SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the fiscal year ended December 31, 1995
Commission file number 0-15830
Raritan Bancorp Inc.
(Exact name of registrant as specified in its charter)
Delaware 22-2792402
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(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
9 West Somerset Street
Raritan, New Jersey 08869
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(Address of principal (Zip Code)
executive offices)
Telephone Number: (908) 725-0080
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Indicate by checkmark 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
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Securities Registered Pursuant to Section 12(g) of the Exchange
Act: Common Stock
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained to the Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. X
The aggregate market value of the voting stock held by
nonaffiliates of the registrant, computed by reference to the last
reported sales price of such stock on the NASDAQ National Market
System on March 11, 1996 was approximately $21,899,600.
The number of shares outstanding of the registrant's Common
Stock, the registrant's only class of outstanding capital stock, as
of March 11, 1996 was 1,449,689.
Documents Incorporated by Reference
The following documents, in whole or in part, are specifically
incorporated by reference in the indicated Part of this Annual
Report on Form 10-K:
I. Portions of the Raritan Bancorp, Inc. 1995 Annual Report are
incorporated by reference into certain items of Part I and
Part II.
II. Portions of the Raritan Bancorp, Inc. Proxy Statement for the
1995 Annual Meeting of Shareholders are incorporated by
reference into certain items of Part III.
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RARITAN BANCORP INC.
FORM 10-K
TABLE OF CONTENTS
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Page
PART I
<S> <C>
Item 1. Business . . . . . . . . . . . . . . . . . . . . 1
(a) General Development of Business. . . . . . . . . 1
(b) Financial Information About Industry Segments. . 1
(c) Narrative Description of Business. . . . . . . . 1
(1) General Description of Business. . . . . . 1
(2) Regulation and Supervision . . . . . . . . 2
(3) Monetary Policies. . . . . . . . . . . . . 9
(4) Employees. . . . . . . . . . . . . . . . . 9
(5) Statistical Information. . . . . . . . . . 9
(a) Distribution of Assets,
Liabilities and Shareholders'
Equity; Interest Rates and
Interest Differential. . . . . . . . 9
(b) Securities Portfolio . . . . . . . . 10
(c) Loan Portfolio . . . . . . . . . . . 12
(d) Maturity of Loans. . . . . . . . . . 12
(e) Nonperforming Assets . . . . . . . . 15
(f) Summary of Loan Loss
Experience and Allocation of
the Allowance for Loan
Losses . . . . . . . . . . . . . . . 16
(g) Deposits . . . . . . . . . . . . . . 17
(h) Maturities of Time Deposits. . . . . 17
(i) Return on Equity and Assets. . . . . 18
(j) Short-term Borrowings. . . . . . . . 18
(k) Competition. . . . . . . . . . . . . 19
(l) Executive Officers . . . . . . . . . 19
Item 2. Properties . . . . . . . . . . . . . . . . . . . 20
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . 20
Item 4. Submission of Matters to a Vote of Security
Holders . . . . . . . . . . . . . . . . . . . . . . . 21
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and
Related Shareholder Matters . . . . . . . . . . . . . 21
(a) Market Information . . . . . . . . . . . . . . . 21
(b) Shareholders . . . . . . . . . . . . . . . . . . 21
(c) Dividends. . . . . . . . . . . . . . . . . . . . 21
Item 6. Selected Financial Data. . . . . . . . . . . . . 22
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . 22
Item 8. Financial Statements and Supplementary Data. . . 22
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . 22
PART III
Item 10. Directors and Officers of the Registrant . . . . 23
Item 11. Executive Compensation . . . . . . . . . . . . . 23
Item 12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . 23
Item 13. Certain Relationships and Related Transactions . 23
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K. . . . . . . . . . . . . . . 24
(a) (1) Consolidated Financial Statements. . . . . 24
(2) Consolidated Financial Statement
Schedules. . . . . . . . . . . . . . . . . 24
(b) Reports on Form 8-K. . . . . . . . . . . . . . . 24
(c) Exhibits Required by Securities and Exchange
Commission Regulation S-K. . . . . . . . . . . . 24
</TABLE>
<PAGE>
PART I
Item 1. Business
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(a) General Development of Business
Raritan Bancorp, Inc.
Raritan Bancorp, Inc. (the "Corporation"), a Delaware
Corporation, is a bank holding company whose only subsidiary is The
Raritan Savings Bank (the "Bank"), an FDIC/BIF insured, New Jersey
chartered savings bank, headquartered in Raritan, New Jersey. The
Corporation was formed at the direction of the Bank in connection
with the Bank's conversion from a mutual to stock form of
organization (the "Conversion"). The Conversion of the Bank and
its acquisition by the Corporation was consummated on May 21, 1987.
The sole activity of the Corporation is its ownership of all of the
issued and outstanding common stock of the Bank.
The Raritan Savings Bank
The Bank is a New Jersey chartered stock savings bank
organized in 1869. Its main office is located at 9 West Somerset
Street, Raritan, New Jersey 08869, and its telephone number is
908-725-0080. It also operates branch offices in Martinsville,
Somerville, Warren and Whitehouse Station, New Jersey. The deposit
accounts in the Bank are insured by the Federal Deposit Insurance
Corporation (the "FDIC") through the Bank Insurance Fund (the
"BIF"). The Corporation and the Bank have entered into an
agreement to acquire Manville Savings Bank, a mutual savings bank
which operates one office in Manville, New Jersey, and which had
assets of $15.3 million, and deposits of $13.9 million at December
31, 1995.
The Bank considers its primary market area for deposits to be
the areas serviced by these five offices, while its primary market
area for lending is more widespread and includes Somerset and
Hunterdon Counties, as well as contiguous municipalities in Morris,
Middlesex, Union and Mercer Counties, New Jersey. These areas
include mostly manufacturing and service companies. There are four
other financial institutions in Raritan.
(b) Financial Information About Industry Segments
Not applicable.
(c) Narrative Description of Business
(1) General Description of Business
The Corporation is a bank holding company whose only
subsidiary is the Bank.
<PAGE>
The Bank is engaged primarily in the business of attracting
deposits from the general public and originating residential
mortgage, construction and consumer loans, and small business
loans. In addition, a portion of its assets is invested in
securities, including mortgage-backed securities.
It is the Bank's policy primarily to originate adjustable-rate
mortgage loans and other loans of an adjustable or short-term
nature. However, in order to meet the demands of borrowers in the
Bank's local lending area for long-term, fixed-rate mortgage loans
in the current interest rate environment, the Bank began
originating such loans (both 15 and 30 year loans) in 1991. Of the
$36.4 million of first mortgage loans disbursed during 1995,
$1.2 million were fixed-
rate, while the balance of $35.2 million were of an adjustable or
short-term nature. Consumer and commercial lending disbursements
totaled $21.5 million for 1995 and consisted primarily of loans
which are tied to the prime lending rate and are of a short-term
nature.
The Bank offers a wide range of services to both consumer and
commercial customers. These services include consumer and
commercial checking accounts, NOW and money market accounts,
regular savings accounts, prime performance accounts whose rates
are tied to the prime lending rate, market-rate certificates,
IRA/Keough accounts, automated teller machine ("ATM") accessibility
using the MAC Plus system, real estate mortgage loans, various
consumer and commercial time and demand loans, and home equity
lines of credit.
(2) Regulation and Supervision
General. As a New Jersey chartered savings bank, the deposits
in which are insured by the FDIC through the BIF, the Bank is
subject to extensive regulation by the FDIC and the New Jersey
Department of Banking (the "Banking Department"). Both the Banking
Department and FDIC periodically examine the Bank for compliance
with various regulatory requirements. The Bank must file reports
with the FDIC and the Banking Department describing its activities
and financial condition. The Board of Governors of the Federal
Reserve System ("FRB") approved the Corporation's application to
acquire the capital stock of the Bank and thereby to become a bank
holding company. The Corporation is therefore subject to
regulation, examination, supervision by the FRB. This supervision
and regulation is intended primarily for the protection of
depositors. The regulatory structure also gives the regulatory
authorities extensive discretion in connection with their
supervisory and enforcement activities and examination policies,
including policies with respect to the classification of assets and
the establishment of adequate loan loss reserves for regulatory
purposes. Any change in such regulations could have a material
adverse impact on the Corporation, the Bank and their operations.
Certain of these regulatory requirements are referred to below or
appear elsewhere herein. The Corporation is also subject to the
reporting requirements of the Securities and Exchange Commission
("SEC").
<PAGE>
To the extent that the following information describes
statutory and regulatory provisions, it is qualified in its
entirety by reference to the particular statutory and regulatory
provisions involved. In this regard, it should be noted that there
have been numerous statements by legislative and regulatory
officials and industry officials regarding the potential for
legislative and regulatory changes.
New Jersey Law. The Bank is a stock-form savings bank
organized under the laws of the State of New Jersey, and its
deposits are insured by the FDIC. The Bank derives its lending,
investment and other powers from the applicable provisions of New
Jersey law and the regulations of the Banking Department, subject
to limitations or other modifications under applicable federal laws
and regulations of such agencies as the FDIC and the Federal
Reserve Board.
The Banking Department regulates the Bank's internal
organization as well as its deposit, lending and investment
activities. The Commissioner of the Banking Department must
approve changes to the Bank's Certificate of Incorporation,
establishing or relocating branch offices, mergers and the issuance
of additional stock. Many of the areas regulated by the Banking
Department are subject to similar regulation by the FDIC. New
Jersey-chartered savings banks have lending, investment and other
powers similar to those authorized for federally-chartered savings
institutions, including commercial lending authority and the
ability to offer personal and commercial checking and NOW accounts,
and have virtually the same powers as commercial banks.
The Financial Institutions Reform, Recovery and Enforcement
Act of 1989. On August 9, 1989, the President of the United States
signed into law the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ("FIRREA"), a major reform intended
primarily to recapitalize the savings and loan industry. Although
the primary emphasis of the new law was to recapitalize and
restructure the regulation and insurance of the savings and loan
industry, certain provisions did affect banks and FDIC-insured
savings banks. Notably, FIRREA abolished the Federal Savings and
Loan Insurance Corporation and required that the FDIC establish two
separate insurance funds, the Bank Insurance Fund ("BIF") and the
Savings Association Insurance Fund ("SAIF"). Banks, including
state-chartered savings banks, are insured under the BIF. "Savings
associations" (i.e., savings and loan associations) are insured
under the SAIF. Under FIRREA, the BIF may not be commingled with
the SAIF and vice versa. See "Insurance of Deposits." Also under
FIRREA, bank holding companies now are able to acquire any savings
association without the imposition of cross-marketing restrictions
on transactions between the association and its holding company
affiliates.
The Federal Deposit Insurance Corporation Improvement Act of
1991. On December 19, 1991 the Federal Deposit Insurance
Corporation Improvement Act of 1991 (the "Act") was signed by the
President. Among other things, the Act provided additional sources
of funding to the BIF, which generally insures the deposits of
banks, including state-chartered savings banks. The Act also
authorizes the FDIC to impose emergency special assessments on BIF
members where deemed necessary, in addition to the regular
insurance assessments. The Act also adopted a number of new
mandatory supervisory measures designed to reduce costs to the
deposit insurance fund. For example, effective December 19, 1992,
the regulatory agencies
<PAGE>
were required to take certain supervisory actions (the "Prompt
Corrective Action" provisions) against undercapitalized banks. The
severity of such action depends upon the degree of
undercapitalization. The Act generally requires, subject to a
narrow exception, the appointment of a receiver or conservator for
banks whose tangible capital level falls below 2%, which
appointment must be made within a maximum of 270 days after the
threshold is reached. The final Prompt Corrective Action rules
generally provide that an insured institution that has total
risk-based capital of less than 8.0% or a leverage ratio that is
less than 4.0% would be considered to be "undercapitalized", an
insured institution that has total risk-based capital less than
6.0% or a leverage ratio that is less than 3.0% would be considered
to be "significantly under-capitalized" and an insured institution
that has a tangible capital to assets ratio equal to or less than
2% would be deemed to be "critically undercapitalized." Generally,
under the rule, an insured institution that is "undercapitalized,"
"significantly under-capitalized," or "critically undercapitalized"
becomes immediately subject to certain regulatory restrictions,
including, but not limited to, restrictions on growth, investment
activities, capital distributions, and affiliate transactions. The
filing of a capital restoration plan, which must be guaranteed by
the parent holding company, is also required. In addition,
"critically undercapitalized" institutions must receive prior
written approval from the FDIC to engage in any material
transaction other than in the normal course of business.
Pursuant to the Act, the federal regulatory agencies adopted
final regulations prescribing standards relating to a variety of
operating matters such as internal controls, information systems
and external audit systems, loan documentation and credit
underwriting, interest rate exposure, asset growth and quality and
employee compensation.
The Act also places new restrictions on investments by, and
the activities of, insured state banks such as the Bank. Effective
December 19, 1992, neither state banks nor their subsidiaries may
engage in activities not permissible for national banks or their
subsidiaries unless the FDIC determines that the activity would
pose no significant risk to the deposit insurance fund and the bank
is and continues to comply with applicable federal capital
standards. Additionally, subject to exceptions for majority-owned
subsidiaries and certain other limited exceptions, state banks may
not acquire or retain any equity investment of a type or in an
amount not permissible for national banks. Generally,
nonconforming investments must be divested over a five-year
transition period.
Insurance of Deposits. The Bank's deposit accounts primarily
are insured by the BIF up to applicable limits, generally $100,000
per insured depositor. In September 1991, the Bank assumed $80.3
million of insured deposit liabilities relating to the Warren and
Whitehouse Station, New Jersey branch offices of a savings
association being operated by the Resolution Trust Corporation,
which deposits are insured by the Savings Association Insurance
Fund ("SAIF"), up to applicable limits, generally $100,000 per
insured depositor. The SAIF, like the BIF, is administered by the
FDIC. The FDIC promulgates regulations, conducts periodic
examinations, requires the filing of reports and generally
supervises the operations of its insured banks. The approval of
the FDIC is required prior to a merger or consolidation or the
establishment or relocation of an office facility. This
supervision and regulation is intended primarily for the protection
of depositors.
<PAGE>
Pursuant to the Act, the FDIC adopted regulations, effective
January 1, 1993, establishing a system for setting deposit
insurance premiums based upon the risks a particular bank or
savings association poses to the deposit insurance funds. Under
the rule, the FDIC assigns an institution to one of three capital
categories consisting of (1) well capitalized, (2) adequately
capitalized, or (3) undercapitalized, and one of three supervisory
subcategories. An institution's assessment rate will depend on the
capital category and supervisory category to which it is assigned.
During 1995 the FDIC established an assessment rate of 4 to 31
basis points of deposits insured, replacing the prior schedule of
23 to 31 points, for institutions whose deposits are subject to
assessment by the Bank Insurance Fund ("BIF"). Effective January
1, 1996, the FDIC reduced the assessment rate to a range of 0 (with
a statutorily required $2,000 minimum assessment fee) to 31 basis
points. The FDIC has maintained the current assessment rate
schedule of 23 to 31 basis points for institutions whose deposits
are subject to assessment by the Savings Association Savings Fund
("SAIF"). Assessments which had been collected at the previous
assessment schedule, in excess of the amount due under the new
schedule, were refunded with interest, and reduced operating
expenses by $141,000 during 1995.
Capital Requirements. Both the FRB and the FDIC have issued
regulations which require both the Corporation and the Bank,
respectively, to maintain minimum levels of capital. In general,
the regulations require a leverage capital ratio of 4% of total
assets to be maintained. At December 31, 1995, the Corporation's
and Bank's leverage capital ratio was 7.38% and 7.37%,
respectively.
The FDIC and the FRB also have adopted a risk-based capital
policy which imposes an additional capital standard on insured
banks and bank holding companies. Under this regulation, the
Corporation and Bank must classify its assets and certain
off-balance sheet activities into categories, and maintain
specified levels of capital for each category. The least capital
is required for the category having the least risk, and the most
capital is required for the category deemed to have the greatest
risk. At December 31, 1995, the Corporation and the Bank were
required to have a Tier 1 risk-
based capital ratio of 4% and total-risk-based capital ratio of 8%.
At December 31, 1995, the Corporation's Tier 1 and total risk-based
capital ratios were 14.217% and 15.470%, respectively. The Bank's
Tier 1 and total risk-based capital ratios were 14.198% and
15.451%, respectively.
Under the Act, the capital regulations of the FDIC and the FRB
are required eventually to include a component that takes into
account, and may require additional capital as a result of, the
interest rate risk inherent in an institution's portfolio.
Any insured bank which does not operate in accordance with or
conform to FDIC regulations, policies and directives may be
sanctioned for noncompliance. For example, enforcement proceedings
may be instituted against any insured bank, or any director,
officer or employee thereof who engages in unsafe and unsound
practices including the violation of applicable laws and
regulations. The FDIC has the authority to terminate or suspend
insurance of accounts pursuant to procedures established for that
purpose.
<PAGE>
Federal Reserve System. Under the FRB regulations, the Bank
is required to maintain reserves against its transaction accounts
(primarily checking and NOW accounts), nonpersonal money market
deposit accounts, and nonpersonal time deposits. Because reserves
must generally be maintained in cash or in noninterest bearing
accounts, the effect of the reserve requirement is to reduce the
Bank's level of investable funds. These regulations generally
require reserves of 3% of total transaction accounts of up to $52.0
million. Total transaction accounts amounting to over $52.0
million require a reserve of $1.6 million plus 10% (subject to
adjustment by the FRB of between 8% and 14%) of that portion of
total transaction accounts in excess of such amount. In addition,
reserves in the amount of 3% must be maintained on nonpersonal
money market deposit accounts and on nonpersonal time deposits that
have original maturities of less than one and one half years and
Eurocurrency liabilities. Institutions are permitted to designate
and exempt $4.3 million of reservable liabilities from these
reserve requirements. These amounts and percentages are subject to
adjustment by the FRB. The Bank was in compliance with these
requirements at December 31, 1995.
The Corporation received the approval of the FRB under the
BHCA for the acquisition of the Bank. As a condition for obtaining
FRB approval, the Corporation has agreed that it will not engage in
real estate investment activities unless it provides the FRB with
30 days notice of such activities and the FRB notifies the
Corporation of its nonobjections.
The Corporation will be required to obtain the prior approval
of the FRB to acquire all, or substantially all, of the assets of
any bank or bank holding company. Prior FRB approval will be
required for the Corporation to acquire direct or indirect
ownership or control of any voting securities of any bank or bank
holding company if, after giving effect to such acquisition, it
would, directly or indirectly, own or control more than 5% of any
voting shares of such bank or bank holding company. In addition to
the approval of the FRB, before any bank acquisition can be
completed, prior approval thereof may also be required to be
obtained from other agencies having supervisory jurisdiction over
the bank to be acquired.
In addition, a bank holding company is generally prohibited
from engaging in, or acquiring direct or indirect control of any
company engaged in nonbanking activities. One of the principal
exceptions to this prohibition is for activities found by the FRB
to be so closely related to banking or managing or controlling
banks as to be a proper incident thereto. Some of the principal
activities that the FRB has determined by regulation to be so
closely related to banking are: (i) making or servicing loans;
(ii) performing certain data processing services; (iii) providing
discount brokerage services; (iv) acting as fiduciary, investment
or financial advisor; (v) leasing personal or real property;
(vi) making investments in corporations or projects designed
primarily to promote community welfare; and (vii) acquiring a
savings and loan association. Legislation has been proposed in
Congress to relax, and even eliminate, the restrictions on
activities that may be engaged in by nonbank subsidiaries of a bank
holding company.
Subsidiary banks of a bank holding company are subject to
certain restrictions imposed by the Federal Reserve Act on any
extension of credit to the bank holding company
<PAGE>
or any of its subsidiaries, on investments in the stock or other
securities of such holding company or its subsidiaries, and on the
acceptance of such stocks or securities as collateral for loans.
Moreover, subsidiaries of bank holding companies are prohibited
from engaging in certain tie-in arrangements (with the Corporation
or any of its subsidiaries) in connection with any extension of
credit, lease or sale of property or furnishing of services.
The Corporation and its subsidiary Bank are affected by the
monetary and fiscal policies of various agencies of the United
States Government, including the Federal Reserve System. In view
of changing conditions in the national economy and in the money
markets, it is impossible for the management of the Corporation to
accurately predict future changes in monetary policy or the effect
of such changes on the business or financial condition of the
Corporation and the Bank.
