U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
\X\ Quarterly report pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the quarterly period ended JUNE 30, 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 Identification No.)
incorporation or organization)
619 ALEXANDER ROAD, PRINCETON, NEW JERSEY 08540
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(609) 520-0601
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes \X\ No \ \
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 - 2,174,904 SHARES OUTSTANDING AS OF AUGUST 5, 1997
INDEX
CARNEGIE BANCORP AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION PAGE NO.
--------
Item 1. Financial Statements
Consolidated Condensed Balance Sheets at
June 30, 1997 (Unaudited) and December 31, 1996 3
Consolidated Condensed Statements of Income for the three
months and six months ended June 30, 1997 and 1996 (Unaudited) 4
Consolidated Condensed Statements of Cash Flows for the three
months and six months ended June 30, 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 12-24
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 25
Item 2. Changes in Securities 25
Item 3. Defaults Upon Senior Securities 25
Item 4. Submission of Matters to a Vote of Security Holders 25
Item 5. Other Information 25
Item 6. Exhibits and Reports on Form 8-K
a. Exhibit 27 - Financial Data Schedule 25
b. Reports on Form 8-k 25-26
SIGNATURES 27
CARNEGIE BANCORP AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
June 30,
1997 December 31,
(Unaudited) 1996
----------- ------------
(Dollars in thousands)
ASSETS
Cash and cash equivalents:
Cash and due from banks ..................................................... $ 15,169 $ 16,745
Federal funds sold .......................................................... 6,600 --
-------- --------
Total cash and cash equivalents .................................... 21,769 16,745
-------- --------
Investment Securities:
Available for sale .......................................................... 48,234 30,110
Held to maturity (fair value $22,444 at June 30, 1997 and
$23,258 at December 31, 1996) ............................................. 22,472 23,264
-------- --------
Total investment securities .................................. 70,706 53,374
-------- --------
Loans, net of allowance for loan losses of $2,947 at June 30, 1997
and $2,665 at December 31, 1996 ............................................. 269,685 263,797
Premises and equipment, net. .................................................. 4,664 4,482
Other real estate owned. ...................................................... 644 473
Accrued interest receivable and other assets .................................. 4,134 4,486
-------- --------
Total Assets ....................................................... $371,602 $343,357
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing demand deposits ........................................ $47,563 $42,372
Interest bearing deposits:
Savings deposits .......................................................... 171,697 139,671
Other time deposits. ...................................................... 53,057 62,008
Certificates of deposit $100,000 and over ................................. 54,593 58,511
-------- --------
Total deposits ..................................................... 326,910 302,562
-------- --------
Short-term borrowings ......................................................... 10,000 1,000
Long-term debt ................................................................ 4,425 14,425
Accrued interest payable and other liabilities. ............................... 4,024 1,628
-------- --------
Total liabilities .................................................. 345,359 319,615
-------- --------
Commitments and contingencies
Stockholders' equity:
Common stock, no par value, authorized 5,000,000 shares;
issued and outstanding 2,146,758 at June 30, 1997
and 1,940,942 at December 31, 1996 ........................................ 10,734 9,705
Capital surplus. ............................................................ 14,951 12,711
Undivided profits. .......................................................... 656 1,530
Net unrealized holding (losses) on securities available for sale ............ (98) (204)
-------- --------
Total stockholders' equity ......................................... 26,243 23,742
-------- --------
Total Liabilities and Stockholders' Equity ......................... $371,602 $343,357
======== ========
See accompanying notes to consolidated condensed financial statements.
3
CARNEGIE BANCORP AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
1997 1996 1997 1996
-------- -------- -------- --------
(000's omitted except per share data)
Interest income:
Loans, including fees .......................... $ 6,380 $ 4,515 $ 12,684 $ 8,787
Federalfunds sold .............................. 87 11 200 21
Investment securities:
Taxable .................................... 1,175 967 2,134 1,806
Tax-exempt ................................. 120 119 189 382
-------- -------- -------- --------
Total interest income .................. 7,762 5,612 15,207 10,956
-------- -------- -------- --------
Interest expense:
Savings deposits .............................. 1,918 681 3,611 1,358
Other time deposits ........................... 909 847 1,869 1,696
Certificates of deposit $100,000 and over ..... 755 535 1,498 1,026
Short-term borrowings ......................... 227 223 250 533
Long-term debt ................................ 73 169 299 169
-------- -------- -------- --------
Total interest expense ................ 3,882 2,455 7,527 4,782
-------- -------- -------- --------
Net interest income ................... 3,880 3,157 7,680 6,174
Provision for loan losses .......................... 150 321 296 493
-------- -------- -------- --------
Net interest income after provision
for loan losses .................... 3,730 2,836 7,384 5,681
-------- -------- -------- --------
Non-interest income:
Service fees on deposits ....................... 112 108 226 198
Other fees and commissions ..................... 90 91 254 172
Gain on sale of other real-estate owned ........ 0 294 0 294
Investment securities gains .................... 15 131 15 326
Investment securities losses ................... (15) (36) (106) (103)
-------- -------- -------- --------
Total non-interest income .............. 202 588 389 887
-------- -------- -------- --------
Non-interest expense:
Salaries and wages ............................. 1,062 979 2,116 1,841
Employee benefits .............................. 208 226 486 440
Occupancy expense .............................. 372 338 740 665
Furniture and equipment ........................ 275 233 545 444
Other .......................................... 821 792 1,544 1,458
-------- -------- -------- --------
Total non-interest expense ............. 2,738 2,568 5,431 4,848
-------- -------- -------- --------
Income before income taxes ............. 1,194 858 2,342 1,720
Income tax expense ................................. 388 292 769 550
-------- -------- -------- --------
Net Income ............................ $ 806 $ 564 $ 1,573 $ 1,170
======== ======== ======== ========
Per Common Share:
Net income - primary .......................... $ 0.35 $0.27 $ 0.68 $ 0.56
Net income - fully diluted .................... $ 0.34 $0.27 $ 0.67 $ 0.56
Cash Dividends ................................ $ 0.14 $0.12 $ 0.28 $ 0.24
Weighted average shares outstanding (in thousands):
Primary ....................................... 2,319 2,061 2,321 2,076
Fully Duluted ................................. 2,365 2,082 2,344 2,087
See notes to consolidated condensed financial statements.
