVERAGE INTEREST AVERAGE AVERAGE INTEREST AVERAGE
BALANCE EARNED RATE BALANCE EARNED RATE
--------- --------- -------- --------- --------- --------
ASSETS (Dollars in thousands)
Earning Assets:
Federal Funds Sold ..................... $ 811 $ 10 4.95% $ 1,442 $ 21 5.91%
Investment Securities:
U. S. Government & Agencies .......... 46,639 756 6.50% 27,582 450 6.62%
State & Political Subdivisions(3) .... 18,780 368 7.86% 18,278 365 8.10%
Other Securities ..................... 4,979 83 6.69% 1,608 22 5.55%
--------- --------- ------ --------- --------- ------
Total Investment Securities ........ 70,398 1,207 6.88% 47,468 837 7.15%
--------- --------- ------ --------- --------- ------
Loans: (1)(2)
Comm'l Loans & Comm'l Mtgs ........... 140,589 3,554 10.14% 114,689 2,870 10.15%
Residential Mortgages ................ 22,103 514 9.33% 23,502 488 8.42%
Home Equity Loans .................... 5,245 119 9.10% 2,736 71 10.52%
Installment Loans .................... 2,673 65 9.75% 2,642 66 10.13%
--------- --------- ------ --------- --------- ------
Total Loans ........................ 170,610 4,252 10.00% 143,569 3,495 9.87%
--------- --------- ------ --------- --------- ------
Total Earning Assets ............... 241,819 5,469 9.07% 192,479 4,353 9.17%
Non-Interest Earning Assets:
Loan Loss Reserve ...................... (1,783) (1,430)
Securities Avail for Sale Valuation .... 890 (2,347)
All Other Assets ....................... 15,584 11,153
--------- ---------
Total Assets ....................... $ 256,510 $ 199,855
========= =========
LIABILITIES & EQUITY
Interest-Bearing Liabilities:
Regular Savings ........................ 3,974 32 3.23% 3,209 22 2.78%
NOW .................................... 13,148 77 2.35% 10,861 61 2.28%
Money Market Accounts .................. 60,301 569 3.78% 79,047 813 4.17%
Commercial Certificates of Deposit ..... 36,322 491 5.42% 34,531 491 5.77%
Consumer Certificates of Deposit ....... 60,816 849 5.60% 21,750 265 4.94%
Purchased Funds ........................ 22,379 309 5.54% 3,082 47 6.18%
--------- --------- ------ --------- --------- ------
Total Interest-Bearing Liabilities .. 196,940 2,327 4.74% 152,480 1,699 4.52%
Demand Deposits ........................ 37,094 28,116
Other Liabilities ...................... 410 702
Mark-to-Market Unrealized Gain (Loss) .. 561 (1,481)
Shareholders' Equity ................... 21,505 20,038
--------- ---------
Total Liabilities & Equity ......... $ 256,510 $ 199,855
========= =========
NET INTEREST INCOME (fully taxable basis) ........... 3,142 2,654
Tax-Equivalent Basis Adjustment (3) ................. (125) (124)
--------- ---------
NET INTEREST INCOME ................................. $ 3,017 $ 2,530
========= ========
NET INTEREST MARGIN (fully taxable basis) .......................... 5.21% 5.59%
===== =====
<FN>
(1) Includes nonperforming loans.
(2) Included in interest income are loan fees.
(3) The tax-equivalent basis adjustment was computed based on a Federal income tax rate of 34%.
</FN>
(16)
CARNEGIE BANCORP AND SUBSIDIARY
Analysis of Changes in Consolidated Net Interest Income
The Rate/Volume Analysis reflects the extent to which changes in interest rates
and changes in the volume of interest-earning assets and interest-bearing
liabilities have affected the Company's interest income and interest expense
during the periods presented. This analysis is presented on a tax equivalent
basis. Changes attributable to both volume and rate have been allocated
proportionately.
THREE MONTHS ENDED MARCH 31, 1996
COMPARED TO THREE MONTHS ENDED
MARCH 31, 1995
-------------------------------------------------
INCREASE (DECREASE)
-------------------------------------------------
VOLUME RATE NET VOLUME
-------- --------- ------- --------
(Dollars in thousands)
Interest Earned On:
Federal Funds Sold ........................... $ (9) $ (2) $ 0 $ (11)
Investment Securities:
U. S. Government & Agencies ................ 311 (13) 8 306
State & Political Subdivisions ............. 10 (11) 4 3
Other Securities ........................... 46 14 1 61
------- ------- ------- -------
Total Investment Securities ............ 367 (10) 13 370
------- ------- ------- -------
Loans: (1)(2)
Comm'l Loans & Comm'l Mtgs ................. 648 (3) 39 684
Residential Mortgages ...................... (29) 50 5 26
Home Equity Loans .......................... 65 (19) 2 48
Installment Loans .......................... 1 (3) 1 (1)
------- ------- ------- -------
Total Loans ............................ 685 25 47 757
------- ------- ------- -------
Total Interest Income .................. 1,043 13 60 1,116
------- ------- ------- -------
Interest Paid On:
Regular Savings .............................. 5 4 1 10
NOW .......................................... 13 2 1 16
Money Market Accounts ........................ (193) (58) 7 (244)
Commercial Certificates of Deposit ........... 25 (31) 6 0
Consumer Certificates of Deposit ............. 476 100 8 584
Purchased Funds .............................. 294 (36) 4 262
------- ------- ------- -------
Total Interest Expense ................. 620 (19) 27 628
------- ------- ------- -------
Net Interest Income .................... $ 423 $ 32 $ 33 $ 488
======= ======= ======= =======
<FN>
(1) Includes nonperforming loans.