Community Reinvestment Act. Under the Community Reinvestment
Act ("CRA"), as implemented by FDIC regulations, a savings
institution has a continuing and affirmative obligation consistent
with its safe and sound operation to help meet the credit needs of
its entire community, including low and moderate income
neighborhoods. The CRA does not establish specific lending
requirements or programs for financial institutions nor does it
limit an institution's discretion to develop the types of products
and services that it believes are best suited to its particular
community, consistent with the CRA. The CRA requires the FDIC, in
connection with its examination of a savings institution, to assess
the institution's record of meeting the credit needs of its
community and to take such record into account in its evaluation of
certain applications by such institution. Public disclosure of an
institution's CRA rating is required. The FDIC provides a written
evaluation of an institution's CRA performance utilizing a
four-tiered descriptive rating system which replaced the
five-tiered numerical rating system. The Bank has a satisfactory
rating.
Acquisition of the Corporation. Under the Federal Change in
Bank Control Act ("CIBCA"), a notice must be submitted to the FRB
if any person or group acting in concert seeks to acquire 10% or
more of the Corporation's shares of Common Stock outstanding,
unless the FRB finds that the acquisition will not result in a
change in control of the Corporation. Under the CIBCA, the FRB has
60 days within which to act on such notices, taking into
consideration certain factors, including the financial and
managerial resources of the acquiror, the convenience and needs of
the communities served by the Corporation and the Bank, and the
antitrust effects of the acquisition. Under the BHCA, any company
would be required to obtain prior approval from the FRB before it
may obtain control of the Corporation. Control generally is
defined to mean the beneficial ownership of 25% or more of any
class of voting securities of the Corporation. Under New Jersey
law, the Commissioner is required to approve in advance any
acquisition of the Corporation's Common Stock in excess of 25% of
the shares outstanding.
<PAGE>
Federal Income Taxation. For Federal income tax purposes, the
Corporation files a consolidated return with its subsidiary Bank,
using the accrual method of accounting. The Bank is, with certain
exceptions, subject to the rules of Federal income taxation
generally applicable to corporations. The maximum Federal
corporate income tax rate for all taxable income including capital
gains is currently 34%.
Savings banks, such as the Bank, which meet certain
definitional tests and conditions prescribed by the Internal
Revenue Code of 1986, as amended (the "Code") may benefit from
certain favorable provisions allowing a deduction from taxable
income for a reasonable addition to the reserve for bad debts. For
purposes of the bad debt reserve deduction, loans are separated
into "qualifying real property loans," which are, in general, loans
secured by interests in certain real property, and nonqualifying
loans, which are all other loans. The bad debt reserve deduction
with respect to nonqualifying loans must be based on loss
experience. The amount of the bad debt reserve deduction with
respect to qualifying real property loans may be based on (1) loss
experience, or (2) a percentage of taxable income (as computed
before taking such deduction into account). The Bank computes its
bad debt deduction each taxable year using the method providing for
the maximum tax benefit.
The addition to the bad debt reserve under the percentage of
taxable income method is limited to 8% of the savings bank's
taxable income (as compared with 40% under the law in effect before
December 31, 1986). The percentage of taxable income method may
not be used in any year in which less than 60% of the savings
bank's total assets are "qualifying assets," which are, in general,
cash, obligations of the U.S. or a state, certificates of deposit,
and loans secured by interests in certain real property. Savings
banks that fail to meet this 60% qualifying asset test are
generally treated as commercial banks and are subject to the rules
applicable to commercial banks.
The excess of the bad debt reserve deduction using the
percentage of taxable income method over the deduction allowable
under the experience method is a preference item for purposes of
computing the corporate minimum tax. For taxable years beginning
after December 31, 1986, the corporate minimum tax is 20%
alternative minimum tax imposed on taxable income increased by
taxpayer's tax preferences as well as certain other adjustments.
The list of tax preference items includes, among other items, a
portion of the amount by which The savings bank's adjusted pre-tax
book income, as set forth on its financial statements (or in
certain circumstances, earnings and profits) exceeds alternative
minimum taxable income (determined without regard to this
preference and prior to reduction by net operating losses). For
taxable years beginning after December 31, 1989, the computation of
this tax preference item will be modified and will be based on
adjusted current earnings.
To the extent that (i) the Bank's reserve for losses on
qualifying real property loans exceeds the amount that would have
been allowed under the experience method and (ii) the Bank makes
distributions to shareholders (as dividends or redemptions of stock
or in partial or complete liquidation) that are considered to
result in distributions from the excess bad debt reserve or the
supplemental reserve for losses on loans ("Excess Distributions"),
then the amounts considered distributed will be included in the
Bank's taxable income. The amount
<PAGE>
considered distributed includes the federal income tax payable on
the Excess Distribution. In contrast, dividends paid out of the
Bank's current or accumulated earnings and profits, as calculated
for federal income tax purposes, will not be considered to result
in distributions from the Bank's bad debt reserves. Distributions
in excess of the Bank's current and accumulated earnings and
profits, distributions in redemption of stock and distributions in
partial or complete liquidation of the Bank generally are
considered, in whole or in part, to result in distributions from
the Bank's bad debt reserves and the supplemental reserve for
losses on loans.
State Income Taxation
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The Bank is taxed under the New Jersey Savings Institutions
Tax Act. The tax is an annual privilege tax imposed at the rate of
3% on the net income of the Bank as reported for federal income tax
purposes with certain modifications. The Corporation is taxed
under the New Jersey Corporation Business Tax Act. If it meets
certain tests, the Corporation would be taxed as an investment
company at an effective annual rate of 2.34% of New Jersey taxable
income. If it fails to meet such test, it will be taxed at an
annual rate of 9.375% of New Jersey taxable income. As a Delaware
business corporation, the Corporation is subject to an annual
Delaware franchise tax.
(3) Monetary Policies
The Corporation and its subsidiary Bank are affected by the
monetary and fiscal policies of various agencies of the United
States Government, including the Federal Reserve System. In view
of changing conditions in the national economy and in the money
markets, it is impossible for the management of the Corporation to
accurately predict future changes in monetary policy or the effect
of such changes on the business or financial condition of the
Corporation.
(4) Employees
The Corporation had 70 full-time and 12 part-time employees on
December 31, 1995.
(5) Statistical Information
The statistical information on the Corporation set forth in
the following sections is furnished pursuant to Industry Guide 3
under the Securities Exchange Act of 1934.
(a) Distribution of Assets, Liabilities and
Shareholders' Equity; Interest Rates and
Interest Differential.
Information regarding the distribution of assets, liabilities
and shareholders' equity; interest rates and interest differential
appear on pages 18 and 19 of the Annual Report to Shareholders for
the year ended December 31, 1995, and are incorporated herein by
reference.
<PAGE>
(b) Securities Portfolio
The following table sets forth the carrying amount of
securities at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
-----------------------------------
1995 1994 1993
-------- ---------- ---------
(In thousands)
<S> <C> <C> <C>
U.S. government obligations and
obligations of U.S. government
agencies. . . . . . . . . . . . $ 12,584 $ 15,295 $ 6,599
Obligations of states and
political subdivisions. . . . . 804 770 966
Mortgage-backed securities issued
by Federal agencies . . . 98,565 110,615 113,509
---------- ---------- ----------
$ 111,953 $ 126,680 $ 121,074
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The mortgage backed securities owned by the Bank are high quality
securities issued and guaranteed by either the Federal National
Mortgage Association or the Federal Home Loan Mortgage Corporation.
These securities consist of pools of underlying mortgages with
similar interest rates and similar maturities. The Bank receives
a pro rata share (based on its percentage ownership in each
individual pool) in the principal and interest cash flows to be
received as the underlying mortgages are repaid by the mortgagors.
The overall return (i.e. yield) earned on mortgage backed
securities is highly sensitive to repayments on the underlying
mortgage loans which can be made before their scheduled maturity
date. In periods of falling market interest rates, prepayment of
the underlying mortgages may accelerate and reduce the yield on a
particular mortgage backed security.
The credit risk associated with mortgage backed securities is
nonexistent because payment of interest and ultimate repayment of
principal is guaranteed by the Federal National Mortgage
Association, ("FNMA"), or the Federal Home Loan Mortgage
Corporation ("FHLMC"), as applicable.
At December 31, 1995 an interest rate decrease of 300 basis points
would be expected to shorten the weighted average life of the
mortgage backed securities portfolio from 3.3 years to
approximately 1.7 years, and increases the value of the portfolio
to approximately $101.8 million from $98.0 million, while an
interest rate increase of 300 basis points would be expected to
increase such weighted average life to approximately 3.5 years and
reduce the value of the portfolio to $90.4 million.
<PAGE>
The following table sets forth the maturities and average
weighted yields for the securities available-for-sale and
investment securities, net, portfolios at December 31, 1995.
Yields on tax-exempt securities are shown on a fully tax-
equivalent basis assuming an approximate 36% combined Federal and
New Jersey State income tax rates:
<TABLE>
<CAPTION>
Mortgage-backed
Obligations Securities
U.S. Gov't. of States Issued
U.S. Gov't. Agency and Political by Federal
Obligations Obligations Subdivisions Agencies Total
------------- ------------- -------------- -------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Due within 1 year:
Amount. . . . . $ 10,072 $ -- $ -- $ -- $ 10,072
Yield . . . . . 5.85% -- -- -- 5.85%
Due from 1-5 years:
Amount. . . . . -- 2,512 -- -- 2,512
Yield . . . . . -- 5.90% -- -- 5.90%
Due from 5-10 years:
Amount. . . . . -- -- -- -- --
Yield . . . . . -- -- -- -- --
Due after 10 years:
Amount. . . . . -- -- 804 -- 804
Yield . . . . . -- -- 11.00% -- 11.00%
Mortgage-backed
securities issued
by Federal agencies:
Amount. . . . . -- -- -- 98,565 98,565
Yield . . . . . -- -- -- 6.14 6.14%
------- -------- ------- -------- --------
Total:
Amount. . . . . $10,072 $ 2,512 $ 804 $98,565 $111,953
Yield . . . . . 5.85% 5.90% 11.00% 6.14% 6.14%
------- -------- ------- -------- --------
------- -------- ------- -------- --------
</TABLE>
Mortgage-backed securities issued by Federal agencies are
disclosed separately because the principal balance is not due at a
single maturity date.
At December 31, 1995, there were no securities held of a
single issuer (excluding U.S. Government Obligations and U.S.
Government Agency Obligations) which exceeded 10% of shareholders'
equity.
<PAGE>
(c) Loan Portfolio
The following table sets forth the composition of the
Corporation's loan portfolio.
<TABLE>
<CAPTION>
At December 31,
-----------------------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C>
Real estate-mortgage. $147,673 $ 138,975 $ 123,539 $ 111,961 $ 102,813
Real estate-construction 8,536 6,454 4,379 6,172 6,394
Consumer. . . . . . . 28,886 28,660 28,826 32,209 37,422
Commercial. . . . . . 10,544 9,007 8,705 8,704 7,734
In-substance foreclosed
loans. . -- 701 860 941 3,128
-------- -------- ---------- --------- ---------
Total loans . . . 195,639 183,797 166,309 159,987 157,491
Less: Unearned income. (467) (474) (514) (664) (389)
Allowance for loan losses (2,582) (2,729) (3,094) (1,797) (1,201)
Valuation allowance -- -- -- (22) (37)
-------- -------- ---------- --------- ---------
Net loans . . . . . . $192,590 $180,594 $ 162,701 $ 157,504 $ 155,864
-------- -------- ---------- --------- ---------
-------- -------- ---------- --------- ---------
</TABLE>
(d) Maturity of Loans
The following table sets forth the maturities and
sensitivities of loans to changes in interest rates at December 31,
1995. The table does not take into consideration scheduled loan
amortization or prepayments.
<TABLE>
<CAPTION>
Maturing
----------------------------------------------------
One Year One Through After
or Less Five Years Five Years Total
---------- ---------- ---------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Real estate-mortgage. . $ 43,041 $59,827 $44,805 $ 147,673
Real estate-construction . . 8,536 -- -- 8,536
Consumer. . . . . . . . 16,434 8,990 3,462 28,886
Commercial. . . . . . . 10,505 39 -- 10,544
--------- ------- ------- --------
Total loans . . $ 78,516 $68,856 $48,267 $195,639
--------- ------- ------- --------
--------- ------- ------- --------
Loans due after 1 year with:
Predetermined interest
rates. $ 2,688 $35,661 $ 38,349
Floating or adjustable
interest rates . . . . . 66,168 12,606 78,774
------- ------- --------
$68,856 $48,267 $117,123
------- ------- --------
------- ------- --------
</TABLE>
The following loan products are currently being offered by the
Bank:
Residential First Real Estate Loans: The Bank makes available
to potential borrowers in its primary consumer area a various range
of residential loans including adjustable rate mortgage loans
("ARMS") and fixed rate loans up to terms of 30 years. ARMS are
considered
<PAGE>
by management to be advantageous to the Bank because adjustable-
rate loans better match its shorter term liability base.
Under the Bank's current ARM programs, the potential borrower
may choose among loans that have the initial interest rate fixed
for one, three or five years before the adjustments begin.
Currently, ARMS are indexed to the one, three or five year U.S.
Treasury constant maturities. All of the Bank's residential
mortgage lending is subject to non-discriminatory underwriting
standards. All loans are subject to underwriting review and
approval by various levels of Bank personnel, depending on the size
of the loan. Generally, the Bank requires a loan to value ratio of
no more than 80%. The collateral for these loans are borrowers who
own primary residences. These loans represent the least degree of
credit risk of all loan products offered (except loans secured by
customers' deposits) by the Bank.
In addition to interest earned on loans, the Bank receives
fees for originating loans and for providing loan commitments. The
Bank also charges fees for late payments and other miscellaneous
services. Fees received in connection with loan originations are
deferred and amortized into interest income over the estimated life
of the loan.
Construction Loans: The Bank provides financing for basically
two different categories of construction loans. An individual
construction loan is made to the intended occupant of a house to
finance its construction. Construction loans are also made to
developers who are in the business of improving lots and building
homes for resale. Generally, the Bank requires a loan to value
ratio of not more than 75% for these type of loans. These loans
involve somewhat more risk than residential real estate loans.
Loans to developers are riskier than an individual construction
loan since payment of interest and repayment depends upon the sale
of the individual houses in the development. Construction loans
require approval by various levels of Bank personnel, depending on
the size of the loan.
Commercial (Small Business) Loans: As part of the overall
diversification of the loan portfolio, the Bank will entertain loan
requests from entities that manufacture wholesale or retail
products and/or provide services in our market area. The Bank will
consider the following types of credits: real estate loans,
working capital lines of credit, and equipment/vehicle loans.
Since commercial lending entails greater risks than residential and
construction lending and repayment generally depends upon the cash
flows of the borrowing entity, interest rates are generally of a
variable nature. Maturities or repricings are of shorter terms
(generally no longer than five years). Depending on the types of
collateral and repayment terms, loan to value ratios generally
cannot be greater than 80%. Depending on the nature of the loan
requests, commercial loans require approval at various levels of
Bank personnel.
Second Mortgage and Other Consumer Loans: The Bank also
offers consumer loans which include second mortgage loans for a
variety of purposes including the renovation or remodeling of
property, or for uses unrelated to the security. Consumer loans
for the purchases of automobiles are also originated. These type
loans, in addition to being an important part of the Bank's
orientation toward consumer financial services, help promote
increased net interest income stability because of their somewhat
shorter maturities and faster prepayment
<PAGE>
characteristics. These loans are made based on an evaluation of
the collateral and potential borrower's creditworthiness, including
such factors as income, other indebtedness and credit history.
Generally, second mortgage loans do not exceed 80% of the value of
the collateral, less the outstanding balance of any fixed mortgage
loan. These loans pose more credit risk than residential first
real estate loans, but is offset by higher interest rates and are
of a variable nature and shorter-term.
Other Types of Lending: The Bank will also offer collateral
loans (secured by deposit at the Bank or readily marketable
securities) and personal loans to individuals. These are generally
loans of small dollar amounts and shorter terms. Collateral loans
offer no credit risk because of their 100% secured status, and
personal loans offer minimal credit risk because of their small
balances (average balance was less than $5,000 at December 31,
1995).
The Bank will from time to time issue (for a fee) a standby
letter of credit which is an obligation of the Bank to a third
party that in the event a particular act or deed of one of the
Bank's borrowers is not performed, then the Bank will reimburse
that third party. The most common purpose is to guaranty the
workmanship within a housing tract. Standby letters of credit are
issued to the Bank's most credit-worthy customers and require the
same diligence as the Bank would exercise in underwriting a loan in
the amount of the guaranty. At December 31, 1995 the total amount
of standby letters of credit outstanding totaled $1.5 million.
Although New Jersey lost approximately 27,000 corporate jobs
through layoffs during 1995, private sector employment grew by
close to 40,000 jobs. New Jersey still enjoys the nation's second-
highest per capita income ($27,742), behind only Connecticut. The
central New Jersey counties of Somerset and Hunderdon (the Bank's
primary lending areas), together with Mercer, Middlesex and
Monmouth counties issued 39% (5,971) of all building permits issued
by New Jersey's 21 counties during the first nine months of 1995.
Somerset County still ranks in the top five counties in the nation
in terms of per capita income. Because the Bank's primary lending
area is still considered to be one of the "prime" economic and
residential areas in New Jersey, any economic downturn in the state
is expected to have a less significant impact on the Bank's
operating results.
<PAGE>
(e) Nonperforming Assets
The following table sets forth information with respect to
nonperforming assets, which includes ninety days or more past due
loans, nonaccrual loans, and real estate acquired by foreclosure:
<TABLE>
<CAPTION>
At December 31,
-----------------------------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- --------- --------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Loans:
90 days or more past
due . $1,055 $ 321 $ 899 $ 696 $ 992
Nonaccrual loans . . -- 197 734 -- --
In-substance foreclosed
loans . . -- 701 860 941 3,128
------ ------ ------ ------ -------
Total non-performing
loans 1,055 1,219 2,493 1,637 4,120
Real estate acquired by
foreclosure. . . . 170 1,083 1,828 1,385 750
------ ------ ------ ------ -------
Total nonperforming
assets . . 1,225 2,302 4,321 3,022 4,870
Loans with modified
terms. . -- -- -- 1,808 931
------ ------ ------ ------ -------
$1,225 $2,302 $4,321 $4,830 $ 5,801
------ ------ ------ ------ -------
------ ------ ------ ------ -------
Total non-performing
loans as a percentage
of total net loan .55% .67% 1.53% 1.04% 2.64%
Non-performing assets
as a percentage of
total net loans and
real estate acquired
by foreclosure . . . . .64% 1.27% 2.63% 3.04% 3.70%
</TABLE>
Gross interest on non-performing loans at December 31, 1995
that would have been recorded in accordance with the original terms
of these loans had they been performing totaled $117,000 for 1995.
Interest income recognized on non-performing loans at December 31,
1995 totaled $5,000.
The accrual of income on loans is generally discontinued and
all interest income previously accrued and unpaid is deducted from
income when a loan becomes more than ninety days delinquent, or
when certain factors indicate reasonable doubt as to the timely
collectibility of such income. Loans on which the accrual of
income has been discontinued are designated as nonperforming loans
and income is recognized subsequently only in the period collected.
At December 31, 1995, there were no loans, other than those
referred to above or included in the above table, which could be
considered potential problem loans. It is management's policy to
review all delinquent loans to determine future collectibility of
both principal and interest.
At December 31, 1995, there were no concentrations of loans
exceeding 10% total loans outstanding.
<PAGE>
(f) Summary of Loan Loss Experience and
Allocation of the Allowance for Loan
Losses
The allowance for loan losses is established through a
provision for loan losses charged to expense. Loans are charged
against the allowance for loan losses when management believes the
collectibility of the principal is unlikely. The allowance is an
amount that management believes will be adequate to absorb possible
losses on existing loans that may become uncollectible. The
determination of the balance of the allowance for loan losses is
based on an analysis of the loan portfolio, economic conditions,
historical loan loss experience, the borrower's ability to repay,
collateral value and other factors that warrant recognition in
providing an adequate allowance. While management uses available
information to recognize losses on loans, future additions may be
necessary based on changes in economic conditions. In addition,
various regulatory agencies, as an integral part of their
examination process, periodically review the Bank's allowance for
losses on loans. Such agencies may require the Bank to recognize
additions to the allowance based on their judgments of information
available to them at the time of their examination.
