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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
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(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 1997
[ ] 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
incorporation or organization) Identification No.)
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 -- 2,090,046 SHARES OUTSTANDING AS OF APRIL 25, 1997
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INDEX
CARNEGIE BANCORP AND SUBSIDIARY
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Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets at
March 31, 1997 (Unaudited) and December 31, 1996 ............ 3
Consolidated Condensed Statements of Income for the three
months ended March 31, 1997 and 1996 (Unaudited) ............ 4
Consolidated Condensed Statements of Cash Flows for the
three months ended March 31, 1997 and 1996 (Unaudited) ...... 5
Notes to Consolidated Condensed Financial Statements........... 6 - 11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ................................... 12 - 21
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 ............................................. 22
Item 6. Exhibits and Reports on Form 8-K
a. Exhibit 27 -- Financial Data Schedule .................... 22
b. Reports on Form 8-K ...................................... 22
SIGNATURES ............................................................ 23
CARNEGIE BANCORP AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
March 31, 1997 December 31,
(Unaudited) 1996
----------- ------------
(Dollars in thousands)
ASSETS
Cash and cash equivalents:
Cash and due from banks..................................... $ 12,906 $ 16,745
Federal funds sold.......................................... 18,425 --
-------- --------
Total cash and cash equivalents .................. 31,331 16,745
-------- --------
Investment Securities:
Available for sale.......................................... 52,792 30,110
Held to maturity (fair value $22,750 at March 31,
1997 and $23,258 at December 31, 1996).................... 22,932 23,264
------- -------
Total investment securities ...................... 75,724 53,374
------- -------
Loans, net of allowance for loan losses of $2,761 at
March 31, 1997 and $2,665 at December 31, 1996.............. 266,378 263,797
Premises and equipment, net................................... 4,715 4,482
Other real estate owned....................................... 644 473
Accrued interest receivable and other assets.................. 3,871 4,486
-------- --------
TOTAL ASSETS ..................................... $382,663 $343,357
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing demand deposits........................ $43,410 $42,372
Interest bearing deposits:
Savings deposits.......................................... 177,617 139,671
Other time deposits....................................... 60,357 62,008
Certificates of deposit $100,000 and over................. 60,223 58,511
-------- --------
Total deposits ................................... 341,607 302,562
------- -------
Short-term borrowings......................................... -- 1,000
Long-term debt................................................ 14,425 14,425
Accrued interest payable and other liabilities................ 1,860 1,628
-------- --------
Total liabilities ................................ 357,892 319,615
-------- --------
Commitments and contingencies
Stockholders' equity:
Common stock, no par value, authorized 5,000,000 shares;
issued and outstanding 2,080,526 at March 31, 1997
and 1,940,942 at December 31, 1996...................... 10,403 9,705
Capital surplus........................................... 14,407 12,711
Undivided profits......................................... 193 1,530
Net unrealized holding (losses) on securities
available for sale...................................... (232) (204)
-------- --------
Total stockholders' equity ....................... 24,771 23,742
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $382,663 $343,357
======== ========
See accompanying notes to consolidated condensed financial statements.
(3)
CARNEGIE BANCORP AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited)
Dollars in thousands, except per share data
Three Months Ended
March 31,
------------------
1997 1996
------ ------
Interest income:
Loans, including fees ............................... $6,304 $4,252
Federal funds sold .................................. 113 10
Investment securities:
Taxable .......................................... 959 839
Tax-exempt ....................................... 69 243
------ ------
Total interest income ......................... 7,445 5,344
------ ------
Interest expense:
Savings deposits .................................... 1,693 677
Other time deposits ................................. 960 849
Certificates of deposit $100,000 and over ........... 743 491
Short-term borrowings ............................... 23 310
Long-term debt ...................................... 226 --
------ ------
Total interest expense ........................ 3,645 2,327
------ ------
Net interest income ........................... 3,800 3,017
Provision for loan losses .............................. 146 172
------ ------
Net interest income after provision
for loan losses ............................ 3,654 2,845
------ ------
Non-interest income:
Service fees on deposits ............................ 114 90
Other fees and commissions .......................... 164 81
Investment securities gains ......................... -- 195
Investment securities losses ........................ (91) (67)
------ ------
Total non-interest income ..................... 187 299
------ ------
Non-interest expense:
Salaries and wages .................................. 1,054 862
Employee benefits ................................... 278 214
Occupancy expense ................................... 368 327
Furniture and equipment ............................. 270 211
Other ............................................... 723 666
------ ------
Total non-interest expense .................... 2,693 2,280
------ ------
Income before income taxes .................... 1,148 864
Income tax expense ..................................... 381 258
------ ------
Net Income .................................... $ 767 $ 606
====== ======
Per Common Share:
Net income -- primary ............................... $ 0.33 $ 0.29
Net income -- fully diluted ......................... $ 0.33 $ 0.29
Cash Dividends ...................................... $ 0.14 $ 0.12
Weighted average shares outstanding (in thousands):
Primary ............................................. 2,321 2,099
Fully Diluted ....................................... 2,321 2,099
See accompanying notes to consolidated condensed financial statements.
