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 June 30, 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
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(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
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(Address of principal executive offices)
(609) 520-0601
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(Registrant's telephone number, including area code)
Not Applicable
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(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 - 1,843,926 shares outstanding as of August 5, 1996
------------------------------------------------------------------------
INDEX
CARNEGIE BANCORP AND SUBSIDIARY
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements
Consolidated Condensed Balance Sheets at
June 30, 1996 (Unaudited) and December 31, 1995 3
Consolidated Condensed Statements of Income for the
Six months ended June 30, 1996 and 1995 (Unaudited) 4
Consolidated Condensed Statements of Cash Flows for the
Six months ended June 30, 1996 and 1995 (Unaudited) 5
Notes to Consolidated Condensed Financial Statements 6 - 10
Item 2. Management's Discussion and Analysis of Financial Condition 11 - 21
and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 2. Changes in Securities 22
Item 3. Defaults Upon Senior Securities 22
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23
a. Exhibit 27 - Financial Data Schedule 23
b. Reports on Form 8-K 23
SIGNATURES 24
2
CARNEGIE BANCORP AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
June 30,
1996 December 31,
(Unaudited) 1995
----------- ------------
ASSETS (000's omitted)
Cash and cash equivalents:
Cash and due from banks ............................................ $ 14,134 $ 10,207
Federal funds sold ................................................. -- --
- ------------------------------------------------------------------------ --------- ---------
Total cash and cash equivalents ....................... 14,134 10,207
- ------------------------------------------------------------------------ --------- ---------
Investment Securities:
Available for sale ................................................ 36,533 70,577
Held to maturity (market value $23,498 at June 30, 1996) ......... 23,964 --
- ------------------------------------------------------------------------ --------- ---------
Total investment securities ........................... 60,497 70,577
- ------------------------------------------------------------------------ --------- ---------
Loans, net of allowance for loan losses of $1,939 at June 30, 1996
and $1,754 at December 31, 1995 .................................... 194,701 162,587
Premises and equipment, net ............................................ 4,130 3,722
Other real estate owned ................................................ 43 --
Accrued interest receivable and other assets ........................... 3,575 3,469
- ------------------------------------------------------------------------ --------- ---------
Total Assets .......................................... $ 277,080 $ 250,562
======================================================================== ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing demand deposits .............................. $ 48,656 $ 40,944
Interest bearing deposits:
Savings deposits ............................................ 77,099 70,430
Other time deposits ......................................... 55,854 54,327
Certificates of deposit $100,000 and over ................... 38,432 44,500
- ------------------------------------------------------------------------ --------- ---------
Total deposits ........................................ 220,041 210,201
- ------------------------------------------------------------------------ --------- ---------
Short-term borrowings .................................................. 20,048 17,500
Long-term debt ......................................................... 14,425 --
Accrued interest payable and other liabilities ......................... 884 1,067
- ------------------------------------------------------------------------ --------- ---------
Total liabilities ..................................... 255,398 228,768
- ------------------------------------------------------------------------ --------- ---------
Commitments and contingencies
Stockholders' equity:
Common stock, no par value, authorized 5,000,000
shares; issued and outstanding 1,843,059 at
June 30, 1996 and 1,754,441 at December 31, 1995 ........ 9,215 8,772
Capital surplus ............................................. 11,864 10,869
Undivided profits ........................................... 1,029 1,713
Net unrealized holding gains/(losses) on securities
available for sale ...................................... (426) 440
- ------------------------------------------------------------------------ --------- ---------
Total stockholders' equity ............................ 21,682 21,794
- ------------------------------------------------------------------------ --------- ---------
Total Liabilities and
Stockholders' Equity ............................. $ 277,080 $ 250,562
======================================================================== ========= =========
See notes to consolidated condensed financial statements.