The following table analyzes the allowance for loan losses for
the years indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Beginning balance. . $2,729 $3,094 $ 1,797 $ 1,201 $ 763
Loans charged off:
Real estate. . . (213) (787) (891) (365) (347)
Consumer . . . . (252) (38) (128) (34) (124)
------ ------ -------- -------- -------
(465) (825) (1,019) (399) (471)
Recoveries:
Real estate. . . 9 4 -- 8 17
Consumer . . . . 9 6 26 42 10
------ ------ -------- -------- -------
18 10 26 50 27
------ ------ -------- -------- -------
Net charge-offs. . . (447) (815) (993) (349) (444)
Provision for loan
losses. . 300 450 2,290 945 882
------ ------ -------- -------- -------
Ending balance . . . $2,582 $2,729 $ 3,094 $ 1,797 $ 1,201
------ ------ -------- -------- -------
------ ------ -------- -------- -------
Ratio of net charge-offs
during the period to
average loans
outstanding during the
period . .24% .47% .63% .22% .30%
</TABLE>
<PAGE>
The following table presents the allocation of the allowance
for loan losses by loan category at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C>
Real estate. . . . . $1,432 $2,198 $1,968 $1,483 $ 1,025
Consumer and other . 1,150 531 1,126 314 176
------ ------ ------ ------ -------
Total allowances for
loan losses . . . . . $2,582 $2,729 $3,094 $1,797 $ 1,201
------ ------ ------ ------ -------
------ ------ ------ ------ -------
</TABLE>
The percentage of loans in each category to total loans is as
follows:
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C>
Real estate-mortgage . . 75.49% 75.61% 74.25% 69.98% 65.28%
Real estate-construction. . 4.36 3.51 2.64 3.86 4.06
Consumer. . . . . . 14.76 15.60 17.35 20.13 23.76
Commercial. . . . . 5.39 4.90 5.24 5.44 4.91
In-substance foreclosed
loans. . -- .38 .52 .59 1.99
------ ------ ------ ------ -------
Total . . . 100.00% 100.00% 100.00% 100.00% 100.00%
------ ------ ------ ------ -------
------ ------ ------ ------ -------
</TABLE>
(g) Deposits
The average balance of deposits and the average rates paid
thereon are summarized in Distribution of Assets, Liabilities and
Shareholders' Equity; Interest Rates and Interest Differential, on
page 18 of the Annual Report to Shareholders for the year ended
December 31, 1995, and are incorporated herein by reference.
(h) Maturities of Time Deposits
The following table summarizes the maturity distribution of all
time market rate certificates in amounts of $100,000 or more, at
December 31, 1995. There are no other time deposits in amounts of
$100,000 or more.
<TABLE>
<CAPTION>
Maturity Amount
(In thousands)
<S> <C>
3 months or less . . . . . . . $ 3,333
Over 3 through 6 months. . . . 1,862
Over 6 through 12 months . . . 4,390
Over 12 months . . . . . . . . 3,468
--------
Total. . . . . . . . . $13,053
--------
--------
</TABLE>
<PAGE>
The above table includes accounts in domestic bank
offices. The Bank does not have any foreign banking offices.
(i) Return on Equity and Assets
The following table shows the operating and capital
ratios for the Corporation for the years indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Net income to average assets. .80% .88% .81%
Net income to average shareholders
equity. . . . . . . . . . 10.53 12.33 11.22
Dividend payout ratio . . . . 31.90 25.84 25.00
Average shareholders' equity to
average total assets. . . 7.64 7.14 7.20
<FN>
Note: The above figures reflect the effect of the three-for-two stock split paid in the form of a
stock dividend on December 1, 1993.
</TABLE>
(j) Short-term Borrowings
<TABLE>
<CAPTION>
At December 31,
-------------------------------
Interest Rate 1995 1994 1993
------------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Federal Home Loan Bank of
New York Advance. . . . 5.375% $10,000 $ -- $ --
Borrowings under repurchase
agreements:
Collateralized by U.S. Treasury
securities and obligations of
U.S. government agencies with
a carrying value, including
accrued interest receivable, of
$9,982. . . . . . . . . 6.430% -- 9,792 --
------- ------- -------
$10,000 $ 9,792 $ --
------- ------- -------
------- ------- -------
</TABLE>
The Corporation may enter into sales of securities under
repurchase agreements. Such agreements are treated as financings
and the obligations to repurchase the same securities sold
<PAGE>
are reflected as a liability in the Consolidated Balance Sheet.
The dollar amount of securities underlying the agreements are book
entry securities.
At December 31, 1995, there were no agreements outstanding to
repurchase the same securities. At December 31, 1994, agreements
outstanding to repurchase the same securities totaled $9,792,000.
At December 31, 1993, there were no agreements outstanding to
repurchase the same securities.
Agreements to repurchase the same securities averaged
$4,300,000 and $1,896,000 for the years ended December 31, 1995 and
1994, respectively. The maximum amounts outstanding at any
month-end under such agreements during the years ended December 31,
1995 and 1994 totaled $9,735,000 and $9,792,000, respectively.
Accrued interest payable totaled $-0- and $18,000 at December 31,
1995 and 1994, respectively. The average interest rate on such
agreements was 6.33% and 5.54% for the years ended December 31,
1995 and 1994, respectively.
(k) Competition
The Bank faces significant competition both in making mortgage
and consumer loans and in attracting deposits. The Bank's
competition for loans comes principally from savings and loan
associations and savings banks, mortgage banking companies (many of
which are subsidiaries of major commercial banks), insurance
companies and other institutional lenders. Its most direct
competition for deposits has historically come from savings and
loan associations, savings banks, commercial banks, credit unions
and other financial institutions. The Bank faces additional
competition for deposits from short-term money market funds, stock
funds, and other corporate and government securities funds. In
light of the elimination of federal interest rate controls on
deposits, the Bank may face increasing competition among financial
institutions for deposits. Competition may increase as a result of
the continuing reduction in the effective restrictions on the
interstate operations of financial institutions. Many of the
Bank's competitors, whether traditional financial institutions or
otherwise, have much greater financial and marketing resources than
those of the Bank.
The Bank competes for loans principally through the interest
rates and loan fees it charges and the efficiency and quality of
services it provides borrowers and their real estate brokers and
print media. It competes for deposits through pricing and the
offering of a variety of deposit accounts.
(l) Executive Officers
Information concerning executive officers of the Corporation
during fiscal year 1995, who were not also directors of the
Corporation, is also provided below.
<PAGE>
<TABLE>
<CAPTION>
Positions with Corporation and
Name and Age Business Experience for Past Five Years
- ----------------- ---------------------------------------------
<S> <C>
Lucille H. Daniel Vice President and Secretary of the Corporation
Age 61 and the Bank.
John J. Lukens Senior Vice President of the Corporation and
Age 48 Senior Vice President, Senior Loan Officer of
the Bank since June, 1992. Prior to such
time, he was a Vice President and Credit
Officer at National Westminster Bank, New
Jersey.
</TABLE>
Item 2. Properties
- -------------------------
The following table sets forth certain information to each of
the Bank's offices. The total net book value of the Bank's
premises and equipment at December 31, 1995, was $3.2 million. See
Note 6 to the Consolidated Financial Statements. The Corporation
believes that its facilities are adequate for the conduct of its
current business.
<TABLE>
<CAPTION>
Expiration
Date of Current Lease
Location: Opened Owned Leased Lease Term Renewal Option
- --------- ------ ------ ------ --------------- --------------
<S> <C> <C> <C> <C> <C>
Main office 1869 X
9 West Somerset Street
Raritan, New Jersey 08869
Branches:
- --------
1921 Washington Valley Rd 1976 X
Martinsville, NJ 08836
151 Adamsville Road 1980 X 2001 one 6-year
Somerville, NJ 08876 option
51 Mountain Boulevard 1991 X
Warren, New Jersey 07059
Whitehouse Mall 1991 X 1996 two 5-year
Routes 22 East and 523 options
Whitehouse Station, NJ
08889
Loan Production Office
- ----------------------
28 West Somerset Street 1987 X 1996 two 5-year
Raritan, NJ 08869 options
</TABLE>
Item 3. Legal Proceedings
- ---------------------------
Not applicable.
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
- -------------------------------------------------------------
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters
(a) Market Information
Raritan Bancorp's common stock is quoted on the NASDAQ
National Market System under the symbol "RARB."
The following table presents the range of the high and low
prices for Raritan Bancorp's common stock as obtained from NASDAQ.
<TABLE>
<CAPTION>
1995 1994
--------------------------- --------------------------
Quarter Ending High Low High Low
- -------------- -------- -------- ------- -------
<S> <C> <C> <C> <C>
March 31. . . . . $21.75 $17.00 $15.50 $14.25
June 30 . . . . . 22.25 20.75 16.75 14.50
September 30. . . 22.50 21.00 18.00 16.00
December 31 . . . 22.50 21.50 18.50 17.00
</TABLE>
(b) Shareholders
At March 11, 1996 Raritan Bancorp, Inc. had approximately 550
shareholders of record, including brokerage firms, banks and
registered clearing agencies acting as nominees for an
indeterminate number of beneficial owners.
(c) Dividends
Subject to applicable law, the Board of Directors of the
Corporation and the Bank may each provide for the payment of
dividends.
The Bank will not be permitted to pay dividends on its capital
stock if its retained earnings would thereby be reduced below the
amount required for the liquidation account established at the time
of its conversion to stock form (approximately $789,000 at December
31, 1995), or applicable regulatory capital requirements. New
Jersey law provides that no dividend may be paid unless, after the
payment of such dividend, the capital stock of the Bank will not be
impaired and either the Bank will have a statutory surplus of not
less than 50% of its capital stock or the payment of such dividend
will not reduce the statutory surplus of the Bank. The Bank has
designated a capital surplus of $2.0 million, which is not
available for the payment of dividends.
<PAGE>
The Bank may pay cash dividends when its Board of Directors
determines that dividend payments are appropriate, taking into
account factors including, without limitation, the Bank's net
income, capital requirements, financial condition, alternative
investment options, tax implications, prevailing economic
conditions, industry practices, and other factors deemed to be
relevant at the time. The Corporation expects to follow the same
dividend policy as that of the Bank. The Corporation is subject to
the requirements of Delaware law, which generally limit dividends
to an amount equal to the excess of the net assets of the
Corporation (the amount by which total assets exceed total
liabilities) over its statutory capital, or if there is no such
excess, to its net profits for the current and/or immediately
preceding fiscal year.
During the years ended December 31, 1995 and 1994, the
Corporation declared and paid cash dividends totaling $.52 and
$.46, respectively, per common share.
On January 18, 1996, the Board of Directors of the Corporation
declared a quarterly cash dividend in the amount of $.15 per common
share. The dividend was paid on March 1, 1996 to shareholders of
record as of February 15, 1996.
Item 6. Selected Financial Data
Information relating to Selected Consolidated Financial Data
on page 9 of the Annual Report to Shareholders for the year ended
December 31, 1995 is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Management's Discussion and Analysis of Financial Condition
and Results of Operations on pages 8 to 20 of the Annual Report to
Shareholders for the year ended December 31, 1995, is incorporated
herein by reference.
Item 8. Financial Statements and Supplementary Data
The Consolidated Financial Statements and Report by KPMG Peat
Marwick LLP dated January 18, 1996, appear on pages 23 to 38 of the
Annual Report to Shareholders for the year ended December 31, 1995
and are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
<PAGE>
PART III
Item 10. Directors and Officers of the Registrant
Information is contained in "Election of Directors" on pages
4 to 6 inclusive of Raritan Bancorp Inc.'s Proxy Statement dated
March 27, 1996, and is incorporated herein by reference.
Information regarding executive officers who are not also directors
of the Corporation or the Bank is contained in Part I of this
report in reliance of General Instruction G.
Item 11. Executive Compensation
Information is contained in Compensation of Directors and
Officers on pages 6 through 10, inclusive, of Raritan Bancorp
Inc.'s Proxy Statement dated March 27, 1996 and is incorporated
herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Information is contained on pages 4 to 6 inclusive of Raritan
Bancorp Inc.'s Proxy Statement dated March 27, 1996 and is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
Information is contained in Certain Relationships and Related
Transactions on page 10 of Raritan Bancorp Inc.'s Proxy Statement
dated March 27, 1996, and is incorporated herein by reference.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
(a) (1) Consolidated Financial Statements
The following financial statements are incorporated herein by
reference to the Annual Report to Shareholders for the year ended
December 31, 1995, a copy of which is attached hereto.
<TABLE>
<CAPTION>
Annual Report
Page Reference
--------------
<S> <C>
Consolidated Balance Sheets . . . . 21
Consolidated Statements of Income . 22
Consolidated Statements of Changes in
Shareholders' Equity. . . . . . 23
Consolidated Statements of Cash Flows 24
Notes to Consolidated Financial
Statements. . . . . . . . . . . 25-37
Independent Auditors' Report. . . . 38
</TABLE>
(2) Consolidated Financial Statement Schedules
All statement schedules are omitted as the information, if
applicable, is presented in the above financial statements or notes
thereto.
(b) Reports on Form 8-K
None
(c) Exhibits Required by Securities and Exchange
Commission Regulation S-K.
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number
- -------
<S> <C>
3.1 Certificate of Incorporation of Raritan Bancorp, Inc.
(filed as Exhibit 3.1 to the Form S-1 Registration
Statement filed by Raritan Bancorp, Inc. on March 10,
1987, Registration No. 33-12539).
3.1(a) Certificate of Amendment to the Certificate of
Incorporation of Raritan Bancorp, Inc.
3.2 Bylaws of Raritan Bancorp, Inc. (filed as Exhibit 3.2 to
the Form S-1 Registration Statement filed by Raritan
Bancorp, Inc., Statement No. 33-12539 and Exhibit 28.1 to
the Form 8-K filed on December 21, 1990).
10.1 Raritan Bancorp, Inc. Incentive Stock Option Plans (see
Annex A to the Proxy Statement dated March 23, 1988 and
Exhibit A to the Proxy Statement dated March 24, 1993).
10.2 Raritan Bancorp, Inc. Stock Option Plan for Outside
Directors (see Exhibit B to the Proxy Statement dated
March 24, 1993).
10.3 Employment Agreement with Arlyn D. Rus (filed as
Exhibit 10.2 to the Form S-1 Registration Statement filed
by Raritan Bancorp, Inc., Registration No. 33-12539).
10.4 Employment Agreement with Thomas F. Tansey (filed as
Exhibit 10.3 to the Form S-1 Registration Statement filed
by Raritan Bancorp, Inc., Registration No. 33-12539).
10.5 Amended and Restated Special Termination Agreements with
Lucille H. Daniel (the original Special Termination
Agreements were filed as Exhibit 10.4 to the Form S-1
Registration Statement filed by Raritan Bancorp, Inc.,
Registration No. 33-12539).
10.6 Special Termination Agreement with John J. Lukens (filed
as Exhibit 10.6 to the Annual Report on Form 10-K for the
year ended December 31, 1994).
10.7 The Raritan Savings Bank Employee Stock Ownership Plan
("ESOP") and Employee Stock Ownership Trust ("ESOT")
(filed as Exhibit 10.5 to the Form S-1 Registration
Statement filed by Raritan Bancorp, Inc., Registration
No. 33-12539).
10.8 ESOP Financing Agreement (filed as Exhibit 10.6 to
Amendment No. 1 to the Form S-1 Registration Statement
filed by Raritan Bancorp, Inc. and assigned Registration
No. 33-12538).
10.9 Supplemental Executive Retirement Plan I (filed as
Exhibit 10.9 to the Annual Report on Form 10-K for the
year ended December 31, 1994).
10.10 Supplemental Executive Retirement Plan II (filed as
Exhibit 10.10 to the Annual Report on Form 10-K for the
year ended December 31, 1994).
11 Computation of net income per share (Incorporated by
reference to "Financial Highlights" on page 1, and the
Consolidated Statements of Income on page 22, of the
Annual Report to Stockholders for the year ended December
31, 1995).
<PAGE>
13 Annual Report to Shareholders for the year ended December
31, 1995.
22 Subsidiaries of Raritan Bancorp, Inc.*
24 Accountants' Consent.
<FN>
_________________________
* See Part 1, Item 1(a) of Form 10-K.
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed in its behalf by the undersigned,
thereunto duly authorized.
RARITAN BANCORP, INC.
By: /s/ Arlyn D. Rus
-------------------------
Arlyn D. Rus, President and
Chief Executive Officer
Date: March 14, 1996
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below on March 14, 1996, by the
following persons on behalf of the Registration and in the
capacities indicated.
/s/ Arlyn D. Rus /s/ Thomas F. Tansey
- ------------------------------ ------------------------------
Arlyn D. Rus, Thomas F. Tansey, Executive Vice
Chairman of the Board, President, Chief Operating
President and Chief Officer and Treasurer
Executive Officer Director
(Principal Financial and
Accounting Officer)
/s/ William T. Anderson /s/ Richard E. Fischer
- ------------------------------ ------------------------------
William T. Anderson, Director Richard E. Fischer, Director
/s/ William T. Kelleher, Jr. /s/ William W. Crouse
- ------------------------------ ------------------------------
William T. Kelleher, Jr., William W. Crouse
Director
MANAGEMENT'S DISCUSSION AND ANALYSIS
General
Raritan Bancorp Inc. (the "Corporation") is a bank holding
company for The Raritan Savings Bank (the "Bank"). The principal
business of the Corporation consists of the business of the Bank.
The Bank is a New Jersey-chartered stock savings bank with offices
in Raritan, Martinsville, Somerville, Warren and Whitehouse
Station, New Jersey. At December 31, 1995, the Corporation had
total assets of $354.8 million compared to $333.5 million at
December 31, 1994, an increase of 6.4%.
Securities available-for-sale plus investment securities, net
(comprised of United States Treasury securities, obligations of
U.S. government agencies, obligations of states and political
subdivisions, and mortgage-backed securities issued by Federal
agencies) decreased $14.7 million, or 11.6%, to $112.0 million at
December 31, 1995. Net loans increased $12.0 million, or 6.6%, to
$192.6 million at December 31, 1995. Because of continued loan
demand for fixed-rate mortgages in the areas serviced by our
offices, the Corporation continued to disburse fixed-rate mortgages
during 1995. Of the $36.4 million of mortgage disbursements, $1.2
million was of a fixed-rate nature, while the balance of $35.2
million was adjustable rate or of short-term nature. Consumer and
commercial lending disbursements totaled $21.5 million for 1995 and
consisted primarily of loans which are tied to the prime lending
rate and are of a short-term nature.
<PAGE>
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
At December 31,
-----------------------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets $354,810 $333,546 $307,332 $292,507 $288,889
Total net loans 192,590 180,594 162,701 157,504 155,864
Securities available-for-sale,
at fair value 50,547 40,456 -- -- --
Investment securities, net 61,406 86,224 121,074 111,666 108,846
Deposits 315,038 296,166 281,333 268,223 266,465
Shareholders' equity 26,348 23,440 22,391 20,425 19,235
Operating Data:
Interest and fee income $ 23,456 $ 20,892 $ 20,049 $ 22,345 $ 20,225
Interest expense 13,007 9,992 9,230 11,706 12,820
-------- -------- -------- -------- --------
Net interest income 10,449 10,900 10,819 10,639 7,405
Provision for loan losses 300 450 2,290 945 882
-------- -------- -------- -------- --------
Net interest income after
provision for loan losses 10,149 10,450 8,529 9,694 6,523
-------- -------- -------- -------- --------
Other income 658 702 2,658 726 398
Operating expenses 6,593 6,721 7,432 6,986 5,299
-------- -------- -------- -------- --------
Income before income tax expense
and cumulative effect of
accounting changes 4,214 4,431 3,755 3,434 1,622
Income tax expense 1,542 1,577 1,352 1,482 710
Cumulative effect of accounting
changes -- -- 13 -- --
-------- -------- -------- -------- --------
Net income $ 2,672 $ 2,854 $ 2,416 $ 1,952 $ 912
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Net income per share (primary) $ 1.63 $ 1.78 $ 1.53 $ 1.29 $ 0.60
Net income per share (fully
diluted) 1.63 1.78 1.52 1.29 0.60
Cash dividends per common share 0.52 0.46 0.38 0.32 0.27
Selected Financial Ratios:
Return on average assets 0.80% 0.88% 0.81% 0.67% 0.40%
Return on average equity 10.53 12.33 11.22 9.84 4.78
Dividend payout ratio 31.90 25.84 25.00 24.81 45.00
Average equity to average assets 7.64 7.14 7.20 6.84 8.28
Interest rate spread (1) 2.84 3.19 3.51 3.50 2.87
Net yield on average interest-
earning assets (1) 3.30 3.52 3.79 3.85 3.40
Average interest-earning assets
to average interest-bearing
liabilities 1.11x 1.10x 1.09x 1.08x 1.09x
Non-performing assets to total
assets 0.35% 0.63% 1.17% 1.03% 1.69%
(FN)
(1) Calculated on a fully-taxable basis.
NOTE: The above figures reflect the effect of the three-for-one stock split paid in the form of a
stock dividend on December 1, 1993.
</TABLE>
<PAGE>
Non-performing loans (over 90 days delinquent) and real
estate acquired by foreclosure totaled $1,225,000, or 0.6%, of
total net loans and real estate acquired by foreclosure at December
31, 1995, compared to $2,105,000, 1.2%, of total net loans and real
estate acquired by foreclosure at December 31,1994.
