SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
---------- ----------
Commission File No. 0-25149
Ridgewood Financial, Inc.
- --------------------------------------------------------------------------------
(Exact name of Small Business Issuer as Specified in Its Charter)
New Jersey 22-3616280
- --------------------------------------------------------------------------------
(State or Other Jurisdiction of Incorporation (I.R.S. Employer
or Organization) Identification No.)
55 North Broad Street, Ridgewood, New Jersey 07450
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices)
(201) 445-7887
- --------------------------------------------------------------------------------
Issuer's Telephone Number, Including Area Code
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 NO X
------ ------
Number of shares of Common Stock outstanding as of December 21, 1998: -0-
Transitional Small Business Disclosure Format (check one)
YES NO X
------ ------
<PAGE>
RIDGEWOOD FINANCIAL, INC.
Contents
--------
Page(s)
-------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements........................................... 3
Item 2. Management's Discussion and Analysis or Plan of Operation...... 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings..............................................13
Item 2. Changes in Securities and Use of Proceeds......................13
Item 3. Defaults upon Senior Securities................................13
Item 4. Submission of Matters to a Vote of Security Holders............13
Item 5. Other Information..............................................13
Item 6. Exhibits and Reports on Form 8-K...............................13
Signatures..............................................................14
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Ridgewood Savings Bank of New Jersey
Statements of Financial Condition
September 30, 1998 and December 31, 1997
(in thousands)
<TABLE>
<CAPTION>
September 30, December
1998 1997
------- -------
Assets (unaudited)
<S> <C> <C>
Cash and due from banks $ 1,724 2,198
Federal funds sold 17,200 13,200
------- -------
Cash and cash equivalents 18,924 15,398
Investment securities:
Held to maturity 1,870 9,666
Available for sale 10,092 26,954
Mortgage-backed securities:
Held to maturity 12,060 14,356
Available for sale 96,165 50,099
Loans held for sale -- 750
Loans receivable, net 105,499 105,715
Accrued interest receivable 1,379 1,609
Premises and equipment, net 2,186 2,253
Federal Home Loan Bank ("FHLB") stock, at cost 1,949 1,949
Other assets 392 316
------- -------
Total assets $250,516 229,065
======= =======
Liabilities and Equity
Deposits $198,386 193,889
Borrowed funds 32,895 16,282
Advances from borrowers for taxes and insurance 827 902
Accounts payable and other liabilities 629 798
------- -------
Total liabilities 232,737 211,871
Retained earnings 17,634 16,966
Accumulated other comprehensive income 145 228
------- -------
Total equity 17,779 17,194
------- -------
Total liabilities and equity $250,516 229,065
======= =======
</TABLE>
See accompanying notes to financial statements
-3-
<PAGE>
RIDGEWOOD SAVINGS BANK OF NEW JERSEY
Condensed Statements of Income
September 30, 1998 and 1997
(in thousands)
<TABLE>
<CAPTION>
Three months Nine months
ended ended
September 30, September 30,
--------------------------- --------------------------------
1998 1997 1998 1997
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Interest income:
Loans receivable $ 2,104 2,215 6,254 6,597
Investment securities 170 796 856 2,713
Mortgage-backed securities 1,591 788 4,270 2,085
Other 287 165 799 431
-------- ------ ------ ------
Total interest income 4,152 3,964 12,179 11,826
Interest expense:
Deposits 2,445 2,311 7,237 6,600
Borrowed funds 361 286 881 1,044
-------- ------ ------ ------
Total interest expense 2,806 2,597 8,118 7,644
-------- ------ ------ ------
Net interest income 1,346 1,367 4,061 4,182
Provision for loan losses 36 3 168 9
