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 September 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
- --------------------------------------------------------------------------------
(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 - 1,845,026 shares outstanding as of November 1, 1996
INDEX
CARNEGIE BANCORP AND SUBSIDIARY
PART I. FINANCIAL INFORMATION PAGE NO.
- ------- --------------------- --------
Item 1. Financial Statements
Consolidated Condensed Balance Sheets at September 30, 1996
(Unaudited) and December 31, 1995 3
Consolidated Condensed Statements of Income for the nine
months ended September 30, 1996 and 1995 (Unaudited) 4
Consolidated Condensed Statements of Cash Flows for the nine
months ended September 30, 1996 and 1995 (Unaudited) 5
Notes to Consolidated Condensed Financial Statements 6 - 12
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13 - 25
PART II. OTHER INFORMATION
- -------- -----------------
Item 1. Legal Proceedings 26
Item 2. Changes in Securities 26
Item 3. Defaults Upon Senior Securities 26
Item 4. Submission of Matters to a Vote of Security Holders 26
Item 5. Other Information 26
Item 6. Exhibits and Reports on Form 8-K
a. Exhibit 27 - Financial Data Schedule 26
b. Reports on Form 8-K 26
SIGNATURES 27
(2)
CARNEGIE BANCORP AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
September 30,
1996 December 31,
(Unaudited) 1995
------------- -------------
ASSETS (000's omitted)
Cash and cash equivalents:
Cash and due from banks ......................................................... $ 16,242 $ 10,207
Federal funds sold .............................................................. 5,525 --
- ------------------------------------------------------------------------------------- ------------- -------------
Total cash and cash equivalents ................................... 21,767 10,207
- ------------------------------------------------------------------------------------- ------------- -------------
Investment Securities:
Available for sale ............................................................ 30,027 70,577
Held to maturity (market value $23,308 at September 30, 1996) ................ 23,655 --
- ------------------------------------------------------------------------------------- ------------- -------------
Total investment securities ....................................... 53,682 70,577
- ------------------------------------------------------------------------------------- ------------- -------------
Loans, net of allowance for loan losses of $2,492 at September 30, 1996
and $1,754 at December 31, 1995 ................................................. 241,153 162,587
Premises and equipment, net ......................................................... 4,099 3,722
Other real estate owned ............................................................. 343 --
Accrued interest receivable and other assets ........................................ 4,410 3,469
- ------------------------------------------------------------------------------------- ------------- -------------
Total Assets ...................................................... $ 325,454 $ 250,562
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LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing demand deposits .......................................... $ 42,166 $ 40,944
Interest bearing deposits:
Savings deposits ........................................................ 73,586 70,430
Other time deposits ..................................................... 92,498 54,327
Certificates of deposit $100,000 and over ............................... 49,699 44,500
- ------------------------------------------------------------------------------------- ------------- -------------
Total deposits .................................................... 257,949 210,201
- ------------------------------------------------------------------------------------- ------------- -------------
Short-term borrowings ............................................................... 30,000 17,500
Long-term debt ...................................................................... 14,425 --
Accrued interest payable and other liabilities ...................................... 1,163 1,067
- ------------------------------------------------------------------------------------- ------------- -------------
Total liabilities ................................................. 303,537 228,768
- ------------------------------------------------------------------------------------- ------------- -------------
Commitments and contingencies ....................................................... -- --
Stockholders' equity:
Common stock, no par value, authorized 5,000,000 shares; issued and
outstanding 1,843,926 at September 30, 1996
and 1,754,441 at December 31, 1995 .................................. 9,220 8,772
Capital surplus ......................................................... 11,868 10,869
Undivided profits ....................................................... 1,226 1,713
Net unrealized holding gains (losses) on securities available for sale .. (397) 440
- ------------------------------------------------------------------------------------- ------------- -------------
Total stockholders' equity ........................................ 21,917 21,794
- ------------------------------------------------------------------------------------- ------------- -------------
Total Liabilities and
Stockholders' Equity ......................................... $ 325,454 $ 250,562
===================================================================================== ============= =============
See notes to consolidated condensed financial statements.
(3)
CARNEGIE BANCORP AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- --------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
(000's omitted except per share data)
Interest income:
Loans, including fees ...................................... $ 5,210 $ 3,635 $ 13,977 $ 10,854
Federal funds sold ......................................... 18 160 39 469
Investment securities:
Taxable ........................................... 1,007 627 2,813 1,652
Tax-exempt ........................................ 12 244 374 723
- ---------------------------------------------------------------------- ----------- ----------- ----------- -----------
Total interest income .......................... 6,247 4,666 17,203 13,698
- ---------------------------------------------------------------------- ----------- ----------- ----------- -----------
Interest expense:
Savings deposits ........................................... 628 704 1,986 2,417
Other time deposits ........................................ 894 970 2,590 2,090
Certificates of deposit $100,000 and over .................. 516 522 1,542 1,549
Borrowed funds ............................................. 644 10 1,346 127
- ---------------------------------------------------------------------- ----------- ----------- ----------- -----------
Total interest expense ......................... 2,682 2,206 7,464 6,183
- ---------------------------------------------------------------------- ----------- ----------- ----------- -----------
Net interest income ............................ 3,565 2,460 9,739 7,515
Provision for loan losses ............................................ 668 -- 1,161 242
- ---------------------------------------------------------------------- ----------- ----------- ----------- -----------
Net interest income after provision
for loan losses ............................. 2,897 2,460 8,578 7,273
- ---------------------------------------------------------------------- ----------- ----------- ----------- -----------
Non-interest income:
Service fees on deposits ................................... 108 113 306 332
Other fees and commissions ................................. 86 66 258 241
Gain on sale of other real-estate owned .................... -- -- 294 --
Investment securities gains ................................ 82 -- 399 130
Investment securities losses ............................... -- -- (94) (132)
- ---------------------------------------------------------------------- ----------- ----------- ----------- -----------
Total non-interest income ...................... 276 179 1,163 571
- ---------------------------------------------------------------------- ----------- ----------- ----------- -----------
Non-interest expense:
Salaries and wages ......................................... 982 702 2,823 1,891
Employee benefits .......................................... 212 180 652 556
Occupancy expense .......................................... 371 279 1,036 759
Furniture and equipment .................................... 240 155 684 395
Other ...................................................... 695 627 2,153 2,134
- ---------------------------------------------------------------------- ----------- ----------- ----------- -----------
Total non-interest expense ..................... 2,500 1,943 7,348 5,735
- ---------------------------------------------------------------------- ----------- ----------- ----------- -----------
Income before income taxes ..................... 673 696 2,393 2,109
Income tax expense ................................................... 255 174 805 552
- ---------------------------------------------------------------------- ----------- ----------- ----------- -----------
Net Income ..................................... $ 418 $ 522 $ 1,588 $ 1,557
====================================================================== =========== =========== =========== ===========
Per Common Share:
Net income - primary ....................................... $ 0.21 $ 0.27 $ 0.80 $ 0.84
Net income - fully diluted ................................. $ 0.20 $ 0.27 $ 0.79 $ 0.83
Cash Dividends ............................................. $ 0.12 $ 0.12 $ 0.36 $ 0.36
Weighted average shares outstanding (in thousands):
Primary .................................................... 2,009 1,902 1,988 1,852
Fully Duluted ............................................. 2,054 1,958 2,009 1,871
See notes to consolidated condensed financial statements.