During the year ended December 31, 1995, the Corporation
provided $300,000 to the allowance for loan losses, compared to
$450,000 a year earlier. The strengthening economy and recovering
real estate market, together with aggressive recognition and
resolution of existing and potential problem areas contributed to
the reduced provision.
The following table provides a summary of the Corporation's
non-performing loans and real estate acquired by foreclosure at
December 31,1995:
<TABLE>
<CAPTION>
Number of
Loans Amount
--------- ------
(In thousands)
<S> <C> <C>
First mortgage loans 3 $ 317
Home equity loans 2 36
Second mortgage loans 2 98
Commercial loans 2 326
Loans with modified terms 3 278
-- ------
Total non-performing loans 12 1,055
Real estate acquired by
foreclosure (included in
other assets) 1 170
-- ------
13 $1,225
-- ------
-- ------
</TABLE>
The twelve non-performing loans are secured by real estate.
Based on a review of all non-performing loans and "watch
list" loans (loans on the "watch list" include performing loans
rated substandard and special mention) at December 31, 1995, a
specific allowance of $1,183,000 has been allocated to such loans,
together with a general allowance of $1,399,000 on the remaining
loan portfolio taken as a whole. During 1995, the Bank charged off
$465,000 of loans, compared to $825,000 in the previous year. At
December 31, 1995, the ratio of the allowance for loan losses to
non-performing loans was 244.7%.
During the year, management reviews, on a quarterly basis,
the overall adequacy of the allowance for loan losses based on an
evaluation of the risk characteristics of the loan portfolio both
on potential individual problem loans, and on the aggregate loan
portfolio taken as a whole. Such factors as the financial condition
of the borrower, the fair value of the underlying collateral and
other items which, in management's opinion, deserve recognition in
estimating the adequacy of the allowance for loan losses are
evaluated.
The provision for loan losses for the years ended December
31,1995, 1994 and 1993 was $300,000, $450,000 and $2,290,000,
respectively. When reviewing the adequacy of the allowance for loan
losses, management reviews the status of the current (and
potential) non-performing loans, delinquency trends, coverage
ratios and various economic and other factors, and determines what
levels of allowance for loan losses is necessary to absorb current
losses in the loan portfolio. The increased provision in 1993 are
a result of the effects of a depressed economy and real estate
market that caused the Bank to experience increases in
nonperforming loans and delinquencies and resultant decreases in
its loan loss coverage ratios during 1993.
<PAGE>
In addition, there are no potential problem loans not
included in non-performing assets which causes management to have
serious doubts as to the ability to comply with the present loan
repayment terms, and which require disclosure as non-performing
loans, or which management believes will materially affect future
operating results, liquidity or capital resources.
In addition, a general allowance for losses on real estate
acquired by foreclosure totaled $-0-, at December 31, 1995 compared
to $108,000 at December 31, 1994 and is included in Other Assets in
the accompanying Consolidated Balance Sheets. Net recoveries
totaling $110,000 were added to this allowance during 1995. During
1994, net write-downs totaling $331,000 were charged to this
allowance. During 1993, direct charge-offs totaling $22,000 were
included in the Net Cost of Operation of Other Real Estate in the
accompanying Consolidated Statements of Income. At December 31,
1995, since there was only one parcel of real estate acquired by
foreclosure, which was already written down to the fair value of
its collateral, less estimated selling costs, management eliminated
this allowance by crediting Net Cost of Operations of Other Real
Estate for $218,000 in the accompanying Consolidated Statements of
Income.
Because of rising interest rates during 1994, the fair value
of securities available-for-sale and investment securities, net,
decreased and the Corporation experienced significant net
unrealized losses of $1,850,000 and $6,540,000, respectively, at
December 31, 1994. Because of the falling interest rate environment
in 1995, the Corporation experienced a net unrealized gain of
$623,000 on securities available-for-sale and a net unrealized loss
of $575,000 on investment securities, net. None of the investment
securities have been earmarked for sale in the future periods. It
is expected that none of these unrealized losses will have a
material impact on the future operations of the Corporation. If it
is determined that any of these unrealized losses is deemed to be
other than temporary, the cost basis of the related security would
be written-down to its new carrying value with the resulting loss
reported in the Consolidated Statements of Income. Holding
below-market securities available-for-sale to maturity would have
the effect (net of taxes) of reducing shareholders' equity until
the date of maturity.
Since 99.3% of the Corporation's securities portfolio is
comprised of securities guaranteed by the United States government
or its agencies, the possibility of declines in the market value
which are other than temporary are considered remote.
Deposits grew to $315.0 million at December 31, 1995 from
$296.2 million at December 31,1994. Deposit inflows, net of
interest credited of $12.7 million, totaled $6.1 million for 1995.
Shareholders' equity totaled $26.3 million, or $17.66 per
share, at December 31, 1995, compared to $23.4 million, or $15.52
per share, at December 31, 1994. The increase is the result of net
income totaling $2,672,000 for the year ended December 31,1995,
together with a decrease of $51,000 in the ESOP debt, plus $150,000
from the issuance of 20,300 common treasury shares for stock
options and the $1,652,000 fair value adjustment of securities
available-for-sale, offset by dividends paid to shareholders
totaling $790,000 and the repurchase of 38,000 shares of the
Corporation's common stock for $827,000.
<PAGE>
Comparison of Years Ended December 31, 1995 and 1994:
Interest Income: Total interest income increased in 1995, on
a fully-taxable basis, to $23.5 million, an increase of $2.6
million, or 12.2%, from $20.9 million in 1994. The increase is
primarily the result of an increase in average interest-earning
assets to $318.0 million from $310.1 million for the prior year,
together with an increase in the average yield to 7.39% from 6.74%
a year earlier. The increases in the Prime Lending rate and other
short-term rates were responsible for the overall increase in
yields for all earning asset categories, except for tax-exempt
investments. Funding for earning assets came from loan repayments
and net deposit inflows.
Interest income for 1995 was also affected by the loss of
interest income on non-performing loans and real estate acquired by
foreclosure. When a loan becomes more than ninety days delinquent,
the Corporation discontinues the accrual of interest income and
deducts interest income on that loan which had previously been
accrued into interest income for such period of time. The loss of
interest on loans charged-off, non-performing loans and real estate
acquired by foreclosure was approximately $224,000, for 1995.
Interest Expense: Interest expense increased $3.0 million, or
30.0%, to $13.0 million in 1995, from $10.0 million in 1994
primarily as the result of a $4.1 million increase in average
interest-bearing liabilities together with a 1.0% increase in
average cost of interest-bearing liabilities to 4.55% from 3.55% in
1994. Net additions to market-rate certificates, primarily those
with 9 and 12 month maturities, totaling $26.6 million, with a
shift from NOW, regular savings accounts and 6-month certificates
were responsible for the increase in interest expense for 1995.
Net Interest Income. The net interest income results of the
Corporation depend upon the interest rate spread between the
average yield earned on its loan and investment portfolios and the
average rate paid on its deposit accounts and borrowings.
Net interest income on a fully-taxable equivalent basis of
$10.5 million for the year ended December 31, 1995 decreased
$400,000 from $10.9 million for 1994. As shown by the tables on
pages 18 and 19, net interest income decreased primarily as a
result of a 1.0% increase in the average interest rate paid on
interest-bearing liabilities, partially offset by an increase in
net earning assets totaling $3.8 million. The lower net interest
income also reflected the Bank's reliance on shorter-term
interest-bearing funds to support interest-earning asset growth in
the loan category. The decline in the interest rate spread reflects
the rising interest rate environment which began in 1994 and
continued into 1995, as the Bank's deposits repriced upwardly more
rapidly on shorter-term certificates than the loan portfolio,
particularly for adjustable-rate loans which are tied to indices
which lag increases in market interest rates. Both tables are
presented on a fully-taxable equivalent basis which represents the
additional benefit derived from investments which are fully exempt
from federal income taxes.
Changes in net interest income generally occur because of
fluctuations in the balances and/or composition of interest-earning
assets and interest-bearing liabilities and changes in their
corresponding interest yields and costs. In periods of rising rate
environments, short-term interest-bearing deposits reprice more
rapidly than interest-earning assets
<PAGE>
(particularly loans) of a variable rate nature whose rates are tied
to indices. These earning assets generally lag increases in market
interest rates. The converse is generally true in periods of
falling interest rates as shorter-term interest-bearing deposits
reprice downward more rapidly than variable rate loans tied to
indices.
The provision for loan losses for 1995 was $300,000 compared
to $450,000 for 1994. As described above, the reduction in the
provision for 1995 was deemed sufficient based upon management's
judgment of the amount necessary to maintain the allowance at a
level adequate to absorb any potential losses.
Other Income: Serving charges and other income increased 8.7%
to $602,000 in 1995 from $554,000 a year earlier primarily as a
result from the upward repricing of certain services relating to
deposit products. During 1995, an equity security previously
written-off in 1993 was redeemed at a gain of $56,000. During
1994, the Corporation sold mortgage-backed securities issued by
Federal agencies which were classified as available-for-sale in the
amount of $3,046,000 at a gross gain of $143,000. In addition,
during 1994 obligations of states and political subdivisions which
were classified as available-for-sale in the amount of $206,000
were called at a gross gain of $5,000.
Other Expenses: Other expenses for the year ended December
31, 1995 decreased $128,000, or 1.9%, to $6.6 million from $6.7
million a year earlier. Salaries and employee benefits increased
$307,000, or 9.9%, to $3.4 million from $3.1 million in 1994. Staff
and normal salary increases contributed to the increase. Occupancy
expenses decreased $61,000, or 8.6%, to $649,000 from $710,000 for
1994. The decrease results primarily from reduced snow removal
expenses in 1995 and the absence of the accelerated amortization of
leasehold improvements in 1994 at the former Whitehouse Station,
New Jersey office whose lease expired in 1994. The FDIC insurance
premium decreased $227,000, or 34.8%, as a result of a new
assessment rate schedule established by the Federal Deposit
Insurance Corporation ("FDIC"). This new schedule of 4 to 31 basis
points of the deposit assessment base replaces the existing
schedule of 23 to 31 basis points for institutions whose deposits
are subject to assessment by the Bank Insurance Fund ("BIF"). The
FDIC has maintained the current assessment rate schedule of 23 to
31 basis points for institutions whose deposits are subject to
assessment by the Savings Association Insurance Fund ("SAIF"). The
new BIF schedule became effective on June 1, 1995. Assessments
which had been collected at the previous assessment schedule, in
excess of the amount due under the schedule were refunded with
interest and reduced operating expenses by $141,000 during 1995.
(See Note 18 for additional discussion of a possible SAIF
assessment.)
Net cost of operation of other real estate decreased $293,000
to a credit balance of $140,000 for 1995 from an expense of
$153,000 for the prior year. As discussed above, the allowance for
losses on real estate acquired by foreclosure totaling $218,000 was
eliminated during 1995 and credited to net cost of operation of
other real estate. The reduction and disposal of real estate
acquired by foreclosure in prior years contributed to the decrease.
Other operating expenses increased $146,000, or 6.9%, to $2,251,000
from $2,105,000 a year earlier. Increases in outside services
charges (e.g. computer service bureau
<PAGE>
charges and bank service charges), consulting and trade association
expenses, partially offset by reductions in legal, audit and
supervisory examination fees, marketing and surety and casualty
insurance premiums contributed to the increase.
Income Tax Expense: Income taxes decreased $35,000 to $1.5
million in 1995 from $1.6 million for the prior year. Increases and
decreases are basically direct functions of the Corporation's
pretax income. Under current tax law, provisions for losses on
loans and real estate acquired by foreclosure for financial
reporting purposes are not deductible for tax purposes. However, a
deduction is allowed for bad debts based on actual charge-offs
(subject to Internal Revenue Service limitations), or may be based
on a percentage of taxable income. For 1995, the bad debt
deduction for taxes was $407,000 compared to $1.2 million for 1994.
See Note 9 for additional information on the income taxes of the
Corporation.
Comparison of Years Ended December 31, 1994 and 1993:
Interest Income: Total interest income increased in 1994, on
a fully-taxable basis, to $20.9 million, an increase of $840,000,
or 4.2%, from $20.1 million in 1993. The increase is primarily the
result of an increase in average interest-earning assets to $310.3
million from $286.3 million for the prior year. The increase in
average interest earning assets is offset by a decrease in the
average yield to 6.74% from 7.02% a year earlier. In addition
during 1993, the Bank sold $19.5 million of United States Treasury
Obligations with a weighted average yield of approximately 5.18%
and $35.6 million of fifteen-year fixed-rate mortgage-backed
securities with an approximate yield of 7.95%, and recorded a
profit of $2,038,000. The proceeds from these sales (together with
excess liquidity in federal funds sold) were invested in
mortgage-backed securities with a weighted average yield of
approximately 5.46%. The United States Treasury Obligations were
sold to improve investment yield and the mortgage-backed securities
were sold because the fast principal repayment activity was eroding
the yield on these securities. These transactions have the effect
of reducing the average yield on interest-earning assets in the
immediate subsequent years.
Overall lower market rates also contributed to lower interest
yields. Funding for the acquisition of earning assets also came
from loan repayments, net deposit inflows, sales and calls of
investments.
Interest income for 1994 was also affected by the loss of
interest income on non-performing loans and real estate acquired by
foreclosure. When a loan becomes more than ninety days delinquent,
the Corporation discontinues the accrual of interest income and
deducts interest income on that loan which had previously been
accrued into interest income for such period of time. The loss of
interest on loans charged-off, non-performing loans and real estate
acquired by foreclosure was approximately $305,000 for 1994.
Interest Expense: Interest expense increased $762,000, or
8.3%, to $10.0 million in 1994, from $9.2 million in 1993,
primarily as the result of a $18.8 million increase in average
interest-bearing liabilities together with a four basis points'
increase in the average cost of interest-bearing liabilities to
3.55% from 3.51% in 1993. Net additions totaling $27.2 million to
the Bank's Prime Performance Account (which is indexed to the
"Prime" interest rate) was the major contributor to the increase in
interest-bearing liabilities for 1994.
<PAGE>
Net Interest Income: The net interest income results of the
Corporation depends upon the interest rate spread between the
average yield earned on its loan and investment portfolios and the
average rate paid on its deposit accounts and borrowings.
Net interest income on a fully-taxable equivalent basis of
$10.9 million for the year ended December 31, 1994 remained
constant from the year ended December 31, 1993. As shown by the
tables on pages 18 and 19, net interest income remained constant
primarily as the result of increased volumes offset by a thirty-two
basis points reduction in the net interest rate spread. Net
interest income was also affected by the aforementioned securities
transactions, loss of interest on loans charged-off, non-performing
loans and real estate acquired by foreclosure. Both tables are
presented on a fully-taxable equivalent basis which represents the
additional benefit derived from investments which are fully exempt
from federal income taxes.
The provision for loans losses for 1994 was $450,000 compared
to $2,290,000 for 1993. As described above, the reduced provision
was added to the allowance for loan losses in response to the
improving real estate market and economy in central New Jersey,
together with a review of all non-performing assets on an
individual basis.
Other Income: During 1994, the Corporation sold
mortgage-backed securities issued by Federal agencies which were
classified as available-for-sale in the amount of $3,046,000 at a
gross gain of $143,000. In addition, obligations of states and
political subdivisions which were classified as available-for-sale
in the amount of $206,000 were called at a gross gain of $5,000.
During 1993, the Bank sold $19.5 million of United States Treasury
Obligations with a weighted average yield of approximately 5.18%
and $35.6 million of fifteen-year fixed-rate mortgage-backed
securities with an approximate yield of 7.95%, and recorded a
profit of $2,038,000. The proceeds from these sales (together with
excess liquidity in federal funds sold) were invested in
mortgage-backed securities with a weighted average yield of
approximately 5.46%. The United States Treasury Obligations were
sold to improve investment yield and the mortgage-backed securities
were sold because the fast principal repayment activity was eroding
the yield on these securities.
Other Expenses: Other expenses for the year ended December
31,1994 decreased $711,000 or 9.6%, to $6.7 million from $7.4
million a year earlier. Salaries and employee benefits increased
$148,000, or 5.0%, to $3.1 million in 1994 from $3.0 million in
1993. Normal salary increases were offset by reduced costs
pertaining to employee benefits, especially health care premium
expenses. The net cost of operation of real estate decreased
$665,000 to $153,000 in 1994 from $818,000 in 1993. The resolution
and disposal of real estate acquired by foreclosure in prior years
contributed to the decrease. Other operating expenses decreased
$208,000 to $2.1 million in 1994 from $2.3 million for the prior
year. Decreases in outside services (e.g. computer service bureau
charges and bank service charges), legal fees, consultant fees and
marketing expenses contributed to the decrease.
<PAGE>
Income Tax Expense: Income taxes increased $225,000 to $1.6
million in 1994 from $1.4 million for the prior year. Increases and
decreases are basically direct functions of the Corporation's
pretax income. Under current tax law, provisions for losses on
loans and real estate acquired by foreclosure for financial
reporting purposes are not deductible for tax purposes. However, a
deduction is allowed for bad debts based on actual charge-offs
(subject to Internal Revenue Service limitations), or may be based
on a percentage of taxable income. For 1994, the bad debt deduction
for taxes was $1.2 million compared to $1.4 million for 1993. See
Note 9 for additional information on the income taxes of the
Corporation.
Asset/Liability Management
The Corporation continues to place emphasis on shortening the
repricing intervals and maturities of interest-earning assets in
order to better match the corresponding repricing intervals and
maturities of interest-bearing liabilities while maintaining an
adequate spread and asset quality. However, in order to meet the
demands of consumers in the Corporation's local lending area for
longer-term fixed-rate mortgage loans, the Corporation will
originate such loans. Of the $36.4 million of first mortgage loans
disbursed during 1995, $1.2 million were fixed-rate mortgages and
$35.2 million were of an adjustable or short-term nature.
The primary measure of interest rate risk is the gap report
which details the repricing and maturity differences for assets and
liabilities for various future time periods. This gap report
provides an indication of the extent to which the Corporation's net
interest income will be affected by future changes in market
interest rates. A positive gap may enhance net interest income when
market rates rise, but reduce net interest income when rates fall.
Conversely, a negative gap position (i.e. rate sensitive
liabilities exceed rate-sensitive assets) indicates that in a
rising rate environment net interest income may be reduced, and
declining interest rates may result in increase net interest
income. Such fluctuations may also tend to affect the liquidity
and operations of the Corporation.
At December 31, 1995, the ratio of interest-earning assets
repricing or maturing within one year to interest-bearing
liabilities repricing or maturing within one year was 81.2%. This
liability sensitive gap indicates that over the course of a year an
upward movement in rates will negatively impact net interest income
since liabilities will reprice faster than assets. The gap report
has some inherent limitations: it is static (i.e. point-in-time);
it does not not capture basis risk; and it does not capture risk
that varies non-proportionally with rate movements. The current
one-year gap of 81.2% is considered by management to be acceptable
within the parameters detailed in its Asset Liability Management
Policy.
A significant percentage (50%) regular savings and clubs
(which include Prime Performance accounts) is allocated in the
"Over 10 years" repricing category based on the historical trend of
stability and constancy of growth of these accounts.
<PAGE>
Liquidity and Capital Resources
The Corporation's liquidity is a measure of its ability to
fund loans and withdrawal of deposits in a cost-effective manner.
The Corporation's principal sources of funds are deposits,
scheduled amortization and prepayment of loan principal, maturities
of investment securities and funds provided by operations. At
December 31,1995, the Corporation's liquid assets (cash and
investment securities maturing in one year or less) totaled $47.9
million which represents 13.5% of total assets.
The Corporation's main liquidity demands come from loan
disbursements which totaled $57.9 million. At December 31, 1995,
outstanding commitments to extend credit totaled $30.8 million.
Management believes that the Corporation has adequate sources of
liquidity to fund these commitments.
Both the Corporation and the Bank are subject to regulatory
capital requirements mandated by the Federal Reserve Board (FRB)
and the Federal Deposit Insurance Corporation (FDIC), respectively.
Both are required to maintain minimum capital requirements, defined
by both the FRB and FDIC as risk-based capital (Tier 1 and Total
and leverage capital ratio). The following chart presents the
minimum capital requirement ratios and the actual ratios for both
the Corporation and the Bank:
<TABLE>
<CAPTION>
December 31, 1995 Required Actual Excess
- ----------------- -------- ------ ------
<S> <C> <C> <C>
The Corporation:
Risk-based capital:
Tier 1 4.00% 14.217% 10.217%
Total 8.00 15.470 7.470
Leverage capital ratio 4.00 7.380 3.380
The Bank:
Risk-based capital:
Tier 1 4.00% 14.198% 10.198%
Total 8.00 15.451 7.451
Leverage capital ratio 4.00 7.370 3.370
Management is not aware of any known trends, events or
uncertainties that will have, or that are reasonably likely to have
a material effect on the Corporation's liquidity, capital resources
or operations. The Corporation is not aware of any current
recommendations by any regulatory authorities, which, if they were
to be implemented, would have a material effect on the
Corporation's liquidity, capital resources or operations.