-------- ------ ------ ------
Net interest income after
provision for loan losses 1,310 1,364 3,893 4,173
Noninterest income:
Fees and service charges 38 33 105 80
Gain on sale of securities -- 12 24 12
Gain on sale of loans -- -- 21 3
Other 1 1 7 14
-------- ------ ------ ------
Total noninterest income 39 46 157 109
Noninterest expenses:
Salaries and benefits 563 501 1,599 1,443
Occupancy and equipment 359 265 914 766
Advertising and promotion 36 34 112 102
SAIF deposit insurance premium 30 27 89 81
Other expenses 121 110 364 330
-------- ------ ------ ------
Total noninterest expenses 1,109 937 3,078 2,722
-------- ------ ------ ------
Income before income taxes 240 473 972 1,560
Income taxes 59 187 304 612
-------- ------ ------ ------
Net income $ 181 286 668 948
======== ====== ====== ======
</TABLE>
See accompanying notes to financial statements
-4-
<PAGE>
Ridgewood Savings Bank of New Jersey
Statements of Cash Flows
For the Nine months Ended September 30, 1998 and 1997
(in thousands)
<TABLE>
<CAPTION>
September 30,
-------------------
1998 1997
-------- -------
Cash flows from operating Activities: (unaudited)
<S> <C> <C>
Net Income $ 668 948
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 150 148
Amortization of loan fees (60) (58)
Premiums and discounts on mortgage-backed and
investment securities 751 109
Proceeds from loan sales 771 360
Loans originated for resale -- (324)
Gain on sale of loans (21) (3)
Loss on fixed asset disposal 77 --
Gain on sale of securities-available for sale (24) (12)
Provision for loan losses 168 9
Deferred income tax expense 138 526
Decrease in accrued interest receivable 230 495
Increase in other assets, net (170) (471)
Decrease in other liabilities (169) (961)
------- -------
Net cash provided by operating activities 2,509 766
------- -------
Cash flows from investing Activities:
Net decrease in first mortgage loans 843 2,959
Net increase in consumer loans (717) (2,194)
Purchases of mortgage-backed securities available for sale (64,982) (22,042)
Principal collected on mortgage-backed securities 20,178 5,214
Proceeds from sales of mortgage-backed
securities available for sale -- 3,051
Purchases of investment securities available for sale (5,649) (1,503)
Proceeds from sales of investment securities available for sale 10,522 10,148
Maturities of investment securities available for sale 12,200 --
Maturities of investment securities held to maturity 7,476 2,500
Principal collected on investment securities 289 401
Purchases of premises & equipment (160) (122)
Proceeds from collection of loan fees (18) (26)
------- -------
Net cash used in investing activities (20,018) (1,614)
Cash flows from financing Activities:
Net increase in passbook,
NOW and money market accounts 2,647 5,702
Net increase in certificates of deposit 1,850 9,110
Proceeds from borrowed funds 30,225 32,600
Repayment of borrowed funds (13,612) (43,156)
Net increase in advances from borrowers
for taxes and insurance (75) (58)
------- -------
Net cash provided by financing activities 21,035 4,198
Net increase in cash and cash equivalents 3,526 3,350
Cash and cash equivalents at beginning of period 15,398 6,364
------- -------
Cash and cash equivalents at end of period 18,924 9,714
------- -------
Supplemental disclosures of cash flow information - cash payments for:
Interest on deposits and borrowed funds 8,177 7,842
Income taxes 484 285
</TABLE>
See accompanying notes to financial statements
-5-
<PAGE>
RIDGEWOOD SAVINGS BANK OF NEW JERSEY
Notes to Financial Statements
(Unaudited)
1. Basis of Preparation
--------------------
The financial statements included herein are for Ridgewood Savings Bank
of New Jersey (the "Bank"). As described further in Note 2, Ridgewood
Financial, Inc. had no operations or assets during the quarter ended
September 30, 1998. Upon completion of the transactions described in
Note 2, the Bank will be a wholly owned subsidiary of Ridgewood
Financial, Inc.