(4)
CARNEGIE BANCORP AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended
March 31,
--------------------
1997 1996
-------- --------
(000's omitted)
Cash flows from operating activities:
Net income ........................................... $ 767 $ 606
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .................... 269 207
Provision for loan losses ........................ 146 172
Accretion of investment discount ................. (25) (4)
Amortization of investment premium ............... 34 141
Gain on sale of available-for-sale securities..... -- (195)
Loss on sale of available-for-sale securities .... 91 67
Decrease (increase) in accrued interest
receivable and other assets .................... 632 (375)
Increase (decrease) in accrued interest
payable and other liabilities .................. 232 (234)
-------- --------
Net cash provided by operating activities ... 2,146 385
-------- --------
Cash flows from investing activities:
Proceeds from sale of securities available-for-sale .. 6,636 18,999
Proceeds from maturities and principal paydowns of
investment securities ............................. 771 1,291
Purchase of securities available-for-sale ............ (29,902) (3,004)
Purchase of securities held-to-maturity .............. -- (11,823)
Net increase in loans made to customers .............. (2,900) (17,839)
Cash collected on previously charged-off loans ....... 2 2
Additions to premises and equipment .................. (502) (446)
-------- --------
Net cash used in investing activities ....... (25,895) (12,820)
-------- --------
Cash flows from financing activities:
Net increase in deposits ............................. 39,045 25,481
Net decrease in short term borrowings ................ (1,000) (7,500)
Proceeds from common stock issued on exercise
of options and warrants ............................ 576 --
Cash paid for dividends .............................. (286) (210)
-------- --------
Net cash provided by financing activities ... 38,335 17,771
-------- --------
Net change in cash and cash equivalents ................ 14,586 5,336
Cash and cash equivalents as of beginning of year ...... 16,745 10,207
-------- --------
Cash and cash equivalents as of end of period .......... $ 31,331 $ 15,543
======== ========
Supplemental disclosures:
Cash paid during the period for:
Interest ............................................. $ 3,492 $ 2,315
Income taxes ......................................... $ 0 $ 0
See accompanying 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 preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities as of the
financial statement date and the reported amounts of revenues and expenses
during the reporting period. Since management's judgement involves making
estimates concerning the likelihood of future events, the actual results could
differ from those estimates which will have a positive or negative effect on
future period results. 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, 1996.
The results for the three months ended March 31, 1997 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1997.
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 based on the effective
yield method. Realized gains and losses from the sale of securities available
for sale are determined on a specific identification cost basis.
(6)
CARNEGIE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)--Continued
Management determines the appropriate classification of securities at the time
of purchase. At March 31, 1997 and December 31, 1996, a majority of the
Company's investment securities was classified as available for sale. Due to
this classification, the Company's stockholders' equity will be affected by
changing interest rates which affect the market price of the Company's
securities available for sale. At March 31, 1997 and December 31, 1996, no
investment securities were classified as trading securities.
The following tables present the book values, market values and gross unrealized
gains and losses of the Company's investment securities portfolio as of March
31, 1997 and December 31, 1996.
March 31, 1997
-------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- -------
(Dollars in thousands)
Securities available for sale (1):
U.S. Government ................. $21,559 $ -- ($125) $21,434
Mortgage-backed securities ...... 15,491 42 ( 226) 15,307
Obligations of State and
Political Subdivisions ........ 8,060 -- -- 8,060
Other securities ................ 8,049 -- ( 58) 7,991
------- ---- ---- -------
$53,159 $ 42 ($409) $52,792
======= ==== ==== =======
Securities held to maturity:
U.S. Government ................. $ 9,036 $ 56 ($ 9) $ 9,083
Mortgage-backed securities ...... 13,896 -- ( 229) 13,667
------- ---- ---- -------
$22,932 $ 56 ($238) $22,750
======= ==== ==== =======
- ----------
(1) Net unrealized losses of $232 thousand, net of a tax benefit of $135
thousand, were reported as a reduction to stockholders' equity at March 31,
1997.