3
CARNEGIE BANCORP AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
1996 1995 1996 1995
-------- -------- -------- --------
(000's omitted except per share data)
Interest income:
Loans, including fees ......................... $ 4,515 $ 3,724 $ 8,767 $ 7,219
Federal funds sold ............................ 11 288 21 309
Investment securities:
Taxable .................................. 967 553 1,806 1,025
Tax-exempt ............................... 119 238 362 479
- --------------------------------------------------- -------- -------- -------- --------
Total interest income ................ 5,612 4,803 10,956 9,032
- --------------------------------------------------- -------- -------- -------- --------
Interest expense:
Savings deposits .............................. 681 817 1,358 1,713
Other time deposits ........................... 847 855 1,696 1,120
Certificates of deposit $100,000 and over ..... 535 536 1,026 1,027
Borrowed funds ................................ 392 70 702 117
- --------------------------------------------------- -------- -------- -------- --------
Total interest expense ............... 2,455 2,278 4,782 3,977
- --------------------------------------------------- -------- -------- -------- --------
Net interest income 3,157 2,525 6,174 5,055
Provision for loan losses ......................... 321 150 493 242
- --------------------------------------------------- -------- -------- -------- --------
Net interest income after provision
for loan losses 2,836 2,375 5,681 4,813
- --------------------------------------------------- -------- -------- -------- --------
Non-interest income:
Service fees on deposits ...................... 108 119 198 219
Other fees and commissions .................... 91 115 172 175
Gain on sale of other real-estate owned ....... 294 -- 294 --
Investment securities gains ................... 131 130 326 130
Investment securities losses .................. (36) (132) (103) (132)
- --------------------------------------------------- -------- -------- -------- --------
Total non-interest income 588 232 887 392
- --------------------------------------------------- -------- -------- -------- --------
Non-interest expense:
Salaries and wages ............................ 979 616 1,841 1,189
Employee benefits ............................. 226 174 440 376
Occupancy expense ............................. 338 271 665 480
Furniture and equipment ....................... 233 131 444 240
Other ......................................... 792 766 1,458 1,507
- --------------------------------------------------- -------- -------- -------- --------
Total non-interest expense 2,568 1,958 4,848 3,792
- --------------------------------------------------- -------- -------- -------- --------
Income before income taxes 856 649 1,720 1,413
Income tax expense ................................ 292 166 550 378
- --------------------------------------------------- -------- -------- -------- --------
Net Income $ 564 $ 483 $ 1,170 $ 1,035
=================================================== ======== ======== ======== ========
Per Common Share:
Net income - primary .......................... $ 0.29 $ 0.26 $ 0.59 $ 0.57
Net income - fully diluted .................... $ 0.28 $ 0.26 $ 0.59 $ 0.57
Cash Dividends ................................ $ 0.12 $ 0.12 $ 0.24 $ 0.24
Weighted average shares outstanding (in thousands):
Primary ....................................... 1,963 1,836 1,977 1,827
Fully Duluted ................................. 1,983 1,836 1,987 1,827
See notes to consolidated condensed financial statements.
4
CARNEGIE BANCORP AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30,
-------------------------
1996 1995
-------- --------
Cash flows from operating activities: (000's omitted)
Net income .............................................. $ 1,170 $ 1,035
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ................. 441 212
Provision for loan losses ..................... 493 242
Accretion of investment discount .............. (6) (12)
Amortization of investment premium ............ 261 79
Gain on sale of investment securities ......... (326) (130)
Loss on sale of investment securities ......... 103 132
Gain on sale of other real-estate owned ....... (294) --
Decrease (increase) in accrued interest
receivable and other assets ............. 39 (486)
Increase (decrease) in accrued interest payable
and other liabilities ................... (183) 91
- ------------------------------------------------------------ -------- --------
Net cash provided by operating activities 1,698 1,163
- ------------------------------------------------------------ -------- --------
Cash flows from investing activities:
Proceeds from sale of securities available-for-sale ..... 27,402 12,527
Proceeds from maturities and principal paydowns of
investment securities .............................. 9,255 550
Proceeds from sale of other real-estate owned ........... 622 --
Purchase of securities available-for-sale ............... (7,138) (15,738)
Purchase of securities held-to-maturity ................. (20,853) (1,229)
Net increase in loans made to customers ................. (32,611) (7,766)
Cash collected on previously charged-off loans .......... 4 4
Additions to premises and equipment ..................... (849) (1,599)
- ------------------------------------------------------------ -------- --------
Net cash used in investing activities ... (24,168) (13,251)
- ------------------------------------------------------------ -------- --------
Cash flows from financing activities:
Net increase in deposits ................................ 9,840 25,013
Net increase in borrowed funds .......................... 16,973 5,000
Net proceeds from common stock issued on
exercise of options and warrants ................... 16 284
Cash paid for dividends ................................. (432) (418)
- ------------------------------------------------------------ -------- --------
Net cash provided by financing activities 26,397 29,879
- ------------------------------------------------------------ -------- --------
Net change in cash and cash equivalents .................... 3,927 17,791
Cash and cash equivalents as of beginning of year .......... 10,207 6,815
- ------------------------------------------------------------ -------- --------
Cash and cash equivalents as of end of period .............. $ 14,134 $ 24,606
============================================================ ======== ========
Supplemental disclosures:
Cash paid during the period for:
Interest ................................................ $ 4,858 $ 3,766
Income taxes ............................................ $ 466 $ 591
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 June 30, 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 June 30, 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 June 30, 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 June 30, 1996 and December 31, 1995.
Investment Securities Portfolio
June 30, 1996
-----------------------------------------------------------------------------
Securities Held to Maturity Securities Available for Sale
----------------------------------- -----------------------------------
Amortized Market Amortized Market
Cost Value Cost Value
-------------- ---------------- -------------- ---------------
(Dollars in thousands)
U. S. government & agencies ............ $9,034 $8,987 $6,486 $6,316
Mortgage-backed agencies ............... 14,930 14,511 24,878 24,443
States & political subdivisions ........ - - 708 708
Other securities ....................... - - 5,134 5,066
-------------- ---------------- -------------- ---------------
Total investment securities ............ $23,964 $23,498 $37,206(1) $36,533
============== ================ ============== ===============
(1) Net unrealized losses of $426 thousand, net of a tax benefit of $247
thousand, were reported as a reduction to stockholders' equity at June 30,
1996.