<PAGE>
The following table presents for the periods indicated the
total dollar amount of interest income from interest-earning assets
and the yields as well as the interest paid on interest-bearing
liabilities, expressed in both dollars and rates:
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------------------------------------------------------------------
1995 1994 1993
---------------------------------- ------------------------------ ------------------------------
Average Yield/ Average Yield/ Average Yield/
Dollars in thousands Balance Interest(1) Cost Balance Interest(1) Cost Balance Interest(1) Cost
- -------------------- ------- ----------- ----- ------- ----------- ----- ------- ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-Earning Assets:
Loans(2) $188,116 $15,631 8.31% $172,673 $13,412 7.77% $158,722 $12,802 8.07%
Taxable investments 120,203 7,270 6.05 124,763 6,966 5.58 105,230 6,560 6.23
Tax-exempt investments 793 84 10.59 837 89 10.63 1,016 106 10.43
Deposits with banks 8,878 501 5.64 11,832 457 3.86 21,312 616 2.89
-------- ------- -------- ------- -------- -------
Total interest-earning
assets 317,990 23,486 7.39 310,105 20,924 6.74 286,280 20,084 7.02
------- ----- ------- ----- ------- -----
Non-interest-earning
assets(3) 14,075 14,185 12,707
-------- -------- --------
Total $332,065 $324,290 $298,987
-------- -------- --------
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-Bearing
Liabilities:
Transaction accounts(4)$ 19,312 $ 437 2.26% $ 18,874 $ 426 2.26% $ 15,714 $ 397 2.53%
Savings accounts(5) 119,038 4,718 3.96 128,702 4,291 3.33 100,702 2,952 2.93
Market-rate
certificates 142,744 7,548 5.29 131,897 5,144 3.90 146,053 5.850 4.01
Borrowings 4,655 304 6.53 2,204 131 5.94 430 31 7.21
-------- ------- -------- ------- -------- -------
Total interest-bearing
liabilities 285,749 13,007 4.55 281,677 9,992 3.55 262,899 9,230 3.51
------- ----- ------- ----- ------- -----
Non-interest-bearing
liabilities 19,812 18,575 13,971
Other liabilities 1,134 894 592
-------- -------- --------
Total liabilities 306,695 301,146 277,462
-------- -------- --------
Shareholders' equity 25,370 23,144 21,525
-------- -------- --------
Total $332,065 $324,290 $298,987
-------- -------- --------
-------- -------- --------
Net interest income/
interest rate spread(6) $10,479 2.84% $10,932 3.19% $10,854 3.51%
------- ----- ------- ----- ------- -----
------- ----- ------- ----- ------- -----
Net earning assets/net
yield on average
interest-earning
assets(7) $ 32,241 3.30% $28,428 3.52% $ 23,381 3.79%
-------- ----- ------- ----- -------- -----
-------- ----- ------- ----- -------- -----
Ratio of interest-
earning assets to
interest-bearing
liabilities 1.11x 1.10x 1.09x
----- ----- -----
----- ----- -----
<FN>
(1) On a fully-taxable equivalent basis. Effective tax rate used was approximately 36% for 1995 and 1994 and approximately 33%
for 1993.
(2) Loans include nonaccruing (i.e. non-performing) loans. Loan fees included in interest income were $275,000 $238,000 and
$327,000 for the years ended December 31, 1995, 1994 and 1993, respectively.
(3) Included in non-interest-earning assets for 1995, 1994 and 1993 is real estate acquired by foreclosure.
(4) Includes NOW and SWEEP accounts.
(5) Include money market deposit accounts, regular savings and cluh accounts, and Prime Performance accounts.
(6) Interest rate spread represents the difference between average yield earned on interest-earning assets and average cost of
interest-bearing liabilities.
(7) Net yield on average interest-earning assets represents net interest income as a percentage of average interest-earning
assets.
</TABLE>
<PAGE>
The following table presents the dollar amount of changes in
interest income on a fully taxable basis and interest expense for
each major component of interest-earning assets and
interest-bearing liabilities, and the amount of change attributable
to average balances and average rates for the periods indicated.
The variances attributable to simultaneous balance and rate changes
have been allocated in proportion to the relationship of the dollar
amount change in each category.
<TABLE>
<CAPTION>
Year 1995 compared to 1994 Year 1994 compared to 1993
Increase/(Decrease) Increase/(Decrease)
-------------------------- --------------------------
(In thousands) Volume Rate Net Volume Rate Net
- -------------- ------ ---- --- ------ ---- ---
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Loans $1,249 $ 970 $2,219 $1,057 $ (447) $ 610
Taxable investments (225) 529 304 927 (521) 406
Tax-exempt investments (5) -- (5) (19) 2 (17)
Deposits with banks (52) 96 44 (648) 489 (159)
------ ------- ------ ------ ------ ------
Total income on interest-
earning assets 967 1,595 2,562 1,317 (477) 840
------ ------- ------ ------ ------ ------
Interest-Bearing Liabilities:
Transaction accounts 11 -- 11 62 (33) 29
Savings accounts (281) 708 427 898 441 1,339
Market-rate certificates 451 1,953 2,404 (550) (156) (706)
Borrowings 159 14 173 104 (4) 100
------ ------- ------ ------ ------ ------
Total expense on interest-
bearing liabilities 340 2,675 3,015 514 248 762
------ ------- ------ ------ ------ ------
Net interest income $ 627 $(1,080) $ (453) $ 803 $ (725) $ 78
------ ------- ------ ------ ------ ------
------ ------- ------ ------ ------ ------
</TABLE>
<PAGE>
The following table sets forth the scheduled repricing or
maturity of the Corporation's interest-sensitive assets and
liabilities at December 31, 1995.
<TABLE>
<CAPTION>
More than More than 1 More than 3 More than 5 Over
6 months 6 months year through years through years through 10
In thousands or less to 1 year 3 years 5 years 10 years years Total
- ------------ -------- --------- ------------ ------------- ------------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Mortgage loans (1) $ 37,590 $ 31,495 $ 57,558 $ 19,228 $ 9,836 $ -- $155,707
Consumer and other loans (1) 29,273 3,640 6,809 210 -- -- 39,932
Securities available-for-sale (1)(2) 15,494 7,243 9,470 6,979 10,557 804 50,547
Investment securities, net (1)(2)(3) 9,529 5,730 25,132 21,015 -- 2,669 64,075
Interest-earning deposits in
other banks 31,300 -- -- -- -- -- 31,300
-------- -------- -------- -------- -------- -------- --------
Total interest-earning assets 123,186 48,108 98,969 47,432 20,393 3,473 341,561
-------- -------- -------- -------- -------- -------- --------
Interest-Bearing Liabilities:
NOW accounts 21,791 -- -- -- -- -- 21,791
Money market deposit accounts 15,901 -- -- -- -- -- 15,901
Regular savings and clubs (4) 51,184 89 -- -- -- 51,119 102,392
Market-rate certificates 68,964 42,858 22,236 20,068 -- -- 154,126
Borrowings 10,206 -- -- -- -- -- 10,206
-------- -------- -------- -------- -------- -------- --------
Total interest-bearing liabilities 168,046 42,947 22,236 20,068 -- 51,119 304,416
-------- -------- -------- -------- -------- -------- --------
Sensitivity GAP $(44,860) $ 5,161 $ 76,733 $ 27,364 $ 20,393 $(47,646) $ 37,145
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Cumulative sensitivity GAP $(44,860) $(39,699) $ 37,034 $ 64,398 $ 84,791 $ 37,145
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Cumulative sensitivity GAP as a
percent of total assets (12.6)% (11.2)% 10.4% 18.1% 23.9% 10.5%
Cumulative interest-earning assets
as a percent of interest-bearing
liabilities 73.3% 81.2% 115.9% 125.4% 133.5% 112.2%
<FN>
(1) Maturity/rate sensitivity is based upon contractual maturity and repayments of principal. The repayment experience reflected
is based on the Corporation's historical experience. ARM loans are categorized by "next" repricing date.
(2) U.S. Treasury securities and obligations of U.S. government agencies (excluding mortgage-backed securities) and obligations of
stated and political subdivisions are categorized by the contractual maturity of the instrument.
(3) Federal Home Loan Bank stock is categorized in the "Over 10 years" category.
(4) Regular savings and clubs (which include Prime Performance accounts) are available for immediate withdrawal. However, a
significant portion has been included in the "Over 10 years" category because management considers such deposits as stable
sources of funds.
</TABLE>
The following table presents the average-yield on interest
earning assets and interest-bearing liabilities, the interest rate
spread, and the net yield on average interest-earnings assets for
the years indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Yield on loans 8.31% 7.77% 8.07%
Yield on taxable investments 6.05 5.58 6.23
Yield on tax-exempt investments 10.59 10.63 10.43
Yield on deposits with banks 5.64 3.86 2.89
Combined yield on interest-earning
assets 7.39 6.74 7.02
Cost of transaction accounts 2.26 2.26 2.53
Cost of savings accounts 3.96 3.33 2.93
Cost of market-rate certificates 5.29 3.90 4.01
Cost of borrowings 6.53 5.94 7.21
Combined cost of interest-bearing
liabilities 4.55 3.55 3.51
Interest rate spread 2.84 3.19 3.51
Net yield on average interest-
earning assets 3.30 3.52 3.79
<FN>
Note: All yields are on a fully-taxable basis assuming an effective income tax rate of approximately 36% for 1995
and 1994 and 33% for 1993.
</TABLE>
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
December 31, 1995 1994
- ------------ -------- --------
<S> <C> <C>
Assets
Cash and due from banks $ 8,586 $ 7,068
Federal funds sold 31,300 9,275
-------- --------
Total cash and cash
equivalents 39,886 16,343
-------- --------
Securities available-for-sale,
at fair value 50,547 40,456
Investment securities, net
(fair value $60,831 in 1995
and $79,684 in 1994) 61,406 86,224
Loans 195,639 183,797
Less:
Unearned income 467 474
Allowance for loan losses 2,582 2,729
-------- --------
Total net loans 192,590 180,594
-------- --------
Banking premises and
equipment, net 3,231 3,320
Federal Home Loan Bank stock,
at cost 2,669 663
Accrued interest receivable 1,859 1,831
Other assets 2,622 4,115
-------- --------
Total assets $354,810 $333,546
-------- --------
-------- --------
Liabilities and Shareholders'
Equity
Due to depositors:
Interest-bearing $294,210 $276,448
Non-interest-bearing 20,828 19,718
-------- --------
Total deposits 315,038 296,166
-------- --------
Borrowings 10,206 10,049
Accrued interest payable 61 74
Accrued expenses and
other liabilities 3,157 3,817
-------- --------
Total liabilities 328,462 310,106
-------- --------
Shareholders' equity:
Preferred stock, $.01 par value
2,000,000 shares authorized,
none issued
Common stock, $.01 par value,
3,500,000 shares authorized
at December 31, 1995 and 1994; -- --
1,725,000 shares issued with
1,492,189 and 1,509,889
shares outstanding at December
31, 1995 and 1994, respectively 17 17
Additional paid-in capital 10,598 10,599
Retained earnings 17,801 15,919
Fair value adjustment of
securities available-for-sale,
net of tax 416 (1,236)
Less: Unallocated common stock
acquired by the ESOP 206 257
Cost of common stock in
treasury, 232,811 shares at
December 31, 1995 and
215,111 shares at December
31, 1994 2,278 1,602
-------- --------
Total shareholders' equity 26,348 23,440
-------- --------
Commitments and contingencies
(Notes 15, 16, 17, 18 and 19)
Total liabilities and
shareholders' equity $354,810 $333,546
-------- --------
-------- --------
<FN>
See accompanying notes to financial statements
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
December 31, 1995 1994 1993
- ------------ -------- -------- --------
<S> <C> <C> <C>
Interest Income:
Interest and fees on real
estate loans $ 12,011 $ 10,307 $ 9,675
Interest and fees on other loans 3,620 3,105 3,127
Interest and dividends on
securities:
Taxable 7,270 6,966 6,560
Tax-exempt 54 57 71
Interest on deposits
in other banks 501 457 616
-------- -------- --------
Total interest income 23,456 20,892 20,049
-------- -------- --------
Interest Expense:
Interest on deposit accounts 12,703 9,861 9,199
Interest on borrowed funds 304 131 31
-------- -------- --------
Total interest expense 13,007 9,992 9,230
-------- -------- --------
Net interest income 10,449 10,900 10,819
Provision for loan losses 300 450 2,290
-------- -------- --------
Net interest income after
provision for loan losses 10,149 10,450 8,529
-------- -------- --------
Other Income:
Service charges and other income 602 554 602
Gain (loss) on net securities
transactions 56 148 2,000
Gain on sale of loans -- -- 56
-------- -------- --------
Total other income 658 702 2,658
-------- -------- --------
Operating Expenses:
Salaries and employee benefits 3,407 3,100 2,952
Occupancy expense 649 710 734
FDIC insurance premium 426 653 615
Net (income from) cost of
operation of other real estate (140) 153 818
Other operating expenses 2,251 2,105 2,313
-------- -------- --------
Total operating expenses 6,593 6,721 7,432
-------- -------- --------
Income before income tax expense
and cumulative effects
of accounting changes 4,214 4,431 3,755
Income tax expense 1,542 1,577 1,352
-------- -------- --------
Income before cumulative effects
of accounting changes 2,672 2,854 2,403
Cumulative effects of accounting
changes
Accounting for income taxes -- -- 220
Accounting for postretirement
benefits other than pensions,
net of related taxes -- -- (207)
-------- -------- --------
Net income $ 2,672 $ 2,854 $ 2,416
-------- -------- --------
-------- -------- --------
Average number of shares
outstanding:
Primary 1,635,472 1,601,599 1,576,214
Fully diluted 1,638,747 1,601,860 1,590,448
Net income per share - Primary:
Income before cumulative effects
of accounting changes $ 1.63 $ 1.78 $ 1.52
Cumulative effects of accounting
changes:
Accounting for income taxes -- -- 0.14
Accounting for postretirement
benefits other than pensions,
net of related taxes -- -- (0.13)
------- ------- -------
Net income per share - primary $ 1.63 $ 1.78 $ 1.53
------- ------- -------
------- ------- -------
Net income per share - fully
diluted:
Income before cumulative effects
of accounting changes $ 1.63 $ 1.78 $ 1.51
Cumulative effects of accounting
changes:
Accounting for income taxes -- -- 0.14
Accounting for postretirement
benefits other than pensions,
net of related taxes -- -- (0.13)
------- ------- -------
Net income per share - fully
diluted $ 1.63 $ 1.78 $ 1.52
------- ------- -------
------- ------- -------
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Fair value Unallocated
adjustment common
of securities stock
Additional available- acquired
Common paid-in Retained for-sale, by the Treasury
(Dollars in thousands, except per share data) stock capital earnings net of tax ESOP stock total
- --------------------------------------------- ------ ---------- -------- ------------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992 $12 $10,599 $11,922 $ -- $(503) $(1,605) $20,425
Cash dividends declared and paid ($.38 per share) -- -- (573) -- -- -- (573)
Reduction of debt relating to the
Employee Stock Ownership Plan -- -- -- -- 123 -- 123
Stock split 5 -- (5) -- -- -- --
Net income -- -- 2,416 -- -- -- 2,416
--- ------- ------- ------- ----- ------- -------
Balance, December 31, 1993 17 10,599 13,760 -- (380) (1,605) 22,391
Cash dividends declared and paid ($.46 per share) -- -- (694) -- -- -- (694)
Reduction of debt relating to the
Employee Stock Ownership Plan -- -- -- -- 123 -- 123
Fair value adjustment of securities
available-for-sale, net of tax -- -- -- (1,236) -- -- (1,236)
Net income -- -- 2,854 -- -- -- 2,854
Issuance of 300 common treasury shares
for stock options -- -- (1) -- -- 3 2
--- ------- ------- ------- ----- ------- -------
Balance, December 31, 1994 17 10,599 15,919 (1,236) (257) (1,602) 23,440
Cash dividends declared and paid ($.52 per share) -- -- (790) -- -- -- (790)
Reduction of debt relating to the
Employee Stock Ownership Plan -- -- -- -- 51 -- 51
Fair value adjustment of securities
available-for-sale, net of tax -- -- -- 1,652 -- -- 1,652
Net income -- -- 2,672 -- -- -- 2,672
Issuance of 20,300 common treasury shares
for stock options -- (1) -- -- -- 151 150
Treasury stock acquired, at cost -- 38,000 shares -- -- -- -- -- (827) (827)
--- ------- ------- ------- ----- ------- -------
Balance, December 31, 1995 $17 $10,598 $17,801 $ 416 $(206) $(2,278) $26,348
--- ------- ------- ------- ----- ------- -------
--- ------- ------- ------- ----- ------- -------
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(In thousands)
Year Ended December 31, 1995 1994 1993
- ------------ -------- -------- --------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $ 2,672 $ 2,854 $ 2,416
Adjustments to reconcile net income to
net cash provided by operating activities:
Increase in accrued interest receivable (28) (205) (148)
Amortization, net, on securities 238 68 73
Provision for loan losses 300 450 2,290
Provision (recovery) for (of) losses on
real estate acquired by foreclosure (218) -- 610
Gain on net securities transactions (56) (148) (2,000)
Gain on sale of loans -- -- (56)
Increase (decrease) in accrued
interest payable (13) 10 45
Increase (decrease) in accrued expenses (476) 85 265
Decrease in prepaid expenses 104 132 124
Depreciation 354 378 399
Principal accrual relating to the ESOP debt 51 123 123
Debit (credit) for deferred
income tax expense (benefit) 76 160 (626)
Increase (decrease) in income taxes payable 196 (125) (91)
Cumulative effect of accounting changes,
net of taxes -- -- (13)
Net increase (decrease), other (683) 207 (928)
-------- -------- --------
Total cash provided by operating activities 2,517 3,989 2,483
-------- -------- --------
Cash Flows From Investing Activities:
Proceeds from maturities of
investment securities -- -- 2,200
Proceeds from call and repayments
of securities available-for-sale 6,727 5,465 --
Proceeds from sale of securities
available-for-sale 56 3,046 --
Proceeds from repayments of
investments securities 11,676 10,092 24,615
Proceeds from sale and call of
investment securities, net -- -- 57,652
Purchase of investment securities, net (1,442) (14,276) (91,146)
Purchase of securities available-for-sale -- (12,326) --
Purchase of Federal Home Loan Bank
of New York stock (2,006) (662) --
Net disbursements from loans (11,908) (18,222) (8,307)
Proceeds from disposal of other real estate 626 885 359
Capital expenditures (265) (439) (208)
-------- -------- --------
Net cash provided by (used in)
investing activities 3,464 (26,437) (14,835)
-------- -------- --------
Cash Flows From Financing Activities:
Net increase (decrease) in demand
deposits, money market accounts,
NOW accounts, Prime Performance
Accounts and savings accounts (7,717) 26,056 25,237
Net increase (decrease) in
market-rate certificates 26,589 (11,223) (12,128)
Principal payment on ESOP debt (51) (123) (123)
Common stock sold under stock option plan 150 2 --
Treasury stock acquired, at cost (827) -- --
Advance from Federal Home Loan
Bank of New York 10,000 -- --
Net change in borrowing under
repurchase agreement (9,792) 9,792 --
Dividends paid (790) (694) (573)
-------- -------- --------
Net cash provided by
financing activities 17,562 23,810 12,413
-------- -------- --------
Net increase in cash and cash equivalents 23,543 1,362 61
Cash and cash equivalents at
beginning of year 16,343 14,981 14,920
-------- -------- --------
Cash and cash equivalents at end of year $ 39,886 $ 16,343 $ 14,981
-------- -------- --------
-------- -------- --------
Supplemental schedule of cash flow
information:
Interest paid $ 13,020 $ 9,982 $ 9,185
-------- -------- --------
Income taxes paid $ 1,270 $ 1,543 $ 2,069
-------- -------- --------
Mortgage loans originated to
refinance the disposal of real estate
acquired by foreclosure $ 535 $ 85 $ 510
-------- -------- --------
Investment securities, net, transferred
to securities available-for-sale $ 14,467 $ -- $ --
-------- -------- --------
-------- -------- --------
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
Note 1 -- Summary of Significant Accounting Policies
Business: The Bank is in the business of providing financial
services to individuals and small businesses with specific emphasis
on depository services, residential mortgage lending, consumer
loans, construction loans and commercial loans through five branch
offices in Somerset and Hunterdon counties in New Jersey. The Bank
is subject to competition from other financial institutions and to
the regulations of certain Federal and New Jersey state agencies
and undergoes periodic examinations by those regulatory
authorities.