December 31, 1996
-------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- -------
(Dollars in thousands)
Securities available for sale (2):
U.S. Government ................. $ 5,986 $ -- ($ 50) $ 5,936
Mortgage-backed securities ...... 15,524 49 ( 267) 15,306
Obligations of State and
Political Subdivisions ........ 890 -- -- 890
Other securities ................ 8,032 -- ( 54) 7,978
------- ---- ---- -------
$30,432 $ 49 ($371) $30,110
======= ==== ==== =======
Securities held to maturity:
U.S. Government ................. $ 9,035 $208 -- $ 9,243
Mortgage-backed securities ...... 14,229 -- ( 214) 14,015
------- ---- ---- -------
$23,264 $208 ($214) $23,258
======= ==== ==== =======
- ----------
(2) Net unrealized losses of $204 thousand, net of a tax benefit of $118
thousand, were reported as a reduction to stockholders' equity at December
31, 1996.
(7)
CARNEGIE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)--Continued
NOTE C -- LOANS AND ALLOWANCE FOR LOAN LOSSES
The following table summarizes the components of the loan portfolio as of March
31, 1997 and December 31, 1996.
LOAN PORTFOLIO BY TYPE OF LOAN
March 31, 1997 December 31, 1996
------------------- -------------------
Amount % Amount %
-------- ------ -------- ------
(Dollars in thousands)
Commercial and financial........ $ 79,604 29.6% $ 79,907 30.0%
Real estate construction........ 15,872 5.9% 16,905 6.3%
Residential mortgage............ 24,681 9.2% 23,173 8.7%
Commercial mortgage............. 137,081 50.9% 133,908 50.3%
Installment..................... 11,901 4.4% 12,569 4.7%
-------- ------ -------- ------
$269,139 100.0% $266,462 100.0%
======== ===== ======== =====
The following table represents activity in the allowance for loan losses for the
three month period ended March 31, 1997 and 1996.
ALLOWANCE FOR LOAN LOSSES
Three Months Ended
March 31,
----------------------
1997 1996
------ ------
(Dollars in thousands)
Balance -- beginning of period ................... $2,665 $1,754
Charge-offs ...................................... (52) (107)
Recoveries ....................................... 2 2
------ ------
Net (charge-offs) recoveries ..................... (50) (105)
Provision for loan losses ........................ 146 172
------ ------
Balance -- end of period ......................... $2,761 $1,821
====== ======
NOTE D -- ACCOUNTING FOR LOAN IMPAIRMENT
Loans aggregated for evaluation under SFAS No. 114 are those loans risk rated by
the Bank as substandard and doubtful. At March 31, 1997, the recorded investment
in loans for which impairment has been recognized totaled $4,737,000 of which
$1,070,000 related to loans with no valuation allowance because the Bank expects
repayment in full and $3,667,000 is related to loans with a corresponding
valuation allowance of $361,000. The total amount of impaired loans measured
using the present value of expected future cash flows amounted to $699,000 and
the total amount of impaired loans measured using the fair value of the loan's
collateral amounted to $4,038,000. For the quarter ended March 31, 1997, the
average recorded investment in impaired loans was approximately $4,520,000. The
Company recognized no income on impaired loans during the portion of the year
that they were impaired.
(8)
CARNEGIE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)--Continued
At December 31, 1996, the recorded investment in loans for which impairment has
been recognized totaled $4,175,000 of which $1,070,000 related to loans with no
valuation allowance because the Bank expects repayment in full and $3,105,000 is
related to loans with a corresponding valuation allowance of $315,000. The total
amount of impaired loans measured using the present value of expected future
cash flows amounted to $714,000 and the total amount of impaired loans measured
using the fair value of the loan's collateral amounted to $3,461,000. For the
year ended December 31, 1996, the average recorded investment in impaired loans
was approximately $3,523,000. The Company recognized $15,000 of interest on
impaired loans on a cash basis, during the portion of the year that they were
impaired.
NOTE E -- RECLASSIFICATIONS
Certain amounts in the financial statements presented for prior periods have
been reclassified to conform with the 1997 presentation.
NOTE F -- DIVIDENDS
The Board of Directors declared both a stock dividend and a cash dividend in
January, 1997. Stockholders of record on February 12, 1997 received a 5% stock
dividend on March 19, 1997 and stockholders of record on February 19, 1997
received a $.14 per share cash dividend, paid on March 19, 1997. Weighted
average shares outstanding and earnings per share have been retroactively
adjusted to reflect the stock dividend.
The Board of Directors also declared a second quarter cash dividend of $.14 per
share on April 23, 1997. The dividend will be payable on June 18, 1997 to
shareholders of record on May 21, 1997.
NOTE G -- STOCK WARRANTS
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. At March 31, 1997 there were 563,282 warrants
outstanding. As adjusted for the Company's 1995, 1996, and 1997 5% stock
dividends these warrants are convertible into 652,069 shares of common stock
which is equivalent to an effective price per share of approximately $13.04.