December 31, 1995
-----------------------------------------------------------------------------
Securities Held to Maturity Securities Available 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
six months of 1996, securities totaling $20,853,000 were classified as
held-to-maturity and securities totaling $7,138,000 were classified as
available-for-sale, 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 June
30, 1996 and December 31, 1995.
Loan Portfolio By Type of Loan
June 30, 1996 December 31, 1995
------------------- -------------------
Amount % Amount %
-------- ----- -------- -----
(Dollars in thousands)
Commercial and financial ......... $ 60,293 30.7% $ 44,432 27.0%
Real estate construction ......... 15,003 7.6% 12,483 7.6%
Residential mortgage ............. 22,167 11.3% 21,788 13.3%
Commercial mortgage .............. 91,474 46.5% 77,701 47.3%
Installment ...................... 7,703 3.9% 7,937 4.8%
-------- ------ -------- ------
$196,640 100.0% $164,341 100.0%
======== ===== ======== =====
The following table represents activity in the allowance for loan losses
for the six month period ended June 30, 1996 and 1995.
Allowance For Loan Losses
Six Months Ended
June 30,
-----------------------------------
1996 1995
-------- --------
(Dollars in thousands)
Balance - beginning of period $1,754 $1,400
Charge-offs (312) (44)
Recoveries 4 4
-------- --------
Net (charge-offs) recoveries (308) (40)
Provision for loan losses 493 242
-------- --------
Balance - end of period $1,939 $1,602
======== ========
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). The stock options were awarded at an exercise price
equal to the market price of the stock on the grant date; therefore, no
compensation expense was recognized. No stock options were awarded during the
first six months of 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 - DIVIDENDS
The Board of Directors declared both a stock dividend and a cash dividend in
April, 1996. Stockholders of record on April 24, 1996 received a 5% stock
dividend on May 15, 1996 and stockholders of record on May 20, 1996 received a
$.12 per share cash dividend, paid 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., scheduled for May 29, 1996, was postponed because Regent had
not yet completed its financial statements for the year ended December 31, 1995.
The audit of Regent's financial statements was delayed because of inadequate
information from a company servicing the automobile insurance premium financing
portion of Regent's loan portfolio.
On May 29, 1996 Regent reported that its results of operations for the year
ended December 31, 1995 were a net loss of $3.13 million, a loss of $3.41 per
share, compared to net income of $503 thousand, or $.22 per share, for the year
ended December 31, 1994. The loss in 1995 was primarily the result of an
increase in the provision for loan losses of $4.0 million attributable to
delinquent automobile insurance premium finance loans to individuals.
Carnegie and Regent are currently negotiating an amendment to the Merger
Agreement which Carnegie anticipates will provide for an exchange ratio of
Carnegie securities for Regent securities based upon the relative book values of
Carnegie and Regent as of a future date to be determined.
Although negotiations are ongoing, no assurances can be given that the parties
will reach agreement on an amendment and that the proposed merger will be
consumated.
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 June 30, 1996 increased by $26.5 million, or 10.6%, to $277.1
million compared to $250.6 million at December 31, 1995. Total assets averaged
$263.3 million in the first six months of 1996, a $38.6 million increase, or
17.2%, from the 1995 full year average of $224.7 million. Average loans
increased $31.1 million to $178.9 million in the first six months of 1996, or
21.0%, from the 1995 full year average of $147.8 million. Average investment
securities increased by $11.2 million, or 19.3% to $69.3 million; average
Federal funds sold decreased by $7.2 million, or 90.0% to $819 thousand; and the
average of all other assets increased by $2.3 million, or 17.0% to $15.8 million
during the first six months of 1996 compared to the full year 1995 averages.
These increases in average assets were funded primarily by a $17.2 million, or
8.6% increase in average deposits and a $19.6 million, or 400.0% increase in
average borrowed funds, in addition to the reduction in average Federal funds
sold, during the first six months of 1996 compared to the full year 1995
averages. Management has found the cost of borrowed funds to be lower than other
available sources of funds.
Lending Activity
Total loans at June 30, 1996 were $196.6 million, a 19.7%, or $32.3 million
increase from December 31, 1995. Average loans increased by $31.1 million, or
21.0%, to $178.9 million in the first six 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 $29.1 million in commercial loans and
commercial mortgages, $2.3 million in residential mortgages and home equity
loans and a decrease of $207 thousand in other installment loans. The 24.3%
increase in average 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. Additionally, we opened a new
branch office in Toms River, New Jersey, in the fourth quarter of 1995, a new
office in Montgomery, New Jersey, and Langhorne, Pennsylvania, and a loan
production office in Flemington, New Jersey during the first six months of
1996. Having strong regional lenders on site in these offices has helped to
provide additional growth. 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 $1.9 million, or .99% of total loans at June
30, 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 $470 thousand, was $3.3
million, or 1.7% of total loans at June 30, 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. 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, although future changes in economic
conditions, borrowers ability to repay their loans, regulatory requirements
and other factors may require future additions to the allowance.