Basis of Financial Statement Presentation: The accompanying
consolidated financial statements of Raritan Bancorp Inc. (the
Corporation) are prepared in conformity with generally accepted
accounting principles and include the accounts of the Corporation
and its wholly-owned subsidiary, The Raritan Savings Bank (the
Bank). All significant intercompany accounts and transactions have
been eliminated from the accompanying consolidated financial
statements. In preparing the financial statements, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities as of the date of the balance sheets and
results of operations for the periods indicated. Actual results
could differ significantly from those estimates.
Material estimates that are particularly susceptible to
significant change in the near-term relate to the determination of
the allowance for loan losses and the valuation of real estate
acquired by foreclosure or in satisfaction of loans. In connection
with the determination of these allowances, management generally
obtains independent appraisals at least annually.
A portion of the Bank's loans are secured by real estate in a
recovering market. Accordingly, as with most financial institutions
in the market area, the ultimate collectibility of a substantial
portion of the Bank's loans portfolio is susceptible to changes in
market conditions.
Cash and Cash Equivalents: For purposes ot reporting cash
flows, cash and cash equivalents include cash and amounts due from
banks and federal funds sold. Generally, federal funds sold are
sold for one-day periods.
Securities Available-For-Sale and Investment Securities, Net:
Effective January 1, 1994, the Corporation adopted Statement of
Financial Accounting Standards ("SFAS"), No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." SFAS No. 115
requires that the Corporation's securities, including
mortgage-backed securities issued by Federal agencies, be
classified as either held-to-maturity, available-for-sale or
trading. The Corporation currently has no securities classified as
trading. If management has the intent and the Corporation has the
ability at the time of purchase to hold securities until maturity,
they are classified as investment securities and carried at
amortized historical cost adjusted for amortization of premiums and
accretion of discounts, utilizing the level-yield method.
Unrealized losses due to fluctuations in market value are
recognized as investment security losses when a decline in value is
assessed as being other than temporary. Securities to be held for
indefinite periods of time and not intended to be held to maturity
are classified as available-for-sale and carried at fair value.
Unrealized holding gains and losses are excluded from earnings and
reported net of related taxes as a separate component of
shareholders' equity until realized. Securities available-for-sale
are those which management intends to use as part of its
asset/liability management strategy and which may be sold in
response to changes in interest rates, resultant prepayment risk
and other factors related to interest rate and resultant prepayment
risk. Gains and losses are recognized on a trade date basis using
the specific identification method.
Loans and Allowance for Loan Losses: Real estate related loans
and other loans are stated at their principal amounts outstanding.
Loan origination fees and certain related direct loan origination
costs are deferred and amortized to interest income using the
related loan's effective yield.
Effective January 1, 1995, the Corporation adopted SFAS No.
114, "Accounting by Creditors for Impairment of a Loan," and SFAS
No. 118, "Accounting by Creditors for Impairment of a Loan Income
Recognition and Disclosures." SFAS No. 114 and No. 118 address the
accounting treatment of certain impaired loans. A loan is
considered impaired when, based upon current information and
events, it is probable that a creditor will be unable to collect
all amounts due in accordance with the contractual terms of the
loan. SFAS No. 114 and SFAS No. 118 do not apply to large groups of
smaller-balance homogeneous loans that are collectively evaluated
for impairment, loans that are measured at fair value or at the
lower of cost or fair value, leases or debt securities. Prior to
January 1, 1995, the Corporation's "impaired" loans were described
as, and included in, "non-performing" loans.
The accrual of income on loans, including impaired loans is
generally discontinued and all interest income previously accrued
and unpaid is deducted from income when a loan becomes more than
ninety days delinquent, or when certain factors indicate reasonable
doubt as to the timely collectibility of all amounts due.
Generally, loans on which the accrual of income has been
discontinued are designated as non-performing loans, and includes
all loans classified as "impaired" loans. Generally, non-performing
and impaired loans are returned to an accrual status only when none
of the principal or interest is due and unpaid and the full
collectibility of the outstanding loan balance is reasonably
assured. Cash receipts on non-performing and impaired loans are
generally applied to interest income when the loan balance is
considered fully collectible.
<PAGE>
The allowance for loan losses is established through a
provision for loan losses charged to expense. Loans are charged
against the allowance for loan losses when management believes the
collectibility of the principal is unlikely. The allowance is an
amount that management believes will be adequate to absorb possible
losses on existing loans that may become uncollectible. The
determination of the balance of the allowance for loan losses is
based on an analysis of the loan portfolio, economic conditions,
historical loan loss experience, the borrower's ability to repay,
collateral value and other factors that warrant recognition in
providing an adequate allowance. While management uses available
information to recognize losses on loans, future additions may be
necessary based on changes in economic conditions. In addition,
various regulatory agencies, as an integral part of their
examination process, periodically review the Corporation's
allowance for losses on loans. Such agencies may require the
Corporation to recognize additions to the allowance based on their
judgments of information available to them at the time of their
examination.
Banking Premises and Equipment: Land is carried at cost, and
buildings and improvements, leasehold improvements and furniture,
fixtures and equipment are carried at cost, net of accumulated
depreciation and amortization. Depreciation on buildings and
improvements is provided for using the straight-line method over
estimated useful lives of 15 to 50 years. The Bank depreciates
furniture, fixtures and equipment using the straight-line method
over the estimated useful lives of 4 to 25 years. Leasehold
improvements are amortized over the term of the lease or useful
life, whichever is less.
Federal Home Loan Bank of New York stock: This stock is
carried at cost. The Bank is required to maintain such investment
as part of its membership in the Federal Home Loan Bank of New
York.
Income Taxes: The Corporation files a consolidated Federal
income tax return. Certain items of income and expenses are
recognized in a different period for financial reporting purposes
than for income tax purposes. Separate state income tax returns are
filed by the Corporation and the Bank.
Effective January, 1, 1993, the Corporation adopted SFAS No.
109, "Accounting for Income Taxes." Deferred tax assets and
liabilities are recognized for the future consequences attributable
to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases, as
well as operating loss and tax credit carryforwards. Deferred tax
assets are recognized for future deductible temporary differences
and tax loss and credit carryforwards if their realization is "more
likely than not." Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rate is recognized in income in the
period that includes the enactment date.
The Parent Company's income taxes, as reflected in the Parent
Company's Statements of Income, represent the taxes allocated to
the Parent Company on the basis of its contribution to consolidated
income.
Retirement Benetits: The Bank maintains a noncontributory
defined benefit pension plan which covers all employees who have
met eligibility requirements of the Plan. It is the Bank's policy
to fund the plan sufficient to meet the minimum funding
requirements set forth in the Employee Retirement Income Security
Act of 1974. In addition, the Bank provides health care and life
insurance benefits for qualifying employees. Effective January 1,
1993, the Corporation adopted the provisions of SFAS No. 106,
"Employers' accounting for Postretirement Benefits Other than
Pensions," which requires the Corporation to accrue the current
cost of those benefits. The related expense is based upon actuarial
calculations and is recognized during the period over which such
benefits are earned.
Fair Value of Financial Instruments: SFAS No. 107,
"Disclosures About Fair Value of Financial Instruments," requires
entities to disclose fair value information on financial
instruments. The disclosure includes both on and off balance sheet
financial instruments. Fair value estimates are based on quoted
market prices, discounting scheduled cash flows through the
estimated maturity using estimated market discount rates, or other
methods as appropriate. These estimates are subjective in nature
and involve uncertainties and matters of judgment and as a result
cannot be considered as the actual value of the Corporation.
Changes in assumptions used in determining fair value of the
financial instruments could significantly alter the estimates.
The following assumptions were used by the Corporation in
estimating the fair value of financial instruments.
Cash and Due from Banks, and Federal Funds Sold: The carrying
amount approximates fair value.
Investment Securities, net and Securities Available-For-Sale:
For these securities, fair values are based on quoted market prices
or dealer quotes.
Loans: Fair value is estimated for portfolios of loans with
similar loan characteristics. The fair value for certain
residential mortgage loans and consumer loans are based on quoted
market prices for securities backed by similar loans adjusted for
differences in loan characteristics. The fair value for commercial
mortgage and construction type loans is estimated by discounting
cash flows using current interest rates for loans with similar
characteristics.
<PAGE>
Deposit Liabilities: The fair value of regular checking, NOW
accounts, money market deposit accounts, Prime Performance Accounts
and regular savings and club accounts is the same as the carrying
amount reported. The fair value of market-rate certificates is
calculated using the discounted cash flow method. The discount rate
used was the current rate offered by the Bank for deposits with
similar remaining maturities.
Borrowings: Borrowings consist of debt relating to the
Employee Stock Ownership Plan (ESOP), advances from the Federal
Home Loan Bank of New York and borrowings under repurchase
agreements. Since these borrowings carry a market rate of interest,
their carrying amount approximates fair value.
Commitments to Extend Credit and Performance Standby Letters
of Credit: The fair value of commitments is estimated using fees
currently charged for similar agreements, based on the remaining
term of the commitment and the present credit quality rating of the
counterparty. The fair value on the performance standby letters of
credit is based on fees currently charged for similar agreements or
on estimated cost to terminate them or to settle the obligations
with the counterparties at the reporting date.
Reclassification: Certain amounts in the financial statements
presented for prior periods have been reclassified to conform with
the 1995 presentation.
Net Income Per Share: Net income per share is calculated by
dividing net income by the average number of common shares
outstanding and the additional dilutive effect of stock options
outstanding during the applicable years using the Treasury Stock
Method.
Note 2 -- Change in Accounting Principles
During 1993, the Corporation changed its method of accounting
for postretirement benefits other than pensions, as required by
SFAS No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions," and income taxes, as required by SFAS No.
109, "Accounting for Income Taxes."
The cumulative effect of changes in accounting principles, net
of tax effect, in the Corporation's 1993 Consolidated Statement of
Income consists of the following:
<TABLE>
<CAPTION>
Increase
(In thousands) (decrease)
- -------------- ----------
<S> <C>
Income taxes $ 220
Postretirement benefits other than pensions, net (207)
------
Total cumulative effect of
change in accounting principles $ 13
------
------
</TABLE>
The Corporation recorded a cumulative one-time benefit of
$220,000 upon the adoption of SFAS No. 109. The major components of
the deferred tax asset related to temporary differences created by
the allowance for loan losses, unearned income, accrued expenses
and accrued postretirement benefits.
As discussed in Note 1, effective January 1, 1994, the
Corporation adopted SFAS No. 115, "Accounting for Certain
Investment in Debt and Equity Securities." The initial adoption of
SFAS No. 115 had no effect on net income, but resulted in an
increase in shareholders' equity, net of tax, totaling $486,000.
Note 3 -- Cash and Due from Banks
The Bank is required to maintain a cash reserve balance based
upon its deposits in accordance with banking regulations. The
average amount of the reserve for the years ended December 31, 1995
and 1994 were approximately $1,303,000 and $1,191,000,
respectively.
Note 4 -- Securities Available-for-Sale and Investment Securities,
Net
The amortized cost of securities and their estimated fair
value at December 31, 1995, were as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
(In thousands) Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- -------------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Securities available-for-sale:
U.S. Treasury securities and
obligations of U.S.
government agencies $12,533 $ 51 $ -- $12,584
Obligations of states and
political subdivisions 761 43 -- 804
Mortgage-backed securities
issued by Federal agencies 36,630 579 (50) 37,159
------- ---- ----- -------
$49,924 $673 $ (50) $50,547
------- ---- ----- -------
------- ---- ----- -------
Investment securities, net:
Mortgage-backed securities issued
by Federal agencies $61,406 $ -- $(575) $60,831
------- ---- ----- -------
------- ---- ----- -------
</TABLE>
In December 1995, the Corporation adopted Special Report No.
155-B, "A Guide to Implementation of Statement 115 on Accounting
for Certain Investments in Debt and Equity Securities--Questions
and Answers," (Special Report) issued by the Financial Accounting
Standards Board staff.
In accordance with the Special Report, the Corporation made a
one-time transfer of investment securities, net, with an amortized
cost and unrealized gain of $14,467,000 and $268,000, respectively,
to securities available-for-sale.
<PAGE>
The amortized cost of securities and their estimated fair
value at December 31, 1994, were as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
- -------------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Securities available-for-sale:
U.S. Treasury securities and
obligations of U.S. government agencies $15,606 $ -- $ (311) $15,295
Obligations of states and political
subdivisions 766 15 (11) 770
Mortgage-backed securities issued by
Federal agencies 25,934 10 (1,553) 24,391
------- ---- ------- -------
$42,306 $ 25 $(1,875) $40,456
------- ---- ------- -------
Investment securities, net:
Mortgage-backed securities issued
by Federal agencies $86,224 $ 8 $(6,548) $79,684
------- ---- ------- -------
------- ---- ------- -------
</TABLE>
The carrying value of investment securities pledged as
required security for public funds and deposits amounted to
$1,004,000 and $1,001,000 at December 31, 1995 and 1994,
respectively.
During 1995, an equity security previously written-off was
redeemed at a gain of $56,000.
During 1994, the Corporation sold securities which were
classified as available-for-sale in the amount of $3,046,000 at a
gross gain of $143,000. In addition, securities classified as
available-for-sale in the amount of $206,000 were called at a gross
gain of $5,000.
Proceeds from the sale and call of investment securities
during 1993 totaled $57,652,000, which resulted in a gross gain of
$2,000,000.
At December 31, 1994, U.S. Treasury securities and obligations
of U.S. government agencies with a carrying value, including
accrued interest receivable, of $9,982,000,were pledged as
collateral to secure borrowings under repurchase agreements. See
Note 13 for additional details.
The scheduled maturities of securities available-for-sale and
investment securities, net, at December 31, 1995, were as follows:
<TABLE>
<CAPTION>
Securities Investment
Available-for-sale Securities, Net
----------------------- --------------------
Amortized Estimated Amortized Estimated
(In thousands) Cost Fair Value Cost Fair Value
- -------------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Due in one year or less $10,033 $10,072 $ -- $ --
Due from one year to five years 2,500 2,512 -- --
Due after ten years 761 804 -- --
Mortgage-backed securities issued
by Federal agencies 36,630 37,159 61,406
60,831
------- ------- ------- -------
$49,924 $50,547 $61,406 $60,831
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
The scheduled maturities of securities available-for-sale and
investment securities at December 31, 1994, were as follows:
<TABLE>
<CAPTION>
Securities Investment
Available-for-sale Securities, Net
------------------------ ---------------------
Amortized Estimated Amortized Estimated
(In thousands) Cost Fair Value Cost Fair Value
- -------------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Due in one year or less $ 1,017 $ 1,010 $ -- $ --
Due from one year to five years 14,589 14,285 -- --
Due after ten years 766 770 -- --
Mortgage-backed securities issued
by Federal agencies 25,934 24,391 86,224 79,684
------- ------- ------- -------
$42,306 $40,456 $86,224 $79,684
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
Note 5 -- Loans and allowances for Loan Losses
Loans are summarized as follows:
<TABLE>
<CAPTION>
December 31,
------------------
(In thousands) 1995 1994
- -------------- -------- --------
<S> <C> <C>
Real estate:
Conventional $147,673 $139,676
Construction 8,536 6,454
-------- --------
156,209 146,130
Consumer 28,886 28,660
Commercial loans 10,544 9,007
-------- --------
$195,639 $183,797
-------- --------
-------- --------
</TABLE>
Loan fees included in interest income were $275,000, $238,000
and $327,000 for the years ended December 31, 1995, 1994 and 1993,
respectively.
Loans to directors and principal officers and their affiliates
which are made in the ordinary course of business, and on
substantially the same terms and rates as loans to other persons,
aggregated $2,074,000 and $2,158,000 at December 31, 1995 and 1994,
respectively. Activity during 1995 included principal repayments
of $167,000 and new disbursements of $83,000.
The activity in the allowance for loan losses follows:
<TABLE>
<CAPTION>
(In thousands)
Year Ended December 31, 1995 1994 1993
- ---------------------- -------- -------- --------
<S> <C> <C> <C>
Balance at beginning of year $2,729 $3,094 $ 1,797
Provision charged to operations 300 450 2,290
Charge-offs (465) (825) (1,019)
Recoveries 18 10 26
------ ------ -------
Balance at end of year $2,582 $2,729 $ 3,094
------ ------ -------
------ ------ -------
</TABLE>
<PAGE>
Non-performing loans (over 90 days delinquent), and real
estate acquired by foreclosure (included in Other Assets) totaled
$1,225,000 and $2,105,000 at December 31, 1995 and 1994,
respectively, as follows:
<TABLE>
<CAPTION>
December 31, 1995
-----------------------
Number Amount
of Loans (In thousands)
-------- -------------
<S> <C> <C>
First mortgage loans 3 $ 317
Home equity loans 2 36
Second mortgage loans 2 98
Commercial loans 2 326
Loans with modified terms 3 278
-- ------
Total non-performing loans 12 1,055
Real Estate Acquired by Foreclosure
(included in other assets) 1 170
-- ------
13 $1,225
-- ------
-- ------
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
--------------------
Number Amount
of Loans (In thousands)
-------- -------------
<S> <C> <C>
First mortgage loans 2 $ 312
Consumer loans 1 2
Demand loans 1 7
-- ------
Total non-performing loans 4 321
In-substance foreclosed loans
(included in Loans) 8 701
Real Estate Acquired by Foreclosure
(included in other assets) 3 1,083
-- ------
15 $2,105
-- ------
-- ------
</TABLE>
In addition to the above non-performing loans, there were five
loans totaling $197,000 which were less than 90 days delinquent,
but in non-accrual status at December 31, 1994. Interest payments
on these loans were recognized into income on a cash basis.
The loss of interest on loans charged-off, non-performing
loans, real estate acquired by foreclosure, non-accrual loans and
impaired loans totaled approximately $224,000, $305,000 and
$474,000 for the years ended December 31, 1995, 1994 and 1993,
respectively.
Based upon the criteria set forth in SFAS No. 114 and SFAS No.
118, the Corporation had impaired loans of $1,055,000 at December
31, 1995. The Corporation calculated a total allowance of $122,000
at December 31, 1995. Impaired loans averaged $1,382,000 for the
year ended December 31, 1995. Interest income of $17,000 was
recognized, all on a cash basis, on impaired and nonperforming
loans for the year ended December 31, 1995.
The Bank is not committed to lend additional funds on loans
with modified terms.
Note 6 -- Banking Premises and Equipment, Net
A summary of the net carrying value of banking premises and
equipment follows:
<TABLE>
<CAPTION>
December 31,
--------------------
(In thousands) 1995 1994
- -------------- -------- --------
<S> <C> <C>
Land $ 756 $ 749
Buildings and improvements 2,381 2,258
Furniture, fixtures and equipment 1,801 1,866
Leasehold improvements 620 620
------ ------
5,558 5,493
Less accumulated depreciation
and amortization 2,327 2,173
------ ------
$3,231 $3,320
------ ------
------ ------
</TABLE>
Depreciation and amortization expense charged to operations
amounted to $354,000, $378,000 and $399,000 in 1995, 1994 and 1993,
respectively.
Note 7 -- Other Assets
Other assets are summarized as follows:
<TABLE>
<CAPTION>
December 31,
------------------
(In thousands) 1995 1994
- -------------- -------- --------
<S> <C> <C>
Real estate acquired by foreclosure $ 170 $1,083
Allowance for losses on real estate
acquired by foreclosure -- (108)
Deferred tax assets, net 1,099 1,711
Unamortized premium paid - RTC 664 780
Prepaid expenses 144 332
All other 545 317
------ ------
$2,622 $4,115
------ ------
------ ------
</TABLE>
The activity in the allowance for losses on real estate
acquired by foreclosure follows:
<TABLE>
<CAPTION>
(In thousands)
Year Ended December 31, 1995 1994 1993
- ---------------------- -------- -------- --------
<S> <C> <C> <C>
Balance at beginning of year $ 108 $ 439 $ 139
Provision (recovery) charged
(credited) to operations
(included in net cost
of operation of other
real estate) (218) -- 610
Charge-offs (14) (404) (337)
Recoveries 124 73 27
----- ----- -----
Balance at end of year $ -- $ 108 $ 439
----- ----- -----
----- ----- -----
</TABLE>
<PAGE>
Note 8 -- Due to Depositors
The details of deposit balances are as follows:
<TABLE>
<CAPTION>
December 31,
------------------
(In thousands) 1995 1994
- -------------- -------- --------
<S> <C> <C>
Regular and business checking $ 20,828 $ 19,718
NOW accounts 21,791 17,330
Money market deposit accounts 15,901 20,895
Prime Performance Accounts 55,281 58,524
Regular savings and club accounts 47,111 52,099
-------- --------
160,912 168,566
-------- --------
Market-rate certificates:
7-31 day 6,852 5,288
6 month 33,520 38,441
9 month 24,025 4,624
12 month 27,179 21,742
24 month 7,395 6,337
Other certificates 14,586 13,848
IRA and KEOGH accounts 40,569 37,320
-------- --------
$154,126 $127,600
-------- --------
$315,038 $296,166
-------- --------
-------- --------
</TABLE>
Market-rate certificates $100,000 and over totaled $13,053,000
and $8,368,000 at December 31, 1995 and 1994, respectively.