The accompanying unaudited financial statements were prepared in
accordance with instructions for Form 10-QSB and therefore do not
include all disclosure necessary for a complete presentation of the
statements of financial condition, statements of income and statements
of cash flow in conformity with generally accepted accounting
principles. However, all adjustments which are, in the opinion of
management, necessary for the fair presentation of the interim
financial statements have been included. All such adjustments are of a
normal recurring nature. The statements of income are not necessarily
indicative of the results which may be expected for the entire year.
Certain information and footnote disclosures normally included in the
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the
rules and regulations of the Securities and Exchange Commission. It is
suggested that these condensed unaudited financial statements be read
in conjunction with the audited financial statements and notes thereto
for the Bank for the year ended December 31, 1997 (included in the
prospectus of Ridgewood Financial, Inc. dated November 12, 1998 and
filed with the Securities and Exchange Commission on November 20,
1998).
2. Plan of Reorganization and Stock Issuance
-----------------------------------------
On June 22, 1998, the Bank's Board of Directors approved a plan
("Plan") to reorganize and convert from a state-chartered mutual
savings bank to a state-chartered stock savings bank, to create a stock
holding company (Ridgewood Financial, Inc.) under the control of a
mutual holding company (Ridgewood Financial, MHC) and to offer stock of
Ridgewood Financial, Inc., subject to ratification by the Bank's
members. The Plan was subject to approval by federal and state
regulatory agencies and included the filing of a registration statement
with the SEC. These transactions were not completed by September 30,
1998. Actual conversion, reorganization and offering costs will be
accounted for as a reduction in gross proceeds.
The Plan calls for the common stock of the Bank to be purchased by the
stock holding company and, of the common stock of the stock holding
company to be issued, 47% will be sold to various parties in an
offering at a price of $7.00 per share and 53% will be issued to the
mutual holding company.
The stockholders of the stock holding company will be asked to approve
a proposed stock option plan and a proposed restricted stock plan at a
meeting of the stockholders after the conversion. Shares issued to
directors and employees under these plans may be from authorized but
unissued shares of common stock or they may be purchased in the open
market. In the event that options or shares are issued under these
plans, such issuances will be included in the earnings per share
calculation; thus, the interests of existing stockholders would be
diluted.
-6-
<PAGE>
The stock holding company will not be permitted to pay dividends on its
capital stock if its stockholders' equity would be reduced below the
amount required for the liquidation account discussed below. The income
of the stock holding company may depend, in part, on the amount of
dividends the stock holding company receives from the Bank.
The Bank may not declare or pay a cash dividend if the effect thereof
would cause its net worth to be reduced below either the amounts
required for the liquidation account discussed below or the regulatory
capital requirements imposed by regulation.
At the time of the reorganization and conversion, the Bank will
establish a liquidation account (which is a memorandum account that
does not appear on the balance sheet) in an amount equal to its
retained income as reflected in the latest balance sheet used in the
final conversion prospectus. The liquidation account will be maintained
for the benefit of eligible account holders who continue to maintain
their deposit accounts in the Bank after the reorganization and
conversion. In the event of a complete liquidation of the Bank (and
only in such an event), eligible depositors who continue to maintain
accounts would be entitled to receive a distribution from the
liquidation account before any liquidation may be made with respect to
common stock.
(3) Investment Securities
The following is a summary of maturities of the investment securities as of
September 30, 1998 and December 31, 1997 (in thousands):
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
----------------------------------------- --------------------------------------
(Unaudited)
Securities held to Securities available Securities held Securities available
maturity for sale to maturity for sale
------------------- ------------------ ------------------ --------------------
Amortized Fair Amortized Fair Amortized Fair Amortized Fair
cost value cost value cost value cost value
---- ----- ---- ----- ---- ----- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Amounts maturing in:
Equity securities $ -- -- 8 27 -- -- 8 22
One year or less 497 497 500 500 920 916 500 498
After one year through
five years 52 52 808 813 1,219 1,238 -- --
After five years through
ten years 716 738 379 388 3,807 3,842 23,197 23,193
After ten years 605 606 8,053 8,364 3,720 3,728 3,091 3,241
------- ------- ------- ------- ------- ------- ------- -------
$ 1,870 1,893 9,748 10,092 9,666 9,724 26,796 26,954
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties.