Investment Securities Activity
Average investment securities increased by $11.2 million in the first six 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 six months of 1996, proceeds from the sale of securities
available-for-sale amounted to $27.4 million, resulting in $223 thousand gain on
the sales, and was offset by the purchase of $28.0 million in securities, of
which $20.9 million were classified as held-to-maturity. During the first six
months of 1995, proceeds from the sale of securities available-for-sale were
$12.5 million, and the Company purchased $17.0 million of securities. Proceeds
resulting from the cash flows of maturities and principal paydowns on
mortgage-backed securities amounted to $9.3 million for the first six months of
1996 compared to $550 thousand for the first six months of 1995.
At June 30, 1996 net unrealized losses in the Company's available-for-sale
securities portfolio amounted to $673 thousand and net unrealized losses in the
held-to-maturity securities portfolio amounted to $466 thousand. Net unrealized
losses of $426 thousand, net of a tax benefit of $247 thousand, were reported as
a reduction to stockholders' equity at June 30, 1996.
Deposits
Average total deposits increased by $17.2 million, or 8.6%, to $216.3 million
for the six months ended June 30, 1996 compared to the 1995 full year average of
$199.1 million. Changes in the average deposit mix include a $1.4 million, or
3.8% increase in certificates of deposit over $100 thousand; a $6.1 million, or
9.5% decrease in money market deposit accounts; a $12.0 million, or 24.0%
increase in consumer certificates of deposit; a $.9 million, or 26.5% increase
in regular savings; a $2.1 million, or 16.5% increase in NOW account deposits;
and a $6.9 million, or 21.4% increase in non-interest bearing demand deposits.
Deposits are obtained primarily from the market areas which the Company serves.
As of June 30, 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 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 18.3% and 32.2% of the Company's total assets at
June 30, 1996 and December 31, 1995, respectively.
12
As shown in the Consolidated Condensed Statements of Cash Flows, the Company's
primary source of funds at June 30, 1996 was from borrowed funds and secondarily
through deposit growth. Borrowed funds increased $17.0 million and $5.0 million,
respectively, and total deposits increased $9.8 million and $25.0 million,
respectively for the six months ended June 30, 1996 and 1995. At June 30, 1996
the Company utilized borrowed funds as a temporary funding source for loan
growth until sufficient deposits are generated from three recently opened branch
offices in Toms River, New Jersey, Montgomery, New Jersey and Langhorne
Pennsylvannia. A new branch is scheduled to open in Flemington on August 19,
1996.
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 June 30, 1996. In addition, subject to certain
requirements, the Bank may also obtain longer term advances. The Bank may borrow
in total 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. Long term debt on the
balance sheet as of June 30, 1996 totalling $14.4 million is matched against
specific loans or investments, for asset and liability management purposes.
Capital Resources
Stockholders' equity decreased by $112 thousand at June 30, 1996 compared to
December 31, 1995. The changes in stockholders' equity during the six months
ended June 30, 1996 were comprised of net income of $1.17 million; a change of
$866 thousand (net of tax provision) in unrealized holding gains/(losses) in the
Company's portfolio of securities available-for-sale as a $440 thousand
unrealized gain became a $426 thousand unrealized loss; and was further reduced
by cash dividends paid of $432 thousand and increased by $16 thousand in
proceeds from exercised options and warrants.
During the first six months of 1996, the Company paid $432 thousand, or 36.9% of
net income in cash dividends compared to $418 thousand, or 40.4% 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 received a
5% stock dividend on May 15, 1996 and stockholders of record on May 20, 1996
received a $.12 per share cash dividend, paid 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
759,350 shares, outstanding at June 30, 1996 at an exercise price of $13.69 per
share.
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
13
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 June 30, 1996, as well as the regulatory required
minimum and "well-capitalized" capital ratios:
June 30, 1996 Regulatory Requirements
---------------------- -----------------------------------
Company Bank Minimum "Well Capitalized"
----------- --------- --------------- ------------------
Risk-based Capital:
Tier I capital ratio.... 10.81% 9.23% 4.00% 6.00%
Total capital ratio..... 11.76% 10.18% 8.00% 10.00%
Leverage ratio............. 8.16% 6.96% 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 six months ended June 30, 1996 compared to
the six months ended June 30, 1995
Net Income
The Company earned $1.2 million, or $0.59 net income per share on a primary
basis and fully diluted basis, for the six months ended June 30, 1996 compared
to $1.0 million, or $0.57 for both primary and fully diluted net income per
share, for the six months ended June 30, 1995, an increase of $135 thousand, or
13.0%. The increase in net income was primarily due to a $1.1 million, or 21.6%,
increase in net interest income, and a $495 thousand, or 126.3%, increase in
non-interest income. These items were partially offset by a higher loan loss
provision which increased $251 thousand, or 103.7%, a $1.0 million, or 26.3%
increase in non-interest expenses and a $172 thousand, or 45.5% increase in
income tax provision.
14
Net Interest Income
Net 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 $1.1 million, or 20.8% for the six
months ended June 30, 1996 compared to the same prior year period.
Interest income on a "FTE" basis, increased $1.8 million, or 19.4%, to $11.1
million for the six months ended June 30, 1996 compared to $9.3 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 $1.7 million and an
increase in interest income on investment securities of $614 thousand. Interest
income was further increased by $62 thousand due to one additional day during
the first quarter of 1996; reduced by $285 thousand due to volume reductions in
Federal Funds sold; and reduced by $240 thousand due to interest yield
reductions.