4
CARNEGIE BANCORP AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30,
------------------------
1997 1996
-------- --------
(000's omitted)
Cash flows from operating activities:
Net income .................................................... $ 1,573 $ 1,170
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ............................. 551 441
Provision for loan losses ................................. 296 493
Accretion of investment discount .......................... (30) (6)
Amortization of investment premium ........................ 80 261
Gain on sale of available-for-sale securities ............. (14) (326)
Loss on sale of available-for-sale securities ............. 106 103
Gain on sale of other real estate owned ................... -- (294)
Decrease in accrued interest receivable and
other assets ............................................ 293 39
Increase (decrease) in accrued interest payable
and other liabilities ................................... 2,396 (183)
-------- --------
Net cash provided by operating activities ............ 5,251 1,698
-------- --------
Cash flows from investing activities:
Proceeds from sale of securities available-for-sale ........... 35,815 27,402
Proceeds from maturities and principal paydowns of
securities available-for-sale ............................... 839 8,300
Proceeds from maturities and principal paydowns of
securities held-to-maturity ................................. 763 955
Purchase of securities available-for-sale ..................... (54,726) (3,019)
Purchase of securities held-to-maturity ....................... -- (24,972)
Net increase in loans made to customers ....................... (6,409) (32,611)
Cash collected on previously charged-off loans ................ 54 4
Additions to premises and equipment ........................... (733) (849)
Proceeds from sale of other real-estate owned ................. -- 622
-------- --------
Net cash used in investing activities ................ (24,397) (24,168)
-------- --------
Cash flows from financing activities:
Net increase in deposits ...................................... 24,348 9,840
Net increase in short-term borrowings ......................... 9,000 16,973
Net decrease in long-term debt ................................ (10,000)
Proceeds from common stock issued on exercise of
options and warrants ........................................ 1,414 16
Cash paid for dividends ....................................... (592) (432)
-------- --------
Net cash provided by financing activities ............ 24,170 26,397
-------- --------
Net change in cash and cash equivalents ......................... 5,024 3,927
Cash and cash equivalents as of beginning of year ............... 16,745 10,207
-------- --------
Cash and cash equivalents as of end of period ................... $ 21,769 $ 14,134
======== ========
Supplemental disclosures:
Cash paid during the period for:
Interest .................................................... $ 7,353 $ 4,858
Income taxes ................................................ $ 487 $ 466
See accompanying notes to consolidated condensed financial statements.
5
CARNEGIE BANCORP AND SUBSIDIARIES
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 and six months ended June 30, 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 stockholder's 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, and agency
mortgage-backed security, or an obligation of a state or political subdivision
may be placed in the held-to-maturity category if acquired with the intent and
ability to maintain the security in the portfolio until maturity. Premiums and
discounts on these securities are amortized or accreted on a basis that
approximates the effective yield method. Realized gains and losses from the sale
of securities available for sale are determined on a specific identification
cost basis.
6
CARNEGIE BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)--(Continued)
Management determines the appropriate classification of securities at the time
of purchase. At June 30, 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 June 30, 1997, 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 June 30,
1997 and December 31, 1996.
June 30, 1997
--------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ------
(Dollars in thousands)
Securities available for sale (1):
U.S. Government............................ $12,147 $ 21 ($ 10) $12,158
Mortgage-backed securities................. 20,134 71 (190) 20,015
Obligations of State and
Political Subdivisions................... 8,023 -- -- 8,023
Other securities........................... 8,087 -- (49) 8,038
------- ---- ----- -------
$48,391 $ 92 ($249) $48,234
======= ==== ===== =======
Securities held to maturity:
U.S. Government............................ $ 9,036 $118 ($ --) $ 9,154
Mortgage-backed securities................. 13,436 -- (146) 13,290
------- ---- ----- -------
$22,472 $118 ($146) $22,444
======= ==== ===== =======
(1) Net unrealized losses of $98 thousand, net of a tax benefit of $59 thousand, were
reported as a reduction to stockholders' equity at June 30, 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 SUBSIDIARIES
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 June
30, 1997 and December 31, 1996.
LOAN PORTFOLIO BY TYPE OF LOAN
June 30, 1997 December 31, 1996
------------------- -------------------
Amount % Amount %
-------- ------ -------- ------
(Dollars in thousands)
Commercial and financial ......... $ 83,150 30.5% $ 79,907 30.0%
Real estate construction ......... 12,460 4.6% 16,905 6.3%
Residential mortgage ............. 24,899 9.1% 23,173 8.7%
Commercial mortgage .............. 139,536 51.2% 133,908 50.3%
Installment ...................... 12,587 4.6% 12,569 4.7%
-------- ------ -------- ------
$272,632 100.0% $266,462 100.0%
======== ====== ======== ======
The following table represents activity in the allowance for loan losses for the
six month period ended June 30, 1997 and 1996.