(4)
CARNEGIE BANCORP AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended September 30,
-------------------------------
1996 1995
-------------- --------------
(000's omitted)
Cash flows from operating activities:
Net income .................................................... $ 1,588 $ 1,557
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .................. 698 361
Provision for loan losses ...................... 1,161 242
Accretion of investment discount ............... (8) (15)
Amortization of investment premium ............. 314 205
Gain on sale of investment securities .......... (399) (130)
Loss on sale of investment securities .......... 94 132
Loss on disposal of equipment .................. 6 --
Gain on sale of other real-estate owned ........ (294) --
Increase in accrued interest receivable
and other assets ........................ (1,115) (695)
Increase in accrued interest payable and
other liabilities ....................... 96 170
- ----------------------------------------------------------------------- ------------- -------------
Net cash provided by operating activities 2,141 1,827
- ----------------------------------------------------------------------- ------------- -------------
Cash flows from investing activities:
Proceeds from sale of securities available-for-sale ........... 35,865 14,527
Proceeds from maturities and principal paydowns of
investment securities ................................. 12,413 2,038
Proceeds from sale of other real-estate owned ................. 622 --
Purchase of securities available-for-sale ..................... (11,865) (36,619)
Purchase of securities held-to-maturity ....................... (20,853) (6,185)
Net increase in loans made to customers ....................... (79,733) (7,110)
Cash collected on previously charged-off loans ................ 6 42
Additions to premises and equipment ........................... (1,081) (2,196)
- ----------------------------------------------------------------------- ------------- -------------
Net cash used in investing activities ... (64,626) (35,503)
- ----------------------------------------------------------------------- ------------- -------------
Cash flows from financing activities:
Net increase in deposits ...................................... 47,748 34,661
Net increase in borrowed funds ................................ 26,925 2,000
Net proceeds from common stock issued on
exercise of options and warrants ...................... 25 288
Cash paid for dividends ....................................... (653) (629)
- ----------------------------------------------------------------------- ------------- -------------
Net cash provided by financing activities 74,045 36,320
- ----------------------------------------------------------------------- ------------- -------------
Net change in cash and cash equivalents ............................... 11,560 2,644
Cash and cash equivalents as of beginning of year ..................... 10,207 6,815
- ----------------------------------------------------------------------- ------------- -------------
Cash and cash equivalents as of end of period ......................... $ 21,767 $ 9,459
======================================================================= ============= =============
Supplemental disclosures:
Cash paid during the period for:
Interest ...................................................... $ 7,342 $ 6,010
Income taxes .................................................. $ 877 $ 639
See notes to consolidated condensed financial statements.
(5)
CARNEGIE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)
NOTE A - BASIS OF PRESENTATION
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 nine months ended September 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
The Company classifies its investments in accordance with 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, 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
(6)
CARNEGIE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)
Continued
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 September 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 September 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 September 30, 1996 and December 31, 1995.
Investment Securities Portfolio
September 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 ......... $ 9,035 $ 9,058 $ 5,986 $ 5,864
Mortgage-backed agencies ............ 14,620 14,250 16,072 15,632
States & political subdivisions ..... -- -- 579 579
Other securities .................... -- -- 8,015 7,952
------------ ------------ ------------ ------------
Total investment securities ......... $ 23,655 $ 23,308 $ 30,652(1) $ 30,027
============ ============ ============ ============
(1) Net unrealized losses of $397 thousand, net of a tax benefit of $228
thousand, were reported as a reduction to stockholders' equity at
September 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
nine months of 1996, securities totaling $20,853,000 were classified as
held-to-maturity and securities totaling $11,865,000 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
September 30, 1996 and December 31, 1995.
Loan Portfolio By Type of Loan
September 30, 1996 December 31, 1995
------------------ ------------------
Amount % Amount %
-------- ----- -------- -----
(Dollars in thousands)
Commercial and financial ......... $ 75,645 31.1% $ 44,432 27.0%
Real estate construction ......... 16,561 6.8% 12,483 7.6%
Residential mortgage ............. 21,413 8.8% 21,788 13.3%
Commercial mortgage .............. 118,981 48.8% 77,701 47.3%
Installment ...................... 11,045 4.5% 7,937 4.8%
-------- ----- -------- -----
$243,645 100.0% $164,341 100.0%
======== ===== ======== =====
The following table represents activity in the allowance for loan losses
for the nine month period ended September 30, 1996 and 1995.