Interest expense increased $805 thousand, or 20.2%, for the six months ended
June 30, 1996 compared to the same prior year period. The increase in interest
expense was due to volume increases which accounted for $1.2 million, and an
increase of $28 thousand attributable to one additional day during the first
quarter of 1996, offset by a reduction in interest expense of $378 thousand due
to rate decreases.
The interest expense increase due to volume occurred primarily in consumer
certificates of deposit which accounted for $668 thousand, borrowed funds
increases which accounted for $639 thousand, interest expense increases in other
deposits of $110 thousand and was offset by a reduction of $262 thousand due to
decreased money market account volume. The interest expense reduction due to
rates was due to generally lower market costs for funds.
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 June 30, 1996 and six
months ended June 30, 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
June 30, 1996 June 30, 1995
----------------------------------- -----------------------------------
Average Interest Average Average Interest Average
Balance Earned Rate Balance Earned Rate
--------- --------- --------- --------- --------- ---------
ASSETS
======================================================
(Dollars in thousands)
Earning Assets:
Federal Funds Sold ................................ $ 827 $ 11 5.34% $ 19,288 $ 288 5.99%
Investment Securities:
U. S. Government & Agencies ................... 53,169 898 6.77% 30,668 523 6.84%
State & Political Subdivisions (3) ............ 9,817 180 7.37% 18,009 361 8.04%
Other Securities .............................. 5,124 69 5.40% 2,552 30 4.72%
--------- --------- --------- --------- --------- ---------
Total Investment Securities ............... 68,110 1,147 6.76% 51,229 914 7.16%
--------- --------- --------- --------- --------- ---------
Loans:(1)(2)
Comm'l Loans & Comm'l Mtgs .................... 156,757 3,841 9.83% 119,980 3,120 10.43%
Residential Mortgages ......................... 22,334 479 8.60% 22,329 458 8.23%
Home Equity Loans ............................. 5,387 124 9.23% 3,037 80 10.57%
Installment Loans ............................. 2,761 71 10.31% 2,788 66 9.50%
--------- --------- --------- --------- --------- ---------
Total Loans ............................... 187,239. 4,515 9.67% 148,134 3,724 10.08%
--------- --------- --------- --------- --------- ---------
Total Earning Assets ........................... 256,176 5,673 8.88% 218,651 4,926 9.04%
Non-Interest Earning Assets:
Loan Loss Reserve ................................. (1,847) (1,529)
Securities Avail for Sale Valuation ............... (344) (1,542)
All Other Assets .................................. 16,020 14,544
--------- ---------
Total Assets ................................... $ 270,005 $ 230,124
========= =========
LIABILITIES & EQUITY
======================================================
Interest-Bearing Liabilities:
Regular Savings ................................... 4,710 41 3.49% 3,246 27 3.34%
NOW ............................................... 16,351 99 2.43% 17,505 157 3.60%
Money Market Accounts ............................. 55,278 541 3.93% 62,060 633 4.09%
Commercial Certificates of Deposit ................ 40,151 535 5.34% 36,157 536 5.95%
Consumer Certificates of Deposit .................. 63,274 847 5.37% 55,973 855 6.13%
Borrowed Funds .................................... 26,696 392 5.89% 4,505 70 6.23%
--------- --------- --------- --------- --------- ---------
Total Interest-Bearing Liabilities ............. 206,460 2,455 4.77% 179,446 2,278 5.09%
Demand Deposits ................................... 41,241 30,134
Other Liabilities ................................. 580 1,036
Mark-to-Market Unrealized Gain (Loss) ............. (218) (976)
Shareholders' Equity .............................. 21,942 20,484
--------- ---------
Total Liabilities & Equity ..................... $ 270,005 $ 230,124
========= =========
NET INTEREST INCOME (fully taxable basis) ............ 3,218 2,648
Tax-Equivalent Basis Adjustment (3) .................. (61) (123)
--------- ---------
NET INTEREST INCOME .................................. $ 3,157 $ 2,525
========= =========
NET INTEREST MARGIN (fully taxable basis) ............ 5.04% 4.86%
========= =========
(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%.