ALLOWANCE FOR LOAN LOSSES
Six Months Ended
June 30,
------------------
1997 1996
------ ------
(Dollars in thousands)
Balance--beginning of period.......................... $2,665 $1,754
Charge-offs........................................... (68) (312)
Recoveries............................................ 54 4
------ ------
Net (charge-offs) recoveries.......................... (14) (308)
Provision for loan losses............................. 296 493
------ ------
Balance--end of period................................ $2,947 $1,939
====== ======
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 June 30, 1997, the recorded investment
in loans for which impairment has been recognized totaled $5,625,000 of which
$1,070,000 related to loans with no valuation allowance because the Bank expects
repayment in full and $4,555,000 is related to loans with a corresponding
valuation allowance of $479,000. The total amount of impaired loans measured
using the present value of expected future cash flows amounted to $2,177,000 and
the total amount of impaired loans measured using the fair value of the loan's
collateral amounted to $3,448,000. For the six months ended June 30, 1997, the
average recorded investment in impaired loans was approximately $5,410,000. The
Company recognized $30,000 in income on impaired loans during the portion of the
year that they were impaired.
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.
8
CARNEGIE BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)--(Continued)
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 declared a second quarter cash dividend of $.14 per share
on April 23, 1997. The dividend was paid on June 18, 1997 to shareholders of
record on May 21, 1997.
On July 16, 1997, the Board of Directors also declared a third quarter cash
dividend of $.14 per share. The dividend will be payable on September 17, 1997
to shareholders of record on August 27, 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 June 30, 1997 there were 507,757 warrants
outstanding. As adjusted for the Company's 1995, 1996, and 1997 5% stock
dividends these warrants are convertible into 587,792 shares of common stock
which is equivalent to an effective price per share of approximately $13.04.
9
CARNEGIE BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)--(Continued)
NOTE H -- SHORT-TERM BORROWINGS
The composition of short-term borrowings follows:
June 30, December 31,
1997 1996
-------- ------------
(Dollars in thousands)
Overnight Federal funds purchased
-- balance............................................ $ -- $1,000
-- weighted average rate.............................. -- 7.38%
-- maturity date...................................... -- 1/02/97
Term borrowing from FHLB-NY
-- balance............................................ $10,000 $ --
-- weighted average rate.............................. 6.267% --
-- maturity date...................................... 4/22/98 --
NOTE I -- LONG-TERM DEBT
The composition of long-term debt follows:
June 30, 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
6.50% fixed rate repurchase agreement with Salomon
Bros., due 4/19/99................................ 4,425 4,425
------ -------
$4,425 $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 SUBSIDIARIES
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 on 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 therfore its adoption will have no
effect on the Company's consolidated financial statements.
11
CARNEGIE BANCORP AND SUBSIDIARIES
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 June 30, 1997 increased by $28.2 million, or 8.2%, to $371.6
million compared to $343.4 million at December 31, 1996. Total assets averaged
$362.3 million in the first six months of 1997, a $76.5 million, or 26.8%,
increase from the 1996 full year average of $285.8 million. Average loans
increased $64.2 million, or 31.2%, to $269.7 million in the first six months of
1997, from the 1996 full year average of $205.5 million. Average investment
securities increased by $6.7 million, or 10.7%, to $69.2 million; average
Federal funds sold increased by $5.6 million, or 280.0%, to $7.6 million; and
the average of all other assets increased by $.8 million, or 4.4%, to $18.9
million during the first six months of 1997 compared to the full year 1996
averages.
These increases in average assets were funded primarily by a $85.7 million, or
36.9%, increase in average deposits, as average deposits during the first six
months of 1997 increased to $317.8 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 $17.8 million during the first six months of 1997,
an average decrease of $13.1 million, or 42.4%, 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 management objectives. During 1996, the Company
utilized borrowed funds to temporarily fund loan growth, as well as for
asset/liability management purposes. During the first six months of 1997, the
Company utilized deposits generated both from recently opened branch offices and
from promotional programs in the Bank's existing offices to fund securities
purchases and to repay borrowings.
LENDING ACTIVITY
Total loans at June 30, 1997 were $272.6 million, a 2.3%, or $6.1 million
increase from December 31, 1996. Average loans increased by $64.2 million, or
31.2%, to $269.7 million in the first six 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 $58.9 million in commercial loans and
commercial mortgages, $2.3 million in residential mortgages and $3.0 million in
other installment loans.
The 33.8% 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,
12
1996, with Carnegie's purchase of the remaining balance of $3.3 million in these
loans in January, 1997. Carnegie opened a new branch office in Toms River, New
Jersey in the fourth quarter of 1995 amd during the first six months of 1996, a
new office in Montgomery and Flemington, New Jersey and a new office in
Langhorne, Pennsylvania. Having 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 $2.9 million, or 1.08% of total loans, at June
30, 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 was
$5.0 million, or 1.8% of total loans at June 30, 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 increased by $6.7 million in the first six months
of 1997 compared to the 1996 full year average. At period end June 30, 1997
compared to December 31, 1996, investments increased $17.3 million, or 32.4%.