(9)
CARNEGIE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)--Continued
NOTE H -- SHORT-TERM BORROWINGS
The composition of short-term borrowings follows:
March 31, December 31,
1997 1996
-------- ------------
(Dollars in thousands)
Overnight Federal funds purchased
-- balance...................................... $ -- $ 1,000
-- weighted average rate........................ -- 7.38%
-- maturity date................................ -- 1/02/97
NOTE I -- LONG-TERM DEBT
The composition of long-term debt follows:
March 31, December 31,
1997 1996
-------- ------------
(Dollars in thousands)
6.27% fixed rate term borrowing with Federal
Home Loan Bank-NY, due 4/22/98............... $10,000 $10,000
6.50% fixed rate repurchase agreement
with Salomon Bros., due 4/19/99.............. 4,425 4,425
------- -------
$14,425 $14,425
======= =======
NOTE J -- MERGER AGREEMENT TERMINATED
On January 15, 1997 Carnegie Bancorp announced the termination of the Amended
and Restated Agreement and Plan of Merger that had provided for the merger of
Regent Bancshares Corp. into Carnegie Bancorp and the concurrent merger of each
company's respective subsidiary banks.
NOTE K -- RECENTLY ISSUED ACCOUNTING STANDARDS
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS
AND EXTINGUISHMENTS OF LIABILITIES.
FASB has issued SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities", as amended by SFAS No.
127, "Deferral of the Effective Date of Certain Provisions of SFAS 125",
effective for transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996. Earlier or retroactive
application is not permitted. This Statement provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishments of
liabilities based on consistent application of a financial-components approach
that focuses on control. Adoption of this pronouncement did not have a material
impact on the Company's consolidated financial statements.
(10)
CARNEGIE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)--Continued
EARNINGS PER SHARE.
Issued in March, 1997, SFAS No. 128, "Earnings per Share", establishes standards
for computing and presenting earnings per share (EPS) and applies to entities
with publicly held common stock or potential common stock. This Statement
simplifies the standards for computing earnings per share previously found in
APB Opinion No. 15, "Earnings per Share", and makes them comparable to
international EPS standards. It replaces the presentation of primary EPS with a
presentation of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. This Statement is effective for financial statements
issued for periods ending after December 15, 1997, including interim periods;
earlier application is not permitted. This Statement requires restatement of all
prior-period EPS data presented. Adoption of this pronouncement is not expected
to have a material impact on the Company's consolidated financial statements.
DISCLOSURE OF INFORMATION ABOUT CAPITAL STRUCTURE.
FASB has also issued SFAS No. 129, "Disclosure of Information about Capital
Structure", establishing standards for disclosing information about an entity's
capital structure. This Statement continues the previous requirements to
disclose certain information about an entity's capital structure found in APB
Opinions No. 10, "Omnibus Opinion - 1966", and No. 15, "Earnings per Share", and
FASB Statement No. 47, "Disclosure of Long-Term Obligations", for entities that
were subject to the requirements of those standards. This Statement eliminates
the exemption of nonpublic entities from certain disclosure requirements of
Opinion No. 15 as provided by FASB Statement No. 21, "Suspention of the
Reporting of Earnings per Share and Segment Information by Nonpublic
Enterprises". It supersedes specific disclosure requirements of Opinions No. 10
and No. 15 and Statement No. 47 and consolidates them in this Statement for ease
of retrieval and for greater visibility to nonpublic entities. This Statement is
effective for financial statements issued for periods ending after December 15,
1997. It contains no change in disclosure requirements for entities that were
previously subject to the requirements of Opinions No. 10 and No. 15 and
Statement No. 47 and therefore its adoption will have no effect on the Company's
consolidated financial statements.
(11)
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 included elsewhere herein.
FINANCIAL CONDITION
Total assets at March 31, 1997 increased by $39.3 million, or 11.4%, to $382.7
million compared to $343.4 million at December 31, 1996. Total assets averaged
$352.9 million in the first three months of 1997, a $67.1 million, or 23.5%,
increase from the 1996 full year average of $285.8 million. Average loans
increased $62.0 million, or 30.2%, to $267.5 million in the first three months
of 1997, from the 1996 full year average of $205.5 million. Average investment
securities decreased by $2.8 million, or 4.5%, to $59.7 million; average
Federal funds sold increased by $6.8 million to $8.8 million; and the average
of all other assets increased by $1.8 million, or 9.9%, to $19.9 million
during the first three months of 1997 compared to the full year 1996 averages.
These increases in average assets were funded primarily by a $78.6 million, or
33.9%, increase in average deposits, as the first quarter of 1997 average
deposits increased to $310.7 million from the full year 1996 average of $232.1
million. The decrease in average borrowed funds from $30.9 million for the
1996 full year average to $16.1 million during the first three months of 1997,
an average decrease of $14.8 million, or 91.9%, was also attributable to the
increase in average deposits.