-7-
<PAGE>
(4) Mortgage-backed Securities
The following is a summary of maturities of the mortgage-backed securities
as of September 30, 1998 and December 31, 1997 (in thousands):
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------------------------------------- -------------------------------------------
(Unaudited)
Securities held to Securities available Securities held Securities available
maturity for sale to maturity for sale
---------------------- ----------------------- -------------------- ---------------------
Amortized Fair Amortized Fair Amortized Fair Amortized Fair
cost value cost value cost value cost value
---- ----- ---- ----- ---- ----- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Amounts maturing in:
After one year through
five years $ 954 956 9,557 9,634 - - 7,549 7,593
After five years through
ten years 673 690 24,502 24,778 963 955 10,546 10,598
After ten years 10,433 10,605 62,222 61,753 13,393 13,567 31,807 31,908
-------- ------ ------ ------ ------- ------ ------- ------
$ 12,060 12,251 96,281 96,165 14,356 14,522 49,902 50,099
======== ====== ====== ====== ====== ====== ======= ======
</TABLE>
Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties.
(5) Borrowed Funds
Borrowed funds at September 30, 1998 and December 31, 1997 are summarized
as follows (in thousands):
September 30, December 31,
1998 1997
---- ----
(Unaudited)
Advances from the FHLB $32,895 $16,282
====== ======
Pursuant to collateral agreements with the FHLB, advances are secured by
all stock in the FHLB and qualifying first mortgage loans. Advances at
September 30, 1998 and December 31, 1997 have maturity dates as follows (in
thousands):
September 30, December 31,
1998 1997
---- ----
(Unaudited)
1998 $ 325 $ 15,525
2000 2,500 150
2001 2,000 -
2002 4,000 -
2003 5,500 -
2005 2,000 -
2006 570 607
2008 16,000 -
------- -------
$ 32,895 $ 16,282
======= =======
The interest rates on advances ranged from 5.05% to 6.76% and from 5.30% to
6.85% at September 30, 1998 and December 31, 1997, respectively.
(6) Comprehensive Income
Effective January 1, 1998, the Bank adopted the provisions of Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
(Statement No. 130). Statement No. 130 establishes standards for reporting
and display of comprehensive income and its components in a full set of
general purpose financial statements. Under Statement No. 130,
comprehensive income is divided into net income and other comprehensive
income. Other comprehensive income includes items previously recorded
directly in equity, such as unrealized gains or losses on securities
available for sale. Comparative financial statements provided for earlier
periods have been reclassified to reflect the application of the provisions
of Statement No. 130. For the Bank, comprehensive income is determined by
adding unrealized holding gains or losses during the period to net income.
Comprehensive income totalled $567,000 and $1.1 million for the quarters
ended September 30, 1998 and 1997, respectively, and $540,000 and $1.7
million for the nine months ended September 30, 1998 and 1997,
respectively.
-8-
<PAGE>
Item 2. Management's Discussion and Analysis
of Recent Developments
Comparison of Financial Condition at September 30, 1998 and December 31, 1997
Total assets increased by $21.4 million or 9.3% to $250.5 million at
September 30, 1998 from $229.1 million at December 31, 1997. This increase was
primarily due to an increase in available for sale mortgage-backed securities,
offset by decreases in investment securities, held to maturity mortgage-backed
securities, and loans held for sale. Cash and cash equivalents increased $3.5
million to $18.9 million at September 30, 1998 compared to $15.4 million at
December 31, 1997. Available for sale mortgage-backed securities increased by
$46.1 million to $96.2 million at September 30, 1998, from $50.1 million at
December 31, 1997, as new purchases and reinvestment of prepayments of
mortgage-backed securities were classified as available for sale. Between these
dates, total investment securities decreased by $24.6 million from $36.6 million
to $12.0 million at September 30, 1998 as a result of sales and redemptions of
callable securities.