Allowance For Loan Losses
Nine Months Ended
September 30,
-------------------------
1996 1995
---------- ----------
(Dollars in thousands)
Balance - beginning of period .................... $ 1,754 $ 1,400
Charge-offs ...................................... (429) (44)
Recoveries ....................................... 6 42
---------- ----------
Net (charge-offs) recoveries ..................... (423) (2)
Provision for loan losses ........................ 1,161 242
---------- ----------
Balance - end of period .......................... $ 2,492 $ 1,640
========== ==========
(8)
NOTE D - ACCOUNTING FOR LOAN IMPAIRMENT
In May 1993, the FASB issued SFAS NO. 114, "Accounting by Creditors for
Impairment of a Loan." SFAS No. 114 as amended by SFAS No. 118, "Accounting by
Creditors for Impairment of a Loan--Income Recognition and Disclosures," was
effective for fiscal years beginning after December 15, 1994 and generally
requires all creditors to account for impaired loans at the present value of the
expected future cash flows discounted at the loan's effective interest rate or
at the loan's fair value based upon the underlying collateral if the loan is
collateral dependent.
Factors influencing management's recognition of impairment include decline in
collateral value; lack of performance under contract loan agreement terms,
including evaluation of late payments or non-payment; lack of performance under
other creditor's agreements or obligations (i.e. non-payment of taxes and
non-payment of loans to other creditors); financial decline significantly
different from status at loan inception; litigation or bankruptcy of borrower;
significant change in ownership or loss of guarantors to the detriment of credit
quality. A minimal delay or shortfall is defined by the bank as a delay of less
than 90 days in making full contractual payment, when there are no significant
credit weaknesses which will further delay or stop the borrower from repaying
principal and interest in full under original contract terms.
All impaired loans as recognized under the above evaluation are considered to
have some probability that contract principal, interest, or both may not be
repaid in full. Non-accrual loans are those impaired loans where management
recognizes some probability that contract principal may not be repaid in full.
Management does not carry loans in excess of 90 days delinquent on accrual, and
all such loans are classified as non-accrual. Exceptions may be made if a loan
is adequately collateralized and in the process of collection. As such, SFAS No.
114 has not impacted credit risk analysis. SFAS No. 114 analysis is done
quarterly, and supports management loan loss allocation.
Charge-off policy. An asset which no longer retains any value to the bank will
be charged off immediately. Assets whose value has depreciated will be charged
off in part. Potential recovery against these assets is considered marginal, and
recovery is expected to be long-term. All charge-offs must be approved by
management and reported to the Board of Directors. Generally, Bank policy is to
aggresively pursue any likely recovery against charged-off assets.
Accounting policy for interest income recognition. Impaired loans may be on
accrual if management does not forsee loss of principal in part or whole.
Interest on impaired loans is not capitalized and funded by the bank. Impaired
loans on non-accrual are recognized as those which may sustain some loss of
principal due to impairment of credit or collateral quality. On such loans,
payments by the borrower are recorded by the Bank as a reduction of principal,
and interest is not accrued as income. Interest income will only be recognized
after principal is repaid in full.
Homogeneous loans. Management evaluates all loans on an individual basis for
impairment and application of SFAS No. 114.
Loans aggregated for evaluation under SFAS No. 114 are those loans risk rated by
the Bank as substandard and doubtful. At September 30, 1996 the recorded
investment in loans for which impairment has been recognized totaled $3,577,000
of which $1,070,000 related to loans with no valuation allowance because the
loans have been partially written down through charge-offs and $2,507,000
related to loans with a corresponding valuation allowance of $219,000. The total
amount of impaired loans measured using the present value of expected future
cash flows amounted to $174,000 and the total amount of impaired loans measured
using the fair value of the loan's collateral amounted to $3,403,000. For the
period ended September 30, 1996, the average recorded investment in impaired
loans was approximately $3,713,000. The Company recognized $0 of interest on
impaired loans on a cash basis, during the portion of the period that they were
impaired.
(9)
CARNEGIE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)
Continued
NOTE E - 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. The adoption of SFAS No. 123 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. No stock options were awarded during the first nine
months of 1996.
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities.
SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities", was issued by FASB. This Statement is
effective for transfers and servicing of financial assets and
extinguishment of liabilities occurring after December 31, 1996. Earlier or
retroactive application of this Pronouncement is not permitted. Adoption of
this Pronouncement is not expected to have a material impact on the
Company's consolidated financial statements.
(10)
CARNEGIE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)
Continued
NOTE F - RECLASSIFICATIONS
Certain amounts in the financial statements presented for prior periods have
been reclassified to conform with the 1996 presentation.
NOTE G - 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 H - LONG-TERM DEBT
The composition of long-term debt follows:
September 30,
-----------------------
1996 1995
---------- ----------
(Dollars in thousands)
6.267% Federal Home Loan Bank
Borrowing, due 4/22/98 ........................ $ 10,000 $ --
6.50% Salomon Bros. Repurchase
Agreement, due 4/19/99 ........................ 4,425 --
---------- ----------
$ 14,425 $ 0
========== ==========
NOTE I - 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, or 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.
(11)
CARNEGIE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)
Continued
On October 3, 1996 Carnegie and Regent announced that the acquisition of Regent
National Bank is expected to close during April of 1997. Amendments to the
original agreement dated August 30, 1995 have been signed. Approvals of the
transaction will be sought from regulatory authorities and from both
organizations' shareholders at meetings expected to be held in the first quarter
of 1997. The combined bank will bear the Carnegie Bank, N.A. name.
Under the terms of the Amendment Agreement, Regent common and preferred stock
will be exchanged for Carnegie common stock at a ratio determined at the month
end prior to closing based upon the respective per share book values of each of
Carnegie and Regent, subject to certain agreed upon adjustments. In addition,
the Amendment requires that Regent remove the automobile insurance premium
financing (IPF) loans as of the effective time of the merger into a liquidating
trust.