It is the intention of management to use both its borrowing capacity and
deposit raising capacity in a proportion that best controls cost, meets
liquidity needs, and satisfies asset/liability mananagement objectives. During
1996, the Company utilized borrowed funds to temporarily fund loan growth, as
well as for asset/liability management purposes. During the first quarter of
1997, the Company utilized deposits generated both from recently opened branch
offices and from promotional programs in the Bank's existing offices to raise
deposits, to fund securities purchases and to repay borrowings.
LENDING ACTIVITY
Total loans at March 31, 1997 were $269.1 million, a 1.0%, or $2.6 million
increase from December 31, 1996. Average loans increased by $62.0 million, or
30.2%, to $267.5 million in the first three months of 1997 compared to the
1996 full year average. Changes in the composition of the average loan
portfolio during the period included increases of $57.2 million in commercial
loans and commercial mortgages, $1.9 million in residential mortgages and an
increase of $3.0 million in other installment loans.
The 32.8% increase in average commercial loans and commercial mortgages over
the 1996 full year averages is partially attributable to the greater
penetration of the marketplace and an improvement in the general economic
environment in New Jersey and partially to the purchase of $32.8 million of
loan participations from Regent National Bank in September and October, 1996,
and Carnegie's purchase of the remaining balance of $3.3 million in these
loans in
(12)
January, 1997. 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 growth Carnegie has experienced during 1996
and has contributed to the higher average loan volume in late 1996 and early
1997. Management intends to continue to pursue quality loans in all lending
categories within the Company's market area.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses was $2.8 million, or 1.03% of total loans, at
March 31, 1997 compared to $2.7 million, or 1.00% of total loans, at December
31, 1996. The balance of non-performing loans, which includes non-accrual
loans and excludes accruing loans past due 90 days or more of $427 thousand,
was $5.0 million, or 1.9% of total loans at March 31, 1997. This compares to
non-performing loans, excluding accruing loans past due 90 days or more of
$839 thousand, of $3.3 million, or 1.2% of total loans at December 31, 1996.
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 decreased by $2.8 million in the first three
months of 1997 compared to the 1996 full year average. At period end March 31,
1997 compared to December 31, 1996, investments increased $22.4 million, or
41.9%. 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 the fourth
quarter of 1996 and first quarter of 1997 was primarily used to reduce
borrowed funds, and secondarily to increase the investment securities
portfolio.
During the first three months of 1997, proceeds from the sale of securities
available-for-sale amounted to $6.6 million, resulting in a $91 thousand loss
on the sales, and was offset by the purchase of $29.9 million in securities,
all of which were classified as available-for-sale. These purchases were
funded primarily by a net increase in deposits of $39.0 million during the same
period.
During the first three months of 1996, proceeds from the sale of securities
available-for-sale were $19.0 million, and the Company purchased $14.8 million
of securities, of which $3.0 million were classified as available-for-sale and
$11.8 million as held-to-maturity. The remaining proceeds from the sale of
securities and cash flows from net increases in deposits of $25.5 million were
used to fund loan growth and reduce short-term borrowed funds during the first
three months of 1996.
At March 31, 1997, net unrealized losses in the Company's available-for-sale
securities portfolio amounted to $367 thousand and net unrealized losses in
the held-to-maturity securities portfolio amounted to $182 thousand. Net
unrealized losses of $232 thousand, net of a tax benefit of $135 thousand,
were reported as a reduction to stockholders' equity at March 31, 1997.
(13)
DEPOSITS
Average total deposits increased by $78.6 million, or 33.9%, to $310.7 million
for the three months ended March 31, 1997 compared to the 1996 full year
average of $232.1 million. The growth in deposits during this period was
primarily due to the expansion of the Company's branch system and its
aggressive pricing on certificates of deposit in comparison to the Company's
marketplace. Additionally, a new product was introduced in September 1996, a
seven month "no penalty" certificate of deposit that allows for complete or
partial withdrawals without penalty. This product is reflected in the
Company's "savings deposits" which grew from $4.4 million at March 31, 1996 to
$105.1 million at March 31, 1997.
Changes in the average deposit mix include a $20.4 million, or 19.9%, increase
in certificates of deposit; a $8.8 million, or 16.4%, decrease in money
market deposit accounts; a $63.3 million, or 324.6%, increase in savings
deposits, including the Company's "no penalty" certificate of deposit; a $3.1
million, or 19.2%, increase in NOW account deposits; and a $631 thousand, or
1.6%, increase in non-interest bearing demand deposits. The dramatic increase
in savings deposits reflects the increase in the Company's new "no penalty"
seven month certificate of deposit.
Deposits are obtained primarily from the market areas which the Company
serves. As of March 31, 1997 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 its 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 22.0% and 13.6% of the Company's
total assets at March 31, 1997 and December 31, 1996, respectively.