During 1996, some of the proceeds of securities 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 six months of 1997, proceeds from the sales of securities
available-for-sale amounted to $35.8 million, resulting in a $91 thousand loss
on the sales, and was offset by the purchase of $54.7 million in securities, all
of which were classified as available-for-sale. These purchases were funded
primarily by a net increase in deposits of $24.3 million during the same period.
During the first six months of 1996, proceeds from the sale of securities
available-for-sale were $27.4 million, and the Company purchased $28.0 million
of securities, of which $3.0 million were classified as available-for-sale and
$25.0 million as held-to-maturity.
At June 30, 1997, net unrealized losses in the Company's available-for-sale
securities portfolio amounted to $157 thousand and net unrealized losses in the
held-to-maturity securities portfolio amounted to $28 thousand. Net unrealized
losses of $98 thousand, net of a tax benefit of $59 thousand, were reported as a
reduction to stockholders' equity at June 30, 1997.
13
DEPOSITS
Average total deposits increased by $85.7 million, or 36.9%, to $317.8 million
for the six months ended June 30, 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 $77.1 million at June 30, 1996 to $171.7 million at June 30,
1997.
Changes in the average deposit mix include an $18.0 million, or 17.5%, increase
in certificates of deposit; a $10.0 million, or 18.8%, decrease in money market
deposit accounts; a $72.6 million, or 372.8%, increase in savings deposits,
including the Company's "no penalty" certificate of deposit; a $3.0 million, or
18.4%, increase in NOW account deposits; and a $2.1 million, or 5.2%, 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 June 30, 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 securites, net interest income and fee income. Liquid assets
(consisting of cash, Federal funds sold and investment securities classified as
available-for-sale) comprised 18.8% and 13.6% of the Company's total assets at
June 30, 1997 and December 31, 1996, respectively.
As shown in the Consolidated Condensed Statements of Cash Flows, the Company's
primary source of funds at June 30, 1997 was from deposit growth, which was used
primarily to fund purchases of securities available-for-sale and secondarily to
fund loan growth. Deposits increased $24.3 million for the six months ended June
30, 1997, and primarily funded a net increase in investment securities of $17.3
million and secondarily a net increase in loans of $6.4 million. Proceeds from
sales of securities available-for-sale amounted to $35.8 million and $27.4
million, respectively, for the six months ended June 30, 1997 and 1996. These
funds were re-invested in securities which supported the Company's
asset/liability management philosophy, and generally reduced the average
maturity of the securities portfolio. 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.
14
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 addtion, 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.
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 of $4.4
million and short-term borrowings of $10 million as of June 30, 1997 are matched
against specific loans or investments, for asset and liability management
purposes. The short-term borrowing consists of $10 million of FHLB-NY term
advances maturing April 22, 1998, and the long term debt of $4.4 million
consists of repurchase agreements from Salomon Brothers with a maturity date of
April 19, 1999.
CAPITAL RESOURCES
Stockholder's equity increased by $2.5 million at June 30, 1997 compared to
December 31, 1996. The changes in stockholders' equity during the six months
ended June 30, 1997 were comprised of an increase from net income of $1.6
million, an increase of $106 thousand (net of tax provision) due to decreased
unrealized holding losses in the Company's portfolio of securities
available-for-sale, as a $204 thousand unrealized loss became a $98 thousand
unrealized loss, a reduction by cash dividends paid of $592 thousand, and an
increase of $1.4 million in proceeds from exercised options and warrants.
During the six months ended June 30, 1997, the Company paid $592 thousand, or
37.6% of net income, in cash dividends compared to $432 thousand, or 36.9% 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 similary ratios.
15
The following table summarizes the risk-based and leverage capital ratios for
the Company and the Bank at June 30, 1997, as well as the regulatory required
minimum capital ratios:
June 30, 1997 Regulatory Requirements
---------------- -----------------------------
Company Bank Minimum "Well Capitalized"
------- ---- ------- ------------------
Risk-based Capital:
Tier I capital ratio... 9.44% 9.32% 4.00% 6.00%
Total capital ratio.... 10.50% 10.38% 8.00% 10.00%
Leverage ratio........... 7.08% 6.98% 3.00%-5.00% 5.00% or greater
As noted in the above table, the Company's and the Bank's capital ratios exceed
the regulatory requirements of a "well-capitalized' institution.
16
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO THE SIX
MONTHS ENDED JUNE 30, 1996
NET INCOME
The Company earned $1.6 million, or $0.68 net income per share on a primary
basis and $0.67 net income per share of a fully diluted basis, for the six
months ended June 30, 1997, compared to $1.2 million, or $0.56 for both primary
and fully diluted net income per share, for the six months ended June 30, 1996,
an increase of $403 thousand, or 34.4%. The increase in net income was primarily
due to a $1.5 million, or 24.4%, increase in net interest income, and a $197
thousand, or 40.0%, decrease in provision for loan losses; these items were
partially offset by a reduction in non-interest income of $498 thousand, or
56.1%, a $583 thousand, or 12.0%, increase in non-interest expenses and a $219
thousand, or 39.8%, 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 $1.4 million, or 22.6% for the six
months ended June 30, 1997 compared to the same prior year period.
Interest income on a "FTE" basis, increased $4.2 million, or 37.5%, to $15.3
million for the six months ended June 30, 1997 compared to $11.1 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 $4.5 million. Volume related interest income was further increased by
$172 thousand due to increased Federal funds sold and decreased by $55 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 $4.2 million volume related increase in total interest income was reduced by
$346 thousand resulting primarily from rate related reductions amounting to $486
thousand as loan interest rates repriced to lower current yields and was offset
by investment securities rate related increases amounting to $133 thousand as
lower yielding securities were replaced with higher yielding securities, and
Federal Funds sold rate related increases of $7 thousand. Total interest income
was further reduced by $60 thousand due to one additional day during the first
six months of 1996 compared to the first six months of 1997.