The Bank's deposits increased by $4.5 million or 2.3% from December 31,
1997 to $198.4 million at September 30, 1998, due primarily to continued deposit
growth at both of its new branches opened in 1996. Borrowings increased $16.6
million to $32.9 million at September 30, 1998 from $16.3 million at December
31, 1997 as the Bank used borrowings to lengthen the maturities of its
liabilities to reduce interest rate risk and to generate additional income as
part of its leveraging strategy.
Total equity increased $586,000 to $17.8 million at September 30, 1998
due to net income of $668,000 offset by approximately $82,000 of unrealized
depreciation on securities available for sale, net of taxes.
After September 30, 1998, the Bank made an offer to purchase a building
in Ridgewood, New Jersey for approximately $4.0 million. The offer has been
accepted but is subject to certain conditions. If all conditions are met, the
Bank may acquire the property by December 31, 1998. The Bank expects to use the
property as an additional branch office and to house administrative operations.
The Bank has estimated that the acquisition and refurbishment costs for this
purpose could total approximately $6.0 million. These costs could be funded with
cash and cash equivalents without reducing liquidity below the level the Bank
feels is appropriate.
Comparison of Operating Results for the Three Months Ended September 30, 1998
and September 30, 1997
Net Income. Net income decreased $105,000 to $181,000 for the three
months ended September 30, 1998 as compared to $286,000 for the same period in
1997. Net income decreased primarily due to a decrease of $21,000 in net
interest income, an increase in the provision for loan losses of $33,000, and an
increase in noninterest expenses of $172,000.
Net Interest Income. Net interest income decreased by approximately
$21,000 or 1.5% to $1.3 million for the three months ended September 30, 1998,
as compared to the same three months in 1997. The decrease in net interest
income was primarily due to a decline in the average yield on interest earning
assets and an increase in interest expense due to higher average balances of
deposits and borrowings. In addition, market conditions and competitive pressure
on the pricing of loans and deposits has resulted
-9-
<PAGE>
in a smaller interest rate spread. Market conditions and/or competitive
pressures in the future may further reduce the spread between asset yields and
the cost of funds.
Provision for Loan Losses. The provision for loan losses increased by
$33,000 to $36,000 for the three months ended September 30, 1998 from $3,000 for
the same three months of 1997. The increase was recognized in order to raise the
allowance for loan losses primarily as a result of management's review of the
risk inherent in the loan portfolio based in part on a comparison of loss
experience at the Bank and loss experience and reserve levels at peer
institutions. In addition, the allowance was increased as a result of the
changing composition of the loan portfolio from single family mortgages to
commercial real estate and consumer loans.
Noninterest income. Noninterest income decreased by $7,000 to $39,000
for the three months ended September 30, 1998, from $46,000 for the same period
in 1997.
Noninterest expenses. Noninterest expenses increased by $172,000 to
$1.1 million for the three months ended September 30, 1998 from $937,000 for the
same three months in 1997. The increase was due to higher salaries and benefits
expenses for the three months ended September 30, 1998 resulting from an
increase in staff, increases in medical insurance rates, recognition of expenses
for new benefit plans for senior executives and the Board of Directors, as well
as normal salary and merit increases. In addition, $75,000 was charged to
earnings due to replacement of all personal computers which did not meet year
2000 compliance tests.
Comparison of Operating Results for the Nine Months Ended September 30, 1998 and
September 30, 1997
Net Income. Net income decreased $280,000 to $668,000 for the nine
months ended September 30, 1998 as compared to $948,000 for the same period in
1997. Net income decreased due to a decline of $121,000 in net interest income,
an increase of $159,000 in loan loss provisions, and an increase in noninterest
expense of $356,000.
Net Interest Income. Net interest income decreased by approximately
$121,000 or 2.9% to $4.1 million for the nine months ended September 30, 1998.