As shown in the Consolidated Condensed Statements of Cash Flows, the Company's
primary source of funds at March 31, 1997 was from deposit growth and
secondarily through sales of securities. Deposits increased $39.0 million and
$25.5 million, respectively, and proceeds from sales of securities increased
$6.6 million and $19.0 million, respectively for the three months ended March
31, 1997 and 1996. 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 were generated from the market
areas which the Company serves.
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 $5.5 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--New York ("FHLB-NY") in the amount of $16.2
million. In aggregate with the overnight line, subject to certain
requirements, the Bank may also obtain term advances with FHLB-NY of up to 25%
of the Bank's assets.
(14)
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 March 31, 1997 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-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 $1.0 million at March 31, 1997 compared to
December 31, 1996. The changes in stockholders' equity during the three months
ended March 31, 1997 were comprised of an increase from net income of $767
thousand; a reduction of $28 thousand (net of tax provision) in unrealized
holding losses in the Company's portfolio of securities available-for-sale, as
a $204 thousand unrealized loss became a $232 thousand unrealized loss, a
reduction by cash dividends paid of $286 thousand, and an increase of $576
thousand in proceeds from exercised options and warrants.
During the three months ended March 31, 1997, the Company paid $286 thousand,
or 37.3% of net income, in cash dividends compared to $210 thousand, or 34.7%
of net income in cash dividends for the same period in 1996.
The Company's primary regulator, the Board of Governors of the Federal Reserve
System (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 and 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 100%, 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 March 31, 1997, as well as the regulatory required
minimum capital ratios:
March 31, 1997 Minimum
----------------- Regulatory
Company Bank Requirement
------- ----- ------------
Risk-based Capital:
Tier I capital ratio .................... 9.01% 8.63% 4.00%
Total capital ratio ..................... 10.01% 9.63% 8.00%
Leverage ratio ............................ 7.07% 6.79% 3.00%-5.00%
As noted in the above table, the Company's and the Bank's capital ratios
exceed the minimum regulatory requirements.
(15)
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997
COMPARED TO THE THREE MONTHS ENDED MARCH 31, 1996
NET INCOME
The Company earned $767 thousand, or $0.33 net income per share on a primary
basis and fully diluted basis, for the three months ended March 31, 1997,
compared to $606 thousand, or $0.29 for both primary and fully diluted net
income per share, for the three months ended March 31, 1996, an increase of
$161 thousand, or 26.6%. The increase in net income was primarily due to a
$783 thousand, or 26.0%, increase in net interest income, and a $26 thousand,
or 15.1%, decrease in provision for loan losses; these items were partially
offset by a reduction in non-interest income of $112 thousand, or 37.5%, a
$413 thousand, or 18.1%, increase in non-interest expenses and a $123
thousand, or 47.7%, 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 $703 thousand, or 22.4% for the three
months ended March 31, 1997 compared to the same prior year period.
Interest income on a "FTE" basis, increased $2.0 million, or 37.0%, to $7.5
million for the three months ended March 31, 1997 compared to $5.5 million for
the same period in 1996. The improvement in interest income was primarily due
to volume increases in the loan portfolio as Carnegie benefited from strong
loan demand and the purchase of $32.8 million in loan participations from
Regent National Bank during the last two quarters of 1996 and $3.3 million in
the first quarter of 1997, which produced a volume related increase in
interest income on loans of $2.4 million. Volume related interest income was
further increased by $98 thousand due to increased Federal funds sold and
decreased by $206 thousand due to reduced investment securities as proceeds on
sales of investment securities were used to fund loan growth and to reduce
borrowed funds.
The $2.3 million volume related increase in total interest income was reduced
by $224 thousand resulting primarily from rate related reductions amounting to
$302 thousand as loan interest rates repriced to lower current yields and was
offset by investment securities rate related increases amounting to $73
thousand as lower yielding securities were replaced with higher yielding
securities. Total interest income was further reduced by $57 thousand due to
one additional day during the first quarter of 1996 compared to the first
quarter of 1997.
Interest expense for the first three months of 1997 increased $1.3 million, or
56.6%, compared to the same prior year period. The increase in interest
expense was due primarily to net volume increases in deposits which accounted
for $865 thousand, and net rate increases which accounted for $480 thousand,
and was offset by a decrease of $27 thousand attributable to one less day
during the first quarter of 1997 compared to the first quarter of 1996. The
interest expense rate and volume increases are the result of pricing decisions
made by management in response to the need for cost effective sources of
funds, primarily to provide for loan growth.
(16)
The following tables titled "Consolidated Average Balance Sheets with
Resultant Interest and Average Rates" and "Analysis of Changes in Consolidated
Net Interest Income" present by category the major factors that contributed to
the changes in net interest income for the quarter ended March 31, 1997
compared to the quarter ended March 31, 1996.