Interest expense for the first six months of 1997 increased $2.7 million, or
57.4%, compared to the same prior year period. The increase in interest expense
was due primarily to net volume increases in deposits which accounted for $1.7
million, and net rate increases which accounted for $1.1 million, and was offset
by a decrease of $26 thousand attributable to one less day during the first six
months of 1997 compared to the first six months 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.
Interest on loans to and obligations of states, municipalities and other public
entities is not subject to Federal income tax. As such, the stated (pre-tax)
yield on these assets is lower than
17
the yields on taxable assets of similar risk and maturity. In order to make the
pre-tax income and resultant yields comparable to taxable loans and investments,
a tax-equivalent basis adjustment was added to interest income in the following
tables. This adjustment has been calculated using the U.S. Federal statutory
income tax rate of 34%. The following table summarizes the amount that has been
added to interest income as presented in the Consolidated Condensed Statements
of Income.
Three Months Ended Six Months Ended
June 30, June 30,
---------------- -------------------
1997 1996 1997 1996
------ ------ ------- -------
Income per consolidated
statements of income............... $7,762 $5,612 $15,207 $10,956
Tax equivalent basis adjustment ...... 70 61 115 186
------ ------ ------- -------
Interest income adjusted to fully
tax-equivalent basis............... 7,832 5,673 15,322 11,142
Interest expense...................... 3,882 2,455 7,527 4,782
------ ------ ------- -------
Net interest income adjusted to
fully tax-equivalent basis......... $3,950 $3,218 $ 7,795 $ 6,360
====== ====== ======= =======
The following tables titled "Consolidated Average Balance Sheets with Resultant
Interest and Average Rates" and "Analysis of Changes in Consolidated Net
Interest Income" present by category the major factors that contributed to the
changes in net interest income for the quarter ended June 30, 1997 compared to
the quarter ended June 30, 1996 and the six months ended June 30, 1997 compared
to the same prior year period.
18
CARNEGIE BANCORP AND SUBSIDIARIES
Consolidated Average Balance Sheets with Resultant Interest and Average Rates
Three Months Ended Three Months Ended
June 30, 1997 June 30, 1996
----------------------------- -----------------------------
Average Interest Average Average Interest Average
Balance Earned Rate Balance Earned Rate
-------- -------- ------- -------- -------- -------
ASSETS (Dollars in thousands)
- --------------------------------------------------
Earning Assets:
Federal Funds Sold ............................. $ 6,325 $ 87 5.52% $ 827 $ 11 5.34%
Investment Securities:
Securities available for sale:
U.S. Gov't & Mtge-backed Securities ......... 39,883 636 6.40% 34,062 588 6.92%
Non-taxable State & Political
Subdivisions (1) .......................... 8,030 182 9.08% 9,817 180 7.37%
Other Securities ............................ 8,072 119 5.91% 5,124 69 5.40%
-------- ------ ---- -------- ------ ----
55,985 937 6.71% 49,003 837 6.85%
Securities held to maturity:
U.S. Gov't & Mtge-backed SecurIties ......... 22,693 420 7.42% 19,107 310 6.51%
Non-taxable State & Political
Subdivisions (1) .......................... -- -- -- -- -- --
-------- ------ ---- -------- ------ ----
22,693 420 7.42% 19,107 310 6.51%
Total Investment Securities ............... 78,678 1,357 6.92% 68,110 1,147 6.76%
-------- ------ ---- -------- ------ ----
Loans: (2)(3)
Comm'l Loans & Comm'l Mtgs .................... 234,774 5,570 9.52% 156,757 3,841 9.83%
Residential Mortgages ......................... 24,979 538 8.64% 22,334 479 8.60%
Installment Loans ............................. 12,158 280 9.24% 8,148 195 9.60%
-------- ------ ---- -------- ------ ----
Total Loans ............................... 271,911 6,388 9.42% 187,239 4,515 9.67%
-------- ------ ---- -------- ------ ----
Total Earning Assets .......................... 356,914 7,832 8.80% 256,176 5,673 8.88%
Non-Interest Earning Assets:
Loan Loss Reserve .............................. (2,793) (1,847)
Held For Sale Securities Valuation ............. (343) (344)
All Other Assets ................................. 17,876 16,020
-------- --------
Total Assets .................................. 371,654 270,005
======== ========
LIABILITIES & EQUITY
- --------------------------------------------------
Interest-Bearing Liabilities:
Savings and Money Market Accounts .............. $162,516 1,918 4.73% $ 76,339 681 3.58%
Time Deposits .................................. 118,003 1,664 5.66% 103,425 1,382 5.36%
Short-term borrowings .......................... 14,994 227 6.07% 15,454 223 5.79%
Long-term debt ................................. 4,425 73 6.62% 11,242 169 6.03%
-------- ------ ---- -------- ------ ----
Total Interest-Bearing Liabilities ............ 299,938 3,882 5.19% 206,460 2,455 4.77%
Demand Deposits ................................ 44,289 41,241
Other Liabilities .............................. 2,105 580
Shareholders' Equity ........................... 25,322 21,724
-------- --------
Total Liabilities & Equity .................... $371,654 $270,005
======== ========
NET INTEREST INCOME (fully taxable basis) ........ $3,950 $3,218
====== ======
NET INTEREST MARGIN (fully taxable basis) ........ 4.44% 5.04%
==== ====
EQUITY TO ASSETS RATIO ........................... 6.81% 8.05%
==== ====
(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.