The decrease was primarily due to a decrease in the average yield of interest
earning assets and an increase in average balances of deposits and borrowings,
partially offset by a modest decline in the average cost of interest-bearing
liabilities. However, market conditions and competitive pressure on the pricing
of loans and deposits has resulted in a smaller interest rate spread. Market
conditions and/or competitive pressure in the future may further reduce the
spread between asset yields and the cost of funds.
Provision for Loan Losses. The provision for loan losses increased
$159,000 for the nine months ended September 30, 1998, as compared to $9,000 for
the same nine months in 1997, thereby increasing the allowance for loan losses
to $786,000 at September 30, 1998.
Noninterest income. Noninterest income increased by $48,000 to $157,000
for the nine months ended September 30, 1998, from $109,000 for the nine months
ended September 30, 1997. These increases resulted from higher ATM fees,
increases in service fees on deposit accounts, gains on sales of loans and
securities, and higher loan servicing income.
-10-
<PAGE>
Noninterest expenses. Noninterest expenses increased by $356,000 to
$3.1 million for the nine months ended September 30, 1998, from $2.7 million for
the nine months ended September 30, 1997. This resulted from an increase of
$148,000 in salaries and benefit costs, and an increase of $199,000 in other
noninterest expenses. Included in the increase in noninterest expenses was a
charge of $75,000 for replacement of personal computers which did not meet year
2000 compliance tests. In addition, computer service expense increased by
$45,000, resulting from an increase in account volumes and including $15,000 in
year 2000 compliance costs. Further, consultants fees increased by $26,000 due
to increased use of consultants as well as costs associated with the strategic
planning.
Income Taxes. Income taxes decreased by approximately $308,000 to
$304,000 for the nine months ended September 30, 1998, as compared to $612,000
for the same nine months in 1997. The decrease was primarily due to the decrease
in income before taxes as discussed above, as well as an increase in tax exempt
income.
Year 2000 Evaluation
Rapid and accurate data processing is essential to the Bank's
operations. Many computer programs that can only distinguish the final two
digits of the year entered (a common programming practice in prior years) are
expected to read entries for the year 2000 as the year 1900 or as zero and
incorrectly attempt to compute payment, interest, delinquency and other data. We
have been evaluating both information technology (computer systems) and
non-information technology systems (e.g., vault timers, electronic door lock and
heating, ventilation and air conditioning controls). We have examined all of our
non-information technology systems and have either received certifications of
year 2000 compliance for systems controlled by third party providers or
determined that the systems should not be impacted by the year 2000. We expect
to further test the systems we control and receive third party certification,
where appropriate, that they will continue to function. We do not expect any
material costs to address our non-information technology systems and have not
had any material costs to date. We have determined that the information
technology systems we use have substantially more year 2000 risk than the
non-information technology systems we use. We have evaluated our information
technology systems risk in three areas: (1) our own computers, (2) computers of
others used by our borrowers, and (3) computers of others who provide us with
data processing.
Our own computers. We expect to spend approximately $200,000 through
December 31, 1998 to upgrade our computer system. We expect to capitalize this
cost. This upgrade is expected to eliminate the year 2000 risk in our computers.
We do not expect to have material costs to address this risk area after December
31, 1998. At September 30, 1998, approximately half of the estimated $200,000
had been capitalized. In addition to this $200,000, we expensed approximately
$75,000 between July 1, 1998 and September 30, 1998 for non-compliant computer
equipment.
Computers of others used by our borrowers. We have evaluated most of
our borrowers and do not believe that the year 2000 problem should, on an
aggregate basis, impact their ability to make payments to the Bank. We believe
that most of our residential borrowers are not dependent on their home computers
for income and that none of our commercial borrowers are so large that a year
2000 problem would render them unable to collect revenue or rent and, in turn,
continue to make loan payments to the Bank. As a result, we have not contacted
residential borrowers concerning this issue and do not consider this issue in
our residential loan underwriting process. We have begun contacting our
commercial borrowers with loans of $250,000 or more and considering this issue
during commercial loan
-11-
<PAGE>
underwriting. At September 30, 1998 these loans constituted $9.2 million or
86.2% of our $10.6 million commercial loan portfolio. We do not expect any
material costs to address this risk area.