16
CARNEGIE BANCORP AND SUBSIDIARY
Consolidated Average Balance Sheets with Resultant Interest and Average Rates
Six Months Ended Six Months Ended
June 30, 1996 June 30, 1995
----------------------------------- -----------------------------------
Average Interest Average Average Interest Average
Balance Earned Rate Balance Earned Rate
--------- --------- --------- --------- --------- ---------
ASSETS
======================================================
(Dollars in thousands)
Earning Assets:
Federal Funds Sold ................................ $ 819 $ 21 5.14% $ 10,415 $ 309 5.98%
Investment Securities:
U. S. Government & Agencies ................... 49,904 1,654 6.65% 29,134 973 6.73%
State & Political Subdivisions(3) ............. 14,299 548 7.69% 18,143 726 8.07%
Other Securities .............................. 5,052 152 6.03% 2,083 52 5.03%
--------- --------- ----- --------- --------- -----
Total Investment Securities ............... 69,254 2,354 6.82% 49,360 1,751 7.15%
--------- --------- ----- --------- --------- -----
Loans: (1) (2)
Comm'l Loans & Comm'l Mtgs .................... 148,673 7,395 9.98% 117,104 5,990 10.32%
Residential Mortgages ......................... 22,219 993 8.96% 22,913 947 8.33%
Home Equity Loans ............................. 5,316 243 9.17% 2,900 151 10.50%
Installment Loans ............................. 2,717 136 10.04% 2,715 131 9.73%
--------- --------- ----- --------- --------- -----
Total Loans ............................... 178,925 8,767 9.83% 145,632 7,219 10.00%
--------- --------- ----- --------- --------- -----
Total Earning Assets ........................... 248,998 11,142 8.97% 205,407 9,279 9.11%
Non-Interest Earning Assets:
Loan Loss Reserve ................................. (1,815) (1,480)
Securities Avail for Sale Valuation ............... 273 (1,942)
All Other Assets .................................. 15,802 13,005
--------- ---------
Total Assets ................................... $ 263,258 $ 214,990
========= =========
LIABILITIES & EQUITY
======================================================
Interest-Bearing Liabilities:
Regular Savings ................................... 4,342 73 3.37% 3,228 49 3.06%
NOW ............................................... 14,750 176 2.39% 14,183 218 3.10%
Money Market Accounts ............................. 57,790 1,109 3.85% 70,554 1,446 4.13%
Commercial Certificates of Deposit ................ 38,237 1,026 5.38% 35,348 1,027 5.86%
Consumer Certificates of Deposit .................. 62,045 1,696 5.48% 38,862 1,120 5.81%
Borrowed Funds .................................... 24,538 702 5.74% 3,798 117 6.21%
--------- --------- ----- --------- --------- -----
Total Interest-Bearing Liabilities ............. 201,700 4,782 4.75% 165,973 3,977 4.83%
Demand Deposits ................................... 39,168 29,131
Other Liabilities ................................. 495 869
Mark-to-Market Unrealized Loss .................... 172 (1,227)
Shareholders' Equity .............................. 21,724 20,244
--------- ---------
Total Liabilities & Equity ..................... $ 263,258 $ 214,990
========= =========
NET INTEREST INCOME (fully taxable basis) ............ 6,360 5,302
Tax-Equivalent Basis Adjustment (3) .................. (186) (247)
--------- ---------
NET INTEREST INCOME .................................. $ 6,174 $ 5,055
========= =========
NET INTEREST MARGIN (fully taxable basis) ............ 5.12% 5.21%
==== ====
(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%.
17
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 June 30, 1996 Six Months Ended June 30, 1996
Compared to Three Months Ended Compared to Six Months Ended
June 30, 1995 June 30, 1995
------------------------------- ------------------------------------------
Increase (Decrease) Increase (Decrease)
------------------------------- ------------------------------------------
Volume Rate Net Volume Rate Time Net
------- ------- ------- ------- ------- ------- -------
(Dollars in thousands) (Dollars in thousands)
Interest Earned On:
Federal Funds Sold ......................... ($ 276) ($ 1) ($ 277) ($ 285) ($ 3) $ 0 ($ 288)
Investment Securities:
U. S. Government & Agencies ............ 384 (9) 375 694 (22) 9 681
State & Political Subdivisions ......... (165) (16) (181) (154) (27) 3 (178)
Other Securities ....................... 30 9 39 74 25 1 100
------- ------- ------- ------- ------- ------- -------
Total Investment Securities ........ 249 (16) 233 614 (24) 13 603
------- ------- ------- ------- ------- ------- -------
Loans: ..................................... (1) (2)
Comm'l Loans & Comm'l Mtgs ............. 956 (235) 721 1,615 (252) 42 1,405
Residential Mortgages .................. 0 21 21 (29) 70 5 46
Home Equity Loans ...................... 62 (18) 44 126 (35) 1 92
Installment Loans ...................... (1) 6 5 0 4 1 5
------- ------- ------- ------- ------- ------- -------
Total Loans ........................ 1,017 (226) 791 1,712 (213) 49 1,548
------- ------- ------- ------- ------- ------- -------
Total Interest Income ................... 990 (243) 747 2,041 (240) 62 1,863
------- ------- ------- ------- ------- ------- -------
Interest Paid On:
Regular Savings ............................ 12 2 14 17 7 0 24
NOW ........................................ (10) (48) (58) 9 (52) 1 (42)
Money Market Accounts ...................... (69) (23) (92) (262) (82) 7 (337)
Commercial Certificates of Deposit ......... 59 (60) (1) 84 (91) 6 (1)
Consumer Certificates of Deposit ........... 112 (120) (8) 668 (102) 10 576
Borrowed Funds ............................. 345 (23) 322 639 (58) 4 585
------- ------- ------- ------- ------- ------- -------
Total Interest Expense .................. 449 (272) 177 1,155 (378) 28 805
------- ------- ------- ------- ------- ------- -------
Net Interest Income ..................... $ 541 $ 29 $ 570 $ 886 $ 138 $ 34 $ 1,058
======= ======= ======= ======= ======= ======= =======
(1) Includes nonperforming loans.
(2) Included in interest income are loan fees.