(12)
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 September 30, 1996 increased by $74.9 million, or 29.9%, to
$325.5 million compared to $250.6 million at December 31, 1995. Total
assets averaged $270.5 million in the first nine months of 1996, a $45.8
million, or 20.4%, increase from the 1995 full year average of $224.7
million. Average loans increased $40.7 million, or 27.5% to $188.5 million
in the first nine months of 1996, from the 1995 full year average of $147.8
million. Average investment securities increased by $7.3 million, or 12.6%
to $65.4 million; average Federal funds sold decreased by $7.0 million to
$1.0 million; and the average of all other assets increased by $4.1
million, or 30.4%, to $17.6 million during the first nine months of 1996
compared to the full year 1995 averages.
These increases in average assets were funded primarily by a $17.6 million,
or an 8.8% increase in average deposits and a $26.4 million increase in
average borrowed funds, in in addition to the reduction in average Federal
funds sold, during the first nine months of 1996 compared to the full year
1995 averages. The increase in average borrowed funds was the most cost
effective means of funding the increase in average assets. The primary
source of borrowed funds was short and long term advances and repurchase
agreements from the Federal Home Loan Bank of New York. It is the intention
of management to use both its borrowing capacity and deposit fund raising
capacity in a proportion that best controls cost, meets liquidity needs,
and satisfies asset/liability management objectives. During 1996, the
Company utilized borrowed funds to temporarily fund loan growth, as well as
for asset/liability management purposes. Management anticipates that some
of these borrowed funds will be repaid as deposits are generated from four
recently opened branch offices.
Lending Activity
Total loans at September 30, 1996 were $243.6 million, a 48.3%, or $79.3
million increase from December 31, 1995. Average loans increased by $40.7
million, or 27.5%, to $188.5 million in the first nine 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 $38.5
million in commercial loans and commercial mortgages, $2.5 million in
residential mortgages and home equity loans and a decrease of $158 thousand
in other installment loans.
The 32.2% 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 and in
part to the purchase of loan participations from Regent National Bank.
Additionally, Carnegie opened a new branch office in Toms River, New Jersey
in the fourth quarter of 1995, a new office in Montgomery and a new office
in Flemington, New Jersey and a new office in Langhorne, Pennsylvania
during the first six months of 1996. Having strong regional lenders on site
in these offices has helped to provide the
(13)
growth Carnegie has experienced during the first nine months of 1996.
Management intends to continue to pursue quality loans in all lending
categories within our market area.
Carnegie purchased $27 million in participations in commercial and 1-4 family
loans from Regent National Bank, during September 1996, with servicing retained
by Regent. These loans were underwritten to Carnegie's underwriting criteria,
yield an average of 8.93% and were, on average, originated 14 months ago. As
part of its proposed acquisition of Regent Bancshares Corp., Carnegie has
conducted due diligence on Regent's commercial and residential loan portfolio.
Carnegie purchased another $6.7 million in loan participations from Regent
during October 1996. Carnegie does not anticipate purchasing additional
participations from Regent pending the consumation of the proposed merger. The
participations were funded through an increase in certificates of deposit, which
is discussed below.
Allowance for Loan Losses
The allowance for loan losses was $2.5 million, or 1.02% of total loans at
September 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
$435 thousand, was $3.1 million, or 1.3% of total loans at Sep- tember 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.
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 $7.3 million in the first nine
months of 1996 compared to the 1995 full year average. At period end
September 30, 1996 compared to December 31, 1995, investments declined
$16.9 million. During 1996, some of the proceeds of security sales,
principal paydowns and maturities were used to fund loan growth rather than
to fund additional purchases of investment securities. Strong deposit
growth during 1995 was primarily used to fund loan growth, and secondarily
to increase the investment securities portfolio.
During the first nine months of 1996, proceeds from the sale of securities
available-for-sale amounted to $35.9 million, resulting in $305 thousand
gain on the sales, and was offset by the purchase of $32.7 million in
securities, of which $20.9 million were classified as held-to-maturity.
During the first nine months of 1995, proceeds from the sale of securities
available-for-sale were $14.5 million, and the Company purchased $42.8
million of securities, of which $36.9 million were classified as
available-for-sale. Proceeds resulting from the cash flows of mat- urities
and principal paydowns on mortgage-backed securities amounted to $12.4
million for the first nine months of 1996 compared to $2.0 million for the
first nine months of 1995.
At September 30, 1996 net unrealized losses in the Company's
available-for-sale securities portfolio amounted to $625 thousand and net
unrealized losses in the held-to-maturity securities portfolio amounted to
$347 thousand. Net unrealized losses of $397 thousand, net of a tax
(14)
benefit of $228 thousand, were reported as a reduction to stockholders'
equity at September 30, 1996.
Deposits
Average total deposits increased by $17.6 million, or 8.8%, to $216.7
million for the nine months ended September 30, 1996 compared to the 1995
full year average of $199.1 million. Changes in the average deposit mix
include a $.9 million, or 2.4% decrease in certificates of deposit over
$100 thousand; a $8.6 million, or 13.5% decrease in money market deposit
accounts; a $15.0 million, or 30.0% increase in consumer certificates of
deposit; a $1.5 million, or 44.1% increase in regular savings; a $2.8
million, or 22.0% increase in NOW account deposits; and a $7.8 million, or
24.1% increase in non-interest bearing demand deposits.
In September 1996, Carnegie funded the purchase of loan participations with
Regent with the issuance of $42.2 million in consumer certificates of
deposit with an average yield of 6.35% and a maturity of seven months.
Deposits are obtained primarily from the market areas which the Company
serves. As of September 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 15.9% and 32.2% of the Company's total assets
at September 30, 1996 and December 31, 1995, respectively.
As shown in the Consolidated Condensed Statements of Cash Flows, the
Company's primary source of funds at September 30, 1996 was from deposit
growth and secondarily through borrowed funds. Deposits increased $47.7
million and $34.7 million, respectively, and borrowed funds increased $26.9
million and $2.0 million, respectively for the nine months ended Septem-
ber 30, 1996 and 1995. During 1996, the Company utilized borrowed funds as
a temporary funding source for loan growth, as well as for asset/liability
management purposes, until sufficient deposits are generated from four
recently opened new branch offices.