Computers of others who provide us with data processing. This risk is
primarily focused on one third party service bureau that provides virtually all
of the Bank's data processing. This service bureau is not year 2000 compliant
but has advised us that it expects to be compliant before the year 2000. If this
problem is not solved before the year 2000, we would likely experience
significant delays, mistakes or failures. These delays, mistakes or failures
could have a significant impact on our financial condition and results of
operations.
Contingency Plan. We are monitoring our service bureau to evaluate
whether our data processing system will fail. We are being provided with
periodic updates on the status of testing and upgrades being made by the service
bureau. If our service bureau fails, we will attempt to locate an alternative
service bureau that is year 2000 compliant. If we are unsuccessful, we will
enter deposit and loan transactions by hand in our general ledger and compute
loan payments and deposit balances and interest with our existing computer
system. We can do this because of our relatively small number of loan and
deposit accounts and our internal bookkeeping system. Our computer systems are
independently able to generate labels and mailings for all of our customers and
we periodically test this system and print and store this material. If this
labor intensive approach is necessary, management and our employees will become
much less efficient. However, we believe that we would be able to operate in
this manner indefinitely, until our existing service bureau, or their
replacement, is able to again provide data processing services. If very few
financial institution service bureaus were operating in the year 2000, our
replacement costs, assuming we could negotiate an agreement, could be material.
Liquidity and Capital Resources
Management is not aware of any known trends, events or uncertainties that
will have or are reasonably likely to have a material effect on the Bank's
liquidity, capital or operations nor is management aware of any current
recommendation by regulatory authorities, which if implemented, would have such
an effect. At September 30, 1998, the Bank met all applicable regulatory capital
requirements.
-12-
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
Not applicable.
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
Not applicable.
Item 3. Defaults Upon Senior Securities
-------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not applicable.
Item 5. Other Information
-----------------
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) None.
(b) No reports on Form 8-K were filed during the quarter ended
September 30, 1998.
-13-
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
RIDGEWOOD FINANCIAL, INC.
Date: December 28, 1998 By: /s/Susan E. Naruk
--------------------------------------
Susan E. Naruk
President and Chief Executive Officer
(Principal Executive Officer)
(Duly Authorized Officer)
Date: December 28, 1998 By: /s/John Scognamiglio
--------------------------------------
John Scognamiglio
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer and Chief
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION DERIVED FROM THE
QUARTERLY REPORT ON FORM 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,246
<INT-BEARING-DEPOSITS> 478
<FED-FUNDS-SOLD> 17,200
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 106,257
<INVESTMENTS-CARRYING> 120,187
<INVESTMENTS-MARKET> 120,401
<LOANS> 106,618
<ALLOWANCE> 786
<TOTAL-ASSETS> 250,516
<DEPOSITS> 198,386
<SHORT-TERM> 325
<LIABILITIES-OTHER> 1,456
<LONG-TERM> 32,570
0
0
<COMMON> 0
<OTHER-SE> 17,779
<TOTAL-LIABILITIES-AND-EQUITY> 250,516
<INTEREST-LOAN> 6,254
<INTEREST-INVEST> 5,126
<INTEREST-OTHER> 799
<INTEREST-TOTAL> 12,179
<INTEREST-DEPOSIT> 7,237
<INTEREST-EXPENSE> 8,119
<INTEREST-INCOME-NET> 4,061
<LOAN-LOSSES> 168
<SECURITIES-GAINS> 24
<EXPENSE-OTHER> 3,078
<INCOME-PRETAX> 972
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 668
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 2.27
<LOANS-NON> 69
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 618
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 786
<ALLOWANCE-DOMESTIC> 786
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