18
Provision for Loan Losses
The provision for loan losses increased by 103.7% to $493 thousand, for the
first six months of 1996 compared to a provision of $242 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 $1.9 million, or 0.99% of total
loans, and 58% of non-performing loans, and non-performing loans totaled $3.3
million, or 1.7% of total loans at June 30, 1996.
Non-Interest Income
Total non-interest income was $887 thousand for the first six months of 1996
compared to $392 thousand for the first six months of 1995, an increase of $495
thousand, or 126.3%. The increase was primarily attributable to net gains on
investment securities sales amounting to $223 thousand, and $294 thousand
attributable to gains on sale of other real-estate owned compared to net losses
on investment securities sales of $2 thousand during the first six months of
1995.
Non-Interest Expense
Total non-interest expenses increased $1.0 million, or 26.3% for the six months
ended June 30, 1996 compared to the same period in 1995. The increase was due
primarily to increased employment resulting from branch expansion as the Company
opened 3 new branch offices and a loan production office since October 31, 1995,
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 $652 thousand, or 54.8%, and was attributable to
increases in the number of employees from 83 full-time equivalents at June 30,
1995 to 124 full-time equivalents at June 30, 1996, as well as merit and cost of
living adjustments. Although the number of employees increased by over 49%
during these comparable periods, employee benefits increased by only 17% due
primarily to cost savings realized with new medical and other insurance
programs.
Occupancy expenses increased $185 thousand, or 38.5%, for the first six months
of 1996 compared to the same period in 1995. The increase was attributable
primarily to increased lease expense of $194 thousand and increased leasehold
depreciation expenses of $60 thousand , offset by a reduction in occupancy
relocation expenses of $85 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 four new branch offices as well as
normal annual lease increases on other branch facilities. Furniture and
equipment expenses increased $204 thousand, or 85.0% due primarily to
depreciation and maintenance costs on purchases of enhanced computer equipment,
depreciation on replacements of other furniture and equipment, as well as
depreciation and maintenance costs associated with the new facilities.
Other expenses decreased $49 thousand, or 3.3%, for the first six months of 1996
compared to the first six months of 1995. The decrease was attributable to
reduced FDIC insurance costs of $224 thousand, offset by increased other
expenses of $175 thousand, an increase of 13.7%, 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 $550 thousand for the six months ended June 30, 1996, for an
effective income
19
tax rate of 32.0%. This compared to $378 thousand, for an effective income tax
rate of 26.8% 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
and the sale of substantially all of the Company's tax exempt securities during
the second quarter of 1996.
RESULTS OF OPERATIONS for the three months ended June 30, 1996 compared to the
three months ended June 30, 1995
Net Income
The Company earned $564 thousand, or $0.29 net income per share on a primary
basis and $0.28 on a fully diluted basis for the quarter ended June 30, 1996
compared to $483 thousand, or $0.26 for both primary and fully diluted net
income per share for the quarter ended June 30, 1995, an increase of $81
thousand, or 16.8%. The increase in net income was primarily due to a $632
thousand, or 25.0% increase in net interest income and a $356 thousand, or
153.4% increase in non-interest income; these items were partially offset by a
$171 thousand, or 114.0% increase in loan loss provision; higher non-interest
expenses which increased $610 thousand, or 31.2%; and increased income taxes of
$126 thousand, or 75.9%.
Net Interest Income
Net interest income for the second quarter of 1996, on a "FTE" basis, increased
$570 thousand, or 21.5%, compared to the second quarter of 1995. This
improvement in net interest income resulted primarily from a higher level of
earning assets as the net interest margin increased to 5.04% from 4.86%. The
increase in the net interest margin resulted from higher yielding loan and
investment securities volume and reduced lower yielding Fed Funds sold volume as
the spread between earning assets and interest bearing liabilities increased
from 3.95% in the second quarter of 1995 to 4.11% in the second quarter of 1996.
Average earning assets for the second quarter of 1996 increased by $37.5 million
compared to the second quarter of 1995, primarily as a result of a $39.1
million, or 26.4% increase in average loans; and a $16.9 million, or 33.0%
increase in average investment securities; offset by a $18.5 million, or 957.1%
reduction in average Federal Funds sold. Funding for the growth in loans and
investment securities came from deposit growth generated by the Company's
maturing branch offices and utilization of Federal Funds sold and borrowed
funds. Total average deposits increased $15.9 million, or 7.8%; Federal Funds
sold decreased $18.5 million, or 957.1%; and borrowed funds increased $22.2
million, or 492.6%.
Provision for Loan Losses
The provision for loan losses was $321 thousand in the second quarter of 1996
compared to $150 thousand in the same period of 1995. The provision for loan
losses is a result of loan growth and management's assessment of economic
conditions, credit quality, loan administration effectiveness and other factors
that would have an impact on possible losses in the loan portfolio. 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.
20
Non-Interest Income
Total non-interest income increased $356 thousand, or 153.4%, to $588 thousand
for the second quarter of 1996 compared to $232 thousand for the same quarter of
1995. The increase is attributable to net gains on investment securities sales
amounting to $95 thousand and $294 thousand attributable to a gain on sale of
other real-estate owned, compared to net losses on investment securities sales
of $2 thousand during the second quarter of 1995. These gains were offset by a
reduction in service fees on deposits of $11 thousand and a reduction in other
fees and commissions of $24 thousand.