19
CARNEGIE BANCORP AND SUBSIDIARIES
Consolidated Average Balance Sheets with Resultant Interest and Average Rates
Six Months Ended Six Months Ended
June 30, 1997 June 30, 1996
----------------------------- -----------------------------
Average Interest Average Average Interest Average
Balance Earned Rate Balance Earned Rate
-------- -------- ------- -------- -------- -------
ASSETS (Dollars in thousands)
- --------------------------------------------------
Earning Assets:
Federal Funds Sold ............................. $ 7,576 $ 200 5.32% $ 819 $ 21 5.14%
Investment Securities:
Securities available for sale:
U.S. Gov't & Mtge-backed Securities ......... 31,959 1,037 6.54% 36,453 1,212 6.67%
Non-taxable State & Political
Subdivisions (1) .......................... 6,318 286 9.14% 14,298 548 7.69%
Other Securities ............................ 8,056 246 6.16% 5,052 152 6.03%
-------- ------ ---- -------- ------- ----
46,333 1,569 6.83% 55,803 1,912 6.87%
Securities held to maturity:
U.S. Gov't & Mtge-backed Securities ......... 22,889 851 7.50% 13,451 442 6.59%
Non-taxable State & Political
Subdivisions (1) .......................... -- -- -- -- -- --
-------- ------ ---- -------- ------- ----
22,889 851 7.50% 13,451 442 6.59%
Total Investment Securities ............... 69,222 2,420 7.05% 69,254 2,354 6.82%
-------- ------ ---- -------- ------- ----
Loans: (2)(3)
Comm'l Loans & Comm'l Mtgs ................... 233,092 11,111 9.61% 148,673 7,395 9.98%
Residential Mortgages ........................ 24,525 1,044 8.58% 22,219 993 8.96%
Installment Loans ............................ 12,113 547 9.11% 8,033 379 9.46%
-------- ------ ---- -------- ------- ----
Total Loans ............................... 269,730 12,702 9.50% 178,925 8,767 9.83%
-------- ------ ---- -------- ------- ----
Total Earning Assets ......................... 346,528 15,322 8.92% 248,998 11,142 8.97%
Non-Interest Earning Assets:
Loan Loss Reserve .............................. (2,770) (1,815)
Held For Sale Securities Valuation ............. (335) 273
All Other Assets ............................... 18,883 15,802
-------- --------
Total Assets ............................... 362,306 263,258
======== ========
LIABILITIES & EQUITY
- --------------------------------------------------
Interest-Bearing Liabilities:
Savings and Money Market Accounts .............. $154,585 3,611 4.71% $ 76,881 1,358 3.54%
Time Deposits .................................. 120,420 3,367 5.64% 100,281 2,722 5.44%
Short-term borrowings .......................... 8,361 250 6.03% 18,917 533 5.65%
Long-term debt ................................. 9,425 299 6.40% 5,621 169 6.03%
-------- ------ ---- -------- ------- ----
Total Interest-Bearing Liabilities ......... 292,791 7,527 5.18% 201,700 4,782 4.75%
Demand Deposits ................................ 42,810 39,168
Other Liabilities .............................. 1,913 495
Shareholders' Equity ........................... 24,792 21,895
-------- --------
Total Liabilities & Equity ................. $362,306 $263,258
======== ========
NET INTEREST INCOME (fully taxable basis) ........ $ 7,795 $ 6,360
======== =======
NET INTEREST MARGIN (fully taxable basis) ........ 4.54% 5.12%
==== ====
EQUITY TO ASSETS RATIO ........................... 6.84% 8.32%
==== ====
(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.
20
CARNEGIE BANCORP AND SUBSIDIARIES
Analysis of Changes in Consolidased Net Interest Income
The Rate/Volume Analysis reflects the extent to which changes in interest rates
and changes in the volume of interest-earning assets and interest-bearing
liabilities have affected the Company's interest income and interest expense
during the periods presented. This analysis is presented on a tax equivalent
basis. Changes attributable to both volume and rate have been allocated
proportionately.