(17)
CARNEGIE BANCORP AND SUBSIDIARY
CONSOLIDATED AVERAGE BALANCE SHEETS WITH RESULTANT INTEREST AND AVERAGE RATES
Three Months Ended Three Months Ended
March 31, 1997 March 31, 1996
---------------------------------- ----------------------------------
Average Interest Average Average Interest Average
Balance Earned Rate Balance Earned Rate
------- -------- ------- ------- -------- -------
(Dollars in thousands)
ASSETS
Earning Assets:
Federal Funds Sold ............................ $ 8,841 $ 113 5.18% $ 811 $ 10 4.95%
Investment Securities:
Securities available for sale:
U. S. Gov't & Mtge-backed Securities....... 23,949 401 6.79% 38,843 624 6.44%
State & Political Subdivisions (1)......... 4,587 105 9.24% 18,780 368 7.86%
Other Securities .......................... 8,039 126 6.36% 4,979 83 6.69%
-------- ------ ----- -------- ------ ------
36,575 632 7.00% 62,602 1,075 6.89%
Securities held to maturity:
U. S. Gov't & Mtge-backed Securities....... 23,087 431 7.57% 7,796 132 6.79%
State & Political Subdivisions (1)......... -- -- -- -- -- --
-------- ------ ----- -------- ------ ------
23,087 431 7.57% 7,796 132 6.79%
Total Investment Securities............ 59,662 1,063 7.22% 70,398 1,207 6.88%
-------- ------ ----- -------- ------ ------
Loans: (2)(3)
Comm'l Loans & Comm'l Mtgs................. 231,391 5,541 9.71% 140,589 3,554 10.14%
Residential Mortgages ..................... 24,067 506 8.53% 22,103 514 9.33%
Installment Loans ......................... 12,067 267 8.97% 7,918 184 9.32%
-------- ------ ----- -------- ------ ------
Total Loans ........................... 267,525 6,314 9.57% 170,610 4,252 10.00%
-------- ------ ----- -------- ------ ------
Total Earning Assets ....................... 336,028 7,490 9.04% 241,819 5,469 9.07%
Non-Interest Earning Assets:
Loan Loss Reserve ............................. (2,746) (1,783)
Held For Sale Securities Valuation............. (329) 890
All Other Assets .............................. 19,902 15,584
------- -------
TOTAL ASSETS ............................... 352,855 256,510
======= =======
LIABILITIES & EQUITY
Interest-Bearing Liabilities:
Savings and Money Market Accounts.............. $146,566 1,693 4.68% $ 77,423 678 3.51%
Time Deposits ................................. 122,864 1,703 5.62% 97,138 1,340 5.53%
Borrowed Funds ................................ 16,135 249 6.26% 22,379 309 5.54%
-------- ------ ----- -------- ------ ------
Total Interest-Bearing Liabilities.......... 285,565 3,645 5.18% 196,940 2,327 4.74%
Demand Deposits ............................... 41,315 37,094
Other Liabilities ............................. 1,719 410
Shareholders' Equity .......................... 24,256 22,066
-------- --------
TOTAL LIABILITIES & EQUITY ................. $352,855 $256,510
======== ========
NET INTEREST INCOME (fully taxable basis) ........ $3,845 $3,142
====== ======
NET INTEREST MARGIN (fully taxable basis) ........ 4.64% 5.21%
===== ======
EQUITY TO ASSETS RATIO ........................... 6.87% 8.60%
===== ======
- ----------
(1) The tax-equivalent basis adjustment was computed based on a Federal income tax rate of 34%.
(2) Includes nonperforming loans.
(3) Included in interest income are loan fees.
(18)
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 on a tax equivalent basis. Changes
attributable to both volume and rate have been allocated proportionately.