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. In addition, the Bank has an overnight line
of credit with the Federal Home Loan Bank of New York in the amount of
$12.4 million. In aggregate with the overnight line, subject to certain
requirements, the Bank may also obtain term advances of up to 25% of the
Bank's assets.
(15)
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 September 30, 1996 totaling $14.4
million is matched against specific loans or investments, for asset and
liability management purposes. The long term debt consists of $10 million
of FHLB of NY term advances with maturities greater than one year, and $4.4
million of repurchase agreements from Solomon Brothers with a maturity
greater than one year.
Capital Resources
Stockholders' equity increased by $123 thousand at September 30, 1996
compared to December 31, 1995. The changes in stockholders' equity during
the nine months ended September 30, 1996 were comprised of net income of
$1.588 million; a change of $837 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 $397
thousand unrealized loss, and was further reduced by cash dividends paid of
$653 thousand and increased by $25 thousand in proceeds from exercised
options and warrants.
During the first nine months of 1996, the Company paid $653 thousand, or
41.1% of net income in cash dividends compared to $629 thousand, or 40.4%
for the same period in 1995. The Company also declared a stock dividend in
April, 1996. Stockholders of record on April 24, 1996 received a 5% stock
dividend on May 15, 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
September 30, 1996 at an exercise price of $13.69 per share. These warrants
expire on August 15, 1997.
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 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 apply certain risk factors
ranging from 0% to 200%, against assets to determine total 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 September 30, 1996, as well as the
regulatory required minimum capital ratios:
(16)
September 30, 1996 Minimum
----------------- Regulatory
Company Bank Requirement
------- ------ -----------
Risk-based Capital:
Tier I capital ratio ................ 8.86% 8.46% 4.00%
Total capital ratio ................. 9.85% 9.46% 8.00%
Leverage ratio ............................ 7.82% 7.46% 3.00%-5.00%
As noted in the above table, the Company's and the Bank's capital ratios
exceed the minimum regulatory requirements.
RESULTS OF OPERATIONS for the nine months ended September 30, 1996 compared
to the nine months ended September 30, 1995
Net Income
For the nine months ended September 30, 1996, Carnegie had net income
before provision for loan losses of $2.4 million, an increase of 37.1% over
net income before provision for loan losses in the comparable period of
1995. After the effect of the provision for loan losses, Carnegie earned
$1.6 million, or $0.80 net income per share on a primary basis and $0.79
per share on a fully diluted basis, for the nine months ended September 30,
1996, compared to net income after taxes of $1.6 million, or $0.84 per
share on a primary basis and $0.83 per share on a fully diluted basis, for
the comparable period of 1995. In connection with the purchase of loan
participations from Regent National Bank discussed above, and in
recognition of internally generated growth in Carnegie's loan portfolio of
$19 million, the Company took a provision for loan losses of $668 thousand
for the three months ended September 30, 1996 and $1.2 million for the nine
months ended September 30, 1996. In 1995, Carnegie did not take an
additional provision during the three months ended September 30, 1995 and
took a provision of $242 thousand for the nine months ended September 30,
1995, when loan growth was moderate. Other factors effecting net income
included a $2.2 million, or 29.6%, increase in net interest income and a
$592 thousand, or 103.7%, increase in non-interest income, partially offset
by a $1.6 million, or 28.1%, increase in non-interest expense and a $253
thousand, or 45.8%, increase in income tax provision.
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 $2.1 million, or 26.0%
for the nine months ended September 30, 1996 compared to the same prior
year period.
(17)
Interest income on a "FTE" basis, increased $3.3 million, or 23.7%, to
$17.4 million for the nine months ended September 30, 1996 compared to
$14.1 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 $3.3 million and an increase in interest income on
investment securities of $489 thousand, offset by rate reductions in the
loan portfolio amounting to $226 thousand, as Carnegie increased loan
volume in part through loan pricing reductions in order to gain greater
market penetration. Interest income was further increased by $132 thousand
due to net rate increases in the investment securities portfolio, as lower
yielding securities were replaced with higher yielding securities; reduced
by $430 thousand due to volume reductions of $426 thousand and rate
reductions of $4 thousand in Federal Funds sold as these funds were used as
a source of funding for loan and investment securities growth; and was
further increased by $63 thousand due to one additional day during the
first quarter of 1996.
Interest expense increased $1.3 million, or 20.7%, for the nine months
ended September 30, 1996 compared to the same prior year period. The
increase in interest expense was due to net volume increases which
accounted for $1.9 million, and an increase of $29 thousand attributable to
one additional day during the first quarter of 1996, offset by a reduction
in interest expense of $640 thousand due to rate decreases resulting from
generally lower market costs of funds.
The interest expense increase due to volume occurred primarily in consumer
certificates of deposit which accounted for $805 thousand, borrowed funds
increases which accounted for $1.3 million, interest expense increases in
other deposits of $97 thousand and was offset by a reduction of $336
thousand due to decreased money market account volume.
In September 1996, Carnegie funded the purchase of the loan participations
with Regent, as previously discussed, with the issuance of $42.2 million in
"no penalty" consumer certificates of deposit with an average yield of
6.35% and a maturity of seven months. Management believes the "no penalty"
feature, which allows for withdrawal prior to maturity without penalty,
makes this product very attractive. Although the average yield was lowered
to 5.82% in October and was further reduced to 5.70%, the product has
continued to grow on a daily basis. Management does not expect significant
run-off at maturity even at lower rates because of the liquidity this
product offers our customers; although management does maintain a
contingency funding plan in place.
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 September 30, 1996 and nine months ended September 30, 1996 compared
to the respective prior year period.