Non-Interest Expense
Total non-interest expense increased $610 thousand, or 31.2%, for the second
quarter of 1996 compared to the same quarter in 1995. The increase is primarily
due to increased employment expenses, as well as increases in occupancy
expenses, equipment expenses and other expenses generally attributable to the
Company's growth. During the fourth quarter of 1995, a new branch was opened
in Toms River, New Jersey. Additionally, during the first six months of 1996,
a new branch was opened in Montgomery, New Jersey and Longhorne, Pennsylvania,
and a loan office was opened in Flemington, New Jersey.
Employment costs increased $415 thousand, or 52.5%, for the second quarter of
1996 compared to the same quarter in 1995 due primarily to increased staffing
resulting from growth and the opening of four additional branch offices.
Occupancy expenses increased $67 thousand, or 24.7%, for the second quarter of
1996 compared to the second quarter of 1995. The increase is attributable
primarily to increased lease expense of $30 thousand incurred for the new branch
offices as well as normal annual lease increases on other branch facilities and
an increase of $26 thousand in leasehold depreciation on these facilities.
Furniture and equipment expenses increased $102 thousand, or 77.9%, due
primarily to depreciation on purchases of new computer equipment and other
furniture and equipment, which amounted to $86 thousand, and increased
maintenance costs which amounted to $16 thousand.
Other expenses increased $26 thousand, or 3.4%, for the second quarter of 1996
compared to the second quarter of 1995. The increase was attributable to the
continued growth of the Company, which resulted in increased supplies,
communications and professional expenses, and was offset by a reduction in FDIC
insurance premium to $1 thousand in the second quarter of 1996 compared to $113
thousand in the same prior year quarter.
Income Tax Expense
The Company recognized an income tax provision, which includes both Federal and
State taxes, of $292 thousand for the second quarter of 1996, for an effective
income tax rate of 34.1%. This compared to $166 thousand, for an effective
income tax rate of 25.6%, for the same quarter in 1995. The increase in the
effective tax rate is due to the sale of substantially all of the Company's
tax-exempt municipal securities portfolio during the second quarter of 1996.
21
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
The annual meeting of shareholders of Carnegie Bancorp was held on May
29, 1996. The following were the results of voting for directors to one
year terms:
Note: Shares Outstanding were 1,755,541
Votes
Director Votes For Withheld
------------------------- ------------------- ---------------------
Theodore H. Dolci, Jr. 1,235,660 3,029
Michael E. Golden 1,235,660 3,029
Thomas L. Gray, Jr. 1,235,660 3,029
Bruce A. Mahon 1,235,560 3,129
Joseph J. Oakes, III 1,235,660 3,029
James E. Quackenbush 1,235,660 3,029
Steven L. Shapiro 1,235,660 3,029
Mark A. Wolters 1,235,660 3,029
Shelly M. Zeiger 1,235,660 3,029
APPROVED
The following were the results of voting on Proposal No.
2 - Approval of the Carnegie Bancorp 1995 Directors Stock
Option Plan, which provides for options to purchase up to
161,700 shares of the Company's common stock, to be
issued to directors of the Company or its subsidiaries:
Votes Percentage
------------------- -------------------
For......... 905,322 51.6%
Against..... 54,103 3.1%
Abstain..... 34,889 2.0%
Non-vote.... 244,375 13.9%
APPROVED
The following were the results of voting on Proposal No.
3 - Approval of the Carnegie Bancorp 1995 Employee Stock
Option Plan, which provides for options to purchase up to
12,106 shares of the Company's common stock, to be issued
to employees of the Company or its subsidiaries:
Votes Percentage
------------------- -------------------
For......... 939,600 53.5%
Against..... 49,950 2.8%
Abstain..... 13,310 0.8%
Non-vote.... 235,829 13.4%
22
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., scheduled for mAY 29, 1996, was postponed
because Regent has not yet completed its financial statements for the
year ended December 31, 1995. The audit of Regent's financial statements
was delayed because of inadequate information from a company servicing
the automobile insurance premium financing portion of Regent's loan
portfolio.
On May 29, 1996 Regent reported that its results of operations for the
year ended December 31, 1995 were a net loss of $3.13 million, or $3.41
per share, compared to net income of $503 thousand, or $.22 per share,
for the year ended December 31, 1994. The loss in 1995 was primarily the
result of an increase in the provision for loan losses of $4.0 million
attributable to delinquent automobile insurance premium finance loans to
individuals.
Carnegie and Regent are currently negotiating an amendment to the Merger
Agreement which Carnegie anticipates will provide for an exchange
ratio of Carnegie securities for Regent securities based upon the
relative book values of Carnegie and Regent as of a future date to be
determined. Although negotiations are ongoing, no assurances can be
given that the parties will reach agreement on an amendment and that
the merger will be consumated.
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 April 12, 1996
announcing its first quarter results of operations.
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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: August 12, 1996 By: RICHARD ROSA
===================================
Senior Vice President
and Chief Financial Officer
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