Three Months Ended March 31, 1997
Compared to Three Months Ended
March 31, 1996
---------------------------------------------
Increase (Decrease) Due To
---------------------------------------------
Volume Rate Time Net
------ ---- ---- -----
(Dollars in thousands)
Interest Earned On:
Federal Funds Sold ...................................... 98 5 0 103
Investment Securities:
Securities available for sale:
U. S. Gov't & Mtge-backed Securities................. (237) 20 (6) (223)
State & Political Subdivisions....................... (275) 16 (4) (263)
Other Securities .................................... 50 (7) 0 43
----- ---- --- -----
(462) 29 (10) (443)
----- ---- --- -----
Securities held to maturity:
U. S. Gov't & Mtge-backed Securities................. 256 44 (1) 299
State & Political Subdivisions....................... 0 0 0 0
----- ---- --- -----
256 44 (1) 299
----- ---- --- -----
Total Investment Securities...................... (206) 73 (11) (144)
----- ---- --- -----
Loans:
Comm'l Loans & Comm'l Mtgs........................... 2,270 (244) (39) 1,987
Residential Mortgages ............................... 45 (48) (5) (8)
Installment Loans ................................... 95 (10) (2) 83
----- ---- --- -----
Total Loans ..................................... 2,410 (302) (46) 2,062
----- ---- --- -----
Total Interest Income ................................ 2,302 (224) (57) 2,021
----- ---- --- -----
Interest Paid On:
Savings and Money Market Accounts........................ 599 424 (8) 1,015
Time Deposits ........................................... 351 27 (15) 363
Borrowed Funds .......................................... (85) 29 (4) (60)
----- ---- --- -----
Total Interest Expense ............................... 865 480 (27) 1,318
----- ---- --- -----
Net Interest Income .................................. 1,437 (704) (30) 703
===== ==== === =====
(19)
PROVISION FOR LOAN LOSSES
The provision for loan losses decreased to $146 thousand for the first three
months of 1997 compared to a provision of $172 thousand for the same period in
1996. 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 $2.8 million, or 1.03% of total loans, and 55.4% of non-performing
loans, and non-performing loans totaled $5.0 million, or 1.9% of total loans
at March 31, 1997.
The moderate provision for loan losses during the first quarter of 1997 is a
result of normal loan growth and management's evaluation of the adequacy of
the allowance for loan losses to absorb potential losses in the loan
portfolio.
NON-INTEREST INCOME
Total non-interest income was $187 thousand for the first three months of 1997
compared to $299 thousand for the first three months of 1996, a decrease of
$112 thousand, or 37.5%. The decrease was primarily attributable to losses on
securities sales amounting to $91 thousand during the first quarter of 1997
compared to net gains on securities sales of $128 thousand during the first
quarter of 1996, offset by higher first quarter 1997 service fees on deposits
of $24 thousand and higher other fees and commissions of $83 thousand. The
increase in service fees on deposits was due to normal deposit growth and the
increase in other fees and commissions was primarily due to $85 thousand for
an investment security placement fee collected during the first quarter of
1997.
NON-INTEREST EXPENSE
Total non-interest expenses increased $413 thousand, or 18.1%, for the three
months ended March 31, 1997 compared to the same period in 1996. The increase
was due primarily to increased employment expense resulting from staff
expansion as the Company increased loan production staff and other department
support staff and fully staffed its new branches, 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 $256 thousand, or 23.8%, and reflected increases in the number of
employees from 112 full-time equivalents at March 31, 1996 to 123 full-time
equivalents at March 31, 1997, as well as merit and cost of living
adjustments.
Occupancy expenses increased $41 thousand, or 12.5%, for the first three
months of 1997 compared to the same period in 1996. The increase was
attributable primarily to increased lease expense of $27 thousand and
increased leasehold depreciation expenses of $11 thousand. These increases
were due to two newly opened branch offices as well as normal annual lease
increases on other office facilities, and increased leasehold depreciation due
to the new facilities.
Furniture and equipment expenses increased $59 thousand, or 28.0%, for the
first quarter of 1997 compared to the first quarter of 1996 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.
(20)
Other expenses increased $57 thousand, or 8.6%, for the first three months of
1997 compared to the first three months of 1996. The increase was attributable
to increased other expenses resulting from the continued growth of the
Company, as costs of supplies, communications, advertising, insurance,
professional fees and misellaneous other expenses increased.
INCOME TAX EXPENSE
The Company recognized an income tax provision, which includes both Federal
and State taxes, of $381 thousand for the three months ended March 31, 1997,
for an effective income tax rate of 33.2%. This compared to $258 thousand, for
an effective income tax rate of 29.9% for the same period in 1996. The
increase in the effective tax rate is due primarily to a 70.9% increase in the
Company's taxable income, at the Federal tax rate of 34%, without a
proportionate increase in tax-exempt income, which decreased by 71.6% due to
sale of substantially all of the Company's tax exempt securities 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 -- NONE
Item 5. Other Information
On January 15, 1997 Carnegie Bancorp announced the termination of
the Amended and Restated Agreement and Plan of Merger that had
provided for the merger of Regent Bancshares Corp. into Carnegie
Bancorp and the concurrent merger of each company's respective
subsidiary banks.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -- Financial Data Schedule
(b) Reports on Form 8-K --
The Registrant filed a Current Report on Form 8-K dated January 15,
1997, announcing the termination of its merger with Regent
Bancshares Corp.
The Registrant filed a Current Report on Form 8-K dated February 3,
1997 announcing its year end 1996 results of operations, a 5% stock
dividend and a cash dividend.
(22)
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CARNEGIE BANCORP
(Registrant)
Date: May 12, 1997 By: /s/ RICHARD ROSA
----------------------------------
Richard Rosa
Senior Vice President
and Chief Financial Officer
(23)