(18)
CARNEGIE BANCORP AND SUBSIDIARY
Consolidated Average Balance Sheets with Resultant Interest and Average Rates
Three Months Ended Three Months Ended
September 30, 1996 September 30, 1995
---------------------------------------- ------------------------------------
Average Interest Average Average Interest Average
Balance Earned Rate Balance Earned Rate
---------- ---------- ---------- ---------- ---------- ----------
ASSETS
- -----------------------------------------
(Dollars in thousands)
Earning Assets:
Federal Funds Sold ................... $ 1,335 $ 18 5.35% $ 11,081 $ 160 5.73%
Investment Securities:
U. S. Government & Agencies ...... 50,915 911 7.10% 38,594 579 5.95%
State & Political Subdivisions(3) 658 18 10.96% 18,725 370 7.84%
Other Securities ................. 6,005 96 6.34% 2,616 48 7.28%
---------- ---------- ---------- ---------- ---------- ----------
Total Investment Securities .. 57,578 1,025 7.06% 59,935 997 6.60%
---------- ---------- ---------- ---------- ---------- ----------
Loans: ............................... (1) (2)
Comm'l Loans & Comm'l Mtgs ....... 178,715 4,570 10.15% 117,707 3,010 10.15%
Residential Mortgages ............ 22,045 449 8.08% 21,514 469 8.65%
Home Equity Loans ................ 5,680 127 8.87% 3,064 80 10.36%
Installment Loans ................ 2,863 72 9.98% 3,140 76 9.60%
---------- ---------- ---------- ---------- ---------- ----------
Total Loans .................. 209,303 5,218 9.89% 145,425 3,635 9.92%
---------- ---------- ---------- ---------- ---------- ----------
Total Earning Assets .............. 268,216 6,261 9.26% 216,441 4,792 8.78%
Non-Interest Earning Assets:
Loan Loss Reserve .................... (2,084) (1,606)
Securities Avail for Sale Valuation .. (735) (725)
All Other Assets ..................... 19,259 13,602
---------- ----------
Total Assets ...................... $ 284,656 $ 227,712
========== ==========
LIABILITIES & EQUITY
- -----------------------------------------
Interest-Bearing Liabilities:
Regular Savings ...................... 5,893 55 3.70% 3,393 29 3.39%
NOW .................................. 17,090 100 2.32% 11,571 78 2.67%
Money Market Accounts ................ 50,367 474 3.73% 58,539 597 4.05%
Commercial Certificates of Deposit ... 37,726 516 5.43% 36,328 522 5.70%
Consumer Certificates of Deposit ..... 64,313 894 5.51% 62,528 970 6.15%
Borrowed Funds ....................... 44,728 643 5.70% 652 10 6.08%
---------- ---------- ---------- ---------- ---------- ----------
Total Interest-Bearing Liabilities 220,117 2,682 4.83% 173,011 2,206 5.06%
Demand Deposits ...................... 41,973 33,655
Other Liabilities .................... 640 703
Mark-to-Market Unrealized Gain (Loss) (465) (459)
Shareholders' Equity ................. 22,391 20,802
---------- ----------
Total Liabilities & Equity ........ $ 284,656 $ 227,712
========== ==========
NET INTEREST INCOME (fully taxable basis) 3,579 2,586
Tax-Equivalent Basis Adjustment (3) .... (15) (126)
---------- ----------
NET INTEREST INCOME ..................... $ 3,565 $ 2,460
========== ==========
NET INTEREST MARGIN (fully taxable basis) 5.29% 4.74%
========== ==========
(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%.
(19)
CARNEGIE BANCORP AND SUBSIDIARY
Consolidated Average Balance Sheets with Resultant Interest and Average Rates
Nine Months Ended Nine Months Ended
September 30, 1996 September 30, 1995
---------------------------------------- ------------------------------------
Average Interest Average Average Interest Average
Balance Earned Rate Balance Earned Rate
---------- ---------- ---------- ---------- ---------- ----------
ASSETS
- ------------------------------------------
(Dollars in thousands)
Earning Assets:
Federal Funds Sold .................... $ 972 $ 39 5.34% $ 10,639 $ 469 5.89%
Investment Securities:
U. S. Government & Agencies ....... 50,237 2,565 6.80% 32,321 1,552 6.42%
State & Political Subdivisions(3) . 9,815 567 7.69% 18,339 1,095 7.98%
Other Securities .................. 5,373 248 6.15% 2,262 100 5.91%
---------- ---------- ---------- ---------- ---------- ----------
Total Investment Securities ... 65,425 3,380 6.88% 52,922 2,747 6.94%
---------- ---------- ---------- ---------- ---------- ----------
Loans: ................................ (1) (2)
Comm'l Loans & Comm'l Mtgs ........ 158,102 11,965 10.08% 117,307 8,994 10.25%
Residential Mortgages ............. 22,126 1,442 8.68% 22,441 1,420 8.46%
Home Equity Loans ................. 5,545 370 8.89% 2,941 231 10.50%
Installment Loans ................. 2,766 208 10.02% 2,858 209 9.78%
---------- ---------- ---------- ---------- ---------- ----------
Total Loans ................... 188,539 13,985 9.88% 145,547 10,854 9.97%
---------- ---------- ---------- ---------- ---------- ----------
Total Earning Assets ............... 254,936 17,404 9.09% 209,108 14,070 9.00%
Non-Interest Earning Assets:
Loan Loss Reserve ..................... (1,905) (1,522)
Securities Avail for Sale Valuation ... (155) (1,532)
All Other Assets ...................... 17,621 13,071
---------- ----------
Total Assets ....................... $ 270,497 $ 219,125
========== ==========
LIABILITIES & EQUITY
- ------------------------------------------
Interest-Bearing Liabilities:
Regular Savings ....................... 4,863 128 3.51% 3,284 78 3.18%
NOW ................................... 15,535 276 2.37% 13,315 296 2.97%
Money Market Accounts ................. 55,297 1,583 3.81% 66,180 2,043 4.13%
Commercial Certificates of Deposit .... 35,914 1,542 5.72% 35,679 1,549 5.80%
Consumer Certificates of Deposit ...... 64,957 2,590 5.31% 46,900 2,090 5.96%
Borrowed Funds ........................ 31,317 1,345 5.72% 2,737 127 6.20%
---------- ---------- ---------- ---------- ---------- ----------
Total Interest-Bearing Liabilities . 207,883 7,464 4.78% 168,095 6,183 4.92%
Demand Deposits ....................... 40,114 30,656
Other Liabilities ..................... 528 840
Mark-to-Market Unrealized Loss ........ (41) (968)
Shareholders' Equity .................. 22,013 20,502
---------- ----------
Total Liabilities & Equity ......... $ 270,497 $ 219,125
========== ==========
NET INTEREST INCOME (fully taxable basis) 9,940 7,887
Tax-Equivalent Basis Adjustment (3) ..... (201) (372)
---------- ----------
NET INTEREST INCOME ...................... $ 9,739 $ 7,515
========== ==========
NET INTEREST MARGIN (fully taxable basis) 5.19% 5.04%
========== ==========
(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%.