Three Months Ended June 30, 1997 Six Months Ended June 30,1997
Compared to Three Months Ended Compared to Six Months Ended
June 30, 1996 June 30, 1996
------------------------------ ------------------------------------
Increase (Decrease) Due To Increase (Decrease) Due To
------------------------------ ------------------------------------
Volume Rate Net Volume Rate Time Net
-------- ------ ----- -------- ------ ------ -----
(Dollars in thousands) (Dollans in thousands)
Interest Earned On:
Federal Funds Sold ....................... 73 3 76 172 7 -- 179
Investment Securities:
Securities available for sale:
U.S. Gov't & Mtge-backed Securities .. 100 (52) 48 (149) (20) (6) (175)
Non-taxable State & Political
Subdivisions ....................... (32) 34 2 (304) 45 (3) (262)
Other Securities ..................... 40 10 50 90 5 (1) 94
----- ---- ----- ----- ------ --- -----
108 (8) 100 (363) 30 (10) (343)
----- ---- ----- ----- ------ --- -----
Securities held to maturity:
U.S. Gov't & Mget-backed Securities... 58 52 110 308 103 (2) 409
Non-taxable State & Political
Subdivisions........................ -- -- -- -- -- -- --
----- ---- ----- ----- ------ --- -----
58 52 110 308 103 (2) 409
----- ---- ----- ----- ------ --- -----
Total Investment Securities ........ 166 44 210 (55) 133 (12) 66
----- ---- ----- ----- ------ --- -----
Loans:
Comm'l Loans & Comm'l Mtgs ............... 1,912 (183) 1,729 4,176 (419) (41) 3,716
Residential Mortgages .................... 57 2 59 102 (46) (5) 51
Installment Loans ........................ 96 (11) 85 191 (21) (2) 168
----- ---- ----- ----- ------ --- -----
Total Loans ........................ 2,065 (192) 1,873 4,469 (486) (48) 3,935
----- ---- ----- ----- ------ --- -----
Total Interest Income ................... 2,304 (145) 2,159 4,586 (346) (60) 4,180
----- ---- ----- ----- ------ --- -----
Interest Paid On:
Savings and Money Market Accounts ........ 769 468 1,237 1,365 895 (7) 2,253
Time Deposits ............................ 195 87 282 544 116 (15) 645
Short-term borrowings .................... (7) 11 4 (296) 16 (3) (283)
Long-term debt ........................... (102) 6 (96) 114 17 (1) 130
----- ---- ----- ----- ------ --- -----
Total Interest Expense ................. 855 572 1,427 1,727 1,044 (26) 2,745
----- ---- ----- ----- ------ --- -----
Net Interest Income .................... 1,449 (717) 732 2,859 (1,390) (34) 1,435
===== ==== ===== ===== ====== === =====
21
PROVISION FOR LOAN LOSSES
The provision for loan losses decreased to $296 thousand for the first six
months of 1997 compared to a provision of $493 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
$2.9 million, or 1.08% of total loans, and 58.8% of non-performing loans, and
non-performing loans totaled $5.0 million, or 1.8% of total loans at June 30,
1997.
The moderate provision for loan losses during the first six months 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 $389 thousand for the first six months of 1997
compared to $887 thousand for the first six months of 1996, a decrease of $498
thousand, or 56.1%. The decrease was primarily attributable to net losses on
securities sales amounting to $91 thousand during the first six months of 1997
compared to net gains on securities sales of $223 thousand during the first six
months of 1996, offset by higher first six months of 1997 service fees on
deposits of $28 thousand and higher other fees and commissions of $82 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 income for the first six months of 1996 was further increased by
$294 thousand in gains on sale of other real-estate owned compared to $0 for the
comparable 1997 period.
NON-INTEREST EXPENSE
Total non-interest expenses increased $583 thousand, or 12.0%, for the six
months ended June 30, 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 $321 thousand, or 14.1%,
and reflected increases in the average number of employees from 112 full-time
equivalents for the six months ended June 30, 1996 compared to an average of 122
full-time equivalents for the six months ended June 30, 1997, as well as merit
and cost of living adjustments. The actual number of full-time equivalent
employees was 124 at June 30, 1996 and June 30, 1997. The lack of staff growth
is due primarily to reduced loan demand during the first six months of 1997, as
adequate staffing was in place at the beginning of 1997.
Occupancy expenses increased $75 thousand, or 11.3%, for the first six months of
1997 compared to the same period in 1996. The increase was attributable
primarily to increased lease expense of $38 thousand, increased leasehold
depreciation expenses of $20 thousand, increased maintenance and utilities
expenses of $25 thousand, and was offset by reduced other occupancy expenses of
$8 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.
22
Furniture and equipment expenses increased $101 thousand, or 22.7%, for the
first six months of 1997 compared to the first six months 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.
Other expenses increased $86 thousand, or 5.9%, for the first six months of 1997
compared to the first six 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
miscellaneous other expenses increased.
INCOME TAX EXPENSE
The Company recognized an income tax provision, which includes both Federal and
State taxes, of $769 thousand for the six months ended June 30, 1997, for an
effective income tax rate of 32.8%. This compared to $550 thousand, for an
effective income tax rate of 32.0% for the same period in 1996.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THE
THREE MONTHS ENDED JUNE 30, 1996
NET INCOME
The Company earned $806 thousand, or $0.35 net income per share on a primary
basis and $0.34 on a fully diluted basis for the quarter ended June 30, 1997
compared to $564 thousand, or $0.27 for both primary and fully diluted net
income per share for the quarter ended June 30, 1996, an increase of $242
thousand, or 42.9%. The increase in net income was primarily due to a $723
thousand, or 22.9% increase in net interest income and a reduction in provision
for loan losses of $171 thousand, or 53.3%; and was offset by a reduction in
non-interest income of $386 thousand, or 65.6%; higher non-interest expenses
which increased $170 thousand, or 6.6%; and increased income taxes of $96
thousand, or 32.9%
NET INTEREST INCOME
Net interest income for the second quarter of 1997, on a "FTE" basis, increased
$732 thousand, or 22.7%, compared to the second quarter of 1996. This
improvement in net interest income resulted primarily from a higher level of
earning assets, primarily loans, and was offset by lower loan rates and higher
rates paid on deposits, as the net interest margin decreased from 5.04% to
4.44%. The decrease in the net interest margin resulted from lower yielding
loans as rates generally declined. New loan volume, however, was generally
funded by the higher yielding seven month "no penalty" certificate of deposit,
which management has found to be the most cost effective funding source.