Interest expense on market-rate certificates $100,000 and over
totaled $589,000, $352,000 and $391,000 for the years ended
December 31, 1995, 1994 and 1993, respectively.
Note 9 -- Income Taxes
As discussed in Note 1, the Corporation adopted SFAS No. 109
as of January 1, 1993. The cumulative effect of this change in
accounting for income taxes of $220,000 is determined as of January
1, 1993 and is reported separately in the consolidated statement of
income for the year ended December 31, 1993.
The following is a summary of income tax expense, before
cumulative effect of change in accounting principles for the year
ended December 31:
<TABLE>
<CAPTION>
(In thousands)
Year Ended December 31, 1995 1994 1993
- ---------------------- ------ ------ ------
<S> <C> <C> <C>
Taxes estimated to be
payable currently:
Federal $1,343 $1,282 $1,818
State 123 135 160
------ ------ ------
Subtotal 1,466 1,417 1,978
Deferred taxes (benefit):
Federal 68 147 (558)
State 8 13 (68)
------ ------ ------
Subtotal 76 160 (626)
------ ------ ------
Total income tax expense $1,542 $1,577 $1,352
------ ------ ------
------ ------ ------
</TABLE>
Total income tax expense for the years ended December 31,
1995, 1994 and 1993, differed from the amounts calculated by
applying the expected U.S. Federal income tax rate of 34% to
pre-tax income as a result of the following:
<TABLE>
<CAPTION>
(In thousands) Year Ended December 31,
1995 1994 1993
- ---------------------- ------ ------ ------
<S> <C> <C> <C>
Income before income tax expense
and cumulative effects of
accounting changes $4,214 $4,431 $3,755
Statutory income tax rate 34% 34% 34%
------ ------ ------
1,433 1,507 1,277
Tax-exempt interest income (18) (19) (24)
State income taxes, net of
Federal income tax benefit 86 98 60
Change in the beginning-of-
the-year balance of the
valuation allowance allocated
to income tax expense 36 19 24
Other 5 (28) 15
------ ------ ------
$1,542 $1,577 $1,352
------ ------ ------
------ ------ ------
</TABLE>
The significant components of the deferred income taxes for
the years ended December 31, 1995, 1994 and 1993 were the result of
changes in temporary differences between tax and financial
reporting purposes and the changes in the beginning-of-the-year
balance of the valuation allowance for deferred tax assets.
<TABLE>
<CAPTION>
(In thousands) Year Ended December 31,
1995 1994 1993
- ---------------------- ------ ------ ------
<S> <C> <C> <C>
Deferred tax expense (exclusive
of the effect of the other
component listed below) $ 40 $ 141 $ (650)
Increase in the beginning-of-
the-year balance of the
valuation allowance for
deferred tax assets 36 19 24
------ ------ ------
$ 76 $ 160 $ (626)
------ ------ ------
------ ------ ------
</TABLE>
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities at December 31, 1995 and 1994 follows:
<TABLE>
<CAPTION>
December 31,
------------------
(In thousands) 1995 1994
- -------------- -------- --------
<S> <C> <C>
Deferred tax assets:
Unearned income $ 168 $ 169
Nonaccrual interest 3 3
Allowance for loan losses 929 969
Allowance for losses on real estate
acquired by foreclosure -- 38
Accrued expenses 505 347
Fair value adjustment of securities
available-for-sale -- 625
Other 23 53
------ ------
Total gross deferred tax assets 1,628 2,204
Less valuation allowance (529) (493)
------ ------
Deferred tax assets, net of
valuation allowance 1,099 1,711
------ ------
Deferred tax liabilities:
Unamortized core deposit premium paid 178 203
Excess of tax bad debt reserve
over base year 49 13
Depreciation 37 --
Fair value adjustment of securities
available-for-sale 207 --
Other 67 26
------ ------
Total Other gross deferred tax
liabilities 538 242
------ ------
Net deferred tax assets $ 561 $1,469
------ ------
------ ------
</TABLE>
<PAGE>
Included in the above table is the recognition of temporary
differences relating to the unrealized gains and losses on certain
debt securities accounted for under SFAS No. 115 for which no
deferred tax was recognized through the Consolidated Statement of
Income.
The valuation allowance for deferred tax assets as of December
31, 1994 was $493,000. The net change in the total valuation
allowance for the year ended Decemher 31, 1995 was an increase of
$36,000.
The Corporation's taxable income and pretax book income for
the three years ended December 31, were as follows:
<TABLE>
<CAPTION>
(In thousands)
Year Ended December 31, 1995 1994 1993
- ---------------------- ------ ------ ------
<S> <C> <C> <C>
Taxable income $4,307 $3,938 $5,141
Pretax book income 4,214 4,431 3,755
</TABLE>
The primary difference between taxable income and pretax book
income relate to unearned income, depreciation, provision for loan
losses, nonaccrual interest, amortization of the core deposit
premium and nondeductible expenses.
Except for the effects of the reversal of net deductible
temporary differences the Corporation is not currently aware of any
factors which would cause any significant differences between
taxable income and pretax book income in future years. However,
there can be no assurances that there will be no significant
differences in the future between taxable income and pretax book
income if circumstances change (such as, for example, changes in
tax laws or the Corporation's financial condition or performance).
Management believes it is more likely than not that the Corporation
will realize the benefit of net deductible temporary differences
based upon recoverable taxes in the carryback period and projected
levels of pretax income, and that such net deductible temporary
differences will reverse during periods in which the Corporation
generates net taxable income.
The Corporation has not recognized a deferred tax liability of
approximately $685,000 for "bad debt reserves" for tax purposes
which arose in tax years beginning before December 31, 1987 (i.e.,
base year"). A deferred tax liability will be recognized if the
Corporation expects that charges to the bad debt reserves, other
than the losses on loans or recomputations of bad debt deductions
resulting from operating loss carrybacks to prior years, would
result in taxable income.
Note 10 -- Benefit Plans
The Bank has a noncontributory defined benefit pension plan
covering all eligible full-time employees. Benefits are based upon
years of service and compensation. It is the Bank's policy to fund
the plan sufficient to meet the minimum funding requirements set
forth in the Employee Retirement Income Security Act ot 1974.
The following table sets forth the plan's funded status and
amounts recognized in the consolidated financial statements:
<TABLE>
<CAPTION>
December 31,
------------------
(In thousands) 1995 1994
- -------------- -------- --------
<S> <C> <C>
Actuarial present value of
benefit obligations:
Accumulated benefit obligation,
including vested benefits of
$1,416 in 1995 and $1,081 in 1994 $(1,517) $(1,240)
------- -------
Projected benefit obligations for
service rendered to date $(2,086) $(1,758)
Plan assets at fair value, primarily
debt and equity securities 2,231 1,767
------- -------
Projected benefit obligation
less than plan assets 145 9
Contribution made during the
fourth quarter 10 18
Transition amount from initial
application (6) (7)
Unrecognized loss (98) 17
Unrecognized past service benefits (98) (44)
------- -------
Accrued pension expense included
in other liabilities $ (47) $ (7)
------- -------
------- -------
</TABLE>
The following table sets forth the components of net pension
expense for the years ended shown:
<TABLE>
<CAPTION>
(In thousands) Year Ended December 31,
1995 1994 1993
- ---------------------- ------ ------ ------
<S> <C> <C> <C>
Net pension expense includes the
following components:
Service cost-benefits earning
during the period $ 95 $ 97 $ 78
Interest cost on projected
benefit obligation 139 124 120
Return on plan assets (429) (6) (221)
Net amortization and deferral 274 (132) 109
----- ----- -----
Net pension expense included in
salaries and employee benefits $ 79 $ 83 $ 86
----- ----- -----
----- ----- -----
</TABLE>
The primary assumptions used for calculating year-end actuarial
present value of benefit obligations were:
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
- ---------------------- ------ ------ ------
<S> <C> <C> <C>
Weighted average discount rates
used to determine the projected
benefit obligation 7.50% 8.25% 7.00%
Rates of increase in future
salary levels 5.5 6.0 5.5
</TABLE>
<PAGE>
In addition, the assumptions used for calculating net pension
expense for the years ended shown were:
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
- ---------------------- -------- -------- --------
<S> <C> <C> <C>
Weighted average discount
rates used to determine
the projected benefit obligation 8.25% 7.0% 8.0%
Rates of increase in future
salary levels 6.0 5.5 7.0
Expected long-term rates of
return on plan assets 8.0 8.0 8.0
</TABLE>
Under an employer sponsored plan the Corporation provides
certain health care and life insurance benefits for retired
employees and certain dependents. All of the Corporation's
employees are eligible for such benefits at age sixty with fifteen
years service or rule of 75 with twenty years of service. The
participant in most cases will be required to contribute a portion
of the cost of the premium for the benefits. The medical plans pay
a stated percentage based on years of service of most medical
expenses reduced for any deductibles and payments made by
government programs. The Corporation is self-insured for the cost
of the premiums for the benefits and has no plan assets.
As discussed in Note 1 the Corporation adopted SFAS No. 106 as
of January 1 1993 for its postretirement benefit plans. Under this
statement the Corporation accrues the current cost of those
benefits. The Corporation previously expensed the cost of the
premiums for those benefits on a pay-as-you-go basis. The
Corporation elected to recognize immediately the transition
obligation during the quarter ended March 31 1993. This resulted
in a one-time charge of $207,000 (net of related income taxes of
$11,000), and appears as a cumulative effect of accounting change
in the accompanying consolidated statement of income for the year
ended December 31 1993. The effect of this change on operating
results after recording the cumulative effect was to recognize an
additional pretax expense of $38,000.
The following table sets forth the components of
postretirement costs for the years ended December 31, 1995, 1994
and 1993:
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
- ---------------------- ------ ------ ------
<S> <C> <C> <C>
Service cost $ 16 $ 20 $ 19
Interest cost 15 24 19
Amortization of unrecognized gain (7) -- --
Immediate recognition of
transition obligation -- -- 218
---- ---- ----
Net periodic postretirement
benefit cost $ 24 $ 44 $256
---- ---- ----
---- ---- ----
</TABLE>
The funded status of the postretirement plan at December 31, 1995
and 1994 follows:
<TABLE>
<CAPTION>
December 31,
------------------
(In thousands) 1995 1994
- -------------- -------- --------
<S> <C> <C>
Accumulated postretirement benefit
obligation:
Retirees $ -- $ --
Active plan participants and
certain dependents (229) (275)
Fair value of assets -- --
------- -------
Fair value of assets in excess
(less than) accumulated
post-retirement benefit obligation (229) (275)
Unrecognized gain (loss) (98) (28)
Service cost -- --
Interest cost -- --
------- -------
Accrued postretirement benefit cost $ (327) $ (303)
------- -------
------- -------
</TABLE>
For measuring the expected postretirement benefit obligation
the Corporation assumed a 10.0 percent rate of increase in the per
capita claims cost in 1996 and assumed that the rate would decrease
linearly over a ten year period to 5.5 percent and remain at that
level thereafter. The weighted-average discount rate used in
determining the assimilated postretirement benefit obligation was
7.50 percent.
If the health care cost trend were increased one percent the
accumulated postretirement henefit obligation as of December 31
1995 would have increased by approximately $41,300 or 18.1 percent.
The effect of the change on the aggregate of service and interest
cost for 1995 would be an increase of approximately $8,000 or 20.9
percent.
As further discussed in Note 13 the Bank sponsors an Employee
Stock Ownership Plan (the ESOP) covering substantially all full
time employees. The ESOP, which is a tax qualified employee benefit
plan became effective upon conversion of the Bank in May 1987 and
provides retirement benefits for the employees of the Bank.
Activity in the ESOP follows:
<TABLE>
<CAPTION>
<S> <C>
Number of shares held by the ESOP at
December 31, 1992 123,422
Purchase of shares funded by excess
liquidity in the ESOP 5,495
--------
Number of shares held by the ESOP at
December 31, 1993 128,917
Purchase of shares funded by a $50,000
contribution from the Bank
and by excess liquidity in the ESOP 7,401
--------
Number of shares held by the ESOP at
December 31, 1994 136,318
Distributions to former employees (5,084)
Purchase of shares funded by excess
liquidity in the ESOP 3,283
Purchase of shares funded by a $100,000
contribution from the Bank 4,497
--------
Number of shares held by the ESOP
at December 31, 1995 139,014
-=------
--------
</TABLE>
<PAGE>
At December 31, 1995, approximatelv 117,000 shares were
allocated to participants, approximately 5,400 were committed to be
released during 1996, and approximately 22,000 shares were
unallocated and secured the ESOP borrowing. The fair value of the
unallocated shares at December 31, 1995 was approximately $473,000.
The Bank maintains a 401(k) Savings Plan which is available to
all full-time employees who have completed one year of service and
have attained the age of 21.
Under the plan, eligible employees may elect to have the Bank
withhold between one percent and ten percent of their base salary
through payroll deductions and contribute that amount to the plan
as a savings contribution. Participants will receive an employer
matching contribution of fifty percent. The money contributed is
invested at the employees' direction by the plan's trustees.
Employees are fully vested in this plan on their third employment
date anniversary with the Bank.
401(k) expenses totaled $79,000, $51,000 and $44,000 for the
years ended December 31, 1995, 1994 and 1993, respectively, and are
included in Salaries and Employee Benefits in the accompanying
Consolidated Statements ot Income.
Note 11 -- Stock Option Plan
At December 31, 1995, 1994 and 1993, 222,525, 209,325, and
166,125 shares, respectively, were exercisable under two stock
option plans for directors and certain officers.
Under the Corporation's stock option plans, options have been
granted for terms up to ten years at not less than the fair value
of the shares at the dates of grant.
Stock option transactions are as follows:
<TABLE>
<CAPTION>
Incentive Plan Directors Plan
-------------------------- -------------------
Option Price Option Price
(In thousands) Shares per Share Shares Per Share
- -------------- --------- ------------ --------- ---------
<S> <C> <C> <C> <C>
Outstanding, December 31, 1992 200,625 $ 6.67-9.33 22,500 $ 9.33
Granted 22,500 15.50 -- --
-------- ----------- ------- ------------
Outstanding, December 31, 1993 223,125 6.67-15.50 22,500 9.33
Exercised in 1994 300 6.67 -- --
Granted -- -- 7,500 14.88
-------- ----------- ------- ------------
Outstanding, December 31, 1994 222,825 6.67-15.50 30,000 9.33-14.88
Exercised in 1995 20,300 6.67-9.33 -- --
Canceled during the year 2,500 9.33 -- --
-------- ----------- ------- ------------
Outstanding, December 31, 1995 200,025 $6.67-15.50 30,000 $ 9.33-14.88
-------- ----------- ------- ------------
-------- ----------- ------- ------------
</TABLE>
The options exercised in 1995 and 1994 were issued from
treasury stock.
At December 31, 1995, 192,525 shares of the incentive plan and
all the shares of the directors' plan were exercisable.
In 0ctober 1995, the Financial Accounting Standards Board
issued SFAS No. 123, "Accounting for Stock-Based Compensation."
This Statement establishes financial accounting and reporting
standards for stock-based employee compensation plans.
SFAS No. 123 encourages all entities to adopt the "fair value
based method" of accounting for employee stock compensation plans.
However, SFAS No. 123 also allows an entity to continue to measure
compensation cost under such plans using the 'intrinsic value based
method."
Under the fair value based method, compensation cost is
measured at the grant date based on the value of the award and is
recognized over the service period, usually the vesting period.
Fair value is determined using an option-pricing method that takes
into account the stock price at the grant date, the exercise price,
the expected life of the option, the volatility of the underlying
stock and the expected dividends on it, and the risk-free interest
rate over the expected life of the option. Under the intrinsic
value based method, compensation cost is the excess, if any, of the
quoted market price of the stock at grant date or other measurement
date over the amount an employee must pay to acquire the stock.
Most stock plans have no intrinsic value at date of grant, and
under previous accounting guidance, no compensation cost was to be
recognized.
The accounting requirements of this Statement are effective
for transactions entered into in fiscal years that begin after
December 31, 1995. Entities electing to continue accounting for
compensation cost under the intrinsic value method must provide pro
forma disclosures for all awards granted in fiscal years that begin
after December 15, 1994. Such disclosures include net income and
earnings per share, as if the fair value based method of accounting
had been applied.
On January 1, 1996, the Corporation elected to continue
accounting for compensation cost for stock-based compensation plans
under the intrinsic value method.
<PAGE>
Note 12 -- Shareholders' Equity
In connection with the conversion of the Bank from a mutual
savings bank to a capital stock savings bank, the Bank established
a liquidation account. This liquidation account will be maintained
for the benefit or eligible account holders who continue to
maintain their accounts in the Bank after the conversion. The
liquidation account will be reduced annually to the extent that the
eligible account holders have reduced their eligible deposits.
Subsequent increases will not restore an eligible account holder's
interest in the liquidation account. In the event of a complete
liquidation, each eligible account holder will be entitled to
receive a distribution from the liquidation account in a
proportionate amount to the current adjusted eligible account
balances they held. At December 31, 1995, the balance in the
liquidation account was approximately $789,000.
Note 13 -- Borrowings
Borrowings are summarized as follows:
<TABLE>
<CAPTION>
December 31,
Interest ------------------
Rate 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Federal Home Loan Bank of New York Advance 5.375% $10,000 $ --
Borrowings under repurchase agreements:
Collateralized by U.S. Treasury securities
and obligations of U.S. government agencies
with a carrying value, including accrued
interest receivable, of $9,982 6.430% -- 9,792
ESOP Debt 10.000% 206 257
------ ------- -------
$10,206 $10,049
------- -------
------- -------
</TABLE>
At December 31, 1995, the Bank had an available line of credit
totaling $6.7 million at the Federal Home Loan Bank of New York.
The Corporation may enter into sales of securities under repurchase
agreements. Such agreements are treated as financings and the
obligations to repurchase the same securities sold are reflected as
a liability in the Consolidated Balance Sheet. The dollar amount
of securities underlying the agreements are book entry securities.
At December 31, 1995, there were no agreements outstanding to
repurchase the same securities. At December 31, 1994, agreements
outstanding to repurchase the same securities totaled $9,792,000.
Agreements to repurchase the same securities averaged
$4,300,000 and $1,896,000 for the years ended December 31, 1995 and
1994, respectively. The maximum amounts at any month-end under
such agreements during the years ended December 31, 1995 and 1994
totaled $9,735,000 and $9,792,000, respectively. Accrued interest
payable totaled $-0- and $18,000 at December 31, 1995 and 1994,
respectively. The average interest rate on such agreements was
6.33% and 5.54% for the years ended December 31, 1995 and 1994,
respectively.
In connection with its initial purchase of 75,000 shares of
the Corporation's common stock, the ESOP borrowed $500,000 from an
unrelated financial institution which was repaid in March 1994.
During August 1992, the ESOP borrowed an additional $360,000 from
the same financial institution to purchase 37,894 additional
shares.
The ESOP borrowing is summarized as follows:
<TABLE>
<CAPTION>
December 31,
------------------
(In thousands) 1995 1994
- -------------- -------- --------
<S> <C> <C>
Original principal: $360,000; matures
on August 25, 1999; interest rate
(10.00% at December 31, 1995 and 1994)
equals the lending financial
institution's prime rate plus 1.50% $206,000 $257,000
-------- --------
$206,000 $257,000
-------- --------
-------- --------
</TABLE>
As principal payments are made by the ESOP, the corresponding
liability will be reduced and shareholders' equity will be
increased. Principal payments totaled $51,000 in 1995. Future
principal payments are scheduled as follows:
<TABLE>
<CAPTION>
<S> <C>
1996 $ 51,000
1997 51,000
1998 51,000
1999 53,000
--------
$206,000
--------
--------
</TABLE>
The Employee Stock Ownership Plan (the "ESOP") was established
effective January 1, 1987 in connection with the Bank's
reorganization to stock form. The ESOP is a leverage plan, meaning
that the ESOP Trust borrowed funds to purchase shares of the
Corporation's common stock for the ESOP. As the ESOP loan is
repaid, shares are released from the unallocated stock fund to be
allocated to participants of the ESOP over the term of the ESOP
loan. In addition, the Corporation can make discretionary
contributions to the ESOP. The ESOP uses the discretionary
contributions to purchase shares of the Corporation's common stock
and allocates the shares to the participants.