(2) Included in interest income are loan fees.
</FN>
(17)
PROVISION FOR LOAN LOSSES
The provision for loan losses increased by 87.0% to $172 thousand, for the first
three months of 1996 compared to a provision of $92 thousand for the same period
in 1995. The provision is the result of management's review of several factors,
including increased loan balances and management's assessment of economic
conditions, credit quality, loan administration effectiveness and other factors
that would have an impact on future possible losses in the loan portfolio. The
allowance for loan losses totaled $1.8 million, or 1.00% of total loans, and
non-performing loans totaled $3.9 million, or 2.1% of total loans at March 31,
1996.
NON-INTEREST INCOME
Total non-interest income was $299 thousand for the first three months of 1996
compared to $160 thousand for the first three months of 1995, an increase of
$139 thousand, or 86.9%. The increase was primarily attributable to net gains on
investment securities sales amounting to $128 thousand. No sales of securities
occurred during the same prior year quarter.
NON-INTEREST EXPENSE
Total non-interest expenses increased $446 thousand, or 24.3% for the three
months ended March 31, 1996 compared to the same period in 1995. The increase
was due primarily to increased employment resulting from branch expansion, as
well as increases in occupancy expenses, equipment expenses and other expenses
generally attributable to the Company's growth. Of this increase, employment
costs increased $301 thousand, or 38.8%, and was attributable to increases in
the number of employees from 77 full-time equivalents at March 31, 1995 to 112
full-time equivalents at March 31, 1996, as well as merit and cost of living
adjustments. Although the number of employees increased by over 45% during these
comparable periods, employee benefits increased by only 6% due primarily to cost
savings realized with new medical and other insurance programs.
Occupancy expenses increased $118 thousand, or 56.5%, for the first three months
of 1996 compared to the same period in 1995. The increase was attributable
primarily to increased lease expense of $164 thousand and increased leasehold
depreciation expenses of $34 thousand, offset by a reduction in occupancy
relocation expenses of $84 thousand accrued during the first quarter of 1995.
The increased lease expense and leasehold depreciation expense were attributable
to additional costs resulting from the relocation to larger corporate
headquarter facilities and the opening of two new branch offices as well as
normal annual lease increases on other branch facilities. Furniture and
equipment expenses increased $102 thousand, or 93.6% due primarily to
depreciation on purchases of enhanced computer equipment, depreciation on
replacements of other furniture and equipment, as well as depreciation costs
associated with the new facilities.
Other expenses decreased $75 thousand, or 10.1%, for the first three months of
1996 compared to the first three months of 1995. The decrease was attributable
to reduced FDIC insurance costs of $113 thousand, offset by increased costs
attributable to the continued growth of the Company, which resulted in increased
supplies, communications and professional expenses.
INCOME TAX EXPENSE
The Company recognized an income tax provision, which includes both Federal and
State taxes, of $258 thousand for the three months ended March 31, 1996, for an
effective income tax rate of 29.9%. This compared to $212 thousand, for an
effective income tax rate of 27.7% for the same period in 1995. The increase in
the effective tax rate is due primarily to an increase in the Company's taxable
income, at the Federal tax rate of 34%, without a proportionate increase in
tax-exempt income.
(18)
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
NONE
Item 2. Changes in Securities
NONE
Item 3. Defaults Upon Senior Securities
NONE
Item 4. Submission of Matters to a Vote of Security Holders
NONE
Item 5. Other Information
On April 12, 1996 Carnegie Bancorp announced that its Special Meeting
of Shareholders to vote upon the proposed merger between Carnegie and
Regent Bancshares Corp., tentatively scheduled for mid-May, has been
postponed because Regent has not yet completed its financial
statements for the year ended December 31, 1995. The audit of Regent's
financial statements has been delayed because of inadequate
information from a company servicing the automobile insurance premium
financing portion of Regent's loan portfolio. Carnegie cannot yet
determine the impact, if any, on the proposed merger.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits--Financial Data Schedule
(b) Reports on Form 8-K--
The Registrant filed a current report on Form 8-K dated January 30,
1996 announcing its year end 1995 results and its first quarter 1996
dividend.
(19)
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CARNEGIE BANCORP
-----------------
(Registrant)
Date: May 9, 1996 By: RICHARD ROSA
---------------------------
Senior Vice President
and Chief Financial Officer