Average earning assets for the second quarter of 1997 increased by $100.7
million, or 39.3%, compared to the second quarter of 1996, primarily as a result
of a $84.7 million, or 45.2% increase in average loans; and a $10.6 million, or
15.5% increase in average investment securities; and further increased by a $5.5
million increase in average Federal Funds sold. Funding for the growth in loans
and investment securities came from deposit growth generated by the Company's
maturing branch offices and from the promotion of the seven month "no penalty"
certificate of deposit, as average deposits for the quarter ended June 30, 1997
increased
23
to $324.8 million compared to $221.0 million for the quarter ended June 30,
1996, an increase in average deposits of $103.8 million, or 47.0%.
PROVISION FOR LOAN LOSSES
The provision for loan losses was $150 thousand in the second quarter of 1997
compared to $321 thousand in the same period of 1996. The provision for loan
losses is a result of loan growth and management's assessment of economic
conditions, credit quality, loan administration effectiveness and other factors
that would have an impact on possible losses in the loan portfolio. Asset
quality is a major corporate objective and management believes that the total
allowance for loan losses is adequate to absorb potential losses in the loan
portfolio.
NON-INTEREST INCOME
Total non-interest income decreased $386 thousand, or 65.6%, to $202 thousand
for the second quarter of 1997 compared to $588 thousand for the same quarter of
1996. The decrease is attributable to net gains on investment securities sales
amounting to $95 thousand and $294 thousand attributable to a gain on sale of
other real-estate owned during the second quarter of 1996, compared to no net
security gain and no gains on sale of other real-estate owned during the
second quarter of 1997.
NON-INTEREST EXPENSE
Total non-interest expense increased $170 thousand, or 6.6%, for the second
quarter of 1997 compared to the same quarter in 1996. 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.
Employment costs increased $65 thousand, or 5.4%, for the second quarter of 1997
compared to the same quarter in 1996 due primarily to merit and cost of living
adjustments. The actual number of full-time equivalent employees was 124 at June
30, 1996 and June 30, 1997.
Occupancy expenses increased $34 thousand, or 10.1%, for the second quarter of
1997 compared to the second quarter of 1996. The increase is attributable
primarily to increased lease expense of $13 thousand incurred for normal annual
lease increases on branch facilities, an increase of $9 thousand in leasehold
depreciation on these facilities, and higher utilities and maintenance costs of
$12 thousand.
Furniture and equipment expenses increased $42 thousand, or 18.0%, due primarily
to depreciation on purchases of new computer equipment and other furniture and
equipment, which amounted to $38 thousand.
Other expenses increased $29 thousand, or 3.7%, for the second quarter of 1997
compared to the second quarter of 1996. The minimal 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
miscellaneous other expenses increased.
INCOME TAX EXPENSE
The Company recognized an income tax provision, which includes both Federal and
State taxes, of $388 thousand for the second quarter of 1997, for an effective
income tax rate of 32.5%. This compared to $292 thousand, for an effective
income tax rate of 34.1%, for the same quarter in 1996.
24
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - NONE
Item 2. Changes in Securities - NONE
Item 3. Defaults Upon Senior Securities - NONE
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of shareholders of Carnegie Bancorp was held on
May 21, 1997. The following were the results of voting for directors
to one year terms.
Note: Shares Outstanding were: 2,090,046
Shares Voted were: 1,763,489
Each of the following directors received at least 95.6% of the
shares voted in favor of their appointment:
VOTES
ELECTED DIRECTOR VOTES FOR WITHHELD
-------------------------------------------------------------------
Theodore H. Dolci, Jr. 1,690,886 72,603
Michael E. Golden 1,686,077 77,412
Thomas L. Gray, Jr. 1,690,886 72,603
Bruce A. Mahon 1,690,773 72,716
Joseph J. Oakes, III 1,690,886 72,603
James E. Quackenbush 1,690,773 72,716
Steven L. Shapiro 1,690,886 72,603
Mark A. Wolters 1,690,886 72,603
Shelly M. Zeiger 1,690,062 73,427
APPROVED
The following were the results of voting on Proposal No. 2 -
Approval of the Carnegie Bancorp 1997 Stock Option Plan, which
provides for options to purchase up to 274,000 shares of the
Company's common stock (as adjusted for subsequent stock dividends),
without par value per share ("Common Stock") to be issued to
officers and directors of the Company or its subsidiaries.
VOTES PERCENTAGE
----- ----------
For Approval: ................ 998,846 47.8%
Against Approval: ............ 117,989 5.6%
Abstain: ..................... 18,848 0.9%
Non-vote ..................... 627,806 30.0%
Item 5. Other Information - NONE
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - Financial Data Schedule
(b) Reports on Form 8-K -
The Registrant filed a Current Report on Form 8-K dated
April 24, 1997
25
announcing that its board of directors approved a second quarter
cash dividend of $0.14 per share.
The Registrant filed a Current Report on Form 8-K dated June 5, 1997
announcing that it retained the investment banking firms of Janney
Montgomery Scott, Inc. and First Colonial Securities Group, Inc. to
provide certain advisory services in connection with the exercise of
the Registrant's outstanding common stock purchase warrants.
The Registrant filed a Current Report on Form 8-K dated July 14,
1997 announcing its second quarter results of operations and that on
July 16, 1997 its board of directors approved a third quarter cash
dividend of $0.14 per share.
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: August 11, 1997 By: /s/ RICHARD ROSA
--------------- -----------------------------
Senior Vice President
and Chief Financial Officer
27