(20)
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 September 30, 1996 Nine Months Ended September 30, 1996
Compared to Three Months Ended Compared to Nine Months Ended
September 30, 1995 September 30, 1995
----------------------------- ----------------------------------------
Increase (Decrease) Increase (Decrease)
----------------------------- ----------------------------------------
Volume Rate Net Volume Rate Time Net
------- ------- ------- ------- ------- ------- -------
(Dollars in thousands)
Interest Earned On:
Federal Funds Sold ................ ($ 141) ($ 1) ($ 142) ($ 426) ($ 4) $ 0 ($ 430)
Investment Securities:
U. S. Government & Agencies ... 185 147 332 860 144 9 1,013
State & Political Subdivisions (357) 5 (352) (509) (22) 3 (528)
Other Securities .............. 62 (14) 48 138 10 0 148
------- ------- ------- ------- ------- ------- -------
Total Investment Securities (110) 138 28 489 132 12 633
------- ------- ------- ------- ------- ------- -------
Loans:(1)(2)
Comm'l Loans & Comm'l Mtgs .... 1,560 0 1,560 3,128 (201) 44 2,971
Residential Mortgages ......... 12 (32) (20) (20) 37 5 22
Home Equity Loans ............. 68 (21) 47 205 (67) 1 139
Installment Loans ............. (7) 3 (4) (7) 5 1 (1)
------- ------- ------- ------- ------- ------- -------
Total Loans ............... 1,633 (50) 1,583 3,306 (226) 51 3,131
------- ------- ------- ------- ------- ------- -------
Total Interest Income .......... 1,382 87 1,469 3,369 (98) 63 3,334
------- ------- ------- ------- ------- ------- -------
Interest Paid On:
Regular Savings ................... 21 5 26 38 12 0 50
NOW ............................... 37 (15) 22 49 (71) 2 (20)
Money Market Accounts ............. (83) (40) (123) (336) (130) 6 (460)
Commercial Certificates of Deposit 20 (26) (6) 10 (23) 6 (7)
Consumer Certificates of Deposit .. 28 (104) (76) 805 (315) 10 500
Borrowed Funds .................... 676 (43) 633 1,326 (113) 5 1,218
------- ------- ------- ------- ------- ------- -------
Total Interest Expense ......... 699 (223) 476 1,892 (640) 29 1,281
------- ------- ------- ------- ------- ------- -------
Net Interest Income ............ $ 683 $ 310 $ 993 $ 1,477 $ 542 $ 34 $ 2,053
======= ======= ======= ======= ======= ======= =======
(1) Includes nonperforming loans.
(2) Included in interest income are loan fees.
(21)
Provision for Loan Losses
The provision for loan losses increased to $1.2 million for the first nine
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 and other factors that would have an
impact on future possible losses in the loan portfolio. The allowance for
loan losses totaled $2.5 million, or 1.02% of total loans, and 81.5% of
non-performing loans, and non-performing loans totaled $3.1 million, or
1.3% of total loans at September 30, 1996.
The provision for loan losses was increased to $668 thousand for the third
quarter of 1996 as a result of the acquisition of the loan participations
from Regent, normal Carnegie loan growth and management's evaluation of the
adequacy of the allowance for loan losses to absorb potential losses in the
loan portfolio. Carnegie did not take a provision for loan losses in the
comparable quarter of 1995 due to a moderate level of loan growth during
the period.
Non-Interest Income
Total non-interest income was $1.2 million for the first nine months of
1996 compared to $571 thousand for the first nine months of 1995, an
increase of $592 thousand, or 103.7%. The increase was primarily
attributable to net gains on investment securities sales amounting to $305
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 nine months of 1995. Other service fees
decreased by $9 thousand for the first nine months of 1996 compared to the
same period in 1995.
Non-Interest Expense
Total non-interest expenses increased $1.6 million, or 28.1% for the nine
months ended September 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 four new branch offices 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 $1.0 million, or 42.0%, and was
attributable to increases in the number of employees from 93 full-time
equivalents at September 30, 1995 to 126 full-time equivalents at September
30, 1996, as well as merit and cost of living adjustments. Although the
number of employees increased by over 35% 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 $277 thousand, or 36.5%, for the first nine
months of 1996 compared to the same period in 1995. The increase was
attributable primarily to increased lease expense of $224 thousand,
increased leasehold depreciation expenses of $103 thousand, increased
leasehold maintenance expenses of $22 thousand, and increased utilities
expenses of $13 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 $289 thousand, or 73.2% 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.
(22)
Other expenses increased $19 thousand, or .9%, for the first nine months of
1996 compared to the first nine months of 1995. The increase was
attributable to increased other expenses of $237 thousand, an increase of
12.4%, attributable to the continued growth of the Company, which resulted
in increased supplies, communications and professional expenses, and was
offset by reduced FDIC insurance costs of $218 thousand.