<PAGE>
The allocation to participant's accounts are based on each
participant's compensation during the calendar year. Al1 employees
of the Corporation and its affiliates who are age 21 and have
completed one year of service are eligible to participate and have
at least 1,000 hours of service per year.
Dividends on shares of allocated and unallocated stock are
held in a cash investment fund on behalf of the participant.
However, the Corporation has the discretion to (i) distribute such
dividends directly to the participants; or (ii) to make payments on
the ESOP loan and have additional shares allocated to participants
accounts. Additional shares are allocated to participants' account
as a result of the repayment of the ESOP loan.
As the ESOP loan is repaid and shares are released from the
unallocated stock fund, the Corporation records compensation
expense equal to the amount of the principal reduction. In
addition, the Corporation also records compensation expense in the
amount of any discretionary contribution made to the ESOP.
Dividends on all ESOP shares are charged to retained earnings.
The Corporation recorded an ESOP compensation expense of
$117,000, $132,000 and $182,000 in 1995, 1994 and 1993,
respectively, and are included in salaries and employee benefits.
Note 14 -- Fair Value of Financial Instruments
The estimated fair values of the Corporation's financial
instruments at December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
------------------ ------------------
Carrying Fair Carrying Fair
(In thousands) Value Value Value Value
- -------------- --------- ------- -------- -------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 39,886 $ 39,886 $ 16,343 $ 16,343
Securities available-for-sale 50,547 50,547 40,456 40,456
Investment securities, net 61,406 60,831 86,224 79,684
Loans, net of unearned income 195,172 195,736 183,323 181,002
Less: Allowance for loan losses (2,582) -- (2,729) --
Net loans 192,590 195,736 180,594 181,022
Federal Home Loan Bank of
New York stock 2,669 2,669 663 663
Financial liabilities:
Deposits 315,038 316,034 296,166 295,660
Borrowings 10,206 10,206 10,049 10,049
</TABLE>
Note 15 -- Commitments
The Bank is a party to financial instruments with
off-balance-sheet risk in the normal course of business to meet the
financing needs of its customers. These instruments expose the Bank
to credit risk in excess of the amount recognized in the balance
sheet.
The Bank's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for
commitments to extend credit is represented by the contractual
amount of those instruments. The Bank uses the same credit
policies in making commitments and conditional obligations as it
does for on-balance-sheet instruments. Total credit exposure
related to these items at December 31 1995 and 1994 is summarized
below:
<TABLE>
<CAPTION>
Contractual Amount
December 31,
------------------
(In thousands) 1995 1994
- -------------- -------- --------
<S> <C> <C>
Mortgage loan commitments
(primarily variable rate) $ 4,093 $ 5,922
Unused portion of commercial
lines of credit and undisbursed
portion of construction loans 15,965 3,140
Unused portion of home equity
lines of credit 9,243 9,035
Performance standby letters of credit 1,542 1,682
-------- --------
$ 30,843 $ 19,779
-------- --------
-------- --------
</TABLE>
Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require
payment of a fee. The Bank evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral
obtained if deemed necessary by the Bank upon extension of credit
is based on management's credit evaluation of the counterparty.
Collateral held is generally real estate.
Performance standby letters of credit are conditional
commitments issued by the Bank to guarantee the performance of an
act of a customer to a third party. The most common purpose is to
guarantee completion of sitework within a housing tract.
Interest rates on the above commitments are primarily of a
variable nature.
Note 16 -- Concentration of Credit Risk
The Corporation grants residential, consumer, construction and
commercial loans secured generally by real estate to customers
located primarily in Somerset and Hunterdon Counties, New Jersey
and nearby communities. A substantial portion of the Bank's loans
are secured by real estate located in a recovering market. In
addition, parcels of real estate acquired by foreclosure are
located in the same market area. Accordingly, as with most
financial institutions in the market area, the ultimate
collectibility of a substantial portion of the loan portfolio and
recoverability of real estate acquired by foreclosure are
susceptible to changes in market conditions.
<PAGE>
Note 17 -- Long-term Leases
The future minimum rental commitments required under operating
leases that have initial or remaining noncancellable lease terms in
excess ot one year are as follows:
<TABLE>
<CAPTION>
Minimum
Year Ended December 31, Rent Expense
- ----------------------- ------------
<S> <C>
1996 $171,000
1997 54,000
1998 57,000
1999 59,000
2000 25,000
Thereafter --
--------
$366,000
--------
--------
</TABLE>
Rent expense included in occupancy expense for the years ended
December 31, 1995, 1994 and 1993 amounted to $177,000, $161,000 and
$165,000, respectively.
Note 18 -- Contingencies
In the normal course of business, there are outstanding
various legal proceedings and claims which are not included in the
accompanying consolidated financial statements. In the opinion of
management, the financial position, liquidity and results of
operations of the Corporation will not be materially affected by
the outcome of such legal proceedings and claims.
On August 8, 1995, the Federal Deposit insurance Corporation
("FDIC") amended its regulations on insurance assessments to
establish a new assessment rate schedule of 4 to 31 points in
replacement of the existing schedule of 23 to 31 basis points for
institutions whose deposits are subject to assessment by the Bank
Insurance Fund ("BIF"). The FDIC has maintained the current
assessment rate schedule of 23 to 31 basis points for institutions
whose deposits are subject to assessment by the Savings Association
Insurance Fund ("SAIF"). The new BIF schedule became effective on
June 1, 1995. Assessments which had been collected at the previous
assessment schedule, in excess of the amount due under the schedule
were refunded with interest, and reduced operating expenses by
$141,000 for the year ended December 31, 1995. Various legislative
proposals regarding the future of the BIF and SAIF have been
reported recently. Several of these proposals include a one-time
special assessment for SAIF deposits and a subsequent comparable
and reduced level of annual premiums for SAIF and BIF deposits.
Based upon proposals currently being considered, the Corporation
estimates a one-time special assessment for SAIF deposits (acquired
in 1991) to be approximately $400,000 before tax benefit. The
Corporation is unable to predict whether the current proposal or
any similar proposal will be enacted or whether ongoing SAIF
premiums will be reduced to a level comparable to BIF premiums.
Note 19 -- Dividends and Other Restrictions
Subject to applicable law, the Board of Directors of the Bank
and of the Corporation may each provide for the payment of
dividends.
The Bank will not be permitted to pay dividends on its capital
stock if its retained earnings would thereby be reduced below the
amount required for the liquidation account established at the time
of its conversion to stock form (approximately $789,000 at December
31, 1995) or applicable regulatory capital requirements. New
Jersey law provides that no dividend may be paid unless, after the
payment of such dividend, the capital stock of the Bank will not be
impaired and either the Bank will have a statutory surplus of not
less than 50% of its capital stock or the payment of such dividend
will not reduce the statutory surplus of the Bank. The Bank has
designated a capital surplus of $2.0 million, which is not
available for the payment of dividends.
During the years ended December 31, 1995, 1994 and 1993, the
Board of Directors declared cash dividends totaling $790,000,
$694,000 and $573,000, respectively.
Note 20 -- Raritan Bancorp Inc. (Parent Company Only)
Raritan Bancorp Inc. operates a wholly-owned subsidiary, The
Raritan Savings Bank. The earnings of the Bank are recognized by
the Corporation using the equity method of accounting.
Accordingly, earnings of the Bank are recorded as increases in the
Corporation's investment and any dividends wouid be recorded as
dividend income from the Bank. For purposes of reporting cash
flows, cash includes cash due from the bank. Condensed financial
statements of the Parent Company only follow:
Raritan Bancorp Inc.
Parent Company Only
Condensed Balance Sheets
<TABLE>
<CAPTION>
December 31,
------------------
(In thousands) 1995 1994
- -------------- -------- --------
<S> <C> <C>
Assets:
Cash $ 44 $ 42
Investment in subsidiary Bank 26,315 23,410
Other assets 2 2
------- -------
$26,361 $23,454
------- -------
------- -------
Liabilities and shareholders' equity:
Accrued expenses $ 13 $ 14
Shareholders' equity 26,348 23,440
------- -------
$26,361 $23,454
------- -------
------- -------
</TABLE>
<PAGE>
Condensed Statements of Income
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Income:
Dividend income $1,480 $ 700 $ 600
Expenses 16 16 22
------ ------ ------
1,464 684 578
Income tax benefit (5) (5) (7)
------ ------ ------
Income before equity in
undistributed earnings of
subsidiary 1,469 689 585
Equity in undistributed
earnings of subsidiary 1,203 2,165 1,831
------ ------ ------
Net income $2,672 $2,854 $2,416
------ ------ ------
------ ------ ------
</TABLE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Dividends received from the Bank $ 1,480 $ 700 $ 600
Expenses paid by cash (15) (6) (20)
Income taxes reimbursed by Bank 4 4 10
------- ------- -------
Net cash provided by
operating activities 1,469 698 590
------- ------- -------
Cash Flows from Financing Activities:
Common stock sold under
stock option plan 150 2 --
Treasury stock acquired, at cost (827) -- --
Dividends paid (790) (694) (573)
------- ------- -------
Net cash used by financing activites (1,467) (692) (573)
Net increase in cash 2 6 17
Cash at beginning of year 42 36 19
------- ------- -------
Cash at end of year $ 44 $ 42 $ 36
------- ------- -------
------- ------- -------
</TABLE>
A reconciliation of net income to net cash provided by operating
activities follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Net income $ 2,672 $ 2,854 $ 2,416
Adjustments to reconcile net income to
net cash provided by operating activities:
Increase (decrease) in accrued expenses (1) 9 3
Decrease in income taxes receivable 1 -- 2
Equity in undistributed earnings of subsidiary (1,203) (2,165) (1,831)
------- ------- -------
Total adjustments (1,203) (2,156) (1,826)
------- ------- -------
Net cash provided by operating activities $ 1,469 $ 698 $ 590
------- ------- -------
------- ------- -------
</TABLE>
Note 21 -- Federal Deposit Insurance Corporation Improvement
Act of 1991 (FDICIA)
FDICIA was signed into law on December 19, 1991. Regulations
implementing the prompt corrective action provisions of FDICIA
became effective on December 19, 1992. In addition to the prompt
corrective action requirements, FDICIA includes significant changes
to the legal and regulatory environment for insured depository
institutions, including reductions in insurance coverage for
certain kinds of deposits, increased supervision by the federal
regulatory agencies, increased reporting requirements for insured
institutions, and new regulations concerning internal controls,
accounting and operations.
The prompt corrective action regulations define specific
capital categories based on an institution's capital ratios. The
capital categories, in declining order. are "well capitalized,"
"adequately capitalized," "undercapitalized," "significantly
undercapitalized" and "critically undercapitalized." Institutions
categorized as "undercapitalized" or worse are subject to certain
restrictions, including the requirement to file a capital plan with
its primary federal regulator, prohibitions on the payment of
dividends and management fees, restrictions on executive
compensation, and increased supervisory monitoring, among other
things. Other restrictions may be imposed on the institution
either by its primary federal regulator or by the FDIC, including
requirements to raise additional capital, sell assets or sell the
entire institution. Once an institution becomes "critically
undercapitalized" it is generally placed in receivership or
conservatorship within 90 days. The Corporation and the Bank
currently exceed all minimum capital requirements.
Note 22 -- Pending Acquisition and Merger ("Manville")
On March 23, 1994, Raritan Bancorp Inc. and Manville Savings
Bank, SLA jointly announced an agreement under which Manville will
be acquired by Raritan and merged into The Raritan Savings Bank,
the operating subsidiary of Raritan Bancorp Inc.
Under the terms of the agreement, Manville will convert from
a New Jersey charted savings association to a New Jersey chartered
savings bank with the subsequent conversion of Manville from the
mutual to the stock form of organization through the merger of
Manville with and into The Raritan Savings Bank and the issuance by
Raritan Bancorp Inc. of conversion stock in a subscription and
community offering. The transaction is expected to close during
the second quarter of 1996 and is subject to the approval of
Manville's depositors.
Manville is a New Jersey chartered savings association which
conducts business through its office in Manville New Jersey. At
December 31, 1995, Manville had total assets of $15.3 million and
total deposits of $13.9 million.
<PAGE>
SUPPLEMENTAL FINANCIAL INFORMATION
Selected quarterly financial data for 1995 and 1994 follow:
<TABLE>
<CAPTION>
(In thousands) 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
<S> <C> <C> <C> <C>
1995
Total interest income $ 5,678 $ 5,812 $ 5,928 $ 6,038
Net interest income 2,671 2,523 2,585 2,670
Provision for loan losses 75 75 75 75
Income before income tax expense 1,040 954 1,088 1,132
Net income 653 607 677 735
Net income per share (primary) .40 .37 .41 .45
Net income per share (fully diluted) .40 .37 .41 .45
1994
Total interest income $ 4,845 $ 5,133 $ 5,426 $ 5,488
Net interest income 2,647 2,694 2,783 2,776
Provision for loan losses 75 75 75 225
Income before income tax expense 1,162 1,068 1,138 1,063
Net income 727 675 733 719
Net income per share (primary) .46 .42 .45 .45
Net income per share (fully diluted) .46 .42 .45 .45
</TABLE>
Independent Auditors' Report
To the Board of Directors and Shareholders
Raritan Bancorp Inc.
We have audited the consolidated balance sheets of Raritan Bancorp
Inc. and subsidiary as of December 31, 1995 and 1994 and the
related consolidated statements of income, changes in shareholders'
equity and cash flows for each of the years in the three-year
period ended December 31, 1995. These consolidated financial
statements are the responsibility of the Corporation's management.
Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
audited standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Raritan Bancorp Inc. and subsidiary at December 31,
1995 and 1994 and the results of their operations and their cash
flows for each of the years in the three-year period ended December
31, 1995 in conformity with generally accepted accounting
principles.
As discussed in Notes 1 and 2 to the consolidated financial
statements, Raritan Bancorp Inc. and subsicliary changed its
methods of accounting for certain investments in debt and equity
securities in 1994 and income taxes and postretirement benefits
other than pensions in 1993.
(S) KPMG Peat Marwick LLP
Short Hills, New Jersey
January 18, 1996
<PAGE>
DIRECTORS AND OFFICERS
Board of Directors
William T. Anderson, M.D.
Physician
William W. Crouse
Vice Chairman and General Partner, HealthCare Investment
Corporation
Richard E. Fischer
President, Hunterdon Lumber Company
William T. Kelleher, Jr.
Sr. Partner, Kelleher and Moore, Attorneys-at-Law
Arlyn D. Rus
Chairman, President and Chief Executive Officer, Raritan Bancorp
Inc.
Thomas F. Tansey
Executive Vice President, Chief Operating Officer and Treasurer,
Raritan Bancorp Inc.
- -----------------------------------
William T. Kelleher
Director Emeritus
Anthony J. Santora
Director Emeritus
Officers of the Holding Company
Arlyn D. Rus
Chairman, President and Chief Executive Officer
Thomas F. Tansey
Executive Vice President, Chief Operating Officer and Treasurer
John J. Lukens
Senior Vice President
Lucille H. Daniel
Vice President and Secretary
Officers of the Bank
Arlyn D. Rus
President and Chief Executive Officer
Thomas F. Tansey
Executive Vice President, Chief Operating Officer and Treasurer
John J. Lukens
Senior Vice President and Senior Lending Officer
Lucille H. Daniel
Administrative Vice President, Secretary and Certifying Officer
James T. Condo
Vice President - Lending and Certifying Officer
Judith A. Flanagan
Vice President, Security Officer and Bank Secrecy Act Officer
Helen J. Frangelli
Vice President and Assistant Secretary
Duane W. Mittan
Auditor
Barbara A. Perry
Vice President - Human Resources
Bruce H. Poniatowski
Vice President, Controller and Compliance Officer
James J. Robinson
Vice President - Business Development
Jay R. Yarnell
Vice President - Business Development
Richard Leu
Assistant Vice President - Business Development
Kathleen A. Long
Assistant Vice President - Data Processing
Concetta Starapoli
Assistant Vice President and Assistant Secretary
Cathy L. Studer
Assistant Vice President and Assistant Controller
Edward J. Sweeney
Assistant Vice President
Kathleen M. Viola
Assistant Vice President - Branch Coordinator
Helen Dagiantis
Assistant Secretary - Branch Manager, Somerville
Johanna J. Grasing
Assistant Secretary - Branch Manager, Martinsville
Cynthia O'Keefe
Assistant Secretary - Branch Manager, Whitehouse Station
Robert M. Redmond
Assistant Secretary - Branch Manager, Warren
General Counsel
Kelleher and Moore
Special Counsel
Luse Lehman Gorman Pomerenk & Schick, P.C.
<PAGE>
SHAREHOLDER INFORMATION
Annual Meeting
The Annual Meeting is scheduled for 10:00 a.m. Wednesday, April 24,
1996 at the Raritan Valley Country Club, State Highway No. 28,
Somerville, New Jersey.
Stock Listing
The common stock is traded over-the-counter on the NASDAQ National
Market System under the ticker symhol RARB. Stock price quotations
can be found in The Wall Street Journal and local daily newspapers.
At March 8, 1996, the closing price of the common stock was $21.00
bid and $22.00 asked.
Inquiries
Thomas F. Tansey
Executive Vice President
Raritan Bancorp Inc.
9 West Somerset Street
P.O. Box 129
Raritan, New Jersey 08869
(908) 725-0080
The Annual Report on Form 10-K, filed with the Securities and
Exchange Commission, is available to shareholders without charge
upon written request.
Auditors
KPMG Peat Marwick LLP
150 John F. Kennedy Parkway
Short Hills, New Jersey 07078
Transfer Agent and Registrar
Midlantic Bank, N.A.
Stock Transter Department
Metro Park Plaza, P.O. Box 600
Edison, New Jersey 08818
Number of Shares Outstanding and Shareholders
At March 8, 1996, Raritan Bancorp Inc. had 1,449,689 shares of $.01
par value common stock outstanding, owned by approximately 550
shareholders of record, including brokerage firms, banks and
registered clearing agents acting as nominees for an indeterminate
number of beneficial owners.
Price Range of Common Stock
<TABLE>
<CAPTION>
Dividend
Quarter Ending High Low Paid
- ---------------- ------ ------ --------
<S> <C> <C> <C>
December 31, 1995 $22.50 $21.50 $.130
September 30, 1995 22.50 21.00 .130
June 30, 1995 22.25 20.75 .130
March 31, 1995 21.75 17.00 .130
December 31, 1994 18.50 17.00 .115
September 30, 1994 18.00 16.00 .115
June 30, 1994 16.75 14.50 .115
March 31, 1994 15.50 14.25 .115
</TABLE>
<PAGE>
Corporate Offices:
9 West Somerset Street
Raritan, New Jersey 08869
(908) 725-0080
Lending Office:
28 West Somerset Street
Raritan, New Jersey 08869
(908) 725-6677
Banking Offices:
9 West Somerset Street
Raritan, New Jersey 08869
(908) 725-0080
1921 Washington Valley Road
Martinsville, New Jersey 08836
(908) 469-5300
151 Adamsville Road
Somerville, New Jersey 08876
(908) 231-0766
51 Mountain Boulevard
Warren, New Jersey 07059
(908) 769-1880
Whitehouse Mall
Routes 22 East and 523
Whitehouse Station, New Jersey 08889
(908) 534-5664
INDEPENDENT ACCOUNTANTS' CONSENT
The Board of Directors
Raritan Bancorp Inc.
We consent to incorporation by reference in the Registration
Statement (No. 33-36441) on Form S-8, and the Registration
Statement (No. 33-36440) on Form S-8 of Raritan Bancorp Inc. of our
report dated January 18, 1996, relating to the consolidated balance
sheets of Raritan Bancorp Inc. and subsidiary as of December 31,
1995 and 1994 and the related consolidated statements of income,
changes in shareholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1995, which
report is incorporated by reference in the 1995 Annual Report on
Form 10-K of Raritan Bancorp Inc.
Our report contains an explanatory paragraph stating that Raritan
Bancorp Inc. changed its method of accounting for certain
investments in debt and equity securities in 1994 and changed its
methods of accounting for income taxes and postretirement benefits
other than pensions in 1993.
KPMG Peat Marwick LLP
Short Hills, New Jersey
March 27, 1996
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE ANNUAL REPORT ON 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31,
1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 8586
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<FED-FUNDS-SOLD> 31300
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<INVESTMENTS-MARKET> 60831
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<TOTAL-ASSETS> 354810
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<LIABILITIES-OTHER> 3218
<LONG-TERM> 155
<COMMON> 17
0
0
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<CHARGE-OFFS> 465
<RECOVERIES> 18
<ALLOWANCE-CLOSE> 2582
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</TABLE>