Income Tax Expense
The Company recognized an income tax provision, which includes both Federal
and State taxes, of $805 thousand for the nine months ended September 30,
1996, for an effective income tax rate of 33.6%. This compared to $552
thousand, for an effective income tax rate of 26.2% 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 September 30, 1996
compared to the three months ended September 30, 1995
Net Income
For the three months ended September 30, 1996, Carnegie had net income
before provision for loan losses of $859 thousand, an increase of 64.6%
over comparable net income before provision for loan losses in the
comparable period of 1995. However, in connection with the purchase of loan
participations from Regent National Bank previously discussed, and in
recognition of an internally generated increase in Carnegie's loan
portfolio of $19 million, Carnegie took a provision for loan losses of $668
thousand in the quarter ended September 30, 1996. Carnegie did not take a
provision for loan losses in the comparable period of 1995 due to a
moderate level of loan growth during the period.
After the effect of the provision for loan losses, the Company earned $418
thousand, or $0.21 net income per share on a primary basis and $0.20 on a
fully diluted basis for the quarter ended September 30, 1996 compared to
$522 thousand, or $0.27 for both primary and fully diluted net income per
share for the quarter ended September 30, 1995, a decrease of $104
thousand, or 19.9%. The decrease in net income was primarily due to the
$668 thousand increase in loan loss provision; higher non-interest expenses
which increased $557 thousand, or 28.7%; and increased income taxes of $81
thousand, or 46.6%, partially offset by a $1.1 million, or 44.9% increase
in net interest income and a $97 thousand, or 54.2% increase in
non-interest income.
Net Interest Income
Net interest income for the third quarter of 1996, on a "FTE" basis,
increased $993 thousand, or 38.4%, compared to the third 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 5.29% from
4.74%. The increase in the net interest margin resulted from higher
yielding loan volume and reduced lower yielding Fed Funds sold volume as
the spread between earning assets and interest bearing liabilities
increased from 3.72% in the third quarter of 1995 to 4.43% in the third
quarter of 1996.
(23)
Average earning assets for the third quarter of 1996 increased by $51.8 million
compared to the third quarter of 1995, primarily as a result of a $63.9 million,
or 43.9% increase in average loans, offset by a $9.7 million reduction in
average Federal Funds sold. Funding for the growth in loans came from deposit
growth generated by the Company's maturing branch offices and utilization of
borrowed funds. Total average deposits increased $11.3 million, or 5.5% and
borrowed funds increased $44.1 million.
Provision for Loan Losses
The provision for loan losses was increased to $668 thousand for the third
quarter of 1996 as a result of the acquisition of the loan participations
from Regent, normal Carnegie loan growth and management's evaluation of the
adequacy of the allowance for loan losses to absorb potential losses in the
loan portfolio. Carnegie did not take a provision for loan losses in the
comparable quarter of 1995 due to a moderate level of loan growth during
the period.
Non-Interest Income
Total non-interest income increased $97 thousand, or 54.2%, to $276
thousand for the third quarter of 1996 compared to $179 thousand for the
same quarter of 1995. The increase is primarily attributable to net gains
on investment securities sales amounting to $82 thousand compared to $0
security gains or losses during the third quarter of 1995. This increase
was further effected by a increase in other fees and commissions of $20
thousand and a reduction in service fees on deposits of $5 thousand.
Non-Interest Expense
Total non-interest expense increased $557 thousand, or 28.7%, for the third
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, new branches were opened in Montgomery, New
Jersey , Langhorne, Pennsylvania and Flemington, New Jersey, as well as the
relocation of our Hamilton, New Jersey office to larger facilities in
October, 1996.
Employment costs increased $312 thousand, or 35.4%, for the third 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. Carnegie staff increased from 93 full-time equivalents at
September 30, 1995 to 126 full-time equivalents at September 30, 1996, an
increase of over 35%.
Occupancy expenses increased $92 thousand, or 33.0%, for the third quarter
of 1996 compared to the third 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, an increase of $43 thousand in leasehold depreciation on these
facilities and increased utilities and maintenance costs amounting to $19
thousand.
Furniture and equipment expenses increased $85 thousand, or 54.8%, due
primarily to depreciation on purchases of new computer equipment and other
furniture and equipment, which amounted to $66 thousand, increased
maintenance costs which amounted to $29 thousand, and was offset by a
reduction in non-capitalized minor purchases of $10 thousand.
(24)
Other expenses increased $68 thousand, or 10.8%, for the third quarter of
1996 compared to the third quarter of 1995. The increase was attributable
to the continued growth of the Company, which resulted in increased
supplies, communications, general insurance and professional expenses.
Income Tax Expense
The Company recognized an income tax provision, which includes both Federal
and State taxes, of $255 thousand for the third quarter of 1996, for an
effective income tax rate of 37.9% This compared to $174 thousand, for an
effective income tax rate of 25.0%, 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.
(25)
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., 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, 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.
On October 3, 1996 Carnegie and Regent announced that the
acquisition of Regent National Bank is expected to close during
April of 1997. Amendments to the original agreement dated August
30, 1995 have been signed. Approvals of the transaction will be
sought from regulatory authorities and from both organizations'
shareholders at meetings expected to be held in the first quarter
of 1997. The combined bank will bear the Carnegie Bank, N.A.
name.
Under the terms of the Amendment Agreement, Regent common and
preferred stock will be exchanged for Carnegie common stock at a
ratio determined at the month end prior to closing based upon the
respective per share book values of each of Carnegie and Regent,
subject to certain agreed upon adjustments. In addition, the
Amendment requires that Regent remove the automobile insurance
premium financing (IPF) loans as of the effective time of the
merger into a liquidating trust.
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 July 16,
1996 announcing its second quarter results of operations.
(26)
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: November 12, 1996 By: RICHARD P. ROSA
--------------------------------
Senior Vice President
and Chief Financial Officer
(27)